Court Opinion

ID: 4159130
Source: CourtListenerOpinion
Date Created: 2017-04-10 17:00:50.473627+00
Date Added: 2024-06-11T07:46:14.970853
License: Public Domain

FILED
                                                                        United States Court of Appeals
                      UNITED STATES COURT OF APPEALS                            Tenth Circuit

                             FOR THE TENTH CIRCUIT                             April 10, 2017
                         _________________________________
                                                                            Elisabeth A. Shumaker
                                                                                Clerk of Court
UNITED STATES OF AMERICA,

      Plaintiff - Appellee,

v.                                                          No. 16-6229
                                                     (D.C. No. 5:15-CV-00043-C)
REX A. HODGES,                                              (W.D. Okla.)

      Defendant - Appellant,

and

LISA A. HODGES; BANK OF AMERICA
MORTGAGE; OKLAHOMA TAX
COMMISSION; MIDLAND FUNDING,
LLC,

      Defendants.
                         _________________________________

                             ORDER AND JUDGMENT *
                         _________________________________

Before KELLY, LUCERO, and McHUGH, Circuit Judges.
                  _________________________________

       After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist in the determination of this

appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered

submitted without oral argument.

       *
         This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
                                  I.     INTRODUCTION

       Rex A. Hodges failed to pay federal payroll taxes withheld from employee

paychecks during his time as manager of several nursing home facilities in Oklahoma.

The Internal Revenue Service (IRS) assessed taxes against Rex and attached liens against

real property (the property) he shared with his wife, Lisa A. Hodges. 1 The United States

then sued the Hodgeses in order to reduce the assessments to judgment and to foreclose

on the liens. The district court granted summary judgment to the government, reducing

the assessments to judgment and allowing foreclosure to proceed, but only on liens in

place before Rex transferred his interest in the property to Lisa. We affirm.

                                   II.   BACKGROUND

                                   A. Factual History

       In May 2000, the Oklahoma Department of Health appointed Rex as temporary

manager of four nursing homes. 2 As temporary manager, Rex “assume[d] operating

control of the facilit[ies]” and had “sufficient power and duties to ensure that the

residents of the facilit[ies] receive[d] adequate care.” Okla. Stat. tit. 63, § 1-1914.2. Rex

was in charge of day-to-day operations and was responsible for depositing the

employees’ payroll tax withholdings to the IRS and filing federal payroll tax returns. He

       1
          To avoid confusion between Rex and Lisa Hodges, we refer to the parties by
their first names.
       2
          The Oklahoma Department of Health “may place a qualified person in a [nursing
home] facility as a temporary manager” in the event that, inter alia, “[t]he conditions at
the facility pose immediate jeopardy to the health and safety of the residents of the
facility.” Okla. Stat. tit. 63, § 1-1914.2.

                                              2
also had check-signing authority on the payroll account and had authority to hire and fire

employees. Overall, Rex maintained ultimate decision-making authority over the nursing

homes, and acknowledged he “was in charge of all four homes.”

       During his time as temporary manager, Rex paid the nursing homes’ operating

expenses and net payroll, and paid himself a salary of $22,000 per month. But although

the nursing homes’ payroll processor sent him biweekly reports detailing the amount of

payroll taxes that had been withheld from the employees’ paychecks and instructions for

making the deposits to the IRS, Rex failed to pay the employees’ withheld payroll taxes

to the IRS. Rex was removed as temporary manager of the four nursing homes in

February 2001.

       Rex then decided to invest in his own nursing home. On October 26, 2001, Rex

and a former coworker, John Stout, formed the Sand Springs Care Center LLC (Sand

Springs), and Rex was named manager. His role as manager of Sand Springs was similar

to his role as temporary manager of the four nursing homes and included the same

powers and responsibilities as detailed above.

