Joseph T. Hayes and Marilyn Hayes v. Commissioner.

Dkt. No. 7699-02L , TC Memo. 2005-57, March 28, 2005.

[Appealable, barring stipulation to the contrary, to CA-2. -- CCH .]

[Code Secs. 6331 and 6672]
Income tax: Individual: Levy: Nonpayment. --

The IRS was authorized to impose a levy on a married couple's property for nonpayment of income taxes with respect to two years, but not with respect to a third. The taxpayers did not challenge their tax liabilities regarding two tax years for which they had filed Forms 1040 but had failed to remit the amounts due; therefore the levy with respect to those years was sustained. The taxpayers had remitted a check for the amount due for a third year with the return for that year, but the IRS had applied the remittance to the taxpayers' first year tax liability and imposed penalties and interest on the amounts it claimed were still due. Because delivery of a check with a tax return is generally sufficient to designate the payment toward the liability for the period of the return, the taxpayers' check fully satisfied the tax liability for that year, and the IRS 's proposed levy with respect to that year was not sustained. --.

Joseph T. Hayes and Marilyn Hayes, pro sese; Theresa G. McQueeney, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

THORNTON, Judge: Pursuant to section 6330(d), petitioners seek review of an Appeals Office determination sustaining a proposed levy.¹

FINDINGS OF FACT

The parties have stipulated most of the relevant facts, which we incorporate herein by this reference. When petitioners filed their petition, they resided in Flushing , New York .

1994 Tax Year

On their joint Form 1040, U.S. Individual Income Tax Return, for 1994 (Form 1040), petitioners reported a $9,223 amount due but made no remittance with their return. Respondent assessed the amount reported on the return. On February 26, 1996 , respondent levied petitioner husband's retirement account and applied the proceeds to satisfy petitioners' then-outstanding 1994 balance and to generate a $1,224.24 refund.²

After an examination, respondent issued a notice of deficiency, determining a $3,010 deficiency in petitioners' 1994 Federal income tax liability. Petitioners did not petition the Tax Court to redetermine the deficiency. On June 2, 1997, respondent assessed the $3,010 additional tax.

1996 Tax Year

On their joint Form 1040 for 1996, petitioners reported a $1,588 amount due but made no remittance with their return. Respondent assessed the amount reported on the return.

After an examination, respondent issued a notice of deficiency, determining a $4,921 deficiency in petitioners' Federal income tax for 1996. Petitioners did not petition the Tax Court to redetermine the deficiency. On February 15, 1999, respondent assessed the $4,921 additional tax.

1997 Tax Year

On their joint Form 1040 for 1997, petitioners reported total tax of $1,046, withholding credits of $464, an estimated tax penalty of $29, and an amount due of $611. Petitioners remitted the $611 with their 1997 return; however, respondent applied this payment against petitioners' outstanding 1994 balance and assessed the amount reported on their 1997 return, plus penalties and interest.

Collection Action

On March 6, 2000, respondent issued to petitioners a Letter 1058, Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing for the tax years 1994, 1996, and 1997. Petitioners requested and received the referenced hearing. On April 11, 2002, respondent issued to petitioners a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, sustaining respondent's proposed levy.

OPINION

If a taxpayer fails to pay any Federal income tax liability within 10 days of notice and demand, the Secretary is authorized to collect the tax by levy on the taxpayer's property. Sec. 6331(a). Upon request, the taxpayer is entitled to an administrative hearing before the Appeals Office of the Internal Revenue Service. Sec. 6330(b)(1). If dissatisfied with the Appeals Office determination, the taxpayer may seek judicial review in the Tax Court or a Federal District Court , as appropriate. Sec. 6330(d).

Respondent's position before trial, as reflected in his pretrial memorandum, was that petitioners had never paid the $611 amount due as shown on their joint 1997 return. At the commencement of trial, respondent's counsel stated that as she was reviewing respondent's transcripts of petitioners' accounts in preparation for trial, she had discovered that "it appears as though the taxpayer sent in his 1997 return with a payment of $611. We're not sure as to why, but that payment got applied to 1994 rather 1997."³

