[95-2 USTC ¶50,473] Capital Tracing, Inc., Plaintiff-Appellant v. United States of America , Defendant-Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 92-55885, 8/17/95 , Reversing and remanding an unreported District Court decision

[Code Secs. 6331 and 7426 ]

Civil actions by nontaxpayers: Statute of limitations: Wrongful levy: Bail bonds.--A corporation's wrongful levy action that was filed after the expiration of the original limitations period was not time-barred because the limitations period was equitably tolled by the court's decision in a related case. The IRS levied on a bond that was posted by the corporation for an individual who was later convicted of tax fraud. In the related decision, the court directed the district court to comply with the IRS notice of levy on the bond without any inquiry into the levy's validity or without any determination of how much of the bond belonged to the individual. The corporation filed its wrongful levy action within nine months of this decision. The corporation's failure to know that it could only reclaim its bond by a wrongful levy action was not due to a lack of diligence because the law in the area was unsettled. Furthermore, the corporation was not unreasonable by waiting until the exoneration proceeding to assert its ownership rights over the bond.

Arnold I. Weber, Eytan, Mattaniah, 600 Montgomery St. , San Francisco , Calif. 94111 , for plaintiff-appellant. Kevin M. Brown, Department of Justice, Washington , D.C. 20530 , for defendant-appellee.

Before: NELSON, REINHARDT, and BRUNETTI, Circuit Judges.

OPINION

BRUNETTI, Circuit Judge:

On January 6, 1992 , Plaintiff/Appellant Capital Tracing, Inc. ("Capital") filed a wrongful levy action against the United States under 26 U.S.C. §7426 ¹ based on the Internal Revenue Service's (" IRS ") notice of levy filed on August 22, 1985 . The district court dismissed the action on May 8, 1992 , for lack of subject matter jurisdiction, finding that the time for filing a wrongful levy action under §7426 had expired on May 22, 1986 , nine months after the IRS served its notice of levy. Capital appealed the district court's decision.

Capital contends that the district court erroneously granted the government's motion to dismiss, arguing that the limitations period did not commence until we issued our 1991 ruling in United States v. Badger [91-1 USTC ¶50,198 ], 930 F.2d 754 (9th Cir. 1991)(Badger II). It is unnecessary for us to decide the disputed issue of when the limitations period began to run, as determined by the "date of the levy" on the cash bond. We assume, without deciding, that the IRS ' notice of levy served upon the clerk of the district court on August 22, 1985, triggered the limitations period. As a result, Capital's wrongful levy action, filed on January 6, 1992, after the expiration of the limitations period, was untimely. However, we find that equitable factors tolled the limitations period from the date of the notice of levy until we decided Badger II on April 16, 1991. Because Capital filed its wrongful levy action within nine months of our 1991 decision in Badger II, this action is not time-barred. We therefore reverse and remand.

FACTS AND PROCEEDINGS

On or before July 13, 1982, the IRS assessed $180,582.48 in income taxes against John James Badger ("Badger"). Badger was indicted on six fraud-related offenses in July 1985 and was ordered to post a $100,000 cash bond. Capital alleges that on July 29, 1985 it posted the bond with approximately $73,000 of its own funds and approximately $27,000 loaned to Badger by other people or entities for the purpose of posting bond.

On August 22, 1985, the IRS served a notice of levy upon the Clerk of the District Court for the Central District of California. The notice of levy stated that "[t]he intent and purpose of this levy is to attach to the $100,000 cash bond " posted for Badger.

Badger was found guilty, and we affirmed his conviction in United States v. Badger, 849 F.2d 1476 (9th Cir.)(Badger I), cert. denied, 488 U.S. 891 (1988). Badger surrendered himself for incarceration, and thereafter the district court ordered that the cash bond be exonerated. Upon being apprised of the IRS ' notice of levy, the district court ordered the IRS to show cause why the $100,000 cash bond should not be exonerated and paid over to Capital. The district court held a hearing on the show cause order and, on May 11, 1989, ordered that the $100,000 be paid over to Capital on May 18, 1989. The district court held that Internal Revenue Code ("I.R.C.") §6331 does not allow the IRS to levy upon bail bonds.

On April 16, 1991, we reversed the district court order and remanded for the district court to comply with the IRS ' notice of levy. Badger II [91-1 USTC ¶50,198 ], 930 F.2d 754, 755. We stated that:

I.R.C. §6331 provides for a lien on "all property and rights to property" belonging to the delinquent taxpayer. There is no exception for bail bonds. Moreover, there is no requirement that the IRS prove that any portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. Under I.R.C. §7421(a) , the Anti-Injunction Act [footnote omitted], if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 or other provisions specified in the Anti-Injunction Act. These I.R.C. sections indicate that the district court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belongs to Badger.

Id. at 756.

On June 25, 1991 , the district court on remand directed payment of the $100,000 to the IRS ; payment was made on June 27, 1991 . On January 6, 1992 , Capital filed a complaint in the district court under §7426 alleging that the IRS had "wrongfully levied on the [bail bond]." ²

On March 11, 1992 , the government moved to dismiss Capital's complaint for lack of subject matter jurisdiction. Specifically, the government contended that Capital's wrongful levy action was untimely under §6532(c) , because it was not brought within nine months after the IRS ' August 22, 1985 , service of notice of levy on the bail bond. As a result, the government argued that the district court lacked subject matter jurisdiction over the case.

Following a hearing, the district court entered an order on May 8, 1992 , dismissing Capital's complaint for lack of subject matter jurisdiction. The district court denied Capital's motion for reconsideration and vacation of its May 8, 1992 order. Capital filed a timely appeal from the district court's order.

STANDARD OF REVIEW

The district court's order dismissing Capital's complaint on the ground that statutory limitations bar the action involves questions of law which we review de novo. Washington v. Garrett, 10 F.2d 1421, 1429 (9th Cir. 1993).

DISCUSSION

I.

The United States, as a sovereign, may be sued only with its consent, United States v. Testan, 424 U.S. 392, 399 (1976), and waivers of sovereign immunity are to be strictly construed. United States v. Michel [2 USTC ¶677 ], 282 U.S. 656, 660 (1931); Dieckmann v. United States [77-1 USTC ¶9224 ], 550 F.2d 622, 624 (10th Cir. 1977). However, once the government has waived its sovereign immunity, the doctrine of equitable tolling may apply to toll the statutory limitation. Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96 (1990). ³

II.

We assume, without deciding, that the IRS ' service of the notice of levy on the clerk of the district court on August 22, 1985 , triggered the limitations period which, unless equitably tolled, would have required Capital to bring its wrongful levy action on or before May 22, 1986 to avoid summary judgment.

In Williams-Scaife v. Department of Defense Dependent Sch., 925 F.2d 346, 347 (9th Cir. 1991), we applied the Supreme Court's decision in Irwin and stated that "equitable tolling is applicable in employment discrimination cases filed by federal employees [against the government.]" The Irwin decision overruled a long line of Ninth Circuit cases ⁴ which refused to apply equitable tolling in cases against the government. In Irwin, the Court held that "the same rebuttable presumption of equitable tolling applicable to suits against private defendants should also apply to suits against the United States." 498 U.S. at 95-96. The Court noted that federal courts have allowed equitable tolling in situations where the claimant diligently sought judicial relief by filing a defective pleading during the statutory period or where the complainant had been induced by his adversary to allow the filing deadline to pass. Id. at 96.

There are other situations in which the courts have indicated that it may be proper for courts to exercise their equitable powers. In Catawba Indian Tribe of South Carolina v. United States, 982 F.2d 1564 (Fed. Cir.), cert. denied, 113 S. Ct. 2995 (1993), the court stated that even where there is no applicable express tolling provision, "courts may when circumstances require invoke the concept of tolling as an equitable matter.... A court in an appropriate case may temper the application of the bar in exercise of its equitable powers." Id. at 1571 & n.10.