       Rex paid Sand Springs’ operating expenses and net payroll, and paid himself a

salary. But once again, he failed to remit to the IRS the payroll taxes withheld from the

employees’ paychecks. The IRS determined Rex was a “responsible person” who

willfully failed to pay over taxes in violation of 26 U.S.C. § 6672 (I.R.C. § 6672), and in

February 2004 the IRS began assessing penalties against Rex personally in the amount of

the unpaid payroll taxes accrued during his time as temporary manager of the four

nursing homes, and his time as manager of Sand Springs.

                                             3
       Federal tax liens attached to Rex’s interest in his property as of the dates of the

assessments (beginning in February 2004). Rex and his wife, Lisa, had purchased the

property in 1998 as joint tenants. On April 30, 2004, Rex transferred his interest in the

property to Lisa by quitclaim deed. Because the IRS continued assessing penalties against

Rex after the transfer, tax liens also continued to attach to the property after the transfer.

The IRS sent Lisa a Notice of Federal Tax Lien on January 26, 2015, identifying Lisa as

Rex’s nominee. 3

                                  B. Procedural History

       The United States sued Rex and Lisa Hodges 4 to reduce the tax assessments

against Rex to judgment and to foreclose its liens on the Hodgeses’ property. 5 The

government moved for summary judgment, seeking to reduce the assessments to

judgment as a matter of law and seeking to enforce its liens against the property, but only

       3
         A person becomes a “nominee” of a delinquent taxpayer if the IRS determines
“the taxpayer has engaged in a legal fiction by placing legal title to property in the hands
of a third party while actually retaining some or all of the benefits of true ownership.”
United States v. Tingey, 716 F.3d 1295, 1300 (10th Cir. 2013) (internal quotation marks
omitted).
       4
          The government also named as defendants Bank of America Mortgage, Midland
Funding, LLC, and the Oklahoma Tax Commission as entities that might claim an
interest in the property. The government, Oklahoma Tax Commission, and Bank of
America Mortgage stipulated to their relative priorities. The district court granted default
judgment against Midland Funding, LLC. None of these defendants is involved in this
appeal.
       5
         Rex also failed to pay his personal federal income taxes in 2011, and the
government requested the court reduce this assessment to judgment. The district court
granted summary judgment to the government on this claim in the amount of $2,549.28
plus interest. Rex did not dispute liability for these unpaid taxes in the district court and
does not appeal this judgment.

                                               4
on the liens “that arose by virtue of the assessments made prior to Rex Hodges’

transferring the Property to his wife, Lisa Hodges.” The government explained below

that,

        [a]s a practical matter, if the United States’ motion is granted and the
        property is ordered sold, the expected proceeds of sale will not satisfy the
        tax liens that arose prior to the transfer. Thus, there will be no need to
        determine whether Lisa Hodges is a nominee or fraudulent transferee.

        The Hodgeses opposed the government’s motion. Rex stipulated to the amount of

the assessed penalties, but argued he had reasonable cause for not paying over the payroll

taxes because he relied on others to pay them. In addition, Lisa filed a motion to dismiss

under Federal Rule of Civil Procedure 12(b)(6). She argued the government had denied

her due process rights by not granting her request for a Collection Due Process hearing.

Lisa also denied that she had received the property through fraudulent transfer or as

Rex’s nominee.

        The district court first granted the government summary judgment on reducing the

assessments to judgment. The court found Rex’s “reasonable cause” argument to be

without evidentiary support and entered judgment in favor of the government for

$1,905,040.84 (plus interest).

        Next, the district court concluded the Hodgeses did not dispute the liens that

attached before Rex transferred his interest in the property to Lisa, and it thus granted the

government partial summary judgment with respect to these liens. These pre-transfer

liens totaled $329,578.69 (plus interest). The court allowed the government twenty-eight

days to notify the court if it decided to proceed to trial on the claim for the post-transfer

                                               5
liens. But the government declined that opportunity because the expected proceeds from

the sale of the property would not satisfy even the pre-transfer liens.

