Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 1 of 10 PageID #: 291

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1 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 1 of 10 PageID #: 291 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK X UNITED STATES OF AMERICA, Plaintiff, Civil Action No.: CV DRH/WDW Judge: Hurley, SJ Magistrate Judge: Wall v. RODNEY MICHEL, as Executor for the Estate of Estate of Helen Burger, deceased, Defendant X MEMORANDUM OF LAW IN SUPPORT OF THE UNITED STATES MOTION FOR SUMMARY JUDGMENT Plaintiff, United States of America, by its undersigned attorneys, respectfully submits this memorandum of law in support of its motion for summary judgment in favor of the United States and against defendant Rodney Michel for his failure to honor an Internal Revenue Service (IRS) Notice of Levy. Specifically, the United States of America seeks a money judgment in an amount equal to the value of the property or rights to property belonging to taxpayer Robert Burger in the defendant s possession on June 20, 1996, the date on which the Notice of Levy was served upon the defendant, in the amount of $176,099.14, plus interest as allowed by law, computed from June 30, 1996 through date of judgment, with interest running from date of judgment pursuant to 28 U.S.C. 1961(c), until fully satisfied. STATEMENT OF FACTS Helen M. Burger died testate on August 14, (LR 56.1(a) Stat. 1. 1/ ) Paragraph 15 of The Last Will and Testament of Helen M. Burger, dated March 25, 1991, names Rev. Canon 1/ All citations to LR 56.1( a) Stat. refer to the United States Local Rule 56.1(a) Statement [Statement of Material Facts as to which There Is No Genuine Issue To Be Tried].

2 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 2 of 10 PageID #: 292 Rodney Michel (defendant), as Trustee of a trust provided in such Last Will and Testament. (LR 56.1(a) Stat. 2.) Paragraph 16 of The Last Will and Testament of Helen M. Burger, dated March 25, 1991, names defendant as Executor of such Last Will and Testament. (LR 56.1(a) Stat. 3.) Under the terms of The Last Will and Testament of Helen M. Burger, Helen M. Burger s surviving sons Robert Burger and Renee Burger were entitled to 60% and 40% respective shares in the estate. (LR 56.1(a) Stat. 4.) On November 8, 1995, the Surrogate s Court of the State of New York, Nassau County, entered a Decree of Probate of The Last Will and Testament of Helen M. Burger. (LR 56.1(a) Stat. 5.) On that same day, defendant was appointed Executor for the Estate of Helen M. Burger and issued Letters Testamentary. (LR 56.1(a) Stat. 6.) On February 20, 1996, defendant was issued Letters of Trusteeship for the Trust created by The Last Will and Testament of Helen M. Burger. (LR 56.1(a) Stat. 7.) On June 20, 1996, defendant was served with an Internal Revenue Service (IRS) Notice of Levy and a Notice of Federal Tax Lien. (LR 56.1(a) Stat. 8.) The Notice of Levy served on defendant lists federal income tax liabilities and civil penalties owed to the Internal Revenue Service by Robert Burger for tax years ending December 31, 1979 through December 31, 1989, totaling $359, (LR 56.1(a) Stat. 9.) Prior to service of the Notice of Levy, defendant became aware that Robert Burger was indebted to the United States for unpaid federal income tax liabilities in amounts totaling in excess of $246, (LR 56.1(a) Stat. 10.) A letter from Attorney Frederick M. Reuss, to defendant, dated April 19, 1996, advised defendant that [i]nformation reaching me today is that Bob Burger owes the Federal Government, (for various taxes) a total of $246,579.91, as to which interest continues to accrue on a daily basis. Now that 2

3 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 3 of 10 PageID #: 293 you and I are privy to that information, we cannot fail to act with reference to it. Your obligations are as follows whatever is coming to Bob Burger (no matter what the source) must go to his creditors first, insofar as those creditors have us on notice. The Federal Government does have us on notice. (Emphasis in original.)(lr 56.1(a) Stat. 10.) After defendant was served with the Notice of Levy, he was copied on a letter sent by Frederick M. Reuss, Esquire, who was then representing him in his capacity as Executor for the Estate of Helen Burger, deceased, informing defendant of his absolute obligation to satisfy the Notice of Levy before making any distributions to Robert Burger. (LR 56.1(a) Stat. 11.) On February 28, 1999, defendant filed a Petition for Judicial Settlement of Account 2/ for the Estate of Helen Burger with the Surrogate s Court. The Petition indicates that, at the time of Helen Burger s death, she owned three parcels of real property located in New Hyde Park, Oakdale, and Bay Shore, New York, and that the market values of those properties on date of death were $205,000.00, $195,000.00, and $75,000.00, respectively. According to Schedule B of the Petition, the three parcels of real property were sold for the sum total of $422, Schedule B also indicates that: (1) the Bay Shore property sold on November 17, 1995 for $59,411.21, (2) the Oakdale property sold on April 16, 1997 for $176,844.00, and (3) the New Hyde Park property sold on September 14, 1998 for $186, Schedules C and D to the Petition lists Funeral and administration expenses 3/ and Creditor s claims actually paid 4/ 2/ The Surrogate s Court determined that the Petition for Judicial Settlement of Account was deficient in several respects and denied the request for judicial settlement of account. 3/ Funeral and administration expenses appears to include selling expenses incurred in connection with the sale of the Oakdale property. 4/ The creditor s claims actually paid appears to refer to a mortgage satisfaction on the Bay shore property. 3