In Dempsey v. Pacific Bell Co., 789 F.2d 1451 (9th Cir. 1986), in determining whether statutory limitations may be equitably tolled, we directed the district court to consider such factors as the lack of clear precedent in the circuit regarding the issue, and the absence of prejudice to the defendant. Id. at 1453 (the "lack of clear precedent in this circuit regarding the jurisdictional requirements pertaining to" plaintiff's age discrimination claim against a private employer may serve as an equitable factor justifying tolling of the statute of limitations); see also Vance v. Whirlpool Corp., 707 F.2d 483, 489-90 (4th Cir. 1983) (plaintiff permitted to refile his complaint because there was no clear precedent on the issue and there was no demonstration of prejudice to defendant; statute of limitations effectively tolled), supp. op., 716 F.2d 1010 (1983), cert. denied, 465 U.S. 1102 & 467 U.S. 1226 (1984). Because of Irwin, we can now apply the Dempsey factors in cases against the government.

The history of the instant case illustrates the lack of clarity in the law that would justify a court's equitable tolling of a limitations period. At the exoneration proceeding in 1989, the district court ruled against the IRS and ordered that the bond proceeds be paid over to Capital. In 1991, we overturned that decision and remanded for the district court to comply with the IRS ' notice of levy. We said that "if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 .... [The Anti-Injunction Act] indicate[s] that the district court was required to honor the IRS levy without inquiring into its validity ...." Badger II [91-1 USTC ¶50,198 ], 930 F.2d at 756. At issue in Badger II was "whether the power to rule on the validity of the IRS ' levy 'can fairly be implied as necessarily ancillary to the exoneration of the bond.' " Id. (quoting United States v. Arnaiz, 842 F.2d 217, 220 (9th Cir. 1988)). In Arnaiz, we held that a district court had jurisdiction ancillary to its power to exonerate a bail bond to consider disputes related to the bond if "denial of jurisdiction would necessarily interfere with the district court's ability to carry out its statutory mandate[to exonerate the bond]." Id. at 220-21. In Arnaiz, the defendant posted collateral with the surety and therefore became an "obligor" under Rule 46(f). ⁵ We held that the district court needed jurisdiction to decide whether the surety was required to return collateral to the defendant, because, without jurisdiction, it could not determine which obligor was entitled to receive the proceeds of the bail bond.

In contrast, in Badger II we held that the district court did not need to conduct a hearing to determine who owned the bond, because "there is no requirement that the IRS prove what portion of the property being levied upon belongs to the delinquent taxpayer before it can levy on the property." Badger II [91-1 USTC ¶50,198 ], 930 F.2d at 757. We said that Capital's only recourse lay in a wrongful levy action under §7426 . Id.

In United States v. Rubenstein, 971 F.2d 288 (9th Cir. 1992), we followed Arnaiz, stating that"[t]he district court thus had jurisdiction to consider Sherman's motion because it was 'necessarily ancillary' to release of the bail funds." Id. at 293. We distinguished Badger II, stating that there "we ruled on a 'narrow jurisdictional issue' and held that under the Anti-Injunction Act the district court lacked power to settle a dispute as to who owned the bail funds when one claim took the form of an IRS levy." Id. at 293 n.4.

A unique situation arose in Badger II, and we set forth new law. In other situations, both before and after Badger II, we have stated that district courts have jurisdiction to determine the rightful owner of bail funds. Capital's failure to know that the only way it could reclaim its bail bond was by filing a wrongful levy action was not due to its lack of diligence. The law was unclear, and we cannot say that Capital chose an unreasonable course of action by waiting until the exoneration proceeding to assert its ownership rights over the bond. Capital exercised its rights at what it thought was the earliest opportunity; Capital commenced actively protecting its interest in 1989 when, at the time of exoneration of the bail bond, it was apprised of the IRS ' notice of levy on the bond. Capital was a major participant, as real party in interest, in the United States' appeal to our court from the district court's determination that the bond should be returned to Capital.

The lack of clarity in our circuit's law on the district court's jurisdiction to determine ownership of bail funds and the absence of demonstrated prejudice to the government justifies equitable tolling of the limitations period from the date of the levy until April 16, 1991 , the date we issued our opinion in Badger II. Since Capital filed its wrongful levy action on January 6, 1992 , within nine months of our decision, we hold that this action is not time-barred.

Accordingly, we reverse the order granting the government's motion to dismiss and remand to the district court to consider the merits of the case.

REVERSED AND REMANDED.

¹ Section 7426 states in pertinent part:

(a) Actions permitted.--

(1) Wrongful levy.--If a levy has been made on property or property has been sold pursuant to a levy, and any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.

26 U.S.C. §7426(a)(1) (1988). All statutory references hereafter are to 26 U.S.C. (1988) unless otherwise indicated.

² On August 22, 1991, Capital filed with the IRS an administrative claim for the return of the $100,000 to Capital. Under §6532(c)(2) , an administrative filing can extend the limitations period in which a party must file its wrongful levy action under §7426 . A party must file an administrative claim within nine months of the date of levy to extend the limitations period. Williams v. United States [91-2 USTC ¶50,529 ], 947 F.2d 37, 40 (2d Cir. 1991), cert. denied, 504 U.S. 942 (1992); United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626 ], 624 F.2d 733, 736 (5th Cir. 1980). Thus, because we hold that the notice of levy on August 22, 1985 triggered the limitations period, Capital's filing of an administrative claim more than nine months later does not permit Capital to take advantage of the §6532(c)(2) extension. In addition, based upon our holding with respect to equitable tolling, further consideration of §6532(c)(2) is unnecessary.

³ The district court construed the statute of limitations as a jurisdictional requirement. As we stated in Washington, 10 F.3d at 1437, however, the Irwin Court "held that federal statutory time limitations on suits against the government are not jurisdictional in nature. " See also Fadem v. United States, 52 F.3d 202, 206 (9th Cir. 1995). We thus treat the district court's action as a dismissal for failure to state a claim, rather than as a dismissal for lack of subject matter jurisdiction.

⁴ Johnston v. Horne, 875 F.2d 1415 (9th Cir. 1989); Lubniewski v. Lehman, 891 F.2d 216 (9th Cir. 1989); Hymen v. Merit Sys. Protection Bd., 799 F.2d 1421 (9th Cir. 1986), cert. denied 481 U.S. 1019 (1987); Koucky v. Department of Navy, 820 F.2d 300 (9th Cir. 1987); Lofton v. Heckler, 781 F.2d 1390 (9th Cir. 1986); Cooper v. United States Postal Serv., 740 F.2d 714 (9th Cir. 1984) cert. denied, 471 U.S. 1022 (1985).

⁵ Rule 46(f) provides:

(f) Exoneration. When the condition of the bond has been satisfied or the forfeiture thereof has been set aside or remitted, the court shall exonerate the obligors and release any bail. A surety may be exonerated by a deposit of cash in the amount of the bond or by a timely surrender of the defendant into custody. Fed. R. Crim. P. 46(f) (emphasis added).

