911 Management, LLC v. United States (657 F. Supp. 2d 1186, 2009)

United States District Court for the District of Oregon 2009-09-10

Internal Revenue Code

Citations

Full opinion text

ORDER

KING, District Judge.

The Honorable Dennis J. Hubei, United States Magistrate Judge, filed Findings and Recommendation on August 24,2009. The matter is before this court. See 28 U.S.C. § 636(b)(1)(B) and Fed.R.Civ.P. 72(b). No objections have been timely filed. This relieves me of my obligation to give the factual findings de novo review. Lorin Corp. v. Goto & Co., Ltd., 700 F.2d 1202, 1206 (8th Cir.1983); See also Britt v. Simi Valley Unified School Dist., 708 F.2d 452, 454 (9th Cir.1983). Having reviewed the legal principles de novo, I find no error.

Accordingly, I ADOPT Magistrate Judge Hubei’s Findings and Recommendation dated August 24, 2009(# 94) in its entirety.

IT IS HEREBY ORDERED that Defendant’s Motion for Summary Judgment (# 52) is granted. 911 Management’s Motion for Summary Judgment (# 57) is denied. 911 Management’s Motion to Strike (# 71) is denied in part and denied as moot in part.

FINDINGS &

RECOMMENDATION/ORDER

HUBEL, United States Magistrate Judge.

Plaintiff 911 Management, LLC, a Washington limited liability company, brings this wrongful levy action against the United States. Both sides move for summary judgment. I recommend that 911 Management’s motion be denied, and that defendant’s motion be granted. 911 Management also moves to strike several assertions of fact in defendant’s Concise Statement of Fact (CSF), and associated underlying documents. I deny the motion to strike in part and deny it as moot in part.

BACKGROUND

This case involves three levies, totaling approximately $198,689, made by the Internal Revenue Service (IRS) in 2007 against 911 Management’s bank account at U.S. Bank. The IRS levies were made to collect federal income taxes owed by Tom and Kathy Weathers for tax year 1996. The IRS asserts that 911 Management is the nominee or alter ego of Tom and Kathy Weathers.

In February 1990, Tom and Kathy Weathers entered into a lease relating to the Kent Hotel, located in Portland. Deft Exh. 29. Id. at p. 1. Tom and Kathy Weathers, as tenants, were to operate the Kent Hotel and were obligated to make lease payments to landlord Georgia Katchis. Id. at p. 2. Tom and Kathy Weathers are still parties to a lease agreement for the Kent Hotel and the current landlord is Katchis, LLC.

The Weatherses have a second lease agreement for the Joyce Hotel, also located in Portland. The most recent lease agreement for the Joyce Hotel was entered into on March 1, 2003, between Tom and Kathy Weathers as Lessees and D.Z. Real Estate as Lessor. Deft Exh. 26. Under the terms of the lease, Tom and Kathy Weathers have the right to operate the Joyce Hotel and they are obligated to make payments to the Lessor. Id.

On their 1993, 1994, 1995, and 1996 federal personal income tax returns, Tom and Kathy Weathers reported income received from operating the Kent and Joyce Hotels. Deft Exhs. 36-39; Tom Weathers Depo. (Deft Exh. 51) at pp. 16-19, 22-25. On those same personal income tax returns for 1993 through 1996, Tom and Kathy Weathers also reported rents received from several properties they owned in Longview and Kelso, Washington.

In July 1998, the Weatherses filed an amended income tax return for the 1996 tax year. Deft Exh. 39. There, they represented that they owed no federal income taxes for that year, although their original return for 1996 showed they owed more than $107,000 in taxes. Id. (Line 10, Column C); Deft Exh. 38 (Line 62). Tom Weathers filed an attachment to the 1996 amended return in which he made the following statements: (1) “I know that no section of the Internal Revenue Code establishes an individual or personal ‘income tax’ liability applicable to me”; (2) “[t]here is no requirement in the [Internal Revenue Code or the Regulations thereunder] requiring me tofile [sic] a 1040 Income Tax Return”; (3) “I am a non-resident to the state of the forum of United States tax laws”; and (4) “I ... swear under penalty of perjury that I have earned zero income for 1996 and all previous years.” Deft Exh. 39 (Bates Stamp 149142-43).

On September 1, 2004, Tom and Kathy Weathers were indicted on six counts of federal criminal tax violations. Deft Exh. 44. A superseding indictment regarding the violations, including evasion of payment of tax for 1996, was filed on October 27,2004. Deft Exh. 45.

The superseding indictment sets forth seven acts of alleged tax evasion by the Weatherses, three of which are particularly relevant here: (1) they “placfed] jointly owned personal properties in the names of nominees to conceal [their] ownership of such properties from the IRS”; (2) they “jointly owned personal properties in the names of nominees to conceal [their] ownership of such properties from the IRS”; and (3) they “open[ed] bank accounts in the names of nominees and deposited] funds into such accounts, beginning in about October 1998 and continuing through at least June 2004, in order to conceal [their] ownership of the funds from the IRS.” Id.

On June 28, 2005, Tom and Kathy Weathers were convicted on all six counts in the superseding indictment, resulting in convictions for one count of evasion of payment of tax for tax year 1996, and five counts of failure to file tax returns for the years 1998 through 2002. Deft Exh. 47. On September 29, 2005, Kathy Weathers was sentenced to two years of probation. Deft Exh. 7. The terms of her probation required that she pay restitution for tax year 1996, in the amount of $103,117. Id. On October 14, 2005, Tom Weathers was sentenced to sixty months in prison for the tax convictions. Deft Exh. 6. He was also required to pay restitution for the tax year 1996 in the amount of $103,117. Id.

On October 25, 2005, a written application to form 911 Management, LLC was filed with the Washington Secretary of State’s Office. Deft Exh. 3. The address for 911 Management is listed as 201 Orchard Street, Leavenworth, Washington. Id. Bryce W. Townley executed the certificate. Id. His address was the same as the LLC’s. Id. The registered agency for the LLC was listed as “B & C Townley, LLC,” with the same address as 911 Management, LLC. Id.

Schedule A of the Operating Agreement for 911 Management, LLC shows 911 Management to have three “members”: T & K Weathers, LLP (25%), Kathy Weathers (35%), and “Club Ed, Unincorporated Association” (40%). Deft Exh. 8 at p. 13. The addresses for Kathy Weathers and Club Ed are the same. Id.