       Finally, the district court denied Lisa’s 12(b)(6) motion requesting that the court

dismiss the government’s claims against her ownership of the property. The court

concluded the motion was improper for several reasons, 6 but relevant for our purposes,

the court concluded that Lisa did not dispute “that the United States is entitled to the

value of its liens before the transfer,” and these liens were the only ones the government

sought to enforce at summary judgment. It would have been premature to consider

whether Lisa took the property as Rex’s nominee or whether she was unfairly denied a

hearing, as these issues are only applicable to the post-transfer liens.

       The court entered an amended order of sale on June 27, 2016. Thereafter, Lisa

requested “that the property be sold privately to her pursuant to a settlement agreement,

in an effort to maximize the available proceeds from the sale of the Property.” As part of

the stipulation, the parties agreed that after paying settlement charges and the mortgage,

Lisa would pay the IRS $82,000, and the IRS would discharge all federal tax liens on the

property arising from the assessments against Rex. The district court entered an order

approving the settlement on January 26, 2017.

       Rex filed a timely notice of appeal on August 1, 2016. Although the district court

granted partial summary judgment only, the district court’s order was immediately

       6
        The court also found the motion untimely because it was filed after the answer,
and improper because Lisa attempted to include evidence outside the pleadings and asked
the court to assess the sufficiency of the evidence.

                                              6
appealable because the order of sale constituted irreparable harm. See Kasishke v. Baker,

144 F.2d 384, 386 (10th Cir. 1944) (“When the decree decides the right to the property in

contest, and . . . directs it to be sold, . . . and the complainant is entitled to have such

decree carried immediately into execution, the decree must be regarded as a final one to

that extent, and authorizes an appeal to this court.” (quoting Forgay v. Conrad, 47 U.S. (6

How.) 201, 204 (1848)). And to the extent there were any issues outstanding at the time

the court entered its judgment, they became moot when the government declined to

proceed to trial on the post-transfer liens and the IRS discharged all liens against the

property. Thus there are no further claims for the district court to resolve. We therefore

have jurisdiction to hear this appeal under 28 U.S.C. § 1291.

                                     III.   DISCUSSION

       Rex appeals the district court’s grant of summary judgment to the government and

the court’s denial of the 12(b)(6) motion to dismiss. We review a district court’s grant of

summary judgment de novo. Christy v. Travelers Indem. Co. of Am., 810 F.3d 1220, 1225

(10th Cir. 2016). We are not “limited to the grounds relied upon by the trial court but

may uphold summary judgment on conclusions of law supported by the record.” City of

Wichita v. Sw. Bell Tel. Co., 24 F.3d 1282, 1286 (10th Cir. 1994). We also review

12(b)(6) motions de novo, “applying the same legal standard applicable in the district

court.” Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir. 2007). “The court’s function

on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might

present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to

                                                7
state a claim for which relief may be granted.” Tal v. Hogan, 453 F.3d 1244, 1252 (10th

Cir. 2006) (internal quotation marks omitted).

       Rex first argues the IRS wrongfully assessed I.R.C. § 6672 penalties because he

did not act willfully in failing to pay over the taxes. Next, he contends the district court

erred in ordering foreclosure of the property and denying the 12(b)(6) motion. We

address each argument in turn.

                       A. Reducing the Assessments to Judgment

       Federal law requires employers to withhold federal income and social security

taxes from their employees’ wages. I.R.C. §§ 3102(a), 3402(a). The withheld taxes are

called “trust-fund” taxes because they are held in trust for the benefit of the United States.

I.R.C. § 7501(a); Slodov v. United States, 436 U.S. 238, 242–43 (1978). An employer

may not use these reserved funds for any purpose. See Finley v. United States, 123 F.3d

1342, 1344 (10th Cir. 1997) (en banc). The employer is required to file quarterly returns

and pay over the taxes through monthly or quarterly deposits. Wood v. United States, 808

F.2d 411, 414 (5th Cir. 1987).

