Opinion
CIV 01-4124
September 11, 2002
MEMORANDUM OPINION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT
Plaintiffs, Howard human and Ada Joanne Hillman ("the Hillmans"), brought suit against the defendant, the United States of America, see a refund of self-employment taxes and interest in the amount of $18,152.00, assessed against them by the Internal Revenue Service ("IRS") for the tax years 1992, 1993, 1994 and 1995.
BACKGROUND
The Hillmans own and operate Bon View Farms in Canova, South Dakota. They are in the business of selling Angus bulls, and one of the issues before the Court for purposes of this motion is whether the Hillmans are also in the business of selling heifers. There is no dispute that Bon View Farms held an annual spring yearling sale, selling approximately 120 bull calves and approximately 36 to 46 heifer calves during the years 1992, 1993, 1994 and 1995. Approximately one month before the spring sale, the Hillmans culled their heifers. Some of the culled heifers were not sold at the spring sale if they were deemed insufficient quality for their customers. Bon View Farms had approximately 2, 000 sales catalogs professionally printed to advertise the spring sale. The catalogs separately listed each bull and heifer offered for sale. Additional advertising for the spring sale appeared in farm publications, newspapers, and on radio stations throughout South Dakota and into Nebraska. The income from the sale of heifers was reported as ordinary gains on Part 2 of IRS Form 4797 and, therefore, self-employment tax was not paid on the income.
On account of their 1992 tax return, the Hillmans paid $30,493.00 in income taxes and $5,931.00 in self-employment tax for 1992. On December 29, 1998, the Hillmans paid $2,712.00 of additional self-employment taxes plus interest that was assessed by the IRS for income earned in 1992. Or, or about January 15, 1995, the Hillmans filed a Form 872, consenting to extend the time to assess income taxes for the period ended December 31, 1992. On January 12, 1997, the Hillmans filed a Form 872-A, in which they consented to the extension of time to assess income taxes for the year ended December 31, 1992.
The Hillmans paid $23,627.00 in income taxes and no self-employment taxes for 1993. On November 9, 1998, the Defendant assessed the Hillmans $7,217.00 of income and self-employment taxes plus interest for 1993, which was paid by the Hillmans on December 29, 1998. On January 12, 1997, the Hillmans filed a Form 872-A, in which they consented to the extension of time to assess income taxes for the year ended December 31, 1993.
Pursuant to their tax return for 1994, the Hillmans paid $21,037.00 in income taxes and no Self-employmeni taxes. On December 29 1998, the Hillmans paid $6,069.00 of Self-employment taxes plus interest that had been assessed by the IRS for 1994. On January 12, 1997, the Hillmans filed a Form 872-A, in which they consented to the extension of Lime to assess income taxes for the year ended December 31, 1994.
On June 24, 1996, the Hillmans filed a tax return for 1995. On account of that return, the Hillmans paid $106,089.00 in income taxes and no self-employment taxes. On December 7, 1998, the Defendant assessed the Hillmans $2,600, 00 of self-employment taxes plus interest for 1995, which the Hillmans paid on December 29, 1998.
On June 4, 1999, the Hillmans filed a claim for refund with the IRS for the Hillmans individual tax years 1992, 1993, 1994, and 1995. On August 16, 1999, the IRS denied the Hillmans' refund claims relating to calendar years 1992, 1994, and 1995. On June 14, 2000, the IRS denied the Hillmans' refund claims related to calendar years 1992, 1993, and 1994.
DISCUSSION
Summary judgment is to be granted only where the evidence is such that no reasonable jury could return a verdict for the non-moving party. See Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 250 (1986).
The Hillmans first argue that they did not consent to an extension of time for the IRS to assess self-employment taxes because the Form 872-A agreement does not specifically refer to self employment taxes. The parties agree that this is a legal issue. This Court agrees with Judge Kornmann' s holding in Ambur v. United States, 206 F. Supp.2d 1021 (D.S.D. 2002), that self employment tax is 'income taxi' within the meaning of IRS 872-A consent to extend time for assessment agreements. The Hillmans' motion for summary judgment on this ground will be denied.
The Hillmans next contend that they are entitled to summary judgment because the facts show that they held the heifers primarily for breeding purposes. Self-employment tax is not imposed on the sale of property unless it is "property held primarily for sale to customers in the ordinary course of the trade or business." 26 U.S.C. § 1402(a)(3)(C). "The question of purpose for which an animal is held is essentially one of fact." McDonald v. Commissioner of Internal Revenue, 214 F.2d 341, 342 (2nd Cir. 1954). Cf. Municipal Bond Corp. v. Commissioner of Internal Revenue, 341 F.2d 683, 689 (8th Cir. 1965) (the purpose for which real estate is held is a question of fact).
Having reviewed the parties' submissions in this case and having considered the factors used to determine the purpose for which an animal is held, see, e.g., McDonald, supra; A. Duda Sons, Inc. v. United States, 560 F.2d 669, 680-682 (5th Cir. 1977), this Court cannot find as a matter of law that the Hillmans did not hold the heifers primarily for sale to customers in the ordinary course of their business, The fact that most of the heifers sold by the Hillmans were sold because they did not measure up to the Hillmans' standards suggests that they held the heifers primarily for breeding purposes. See A. Duda Sons, 560 F.2d at 681. But the fact that the Hillmans culled the heifers only one month before the yearly spring sale rather than as soon as the heifer evidenced undesirable characteristics, and the fact that the Hillmans extensively advertised the heifers for sale (the 1992 catalog referred to the heifers as their "best" heifers, and the 1993 catalog said the heifers ranked "at the top of the breed"), raises genuine issues of material fact as to the Hillmans' purpose for holding the heifers. The Eighth Circuit has said that summary judgment is "notoriously inappropriate" in cases which involve issues of intent or other subjective feelings. Pfizer. Inc. v. International Rectifier Corp., 538 F.2d 180, 185 (8th Cir. 1976). Assessing the credibility of witnesses is not a function for the court in ruling on a motion for summary judgment. See Oldham v. West, 47 F.3d 985, 988-89 (8th Cir. 1995). Therefore, where there are witnesses whose testimony raises genuine issues of material fact, such as the Hillmans in this case, summary judgment is inappropriate. Accordingly
IT IS ORDERED that Plaintiffs' Motion for Summary Judgment, Doc. 24, is denied.