Homesteaded Property page3

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Civil suits: Action to enforce lien or to subject property to payment of tax: Assessment: Notice and demand for tax: Validity of lien: Homesteaded property.--A federal court of appeals upheld the validity of a tax lien against the homestead interest of the husband, as protected under state (Texas) law, which remained unimpaired by the subsequent transfer of his rights to the wife in conjunction with divorce proceedings. Moreover, the lower court had properly valued the former wife's one-half interest in the homestead in an amount equal to the proceeds from the sale of the house. The appellate court rejected the wife's contention that notice and demand made upon her former husband in his capacity as sole shareholder of his corporation was not effective against him personally, since the husband had stipulated in a prior bankruptcy proceeding that the corporation was in fact his alter ego and there was no statutory requirement that separate notices be sent. Further, the appellate court also agreed with the lower court's conclusion that the government's interest in the property was superior to the taxpayer's, because under state law the divorce court strove for a division of marital property that was just and right and there was no basis for treating the division of property as a sale. Finally, the appellate court approved the lower court's method used to value the wife's one-half interest in the homestead at an amount equal to the proceeds from the sale of the house. In so holding, the appellate court noted that the wife's reliance upon dictum from L. M. Rodgers (83-1 USTC ¶9374) was misplaced, since the amount she received was greater than that to which she would have been entitled using the Rodgers formula.

M. Bruce Peele, Larry R. Jones, Jones & Brutsche, 2902 Carlisle, Dallas, Tex. 75204-1024, for plaintiff-appellant. James A. Rolfe, United States Attorney, Fort Worth, Tex. 76102, Glenn L. Archer, Jr., Assistant Attorney General, Michael L. Paup, William S. Estabrook, Michael J. Roach, Department of Justice, Washington, D. C. 20530, for defendant-appellee. Jay M. Goltz, 10300 N. Central Expy., Dallas , Tex. 75231 , for John A. Harris.

Before REAVLEY, JOHNSON and HIGGINBOTHAM, Circuit Judges.

REAVLEY, Circuit Judge:

The United States has prevailed in enforcing, against the sale proceeds of Sarah M. Harris' community property and homestead, its lien for taxes owed by her spouse. She initiated the action below because the United States refused to release its tax lien against the proceeds of the sale of her former residence located in Dallas , Texas . Harris argues that the summary judgment should be reversed because the lien in favor of the United States is invalid against her homestead interest in the property. She contends that, even if the lien is valid, her interest in the property is superior to the interest of the United States . Alternatively, she argues that the district court incorrectly valued her one-half interest in the homestead, which was protected under the holding in United States v. Rodgers [83-1 USTC ¶9374], 461 U. S. 677, 103 S. Ct. 2132, 76 L. Ed. 2d 236 (1983). We affirm.

I. Facts

John and Sarah Harris were married in 1973. In 1977 they purchased their residence by some cash and a mortgage. The proceeds from the sale of that residence are the subject of this dispute between Sarah Harris and the United States .

On October 28, 1977, John Harris incorporated Pal Drilling Company to engage in drilling for oil and gas. He incorporated Pal Production Company to operate any oil and gas wells that might be discovered. He also formed J. H. Development Company, a sole proprietorship, to buy oil and gas leases and to syndicate drilling ventures. These entities shared a single office and were all managed by John Harris.

During the first three quarters of 1978, Pal Drilling Company failed to remit to the United States federal taxes that were withheld from the wages paid to its employees during those quarters. Pal Drilling Company also failed to pay its tax due for the 1978 tax year under the Federal Unemployment Tax Act. On August 3, 1978, Pal Drilling Company owed to the United States taxes and accrued interest totaling $36,112.14. On November 13, 1978 and February 19, 1979, the Internal Revenue Service (IRS) assessed against Pal Drilling Company the $36,112.14 in unpaid taxes and interest.

On August 3, 1978, Pal Drilling Company and John Harris d/b/a Pal Drilling Company, Pal Production Company, and J. H. Development Company filed a Chapter 11 petition in bankruptcy. A Plan of Arrangement proposed by John Harris was filed in the bankruptcy court on April 13, 1978. The Plan provided that any claims by the IRS would be paid from the personal assets, including homestead property, of John Harris. On April 19, 1979, the IRS filed a proof of claim in the bankruptcy proceedings for the delinquent taxes and accrued interest.

On May 17, 1979, John Harris and the United States executed a Stipulation for Payment of Federal Taxes in which Harris admitted that the United States ' claim for $36,112.14 should be allowed in full. He also admitted that Pal Drilling Company was his alter ego and that he had received notice of the assessments by the IRS. The IRS filed its federal tax lien securing its claim on June 22, 1979.

The state court hearing on the divorce of Sarah and John Harris was held on June 7, 1979, and the judge announced the ruling from the bench. The court's written judgment was entered on July 13, 1979, providing that Sarah and John would retain the personal property in their possession. The couple's residence was awarded to Sarah, as her separate property, subject to a $4,500 lien in favor of John.

Sarah Harris sold her Dallas residence in September 1982, receiving $158,000 after costs of sale. The IRS claimed an interest in the proceeds, asserting its lien against the property of John Harris. In response, Sarah Harris filed the complaint underlying this action and deposited $70,000 in an interest-bearing escrow account pending resolution of the dispute.

II. Validity of the Lien

Sarah Harris argues that the United States did not have a valid lien against the property of John Harris because it did not meet the statutory requirements of assessment, see 26 U. S. C. §6203 (1982); 26 C. F. R. §301.6203-1 (1984), and notice and demand for payment, see 26 U. S. C. §6303(a) (1982); 26 C. F. R. §301.6303-1 (1984). The lien, if valid, arose at the time of assessment, see 26 U. S. C. §6322 (1982), and attached when demand was made and the taxpayer neglected or refused to pay the tax due, 26 U. S. C. §6321 (1982); 26 C. F. R. §6321 (1984).

The district court concluded that the United States had rendered an assessment against John Harris, relying on properly authenticated assessments, see 26 U. S. C. §7514 (1982); 300 C. F. R. §7514-1(a)(5)(ii) (1984), against John A. Harris, J. H. Development Company, Pal Production Company, and Pal Drilling Company. The court placed more importance, however, on the fact that John Harris had stipulated in bankruptcy proceedings that Pal Drilling Company was his corporate alter ego and that he had received the requisite notice and demand for payment of the taxes. The court noted that Sarah had produced no competent summary judgment evidence to the contrary. Concluding that a taxpayer and his corporate alter ego were not entitled to separate notices, the district court held that the United States had a valid lien against the property of John Harris, 588 F. Supp. 835.

Sarah contends that the district court erred in concluding that the United States rendered as assessment against John Harris. While there was a stipulation, apparently erroneous, that no separate assessment was made against John Harris, the summary judgment proof was that John Harris had stipulated in bankruptcy proceedings that Pal Drilling Company was his corporate alter ego. John admitted that he had so stipulated in his deposition testimony below. Sarah contends that a material issue of fact exists regarding the question whether Pal Drilling Company is the corporate alter ego of John Harris because, under United States v. Creel, 711 F. 2d 575, 578 (5th Cir. 1982), the separate taxable identity of Pal Drilling Company cannot be ignored. Whether or not Pal Drilling Company was a separate taxable entity is not the same question as whether it was an alter ego for the purpose of piercing the corporate veil. See Id. at 579 & n. 7.

Sarah further contends that the district court erred in concluding that a taxpayer and his corporate alter ego are not entitled to separate notices. We disagree. Although a separate assessment may not have been rendered against John Harris, it is undisputed that notice of assessment and demand for payment were received by Pal Drilling Company. We agree with the reasoning of the Tenth Circuit in Marvel v. United States [83-2 USTC ¶9659], 719 F. 2d 1507, 1513 (10th Cir. 1983). John Harris, sole stockholder and manager of Pal Drilling Company, could not seriously contend that notice to Pal did not operate as notice to him. See id. We believe that the assessments, issued in the name of Pal Drilling Company, were effective against John Harris. See also Valley Finance, Inc. v. United States [80-2 USTC ¶9554], 629 F. 2d 162, 169 (D. C. Cir. 1980) (alter ego of corporation not entitled to separate notice of deficiency).

Sarah further argues that the stipulation executed by John was a unilateral encumbrance of the homestead, which is void under Tex. Const. art. XVI, §50, or as the incurrence of a debt after the filing of a petition for divorce, proscribed by Tex. Fam. Code Ann. §3.57 ( Vernon 1975). We see it differently. As discussed above, the stipulation merely provided summary judgment evidence indicating that Pal Drilling Company was John's corporate alter ego. The fact was taken as established because Sarah failed to submit evidence to the contrary. All of John's property was therefore subject to the IRS tax lien. The liability of Pal Drilling Company for the unpaid employment taxes arose by virtue of its statutory duty to collect and remit the taxes. See 26 U. S. C. §§ 3101, 3102, 3301, 3402 (1982). John's admission of liability for those taxes did not constitute an encumbrance of the homestead or the incurrence of a debt.

Finally, relying on 26 U. S. C. §6323(a) (1982), Sarah argues that the tax lien, if it exists, is subordinate to her interest in the property because it was not filed until she "purchased" it through the divorce proceeding. The district court rejected this argument, concluding that the division of property by the divorce court was a division of marital property rights, not a sale. We agree. Texas courts do not attempt in divorce proceedings to divide marital property in an equal manner; they strive for a division that is "just and right." See Tex. Fam. Code Ann. §3.63(a) ( Vernon 1975); see also 13 Tex. Tech. L. Rev. 712 (1982). A substantially disproportionate exchange of marital property upon divorce may be considered a taxable event. See Siewert v. Commissioner [CCH Dec. 36,067], 72 T. C. 326 (1979). The fact that tax consequences may attach to such a transaction, however, do not convert it into an exchange "for adequate and full consideration in money or money's worth." See 26 U. S. C. §6323(h)(6) (1982) (defining "purchaser" as one who acquires property for adequate and full consideration). We affirm the district court's holding that the United States held a valid tax lien against the homestead of John Harris, unimpaired by the transfer of his rights through the divorce proceedings. ¹

III. Valuation of the Homestead

Sarah Harris argues, alternatively, that even if the United States had a valid lien, the district court erred in valuing her one-half interest in the homestead at an amount equal to the proceeds from the sale of the house. She relies on dictum from United States v. Rodgers [83-1 USTC ¶9374], 461 U. S. 677, 698, 103 S. Ct. 2132, 2145, 76 L. Ed. 2d 236 (1983), in arguing that the district court undervalued her homestead interest.

In Rodgers, the Supreme Court held that the United States can enforce a federal tax lien against the Texas homestead interest of a nondebtor spouse. Id. at 690-698, 103 S. Ct. at 2141-45. The Court also held that the innocent spouse must be compensated for the loss under 26 U. S. C. §7403 (1982). Id. at 698, 103 S. Ct. at 2145. The Court was not required to decide the method for compensating the innocent spouse, however, and it did not do so. In dictum and for purposes of illustration, it suggested the following method for valuing the homestead interest of an innocent spouse. First, the Court assumed that a homestead estate is the economic equivalent of a life estate. Next, it assumed that an 8% discount rate in a standard statutory or commercial table would be appropriate for valuing a life estate. Under those assumptions, it found that three nondelinquent or surviving spouses, each holding a homestead estate and aged 30, 50, and 70 years, would be entitled to compensation of approximately 97%, 89%, and 64%, respectively, from the proceeds of the sale of their homesteads. Assuming, but not deciding, that the three spouses had protected one-half interests in the underlying property ownership, the Court suggested that the respective homestead interests would be worth approximately 99%, 95%, and 82% of the proceeds from the sale of their homesteads. Id. at 677, 103 S. Ct. at 2132. It is important to recognize here that the Supreme Court, in its example, assumed that only one person or entity had a homestead interest. As explained below, the existence of another homestead interest in the property would have significantly decreased the percentage interests of the nondebtor spouse.

Relying on the above-described writing in Rodgers, Sarah argues that the district court undervalued her homestead interest. She urges that application of the formula in Rodgers might result in her homestead interest's being valued significantly in excess of 50% of the proceeds from the sale of her residence. To resolve the questions presented, we will examine below the assumptions made in Rodgers and also consider the arguments presented by the United States .

In Rodgers, the Supreme Court analyzed the Texas homestead estate and concluded that "the homestead laws have the effect of reducing the underlying ownership rights in a homestead property to something akin to remainder interests and vesting in each spouse an interest akin to an undivided life estate in the property." Rodgers, 461 U. S. at 686, 103 S. Ct. at 2138-39. The Court recognized that the analogy does not take into account all the nuances of the Texas homestead estate. Specifically, the homestead estate is different from a life estate because it can be lost by abandonment. Id. at 2139 & n. 11, 103 S. Ct. at 2139 & n. 11. In its analysis, the Rodgers Court pointed out the fact that a Texas homestead estate is not merely a statutory entitlement; it is a vested property right. Id. at 686, 103 S. Ct. at 2139.

At oral argument, the United States conceded that it is impossible to place a value on the possibility of abandonment. Likewise, in its brief, the United States computes the value of the homestead estate of Sarah Harris as though it were the economic equivalent of a life estate. Therefore, for purposes of valuing the Texas homestead estate, we will ignore any decrease in value attributable to the possibility of abandonment.

The Supreme Court, in its Rodgers example, assumed that the use of a standard statutory or commercial table and an 8% discount rate would be appropriate in calculating the value of the homestead estate. The United States asserts that the requisite factors for valuing the homestead interests here can be found in Treasury Publication 723A, Actuarial Values II: Factors at 6 Percent Involving One and Two Lives (1971). Sarah Harris argues that a question of fact exists as to which actuarial table appropriately measures her life expectancy; she does not challenge the use of a six percent rate to value her estate.

We see no reason here to depart from the use of the Treasury tables in determining the value of Sarah Harris' homestead estate. Although these tables have never attained the force of law, see Bowden v. Commissioner [56-2 USTC ¶11,626], 234 F. 2d 937, 942 (5th Cir.), cert. denied, 352 U. S. 916, 77 S. Ct. 215, 1 L. Ed. 2d 123 (1956), their use in determining the present value of future interests in property has been long recognized and approved by the Supreme Court, see Simpson v. United States, 252 U. S. 547, 550, 40 S. Ct. 367, 368, 64 L. Ed. 709 (1920).

The illustration in Rodgers was drawn under the assumption that there existed three nondelinquent surviving or remaining spouses of three different ages. Id. at 698, 103 S. Ct. at 2145 (emphasis added). Sarah Harris urges us here to value her estate as though she were a remaining spouse who had acquired the homestead free of any other interest in the property. To understand the fallacy of Sarah's argument, it is important to recognize that the actuarial tables used by the IRS to value Sarah's life estate "properly reflect the fact that the aggregate value of all the interests in a piece of property equals 100 percent of the value of the property." Stephens, Maxfield, and Lind, Federal Estate and Gift Taxation, ¶4.02[3][i] n. 149 (5th Ed. 1983). In this case, the following interests existed in the Harrises' residence. First, at the time of assessment notice and attachment of the lien, Sarah and John owned a joint homestead interest in the residence, which is the economic equivalent of a joint life estate. Second, Sarah and John each owned a contingent homestead interest or life estate, which would become a possessory interest in favor of the surviving spouse. Finally, Sarah and John jointly owned the remainder interest in the property. Under Rodgers, only the homestead interests of Sarah are protected and thus compensable upon foreclosure and sale. By virtue of its lien on the property of John Harris, the IRS was entitled to the value of John's interest in the homestead to the extent of its lien. See 26 U. S. C. §6342 (1982). The IRS was also entitled to the remainder interest in the property at the termination of Sarah's life estate. The joint-life tables account for the fact that more than one person has an interest in the life estate, see 20 C. F. R. §2031-10(e) (1984) (explaining that special factors must be used to value concurrent interests involving one or more lives), and they should have been used here to value Sarah's homestead interest properly. ²

The attorney representing Sarah Harris also contended at oral argument that Sarah's community property was not subject to the debts of John Harris. It is settled law in Texas, however, that debts contracted during marriage are presumed to be debts of the community, absent evidence that the creditor agreed to satisfy the debt solely from the separate property of the contracting spouse. See Cockerham v. Cockerham, 527 S. W. 2d 162, 171 ( Tex. 1975). No such evidence was submitted below and we may therefore apply the presumption here.

