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United States v. Watson

United States District Court, W.D. Virginia, Abingdon Division

January 27, 2017

JOE WATSON, ET AL., Defendants.

          Caroline D. Ciraolo, Principal Deputy Attorney General, and Nelson Wagner, Trial Attorney, Tax Division, U.S. Department of Justice, Washington, D.C., for United States.

          Kenneth R. Russell, Jr., and Mary F. Russell, Russell Law Firm, Bristol, Virginia, for Defendants.


          James P. Jones United States District Judge.

         The United States instituted this action against defendants Joe Watson and his wife Betty Watson to collect federal payroll tax assessments. I previously entered summary judgment in favor of the United States on Count I of the Complaint, reducing to judgment the tax assessments made against Joe Watson. United States v. Watson, No. 1:15CV00052, 2016 WL 5922317 (W.D. Va. Oct. 11, 2016). The United States now moves for summary judgment on Count II, which seeks to foreclose federal tax liens against real property owned by Watson and his wife. For the reasons that follow, I will grant the Motion for Summary Judgment.


         The facts underlying the tax assessment are summarized in my earlier opinion, and I will not repeat them here. Joe and Betty Watson own two commercial properties as tenants by the entirety. The first property is located at 205-209 Piedmont Avenue, Bristol, Virginia, and the second property is located at 1385 Lee Highway, Bristol, Virginia (collectively, "Properties"). Aside from the tax liens at issue in this case, no other liens or judgments attach to either of the Properties. The United States seeks to sell the Properties at a public auction in accordance with 28 U.S.C. §§ 2001-02, and to pay one half of the sale proceeds to Betty Watson, retaining the other half of the proceeds to satisfy the judgment against Joe Watson. Should any funds remain after satisfaction of the judgment, the remaining proceeds would be transmitted to Joe Watson.

         Betty Watson is 77 years old and has been a housewife for most of her 59-year marriage to Joe Watson. The Watsons receive approximately $1, 988 per month in Social Security benefits. They own their residence. Betty Watson has declared that this monthly Social Security income is about $1, 500 to $2, 000 less than what is needed to cover the couple's monthly expenses.

         Both of the Properties are currently rented. The Properties are managed by the couple's son-in-law, who has in the past used the rental profits to purchase cars for the Watsons and otherwise provide for their needs. Betty Watson's car is a 2003 model and will soon need to be replaced. The Watsons' residence needs a new roof and ceiling repairs. The garage roof is collapsing; the concrete walls of the enclosed porch are crumbling, causing leaks; and the exterior trim is rotting. Betty Watson estimates that the cost of necessary repairs would be $75, 000 to $150, 000. She has not proffered any contractor quotes or expert report to support this estimate.

         Betty Watson has declared that the rental proceeds from the Properties would be the only income available to replace the couple's cars, repair the residence, cover their monthly income shortfall, and address any emergency that may arise. She does not believe a foreclosure sale would produce adequate funds to sustain her and her husband for the remainder of their lives. Joe Watson's health is less than perfect, and if he predeceases his wife, she will lose the benefit of his monthly Social Security income.

         Betty Watson has submitted a declaration of Bart Long, a real estate agent who has worked in the Bristol, Virginia, area for more than twenty years. According to Long, the real estate market in the area has been slow to recover from the 2008 market downturn, and the Properties, which are not located in growing commercial areas, have few uses. In his experience, court-ordered sales of real estate generate significantly lower sales prices than voluntary sales. Long opines that the Properties are unlikely to sell for their tax-assessed values and might not even generate half of their tax-assessed values. The property located on Piedmont Avenue is under a month-to-month lease, and the lack of a long-term lease could negatively impact the sales price of that property.

         Based on this evidence, Betty Watson asks the court to deny the Motion for Summary Judgment and proceed to a trial on the merits to determine whether a forced sale of the Properties would pose an undue hardship to her. The Motion for Summary Judgment has been fully briefed and is ripe for decision.[1]


         Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The nonmovant "is entitled, as on a motion for directed verdict, to have the credibility of his evidence as forecast assumed, his version of all that is disputed accepted, all internal conflicts in it resolved favorably to him; the most favorable of alternative inferences from it drawn in his behalf; and finally, to be given the benefit of all favorable legal theories invoked by the evidence so considered, " regardless of the allocation of the burden of proof at trial. O'Connor v. United States, 956 F.2d 48, 50 (4th Cir. 1992) (internal quotation marks and citations omitted).

         When the United States has established a claim to a taxpayer's property due to failure to pay a tax liability, the court "may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale[ ] according to the findings of the court in respect to ...

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