I Have No Income - Gimme A Refund!

[The Observer]

ROBERT M. HEGER,
Plaintiff,
v.
UNITED STATES,
Defendant.

Release Date: JANUARY 20, 2012

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

(Filed: January 20, 2012)

Claim for refund of taxes paid; substantial variance doctrine;
I.R.C. section 7422(a); 26 C.F.R. section 301.6402-2(b)(1); application
of standards for summary judgment; burden of proof; 26 U.S.C. section
7491; loss or destruction of IRS administrative files

Robert M. Heger, pro se, Phelan, California.

Gregory S. Knapp, Attorney, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C., for defendant. With him on the briefs were John A. DiCicco, Principal Deputy Assistant Attorney General, Steven I. Frahm, Chief, and Mary M. Abate, Assistant Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

In this tax-refund case, plaintiff Robert M. Heger seeks the refund of $ 311,640.36 paid by a title company on his behalf to the Internal Revenue Service ("IRS") for taxes, penalties, and interest allegedly owed for tax years 1996 through 2001. The United States ("the government") has counterclaimed for $ 36,025.17 for taxes, penalties, and interest allegedly owed and unpaid by Mr. Heger for the 2006 tax year. Mr. Heger has moved for summary judgment regarding the taxes and penalties for 1996 through 2001 on the grounds that he had no taxable income for those years and that the IRS failed to furnish him notices of deficiency for the amounts allegedly owed. The government has filed a cross-motion to dismiss the claims of Mr. Heger insofar as they are based on the contention that the taxes and penalties were imposed absent notices of deficiency. Both motions have been briefed and argued and are ready for disposition.

BACKGROUND 1

On March 20, 2008, Cornerstone Title Company issued checks of $ 311,640.36 and $ 475.75 payable to the IRS for taxes, penalties, and interest allegedly owed by Mr. Heger for tax years 1996 through 2001. Compl. paragraphs 1, 5; Addendum to Pl.'s Mot. for Partial Summary Judgment ("Pl.'s Addendum") Exs. B-1, B-2. Apparently, the tax obligations were secured by liens on a property owned by Mr. Heger as a result of a bequest made by Mr. Heger's father, and those obligations were satisfied and the liens removed by the payment by the title company out of proceeds received upon sale of the property. Compl. paragraph 5; Pl.'s Mot. for Partial Summary Judgment ("Pl.'s Mot.") at 8.

On November 24, 2008, Mr. Heger submitted a letter to the IRS Commissioner in Washington, D.C., requesting a refund of the money paid. See Pl.'s Addendum Ex. A. In the letter, Mr. Heger contended that "for years 1996 [through] 2001 I did not have any taxable income and therefore am entitled to [a full] refund." Id. The IRS did not respond to Mr. Heger's refund request. Compl. paragraph 9. After passage of considerable time, on September 27, 2010, Mr. Heger mailed a request for records invoking the Freedom of Information Act to an IRS office located in Chamblee, Georgia. See Notice of Errata Ex. A. This request specifically sought copies of any available notices of deficiency, and any proof of their mailing, related to his income taxes for tax years 1996 through 2001. Id. 2 The IRS did not respond to Mr. Heger's request. Pl.'s Opp'n to Def.'s Mot. to Dismiss ("Pl.'s Opp'n") at 3.

Roughly six months later, on March 2, 2011, Mr. Heger filed the complaint in the present action. The government's answer denied Mr. Heger's claims and asserted a counterclaim of $ 36,025.17 for taxes allegedly unpaid by Mr. Heger for the 2006 tax year. Although neither party has directly addressed the counterclaim in the pending motions, the dispute over taxes for 2006 appears to stem from Mr. Heger's alleged failure to report as income his receipt of $ 206,775 from a life insurance and annuity company in that year. See Def.'s Opp'n to Pl.'s Mot. ("Def.'s Opp'n") Exs. 12, 14.

On August 23, 2011, Mr. Heger moved for partial summary judgment on his refund claims for the 1996 through 2001 tax years, arguing in accord with his complaint that he had no taxable income for those years and that the IRS had failed to furnish him with notices of deficiency. Thereafter, on October 18, 2011, Mr. Heger filed an addendum to his motion consisting of, among other things, a copy of the original refund-request letter sent to the IRS Commissioner. See Pl.'s Addendum Ex. A. On October 26, 2011, in light of the addendum, the government moved to dismiss Mr. Heger's complaint in part. The government contends that Mr. Heger's refund request to the IRS Commissioner, if construed as an administrative refund claim, raises only the no-taxable-income argument. See Def.'s Mot. to Dismiss ("Def.'s Cross-Mot."). As a consequence, the government takes the position that the other claim raised by Mr. Heger, that he was never provided with notices of deficiency, must be dismissed for lack of jurisdiction under the so-called variance doctrine. See id. at 4-5. Given this jurisdictional contention, the court will turn first to the government's cross-motion.

I. The Government's Motion to Dismiss

A. Jurisdiction

The Tucker Act, 28 U.S.C. section 1491(a)(1), grants this court jurisdiction over federal tax-refund claims. See Ledford v. United States, 297 F.3d 1378, 1382 (Fed. Cir. 2002); Dominion Res., Inc. v. United States, 97 Fed. Cl. 239, 246 (2011); cf. 28 U.S.C. section 1346(a)(1) (providing that district courts shall have jurisdiction concurrent with the Court of Federal Claims to consider tax-refund suits). The plaintiff bears the burden of demonstrating that each of his or her claims falls within this jurisdictional grant. See Barrett v. Nicholson, 466 F.3d 1038, 1041 (Fed. Cir. 2006) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 188-89 (1936)). In doing so, although "unchallenged allegations of the complaint should be construed favorably to the pleader," Hamlet v. United States, 873 F.2d 1414, 1416 (Fed. Cir. 1989) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)); see also Erickson v. Pardus, 551 U.S. 89, 94 (2007), disputed jurisdictional facts must be proved by a preponderance of the evidence, see Nez Perce Tribe v. United States, 83 Fed. Cl. 186, 188 (2008). In this respect, Mr. Heger's pro se pleadings are to be construed liberally, but leniency alone cannot relieve Mr. Heger of his burden to show jurisdiction. See, e.g., Jackson v. United States, 100 Fed. Cl. 34, 39 (2011) (quoting Riles v. United States, 93 Fed. Cl. 163, 165 (2010) (in turn citing Hughes v. Rowe, 449 U.S. 5, 9 (1980); Taylor v. United States, 303 F.3d 1357, 1359 (Fed. Cir. 2002))).