Tom and Kathy Weathers are the general partners of T & K Weathers, LLP, which was formed on March 27, 1996. Deft Exh. 1. There are five limited partners: (1) the “Thomas D. Weathers and Kathy J. Weathers Family Trust, UA DTD February 26, 1996”; (2) “Brian D. Weathers Irrevocable Trust, UA DTD March 21, 1996”; (3) “Katie B. Weathers Irrevocable Trust, UA DTD March 21, 1996”; (4) Kayla D. Weathers Irrevocable Trust, UA DTD March 21, 1996”; and (5) “Bradley M. Weathers Irrevocable Trust, UA DTD March 21, 1996.” Id. Brian Weathers, Katie Weathers, Kayla Weathers, and Bradley Weathers are the children of Tom and Kathy Weathers.

Tom and Kathy Weathers executed the partnership agreement for T & K Weathers, LLP as general partners, and also as Trustees of the limited partner family trust. Id. at p. 7. Daniel and Shirley Dent signed as limited partners, with each of them signing four times, but with no indication of what limited partner they were signing for. Id. at p. 8.

Club Ed is identified in Schedule A of 911 Management, LLC’s Operating Agreement as an unincorporated association. According to Daniel Dent, the manager of 911 Management, Club Ed is an organization that provides educational benefits to its members. Deft Exh. 11 (Daniel Dent Depo.) at p. 47. Club Ed has paid tuition for schooling and provided books and learning materials to Katie Weathers, Kayla Weathers, David Maag, Bruce Carroll, and Tom Weathers. Id. Dent testified that these persons were the “members” of Club Ed. Id. at p. 48.

Additional facts are discussed below.

STANDARDS

Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party bears the initial responsibility of informing the court of the basis of its motion, and identifying those portions of “ ‘pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)).

“If the moving party meets its initial burden of showing ‘the absence of a material and triable issue of fact,’ ‘the burden then moves to the opposing party, who must present significant probative evidence tending to support its claim or defense.’ ” Intel Corp. v. Hartford Accident & Indent. Co., 952 F.2d 1551, 1558 (9th Cir.1991) (quoting Richards v. Neilsen Freight Lines, 810 F.2d 898, 902 (9th Cir.1987)). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548. The substantive law governing a claim determines whether a fact is material. T.W. Elec. Serv. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir.1987).

The court should view inferences drawn from the facts in the light most favorable to the nonmoving party. Id. at 630-31. On cross-motions for summary judgment, the court gives the nonmoving party for each motion the benefit of all reasonable inferences. Center for Bio-Ethical Reform, Inc. v. Los Angeles County Sheriff Dept., 533 F.3d 780, 786 (9th Cir.2008). Additionally, on summary judgment, the court need not draw all possible inferences in the nonmoving party’s favor, but only all reasonable ones, and a reasonable inference is one based on more than mere speculation, conjecture, or fantasy. Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1065 n. 10 (9th Cir.2002).

All reasonable doubts as to the existence of a genuine issue of fact must be resolved against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, summary judgment is mandated against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. In that situation, there

can be no genuine issue as to any material fact, since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial. The moving party is entitled to a judgment as a matter of law because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof. The standard for granting summary judgment mirrors the standard for a directed verdict under Federal Rule of Civil Procedure 50(a)....

Id. at 322-32, 106 S.Ct. 2548 (internal quotation omitted). Additionally, where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no “genuine issue for trial.” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348.

DISCUSSION

I. Applicable Law

A. 911 Management’s Claims

911 Management brings this action under 26 U.S.C. § 7426. The first three claims for relief are brought as to the three separate levies which defendant issued against 911 Management’s bank account: April 16, 2007 (first claim), October 31, 2007 (second claim), and November 30, 2007 (third claim).

911 Management also brings a fourth claim for “Unlawful ‘Nominee Levies’ by Defendant upon Plaintiffs Property.” Compl. at ¶¶ 51-70. 911 Management alleges that before assessing a tax against a taxpayer, the IRS is required to present the taxpayer with notice and an opportunity to dispute the proposed tax in a proceeding in the United States Tax Court. 26 U.S.C. § 6213(a). This is referred to as a “notice of deficiency.” 26 U.S.C. § 6212. 911 Management alleges that no statute relieves defendant of the notice requirements where the defendant seeks to assess a tax liability against an alleged nominee or alter ego of a taxpayer. Compl. at ¶ 54. 911 Management asserts that before assessing a tax against 911 Management, even as an alleged nominee or alter ego of another person, defendant was required to issue a notice of deficiency to 911 Management. Id. at ¶ 55. 911 Management also alleges that before assessing the taxes at issue in its first three claims, defendant provided no notice of deficiency to 911 Management. Id. at ¶ 56. 911 Management further alleges that defendant was similarly obligated to provide 911 Management with notice that defendant intended to collect the tax forcibly by issuing to 911 Management a “notice of intent to levy.” Id. at ¶¶ 58-63 (citing 26 U.S.C. § 6330).

B. Wrongful Levy under 26 U.S.C. § 7426

26 U.S.C. § 7426 allows a third party (a party other than the delinquent taxpayer or the IRS), to challenge an IRS levy as “wrongful.” Under IRS regulations, a levy is “wrongful,” if it “is upon property in which the taxpayer had no interest at the time the lien arose or thereafter.” 26 C.F.R. § 301.7426-l(b).

As explained in a 1997 decision by this Court:

When a taxpayer neglects or refuses to pay taxes, the IRS may place a lien in favor of the United States upon all property and rights to property belonging to the taxpayer. 26 U.S.C. § 6321. When a lien attaches to property it is subject to levy. 26 U.S.C. § 6331(a). Under certain circumstances, the United States may levy upon property held by a third party such as, when a third party trust or entity is the alter ego or nominee of a taxpayer who is indebted to the United States for past taxes and penalties, See Juris Trust Co. Ltd. v. United States, 1996 WL 784503 (E.D.Cal.1996), when a trust or entity is a “sham”, See United States v. Geissler, 1993 WL 625535 (D.Idaho 1993), or when the third party’s interest in the property derives from a fraudulent transfer by the taxpayer whose liabilities are at issue, See Loving Saviour Church v. United States, 728 F.2d 1085, 1086 (8th Cir.1984).

