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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 11-cv-02292-CMA-KLM

UNITED STATES OF AMERICA,

Plaintiff,

v.

JAMES D. WELCH, individually, and

AMRA WELCH, as nominee/alter ego of James D. Welch,

Defendants.

_______________________________________________________________________

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

_______________________________________________________________________

ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX

This matter is before the Court on Plaintiff’s Renewed Motion for Summary

Judgment [Docket No. 103; Filed April 29, 2013] (the “Motion”). On June 17, 2013,

Defendant Jim D. Welch (“Defendant Welch”) filed a Response [#108]. On July 2, 2013,

Plaintiff filed a Reply [#109]. The Motion has now been fully briefed. Pursuant to 28 U.S.C.

§ 636(b)(1) and D.C.COLO.L.Civ.R. 72.1.C., the Motion has been referred to this Court for

recommendation [#104]. Having considered the pleadings and the docket in this case, the

Court is fully advised of the issues. For the reasons set forth below, the Court respectfully

RECOMMENDS that Plaintiff’s Motion [#103] be GRANTED.

I. Statement of the Case and the Parties’ Arguments

A. Background

The above-captioned lawsuit was brought by Plaintiff United States of America on

August 31, 2011 [#1]. The purpose of the lawsuit was to recover unpaid taxes allegedly

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owed by Defendant Welch to Plaintiff. Specifically, Plaintiff sought “[1] to reduce to

judgment the outstanding federal tax liabilities assessed against James D. Welch and [2]

to foreclose federal tax liens against a parcel of real property located in Colorado . . . .”

Compl. [#1] ¶ 1. The property at issue is referred to throughout this Recommendation and

the parties’ pleadings as the “Real Property” and is located at “Lot 2, in Black Forest

Square Filing No. 1, in El Paso County, Colorado, according to the plat thereof recorded

August 28, 1998, at Reception No. 98123605.” Id. ¶ 10; Routledge Ex. N, Warranty Deed

[#65-14]; Routledge Ex. O, Quitclaim Deed [#65-15]. 

The Complaint alleged that Defendant Welch bought the Real Property with his own

funds, transferred title to Celestial Pursuits Trust (the “CP Trust”), of which he was sole and

Executive Trustee, in 1999, and then transferred title from the CP Trust to his daughter,

Defendant Amra Graff, formerly Amra Welch (“Graff”). Compl. [#1] ¶¶ 11-13, 21; see Decl.

of Anthony Roybal (“Roybal Decl.”) [#64] ¶ 7; Routledge Ex. O, Quitclaim Deed [#65-15];

Watson Ex. B, Dep. of Graff [#66-2] at 9:15. Defendant Welch verifies in his Response that

he used his personal funds to purchase the Real Property “for and on behalf of [the CP]

trust and its beneficiaries.” Response [#108] ¶ 19. He further alleges that the Real

Property reverted back to him after the District Court of El Paso County ruled the CP Trust

“null and void,” and that he subsequently gifted the Real Property to Defendant Graff. Id.

¶¶ 20-21. However, Defendant Welch argues in his Response that these transactions are

irrelevant to the present action, as the present action is not brought against “Jim Davis

Welch,” the individual engaged in these transactions, but against “JIM DAVIS WELCH” (the

“JIM Trust”), “a trust which was created by the Social Security Administration.” Id. ¶ 8.

B. Tax Liability

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On May 25, 2000, the Internal Revenue Service (“IRS”) received a Form 1040, U.S.

Individual Income Tax Return, filed by Defendant Welch for tax year 1998. Routledge Ex.

C, Form 1040 for 1998 [#65-3]. On the Form 1040, Defendant Welch claimed that he had

no income for the tax year of 1998. Id. Plaintiff enclosed with the 1998 Form 1040 a twopage memorandum challenging the authority of the IRS to collect taxes. Id.; Watson Ex.

A, Dep. of Welch [#66-1] at 30-33. According to evidence entered by Plaintiff, Defendant

Welch failed to report three items of income on his 1998 tax return: $1,722,217 in gain from

the sale of stock; $6,000 in nonemployee compensation; and $10,162 in taxable interest.

Watson Ex. A, Dep. of Welch [#66-1] at 12-16; Routledge Ex. D, Income Tax Examination

Charges [#65-4] at 2.

