Robert L. Schulz & $225,000 penalty

[Famspear]

On March 9, 2015, the Internal Revenue Service reportedly assessed a penalty of $225,000 against Robert L. Schulz under 26 USC section 6700, dealing with the promotion of abusive tax shelters, etc.

In April 2015, Schulz apparently paid $1,000 of the penalty amount and filed a Form 6118, Claim for Refund of Tax Return Preparer and Promoter Penalties.

Of course, Schulz is contesting the validity of the entire $225,000 penalty. On November 2, 2015, Schulz filed a pro se complaint against the United States in the U.S. District Court for the Northern District of New York. This is case number 15-cv-01299-BKS-CFH.

Fortunately, Schulz has been receiving assistance from a heavy hitter -- Samuel Lambert, a tax attorney in Salt Lake City. According to Mr. Lambert's resume, Mr. Lambert was formerly with the Tax Division of the U.S. Department of Justice. However, in the Federal District Court proceeding, Schulz still appears to be pro se.

[Famspear]

According to materials filed in the District Court case, the Internal Revenue Service issued a Notice of Federal Tax Lien (NFTL) for $224,000, dated November 24, 2015, against Schulz. The NFTL may have been filed in Warren County, New York.

Bob Hurt has published or re-published this material in connection with Schulz:

March 24, 2017

Dear Friends of Liberty,

He’s been holding government accountable for three decades without taking a penny for his work, in an effort to restore the First Amendment Right to Petition.

In an epic lawsuit now underway between Bob and the government, all energy left in 77 year old Schulz is now going into his own defense.

He’s had no other choice but to place his Life’s work - through his national and New York State organizations - on hold indefinitely, until the case is resolved.

What’s on the line? A six figure penalty assessed against him which cannot legally apply to anyone who has never taken income or made money for the work they do. To have it dropped, he has to prove it. No stone is being left unturned in their Discovery process. To encourage suffering and distress, they put a lien on his farm and land so he is unable to sell any parcels, blocking the means through which Bob has been able to pay his property and school taxes through the years.

Bob and his wife have lived only on meager social security payments dedicating their lives to government accountability and defense of our Constitutions. You have seen their 24/7 level of determination and dedication to the Cause of Liberty.

The property tax is now due. Bob and Judy have been scraping to try to find what is owed and they are only half way there.

Someone suggested crowdfunding would make possible what appears impossible.

If you’d like to help them, a GOFUNDME crowdfunding page has been established to raise the remaining $2,600.00 amount which is needed. The bill is due, so time is of the essence.

Click on this link to DONATE: [link redacted]

In his lawsuit, there is so much more at stake than one man’s efforts, as his work was meant to restore the power back to the People where it was meant to reside in the first place. The Right to Petition IS the Accountability Clause that allows us to claim redress for constitutional grievances, a Right the government may not want us to have.

If you are interested in the lawsuit, attached is Bob’s most recent submission to the Court. The Motion for Reconsideration has three components - an important Affidavit from long-standing Congressman Roscoe Bartlett who was a key player in the events of 2003 around which this lawsuit is focused -; a Memorandum of Law written by Bob and how own Affidavit.

We pray that the funds will come and thank you for your assistance to them. We pray they will soon be FREE and able to return to the Vision they have worked so hard to manifest in America. Thank you so much for your time and consideration.

Friends of Bob Schulz

[Famspear]

For background on Robert L. Schulz:

http://tpgurus.wikidot.com/robert-schulz

and

https://en.wikipedia.org/wiki/Robert_L._Schulz

and

https://en.wikipedia.org/wiki/We_the_People_Foundation

[Pottapaug1938]

So Schulz makes a chump-change payment (1/225th of what he owes), and thinks that this gives him a Golden Ticket to challenge the entire lien yet again.

Wow.

[Duke2Earl]

And yet Shultz is perfectly happy to take the our tax dollars as social security payments that he is living on.

[AndyK]

Funny how no one has mentioned 'We The People' and the fees Bob has charged them for various services over the years.

At last look, the 'We The People Foundation' is in deep doodoo with the IRS for Bob's failure to reply to a time-sensitive notice which was delivered to his house while he was away.

In any case, the Tax Court site shows two cases arelated to petitioner 'We The People.'

Not surprisingly, the government prevailed in both cases.

And, for those not familiar with what's going on, Bob Hurt is a moron. He has never found a Tax Court decision with which he agrees for any number of insane reasons.


In any case, Bob has painted himself into a corner. After years where the windmills against which he tilted have unhorsed him, he finally finds himself in a position where he has to pay the piper.

Unfortunately for Bob, he has squandered all his support. His acolytes have moved on to new gurus or back into the mainstream of the sheeple.

In a word, Bob is SOL.

However, I will miss him. He was one of the most amusing lunatics.

[Number Six]

I'm surprised it took so long as he was one of the most outspoken TPs with a significant network up in Queensbury, I would have thought that NY would have also taken action as CA and NY are known as tough states for tax protesters.

[Famspear]

Looks like Bob Schulz has been trying to re-litigate the issue of whether he was liable under section 6700.

The District Court shot that effort down on March 7, 2017, ruling that the issue was already decided against him in United States v. Schulz, 529 F. Supp. 2d 341 (N.D.N.Y. 2007), aff'd, 517 F.3d 606 (2d Cir. 2008), cert. denied, 555 U.S. 946 (2008), and that he is now collaterally estopped. See Memorandum-Decision and Order, Schulz v. United States, docket entry 88, March 7, 2017, case no. 15-cv-01299-BKS-CFH (U.S. District Court for the Northern District of New York).

This leaves for consideration the amount of penalty due. The Court states that Schulz "may challenge on the basis that he received no income from the abusive tax shelter". Discovery is still on-going.

[Famspear]

Schulz had also tried to obtain an injunction prohibiting the government from engaging in "any lien or levy collection activity." That effort was shot down by the District Court in February of 2016.

In this case, Schulz also failed in an effort to obtain a partial removal of the Federal tax lien, to free up to parcels of real estate so that he could sell them and obtain money to afford legal counsel. Schulz complained of "irreparable" injury because of his supposed loss of his Sixth Amendment right to legal counsel. (Presumably, his argument was that he could not afford to pay a lawyer unless he could sell the real estate free and clear of the tax lien.) The District Court shot that down -- and noted that "except when faced with the prospect of imprisonment, a litigant has no legal right to counsel in civil cases", quoting from Guggenheim Capital, LLC v. Birnbaum, 722 F.3d 444, 453 (2d Cir. 2013).

Meanwhile, the government has counterclaimed against Schulz, seeking a Court order to reduce to judgment the section 6700 penalties.

[notorial dissent]

Bobby's got buttHurt, again, of teh agony, oh teh humanity, oh teh drama, oh hooey!!!

I would think that after a real and careful audit of Bob's money machines that he and his idiot son would both be in a lot of hot water tax wise. I had kind of thought this was all over and done with by this point, but guess not.

[jcolvin2]

Having previously ruled that Schulz is liable for a section 6700 penalty, the court now rules on cross motions for summary judgment related to the amount of the penalty, finding that WTP is an alter ego for Schulz, but that there may still be other material issue with respect to the amount of the penalty:

ROBERT L. SCHULZ,
Plaintiff,
v.
UNITED STATES,
Defendant.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK

APPEARANCES:

For Plaintiff:
Robert L. Schulz, pro se
Queensbury, NY 12804

For Defendant:
Michael R. Pahl
U.S. Department of Justice, Tax Division
Ben Franklin Station
P.O. Box 7238
Washington, DC 20044

Hon. Brenda K. Sannes, United States District Judge:

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiff pro se Robert L. Schulz brings this action against Defendant United States (the "Government") under 26 U.S.C. § 6703(c)(2), alleging that the Internal Revenue Service (the "IRS"): (i) erroneously assessed a penalty of $225,000 against him for promoting an abusive tax shelter; and (ii) seeking to bar the Government from retaliating against him. (Dkt. No. . On May 20, 2016, the Government asserted a counterclaim against Schulz, seeking a judgment for the unpaid $224,000 balance of the penalty the IRS assessed. (Dkt. No. 29, at 11). On March 7, 2017, the Court granted partial summary judgment to the Government, finding Schulz liable for promoting an abusive tax shelter under 26 U.S.C. § 6700, "leaving only the issue of the penalty due . . . which Schulz may challenge on the basis that he received no income from the abusive tax shelter." (Dkt. No. 88, at 10). Currently pending before the Court are: (i) the Government’s motion for summary judgment, (Dkt. No. 196), which Schulz opposes, (Dkt. No. 213); and (ii) Schulz’s motion for summary judgment, (Dkt. No. 197), which the Government opposes, (Dkt. No. 211). On June 11, 2018, the Court directed the parties to submit additional briefing as to whether We the People ("WTP"), "derived more than $225,000 in gross income in 2003 from the ‘activity’ at issue in this case, that is, organizing, selling, or participating in the organization of abusive tax shelters." (Dkt. No. 216). The Government and Schulz submitted their letter briefs on the issue on June 22, 2018 and June 25, 2018, respectively.1 (Dkt. Nos. 219, 220). For the following reasons, the Government’s motion for summary judgment is granted in part and denied in part; Schulz’s motion for summary judgment is denied.

