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Wednesday December 13, 2017

Bills / Cases / IRS

IRA Recipient Liable for Estate Tax

United States v. Fred K. Whisenhunt et al.; No. 3:12-cv-00614

UNITED STATES OF AMERICA, Plaintiff, v.
FRED K. WHISENHUNT ET AL., Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

Referred to U.S. Magistrate Judge.


MEMORANDUM ORDER


Before the Court are Plaintiff United States of America's Objections to Magistrate's Findings, Conclusions, and Recommendation (doc. 42) and Defendant John Fredrick Voelker's Objections to Findings, Conclusions, and Recommendations of Magistrate Judge (doc. 41). For the reasons set forth below, the Court SUSTAINS IN PART Plaintiff's objections, OVERRULES Defendant's objections, and ADOPTS IN PART the Magistrate Judge's Findings, Conclusions, and Recommendation.

I. BACKGROUND


This lawsuit concerns unpaid estate tax penalties. On August 16, 2002, Jacob Lindy Kay died testate. Compl. 2. Fred K. Whisenhunt, executor of Mr. Kay's estate (the "Estate"), distributed the Estate's assets before fully paying the Estate's federal estate tax. Id. at 3. Consequently, the IRS assessed penalties against the Estate. Id. As of February 29, 2012 -- the date on which this lawsuit was filed, the Estate's delinquent balance of federal estate tax, penalties, and interest totaled $178,406.41. Pl.'s Mot. Ex. 5.

A. The Prior (Interpleader) Action

On July 14, 2010, the law firm of Strasburger & Price LLP ("Strasburger & Price"), which had served as the executor's legal counsel, filed an interpleader action (the "Interpleader Action") in federal court to determine the proper beneficiary of $96,931.24 it held in escrow. Strasburger & Price LLP v. Lane Gorman Trubitt, PLLC, No. 3:10-CV-1373-L, 2011 WL 3647915, at *1 (N.D. Tex. Aug. 17, 2011). The money had been given to the firm by the Estate's beneficiaries for the purpose of paying income taxes due. Id. Strasburger & Price named the federal government (Plaintiff in this matter), the Estate's executor, and several beneficiaries as defendants.1 See id. In turn, the federal government filed an unopposed motion for summary judgment for the funds. Id. The Strasburger court found that the government had priority by virtue of a tax lien that attached to the Estate's assets under 26 U.S.C. § 6321. Id. at *4. Accordingly, the Court awarded the government the $96,931.42 contained in the court's registry, in addition to any accrued interest. Id.

B. The Present Action

Because the amount awarded in the Interpleader Action does not cover all of what the Estate owes the IRS, Plaintiff sued Defendants John Fredrick Voelker, Fred K. Whisenhunt, and three other beneficiaries of the Estate in the present matter.2 Plaintiff's Original Complaint seeks: (1) judgment against the Estate for delinquent estate taxes under 26 U.S.C. § 6651(a)(1); (2) judgment against Fred K. Whisenhunt, in his capacity as executor, under 26 U.S.C. § 7402; (3) foreclosure of federal tax liens under 26 U.S.C. § 6324(a)(1); (3) judgment against Fred K. Whisenhunt personally for fiduciary liability under 31 U.S.C. § 3713 and Sections 320, 322, and 322B of the Texas Probate Code; (4) judgment against the Estate's beneficiaries under 26 U.S.C. § 6324(a)(2); and (5) judgment against the Estate's beneficiaries under Section 37 of the Texas Probate Code. Compl. 4-8.

On May 6, 2013, Plaintiff moved for summary judgment against Defendant Voelker, who is the only remaining defendant.3 Mr. Voelker is the largest beneficiary of the Estate, having received a distribution in excess of $520,000 before the Estate fully paid its estate tax liabilities. Def.'s Mot. Ex. 3A-2. Pursuant to 26 U.S.C. § 6324(a)(2), Plaintiff seeks a judgment against Defendant for the full amount owed by the Estate. Pl.'s Mot. Not surprisingly, Defendant opposes Plaintiff's motion. He has filed a cross-motion for summary judgment (doc. 33), in which he requests the Court grant "a final summary judgment as to any and all liability that he may have as claimed by the United States of America" on the grounds of res judicata.

On October 9, 2013, the Court ordered the two summary judgment motions referred to the United States Magistrate Judge Irma Carrillo Ramirez for hearing, if necessary, and recommendation or determination. Doc. 39. On February 28, 2014, Judge Ramirez considered the parties' motions and filed her Findings, Conclusions, and Recommendation ("Findings and Recommendation"). Doc. 40. Judge Ramirez determined that Plaintiff had met its summary judgment burden to show that Defendant is personally liable under § 6324(a)(2) for the Estate's unpaid tax obligations up to the value of his IRA distribution at the time of decedent's death. Id. at 7. However, Judge Ramirez also concluded that res judicata barred Plaintiff's claim. Id. at 20. She therefore recommended that Plaintiff's motion be denied, Defendant's motion be granted, and the claim against Defendant be dismissed with prejudice. Id. at 20.

On March 11, 2014, Defendant filed his objections to Judge Ramirez's Findings and Recommendation. Doc. 41. Shortly thereafter, on March 14, 2014, Plaintiff filed its objections. Doc. 42. The Court addresses them below.

II. ANALYSIS


Rule 72(b) of the Federal Rules of Civil Procedure provides that within fourteen days after being served a copy of the magistrate judge's recommendation, a party may file specific written objections. Fed. R. Civ. P. 72(b)(2); 28 U.S.C. § 636(b)(1). "The district must then 'make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made' before accepting, rejecting, or modifying those findings or recommendations." Habets v. Waste Mgmt., Inc., 363 F.3d 378, 381 (5th Cir. 2004)(quoting 28 U.S.C. § 636(b)(1)).

1. Plaintiff's Objections

Plaintiff has raised two objections to Judge Ramirez's Findings and Recommendation. First, Plaintiff argues that general res judicata principles cannot override Congress's specific statutory structure for the assessment and collection of estate taxes. Pl.'s Obj. 2-7. Plaintiff claims that the "comprehensive structure for tax assessment and collection" that Congress has provided the federal government to collect estate taxes "provides a carefully timed sequence of events designed to limit court jurisdiction and empower the United States with a flexible set of collection tools." Id. What's more, courts have recognized the government's authority to control whether and when to bring claims to collect delinquent taxes and, in response, "uniformly held that res judicata principles cannot alter or limit the statutory structure for tax assessment and collection." Id. at 4-7.

Given its confident assertion that res judicata is no bar to the United States' exercise of statutory collection power, the Court is perplexed as to why Plaintiff refrained from presenting this argument in any of its other filings. Nowhere in its in its own motion (doc. 30) or in its response and reply to Defendant's motion (doc. 37) does Plaintiff raise this point. Indeed, in the foregoing filings Plaintiff argues only that res judicata is not appropriate because the interpleader action "involved a different cause of action" that "did not turn on operative facts relevant to Mr. Voelker's personal liability under 26 U.S.C. § 6324(a)(2)." Pl.'s Mot. 4; Pl.'s Resp. & Reply 5.

