United States District Court, M.D. North Carolina
D. SCHROEDER UNITED STATES DISTRICT JUDGE.
case comes before the court on the United States' motion
for default judgment (Doc. 15). For the reasons that follow,
the motion will be granted.
United States alleges the following: Defendant Marlowe
Williams Foundation (the “Foundation”) sought and
received over $600, 000 in fraudulent tax refunds in tax
years 2009 and 2010. (Doc. 1 at 3, ¶ 10.) The
Foundation's trustee, Defendant Marlowe Williams,
exercised complete control over the Foundation, improperly
using its tax refunds for personal purposes, such as paying
off a car loan and mortgage. (Id. at 3, ¶¶
12-13.) The United States therefore seeks a judgment that
Williams is the Foundation's legal alter ego and is
personally liable for its tax liabilities. It further seeks
to foreclose on the real property located at 44692 Honeybee
Circle, in New London, North Carolina (“the
Property”), which Williams and his wife acquired in
1983. (See Doc. 16-4.) In 2011, after Williams's
wife transferred to him her share of the property (Doc.
16-5), Williams transferred the Property for nominal
consideration through Defendant Seventh Seal Trust to
Defendant “Jacobs [sic] Ladder Express Trust”
(the “Trust”), whose trustee is Williams's
son-in-law (Doc. 1 at 7, ¶ 42), for $10. (Doc. 16-6;
Doc. 16-7.) After that transfer, Williams continued to reside
at the Property (Doc. 1 at 4, ¶ 22) and to pay the
Property's mortgage, real estate taxes, utilities, and
insurance (id. at 4, ¶ 19). Williams also took
personal income tax deductions for the Property's real
estate taxes and its mortgage interest. (Id. at 4,
¶ 20.) The United States therefore seeks a declaratory
judgment that the Trust is Williams's nominee for the
purpose of a federal tax lien and an order allowing the
United States to sell the Property to satisfy the
Foundation's tax liabilities.
55 of the Federal Rules of Civil Procedure authorizes the
entry of a default judgment when a defendant fails to plead
or otherwise defend in accordance with the Rules.”
United States v. Moradi, 673 F.2d 725, 727 (4th Cir.
1982) (citation and internal quotation marks omitted). Even
though the present motion for default judgment is unopposed,
“the court must exercise sound judicial discretion to
determine whether default judgment should be entered as a
matter of right.” EMI April Music Inc. v.
Rodriguez, 691 F.Supp.2d 632, 634 (M.D. N.C. 2010).
“Upon default judgment, a plaintiff's factual
allegations, excluding determination of damages, are accepted
as true for all purposes.” See Ins. Servs. of
Beaufort, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d
847, 853 (4th Cir. 1992). The court may hold a hearing on the
issue of damages but may forego a hearing if the damages are
uncontested. Ins. Servs. of Beaufort, Inc. v. Aetna Cas.
& Sur. Co., 966 F.2d 847, 853 (4th Cir. 1992).
case, the defaulting parties failed to respond to the summons
and complaint and failed to respond to the present motion.
The United States has submitted sworn declarations and other
factual evidence detailing Williams's tax liability and
the relationship among Defendants. The court therefore
concludes that default judgment is appropriate. The court
also concludes that the United States has proffered
sufficient evidence to allow the court to decide the issue of
damages without an evidentiary hearing.
establish a prima facie case of tax liability, the government
need only ‘introduce into evidence the certified
copies of the certificates of assessment.'”
United States v. Parr, No. 3:10-CV-00061, 2011 WL
4737066, at *2 (W.D. Va. Oct. 6, 2011) (quoting United
States v. Pomponio, 635 F.2d 293, 296 (4th Cir. 1980)
(citation omitted)). “Once the United States
establishes a prima facie case, the burden shifts to
defendants to prove that the [government's] determination
was erroneous . . . .” Id. (quoting
Pomponio, 635 F.2d at 296). In this case, the United
States has established the Foundation's tax liability
through the declaration of Carolyn Coleman, an Internal
Revenue Service (“IRS”) officer assigned to the
case (Doc. 16-10), and through IRS records, including
certified copies of 2009 and 2010 tax assessments (Doc.
