Prior
law
Wadley Nurseries, Inc. v. Matac
Construction Corp., City of
New York
and U. S.
In
the Supreme Court of New York, Spec. Term, Part 5, New York County, June
3, 1955, (133 N. Y. L. J. No. 109, p. 8)
[1939 Code Sec. 3672--substantially unchanged in 1954 Code Sec. 6323]
Priority of liens: Taxpayer's assignee as "purchaser":
Receipt of assessment lists ineffective without filing.--A
subcontractor of taxpayer is considered a "purchaser", within
the meaning of 1939 Code Sec. 3672, where the taxpayer assigned to such
subcontractor a sum due the latter out of funds which the taxpayer was
to receive from the City of New York pursuant to its contract with the
City. The consideration for the assignment was the subcontractor's
forbearance in filing a mechanic's lien and bringing suit against
taxpayer for recovery of the sum due it. As against this right of the
subcontractor, the lien of the government for income taxes does not have
priority since the mere filing of the assessment lists with the
Collector on dates prior to the date of the assignment was not
sufficient to support the priority of the lien of the government. The
assessment lists must be filed in the public offices mentioned in Sec.
3672 in order that the government's lien based thereon may be granted
priority over other liens against the taxpayer.
H. Broadman
Epstein,
110 East 42nd Street
,
New York
, N. Y., for plaintiff. Peter Campbell Brown, Corporation Counsel,
Municipal
Building
, for defendant, City of
New York
. J. Edward Lumbard, former United States Attorney, United States
District Courthouse, Foley Square, N. Y., for United States.
GREENBERG,
Justice:
Plaintiff, as
a subcontractor, entered into an agreement with the defendant--general
contractor Matac Construction Corporation--whereby the former undertook
to furnish all labor and materials necessary and required for the
performance of certain items specified in the contract entered into
between the defendant the City of
New York
and the general contractor. Most of the facts in this case were
stipulated by the parties and on the basis thereof and the other
evidence in the case the court concludes as follows:
1. Plaintiff
concededly duly performed the terms of its contract with the general
contractor, and sought to collect the sum due it from the latter. Upon
its failure to pay the same plaintiff threatened to file a mechanic's
lien and institute suit against the contractor. In consideration of
plaintiff's forbearance in filing the lien and in instituting suit, the
contractor, on September 19, 1949, executed and delivered an assignment
to the plaintiff in the sum of $13,024.34 out of moneys which were due
or which were to become due to the contractor from the City of New York.
This assignment was filed with the Treasurer of the City of
New York
and the Department of Parks on
September 22, 1949
, and again on
October 13, 1949
. There is presently a balance of $15,871.98 which the city is holding,
the major sum of which is being claimed by the plaintiff and the
defendant the
United States of America
. The city is a stakeholder, it makes no claim to the money and requests
the court to determine the priority in claims as between the plaintiff
and the government.
2. The unpaid
taxes set forth in the assessment lists in the sum of $15,448.62 and
$6,746.50 were filed on April 26, 1949, and May 24, 1949, solely in the
office of the Collector of Internal Revenue and were never filed in any
of the public offices specified in section 3672 of the Internal Revenue
Code or section 240 of the Lien Law of the State of New York.
3. Two years
after the execution and filing of plaintiff's assignment and more than a
year after completion of the contract and the acceptance of the work
thereunder the Collector of Internal Revenue filed on May 11, 1951, and
June 20, 1951, with the Treasurer of the City of New York and the
Department of Parks tax levies and warrants of distraint for the sums
heretofore mentioned and lists for which were filed in the office of the
Collector of Internal Revenue.
4. The
question of law to be decided is whether the plaintiff is a
"purchaser" under the provisions of section 3672 of the
Internal Revenue Code. The government contends, contrary to the position
of the plaintiff, that it is entitled to priority based on the mere
filing of the assessment lists with the Collector of Internal Revenue
because the plaintiff is not a purchaser within the meaning of section
3672 of the Internal Revenue Code.
5. Although
the assessment lists were filed in the office of the Collector of
Internal Revenue on dates prior to the date of the assignment made by
the general contractor to the plaintiff, nevertheless they are
subordinate to the lien of the plaintiff since the assessment lists were
not filed in the public offices mentioned in section 3672 of the
Internal Revenue Code. Mere receipt of the assessment lists by the
Collector of Internal Revenue did not constitute notice which would take
precedence over the assignment filed in the appropriate office by the
plaintiff.
Completely in
point is Grossman v. City of New York (188 Misc., 256). There
plaintiff brought an action to foreclose an assignment of moneys due
under a conract made between the assignor and the City of
New York
for a public improvement. The facts in the instant case are similar.
Plaintiff in that case moved for summary judgment and among the defenses
interposed by the City of New York was an affirmative defense that there
were other claims and injunctions restraining the payment of the money
demanded by the plaintiff filed in the office of the comptroller, among
which was a notice of lien by the United States Government, Department
of Internal Revenue. The answer to the position by the government in
that case, given by Mr. Justice Walter, is adopted by this court:
"The
United States Attorney urges that as section 3672 does not mention
assignees the liens here asserted are good as against plaintiffs from
the time the assessment lists were received by the collector. If there
were here any reason to believe that the assignment to plaintiffs was
purely voluntary by way of gift, respectful attention would have to be
given to that argument; but as all indications are that plaintiffs gave
value for the assignment to them and there is no evidence to the
contrary, they must be deemed to be purchasers and hence within section
3672; and as no notice of any of the liens here asserted by the United
States was filed prior to the assignment to plaintiffs. I hold that none
of such liens is superior to plaintiff's rights. * * *"
See
also Cranford Co. v. L. Leopold & Co., Inc., et al. (189
Misc., 388 [47-1 USTC ¶9231], aff'd 273 App. Div., 754, aff'd 298 N.
