United States of America v. Kegley et al, No. 2:2013cv05053 - Document 86 (E.D. Wash. 2015)
Court Description: ORDER GRANTING SUMMARY JUDGMENT IN THE UNITED STATES' FAVOR AS TO RICHARD KEGLEY; granting 69 Motion for Summary Judgment. Signed by Senior Judge Edward F. Shea. (cc: Richard Kegley) (CV, Case Administrator)
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United States of America v. Kegley et al Doc. 86 1 2 3 4 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 5 6 UNITED STATES OF AMERICA, 7 CV-13-5053-EFS Plaintiff, 8 ORDER GRANTING SUMMARY JUDGMENT IN THE UNITED STATES’ FAVOR AS TO RICHARD KEGLEY1 v. 9 10 No. RICHARD D. KEGLEY, RAMON ZAMORA, ZAP BOXING CLUB YOUTH CENTER, and WALLA WALLA COUNTY, 11 Defendants. 12 13 Plaintiff 14 United States asks the Court to enter either 15 summary judgment or default judgment against Plaintiff Richard 16 Kegley. ECF No. 69. On October 28, 2015, Mr. Kegley filed an 17 opposition. ECF Nos. 79 & 80, and approximately a month later Mr. 18 Kegley filed a document entitled, “Notice of Discharge,” ECF No. 19 84. After reviewing the record and relevant authority, the Court 20 is fully informed and enters judgment against Mr. Kegley for the 21 reasons that follow. 22 23 In prior Orders, the Court utilized a larger font size. Given 24 1 25 that Mr. Kegley utilized a standard-size font in his recent 26 filings, the Court reverts to a standard-size font. ORDER - 1 Dockets.Justia.com 1 2 3 4 A. Evidence Challenges and the Summary-Judgment Standard Mr. Kegley attacks the sufficiency of the declarations submitted by the United States. Both IRS Revenue Officers William Waight and Ron W. Robinson signed their declarations under penalty 5 of perjury pursuant to 28 U.S.C. § 1746. ECF No. 72 at 3; ECF No. 6 73 at 7. These declarations comply with the requirements of § 1746 7 and therefore may be considered by the Court for purposes of 8 9 10 summary judgment. See, e.g., Davenport v. Bd. of Trustees of St. Ctr. Cmty. College Dist., 654 F. Supp. 2d 1073, 1084-85 (E.D. Cal. 11 2009) (discussing that for purposes of § 1746 the declarant must 12 have personal knowledge of the facts and also indicate that the 13 information provided is truthful). Furthermore, Ron W. Robinson 14 is the IRS Revenue Officer’s legal name and it is not a pseudonym 15 as an employee of the IRS, as suggested by Mr. Kegley. Robinson 16 Dec. ¶ 2, ECF No. 82. 17 Mr. Kegley also challenges the Court’s reliance on IRS Forms 18 4340, Certificate of Assessments, Payments and Other Specified 19 Matters. See ECF No. 73, Exs. 1-9. Yet, Mr. Kegley did not support 20 21 22 this challenge with evidence to rebut the fact that notices and demands for these unpaid liabilities were sent to him on the 23 specified dates for the specified amounts. Therefore, the Court 24 finds it may rely on the IRS Forms 4340 to establish that the IRS 25 provided 26 assessments and demand for payment as is required under 26 U.S.C. ORDER - 2 Mr. Kegley with notice of unpaid tax and penalty 1 § 6303(a). See Palmer v. IRS, 116 F.3d 1309, 1312 (9th Cir. 1997) 2 (finding 3 challenge the Form 4340 that was mailed to them by the IRS and 4 that taxpayers failed to provide specific facts to therefore affirmed the district court’s grant of summary judgment 5 in the United States’ favor); Hughes v. United States, 953 F.2d 6 531, 535 (9th Cir. 1992) (finding that IRS’s submitted Form 4340, 7 an official document, was proof of the tax assessments). 