I have written before about the effect of the IRS obtaining a judgment with respect to a tax assessment. In Boykin v. United States, No. 5:21-cv-00103 (W.D.N.C. 2022), the fact that the IRS had a judgment carries the day in a contest with a taxpayer involving a quiet title action. The case provides no great revelations but shows how obtaining a judgment can benefit the IRS many years past the normal 10-year statute of limitations.
Between this case and the Tilley case I recently blogged from the Middle District of North Carolina, it appears that the Chief Counsel office in North Carolina has been busy in pursuing collection against taxpayers using real property held by nominal owners, with both opinions coming out on January 4, 2022.
Mr. Balvich owed the IRS for 1999 through 2006. The IRS filed an action to reduce the assessments to judgment in 2019 and obtained a judgment on August 6, 2020. In bringing an action of this type, the IRS must sue before the collection statute expires. The opinion in the current case doesn’t spell out the status of the statute of limitations on collection of the assessments for the years at issue, but something must have caused the statute to be open for each of the years at the time the IRS brought the suit. It could have been that the assessments for those years occurred many years after the close of the tax year, or that Mr. Balvich filed bankruptcy or made a CDP request. Many possibilities exist for the statute on collection to still remain open 20 years after the end of the tax year.
The plaintiff in the quiet title action, Rebecca Boykin, began a relationship with Mr. Balvich in 2010 and eventually married him in 2015. She worked as an administrative assistant at a company owned by Mr. Balvich. When they got married, he gifted to her a 50% interest in his medical services business. He and the business also, according to the IRS, put up the money to buy real property in Boone, North Carolina in which Ms. Boykin is the record owner. On March 20, 2019, the IRS filed nominee liens encumbering the Boone property. I have discussed nominee liens previously here.
After Ms. Boykin brought suit to quiet title seeking a declaration that the nominee liens were invalid, the IRS filed a counterclaim arguing that the money used to purchase the property was fraudulently transferred from the taxpayer who sought to place his property out of the reach of the IRS.
She argued that the North Carolina Uniform Voidable Transaction Act barred the IRS argument regarding the fraudulent transfer claims because it placed a four-year statute of limitations on such claims. The district court graciously described her argument as misguided. It pointed to the Supreme Court case of United States v. Summerlin, 310 U.S. 414, 416 (1940), where the court held:
It is well settled that the United States is not bound by state statutes of limitation or subject to the defense of laches in enforcing its rights.
The court followed the Supreme Court cite with a string cite of federal circuit court cases following the Summerlin case and swatting back arguments similar to Ms. Boykin’s that have been made in the eight decades following the Supreme Court’s pronunciation.
Piling on to Ms. Boykin’s legal woes, the court explained further that the judgment obtained by the IRS took its time period for seeking a remedy against this property outside of the mere 10-year period into the much longer period provided to the holder of a judgment:
Additionally, when the United States has obtained a timely judgment, its “subsequent efforts to enforce the liability or judgment against a third party will be considered timely.” United States v. Anderson, 2013 WL 3816733, at *2 (M.D. Fla. July 22, 2013) (holding that civil action to collect federal income taxes of an Estate from the Estate’s beneficiaries as a result of transferee liability under the Uniform Fraudulent Transfer Act was not time barred by the ten-year statute of limitations found in 26 U.S.C. § 6502(a)); see also United States v. Worldwide Lab. Support of Illinois, Inc., 2011 WL 148196, at *2 (S.D. Miss. Jan. 18, 2011) (holding that the ten-year statute of limitation period of “Section 6502 is inapplicable” to an action “against an alleged transferee in aid of collecting a judgment already obtained against the taxpayer”)
The decision here does not mean that the IRS has proven there was a fraudulent transfer, but only that she cannot dismiss the counterclaim based on the statute of limitations. Perhaps she will concede, knowing that the IRS can prove a fraudulent transfer or fight the next battle in the effort to retain ownership of the property. I hope that she does not choose to appeal this decision and add to the long string of cases holding that the Supreme Court meant what it said in holding that state statutes of limitations do not override the controlling federal statute here.