On the basis of all the evidence, we have found, as respondent's counsel has suggested, that petitioners remitted the $611 payment with their 1997 return. Respondent has offered no explanation or justification for applying the $611 remittance to petitioners' 1994 account; respondent has cited, and we are aware of, no authority for this action. Cf. Hill v. United States [59-1 USTC ¶11,858], 263 F.2d 885, 887 (3d Cir. 1959) ("We do not have any doubt that in the ordinary case where a taxpayer fills out his form, makes out his check and sends them in that he intends the remittance to be in discharge of his liability and that the Collector receives it in the same way."); Baimbridge v. United States [2004-2 USTC ¶50,344], 335 F. Supp. 2d 1084, 1095 (S.D. Cal. 2004) ("Delivery of a check with a tax return is generally sufficient to designate the payment toward the liability for the period of the return."). Petitioners' $611 payment fully satisfied their 1997 tax liability.⁴ Accordingly, respondent's proposed levy is not sustained insofar as it relates to petitioners' 1997 tax year.

Petitioners have not challenged their underlying tax liabilities for 1994 and 1996. At trial, petitioner husband made a generalized request for relief from penalties and interest. Petitioners have not alleged, however, and the record does not reveal any basis for granting petitioners any relief in this regard with respect to their 1994 and 1996 tax years. Petitioners have not otherwise alleged, and the record does not suggest, any reason why respondent's proposed levy with respect to their 1994 and 1996 tax years should not proceed.⁵

In light of the foregoing,

Decision will be entered for respondent with respect to petitioners' 1994 and 1996 tax years and for petitioners with respect to petitioners' 1997 tax year.

¹ Unless otherwise indicated, section references are to the Internal Revenue Code, as amended.

² The refund was apparently attributable to certain payments that had been made on petitioners' 1994 account after the return was filed but before the levy proceeds were applied.

³ Respondent's counsel represented that this matter could be resolved administratively. After the trial, we allowed the parties an opportunity to attempt to resolve this case administratively. After a prolonged attempt to reach an offer in compromise, the parties reported to the Court that they were unable to reach any agreement.

⁴ We are mindful that the Secretary may credit an overpayment, including interest thereon, against any Federal income tax liability of the person who made the overpayment. Sec. 6402(a). Petitioners, however, did not overpay their 1997 Federal income tax liability.

⁵ At trial, respondent's counsel suggested that as a result of moving petitioners' $611 payment from 1994 to 1997, petitioners' 1994 balance would increase accordingly. We note, however, that respondent's proposed levy with respect to petitioners' 1994 taxes does not presently encompass any liabilities resulting from reversal of the $611 credit to petitioners' 1994 account.

2002-2 USTC ¶50,639] In re Johnnie L. Brown, Debtor

U.S. Bankruptcy Court, East. Dist. Wis. , 1998-31716, 7/2/2002, 280 BR 231, 280 BR 231, 2002 Bankr. LEXIS 702

[Code Secs. 6321 , 6323 and 6331 ]

Liens and levies: Enforcement of lien: Bankruptcy: Levy, property subject to.--

The IRS was entitled to uncollected funds that had been paid over to the bankruptcy court after a debtor's Chapter 13 case was dismissed for failure to submit a confirmation plan. A valid prepetition lien for the debtor's outstanding tax liabilities existed on all of his nonexempt property, including the funds in possession of the bankruptcy court, and the IRS 's lien and levy superceded the debtor's right to return of the funds. F.W. Beam (CA-9), 99-2 USTC ¶50,917 , followed.
[Code Sec. 6331 ]

Liens and levies: Notice of levy, sufficiency of.--

No notice of levy needed to be served on a bankruptcy court holding the funds of a debtor whose Chapter 13 case had been dismissed because the government's challenge to the debtor's right to the funds was the functional equivalent of a levy. The debtor had the opportunity to challenge the claim and, thus, was not denied due process.

Larry Moses, Assignee of Debtor, pro se. Susan M. Knepel, Mark D. Petersen, for I.R.S.

MEMORANDUM DECISION ON PETITION FOR PAYMENT OF UNCLAIMED FUNDS

MCGARITY, Bankruptcy Judge:

This proceeding involves a dispute over unclaimed funds held by the Clerk of Bankruptcy Court after the debtor's chapter 13 case was dismissed without confirmation of a plan, and the trustee was unable to return the funds to the debtor. This court has jurisdiction under 28 U.S.C. §1334. Because the issues in this matter involve the administration of a case filed under Title 11 of the United States Code, and also a claim against the debtor, it is a core proceeding under 28 U.S.C. §157(b)(2)(A) and (B).