II. BACKGROUND2

A. WTP’s Operations

Schulz is the founder of two not-for-profit entities known as We The People for Constitutional Education and We The People Congress, together known as "WTP." (Dkt. No. 197-2, ¶ 2). Schulz claims that he, through the activities of WTP, has devoted "his life to helping people understand the history, meaning, effect and significance of the provisions of the Declaration of Independence and their State and Federal constitutions and how to hold their public officials accountable to the rule of law pursuant to the First Amendment’s Petition Clause." (Id., ¶ 4). Schulz has served as WTP’s Chairman, President, and Chief Executive Officer since he founded the organization in 1997. (Dkt. No. 196-5, at 2; Dkt. No. 196-12, at 3). Schulz personally performed the administrative tasks required to establish and maintain WTP. (Dkt. No. 197-2, ¶¶ 9-11, 13-17, 20-21). WTP’s corporate address has always been the same as Schulz’s home address, and its offices have always been located in Schulz’s home. (Dkt. No. 196-5, at 3-5). Schulz, however, has never received rent in exchange for providing the space, nor has he taken a deduction on his tax returns for donating the space to WTP. (Id., at 3-4). Other than Schulz’s wife, only Schulz has an office at WTP. (Dkt. No. 196-12, at 6).

Schulz used WTP funds to defend himself in IRS actions and litigation, regardless of whether WTP was a named defendant.3 (Dkt. No. 196-5, at 73). Schulz paid corporate expenses with personal credit cards, after which "WTP sent payments to American Express [and Chase] to reimburse Schulz for his WTP related expenses if WTP had the funds to do so." (Dkt. No. 196-4, at 48-49). "Otherwise[,] the amount was considered as an unsecured loan from Schulz to WTP." (Id.). Schulz estimates that he made more than $100,000 in unsecured loans, in the form of "unreimbursed expenses," to WTP. (Dkt. No. 196-12, at 13).

Although Schulz claims that WTP had no employees,4 (Dkt. No. 196-5, at 5), he acknowledges that WTP was his "full-time" occupation. (Dkt. No. 213-1, ¶ 14; Dkt. No. 196-3, at 160). Schulz himself carried out WTP’s activities: he personally "Petitioned the federal government" and "distributed copies of that Petition," (Dkt. No. 8, ¶ 13-14), including by mailing 225 copies of the petition materials to requesting individuals across the country, (Dkt. No. 196-15, at ¶ . At deposition, Schulz described his role at WTP as "the voice of the organization." (Dkt. No. 196-12, at 11). WTP’s 2003 "Chairman’s Reports," which are simply posts authored by Schulz and posted to WTP’s website, indicate that Schulz alone determined WTP’s mission, message, and strategy. (See, e.g., Dkt. No. 197-3, at 12-160; Dkt. No. 197-4, at 1-113). Although the WTP organizations had various board members and officers since its founding, (Dkt. No. 196-5, at 26, 54, 58; Dkt. No. 197-9, at 9, 69, 89), Schulz was the only person constantly affiliated with WTP in an official capacity throughout its existence.

In 2003, the board accepted Schulz’s strategy to reform the WTP board with a national focus and granted Schulz "the power to remove and add members to the Board based solely upon his discretion." (Dkt. No. 196-5, at 55-61). In October 2003, explaining that he had "settled on a reorganization plan for" WTP, Schulz used this power to remove all but two members of WTP’s board — himself and Burr Deitz, who also served as Secretary and Treasurer. (Dkt. No. 196-4, at 113). In January 2004, Schulz and Deitz — the only remaining board members — authorized Schulz "to have WTP continue to pay out-of-pocket expenses related to" the IRS’s investigation into WTP and Schulz’s violations of § 6700. (Dkt. No. 196-5, at 73).5 In March 2006, Schulz and Deitz authorized WTP to "continue paying" for the litigation costs associated with several cases without regard to whether WTP was itself a litigant, but "provided those activities are directly related to and further the objectives" of WTP’s mission. (Dkt. No. 196-7, at 68).

B. The Blue Folder

One of WTP’s goals was to "claim[ ] and exercis[e]" what Schulz has described as his "First Amendment Right to Petition the Government for Redress of Grievances" for the purpose of "obtaining the answers to important questions by Petitioning the leaders of the federal government." (Dkt. No. 8, ¶¶ 7, 11). To that end, WTP "repeatedly petitioned Defendant United States to respond to Petitions for Redress of Grievances related to alleged violations by the United States of," inter alia, "the Constitution’s tax clauses (via the direct, un-apportioned tax on labor)." (Dkt. No. 197-2, ¶ 6). WTP’s "written Petition for Redress of Grievances regarding tax withholding" was packaged in a blue folder titled "Legal Termination of Tax Withholding for Companies, Workers and Independent Contractors" (the "Blue Folder"). (Id. ¶ . The Blue Folder contained materials that "encouraged companies, workers and independent contractors to submit the content of the Blue Folder to their corporate lawyers and CPAs for a ‘rigorous review’ of its accuracy with the goal of . . . legally ending tax withholding." (Id. ¶ 9). WTP distributed physical copies of the Blue Folder at WTP events and through the mail; a digital version was available by download from the WTP website. (Id. ¶¶ 11-13). Schulz argues that WTP never sold the contents of the Blue Folder, but only requested a "nominal donation of $20" from individuals who requested a physical copy to offset costs associated with printing and mailing the materials.6 (Id. ¶¶ 12, 15, 23). It is undisputed that WTP distributed 225 copies of the Blue Folder to individuals by mail, "some of whom volunteered to send $20 to cover the cost of printing and mailing; WTP did not send invoices to any of these individuals and did not require any payment or donation to be made prior to mailing the Blue Folder." (Id. ¶ 24).7

WTP reported $485,351 in "total revenue" to the IRS in 2003. (Dkt. No. 196-3, at . Schulz argues that, during that period, WTP’s "Blue Folder-related activities took up an insignificant amount of WTP’s time and resources," and were "small and unimportant in view of WTP’s overall activities, total revenues and total expenses." (Dkt. No. 197-2, ¶ 28). The record indicates that WTP solicited and received donations in support of its other efforts to, inter alia, organize and sponsor a "Give Me Liberty national conference" and to "bring an action in 2004 against the United States . . . for a declaration of the Rights of People and the obligations of the government under the last ten words of the First Amendment — that is, the ‘petition clause.’" (Id., ¶ 30). Schulz asserts that, cumulatively calculated, the "gross revenue of 225 [Blue Folder] donations of $20 would represent .84% of WTP’s [g]ross [r]evenue" as reported in 2003.8 (Id., ¶ 29).

III. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(a), summary judgment may be granted only if all the submissions taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. A fact is "material" if it "might affect the outcome of the suit under the governing law," and is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005) (citing Anderson). The movant may meet this burden by showing that the nonmoving party has "fail[ed] to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322; see also Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir. 2013) (summary judgment appropriate where the non-moving party fails to "come forth with evidence sufficient to permit a reasonable juror to return a verdict in his or her favor on an essential element of a claim" (internal quotation marks omitted)).

