Jointly Held Property

---

Tony Thornton Auction Service, Inc. v. United States of America, Appellee, Edward Westerman, d/b/a Westerman Enterprises; Gene Hunt, d/b/a H & M Oil Co.; Crawford Oil Company, Inc., Appellant. Lester E. Cox Medical Center, Inc.; Missouri Division of Employment Security and Joe W. Davis and Mary Ann Davis, d/b/a Joe Davis Family Restaurant

(CA-8), U.S. Court of Appeals, 8th Circuit, 85-1457, 1/13/86, 791 F2d 635, (791 F2d 635.) Affirming unreported District Court decision

[Code Secs. 6321 and 6323 ]

Lien for taxes: Property subject to: Tenancy by the entirety: Notice: Wrong name.--A federal tax lien for unpaid employment taxes attached to the proceeds from the sale of restaurant equipment held by the taxpayers as tenants by the entirety and a judgment lien creditor was not entitled to any of the interpleaded fund. The government was a creditor of both spouses, who were jointly and severally liable for the taxes assessed against their restaurant partnership, and under Missouri law tenancy by the entirety property is not immune from the liens of a creditor of both spouses even if, as here, the assessments and notices of liens omitted the wife's name. The notices of the tax liens, filed only in the names of the husband and the restaurant, were sufficient to perfect the liens against the appellant, a judgment lien creditor, as to the interests of both spouses in the proceeds of the sale of the restaurant property.

Richard J. Driscoll, Department of Justice, Washington , D.C. 20530 , for appellee. Kerry D. Douglas, Douglas, Douglas & Lynch, 111 West Broadway, Bolivar , Mo. 65613 , for appellant.

Before MCMILLIAN and John R. GIBSON, Circuit Judges, and MURPHY, ^* District Judge.

MCMILLIAN, Circuit Judge:

Crawford Oil Co. appeals from a final judgment entered in the District Court ¹ for the Western District of Missouri finding that appellant would take nothing from an interpleaded fund. Tony Thornton Auction Service, Inc. v. United States , No . 83-3239-CV-S-4 (W.D. Mo. Feb. 7, 1985) (order). For reversal appellant argues that the district court erred in holding (1) federal tax liens for unpaid federal employment taxes attached to proceeds from the sale of property held by the Davises as tenants by the entirety and (2) the notices of federal tax liens were sufficient to establish the validity of the liens against a judgment lien creditor. For the reasons discussed below, we affirm the judgment of the district court.

In 1977 Joe W. Davis and Mary Ann Davis, his wife, bought a restaurant in Polk County , Missouri . They operated the restaurant together under the trade name "Davis Family Restaurant." The Davises filed quarterly employer's tax returns under the additional trade names of " Davis 's Restaurant," "Davis Restaurant" and "Joe Davis Family Restaurant." The restaurant, by whatever name, closed in January 1983. As "Joe Davis and Mary Ann Davis d/b/a Joe Davis Family Restaurant," the Davises contracted with the Tony Thornton Auction Service, Inc. (Thornton), to sell the restaurant equipment. The sale yielded gross receipts of $19,106.44. The proceeds from the sale of the restaurant equipment are the subject to this litigation.

Unfortunately, the restaurant and the Davises had failed to pay more than $72,000 in federal employment and employee withholding taxes (hereinafter employment taxes). The United States (hereinafter the government) made assessments against Joe W. Davis and either "Daviss Restaurant" or " Davis 's Restaurant" on May 20, 1982, on January 19 and 27, 1983, and on February 23, 1983. The government then filed notices of federal tax liens on May 21, 1982, January 25 and 28, 1983, and March 14, 1983, against Joe W. Davis and either "Daviss Restaurant" or "Davis's Restaurant" with the recorder of deeds of Polk County, Missouri. (The Davises also failed to pay more than $1,600 in federal individual income taxes and also filed notices of federal tax liens. The federal tax liens for the Davises ' individual income taxes are not at issue in the present case.)

On February 15, 1983, the government served a notice of levy against Thornton for the proceeds of the sale of the restaurant equipment to pay the unpaid employment taxes. On March 7, 1983, Thornton filed an interpleader action in state court and deposited the proceeds of the sale (the interpleaded fund) with the clerk of court. In addition to the Internal Revenue Service, the defendants in the interpleader action included appellant, the Missouri Department of Revenue, Edward Westerman d/b/a Westerman Enterprises, Gene Hunt d/b/a H & M Oil Co., Lester E. Cox Medical Center , the Missouri Department of Employment Security, and Joe Davis and Mary Davis d/b/a Joe Davis Family Restaurant.

On March 21, 1983, appellant obtained a default judgment in the Circuit Court of Polk County, Missouri, against "Joe Davis and Mary Davis d/b/a/ Joe Davis Family Restaurant" in the amount of $11,716.84, plus interest and costs. Appellant had supplied petroleum products to the Davises for resale at the restaurant.

On April 7, 1983, the government removed the interpleader action to federal district court.

