With respect to the
condo, it is clear that the condo was first leased and then purchased by
McKenzie through the TRC Alaska for the benefit of McKenzie. Several
documents and payments made by McKenzie using his own checking account
support the finding that McKenzie merely used the corporation as his
agent for the purposes of securing an abode for himself.
McKenzie's "management" of the Honolulu Tower condo in
connection with his purchase and occupation of the Wailana condo again
demonstrates the type of one-sided domination of the corporations by
McKenzie which supports a finding of an identity of interest between
McKenzie and the corporations. As a matter of law, the Court finds that
for purposes of purchasing the
condo, McKenzie was the alter ego of TRC Alaska.
(39) In light
of the foregoing and in view of the tax obligations shirked by McKenzie,
the Court finds that it would be unjust to allow the corporate fiction
of TRC Alaska to stand in the way of the recovery of amounts due from
Mc-Kenzie to the United States. Plaintiff has not challenged the
validity of the Federal Tax Lien, but rather has contested the propriety
of the application of the tax lien as against the corpo-ration. The
Court finds that the tax lien is properly logged as against TRC Alaska's
condo because with regard to the purchase and holding of that
condominium, McKenzie was the alter ego of the corporation. To permit
McKenzie to avoid the effect of the tax lien because of the corporate
form of TRC Alaska would be to sanction fraud and injustice.
cause appearing therefor, the Court HEREBY DENIES plaintiff Travelers
Rent-A-Car of Alaska's motion for summary judgment.
(41) In its
failed to mention the role that counterclaim defendant Robert C. Smith
played in these events. In fact, no mention of Mr. Smith is made
anywhere in defendant's papers. Accordingly, the Court makes no findings
of fact or law with respect to counterclaim defendant Robert C. Smith.
cause appearing therefor, the Court HEREBY GRANTS defendant
' motion for summary judgment as against plaintiff Travelers Rent-A-Car
of Alaska and counterclaim defendant Bruce Arlen McKenzie.
(43) To the
extent to which any Finding of Fact herein shall be found to be a
Conclusion of Law, it shall be deemed a Conclusion of Law.
(44) To the
extent to which any Conclusion of Law herein shall be deemed to be
Finding of Fact, it shall be deemed a Finding of Fact.
IT IS SO
Maria Elisa Rodriguez, et al.,
Petitioners v. Escambrón Development Corp., et al., Respondents
U. S. Court of Appeals, 1st Circuit, No. 83-1439, 740 F2d 92, 8/1/84,
Affirming and remanding unreported District Court decision
[Code Secs. 6321 and 6323]
Collection: Lien for taxes: Third party: Tax liens under state law:
Priority.--Title to real estate, acquired by acquisitive
prescription (usucapion), is subject to a federal tax lien which
attached to the property while the right to take title was inchoate.
Although state law, in this case Puerto Rican law, governs the existence
and nature of property rights, including the vesting of title by
acquisitive prescription, once these rights have been determined federal
law governs the priority and extinguishment of federal tax liens. The
Court held that the transfer of title to the plaintiffs did not
subordinate the tax lien to plaintiffs' rights, because the plaintiffs'
right to take title was inchoate when the tax lien was created. Federal
law does not provide for subordination by use of the legal fiction of
retroactive prescription. In addition, the court held the tax lien was
not extinguished by the transfer of title to the plaintiffs since a
valid federal tax lien cannot be extinguished merely by a transfer or
conveyance of an interest in the property. The District Court's
determination was affirmed and the case remanded for further
Rivera, Calderon, Rosa-Silva & Vargas, for petitioners. Daniel F.
Lopez-Romo, United States Attorney, Glenn L. Archer, Jr., Assistant
Attorney General, Michael L. Paup, John J. McCarthy, Carlton D. Powell,
Department of Justice, Washington, D. C. 20530, for respondents.
CAMPBELL, Chief Judge, WISDOM, *
Senior Circuit Judge, and BREYER, Circuit Judge.
this appeal presents is whether a title, acquired by acquisitive
prescription (adverse possession), is subject to a federal tax lien
against the prior owners of the land. The district court held that under
the law of
acquisitive prescription will not extinguish an existing nonpossessory
interest in land; alternatively, the court held that such an
extinguishment would conflict with federal law. The court concluded that
the possessors' rights are subject to the tax lien. Rodriguez v.
Escambrón Development Corp., 556 F. Supp. 703 (D. P. R. 1983). We
affirm. The effect and extinguishment of a federal tax lien are matters
of federal law. Under federal law, a federal tax lien continues to
encumber land, even after the legal transfer of the land.
In the words
of the district court, this case began as "a relatively simple and
brief" action to quiet title. The plaintiffs are the family of the
late Jose Rivera Mulet. Rivera Mulet was the "Mayor-domo", or
manager, of a 42-cuerda 1
farm in Bayamón owned by Félix Benítez Rexach and his wife Lucienne
d'Hotelle de Benítez Rexach. The plaintiffs allege that in 1945 Benítez
Rexach "gave" Rivera Mulet 9.897 cuerdas of the farm to live
on, and they have lived on that land in "uninterrupted adverse
possession" ever since. Benítez Rexach was a well-known engineer
and builder. He and his wife became embroiled in prolonged federal
income tax litigation that eventually led to findings of deficiencies
against them amounting to several million dollars. 2
assessed the deficiency at issue here in 1963. This assessment created a
lien against the property of the taxpayers. 3
In 1964 the
filed two civil actions for the purpose of foreclosing on the tax liens
against various properties, including the Bayamón farm, belonging to
Benítez Rexach, his wife, and various companies owned by them. The
government also filed a notice of lis pendens. The court entered
judgment for the
in 1975 and 1977, and ordered foreclosure on the liens in March 1978.
In July 1978,
the plaintiffs filed a complaint in the Superior Court of Puerto Rico
against Escambrón Development, one of Benítez Rexach's companies, to
quiet title to the 9.897 cuerdas on the ground of usucapion (acquisitive
prescription) by possession for more than thirty years. 4
intervened, asserting the tax liens, and removed the case to federal
court. The plaintiffs and the
both moved for summary judgment. The court denied the motions. The court
held that the plaintiffs had not proved the elements of their claim for
usucapion and that any rights the plaintiffs did establish would be
subject to the federal tax liens. The plaintiffs then asked the district
court to certify an interlocutory appeal under 28
C. §1292(b) (1982). The court certified the question as one of
controlling importance, and this court granted permission to appeal. We
assume, for the purposes of deciding the present appeal, that the
plaintiffs have met the Civil Code's requirements for acquisitive
contend that, under the civil law of
, when they completed the thirty-year prescriptive period they acquired
title to the land free of all encumbrances. They base this argument on
the retroactive effect of completed prescription. As Planiol, one of the
leading French commentators, explains this principle, "When
prescription is completed, the possessor is deemed to be owner, not
merely from the last day of the delay, but retroactively from the moment
when the prescription began to run." M. Planiol & B. Ripert, Treatise
on the Civil Law, vol. 1, pt. 2, no. 2708, at 599 (La. State Law
Inst. trans. 1959). Planiol states that the consequences of the
retroactivity doctrine are: to consolidate title in the possessor; to
secure the possessor's right to fruits collected during the prescriptive
period; to vest ownership in a possessor who marries during the
prescriptive period, rather than in the marital community; and to
validate interests in the land granted by the possessor during the
at 599-600. In discussing this last effort, Planiol writes,
parties who had acquired from the possessor real rights upon the
immovable (servitudes, mortgages, etc.) during the duration of
prescription, find them retroactively consolidated. It is just as if
they had been granted by the true owner. . . ."
at 600. Planiol does not discuss what
happens to real rights created by or against the true owner during the
prescriptive period. The plaintiffs interpret the principle of
retroactivity to mean that those rights are eliminated. They argue that
when the thirty years prescription was completed in 1975, the law made
them owners of the farm after 1945, when they first took possession.
Accordingly, they argue, the government's tax lien was ineffective
because in 1963, when the lien arose, the plaintiffs "already"
owned the farm.
Since 1979 the
Mortgage Law of Puerto Rico has explicitly provided:
rights limiting ownership which do not imply possession, acquired on
someone else's right by a third party . . . shall not be affected by the
out-of-registry usucapion of the right on which they exist."
L. P. R. A. §2357 (Supp. 1982).
Plaintiffs admit that this statute would prevent prescription of the
lien now, but argue that the adoption of this statute in 1979 is strong
evidence that, before 1979, nonpossessory liens were subject to
usucapion. The district court rejected this argument after reviewing the
opinions of a number of Spanish commentators, including Castán Tobeñas,
Diez-Picazo, Roca Sastre, Puig Brutau, and Scaevola, all of whom agree
that a nonpossessory real right is not susceptible to extinguishment by
acquisitive prescription. 556 F. Supp. at 707-09. On appeal the
plaintiffs contend that these commentators based their opinions on a
1944 amendment to the Spanish Civil Code that is substantially
equivalent to the 1979 amendment to the Puerto Rico Mortgage Law quoted
above. The plaintiffs therefore argue that the district court
effectively based its decision on the present law of
rather than that in effect in 1975. They submit that the law of Puerto
Rico before 1979, and of
before 1944, gave an adverse possessor ownership free of any interests
granted by or asserted against the prior owner.
There is some
authority to support the plaintiff's position. The plaintiffs cite the
opinion of Guaroa Velázquez, a noted professor of law at the
, who wrote in 1937:
point. The title created by prescription is retroactive to the day
possession began. The possessor who has taken by use [usucapido] can,
therefore, invoke his right against the third party beginning that day.
If, therefore, during that time, a creditor of the true owner
acquired against the latter a mortgage or a privilege and filed them,
this right will not be against the possessor who has taken by use. On
the other hand, the real rights granted by the simple possessor will be
consolidated by virtue of usucapion."
Los Derechos Reales Principales 326 (1937) (our translation).
Acquisitive prescription represents in part a civil law policy in favor
of simple titles. As the court stated in Union Producing Co. v.
Parkes, 40 F. Supp. 163 (W. D. La. 1940):
order to insure simple and unentailed or uninvolved titles to real
estate, it is the policy of [the civil] law, that there should be no
encumbrances which shall prevent the running of the two major periods of
10 and 30 years over which a complete and indefeasible title to all of
the elements of ownership in land may be acquired. . . .
laws are marked by the simplicity of the titles by which property is
held, and are utterly opposed to the suspended and uncertain ownership
incident to substitutions, or the system of entails of the Common law. *
* *' Succession of McCan, 48
Ann. 145, at page 158, 19 So. 220, at page 221 [(1895)]."
F. Supp. at 166.
It would be possible to extract from these comments a civil law policy
to give the possessor who has had the benefit of prescription a title
free of encumbrances for which he is not responsible.
On the other
hand, that the Spanish and Puerto Rican codes were amended explicitly to
prevent prescription of non-possessory liens is by no means conclusive
evidence that such liens were previously subject to prescription. Even
before the 1979 amendments, article 35 of the Puerto Rico Mortgage Law
of 1893 provided:
which does not require a good title (justo titulo) shall not
prejudice a third party if the possession on which it is to be based
does not appear of record.
shall prescription which requires a good title prejudice a third person
if such title is not recorded.
either case the time of the prescription shall begin to run from the
date of the record.
regard to the legal owner of the real property or interest which is in
the process of prescribing, the title shall be determined and the time
computed in accordance with the provisions of the common law [i. e., the
L. P. R. A. §60 (1967) (repealed 1979).
These provisions appear to protect from unregistered usucapion third
parties whose rights do not imply possession, while allowing usucapion
of the possessory rights of the true owner and others. See Brau del
Toro, Apuntes para an Curso sobre el Estado del Derecho Inmobiliario
Registral Puertor-riqueño bajo la Ley Hipotecaria de 1893, 48 Rev.
Jur. U. P. R. 113, 359, 405-06 (1979); Martinez Irizarry, Los
Principios Hipotecarios bajo la Nueva Legislación en
, 50 Rev. Jur. U. P. R. 195, 205 (1981). This construction accords
with common sense: An adverse possessor's possession is not
"adverse" to the owner of a nonpossessory interest. Because
there is no apparent interference with the nonpossessory interest, the
holder of that interest may never have any knowledge that the adverse
Because of our
usual deference to the local district judges of
on matters of Puerto Rican law, we are naturally inclined to affirm. Medina
v. Chase Manhattan Bank, -- F. 2d --, -- [No. 83-1696 (1st Cir. June
26, 1984), slip op. at 8]; Gual Morales v. Hernandez Vega, 604 F.
2d 730, 732 (1st Cir. 1979); Diaz-Buxo v. Trias Monge, 593 F. 2d
153, 156-57 (1st Cir.), cert. denied, 444 U.S. 833, 100 S. Ct.
64, 62 L. Ed. 2d 42 (1979); Berrios Rivera v. British Ropes, Ltd.,
575 F. 2d 966, 970 (1st Cir. 1978). The courts of
, however, could reach a different result from that reached by the
district court in this case. Fortunately, we need not base our decision
only on the district court's decision. Although an examination of Puerto
Rican law is necessary for a complete understanding of the plaintiffs'
arguments, this case is governed by federal, not Puerto Rican
law. We therefore turn to a consideration of the federal issues,
recognizing that Puerto Rican law provides the backdrop against which
the federal law of tax lien priority and extinguishment must be
A federal tax
lien is wholly a creature of federal law. It is one of the
"formidable arsenal of collection tools" necessary "to
ensure the prompt and certain enforcement of the tax laws in a system
relying primarily on self-reporting". United States v. Rodgers
[83-1 USTC ¶9374], 103
2132, 2137, 76 L. Ed. 2d 236 (1983). Accordingly, the effects, priority,
enforcement, and extinguishment of a tax lien are federal concerns. The
Internal Revenue Code "creates no property rights but merely
attaches consequences, federally defined, to rights created under state
law". United States v. Bess [58-2 USTC ¶9595], 357
51, 55, 78
1054, 2 L. Ed 2d 1135 (1958). For this reason the court must first look
to state law to ascertain the existence and nature of the property
rights against which a tax lien has been asserted. Aquilino v. United
States [60-2 USTC ¶9538], 363
509, 512-14, 80
1277, 4 L. Ed. 2d 1365 (1960). Once these rights have been determined,
however, federal law governs whether these rights are "rights to
property" to which a tax lien may attach. Bess, 357
at 56-57; Fidelity & Deposit Co. of
v. New York City Housing Authority [57-1 USTC ¶9410], 241 F. 2d
142, 144-45 (2d Cir. 1957); Young, Priority of the Federal Tax Lien,
34 U. Chi. L. Rev. 723, 726-28 (1967). Once the tax lien attaches, the
effects of that lien are also governed by federal law. Rodgers,
103 S. Ct. at 2137; Aquilino, 363
at 513-14. Congress or the courts may adopt state laws or procedures,
but that choice is itself a matter of federal law. See United States
v. Brosnan [60-2 USTC ¶9516], 363
1108, 4 L. Ed. 2d 1192 (1960).
governs the priority of a tax lien against other rights to property. 5
United States v. Equitable life Assurance Society [66-1 USTC ¶9444],
384 U. S. 323, 328, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966); Aquilino,
363 U. S. at 514; United States v. Acri [55-1 USTC ¶9138], 348
U. S. 211, 213, 75 S. Ct. 239, 99 L. Ed. 264 (1955); United States v.
Security Trust and Savings Bank, 340 U. S. 47, 49-50, 71 S. Ct. 111,
95 L. Ed. 53 (1950). Congress has provided specific statutory rules for
tax lien priorities as against most other liens. In some cases Congress
has adopted state law; in others it has provided special protections.
See 26 U. S. C. §6323 (1982). Where Congress has not prescribed a
different rule, however, the basic rule of the federal common law is
"first in time, first in right": the tax lien 6
is junior only to liens that attached to the asset and became choate
before the tax lien arose. United States v. City of New Britain
[54-1 USTC ¶9191], 347
81, 74 S. Ct. 367, 98 L. Ed. 520 (1954); Rice Investment Co. v.
United States [80-2 USTC ¶9654], 625 F. 2d 565, 572-73 (5th Cir.
1980). Whether an interest is sufficiently "choate" to prime a
federal tax lien is a question of federal law. United States v.