[91-1 USTC ¶50,198] United States of America, Plaintiff-Appellant v. John James Badger, Defendant-Appellee, Capital Tracing, Inc., Real Party-in-Interest, Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 89-5025, 4/16/91 , Reversing and remanding the District Court, 89-2 USTC ¶9656 , 711 F.Supp. 1078

[Code Secs. 6331 and 7426 ]

Levy and distraint: Bail money: Suits by nontaxpayers: Application of statute.--The District Court has no jurisdiction to question the validity of the IRS 's levy under the principles of separation of powers in a proceeding where the IRS was seeking to attach a bail bond posted on the taxpayer's behalf as property in which the taxpayer has an interest. Any party claiming an interest in the bond money could seek a refund under the Anti-Injunction Act. No statutory exception is provided in the IRS 's levy powers for bail bonds. Further, there is no requirement that the IRS prove that any portion of the property on which a levy is being sought belongs to the taxpayer. The District Court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belonged to the taxpayer. As a preliminary issue, the court concluded that the order to release the bail bond was appealable as a collateral order and that the IRS had standing to prosecute the appeal even though it was not a party to the criminal action for which the bond was posted. District Court, 89-2 USTC ¶9656 reversed.

Charles Bricken, Department of Justice, Washington, D.C. 20530, for plaintiff-appellant. Lesile T. Jones, Jr., Gallagher & Kennedy, P.A., 360 E. Coronado Rd., Phoenix, Ariz. 85004-1524, for J.J. Badger, Capital Tracing, Inc.

Before ALARCON, BRUNETTI and O'SCANNLAIN, Circuit Judges

OPINION

BRUNETTI, Circuit Judge: Appellee John James Badger ("Badger") was indicted on criminal charges and ordered to post a $100,000.00 bail bond. The bond was posted by third parties. After Badger was convicted, the IRS attempted to levy on the bond for unpaid taxes owed by Badger. The district court ordered the IRS to show cause why the bond should not be exonerated and paid over to those who had posted it. After a hearing, the district court concluded that allowing the IRS to levy on bail bonds would impermissibly interfere with the integrity of the judicial branch and ordered the bond exonerated. We reverse and remand.

FACTS

The facts of this case are, for the most part, undisputed. Badger was indicted on six fraud-related offenses and was ordered to post a $100,000 cash bond. On July 29, 1985 , Capital Tracing, Inc., ("Capital") posted the $100,000 bond with approximately $73,000 of its own funds and approximately $27,000 loaned to Badger by other people or entities for the purpose of posting bond.

Capital is a publicly held corporation. In 1985, Badger owned 34,000 shares of Capital, which then had approximately 10,310,000 shares outstanding.

On August 22, 1985 , the IRS served a notice of levy upon the Clerk of the District Court for the Central District of California. The notice of levy stated that its purpose was "to attach to the $ 100,000 cash bond" posted for Badger. The IRS claims that Badger owes more than $180,582 in taxes assessed on or before July 13, 1982 .

Badger was found guilty. The Ninth Circuit affirmed his conviction in United States v. Badger, 849 F.2d 1476 (9th Cir. 1988). Thereafter, Badger surrendered himself for incarceration. The district court then ordered that the cash bond be exonerated.

Upon being apprised of the IRS 's notice of levy, the district court ordered the IRS to show cause why the $ 100,000 cash bond should not be exonerated and paid over to Capital. The IRS cited Internal Revenue Code ("I.R.C.") §6331 , which allows the IRS to levy upon nearly all property in which a delinquent taxpayer has an interest. The IRS contended that the property belonged in part to Badger and, in any event, it would be inappropriate to determine ownership in such a proceeding; any party claiming an interest in the property could seek a refund under I.R.C. §6343(6) or §7426(a)(1) . Badger filed a response to the show cause order stating that he did "not own [or] possess any interest in the cash posted for his bond."

On May 8, 1989 , the district court held a hearing on the show cause order. On May 11, 1989 , the district court ordered that the bond proceeds be paid over to Capital on May 18, 1989 . In its memorandum order, the district court did not decide whether Badger had any interest in the disputed bond. Instead, the district court held that I.R.C. §6331 does not allow the IRS to levy upon bail bonds, reasoning that such a levy would impermissibly threaten the institutional integrity of the judicial branch. See Mistretta v. United States, 109 S. Ct. 647 (1989).

On May 15, 1989 , the United States appealed the district court's order and filed an emergency motion for a stay of the district court's order pending appeal. On May 17, 1989 , this court granted the stay.

On December 26, 1989 , this court issued a request for supplemental briefing on:

(1) whether the IRS has standing to appeal the order exonerating the bond in a criminal proceeding;

(2) whether the district court's order exonerating the bond is appealable; and

(3) whether this action is more appropriately treated as a writ of mandamus.

Appellant filed its supplemental brief on January 16, 1990 . Appellee did not file a supplemental brief.

STANDARD OF REVIEW

The material facts are not in dispute. This appeal involves only questions of law, which are reviewed de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984).

DISCUSSION

In the bail exoneration proceedings held below, the district court held that the IRS could not levy on the bail bond posted on behalf of Badger because such a levy would violate the constitutional principle of separation of powers. We reverse because the district court had no jurisdiction to address the validity of the IRS 's levy under separation of powers principles in a bail exoneration proceeding. We remand for the district court to comply with the levy.

I. Standing and Appealability of Order

An order exonerating a bail bond and providing for distribution of the funds is directly appealable as a "collateral order." United States v. Arnaiz, 842 F.2d 217, n. 2 (9th Cir. 1988); Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546 (1949). Thus, the district court's order in this case was appealable.

The IRS had standing to appeal the district court's order. Nonparties may appeal a district court order where: (1) the appellant participated in the district court proceedings even though not a party, and; (2) the equities of the case weigh in favor of hearing the appeal. Id. The IRS participated in the proceeding by responding to the show cause order and "vigorously disputing" the extent to which Badger had an interest in the bail bond. The equities weigh in favor of hearing this appeal. An appeal is the most expeditious way to address the IRS 's claim and, if the IRS prevails, to allow it to collect a major portion of Badger's unpaid taxes. Moreover, it would be unjust to prevent the IRS from seeking appellate review to contest the power of the district court to enter an order which directly addresses the validity of the IRS 's levy upon a bail bond. Additionally, the district court ordered the IRS to show cause why the cash bond should not be exonerated, thereby drawing the IRS into the litigation.

II. Jurisdiction

The IRS 's attempted levy is based on I.R.C. §6331 , which provides:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334 ) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.

I.R.C. §6331 provides for a lien on "all property and rights to property" belonging to the delinquent taxpayer. There is no exception for bail bonds. Moreover, there is no requirement that the IRS prove that any portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. Under I.R.C. §7421(a) , the Anti-Injunction Act, ¹ if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 or other provisions specified in the Anti-Injunction Act. These I.R.C. sections indicate that the district court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belongs to Badger. We must determine, however, whether the statutory scheme providing for the exoneration of bail bonds requires a different reading of the levy provisions of the internal revenue code or gives the district court jurisdiction to rule on whether the taxpayer-defendant owns any portion of the bail bond.

Under 18 U.S.C. §3149 and Fed.R.Crim.Proc. 46, the district court had jurisdiction to exonerate the bond upon Badger's surrender. However, Section 3149 and Rule 46 do not expressly give the district court jurisdiction to decide competing claims to the bond. This case presents the narrow jurisdictional issue whether the power to rule on the validity of the IRS 's levy "can fairly be implied as necessarily ancillary to the exoneration of the bond." U.S. v. Arnaiz, 842 F.2d 217, 220 (9th Cir. 1989).

In Arnaiz, this court considered whether a district court before which a narcotics prosecution was pending had jurisdiction, ancillary to its power to exonerate a bail bond, to consider disputes related to the bond. We held that the district court had jurisdiction to decide whether the surety was required to return collateral to the defendant. The court reasoned that, if the defendant had posted collateral with the surety, the defendant had indirectly posted a portion of his bail and was therefore an "obligor" under Rule 46(f). ² The district court could not fulfill its statutory duty to release the bail without determining which "obligor" was entitled to receive it.