On February 4, 1985, appellant caused the clerk of the Circuit Court of Polk County to issue a writ of execution in order to satisfy its default judgment out of the interpleaded fund. The Sheriff of Greene County then executed the writ on February 6, 1985, by serving a notice of garnishment and summons against the clerk of the Circuit Court of Greene County , the state court in which the interpleaded fund had been deposited.

The case was tried before the district court on February 7, 1985. All parties consented to the payment from the interpleaded fund of Thornton 's claim for commission and expenses in the amount of $4,499.97. The district court held that the notices of federal tax liens filed by the government were adequate, ordered Thornton 's claim and all costs to be paid out of the interpleaded fund, and then awarded the balance of the interpleaded fund to the government. Tony Thornton Auction Service, Inc. v. United States , No. 83-3239-CV-S-4 (W.D. Mo. Feb. 7, 1985) (order). The district court specifically noted that appellant would take nothing from the interpleaded fund.

"Property" or "Right to Property" Subject to Attachment of Lien under 26 U.S.C. §6321 . For reversal, appellant first argues that the district court erred in holding that federal tax liens for unpaid federal employment taxes attached to the proceeds from the sale of the restaurant equipment. Appellant argues that under Missouri law the Davises held the restaurant as husband and wife and, when the restaurant was sold, the proceeds retained the characteristics of tenancy-by-the-entirety property. Appellant argues that because the assessments for unpaid employment taxes and the notices of federal tax liens were made only in the names of Joe W. Davis and either "Daviss Restaurant" or "Davis's Restaurant," but not in the name of Mary Ann Davis, the government is a creditor of only one spouse, Joe Davis. Because under Missouri law a judgment against one spouse alone " 'cannot affect in any way property held by [the husband and wife] by the entireties,' " appellant argues that there was no property interest to which the federal tax liens could attach, citing United States v. Hutcherson [51-1 USTC ¶9249 ], 188 F.2d 326, 330 (8th Cir. 1951) (Missouri law) (citation omitted).

We agree with appellant's reference to and statement of Missouri law about the estate of tenancy by the entirety.

The threshold question in this case, as in all cases where the Federal Government asserts its tax lien, is whether and to what extent the taxpayer had "property" or "rights to property" to which the tax lien could attach. In answering that question, both federal and state courts must look to state law, for it has long been the rule that "in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property . . . sought to be reached by the statute." . . . [Section 6321 ] "creates no property rights but merely attaches consequences, federally defined, to rights created under state law. . . ." However, once the tax lien has attached to the taxpayer's state-created interests, we enter the province of federal law, which we have consistently held determines the priority of competing liens asserted against the taxpayer's "property" or "rights to property."

Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-14 (1960) (citations and footnotes omitted).

In United States v. Hutcherson the husband individually owed federal income taxes; the government filed a notice of federal tax lien against the husband individually. Id. at 327. As stated by the court, the issue was "whether the [federal tax] lien actually attached to the husband's interest [in the property held by him and his wife as tenants by the entireties]." Id. at 328. The court reviewed Missouri property law in order to determine what "property" or "rights to property" the husband had to which the lien could attach. The court concluded that in Missouri the estate [of tenancy by the entirety] has retained the characteristic of immunity of the interests of each spouse in the estate from attachment, levy, or the liens of the creditor of one only of the tenants, as an essential characteristic. . . . "[W]e conclude that where a judgment and execution thereon are against a husband alone, not including the wife, such judgment and execution cannot affect in any way property held by them by the entireties, nor can it affect any supposed interest of the husband therein, for he has no separate interest."

Id. at 330 (citation omitted). Thus, the court held that the federal tax lien did not attach because "the interest of one spouse in the estate by the entirety in Missouri is not a right to property or property in any sense." Id. at 331.

If the unpaid employment taxes were owed only by one spouse, we would agree that the holding in United States v. Hutcherson would control. However, in the present case both spouses were liable for the unpaid employment taxes because they were partners, or joint venturers, in the restaurant. The partnership (the restaurant) and the individual partners (Joe W. Davis and Mary Ann Davis) were jointly and severally liable for the taxes validly assessed against the partnership. See, e.g., F.P. Baugh, Inc. v. Little Lake Lumber Co. [61-2 USTC ¶9726 ], 297 F.2d 692, 696 (9th Cir. 1961) (Little Lake), cert. denied, 370 U.S. 909 (1962); Underwood v. United States [41-1 USTC ¶9296 ], 118 F.2d 760, 761 (5th Cir. 1941); Lidberg v. United States [74-1 USTC ¶9287 ], 375 F. Supp. 631, 633 (D. Minn. 1974); American Surety Co. v. Sundberg, 58 Wash. 2d 337, 363 P.2d 99, 103 (1961) (Sundberg ), cert. denied, 368 U.S. 989 (1962). The joint liability of the two spouses can be satisfied out of property held by the entirety. See United States v. Hutcherson, 188 F.2d at 330 ("[N]either spouse individually has such an interest in an estate by the entirety as will permit the adherence thereto of the claims or liens of the creditor of only one spouse."); cf. Whittaker v. Kavanaugh, 100 F. Supp. 918, 920 (E.D. Mich. 1951) (Michigan law on tenancy by the entirety; joint income tax return); see generally 4A R. Powell, Law of Real Property ¶623, at 699 (P. Rohan rev. ed. 1982). Because the government was a creditor of both spouses and because under Missouri law tenancy by the entirety property is not immune from the liens of a creditor of both spouses, the district court did not err in holding that federal tax liens for unpaid federal employment taxes attached to the proceeds from the sale of the restaurant equipment.