8 Having denied Mr. Kegley’s unsupported challenges to the 9 10 United States’ submitted evidence, the Court relies on the United 11 States’ evidence to develop the following factual statement. To 12 the extent that Mr. Kegley’s declaration provides facts, the Court 13 also considers these facts. Summary judgment is appropriate if 14 the record establishes “no genuine dispute as to any material fact 15 and the movant is entitled to judgment as a matter of law.” 16 R. Civ. P. 56(a). Fed. Mr. Kegley, as the party opposing summary 17 judgment, must point to specific facts establishing a genuine 18 dispute of material fact for trial. See Celotex Corp. v. Catrett, 19 477 U.S. 317, 324 (1986); Matsushita Elec. Indus. Co. v. Zenith 20 21 22 Radio Corp., 475 U.S. 574, 586-87 (1986). If the non-moving party fails to make such a showing for any of the elements essential to 23 its case for which it bears the burden of proof, the trial court 24 should grant the summary-judgment motion. Celotex Corp., 477 U.S. 25 at 322. 26 /// ORDER - 3 1 B. Factual Statement 2 Mr. Kegley lives in Walla Walla County, Washington. From 1997 3 to the present, Mr. Kegley failed to file federal income tax 4 returns. As a result, on February 13, 2006, the Secretary of the 5 Treasury made federal income tax assessments against Mr. Kegley, 6 which are reflected in the table below along with the penalties 7 and interest assessed as of September 1, 2015: 8 Penalties & Interest Assessed Balance (as of 9/1/15) 1997 $2,976.00 $4,061.54 $10,987.58 1998 $28,981.00 $34,871.82 $98,559.35 $14,852.00 $15,717.37 $47,185.02 $28,062.00 $25,466.09 $82,622.71 2001 $45,505.00 $33,979.72 $124,735.51 2002 $68,295.00 $40,756.58 $175,499.44 2003 $23,271.00 $10,868.12 $56,680.62 2004 $22,077.00 $7,651.87 $46,818.66 TOTAL 11 Tax Assessed 2000 10 Tax Year 1999 9 $234,019.00 $173,373.11 $643,088.89 12 13 14 15 16 17 18 19 20 Mr. Kegley was given notice of each of the assessments. The 21 Secretary of the Treasury made a demand for payment of each 22 23 24 assessment. Mr. Kegley failed to pay the assessed amounts. On July 11, 25 2005, a delegate of the Secretary of the Treasury assessed 26 penalties against Mr. Kegley in the amount of $166,641 under Internal Revenue Code (IRC) § 6700 because Mr. Kegley established ORDER - 4 1 corporation soles in Washington in order to serve as an abusive 2 tax shelter. Mr. Kegley was given notice of this assessed penalty, 3 and failed to pay the demanded assessment. On later review, the 4 United States, determined that the penalty assessment should be 5 less than $166,641, and instead demands IRC § 6700 penalties in 6 the amount of $49,000, plus interest (totaling $78,672.39 as of 7 September 1, 2015). 8 On August 1, 1975, Mr. Kegley and Carolyn Kegley acquired 9 10 11 property located in Walla Walla County, Washington at 2344 Old Milton Highway (“the Property”), legally described as: Beginning at a point in the South line of the Northeast Quarter of the Southeast Quarter of Section 2 in Township 6 North of Range 35, East of the Willamette Meridian, which point is 5.74 feet, measured along said South line from the center of the Southeast Quarter of said Section and running thence East, along said South line 100.0 feet; thence North 668.22 feet, more or less, to the North line of the Southwest Quarter of the Northeast Quarter of the Southeast Quarter of said Section; thence West along said North line, 100.0 feet; thence South 668.22 feet, more or less, to the point of beginning. Subject to existing road on the South. Situate in the County of Walla Walla, State of Washington. 