Y., 676).
Here, too, the
assignment to the plaintiff was not voluntary by way of gift but was
based upon a valid consideration, namely, plaintiff's forbearance to
file a lien and to institute suit, and plaintiff therefore is a
purchaser within the meaning of section 3672.
Judgment,
accordingly, is directed in favor of the plaintiff for the amount set
forth in the complaint.
Clifford A. Stone and Audrey D. Stone,
his wife, as a marital community, Plaintiffs v. United States of
America, and Neal S. Warren, as District Director of Internal Revenue
for the District of Washington, Defendants
U.
S. District Court, West.
Dist.
Wash.
, No. Div., No. 5834, 225 FSupp 201,
12/31/63
[1954 Code Sec. 6321]
Tax liens: Community property:
Washington
statute.--A tax lien based upon an unpaid pre-marital tax obligation
of the taxpayer-husband did not attach to his interest in community
property. Under
Washington
law, the immunity of community property from seizure for a pre-marital
debt of the husband is an inherent characteristic of the property
interest involved.
Robbins,
Oseran & Robbins, 1012
Northern
Life
Tower
,
Seattle
4,
Wash.
, for plaintiff. Brockman Adams, United States Attorney, 1012 U. S.
Court House, Seattle 4, Wash., for defendant.
Memorandum
Opinion and Order
LINDBERG,
District Judge:
In this action
plaintiff husband and wife, as a marital community, are seeking relief
both from a Notice of Levy served on Mr. Stone's employer, purporting to
attach plaintiff's salary and all rights to property due him from his
employer, and from a Notice of Lien against certain real property
belonging to the marital community. Both the levy and the claim of lien
against the real property are based on a federal tax assessment and lien
arising out of the unpaid tax obligation of Mr. Stone, incurred prior to
his marriage to the plaintiff wife. Husband and wife allege that the tax
lien arises from a separate obligation of the husband which is not a
debt of the marital community under Washington law, and that the
personal and real property against which the lien is asserted are the
property of the marital community, and not property of the husband to
which a federal tax lien may attach.
Plaintiffs
seek:
1. An order
declaring the tax lien to be a separate obligation of the husband and
not a liability of the marital community and declaring the tax lien null
and void against property or rights to property of the community.
2. A permanent
injunction against enforcement of said lien against community property
and from distraint of community property therefor.
3. An order
quieting title to the real property and decreeing that the
United States
has no right, title and interest or lien in said real property.
The United
States moves to dismiss the action on the grounds that the complaint
fails to state a claim upon which relief can be granted; that 26 U. S.
C. A. §7421(a) prohibits maintenance of a suit to restrain the
assessment or collection of a federal tax; and that the court lacks
jurisdiction by reason of the doctrine of sovereign immunity.
As a basis for
its contention that the complaint fails to state a claim upon which
relief can be granted, the government points out that under Washington
law each of the spouses has a present, vested, undivided one-half
interest in their community property, Poe v. Seaborn [2 USTC ¶611],
282 U. S. 101; Rucker v. Blair (9 Cir. 1929) [1 USTC ¶380], 32
F. 2d 222; Occidental Life Insurance Co. v. Powers, 192 Wash.
475, and it is argued that this interest of the tax-obligor spouse
constitutes a property right to which a federal tax lien will attach and
against which levy and distraint can be effected, notwithstanding the
fact that the tax obligation is a separate premarital debt of the
taxpayer spouse and not a debt of the marital community composed of both
spouses.
It is beyond
dispute that nonliability of community real and personal property for
separate debts of one spouse has long been the rule in
Washington
. Escrow Service v. Cressler, 59 Wn. 2d 38, 42, and cases cited
therein; Schramm v. Steele, 97
Wash.
309. However, the government takes the position that such immunity of
the community property from liability for separate debts may be
characterized as but a state exemption created by judicial
interpretation of the Washington statutes pertaining to community
property. The gist of the contention is that while state law must be
consulted to determine whether a taxpayer has a sufficient interest in
the "property" or "rights to property" involved to
satisfy the requirement of 26 U. S. C. A. §6321 creating tax liens, United
States v. Bess [58-2 USTC ¶9595], 357 U. S. 51; Aquilino v.
United States [60-2 USTC ¶9538], 363 U. S. 509, once a property
interest of the taxpayer is found, state exemption laws are inoperative
to prevent attachment of tax liens in favor of the United States created
by federal statutes.
United States
v. Bess, supra;
United States
v. Heffron (9 Cir. 1947) [47-1 USTC ¶9194], 158 F. 2d 657,
certiorari denied 331
U. S.
831.
The question
this court must decide on the motion to dismiss is whether under
Washington law the immunity of the community property from seizure for a
separate, premarital debt of the husband is an inherent characteristic
of the particular type of property interest involved therein, or whether
such immunity from liability is, in fact, but a state-created exemption
which cannot prevent attachment of a federal tax lien to the interest of
the husband in the community property. This appears to be the only
substantial issue presented under the motion to dismiss.
As to the
government's contention that this court lacks jurisdiction, this action
can be sustained under 28 U. S. C. A. §§ 1340, 2410 and 2463 as a suit
brought by a third party (the marital community of Clifford A. Stone and
Audrey D. Stone) for the purpose of quieting title to property clouded
by a federal lien for the tax obligation of another, or to resist
distraint or detention of property for the tax debt of another.
