United States of America v. Fuller et al

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
United States of America
v. 	Case No. 1:22-cv-271-LM
Frederick J. Fuller, Individually
and as Trustee of the Bow Sterling
Place Realty Trust, et al.
REPORT AND RECOMMENDATION
The government brought suit against Frederick J. Fuller,
individually and as trustee of the Bow Sterling Place Realty
Trust (the “Trust”), seeking to reduce to judgment Fuller’s
unpaid federal tax liabilities pursuant to 26 U.S.C. §§ 6651,
6654. 	See Compl. (Doc. No. 1). 	The government also seeks
judgments from this court that the federal tax liens for
Fuller’s tax liabilities attach to real property owned by the
Trust, with priority over judgment liens, and permitting the
government to enforce its tax liens pursuant to 26 U.S.C. §
7403. 	Nichole Wilkins, Raymond Mulcahey as Administrator of the
Estate of Beverly Mulcahey, and the Town of Bow, New Hampshire,
as lienholders of the real property owned by the Trust, are also
named defendants with respect to the government’s lien priority
claim.1
1 Raymond C. Green Funding, LLC was also a named defendant
as a lienholder of the Trust property. 	On September 1, 2022,
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 1 of 17

2
Fuller failed to respond to the government’s complaint, and
on October 31, 2022, the Clerk of Court entered default against
him. 	(Doc. No. 17). 	Before the court for recommendation as to
disposition is the government’s motion for default judgment as
to Fuller pursuant to Federal Rule of Civil Procedure 55(b)(2).
(Doc. No. 20). 	For reasons explained below, the court
recommends that the government’s motion be granted and that
judgment be awarded in the amount of $687,379.12, subject to
statutory additions and interest.
STANDARD OF REVIEW
When a party moves for a default judgment under Rule
55(b)(2), the court “may examine a plaintiff's complaint, taking
all well-pleaded factual allegations as true, to determine
whether it alleges a cause of action.” 	Ramos-Falcon v.
Autoridad de Energia Electrica, 301 F.3d 1, 2 (1st Cir. 2002).
The defaulting party is “taken to have conceded the truth of the
factual allegations in the complaint.” 	Ortiz-Gonzalez v.
Fonovisa, 277 F.3d 59, 62 (1st Cir. 2002). 	Admitting the truth
of the factual allegations, however, “does not admit the legal
however, the company filed a “Discharge of Mortgage Deed”
indicating that the mortgage had been satisfied. 	Accordingly,
pursuant to the parties’ joint motion to dismiss Raymond C.
Green Funding, LLC (Doc. No. 12), it is no longer a party to
this case.
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 2 of 17

3
sufficiency of [the] claims.” 	10 James W. Moore, Moore's
Federal Practice § 55.32[1][b] (3d ed. 2013). 	For that reason,
the court reviews the admitted facts in light of the elements of
the claims pleaded before entering a default judgment. 	Sampson
v. Lambert, 903 F.3d 798, 805-06 (8th Cir. 2018); Neff v.
Mediation Processing Servs., LLC, No. 21-CV-310-JL, 2021 WL
7082838, at *1 (D.N.H. Sept. 27, 2021), report and
recommendation adopted, No. 21-CV-310-JL, 2021 WL 7082833
(D.N.H. Oct. 14, 2021).
BACKGROUND
By virtue of his default, Fuller concedes the following
facts alleged in the government’s complaint. 	On July 27, 2011,
Fuller acquired real property, situated at 43 Sterling Place,
Bow, New Hampshire (the “Bow Property”), as trustee of the Bow
Sterling Place Realty Trust through a warranty deed recorded
with the Merrimack County Registry at Book 3265, Pages 0486-
0489. 	Compl. (Doc. No. 1, ¶ 24). 	As stated in a Certificate of
Trustee document dated December 16, 2013 and recorded with the
Merrimack County Registry at Book 3425, Page 469, Fuller is both
the sole trustee and the sole beneficiary of the Trust. 	Id. ¶
31. 	Where Fuller treated the assets of the Trust as his own,
the Trust has been operated as the alter ego of Fuller. 	Id. ¶¶
31-32. 	In addition, Fuller operated the Trust as a sham trust
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 3 of 17

