Creation of Lien page1

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William J. McCorkle v. Commissioner.

Dkt. No. 1433-03L , 124 TC 56, No. 5, February 24, 2005.

[Appealable, barring stipulation to the contrary, to CA-11. --CCH.]

[Code Sec. 6321]
Notice of tax lien: Nontax forfeiture. --

The IRS was warranted in filing a notice of federal tax lien against an individual. The taxpayer had made a payment of $2 million to the IRS, which was subsequently ordered forfeited to the U.S. Marshals Service in an unrelated nontax criminal case. The IRS was not obliged to defend the forfeiture order on the grounds that it was a bona fide purchaser for value, and could initiate additional collection activities against the taxpayer.

William J. McCorkle, pro se; Pamela L. Mable, for respondent.

 

R's Appeals Office determined that R was warranted in filing a notice of Federal tax lien (NFTL) against P with respect to his 1996 Federal income tax liability. P assigns error on the grounds that R erroneously refunded his $2 million remittance for 1996 to the U.S. Marshals Service pursuant to a forfeiture order issued under 18 U.S.C. sec. 982 (2000) by the District Court in an unrelated, non-tax criminal case. R and P have both moved for summary judgment.

 

1. Held: R was dutybound to comply with the forfeiture order, which is not subject to collateral attack in this court.

 

2. Held, further, R had no duty to defend against the forfeiture order.

 

3. Held, further, the Appeals Office did not err in determining that R was warranted in filing the NFTL; therefore, R's motion for summary judgment will be granted and P's will be denied.

OPINION

 

HALPERN, Judge: This case is before the Court to review a determination made by respondent's Appeals Office (Appeals) that respondent was warranted in filing a notice of Federal tax lien (the notice of Federal tax lien or NFTL) against petitioner with respect to his Federal income tax liability for 1996 (1996 tax liability). We review that determination pursuant to sections 6320(c) and 6330(d)(1).¹ Petitioner assigns error to Appeals' determination on the grounds that Appeals erred in determining that a $2 million remittance made by petitioner to the Internal Revenue Service (IRS) on or about May 16, 1997 (the $2 million remittance), did not satisfy the 1996 tax liability. Appeals determined that the $2 million remittance did not satisfy the 1996 tax liability because that amount had been refunded to the U.S. Marshals Service (Marshals Service) pursuant to an order of the court in a non-tax criminal case involving petitioner. The order specified that the $2 million was subject to criminal forfeiture pursuant to 18 U.S.C. sec. 982 (2000). There being little dispute as to the underlying facts, the parties have each moved for summary judgment (together, the motions).

 

Rule 121 provides for summary judgment. Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(a) and (b).

 

We are satisfied that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. For the reasons that follow, we shall grant respondent's motion for summary judgment and deny petitioner's.

Background

Introduction

We draw the following facts from the pleadings, requests for admissions (together with any objections or responses thereto), the motions, memoranda in support of the motions, responses to the motions, other documents filed with the Court, and reports of the Court of Appeals for the Eleventh Circuit concerning criminal proceedings involving petitioner and others; viz United States v. McCorkle, 321 F.3d 1292 (11th Cir. 2003), and United States v. Venske, 296 F.3d 1284 (11th Cir. 2002). Principally, we rely on the Statement of the Facts contained in respondent's Memorandum of Authorities in Support of Respondent's Cross-Motion for Summary Judgment and Response to Petitioner's Motion for Summary Judgment. Respondent describes the facts so stated as being undisputed, and it appears that petitioner agrees.² For purposes of disposing of the motions, we find the following facts to be true.³

Residence

At the time the petition was filed, petitioner was an inmate at the Federal Correctional Institution, Jesup , Georgia .

The $2 Million Remittance

Petitioner failed to file an income tax return for 1996, although he requested (the request) and received an extension of time, until August 15, 1997, to do so. No payment of tax accompanied the request, and the request recites that no income tax is owed for 1996. When, subsequently, petitioner made the $2 million remittance (on or about May 16, 1997), he indicated that it was for his 1996 tax year, and respondent applied it to petitioner's account for 1996. The $2 million remittance was not accompanied by a tax return. Petitioner made the $2 million remittance on or about May 9, 1997, shortly after Federal agents had seized petitioner's property and documents.

The Criminal Case

Petitioner was one of several defendants in the multicount criminal case styled United States v. McCorkle, Criminal Docket No. 98-CR-52-All (M.D. Fla.) (sometimes, the criminal case). On March 19, 1998, a superseding indictment was brought against petitioner (among others), which included numerous counts involving fraud and money laundering. The money-laundering counts were brought pursuant to 18 U.S.C. secs. 1956 and 1957, and the superseding indictment charged that petitioner had laundered and conspired to launder telemarketing fraud proceeds from July 26, 1996, through July 2, 1997.

 

The superseding indictment also contained a forfeiture count alleging that any proceeds that petitioner obtained from fraud and money laundering were forfeitable to the United States pursuant to 18 U.S.C. sec. 982(a)(1). Petitioner and his wife had deposited $7 million in laundered proceeds into the Royal Bank of Canada Trust Company, in the Cayman Islands . Of that $7 million, $2 million was used to make the $2 million remittance, and $2 million was transferred to a legal trust fund established to pay the legal fees of petitioner's (and his wife's) criminal defense attorneys, including F. Lee Bailey, which $2 million was later transferred by Mr. Bailey to himself and others.

 

On November 4, 1998, a jury convicted petitioner (among others) of executing a telemarketing scheme in violation of 18 U.S.C. secs. 1341 (mail fraud) and 1343 (wire fraud), of conspiring to launder the proceeds of the scheme in violation of 18 U.S.C. sec. 1956(h), and of laundering those proceeds in violation of 18 U.S.C. secs. 1956(a)(2)(B) and 1957(a). On November 5, 1998, the United States District Court for the Middle District of Florida (the District Court) submitted the criminal forfeiture count to the jury, which returned a special verdict finding that certain real and personal property, including numerous bank accounts, was subject to forfeiture. As part of its determination, the jury concluded that, because it was traceable to petitioner's criminal acts, the $2 million remittance was subject to forfeiture. The jury also concluded that the $2 million petitioner had transferred to the legal trust fund established to pay his criminal attorneys, including Mr. Bailey, was forfeitable, since it was also traceable to petitioner's criminal acts. On December 16, 1998, pursuant to the jury's determination on the forfeiture count, the District Court entered a forfeiture order (the forfeiture order), requiring forfeiture of, among other things, the $2 million remittance.

 

Petitioner was sentenced on January 25, 1999. Petitioner appealed his conviction and sentence to the Court of Appeals for the Eleventh Circuit, which affirmed the conviction but vacated petitioner's sentence and remanded the case to the District Court for resentencing. See United States v. Venske, 296 F.3d 1284 (11th Cir. 2002).⁴ The Court of Appeals left intact the forfeiture aspects of the case. United States v. McCorkle, 321 F.3d at 1294 n.1.

 

Pursuant to the forfeiture order, on or about February 1, 1999, the Marshals Service sought to recover from respondent the $2 million remittance. On or about February 18, 1999, respondent complied with the forfeiture order and returned $2 million to the Marshals Service by making a manual refund and issuing a check made payable to the Marshals Service (the refund).

Respondent's Examination

In 1999, after petitioner's conviction for the offenses described above, respondent commenced an examination of petitioner's Federal income tax liability for 1996. That examination resulted in the issuance of a notice of deficiency for 1996, determining a deficiency in tax of $905,315 and various additions to tax and penalties. Petitioner did not petition the Tax Court with respect to the notice of deficiency. On October 9, 2000, respondent assessed an income tax deficiency of $905,315, an estimated tax penalty of $48,186, a miscellaneous penalty of $656,353, a failure to pay penalty of $9,053, and interest of $234,073.

Notice of Federal Tax Lien

On or about April 18, 2002, respondent filed the notice of Federal tax lien with the County Comptroller of Orange County , Florida , showing "Unpaid Balance of Assessment" for 1996 in the amount of $1,852,980. On April 24, 2002, respondent issued to petitioner Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under I.R.C. 6320.

Collection Due Process Hearing

On May 3, 2002, petitioner timely requested a hearing under section 6320 (collection due process hearing). In that request, petitioner opposed the filing of the NFTL and noted the $2 million remittance, which, he argued, had satisfied his 1996 tax liability. Because petitioner was incarcerated, the Appeals Office accorded petitioner the collection due process hearing by way of an exchange of correspondence. During the course of the hearing, a settlement officer conducting the hearing for the Appeals Office learned of the forfeiture order and respondent's disposition of the $2 million remittance.

 

On January 10, 2003, the Appeals Office sent to petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) denying petitioner any relief. The notice of determination contained a summary of the Appeals Office's determination, which was further detailed in an attachment authored by the settlement officer. In support of sustaining the filing of the NFTL, the settlement officer determined that the $2 million remittance had been subject to a criminal forfeiture proceeding and that petitioner was not entitled to rely on those funds to satisfy the 1996 tax liability. The settlement officer also determined that the filing of the NFTL was appropriate and no circumstances existed to either release or withdraw it. He further determined that petitioner had admitted to his inability to pay the liability, but petitioner had failed to request any collection alternatives or to provide any information from which collection alternatives could be considered. The settlement officer sustained the filing of the NFTL.

The Amended Petition

Petitioner filed a petition and an amended petition. In the amended petition, petitioner states that, for 1996: "[He] paid $2,000,000.00 estimated tax payment to the IRS, but never did actually file a return." He adds: "The Department of the Treasury in a manual refund check refunded this $2,000,000.00 to the U.S. Marshall's service pursuant to a court order for forfeiture." He claims: "This refund based upon the court order of forfeiture is in error." He explains: "At the time of payment of the $2,000,000.00[,] no forfeiture order was in place by the U.S. Courts." Therefore, he concludes, no tax lien is appropriate, since, once he paid his tax for 1996, the IRS was without authority to "unpay" it and demand that he pay it again.

Discussion

I. Law

A. Collection Procedure

 

Section 6321 imposes a lien for unpaid Federal taxes. Section 6323 provides that the lien imposed by section 6321 is not valid against certain persons until notice of the lien (the NFTL) is filed in accordance with rules provided. Section 6320(a) provides that, after the Commissioner has filed the NFTL, the Commissioner must notify the taxpayer of the fact of the filing and, among other things, the taxpayer's right to request a hearing. If the taxpayer requests a hearing, the hearing is to be conducted by Appeals, and the Appeals officer conducting the hearing must verify that the requirements of any applicable law or administrative procedure have been met. Secs. 6320(c), 6330(c)(1). The taxpayer requesting the hearing may raise "any relevant issue" relating to the unpaid tax or the Commissioner's collection action. Sec. 6330(c)(2)(A). The taxpayer "may also raise at the hearing challenges to the existence or amount of the underlying tax liability" if the taxpayer did not receive any statutory notice of deficiency for, or did not otherwise have an opportunity to dispute, such tax liability. Sec. 6330(c)(2)(B).

 

Following the hearing, the Appeals officer must determine whether the collection action is to proceed, taking into account the verification the Appeals officer has made, the issues raised by the taxpayer at the hearing, and whether the collection action "balances the need for the efficient collection of taxes with the legitimate concern of the * * * [taxpayer] that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(C). We have jurisdiction to review such determinations where we have jurisdiction over the type of tax involved in the case. Sec. 6330(d)(1)(A); see Iannone v. Commissioner [Dec. 55,618], 122 T.C. 287, 290 (2004). Where the underlying tax liability is properly at issue, the taxpayer is entitled to a de novo hearing in this court. E.g., Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000). Where the underlying tax liability is not properly at issue, we review the determination for abuse of discretion. Id. at 182. When faced with questions of law, as we are here (determining whether petitioner may challenge the forfeiture order and whether respondent was obligated to defend against it), the standard of review makes no difference. Whether characterized as a review for abuse of discretion or as a consideration "de novo" (of a question of law), we must reject erroneous views of the law. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990); Abrams v. Interco, Inc., 719 F.2d 23, 28 (2d Cir. 1983) (stating that it is not inconsistent with the discretion standard for an appellate court to decline to honor a purported exercise of discretion which was infected by an error of law); Swanson v. Commissioner [Dec. 55,280], 121 T.C. 111, 119 (2003).

 

B. Criminal Forfeiture

 

Title 18 U.S.C. sec. 982, is entitled "Criminal forfeiture", and it governs forfeiture in cases involving convictions for money laundering. In pertinent part, 18 U.S.C. sec. 982(a)(1) provides:

 

Sec. 982 Criminal Forfeiture.

 

(a)(1) The court, in imposing sentence on a person convicted of an offense in violation of * * * [18 U.S.C. secs. 1956 or 1957] shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property.

 

The seizure of property forfeited under 18 U.S.C. sec. 982(a)(1) and any judicial proceeding relating to the forfeiture are governed by 21 U.S.C. sec. 853 (2000) (except subsection (d) thereof). 18 U.S.C. sec. 982(b)(1). Title 21, U.S.C. sec. 853(c), addresses third party transfers and provides as follows:

 

Sec. 853(c). Third party transfers.

 

All right, title, and interest in property described in * * * [18 U.S.C. sec. 982] vests in the United States upon the commission of the act giving rise to forfeiture under * * * [18 U.S.C. sec. 982]. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee establishes in a hearing pursuant to subsection (n) of this section that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section.

 

Title 21 U.S.C. sec. 853(n)(1), provides that, following the entry of an order of forfeiture, the United States shall give notice of the order, and section 853(n)(2) thereof provides that any person, "other than the defendant", asserting a legal interest in the property ordered to be forfeited, has 30 days to petition the court for a hearing to adjudicate the validity of his alleged interest. Following the District Court's disposition of any petitions filed under 21 U.S.C. sec. 853(n)(2), or, if none are filed, after the close of the period for filing such petitions, 21 U.S.C. sec. 853(n)(7) provides "the United States shall have clear title to property that is the subject of the order of forfeiture and may warrant good title to any subsequent purchaser or transferee."