Pioneer American Insurance Co. [63-2 USTC ¶9532], 374
84, 88-89, 83 S. Ct. 1651, 10 L. Ed. 2d 770 (1963); Acri, 348
at 213-14. 7
plaintiff's rights are treated as a lien in competition with the
government's lien, the tax lien must prevail. It is beyond reasonable
dispute that when the tax liens arose in 1963 the plaintiffs' rights
were "inchoate". An interest is choate when "there is
nothing more to be done to have a choate lien--when the identity of the
lienor, the property subject to the lien, and the amount of the lien are
established". Pioneer American, 374 U. S. at 89; New
Britain, 347 U. S. at 84; see J. D. Court, Inc. v. United States
[83-2 USTC ¶9454], 712 F. 2d 258, 261 (7th Cir. 1983), cert. denied,
104 S. Ct. 1708, 80 L. Ed. 2d 182 (1984). In 1963 the plaintiffs did not
own the land: before their rights would be choate they had to maintain
possession for another twelve years. 8
None of the requirements for a choate interest were satisfied until
contend, however, that once prescription ran in 1975, Puerto Rican law
made them owners of the property retroactively from 1945. They argue,
therefore, that under Aquilino, the tax liens against the Benítez
Rexaches cannot be enforced against their land because, as a matter of
Puerto Rican law, the Benítez Rexaches had no property rights in the
land in 1963.
requires indulgence in a peculiar kind of double-think. Obviously, had
the government enforced the lien in 1964 it could have done so, because
the Benítez Rexaches owned the land. The same was true in 1965, and
1970, and 1974. But, according to the plaintiffs, in 1975 this
historical reality vanished without a trace. Now we are asked to hold
that the tax lien never attached because the Benítez Rexaches never
owned the land. The Supreme Court has rejected efforts to apply
"relation back" doctrine to subordinate a tax lien to a
subsequently perfected state law lien. See Security Trust, 340
& Flinn, Inc. [45-1 USTC ¶9126], 326
353, 356-60, 65 S. Ct. 304, 89 L. Ed. 294 (1945). 9
By statute Congress has permitted a variety of after-perfected liens to
prevail over a tax lien. Congress has not done so here. If the
plaintiffs' interpretation of Puerto Rican law is correct, the legal
fiction of retroactive prescription may give their ownership rights
priority over liens created under state law. But the priority of the tax
lien is governed by federal law, and federal law makes no provision for
a subordination by use of a legal fiction.
consider whether the plaintiffs' usucapion could extinguish the tax lien
by extinguishing the property rights of the Benítez Rexaches. In United
States v. Brosnan, [60-2 USTC ¶9516], 363 U. S. 237, 80 S. Ct.
1108, 4 L. Ed. 2d 1192 (1960), the Court held that although the
divestiture of a tax lien is a matter of federal law, state law would be
adopted except to the extent that Congress prescribed different rules.
Congress has enacted specific rules that substantially supersede the
federal common law of Brosnan, although the statutes, like Brosnan,
adopt many state procedures. See, e.g., 26
C. §§ 6325, 7425 (1982). Both Brosnan and the relevant statutes
are concerned with the power of the states to divest a junior tax
lien. Although Congress has given some subsequent liens superpriority
over federal liens, if the tax lien is properly filed and is senior
under federal law it may not be extinguished by a state procedure
enforcing a junior claim on the property, unless the
, 535 F. Supp. 298, 300-01 (E. D. N. Y. 1982); W. Plumb, Federal
Tax Liens 285 (3d ed. 1972). Nevertheless, a tax lien, whether
senior or junior to other liens, may be extinguished if the property
itself is extinguished. "[T]he Government's lien under §6321
cannot extend beyond the property interests held by the delinquent
taxpayer." Rodgers, 103
at 2141. Professor Bittker states,
government's rights can rise no higher than those of the taxpayer to
whom the property belongs; for example, the lien for a partner's unpaid
income taxes attaches to his interest in the firm, not to the firm's
assets. In the same vein, the lien arising from the unpaid taxes of a
person who purchased property under a conditional sale or chattel
mortgage agreement before the assessment was made attaches to the
taxpayer's equity and is inferior to the seller's security interest.
Moreover, the tax collector not only steps into the taxpayer's shoes but
must go barefoot if the shoes wear out; thus, a state judgment
terminating the taxpayer's rights to an asset also extinguishes the
federal tax lien attached thereto."
B. Bittker, Federal Taxation of Income, Estates and Gifts ¶111.5.4,
at 111-102 (footnotes omitted).
Read literally, this principle might support an argument that the
government's lien was extinguished at the same time as the Benítez
Rexaches' ownership. The decisions that have followed this principle,
however, are cases in which the taxpayer's interest subject to lien is a
terminable interest: an option contract, 11
a lease, 12
or the buyer's forfeitable interest under an installment sales contract.
See W. Plumb, Federal Tax Liens 23 (3d ed. 1972). In these cases,
the attached property right ceased to exist; accordingly, there was
nothing left against which the government could assert its interest. In
the present case, by contrast, the right to ownership of the 9.897
cuerdas at issue was never extinguished; rather, it passed from the
owners to the plaintiffs. In Rodgers the Court, after referring
to the Bittker commentary quoted above, added, "Of course, once a
lien has attached to an interest in property, the lien cannot be
extinguished (assuming proper filing and the like) simply by a transfer
or conveyance of the interest". 103
at 2141 n. 16. The Court also held that the government may force the
sale of property in which the taxpayer had an interest, even if the
taxpayer has no current interest. 103
at 2142 n. 18. Similarly, in Bess the Court held that the
taxpayer had a property interest in the cash surrender value of his life
insurance; when he died, the government could assert a lien on the
proceeds of the insurance, up to the cash surrender value, against the
at 56-59. We conclude that, under the federal tax laws, the government's
tax lien passed along with ownership of the attached land.
We AFFIRM the
district court's holding that any rights of the plaintiffs in the Bayamón
property are subject to the government's tax liens. We REMAND the case
for further proceedings in accordance with this opinion.
Of the Fifth Circuit, sitting by designation.
A cuerda is about the same as an acre.
See United States v. Benitez Rexach, 185 F. Supp. 465 (D. P. R.
1960); United States v. Benitez Rexach, 200 F. Supp. 494 (D. P.
R. 1961); United States v. Benitez Rexach, 41 F. D. R. 180 (D. P.
R. 1966); Benitez Rexach v. United States, 390 F. 2d 631 (1st
Cir.), cert. denied, 393 U. S. 833, 89 S. Ct. 103, 21 L. Ed. 2d 103
(1968); United States v. Benitez Rexach, 331 F. Supp. 524 (D. P.
R. 1971), vacated and remanded, 482 F. 2d 10 (1st Cir.), cert. denied,
414 U. S. 1039, 94 S. Ct. 540, 38 L. Ed. 2d 330 (1973); on remand sub
nom. United States v. d'Hotelle de Benitez Rexach, 411 F. Supp.
1288 (D. P. R.), rev'd and remanded, 558 F. 2d 37 (1st Cir. 1976).
Lucienne d'Hotelle de Benitez Rexach died in 1968. Felix Benitez Rexach
died in 1975. See 558 F. 2d at 40. Remnants of the tax litigation
continue to turn up in the pages of the federal reporters. In addition
to the present case, see United States v. Marin [81-2 USTC ¶9506],
651 F. 2d 24 (1st Cir. 1981); United States v. Marin, 720 F. 2d
229 (1st Cir. 1983) (per curiam); In re Penagaricano, 571 F.
Supp. 232 (D. P. R. 1983).
The Internal Revenue Code provides,
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."
U. S. C. §6321 (1982).
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 (or a judgment against
the taxpayer arising out of such liability) is satisfied or becomes
unenforceable by reason of lapse of time."
§6322. A lien becomes "unenforceable
by reason of lapse of time" upon expiration of the six-year statute
of limitations for the collection of an assessment, id. §6502(a),
but if the government brings suit within that time the period is
extended, and a judgment in favor of the United States extends the life
of the lien indefinitely. United States v. Overman [70-1 USTC ¶9342],
F. 2d 1142, 1147-48 (9th Cir. 1970); W. Plumb, Federal Tax Liens
49-51 (3d ed. 1972).
"Ownership and other property rights in real property shall also
prescribe by uninterrupted possession of the same thirty years without
the necessity of title nor good faith and without distinction between
present and absent persons . . .." 31 L. P. R. A. §5280 (1967).
The priority assigned to tax liens serves a number of important federal
purposes: most significantly, to reinforce the sanctions and deterrents
necessary to operate a tax system based on self-assessment, but also to
ensure the government's right to revenue and to provide
"ceremonial" affirmance of the individual duty to abide by the
tax laws. See Babitt and Freiman, The Priority of Federal Tax Claims:
Selected Problems and Theoretical Considerations, 24 Case W. Res. L.
Rev. 521, 552 (1973).
For non-tax liens, where there is less need for a uniform federal rule
of priority, the courts may use state laws even in the absence of
congressional direction. See
v. Kimbell Foods, Inc., 440
715, 99 S. Ct. 1448, 59 L. Ed. 2d 711 (1979); Chicago Title Ins. Co.
Assocs., 708 F. 2d 804 (1st Cir. 1983);
v. Deya, 369 F. Supp. 1113 (D. P. R. 1974). But "[t]he
importance of securing adequate revenues to discharge national
obligations justifies the extraordinary priority accorded federal tax
liens through the choateness and first in time doctrines." Kimbell
In 1966 Congress, responding to complaints that the court-developed
rules of priority were incompatible with modern commercial practices,
drastically curtailed the application of the doctrines of "first in
time, first in right" and "choateness". Federal Tax Lien
Act of 1966, Pub. L. No. 89-719, 80 Stat. 1125 (1966), codified in
scattered sections of 26
C. (1982). "A major part of this act [was] designed to trim the
government's power to collect tax claims, and to show a decent regard to
the competing claims and interests of others who have had dealings with
the taxpayer." Young, Priority of the Federal Tax Lien, 34
U. Chi. L. Rev. 723, 723 (1967). Some authors have expressed the view
that Congress intended to do away with the "choatness"
requirement altogether. See Newton & Stanford, Federal Lien
Priority: The Corralling of That Phantom "Choateness", 44
B. J. 273, 275; Babitt & Freiman, note 5, at 537. The Tax Lien Act
does not, however, provide for every type of lien, and choateness
continues to be a consideration in tax lien cases. See J. D. Court,
Inc. v. United States [83-2 USTC ¶9454], 712 F. 2d 258, 262-263
(7th Cir. 1983), cert. denied, 104
1708, 80 L. Ed. 2d 182 (1984); Creedon; The Federal Tax Lien Act of
1966--An Historic Breakthrough, 4 Harv. J. on Legis. 161, 197
(1967); Plumb, Federal Liens and Priorities--Agenda for the Next
Decade, 77 Yale L. J. 228, 232 & n. 32 (1967).
Cf. Calvit v. Mulhollan, 12 Rob. 258 (
cannot be pretended that the right to a part of the time necessary to
prescribe, can be considered as a vested right. Such right is only
vested when the prescription is completed; and until then, it may be
destroyed by law, or by circumstances amounting to a suspension or
at 270-71. See also Roussel v. Railways
Realty Co., 9
App. 288, 132
379, 394, 61 So. 833 (1912), aff'd 132
379, 390-94, 61 So. 379, 413-14 (1913):
who are mere possessors, with prescription running in their favor, have
no vested rights in the property . . .. The subsequent sale
of the property to defendant [by the possessors] . . . gave to defendant
only what its authors themselves then had, to-wit, only an inchoate,
contingent, or expectant right to complete a title by prescription if
App. at 298-99, 132
at 398, 61 So. at 835.
Cf. United States v. Mitchell [71-1 USTC ¶9451], 403
1763, 29 L. Ed. 2d 406 (1971). In Mitchell the Court rejected the
argument that a wife could avoid tax liability for her half of community
income by renouncing the community of gains, although under the
Louisiana Civil Code this act exonerated her from the debts of the
community. The Court held that once tax liability had attached it could
not be avoided even though Louisiana gave the wife the "right to
renounce the community and to place herself in the same position as if
it had never existed", 403 U. S. at 203.
The plaintiffs suggest that the government could "easily" have
averted the effects of usucapion by filing a lawsuit naming the
possessors as defendants. Such a suit would have given the plaintiffs
notice of the government's lien and would have interrupted prescription.
31 L. P. R. A. §5266 (1967). But the government is not required to give
notice of its tax lien in any way other than the filing prescribed by
C. §6326(f)(3) (1982); United States v. Union Central Life Ins. Co.
[62-1 USTC ¶9103], 368
291, 295-96, 82 S. Ct. 349, 7 L. Ed. 2d 294 (1961).
Rev. Rul. 54-154, 1954-1 C. B. 277.
Apartment Investors "A" v.
[77-1 USTC ¶9262], 39 A. F. T. R. 2d ¶77-515, at 77-1045 (E. D.
Brookbank, Inc. v. Hubbard [83-2 USTC ¶9507], 712 F. 2d 399,
400-01 (9th Cir. 1983); Runkel v. United States [76-1 USTC ¶9152],
527 F. 2d 914, 917 (9th Cir. 1975).
United States of America
, Plaintiff v. Louis D. Benn and Glendene B. Benn a/k/a
Benn and a/k/a Nellie B. Benn, Defendants
S. District Court, So. Dist.
, No. 72-920-Civ-WM,
[Code Secs. 6321 and 6323]
Lien for taxes: Action to foreclose and enforce: Dower rights:
: Contingent right.--Government's Judicial sale of husband's land
for federal taxes extinguished the wife's inchoate dower.
Rust, United States Attorney, Mervyn L. Ames, Assistant United States
Attorney, Miami, Fla., for plaintiff. William B. Roman, 505 Pan American
150 S. E. Third Ave.
, for defendants.
Summary Judgment for Plaintiff
This is an
action to foreclose and enforce federal tax liens against real property
described in the complaint belonging to defendant, Louis D. Benn. These
tax liens arose from a jeopardy income tax assessment made against
defendant Louis D. Benn on October 2, 1958 for the year 1953 in the
amount of $26,751.42 tax, $13,375.72 penalties, and $7,297.67 in
interest and a jeopardy income tax assessment against Louis D. Benn on
October 2, 1968 for the year 1955 in the amount of $552.00 tax, and
$81.66 in interest.
September 25, 1964
, a complaint was filed in the United States District Court for the
Southern District of Florida seeking to reduce to judgment the
above-described assessments. On
November 26, 1968
, a judgment was entered in that action in the total amount of
$72,833.32 plus six percent interest from the date of judgment and costs
in the amount of $48.12. No part of said judgment has been paid.
Glendene B. Benn also known as Glendale Benn and also known as Nellie B.
Benn (hereinafter called Glendene B. Benn), the wife of defendant Louis
D. Benn, was named a defendant as a person who may claim an interest in
the subject real property.
The answer of
Louis D. Benn admits all the allegations in the complaint. No factual or
other defense is raised by defendant Louis D. Benn.
Glendene B. Benn in her answer to the complaint asserts that she has an
interest in the subject real property in this suit to the extent of her
dower rights therein which dower rights are not affected by the
assessment and levy against defendant Louis D. Benn.
While dower is
of ancient origin and existed at common law, the right referred to as
is a creature of
legislation and dower rights are controlled by statute. See Section
731.34 of the
Statutes Annotated. See also In Re Aron's Estate, 118 So. 2d 546
(1960), and Bowler v. Bowler, 159
447, 31 So. 2d 751 (1947).
Dower is not a
vested right, a privilege, or an immunity protected by the Constitution.
, 2 So. 2d 855 (Supreme Ct. Fla. 1941). Before the husband's death
the wife's right of dower is inchoate. Dal Brun v.
City of West Palm Beach
, 227 So. 2d 347 (4th
of App. 1969). In Gore v. General Properties Corporation, 6 So.
2d 837 (Supreme Ct. Fla. 1942), the court stated on page 839: "An
inchoate right of dower does not constitute an estate, title or interest
in lands." Thus an inchoate right of dower is merely a contingent
and inchoate right not a perfected and choate interest entitled to
priority over the perfected and choate tax lien.
v. Security Tr. & Sav. Bank [50-2 USTC ¶9492], 340
47 (1950), and United States v. City of New Britain [54-1 USTC ¶9191],
the inchoate nature of the right of dower the Supreme Court of Florida
in In Re Hester's Estate, 28 So. 2d 164, found that an execution
by the husband's creditors against his property cut off the wife's right
of dower. In considering this issue the court stated (p. 165):
pointed out, Hester lost ownership of the lands involved in this case by
virtue of a judgment and sale long before his death, neither of which is
assaulted. That judgment and sale divested him of all the title and
right he had in lands and, being so, no dower right ever accrued in them
in favor of his widow. Dower, being inchoate, was extinguished by the
sale before it came into being. The sale bound the wife and
representatives of the husband alike."