In tax-refund cases, the variance doctrine limits this court's jurisdiction. Ottawa Silica Co. v. United States, 699 F.2d 1124, 1139 (Fed. Cir. 1983). The doctrine springs from I.R.C. section 7422(a), which requires taxpayers to file a refund claim with the IRS before proceeding with an action in court for refund, and 26 C.F.R. section 301.6402-2(b)(1), which instructs taxpayers that a "claim must set forth in detail each ground upon which a . . . refund is claimed and facts sufficient to apprise the [IRS] of the exact basis thereof." "Courts have long interpreted [these two provisions] as stating a 'substantial variance' rule which bars a taxpayer from presenting claims in a tax refund suit that 'substantially vary' the legal theories and factual bases set forth in the tax refund claim presented to the IRS." Lockheed Martin Corp. v. United States, 210 F.3d 1366, 1371 (Fed. Cir. 2000) (citing Cook v. United States, 599 F.2d 400, 406 (Ct. Cl. 1979)); see also Marandola v. United States, 76 Fed. Cl. 237, 243 (2007) (Under the variance doctrine, "to be addressed by a court, both the legal and factual grounds for a refund claim must first have been presented by the taxpayer to the IRS."). This prohibition on presenting new claims to the trial court serves to give the IRS fair notice at the administrative level of the nature of the claims it must correct or defend. See Lockheed Martin, 210 F.3d at 1371; Union Pac. R.R. Co. v. United States, 389 F.2d 437, 442 (Ct. Cl. 1968).

B. Analysis

The issue presented by the government's cross-motion to dismiss is whether any of the claims set out in the complaint "substantially vary" from the claim or claims Mr. Heger submitted to the IRS via the letter sent to the IRS Commissioner. A comparison of the two submissions shows that the refund request alleges only one basis for recovery, which states in full: "for years 1996, 1997, 1998, 1999, 2000 and 2001 I did not have any taxable income and therefore am entitled to the refund of the $ 311,640.36." Pl.'s Addendum Ex. A. In contrast, Mr. Heger's complaint sets out two bases for recovery. The first, titled "Factual and Legal Basis for Claim; Non-Receipt of Taxable Income," states that "any income [Mr.] Heger received for the years in question was not taxable as contemplated under . . . [f]ederal [s]tatutes." Compl. paragraph 7. The second, titled "Factual and Legal Basis for Claim; Failure to Issue Statutory Notice of Deficiency," states that "the IRS failed to issue [Mr.] Heger a statutory notice [of] deficiency for the years 1996 through 2001, inclusive. . . . f [Mr.] Heger had taxable income on which the IRS believed he owed taxes and had not paid, a tax deficiency would have issued." Compl. paragraph 8.

In short, neither the facts nor the legal theory of Mr. Heger's notice-of-deficiency argument were expressed in his refund request. As the Supreme Court opined in United States v. Garbutt Oil Co., 302 U.S. 528, 533 (1938), the IRS Commissioner is "entitled to take [the claim] at face value and to examine only the points to which [the taxpayer] directed his attention." See also Lockheed Martin, 210 F.3d at 1371 (grounds for refund must be "expressly" or "impliedly" contained in the administrative claim for a refund (quoting Burlington N., Inc. v. United States, 684 F.2d 866, 868 (Ct. Cl. 1982))).

Given these general principles, Mr. Heger submits two reasons why the claim should not be dismissed. First, he contends that his notice-of-deficiency argument is only a specific variant of his more general claim that he had no taxable income from 1996 through 2001. Pl.'s Opp'n at 4-5. However, as explained by the Federal Circuit, "the general claim doctrine [applies] where (1) the taxpayer has filed a formal general claim [with the IRS] within the limitations period; and (2) an amendment is filed outside the limitations period that makes the general claim more specific." Computervision Corp. v. United States, 445 F.3d 1355, 1368 (Fed. Cir. 2006) (citing United States v. Andrews, 302 U.S. 517, 524 (1938)). Here, Mr. Heger seeks to amend a claim before a court, not a claim still before the IRS. In this case, there is no indication that the IRS considered, or logically should have considered, whether it had sent notices of deficiency as part of its deliberations related to Mr. Heger's refund request. Both factually and legally, the notice-of-deficiency contention is "unrelated" to the no-taxable-income claim. Computervision, 445 F.3d at 1369 (citing United States v. Henry Prentiss & Co., 288 U.S. 73, 83 (1933)). 3

Second, Mr. Heger argues that the IRS waived its variance defense by failing to respond to his administrative refund request. Pl.'s Opp'n at 6-7. However, waiver only applies "if the IRS considers that specific claim" during administrative proceedings. Computervision, 445 F.3d at 1365. Similar to the rationale behind the general-claim exception, the waiver exception is concerned with notice to the IRS. When the IRS chooses to examine a taxpayer's claim, even though the taxpayer did not specifically set it out in his or her refund request, the IRS has notice of that claim. See id. at 1366 (In this situation, it is "unmistakable that the Commissioner has in fact seen fit to dispense with [the] formal requirements and to examine the merits of the claim." (alteration in original) (quoting Angelus Milling Co. v. Commissioner, 325 U.S. 293, 297 (1945))). Therefore, when the IRS relies on grounds not stated in a taxpayer's administrative claim, the IRS waives the variance defense as to those grounds. See id. (citing Consolidated Coppermines Corp. v. United States, 296 F.2d 743, 744 (Ct. Cl. 1961)). In this case, just the opposite has occurred. Mr. Heger has failed to demonstrate that the IRS considered his claim at all, much less that it considered the notice-of-deficiency ground presented in his complaint. See Cencast Servs., L.P. v. United States, 94 Fed. Cl. 425, 443 (2010) ("Plaintiffs must present specific evidence that they 'adequately alerted the [IRS] to the fact that the item is a ground for refund.'" (quoting Davis v. United States, 21 Cl. Ct. 84, 86 (1990))). Consequently, the IRS has not waived its variance defense.