26 U.S.C. § 7426(a)(1) provides in part that: “If a levy has been made on property ..., any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in ... such property and that such property was wrongfully levied upon may bring a civil action against the United States ... ”. To state a claim under § 7426, the plaintiff must show: 1) it has an interest in the property; and 2) the “property was wrongfully levied upon”. 26 U.S.C. § 7426(a)(1). A levy is wrongful if it was placed upon property in which the delinquent taxpayer has no interest. Sessler v. United States, 7 F.3d 1449, 1451 (9th Cir.1993).

The plaintiff “has the initial burden of proving title to the levied property.” Tri-State Equipment v. United States, 1997 WL 375264 at *9 (E.D.Cal.1997). Once the plaintiff meets this initial burden, “the United States must show that there is a nexus between the taxpayer and the property.” Id. The United States may satisfy this burden by showing that a third party trust or entity is the alter ego or nominee of a taxpayer who is indebted to the United States for past taxes and penalties, See Juris Trust Co. Ltd. v. United States, 1996 WL 784503 (E.D.Cal.1996), a third party trust or entity is a “sham”, See United States v. Geissler, 1993 WL 625535 (D.Idaho 1993), or the third party’s interest in the property derives from a fraudulent transfer by the taxpayer whose liabilities are at issue, See Loving Saviour Church v. United States, 728 F.2d 1085, 1086 (8th Cir.1984). “[T]he plaintiff bears the ultimate burden of proving that the property does not belong to the taxpayer.” Tri-State Equipment, 1997 WL 375264 at *9.

The Colby B. Foundation v. United States, No. CV-96-3073-CO, 1997 WL 1046002, at *16-17 (D.Or. Oct. 22, 1997), aff'd, 166 F.3d 1217 (9th Cir.1999); see also D & S Family Preservation Trust v. United States, 983 F.Supp. 926, 930 (D.Or.1997) (“The plaintiff in a wrongful levy suit bears the initial burden of showing an interest in, or a lien on, e.g., legal title, in the levied upon property.... Once that showing is made, the burden shifts to the government to show a nexus between the taxpayer and the property.... The plaintiff, however, retains the ultimate burden of persuading the district court that the property which appears to belong to the taxpayer is actually his property”) (citations omitted).

911 Management argues that the burden of proof on the “nexus” element resides with the government and does not shift back to 911 Management. In support, 911 Management relies on Flores v. United States, 551 F.2d 1169 (9th Cir.1977), where the court held that the government has the burden of persuasion on the “nexus” issue. Id. at 1175. Because the government in Flores failed to introduce sufficient evidence supporting its claim that the money which had been seized belonged to the delinquent taxpayer, the court had no reason to expressly consider the issue of shifting the burden back to the plaintiff upon the government providing sufficient evidence in support of its claim. See id. at 1176.

In a footnote, the Flores court noted that it was not faced with a situation in which the government meets its burden of demonstrating a nexus between the taxpayer and the seized property where the plaintiff makes a claim to the property “derivatively from the taxpayer, through gift or otherwise.” Id. at 1176 n. 8. The court stated that such a situation was different from the ease before it, and that its holding was limited to a requirement that the government “trace the property to the taxpayer.” Id.

Subsequently, in a 1984 decision, the Ninth Circuit remarked that in Flores, it held that the government had the burden of persuasion on the question of whether there was a nexus between the taxpayer and the seized property. Arth v. United States, 735 F.2d 1190, 1193 (9th Cir.1984). The court expressed that it had “no doubt” that the government met that burden in the case before it. Id.

The Arth court noted that Flores had “reserved the question of where the burden of proof lies once the government traces the property of the taxpayer and the third party makes a claim to the property derivatively from the taxpayer, through gift or otherwise.” Id. at 1193. The Arth court was “faced with such a situation here.” Id. In such a circumstance, the court held,- the third party must “prove that property which appears to belong to the taxpayer is actually his.” Id. The court reached this conclusion because on the “nexus” issue, the government will often have greater access to the facts than the third party, while in the situation of a derivative claim, the third party makes “a claim of ownership which depends on facts that are peculiarly within his knowledge.” Id.

911 Management contends that this case is governed by Flores and not Arth. The problem with 911 Management’s argument, however, is that Flores does not require the shifting of the burden of proof, but only requires that the government carry the burden of persuasion on the nexus issue, and neither case provides the law regarding the burden of proof, or persuasion, once the government meets its burden on the nexus issue in a case not involving a derivative claim.

Moreover, contrary to 911 Management’s argument, Judge Panner’s decision in Morgan Overseas Bank, Ltd. v. United States, No. CV-84-797-PA, 1986 WL 10102 (D.Or. June 17, 1986), does not resolve the issue. There, Judge Panner noted that there was some question in the law as to whether the burden of showing the nexus element was ultimately on the plaintiff or the government. Id. at *1. He first cited Valley Finance, Inc. v. United States, 629 F.2d 162, 171 n. 19 (D.C.Cir.1980), for the proposition that once the government meets its burden of showing the requisite nexus, the burden returns to the plaintiff who must show wrongfulness by a preponderance of the evidence. Id. Then, however, he noted that dictum in Flores and Al-Kim v. United States, 610 F.2d 576, 580 (9th Cir.1979), amended, 650 F.2d 944, 948 n. 12 (9th Cir.1981), indicated that the burden may remain with the government. Id.

Judge Panner then discussed Arth and Flores. Id. at *2. He concluded that the case before him was governed by Arth because even though the plaintiff did not contend that it received the seized property derivatively from the taxpayer, the evidence indicated that that is what had occurred. Id. at *2. Thus, Judge Panner applied the standard for derivative property as articulated in Arth. Finally, after a review of the evidence and making findings of fact, he concluded that the evidence showed a close nexus between the plaintiff and the delinquent taxpayer. Id. at *10. He explained that he would reach that result on the nexus element and make the same fact findings whether the burden rested on the plaintiff or the government. Id.

I agree with 911 Management that Flores governs this case, as far as it goes. After 911 Management makes its initial showing of an interest in the property, the burden of persuasion shifts to the government to show a nexus between the property and the taxpayer. Flores does not expressly answer the question of what occurs, absent a derivative claim to the property, once the government satisfies this burden. But, by holding that only the burden of persuasion shifts to the government on the nexus element, Flores impliedly holds that once the government meets its burden on that issue, the burden of persuasion shifts back to 911 Management and that ultimately, 911 Management bears the burden of proving that the property does not belong to the Weatherses.