United States
v. Coson (9 Cir. 1961) [61-1 USTC ¶9219], 286 F. 2d 453; Seattle
Association of Credit Men v. United States (9 Cir. 1957) [57-1 USTC
¶9402], 240 F. 2d 906; Rothensies v. Ullman (3 Cir. 1940) [40-1
USTC ¶9308], 110 F. 2d 590. Sovereign immunity has been waived by
section 2410. Husband and wife, suing as a marital community holding
community property by a unity of title, may be accorded the status of a
third party in contradistinction to the husband's position as
tax-obligor. Cf. Pettengill v.
United States
(D. C. Vt. 1962) [62-2 USTC ¶9667], 205 F. Supp. 10.
Coming then to
consideration of the basic issue for decision: What is the nature and
origin of the
Washington
rule of law which holds community property to be immune from liability
for the separate premarital debt of the husband?
An early
expression of the nature of the marital community in
Washington
is found in Holyoke v. Jackson, 3
Wash.
Terr. 235, 238 et seq. (1882), where the
Washington
court said:
"*
* * By the provisions of the husband and wife acts passed in 1879, and
previously, the husband and wife are considered as constituting together
a compound creature of the statute, called a community. This creature is
sometimes, though inaccurately, denominated a species of partnership. *
* *
"In
it, the proprietary interests of husband and wife are equal, and those
interests do not seem to be united merely, but unified; not mixed or
blent, but identified. It is sui generis,--a creature of the
statute."
This view of
the marital community's unity of interest in the community real property
persuaded the court in Stockand v. Bartlett, 4 Wash. 730 (1892)
that community real property was not divisible at the instance of
separate creditors and the husband's interest therein could not be sold
on execution to satisfy his separate debt.
"*
* * Such real estate is not the property of either of the parties, but
of the community, and owing to the peculiar nature of the ownership of
such property, it would result in interminable confusion if the interest
of either of the parties could be sold separately under execution. If
the whole interest of one of the parties could be so sold, a part
interest of one of them could be sold likewise, and the relation of the
parties to the property would be destroyed thereby. The property left
could not be held to be the community property of the husband and wife,
for their interests after the sale would be unequal, provided they each
had an interest therein, and if the whole interest of one of the parties
therein was thus sold, the remaining part belonging to the other spouse
would not come under any of the definitions of property which either a
husband or wife may hold and enjoy. * * * It is clearly against public
policy to permit such a sale to be made."
The same rule
applies to community personal property in spite of the broad statutory
powers of management and disposition given to the husband, as now
codified in RCW 26.16.030. In Schramm v. Steele, 97 Wash. 309
(1917), reversing some earlier conflicting decisions, the Washington
court announced the rule that neither real nor personal community
property can be subjected to levy to satisfy a judgment against the
husband for a tort committed by him alone. It was stated that the
statute conferring management and disposition of the community property
upon the husband intended no more than to make him a statutory agent of
the community, with authority similar to that given in a general power
of attorney, and the court observed (p. 316):
"*
* * we have yet to learn of a case in which such a power, however broad,
was held to destroy the estate of the donor of the power and subject the
property to the personal debts of the attorney in fact."
Likewise, the
rule applies as to contractual obligations. Olive v. Meek, 103
Wash.
467, 469 (1918), where the concept of community property as belonging to
the community as an entity was again emphasized:
"*
* * The vested property right of the community as an entity composed of
husband and wife cannot be impaired merely because the husband is made
its manager and the manager has a personal judgment against him."
It has not
been suggested that separate tax obligations of one spouse are in a
different category from other separate debts, in relation to community
property, and research does not indicate that separate tax obligations
have been so regarded by the taxing authority of the State of
Washington
.
In view of the
concept expressed in the cases cited above that under Washington law the
marital community holds community property by a unity of title that is
not divisible at the will of separate creditors, the observation of the
court in Brotton v. Langert, 1 Wash. 73 (1890), at p. 80, that
the "object of the law" is "in the nature of an
exemption" should not be accorded controlling significance as urged
by the government.
The government
relies also on statements made in Bortle v. Osborne, 155
Wash.
585, that by the community property laws of the state "the
legislature did not create an entity or a juristic person separate and
apart from the spouses composing the marital community." That case,
also, cannot be said to foreclose the plaintiff's claim for relief
because, there, the court was not concerning itself with the
divisibility of community property at the instance of creditors, but was
disposing of and rejecting an argument that the marital community is a
distinct legal personality which could survive the death of one of the
members composing the community, for the purposes of survival of a cause
of action against the community.
An examination
of the application of community property laws in the various states
indicates clearly that interpretations of community property laws have
not developed uniformly in the western states.
Washington
and
Arizona
have adopted a divergent view from the majority of the other community
property states in regard to the liability of the community property for
separate debts of the husband. An interesting discussion and comparison
of the historical development of community property law in the various
community property states will be found in the opinion of Judge Magruder
in de la Torre v. National City Bank of New York (1 Cir. 1940),
110 F. 2d 976, where the Court of Appeals for the First Circuit was
required to review a decision of the Supreme Court of Puerto Rico
relating to the community property law of Puerto Rico. The court at page
980 quotes III Vernier, American Family Laws (1935), pages 223, 224, in
part as follows:
"Except
in Arizona and Washington, the general rule seems to be that the
husband's creditors may look to the community property for the
satisfaction of liabilities incurred by the husband, whether before or
after marriage, in tort or in contract, as manager of the community or
in his individual separate capacity. * * *
"The
Washington
court, consistent with its entity theory of the community, holds
that the community property is liable for 'community' obligations only.
These are, roughly, obligations incurred (ordinarily, of course, by the
husband) in tort or contract for the benefit of the community or while
managing the community * * *.
