Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_11-cv-00250/USCOURTS-azd-4_11-cv-00250-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7403 Suit to Enforce Federal Tax Lien

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

United States of America,

Plaintiff,

v.

Hilda A. Hernandez & Elvia Callahan, 

Defendants.

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CV 11-250-TUC-DCB

ORDER

On April 25, 2011, the Internal Revenue Service on behalf of the United States filed this

action against the Defendants under the Arizona Fraudulent Transfer Act (AFTA), A.R.S. §

44-1001-1010. The Government seeks a money judgment against Defendants for the value

they received as a result of an alleged fraudulent transfer from Alfonso’s Carnitas Inc. of

real property at the location where it operated Alfonso’s Carnitas. The judgment amount

represents $47,059.00 for employment taxes, interest, late fees and penalties that Alfonso’s

Carnitas Inc., owes from 2003 through 2007. 

To succeed on its claim, the Government must establish its creditor status, a property

transfer, and actual or constructive fraud on the part of the transferor. The Magistrate Judge

found the Government prevailed as to Defendant Hernandez, and recommends the Court

grant summary judgment for the Government as to her. The Magistrate Judge, however,

found that material questions of fact remain in dispute as to Defendant Callahan, which

prevent summary judgment being entered against her.

The Court accepts and adopts the Magistrate Judge’s R&R as the findings of fact and

conclusions of law of this Court and grants the Motion for Summary Judgment in part and

denies it in part. The Court denies the Defendants’ motions, which were appropriately

Case 4:11-cv-00250-DCB Document 48 Filed 02/20/13 Page 1 of 9
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treated by the Magistrate Judge as Defendant’s opposition to the Government’s Motion for

Summary Judgment.

STANDARD OF REVIEW

The duties of the district court in connection with a R&R by a Magistrate Judge are set

forth in Rule 72 of the Federal Rules of Civil Procedure and 28 U.S.C. § 636(b)(1). The

district court may “accept, reject, or modify, in whole or in part, the findings or

recommendations made by the magistrate judge.” Fed.R.Civ.P. 72(b); 28 U.S.C. § 636(b)(1). 

Where the parties object to a Report and Recommendation, “‘[a] judge of the [district] court

shall make a de novo determination of those portions of the [R&R] to which objection is

made.’” Thomas v. Arn, 474 U.S. 140, 149-50 (1985) (quoting 28 U.S.C. § 636(b)(1)).

This Court's ruling is a de novo determination as to those portions of the R&R to which

there are objections. 28 U.S.C. § 636(b)(1)(C); Wang v. Masaitis, 416 F.3d 992, 1000 n. 13

(9th Cir.2005); United States v. Reyna-Tapia, 328 F.3d 1114, 1121-22 (9th Cir.2003) (en

banc). To the extent that no objection has been made, arguments to the contrary have been

waived. Fed. R. Civ. P. 72; see 28 U.S.C. § 636(b)(1) (objections are waived if they are not

filed within fourteen days of service of the Report and Recommendation), see also McCall

v. Andrus, 628 F.2d 1185, 1187 (9th Cir. 1980) (failure to object to Magistrate's report

waives right to do so on appeal); Advisory Committee Notes to Fed. R. Civ. P. 72 (citing

Campbell v. United States Dist. Court, 501 F.2d 196, 206 (9th Cir. 1974) (when no timely

objection is filed, the court need only satisfy itself that there is no clear error on the face of

the record in order to accept the recommendation)).

The parties were sent copies of the R&R and instructed that, pursuant to 28 U.S.C. §

636(b)(1), they had 14 days to file written objections. See also, Fed. R. Civ. P. 72 (party

objecting to the recommended disposition has fourteen (14) days to file specific, written

objections). The Court has considered the objection filed by the Defendants, and the parties’

briefs considered by the Magistrate Judge in deciding the motions.

Case 4:11-cv-00250-DCB Document 48 Filed 02/20/13 Page 2 of 9
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OBJECTIONS

The Defendant Hernandez objects to the Magistrate Judge’s R&R. She alleges

wrongdoing on the part of IRS agents by fabricating new names to cover their mistakes. 