Applying that principle to the cross-motions for summary judgment in this case, 911 Management, to prevail on its motion, must establish, in the end, that no reasonable juror could conclude that the money in the account levied upon belonged to the Weatherses. To avoid summary judgment in favor of the government, 911 Management must establish that a reasonable juror could conclude that the money in the account did not belong to the Weathers. If 911 Management fails in this regard, summary judgment must be granted to the government.

C. Nominee Law

State law controls the determination of whether an entity is an alter ego or nominee. Colby B., 1997 WL 1046002, at *20 (citing Morgan Overseas Bank, 1986 WL 10102, at *10). Although Oregon law recognizes the nominee theory, it does not address the factors necessary to determine whether an entity is the nominee of the taxpayer. Id. Thus, as in Colby B., the court looks to the nominee factors identified in Towe Antique Ford v. IRS, 791 F.Supp. 1450, 1454 (D.Mon.1992), aff'd, 999 F.2d 1387 (9th Cir.1993) (affirming on alter ego issue, but declining to reach nominee issue). Colby B., 1997 WL 1046002, at *20; see also United States v. Secapure, No. C 07-1050 THE, 2008 WL 820719, at *7 (N.D.Cal. Mar. 26, 2008) (noting that courts throughout the Ninth Circuit rely on the Towe factors to determine nominee status).

The Towe factors are:

1) Whether the nominee paid no or inadequate consideration;

2) Whether the property was placed in the name of the nominee in anticipation of litigation or liabilities;

3) Whether there is a close relationship between the transferor and the nominee;

4) Whether the parties to the transfer failed to record the conveyance;

5) Whether the transferor retained possession; and

6) Whether the transferor continues to enjoy the benefits of the transferred property.

Towe, 791 F.Supp. at 1454.

The Colby B. court added four additional factors relevant to the nominee analysis, although they were not articulated in Towe: (1) the source of the funds used to purchase the property; (2) the taxpayer’s continued use of the property without payment of fair rental value; (3) the taxpayer’s continued payment of maintenance charges and real estate taxes; and (4) the taxpayer’s acts of holding himself out as the owner of the property. Colby B., 1997 WL 1046002, at *20.

Generally, a business holds an asset as a nominee for a taxpayer when the taxpayer maintains a beneficial interest and exerts control over the asset. See LiButti v. United States, 107 F.3d 110, 119 (2d Cir.1997). The court should consider the totality of the circumstances rather than single out the presence or absence of one particular factor. See Turk v. IRS, 127 F.Supp.2d 1165, 1167 (D.Mont.2000) (“No factor can dispose of the issue itself, and no factor is necessarily required in order to find nominee status.”).

D. Alter Ego Law

As with the law regarding nominees, Oregon law controls the issue of alter ego. Wolfe v. United States, 806 F.2d 1410, 1411 n. 3 (9th Cir.1986); Morgan Overseas Bank, 1986 WL 10102, at *10. Oregon has recognized the alter ego theory, but it has not specifically addressed the issue in the tax context. Morgan Overseas Bank, 1986 WL 10102, at *10.

In Towe, the Ninth Circuit discussed the alter ego theory under Montana law. Towe, 999 F.2d at 1391. It explained that in Montana, “no concrete formula exists under which a court will disregard the separate identity of the corporate entity.” Id. (internal quotation omitted). The court then listed the following factors as relevant to a finding of alter ego:

1) Whether the individual is in a position of control or authority over the entity;

2) Whether the individual controls the entity’s actions without need to consult others;

3) Whether the individual uses the entity to shield himself from personal liability;

4) Whether the individual uses the business entity for his or her own financial benefit;

5) Whether the individual mingles his own affairs in the affairs of the business entity; and

6) Whether the individual uses the business entity to assume his own debts, or the debts of another, or whether the individual uses his own funds to pay the business entity’s debts. Id. The court noted that these factors were not exclusive. Id. The court also suggested the alter ego determination depends on the facts and circumstances present in each case. Id.

In Valley Finance, a case cited by the Towe court on the issue of alter ego status, the court stated that an entity is an alter ego when it is so dominated by another so as to negate any separate entity distinction. Valley Finance, 629 F.2d at 171-172 (cited in Towe, 999 F.2d at 1391). The Valley Finance court explained that “control by the individual must be active and substantial, but it need not be exclusive in a hypertechnical or day-to-day sense. The test is a practical one, based largely on a reading of the particular factual circumstances.” Id. at 172.

II. Discussion

A. Nominee Factors

Colby B. and Toive together provide ten factors to analyze to determine whether an entity is the nominee of a taxpayer. Importantly, as suggested by the cases cited above, the factors are flexible, meaning that in a case involving the seizure of cash in a bank account, as opposed to the seizure of real property, some of the factors may not be readily applicable. And, depending on the facts of the case, the factors as stated in Colby B. or Towe, may need to be rephrased. Finally, as recited above, the presence or absence of a particular factor is not dispositive.

1. Whether the Nominee Paid No or Inadequate Consideration

On September 28, 2007, 911 Management entered into written license agreements with Tom and Kathy Weathers regarding the operations at the Kent and Joyce Hotels. Deft Exhs. 12, 13. The agreements are identical, but for the individual hotel.

In the Joyce Hotel agreement, Tom and Kathy Weathers are defined as the Li-censor and 911 Management, LLC is defined as the Licensee. Deft Exh. 12. The License Agreement initially states that the Weatherses, as Licensor, and 911 Management, as Licensee, have been operating under a “binding verbal, legal agreement” from January 1, 2006, with respect to the management and operations of the Joyce Hotel and that the parties desire to memorialize the prior agreement. Id. The parties recite that the written license agreement was delayed due to litigation between the Licensor and the United States. Id. The License Agreement then recites that the Licensee has managed and operated the Joyce Hotel pursuant to the License Agreement since January 1, 2006, “including collection of all revenue and payment of all expenses.” Id.

The License Agreement recites that Li-censor (the Weatherses) entered into a lease agreement with DZ Real Estate, LLC, dated March 1, 2003, to occupy the premises at 322 S.W. Eleventh Ave in Portland, referred to as the Property, and to operate the hotel business known as the Joyce Hotel. Id. The parties expressly recognized that the License Agreement did not transfer rights and ownership in or to the lease, nor did the License Agreement assign, sublet, or cause an occupant change with the lease. Under the License Agreement, the Licensee may not enter into any contract, agreement, or commitment without prior written permission.

911 Management, as Licensee, confirmed that it (1) had a copy of the Operating Lease between the Weatherses and DZ Real Estate, (2) had read the Operating Lease, (3) agreed to use diligence and its expertise to insure that strict compliance with the Operating Lease was maintained, and (4) had a fundamental duty to manage and operate the hotel in a compliant manner to maximize rentals, sales, and profits. Id. at p. 2.