4 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 4 of 10 PageID #: 294 totaling $51, and $77,041.49, respectively. Based on the foregoing, the Petition indicates that net cash on hand as of February 28, 1999 totaled $293, ($422, less $128, ($51, $77,041.49)). The Petition also indicates that defendant collected rental and other income from the parcels of real property totaling $68, (Schedule A-2), that administration expenses chargeable to income totaled $49, (Schedule C-2), and that distributions of such income totaled $18, (Schedule E-1), leaving a net cash balance from income totaling $ (Schedule G-1). Finally, the Petition indicates that, on date of death, Helen Burger maintained a cash balance in a Dreyfus New York Municipal Bond Fund totaling $539.78, that the fund earned dividend and/or interest income through February 28, 1999 totaling $ resulting in an ending balance totaling $ (Petition, Schedule A-2 at pp. 1-2) and that additional income was earned (presumably on the net proceeds from the sales of the real property) totaling $1, (Petition, Schedule A-2 at p. 3). Based on the foregoing, as of February 28, 1999, defendant maintained cash-on-hand for the Estate totaling $295, ($293, $ $1,693.62). (LR 56.1(a) Stat. 12.) Sixty percent of the $295, belonged to Robert Burger under The Last Will and Testament of Helen Burger, which totals $177, (LR 56.1(a) Stat. 13.) The federal income tax liabilities of Robert Burger due and owing to the United States as of the date of service of the Notice of Levy on defendant totaled more than Robert Burger s $177, share in Helen Burger s estate. (LR 56.1(a) Stat. 14.) The Petition was denied by the Surrogate s Court on June 14, 2000, because it appeared to be replete with errors. For example, defendant did not properly report the net proceeds from the sale of decedent s real property and Attorney Ruchala, who was representing defendant in his 4

5 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 5 of 10 PageID #: 295 capacity as executor and trustee, failed to provide certain information necessary to establish a basis for his claim to certain fees. (LR 56.1(a) Stat. 15.) For the period from December 2, 2003 through January 21, 2005, five checks made payable to Robert Burger were drawn on an account for the Estate of Helen Burger, deceased, totaling $114, (LR 56.1(a) Stat. 16.) During his deposition, defendant testified that he signed two blank checks and handed them to Attorney Ruchala with the understanding that the checks would be used to distribute money to Renee and Robert Burger. Defendant testified that this occurred after Attorney Ruchala took over which was 1997, after he was served with the Notice of Levy. (LR 56.1(a) Stat. 17.) ISSUES PRESENTED 1. The Internal Revenue Code (the Code), requires a person who is served with a Notice of Levy to surrender to the IRS, all property and rights to property belonging to the taxpayer. A person who fails or refuses to surrender such property and rights to property to the IRS, is liable to the United States for a sum equal to the property and rights to property not surrendered to the IRS. The IRS served Defendant with a Notice of Levy commanding him to surrender to the IRS all property and rights to property belonging to Robert Burger. Defendant failed to surrender to the IRS any property and rights to property belonging to Robert Burger, which he then held in his capacity as executor and trustee. Is Defendant liable to the United States for a sum totaling $177,528.94, which is the value of the property and rights to property belonging to Robert Burger at the time the Notice of Levy was served, plus interest? 2. There are only two legally-recognized defenses for failure to comply with an IRS levy: (a) the person is not in possession of the taxpayer's property, (b) that the property is subject to a prior judicial attachment or execution. Where defendant has admitted, in his filing with the Surrogate s Court that he was in possession of property of the Estate of Helen Burger, deceased, totaling at least $295, (60% of which belonged to Robert Burger), and such property was not subject to a prior attachment or execution, does defendant have a legally-recognized defense to the judgment the United States seeks here? 5

6 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 6 of 10 PageID #: 296 ARGUMENT I Defendant Was Required to Pay over in Accord with the Levy. Pursuant to 6332(a), in the situation where a taxpayer's property is held by another person or institution, a notice of levy is served upon the custodian of the property. This notice gives the IRS the right to all property levied upon, and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government. Celauro v. United States, 411 F. Supp. 2d 257, 265 (E.D.N.Y. 2006), (citing Phelps v. United States, 421 U.S. 330, 334 (1975)). If the custodian honors the levy, he is discharged from any obligation or liability to the delinquent taxpayer with respect to such property or rights to property arising from such surrender or payment. 26 U.S.C. 6332(e). If, on the other hand, the custodian refuses to honor a levy, he incurs liability to the Government for his refusal. 26 U.S.C. 6332(d)(1); see, e.g., Weissman v. U.S. Postal Service, 19 F. Supp. 2d 254, 260 (D.N.J. 1998). Section 6332(d) of the Internal Revenue Code (26 U.S.C.), states in pertinent part that: Any person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes for the collection of which such levy has been made, together with costs and interest on such sum at the underpayment rate established under section 6621, from the date of levy. In the instant case, Helen Burger died testate August 14, 1995, survived by two sons, Robert Burger and Renee Burger. According to her Last Will and Testament, Helen Burger bequeathed 60% of her residue estate to her son Robert, the person whose tax liability the IRS seeks to collect. The Last Will and Testament also named defendant Rodney Michael Executor 6