If the moving party meets this burden, the nonmoving party must "set out specific facts showing a genuine issue for trial." Anderson, 477 U.S. at 248, 250; see also Celotex, 477 U.S. at 323-24; Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). "When ruling on a summary judgment motion, the district court must construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant." Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir. 2003). Still, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and cannot rely on "mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986) (quoting Quarles v. Gen. Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985)). Furthermore, "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (internal quotation marks omitted).

Where a plaintiff proceeds pro se, the Court must read his or her submissions liberally and interpret them "to raise the strongest arguments that they suggest." McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999) (quoting Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994)). However, a pro se party’s "‘bald assertion,’ completely unsupported by evidence, is not sufficient to overcome a motion for summary judgment." Jordan v. New York, 773 F. Supp. 2d 255, 268 (N.D.N.Y. 2010) (citing Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir. 1991)); see also Wagner v. Swarts, 827 F. Supp. 2d 85, 92 (N.D.N.Y. 2011).

IV. DISCUSSION

A. Calculation of Penalty Under § 6700

The Government assessed penalties against Schulz pursuant to 26 U.S.C. § 6700 for promoting an abusive tax shelter. (Dkt. No. 197-2, ¶ 41). As the Court has already ruled that Schulz is liable for promoting an abusive tax shelter by virtue of WTP’s distribution of the Blue Folders, (Dkt. No. 88), the only remaining issue is the propriety of the penalty assessed against him.9 Section 6700 provides that any person who violates the statue "shall pay, with respect to each activity [proscribed by the statute], a penalty equal to $1,000 or, if the person establishes that it is lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity." 26 U.S.C. § 6700.10 The Government is entitled to a presumption that the size of the calculated penalty is correct. In re MDL-731 Tax Refund Litig., 989 F.2d 1290, 1303 (2d Cir. 1993). Thus, a "taxpayer is liable for a $1,000 penalty for each violation of section 6700 unless the taxpayer can establish that the amount of gross income derived from the activity was less than $1,000." Gardner v. C.I.R., 145 T.C. 161, 179 (2015), aff’d sub nom. Gardner v. Comm’r of Internal Revenue, 704 F. App’x 720 (9th Cir. 2017). "Accordingly, when the Government establishes that a defendant sold a certain number of materials, the burden shifts to the defendant to show that the income derived was less tha[n] $1,000 per transaction." United States v. Alexander, No. 08-cv-03760, 2010 WL 1643425, at *7, 2010 U.S. Dist. LEXIS 40108, at *17-18 (D.S.C. Apr. 22, 2010), aff’d, 434 F. App’x 246 (4th Cir. 2011) (granting Government’s motion for summary judgment and imposing "per activity" penalty where taxpayer failed to adduce evidence that he derived less than $1,000 for each tax avoidance package sold).

The Government calculated Schulz’s penalty by first determining that the 225 Blue Folders Schulz distributed by mail constitute the "activities" that violated § 6700. (See Dkt. No. 215, at 6 ("Here, the transaction attacked is Schulz’s organization, promotion, and distribution of the Tax Termination Packages in 2003.")). The Government then asserts that the "gross income" Schulz derived from those activities is properly considered as the gross revenue that WTP reported to the IRS in 2003, or $485,351. The Government therefore concludes that the penalty is correctly assessed at $225,000, i.e., the lesser of the "per activity" calculation and WTP’s gross income.11

"For purposes of calculating a Section 6700 penalty," however, "the government is concerned only with gross income to be derived from a particular, well-defined activity." In re MDL-731 Tax Refund Litig., 989 F.2d at 1302; see also Gardner, 145 T.C. at 179 ($47,000 penalty calculated by identifying "47 corporations sole organized by petitioners and correlat[ing] payments made by the customers" (emphasis added)); Alexander, 2010 WL 1643425, at *7, 2010 U.S. Dist. LEXIS 40108, at *17-18 (penalty of $1,152,000 appropriate where business record indicated 1,152 transactions and defendant’s wife "burned all other records" of income from sales of tax shelter). Here, the particular activities at issue, as defined by the Government, are 225 distributions of the Blue Folder. Viewed in the light most favorable to Schulz, the evidence that the Blue Folders were offered for a suggested donation of $20 is sufficient to raise a question of fact as to whether WTP received less than $1,000 in gross income from each Blue Folder it distributed. (Dkt. No. 197-2, ¶ 24; Dkt. No. 211-1, ¶ 24). Furthermore, because there is evidence in the record indicating that WTP solicited and received donations in support of a variety of activities other than its distribution of 225 copies of the Blue Folder, (see, e.g., Dkt. Nos. 197-3; 197-4), there are material issues of fact as to whether WTP’s total gross income — $485,351 — constitutes the "gross income derived" from the specified activities by which the Government calculated the penalty.12 (See Dkt. No. 197-2, at ¶ 28-29, 62 ("Defendant has admitted [that] the IRS made no effort to determine if any copies of the Blue Folder were sold and what gross income was derived from the sale(s).")).

Thus, without evidence correlating the amount of WTP’s annual gross in 2003 with the amount of gross income WTP derived from distribution of each of the 225 Blue Folders, there remains a dispute of material fact as to whether the penalty is properly assessed at $225,000 or some lesser amount.

B. Whether WTP Is Schulz’s Alter-Ego

Regardless of whether the penalty is properly assessed as the gross income "derived . . . from such activity" or calculated on a "per activity" basis, no penalty can be assessed against Schulz unless WTP’s income — as derived from the distribution of the 225 Blue Folders at issue here — can be imputed to him as an individual. The Government argues that it is entitled to summary judgment because the "undisputed evidence shows" that WTP functioned as Schulz’s alter-ego at the time the income was generated, and that, therefore, any income generated by WTP can be imputed to Schulz in his individual capacity. (Id. at 16-23). Schulz, on the other hand, argues that he is entitled to summary judgment because the Government "has failed to show a factual basis . . . against Schulz’s claim that the penalty should be zero because he derived no income from the activity." (Dkt. No. 197-1, at 7).

"Questions relating to the internal affairs of corporations — for profit or not-for-profit — are generally decided in accordance with the law of the place of incorporation." United States v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d Cir. 2000). The parties do not dispute that the two WTP entities were incorporated in New York. (Dkt. No. 196-3, at 1; Dkt. No. 196-5, at 33). "New York law permits a court to disregard the corporate form whenever necessary to prevent a fraud or to achieve equity." United States v. Cohn, 682 F. Supp. 209, 216 (S.D.N.Y. 1988). "Under New York law, an entity is a taxpayer’s alter ego . . . where the taxpayer exercised control over the entity at issue, such that the entity has become a mere instrumentality of the taxpayer, and the taxpayer used this control to commit a fraud or other wrong resulting in unjust loss or injury." Magesty Sec. Corp. v. IRS, No. 10-cv-0638, 2012 WL 1425100, at *4, 2012 U.S. Dist. LEXIS 57514, at *12 (S.D.N.Y. Apr. 24, 2012)); see also Morris v. N.Y. State Dep’t of Taxation & Fin., 82 N.Y.2d 135, 141 (1993) (stating that, in New York, "piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury"). "The mere claim that the corporation was completely dominated by the defendants, or conclusory assertions that the corporation acted as their ‘alter ego,’ without more, will not suffice to support the equitable relief of piercing the corporate veil." Flushing Plaza Assocs. No. 2 v. Albert, 102 A.D.3d 737, 739 (2d Dep’t 2013).

Furthermore, "in determining whether to pierce the corporate veil," New York courts consider multiple factors including: "the absence of the formalities . . . that are part and parcel of the corporate existence, i.e., . . . election of directors, keeping corporate records and the like," "whether funds are put in and taken out of the corporation for personal rather than corporate purposes," "overlap in ownership, officers, directors, and personnel," "common office space, address and telephone numbers of corporate entities," "the amount of business discretion displayed by the allegedly dominated" entity, and "whether the corporation in question had property that was used by other of the corporations as if it were its own." Weinreich v. Sandhaus, 850 F. Supp. 1169, 1178-79 (S.D.N.Y.) (citing Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138 (2d Cir. 1991)). Considering all of these factors in tandem with the significant harm Schulz sought and inflicted upon the Government, both prevention of fraud and promotion of equity require attributing the gross income WTP derived from promoting the abusive tax shelters to Schulz personally as WTP’s alter ego.