II. Arguments of the Parties

The essence of petitioner's argument is that he satisfied the 1996 tax liability with the $2 million remittance before he forfeited to the United States his ownership rights in the laundered funds (the source of the $2 million remittance). Petitioner believes that the rights of the United States under the forfeiture statute did not ripen until (1) he was convicted, (2) the jury rendered a special verdict of forfeiture, and (3) the District Court entered the forfeiture order. Moreover, petitioner argues that, since respondent was a bona fide purchaser for value reasonably without cause to believe the $2 million remittance was subject to forfeiture, he could have defended against the forfeiture order and, because he failed to do so, should be barred from trying to collect the 1996 tax liability.

 

Respondent counters that, on account of his criminal conviction, petitioner cannot challenge the validity of the forfeiture order or respondent's compliance with it. Respondent also argues that, since, at the time he received notice of the forfeiture order, he had not assessed petitioner's 1996 income tax liability, he had no standing to make a claim as a bona fide purchaser for value.

III. Analysis

A. Introduction

 

The jury in the criminal case returned a special verdict of forfeiture with respect to the $2 million remittance. In returning the special verdict, the jury necessarily found that petitioner had transferred $2 million of laundered proceeds to the IRS. Cf. United States v. McCorkle, 321 F.3d at 1294 n.2. Thereafter, the District Court entered the forfeiture order, the United States presumably notified respondent of the order, and, since respondent failed to petition the court for a hearing to adjudicate his rights in the laundered proceeds, the United States gained clear title to the $2 million remittance, which the Marshals Service collected. See 21 U.S.C. sec. 853(c), (n)(1), (2), (7). The forfeiture order has neither been vacated by the District Court, nor has the court's decision to issue it been reversed. Therefore, respondent, like this court, must respect it. Moreover, respondent had no duty to challenge it.

 

B. Petitioner Cannot Challenge the Forfeiture Order

 

Petitioner errs in his understanding of that portion of 21 U.S.C. sec. 853(c) that embodies what is known as the "relation-back doctrine", according to which title of the United States to forfeited property "relates back" to the time of commission of the illegal act underlying the forfeiture. In pertinent part, 21 U.S.C. sec. 853(c) provides: "All right, title, and interest in [the forfeited] property * * * vests in the United States upon the commission of the act giving rise to forfeiture". Contrary to petitioner's belief, therefore, the date on which the District Court orders the forfeiture is not the date on which the rights of the United States arise. It is true that, until the order of forfeiture is entered, the United States has no right to seize the forfeited property, see 21 U.S.C. sec. 853(g), but, upon entry of the order, the forfeiture relates back to the date of the criminal act giving rise to the forfeiture. See, e.g., Caplin & Drysdale v. United States, 491 U.S. 617, 627 (1989). Neither petitioner's nor our understanding of 21 U.S.C. sec. 853(c) is of moment, however, since we, as well as respondent, must respect the forfeiture order and have no warrant to reject it. The rule is clear: "[I]t is for the court of first instance to determine the question of the validity of the law, and until its decision is reversed for error by orderly review, either by itself or by a higher court, its orders based on its decision are to be respected." Celotex Corp. v. Edwards, 514 U.S. 300, 313 (1995) (quotation marks and citation omitted).

 

When, on or about February 18, 1999, respondent complied with the forfeiture order, the order had neither been vacated nor had the decision to issue it been reversed. Barring his challenging the order under 21 U.S.C. sec. 853(c), respondent was dutybound to comply. Since he did not challenge it, and was under no obligation to do so (see infra), he committed no error in complying with the order. Subsequently, the Court of Appeals for the Eleventh Circuit vacated petitioner's sentence and remanded the case for resentencing but left the forfeiture order intact, and the forfeiture order is not subject to collateral attack in this court. See Celotex Corp. v. Edwards, supra. We fail to see how Appeals abused its discretion in determining not to give petitioner credit for funds received from petitioner (the $2 million remittance) that respondent was forced to disgorge to the Marshals Service pursuant to an order that he was bound to obey.

 

C. Respondent's Failure To Defend Against the Forfeiture Order

 

Petitioner concedes that respondent failed to defend against the forfeiture order pursuant to a hearing authorized by 21 U.S.C. sec. 853(n)(2). Nevertheless, petitioner argues that, when respondent received the $2 million remittance, respondent was reasonably without cause to believe that the remittance was subject to forfeiture. Therefore, petitioner continues, since the remittance was received in payment of petitioner's tax debt, respondent could have successfully defended against the forfeiture order as a bona fide purchaser for value. See 21 U.S.C. sec. 853(c), (n)(6)(B).⁵ Because respondent remained silent when he could have spoken up, petitioner argues that respondent should be barred from collecting the 1996 tax liability (in petitioner's words, "a second time"). Respondent answers that he could not have defended against the forfeiture order since, when he received notice of it, he was without standing to make a claim as a third party with a legal interest in the $2 million remittance.⁶

 

We need not decide whether respondent had standing to make a claim pursuant to 21 U.S.C. sec. 853(c), (n)(6)(B). Neither need we decide whether a person receiving a payment in discharge of a liability qualifies as a "purchaser" within the meaning of 21 U.S.C. sec. 853(c), (n)(6)(B).⁷ We need not decide those questions because, even if we were to answer both questions in the affirmative, petitioner cannot show that respondent was obligated to defend against the forfeiture order, and he has failed to show the elements necessary to raise successfully equitable estoppel as a defense to respondent's efforts to collect the 1996 tax liability.

 

Title 21, U.S.C. sec. 853(n)(2), provides that any person, "other than the defendant," asserting a legal interest in property that has been ordered forfeited "may" petition the District Court for a hearing to adjudicate the validity of his alleged interest in the property. A third party, therefore, has a right, not a duty, to petition the District Court,⁸ and it is his interest, not the defendant's, that is to be determined. Indeed, the defendant has no interest in the forfeited property and is prohibited even from petitioning the court. Petitioner has failed to suggest any other statutory provision that would obligate respondent to defend against the forfeiture order and makes no claim that respondent was under a contractual obligation to do so. Therefore, we find that respondent had no duty to defend against the forfeiture order.

 

Equitable estoppel is a judicial doctrine that precludes a party from denying that party's own acts or representations that induce another to act to his or her detriment. E.g., Graff v. Commissioner [Dec. 37,079], 74 T.C. 743, 761 (1980), affd. [82-1 USTC ¶9337] 673 F.2d 784 (5th Cir. 1982). It is to be applied against the Commissioner only with utmost caution and restraint. E.g., Hofstetter v. Commissioner [Dec. 48,311], 98 T.C. 695, 700 (1992). The essential elements of estoppel are: (1) There must be a false representation or wrongful misleading silence; (2) the error must be in a statement of fact and not in an opinion or a statement of law; (3) the person claiming the benefits of estoppel must be ignorant of the true facts; and (4) he must be adversely affected by the acts or statements of the person against whom estoppel is claimed. E.g., Estate of Emerson v. Commissioner [Dec. 34,201], 67 T.C. 612, 617-618 (1977); see also Tefel v. Reno, 180 F.3d 1286, 1302 (11th Cir. 1999). "Where an allegation of estoppel raises factual questions on which reasonable minds might disagree, the questions must be resolved at trial by the trier of fact. * * * However, where the facts are not in dispute or are beyond dispute, the existence of estoppel is a question of law." J.C. Wyckoff & Associates v. Standard Fire Ins. Co., 936 F.2d 1474, 1493 (6th Cir. 1991). See generally 28 Am. Jur. 2d, Estoppel and Waiver, sec. 188 (2000). Since there is no dispute here as to the relevant facts, we treat petitioner's claim of estoppel as raising only a question of law, which we may dispose of with only brief discussion.

 

Respondent made no false statement to petitioner, nor did respondent's silence (if we can call his failure to petition silence) mislead petitioner. Moreover, petitioner was not ignorant of the forfeiture order, and petitioner has failed to show that respondent had any duty to assist petitioner in mitigating his losses with respect to his criminal offenses. These are critical defects in petitioner's estoppel defense.

 

Respondent's failure to petition the District Court does not bar him from collecting the 1996 tax liability.

IV. Conclusion

We have concluded that, to the extent petitioner's claim constitutes a collateral attack on the forfeiture order, it must be denied, and, further, respondent is not barred from collecting the 1996 tax liability on account of his failure to petition the District Court. Appeals did not err in determining that respondent was warranted in filing the notice of Federal tax lien. Therefore, as stated, respondent, not petitioner, is entitled to summary judgment in his favor.

 

To reflect the foregoing,

 

An appropriate order and decision granting respondent's motion for summary judgment, denying petitioner's, and deciding for respondent will be entered.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

² In Petitioner's Response in Opposition to Respondent's Cross-Motion for Summary Judgment and Response to Petitioner's Motion for Summary Judgment, petitioner describes respondent's statement of facts as being merely incomplete: "Not all of the undisputed facts are set forth in Respondent's Memorandum of authorities".

³ All dollar amounts have been rounded to the nearest dollar.

⁴ After remand, the District Court conducted another sentencing hearing on Sept. 11, 2003, and made certain findings. The District Court then adopted and imposed its original sentence against petitioner. Petitioner has appealed his resentencing to the Court of Appeals for the Eleventh Circuit, which appeal is pending.

⁵ We note that this argument implicitly acknowledges the relation-back doctrine, since it assumes a transfer of property to a third party after ownership of the property vests in the United States . See 21 U.S.C. sec. 853(c).

⁶ Respondent claims that, in order for a tax debt to arise to permit him to have any rights against the taxpayer and the taxpayer's property, he must first make an assessment of the tax and then make a demand for payment. In support of that claim, respondent points to secs. 6201 through 6203, 6321, 6322; secs. 301.6201-1 and 301.6203-1, Proced. & Admin. Regs.; and Capuano v. United States [92-1 USTC ¶50,163], 955 F.2d 1427, 1432 (11th Cir. 1992). Here, respondent states, assessment and demand followed by more than a year his compliance with the forfeiture order. Petitioner's position is that, pursuant to sec. 6151, his tax debt for 1996 arose on Apr. 15, 1997, when payment thereof was due.

⁷ It is not settled whether, in using the term "bona fide purchaser for value" in 21 U.S.C. secs. 853(c) and (n)(6)(B) (emphasis added), Congress intended the term "purchaser" to operate as a limitation on the class of persons that, having engaged in arm's-length transactions with the defendant, is entitled to protection of its interests. The Court of Appeals for the Fourth Circuit has determined that Congress did not intend such a limitation. United States v. Reckmeyer, 836 F.2d 200, 208 (4th Cir. 1987) ("If the term `purchaser' were so construed, a car dealer who sold a car to a later convicted defendant without knowledge of the potential forfeitability of the defendant's assets could have the payment he received for the car forfeited while a person who purchased otherwise forfeitable stock from the defendant would be protected."). Other Courts of Appeals have not interpreted 21 U.S.C. sec. 853(c)(6)(B) so liberally. See, e.g., United States v. BCCI Holdings ( Luxembourg ), S.A. , 46 F.3d 1185, 1191-1192 (D.C. Cir. 1995). We shall await an appropriate opportunity to address the issue.

⁸ Nor has the Internal Revenue Service a duty to collect a tax assessment from specific property in which it has a lien rather than permitting the property to be forfeited. Raulerson v. United States [86-1 USTC ¶9458], 786 F.2d 1090, 1092-1093 (11th Cir. 1986).

 

 

 

 

Nancy Choate, Plaintiff v. Barbara Tubbs, Tracy Tubbs and the United States of America , Defendants.

U.S. District Court, West. Dist. Tenn. , East. Div.; 01-1288-T-An, August 9, 2004.

[ Code Secs. 6321, 6601 and 7402]

Lien for taxes: Creation of lien: Estoppel: Accrual of interest. --

Federal tax liens attached to all of an individual's property and rights to property when unpaid taxes were assessed and remained on the property until the taxes were paid, regardless of whether a notice of federal tax lien was filed. Further, the IRS was not estopped from collecting an amount greater than the amount asserted by an IRS attorney during settlement negotiations two years earlier. Finally, interest continued to accrue until the tax liability was paid; interest accrual on the outstanding tax liability was not halted during pendency of the taxpayer's suit. The taxpayer had sufficient opportunity to satisfy the uncontested amount, which would have limited the amount of interest accrued.

ORDER

TODD, District Judge: This interpleader action was filed by plaintiff Nancy Choate in the Chancery Court for Madison County, Tennessee, seeking a determination as to the appropriate disposition of certain funds held in escrow. The named defendants were Tracy Tubbs and Barbara Tubbs; the Internal Revenue Service ("IRS") was identified as an interested party. The United States , on behalf of the IRS, which claims an interest in the funds as a result of federal tax liens against Tracy Tubbs, removed the action to this Court and was granted leave to intervene. An amended complaint was filed on January 2, 2002, including the United States as a named defendant.

The escrowed funds that gave rise to this action, in the amount of $226,942.21, were paid into the registry of the Madison County Chancery Court upon the filing of the original interpleader complaint, and were transferred into the registry of this Court following removal. The funds represent the proceeds of an annuity owned by John Allen Tubbs, who died on June 18, 2000. Defendant Tracy Tubbs, the son of John Allen Tubbs, is the designated beneficiary of the annuity. Defendant Barbara Tubbs, widow of John Allen Tubbs and stepmother of Tracy Tubbs, is the contingent beneficiary. At the time of John Allen Tubbs' death, several tax liens were outstanding against Tracy Tubbs. The IRS claims an interest in the proceeds of the annuity pursuant to 26 U.S.C. §6321. The Court subsequently entered an order granting the United States ' motion for summary judgment, ruling that the escrowed annuity funds are subject to any valid outstanding tax liens. The Court then ordered the parties to submit briefs setting forth their arguments regarding the amount of the tax liability in question.

