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Tarpey v. United States

United States District Court, D. Montana, Butte Division

March 19, 2019

JAMES TARPEY, Plaintiff and Counter-Defendant,
v.
UNITED STATES, Defendant and Counter-Plaintiff.

          ORDER

          BRIAN MORRIS UNITED STATES DISTRICT COURT JUDGE.

         Defendant and Counter-Plaintiff the United States has filed the following motions: (1) Motion for Order/Judgment Applying Issue Preclusion (Doc. 28), and (2) Motion for Summary Judgment Regarding Liability (Doc. 30.) Plaintiff and Counter-Defendant James Tarpey (“Tarpey”) opposes both motions. (Docs. 36, 38.) The Court held a hearing on the motions on March 6, 2019, in Great Falls, Montana. (Doc. 50.)

         BACKGROUND

         Tarpey formed Project Philantropy, Inc. d/b/a/ Donate for Cause (“DFC”) in or about 2006. DFC operated a business that facilitated the donation of timeshares. Timeshares often involve significant fees and expenses, including membership fees, maintenance fees, and the payment of real estate taxes. A timeshare's market value may be significantly less than the timeshare owner's original purchase price. DFC allowed timeshare owners who faced burdensome timeshare fees and expenses to donate their unwanted timeshares.

         Tarpey formed DFC as a non-profit organization. Tarpey served as the sole voting member of DFC. Tarpey possessed authority to nominate and remove board members. Tarpey obtained tax-exempt status for DFC from the Internal Revenue Service (“IRS”).

         Tarpey promised potential customers generous tax savings from donations of their unwanted timeshares. Tarpey hired real property appraisers Ron Broyles and Curt Thor to conduct timeshare appraisals for DFC. Tarpey and his sister Suzanne Tarpey also conducted timeshare appraisals for DFC. Suzanne Tarpey served as the secretary, treasurer, and bookkeeper of DFC.

         Tarpey founded a for-profit timeshare closing service that operated as Resort Closings. Resort Closings initially provided closing services for the sale of timeshares. Tarpey eventually integrated his timeshare donation business, operated through DFC, into his timeshare closing business at Resort Closings. Resort Closings handled the real estate closings for timeshares donated to DFC.

         DFC accepted timeshares into its donation program. DFC would then open a “closing file” on these donated timeshares with Resort Closings. DFC and Resort Closings marketed generous tax savings of up to $6, 000 for donated timeshares. DFC accepted at least 7, 600 timeshare donations. Tarpey, Suzanne Tarpey, Broyles, and Thor appraised the timeshares for DFC.

         A. Tarpey I (the Injunction Lawsuit)

         The United States filed an action to enjoin six defendants, including the Tarpey, Suzanne Tarpey, Ron Broyles, Curt Thor, Resort Closings, and DFC, from engaging further in timeshare donation practice and appraisal. The United States alleged that the timeshare closing business constituted a “bogus tax scheme.” (2:15-cv-00072-SEH, Doc. 1.)

         The United States alleged that the customers contacted DFC to inquire about donating an unwanted timeshare. Id. at 7. The United States alleged that DFC enlisted an appraiser to determine the fair market value of the timeshare. Id. at 8. The United States alleged that DFC used a conflicted appraiser who overstated the value of the timeshare. Id. The United States alleged that DFC acted merely as a conduit to hold title briefly to timeshares before being sold for a fraction of the appraised amount. The United States alleged that DFC falsely told customers that they could deduct the full appraised amount of the timeshare, conducted by DFC, and the associated processing fees. Id.

         The court in Tarpey I entered final judgments of permanent injunction against all six defendants. (2:15-cv-00072-SEH, Docs. 36, 88, 89, 90, 103, 124.) Tarpey consented to judgment against him. (2:15-cv-00072-SEH, Doc. 90.) The consent judgment permanently enjoined Tarpey from: (1) preparing (or assisting others in preparing) any property appraisal that will be used in connection with federal taxes; (2) encouraging or advising (or assisting others in encouraging or advising) others to claim charitable contribution deductions on any federal tax return; and (3) organizing, promoting, selling, marketing, or advising with respect to (or assisting others in organizing, promoting, selling, marketing, or advising with respect to) any plan or arrangement regarding charitable contribution deductions claimed on federal tax returns. Id. at 2.

         The United States filed an unopposed motion for summary judgment against Broyles on February 10, 2017. (2:15-cv-00072-SEH, Doc. 116.) Broyles previously had been represented by counsel. The court permitted Broyles's attorney to withdraw on November 22, 2016. (2:15-cv-00072-SEH, Doc. 112.) Broyles did not oppose the United States's motion for summary judgment. The court granted the United States's motion for summary judgment on March 3, 2017, and the Court entered final judgment. (2:15-cv-00072-SEH, Doc. 123, 124, 125.)

         B. Tarpey II (the Present Action)

         The Treasury Department assessed penalties against Tarpey pursuant to the conduct at issue in Tarpey I. Tarpey brought the present action against the United States on December 27, 2017. (Doc. 1.) Tarpey filed his Amended Complaint on April 20, 2018. (Doc. 10.) Tarpey alleges that he did not overestimate the fair market value of timeshares. Id. at 6. Tarpeys alleges that the IRS inaccurately assessed penalties against him. Id. Tarpey seeks a refund of amounts paid toward the penalties made against him. Id. at 13.

         The United States filed a counterclaim against Tarpey. (Doc. 11.) Tarpey seeks a money judgment for the unpaid balance of the penalties. Id. The United States has moved for summary judgment regarding the issue of Tarpey's liability under 26 U.S.C. § 6700. (Doc. 28.) The United States's motion does not seek resolution of the amount of penalties as this issue must be reserved for trial. Id.

         LEGAL STANDARDS

         Summary Judgment is appropriate where the movant demonstrates that no genuine dispute exists “as to any material fact” and the movant is “entitled to judgment as a matter of law.” Fed.R.Civ.P. 5(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Summary judgment may be rendered on liability despite a remaining genuine issue regarding the amount of damages. See Pac. Fruit Express Co. v. Akron, Canton & Youngstown R.R. Co., 524 F.2d 1025, 1029-30 (9th Cir. 1975). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-23. If the moving party satisfies ...


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