Annotations- Property in Custody of State Court

---

 

 

6332 Annotations: Property in Custody of State Court- Levy

 

Penalty for Failure to Surrender Property: Property in Custody of State Court

 

[41-2 USTC ¶9794] United States , Plaintiff, v. F. G. Swink, Trustee, Consolvo and Overmyer, Inc., Defendant

In the United States District Court for the Eastern District of Virginia, C. A. 120, 41 FSupp 98, September 26, 1941

Collection of taxes: Surrender of property subject to distraint.--Suit having been brought against the wrong party, Government's action is defeated by denial of motion to substitute as the defendant person individually for person as trustee (for the benefit of creditors of delinquent taxpayer), but, relative to a major defense, the Court holds that defendant is not liable for asserted federal taxes against delinquent transferor either individually or as trustee, since at the time when distraint was served upon him transferor's property was already in custody of a state court, subject to an attachment or execution under decree of such court, and was not subject to distraint by an administrative officer. Moreover, person holding property under such circumstances does not incur personal liability under Code Sec. 3710 for failure to surrender property to the Government.

Samuel O. Clark, Jr., Assistant Attorney General, Andrew D. Sharpe and Stephen J. Augland, Special Assistants to Attorney General, all of Washington, D. C., and Sterling Hutcheson, U. S. Attorney and Russell T. Bradford, Assistant U. S. Attorney, Norfolk, Va., for plaintiff. Swink, Swink & White, Norfolk , Va. , for defendant.

WYCHE, D. J.:

This is an action by the United States against F. G. Swink, Trustee of Consolvo and Overmyer, Inc., for the recovery of federal unemployment compensation taxes under Title IX of the Social Security Act (c. 531, 49 Stat. 620), for the year 1937, in the amount of $250.00, federal insurance contribution tax under Title VIII of the Social Security Act of a portion of the year 1938, in the amount of $9.68, and a capital stock tax for the year 1938, all of which was assessed against Consolvo and Overmyer, Inc., of the City of Norfolk.

[The Facts]

Consolvo and Overmyer, Inc., a Virginia corporation, was operating a stone cutting and contracting business in the City of Norfolk . Virginia , and on January 6, 1938, the plant and equipment, books, records, etc. were totally destroyed by fire. The only assets remaining after the fire were a small quantity of stone, damaged by fire and water, together with a few receivables.

On January 25, 1938, the corporation, by deed of assignment for the benefit of creditors, conveyed these remaining assets to F. G. Swink, Trustee, and on February 8, 1938, the Trustee sold the property conveyed to him, and after the payment of the costs and expenses, of executing the trust, realized the sum of $356.92, which was deposited in a special account in his name as Trustee. The deed of assignment provided, after the payment of the costs and expenses, the Trustee should "pay all taxes, levies, liens, debts, and charges given priority by law." The Trustee not having any records or books showing what, if any, taxes were owing, communicated with the United States Collector of Internal Revenue, Workman's Compensation Commission of Virginia, the Department of Taxation of the State of Virginia, and the Treasurer of the City of Norfolk, inquiring as to what, if any, taxes were owing, and if so, to send him a statement. He received promptly a statement from the Treasurer of the City of Norfolk , showing taxes due the City of $14.84, plus interest and penalties. He also received from the Department of Taxation of the State of Virginia , a statement of personal property of $22.80, and on February 19, 1938, received statement of taxes from the United States Collector of Internal Revenue, as follows: Balance 1936 Social Security Tax, $136.05, and $30.00 capital stock tax. (The item of $136.05 was a penalty assessment on the 1936 Social Security tax, by reason of delay in the payment. This was later abated by the Collector of Internal Revenue.)

The Corporation had no records from which it could make up its unemployment tax return, either to the United States or the State of Virginia for the year 1937. These taxes were required to be paid on or before March 15, 1938. All statements furnished the Trustee by the various claimants were made out against the Corporation, and not against the Trustee as Trustee. The claim of the United States for the $30.00 capital stock tax, were not disputed, as it was assessed against the Corporation on December 28, 1937, and the Trustee admitted the validity of the lien obtained by the United States under this assessment.

The amount in the hands of the Trustee was not sufficient to pay all of the tax claims in full, and the Trustee made repeated efforts to get the various parties to prorate their respective claims, and finally, the City and State agreed, without waiving their claims to priority, to prorate, if the United States would do likewise. This was declined by the United States .