In the petition to intervene filed by the IRS in this case on October 11, 2001, it was asserted that the pertinent tax assessments against Tracy Tubbs included certain employment and unemployment taxes for 1996 through 1998, as well as income taxes for the years 1990 through 1996. The exhibits attached to the petition show total tax assessments in the amount of $110,773.44 ¹ ; however, there is no documention for an assessment of income taxes for the tax year 1997.

The answer filed by the IRS on January 25, 2002 asserted the same employment and unemployment tax assessments, and then referred to income tax assessments for the years 1992 through 1998, rather than 1990 through 1996. ² The answer further asserted that, as of February 4, 2002, the total balance due on those assessments, with accrued interest, would be $187,821.65. However, the exhibits attached to the answer do not document income tax assessments for tax years 1997 or 1998, or the accrued interest.

The record also contains a copy of a letter dated April 16, 2002, from the IRS' attorney of record, Jason S. Zarin, to Tracy Tubbs' counsel. That letter states:

Enclosed as per your requests are the balances due (with breakdowns into penalties and interest) on the employment and income tax liabilities owed by Tracy Tubbs. The balances are calculated as of February 4, 2002. Please note that the Service is asserting that only $155,767.45 of these liabilities are secured by the federal tax liens.

(T. Tubbs Mem. Opp. to Summ. Judg., Ex. A.)

On January 28, 2003, the IRS filed a motion for summary judgment, reiterating the February 2, 2002 figure of $187,821.65, ³ and stating that a current interest calculation would be provided as soon as possible. The motion for summary contained exhibits documenting all of the tax assessments, including the income tax assessments for 1997 and 1998. A Notice of Updated Balance was filed February 25, 2003, asserting that the balance due as of January 29, 2003 was $197,779.50. In the Supplemental Brief filed on May 2, 2003, it was asserted that as of February 3, 2003, the balance due was $198,004.81. Official Certified Transcripts are attached to the brief, documenting all of the claimed tax assessments.

Tracy Tubbs and Barbara Tubbs contend that the IRS has engaged in a "shell game" of shifting numbers regarding the amount of Tracy Tubbs' tax liability, making it impossible to determine how much is owed. Tracy Tubbs also asserts that, in order for a federal tax lien to be valid, it must be secured, i.e., a Notice of Federal Tax Lien must have been filed. Therefore, he asserts that the IRS should be estopped from denying the assertion of its attorney, in the April 16, 2002 letter, that only $155,767.45 of the assessments were "secured by the federal tax liens."

The premise set forth by Tracy Tubbs, that the federal tax liens at issue in this case are not effective against him unless recorded by an actual Notice of Federal Tax Lien, is erroneous. Pursuant to 26 U.S.C. §6321, once the IRS assesses a tax and the taxpayer refuses to pay after a demand is made, a lien arises "in favor of the United States upon all property and rights to property, whether real or personal, belonging to" the taxpayer. This lien is perfected against the taxpayer even without the recording of a Notice of Federal Tax Lien. See McGinley v. United States [ 97-1 USTC ¶50,183], 942 F.Supp. 1239, 1243 (D. Neb. 1996); United States v. Battley (In re Berg) [ 95-2 USTC ¶50,634], 188 B.R. 615, 618 (B.A.P. 9 ^th Cir. 1995), aff'd [ 97-2 USTC ¶50,665], 121 F.3d 535 (9 ^th Cir. 1997); Suarez v. United States (In re Suarez) [ 95-1 USTC ¶50,268], 182 B.R. 916, 919 (Bankr. S.D. Fla. 1995). When there are no competing interests, the "general rule is that the tax collector prevails even if he has not recorded at all." United States v. McDermott [ 93-1 USTC ¶50,164], 507 U.S. 447, 455 (1993). "However, before a tax lien will be effective against certain third parties, a Notice of Federal Tax Lien must be recorded." Suarez [ 95-1 USTC ¶50,268], 182 B.R. at 919.

As neither Tracy Tubbs nor Barbara Tubbs has asserted that there are any competing interests in this case, the tax liens would not be invalided by the failure to record a Notice of Federal Tax Lien for each of the claimed assessments. Thus, as pointed out by the IRS, to the extent that it implied some of the tax liens might not be valid against Tracy Tubbs, Mr. Zarin's April 2002 letter was erroneous. Indeed, it appears to the Court that the IRS has erroneously stated that notices of federal tax lien have not been filed for all of the assessments in question. (IRS Supp. Br. at 3) ("The Internal Revenue Service has filed notices of federal tax liens for some, but not all, of the tax periods at issue.") Each of the Official Certified Transcripts attached to the IRS' supplemental brief appears to show a date that a Notice of Federal Tax Lien was recorded.

Even though Mr. Zarin's letter does not seem to have been a deliberate attempt to mislead Tracy Tubbs as to the amount of his tax liability, it was at least confusing. However, mere confusion is not enough to warrant the application of estoppel. This is even more true when a party seeks to estop the United States .

"[T]he traditional elements of estoppel are: (1) misrepresentation by the party against whom estoppel is asserted; (2) reasonable reliance on the misrepresentation by the party asserting estoppel; and (3) detriment to the party asserting estoppel." Michigan Express, Inc. v. United States, 374 F.3d 424, 427 (6 ^th Cir. 2004) (quoting LaBonte v. United States [ 2001-1 USTC ¶50,104], 233 F.3d 1049, 1053 (7 ^th Cir. 2000)). However, the United States "may not be estopped on the same terms as any other litigant." Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. 51, 60 (1984). The reason for this is that "[w]hen the Government is unable to enforce the law because the conduct of its agents has given rise to an estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined." Id. Thus, a party attempting to estop the United States bears a "very heavy burden." Fisher v. Peters, 249 F.3d 433, 444 (6 ^th Cir. 2001). At a minimum, the party must show some "affirmative misconduct" by the United States . Id. "'[A]ffirmative misconduct' is more than mere negligence. It is an act by the government that either intentionally or recklessly misleads the claimant." Michigan Express, Inc., 374 F.3d at 427.

Even if the traditional elements of estoppel could be met, the Court finds that Mr. Zarin's April 2002 letter to Tracy Tubbs' counsel, while erroneous, does not rise to a level that can be described as affirmative misconduct. At most, the letter was the result of negligence rather than an intentional or reckless attempt to mislead. Likewise, any uncertainty regarding the tax liability in the various documents filed by the IRS does not appear to have been a deliberate "shell game" as asserted by Tracy Tubbs and Barbara Tubbs, but rather the result of carelessness. ⁴ Therefore, the Court concludes that the IRS is not estopped from disputing the figure given by Mr. Zarin in that letter.

Tracy Tubbs also contends that the IRS should not be allowed to claim penalties and interest that have accrued since the filing of this action. While that would appear to be an equitable result, it is not the law. Even in an interpleader action where the funds are held by the Court, penalties and interest continue to accrue until the tax liability is paid. See Paul Revere Life Ins. Co. v. Brock [ 94-2 USTC ¶50,519], 28 F.3d 551, 553-54 (6 ^th Cir. 1994). The right to receive penalties and interest is established by 26 U.S.C. §6601, and cannot be disregarded by a court of equity. Id. at 554 (citation omitted). Tracy Tubbs could have ameliorated this seemingly harsh result at any time by paying, at the very least, the undisputed portions of his tax liability.

The Court concludes that the IRS is entitled to payment from the escrowed funds held in the registry of this Court in the amount of the total of the claimed tax assessments plus all accrued penalties and interest. The IRS is hereby allowed eleven days from the entry of this order in which to file an updated statement of the amount due. A final order and judgment will be entered following the Court's receipt of that statement.

IT IS SO ORDERED.

¹ This figure does not include all accrued interest.

² The assertion in the Petition to Intervene that the IRS is seeking to collect on tax assessments made for income tax years 1990 through 1996 appears to have been either inadvertent or erroneous. At all other places in the record, the IRS refers to assessments for income tax years 1992 through 1998.

³ Upon adding the figures contained in the IRS' documentation, the figure should be $187,821.56 rather than $187,821.65.

⁴ Some of the variation in the figures is simply the result of interest that continues to accrue.

 

 

 

 

 

United States of America , Plaintiff v. Donald W. Dawes, Phyllis C. Dawes, and David Larry Smith, as Trustee of Plainsman Property Trust, Defendants.

U.S. District Court, Dist. Kan. ; 03-1132-JTM, March 19, 2004.

[ Code Sec. 6321]

Liens and levies: Release. --

Individuals' arguments were styled tax-protestor type arguments, and their motion to dismiss the case was denied. Implementing regulations are not required for Code Secs. 6321 or 6322.

[ Code Sec. 6322]

Jurisdiction: Subject matter jurisdiction: Implementing regulations. --

Individuals' arguments were styled tax-protestor type arguments, and their motion to dismiss the case was denied. The release of a tax lien did not remove the taxpayers' liability for the underlying tax.

[ Code Sec. 6203]

Assessment: Presumptive proof: Form 4340. --

Individual taxpayers' argument that supporting documents for the assessment of the taxes at issue were not provided was unfounded. The Form 4340 submitted by the government served as presumptive proof of a valid assessment and provided adequate documentation of a proper assessment.

[ Code Sec. 7402]

Jurisdiction: Subject matter jurisdiction. --

Individuals' arguments were styled tax-protestor type arguments, and their motion to dismiss the case was denied. The district court had subject matter jurisdiction over their case under Code Secs. 7402 and 7403.

[ Code Sec. 7403]

Jurisdiction: Subject matter jurisdiction. --

Individuals' arguments were styled tax-protestor type arguments, and their motion to dismiss the case was denied. The district court had subject matter jurisdiction over their case under Code Secs. 7402 and 7403.

ORDER

MARTEN, District Judge: This matter comes before the court on defendants' second motion to dismiss (Dkt. No. 18). The motion is fully briefed and ripe for disposition. For the reasons stated below, the court denies the motion to dismiss.

Initially, the court notes the defendants rely primarily on tax-protester arguments, which have been fully explored and discredited many times. In these cases, the court is "not required to expend judicial resources endlessly entertaining repetitive arguments." Lonsdale v. United States [ 90-2 USTC ¶50,581], 919 F.2d 1440, 1448 (10th Cir. 1990) (citations omitted). The court also notes the denial of defendants' first motion to dismiss (Dkt. No. 11). Accordingly, the court will briefly examine defendants' arguments.

First, the defendants argue the court lacks subject matter jurisdiction to hear this case. However, this argument fails. The court has subject matter jurisdiction pursuant to 26 U.S.C. §§7402, 7403 and 28 U.S.C. §§1340, 1345. The defendants also argue jurisdiction is lacking for "want of a competent fact witness." This evidentiary argument is irrelevant to the jurisdiction question.

Secondly, the defendants argue jurisdiction is lacking because there are no substantive implementing regulations for 26 U.S.C. §§6321 and 6322. However, §§6321 and 6322 have the force of law with or without implementing regulations. Watts v. Internal Revenue Service, 925 F.Supp. 271, 277 (D. N.J. 1996).

Next, the defendants argue the IRS has not made a proper assessment of the taxes at issue. They take issue with the fact that Form 23C and supporting documents have not been provided. However, the Form 4340 submitted by the government serves as "presumptive proof of a valid assessment" and is adequate. March v. I.R.S., 335 F.3d 1186, 1188 (10th Cir. 2003) (citations omitted).

Finally, defendants seem to be arguing that the release of the tax liens strip the court of jurisdiction. These liens were reinstated, but the release in itself does not remove the taxpayer's liability for the tax. Boyer v. Commissioner [ CCH Dec. 55,354(M)], T.C. Memo 2003-322 (2003) (citations omitted). Upon review, it is clear the income tax assessments and liens for defendants' 1984, 1986, 1987, 1988 and 1990 income tax liabilities are valid.

Based on the aforementioned, the court denies defendants' second motion to dismiss.

IT IS, THEREFORE, BY THE COURT ORDERED this 19th day of March, 2004 that defendants' second motion to dismiss (Dkt. No. 18) is denied.

 

 

 

 

In re James C. Ball, Debtor. William E. Callahan, Jr., Trustee, Plaintiff v. Internal Revenue Service, Defendant.

U.S. Bankruptcy Court, West. Dist. Va. , Roanoke Div.; 7-99-02518-WSA, March 10, 2004.

[ Code Sec. 6321]

Tax liens: Property subject to tax liens: Bankruptcy. --

The IRS was not entitled to a lien upon any of the property acquired by the trustee as a result of the settlement with the spendthrift trust. The tax lien dated back prior to the creation of the purported trust. While the IRS's claim was entitled to a presumption of validity, there was no presumption that its claim was secured. There was no evidence that the IRS's lien attached to the property which the spendthrift trust used as consideration for the settlement and the release of the trustee's claim. 

ORDER

STONE, JR., Bankruptcy Judge: For reasons stated in this Court's contemporaneous Memorandum Decision, it is

ORDERED

that any claim of the IRS that it is entitled to a lien against the proceeds of the settlement with the Ball "spendthrift trust" is DENIED and the Trustee's Objection is hereby SUSTAINED without prejudice to any other property of the bankruptcy estate or otherwise which may be subject to the IRS's claimed lien. Accordingly, this proceeding is hereby DISMISSED.

The Clerk is requested to send copies of this Order and the Memorandum Decision to the Debtor, Debtor's counsel, counsel for the Trustee, counsel of record for the Defendant, and the Office of the United States Trustee for this District.

