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United States of America v. John Zarra and Marsha Zarra

August 26, 2011


The opinion of the court was delivered by: Conti, District Judge.


This is a suit for unpaid federal income taxes. On June 14, 2010, plaintiff the United States of America ("government" or "plaintiff"), filed a complaint against defendants John and Marsha Zarra (the "Zarras" or "defendants") pursuant to 26 U.S.C. § 7403(a) (the government may file a civil action where there has been a refusal or neglect to pay any tax). On August 11, 2010, the government filed an amended complaint (ECF No. 7), which is the subject of the instant memorandum opinion. On August 25, 2010, the Zarras filed a motion to dismiss the amended complaint (ECF No. 9). On September 15, 2010, the government filed a motion for summary judgment (ECF No. 15). On November 9, 2010, the court denied the motion to dismiss with prejudice and denied the motion for summary judgment without prejudice. On February 24, 2011, the Zarras filed a third party complaint against J.P. Morgan Chase & Co. and Citizens Financial Group, Inc. (ECF No. 34), which was dismissed. (ECF No. 73.)

Waiting the court‟s determination are cross-motions for summary judgment. The government‟s renewed motion for summary judgment (ECF No. 35), filed on February 25, 2011, requests the court grant summary judgment in its favor and award damages because the Zarras cannot properly assert any affirmative defenses, and no rational trier of fact could find that the Zarras satisfied their tax obligation. The Zarras‟ motion (ECF No. 63), filed on June 30, 2011, requests the court grant summary judgment in their favor with respect to the government‟s claim, relying on three alternative theories. First, the government did not demonstrate that a timely assessment was made against the Zarras for the 1999 tax year.*fn1 Second, the Zarras satisfied their obligation to the government because their check, which was written for the correct amount, was accepted by the banks involved in the transaction. Third, the doctrines of laches, waiver, and equitable estoppel preclude the government‟s claim at this juncture.

After considering these motions and the parties‟ briefs in opposition and other submissions, the government‟s motion will be granted and the Zarras‟ motion will be denied because the Zarras failed to pay fully their tax obligation, and no affirmative defenses shield them from liability under these circumstances.

I. Factual background

In April 2000, the Zarras timely submitted a check to the Internal Revenue Service ("IRS") to pay their 1999 tax liability of $179,501. (Defs.‟ Concise Statement of Material Facts ("D.C.S.") (ECF No. 64) ¶ 3; D.C.S. Ex. 4.) The check was written for the correct amount, presented, and accepted; however, the check was negotiated for $179.50. (D.C.S. ¶ 3.) The IRS subsequently received only $179.50 from the Zarras‟ account. (D.C.S. Ex. 5 at 2.)

The Zarras discovered this mistake when they received their monthly bank statement in May 2000. (Id.) Although Mrs. Zarra contacted the IRS twice seeking to rectify the error, the IRS sent notice to the Zarras in September 2000 demanding payment of the outstanding balance along with interest and penalties. (Id.) The Zarras contacted the IRS a third time, but they were unsuccessful in their attempt to fix the error. (Id. at 2-3.)

On July 3, 2000, a delegate of the Secretary of the Treasury made various assessments against the Zarras for income tax, penalties, and interest, relating to the 1999 tax year. (Pl. Concise Statement of Material Facts ("P.C.S.") (ECF No. 37) ¶ 1.) The government presented a Form 4340 and RACS 006 form as evidence of the assessment against the Zarras, and both documents list the assessment date as July 3, 2000. (P.C.S. Ex. B; D.C.S. Ex. 3.) Sandra Mikkelsen, a government representative, testified during her deposition that the Zarras‟ assessment is included in one of the three entries with cycle number 200025 on the RACS 006. (Pl.‟ Resp. to Defs.‟ Concise Statement of Material Facts ("P.R.D.C.S.") (ECF No.) ¶ 1.)

Although the Zarras had sufficient funds in their account when they submitted the check, their income and financial situation has since deteriorated. (P.R.D.C.S. Ex. E.) The government asserts that, as of March 7, 2011, $364,424 remains due including interest and penalties. (P.C.S. ¶ 3.)

II. Standard of review

Federal Rule of Civil Procedure 56 provides in relevant part:

(a) Motion for Summary Judgment or Partial Summary Judgment. A party may move for summary judgment, identifying each claim or defense -- or the part of each claim or defense -- on which summary judgment is sought. The court shall grant summary judgment if 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. The court should state on the record the reasons for granting or denying the motion. . . .

(c) Procedures.

(1) Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:

(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or

(B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce ...

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