United States v. Tkw Limited Partnership

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 27, 2023
• Docket: 21-35568
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION APR 27 2023 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, No. 21-35568

Plaintiff-Appellee, D.C. No. 3:18-cv-05189-BHS

v. MEMORANDUM* TKW LIMITED PARTNERSHIP; T&K WEATHERS LIMITED PARTNERSHIP; PRECISION PROPERTY MANAGEMENT CORPORATION,

Defendants-Appellants,

and

THOMAS WEATHERS; KATHY JEAN WEATHERS; COUNTY OF COWLITZ; MOUNTAIN PEAK MANAGEMENT CORPORATION; FINANCIAL ASSISTANCE; WAPITI VENTURES, LLC; MARLENE M. BENNETT, Trustee of on behalf of Marlene M Bennett Revocable Living Trust; NETFUNDING, INC.; CORAL MANAGEMENT, INC.; SOUTHWIND SOFTWARE AND DEVELOPMENT CORPORATION,

Defendants.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. UNITED STATES OF AMERICA, No. 22-35212

v.

PRECISION PROPERTY MANAGEMENT CORPORATION,

Defendant-Appellant,

TKW LIMITED PARTNERSHIP; T&K WEATHERS LIMITED PARTNERSHIP; THOMAS WEATHERS; KATHY JEAN WEATHERS; COUNTY OF COWLITZ; MOUNTAIN PEAK MANAGEMENT CORPORATION; FINANCIAL ASSISTANCE; WAPITI VENTURES, LLC; MARLENE M. BENNETT, Trustee of on behalf of Marlene M Bennett Revocable Living Trust; NETFUNDING, INC.; CORAL MANAGEMENT, INC.; SOUTHWIND SOFTWARE AND DEVELOPMENT CORPORATION,

Appeal from the United States District Court for the Western District of Washington Benjamin H. Settle, District Judge, Presiding

2 Argued and Submitted April 13, 2023 Seattle, Washington

Before: McKEOWN, BYBEE, and FORREST, Circuit Judges.

These consolidated appeals arise from a suit by the government against

Thomas and Kathy Weathers seeking to reduce to judgment over $4 million in

federal income tax assessments against them and foreclose the federal tax liens

securing those tax liabilities. Defendants-Appellants appeal both (1) the district

court’s grant of summary judgment for the government determining that T&K

Weathers Limited Partnership (T&K) and TKW Limited Partnership (TKW) were

nominees, alter egos, or fraudulent transferees of the Weathers and (2) the district

court’s post-trial determination that Precision Property Management Corporation

(PPM) was not entitled to reimbursement of expenses for maintaining properties

held by T&K, TKW, and PPM. We have jurisdiction under 28 U.S.C. § 1291 and

review de novo both the grant of summary judgment and the legal question of

whether PPM is entitled to reimbursement. See McGinest v. GTE Serv. Corp., 360

F.3d 1103, 1112 (9th Cir. 2004); Kenney v. United States, 458 F.3d 1025, 1029

(9th Cir. 2006). We affirm.

1. Application of the federal tax lien statutes involves questions of both

state and federal law. See Drye v. United States, 528 U.S. 49, 58 (1999). “The

3 federal tax lien statute itself creates no property rights but merely attaches

consequences, federally defined, to rights created under state law.” United States

v. Craft, 535 U.S. 274, 278 (2002) (internal quotation marks and citation omitted).

Consequently, we “look initially to state law to determine what rights the taxpayer

has in the property the Government seeks to reach.” Id. (quoting Drye, 528 U.S. at

58); see also Fourth Inv. LP v. United States, 720 F.3d 1058, 1067 (9th Cir. 2013).

Under Washington law, the alter ego doctrine applies where a party “dominates

and controls” a third party and “the corporate form has been intentionally used to

violate or evade a duty.” Rapid Settlements, Ltd. v. Symetra Life Ins. Co., 271 P.3d

925, 930 (Wash. Ct. App. 2012) (internal quotation marks and citation omitted).

There is no genuine dispute of material fact that the Weathers dominated and

controlled T&K and TKW or that the Weathers intentionally used the corporate

form to evade their duty to pay taxes. The Weathers—together or

individually—were the only general partners in T&K and TKW, and the

partnership agreements granted exclusive control to the general partners. T&K and

TKW had no employees or subcontractors, the Weathers were signers on

associated business accounts, and Thomas Weathers prepared tax returns for both

partnerships. The Weathers recorded $1.5 million to $2 million mortgages against

each of the properties held by T&K and TKW, though neither entity received

4 money from the purported lenders; Defendants-Appellants stipulated that the

mortgages were invalid. And, after transferring the properties to T&K and TKW,

the Weathers continued to benefit from the rental income generated by the

properties.

It is also clear that the Weathers used T&K and TKW to avoid tax liability.

The Weathers transferred the relevant properties to the partnerships in 1996. They

did not pay their full 1996 tax liability and later amended their tax return to report

zero income that year. Beginning in 1998, the Weathers failed to file their tax

returns for fourteen years, including the period from 1998-2002 for which they

were convicted of willfully failing to file tax returns. And, until needing to secure

a loan in 2013 to avoid foreclosure of several properties for failure to pay property

taxes, the Weathers maintained false mortgages on the properties, disguising their

value.

Against this undisputed evidence, bare declarations attesting to the

Weathers’ intent in creating T&K and TKW for estate planning purposes and that

Thomas Weathers did not begin considering objecting to income taxes until 1998

do not create a genuine dispute of material fact. See Nigro v. Sears, Roebuck &

Co., 784 F.3d 495, 497–98 (9th Cir. 2015) (“[A] self-serving declaration does not

always create a genuine issue of material fact for summary judgment: The district

5 court can disregard a self-serving declaration that states only conclusions and not

facts that would be admissible evidence.”); FTC v. Publ’g Clearing House, Inc.,

104 F.3d 1168, 1171 (9th Cir. 1997) (“A conclusory, self-serving affidavit, lacking

detailed facts and any supporting evidence, is insufficient to create a genuine issue

of material fact.”). The district court properly granted summary judgment on the

government’s claim that T&K and TKW were alter egos of the Weathers.

2. On appeal, PPM claims that an exception to sovereign immunity

permitted it to be reimbursed for expenses incurred managing the T&K and TKW

properties. See Quinault Indian Nation v. Pearson for Est. of Comenout, 868 F.3d

1093, 1100 (9th Cir. 2017) (“[T]he Supreme Court has held that the United States

impliedly waives its immunity to counterclaims for recoupment.”). However, this

exception does not apply because the government did not seek any monetary

recovery from PPM. The government sought a determination that PPM held title

to Property 9 as the Weathers’ nominees or alter egos, and the government did not

appeal the district court decision against it on this issue.

PPM’s claim for reimbursement before the district court was also without

merit. PPM argued that its reimbursement claim was entitled to priority over the

federal tax lien. However, PPM did not identify a lien or other interest in any of

the properties satisfying the requirements for priority over federal tax liens under

6 I.R.C. § 6323. Section 6323(b)(6)(A) gives liens for property taxes priority over

federal tax liens, but a claim for reimbursement is not a lien, and only unpaid

property taxes are entitled to priority over the federal tax liens. The provision thus

does not authorize reimbursement for property taxes or for other expenses that

have already been paid. See United States v. Christensen, 269 F.2d 624, 626–27

(9th Cir. 1959) (holding that a mortgagee’s payment of state taxes on mortgaged

property after federal tax liens were recorded did not create a lien superior to the

United States’ tax liens).

AFFIRMED.