       If the employer fails to remit the withheld taxes, the IRS may seek the unpaid

taxes from certain officers or agents of the employer. 7 See I.R.C. § 6671(b) (defining a

“person” as “an officer or employee of a corporation, or a member or employee of a

       7
        If an employer fails to remit the withheld taxes, the employee is not liable for a
double payment. I.R.C. § 31(a); Slodov v. United States, 436 U.S. 238, 243 (1978).
“Thus, unless the government has recourse against the person or persons responsible for
nonpayment, the taxes will be lost.” Olsen v. United States, 952 F.3d 236, 238 (8th Cir.
1991).

                                              8
partnership, who as such officer, employee, or member is under a duty to perform the act

in respect of which the violation occurs.”). I.R.C. § 6672(a) provides:

       Any person required to collect, truthfully account for, and pay over any tax
       imposed by this title who willfully fails to collect such tax, or truthfully
       account for and pay over such tax . . . [shall] be liable to a penalty 8 equal to
       the total amount of the tax evaded, or not collected, or not accounted for
       and paid over.

       Section 6672(a) can be broken down into two elements or requirements:

(1) “responsible person”: must be a person responsible for collecting, truthfully

accounting for, and paying over any taxes imposed; and (2) “willfulness”: that person

must have acted willfully in failing to remit the taxes. Smith v. United States, 555 F.3d

1158, 1163 (10th Cir. 2009). But even if these two requirements are met, this circuit

recognizes a “reasonable cause” exception, whereby the willfulness requirement “can be

negated by showing the responsible person had reasonable cause for failing to pay

withholding taxes held in trust for the government.” Finley, 123 F.3d at 1343.

       Although the government bears the initial burden to show evidence of the

assessments, assessments are “entitled to a legal presumption of correctness.” United

States v. Fior D’Italia, Inc., 536 U.S. 238, 242 (2002). The burden is thus on Rex to show

he was not a responsible person and did not willfully fail to remit the taxes in order to

       8
         Although the statute refers to it as a “penalty,” it is really just disgorgement
because it “brings to the government only the same amount to which it was entitled by
way of the tax.” Turnbull v. United States, 929 F.2d 173, 178 n.6 (5th Cir. 1991) (internal
quotation marks omitted); see also Finley v. United States, 123 F.3d 1342, 1348 (10th
Cir. 1997) (en banc) (“[Section] 6672 penalties reflect only that amount of tax already
collected or deducted by an employer and for which the employees have already received
credit in their individual income tax returns.”).

                                              9
avoid summary judgment. To do this, he is required to “set forth specific facts showing

that there is a genuine issue for trial as to those dispositive matters for which [he bore]

the burden of proof.” Muck v. United States, 3 F.3d 1378, 1380 (10th Cir. 1993) (internal

quotation marks omitted).

       Rex concedes the amount of the assessments and that he is a “responsible

person.” 9 But he argues he did not act willfully because he had reasonable cause for not

paying over the taxes. 10

1. Willfulness and the Reasonable Cause Exception

       Willfulness under § 6672 does not require “evil or fraudulent intent.” Hartman v.

United States, 538 F.2d 1336, 1341 (8th Cir. 1976). Instead, willfulness requires that an

individual make a “voluntary, conscious and intentional decision to prefer other creditors

over the Government” or show “a reckless disregard of a known or obvious risk that trust

       9
          Although Rex concedes he is a “responsible person” under § 6672, he argues the
district court erred in holding him liable because Mr. Stout and a Sand Springs employee,
Jo Beth Becker, were also responsible persons. But the statute does not require exclusive
authority. Smith v. United States, 555 F.3d 1158, 1163 (10th Cir. 2009) (“The responsible
person generally is, but need not be, a managing officer or employee, and there may be
more than one responsible person.” (internal quotation marks omitted)). There is no
dispute Rex had check-signing authority at all nursing homes, and his arguments with
respect to who else had the authority and whether he exercised the authority are irrelevant
to his liability.
       10
         In his reply brief, Rex also contends the “payroll taxes assessed against Rex
Hodges are a non-issue as the IRS has been levying his bank account for years. They
never saw the need to reduce their liens to judgment before.” Because he did not raise
this argument until his reply brief, this argument is waived. See Headrick v. Rockwell
Int’l Corp., 24 F.3d 1272, 1277–78 (10th Cir. 1994) (following “the general rule that
appellate courts will not entertain issues raised for the first time on appeal in an
appellant’s reply”).