In view of
such holding it follows that a judicial sale by the
, which is a judgment creditor herein, to foreclose its tax liens will
divest Louis D. Benn of all the title and right he has in the property
and no dower will ever accrue in it. The dower of Glendene B. Benn,
being inchoate, will be extinguished before it ever comes into
also made to condemnation of a husband's land and its effect on the
wife's inchoate dower. In Dal Brun v.
West Palm Beach
, supra, the court stated on page 348:
affirm and hold that a wife's inchoate right of dower in her husband's
lands, granted by Section 731.34 Florida Statutes, F.S.A., is cut off
and extinguished when the lands are condemned under the right of eminent
domain. A wife in such case has no interest in or right to any part of
the compensation paid to the husband under the award of condemnation.
This is in accord with the overwhelming weight of authority in the
state's condemnation of the husband's land extinguishes the wife's
inchoate dower then the federal government's judicial sale for federal
taxes of the husband's land would also extinguish the wife's inchoate
v. United States [62-2 USTC ¶9773], 309 F. 2d 45 (C. A. 5, 1962),
it was held where property was in husband's name the wife and children
of the husband taxpayer had no interest under the homestead provision of
the Florida Constitution which would prevent foreclosure of a federal
tax lien. The court held that the wife, in order to acquire the property
or interest in it must, among other things, survive the husband. The
court stated (p. 48): "As in the case of inchoate dower, that which
the wife had during her husband's lifetime with respect to homestead
ownership is remote, uncertain and a mere expectancy or possibility and
not a vested property right, interest or title. It follows that the tax
liens are valid and enforceable against the property claimed as
In addition to
the fact that her right to dower is inchoate and contingent because it
depends on her surviving her husband there is also another contingency
and uncertainty and that is if, after her husband's death, she is not
satisfied with the portion of the estate of her husband to which she is
entitled under the law of descent and distribution or under the will of
her husband, or both, she may then elect in the manner provided by law
to take dower. If she does not timely elect to take dower in the manner
provided by law then dower will never come into existence. Thus if
either contingency does not take place dower will never vest and become
finding that there is no genuine issue as to any material fact and that
United States of America
is entitled to a final summary judgment, it is
ADJUDGED and DECREED as follows:
1. That a
final summary judgment in favor of the
United States of America
and against the defendants, Louis D. Benn and Glendene B. Benn a/k/a
Glendale Benn and a/k/a Nellie B. Benn, be and the same is hereby
2. That the
United States of America has valid tax liens against Louis D. Benn in
the sum of $72,833.33 plus interest from the date hereof.
3. That the
tax liens arising by virtue of the assessments described in the
complaint be enforced and foreclosed against the real property described
in paragraph XIII of the complaint and that the said real property be
ordered judicially sold and the proceeds of sale after payment of costs
of the sale be applied in partial satisfaction of the tax liens of the
United States of America.
4. That the
United States of
do have and recover its costs against the defendants in this action.
came before the Court upon plaintiff's motion for confirmation of sale
and it appearing to the Court that a Final Summary Judgment for
Plaintiff was entered herein on October 30, 1972, wherein it was ordered
that the real property described in said Final Summary Judgment be sold
by the United States Marshal at public outcry; that on January 4, 1973,
the said real property was sold by the United States Marshal in
accordance with the aforesaid Final Summary Judgment to the highest and
best bidder, Mr. Ron Baron, 6401 North Bay Road, Miami Beach, Florida,
for $5,850.00, which sum has been delivered to the United States
Marshal; it is therefore
ADJUDGED AND DECREED:
1. The sale of
the real property described in the Final Summary Judgment for Plaintiff
herein to Mr. Ron Baron is confirmed in all respects.
Marshal shall issue forthwith a Marshal's Deed for the real property in
question to Mr. Ron Baron.
3. This court
retains jurisdiction of the cause and the parties for the purpose of
making such further orders and decrees as this case requires.
United States of America, Appellant v.
Gladys H. Griffin, individually, and Gladys H. Griffin and Karl D.
Giffin, as executors of the Estate of Berlin Griffin, deceased,
District Court of Appeal, Second District, Case No. 3987, 164 SO2d 883,
[1954 Code Sec. 6323]
Tax liens: Priority: Widow's dower interest.--A recorded tax lien
was entitled to priority over a widow's dower right in the personal
property of a deceased delinquent taxpayer. The widow's dower interest
was inchoate until the death of the deceased taxpayer, since it was
unknown, undefined and could be made nonexistent by the husband selling
the personal property or, in fact, giving it away.
Wilkenfeld, Department of Justice,
, D. C. 20530, for appellant. John R. Williams, Blank & Davis, 316
Pan-A Bldg., Coleman & Cook, 801 Harvey Bldg., West Palm Beach,
Elwyn L. Middleton, Burns, Middleton, Rogers & Farrell, 201 The
Armour Bldg., Palm Beach, Fla., for appellees.
This appeal is
from an order of the
's Court of Palm Beach County, in probate.
United States of America
, appeals that part of an order awarding Gladys H. Griffin, widow of the
deceased, dower in the personal property of her deceased husband free
and clear of her husband's debts.
died testate in
West Palm Beach
March 2, 1961
. Prior to his death, he was indebted to the Federal Government for
unpaid taxes for the years 1943 and 1944 in a sum approximating
$584,241. The tax liabilities were assessed against him on
October 2, 1959
, and notice of the tax lien was filed of record in
Palm Beach County
January 5, 1960
. Gladys H. Griffin, his widow, waived the provisions of the Will and
petitioned the probate court for assignment of dower.
Fla. Stat. §731.34
the widow of any decedent shall not be satisfied with the portion of the
estate of her husband to which she is entitled under the law of descent
and distribution or under the will of her husband, or both, she may
elect in the manner provided by law to take dower, which dower shall be
one-third part in fee simple of the real property which was owned by her
husband at the time of his death or which he had before conveyed,
whereof she had not relinquished her right of dower as provided by law, and
one-third part absolutely of the personal property owned by her husband
at the time of his death, and in all cases the widow's dower shall be
free from liability for all debts of the decedent and all costs,
charges and expenses of administration; provided, that nothing herein
contained shall be construed as impairing the validity of the lien of
any duly recorded mortgage or the lien of any person in possession of
personal property. * * *"
Fla. Stat. §733.09
makes it the duty of the personal representatives to lay off and assign
dower immediately after the widow has exercised her election to take
dower. From an order in these proceedings, this appeal ensued.
The point on
appeal is stated as follows:
a widow's right to dower in her deceased husband's personal property
subject to a federal income tax lien filed against decedent prior to his
concedes that the lower court was correct in assigning the widow a dower
interest in the real property, free from the debts of the decedent.
contends that the recorded tax lien should have been accorded priority
over the widow's dower right in the personal property of the deceased
because the tax lien arose on the property at the time that the
assessment was made. They further argue that dower right in personalty
can be defeated by the husband during his lifetime by inter vivos gift,
as opposed to those inchoate dower rights accorded to the wife as to any
real property owned by the husband at his death or which had been owned
by him during his lifetime and transferred without the signature of the
App. 1961, 135 So. 2d 235, this court
had occasion to hold that a federal income tax lien had priority over a
landlord's lien against a tenant. The circuit court had entered a final
decree holding that the landlord's lien was superior, except as to the
one federal lien which had been filed prior to the lease. The result of
this court's holding was that all three federal tax liens had priority
over the landlord's lien for rent due, notwithstanding that only one
notice of tax lien had been recorded before the date of the lease, since
all assessment dates by the government were prior to the first default
in the payment of rent.
In the Weissman
case, Judge Smith, in writing the opinion of this court, stated:
liens of the federal government arose under the Internal Revenue Code of
1954, which provides, insofar as material to the question here, in
Section 6321, 26 U. S. C. A. §6321, that, if any person liable to pay
any tax neglects to pay the same, after demand, the amount shall be a
lien in favor of the United States upon all property belonging to such
person. Section 6322 provides that the lien imposed shall arise at the
time the assessment is made and shall continue until the amount is
satisfied. Section 6323(a) provides that the lien so imposed shall not
be valid as against any mortgagee, pledgee, purchaser, or judgment
creditor until notice thereof has been filed (in this instance in the
Office of the Clerk of the Circuit Court of Palm Beach County, Florida).
. . The lien of the United States for unpaid taxes, while a general lien
in the sense that it attaches to all of the property of the delinquent
taxpayer, nevertheless is a perfected lien at the time it arises, and
where the federal tax lien and the competing statutory lien are of equal
dignity, that is, where the competing statutory lien is a perfected lien
in the sense that there is nothing more to be done to have a choate
lien, when the identity of the lienor, the property subject to the lien,
and the amount of the lien are established, priority is to be determined
on the principle that, 'the first in time is the first in right.' United
States v. City of New Britain [54-1 USTC ¶9191], 347
81, 74 S. Ct. 367, 371, 98 L. Ed. 520. We must, therefore, look to the
Federal statutes and decisions to determine this issue.
. . The Federal decisions further hold that a landlord's statutory lien
for rent is inchoate and unperfected under the circumstances here at the
time the federal tax liens arose, and the landlord's lein was not
entitled to priority under the doctrine of first in time is first in
right or under any doctrine of relation back.
v. New Britain, supra, and United States v. Security Trust
& Savings Bank, supra."
States Court of Appeals for the Ninth Circuit, in the case of Hoare
v. United States of America [61-2 USTC ¶9681], 294 F. 2d 823
(1961), held that the holder of a chattel mortgage given by a tax debtor
of the United States as security for the performance of a lease had
priority by virtue of the protection provided by Section 6323(a), to the
extent only of the arrearages existing when the tax lien attached.
A study of the
various Federal cases shows that property interest or liens competing
with the Federal tax liens, to have priority, must not be inchoate.
This court, in
v. First Federal Savings & Loan Ass'n,
App. 1963, 155 So. 2d 192, had a question involving the priority between
the allowance of attorney's fees payable to the mortgagee, and a federal
tax lien. The mortgage involved provided for the allowance of attorney's
fees and there was no question but that the mortgage itself, accrued
interest, etc., had priority under the federal statutes over the
perfected federal tax lien, but attorney's fees were not definite, not
choate, at the time the federal tax liens were assessed and perfected.
In the opinion of the court, it was stated:
connection with an analogous situation, we have two cases in which a
decision is reached which controls the one here. The cases are:
v. Bond [60-2 USTC ¶9532], 279 F. 2d 837 (4th Cir., 1960),
cert. denied 364
895, 81 S. Ct. 220, 5 L. Ed. 189, and United States v. Christensen
[59-2 USTC ¶9621], 269 F. 2d 624 (9th Cir., 1959). In the Bond
case the question was whether a tax lien of the
is prior in right to payments of real estate taxes made by the mortgagee
under a prior recorded mortgage, the taxes having accrued and the
payments having been made subsequent to the recordation of the notice of
federal tax lien. In addition, there was a question of priority as
between the federal tax lien and attorney's fees allowed by the lower
court for payment to the mortgagee out of the proceeds of sale of the
mortgaged property. The court said:
the same reasons, we must subordinate to priority of the federal tax
liens the claim for an attorney fee paid by Perpetual in protection of
the lien of its mortgage. The fee was incurred long after the attachment
of the federal tax lien; and at the time of the execution of the
mortgage and the creation of the debt secured thereby, the future
existence or amount of such attorney fee was, at best, speculative and
we granted a rehearing in the above case and, after re-argument, adhered
to our decision.
States Supreme Court, in United States v. Pioneer American Insurance
Company [63-2 USTC ¶9532], 374 U. S. 84, 83 S. Ct. 1651, 10 L. Ed.
2d 770, held that since the amount of the lien for attorney's fees was
undetermined and indefinite when the federal tax liens were filed, such
amount remained inchoate. The Court, in the Pioneer case, said:
it is said, the principal and interest of the mortgage were definite in
amount, the attorney's fee later became certain by court order and if
the tax lien were to prevail the preference of the mortgage given by §6323
will be frustrated since payment of the attorney's fee will reduce the
net amount realized from the mortgage. Aside from the fact that the
mortgagee here will experience no such reduction, this argument would
subordinate federal tax liens to inchoate liens and in both
v. New Britain, supra, and
Sav. Bank [63-1 USTC ¶9166], 371 U. S. 228, 9 L. ed. 2d 283, 83 S.
Ct. 314, the Court denied priority to local tax liens which were
imperfect when the federal tax lien was filed even though the former had
priority over the mortgage and would reduce the recovery of the
death of her husband, the wife's dower interest is unknown, undefined
and could be made nonexistent by her husband selling the personal
property or, in fact, giving the personal property away. It remains
inchoate until his death. Since the wife's dower interest is inchoate,
uncertain and remote, it does not constitute an estate or interest. See Smith
v. Hines (1863) 10
258; Moore v. Price (1929) 98
276, 123 So. 768; and Neal v. McMullian (1929) 98
549, 124 So. 29.
It has been
held that a wife is not disqualified because of "interest"
from being a witness in the court by the Dead Man's Statute. Farrington
v. Richardson, 1943, 153
907, 16 So. 2d 158. In that case, p. 161, the Court said:
is also suggested by appellee that Mrs. Farrington has a vested right of
dower in her husband's estate, defeasible only by her prior death, and
that consequently she is incompetent to testify because she is a person
deriving an interest or title from a person interested in the event of
the suit. See Sec. 90.05,
Statutes 1941, F. S. A.
contention is not tenable. The case before the court does not relate to
real estate but to personal property. If successful, the plaintiff will
recover a money judgment. If the judgment is ever satisfied the money
received in satisfaction will belong to the husband alone. He may
dispose of the judgment or the proceeds without the consent of the wife.
No interest of the wife will attach either to the judgment or the fruits
thereof during his lifetime, dower in personalty relating only to such
personal property as the husband owns at the time of his death. Sec.
Statutes 1941, F. S. A. The interest required to disqualify a witness
under the proviso of the statute must be an interest present, certain,
and vested; nor uncertain, remote, or contingent. The possibility that
Mrs. Farrington may ever realize anything from a personal judgment
procured by her husband depends upon whether the judgment, or any of its
proceeds, remains in the husband at his demise. This interest is too
uncertain, remote and contingent to serve as a basis for the
disqualification of the witness, on the ground asserted."
In a recent
United States Court of Appeals case, Weitzner v. United States
[62-2 USTC ¶9773], 309 F. 2d 45 (5th Cir., 1962), it was held that the
widow and children of a taxpayer had no interest under the homestead
provisions of the Florida Constitution which would prevent foreclosure
of a tax lien. The opinion of the court, which was written by a former
practicing attorney of
, now a member of the
Court of Appeals, Fifth Circuit, said:
wife, in order to acquire the property, or interest in it, must survive
her husband, the husband and wife relationship must exist at the time of
his death, and property must have been occupied at the time of his death
by a family of which the husband was the head. The homestead was
designed for the purpose of protecting the head of the family by
securing to him a shelter for himself and the members of his family. Hill
391, 84 So. 190, 20 A. L. R. 270. The
rights of a wife to the benefit of this protection during her husband's
lifetime are marital rights rather than property rights. As in the case
of inchoate dower, that which the wife has during her husband's lifetime
with respect to homestead ownership is remote, uncertain and a mere
expectancy or possibility and not a vested property right, interest or
title. It follows that the tax liens of the
were and are valid and enforceable against the property claimed as
homestead. The judgment of the district court is
reverse that part of the judgment awarding the widow dower in the
deceased's personal property free from the debts of the decedent, which
accorded the widow's dower priority over the appellant's tax liens.
Judge, and LEAVENGOOD, C. RICHARD, Associate Judge, Concur.
Walter Chandler, as Executor of the
Estate of J. W. Pilley, Deceased, Complainant v. Marie F. Pilley, et
Court, Shelby County, Tenn., No. 1837 R. D., 12/18/59
[1954 Code Sec. 6321]
Lien for taxes: Priority as to widow's dower and homestead rights:
Redetermination of tax liability.--Where the government had
perfected its lien for unpaid income taxes against the lands of a
delinquent Tennessee taxpayer before his death, such lien had priority
over his widow's right to dower in such lands assuming that she, under
Tennessee law, could maintain a petition for dower without having made a
formal dissent to her deceased husband's will. However, the government's
lien was not superior to the widow's homestead right, which was
guaranteed to her by the
constitution. Also, since the unpaid income taxes were properly assessed
by the government, and the taxpayer failed to appeal from the assessment
in the time provided by law, the court was not now required to take
proof of the taxes and to redetermine the tax liability of the deceased
, Manire & Chandler, 901 Home Federal Building,
, for Executor. R. G. Draper, F. C. Sewell, and Myron A. Halle, Commerce
Title Building, Memphis, Tenn., for Marie F. Pilley. Edward N. Vaden,
Assistant United States Attorney, Federal Building, Memphis, Tenn., for
the United States.
came on to be heard on the petitions of Marie F. Pilley, widow of J. W.
