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United States v. Marty

January 13, 2010

UNITED STATES OF AMERICA, PLAINTIFF,
v.
TERESA MARTY, DBA ADVANCED FINANCIAL SERVICES, LLC, DEFENDANT.



ORDER AND FINDINGS AND RECOMMENDATIONS

This action, filed pursuant to Sections 7402, 7407, and 7408 of the Internal Revenue Code, proceeds before the undersigned pursuant to Eastern District of California Local Rule ("Local Rule") 302(c)(21) and 28 U.S.C. § 636(b)(1). Presently before the court is plaintiff's motion for summary judgment. After full briefing the motion was submitted pursuant to Local Rule 230(g). Also before the court are defendant's application to proceed in forma pauperis, and a letter submitted by defendant which challenges an earlier court decision to construe her purported "counterclaim" as an objection to findings and recommendations. Having reviewed all submitted papers, the court recommends that plaintiff's motion for summary judgment be granted, that defendant's letter be construed as a request for reconsideration, and that the request for reconsideration be denied. The court also orders defendant to file a further affidavit in support of her in forma pauperis application.

I. BACKGROUND

On March 4, 2009, plaintiff filed the underlying complaint for a permanent injunction prohibiting defendant from engaging in alleged violations of the Internal Revenue Code. Dckt. No. 1. The complaint alleges that defendant is engaged in the business of preparing tax returns that claim fraudulent refunds and/or the satisfaction of debts based on deceptive Internal Revenue Service ("IRS") Forms 1099-OID (used to report "Original Issue Discount" income, a reportable form of taxable interest based on the difference between the maturity and issuance prices of a debt instrument), and fabricated treasury accounts purportedly created on behalf of each citizen.

On March 17, 2009, plaintiff moved for a preliminary injunction pursuant to 26 U.S.C. § 7402 (action to enforce internal revenue laws), 26 U.S.C. § 7407 (action to enjoin tax return preparers), and 26 U.S.C. § 7408 (action to enjoin promoters of abusive tax shelters). Dckt. No. 6. The undersigned heard argument on the motion for a preliminary injunction on July 15, 2009, Dckt. Nos. 32, 37, and on July 29, 2009, issued findings and recommendations in favor of plaintiff. Dckt. No. 34.

On August 6, 2009, defendant filed an "affidavit and counterclaim," and on August 31, 2009, the district judge construed the "affidavit and counterclaim," along with several of defendant's other filings as objections to the July 29, 2009 findings and recommendations.*fn1

Dckt. No. 45. The district judge then adopted the findings and recommendations in full, granted plaintiff's motion for a preliminary injunction, and enjoined defendant from, inter alia, preparing, providing, notarizing, signing, filing, or advising about tax returns or other tax forms for other persons or entities; organizing, promoting, or selling any abusive tax shelter, plan or arrangement that advises or assists taxpayers to understate or evade the assessment or collection of their correct federal tax, or is otherwise premised on any deceptive, fraudulent, or false representation; and making any deceptive, fraudulent, or false claim, including any understatement of liability or reliance on an abusive tax shelter, in her own federal income tax return, amended return or upon any other federal tax form. Id.

II. MOTION FOR SUMMARY JUDGMENT

Plaintiff now moves for summary judgment against defendant and requests the entry of a permanent injunction pursuant to 26 U.S.C. §§ 7407, 7408, and 7402. Dckt. No. 48. Plaintiff argues it "is entitled to summary judgment because the undisputed facts . . . establish that [defendant] has repeatedly and continually prepared tax returns containing fraudulent requests for refunds and that a permanent injunction barring her from preparing tax returns for others is necessary and appropriate." Dckt. No. 50 at 4.