Arizona
now appears to have adopted in full the
Washington
view * * *." (Italics added.)
See
also Cosper v. Valley Bank (Supreme Ct. Ariz. 1925), 237 P. 175.
In the light
of the historical development of the community property concept under
Washington law and the public policy supporting it, this court, upon a
hearing on the merits, could readily find that the character and extent
of the plaintiff husband's undivided interest in the community property
herein involved is such as to make it, by virtue of its inherent nature,
immune from seizure under a federal tax lien arising out of his separate
tax obligation, because of the character of the "property" or
"rights to property" created under the state law of
Washington. Conversely, this court cannot accept or approve the concept
advanced by the government that as a matter of law the Washington rule,
which holds that the plaintiff husband's interest in the community
property is not liable to execution for his separate debt, is plainly a
state exemption law having no application to attachment of a federal tax
lien.
While no cases
have been found bearing on the precise question herein involved, cases
involving a homestead interest in property and cases involving tenancies
by the entirety furnish close analogies to the type of undivided
property interest here alleged.
The reasoning
adopted in those decisions appears applicable here in view of the
rulings of the Washington Supreme Court as to the character of the
rights of husband and wife in community property held in the state of
Washington
. See United States v. Hutcherson (8 Cir. 1951) [51-1 USTC ¶9249],
188 F. 2d 326; Pettengill v. United States (D. C. Vt. 1962) [62-2
USTC ¶9667], 205 F. Supp. 10; Morgan v. Moynahan (D. C. Tex.
1949) [49-2 USTC ¶9429], 86 F. Supp. 522; Bigley v. Jones (D. C.
Okla. 1946) [46-1 USTC ¶9161], 64 F. Supp. 389.
In conclusion,
it may be conceded that application of the Washington concept of
community property interests may result in inequities in the collection
of delinquent tax claims, but, as stated by the Court of Appeals for the
Eighth Circuit in United States v. Hutcherson, supra:
"*
* * We do not conceive it to be an appropriate exercise of the power and
authority of a federal court to strike down a rule of property, not
repugnant to any law of the United States, long established in the
state, and upon which many valuable property rights are based."
The motion to
dismiss will be denied, and this memorandum decision will serve as an
order denying said motion.
In the Matter of Milwaukee Crate &
Lumber Company, Bankrupt
U.
S. District Court, East. Dist. Wis., No. 27839 in Bankruptcy, 206 FSupp
115, 11/28/62
[1939 Code Sec. 3641--similar to 1954 Code Sec. 6203; 1939 Code Sec.
3671--changed in 1954 Code Sec. 6322]
Lien for taxes: Method of assessment: Waiver.--A lien for taxes
arose under the 1939 Code when the assessment list, which had been
signed by the Acting Commissioner, was received in the office of the
Collector, where the list showed the sum of the assessments against the
taxpayer involved in this bankruptcy proceeding and also assessments
against other taxpayers. A waiver of lien in the original proceedings
under Chapter X of the Bankruptcy Act was expressly limited to those
proceedings.
John Kitzke,
Assistant United States Attorney, 2234 N. Terrace Ave., Milwaukee 2,
Wis., W. H. Putnam, Industrial Commission, Madison, Wis., for plaintiff.
Opinion
TEHAN,
District Judge:
On January 7,
1960, James E. McCarty, Referee in Bankruptcy, filed amended findings of
fact, conclusions of law and an order in these proceedings determining
that the United States of America had a valid and subsisting lien on
property of the bankrupt sold in these proceedings, paramount to claims
and alleged liens of the City of Milwaukee and of the Industrial
Commission of Wisconsin, and ordering that the trustee pay the remaining
funds in his hands to the United States of America. The City of
Milwaukee and the Industrial Commission of Wisconsin have filed
petitions for review, 1
which petitions are presently before the court. Briefs with respect
thereto have been filed and oral argument was heard on
October 23, 1961
, and the court is now prepared to render its decision.
[Assessment
Certificate]
I. Both the
City and the Industrial Commission contend that the
United States of America
failed to prove any lien, because no proper assessment was ever made, no
assessment list signed by the Commissioner of Internal Revenue was
returned to the Collector in
Milwaukee
, and no notice or demand was made upon the bankrupt. They contend that
since no Form 23A was sent to the Commissioner of Internal Revenue,
certified by him, and returned to the Collector in this district, no
assessment was made and no lien arose. No authority has been cited which
we consider to support that contention. The evidence here is
uncontroverted that Form 23C, the assessment certificate, was executed
by the Acting Commissioner and returned to the Collector in this
district. That certificate, signed by the Acting Commissioner on
February 20, 1951, was received in the office of the Collector for this
district on February 23, 1951. The sum totals of many assessments
against the bankrupt and others were listed on that certificate. There
was also introduced in evidence before the Referee that portion of Form
23A, which established that taxes owed by the bankrupt were included in
the amount shown on the February 20, 1951 assessment certificate. We
agree with the Referee that the Government proved the assessment against
the bankrupt and the acquisition of a lien by the United States of
America without showing that Form 23A was mailed by the Collector to the
Commissioner and returned by the Commissioner to the Collector, by
showing that the Acting Commissioner signed the Assessment Certificate
which included in its total figures an assessment against the bankrupt,
and that the United States of America fully complied with the applicable
provisions of the Internal Revenue Code of 1939 and had a valid lien
against the property of the bankrupt on February 23, 1951. We also agree
that the portion of Form 23A and Form 23C, admitted in evidence before
the Referee, were properly admitted under §1732 and §1733, Title 28
U.S.C., and that notice and demand for payment of the tax due was issued
to the bankrupt as shown by Form 23A, on February 26, 1951.
