USA v. Wade et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM and Memorandum in Support , MOTION to Dismiss Party Janet Wade et al and Memorandum in Support , MOTION to Dismiss for Lack of Jurisdiction and Memorandum in Support , MOTION to Dismiss and Memorandum in Support

D. UtahFebruary 2, 2017

1 KAMRON KEELE (Utah Bar #11841) 29 South State Street, Ste. 212 Salt Lake City, UT 84111 (801) 661-7706 kamronkeele@gmail.com UNITED STATES DISTRICT COURT DISTRICT OF UTAH, CENTRAL DIVISION UNITED STATES OF AMERICA, Plaintiff, Case No. 070913589 vs. STANLEY L. WADE; et al. Defendants. MOTION TO DISMISS (RE: DEFENDANT JANET B. WADE et al.) Case No.: 2:15-cv-00883 DS Judge: David Sam Defendant, Janet B. Wade (“Janet”), along with Defendants Cherry Hills UBO, Cherry Hills Apartments Business Trust, Del Monico Apartments Business Trust, El Caliente Apartments Business Trust, Hill Rise Apartments Business Trust, Hill Rise UBO, La Parisienne Apartments Business Trust, Sades Apartments, Shangri-La UBO, Wade Sandy a/k/a Wade Sandy Business Trust, Palisades Business Trust, and Crestwood Cove Apartments Business Trust d/b/a Cottonwood Business Trust (to the extent they legally exist, hereinafter simply “Janet’s Business Interests”), through undersigned counsel of record, hereby moves pursuant to Rules 12(b)(1) and (6) of the Federal Rules of Civil Procedure for complete dismissal with prejudice of Janet and all of Janet’s Business Interests and also for an order from the Court requiring the discharge and complete release of the government’s tax liens filed and recorded against the “20 Subject Properties” (and/or the proceeds therefrom) at issue in this case. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 1 of 42 2 This Motion is made and based upon the following Memorandum of Points and Authorities, all pleadings and papers on file herein, as well as any oral argument permitted by the Court. MEMORANDUM OF POINTS AND AUTHORITIES I. BACKGROUND/RELEVANT FACTS 1. The government alleges in this case that Janet’s husband, Defendant Stanley L. Wade (“Stan”), individually owes for tax years 1993 through 2004 previously assessed tax liabilities, along with alleged associated penalties and interest as of December 7, 2016, a total of $15,680,704.80. (See First Amended Complaint on file in this case at ¶ 215.) 2. The government assessed Stan’s alleged tax liabilities at issue in this case in 2006, 2007 and 2008 (the last exact date was allegedly June 23, 2008). (See First Amended Complaint at ¶ 214.) 3. Since 2008, the government recorded tax liens (or NFTL’s) against all of the 20 Subject Properties for Stan’s alleged tax liabilities (one tax lien on one parcel of raw land was recently removed in this case, as the Court may recall, but the proceeds from its sale are still subject to the lien). (See First Amended Complaint at ¶¶ 289 through 301.) 4. The government seeks in this action to foreclose on the 20 Subject Properties (and/or the proceeds therefrom) in order to satisfy Stan’s alleged tax liabilities. (See, e.g., First Amended Complaint at ¶¶ 5 and 302.) 5. Since 1993 and to date, Stan and Janet have filed Federal income tax returns as married but filing separately (i.e., each of them has been and is responsible only for their own tax reporting and tax liabilities). (See, e.g., First Amended Complaint at ¶¶ 53, 203, 205, 210- 212.) Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 2 of 42 3 6. The government has not alleged in this case that Janet herself owes any delinquent tax liability or that she individually is responsible for any portion of Stan’s alleged tax liabilities. 7. From 1992 through 1996, Stan transferred title to the 20 Subject Properties (the properties were held in various ways prior to that time) to multiple so-called Unincorporated Business Organizations, or “UBOs,” and to various other entities and business trusts. (See, e.g., First Amended Complaint at ¶¶ 51, 65.) 8. The government alleges in this case that Stan is presently the “sole or joint owner” of the 20 Subject Properties (even though he himself has not been on title for more than 20 years). (See First Amended Complaint at ¶ 5.) 9. In March 2004, Stan was indicted in this Court for several tax-related crimes for certain tax returns he had filed with the Internal Revenue Service (“IRS”) for tax years 1996 through 1999. (See First Amended Complaint at ¶ 5; see also ¶ 4 of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 10. Janet was also indicted in March 2004 in this Court for similar tax-related crimes (Docket No. 2:04-CR-00141), including charges for aiding and abetting Stan. (See Diversion Agreement attached hereto at Exhibit B.) 11. A short time after the indictments were filed, on April 2, 2004, Stan executed under notary a document entitled “Gift and Abondonement [sic] of All Rights to Janet Wade” (the “Gift”) wherein Stan explicitly recognized that his criminal actions had caused Janet “great distress and harm” and, in an effort to try to set things right, he expressly gifted and abandoned “any and all claim to all the business entities we have created and convey any and all of my Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 3 of 42 4 interest and powers and right in these entities to Janet Wade.” (See ¶¶ 6 and 7 and Exhibit A of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 12. The Gift named particularly Janet’s Business Interests as the specific interests gifted and transferred to Janet as of that date in 2004, as well as “all other business interests” that had been created. (See ¶¶ 6 and 7 and Exhibit A of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 13. The Gift was unconditional and made explicitly without reservation or limitation of any kind (for example, Stan did not reserve a power to take any portion of the business interests back upon some future event, and Stan did not revert beneficial title or beneficial use back to himself in any way, and he did not retain some testamentary power of appointment upon his death, etc.). (See ¶¶ 6 and 7 and Exhibit A of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 14. The Gift, by its own terms, was not revocable in any way. (See ¶¶ 6 and 7 and Exhibit A of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 15. A year later, in March 2005, Stan was convicted of the various criminal charges brought against him, and he served many years in prison thereafter. (See First Amended Complaint at ¶¶ 70 through 73; see also ¶ 5 of the Affidavit of Stanley L. Wade attached hereto at Exhibit A.) 16. Janet, however, entered into a