The Court believes she is referring to the IRS records which reflect Alfonsa’s Carnitas Inc.,

as the corporate entity that owes the employment taxes instead of Alfonso’s Carnitas, Inc.,

and that when the property was sold to the Salvation Army, the IRS collected only $26,000

in back taxes instead of the $47,000 it now says is past due. She claims she was not an

insider because she was not the Secretary of Alfonso’s legal corporation; she was not

responsible to pay the employment taxes, and that for 2005, 2006, and 2007, that Alfonso’s

Carnitas Inc./Alfonso Carnitas Jalisco was under the protection of the bankruptcy court.

In is undisputed that Alfonso’s Carnitas was owned by Alfonso Perez, who stopped

operating the business and “sold” it to Alfonso’s Carnitas Inc., a corporate entity created by

Rogelio Hernandez, sometime around 2003 and, thereafter, Alfonso’s Carnitas Jalisco was

operated by Rogelio Hernandez. Corporation records reflect Rogelio as President of

Alfonso’s Carnitas Inc., his brother Michael as Secretary, and his mother Hilda, as

Treasurer. See (Doc. 28-5, Ex. 15: Corporation Commission Annual Report at 2.) 

Sometime in 2003, Alfonso Perez filed for bankruptcy, which resulted in the 2007 sale to

Alfonso’s Carnitas Inc. of the real property, including the building, where Alfonso’s

Carnitas Jalisco was located on South 6th in Tucson, Arizona. The bankruptcy proceedings

related to Alfonso Perez are not relevant to the employment taxes owed by Alfonso’s

Carnitas Inc. 

In her Objection, Defendant Hernandez does not dispute that employment sales tax is

owed by the corporation known to the IRS as Alfonsa’s Carnitas, and that Rogelio

Hernandez is her son. (Doc. 46: Objection at 3.) 

The title documents reflect that on May 3, 2007, the property was sold by Alfonso Perez

to Alfonso’s Carnitas Inc. for a total of $533,005.75, of which $400,000 was the sale price,

with Mr. Perez carrying back $150,675, plus $133,005.75 in other settlement charges, which

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included tax liens and delinquencies on the property. To secure the money for the

transaction, Hilda Hernandez and Defendant Elvia Callahan, a cousin/niece, obtained a loan

from Applewood Funding in the amount of $325,000. A Warranty Deed was executed on

April 30, 2007, conveying the property from Mr. Perez to Alfonso’s Carnitas Inc.

The day after the Perez-Alfonso’ Carnitas Inc. sale, Alfonso’s Carnitas Inc. transferred

title to Hilda Hernandez and Elvia Callahan, as joint tenants with right of survivorship for

consideration of ten dollars. The Joint Tenancy Deed was recorded on May 9, 2007. Six

months later, November 30, 2007, the Defendants sold the property to the Salvation Army

for $560,000. The escrow proceeds paid off the Applewood funding and $25,583 in back

taxes owed personally by Hilda Hernandez. The IRS failed to recover the employment taxes

due from Alfonso Carnitas Inc.

The IRS holds a tax lien, recorded on July 5, 2005. (Doc. 28-3: Statement of Facts at

21.) The. The IRS alleges that the transfer of the property from Alfonso’s Carnitas Inc. to

the Defendants avoided the tax lien and was a fraudulent transfer to insiders, which was

made with the intent to hinder, delay, or defraud the United States under the provisions of

the Federal Debt Collection Procedure Act, 28 U.S.C. §§ 3301, et seq., and under the AFTA,

A.R.S. § 44-1001 et seq.

The tax lien was recorded against Alfonsa’s Carnitas tax id # xx xxx8725. The name is

wrong, but the tax id number is undisputably the tax number for Alfonso’s Carnitas, Inc. 

There is a tax id # for Alfonso’s Carnitas, xx-xxx9128, but there are no master files for this

entity and all tax returns for Alfonso’s Carnitas have been filed under #xx xxx8725. (Doc.

