Property transferred during divorce (2) Page2

---

 

1. Our basic problem with the district court's analysis is its assumption that the IRS as lienholder stands in the shoes of the taxpayer's judgment creditors. We have little doubt that Congress could clothe a government tax lien with the rights and powers of a hypothetical bona fide purchaser or judgment creditor. But the question is whether the statute does so when it provides that a person's unpaid taxes "shall be a lien in favor of the United States upon all property and rights to property ... belonging to such person." 26 U.S.C. §6321 (emphasis added). The plain meaning of the words "belonging to" suggests that the lien attaches to property interests owned by the taxpayer, not property interests vulnerable to the taxpayer's judgment creditors. As every bankruptcy trustee knows, the latter is a potentially larger universe. See, e.g., In re Forbrook Constr., Inc., 474 F. Supp. 876 (D. Minn. 1979). ¹

The Supreme Court has adopted this plain language approach in construing §6321 : "The Federal statute relates to the taxpayer's rights to property and not to his creditors' rights." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 727 (1985); accord, United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 690-91 (1983). This court and other circuits have as well: "The IRS acquires by its lien and levy no greater right to property than the taxpayer himself has at the time the tax lien arises." St. Louis Union Trust Co. v. United States [80-1 USTC ¶9282 ], 617 F.2d 1293, 1301 (8th Cir. 1980). See also Gardner v. United States [94-2 USTC ¶50,482 ], 34 F.3d 985 (10th Cir. 1994) ("the tax collector not only steps into the taxpayer's shoes but must go barefoot if the shoes wear out," quoting 4 Boris Bittker, Federal Taxation of Income, Estates and Gifts ¶111.5.4 (1981)); Avco Delta Corp. Canada Ltd. v. United States [72-1 USTC ¶9359 ], 459 F.2d 436, 441 (7th Cir. 1972) ("the government's lien does not exceed the rights of the taxpayer").

Mary squarely raises this issue on appeal, arguing that the divorce decree divested Douglas of all interest in the property. The government would have us ignore the statute's text, relying on lower court decisions that simply assumed that, as lienholder, IRS stands in the shoes of the taxpayer's judgment creditors. These cases paid little if any attention to the statute's plain meaning as construed by the Supreme Court, but they were factually more similar to this case than National Bank of Commerce and St. Louis Union Trust. Thus, we must consider whether it is appropriate to apply the statute's literal language to the facts of this case.

The two cases on which the government most heavily relies are United States v. Creamer Indus., Inc. [65-2 USTC ¶9527 ], 349 F.2d 625 (5th Cir.), cert. denied, 382 U.S. 957 (1965), and Prewitt v. United States [86-2 USTC ¶9513 ], 792 F.2d 1353 (5th Cir. 1986). In those cases, divided Fifth Circuit panels, applying Texas law, held that the §6321 tax lien attached to properties that the taxpayers had previously conveyed by unrecorded instruments. "As to the taxes owed to it," the court explained in Creamer, "the United States was a 'creditor' within the Texas recording statute." [65-2 USTC ¶9527 ], 349 F.2d at 628. In dissent, Judge Brown construed §6321 more narrowly, much like the later National Bank of Commerce decision: "Unless there is property belonging to the taxpayer, the Government's lien is nonexistent. ... [T]he one thing clear is that Taxpayer here had no right in or to the property." Id. at 629. In Prewitt, the Fifth Circuit followed Creamer without discussing National Bank of Commerce, permitting the §6321 lien to defeat an unrecorded divorce decree. Judge Jolly concurred but stated that he agreed with Judge Brown's dissent in Creamer [86-2 USTC ¶9513 ], 792 F.2d at 1353.

Applying the law of Puerto Rico, the First Circuit rejected the reasoning of Creamer and Prewitt in United States v. V & E Eng'g & Constr. Co. [87-1 USTC ¶9355 ], 819 F.2d 331 (1st Cir. 1987). The court held that the §6321 lien did not attach to property the taxpayer had previously conveyed by an unrecorded deed of sale, concluding that "a taxpayer, once having sold his property, no longer has a 'right' to that property within the meaning of section 6321 ." Id. at 333. Similarly, applying the law of Connecticut , the court in Hamilton v. United States [92-2 USTC ¶50,552 ], 806 F. Supp. 326 (D. Conn. 1992), followed V & E and rejected Creamer and Prewitt. The court explained that the taxpayer's prior unrecorded conveyance sold the taxpayer's entire interest. Therefore, the IRS "would have this Court effectively sanction the knowing sale by a vendor of the same piece of property to two purchasers. ... The Court is hard pressed to believe Congress would countenance this result." Id. at 333.

We conclude that V & E and Hamilton are more consistent with the language of §6321 and the rule of National Bank of Commerce than are Creamer and Prewitt. The IRS has many collection remedies in the Internal Revenue Code; proceeding by lien and administrative levy is the most summary and severe of those remedies. See Rodgers [83-1 USTC ¶9374 ], 461 U.S. at 695-96. Congress had good reason to limit this remedy to property rights "belonging to" the taxpayer. ²

2. We must next examine the district court's reliance on Minnesota 's recording statute in light of our conclusion that the §6321 lien may only attach to property rights "belonging to" Douglas . Some recording statutes, like the one at issue in United States v. Hole, No. 75-1770-MA, 1980 WL 1555 (D. Mass. Mar. 31, 1980), provide that a conveyance has no effect "in passing title" until recorded. Under that type of statute, the transferor seemingly retains an interest to which the §6321 lien may attach. On the other hand, if a State's recording act only makes an unrecorded transfer void or voidable as against subsequent judgment creditors or bona fide purchasers, the transferor retains no post-transfer interest.

Minnesota 's statute is clearly of the latter variety. It provides that an unrecorded conveyance

shall be void as against any subsequent purchaser ... whose conveyance is first duly recorded, and as against ... any judgment lawfully obtained ... against the person in whose name the title to such land appears of record prior to the recording of such conveyance.

Minn. Stat. §507.34. This statute protects only subsequent bona fide purchasers and judgment creditors, essentially those "who buy real estate in reliance upon the record." Miller v. Hennen, 438 N.W.2d 366, 369 ( Minn. 1989). It does not vest any property interest in Douglas, the transferor. Moreover, we note that Douglas was not "the person in whose name the title to such land appears of record" because his contract-for-deed interest was never recorded. Thus, the recording act does not give Douglas any property right to which the §6321 lien may attach.

3. Douglas transferred his unrecorded equitable interest in the property to Mary by the 1971 divorce decree. See Minn. R. Civ. P. 70. With the recording act out of the picture, the question becomes whether Douglas has any other interest to which the §6321 lien may attach under Minnesota law. If not, the divorce decree effectively leaves the IRS unshod and Mary is entitled to set aside its levy. See Farmers' & Merchants' State Bank v. Stageberg, 201 N.W. 612 ( Minn. 1925).

In 1985, when the contract for deed was finally paid, the record owners conveyed the property to Douglas and Mary by a warranty deed purporting to give Douglas a joint tenant's interest. Thereafter, the Thomsons took many actions consistent with this deed, including Douglas 's representation on his 1992 IRS Collection Information Statement that he owns a joint tenant's interest. These actions raise at least two pertinent questions: (1) whether, in light of the 1971 divorce decree reflecting Douglas's conveyance to Mary, the 1985 warranty deed established an interest in the property "belonging to" Douglas to which the §6321 lien may attach under Minnesota law; and (2) if Douglas does own such an interest, whether the nature and extent of Mary's interest in the property nonetheless renders the IRS levy wrongful. See Hill v. United States [94-1 USTC ¶50,037 ], 844 F. Supp. 263, 274-75 (W.D.N.C. 1993). These are fact intensive questions that the district court should determine in the first instance. We note in this regard that the parties' respective burdens of proof may raise important and unresolved issues on remand. Compare Valley France, Inc. v. United States [80-2 USTC ¶9554 ], 629 F.2d 162, 171 n.19 (D.C. Cir. 1980), with Flores v. United States [77-1 USTC ¶9380 ], 551 F.2d 1169, 1176 n.8 (9th Cir. 1977).

For the foregoing reasons, the judgment of the district court is reversed and the case is remanded for further proceedings consistent with this opinion.

¹ We are concerned in this case with whether the §6321 lien attached to particular property. Once the lien attaches, its validity and priority are questions of federal law that Congress has addressed in great detail. See 26 U.S.C. §6323 .

² There is an apparent exception to the general rule of National Bank of Commerce--taxpayer fraudulent conveyances. Under state law, such conveyances are typically void "as against" subsequent bona fide purchasers or creditors, without regard to whether the defrauding transferor has a residual interest in the property. See, e.g., Minn. Stat. §§513.08, 513.44-.45. Yet a number of cases have held that the §6321 lien attached to property conveyed by the taxpayer with the intent to defraud creditors, treating the IRS as a defrauded creditor without considering whether that is the proper focus given the language of §6321 as construed in National Bank of Commerce. See United States v. Fernon [81-1 USTC ¶9287 ], 640 F.2d 609, 612 & n.5 (5th Cir. 1981); United States v. Jones [86-2 USTC ¶9832 ], 631 F. Supp. 57, 59 (W.D. Mo. 1986). The contrast between the government's uniform success in fraudulent conveyance cases and the plain language of §6321 as construed in National Bank of Commerce is somewhat troubling. Perhaps a special rule is appropriate in cases of fraud. Or perhaps the lien issue is unimportant because the IRS is in any event a creditor entitled to pursue its remedies under these fraudulent conveyance statutes. See United States v. Bierbauer [91-2 USTC ¶50,331 ], 936 F.2d 373 (8th Cir. 1991). As there is no suggestion of taxpayer fraud in this case, we need not resolve this question.

 

 

 

United States of America , Plaintiff-Appellee v. David Gibbons, Defendant and Betty J. Gibbons, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 94-1330, 12/1/95 , 71 F3d 1496, 71 F3d 1496. Reversing and remanding an unreported District Court decision

[Code Secs. 6321 and 6323 ]

Tax liens: Residences: Joint tenancy, severance of: Spouses: Separation agreement.--A separation agreement between an ex-spouse and her former husband severed their joint tenancy in a residence that was foreclosed upon to satisfy the former husband's tax liability and conveyed a form of a life estate to the ex-spouse. The ex-spouse had a possessory interest in the whole and a remainder interest in one-half of the property. The joint tenancy was destroyed under state ( Colorado ) law because the separation agreement gave the ex-spouse an unconditional right to force the sale of the property. The ex-spouse's failure to record the separation agreement did not render the conveyance invalid against the IRS. The IRS's lien did not extend beyond the property interests held by the delinquent taxpayer and he had no rights in the property interest conveyed to the ex-spouse by the separation agreement.

Henry Lawrence Solano, United States Attorney, Loretta C. Argrett, Assistant Attorney General, Robert W. Metzler, William S. Esterbrook, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Fred M. Hamel, 155 S. Madison, Denver , Colo. , for Betty J. Gibbons.

Before: HENRY and LOGAN, Circuit Judges, and Ellison, District Judge. ^*

LOGAN, Circuit Judge:

This case involves a dispute between the United States Internal Revenue Service (IRS) and Betty J. Gibbons, the ex-wife of taxpayer David Gibbons. The IRS brought suit pursuant to I.R.C. §§7401 -7403, to reduce to judgment federal tax assessments against David Gibbons and to foreclose federal tax liens against real property in which he held an interest. The district court found that despite a dissolution of marriage decree awarding Betty Gibbons the conditional right to live on the property during her life, David and Betty continued to own the property as joint tenants. Thus, it held she was entitled to only one-half of the proceeds of the foreclosure sale. Betty Gibbons appeals.

I

In 1970, Betty and David Gibbons acquired title to real property in Denver , Colorado ( Ogden Street property) "in joint tenancy." Appellant's App. 10, 40. They were divorced in January 1982. The dissolution decree incorporated a separation agreement that provided in relevant part

House at 325 So. Ogden held in Joint Tenancy to be occupied by Betty J. Gibbons and three minor children, and mortgage paid monthly by Betty J. Gibbons. If Betty J. Gibbons remarries and/or moves from said house, house is to be sold and equity divided equally between David J. Gibbons and Betty J. Gibbons.

Id. at 43.

Between 1984 and 1990 the IRS filed notices of federal tax liens ¹ against David for nonpayment of taxes. In June 1992 the IRS filed this suit seeking to reduce to judgment federal tax assessments against David and to foreclose the tax liens against the Ogden Street property. Betty evidently neither contested the IRS' right to seek sale of the entire property nor asked the district court to exercise its discretion to decline to order a foreclosure sale. ² She argued, however, that the separation agreement conveyed to her a life estate interest in the property for which she was entitled to be compensated. The district court rejected Betty's position; it determined that David and Betty continued to hold the Ogden Street property in joint tenancy and that Betty was entitled to only one-half of the proceeds of the forced sale.

The threshold question before us is whether, under Colorado law, the separation agreement severed the joint tenancy and conveyed to Betty a new interest in the Ogden Street property. If we find that it did then we must address whether (based on Colorado recording statutes) her failure to record her interest where deeds are registered rendered it invalid as against the recorded tax liens. Finally, if we find that Betty's interest was valid against the IRS liens, we must determine whether a stipulation of the parties is determinative of the value of her additional interest. We review de novo the district court's interpretation of both federal and Colorado law. See Salve Regina College v. Russell, 499 U.S. 225, 231 (1991).

