United States District Court, D. Maine
DECISION AND ORDER ON PLAINTIFF'S MOTION FOR
Brock Hornby United States District Judge.
federal tax lawsuit, the United States seeks two forms of
relief: (1) To reduce to judgment unpaid taxes, penalties and
interest that it says the individual taxpayer defendant John
H. Kimball, Jr. owes the Internal Revenue Service (Count
One); (2) To enforce federal tax liens for those amounts
against a trust of which the defendant Kimball previously was
trustee (Count Two). I Grant the United States's motion
for summary judgment on Count One and Deny it on Count
One: The Individual's Tax Liabilities
Count One, the United States has presented "Certificates
of Assessments, Payments and Other Specified Matters"
for each of the tax years in question, for Kimball's
personal income taxes (2001-2004, 2007-2010) and for
employment taxes related to his law practice (2008-2011) for
a total tax liability in the amount of $1, 090, 700.05. (ECF
No. 41). Kimball has not contested the amounts due, saying
only that he "is unaware of whether or when tax
assessments were made and unaware of the correct amount of
tax liability owed, " and that he is "aware that
[he] has received some notices of assessments but is unaware
of whether the Plaintiff's notices so describe[d] in its
Statement of Facts are accurate, complete, or the assessments
which [he] has received." Opp'n at 6-7 (ECF No. 42).
That is insufficient to resist the United States's motion
for summary judgment on Count One. The First Circuit cases
are clear that these Certificates "are
‘presumptive proof of a valid assessment.' This
presumption places the burden of proof on [the defendant] to
show that the IRS's determination is invalid."
Stuart v. United States, 337 F.3d 31, 35 (1st Cir.
2003) (quoting Geiselman v. United States, 961 F.2d
1, 6 (1st Cir. 1992); Lefebvre v. Commissioner of
Internal Revenue, 830 F.2d 417, 419 n.3 (1st Cir. 1987)
("It has long been the law, in this circuit and
elsewhere, that the Commissioner's deficiency
determination is presumed correct, and, in seeking a
redetermination, the taxpayer bears the burden of proof and
persuasion to show otherwise.").
absence of any affirmative showing by Kimball that the IRS
determination is invalid, the United States's motion for
summary judgment is Granted on Count One. The United States
is entitled to judgment as a matter of law for unpaid taxes
and penalties in the amount of $1, 090, 700.05, interest, and
other statutory additions accruing from and after March 11,
Two: Tax Liens Against the Trust
1989, Kimball, a Massachusetts resident, established under
the laws of Maine the Kimball Family Realty Trust. Kimball
Family Realty Trust (Family Trust) at ¶ 12 (ECF No. 42,
Ex. 3). He named himself as Trustee and his five children as
beneficiaries. Id. at ¶ 12; Schedule of
Beneficiaries (ECF No. 42, Ex. 4); Son's Dep. at 20 (ECF
No. 44, Ex. 7). The purpose of establishing the Family
Trust was to buy a ski condominium for his children: "I
wanted to try to get something for the kids that they would
enjoy a continued benefit for. So, I bought it full with the
intention of me not owning it." Kimball Dep. at 22 (ECF
No. 44, Ex. 1). As the original Trustee, Kimball had the
power to alter or amend the trust. Family Trust at ¶
But if he actually revoked it in whole or in part, the Family
Trust document provided that the portion to which the
revocation was applicable must go to the beneficiaries, not
to Kimball. Id. Kimball then funded the Family Trust
and, with the money he provided, the Family Trust purchased a
ski condominium at Mt. Abram, Maine, all in 1989. Son's
Dep. at 15-16. At the time, Kimball did not have any tax
liability. Kimball and his wife separated in
approximately 1991. Id. at 13. In August of 1993,
Kimball resigned as Trustee in favor of his sister, a lawyer
who has done a lot of trust work. Id. at 12-13. The
Family Trust by its terms thereupon became
irrevocable. Over the years, Kimball personally paid
the condominium expenses, (utilities, taxes, insurance, condo
fees), which were modest. Son's Dep. at 15,
The Family Trust did not have a bank account. Id. at
19. While the children were young and without driver's
licenses, Kimball drove them to the ski condominium for
family vacation time. Id. at 19, 32. Kimball did
not use (or very rarely used) the ski condominium in the
absence of his children, and he never rented it to others to
generate income. Id. at 17. Kimball has not visited
the ski condominium since 2000-2001. Id. at 18.
