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United States v. Nelson

United States District Court, D. South Dakota, Southern Division

May 25, 2018

JEFFREY A. NELSON, Individually and as Trustee of the J.A. Nelson Irrevocable Trust; BEVERLY A. NELSON; and The MINNEHAHA COUNTY TREASURER'S OFFICE, Defendants.


          Lawrence L. Piersol United States District Judge

         Jeffrey A. Nelson (Nelson) failed to file federal income tax returns and pay his tax assessments for 2004 through 2011. As a result, the Tax Division of the Department of Justice filed suit seeking to reduce to judgment the unpaid federal income tax assessments made against Nelson, to obtain a judicial determination that the "J.A. Nelson Irrevocable Trust" is a nominee and/or alter ego of Nelson, and to foreclose the resulting tax liens.[1] On August 8, 2017, this Court denied Nelson's motion to dismiss the Complaint. (Doc. 12.) None of the defendants answered the Complaint. On September 19, 2017, the Clerk of Court entered default against each defendant pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. (Doc. 17.) The United States now moves for entry of default judgments under Rule 55(b)(2).

         A hearing was held on May 8, 2018, to determine Beverly Nelson's interest, if any, in the real property listed for foreclosure in the Complaint. Attorney Natalie Loebner appeared at the hearing on behalf of the United States. None of the defendants appeared at the hearing. Post-hearing briefs were ordered by the Court. (Doc. 36.) In post-hearing submissions, Jeffrey Nelson again challenges the jurisdiction of this Court. (Docs. 38, 39.) Neither Jeffrey nor Beverly Nelson have answered the Court's questions regarding whether Beverly Nelson has an interest in the subject property and, if so, whether that interest precludes the Court from ordering a forced sale of the property. For the following reasons, the motion for default judgments will be granted.[2]


         The facts, according to the Complaint, are as follows:

         Jeffrey and Beverly Nelson, husband and wife, reside in Dell Rapids, South Dakota. Jeffrey Nelson acquired the property described in the Complaint on September 22, 1978 and has continuously used it as his personal residence. On or about October 25, 1978, Nelson transferred the property by quitclaim deed to the J.A. Nelson Irrevocable Trust (hereafter "Trust") for no consideration. Nelson is the sole trustee for the Trust and the Trust does not have a federal tax identification number or any bank accounts. Nelson has personally paid the Minnehaha County Treasurer real property taxes assessed on the property. On October 3, 1995, Nelson individually granted the Sioux Valley Telephone Company a right of way and easement to the property.

         Nelson did not file federal income tax returns for the tax years 2004 through 2011. Beginning in 2010, Nelson was given timely notice of the assessments against him. Notices of federal tax liens were filed against both Jeffrey A. Nelson and the J.A. Nelson Irrevocable Trust. As of November 30, 2016, Jeffrey Nelson owed $152, 350.27 in taxes and statutory additions.

         On January 9, 2017, the United States filed this action to reduce the federal tax assessments against Nelson to judgment and to foreclose the federal tax liens on Nelson's residence. In response, Nelson filed several documents, including a motion to dismiss. In his motion and other pleadings, Nelson recited the typical tax protester arguments and contended that this Court lacked jurisdiction, venue was improper, and the Complaint failed to state a claim. This Court found Nelson's arguments had been rejected in numerous cases and stated that, despite Nelson's belief to the contrary, "they are required to pay income taxes, and their arguments deserve no furmer consideration." (Doc. 12.) Nelson's motion to dismiss was denied. (Id.)

         Under Rule 12(a)(4)(A) of the Federal Rules of Civil Procedure, Nelson had 14 days from the denial of his motion to dismiss in which to serve an Answer to the Complaint. Although Nelson filed a response to the Court's Memorandum Opinion and Order denying his motion to dismiss, he did not file an answer to the Complaint. The other defendants also failed to file an Answer to the Complaint. Accordingly, on September 19, 2017, the United States moved for entry of default against each defendant pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. The Clerk of Court entered default as to all defendants on September 19, 2017. (Doc. 17.)

         On September 25, 2017, Nelson filed another motion requesting dismissal for lack of jurisdiction. (Doc. 18.) He reasserted the same tax protester arguments already rejected by this Court in its previous ruling, including challenges to the jurisdictional basis for the lawsuit and the relevant statutes authorizing the United States to file suit in this Court. (Id.) The United States filed an opposition, contending that Nelson's motion merely invites the Court to revisit its ruling on the earlier motion. (Doc. 19.) Subsequently, Nelson filed some miscellaneous submissions, [3] but he did not file an Answer to the Complaint.

