United States District Court, E.D. Missouri, Eastern Division
MEMORANDUM AND ORDER
STEPHEN N. LIMBAUGH, JR. UNITED STATES DISTRICT JUDGE
filed this lawsuit against the United States stating that the
United States Internal Revenue Service (“IRS”)
wrongfully levied on their bank accounts for the tax debt
owed by a delinquent taxpayer, Dalton West Coast, Inc.
(“DWCI”). Plaintiffs contend that they are not
the alter egos of or are otherwise related to DWCI and that
they are thus not liable for the taxes owed by DWCI.
Plaintiffs filed a motion for summary judgment against the
United States (#19). The motion has been fully briefed and is
ready for disposition.
2000, DWCI was incorporated in California by John C. Dalton,
IV. DWCI was in the document destruction business. In January
2006, DWCI entered into an asset sale and purchase agreement
with Cintas Corporation. After adjustments, the net sale
proceeds were $25.9 million. In March 2006, DWCI's
shareholders sold their outstanding corporate stock to CDD
Holdings, LLC for $18.8 million. In September 2007, DWCI
filed its 2006 Form 1120 corporate income tax return,
reporting approximately $26 million in capital gains. The
gain was completely offset by, primarily, purported losses
relating to foreign currency options. In September 2010, the
IRS issued a Notice of Deficiency to DWCI asserting a $9.4
million tax deficiency, plus penalties, primarily from
disallowance of the claimed losses from foreign currency
options. DWCI did not challenge the Notice of Deficiency in
United States Tax Court.
January 27, 2011, a delegate of the Secretary of the Treasury
assessed $9, 413, 246 in taxes against DWCI for tax year
2006. In an attempt to collect on DWCI's tax liability,
on June 1, 2016, the IRS issued three Notices of Levy on
First Bank in Hazlewood, Missouri related to each of the
three plaintiffs --- Certified Enterprises, Inc., Certified
Recycling, Inc., and Fibre Resources Unlimited, Inc. The
levies attach to all property and rights to property of the
plaintiffs as alter egos of DWCI.
contend that the levies were wrongful and filed this lawsuit.
to Federal Rule of Civil Procedure 56(c), a district court
may grant a motion for summary judgment if all of the
information before the court demonstrates that “there
is no genuine issue as to material fact and the moving party
is entitled to judgment as a matter of law.” Poller
v. Columbia Broadcasting System, Inc., 368 U.S. 464, 467
(1962). The burden is on the moving party. City of Mt.
Pleasant, Iowa v. Assoc. Elec. Co-op., Inc., 838 F.2d
268, 273 (8th Cir. 1988). After the moving party discharges
this burden, the nonmoving party must do more than show that
there is some doubt as to the facts. Matsushita Elec.
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986). Instead, the nonmoving party bears the burden of
setting forth specific facts showing that there is sufficient
evidence in its favor to allow a jury to return a verdict for
it. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249 (1986); Celotex Corp. v. Catrett, 477 U.S. 317,
ruling on a motion for summary judgment, the court must
review the facts in a light most favorable to the party
opposing the motion and give that party the benefit of any
inferences that logically can be drawn from those facts.
Buller v. Buechler, 706 F.2d 844, 846 (8th Cir.
1983). The court is required to resolve all conflicts of
evidence in favor of the nonmoving party. Robert Johnson
Grain Co. v. Chem. Interchange Co., 541 F.2d 207, 210
(8th Cir. 1976).
parties may bring an action “against the United States
when it is shown property was wrongfully seized pursuant to
levy by the IRS.” Security Counselors, Inc. v.
United States, 860 F.2d 867, 869 (8th Cir. 1988); 26
U.S.C. § 7426. In such a wrongful levy action, the
plaintiff carries the initial burden of showing some interest
in the levied property in order to have standing.
Id.; see also Scoville v. United States,
250 F.3d 1198, 1201-02 (8th Cir. 2001). Once the plaintiff
has made this initial showing, the burden then shifts to the
government to prove a “nexus” between the
property and the delinquent taxpayer. Scoville, 250
F.3d at 1201. The Eighth Circuit has not ruled on whether the
burden of proof for the government is “preponderance of
the evidence” or “substantial evidence.”
Id. If the government proves a nexus, the plaintiff
has “the ultimate burden to prove the levy was
wrongful.” See id.
parties agree that the plaintiffs have satisfied their burden
of showing some interest in the levied bank accounts --- the
bank accounts belonged to the plaintiffs. The burden thus
shifts to the United States to prove a “nexus”
between the levied property (the bank accounts) and the
delinquent taxpayer (DWCI) on or after the date the lien
arose --- January 27, 2011. The IRS states that the 2016
levies on the plaintiffs' bank accounts were based upon
the theory that the plaintiffs are the alter egos of the
delinquent taxpayer DWCI.
contend that the IRS must have had probable cause at the time
of the 2016 levies to believe that a nexus existed between
DWCI and the levied bank accounts. The Eighth Circuit has not
reached the question of whether the IRS must have probable
cause at the time of the levies. See Scoville, 250
F.3d at 1201 n.3. However, courts in other Circuits have held
that the IRS must make a showing of probable cause at the
time a levy is imposed to comply with the Fourth Amendment.
Valley Finance, Inc. v. United States, 629 F.2d 162,
171 n. 19 (D.C.Cir. 1980); Flores v. United States,
551 F.2d 1169, 1175-76 (9th Cir.1977); see also Oxford
Capital Corp. v. United States, 211 F.3d 280, 287 (5th
Cir. 2000) (Dennis, C.J., concurring). Plaintiffs thus insist
that no discovery is required in this case because the case
should be determined by the facts in the government's
possession at the time of the levy.
cause exists if “the totality of facts based on
reasonably trustworthy information would justify a prudent
person in believing” that an offense had occurred.
Smithson v. Aldrich, 235 ...