The debtor filed a chapter 13 petition on November 20, 1998, and after failing to file a feasible plan, his case was dismissed on June 23, 1999. After the case was dismissed, the trustee attempted to return the undistributed payments made to him by the debtor. The check to the debtor in the amount of $ 916.42 was returned to the trustee by the postal service as unclaimed. The trustee then paid the unclaimed funds to the Clerk of Bankruptcy Court. 11 U.S.C. §347(a); Fed. R. Bankr. P. 3011.

On December 4, 2001, The Financial Resources Group filed a petition for payment of unclaimed monies on behalf of the debtor. Notice of such request was given to the United States Attorney. 28 U.S.C. §2042. At the hearing on the Internal Revenue Service's request for additional time to review the request for unclaimed funds, the IRS asserted its position that it was entitled to receive the unclaimed funds from the estate because the debtor had outstanding tax liabilities, which were well in excess of the amount to be returned to the debtor. The court provided the parties with an opportunity to file briefs on their positions, and the court received a brief from the IRS only.

According to the IRS , the debtor owes federal income taxes for the years 1992, 1994 and 1995 in the amounts of $6,863.38, $1,559.67 and $3,956.20, respectively. Liens attached to all property of the debtor, pursuant to 28 U.S.C. §6321, when he did not pay those amounts after notice and demand. The liens arose on September 18, 1995, for the 1992 federal income tax liability, on September 25, 1995, for the 1994 federal income tax liability, and on February 23, 1998, for the 1995 federal income tax liability. Notices of Federal Tax Lien, giving the IRS priority as to third parties, were filed for those periods on August 17, 2000.

Resolution of this matter depends upon the interplay between two federal statutes, 11 U.S.C. §1326(a)(2) and 26 U.S.C. §6321. Section 1326(a)(2) of the Bankruptcy Code provides that

A payment made under this subsection shall be retained by the trustee until confirmation or denial of confirmation of a plan.. . . If a plan is not confirmed, the trustee shall return any such payment to the debtor, after deducting any unpaid claim allowed under section 503(b) of this title.

11 U.S.C. §1326(a)(2). Section 6321 of the Tax Code provides:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any cost that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

26 U.S.C. §6321.

Thus, the court must determine whether the funds can only be turned over to the debtor pursuant to 11 U.S.C. §1326(a)(2), or whether the monies may be turned over to the IRS under 26 U.S.C. §6321 because of the federal tax liens that have attached to all property of the debtor. No notice of levy has been served on the Clerk because, as the IRS stated in its brief, levy was considered unnecessary for funds held by the court. See also Treas. Reg. §301.6331-1(a)(3) (taxes cannot be collected by levy upon assets in custody of court); Gulf Coast Galvanizing, Inc. v. Steel Sales Co. [93-2 USTC ¶50,398 ], 826 F.Supp. 197, 205 (S.D. Miss. 1993) (noting that levy is administrative).

The IRS cites In re Beam [99-2 USTC ¶50,917 ], 192 F.3d 941 (9th Cir. 1999), in support of its position that the funds do not have to be returned to the debtor. In Beam, the Ninth Circuit held the IRS could levy on funds paid to the trustee under the debtor's proposed chapter 13 plan and held by the trustee following dismissal of the case. The Beam court held that provisions of the Internal Revenue Code superseded §1326(a)(2) of the Bankruptcy Code.

The court noted that §6334(a) ¹ of the Internal Revenue Code provided 13 categories of property exempt from levy under a federal tax lien, and those categories did not include funds held by the chapter 13 trustee after dismissal of a bankruptcy case. Beam [99-2 USTC ¶50,917 ], 192 F.3d at 944. Because §6334(c) further specified that no other property or rights were exempt from IRS levy except as specifically set forth in §6334(a), and §1326(a)(2) of the Bankruptcy Code was not listed among the 13 items exempt from levy, the Ninth Circuit concluded that the Internal Revenue Code modified the operation of §1326(a)(2). Id.