Sufficiency of Notice of Lien under 26 U.S.C. §6323(f) . As noted above, the proceeds constituted "property" to which the federal tax liens could attach. The federal tax liens attached when the taxes were assessed, 26 U.S.C. §6321 ; however, federal tax liens are not "valid" against a judgment lien creditor until the appropriate notice is filed, id. §6323(a) , (f) . ² Appellant was a judgment lien creditor at the latest as of February 6, 1985, when its writ of garnishment and summons was served upon the clerk of the Circuit Court of Polk County, Missouri. See United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88-89 (1963) ("The federal rule is that liens are 'perfected in the sense that there is nothing more to be done to have a choate lien--when the identity of the lienor, the property subject to the lien, and the amount of the lien are established.' ") (later modified by the Federal Tax Lien Act of 1966, Pub. L. No. 89-719, 80 Stat. 1125, codified in 26 U.S.C. §6323(c) ).

Appellant argues that the notices of federal tax liens were insufficient to establish the validity of the liens against a judgment lien creditor. The notices were filed only in the names of Joe W. Davis and either Davis 's Restaurant or Daviss Restaurant and not in the name of Mary Ann Davis. In Missouri the notices are indexed alphabetically by the name of the taxpayer. Appellant argues that because the notices were filed only in the names of the partnership and one partner, they were insufficient to perfect a lien against the property of an unnamed partner, citing Little Lake, 297 F.2d at 696, and In re Robby's Pancake House of Florida, Inc., 24 Bankr. 989, 995-96 (Bankr. E.D. Tenn. 1982) (Pancake House ). We disagree.

As a preliminary matter, we note that the only property at issue in the present case is the interpleaded fund.

The sufficiency of the notice is a question of federal law. E.g., United States v. Union Central Life Insurance Co. [62-1 USTC ¶9103 ], 368 U.S. 291, 296 (1961).

The essential purpose of the filing of the lien is to give constructive notice of its existence. The test is not absolute perfection in compliance with the statutory requirement for filing the tax lien, but whether there is substantial compliance sufficient to give constructive notice and to alert one of the government's claim.

United States v. Sirico [66-1 USTC ¶9209 ], 247 F. Supp. 421, 422 (S.D.N.Y. 1965) (footnotes omitted); See Haye v. United States [79-1 USTC ¶9192 ], 461 F. Supp. 1168, 1173-74 (C.D. Cal. 1978); Sundberg, 363 P.2d at 103.

We hold the district court correctly found that the notices were sufficient to establish the validity of the liens against a judgment lien creditor under 26 U.S.C. §6323(a) . The notices were filed on Form 668, the form prescribed by the Secretary of the Treasury, and the notices specified "Joe W. Davis" and either "Daviss Restaurant" or " Davis 's Restaurant" in the space designated for the name of the taxpayer. A reasonable and diligent search would have revealed the existence of the notices of the federal tax liens filed under these names. See Sundberg, 363 P.2d at 103 (notice filed under partnership name of "Oscar Sundberg and Sons" was notice not only to anyone dealing with Oscar Sundberg but also to those dealing with sons Carl and Thor Sundberg).

We believe the cases cited by appellant are distinguishable on the facts. In Little Lake the notice did not include the partnership name as taxpayer. The notice was filed in the name of only one of the three persons ("Chas. E. McCulloch et al"); "Little Lake Lumber Co." was specified only as the residence or place of business. The court held that the abbreviation "et al" was not effective to place in the notice the names of the unnamed partners, 297 F.2d at 695, and, even though the partnership name was specified as part of the address of the taxpayer and the notice was in fact indexed by the address as well as by the name of the taxpayer, the government had no lien, under the notice, against the interests of the unnamed partners in the partnership property. Id. at 696. In Pancake House the names of the partnership and the individual partner in question were not similar. The notice was filed in the partnership name of "LaForce-Walker Construction Co." The court held that the notice was not "sufficient to perfect a lien against the property of an individual partner (R.K. Walker), absent the circumstances of a partnership name which is so similar to the name of an individual partner that a reasonable search would disclose the notice." 24 Bankr. at 996.

We hold the district court correctly found that the notices were sufficient to perfect the federal tax liens against appellant, as a judgment lien creditor, as to the interests of both Joe W. Davis and Mary Ann Davis in the proceeds of the sale of the restaurant property. ³

Accordingly, the judgment of the district court awarding the balance of the interpleaded fund, after payment of costs and Thornton 's claim for commission and expenses, to the government is affirmed.

^* The Honorable Diana E. Murphy, United States District Judge for the District of Minnesota, sitting by designation.

¹ The Honorable Russell G. Clark, United States District Judge for the Western District of Missouri .