Diversion Agreement with the government in 2005 wherein prosecution would be “deferred” by the government provided, among other conditions, that she would amend and/or file her Federal tax returns (again married but filing separately) for tax years 1993 through 2004 (including in her gross income for those years one-half of the profits from the 20 Subject Properties), and she would have to pay her individual tax liabilities Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 4 of 42 5 for her one-half of the profits from the 20 Subject Properties for those years, all of which conditions she accomplished fully and to the satisfaction of the government (and the charges against her were dropped). (See Diversion Agreement attached hereto at Exhibit B.) 17. Despite serving many years in prison after executing the Gift (and not being capable of physically exercising dominion or control of Janet’s Business Interests and/or the underlying 20 Subject Properties while incarcerated), the government nevertheless alleges in this case that Stan has remained (after his transfer of the 20 Subject Properties to the UBOS in 1992 through 1996) in “continuous possession and has had full enjoyment of” the 20 Subject Properties. (See, e.g., First Amended Complaint at ¶ 219 with respect to Cherry Hills UBO, which in turn is the owner of record for real property known as Cherry-Hills apartments.) 18. Because of this alleged continuous possession and full enjoyment, the government claims that Stan is a nominee/alter ego of Janet’s Business Interests and he has some amount and type of ownership interest in the 20 Subject Properties (and/or proceeds therefrom) thereby permitting the government to foreclose in this action on the 20 Subject Properties to satisfy his individual alleged tax liabilities. (See, e.g., First Amended Complaint at ¶ 218 through 223 with respect to, for example, Cherry Hills UBO and the Cherry-Hills apartments.) 19. The government makes a similar claim asserting that Stan’s actions over the years somehow created a “resulting trust” with respect to the 20 Subject Properties wherein Stan somehow kept and has currently some type of beneficial interest in that trust (again thereby permitting the government to foreclose on the Subject Properties in this case). (See First Amended Complaint at ¶ 287.) 20. The government additionally alleges in this case that Stan’s purported transfers of the 20 Subject Properties to the various UBOs from 1992 though 1996 constituted fraudulent Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 5 of 42 6 conveyances under Utah law (Utah Code Ann. § 25-6-1 et seq.) and, as fraudulent transfers, they should therefore be set aside presently. (See First Amended Complaint at ¶¶ 282 through 285.) 21. On January 23, 2014, not long after Stan was released from prison, the Internal Revenue Service (“IRS”) asserted that Stan owed additional (and significant) tax liabilities (and associated penalties and interest) for tax years 2005 through 2011 (again the years at issue in this case are before that, from 1993 through 2004). (See Protest Letter attached hereto at Exhibit C.) 22. Just like the government alleges in this case, the IRS determined in 2014 that Stan owned the 20 Subject Properties; therefore, the IRS determined, he owed all of the taxes due on the profits from those 20 Subject Properties. (See Protest Letter attached hereto at Exhibit C.) 23. The IRS reversed itself, however, after Stan simply pointed out in his 30-Day Protest Letter (Letter 950) to IRS Appeals Office that (i) he did not own the 20 Subject Properties as he had explicitly and completely gifted and abandoned any and all claims he had in Janet’s Business Interests to Janet a decade before in 2004; (ii) Janet had since 2004 managed and had in fact reported and paid all taxes due with respect to the 20 Subject Properties for the years 2005 through 2011 (most of which time Stan was in fact incarcerated); and (iii) Stan had made the gift irrevocable and without reservation or limitation of any kind. (See Protest Letter attached hereto at Exhibit C; see also ¶¶ 9 through 11 of the Affidavit of Stanley L. Wade at Exhibit A.) 24. Janet continues to date to manage and pay all taxes due for the 20 Subject Properties. (See Protest Letter attached hereto at Exhibit C; see also ¶ 9 of the Affidavit of Stanley L. Wade at Exhibit A.) Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 6 of 42 7 II. ARGUMENT Pursuant to Rules 12(b)(1) and (6) of the Federal Rules of Civil Procedure, this Court should dismiss any part of the First Amended Complaint for lack of subject matter jurisdiction, and also for the failure to state a claim upon which relief can be granted and for the failure to state a cognizable legal theory or there is an absence of sufficient facts alleged under such a cognizable legal theory. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955 (2007). To survive a motion to dismiss under Rule 12(b)(6), the First Amended Complaint must assert plausible claims for relief and it must set forth sufficient allegations to support such claims. Id. at 554; see also Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-1950 (2009). Put another way, claims have facial plausibility when the plaintiff pleads enough factual content that allows the Court to draw the reasonable inference that a defendant is liable under those alleged claims. Id. The Court should also dismiss any claims that fail as a matter of law. See, e.g., Petrella v. Brownback, 787 F.3d 1242, 1268 (10th Cir. 2015)(“If an issue of law precludes relief, dismissal is appropriate.”). Here, the government alleges that Stan individually owes certain previously assessed tax liabilities. The government seeks to foreclose on the 20 Subject Properties in order to satisfy those alleged tax liabilities. Stan, however, does not own the 20 Subject Properties (and he has not for over a decade). Instead, Janet owns the 20 Subject Properties currently (and she has since 2004 when Stan completed the Gift to her). The government has not asserted in its First Amended Complaint that Janet is required under the law to pay for Stan’s tax liabilities with her individual, separate property. The court simply does not have subject matter jurisdiction in this case (again related to Stan’s individual alleged tax liabilities) over any person or property owned by anyone other than the taxpayer Stan. Further, the government has failed to state a claim upon Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 7 of 42 8 which relief may be granted against Janet and Janet’s Business