United States of America v. Ward et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
UNITED STATES OF AMERICA,
Plaintiff,
vs.
WALTER WARD and VIRGINIA
WARD,
Defendants.
Case No. 3-21-cv-00056-JWS
ORDER ON MOTION FOR
SUMMARY JUDGMENT AND
CROSS MOTION FOR SUMMARY
JUDGMENT
[Dockets 14, 17]
I. 	MOTIONS PRESENTED
At docket 14 Defendants Walter and Virginia Ward (“Defendants”) filed a
motion for summary judgment in this action brought by Plaintiff United States of
America (the “Government”) to reduce Defendants’ tax assessments issued by the
Internal Revenue Service (“IRS”) to a civil judgment. They argue that the suit is barred
by the statute of limitations and, alternatively, that the interest assessed should be
abated due to IRS delays. The Government filed an opposition and cross motion for
summary judgment at docket 17, asserting that the statute of limitations tolled long
enough to make its suit timely and that the court does not have jurisdiction to abate
interest. 	Defendants filed their joint response/reply at docket 18. 	The Government
Case 3:21-cv-00056-JWS Document 20 Filed 07/06/22 Page 1 of 15

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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 2
filed its reply brief at docket 19. 	Oral argument was requested but would not be of
assistance to the court.
II. 	BACKGROUND
In 2000, the IRS concluded that Defendants had underreported their income by
$197,521 for 1996 and by $209,127 for 1997 and notified them of these deficiencies.
Defendants challenged the IRS’s findings in the U.S. Tax Court. 	The Tax Court
sustained the tax liabilities calculated by the IRS, which included a statutory penalty
of $81,329 for substantial underreporting.1 	Additionally, the Tax Court imposed a
$25,000 penalty against Defendants after finding that they had “maintained these
proceedings primarily for delay” and that they demonstrated “an unwillingness to
respect the tax laws of the United States.”2
The IRS then recorded assessments for Defendants’ tax liabilities. Assessments
authorize the IRS to collect payment through a levy or court proceeding and trigger a
ten-year statute of limitations on any collection action subject to certain tolling events.3
Defendants’ 1996 tax deficiency and penalty, plus the Tax Court’s additional penalty,
were assessed on November 25, 2002. 	Their 1997 deficiency and penalty were
assessed on December 9, 2002. While the statute of limitations would have run out in
late 2012, the Government asserts that Defendant-initiated events tolled the IRS’s
1 Ward v. Comm’r, 83 T.C.M. (CCH) 1820, 2002 WL 1285562, at *1 (June 11, 2002).
2 Id. at *6.
3 26 U.S.C. § 6502.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 3
collection deadline out to July 2021, a few months after the Government filed suit. The
tolling events are as follows:
(1) 	Offer-in-Compromise dated 12/27/2002;
(2) 	Due Process Hearing request dated 7/15/2003;
(3) 	Offer-in-Compromise dated 3/5/2004;
(4) 	Offer-in-Compromise dated 12/4/2008;
(5) 	Due Process Hearing request dated 12/16/2011;
(6) 	Offer-in-Compromise dated 3/6/2014; and
(7) 	Offer-in-Compromise dated 9/23/2015.4
A taxpayer files an offer-in-compromise through IRS Form 656, wherein he sets forth
an offer to settle a tax debt for less than the assessed amount.5 An IRS official then
decides whether the form is administratively processable and, if so, signs the form.6
At that time, the statute of limitations tolls while the IRS considers the offer on its
merits.7 The statute of limitations begins to run again 30 days after the IRS makes a
final decision about the offer.8
Defendants’ 	first 	offer-in-compromise 	argued 	that 	the 	assessments 	were
erroneous. The offer was rejected, and the IRS notified Defendants that it was going
to record a lien against their property. In response, Defendants requested a Due Process
4 Docket 17 at 15; Docket 17-19 at 5–10; Docket 17-20 at 4–8.
5 26 C.F.R. § 301.7122-1(a); Docket 17-1 at ¶ 4.
6 26 C.F.R. § 301.7122-1(d)(2); Docket 17-1 at ¶ 4.
7 26 U.S.C. § 6331(i)(5), (k); 26 C.F.R. §301.7122-1(d), (g), (i).
8 26 U.S.C. § 6331(i)(5), (k); 26 C.F.R. §301.7122-1(g).
