United States v. Hodges

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT April 10, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v. No. 16-6229
(D.C. No. 5:15-CV-00043-C)
REX A. HODGES, (W.D. Okla.)
Defendant - Appellant,
and
LISA A. HODGES; BANK OF AMERICA
MORTGAGE; OKLAHOMA TAX
COMMISSION; MIDLAND FUNDING,
LLC,
Defendants.
_________________________________
ORDER AND JUDGMENT *
_________________________________
Before KELLY, LUCERO, and McHUGH, Circuit Judges.
_________________________________
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered
submitted without oral argument.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
I. INTRODUCTION
Rex A. Hodges failed to pay federal payroll taxes withheld from employee
paychecks during his time as manager of several nursing home facilities in Oklahoma.
The Internal Revenue Service (IRS) assessed taxes against Rex and attached liens against
real property (the property) he shared with his wife, Lisa A. Hodges. 1 The United States
then sued the Hodgeses in order to reduce the assessments to judgment and to foreclose
on the liens. The district court granted summary judgment to the government, reducing
the assessments to judgment and allowing foreclosure to proceed, but only on liens in
place before Rex transferred his interest in the property to Lisa. We affirm.
II. BACKGROUND
A. Factual History
In May 2000, the Oklahoma Department of Health appointed Rex as temporary
manager of four nursing homes. 2 As temporary manager, Rex “assume[d] operating
control of the facilit[ies]” and had “sufficient power and duties to ensure that the
residents of the facilit[ies] receive[d] adequate care.” Okla. Stat. tit. 63, § 1-1914.2. Rex
was in charge of day-to-day operations and was responsible for depositing the
employees’ payroll tax withholdings to the IRS and filing federal payroll tax returns. He
1
To avoid confusion between Rex and Lisa Hodges, we refer to the parties by
their first names.
2
The Oklahoma Department of Health “may place a qualified person in a [nursing
home] facility as a temporary manager” in the event that, inter alia, “[t]he conditions at
the facility pose immediate jeopardy to the health and safety of the residents of the
facility.” Okla. Stat. tit. 63, § 1-1914.2.
2
also had check-signing authority on the payroll account and had authority to hire and fire
employees. Overall, Rex maintained ultimate decision-making authority over the nursing
homes, and acknowledged he “was in charge of all four homes.”
During his time as temporary manager, Rex paid the nursing homes’ operating
expenses and net payroll, and paid himself a salary of $22,000 per month. But although
the nursing homes’ payroll processor sent him biweekly reports detailing the amount of
payroll taxes that had been withheld from the employees’ paychecks and instructions for
making the deposits to the IRS, Rex failed to pay the employees’ withheld payroll taxes
to the IRS. Rex was removed as temporary manager of the four nursing homes in
February 2001.
Rex then decided to invest in his own nursing home. On October 26, 2001, Rex
and a former coworker, John Stout, formed the Sand Springs Care Center LLC (Sand
Springs), and Rex was named manager. His role as manager of Sand Springs was similar
to his role as temporary manager of the four nursing homes and included the same
powers and responsibilities as detailed above.
Rex paid Sand Springs’ operating expenses and net payroll, and paid himself a
salary. But once again, he failed to remit to the IRS the payroll taxes withheld from the
employees’ paychecks. The IRS determined Rex was a “responsible person” who
willfully failed to pay over taxes in violation of 26 U.S.C. § 6672 (I.R.C. § 6672), and in
February 2004 the IRS began assessing penalties against Rex personally in the amount of
the unpaid payroll taxes accrued during his time as temporary manager of the four
nursing homes, and his time as manager of Sand Springs.
3
Federal tax liens attached to Rex’s interest in his property as of the dates of the
assessments (beginning in February 2004). Rex and his wife, Lisa, had purchased the
property in 1998 as joint tenants. On April 30, 2004, Rex transferred his interest in the
property to Lisa by quitclaim deed. Because the IRS continued assessing penalties against
Rex after the transfer, tax liens also continued to attach to the property after the transfer.