Arguments which could have been raised before the magistrate judge but are raised for the first time in objections before the district court are waived. See Cupit v. Whitley, 28 F.3d 532, 535 (5th Cir. 1994). "A party has a duty to put its best foot forward before the magistrate: to spell out its arguments squarely and distinctly." Paterson-Leitch Co., Inc. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990 (1st Cir. 1988). Indeed, "it would be fundamentally unfair to permit a litigant to set its case in motion before the magistrate, wait to see which way the wind was blowing and -- having received an unfavorable recommendation -- shift gears before the district judge." Id. at 991. Though Plaintiff advances the same policy concerns in its pleadings and objections as to why the Court should deny Defendant's motion,4 its argument regarding the impropriety of res judicata in tax matters is ultimately unique. Indeed, challenging the existence of the "same nucleus of operative facts" -- that is, disputing one of the requirements of res judicata -- is completely different than challenging the applicability of the doctrine as a whole. The Court therefore declines to consider Plaintiff's new argument raised in its objections to Judge Ramirez's Finding and Conclusion. See Hull v. Ocwen Loan Servicing, LLC, No. 3:12-CV-1098-M, 2013 WL 3089050, at *1 (N.D. Tex. June 19, 2013).

Having rejected Plaintiff's newly-asserted argument, the Court turns to Plaintiff's second objection -- that its present claim against Defendant does not meet the Fifth Circuit's standard for res judicata and thus is not barred from consideration. Pl.'s Obj. 7. In particular, Plaintiff argues that the operative facts upon which its claim against Defendant turns are different than those upon which the Interpleader Action turned. Id. at 8. According to Plaintiff, the interpleader court considered penalties only. Id. Consequently, Plaintiff maintains, the case hinged on the date the decedent died, the date the Estate filed its estate tax return, and the date the Estate paid its estate tax. Id. Judge Ramirez's Findings and Recommendation focuses instead on the value of Defendant's IRA distribution, a "fact [that] did not relate to any claim in the interpleader case." Id. at 10. As these facts are not the same, Plaintiff argues, res judicata does not apply.

Res judicata prevents parties or their privies from relitigating issues that were or could have been raised in a previous action. Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981). For the doctrine to apply, the Fifth Circuit requires the following four-part test be satisfied: (1) the parties must be either identical or in privity; (2) the judgment in the prior action must have been rendered by a court of competent jurisdiction; (3) the prior action must have been concluded to a final judgment on the merits; and (4) the same claim or cause of action must have been involved in both cases. U.S. v. Davenport, 484 F.3d 321, 326 (5th Cir. 2007)(citing In re Southmark Corp., 163 F.3d 925, 934 (5th Cir. 1999)). Regarding the final element, a court must determine whether "the two cases under consideration are based on the 'the same nucleus of operative facts.'" Davenport, 484 F.3d at 326 (quoting In re Southmark Corp., 163 F.3d at 934). This means the court must look beyond claims that were actually litigated and focus instead on all issues that could have been raised in the previous proceeding given the same nucleus of operative facts. See Davenport, 484 F.3d at 326, 329.

After reviewing the filings and the relevant law, the Court concludes that the two cases do not involve the same nucleus of operative facts. The Interpleader Action required the Strasburger court to determine who was the lawful beneficiary to the money tendered into the court's registry. Strasburger, 2011 WL 3647915, at *1. In awarding the sum to the government, the court highlighted the critical and undisputed facts: (1) the Estate owed money in federal estate tax penalties; (2) the Estate did not contest its tax liabilities in the proceeding; (3) a lien in favor of the United States arose after the nonpayment of taxes pursuant to 26 U.S.C. § 6321;(4) the lien attached to "all property and rights to property"; and (5) the interpleaded funds were property of the Estate. Id. at 3; 26 U.S.C. § 6321. Accordingly, the Court granted the government's motion for summary judgment. StrasburgerGR, 2011 WL 3647915, at *4. The present case, however, involves a different inquiry, to wit, whether Defendant is personally liable for the Estate's tax liabilities. The matter thus hinges on separate key and undisputed facts, namely: (1) Defendant received a distribution from the Estate valued at $526,506.50 at the time of inheritance; (2) Defendant received the property in the decedent's gross estate before the federal estate tax was paid; and (3) at the time the suit was filed, the Estate still had outstanding tax obligations in the amount of $178,406.41. Def.'s Mot. Ex. 3A-2; Pl.'s Mot. Ex. 1; Pl.'s Mot. Ex. 5. Though the Estate's liability for its unpaid tax obligations no doubt supports Plaintiff's positions in both actions -- giving rise to the lien that creates Plaintiff's priority in the first matter and giving rise to Defendant's transferee liability at issue in the present case, the scenarios of the two actions ultimately do not parallel. Cf. Agrilectric Power Partners, Ltd. v. Gen. Elec. Co., 20 F.3d 663, 665 (5th Cir. 1994)("If the factual scenario of the two actions parallel, the same cause of action is involved in both.").

To be sure, the Court recognizes that a "claim" for purposes of res judicata is not defined simply by what was actually litigated in a dispute. Davenport, 484 F.3d at 327. Indeed, res judicata "bars the litigation of claims that either have been litigated or should have been raised in an earlier suit." Petro-Hunt, L.L.C. v. U.S., 365 F.3d 385, 395 (5th Cir. 2004)(emphasis added)(internal quotation marks omitted). Still, the Court finds that res judicata is not applicable in the present matter. The Interpleader Action involved only the disposition of the money collected by Strasburger & Price LLP, and neither the government nor the court had to address Defendant's transferee liability for the Estate's tax obligations. See Strasburger, 2011 WL 3647915. Accordingly, the Court here does not have to re-hash any of the matters settled by the Interpleader Action in order to decide the present dispute.

This distinguishes the present case from other cases involving res judicata and transferee liability. For example, in Davenport, a donee attempted to litigate the extent of his own liability for a gift tax after a tax court had already determined the amount of tax for which the estate was liable. 484 F.3d at 328. However, the Fifth Circuit concluded that "the tax court's determinations of the value of the stock and the tax due are not separable." Id. In other words, "[o]nce a court determines the tax liability of the transferor, 'the decision is res judicata of the liability with regard to the transferee for the same tax if the transferee status can be established.'" Id. (quoting 14 Edwards J. Smith, Mertens Law of Federal Income Taxation § 53:31 (2004)). Thus, the donee was bound to the value of the stock established in the tax court proceeding. Davenport, 484 F.3d at 329.5

Here, Plaintiff is not attempting to relitigate the tax due or otherwise contest what was settled in the prior proceeding. Instead, Plaintiff is moving against Defendant Voelker to satisfy the Estate's penalties that remain outstanding. Though connected to the Interpleader Action by the Estate's underlying liability, this motion is not so tethered to the former case that anything which was settled therein must be here accepted or otherwise re-decided by this Court. In this motion, the Estate's liability is not in dispute. Similarly, Defendant Voelker's transferee liability was not an issue that was (or could have been) raised in the Interpleader Action. See U.S. v. Evans, No. SA-05-CV-099-XR, 2007 WL 4206205, at *2 (W.D. Tex. Nov. 27, 2007)(finding that res judicata does not apply where first lawsuit focused on estate's tax liability and second suit concerned beneficiary's fiduciary liability for estate's unpaid taxes); Federated, 452 U.S. at 399. As Defendant has failed to provide authority showing that the government, once interpleaded, is required to litigate all its claims for delinquent taxes at once, the Court finds that he has failed to demonstrate that res judicata is an appropriate defense. The Court therefore SUSTAINS Plaintiff's objection.

