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United States of America v. Frankie L. Sanders

September 17, 2012

UNITED STATES OF AMERICA, PLAINTIFF,
v.
FRANKIE L. SANDERS, IN HIS INDIVIDUAL CAPACITY; FRANKIE L. SANDERS, IN HIS CAPACITY AS TRUSTEE OF THE Y & K LEASING TRUST; FRANKIE L. SANDERS, IN HIS CAPACITY AS TRUSTEE OF THE TRIPLE S FAMILY TRUST; AND THE STATE OF ILLINOIS DEPARTMENT OF REVENUE, DEFENDANTS.



The opinion of the court was delivered by: Stiehl, District Judge:

MEMORANDUM & ORDER

Before the Court is defendant Frankie L. Sanders' ("Sanders") Motion to Dismiss (Doc. 6), to which plaintiff has filed a response (Doc. 12), and Sanders has filed a reply (Doc. 20). Sanders seeks dismissal of the complaint against him as an individual and in his capacity as trustee, based upon his assertion that the United States has failed to state a claim upon which relief can be granted. Sanders argues that because of the lack of internal revenue districts and district directors, the United States is not entitled to pursue collection remedies against him.

BACKGROUND

Plaintiff, the United States of America, brought this action pursuant to 26 U.S.C. § 7401(a), to collect from Sanders outstanding liabilities for federal internal revenue taxes, and to enforce federal income tax liens upon his interests in certain realty (Doc. 2). The government alleges that Sanders failed to file income tax returns for each of the taxable years ending December 31, 1991, through December 31, 1997, and for each of those years, the Commissioner of Internal Revenue determined an income tax deficiency. A delegate of the Secretary of the Treasury made assessments against Sanders for each of the income tax periods noted above. Sanders was given notice of each assessment and received a demand for payment of the assessed liability in accordance with 26 U.S.C. § 6303. As of August 31, 2011, Sanders remained indebted to the United States for unpaid income taxes in the amount of $406,099.09, with interest continuing to accrue.

Sanders allegedly took a number of actions to attempt to evade tax collection, including: execution of documents that placed ownership of his assets with other persons or entities that effectively function as his nominees or his alter ego; conversion of hundreds of thousands of dollars in bank and investment accounts into assets that are difficult to trace (collectable coins and guns); and the transfer of the Fayette Farm and Montgomery Farm to trusts for little or no consideration. These trusts are allegedly illusory and do not constitute legal trusts in that Sanders is the sole owner of the farms, and the trusts are simply Sanders' nominee or alter ego.

The government further alleges that Sanders' transfer of the two farms to trusts was made with the intent to hinder, delay, and/or defraud his creditor, the United States; Sanders transferred the Montgomery Farm without receiving a reasonable equivalent value in exchange, and the Fayette Farm without the grantor receiving a reasonably equivalent value in exchange; the transfers rendered Sanders insolvent; and the transfers were fraudulent under Chapter 740 of the Illinois Statutes, making each void as to the United States of America.

The United States further alleges that pursuant to 26 U.S.C. § 6321-22, a lien in favor of the United States arose on the date of each of the assessments upon all property and rights to property belonging to Sanders, including the Fayette and Montgomery Farms, and that the United States is entitled to enforce its liens against the farms by judicial sale of each, with distribution of the proceeds to the United States and the defendants in accordance with their interests and priorities.

The United States requests this Court: (1) find that Sanders is liable to the United States for unpaid internal revenue taxes in the amount of $406,099.09, plus interest, penalties, and other statutory additions that continue to accrue from and after August 31, 2011; (2) find that the transfer of the Montgomery Farm to the Y & K Leasing Trust is void as a fraudulent transfer, and Sanders is, therefore, the sole owner of the Montgomery Farm; (3) find that the transfer of the Fayette Farm to the Triple S Family Trust is void as a fraudulent transfer, and Sanders is, therefore, the sole owner of the Fayette Farm; (4) find that the Y & K Leasing Trust is Sanders' nominee/alter ego, and Sanders is, therefore, the sole owner of the Montgomery Farm; (5) find that the Triple S Family Trust is Sanders' nominee/alter ego, and Sanders is, therefore, the sole owner of the Fayette Farm; (6) find that the United States has valid and subsisting tax liens on all property and rights to property belonging to Sanders, (including but not limited to Sanders' interests in the Fayette Farm and the Montgomery Farm) to the extent of Sanders' unpaid federal tax liabilities, including amounts which continue to accrue; (7) order that the United States' liens on the Fayette Farm and Montgomery Farm be enforced by sale of said real estate, free and clear of all rights, title, and interest of the parties, with distribution of the proceeds to the United States and the defendants in accord with their lawful priorities; (8) award the United States costs, fees, and disbursements it incurred for this action; and (9) award the United States such other relief as this Court deems just and proper.

Sanders seeks dismissal of the complaint against him as an individual and in his capacity as trustee, based upon his assertion that the United States has failed to state a claim upon which relief can be granted. Sanders argues that because of the lack of "district directors," the United States is not entitled to pursue collection remedies against him. In response, the United States asserts that Sanders' motion should be denied because the United States has the power to assess and collect internal revenue taxes, and Sanders' argument that the Internal Revenue Service Restructuring and Reform Act of 1998 Pub.L. No. 105--206, 112 Stat. 685 (1998) ("RRA"),*fn1 divested the United States of its power to tax lacks merit.

LEGAL STANDARD

While Sanders frames his motion as one seeking dismissal for plaintiff's failure to state a claim upon which relief can be granted, it appears to the Court that he is actually challenging the plaintiff's standing to bring this claim against him, seeking dismissal under Fed. R. Civ. P. 12(b)(1), and therefore ultimately challenging the Court's subject-matter jurisdiction.*fn2 In fact, in Sanders' reply, he requests that the Court dismiss the complaint for lack of jurisdiction (Doc. 20 at 5). Nowhere in his motion or reply does Sanders reference the 12(b)(6) standards regarding the sufficiency of the complaint (besides citing 12(b)(6) in the first paragraph of his motion and one sentence stating that the complaint cannot state a claim upon which relief can be granted on page 19 of his motion). The Court will, therefore, consider defendant's motion as a motion to dismiss for lack of subject-matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1).

Under Article III of the Constitution, the judicial power of the United States is limited to cases and controversies, and a plaintiff must have standing to fall within this limitation. Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 597-98 (2007). "Standing under Article III of the Constitution requires that an injury be concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling." Monsanto Co. v. Geertson Seed Farms, 130 S.Ct. 2743, 2753 (2010); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). The plaintiff bears the burden of establishing standing under Article III. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 (2006).

Plaintiff claims that the Court has jurisdiction pursuant to 28 U.S.C. §§ 1331, 1340, 1345 and 26 U.S.C. §§ 7402-7403. Under 28 U.S.C. § 1331, "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." Pursuant to 28 U.S.C. § 1340, "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue . . . ." Pursuant to 28 U.S.C. § 1345, "[e]xcept as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits, or proceedings commenced by the United States, or by any agency or officer thereof expressly authorized to sue by Act of Congress." Pursuant to 26 U.S.C. § 7402(a):

[t]he district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for ...


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