Defendant opposes plaintiff's motion, but rather than dispute any of plaintiff's factual assertions or evidence, she asserts a variety a frivolous arguments disputing the standing of the United States to enforce internal revenue statutes in question and the court's authority to consider this action. Specifically, defendant does not dispute any of plaintiff's factual assertions or make any objections the evidence presented in support of those assertions. Nor does defendant present any arguments regarding those facts/evidence in her opposition to plaintiff's motion for summary judgment. Finally, defendant fails to submit or cite to any evidence contrary to plaintiff's evidence. See L.R. 260(b); Dckt. No. 34 at 12, n.6. Defendant states in her opposition that "[a]ll statements on the submitted proffered, and the re-submitted admitted EXHIBITS OF LAW remain un-refuted, apparently standing now as stare decisis facts of law." Dckt. No. 58 at 15. It is unclear what defendant means by this statement, but she does not appear to be challenging any of the evidence or exhibits submitted by plaintiff. Further, defendant argues that plaintiff lacks evidence as to plaintiff's standing, see e.g., Dckt. No. 58 at 16, but notably does not argue that plaintiff lacks evidence as to plaintiff's underlying claims.

Defendant's failure to present any meaningful basis to dispute plaintiff's factual assertions and evidence (or any arguments regarding those facts/evidence) parallels her similar failure to do so in opposition to plaintiff's motion for a preliminary injunction. Indeed, at the hearing on plaintiff's preliminary injunction motion, defendant was specifically afforded the opportunity present anything that she wanted to add or underscore. Dckt. No. 37 at 2, 3. She simply argued that the statutes plaintiff relies upon do not cover tax preparers. She made no arguments regarding plaintiff's factual representations. Id. at 3-4. Thereafter, the court noted that there appears "to be purely legal issues" in dispute, id. at 6, and defendant did not challenge that statement.

Defendant's answer to the complaint does deny some of the plaintiff's allegations, but in conjunction with several of the denials, she states: "Denied. Claimed to be Plaintiff advances a claim without elements of proof." It is unclear whether those denials are, in fact, denials or whether they are assertions that plaintiff has not met its burden of proof. Additionally, Rule 56 does not permit defendant to respond to plaintiff's evidence with mere references to her answer. The rule specifically provides that a party opposing summary judgment "may not rely merely on allegation or denials in its own pleading; rather, its response must -- by affidavits or as otherwise provided in this rule -- set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). Defendant's answer was not made under oath and therefore is not equivalent to an affidavit and defendant has not presented any other evidence to dispute the material facts here.

Instead, defendant argues that (1) the undersigned does not have authority to issue orders or findings and recommendations in this case, (2) that neither plaintiff nor the court has "ratified the commencement" of this action, and (3) that the statutes upon which plaintiff relies do not authorize injunctive relief against defendant. Dckt. No. 58.

Defendant's first argument, that the undersigned is without authority to issue findings and recommendations is without merit. A magistrate judge's authority derives from 28 U.S.C. §§ 631 et seq.*fn2 Defendant's second argument, that plaintiff's complaint should be dismissed because the United States is not a proper plaintiff under Federal Rule of Civil Procedure ("Rule") 17 and neither plaintiff nor the court has "ratified the commencement" of this action is also without merit. Rule 17(a) provides that "[a]n action must be prosecuted in the name of the real party in interest" and that "[w]hen a federal statute so provides, an action for another's use or benefit must be brought in the name of the United States." Rule 17(b) provides that "[t]he court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action. After ratification, joinder, or substitution, the action proceeds as if it had been originally commenced by the real party in interest." Although defendant contends that the United States is not the proper plaintiff and that therefore the complaint should be dismissed because neither plaintiff nor the court has "ratified the commencement" of the action, the statutes at issue herein specifically authorize injunctive relief by United States District Courts "at the instance of the United States," 26 U.S.C. § 7402(a), and/or via "[a] civil action in the name of the United States," 26 U.S.C. §§ 7407, 7408. See also Dckt. No. 22 at 2, n.3 ("The court notes that one basis identified by defendant for seeking dismissal, that she cannot discern identity of the plaintiff because the United States used capital letters in the caption and omitted the words "of America" when it identified the attorneys for the government, is patently frivolous. Including wholly frivolous arguments in briefs on motions violates Rule 11. Similarly, there appears to be little doubt as to subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1340 and 1345, and 26 U.S.C. §§ 7402(a), 7407, and 7408, or that defendant's California residency, her operation of a tax business in California, and the personal service of process upon her (Dckt. No. 4) are sufficient to establish personal jurisdiction. Fed. R. Civ. P. 4(e)(2)(B).").