Pilley, deceased, for a year's support, homestead, dower, and her exempt
property; the intervening petition and claim of the United States for
delinquent Federal income taxes assessed against J. W. Pilley, deceased;
the answer and exceptions of the executor, Walter Chandler, the oral and
documentary evidence adduced in open court; the stipulation of Marie F.
Pilley, the executor and the United States as to the net proceeds from
the sale of realty of which J. W. Pilley died seized and possessed, the
personalty on hand at said decedent's death, and the amount and
effective date of the lien for taxes of the United States; the
stipulation of the executor and the United States as to the amount of
assessments theretofore made; the offer of proof tendered by the
executor; and the entire record, from all of which it appears to the
petition of Marie F. Pilley for a year's support and dower should be
denied, but that her petition for homestead from the proceeds of the
sale of real estate is well taken and should be sustained; and
petition and claim of the United States for delinquent taxes, with
accrued interest, should be sustained, and the amount thereof due and
owing as of October 15, 1959 is One Hundred Sixty Five Thousand, Four
Hundred Forty Dollars and Fifty Three Cents ($165,440.53), represented
by the principal sum of One Hundred Thirty Thousand, One Hundred Fifty
Eight Dollars and Twenty One Cents ($130,158.21), plus accrued interest
of Thirty Five Thousand, Two Hundred Eighty-Two Dollars and Thirty Two
Cents ($35,282.32); and
That the Court
neither sustained nor denied the petition of Marie F. Pilley for her
exempt property, not having mentioned same in its opinion set forth
That the Court
has filed a written opinion in this cause, which is made a part hereof
matter came on to be heard upon the petition of Marie F. Pilley, wife of
the deceased, for a year's support, Homestead and Dower, and the claim
of the United States for income taxes assessed against the deceased.
Testator, J. W. Pilley, died on September 17, 1955, and his will dated
August 13, 1955, leaving his estate to his wife, Marie F. Pilley, and
appointing Walter Chandler as executor, was admitted to Probate on
September 25, 1955. He had previously been married to Maxine R. Pilley,
who died February 24, 1953, and on August 13, 1953 married the said
Marie F. Pilley.
November 26, 1956, the said executor filed a bill herein to sell all the
real estate alleging that the claims against the estate aggregate
approximately $248,000.00 and the personal assets are insufficient to
pay debts of said estate as alleged in said bill. In said bill it is
alleged that Marie F. Pilley did not dissent from the will of the said
J. W. Pilley and that she has elected to take under the terms of the
will. To said petition the said Marie F. Pilley filed an answer on April
1, 1957, in which she admits that she did not dissent from the will of
J. W. Pilley, her husband.
bill also alleges that all of the said real estate is subject to tax
claims filed by the
United States of America
real estate consisting of four parcels were sold at different times all
pursuant to the decrees of the Court approved by the counsel, and all
decrees provided that the liens of the United States against the said
real estate should be removed from the real estate and transferred to
the proceeds of the sales in the hands of the Clerk. From these sales
there is now on hand in the Clerk's office $94,234.25 and in addition in
the hands of the executor, assets of the value of approximately
these sales were consummated, on September 15, 1959, the said Marie F.
Pilley filed a petition herein for a year's support, dower and
stipulation of counsel, the
assessed Federal income taxes against J. W. Pilley in the amount of
$130,158.21, and interest thereon to October 15, 1959 amounted to
$35,282.32, aggregating $165,440.53, as shown by claims filed by the
Federal Government herein. This amount obviously exceeds all the assets
remaining in the estate.
is stipulated that the United States forwarded and the taxpayer, J. W.
Pilley, received prior to his death the statutory ninety day letter of
the proposed assessments; and after the expiration of the statutory
period for the taxpayer to appear, said assessments were regularly and
properly placed on the books of the government against the taxpayers, as
well as the assessments against the estate of his deceased wife, Maxine
R. Pilley, from whom he acquired part of said property as surviving
tenant by the entirety, as is shown by certified copies of Notice of
Lien file of record on June 6, 1955 in the Register's Office of Shelby
County, Tennessee; and that the effective date of the lien of the
Federal Government securing said income taxes is April 22, 1955. The
time to appeal from said assessments has long since expired.
PETITION FOR YEAR'S SUPPORT
Section 30-802 the widow of an estate or of a widow who dissents from
her husband's will is entitled to have a year's support set aside for
herself and family; and Section 31-605(1) provides that if satisfactory
provision is not made for her she may dissent from her husband's will,
and she shall in writing signify her dissent in open Court to be entered
on record within nine months after probate of the will. Having failed to
dissent in writing within the nine months period in the manner provided
by law, and there being no evidence that the executor misled her or that
she did not know the condition of the estate, her petition for a year's
support is denied.
it is insisted that under paragraph (2) of said Section 31-605 the whole
of the husband's property is taken for the payment of his debts; and
without formal dissent, she may sue for dower; that she is not limited
to the nine months period as in paragraph (1), and that she is entitled
to benefits of dissent by operation of law.
the answer filed by said widow and apparently signed by her to the
petition of the executor to sell said real estate was filed more than a
year and a half after the will was admitted to probate wherein she
admitted that she did not dissent from the will, and altho her petition
for dower was filed herein about four years after the will was admitted
to the probate, and after all of said real estate had been sold, it is
unnecessary in the opinion of the Court to consider further the effect,
if any, of this inconsistency, and this delay in filing her petition for
dower, for in the opinion of the Court if she can now maintain her
petition for dower, for practical purposes it will avail her nothing.
Under Section 31-601, if any person intestate leaving a widow, she is
entitled to dower in one-third of all the lands of which her husband
died seized and possessed or of which at death he was the equitable
owner. At the time of said J. W. Pilley's death there was a lien on all
of his property in favor of the United States Government for an amount
in excess of the money now on hand from the sale of said real estate.
Said lien was fixed prior to his death, and he died seized and possessed
of said lands, subject to said tax liens. The said J. W. Pilley during
his life time could sell or encumber his interest in said land without
his wife's consent, and he did encumber said lands by failing to pay
taxes due and owing the United States Government, and if she is entitled
to the benefits of an informal dissent her right to dower in said lands
would be subject and subordinate to the prior lien on said lands
securing the payment of said taxes.
the proof was heard on said petition of the widow and after the proof
was heard on the Government's claim, the executor filed on November 12,
1959 what he terms an offer of proof, and on November 16, the day on
which the Court had anticipated being prepared to decide the case if
briefs had been filed in time, counsel for the executor in open Court
stated that the executor had the right to show that the tax as
determined by the Collector of Internal Revenue in the amount of
$134,158.20 plus interest as stipulated was incorrect, and that in this
Court he was entitled to require proof of said taxes and a
redetermination of said assessment. The assessment was properly made in
accordance with the provisions of the Federal Income Tax Statutes, and
the regulation thereunder. The taxpayer failed to appeal from said
assessment in the manner and time provided therein by law, and the time
to appeal therefrom has expired; and this Court is not now required to
redetermine the tax liability of the deceased taxpayer to the said
Government. The said widow's petition for dower out of the proceeds of
said lands is therefore denied.
wife's rights to homestead is independent of the benefits she may have
under the will, and no election is required. It is guaranteed by the
constitution under Article 11-Section 11. And since her homestead right
was vested prior to the fixing of the liens on the lands of her deceased
husband, and she did not alienate same the tax lien of the Government
cannot deprive her of her homestead interest; and she is entitled to
homestead in $1,000.00 of the proceeds from the sale of said real
claim of the
for income taxes in the amounts stipulated together with interest, is
allowed, which is secured by said lien. Under 30-521 said claim is also
a preferred claim, coming next after cost of administration.
THEREFORE, ORDERED, ADJUDGED AND DECREED that the petition of Marie F.
Pilley for a year's support and dower out of the proceeds of said sales
is hereby denied; and the claim of Marie F. Pilley for homestead be and
the same is hereby sustained; and the executor is authorized and
directed to pay to the said Marie F. Pilley the sum of Six Hundred and
Eight and 88/100 Dollars ($608.88) out of the proceeds of the sale of
real estate in this cause, which sum is based upon the standard
mortality table and is in full settlement of her homestead rights; and
that no disposition is here made of the petition of Marie F. Pilley for
her exempt property, the same being reserved for determination by
further orders of the Court.
IT IS FURTHER
ORDERED, ADJUDGED AND DECREED that the petition and claim of the United
States for delinquent taxes be and the same are hereby sustained in the
amount of One Hundred and Sixty Five Thousand, Four Hundred Forty
Dollars and Fifty-Three Cents ($165,440.53), represened by the principal
sum of One Hundred Thirty One Thousand, Fifty Eight Dollars and
Twenty-One Cents ($131,058.21) plus accrued interest of Thirty Five
Thousand, Two Hundred Eighty Two Dollars and Thirty-Two Cents
($35,282.32) as of October 15, 1959; and the executor is authorized and
directed to pay to the United States from the total funds of the estate
so much of the said claim of the United States as remains in his hands
after payment of costs of administration upon final settlement.
IT IS FURTHER
ORDERED, ADJUDGED AND DECREED that the costs of this cause are adjudged
against the estate, and the executor be and he is hereby authorized to
pay the same, for which execution may issue.
To all of the
foregoing, save and except the sustaining of Marie F. Pilley's petition
for homestead, the said Marie F. Pilley and Walter Chandler, executor,
respectfully note their exception.
The First National Bank of Elkhorn, a
banking corporation, Plaintiff v. Maurice A. White and Effie E. White,
his wife, and the United States of America, Defendants
of Wis., County Court, Walworth County, No. 14607, 3/20/58
Priority of liens: Dower v. tax lien: Husband still living.--A
mortgage foreclosure against Wisconsin property of the taxpayer resulted
in a surplus of funds. Taxpayer's wife claimed a dower interest in the
surplus, and the Government claimed the entire amount under its lien for
taxes. Held, under the
statute the wife was not entitled to a dower interest in the proceeds
because her husband was still living. Also, it appeared that the wife's
claim was barred by nonresidence.
Freytag, for plaintiff. John Byrnes, for defendant Effie White. Edward
G. Minor, United States Attorney, Francis L. McElligott, Assistant
United States Attorney, for United States.
FACTS: On May
17, 1954, Maurice A. White and Effie E. White, his wife, executed and
delivered to The First National Bank of
for value received their promissory note in the sum of $20,000.00
together with a mortgage of even date on two parcels of real estate as
security. The mortgaged property was owned by Maurice A. White.
Subsequently, the mortgagors defaulted by failing to comply with certain
conditions of the mortgage. The mortgagee then instituted a foreclosure
proceeding wherein the
was named a party defendant because a Notice of Federal Tax Lien had
been filed on November 4, 1955, against Maurice A. White. At the time
the proceeding was instituted the outstanding balance of the tax lien
foreclosure was entered by the Court and the property was sold on
December 21, 1957. After satisfaction of the debt owed the mortgagee and
the expenses of sale a surplus of $15,518.55 from the sale remained. The
claimed the entire surplus by virtue of the Federal Tax lien.
Effie E. White have a dower interest in the surplus proceeds from the
HELD: As Effie
E. White's husband was alive, she was not entitled to dower out of the
surplus proceeds under
foreclosure was had in this court in the above entitled action on
October 29, 1956. The principal defendants did not answer. The
answered setting forth its tax lien against the defendant, Maurice A.
White, in the sum of $139,316.48 which was held subsequent and subject
to the lien of the mortgage.
of the mortgaged real estate was had pursuant to the foreclosure
judgment on December 21, 1957. The sale was confirmed upon notice on
January 20, 1958. The sale resulted in a surplus of $15,518.55. On
January 28, 1958 Effie E. White, defendant, through her attorney, John
J. Byrnes, filed her claim to share in the distribution of this surplus.
Prior to the hearing on distribution February 24, 1958, she presented to
the court on February 3, 1958 her verified petition signed by such
attorney for one-third of such surplus based on her inchoate dower
rights under the statute. At the time the matter was heard the husband,
Maurice A. White, was living and still lives as far as the record
discloses. Her petition recites that she and her husband now live in the
The case of Share
v. Trickle, 183
1, relied upon by counsel for Effie E. White to support her claim of
inchoate dower in the surplus after foreclosure sale is readily
distinguishable from the instant case. In that case the question was as
to whether on the sale of a farm where the wife insisted that as a
prerequisite to her joining in the deed she receive a substantial
portion of the proceeds, and such sum was paid to her for the
relinquishment of her rights and her jointure, the transaction was a
good ground of complaint by creditors of the husband. This court has no
quarrel with the reasoning of the court in that case or in the just
result obtained as a result of such reasoning.
We are not
concerned here with what benefits she received from the proceeds of the
mortgage as a condition precedent to her jointure. She was a party to
the foreclosure, made no answer or appearance, and is bound by the
Our problem is
whether or not her inchoate right of dower which is not an estate in
land--it is not even a vested right, but a mere intangible, inchoate,
contingent expectancy should be given priority over the tax lien of the
United States against Maurice A. White, the living husband, under our
The statute in
question, Sec. 233.06, W. R. S. seems to rule out any claim of a wife of
a living husband as it specifically states "after the death of the
husband" and refers to "such widow". Jones on Mortgages,
Vol. 3, Sec. 2178 (1694), states of inchoate right of dower that
cases the courts have gone so far as to protect the inchoate interest of
the wife during coverture in the surplus arising from a mortgage sale,
by permitting her, as against judgment creditors, to have one-third of
the residue invested for her benefit, and kept invested during the joint
lives of herself and her husband, and the interest paid to her during
her own life, in case of her surviving her husband. But it would seem
doubtful whether a court of equity in the exercise of its ordinary
jurisdiction, has the power to enforce such a doctrine".
on Dower, P. 480, Sec. 30.
is this true when one considers that the framers of Sec. 233.06 Stats.
must have had this very situation in mind otherwise they would have
framed it differently. The statute further indicates that in
to render her dowable the sale must be after the death of the husband.
Here the sale has been had and confirmed while the husband is living.
appears that her claim is barred by nonresidence under Sec. 233.02
The claim of
Effie E. White to share in the surplus is denied with customary motion
In re Theodore Barry and Jean D.
Barry, Debtors; Larry E. Staats, Trustee in Bankruptcy for Jean D.
Barry, Plaintiff v. Theodore Barry, et al., Defendants
S. Bankruptcy Court, So. Dist.
, East. Div., Case No. 2-80-01739, 31 BR 683, 3/4/83
[Code Sec. 6321]
Lien for taxes: Priority: Bankruptcy: Fraudulent transfer avoided.--
The avoidance of a fraudulent transfer of real property did not affect
the extent and priority of federal tax liens because the taxpayer-debtor
had a pre-avoidance interest in the entire property as a tenant by the
entirety at the time the notice of tax liens was filed and not, as
argued by the trustee, a lesser interest. The liens attached to the
entire property and were avoided only to the extent they were for
pre-petition penalties. The IRS's secured status was modified by the
provisions of the Bankruptcy Act, 11 USC §724(b), so that it had in
effect an unsecured claim.
Friend, 398 So.
, for debtors-defendants. Larry E. Staats,
50 West Broad St.
, for plaintiff. Albert R. Ritcher, Assistant United States Attorney,
Columbus, Ohio 43215, Johnathan B. Forman, Department of Justice,
Washington, D. C. 20530, for U. S.
Conclusions, and Order on Complaint to Vacate Transfer and Tax Liens
This matter is
before the Court upon plaintiff's Complaint to Vacate Transfer and Tax
United States of America
, Internal Revenue Service (IRS) filed a Motion to Dismiss which was
overruled by the Court of August 19, 1982. Answers were then filed by
defendants Theodore Barry and IRS. Subsequent to hearing by the Court,
post-trial briefs were filed by plaintiff and by IRS.
trustee in the jointly filed Chapter 7 bankruptcy proceeding of Theodore
and Jean Barry commenced on May 19, 1980. Pursuant to 11 U. S. C. §548(a)(2),
plaintiff seeks to aviod a transfer of real property from defendant Jean
Barry to Theodore Barry, which was made within one year of the order for
relief and allegedly for less than reasonably equivalent value.