On May 25, 2000, the IRS also received a Form 1040, U.S. Individual Income Tax

Return filed by Defendant Welch for 1999. Routledge Ex. F, Form 1040 for 1999 [#65-6].

Defendant Welch again claimed that he had no income and enclosed a two-page

memorandum challenging the authority of the IRS to collect taxes. Id.; Watson Ex. A, Dep.

of Welch [#66-1] at 33-35. According to Plaintiff, Defendant Welch failed to report income

on his 1999 tax return: specifically, $4,374,047 in income from stock sales, as well as

$5,058 in taxable interest. Motion for Summary Judgment (“First Motion”) [#63] at 4 (citing

Watson Ex. A, Dep. of Welch [#66-1] at 17-21). 

The Forms 1040, together with their attachments challenging the authority of the IRS

to collect taxes, were referred to the IRS Penalty Screening Committee for consideration

of whether Defendant Welch should be assessed a penalty for filing a fraudulent return.

1st Routledge Decl. [#65] ¶¶ 13-18. On July 10, 2000, and August 25, 2000, the IRS sent

Defendant Welch letters informing him that the Forms 1040 submitted for tax years 1998

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and 1999 were frivolous and advising Defendant Welch that if he did not file corrected

returns, a fraudulent return penalty would be assessed under 26 U.S.C. § 6702. 1st

Routledge Decl. [#65] ¶¶ 15-17; Routledge Ex. J, July 10th Letter 3176 [#65-10] at 2;

Routledge Ex. K, August 25th Letter 3176 (1999 penalties) [#65-11] at 2; Routledge Ex. L,

August 25th Letter 3176 (1998 penalties) [#65-12] at 2. On August 30, 2001, when

Defendant Welch failed to file corrected returns for either tax year, the IRS Penalty

Screening Committee approved the imposition of frivolous return penalties. 1st Routledge

Decl. [#65] ¶ 18; Routledge Ex. M, Penalty Screening Committee Case Approval Record

[#65-13]; 1st Routledge Decl. [#65] ¶¶ 13-14; Routledge Ex. H, Certificate of Assessments,

Payments, and Other Specified Matters for 1998 Civil Penalty (“Form 4340 for 1998

Penalties”) [#65-8]; Routledge Ex. I, Certificate of Assessments, Payments, and Other

Specified Matters for 1999 Civil Penalty (“Form 4340 for 1999 Penalties”) [#65-9].

The IRS also assessed federal income tax liabilities against Welch for tax years

1998 and 1999. 1st Routledge Decl. [#65] ¶¶ 7-18; Routledge Ex. B, Certificate of

Assessments, Payments, and Other Specified Matters for 1998 Income Tax Return (“Form

4340 for 1998 Liability”) [#65-2]; Routledge Ex. E, Certificate of Assessments, Payments,

and Other Specified Matters for 1999 Income Tax Return (“Form 4340 for 1999 Liability”)

[#65-5]. On August 13, 2003, a Notice of Deficiency concerning these tax liabilities was

sent to Defendant Welch by certified mail. 1st Routledge Decl. [#65] ¶ 12; Routledge Ex.

G, Notice of Deficiency [#65-8]. While attempting collection of these liabilities, on May 20,

2008, IRS Revenue Officer Anthony Roybal (“Roybal”) interviewed Defendant Welch.

Roybal Decl. [#64] ¶¶ 3-4. Mr. Roybal asserts that during that interview, Defendant Welch

admitted to selling substantial amounts of stock in 1999 as part of the settlement of his

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 Mr. Roybal does not discuss how much income Welch received from this sale.

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divorce from his ex-wife.1 Id. Notably, Defendant Welch reported no income for 1999.

Routledge Ex. F, Form 1040 for 1999 [#65-6]. 

C. Issues Remaining for Determination

Plaintiff initially sought to foreclose its federal tax lien on the Real Property to satisfy

Defendant Welch’s outstanding tax liabilities for the years 1998 and 1999. First Motion

[#63] at 8. The Court found that, although the United States was entitled to judgment as

a matter of law concerning “the validity of the tax lien and Defendant Graff’s status as

nominee of Defendant Welch,” the exact amount of those liabilities could not be determined

from the evidence submitted in support of Plaintiff’s First Motion. Recommendation [#101]

at 35. Therefore, the Court declined to make a summary determination of the

government’s entitlement to interest and penalties without knowing that the amount cited

in the INTSTD Calculations of Liability had been drawn “accurately and directly drawn from

the presumptively valid assessment figures found in the Forms 4840.” Id. at 27. The Court

recommended granting summary judgment, excepting only the accuracy of the precise

amount of tax liability requested. Id. The District Judge adopted the Recommendation on

April 8, 2013. Order Adopting and Affirming the Recommendation [#102] at 2. 