Because Mr. Heger's refund request to the IRS Commissioner only contended that Mr. Heger had no taxable income from 1996 through 2001, Mr. Heger did not raise, explicitly or implicitly, the notice-of-deficiency claim now proffered to this court. Accordingly, that aspect of his complaint for refund must be dismissed for lack of jurisdiction.

II. Mr. Heger's Motion for Summary Judgment

A. Standards for Decision

Summary judgment can be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Rule 56(a) of the Rules of the Court of Federal Claims ("RCFC"); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A material fact is one "that might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248. Because the party moving for summary judgment bears the burden of demonstrating the absence of any genuine issue of material fact, see Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), "the inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (alteration in original) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also AEY, Inc. v. United States, 99 Fed. Cl. 300, 304 (2011).

In tax-refund suits generally, "the taxpayer bears the burden of establishing the right to a refund." Stobie Creek Invs. v. United States, 82 Fed. Cl. 636, 663 (2008) (quoting Abrahamsen v. United States, 228 F.3d 1360, 1364 (Fed. Cir. 2000)), aff'd, 608 F.3d 1366 (Fed. Cir. 2010); see also Cook v. United States, 46 Fed. Cl. 110, 115-16 (2000). Additionally, an IRS assessment will be presumed correct unless it is "naked," that is, "arbitrary in the sense that the calculation has no support and the true amount of tax owed is incapable of being ascertained." Cencast Servs., 94 Fed. Cl. at 453 (quoting United States v. Schroeder, 900 F.2d 1144, 1149 (7th Cir. 1990)).

Against this background of common-law-derived procedures, see Cook, 46 Fed. Cl. at 116, Congress enacted I.R.C. section 7491, see Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, section 3001(a), 112 Stat. 685, 726-27. Under this statute, a taxpayer may shift to the IRS the burden of proof "with respect to any factual issue relevant to ascertaining the liability of the taxpayer" if the taxpayer "introduces credible evidence" and meets other conditions. I.R.C. section 7491(a)(1); see Jade Trading, LLC v. United States, 80 Fed. Cl. 11, 46 (2007), aff'd in part, rev'd in part, vacated in part, and remanded in part on other grounds, sub nom. Jade Trading, LLC ex rel. Ervin v. United States, 598 F.3d 1372 (Fed. Cir. 2010).

B. Analysis

Mr. Heger contends that he is entitled to summary judgment on two independent grounds. First, he argues that it is undisputed that the IRS failed to send him notices of deficiency for the taxes allegedly owed from 1996 through 2001, thus invalidating collection of the taxes. Pl.'s Mot. at 4-5. Second, he argues that the IRS has not produced evidence substantiating its assessments for those years, so those assessments are "naked" and invalid regardless of whether he produces proof of his own showing that he is entitled to a refund. Id. at 11-12. The government responds that Mr. Heger bears the burden of proof on this motion, that he has not carried that burden with competent evidence, and that, in any event, the government has produced evidence showing that material facts remain in dispute. Def.'s Opp'n at 2-3, 5.

Mr. Heger's first ground for summary judgment, that he did not receive notices of deficiency, fails because it varies from the basis of his administrative refund request. See supra, at 4-5.

Mr. Heger's second ground for summary judgment, essentially that the IRS has failed to carry its burden of proof, requires discussion. Mr. Heger primarily relies on I.R.C. section 7491, arguing that the government has the burden of proof and therefore he need not come forward with any affirmative evidence to prevail at summary judgment. It is true that "the moving party is entitled to a judgment as a matter of law [if] the nonmoving party has failed to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof." Celotex, 477 U.S. at 323 (internal quotation marks omitted). It is also true that I.R.C. section 7491 shifts the burden of proof to the government under certain conditions. If those conditions were met, then the government could conceivably be required to come forward with evidence of disputed material facts.

Mr. Heger's submissions, however, fail to meet the conditions of I.R.C. section 7491. The statute requires the taxpayer to bring forward "credible evidence." I.R.C. section 7491(a)(1); see Stobie Creek, 82 Fed. Cl. at 663 (citing Long Term Capital Holdings v. United States, 330 F. Supp. 2d 122, 166 (D. Conn. 2004)). 4 Evidence held by courts to be credible includes expert witness reports and testimony, see Okerlund v. United States, 53 Fed. Cl. 341, 345, 355-56 (2002), aff'd, 365 F.3d 1044 (Fed. Cir. 2004), and documentary evidence presented at trial, see Southgate Master Fund, LLC ex rel. Montgomery Capital Advisors, LLC v. United States, 651 F. Supp. 2d 596, 649 (N.D. Tex. 2009), aff'd, 659 F.3d 466 (5th Cir. 2011). Contrastingly, Mr. Heger has presented only the assertions made in his pleadings and declarations. These submissions are not credible evidence under I.R.C. section 7491. See Kolbeck v. Commissioner, 90 T.C.M. (CCH) 459, 2005 WL 2848030, at *2 (2005) (sworn affidavit in lieu of in accessible tax records held not credible); Evan v. Commissioner, T.C.M. (RIA) 2004-180, 2004 WL 1730295, at *3, *7-8 (2004) (petitioners' unsubstantiated oral and written testimony held not credible); Higbee v. Commissioner, 116 T.C. 438, 444 (2001) (self-generated receipts of charitable donations held not credible).