First, even viewed in the light most favorable to Schulz, the evidence in the record indicates that Schulz maintained virtually exclusive control over WTP, its activities, and its assets. With regard to operations and finances, it is difficult to distinguish where Schulz ends and where the organization begins. WTP was Schulz’s sole occupation, and Schulz was WTP’s sole animating force. In addition to functioning as the "voice" of the organization, Schulz alone determined WTP’s mission, how to pursue that mission through programming and strategic decisions, and whether and when to change course. Schulz simultaneously served as WTP’s President, Chief Executive Officer, and Chairman of WTP’s Board of Directors. WTP’s only permanent physical presence was inside Schulz’s own home, where only he and his wife maintained offices. Schulz was the only person authorized to draw a salary from WTP. Schulz used WTP funds to pay for his health insurance, as well as portions of his electric and telephone bills. Schulz used WTP funds for litigation and other legal expenses, regardless of whether WTP was a named party. Schulz mixed WTP and personal expenses, paying WTP expenses with his personal credit cards and using WTP funds directly to make payments on those cards. Altogether, Schulz acknowledges that he made more than $100,000 in "unsecured loans" to WTP. At Schulz’s direction, WTP "loaned" over $8,000 to Burr Deitz after Deitz stole that money from WTP. Finally, Schulz had the power to add or remove board members authority to fire board members "on his sole discretion." And Schulz exercised that power when he removed all board members, except one, in 2003.13

Second, as described above, Schulz I already determined that together, Schulz and WTP promoted an abusive tax shelter in violation of § 6700, and that the "gravity of harm" caused by their conduct is "manifest." See Schulz I, 529 F. Supp. 2d at 346-53 (explaining that although "the exact cost of Defendants’ conduct appears to be unknown," the estimated cost to the United States Treasury is approximately $4.8 million). Infliction of such an injury is at the core of Schulz’s stated mission: enabling "companies, workers, and independent contractors" to "stop withholding, filing and paying," (Dkt. No. 197-3, at 4), a "tax [that] is fraudulent in its origin and illegal in its operation" for the purpose of "execut[ing] a mass-movement to Cut Government Funding," (id., at 14).14

The record indicates that Schulz exercised dominion and control over the entity to such a degree that WTP is more accurately understood as his mere instrumentality, and that he used that instrumentality to organize and promote abusive tax shelters in violation of § 6700, causing significant injury to the Government. Accordingly, there is no issue of material fact as to whether WTP’s income derived from the distribution of the Blue Folders is properly imputed to Schulz as his alter ego. The only issue remaining for trial is the amount of gross income WTP — and by extension, Schulz — derived from the specified activities used to calculate the penalty amount under § 6700, i.e., organizing and promoting an abusive tax shelter through distribution of the 225 Blue Folders at issue in this case.15

V. CONCLUSION

For these reasons, it is hereby

ORDERED that the Government’s motion for summary judgment (Dkt. No. 196) is GRANTED on the issue of whether WTP was Schulz’s alter ego, but is otherwise DENIED; and it is further

ORDERED that Schulz’s motion for summary judgment (Dkt. No. 197) is DENIED.

IT IS SO ORDERED.

Dated: July 12, 2018
Syracuse, New York

Brenda K. Sannes
U.S. District Judge


FOOTNOTES


1 On July 6, 2018, Schulz informed the Court that he "recently discovered hundreds of documents" related to requests for Blue Folders and communications from donors. (Dkt. No. 222). This does not alter the Court’s determination that there are material issues of fact remaining for trial.


2 The Court assumes familiarity with the procedural and factual history of this case, as set out in United States v. Schulz, 529 F. Supp. 2d 341 (N.D.N.Y. 2007), aff’d, 517 F.3d 606 (2d Cir. 2008) ("Schulz I"), as well as the Court’s previous decisions dated February 11, 2016, May 6, 2016, and March 7, 2017, (Dkt. Nos. 23, 25, 88). Only those facts relevant to the parties’ motions are set out below, and are drawn from the parties’ statements of material facts (Dkt. Nos. 196-15, 197-2), responses thereto (Dkt. Nos. 211-1, 213-1), and exhibits attached to the parties’ submissions, to the extent that they would be admissible as evidence. Where facts stated in a party’s statement of material facts are supported by testimonial or documentary evidence, and denied with only a conclusory statement by the other party, the Court has found such facts to be true. See N.D.N.Y. L.R. 7.1(a)(3); Fed. R. Civ. P. 56(e). Furthermore, Schulz’s response (Dkt. No. 213-1) to the Government’s statement of material facts (Dkt. No. 196-15) denies and objects to nearly all of the Government’s factual assertions, primarily on the basis that any activity he performed was not as an individual, but in his "official capacity as an officer" of WTP, (see, e.g., Dkt. No. 213-1, ¶¶ 1-5, 7, 8, 13, 15, 17). As explained in Section IV.B., infra, such objections are irrelevant to the Court’s analysis. Finally, Schulz has filed a "Reply to United States’ Response to Schulz Statement of Material Facts" (Dkt. No. 214), along with his reply papers (Dkt. No. 214-1). Even if the Local Rules permitted such a reply, which they do not, see N.D.N.Y. L.R. 7.1, the contents of this submission are immaterial to the disposition of the pending motions.


3 Schulz denies this fact, arguing that "[o]ther than the first case in 1978 and a case in 2004," these cases "almost always included other members and supporters of the organization," "there were probably other plaintiffs," and, in some instances, involved efforts to quash IRS efforts to obtain WTP records. (Dkt. No. 213-1, ¶ 38). Taking judicial notice of the cases that the Government has identified, (Dkt. No. 196-15, ¶ 37 n.49), however, the Court notes that WTP is a party in none of them.


4 An undated document indicates that WTP’s board passed a resolution stating that Schulz "shall be compensated at the rate of $12,000 per calendar year for his services." (Dkt. No. 196-5, at 55). Schulz disputes, and the record does not indicate, whether he ultimately received any of the salary due from WTP. (Dkt. No. 213-1, ¶ 25).


5 The record indicates that Deitz, an electrician by trade with no accounting experience, was the sole other board member from October 2003 until January 2007, (Dkt. No. 196-5, at 70), when he resigned and was replaced by Vanessa Astrup as Secretary, (Dkt. No. 196-12, at 6). Schulz testified that he asked Deitz to resign after Deitz "fell victim to an online scam" and wrote himself checks for $8,700 from WTP’s bank account. (Id.). Although Schulz testified that he verbally informed the board — which consisted of only himself and Astrup — he did not "think it was appropriate" to report the incident to police. (Id. at 6-7). WTP reported the amount under "loans receivable" on its 2007 federal tax return. (Dkt. No. 196-3, at 111).


6 The Government states that WTP’s website offered the Blue Folder for sale for $39.95, citing to Schulz I in support of the factual proposition. (Dkt. No. 196-15, ¶ 7). Schulz disputes that the Blue Folders were ever "for sale," and contends that they were offered for free, with a requested donation of $20. (Dkt. No. 197-2, ¶ 24).


7 Altogether, WTP prepared at least "three thousand, five hundred (3,500) copies of the Blue Folder," which were "available for pick up, free of charge and anonymously" during events held across the United States in 2003. (Dkt. No. 197-2, ¶ 20).


8 The Government objects to Schulz’s calculation on the basis that "the question of gross income derived from the scheme (as opposed to gross revenue as stated by Schulz) is a legal conclusion [and] not a ‘fact’ for summary judgment purposes." (Dkt. No. 211-1, ¶ 29). Construing Schulz’s statement liberally, however, his argument that any hypothetical revenue directly derived from donations requested in exchange for each of the 225 Blue Folders ($4,500) comprises a comparatively minor proportion of WTP’s reported gross income ($485,351) is not unfounded.