2010, the United States filed notices of federal tax liens
against the Family Trust's ski condo in the Oxford County
Registry of Deeds. Statement of Material Facts at ¶ 6
(ECF No. 41). Those liens arose only upon the dates of
the IRS assessments. Id. at ¶ 7. The earliest
such assessment is December 26, 2006. Id. at ¶
1. Kimball and his wife divorced in 2012,
and according to the eldest son she died that year. Son's
Dep. at 13, 18. The children, now all adults, have their own
keys to the condo. Id. at 18. Kimball
"does not use the Property as a vacation home, never
resided there, does not control it, and has not been to the
Property in nearly 16 years." Def. Family Trust's
Add'l Statement of Facts at ¶ 11 (ECF No.
United States's argument for relief on Count Two is
straightforward. The United States argues that when unpaid
taxes are assessed, a federal tax lien "attaches to all
property and rights to property the taxpayer then holds or
subsequently acquires. To satisfy a taxpayer's tax
liability, the IRS may collect from assets held in the name
of a nominee of the taxpayer." Mot. at 10-11 (ECF No.
40). The United States argues that the Family Trust is
holding the ski condominium as Kimball's nominee and that
the IRS should be able to enforce its tax liens on the
condominium for Kimball's personal tax liabilities.
Id. at 11. It has not argued that the creation or
funding of the Family Trust was a fraudulent transfer.
while the United States's argument is straightforward,
the proper analysis of who or what is a nominee for federal
tax lien purposes is complex. The term "nominee"
does not originate in the Internal Revenue Code, but (like
"alter ego") in various court
decisions. The usual reference is to G.M.
Leasing Corp. v. United States, 429 U.S. 338
(1977). There, the Supreme Court observed that under 26
U.S.C. § 6321, the assessments against a taxpayer
"were a lien in favor of the United States upon all
property belonging to [the taxpayer]. If petitioner was [the
taxpayer's] alter ego, . . . [i]t would then follow that
the Service could properly regard petitioner's assets as
[the taxpayer's] property subject to the lien under
§ 6321 . . ." Id. at 350-51. But in
G.M. Leasing, the Court explicitly avoided deciding
whether the petitioner in that case was the
taxpayer's alter ego, observing that its grant of
certiorari did not include that question and that it accepted
for purposes of the decision that the petitioner was the
taxpayer's alter ego without deciding the issue.
Id. at 351.
United States v. Craft, 535 U.S. 274 (2002),
the Supreme Court described how to decide whether property,
or rights to property, belong(s) to a taxpayer for purposes
of the federal tax lien statute, 26 U.S.C. § 6321:
[It] is ultimately a question of federal law. The answer to
this federal question, however, largely depends upon state
law. The federal tax lien statute itself "creates no
property rights but merely attaches consequences, federally
defined, to rights created under state law."
Accordingly, "[w]e look initially to state law to
determine what rights the taxpayer has in the property the
Government seeks to reach, 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. at 278 (emphasis added) (internal citations
omitted); accord Drye v. United States, 528 U.S. 49,
58 (1999). In assessing "nominee" status in a trust
case, the First Circuit likewise starts with state law,
see Dalton v. Commissioner, 682 F.3d 149, 157 (1st
Cir. 2012). In Dalton, the First Circuit stated that
"[i]n connection with real property, Maine recognizes
the nominee doctrine. This doctrine allows for the
possibility that the true owner of a parcel of land may be
someone other than the record owner." Id. The
First Circuit referred to a single Maine Law Court decision,
Atkins v. Atkins, 376 A.2d 856 (Me. 1977), as
invoking a three-factor test, and said that "Maine case
law does not fully delineate the contours of the nominee
doctrine." 682 F.3d at 157. But in Dalton, the
First Circuit explicitly did not "determine whether the
IRS applied the correct rule of law" in that Maine-law
case, id., because the only issue was whether the
IRS acted reasonably in its rejection of a minimal settlement
proposed in a Collection Due Process appeal by the taxpayers.