II

The district court based its determination that the separation agreement did not create a new interest in the property in part upon cases addressing the requirement for delivery of a deed to convey property. These cases, however, addressed whether or not there was actual delivery and acceptance of a deed sufficient to pass title. See, e.g., Sims v. Sperry, 835 P.2d 565, 568 (Colo. App. 1992) (when grantor did not intend to unconditionally and presently part with "possession and control or any power over the deed, for the benefit of grantee," delivery of deed did not pass title, even if deed was recorded); Stagecoach Property Owners Ass'n v. Young's Ranch, 658 P.2d 1378, 1380-81 (Colo. App. 1982) (differentiating between conveyance and dedication for purposes of statute providing for conveyance of park area by subdividers). Property may be passed in many ways other than by deed, including court orders in probate of a decedent's estate and in final termination of marriages such as the one before us. See, e.g., Baker v. Baker, 667 P.2d 767, 769 (Colo. App. 1983) (separation agreement, made part of divorce decree, granted wife life tenancy or leasehold estate). Rule 70 of the Colorado Rules of Civil Procedure provides that "the court . . . may enter a judgment divesting the title of any party and vesting it in others and such judgment has the effect of a conveyance executed in due form of law."

Betty Gibbons asserts that the separation agreement conveyed to her a life estate interest and destroyed the joint tenancy in the Ogden Street property. Colorado has adopted the modern test for determining whether a joint tenancy has been destroyed. That test "focuses on the intent of the parties with regard to the right of survivorship characteristic." Mangus v. Miller, 532 P.2d 368, 369 ( Colo. App. 1974). Two Colorado cases are instructive on this point.

In Bradley v. Mann, 525 P.2d 492 (Colo. App. 1974), aff'd, 535 P.2d 213 ( Colo. 1975) (en banc), a separation agreement provided that a residence would "remain in the joint names of the parties and the party residing therein shall pay all current expenses." Id. at 493. The agreement further provided that the property would be sold upon the remarriage of the wife, the youngest child reaching age twenty-one, or by mutual agreement, whichever came first, with the proceeds to be divided equally between the parties. The Colorado Court of Appeals, while acknowledging that obtaining a divorce by itself is not an indication of intent to terminate joint tenancy ownership, nevertheless held the joint tenancy no longer existed. It stated that the provision for ultimate sale of the property and division of the proceeds indicated that "neither party had the ultimate expectation of receiving the other's interest in the property upon that party's death, and the ownership of the property was thereby converted to a tenancy in common." Id. at 494.

In Mangus v. Miller, the Colorado Court of Appeals addressed whether a separation agreement that provided for a five-year lease to one of the parties and an option to purchase a half interest in the premises terminated a joint tenancy. The court stated that because each party had voluntarily surrendered some of their rights, they had terminated the joint tenancy. The court held that "[t]he right of either party to insist upon a sale to one or the other is wholly inconsistent with the continuance of a joint tenancy relationship." 532 P.2d at 369-70 (citation omitted). The court reasoned that the provisions of the separation agreement were inconsistent with the intent that a surviving ex-spouse should succeed to the deceased spouse's interest.

In the instant case the agreement provided that the Ogden Street property would be sold if Betty Gibbons either remarries or moves out of the home; thus Betty had the unconditional right to force the sale of the property. Under Mangus, this right is inconsistent with an intent to continue a joint tenancy. The IRS counters that the phrase "held in Joint Tenancy" in the separation agreement indicates that there was no intent to destroy the joint tenancy. But in Bradley the court stated that "[e]ven if the agreement had used the words 'joint tenancy,' we would still be required to examine the remainder of the agreement to see whether it provided for a disposition which would be inconsistent with the right of survivorship." 525 P.2d at 494 n.1. ³ Under Colorado law, the separation agreement severed the joint tenancy.

The remaining question is to identify what interest the separation agreement conveyed to Betty Gibbons. We think the Colorado law cited above indicates that she has a possessory interest in the whole of the property and a remainder interest in one-half. We are satisfied that the possessory interest is a form of life estate-- because it is capable of lasting throughout Betty's lifetime and it is not terminable at any fixed or computable period of time or at the will of ex-husband David. See Restatement of Property §18(b) (1936); see also Collins v. Shanahan, 523 P.2d 999, 1003 (Colo. App. 1974), rev'd in part on other grounds, 539 P.2d 1261 ( Colo. 1975) (en banc) ("It has been said that a life estate exists if the interest can or may continue during a life."). Betty's interest is qualified by the conditions that she live in the home, pay on the mortgage, and that she not remarry. But these are all conditions within her power to control; her interest does not expire automatically at a fixed date nor is it subject to the will of her ex-husband. See Baker v. Baker, 667 P.2d 767, 769 (Colo. App. 1983) (separation agreement providing that husband would make premises available to wife if she elected to continue in possession and paid $150 per month in rent described by court as both a life tenancy and a leasehold estate). At common law this estate would be characterized as a life estate determinable. See Restatement of Property §23 , illus. 1. Whether Betty's interest is characterized a life estate determinable, a defeasible lifetime lease, or something akin to a homestead interest, she has more than a one-half interest in the property.

III

The IRS argues that even if the separation agreement conveyed to Betty Gibbons an additional interest in the Ogden Street property, her failure to record the separation agreement or dissolution decree renders that conveyance invalid as against the IRS lien. ⁴ The IRS lien was created under I.R.C. §6321 , which 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 costs 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." Under §6321 , the taxpayers' "rights to property" are determined under state law. See Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-14 (1960); Gardner v. United States [94-2 USTC ¶50,482 ], 34 F.3d 985, 987 (10th Cir. 1994) (in determining whether a federal tax lien attaches we look to state law to determine the nature of the legal interest which the taxpayer had in the property).

The IRS asserts that under Colorado law it is within a "class of persons with any kind of rights who first records," and thus its lien prevails over Betty's unrecorded ownership interest. See Colo. Rev. Stat. §38 -35-109. ⁵ The IRS relies on the Fifth Circuit cases of United States v. Creamer Indus., Inc. [65-2 USTC ¶9527 ], 349 F.2d 625 (5th Cir.), cert. denied, 382 U.S. 957 (1965), and Prewitt v. United States [86-2 USTC ¶9513 ], 792 F.2d 1353 (5th Cir. 1986). The Creamer court determined that the United States was a "creditor" protected under the Texas Recording Act and held that §6321 tax liens attached to properties that the taxpayers previously had conveyed by unrecorded instruments. Creamer [65-2 USTC ¶9527 ], 349 F.2d at 628. In Prewitt the Fifth Circuit allowed a §6321 lien to defeat the interest of the plaintiff who had purchased the property from the former wife of the taxpayer because the divorce decree was unrecorded. See Prewitt [86-2 USTC ¶9513 ], 792 F.2d at 1356-57.

The First and Eighth Circuits have rejected the Fifth Circuit view. United States v. V & E Engineering & Constr. Co. [87-1 USTC ¶9355 ], 819 F.2d 331 (1st Cir. 1987), held that a §6321 lien did not attach to property that the taxpayer previously had conveyed by an unrecorded deed because once the taxpayer sold his property he did not have a "right" to that property within the meaning of §6321 . Id. at 333. Likewise, very recently, the Thomson v. United States [95-2 USTC ¶50,549 ], 66 F.3d 160, 163 (8th Cir. 1995), court determined that under the Minnesota recording statute, which protects subsequent bona fide purchasers and judgment creditors against unrecorded conveyances, the IRS lien did not defeat the ex-wife's interest even though she had not recorded her interest.

The Eighth and First Circuits rely upon the Supreme Court's plain language approach to §6321 : "The federal statute relates to the taxpayer's rights to property and not to his creditors' rights." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 727 (1985). In other words, the tax collector steps into the taxpayer's shoes. See Gardner v. United States [94-2 USTC ¶50,482 ], 34 F.3d 985, 988 (10th Cir. 1994); see also United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 690-91 (1983) ("the Government's lien under §6321 cannot extend beyond the property interests held by the delinquent taxpayer").

Although the Colorado statute provides that an unrecorded conveyance is void "as against any class of persons with any kind of rights who first records," it also continues--"except between the parties thereto and such as have notice thereof." Colo. Rev. Stat. §38 -35-109 (emphasis added). The separation agreement, although unrecorded, prevents David from contesting Betty's ownership of what was conveyed to her. ⁶ The IRS must stand in the shoes of David Gibbons, who has no "rights to property," I.R.C. §6321 , to which the tax lien could attach in the property interest conveyed to Betty Gibbons. Therefore, the IRS lien against property "belonging to" David does not reach Betty's interest. The IRS stipulated that its tax levy does not reach any interest of Betty Gibbons.

IV

Although the IRS can force the sale of the property against Betty Gibbons' interest, see Rodgers [83-1 USTC ¶9374 ], 461 U.S. at 694-96, the IRS must reimburse her for her fifty percent remainder interest plus the value of her possessory interest that will be ousted by the sale. ⁷ Betty asserts that the value is controlled by the stipulation of facts between the parties. The stipulation on which she relies provides:

If the Court determines that Ms. Gibbons has a life estate in the real property in addition to and apart from her 50% ownership interest with Mr. Gibbons, Ms. Gibbons' Exhibit D is the applicable actuarial table for use in valuing the life estate. Pursuant to Exhibit D the value of a life estate for Ms. Gibbons is 82.621%, with the Gibbons each having one-half of the 17.379% remainder, for a total interest for Ms. Gibbons of 91.311% and for Mr. Gibbons of 8.680%.

Appellant's App. 12.

We have determined that Betty does not have an unqualified "life estate"; rather, she has what we characterize as a life estate determinable on the condition that she occupy the home, not remarry, and pay the mortgage payments as due. Thus we do not construe the stipulation as controlling because she does not have an unfettered life estate as contemplated by the stipulation.

We must remand to the district court for further proceedings to evaluate the value of Betty Gibbons' property interest. The parties stipulated that Betty was forty-nine years old and had no intention of either remarrying or moving from the property. Thus, the remarriage and occupancy requirements would not diminish the value of her interest from that stipulated for a "life estate." The requirement of mortgage payments, however, placed entirely on her, could diminish the value of her interest unless that mortgage has been paid off. If there is an outstanding mortgage, the valuation problems on remand will be similar to valuing a condemnation action in which a tenant with a long-term favorable lease must be compensated.

REVERSED AND REMANDED for further proceedings in accordance with this opinion.

^* The Honorable James O. Ellison, Senior United States District Judge , United States District Court for the Northern District of Oklahoma, sitting by designation.

¹ Notices were recorded in 1984, 1988, and 1990. The total amount of the liens which attached to David Gibbons' interest in the Ogden Street property was $42,066.28.

² In December 1992 Betty Gibbons filed a counterclaim against the IRS. In March 1994 the district court entered a judgment dismissing the counterclaim. Betty Gibbons did not appeal dismissal of the counterclaim. The IRS obtained a default judgment against David Gibbons, who did not appear at trial and has not appealed from the district court's judgment against him.

³ Further, as Betty Gibbons pointed out in her brief, the separation agreement stated that the property was held in joint tenancy--past tense--and the rest of the clause used the future tense, i.e., "to be occupied" by Betty Gibbons and "is to be sold," thus indicating that the use of "joint tenancy" may have been a reference to the past ownership interest.

⁴ Apparently neither the separation agreement nor the divorce decree were recorded in the office of the county clerk. We note that the copies in the appendix do contain file stamps that they were recorded in some office in the City and County of Denver . See Appellant's App. 41, 43. For purposes of this opinion we presume, as the district court and the parties do, that whatever recording was done here it was not sufficient to place the documents in the chain of title to the real estate.

⁵ Colorado Revised Statutes §38 -35-109 provides that:

All deeds, powers of attorney, agreements, or other instruments in writing conveying, encumbering, or affecting the title to real property, certificates, and certified copies of orders, judgments, and decrees of courts of record may be recorded in the office of the county clerk and recorder of the county where such real property is situated. No such unrecorded instrument or document shall be valid as against any class of persons with any kind of rights who first records, except between the parties thereto and such as have notice thereof. This is a race-notice recording statute.

(Emphasis added.)

⁶ As the Thomson court pointed out, if a recording statute provides that a conveyance has no effect in passing title until recorded, see, e.g., United States v. Hole [80-1 USTC ¶9434 ], No. 75-1770-MA, 1980 WL 1555 (D. Mass. Mar. 31, 1980), the transferor (in this case David Gibbons) could be construed to retain an interest to which a §6321 lien could attach. Thomson [95-2 USTC ¶50,549 ], 66 F.3d at 163.

⁷ Because the IRS has the right under Rodgers to force a sale of the property against Betty Gibbons' interest her acquiescence to the sale does not mean that she has moved off the property in the sense required to trigger the fifty-fifty allocation between the parties specified in the separation agreement.

 

 

 

In the Matter of the Estate of Kenneth J. Gleason, Deceased

U. S. District Court, Montgomery County, Kan., Sitting at Independence, No. 63,299, 4/11/68

[1954 Code Sec. 6321 and R. S. Sec. 3466]

Lien for taxes: Property subject to lien: Insurance proceeds: Insolvent estate.--Where the deceased taxpayer, as required by his divorce decree, took out a term insurance policy to guarantee monthly alimony payments to his ex-wife and to pay off the balance of the divorce judgment in case of death, the Government's tax lien did not attach to the policy proceeds on the taxpayer's death even though his estate was the named beneficiary on the policy. Under Kansas law, the policy proceeds belonged to the ex-wife, not the estate which was insolvent, since the taxpayer, who had the right to change the beneficiary, and thereafter the estate were under a legal duty to name the ex-wife as beneficiary.