4
that holds record title to the Bow Property as a nominee of the
true owner, Fuller. 	Id. ¶ 33.
On April 9, 2012, the Secretary of the Treasury made
assessments against Fuller for income taxes during the tax
period ending on December 31, 2008. 	Id. ¶ 9. 	The tax
assessment amount of $493,147.00 was reached by agreement
between Fuller and the government. 	Id. ¶¶ 9-10. 	As of April
26, 2022, Fuller had a tax liability balance due in the amount
of $637,228.22, reflecting assessed and accrued late-filing
penalties, penalties for failure to make estimated tax payments,
costs, and statutory interest as of that date. 	Id. ¶ 9. 	The
government provided proper notice and demand for payment of
these tax liabilities, but to date, Fuller has failed to pay the
balance due. 	Id. ¶ 11.
On July 21, 2022, the government filed suit against Fuller,
as well as against the other lienholders of the Bow Property,
seeking to: (1) reduce Fuller’s tax liabilities to judgment; (2)
determine that the government’s federal tax liens attach to the
Bow Property owned by the Trust with priority over judgment
liens; and (3) enforce the federal tax liens under 26 U.S.C. §
7403. 	Fuller was served with a copy of the summons and
complaint on August 18, 2022. 	(Doc. No. 3). 	When Fuller did
not file a response to the complaint within the time allowed,
the Clerk of Court entered default against him (Doc. No. 17),
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 4 of 17

5
and the government moved for default judgment. 	(Doc. No. 20).
The court held a case management conference on February 9, 2023,
and following that conference, on April 14, 2023, the government
submitted a supplemental brief, which included clarification on
the sufficiency of the government’s claims, as well as
additional documentation to support Fuller’s tax liabilities.
(Doc. No. 25).
DISCUSSION
The government brings three claims against Fuller: in Count
I it seeks to reduce Fuller’s tax liabilities to judgment; in
Count II it seeks a ruling that its federal tax liens attach to
the Bow Property owned by the Trust with priority over judgment
liens; and in Count III it seeks permission to enforce the tax
liens under 26 U.S.C. § 7403. 	The government moves for default
judgment on all claims and seeks the entry of judgment in the
amount of $675,929.44, subject to statutory additions and
interest, which continue to accrue pursuant to 26 U.S.C. §§
6601, 6621, and 6622, and 28 U.S.C. § 1961(c).
I. 	Liability
A. Count I
“26 U.S.C. § 6651(a)(2) imposes a penalty for failure to
pay taxes due on or before the date prescribed for payment of
such unless it is shown that such failure is due to reasonable
cause and not due to willful neglect.” 	Kennedy v. United
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 5 of 17

6
States, 542 F. Supp. 1046, 1049 (D.N.H. 1982) (quotation
omitted). 	Under the statute, “the imposition of such penalties
is mandatory absent a satisfactory demonstration by the taxpayer
that its failure to comply was due to reasonable cause and not
due to willful neglect . . . .” 	Id. (quotation omitted). 	26
U.S.C. § 6654 similarly imposes a penalty for failure to make
estimated tax payments.
1. Timeliness of the Government’s Claim
Court proceedings to collect a tax liability must be made
“within 10 years after the assessment of the tax.” 	26 U.S.C. §
6502(a)(1). 	The limitations period is tolled, however, while a
Collection Due Process (“CDP”) hearing and appeal is pending.
26 U.S.C. § 6330(e)(1).
The government’s assessment of Fuller’s 2008 tax
liabilities occurred on April 9, 2012. 	According to the
admitted allegations in the complaint, Fuller filed a CDP
hearing request on October 1, 2012. 	Compl. (Doc. No. 1, ¶ 17).
On February 11, 2013, following the CDP hearing and notice of
determination, Fuller appealed the determination to the Tax
Court. 	Id. ¶ 18. 	On October 7, 2014, the Tax Court entered a
decision affirming the determination and stipulating that the
taxpayer waived any restrictions provided in 26 U.S.C. §
6330(e). 	Id. 	Accordingly, the limitations period was tolled
from October 1, 2012 through October 7, 2014 for a total of 736
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 6 of 17

7
days. 	Where the initial limitations period would have run on
April 9, 2022, the tolling period of 736 days extended the
limitations period to April 14, 2024. 	Where the government
initiated this action against Fuller on July 21, 2022, the court
is satisfied that the government’s claim against Fuller is
timely.
2. Sufficiency of the Claim
The admitted facts in the complaint establish the
government’s claim against Fuller. 	Specifically, the government
adequately states that Fuller owed income tax liabilities for
the 2008 tax year and that despite receiving proper notice of
these tax liabilities, Fuller failed to pay the balance due.
Accordingly, the government is entitled to default judgment as
to liability on Count I.
B. Count II
In Count II, the government seeks a ruling from this court
that: (1) its federal tax liens attach to the Bow Property owned
by the Trust; and (2) the federal tax liens have priority over
other judgment liens. 	The non-defaulting parties, however,
stipulated to the order of priority, (Doc. No. 21), rendering
the issue moot.2 	Thus, the court considers only whether the
2 During the February 9, 2023 case management conference,
the court raised concerns about the entry of judgment against
Fuller prior to the entry of judgment against the remaining,
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 7 of 17