Interests (attempting to recover from these parties for Stan’s individual alleged tax liabilities). As a matter of law, Stan has no ownership interests whatsoever in the 20 Subject Properties, and the government’s claims otherwise, along with the factual allegations in support thereof (even read in a light most favorable), do not rise to an actionable level as to Janet and Janet’s Business Interests. Indeed, the only factual allegations in the First Amended Complaint that facially support the government’s claims that Stan has some type of interest in the 20 Subject Properties (i.e., that Stan’s actions somehow created a resulting trust or that Stan is a nominee/alter ego of Janet’s Business Interests) are the naked and conflicting allegations that Stan has had “continuous possession and has had full enjoyment of” the 20 Subject Properties (even though the government also acknowledges in its First Amended Complaint that Stan was in prison for much of that time). The government’s claims are not made pursuant to any cognizable legal theory either (with sufficient supporting facts alleged) such that it would allow the Court to draw a reasonable inference that Janet (and Janet’s Business Interests, to the extent they legally exist) are required to satisfy Stan’s alleged tax liabilities with Janet’s sole and separate property. The long-standing, well-settled, common-law elements of a completed gift are that (i) the donor is competent to make the gift; (ii) the donee is capable of taking the gift; (iii) a clear and unmistakable intention on the part of the donor to absolutely and irrevocably divest himself of the title, dominion, and control of the subject matter of the gift; (iv) the irrevocable transfer of the gift to the donor; (v) the delivery by the donor to the donee of the subject of the gift; and finally (vi) the acceptance of the gift by the donee. See, e.g., Weil v. Comm., 31 B.T.A. 899 (1934), aff’d 82 F.2s 561 (5th Cir. 1936, cert. denied 299 U.S. 552 (1936); see also Comm. v. Duberstein, 363 U.S. 278 (1960)(when determining whether something is a completed gift for Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 8 of 42 9 Federal tax purposes, the critical consideration is the transferor’s intent; completed gifts result from detached and disinterested generosity and are often given out of affection, respect, admiration, charity or like impulses); 26 § C.F.R. 25.2511-2. In the present case, Stan was competent in 2004 to make the Gift. The government has not asserted in this case (or any previous matter that counsel is aware of) that Stan was in 2004, or that he is currently, incompetent in any way. Janet was capable of taking, and indeed did take, the Gift. She has managed Janet’s Business Interests and the underlying 20 Subject Properties (and reported and paid all, 100%, of the Federal and State taxes for the same) since the Gift was made in 2004. Stan clearly, unmistakably and in writing under notary intended with the Gift to irrevocably divest himself of Janet’s Business Interests (and the underlying 20 Subject Properties). Stan’s present intent could not have been made any clearer in the language written in the Gift. Further, Stan did not retain any power or interest whatsoever in Janet’s Business Interests. There is no language in the Gift remotely suggesting that it was revocable by Stan in any way. Stan delivered the Gift document itself to Janet in 2004. Finally, Janet accepted the Gift, and she has exercised dominion and control over the gifted property since 2004 and to date. The exact moment that these elements of a completed gift were accomplished, Stan no longer by operation of law owned “any and all” of Janet’s Business Interests and the underlying 20 Subject Properties. The government has not alleged or provided any evidence in this case (or any other matter that counsel is aware of) that Janet has gifted Janet’s Business Interests (or any portion thereof) back to Stan after 2004, indeed just the opposite as she has managed the 20 Subject Properties ever since then, she has (and the government has acknowledged that she) reported and paid all taxes due on the 20 Subject Properties, etc. The exact moment that these Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 9 of 42 10 elements of a completed gift were accomplished, Stan himself unilaterally cannot undo that transfer—he no longer has any interests in that he gifted away.1 This true regardless of what Stan does or says thereafter (e.g., Stan could say he owns the Brooklyn Bridge, but that does not make it so). Indeed, this is true even if Stan later signs any number of deeds or documents (e.g., to effect a transfer- or quit-claim deed after 2004 of one of the 20 Subject Properties because he was the initial signor when transferring the 20 Subject Properties to the UBOs or other entities and trusts, etc.). Put differently, simply because Stan may have executed various certain deeds and documents after 2004 (and he was the only person able to do so as he had been named on previous deeds) in some way with respect to the gifted 20 Subject Properties, the fact that he signed on behalf of Janet’s Business Interests or for himself does not itself mean that he actually owned them when signing, he legally did not. One cannot later transfer what one does not own. As for the government’s claim that Stan is nominee/alter ego of Janet’s Business Interests (and/or the underlying 20 Subject Properties), the government’s only factual support are the naked and conflicting allegations that Stan has had “continuous possession and has had full enjoyment of” the 20 Subject Properties. Yet, as indicated above, the government also alleges and does not dispute that Stan was physically in prison for many of years after the Gift was completed in 2004. How then could he have had continuous possession and enjoyment of the 20 Subject Properties when in prison? He simply cannot. Even if Janet has taken care of Stan financially after his release from prison and even if Stan has executed certain documents related 1 Courts, even in equity, rarely rescind a gift once completed, and there generally has to be some mistake of fact or law that meddles with or wrecks the donor’s present intent to gift, none of which is the case in the Gift presently. See, e.g., Heaton v. Heaton, 55 N.Y.S. (2nd) 154 (Sup. Ct. 1945)(court voided a gift from husband to wife, but there was an express condition in the assignment whereby the gift would become effective only if a tax savings would result from the transfer); Dodge v. U.S., 413 F.2d 1239, 1243 (5th Cir. 1969)(plaintiff mistakenly gifted and transferred her entire interest in property to charity when her intent was to convey only a 1/5 undivided interest instead); Touche v. Comm., 58 T.C. 565, 569 (1972)(same). Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 10 of 42 11 to the 20 Subject Properties, these acts do not mean, however, that Stan did not legally complete the Gift back in 2004 of any and all of his ownership interests in the 20 Subject Properties. This further does not mean that Stan had continuous possession and has had full enjoyment of the 20 Subject Properties such that he has an ownership interest in them. As for the government’s claim that Stan’s actions created some type of resulting trust for the benefit of his creditors, the government neither alleges in its First Amended Complaint any legal theory at all (whether cognizable or not) nor alleges any supporting factual basis whatsoever in support of such a claim. Even if the government could demonstrate that Stan actions somehow created some type of trust, Stan did not own the 20 Subject Properties after 2004 to be able to contribute them to such a trust. Again, one cannot transfer what one does not own. As for the government’s claim about fraudulent conveyances with the transfers of the 20 Subject Properties to the UBOs in 1992 through 1996, which transfers the government asserts should be set aside in this case, this claim fails to state a claim upon relief may granted and also fails as a matter of law. As to the former, the government’s fraudulent conveyance claim (and what the government is asking the Court to undo) concerns the initial transfers of the 20 Subject Properties to the UBOs in 1992 through 1996, and not as to the later transfer to Janet in 2004 pursuant to the Gift. Therefore, the fraudulent conveyance claim as alleged in the First Amended Complaint fails to state a claim with respect to the later Gift. Anticipating, however, a similar argument for the Gift in government’s opposition to this Motion to Dismiss, the fraudulent conveyances claim also fails as a matter of law when extended to the Gift transfer as well. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 11 of 42 12 Utah law provides that a claim for relief regarding a purported fraudulent transfer is extinguished by operation of law unless an action is brought (i) within four years after the transfer was made or (ii) within four years after the obligation was incurred or, if later than those four years, then (iii) within one year after the transfer or obligation was or could reasonably have been discovered by the claimant. See Utah Code Ann. § 25-6-10 (and by extension Utah Code Ann. § 25-6-5(1)). This four-year statute of limitation period includes transfers with an actual intent to hinder, delay, or defraud any creditor of the debtor (Utah Code Ann. § 25-6-5(1)(a), which applies to exception (i) above) as well as for transfers without receipt of a reasonably equivalent value in exchange (Utah Code Ann. § 25-6-5(1)(b), which applies to exceptions (ii) and (iii) above). Here, with respect to the first of these exceptions, the government brought this case against Stan in December 2015, which is more than a decade after the Gift was completed in 2004. Therefore, even if Stan had gifted Janet’s Business Interests to Janet in 2004 with an actual intent to hinder, delay, or defraud the government, which he did not, the latest date the government could have brought a fraudulent transfer claim to set the Gift aside would have been within four years of that transfer, i.e., it had to have been brought before April 2008. Any claim to set aside the Gift beyond that date is extinguished as a matter of law. With respect to second of these exceptions, the government assessed Stan’s tax liabilities in 2006, 2007 and 2008. According to Utah law, the latest time period within which to timely assert a fraudulent transfer would have been four years from the date Stan’s obligation was incurred, or the date of “assessment” in tax parlance. That would have required the government to bring a timely fraudulent transfer claim within four years of June 23, 2008 (the last assessment made by the IRS in this case), or by at least June 23, 2012. Finally, with respect to the third of these Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 12 of 42 13 exceptions, the government discovered and indeed had actual knowledge of the Gift in 2014 (when counsel for Stan provided a copy of the Gift document itself when filing with the IRS Stan’s 30-day Protest Letter). Therefore, the latest the government could have asserted a timely fraudulent transfer claim would have been one year from when the government was provided with a copy of the Gift document itself, or by February 2015. Even if done with a specific intent to avoid paying a creditor or done without adequate and full compensation (which, by definition, is a gift), the government’s putative claim of a fraudulent transfer (and putatively asking the Court to set the transfer aside) with respect to the transfer of the 20 Subject Properties to Janet pursuant to the Gift must fail as a matter of law because under any scenario the present action was not brought within the requisite time period to avoid extinguishment. Stan completed the Gift to Janet more than a decade ago. Janet owned thereafter and to date sill owns Janet’s Business Interests (and the underlying 20 Subject Properties, to the extent Janet’s Business Interests exist). Once there is a completed gift, Stan cannot undo it (no matter what Stan signs or says thereafter, and no matter what he believes he owns or does not own). By definition and as a matter of law, Stan no longer owns or has any legal interest in that which he has completely gifted away, which in the Gift was any and all interests in Janet’s Business Interests and the underlying 20 Subject Properties. Stan’s alleged tax liabilities are solely his own, and particularly not Janet’s responsibilities. Accordingly, without alleging any plausible claims for relief as to Janet and Janet’s Business Interests (and the underlying 20 Subject Properties) or putting forward any cognizable legal theories, and without alleging facially sufficient facts in support of those claims and theories, the government cannot foreclose in this case on property that Stan does not own and in which he has no plausible ownership interests. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 13 of 42 14 III. CONCLUSION For the reasons set forth above, Janet and Janet’s Business Interests (to the extent they exist) respectfully request this Court (i) grant their pending Motion to Dismiss, (ii) dismiss this case with prejudice as to Janet and Janet’s Business Interests, and (iii) enter an Order requiring the government to issue and record as soon as practicable certificates of discharge of its NFTLs on the 20 Subject Properties. DATED this 2nd day of February 2017. ___/S/Kamron Keele___________ Kamron Keele, Esq. Attorney for Janet and Janet’s Business Interests Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 14 of 42 15 EXHIBIT A Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 15 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 16 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 17 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 18 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 19 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 20 of 42 16 EXHIBIT B Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 21 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 22 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 23 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 24 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 25 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 26 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 27 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 28 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 29 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 30 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 31 of 42 17 EXHIBIT C Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 32 of 42 Kamron Keele, Esq. Attorney for Taxpayer 6405 S. 3000 E., Ste. 150 Salt Lake City, UT 84121 (801) 527-1040 kamronkeele@gmail.com Stanley Wade TIN 529-54-8946 PROTEST OF THIRTY-DAY LETTER Tax periods: 2005 through 2011 The above-referenced taxpayer (“Taxpayer”) hereby protests certain findings and determinations made by the Internal Revenue Service (“Service”) as set forth in its Thirty-Day Letter (Letter 950) issued to Taxpayer on or about January 23, 2014, along with various accompanying Forms 870 and related Examination Reports—all describing the Service’s revenue agent’s erroneous determinations that Taxpayer owned certain rental properties (“Properties”) during the taxable years in issue and that he further failed to claim and pay income tax with respect to those Properties during those taxable years. The Service’s Thirty-Day Letter and accompany Forms 870 and Examination Reports are collectively referred to hereafter as “Transmittal Correspondence” and are attached hereto as Exhibit A. 1. Statement of Appeals. Taxpayer wishes to appeal the Service’s findings and conclusions as determined in the Transmittal Correspondence to the Office of the Regional Director of Appeals and request a conference in that office. 2. Name and Address of Taxpayers. Stanley Wade 2159 E. Parleys Terrace Salt Lake City, UT 84109 3. Dates of Transmittal Correspondence. January 23, 2014 4. Tax Periods Involved. Taxable years 2005, 2006, 2007, 2008, 2009, 2010 and 2011 5. Adjustments With Which Taxpayers Do Not Agree. Taxpayer disputes that he was an owner of the Properties in question during the tax years in issue, and he further disputes the determination of tax made to his returns for the taxable years in Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 33 of 42 question, as identified in the 4549s and detailed in the Transmittal Correspondence, which again essentially involves the Service’s revenue agent’s erroneous findings and conclusions that Taxpayer owned the Properties and that he was responsible for payment of tax on the same. The simple facts are that Taxpayer gifted the properties to his wife in 2004, which was evidenced by a written and notarized gift agreement, that Taxpayer was incarcerated thereafter and did not have any income to report to the IRS, and that any and all income tax due with respect to the Properties has already been paid by his wife, the legal owner of the Properties since the gift back in 2004. Even if the revenue agent’s findings were true (and Taxpayer had owned the Properties while incarcerated during the years at issue), which Taxpayer disputes, his wife paid the income tax already on those Properties. In short, the Service is attempting to tax the same income twice. The discussion below analyzes the relevant statutes and case law in light of the facts herein presented. DISCUSSION The Service’s positions taken in the Transmittal Correspondence, which seems to have attributed all of the income tax liability from the Properties to Taxpayer, who in fact did not own the Properties during the years in issue and further on which Properties all income tax had already been paid by his wife by separate return, is simply incorrect and arbitrary and capricious. Indeed, frivolous. The facts (as acknowledged in the Transmittal Correspondence) show that Taxpayer gifted by written notarized agreement the Properties to his wife in 2004. While the revenue agent seems to have determined that there was subsequent ownership asserted by Taxpayer, such is without meaning as he had legally completed the gift the Properties to his wife. Indeed, Taxpayer could sell the Brooklyn Bridge, but that does not mean that he actually owned it or that the buyer would take legal ownership. The drafter of the Transmittal Correspondence concludes that a subsequent “Affidavit” is somehow conclusive evidence that Taxpayer still owned the Properties, but such Affidavit, signed by Taxpayer when he was incarcerated and also signed by the Taxpayer’s two children as “owners” of the Properties (the children have never had any ownership in the Properties), does not in fact provide that the Properties were Taxpayers, only that the drafter of the Affidavit wanted to include all of the family members because s/he has some reason to believe that the Properties were some sort of “family” controlled enterprise, which is simply not true as of 2004. While they are certainly a family, this does not mean that Taxpayer’s wife did not legally own the Properties and is legally responsible to claim and pay the tax with respect to the Properties. Further, the two children also signing the Affidavit does not mean that they had any ownership either. Taking the Service’s reasoning to its logical conclusion, each of the children would also be treated as owners and responsible for payment of income tax for the Properties. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 34 of 42 Regardless of whether Taxpayer owned the Properties or not during the years at issue, as indicated on Taxpayer’s wife’s tax returns for the years in issue (attached hereto for convenience of reference as Exhibit B), the tax on the Properties has been reported by her by separate income tax return, claimed in full by her on those returns and importantly paid by her in full. There simply is no outstanding tax due with respect to the asserted income of the Properties during the years 2005 through 2011, and the Service’s erroneous determinations should be rejected. 1. Ownership of the Properties The Service grossly erred in finding that Taxpayer owned the Properties after 2004. As indicated above, Taxpayer signed, by notarized agreement, a Gift and Abandonment of All Rights Agreement (attached for convenience of reference at Exhibit C) forever gifting the Properties to his wife. In order for a bona fide gift to be an effective transfer of property (as long standing common law elements of a gift), the following must be present: (1) the donor must be competent to make the gift, (2) the donee capable of taking the gift, (3) a clear and unmistakable intention on the part of the donor to absolutely and irrevocably divest himself of the title, dominion, and control of the subject matter of the gift, (4) the irrevocable transfer of the gift to the donor, (5) delivery by the donor to the done of the subject of the gift, and finally (6) acceptance of the gift by the donee. See, e.g., Weil v. Comm., 31 B.T.A. 899 (1934), aff’d 82 F.2d 561 (5th Cir. 1936), cert. denied 299 U.S. 552 (1936). In the present case, both Taxpayer and his wife were competent and capable of making and taking the gift of the Properties. The Properties, held in various entities and trusts, were actually transferred to donee. The language of the Gift and Abandonment of All Rights Agreement is clear and unmistakable that Taxpayer intended to, and did in fact, gift the Properties to his wife, and Taxpayer’s wife accepted the gift as evidenced by her subsequent dominion and control over the entities owning such Properties, and, importantly for our present purposes, her subsequent reporting and paying of the Federal income tax due associated with those Properties. Under Section 102 of the Internal Revenue Code, such gift/transfer is not included in Taxpayer’s or his wife’s gross income (nor would there be any gift tax consequences between spouses, although such is not in issue presently). As of the time of such completed gift, i.e., the exact moment the above- indicated common law elements of a gift have been accomplished, Taxpayer no longer legally owned the Properties. There is no evidence that Taxpayer’s wife gifted the Properties back to Taxpayer, indeed just the opposite as Taxpayer’s wife handled all aspects of the Properties thereafter and to date. Once the Properties (or more accurately, the interests in the entities holding such Properties) transferred by gift, Taxpayer unilaterally could not, and to date cannot, undo the transaction. This is regardless of what suggestions or statements Taxpayer makes thereafter as to what he owns or even thinks he owns (e.g., he could say he owns the Brooklyn Bridge but that doesn’t make it so). The Service’s revenue agent’s determination that, because Taxpayer signed an Affidavit as purportedly some sort of “family” owner of the Properties Taxpayer therefore must still own the Properties, does not Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 35 of 42 accord the fact that Taxpayer had previously, irrevocably and absolutely divested himself of ownership in those Properties. Therefore, Taxpayer has not been an owner of the Properties since 2004, and he is not responsible for payment of any and all tax associated with those Properties since that date. 2. Double Dipping It is axiomatic that income tax for a taxpayer need be paid to the Service only once. That is, once Federal tax liability with respect to any one person or entity has been reported for that person or entity, and that further has been claimed on a tax return and paid by that particular person or entity, the Service may not collect that same tax again from another; the tax has already been paid. As is evidenced by Taxpayer’s wife’s tax returns, she reported, claimed, and paid all income tax due the Service with respect to the Properties. Yet, mysteriously, the Service asserts in the Transmittal Correspondence that Taxpayer also needs to pay the same tax, or double the Federal income tax on the Properties, plus associated and significant penalties and interest. This is different from the concept of double taxation by multiple jurisdictions (e.g., state and Federal tax), this is the same jurisdiction taxing twice. 3. Penalties The Service’s revenue agent seems to further have confused that the tax liability for the years at issue currently (2005-2011) to have something to do with the tax fraud that Taxpayer was convicted of prior to the years in issue. It is true that Taxpayer was convicted for various counts of tax fraud, but such was for tax years in the 1980s and in the last 1990s. The Service seems to be suggesting in its analysis of assertion of penalties and interest that the previous tax fraud (for which Taxpayer was incarcerated) somehow was proof that penalties should be appropriate presently as attributable to fraud. In other words, because Taxpayer (not his wife) was convicted of tax fraud for positions he took twenty years ago, he is now responsible for fraud penalties presently because he did not file tax returns while he was incarcerated and did not claim income or pay taxes in connection with the Properties. As evidence of “several” badges of fraud, the Service also suggests in the Transmittal Correspondence that the Gift and Abandonment of All Rights Agreement was somehow “misleading.” This is absurd, and the document speaks for itself (i.e., the document evidences a completed legal gift of the Properties to his wife). As indicated above, the penalties and interest should not be imputed in the first place because the tax associated with the Properties has been paid in full, even if Taxpayer did have some sort of interest in the Properties, which he does not. Even so, the imposition of fraud penalty based on such illusory “badges” is deeply flawed at best. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 36 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 37 of 42 EXHIBIT A Transmittal Correspondence Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 38 of 42 EXHIBIT B Janet Wade’s Tax Returns Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 39 of 42 EXHIBIT C Gift and Abandonment of All Rights Agreement Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 40 of 42 Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 41 of 42 18 CERTIFICATE OF SERVICE I hereby certify that on this 2nd day of February 2017, I caused to be served via the Court’s electronic filing system a true and correct copy of the foregoing to be delivered to the following: John W. Huber John K. Mangum Virginia Cronan Lowe Rick Watson Ronald C. Barker _____/S/Kamron Keele_________ Kamron Keele, Esq. Case 2:15-cv-00883-DS Document 146 Filed 02/02/17 Page 42 of 42 Case 2:15-cv-00883-DS Document 146-1 Filed 02/02/17 Page 1 of 5 Case 2:15-cv-00883-DS Document 146-1 Filed 02/02/17 Page 2 of 5 Case 2:15-cv-00883-DS Document 146-1 Filed 02/02/17 Page 3 of 5 Case 2:15-cv-00883-DS Document 146-1 Filed 02/02/17 Page 4 of 5 Case 2:15-cv-00883-DS Document 146-1 Filed 02/02/17 Page 5 of 5 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 1 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 2 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 3 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 4 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 5 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 6 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 7 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 8 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 9 of 10 Case 2:15-cv-00883-DS Document 146-2 Filed 02/02/17 Page 10 of 10 Kamron Keele, Esq. Attorney for Taxpayer 6405 S. 3000 E., Ste. 150 Salt Lake City, UT 84121 (801) 527-1040 kamronkeele@gmail.com Stanley Wade TIN 529-54-8946 PROTEST OF THIRTY-DAY LETTER Tax periods: 2005 through 2011 The above-referenced taxpayer (“Taxpayer”) hereby protests certain findings and determinations made by the Internal Revenue Service (“Service”) as set forth in its Thirty-Day Letter (Letter 950) issued to Taxpayer on or about January 23, 2014, along with various accompanying Forms 870 and related Examination Reports—all describing the Service’s revenue agent’s erroneous determinations that Taxpayer owned certain rental properties (“Properties”) during the taxable years in issue and that he further failed to claim and pay income tax with respect to those Properties during those taxable years. The Service’s Thirty-Day Letter and accompany Forms 870 and Examination Reports are collectively referred to hereafter as “Transmittal Correspondence” and are attached hereto as Exhibit A. 1. Statement of Appeals. Taxpayer wishes to appeal the Service’s findings and conclusions as determined in the Transmittal Correspondence to the Office of the Regional Director of Appeals and request a conference in that office. 2. Name and Address of Taxpayers. Stanley Wade 2159 E. Parleys Terrace Salt Lake City, UT 84109 3. Dates of Transmittal Correspondence. January 23, 2014 4. Tax Periods Involved. Taxable years 2005, 2006, 2007, 2008, 2009, 2010 and 2011 5. Adjustments With Which Taxpayers Do Not Agree. Taxpayer disputes that he was an owner of the Properties in question during the tax years in issue, and he further disputes the determination of tax made to his returns for the taxable years in Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 1 of 9 question, as identified in the 4549s and detailed in the Transmittal Correspondence, which again essentially involves the Service’s revenue agent’s erroneous findings and conclusions that Taxpayer owned the Properties and that he was responsible for payment of tax on the same. The simple facts are that Taxpayer gifted the properties to his wife in 2004, which was evidenced by a written and notarized gift agreement, that Taxpayer was incarcerated thereafter and did not have any income to report to the IRS, and that any and all income tax due with respect to the Properties has already been paid by his wife, the legal owner of the Properties since the gift back in 2004. Even if the revenue agent’s findings were true (and Taxpayer had owned the Properties while incarcerated during the years at issue), which Taxpayer disputes, his wife paid the income tax already on those Properties. In short, the Service is attempting to tax the same income twice. The discussion below analyzes the relevant statutes and case law in light of the facts herein presented. DISCUSSION The Service’s positions taken in the Transmittal Correspondence, which seems to have attributed all of the income tax liability from the Properties to Taxpayer, who in fact did not own the Properties during the years in issue and further on which Properties all income tax had already been paid by his wife by separate return, is simply incorrect and arbitrary and capricious. Indeed, frivolous. The facts (as acknowledged in the Transmittal Correspondence) show that Taxpayer gifted by written notarized agreement the Properties to his wife in 2004. While the revenue agent seems to have determined that there was subsequent ownership asserted by Taxpayer, such is without meaning as he had legally completed the gift the Properties to his wife. Indeed, Taxpayer could sell the Brooklyn Bridge, but that does not mean that he actually owned it or that the buyer would take legal ownership. The drafter of the Transmittal Correspondence concludes that a subsequent “Affidavit” is somehow conclusive evidence that Taxpayer still owned the Properties, but such Affidavit, signed by Taxpayer when he was incarcerated and also signed by the Taxpayer’s two children as “owners” of the Properties (the children have never had any ownership in the Properties), does not in fact provide that the Properties were Taxpayers, only that the drafter of the Affidavit wanted to include all of the family members because s/he has some reason to believe that the Properties were some sort of “family” controlled enterprise, which is simply not true as of 2004. While they are certainly a family, this does not mean that Taxpayer’s wife did not legally own the Properties and is legally responsible to claim and pay the tax with respect to the Properties. Further, the two children also signing the Affidavit does not mean that they had any ownership either. Taking the Service’s reasoning to its logical conclusion, each of the children would also be treated as owners and responsible for payment of income tax for the Properties. Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 2 of 9 Regardless of whether Taxpayer owned the Properties or not during the years at issue, as indicated on Taxpayer’s wife’s tax returns for the years in issue (attached hereto for convenience of reference as Exhibit B), the tax on the Properties has been reported by her by separate income tax return, claimed in full by her on those returns and importantly paid by her in full. There simply is no outstanding tax due with respect to the asserted income of the Properties during the years 2005 through 2011, and the Service’s erroneous determinations should be rejected. 1. Ownership of the Properties The Service grossly erred in finding that Taxpayer owned the Properties after 2004. As indicated above, Taxpayer signed, by notarized agreement, a Gift and Abandonment of All Rights Agreement (attached for convenience of reference at Exhibit C) forever gifting the Properties to his wife. In order for a bona fide gift to be an effective transfer of property (as long standing common law elements of a gift), the following must be present: (1) the donor must be competent to make the gift, (2) the donee capable of taking the gift, (3) a clear and unmistakable intention on the part of the donor to absolutely and irrevocably divest himself of the title, dominion, and control of the subject matter of the gift, (4) the irrevocable transfer of the gift to the donor, (5) delivery by the donor to the done of the subject of the gift, and finally (6) acceptance of the gift by the donee. See, e.g., Weil v. Comm., 31 B.T.A. 899 (1934), aff’d 82 F.2d 561 (5th Cir. 1936), cert. denied 299 U.S. 552 (1936). In the present case, both Taxpayer and his wife were competent and capable of making and taking the gift of the Properties. The Properties, held in various entities and trusts, were actually transferred to donee. The language of the Gift and Abandonment of All Rights Agreement is clear and unmistakable that Taxpayer intended to, and did in fact, gift the Properties to his wife, and Taxpayer’s wife accepted the gift as evidenced by her subsequent dominion and control over the entities owning such Properties, and, importantly for our present purposes, her subsequent reporting and paying of the Federal income tax due associated with those Properties. Under Section 102 of the Internal Revenue Code, such gift/transfer is not included in Taxpayer’s or his wife’s gross income (nor would there be any gift tax consequences between spouses, although such is not in issue presently). As of the time of such completed gift, i.e., the exact moment the above- indicated common law elements of a gift have been accomplished, Taxpayer no longer legally owned the Properties. There is no evidence that Taxpayer’s wife gifted the Properties back to Taxpayer, indeed just the opposite as Taxpayer’s wife handled all aspects of the Properties thereafter and to date. Once the Properties (or more accurately, the interests in the entities holding such Properties) transferred by gift, Taxpayer unilaterally could not, and to date cannot, undo the transaction. This is regardless of what suggestions or statements Taxpayer makes thereafter as to what he owns or even thinks he owns (e.g., he could say he owns the Brooklyn Bridge but that doesn’t make it so). The Service’s revenue agent’s determination that, because Taxpayer signed an Affidavit as purportedly some sort of “family” owner of the Properties Taxpayer therefore must still own the Properties, does not Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 3 of 9 accord the fact that Taxpayer had previously, irrevocably and absolutely divested himself of ownership in those Properties. Therefore, Taxpayer has not been an owner of the Properties since 2004, and he is not responsible for payment of any and all tax associated with those Properties since that date. 2. Double Dipping It is axiomatic that income tax for a taxpayer need be paid to the Service only once. That is, once Federal tax liability with respect to any one person or entity has been reported for that person or entity, and that further has been claimed on a tax return and paid by that particular person or entity, the Service may not collect that same tax again from another; the tax has already been paid. As is evidenced by Taxpayer’s wife’s tax returns, she reported, claimed, and paid all income tax due the Service with respect to the Properties. Yet, mysteriously, the Service asserts in the Transmittal Correspondence that Taxpayer also needs to pay the same tax, or double the Federal income tax on the Properties, plus associated and significant penalties and interest. This is different from the concept of double taxation by multiple jurisdictions (e.g., state and Federal tax), this is the same jurisdiction taxing twice. 3. Penalties The Service’s revenue agent seems to further have confused that the tax liability for the years at issue currently (2005-2011) to have something to do with the tax fraud that Taxpayer was convicted of prior to the years in issue. It is true that Taxpayer was convicted for various counts of tax fraud, but such was for tax years in the 1980s and in the last 1990s. The Service seems to be suggesting in its analysis of assertion of penalties and interest that the previous tax fraud (for which Taxpayer was incarcerated) somehow was proof that penalties should be appropriate presently as attributable to fraud. In other words, because Taxpayer (not his wife) was convicted of tax fraud for positions he took twenty years ago, he is now responsible for fraud penalties presently because he did not file tax returns while he was incarcerated and did not claim income or pay taxes in connection with the Properties. As evidence of “several” badges of fraud, the Service also suggests in the Transmittal Correspondence that the Gift and Abandonment of All Rights Agreement was somehow “misleading.” This is absurd, and the document speaks for itself (i.e., the document evidences a completed legal gift of the Properties to his wife). As indicated above, the penalties and interest should not be imputed in the first place because the tax associated with the Properties has been paid in full, even if Taxpayer did have some sort of interest in the Properties, which he does not. Even so, the imposition of fraud penalty based on such illusory “badges” is deeply flawed at best. Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 4 of 9 Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 5 of 9 EXHIBIT A Transmittal Correspondence Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 6 of 9 EXHIBIT B Janet Wade’s Tax Returns Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 7 of 9 EXHIBIT C Gift and Abandonment of All Rights Agreement Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 8 of 9 Case 2:15-cv-00883-DS Document 146-3 Filed 02/02/17 Page 9 of 9