Bonilla v. United States

          RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT (DOC. NOS. 29 & 30)

          JANET C. HALL UNITED STATES DISTRICT JUDGE

         The plaintiff, Migdalia Bonilla (“Ms. Bonilla”) brings this action, pursuant to section 7422 of title 26 of the United States Code, seeking recovery of federal income taxes and related interests and penalties, against the defendant, the United States of America. Complaint (“Compl.”) (Doc. No. 1) at 1. Before this court are the parties' Cross-Motions for Summary Judgment. See Bonilla's Motion for Summary Judgment (Doc. No. 29) (“Bonilla Mot. Summ. J.”); United States of America's Motion for Summary Judgment (Doc. No. 30) (“U.S. Mot. Summ. J.”).

         For the reasons stated below, Ms. Bonilla's Motion for Summary Judgment (Doc. No. 29) is denied, and the United States of America's Motion for Summary Judgment (Doc. No. 30) is granted.

         I. STANDARD OF REVIEW

         On a motion for summary judgment, the moving party bears the burden of establishing the absence of any genuine issue of material fact. Zalaski v. City of Bridgeport Police Dep't, 613 F.3d 336, 340 (2d Cir. 2010). If the moving party satisfies that burden, the nonmoving party must set forth specific facts demonstrating that there is a genuine issue for trial. Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). A genuine issue exists where the evidence is such that a reasonable jury could decide in the nonmoving party's favor. See, e.g., Rojas v. Roman Catholic Diocese of Rochester, 660 F.3d 98, 104 (2d Cir. 2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, (1986)).

         The court's role at summary judgment “is to determine whether genuine issues of material fact exist for trial, not to make findings of fact.” O'Hara v. Nat. Union Fire Ins. Co. of Pittsburgh, 642 F.3d 110, 116 (2d Cir. 2011). Unsupported allegations do not create a material issue of fact and cannot overcome a properly supported motion for summary judgment. See Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000). Additionally, the evidence the court considers in ruling on a motion for summary judgment must be admissible evidence, or evidence that could be readily reduced to an admissible form at trial. See LaSalle Bank National Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 205 (2d Cir. 2005); Santos v. Murdock, 243 F.3d 681, 683 (2d Cir. 2001) (“Affidavits submitted to defeat summary judgment must be admissible themselves or must contain evidence that will be presented in an admissible form at trial.”) (citation omitted). If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).

         When, as here, both parties come before the court on cross-motions for summary judgment, the court is not required to grant judgment as a matter of law for either side. See Ricci v. DeStafano, 530 F.3d 88, 109-10 (2d Cir. 2008). “Rather the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Id. at 110.

         II. FACTS^[1]

         Ms. Bonilla was married to Robert Bonilla (“Mr. Bonilla”) in 1986. United States' Local Rule 56(a)2 Statement of Facts in Opposition to Summary Judgment (Doc. No. 38-1) (“U.S. Opp. Facts”) ¶ 1. Mr. Bonilla was a professional baseball player. Id. ¶ 2. On February 23, 1994, Mr. Bonilla incorporated Bobby Bo Investments, Inc. (“BBI”), a Florida for-profit corporation. Id. ¶ 3. Mr. Bonilla created BBI to hold investments for him; he chose the name BBI because people called him “Bobby Bo” when he played baseball. Id. ¶ 4. As of February 23, 1994, Mr. Bonilla was the sole shareholder, officer, director, and president of BBI; Mr. Bonilla was President of BBI in 1994. Id. ¶ 6. According to a website for the State of Florida Division of Corporations, BBI was administratively dissolved on August 25, 1995. Id. ¶ 8. At that time, Mr. Bonilla was the sole shareholder, director, and officer of BBI. Id. ¶ 9. There is no record on the Florida government website of BBI being reinstated since August 25, 1995. Id. ¶ 10.

         Ms. Bonilla and Mr. Bonilla were divorced on May 22, 2009, pursuant to the Memorandum of Decision of the Connecticut Superior Court (“2009 Divorce Decree”). Id. ¶ 11. As part of the 2009 Divorce Decree, the Court ordered that ownership of certain companies, including BBI, “shall be divided equally” between Mr. Bonilla and Ms. Bonilla within 30 days. Id. ¶ 12. On April 28, 2010, Ms. Bonilla filed a Motion for Contempt, stating that “[no] division of these assets has occurred.” Id. ¶ 13. At a hearing in May 2010, Mr. Bonilla's counsel represented to the court that Mr. Bonilla was willing to give Ms. Bonilla all of the companies “other than Bobbie Bo Investment which is his name, ” and made other references as to Mr. Bonilla wanting to keep BBI. Id. ¶ 16. Mr. Bonilla also filed a Motion to Amend the 2009 Divorce Decree requesting, inter alia, to keep BBI. Id. ¶ 17.