8
government has satisfied its burden to demonstrate that its tax
liens, arising from Fuller’s tax liabilities, attach to the Bow
Property owned by the Trust.
1. Attachment of the Government’s Tax Liens to the Bow
Property
The government initially sought attachment of its tax liens
to the Bow Property owned by the Trust based two theories: (1)
the Trust is the alter ego of Fuller; and (2) the Trust is the
nominee of Fuller. 	In its supplemental brief, however, the
government appears to have abandoned its alter ego argument and
solely asserts that the Trust is the nominee of Fuller.
Under 26 U.S.C. § 6321, “the government may impose a lien
on property in the hands of a nominee or alter ego of the
taxpayer.” 	In re Callahan, 419 B.R. 109, 124 (Bankr. D. Mass.
non-defaulting defendants where the government initially
maintained that the issue of priority could be addressed after
the Bow Property sold. 	Fed. R. Civ. P. 54(b) (“[T]he court may
direct entry of a final judgment as to one or more, but fewer
than all, claims or parties only if the court expressly
determines that there is no just reason for delay.”); see also
United States v. Derparseghian, No. CV 15-08653-AB, 2016 WL
8135349, at *2-3 (C.D. Cal. Aug. 16, 2016) (analyzing the
language of Rule 54(b) and entering default judgment against a
lienholder defendant in a tax liability enforcement action where
judgment against the defendant would not lead to an inconsistent
result as to other defendants). 	In its supplemental brief,
however, the government raised the fact that the non-defaulting
parties filed a stipulation as to the priority of the proceeds
from a sale of the Bow Property. 	(Doc. No. 21).
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 8 of 17

9
2009). 	To determine whether property is in the hands of the
taxpayer’s nominee, the court must “initially look to state law
to determine what rights the taxpayer has in the property . . .
then to federal law to determine whether the taxpayer's state-
delineated rights qualify as ‘property’ or ‘rights to property’
within the compass of the federal tax lien legislation.” 	Id.
(quoting Drye v. United States, 528 U.S. 49, 58 (1999)).
In the state law analysis, courts must “consider the
substance of the rights state law provides, not merely the labels
the State gives these rights or the conclusions it draws from
them.” 	United States v. Craft, 535 U.S. 274, 279 (2002). 	Thus,
“where state law creates a legal fiction that allows an
otherwise cognizable property interest arising under state law
to be dispelled, federal law will look past the fiction and
consider the reality of the property interest.” 	In re Callahan,
419 B.R. at 125 (citing Craft, 535 U.S. at 279).
a. Fuller’s Rights in the Bow Property Under New
Hampshire Law
The New Hampshire Uniform Trust Code provides that the
property in a revocable trust is subject to the claims of the
settlor’s creditors during the lifetime of the settlor
regardless of whether the trust contains a spendthrift
provision. 	N.H. Rev. Stat. Ann. § 564-B:5-505(a)(1). 	The term
“settlor” is defined as a “person, including a testator, who
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 9 of 17

10
creates, or contributes property to, a trust.” 	Id. § 564-B:1-
103(15). 	Further, New Hampshire law does not recognize the
creation of a trust when the same person is the sole trustee and
sole beneficiary of the trust. 	See N.H. Rev. Stat. Ann. § 564-
B:4-402(a) (stating that a trust is only created if “the same
person is not the sole trustee, the sole current beneficiary and
the sole remainder beneficiary.”).
In support of its claim to attach the federal tax liens to
the Bow Property, the government submitted a copy of the
Declaration of Trust.3 	(Doc. No. 25-4). 	The Declaration of
Trust identifies the Trust as revocable and Frederick J. Fuller
as both the grantor and the trustee of the Trust. 	The
government also submitted a copy of the Certificate of Trustee,
(Doc. No. 25-3), which identifies Fuller as the sole trustee and
sole beneficiary of the Trust. 	Where Fuller is expressly
identified as the grantor of the Trust, he is the settlor of the
3 “On a motion for default judgment, a court may . . .
consider any affidavits or evidence on the record.” Amguard Ins.
Co. v. Santos Remodeling, Inc., No. 14-14745-FDS, 2016 WL
424961, at *1 n.1 (D. Mass. Feb. 3, 2016) (citing KPS & Assocs.,
Inc. v. Designs by FMC, Inc., 318 F.3d 1, 17-20 (1st Cir.
2003)); see also Shannon F. v. Portsmouth School Dist. SAU 52,
No. 14-cv-368-JL, 2017 WL 1233815, at *6 (D.N.H. Jan. 27, 2017)
(quotation omitted) (recognizing that based on similarities in
the Rule 55 and Rule 12(b)(6) standards, the court can consider
“documents central to the plaintiff’s claims.”), report and
recommendation adopted, (D.N.H. Feb. 22, 2017).
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 10 of 17