2. Defendant's Objections

Because the Court finds that the fourth element of res judicata has not been established, Defendant's objection that Judge Ramirez should have concluded that the doctrine bars all claims against him are OVERRULED.

3. Plaintiff's Summary Judgment Motion

After reviewing the pleadings and records in this case, as well as the Findings and Recommendation of the Magistrate Judge, the Court ADOPTS the Magistrate Judge's conclusion that Plaintiff has met its burden to show that Defendant is personally liable for the Estate's delinquent federal estate tax penalties up to $526,506.50, the value of his distribution at the time of decedent's death. Find. & Rec. 7.

III. CONCLUSION


In sum, after a review of the Magistrate Judge's findings and recommendation on the parties' cross motions for summary judgment and a de novo review of those portions to which the parties properly filed objections, the Court rules as follows:

The Court SUSTAINS Plaintiff's objections IN PART and concludes that res judicata does not bar its claim against Defendant under 26 U.S.C. § 6324(a)(2);

The Court OVERRULES Defendant's objections that res judicata bars any and all liability that he may have as claimed by the United States of America;

The Court ADOPTS the Magistrate Judge's conclusion that Plaintiff has met its burden to show that Defendant is personally liable under 26 U.S.C. § 6324(a)(2) for delinquent federal estate tax penalties owed by the Estate of Jacob Lindy Kay up to $526,506.50;

The Court DECLINES TO ADOPT the Magistrate Judge's recommendation that Plaintiff's motion be dismissed with prejudice; and

The Court ORDERS Plaintiff's Motion for Summary Judgment is hereby GRANTED.

SO ORDERED.

SIGNED: March 25, 2014.

Jane J. Boyle
United States District Judge

FOOTNOTES


1 John Fredrick Voelker was not one of the beneficiaries that was listed or served as a named defendant in the Interpleader Action. See Compl. at 2-3, Strasburger, No. 3:10-CV-1373-L.

2 The three other beneficiaries are Elizabeth K. Spain, Joyce K. Whisenhunt, and Blake Clifton. Compl.

3 Defendants Elizabeth K. Spain, Joyce K. Whisenhunt, and Blake Clifton were dismissed from the action pursuant to voluntary and stipulated dismissals. See docs. 21-23. Defendant Fred K. Whisenhunt did not answer or otherwise defend in the action. Doc. 10. Consequently, the United States obtained a default judgment against him and the Estate. Docs. 10; 12; 18.

4 See, e.g., Pls.' Resp. & Reply 6 ("In all estate tax suits, the United States would be forced to bring fiduciary suits against all executors and transferee suits against all beneficiaries -- regardless of whether the IRS knows whether the estate will be able to pay its liability."); Pl.'s Obj. 7 ("If, as in this case, the estate causes an interpleader suit to be filed, the Magistrate's opinion requires the United States to immediately bring all of its potential counterclaims, cross claims, and third party claims. The United States will not have the statutorily allotted time it needs to investigate and decide between various collection alternatives.").

5 In so ruling, the Davenport court noted that its view was "consistent with the decisions of the Eighth and Eleventh Circuits that a transferee cannot relitigate the tax due after a prior court had already determined the estate's tax liability." Davenport, 484 F.3d at 327(citing Baptiste v. Comm'r., 29 F.3d 1533, 1539 (11th Cir. 1994); Baptiste v. Comm'r., 29 F.3d 433, 436 (8th Cir. 1994)).

END OF FOOTNOTES

United States v. Fred K. Whisenhunt et al.; No. 3:12-cv-00614

UNITED STATES OF AMERICA, Plaintiff, v.
FRED K. WHISENHUNT ET AL., Defendants.

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

Referred to U.S. Magistrate Judge.


FINDINGS, CONCLUSIONS, AND RECOMMENDATION


Pursuant to the order of reference dated October 9, 2013, before the Court for recommendation are the plaintiff's Motion for Summary Judgment Against John Frederick Voelker, filed May 6, 2013 (doc. 30), and Defendant John Frederick Volker's Motion for Summary Judgment, filed June 4, 2013 (doc. 33). Based on the relevant filings, evidence, and applicable law, the plaintiff's motion for partial summary judgment should be DENIED, the defendant's cross-motion for partial summary judgment should be GRANTED, and the plaintiff's claim under 26 U.S.C. § 6324(a)(2) should be DISMISSED with prejudice.

I. BACKGROUND


The United States of America (Plaintiff) sues John Frederick Voelker (Defendant), a beneficiary of an estate, for unpaid estate tax penalties against the estate. (Compl. (doc. 1).)1 Dr. Jacob Lindy Kay (Decedent) died testate on August 16, 2002. ((P. App. Mot. Sum. Ju. (doc. 30-3) at 9.) Pursuant to Decedent's will, Defendant received $596,506.50 from his estate, including $70,000.00 in cash and $526,506.50 in the form of a distribution from an Individual Retirement Account (IRA). (docs. 30-3 at 3; 36-1 at 52.) On May 27, 2003, the Internal Revenue Service (IRS) extended the estate's tax return filing deadline from May 27, 2003 to November 16, 2003. (doc. 30-4 at 2.) The estate filed the required Form 706 estate tax return and paid $380,516.68 in estate taxes and accrued interest on July 17, 2007. (Id.) On September 10, 2007, the IRS assessed two penalties against the estate's tax return: (1) a "late filing" penalty of $85,616.25 and (2) a "failure to pay tax" penalty of $95,129.17. (Id.) The IRS issued a statutory notice of balance due to the estate's executor on the same day. (Id. at 4.) The following month, the IRS issued a notice of intent to levy. (Id.)

On April 4, 2008, the estate's beneficiaries executed a "family settlement and distribution agreement." (D. App. Mot. Sum. Ju. (doc. 36-1) at 39-50.) Pursuant to the family agreement, assets totaling $190,000.00 were to be distributed among the beneficiaries on or before April 11, 2008. (Id. at 40-41.) In addition, $101,379.00 were paid to Strasburger and Price, LLP, the executor's legal counsel (the law firm), to be held in escrow for the purpose of covering any additional tax liabilities. (Id. at 41.) In October 2008 and October 2009, the IRS notified the executor that $241,883.20 in tax penalties and interest were past due. (doc. 30-4 at 4.) When the family agreement terminated on July 1, 2010, the outstanding penalties remained unpaid, and interest continued to accrue. (docs. 30-4 at 3; 36-1 at 41.)