A. H. Harding, Professional Bldg., Independence , Kan. , for executor. Kirke C. Veeder, Attorney, Veeder Bldg., Independence , Kan. , for Anna E. Gleason.

Order on Motions

SCOTT, District Judge:

The motion of the United States of America for disallowance of claim of Anna E. Gleason as a secured claim is overruled.

The motion of the attorney for the executrix to correct the record is hereby granted.

Findings of Fact and Conclusions of Law

The Court having heard the evidence, reviewed the records, considered the Briefs, consulted the authorities and being well advised in the premises, makes the following findings of fact and conclusions of law:

Anna Evelyn Gleason and Kenneth Jack Gleason were married in 1924 and divorced in June, 1959. As a part of the divorce the parties agreed and stipulated as to alimony and property rights. The stipulation was approved by the Court and made a part of its decree. The agreement and the Court's order provided for payment to the wife the sum of $24,000.00 as permanent alimony to be paid at the rate of $200.00 per month. It further provided that in order to secure the payment of the entire sum the husband agreed to obtain and carry a term insurance policy insuring his own life with the wife, Anna, named as beneficiary. The divorce decree, stipulation and property settlement were never vacated nor modified but were in full force and effect at defendant's death.

At the time of the divorce the husband owned a life insurance policy, Exhibit 3, in the amount of $10,000.00 with his wife, Anna, named beneficiary. After the divorce he purchased another $10,000.00 policy, Exhibit 4, with wife, Anna, named as beneficiary. This policy issued July 22, 1951 . On June 13, 1961 , Gleason changed the beneficiary on both of these policies to Kathleen Gleason, a new wife, "to Kathleen Gleason, wife of the Insured, if living, otherwise to Matie J. Gleason, mother of the Insured."

September 11, 1961 , the first wife, Anna, brought a contempt action against the defendant Gleason alleging he was five months delinquent in his payments to her. September 15th, the contempt citation was dismissed on plaintiff Anna's motion, both parties appearing with counsel. The Court's order in part read, "Whereupon the plaintiff states to the court that the defendant is making arrangements to purge himself of contempt and to comply with the order of this Court for alimony entered on the 26th day of June, 1959, and she therefore moves that the attachment for contempt be dismissed and the defendant, Kenneth J. Gleason, be discharged without prejudice."

On October 2, 1961 , Defendant Gleason applied for and was issued a Travelers Insurance Company term insurance policy in the amount of $18,000.00. This was a decreasing term insurance policy, the principal to be reduced each year of the term, the term being ten years. This policy came into being to comply with defendant Gleason's contract with Plaintiff, Anna, and the order of this Court. The policy was related to the monthly alimony payments and the principal sum reduced annually. (See testimony of Insurance Agent Gilmore transcript). Defendant Gleason intended this policy to guarantee the monthly payments and in event of his death to pay off the balance of the judgment. This is evidenced by his conversation with the Agent Gilmore and his dealings with his own attorney Harding. Harding was a witness and his evidence bears out this intention. (See transcript).

The policy was made payable when taken out to "Insured's Estate." The application for the policy stated, "Executors, Administrators or Assigns." The Insured reserved the right to change the beneficiary. At the time the policy was taken out the Defendant Gleason told the Agent Gilmore "He would instruct him later how to change it." (Transcript page 50-51). Attorney Harding, at defendant Gleason's request, drew up a trust agreement whereby a bank would hold the policy and pay out the proceeds. It was never executed because the bank did not have trust powers.

Defendant Gleason died March 22, 1965. The policy was in force, the monthly payments had been made except February and March of 1965, leaving a balance owing to the plaintiff of $10,600. Defendant's estate is being administered in the probate court of Montgomery County , Kansas , with Kathleen Gleason, surviving widow, as executrix. The executrix has collected the proceeds from Exhibits 3, 4, and 5. The correct amount collected on Exhibit 5, the subject matter of this action, is $13,680.00, which is in the hands of the executrix.

Defendant Gleason's estate is insolvent. The United States Government has filed its claim in the amount of $124,963.69 based solely upon 31 USCA 191, which gives priority over all other claimants, except burial expenses, widow's allowances and costs of administration. The plaintiff, Anna Gleason, has filed her claim in the amount of $10,600.00 claiming an equitable lien upon the proceeds of Exhibit 5 to that extent. She also bases her claim upon a contractural obligation reduced to judgment. Her contention is that the $10,600.00 is not "property" of the Gleason estate and thus 31 USCA 191 has no application. The claims were certified and transferred from probate court to the District Court, both parties joining in the transfer and certification.

Questions

1. Jurisdiction of this Court.

2. Is Exhibit No. 5, the Travelers Insurance Policy issued to Defendant Gleason, "property" of the decedent's estate?

Question 1: Jurisdiction of District Court

The Government has questioned the jurisdiction of the probate court in the first instance and the District Court on Certification and transfer, to entertain and decide the questions raised by this action.

(1) KSA 60-208(a) Relief is in the alternative, or of several types may be demanded.

(E-2) "A party may also state as many separate claims or defenses as he has regardless of consistency, and whether based on legal or on equitable grounds or on both."

(2) KSA 59-301 Jurisdiction of Probate Courts.

No. 12--and they shall have and exercise such equitable powers as may be necessary and proper fully to hear and determine any matter properly before such courts.

(3) 1 Bartlett Probate Law and Practice, pp. 126-127.

"They (probate courts) have exclusive, original jurisdiction to determine what assets belong to the estate. This general principle has been definitely established involving varying facts and circumstances."

The proceeds of the insurance policy have been collected and are held by defendant's executor. Claims have been filed by the Government and by Claimant Anna Gleason. These claims have been certified or transferred to the District Court, a transfer or certification that both claimants joined in accomplishing.

(4) KSA 59-2408 "Upon the filing of the transcript the District Court, without unnecessary delay, shall proceed to hear and determine the appeal, and in doing so shall have and exercise the same general jurisdiction and power as though the controversy had been commenced by action or proceeding in such court and as though such court would have had original jurisdiction of the matter."

Question 2. Is Exhibit No. 5, the Travelers Insurance Policy issued to Defendant Gleason "property" of the decedent's estate?

37 C. J. 564 #320, "The primary and undoubted intent of a Contract of Insurance is that the company shall make payment on the death of the insured. The question as to whom payment is due is a secondary one and contingent on the circumstances."

Lovinger v. Gorvan, 270 Fed. Reporter 298. Learned Hand, District Judge: Sylb. 2. "A promise by the Insured in a life policy payable to a beneficiary named, for a consideration, to change the beneficiary under a power reserved in the contract, is enforceable by the promise after the death of the Insured and equity will disregard the formal steps and treat the promisee as an already substituted beneficiary."

At p. 300 #2, "This does not however depend upon any vague theory of equity, nor is it based upon general motives or supposed justice. It rests upon the existence of an enforceable contract between the insured and the promisee, creating an obligation to use his reserved power."

United States of America v. Molly G. Bess [58-2 USTC ¶9595] 357 U. S. 51 2 L. Ed. 2nd 1135.

In this case Bess, a resident of New Jersey , insured his life, naming his wife, Molly G. Bess, beneficiary. Bess was liable for income tax deficiencies for the years 1945-1949. He died in 1950. The proceeds of the insurance policy in which Bess retained the right to change the beneficiary and the right to cash surrender value were paid to the widow. Bess' estate was insolvent and the Government sought to collect the tax deficiencies from the insurance proceeds. The case went to the U. S. Supreme Court where is was held that the laws of New Jersey governed and that under that law the decedent Bess' only "property" in the policy was limited to its cash surrender value and he had no interest in its proceeds.

The Bess case is discussed in United States v. Durham Lumber Co. [60-2 USTC ¶9539], 363 U. S. 522, 42 ed. 2nd 1371.

"The Bess case does not require a contrary conclusion. The case held only that while a federal tax lien attached to the cash surrender value of a life insurance policy owned by the taxpayer, it did not attach to the proceeds paid upon his death, because under state law he had no right to such proceeds during his life."

The term policy purchased by Defendant Gleason, the subject matter of this action, had no cash surrender value.

Tivis v. Hulsey, 148 K 892. Opinion p. 895: "This action is between rival claimants of the proceeds of the policies. In such a case, where rights are claimed by reason of a contract made with the assured, the contract involves the relative rights of the claimants and may become one purely of equitable cognizance and determination, (Brown v. Modern Woodman, 97 Kan. 665). A vested interest in a policy may be acquired by contract not to change a beneficiary, made upon valuable consideration, (Sipe v. Sipe, 102 Kan. 742). In such a case the proceeds of the policy become a trust fund which may be followed by the rightful claimant. (Exchange State Bank v. Poindexter, 137 K 101). "Here the existence established that the agreement was made as alleged by plaintiff, and also showed a valuable consideration therefor. The result is plaintiff then acquired a vested interest in the policies, and the plaintiff was entitled to follow the proceeds therefor and recover them from one who obtained them, at best, as a mere gratuity."

Conclusion of Law

1. This court has jurisdiction of the parties and the subject matter of the action with full power to decide all the issues.

2. The Decedent Gleason was legally bound to procure this insurance and to name Plaintiff, Anna E. Gleason, as beneficiary. Having reserved this power to change the beneficiary he was legally bound to do so. The legal duty of Kenneth J. Gleason to name Anna E. Gleason as the beneficiary of the insurance policy in question was not discharged by his death. Such duty was specifically enforceable against his executrix, who had no greater rights in and to said insurance proceeds than did Kenneth J. Gleason, if living. The Court therefore concludes that the executrix received and holds $10,600.00 of the proceeds of such insurance in trust for, and as the equitable property of Anna E. Gleason, just as though Kenneth J. Gleason had in his lifetime named her as beneficiary of said life insurance policy to the extent of the unpaid balance of the alimony judgment. The estate of decedent Gleason has no interest or property in the said $10,600.00.

3. The balance of the proceeds, $3,080.00 shall constitute an asset of decedent's estate and be disbursed as directed by the probate court.

4. The tax claim of the United States of America should be allowed against the estate of Gleason in the sum of $124,968.69 plus interest thereon at the rate of $14.54 per day from May, 1965, to date of payment; should be given priority in accordance with Title 31 U. S. C. Sec. 191; and should be paid by the executrix to the extent of the assets available in said estate after the payment of the money owned by Anna E. Gleason, to Anna E. Gleason, the widow's statutory allowances, funeral and burial expenses and costs of administration.

Order

(1) The executrix, from the proceeds of Travelers Policy No. 3,129,224, Exhibit No. 5, now in her possession, is ordered to pay to Anna E. Gleason, the sum of $10,600.00 without interest, the remaining proceeds, $3,080.00, shall constitute an asset of the Kenneth J. Gleason estate, for disbursement as the probate court shall direct.

(2) The tax claim of the United States of America is allowed as a claim of the fourth class in the amount of $124,963.69 plus interest at the rate of $14.54 per day from May, 1965, to date of payment. Priority shall be accorded this claim in accordance with Title 31 U. S. C. Sec. 191.

(3) This case is remanded to the probate court for further proceedings in accordance with the orders contained herein.

 

 

 

United States of America , Plaintiff v. Gordon A. Campbell; May Martin formerly known as May Campbell; and Metropolitan Life Insurance Company, Defendants

U. S. District Court, West. Dist. Wash. , No. Div., Civil Action No. 6177, 11/9/64

[1954 Code Sec. 6321]

Tax liens: Insurance proceeds: Cash surrender value.--A woman who received an insurance policy on the life of her former husband as part of the property settlement in a divorce action was ordered to surrender such policy to the insurance company and the insurance company was ordered to pay the government the cash surrender value of such policy to satisfy liens for income tax deficiencies based upon the joint income tax liability of the parties prior to the divorce.

William N. Goodwin, United States Attorney, Gerald W. Hess, Assistant United States Attorney, Seattle, Wash., for plaintiff. John A. Paglia, 1130 S. 11th St., Tacoma, Wash., for Gordon A. Campbell; John A. Gose, Preston, Thorgrimson, Horowitz, Starin & Ellis, 1900 Northern Life Tower, Seattle, Wash., for Metropolitan Life Insurance Co.; Edgar R. Rombauer, 531 Medical Arts Bldg., Seattle, Wash., for May Martin, defendants.

Findings of Fact and Conclusions of Law

BUKS, District Judge:

This matter having come on to be heard before the undersigned Judge of the above-entitled Court upon the plaintiff's Motion for Entry of Findings of Fact, Conclusions of Law and Judgment herein, the plaintiff appearing by William N. Goodwin, United States Attorney for the Western District of Washington, and Gerald W. Hess, Assistant United States Attorney for said district, its attorneys herein; the defendant, Gordon A. Campbell, being represented by John A. Paglia, his attorney herein; the defendant May Martin being represented by Edgar R. Rombauer, her attorney herein; the defendant Metropolitan Life Insurance Company, being represented by Preston, Thorgrimson, Horowitz, Starin and Ellis, its attorneys herein, and the defendants and each of them, having consented through their undersigned attorneys of record, to the entry of these agreed Findings of Fact and Conclusions of Law, and the Court being fully advised in these premises, now, approves the following agreed:

Findings of Fact

[Basis for Tax Lien]

I. That the United States of America, plaintiff herein, has brought this action for the purpose of collecting income and withholding taxes and to enforce its tax liens on a sum of money which represents the cash surrender value of a life insurance policy, (Policy No. 10 430 954A) issued by the Metropolitan Life Insurance Company, the defendant herein, on August 7, 1944, on the life of Gordon A. Campbell upon which May Martin, formerly known as May Campbell and now the wife of Glen Martin, is the beneficiary.