11
Trust, and where the Trust is revocable, its assets would be
subject to Fuller’s creditor claims under New Hampshire law. 	In
addition, where Fuller is the sole trustee and sole beneficiary
of the Trust, the legal fiction of the Trust could be set aside,
leaving Fuller as the true owner of the Trust assets.
Accordingly, the court finds that Fuller has a cognizable
property and ownership interest in the assets of the Trust,
including the Bow Property, under New Hampshire law.
b. Attachment of the Lien to the Bow Property
Under the Nominee Theory
“The nominee theory focuses upon the taxpayer’s
relationship to a particular piece of property, asking whether
the taxpayer has engaged in a legal fiction by placing legal
title to property in the hands of a third party while actually
retaining some or all of the benefits of true ownership.”
United States v. Isaacson, No. 09–cv–332–JL, 2011 WL 2783993, at
*2 (D.N.H. July 15, 2011) (internal quotation marks omitted)
(quoting Holman v. United States, 505 F.3d 1060, 1065 (10th Cir.
2007)). 	In analyzing the taxpayer’s relationship to the
property, courts have considered the following factors:
• 	No consideration or inadequate consideration is paid
by the nominee;
• 	Property is placed in the name of the nominee in
anticipation of a suit or occurrence of liabilities
while the transferor continues to exercise control
over the property;
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 11 of 17

12
• 	A close relationship between the transferor or the
nominee exists;
• 	Conveyances were not recorded;
• 	The transferor retained possession of the
property;[and]
• 	The transferor continued to enjoy the benefits of the
transferred property.
Id. (quoting United States v. Kattar, 81 F.Supp.2d 262, 273–75
(D.N.H.1999)).
Applying the factors to the relationship between Fuller and
the Bow Property, the court finds the government satisfied its
burden to demonstrate that the Trust is a nominee of Fuller. 	In
particular, based on the admitted facts, Fuller is the grantor,
beneficiary, and sole trustee of the Trust. 	Accordingly, the
relationship between the transferor and the nominee is one and
the same. 	Further, as the sole beneficiary of the Trust, Fuller
continues to enjoy the benefits of the Bow Property. 	There are
no other facts in the record to suggest that any of the other
factors weigh against the Trust being the nominee of Fuller.
Thus, the court finds that the Trust is the nominee of Fuller,
and therefore, the government’s tax liens for Fuller’s tax
liabilities attach to the Bow Property owned by the Trust.
C. Count III
The government seeks to enforce its tax liens under 26
U.S.C. § 7403, which provides that “where a claim or interest of
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 12 of 17

13
the United States therein is established, [the court] may decree
a sale of such property, by the proper officer of the court, and
a distribution of the proceeds of such sale according to the
findings of the court in respect to the interests of the parties
and of the United States.” 	Given this court’s finding that the
government is entitled to default judgment as to liability for
Count II, the court similarly finds that the government
established a claim to the Bow Property and is therefore
entitled to enforce its tax liens under 26 U.S.C. § 7403.
II. 	Damages4
In the case of defaulting defendants, “the amount of
damages are not necessarily established as a result of the
default.” 	Int’l Union of Operating Eng’rs, Local 4 v. Stanley
Excavation, 243 F.R.D. 25, 27 (D. Me. 2007) (quotation omitted).
Rather, allegations of damages “must be established by proof
unless the damages involve a sum certain or are for
liquidated damages.” 	Id. (quotation omitted). 	While delinquent
tax assessments can constitute liquidated damages, see KPS &
Assocs. v. Designs by FMC, Inc., 318 F.3d 1, 20 (1st Cir. 2003),
courts have applied Rule 55(b)(2) to make a judicial
4 The court did not hold a hearing on damages. 	Rule
55(b)(2) “makes an evidentiary hearing an available tool, not a
prerequisite, to the determination of a damage award.”
AngioDynamics, Inc. v. Biolitec AG, 780 F.3d 429, 436 (1st Cir.
2015).
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 13 of 17