                                              10
funds may not be remitted to the government.” Denbo v. United States, 988 F.2d 1029,

1033 (10th Cir. 1993) (internal quotation marks omitted). Willfulness is satisfied if a

responsible person, after being notified that withheld payroll taxes have not been paid,

fails to investigate or correct the mismanagement. Id.

       But willfulness can be negated if the taxpayer meets the reasonable cause

exception. In Finley v. United States, we recognized this exception as a means of

avoiding a “strict liability” interpretation of § 6672, but held it should be “narrowly

construed.” 123 F.3d at 1346, 1348. We determined a taxpayer could avoid liability only

when “(1) the taxpayer has made reasonable efforts to protect the trust funds, but

(2) those efforts have been frustrated by circumstances outside the taxpayer’s control.”

Id. at 1348.

       Here, Rex does not deny that he had power to pay the taxes or that he knew they

were not being paid—and therefore meets the definition of willful. He argues that he falls

within an exception to liability for willful conduct because “a jury could determine [he]

had reasonable cause for failing to pay withholding taxes.” Specifically, Rex claims to

qualify for the exception because: (1) of the “urgent necessity of caring for the nursing

home residents”; (2) Gary Kading, the owner of three of the four nursing homes for

which Rex was appointed temporary manager, promised Rex he would pay rehabilitation

costs; and (3) he relied on an Oklahoma statute regarding a nursing home owner’s

responsibility for costs. We agree with the district court that, as a matter of law, none of

these arguments places Rex within the reasonable cause exception.

                                             11
       a. “Urgent Necessity of Caring for Nursing Home Residents”

       Rex claims he could not pay the payroll taxes because he had to “rescue the

residents from the horrific conditions” they faced prior to his being appointed temporary

manager, and that he “naively put all available funds 11 toward rehabilitation of the

facilities and care of the residents.” He claims he would have had to close the homes and

that hundreds of employees would have been let go if he had paid over the taxes.

       The reasonable cause exception negates willfulness only if the responsible person

makes efforts to protect the trust funds and those efforts are frustrated by circumstances

outside that person’s control. First, Rex points to no evidence that could support a finding

that he made reasonable efforts to protect the withheld taxes. In Smith, for example, we

affirmed the district court’s denial of a “reasonable cause” jury instruction because the

defendant did not make “reasonable efforts to protect the trust funds,” when he “knew the

payroll taxes were overdue, knew that other creditors were being paid instead of the

payroll taxes, and never took any direct action to pay the taxes.” 555 F.3d at 1170. Rex

admits he voluntarily and intentionally made the decision to pay operating expenses—

including employees’ net wages, his own salary, and other creditors—before paying over

the taxes. Moreover, while Rex may claim the four nursing homes were in bad condition

       11
          Rex incorrectly refers to the withheld payroll taxes as “available funds” that an
employer can put toward other expenses. These funds are never “available” for an
employer to use. The funds are taken from an employee’s earnings to cover the
employee’s tax liability, and the employer is required to immediately put these funds into
a trust account. Finley, 123 F.3d at 1344 (“The funds withheld from employee wages do
not belong to the employer/corporation; they are funds held by the employer in trust for
the government.”).

                                             12
when he took over as temporary manager, there are no such allegations with respect to

Sand Springs, the center Rex invested in and managed. Rex made a choice—one he was

not required to make—to pay himself and other expenses before remitting the payroll

taxes.