9 Schulz also argues that the penalty assessed against him is invalid because "IRS Agent Gordon did not get written approval of the initial penalty determination from his supervisor prior to the date the IRS issued the Notice of Penalty" in violation of 26 U.S.C. § 6751. (Dkt. No. 213, at 6-11). Although the Government responds that the issue was settled when Schulz failed to raise the issue before the Court’s March 7, 2017 ruling as to Schulz’s liability, (Dkt. No. 215, at), it appears that the Form 8278 giving rise to Schulz’s argument was first disclosed to Schulz on December 4, 2017, (Dkt. No. 190). In any event, the record indicates that an IRS supervisor approved the penalty on November 18, 2014, (Dkt. No. 190-2, at 48), and that the IRS subsequently issued the Notice of Penalty on March 9, 2015, (Dkt. No. 13-1, at 6). Accordingly, even were the Court to consider Schulz’s argument here, it would be rejected.


10 Congress amended § 6700 in 1989, significantly changing the method by which the IRS calculated penalties for promoting an abusive tax shelter. The parties do not dispute that the relevant version of the statute was in effect from 1989 to 2004:


Promoting abusive tax shelters, etc.

(a) Imposition of penalty. Any person who —


(1)(A) organizes (or assists in the organization of) —



(i) a partnership or other entity,

(ii) any investment plan or arrangement, or

(iii) any other plan or arrangement, or

(B) participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in subparagraph (A), and

(2) makes or furnishes or causes another person to make or furnish (in connection with such organization or sale) —


(A) a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter, or

(B) a gross valuation overstatement as to any material matter,

shall pay, with respect to each activity described in paragraph (1), a penalty equal to the $1,000 or, if the person establishes that it is lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity. For purposes of the preceding sentence, activities described in paragraph (1)(A) with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph (1)(B) shall be so treated.

26 U.S.C. § 6700 (2000).


11 Schulz argues that, because $1,000 "was meant to be a flat amount," the "IRS improperly calculated the penalty . . . by imposing a monetary amount with regard to each Blue folder." (Dkt. No. 197-1, at 9). The cases he cites in support of this proposition are either inapposite or pertain only to the pre-1989 version of the statute. See Hargrove & Costanzo v. United States, No. 06-cv-046, 2008 WL 4133928, at *7, 2008 U.S. Dist. LEXIS 79606, at * (E.D. Cal. Sept. 4, 2008) (declining to determine validity of assessment of penalty on motion for summary judgment, but indicating that 1989 amendment to Section 6700 requires a penalty calculation based on the number of issuances rather than the total number of individual bonds sold); Emanuel v. United States, 705 F. Supp. 434, 436 (N.D. Ill. 1989) (applying pre-1989 amendment statute).


12 Although arising in the context of the "full-payment rule," Humphrey v. United States explains that "no matter if a sale requires a penalty of $1,000, or some lesser amount, that penalty is always a function of a single sale." 854 F. Supp. 2d 1301, 1307 (N.D. Ga. 2011). In Humphrey, the plaintiff tax preparer was penalized the "gross income she received for all of her sales" of tax shelters, calculated by "totaling the annual gross reflected in [her] 1099-B’s" from sales that year. Id. at 1307. The court concluded that, while "practical," this "gross annual income method" improperly rendered the penalty indivisible:


Section 6700 clearly requires a per sale method for calculating a penalty: (1) if the taxpayer grossed at least $1,000 from an individual sale, the penalty is $1,000; and (2) if the taxpayer can show that she grossed less than $1,000 from an individual sale, the penalty is the gross from that individual sale. The statute does not compel or allow the use of an annual gross income method. No matter the amount of the penalty or the income earned from a sale, the relevant quantum is an individual sale.

Id. at 1308 (citation omitted). Here, the Government has not attempted to demonstrate how WTP’s gross income exceeded $1,000 with respect to each of the 225 Blue Folders "sold." Rather, relying entirely on its presumption of correctness, the Government simply asserts that 100% of WTP’s annual gross revenue for 2003 is attributable to distribution of the Blue Folder. The record is devoid of evidence indicating what proportion of WTP’s annual revenue, if any, corresponds to the distribution of all 225 Blue Folders collectively — let alone what income may be attributed to the sale of each Blue Folder individually.


13 Schulz disputes the relevance of this fact, arguing that he removed these board members with the intention of replacing them with a more regionally diverse group. (Dkt. No. 213-1, ¶ 35). Schulz fails to recognize, however, that it is his intent that is irrelevant — the mere fact that he was able to effectively dissolve the board at his discretion is indicative of the degree of his dominion and control over the entity. See Evseroff, 270 Fed. App’x at 77 ("[T]he critical issue . . . is not motive, but control. . . .).


14 The Court need not further explore the degree to which courts have repeatedly rejected this and similar arguments. See Schulz I, 529 F. Supp. 2d at 350 (finding that Schulz "relied on fringe opinions of known tax protestors whose theories have repeatedly been rejected by courts across the country," and noting that "[s]everal of the people on whom Defendants claim to rely have been convicted of tax crimes").


15 Schulz makes an additional claim that, because distribution of the Blue Folder constitutes protected speech, the penalty assessed against him is invalid. (Dkt. No. 8, at 18). As the Government notes, this argument was already litigated and rejected in Schulz I, 529 F. Supp. 2d at 355-57. Accordingly, the Court need not further address the issue here.

[AndyK]

I had almost forgotten him; he was such a little pimple.

But the government obviously didn't.

Based on all his past activities and victims, all I can say is "couldn't happen to a more deserving guy."

[notorial dissent]

In this case, I don't think it was so much the gov't as Schulz continuing to litigate every little thing he can. It's been his MO from the beginning, and he'll continue as long as he can. Failing all the way.

[fortinbras]

The Schulz court decision, two entries up (and I am grateful that JColvin2 posted it for us) was issued on July 12, 2018, so it's only a few days old and JColvin2 caught it.

On Lexis it's 2018 u.s.dist. LEXIS 115760. Maybe someone can add the WL number?
In time it will probably be reported - if not in F.Supp.2d, then maybe in AFTR2d or USTC.

[KickahaOta]

The case number is 1:15-cv-01299. The summary judgement order is on RECAP at https://www.courtlistener.com/recap/gov ... .223.0.pdf.

[jcolvin2]

The case number is 1:15-cv-01299. The summary judgement order is on RECAP at https://www.courtlistener.com/recap/gov ... .223.0.pdf.

The court determined that the penalty should be based on the gross income to be derived from the distribution of "blue folders," which were disseminated to 200+ taxpayers at $20/folder (much lower than the $1,000/taxpayer penalty originally sought by the government):

ROBERT L. SCHULZ,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

1:15-cv-01299 (BKS/CFH)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK

MEMORANDUM-DECISION AND ORDER

Appearances:

Plaintiff, pro se: Robert L. Schulz Queensbury, NY 12804

For Defendant: Richard E. Zuckerman Principal Deputy Assistant Attorney General, Tax Division Michael R. Pahl U.S. Department of Justice, Tax Division Ben Franklin Station P.O. Box 7238 Washington, DC 20044

Hon. Brenda K. Sannes, United States District Judge.

I. INTRODUCTION

Plaintiff pro se Robert L. Schulz initiated this action under 26 U.S.C. § 6703(c)(2), alleging that the Internal Revenue Service (the "IRS") erroneously assessed a penalty of $225,000 against him for promoting an abusive tax shelter through two nonprofit entities, We the People Foundation for Constitutional Education, Inc. and We the People Congress, Inc. (together "WTP"), in violation of § 6700 of the Internal Revenue Code, 26 U.S.C. § 6700. (Dkt. No. . Defendant United States (the "Government") asserted a counterclaim against Schulz, seeking a judgment for the unpaid $224,000 balance of the penalty the IRS assessed. (Dkt. No. 29, at 11-17). Having previously determined that, as a matter of law, Schulz is liable for 225 violations of § 6700, (Dkt. No. 88), and that WTP’s income is attributable to Schulz, (Dkt. No. 223), all that remains for determination by the Court is the amount of the penalty to be assessed: "the amount of gross income WTP — and by extension, Schulz — derived from . . . organizing and promoting an abusive tax shelter through distribution of the 225 Blue Folders at issue in this case," (Dkt. No. 223, at 16).