The Weatherses acknowledged and agreed that they would not interfere with the management and operations of the property, providing that the 911 Management maintained full compliance with the Operating Lease and the License Agreement. Id. at pp. 2-3. However, the termination provision states that the Weatherses, as Licensor, can terminate the License Agreement at any time without cause by providing notice to the Licensee in writing. Id. at p. 3. 911 Management, as Licensee, has no corresponding right to terminate the License Agreement.

In the License Agreement, Kathy Weathers disclosed that she was a minority owner of 911 Management. Id. The License Agreement recites that she will assist 911 Management as directed by manager Dent, but that she would not control or direct any management, fiscal duties, or key operating activities of 911 Management. Id.

The License Agreement requires that 911 Management, as Licensee, pay the Weatherses, as Licensor, a fee equal to three-percent of the gross proceeds generated from operations, interest, late fees, sales, rentals and any and all other income derived from the property and/or hotel operations. Id. at p. 5. This fee was to be paid by the tenth day of each month. Id. The Licensee is directed to make the fee payment to Tom and Kathy Weathers unless otherwise directed by the Licensor. Id.

The License Agreement is signed by Tom and Kathy Weathers as Licensors, and by Dent for the Licensee. Id. at p. 8. An identical License Agreement between Tom and Kathy Weathers as Licensor and 911 Management as Licensee, regarding the operation of the Kent Hotel, was executed on the same day, by the same individuals. Deft Exh. 13.

911 Management also receives income from the management of several properties in Washington. The initial capital contribution to T & K Weathers, LLP, one of 911 Management’s members, in 1996, included several properties owned by Tom and Kathy Weathers in Longview and Kelso, Washington. Deft Exh. 1. Schedule A of the T & K Weathers, LLP partnership agreement states that “[t]he following real estate subject to the encumbrances owed thereon to-wit: [list of seven properties.] The above-described real estate is hereby conveyed to said TK WEATHERS LIMITED PARTNERSHIP, with Grantors retaining the obligation to personally pay all obligations thereon if any presently exist.” Id.

According to Dent, 911 Management manages the Longview and Kelso properties under an oral agreement with Tom Weathers, as general partner of T & K Weathers, LLP. Deft Exh. 11 (Dent Depo.) at p. 68; see also Deft Exh. 51 (Tom Weathers Depo.) at p. 47 (any properties held by T & K Weathers are managed by 911 Management). 911 Management receives income from the management of the Washington properties in exchange for paying the mortgages on those properties.

Tom and Kathy Weathers did not personally place money in 911 Management’s bank account. This is not a situation where a sales contract reveals the consideration paid for seized property. The money seized in 911 Management’s bank account was there by virtue of two sets of agreements. The first set is the written License Agreements Tom and Kathy Weathers signed with 911 Management to operate the Kent and Joyce Hotels, which allowed 911 Management to collect the revenue from those enterprises. The second set is the oral agreements the Weatherses, as general partners of T & K Weathers, LLP, had with 911 Management under which 911 Management operated, and received revenue from, the Washington properties. Thus, the relevant inquiry for this case, under this factor, is whether 911 Management paid little or no consideration for the right to obtain the revenue from those Oregon hotels and Washington properties as a result of operating them.

911 Management reported gross receipts of $1,379,749 on its 2006 federal income tax return (IRS Form 1065, line 1(a)). Deft Exh. 9. It reported gross receipts of $1,510,131 on its 2007 federal tax return (IRS Form 1065, line 1(a)). Deft Exh. 10. According to Dent, 911 Management’s sole source of income is the rental of rooms in the Kent and Joyce Hotels in Oregon, and the rental of the Washington properties. Dent Feb. 20, 2009 Affid. at ¶ 5.

Other than some vague entries in 911 Management’s bank account records which may be deposits of income from the hotels or the Washington properties, but which are not identified by either party as such (nor is there any citation to a particular page or entry in the more than seventy-page exhibit), there is no evidence in the record to show how much of the gross receipts listed on 911 Management’s 2006 and 2007 tax returns, is attributable to an individual piece of property. Thus, on this record, I cannot discern how much gross income 911 Management obtained from its operation of only the Joyce Hotel, its operation of only the Kent Hotel, or its operation of any of the individual properties in Washington.

As a result, the record does not establish the amount represented by three-percent of the gross proceeds from the operation of the hotels. Thus, there is no way to evaluate whether the three-percent fee under the License Agreements for the Kent and Joyce Hotels was a fair bargain for 911 Management or the Weatherses. Additionally, plaintiff fails to put any evidence in the record to show how this three-percent fee compares to other, similar commercial license agreements.

Nor is it possible to compute the value of the oral agreement for the Washington properties. Again, the record does not show the amount of gross proceeds generated by those properties. It also does not show the amount 911 Management pays in mortgage payments on those properties. Thus, as with the hotels, the record does not allow the Court to evaluate the adequacy of consideration paid by 911 Management, the alleged nominee here, for the right to obtain income from the hotels and the Washington properties.

Records from 1996, while not determinative, give some indication that the three-percent license fee under the hotel agreements, is wholly inadequate consideration. In 1996, the Joyce Hotel collected $405,660 in rent. Deft Exh. 38 at Bates 010838. Three-percent of $405,660 is $12,129. Net income from the Joyce Hotel in 1996 is listed in the Weatherses’ 1996 tax return as $134,761. Id. Thus, if the License Agreement had been in place in 1996, the Weatherses would have received $12,169 from 911 Management, but would have given up $134,761 in income in exchange, meaning they would have given up more than ninety-percent of the income from the Joyce Hotel.

As for the Kent Hotel, the gross rents for 1996 were $195,353, three-percent of which is $5,860.59. Deft Exh. 38 at Bates 010839. The net income for the property for that year was $96,824. Id. If the License Agreement had been in place in 1996, the Weatherses would have received $5,860.59 as the three-percent fee owed to them, but would have given up $96,824 as net income, meaning they would have given up over ninety-three percent of the income from the Kent Hotel.

The evidence is insufficient to evaluate the adequacy of the consideration. The government has met its burden of showing a nexus between the income and the Weatherses because before 911 Management formed, and before the inception of the agreements between 911 Management and the Weatherses as to the hotels, and the agreement between 911 Management and T & K Weathers, LLP as to the Washington properties, Tom and Kathy Weathers received the income from all of the properties which now generate the income received by 911 Management.