The IRS sent Lisa a Notice of Federal Tax Lien on January 26, 2015, identifying Lisa as
Rex’s nominee. 3
B. Procedural History
The United States sued Rex and Lisa Hodges 4 to reduce the tax assessments
against Rex to judgment and to foreclose its liens on the Hodgeses’ property. 5 The
government moved for summary judgment, seeking to reduce the assessments to
judgment as a matter of law and seeking to enforce its liens against the property, but only
3
A person becomes a “nominee” of a delinquent taxpayer if the IRS determines
“the taxpayer has engaged in a legal fiction by placing legal title to property in the hands
of a third party while actually retaining some or all of the benefits of true ownership.”
United States v. Tingey, 716 F.3d 1295, 1300 (10th Cir. 2013) (internal quotation marks
omitted).
4
The government also named as defendants Bank of America Mortgage, Midland
Funding, LLC, and the Oklahoma Tax Commission as entities that might claim an
interest in the property. The government, Oklahoma Tax Commission, and Bank of
America Mortgage stipulated to their relative priorities. The district court granted default
judgment against Midland Funding, LLC. None of these defendants is involved in this
appeal.
5
Rex also failed to pay his personal federal income taxes in 2011, and the
government requested the court reduce this assessment to judgment. The district court
granted summary judgment to the government on this claim in the amount of $2,549.28
plus interest. Rex did not dispute liability for these unpaid taxes in the district court and
does not appeal this judgment.
4
on the liens “that arose by virtue of the assessments made prior to Rex Hodges’
transferring the Property to his wife, Lisa Hodges.” The government explained below
that,
[a]s a practical matter, if the United States’ motion is granted and the
property is ordered sold, the expected proceeds of sale will not satisfy the
tax liens that arose prior to the transfer. Thus, there will be no need to
determine whether Lisa Hodges is a nominee or fraudulent transferee.
The Hodgeses opposed the government’s motion. Rex stipulated to the amount of
the assessed penalties, but argued he had reasonable cause for not paying over the payroll
taxes because he relied on others to pay them. In addition, Lisa filed a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6). She argued the government had denied
her due process rights by not granting her request for a Collection Due Process hearing.
Lisa also denied that she had received the property through fraudulent transfer or as
Rex’s nominee.
The district court first granted the government summary judgment on reducing the
assessments to judgment. The court found Rex’s “reasonable cause” argument to be
without evidentiary support and entered judgment in favor of the government for
$1,905,040.84 (plus interest).
Next, the district court concluded the Hodgeses did not dispute the liens that
attached before Rex transferred his interest in the property to Lisa, and it thus granted the
government partial summary judgment with respect to these liens. These pre-transfer
liens totaled $329,578.69 (plus interest). The court allowed the government twenty-eight
days to notify the court if it decided to proceed to trial on the claim for the post-transfer
5
liens. But the government declined that opportunity because the expected proceeds from
the sale of the property would not satisfy even the pre-transfer liens.
Finally, the district court denied Lisa’s 12(b)(6) motion requesting that the court
dismiss the government’s claims against her ownership of the property. The court
concluded the motion was improper for several reasons, 6 but relevant for our purposes,
the court concluded that Lisa did not dispute “that the United States is entitled to the
value of its liens before the transfer,” and these liens were the only ones the government
sought to enforce at summary judgment. It would have been premature to consider
whether Lisa took the property as Rex’s nominee or whether she was unfairly denied a
hearing, as these issues are only applicable to the post-transfer liens.
The court entered an amended order of sale on June 27, 2016. Thereafter, Lisa
requested “that the property be sold privately to her pursuant to a settlement agreement,
in an effort to maximize the available proceeds from the sale of the Property.” As part of
the stipulation, the parties agreed that after paying settlement charges and the mortgage,
Lisa would pay the IRS $82,000, and the IRS would discharge all federal tax liens on the
property arising from the assessments against Rex. The district court entered an order
approving the settlement on January 26, 2017.
Rex filed a timely notice of appeal on August 1, 2016. Although the district court
granted partial summary judgment only, the district court’s order was immediately
6
The court also found the motion untimely because it was filed after the answer,
and improper because Lisa attempted to include evidence outside the pleadings and asked
the court to assess the sufficiency of the evidence.
6
appealable because the order of sale constituted irreparable harm. See Kasishke v. Baker,
144 F.2d 384, 386 (10th Cir. 1944) (“When the decree decides the right to the property in
contest, and . . . directs it to be sold, . . . and the complainant is entitled to have such
decree carried immediately into execution, the decree must be regarded as a final one to
that extent, and authorizes an appeal to this court.” (quoting Forgay v. Conrad, 47 U.S. (6
How.) 201, 204 (1848)). And to the extent there were any issues outstanding at the time
the court entered its judgment, they became moot when the government declined to
proceed to trial on the post-transfer liens and the IRS discharged all liens against the
property. Thus there are no further claims for the district court to resolve. We therefore
have jurisdiction to hear this appeal under 28 U.S.C. § 1291.