In its Recommendation, the Court noted that it “would be prepared to find fully in

Plaintiff’s favor regarding the amount of the valid tax lien” once Plaintiff demonstrated to the

Court “in a transparent manner how the liability it request[ed] follow[ed] from the valid

assessments presumed from the Forms 4340.” Recommendation [#101] at 26. Plaintiff’s

present Motion seeks to clarify the connections between the tax assessments that the

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Court found to be valid and the precise amount of tax liability requested, detailing how

these valid assessments are the direct source of the information found in the INTSTD

reports. Motion [#103] at 3-7; Routledge Ex. A, INTSTD Calculations of Liability [#65-1].

Defendant Welch’s Response does not directly address the validity of these

calculations of liability. Instead, Defendant Welch makes three arguments; he argues that

(1) “neither of the alleged defendants received service with respect to the Court’s

Recommendations;” (2) the Court has presumed that Plaintiff is entitled to judgment “as a

matter of law” without references to law supporting its holding of Defendant Welch’s liability

as a taxpayer; and (3) “[t]he title given to the SSA account is not a proper name, and does

not reference the human Jim Davis Welch.” Response [#15] ¶¶ 1, 2, 8, 9. Defendant

Welch also argues that “a correct understanding of the nature and inter-relationship of the

parties [ ] requires the Court must [sic] strike all pleadings up to this point from the

Defendant Jim Davis Welch[.]” Id. ¶ 7.

II. Standard of Review

A. Summary Judgment

Summary judgment is proper when the record before the Court “show[s] that there

is no genuine issue as to any material fact and that the movant is entitled to judgment as

a matter of law.” Fed. R. Civ. P. 56(c). A dispute is “genuine” if the outcome could be

decided in favor of either party. Farthing v. Shawnee, 39 F.3d 1131, 1135 (10th Cir. 1994).

A disputed fact is “material” if under the relevant substantive law it is essential to proper

disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir.

2001). Only disputes over material facts can create a genuine issue for trial and preclude

summary judgment. Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir.

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2005). 

Where the movant bears the ultimate burden of proof at trial, it must submit evidence

to establish every element of its claims. In re Ribozyme Pharm. Inc. Sec. Litig., 209 F.

Supp. 2d 1106, 1111 (D. Colo. 2002). Once the Motion has been properly supported, the

burden shifts to the non-movant to show the existence of a genuine dispute of a material

issue by going beyond the allegations in its pleading and providing “specific facts showing

there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). To

satisfy its burden of providing specific facts, the nonmoving party must tender affidavits or

other competent evidence. Concrete Works, Inc. v. City & Cnty. of Denver, 36 F.3d 1513,

1517 (10th Cir. 1994). The factual record and inferences therefrom are viewed in the light

most favorable to the nonmoving party. Byers v. Albuquerque, 150 F.3d 1271, 1274 (10th

Cir. 1998). However, the Court is not obligated to consider conclusory statements or

testimony based on conjecture, subjective belief, or inadmissible evidence. Rice v. United

States, 166 F.3d 1088, 1092 (10th Cir. 1999). The nonmoving party’s evidence must be

more than “mere reargument of [his] case or a denial of an opponent’s allegation” or it will

be disregarded. See 10B Charles Alan Wright et al., Federal Practice and Procedure §

2738 at 356 (3d ed.1998).

Finally, the Court must construe the filings of a pro se litigant liberally. See Haines

v. Kerner, 404 U.S. 519, 520-21 (1972); Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.

1991). However, the Court should not be the pro se litigant’s advocate, nor should the

Court “construct a legal theory on [his or her] behalf.” Whitney v. New Mexico, 113 F.3d

1170, 1173-74 (10th Cir. 1997) (citing Hall, 935 F.2d at 1110). In addition, pro se litigants

must follow the same procedural rules that govern other litigants. See Nielson v. Price, 17

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F.3d 1276, 1277 (10th Cir. 1994).