Currently before the Court are the parties’ motions for summary judgment, (Dkt. No. 243, 244), and their responses thereto, (Dkt. Nos. 249, 250).1 For the reasons that follow, the parties’ motions are granted in part and denied in part.

II. FACTS

A. Procedural Background

In 2007, United States District Judge Thomas J. McAvoy granted the Government’s request for an injunction against WTP and Schulz, prohibiting them from further promoting an abusive tax shelter — known as the "Blue Folder" — in violation of § 6700. See United States v. Schulz, 529 F. Supp. 2d 341 (N.D.N.Y. 2007) ("Schulz I"), aff’d, 517 F.3d 606 (2d Cir. 2008). Judge McAvoy also ordered Schulz and WTP to produce "a list identifying . . . all persons and entities who have been provided Defendants’ tax preparation materials, forms, and other materials containing false information." Id. at 358. After Judge McAvoy found Schulz to be in contempt of the Court’s order, see Schulz I, 2008 WL 2626567, at *4, 2008 U.S. Dist. LEXIS 57948, at *12 (N.D.N.Y. Apr. 28, 2008), Schulz disclosed a list of 225 individuals "showing all persons to whom [he] mailed a copy of the WTP Forms" at issue in Schulz I, (Dkt. No. 190-1, at 51, 53-62).

On March 5, 2015, Schulz received a tax assessment penalty from the IRS, dated March 9, 2015, in the amount of $225,000 for promoting the Blue Folders at issue in Schulz I. (Dkt. No. 197-2, ¶ 41). The IRS arrived at that amount using Schulz’s list of 225 individuals to whom WTP had distributed Blue Folders in 2003, (Dkt. No. 244-1, at 2), penalizing the lesser of: (i) $1,000 per Blue Folder distributed ($225,000); and (ii) WTP’s income reported to the IRS in 2003 ($485,351), (Dkt. No. 243-2, ¶ 7). On November 2, 2015, Schulz initiated this action under 26 U.S.C. § 6703(c)(2), alleging that the IRS erroneously assessed a penalty of $225,000 against him for promoting an abusive tax shelter. (Dkt. No. . The Government then asserted a counterclaim against Schulz, seeking a judgment for the unpaid $224,000 balance of the penalty the IRS assessed, plus interest. (Dkt. No. 29, at 11-17).

On March 7, 2017, this Court granted partial summary judgment to the Government, giving preclusive effect to Judge McAvoy’s findings in Schulz I and holding that Schulz is liable for violating § 6700 by distributing the 225 Blue Folders. (Dkt. No. 88). On July 12, 2018, this Court concluded that WTP’s total gross income in 2003 was an inappropriate lodestar by which to measure "gross income . . . derived from a particular, well-defined activity." (Dkt. No. 223, at 11-12 (quoting Barrister Assocs. v. United States (In re MDL-731 Tax Refund Litig.), 989 F.2d 1290, 1302 (2d Cir. 1993))). Further, the Court found that WTP was Schultz’s alter ago and that WTP’s income was attributable to him. (Id. at 16). The Court noted that "the only issue remaining for trial is the amount of gross income WTP — and by extension, Schulz — derived from the specified activities used to calculate the penalty amount under § 6700, i.e., organizing and promoting an abusive tax shelter through the distribution of the 225 Blue Folders at issue in this case." (Id.).

In a June 25, 2018 letter brief, Schulz indicated for the first time that, of the 225 Blue Folders at issue in this case, only 103 "copies were mailed in 2003." (Dkt. No. 220, at 2; see also Dkt. No. 243-2, ¶ 16; Dkt. No. 250, ¶ 16).2 On July 6, 2018, over six months after discovery had been completed, Schulz informed the Court that he "recently discovered hundreds of documents," (Dkt. No. 222), pertaining to WTP’s income from the promotion of the abusive tax shelter. Notwithstanding Schulz’s dubious explanation for his belated disclosure,3 and over the Government’s objection to reopening discovery, the Court permitted Schultz to attempt to use the records in this case, and set a schedule for additional, limited discovery on the issue. (See Text Minute Entry, July 26, 2018; Dkt. Nos. 234, 237, 240). The Court then permitted the parties to submit additional motions for summary judgement addressing whether, in light of the new documents, there remained a triable issue of fact as to the amount of gross income derived from the 225 Blue Folders distributed in violation of § 6700. (See Dkt. No. 241; October 1, 2018 Telephone Conference). The facts relevant to determining the instant motions are as follows.

B. Factual Background4

In March 2003, WTP promoted the Blue Folder "by posting its entire content on WTP’s website," making it available "for free downloaded [sic] by any person." (Dkt. No. 250-1, at 10-11). WTP also offered physical copies of the Blue Folder for a suggested donation of $20.00 "to cover . . . printing and mailing costs." (Dkt. No. 250-1, at 10-11). In 2003, WTP distributed 103 Blue Folders by mail, (Dkt. No. 250, ¶ 19), and received "voluntary donations" of varying amounts in connection with all but three, for an average donation of $18.64 per folder, (Dkt. No. 250, ¶ 16). WTP received payments by cash, by check, and through online payment processing services Paypal and Linkpoint. (Dkt. No. 250, ¶ 16). Paypal and Linkpoint "charged WTP a fee for their services, reducing WTP’s gross revenue to approximately $19.12" for each $20.00 payment processed online. (Dkt. No. 250, at 4 nn. 11-12). Not including amounts withheld by Paypal and Linkpoint, "WTP received $1,920.48 in voluntary donations for 103 copies of the Blue Folder" distributed in 2003. (Dkt. No. 250, ¶ 19; see also Dkt. No. 243-4, at 21-22; Dkt. No. 244-1, ¶ 16; Dkt. No. 251, at 10). WTP mailed an additional 122 Blue Folders between 2004 and 2007. (Dkt. No. 243-4, at 13-14). Schulz has not submitted any documentary evidence establishing the amount of income WTP derived from each.5

III. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(a), summary judgment may be granted only if all the submissions taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. A fact is "material" if it "might affect the outcome of the suit under the governing law," and is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005) (citing Anderson). The movant may meet this burden by showing that the nonmoving party has "fail[ed] to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322; see also Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir. 2013) (summary judgment appropriate where the non-moving party fails to "come forth with evidence sufficient to permit a reasonable juror to return a verdict in his or her favor on an essential element of a claim" (internal quotation marks omitted)).

If the moving party meets this burden, the nonmoving party must "set out specific facts showing a genuine issue for trial." Anderson, 477 U.S. at 248, 250; see also Celotex, 477 U.S. at 323-24; Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). "When ruling on a summary judgment motion, the district court must construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant." Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir. 2003). Still, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and cannot rely on "mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986) (quoting Quarles v. Gen. Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985)). Furthermore, "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (internal quotation marks omitted).

Where a plaintiff proceeds pro se, the Court must read his or her submissions liberally and interpret them "to raise the strongest arguments that they suggest." McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999) (quoting Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994)). However, a pro se party’s "‘bald assertion,’ completely unsupported by evidence, is not sufficient to overcome a motion for summary judgment." Jordan v. New York, 773 F. Supp. 2d 255, 268 (N.D.N.Y. 2010) (citing Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir. 1991)); see also Wagner v. Swarts, 827 F. Supp. 2d 85, 92 (N.D.N.Y. 2011).

IV. DISCUSSION

Schulz argues that: (i) the penalty should be limited to gross income derived from the 103 Blue Folders distributed in 2003, or $1,920.48; (ii) the calculation of WTP’s "gross income" from each folder should exclude the processing fees charged by the online vendors; and (iii) WTP was not his alter ego. (Dkt. No. 244, at 3-5). The Government argues that Schulz’s penalty should be assessed at $4,500, or $20.00 for each of the 225 Blue Folders distributed, as the amount of income he "earned — or expected to earn" — without regard to the year in which the folder was distributed or the transaction fees withheld by Paypal and Linkpoint. (Dkt. No. 243-1, at 7-8).

