United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge.
The government has sued Joseph Rominski for unpaid federal income taxes, interest, and penalties. It seeks to enforce a federal tax lien against property in Lake County, Illinois, which the parties refer to as the Red Pine property. The government has also named Lorrine Wallis, Rominski's former wife, as a defendant because she is the legal title holder to the property. The government has joined the Great Lakes Credit Union and Lake County, Illinois as defendants because they each have a security interest in the property.
On April 5, 2013, the Court entered an agreed judgment holding Rominski liable for unpaid federal income taxes, interest, and penalties and determining that the overdue amounts constitute liens on all of Rominski's property and rights to property. The judgment reads as follows:
IT IS HEREBY ORDERED AND ADJUDGED that the defendant Joseph R. Rominski, SS No. XXX-XX-0706, is personally liable to the plaintiff, United States, in the amount of $382, 654.77, as of August 31, 2012, for federal income taxes assessed against him. On and after August 31, 2012, interest has accrued and shall accrue on these adjudged liabilities as specified in 26 U.S.C. §§ 6601, 6621-22, 28 U.S.C. § 1961(c), along with all other statutory additions. IT IS FURTHER ORDERED and ADJUDGED that under 26 U.S.C. §§ 6321-22, the amounts due, described above, constitute liens in favor of the United States upon all property and rights to property belonging to Joseph R. Rominski.
See Dkt. no. 46.
The government has moved for partial summary judgment against Rominski, arguing that a lien arising from the April 2013 judgment has attached to the Red Pine property. For the reasons stated below, the Court denies the government's motion.
Rominski is an attorney in private practice. He has chosen not to carry legal malpractice insurance for many years due to its cost, but he does not recall when he allowed his last malpractice policy to lapse. Rominski Dep. at 30-31. Rominski has three adult daughters with his first ex-wife, from whom he was divorced in 1993.
Rominski bought the Red Pine property on March 31, 1994 with a $50, 000 cash down payment and a $200, 000 mortgage loan from Great Lakes Credit Union. Rominski was the sole obligor on the mortgage loan, and he took title to the property in fee simple. Since purchasing it, Rominski has continuously resided on the property and has paid for any utilities, insurance, real estate taxes, repairs, and improvements associated with the property.
On September 14, 1996, Rominski married Wallis. Wallis moved onto the Red Pine property with Rominski. She also kept a townhouse, also located in Illinois, that was titled solely in her name. On March 31, 1997, Wallis signed a trust agreement that: 1) created a revocable living trust for her, 2) appointed her trustee and exclusive beneficiary of the trust, 3) gave her "complete, unfettered control over all property in the TRUST, including the right to sell, transfer, or encumber it, " and 4) stipulated that, upon her death, any property in the trust would pass on to Rominski's three daughters in equal shares. Govt.'s Br. at 5. That same day, Rominski signed a quitclaim deed transferring the Red Pine property to the trust for $10.00 in consideration.
Rominski testified that he transferred the Red Pine property to Wallis as trustee and beneficiary for two reasons: to protect the property from any clients who might sue him for legal malpractice, and to ensure that the property eventually passed to his children. Rominski Dep. at 28. Wallis likewise testified that she believed that Rominski was transferring the property for these reasons when she signed the trust agreement. Wallis Dep. at 19.
In 1996, Rominski earned a total of $137, 000 in adjusted gross income, but he did not file an income tax return or pay income taxes. During his deposition, Rominski initially attributed his failure to file that year to having incurred a separate tax liability of approximately $60, 000 after selling a car wash acquired in his first divorce for $175, 000 less than he originally paid for it. Rominski Dep. at 34-35. When, however, the government's lawyer asked Rominski if he had already incurred the tax liability when he transferred the Red Pine property to Wallis as trustee and beneficiary, he replied, "No, I don't think I even knew about that until two or three years later.... Maybe that $60, 000 liability from '96 had to do with liquidating retirement accounts or something. Maybe that was part of it." Id. at 42-43.
Rominski filed his federal income tax return for 1996 in June 2001. As of that date, the government assessed a total of $75, 212.71 in unpaid federal income taxes, interest, and penalties. At the time, Rominski and Wallis were still married and living together at Red Pine property.
On December 10, 2001, Wallis signed a quitclaim deed transferring the Red Pine property from herself as trustee and beneficiary to herself as an individual. Rominski testified that Wallis did so to obtain a loan of approximately $50, 000-$75, 000, which would then be used to pay some of his tax debt. Rominski Dep. at 50-51. Wallis similarly testified that Rominski set up the transfer to help her obtain a loan for him. ...