III. Analysis

The Court permitted Plaintiff to submit another dispositive motion “for determination

of the total amount of liability in light of these concerns for accuracy on the face of a valid

assessment.” Recommendation [#101] at 27. Defendants were informed that they could

respond in accordance with the Federal Rules of Civil Procedure and the Local Rules of

this Court. Id.

A. Validity of Plaintiff’s Liability Calculations

At the time of the filing of its First Motion on October 3, 2012, Plaintiff contended that

Defendant Welch’s outstanding tax liability was $6,601,594.09. First Motion [#63] at 14;

1st Routledge Decl. [#65] ¶ 4. To support this claim, Plaintiff provided Forms 4340 for the

years in question. Routledge Ex. B, Form 4340 for 1998 Liability [#65-2]; Routledge Ex.

E, Form 4340 for 1999 Liability [#65-5]; Routledge Ex. H, Form 4340 for 1998 Penalties

[#65-8]; Routledge Ex. I, Form 4340 for 1999 Penalties [#65-9]. Accordingly, the

government’s assessment was entitled to a presumption of correctness. See United States

v. McMullin, 948 F.2d 1188, 1192 (10th Cir. 1991) (holding that a presumption of

correctness attaches to the Commissioner’s assessment, once some substantive evidence

is introduced demonstrating that the taxpayer received unreported income); but see Doyal

v. Comm’r of Internal Revenue, 616 F.2d 1191, 1192 (10th Cir. 1980) (citing Helvering v.

Taylor, 293 U.S. 507, 515 (1935), for the holding that it was proper to remand a case in

which the taxpayer had proved the amount of the Commissioner’s assessment to be

arbitrary and excessive). The sum of $6,601,594.09 requested in Plaintiff’s first motion

seemed to be taken from the First Declaration of Lee Routledge (“Routledge”), Technical

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Advisor of the IRS, who determined the figure using the INTSTD computer program to

compute the tax liability, penalties, and applicable interest. 1st Routledge Decl. [#65] ¶¶

3-4. In support of its Motion, Plaintiff has submitted the Second Declaration of Lee

Routledge, which described in great detail how the documents submitted in connection with

the original Motion for Summary Judgment (specifically, copies of the Forms 4340,

Certificate of Assessments, Payments, and Other Specified Matters for Jim D. Welch and

reports generated by the IRS Integrated Data Retrieval System) were used to determine

that Defendant Welch’s federal income tax liabilities are $6,601,594.09 as of September

30, 2012, plus applicable statutory accruals from that date. 2nd Routledge Decl. [#103-1]

¶¶ 6-16. 

In this second declaration, Routledge explains that in order to compute an accurate

current balance due with respect to Defendant Welch’s tax assessments, “credit entries

(such as payments or adjustments) must be subtracted from, and accrued interest amounts

must be added to, the assessed amounts.” Id. ¶ 6. He also explains that the “IDRS

INTSTD module is used to track up-to-date interest and penalty calculations for balances

owed.” Id. Routledge explained that “the INTSTD module in IDRS was used to calculate

the amount of accrued tax, interest[,] and penalties due, as of September 30, 2012, on

assessments made against [Defendant] Welch for the periods and liabilities at issue in this

case.” Id. According to Routledge, “the first page of each INTSTD module printout is a

summary for each period,” containing the following items: 

a. total assessed amount (ASSESSED TOTAL), which is made up of

assessed failure to pay penalties (“ASSESSED FTP”), assessed interest

(“ASSESSED INT”) and assessed tax and penalties (“TAX & PENALTY”);

b. total accruals that have continued to accrue pursuant to I.R.C. §§ 6601,

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6621(a)(2), and 26 C.F.R. 301.6621-1, but have not yet been assessed

(“TOTAL ACCRUALS”), which is made up of accrued but unassessed failure

to pay penalties (“ACCRUED FTP”) and accrued but unassessed interest

(“ACCRUED INT”); 

c. the combined amounts (both assessed and accrued) for interest (“TOTAL

INT”); and for failure to pay penalties (“TOTAL FTP”); 

d. the total “BALANCE DUE” is the sum of “ASSESSED TOTAL” and “TOTAL

ACCRUALS” 

Id. ¶ 8. Routledge also explained that the “assessed amounts [sic] reflected on each of the

INSTD modules is exactly the amount listed as being assessed by the respective Forms

4340, with one exception.” Id. ¶ 10 (emphasis added). He clarifies this exception for the

Court, explaining that “the INSTD module . . . includes an assessment of $54.00 for fees

and collections costs, made on December 27, 2010[, and that this] amount is not reflected

on the Form 4340 for that tax period and type, as that Form 4340 was prepared on March

18, 2010, prior to the assessment.” Id. Routledge continues by explaining precisely how

the INSTD module calculates variable interest rates pursuant to I.R.C. § 6621(a)(2) and

penalties for failure to pay pursuant to I.R.C. § 6651. Id. ¶¶ 11-15.