Id. at 157-59; See generally Adam M. Cole,
Note, A Preference for Deference: The Benefits of the
First Circuit's Customized Standard of Review for
Collection Due Process Appeals in Dalton v.
Commissioner, 58 Vill. L. Rev. 239 (2013). In evaluating
IRS reasonableness in Dalton, the First Circuit also
described what courts other than Maine's do in
determining a nominee relationship, describing them as
"balancing a series of factors." Id. at
Dalton, I must actually decide the Maine law issue
here. In doing so, I look at Atkins, a more recent
Maine decision, MERS v. Saunders, 2010 ME 79, 2 A.3d
289, and other Maine law sources in deciding what rights
Kimball has in the ski condominium.
I consider Maine trust law. When Kimball created this Family
Trust, when he resigned as trustee, and when he last visited
the ski condo, Maine had not yet adopted the Uniform Trust
Code. During all this time, Maine trust law was governed by
the "modest" provisions of the Maine Uniform
Probate Code's Article VII "Trust
Administration" and the decisions of the Maine Law
Court. The Maine Uniform Probate Code provided limited rules
regarding registration of trusts (18-A M.R.S.A. §§
7-101 - 7-105), the jurisdiction of courts concerning trusts
(18-A M.R.S.A. §§ 7-201 - 7-206), the duties and
liabilities of trustees (18-A M.R.S.A. §§ 7-301 -
7-307), and the powers of trustees (18-A M.R.S.A.
§§ 7-401 - 7-408). However, the Maine Uniform
Probate Code was silent regarding the rules on drafting
trusts or even what types of trusts could be created.
there is no question that the Maine Law Court recognized the
type of inter vivos trust that Kimball created in 1989. The
law on "gifts by declaration in trust" was already
"well established in this state." Rose v.
Osborne, 180 A. 315, 317 (Me. 1935). "It is not
essential . . . that the donor should part with the
possession in the cases where he . . . declares a
trust." Bath Savings Inst'n v. Fogg, 63 A.
731, 733 (Me. 1906) (quoting approvingly Pomeroy's
Equitable Jurisprudence). "The mere fact that the
settlor appoints himself trustee and retains powers to revoke
the trust and to use the trust corpus for his own benefit
during his lifetime is not in itself a sufficient basis for
regarding an inter vivos trust as incomplete . . ."
Staples v. King, 433 A.2d 407, 410 (Me. 1981)
(citing Restatement (Second) of Trusts § 26, cmt. h) (Am
Law Inst.). "[R]eservation of the power of amendment or
revocation" does not "alter our conclusion that the
children's interests vested." First Nat. Bank of
Bar Harbor v. Anthony, 557 A.2d 957, 959 (Me. 1989).
Moreover, in the case of trust bank accounts, neither
additional deposits nor withdrawals of earned interest by the
trustee extinguished the trust. Cazallis v.
Ingraham, 110 A. 359, 362 (Me. 1920).
Maine enacted the Uniform Trust Code, the presumption in
Maine was that a trust was irrevocable unless it stated
otherwise. See Rose, 180 A. at 318 ("Where the
word ‘trustee' appears on a bank book, indicating
that it is a trust fund, there is raised the presumption that
an irrevocable trust was intended and is sufficient proof of
it in the absence of other controlling proof."). In this
case, the Family Trust document states clearly that the trust
is revocable, but with two important caveats: first, only the
Original Trustee can revoke the trust and, second, if he does
so, the portion of the trust property to which the revocation
is applicable goes to the beneficiaries
outright. Under no condition does the property
revert to Kimball, the Settlor. Thus, this Family Trust is
unlike the typical revocable trust (and trusts created under
Maine's later adoption of the Uniform Trust Code) where a
settlor retains the unrestricted right to revoke for his own
benefit and, as a result, creditors can execute against the
trust assets. 18-B M.R.S.A. §§ 602(1),
505(1)(A). There is no suggestion on the summary
judgment record that Kimball failed to establish a valid
trust under Maine law or that his resignation and the
appointment of a successor trustee were invalid. As a result,
under this trust instrument, after Kimball's resignation
in 1993, the Family Trust could not be revoked, even for the
benefit of the beneficiaries. "If a[n irrevocable]
trust be created, no later act of the donor, whether impulse
by good or by bad, can destroy it." Cazallis,
110 A. at 361.
next to Maine law on nominees. Atkins was not a
trust case, but a case where a divorced spouse was seeking
her spousal share of a piece of real estate that had been
paid for by her husband and titled in the name of her son.