III. DISCUSSION
Rex appeals the district court’s grant of summary judgment to the government and
the court’s denial of the 12(b)(6) motion to dismiss. We review a district court’s grant of
summary judgment de novo. Christy v. Travelers Indem. Co. of Am., 810 F.3d 1220, 1225
(10th Cir. 2016). We are not “limited to the grounds relied upon by the trial court but
may uphold summary judgment on conclusions of law supported by the record.” City of
Wichita v. Sw. Bell Tel. Co., 24 F.3d 1282, 1286 (10th Cir. 1994). We also review
12(b)(6) motions de novo, “applying the same legal standard applicable in the district
court.” Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir. 2007). “The court’s function
on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might
present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to
7
state a claim for which relief may be granted.” Tal v. Hogan, 453 F.3d 1244, 1252 (10th
Cir. 2006) (internal quotation marks omitted).
Rex first argues the IRS wrongfully assessed I.R.C. § 6672 penalties because he
did not act willfully in failing to pay over the taxes. Next, he contends the district court
erred in ordering foreclosure of the property and denying the 12(b)(6) motion. We
address each argument in turn.
A. Reducing the Assessments to Judgment
Federal law requires employers to withhold federal income and social security
taxes from their employees’ wages. I.R.C. §§ 3102(a), 3402(a). The withheld taxes are
called “trust-fund” taxes because they are held in trust for the benefit of the United States.
I.R.C. § 7501(a); Slodov v. United States, 436 U.S. 238, 242–43 (1978). An employer
may not use these reserved funds for any purpose. See Finley v. United States, 123 F.3d
1342, 1344 (10th Cir. 1997) (en banc). The employer is required to file quarterly returns
and pay over the taxes through monthly or quarterly deposits. Wood v. United States, 808
F.2d 411, 414 (5th Cir. 1987).
If the employer fails to remit the withheld taxes, the IRS may seek the unpaid
taxes from certain officers or agents of the employer. 7 See I.R.C. § 6671(b) (defining a
“person” as “an officer or employee of a corporation, or a member or employee of a
7
If an employer fails to remit the withheld taxes, the employee is not liable for a
double payment. I.R.C. § 31(a); Slodov v. United States, 436 U.S. 238, 243 (1978).
“Thus, unless the government has recourse against the person or persons responsible for
nonpayment, the taxes will be lost.” Olsen v. United States, 952 F.3d 236, 238 (8th Cir.
1991).
8
partnership, who as such officer, employee, or member is under a duty to perform the act
in respect of which the violation occurs.”). I.R.C. § 6672(a) provides:
Any person required to collect, truthfully account for, and pay over any tax
imposed by this title who willfully fails to collect such tax, or truthfully
account for and pay over such tax . . . [shall] be liable to a penalty 8 equal to
the total amount of the tax evaded, or not collected, or not accounted for
and paid over.
Section 6672(a) can be broken down into two elements or requirements:
(1) “responsible person”: must be a person responsible for collecting, truthfully
accounting for, and paying over any taxes imposed; and (2) “willfulness”: that person
must have acted willfully in failing to remit the taxes. Smith v. United States, 555 F.3d
1158, 1163 (10th Cir. 2009). But even if these two requirements are met, this circuit
recognizes a “reasonable cause” exception, whereby the willfulness requirement “can be
negated by showing the responsible person had reasonable cause for failing to pay
withholding taxes held in trust for the government.” Finley, 123 F.3d at 1343.
Although the government bears the initial burden to show evidence of the
assessments, assessments are “entitled to a legal presumption of correctness.” United
States v. Fior D’Italia, Inc., 536 U.S. 238, 242 (2002). The burden is thus on Rex to show
he was not a responsible person and did not willfully fail to remit the taxes in order to
8
Although the statute refers to it as a “penalty,” it is really just disgorgement
because it “brings to the government only the same amount to which it was entitled by
way of the tax.” Turnbull v. United States, 929 F.2d 173, 178 n.6 (5th Cir. 1991) (internal
quotation marks omitted); see also Finley v. United States, 123 F.3d 1342, 1348 (10th
Cir. 1997) (en banc) (“[Section] 6672 penalties reflect only that amount of tax already
collected or deducted by an employer and for which the employees have already received
credit in their individual income tax returns.”).