7 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 7 of 10 PageID #: 297 and Trustee of a testamentary trust created by the Last Will and Testament of Helen M. Burger to effectuate distribution of her estate in accordance with her wishes. The will was duly admitted into probate by the Surrogate s Court for New York State, Nassau County, and, on November 8, 1995 and February 20, 1996, respectively, defendant was issued Letters Testamentary and Letters of Trusteeship to formally recognize him as executor and trustee of the testamentary trust. On June 20, 1996, the IRS served defendant with a Notice of Levy and a Notice of Federal Tax Lien. The Notice of Levy listed tax liabilities due to the IRS from Robert Burger totaling $359, Inasmuch as Robert Burger s interest ($177,528.94) in his mother s estate was less than the total tax liability due to the IRS, 6332(d)(1) required defendant to surrender the entire $177, to the IRS in compliance with the Notice of Levy. After defendant was served with the Notice of Levy, he was copied on yet another letter sent by attorney Frederick M. Reuss, informing defendant of his absolute obligation to satisfy the Notice of Levy before making any distributions to Robert Burger. Contrary to that advice, sometime during 1997, defendant signed two blank checks which he gave to Attorney Ruchala with the understanding that the checks were to be used to make distributions to Robert and Renee Burger. In addition, from the period from December 2, 2003 through January 21, 2005, five checks made payable to Robert Burger were drawn on an account in the name of the Estate of Helen Burger, deceased totaling $114, These five checks appear to be unrelated to the blank checks given to Attorney Ruchala for distribution to Robert and Renee Burger during Defendant failed to surrender any money to IRS and is therefore liable to the United States in the sum of $177, plus costs and interest accruing on such amount from the date 7

8 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 8 of 10 PageID #: 298 that he was served with the Notice of Levy until fully satisfied at the underpayment rate set forth in 26 U.S.C Code 6332(a) states in pertinent part that: II Defendant Has No Legally-Recognized Defenses. [A]ny person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights (or discharge such obligation) to the Secretary, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process. The United States Court of Appeals for the Second Circuit has held that pursuant to 6332(a), a person served with a tax levy has only two defenses for failure to comply with the demand, which are that the person is not in possession of the taxpayer's property, or that the property is subject to a prior judicial attachment or execution. United States v. Sterling Nat'l Bank & Trust Co., 494 F.2d 919, 921 (2d Cir.1974). As is demonstrated above, based on the Petition filed with the Surrogate s Court, defendant can assert no credible defense that he was not in possession of taxpayer s property. Indeed, the Petition can be deemed an admission by defendant that, as of the date of service of the Notice of Levy on him, he possessed property and rights to property belonging to Robert Burger totaling no less than $177, In addition, in his answer to the complaint, defendant does not assert as a defense that such property was subject to a prior judicial attachment or execution and, therefore, cannot now assert such a defense to his obligation to comply with the Notice of Levy. 8

9 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 9 of 10 PageID #: 299 CONCLUSION Based on the foregoing, the Court should determine that, pursuant to 26 U.S.C. 6332(d)(1), defendant is liable to the United States in a sum equal $177,528.94, which is the value of the property or rights not surrendered to the IRS in compliance with the Notice of Levy, together with costs and interest on such sum at the underpayment rate established under 6621 from the date of levy. Respectfully submitted, JOHN A. DICICCO Principal Deputy Assistant Attorney General Tax Division /s/ Bartholomew Cirenza BARTHOLOMEW CIRENZA (BC6415) Trial Attorney U.S. Dept. of Justice, Tax Division P.O. Box 55, Ben Franklin Station Washington, D.C Tel. No.: (202) Fax: (202) bartholomew.cirenza@usdoj.gov 9

10 Case 2:08-cv DRH-WDW Document 36-1 Filed 02/29/12 Page 10 of 10 PageID #: 300 CERTIFICATE OF SERVICE I certify that service of the forgoing Notice of Motion, United States Local Rule 56.1(a) [Statement of Material Facts As To Which There Is No Genuine Issue To Be Tried], with corresponding exhibits, and Memorandum of Law in Support of the United States Motion for Summary Judgment, has this 24 th day of January, 2012, been made via electronic notification through the Court s CM/ECF electronic filing system to all ECF filers who have entered an appearance in this action. Parties may access this filing through the Court's CM/ECF System. /s/ Bartholomew Cirenza BARTHOLOMEW CIRENZA Trial Attorney U.S. Department of Justice Tax Division PO Box 55, Ben Franklin Station Washington, D.C Tel. No.: (202) Fax: (202) bartholomew.cirenza@usdoj.gov