28-6: Turner Declaration ¶¶ 4-6.) This Court agrees with the Magistrate Judge that the name

confusion is a red herring. There was no question that Alfonso’ Carnitas Inc. owed

employment taxes because Rogelio Hernandez was in contact with the IRS and aware of the

Federal Tax Liens filed in respect to employment tax due under the xx xxx8725 EIN. The

Court finds there may have been some confusion, but there was no wrongdoing on the part

of IRS agents to fabricate new names to cover up mistakes.

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The Court also finds that it was not wrong for the IRS to collect $26,000 in personal tax

owed by Hilda Hernandez upon the sale of the property to the Salvation Army. The tax lien

against Hilda was recorded on August 28, 2007. There is no evidence that Defendant

Hernandez informed the IRS that the tax lien for Alfonso’s Carnitas should be also be paid

from the Salvation Army sale proceeds. As Rogelio testified at his deposition, he

understood the sale to the Salvation Army would benefit Alfonso’s Carnitas Inc., by paying

off whatever taxes were owed, whoever was owed. As the Magistrate Judge noted, this did

not happen. The sale paid off the Applewood funding, Defendant Hernandez’s personal tax

debt, and reimbursed Defendant Callahan between $40 to $50,000 for the monthly loan

payments she had made on the Applewood funding. There was approximately $135,000 to

$145,000 remaining, which remained in Defendant Hernandez’ control. Most importantly, it

is undisputed that approximately $47,000 in employment tax remains due and owing from

Alfonso’s Carnitas Inc. 

To succeed with its claim, the United States must establish its creditor status, a property

transfer, and actual or constructive fraud on the part of the transferor. The Court agrees with

the Magistrate Judge’s assessment. First it is undisputed that Alfonso’s Carnitas Inc. owes

unpaid employment taxes under EIN xx-xxx8725, the EIN number under which it was

operated and filed returns. The United States is, therefore a creditor. (R&R at 8-9.)

It is also undisputed that the Alfonso’s Carnitas Inc. transferred the property at issue

here to the Defendants by a Joint Tenancy Deed, recorded on May 9, 2007. Id. at 9. It is

undisputed that the Defendants are blood-relatives of Rogelio Hernandez, the President of

Alfonso’s Carnitas Inc. and owner of Alfonso’s Carnitas, and that Hilda is his mother and

Treasurer of Alfonso’s Carnitas Inc. No reasonable juror could find the Defendants are not

insiders. The ten dollars received by Alfonso’s Carnitas Inc for the transfer establishes that

there was no consideration received reasonably equivalent in value to the asset transferred. 

It is undisputed that Alfonso’s Carnitas Inc. retained possession and control of the property

after the transfer; the transfer involved substantially all the assets of the debtor, Alfonso’s

Carnitas Inc., and Alfonso’s Carnitas Inc. became insolvent after the transfer. The Court

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agrees with the Magistrate Judge that an overwhelming number of the statutory factors for a

finding of actual fraud exist in this case. (R&R at 9-14.)

The Defendants must come forward with “strong, clear evidence” to repel the

conclusion of fraudulent intent because several badges of intent are present in this case. 

Gerow v. Covill, 960P.2d 55, 63 (Ariz. App. 1998). The Court agrees with the Magistrate

Judge that as to Defendant Hilda Hernandez, due to her involvement as an officer of

Alfonso’s Inc, her assertions that the IRS or the Title Company made mistakes are

insufficient. The Court finds, as a matter of law pursuant to the AFTA, that the transfer

from Alfonso’s Carnitas Inc. to the Defendants to be sold to the Salvation Army, thereafter,

was intentionally fraudulent.

The Magistrate Judge correctly found that at a minimum, the Government has

established constructive fraud because: the debtor, Alfonso’s Carnitas Inc., made the transfer

without receiving reasonable consideration and the debtor was insolvent at the time or

became insolvent as a result of the transfer. A.R.S. § 44-1005. Defendant Callahan cannot

escape this finding.