Plaintiff also, pursuant to 11 U. S. C. §547, attempts to avoid an
alleged preferential transfer to defenant Lorenz Equipment Co. (Lorenz),
and requests an order avoiding IRS's statutory tax liens as preferential
transfers. In the alternative, plaintiff asks the Court to determine the
extent and priority of such tax liens in connection with the
preservation of the avoided transfer pursuant to 11 U. S. C. §551.
Plaintiff requests further that the Court determine the effect, if any,
C. §724(b) upon the facts of this case.
Barry, although initially opposing the trustee's complaint, later
withdrew his opposition to the allegations of a fraudulent transfer.
With his agreement, an order was entered on December 15, 1982, granting
judgment in favor of plaintiff against Theodore Barry, and vacating and
setting aside the real estate transfer.
to contest the trustee's allegation that it received a preferential
transfer of property through the filing of a Certificate of Judgment
within ninety (90) days prior to the bankruptcy filing on May 19, 1980.
Pursuant to 11
C. §547, the Court's order of December 15, 1982 granted plaintiff a
default judgment against Lorenz, and set aside and vacated Lorenz'
Certificate of Judgment and resulting transfer.
plaintiff's attempts to set aside its tax liens as preferential
transfers. It also resists the trustee's contention that 11 U. S. C. §551,
by preserving the avoided transfer for the benefit of the estate,
subordinates the IRS lien against that portion of the property involved
in the avoided fraudulent transfer to the estate's interest. IRS argues
that its filed tax liens have attached to the entire parcel of real
estate and cannot be altered by the trustee's avoidance. Finally, the
trustee asserts that the portion of IRS' claim which represents a
penalty is not part of any lien and is avoidable pursuant to 11 U. S. C.
§§ 724(a) and 726(a)(4).
The facts are
uncontroverted. The real property, located at
606 Old Coach Road
, serving as the debtors' residence, and subject to an undisputed first
mortgage in favor of Chemical Mortgage Co., was owned in fee simple by
Jean Barry prior to September 22, 1979. On that date she executed a deed
transferring ownership of the property to herself and her husband as
Tenants by the Entireties with Right of Survivorship. IRS filed its
Notices of Tax Liens on April 7, 1980 and April 30, 1980. The tax liens
arose out of unpaid obligations for various employer taxes dating from
June 30, 1979 through December 31, 1979 for which each of the Barrys
were responsible both individually and as partners in a business
enterprise known as Blacktop Co. The tax amounts, taken from IRS' proof
of claim and not controverted by the trustee, were $11,304.13 for the
April 7, 1980 Notice of Tax Lien, and $283.71 for the April 30, 1980
Notice of Tax Lien. The proof of claim filed by IRS also included
unsecured claims for income taxes for 1976, 1977, and 1978. Prepetition
penalty amounts of $1,448.22 and $3,397.90 are shown for the employment
and income taxes respectively.
concludes that the IRS tax liens are not avoidable pursuant to 11
C. §547. Tax liens are statutory liens which arise under the provisions
C. §6321 et seq. Although the fixing of some statutory liens can be
avoided if all elements of preferential transfer are otherwise met, the
explicit limitation on the trustee's avoiding power set out in 11 U. S.
C. §547(c)(6) is controlling in this instance. Section 547(c)(6)
trustee may not avoid under this section a transfer--. . .
that is the fixing of a statutory lien that is not avoidable
under section 545 of this title. (Emphasis added).
11 U. S. C. §545,
which sets out the types of statutory liens a trustee in bankruptcy may
avoid, does not include a tax lien asserted by the United States
government for which a Notice of Tax Lien has been properly filed before
the bankruptcy estate is created. Therefore, to the extent the Notice of
Tax Lien was properly filed, the statutory lien is not avoidable by the
trustee pursuant to 11
contention that the lien for $1,448.22, disclosed as a pre-petition
penalty, is avoidable pursuant to 11
C. §§ 724(a) and 726(a)(4) is, however, well taken. In fact, such
assertion does not appear to be contested by IRS in its post-trial
brief. Section 724(a) gives the trustee the power to avoid a lien based
upon a claim for any pre-petition penalty, to the extent that such
penalty is not compensation for actual pecuniary loss. IRS has not shown
any reason why its lien should not be avoided to the extent of the
$1,448.22 set out as a pre-petition penalty, and such relief is hereby
granted in favor of the trustee.
issue herein is the extent and priority of the IRS lien as that lien is
affected by the avoided transfer and by the operation of 11
C. §551. Plaintiff urges that the IRS lien is a lien only against Jean
Barry's undivided one-half interest in the real estate existing at the
time the Notice of Tax Lien was filed. IRS argues that its lien attached
to Jean Barry's fee simple interest, which existed before the fraudulent
transfer, and that the trustee's subsequent avoidance of the fraudulent
transfer cannot alter the extent of that lien.
Section 551 of
the United States Code states:
transfer avoided under section . . . 548 . . . or 724(a) of this title,
. . . is preserved for the benefit of the estate but only with respect
to property of the estate.
The purpose of
§551 is to allow a trustee in bankruptcy, upon avoidance of certain
preferential or fraudulent transfers, to increase the assets of the
bankruptcy estate. This basic practice existed under the nowrepealed
Bankruptcy Act of 1898, and assures that a junior lienor shall not be
able to improve its position because a trustee has successfully avoided
a lien or a transfer. See,
v. Bay, 284
4 (1931). In effect, the trustee is subrogated to the rights of the
transferee in the avoided transfer or the lien creditor with the avoided
lien. Egyptian Supply Co. v. Boyd, 117 F. 2d 608 (6th Cir. 1941).
Although preservation of avoided liens and transfers is no longer
discretionary with the Court under the provisions of the Bankruptcy
Reform Act of 1978, but rather is provided for automatically by 11 U. S.
C. §551, the effect of such preservation under the Bankruptcy Act of
1898 remains relevant.
At the time
IRS filed its Notices of Tax Liens, those liens became perfected against
bona fide purchasers of any real property "belonging to such
person" against whom the liens were filed. See, 26 U. S. C. §6321.
The extent of the taxpayer's interest in the real property on the date
the tax liens were filed is determined by state law, and the liens can
only attach to property and rights to property existing at the time the
liens were perfected. Aquilino v.
In the instant
case, the real property was owned by Theodore and Jean Barry as tenants
by the entirety when the Notices of Tax Liens were filed for tax
obligations owed by both. The question which remains, therefore, is
whether Jean Barry's interest as a tenant by the entirety extended to
the entire property, or only to an undivided portion thereof. If the
avoidance of the transfer expanded her interest from a portion to a fee,
the IRS liens attached only to the smaller interest she had at the time
the Notices of Tax Liens were filed, given the trustee's status as a
bona fide purchaser of the property as of the date the petition in
bankruptcy was filed. See, 11 U. S. C. §554(a)(3).
Creation of an
estate by the entireties was codified in
in 1972. The enabling statute (R. C. 5302.17) does not delineate the
legal implications of this form of ownership. Under common law, such an
estate meant that each of the tenants were seized of the whole, or
entirety, and not of a share. C. Moynihan, Introduction to the Law of
Real Property, §6 (1962); see, Lang v. Commissioner [3 USTC
109 (1933). The only discovered case which construes the
statute concludes that
courts, were they to be faced with the question, would view ownership as
tenants by the entirety as ownership of the whole by both spouses, with
no divisible interest on behalf of one spouse. In re Thomas, 14
Bankr. 423 (Bankr. N. D. Ohio 1981).
interpretation compels a finding that, despite avoidance of the transfer
from Jean Barry to Jean and Theodore Barry, Jean Barry had an interest
in the entire property at the time the IRS Notices of Tax Liens were
filed. The taxes were obligations of both parties and the liens attached
to both parties' interests in the entire property. Thus, although the
subsequent avoidance of the transfer caused IRS to lose its secured
status in Theodore Barry's estate, the transfer made no practical
difference in IRS' rights against Jean Barry's interest as a tenant by
the entirety, which interest was transformed into a sole interest in fee
simple as a result of the avoidance. Despite the automatic preservation
of the avoided transfer, Jean Barry's pre-avoidance interest by the
entirety is subject to IRS' lien rights. Tennessee Machinery Co. Inc.
v. Appalachian Energy Industries Inc. (In re Appalachian Energy
Industries Inc.), 9 Bankr.
Dec. 1162 (Bankr. M. D. Tenn. 1982).
A final issue
for resolution in this cause concerns the effect of 11
C. §724(b) upon the facts at bar. That section provides:
Property in which the estate has an interest and that is subject to a
lien that is not avoidable under this title and that secures an allowed
claim for taxes, or proceeds of such property, shall be distributed--
first, to any holder of an allowed claim secured by a lien on such
property that is not avoidable under this title and that is senior to
such tax lien;
second, to claims specified in sections 507(a)(1), 507(a)(2), 507(a)(3),
507(a)(4), and 507(a)(5) of this title, to the extent of the amount of
such allowed tax claim that is secured by such tax lien;
third, to the holder of such tax lien, to any extent that such holder's
allowed claim that is secured by such tax lien exceeds any amount
distributed under paragraph (2) of this subsection;
fourth, to any holder of an allowed claim secured by a lien on such
property that is not avoidable under this title and that is junior to
such tax lien;
fifth, to the holder of such tax lien, to the extent that such holder's
allowed claim secured by such tax lien is not paid under paragraph (3)
of this subsection; and
sixth, to the estate.
As can be
seen, these provisions work to deny IRS the benefits of a secured status
for purposes of distribution to unsecured claimants in higher priority
categories than tax claims. Thus, use of §724(b) impairs IRS' lien
status in Jean Barry's estate by relegating the subject IRS tax claims
to a sixth priority as determined under §507(a). These claims for which
the Notices of Tax Liens were properly filed are, however, prior to all
other claims in that §507(a)(6) class.
findings, the Court determines that IRS had a secured claim in this
Chapter 7 proceeding by virtue of its properly filed Notices of Tax
Liens. That claim, subject to a decrease of $1,448.22 pursuant to the
trustee's powers under 11 U. S. C. §724(a), attached to Jean Barry's
interest as a tenant by the entirety in the real estate located at 606
Old Coach Road, Westerville, Ohio, and became a secured claim to the
extent of the creditor's interest in the estate's interest in the
property. See 11 U. S. C. §506(a). The Court finds further that,
although the value of the avoided transfer is preserved for the benefit
of the estate pursuant to §551, the preserved value is subject to the
prior first mortgage in favor of Chemical Mortgage Co. and to the prior
lien status of IRS. Notwithstanding the foregoing, however, IRS' secured
status has been modified by the provisions of §724(b) so that its
formerly secured claim is now, in effect, an unsecured claim entitled to
priority status pursuant to §507(a)(6), and prior to any other claims
within that same priority class.
IT IS SO
United States of America
, Plaintiff v. Howard M. Boos, et al., Defendants
S. District Court, No. Dist. Okla., No. 84-C-12-E, 7/24/85
[Code Sec. 6323]
Collection: Validity of lien: Purchaser: Tax liens under state law:
Property rights: Oklahoma.--A federal tax lien properly attached to
an individual's rights in residential real property which was being held
in the name of a chapter of the Universal Life Church. The individual,
who became an ordained minister of a chapter of the
, executed a document purporting to be a vow of poverty by which he
attempted to make an irrevocable gift of all his possessions and income
to such chapter. Pursuant to state law (
), the court concluded that the individual had property or rights to
property to which a tax lien could attach because the conveyance
rendered the individual insolvent and a promise to provide for all of
his worldly needs did not constitute fair consideration for such
conveyance. Thus, the church was not a protected purchaser and the
transfer of the real property was disregarded for the purpose of
collection of federal tax.
Jennings, Department of Justice,
, for plaintiff. Robert A. Flynn,
1717 East 15th Street
, for defendants.
NOW on this
23d day of July, 1985 comes on for hearing the above styled case and the
Court, having heard the evidence presented by non-jury trial, considered
the legal authorities submitted by briefs and having reviewed the
arguments of counsel, enters the following Findings of Fact and
Conclusions of Law:
1. This is a
civil action brought by the Plaintiff, United States of America, to
foreclose federal tax liens upon certain residential real property in
Bixby, Tulsa County, Oklahoma (the "Bixby property") which is
presently being held in the name of the Universal Life Church, Inc.,
Charter 35,772, and to reduce any remaining tax liabilities of the
taxpayer, Howard M. Boos, to judgment.
defendant, Howard M. Boos, resides at 11507 South 99th
, the "Bixby property." The legal description of said property
Thirty-seven (37), Block Four (4), Southwood East, and addition to the
, State of
, according to the recorded plat thereof.
3. Howard M.
Boos, a single man, executed a Real Estate Mortgage in favor of Citizens
Security Bank & Trust Co.,
September 6, 1978
which was released on
March 2, 1983
September 5, 1979
Defendant Howard M. Boos assisted by Tom P. Rinkel and Defendant's two
sons, Craig and Howard J. Boos, founded Chapter 35,772 of the
. Dr. Boos became an ordained "minister" of
, and established a branch of the church at his place of business at 18
, in the City of Tulsa, Oklahoma.
Howard M. Boos executed a document purporting to be a "vow of
poverty" on September 2, 1979 by which Defendant attempted to make
an irrevocable gift of all his possessions, real, personal and otherwise
and all his income to the Universal Life Church, Inc., Chapter 35,772.
June 20, 1980
Defendant Howard M. Boos executed a General Warranty Deed conveying the
"Bixby property" to the
, Chapter 35,772.
Howard M. Boos continued to live at the "Bixby property"
September 11, 1984
Citizens Security Bank made no appearance in this case; Defendant John
Cantrell, Tulsa County Treasurer, filed amended answer on September 10,
1984 stating that no ad valorem taxes are due and owing on the
"Bixby property" and claiming no interest in the same and made
no further appearance in the case; Defendant Universal Life Church,
Inc., by and through counsel Peter R. Stromer, disclaimed any interest
in the "Bixby property" and made no further appearance in the
case; Defendant Howard M. Boos, appeared through counsel.
income taxes for the years 1975-1979 were assessed by the Internal
Revenue Service against Defendant Howard M. Boos as follows:
PERIOD ASSEsSED TAX PENALT ies/Additions Interest Balance Due
$ 263.00 $260.46 $ 1.05 $10,649.55
5,209.14 4.00 1,136.62
847.00 31.63 .42 2,840.89
737.14 4.00 1,180.72
3,735.00 133.56 340.45 8,410.19
7,264.00 253.31 335.26 13,224.90
3,309.00 827.25 394.90 6,373.29
Accordingly, as of
February 28, 1983
, these tax liabilities totaled approximately $41,498.82, plus statutory
additions. To date, these liabilities remain unpaid.
employment taxes for 1979 were assessed by the Internal Revenue Service
against Defendant Howard M. Boos as follows:
PERIOD ASSEsSED TAX PENALT ies/Additions Interest Balance Due
$269.33 $40.40 $ 9.05 $522.32
365.54 18.28 13.53 641.11
444.35 6.67 12.86 734.10
260.39 3.91 6.33 430.20
Accordingly, as of
February 28, 1983
, these tax liabilities totaled approximately $2,327.73, plus statutory
additions. To date, these liabilities remain unpaid.
Defendant Howard M. Boos has not filed a federal income tax return or
employment tax return since tax year 1979.
Findings of Fact, insofar as they may be deemd to be Conclusions of Law,
are hereby incorporated into this Court's Conclusions of Law.
1. This Court
has jurisdiction over the subject matter of this action by virtue of 28
U. S. C., §§ 1340 and 1345 and §§ 7402 and 7403 of the Internal
Revenue Code of 1954 (26 U. S. C.), and jurisdiction over the parties
has been obtained through personal service of process or service by
mail, pursuant to Rule 4, Federal Rules of Civil Procedure.
2. A prima
facie case of tax liability was established by Plaintiff and
Defendant offered no evidence to rebut the correctness of the tax
assessments or Defendant's liability on the merits. G. M. Leasing
Corp. v. United States [75-1 USTC ¶9142], 514 F. 2d 935, 941 (10th
Cir. 1975), rev'd in pt on the other grounds, [77-1 USTC ¶9140] 429
assessment of federal tax gives rise to a tax lien which attaches to all
property or rights to property belonging to the taxpayer. 26 U. S. C. §6321.
