Plaintiff, United States of America, (“plaintiff”) sought judgment against lead defendant James B. Hughes (“Hughes”)for his 1999, 2000, 2001, 2002, 2003, 2004 and 2006 federal income tax liabilities. Plaintiff also sought to establish and enforce federal tax liens on three properties belonging to lead defendant Hughes and his sister, co-defendant Jayne Hughes. Plaintiff moved for summary judgment against both defendants. The court denied plaintiff’s motion for the reasons herein stated.
Due to lead defendant Hughes decision not to file income tax returns for the seven tax years in question. Plaintiff filed Certificates of Assessment, Payments, and other specified matters (Certificates of Assessments) for each of the seven tax years at issue that showed lead defendant owed $1,600,000.00 overall in taxes for the seven tax years at issue. Plaintiff then filed suit to enforce the Certificates of Assessment, which prompted lead defendant Hughes to submit tardy income tax returns to plaintiff for each of the seven tax years at issue. These tax returns were rejected by plaintiff.
These disputed tax returns were prepared by lead defendant’s retained expert witness, who is an accountant by profession. The defense expert prepared the disputed income tax returns by reviewing and incorporating data from lead defendant’s brokerage statements and co-defendant Jayne Hughes’ tax returns which showed rental income from three residential properties that lead defendant owns jointly with co-defendant. The disputed tax returns showed lead defendant had zero tax liability for each of the seven tax years at issue in the case. Plaintiff argued lead defendant’s brokerage statements and co-defendant Hughes income tax returns were inadmissible hearsay documents and not eligible for admissibility under any exceptions to the hearsay rule.
The court denied plaintiff’s motion for summary judgment because it held admissible under Federal Rules of Evidence 703 the defense expert’s testimony regarding the lead defendant’s purported zero tax liability, which in turn was based on the disputed income tax returns prepared by the expert, lead defendant’s brokerage statements and co-defendant’s income tax returns. The court held the expert’s opinion was admissible if other accounting experts would reasonably rely on those kinds of facts or data in forming an opinion on the subject, they need not be admissible for the opinion to be admitted. The court held that the defense expert’s opinion stated in a sworn affidavit and submitted to the District Court created a genuine issue of fact and accordingly denied plaintiff’s motion for summary judgment.
Posted by Chuba Abaelu
Associate Editor, Wealth Strategies Journal