9
avoid summary judgment. To do this, he is required to “set forth specific facts showing
that there is a genuine issue for trial as to those dispositive matters for which [he bore]
the burden of proof.” Muck v. United States, 3 F.3d 1378, 1380 (10th Cir. 1993) (internal
quotation marks omitted).
Rex concedes the amount of the assessments and that he is a “responsible
person.” 9 But he argues he did not act willfully because he had reasonable cause for not
paying over the taxes. 10
1. Willfulness and the Reasonable Cause Exception
Willfulness under § 6672 does not require “evil or fraudulent intent.” Hartman v.
United States, 538 F.2d 1336, 1341 (8th Cir. 1976). Instead, willfulness requires that an
individual make a “voluntary, conscious and intentional decision to prefer other creditors
over the Government” or show “a reckless disregard of a known or obvious risk that trust
9
Although Rex concedes he is a “responsible person” under § 6672, he argues the
district court erred in holding him liable because Mr. Stout and a Sand Springs employee,
Jo Beth Becker, were also responsible persons. But the statute does not require exclusive
authority. Smith v. United States, 555 F.3d 1158, 1163 (10th Cir. 2009) (“The responsible
person generally is, but need not be, a managing officer or employee, and there may be
more than one responsible person.” (internal quotation marks omitted)). There is no
dispute Rex had check-signing authority at all nursing homes, and his arguments with
respect to who else had the authority and whether he exercised the authority are irrelevant
to his liability.
10
In his reply brief, Rex also contends the “payroll taxes assessed against Rex
Hodges are a non-issue as the IRS has been levying his bank account for years. They
never saw the need to reduce their liens to judgment before.” Because he did not raise
this argument until his reply brief, this argument is waived. See Headrick v. Rockwell
Int’l Corp., 24 F.3d 1272, 1277–78 (10th Cir. 1994) (following “the general rule that
appellate courts will not entertain issues raised for the first time on appeal in an
appellant’s reply”).
10
funds may not be remitted to the government.” Denbo v. United States, 988 F.2d 1029,
1033 (10th Cir. 1993) (internal quotation marks omitted). Willfulness is satisfied if a
responsible person, after being notified that withheld payroll taxes have not been paid,
fails to investigate or correct the mismanagement. Id.But willfulness can be negated if the taxpayer meets the reasonable cause
exception. In Finley v. United States, we recognized this exception as a means of
avoiding a “strict liability” interpretation of § 6672, but held it should be “narrowly
construed.” 123 F.3d at 1346, 1348. We determined a taxpayer could avoid liability only
when “(1) the taxpayer has made reasonable efforts to protect the trust funds, but
(2) those efforts have been frustrated by circumstances outside the taxpayer’s control.”
Id. at 1348.
Here, Rex does not deny that he had power to pay the taxes or that he knew they
were not being paid—and therefore meets the definition of willful. He argues that he falls
within an exception to liability for willful conduct because “a jury could determine [he]
had reasonable cause for failing to pay withholding taxes.” Specifically, Rex claims to
qualify for the exception because: (1) of the “urgent necessity of caring for the nursing
home residents”; (2) Gary Kading, the owner of three of the four nursing homes for
which Rex was appointed temporary manager, promised Rex he would pay rehabilitation
costs; and (3) he relied on an Oklahoma statute regarding a nursing home owner’s
responsibility for costs. We agree with the district court that, as a matter of law, none of
these arguments places Rex within the reasonable cause exception.
11
a. “Urgent Necessity of Caring for Nursing Home Residents”
Rex claims he could not pay the payroll taxes because he had to “rescue the
residents from the horrific conditions” they faced prior to his being appointed temporary
manager, and that he “naively put all available funds 11 toward rehabilitation of the
facilities and care of the residents.” He claims he would have had to close the homes and
that hundreds of employees would have been let go if he had paid over the taxes.