In the absence of Section 7491's burden-shifting provisions, Mr. Heger bears the burden of proof and so must affirmatively produce evidence demonstrating that "there is no genuine dispute as to any material fact." RCFC 56(a); see Monarch Knitting Mach. Corp. v. Sulzer Morat GmbH, 139 F.3d 877, 880-81 (Fed. Cir. 1998). This he has failed to do. As just discussed, the only evidence produced by Mr. Heger thus far is his own pleadings and declarations. These are insufficient as sources of evidence not only for Section 7491 purposes, but for summary judgment as well. See Applied Cos. v. United States, 144 F.3d 1470, 1475 (Fed. Cir. 1998) (a single affidavit containing "a conclusory statement on the ultimate issue does not create a genuine issue of fact" (quoting Imperial Tobacco Ltd. v. Philip Morris, Inc., 899 F.2d 1575, 1581 (Fed. Cir. 1990))); cf. Celotex, 477 U.S. at 324 (summary judgment may be opposed by the evidentiary materials permitted in Rule 56 "except the mere pleadings themselves" (emphasis added)); Pure Gold, Inc. v. Syntex (U.S.A.), Inc., 739 F.2d 624, 626-27 (Fed. Cir. 1984) ("In countering a motion for summary judgment, more is required than mere assertions of counsel."). This is so even though the government faces a major obstacle of its own, i.e., that it reportedly has lost or destroyed the administrative file for Mr. Heger's tax years prior to 2001. See Def.'s Opp'n at 8 n.4. As noted in Jenkins v. United States, __ Fed. Cl. __, __, 2011 WL 4098972, at *6 (2011), while the loss of a taxpayer-plaintiff's IRS administrative file "did not shift the burden of proof . . ., it did require [the government] to show that a prima facie case for the assessment of the penalty existed, i.e., that the assessment was not naked."

The factual inferences arising from the IRS' missing files do not themselves serve to perfect the deficiencies in Mr. Heger's evidence to support summary judgment. See Broomall Indus., Inc. v. Data Design Logic Sys., Inc., 786 F.2d 401, 405 (Fed. Cir. 1986) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 160 (1969)). Notwithstanding the missing files, the government has made a showing that material facts remain in dispute. The government has submitted a Form 4340 Certificate of Assessments and Payments for each tax year in question. See Def.'s Opp'n Exs. 1-6. These certificates are presumed valid, see Dallin ex rel. Estate of Young v. United States, 62 Fed. Cl. 589, 600 (2004); see also Brach v. United States, 98 Fed. Cl. 60, 67 n.13 (2011), aff'd on other grounds, __ Fed. Appx. __, 2011 WL 4821969 (Fed. Cir. 2011), and raise the possibility that Mr. Heger had taxable income for each year. In particular, each form notes a "substitute for return," e.g., Def.'s Opp'n Ex. 1, at A-2, and several award Mr. Heger a "withholding credit," id. Ex. 1, at A-2; Ex. 3, at A-12; Ex. 4, at A-17. Moreover, for the 2001 tax year, the government has furnished additional documents. One such document is a letter from the IRS to Mr. Heger that states "we [the IRS] have figured your tax and proposed penalties based on the information your employers, banks, and other payers reported on Forms W-2, W-2P, 1099, etc." Id. Ex. 11, at A-40. Another is an Income Tax Examination Changes chart, which lists several sources of income for Mr. Heger: "Non-Employee Compensation," "Wages," and "Dividends." Id. Ex. 13, at A-44. This evidence is sparse, but it is enough to show "that a reasonable [judge] could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; see Dallin, 62 Fed. Cl. at 600-01.

In conclusion, Mr. Heger's summary judgment motion fails because material facts remain in dispute. In this instance, although the court strongly disfavors seriatim motions for summary judgment, either party may move for summary judgment in the future if the party can demonstrate, after adequate time for discovery, a record free of genuine disputes of material fact. See Metropolitan Life Ins. Co. v. Bancorp Servs., L.L.C., 527 F.3d 1330, 1336-37 & n.3 (Fed. Cir. 2008). Otherwise, a trial will be required.

CONCLUSION

For the reasons stated, Mr. Heger's motion for partial summary judgment is DENIED, and the government's motion to dismiss the complaint in part is GRANTED. The parties shall file a joint preliminary status report on or before February 21, 2012.

It is so ORDERED.

Charles F. Lettow
Judge

FOOTNOTES:

/1/ The recitation of background information does not constitute findings of facts by the court and is given solely to provide a context for deciding the current motions. Unless otherwise noted, however, the circumstances appear to be undisputed.

/2 / The IRS cannot begin proceedings to collect a tax deficiency until it has mailed the taxpayer in question a notice of that deficiency. See 26 U.S.C. ("I.R.C.") section 6213(a).

/3/ In this vein, Mr. Heger contends that his refund request denying taxable income encompasses his notice-of-deficiency argument because, without a notice of deficiency, the IRS could not collect any tax from him. Based upon these postulates, Mr. Heger concludes that he necessarily had no taxable income. See Pl.'s Opp'n at 5. This reasoning is unpersuasive. While there is no question that "notice is generally a prerequisite to any attempt by the IRS to assess or collect on [a] deficiency," Bush v. United States, 655 F.3d 1323, 1328 (Fed. Cir. 2011) (en banc) (citing Commissioner v. Shapiro, 424 U.S. 614, 618 (1976)), such notice bears on the IRS' ability to collect the tax, not the existence of taxable income in the first instance. Cf. Philadelphia & Reading Corp. v. United States, 944 F.2d 1063, 1073 (3d Cir. 1991) (positing that the IRS may correct a failure to issue a notice of deficiency simply by reassessing the tax, so long as the statute of limitations has not expired).