12 13 14 15 16 17 18 19 Mr. Kegley resided on the Property from 1975 to at least November 20 21 22 2008. Carolyn Kegley transferred her interests in the Property to Mr. Kegley by quitclaim deed on January 11, 1993, as part of 23 marriage dissolution. Also in January 1993, Mr. Kegley purported 24 to transfer the Property by quitclaim deed to his father, Richard 25 J. Kegley (“Sr. Kegley”), and Jack Whittington.2 In August 1993, 26 2 Both Sr. Kegley and Mr. Whittington are now deceased. ORDER - 5 1 Sr. 2 quitclaim deed as a “gift” to Sr. Kegley and Jamie Whittington, 3 who resided with Mr. Kegley as a couple at that time. 4 Kegley and Mr. Whittington transferred the Property by In July 1997, Sr. Kegley and Ms. Whittington purported to 5 transfer the Property by quitclaim deed to Richard of YHVH, Office 6 of the First Presiding Pratriarch [sic] (Overseer), a corporation 7 sole and Jamie of YHVH, Office of the First Presiding Patriarch 8 9 10 (Overseer), a corporation sole. Mr. Kegley is Richard of YHVH; and Jamie Whittington established Jamie of YHVH with Mr. Kegley. 11 In November 1999, Jamie Marie Kegley (Overseer) (a/k/a Jamie 12 Whittington) for Jamie of YHVH purported to transfer its interest 13 in the Property as recorded by quitclaim deed as a “gift/donation” 14 to Richard of YHVH, Office of the First Presiding Patriarch 15 (Overseer), a corporation sole. 16 On April 9, 2008, Revenue Officer William Waight spoke with 17 Jamie Whittington by telephone, who advised that she and Mr. 18 Kegley lived together as a couple and that they both established 19 Jamie of YHVH, Office of the First Presiding Patriarch. On May 7, 20 21 22 2008, Revenue Officer Waight visited the Property and observed that it was occupied. Mr. Kegley came out of the house and 23 introduced 24 outstanding federal tax liabilities with him. Mr. Kegley told Mr. 25 Waight that he established the corporation sole Richard of YHVH 26 ORDER - 6 himself. Officer Waight discussed Mr. Kegley’s 1 and that he transferred assets to that entity, which was in fact 2 Mr. Kegley. 3 4 In November 2008, Officer Waight visited the Property again in order to leave IRS summonses for Mr. Kegley; no one answered 5 the door. Officer Waight observed the same cars and dogs that were 6 present during his May 2008 visit. Officer Waight returned to the 7 Property the next day and found the summonses that he had taped 8 9 to the door were gone. In the spring of 2009, Erin Capital Management recorded a 10 11 judgment 12 marital community concerning the Property. In November 2009, 13 Richard 14 (Overseer), a corporation sole, and Jamie of YHVH, Office of the 15 First 16 lien of against YHVH, Presiding Jamie Office Patriarch Whittington of the and First (Overseer), the Whittington Presiding a Patriarch corporation sole, purported to transfer their interests in the Property by quitclaim 17 deed as a “gift” to Zap Boxing Club Youth Center. 18 In December 2009, Jamie Whittington died. 19 In September 2010, Officer Waight returned to the property. 20 21 22 23 It appeared to Officer Waight that the property had been abandoned as the dogs and cars he had seen on the prior trips were gone. On May 1, 2013, the United States filed this lawsuit. The 24 United States 25 requests, which Mr. Kegley failed to fully answer. ECF Nos. 71, 26 Exs. 1-3. Defendants Ramon Zamora and Zap Boxing Youth Center ORDER - 7 served Mr. Kegley with a number of discovery 1 disclaimed any right, title, or interest in and to the Property. 2 ECF No. 5. And the Court has entered orders of default against 3 Defendant Erin Capital Management and Defendants Richard of YHVH, 4 Office of the First Presiding Patriarch, and Jamie of YHVH, office 5 of the First Presiding Patriarch, holding that any interest each 6 entity had in the Property is extinguished. ECF Nos. 39, 52, & 7 53. Further, the United States and Walla Walla County have 8 9 10 stipulated that the County’s lien interests are paramount and superior to the United States federal tax liens. ECF No. 35. 