A. The Interpleader (First) Action

On July 14, 2010, the law firm filed an interpleader action in federal court to determine "the proper beneficiary" of the funds held in escrow and tendered a total of $96,931.24 to the court's registry. Strasburger & Price LLP v. Lane Gorman Trubitt, PLLC, No. 3:10-CV-1373-L, 2011 WL 3647915, at *1 (N.D. Tex. Aug. 17, 2011). The law firm named the federal government (i.e., Plaintiff), the estate, and several beneficiaries as defendants. See id. Defendant was not one of the beneficiaries that was listed or served as a named defendant in that suit, however. See id. at *1-4. Plaintiff later filed an unopposed motion for summary judgment against the estate, claiming to have "priority" to the interpleaded funds by virtue of a tax lien that attached to the estate's assets under 26 U.S.C. § 6321 after it failed to pay the past due tax penalties despite having received notice from the IRS. (doc. 36 at 30-31.)

Before ruling on Plaintiff's motion, the court issued an order stating that the record did "not reflect that any defendant, other than the government [i.e., Plaintiff], ha[d] actually been served." See Strasburger, No. 3:10-CV-1373-L, Order (doc. 14) at 1 (N.D. Tex. July 29, 2011). In the order, the court directed the law firm to "explain why no service ha[d] been effected on all defendants" and asked Plaintiff "to provide authority that allow[ed] summary judgment to be issued against defendants who ha[d] not been served." Id. at 1-2. In its response to the order, Plaintiff clarified that "the only other defendant with a potential claim to the interpleaded funds" was the decedent's estate. (doc. 36-1 at 30.) It pointed to the law firm's evidence showing that the estate had been "properly served" because the executor -- its legal representative under Texas law -- had been served, and that only two estate beneficiaries remained unserved (including Defendant). (Id.) The court accepted Plaintiff's argument that it did "not seek judgment against any unserved party," and held that "summary judgment in [its] favor against the decedent's estate [was] appropriate." Strasburger, 2011 WL 3647915, at *3-4. Plaintiff was awarded "the $96,931.42 contained in the court's registry, in addition to any accrued interest." Id. at *4.

B. Second Action

Between September 2007 and October 2011, the IRS issued several notices of balance due and intent to levy. (doc. 30-4 at 3-4.) As of February 29, 2012, $178,406.41 in tax penalties and interest remained unpaid. (doc. 30-7) at 1.) On that date, Plaintiff filed this action against Defendant, the estate executor, and three other estate beneficiaries.2 (doc. 1.) It sought (1) judgment against the estate for delinquent estate taxes; (2) foreclosure of a federal tax lien under 26 U.S.C. § 6324(a)(1); (3) judgment against the estate executor "personally for fiduciary liability" under 31 U.S.C. § 3713 and the Texas Probate Code §§ 320, 322, and 322B; (4) judgment under 26 U.S.C. § 6324(a)(2) against the beneficiaries that received distributions of a certain IRA; and (5) judgment against all of the beneficiaries under § 37 of the Texas Probate Code for a lien placed on all transferred property from the "gross estate." (doc. 1 at 4-8.)

Defendant filed an answer to the complaint on April 27, 2012, asserting four affirmative defenses: (1) limitations; (2) laches; (3) res judicata; and (4) waiver. (Id. at 5.) He also disputed his liability for the estate's tax obligations pursuant to a "covenant" in the family agreement that purportedly imposed all such liabilities on the estate's executor. (D. Ans. (doc. 5).)

On May 6, 2013, Plaintiff moved for summary judgment against Defendant on the liability claim under 26 U.S.C. § 6324(a)(2).3 (docs. 30 at 1; 30-1 at 3-4.) Defendant filed a cross-motion for summary judgment a month later, asserting his affirmative defense of res judicata. (doc. 33.) With timely-filed responses and replies (docs. 35; 37-38), the motions are now ripe for recommendation.

II. SUMMARY JUDGMENT STANDARD


Summary judgment is appropriate when the pleadings and evidence on file show that no genuine issue exists as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). "[T]he substantive law [determines] which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. The movant must inform the court of the basis of its motion and identify the evidence that shows there are no genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Once the movant makes this showing, the non-movant must then direct the court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 324. To carry this burden, the non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-movant must show that the evidence is sufficient to support a resolution of the factual issue in her favor. Anderson, 477 U.S. at 249.4

All of the evidence must be viewed in a light most favorable to the motion's opponent. Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970)). Nevertheless, neither conclusory allegations nor unsubstantiated assertions satisfy the non-movant's summary judgment burden. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992). The party opposing summary judgment must "identify specific evidence in the record" that supports the challenged claims and must "articulate the precise manner in which that evidence supports [the] claim[s]." Ragas v. Tenn. Gas Pipeline, Co., 136 F.3d 455, 458 (5th Cir. 1998) (citing Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994)). Summary judgment in favor of the movant is proper if, after adequate time for discovery, the motion's opponent fails to establish the existence of an element essential to her case and as to which she will bear the burden of proof at trial. Celotex, 477 U.S. at 322-23.

III. PLAINTIFF'S MOTION


Plaintiff moves for summary judgment on its claim under 26 U.S.C. § 6324(a)(2) and on Defendant's affirmative defense of limitations. (docs. 30 at 1; 30-1 at 3-5.)5

A. Defendant's Personal Liability under 26 U.S.C. § 6324(a)(2)

When an estate fails to timely pay its tax obligations,6 § 6324(a) provides the Federal government with two statutory remedies for collecting the unpaid tax. The first is a "special estate tax lien [that] automatically attaches to all property in the decedent's estate upon the decedent's death." United States v. Blakeman, 997 F.2d 1084, 1088 (5th Cir. 1992). This special tax lien lasts ten years. 26 U.S.C.A. § 6324(a)(1) (West 2010). In addition, § 6324(a)(2) imposes personal liability on any beneficiary or transferee of property included in the decedent's "gross estate under sections 2034 to 2042" to the extent of the value, at the time of decedent's death, of the property received. Id. § 6324(a)(2). An IRA, which is an "annuity," is among the types of assets that are included in the decedent's "gross estate." See id. § 2039(a); Smith ex rel. Estate of Smith v. United States, 391 F.3d 621, 626 (5th Cir. 2004). Consequently, a beneficiary or transferee who receives a distribution from an IRA is personally liable under § 6324(a)(2) for the estate's unpaid tax obligations up to the value of his interest in the IRA. United States v. Mangiardi, No. 13-80256-CIV, 2013 WL 3810658, at *1-2 (S.D. Fla. July 22, 2013); Kulhanek, 755 F. Supp. 2d at 660-62; see also 26 U.S.C.A. §§ 2039, 6324(a)(2).