II. That this action was commenced at the direction of the Attorney General of the United States with the authorization and sanction and at the request of the Commissioner of Internal Revenue, a delegate of the Secretary of the Treasury of the United States.

III. That the defendant Gordon A. Campbell resides in the Western District of Washington with his present wife, Minnie C. Campbell.

IV. That the defendant May Martin resides in Seattle , Washington , in the Western District of Washington.

V. That the Metropolitan Life Insurance Company is a corporation licensed to do business in the State of Washington and has an office at Seattle, South District, 760 White-Henry-Stuart Building, Seattle, Washington.

VI. In compliance with the law on August 4, 1961, a delegate of the Secretary of the Treasury made a joint and several assessment of federal taxes for the tax year 1960, against the defendants Gordon A. Campbell and May Martin, in the amount of Three Thousand, One Hundred Ninety Three Dollars and Forty-five cents ($3,193.45) which included a penalty of Four Hundred and Ten Dollars and two cents ($410.02) and interest of Forty-nine dollars and Ninety-seven cents ($49.97).

VII. That on August 4, 1961, notice was given to and demand made of the defendants Gordon A. Campbell and May Martin for payment of the amount assessed as described in paragraph VI above. On September 18, 1961, notice was filed with the Auditor, King County, Washington, and on July 18, 1963, with the Auditor, Pierce County, Washington, wherein liens are claimed on behalf of the United States upon all property of the defendants, Gordon A. Campbell and May Martin, for the assessed amount of Three Thousand, One Hundred Seventy-nine dollars and Forty-eight cents ($3,179.48), plus interest as provided by law.

VIII. That on December 22, 1961, a delegate of the Secretary of the Treasury made a joint and several assessment for federal withholding taxes for the second quarter of 1961, against the defendants, Gordon A. Campbell and May Martin, in the amount of One Thousand, Nine Hundred and two dollars and fifty-nine cents ($1,902.59), which included a penalty of Three Hundred Seventy-three dollars and fifty-one cents ($373.51), and interest of Thirty-Five dollars and four cents ($35.04).

IX. That on December 22, 1961, a notice was given to and demand was made of the defendants, Gordon A. Campbell and May Martin for payments of the amounts assessed and described in paragraph VIII. On July 27, 1962, notice was filed with the Auditor, King County , Washington , wherein liens are claimed on behalf of the United States upon all the property of the defendants, Gordon A. Campbell and May Martin, for the amount of the aforesaid assessment.

X. That certain payments were made on the income and withholding tax liability as described in paragraphs VI and VIII but as of November 9, 1964, there remained unpaid taxes of $3,366.62, interest of $720.33, and lien fees of $4.50, for an aggregate total of $4091.45. The daily rate of interest accrued on said tax obligation is fifty-six cents per day ($.56).

[Policy Transferred in Divorce Action]

XI. That on August 7, 1944, the Metropolitan Life Insurance Company, defendant, issued a "Twenty Payment Life" insurance policy (Policy No. 10 430 954A) on the life of Gordon A. Campbell, defendant, to Gordon A. Campbell, defendant, naming May Martin, formerly known as May Campbell, as the beneficiary. That on November 9, 1964, the cash surrender value of said policy including accrued and rerminal dividends was $3,180.42.

XII. That the taxpayers Gordon A. Campbell and May Martin were divorced on March 6, 1961, and pursuant to the Order of the Court, all right, title and interest in the insurance policy described in paragraph XI was assigned to May Martin. Further that May Martin is the owner of the cash surrender value of the insurance policy described in paragraph XI.

XIII. That the defendant Metropolitan Life Insurance Company held in 1962, and presently has in its possession, property belonging to the taxpayer, May Martin, consisting of the cash surrender value of the insurance policy described in paragraph XI. Further, that on November 20, 1962, a delegate of the Secretary of the Treasury served a Notice of Levy in the amount of Four Thousand, Seventeen dollars and forty cents ($4,017.40) on the defendant Metropolitan Life Insurance Company and on July 30, 1963, final demand to comply with the said Levy was served on the said defendant.

XIV. That in spite of demands for payment there is still due and owing, and wholly unpaid, by reason of the hereinbefore cescribed taxes, the sum of Four Thousand, Ninety-one dollars and forty-five cents ($4091.45).

Conclusions of Law

I. That this Court has jurisdiction of the subject matter of this action and the parties herein under Title 28 U. S. C., Sections 1340, 1345 and Title 26 U. S. C., Sections 7402 and 7403.

II. That the defendants, Gordon A. Campbell and May Martin, formerly known as May Campbell, are indebted jointly and severally, to the United States of America for the hereinbefore described taxes in the amount of Three Thousand Three Hundred Sixty-Six dollars and sixty-two cents ($3,366.62) and lien fees of $4.50, plus interest to November 9, 1964, in the amount of $720.33, for an aggregate amount of $4091.45, and the said plaintiff is entitled to Judgment jointly and severally against the said defendants May Martin and Gordon A. Campbell, in the the said amount, plus interest as provided by law.

III. That the United States of America has valid and subsisting liens against insurance policy No. 10 430 954A, in the total amount of $4091.45, by reason of the assessments hereinbefore described and that it is entitled to foreclosure of its said liens.

IV. That the plaintiff is entitled to an Order of this Court directing the defendant, May Martin, to surrender the insurance policy No. 10 430 954A issued by the Metropolitan Life Insurance Company, to the defendant Metropolitan Life Insurance Company.

V. That the plaintiff is entitled to an Order of this Court directing the Metropolitan Life Insurance Company, defendant, to pay over to the United States of America , the cash surrender value of the said life insurance policy together with all accrued dividends and terminal dividends relating thereto.

VI. That the United States of America is entitled to a deficiency Judgment against the defendants Gordon A. Campbell and May Martin, jointly and severally, for any unsatisfied amount remaining after application of the proceeds of the policy on the Judgment to which it is entitled as set forth above. Said Judgment is not a Judgment against the present marital community of Gordon Campbell and his present wife, Minnie C. Campbell.

VII. That the defendant Metropolitan Life Insurance Company is entitled to an Order of the Court directing that it shall be absolved of all liability to any party herein by reason of any right, duties and privileges, arising out of or relating to said policy, on payment of the proceeds, including dividends thereto, of the policy described above, to the plaintiff United States of America.

IX. That costs shall not be awarded against any party to the action.

 

 

 

Lorraine Ellen Garner, Plaintiff v. The Internal Revenue Service , United States of America , Defendant

U.S. District Court, So. Dist. Tex. , Houston Div., H-83-7283, 3/27/86 , (632 FSupp 390.)

[Code Secs. 6321 , 6323(a) and 7425 ]

Assessment: Collection: Lien for taxes: Property subject to liens: Property transferred during a divorce: Validity and priority against third parties: Discharge of liens: State judicial foreclosure.--A district court concluded that federal law was applicable to determine the validity and priority of competing liens asserted against real property which had been transferred by an ex-wife to her former husband pursuant to a divorce decree that specified that a deed of trust with the power of sale would provide security for part of the monetary judgment awarded the wife. Even though the deed of trust was executed around the time of the conveyance it was not recorded until two years later and in the interim the IRS filed notices of federal tax liens. Following the ex-husband's default on his payments due to his ex-wife, the wife proceeded to purchase the property at a foreclosure sale. Since the former husband owned the property as his separate property at the time the tax liens attached, the court concluded that the issue was not one of state law but rather an issue concerning the priority of liens governed by federal law. Moreover, because the former wife's interest came into existence after the tax liens were filed the former wife's liens against such property were considered junior to the IRS's tax liens under federal law. Furthermore, the court did not accept the wife's additional contention that an equitable lien had been created by the divorce judgment, since the lien was not specific or perfected in the federal sense prior to the filing of the tax liens. In addition, the special warranty deed referred to in the divorce decree did not provide constructive notice to the IRS of the lien's existence. Finally, in light of the court's determination that the ex-wife's interest was junior to the tax liens, the IRS's failure to redeem the property within 120 days did not discharge the liens on the property.

Richard L. Petronella, Houston , Tex. 77006 , for plaintiff. Cary L. Jennings, Department of Justice, Dallas , Tex. 75242 , for defendant

MEMORANDUM

Hughes, District Judge:

Factual Background. Under a divorce decree, Lloyd Garner was awarded real property as his separate property. ¹ Lorraine Garner acknowledged the transfer of her interest in this property to Lloyd by special warranty deed recorded March 9, 1981. The deed recited that: (1) the conveyance was "pursuant to Final Decree of Divorce rendered in Cause No. 80-14607 . . . in the 311th Judicial District Court of Harris County . . ." and (2) Lloyd Garner had assumed the payments on the outstanding note payable to the North American Mortgage Co.

The divorce decree also provided that the property secure part of the monetary judgment awarded to Lorraine . A deed of trust with power of sale was executed in February, 1981. The deed of trust, however, was not recorded until two years later. Prior to its recordation, notices of federal tax liens against Lloyd Garner were filed pursuant to 26 U.S.C. §6321 .

The power of sale in the deed of trust was exercised when Lloyd defaulted on the payments due to his ex-wife under the divorce decree. Lorraine purchased the property at the foreclosure sale. Proper notice of the sale was given to the Internal Revenue Service (IRS) in accordance with 26 U.S.C. §7425 .

Lorraine has moved for a summary judgment declaring that her title to the property was superior to that of the United States and that the tax liens were extinguished by the foreclosure sale. The IRS has countered with a request for summary judgment declaring that the tax liens remain on the property because they were superior to Lorraine 's interest.

Issue 1. Does federal or state law apply in determining the priority of competing liens asserted against the Garner property?

Conclusion

Federal law applies. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 514 (1960).

Discussion and Authority. According to the Aquilino case, once a federal tax lien has attached to a taxpayer's property, federal law "determines the priority of competing liens" asserted against the property. Aquilino, supra at 514.

State law is utilized to determine the extent and nature of the interest the taxpayer has in the property. Here, however, there is no dispute that under Texas law Lloyd owned the real property as his separate property at the time the tax liens attached. The issue is the priority of the liens, and that is governed by federal law under Aquilino. Id.

Issue 2. Is Lorraine Garner's security interest entitled to priority over the federal tax liens?

Conclusion. No, Lorraine 's lien was junior to the federal tax liens, because under federal law, her interest "came into existence" after the tax liens were filed. 26 U.S.C. §6323(a) ; Treas. Reg. §301.6323(h)-1(a)(1)(i) .

Discussion and Authority. Under 26 U.S.C. §6321(a) , the amount of tax demanded by the IRS but not paid becomes a lien on property belonging to the taxpayer. If there is a security interest "in existence" prior to the filing of the notice of the lien, however, the tax lien is invalid against that interest. 26 U.S.C. §6323(a) .

The regulations provide that a security interest exists when ". . . the interest has become protected under local law against a subsequent judgment lien . . . ." Treas. Reg. §301.6323(h)-1(a) 1(i). For this purpose, protection against a subsequent judgment lien occurs when "all actions required under local law to establish the priority of a security interest against a judgment lien have been taken." Treas. Reg. §301.6323(h)-1(a)(2)(A) .

Here, Lorraine had a deed of trust conveying real property. Under Texas law, this instrument must be recorded to protect its priority against third parties acquiring interests in the property. Tex. Prop. Code §13.001(a). Her interest, therefore, "came into existence" under federal law when she recorded her deed of trust on February 1, 1983 , perfecting the interest against subsequent judgment lien claimants. Because this was subsequent to the filing of the tax lien, the tax lien took precedence and was effective against her secured interest. 26 U.S.C. §6323(a) .

The result is not altered given Lorraine's argument that she had an equitable lien created by the divorce judgment ² since the lien was not specific nor perfected in the federal sense prior to the filing of the tax lien. United States v. Morrison [57-2 USTC ¶9801 ], 247 F.2d 285, 287 (5th Cir. 1957). In the Morrison case, an equitable vendor's lien on Texas real property arising prior to the filing of a federal tax lien was held to be junior in rank to the government's lien. Id. at 289. Though the lien did have standing under Texas law, the lien did not have "sufficient completeness" to meet federal standards. Id.

The fact that the special warranty deed referred to the final decree of divorce (which, in turn, provided for the lien) should not charge the IRS with constructive notice of the lien. The reference was incidental. The bare reference states nothing to arouse the suspicion of the existence of a lien. Miles v. Martin, 321 S.W.2d 62 ( Tex. 1959). Cases charging constructive notice to creditors encompass situations where the creditors are charged with notice of the terms of the outstanding debt referred to in the deed. ³

In addition, the Lasater case cited by Lorraine is not analogous to the facts here. Lasater v. Hinson, 84 S.W.2d 874 (Tex. Civ. App.--Ft. Worth 1935, no writ). The deed here does not refer to the divorce decree for further information clearly critical to the real property transaction. Id.

