Sixth Circuit Affirms Judgment for Government in Tax Collection Case

UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
JOHN K. STEELE,
Defendant-Appellant.

NOT RECOMMENDED FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF KENTUCKY

ORDER

Before: SUTTON, McKEAGUE, and NALBANDIAN, Circuit Judges.

John K. Steele, proceeding pro se, appeals a district court's order granting the government's consent motion disbursing funds deposited with the court in an action to collect unpaid income taxes and enforce federal tax liens. This case has been referred to a panel of the court that, upon examination, unanimously agrees that oral argument is not needed. See Fed. R. App. P. 34(a).

The government issued assessments against Steele for unpaid federal income taxes for the tax years 2000, 2001, and 2003 through 2010. See 26 U.S.C. §§ 7401, 7402(a). Despite notice of the assessments, Steele did not pay them. The government then filed a complaint seeking to: (1) reduce to judgment the assessed taxes, penalties, and interest, which, as of October 31, 2016, totaled $2,861,096.54; and (2) enforce federal tax liens against real property in Bagdad, Kentucky. In addition to Steele, the complaint named as defendants those with a possible interest in the real property: the Kentucky Department of Revenue; Shelby Energy Cooperative, Inc.; Dutton & Salyers PLLC; and Kimberly A. Flake.

The Kentucky Department of Revenue and Dutton & Salyers disclaimed any interest in the real property. Shelby Energy, however, argued that its electric easement had priority over the federal tax lien. After the government conceded the matter, the district court dismissed Shelby Energy as a defendant. Flake initially contended that she was the sole owner of the real property, but ultimately sold the land and divided the proceeds with the government pursuant to a settlement agreement.

Steele responded to the complaint by barraging the district court with filings presenting tax-defier arguments. In a motion to dismiss, Steele argued that he was a transient foreigner with no earthly domicile or residence and that the district court lacked subject matter jurisdiction — a contention that he reiterated in numerous filings. These filings included motions for recusal of the district judge and for “due process and a hearing.” After the district court denied Steele's initial flurry of jurisdictional challenges, including his motions for recusal and a hearing, Steele filed two more motions challenging the court's subject matter jurisdiction. In its order denying the motions, the court warned Steele that another challenge to the court's subject matter jurisdiction would result in a filing restriction. Ignoring the warning, Steele raised the issue of subject matter jurisdiction in a construed motion for reconsideration. The court denied the motion and enjoined Steele from filing further pleadings in the action unless an attorney certified that the pleading was in good faith.

In the midst of Steele's protestations and while negotiations were pending with Flake, the government moved for partial summary judgment against Steele to reduce to judgment the unpaid assessments of federal income tax liabilities and statutory additions. Steele responded by generally denying the accuracy of the certificates of assessment and his duty to pay income taxes. The district court granted the government's motion, finding that Steele was indebted to the United States for $2,861,096.54, plus statutory additions that had accrued and would continue to accrue. Steele's subsequent motions to “vacate” and “void” the court's summary judgment order were denied. Upon the government's settlement with Flake, the district court dismissed the action.

On appeal, Steele reasserts his claim that the district court lacked subject matter jurisdiction and argues that the district court erred by denying his motions for recusal and a hearing. He moves for a hearing in this court. The government moves for sanctions, which Steele opposes.

We review a grant of summary judgment de novo. Bey v. Falk, 946 F.3d 304, 311 (6th Cir. 2019). Summary judgment is proper “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.” Fed. R. Civ. P. 56(a).

Certificates of assessments and payments carry a presumption of correctness and establish prima facie evidence of tax liability. United States v. Flor D'Italia, Inc., 536 U.S. 238, 242 (2002); United States v. Walton, 909 F.2d 915, 918-19 (6th Cir. 1990). The taxpayer bears the burden of rebutting that presumption by a preponderance of the evidence. Walton, 909 F.2d at 918. In its summary judgment motion, the government provided certificates of assessments for the tax years 2000, 2001, and 2003 through 2010. Although Steele made a conclusory argument that the certificates were not accurate, he failed to submit any evidence in response. Thus, he did not meet his burden of rebutting the presumption of correctness of the certificates.

Moreover, Steele's arguments on appeal are frivolous. The district court had subject matter jurisdiction over the tax action. See 26 U.S.C. §§ 7402(a), 7403; 28 U.S.C. §§ 1340, 1345; United States v. Bogart, 715 F. App'x 161, 165-66 (3d Cir. 2017) (citing United States v. Sloan, 939 F.3d 499, 501 (7th Cir. 1991)). In 1916, the Supreme Court recognized that the Sixteenth Amendment gave Congress the authority to impose a direct non-apportioned income tax. Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916); see also United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994). Congress enacted § 1 of Title 26, which “imposes an income tax on individuals. Section 6012 of the same title imposes a legal duty upon an individual, including [Steele], to pay income taxes by authorizing the Secretary of the Treasury to assess taxes due.” United States v. Goard, No. 97-5251, 1997 WL 362219, at *1 (6th Cir. June 24, 1997) (unpublished order) (citing United States v. Spine, 945 F.2d 143, 149 (6th Cir. 1991)).

Next, the district court did not deprive Steele of due process by failing to hold a hearing. He did not present any colorable evidentiary issues below, and he has not “identified any issues on appeal that were compromised by the court's decision to base its ruling on the pleadings alone.” Ford v. Pryor, 552 F.3d 1174, 1179 (10th Cir. 2008) (quoting United States v. Ford, 514 F.3d 1047, 1053 (10th Cir. 2008)).

Finally, the district court did not abuse its discretion by denying Steele's motion for recusal under 28 U.S.C. § 455. See Burley v. Gagacki, 834 F.3d 606, 616 (6th Cir. 2016). The recusal motion concerned judicial rulings, which “almost never constitute a valid basis for a bias or partiality motion.” Liteky v. United States, 510 U.S. 540, 555 (1994); see also Burley, 834 F.3d at 617. Likewise, Steele's subjective perception of bias is not a basis for recusal. See Burley, 834 F.3d at 615-16.

The government moves for an order imposing sanctions of $8000 pursuant to 28 U.S.C. § 1912 and Federal Rule of Appellate Procedure 38 on the ground that Steele raises frivolous arguments that were rejected below. The government requests a flat damages fee in lieu of providing a detailed accounting of its expenses, noting that the average cost for the Tax Division of the Department of Justice to defend a frivolous taxpayer appeal between 2009 and 2011 exceeded $12,500.

When reviewing “tax protester” cases, we have expressed our disapproval of frivolous appeals, our intention to impose Rule 38 sanctions and award costs, and our approval of a flat damages fee. See Boggs v. Comm'r, 569 F.3d 235, 238 (6th Cir. 2009); Schoffner v. Comm'r, 812 F.2d 292, 293-94 (6th Cir. 1987); Martin v. Comm'r, 756 F.2d 38, 41 (6th Cir. 1985). An appeal is properly sanctioned as frivolous under § 1912 and Rule 38 when the issues raised were clearly resolved against the appellant. See Schoffner, 812 F.2d at 294. As discussed above, Steele's argument regarding the district court's subject matter jurisdiction is wholly without merit and has been consistently rejected by the courts.

Accordingly, we DENY Steele's motion for a hearing, AFFIRM the district court's order, and GRANT the government's motion for sanctions.

ENTERED BY ORDER OF THE COURT

Deborah S. Hunt, Clerk