United States District Court, E.D. New York
MEMORANDUM AND ORDER
ROSLYNN R. MAUSKOPF, District Judge.
On March 5, 2010, the government commenced this tax collection action against pro se defendant, Nachama Hirsch ("defendant" or "Nachama"), pursuant to 26 U.S.C. § 7401(a), seeking to collect $1, 430, 106.09, plus accruals, in unpaid taxes from tax years 1992 through 1997. ( See Compl. (Doc. No. 1); Am. Compl. (Doc. No. 3).) Currently before the Court is the government's motion for summary judgment. For the reasons set forth below, the motion is denied.
I. Tax Years 1992-1997
Defendant married Benjamin Hirsch ("Benjamin") on May 27, 1986, and filed for divorce on June 12, 1997, in New York Supreme Court, Kings County. (Def.'s 56.1 Stmt. ¶ 5 (Doc. No. 16).) It is undisputed that in February 2000, while their divorce proceeding was underway, the couple filed late, joint returns for tax years 1992 through 1997. ( See Gov't's 56.1 Stmt. ¶¶ 1-7; Aff. of Andrew Barone as to Def.'s Debt ("Barone Aff.") ¶¶ 3-8 (Doc. No. 20-4); see generally Def.'s 56.1 Stmt.) On these returns, which neither party has included in the record, defendant and Benjamin reported to the Internal Revenue Service ("IRS") the amounts they jointly owed - $69, 660 for 1992, $181, 187 for 1993, $46, 343 for 1994, $31, 695 for 1995, $14, 697 for 1996, and $25, 097 for 1997. (Barone Aff. ¶¶ 3-8.) The IRS assessed these liabilities during March and April, 2000, as follows:
( Id.; Gov't's 56.1 Stmt. ¶¶ 1-7.)
II. Divorce Proceedings, the Innocent Spouse Application, and Benjamin's Bankruptcy
On or about September 19, 2000, defendant filed IRS Form 8857, a Request for "Innocent Spouse Relief" pursuant to 26 U.S.C. § 6015 (the "Innocent Spouse Application" (Def.'s Decl. Opp'n Mot. Summ. J. at 38 (ECF pagination) (Doc. No. 16)).)
On October 30, 2000, while defendant's Innocent Spouse Application was pending before the IRS, the New York Supreme Court, Kings County, granted defendant a judgment of divorce on grounds of constructive abandonment but stayed entry of judgment to allow defendant and Benjamin time to resolve ancillary matters, including equitable distribution of the marital property. See Decision After Trial, Hirsch v. Hirsch, No. 20231/97, at 33 (N.Y. Sup.Ct., Kings Cnty. May 10, 2002) (Yancey, J.) (the "Divorce Decision After Trial") (Gov. Ex. C).
On or about December 14, 2000, defendant submitted to the IRS an Innocent Spouse Questionnaire in support of her Innocent Spouse Application (the "Questionnaire") (Def.'s Decl. at 34-39 (ECF pagination)), listing her residence as 953 East 27th Street (the "953 Address"), and asserting that (1) "During the periods in question.... I lived in an apartment at [the 953 Address]" ( id . ¶ 10); (2) "My husband has through his acts made my life very difficult. The [IRS] liability is not my fault as my husband, kept all the records, controlled all the bank accounts and managed all the property which gave rise to the liability" ( id . ¶ 19); and (3) "I, Nachama Hirsch, residing at [the 953 Address] was assured by my husband... that [the tax] would be [paid]. He also told me that if I did not sign the returns additional adverse consequences would ensue... my husband pressured me into signing these returns and made me feel as if I had no other choice" ( id .).
