United States District Court, District of Massachusetts
September 4, 2014
UNITED STATES OF AMERICA
ESTATE OF ROBERT REITANO, deceased; and MARCI McNICOL, also known as Marci A. Reitano, individually and as Executrix of the Estate of Robert Reitano, deceased
MEMORANDUM OF DECISION
DATE RYA W. ZOBEL, UNITED STATES DISTRICT JUDGE
Robert Reitano had significant federal tax liabilities when he died on July 25, 2002. Those liabilities are the subject of this case. The United States of America (“plaintiff”) filed a two-count complaint seeking to (1) reduce to judgment the tax liability against Reitano’s estate and Marci McNicol as its executrix (Count 1), and (2) hold McNicol personally liable under the “Federal Priority Statute, ” 31 U.S.C. § 3713, for distributing the estate’s assets without first paying its federal tax debts (Count 2). The parties have cross-moved for summary judgment (Docket ## 14, 17). After holding a hearing and directing the parties to engage in settlement discussions which proved unsuccessful, I ALLOW plaintiff’s cross-motion and DENY defendants’ cross-motion.
Defendants did not file a statement of the undisputed material facts along with their cross-motion for summary judgment, wherefore, plaintiff’s version of the facts is admitted. U.S. Dist. Ct. Rules D. Mass., Local Rule 56.1. Those facts are as follows.
An Internal Revenue Service (“IRS”) review performed after Reitano’s death showed an unpaid tax liability. Declaration of IRS Technical Services Advisor Mary Bishop, Docket # 15-1, at ¶¶ 2-3. The IRS notified McNicol, who had been appointed executrix of Reitano’s estate, of the liability. Id. at ¶ 4. The IRS submitted a formal probate claim on October 27, 2003. Id. at ¶ 5. For some years thereafter, the parties cooperated to try to resolve the matter, but the cooperation ended in late 2008. Id. at ¶ 8. The IRS formally notified McNicol of her potential liability under the Federal Priority Statute, in November 2008. Id. at ¶ 9. After additional efforts to resolve the matter failed, the IRS transferred the case to the Department of Justice in April 2011. Id. at ¶ 14.
Reitano’s esstate had two significant assets: fifty percent of the shares of stock in RR Fishing Corporation (McNicol owned the other fifty percent), and one hundred percent of the shares of stock in Sophia Gale, Inc. Defs.’ Ans. to Interrogs., Docket # 15-7, at Response 3. Each corporation owned a fishing boat as its sole asset. Id. RR Fishing Corporation owned the Makaira; Sophia Gale, Inc., owned the Sophia Gale. Id. The value of shares, and of the estate, was co-extensive with the value of the two boats. Id.
On July 30, 2002, McNicol, acting as executrix of the estate, transferred the Estate’s shares in Sophia Gale, Inc., to herself. Docket # 15-8. The shares were worth $80, 000 at the time of the transfer. Ans. to Interrogs. at Response 3. On April 11, 2003, McNicol transferred the estate’s shares in RR Fishing Corp.to herself. Docket # 15-9. The shares were worth $107, 500 at the time of the transfer. The parties stipulate that the Makaira was subject to liens with a value to the estate of $61, 562.37.Third Joint Statement, Docket # 23, at 2. The government agreed to reduce its claim against McNicol by the value of the liens to the estate. Id.
All told, plaintiff seeks a judgment of $342, 538.93 (as of October 31, 2013) against the estate and McNicol as executrix, and a judgment of $125, 937.63 against McNicol personally.
II. Legal Standard
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). I must view the record in the light most favorable to the nonmovant and draw all justifiable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). If the evidence presented would allow a reasonable jury to return a verdict for the nonmovant, summary judgment must be denied. Id. at 248. When the parties cross-move for summary judgment, I apply the same standard to each motion. Atl. Fish Spotters Ass’n v. Evans, 321 F.3d 220, 224 (1st Cir. 2003).