In an order denying Sarah Harris' objection to the entry of summary judgment, the district court refused her request for judicial valuation of her homestead interest. The court's order stated that she had received outright one-half of the sales proceeds from the residence. Concluding that her interest could not exceed her one-half share in the community property and finding that the escrowed funds at issue were from the other one-half of the sale's proceeds, the court refused to grant relief.

It is not entirely clear from this record whether Sarah actually received $88,000 in excess of the original mortgage on the home, but she stated in her deposition that, in addition to the $70,000 deposited in escrow, she had $88,000 remaining from the sale "after attorneys' fees and closing fees and everything was taken out." Even if we assume that Sarah had to pay the full amount of the original mortgage of $80,000 from the $88,000 she received, she will receive an amount in excess of her interest in the homestead, as computed by the United States . ³ She will be entitled to the $33,887.86 remaining after the United States satisfies its lien of $36,112.14 from the $70,000 in escrow. See 26 U. S. C. §6423(b) (1982). Together, the $8,000 she would have after satisfying the mortgage and the $33,887.86 remaining from the $70,000 total $41,887.86, or approximately 54% of the original proceeds. ⁴ If the mortgage was paid before she received the $88,000, she will receive funds totaling $121,887.86, or approximately 77% of the original proceeds. ⁵ Because Sarah's homestead interest in the proceeds will not be impaired in any event and because the United States did not cross-appeal, we affirm the judgment below.

AFFIRMED.

¹ The United States urges on appeal that Sarah Harris abandoned her interest in the homestead when she sold it. At most, a fact issue would exist on this point. Sarah Harris had six months after the sale to reinvest the proceeds of the sale of her homestead, thereby retaining her protected homestead interest. See Tex. Prop. Code Ann. §41.002(b) ( Vernon 1984); Jones v. Maroney, 619 S. W. 2d 296, 297-98 (Tex. Civ. App.--Houston 1981, no writ). No evidence was adduced below regarding her intent to protect her homestead interest in the proceeds of the sale.

² The single-life tables indicate the value of a life interest and a remainder interest of the single owner. See 20 C. F. R. §2031-10(f) (1984). If these tables were used to value the joint-life interests of a husband and wife, each 40 years of age, in a residence valued at $100,000, the following results would obtain. First, the husband's life estate would be worth 78.923% of the value of the residence, or $78,923. His remainder interest would be 21.077% or $21,077. The husband's life and remainder interests would total $100,000, the value of the residence. The wife's life estate would be worth 84.281% of the value of the residence or $84,281. Her remainder interest would be worth 15.719% or $15,719. Therefore, her total interests would also be worth $100,000, or 100% of the value of the house. Sarah's joint homestead estate cannot be valued as if it were a single life interest.

³ Applying John's approximate age of 52 and Sarah's age of 43, the United States computes Sarah's homestead interest to be 50.98%, according to the tables provided in Treasury Publication 723A.

⁴ Under the stated assumptions, the original net proceeds would have been $158,000 (sale price of home) less $80,000 (original balance of mortgage), or $78,000.

⁵ Under the stated assumptions, the original net proceeds would have been the $88,000 in Sarah's possession plus the $70,000 in escrow, or $158,000.

 

 

Iris C. Tillery, Plaintiff-Appellee v. Charles Parks, District Director of Internal Revenue Service, and The United States of America , by and through John E. Green, Defendants-Appellants

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 78-1915, 630 F2d 775, 9/9/80, Reversing District Court, 78-2 USTC ¶9737

[Code Sec. 6321]

Tax liens: Tax liability of one spouse: Attachment of liens to spouse's interest in Oklahoma homestead.--A federal tax lien arising solely through the tax liability of a husband, was properly attached to the husband's undivided one-half interest in the Oklahoma homestead held in joint tenancy by him and his wife. The district court erred in not drawing a distinction between the attachment of a federal tax lien to all the property of a delinquent taxpayer, which is mandatory, and the enforcement of the lien in a foreclosure action, which is discretionary.

Riley Brock, 3801 Oklahoma City , Okla. , for plaintiff-appellee. Larry D. Patton, United States Attorney, Oklahoma City, Okla., M. Carr Ferguson, Assistant Attorney General, Joan I. Oppenheimer, Gilbert E. Andrews, Crombie J. D. Garrett, Department of Justice, Washington, D. C. for defendants-appellants.

Before MCWILLIAMS, MCKAY and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge:

Plaintiff and her husband own their Oklahoma homestead as joint tenants. The husband defaulted in his obligation to pay $29,759.45 in withholding taxes as the responsible officer of two corporations. The Internal Revenue Service filed federal tax liens for the unpaid taxes against all of the husband's property, including his interest in the homestead.

Plaintiff brought this action to quiet title to the homestead. The district court granted relief on the authority of our decision in United States v. Hershberger [73-1 USTC ¶9289], 475 F. 2d 677 (10th Cir. 1973), and ordered the tax liens discharged as against the homestead property. The narrow issue raised by the Government's appeal is whether federal tax liens arising solely through the tax liability of one spouse may attach to his interest in the homestead of both spouses in Oklahoma . We hold they may.

The Internal Revenue Code of 1954, as amended, provides that the amount of a delinquent taxpayer's liability "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." 26 U. S. C. §6321. State law determines whether the taxpayer has "property" or "rights to property" to which the tax lien may attach. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513 (1960). See In re Carlson [78-2 USTC ¶9562], 580 F. 2d 1365, 1368-69 (10th Cir. 1978).

The taxpayer here, plaintiff's husband, owns an undivided half interest in the property. See Clovis v. Clovis , 460 P. 2d 878, 881-82 ( Okla. 1969); Reynolds, Co-ownership of Property in Oklahoma , 27 Okla. L. Rev. 585 (1974). Due to the homestead nature of this property, Oklahoma law places certain restrictions upon the joint owners and their creditors for the protection of the family. ¹ Nevertheless, these constitutional and statutory restrictions do not negate the proprietary interest of the taxpayer. As the Ninth Circuit has recognized, "all that section 6321 requires is that the interest be 'property' or 'rights to property.' It is of no statutory moment how extensive may be those rights under state law, or what restrictions exist on the enjoyment of those rights." United States v. Overman [70-1 USTC ¶9342], 424 F. 2d 1142, 1145 (9th Cir. 1970).

Plaintiff contends, however, that our decisions in United States v. Hershberger [73-1 USTC ¶9289], 475 F. 2d 677 (10th Cir. 1973), and Jones v. Kemp [44-2 USTC ¶9410], 144 F. 2d 478 (10th Cir. 1944), govern the instant case and preclude the attachment of a federal tax lien on homestead property. Hershberger was an action brought by the United States to foreclose on the Kansas homestead of a husband and wife to satisfy the unpaid tax liability of the husband. We refused to order sale of the property, holding that "[w]hile [the wife] is living on the property, the government may not enforce its tax lien against the homestead." 475 F. 2d at 682. Previously in Jones we said that "a wife is granted an indivisible and vested interest in homestead property, and one which cannot be subjected to levy and sale for the satisfaction of the Federal tax liability of her husband." 144 F. 2d at 480. We went on to hold, however, that the husband's property was not exempt from sale because the common-law marriage purporting to create the homestead right failed to ripen into a legal marriage under Oklahoma law. In neither Hershberger nor Jones was the propriety of attaching a lien to the husband's interest in homestead property at issue. Those cases dealt solely with foreclosure.

In holding for plaintiffs here, the district court erred by not drawing a distinction between the attachment of a federal tax lien pursuant to section 6321 and its enforcement in a foreclosure action pursuant to 26 U. S. C. §7403. Congress has provided that in a foreclosure action brought under section 7403, a court may decree a sale of any property subject to a tax lien. ² Consequently, we held in Hershberger that a court has equitable discretion to decide whether to order foreclosure. But no such discretion lies under section 6321. It provides that a lien shall attach to all the property of a delinquent taxpayer. Thus, the inquiry ends once it is determined that the husband has a property interest, of whatever extent, in the homestead.

Indeed, Hershberger itself recognized the validity of the lien as against the husband's interest in his Kansas homestead property. There, we said "§6321 imposes a lien upon delinquent taxpayer's real and personal property," before we added "it does not necessarily follow that §7403 requires the courts to satisfy this lien via a tax foreclosure sale." 475 F. 2d at 679. And in United States v. Eaves [74-2 USTC ¶9526], 499 F. 2d 869, 871 (10th Cir. 1974), we cited Hershberger for the proposition that "once the validity of the lien has been established," the court has discretion under section 7403 whether to order foreclosure.

We hold that the lien in this case properly attached to the husband's undivided one-half interest in his Oklahoma homestead. Accordingly, we reverse the judgment of the district court.

¹ See, in pertinent part:

Okla. Const. art. 12:

"§1. Extent and value of homestead . . ..

"The homestead within any city, town, or village, owned and occupied as a residence only, shall consist of not exceeding one acre of land, to be selected by the owner: Provided, That the same shall not exceed in value the sum of five thousand dollars, and in no event shall the homestead be reduced to less than one-quarter of an acre, without regard to value . . .."

§2. Exemption from forced sale--Consent of spouse to sale--Mortgages

"The homestead of the family shall be, and is hereby protected from forced sale for the payment of debts, except for the purchase money therefor or a part of such purchase money, the taxes due thereon, or for work and material used in constructing improvements thereon; nor shall the owner, if married, sell the homestead without the consent of his or her spouse, given in such manner as may be prescribed by law; Provided, Nothing in this article shall prohibit any person from mortgaging his homestead, the spouse, if any, joining therein; nor prevent the sale thereof on foreclosure to satisfy any such mortgage."

31 Okla. Stat. Ann. (Supp. 1979-1980):

"§1. Property reserved to heads of families--Exemption from attachment, execution or other forced sale

"The following property shall be reserved to every person owning a home and residing therein or to the head of every family residing in the state, exempt from attachment or execution and every other species of forced sale for the payment of debts except as herein provided.

"1. The home of such person or head of family. The homestead of the family shall consist of the home of the family whether the title to the same be lodged in or owned by the husband or wife."

² Section 7403 gives the Government authority to bring an action in district court to enforce a tax lien of the United States against the property of the delinquent taxpayer. In pertinent part, subsection (c) states: "The court . . . may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States ." 26 U. S. C. §7403(c).

 

 

 

Robert Shaw and Joan Helen Shaw, Appellants v. United States of America and Robert A. Riddell, Collector of Internal Revenue for the Sixth Internal Revenue Collection District of California, Appellees

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 18,855, 331 F2d 493, 4/16/64, Affirming District Court, 63-1 USTC ¶9496

[1964 Code Sec. 7421(a)]

Injunction against collection: Penalties for failure to pay over withheld taxes: Deficiency notice procedure.--A suit to enjoin collection of penalties assessed under Code Sec. 6672 for failure to collect, account for, and pay over withheld taxes, on the ground that the assessment had not been preceded by the statutory notice of deficiency, was dismissed on the ground that the statutory deficiency notice requirements do not apply to penalties assessed under Code Sec. 6672.

[1954 Code Sec. 6321]

Lien for taxes: Suit for cancellation of lien: California homestead property.--A suit by the wife of a delinquent taxpayer to quiet title to California homestead property and to have the federal tax lien cancelled, on the ground that it constituted a cloud upon her title to homestead property owned by her and her husband as joint tenants and not as community property, was dismissed on the ground that the lien attached only to the husband's interest in the property and did not encumber the wife's joint interest.

Ernest R. Mortenson, Eugene Harpole, 961 E. Green St. , Pasadena , Calif. , for appellant. Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph Kovner, George F. Lynch, Fred B. Ugast, Department of Justice, Washington, D. C. 20530, Francis C. Whelan, United States Attorney, Loyal E. Keir, Herbert D. Sturman, Assistant United States Attorneys, Chief, Tax Section, Los Angeles, Calif., for appellees.

Before BARNES, HAMLEY and BROWNING, Circuit Judges.

HAMLEY, Circuit Judge:

In this action Robert Shaw and his wife, Joan Helen Shaw, seek injunctive and other relief against the United States and the District Director of Internal Revenue, Sixth District , California (Director). In a first cause of action Mr. Shaw seeks to have a tax assessment adjudged void and to enjoin collection of the tax. In a second cause of action, Mrs. Shaw seeks to quiet title in certain property as against the United States . She also seeks to have cancelled, removed and set aside a federal tax lien, notice of which was filed in connection with the tax assessed against the husband.

The district court [63-1 USTC ¶9496] denied plaintiff's motion for a preliminary injunction and granted defendants' motion to dismiss the complaint as to both causes of action. Viewing this order as a final judgment dismissing the suit, plaintiffs appeal.

The tax which is at the root of Robert Shaw's claim consists of a penalty in the amount of $6,515.62. It was assessed against him on August 13, 1962, pursuant to section 6672 of the Internal Revenue Code of 1954 (Code), for wilful failure to collect, account for and pay over taxes of employees of Columbia Trailer Company, withheld from wages. A notice of a federal tax lien in that amount was recorded in the office of the County Recorder of Orange County , California . No notice of deficiency was sent to the taxpayer prior to the assessment of the deficiency.

The theory of Robert Shaw's claim is that the director was not authorized to assess this penalty until he complied with the deficiency-notice procedures of section 6212 and 6213 of the Code. Defendants, regarding this claim as solely one to enjoin the Director from collecting the tax, moved to dismiss it on the ground that, under section 7421(a) of the Code, the district court is without jurisdiction to restrain the assessment or collection of such a tax.

[Deficiency Notice Requirements]

Opposing this motion, Shaw argued that this court held, in Granquist v. Hackleman, 9 Cir., [59-1 USTC ¶9277] 264 F. 2d 9, that a tax assessed under section 6672 of the Code must be preceded by a statutory deficiency notice provided for in sections 6212 and 6213 of the Code. This being true, Shaw argued, injunctive relief is permissible under section 6213(a), which provides, in effect, that notwithstanding the provisions of section 7421(a), the making of an assessment or the beginning of a proceeding or levy under section 6213(a), without first having sent a deficiency notice "may be enjoined by a proceeding in the proper court."

The defendants contended, and the district court held, that a tax assessed under section 6672 is not subject to the deficiency notice procedures provided for in sections 6212 and 6213, and that the section 6213(a) exception to the section 7421(a) prohibition against suits to enjoin the assessment or collection of certain taxes is therefore inapplicable. The parties renew their respective contentions in this court.