The Arnaiz court also held, however, that the district court did not have jurisdiction to resolve a dispute between the bondsman and the defendant regarding a bond premium. The court reasoned that the premium dispute was not "so closely related to the purposes of the bail provisions (i.e., to secure the presence of the defendant) that denial of jurisdiction would necessarily interfere with the district court's ability to carry out its statutory mandate." Id.

In the present case, the IRS 's claim to the bail bond is based on I.R.C. §6331 , which allows for levy upon "all property and rights to property" belonging to a delinquent taxpayer. As discussed earlier, there is no requirement that the IRS prove what portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. If any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 . Thus, in contrast to Arnaiz, the district court has no need to conduct a hearing to determine what portion of the bond belongs to Badger. If Capital wishes to contest the levy on the ground that it violates separation of powers or that none of the property belongs to Badger, it must bring a wrongful levy action under IRC §7426 .

In United States v. Doyal, 462 F.2d 1357 (5th Cir. 1972), the Fifth Circuit allowed the IRS to levy upon a bail bond and held that a defendant could not properly enjoin the levy because of the Anti-Injunction Act. In Doyal, the defendant filed a motion to restrain the IRS from entering its tax levy against his bail deposit. The court held that the district court could not entertain defendant's motion because the Anti-Injunction Act barred the motion. Thus, the court concluded, the IRS could not be restrained from levying on the property unless a separate suit is brought under relevant I.R.C. provisions (e.g., Section 7426 ). We agree with the Fifth Circuit's analysis in Doyal, and hold that the district court lacked jurisdiction to consider whether the IRS 's lien was valid; the court should have simply complied with the levy by turning over the funds to the IRS . See also Bankers' Mortgage Co. v. McComb, 60 F.2d 218,222 (10th Cir. 1932).

Appellee cites Flores v. United States [77-1 USTC ¶9380 ], 551 F.2d 1169 (9th Cir. 1977), for the proposition that the government has the burden to show that the property belongs to the taxpayer before it can levy upon the property. Flores, however, involved a wrongful levy action under I.R.C. §7426 , and is inapplicable to the present case.

Accordingly, we reverse and remand for the district court to comply with the IRS 's notice of levy.

REVERSED and REMANDED.

¹ I.R.C. §7421(a) provides:

(a) Tax.--Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

² Rule 46(f) provides:

(f) Exoneration. When the condition of the bond has been satisfied or the forfeiture thereof has been set aside or remitted, the court shall exonerate the obligors and release any bail. A surety may he exonerated by a deposit of cash in the amount of the bond or by a timely surrender of the defendant into custody.

Dissenting Opinion

O'SCANNLAIN, Circuit Judge

Because of the chilling effect of the majority's decision on the integrity of the judicial bail system, I must dissent.

The district court was faced with the choice, upon exoneration of the bond, of releasing bail proceeds (1) to their owner, the entity (admittedly not the defendant) which actually posted the bond with its own funds (including loan proceeds), or (2) to a creditor of the defendant, with absolutely no enforceable interest in the funds, which happens to be the Internal Revenue Service ( IRS ). The majority concludes that the exonerated bail simply should be paid to the IRS , which filed a levy upon the bond, thereby making new law for the circuit. I disagree. I would remand for the purpose of holding a hearing to determine whether the collateral delivered to the court by a third party includes any "property... belonging to [the taxpayer]" under 26 U.S.C. §6331 .

Supervision of the bail system lies within the inherent power of the court to call an accused to stand trial. See United States v. Smith, 444 F.2d 61, 62 (8th Cir. 1971) (per curiam), cert. denied, 405 U.S. 977 (1972). The courts clearly have a deep interest in preserving the viability of the bail system in order to assure the attendance of criminal defendants at trial, and should be most reluctant to countenance interferences with that system. Indeed, there is a civil liberties interest as well; when a third party comes to the aid of a defendant by posting bond on his behalf, the court has a duty to honor such trust.

If the IRS is permitted to use the federal judiciary as a "quasi-collection agency" (in the words of the district court), criminal defendants will have less incentive to appear once a bond has been posted. Criminal defendants who are delinquent taxpayers may be certain that any monies deposited by them with the court will not be returned to them, whether or not they appear before the court. Prudent third parties, even those without close financial connections to the defendant, will be chary of providing defendants with bail funds, or at least will be forced to exact higher premiums or to impose greater collateral requirements, contrary to the public policy inherent in the Bail Reform Act.

There is no need for the court to adopt the approach espoused by the majority today. True, it is often stressed that an available procedure for contesting an IRS levy, as opposed to any other sort of levy, is to bring a civil action under 26 U.S.C. §7426 . See e.g., Winebrenner v. United States [91-1 USTC ¶50,057 ], 924 F.2d 851,853-55 (9th Cir. 1991). I do not believe that Congress, in enacting the levy statutes of the Internal Revenue Code, foresaw their use to harass third parties and to interfere with the smooth functioning of the courts. There appears to be no reason why the IRS cannot simply levy upon the property once it is in the possession of Capital Tracing, Inc., the record owner, immediately upon release from deposit with the court; if the IRS indeed has an enforceable interest in the funds it can be adjudicated promptly in the customary fashion without complications involving the bail system and separation of powers. There is no danger of a federal district court attempting to hide the money from the IRS . The automatic lien against a delinquent taxpayer's property still protects the agency from fraudulent conveyances should the taxpayer in fact have an interest in property temporarily insulated from seizure by deposit with the district court. See United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 719 (1985).

The authorities do not command the result reached by my colleagues. We have never held that the IRS may levy upon property posted as a bail bond, even assuming, unlike here, the posting party was the taxpayer. ¹ Even assuming that we would be inclined to follow it, no extra-circuit precedent commands the result reached today.

United States v. Doyal, 462 F.2d 1357 (5th Cir. 1972) (per curiam), upon which the majority places great reliance, is clearly distinguishable. In that case, the criminal defendant posted $3,500 in bail with the district court. Id. at 1357-58. In contrast, Badger did not deposit any of his money with the district court, and has disclaimed all interest in the bail funds posted for his benefit. Thus, we learn little applicable to our case from the Fifth Circuit's ruling in Doyal that no exception to the Internal Revenue Code's anti-injunction provision, section 7421(a) , applies when a criminal defendant attempts to restrain enforcement of an IRS levy. See id. at 1358.

Other authority directly supports my view. Bankers' Mortgage Co. v. McComb, 60 F.2d 218 (10th Cir. 1932), although cited by the majority for the proposition that the court simply should have complied with the levy, in fact holds to the opposite effect:

But when the conditions of the bail bond have been fully met and the whole of the bond or notes deposited, or a residue thereof, remains in the hands of the clerk, a court in a proper proceeding may and should inquire into the true title thereto as between third persons and the defendant or his creditors, and direct that they be delivered to the true owner.

Id. at 222 (citations omitted). Similarly, in United States v. Eschweiler, 782 F.2d 1385 (7th Cir. 1986), the court upheld the district court's denial of defendant's motion to exonerate while explicitly upholding the district court's jurisdiction to determine the validity of the levy. See id. at 1392-93.