To meet its initial summary judgment burden on its claim against Defendant under § 6324(a)(2), Plaintiff proffers a transaction statement prepared by the IRS showing that as of the date this action was filed, the estate's outstanding tax obligations totaled $178,406.41.7 (doc. 30-7 at 1.) It also proffers copies of the estate's Form 706 tax return, showing that Defendant received a distribution of $596,506.50 from the estate. (doc. 30-3 at 3.) Plaintiff points to Defendant's answer acknowledging that he received such distribution. (doc. 5 at 2, 14.) Lastly, Plaintiff asserts that it is "undisputed that [Defendant] received an IRA interest worth $520,000" and points to Defendant's sworn affidavit, filed as an appendix to his summary judgment motion, where he states that he received an IRA distribution from the decedent's estate, and that its value was $526,506.50 on the date he received it. (docs. 30-1 at 3; 36-1 at 51-52.) Based on all of this evidence, Plaintiff has met its summary judgment burden to show that Defendant is personally liable under § 6324(a)(2) for the estate's unpaid tax obligations up to $526,506.50, the value of his IRA distribution at the time of decedent's death. The burden now shifts to Defendant to direct the Court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. See Celotex, 477 U.S. at 324.

In response, Defendant argues that the IRA's value is not $520,000.00 "because he is required to pay income taxes on all sums withdrawn from that fund for his benefit." (D. Resp. (doc. 35) at 5.) He essentially argues that the IRA's value at the time of the decedent's death should be discounted to account for the income tax he will pay on it, and that "[t]here is no summary judgment evidence" showing what the resulting value will be. (Id.)8

Pursuant to Treasury regulations, "the value of every item of property includible in a decedent's gross estate . . . is its fair market value at the time of the decedent's death." 26 C.F.R. § 20.2031-1(b). Fair market value is defined as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." Id. Notably, "[t]he willing buyer and the willing seller are hypothetical persons, rather than specific individuals or entities, and the individual characteristics of these hypothetical persons are not necessarily the same as the individual characteristics of the actual seller or the actual buyer." Estate of Kahn v. C.I.R., 125 T.C. 227, 231 (2005) (citations omitted). "Correctly applying the willing buyer-willing seller test demonstrates that a hypothetical buyer would not consider the income tax liability to a beneficiary on the income in respect of a decedent since he is not the beneficiary and thus would not be paying the income tax." Smith, 391 F.3d at 628. The Fifth Circuit has therefore held that "the potential federal income tax liability to the beneficiaries" is not considered "when valuing [ ] Retirement Accounts." Id. at 629.

Based on Fifth Circuit precedent and the relevant regulations, Defendant cannot defeat Plaintiff's motion with his argument regarding the method for determining the IRA's value as a matter of law. See id. Accordingly, Defendant has failed to meet his summary judgment burden of creating a triable fact issue regarding the value of his IRA interest, and the extent of his personal liability under § 6324(a)(2).

B. Statute of Limitations

Plaintiff also moves for summary judgment on Defendant's affirmative defense of limitations, arguing that the limitations period for collecting the estate's unpaid tax penalties is open. (doc. 30-1 at 4.)

All taxes imposed by Title 26 of the Internal Revenue Code are subject to the general limitations provisions found in §§ 6501 and 6502. Pursuant to § 6501(a), the IRS "must assess a deficiency against a taxpayer within '3 years after the return was filed.'"9 United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1839 (2012) (citing 26 U.S.C. § 6501(a) (2000 ed.)). Within 60 days after making the assessment, the IRS must "give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof." Id. § 6303(1). If the tax obligation remains unpaid after notice and demand, "such tax may be collected by levy or by a proceeding in court, . . . within 10 years after the assessment of the tax. . . ." Id. § 6502(a)(1).10

To determine the limitations period applicable to § 6324(a)(2), courts have looked to "the generally applicable statutes of limitations created under § 6501 and § 6502," rather than the ten-year special tax lien provision of § 6324(a)(1). See, e.g., Mangiardi, 2013 WL 3810658, at *5; Kulhanek, 755 F. Supp. 2d at 660 (listing cases). First, courts have found that there is a "clear distinction" between the special tax lien created by § 6324(a)(1) and a transferee's personal liability imposed by § 6324(a)(2). Kulbanek, 755 F. Supp. 2d at 662-63; see also United States v. Botefuhr, 309 F.3d 1263, 1277 (10th Cir. 2002) ("[C]ourts . . . have routinely analyzed the personal liability prong of § 6324 independent from and without reference to the lien provision."). Ultimately, they have concluded that since a transferee's liability under § 6324 is derivative from or dependent on the estate's liability, if an action against the estate is timely pursuant to §§ 6501 and 6502, then the action is also timely against the transferee. Botefuhr, 309 F.3d at 1277 (listing cases).

To refute Defendant's limitations defense, Plaintiff presents evidence that the estate filed its Form 706 tax return on July 17, 2007, over four years after the extended filing deadline expired. (doc. 30-4 at 2.) Plaintiff's evidence also shows that the IRS timely assessed $180,745.72 in late filing and late payment penalties against the estate's tax return on September 10, 2007. (Id.); see also 26 U.S.C. § 6501(a). The ten-year statute of limitations for collecting those tax penalties began to run on September 10, 2007. See 26 U.S.C. § 6502(a). Plaintiff filed suit on February 29, 2012, well before the limitations expired. (See doc. 1.) With this evidence, Plaintiff has shown that its complaint was timely.

The burden now shifts to Defendant to create a genuine material fact issue for trial as to the timeliness of Plaintiff's action under § 6324(a)(2). Defendant does not dispute the sequence of events presented by Plaintiff with his own evidence. He does not address this affirmative defense in his summary judgment motion or supporting brief. (See docs. 5, 33-34.) Because Defendant has failed to dispute Plaintiff's properly supported sequence of events with his own evidence, he has failed to create a genuine issue of material fact as to the timeliness of Plaintiff's action, and the Court should find the action to be timely.11

IV. DEFENDANT'S CROSS-MOTION


Defendant moves for summary judgment on Plaintiff's claim under 26 U.S.C. § 6324(a)(2), asserting that the claim is barred by res judicata.12 (docs. 33 and 34 at 3-6.)

"The term 'res judicata' is often used to describe two discrete preclusive doctrines: res judicata and collateral estoppel." United States v. Davenport, 484 F.3d 321, 325 (5th Cir. 2007) (citation omitted); see also Taylor v. Sturgell, 553 U.S. 880, 892 (2008) ("The preclusive effect of a judgment is defined by claim preclusion and issue preclusion, which are collectively referred to as 'res judicata.'"). "True res judicata" or "claim preclusion . . . bars the litigation of claims that either have been litigated or should have been raised in an earlier suit." Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005) (citation omitted). This doctrine has four elements: "(1) the parties are identical or in privity; (2) the judgment in the prior action was rendered by a court of competent jurisdiction; (3) the prior action was concluded by a final judgment on the merits; and (4) the same claim or cause of action was involved in both actions." Davenport, 484 F.3d at 326. As with all affirmative defenses, the burden of proving claim preclusion "rests on the party claiming the benefit of the doctrine." Patterson v. Dean Morris, L.L.P., No. CIV.A. 08-5014, 2011 WL 1791235, at *6 (E.D. La. May 6, 2011) (citation omitted); accord Taylor, 553 U.S. at 907.