On May 23, 1940, the Commonwealth of Virginia , filed in the Clerk's Office of the Corporation Court of the City of Norfolk, Virginia, a notice of lien and demand for payment, under Section 382 of the Tax Code of Virginia. This notice of lien and demand for payment was against the Corporation. On the same date, a summons under this section, was issued and served on the Trustee, and a petition was filed in the Corporation Court of the City of Norfolk, to subject the funds in the hands of the Trustee to the payment of the taxes due the State of Virginia, and to a lien on the funds in the hands of the Trustee. An order was entered on this petition, making the Unemployment Compensation Commission of Virginia, the City of Norfolk , and the United States , parties defendant. The City of Norfolk and the Unemployment Compensation Commission of Virginia, followed the same procedure, and asserted their claims of priority against said fund. The United States did not come in, although the United States Collector of Internal Revenue, and the United States District Attorney's Office, were furnished copies of the pleadings, and were kept fully advised of all steps taken in this litigation.

The matter was heard at the June 1940 term of the Corporation Court of the City of Norfolk, Virginia, and the Court, after full argument, announced its decision, and requested the attorneys for the various parties appearing, to submit an order in accordance with its opinion. The entry of this order was delayed, at the request of the Trustee, so that the United States could appear and assert its rights, if any it had.

The warrant of distraint and notice of levy for taxes due the United States were served July 12, 1940, and on the same day notice of lien for the taxes was filed with the United States District Court for the Eastern District of Virginia, and with the Corporation Court of the City of Norfolk, and final notice of demand for payment of taxes was served on the defendant July 13, 1940. In the fall of 1940, the District Attorney's office was given a copy of the proposed order of the Corporation Court , and advised that the Corporation Court would hear argument on the proposed order on October 25, 1940, and if this order was entered, the Trustee was required to comply with such order, unless restrained.

The present suit was brought against the Trustee on October 5, 1940, and on November 9, 1940, the Corporation Court of the City of Norfolk, entered an order directing the Trustee to pay to the United States Collector of Internal Revenue, the sum of $73.22, covering the $30.00 capital stock tax, $9.68 contribution for the portion of 1938 tax assessed, and 10% of the 1937 assessment, under Section 1601, Title 26 of the United States Code Annotated, and the balance of the fund to be prorated and paid to the other claimants.

[Motion to Substitute Different Defendant Refused]

Counsel for the United States during the course of his oral argument stated that he was not seeking judgment against F. G. Swink as Trustee, but against F. G. Swink individually, and moved first to strike the words "Trustee, Consolvo and Overmyer" and later to add "F. G. Swink, individually", and contends in his argument that this motion should be granted under Rule 21, Rules of Civil Procedure, which is as follows: "MISJOINDER AND NONJOINDER OF PARTIES. Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party of its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately." In my opinion Rule 21 was not adopted to give relief to a plaintiff who sues the wrong party, but to a plaintiff who sues too many parties, or not enough parties. The effect of plaintiff's motion, however, is to substitute F. G. Swink individually for F. G. Swink as Trustee, for counsel says in argument that he seeks no judgment against F. G. Swinks, as Trustee. Rule 25 of the Rules of Civil Procedure permits substitution under certain circumstances, but not under the facts of this case. The motion to add or substitute F. G. Swink individually should therefore be overruled.

[Opinion]

But be that as it may, it is my opinion that the plaintiff cannot recover in this action against F. G. Swink individually or as Trustee.

[Recovery Asked Under Sec. 3710 of Code]

The plaintiff seeks recovery against the defendant under the provisions of section 3710 of the Internal Revenue Code, 26 USCA 3710, which provides for the personal liability of one having in his possession property of a delinquent taxpayer upon whom notice of distraint is served in the event such person does not turn over to the Government the property of the delinquent taxpayer in his possession.

[Property in Custody of Court and Not Subject to Distraint Under Sec. 3710]