Other cases have allowed a creditor to assert state law liens against funds in the possession of the chapter 13 trustee upon dismissal of the case; however, the majority of those cases require the creditor to pursue their rights against the property in state court. See, e.g., In re Oliver, 222 B.R. 272 (Bankr. E.D. Va. 1998); In re Walter, 199 B.R. 390 (Bankr. C.D. Ill. 1996); In re Clifford, 182 B.R. 229 (Bankr. N.D. Ill. 1995). In effect, the trustee does not make distributions to creditors when a plan has not been confirmed, notwithstanding the creditors' state law rights in the funds held by the trustee. As the IRS points out, these cases are distinguishable in that none of them involved the reach of a federal tax lien.

This view is not unanimous, however. One court determined that judicial economy favored resolving the disposition of the creditor's lien in bankruptcy court, even though no plan was confirmed. In re Doherty, 229 B.R. 461 (Bankr. E.D. Washington 1999). The court concluded that the chapter 13 trustee's costs primed both the debtors' claim to the funds as well as any state tax lien interest. Nevertheless, the state department of revenue had a lien on the funds that were not necessary to pay the administrative costs, i.e., the debtor's funds, and the trustee was required to comply with the levy. The Doherty court noted that leaving the lien creditor with the obligation to complete its pursuit of the funds in state court was not an attractive solution. Id. at 466. Requiring the IRS to chase its liened funds in the debtor's possession is similarly unattractive.

One treatise, Mertens Law of Federal Income Taxation, takes the position that the funds should be turned over to the IRS :

When a taxpayer files for bankruptcy, that action will operate as an automatic stay to prevent collection efforts until there is a court hearing. Although a bankrupt taxpayer may possess property not subject to a levy because of the automatic stay provision, a tax lien will extend to such property. When a bankruptcy petition is filed, the Service will also maintain whatever tax liens that it has against the bankrupt's non-exempt property. If a bankruptcy case is dismissed, the bankrupt [sic] trustee is then obligated to either honor a notice of levy related to the non-exempt property or be subject to a penalty.

14 Mertens Law of Fed. Income Tax'n §54A:10 (citing In re Beam [99-2 USTC ¶50,917 ], 192 F.3d 941 (9th Cir. 1999)).

This court is satisfied that the IRS ' position is correct with respect to both substance and procedure. Cases dealing with state law created liens, which required return of assets to the debtor, seem to require state court procedure for enforcement of those liens, a result that is not necessary in the instant case involving a federal tax lien. The IRS had a valid prepetition lien on all nonexempt property of the debtor, including the debtor's funds in possession of the trustee, and the lien followed those funds when they were transferred to the Clerk of Bankruptcy Court. As the Beam court found, the IRS ' lien and levy superceded the debtor's right to return of the funds under 11 U.S.C. §1326(a)(2). While the IRS has not served the Clerk with a notice of levy, an administrative act preliminary to seizing a particular asset or fund subject to a tax lien, the IRS has issued the functional equivalent of a levy by challenging the debtor's right to the funds held by the Clerk. The debtor has had the opportunity to challenge that claim and thus is in no way denied due process. Just as the trustee in Beam was required to honor the IRS levy, the Clerk of Bankruptcy Court is likewise required to honor the IRS ' claim to the funds on which it has a lien.

This decision stands as the court's findings of fact and conclusions of law as required by Fed. R. Bankr. P. 7052. A separate order consistent with this decision will be entered.

ORDER DIRECTING PAYMENT OF UNCLAIMED FUNDS

For the reasons stated in the court's memorandum decision entered on this date, the Clerk of Bankruptcy Court for the Eastern District of Wisconsin is ordered to pay the unclaimed funds due the debtor in the above referenced case to the Internal Revenue Service.

¹ The specific exemptions include wearing apparel and school books, fuel, necessary personal expenses, books and tool, unemployment benefits, undelivered mail, certain annuity and pension payments, workers' compensation, judgments in support of minor children, minimum exemptions for wages and salary, certain service-connected disability payments, certain public assistance payments, assistance under the Job Training Partnership Act, residences exempt in small deficiency cases and principal residences and certain business assets exempt in absence of certain approval or jeopardy. 26 U.S.C. §6334(a)(1)-(13).

2002-2 USTC ¶50,563] Dennis Needham, Plaintiff v. United States of America, Defendant

U.S. District Court, Dist. Nev. , CV-S-01-0752-LRH ( PAL ), 6/4/2002

[Code Sec. 1 ]

Tax protestors: Wages as nontaxable receipt claims.--A notice of determination issued against an individual by the IRS was valid. The taxpayer's arguments that his wages did not constitute income and that IRS employees were not delegates of the Secretary of the Treasury were rejected.