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 4
Hearing with the IRS Office of Appeals as provided for under 26 U.S.C. § 6330. The
reviewing appeals officer explained to Defendants’ representative that they could not
use the § 6330 hearing process to contest a liability already affirmed by the Tax Court.
After months of discussions with Defendants’ representative, the appeals officer
sustained the liens and closed the appeal. However, by that time, Defendants had filed
a second offer-in-compromise. For this offer, Defendants requested a reduced payment
for reasons based on “effective tax administration,” which means when the debtor does
not contest liability but argues that collection would cause economic hardship or would
be unjust.9 Defendants submitted “a large file of documentation” with their offer, but
it ultimately was rejected for lack of any special circumstances that would justify a
finding of hardship or unfairness.10 Defendants filed an appeal. The reviewing appeals
officer sustained the examiner’s decision, and the offer was formally rejected in April
2005.
Defendants filed another offer-in-compromise in late 2008, again based on
hardship and fairness. 	As with the previous offer, an IRS examiner rejected it,
Defendants appealed, and the reviewing appeals officer affirmed the rejection.
Afterwards, in 2011, the IRS sought to levy against Defendants’ property but again
Defendants requested a Due Process Hearing to challenge the levy. The appeals officer
saw that the assessments originated from a Tax Court judgment and sustained the levy.
Defendants appealed the decision to the Tax Court.
9 26 C.F.R. § 301.7122-1(b)(3).
10 Docket 17-3 at 7.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 5
At this time, the IRS assigned the case to a lawyer who failed to realize what
the reviewing appeals officer did—that the assessments originated from a Tax Court
judgment in 2002—and therefore agreed to allow Defendants to submit another
proposed offer-in-compromise in exchange for dismissal of the case. Six months later,
Defendants filed their fourth offer, asserting that they were not liable for the 1996 and
1997 tax deficiencies and offering to settle with the IRS for $1. They submitted four
boxes of documents they claimed supported their position. The form was accepted for
processing. It was rejected on the merits five days later. Defendants appealed, but the
rejection was upheld and the offer was formally rejected in April 2015.
Defendants filed a fifth offer-in-compromise in September 2015, asking the IRS
to settle the assessments for $2,808 based in part on their inability to pay. 	After a
rejection of the offer and a failed appeal, the IRS formally rejected the offer in February
2017. After not receiving full payment, the IRS filed this lawsuit to reduce the long-
standing assessments to a civil judgment.
III. 	STANDARD OF REVIEW
Summary judgment is appropriate where “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” 11 	The
materiality requirement ensures that “[o]nly disputes over facts that might affect the
outcome of the suit under the governing law will properly preclude the entry of
summary judgment.”12 Ultimately, “summary judgment will not lie if the . . . evidence
11 Fed. R. Civ. P. 56(a).
12 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 6
is such that a reasonable jury could return a verdict for the nonmoving party.”13
However, summary judgment is mandated “against a party who fails to make a
showing sufficient to establish the existence of an element essential to that party’s case,
and on which that party will bear the burden of proof at trial.”14
The moving party has the burden of showing that there is no genuine dispute as
to any material fact.15 Where the nonmoving party will bear the burden of proof at
trial on a dispositive issue, the moving party need not present evidence to show that
summary judgment is warranted; it need only point out the lack of any genuine dispute
as to material fact.16 Once the moving party has met this burden, the nonmoving party
must set forth evidence of specific facts showing the existence of a genuine issue for
trial.17 All evidence presented by the nonmovant must be believed for purposes of
summary judgment and all justifiable inferences must be drawn in favor of the
nonmovant.18 However, the nonmoving party may not rest upon mere allegations or
denials but must show that there is sufficient evidence supporting the claimed factual
dispute to require a fact-finder to resolve the parties differing versions of the truth at
trial.19
13 Id.
14 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
15 Id. at 323.
16 Id. at 323–25.
17 Anderson, 477 U.S. at 248–49.
18 Id. at 255.
19 Id. at 248–49.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 7
IV. 	DISCUSSION
A. 	Unpaid Assessments
In a case to reduce unpaid tax assessments to a civil judgment, the Government
has the burden to prove that the IRS made an assessment, that the assessment is
“supported by a minimal evidentiary foundation,” and that the defendants have not
fully paid.20 Here, the dates and amounts of the 1996 and 1997 tax assessments are
not in dispute:21
Tax Year 	Date of Assessment
Amount of Assessment
(deficiency, penalty, and interest)
1996 	11/25/2002 	$372,835.83
1997 	12/09/2002 	$356,615.96
These assessments are adequately supported. The IRS imposed the assessments after
receiving a final Tax Court judgment that affirmed Defendants’ tax liabilities.