On May 10, 2002, New York Supreme Court, Kings County, issued the Divorce Decision After Trial. In this decision, the court reported that "Nachama testified that she tried to qualify for innocent spouse' treatment by the [IRS] but that the [IRS] rejected her application for this treatment and she has appealed this determination." Id. at 22. The court also reported that "The parties agree that [Nachama] and the children will live at 945 East 27th Street [the "945 Address"] in Brooklyn since the Husband renovated one of the units of that property for her and the children." Id. at 33. The court also (1) denied Nachama's request to impose a constructive trust; (2) found that during the divorce proceedings, Benjamin had fraudulently conveyed property of the Hirsch Family Trust, in violation of New York Debtor & Creditor Law (N.Y.D.C.L.) §§ 275 and 276; (3) held that these fraudulent transactions should be set aside pursuant to N.Y.D.C.L. § 278, such that title would revert to Benjamin, see Memorandum and Order, Musso v. Hirsch, No. 08 CV 4735 (E.D.N.Y. Sept. 29, 2011) (Doc. No. 22) (discussing ambiguity of Divorce Decision After Trial concerning which transactions the state court contemplated unwinding); (4) ordered that Nachama receive 50% of the marital property, or $2, 441, 11.80, consisting of title to certain real properties whose equity value was $333, 063.62, and fifteen annual payments of $140, 736.54; (5) directed that another property be sold to reduce the couple's debt to the IRS; and (6) directed the parties to settle judgment within sixty days. See Divorce Decision After Trial.
On June 21, 2002, however, before entry of a judgment in the divorce action, Benjamin and several entities he allegedly controlled filed separate Chapter 11 bankruptcy petitions, thereby triggering the stay provisions of 11 U.S.C. § 362. See Ch. 11 Pet., In re Benjamin Hirsch, No. 02-17966 (E.D.N.Y. Bankr. June 21, 2002) (Doc. No. 1) ("Benjamin's Ch. 11 Pet.") (Gov't Ex. D); Memorandum and Order, In re Benjamin Hirsch, Nos. 05 CV 1454, 05 CV 2266 (E.D.N.Y. Mar. 10, 2006) (recounting history). Benjamin's bankruptcy petition lists approximately forty creditors, including the IRS and Nachama, and lists Nachama's address as the 945 Address. ( See Benjamin's Ch. 11 Pet.)
On July 1, 2002, the state court entered a judgment of divorce, which the Bankruptcy Court found void in light of the bankruptcy stay. Decision and Order, In re Benjamin Hirsch, No. 02-17966 (E.D.N.Y. Bankr. Feb. 18, 2004) (Doc. No. 145 (the "Partial Stay Lift Order")). On February 18, 2004, the Bankruptcy Court issued a Decision and Order partially lifting the bankruptcy stay so that defendant and Benjamin could pursue entry of judgment in the state divorce action. ( See id .) In subsequent years, defendant proposed several divorce judgments, to which Benjamin objected on grounds ranging from the Partial Stay Lift Order's terms to issue preclusion. See Decision and Order, In re Benjamin Hirsch, No. 02-17966 (E.D.N.Y. Bankr. Sept. 16, 2008) (Doc. No. 486), modified in part, Musso v. Hirsch, No 8 CV 4735 (E.D.N.Y. Sept. 29, 2011); Musso v. Haspel, No. 09 CV 445 (E.D.N.Y. Sept. 6, 2012) (Doc. No. 20); Decision and Order, Hirsch v. Hirsch, No. 20231/97, at 1 (N.Y. Sup.Ct. Kings Cnty. Feb. 1, 2013) (Prus, J.) (the "Feb. 1, 2013 Divorce Order") (recounting history).
On July 14, 2003, the IRS issued a Notice of Determination relating to defendant's September 2000 Innocent Spouse Application, which the IRS construed as a request for relief under 26 U.S.C. § 6015(f) (the "Notice"). (Def.'s Decl. at 155-56 (ECF pagination).) The Notice was addressed to the 945 Address, and indicates that "[w]e've determined that... we cannot allow your request." The Notice also advises:
You need to file your petition for review by the Tax Court within 90 days from the date we mailed this letter. The Tax Court considers only petitions filed within this 90-day period.... PLEASE NOTE: The law sets the time you're allowed for filing your petition for review with the Tax Court. We cannot extend or suspend the time period.
( Id.) (emphasis in original).
The record is wholly unclear as to whether defendant sought review by the Tax Court of any IRS determination related to her request for innocent spouse relief. First, as recounted in Judge Yancy's Divorce Decision After Trial, issued in 2002, and on which the government relies heavily in its reply papers addressing defendant's innocent spouse claim, defendant testified that the IRS had denied her September 2000 Innocent Spouse Application, and that she was pursing an appeal. However, as discussed more fully infra, the only notice in the record concerning a denial of defendant's September 2000 Innocent Spouse Application is dated July 14, 2003, well after Judge Yancy's opinion and defendant's testimony. Second, there is no indication in the record that defendant sought Tax Court review of the July 2003 ...