         On December 14, 2010, the Superior Court held a hearing in the divorce proceedings (“December 2010 Hearing”). Id. ¶ 20. Between the May 2010 Hearing and the December 2010 Hearing, no physical shares or securities of BBI were transferred to Ms. Bonilla. Id. ¶ 19. At the December 2010 Hearing, the parties agreed that Ms. Bonilla “will actually be the owner” and “will have ownership” of BBI. Bonilla Local Rule 56(a)2 Statement of Facts in Opposition to Summary Judgment (Doc. No. 37-1) (“Bonilla Opp. Facts”) at 2 ¶ 6. The parties agreed that Ms. Bonilla and her attorney would bear the burden of effectuating the transfer of interests. Id. at 3 ¶ 7. At the conclusion of the December 2010 Hearing, the court so ordered the proceedings, stating, “I'll sign the transcript. And that'll be the order of the court. . . . But for now, so ordered.” Id. at 3 ¶ 9.

         Financial affidavits filed by Mr. Bonilla in the divorce proceedings noted that BBI held his interest in Performance Imaging. Id. at 5 ¶ 14. BBI contributed money to Performance Imaging, but the contributions were made from Mr. Bonilla's personal income. Id. at 6 ¶ 18. Performance Imaging was formed in 1996, after BBI had been administratively dissolved. Id. at 4 ¶ 12. The initial investment in Performance Imaging was $100, 000. Id. at 5 ¶16. BBI has not made any contributions to Performance Imaging since 2000. Id. at 6 ¶20. Since 2000, other than sending documents, including Schedules K-1 (“K-1s”) to Performance Imaging's investor members and communications regarding the K-1s, there has been no communication between Performance Imaging and its investor members. Id. at 7 ¶ 23. Performance Imaging has never made income distributions to its members, nor has it covered members' tax costs. Id. at 8 ¶¶ 28-29. Performance Imaging's financial documents list BBI's share of Performance Imaging's profit, lost, and capital as 69.51 percent. Id. at 10 ¶ 42.

         During the 2010 and 2011 tax years, BBI was an S Corporation. Id. at 10 ¶ 39.^[2]BBI did not file any tax return for the 2009, 2019, and 2011 tax years. Id. at 10 ¶ 37. Ms. Bonilla was provided with Performance Imaging's Schedule K-1 for BBI for the 2009 tax year, by email, on September 16, 2010. Id. at 11 ¶ 44. On September 30, 2011, Ms. Bonilla's attorney sent Performance Imaging a copy of the Divorce Decree and a transcript of the December 2010 Hearing. Id. at 11 ¶ 45. In response to a request from Performance Imaging for “the address for [BBI] for Ms. Bonilla” to which to send Performance Imaging's 2010 tax return, Ms. Bonilla's attorney provided Performance Imaging with Ms. Bonilla's address. Id. at 12-13 ¶ 49. Performance Imaging's K-1s for BBI for the tax years 2010 through 2016 list BBI's address as Ms. Bonilla's residence. Id. at 13 ¶ 51. Ms. Bonilla forwarded the K-1s to her accountant. Id. at 13 ¶ 52.

         Performance Imaging's K-1s for BBI for the 2010 and 2011 tax years reported that BBI's share of business income was $908, 871 and $61, 112, respectively. Id. at 15 ¶ 57. The IRS concluded that Performance Imaging's ordinary business income in 2010 and 2011 was $1, 122, 706 and $79, 294, respectively. Id. at 15 ¶ 58. Ms. Bonilla did not report any portion of BBI's share of Performance Imaging's income on her 2010 and 2011 tax returns. Id. at 15 ¶ 59. After a tax examination of Performance Imaging, the IRS increased Ms. Bonilla's ordinary income for the 2010 and 2011 tax years by $780, 393 and $55, 117, respectively, equal to 69.51% of Performance Imaging's corrected 2010 and 2011 ordinary business income. Id. at 15 ¶ 59. The IRS assessed taxes against Ms. Bonilla for the 2010 and 2011 tax years of $235, 783 and $19, 291, respectively. Id. at 15-16 ¶¶ 60-61. Including fees and penalties, the IRS claimed that Ms. Bonilla owed the IRS $323, 164.42 for the 2010 tax year, and $21, 871.74 for the 2011 tax year. See U.S. Opp. Facts ¶¶ 87, 90.