² 26 U.S.C. §6323(a) provides in part: "[T]he lien imposed by section 6321 shall not be valid as against any . . . judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary . . . ." Subsection (f) provides: "The form and the content of the notice referred to in subsection (a) shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien."

³ In view of our analysis and affirmance of the judgment of the district court, it is unnecessary to discuss appellant's claims that the district court erred in relying upon the pleadings filed by the government to perfect the notices and in failing to find that appellant was a judgment lien creditor.

 

 

 

First Federal Savings and Loan Association of Charlotte County, Florida, Plaintiff v. United States of America; Mary Lois Sullivan; James E. Standridge and Venetia Bolz, Defendants

U. S. District Court, Middle Dist. Fla., Tampa Div., Case No. 76-6-CIV-Ft.M., 2/13/75

[Code Sec. 6321]

Lien for taxes: Certificates of deposit: Joint tenancy: Interpleader.--By virtue of various unpaid income tax assessments against the taxpayer, a lien in favor of the Government arose against any and all property and rights to property of the taxpayer under Code Sec. 6321. Because the District Court found that three certificates of deposit in the names of the taxpayer and his mother as joint tenants, which were interpleaded by the bank, were actually purchased with the taxpayer's money, they were subject to the existing federal tax lien.

Farr, Farr, Haymans, Moseley & Odom, 115 W. Olympia Ave., P. O. Box 635, Punta Gorda, Fla., for plaintiff. Sam E. Murrell & Sons, P. O. Box 1748, Orlando, Fla., for M. L. Sullivan and J. E. Standridge, D. Frank Winkles, Assistant United States Attorney, Tampa, Fla., Ralph A. Romano, Department of Justice, Washington, D. C. 20530, for defendants.

Findings of Fact and Conclusions of Law Submitted on Behalf of the United States of America

KRENTZMAN, District Judge:

This cause having come on before this Court sitting without a jury for trial on the 9th day of September, 1974, before Honorable Ben Krentzman, United States District Judge; and Sam Murrell having appeared as counsel for Mary Lois Sullivan and Ralph Romano having appeared as counsel for the United States of America; and the Court having heard the testimony and having examined the proofs offered by the respective parties; and the Court having been fully advised in the premises; the following findings of fact and conclusions of law are hereby made and entered herein:

Findings of Fact

1. The defendant, Mary Lois Sullivan, was formerly known as Mary Lois Standridge.

2. The defendant, James E. Standridge, is the son of defendant, Mary Lois Sullivan.

3. The defendant, Venetia Bolz, is the daughter of defendant, Mary Lois Sullivan.

4. On February 22, 1971, plaintiff issued a certificate of deposit, numbered 102 in the amount of $10,000.00 in the name of defendants, Mary Lois Standridge and James E. Standridge, as joint tenants with right of survivorship and not as tenants in common. Although said certificate had a maturity date of February 22, 1972, the same had not been redeemed as of the February 6, 1973 date of the complaint herein.

5. On February 22, 1971, plaintiff issued a certificate of deposit, numbered 103 in the amount of $10,000.00 in the name of defendants, Mary Lois Standridge and James E. Standridge, as joint tenants with right of survivorship and not as tenants in common. Although said certificate had a maturity date of February 22, 1972, the same had not been redeemed as of the February 6, 1973 filing date of the complaint herein.

6. On January 18, 1972, plaintiff issued a certificate of deposit, numbered 222 in the amount of $13,000.00 to the defendants, Mary Lois Sullivan, James E. Standridge and Venetia Bolz, as joint tenants with right of survivorship and not as tenants in common. Although the said certificate had a maturity date of January 18, 1973, the same had not been redeemed as of February 6, 1973 filing date of the complaint herein.

7. The certificate of deposit, numbered 102 and referred to in paragraph 4 above, was purchased by defendant, Mary Lois Sullivan with the partial proceeds of a cashier's check in the amount of $18,000.00, numbered 52037, dated February 18, 1971, drawn on First National Bank of Merritt Island, payable to defendant, Mary Lis Sullivan and remitted by defendant, James E. Standridge.

8. The certificate of deposit, numbered 103 and referred to in paragraph 5 above, was purchased by defendant, Mary Lois Sullivan with the partial proceeds of a cashier's check in the amount of $17,000.00, numbered 52036, dated February 18, 1971, drawn on First National Bank of Merritt Island, payable to defendant, Mary Lois Sullivan and remitted by defendant, James E. Standridge.

9. The certificate of deposit, numbered 222 and referred to in paragraph 6 above, was purchased by defendant, Mary Lois Sullivan with the proceeds of a cashier's check in the amount of $13,000.00, numbered 3140, dated January 17, 1972 drawn on Merritt Island Bank, payable to defendant, Mary Lois Sullivan and remitted by defendant, James E. Standridge.

10. A delegate of the Secretary of the Treasury made assessments against defendant, James E. Standridge, and Mary H. Standridge, Causeway Apts. No. 2F Cocoa Beach, Florida, for unpaid federal income taxes, gave notices and demands therefor, filed notices of tax lien in respect thereto, and served notices of levy upon plaintiff, all as is set forth in Government Exhibits No. 15 (Certificate of Assessments and Payments); No. 16 and 17 (Certified copies of Notices of tax Lien); and 18 and 19 (Notices of Levy).

