The opinion of the court was delivered by: Judge Conner
This is a tax refund action filed by plaintiff Thomas W. Gaughen ("Gaughen") against the United States of America ("United States"). Presently before the court is a motion (Doc. 47) for partial summary judgment filed by Gaughen. Gaughen moves for summary judgment on Count IV (fraud) of his complaint (Doc. 1), wherein he seeks a refund of the fraud penalty assessed against him. For the reasons that follow, the court will deny the motion.
I. Factual Background and Procedural History
A. Factual Background*fn1
On or about October 17, 2005, Gaughen, as taxpayer and donor, timely filed a Form 709 United States Gift Tax Return (the "return") for the year ending December 31, 2004. (Doc. 48 ¶ 1; Doc. 50-2 ¶ 1). The return listed gifts of Gaughen's ownership interests in seven parcels of real property and the fair market value of each parcel on the dates of gifts. (Doc. 1 ¶ 5; Doc. 51 ¶ 3). The United States disputes the fair market values of three of the gifted parcels: (1) a 135.59 acre parcel of real property located in Silver Spring Township, Pennsylvania ("Henlor");*fn2 (2) a 62.96 acre parcel of real property located in Silver Spring Township, Pennsylvania ("Millbrooke");*fn3 and (3) a 6.67 acre parcel of real property located in Hampden Township, Pennsylvania ("Crossgate")*fn4 (collectively the "properties"). (Doc. 48 ¶¶ 6-8; Doc. 50-2 ¶¶ 6-8).
Gaughen listed the following fair market values for the disputed properties as of the dates of the gifts on the return: (1) Henlor - $549,000; (2) Millbrooke -$233,000; and (3) Crossgate - $75,000. (Doc. 1 ¶ 21; Doc. 38 ¶ 21). Gaughen based the fair market values of the properties primarily on the restricted use appraisal reports*fn5 of Mr. Larry E. Foote, a Certified General Appraiser ("Foote"). (Doc. 48 ¶ 9; Doc. 50-2 ¶ 9; Doc. 51 ¶ 6). The Internal Revenue Service ("IRS") challenged the fair market values of the properties listed by Gaughen on the return. (Doc. 1 ¶ 5; Doc. 38 ¶ 5). The IRS appraised the fair market values of the properties as follows:
(1) Henlor - $3,550,000; (2) Millbrooke - $1,075,000; (3) and Crossgate - $1,105,000.
(Doc. 1 ¶ 21; Doc. 38 ¶ 21). Consequently, the IRS alleged that Gaughen under-valued the properties by a total of $4,873,000. (Id.) Gaughen received a Notice of Deficiency dated October 3, 2008, and a Notice of Tax Due dated January 29, 2009, from the IRS assessing him an additional gift tax of $1,055,228.78, a fraud penalty of $791,429.59 pursuant to 26 U.S.C. § 6663(a), and compound interest of $493,676.67. (Doc. 48 ¶ 2; Doc. 50-2 ¶ 2). Gaughen paid the taxes, penalties, and interest assessed by the IRS, totaling $2,340,327.04. (Doc. 48 ¶ 3; Doc. 50-2 ¶ 3).
Gaughen filed the instant action on December 16, 2009, seeking a tax refund of $2,340,327.04 plus interests and costs. (Doc. 1). On June 21, 2010, Gaughen moved for judgment on pleadings for Count IV (fraud) of his complaint. (Doc. 12). The court held that the United States's answer failed to comply with the requirements of Federal Rule of Civil Procedure 9(b), but granted the United States leave to amend its pleading. (See Doc. 35). On February 16, 2011, the United States filed an amended answer (Doc. 38), asserting fraud under Section 6663 of the Internal Revenue Code as an affirmative defense. On April 1, 2011, Gaughen moved for partial summary judgment on Count IV of his complaint. (Doc. 47). The parties have fully briefed the issues, and the matter is now ripe for disposition.
Through summary adjudication the court may dispose of those claims that do not present a "genuine issue as to any material fact" and for which a jury trial would be an empty and unnecessary formality. See FED. R. CIV. P. 56(a). Once the moving party demonstrates that there are no genuine issues of material fact, the burden shifts to the non-moving party to come forth with "affirmative evidence, beyond the allegations of the pleadings," in support of its right to relief. Pappas v. City of Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-moving party on the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89 (1986); see also FED. R. CIV. P. 56(a).
Only if this threshold is met may the cause of action proceed. Pappas, 331 F. Supp. 2d at 315.
Section 6663 of the Internal Revenue Code provides:
(a) Imposition of penalty.--If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
(b) Determination of portion attributable to fraud.--If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud.
26 U.S.C. § 6663(a)-(b). The United States has the burden to prove by clear and convincing evidence that the taxpayer intentionally underpaid his or her taxes with "a specific purpose to evade a tax known or believed to be owing." Raley v. Comm'r, 676 F.2d 980, 981 (3d Cir. 1982) (citation and quotations omitted). The United States can satisfy this burden by demonstrating that (1) an underpayment occurred, and (2) at least part of the underpayment can be attributed to fraud. Marretta v. Comm'r, 168 F. ...