11 After extending a number of discovery deadlines due to Mr. 12 Kegley’s pro se status and his vision difficulties, the discovery 13 cutoff expired. On September 30, 2015, the United States filed 14 the instant motion for summary-judgment.3 15 C. 16 Authority and Analysis Mr. Kegley raises a number of challenges to the United 17 States’ motion, which can be summarized into three categories: 1) 18 summary judgment is not appropriate because the United States 19 failed to provide Mr. Kegley with proper notice as to his statutory 20 21 duty to owe taxes and therefore he has no duty to pay the claimed 22 23 3 In the alternative, the United States seeks default judgment. 24 Because the Court finds summary judgment is appropriate, the Court 25 declines to consider whether default judgment is appropriate 26 against Mr. Kegley. ORDER - 8 1 taxes, 2) the United States cannot demand payment of money for 2 the taxes because the United States money system violates the U.S. 3 Constitution, and 3) the transfers of the Property and development 4 of corporations sole were not sham transactions. The Court 5 addresses each challenge. 6 First, as to notice, the Court finds Mr. Kegley has been 7 provided proper and sufficient notice regarding his tax liability 8 9 10 to the United States. Mr. Kegley satisfies the definition of “person” under the Internal Revenue Code, 26 U.S.C. §§ 1 et al. 11 See ECF No. 23 at 3. See, e.g., 26 U.S.C. §§ 6671(b), 7203, & 12 7701. See also United States v. Studley, 783 F.2d 934, 937 n.3 13 (9th Cir. 1986) (recognizing that the argument that an individual 14 is not a taxpayer under the Internal Revenue Code is frivolous); 15 United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981) 16 (“Romero’s proclaimed belief that he was not a ‘person’ and that 17 the wages he earned as a carpenter were not ‘income’ is fatuous 18 as well as obviously incorrect.”). Further, Mr. Kegley was 19 provided notice of his owed income tax as a taxpayer and the 20 21 22 imposed interest and penalties because of his failure to pay the owed taxes. See 26 U.S.C. § 6671(a) (“The penalties and 23 liabilities provided by this subchapter shall be paid upon notice 24 and demand by the Secretary, and shall be assessed and collected 25 in the same manner as taxes.”). And as reflected in the filed Form 26 4340s, Mr. Kegley owes the listed taxes and penalties. Although ORDER - 9 1 Mr. Kegley could have challenged these owed taxes with the IRS—he 2 did not do so. And he did not do so during this lawsuit either 3 through responses to discovery requests or in response to this 4 summary-judgment motion. Accordingly, Mr. Kegley failed to 5 establish a triable issue of fact that these tax assessments are 6 erroneous. See, e.g., Schiff v. United States, 919 F.2d 830, 8317 12 (2d Cir. 1990) (denying the “taxpayer” petitioner’s due process 8 9 10 claim as frivolous). In summary, the Court denies Mr. Kegley’s first challenge, finding that this lawsuit was properly brought 11 after the required United States’ pre-lawsuit action. See 26 12 U.S.C. § 7401 (“No civil action for the collection or recovery of 13 taxes, or of any fine, penalty, or forfeiture, shall be commenced 14 unless the Secretary authorizes or sanctions the proceedings and 15 the Attorney General or his delegate directs that the action be 16 commenced.”). 17 The second challenge that Mr. Kegley raises against the 18 United States’ summary-judgment motion is based on the legal 19 argument that the United States cannot demand payment of the owed 20 21 22 taxes in the form of United States legal tender because the United States legal-tender system unconstitutionally requires the use of 23 coins and currency, rather than gold or silver coins. See Mr. 24 Kegley’s Opp. to Mtn. for Summ. Jdgmt. or Def. Jdgmt., ECF No. 79 25 at 3 (Mr. Kegley “is still waiting for the Government to define 26 the exact nature of the accounting unit their claim is based upon, ORDER - 10 1 the authority for the use of said accounting unit and the statutory 