         On February 2, 2018, the United States filed the pending motion for default judgment against the defendants. Rather than answer the Complaint, Nelson filed a document challenging the declaration of the Revenue Officer for the Internal Revenue Service, Breena Effertz.[4] (Doc. 28.) Nelson again argues that he, as an American National, is a non-taxpayer exempt from the revenue laws. (Id.). Nelson does not assert any meritorious defenses to the allegations in the Complaint or provide any valid legal reasons to set aside the Clerk's entry of default.[5] Nelson again asserts in his May 22, 2018 filing that neither he nor his wife are not "Statutory U.S. citizens" but instead "were born in the Constitutional Republic (the now 50 states of the Union)." (Doc. 39, p.2.)


         A. Legal Standard

         Rule 55 requires two steps before entry of a default judgment: "first, pursuant to FED.R.ClV.P. 55(a), the party seeking a default judgment must have the clerk enter the default by submitting the required proof that the opposing party has failed to plead or otherwise defend; second, pursuant to FED.R.ClV.P. 55(b), the moving party may seek entry of judgment on the default under either subdivision (b)(1) or (b)(2) of the rule." Dahl v. Kanawha Inv. Holding Co., 161 F.R.D. 673, 683 (N.D.Iowa 1995). In this case, the Clerk of Court has entered default pursuant to Rule 55(a), completing the first step in the process toward default judgment, and the United States has now moved for a default judgment under Rule 55(b)(2).

         Upon entry of default by the Clerk of Court, the defaulting defendant "is deemed to have admitted all well pleaded allegations in the complaint." Taylor v. City of Ballwin, Mo., 859 F.2d 1330, 1333 n. 7 (8th Cir. 1988) (quoting Caribbean Produce Exchange v. Caribe Hydro-Trailer, Inc., .65 F.R.D. 46, 48 (D. Puerto Rico 1974)). Thus, in considering a Rule 55 motion, the court accepts the allegations in the Complaint as true and determines "whether the unchallenged facts . constitute a legitimate cause of action." Murray v. Lene, 595 F.3d 868, 871 (8th Cir. 2010) (internal quotation marks omitted).

         Although Nelson has filed a number of documents asserting that he is not subject to the revenue laws or the jurisdiction of this Court, he has failed to file an Answer to the Complaint or to otherwise demonstrate he has a meritorious defense to the allegations in the Complaint. Nelson's motions and other filings demonstrate his knowledge of the rules of procedure, yet Nelson took no action after the Court's ruling on his motion to dismiss to prepare an Answer within the 14-day time allowed under Rule 12(a)(4)(A).[6] Accordingly, Nelson is deemed to have admitted the allegations in the Complaint and the United States is entitled to default judgment if it has established that the tax liens are valid and that the Trust holds title to the property as the nominee or alter ego of Nelson.

         B. Reducing IRS Tax Assessments to Judgment

         In Count I of the Complaint, the United States seeks a judgment against Nelson for his tax liability. This Court has authority to reduce Nelson's tax assessment to judgment pursuant to 26 U.S.C. § 7402. Section 7402(a) states, in part, that "[t]he district courts of the United States at the instance of the United States shall have such jurisdiction to ... render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a).

         The admitted allegations in the Complaint as set forth above establish Nelson's liability for all unpaid tax, interest, and penalty assessments for 2004 through 2011. The total amount of Nelson's liability must be proven by evidence in the record, and the Court may conduct hearings or make referrals when it considers them necessary, such as when an accounting is required or the amount of damages is uncertain. See Stephenson v. El-Batrawi, 524 F.3d 907, 916 (8th Cir. 2008) ("The need for a hearing is within the sound discretion of the district court under FED.R.ClV.P. 55(b)(2)(B).")- An evidentiary hearing is unnecessary in this case because, as described below, the documents submitted by the United States establish the amount of Nelson's tax liability. See Taylor v. City cf Ballwin, 859 F.2d at 1333.

         The United States submitted certified IRS Forms 4340 (Certificates of Assessments, Payments, and Other Specified Matters), attached to the Declaration of Revenue Officer Breena Effertz. (Doc. 27-1 and Exhibits A-H.) These documents are entitled to a legal presumption of validity. See Blodgett v. Comm'r of Internal Rev., 394 F.3d 1030, 1035-36 (8th Cir. 2005). The forms show that, beginning on May 31, 2010, the IRS made assessments against Nelson for federal income taxes, interest, and penalties for the tax years 2004 through 2011. The IRS sent Nelson notices of the assessments and demands for payments. The IRS filed with the Minnehaha County Register of Deeds the following Notice of Federal Tax Liens (NFTL):

1. On February 18, 2013, a NFTL against Jeffrey A. Nelson related to tax periods 2004 through 2009.
2. On September 17, 2013, a NFTL against Jeffrey A. Nelson related to tax periods 2010 through 2011.
3. On December 11, 2013, a NFTL against the J.A. Nelson Irrevocable Trust, as the nominee of Jeffrey A. Nelson, related ...

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