After considering this detailed analysis of Defendant Welch’s federal income tax

liabilities, the Court is assured that the INSTD computations draw directly from the

presumptively valid assessments, and that the outstanding balance claimed in Plaintiff’s

Motion follows logically from the figures represented on the Forms 4340. 

B. Defendant Welch’s Response

Because Plaintiff has properly supported its Motion, the burden now shifts to

Defendants to show the existence of a genuine dispute of a material issue by going beyond

the allegations in their pleading and providing “specific facts showing there is a genuine

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issue for trial.” Celotex, 477 U.S. at 324. Defendant Welch makes three arguments in his

Response to Plaintiff’s Motion; he argues that (1) Defendants never received the

Recommendation; (2) the Court did not cite law supporting Defendant Welch’s liability as

a taxpayer; and (3) the JIM Trust, and not Defendant Welch, is the proper defendant in this

case. Response [#15] ¶¶ 1, 2, 8, 9. In connection with this last argument, Defendant

Welch argues that “a correct understanding of the nature and inter-relationship of the

parties [ ] requires the Court must [sic] strike all pleadings up to this point from the

Defendant Jim Davis Welch[.]” Id. ¶ 7.

1. Service

Defendant Welch alleges in his Response that “neither of the alleged defendants has

received service with respect to the Court’s Recommendations.” Response [#15] ¶ 1. He

further alleges that had Defendants received such service, they would have been able to

object in a timely manner. Id. Instead, Defendant Welch’s filings allege that he had no

opportunity to respond until he and Defendant Graff received the Renewed Motion for

Summary Judgment on or about May 3, 2013. Unopposed Motion for Extension of Time

[#105] ¶ 1. 

The Court first notes that Defendants made no mention in their Motion for Extension

of Time [#105] (filed May 16, 2013) that they did not receive the Recommendation. Id.

Further, Defendants do not aver that they failed to receive the District Judge’s Order

Adopting and Affirming the Recommendation [#102] (issued April 8, 2013). All parties,

including those proceeding pro se, have an obligation to keep the Court apprised of their

current address. See D.C.COLO.LCivR 10.1.M. To any extent the Court was allegedly

unable to provide Defendants with a copy of the Recommendation, the fault lies with

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Defendants. The Recommendation was electronically served to Plaintiff’s counsel and

mailed by the Court to each Defendant at the addresses on record with the Court at that

time. See CM/ECF Notice of Electronic Filing for Docket No. 101. Review of the docket

indicates that no mail was returned to the Court as undeliverable. Further, there is no

indication that Defendant Graff’s mailing address has changed at any time relevant to this

discussion. Defendant Welch makes no allegation in the Response that his own address

has changed, although he provides the Court with a new mailing address for the JIM Trust.

Response [#108] ¶ 27. This suggests that Defendant Welch has either received the

Recommendation or has failed to inform the Court of his current mailing address; in either

case, Defendant Welch bears responsibility for not receiving a copy of the

Recommendation. 

Accordingly, the Court finds that Defendant Welch’s argument on this point has no

bearing on the issues presented in the instant Motion, and is therefore rejected as without

merit.

2. Defendant Welch’s Liability as a Taxpayer “As a Matter of Law”

Defendant Welch argues that the Court has presumed “as a matter of law” that

Plaintiff was entitled to summary judgment, but that this presumption was made without

citation to law that would make “the regulations at Title 26 of the US Code binding upon

[Defendants].” Response [#108] ¶ 2. Defendant Welch then challenges the applicability

of the Sixteenth Amendment, arguing that it fails to impose liability for a tax. Id. (citing Peck

v. Lowe, 247 U.S. 165 (1918)). Numerous courts, including the Tenth Circuit, have “both

implicitly and explicitly recognized that the Sixteenth Amendment authorizes a

non-apportioned direct income tax on United States citizens and that the federal tax laws

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as applied are valid.” The Truth About Frivolous Tax Arguments, Internal Revenue Service,