[Code Secs. 6203 and 6303 ]

How assessment is made: Computer printouts: Notice and demand.--The IRS Appeals officer presiding over an individual's taxpayer's Collection Due Process hearing did not abuse his discretion by relying on computer records to determine that the requirements of applicable law had been met and that the taxpayer had been afforded required administrative notice and assessment procedures.

[Code Sec. 6330 ]

Liens and levies: Collection Due Process hearing: Hearing procedures: Effective levy.--An individual's appeal of a notice of determination issued against him by the IRS was dismissed. The taxpayer failed to raise any spousal defenses, challenge the appropriateness of the IRS 's intended collection action or offer possible alternative means of collection.
[Code Sec. 6331 ]

Liens and levies: Effective levy.--A notice of determination issued against an individual by the IRS was valid. The IRS was not required to obtain a court order to place a levy on his property. R

HICKS, District Judge:

On December 21, 2001, the United States filed a Motion for Summary Judgment. (Docket #8). Plaintiff filed a timely Opposition on February 1, 2002, (#13) and for the reasons that follow, the Court grants Defendant's motion.

I. Background

Plaintiff Dennis Needham filed a Complaint seeking damages and requesting that the Court set aside an invalid collection determination pursuant to 26 U.S.C. §6330.

Plaintiff's individual income tax returns for 1998 and 1999 contained zeros down the left hand margin to reflect zero income and zero taxes due to the government. As a result, the Internal Revenue Service (" IRS ") assessed a frivolous return penalty for each year and sent to Plaintiff a Notice of Intent to Levy. The Notice informed Plaintiff of his right to request a collection due process hearing, which Plaintiff requested and which was held on May 24, 2001. On May 31, 2001, the IRS sent Plaintiff a Notice of Determination Under Section 6320 and/or 6330 essentially rejecting the issues raised by Plaintiff at the hearing as frivolous. The present case is an appeal of the Notice of Determination.

II. Analysis

A. Standard of Review

A motion for summary judgment terminates, without a trial, actions in which "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).

The movant is entitled to summary judgment if the non-moving party, who bears the burden of persuasion, fails to designate " 'specific facts showing that there is a genuine issue for trial.' " Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (quoting Fed. R. Civ. P. 56(e)). Thus, in order to preclude a grant of summary judgment, the non-moving party must set forth " 'specific facts showing that there is a genuine issue for trial.' " Matsushita Elec. Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed. R. Civ. P. 56(e)). The substantive law defines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All justifiable inferences must be viewed in the light most favorable to the non-moving party. County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001) (citing Zenith Radio Corp., 475 U.S. at 587).

Section 6330(d) does not specify the standard of review a district court should apply to an appeal of a Notice of Determination. However, the legislative history indicates that the court should conduct a de novo review only "where the validity of the tax liability was properly at issue at the administrative hearing." H. Conf. Rept. 105-599, 105th Cong.2d Sess. 266 (1998). Where the amount of the underlying tax liability is not properly part of the appeal, the court reviews a Notice of Determination for abuse of discretion. See Sego v. Comm'r of Internal Revenue [CCH Dec. 53,938 ], 114 T.C. 604, 609-10 (2000).

B. Plaintiff's Section 6330 Appeal

Plaintiff raises the same issues before this Court that he raised at the May 24, 2001 hearing. Plaintiff challenges the Constitutionality of the May 24 hearing, the sufficiency of the Notice, the appeals officer's reliance on computer generated records, the authority of the appeals officer and the legitimacy of individual income tax generally.

Here the IRS hearing officer did not abuse his discretion when he determined that the requirements of applicable law had been met and that Plaintiff had been afforded statutorily-required administrative procedures. 26 U.S.C. §6330(c)(1). Additionally, Plaintiff did not address any of the statutorily-specified issues that may be raised at a collection due process hearing, such as spousal defenses, the appropriateness of an intended collection action, and possible alternative means of collection. 26 U.S.C. §6330(c). Finally, each of these arguments that Plaintiff now raises in the district court have been considered and rejected by other courts.

For example, in G.M. Leasing Corp. v. United States [77-1 USTC ¶9140 ], 429 U.S. 338 (1977), the United States Supreme Court held that 26 U.S.C. §6331 authorizes the collection of federal taxes by levy on the property of any person who refuses or neglects to pay any tax. Consequently, and contrary to Plaintiff's assertion, it requires no court order for the IRS to place a levy on an individual's property for failure to pay tax.