The deficiency notice requirements as set forth in sections 6212(a) and 6213(a) are limited to subtitle A (income taxes, sections 1-1552) and subtitle B (estate and gift taxation, sections 2001-2524). The assessment here in question was made under section 6672 of the Code, which is part of subtitle F. It relates to taxes required to be withheld by the employer from the wages of the employee under section 3402, which is in subtitle C of the Code. It would therefore appear that the deficiency notice requirements of sections 6212 and 6213 apply to assessments other than those made under section 6672.

This view is confirmed when consideration is given to the purpose served by deficiency notices. Such notices are a part of the procedure to be followed in cases where the taxpayer is entitled to a redetermination of the deficiency before the Tax Court. See section 6213(a) of the Code; 9 Mertens, Law of Federal Income Taxation, §49.210. Since the Tax Court's jurisdiction is limited to income and profits taxes, estate taxes and gift taxes (section 7442 of the Code), there is no occasion for deficiency notices where the tax is of another kind, such as a penalty assessed under section 6672 for wilful failure to collect, account for and pay over taxes withheld from wages. See Enochs v. Williams Packing & Nav. Co. [62-2 USTC ¶9545], 370 U. S. 1, 2.

Further confirmation of this view is to be found in Enochs v. Green, 5 Cir., [59-2 USTC ¶9685] 270 F. 2d 558. The court there held that the District Director could not be enjoined from assessing a penalty under provisions of section 2707(a) of the Internal Revenue Code of 1939 ¹ on the ground of failure to issue the deficiency notice, because the deficiency notice requirements of section 272(a) of the Code of 1939 related only to income taxes, those of section 870 related only to estate taxes, and those of section 1011 related only to gift taxes. ² It was observed that no similar provisions are to be found with regard to withholding taxes. The court held that the absence of express provision for such notice was an indication of legislative intent that section 2707 assessments be made without compliance with any deficiency notice procedures.

Shaw relies upon our decision in Granquist v. Hackleman, 9 Cir., [59-1 USTC ¶9277] 264 F. 2d 9, as authority for his position that the assessment made under section 6672 could not be made unless a deficiency notice had been issued. This decision did not involve an assessment under section 6672 for a penalty due to failure to account for withholding taxes, but involved an assessment aor additions under section 6651 for failure to file an income tax return as required by subtitle A of the Code. It was our opinion in Granquist that section 6659(b), as it then read, required that additions assessed pursuant to section 6651 be collected according to the procedures and restrictions required with regard to the collection of deficiencies of income tax. For that reason, it was held that an assessment made under section 6651 could be enjoined for failure to comply with the sections 6212 and 6213 notice requirements.

At the time of the Granquist decision, section 6659(b) by its terms applied only to sections 6651 and 6653. Neither the sections construed nor the reasons relied upon in deciding Granquist v. Hackleman, supra, are applicable to resolving issues raised under section 6672. Since the case is clearly distinguishable, it is not controling in deciding the case beofre us. ³

Even though Granquist is distinguishable, however, Shaw hangs his case upon this statement in that case:

"§6651 assessments may be 'taxes', but they are not 'taxes imposed by subtitle A or B.' In short, the 'taxes' that are included in the statutory definition, of deficiencies are limited to those taxes imposed by sections 1 to 2524, while §6659(a)(2) allows for referring to additions to tax imposed by §§ 6651 to 6674 as 'taxes.'" Granquist v. Hackleman, supra, at 15. (Italics supplied.)

The emphasized portion of the statement, upon which appellant relies, is a correct statement of the law. Section 6659(a) provides that additions and penalties assessed under Chapter 68 (sections 6651 to 6674) shall be paid in the same manner as taxes, and that any reference in theCode to "tax" shall be deemed to refer also to additions and penalties set forth in this chapter. See, Mertens, Law of Federal Income Taxation, Code Commentary §6659.1. For this reason, even though section 6672 refers to the assessments authorized therein as "penalties," it is a "tax" within the meaning of the language of section 7421(a).

But it is not a tax with regard to which the deficiency notice procedure applies, because unlike the additions and penalties dealt with in Granquist, with regard to which section 6659(b) is applicable, there are no provisions requiring that section 6672 taxes shall be subject to the deficiency procedures. Additionally it may be noted that it is section 7421(a) which describes which actions may be brought to enjoin the assessment of taxes and penalties. Section 6659(a) by itself is neutral on that point.

For the reasons indicated the district court properly determined that it was without jurisdiction to entertain Robert Shaw's claim for injunctive relief. While he also sought an adjudication that the tax assessment is void, what has been said above demonstrates that in this respect he did not state a claim upon which relief can be granted. It follows that the court did not err in dismissing the first cause of action.

[Suit to Cancel Tax Lien]

Mrs. Shaw's claim is based upon the allegations that she owns certain property as joint tenant with her husband, that a declaration of homestead has been recorded by them on this property, and that the federal tax lien filed in connection with the tax assessment made against her husband is a cloud upon her title and encumbers her use and enjoyment of this property. As before indicated, she seeks to quiet title to the property and to have the federal tax lien cancelled, removed and set aside.

The appellees moved to dismiss this claim on the grounds that 28 U. S. C. §2410 (1958) does not confer jurisdiction upon the federal courts to entertain such a claim and that, even if jurisdiction were present, the complaint fails to state a claim upon which relief can be granted. The district court dismissed the second cause of action on the grounds that (1) the United States had not consented to be sued and (2) that there was no jurisdictional basis for this suit--which was characterized as a suit for partition--in 28 U. S. C. §2410 or any other section of the United States Code.

Although the district court characterized this as an action for partition, it was brought essentially as an action to quiet title. We have held that 28 U. S. C. §2410 waives immunity of the United States in suits brought to quiet title to land upon which a federal tax lien is being claimed. United States v. Coson, 9 Cir., [61-1 USTC ¶9219] 286 F. 2d 453, 456-459.

Contrary to the apparent position of another Circuit, ⁴ it is the position of this Circuit that 28 U. S. C. §2410 does not, in addition to waiving sovereign immunity, confer jurisdiction upon the federal courts. Seattle Ass'n of Credit Men v. United States, 9 Cir., [57-1 USTC ¶9402] 240 F. 2d 906; Wells v. Long, 9 Cir., 162 F. 2d 842. However, we have held in United States v. Coson, supra, that where a plaintiff alleges that he is the owner of land upon which a federal tax lien is claimed, and specifically alleges reasons why the claim of lien is invalid, he has stated a claim within the federal jurisdiction authorized by 28 U. S. C. §1340 (1958).

Although section 7421 of the Code precludes district court jurisdiction to entertain her husband's suit to enjoin collection of the tax, it does not prevent Mrs. Shaw from asserting her independent claim. The reason for this is that section 7421 restrains the taxpayer from bringing the specified types of suits, but it does not restrain third persons who claim that their property is being taken to satisfy the tax liability of another. ⁵

Accordingly, the district court should not have dismissed Mrs. Shaw's claim for the jurisdictional reasons stated in the conclusions of law. However, it should have dismissed her cause of action for failure to state a claim upon which relief can be granted.

Mrs. Shaw takes the position that the filing of a federal tax lien upon the property of her husband constitutes a cloud upon her title to homestead property owned jointly by her and her husband. She relies chiefly upon Jones v. Kemp, 10 Cir., [44-2 USTC ¶9410] 144 F. 2d 478, which held that an Oklahoma wife had an indivisible, vested interest in homestead property located in that state which could not be subjected to levy and sale for the federal tax liability of her husband.

Although there is an apparent conflict of authority as to whether a federal tax lien is valid upon a homestead interest, resolution of the issue turns upon the nature of the interest created by the state homestead laws. ⁶ Where the state homestead laws do not create a present property interest, but merely confer privileges and exemptions, the federal tax lien is good against homestead property. Weitzner v. United States, 5 Cir., [62-2 USTC ¶9773] 309 F. 2d 45.

This court has descirbed the California homestead estate as "a sort of joint tenancy," Tooley v. Comm'r, 9 Cir., [41-2 USTC ¶9540] 121 F. 2d 350, 357. Nevertheless the California state courts have repeatedly held that the filing of a homestead declaration in that state creates merely a privilege or exemption attached to but not otherwise affecting title. See, e.g., Gerlach v. Copeland, 212 Cal. 758, 300 Pac. 818; Smith v. Bangham, 156 Cal. 359, 104 Pac. 689. ⁷ Consistent with this view, this court has held with regard to California homesteads upon community property that federal taxes are a lien upon all of a delinquent taxpayer's property, including the entire homestead property. United States v. Heffron, 9 Cir., [47-1 USTC ¶9194], 158 F. 2d 657. ⁸

Mrs. Shaw alleged that the homestead property in question is owned by her and her husband as joint tenants and not as community property. The United States does not contend otherwise. The notice of lien with respect to the husband's taxes did not, and need not, describe any specific property. See United States v. Union Central Life Ins. Co. [62-1 USTC ¶9103], 368 U. S. 291. It is valid only against property belonging to him under the relevant state law. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509; United States v. Durham Lumber Co. [60-2 USTC ¶9539], 363 U. S. 522; Stuart v. Chinese Chamber of Commerce, 9 Cir., [48-2 USTC ¶9315] 168 F. 2d 709. The husband's joint interest in California land is such a property as is subject to the tax lien. ⁹ The notice of lien is therefore valid as against the husband's joint interest.

Since the lien attaches only to the delinquent taxpayer's property and extends no further, ¹⁰ this federal tax lien does not encumber Mrs. Shaw's joint interest. Since her allegations show no invasion of any property interest of her own, her complaint fails to state a claim for which relief can be granted.

Affirmed.

¹ The counterpart of section 2707(a) of the 1939 Code is to be found in section 6671(a) and section 6672 of the 1954 Code.

² The deficiency notice requirements of the 1939 Code with regard to income tax (section 272(a)), estate tax (section 871(a)), and gift tax (section 1012(a)) have been incorporated into sections 6212 and 6213 of the 1954 Code.

³ Not only does Granquist v. Hackleman, supra, have no application in construing cases under 6672, but its holding is no longer applicable with regard to sections 6651 and 6659(b). Congress amended section 6659(b) at 74 Stat. 132 (1960). The express purpose of the amendment was to nullify the holdings of this case, Strawberry Hill Press, Inc. v. Scanlon, 2 Cir., [60-1 USTC ¶9162] 273 F. 2d 306 (involving an assessment under section 6651), and Enochs v. Muse, 5 Cir., [59-2 USTC ¶9686] 270 F. 2d 528 (involving an assessment under section 6654), both of which followed Granquist. 1960-1 Cum. Bull. 840 and 843.

⁴ United States v. Morrison, 5 Cir., [57-2 USTC ¶9801] 247 F. 2d 285, 290; Maule Indus., Inc. v. Tomlinson, 5 Cir., [57-1 USTC ¶9654] 244 F. 2d 897, 901.

⁵ See e.g., Botta v. Scanlon, 2 Cir., [61-1 USTC ¶9293] 288 F. 2d 504; Maule Indus., Inc. v. Tomlinson, 5 Cir., [57-1 USTC ¶9654] 244 F. 2d 897; Adler v. Nicholas, 10 Cir., [48-1 USTC ¶9205] 166 F. 2d 674; Jones v. Kemp, 10 Cir., [44-2 USTC ¶9410] 144 F. 2d 478.

⁶ Mertens, Law of Federal Income Taxation, §54.52, n. 78.

⁷ See, also, Holmes v. Grange Fraternal Fire Ins. Ass'n, 102 Cal. App. 2d 911, 228 P. 2d 889; Rich v. Ervin, 86 Cal. App. 2d 386, 194 P. 2d 809; Arighi v. Rule & Sons, Inc., 41 Cal. App. 2d 852, 107 P. 2d 970; Hannon v. Southern Pac. R.R. Co., 12 Cal. App. 350, 107 Pac. 335.

⁸ The reason for this result is that state exemption laws do not protect property from federal tax liens. Kieferdorf v. Comm'r, 9 Cir., [44-1 USTC ¶9323] 142 F. 2d 723.

⁹ United States v. Brandenburg, S. D. Cal., [52-1 USTC ¶9342] 106 F. Supp. 82; United States v. Borcia, S. D. Cal., [58-1 USTC ¶9119] 1 A. F. T. R. 2d 319; United States v. Beggerly, S. D. Cal., [52-1 USTC ¶9304] 44 A. F. T. R. 1149.

¹⁰ See , United States v. Winnett, 9 Cir., [48-1 USTC ¶9115] 165 F. 2d 149, 151; Karno-Smith Co. v. Maloney, 3 Cir., [40-2 USTC ¶9533] 112 F. 2d 690, 692.

 

 

 

United States of America , Appellant, v. William I. Heffron, Trustee in Bankruptcy, Ruth Adams and Bert O. Adams, Appellees

(CA-9), United States Circuit Court of Appeals for the Ninth Circuit, No. 11226, 158 F2d 657, January 7, 1947, Cert. denied, 331 U. S. 631, 67 S. Ct. 1510

Appeal from the District Court of the United States for the Southern District of California, Central Division.

Lien for taxes: Property subject to lien: Effect of California homestead exemption.-- California homestead exemption is ineffective against lien for federal taxes. Decision of the District Court reversed and remanded.

Sewall Key, Acting Assistant Attorney General, J. Louis Monarch, S. Dee Hanson and Arthur J. Jacobs, Special Assistants to Attorney General, Washington, D. C., Charles H. Carr, U. S. Attorney, E. H. Mitchell, George M. Bryant, Assistant U. S. Attorneys, and Eugene Harpole, Special. Attorney, Bureau of Internal Revenue, Los Angeles , Calif. , for appellant. J. N. Hastings, Robert G. Blanchard and Martin Gendel, Los Angeles , Calif , for appellees.

Before MATHEWS, STEPHENS and ORR, Circuit Judges.

[The Facts]

MATHEWS, Circuit Judge:

On December 21, 1942, Bert O. Adams and Ruth Adams, husband and wife, residents of California , acquired title to some real property in Inglewood , California . By a declaration executed, acknowledged and filed for record on November 5, 1943, they selected that property as their homestead. ¹ Prior to June 2, 1944, Federal taxes--withholding taxes, insurance contributions taxes, unemployment insurance taxes and coin-operated amusement device taxes--aggregating more than $12,000 were assessed against Bert O. Adams. On June 2, 1944, Bert O. Adams was adjudged a bankrupt. The case was referred, and William I. Heffron was appointed trustee, On October 20, 1944, appellant, the United States, filed its claim in bankruptcy for the taxes assessed as aforesaid. On or about November 7, 1944, the trustee sold the homestead property, free and clear of liens, for $8,935.92, subject to the bankruptcy court's approval. On December 6, 1944, the referee in bankruptcy entered an order approving the sale. On April 26, 1945, the referee entered an order directing that the proceeds of the sale ($8,935.92) be distributed as follows: $6,967.96 to Ruth Adams and $1,967.96 to appellant's collector of internal revenue. From a judgment affirming the referee's order of April 26, 1945, this appeal is prosecuted.

It is conceded that the interests of the bankrupt and Ruth Adams in the homestead property were equal interests, and that therefore $4,467.96 (the proceeds of the sale of Ruth Adams' interest in the homestead property) should be distributed to her. The question here is: How should the other $4,467.96 (the proceeds of the sale of the bankrupt's interest in the homestead property) be distributed?

