Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_03-cv-01989/USCOURTS-caed-2_03-cv-01989-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7401 IRS: Tax Liability

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

JOSEPH VERNI, et al.,

Defendants.

CIV. S-03-1989 LKK PAN PS

FINDINGS AND RECOMMENDATIONS

—NFN—

On September 23, 2003, the United States filed this action

pursuant to 26 U.S.C. § 7403 to enforce a lien for unpaid income

taxes assessed against defendants Joseph Verni and Juanita Smith. 

This court has jurisdiction over this action pursuant to 26

U.S.C. § 7402, and 28 U.S.C. §§ 1340 and 1345. Venue properly

lies in this judicial district. All defendants were duly served

with process. 

The property that is the subject of the action is 79 Rolling

Hills Court, Oroville, California, which is more particularly

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described as follows:

Parcel A: Parcel 3, as shown on the Parcel Map of a

position of the West half of Section 26, Township 19 North,

Range 4 East, M.D.B. & M., which map was filled in the

office of the Recorder of the County of Butte, State of

California, on August 1, 1979 in Book 71 of Parcel Maps, at

page 71.

Parcel B: A non-exclusive easement for road and public

utility purposes over Parcels 2 and 3 of Parcel Map

filed November 5, 1975 in Book 53 of Parcel Maps, at

pages 90, 91 and 92. 

Plaintiff moves for judgment by default. 

There is no matter of right to the entry of a default

judgment and its entry is within the court’s reasonable

discretion, even when the defendant is technically in default. 

Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001); Draper v.

Coombs, 792 F.2d 915, 924 (9th Cir. 1986); Aldabe v. Aldabe, 616

F.2d 1089, 1092 (9th Cir. 1980). The court has considered the

possibility of prejudice to the plaintiff, the merits of

plaintiff’s claim, the sufficiency of the complaint, the sum of

money at stake, the possibility of a legitimate dispute about

material facts, whether defendants’ default was due to excusable

neglect, and the strong policy underlying the Federal Rules of

Civil Procedure favoring decisions on the merits. See Eitel v.

McCool, 782 F.2d 1470, 1472 (9th Cir. 1986). The court

determines that default judgment is appropriate.

26 U.S.C. 6321 provides that if any person liable to pay any

tax neglects or refuses to pay the same after demand, the United

States has a lien upon all property belonging to such person for

the amount, including interest, penalties and costs. State law

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governs whether the taxpayer has an interest in property. United

States v. Overman, 424 F.2d 1142 (9th Cir. 1970). Pursuant to 26

U.S.C. § 7403, in any such case the Attorney General, at the

request of the Secretary of the Internal Revenue Service, may

file a civil action to enforce the lien and in such action the

court must adjudicate all matters involved therein and finally

determine the merits of all claims to and liens upon the property

and may decree a sale of such property and distribute the

proceeds according to the court’s findings in respect to the

interests of the parties.

First Union Mortgage Corporation, Federal Home Loan Mortgage

Corporation, and Wells Fargo Home Mortgage were named defendants

as lien holders pursuant to 26 U.S.C. § 7403(b) and have been

dismissed pursuant to stipulation, approved by the court,

acknowledging their security interests in the property are

superior to the interest of the United States. 

Defendants California Franchise Tax Board and Butte County

Tax Collector have disclaimed any right, title or interest in the

property.

By their default defendants Verni, Smith and Belton have

admitted that in August 1996, the United States Tax Court entered

judgment against Verni for delinquent income taxes and fraud

penalties that, as of April 22, 2003, with costs and previouslyassessed interest, amounted to $623,239.78 plus accrued but

unassessed interest. Verni also has failed to pay $536 plus

interest for a penalty assessed for tax year 1996. For the years

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1986 and 1988 Juanita Smith owes $113,164.50 taxes, fraud

penalties, cost, previously-assessed interest, plus accrued but

unassessed interest. Despite notice and demand, neither taxpayer

has paid any part of these tax debts.

After the Tax Court’s judgment and demand for payment, Verni

and Smith, without consideration, transferred 79 Rolling Hills to

defendant Belton as trustee of Appy Acres Trust but they have

continuously retained possession and paid the mortgage. The

court finds that the transfer was made by Verni and Smith without

receiving a reasonably equivalent value and that it was made with

actual intent to defraud the United States. California Civil

Code § 3439.04. The transfer, therefore, is a nullity with

respect to the United States. California Civil Code § 3439.07.

79 Rolling Hills should be sold and the proceeds paid to the

United States in partial satisfaction of its federal tax liens

after satisfaction of the superior liens of lenders as has been

agreed upon by the parties. 

Accordingly, I recommend that default judgment be entered

against defendants Joseph Verni, Juanita Smith, and Rich Bellon

as trustee of Appy Acres Trust. The property should be sold and

the proceeds paid first to the costs of sale, then to satisfy the

superior liens of the lenders as previously agreed upon by the

parties, then to satisfy in whole or in part the federal tax lien

and accrued but unassessed interest and the balance, if any, to

the taxpayers.

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These findings and recommendations are submitted to the

Honorable Lawrence K. Karlton, the United States District Judge

assigned to this case. 28 U.S.C. § 636(b)(l). Written

objections may be filed within ten days after being served with

these findings and recommendations. The document should be

captioned “Objections to Magistrate Judge’s Findings and

Recommendations.” The failure to file objections within the

specified time may waive the right to appeal the District Court’s

order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

Dated: July 27, 2005. 

 /s/ Peter A. Nowinski 

 PETER A. NOWINSKI

 Magistrate Judge

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