         Second, financial concerns do not constitute “circumstances outside the taxpayer’s

control.” Virtually every violation of § 6672 occurs because a business is in financial

straits. See, e.g., Finley, 123 F.3d at 1343–44; Smith, 555 F.3d at 1160–61; Denbo, 988

F.2d at 1031; see also Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975)

(“[T]he payment of net wages in circumstances where there are no available funds in

excess of net wages from which to make withholding is a willful failure to collect and

pay over under § 6672.”). Thus, the financial condition of the homes is not sufficient to

qualify Rex for the reasonable cause exception.

         b. Reliance on Mr. Kading’s Assurances

         Rex next claims he meets the reasonable cause exception because Gary Kading,

the owner of three of the four nursing homes for which Rex was appointed temporary

manager, “promised . . . that he would pay for all the rehabilitation costs.” A similar

argument was made—and rejected—in Denbo. There, the defendant claimed willfulness

was not met because he relied on his co-owner’s and the accountants’ assurances that the

“taxes were being taken care of.” Denbo, 988 F.2d at 1031. The court held:

         Denbo cannot escape liability by claiming that he relied on the assurances
         of others. . . . Denbo willfully failed to remit federal payroll taxes because
         he was aware that the corporation had defaulted in its payment of
         employment taxes but nevertheless disregarded a known risk by relying on
         the assurances of [his co-owner] instead of doing more.

                                              13
Id. at 1033–34 (citations omitted).

       Here, Rex willfully failed to remit the withheld taxes because he knew the nursing

homes were not paying over the taxes, and he bore the responsibility for making these

payments. He cannot now claim reliance on Mr. Kading’s promise to pay rehabilitation

expenses as justification for not remitting the payroll taxes to the IRS. Rex knew the

payroll taxes were not being paid over, and, unlike in Denbo, nothing in Mr. Kading’s

promise to pay the rehabilitation expenses suggests otherwise. Moreover, Mr. Kading

was not involved in the fourth nursing home or in Sand Springs, so Rex could not claim

his failure to remit the payroll taxes withheld at these homes resulted from any assurances

from Mr. Kading to pay expenses.

       Nevertheless, Rex notes that this circuit decided Denbo before we adopted the

reasonable cause exception in Finley, and he suggests that it is therefore no longer

controlling. But we held in Finley that we would “continue to apply the established

paradigms to identify willful conduct as a matter of law,” and that we would “expressly

recognize a reasonable cause exception to the application of those paradigms.” Finley,

123 F.3d at 1348. Thus, we now consider whether Rex meets the reasonable cause

exception to the paradigm recognized in Denbo.

       The facts of Finley are easily distinguishable. There, the defendant first directed an

employee to pay the payroll tax, and the employee failed to do so. 123 F.3d at 1343. The

defendant next deposited a $105,000 check with the bank, instructing the bank to use the

money to pay the taxes, but the bank refused and paid other loans instead. Id. at 1344. We

                                             14
held that those facts required a new trial so the defendant could present evidence on the

newly adopted reasonable cause exception. Id. at 1349–50.

       And in Howell v. United States, the defendant would leave funds in a trust account

as a “cushion” for making tax payments but was unable to do so after the “improper and

unauthorized actions of the underwriters in seizing control of the company and the

accounts and directing the payment of funds in a manner contrary to his past practice.”

164 F.3d 523, 527 (10th Cir. 1998). We reversed summary judgment granted to the

government and remanded for a new trial after determining there was a disputed issue of

material fact on whether the defendant’s efforts to protect the trust funds were “frustrated

by circumstances beyond his control.” Id.

       Unlike Finley and Howell, Rex has presented no evidence that he made any efforts

to pay the taxes and has failed to show any outside circumstances interfering with his

efforts to do so. Mr. Kading’s alleged promises to pay the rehabilitation expenses at some

of the homes fall well short of evidence that Rex attempted to protect the trust funds but

was frustrated in his efforts. Accordingly, Rex has not raised an issue of fact with respect

to the reasonable cause exception.

       c. Reliance on 63 Oklahoma Statute § 1-1914.2

       Finally, Rex claims he had reasonable cause for not paying over the taxes because

of an Oklahoma statute that was cited in the order appointing him as temporary manager.