A. Identical Parties or Privity with Identical Parties

Here, Defendant was not listed or served as a party in the law firm's interpleader action. See Strasburger, 2011 WL 3647915, at *1-4. He claims, however, that this element is met because he "was clearly in privity with the parties" to that proceeding. (doc. 34 at 4 n. 1.)

Privity is in essence a "legal conclusion that the relationship between the one who is a party on the record and the non-party is sufficiently close to afford application of the principle of preclusion." Meza v. Gen. Battery Corp., 908 F.2d 1262, 1266-67 (5th Cir. 1990). The Fifth Circuit "has held that privity exists in just three, narrowly-defined circumstances: (1) where the non-party is the successor in interest to a party's interest in property; (2) where the non-party controlled the prior litigation; and (3) where the non-party's interests were adequately represented by a party to the original suit." Id.

The Fifth Circuit has addressed the issue of privity in the estate tax context. In Davenport, the decedent's estate contested the government's assessment of a gift tax deficiency in tax court, and the tax court held in the government's favor. Davenport, 484 F.3d at 324. After the estate failed to pay the taxes owed, the government brought an action in district court "to reduce to judgment the estate's liability and the donees' [personal] liability as transferees pursuant to [ ] § 6324(b)."13 Id. Although the donees were not parties to the tax court proceeding, the Fifth Circuit held that they were in privity with the donor estate for res judicata purposes, emphasizing that "the tax liability of the donor and donee are inseparable." Id. at 326-27 (citing Baptiste v. Comm'r, 29 F.3d 1533, 1539 (11th Cir. 1994) (holding that for purposes of res judicata and § 6324(a)(2) liability, "a transferee is in privity with his transferor"); First Nat'l Bank of Chicago v. Comm'r, 112 F.2d 260, 262 (7th Cir. 1940) (same with respect to a different section of the Internal Revenue Code)). Davenport involved subsection (b) of § 6324. Given the similar language and purpose of the two subsections, however, its holding is instructive in actions brought under subsection (a). See id.; see also Baptiste, 29 F.3d at 1539.

To meet his initial summary judgment burden, Defendant proffers copies of the parties' pleadings, the court's orders, and other relevant filings in the law firm's interpleader action. (docs. 36 and 36-1.) This evidence shows that the estate was one of the named and properly served defendants in that suit. See, e.g., Strasburger, 2011 WL 3647915, at *3; (Mem. Op. and Order (doc. 36-1) at 32-37). Because Defendant (the transferee) is in privity with the estate (the transferor) for purposes of res judicata (see Davenport, 484 F.3d at 327), he has met his initial summary judgment burden to show that this element is satisfied. Plaintiff does not dispute Defendant's evidence or position regarding this element.

B. Court with Competent Jurisdiction

With respect to the second element, the evidence proffered by Defendant shows that the law firm filed suit in federal court based on diversity jurisdiction under 28 U.S.C. § 1335.14 (Compl. in Interpleader (doc. 36-1) at 3-9.) Because the parties in this case do not dispute that the court had jurisdiction over that interpleader action, Defendant has discharged his summary judgment burden of showing that the second element is satisfied. See Wang v. Prudential Fin. Corp., No. 3:07-CV-1574-P, 2008 WL 8922646, at *2 (N.D. Tex. Jan. 9, 2008) ("Plaintiff does not dispute that the judgment in the First Suit was rendered by a court of competent jurisdiction. Therefore, the Court has no problem concluding that the . . . second element[ ] of the res judicata test [is] satisfied."); see also Brupbacher v. Raneri, No. CIV.A.3:00-CV-1292-D, 2001 WL 36181492, at *4 n. 6 (N.D. Tex. June 28, 2001) (Fitzwater, C.J.) (to same effect).

C. Final Judgment on the Merits

As to the third element, the court in the interpleader suit granted Plaintiff' motion for summary judgment, holding that Plaintiff had priority to the funds held in escrow by virtue of the statutory lien that automatically attached to the estate's assets under § 6321 after it failed to pay its tax liabilities. Id. at *3-4. Summary judgment is a final judgment on the merits. See Vines v. Univ. of Louisiana at Monroe, 398 F.3d 700, 705 (5th Cir. 2005) ("A judgment that determines the merits in whole or in part is a final judgment.") (citation omitted); Davis v. Gusman, No. CIVA 09-7195, 2010 WL 1727825, at *13 (E.D. La. Apr. 13, 2010), rec. adopted, 2010 WL 1727821 (E.D. La. Apr. 28, 2010) (listing "cases in which claim preclusion has been upheld by the Fifth Circuit involv[ing] summary judgment"). Accordingly, Defendant has satisfied his burden of bringing forth evidence sufficient to show that the third element of res judicata is met. As with the first two elements, Plaintiff does not contest Defendant's evidence or position on this basis.

D. Same Claims

"To determine whether two suits involve the same claim or cause of action," the Fifth Circuit "has adopted the transactional test of the Restatement (Second) of Judgments, § 24." Petro-Hunt, L.L.C. v. United States, 365 F.3d 385, 395-96 (5th Cir. 2004). Under this test, the "inquiry focuses on whether the two cases under consideration are based on 'the same nucleus of operative facts.'" Davenport, 484 F.3d at 326 (citations omitted). "[I]t is the nucleus of operative facts, rather than the type of relief requested, substantive theories advanced, or types of rights asserted, that defines the claim." Id. In applying this test, the court must determine not the facts that were actually litigated, "as would be proper under the doctrine of collateral estoppel," but rather the "nucleus of operative facts that were or could have been raised in the previous proceeding." Id. at 327, 329 (emphasis added). Identifying the nucleus of operative facts involves a "pragmatic" approach, "giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations." Test Masters, 428 F.3d at 571 (citing Restatement (Second) of Judgments, § 24). The "preclusive effect of [the] prior judgment extends to all rights the original plaintiff had 'with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.'" Petro-Hunt, 365 F.3d at 395-96 (citation omitted).

In the interpleader action, Plaintiff argued that it had priority to the funds held in escrow by virtue of the lien that attached to the estate's assets under § 6321 after it failed to pay the tax penalties despite having received notice of those penalties. (doc. 36 at 29-32.) The "nucleus of operative facts" was the sequence of events that resulted in the estate's liability for the penalties: (1) Decedent died on August 16, 2002, so the deadline for filing his estate's tax return under § 2001 of Chapter 11 was May 16, 2003, nine months after his death; (2) the IRS extended the estate's filing deadline to November 16, 2003; (3) the estate filed its Form 706 tax return on July 17, 2007, nearly four years after the filing deadline expired; (4) the IRS timely assessed late filing and late payment penalties totaling $180,745.42 on September 10, 2007; (5) between September 2007 and October 2011, the IRS issued various notices of balance due and intent to levy to the estate's executor; and (6) as of the date the law firm filed the interpleader action, the estate had not paid the assessed penalties. (docs. 30-3 at 9; 30-4 at 2; 36 at 27-28.)