A. Blue Folders Distributed in 2003

1. Inclusion of Processing Fees in Gross Income

Schulz argues that processing fees charged by PayPal or Linkpoint should not be included in the calculation of WTP’s gross revenue derived from distribution of the folders. (Dkt. No. 250, ¶ 16 nn.10-11). The Government, on the other hand, argues that the fees should be included because "the penalty is based on gross income, not income less fees or costs or costs of goods sold." (Dkt. No. 249, at .

Because it is undisputed that WTP and Schulz derived less than $1,000 per Blue Folder, Schulz’s penalty is properly assessed as "100 percent of the gross income derived (or to be derived) by such person from such activity." 26 U.S.C. § 6700. Gross income means "all income from whatever source derived." 26 U.S.C. § 61(a). "The definition extends broadly to all economic gains not otherwise exempted," and a "taxpayer cannot exclude an economic gain from gross income by assigning the gain in advance to another party." Comm’r v. Banks, 543 U.S. 426, 433 (2005). Because it "is not necessary that the income be deposited or received so long as the taxpayer has an unfettered right to receive it," "deductible credit card processing fees would reduce the amount of petitioners’ net . . . profit or loss" — they do "not affect . . . gross receipts." Patel v. Comm’r, 96 T.C.M. (CCH) 202 (2008).

Accordingly, the gross income derived from distribution of the Blue Folders is properly calculated without regard to fees charged by Paypal or Linkpoint.

2. Calculation of Penalty

Regarding "the size of the penalty[,] . . . the government [is] entitled to a presumption that its assessment of the penalties [is] correct." In re MDL-731 Tax Refund Litig., 989 F.2d at 1303. The Government argues that, for the 103 Blue Folders distributed in 2003, the penalty is properly assessed at $20.00 per Blue Folder. As indicated above, however, Schulz has adduced evidence establishing that WTP derived no income from distribution of three folders, $10.00 from one folder, and $20.00 from 99 folders. (Dkt. No. 244-1, at 3). Accordingly, there is no dispute of material fact as to the gross income derived from the 103 Blue Folders distributed in 2003, and the penalty is properly assessed at $1,990.00.

B. Blue Folders Distributed After 2003

1. Assessment on an Annualized Basis

Schulz argues that, because "Schulz I was directed at an activity undertaken by WTP in 2003," he is only liable for the amount of gross income derived from the 103 Blue Folders distributed in 2003. (Dkt. No. 250, ¶ 2). The Government, on the other hand, argues that a penalty under § 6700 is "computed on a ‘transactional’ basis, not an ‘annual’ basis, based on the total income the promoter derived from the scheme." (Dkt. No. 243-1, at 7).

The Second Circuit has explained that the "Internal Revenue Code . . . does not obligate the IRS to assess Section 6700 penalties only on income actually earned during discrete taxable periods." In re MDL-731 Tax Refund Litig., 989 F.2d at 1301. The tax year in which the conduct occurred is irrelevant because "the assessment of a Section 6700 penalty turns on income earned from specific conduct — the organization or promotion of an abusive tax shelter — that may occur at times different from those in which income is actually realized." Id. "This is in contrast to other Internal Revenue Code penalties, which depend on whether, and how often, an individual avoids certain tax obligations arising in a particular taxable period." Id.

Here, Schulz’s theory rests entirely on the wording of this Court’s June 11, 2018 Text Order, which directed the parties to address whether there was as "material issue of fact as to whether WTP derived more than $225,000 in gross income in 2003." (Dkt. No. 216). Schulz, however, ignores the fact that the issue then before the Court was whether his penalty should be assessed at $1,000 per folder — using WTP’s 2003 reported "total revenue" of $485,351 as the measure of the "gross income derived . . . from such activity," 26 U.S.C. § 6700 — or some lesser amount. That issue was resolved by this Court’s July 12, 2018 decision, which expressly rejected the Government’s reliance on the "gross annual income method" for calculating Schulz’s penalty, and instead concluded that the proper method is to measure the income derived, or to be derived, from the "particular, well-defined activity" of "225 distributions of the Blue Folder." (Dkt. No. 223, at 11-12).

In sum, this Court has already found that: (i) Schulz is liable for distributing 225 Blue Folders in violation of § 6700; and (ii) under that statute, the penalty is properly measured as 100% of the "gross income derived or to be derived" from each Blue Folder distributed. Schulz fails to identify anything in either Schulz I, the law of this case, or other caselaw that limits his liability to activities undertaken in 2003.6 Accordingly, the Court finds unpersuasive Schulz’s attempt to narrow the scope of activities for which he may be penalized to 2003 only.

2. Calculation of Penalty

As discussed above, the Government contends that the income reasonably expected "to be derived" from each Blue Folder was $20.00. (See Dkt. No. 243-1, at 7-8 (quoting In re MDL-731 Tax Refund Litig., 989 F.2d at 1301-02)). Schulz has failed to adduce any evidence regarding the amount of gross income WTP derived from each of the 122 Blue Folders distributed after 2003. It is undisputed, however, that: (i) WTP requested a payment of $20.00 for each copy of the Blue Folder mailed; (ii) in 2003, nearly every individual who requested a Blue Folder paid WTP $20.00; and (iii) WTP mailed an additional 122 Blue Folders between 2004 and 2007. Accordingly, the Court finds there is no genuine issue of material fact remaining for trial as to the amount of gross income WTP reasonably expected to derive from the additional 122 Blue Folders distributed after 2003, and the penalty for that activity is properly assessed at $20.00 for each. The Court therefore grants the Government’s motion for summary judgment to the extent that Schulz’s penalty for distributing 122 Blue Folders between 2004 and 2007 is $2,440.00, for a total penalty of $4,430.00.

C. WTP as Schulz’s Alter Ego

Schulz argues that WTP’s income should not be attributed to him for the purposes of determining the amount of gross income he derived from the 225 Blue Folders. (See, e.g., Dkt. No. 244, at 4-5). As noted above, however, this Court has already reached the opposite conclusion. (Dkt. No. 223). Schulz’s argument is therefore barred by the law-of-the-case doctrine, which "commands that ‘when a court has ruled on an issue, that decision should generally be adhered to by that court in subsequent stages in the same case’ unless ‘cogent and compelling reasons militate otherwise.’" Johnson v. Holder, 564 F.3d 95, 99 (2d Cir. 2009) (quoting United States v. Quintieri, 306 F.3d 1217, 1225 (2d Cir. 2002)). Such reasons include "an intervening change in controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Amore v. City of Ithaca, No. 04-cv-176, 2008 WL 8928574, at *2, 2008 U.S. Dist. LEXIS 45328, at *4 (N.D.N.Y. June 9, 2008) (quoting New York State Nat’l Org. for Women v. Terry, 961 F.2d 390, 395-96 (2d Cir. 1992)).

Here, Schulz asserts that three affidavits he recently procured from former WTP board members, in addition to documents related to WTP’s income in 2003, "reopen[] the alter ego issue." (Dkt. No. 244, at 4; Dkt. Nos. 244-2, -3, -4, -6 to -15). This evidence, however, is not newly available; Schulz has provided no explanation as to why he could not have submitted the affidavits previously. Furthermore, Schulz acknowledges that documents he recently "discovered" have been in his possession for the entirety of this litigation. (Dkt. No. 222). The Court finds no basis for re-examination of its prior decision.7

V. CONCLUSION

For these reasons, it is hereby

ORDERED that the Government’s motion for summary judgment (Dkt. No. 243) is GRANTED to the extent that Schulz’s penalty under 26 U.S.C. § 6700 is properly assessed at $4,430.00, and is DENIED in all other respects; and it is further

ORDERED that the Clerk is directed to enter judgment in favor of the Government on its counterclaim (Dkt. No. 29) against Schulz in the amount of $4,430.00, plus statutory interest accruing from March 9, 2015, the date of the assessment; and it is further

ORDERED that Schulz’s motion for summary judgment (Dkt. No. 244) is DENIED; and it is further

ORDERED that Schulz’s Amended Complaint (Dkt. No. is DISMISSED with prejudice; and it is further

ORDERED that Schulz’s motion to appoint counsel, (Dkt. No. 232), is DENIED as moot; and it is further

ORDERED that the Clerk is directed provide a copy of this Memorandum-Decision and Order to the parties in accordance with the Local Rules; and it is further

ORDERED that the Clerk is respectfully directed to close this case.