11. That despite the above referred to notices and demands for payment of said assessments, there still remains due and owing to the United States of America upon the account of defendant, James E. Standridge and Mary H. Standridge the sum of $5,097.63 plus unassessed accrued interest provided by law; and upon the account of defendant, James E. Standridge the sum of $72,743.80 plus accrued interest provided by law.

12. All of the interest income earned on the foregoing certificates of deposit referred to in paragraphs 4, 5 and 6 above, was reported for deferal income tax purposes on the tax returns of defendant, James E. Standridge.

13. The defendant, Mary Lois Sullivan, sometime in January of 1973, reliquished possession of the said certificates of deposit to defendant, James E. Standridge, and, to date, possession of said certificates has not been returned to defendant, Mary Lois Sullivan.

14. The funds used by defendant, Mary Lois Sullivan, to purchase the above referred to certificates of deposit were those of defendant, James E. Standridge.

Conclusions of Law

1. This is an action in the nature of interpleader wherein the plaintiff bank has deposited with the Court the proceeds ($33,000 plus interest) of three (3) certificates of deposit to be paid herein to such defendant or defendants as may be the Court be determined to be entitled thereto.

2. This Court has jurisdiction herein pursuant to Section 1335 of Title 28, United States Code.

3. The defendants, James E. Standridge and Venetia Bolz, have defaulted in appearance herein after being duly served with process, and, on November 21, 1973, a default judgment, forever barring said defendants from asserting any interest in the interpleaded fund, was entered against said defendants.

4. A joint tenancy ownership of the subject certificates of deposit between defendants, Mary Lois Sullivan and James E. Standridge, has not been established since the funds of defendant, James E. Standridge were used to purchase said certificates and said defendant, James E. Stsndridge, did not intend at the date of purchase of said certificates to make an inter vivos gift to, or create a trust in, defendant, Mary Lois Sullivan, of any portion of such funds.

5. The funds conveyed to defendant, Mary Lois Sullivan, from defendant, James E. Standridge, with which the subject certificates were purchased were conveyed at a time when defendant, James E. Standridge, was insolvent and a creditor of the United States for the within taxes, and such conveyance was in exchange for no consideration, and such conveyance is thus fraudulent as against the United States under Florida law and, as such, is set aside.

6. The subject certificates of deposit are the property of defendant, James E. Standridge, only.

7. The fund interpleaded herein is the property of defendant, James E. Standridge, only.

8. By virtue of the various unpaid income tax assessments against defendant, James E. Standridge, as set forth in paragraph 11 of the foregoing findings of fact, federal tax liens (in the amount of said outstanding tax assessments, which exceeds the amount of the fund interpleaded herein) arising pursuant to Section 6321 of the Internal Revenue Code of 1954 have arisen and are extent as against any and all property and rights to property of said James E. Standridge, including the entire fund interpleaded herein.

9. The foregoing federal tax liens are foreclosable against the entire interpleaded fund.

10. The claim of plaintiff for allowance out of the interpleaded fund of attorney's fees and costs incurred in connection with this action is disallowed since any such allowance would invade the within paramount federal tax lien. United States v. Liverpool & London & Globe Ins. Co. [55-1 USTC ¶9136], 348 U. S. 215 (1955); United States v. R. F. Ball Construction Co. [58-1 USTC ¶9327], 355 U. S. 587 (1958).

 

 

 

 

 

United States of America, Plaintiff v. Dorothy P. Millikin, and First National Bank of Catawba County, a banking corporation, Defendants United States of America, Plaintiff v. Mitchell S. Millikin, and First National Bank of Catawba County, a banking corporation, Defendants

U. S. District Court, Middle Dist. N. C., Greensboro Div., C-69-G-58, C-70-G-58, 7/12/62

[1939 Code Secs. 3670, 3690 and 3692--similar to 1954 Code Secs. 6321, 6331 and 6334]

Lien for taxes: Taxpayers' liability established by judgment: Levy: Bonds owned jointly.--In a suit by the United States to enforce tax liens against U. S. Savings Bonds owned by a husband and wife, a decision of the Court of Appeals affirming a Tax Court decision that the husband owed taxes for two years and that husband and wife jointly owed taxes for a third year, was res judicata (Millikin, 62-1 USTC ¶9253). The lien for taxes owed by the husband, as well as for those owed jointly, attached to U. S. Savings Bonds held in their names jointly and to bonds in the names of the wife and daughter, since the wife did not prove that the bonds were bought with her money rather than with funds supplied by the husband.

William H. Murdock, United States Attorney, Post Office Bldg., Greensboro, N. C., Paul T. O'Donoghue, Department of Justice, Washington 25, D. C., for plaintiff. Mitchell S. Millikin, P. O. Box 211 , Hamlet, N. C., pro se.