General Order 448 (Aug. 21, 2006); Dckt. No. 41-2.

Finally, for the reasons explained in greater detail below, the court finds that defendant's statutory interpretation arguments are also without merit.

A. Summary Judgment Standard

Summary judgment is appropriate when it is demonstrated that there exists "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Under summary judgment practice, the moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)).

Summary judgment avoids unnecessary trials in cases with no genuinely disputed material facts. See N.W. Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994). At issue is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). Thus, Rule 56 serves to screen the latter cases from those which actually require resolution of genuine disputes over material facts; e.g., issues that can only be determined through presentation of testimony at trial such as the credibility of conflicting testimony over facts that make a difference in the outcome. Celotex, 477 U.S. at 323.

If the moving party meets its initial responsibility, the opposing party must establish that a genuine issue as to any material fact actually does exist. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To overcome summary judgment, the opposing party must demonstrate a factual dispute that is both material, i.e. it affects the outcome of the claim under the governing law, see Anderson, 477 U.S. at 248; T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987), and genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1436 (9th Cir. 1987). In attempting to establish the existence of a factual dispute that is genuine, the opposing party may not rely upon the allegations or denials of its pleadings but is required to tender evidence of specific facts in the form of affidavits, and/or admissible discovery material, in support of its contention that the dispute exists. See Fed. R. Civ. P. 56(e); Matsushita, 475 U.S. at 586 n.11.

In resolving a summary judgment motion, the court examines the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any. Fed. R. Civ. P. 56(c). The evidence of the opposing party is to be believed. See Anderson, 477 U.S. at 255. All reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. See Matsushita, 475 U.S. at 587. Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d 898, 902 (9th Cir. 1987). Finally, to demonstrate a genuine issue, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts . . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citation omitted).

B. Facts

Based on the pleadings and evidence on file in this action, the court finds the following facts to be undisputed. This action has been requested by the Chief Counsel of the Internal Revenue Service, a delegate of the Secretary of the Treasury, and commenced at the direction of a delegate of the Attorney General under 26 U.S.C. §§ 7402, 7407, and 7408. Defendant Teresa Marty resides in Pollock Pines, California, and does business in Placerville, California, as Advanced Financial Services, LLC, preparing tax returns for others in exchange for compensation. Pl.'s Statement of Undisputed Facts ("SUF") ¶¶ 1, 3.*fn3 Defendant identifies herself as a Certified Wealth Preservation Planner ("CWPP") and Certified Asset Protection Planner ("CAPP") and is an Enrolled Agent licensed with the State of California. SUF ¶ 3.

In 2008 and 2009, defendant, individually and doing business as Advanced Financial Services, LLC, prepared and filed fraudulent tax returns (IRS Form 1040) for the tax years 2007 and 2008 and fraudulent amended tax returns (IRS Forms 1040X) for previous years, and prepared and filed with the IRS other frivolous documents on behalf of others in exchange for compensation. SUF ¶¶ 4-6. Defendant promotes a tax-fraud scheme that involves filing fraudulent tax returns and other frivolous documents with the IRS on behalf of her customers. SUF ¶¶ 4-9.

The returns defendant prepares for others fabricate the amount of tax withheld on behalf of her customers. The fabricated tax withholding reported to the IRS on her customers' returns results in fraudulent refund claims by her customers in amounts as large as $2.7 million per customer. SUF ΒΆΒΆ 9, 11, 27. In support of these fraudulent refund claims, defendant prepares and files with the IRS false Forms 1099-OID, which are used to ...


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