[Motion
to Quash Request for Admission of Facts]
II. Both the
City and the Industrial Commission also contend that the Referee erred
in considering and granting a motion of the
United States of America
to quash their request for admission of facts. We agree with the Referee
that consideration and granting of that motion did not prejudice the
City or the Industrial Commission. A statement of a portion of the
history of these proceedings adequately demonstrates lack of prejudice.
On April 2,
1956, the Referee entered an order in these proceedings directing the
trustee to pay to the United States of America the remaining funds in
his hands for application on its tax liens, after determining that the
United States had a lien on the property of the bankrupt paramount to
the claims and alleged liens of the City and Industrial Commission.
These parties filed petitions for review, but on May 13, 1957, before
those petitions were acted upon by the court, moved to remand these
proceedings to the Referee for consideration of two issues not
proviously before him, that is, whether the United States had complied
with the provisions of the Internal Revenue Code of 1939 so as to
acquire a lien, and whether any lien so acquired had been waived. This
motion was granted on May 28, 1957.
On or about
April 6, 1959, prior to the hearing before the Referee on the remand,
the City and Industrial Commission served on the
United States
a request for admission of facts. Some of these requests for admission
related to matters of record, uncontroverted herein, some to legal
conclusions and contents of statutes and most to matters wholly without
the scope of the remand, such as the validity of the liens asserted by
the City and Industrial Commission. Only requests Nos. 10 through 22
constituted an attempt to establish, as undisputed, facts in any way
relevant on the remand. The Government moved to quash the request for
admission of facts on April 14, 1959, and the Referee, at the hearing of
April 16, 1959 at which the matters for which the proceedings were
remanded were taken up, granted the motion.
The City and
Industrial Commission argue that the Referee erred in considering the
Government's motion to quash summarily and that the motion should have
been denied because requests for admissions are not subject to motions
to quash. We do not agree. The majority of the requests were obviously
irrelevant on remand or improper, and the motion to quash could properly
be treated as objections thereto. J. R. Prewitt & Sons, Inc. v.
William (W. D. Mo. W. D., 1957) 20 F. R. D. 149. As to those which
related to facts and not legal conclusions concerning the validity of
the Government lien, most were improper as requesting admission of
controversial issues of fact. Some related to facts which are now
established. In any event, the petitioners have not been prejudiced by
the Referee's action.
[Waiver
of Lien]
III. Both
petitioners also argue that the
United States
waived any lien it may have had. These proceedings were originally
commenced under Chapter X of the Bankruptcy Act. Prior to the
adjudication of bankruptcy herein, the United States, through a then
Assistant United States Attorney, waived its lien, expressly limiting
the waiver to the Chapter X proceedings. 2
The Referee was correct in holding that the waiver was not binding in
these subsequent bankruptcy proceedings and was for the purpose of the
Chapter X proceedings only.
IV. The City
complains that the Referee did not afford it the opportunity to prove
its claim after the remand. Such proof was without the scope of the
remand and the Referee's action in that respect was correct. The City
had full opportunity to prove its claim at the hearing of December 20,
1954, at which hearing it failed to appear. It has argued that it was
not properly served with notice of that hearing, but its argument in
this respect has been made previously and held to be without merit. In
re Century Theatre Co. (C. A. 7, 1961) [61-1 USTC ¶9410] 289 F. 2d
731.
[Vested
Liens]
Finally, the
petitioners object to the Referee's holding that the lien of the United
States of America is paramount and superior to liens asserted by them,
the City claiming that the liens which it asserts are valid, choate and
vested, and the Industrial Commission claiming that it had the only
perfected and choate lien. Both petitioners claim that the Referee
erroneously applied tests to the federal tax lien different from tests
applied to their liens in determining priority.
As we stated
before, the
United States of America
proved the acquisition of a lien by it on
February 23, 1951
, the date on which the assessment certificate, executed by the Acting
Commissioner, was received in the Office of the Collector for this
district. 3
The nature of the liens or alleged liens asserted by the petitioners has
been correctly set forth by the Referee in his opinion of
March 21, 1956
.
The federal
tax lien acquired
February 23, 1951
attached to all property of the bankrupt. Notice thereof was filed on
May 18, 1951
. The only lien which, it is claimed, arose before that time is the lien
of the City of
Milwaukee
for 1950 personal property taxes which lien was obviously inchoate
since, according to the proof before the court, the property subject to
the lien was not identified. The alleged lien of the Industrial
Commission did not arise until
June 20, 1951
, one day after these proceedings were commenced and long after the
federal tax lien was perfected, and was therefore properly held by the
Referee to be subordinate to the federal tax lien.
For the above
and foregoing reasons, it is ordered that the order of the Referee dated
January 7, 1960
be and it is hereby affirmed.
It is further
ordered that the record be returned to the Referee in Bankruptcy for
further proceeding.
1
The City's petition is for review of the order of
January 7, 1960
only. The Industrial Commission also seeks review of an earlier order of
April 2, 1956
, which order we consider to have been superseded by the order of
January 7, 1960
.
2
It must be noted that the
United States
retained, after its waiver, all of its rights under §199 of the
Bankruptcy Act.
3
Although additional liens were asserted by the Government, no attempt
was made to prove them on the remand, since the amount of the lien
acquired
February 23, 1951
exceeded the amount of the funds remaining in the bankrupt estate.
United States of
America
, Plaintiff v. 2183.44 Acres of Land, More or Less, in the
County
of
Los Angeles
, State of
California
, et al., Defendants
U.