[Conclusion]

Ruth Adams contends that, by reason of the homestead declaration of herself and the bankrupt, the $4,467.96 here in question is subject to an exemption of $2,500 (one-half of $5,000) ² which should be distributed to her, leaving only $1,967.96 for appellant. This contention, which the court below upheld, must be rejected for the following reasons:

The Federal taxes assessed as aforesaid constituted liens in favor of appellant upon all property of the bankrupt, ³ including his interest in the homestead property, and, that interest having been sold, constitute liens upon the proceeds thereof--the $4,467.96 here in question. ⁴ Against such liens, exemptions prescribed by State laws are ineffective. ⁵ Bankruptcy does not invalidate such liens or prevent their enforcement. ⁶ Section 6 of the Bankruptcy Act, 11 U. S. C. A. §24, recognizes exemptions prescribed by State laws, but does not render such exemptions effective against Federal tax liens. It follows that the $4,467.96 should be paid to appellant.

Judgment reversed and case remanded for further proceedings in conformity with this opinion.

¹ See §§ 1237-1269 of the Civil Code of California .

² See §1260 of the Civil Code of California .

³ 26 U. S. C. A. Int. Rev. Code, §§ 3670-3679.

⁴ In re Pennsylvania Central Brewing Co. , 3 Cir., 135 Fed. (2d) 60.

⁵ Kieferdorf v. Commissioner, 9 Cir., 142 Fed. (2d) 723 [44-1 USTC ¶9323]; Cannon v. Nicholas, 10 Cir., 80 Fed. (2d) 934 [35-2 USTC ¶9672]; Kyle v. McGuirk, 3 Cir., 82 Fed. (2d) 212 [36-1 USTC ¶9121]; Shambaugh v. Scofield, 5 Cir., 132 Fed. (2d) 345 [42-2 USTC ¶9826]; Jones v. Kemp, 10 Cir., 144 Fed. (2d) 478 [44-2 USTC ¶9410].

⁶ See §67(b) of the Bankruptcy Act, 11 U. S. C. A. §107(b); Heyward v. United States , 5 Cir., 2 Fed. (2d) 467 [1925 CCH ¶7019, 1925 CT ¶3872]; In re F. MacKinnon Mfg. Co., 7 Cir., 24 Fed. (2d) 156; In re Pennsylvania Central Brewing Co., supra.

 

 

 

United States of America , Plaintiff v. Roland P. Bachman, Vickie L. Bachman, et al., Defendants

U. S. District Court, So. Dist. Iowa, Cen. Div., Civil No. 79-584-E, 584 FSupp 1002, 2/3/84

[Code Sec. 7403]

Lien for taxes: Foreclosure: State homestead exemption: Joing tenants.--In line with last year's United States Supreme Court decision in the Rodgers case (83-1 USTC ¶9374), a district court ruled that the IRS's authority under Code Sec. 7403 to require a judicial sale of a married couple's entire family homestead, owned by them in joint tenancy with right of survivorship, in order to collect delinquent taxes owed solely by the husband, was not outweighed by Iowa state law which prohibited such sale without the other spouse's approval. Half of the sale proceeds had to be given to the wife and the husband's share would be used to pay the government and other creditors. On remand from the Eighth Circuit Court of Appeals, the district court was ordered to reconsider its earlier decision favoring the sale in light of the equitable considerations delineated in the Rodgers case as the basis for determining whether a sale actually is warranted. Only one consideration, whether the government would be able to collect its rightful share of the husband's interest in the homestead without the sale, was strong enough to overcome the need for the sale, but since the government was unable to collect its share without the sale, the sale was ordered.

Richard C. Turner, United States Attorney, Des Moines , Iowa 50309 , for plaintiff. John F. Davis, William D. Baker, Davis, Baker and Bergman, 514 East Locust Street, Des Moines, Iowa 50309, for defendant Scandia Savings & Loan, Richard D. Hermann, Hermann Law Firm, 315 S. W. Walnut, Ankeny, Iowa 50021, for defendants Roland & Vickie Bachman.

Order

O'BRIEN, District Judge:

This matter comes before the Court on a remand from the Eighth Circuit Court of Appeals following judgment entered by this Court in favor of the plaintiff. The sole issue presently before the Court, as stated by the Court of Appeals, is whether equitable considerations set forth in United States v. Rodgers [83-1 USTC ¶9374], No. 81-1476 (U. S. Supreme Court slip op., May 31, 1983), should cause this Court to reconsider its order that the homestead of Roland and Vickie Bachman be sold in its entirety with Vickie Bachman to receive one-half of the proceeds and the remaining sum to be paid to the plaintiff and other creditors of the Bachmans. A hearing was held in Des Moines , Iowa on October 26, 1983 with the Bachmans, the Government, and Scandia Savings represented by counsel. At the hearing, it was indicated that further discovery may assist in resolving the question currently before the Court. The parties were, therefore, given thirty days to engage in additional discovery and to file further briefs in the matter. By December 19, 1983, the three parties represented at the hearing had filed additional briefs, but no new discovery has been completed. The Court has contacted the parties and has been informed that no discovery is contemplated and that the matter should be deemed fully submitted. After carefully considering the arguments set forth in the parties's briefs, the Court concludes that the Government may sell the entire homestead in this situation.

As previously stated, the only issue presently before the Court is whether the Government is entitled, under 26 U. S. C. §7403, to a judicial sale of the entire homestead to collect delinquent taxes from only one of the cotenants. Specifically, in the present case it is undisputed that Roland Bachman does owe a substantial amount of delinquent taxes but that his wife and cotenant of their homestead, Vickie Bachman, owes no delinquent tax. The Bachmans own their homestead as joint tenants with the right of survivorship. Under Iowa law, joint tenants are presumed to own an undivided per capita interest unless intent to the contrary is expressed in the deed or instrument of conveyance. See Frederick v. Shorman, 147 N. W. 2d 478, 482-83 ( Iowa 1966). In the present case, the defendants have argues that Vickie Bachman actually contributed the majority of the funds that purchased the homestead and thus should be able to overcome the presumption of equal ownership with her husband. Earlier in these proceedings, however, the defendants admitted that Roland Bachman owned a one-half undivided interest in the homestead. See Responses to Requests for Admissions, filed March 21, 1980. Any matter admitted under rule 36 of the Federal Rules of Civil Procedure is conclusively established unless the court on motion permits withdrawal or amendment of the admission. Rule 36(b), Federal Rules of Civil Procedure. No such motion or request has been placed before the Court. Furthermore, the admission supports the presumption that the Bachmans own their homestead in equal shares. The Court, therefore, finds that Roland and Vickie Bachman own the homestead in question in equal shares as joint tenants.

The Court further finds that, while it is true that Iowa law in the present situation would treat the Bachmans as each owning an undivided one-half interest in the homestead, it is also true that Iowa law prevents either spouse from conveying his or her interest, either voluntarily or involuntarily, for the benefit of creditors or for any other reason without the approval of the other spouse. See Iowa Code §561.13. Similarly, the homestead is exempt from judicial sale in Iowa . Iowa Code §561.16. It is clear, therefore, that in the normal course of events, without considering 26 U. S. C. §7403, a nonindebted spouse would have a legally recognized expectation that the homestead in which he or she held an interest would not be subject to forced sale by the creditors of a delinquent taxpayer spouse.

In United States v. Rodgers, supra, the United States Supreme Court stated several equitable considerations for the trial court to examine in determining whether a sale of property under §7403 should be prevented to protect the interests of non-delinquent third parties. The second consideration stated by the Supreme Court seems to have particular application to the present case. Specifically, the trial court is directed to consider "whether the third party with a nonliable separate interest in the property would, in the normal course of events (leaving aside §7403 and eminent domain proceedings, of course), have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors." The issue before the Supreme Court in Rodgers was precisely the situation faced by this Court except that Rodgers dealt with Texas homestead laws. With regard to the second consideration stated above, the Supreme Court pointed out that Texas homestead laws are almost absolute in the protections against forced sale, with the exception of equitable orders in divorce settlements. Id. , slip op., at p. 32 and n. 42. In the present case, the Government seems to assert that homesteads may be involuntarily sold but cites the Court only to cases involving divorce decrees. It appears, therefore, that Iowa law is, in effect, precisely the same as Texas laws with regard to protection of homesteads against involuntary sales. The significance of this conclusion is that Justice Brennan, writing the decision of the Court in Rodgers, stated that Texas homestead laws are on an extreme end of the continuum with regard to the expectations of nondelinquent cotenants. While not specifically stating that the situation presented under Texas law would prevent a forced sale, the Supreme Court clearly felt that, if no other equitable considerations intervened, a sale in such a situation would likely be improper.

In the present case, the Court is presented with an equitable situation that may overcome the interest of the nondelinquent cotenant, Vickie Bachman, in preventing the forced sale of the homestead. This consideration is that the Government would in all likelihood suffer prejudice to its financial interests if it were allowed to sell only the equitable interest currently owned by Roland Bachman. This is the first equitable consideration set out in the Rodgers case. Id. , at p. 31. Although the parties in this case seem to agree that the Government may at least attempt to sell the equitable interest of Roland Bachman, §561.13 of the Iowa Code clearly states that: "No conveyance or encumbrance of . . . the homestead, if the owner is married, is valid, unless the husband and wife join in the execution of the same joint instrument. . . ." (emphasis added) The Court fells that the Government may well be hardpressed to find a buyer willing to purchase the equitable interest of Mr. Bachman in the homestead which, in all likelihood, would be sold without the consent of Mrs. Bachman, and then attempt to collect on his purchased interest when the homestead is sold or passed through Mrs. Bachman's estate. The validity of the purchaser's interest may well be challenged as having failed to comply with §561.13. The Court concludes, therefore, that the Government also has an interest in this situation that would be severely prejudiced by a refusal to allow the sale of the entire homestead property.

The Court is now, therefore, faced with the dilemma of balancing the interest of Mrs. Bachman in preventing a forced sale with the interest of the Government in seeing that its right to collect taxes is exercised. The parties have made no additional record nor have they pointed out to the Court portions of the record previously made in the trial of this matter, evidence that would tip the consideration of these competing interests one direction or another. The Court has found, however, a statement by the Supreme Court in the Rodgers case that does tip the balance. The Supreme Court stated that: "We do emphasize, however, that the limited discretion accorded by §7403 should be exercised rigorously and sparingly, keeping in mind the government's paramount interest in prompt and certain collection of delinquent taxes." United States v. Rodgers, supra, slip op., at p. 33. In light of the fact that, in the absence of a forced sale, the Government may well be unable to collect any of its rightful share of Roland Bachman's interest in the homestead, the Court feels that the homestead should be sold, with half the proceeds to be paid to Vickie Bachman and the remaining proceeds to be paid to the Government to satisfy the judgment previously entered in this case and with any remaining proceeds to be divided among the remaining creditors and Roland Bachman, as described in this Court's memorandum order of December 22, 1981.

IT IS THEREFORE ORDERED that this Court's order of December 22, 1981 be complied with in its entirety with respect to the sale of the homestead of Roland and Vickie Bachman.

 

 

 

United States of America , Plaintiff-Appellee v. Roland P. Bachman and Vickie L. Bachman Defendants-Appellants

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 82-1290, 710 F2d 484, 6/30/83, Remanding District Court, 82-1 USTC ¶9126

[Code Sec. 7403]

Lien for taxes: Property exempt from levy: Foreclosure: Iowa homestead.--The government may sell a homestead held as joint tenants with right of survivorship under Iowa law (the funds for purchase of same having been provided by the wife tenant) in order to enforce the tax liability of the husband tenant. However, the case was remanded to the district court for further proceedings in accordance with the Supreme Court's opinion in U. S. v. Rogers, 83-1 USTC ¶9374, which provided that a non-delinquent spouse is entitled to the portion of the proceeds that represents complete compensation for the loss of the homestead estate.

Richard C. Turner, United States Attorney, Des Moines, Iowa 50309, Glenn L. Archer, Jr., Assistant Attorney General, Michael L. Paup, Wynette J. Hewett, William P. Wang, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Richard D. Hermann, Bill Durrenberger, 315 S. W. Walnut Street , Ankeny , Iowa 50021 , for defendants-appellants.

Before HEANEY and GIBSON, Circuit Judges, and DUMBAULD, ^* Senior District Judge.

PER CURIAM:

This case presents the question whether the Government may sell, under 26 U. S. C. 7403, a homestead held as joint tenants with right of survivorship under Iowa law (the funds for purchase of same having been provided by the wife tenant) in order to enforce the tax liability of the husband tenant.

At the request of the parties decision was deferred pending disposition by the Supreme Court of a case which it was thought might be determinative of the case at bar.

On May 31, 1983, the Supreme Court decided U. S. v. Rogers [83-1 USTC ¶9374], No. 81-1476 October Term 1982, involving a homestead under Texas law. In a 5 to 4 decision the Court held that the entire property may be sold, but that there is a degree of discretion vested in the District Court and certain specified factors to be considered in determining the appropriate action for protection of non-delinquent third parties. In Rogers the Court remanded for exercise of equitable discretion by the District Court in the first instance.

In our opinion the same course should be followed in the case at bar. We remand the cause to the District Court, for further proceeding in accordance with the Supreme Court's opinion in Rogers .

Remanded.

^* The Honorable Edward Dumbauld, Senior United States District Judge for the Western District of Pennsylvania, sitting by designation.

 

 

United States of America, Appellant v. Fay Heasley, et al., Appellees Fay Heasley and Selma Heasley, Appellants v. United States of America, and Henry W. Anderberg, Receiver, Appellees Fay Heasley and Selma Heasley, et al., Appellants v. United States of America, and Henry W. Anderberg, Receiver, Appellees

(CA-8), U. S. Court of Appeals, 8th Circuit, Nos. 16,470, 16,542, 16,543, 283 F2d 422, 10/24/60, Affirming and reversing an unreported District Court decision

[1954 Code Secs. 6321-6323]

Tax liens: Priority over homestead and local taxes: Release of lien.--Homestead exemptions prescribed by state laws are of no effect as against Federal tax liens. U. S. liens for taxes had priority, furthermore, over local taxes and the equities of tax redemption certificate holders because they were first in point of time. A Government lien for taxes against all of the property of a tax delinquent is not released by the tendering of a promissory note, by a judicial sale purchaser, in an amount in excess of the tax lien.

Helen Buckley, Tax Division, Department of Justice, Washington 25, D. C. (Howard A. Heffron, Acting Assistant Attorney General, Lee A. Jackson, A. F. Prescott, Department of Justice, Washington 25, D. C., with her on brief), for appellant. J. F. X. Conmy, 212 Fourth Street , Bismarck , N. D., for Heasleys. Philip B. Vogel, 201/2 Broadway, Fargo, N. D., for Stutsman Implement Co., Inc., and Midwest Motors. Herman Weiss, 119 Second Street Southwest, Jamestown , N. D., for Henry W. Anderberg, Receiver.

Before SANBORN, WOODROUGH, and MATTHES, Circuit Judges.

MATTHES, Circuit Judge:

These appeals, separately taken, were consolidated for oral argument, and while they involve different orders of the district court, they grow out of the same litigation and can be disposed of in one opinion.

[Question of Priority of Rights]

In No. 16,470, the Government appeals from that portion of the order of the district court entered on April 8, 1960, finding that inasmuch as the monies on deposit with the clerk of that court, and the note secured by mortgage on the real estate satisfied the Government's lien, all other property belonging to the receivership estate should stand released from the Government's lien. ¹ Briefs on this issue have also been filed by the Stutsman County Implement Co., Inc., and Midwest Motors, defendants in the original foreclosure action brought by the United States . As holders of certain personal property encumbered by the lien, these companies support the portion of the order releasing the lien.