32 (Mar. 4, 2013), http://www.irs.gov/pub/irs-utl/friv_tax.pdf (last viewed on July 24, 2013);

see United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990) (“For seventy-five years,

the Supreme Court has recognized that the [S]ixteenth [A]mendment authorizes a direct

nonapportioned tax upon United States citizens throughout the nation, not just in federal

enclaves; efforts to argue otherwise have been sanctioned as frivolous.” (citations omitted))

(relying on Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916)); Fifteenth Str. Inv. Co.

v. Nicholas, 23 F. Supp. 863, 864 (D. Colo. 1938) (“The Congress always had power to tax

income; the 16th Amendment merely removed the limitations on the power found in Art. 1,

§ 2, Cl. 3 and Art. 1, § 9, Cl. 4 of the Constitution . . . , requiring apportionment of taxes on

income among the states.”) (citations omitted). Not only is this a purely baseless and

frivolous legal argument, but it has no bearing on the issue remaining in this case. The

Court has already granted summary judgment as a matter of law in favor of Plaintiff

concerning the validity of the tax lien and the authority of the United States to foreclose said

lien against the Real Property. Recommendation [#101] at 37; Order Adopting and

Affirming Recommendation [#102] at 2. The only issue remaining is the validity of the full

amount sought by Plaintiff, and Defendant Welch’s frivolous legal assertions fail to establish

a genuine dispute of the material facts pertaining to that issue. See Celotex, 477 U.S. at

324. 

3. The JIM Trust Argument

Defendant Welch purports to believe that the SSA created JIM DAVIS WELCH, or

the “JIM Trust,” when it assigned him a Social Security number (“SSN”) and Social Security

card (“SSC”) on or about January 15, 1968. To reflect this and to verify the existence of

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the JIM Trust in writing, Defendant Welch drafted a document labeled “Simple Social

Security Trust” (“Trust Agreement”). See Response [#108] at 9. Defendant Welch sent the

Trust Agreement, together with a cover letter labeled “Request for Amendment,” to the

Office of Central Operations of the SSA on May 21, 2013. Id. at 8, 9, 11. Styled as an

agreement between the SSA and the Jim Trust, with Defendant Welch identified as the

trustee, it provides:

ORIGIN: In accord with the “Social Security Act of 1935" . . . , the Social

Security Administration (hereinafter “SSA”) created this Trust without written

indenture; by delivering property, the ownership of which they reserved to the

United States Government, to the Kingdom of Israel Steward, Jim Davis

Welch, asking if that property could be held in a Trust, of the name and

Social Security Number (hereinafter “SSN”) printed on the so provided social

security card (hereinafter “SSC”) . . . . Printed upon said SSC is this Trust’s

name, Social Security Number and a place for the Trust’s signature . . . .

TRUSTEE: This Trust was created with a name that sounds nearly or exactly

like the name of the child of God; who, by Covenant to obey God’s Law of

Consecration, only has the capacity of a Steward in the Kingdom of Israel as

exemplified in a controlling Instrument of Acknowledgment. This Trust is

neither said child nor that Stewardship and can in no ways act as an alter

ego or nominee of either . . . .

SOCIAL SECURITY NUMBER (SSN): The Creator assigned the SSN to

distinguish this Trust from any other person of a same or similar name.

Where the names of the Trust and said child are so similar as to sound

identical and are only distinguishable by punctuation and or [sic]

capitalization in spelling, the SSN so assigned, and or any other respective

Taxpayer Identification Number (TIN), must be used to designate: tax

payments, ownership and/or acquisition of assets, accounts and/or property

held separately by the Trust.

VERIFICATION: This instant instrument (hereinafter “Trust Indenture”)

acknowledges, verifies and secures the nature of the relationship SSA

created between the parties listed herein. This Trust Indenture was

generated by this Trust and presented to SSA with a Request for

Amendment to SSA’s records for this taxpayer (this Trust) to verify the terms

of this Trust Indenture and the facts of the Trust’s creation and existence as

related herein.

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Id. at 9-10 (notations in original). Although it is dated May 15, 2013, the Trust Agreement

purports to reflect the creation of the JIM Trust over forty-five years prior. Id. at 10.

Defendant Welch’s signature appears at the bottom, while the SSA’s agreement is stated

to be evidenced by the “signature acts . . . of issuing the Trust’s name and SSN[,]

distributing the Social Security Card, maintaining [an] open accounting under said SSN,

accepting and distributing funds in regard to the same, [and] amending the record or by

[sic] tacit admission to the same.” Id.