Taxpayers are collaterally estopped from challenging an assessment that originates
from a Tax Court judgment.22 It is undisputed that Defendants have not fully paid the
assessments. As of March 17, 2022, with the interest that has accumulated, the unpaid
balance for the 1996 tax liability is $104,326.78 and the unpaid balance for the 1997
tax liability is $906,368.02.23 Defendants do not contest these calculations.
20 United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983).
21 Docket 17-19 at 3–4; Docket 17-20 at 3–4.
22 United States v. Carter, 906 F.2d 1375, 1378 (9th Cir. 1990).
23 Docket 17-1 at ¶¶ 23–24; Docket 17-16; Docket 17-17.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 8
Consequently, the IRS is entitled to summary judgment as to the amounts owed
by Defendants if it can demonstrate that the ten-year deadline for filing a collection
action against Defendants extended through March 8, 2021, the date it filed suit.
B. 	Tolling of the Collection Deadline
The statute of limitations to reduce tax assessments to civil judgment is ten years
after the date of assessment. 	The 1996 tax liability was assessed on November 25,
2002, and the 1997 tax liability was assessed on December 9, 2002, giving the IRS an
original deadline of late 2012 to file a collection action. 	Given that the IRS filed its
action against Defendants in 2021, it must prove that the collection deadline was
appropriately tolled. 	Certain actions taken by a taxpayer can toll the collection
deadline, including the filing of an offer-in-compromise through Form 656 or a request
for a § 6330 Due Process Hearing.24 The IRS claims that seven tolling events initiated
by Defendants pushed its collection deadline out to July 2021 and therefore the March
2021 complaint is timely. The seven events are as follows:25
Tolling Event 	Start Date 	End Date 	Days Tolled
Offer in Compromise 	12/27/2002 	1/23/2004
860
(Not double-counting
days that overlap)
Due Process Hearing 	7/15/2003 	3/12/2004
Offer in Compromise 	3/05/2004 	4/05/2005
Offer in Compromise 	12/04/2008 	10/15/2010 	710
Due Process Hearing 	12/16/2011 	8/21/2013 	614
24 26 U.S.C. § 6331(i)(5), (k); 26 U.S.C. § 6330(e); 26 C.F.R. § 301.7122-1(g), (i).
25 Docket 17 at 15; Docket 19 at 2, n.1.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 9
Tolling Event 	Start Date 	End Date 	Days Tolled
Offer in Compromise 	3/06/2014 	4/02/2015 	422
Offer in Compromise 	9/23/2015 	2/22/2017 	548
TOTAL 	3,154
Defendants argue that the statute of limitations should not toll for these events
because 	the 	IRS 	allowed 	the 	process 	to 	linger 	unreasonably. 	There 	is 	no
reasonableness exception to tolling under the statute. 	It is tolled while an offer-in-
compromise or due process hearing remains pending. 	The tolling period remains
pending until the matter is terminated, withdrawn, or formally rejected by the
government.26 	Indeed, the IRS rejected each offer within the 24-month time limit
created by Congress in 2005 and applicable to any offer-in-compromise submitted on
and after July 16, 2006.27 Moreover, as noted by the Government, Defendants caused
much of the delay themselves through numerous filings and appeals. This is not a case
where Defendants submitted offers and then waited years for answers. 	The record
shows continuous correspondence with the IRS, and Defendants repeatedly appealed
the IRS’s initial determinations, regardless of merits. Defendants “made these offers
and chose to see them through. There is no legal or equitable basis to hold that against
the IRS.”28
26 United States v. McGee, 993 F.2d 184, 186–87 (9th Cir. 1993).
27 26 U.S.C. § 7122(f); Tax Increase and Prevention and Reconciliation Act of 2005,
Pub. L. No. 109-222.