The reasonable cause exception negates willfulness only if the responsible person
makes efforts to protect the trust funds and those efforts are frustrated by circumstances
outside that person’s control. First, Rex points to no evidence that could support a finding
that he made reasonable efforts to protect the withheld taxes. In Smith, for example, we
affirmed the district court’s denial of a “reasonable cause” jury instruction because the
defendant did not make “reasonable efforts to protect the trust funds,” when he “knew the
payroll taxes were overdue, knew that other creditors were being paid instead of the
payroll taxes, and never took any direct action to pay the taxes.” 555 F.3d at 1170. Rex
admits he voluntarily and intentionally made the decision to pay operating expenses—
including employees’ net wages, his own salary, and other creditors—before paying over
the taxes. Moreover, while Rex may claim the four nursing homes were in bad condition
11
Rex incorrectly refers to the withheld payroll taxes as “available funds” that an
employer can put toward other expenses. These funds are never “available” for an
employer to use. The funds are taken from an employee’s earnings to cover the
employee’s tax liability, and the employer is required to immediately put these funds into
a trust account. Finley, 123 F.3d at 1344 (“The funds withheld from employee wages do
not belong to the employer/corporation; they are funds held by the employer in trust for
the government.”).
12
when he took over as temporary manager, there are no such allegations with respect to
Sand Springs, the center Rex invested in and managed. Rex made a choice—one he was
not required to make—to pay himself and other expenses before remitting the payroll
taxes.
Second, financial concerns do not constitute “circumstances outside the taxpayer’s
control.” Virtually every violation of § 6672 occurs because a business is in financial
straits. See, e.g., Finley, 123 F.3d at 1343–44; Smith, 555 F.3d at 1160–61; Denbo, 988
F.2d at 1031; see also Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975)
(“[T]he payment of net wages in circumstances where there are no available funds in
excess of net wages from which to make withholding is a willful failure to collect and
pay over under § 6672.”). Thus, the financial condition of the homes is not sufficient to
qualify Rex for the reasonable cause exception.
b. Reliance on Mr. Kading’s Assurances
Rex next claims he meets the reasonable cause exception because Gary Kading,
the owner of three of the four nursing homes for which Rex was appointed temporary
manager, “promised . . . that he would pay for all the rehabilitation costs.” A similar
argument was made—and rejected—in Denbo. There, the defendant claimed willfulness
was not met because he relied on his co-owner’s and the accountants’ assurances that the
“taxes were being taken care of.” Denbo, 988 F.2d at 1031. The court held:
Denbo cannot escape liability by claiming that he relied on the assurances
of others. . . . Denbo willfully failed to remit federal payroll taxes because
he was aware that the corporation had defaulted in its payment of
employment taxes but nevertheless disregarded a known risk by relying on
the assurances of [his co-owner] instead of doing more.
13
Id. at 1033–34 (citations omitted).
Here, Rex willfully failed to remit the withheld taxes because he knew the nursing
homes were not paying over the taxes, and he bore the responsibility for making these
payments. He cannot now claim reliance on Mr. Kading’s promise to pay rehabilitation
expenses as justification for not remitting the payroll taxes to the IRS. Rex knew the
payroll taxes were not being paid over, and, unlike in Denbo, nothing in Mr. Kading’s
promise to pay the rehabilitation expenses suggests otherwise. Moreover, Mr. Kading
was not involved in the fourth nursing home or in Sand Springs, so Rex could not claim
his failure to remit the payroll taxes withheld at these homes resulted from any assurances
from Mr. Kading to pay expenses.
Nevertheless, Rex notes that this circuit decided Denbo before we adopted the
reasonable cause exception in Finley, and he suggests that it is therefore no longer
controlling. But we held in Finley that we would “continue to apply the established
paradigms to identify willful conduct as a matter of law,” and that we would “expressly
recognize a reasonable cause exception to the application of those paradigms.” Finley,
123 F.3d at 1348. Thus, we now consider whether Rex meets the reasonable cause
exception to the paradigm recognized in Denbo.
The facts of Finley are easily distinguishable. There, the defendant first directed an
employee to pay the payroll tax, and the employee failed to do so. 123 F.3d at 1343. The
defendant next deposited a $105,000 check with the bank, instructing the bank to use the
money to pay the taxes, but the bank refused and paid other loans instead. Id. at 1344. We
14
held that those facts required a new trial so the defendant could present evidence on the
newly adopted reasonable cause exception. Id. at 1349–50.