4. This lien
arises as of the date of the assessment. 26 U. S. C. §6322.
determine whether the taxpayer has "property" or "rights
to property" to which a tax lien has attached, state law much be
applied. United States v. Bess [58-2 USTC ¶9595], 357
6. Title 24 O.
S. 1981 §1041 provides that every conveyance of property which will
render the person conveying the property insolvent is fraudulent as to
creditors without regard to actual intent if no fair consideration is
given for the conveyance.
was an existing creditor by virtue of tax assessments at the time the
"Bixby property" was conveyed. The Court finds that the
conveyance rendered Defendant Howard M. Boos insolvent and that the
promise to provide for all Defendant's worldly needs did not constitute
fair consideration for the conveyance.
transfer of "Bixby property" was a sham and is to be
disregarded for the purpose of collection of federal tax. 24 O. S. 1981
§§ 101 et seq.
Universal Life Church did not take the Bixby property as a protected
"purchaser". See Internal Revenue Code §6323(h)(6).
10. There is
such a unity of interest between Defendant Howard M. Boos and Chapter
35,772 that the separateness of the two is not discernable. Defendant
Howard M. Boos runs, directs, controls and uses the assets purportedly
transferred to the church such that his vow of poverty had no actual
effect. Defendant's lifestyle was unchanged by the transfer of his
assets in that he continues to exercise all rights of ownership. This
Court therefore concludes that Chapter 35,772 of the
is the alter ego of Defendant Howard M. Boos. Loving Savior Church v.
United States [83-1 USTC ¶9215], 556 F. Supp. 688 (D. S. D. 1983),
aff'd, [84-1 USTC ¶9261] 728 F. 2d 1085 (8th Cir. 1984).
United States of America
is entitled to satisfy its tax liens in full against the "Bixby
property" and judgment will be entered accordingly.
Conclusions of Law, insofar as they may be deemed to be Findings of Fact
are hereby incorporated into this Court's Findings of Fact.
It is so
came on for hearing before the Court, Honorable James O. Ellison,
District Judge, presiding, and the issues having been duly heard and a
decision having been duly rendered,
IT IS ORDERED
AND ADJUDGED that the Plaintiff recover judgment of the Defendant Howard
M. Boos in the amount of $43,876.55 with interest thereon at the rate of
7.60% as provided by law and its costs of action, that federal tax liens
at issue herein be declared in full force and effect as against
Defendant Howard M. Boos' property and that said liens may be foreclosed
and the proceeds of sale distributed according to law consistent with
this Court's Findings of Fact and Conclusions of Law entered on the 23rd
day of July, 1985. In the event that the sale of the subject property
does not satisfy the tax indebtedness established herein, the Court
orders a deficiency judgment to be entered accordingly. Plaintiff is
awarded its costs of action.
IT IS FURTHER
ORDERED that the Plaintiff take nothing from the Defendants Citizens
Security Savings & Trust Company, John Cantrell, Tulsa County
and that this action be and is hereby dismissed as to Defendants
Citizens Security Savings & Trust Company, John Cantrell and
United States of America
, Appellee v. Isabelle R. Paurowski, Appellant
U. S. Court of Appeals, 4th Circuit, No. 72-1770, 475 F2d 1401, 5/1/73,
Aff'g District Court, 72-1 USTC ¶9229
[Code Sec. 71]
Gross income: Alimony v. child support: Allocation in decree.--The
entire amount the taxpayer received under a separation agreement was
taxable alimony. The agreement did not apportion the payments between
alimony and child support, but stated only that they were for her
support and the support and maintenance of the children.
[Code Secs. 6532 and 7422(a)]
Deficiency suits: Defenses to: Overpayments: Refund claims: Effect
of.--The court could not consider the taxpayer's defense that she
had overpaid her taxes for 1966 through 1968. Such a claim was in the
nature of a refund claim and was made less than six months after she had
filed her actual refund claims for those years without the Commissioner
having rendered a decision adverse to her in the interim. Nor could the
court consider her defense that she overpaid her 1969 through 1971
taxes, because she had never filed a refund claim for those years.
Carmpton, Assistant Attorney General Meyer Rothwacks, Leonard J. Henzke,
Jr., Dennis M. Donohue, Department of Justice, Washington, D. C. 20530,
for appellee. Bruce E. Lambert,
3461 N. Washington Blvd.
, for appellant.
HAYNSWORTH, Chief Judge, BOREMAN, Senior Circuit Judge and WINTER,
Paurowski appeals from the district court's [72-1 USTC ¶9229] judgment
recovery against her in the sum of $2,785.18, foreclosing the
' tax lien claims against her residence, and ordering the United States
Marshal to sell that property at public auction.
As grounds for
reversal appellant contends that the district court erred (1) in
classifying as alimony the payments which she received from her husband
during the years 1962-1965 and (2) in failing to grant credit for
overpayments of income tax reported on her 1966, 1967, 1969, 1970 and
1971 income tax returns.
Pursuant to a
separation agreement entered into by appellant and her husband on July
1, 1961, appellant received biweekly payments of $175 which the
agreement stated were "for her support and maintenance and for the
support and maintenance and education" of their two minor children.
The agreement contained no language allocating the payments between wife
and children. During the taxable years 1962 through 1965 appellant
failed to report any part of these payments as gross income. Section
71(a)(2) of the Internal Revenue Code of 1954 provides that periodic
payments made to a wife pursuant to a written separation agreement are
indludible in the wife's gross income. Section 71(b) excepts from the
operations of §71(a) "that part of any payment which the terms of
the * * * agreement fix * * * as a sum which is payable for the support
of minor children of the husband." In Commissioner v. Lester
[61-1 USTC ¶9463], 366
299 (1961), the Supreme Court construed the word fix to require
that "the allocations to child support * * * be 'specifically
designated' and not left to determination by inference or
at 306. Absent a specific designation of the portion allocable to child
support, the entire payment must be included in the wife's gross income.
Because in the instant case the separation agreement did not
specifically designate the portion to be used for child support, the
district court properly held that the payments in their entirety were
includible in the wife's gross income under §71(a)(2).
instituted this action in October of 1969. Thereafter, appellant filed a
refund claim with the Internal Revenue Service contending that she was
entitled to credit for alleged overpayments of tax for the years 1962
through 1968. In this action, appellant asserts that she is due a refund
for the tax years 1966 through 1971, 1
and that the district court erred in failing to grant her credit for the
alleged overpayments. Nothing in the record before us indicates that
appellant has filed any refund claims with the Internal Revenue Service
for the tax years 1969 through 1971.
7422(a) of the Internal Revenue Code of 1954 prohibits a suit for refund
in the district court "until a claim for refund or credit has been
duly filed with the Secretary or his delegate * * *." Additionally,
section 6532 bars such a suit prior to the expiration of six months from
the date of filing the refund claim unless the Secretary has rendered a
decision adverse to the taxpayer before that six month period has
elapsed, Lipsett v. United States [65-1 USTC ¶9424], 37 F. R. D.
549 (D. C. N. Y. 1965).
action, appellant cannot assert her refund claims as a set-off. To so
allow would be contrary to sections 7422(a) and 6532. When the
Government instituted this action, the rights of the parties were fixed;
by asserting her refund claims here, appellant has sought judicial
determination of the merits of her claims prior to filing such claims
with the Internal Revenue Service. Moreover, section 6532 was not
satisfied because the six month period had not elapsed, nor had any
decision been rendered by the Secretary. Raising the refund claim as a
defense and set-off to the present action is tantamount to bringing an
action in the district court without meeting the requirements of
sections 7422(a) and 6532.
refund claims for the years 1966-1968 appear ripe for determination in
the district court, in a separate action, should the Internal Revenue
Service refuse to consider the merits of the claims, or if their
decision is adverse to appellant. As to any refunds claimed due for the
tax years 1969-1971, it does not appear that appellant has filed a
refund claim with the Internal Revenue Service for those years. This,
appellant must do prior to asserting her claim in another forum. Should
appellant file a refund claim for those years which the Secretary
denies, or takes no action within six months from the date of filing,
appellant may then seek judicial resolution of her claim in the district
court. Meanwhile, appellant may not frustrate the government's right to
collect a deficiency found to be due.
we dispense with oral argument and affirm the judgment of the district
Appellant does not claim she is entitled to credit any refunds allegedly
due for tax years 1962-1965. Apparently any claims based on those years
have been either satisfied or barred by the limitations period set forth
in section 6511 of the Code.
United States of America
, Plaintiff v. Isabelle R. Paurowski, et al., Defendants
S. District Court, East.
, Alexandria Div., Civil Action No. 359-69-A,
[Code Secs. 61, 71, 214 and 6321]
Child care deduction: Married taxpayer: Support payments: Allocation:
Lien for taxes: Tenants by the entireties.--The taxpayer's child
care deduction was disallowed, since she was married during the period
for which she claimed the deduction but did not file a joint return.
Payments received by the taxpayer under the terms of a separation
agreement were included in her income since no allocation to child
support was possible. The deficiency resulting from the determinations
of the Court could be satisfied from the proceeds of the sale of a
residence held by the taxpayer and her husband as tenants by the
entireties, since under
law the taxpayer and her husband became tenants in common at the time of
Martin V. B.
Bosetter, Jr., United States Attorney,
, for plaintiff. L. Lawrence DeNicola, 201 N. Washington St.,
Alexandria, Va., Vincent Mocarski, 450 W. Broad St., Falls Church, Va.,
Isabelle R. Paurowski, 6418 Shady Lane, Falls Church, Va., for
brought this suit against the defendant taxpayer to reduce to judgement
certain tax assessments for the years 1962 through 1965, and to sell
certain real property in which the defendant has an interest in order to
collect its judgment.
former husband, a judgment creditor, and the Prudential Insurance
Company of America were made party defendants pursuant to 26 U. S. C. §7403,
which requires the joining of all persons who have or may claim an
interest in the property sought to be foreclosed.
assessments were based on the defendant taxpayer's failure to include in
her gross income moneys received pursuant to a separation agreement with
her husband and by the disallowance of certain deductions, one of which
was the child care deduction for 1962.
C. §214(b)(2), provides that child care deductions in the case of a
married woman shall not be allowed unless the taxpayer and his spouse
file a joint return. The taxpayer here filed a separate return.
of the foregoing statute considers a woman to be unmarried if (a) she is
legally separated from her spouse under a decree of divorce or of
separate maintenance at the close of the taxable year or (b) she has
been deserted by her spouse, does not know his whereabouts and has
applied to a court of competent jurisdiction to compel him to pay
taxpayer meets neither of these exceptions--Therefore she cannot claim
the $600.00 child care deduction for the year 1962.
received by defendant taxpayer from her former husband pursuant to the
terms of their separation agreement are includable in her gross income
because these payments are for the support of both the wife and
child--There is no way to determine what amount is specifically set
aside for child support and, therefore, 26 U. S. C. §71(b), upon which
the defendant taxpayer relies, has no application. See C. I. R. v.
Lester [61-1 USTC ¶9463], 366
299 (1961); West v. United States [69-2 USTC ¶9549], 413 F. 2d
294 (4th Cir. 1969).
In view of the
increased income of the defendant taxpayer occasioned by including the
amount received from her former husband under the separation agreement,
the recomputation of the allowable medical deduction is correct.
As to the
various other disallowed deductions, the taxpayer has failed to prove
that such expenses were in fact incurred or, if they were, what
authority allows their deduction. The burden of proving the assessments
erroneous is on the taxpayer--and this she has failed to do. See United
States v. Hardy [62-1 USTC ¶9286], 299 F. 2d 600 (4th Cir. 1962).
Court finds the following amounts are owed by the defendant taxpayer for
the years in question:
1962 $ 334.38, plus interest and lien fee
1963 768.18, plus interest and lien fee
1964 1,045.26, plus interest and lien fee
1965 637.36, plus interest and lien fee
property sought so be foreclosed in this proceeding is located at
6418 Shady Lane
. It was deeded to the defendant taxpayer and her former spouse as
tenants by the entirety--The defendant taxpayer obtained a final divorce
in 1966. The Virginia Code §20-111, automatically makes tenants by the
entirety tenants in common upon the entry of a final decree of
divorce--Therefore, the defendant taxpayer now has an interest in the
property in question and the whole may be sold to collect the taxes
found to be due. See 26
C. §7403(c), which allows all claims to be determined and satisfied
from the proceeds of such sale at public action. See Washington v.
United States [68-2 USTC ¶15,864], 402 F. 2d 3 (4th Cir. 1968).
The costs of
the sale, the prior lien of the Prudential Insurance Company of America,
the Bowles judgment and the properly ascertained value of the former
husband's interest will be first satisfied from the sale proceeds--then
the unpaid federal taxes--with the balance, if any, to be paid to the
The Court will
delay ordering that the property be sold at public auction for a period
of thirty days from the date hereof to permit the defendant taxpayer to
make other arrangements to pay the federal tax lien in full, if she be
the Government should forthwith prepare an appropriate order in
accordance with this memorandum opinion, submit the same to the
defendant taxpayer for approval as to form, and then to the Court for
The Clerk will
send a copy of this memorandum opinion to the defendant taxpayer and to
all counsel of record.
United States of America
, Plaintiff v. Benny Mosolowitz, Shirley Mosolowitz, et al.,
S. District Court, Dist. Conn., Civil No. 9717, 269 FSupp 12, 4/3/67
[1954 Code Secs. 6321 and 7403]
Tax liens: Jointly owned property: Sale of entire property.--The
Connecticut residential real estate jointly owned by the taxpayer
husband and his non-taxpayer wife could be sold in satisfaction of the
federal tax lien upon property of the delinquent taxpayer husband.
Government's motion for summary judgment was granted.
Faircloth, Tax Division, Department of Justice, Washington, D. C. 20530,
Jon O. Newman, United States Attorney, John F. Mulcahy, Jr., Assistant
United States Attorney, Hartford, Conn., for plaintiff. Sonia Goldstein,
Arthur S. Sachs, Howard A. Jacobs, Sachs, Giaimo & Sachs, 207 Orange
St., New Haven, Conn., for Benny and Shirley Mosolowitz; Frank E.
Callahan, Curtis H. Barnette, Irving H. Perlmutter, Wiggin & Dana,
205 Church St., New Haven, Conn., for S. Sodel and Metropolitan Life
Ins. Co.; Robert W. Carangelo, 152 Temple St., New Haven, Conn., for Tax
Collector for Hamden, defendants.
of Decision on Government's Motion for Summary Judgment Question
government's motion for summary judgment, pursuant to Rule 56, Fed. R.