Our test for determining when a district court should hold a hearing to settle a bail bond dispute is well-settled. In United States v. Arnaiz, 842 F.2d 217 (9th Cir. 1988), we concluded that a district court attempting to exonerate a bail bond pursuant to rule 46(f) had jurisdiction to resolve disputes over the collateral posted to obtain the bond, but not over the premium paid (or due) to obtain the bond. Disputes between defendants and their sureties over the premium, we observed, were merely "contractual" and would not affect the certainty of a defendant's appearance in court. See id. at 220. In contrast, a dispute over return of collateral is "so inextricably linked with the exoneration order that it must be considered to be within the district court's jurisdiction." Id. at 221. We emphasized that the bond exoneration rule specified that "obligors" were entitled to the return of their security, see Fed.R.Crim.P. 46(f), and that "collateral st[ands] in the same position as if it had been posted directly with the court." See 842 F.2d at 221. Significantly, we noted that "the court's statutory duty of 'releas[ing] any bail' could not be fulfilled without a determination of which party was entitled to receive it." See id. at 222 (brackets in original).

It seems clear to me that the district court here was also faced with the question of which party, the IRS or the original depositors, was entitled to receive the cash bail. The IRS 's virtual confiscation of bail bonds will clearly impact the certainty of a criminal defendant's appearance in court: the mere threat of an IRS levy will discourage defendants and third parties from locking substantial funds away with a court which will not return them upon completion of the defendant's obligations. Arnaiz authorizes district courts to adjudge the validity of an IRS levy on deposited property.

I would remand to the district court with instructions to hold an Arnaiz hearing to determine who is entitled to the deposited cash bail.

Therefore, I respectfully dissent.

¹ We have permitted IRS levies upon property involuntarily seized pursuant to a criminal proceeding and held by a district court. See United States v. Freedman [71-2 USTC ¶9523 ], 444 F.2d 1387, 1388 (9th Cir.), cert. denied, 404 U.S. 992 (1971).

[89-2 USTC ¶9400] United States of America, Plaintiff-Appellee v. Andrew Eschweiler, Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 85-1058, 85-1536, 1/30/86, (782 F.2d 1385). Affirming and remanding an unreported District Court decision

[Code Sec. 6331 ]

Collection of taxes: Notice of deficiency: Levy and distraint: Constitution: Eighth Amendment.--A motion to exonerate a $50,000 bail bond levied upon by the IRS for a drug dealer's back taxes and to return the bond to its proper owner was denied on appeal. The motion, which was filed with the distribution after the taxpayer was sentenced on criminal charges, was denied since a motion to exonerate was not the proper forum in which to challenge the levy. Thus, the dealer's failure to properly raise the issues of whether the levy was invalid due to (1) inadequate notice of deficiency, (2) noncompliance with the 10-day waiting period under Code Sec. 6331 , and (3) a violation of the Eighth Amendment to the U.S. Constitution, and his failure to identify to whom the property belongs resulted in the denial of the motion to exonerate.

Anton R. Valukas, United States Attorney, Ted S. Helwig, Assistant United States Attorney, Chicago, Ill. 60604, for plaintiff-appellee. Donald V. Morano, 1231 Jarvis Ave., Chicago, Ill., for defendant-appellant.

Before CUMMINGS, Chief Judge, EASTERBROOK, Circuit Judge, and GRANT, Senior District Judge. ^*

CUMMINGS, Chief Judge:

Andrew Eschweiler pled guilty to one count of distribution of cocaine, a violation of 21 U.S.C. §841(a). He received a two-year sentence to run consecutive to a previous five-year sentence. The defendant appeals from the sentencing hearing, claiming a violation of Federal Rule of Criminal Procedure 32(c)(3)(D). He also appeals from the district court's refusal to exonerate his bail bond pursuant to Federal Rule of Criminal Procedure 46(f). This court has jurisdiction pursuant to 28 U.S.C. §1291 . We affirm.

Statement of the Case and Facts

On April 12, 1984 the defendant Andrew Eschweiler was arrested while on appeal bond from a previous federal narcotics conviction. ¹ He was indicted on May 3, 1984 with three counts of sales of cocaine and marijuana in violation of 21 U.S.C. §841(a)(1). Bail was set at $50,000 cash, which the defendant's brother posted, designating the defendant as recipient. The government requested a Nebbia ² hearing to determine the source of the funds. The hearing was never held, but Eschweiler was released on April 24, 1984 after additional security was posted.

On November 2, 1984 Eschweiler pled guilty to Count I (sale of 13.26 grams of cocaine) under a conditional plea agreement in accordance with Fed. R. Crim. P. 11(e)(1)(C). At the December 28, 1984 sentencing hearing, although not specifically asked, the defendant raised several objections to the presentence report. The judge did not refer to the objections, make findings, or state that he would not rely on the disputed facts in sentencing the defendant. The judge did, however, state the basis on which he was sentencing the defendant. Eschweiler received the maximum sentence under the plea agreement, two years to run consecutive to his previous five-year sentence. Eschweiler appeals from the sentencing hearing, claiming a violation of Fed. R. Crim. P. 32(c)(3)(D).

After the defendant was sentenced and he surrendered, he moved to exonerate the bond pursuant to Fed. R. Crim. P. 46(f). Judge Hart denied that motion on March 29, 1985 because the Internal Revenue Service ( IRS ) had levied against the $50,000 bail bond for back taxes it had assessed against the defendant. ³ The defendant appeals from the denial of his bond exoneration motion.

There are two issues before this Court on appeal. ⁴ First, whether the case should be remanded due to a violation of Fed. R. Crim. P. 32(c)(3)(D). Second, whether the bond posted as defendant's bail should be released to its proper owner under the motion to exonerate. We affirm both the sentence and the denial of the bail exoneration motion, but remand for full compliance with Rule 32(c)(3)(D).

I. RULE 32(c)(3)(D)

A. Purpose

When a defendant alleges inaccuracies in his or her presentence report, Fed. R. Crim. P. 32(c)(3)(D) ⁵ requires that the sentencing judge make written findings as to the allegations or a written determination that the disputed matters will not be relied upon for sentencing. The rule also requires that these written findings or determinations be attached to the presentence report. This rule was contained in the 1983 amendments to Rule 32.

Rule 32(c)(3)(D) serves a dual purpose. First, it protects a defendant's due process right to fair sentencing procedures, particularly the right to be sentenced on the basis of accurate information. Fed. R. Crim. P. 32 Advisory Committee notes; see United States v. Tucker, 404 U.S. 443, 447, 92 S.Ct. 589, 591, 30 L.Ed.2d 592; Townsend v. Burke, 334 U.S. 736, 741, 68 S.Ct. 1252, 1255, 92 L.Ed. 1690; United States ex rel. Welch v. Lane, 738 F.2d 863, 864-865 (7th Cir. 1984). Thus, in order to show a due process violation, the defendant must raise grave doubt as to the veracity of the information and show that the court relied on that false information in determining the sentence. ⁶ United States v. Harris, 558 F.2d 366, 375 (7th Cir. 1977).

The second purpose of Rule 32(c)(3)(D) is to provide a clear record of the disposition and resolution of controverted facts in the presentence report. Advisory Committee notes, supra; United States v. Rone, 743 F.2d 1169 (7th Cir. 1984). This record aids both appellate courts in their review of sentencing hearings and administrative agencies that use the report in their own decisionmaking procedures. ⁷ For example, if the court finds that information in the report is unreliable or simply decides not to rely on the disputed facts in sentencing, by following Rule 32(c)(3)(D) that decision will become part of the presentence report. This reduces the likelihood of later decisions being made on the basis of improper information. United States v. Petitto, 767 F.2d 607, 609 (9th Cir. 1985). Moreover, if the record does not clearly reflect whether or not the information was relied on, appellate courts or prison officials may make incorrect assumptions about the disposition of alleged inaccuracies. Thus a court that fails to follow Rule 32(c)(3)(D) may not necessarily violate a defendant's right to due process; nonetheless, a violation of the Rule could require a remand for resentencing. See id.; United States v. O'Neill, 767 F.2d 780 (11th Cir. 1985).