S. District Court, So. Dist. of Calif., Cent. Div., Civil, No. 16661-Y,
3/4/57
[1939 Code Sec. 3671--similar to 1954 Code Sec. 6322]
Lien for taxes: When federal tax lien lapses.--Taxpayer owned an
interest in a tract of land. On
April 16, 1954
a condemnation proceeding to take the land was filed. On that date,
taxpayer's interest was subject to a tax lien in favor of the
United States
for 1946 income taxes. His interest was likewise subject to liens for
income taxes in favor of the State of
California
. In the case of the federal tax, assessment was made on
December 17, 1948
and the assessment list was received by the Collector on
December 30, 1948
. The state's liens were recorded in 1951 and 1952. The State of
California
contended, in effect, that the Government's lien for federal taxes
lapsed on
December 30, 1954
, it having failed to take action to collect the taxes within six years
from the date the assessment list was received by the Collector. The
Court held, however, that the filing of the action in condemnation
suspended the running of the statute of limitations against the
Government's lien, and the lien rights of the Government were
transferred to the compensation award which did not come into being
until the final judgment of the Court making the award. Being prior in
time, the federal tax lien was entitled to precedence to the extent of
the amount of the lien over the later income tax liens of the State of
California
.
Laughlin E.
Waters,
United States
Attorney, A. R. Early, Assistant United States Attorney, 812 Federal
Building,
Los Angeles
12,
Calif.
, for plaintiff. L. Thaxton Hanson, McBain & Morgan, for defendants.
Edmund G. Brown, Attorney General, Dan Kaufmann, Deputy Attorney
General, for State of
California
. James G. Maxwell, Jr., propria persona.
Decision
Relating to Liens Against James G. Maxwell
YANKWICH,
District Judge:
The question
of priority between State and Federal liens existing against James G.
Maxwell (Tracts No. BB-3535) heretofore argued and submitted, is now
determined as follows:
The Court is
of the view that the filing of the action in condemnation suspended the
running of the statute of limitations against the lien of the Government
as it would have against the lien of any other lienholder, and the lien
rights of the Government were transferred to the value of the property
which did not come into being until the final judgment of the Court
making the award. [See, 23 Tracts of Land v.
United States
, 6 Cir., 1949, 177 Fed. (2d) 967; Thibodo v.
United States
, 9 Cir., 1951, 187 Fed. (2d) 249, 256; and see, the writer's
opinion on remand in Thibodo v. United States, D. C. Cal., 1955,
134 Fed. Supp. 96, 98.]
Supplemental
Findings of Fact, Conclusions of Law and Judgment (3/14/57)
The above
entitled eminent domain proceeding with respect only to Tract BB-3535,
as described in the Declaration of Taking and Complaint on file herein,
came on regularly for trial in this court on January 2, 1957 before the
Honorable Leon R. Yankwich, Chief Judge of the above entitled court,
without a jury.
Plaintiff
appeared by its attorney, Laughlin E. Waters, United States Attorney, by
A. R. Early, Assistant
United States
Attorney. Defendants Elizabeth M. Maxwell and Lila P. O'Hara, formerly
Lila Patricia Eccles, formerly Lila Patricia Maxwell, also known as
Violet Patricia Maxwell, appeared in person and by their attorneys,
McBain & Morgan, by L. Thaxton Hanson. The State of California
appeared by its attorney, Edmund G. Brown, Attorney General, by Dan
Kaufmann, Deputy Attorney General. James G. Maxwell, Jr. appeared in
propria persona at said hearing.
Evidence was
introduced and testimony received and the matter submitted to the
decision of the court. The court subsequently filed herein its FINDINGS
OF FACT, CONCLUSIONS OF LAW AND JUDGMENT (As to Tract BB-3535) on
January 17, 1957 which were docketed and entered on January 18, 1957,
wherein it specifically reserved for decision at a later date the
determination of the distribution of the remaining $1,000.00 on deposit
in the Registry of the Court with respect to Tract BB-3535 among James
G. Maxwell, Jr., the State of California, and the United States of
America (Internal Revenue Service).
Memoranda of
Points and Authorities have been submitted by the State of
California
and by the plaintiff herein and the court, on March 4, 1957, rendered
its written DECISION RELATING TO LIENS AGAINST JAMES G. MAXWELL. The
court now makes the following.
Findings
of Fact
The interest
of James G. Maxwell, Jr. on April 16, 1954, which was the date of filing
the Complaint and Declaration of Taking herein with respect to Tract
BB-3535, was subject to a tax lien in favor of the United States of
America for 1946 income taxes owed by him. The assessment was made on
December 17, 1948 and the assessment list was received on December 30,
1948. The interest of said James G. Maxwell, Jr. was likewise subject at
the time of the filing of said Declaration of Taking to several liens in
favor of the State of
California
under the personal income tax law as evidenced by certificates dated
December 4, 1951, recorded December 5, 1951 and dated November 13, 1952
and recorded November 17, 1952.
Based upon the
preceding FINDINGS OF FACT, the court makes the following
Conclusions
of Law
The said
federal income tax lien arose on December 30, 1948 and remained
enforceable until December 30, 1954. Upon the filing of said Declaration
of Taking on April 16, 1954 title to Tract BB-3535 as described in said
Declaration of Taking and the Complaint herein passed to the plaintiff
herein and said lien was transferred to the amount of just compensation
to be awarded for the taking of said tract. The amount of such just
compensation was not determined until this court rendered its FINDINGS
OF FACT, CONCLUSIONS OF LAW AND JUDGMENT (As to Tract BB-3535) on
January 17, 1957. Being prior in time, said federal tax lien takes
precedence to the extent of the amount of said lien over the later
income tax liens of the
defendant
State
of
California
.