In appeal No. 16,542, Fay Heasley and Selma Heasley, his wife, two of the defendants in the action, appeal from the order of the district court, confirming the sale by the receiver of the real estate, and rejecting the bid of Fay Heasley, Trustee.

In appeal No. 16,543, Fay Heasley, Selma Heasley, Bob Hendrix, Arley Herr and Paul Heasley appeal from the order confirming the sale of real estate and from the order entered on April 8, 1960, concerning redemption of outstanding tax certificates. ²

[Facts Reviewed]

Much of the factual background is developed in the March 6, 1959 memorandum opinion of the district court adjudicating the respective rights of the parties in the original foreclosure action, reported in 170 F. Supp. 738 [59-1 USTC ¶9295]. Fay Heasley was indebted to the Government for income taxes for the calendar years 1944 through 1949, and upon trial of the main action brought to foreclose the Government's lien against Fay's properties, it was stipulated that for said years the tax liability, with statutory penalties and interest, was $198,198.92 as of December 29, 1958, with interest accruing thereon at the rate of $25.22 each day since that date. ³

After a plenary hearing, the district court found that the Government had a valid and subsisting lien upon all of the property owned by the defendant Fay Heasley, consisting of certain cash on deposit with the clerk of the court, cattle, farm machinery, equipment and grain described in the inventory filed by the receiver, and a large tract of real estate in Stutsman County, North Dakota. See 170 F. Supp. 742 and 743. Following the filing of the court's memorandum opinion, and on April 4, 1959, its formal judgment and decree was entered whereby the rights of all the parties were adjudicated. Fay Heasley filed a notice of appeal from this judgment, but failed to prosecute the same, and on December 28, 1959, the appeal was dismissed for want of prosecution.

[Execution Sale ]

In conformity with the order of the court, the receiver advertised the real estate for sale and received a number of different bids. On March 24, 1960, after hearing, the court confirmed a sale of all the real estate to Arvel Glinz and Marjorie Glinz, husband and wife, for the total consideration of $225,300, payable $45,300 in cash upon confirmation of the sale, $100,000 of the balance payable in four equal annual installments, commencing March 1, 1961, and final installment of $80,000 due on March 1, 1965. The entire unpaid balance was to be evidenced by note secured by mortgage on the real estate, bearing interest at 5% per annum. ⁴

A small portion of the real estate was owned by Fay and Selma Heasley, as joint tenants, and approximately 121/2% of the purchase price was attributed to the joint tenancy. One-half of this amount, $13,833.42, was set aside for Selma .

The order of confirmation was amended in certain respects on April 8, 1960. Pertinent to and forming the basis of appeal in No. 16,470 is the ruling that the Government's lien was satisfied by the funds on deposit with the clerk and the amount of the note given by the purchasers, and directing that the Government's lien on all other property of the taxpayer Heasley stand released. This would have the effect of releasing personalty said to have a value of approximately $68,000 from the Government's lien.

Here, it should be noted that this is the second time certain facets of this litigation have reached this Court. In United States v. Stutsman County Implement Co., 274 F. 2d 733 [60-1 USTC ¶9224], we considered and reversed the action of the district court in releasing the Government's lien from farm machinery and an automobile taken in trade on new machinery purchased by Heasley.

Further discussion of the facts will ensue as the questions presented are met and disposed of.

[Non-Tax Issue on Judicial Sales]

The main thrust of the argument of appellants in these appeals is that the Court erred in rejecting the bid of Fay Heasley and in confirming the sale to Arvel and Marjorie Glinz. The events precipitating this controversy, in summary, are: Following the order of the Court directing the sale of the real estate at private sale bids were filed with the receiver, including the one from the Glinzes and one from Selma Heasley, the latter being the highest of the lot obtained. At the hearing to determine whether sale should be confirmed, the receiver recommended that the Selma Heasley did should not be approved because of her inability to fulfil the obligation and because the bid was not made in good faith. At the conclusion of the hearing, it was determined that the real estate should be re-advertised and new bids accepted. This was done and bids were received until 5 p. m. on February 23, 1960. Three bids were received. Arvel and Marjorie Glinz filed their bid in the amount of $225,300 payable in the manner hereinabove set out. On March 5, 1960, a hearing was held to determine whether the receiver's recommendation that the Glinz bid be accepted, should be approved. On the morning of that hearing Selma Heasley submitted another bid in an amount greater than the Glinz bid. No earnest money was attached to this bid. Again, upon hearing, the receiver testified that in his opinion Selma 's bid was not made in good faith. On March 9, 1960, the Court entered its order approving the report of the receiver and directed that the sale to the Glinzes would be confirmed on the terms contained in the order unless a bona fide offer to purchase "shall be filed with the Clerk of the U. S. District Court, Fargo, North Dakota, prior to hearing on confirmation of sale, which offer guarantees at least a ten percent increase over the price offered by said bid now on file herein." In the order the Court also found that the bid of Selma Heasley was not made in good faith, timely, nor in compliance with the receiver's advertisement soliciting bids and that it was therefore rejected.

On March 19, 1960, there was a hearing on the receiver's application for an order confirming the sale to the Glinzes. On the morning of this hearing another bid was made by Fay Heasley as trustee for the family, for $247,830, with a down payment of $47,830, $100,000 of the balance payable in four equal annual installments, and $100,000 in a final payment. To this bid were attached checks totalling $1,000. The Court conducted a hearing in which the ability of Fay Heasley to carry through on his bid was fully explored. Nothing can be added to this opinion by a recital of the testimony bearing upon the issue of good faith of Heasley in submitting the bid and his ability to comply with the terms of his bid. We have carefully reviewed the full record, and are convinced that the Court was fully justified in concluding at the close of the hearing:

"Well, I may say to you gentlemen that the Court feels that Fay Heasley and the entire Heasley family have had every opportunity to produce a tangible bid that would be acceptable to the receiver and that the receiver could recommend, and the Court feels that the receiver has done his utmost, as has counsel for the receiver so it would be possible to keep this land with the Heasleys, and I think it is not overstatement to say that the Government of the United States through its United States Attorney has felt the same way. That is the impression the Court has gotten.

"It has been impossible to deal with a man of the obduracy and the stubbornness and the defiant attitude and the failure to cooperate by Fay Heasley. It is the root of his troubles. There isn't anything his attorneys can do. He has chosen, after a fashion, to defy everyone including the Government of the United States . We have been in court interminably doing our best to give them an opportunity. We were in here two weeks ago. Fay Heasley was here and some of his children were here. They have had an opportunity to come in here, if they were going to, to release some of the funds that were due them under a Court order. That could have been arranged.

* * *

"The Court thinks that the bid of Fay Heasley submitted today is not in good faith, and it feels that the bid of Arvel Glinz and Marjorie Glinz is made in good faith, that the report of the receiver should be approved and confirmed; * * *."

The sale of the real estate was governed by the provisions of Title 28, U. S. C. A., §2001. Aside from objection to the failure of the Court to approve the bid of Fay Heasley, which in amount represented at least a 10 per centum increase over the bid of the Glinzes, no suggestion is made that the provisions of §2001 did not receive full compliance. Decisive here, is the specific requirement that the bid representing a 10 per centum increase must be a "bona fide offer." Viewing the full picture, we have no hesitancy in ruling that the Court's action in rejecting the Heasley bid was eminently proper.

Appellants also assign as error the action of the Court in ordering the real estate sold on terms. Neither reason nor authority supports this contention. Section 2001(b), supra, empowers the court to order the sale of realty at private sale "for cash or other consideration and upon such terms and conditions as the court approves, if it finds that the best interests of the estate will be conserved thereby." Thus, the "best interests" of all parties concerned is the polestar in a situation of this kind. On this record it is conclusively demonstrated that it would have been inimical to the best interests of all parties to sell the real estate for cash, in fact, it is made to appear that informal offers obtained by the receiver indicated that it would be difficult to obtain in excess of $100,000 for the real estate on a cash sale. In general, the rule in federal courts is well settled that the matter of confirming a judicial sale rests in the sound judicial discretion of the trial court and this discretion will not be disturbed on appeal except in cases of its abuse. See Bovay v. Townsend, 8 Cir., 78 F. 2d 343, 345, 105 A. L. R. 359; Speers Sand & Clay Works v. American Trust Co., 4 Cir., 52 F. 2d 831, 835, cert. den. 286 U. S. 548; Revere Copper & Brass v. Adriance Machine Works, 2 Cir., 68 F. 2d 708. ⁵ This record convincingly and conclusively demonstrates that the trial court did not abuse its discretion in directing the sale of the realty on terms. Indeed, Fay and Selma Heasley are hardly on firm ground in raising this point inasmuch as they did not object to such a sale until after their bids, also on the term basis, were rejected.

In their remaining points, appellants complain of the alleged failure of the Court, (a) to provide for redemption of the land; (b) to recognize or protect the homestead interest of Selma Heasley in the residence; (c) to marshal assets, and (d) the refusal to give preference to unredeemed tax certificates. Careful consideration of these assignments impels the conclusion that they are completely without substance or merit. As to right of redemption where land is sold at a judicial sale, a sufficient answer is that to such right exists by federal law. Unlike the sale of property under levy and distraint proceeding, where by statute there is a specific provision for redemption of the property, §6337(b) of the 1954 Internal Revenue Code, Congress has not seen fit to provide that the right to redeem shall exist where property is sold pursuant to a judicial decree. See §2001, Title 28, supra; Plumb, "Federal Tax Collection and Lien Problems," 13 Tax L. R. 247, 275, 277-279.

[Relative Position of Homestead ]

We would be fully justified in giving no consideration to the homestead question, as that issue was fully litigated and finally adjudicated in the Court's judgment and decree rendered on April 4, 1959, from which no appeal was perfected. ⁶ The principles of res judicata are clearly applicable. Commissioner of Internal Revenue v. Sunnen, 333 U. S. 591, 597-598 [48-1 USTC ¶9230]. Furthermore, exploration of the question on the merits has convinced us that as against federal tax liens, homestead exemptions prescribed by state laws, ⁷ are of no effect. See United States v. Heffron, 9 Cir., 158 F. 2d 657 [47-1 USTC ¶9194], cert. den. 331 U. S. 831; Shambaugh v. Scofield, 5 Cir., 132 F. 2d 345 [42-2 USTC ¶9826]; and see discussion, Plumb, supra, 13 Tax L. R. at pp. 262, 263.

It appears that local taxes on the real estate were not paid for the years 1954 to 1957, inclusive, and pursuant to the law of North Dakota, the land was sold, subject to right of redemption, and tax certificates were issued and outstanding for said years in the total amount of $16,299.20. Apparently, these tax certificates are held by various members of the Heasley family. After hearing, and upon consideration, the Court found that the lien of the Government was superior to the interest represented by the tax certificates, and ordered that a lien for the tax certificates would extend only to any surplus remaining after payment in full of the Government's lien. The appellants in No. 16,543 are complaining of this ruling, but we have difficulty in ascertaining from their brief the precise nature of their contention. At any rate, the order with respect to the tax certificates was correct. The Government's lien for taxes here involved was perfected on February 18, 1954, and prior to the liens for county and state taxes on the real estate. In this situation, it would have been improper for the Court to give preference to such junior liens prior to the satisfaction of the amount due the Government. United States v. Bond, 4 Cir., 279 F. 2d 837 [60-2 USTC ¶9532]; United States v. Gilbert Associates, 345 U. S. 361 [53-1 USTC ¶9291]; United States v. New Britain , 347 U. S. 81 [54-1 USTC ¶9191].

This record reveals a conscientious desire on the part of the trial judge to fully protect taxpayer Heasley and his family with respect to their rights in the real estate. Regrettable as it may be that this family has lost the farm, we cannot escape the conclusion that a large measure of their present plight may be traced directly to the "obduracy, * * * stubbornness, * * * the defiant attitude and the failure to cooperate by Fay Heasley."

The orders appealed from in Nos. 16,542 and 16,543 are in all respects affirmed.

[Question of Release of Lien]

The question presented by this appeal is whether, upon a judicial sale of real estate of the taxpayer in a receivership proceeding, the court can judicially determine that a promissory note evidencing the balance due on the purchase price satisfies the liability of the taxpayer to the Government thereby authorizing the discharge of other property of the taxpayer from the Government's lien. As we have seen, the amount of the successful bid was in excess of Fay Heasley's liability to the Government. ⁸

Underlying the issue before us is the fundamental principle that liens for federal taxes are entirely statutory and the provisions for their collection are to be strictly followed according to federal law. United States v. Security Trust & Savings Bank, 340 U. S. 47, 49-50 [50-2 USTC ¶9492]; United States v. Acri, 348 U. S. 211, 213 [55-1 USTC ¶9138]; Bank of Nevada v. United States, 9 Cir., 251 F. 2d 820, 824 [58-1 USTC ¶9228], cert. den. 356 U. S. 938; United States v. Stutsman County Implement Co., 8 Cir., 274 F. 2d 733, 737. Statutes create the tax lien, prescribe its duration and provide for the manner of releasing the lien. See United States v. Stutsman County Implement Co., supra; Tomlinson v. Poller, 5 Cir., 220 F. 2d 308 [55-1 USTC ¶9307], cert. den. sub nom., Pace v. Tomlinson, 350 U. S. 832; United States v. Kensington Shipyard & Drydock Corp., 3 Cir., 169 F. 2d 9, 12 [48-2 USTC ¶9392]; and Metropolitan Life Ins. Co. v. United States, 6 Cir., 107 F. 2d 311, 313 [39-2 USTC ¶9771], cert. den. 310 U. S. 630, where this pronouncement appears: "The Federal statutes create specific liens for taxes and as a corollary give a specific remedy for their removal and when such liens once attach, they may be lifted only as provided thereunder."

Turning then to the statutes, we find that §6321 ⁹ provides that if any person liable to pay any tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States upon all property and rights to property, whether real or personal; §6322 provides that the lien shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time; §6311 authorizes the Secretary or his delegate to receive for internal revenue taxes, checks or money orders, to the extent provided by regulations; §6312 makes it lawful for the Secretary or his delegate to receive Treasury bills, notes and certificates of indebtedness issued by the United States in payment of taxes, to the extent and under conditions provided in regulations. There are also statutory provisions for the release of the lien or partial discharge of property. Section 6325 authorizes the acceptance of a bond conditioned in the manner prescribed by the statute. See Tomlinson v. Poller, supra, reversing an order directing the Internal Revenue Director to accept a bond tendered by two taxpayers which failed to conform to statutory requirements. This same section also provides that the Secretary or his delegate may issue a certificate of discharge for any part of the property subject to any lien if the Secretary finds that the fair market value of that part of the property remaining subject to the lien is at least double the amount of the unsatisfied liability secured by such lien.

[Note Was Not Payment]

It is evident that Congress has not authorized the acceptance of a promissory note in satisfaction of the liability of the taxpayer. In ordering the personal property having a value in excess of $60,000 released from the Government's lien, the trial court did not rely upon any statute specifically empowering him to take such action, but apparently proceeded on the equitable theory that the Government had elected to accept the note in lieu of its lien on all of the taxpayer's property. At the conclusion of the hearing from which the questioned order emanated, the Judge stated:

"The Court thinks the Government has made an election. The Court thinks that under Section 7403 the real estate having been subjected to payment of the liability upon terms agreed to by the Government, it cannot now be heard to complain. The Government made an election under Section 7403 and must stand by it."