The statute provides:

       If funds are insufficient to meet the expenses of performing the powers and
       duties conferred on the temporary manager, the temporary manager may
       borrow the funds or contract for indebtedness as necessary. . . . If such

                                             15
       advances are not repaid in full, any amount not repaid shall constitute a lien
       against any and all assets of any owner . . . .

Okla. Stat. tit. 63, § 1914.2(G).

       This statute says nothing about taxes, nor does it attempt to preempt § 6672.

Although the owner is liable for unpaid debt undertaken to meet expenses, the statute

does not immunize a responsible person who, despite having the withheld payroll taxes

available to pay the IRS, willfully fails to do so, without reasonable cause. Because Rex

bore the burden of showing he was not liable under § 6672, and he has failed to “set forth

specific facts showing that there is a genuine issue for trial as to those dipositive matters

for which [he bore] the burden of proof,” Muck, 3 F.3d at 1380, we affirm the district

court’s decision to reduce the assessments to judgment.

                                     B. Foreclosure

       Rex next challenges the district court’s grant of summary judgment allowing the

IRS to foreclose on the property to satisfy the tax liens that attached prior to Rex’s

transfer of his interest to Lisa. He also appeals the court’s denial of the 12(b)(6) motion to

dismiss. We affirm because (1) Rex has waived any arguments regarding the validity of

the pre-transfer liens, and (2) the arguments regarding the post-transfer liens are moot

because the IRS has now discharged all outstanding federal tax liens on the property.

1. Validity of Pre-Transfer Liens

       The district court concluded that the Hodgeses presented no evidence or argument

opposing the validity of the pre-transfer liens. And in granting summary judgment, the

district court allowed foreclosure on only the pre-transfer liens, stating: “This does not

                                              16
include or adjudicate any liens on the Property post-transfer.” On appeal, Rex does not

dispute the district court’s findings with respect to the pre-transfer liens, and instead

challenges the government’s liens on the property that post-date the transfer. Although

one of his arguments also implicates the validity of the pre-transfer liens, it fails on the

merits.

          Rex contends that because Lisa took the property without notice of the liens that

attached to Rex’s interest, she took the property free of that liability, and thus the district

court erred in allowing the IRS to foreclose. This is incorrect. A federal tax assessment

against a person automatically creates “a lien in favor of the United States upon all

property and rights to property, whether real or personal, belonging to such person.”

I.R.C. § 6321. And, by operation of law, the liens arise “at the time the assessment is

made and shall continue until the liability for the amount so assessed (or a judgment

against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by

reason of lapse of time.” Id. § 6322. It is undisputed that the IRS assessed the first § 6672

penalties on February 16, 2004, for $329,578.69 (excluding interest). These assessments

immediately created a lien that exceeded Rex’s interest in his property, and that lien

survived the transfer of Rex’s interest in the property to Lisa on April 30, 2004. See

Russell v. United States, 551 F.3d 1174, 1179 (10th Cir. 2008) (“The transfer of the

attached property does not affect the lien because no matter into whose hands the

property goes, the property passes cum onere, or with the lien attached.” (internal

quotation marks omitted)); see also United States v. Jepsen, 131 F. Supp. 2d 1076, 1085

(W.D. Ark. 2000) (holding a taxpayer “cannot avoid or defeat liability by disclaiming or

                                               17
renouncing interest in the property or transferring or conveying the interest” after a lien

has properly attached). Therefore, whether Lisa had notice of the pre-transfer liens does

not affect the government’s ability to foreclose on them post-transfer.

2. Arguments Regarding Post-Transfer Liens

       The 12(b)(6) motion filed in the district court argued that: (1) the government

denied Lisa due process by not granting her request for a Collection Due Process hearing,

and (2) Lisa did not receive the property through fraudulent transfer or as Rex’s nominee.