28 Docket 17 at 20.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 10
In their reply, Defendants clarify their argument. They argue that the IRS was
unreasonable not because of delays in processing their offers, but because it processed
their meritless offers. That is, Defendants concede that the 2002 Tax Court judgment
precluded them from contesting the underlying tax liability, and now assert that their
first and fourth offers-in-compromise, which improperly attempted to contest liability,
were invalid on their face and thus could not have tolled the statute of limitations. That
is, they argue that the IRS knowingly accepted at least two offers-in-compromise for
processing that it had no basis to consider and that it did so to stall the IRS’s collection
deadline. 	This argument is nonsensical and baseless. 	“[W]ithout denying that they
voluntarily made these offers, [Defendants] attempt to weaponize [their own] supposed
impropriety to their benefit.” 29 	There is no factual basis to support Defendants’
argument that the IRS tried to delay collection or would want to do so.
No single IRS official reviewed all five of [Defendants’] offers. It was
many employees, from examiners to appeal officers, across 15 years.
[The] surviving work product shows a good-faith effort to resolve each
offer appropriately. To allege the opposite, and claim without evidence
that the IRS played out a 15-year scheme to toll the statute, is absurd.30
It was Defendants who primarily benefitted from these delays: 	“While the offers
remained pending, the IRS could not collect payment on the underlying assessments.
. . . [B]y filing so many offers, [Defendants] successfully blocked collection for
years.”31
29 Docket 19 at 2.
30 Id. at 4.
31 Id.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 11
Moreover, 	there 	is 	no 	legal 	support 	for 	the 	argument 	that 	an 	offer-in-
compromise contesting liability after a Tax Court judgment will not toll the statute.
Indeed, any such rule “would have the perverse effect of allowing tax debtors to freeze
collection against them by filing frivolous offers, without the return cost of tolling the
statute.”32 The Seventh Circuit recognized as much in United States v. McGaughey,33
acknowledging that even an offer preordained to fail is nonetheless a quid pro quo
where the offeror agrees to suspend the collection deadline in exchange for the IRS to
consider his offer.34
Defendants alternatively argue that their March 2014 offer-in-compromise
should not toll the deadline because the 656 form was incomplete, lacking their
signatures and an accompanying deposit. 	These arguments are without merit.
Defendants’ agent signed on their behalf, and the Government used its discretion to
forego the required 20 percent deposit, which would have amounted to 20 cents given
Defendants’ $1 offer.35
Defendants reframe their argument in their responsive briefing. They assert that
there is at least a factual dispute as to whether their first three offers-in-compromise
were properly signed by all parties, and therefore a dispute about whether the tolling
period was triggered. 	They rely on the fact that the IRS no longer has copies of the
656 forms submitted by them for their first three offers-in-compromise. 	Despite the
32 Id.
33 977 F.2d 1067 (7th Cir. 1992).
34 Id. at 1073.
35 See Docket 17 at 20–21.
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United States v. Ward 	Case No. 3:21-cv-00056-JWS
Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 12
absence of the 656 forms—which are presumed destroyed pursuant to a 2014 IRS
policy to purge files of a rejected offer-in- compromise six years after closure—the
Government has evidence of the dates and pendency of Defendants’ first three offers.
It filed the Certificate of Assessments and Payments (IRS Form 4340) for the 1996 and
1997 tax assessments.36 These 4340 forms, which are self-authenticating official IRS
certificates, can constitute sufficient proof of assessments and related facts absent any
evidence from the taxpayer that the certificate is incorrect or lacking credibility.37
As noted above, to make an offer-in-compromise a taxpayer or his agent sends
the IRS a signed Form 656 and then the receiving IRS examiner signs the form to
accept it for processing, thereby triggering the tolling period. 	The 4340 forms
document 	the 	dates 	Defendants’ 	offers-in-compromise 	became 	pending, 	which
necessarily means, given the IRS procedure, that the forms were signed by the
examiner. 	Defendants present no contrary evidence or evidence suggesting some
irregularity here. 	Moreover, the IRS did locate and submit Defendants’ final two
offers-in-compromise forms. Those 656 forms were signed with dates matching those
on the 4340 forms, further supporting the accuracy of the 4340 forms.38
Defendants argue that the 4340 forms are inadmissible as secondary evidence
to prove the contents of their 656 forms because the IRS has not adequately
demonstrated that the originals have been destroyed. This argument is unavailing. As
36 Docket 17-1 at ¶ 5; Docket 17-19; Docket 17-20.
37 Hughes v. United States, 953 F.2d 531, 535 (9th Cir. 1992); Hansen v. United
States, 7 F.3d 137, 138 (9th Cir. 1993).