14
determination on damages when the government’s assessments are
not sufficiently clear or fail to properly itemize unpaid taxes,
statutory penalties, and interest. 	See United States v. Greer,
No. 18-02497 (KBJ), 2020 WL 6596703, at *3 (D.D.C. Feb. 28,
2020) (applying Rule 55(b)(2) to unpaid taxes, statutory
penalties, and interest when the amounts are not properly
itemized); United States v. Myers, 236 F. Supp. 3d 702, 710
(E.D.N.Y. 2017) (entering default judgment under Rule
55(b)(2) and explaining how interest and statutory accruals on
unpaid taxes should be calculated).
“Tax assessments by the IRS are presumed correct.” 	United
States v. Limanni, No. 12–cv–114–JD, 2015 WL 1345033, at * 2
(D.N.H. Mar. 23, 2015) (citing 	Hostar Marine Transport Sys.,
Inc. v. United States, 592 F.3d 202, 208 (1st Cir.2010)); United
States v. Chesir, No. CV–08–2552, 2011 WL 3040536, at *3
(E.D.N.Y. June 27, 2011) (presuming the government’s tax
calculations, set forth in affidavits, to be correct in a
default judgment action); see also United States v. Beckwith,
No. 2:18-cv-00322-NT, 2019 WL 6534123, at *4 (D. Me. Dec. 4,
2019) (noting that certificates of assessments are presumptive
proof of notice of the assessments and demands for payment).
The presumption of correctness can only be overcome by
sufficient evidence to contradict the tax liability. Limanni,
2015 WL 1345033, at * 2.
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 14 of 17

15
In support of its assessment amount, the government
submitted two declarations of Mary Bishop, a Revenue Officer
Advisor with the Internal Revenue Service (“IRS”). 	(Doc. Nos.
20-2, 25-6). 	In her first declaration, Bishop testified to her
review of an INTST Report, which contains a breakdown of the
taxpayer’s balance due, including the tax assessment amount,
interest, and penalties. 	Decl. of Mary Bishop, Dec. 15, 2022,
(“Bishop Decl. I”) (Doc. No. 20-2, ¶ 2). 	The INTST Report is
generated based on information maintained by the IRS in its
Integrated Data Retrieval System (“IDRS”), which stores and
tracks taxpayer account information. 	Id. 	In her second
declaration, Bishop submitted an updated INTST Report, and
attested to Fuller’s total balance due as of March 15, 2023
totaling $687,379.12. 	See Decl. of Mary Bishop, April 14, 2023,
(“Bishop Decl. II”) (Doc. No. 25-6, ¶ 5). 	Bishop also submitted
additional supporting tax records, such as Fuller’s Form 1040,
and attested to her review of those tax records. 	Id. ¶ 6.
Based on the government’s submissions,5 the court finds that the
government is entitled to judgment in the amount of $687,379.12.
5 At the February 9, 2023 case management conference, the
court questioned whether the government satisfied its burden to
support its requested judgment amount, where Bishop did not
attest to reviewing the tax records underlying the INTST Report.
See United States v. Kumar, No. 19 Civ. 4501, 2021 WL 7908019,
at *11 (E.D.N.Y. Mar. 29, 2021) (noting that the government’s
proof of damages could have been stronger). 	Where the
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 15 of 17

16
CONCLUSION
For the foregoing reasons, the court recommends that the
district judge: (1) grant the government’s motion for default
judgment (Doc. No. 20) as to all claims (Counts I, II, and III);
(2) enter judgment in the amount of $687,379.12 as of March 15,
2023 and subject to statutory additions and interest, which
continue to accrue pursuant to 26 U.S.C. §§ 6601, 6621, and
6622, and 28 U.S.C. § 1961(c); and (3) direct the government to
file an appropriate motion, consistent with 26 U.S.C. § 7403,
within 14 days of an order approving this Report and
Recommendation.
Any objections to this Report and Recommendation must be
filed within fourteen days of receipt of this notice. 	See Fed.
R. Civ. P. 72(b)(2). 	The fourteen-day period may be extended
upon motion. 	Only those issues raised in the objection to this
Report and Recommendation are subject to review in the district
court. 	See Sch. Union No. 37 v. United Natl Ins. Co., 617 F.3d
554, 564 (1st Cir. 2010). 	Any issues not preserved by such
objection(s) are precluded on appeal. 	See id. 	Failure to file
any objections within the specified time waives the right to
government’s supplemental submission cures the court’s concerns,
the court declines to address the sufficiency of the
government’s initial submission.
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 16 of 17

17
appeal the district court's order. 	See Santos-Santos v. Torres-
Centeno, 842 F.3d 163, 168 (1st Cir. 2016).
__________________________
Andrea K. Johnstone
United States Magistrate Judge
July 17, 2023
cc: 	Frederick J. Fuller
Counsel of Record
Case 1:22-cv-00271-LM Document 28 Filed 07/17/23 Page 17 of 17