MEMORANDUM DECISION

The matter before the Court is the Chapter 7 Trustee's Objection to that portion of the Internal Revenue Service's proof of claim in this case which asserts that it is secured to the extent of $82,138,21. The dispute between the parties is whether a settlement of $150,000 obtained by the Trustee as a result of his challenge to a purported "spendthrift" trust is subject to a lien in favor of the IRS for unpaid income taxes owed by the Debtor and his spouse, a lien which dates back prior to the creation of the purported trust. Because the Trustee's Objection relates to the validity of the lien of the IRS as relates to the property obtained from the trust, on motion of counsel for the IRS the issue joined between the parties has been converted into an adversary proceeding. For the purpose of ruling upon the conflicting contentions of the parties, counsel have agreed to a stipulation of facts, which immediately follows:

STIPULATION

William E. Callahan, Jr., Trustee (the "Trustee"), by counsel, and the United States of America, by counsel, stipulate and agree to the following for the purpose of the Trustee's objection to Claim No. 2:

1. James C. Ball filed a petition under Chapter 7, Title 11, United States Code in the United States Bankruptcy Court for the Western District of Virginia, Roanoke Division, on July 26, 1999, commencing the captioned case (the "Case").

2. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §1334 and 157(a).

3. This is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(b).

4. The Trustee was appointed the trustee in the Case at the first meeting of creditors and continues to serve in that capacity.

5. The Internal Revenue Service ("IRS") filed a Notice of Federal Tax Lien against James C. Ball on April 18, 1994 in the Clerk's Office of the Circuit Court of Buchanan County, Virginia. A Facsimile Federal Tax Lien Document copy of the recorded Notice of Federal Tax Lien is attached hereto as Exhibit 1.

6. The IRS filed a Notice of Federal Tax Lien against James C. and Sammie Ball on April 18, 1994 in the Clerk's Office of the Circuit Court of Buchanan County, Virginia. A Facsimile Federal Tax Lien Document copy of the recorded Notice of Federal Tax Lien is attached hereto as Exhibit 2.

7. The IRS filed a Notice of Federal Tax Lien against James C. and Sammie Ball on May 4, 1995 in the Clerk's Office of the Circuit Court of Washington County, Virginia. A Facsimile Federal Tax Lien Document copy of the recorded Notice of Federal Tax Lien is attached hereto as Exhibit 3.

8. By Trust Agreement dated March 17, 1995, Tammy Blevins and Eric Douglas Ball conveyed to Robert T. Copeland, Trustee (the "Trust Trustee") certain property in trust (the "James and Sammie Ball Trust") for the benefit of James Ball and Sammie Ball. A true and complete copy of the Trust Agreement is attached hereto as Exhibit 4.

9. By Deed of Gift dated March 17, 1995 and recorded in the Clerk's Office of the Circuit Court of Washington County, Virginia in Deed Book 914, page 781 on April 25, 1995, Eric D. Ball and Phyliss Ball, his wife, and Tammy Blevins and Joey Winn Ball, her husband, conveyed a certain improved parcel of real property to Robert Copeland, Trustee.

10. By an Agreement dated March 10, 1999, Robert Copeland resigned as trustee and First Bank and Trust Company assumed responsibility as successor trustee of the James and Sammie Ball Trust.

11. First Bank and Trust Company, as Trust Trustee, sold the Washington County real property referred to in paragraph 9, above, in June, 1999.

12. The Trustee, by counsel, filed Adversary Proceeding No. 01-00092A-WSA (the "Adversary Proceeding"), seeking an order directing the Trust Trustee to turn over the property of the estate.

13. Pursuant to the Court's direction, the Trustee and the defendants in the Adversary Proceeding mediated and reached a settlement by which First Bank and Trust Company, the successor Trust Trustee, agreed to pay the sum of $150,000.00 to the estate in full satisfaction of the estate's claims against the Trust corpus.

14. Following the entry of the Order approving the settlement, the Trustee and the defendants in the Adversary Proceeding executed a Settlement Agreement and Release, a true and complete copy of which is attached hereto as Exhibit 5.

15. On May 10, 2002, pursuant to the terms of the Settlement Agreement and Release, the Trustee received a check in the amount of $85,000.00 from the First Bank and Trust Company account of the James Ball Trust and a check in the amount of $65,000.00 from the First Bank and Trust Company account of the Sammie Ball Trust. A true and complete copy of each check is attached hereto as collectively Exhibit 6.

16. The funds paid by First Bank and Trust Company, Trust Trustee, in settlement of the Adversary Proceeding were from the proceeds of the sale of the Washington County real property and any earnings thereon.

(Exhibits omitted)

In addition to the stipulated facts, the Court further finds that although the trust agreement attached as Exhibit 4 to the Stipulation references an "Exhibit A" setting forth the initial corpus of the purported trust, no Exhibit A is attached to the trust agreement. The complaint in the adversary proceeding which the trustee brought to challenge this trust alleged that no such Exhibit A was ever prepared. In that complaint the Trustee essentially alleged that the purported spendthrift trust was a sham orchestrated by Mr. and Mrs. Ball and their attorney with proceeds of fire insurance upon their former residence property and that the Balls' children had simply acted as their agents and facilitators. These allegations were never actually litigated as a result of the settlement and the settlement agreement contained language denying on behalf of the defendants all of the Trustee's claims. The IRS has not requested the Court to take judicial notice of any facts or otherwise made any offer of evidence in this proceeding that the Washington County real estate referred to in paragraph #16 of the Stipulation was ever property of the Balls which was subject to the IRS lien. The IRS was never named a party to the Trustee's adversary proceeding which challenged the purported trust. Counsel for the Trustee did give it notice of the proposed settlement of the adversary proceeding resulting in the payment of the $150,000 to the Trustee, but the IRS did not file any objection to the settlement or appear at the noticed hearing in opposition to same.

The proof of claim filed by the IRS is in the total amount of $152,589.19 of which $191.56 is asserted to be entitled to priority and $82,138.21 is said to be secured by unspecified real estate and motor vehicle and "all of debtor(s) right, title and interest in property --26 U.S.C. §6321."

CONCLUSIONS OF LAW

This Court has jurisdiction of this proceeding by virtue of the provisions of 28 U.S.C. §§1334(a) and 157(a) and the delegation made to this Court by Order from the District Court on July 24, 1984. This is a "core proceeding" pursuant to 28 U.S.C. §157(b)(2)(K).

According to Rule 3001(f) of the Federal Rules of Bankruptcy Procedure, a properly filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. However, that presumption does not extend to the status of the claim. See In re Cardinal Industries Inc., 151 B.R. 833, 836 (Bankr. S.D. Ohio 1992). (No presumptive validity for claim of entitlement to administrative expense priority status). Furthermore, it has been specifically held that once an asserted IRS tax lien has been challenged by a bankruptcy trustee, "the burden of establishing the validity of the lien rests on the party [ i.e., the IRS] claiming the lien." In re Southeast Railroad Contractors, Inc., 235 B.R. 619, 622 (Bankr. E.D. Tenn. 1996). This principle is not affected by the Supreme Court's decision in the case of Raleigh v. Illinois Dept. of Revenue [ 2000-1 USTC ¶50,498], 530 U.S. 15 (2000), dealing with a state tax assessment filed in a bankruptcy case, which held that the bankruptcy trustee bears the burden of proof upon any objection to a proof of claim when non-bankruptcy substantive law places the burden of proof upon the debtor. See also Moser v. United States [ 2002-1 USTC ¶50,170], 25 Fed.Appx. 161, 163 (4th Cir. 2002) ( accord as to IRS claim) (unpublished). The question presented here is not a dispute concerning the amount and validity of the IRS's monetary claim, none of which the Trustee contests, but whether the IRS has a lien upon any of the property acquired by the Trustee as a result of the settlement with the "spendthrift trust". Therefore, although the IRS's claim is entitled to a presumption of validity, there is no presumption that its claim is secured.

The Internal Revenue Service asserts its claim under 26 U.S.C. §6321, which states that:

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

Because the Trustee's adversary proceeding brought against the "spendthrift trust" resulted in a settlement, the validity of such trust has never been tested in court. There is no disputing that the tax lien accorded to the IRS by 26 U.S.C. §6321 is remarkably powerful and comprehensive. It extends even to property which under state law would not be subject to the claims of other creditors. See Drye v. United States [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. 49 (1999) (disclaimed property). United States v. Craft [ 2002-1 USTC ¶50,361], 535 U.S. 274 (2002) (tenancy by the entirety property). Nevertheless, there remains some obligation upon the IRS to establish that its challenged lien did attach to the property which the "spendthrift trust" used as consideration for the settlement and the release of the Trustee's claim. Based on the Stipulation agreed to by the parties, there is no evidence before the Court or which has been cited by the IRS that would establish that it ever had a lien upon the Washington County property which the Balls' son and daughter conveyed to the trust and the proceeds of which were used to provide the money for the settlement with the Bankruptcy Trustee. In such circumstances it is not the responsibility of the Court to inquire whether such evidence might exist. Accordingly, there is no basis for the Court to determine that there was any lien upon property which came out of that trust into the Trustee's hands to pay for the settlement.

For these reasons the Court will sustain the Trustee's Objection and enter a contemporaneous order invalidating any claim of IRS lien against the proceeds of the settlement with the Ball "spendthrift trust".

 

 

 

 

Joyce E. Beery v. Commissioner.

Docket No. 7452-03L . 122 TC 184, No. 9. Filed March 1, 2004. [Appealable, barring stipulation to the contrary, to CA-10. --CCH.]


[Code Secs. 6015 and 6321]

[Tax lien: Innocent spouse relief: Creation of a lien.]

On Aug. 14, 2002, R issued to P a final notice disallowing her claims for relief from joint and several liability on a joint return for the taxable years 1989 to 1994. On Nov. 12, 2002, P filed with the Court a timely petition at docket No. 17597-02 challenging R's final notice disallowing her claims for relief from joint and several liability under sec. 6015, I.R.C. The "stand alone" I.R.C. sec. 6015 case, Joyce E. Beery, Petitioner, Jerome G. Beery, Intervenor, docket No. 17597-02, is currently pending before this Court.

 

Meanwhile, on Nov. 6, 2002, R issued to P a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for the taxable years 1989 to 1994. On Nov. 15, 2002, R issued to P a Notice of Federal Tax Lien Filing and Notice of Your Right to a Hearing for the taxable years 1989 to 1994.

 

On Apr. 17, 2003, R issued to P a Notice of Determination Concerning Collection Action(s). In the notice, R conceded that it was improper to propose to levy on P's property prior to a final determination regarding her claims for relief under sec. 6015, I.R.C. On the other hand, R determined that filing the notice of Federal tax lien with regard to P's tax liabilities for 1989 to 1994 was appropriate despite her pending claims for relief under sec. 6015, I.R.C.

 

P filed a timely petition for lien or levy action under secs. 6320 and 6330, I.R.C., challenging R's notice of determination on the ground that R was barred from filing a Federal tax lien against P prior to the entry of a final determination respecting her claims for relief under sec. 6015, I.R.C. R filed a motion for summary judgment. P filed an objection to R's motion.

 

Held : R was not barred under secs. 6015, 6320, or 6330, I.R.C., from filing a Federal tax lien against P prior to the entry of a final determination respecting P's claims for relief from joint and several liability under sec. 6015, I.R.C. Held, further, R's motion for summary judgment will be granted.

Joyce E. Beery, pro se. Glenn P. Thomas and Dennis R. Onnen, for the respondent.

OPINION

 

DAWSON, Judge: These cases were assigned to Chief Special Trial Judge Peter J. Panuthos, pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 182.¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

 

PANUTHOS, Chief Special Trial Judge: This matter is before the Court on respondent's motion for summary judgment, filed pursuant to Rule 121. As discussed in detail below, we shall grant respondent's motion.

Background ²

 

In Beery v. Commissioner [Dec. 51,601(M)], T.C. Memo. 1996-464 (Docket No. 26995-93), we sustained respondent's determination that Joyce Beery (petitioner) and her husband were liable for tax deficiencies and accuracy-related penalties for 1989, 1990, and 1991. In Beery v. Commissioner, Docket No. 8802-96, we sustained respondent's determination that petitioner was liable for tax deficiencies for 1992, 1993, and 1994. The Court's decision in docket No. 8802-96 was affirmed on appeal by unpublished opinion. See Beery v. Commissioner, 166 F.3d 346 (10th Cir. 1998).

 

On August 14, 2002, respondent issued to petitioner a final notice disallowing her claims for relief from joint and several liability on a joint return for the taxable years 1989 to 1994. On November 12, 2002, petitioner filed with the Court a timely petition at Docket No. 17597-02 challenging respondent's final notice under section 6015.

 

In the interim, on November 6, 2002, respondent issued to petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for the taxable years 1989 to 1994. On November 15, 2002, petitioner submitted to respondent a Request for a Collection Due Process Hearing under section 6330.

 

On November 15, 2002, respondent issued to petitioner a Notice of Federal Tax Lien Filing and Notice of Your Right to a Hearing for the taxable years 1989 to 1994. On December 12, 2002, petitioner submitted to respondent a Request for a Collection Due Process Hearing under section 6320.

 

On April 17, 2003, respondent issued to petitioner a Notice of Determination Concerning Collection Action(s) for the years 1989 to 1994. Respondent conceded in the notice of determination that it was improper to propose to levy on petitioner's property prior to the entry of a final determination regarding her claims for relief under section 6015. On the other hand, respondent determined that it was not improper to file a Federal tax lien against petitioner prior to the entry of a final determination regarding her claims for relief under section 6015.

 

On May 19, 2003, petitioner filed with the Court a petition for lien or levy action challenging respondent's notice of determination.³ Petitioner's sole contention is that it was improper for respondent to file a Federal tax lien with respect to her unpaid taxes for 1989 to 1994 prior to the entry of a final determination with respect to her claims for relief from joint and several liability under section 6015 for those same taxable years.

 

After filing an answer to the petition, respondent filed a motion for summary judgment. Petitioner filed an objection to respondent's motion repeating her assertion that it was improper for respondent to file a Federal tax lien against her.