In the first instance, the evidence is wholly insufficient to support the conclusion that the Government elected to accept a note which would not be finally liquidated until five years later, in lieu of its lien upon valuable personalty. While the Government did not oppose the sale of the real estate on terms, obviously because it, along with all interested parties realized that such a sale would be for the best interests of all concerned, there are no facts proving directly or inferentially that the Government agreed to accept the note in full payment of the taxpayer's liability. Indeed, the Government appealed promptly from the order and immediately thereafter applied to this Court for action staying the order releasing the personalty until the question could be determined on appeal. We granted such relief.

Of greater import, however, is the fact that there was no statutory authority for the Court to rule that the promissory note constituted full satisfaction of the taxpayer's liability to the Government for income taxes, thereby authorizing release of the tax lien from other personalty. In United States v. Stutsman County Implement Co., supra, the "equities" of the matter were presented to this Court, and we clearly ruled that the equity power of the Court was limited by applicable statutes, stating at p. 736:

"In this case, it is the statute that creates the tax lien and prescribes its duration and after the notice has been duly given the power of the court to determine the rights of the parties in respect to the lien is limited by the statute. There was no statutory authority conferred on the court to discharge or terminate the lien without satisfaction of the tax or exhaustion of the property and its equity power was 'limited by special statutory provisions.'" (Italics supplied).

See also Tomlinson v. Poller, supra.

In the final analysis, it cannot be gainsaid that Fay Heasley has no standing to complain if his personal property is sold and the proceeds applied on his indebtedness to the Government. This, in effect, will serve to increase his equity in the proceeds of the mortgage note. In this connection, the question is, should the taxpayer, who is enmeshed in troubles of his own making, wait five years before realizing his equity in the property, or should the Government be compelled to do the waiting, while the taxpayer obtains, at once, valuable property free of the lien? We believe the question suggests the answer.

The order appealed from is reversed.

¹ A stay of this order was granted by this Court on April 14, 1960, and continued on May 9, 1960.

² Bob Hendrix and Arley Herr are sons-in-law of Fay and Selma Heasley; Paul Heasley is their son.

³ Fay Heasley was convicted of income tax evasion for fraudulent understatements of tax liabilities. His conviction was affirmed by this Court. Heasley v. United States, 8 Cir., 218 F. 2d 86 [55-1 USTC ¶9149], cert. denied, 350 U. S. 882.

⁴ Mortgage note in the amount of $180,000, payable to the United States and Fay Heasley, incorporating these provisions was signed March 24, 1960.

⁵ The sales involved in the Bovay and Speers cases were "public" sales; the sale in the Revere case was termed "a public judicial sale by the Court." Section 2001 provides for public or private sale of realty. To our mind, no distinction need be made in applying the general rule.

⁶ The Court there ruled that the Government's lien "is a first lien upon all of Fay Heasley's property and is senior in priority to Selma Heasley's claim for a homestead exemption from the real property solely owned by Fay Heasley . . . or from Fay Heasley's half interest in the real property . . . which Fay Heasley jointly owns with Selma Heasley."

⁷ Here, appellants rely upon the North Dakota statutes dealing with homestead rights.

⁸ From the briefs it is made to appear that upon payment of the face amount of the note together with the amount received from the sale of 1958 and 1959 crops and the cash down payment from sale of land, there will be more than sufficient funds available to pay certain expenses and the tax liability, making it unnecessary to resort to the personalty.

⁹ Unless otherwise indicated, all statutory references are to the Internal Revenue Code of 1954, Title 26, U. S. C. A.

 

 

 

Mrs. Sarah Jennings Carter, Appellant v. United States of America , ex rel., Director of Internal Revenue, Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 25620, 399 F2d 340, 8/13/68, Rev'g and rem'g (DC), 67-2 USTC ¶9667, 273 F. Supp. 595

[1954 Code Secs. 6321-6323]

Tax liens: Property subject to lien: Community v. separately owned property: Inter vivos gifts: Louisiana homestead.--The lower court had correctly ruled that a husband's attempted gift of property to his wife, and the filing of a Louisiana homestead exemption after the Government had caused a lien for unpaid taxes by the husband to attach to the property, could not prevent seizure and sale of the property to satisfy the unpaid lien. However, the lower court failed to give effect to the fact that when the property was purchased, jointly in the names of the husband and wife, an undivided one-half interest was conveyed to each party; the purchase was an authentic act, under Louisiana law, and constituted a valid inter vivos gift by the husband who had paid for the property out of his personal funds. The fact that they had entered into a marriage contract which precluded application of the Louisiana community property law did not prevent such gifts. Accordingly, the wife owned an undivided one-half interest in the property which was immune from seizure and sale by the Government.

Joel B. Dickinson, 326 St. Ferdinand, Baton Rouge , La. , for appellant. Mitchell Rogovin, Assistant Attorney General, Lee A. Jackson, Harry Marselli, Benjamin M. Parker, Crombie J. D. Garrett, Department of Justice, Washington, D. C. 20530, Louis LaCour, United States Attorney, New Orleans, La., for appellee.

Before WISDOM and COLEMAN, Circuit Judges and MITCHELL, District Judge.

MITCHELL, District Judge:

This is an appeal from a judgment of the district court [67-2 USTC ¶9667] setting aside a preliminary injunction whereby the District Director of the Internal Revenue Service was enjoined from seizing and selling certain real property to satisfy unpaid, adjudicated federal income tax assessments against Hilton V. Carter.

The district court made a finding (with which we are in agreement) that on April 14, 1954, appellant, Sarah Jennings Carter and her husband, Hilton V. Carter, entered into a valid marriage contract in which they renounced the community of acquets and gains under the laws of the State of Louisiana. Thereafter, on April 17, 1954, they were married.

On June 11, 1955, appellant and her husband purchased certain immovable property located in the Parish of East Baton Rouge, Louisiana. This was a joint purchase, in the names of each, by authentic act.

More than six years later, on September 14, 1961, the Internal Revenue Service filed income tax liens in the amount of $102,918.69 against Hilton V. Carter for the years 1948-53, inclusive.

On October 4, 1963, Hilton V. Carter executed an act of donation inter vivos by which he donated to appellant all of his interest in the immovable property which he and appellant had jointly purchased on June 11, 1955.

On January 23, 1964, the Internal Revenue Service caused the aforementioned property to be seized to satisfy its tax liens against appellant's husband.

Appellant sought to enjoin the seizure and sale of the property on the grounds that she owned an undivided one-half interest therein; that it was exempt from seizure and sale due to the execution of the "declaration of homestead"; that her husband had donated to her all of his interest therein by the aforementioned act of donation inter vivos; and, finally, that it was her separate property.

The district court found that appellant had failed to prove by a preponderance of the evidence that the property had been purchased with her separate funds and thus it, as a whole, did not constitute her separate property. We concur.

The record indicates that appellant was her own worst enemy.

The district court's holding in regard to the act of donation inter vivos of her husband's interest in the property to appellant is clearly correct. It was nothing more than an attempt to transfer the property to appellant to avoid the government's tax lien. Such a transfer could only be made subject to the lien holder's rights against the property, and the government's lien had attached some two years prior to execution of the act of donation. ¹

The district court also held that the Louisiana homestead exemption laws are not effective against federal tax liens ² and, thus, the filing of the homestead exemption by appellant and her husband did not affect or destroy the validity of the government's tax lien. ³ We concur.

We find fault with the district court only on a single, but crucial, point: whether or not appellant owns an undivided one-half interest in the property, free of any tax liens asserted by the government.

The district court apparently failed to give effect to the fact that when the property was purchased, jointly in the names of appellant and her husband, by authentic act, an undivided one-half interest was conveyed to each party. The court allowed an authentic act to be collaterally attacked by evidence, dehors the authentic act, ⁴ contrary to the law of Louisiana. ⁵ However, a donation inter vivos of cash can be validly effected under Louisiana law by mere delivery of the cash by the donor to the donee. Thus, even though the down payment of $10,000 was made from her husband's separate and paraphernal funds by means of a check drawn on his personal account, such nevertheless constituted a manual donation of cash by her husband to appellant for the purchase of her share of the property. Additionally, since the purchase was by authentic act, the latter, in itself, constituted a valid donation inter vivos meeting the procedural requirements of Article 1536 of the Louisiana Civil Code.

The mere fact that plaintiff and her husband had entered into a marriage contract which precluded creation of a community of acquets and gains between them did not preclude donations inter vivos between them. Further, since the property was jointly purchased by appellant and her husband at a time unsuspicious, as concerns the tax liens, i.e., more than six years before they were filed and/or recorded against appellant's husband, the Internal Revenue Service cannot now question the validity of the authentic act by which the property was jointly acquired by appellant and her husband.

Article 2236 of the Louisiana Civil Code provides that:

"The authentic act is full proof of the agreement contained in it, against (between) the contracting parties and their heirs or assigns unless it be declared and proved a forgery."

This rule has been followed consistently by the Supreme Court of Louisiana. In Hoffman v. Ackermann, ⁶ the Court, in declining to disturb the title to certain real property allegedly placed in a third party's name to put it beyond the reach of the debtor's creditors, noted:

"The rule is that parol evidence is inadmissible to affect title to real estate . . . "The rule is not without its exceptions and among them are the familiar examples where a creditor seeks by the revocatory action . . . to bring back into the estate of the debtor property which the debtor has fraudulently transferred; but this court has steadily refused to recognize as an exception to the rule the case where the purpose is to bring into the estate of the debtor real estate that has never formed any part of it." (italics added)

See also Eberle v. Eberle, ⁷ wherein the court held that forced heirs could not show by parol evidence that their mother was the owner of certain property and stated:

". . . a forced heir may attack by parol a transfer made by his ancestor, for the purpose of showing that it was a simulation, in order to bring the property back into his ancestor's succession or to recover it for himself, but he cannot use parol evidence to bring into the succession or recover property, which under no form of title recognized by law ever belonged to his ancestor or to his ancestor's succession."

A fortiori, as an undivided one-half interest in the property was owned by the appellant, separate and apart from her husband, the defendant cannot now attempt to seize and sell this interest on the theory that it comprises part of the husband's separate estate. The defendant is precluded from asserting title to property allegedly in the estate of the debtor husband when that property never formed part of his estate. The undivided one-half interest of the appellant is, therefore, immune from seizure and sale by the defendant.

The judgment is reversed in part and the case is remanded for further proceedings not inconsistent with this opinion.

¹ United States v. Bess [58-2 USTC ¶9595],357 U. S. 51, 78 S. Ct. 1054 (1958); United States v. Leventhal [63-1 USTC ¶9225], 316 F. 2d 341 (CA DC 1963); Seaboard Surety Company v. United States [62-2 USTC ¶9653], 306 F. 2d 855 (CA-9, 1962).

² The Supreme Court of Louisiana has specifically held that the Louisiana homestead exemption act is not effective against a federal income tax lien. Harvey v. Thomas, 239 La. 510, [60-1 USTC ¶9356] 119 So. 2d 446 (1960).

³ United States v. Heasley [60-2 USTC ¶9744], 283 F. 2d 422 (CA-8, 1960); United States v. Heffron [47-1 USTC ¶9194], 158 F. 2d 657 (CA-9, 1947), cert. den. 311 U. S. 831, 67 S. Ct. 1510; Shambaugh v. Scofield [42-2 USTC ¶9826], 132 F. 2d 345 (CA-5, 1942).

⁴ Answers to written interrogatories.

⁵ Louisiana Civil Code, Art. 2276; Reconstruction Finance Corporation v. Holloway, 191 La. 583, 186 So. 35 (1939).

⁶ 110 La. 1070, 35 So. 293 (1903).

⁷ 161 La. 313, 108 So. 549 (1929).

 

 

 

Raymond Weitzner, Administrator of the Estate of Joe H. Weitzner, Deceased, Lillie Weitzner, Raymond Weitzner, and Virginia Raider, Appellants v. United States of America, Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 19248, 309 F2d 45, 10/17/62

[1954 Code Sec. 6321]

Lien for taxes: Florida homestead: Nature of property rights in taxpayer.--The 5th Circuit Court of Appeals affirmed the judgment of the District Court that the full property rights were lodged in the decedent taxpayer in Florida homestead property, prior to his demise, and at the time Federal income tax liens attached, notwithstanding the deceased taxpayer's power to alienate was somewhat curtailed, and he was deprived of the right to devise the same, while it retained its homestead character, by Article X of the state constitution. Therefore, the widow's life estate and the remainder interest of the surviving children, which interest came into being upon the taxpayer's death, were subject to the incumbrances of the first mortgage and income tax liens.

Aaron M. Kanner, Richard Kanner, Security, Trust Bldg., Miami , Fla. , for appellants. Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, John B. Jones, Acting Assistant Attorney General, John J. Gobel, A. F. Prescott, Department of Justice, Washington 25, D.C., Edward F. Boardman, United States Attorney, Lloyd G. Bates, Jr., Assistant United States Attorney, Miami, Fla., for appellee.

Before RIVES, JONES, and GEWIN, Circuit Judges.

JONES, Circuit Judge:

Before considering the merits of this appeal we dispose of the motion of the appellant to certify the case to the Supreme Court of Florida under Florida Statutes §25.031 and Florida Appellate Rule No. 4.61. This motion was carried with the case. It is denied.

The facts are stipulated. By the stipulation it is shown that, on December 12, 1946, Joe H. Weitzner purchased a parcel of land in Dade County , Florida , upon which a dwelling had been erected. He and his wife promptly occupied the property and resided upon it until his death on October 9, 1956. At the time of the purchase and at all times thereafter Weitzner and his wife were the parents of two grown children, neither of whom ever resided upon the property. In January of 1954, federal income tax assessments were made against Joe H. Weitzner in the amount of $125,717.63 for tax deficiencies for 1942 and 1943. A tax lien notice was filed in the office of the Clerk of the Circuit Court of Dade County, Florida, on April 9, 1954. On August 17, 1956, Joe H. Weitzner, without joinder of his wife, executed a deed, without valuable consideration, purporting to convey the property to his wife. The United States brought suit to foreclose its tax lien. Joined as defendants were the widow of Joe H. Weitzner, his two children and the administrator of his estate. It was the contention of the defendants that, although exemptions do not generally preclude the United States from levying upon property for the satisfaction of tax liens, the Florida Constitution and statutes gave to the wife and children of Weitzner, at the time the property was acquired and occupied as homestead, a vested property interest and estate which is separate and apart from the the title of the husband. This property interest, the widow and children contend, cannot be attached for obligations which they did not incur and for which they are not liable. The interest of the husband in the property they assert, was not such an interest as could be levied upon and sold separate from the interests of widow and children. The district court held that Weitzner had full property rights in the homestead and the constitutional and statutory restrictions upon his power to convey and devise the homestead property did not prevent the tax lien from attaching nor prevent its foreclosure. The court's decree directed the foreclosure of the tax lien and the sale of the property. The widow, the children and the administrator have appealed.

Homestead in Florida is created and governed by the State Constitution ¹ and Statutes. ² There are, as clearly appears, two aspects of homestead in Florida, ³ the exemption from judicial sale and the transfer of title by conveyance, devise or descent. As Mertens has said, "It is well settled that state exemption laws do not protect property against federal tax liens . . . Nevertheless, there is a conflict in the cases as to whether a tax lien is valid upon a homestead interest. The resolution of this issue may depend upon whether there is involved a single interest of the taxpayer who is subject to tax liability, or whether both spouses have an interest while only one is under a tax liability." 9 Mertens Law of Federal Income Taxation, Ch. 54, p. 102, §54.52. If it is determined that a wife does not have, during the lifetime of her husband, a property right in a homestead where the title is in his name alone, we need proceed no further and the Government should prevail.