2 requirement which places a duty upon Mr. Kegley to conduct his 3 financial 4 affairs in the accounting unit.”). This unconstitutional-legal-tender argument is frivolous. See United 5 States v. Gardiner, 531 F.2d 953, 955 (9th Cir. 1976) (recognizing 6 that arguments that Federal Reserve Notes are not lawful money 7 are frivolous). Congress has the constitutional power to oversee 8 9 10 the monetary system of the country, and it exercised that power by establishing a uniform currency system. See 31 U.S.C. §§ 5101 11 et seq.; Norman v. Baltimore & O.R. Co., 55 S.Ct. 407 (1935). 12 Accordingly, “United States coins and currency (including Federal 13 reserve notes and circulating notes of Federal reserve banks and 14 national banks) are legal tender for all debts, public charges, 15 taxes, and dues.” 31 U.S.C. § 5103. Mr. Kegley’s belief that he 16 can pay this owed debt in gold or silver coins, or some other form 17 of payment, other than United States legal tender is erroneous. 18 In addition, his “Offer of Performance” to pay “up to 850,000 19 money of account units,” and which states in part, “As soon as 20 21 22 the unit ‘money’ is defined and comes into general circulation and the use or possession of the unit does not prejudice my legal 23 rights in any manner I will fulfill this offer,” ECF No. 80-1, is 24 not a bona fide offer of judgment under Rule 68. Accordingly the 25 Court rejects Mr. Kegley’s second challenge and finds that Mr. 26 Kegley owes $583,045.24 in unpaid federal income taxes from 1997- ORDER - 11 1 2004. Mr. Kegley also owes interest and penalties accruing after 2 January 31, 2013, until paid. In this regard, the United States 3 motion is granted. 4 Mr. Kegley’s third challenge pertains to Count 2, wherein 5 the United States alleges that Mr. Kegley marketed a program to 6 develop corporations sole in order to evade the reporting and 7 payment of federal incomes taxes, as well as conceal assets and 8 9 10 evade IRS collection efforts. Although a corporation sole is lawful under some state laws to enable religious leaders to hold 11 property and conduct business for the benefit of the religious 12 entity, a corporation sole is not authorized to provide a benefit 13 to the office holder or entity creator. See, e.g., United States 14 v. Gardner, 2008 WL 906696, *3 (D. Ariz. Mar. 21, 2008), aff’d 15 457 Fed. Appx. 611 (9th Cir. Nov. 1, 2011) (affirming entry of 16 permanent injunction against promoters of abusive corporation sole 17 tax scheme). 18 The United States provided a chart of the corporation soles 19 that were formed in Washington in Walla Walla and neighboring 20 21 22 College Place by Mr. Kegley. ECF No. 73, Ex. 10. These 49 corporation soles were included as the basis for the penalty 23 assessment in the amount of $166,641, against Mr. Kegley, under 24 26 U.S.C. § 6700. See id., Ex. 9. Section 6700 permits the IRS to 25 impose a penalty against an individual, who participates in an 26 arrangement and makes a statement in connection therewith with ORDER - 12 1 respect 2 excludability of any income, or the securing of any tax benefit 3 as a result of participating in the arrangement, with knowledge 4 to the allowability of a deduction or credit, the (or having reason to know) that this statement is false or 5 fraudulent as to any material matter. 26 U.S.C. § 6700(a)(2). 6 In support of Count 2, Officer Waight declares that on May 7 7, 2008, he traveled to the Property and spoke with Mr. Kegley, 8 9 10 who admitted that he established the corporation sole Richard of YHVH and that he transferred assets to that entity. ECF No. 72 ¶ 11 4. In his opposition brief, which is not signed under the penalty 12 of perjury, Mr. Kegley submits that he did not admit to Officer 13 Waight that he established Richard YHVH and transferred assets to 14 that entity. ECF No. 79 at 6. In comparison, in his declaration, 15 which is signed under penalty of perjury, Mr. Kegley does not make 16 a similar assertion, i.e., he did not state under penalty of 17 perjury that he did not make these admissions to Officer Waight. 