Discussion

 

Summary judgment is intended to expedite litigation and to avoid unnecessary and expensive trials. Florida Peach Corp. v. Commissioner [Dec. 44,689], 90 T.C. 678, 681 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(a) and (b); Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner [Dec. 44,714], 90 T.C. 753, 754 (1988); Naftel v. Commissioner [Dec. 42,414], 85 T.C. 527, 529 (1985).

 

The record in this case reflects that there is no dispute as to a material fact. We agree with respondent that he is entitled to judgment as a matter of law.

Lien and Levy Actions

Section 6321 imposes a lien in favor of the United States on all property and rights to property of a person liable for taxes when a demand for the payment of the taxes has been made and the person fails to pay those taxes. Section 6322 provides that the lien imposed under section 6321 generally arises when the Commissioner makes an assessment. However, section 6323(a) provides that the lien imposed under section 6321 is not valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until the Secretary has filed a notice of Federal tax lien with the appropriate authorities. Behling v. Commissioner [Dec. 54,787], 118 T.C. 572, 575 (2002).

 

Section 6320 provides that the Secretary shall furnish the person described in section 6321 with written notice of the filing of a Federal tax lien under section 6323. Such notice must be provided not more than 5 business days after the day of the filing of the notice of lien. Sec. 6320(a)(2). Section 6320 further provides that the person may request administrative review of the matter (in the form of an Appeals Office hearing) within 30 days beginning on the day after the 5-day period described above. Section 6320(c) provides that the Appeals Office hearing generally shall be conducted consistent with the procedures set forth in section 6330(c), (d), and (e).

 

Section 6330(c) provides for review with respect to collection issues such as spousal defenses, the appropriateness of the Commissioner's intended collection action, and possible alternative means of collection. Section 6330(d) provides for judicial review of the administrative determination in the Tax Court or Federal District Court, as appropriate.

 

Section 6330(e) provides that levy actions and the running of the period of limitations relating to collections (and other actions) shall be suspended for the period during which an Appeals Office hearing, and appeals therein, are pending.⁴ Section 6330(e) generally authorizes the Court to enjoin a levy or proceeding that is begun during the time the suspension under that provision is in effect.

Claims for Relief From Joint and Several Liability

Section 6013(d)(3) provides that if a husband and wife make a joint Federal income tax return, "the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several." However, section 6015(a) provides that, notwithstanding section 6013(d)(3), an individual who has made a joint return may elect to seek relief from joint and several liability on such return.

 

Congress vested this Court with jurisdiction to review a taxpayer's election to claim relief from joint and several liability on a joint return under varying circumstances. See King v. Commissioner [Dec. 53,994], 115 T.C. 118, 121-122 (2000); Corson v. Commissioner [Dec. 53,882], 114 T.C. 354, 363-364 (2000). In the instant case, petitioner filed a so-called stand-alone petition (at docket No. 17597-02) seeking judicial review of respondent's disallowance of her claims for relief from joint and several liability. See sec. 6015(e)(1); Mora v. Commissioner [Dec. 54,565], 117 T.C. 279 (2001); Fernandez v. Commissioner [Dec. 53,875], 114 T.C. 324, 328-329 (2000).⁵

 

Section 6015(e)(1)(B)(i) generally provides that "no levy or proceeding in court" shall be made, begun, or prosecuted against an individual making an election under section 6015 for collection of any assessment to which such election arises until the close of the 90-day period for filing a petition with the Court under section 6015 or, if a petition is filed with the Court, until the decision of the Court has become final (the prohibited period).⁶ Section 6015(e)(1)(B)(ii) generally authorizes the Court to enjoin any "such levy or proceeding" made or begun during the prohibited period.

 

We find no support in section 6015 for petitioner's position in this case. As previously mentioned, section 6015(e)(1)(B)(i) bars the Commissioner (during the prohibited period) from making or bringing a "levy or proceeding in court" against an individual making an election under section 6015. The provision does not expressly prohibit the Commissioner from filing a Federal tax lien against such an individual. Considering that section 6015(e)(1)(B)(i) specifically precludes the Commissioner from proceeding with a levy against an individual claiming relief under section 6015, we think that same provision would have included express language barring the Commissioner from filing a Federal tax lien against such an individual if Congress intended to prohibit such actions.⁷

 

In addition, we see no indication that the term "proceeding in court" as set forth in section 6015(e)(1)(B)(i) was intended to refer to the filing of a Federal tax lien. In short, the plain and ordinary meaning of the term "proceeding in court" suggests the filing of a formal lawsuit or complaint by the Government against an individual as opposed to the more informal administrative procedures employed by the Commissioner in the filing of a Federal tax lien.⁸ See, e.g., 2 Administration, Internal Revenue Manual (CCH), sec. 5.12.1.14.1, at 16,829. Thus, we hold that respondent was not prohibited from filing the Federal tax lien in dispute under section 6015.

 

Inasmuch as the petition in this case was filed as a petition for lien or levy action, we must also consider whether sections 6320 and 6330 barred respondent from filing the Federal tax lien against petitioner. Sections 6320 and 6323 authorize the Commissioner to file a notice of Federal tax lien before notifying the taxpayer of his or her right to request an administrative hearing with regard to the lien. The record reflects that respondent complied with these provisions. We also observe that there is no provision in section 6320 or 6330 that prohibits the Commissioner from filing a Federal tax lien against a person who has pending a claim for relief under section 6015.

 

Consistent with the preceding discussion, and considering the provisions of sections 6320, 6330, and 6015 together, we hold that Congress did not prohibit the Commissioner from filing a Federal tax lien against a taxpayer while such taxpayer has pending a claim for relief from joint and several liability under section 6015. Congress did, however, bar the Commissioner from levying on such taxpayer's property during the prohibited period. Sec. 6015(e)(1)(B)(i). Respondent conceded the latter point in the notice of determination issued to petitioner. There being no other issue for consideration, we shall grant respondent's motion for summary judgment.⁹

 

To reflect the foregoing,

 

An appropriate order and decision for respondent will be entered.

¹ Section references are to the Internal Revenue Code, as amended. Rule references are to the Tax Court Rules of Practice and Procedure.

² The record reflects and/or the parties do not dispute the following facts.

³ The parties do not dispute that the petition in this case was timely filed under secs. 6330 and 7502(a). At the time the petition was filed, petitioner resided in Los Alamos, New Mexico.

⁴ Sec. 6330(e)(1) provides:

SEC. 6330(e) Suspension of collections and statute of limitations. --

(1) In general. --Except as provided in paragraph (2), if a hearing is requested under subsection (a)(3)(B), the levy actions which are the subject of the requested hearing and the running of any period of limitations under sec. 6502 (relating to collection after assessment), sec. 6531 (relating to criminal prosecutions), or sec. 6532 (relating to other suits) shall be suspended for the period during which such hearing, and appeals therein, are pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such hearing. Notwithstanding the provisions of sec. 7421(a), the beginning of a levy or proceeding during the time the suspension under this paragraph is in force may be enjoined by a proceeding in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates.

⁵ A person may also request relief from joint and several liability on a joint return in a deficiency case brought under sec. 6213(a), see King v. Commissioner [Dec. 53,994], 115 T.C. 118, 121-122 (2000), and in a petition for review of a lien or levy action, see secs. 6320(c), 6330(c)(2)(A)(i).

⁶ Sec. 6015(e)(1)(B) provides:

(B) Restrictions applicable to collection of assessment. --

(i) In general. --Except as otherwise provided in sec. 6851 or 6861, no levy or proceeding in court shall be made, begun, or prosecuted against the individual making an election under subsection (b) or (c) for collection of any assessment to which such election relates until the close of the 90th day referred to in subparagraph (A)(ii), or, if a petition has been filed with the Tax Court under subparagraph (A), until the decision of the Tax Court has become final. Rules similar to the rules of sec. 7485 shall apply with respect to the collection of such assessment.

(ii) Authority to enjoin collection actions. --Notwithstanding the provisions of sec. 7421(a), the beginning of such levy or proceeding during the time the prohibition under clause (i) is in force may be enjoined by a proceeding in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction under this subparagraph to enjoin any action or proceeding unless a timely petition has been filed under subparagraph (A) and then only in respect of the amount of the assessment to which the election under subsection (b) or (c) relates.

⁷ See Trent v. Commissioner [Dec. 54,938(M)], T.C. Memo. 2002-285 (holding that the Commissioner was not barred by sec. 6330(e)(1)(B) from offsetting the taxpayer's overpayments for later years against an earlier tax liability for which the taxpayer had claimed relief under sec. 6015).

⁸ Respondent has adopted the following definition of the term "proceeding in court". Sec. 1.6015-7(c)(4)(ii), Income Tax Regs., provides:

(ii) Proceedings in court. For purposes of this paragraph (c), proceedings in court means suits filed by the United States for the collection of Federal tax. Proceedings in court does not refer to the filing of pleadings and claims and other participation by the Internal Revenue Service or the United States in suits not filed by the United States, including Tax Court cases, refund suits, and bankruptcy cases.

⁹ Given the interrelationship between the instant case and petitioner's case brought pursuant to sec. 6015 at docket No. 17597-02, the parties may wish to consider filing a motion to consolidate the cases under Rule 141(a).

 

[2002-2 USTC ¶50,734] T. Whitney Strickland, Jr., Plaintiff v. Virginia Daire and the United States of America on behalf of the Department of the Treasury, Internal Revenue Service, Defendants

U.S. District Court, No. Dist. Fla., Pensacola Div., 4:01cv153/RV, 9/30/2002, 2002 U.S. Dist. LEXIS 20230.

[Code Sec. 6323 ]

Tax liens: Validity and priority against third parties: Escrow agent: Escrow agreement: Interpleader.--The government was not entitled to priority over the claim of an escrow agent with respect to funds from the settlement of a lawsuit that were held in escrow in connection with a federal tax lien against an individual. The government contended that it had priority over the escrow agent, who had brought an interpleader action for his fees, attorney's fees, and court costs, because he did not perfect a lien prior to perfection of the tax lien. However, the government was not entitled to the funds because the delinquent taxpayer could not recover them under the contractual provisions of the escrow agreement. The agreement provided that the agent was the first to be paid from the escrow funds, and the taxpayer had no property interest in that portion of the funds necessary to pay his fees and costs. The government could not levy on property in which the taxpayer had no interest.

[Code Sec. 6321 ]

Tax lines: Attorney's fees: Charging lien: Summary judgment.--The government was not entitled to summary judgment with respect to a claim by an attorney who created an escrow fund that she was entitled to superpriority to collect her fees from the fund. The funds arose from the settlement of a lawsuit and were held in escrow in connection with a federal tax lien against an individual. Although the government claimed that the attorney did not timely perfect her attorney's charging lien, the tax code does not require a charging lien before attorney's fees may be given priority, and an issue of fact existed as to whether the parties intended for the attorney's fees to be paid from any recovery obtained by the attorney on the taxpayer's behalf.

[Code Sec. 7430 ]

Attorney's fees: Creditor v. prevailing party.--The government was entitled to summary judgment with respect to a claim by an attorney who created an escrow fund that she was entitled to recover attorney's fees for defending an interpleader action. The attorney was a creditor of the taxpayer and, thus, not a prevailing party under

Code Sec. 7430 .

T. Whitney Strickland, Jr., T. Whitney Strickland, Jr., P.A., Tallahassee, Fla., pro se. Richard Errol Johnson, Richard E. Johnson, P.A., Tallahassee, Fla., for Virginia Daire. Wendy K. Vann, Department of Justice, Washington, D.C. 20530, for U.S.

ORDER

VINSON, Chief District Judge:

Defendant United States of America has moved for summary judgment (doc. 69).

Plaintiff filed this interpleader action pursuant to Title 28, United States Code, Section 2410. Defendants Daire and United States of America have conflicting claims over the funds being held in escrow by plaintiff Strickland, who also claims fees and costs from those escrowed funds. Except as otherwise stated, the parties agree that the following material facts are not disputed.

I. BACKGROUND

By December 18, 2000, the Internal Revenue Service ("IRS") had assessed tax liabilities against O.C. Allen ("Allen") in the total amount of $87,074.06 for unpaid taxes in eight different tax years going back to 1989. ¹ This case involves $73,244.19 held in escrow by plaintiff Strickland. After the IRS attempted to levy on the funds, Strickland brought this interpleader action and deposited the funds into the registry of this Court.

The funds held in escrow resulted from the settlement of a lawsuit brought by Allen in 1998 against Michael J. Read and John D. Hallstrom in the Circuit Court of Leon County, Florida. Defendant Daire was Allen's attorney in that state court action, and Allen agreed to pay Daire's fees at a rate of $200 per hour, with "payment in full upon the conclusion of this matter." On October 7, 1999, after mediation, Allen, Read, and Hallstrom reached a contingent settlement of their lawsuit, which required Read and Hallstrom to place $70,000 into an escrow account. This "Contingent Settlement Agreement" acknowledged that the IRS had filed a notice of levy against Allen, and payment of the escrow fund was contingent upon Allen settling with the IRS for $30,000, "or such other amount as [Allen] negotiates."

On October 12, 1999, after the contingent settlement was reached, Daire presented Allen with a bill for $41,920 in attorney's fees and costs. The contingency upon which the "Contingent Settlement Agreement" was based--settlement of the amount due the IRS by Allen--was not timely resolved, so on December 30, 1999, the parties to the state court litigation entered into an "Amendment to Settlement Agreement and Escrow Agreement." This second agreement names plaintiff Strickland as escrow agent and calls for dismissal of the case upon payment by Read and Hallstrom of $70,000 into the escrow account "to or for the benefit of [Allen]." The agreement also sets out a strict limitation upon payment of the escrow fund by the escrow agent:

2. Payment of Escrow Fund. Upon written notification from the IRS that all Notices of Levy including that certain Notice of Levy dated July 7, 1999, a copy of which is attached hereto as Exhibit "A", and associated tax lien have been fully satisfied, the Escrow Agent shall disburse the Escrow Fund to the IRS, and then to O.C. Allen, to the extent payment of the tax lien to the IRS does not exhaust the escrow fund.