Lorraine 's interest was junior to the tax liens according to both Texas law and federal law. Texas law required Lorraine to record the deed of trust before the filing of the tax liens to protect the priority of her interest against the interest of the United States . Tex. Prop. Code §13.001(a). Even if the United States had a deed of trust rather than the tax liens on the property, Lorraine would still be required to record her deed of trust to protect its priority.

Under federal law, Lorraine 's interest was also junior to the tax liens, because the interest "came into existence" after the tax liens were filed. 26 U.S.C. §6323(a) ; Treas. Reg. §301.6323(h)-1(a)(1)(i) .

Issue 3. Does the IRS's failure to redeem the property within 120 days discharge the liens on the Garner property under 26 U.S.C. §7425 ?

Conclusion. No, the tax liens are not discharged because the IRS failed to redeem the property within 120 days since Lorraine 's interest was junior to the tax liens. 26 U.S.C. §7425(d)(1) ; Treas. Reg. §301.7425-2(a) .

Discussion and Authority. Section 7425 of the Code provides protection for tax liens which may be discharged by nonjudicial foreclosing proceedings, including the right of the United States to redeem the property within 120 days from the date of the foreclosure sale. 26 U.S.C. 7425(d). Here, Lorraine argues that the foreclosure sale extinguished the tax liens because the United States did not redeem the property within 120 days of the sale and because none of the other protection provisions apply.

Section 7425 applies only where the sale of real property is to satisfy a lien prior to that of the United States , i.e. when the United States is the junior lien claimant. 26 U.S.C. §7425(d)(1) ; Treas. Reg. §301.7425-2(a) . As previously stated, Lorraine 's security interest was junior to the federal tax liens; therefore, §7425 does not apply, and the fact that the property was not redeemed within 120 days has no bearing on this case.

A summary judgment will be granted in favor of the IRS because:

(1) The federal tax liens were superior to Lorraine Garner's security interest because her interest was recorded subsequent to the IRS's liens, and

(2) The foreclosure by Lorraine Garner did not extinguish the tax liens under 26 U.S.C. §7425 .

Garner v. IRS

Appendix A

A. Divorce decree awards Lloyd Garner real property as his separate property ( 2/13/81 )

B. Lloyd Garner executes deed of trust on property in favor of Lorraine Garner ( 2/23/81 )

C. Lorraine executes special warranty deed acknowledging transfer of her title in the property to Lloyd ( 3/6/81 )

D. Lorraine records special warranty deed ( 3/9/81 )

E. IRS records liens in favor of the United States upon all property of Lloyd Garner ( 7/22/81 --10/21/82)

F. Lloyd defaults on payments owed to Lorraine

G. Lorraine records deed of trust executed in 1981 ( 2/1/83 )

H. Lorraine sends notice of foreclosure sale to the IRS ( 2/2/83 )

I. Lorraine purchases property at the foreclosure sale ( 3/1/83 )

FINAL JUDGMENT

The motion for summary judgment of the Internal Revenue Service is granted. The federal tax liens remain on the property because they were superior to Ms. Garner's interest.

Accordingly, Lorraine Garner's motion for summary judgment is denied.

¹ Appendix A to this memorandum is a time chart of this case's events.

² Lorraine 's argument is based on Day v. Day, 610 S.W.2d 195 (Tex. Civ. App.--Tyler, 1980, writ ref'd n.r.e). There the court held that where a divorce decree expressly fixed a lien on property to secure the money judgment, an equitable lien arose which could not be defeated against a subsequent homestead claim by the ex-spouse. Day, supra, at 199. The court stated that this equitable lien could "stand independent of any statutory recording requirements, at least as to the parties to the divorce." Id. at 198 (emphasis supplied).

³ See Crews v. Taylor, 56 Tex. 461 (1882) (record of deed reciting a consideration of $1,500 paid and secured is notice of unpaid purchase money); Clementz v. M.T. Jones Lumber, 18 S.W. 599 (Tex. 1891) (recorded real-estate mortgage describing note and debt, but omitting amount of note held constructive notice of mortgage); Fennimore v. Ingham, 181 S.W. 513 (Tex. Civ. App.-Amarillo, 1915), modified on other grounds, 215 S.W. 956 (Tex. Comm'n App. 1919, judgmt adopted) (deed describing note and its terms was notice to purchaser of outstanding debt even though note had been assigned).

 

 

 

Robert Prewitt, Plaintiff-Appellant v. United States of America , Defendant-Appellee

(CA-5), U.S. Court of Appeals, 5th Circuit, 85-1379, 6/30/86, 792 F2d 1353, Affirming District Court, 85-1 USTC ¶9437

[Code Sec. 6321 ]

Lien for taxes: Property subject to: Real property transferred during divorce: Property transferred to third parties: Validity of lien: Notice or knowledge of lien: Recordation of interest: State law: Texas.--Under the Texas recording statute, a federal tax lien against a tax preparer's property also attached to property purchased from the return preparer's ex-wife by a third party. The IRS was entitled to protection under the applicable recording statute as a lien creditor without notice of the divorce decree because the divorce decree, which cut off the ex-husband's right to the community property, was not timely recorded. Creamer Industries, Inc., CA-5, 65-2 USTC ¶9527 , 349 F2d 635, followed. The relevant Texas recording statute had not been interpreted to be "merely a rule of admissibility" and previous law indicated that an unrecorded divorce decree was not valid against third parties without knowledge of the decree. The IRS did not receive constructive notice of the transfer of property in the unrecorded divorce decree because the decree was not recorded in compliance with the registration statutes and because lis pendens statutes superseded "the common law notion of constructive notice of ongoing proceedings." The IRS was also not put on notice when the tax preparer's wife informed two agents that she was going to get a divorce.

Frank Oliver, McGinnis, Lochridge & Kilgore, 919 Congress Ave., Austin, Tex. 78701, C.M. Hudspeth, DeLange, Hudspeth, Pitman & Katz, 11 Greenway Plaza, Houston, Tex. 77046, Ben G. Sewell, Sewell & Riggs, 333 Clay Ave., Houston, Tex. 77002, for plaintiff-appellant. Glenn L. Archer, Jr., Assistant Attorney General, Michael L. Paup, Wynette J. Hewett, Martha B. Brissette, Department of Justice, Washington, D.C. 20530, for defendant-appellee.

Before Charles CLARK, Chief Judge, and E. Grady JOLLY and Robert M. HILL, Circuit Judges.

Opinion

HILL, Circuit Judge:

The principal issue presented by this appeal is whether under Texas law a former spouse must record in the county deed records her separate interest in real property created by a divorce decree in order to protect the interest against the other spouse's creditors without notice of the decree. The other spouse's creditor without notice, in this case the Internal Revenue Service ("IRS"), filed a federal tax lien against him after the divorce decree became final but before it was properly recorded in the office of the county clerk. We affirm the district court in its ruling for the IRS and against an intervening purchaser from the former spouse.

I. FACTS

Prior to September 9, 1982 , certain real property in Travis County, Texas, ("the property") known as the Bouldin Creek Apartments was owned by James and Johanna Damon. The Damons were married and owned the land as community property under Texas law. James worked as an income tax return preparer. His activities attracted the attention of the IRS, which investigated various illegal aspects of his methods, and James was eventually incarcerated in July 1982. On July 9, 1982 , Johanna filed for divorce in state district court in Travis County . During July or August, Johanna told two IRS special agents who were returning documents used in the prior criminal prosecution against them that she "was getting a divorce" from James.

A decree of divorce was entered on September 9, 1982 . The decree stated that "all property, real, personal, or mixed" belonging to James was awarded to Johanna as her separate property. The decree was filed in the court records of the Travis County District Clerk's Office on September 9, and the entry of the decree was noted on the docket sheet. A copy of the divorce decree was not filed in the deed records of the Travis County Clerk until after the IRS levy at issue in this case. The divorce decree was not appealed, and became a final judgment on October 9. James never executed a deed conveying the property to Johanna.

On December 15, 1982 , the IRS assessed civil penalties amounting to $134,750 against James for preparing returns which understated various taxpayers' liabilities. On May 13, 1983 , the IRS filed a notice of federal tax lien against James for this amount in the Travis County Clerk's Office. The notice named James but not Johanna. On May 23, Robert Prewitt purchased the property from Johanna without knowledge of the tax lien against James. Johanna, her attorney, and the title company all knew of the tax lien but felt that it did not affect the property because of the prior divorce of James and Johanna and because only James was listed on the tax lien notice.

About August 10, 1983 , the IRS seized the property under an IRS levy to collect the penalties owed by James. Prewitt then sued in federal court to attack the levy and in state court to quiet title; the state action was removed to federal court and the actions were consolidated. On stipulated facts, Prewitt and the IRS filed cross motions for summary judgment. The district court found that the IRS was entitled to the protection given creditors under Texas recording statutes, and that, because Johanna did not record her interest in the property after the divorce decree, therefore the tax lien attached prior to Prewitt's purchase. The court further held that the IRS was a creditor without notice of the property division, notwithstanding the filing of the divorce decree in state court or the discussion between Johanna and the special agents. The court thereupon granted the IRS's motion for summary judgment and denied Prewitt's, ordering that the IRS was entitled to sell the property and apply the proceeds to satisfy the assessment against James. Prewitt appeals.

II. DISCUSSION

A threshold issue is Prewitt's claim that on the date of the assessment of civil penalties against him, James owned no interest in the property to which the tax lien could attach. The tax lien arose for priority purposes on December 15, 1982, the date of the assessment. See I.R.C. §6322 . However, on that date James had no enforceable interest in the property as against Johanna, the divorce decree which awarded her the property having become final two months before. A federal tax lien can attach "all property and rights to property, whether real or personal" belonging to a delinquent taxpayer. I.R.C. §6321 . Whether such a taxpayer has any rights to property is a question determined by state law. See United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958). Thus, Prewitt argues, since James had no rights in the property, the tax lien is void.

While on its face somewhat appealing, this argument is foreclosed by United States v. Creamer Industries, Inc. [65-2 USTC ¶9527 ], 349 F.2d 625 (5th Cir.), cert. denied, 382 U.S. 957, 86 S.Ct. 434, 15 L.Ed.2d 361 (1965). The delinquent taxpayer in Creamer sold several tracts of land to a bona fide purchaser, but the deed which was recorded had erroneously failed to include certain of the tracts. Subsequently a federal tax lien attached against the taxpayer, and only later was the deed corrected to include the omitted property. The Creamer court held that because the conveyance of the omitted property was not timely recorded, the IRS was a creditor without notice and was thus entitled to the protection of the relevant Texas recording statute, then found at Tex. Rev. Civ. Stat. Ann. art. 6627 ( Vernon 1969). A strong dissent complained that the "Taxpayer here had no right in or to the property" as required by section 6321 because the conveyance was binding as between the parties even absent recording of the deed. 349 F.2d at 629 (Brown, J., dissenting) (emphasis in original). The Creamer majority thus faced and rejected the identical argument now advanced by Prewitt. The IRS may take advantage of state recording statutes, and the right of certain of James' creditors to reach property he formerly owned until the disposition is properly recorded is sufficient to support a tax lien on the property.

1. Applicability of Texas Recording Statutes to the Divorce Decree. Our next step is to determine which, if any, of the Texas recording statutes required Johanna to record the divorce decree. If she was not required to record, then because of "the common law rule that a lien creditor is confined to the interest of his debtor in the land at the time of levy," ¹ Prewitt will prevail. The district court examined two statutes. The first, the same provision crucial to Creamer, requires that any "conveyance" of real property as well as any "mortgage or deed of trust" be recorded to be valid against creditors without notice. Tex. Prop. Code Ann. §13.001 ( Vernon 1981) (formerly at Tex. Rev. Civ. Stat. Ann. art. 6627 ( Vernon 1969)). The former version of this statute in effect prior to January 1, 1984, required the recording of "[a]ll bargains, sales and other conveyances whatever, of any land, tenements and hereditaments . . . ." This section was reenacted as a nonsubstantive revision with the intention not to make any material changes. See Revisor's Report, reprinted in Forward to Proposed Code, Tex. Prop. Code Ann. vol. 1 at VII-VIII ( Vernon 1984). A second potentially applicable recording statute provides that "[a] court order partitioning or allowing recovery of title to land must be recorded with the county clerk of the county in which the land is located in order to be admitted as evidence to support a right claimed under the order." Tex. Prop. Code Ann. §12.005(a) ( Vernon 1984) (effective January 1, 1984). ²

The first statute, requiring the recording of conveyances, does not appear applicable. No Texas case has been found applying the former article 6627 to divorce decrees. Additionally, the Texas Supreme Court has recently stated that "[A] division of the community [property pursuant to a divorce decree] is similar to a partition of property and 'is not a divesting of title of either owner . . . .' " Cameron v. Cameron, 641 S.W.2d 210, 215 (Tex. 1982) (holding that a division of community property is not an unlawful "divesting" of a divorcing spouse's separate property, citing Hailey v. Hailey, 160 Tex. 372, 331 S.W.2d 299 (1960)). This suggests that a divorce decree cannot be a "conveyance" as contemplated by this statute. Since recording statutes are in derogation of common law principles, long established Texas doctrine recognizes that they should be narrowly construed. See Johnson v. Darr, 114 Tex. 516, 272 S.W. 1098 (1925); Jensen v. Bryson, 614 S.W.2d 930 (Tex. Civ. App.--Amarillo 1981, no writ). The district court did not unequivocally hold that the former article 6627 applied, reasoning that either former articles 6627 or 6638 applied. The IRS does not strongly argue for the applicability of former article 6627 and appears to have largely abandoned this argument. Because of our holding below that the former section 6638 applies, however, we need not attempt to settle this aspect of Texas law.