In this action, Plaintiff asserted five claims and moved for summary judgment on its claim against Defendant for personal liability under § 6324(a)(2). (docs. 1 at 4-8; 30 at 1; 30-1 at 1-4.) The "nucleus of operative facts" establishing Defendant's personal liability under § 6324(a)(2) for the estate's unpaid tax obligations are: (1) Decedent died on August 16, 2002, and the IRS extended the estate's deadline for filing its tax return to November 16, 2003; (2) the estate untimely filed its Form 706 tax return on July 17, 2007; (3) the IRS properly assessed late filing and late payment penalties totaling $180,745.42 on September 10, 2007; (4) as of the date Plaintiff filed this action, accounting for the $96,931.42 judgment Plaintiff obtained in the interpleader suit and the interest accruing on the outstanding balance, $178,406.41 remained outstanding; and (5) Defendant received a $526,506.60 distribution from an IRA, which qualifies as part of the decedent's "gross estate" for purposes of determining his § 6324(a)(2) liability. (docs. 30-3 at 9; 30-4 at 2; 36 at 27-28, 32-38; 36-1 at 52.)

Plaintiff's claims in both actions arise from the same transaction or series of connected transactions: (1) the estate's failure to timely pay its Chapter 11 taxes; (2) the assessment by the IRS of late filing and late payment penalties on the estate's tax return; and (3) the estate's failure to pay those penalties after receiving proper notice. Plaintiff now specifically alleges for the first in this suit that: (1) Defendant received a distribution from an IRA and (2) the value of his IRA distribution is at least $520,000, which is sufficient to satisfy the estate's outstanding tax obligations. (docs. 30-1 at 3-4; 37 at 5.) In the first action, Plaintiff sought judgment only against the estate under § 6321, and it now seeks judgment only against Defendant under § 6324(a)(2), but the "nucleus of operative facts" for both claims is the same: the estate's failure to timely file its Chapter 11 tax return and timely pay its taxes, the assessment of penalties by the IRS for those failures, and the estate's subsequent failure to pay those penalties. Considered together, Plaintiff's § 6321 claim against the estate in the interpleader action and its current § 6324(a)(2) claim against Defendant are related in "motivation" and form a "convenient trial unit" because Plaintiff's purpose in both actions is to satisfy the estate's unpaid tax penalties.

As held by the Fifth Circuit, in "federal tax litigation[,] one's total income tax liability for each taxable year constitutes a single, unified cause of action, regardless of the variety of contested issues and points that may bear on the final computation." Finley v. United States, 612 F.2d 166, 170 (5th Cir. 1980). Consequently, "if a claim of liability or non-liability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same tax year." Puckett v. C.I.R., 213 F.3d 636, 2000 WL 554440, at *3 (5th Cir. 2000) (per curiam) (citation omitted) (emphasis deleted). This is the case even when the taxpayer is a decedent's estate. See Hunt's Estate v. United States, 309 F.2d 146, 148-49 (5th Cir. 1962) (citing with approval the "substantial authority for [the] proposition" that "estate tax liability is a single liability"); Baumer v. United States, No, CIV. A. 96-3552, 1997 WL 537993, at * (E.D. La. Aug. 28, 1997) ("[T]he tax liability of an estate constitutes a single cause of action, litigation of which bars, under the doctrine of res judicata, further litigation of issues that were or could have been raised in the first dispute.") (citing Finley, 612 F.2d at 170; Hunt, 309 F.2d at 147-49). Lastly, as previously noted, the Fifth Circuit has also held that the tax liabilities of the transferor and transferee for purposes § 6324(b) "are inseparable." See Davenport, 484 F.3d at 327. In light of the similar language and purpose of subsections (a) and (b), this holding may reasonably be applied to both provisions.

Here, the IRS assessed the tax penalties at one point in time -- September 10, 2007, relating to the estate's Chapter 11 tax liability for one taxable year -- 2003. (doc. 30-4 at 4.) The estate's (the transferor) and Defendant's (the transferee) liabilities for the initial 2003 Chapter 11 estate taxes and the subsequent 2007 tax penalties were "inseparable." See Davenport, 484 F.3d at 327. Plaintiff was therefore required to pursue its § 6321 claim against the estate and its § 6324(a)(2) claim against Defendant in the same proceeding. See Finley, 612 F.2d at 170; Hunt, 309 F.2d at 147-49. As Plaintiff's pleadings and the court's opinion in the first suit show, Plaintiff opted to pursue only its § 6321 claim against the estate in that suit. See Strasburger, 2011 WL 3647915, at *3-4; (see also docs. 36 at 25-34; 36-1 at 30.) Based on his proffered evidence and the relevant case law, Defendant has met his summary judgment burden of showing that the fourth element of res judicata is also present.

Nevertheless, even when "the four-part test has been satisfied," "[u]nder the law of this circuit, . . . res judicata does not apply unless a party could and should have brought its claims in the former proceeding." Puckett, 2000 WL 554440, at *3 (citation omitted). That is, "[r]es judicata precludes a later claim [only] if [the] party was aware of the claim at the time of the prior proceeding." Id. To show that Plaintiff was aware of its § 6324(a)(2) claim against him in the interpleader suit, Defendant points to Plaintiff's filings in that proceeding. He argues that Plaintiff sought judgment for the total amount due solely against the estate, even though it was aware that the estate beneficiaries "were available or were subject to the jurisdiction of the Court as to any liability that they may have as transferees of Decedent's estate for the alleged assessed penalty." (docs. 35 at 7; 36; 36-1.) In its motion for summary judgment in that proceeding, Plaintiff alleged that the estate owed "over $250,000 of penalties assessed for failing to timely pay its federal estate tax and timely file its federal estate tax return." (doc. 36 at 27.) Plaintiff attached to its motion a copy of the estate's Form 706 tax return, which contained an exhibit listing "all beneficiaries receiving $5,000 or more," including Defendant, as well as the amount that each received. (Id. at 41.) The estate's tax return also indicated that the "gross estate" included a roll-over IRA at "Frost National Bank" worth $1,016,813.00. (doc. 30-3 at 30, item 3.) Plaintiff acknowledged that the estate beneficiaries were "interested parties" (see doc. 36 at 17-24), but sought judgment only against the estate. See Strasburger, 2011 WL 3647915, at *3-4; (docs. 36 at 25-34; 36-1 at 30). Plaintiff now seeks summary judgment solely against Defendant on grounds that he "is the largest beneficiary" of the gross estate. (doc. 30 at 1.) Notably, Defendant's status as the estate's "largest beneficiary" was reflected in the estate's Form 706 tax return, which was among Plaintiff's evidence in the first action. (doc. 36 at 41.) Although Plaintiff could have moved for summary judgment against him on that basis in the first suit, it opted not to do so. It did not even join him as a party, for that matter. In conclusion, Defendant has met his summary judgment burden of showing that Plaintiff was aware of its § 6324(a)(2) claim against him in the first action, and therefore could and should have brought the claim in that action.