Under this agreement, which remains in effect, the escrow agent cannot disburse funds to either the IRS or to Allen until the escrow agent first receives written notification from the IRS of full satisfaction of all Notices of Levy and associated tax liens of Allen's. In paragraph (3), the amended agreement specifically provides for the escrow agent's fees to be paid first from any interest accrued on the escrow fund, and then from the escrow fund itself. The second agreement also provides for the reimbursement of any expenses, including attorney's fees and costs, that the escrow agent may incur in any litigation, and paragraph (5) expressly authorizes the escrow agent to file an interpleader action to be fully indemnified for all costs of such an action, including reasonable attorney's fees. Pursuant to this amended agreement, the state court ordered the parties to comply with the settlement agreements and dismissed the action with prejudice on February 9, 2000. On August 15, 2000, Daire filed a verified petition in state court for an attorney's charging lien against the escrow funds [i]n the amount of $41,920.

On February 27, 2001, the IRS served Strickland with a "Notice of Levy," asserting a lien against the escrow funds, as well as a "Release of Levy" as to $30,000 to be paid to Daire (apparently as a part of a negotiated settlement of her fee), and a request that Strickland pay the remaining $40,000 and accrued interest to the IRS. An accompanying letter from the IRS's Compliance Group Manager, Dennis L. Lister, indicated that all prior notices of levy were released. The letter made no reference to Strickland's fees as escrow agent. Strickland attempted to negotiate with the IRS regarding his fee and the IRS's payment instructions, but was unsuccessful. Strickland then filed this interpleader action on April 27, 2001, and deposited the escrow funds into the registry of this Court. The IRS, through the United States, now moves for summary judgment, contending that it has priority over all of the funds.

II. DISCUSSION

A. Summary Judgment Standard

The Rules of Civil Procedure make it plain that a motion for summary judgment should be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c), Fed. R. Civ. P. As the Supreme Court of the United States has instructed, "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265, 273 (1986). See also Morisky v. Broward County, 80 F.3d 445, 447 (11th Cir. 1996).

However, summary judgment is improper "if a reasonable fact finder could draw more than one inference from the facts, and that inference creates a genuine 1995). An issue is "material" if it might affect the outcome of the case under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986). It is "genuine" if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party. See id.; see also Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538, 552 (1986).

The moving party bears the initial burden of "informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., supra, 477 U.S. at 323, 106 S.Ct. at 2552, 91 L.Ed.2d at 274 (1986).

On a summary judgment motion, the record and all inferences that can be drawn from it must be viewed in the light most favorable to the nonmoving party. See Evans v. McClain of Georgia, Inc., 131 F.3d 957, 961 (11th Cir. 1997). However, conclusory allegations based on subjective beliefs are insufficient to create a genuine issue of material fact. See Leigh v. Warner Bros., Inc., 212 F.3d 1210, 1217 (11th Cir. 2000); Ramsey v. Leath, 706 F.2d 1166, 1170 (11th Cir. 1983). The nonmoving party must provide more than a mere "scintilla" of evidence supporting his position, for if the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Anderson, supra, 477 U.S. at 249-50, 106 S.Ct. at 2510-11, 91 L.Ed2d at 212; Johnson v. Fleet Finance, Inc., 4 F.3d 946 949 (11th Cir. 1993). Although the nonmoving party must designate "specific facts showing that there is a genuine issue for trial," the court must also consider the entire record in the case, not just those pieces of evidence which have been singled out for attention by the parties. See Hargett v. Valley Fed. Sav. Bank, 60 F.3d 754, 763 n.9 (11th Cir. 1995) (quoting Celotex Corp., supra, 477 U.S. at 324, 106 S.Ct. at 2553, 91 L.Ed.2d at 274, (1986)); Clinkscales v. Chevron USA, Inc., 831 F.2d 1565, 1570 (11th Cir. 1987). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.' " Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587, 106 S.Ct. 1356, 89 L.Ed.2d at 552.

B. Analysis

When a taxpayer is delinquent in paying taxes, Section 6321 of the Internal Revenue Code places the government in the position of a secured creditor and empowers it to impose a tax lien on "all property and rights to property" belonging to the taxpayer. ² Section 6323(a) requires that "any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights to property" to the Secretary. The threshold question in such a case is whether and to what extent the taxpayer has "property" or "rights to property" to which the tax lien could attach. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512, 80 S.Ct. 1277, 4 L.Ed.2d 1365, 1368 (1960). State law governs the inquiry into the taxpayer's property or rights to property. ³ Id.; United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 683, 103 S.Ct. 2132, 76 L.Ed.2d 236, 246-47 (1983). Once it is established that a cognizable property interest exists, federal law then determines the priority of all existing liens. Aquilino [60-2 USTC ¶9538 ], supra, 363 U.S. at 513-14, 80 S.Ct. 1277, 4 L.Ed.2d at 1368-69.

(1) Priority of the United States with respect to plaintiff Strickland. Plaintiff Strickland, the escrow agent, contends that he is entitled to his fees as escrow agent, as well as to his attorney's fees and costs for bringing this interpleader action. The United States argues that it has priority over Strickland because Strickland did not perfect a lien prior to the perfection of the tax lien and cannot claim superiority with an attorney charging lien under Section 6323(b)(8) of the Internal Revenue Code. However, the Government's analysis of Strickland's rights to the escrow funds prematurely examines Strickland's rights under federal law. Before such an inquiry can take place, state law must be examined to determine Allen's rights to the escrow funds.

A federal tax lien under Section 6321 of the Internal Revenue Code "cannot extend beyond the property interests held by the delinquent taxpayer." Rodgers [83-1 USTC ¶9374 ], supra, 461 U.S. at 690-91, 103 S.Ct. 2132, 76 L.Ed.2d at 251. If "a delinquent taxpayer shares his ownership interest in property jointly with other persons, rather than being the sole owner, his 'property' and 'rights to property' to which the federal tax lien attaches under [Section] 6321, and on which federal levy may be had under [Section] 7403(a), involve only his interest in the property, and not the entire property." [83-1 USTC ¶9374 ], Id. at 690, 103 S.Ct. 2132, 76 L.Ed.2d at 251 (quoting United States v. Rodgers [81-2 USTC ¶9536 ], 649 F.2d 1117, 1125 (5th Cir. Unit A 1981)) (emphasis added) (internal citations omitted). The position of the United States is that the entire amount held in escrow constitutes "property and rights to property" of Allen. Strickland, on the other hand, contends that he has a priority contractual right to his escrow fees from the escrow fund that cannot be abridged. The briefs of the parties regarding this matter are not particularly helpful, but this is understandable considering the lack of relevant law. ⁴ Nevertheless, property interests are created and defined by state law, so state law must be examined. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136, 142 (1979).

For purposes of federal tax liens, the Government must step into the shoes of Allen, the taxpayer, and its rights to property can go no further than Allen's. Rodgers [83-1 USTC ¶9374 ], supra, 461 U.S. at 690, 103 S.Ct. 2132, 76 L.Ed.2d at 251. The Government's claim to the entire escrow fund would be stronger if it could be clearly established that Allen was entitled to all of the money in escrow. ⁵ However, the escrow is created by contract, and the funds held in escrow, including Allen's rights to the funds, are controlled by the contractual provisions of the escrow agreement. The contingent settlement agreement and its amendment appear to be valid and enforceable contracts under Florida law, and the state court appears to have ongoing jurisdiction to enforce the settlement agreement. The Government can levy upon the escrow funds only to the extent that Allen has a contractual property right in that fund, with all of its limitations.

The terms of the escrow agreement provide Allen with an interest in the escrow funds after Strickland is paid his escrow fees. ⁶ The United States dismisses this notion, arguing that the "Amendment to Settlement Agreement and Escrow Agreement provides that the full amount of the payment, $70,000, was to be paid 'to or for the benefit of O.C. Allen' " through the escrow agent. (emphasis added) However, this ignores all of the other detailed provisions and misconstrues this provision. All of the terms of the contract must be considered. The settlement agreement explicitly provides that Strickland "shall be entitled to a fee for its services hereunder, to be paid for from any interest accrued on the Escrow Fund and then from the Escrow Fund, if necessary. . . ." The escrow fund is created by the agreement and is subject to its complete conditions. Obviously, Allen cannot have rights to the "full amount of the payment," as the Government contends, if the escrow agreement provides that Strickland is first to be paid from the escrow fund for his services as an escrow agent. The terms of the agreement give Strickland a fee; if Allen cannot receive the Strickland fee portion of the escrow fund for himself, then the tax lien cannot be applied against it. Zell v. Cobb, 566 So. 2d 806, 809 (Fla. 3d DCA 1990) (until the happening of the event that would allow the amount held in escrow to be delivered to the promissee, the instrument deposited in escrow does not take effect as a fully executed contract). See Miller v. Alamo [92-2 USTC ¶50,524 ], 975 F.2d 547, 552 (8th Cir. 1992) ("Miller I") (as government lien can only attach to property in which the delinquent taxpayer had an ownership interest, tax lien cannot attach where state law does not grant the taxpayer an ownership interest). Cf. United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 55-56, 78 S.Ct. 1054, 2 L.Ed.2d 1135, 1141 (1958) (tax lien cannot attach to proceeds of a life insurance policy insuring the life of a taxpayer, beyond its cash surrender value, because the taxpayer could not receive the proceeds himself, even though he possessed the right to direct to whom the proceeds would be paid).

The contract requires that Strickland be paid first, and Allen has no property interest in that portion of the fund necessary to pay Strickland's fees and costs. ⁷ See Miller I [92-2 USTC ¶50,524 ], supra, 975 F.2d at 552 (federal law would not permit a lien to be placed on funds where taxpayer had no rights to the funds, could not direct where they were paid, and could not expect to receive any part of the funds). That portion of the fund necessary to pay Strickland belongs to Strickland, not Allen, and the IRS, standing in Allen's shoes, cannot levy upon property in which Allen has no interest.

(2) Strickland's rights to attorney's fees and costs. The Government's argument that Strickland is not entitled to attorney's fees for bringing this action also must fail. The Government correctly points out that a stakeholder who brings an interpleader action is normally entitled to attorney's fees and costs for bringing the action, to be paid out of the fund, unless such an award would diminish the amount due on a tax lien. Cable Atlanta, Inc. v. Project, Inc. [85-1 USTC ¶9268 ], 749 F.2d 626, 627 (11th Cir. 1984); Millers Mutual Ins. Ass'n of Illinois v. Wassall [84-2 USTC ¶9621 ], 738 F.2d 302, 303 (8th Cir. 1984) ("It is well established that the Internal Revenue Code . . . prohibits an award of attorney fees where the effect of such an award would be to diminish the amount recovered by the United States under a prior [in time] federal tax lien"); Spinks v. Jones [74-2 USTC ¶9657 ], 499 F.2d 339, 340 (5th Cir. 1974) ("The judicial prerogative to award stakeholders their attorney's fees must give way to the supremacy of the federal tax lien law whenever an award would invade the amount subject to tax lien"); United States v. State Nat'l Bank of Connecticut [70-1 USTC ¶9209 ], 421 F.2d 519, 521 (2d Cir. 1970) ("a disinterested bank-stakeholder is not entitled to attorney's fees from a fund when the total amount in the fund is insufficient to satisfy prior federal tax liens"). In the absence of some agreement, the law authorizes the escrow agent to let a court decide his entitlement, as well as his attorney's fees and costs for having to do so. However, in this case, there is no stakeholder seeking an "award" of attorney's fees by virtue of bringing an interpleader action. Instead, the contract which creates the fund and sets conditions for rights to the fund by its terms authorizes the interpleader and expressly provides that Strickland is entitled to reimbursement for his attorney's fees and costs. Just as Strickland has a property right to his fee to be paid from the escrow account, he has a similar priority entitlement to his attorney's fees and costs, even if it reduces the amount available to Allen and the IRS under the federal tax lien--the contractual provisions determine Allen's interest (and derivatively, the IRS's). It appears that Strickland had a legal reason to bring this interpleader in accordance with the terms of the escrow agreement. Therefore, Strickland is also entitled to reasonable attorney's fees and costs for bringing this action, to be paid out of the escrow fund before Allen's interest can vest.

(3) Priority of the United States with respect to defendant Daire. To the extent that Allen has a cognizable property interest in the escrow fund after deducting amounts due Strickland for his services as escrow agent, federal law must be examined to determine the priority of all existing liens on Allen's property interest. Defendant Daire contends that her fee as the attorney creating the fund has superiority over the Government's tax liens. The Government argues that Daire did not timely perfect her attorney's charging lien. However, the Code does not necessarily require a charging lien before attorney's fees may be given superiority.

Section 6321 of the Internal Revenue Code creates a lien in favor of the Government over the "property and rights to property" owned by a delinquent taxpayer. The relative priority of such a tax lien as opposed to competing liens is determined under federal law. Litton Indus. Automation Systems, Inc. v. Nationwide Power Corp. [97-1 USTC ¶50,236 ], 106 F.3d 366, 371 (11th Cir. 1997). Generally, a "first in time--first in right" rule applies when determining the priority of competing liens under federal law. Capuano v. United States [92-1 USTC ¶50,163 ], 955 F.2d 1427, 1433 (11th Cir. 1992). However, Section 6323 provides that a tax lien imposed by Section 6321 is not valid "with respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under local law, holds a lien upon or a contract enforceable against such judgment or amount, to the extent of his reasonable compensation for obtaining such judgment or procuring such settlement. . . ." 26 U.S.C. §6323(b)(8) (emphasis added). Section 6321 provides such a superiority because an attorney who procures such a judgment or settlement amount which benefits the taxpayer ultimately provides a benefit to the IRS.