The SSA does not manifest the intention required to create a trust merely by

assigning individuals an SSN and SSC. See Restatement (Second) of Trusts §§ 23, 25

(1959). Additionally, the touchstone for assigning SSNs is “true identity.” See 42 U.S.C.

§ 405(c)(2)(B)(ii); 20 C.F.R. §§ 422.103(c)(1), 422.107(a), 422.110(a). However,

Defendant Welch’s argument that the JIM Trust is the true and accurate holder of the SSN

is foreclosed by the statutory and regulatory scheme, which makes it clear that only natural

persons are eligible to be assigned an SSN. See 42 U.S.C. § 405(c)(2); 20 C.F.R. §§

422.103(a), (b)(1), (d), 422.104(a); 26 C.F.R. § 31.6011(b)-2(a)(ii)-(iii). Although not

directly addressed by the Tenth Circuit, this same argument has been repeatedly rejected

by other courts as frivolous. See, e.g., Lizalek v. Comm’r of Internal Revenue, 97 T.C.M.

(CCH) 1639, 2009 WL 1530160, at *4 (T.C. June 1, 2009); Van De Berg v. Soc. Sec.

Admin., 254 F.R.D. 144, 146-47 (D.D.C. 2008) (describing plaintiff’s argument that the SSA

created a trust that borrowed his consciousness and physical capacity when it provided him

a social security card as “clearly baseless” and “frivolous”); Bond v. Comm’r of Revenue,

691 N.W.2d 831, 837-38 (Minn. 2005); Smith v. United States, No. Civ. 05-6103-AA, 2005

WL 3303939, at *1 (D. Or. Dec. 5, 2005).

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In a similar and persuasive case, the Minnesota Supreme Court rejected a

taxpayer’s claim that the SSA has established trusts with individual taxpayers, holding that

a taxpayer who earned taxable income cannot avoid tax liability by alleging a Social

Security trust. Bond, 691 N.W.2d 831. The Court further upheld a penalty for the

taxpayer’s filing of a frivolous return. Id. at 839. Before filing his returns for tax year 2000,

the taxpayer in Bond attempted to secure from the SSA “an actual irrevocable written

‘Simple Social Security Trust’ named ‘FREDERICK O. BOND.’” Id. at 834. The taxpayer

claimed that “the Trust already existed, having been established in March 1963, but he

wanted the Trust’s terms in writing.” Id. The taxpayer sent to the SSA a document,

referred to by the Bond court as the Trust Document, setting out the Trust’s specific terms,

naming “the SSA as the Creator of the Trust, the SSA General Trust Fund as the

Beneficiary, and himself as the Trustee.” Id. The Trust Document also “allowed income

from the Trust to pay ‘A Reasonable Wage’ to the Trustee, including all of the Trustee’s

living expenses.” Id. The taxpayer signed the Trust Document, but the Trust Document

did not provide a signature line for the SSA, and no signature was obtained from the SSA.

Id. The Bond court upheld the tax court’s determination that the taxpayer had not shown

the existence of a trust. Id. at 838; see United States v. Meek, 998 F.2d 776, 778 (10th Cir.

1993) (upholding taxpayer’s conviction of willfully failing to file an income tax return and

willfully attempting to evade taxes because his “trust” had been formed through his

membership in an organization that provided its members the opportunity to warehouse

their funds until directed to disburse them); see also The Truth About Frivolous Tax

Arguments , Internal Revenue Service, 37 (Mar. 4, 2013),

http://www.irs.gov/pub/irs-utl/friv_tax.pdf (last viewed on July 24, 2013) (“[T]he IRS warned

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that taxpayers may not eliminate their federal income tax liability by attributing income to

a trust and claiming expense deductions related to that trust.”) (citing Rev. Rul. 2006-19,

2006-1 C.B. 749).