Based upon the
Findings of Fact, Conclusions of Law and Judgment (As to Tract BB-3535)
heretofore filed on
January 17, 1957
and the preceding Supplemental Findings of Fact and Conclusions of Law,
it is hereby
FURTHER
ORDERED, ADJUDGED AND DECREED that
The Clerk of
the Court is directed to disburse and pay out of the Registry of the
Court with respect to Tract BB-3535 the sum of $1,000.00 to the
United States of America
(Internal Revenue Service).
The debt of
defendant James G. Maxwell, Jr. to the United States of America secured
by that certain lien for $2,995.91, filed as No. 41254 in the office of
the United States District Court for the Southern District of
California, notice of which was filed as No. 111682 in the office of the
County Recorder of Los Angeles County, California, shall be credited
with the payment of said $1,000.00 to the United States of America
(Internal Revenue Service).
The
United States of America
, Plaintiff-Appellant v. Leonard B. Ettelson, Executor, et al., ect.,
Defendants-Appellees
(CA-7),
In the
United States
Circuit Court of Appeals for the Seventh Circuit, No. 9118. October
Term, 1946, January Session, 1947, 159 F2d 193, Filed
January 27, 1947
Appeal from the District Court of the
United States
for the Eastern District of Wisconsin.
Limitation upon assessment and collection: Assessment of tax:
Evidence.--Certified copies of assessment certificates and income
tax assessment lists, both under seal of the Treasury Department of the
United States
, are competent to prove that assessments were made within three years
of the filing of returns by taxpayer.
Limitation upon assessment and collection: Reducing claim to judgment
as tolling statute of limitations.--Reduction of a claim for income
taxes to judgment tolls the statute of limitations, within the meaning
of Code Sec. 276. Reversing a decision of the District Court for the
Eastern District of Wisconsin, 67 Fed. Supp. 257, 46-1 USTC ¶9283.
Sewall Key, J.
Louis Monarch, and Timothy T. Cronin, for plaintiff-appellant. J. L.
McMonigal and Harry V. Meissner for defendants-appellees.
Before
SPARKS
and MINTON, Circuit Judges, and LINDLEY, District Judge.
[Nature
Of Proceedings]
MINTON,
Circuit Judge:
This suit was
commenced on
April 3, 1944
to enforce a lien for unpaid income taxes against a piece of real estate
located in
Green Lake County
,
Wisconsin
, and owned in his lifetime by the deceased taxpayer, Samuel A.
Ettelson. 1
The District Court after trial dismissed the Government's complaint
because of its failure to prove the specific dates upon which the
assessment lists were received by the Collector of Internal Revenue for
the First District of Illinois, which District includes the City of
Chicago
where the deceased taxpayer had lived. For such failure of proof the
District Court held that the Government had no lien. From this judgment,
the Government has appealed.
The contest
here is only between the United States Government and one Frank G.
Lueck, and between the Government and the County of Green Lake. Lueck on
November 21, 1940
became the assignee of certain certificates for delinquent real estate
taxes assessed against the property in question by the County of Green
Lake, which taxes became delinquent in the year 1939;
Green
Lake
County
is the owner of certificates for delinquent taxes on this property for
the years subsequent to 1939. The question of priority is not before us
as it was not decided by the District Court. In fact, the sole question
for decision is whether the Government failed to prove that it had a
lien.
[Defendants'
Contention]
The defendants
contend that the Government failed because there was no competent
evidence, first, that the assessments were made within three years after
the taxpayer had filed his returns; and secondly, that the Government
had failed to prove the precise dates upon which the assessment lists
were received by the Collector of Internal Revenue for the First
District of Illinois.
[First
Question]
As to the
first point. The pertinent provision of the statute is Section 275 of
the Internal Revenue Code 2
which provides that the assessment must be made within three years after
the filing of the return by the taxpayer. As its Exhibit No. 3, the
Government introduced in evidence, without objection, certified copies
of the assessment certificate and the pertinent portion of the
January 1, 1937
income tax assessment list, First Illinois Collection District,
assessing an additional tax against the taxpayer for the year 1934. This
certificate and list were executed under the seal of the Treasury
Department of the
United States
. This Exhibit No. 3 and the Government's Exhibits Nos. 4 to 10,
inclusive, were all of similar import and showed assessments by the
Commissioner of Internal Revenue against the taxpayer for the years
1934, 1935, 1936, 1937, and 1938 in the total sum of $96,242.96. Since
these certified copies were under the seal of the Treasury Department,
they were admissible in evidence by the terms of the statute, and we are
required by the same statute to take judicial notice of the seal. 28 U.
S. C. 1940 ed., Sec. 661.
From the
assessment list for January 1, 1937, we learn that the Commissioner on
January 8, 1937 assessed the taxpayer additional income tax for the year
1934 in the sum of $26,724.63, with interest calculated to January 8,
1937 in the sum of $2,911.52 or a total of $29,636.15, with which the
Collector for the First District of Illinois was charged as of the date
January 8, 1937. So as to this assessment there can be no question but
that it was made within three years of the filing of the return for
1934, which could not have been filed before January 1. 1935.
From these
certificates from the office of the Commissioner of Internal Revenue,
all under the seal of the Treasury Department, it is undisputed on this
record that all of the assessments were made within three years of the
filing by the taxpayer of his return for each of the years 1934, 1935,
1936, 1937, and 1938.
[Second
Question]
As to the
second question. Did the Government fail to establish it had a lien by
failure to prove the precise dates upon which the Collector received the
assessment lists?
Samuel A.