A "contract enforceable against such judgment or amount" ordinarily would apply to any contract which would allow the attorney to enforce payment against the ultimate recovery under state law. See, e.g., Warner v. United States [95-2 USTC ¶50,560 ], 1995 U.S. Dist. LEXIS 15391, 1995 WL 693188 (E.D. Ark. September 19, 1995). Daire and Allen reached an oral agreement regarding Daire's representation of Allen, and the essential terms of this agreement were set out in a retaining letter on March 24, 1998, signed by both Daire and Allen. This is the contract applicable here. It provided that Daire would bill $200 per hour for her services in the litigation against "Mr. Hallstrom and Mr. Reed" [sic], and that Allen would pay that hourly fee. It specifically provided for "payment in full upon the conclusion of this matter."

Several things about the contract between Daire and Allen are important. First, the retaining letter was not a general retainer--instead, it only applied to Allen's litigation against Hallstrom and Read. The letter also referenced the fact that the hourly fees were to be paid "in full upon the conclusion of this matter." This is unusual because fees billed on an hourly basis are normally paid throughout the course of the litigation, not at the conclusion of the matter. Additionally, at the time of this agreement, the IRS had already assessed numerous tax liabilities against Allen, indicating that Allen was probably not financially able to pay his attorney during the course of the litigation. Daire was undoubtedly aware of all this. Daire was being paid an hourly fee and not on a contingent basis. Therefore, Allen would be obligated to pay Daire, regardless of whether Allen ultimately prevailed in the litigation. For that reason, it would appear that the letter did not specifically provide that payment would be from the recovery--to do so would foreclose Daire's right to payment if Allen should lose--but there is evidence in the record which supports the conclusion that the parties intended for Daire's fees to be paid from any recovery if there was a recovery. Such an agreement would give Daire superiority over the Government pursuant to Section 6323 by virtue of an enforceable contract. ⁸ This creates a genuine issue of material fact, precluding summary judgment.

(3) [(4)] Daire's claim for attorney's fees and costs in this interpleader. Finally, the Government argues that Daire is not entitled to attorney's fees or costs for defending this interpleader action. The Government argues that the "American Rule" applies in this case, that there is no statutory authority to permit an entitlement of fees in this action, and that a statutory award of attorney's fees cannot reduce the amount to be recovered by the IRS under a federal tax lien.

The traditional "American Rule" provides that attorney's fees are not awardable to the prevailing party in an action--each party must bear its own costs and attorney's fees. Marek v. Chesny, 473 U.S. 1, 8, 87 L.Ed.2d 1, 105 S.Ct. 3012, (1985). However, Section 7430 of the Internal Revenue Code acts as an exception to the American Rule and provides for an award of attorney's fees to a "prevailing party" "in any administrative or court proceeding which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title. . . ." 26 U.S.C. §7430(a). A "prevailing party" is "any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved). . . ." 26 U.S.C. §7430(c)(4) (emphasis added). The Government respond that Daire cannot collect under Section 7430 because she is a "creditor of the taxpayer." To the extent that her fee is not entitled to exemption under Section 6328(b)(8), it appears that the Government is correct. Similarly, it appears that in the absence of a contractual authorization of such fees and costs from the escrow fund (and I find none with respect to Daire), there is no other authority entitling her to fees and costs for this litigation. Therefore, the United States is entitled to summary judgment on this issue. ⁹

III. CONCLUSION

For the foregoing reasons, defendant United States of America's motion for summary judgment (doc. 69) is GRANTED only with respect to Daire's claim for attorney's fees and costs for defending this interpleader action; it is otherwise DENIED.

DONE AND ORDERED.

¹ On November 19, 1990, the IRS assessed tax liabilities against defendant Allen in the amount of $29,151.18 for tax year 1989. A tax liability in the amount of $22,462.39 was assessed on November 30, 1992, for tax year 1991. A lien in the amount of $347.80 was assessed on December 5, 1994, for tax year 1993. A tax liability in the amount of $7,623.75 was assessed on November 25, 1996, for tax year 1995. A tax liability in the amount of $6,081.00 was assessed on November 24, 1997 for tax year 1996. A tax liability in the amount of $2,435.40 was assessed on November 23, 1998, for tax year 1997. A tax liability in the amount of $8,137.64 was assessed on September 20, 1999, for tax year 1998. A tax liability in the amount of $10,834.90 was assessed on December 18, 2000, for tax year 1999. The total of $87,074.06 does not include further interest and statutory additions that may have accrued subsequent to the dates of assessment. Notices of the federal tax liens were filed as follows: On September 17, 1991, for 1989 liabilities; on November 9, 1993 for the 1989 liabilities, and 1991 liabilities; on July 31, 1997, for the 1995 tax liabilities; on August 3, 1998, for the 1993 and 1996 tax liabilities; and on May 6, 1999 for the 1997 tax liabilities. Apparently, no notices were filed for the 1998 and 1999 tax years.

² Section 6321 of the Internal Revenue Code provides: If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereof) shall be alien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

³ As the Eleventh Circuit explained in United States v. Ruff [97-1 USTC ¶50,130 ], 99 F.3d 1559, 1563 (11th Cir. 1996):

A court assessing a levy on a taxpayer's intangible interest in property held by third parties must determine first the nature of the taxpayer's interest in the property. This is a question of state law. . . . Once the court has determined that a delinquent taxpayer has rights to property, federal law determines whether the custodian of the property is obligated to surrender the property to the IRS.

(quoting United States v. Metropolitan Life Ins. [89-1 USTC ¶9362 ], 874 F.2d 1497, 1500 (11th Cir. 1989)).

⁴ After extensively researching the issue, I have found no cases directly on point. There are a few cases involving a tax levy upon escrowed funds in which the escrow agent's fees were denied because the escrow agreement failed to provide for such compensation. See, e.g., United States v. J.H.W. & Gitlitz Deli & Bar, Inc. [80-2 USTC ¶9743 ], 499 F.Supp. 1010, 1016 (S.D. N.Y. 1980) ("Because the escrow agreement under which [the escrow agent] held the fund provided only for payments to [the grantee], [(the escrow agent] has no right to draw upon the fund to compensate him for his escrow services"). Here, the document establishing the escrow fund plainly provides for such fees, as well as for costs and attorney's fees involved in interpleader.

⁵ Of course, even if Allen was entitled to all of the funds held in escrow, the IRS cannot simply levy on the funds held in escrow because of the provisions of the escrow agreement. Placing funds in escrow indicates that the transfer of ownership of the funds to the promissee cannot occur until the happening of a conditional event. See Mizuna, Ltd. v. Crossland Fed. Savings Bank, 90 F.3d 650, 659 (2d Cir. 1996). While the IRS may have priority over Allen's interest in those escrow funds, Allen does not have "property or rights to property" with respect to the escrow fund until the escrow's conditions are met. If the conditions that allow the funds to be distributed never occurs, Allen's interest in those funds will never vest and the IRS will not be able to levy upon those funds. See note 7, infra.

⁶ The agreement plainly gives priority in payment from the escrow fund to the agent's fees and costs. Without such priority, no reasonable person would assume the responsibilities of escrow agent under the circumstances known to exist when the escrow was established.

⁷ Reading the terms of the settlement agreement literally, it is not entirely clear whether the IRS has any claim to the amount held in escrow. As it stands, Allen has no right to the funds held in escrow because the terms of the original contingent settlement agreement provided that the settlement creating the res is made "provided that the Internal Revenue Service (IRS) agrees to resolve its tax notice levy regarding plaintiff within $30,000, or such other amount as plaintiff negotiates with the IRS," i.e., no settlement unless the condition is met. The amendment to the settlement agreement removes that condition to the settlement, but creates another (apparently unintended) condition to any payment from the fund: that payment of the escrow fund may not commence until the tax liens "have been fully satisfied." Thus, under these specific contractual terms, Allen has no right to the funds held in escrow until the tax levies and liens are first satisfied. If the IRS cannot first satisfy its tax lien against Allen, then no funds may be disbursed to either the IRS or Allen, and Allen's (and the IRS's) rights to the funds held in escrow will not vest. Theoretically, it appears that Strickland could hold the funds in escrow indefinitely, and simply apply the interest earned periodically to his fees.

⁸ The Government argues that Daire did not have the understanding that her fees would come directly from the recovery in the case. The Government cites to a deposition where Daire stated that she understood that she would be paid regardless of whether Allen "achieved anything from this at all" and from "whatever source of funds he had." However, this testimony does not necessarily mean that Daire did not expect to be paid from the recovery, if there was one. Payment in full upon "conclusion" necessarily implies that the payment will be made from the recovery at the conclusion of the case, if there was a recovery. However, if there was no recovery, Allen would still be required to pay Daire from whatever source of funds he may have.

⁹ Daire also seeks to hold the IRS to its written agreement to have her fee to the extent of $30,000 paid to her. It is clear that the IRS did so agree and it does not deny it. Instead, it simply asserts the principle that equitable estoppel cannot be applied against the Government in its sovereign capacity. This order does not address that issue, which is reserved for trial. I do note that the Government's failure to stand by its agreement now exposes it to the full amount of Daire's fees and costs ($41,920), plus interest, as well as Strickland's fees and costs--which may leave nothing for the IRS.

 

 

[2002-2 USTC ¶50,687] United States of America, Plaintiff v. Stanley J. Gaynor, et al., Defendants

U.S. District Court, No. Dist. Ill., East. Div., 01 C 4753, 8/30/2002

[Code Sec. 7401 ]

District court: Jurisdiction: Summary judgment: Money judgment.--The government was entitled to summary judgment with respect to its claim for a money judgment against an individual. The taxpayer unsuccessfully contended that the government improperly failed to credit to his account payments to the IRS that should have been made on his behalf by a consulting business. There was no evidence that the business ever made or proffered the payments. The court noted that the failure of the business to make the payments might have been a breach of an agreement with the taxpayer, but that it provided no defense to the taxpayer against the government's claim.

[Code Sec. 6321 ]

Tax liens: Foreclosure: Final judgment.--The government was not entitled to a final judgment under Fed. R. Civ. P. 54(b) on its claim for a money judgment against an individual because his liability for the tax assessment was a threshold issue for the government's claim to foreclose a tax lien. Because the money judgment claim was not wholly distinct from its foreclosure claims, a final judgment would create the risk of duplicative appellate review. Further, the government's interests would not be seriously impaired by any resulting delay.

MEMORANDUM OPINION AND ORDER

PLUNKETT, Senior District Judge:

This case is before the Court on the government's Federal Rule of Civil Procedure ("Rule") 56 motion for summary judgment on its claim for a money judgment against Mr. Gaynor and its motion to enter final judgment on that claim pursuant to Rule 54(b). For the reasons set forth below, the summary judgment motion is granted and the Rule 54(b) motion is denied.

The Legal Standard

To prevail on a summary judgment motion, "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, [must] show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). At this stage, we do not weigh evidence or determine the truth of the matters asserted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). We view all evidence and draw all inferences in favor of the non-moving party. Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir. 2000). Summary judgment is appropriate only when the record as a whole establishes that no reasonable jury could find for the non-moving party. Id.

Facts

In October 1993, Stanley Gaynor filed his federal income tax return for 1992. (Pl.'s LR 56.1(b)(3)(A) Stmt. ¶3.) That return showed a tax liability of $1,653,118.00. (Id.)

On January 10, 1994, a delegate of the Secretary of the Treasury made an assessment against Mr. Gaynor for income tax, penalties and interest for the year 1992 of $1,813,962.00. (Id. ¶4.) Notice of the assessment and demand for its payment were sent to Mr. Gaynor within five days of the date of the assessment. (Id. ¶5.)

Mr. Gaynor has yet to pay the assessment in full and, though he disputes the amount, the government says he now owes more than $3,697,340.68 in unpaid taxes, interest, and penalties. (Id.)

Discussion

The government's "calculation of tax assessments is presumed to be correct, and the taxpayer bears the burden of rebutting this presumption." Estate of Starkey v. United States [2000-2 USTC ¶60,381 ], 223 F.3d 694, 698 (7th Cir. 2000). Mr. Gaynor admits that the government's initial assessment of his tax liability for 1992, $1,813,962.00, is correct, but contends that the amount it currently seeks, $3,697,340.68, is too high. According to Mr. Gaynor, the government has failed to credit him more than $200,000.00 that should have been paid to the IRS on his behalf between 1998 and 2000. (See Pl.'s LR 56.1(b)(3)(B) Stmt. ¶8.)

Those payments, Mr. Gaynor says, were supposed to have been made on his behalf by Koll Management Services pursuant to a consulting agreement between them. But the record contains no evidence to suggest that Koll ever made, or even proffered, those payments to the IRS. Koll's alleged failure to make those payments might constitute a breach of its agreement with Mr. Gaynor, but it does not provide Mr. Gaynor with a defense to the government's claim. Because Mr. Gaynor has offered no evidence to suggest that the government's initial assessment of his 1992 tax liability or its calculation of the amount currently due are incorrect, the government's motion for summary judgment on this claim is granted.

The government also asks the Court to enter a final judgment on this claim pursuant to Rule 54(b). In relevant part, that Rule provides: "When more than one claim is presented in an action, . . . the court may direct the entry of a final judgment as to one or more but fewer than all of the claims . . . only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment." The government contends that a Rule 54(b) judgment is appropriate in this case because: (1) there is no legal or factual overlap between this claim and its remaining claims for foreclosure of a tax lien; and (2) delay will adversely impact its ability to collect the outstanding debt from Mr. Gaynor.

The Court disagrees. The issue with respect to the claim for a money judgment is whether Mr. Gaynor, in fact, owes the amount the government seeks to collect from him. Mr. Gaynor's liability for the amount assessed against him is also a threshold issue for the foreclosure claims. See 26 U.S.C. §6321 ("If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.") (emphasis added). Because the money judgment claim is not, as the government contends, wholly distinct from the foreclosure claims, entering a Rule 54(b) judgment would create the risk of duplicative appellate review, a risk the Seventh Circuit has instructed us to avoid. See ODC Communications Corp. v. Wenruth Investments, 826 F.2d 509, 512 (7th Cir. 1987) (stating that the word "[c]laim under Rule 54(b) is defined with a view to avoiding double appellate review of the same issues") (internal quotation marks and citation omitted).