The purpose of Social Security is not to create trusts with individual taxpayers, but

is to provide social insurance for the “security of the men, women, and children of the

Nation against certain hazards and vicissitudes of life.” Economic Security Act Hearings

Before the Committee on Ways and Means House of Representatives, 74th Cong. 13

(1935) (Message from the President of the United States Transmitting A Recommendation

for Legislation on the Subject of Economic Security). Defendant Welch claims that the

following “signature acts” provide evidence of the SSA’s intent to establish the JIM DAVIS

WELCH Trust: (1) the issuance of a SSN to the JIM Trust; (2) the distribution of a SSC to

the JIM Trust; (3) the holding open of an account under the JIM Trust’s issued SSN; (4) the

accepting and distributing of funds in said account; and (5) the tacit admission of Defendant

Welch’s request to amend the JIM Trust’s account. Response [#108] at 10. For the

reasons stated above, the Court concludes that these acts do not create a genuine issue

of material fact as to whether the SSA intended to create a trust.

Even assuming there were any grounds for finding the existence of an SSA-created

trust named JIM DAVIS WELCH, the simple fact that Defendant Welch’s name has

appeared on tax assessments or Court documents with all capital letters does not suggest

that the Plaintiff’s Complaint, the Forms 4340, or the alleged tax liability apply to any other

than Jim Davis Welch, the individual. See Ford v. Pryor, 552 F.3d 1174, 1179 (10th Cir.

2008) (holding that the argument that a summons did not identify taxpayer because his

name was typed in all capital letters was “wholly frivolous”); United States v. Luginbyhl, No.

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06-cr-0206-CVE, 2007 WL 2344911, at *1 (N.D. Okla. Aug.16, 2007) (same, citing multiple

cases); see also Johnson v. Comm’r, T.C. Memo.1999-312, aff’d 242 F.3d 382 (9th Cir.

2000) (holding that petitioner’s contention that “he was not the taxpayer named in the notice

of deficiency because the name on the deficiency notice was spelled in capital letters, and

that corporations, not individuals, spell their names with capital letters” was frivolous);

United States v. Jagim, 978 F.2d 1032, 1036 (8th Cir.1992) (holding, in response to a

similar argument, that “[t]hese issues are completely without merit, patently frivolous, and

will be rejected without expending any more of this Court’s resources on their discussion”).

The Court finds that Defendant Welch’s argument is “wholly frivolous,” and these frivolous

legal assertions fail to establish either a genuine dispute of the material facts pertaining to

that issue or grounds for striking Defendant Welch’s previous filings. See Celotex, 477 U.S.

at 324. 

Defendant Welch has failed to provide any information to refute or rebut the

information submitted in connection with Plaintiff’s Renewed Motion for Summary Judgment

[#103]. Instead, Defendant Welch’s Response offers only frivolous arguments and

conclusory claims in an attempt to satisfy his burden as the nonmoving party and does not

sufficiently satisfy Defendant Welch’s burden of providing “specific facts showing there is

a genuine issue for trial.” Id. Plaintiff has met its burden of showing that no genuine issue

of material fact exists and that it is entitled to judgment as a matter of law concerning the

validity of the tax lien and the accuracy of the precise amount of tax liability requested.

Accordingly, the Court recommends that Plaintiff’s Motion be granted and that the Court

enter judgment against Defendant Welch in the amount of $6,601,594.09 as of September

30, 2012, plus applicable statutory accruals (specifically, interest and statutory additions

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accrued but unassessed, as provided by 28 U.S.C. § 1961(c)(1) and 26 U.S.C. §§ 6601,

6621, 6651, 6654; 26 C.F.R. § 301.6621-1), from that date.

IV. Conclusion

For the reasons stated above, the Court respectfully RECOMMENDS that Plaintiff’s

Renewed Motion for Summary Judgment [#103] be GRANTED.

IT IS FURTHER ORDERED that pursuant to Fed. R. Civ. P. 72, the parties shall

have fourteen (14) days after service of this Recommendation to serve and file any written

objections in order to obtain reconsideration by the District Judge to whom this case is

assigned. A party’s failure to serve and file specific, written objections waives de novo

review of the Recommendation by the District Judge, Fed. R. Civ. P. 72(b); Thomas v. Arn,

474 U.S. 140, 147-48 (1985), and also waives appellate review of both factual and legal

questions. Makin v. Colo. Dep’t of Corr., 183 F.3d 1205, 1210 (10th Cir. 1999); Talley v.

Hesse, 91 F.3d 1411, 1412-13 (10th Cir. 1996). A party’s objections to this

Recommendation must be both timely and specific to preserve an issue for de novo review

by the District Court or for appellate review. United States v. One Parcel of Real Prop., 73

F.3d 1057, 1060 (10th Cir. 1996). 

Dated: July 25, 2013

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