         Ms. Bonilla paid the full amounts claimed by the IRS, on April 11, 2016. Id. ¶ 92. She filed a refund claim with the IRS on the same date. Id. ¶ 93. The IRS denied the administrative claim on October 3, 2016. Id. ¶ 94. The government conceded, on April 4, 2018, that $372, 023 of the $780, 393 increase to Ms. Bonilla's income for the 2010 tax year was incorrect, and directed the IRS to partially abate the tax, penalties, and fees levied against Ms. Bonilla. Id. ¶ 95. The IRS conceded that Ms. Bonilla was entitled to a partial credit to her 2010 tax liability, but no credit to her 2011 tax liability. Id. ¶¶ 95-98.

         On March 8, 2019, the court heard oral argument on the pending Motions for Summary Judgment.

         III. DISCUSSION

         A. Variance Doctrine

         As an initial matter, the government argues that this court is without jurisdiction to hear certain of Ms. Bonilla's arguments. Under the variance doctrine, codified at section 7422 of title 26 of the United States Code and its accompanying regulations, a taxpayer bringing suit under section 7422 “may not raise different grounds than those brought to the IRS” in the prior administrative refund claim. Magnone v. United States, 902 F.2d 192, 193 (2d Cir. 1990).^[3] “The taxpayer . . . need only set forth facts in the claim sufficient to enable the IRS to make an intelligent review of the claim. However, the grounds for the refund must be at least impliedly contained in the application for refund.” Carione v. United States, 291 F.Supp.2d 141, 146 (E.D.N.Y. 2003) (citing 303 West 42nd St. Enterprises, Inc. v. I.R.S., 181 F.3d 272, 278 (2d Cir.1999) and Burlington Northern Inc. v. United States, 231 Ct.Cl. 222, 684 F.2d 866, 868 (1982)) (quotation marks omitted).

         In the government's view, the “variance doctrine” precludes this court's review of Ms. Bonilla's arguments that (1) BBI could not have acquired an interest in Performance Imaging because BBI had been administratively dissolved; and (2) that the December 2010 divorce hearing was an unenforceable “agreement to agree.” See United States' Response in Opposition (Doc. No. 38) (“USA Reply in Opp.”) at 6. The government argues that Ms. Bonilla failed to sufficiently set forth these arguments in her administrative claim for refund. Id.

         Ms. Bonilla argues in response that (1) the government's reading of the variance doctrine is “overly narrow and restrictive, ” and (2) her arguments in her administrative claim were “[a]t the very least . . . facts sufficient to enable the IRS to make an intelligent administrative review” into BBI's corporate status and whether “under any legal theory or grounds, ” Ms. Bonilla owned BBI in 2010 and 2011. Bonilla Reply in Support of Plaintiff's Motion for Summary Judgment (“Bonilla Reply in Supp.”) (Doc. No. 42) at 5.

         In her Administrative Claim, Ms. Bonilla argued that, irrespective of the 2010 Divorce Decree, Mr. Bonilla had “failed to provide [Ms. Bonilla] with a stock certificate transferring his shares in [BBI] . . . or other corporate documents regarding the business or effecting the transfer of his ownership interests in the business to [Ms. Bonilla].” Govt. Exhibit 38, Administrative Claim for Refund (Doc. No. 38-10) (“Admin. Claim”) at 1. Ms. Bonilla also noted in the Administrative Claim that, a Florida corporation with the same name as BBI was dissolved on August 25, 1995, and that interests in a dissolved corporation “were not effectively transferred to [Ms. Bonilla] . . . in December 2010. Id. Ms. Bonilla added that her alleged tax liability arose from the separate IRS audit of “Performance Imaging, LLC[, ] which [BBI] appears to own an interest in.” Id. at 1-2. Finally, Ms. Bonilla stated that her disagreement with her purported tax liability was focused on “a non-partnership item that was beyond the scope of the TEFRA audit of Performance Imaging, LLC - that being the ownership of [BBI]” and the “clearly erroneous assertion that [Ms. Bonilla] owned [BBI] during the years at issue.” Id. at 2.

         Ms. Bonilla's Administrative Claim was therefore focused on three related issues: (1) whether the divorce proceedings involving her and Mr. Bonilla transferred the ownership of BBI between Mr. Bonilla and Ms. Bonilla; (2) whether Ms. Bonilla was the owner of BBI during the 2010 and 2011 tax years; and (3) whether the IRS acted beyond the scope of the ...