Even if the money judgment claim were entirely independent of the foreclosure claims, we could not certify that there is no just reason for delay in this case. The government says that delay might hamper its ability to recover the amount due, a somewhat disingenuous claim given the history of this case. The government assessed Mr. Gaynor's 1992 tax liability on January 10, 1994, but did not file this suit until June 22, 2001, though Mr. Gaynor made little effort in the intervening years to pay that debt. Having waited more than seven years to collect, the government cannot credibly contend that a delay of a few months more will seriously impair its interests.

Conclusion

For the reasons set forth above, there is no genuine issue of material fact on the government's claim for a money judgment against Mr. Gaynor. The government's motion for summary judgment on that claim is, therefore, granted. The government's motion for entry of a Rule 54(b) judgment on that claim is denied.

 

 

[2002-2 USTC ¶50,560] United States of America , Plaintiff v. Stephen C. Burdine, et al., Defendants

U.S. District Court, West. Dist. Wash. , Tacoma Div., C01-5286RJB, 4/3/2002, 2002 U.S. Dist. LEXIS 12058.

[Code Sec. 6203 ]

Assessments, validity of: Evidence: Form 4340: Presumption of correctness.--The government was entitled to foreclose on a married couple's property because Forms 4340 were presumptive proof that the taxes at issue were duly assessed and recorded, and that adequate notice and demand had been made. The taxpayers' contention that the forms were unreliable and could not be verified by an audit trail of supporting documents was rejected. Documents they submitted did not show errors in their accounts. In addition, they failed to show any existing or potential problems with the master file system used to record the assessments, or how the absence of such a system rebutted the presumption of correctness of the Forms 4340.

[Code Secs. 6212 and 6321 ]

Liens and levies: Creation of lien: Notice of deficiency: Necessity of notice: Self-reported liability: Employment taxes.--Liens against a married couple who failed or refused to pay income and employment taxes properly arose on the date of assessment and attached to the taxpayers' residence. The taxpayers' contention that the liens were invalid because the IRS failed to issue a notice of deficiency prior to filing them was rejected. The IRS was not required to issue a notice of deficiency because the income taxes at issue were based on amounts voluntarily reported and because employment taxes are not subject to the Code Sec. 6212 deficiency procedures.

[Code Sec. 6323 ]

Priority of liens: Deed of trust.--Valid federal tax liens that attached to a married couple's residence were junior in priority to a deed of trust in favor of the taxpayers' mortgage company because the deed was recorded before the government recorded its notices of lien

[Code Sec. 6323 ]

Priority of liens: Judgment creditors.--Valid federal tax liens that attached to a married couple's residence were superior in priority to judgment liens against the property that were held by two entities because the tax liens were recorded prior to those judgments.

[Code Sec. 6323 ]

Priority of liens: State property taxes.--Valid federal tax liens that attached to a married couple's residence were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments.

[Code Sec. 7403 ]

Liens and levies: Action to enforce lien: Foreclosure: Priority of liens.--The government was entitled to foreclose on property belonging to a married couple who failed or refused to pay income and employment taxes that they voluntarily reported for three tax years. Valid federal tax liens attached to the property were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments. The liens were also junior to a deed of trust in favor of their mortgage company because the deed was recorded before the government recorded its notices of lien. However, the federal tax liens were superior to judgment liens against the property because the tax liens were recorded prior to those judgments.

W. Carl Hankla, Jeremy N. Hendon, Department of Justice, Washington, D.C. 20530, for plaintiff. Stephen C. Burdine, Michelle S. Burdine, Tacoma , Wash. , pro se.

ORDER GRANTING UNITED STATES' MOTION FOR SUMMARY JUDGMENT

BRYAN, District Judge:

This matter comes before the court on the United States ' Motion for Summary Judgment. Dkt. 31. The court has considered the pleadings filed in support of and in opposition to the motion and the file herein.

A. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim in the case on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1985). There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a rational trier of fact to find for the non moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L.Ed.2d 538, 106 S.Ct. 1348 (1986) (nonmoving party must present specific, significant probative evidence, not simply "some metaphysical doubt."). See also Fed.R.Civ.P. 56(e). Conversely, a genuine dispute over a material fact exists if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); T.W. Elec. Service Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987).

The determination of the existence of a material fact is often a close question. The court must consider the substantive evidentiary burden that the nonmoving party must meet at trial--e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254, T.W. Elect. Service Inc., 809 F.2d at 630. The court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elect. Service Inc., 809 F.2d at 630 (relying on Anderson , supra). Conclusory, non specific statements in affidavits are not sufficient, and "missing facts" will not be "presumed." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89, 111 L.Ed.2d 695, 110 S.Ct. 3177 (1990).

B. PROCEDURAL AND FACTUAL BACKGROUND

Stephen C. Burdine and Michelle S. Burdine (The Burdines) have been married continuously since at least January 1, 1990. The Burdines currently reside at 4506 Country Club Dr. N.E. , Tacoma Washington 98422 (The Property). The Burdines acquired the property on or about July 30, 1999. They gave a deed of trust on the property to WMC Mortgage Corporation to finance the purchase, which WMC subsequently assigned to Nations Credit Home Equity Services Corporation. Bishop, Lynch & White, P.S. is the trustee under that deed of trust.

During 1990, Mr. Burdine operated a sole proprietorship business under the name "Burdine & Associates." He filed Form 941 federal employment tax returns for the second, third and fourth quarters of 1990, but did not pay the tax due on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self reported employment tax liabilities assessed against the Burdines was $15,954.69, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The Burdines filed federal Form 1040 income tax returns for their 1992 and 1993 tax years. They did not pay the tax reported on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self-reported income tax liabilities assessed against the Burdines was $33,910.16, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The United States contends that the total outstanding balance of both employment and income tax liabilities due as of March 1, 2002, including statutory accruals through that date, was $48,864.85.

C. MOTION FOR SUMMARY JUDGMENT

The United States filed this action to (1) reduce federal tax assessments against the Burdines to judgment; and (2) foreclose tax liens against their residence property. The United States contends that the assessments are presumptively correct, and the priority of the federal tax liens against the Property is undisputed.

The Burdines oppose the motion for summary judgment, contending that (1) they did not receive a statutory notice of deficiency; (2) the absence of a Non-Master File account in their transcripts raises an issue for trial; (3) the Forms 4340 are unreliable; and (4) the Forms 4340 cannot be verified by an audit trail of supporting documents. Dkt. 36.

D. ISSUES

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

E. DISCUSSION

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

Included in the record are Form 4340 Certificates of Assessments and Payments, which substantiate the Burdines' tax liabilities. Dkt. 32, Exh. G, H, I, L, and M. Generated under seal and signed by an authorized delegate of the Secretary of the Treasury, Forms 4340 are admissible into evidence as self-authenticating official records of the United States, and these documents carry a presumption of correctness. Rossi v. United States , 755 F.Supp. 314, 318 (D.Or. 1990); Fed.R.Civ.P. 803(8) and 902(1). The "23-c" entries on the Form 4340 show that the taxes at issue were duly assessed and recorded. United States v. Chila [89-1 USTC ¶9299 ], 871 F.2d 1015, 1017 (11th Cir. 1989); Rossi, 755 F.Supp. at 318. The "Notice" entries on the Form constitute proof that adequate notice and demand was made. United States v. Lorson Electric Co., Inc. [73-1 USTC ¶9449 ], 480 F.2d 554, 555-56 (2d Cir. 1973).

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002, of Form 941 employment tax liabilities due from Stephen C. Burdine and the marital community of Stephen C. Burdine and Michelle S. Burdine was $14,954.69. Dkt. 32 and 33.

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002, of Form 1040 income tax liabilities due from Stephen C. Burdine and Michelle S. Burdine was $33,910.16. Dkt. 32 and 33.

The total outstanding balance of both employment and income tax liabilities due as of March 1, 2002, including statutory accruals through that date, was $48,864.85.

The Burdines contend that the Forms 4340 are unreliable, and that these forms cannot be verified by an audit trail of supporting documents. These arguments are without merit. The FOIA documents submitted by the Burdines do not show any errors in their accounts; and the Burdines have not shown any existing or potential problems with the Master File system used to record assessments of income or employment taxes against taxpayers such as the Burdines. The Burdines also argue that the absence of a "Non-Master File" account raises an issue of fact for trial. A Non-Master File is a manual accounting system controlling certain types of returns that are not processed through the general IRS computer system to the Master File. Non-Master File assessments are relatively uncommon. IRM 35.13.10.3. The Burdines have not shown how the absence of a Non-Master File rebuts the presumption of correctness of the Forms 4340.

The Burdines are indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties.

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

Under IRC §6321, the United States obtains a lien "upon all property and rights to property, whether real or personal, belonging to" any taxpayer who neglects or refuses to pay taxes after notice and demand. This lien arises as of the date of assessment and continues until the tax liability is extinguished. 26 U.S.C. §6322. It thus attaches to property acquired after the date of assessment but before the tax liability is extinguished. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267, 90 L.Ed. 56, 66 S.Ct. 108 (1945) (tax lien effective as against after-acquired property). It is effective as against the taxpayer without the filing of a notice of lien. See 26 U.S.C. §6323(a). It is effective as against third parties entitled to notice upon the filing of a notice of lien. 26 U.S.C. §6323(a), (f).

Federal tax assessments have been made against the Burdines, and they have failed to pay them after notice and demand. Statutory tax liens arose as of the dates of the assessments and attached to all of their property and rights to property then owned or after-acquired, including community property such as the Property. See Hyde v. United States [93-2 USTC ¶50,605] , 1993-2 U.S.T.C. P 50,605 (D.Ariz. 1993) (federal tax assessment against husband was community debt).

The United States has valid and subsisting liens on all property and rights to property of the Burdines, including the Property.

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

IRC §7403 provides authority for the court to order a judicial sale to satisfy unpaid tax liabilities, as follows:

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, 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 liability.

All parties having liens upon or claiming any interest in the property involved in this action have been named as defendants to this action, as is required by 26 U.S.C. §7403(b), including the beneficiary of the purchase money deed of trust, the trustee under that deed of trust, the local taxing authority, and several judgment creditors. Nations Credit Home Equity Services Corporation and Bishop, Lynch & White were named as defendants solely because they have interests of record in the Property. They and defendant Pierce County were dismissed without prejudice pursuant to stipulations with the United States approved by the court on January 25, 2002. Dkt. 30. The other defendants to this action, R.J. Coyer, Southern Washington Collection Bureau, Inc. and Lease & Industrial Collectors, Inc. were named as parties because their judgments against the Burdines may constitute liens on the Property; the court entered an order of default against these defendants on January 18, 2002. Dkt. 29. The Burdines appear to have discharged their debt to Lease & Industrial Collectors, Inc. in a Chapter 7 bankruptcy case filed in August 1992. Dkt. 32, Exh. 20-22.

Under 26 U.S.C. §7403(c),

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 a court in respect to the interests of the parties and of the United States.

See United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 76 L.Ed.2d 236, 103 S.Ct. 2132 (1983) (family home sold under section 7403 to satisfy tax liens arising from husband's tax liability).

The Burdines contend that they did not receive proper notice because they did not receive a statutory notice of a deficiency. This argument is without merit. The income taxes at issue were based on amounts voluntarily reported by the Burdines on Forms 1040. The employment taxes at issue are not subject to the deficiency procedures of 26 U.S.C. §6212(a).

In summary, the record shows that the Burdines have refused or neglected to pay federal tax liabilities. Liens for taxes have arisen against all of their property and rights to property, including the Property. The tax liens against the Property should be foreclosed. Those liens are junior in priority to any lien in favor of Pierce County for unpaid property taxes and special assessments. See 26 U.S.C. §6323(b)(6). They are also junior to the deed of trust in favor of Nations Credit Home Equity Services Corporation, since that deed of trust was recorded before the IRS recorded its notices of federal tax lien with the Auditor's office in Tacoma . See Dkt. 25 and 30. The government's tax liens are superior to the judgment liens against the Property held by R.J. Coyer and southern Washington Collection Bureau, d/b/a Pioneer Credit Company, because the notices of federal tax lien were recorded prior to the judgments. Dkt. 32, PP 16-18; 22-23. As between the two judgment liens, R.J. Coyer's is superior. Id. at PP 22-23.

Accordingly, the court should order a judicial sale of the Property, subject to the deed of trust in favor of Nations Credit Home Equity Services Corporation, with the proceeds to be distributed (1) to the U.S. Marshals Service for allowed costs of sale; (2) to Pierce County, for any real property taxes or special assessments constituting a lien having priority under 26 U.S.C. §6323(b)(6) as of the date of sale; (3) to the United States, to be applied toward the unpaid tax liabilities of the Burdines until those liabilities, including all accruals, are satisfied or the funds are exhausted; (4) if any excess funds remain after the subject liabilities are satisfied in full, to R.J. Coyer on account of his judgment lien; (5) if any excess funds remain after R.J. Coyer's judgment lien is satisfied, to Southern Washington Collection Bureau, d/b/a Pioneer Credit Company on account of its judgment lien; and (6) if any excess funds remain thereafter, to the Burdines.

Therefore, it is hereby

ORDERED that the United States ' Motion for Summary Judgment (Dkt. 31) is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.85, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States ' liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States is ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

The Clerk is directed to send uncertified copies of this Order to all counsel of record and to any party appearing pro se at said party's last known address.

JUDGMENT IN A CIVIL CASE

Decision by Court. This action came under consideration before the Court. The issues have been considered and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that the United States ' Motion for Summary Judgment is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.86, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above-described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States' Liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a/ Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States if ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.