Civ. P., in this action to enforce a federal tax lien and to subject
property belonging to the taxpayer to such lien pursuant to the tax lien
enforcement statute, 1
presents chiefly the question whether certain Connecticut residential
real estate jointly owned and occupied by the taxpayer husband and his
non-taxpayer wife may be sold in satisfaction of a federal tax lien upon
property of the taxpayer husband.
holds that such jointly owned property of the taxpayer and his wife may
be sold in satisfaction of the federal tax lien upon property of the
facts necessary to a determination of the instant motion by the
government for summary judgment are not in dispute. 2
Mosolowitz (the taxpayer) resides with his wife, Shirley, at
247 Fairview Avenue
. They purchased this property February 14, 1948 and have lived there
ever since. A mortgage, recorded October 29, 1947, which was on this
property at the time they purchased it, was assumed by Benny and Shirley
Mosolowitz; such mortgage, now in amount of $1,721.50, is held by the
Metropolitan Life Insurance Company; and the government concedes the
superiority of this mortgage lien to the federal tax lien on the
The only other lien on this property is that of the Town of
resulting from a real estate tax assessment October 1, 1961; the Town of
concedes that its tax lien is inferior to the federal tax lien.
contested issue in the case arises from the government's claim that it
is entitled to enforce its federal tax lien upon property of the
taxpayer husband against this
property which is jointly owned and occupied by the taxpayer and his
wife, and that the property may be sold in satisfaction of the federal
tax lien. 4
proceeding brought by the taxpayer in the Tax Court of the United States
for redetermination of his federal income tax liabilities for the years
in question, a stipulation of settlement was entered into between
counsel for the taxpayer and counsel for the IRS on January 31, 1958 by
the terms of which it was agreed that deficiencies were due from the
taxpayer for unpaid income taxes, penalties and interest for the years
1946, 1947 and 1948. 5
Pursuant to this stipulation, a decision was entered accordingly by the
Tax Court on March 4, 1958. 6
Within 60 days
thereafter, on April 11, 1958, the District Director assessed against
the taxpayer for the years in question unpaid income taxes, penalties
and interest to that date totaling $8,877.89. 7
Notice of these assessments was given and demand for payment was made
upon the taxpayer on May 15, 1958, but he has refused to pay. A lien in
favor of the government thereupon attached to all property and rights to
property, whether real or personal, of the taxpayer. 8
Between June 3, 1958 and January 24, 1962, notices of the tax liens
resulting from these assessments were filed with the Secretary of the
State in Hartford, the Town Clerks in Hamden and New Haven and the
Guilford Savings Bank in Guilford.
commenced the instant action March 25, 1963 to enforce its tax lien and
to subject property of the taxpayer to such lien. Jurisdiction is
founded on 26
C. §§ 7401, 7402(a), 7403(a)-(c) (1964) and 28
C. §§ 1340, 1345 (1964).
of Taxpayer's Interest in the Property
the legal issues raised by the government's motion for summary judgment
turns upon a determination of the nature of the legal interest of the
taxpayer in the Fairview Avenue property and the legal for levying
execution upon that interest.
point is Chief Justice Warren's holding in Aquilino v. United States
[60-2 USTC ¶9538], 363
509, 512-513 (1960):
threshold question in this case, as in all cases where the Federal
Government asserts its tax lien, is whether and to what extent the
taxpayer had 'property' or 'rights to property' to which the tax lien
could attach. In answering that question, both federal and state courts
must look to state law, for it has long been the rule that 'in the
application of a federal revenue act, state law controls in determining
the nature of the legal interest which the taxpayer had in the property
. . . sought to be reached by the statute.' Morgan v. Commissioner
[40-1 USTC ¶9210], 309
deed pursuant to which the taxpayer and his wife (under the names of
Benjamin Moslow and Shirley Moslow) jointly purchased the Fairview
Avenue property on February 14, 1948 reads in pertinent part as follows:
". . . do
give, grant, bargain, sell and confirm unto the said Benjamin Moslow and
Shirley Moslow, and unto the survivor of them, and unto such survivors,
heirs and assigns forever, . . ."
law, this is known as a "survivorship deed." It is
"generally utilized in this state whenever realty is placed in the
name of husband and wife. This type of deed creates an estate sui
generis. It sets up in each grantee an interest in the land, provides
for the termination of the interest of the grantee first dying, and,
upon his or her death, vests the entire fee in the survivor. The effect
of the deed is not unlike one which creates a life estate in each
grantee with remainder over contingent upon survivorship. No vital end
is to be served, therefore, by giving a label to [one grantee's]
interest, such as, for example, that of joint tenancy with an express
right of survivorship annexed, or a tenancy in common with a similar
annexed right." Hughes v. Fairfield Lumber & Supply Co.,
143 Conn. 427, 429-430, 123 A. 2d 195, 196-197 (1956).
legislature in 1959 enacted Conn. Gen. Stat. §47-14a which provides in
pertinent part as follows:
conveyance of real estate or any interest therein by deed . . . to two
or more natural persons, . . . in such form that the conveyance runs
unto the grantees . . ., whether as joint tenants or as tenants in
common, and unto the survivor of them, or unto the survivor and
survivors of them, and unto the last survivor's heirs and assigns, . . .
shall be deemed to create a joint tenancy in fee simple with right of
survivorship added and the tenants holding under any such conveyance
shall be known as joint tenants. . . ." (Emphasis added)
accordingly holds, applying Connecticut law, that the deed under which
the taxpayer and his wife purchased the Fairview Avenue property created
in them a joint tenancy in fee simple with right of survivorship added
and that they hold such property as joint tenants.
of Right to Levy Execution on Taxpayer's Interest in the Property
determined, by looking to state law, the nature of the legal interest of
the taxpayer in the Fairview Avenue property (a joint tenancy with right
of survivorship), the Court must look to federal law to determine the
government's right to and means of enforcement of its federal tax lien
against the taxpayer's interest in the property. Aquilino v. United
States, supra at 512-514; United States v. Bess [58-2 USTC ¶9595],
51, 55-57 (1958); United States v. Healey [60-2 USTC ¶9744], 283
F. 2d 422, 428 (8 Cir. 1960).
tax lien enforcement statute governs: 10
7403. ACTION TO ENFORCE LIEN OR TO SUBJECT PROPERTY TO PAYMENT OF TAX.
Filing.--In any case where there has been a refusal or neglect to pay
any tax, or to discharge any liability in respect thereof, whether or
not levy has been made, the Attorney General or his delegate, at the
request of the Secretary or his delegate, may direct a civil action to
be filed in a district court of the United States to enforce the lien of
the United States under this title with respect to such tax or liability
or to subject any property, of whatever nature, of the delinquent, or in
which he has any right, title or interest, to the payment of such tax or
Parties.--All persons having liens upon or claiming any interest in the
property involved in such action shall be made parties thereto.
Adjudication and Decree.--The court shall, after the parties have been
duly notified of the action, proceed to adjudicate all matters involved
therein and finally determine the merits of all claims to and liens upon
the property, and, in all cases where a claim or interest of the United
States therein is established, may decree a sale of such property, by
the proper officer of the court, and a distribution of the proceeds of
such sale according to the findings of the court in respect to the
interests of the parties and of the United States. * * *."
by its broad terms, clearly authorizes this Court, once it has
determined under state law that the taxpayer has a right or interest in
the property in question, to subject such property to the government's
tax lien, to order a sale of such property and to provide for
appropriate distribution of the proceeds of such sale in accordance with
the interests of the parties. The Court must bear in mind "the
fundamental principle that liens for federal taxes are entirely
statutory and the provisions for their collection are to be strictly
followed according to federal law." United States v. Healsley,
supra at 428.
In affirming a
District Court's order authorizing the sale of real property in which
the taxpayer had a joint tenancy interest, the Court of Appeals for the
Seventh Circuit construed Section 7403 in United States v. Trilling
[64-1 USTC ¶9292], 328 F. 2d 699, 702-703 (7 Cir. 1964), as follows: 11
final contention is that 26 U. S. C. A. §7403 does not empower the
District Court to order a sale of the entire property, including
appellant's admitted joint tenancy interest, or to charge appellant's
interest with any of the fees, costs or expenses incident to the sale .
. . in §7403 Congress has expressly authorized the district court to
subject 'any property' in which the delinquent taxpayer 'has any right,
title, or interest' to the payment of 'such tax or liability'; has
required that 'all persons' claiming any interest 'in the property
involved' be made parties to the proceeding; and has empowered the court
to order a sale 'of such property' and direct distribution of the
proceeds of such sale according to the 'interests of the parties and of
the United States'. The express language of the statute negates any
design or intent on the part of Congress to limit the reach of the
statute to the 'interest' of the taxpayer as distinguished from the
'property' in which he has such 'interest'. This being so we are of the
view that a proper recognition of the teachings of Aquilino v. United
States [60-2 USTC ¶9538], 363 U. S. 509, 80 S. Ct. 1277, 4 L. Ed.
2d 1365 and United States v. Bess [58-2 USTC ¶9595], 357 U. S.
51, 78 S. Ct. 1054, 2 L. Ed. 2d 1135, requires the conclusion that once
the state law has been applied to ascertain the taxpayer's state-created
property interests--to govern the determination of whether the taxpayer
has 'property' or an 'interest in property' to which the lien
attaches--we enter the province of federal law in subjecting the
property involved to the discharge of the tax liability. As Mr. Chief
Justice Warren had occasion to observe in Aquilino (363 U. S. 509
at 514, 80 S. Ct. 1277 at 1280-1281, 4 L. Ed. 2d 1365): 'This approach
strikes a proper balance between the legitimate and traditional interest
which the State has in creating and defining the property interest of
its citizens, and the necessity for a uniform administration of the
federal revenue statutes'."
7403(c), in authorizing the Court to decree a sale of property in which
an interest of the
by virtue of a tax lien has been established, is so clear that judicial
construction of the statute by way of justification of such a sale seems
superfluous. Counsel for the parties here nevertheless have addressed
policy arguments to the Court in support of their respective positions.
To the extent that it is within the competence of the Court to assess
the policy behind such a statute so clear on its face, the policy of
Congress is plain: to assure collection of taxes due the
by enforcing tax liens upon property of a delinquent taxpayer or in
which he has any right, title or interest. To that paramount interest of
, the interests of others, including the delinquent taxpayer and his
wife, in property against which the tax lien is to be enforced obviously
partitioning this property in kind and selling the whole property with a
division of the proceeds in accordance with the interests of the
parties, the latter obviously will better promote the interests of all
concerned. Sale of the taxpayer's one-half interest alone would be
economically unsound; if there were a market at all for it, the net
proceeds would be substantially less than the value of his proportionate
share of a sale of the whole property. Being residential property
presently occupied by the taxpayer husband and his wife, even if a buyer
of the taxpayer's one-half interest could be found, the hardship on both
present occupants and the unrealistic social conditions that would ensue
require no dilation.
orders a sale of the whole
property and a distribution of the proceeds of such sale in accordance
with the interests of the parties. 12
having determined, by looking to state law, the nature of the taxpayer's
legal interest in the property, and having determined, by looking to
federal law, the government's right to and means of enforcement of its
federal tax lien against the taxpayer's interest in the property, the
Court has decided all that it is required to decide. There remains only
for the Court to direct the provisions to be included in the judgment.
so, however, it may be appropriate to note, by way of dictum, that even
if state law were to determine the government's right to and means of
enforcement of its federal tax lien (which the taxpayer urges but the
Court declines to hold), the result under Connecticut law would be the
same as under federal law. The Connecticut statutes provide that, upon
the complaint of any person interested, any court having equitable
jurisdiction may "order partition of any real estate held in joint
or may "order the sale of any estate, real or personal, owned by
two or more persons, when, in the opinion of the court, a sale will
better promote the interests of the owners." 14
The Connecticut Supreme Court has squarely held that the estate of a
joint tenant in real property, even when accompanied by a right of
survivorship, is subject to levy and execution. New Haven Trolley
& Bus Employees Credit Union v. Hill, 145 Conn. 332, 336-337,
142 A. 2d 730, 732-733 (1956). 15
Clearly, moreover, under
law the joint tenancy interest of defendant Benny Mosolowitz in the
property gives him the right to sue either to partition or sell the
Since the government's lien has attached to all property, and rights
to property, of the taxpayer, 17
the government is a "person interested" within the purview of
the Connecticut statutes providing for partition or sale. 18
In determining whether partition or sale would better serve the
interests of the parties, including the government, the same
considerations would be weighed 19
as have been taken into account by the Court in applying Section
7403(c). See pp. 10-11 [83,894], supra. For the reasons there set
forth, the Court would conclude, if it were to apply Connecticut law to
determine the consequences and means of enforcing the government's
federal tax lien against the taxpayer's interest in the property, that
the Fairview Avenue property should be sold and the proceeds of such
sale should be distributed in accordance with the interests of the
parties. Hence, whether under federal or state law, the result would be
reasons stated above, there being no genuine issue as to any material
fact and the government being entitled to judgment as a matter of law,
the government's motion for summary judgment is granted and defendant
Shirley Mosolowitz' cross-motion for summary judgment is denied.
accordingly is directed to enter judgment based upon the following:
defendant Benny Mosolowitz is indebted to plaintiff for unpaid income
taxes, penalties and interest for the years 1946, 1947 and 1948 as
assessed April 11, 1958, which to that date totalled $8,877.89, plus
accrued interest; said unpaid assessments, plus lien fees, totalled
$11,695.71 as of October 18, 1965; and interest has accrued at the daily
rate of $1.03 from October 18, 1965 to the date of the judgment herein.
plaintiff has valid and subsisting liens upon all property, interests in
property and rights to property, real and personal, of defendant Benny
Mosolowitz, including the Vernon Street and Fairview Avenue properties
more particularly described in paragraphs XI and XIV of the complaint
herein, in the amount of defendant Benny Mosolowitz' indebtedness to
plaintiff as set forth in paragraph (1) above.
(3) That said
liens of plaintiff on said property of defendant shall be foreclosed by
sales of such property in accordance with the practice of this Court,
the proceeds of such sales to be distributed according to the following
respect to the
property (Complaint, paragraph XI)--
(i) Payment of
mortgage lien of Shirley Sodel.
of plaintiff's federl tax lien to the extent of defendant Benny
Mosolowitz' indebtedness to plaintiff as set forth in paragraph (1)
of balance, if any, to said defendant Benny Mosolowitz.
respect to the
property (Complaint, paragraph XIV)--
(i) Payment of
mortgage lien of the Metropolitan Life Insurance Company.
of plaintiff's federal tax lien to the extent of defendant Benny
Mosolowitz' indebtedness to plaintiff as set forth in paragraph (1)
above and to the extent of his one-half interest in the property.
to defendant Shirley Mosolowitz of an amount equivalent to the amount
paid to plaintiff in satisfaction of its federal tax lien against
defendant Benny Mosolowitz as provided in immediately preceding
of balance, if any, equally to defendants Benny Mosolowitz and Shirley
plaintiff shall have judgment against defendant Benny Mosolowitz
individually for such portion of said defendant's indebtedness to
plaintiff set forth in paragraph (1) above as remains unsatisfied after
foreclosure of plaintiff's liens on said defendant's property, interests
in property and rights to property, including the foreclosure sales of
the Vernon Street and Fairview Avenue properties as hereinabove
constitute the Court's findings of fact and conclusions of law pursuant
to Rule 52, Fed. R. Civ. P.
wishes to acknowledge its special appreciation for the extraordinarily
able presentations, both in the oral arguments and in the briefs, by two
highly competent Portias of the Bar--
P. Faircloth for the government and Sonia Goldstein for the taxpayer and
Int. Rev. Code of 1954, §7403, 26 U. S. C. §7403 (1964).
Defendant Shirley Mosolowitz' cross-motion for summary judgment in her
favor is denied in view of the Court's grant of the government's motion.
Int. Rev. Code of 1939, §3672, 26 U. S. C. §3672 (1952) [now Int. Rev.
Code of 1954, §6323, 26 U. S. C. §6323 (1964)].
Taxpayer is the sole owner of another parcel of real estate located at
46 Vernon Street
; his wife has no interest in this property. The taxpayer inherited this
property from his father, Samuel Mosolowitz, who died November 4, 1959.
The father had acquired it by devise under the will of the taxpayer's
mother, Lena Mosolowitz, who had purchased it in 1941. When the taxpayer
acquired this property, it was encumbered by a $2,000 mortgage, then and
now held by the taxpayer's sister, Shirley Sodel; the government
concedes the superiority of this mortgage lien to the federal tax lien
on this property. The taxpayer being the sole owner of this
property, it is undisputed that the government is entitled to enforce
its federal tax lien against this property and that the property may be
sold in satisfaction of such lien.
Int. Rev. Code of 1939, §§ 272(b), 293(b), 26 U. S. C. §§ 272(b),
293(b) 1952) [now Int. Rev. Code of 1954, §§ 6215(a), 6653(b), 26 U.
S. C. §§ 6215(a), 6653(b) (1964)].
The decision of the Tax Court is res judicata in this action to
recover taxes for the same years and is not open to attack in this
Court. United States v. International Building Co. [53-1 USTC ¶9366],
345 U. S. 502, 506 (1953); Commissioner v. Sunnen [48-1 USTC ¶9230],
333 U. S. 591, 597-598 (1948); United States v. Brown [64-1 USTC
¶9246], 225 F. Supp. 414 (E. D. Pa. 1964); United States v. Leary
[63-1 USTC ¶9480], 228 F. Supp. 467, 469-470 (D. Conn. 1963), aff'd
per curiam, [64-1 USTC ¶9338], 330 F. 2d 497 (2 Cir. 1964).
An uncontroverted affidavit of debt, sworn to October 18, 1965, by
Terrence P. McGovern, Chief, Office Branch, District Director of
Internal Revenue for Connecticut, submitted by the government in support
of the instant motion, discloses that as of October 18, 1965 the
taxpayer's unpaid assessments for the years 1946, 1947 and 1948, plus
lien fees, totalled $11,695.71 and that interest is accruing at the
daily rate of $1.03.
Int. Rev. Code of 1939, §3670, 26 U. S. C. §3670 (1952) [now Int. Rev.
Code of 1954, §6321, 26 U. S. C. §6321 (1964)].
The deed was recorded February 25, 1948 in Volume 256, page 516, of the
Land Records of the Town of
Int. Rev. Code of 1954, §7403, 26 U. S. C. §7403 (1964).