Ettelson died May 9, 1938, and to enforce the collection of these
assessments, the Collector filed a claim therefor against his estate in
the Probate Court of Cook County, Illinois. A certified copy of this
claim was filed in the trial of this case without objection or
limitation of any kind. While this certified copy of the claim may not
have been the best evidence, it was admitted without objection and will
be considered for what it shows that may be material to this case. Kansas
City Southern Railway Company v. C. H. Albers Commission Co., 223 U.
S. 573, 596, 32 S. Ct. 316, 56 L. Ed. 556; Diaz v. United States,
223 U. S. 442, 450, 32 S. Ct. 250, 56 L. Ed. 500; United States v.
McCoy, 193 U. S. 593, 598, 24 S. Ct. 528, 48 L. Ed. 805; Simmons
et al. v. Stern, 9 Fed. (2d) 256, 257, and cases cited; Board of
Sup'rs. of
Riverside County
,
Cal.
, et al. v. Thompson et al., 122 Fed. 860, 863; United States v.
Homestake Min. Co., 117 Fed. 481, 489.
From an
examination of this claim certified from the Cook County Probate Court,
it is uncontradicted that on September 30, 1938 the Collector executed
and on October 3, 1938 filed claim for unpaid income taxes assessed
against Samuel A. Ettelson for the following years:
Amount of Tax Interest
1934 ..... *$29,136.15 $3,037.82
1935 ..... 2,043.15 128.30
1936 ..... 3,542.99 168.17
1937 ..... 8,999.72 130.43
Total .... $47,186.73
* The amount of this item of the claim varies from the amount stated in
the January 1, 1937 list because a payment of $500 had been made thereon
in the lifetime of the taxpayer.
This claim was
allowed by the Probate Court in full on February 9, 1939.
The interest
of the deceased taxpayer in the real estate involved, it was stated at
the argument, was worth approximately $10,000. We shall not burden this
opinion with the recital of further claims filed.
We think the
evidence on this record is uncontradicted and the inference inescapable
that on September 30, 1938, the date on which the Collector executed the
claim above set forth, he had in his possession the assessment lists for
1937 and 1938 upon which this claim was based. It will be presumed in
the absence of evidence to the contrary, of which there is none in this
record, that the Collector of Internal Revenue, a public official acting
in his official capacity in executing this claim on September 30, 1938,
had in his possession the assessment lists for 1937 and 1938 to which he
referred in the claim he filed and which were his authority for acting. R.
H. Stearns Co. v. United States, 291
U. S.
54, 63, 54 S. Ct. 325, 78 L. Ed. 647 [4 USTC ¶1210]; United States
v. Royer, 268
U. S.
394, 398, 45 S. Ct. 519, 69 L. Ed. 1011.
Furthermore,
we agree with the District Court that the filing of the claim in the
Probate Court against the estate of the deceased taxpayer was a demand
of payment made at the only place that it could be made. That being so,
the amount demanded was a lien upon all of the property of the taxpayer,
pursuant to Section 3670 of the Internal Revenue Code. 3
Section 3671 of the Code 4
fixes the time when the lien shall arise as the time the assessment list
was received by the Collector. That he had the assessment lists on
September 30, 1938 we have held, and the lien was then continuing unless
the liability for the amount claimed was satisfied or became
unenforceable by reason of lapse of time.
There is no
contention that the liability was satisfied. There was an allegation in
the answer of the defendants that the lien was barred by operation of
law because the action to enforce it was not commenced within the time
allowed by the statute of of limitations. The only statute of
limitations cited is the six-year limit provided in Section 276 of the
Internal Revenue Code. 5
If this section is a limitation upon the action of the Government, which
we shall assume, we agree with the District Court that the filing of the
claim in the Probate Court was a proceeding in court 6
to collect these taxes, and that it was commenced on October 3, 1938 and
was within six years of the dates the assessments were made. It is this
claim upon which the lien asserted in this suit is partially based. The
claim in the sum of $47,186.73 filed on October 3, 1938 and allowed by
the Probate Court on February 9, 1939 was a judgment 7
in that amount and the form of the obligation owing the Government was
changed from an unliquidated claim to a claim based on judgment.
This claim was
a proceeding in court within the meaning of Section 276 of the Internal
Revenue Code and was brought within six years of the dates of assessment
as provided therein. This court proceeding was sufficient to stop the
running of the statute of limitations contained in this section. The
judgment could thereafter be enforced at any time. There is no Federal
statutory provision as to the period of limitation on this judgment. Investment
& Securities Co. v.
United States
, 140 Fed. (2d) 894, 896 [44-1 USTC ¶9210]. The judgment was a
proper claim upon which to assert a lien. The Government had a lien on
September 30, 1938 which had not been satisfied nor barred by the lapse
of time.
[Conclusion
And Disposition]
The District
Court erred in holding that the precise date that the lien arose had to
be proved and that the Government had no lien because of failure to make
such proof. For that reason, the judgment of the District Court is
reversed, and the cause is remanded with instructions to restate its
findings of fact and conclusions of law in accordance with this opinion.
1
26 U. S. C. 1940 ed., Sec. 3678.
2
26 U. S. C. 1940 ed., Sec. 275.
3
26 U. S. C. 1940 ed., Sec. 3670.
4
26 U. S. C. 1940 ed., Sec. 3671.
5
26 U. S. C. 1940 ed., Sec. 276.
6
United States
v.
Paisley
, 26 Fed. Supp. 237.
7
Ford v. First Nat. Bank, 201
Ill.
120, 128, 66 N. E. 316, 317, 318; Mitchell v. Mayo, 16
Ill.
83, 84.