IT IS SO ORDERED.

Dated: March 27, 2019
Syracuse, New York

Brenda K. Sannes
U.S. District Judge


FOOTNOTES

1 Also before the Court is Schulz’s motion to appoint trial counsel. (Dkt. No. 232). Because there are no issues of fact remaining for trial, as discussed below, Schulz’s motion is denied as moot.

2 Although Schulz now asserts that he "has never admitted that he ‘distributed 225 Tax-Termination Packages in 2003,’" (Dkt. No. 250, ¶ 2), the Court notes that the record is replete with his representations to the contrary, (see, e.g., Dkt. No. 13-1, ¶ 3 (affirming that, "n 2003, . . . Schulz mailed 225 copies of a Blue Folder. . . ."); Dkt. No. 13-9, at 4; Dkt. No. 16-1, ¶ 5 ("In 2003, Schulz . . . petitioned the government for redress of grievances. . . . He also . . . mailed 225 copies to those who requested a copy and who voluntarily sent the organization up to $20."); id. ¶ 20 (summarizing the penalty as "$1,000 for each of the 225 Blue Folders . . . that were mailed to people in 2003"); Dkt. No. 197-2, ¶ 29 (calculating total expense of 225 Blue Folders, or $4,500, as a percentage of WTP’s 2003 gross revenue); Dkt. No. 214, at 1-2 (stating that the "‘abusive tax shelter’ according to Schulz I was WTP’s distribution in 2003 of 225 copies of a Blue Folder"). In any event, the year in which Schulz actually mailed each folder is immaterial to the Court’s analysis, as discussed infra Part IV.B.1.

3 Schulz states that his wife, who "is not able to competently testify concerning these matters because of her cognitive impairment," presented him with "hundreds of documents related to the issue at hand," of which Schulz was unaware because they were in "folders . . . set up and maintained by [his wife] years ago." (Dkt. No. 233-1, ¶¶ 3, 7). The Court further notes that the timing of Schulz’s disclosure is also suspect, as he "discovered" documents showing proof of income only when confronted — for the first time — with the need to affirmatively establish that WTP derived less than $225,000 in 2003 from distribution of the 225 Blue Folders. (See Dkt. No. 216). Indeed, Schulz admits that his earlier disclosures relating to WTP’s income were intended only to "prove [he] derived no income directly from" distribution of the Blue Folders. (Dkt. No. 233-1, ¶ .

4 The Court assumes familiarity with the complete procedural and factual history of this case, as set out in Schulz I, as well as the Court’s previous decisions dated February 11, 2016, May 6, 2016, March 7, 2017, and July 12, 2018 (Dkt. Nos. 23, 25, 88, 223). Only those facts relevant to the parties’ motions are set out below and are drawn from the parties’ statements of material facts (Dkt. Nos. 243-2, 244-1), responses thereto (Dkt. Nos. 249-1, 250), as well as docket entries incorporated by reference therein and the exhibits attached to the parties’ submissions, to the extent that they would be admissible as evidence. Where facts stated in a party’s statement of material facts are supported by testimonial or documentary evidence and denied with only a conclusory statement by the other party, the Court has found such facts to be true. See N.D.N.Y. L.R. 7.1(a)(3); Fed. R. Civ. P. 56(e).

5 Schulz has submitted more than 2,000 pages of documentation relating to WTP’s sources of income in 2003 other than the Blue Folders at issue in this case. (Dkt. Nos. 244-6 to 244-15). That information, however, is irrelevant to the amount of "gross income derived (or to be derived)," 26 U.S.C. § 6700, from the 225 Blue Folders Schulz is liable for promoting.

6 As discussed above, Schulz’s confusion over the relevant timeframe is entirely of his own making, as he has repeatedly represented to the IRS and this Court that he distributed 225 folders in 2003. See supra n.2.

7 In any event, even were the Court to consider the affidavits, their content does not change the Court’s analysis and determination that WTP’s income is attributable to Schulz.

[AndyK]

Except for here, Bobbie has completely faded off the radar.

What a pathetic end for someone who was able to draw thousands of protestors to Washington, hit several TV talk shows, and draw the admiration of many other TPs.

FWIW, his We The People Foundation and Congress web sites haven't been updated since 2012 with the latest posts being lame spins on how the government is abusing him,

At least he attained a major victory by getting the financial penalties against him reduced almost one hundred fold. However, with no source of income, it will be interesting to see if he can actually pay the balance.

[jcolvin2]

Except for here, Bobbie has completely faded off the radar.

With respect to tax protestors, Quatloos is the website of record.

[notorial dissent]

After reading the above, it comes to mind, as Schulz was well before I came to Quatloos or real interest in the TP crowd, was he ever anything other than a skiving conartist?

[fortinbras]

Schulz is now enjoying a taxpayer-subsidized vacation, but back around 2000 he was making a lot of noise and trying to make more, as head of an organization of his own making, modestly titled "We the People", that existed to bring down the IRS. At one point he actually tried to bring the IRS down literally, telling his audience to show up on a specific time and surround the IRS Building in DC, and chant some mantra and bring the building down like the walls of Jericho. The building, however, stubbornly remained up.

In the summer of 2001 he 'demanded' that the IRS granted him some attention by sending reps to debate him in a room he had rented at the National Press Club -- on Rosh Hashona (altho he pretended to be unaware of the date, I presume he wanted to make sure that the IRS didn't send any Jews to debate him and also there would be no Jews in the audience to ask embarrassing questions). When the IRS ignored him he claimed he was going to go on a total hunger strike, sitting out in the sun in the middle of the National Mall near the IRS Building - and next to a hot dog vendor; he even preceded this event with a press release of his own writing, "One Man Hungers - A Nation Prays". What did happen was that a member of the House, named Bartlett, from western Maryland, was motivated to arrange a lecture - not a debate - in an available room of the House Office Bldg - not the Press Club and not on Rosh Hashona - with the lecturers on the tax law provided by the Dept of Justice - not IRS employees. The offer came 20 days into his purported hunger strike, one of the few hunger strikes in which the participant weighed more at the end than at the beginning.


Schulz tried to turn this into a money maker right away - he asked his followers for money to pay for this event, altho the room and the lecture was being paid for by public funds, ostensibly because it cost him something to set up his computer camera to do a webcast of the lecture. He also talked as if he'd have unlimited opportunity to ask questions of the DOJ lecturer(s) and he solicited from his followers questions to put to them, hinting that he expected the desired questions to be accompanied by monetary contributions (there is or was, from another organization, a sort of socratic colloquy aimed at undermining tax logic, and I imagine more than one of Schulz's audience suggested that, but we'll never know because he didn't reveal what questions he had already received so it is probable that he got a lot of repetitions). But Schulz got too aggressive even for Bartlett and the DOJ - Schulz started characterizing this simple explanation of the tax laws and system with "putting the IRS on trial"; the lecture was scheduled for a date in late March 2002 (having been delayed by the World Trade Center attack) and Schulz started up the slogan that his audience might, as a result of this event, be relieved of having to work up their tax returns - "Don't file before the trial !" When the IRS and DOJ heard of this last twist they got really mad and the lecture was cancelled altogether, with a very angry Bartlett scolding Schulz for being an asshole.

After that, Schulz hired Mark Lane, a notoriously unethical (and unsuccessful) lawyer, to work up a lawsuit going all the way to the US Supreme Court to the effect that the First Amendment provision about petitioning the govt also required the govt to reply to the petition. Evidently Lane had told Schulz that this issue had never been litigated before - which was not at all true. Lane also told Schulz that he was worth $75000 to take this to the Supreme Court, which was also not at all true. As expected this suit lost at every stage and didn't even get heard by the Supreme Court.

Schulz launched a collection of unsuccessful lawsuits at the IRS, the Federal Reserve, and some financial institutitons. At this point the IRS and DOJ started looking at Schulz for various kinds of tax evasion and promoting tax evasion and Schulz was convicted and sentenced - evidently his organization had no lawyers among its members and Mark Lane was not the least sentimental because Schulz had to defend himself pro se.. "We the People" shut down once Schulz was convicted.