The taxpayer in the instant case vigorously urges upon the Court the
contrary view of Folsom v. United States [62-2 USTC ¶9648], 306
F. 2d 361 (5 Cir. 1962). This Court declines to follow Folsom,
believing that it incorrectly applied Section 7403.
Int. Rev. Code of 1954, §7403, 26
C. §7403 (1964);
v. Trilling [64-1 USTC ¶9292], 328 F. 2d 699, 702-703 (7 Cir.
1964); United States v. Borcia [58-1 USTC ¶9119], (S. D. Cal.
1958); United States v. Beggerly [52-1 USTC ¶9304], (S. D. Cal.
Gen. Stat. §52-495 (1958).
Gen. Stat. §52-500 (1958).
In the New Haven Trolley & Bus Employees Credit Union case,
the Connecticut Supreme Court stated (145 Conn. 332, 336-337):
the fundamental policy of our law, and always has been, that all the
property of a person, unless by law exempt, shall be liable for the
payment of any money judgment rendered against him. Remington v.
44, 47; Murphy v. Dantowitz, 142
320, 327, 114 A. 2d 194; Cum. Sup. 1955, §3194d. It would be strange
indeed if in Connecticut, where joint tenancies are not presumed and
where they do not, in and of themselves, have the incident of
survivorship, the simple expedient of an express provision for
survivorship could confer a complete exemption of the interest of each
joint tenant, however valuable, from attachment or execution for the
satisfaction of his individual debts. We reject such a rule, and hold
that where, by express terms in the granting instrument, a joint tenancy
is created together with the right of survivorship, the estate thus
created is no less subject to attachment and execution than an ordinary
common-law joint tenancy with an incidental or implied right of
survivorship. Such an estate is subject to destruction by the severance
resulting from the levy of a proper execution. Hughes v. Fairfield
Lumber & Supply Co., 143
427, 431, 123 A. 2d 195; see General Statutes §7095.
true that the attachment itself does not operate as a severance. It was
for this reason that we held that in a cotenancy with right of
survivorship the death of a cotenant, after an attachment of his
interest but before judgment, extinguished his interest and thus the
'estate' held by the attachment under §3194d of the 1955 Cumulative
Supplement. Hughes v. Fairfield Lumber & Supply Co., supra, 430.
Here, both the defendant and the sole other joint tenant, his wife, are
still alive. Therefore it is unnecessary for us to determine at
exactly what stage of the proceedings the severance occurred. It
certainly took place, subject to being vacated by the exercise of the
right of redemption, not later than the rendition of the judgment of
foreclosure of the lien. That is as far as we are required to go by the
facts of this case." (Emphasis added)
Gen. Stat. §§ 52-495, 52-500 (1958); Connor v. Connor, 25
Supp. 119 (Super.
1964); cf. McCrohan v. McCrohan, 17
Supp. 207, 211 (Super.
Int. Rev. Code of 1939, §3670, 26 U. S. C. §3670 (1952) [now Int. Rev.
Code of 1954, §6321, 26 U. S. C. §6321 (1964)].
Gen. Stat. §§ 52-495, 52-500 (1958).
Gaer Bros., Inc. v. Mott, 147
411, 161 A. 2d 782 (1960); Johnson v. Olmsted, 49 Conn. 509
(1882); Connor v. Connor, supra note 16.
United States of America
v. Lonnie Marion Ragsdale, Bessie Ragsdale, Libio J. Barsotti,
Genevieve Barsotti, Louis J. Barsotti, Gloria Jean Barsotti
S. District Court,
, West. Div., Civil Action No. 4177, 6/29/62
[1954 Code Secs. 6321 and 6331]
Collection of taxes: Levy and distraint: Promissory note: Property
held by entireties: State law.--Under Tennessee law a promissory
note owned by the taxpayer husband and his wife was held by them as
tenants by the entirety and may be sold to satisfy their joint
liability. The taxpayers' right to the debt represented by the note,
even though payable in installments, was fixed and as such may be sold.
Further, it is not necessary to include the trustee under the deed of
trust which secures the note as a party since the foreclosure merely
involves the sale of the note and not the deed of trust. Under
law the balance remaining from the sale of the note after settling the
joint tax liability of the husband and wife maintains the characteristic
of a tenancy by the entirety. The husband's interest may be sold to
satisfy his individual debt, and the purchaser becomes the owner of the
husband's right of survivorship. Consequently, the Government was
entitled to the husband's right of survivorship in the balance to be
held by the Clerk of the Court pending the death of either spouse.
Robinson, United States District Attorney, Edward N. Vaden, Assistant
United States Attorney, Memphis, Tenn., for plaintiff. Hubert A.
McBride, 800 Commerce Title Bldg.,
, for defendant.
This is an
action filed by the
to reduce to judgment income tax deficiencies of two of the defendants
and to foreclose income tax liens on certain property of those
defendants. The trial was had before the Court without a jury, and this
memorandum decision has been prepared and filed in lieu of findings of
fact and conclusions of law.
that the defendant taxpayers, Lonnie M. and Bessie Ragsdale, are husband
and wife and are residents of
. It further appears that income tax deficiencies were assessed against
them jointly for the years 1943 and 1954 and that deficiencies were
assessed against Mr. Ragsdale individually for the years 1945, 1946 and
1947. These deficiencies were assessed pursuant to stipulations entered
in the Tax Court, where the taxes for all said years except 1954 were in
litigation, and pursuant to a waiver of restrictions on assessment and
collection (Treasury Form 870) as to the year 1954. Notice of tax liens
were duly filed in 1958 and 1959. The correctness of the assessments as
set out in the Government's complaint is not contested by defendant
On April 20,
1959, the Government collected the sum of $2,390.21 as a result of a
levy on a bank account of Mr. Ragsdale and credited this amount against
his individual tax liability for the year 1945. It is his contention
that this amount should have been credited against the joint liability
for the year 1943, the earliest year as to which he was liable for a
deficiency, because he so directed. The answer to this contention,
without determining whether a taxpayer may so control the application of
a payment, is that there is nothing in the record to indicate that, at
the time the collection was made, Mr. Ragsdale directed or even
requested that it be applied against the joint liability for the year
1943. Defendants offered no proof whatsoever at the trial, and the
testimony of a Revenue Agent, who was the sole witness, and the exhibits
and stipulations do not indicate that Mr. Ragsdale so directed the
application of the payment. Therefore, the Court finds and holds that
the Government was entitled to apply, as it did apply, the amount
collected to the individual liability of Mr. Ragsdale for the year 1945.
difficult issues result from the effort of the Government to foreclose
its tax liens on certain property of defendant taxpayers. It appears
that in 1954, they sold a parcel of real estate located in
to defendants Libio J. Barsotti and Louis J. Barsotti who executed a
promissory note payable in installments, to defendant taxpayers. This
note was secured by a deed of trust covering the real estate, and was
executed by the defendants Barsotti and their wives, the wives also
being defendants in this action. It is this promissory note that the
Government seeks to have sold in satisfaction of its tax liens. A levy
has heretofore been had by the Government, which has been served on the
defendants Barsotti, who thereafter have made the installment payments
to the Government. Moreover, on the Government's motion, defendant
taxpayers have been required to deliver possession of this note to the
Clerk of this Court.
There is no
question but that the Government has a lien on this note by virtue of
Sec. 6321 et seq. of the Internal Revenue Code of 1954 and that
in a proper case this Court may order foreclosure of a tax lien. (Int.
Rev. Code of 1954, §7403.)
contention of defendant taxpayers is that the Government cannot
foreclose this lien in this action because the trustee under the deed of
trust which secures the note was not made a party to this action. This
contention seems to be based on the notion that the foreclosure herein
sought involves a foreclosure of the deed of trust. Of course, it does
not involve a foreclosure of the deed of trust; the foreclosure of these
tax liens simply involves a sale of this note owned by defendant
taxpayers which note is secured by the deed of trust.
contention of defendant taxpayers is that the note cannot be sold in
foreclosure of the tax liens because it is payable in installments.
While this contention might be valid with respect to claims of taxpayers
which are contingent and not yet in existence, where, as here, the debt
is owed to taxpayers but payment thereof is merely deferred, there seems
to be no reason why the debt, represented by the note, cannot be sold.
The Government is not seeking acceleration of the installments; it is
seeking only to sell the installment note.
controversy has to do with whether the promissory note is owned by the
defendant taxpayers as tenants by the entirety and if so, what are the
rights of the Government as to foreclosure on this note.
and taxpayers agree that these questions must be answered by
law. U. S. v. Bess [58-2 USTC ¶9595], 357
51 (1958). Moore v. Glotzbach [61-1 USTC ¶9185], 188 F. Supp.
267 (E. D. Va. 1960). Pilip v. U. S. [60-2 USTC ¶9696], 186 F.
Supp. 397 (D. Alaska 1960). The Government also concedes that personalty
law, be held by a husband and wife as tenants by the entirety. Oliphant
v. McAmis, 197
367, 273 S. W. 2d 151 (1954). It contends, however, that as the
promissory note does not provide that taxpayers shall hold as tenants by
the entirety and as no proof was offered that they intended so to own
the note, it cannot be inferred that they intended to do so, citing the Oliphant
case, supra. The Oliphant case actually holds that even
where the instrument conveying title to personalty shows only the name
of the husband, it may be proved by surrounding circumstances as well as
statements of the husband that he intended to hold as a tenant by the
entirety and such a tenancy thereby established. This case also holds
that a joint bank account in the name of a husband and wife is held by
the entirety. The rule likewise seems to be that husband and wife hold
by the entirety where they are both named in the instrument even though,
as here, they are not described therein as husband and wife. 26 Am.
Jur., Husband and Wife §68. It therefore appears, and the Court
so finds and holds, that the promissory note is owned by defendant
taxpayers as tenants by the entirety.
question is whether the Government has the right to require the sale of
the interest of both defendant taxpayers in the note to satisfy their
joint tax liability. Defendant taxpayers insist that the Government does
not have the right, without citing authority or advancing a reason for
this conclusion. It seems that the interest of both spouses as tenants
by the entirety may be sold to satisfy their joint liability. Newson
v. Shackleford, 163
358, 361, 43 S. W. 2d 384 (1931). Moore v.
332, 343, 197 S. W. 1093 (1917). Whittaker v. Kavanagh [51-2 USTC
¶9393], 100 F. Supp. 918 (E. D. Mich. 1951). Pilip v. U. S., supra.
26 Am. Jur., Husband and Wife §86.
question has to do with the disposition of the balance of the proceeds
of the sale after satisfying the joint tax liability of Mr. and Mrs.
Ragsdale. In answering this question, we must first determine whether
the proceeds of the sale will be held by them as tenants by the
entirety. While there seems to be no
authority, the general rule seems to be that proceeds of a foreclosure
sale of property held by the entirety maintain the characteristics of a
tenancy by the entirety. Annot., 64 A. L. R. 2d 8, 60.
It is the
position of the Government, nevertheless, that at least some part of the
balance of the proceeds can forthwith be applied against Mr. Ragsdale's
individual tax liability, while defendant taxpayers contend that this
balance must be turned over to them as tenants by the entirety.
law a husband's interest in property held by the entirety can be sold to
satisfy his individual debt, and the pourchaser becomes the owner of the
husband's right of survivorship. Cole Mfg. Co. v. Collier, 95
115, 31 S. W. 1000 (1895). Sloan v. Sloan, 182
162, 184 S. W. 2d 391 (1945). Gemignani v. Partee, 42
App. 358, 302 S. W. 2d 821 (1956). It would therefore seem that, after
the sale of the note and the application of the proceeds first to the
joint liability, the Government will be the owner of Mr. Ragsdale's
right of survivorship in the balance. To enforce and protect this right
of the Government, this balance should and will be held by the Clerk of
this Court pending the death of Mr. or Mrs. Ragsdale. See 41 C. J. S., Husband
& Wife §34 and Annot., 64 A. L. R. 2d 8, 60. If Mr. Ragsdale
survives, the Government will be entitled to the entire fund to the
extent necessary to satisfy his invididual liability, which was assessed
for the years 1945, 1946 and 1947, together with interest. If he does
not survive, the Government will not be entitled to any part of this
balance. In the meantime, the Clerk is authorized but not directed to
invest the fund in Government bonds. As to the income derived from such
an investment, the Cole Mfg. Co. case, supra, by dicta,
indicates that the Government might not be currently and from time to
time entitled to any part thereof as it accrues and is received by the
Clerk, but there is respectable authority to the contrary. See 26 Am.
Jur., Husband and Wife §85. In any event, if the Clerk does
invest the fund as herein authorized, he is directed to pay over
one-half of the income to the Government as it is received in payment of
Mr. Ragsdale's individual tax liability. The other one-half of such
income should, of course, be distributed to Mrs. Ragsdale
An order will
be prepared and entered consistent with this Memorandum Decision.
United States of America
, Plaintiff v. Ann M. Borcia, etc., et al., Defendants
S. District Court, So.
, Cent. Div., No. 322-57 Y Civ., 10/16/57
[1939 Code Secs. 3670 and 3672--similar to 1954 Code Secs. 6321 and
Lien for taxes: Wife's tax liability: Sale of residential property
owned by husband and wife as joint tenants.--The Commissioner
assessed against taxpayer Ann Richardson, also known as Mrs. John
Borcia, social security, income, and cabaret taxes and interest thereon,
in the amount of about $200,000 for the years 1946 and 1947, filing lien
for such unpaid taxes in 1948 and 1951. The taxpayer and her husband own
a one-family residence in
, in joint tenancy. Since it would be impractical, inequitable and
unfeasible to sell only the interest of taxpayer in the property, the
sale of the entire property is ordered in order to satisfy the lien. The
proceeds of the sale are to be applied, first, to the payment of
expenses of the sale, second, to a $1,300 balance on a deed of trust
against the property, third, the remaining proceeds to be divided into
two equal parts representing the taxpayer's interest and that of her
husband, respectively, fourth, the amount representing taxpayer's
interest to be applied to the tax lien, and fifth, any balance in the
interest of the taxpayer to be applied toward payment of her city and
county taxes, and any remainder to be paid to her. City and county taxes
of $354 are also to be paid from the husband's portion of the sales
Waters, United States Attorney, Edward R. McHale, Assistant United
States Attorney, Chief, Tax Division, Robert H. Wyshak, Assistant United
States Attorney, 808 Federal Building, Los Angeles 12, Calif., for
plaintiff. A. J. Weiss, for Ann M. Borcia and John P. Borcia, George R.
Pfeiffer, for Security-First National Bank of Los Angeles and Lincoln
Savings and Loan Association, Harold W. Kennedy, County Counsel, by
Robert A. Von Esch, Jr., Deputy County Counsel, for the County of Los
Angeles and City of Los Angeles.
of Fact, Conclusions of Law and Decree and Order of
above-entitled matter came on for trial on the 27th day of September,
1957, pursuant to stipulation, before the Honorable Leon R. Yankwich,
Chief Judge, sitting without a jury, Laughlin E. Waters, United States
Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax
Division, Robert H. Wyshak, Assistant United States Attorney, appearing
as attorneys for plaintiff; A. J. Weiss appearing as attorney for
defendants Ann M. Borcia and John P. Borcia; George R. Pfeiffer
appearing as attorney for defendant Security-First National Bank of Los
Angeles, a corporation, and Lincoln Savings and Loan Association, a
corporation; Harold W. Kennedy, County Counsel, by Robert A. Von Esch,
Jr., Deputy County Counsel, appearing for the County of Los Angeles and
the City of Los Angeles; the defendants Calor E. Weber, Daniel D.
Benedett, and the State of California having disclaimed; dismissals
having been entered as to the defendants Lohman Bros., a corporation,
Rowland L. Lohman, Kathryn L. Lohman, J. T. Lohman, Jill Cole, Geraldine
D. Breer, and Title Insurance and Trust Company, a corporation, as
executor under the will of Louis C. Breer, Dec'd., doing business as
Lohman Bros.; defaults having been entered against Leonard Earnest,
Roselle Earnest, Ed Groves, Louis Glasser and Irving G. Glasser, doing
business as Glasser Bros.; B. F. McManus, individually and doing
business as Mutual Credit Bureau, they having been regularly served with
process, and having failed to appear and answer the complaint; and
evidence having been introduced, and the Court after considering said
evidence and the stipulations of the parties in open court makes its
findings of fact and conclusions of law as follows:
are corporations sovereign and bodies politic.
defendant Security-First National Bank of
is a national banking association and the defendant Lincoln Savings and
Loan Association is a
corporation, both of which have their principal places of business in