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United States v. Cabral

June 3, 2009

UNITED STATES OF AMERICA, PLAINTIFF,
v.
JOHN L CABRAL, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION GRANTING MOTION FOR SUMMARY JUDGMENT DEFAULT JUDGMENT (Doc. 90) AND REQUEST FOR ENTRY OF PLAINTIFF UNITED STATES'

I. INTRODUCTION

Before the court for decision are Plaintiff's unopposed Motion for Summary Judgment and Motion for Entry of Default Judgment. The Plaintiff served the motions on all parties on March 20, 2009. To date, no party has filed a response to the motions.

Plaintiff, the United States, moves for summary judgment against Defendants John Cabral and Janet M. Cabral ("the Cabrals"), seeking to reduce to judgment certain federal tax assessments, to foreclose federal tax liens on real property owned jointly by John Cabral and Janet M. Cabral, and to obtain an order forcing the sale of the property to satisfy the liens.

In addition to reducing to judgment the tax liabilities assessed against John Cabral and Janet M. Cabral, Plaintiff seeks a default judgment against National Credit Acceptance, Inc. ("NCAI"), the County of Merced, and Discover Bank to extinguish any interest in the real property at issue, or in the proceeds from the sale of the real property at issue.

II. BACKGROUND

A. Factual Background

1. The Cabrals' Business

The Cabrals, husband and wife since 1980, owned and operated a hay and whay transportation business in Turlock, California between 1990 and 1997. (SUF ¶¶ 1-2, 6.) The business generated revenues exceeding hundreds of thousands of dollars each year. (SUF ¶¶ 2, 6.) IRS records indicate that the Cabrals filed income tax returns between 1990 and 1995, but failed to file returns for 1996 and 1997. (SUF ¶ 16.)

2. IRS Involvement & Investigation

The Internal Revenue Service (the "IRS") obtained bank records for the Cabrals' bank accounts at the Bank of Stockton through the issuance of an IRS summons. (SUF ¶ 7.) The Cabrals were notified of the examination, but John Cabral refused to cooperate with the exam. (SUF ¶ 8.) Janet Cabral provided little cooperation and failed to provide the IRS with any records substantiating the Cabrals' income or expenses for 1996. (SUF ¶ 9.)

Because John Cabral did not cooperate in the calculation of his income for 1996, the IRS reconstructed his income using the bank deposit method and specific identification of items of income. (SUF ¶ 10.) Under the bank deposit method, income is estimated on the basis of the total bank deposit, the underlying premise being that deposits represent taxable income unless otherwise explained as being nontaxable items. (SUF ¶ 11.) The IRS agent's examination resulted in a determination that Cabral's community property share of federal income tax liability for 1996 was $703,126.00 and that Janet M. Cabral's share was $627,338.00 (SUF ¶ 12-13.) The IRS assessed penalties against the Cabrals for 1996 pursuant to 28 USC 6651(a)(1) and were based on the Cabrals' failure to timely file proper federal income tax returns. (SUF ¶ 14.)

3. The Cabrals' Tax Liabilities

IRS records indicate that the Cabrals filed income tax returns between 1990 and 1995, but failed to file returns for 1996 and 1997. (SUF ¶ 16.) IRS records indicate that the Cabrals were audited in 1996 and that the IRS later assessed substantial tax liabilities against each of them. (SUF ¶ 17.) According to the assessments (known as "Form 4340's"), John Cabral accrued over $703,126.00 in 1996. (SUF ¶ 17.) Janet Cabral accrued over $627,338.00. (SUF ¶ 18.)

IRS records indicate that John Cabral filed "Employer's Quarterly Federal Tax Returns" for the periods ending in September 30, 1997 and December 31, 1997.*fn1 (SUF ¶ 19.) IRS records indicate that John Cabral reported a liability for federal payroll taxes in the amount of $5,703.51 for the quarter ending September 30, 1997 and $7,761.66 for the quarter ending December 31, 2007. (SUF ¶ 20-21.)

For the taxable year ending December 31, 1996, John Cabral's current balance due for individual federal income tax, including penalties and interest, accrued to March 1, 2009, is $2,191,166.44. (SUF ¶ 22.) For the taxable year ending December 31, 1996, Janet Cabral's current balance due for individual federal income tax, including penalties and interest, accrued to March 1, 2009, is $1,934,207.52. (SUF ¶ 24.) John Cabral's current balance due for federal payroll taxes for the quarters ending September 30, 1997 and December 31, 1997, including penalties and interest accrued to March 1, 2009, is $10,909.96. (SUF ¶ 23.)

4. Real Property at Issue

The subject real property is located in Stanislaus County at 3500 South Walnut Road, Turlock, California and 3509 South Soderquist Road, Turlock, California. (SUF ¶ 25.) The Cabrals jointly hold title to the two parcels of real property, acquired on April 29, 1993 and recorded in Stanislaus County on May 17, 1993. (SUF ¶ 26.) John Cabral, allegedly separated from his wife, resides at 3500 South Walnut Road, Turlock, California 95380, which contains three small residences. (SUF ¶ 27.) Janet M. Cabral resides in a separate residence at the same address. (SUF ¶ 30.)

The IRS filed notices of federal tax lien against John Cabral and Janet M. Cabral with the Stanislaus County Recorder on December 31, 1996, September 30, 1997, and December 31, 2007. (SUF ¶ 28.) The IRS investigated the extent of other creditor's liens on the property and estimated the total forced-sale value of the properties at $520,000.00, with government netting $242,000 after payment to senior creditors. (SUF ¶ 29.)

5. Third Party Interests in Real Property Franchise

Tax Board (FTB"), Economic Development Department ("EDD"), C.L. Bryant, Inc., and the San Joaquin Valley Hay Growers Association each have interests in the subject property. These parties and Plaintiff have entered into a Stipulation regarding lien priorities. (Docket Nos. 59-60.) NCAI, the County of Merced, and Discover Bank purportedly have interests in ...


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