A far more likely candidate for the resolution of this dispute is the former article 6638, which requires the recording of partitions. Prewitt argued below, and maintains here, that the former article 6638 is merely a rule of admissibility, not a rule voiding unrecorded transactions as to third parties. On its face, the statute would seem to be so intended, but the Texas Supreme Court has squarely held to the contrary. Permian Oil Co. v. Smith, 129 Tex. 446, 107 S.W.2d 564 (1937). The Permian court discussed Texas precedent and then concluded that the statute could not be so limited:

Article 6638 has been construed several times by this court to be a registration statute and therefore not a rule of evidence precluding proof of an unrecorded judgment, just as the rule concerning the Act of 1836 covering unrecorded deeds was announced in Crosby v. Huston [1 Tex. 203 (1846)]. The unrecorded deed under the Act of 1836 was admissible to enable the claimant thereunder to make out his prima facie case. But upon the introduction in evidence by the subsequent purchaser of a conveyance taken while the senior deed was off the record the burden then fell on the unrecorded deed holder to show notice or lack of consideration on the part of the junior deed holder.

Such we believe is also the rule under article 6638.

107 S.W.2d at 571-72.

Texas courts have interpreted the former article 6638 to require the recording of divorce decrees which affect title to real estate. See Benn v. Security Realty & Development Co., 54 S.W.2d 146, 150 (Tex. Civ. App.--Beaumont 1932, writ ref'd). The Benn court held that an unrecorded divorce decree, which the former wife claimed gave her a one-half interest in community real property, was ineffective as against a later purchaser who bought the property from her former husband. The Benn court stated that:

The fact that the divorce decree, vesting [the former wife] with a one-half interest in the property, was of record in the minutes of the district court of Jefferson county, did not visit [a subsequent purchaser in the former husband's chain of title] with constructive notice of its contents. In order to have the effect of constructive notice under article 6638, R.S. 1925, it was necessary that the decree be recorded in the proper records in the office of the county clerk of . . . [the] county [where the property was located].

Id. Prewitt has been unable to distinguish or otherwise cast doubt on Benn. ³

Benn was cited with approval in Myers v. Crenshaw, 116 S.W.2d 1125, 1131-32 (Tex. Civ. App.--Texarkana 1938) (holding that a former wife was estopped by lapse of time to assert her equitable interest in land), aff'd, 134 Tex. 500, 137 S.W.2d 7 (1940). The Myers court summed up the Benn holding and then explained its rationale:

It is apparent from the foregoing opinion that, if anything be included in the divorce decree intended to affect title to real estate, then such decree must be recorded in the office of the county clerk of the county where the land is situated, for otherwise, if the pleadings in a divorce action or a divorce decree which merely contained recitals to land which might put a third person on inquiry be constructive notice, it would become mandatory that this third person examine the minutes of all the district courts of Texas until such possible decree be found or be ascertained not to exist. Such a result would be saying if the decree adjudicates the title, then inquire at the county clerk's office where the land is situated for your notice, but if it merely contains a recital to land, then search the judgment rolls of all the district courts of Texas where a divorce can be granted after six months' residence of a plaintiff. Hence we reach the conclusion that the recitals in the judgment roll of the district clerk's office pertaining to this decree did not effect constructive notice to the [subsequent purchasers].

Id. While dicta, this language fully supports the IRS's reading of Benn.

An amicus brief, submitted by the law firm which apparently represented the title company involved in this case, claims that "the traditional view" has been that divorce decrees need not be recorded, but cites no direct authority for this proposition. The issue is not, as the amicus claims, a question of first impression in Texas , although no recent cases have been discovered reaffirming this perhaps overlooked rule. The Cameron decision, although not concerned with recording requirements, indicated that a divorce decree was "similar to a partition," suggesting that, like other partitions, it must be recorded pursuant to the former article 6638. In Hailey, which was cited by Cameron, the Texas Supreme Court more explicitly applied a rule of law governing a partition suit to the division of community property. See 331 S.W.2d at 299 (upholding a division of community property). The amicus' claims of what "the traditional view" has been are contrary to those of authors who have cautioned Texas attorneys to record a divorce decree in the deed records if it partitions real estate. See Family Law: Texas Practice and Procedure §62.21[2][a] (B. Kazen ed. 1986) ("[t]he decree which is intended to pass title should be recorded in the deed records of the county where the real property is located, just as if it were a separate instrument of conveyance"); Rudberg, Enforcing Divorce Judgments and Property Settlement Agreements in Texas, 5 Tex. Tech L. Rev. 645, 652 (1974) ("[a]ll documents of conveyance of real estate or encumbrances thereon or the judgment with partition provisions should be recorded in the deed records"). ⁴

2. Notice to the IRS. Prewitt's final contention is that, even if Johanna was required to record the divorce decree, the IRS was not a creditor "without notice" as contemplated by the recording statutes. The former article 6627 specifically requires a creditor to be "without notice" in order to gain priority from a third party's failure to record. While neither the former article 6638 nor its new codification states that a creditor must be without notice, the Permian opinion leaves little doubt that lack of notice is part of its judicially added gloss. See 107 S.W.2d at 571-72. Prewitt claims first that the filing of the divorce decree in state district court provided constructive notice to the IRS, and second that the discussion between the IRS special agents and Johanna put the IRS on actual, or at least "inquiry" notice of the divorce decree.

Prewitt's first notice argument is essentially a reurging of his contention that divorce decrees need never be recorded in the deed records at all. The only case cited by Prewitt on this proposition is not controlling authority. See Roemer v. Traylor, 128 S.W.2d 685 (Tex. Civ. App. 1910, writ ref'd). The Roemer court relied on the common law rule that a divorce action is a proceeding in rem, giving constructive notice to all third parties, in order to hold that a former husband's creditor could not levy against cattle awarded to the former wife in a divorce decree. The Roemer court never suggested that an interest in cattle, as opposed to land, need ever be recorded in the deed records to prevail against a subsequent creditor; the court only applied the principle that a former husband no longer represents a former community estate awarded solely to the former wife. As the Myers court points out, "[Roemer] was not dealing with land or the registration statutes, and, in our judgment, is not in conflict with Benn . . . ." 116 S.W.2d at 1132. Moreover, the common law notion of constructive notice of ongoing proceedings has been superseded by the lis pendens statutes. See Tex. Prop. Code Ann. §§12.007, 13.004 ( Vernon 1984) (former versions at Tex. Rev. Civ. Stat. Ann. arts. 6640-43 ( Vernon 1969)).

Prewitt's second notice argument is more weighty but ultimately also unpersuasive. He contends that since the special agents who were working on another matter were orally informed by Johanna in July or August of 1982 that she was "getting a divorce" that the IRS was put on sufficient actual notice so as to demand its further inquiry into the status of the property. While Texas law does have a doctrine of "inquiry" notice, a major failing of Prewitt's argument is that there was no divorce decree for the IRS to discover at the time Johanna spoke to the special agents; it was not filed until September 9.

Under Texas law, actual notice " 'embraces those things of which the one sought to be charged has express information, and likewise those things which a reasonably diligent inquiry and exercise of the means of information at hand would have disclosed.' " Woodward v. Ortiz, 150 Tex. 75, 237 S.W.2d 286, 289 (1951) (citations omitted). Prewitt seeks to impose on the IRS not only a duty to inquire, but also a duty to monitor all pending litigation; such a requirement goes beyond the usual concept of inquiry notice, for the information was not "at hand" or even in existence at the time. We agree with the district court's contention that the IRS's duty to inquire, if any, would have been discharged by a search of the deed records. Such a search would have been fruitless until the divorce decree was finally filed in the deed records, which occurred after the tax lien attached. ⁵

Accordingly, we affirm the judgment of the district court in all respects. ⁶

AFFIRMED.

¹ See Jensen v. Bryson, 614 S.W.2d 930, 933 (Tex. Civ. App.--Amarillo 1981, no writ).

² The former version, similarly intended to be reenacted without material change, provided the following:

Every partition of land made under an order or decree of a court, and every judgment or decree by which the title to land is recovered shall be duly recorded in the office of the county clerk in which such land may lie; and until so recorded, such partition, judgment or decree shall not be received in evidence in support of any right claimed by virtue thereof.

Tex. Rev. Civ. Stat. Ann. art. 6638 ( Vernon 1969).

³ At oral argument counsel for Prewitt attempted to distinguish Benn only on the ground that it predated the Texas Family Code. See Tex. Fam. Code Ann. ( Vernon 1975) (first adopted 1970). However, counsel for Prewitt conceded that no particular provision of the Family Code dealt with the recording of divorce decrees affecting title to real property.

⁴ At oral argument counsel for Prewitt admitted that "most prudent practitioners see to the recording of some incident of title . . . most divorce lawyers will obtain a deed . . . ."

⁵ Moreover, the special agents were only returning documents required in the prior criminal prosecution of the Damons, and they had no role in the assessment or recovery of civil penalties against James.

⁶ Prewitt has moved to certify key questions of state law to the Texas Supreme Court under recently enacted authority to do so. See Tex. Const. Proposed Amendments, art. V, §3 -C (Vernon Supp. 1986) (adopted by referendum November 1985, effective January 1986). In determining whether to exercise our discretion to certify, we examine many factors, the most important of which are "the closeness of the question and the existence of sufficient sources of state law . . . to allow a principled rather than conjectural conclusion." Florida ex rel. Shevin v. Exxon Corp., 526 F.2d 266, 274-75 (5th Cir. 1976). We are of the opinion that the Texas case law on these issues appears sufficient to provide a reasonably reliable answer. We therefore decline Prewitt's invitation.

Concurring Opinion

JOLLY, Specially

I concur because, and only because we are bound by our own precedent in United States v. Creamer Industries, Inc. [65-2 USTC ¶9527 ], 349 F.2d 625 (5th Cir. 1965). I concur specially to note that I am in full accord with Judge Brown's dissent in Creamer: "The Federal Statute creates a lien only 'upon all property and rights to property . . . belonging to such person [taxpayer].' Unless there is property belonging to the taxpayer, the government's lien is nonexistent." 349 F.2d at 629.

Here, pursuant to the divorce decree, the property was transferred from the taxpayer to his wife in a final judgment on October 9, 1982 . From that point forward, the taxpayer had no interest or right whatsoever, legal or equitable, in this property. On December 15, 1982 , a federal tax lien against the taxpayer attached "all property and rights to property whether real or personal" belonging to the taxpayer. I.R.C. §6321 . Whatever the lien attached to, it did not attach to this property because it in no way, shape or form belonged to the taxpayer.

Nevertheless, the majority is clearly correct in holding that Creamer controls and the majority is correct in its analysis and application of the relevant Texas statutes that support its holding, and I therefore concur.

 

 

 

United States of America , Plaintiff v. Amaribelle McCary, Defendant

U. S. District Court, So. Dist. Tex. , Houston Div., Civil Action No. H-79-2322, 7/23/81

[Code Sec. 6321]

Who is the taxpayer: Payment of tax liens: Effect of divorce decree.--The IRS correctly applied the taxpayer's payments of two tax liens that had been placed against her home in satisfaction of both the taxpayer's and her ex-husband's tax liability even though they had filed separate returns. The transfer of the home to the taxpayer pursuant to a divorce decree entered after the filing of the liens did not affect those liens. Further, the taxpayer could not challenge the IRS's application of the payments because she did not specify as to how the payments were to be applied and the IRS applied the funds in a generally acceptable manner.

Mary Eversberg, Assistant United States Attorney, Houston , Tex. 77208 , for plaintiff.

Memorandum and Order

BLACK, District Judge:

The United States initiated this action in order to recover a sum of money erroneously refunded to Defendant Amaribelle McCary [Becktel]. Pending before the Court is Plaintiff's motion for summary judgment.

When confronted with a motion for summary judgment it is not part of the Court's duty to decide factual issues. The Court need only determine whether there are issues to be tried. Chappell v. Gottsman, 186 F. 2d 215, 218 (5th Cir. 1980). The grant of a motion for summary judgment is particularly appropriate where trial on the merits would reveal no additional data and where "the facts and inferences point so overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at but one verdict." Nunez v. Superior Oil Co., 572 F. 2d 1119, 1124 (5th Cir. 1978).

The factual posture of this case is undisputed. The only issue is whether the Internal Revenue Service was legally entitled to apply Amaribelle McCary's payment in satisfaction of her husband's tax liability.

The taxes in this case arose from the year 1969. The Defendant and her husband, filing separately, had incurred tax liability during that year. They subsequently divorced, but not before the IRS filed two tax liens against their house. As part of the divorce agreement Amaribelle McCary took possession of the residence. In order to sell it she was obligated to pay off the tax liens--The IRS applied the funds in satisfaction of both Amaribelle's and her husband's tax liability. It then erroneously refunded the amount applied against her husband's tax liability and now seeks to recover that refund.