In the context of these motions, the government must show, on this issue, only a question as to whether the consideration was inadequate. The failure of evidence on the consideration issue is enough to raise such a question. That is, the lack of evidence as to what income each property generated and what the mortgage payments are for the Washington property, is enough to raise a question of inadequate consideration. The information in the record from 1996 further raises an issue of inadequacy. In contrast, 911 Management has to affirmatively show that the consideration was adequate, or at least raise an issue that it was adequate. The complete failure of evidence on this issue, an issue on which 911 Management ultimately bears the burden of proof, is insufficient to suggest that the consideration was adequate. Thus, this factor weighs in favor of the government.

2. Whether the Property was Placed in the Name of the Nominee in Anticipation of Litigation or Liabilities

The basis for the tax evasion conviction was the Weatherses’ failure to pay income taxes on, and their efforts to conceal, income earned in 1996 from the hotel operations and other properties. As noted above, as part of their sentences, Tom and Kathy Weathers were ordered to immediately pay their still-outstanding 1996 income tax liability.

911 Management was created eleven days after Tom Weathers was sentenced. 911 Management and Tom and Kathy Weathers entered into oral agreements on January 1, 2006, just over two months after Tom Weathers was sentenced, under which 911 Management began to operate the Oregon hotels and collect the revenue from those operations. The oral agreements were reduced to writing in September 2007.

Defendant argues that the timing of 911 Management’s creation shows that the Weatherses sought to continue their pattern of concealing their income from the IRS, despite their criminal convictions. At sentencing, the Weatherses knew they would be required to make payments of the already-assessed 1996 tax year liability, to file tax returns, to pay taxes for future years, and to report their income to the IRS as part of their sentences. The properties which produced the 1996 income which the Weatherses took affirmative steps to conceal from the IRS, and on which they failed to pay taxes and now owed as part of a criminal restitution judgment, were the same properties which 911 Management operated under agreements with the Weatherses.

911 Management responds that the undisputed facts are that Coral Management formerly managed the properties now managed by 911 Management. During his criminal trial, Tom Weathers met Jeff Townley who recommended that a new “business structure” be implemented for management of the properties, because of Tom Weathers’s impending incarceration. 911 Management contends that Jeff Townley did nothing more than overhaul a “unitary corporate structure” and replace it with a “modern LLC structure.” Because businesses are restructured every day, the fact that 911 Management was formed when it was is not a basis to disregard 911 Management’s separate existence and its ownership of its property.

911 Management notes that the question in this factor is whether “the property” was placed in 911 Management’s name in anticipation of litigation or liabilities. 911 Management argues that the property here is its bank account. 911 Management further argues that the money was not placed in 911 Management’s bank account by the Weatherses. Rather, according to 911 Management, it was earned by 911 Management as a result of its operation of the properties. Thus, 911 Management argues, the revenue cannot be characterized as having been placed in the bank account in anticipation of litigation or liabilities.

911 Management’s argument ignores the facts of the case and is an unjustifiable attempt to narrow the Court’s focus. The relevant facts here are that (1) the Weatherses had a history of non-payment of taxes on income derived from the Oregon hotels and Washington properties; (2) they had recently been convicted of tax evasion for 1996; (3) they owed taxes on their 1996 income as part of a criminal judgment; (4) 911 Management was created only eleven days after Tom Weathers was sentenced; (5) the oral agreements under which 911 Management was to begin receiving the revenue from the Oregon hotels were entered into only two and one-half months after Tom Weathers was sentenced; and (6) the revenue obtained by 911 Management under the hotel agreements and the oral agreement regarding the Washington properties, is the same revenue which produced the 1996 income upon which the Weatherses’ 1996 income tax assessment was based.

The evidence shows that the Weatherses created 911 Management and then entered into agreements under which income previously received by the Weatherses, would now be received by 911 Management. The evidence shows that the Weatherses did so shortly after them convictions and sentencings for criminal tax evasion of $103,117 for tax year 1996 (Count 1 of the superseding indictment), and for which their Judgments of Conviction, filed on the Weatherses’ respective sentencing dates, included an order of restitution requiring payment of that $103,117 to the IRS’s Collection Division. A reasonable juror could reach only one conclusion based on these facts: the Weatherses acted in anticipation of the collection of the 1996 tax liability.

3. Whether There is a Close Relationship Between the Transferor and the Nominee

Defendant argues that all ownership interests in 911 Management can be traced back to the Weatherses. The record supports defendant’s argument.

The three members of 911 Management are Kathy Weathers, T & K Weathers, LLP, and Club Ed. Tom and Kathy Weathers are the general partners of T & K Weathers, and all the limited partners are linked to the Weathers family. It is undisputed that Tom Weathers makes the decisions for T & K Weathers, LLP. Tom Weathers Depo. (Deft Exh. 51) at p. 34.

According to Dent, Club Ed’s members are anyone that Club Ed makes a payment to, or on behalf of, and of the five such individuals he named, three are members of the Weathers family. The others are Tom Weathers’s cellmate (Carroll), and Dent’s nephew (Maag). Dent has been a close personal friend of the Weatherses for more than twenty years and is the godfather of the Weathers children. Club Ed uses the same address as Kathy Weathers and has no bank account of its own. It does not make its own “member distributions.” Instead, 911 Management makes payments to third parties on behalf of Club Ed or its members.

911 Management argues that the presence of Club Ed is dispositive evidence of a “lack of closeness.” 911 Management relies on the testimony of Jeff Townley who indicated that while Dent makes recommendations on the distributions to or on behalf of Club Ed members, and executes those distributions, the final decisionmaker is actually Jeff Townley. Because there is no evidence, argues 911 Management, that Jeff Townley is controlled by the Weatherses, there is no evidence that the Weatherses control Club Ed. 911 Management adds that should Club Ed be dissolved, neither the Weatherses, nor any other individual, will have an interest in Club Ed’s assets.

The evidence undermines 911 Management’s argument. First, putting Club Ed aside, the undisputed evidence is that Kathy Weathers has a thirty-five percent interest in 911 Management and T & K Weathers, LLP has an additional twenty-five percent interest in 911 Management. As noted earlier, T & K Weathers, LLP’s general partners are Tom and Kathy Weathers, and their family trust is one of the limited partners. Trusts for each of their four children comprise the remaining limited partners. Thus, even with no consideration of Club Ed, Tom and Kathy Weathers have a close relationship to 911 Management.