Nor is it improper for an appeals officer to rely on computer records in determining that the proper administrative procedures were followed to provide notice and for computing an assessment against a taxpayer. Davis v. Commissioner [CCH Dec. 53,969 ], 115 T.C. 35, 40 (2000). The "wages are not income" argument has been repeatedly rejected. See Olson v. United States [85-1 USTC ¶9401 ], 760 F.2d 1003, 1005 (9th Cir. 1985). Also rejected is the claim that an IRS employee is not a "delegate" of the Secretary of the Treasury. Browder v. Commissioner [CCH Dec. 46,775(M) ], T.C. Memo 1990-408, 1990 WL 108316.

III . Conclusion

Plaintiff has not, and cannot, present a material fact that would allow him to defeat Defendant's Motion for Summary Judgment. Defendant's Motion for Summary Judgment (#8) is, therefore, GRANTED. The clerk is directed to close the file.

IT IS SO ORDERED.

[2002-1 USTC ¶50,425] CPS Electric, Ltd. and American Manufacturers Mutual Insurance Company, Plaintiffs v. United States of America, Internal Revenue Service, Amdursky, Pelky, Fennell & Wallen, P.C., and Dean P. Koski, Defendants

U.S. District Court, No. Dist., N.Y., 5:01-CV-199 (FJS/DEP), 5/1/2002, 200 F. Supp. 2d 120, 2002 U.S. Dist. LEXIS 7749. Previous decision in this same case, 2001-2 USTC ¶50,610

[Code Secs. 6331 and 6502 ]

Levy and distraint: Interpleader action: Notice, sufficiency of: Statute of limitations.--In an interpleader action, the government was entitled to a portion of the funds awarded to a delinquent taxpayer in settlement of his personal injury claim. The government's action was not time-barred because its levy was filed well within the ten-year time limit for collection of tax after assessment. The property did not have to be physically seized at the time the levy was made because it was intangible property. The levy was properly made for all purposes, including satisfaction of the ten-year statute of limitations, by serving a notice of levy on the party holding the property.
[Code Sec. 6331 ]

Levy and distraint: Interpleader action: Effective levy.--A claim that the government had no levy rights in a settlement amount stemming from a personal injury action because the levy was served prior to the execution of the settlement agreement was rejected. The unliquidated personal injury claim was a property right against which a federal tax lien may be asserted. Because all of the events which gave rise to the settlement award occurred at the time of the injury, the government's levy was valid.

[Code Secs. 7433 and 7430 ]

Awarding of court costs: Prevailing parties: Civil damages: Cause of action.--Claims for damages and attorneys' fees made by parties to an interpleader action were denied. No evidence was provided to establish a claim for civil damages and the moving parties were not prevailing parties for purposes of attorneys' fees.

Karen Wozniak, Department of Justice, Washington, D.C. 20530, for U.S., I.R.S. Joseph E. Wallen, Amdursky, Pelky, Fennell & Wallen, P.C., Oswego, N.Y., for Amdursky, Pelky, Fennell & Wallen, P.C., and Dean P. Koski.

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

SCULLIN, JR., Chief District Judge:

On February 8, 2001 , CPS Electric, Ltd. (" CPS ") and American Manufacturers Mutual Insurance Company ("AMMIC") filed this interpleader action seeking to determine the interests of the United States, Amdursky, Pelky, Fennell & Wallen, P.C. ("Amdursky") and Dean P. Koski in $300,000, representing the gross proceeds of a settlement between CPS , AMMIC and Koski of a personal injury action that Koski had filed on March 24, 1995 . The United States claims an interest of $140,505.90, plus interest and statutory additions from July 31, 1995, in the interpleaded funds by virtue of a Notice of Levy the Internal Revenue Service (" IRS ") served upon CPS on or about July 10, 1995.

On March 20, 2001 , Amdursky and Koski filed cross-claims against the United States alleging (1) that the Government's levy had lapsed and, therefore, was unenforceable; (2) that at the time that the levy was served on CPS , CPS had no fixed and determinable obligation related to Koski's personal injury action; (3) that the Government's levy was "illegal pursuant to 26 U.S.C. §6323(b)(8); " ¹</