Opinion, Findings of Fact, and Conclusions of Law

PREYER, District Judge:

This is an action brought against the defendants to recover internal revenue taxes which the Government alleges were due for various years. When the matter came on for hearing, the Government moved to file an amendment to the complaint, which motion was granted. The amendment to the complaint sought to recover for internal revenue taxes due on a joint assessment against Mr. and Mrs. Millikin for the year 1950, and sought to recover internal revenue taxes due from Mr. Millikin for the years 1946 and 1947. The purpose of the amendment to the complaint was to conform the pleadings in all particulars to the decision of the Court of Appeals in M. S. Millikin and Dorothy P. Millikin v. Commissioner of Internal Revenue [62-1 USTC ¶9253], 298 F. 2d 830.

These two cases were consolidated for trial and were heard by the undersigned Judge without a jury.

The defendants are husband and wife and reside at Rockingham , North Carolina , within the jurisdiction of this Court. This Court has jurisdiction of the parties and of the subject matter.

From the pleadings, evidence, and arguments, three principal questions appear to be before the Court for decisions: (1) whether the decision of the Tax Court as affirmed in M. S. Millikin, and M. S. Millikin and Dorothy P. Millikin v. Commissioner of Internal Revenue, supra, is res judicata in the present case; (2) if so, what is the computation of the final amount due based on the decisions of the Tax Court and the Circuit Court of Appeals; and (3) whether the Government is entitled to foreclosure on certain bonds located in a safe deposit box of the petitioners. In addition, petitioners have filed subsequent to the date of the trial two documents, designated respectively "Cross Action" and "Petition For Re-Hearing." These matters will be discussed seriatim.

At the conclusion of the trial, the Court dictated a document designated "Preliminary Opinion." This document embodied the courts' findings of fact and conclusions of law as to those points which the court was then ready to rule on. The document gave the Government 30 days to submit proposed findings of fact on certain other issues and gave defendants the opportunity, without requiring, to submit any briefs, or memorandums in the nature of proposed findings of facts or conclusions of law that they cared to submit. The purpose of the "Preliminary Opinion" was to clarify the issues, (especially for the petitioners who were appearing pro se), so that such proposed findings of fact and conclusions of law might be more sharply focused. The present "Opinion, Fndings of Fact, and Conclusions of Law" supersedes the "Preliminary Opinion" in all respects.

The Issue of Res Judicata

The Government at the outset of the trial offered in evidence the Tax Court decision, TC Memo. 1959-210 [CCH Dec. 23,830(M)], in the case of M. S. Millikin v. Commissioner of Internal Revenue, Docket No. 45051, and M. S. Millkin and Dorothy P. Millikin v. Commissioner of Internal Revenue, Docket No. 45052, which cases were affirmed January 31, 1962, by the Court of Appeals for the Fourth Circuit, M. S. Millikin and Dorothy P. Millikin v. Commissioner of Internal Revenue [62-1 USTC ¶9253], 298 F. 2d 830.

The Government, after introduction of this evidence, contends that the decision in the above cited cases is res judicata as to the present case.

The defendants contend that the judgment of the Tax Court and the Circuit Court of Appeals should not be res judicata on the following grounds:

(1) They contend that this would amount to double jeopardy.

(2) They contend that they were not properly represented by attorneys in the Tax Court.

(3) They contend that the evidence used in the Tax Court hearing and the Court of Appeals was gleaned from hearsay sources, and that it was not subject to cross examination under oath, and therefore should not properly have been considered by the Tax Court or the Circuit Court of Appeals.

The Court having considered the pleadings in the instant case and the opinions of the Tax Court and the Circuit Court of Appeals, and having heard arguments of counsel and the parties, concludes as follows:

1. The present actions are between the same parties as the actions in the Tax Court cases and the Circuit Court of Appeals cases above referred to.

2. That the exact interests are involved in the present cases as were involved in the Tax Court cases and the Circuit Court of Appeals cases. The Court finds that since taxes are assessed on an annual basis, that therefore the Tax Court determination of liability for a particular year is conclusive on the point for that year, and the Court finds as a fact that the Tax Court opinion as affirmed by the Circuit Court of Appeals dealt with the same tax years and the same taxable interests as are involved in this case.

3. The Court further finds that the judgment in the Tax Court cases and Circuit Court of Appeals cases, was rendered on the merits and by a Court having jurisdiction over the parties and over the subject matter, and the Court is therefore of the opinion that the judgment rendered by the Tax Court and the Circuit Court of Appeals constitutes an estoppel in the present case and is res judicata. Baltimore S. S. Co. v. Phillips, 274 U. S. 316 (1926).

4. The Court further finds that petitioners were represented by able and experienced tax counsel in both the Tax Court and the Circuit Court of Appeals, including a former chief counsel of the Internal Revenue Department.

Computation of Tax

It appeared from the evidence that the Commissioner of Internal Revenue made assessments against the defendant, Mitchell S. Millikin, on June 10, 1952, for income taxes, penalties, and interest for the taxable years 1945 to 1949, inclusive, and against the defendants, Mitchell S. and Dorothy P. Millikin, for income taxes, penalties, and interest for the year 1950. The assessment list was received by the Collector of Internal Revenue at Greensboro , North Carolina , on June 11, 1952. Notice and demand for payment was duly made upon the defendants on June 11, 1952, and notices of federal tax lien pertaining to said assessments were filed in Catawba County , North Carolina , on June 16, 1952.

