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United States v. Thompson

United States District Court, District of Nebraska

December 8, 2014

UNITED STATES OF AMERICA, Plaintiff,
v.
HARLAN M. THOMPSON; DIANE C. THOMPSON; MAPLE LEAF FUNDING, A “PURE” TRUST; CAPITOL ONE BANK; and DISCOVER BANK, Defendants.

ORDER

Thomas D. Thalken United States Magistrate Judge

This matter is before the court on the defendants’, Diane C. Thompson and Harlan M. Thompson (the Thompsons), Motion to Compel (Filing No. 79). The Thompsons filed a brief (Filing No. 80) in support of the motion. The plaintiff, the United States of America, filed a brief (Filing No. 82) and an index of evidence (Filing No. 83) in response. The Thompsons did not file a reply.

BACKGROUND

The plaintiff filed this action in an attempt to reduce to judgment the federal income tax assessments made against the Thompsons and foreclose federal tax liens on property. See Filing No. 1 - Complaint p. 1. To this end, the government alleges the Thompsons owe outstanding tax assessments and either created a sham trust or fraudulently transferred property to avoid payment. Id. Additional details follow based on a summary of facts alleged in the Complaint. On June 2, 2000, the Thompsons purchased property located at 399 East 7th Street in Wakefield, Nebraska (the Wakefield Property) and, also in June, borrowed approximately $223, 000 against the property. See id. ¶¶ 43-46. Nearly six years later, on May 29, 2006, the Secretary of the Treasury assessed over $50, 000 against the Thompsons for underreporting their income on 2002 and 2003 federal income tax returns. See id. ¶¶ 12, 15. Less than one year later, on February 8, 2007, the Thompsons quitclaimed the Wakefield Property to the defendant Maple Leaf Funding, a “Pure” Trust (Maple Leaf), for $1.00 “subject to the United States’ federal tax liens for 2002 and 2003.” See id. ¶¶ 49-50. Since the transfer, Harlan Thompson has operated a business on, paid the utilities and property taxes for, paid the deeds of trust to land on, and, with his wife, exercised exclusive possession of the Wakefield Property. See id. ¶¶ 54-56, 58-60. The Secretary of the Treasury also assessed amounts for the 2005, 2006, and 2007 tax years, including income taxes due and penalties for filing frivolous tax returns. Id.

Based on these facts, the Complaint alleges five claims against the Thompsons. See id. ¶¶ 9-65. In the first three claims, the plaintiff seeks to reduce to judgment the alleged joint and individual federal income tax debts and I.R.C. § 6702(a) penalties for frivolous returns the Thompsons incurred between 2002 and 2007. See id. at 1 and ¶¶ 9-33, Claims I, II, and III. The final two claims seek entry of foreclosure of a tax lien filed with the Dixon County, Nebraska, Register of Deeds against the Wakefield Property to enforce the federal income tax liabilities. See id. ¶¶ 34-65, Claims IV and V.

The Thompsons deny liability on the plaintiff’s claims, asserting each tax assessment against them in Claims I, II, and III is invalid except for the 2006 tax assessment, which has since been paid in full by a wage garnishment on Diane Thompson. See Filing No. 44 - Brief p. 2-4. Additionally, the Thompsons argue the § 6702(a) frivolous return penalties were not properly processed by the IRS making the penalties invalid. See Filing No. 47 - Amended Letter p. 1. Finally, the Thompsons assert Claims IV and V are premature and will not ripen unless the tax assessments against them are reduced to a judgment. See Filing No. 44 - Brief p. 5-11.

On September 9, 2014, the Thompsons served the plaintiff with a third request for the production of “the source documents which contain the explanation why Document Code 54 with a Blocking Series 520-529 is a User Fee.” See Filing No. 80 - Brief Ex. A - Third Request. In the plaintiff’s October 29, 2014, response, the plaintiff objected and stated, in part:

The Thompsons were not assessed with “user fees, ” . . . . Instead, they were each assessed with frivolous filing penalties . . . . The United States has produced [discovery] for the frivolous filing penalties at issue in this case . . . . The Thompsons’ request for documents regarding “user fees”— which request is based on their misreading of the Internal Revenue Manual—is not relevant to any party’s claim or defense in this case.

See Filing No. 83-1 - Response to Third Request.

The Thompsons filed the instant motion to compel on November 10, 2014. See Filing No. 79. The Thompsons argue the information sought in their third request will prove the Internal Revenue Service (IRS) did not follow the requirements to make penalty assessments against the Thompsons and the IRS improperly imposed filing fees or user fees upon the Thompsons. See Filing No. 80 - Brief p. 3.

The plaintiff argues the Thompsons’ motion should be denied because the Thompsons failed to comply with the local rules and confer with plaintiff’s counsel before filing the instant motion. See Filing No. 82 - Response at 4. Additionally, assuming the court considers the Thompsons’ motion, the plaintiff argues the Thompsons have failed to make a threshold showing their request is relevant and within the scope of discovery. Id. at 4-5. The plaintiff argues the request has no possible bearing on the claims at issue and is a result of the Thompsons’ misreading of the Internal Revenue Manual, which is merely an instructional handbook that “does not have the force of law, does not confer rights to taxpayers, and is not binding on the IRS in litigation with taxpayers.” Id. at 5-8 (citing United States v. Meisner, 2007 WL 1290088, at *7 (D. Neb. May 2, 2007)). Lastly, the plaintiff contends it provided the Thompsons with relevant discovery regarding the assessments of frivolous filing penalties. Id.

ANALYSIS

A. Duty to Confer

The Local Rules ...


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