Second, the facts regarding Club Ed support only one reasonable inference: Club Ed and Tom and Kathy Weathers have a close relationship, underscoring the closeness of the relationship between 911 Management and Tom and Kathy Weathers. Dent, Club Ed’s manager, is closely tied to the Weatherses. Weathers family members comprise the majority of the recipients of Club Ed distributions. A cellmate of Tom Weathers’s and Dent’s nephew are the only other recipients of Club Ed monies. While there is a dispute between Dent’s testimony and Jeff Townley’s testimony about who is the final decision-maker for Club Ed distributions, it appears undisputed that Townley has never failed to follow Dent’s recommendations in that regard. And, both of these decision-makers have ties to Tom Weathers, one by being a close family friend for many years and the appointed manager of 911 Management, the other being a business advis- or to Tom Weathers. Finally, the record fails to establish that Club Ed has any assets, so the fact that the Weatherses would have no ownership interest in Club Ed assets upon dissolution of Club Ed, is meaningless. Whatever else Club Ed may be, the record shows it is nothing more than a funnel through which money passes to people with a close relationship to Tom and Kathy Weathers.

This factor weighs heavily in favor of the government.

4. Whether the Parties to the Transfer Failed to Record the Conveyance

This factor is aimed at examining whether the parties formally adhered to certain recordkeeping practices in executing their transaction. In this case, the legitimate, separate identity of 911 Management cannot be measured by a recorded conveyance or written contract of sale because there was no transfer of land or other item of tangible property. While there are some written agreements (the written Operating Agreement for 911 Management and the written License Agreements for the hotels), there is no written conveyance record or sales contract evidencing an arms-length transaction.

However, there is evidence as to 911 Management’s recordkeeping practices in various instances. This evidence is relevant to the inquiry regarding the legitimacy of the transaction between the alleged nominee and the taxpayer.

911 Management states that its bank transactions are recorded in its bank account statements and canceled checks. While this appears to be the case, see Exh. B to Sellers Affid. at pp. 33-105, there are instances in which 911 Management’s recordkeeping is sloppy or inaccurate, as discussed below. I separately discuss the different instances of allegedly poor recordkeeping, after which I reach a conclusion about the recordkeeping evidence.

a. Promissory Notes

The record contains copies of nine promissory notes, all evidencing transfers of money by 911 Management to a Weathers family member, with the Weathers family member promising to repay the money under the terms of the note. Exh. B to Sellers Affid. at pp. 106-31. One note is dated October 12, 2006, id. at pp. 115-17, and the rest are dated at various times in 2007. Id. at pp. 106-14,117-30.

In November 2007, Jeff Townley sent an email to Dent attaching two of the promissory notes. Deft Exh. 65. Jeff Townley states that one was for Bradley Weathers who borrowed $2,800 “last January.” Deft Exh. 65. Jeff Townley further states that he was told that Bradley Weathers could not make more than a $100 per month payment and Townley did not know what the terms were or if Bradley Weathers had started repaying the loan. Id. Townley set the interest rate at five-percent (which he describes as “quite low for a car”), and the monthly payment at $99.48/ month, making it a thirty-month loan. Id. He tells Dent that

[i]f [Bradley Weathers] has not started yet, you can fill in the date when he ought to start and treat the time from when he received the money until when he begins to repay as a grace period. If he has already started the pay-back, fill in the date so as to reflect when he began to repay.

Id.

The other promissory note Jeff Townley refers to is one by Ron King, identified by Dent as Katie Weathers’s husband. Deft. Exh. 65; Dent Depo. at p. 169. Jeff Townley states that “[t]he other note is for Ron King. I just made it a simple interest 4% loan due 15 days after he receives his refund. Call me or e-mail if you have any questions.” Id. He then states that “[b]oth notes are in Word so you can change them as you need to and use the note as a template if you need to create additional notes — or just call me and I will.” Id.

On January 30, 2008, Dent sent an email to Jeff Townley in which Dent stated “[i]f I am to testify [at the February 8, 2008 hearing on 911 Management’s motion for preliminary injunction in the instant case], we need to get all of our ducks in order. I have signed promissory notes for three loans but there are a number of others we need promissory notes for.” Deft Exh. 56.

Dent does not identify the three loans for which he had promissory notes, but he does list several for which he needs promissory notes. Id. The formatting of the email makes it difficult to understand which member of the Weathers family obtained the monies from 911 Management. Id. at p. 3. There are four names: Kayla, Kathy, Bradley, and Katie. Id. There is also one entry which states “Financial Awareness (for Brian).” Id. There are a total of fourteen separate amounts indicated. Id.

Townley and Dent created promissory notes after the fact. The government argues that these transfers of money from 911 Management to members of the Weathers family are nothing more than gifts, evidencing that 911 Management’s bank account is nothing more than a personal bank account for the Weathers family-

911 Management does not dispute that promissory notes were backdated. 911 Management argues, however, that this is standard practice for small businesses. 911 Management asserts that it considered the loans as assets, in accordance with generally accepted accounting principles, and were reported to the IRS as loans. In support, 911 Management cites to its 2006 and 2007 tax returns.

In “Statement 3” to 911 Management’s 2006 partnership tax return, 911 Management lists $8,500 in loans. Deft Exh. 9 at p. 14. Although there is no further explanation of this sum in the record, I assume for the purposes of this motion, that this includes the $8,000 loan to Kathy Weathers purportedly made on October 12, 2006. I make this assumption because of the nine promissory notes in the record, only this one is from 2006. There is no explanation by 911 Management of the additional $500 in loans claimed in its 2006 tax return.

In “Statement 3” to 911 Management’s 2007 partnership tax return, 911 Management lists $8,500 in loans at the beginning of the year, but $221,908 at the end of the year. Deft. Exh. 10 at p. 14. There is no explanation for how the $221,908 was calculated. This figure is significantly higher than the approximate $17,340 total of the eight notes in the record which were executed in 2007. Exh. B to Sellers Affid. at pp. 106-14,117-30.