It has long been settled that the homestead provisions of the Florida Constitution do not create property rights in the husband, wife or children. They are exemption provisions and these provisions inure to the widow and heirs if, by the laws of descent the homesteader's title is cast upon them. Hinson v. Booth, 39 Fla. 333, 22 So. 687; Johns v. Bowden, 68 Fla. 32, 66 So. 155; 1 Redfearn, Wills and Administration of Estates in Florida 416, §232; 16 Fla. Jur. 273, Homesteads §3. The Constitution restricts and the statute prohibits the testamentary disposition of homestead. The provisions for the descent of homestead are no more than they purport to be--provisions for the transfer of the homestead property from the homesteader-owner to those designated by the statute as entitled to inherit from him, and fixing the nature of the estates which the law casts upon them at his death. Such provisions neither diminish the character of the estate of the homesteader nor create any ownership interest in the wife. The requirement for the consent of the wife to the alienation of the homestead does not create or recognize a property interest in her.

The wife, in order to acquire the property, or interest in it, must survive her husband, the husband and wife relationship must exist at the time of his death, and the property must have been occupied at the time of his death by a family of which the husband was the head. The homestead was designed for the purpose of protecting the head of the family by securing to him a shelter for himself and the members of his family. Hill v. First National Bank, 79 Fla. 391, 84 So. 190, 20 A. L. R. 270. The rights of a wife to the benefit of this protection during her husband's lifetime are marital rights rather than property rights. As in the case of inchoate dower, ⁴ that which the wife has during her husband's lifetime with respect to homestead ownership is remote, uncertain and a mere expectancy or possibility and not a vested property right, interest or title. It follows that the tax liens of the United States were and are valid and enforceable against the property claimed as homestead. The judgment of the district court is

AFFIRMED.

¹ Section 1. Homestead defined; nature of exemption.

Section 1:--A homestead to the extent of one hundred and sixty acres of land, or the half of one acre within the limits of any incorporated city or town, owned by the head of a family residing in this State, together with one thousand dollars worth of personal property, and the improvements on the real estate, shall be exempt from forced sale under process of any court, and the real estate shall not be alienable without the joint consent of husband and wife, when that relation exists. But no property shall be exempt from sale for taxes or assessments, or for the payment of obligations contracted for the purchase of said property, or for the erection or repair of improvements on the real estate exempted, or for house, field or other labor performed on the same. The exemption herein provided for in a city or town shall not extend to more improvements or buildings than the residence and business house of the owner; and no judgment or decree or execution shall be a lien upon exempted property except as provided in this Article.

Section 2. Exemption to inure to widow and heirs.

Section 2:--the exemptions provided for in section one shall inure to the widow and heirs of the party entitled to such exemption, and shall apply to all debts, except as specified in said section.

* * *

Section 4. Alienation of homestead.

Section 4:--Nothing in this article shall be construed to prevent the holder of a homestead from alienating his or her homestead so exempted, by deed or mortgage duly executed by himself or herself, and by husband and wife, if such relation exists; nor if the holder be without children to prevent him from disposing of his or her homestead by will in a manner prescribed by law. Fla. Const. Art. X.

² Any property, real or personal, held by any title, legal or equitable, with or without actual seisin, may be devised or bequeathed by will; provided, however, that whenever a person who is head of a family, residing in this state and having a homestead therein, dies and leaves either a widow or lineal descendants or both surviving him, the homestead shall not be the subject of devise, but shall descend as otherwise provided in this law for the descent of homesteads. Fla. Stat. Ann. §731.05.

The homestead shall descend as other property; provided, however, that if the decedent is survived by a widow and lineal descendants, the widow shall take a life estate in the homestead, with vested remainder to the lineal descendants in being at the time of the death of the decedent. Fla. Stat. Ann. §731.27.

The homestead shall not be included in the property subject to dower but shall descend as otherwise provided by law for the descent of homesteads. * * * Whenever the decedent has died intestate leaving no lineal descendants and the widow has duly elected dower, all property of the decedent not included in the widow's dower shall descend to her subject to the debts of the decedent except that the homestead of the decedent shall descend to her with the exemptions provided by the constitution. Fla. Stat. Ann. §731.34.

³ We omit, as wholly inapplicable, any consideration of the homestead tax exemption in Florida . Fla. Const. Art. X, Section 7.

⁴ See 11 Fla. Jur. 55, Dower §21, and cases there cited.

 

 

 

United States of America , Appellant v. Fidelity & Deposit Company of Maryland et al., Appellee

(CA-5), In the United States Court of Appeals for the Fifth Circuit, No. 14604, 214 F2d 565, July 6, 1954

Appeal from the United States District Court for the Southern District of Mississippi.

Lien for taxes: Property conveyed in fraud of creditors.--In a suit by a bonding company to set aside a conveyance from the taxpayer to his wife as being in fraud of creditors, the United States intervened and asserted priority for tax liens which arose and were recorded subsequent to the conveyance. After the conveyance and before the suit, the wife had mortgaged the property. The court held that the lien of the bonding company, acquired under state law when it filed suit, was superior to that of the United States , because when the tax liens were filed taxpayer had already parted with all his interest in the property and the United States was therefore an unsecured creditor when the bonding company acquired its lien. The bona fide mortgagee also took precedence over the United States , since the mortgage was executed when the wife had title and before the conveyance to her was set aside as fraudulent. Sec. 3466 of the Revised Statutes cannot be applied to give an unsecured claim of the United States priority over a claim secured by a lien.

Carolyn R. Just and Ellis N. Slack, Special Assistants to Attorney General, and H. Brian Holland, Assistant Attorney General, all of Washington, D. C., and Jesse W. Shanks, Assistant United States Attorney, Jackson, Miss., for appellant. William E. Suddath, Jr., James L. Spencer, W. H. Watkins, Sr., and Forrest B. Jackson, all of Jackson, Miss., for appellee.

Before BORAH, and RUSSELL, Circuit Judges, and DAWKINS, District Judge.

BORAH, Circuit Judge:

Fidelity & Deposit Company of Maryland, hereinafter called the bonding company, brought this action in the United States District Court for the Southern District of Mississippi against E. E. Lovell and Mrs. Lavinia B. Lovell, his wife, seeking a judgment against Lovell, a contractor whom it had bonded, and seeking to set aside a deed (for his one-half interest in the homestead) from Lovell to his wife, dated November 19, 1948. Also named as a defendant was H. V. Watkins, trustee for the Deposit Guaranty Bank & Trust Company of Jackson , Mississippi , to which on February 10, 1950, the Lovells had mortgaged the homestead under deed of trust. By subsequent amendments to the complaint, first the Collector of Internal Revenue, and then in his stead the United States , was made a defendant. The complaint as amended broadened the original demands of plaintiff, and in a corresponding prayer for relief the court was additionally asked to set aside a transfer by Lovell to his wife of certain shares of stock in the Flowood Corporation and to grant unto plaintiff a personal judgment against Mrs. Lovell for the value of the stock if she had disposed of the same as well as for all sums of money transferred to, given to, or deposited by Lovell for the benefit of his wife. Subsequently, and upon motion of the plaintiff, the United States was dismissed as a party defendant without prejudice. Thereafter, the United States was permitted to intervene and file an answer and cross-claim, wherein it asserted that its tax liens against Lovell were prior and superior to any lien asserted by plaintiff, the trustee and the bank. It also alleged that the conveyance from Lovell to his wife of November 19, 1948, was made without consideration, was fraudulent as to creditors and should be subjected to the payment of the claim for unpaid taxes owing to the United States . The Deposit Guaranty Bank & Trust Company thereupon intervened to protect its claim to certain shares of Flowood Corporation stock pledged on the personal note of Mrs. Lovell.

[District Court's Judgment]

Issue was joined and the cause came on for trial [52-2 USTC ¶9550]. At its end and after considering the evidence, the District Court found and held in substance the following: (1) that the conveyance by E. E. Lovell to his wife of his undivided one-half interest in the homestead was fraudulently made as to the Fidelity & Deposit Company of Maryland and the United States of America as creditors of E. E. Lovell, and that the same should be set aside and said property sold subject to the payment of his debts; (2) that the Deposit Guaranty Bank & Trust Company, as trustee for R. V. Powers Foundation, had a good and valid deed of trust on the homestead of E. E. Lovell and his wife to secure an indebtedness of $4,000 still owed to it; that, subject to such indebtedness, the bonding company, as institutor of this suit, has (exclusive of the homestead exemption) the right to priority of payment from the proceeds of E. E. Lovell's one-half interest which had been fraudulently conveyed; and that as to the homestead exemption, the first three thousand dollars which was not subject to execution to satisfy the bonding company's judgment, the United States was entitled to be first paid; (3) that the conveyance by E. E. Lovell to his wife of one hundred shares of Flowood stock was fraudulently made as to the creditors of E. E. Lovell, and should be set aside, and said property should be subjected to the payment of his debts; that there was owing to the Deposit Guaranty Bank & Trust Company the sum of $1,150, secured by a pledge of said stock, and that subject to such secured indebtedness the bonding company, as institutor of this suit, has the right of priority of payment from the proceeds of the stock; (4) that E. E. Lovell fraudulently transferred to his wife various sums of money aggregating $5,000, which transfers should be set aside in favor of the bonding company, as creditor of E. E. Lovell; and (5) that E. E. Lovell was indebted to the bonding company in the sum of $43,219.83, for which amount it entered judgment in favor of the bonding company; and that E. E. Lovell was indebted to the United States for unpaid taxes, as claimed, in the amount of $8,955.12 together with interest and the court entered judgment in favor of the United States for the full amount.

From that part of the judgment awarding priority in payment out of the property involved to the bonding company over the debts due the United States for unpaid taxes, and from that part of the judgment holding the debt of $4,000 due Deposit Guaranty Bank & Trust Company, secured by deed of trust dated February 10, 1950, is entitled to priority in payment over tax claims of the United States secured by liens which had arisen and been duly recorded prior to execution of the deed of trust, the United States has appealed.

[Tax Liens v. Lien of Bonding Co.]

The first of three questions presented on this appeal is whether the District Court erred in holding that the lien of the bonding company under the laws of the State of Mississippi is superior to tax liens of the United States which arose and were duly recorded prior to the institution of the suit on which the lien of the bonding company was based. Insisting that this question must be answered in the affirmative the Government argues that the federal tax liens here involved arose and were duly recorded before the bonding company acquired its lien under Mississippi law ¹ as institutor of this suit. That while the tax liens of the United States arose and were recorded after E. E. Lovell had fraudulently conveyed to his wife the property here involved, the Government, although it did not then have a statutory lien for its taxes, was as much a creditor of E. E. Lovell as was the bonding company at the time the conveyances were made and thus clearly is within the protection of Section 265 of the Mississippi Code. Under that section the fraudulent conveyances were "clearly and utterly void" as to creditors and there is no authority either in the Mississippi Code or in the decisions of the Mississippi Supreme Court to prevent the federal tax liens from attaching to the property thus transferred at the time the liens arose. In any event and regardless of whether the fraudulent transfers here involved be considered "clearly and utterly void" as declared by the statute, or merely voidable at the option of creditors as held by the court below, any rights of the bonding company were wholly derivative, and since the tax liens of the United States attached also to any after acquired property they attached to any property or rights to property derived through the taxpayer after the liens arose. Finally it is argued that there is no provision of federal law which would warrant recognizing the lien of the bonding company as superior to the tax liens of the United States .

The right of the United States priority of payment of debts due it does not stand on any sovereign prerogative, but is exclusively founded upon the actual provisions of its statutes. Appellant concedes that the bonding company upon the filing of its bill on September 20, 1950, acquired a lien under Section 127 of the Mississippi Code against the property fraudulently transferred by the taxpayer to his wife. However, and by virtue of Section 3670 of the Internal Revenue Code, ² it insists that the tax liens of the United States which arose and had been duly recorded prior to the filing of the bill were superior in right to the lien of the bonding company.

Section 3670 provides in pertinent part as follows: "If any person liable to pay any tax neglects or refuses to pay the same on demand, the amount * * * shall be a lien in favor of the United States upon all property and rights of property, whether real or personal, belonging to such person." (Italics supplied.) Section 3671 of the Internal Revenue Code provides that the lien under Section 3670 "shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time."

[ Mississippi Law]

It is plain from the language of the statute that the tax liens of the United States attached to all property and rights to property of the taxpayer at the time the several assessment lists were received by the Collector of Internal Revenue. It is equally plain, and the Government readily concedes the fact, that the federal tax liens arose and were recorded long after the taxpayer had conveyed to his wife the property here involved. It thus affirmatively appears that the taxpayer had parted with all right, title and interest to the property in question before the tax liens of the United States arose. ³ Under Mississippi law, Lovell not only had no interest in the land from and after the execution of the deed to his wife but he had no reversionary ⁴ interest of any kind therein and he was estopped ⁵ to assert or acquire any such interest. Under Section 265 of the Mississippi Code it has consistently been held that a fraudulent conveyance is void "only" against creditors but valid as between the grantor and grantee. Or, as the Supreme Court of Mississippi said ⁶ in quoting approvingly from a Massachusetts case it "is good between the parties and void against creditors only, or to speak accurately, is voidable by creditors at their election."

When the tax liens were filed Lovell had parted with all interest in the property which he had conveyed to his wife and he never thereafter acquired any interest therein. Indeed the statute prohibited him from doing so. Consequently appellant did not then acquire a lien on property in which the taxpayer had no interest but only acquired a right to set aside the conveyance from Lovell to his wife as a fraudulent conveyance. Its position was that of an ordinary creditor seeking to recover an unsecured claim. It was an unsecured creditor just as appellee was when it filed its original bill of complaint on September 20, 1950.

Appellee filed its bill to subject the property involved to the payment of its debt more than a year before the court permitted appellant to intervene in that proceeding and assert a lien upon the property and also the rights of a creditor. And by virtue of Section 1327 of the Mississippi Code ⁷ appellee obtained a lien upon the property as of the date of the filing of the bill which would antedate and take preference over the counterclaim filed by the appellant. In Kline v. Sims, 149 Miss. 154, 114 So. 871, 873, the Supreme Court of Mississippi in construing Section 1327, supra, said:

"We think the creditor who proceeds under this statute is entitled to the benefit of his diligence, and that, under the language of the statute, he has a lien upon the property sold on this sequestration. He is not required to bring suit on behalf of all the creditors, but may sue for his own demand and get the benefit of his diligence. Creditors who will not act, or who are not diligent in asserting their demands, are not entitled to participate equally with the man who is diligent, and who has incurred the risk and expense of proceeding to attack a fraudulent conveyance. If other creditors intervene in the suit, they may, by so doing, take their places in line with creditors according to the date of their proceedings, but they are not entitled to share in the proceeds of the first creditor's diligence and activities, and such creditor is entitled to have his claim first paid. If other creditors desire, they may attack, or sue out writs of sequestration, or take any other appropriate action; but they must do so at their own risk, and they are not entitled to participate in the activities and diligence of the creditor who first takes action."