/4/ Section 7491's accompanying legislative history defines the term "credible evidence" as:

[T]he quality of evidence which, after critical
analysis, the court would find sufficient upon which
to base a decision on the issue if no contrary evidence
were submitted (without regard to the judicial presumption
of IRS correctness). A taxpayer has not produced
credible evidence for these purposes if the taxpayer
merely makes implausible factual assertions, frivolous
claims, or tax protestor-type arguments. The introduction
of evidence will not meet this standard if the court
is not convinced that it is worthy of belief. If
after evidence from both sides, the court believes
that the evidence is equally balanced, the court
shall find that the Secretary has not sustained his
burden of proof.

H.R. Rep. No. 105-599, at 240-41 (1998) (Conf. Rep.). The definition was not included in the statute itself, so the court considers it to be merely informative rather than authoritative. Cf. United States v. Louisiana, 394 U.S. 11, 38-39 (1969); Teledyne, Inc. v. United States, 50 Fed. Cl. 155, 174 (2001).

[The Observer]

ROBERT M. HEGER,
Plaintiff,
v.
UNITED STATES,
Defendant.

Release Date: AUGUST 21, 2013

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

(Filed: August 21, 2013)

Claim for refund of taxes paid; counterclaim for taxes allegedly
due; summary judgment; RCFC 56; forfeiture of fraudulent claims;
28 U.S.C. section 2514; proof of income received subject to taxation

Robert M. Heger, pro se, Bozeman, Montana.

Gregory S. Knapp, Attorney, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C., for defendant. With him on the briefs were Kathryn Keneally, Assistant Attorney General, David I. Pincus, Chief, and Mary M. Abate, Assistant Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

Plaintiff, Robert M. Heger, seeks to recover $ 312,116.11 in income taxes, penalties, and interest paid for tax years 1996 through 2001. These funds were remitted to the Internal Revenue Service ("IRS") by a title company following the sale of an inherited property in 2008. The United States ("the government") has in turn filed a counterclaim for $ 36,025.17 in additional taxes, penalties, and interest, alleging that Mr. Heger failed to pay required income tax for the 2006 tax year. The court previously denied a motion for partial summary judgment filed by the taxpayer. See Heger v. United States, 103 Fed. Cl. 261 (2012). Currently before the court is the government's motion for summary judgment on both Mr. Heger's claim and its own counter-claim. In support of its motion, the government contends that it has provided the court with sufficient documentation to establish Mr. Heger's liability for the taxes, penalties, and interest at issue in both instances. Additionally, as a further ground for summary judgment on Mr. Heger's claim, the government argues that Mr. Heger has forfeited his claim for refund through the operation of 28 U.S.C. section 2514 by making false representations at a level which constitutes fraud. The government's motion has been briefed and argued, and is now ready for disposition.

BACKGROUND 1

Mr. Heger generally objects to the assessment of federal income tax. See Pl.'s Opp'n to Def.'s Mot. for Summary Judgment and Mem. in Support ("Pl.'s Opp'n") at 4-5 ("[Mr.] Heger's core claim that his income, i.e., wages and salary, is not taxable income is his sincerely held personal belief."), ECF No. 55. From 1996 to 2001, Mr. Heger omitted to file tax returns with the IRS. See Compl. paragraphs 6-8; Def.'s Proposed Findings of Uncontroverted Fact in Support of its Mot. for Summary Judgment ("Def.'s Proposed Findings") paragraphs 6, 11-12, ECF No. 50. In March 2008, Cornerstone Title Company ("Cornerstone") issued two checks to the IRS in the amounts of $ 311,640.36 and $ 475.75, which amounts had been assessed by the IRS for taxes, penalties, and interest allegedly owed by Mr. Heger for the period of 1996 to 2001. Compl. paragraph 5; Addendum to Pl.'s Mot. for Partial Summary Judgment ("Pl.'s Addendum"), Exs. B-1, B-2 (photocopy of checks issued by Cornerstone to IRS), ECF No. 21. 2 These payments were made from the proceeds of a sale of property belonging to Mr. Heger, to which the IRS had attached liens. Compl. paragraph 5.

Mr. Heger sought a refund of the amount disbursed by Cornerstone by submitting a letter to the IRS Commissioner in Washington, D.C. on November 24, 2008. See Pl.'s Addendum, Ex. A (letter from Mr. Heger to IRS Commissioner). 3 In this letter, Mr. Heger claimed that he was entitled to a full refund because he "did not have any taxable income" during the relevant period. Id. After a year and a half passed with no response from the IRS, Mr. Heger made a request for records from an IRS office in Chamblee, Georgia, invoking the Freedom of Information Act. Notice of Errata, Ex. A (Letter from Mr. Heger to IRS District Director (Sept. 27, 2010)), ECF No. 31. Mr. Heger sought in this letter to receive copies of notices of deficiency and proof of mailing of these notices, related to the income taxes assessed by the IRS for 1996 through 2001. Id. Again, the IRS did not respond. Heger, 103 Fed. Cl. at 262. At some point during the interim between the 1996 through 2001 tax years and the present day, the IRS either lost or destroyed most of its files relating to Mr. Heger's tax assessments for those years. See Def.'s Mot. for Summary Judgment ("Def.'s Mot.") at 1-2, ECF No. 49.

On March 2, 2011, Mr. Heger filed the present action in this court, seeking to recover the amount paid by Cornerstone to the IRS in discharge of the lien. The government answered Mr. Heger's claims and asserted a counterclaim of $ 36,025.17 for taxes allegedly left unpaid by Mr. Heger in the 2006 tax year. See Def.'s Answer and Counterclaim, ECF No. 6. The government alleges that Mr. Heger received income in 2006 derived from two distributions from a life insurance annuity, which Mr. Heger failed to report to the IRS but which were reported by the insurance company making the disbursements. Def.'s Mot. at 3.

On August 23, 2011, Mr. Heger moved for partial summary judgment on his own refund claims for the 1996 through 2001 period, presenting a two-pronged argument: first, that he had no taxable income during those years, and second, that the IRS failed to provide notice of the alleged deficiencies as is required prior to collection. Pl.'s Mot. for Partial Summary Judgment at 1-2, ECF No. 9. On October 26, 2011, the government moved to dismiss Mr. Heger's complaint in part, pointing to Mr. Heger's 2008 letter to the IRS Commissioner to show that he raised only the no-taxable-income argument at the administrative level, and thus the court lacked jurisdiction to address the lack-of-notice claim under the "substantial variance" doctrine. See Def.'s Mot. to Dismiss Compl. in Part at 1, 4-5, ECF No. 23.