Both of these objectives are met when sentencing judges follow the procedures set forth in United States v. Rone, 743 F.2d 1169 (7th Cir. 1984). Rone requires that the sentencing judge ask the defendant three questions in order to comply with Rule 32. ⁸ (1) whether the defendant has had an opportunity to read the report; (2) whether the defendant and defense counsel have discussed it; and (3) whether he or she wishes to challenge any facts in the report. Id. at 1174. This questioning process establishes a record reflecting that the defendant has had a realistic opportunity to read discuss, and object to the report. ⁹

If the defendant disputes a fact in the report, the requirements of subsection (D) are triggered. Rone, 743 F.2d at 1175. The sentencing judge is then obligated either to make written findings concerning the disputed matter or a written determination that the disputed matter will not be relied on for sentencing, and then attach it to the presentence report. Id. at 1175. These procedures, when strictly followed, ensure that the defendant's sentence is based on accurate and reliable information and that subsequent recipients of the report are aware of whatever resolutions occurred at sentencing.

B. Standard

The government in its brief has raised the issue of what burden the defendant must meet before resentencing under Rule 32(c)(3)(D) is required. The government argues that there should be no resentencing because the defendant has failed to show that the contested facts in the presentence report are actually false. The government incorrectly cites Rone as holding defendants to the Harris burden of raising grave doubt about the reliability or accuracy of the presentence report information in order to show a violation of the Rule. See supra, discussion at 1387. However, the court in Rone simply noted that the defendant had met the Harris standard for demonstrating a due process violation. The court stated, "The defendant, however, has met the burden, which would have been imposed even under the old rules and our [Harris] precedent . . ." to show a due process violation. 743 F.2d at 1174 (emphasis added). The showing necessary to demonstrate a constitutional violation should not be confused with that required to make out a Rule 32 violation. Resentencing may be necessary under the Rule even though a defendant's right to due process has not been violated. Petitto, 767 F.2d at 610 ("although the due process sentencing standards . . . were satisfied, rule 32 still requires a remand"); United States v. O'Neill, 767 F.2d 780, 787 (11th Cir. 1985) (court found it unnecessary to address defendant's due process claim because the trial court's failure to comply with Rule 32(c)(3)(D) required resentencing); United States v. Velasquez, 748 F.2d 972, 974 (5th Cir. 1984) (court order resentencing because district court failed to comply with a procedural rule). Thus all a defendant needs to show in order to be resentenced for a violation of Rule 32(c)(3)(D) is that (1) allegations of inaccuracy were before the sentencing court and (2) the court failed to make findings regarding the controverted matters or a determination that the disputed information would not be used in sentencing. See United States v. Travis, 735 F.2d 1129, 1132-1133; Petitto, 767 F.2d at 611; O'Neill, 767 F.2d at 787; Velasquez, 748 F.2d at 974. ¹⁰ Unless the government can then demonstrate that the disputed facts were not relied upon, the defendant must be resentenced.

C. Application

In this case the sentencing judge failed to meet the requirements of Rule 32(c)(3)(D). At the sentencing hearing the defendant objected to certain information contained in the report, alleging it to be false:

First of all, I wanted to mention that I am very upset about the numerous erroneous information that was given to you in the presentence report. They are false, many of them are false, and I would like to mention a few for the record.

I am not a big drug dealer. I was not making $15,000 a year--a night breaking up large quantities of five ounces in a pack.

Transcript, December 28, 1984 , at 9.

According to Rone, when the defendant raises inaccuracies in the presentence report, the requirements of Rule 32(c)(3)(D) are triggered, 743 F.2d at 1175. Despite the defendant's allegations, the court here failed to make any findings to resolve the dispute. Nor did the court expressly determine that it would not rely on the allegations. The court did, however, state its reasons for the sentence imposed.

The government stressed during the sentencing hearing that the defendant was arrested on this drug charge while on appeal bond for a previous drug-related conviction. The government noted that to impose less than the maximum sentence (two years consecutive to the earlier five-year imprisonment) would leave the defendant virtually unpunished for this conduct. The court agreed:

I believe that there is truth in the Government's statement that if any less of a sentence were imposed in this case, it would be a travesty on the law and it would be an indication that your conduct can be condoned, and it cannot be condoned.

Transcript, December 28, 1984 , at 12 (emphasis added).

The court obviously imposed the maximum sentence only because the defendant continued to deal in narcotics while on appeal from a previous narcotics conviction. This case is thus distinguishable from cases in which the sentencing judge clearly did rely on contested information in sentencing, see Rone, id. at 1175, and also from cases where it is unclear on what the sentence was based. See Petitto, 767 F.2d at 611. In so determining, we are mindful of the Rone Court's admonition not to "read between the lines" as to what took place at the sentencing hearing. 743 F.2d at 1175. Because the controverted facts clearly did not form any part of the basis for the sentence, a remand for sentencing is not required. In fact, 28 U.S.C. §2111 compels this Court to ignore errors that are harmless. See also Fed.R.Crim.P. 52(a) ("Any error . . . which does not affect substantial rights shall be disregarded.").

Recent cases from other circuits hold somewhat contrary to this result. In United States v. Petitto, 767 F.2d 607, 611 (9th Cir. 1985), the Ninth Circuit held that any noncompliance with Rule 32(c)(3)(D) requires a remand for resentencing. See also United States v. Travis, 735 F.2d 1129, 1132-1133 (9th Cir. 1984). Although the record in Petitto left it unclear whether the sentencing judge relied on the disputed information, the court noted that the same result had been reached in Travis, where the record demonstrated that the court had not considered the relevant facts. Petitto, 767 F.2d at 610 (citing Travis, 735 F.2d at 1132-1133). Similarly the Eleventh Circuit in United States v. O'Neill, 767 F.2d 780, 787 (1985), held that a plain violation of Rule 32(c)(3)(D) without more mandated a remand for resentencing.

But requiring resentencing when the record is clear that the sentencing judge did not rely on a contested matter does not further the purpose of Rule 32(c)(3)(D). Because the sentencing judge here did not rely on the contested information, there is no concern that the defendant was sentenced on the basis of inaccurate or unreliable information. ¹¹ Therefore, to the extent that these circuits hold that every violation of Rule 32(c)(3)(D) requires a resentencing, we decline to follow their strict interpretation of the Rule.

A remand is necessary, however, to fulfill the second purpose of Rule 32(c)(3)(D). Because the sentencing judge did not make a written determination and attach it to the presentence report, there is no record of this disposition of Eschweiler's allegations. Requiring attachment will further the Rule's goal of providing this Court and administrative agencies with a complete record to use in their decisionmaking processes. See United States v. Castillo-Roman, 774 F.2d 1280 (5th Cir. 1985); United States v. Hill, 766 F.2d 856, 858 (4th Cir. 1985), certiorari denied, -- U.S. --, 106 S.Ct. 257, 88 L.Ed.2d 263.

At oral argument, the government conceded that remand is necessary under Petitto. But on brief it argued that the defendant is not harmed by this omission because the contested material is merely a summary of defendant's previous trial and conviction, which is already contained in a previous presentence report and is part of his file. This "harmless error" argument is unpersuasive. The purpose of Rule 32(c)(3)(D) will be hindered by failing to correct and clarify the record for the future use of the presentence report. First, without the attached determination there will be no record that the defendant alleges the information to be false. Furthermore, agencies could infer both that the information was used in sentencing and that the defendant did not contest it. Thus, the absence of the determination could attest to the veracity of the disputed facts when a finding of veracity was never made. For these reasons, the Court remands the case for attachment to the presentence report of a written determination that the contested facts were not relied upon in sentencing. As the Advisory Committee on the Criminal Rules has pointed out, this does not "impose an onerous burden." 8A Moore's Federal Practice 32.20.