The Court's conclusions of law are that as a result of the opinion of the Tax Court of the United States , T. C. Memo. 1959-210, and the decisions entered pursuant thereto, which opinion was affirmed on January 31, 1962, by the Court of Appeals for the Fourth Circuit (Mitchell S. Millikin and Dorothy P. Millikin v. Commissioner, supra), and after giving effect to all abatements, credits, collections and payments heretofore made with respect to the aforesaid tax assessments, the defendant, Mitchell S. Millikin, is justly and truly indebted to the United States of America in the following amounts:

With respect to the taxable year 1946-$14,058.47, plus interest (computed to June 30, 1962) in the amount of $13,195.73. Additional interest at the rate of $4.48 per day will accrue on the principal sum of $14,058.47 from June 30, 1962, until paid.

With respect to the taxable year 1947--$6,556.31 plus interest (computed to June 30, 1962) in the amount of $6,017.95. Additional interest at the rate of $2.07 per day will accrue on the principal sum of $6,556.31 from June 30, 1962, until paid.

The defendants, Mitchell S. Millikin and Dorothy P. Millikin, are justly and truly indebted to the United States of America in the following amount:

With respect to the taxable year 1950-$1,766.92, plus interest (computed to June 30, 1962) in the amount of $1,122.03. Additional interest at the rate of forty-seven cents (47 cents) per day will accrue on the principal sum of $1,766.92 from June 30, 1962, until paid.

Foreclosure of the Bonds

The evidence indicates that on June 16, 1952, the collector of Internal Revenue caused a levy to be served in accordance with the provisions of §3690 and §3692 of the Internal Revenue Code of 1939 on the First National Bank of Catawba County, Hickory, North Carolina, to effect collection, either in whole or in part, of the aforementioned income tax assessments from such bank accounts or other property of the defendants as were in the possession of said bank. As a result of this levy, the contents of a certain safety deposit box, No. 343, which was listed or rented in the name of the defendant, Dorothy P. Millikin, were seized and a seal was placed on the safety deposit box.

On or about August 26, 1952, the safety deposit box was opened with the consent of and in the presence of the defendants, their attorney, and Revenue Officer Lee P. Bossi for the express purpose of making an inventory of the contents of said box. The safety deposit box was found to contain a number of United States Savings Bonds, Series E.

The United States Savings Bonds, Series E, contained in the aforesaid safety deposit box and against which the United States is attempting to enforce its tax liens are registered in the names of the respective defendants or beneficiaries, and were acquired on the dates and in the face amounts as follows:

During the years 1945 through 1951, the defendant, Mitchell S. Millikin, was engaged in various business enterprises or ventures and derived income principally from a coin-operated amusement machine business known as Millikin Music Company, from self-service laundries, and from rental properties. In August 1951, this defendant sold two rental properties located in Hickory , North Carolina , which he had previously acquired in 1948. The selling prices of said properties were $11,500.00 and $10,500.00, or an aggregate of $22,000.00. The bonds registered in the names of Dorothy P. Millikin or Mitchell S. Millikin were purchased in November 1951.

During the years 1945, 1946, and 1947, the defendant, Mitchell S. Millikin, purchased United States Savings Bonds in the face amounts of $16,575.00, $17,200.00, and $15,000.00, respectively, in the joint names of himself and his wife, Dorothy P. Millikin, and in the joint name of himself and his daughters.

It appears from the evidence that Dorothy P. Millikin had a very small amount of income for the years 1945 and 1946 from the operation of her beauty salon in Hickory , North Carolina , and no independent income since then. Said business was sold by the defendant, Dorothy P. Millikin, in 1946 for the approximate sum of $3,750.00, which the evidence indicates was used as part payment for their residence.

Although the defendant, Dorothy P. Millikin, testified at some length concerning undisclosed sums of money she allegedly received from her father for her personal use and from her beauty shop operation, her testimony failed to trace said funds into the purchase of the aforementioned savings bonds nor did it furnish any reasonable basis for concluding that it was she rather than her husband who purchased the bonds registered in their names.

There was uncorroborated testimony by the defendant, Dorothy P. Millikin, that certain sums of money were kept in the safety deposit box. Notwithstanding the fact that the witness was repeatedly questioned concerning the approximate amount of such alleged funds and the source thereof, the witness was unable to, or refused to, testify with reasonable certainty as to the amount of the monies, and source, and what disposition was made thereof.

The Court finds from the testimony and evidence and the reasonable inferences to be drawn therefrom that the bonds registered in the names of Mrs. Dorothy P. Millikin or Mitchell S. Millikin were purchased by Mitchell S. Millikin with his funds and that the bonds registered in the names of Mrs. Dorothy Millikin and Dorothy Millikin or Barbara Sue Millikin were purchased either by Dorothy P. Millikin or Mitchell S. Millikin with either or both their funds.