On January 20, 2012, the court held that it lacked jurisdiction over the notice-ofdeficiency aspect of Mr. Heger's claim and granted the government's motion to dismiss the complaint in part. Heger, 103 Fed. Cl. at 265. The court ruled that it had jurisdiction under the Tucker Act, 28 U.S.C. section 1491(a)(1), over the surviving claims. See id. at 263-65. Regarding Mr. Heger's motion for partial summary judgment, the court concluded that Mr. Heger had failed to bring forward "credible evidence" as required by 26 U.S.C. ("I.R.C.") section 7491(a)(1) to support his claim, but instead he had rested on bare assertions made in his pleadings and declarations, many of which posited facts strenuously disputed by the government. Id. at 266. Accordingly, the court denied Mr. Heger's motion for summary judgment and urged the parties to pursue discovery with an eye to possible motions for summary judgment going forward. Id. at 267-68.

On December 7, 2012, the government filed a motion for summary judgment on both Mr. Heger's original claim and its own counterclaim. 4 Briefing and a hearing on the motion has taken place, and accordingly the government's motion for summary judgment is ready for disposition.

STANDARDS FOR DECISION

Summary judgment can be granted only in the absence of a "genuine dispute as to any material fact." RCFC 56(a). Material facts are those which "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For a dispute to be genuine, it must be capable of being "reasonably . . . resolved in favor of either party." Id. at 250. If inferences must be drawn, the court must view them "in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The proponent of the motion may cite to "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . ., admissions, interrogatory answers, or other materials" in support. RCFC 56(c)(1)(A). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party," the court will grant summary judgment. Matsushita, 475 U.S. at 587.

In a suit for tax refund, generally "'the taxpayer bears the burden of establishing the right to a refund.'" Stobie Creek Invs., LLC v. United States, 82 Fed. Cl. 636, 663 (2008) (quoting Abrahamsen v. United States, 228 F.3d 1360, 1364 (Fed. Cir. 2000)), aff'd, 608 F.3d 1366 (Fed. Cir. 2010). In its prior opinion, this court noted both that Mr. Heger bears that burden but also that the government is required first to make a prima facie case for its assessment of the pertinent penalty. See Heger, 103 Fed. Cl. at 267 ("Mr. Heger bears the burden of proof. . . . This is so even though the government faces a major obstacle of its own, i.e., that it reportedly has lost or destroyed the administrative file for Mr. Heger's tax years prior to 2001. . . . [W]hile the loss of a taxpayer-plaintiff's IRS administrative file 'd[oes] not shift the burden of proof . . ., it d[oes] require [the government] to show that a prima facie case for the assessment of the penalty exist[s], i.e., that the assessment was not naked.'" (quoting Jenkins v. United States, 101 Fed. Cl. 122, 130 (2011))).

ANALYSIS

A. Summary Judgment on Plaintiff's Claim

In moving for summary judgment in its favor on the original claim filed by Mr. Heger for a refund of income taxes for the years 1996 through 2001, the government contends that its assessments are far from "naked," and that Mr. Heger has failed to meet his own burden of establishing his right to a refund of the assessed and collected amounts. Def.'s Mot. at 7-11. The court agrees.

In support of its motion, the government points to third-party payer information which forms the basis of its assessment of income tax for those periods. Def.'s Mot. at 8. Although the original IRS files have been lost or destroyed, the court will consider the submission of third-party payer information as evidence of the basis for the income tax assessments for the purposes of the summary judgment motion. See Jenkins, 101 Fed. Cl. at 130 (permitting the government to present evidence demonstrating the existence of income and tax liability at trial, even though the original IRS files had been lost). 5 This documentation, supplied to the IRS by Mr. Heger's former employers, allows the IRS to calculate and show Mr. Heger's income and thus income tax liability, even though he did not himself report the income. See, e.g., Def.'s Mot., App., Ex. 8 (Decl. of Irene S. Tse, IRS Revenue Agent) paragraphs 9-10; Ex. 9 at A-188 to -89 (Letter from IRS to Mr. Heger (May 25, 2004) (explaining method of assessment for 2001 income tax)). Unlike the proverbial emperor, the government in this case has clothed its assessments in substantial raiment, consisting of documentation of Mr. Heger's employment and receipt of taxable income for each of the years encompassed in Mr. Heger's original complaint. See Def.'s Mot., App., Ex. 1 (certificates of assessments of Mr. Heger's income tax); Ex. 3 (NetApp, Inc. documentation of Mr. Heger's employment and income); Ex. 5 (Molecular Dynamics, Inc. documentation of Mr. Heger's employment and income).

Mr. Heger has not refuted the documentation provided by the government of his employment and income during the tax years 1996 through 2001. His response to the government's motion for summary judgment has instead focused on attacking the government's alternate ground for summary judgment, forfeiture (discussed infra). See Pl.'s Opp'n, passim. Mr. Heger's other submissions have objected to the admissibility of the government's documentation, discussed supra n.5, without addressing the veracity of the documentary contents. See Pl.'s Second Opp'n, passim. In short, Mr. Heger has pointed to no material fact which remains in dispute after the government's demonstration of his employment and income during the relevant time period. No rational trier of fact could find that Mr. Heger is entitled to a refund. Accordingly, summary judgment in the government's favor on the plaintiff's original claim is appropriate.