I agree with 911 Management that simply backdating a promissory note does not prove that a transfer of money was not a loan. However, the evidence here shows that in addition to the backdating, many of the notes are unsigned by the borrower, the majority have not been paid back, and all are to Weathers family members. Additionally, the amount of loans shown in 911 Management’s tax returns bears no correlation to the nine promissory notes in the summary judgment record. And, the recordkeeping of any repayment is quite informal, consisting of some handwritten notes, some acknowledged to have been written by Dent. Moreover, many of the alleged repayments occurred after this lawsuit was filed. Finally, 911 Management submits no evidence in support of its assertion that creating promissory notes after the fact is a common small business practice.

b. Payments to, or on behalf of, the Weathers

Defendant cites to several payments to or on behalf of the Weatherses, and inaccurate records surrounding those payments, as evidence that 911 Management is the nominee of the Weatherses. I address them in turn.

i. Lease Payments for Oregon Hotels

Defendant notes that 911 Management deducts as its own expenses the payments 911 Management makes on the Oregon hotel leases, which, based on the underlying leases, the Weatherses are personally obligated to pay. Deft Exh. 14 (Dec. 29, 2006 check # 5938 from 911 Management to Katchis, LLC, lessor of the Kent Hotel, for $4,700; Dec. 29, 2006 check #5939 from 911 Management to DZ Real Estate, LLC, lessor of the Joyce Hotel, for $6,473.53); Deft Exhs. 9 & 10 (2006 and 2007 tax returns for 911 Management showing deductions for rent); Exh. B to Seller’s Affid. at p. 68 (account entries in “register report” for 911 Management’s bank account, on December 29, 2006, for check # 5938 to Katchis, LLC for the Kent Hotel lease payment for $4,700, and for check #5939 to DZ Real Estate for the Joyce Hotel lease payment for $4,498.66).

Defendant’s point here is that by paying the personal obligations of the Weatherses, 911 Management ceases to be a separate entity, and by deducting the expense on its tax returns, 911 Management inappropriately treats a payment owed by the Weatherses as its own business expense, further blurring the line between 911 Management and the Weatherses.

911 Management argues that “[a]ll of the license fees paid [by 911 Management] to the Weathers, or directly to property owners on [the Weatherses’] behalf’ are tax deductible because “[t]hese are license fees Plaintiff pays in order to be permitted to enter the properties and operate them for its own account.” Pltf Reply Mem. at pp. 19, 20.

As noted above, the License Agreements expressly state that they do not transfer rights and ownership in the underlying hotel leases, and are not to be considered an assignment of the lease. Deft Exhs. 12, 13. They also provide, however, that 911 Management is to make any disbursements required in the leases. Id And, the License Agreements recite that since January 1, 2006, 911 Management had managed and operated the hotels, including payment of all expenses. Id Thus, while the License Agreements appear to have made no transfer of the Weatherses’ legal obligations under the leases to pay the rent on the hotels, they also indicate that 911 Management assumed the responsibility of making the rent payment on behalf of the Weatherses. The fact that 911 Management made the rent payments on the Weatherses’ behalf is not inconsistent with the License Agreements.

911 Management’s characterization of the rent payments as license fees is, however, inconsistent with, and unsupported by, the record. The record establishes that the license fee paid by 911 Management for its right to operate and manage the Oregon hotels, and to obtain the revenue therefrom, is three-percent of the hotels’ gross revenue, and notably, is to be used for Kathy Weathers’s living expenses.

In his deposition, Dent testified that under the hotel License Agreements, Tom Weathers’s family receives three-percent of the gross revenue from the Joyce and Kent Hotels and that Tom Weathers and Dent had an agreement that Tom Weathers’s family would receive that money by 911 Management paying the living expenses of Kathy Weathers. Deft Exh. 11 (Dent Depo.) at pp. 86-87. The agreement included payments for Kathy Weathers’s housing, auto expenses, auto and health insurance, and phone. Id. at pp. 87, 90. According to Dent, 911 Management usually writes a check directly to the third party, with the exception of the phone expense which Kathy Weathers paid herself, but was then reimbursed by 911 Management. Id. at p. 88.

Additionally, since, as discussed above, there is no evidence in the record to show the gross proceeds of the Oregon hotels in 2006 and 2007, and thus, no way to calculate three-percent of those proceeds, the Court cannot evaluate whether the rent payments to the hotels, plus the living expenses for Kathy Weathers, equal the three-percent to be paid to the Weatherses under the hotel License Agreements. 911 Management’s assertion here that the rent payments are part of that license fee does not make it so.

911 Management’s argument that the $10,000 per month rent payments it makes on behalf of the Weatherses for the Oregon hotels, is part of the three-percent license fee it owes the Weatherses under the License Agreements, finds no support in the record. Its characterization of these rent payments as a license fee is thus undermined. 911 Management has described its license fee payments as payments of Kathy Weathers’s living expenses. The rent payments for the hotels are in no way “living expenses of Kathy Weathers.” Furthermore, while the entity operating the hotels may or may not be able to properly deduct the rent payments as some type of ordinary business expense, 911 Management fails to show that it properly accounted for the lease payments as license fees and thus, its deductions of these payments on its income tax returns because they were license fees, is questionable.

ii. The Three-Percent License Fee

Defendant asserts, and 911 Management does not deny, that 911 Management also deducts as its own expenses, the payments it makes for Kathy Weathers’s housing and for her car repairs. Deft Exh. 16 (June 1, 2006 check # 5394 from 911 Management to “P.V.L, LLC” in Vancouver, Washington for “Weathers 4809 NE 109th St.,” for $1,800); Deft Exh. 17 (August 7, 2006 check # 5572 from 911 Management to Chrysler Financial, for $704.72); Exh. B to Sellers Affid. at p. 48 (account entry showing check # 5394 as payment to “P.V.L., LLC” for “Rent/4809 NE ...” with “Weathers 48 ...” noted in the “memo” column, not noted as a member distribution or as three-percent license fee); Id. at p. 54 (account entry showing check # 5572 as payment of “AutorLoan/ KA,” not as a member distribution or payment of the three-percent license fee).

911 Management states that payments to partners in capacities other than partners, such as a licensor under a license agreement, are property accounted for as transactions with “one who is not a partner” under Internal Revenue Code § 707(a)(1). 911 Management contends that it properly records on its books all of these payments and consistently reports them to the IRS.

911 Management’s summary judgment record on this issue is incomplete. While the Internal Revenue Code may allow 911 Management to consider the three-percent license fee it owes to Tom and Kathy Weathers by 911 Management under the License Agreements to be recorded as a transaction under section 707(a)(1) and deductible as an ordinary business expense (an issue I do not decide in this case), the bank account records (as summarized by example above) do not denote the payments as such, calling into question the accuracy and truthfulne