16-2). These documents reflect a tax liability of $386,
192.17 for tax years 2009 and 2010. (Doc. 16-10 at 2, ¶
5.) The United States has also provided declarations that
Williams, the Foundation's trustee, has never been
engaged in military service (Doc. 16-9 at 1, ¶ 4; Doc.
16-3), see 50 U.S.C. § 501 et seq.,
and that he is not an infant or incompetent (Doc. 16-9 at 2,
¶ 5). This establishes the United States' prima
facie case for the Foundation's tax liability, which
Defendants have not rebutted.
court finds that this tax liability is attributable to
Williams in his individual capacity because under North
Carolina law, he is the legal alter ego of the Foundation.
See United States v. Scherping, 187 F.3d 796, 802
(8th Cir. 1999) (“Generally, federal courts will look
to state law to determine whether an entity is an alter ego
of a taxpayer.” (citations omitted)). The United States
may collect tax liabilities from a taxpayer's legal alter
ego. Id. at 801. In North Carolina, a party is the
legal alter ego of an entity when (1) he had complete control
of the entity, (2) he used that control to commit fraud or
violate a statutory duty, and (3) the fraud or violation
caused the injury at issue. United States v. Greer,
383 F.Supp.2d 861, 867 (W.D. N.C. 2005) (citing Glenn v.
Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)),
aff'd, 182 Fed.Appx. 198 (4th Cir. 2006).
meets all three criteria. The United States alleges that he
had complete control over the Foundation as its trustee.
(Doc. 1 at 1.) It further alleges that Williams used his
control over the Foundation to claim over $600, 000 in
fraudulent refunds (id. at 3, ¶ 10), part of
which he used for personal purposes, such as paying off a car
loan and mortgage (id. at 3, ¶¶ 12-13),
satisfying the second and third elements of the alter-ego
judgment will therefore be entered declaring that Williams is
the Foundation's alter ego. Default judgment will further
be entered for the United States against Williams and the
tax liabilities give rise to a federal tax lien, which
attaches to all property he owns. 26 U.S.C. §§
6321-22. The United States may foreclose on that lien if
Williams fails to satisfy the underlying tax liabilities.
Id. § 7403(a).
United States seeks foreclosure of the Property. Williams and
his then-wife acquired the Property in 1983 (Doc. 16-4), and
his wife eventually transferred her interest in it to him
(Doc. 16-5). Then, in 2011, Williams transferred the Property
through the Seventh Seal Trust to the Trust, whose trustee is
Williams's son-in-law (Doc. 1 at 7, ¶ 42), for $10.
(Doc. 16-6; Doc. 16-7.) After that transfer, Williams
continued to reside at the Property (Doc. 1 at 4, ¶ 22)
and to pay the Property's mortgage, real estate taxes,
utilities, and insurance (id. at 4, ¶ 19).
Williams also took tax deductions for the Property's real
estate taxes and its mortgage interest. (Id. at 4,
United States contends that the Trust is Williams's
nominee for the purpose of his tax lien. In determining
nominee status for this purpose, the court considers eight
(1) the treatment by the taxpayer of the asset as his own;
(2) control over the [alleged nominee] by the taxpayer or a
close relationship between them; (3) use of the [alleged
nominee's] funds to pay personal expenses of the
taxpayer; (4) transfer of the property to the [alleged
nominee] for a nominal sum; (5) the fact that the [alleged
nominee] supported the taxpayer; (6) whether the taxpayer
expended personal funds for the property; (7) whether the
taxpayer enjoys the benefit of the property; and (8) whether
the record titleholder interfered with the taxpayer's use
of the property.
United States v. Holland, 637 F.Supp.2d 315, 320
(E.D. N.C. 2009) (citing Greer, 383 F.Supp.2d at
867) (internal quotation marks omitted) (alterations in
original), amended on other grounds on
reconsideration, No. 5:07-CV-445-BO, 2009 WL 3166852
(E.D. N.C. Aug. 13, 2009), aff'd, 396 Fed.Appx.