It is axiomatic that each spouse is liable for the federal income taxes incident to their share of the community property. United States v. Mitchell [71-1 USTC ¶9451], 403 U. S. 190 (1971). The transfer of the house pursuant to the divorce decree did not affect the federal tax liens on the property. Since Defendant could not sell the house without eliminating the tax lien created by her former husband's liability she was put in the unenviable position of having to pay off his liability as well as her own. In such case the IRS correctly applied the funds supplied by Defendant to the tax liens against the house. There is no practical way for the tax collector to know that a party has been involved in a separation or divorce proceeding. Brent v. C. I. R. [80-2 USTC ¶9782], 630 F. 2d 360 (5th Cir. 1980). Any claim she might have is limited to an action against her former husband based on the terms of their property division agreement. The taxpayer may not complain after the fact about the way the funds were applied where she gave no instructions and the funds were applied in a generally acceptable manner. Abrams v. U. S. [72-1 USTC ¶9162], 333 F. Supp. 1134 (S. D. Va. 1971).

Accordingly, Plaintiff's motion for summary judgment is GRANTED.

Final Judgment

Pursuant to this Court's Memorandum and Order entered July 23, 1981 , judgment is hereby entered in favor of the United States of America .

Amended Judgment

Pursuant to this Court's Memorandum and Order entered July 23, 1981 , it is hereby

ORDERED, ADJUDGED and DECREED that Plaintiff United States of America , recover of Defendant Amaribelle McCary the sum of $10,170.69, with interest thereon from November 14, 1977 , as provided by law. Each party is to bear its own costs.

 

 

 

Marjorie Martin, Plaintiff , United States of America , Plaintiff in Intervention v. Raymond C. Shepherd and Roy Martin, Jr., Defendants

Wash. Superior Court, King County, No. 597359, 10/14/64

[1954 Code Sec. 6321]

Lien for taxes: Income tax refund: Divorced parties: Government as intervenor.--The parties in a suit to determine the interests in a Federal income tax refund, arising from a joint return filed by the plaintiff-wife and the defendant-husband before their divorce, agreed that the Government's lien attached to the former husband's interest in the refund.

John P. Hoover, Short, Cressman & Cable, 1107 Olympic Nat'l Life Bldg., Seattle, Wash. 98104, for M. Martin; Gerold W. Hess, Assistant United States Attorney, Seattle, Wash., for U. S., plaintiffs. W. J. Millard, Jr., Lycette, Diamond & Sylvester, Seattle , Wash. , for defendants.

Findings of Fact and Conclusions of Law

BIRDSYE, Judge:

BE IT REMEMBERED this matter having come on to be heard before the undersigned, Judge of the above-entitled court, plaintiff being represented by Short, Cressman & Cable, her attorneys; the defendant, Roy Martin, Jr., appearing not, the defendant, Raymond C. Shepherd, consenting hereto and the plaintiff, United States of America, consenting hereto, and the default of the defendant, Roy Martin, Jr., having heretofore duly and regularly entered and witnesses having been sworn and evidence introduced and the court being fully advised in the premises, now makes the following

Findings of Fact

I. That plaintiff, Marjorie Martin, is a single woman having been divorced from Roy Martin, Jr. in the Superior Court of the State of Washington for King County under cause number 492640.

II. That defendant Raymond C. Shepherd is a duly qualified and practicing attorney of law in the State of Washington having offices at 1116 Norton Building , Seattle , Washington and is a resident of King County , Washington .

III. That on or about the 15th day of April, 1961 defendant Raymond C. Shepherd received a check in the amount of $2,418.87 from the United States of America representing income tax refund due plaintiff and her former husband Roy Martin, Jr. That it was agreed among all interested parties that the defendant would retain such funds as trustee after deducting therefrom the sum of $948.37 to defendant for costs and services rendered in obtaining said tax refund. That it was further agreed that from the remaining balance of $1,470.50 there would be paid to plaintiff any unpaid amounts of alimony due her pursuant to decree of divorce in said King County cause number 492640, before any portion of said trust fund would be remitted to said Roy Martin, Jr.

IV. That plaintiff in intervention, the United States of America , claims an interest in said sum of money by virtue of a Federal tax lien, said lien being filed October 2, 1959 .

V. That the defendant Roy Martin, Jr. was duly and regularly served by publication in the State of Washington and this court duly and regularly entered an order of default against said defendant.

VI. That it has been agreed by and between the plaintiff Marjorie Martin, the plaintiff in intervention, the United States of America and the defendant Raymond C. Shepherd, that the defendant Raymond C. Shepherd has and claims no interest in the sum of $1,470.50, and that the plaintiff Marjorie Martin shall have an interest and be entitled to receive the sum of $735.25 and the plaintiff in intervention, the United States of America is entitled to and should have a judgment for the sum of $735.25.

From the foregoing Findings of Fact, this court does not make the following

Conclusions of Law

I. That this court has jurisdiction to the subject matter of this action.

II. That plaintiff Marjorie Martin is entitled to a judgment against the defendant Raymond C. Shephered in the amount of $735.25.

III. That plaintiff in intervention, the United States of America is entitled to a judgment against defendant Raymond C. Shepherd of $735.25.

IV. That defendant Raymond C. Shepherd shall have no interest or title in the sum of $1,470.50.

V. That defendant Roy Martin, Jr. has no interest in or claim against the sum of $1,470.50.

Judgment

BE IT REMEMBERED this matter having come on to be heard before the undersigned, Judge of the above-entitled court, the plaintiff being represented by Short, Cressman & Cable, her attorneys; the defendant Roy Martin, Jr. appearing not, and upon the agreement by and between plaintiff in intervention, the United States of America, and defendant Raymond C. Shepherd, and witnesses having been sworn and evidence having been introduced in Findings of Fact and Conclusions of Law having heretofore been duly entered herein by this court, the court being fully advised in the premises, now makes the following judgment based upon the Findings of Fact and Conclusions of Law, Now, Therefore, it is hereby

ORDERED, ADJUDGED and DECREED that the plaintiff Marjorie Martin shall have a judgment in the sum of $735.25 against the defendant Raymond C. Shepherd, and the plaintiff in intervention, the United States of America, shall have a judgment in the amount of $735.25 against the defendant Raymond C. Shepherd, that the defendant Raymond C. Shepherd has no interest in or claim against the sum of $1,470.50, and that the defendant Roy Martin, Jr. has no interest in or claim against the sum of $1,470.50.

 

 

 

Winifred D. Edwards, Plaintiff v. The United States of America , and Gus F. Koehler, District Director of Internal Revenue, Defendants and Donald I. Edwards, Third-Party Defendant

U. S. District Court, Dist. of Kan., Civil Action No. W-2405, 215 FSupp 382, 2/8/63

[1954 Code Sec. 6321 and similar 1939 Code Sec. 3670]

Lien for taxes: Property held in joint tenancy: Separate maintenance decree.--A lien for taxes attached to property which the delinquent taxpayer had held in joint tenancy with his wife, although after the liens arose a decree of separate maintenance vested title to the property in the wife. The Kansas statute providing for creation of a joint tenancy by contract was not intended to place the property so held beyond the reach of creditors of one joint tenant.

Hal Alderman, Edward Wahl, Lyons , Kan. , for plaintiff. Robert M. Green, Assistant United States Attorney, Federal Bldg., Wichita, Kan., for defendant.

Memorandum of Opinion

Findings of Fact

Conclusions of Law

BROWN, District Judge:

This is an action to quiet title to certain property upon which the United States claims a lien and a counterclaim by the United States against two joint tenants, one of whom is indebted to the United States for taxes and to subject the property of the joint tenants to the tax lien of the United States and to foreclose that lien.

The facts are not in dispute. Donald I. Edwards and Winifred D. Edwards, obtained title to certain real property by separate deeds of conveyance dated July 6, 1946 , May 1, 1947 , and December 28, 1949 . The title was obtained in the name of Winifred D. Edwards and her husband, Donald I. Edwards, as joint tenants with the right of survivorship and not as tenants in common. Certain personal property was also acquired by the Edwards' on November 15, 1956, on October 10, 1957, on May 1, 1955, on March 1, 1952, on February 1, 1953, and on February 21, 1958, as joint tenants with the right of survivorship and not as tenants in common. The Edwards' also had accumulated property on March 28, 1955, as trustees for Donna D. Edwards, which was set over to the wife presumably as trustee.

Donald I. Edwards had been assessed for failure to pay income taxes in the years 1945 to 1956 inclusive, a sum of $57,448.65. January 15, 1960, the United States caused to be filed in the Office of the Register of Deeds of Rice County, Kansas, its tax claim and lien. The husband, Donald, filed suit for divorce against the wife, Winifred, in Rice County, Kansas, and the District Court, (by its order of February, 1961) determined that the divorce should be denied but the wife should be and was granted separate maintenance, custody of a minor child, and also the court set over to the wife the property here in controversy. The court order provides in part:

"The Court finds that the common property of the parties hereto should be divided in manner as follows, to-wit: Unto the defendant, Winifred D. Edwards, the following property . . .."

The court also ordered and decreed that the parties should execute and deliver instruments to transfer or assign the property and then provided, "This order and decree shall effectively vest the title to said real estate in and to the party to whom it was set apart by this order."

The pre-trial order provides that the following are the issues of law to be determined by the court:

"9(a) Can the income tax lien of the United States of America solely against Donald I. Edwards, the husband of the plaintiff, Winifred D. Edwards, attach or be levied and enforced against real and personal property owned by the plaintiff and her husband as joint tenants with the right of survivorship?

"9(b) Did the order of the Rice County, Kansas District Court in Case No. 9448, by setting apart to Winifred D. Edwards, the designated portion of the joint property, real and personal, terminate the joint tenance between plaintiff and her husband and create in the plaintiff separate property rights therein, not subject to the debts of the husband, Donald I. Edwards?"

The plaintiff's contention may be summarized briefly as follows: The property of the plaintiff and her husband is property held in joint tenancy and is therefore not subject to the tax lien of the United States . The position of the United States is that its tax liens attached to the interest of Donald I. Edwards in the real and personal property held in joint tenancy with the plaintiff. We should point out first that liens for federal taxes and the manner of their enforcement is controlled by federal law. The rules and incidence fixing the ownership of property are determined by state law. ¹

The estate created in Kansas where the property is conveyed to two people in joint tenancy with the right of survivorship and not as tenants in common, creates a joint tenancy in the parties. This is a contractual relationship. The Supreme Court of Kansas has held,

"The statute, R. S. 22-132, which abolished joint tenancy and survivorship as they existed at common law, does not render unlawful a contractual arrangement which confers and defines equivalent rights and obligations among the parties concerned." ²

[State Law]

The Kansas statute concerning joint tenancies in effect when the property here involved was transferred was as follows:

"Tenancy in common unless joint tenancy intended, when; exception. Real or personal property granted or devised to two or more persons including a grant or devise to a husband and wife shall create in them a tenancy in common with respect to such property unless the language used in such grant or devise makes it clear that a joint tenancy was intended to be created: Except, That a grant or devise to executors or trustees, as such, shall create in them a joint tenancy unless the grant or devise expressly declares otherwise." ³

The Kansas Statute now in effect with respect to real or personal property granted or devised provides as follows:

"Tenancy in common unless joint tenancy intended, when; exception; joint tenancy provisions. Real or personal property granted or devised to two or more persons including a grant or devise to a husband and wife shall create in them a tenancy in common with respect to such property unless the language used in such grant or devise makes it clear that a joint tenancy was intended to be created: Except, That a grant or devise to executors or trustees, as such, shall create in them a joint tenancy unless the grant or devise expressly declares otherwise. Where joint tenancy is intended as above provided it may be created by: (a) Transfer to persons as joint tenants from an owner or a joint owner to himself and one or more persons as joint tenants; (b) from tenants in common to themselves as joint tenants; or (c) by coparceners in voluntary partition to themselves as joint tenant (sic). Where a deed, transfer or conveyance grants an estate in joint tenancy in the granting clause thereof and such deed, transfer, or conveyance has a habendum clause inconsistent therewith, the granting clause shall control. When a joint tenant dies, a certified copy of letters testamentary or of administration, or where the estate is not probated or administered a certificate establishing such death issued by the proper federal, state or local official authorized to issue such certificate, or an affidavit of death from some responsible person who knows the facts, shall constitute prima facie evidence of such death and in cases where real property is involved such certificate or affidavit shall be recorded in the office of the register of deeds in the county where the land is situated. The provisions of this act shall apply to all estates in joint tenancy in either real or personal property heretofore or hereafter created and nothing herein contained shall prevent execution, levy and sale of the interest of a judgment debtor in such estates and such sale shall constitute a severance." ⁴ (Italics supplied)

The foregoing statute was adopted in 1955 particularly with respect to the provisions italicized. The previous statutes and the statute in effect at the time of the conveyances in question did not have this provision.

[Federal and State Lien Laws]

The applicable federal statutes upon which the United States relies are as follows:

"Internal Revenue Code of 1954: Sec. 6321. Lien for Taxes. 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 costs 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. 1958 ed., Sec. 6321).

"Sec. 6322. Period of Lien. Unless another date is specifically fixed by law, the lien imposed by Section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time. (26 U. S. C. 1958 ed., Sec. 6322)."

The government also relies on the Kansas statute which provides,

"Lands, tenements, good and chattels not exempt by law shall be subject to the payment of debts and shall be liable to be taken on execution and sold as hereinafter provided." ⁵

The foregoing statute was in effect during all times material to the facts in this case.