The district court denied the motion because Lisa did not dispute “that the United States

is entitled to the value of its liens before the transfer,” and these liens were the only ones

the government sought to enforce at summary judgment. 12 Thus, all of the arguments in

support of the 12(b)(6) motion pertained to issues regarding the government’s attempts

to enforce post-transfer liens, which the district court concluded were premature. After

summary judgment on the pre-transfer liens was granted, the government discharged the

liens and waived any claims that Lisa took the property as nominee or fraudulent

transferee. Accordingly, the arguments raised by the motion to dismiss are moot.

       Nonetheless, on appeal Rex continues to make arguments with respect to issues

regarding liens that attached post-transfer. He claims the government misrepresented

       12
          The district court also denied the motion because Lisa “incorrectly include[d]
evidence outside the pleadings and look[ed] for the Court to assess the sufficiency of the
evidence.” The Hodgeses never disputed this ruling and on appeal Rex continues to assert
that “[e]vidence and the record clearly demonstrate there are sufficient grounds whereby
a reasonable jury could find the assertions of the Government questionable and those of
Defendants reasonable.” We therefore also affirm the denial of the motion on this
alternative ground.

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several facts in its complaint, including that (1) Rex lived on the property continuously,

(2) Lisa paid no valid consideration for Rex’s interest, (3) mortgage payments were made

from a joint checking account, and (4) Rex was a co-borrower on the mortgage. Even if

each of these representations is false, the district court is correct that none is relevant to

the only issue on summary judgment: whether the pre-transfer liens were valid and

enforceable.

       Next, Rex argues the foreclosure violates due process because Lisa was not given

a Collection Due Process hearing after she received notice of the nominee liens. Rex

claims “the Government sent the notice of the hearing, a hearing was timely requested,

and [the government] was never heard from . . . causing the denial of due process.” But,

even if Rex could assert Lisa’s due process rights, the Collection Due Process hearing is

not relevant to the validity of the pre-transfer liens. Whether Lisa could be liable as

nominee for any liens that attached post-transfer was not decided on summary judgment

and is now moot because the IRS has discharged all liens against the property.

       Finally, Rex claims the government violated the statute of limitations because the

“general rule is that an assessment of tax must be made within three years from the date a

return is filed or the due date of the return, whichever is later.” And because Lisa did not

receive the notice of nominee lien until January 26, 2015, eleven years after the first liens

attached, Rex contends the district court should have dismissed the action.

       Because Rex never made this argument below and does not argue for plain error

on appeal, he has waived it. United States v. Abdenbi, 361 F.3d 1282, 1289 (10th Cir.

2004) (“The well-settled law of this circuit is that issues not raised in district court may

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not be raised for the first time on appeal.”). But even if he had made the argument, the

Internal Revenue Manual’s rule does not support it. The Manual says an “assessment”

must be made within three years of the violation. It does not say that once an assessment

has been made, it expires after three years. And the notice of nominee lien is not an

“assessment.” Rex does not claim the IRS made the assessments more than three years

after the relevant tax period in which the taxes were due. We therefore affirm the

foreclosure on the pre-transfer liens.

                                  IV.    CONCLUSION

       Rex has failed to meet his burden to show he is not liable for the assessed § 6672

penalties. He concedes he is a responsible person and also concedes the amount of the

assessments. And he cannot qualify for the reasonable cause exception because he did not

come forward with any evidence of efforts to protect the withheld taxes or to demonstrate

that outside circumstances frustrated those efforts. We therefore affirm the district court’s

summary judgment decision reducing these assessments to judgment.

       In addition, Rex has presented no evidence or arguments disputing the validity of

the pre-transfer liens. All of his arguments with respect to the foreclosure focus on post-

transfer liens, which the IRS discharged and thus are not at issue in this appeal. We

therefore affirm the district court’s order allowing foreclosure of the property.

                                              Entered for the Court

                                              Carolyn B. McHugh
                                              Circuit Judge

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