And in Howell v. United States, the defendant would leave funds in a trust account
as a “cushion” for making tax payments but was unable to do so after the “improper and
unauthorized actions of the underwriters in seizing control of the company and the
accounts and directing the payment of funds in a manner contrary to his past practice.”
164 F.3d 523, 527 (10th Cir. 1998). We reversed summary judgment granted to the
government and remanded for a new trial after determining there was a disputed issue of
material fact on whether the defendant’s efforts to protect the trust funds were “frustrated
by circumstances beyond his control.” Id.Unlike Finley and Howell, Rex has presented no evidence that he made any efforts
to pay the taxes and has failed to show any outside circumstances interfering with his
efforts to do so. Mr. Kading’s alleged promises to pay the rehabilitation expenses at some
of the homes fall well short of evidence that Rex attempted to protect the trust funds but
was frustrated in his efforts. Accordingly, Rex has not raised an issue of fact with respect
to the reasonable cause exception.
c. Reliance on 63 Oklahoma Statute § 1-1914.2
Finally, Rex claims he had reasonable cause for not paying over the taxes because
of an Oklahoma statute that was cited in the order appointing him as temporary manager.
The statute provides:
If funds are insufficient to meet the expenses of performing the powers and
duties conferred on the temporary manager, the temporary manager may
borrow the funds or contract for indebtedness as necessary. . . . If such
15
advances are not repaid in full, any amount not repaid shall constitute a lien
against any and all assets of any owner . . . .
Okla. Stat. tit. 63, § 1914.2(G).
This statute says nothing about taxes, nor does it attempt to preempt § 6672.
Although the owner is liable for unpaid debt undertaken to meet expenses, the statute
does not immunize a responsible person who, despite having the withheld payroll taxes
available to pay the IRS, willfully fails to do so, without reasonable cause. Because Rex
bore the burden of showing he was not liable under § 6672, and he has failed to “set forth
specific facts showing that there is a genuine issue for trial as to those dipositive matters
for which [he bore] the burden of proof,” Muck, 3 F.3d at 1380, we affirm the district
court’s decision to reduce the assessments to judgment.
B. Foreclosure
Rex next challenges the district court’s grant of summary judgment allowing the
IRS to foreclose on the property to satisfy the tax liens that attached prior to Rex’s
transfer of his interest to Lisa. He also appeals the court’s denial of the 12(b)(6) motion to
dismiss. We affirm because (1) Rex has waived any arguments regarding the validity of
the pre-transfer liens, and (2) the arguments regarding the post-transfer liens are moot
because the IRS has now discharged all outstanding federal tax liens on the property.
1. Validity of Pre-Transfer Liens
The district court concluded that the Hodgeses presented no evidence or argument
opposing the validity of the pre-transfer liens. And in granting summary judgment, the
district court allowed foreclosure on only the pre-transfer liens, stating: “This does not
16
include or adjudicate any liens on the Property post-transfer.” On appeal, Rex does not
dispute the district court’s findings with respect to the pre-transfer liens, and instead
challenges the government’s liens on the property that post-date the transfer. Although
one of his arguments also implicates the validity of the pre-transfer liens, it fails on the
merits.
Rex contends that because Lisa took the property without notice of the liens that
attached to Rex’s interest, she took the property free of that liability, and thus the district
court erred in allowing the IRS to foreclose. This is incorrect. A federal tax assessment
against a person automatically creates “a lien in favor of the United States upon all
property and rights to property, whether real or personal, belonging to such person.”
I.R.C. § 6321. And, by operation of law, the liens arise “at the time the assessment is
made and shall continue until the liability for the amount so assessed (or a judgment
against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by
reason of lapse of time.” Id. § 6322. It is undisputed that the IRS assessed the first § 6672
penalties on February 16, 2004, for $329,578.69 (excluding interest). These assessments
immediately created a lien that exceeded Rex’s interest in his property, and that lien
survived the transfer of Rex’s interest in the property to Lisa on April 30, 2004. See
Russell v. United States, 551 F.3d 1174, 1179 (10th Cir. 2008) (“The transfer of the
attached property does not affect the lien because no matter into whose hands the
property goes, the property passes cum onere, or with the lien attached.” (internal
quotation marks omitted)); see also United States v. Jepsen, 131 F. Supp. 2d 1076, 1085
(W.D. Ark. 2000) (holding a taxpayer “cannot avoid or defeat liability by disclaiming or
17
renouncing interest in the property or transferring or conveying the interest” after a lien
has properly attached). Therefore, whether Lisa had notice of the pre-transfer liens does
not affect the government’s ability to foreclose on them post-transfer.