376 A.2d at 858. Atkins did not use the term
"nominee, " but dealt with whether the husband was
the equitable owner, such that the wife was entitled to a
spousal share of the property. Id. at 859. In
reversing the trial court's summary judgment ruling
against her, the Maine Law Court pointed to the facts that
the husband had furnished the down payment, taken
depreciation for the property on his own income tax return,
and paid the taxes and insurance on the property through a
company that he owned: "Whether these facts are
sufficient to warrant a finding that [the husband] was, in
fact, the beneficial owner was a question for the jury."
the summary judgment record viewed in the light most
favorable to the Family Trust, the nonmoving party,
demonstrate that as a matter of law Kimball was the
"beneficial owner" of the ski condo under
Atkins? I conclude that it does not. First, it is
"standard common-law doctrine" that a trustee holds
a "nonbeneficial" ownership and that it is the
beneficiaries of the trust who hold beneficial interests or
equitable title while the trustee ordinarily "holds
‘bare' legal title." Restatement (Third) of
Trusts § 42 and cmts. a, c. (Am. Law
Inst.) Such labels of course are not
determinative in assessing Kimball's rights in the Family
Trust property. But second, under the terms of this Family
Trust, Kimball was not a beneficiary and, although he had
power to revoke the trust before he resigned in 1993, such a
revocation could not benefit him. It could only transfer
title immediately to the beneficiaries. It is true that
Kimball furnished the money to buy the ski condominium (like
Atkins), and paid the real estate taxes and
insurance (like Atkins), but there is no evidence
that he treated the property as his own on his federal income
tax return (unlike Atkins).Moreover, by the time the
earliest assessment in question was made (December 2006), the
trust was irrevocable, Kimball was no longer trustee, he had
not visited the Family Trust property in five years, and the
beneficiaries were adults. At best, then, whether Kimball
"was, in fact, the beneficial owner [is] a question for
the jury." Atkins, 376 A.2d at 859.
also was not a trust case, but a mortgage case where the
mortgage documents explicitly denominated Mortgage Electronic
Registration Systems "solely as the ‘nominee'
to the lender." 2010 ME 79 at ¶ 9. The Maine Law
Court stated: "A nominee is a ‘person designated
to act in place of another, usu[ally] in a very limited way,
' or a ‘party who holds bare legal title for the
benefit of others or who receives and distributes funds for
the benefit of others.'" Id. at ¶ 10.
Kimball, no longer the trustee, does not fit the definition
of a "person designated to act in place of
another." Kimball's sister as trustee does hold
"bare legal title for the benefit of others, " but
here the "others" are not Kimball the trust settlor
and taxpayer but are instead the trust beneficiaries,
Kimball's adult children. Like Atkins, the
MERS definition of nominee does not entitle the
United States to summary judgment that Kimball currently has
a property interest under Maine law in the Trust assets.
is the basis for ignoring the Family Trust here as an entity
separate from Kimball? The United States presents the
following grounds for finding nominee status:
1. Kimball, as donor/settlor/trustee of the Kimball Trust,
provided the funds for the purchase of the Property, as in
Dalton and Berkshire Bank. See
Kimball III (30(b)(6) Deponent for the Trust), Depo. p.
20:14-22; p. 48:3-6 (hereinafter, "Kimball III
Depo."), attached hereto as Exhibit 1.
2. Even though Kimball had served as the trustee of the
Kimball Trust, until being replaced by his sister, neither
Kimball's sister nor the Kimball Trust paid Kimball any
consideration for the Property, as in Dalton.
Kimball III Depo. p. 48:7-24.
3. Kimball makes all payments for the Property's upkeep,
including condominium fees, utilities, and real estate taxes,
as in Dalton. Kimball III Depo. p. 19:7-20.
4. Kimball uses or has used the Property as a family vacation
home, indicating that he treated it as his own, as in
Dalton and Berkshire Bank. ...