B. Forfeiture of Plaintiff's Claim

In the alternative to its merits arguments, the government contends that it is also entitled to summary judgment on Mr. Heger's original claim pursuant to the Forfeiture of Fraudulent Claims statute, 28 U.S.C. section 2514. Def.'s Mot. at 11-14. Under the statute, a plaintiff forfeits his or her entire claim against the United States if he or she "corruptly practices or attempts to practice any fraud against the United States in the proof, statement, establishment, or allowance thereof." 28 U.S.C. section 2514. In the context of tax refund suits, this court has referred to this statute as a "silver bullet," holding that even any "attempted fraud against the United States" is sufficient to cause forfeiture of the entire suit. Farkas v. United States, 57 Fed. Cl. 134, 146 (2003) (emphasis in original). Fraud perpetrated on behalf of one portion of the claim cannot be severed from the remainder of the claim; fraud in one aspect of the case forfeits the whole. See DeRochemont v. United States, 23 Cl. Ct. 87, 89-90 (1991) (citing Little v. United States, 152 F. Supp. 84, 87-88 (Ct. Cl. 1957)). Fraud must be shown by clear and convincing evidence, which can be demonstrated by "placing the questioned documents and statements alongside well-known and established facts." Kamen Soap Prods. Co. v. United States, 124 F. Supp. 608, 620 (Ct. Cl. 1954).

In the instant case, Mr. Heger has made misrepresentations to the court and to the government in pursuit of his desired refund. Indeed, the central premise of his suit is one which has proven to be patently false: that "any income [Mr.] Heger received for the years in question was not taxable." Compl. paragraph 7. Although Mr. Heger may genuinely object to assessment of income tax, see Pl.'s Opp'n at 4-5, a conscientious objection to income tax does not excuse use of false legal assertions to evade such taxes, see Cheek v. United States, 498 U.S. 192, 204-05 (1991). Mr. Heger's protestations of no taxable income are plainly contradicted by the documentation produced by the government, derived from multiple sources, of Mr. Heger's taxable income. Mr. Heger has contended that because he claims his no-taxation belief is "sincerely held," the question of whether he intended to commit fraud by denying receipt of taxable income is one for trial. Pl.'s Opp'n at 4-6. The court need not delve into Mr. Heger's motivation because his misrepresentations extend into a number of other factual areas.

In addition to claiming that he had no taxable income, Mr. Heger has steadfastly contended that he had no income whatsoever, and furthermore that he was unemployed during the relevant time periods. See, e.g., Def.'s Mot., App., Ex. 12 at A-245 (Mr. Heger's responses to Special Interrogatories). As discussed supra, Mr. Heger was in actuality employed by at least two different companies during that time. See id., App., Ex. 3 (NetApp, Inc. documentation of Mr. Heger's employment and income); Ex. 5 (Molecular Dynamics, Inc. documentation of Mr. Heger's employment and income). Mr. Heger has held to this fiction even to the point of propounding it directly to the court. Hr'g Tr. 20:15-18; 21:15-22 (Jan. 10, 2012). Placing Mr. Heger's statements side by side with the documentation produced by the government shows explicitly and convincingly that Mr. Heger has attempted to mislead the court to further his quest to avoid paying taxes. By doing so, Mr. Heger has forfeited the entirety of his original claim, and the government correspondingly prevails on its alternative ground for summary judgment.

C. Summary Judgment on Government's Counterclaim

The government has moved for summary judgment on its counterclaim of $ 36,327.92 for taxes, penalties and interest derived from the 2006 tax year. Def.'s Mot. at 14-18. 6 As in previous years, Mr. Heger declined to file any income tax returns or documents with the IRS, and consequently the IRS eventually prepared a "substitute for return" on his behalf. See id., App., Ex. 1 at A-31 to -34 (2006 tax year IRS certificate of assessment) (reflecting the assessment and the lack of payment). The IRS audited Mr. Heger for the 2006 tax year and discovered that Hartford Life & Annuity Insurance Co. ("Hartford") had disclosed to the IRS two distributions from an annuity to Mr. Heger during that time period. See id., App., Ex. 8 paragraphs 4-7 (Decl. of Irene S. Tse, IRS Revenue Agent). The government has produced to the court documents reflecting the disbursements from Hartford Life, the first for the taxable amount of $ 87,149.97 and the second for the taxable amount of $ 13,626.64, for a total taxable amount of $ 100,776.61. Id., App., Ex. 7 at A-134 to -35 (Hartford Forms 1099-R); Ex. 12 at A-241 (Letter from Hartford to Mr. Heger (Apr. 4, 2012) (confirming disbursement of annuity funds)). 7

Mr. Heger has produced no countervailing evidence. Instead, he has rested on unsupported denials of the government's claims. See Pl.'s Answer to Counterclaim. 8 With the exception of his general evidentiary objections to the documents proffered by the government, his briefing on the government's motion for summary judgment entirely avoids addressing the government's counterclaim. In the circumstances, the court finds that the government has adequately supported its counterclaim, there are no genuine disputes as to any of the material facts, and the government's motion for summary judgment on its counterclaim is GRANTED.

CONCLUSION

For the reasons stated, the government's motion for summary judgment on the plaintiff's original claim and on the government's counterclaim is GRANTED. Mr. Heger is not entitled to a refund of the taxes assessed and collected for the tax years 1996 through 2001. Additionally, Mr. Heger must remit to the government payment of his tax liability for the tax year 2006, in the amount of $ 36,327.92 plus any additional interest accruing to the date of his payment.

The clerk is directed to enter judgment for defendant and against plaintiff as specified.

No costs.

It is so ORDERED.

Charles F. Lettow
Judge

FOOTNOTES:

/1/
The recitation of background information does not constitute findings of facts by the court and is given solely to provide a context for deciding the current motions. Unless otherwise noted, however, the circumstances appear to be undisputed.

/2/ Plaintiff's Addendum was filed in connection with his motion for partial summary judgment which was previously denied. See Heger, 103 Fed. Cl. at 266-68. At the time of the earlier decision, "although the court strongly disfavors seriatim motions for summary judgment," the court invited "either party [to] move for summary judgment in the future if the party can demonstrate, after adequate time for discovery, a record free of genuine disputes of material fact." Id. at 267 (citing Metropolitan Life Ins. Co. v. Bancorp Servs., L.L.C., 527 F.3d 1330, 1336-37 & n.3 (Fed. Cir. 2008)).