A. Count 1
In Count 1, plaintiff seeks to reduce Reitano’s outstanding liability to judgment against the estate and McNicol as executrix. The Internal Revenue Code provides,
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
26 U.S.C. § 6321. The lien generally arises at the time the assessment is made and continues until the debt is satisfied. Id. § 6322.
Plaintiff supports its claim with IRS Forms 4340, Certificates of Assessments, Payments, and Other Specified Matters. Docket ## 15-2, 15-3, 15-4. These forms show liabilities of $224, 065.39, $86, 840.76, and $31, 632.78 for tax years 2000, 2001, and 2002, respectively. Id. IRS tax assessments are presumptively correct; it is the taxpayer’s burden to rebut the presumption. Delaney v. Comm’r, 99 F.3d 20, 23 (1st Cir. 1996) (quotation and citation omitted). This includes Form 4340 assessments. Stuart v. United States, 337 F.3d 31, 35 (1st Cir. 2003), abrogated on other grounds by Jennings v. Jones, 587 F.3d 430, 438 n.10 (1st Cir. 2009). An IRS assessment is not presumptively correct only if it is “without rational foundation and excessive.” Helvering v. Taylor, 293 U.S. 507, 514 (1935).
Defendants make no effort to challenge the IRS assessments. They direct their entire memorandum to McNicol’s personal liability, the subject of Count 2. I detect nothing irrational or excessive about the IRS assessments. Plaintiff is entitled to summary judgment on Count 1.
B. Count 2
In Count 2, plaintiff contends McNicol is personally liable for the total value of the shares of stock (less the value of the stipulated lien amount) that she transferred to herself instead of paying to the government to satisfy the estate’s tax debt. See United States v. Coppolla, 85 F.3d 1015, 1020 (2d Cir. 1996). The Federal Priority Statute provides that “[a] claim of the United States Government shall be paid first when . . . the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.” 31 U.S.C. § 3713(a)(1)(B). It further provides, “[a] representative of a person or an estate . . . paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.” Id. § 3713(b).
There are three elements to a Federal Priority Statute claim:
(1) A fiduciary of the debtor or the debtor’s Estate transferred assets of the debtor or the Estate;
(2) At the time of the transfer, the debtor or the Estate was insolvent or was rendered insolvent by the transfer; and
(3) Before making the transfer, the fiduciary knew of a debt due the United States, or had notice of facts that would lead a reasonably prudent person to inquire as to the existence of such a debt.
See United States v. Renda, 709 F.3d 472, 480-81 (5th Cir. 2013); Coppola, 85 F.3d at 1020. The statute is to be liberally construed. Bramwell v. U.S. Fid. & Guar. Co., 269 U.S. 483, 487 (1926) (internal quotation and citation omitted). It is McNicol’s burden to show that these elements are not met. Id. (internal quotation and citation omitted).
There is no genuine dispute that McNicol violated the Federal Priority Statute. As established above, she effectuated the asset transfer. Docket ## 15-8, 15-9. IRS Technical Services Advisor Mary Bishop stated that the estate was insolvent at the time of the transfers or rendered insolvent by them. Id. # 15-1 at ¶ 16. And McNicol acknowledged in her deposition testimony that she knew of the outstanding debt at the time of the transfer. Id. # 15-6 at 82-84. The three elements are satisfied.
McNicol does not contest the elements, but instead argues that family allowances and funeral and administrative expenses take priority over plaintiff’s claim. The trouble with this argument, however, is that the statute penalizes the transfer of the assets. Had McNicol left the assets in the estate and paid family allowances and expenses therefrom, this might be a different case. But that did not happen. McNicol transferred the shares of stock to herself, and at that moment, she violated the statute. Summary judgment is proper on Count 2.
Plaintiff’s cross-motion for summary judgment (Docket # 14) is ALLOWED. Defendants’ cross-motion for summary judgment (Docket # 17) is DENIED. By September 25, 2014, the parties shall jointly submit a proposed judgment setting forth the total amount payable by McNicol individually on Count 2, and the total amount payable by the estate and McNicol as executrix, inclusive of interest to that date, on Count 1.