The Court's conclusions of law as to this point are:

1. That the five $1,000.00 Series E bonds and the eighteen $500.00 Series E Bonds, registered in the names of Mrs. Dorothy P. Millikin or Mitchell S. Millikin and now in the safety deposit box, were purchased from funds belonging to Mitchell S. Millikin and are subject to the tax liens against Mitchell S. Millikin for the taxable years 1946 and 1947. United States v. Ridley [54-2 USTC ¶9665], 127 F. Supp. 3 (N. D. Ga.); Title 31, Code of Federal Regulations, §315.21(a).

2. That the bonds registered in the name of Mrs. Millikin or Barbara Sue Millikin, in the amount of $100.00; the $50.00 bond registered in the name of Mrs. Dorothy Millikin payable at death to Barbara Sue Millikin; the five $25.00 bonds registered in the name of Dorothy Millikin; the two $100.00 bonds registered in the name of Mrs. Dorothy Millikin; and the five $50.00 bonds registered in the name of Mrs. Dorothy Millikin, now in the safety deposit box, were purchased from Dorothy Millikin's funds or from Mitchell S. Millikin's funds and, in either event, are subject to the tax liens arising from the joint assessment against Mitchell S. and Dorothy P. Millikin for the taxable year 1950. United States v. Ridley [54-2 USTC ¶9665], 127 F. Supp. 3 (N. D. Ga.); Title 31, Code of Federal Regulations, §315.21(a).

"Cross Action" of Petitioners

This cause was heard on May 22, 1962. On June 22, 1962, petitioners filed a "Cross Action" seeking 2.5 million dollars damages against the government.

Apart from technical objections, an examination of the "Cross Action" indicates that it can in nowise be construed as an action for recovery of taxes illegally assessed or collected, but that it is in the nature of an action for malicious prosecution and would fall within the rule of immunity of the United States from suit without its consent.

The "Cross Action" is dismissed.

"Petition for Re-Hearing"

This document was also filed on June 22, 1962. It has come to the Court's attention that petitioners have employed counsel subsequent to the filing of this document.

The Court will treat this document as a motion for judgment N. O. V. and for a new trial under Rule 50 and sets this cause for a hearing on August 30, 1962 in Greensboro , N. C., or as soon thereafter as it may be conveniently heard.

A Judgment based on the above is attached hereto.

Order (Civil Number C-69-G-58)

It appearing to the Court that the United States of America instituted a cause of action against Dorothy P. Millikin on April 15, 1958, for taxes due the United States from Dorothy P. Millikin as transferee of Mitchell S. Millikin for the years 1946, 1947, 1948, and 1949, said complaint asking judgment in the amount of $76,093.34, with interest;

It further appearing to the Court that on July 15, 1960 the issue as to whether Dorothy P. Millikin was liable as a transferee as alleged in the complaint was before the United States Tax Court and designated on the docket as Case Number 45050;

On July 15, 1960, the Tax Court found there was no liability due from the petitioner, Dorothy P. Millikin, for any of the taxable years 1945 through 1949 as a transferee of Mitchell S. Millikin.

It is, therefore, ORDERED, ADJUDGED, and DECREED that the above-entitled action be dismissed with prejudice and that the costs be taxed against the United States of America .

Judgment (C-70-G-58)

Based upon the findings of fact and conclusions of law entered herein, it is hereby ORDERED, ADJUDGED AND DECREED.

1. That the United States of America have and recover of defendant, Mitchell S. Millikin, the following amounts:

With respect to the taxable year 1946--$14,058.47, plus interest (computed to June 30, 1962) in the amount of $13,195.73. Additional interest at the rate of $4.48 per day will accrue on the principal sum of $14,058.47 from June 30, 1962, until paid.

With respect to the taxable year 1947--$6,556.31 plus interest (computed to June 30, 1962) in the amount of $6,017.95. Additional interest at the rate of $2.07 per day will accrue on the principal sum of $6,556.31 from June 30, 1962, until paid.

That the United States of America have and recover of defendants, Mitchell S. Millikin and Dorothy P. Millikin, the following amount:

With respect to the taxable year 1950--$1,766.92, plus interest (computed to June 30, 1962) in the amount of $1,122.03. Additional interest at the rate of forty-seven cents (47 cents) per day will accrue on the principal sum of $1,766.92 from June 30, 1962, until paid.

That the tax liens against Mitchell S. Millikin be enforced against the bonds registered in the names of Mrs. Dorothy P. Millikin or Mitchell S. Millikin and that the tax lien against Mitchell S. Millikin and Dorothy P. Millikin be enforced against the bonds registered in the name of Mrs. Dorothy Millikin and Mrs. Dorothy Millikin or Barbara Sue Millikin.

4. That the "Cross Action" filed by the defendants on June 22, 1962, be and is hereby dismissed.

5. That the costs of this action be taxed against the defendants.

6. That at 10:00 A. M. on September 24, 1962, Mr. and Mrs. Millikin, together with appropriate representatives of the Internal Revenue Service and appropriate representatives of the First National Bank of Catawba County remove the bonds from the safety deposit box; that the Millikins endorse the bonds to the Internal Revenue Service; that the bank pay the proceeds of the bonds to the Internal Revenue Service; and that such proceeds be applied against the respective outstanding tax liabilities and be credited as part payment of the judgment entered herein.