[Priority of Mortgage]

Appellant's second point relates to the claimed error on the part of the District Court in holding that the debt due the Deposit Guaranty Bank & Trust Company, secured by a deed of trust on the real property here involved, is entitled to a priority of payment out of proceeds from the sale of the property over those taxes due the United States secured by tax liens which arose and had been recorded prior to execution of the deed of trust to the bank. ⁸

During the year 1947 E. E. Lovell and his wife acquired the property in question at a cost of $14,525, of which $6,525 was paid in cash and the unpaid balance of $8,000 was secured by a deed of trust on the property in favor of the First (Capital) National Bank of Jackson , Mississippi . After Lovell had encountered financial difficulties and after he had conveyed his one-half interest in the property to his wife it became necessary because of a threatened foreclosure of the deed of trust to refinance this obligation which by that time had been reduced to approximately $6,000. Accordingly, on February 10, 1950, Lovell and his wife executed a new deed of trust on the property in favor of the Deposit Guaranty Bank & Trust Company in the amount of $6,000 and this instrument was recorded on February 13, 1950. The proceeds of the new loan, at least in material part, were used to pay off the previous deed of trust to First National Bank.

In the meantime, and prior to the execution of the deed of trust to Deposit Guaranty Bank & Trust Company, the Collector had on March 28, 1949, filed notice of lien convering assessments of withholding tax and Federal Insurance Contributions Act taxes, together with penalties and interest thereon, for the second, third, and fourth quarters of 1948 in the aggregate amount of $5,823.67; and had, on April 28, 1949, filed notice of lien covering the original assessment of Federal Employment Tax Act, penalty and interest for 1948 in the amount of $235.95. At the time this action was brought the Lovells were indebted to the Deposit Guaranty Bank & Trust Company in the amount of $4,000 together with interest thereon at the rate of 51/% per annum from the tenth day of February 1952 until paid.

The record standing thus, the district judge, without passing upon or deciding the relative rights of the Deposit Guaranty Bank & Trust Company under its deed of trust and of the United States under its prior recorded tax liens, held that "the Deposit Guaranty Bank, so far as the lien on this property is concerned * * * was subrogated to the First National, and succeeded to its rights; and the Deposit Guaranty Bank and Trust Company (as Trustee for R. V. Powers Foundation) has against said property a good and valid lien, which comes ahead of the claims of all of the other parties litigant."

We think the court erred in applying the doctrine of subrogation but nevertheless reached the right conclusion in holding that the mortgage of Deposit Guaranty Bank & Trust Company was superior to the liens for taxes. The Deposit Guaranty Bank did not acquire nor did it in any manner succeed to the rights of First National Bank under the 1947 deed of trust to it. On the contrary, the Deposit Guaranty Bank entered into a new and separate loan agreement with Lovell and his wife and it took a new trust deed in its favor as security for repayment of its loan. The lien of First National was paid off and discharged, it was not transferred, and the Deposit Guaranty Bank did not thereby succeed to the lien rights of First National. However, there is and can be no doubt that the bank did acquire a good and valid mortgage lien of its own upon property the title to which was vested in Mrs. Lovell at the time she executed the deed of trust. Prior to the time of the institution of suit by the Fidelity & Deposit Company of Maryland there was no record or actual suggestion to the Deposit Guaranty Bank and Trust Company that the conveyance from Lovell to his wife was fraudulent. The Deposit Guaranty Bank was a bona fide mortgagee of Mr. Lovell because it was without notice, either actual or constructive, of the fraudulent nature of the conveyance by which she secured her title. We conceive the Mississippi law ⁹ to be that a bona fide purchaser or mortgagee from a grantee who secures title by a conveyance which is afterwards set aside because in fraud of creditors is not charged with the fraud of an antecedent grantor in the chain of title. Until the fraud is established and the instrument set aside a lien recorded against such antecedent grantor in title is not notice to the subsequent bona fide purchaser. Consequently, the mortgage of the bank was superior to the liens for taxes.

[Unsecured Claims of U. S.]

Appellant's third and final point that the District Court erred in holding that the United States is not entitled under Section 3466 of the Revised Statutes ¹⁰ to priority in payment of its taxes out of the proceeds of the property her involved is not well taken and hardly merits discussion. Our recent opinion in U. S. v. Atlantic Municipal Corporation, 212 Fed. (2d) 709, (decided May 11, 1954 [54-1 USTC ¶9392]) is dispositive of this issue. There, in speaking of Section 3466 we said: "This statute applies only as against unsecured debts, that is, debts not secured by a specific and perfected lien. It has never been, we think it will never be, applied as it is sought to be applied here, to accord payment to a debt due the United States in preference to a claim secured by a lien which is prior in time and superior in law to the lien of the United States securing the debt for which preferential payment is sought."

For the reasons stated the judgment ¹¹ of the District Court is

AFFIRMED.

¹ Mississippi Code, Annotated (1942 ed.) Volume 1, Sec. 1327.

² 26 U. S. C. 1946 ed., Sec. 3670.

³ Martin v. Tillman, 70 Miss. 614.

⁴ Lewis Williamson, Sheriff v. Wilkerson, 81 Miss. 503.

⁵ Meyers v. American Oil Company, 192 Miss. 180, 186, 187, 5 So. 2d 218.

⁶ Barwick v. Mayse & Sons, 74 Miss. 415, 21 So. 238.

⁷ Mississippi Code, Annotated (1942 ed.) Vol. 2, Sec. 1327 provides in part: "Creditors may attack fraudulent conveyances, etc.--The said court shall have jurisdiction of bills exhibited by creditors * * * to set aside fraudulent conveyances of property, * * *. Upon such a bill a writ of sequestration or injunction, or both, may be issued * * *. The creditor in such case shall have a lien upon the property described therein from the filing of his bill, except as against bona fide purchasers before the service of process upon the defendant in such bill."

⁸ The lien of Fidelity & Deposit Company of Maryland arose on September 20, 1950, with the filing of its complaint in the state court action, which was subsequent to the execution of the deed of trust to Deposit Guaranty Bank & Trust Company on February 10, 1950.

⁹ See footnote 7.

¹⁰ 31 U. S. C. 1946 ed. Sec. 191.

¹¹ The District Court's opinion is reported asFidelity & Deposit Company of Maryland v. Lovell, 108 Fed. Supp. 360 [52-2 USTC ¶9550].

 

 

 

Scott Shambaugh, et al., Appellants, v. Frank Scofield, Collector of Internal Revenue for the First Collection District of Texas, et al., Appellees

(CA-5), United States Circuit Court of Appeals for the Fifth Circuit, No. 10298, 132 F2d 345, December 15, 1942

Appeal from the District Court of the United States for the Western District of Texas.

Authority to distrain: Homesteads ( Texas ).-- Homestead realty is liable to seizure and sale to satisfy unpaid income taxes when sufficient personalty is not found.

Authority to distrain: Interest of minor child in parents' homestead.--Texas law holds that a homestead cannot exist in a remainderman as long as the particular estate is undetermined, and a minor child, who is not liable for income tax, does not have a sufficient possessory interest in his parents' homestead to enable him to maintain an action to stop the confiscation of the parents' homestead in satisfaction of their tax debt.

Limitations upon assessment and collection: Statute of limitations.--Where taxpayers submitted various offers in an effort to compromise their income tax liability, the statute of limitations was tolled during the consideration of the offers, despite the fact that Commissioner did not sign the executed waivers submitted by taxpayers with said offers.

Fred W. Moore, Houston , Tex. , for appellants. Earl C. Crouter and Sewall Key, Special Assistants to Attorney General, Samuel O. Clark, Jr., Assistant Attorney General, all of Washington, D. C., Ben F. Foster, U. S. Attorney, and J. M. Burnett, Assistant U. S. Attorney, both of San Antonio, Texas, for appellees.

Before HOLMES and MCCORD, Circuit Judges, and STRUM, District Judge.

STRUM, District Judge:

This suit was instituted to enjoin a Collector of Internal Revenue from selling, under warrant of distraint, Texas homestead realty owned by Scott Shambaugh, and his wife Annie, to satisfy unpaid income tax assessments against the Shambaughs for the year 1930. The appeal is from a judgment below denying the injunction.

[ Homestead Realty Not Immune from Enforced Sale to Satisfy Income Tax Lien]

Appellants assert that under Art. 16, Sec. 50, of the Texas Constitution, their homestead realty is immune from forced sale to satisfy an income tax lien. This contention is untenable. It is unnecessary to explore at length the interesting historical background of this contention, involving the terms of the "annexation" of Texas to the Union in 1845. Texas , like other States, occupies her place in the Union subject to the paramount authority of the United States under the Sixteenth Amendment to lay and collect taxes on incomes. The Federal statute authorizes the seizure and sale of real estate to satisfy unpaid income taxes when sufficient personalty is not found. 26 U. S. C. A. 3700. Homesteads are not exempted. 26 U. S. C. A. 3691. These statutes, enacted to effectuate a constitutional power, are the supreme law of the land. If they are in conflict with State law, constitutional or statutory, the latter must yield. U. S. v. Greenville , 118 Fed. (2d) 963, 965 [41-1 USTC ¶9381]. Cf. McCullough v. Maryland , 4 Wheat. (U. S.) 436, 4 L. Ed. 579. The Courts of Texas reached the same conclusion upon this precise question. Staley v. Vaughn, 50 S. W. (2d) 907.

Minor unmarried children living with the taxpayers as a part of their family, and against whom no tax is assessed, also join in the suit and assert that as to them the Collector's action is arbitrary and capricious, amounting to an illegal confiscation of the children's property rights in the homestead to satisfy the tax debt of their parents. ¹ The Courts of Texas hold that a homestead cannot exist in a remainderman so long as the particular estate is undetermined. For the purpose here under consideration, a child's homestead rights do not attach prior to the death of his parents. Until then, a child has no possessory interest. He has only an expectancy or contingent interest, which may be lost through the acts of his parents. Greenawalt v. Cunningham, 107 S. W. (2d) 1099; Johnson v. Prosper Bank, 125 S. W. (2d) 707, affirmed 138 S. W. (2d) 1117. As these parents are living, the minor children have no such present interest in the homestead as would justify the issuance of the injunction sought. Miller v. Standard Nut Margarine Co., 284 U. S. 498, 76 L. Ed. 422 [3 USTC ¶878], relied upon by appellants as authority for equitable relief, is wholly unlike this case. There, the tax itself was illegal and its assessment unauthorized. Here, the validity of the tax is conceded. Only the method of its collection is challenged.

Appellants further assert that the tax in question is barred by the six-year statute of limitation, 26 U. S. C. A. 3312(d), and that they are financially unable to pay the tax and sue to recover it. They contend that together these circumstances constitute a case of illegality, coupled with extraordinary circumstances, justifying injunctive relief, notwithstanding 26 U. S. C. A. 3653(a) ² and 28 U. S. C. A. 384. ³

[Offers of Compromise]

Because of their asserted inability to pay, the Shambaughs submitted three offers of compromise, each containing waivers and extensions of limitation agreements which, if valid, would extend the limitation period to July 11, 1941, according to appellants' computation. The Collector gave notice of distraint on June 5, 1941. This suit was brought June 30, 1941.

The first waiver, signed by all parties, extended the limitation period to September 28, 1939. Appellants assert that the subsequent waivers were ineffectual because executed only by the taxpayers, and not by the Commissioner of Internal Revenue, so that the extensions subsequent to September 28, 1939, were not "agreed upon in writing between the Commissioner and the taxpayer," as required by the statute, 26 U. S. C. A. 276(c).

The statute does not require that the "agreement" shall be embodied in one writing, nor evidenced alone by the formal extension agreement tendered by the taxpayer, nor does it prescribe the time within which the Commissioner's assent thereto must be evidenced. No particular formula of words is necessary. The sole requirement is that the agreement be "in writing". Any writing, formal or informal, if made for the purpose of evidencing the Commissioner's approval, and from which his approval may be gathered by reasonable inference, is sufficient. ⁴ The statutory provision requiring a written agreement is for administrative purposes,--not to convert into a contract what is essentially a voluntary unilateral waiver of a defense by the taxpayer. ⁵ In construing such waivers, the intention of the parties is an important factor. ⁶

The taxpayers intended, and all parties understood, that the waivers were submitted in aid, and as a part of, the taxpayers' efforts to effect a compromise adjustment of the tax, and that the purpose of the waivers was to suspend the running of the statute while the offers were under consideration. It was certainly not contemplated that while the taxpayers negotiated to better their position the statute should continue to run, so that even though the compromise offers were rejection collection of the tax would be barred by limitation.

The compromise offers were considered on the merits and were rejected by letters signed by the Commissioner, stating in effect that "careful consideration has been given the offer and supporting data." These rejection letters relate to, and are to be considered in connection with, the offers which contained the waivers. They constitute presumptive proof of the Commissioner's agreement to the waivers, unless overcome by countervailing evidence, which is here lacking. ⁷ Had the Commissioner formally signed the waivers themselves, the taxpayers could have gained nothing more. Having had full advantage of the waivers, the taxpayers should not now be heard to repudiate them unless they were clearly inoperative. In the circumstances here presented, we hold the waivers sufficient to satisfy the requirements of the statute and effective to toll the statute of limitation beyond the date of distraint. ⁸

As no basis for injunctive relief is established, the judgment is affirmed.

¹ Cf. Hubbard Investment Co. v. Brast, 59 Fed. (2d) 709 [1932 CCH ¶9366]; Long v. Rasmussen, 281 Fed. 236; Pool v. Walsh, 282 Fed. 620; Trinacia Real Estate Co. v. Clarke, 34 Fed. (2d) 325 [1 USTC ¶422]; Lion Coal Co. v. Anderson, 62 Fed. (2d) 325 [1932 CCH ¶9583].

² "* * * No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court." (Rev. Stat. 3224.)

³ "Suits in equity shall not be sustained * * * in any case where a plain, adequate and complete remedy may be had at law."

⁴ Stearns Co. v. U. S., 291 U. S. 54; 78 L. Ed. 647 [4 USTC ¶1210].

⁵ Stange v. U. S., 282 U. S. 270; 75 L. Ed. 335 [2 USTC ¶638]; Florsheim Bros. Dry Goods Co., Ltd. v. U. S., 280 U. S. 453; 74 L. Ed. 542 [2 USTC ¶485].

⁶ U. S. v. Havner, 101 Fed. (2d) 161 [39-1 USTC ¶9286]; Helvering v. Ethel D. Co., 70 Fed. (2d) 761, 762 [4 USTC ¶1267].

⁷ Stearns Co. v. U. S., 291 U. S. 54; 78 L. Ed. 647, headnotes 4 and 5 [4 USTC ¶1210].

⁸ Parker Co. v. Comr., 49 Fed. (2d) 254 [5 USTC ¶1423]; McCarthy Co. v. Comr., 80 Fed. (2d) 618 [35-2 USTC ¶9674]; Moses Co. v. U. S., 43 Fed. (2d) 653 [1930 CCH ¶9518]; aff. 61 Fed. (2d) 791 [1932 CCH ¶9528], cert. den. 289 U. S. 743; Riverside & Dan River Cotton Mills v. U. S., 11 Fed. Supp. 134 [35-2 USTC ¶9434], cert. den. 296 U. S. 624; U. S. v. Havner, 101 Fed. (2d) 161 [39-1 USTC ¶9286]. Contra S. S. Pierce Co. v. U. S. , 93 Fed. (2d) 599 [37-2 USTC ¶9602].

In Comr. v. U. S. Refractories Corp., 64 Fed. (2d) 69 [1933 CCH ¶9182], relied upon by appellants, affirmed by an equally divided Court, 290 U. S. 591, it was pointed out that the Commissioner did not sign the waiver, "nor any other writing in relation to it".