2. Arguments Regarding Post-Transfer Liens
The 12(b)(6) motion filed in the district court argued that: (1) the government
denied Lisa due process by not granting her request for a Collection Due Process hearing,
and (2) Lisa did not receive the property through fraudulent transfer or as Rex’s nominee.
The district court denied the motion because Lisa did not dispute “that the United States
is entitled to the value of its liens before the transfer,” and these liens were the only ones
the government sought to enforce at summary judgment. 12 Thus, all of the arguments in
support of the 12(b)(6) motion pertained to issues regarding the government’s attempts
to enforce post-transfer liens, which the district court concluded were premature. After
summary judgment on the pre-transfer liens was granted, the government discharged the
liens and waived any claims that Lisa took the property as nominee or fraudulent
transferee. Accordingly, the arguments raised by the motion to dismiss are moot.
Nonetheless, on appeal Rex continues to make arguments with respect to issues
regarding liens that attached post-transfer. He claims the government misrepresented
12
The district court also denied the motion because Lisa “incorrectly include[d]
evidence outside the pleadings and look[ed] for the Court to assess the sufficiency of the
evidence.” The Hodgeses never disputed this ruling and on appeal Rex continues to assert
that “[e]vidence and the record clearly demonstrate there are sufficient grounds whereby
a reasonable jury could find the assertions of the Government questionable and those of
Defendants reasonable.” We therefore also affirm the denial of the motion on this
alternative ground.
18
several facts in its complaint, including that (1) Rex lived on the property continuously,
(2) Lisa paid no valid consideration for Rex’s interest, (3) mortgage payments were made
from a joint checking account, and (4) Rex was a co-borrower on the mortgage. Even if
each of these representations is false, the district court is correct that none is relevant to
the only issue on summary judgment: whether the pre-transfer liens were valid and
enforceable.
Next, Rex argues the foreclosure violates due process because Lisa was not given
a Collection Due Process hearing after she received notice of the nominee liens. Rex
claims “the Government sent the notice of the hearing, a hearing was timely requested,
and [the government] was never heard from . . . causing the denial of due process.” But,
even if Rex could assert Lisa’s due process rights, the Collection Due Process hearing is
not relevant to the validity of the pre-transfer liens. Whether Lisa could be liable as
nominee for any liens that attached post-transfer was not decided on summary judgment
and is now moot because the IRS has discharged all liens against the property.
Finally, Rex claims the government violated the statute of limitations because the
“general rule is that an assessment of tax must be made within three years from the date a
return is filed or the due date of the return, whichever is later.” And because Lisa did not
receive the notice of nominee lien until January 26, 2015, eleven years after the first liens
attached, Rex contends the district court should have dismissed the action.
Because Rex never made this argument below and does not argue for plain error
on appeal, he has waived it. United States v. Abdenbi, 361 F.3d 1282, 1289 (10th Cir.
2004) (“The well-settled law of this circuit is that issues not raised in district court may
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not be raised for the first time on appeal.”). But even if he had made the argument, the
Internal Revenue Manual’s rule does not support it. The Manual says an “assessment”
must be made within three years of the violation. It does not say that once an assessment
has been made, it expires after three years. And the notice of nominee lien is not an
“assessment.” Rex does not claim the IRS made the assessments more than three years
after the relevant tax period in which the taxes were due. We therefore affirm the
foreclosure on the pre-transfer liens.
IV. CONCLUSION
Rex has failed to meet his burden to show he is not liable for the assessed § 6672
penalties. He concedes he is a responsible person and also concedes the amount of the
assessments. And he cannot qualify for the reasonable cause exception because he did not
come forward with any evidence of efforts to protect the withheld taxes or to demonstrate
that outside circumstances frustrated those efforts. We therefore affirm the district court’s
summary judgment decision reducing these assessments to judgment.
In addition, Rex has presented no evidence or arguments disputing the validity of
the pre-transfer liens. All of his arguments with respect to the foreclosure focus on post-
transfer liens, which the IRS discharged and thus are not at issue in this appeal. We
therefore affirm the district court’s order allowing foreclosure of the property.
Entered for the Court
Carolyn B. McHugh
Circuit Judge
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