38 Docket 17-9 at 16; Docket 17-13 at 7.
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noted by the Government, under the federal rules of evidence, inadvertent loss is
enough to introduce secondary evidence in place of the original.39 	Moreover, the
evidence does in fact show that the 656 forms for Defendants’ first three offers were
destroyed in accordance with the IRS’s six-year retention policy.40
Defendants’ reliance on McGaughey to assert that something more specific
about 	destruction 	is 	needed 	before 	secondary 	evidence 	can 	be 	admitted 	is
unpersuasive. In that case, as here, the taxpayer disputed that his offer-in-compromise
tolled the statute of limitations. He argued that because his 656 form was missing, the
IRS could not demonstrate he agreed to waive the deadline. 	He also submitted an
affidavit claiming that an IRS agent induced him to make an offer-in-compromise and
that he did not recall filling out a Form 656.41 Despite this contrary evidence, the court
upheld summary judgment in favor of the IRS, relying on secondary evidence that
sufficiently proved the taxpayer had submitted a Form 656 and thereby agreed to the
tolling of the collection deadline.42 	The affidavit relied upon in that case as to the
IRS’s destruction of the Form 656 does not appear to be distinguishable from the one
submitted here. 	Both assert that the IRS requires destruction of 656 forms and files
after a specified period of time and that a search to procure a copy of the taxpayer’s
39 Fed. R. Evid. 1004; Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., Inc., 306
F.3d 806, 825 (9th Cir. 2002).
40 Docket 17-1 at ¶ 5.
41 977 F.2d at 1070.
42 Id. at 1071–72.
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form was fruitless. Indeed, the Seventh Circuit stressed in McGaughey that proof of a
thorough search for the original is not required.43
Relying on McGaughey, Defendants also argue that IRS failed to show that
“sufficient procedural safeguards were in place to [e]nsure the IRS properly accepted
the defendant taxpayer’s missing offer in compromise.”44 In McGaughey, the record
included an affidavit from an IRS official detailing document retention safeguards and
routine procedures for processing an offer-in-compromise and which the court relied
upon in part to find that the taxpayer must have submitted a Form 656 waiving the
statute of limitations.45 Such an affidavit is not, however, a requirement to prove that
the IRS properly processed a Form 656; it simply was secondary evidence adding
weight to the Government’s argument that the taxpayer necessarily submitted the form.
Similarly here, there is secondary evidence to demonstrate the IRS processed and
signed the 656 forms. 	The declaration of an IRS official outlines the standard
procedure related to a Form 656, which includes an examiner signing the form,
triggering the pendency of the offer in the system.46 The 4340 forms in the record
indicate the date that Defendants’ offers became pending, which shows that the 656
forms were necessarily signed by the IRS examiner.47 Indeed, courts presume that IRS
43 Id. at 1071.
44 Docket 18 at 9.
45 977 F.2d at 1071–72.
46 Docket 17-1 at ¶ 4.
47 Docket 17-19; Docket 17-20. See Randle v. United States, 2000 WL 1739314, at
*11 (C.D. Cal. Aug. 4, 2000).
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Order on Motion for Summary Judgment and Cross Motion for Summary Judgment 	Page 15
officials follow all procedural requirements in carrying out their duties.48 This would
necessarily include signing routine forms and checking for signatures. 	Defendants
provide no rebuttal evidence.
C. 	Interest
Defendants also seek summary judgment on the issue of interest, asking the
court to abate the interest accrued on their tax liabilities as a matter of law because of
IRS error. As noted and argued by the Government in its responsive briefing, the court
lacks jurisdiction to abate interest on unpaid assessments. Any request for abatement
must be submitted to the IRS and the IRS’s denial is only reviewable by the Tax
Court.49
V. 	CONCLUSION
Based on the preceding discussion, Defendants’ motion for summary judgment
at docket 14 is DENIED and the Government’s motion for summary judgment at
docket 17 is GRANTED.
IT IS SO ORDERED this 6th day of July, 2022, at Anchorage, Alaska.
/s/ John W. Sedwick
JOHN W. SEDWICK
Senior United States District Judge
48 Palmer v. IRS, 116 F.3d 1309, 1311 (9th Cir. 1997).
49 See 26 U.S.C. § 6404; Hinck v. United States, 550 U.S. 501, 503 (2007); Purcell v.
United States, 1 F.3d 932, 943 (9th Cir. 1993).
Case 3:21-cv-00056-JWS Document 20 Filed 07/06/22 Page 15 of 15