We do not wish to belabor the point as to whether or not joint tenancies in Kansas may be established. The interesting and sometimes amusing legal situations which have arisen by virtue of the estates so created may be reviewed by those who are interested. ⁶

Suffice, it is to say, that joint tenancies, as hereinafter defined may be created contractually in both real and personal property. ⁷

The Supreme Court of Kansas has apparently adopted the definition of joint tenancy as set forth in Bartlett 's Kansas Probate Law and Practice, Section 406. That definition of joint tenancy is:

"A joint tenancy exists where a single estate in property, real or personal, is owned by two or more persons, under one instrument or act of the parties. The grand incident of joint tenancy is survivorship, by which the entire tenancy on the decease of any joint tenant remains to the survivor, and at length to the last survivor." ⁸

It is obvious that if the parties can create an estate in themselves by contract it can be terminated by their contract. ⁹

It is also a well established principle of law that contracts are made subject to the laws which exist at the time the contract is made. ¹⁰

The question is whether the legislature, when it abolished joint tenancy and tenancies in the entirety under the common law and established joint tenancies as statutory law, intended to place beyond the reach of the creditors of one joint tenant the property so held. This question has not, in our opinion, been judicially determined in Kansas .

We can not conclude that at the times material to the issues involved in this case that the legislature intended to permit parties to create an estate in land which would permit them to escape the payment of taxes and contractually to place their property beyond the reach of creditors and still retain the incidence of survivorship and ownership in the property.

Thus, when the statute permitting joint tenancies was first adopted it did not repeal, in our opinion, G. S. 60-3403 supra. We are also of the opinion that the term, "exempt by law" in G. S. 60-3403 supra did not confer an exemption to those holding their property in joint tenancy, or a right to place such property beyond the reach of their creditors for the payment of lawful taxes. Instead, it is our opinion, that the term "exempt by law" referred to specific statutory exemptions. We are reinforced in this view by the fact that the legislature in its 1955 amendment to G. S. 58-501 supra provided that the section would not prevent execution levy and sale of the interest of a judgment debtor in such estate. In addition, the Supreme Court in its acceptance of Bartlett 's definition of joint tenancy held that its "grand incidence . . . . is survivorship". We are further of the opinion that if an estate can be created by contract that in addition the parties who create the estate can by contract mortgage their interest therein or subject it to a valid lien and this is exactly what Donald I. Edwards did when he failed to pay his taxes to the United States as required by law. If the lien was created as we hold, then the order of the state court investing title to the jointly held property in the plaintiff alone did so subject to the liens created in favor of the United States .

It might be pointed out also that if the contractual relationship of a joint tenant was created by contract it has been severed by the action of the state court investing the title to the property in the plaintiff. But when it did terminate the joint tenancy, as we have heretofore pointed out, it did so subject to the lien of the United States . ¹¹

Finally, we conclude, that the government has a valid lien against the interest of Donald I. Edwards in the property under consideration; except the property held in trust; that the interest of Donald I. Edwards was an undivided one-half interest in such property; that the government's lien may be foreclosed in these proceedings by a judicial sale of such interest in the property presently held by the plaintiff, to satisfy to the extent allowable, its lien. That the government shall bear the cost and expense of said sale and distribute the surplus, if any, of all proceeds received to the plaintiff.

We are of the opinion that we do not have jurisdiction of the person of the defendant, Donald I. Edwards, and therefore judgment can be rendered against him only in rem and not in personum.

Plaintiff has asked for a decree quieting her title to all the property listed in her petition. This the court cannot do, however, the court does, subject to the Government's rights set forth above, quiet her title as against the United States to an undivided one-half interest in all the jointly held property described in the petition, and as to all the property held in trust.

Government counsel will prepare and submit an appropriate order in accordance with the foregoing memorandum.

¹ Poe v. Seaborn [2 USTC ¶611], 282 U. S. 101; Folsom v. United States [62-2 USTC ¶9648], 306 F. 2d 361, (CA 5, 1962).

² Malone v. Sullivan, 136 Kan. 193, 14 P. 2d 647 (1932). Withers v. Barnes, 95 Kan. 798, 801, 802 (1915) 149 Pac. 691.

³ G. S. 1949, 58-501.

⁴ G. S. 1961 Supp., 58-501.

⁵ G. S. 1949, 60-3403. See also G. S. 1961 Supp., 60-3403.

⁶ See Scott The Married Man Who Wants A Fool Proof Survivorship Deed in Kansas , 22 JBK 128; Sommers Procedure for Termination of Life Estates and Estates in Joint Tenancy, 26 Kansas Judicial Council Bulletin, 78, December 1952.

⁷ Bouska v. Bouska, 159 Kan. 276, 279 (1944) 153 P. 2d 923.

⁸ Bouska v. Bouska, supra.

⁹ Beard v. Ackenbach Memorial Hospital Ass'n, 170 F. 2d 859.

¹⁰ Rankin v. Ware, 88 Kan. 23, 127 Pac. 531.

¹¹ See United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51; State of Michigan v. United States [43-1 USTC ¶9225, 10,002], 317 U. S. 338.

 

 

 

 

 

 

 

Tax Liens: Property Subject to Tax Liens: Property transferred during divorce

Tax liens were effective to reach the following property.

Community property that was transferred to a wife as separate property pursuant to a divorce.

W.C. Hixson, Jr., DC Calif., 58-1 USTC ¶9406.

Property which the taxpayer and his wife held in joint tenancy before their divorce, although the title was subsequently vested solely in the wife in accordance with a decree of separate maintenance.

W.D. Edwards, DC Kan., 63-1 USTC ¶9299, 212 FSupp 861.

Tax refund that was due to a husband that was involved in a divorce.

Martin , Wash. SCt, 65-1 USTC ¶9181.

Home transferred to an ex-wife pursuant to a divorce decree.

A. McCary , DC Tex. , 81-2 USTC ¶9640.

Similarly,

R. Prewitt, CA-5, 86-2 USTC ¶9513, 792 F2d 1333.

L.E. Garner, DC Tex., 86-1 USTC ¶9347, 632 FSupp 390.

Insurance policy that was received as part of a property settlement.

G.A. Campbell, DC Wash., 64-2 USTC ¶9870.

Insurance proceeds from a policy purchased to guarantee monthly alimony payments.

K.J. Gleason Est., DC Kan., 68-1 USTC ¶9416.

A separation agreement between a taxpayer and his former wife severed their joint tenancy in a residence that was foreclosed upon to satisfy the taxpayer's tax liability. The former wife's failure to record the separation agreement did not render the conveyance invalid against the IRS. The IRS's lien did not extend beyond the property interests held by the delinquent taxpayer.

D. Gibbons, CA-10, 96-1 USTC ¶50,008.

The IRS could not levy on the home of a divorced spouse who had acquired ownership of the property from her ex-husband in their divorce decree. Despite the couple's failure to record the decree, the ex-husband did not have an interest in the property under state ( Minnesota ) law. The plain meaning of Code Sec. 6321 provided for a lien only on property that belonged to the ex-husband, and the decree divested the ex-husband of any interest in the property. However, it was unclear whether the ex-husband had acquired an interest in the property under state law to which a lien could attach when the property was conveyed to the couple under a contract for deed after the divorce decree. The case was remanded for a determination of this issue.

M.J. Thomson, CA-8, 95-2 USTC ¶50,549.

The liability of a former wife who divorced after a tax lien was filed and after she and her ex-husband filed a bankruptcy petition was not limited to the value of the property apportioned to her in the divorce. The IRS lien attached to the property, no matter who held it, and was unaffected by the divorce proceedings.

E.J. Schreiber, BC-DC Ill., 94-1 USTC ¶50,202, 163 BR 327.

Proceeds from the sale of certain real property could be used to satisfy the judgment because the taxpayer had an interest in this property when the tax liens arose. A divorce decree did not divest the taxpayer of his interest in the property, and he held a one-half interest in it at the time the IRS filed its notice of tax lien. Judgment was entered against the taxpayer's ex-wife as to her claimed right to the proceeds from the sale of the property.

S.H. Ray, Jr., DC Ohio, 90-2 USTC ¶50,415.

A divorced spouse was not entitled to have federal tax liens against her husband's interest in marital property removed, because the liens had attached to property subject to levy. Prior to the divorce, the IRS filed liens relating to unpaid employment taxes against the husband's interest in marital property then held as tenants by the entireties. Under the local state law of Pennsylvania , whenever married persons holding property by tenants in the entireties are divorced, the property automatically converts to property held as tenants in common. However, local law provides that such property held as tenants in common is not subject to attachment by judicial liens pending the outcome of a divorce proceeding. It was found that this state law condition did not affect the imposition of a federal tax lien. According to the court, the state law redefined the husband's interest in the property upon entry of the divorce decree. Such redefined one-half interest in the property is property subject to levy under federal tax law. As such, the levy attached to the property at the time that it became property held as tenants in common. According to the court, the fact that local law prescribed that the property was not subject to levy was irrelevant.

S. Nicoles, DC Pa., 92-2 USTC ¶50,604.

A spouse who received property pursuant to a divorce settlement agreement did not have judgment creditor status and was, therefore, subject to pre-existing federal tax liens on the property. Although the spouse acquired title to the property prior to the filing of the tax lien, she failed to receive a valid judgment for the recovery of the property, as required by Code Sec. 6323. The debtors's duty to convey the property was not incorporated into the divorce decree. Therefore, the terms of the property agreement were contractual in nature, not decretal. Consequently, the spouse could not enforce the agreement as a judgment by levy of execution, but rather only through a separate suit on the contract.

W.A. Fitzgerald , DC Mo. , 93-1 USTC ¶50,046.

A lien attached to annuity payments awarded to a spouse notwithstanding the fact that the property was in the divorce court's custody at the time of attachment.

A. Mock, DC Pa., 94-2 USTC ¶50,360. Aff'd, CA-3 (unpublished opinion 10/18/94 ).

An IRS lien on the proceeds from the sale of an individual's country club membership had priority over his ex-wife's claim that the proceeds were to pay their children's school tuition. Even though the ex-wife received a court order directing that the funds be paid to the school, the judgment was not entered in the divorce until after the IRS filed its notice of tax lien. The ex-wife's argument that the sale proceeds were exempt from levy was rejected.

New Las Vegas Country Club, DC Nev., 96-1 USTC ¶50,218.

The priority of a federal tax lien against real property owned by a married couple was not altered by the terms of the couple's subsequent separation agreement. Since the lien was first in time, the separation agreement did not control disbursement of the proceeds from the property's sale. The wife sought to have various expenses associated with the sale paid out of her husband's share of the net proceeds, rather than paying those amounts out of the gross proceeds and thereby diluting her interest in the funds. As co-obligors, both spouses defaulted on their mortgage obligation with respect to the property; thus, despite the terms of the separation agreement, the wife could not shift the payment of the mortgage obligation, as well as the bank's costs and fees, to her husband.

R. Cassidento , DC Conn. , 98-1 USTC ¶50,274.

In an action brought by the IRS to foreclose tax liens on real property that a delinquent taxpayer had transferred to his former wife, the wife was not entitled to judgment as a matter of law. Any interest that the taxpayer had in the property was not extinguished by a separation agreement that he entered into after the conveyance.

J.C. Dunkel , DC Ill. , 98-2 USTC ¶50,610.

A federal tax lien attached to a delinquent taxpayer's interest in real property that she had owned with her former husband, even though the couple's marital settlement agreement awarded the entire property to the husband. Under state ( California ) law, the formal division of assets was the crucial event in determining the status of property, and the taxpayer's deficiency was assessed before she entered into the settlement agreement.

I. Herzog, CA-9 (unpublished opinion), 99-2 USTC ¶50,958, aff'g, rev'g and rem'g an unreported District Court decision.

The government was entitled to enforce a tax lien on real property fraudulently transferred by a delinquent taxpayer to his wife in order to avoid paying taxes. The wife, who was subsequently awarded the property in a divorce proceeding, could not avoid the lien based on the alleged priority of her dower rights. Under both federal and state ( Michigan ) law, dower rights are inchoate until the death of a widow's husband. Thus, while the couple was married and when the tax lien attached, her dower interest in the property was inchoate and was insufficient to defeat the lien. Even if she possessed a dower right that at one time was superior to the tax lien, that right was discharged on the date of the divorce judgment. Additionally, the wife's interest in marital assets, including those used by her husband to purchase the property, was inchoate until her divorce. Up until the filing of the divorce action, co-ownership of marital property was not created.

A. Patej , DC Mich. , 2002-2 USTC ¶50,792. Motion for reconsideration denied, 2003-1 USTC ¶50,250.

An IRS tax lien against the proceeds from the sale of a divorced couple's marital home took priority over the former wife's interest, if any, in the proceeds. Although their divorce decree split the proceeds of the sale between the couple, any equitable interest that the former wife claimed in the property based on the decree was trumped by the government's tax lien on the property. Furthermore, the former husband owned the entire property when the federal tax lien was filed since the ex-wife had quitclaimed her interest in the property to her former husband before the government filed its lien. Although the ex-wife alleged that she signed the quitclaim deed so that her ex-husband could sell the property, she did not present any evidence to back her claim.

A. Johnson, Jr., Est., DC Mich., 2005-1 USTC ¶50,339