/3/ While many of Mr. Heger's initial documents submitted to the IRS and, subsequently, to the court, identify the amount of $ 311,640.36, Mr. Heger has since revised his request to encompass the additional amount of $ 475.75 also remitted to the IRS by Cornerstone. See Pl.'s Answer to Counterclaim paragraph 1, ECF No. 8.

/4/ On that same day, the government also filed a motion to amend its pleadings pursuant to Rule 15(a)(2) of the Rules of the Court of Federal Claims ("RCFC"), to incorporate an affirmative defense under the Forfeiture of Fraudulent Claims statute, 28 U.S.C. section 2514. Def.'s Mot. for Leave to File . . . First Am. Answer and Counterclaim, ECF No. 51. This motion is premised on discovery that took place following the court's prior decision, which discovery the government contends revealed documentation allegedly demonstrating Mr. Heger's fraud in statements to the IRS and to the court. Id. at 2.

The court is not always inclined to grant such motions if the moving party has unduly delayed action to amend its pleadings after gaining knowledge of the need for amendment. See Rockwell Automation, Inc. v. United States, 70 Fed. Cl. 114, 124 (2006) (denying a similar motion because the government delayed eight years in amending its filing). However, short of such circumstances, the court "should freely give leave when justice so requires." RCFC 15(a)(2); see Foman v. Davis, 371 U.S. 178, 182 (1962); Te-Moak Bands of W. Shoshone Indians of Nev. v. United States, 948 F.2d 1258, 1260-61 (Fed. Cir. 1991); System Fuels, Inc. v. United States, 65 Fed. Cl. 163, 173 n.9 (2005). The government filed its motion within months of obtaining the documents which form the basis of this affirmative defense; accordingly, the court GRANTS the government's motion to amend its pleadings to incorporate the affirmative defense of forfeiture.

/5/ Mr. Heger has objected to the government's submission of many documents obtained by the government during discovery, characterizing declarations as mere hearsay and documentation as unverifiable and thus inadmissible. Pl.'s Second Opp'n to Def.'s Mot. for Summary Judgment ("Pl.'s Second Opp'n") at 3-7, ECF No. 63. Mr. Heger's objection is premised on a misapprehension of the pertinent rules. As noted supra, motions for summary judgment may be supported by such things as "depositions, documents, electronically stored information, affidavits or declarations, stipulations . . ., admissions, interrogatory answers, or other materials." RCFC 56(c)(1)(A). Those materials need not necessarily meet the requirements of the Federal Rules of Evidence for admissibility, but here, in actuality, all of the materials supplied by the government could be admissible at trial, provided proper foundational requirements were satisfied.

/6/ The government sought a base tax assessment of $ 20,183.00, plus an additional penalty of $ 4,541.18 for failure to timely file, pursuant to I.R.C. section 6651(a)(1), $ 4,743.00 for failure to pay the tax, pursuant to I.R.C. section 6651(a)(2), $ 955.14 for failure to pay estimated tax, pursuant to I.R.C. section 6654, and interest in the amount of $ 5,602.85 at the time of filing of the counterclaim, pursuant to I.R.C. section 6601. See Def.'s Supplemental Br. in Support of its Mot. for Summary Judgment, Ex. 19 (updated 2006 tax year IRS certificate of assessment), ECF No. 69.

Although the counterclaim as filed sought $ 4,743.00 for late payment, that amount must be increased pursuant to I.R.C. section 6651(a)(2), which imposes additional monthly penalties until payment is made. The statute provides that

unless it is shown that such failure [to pay tax
on a return specified in I.R.C. section 6651(a)(1)]
is due to reasonable cause and not due to willful
neglect, there shall be added to the amount shown
as tax on such return 0.5 percent of the amount of
such tax if the failure is for not more than 1 month,
with an additional 0.5 percent for each additional
month or fraction thereof during which such failure
continues, not exceeding 25 percent in the aggregate.


I.R.C. section 6651(a)(2). The penalty amount has accrued to its ceiling in the interim between filing of the counterclaim and this disposition. The court will treat the total requested relief as accordingly adjusted to add the further amount of $ 302.75.

/7/ An additional $ 106,000 was included in the gross distribution, but that amount was not taxable and is not at issue here. Def.'s Mot., App., Ex. 7 at A-134 to -35 (Hartford Forms 1099R).

/8/ Based on Mr. Heger's responses to the government's interrogatories, the government apparently anticipated some argument regarding the taxable nature of his annuity income. See Def.'s Mot. at 15-16. However, no such argument has materialized in any filings made to the court and consequently it will not be considered.

[Famspear]

....Although Mr. Heger may genuinely object to assessment of income tax, see Pl.'s Opp'n at 4-5, a conscientious objection to income tax does not excuse use of false legal assertions to evade such taxes.....

The typical tax protester feels that he or she has some sort of legal or moral right to continue to assert, in court proceedings, over and over, that the law is what the protester asserts the law to be, even though that assertion has been ruled to be incorrect in prior court cases (whether involving that same individual or some other individual) every single time the assertion has been raised. The tax protester is wrong.

....Heger's core claim that his income, i.e., wages and salary, is not taxable income is his sincerely held personal belief."...

We have laws penalizing those people who use frivolous arguments in court. The purpose of such laws:

....is to induce litigants to conform their behavior to the governing rules regardless of their subjective beliefs. Groundless litigation diverts the time and energies of judges from more serious claims; it imposes needless costs on other litigants. Once the legal system has resolved a claim, judges and lawyers must move on to other things. They cannot endlessly rehear stale arguments. Both appellants say that the penalties stifle their right to petition for redress of grievances. But there is no constitutional right to bring frivolous suits....

--from Coleman v. Commissioner, 791 F.2d 68 (7th Cir. 1986) (emphasis added).

[grixit]

It takes a special kind of perseverence to lose so badly in a case where the government screwed up like that.