Plaintiff does not dispute any of this evidence. Rather, it argues that res judicata is inapplicable because the issues and facts that were actually adjudicated in the interpleader suit are different from the those that are being litigated here. (See docs. 30-1 at 5-7; 37 at 3-6.) Unlike collateral estoppel, however, true res judicata or claim preclusion focuses on the nucleus of operative facts that were or could have been litigated in the first action, not those that were actually litigated. See Davenport, 484 F.3d at 327-29. As noted, Plaintiff could have litigated Defendant's personal liability under § 6324(a)(2) in the interpleader suit because the evidence it presented to the court in that case showed that the gross estate included an IRA worth $1,016,813.00, that Defendant was the largest beneficiary of the gross estate, and that his total distribution was $596,506.50. Accordingly, Plaintiff has failed to meet its summary judgment burden of creating a triable fact issue regarding the elements and applicability of Defendant's res judicata affirmative defense. This defense therefore bars Plaintiff's claim against Defendant under § 6324(a)(2), and the claim should be dismissed with prejudice.

V. RECOMMENDATION


Plaintiff's motion for partial summary judgment should be DENIED, Defendant's cross-motion for partial summary judgment should be GRANTED, and Plaintiff's claim against Defendant under 26 U.S.C. § 6324(a)(2) should be DISMISSED with prejudice. Remaining for trial are Plaintiff's claims against Defendant for "foreclosure of federal tax liens" under § 6324(a)(1) and enforcement of a lien on the transferred property pursuant to Tex. Prop. Code § 37. (See doc. 1 at 5-7.)

SO RECOMMENDED on this 28th day of February, 2014.

Irma Carrillo Ramirez
United States Magistrate Judge

FOOTNOTES


1 Citations to the record refer to the CM/ECF system page number at the top of each page rather than the page numbers at the bottom of each filing.

2 The executor was Fred K. Whisenhunt, and the three other beneficiaries were Elizabeth K. Spain, Joyce K. Whisenhunt, and Blake Clifton. (doc. 1 at 2.)

3 Elizabeth K. Spain, Joyce K. Whisenhunt, and Blake Clifton were dismissed from the action pursuant to voluntary and stipulated dismissals. (See docs. 21-23.) Fred K. Whisenhunt, the executor, did not answer or otherwise defend in the action, and on October 10, 2012, Plaintiff obtained a default judgment against him and the estate. (See docs. 10; 12; 18.)

4 "The parties may satisfy their respective burdens by 'citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . admissions, interrogatory answers, or other materials.'" Rooters v. State Farm Lloyds, 428 F. App'x 441, 445 (5th Cir. 2011) (citing Fed. R. Civ. P. 56(c)(1)).

5 Plaintiff does not move for summary judgment on its pending claims against Defendant for "foreclosure of [a] federal tax lien" under § 6324(a)(1) and enforcement of a lien on the transferred property pursuant to Tex. Prop. Code § 37. (See docs. 1 at 5-7; 30; 30-1.)

6 For example, chapter 11 of the Internal Revenue Code imposes a tax "on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States." 26 U.S.C.A. § 2001 (West 2009). This estate tax is due nine months after the decedent's death, unless the estate obtains an extension. Id. §§ 6075(a), 6161(a)(1).

7 Plaintiff explains that pursuant to 26 U.S.C. § 6665, the term "tax" for purposes of § 6324(a)(2) includes penalties, such as the late filing and late payment penalties the IRS assessed against the estate in September 2007. (doc. 30-1 at 3.) Defendant does not dispute this contention.

8 Because retirement accounts are generally "funded with tax-deferred compensation," they are "classified under § 691(a) . . . as 'income in respect of a decedent.'" Smith, 391 F.3d at 626-27 (citing 26 U.S.C. § 691(a)(1); 26 C.F.R. § 1.691(a)-1)). This means that inherited interests in an IRA "must be included in the gross income" "of the decedent's beneficiaries" "for the taxable year [they are] received." Id. (citing 26 U.S.C. § 691(a)(1)(B)). This income tax paid by the beneficiaries is in addition to the tax the decedent's estate must pay under § 2001. "To compensate (at least partially) for this potentially double taxation," the Internal Revenue Code "grants the recipient of income in respect of a decedent an income tax deduction equal to the amount of federal estate tax attributable to that asset." Id. (citing 26 U.S.C. § 691(c) (parenthesis in original).

9 Upon review of a taxpayer's tax return, the IRS "is authorized and required" to assess other payments that may be due, "including interest, additional amounts, additions to the tax, and assessable penalties." 26 U.S.C.A. § 6201(a)(1).

10 In addition, a "general tax lien arises under 26 U.S.C. § 6321 when the taxpayer fails to pay a federal tax liability, after assessment and notice are given and demand upon the taxpayer is made." Blakeman, 997 F.2d at 1088. In the interpleader action, Plaintiff argued that it had priority to the interpleaded funds pursuant to a tax lien that attached to the estate's assets under § 6321 when it failed to pay the tax penalties after receiving notice. (doc. 36 at 31.)

11 Plaintiff also moves for summary judgment on the Defendant's affirmative defense of res judicata. (doc. 31-1 at 4-7.) This aspect of Plaintiff's motion is addressed in connection with Defendant's cross-motion for summary judgment. Finally, Plaintiff addresses a purported argument by Defendant that his liability should be determined by state law. (doc. 30-1 at 7-10.) Defendant makes no such argument, however, in either his answer to the complaint, his motion for summary judgment, or his response to Plaintiff's motion for summary judgment. (See docs. 5; 33-35.) Accordingly, this argument is not discussed.

12 Defendant's motion only addresses Plaintiff's "transferee" claim under 26 U.S.C. § 6324(a)(2). (See e.g., docs. 34 at 6 ("Plaintiff [could] have sought to assess liability against the Defendant . . . by reason of [his] status as transferee[ ]" in the first action.); 35 at 6 ("The question presented . . . is whether or not the Defendant is liable under 26 U.S.C., Section 6324(a)(2) for the estate tax liabilities of the Decedent.").) Accordingly, his motion is construed as seeking summary judgment on this claim only, and not on Plaintiff's claims against him for "foreclosure of [a] federal tax lien" under § 6324(a)(1) and enforcement of a lien on the transferred property pursuant to Tex. Prop. Code § 37.

13 Similarly to § 6324(a)(2), § 6324(b) imposes personal liability on a transferee of a gift:

[U]nless the gift tax imposed [on an estate] by chapter 12 is sooner paid in full or becomes unenforceable by reason of lapse of time, such tax shall be a lien upon all gifts made during the period for which the return was filed, for 10 years from the date the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift.

26 U.S.C.A. § 6324(b).

14 Section 1335 provides, in relevant part:

The district courts shall have original jurisdiction of any civil action of interpleader or in the nature of interpleader filed by any . . . firm . . . having in [ ] its custody or possession money or property of the value of $500 or more . . . [i]f two or more adverse claimants, of diverse citizenship as defined in subsection (a) or (d) of section 1332 of this title, are claiming or may claim to be entitled to such money or property.

28 U.S.C.A. § 1335(a)-(b) (West 2005).

END OF FOOTNOTES


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