II. BAIL BOND LEVY

The second issue raised by the defendant is whether his bail bond should be exonerated and the funds returned to their proper owner. Eschweiler appeals from the denial of his Rule 46(f) motion to exonerate. Because this is not the proper vehicle for challenging the levy, we hold that the district court properly denied the motion.

The defendant attacks the levy on several grounds. First, he claims that the levy is invalid because he did not receive notice of a deficiency assessment as required by 26 U.S.C. §6212 . ¹² Additionally, the defendant asserts that the IRS failed to comply with the 10-day waiting period of 26 U.S.C. §6331 , ¹³ rendering the subsequent levy invalid. See 26 U.S.C. §6213 . Finally, the defendant argues that levying against bail bonds is impermissible under the Eighth Amendment.

Unfortunately, the defendant failed to raise these issues properly below. A motion to exonerate is not the proper forum to present the district court with sufficient evidence upon which to make a decision. The defendant raised his factual contentions as to notice only in memoranda in support of the motion to exonerate. The government, particularly the IRS , did not have adequate opportunity to respond to the factual assertions. ¹⁴ Many factual issues need to be resolved before the validity of the levy can be established. For example, these significant facts remain unknown: (1) the date the IRS deficiency assessment was made; (2) the date the notice of deficiency was mailed; (3) the address to which the deficiency notice was mailed; (4) whether the defendant had actual or constructive notice of the deficiency; and (5) to whom the property belongs.

The government argues that the defendant cannot proceed in district court because he is barred by United States v. Doyal [73-1 USTC ¶9118 ], 462 F.2d 1357 (5th Cir. 1972), and 26 U.S.C. §7421(a) . In Doyal, the Fifth Circuit held that a defendant who asserted no interest in the attached bail bond funds could not recover the funds pursuant to a motion to exonerate. Id. The court found that the motion was an attempt to enjoin collection of a tax and was thus barred by §7421(a) . ¹⁵ Id. at 1358. The court went on to say that the proper action was for the owner of the property to bring a wrongful levy action under 26 U.S.C. §7426(a) ¹⁶ to contest the validity of the attachment. Id.; see also United States v. Neely [73-1 USTC ¶9432 ], 357 F.Supp. 713 (S.D.Fla. 1973).

Doyal is distinguishable on three grounds. First, the defendant in Doyal was not alleging that the IRS had failed to follow proper notice and levy procedures. Second, he was asserting that the money belonged to someone else. Third, that defendant did not raise a constitutional claim.

In this case §7421(a) does not apply because Eschweiler contends that the IRS failed to provide notice of the deficiency, as is required by §6212 , and attached the levy prior to the ten-day waiting period required by §6331 . Section 6213 states that §7421(a) does not apply when the government seeks to enforce collection of a tax before the required waiting period. ¹⁷ Where the IRS fails to follow procedures for deficiency assessment and collection, §7421(a) is inapplicable. Laing v. United States [76-1 USTC ¶9164 ], 423 U.S. 161, 96 S.Ct. 473, 46 L.Ed.2d 416; Valley Finance, Inc. v. United States [80-2 USTC ¶9554 ], 629 F.2d 162 (D.C.Cir. 1980) (notice of deficiency is a jurisdictional prerequisite to the imposition of a tax lien and levies), certiorari denied sub nom. Pacific Development, Inc. v. United States, 451 U.S. 1018, 101 S.Ct. 3007, 69 L.Ed.2d 389; Shapiro v. Secretary of State [74-1 USTC ¶9445 ], 499 F.2d 527 (D.C.Cir. 1974) (power of the IRS to levy is inoperative until failure or refusal of taxpayer to pay the required amount), affirmed [76-1 USTC ¶9266 ], 424 U.S. 614, 96 S.Ct. 1062, 47 L.Ed.2d 278. Accordingly the district court has jurisdiction to determine the validity of the levy and enjoin its enforcement.

Although the defendant contends in his brief that it is unnecessary to determine who owns the funds in question, a party challenging a levy must have sufficient interest in the levied property. See Rosenblum v. United States [77-1 USTC ¶9177 ], 549 F.2d 1140, 1145 (8th Cir. 1977), certiorari denied, 434 U.S. 818, 98 S.Ct. 58, 54 L.Ed.2d 74; Flores v. United States [77-1 USTC ¶9380 ], 551 F.2d 1169, 1171 (9th Cir. 1977). If the property belongs to someone other than the taxpayer, that person must bring suit under 26 U.S.C. §7426 . Doyal, 462 F.2d at 1358. If the taxpayer owns the property but wants to contest the validity of notice, he or she can file suit to enjoin enforcement of the levy in district court, ¹⁸ see §6213 ; Laing v. United States [76-1 USTC ¶9164 ], 423 U.S. 161, 96 S.Ct. 473, 46 L.Ed.2d 416; Austin v. Voskuil [80-2 USTC ¶9501 ], 493 F.Supp. 780, 781 (E.D.Mo. 1980); Needham v. United States [84-1 USTC ¶9135 ], 564 F.Supp. 419, 421 (W.D.Okla. 1983). A tricky question may arise if the defendant does not own the property, yet wants to raise a constitutional question; where is his or her forum? But that question is not before us because the defendant has sufficient property interest to challenge the levy.

When Eschweiler's bond was posted in April 1984, he was designated as the recipient of the $50,000 cash bail bond. The IRS attached the bond in August of 1984. It was not until well after that attachment that the designated recipient was changed. ¹⁹ That change in designation cannot defeat the prior interest of the IRS in the funds. Therefore, although the defendant had sufficient property interest to bring suit to enjoin enforcement of the levy, see United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 105 S.Ct. 2919, 2929, 86 L.Ed.2d 565 (tax liens attach to rights to property), the district court's denial of his motion to exonerate was proper.

III . CONCLUSION

For the reasons set out in this opinion, we affirm the district court's sentence of the defendant and denial of the motion to exonerate, but remand for full compliance with the attachment provision of Rule 32(c)(3)(D).

^* The Honorable Robert A. Grant, Senior District Judge for the Northern District of Indiana, is sitting by designation.

¹ Eschweiler's earlier conviction was upheld in United States v. Eschweiler, 745 F.2d 435 (7th Cir. 1984), certiorari denied, -- U.S. --, 105 S.Ct. 1188, 84 L.Ed.2d 334 (1985).

² United States v. Nebbia, 357 F.2d 303 (2d Cir. 1966). A Nebbia hearing is conducted to determine the source of funds deposited as bail bond. The hearing is conducted to ensure that the funds provided are adequate to compel the defendant to return.

³ The judge had issued an earlier order releasing the additional security (real estate deeds) posted by the defendant's family.

⁴ Eschweiler does raise a further issue. He claims that the mandatory special parole provision of 21 U.S.C. §841 is unconstitutional. However, we find it unnecessary to address this argument because the exact issue was recently decided in United States v. Bridges, 760 F.2d 151 (7th Cir. 1985). In the Bridges decision this Court stated, "clearly sections 841(b)(1)(A) and (C) are not unconstitutional . . .," 760 F.2d at 154, and addressed the very arguments raised here. See id. at 154 and n. 5.

⁵ Federal Rule of Criminal Procedure 32(c)(3)(D) provides:

If the comments of the defendant and his counsel or testimony or other information introduced by them allege any factual inaccuracy in the presentence investigation report or the summary of the report or part thereof, the court shall, as to each matter controverted, make (i) a finding as to the allegation, or (ii) a determination that no such finding is necessary because the matter controverted will not be taken into account in sentencing. A written record of such findings and determinations shall be appended to and accompany any copy of the presentence investigation report thereafter made available to the Bureau of Prisons or the Parole Commission.