18 Accordingly, Mr. Kegley failed to present admissible evidence to 19 challenge Officer Waight’s testimony that Mr. Kegley admitted that 20 21 22 23 he established the corporation sole Richard of YHVH and that he transferred assets to that corporation sole. Therefore, based on the entire record, including 1) Mr. 24 Kegley’s admission 25 Property transfers in comparison to Mr. Kegley’s owed taxes, 3) 26 the chart of the formed corporations sole, and 4) the uncontested ORDER - 13 to Officer Waight, 2) the timing of the 1 May 18, 2011 Form 4340, which imposed a civil penalty for these 2 abusive tax shelters, the Court grants summary judgment in the 3 United States’ favor as to Count 2. The United States’ request to 4 reduce to judgment $49,000 of the penalty assessed against Mr. 5 Kegley under 26 U.S.C. § 6700, plus statutory additions and 6 interest accruing on that amount since July 11, 2005, until paid 7 is granted. 8 Furthermore, when the Court sets aside the sham transfers of 9 10 the Property, the Property is deemed owned by Mr. Kegley. 11 Therefore, pursuant to § 6321, Mr. Kegley’s failure to pay the 12 owed taxes, interest, and penalties, subjects the Property to a 13 lien in favor of the United States. 26 U.S.C. § 6321 (“If any 14 person liable to pay any tax neglects or refuses to pay the same 15 after demand, the amount (including any interest, additional 16 amount, addition to tax, or assessable penalty, together with any 17 costs that may accrue in addition thereto) shall be a lien in 18 favor of the United States upon all property and rights to 19 property, whether real or personal, belonging to such person.”); 20 21 22 see also id. § 6322 (setting the date of the lien as the date the assessment was made). Accordingly, the Court grants the United 23 States’ summary judgment as to Count 3. 24 /// 25 // 26 / ORDER - 14 1 D. Conclusion 2 For the reasons set-forth above, IT IS HEREBY ORDERED: 3 1. 4 The United States’ Motion for Summary Judgment and, in the Alternative, Default Judgment against Richard 5 Kegley, ECF No. 69, is GRANTED. 6 2. No later than 10:00 a.m. on January 6, 2016, the United 7 States is to submit a proposed judgment, including the 8 identified financial amounts for the following matters:4 9 a. 10 For unpaid federal income taxes from 1997 to 2004, 11 plus statutory additions and interest for each tax 12 assessment; 13 b. For an unpaid civil penalty assessed under 26 14 U.S.C. 15 statutory additions and interest; and 16 c. § 6700 in the amount of $49,000, plus The federal tax liens attach to all property and 17 rights to property of Richard D. Kegley, including 18 the subject Property. 19 3. All Scheduling Order, ECF No. 57, dates and deadlines 20 are STRICKEN. 21 4. 22 The federal tax liens are to be foreclosed on the Property. Within twenty days after entry of Judgment, 23 24 25 4 Calculations are to presume that judgment will be entered on 26 January 6, 2016. ORDER - 15 1 the United States is to file a proposed order of sale 2 of 3 stipulations, disclaimers, and prior court orders. 4 the subject IT IS SO ORDERED. Property, consistent with The Clerk’s Office is directed to enter 5 this Order and provide copies to counsel and Mr. Kegley. 6 DATED this _29th _ day of December 2015. 7 8 s/Edward F. Shea EDWARD F. SHEA Senior United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Q:\EFS\Civil\2013\5053.msj.lc1.docx ORDER - 16 the
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