The Magistrate Judge correctly recommends that Summary Judgment be entered only as

to Defendant Hernandez because material issues of fact exist as to Defendant Callahan. She

was not an officer of Alfonso’s Carnitas Inc. and there remains a question of whether she

knew about the tax lien against it. It is undisputed that she made the payments on the

$325,000 Applewood loan. “‘A good-faith transferee is entitled, to the extent of the value

given the debtor for the transfer or obligation, to . . . [a] reduction in the amount of liability

on the judgment.’” (R&R at 16 (quoting A.R.S. § 44-1008(D)(3).”

CONCLUSION

After de novo review of the issues raised in Defendants’ Objection, this Court agrees

with the findings of fact and conclusions of law made by the Magistrate Judge in her R&R

for determining the pending Motion for Summary Judgment. The Court adopts it, and for

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the reasons stated in the R&R, the Court grants it in part as to Defendant Hernandez and

denies it in part as to Defendant Callahan. 

Accordingly,

IT IS ORDERED that after a full and independent review of the record, in respect to

the objections, the Magistrate Judge’s Report and Recommendation (Doc. 45) is accepted

and adopted as the findings of fact and conclusions of law of this Court.

IT IS FURTHER ORDERED that the Government’s Motion for Summary Judgment

(document 28) is GRANTED IN PART AND DENIED IN PART.

IT IS FURTHER ORDERED that the Motion to Dismiss (Doc. 29) is DENIED and

treated herein as the Response to the Motion for Summary Judgment. 

IT IS FURTHER ORDERED WITHDRAWING THE REFERENCE from Magistrate

Judge Rateau. This matter shall be tried as to Defendant Callahan by the Honorable David

C. Bury.

IT IS FURTHER ORDERED that the parties shall file a Joint Pretrial Order by March

3, 2013. (See attached form of Order.)

IT IS FURTHER ORDERED that the Clerk of the Court shall enter Judgment for the

Government and against Defendant Hernandez. 

DATED this 20th day of February, 2013.

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FORM OF PRETRIAL ORDER

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

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Plaintiff, )

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v. ) CV TUC DCB

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) JOINT PROPOSED PRETRIAL ORDER

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Defendant. )

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(Although the text of the pretrial order appears in single space, the actual order submitted by

the parties must be double spaced and conform in all other respects to the Local Rules.) 

The following are pretrial proceedings in this cause as agreed to by the parties and

approved by the Court:

I. NATURE OF ACTION

This is an action for: (Short concise statement of the case, including the nature of the

action and the relief sought.)

II. STATEMENT OF JURISDICTION

Statement of jurisdiction: (state the claims and cite the statutes which give this Court

jurisdiction over each claim.)

III. CONTESTED ISSUES OF LAW/FACT

State the ultimate issues of fact and law which must be decided at trial. State only the

issues of fact and law necessary and material for a verdict in this case. Each issue must be

stated separately and specifically.

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IV. LIST OF EXHIBITS

Each party shall list the exhibits it intends to offer at trial.

V. LIST OF WITNESSES

Each party shall list the witnesses it intends to call at trial.

VI. JURY TRIAL or BENCH TRIAL

The parties shall state whether the trial is a jury or bench trial.

For a Jury Trial

At the Pretrial Conference, the Court will direct the parties to file proposed voir dire,

objections to exhibits, deposition testimony, stipulated jury instructions, stipulations,

counsel’s additional proposed jury instructions, motions in limine, and trial memoranda 20

days prior to trial. Any opposition shall be filed five days thereafter.

For a Bench Trial

At the Pretrial Conference, the Court will direct the parties to file trial briefs,

objections to exhibits, motions in limine, stipulations, and proposed findings of fact and

conclusions of law 20 days prior to trial. Any opposition shall be filed five days thereafter.

VII. PROBABLE LENGTH OF TRIAL

Each party shall identify the estimated length of time it will take to present its case.

VIII. CERTIFICATION

The undersigned counsel for each of the parties in this action do hereby approve

and certify the form and content of this proposed Joint Pretrial Order. 

_____________________________ ___________________________

Attorney for Plaintiff Attorney for Defendant

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