⁶ However, this standard need not be met to show a violation of Rule 32(c)(3)(D) requiring resentencing. See infra at IB.

⁷ The 1983 amendments to Rule 32 came as a result of an empirical study that found abuses in the use of the presentence investigation report at sentencing. See Fennell & Hall, Due Process at Sentencing: An Empirical and Legal Analysis of the Disclosure of Presentence Reports in Federal Courts, 93 HARV.L. REV . 1613, 1651 (1980). That study recognized the important role the presentence report plays following sentencing:

The defendant's interest in an accurate and reliable presentence report does not cease with the imposition of sentence. Rather, these interests are implicated at later stages in the correctional process by the continued use of the presentence report as a basic source of information in the handling of the defendant. If the defendant is incarcerated, the presentence report accompanies him to the correctional institution and provides background information for the Bureau of Prisons' classification summary, which, in turn, determines the defendant's classification within the facility, his ability to obtain furloughs, and the choice of treatment programs. The presentence report also plays a crucial role during parole determination. Section 4207 of the Parole Commission and Reorganization Act directs the parole hearing examiner to consider, if available, the presentence report as well as other records concerning the prisoner. In addition to its general use as background at the parole hearing, the presentence report serves as the primary source of information for calculating the inmate's parole guideline score.

⁸ Rule 32(a) provides in pertinent part:

(a) Sentence.

(1) Imposition of Sentence. Sentence shall be imposed without unreasonable delay. Before imposing sentence, the court shall

(A) determine that the defendant and his counsel have had the opportunity to read and discuss the presentence investigation report made available pursuant to subdivision (c)(3)(A) or summary thereof made available pursuant to subdivision (c)(3)(B);

(B) afford counsel an opportunity to speak on behalf of the defendant; and

(C) address the defendant personally and ask him if he wishes to make a statement in his own behalf and to present any information in mitigation of punishment.

⁹ From the record it appears that the sentencing judge failed to meet the requirements of Rone. None of the questions was asked, except to the extent that the judge asked the defendant if he had anything to say before sentencing. Transcript, Dec. 28, 1984 , at 9. However, the defendant does not argue on appeal that this violation requires resentencing.

¹⁰ Two recent court of appeals decisions are arguably contrary to this view. In United States v. Castillo-Roman, 774 F.2d 1280 (5th Cir. 1985), the Fifth Circuit decided a case appealed under Fed.R.Crim.P. 35. The defendant objected to presentence report allegations that he was the leader of a group that smuggled illegal aliens across the Mexico-Texas border. He claimed that the district court made no findings or determination as required by Rule 32(c)(3)(D). The court opened its opinion by stating that to prevail on the Rule 35 motion the defendant was required to demonstrate that the information in the presentence report was materially inaccurate and that the judge relied on the information. Id. at 1283. The court held that the defendant failed to show reliance because the district court stated that it would not take into account the disputed information and on that basis denied the Rule 35 motion. Id. But then, after holding no abuse of discretion in denying the Rule 35 motion, the court went on to discuss the defendant's Rule 32 argument and found a technical violation that did not require resentencing. Id. at 1284-1285. Because the court proceeded to discuss the Rule 32 violation after determining that the defendant did not demonstrate inaccuracy and reliance, the court implicitly recognized that a lesser standard is sufficient for resentencing under Rule 32.

Similarly, in United States v. Stewart, 770 F.2d 825, 832 (9th Cir. 1985) (citing United States v. Ibarra, 737 F.2d 825, 827 (9th Cir. 1984), the Ninth Circuit stated that (1) the defendant must show the contested information was false or unreliable and (2) relied upon by the judge when challenging sentencing procedures under Rule 32(c)(3)(D). Id. at 832. However, the court remanded for resentencing because, unlike Ibarra, the district court did not substantially comply with Rule 32. The court so held because it was left without knowing whether the disputed information was relied upon by the sentencing court. Id. (citing United States v. Donn, 661 F.2d 820, 825 n.4 (9th Cir. 1981). The court never discussed the falsity or unreliable requirement except for its initial statement requiring that the defendant so demonstrate. Instead, after simply finding that the sentencing court did not respond to allegations of falsity, the Ninth Circuit remanded.

¹¹ However, where it is unclear whether the sentencing judge relied on the contested information, resentencing would resolve the matter.

¹² 26 U.S.C. §6212 provides that:

If the Secretary determines that there is a deficiency in respect of any tax imposed * * *, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail.

¹³ 26 U.S.C. §6331 provides that:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary or his delegate to collect such tax * * * by levy upon all property and rights to property * * * belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.

¹⁴ Furthermore, the IRS was not a party to the motion, and thus had no opportunity to refute the defendant's notice allegations.

¹⁵ 26 U.S.C. §7421(a) provides:

Except as provided in sections 6212(a) and (c) , 6213(a) , and 7426(a) and (b)(1), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

¹⁶ 26 U.S.C. §7426(a) provides:

(a) Actions permitted.--

(1) Wrongful levy.--If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary or his delegate.

¹⁷ 26 U.S.C. §6213 provides in pertinent part:

(a) Time for filing petition and restriction on assessment.--Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed * * *, the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. * * * [N]o levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a) , the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. (Emphasis added.)

¹⁸ The defendant complains that he will be forced to file a "full blown suit" against the IRS if the bond funds are not released to the designated recipient. This "argument" does not persuade the Court. The defendant fails to explain why he should be treated any differently than any other citizen whose funds have been attached by the IRS for alleged back taxes owing. The proper course of action in such a situation is for the taxpayer or owner of the property to bring a suit against the IRS claiming improper notice or wrongful levy. See United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 105 S.Ct. 2919, 2929, 86 L.Ed.2d 565.

¹⁹ The defendant's brother changed the designated recipient from the defendant to their mother on March 11, 1985. Although this procedure is authorized by the District Court Local Rules of the Northern District of Illinois, §1.10d, because the change was made after the levy attachment (August 1984) it is ineffective.

71-1 USTC ¶9453]United States of America, Plaintiff-Appellee v. Roger D. Brown, et al., Defendants, and Joseph J. Rey, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 31012 Summary Calendar ¹, 5/6/71 , Aff'g District Court, per curiam, 70-2 USTC ¶9673

[Code Sec. 6323--Result unchanged by '69 Tax Reform Act]

Liens: Priority: Bail money: Subject to levy.--Money deposited as bail money by a taxpayer with the Commissioner and subsequently transferred to the clerk of the District Court was subject to assessment and levy by the IRS for income taxes owed by the taxpayer. The tax lien for the federal taxes was superior to the claim of the taxpayer's attorney for fees and to the claim of the lender of the funds used as the cash bond.

Segal V. Wheatley, United States Attorney, Ralph E. Harris, Assistant United States Attorney, El Paso, Tex., Johnnie M. Walters, Assistant Attorney General, Meyer Rothwacks, Haskell Sheldon, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Joseph J. Rey, 543 Magoffin Ave., El Paso, Tex., for defendant-appellant.

Before BELL, AINSWORTH and GODBOLD, Circuit Judges.

PER CURIAM:

AFFIRMED. See Local Rule 21. ²

¹ Rule 18, 5 Cir., Isbell Enterprises, Inc. v. Citizens Casualty Company of New York, et al., 5 Cir., 1970, 431 F. 2d 409, Part I.

² See NLRB v. Amalgamated Clothing Workers of America, 5 Cir., 1970, 430 F. 2d 966.