The real question in this case therefore is whether the defendant personally became liable for failure to turn over the property of the delinquent taxpayer in obedience to the warrant of distraint served upon him. It must be remembered that at the time such distraint was served upon the defendant a suit, under 382 ¹ of the Tax Code of Virginia, had already been commenced in the State Court by virtue of which the property of the delinquent taxpayer was brought into that Court and attached with a specific lien, and made subject to judgment and execution thereunder. The effect of this action in the State Court was to bring the funds of the delinquent taxpayer in custodia legis and to make of the defendant a mere custodian for the State Court and not of the delinquent taxpayer. Accordingly, when the distraint was served upon him by the Collector of Internal Revenue he did not have any property of the taxpayer which under the terms of section 3710 was "subject to distraint" because the fund which he had in possession had already been taken into the custody and under the control of the State Court. It seems obvious that property already in the custody of a court is not subject to a summary distraint by an administrative officer. Moreover, section 3710 provides that if the property of the taxpayer is at the time of the distraint "subject to attachment or execution under any judicial process" the person holding such property does not incur personal liability if he fails to turn the same over to the federal government. It seems to me that the quoted language should be given a liberal construction to avoid any unseemly and irreconcilable conflict between the federal government and the state courts. For this reason, I believe that a liberal construction of the statute should be had, and that it should be held that when a fund is taken into the custody of a State Court subject to distribution pursuant to the judgment and execution of that court the fund is "subject to attachment or execution" under the judicial process of the State Court. For this reason, I am of opinion that the provisions of section 3710 do not apply to the instant case, and that the defendant did not incur any personal liability to the United States Government for failure to turn over to it money which was not subject to distraint and which was subject to an attachment or execution under decree of a competent court.

[Priorities Need Not Be Discussed]

There has been considerable discussion in the briefs of counsel as to conflicting claims of priority of liens among the municipality, state and federal governments. It is useless to discuss these questions, interesting though they be, for the reason that the liability of the defendant in this case is predicated solely upon section 3710 of the Revenue Code and any discussion of conflicting priorities of liens is entirely beside the point.

[Federal Credit Must Be Allowed]

Having reached this conclusion it is not necessary to decide other issues raised in the argument of counsel, but I will add that it is my opinion that the Corporation Court of the City of Norfolk, Virginia, properly held that the assessment of the Social Security Tax for 1937, under Section 1600 of the Internal Revenue Code (26 USCA 390) is a duplication of the Unemployment Compensation tax assessed by the State for the same year, and under Section 1601 of the Internal Revenue Code (26 USCA 390) the taxpayer is entitled to a credit of 90% of the amount of the tax assessed. In other words, where 90% of the tax is paid to the State Unemployment Compensation Commission, the taxpayer is only liable to 10% of the assessment, to be paid to the United States .

The last clause of paragraph three of Section 1601 of the Internal Revenue Code, supra, is: "The preceding provisions of this subdivision shall not apply to the credit against the tax of a taxpayer for any taxable year if such taxpayer's assets, at any time during the period from such last day for filing a return for such year to June 30 next following such last day, both dates inclusive, are in the custody or control of a receiver, trustee or other fiduciary appointed by, or under the control of, a court of competent jursidiction," In Re Hy-Grade Meat and Grocery Co., 26 F. Supp. 294; In Re Standard Composition Co., 23 F. Supp. 391.

[Judgment for Defendant]

The equities of the case are clearly with the defendant. The record shows that the Trustee attempted to convene the various claimants, kept the District Attorney's Office and the Office of the United States Collector of Internal Revenue advised as to what was being done in the State Court. The United States had abundant opportunity to assert its rights to priority in the funds, if any it had, in the State Court. When the judgment of the State Court was entered, the defendant was obligated to make the payments ordered by that Court, as he was under control of that Court, and was required by the State law to have his account approved by the Commissioner of Accounts of that Court. It appearing that he tendered to the United States Collector of Internal Revenue the amount found to be owing by the State Court, and also tendered same in open Court at the trial of this case, and both tenders being refused, judgment should be entered for the defendant, and the bill of complaint dismissed.

An appropriate order is filed herewith.

¹ Section 382 of the Tax Code of Virginia is: "When the officer cannot find sufficient goods or chattels to distrain for taxes or levies, any person indebted to or having in his hands estate of the party assessed with such taxes or levies may be applied to for payment thereof out of such debt or estate; and a payment by such person of the said taxes or levies, either in whole or in part, shall entitle him to a charge or credit for so much on account of such debt or estate against the party so assessed."

It also provides: "And if the sum due exceed twenty dollars, shall procure from the clerk of the circuit court of the county or corporation court of the city a summons directing such person to appear before such court on the first day of the next term thereof; and from the time of the service of any such summons, the said taxes and levies shall constitute a lien on the debt so due from such person, or on the estate in his hands."

 

[58-2 USTC ¶9827]Paul A. Kush, Plaintiff v. Convair, Defendant

U. S. District Court, No. Dist. Tex., Fort Worth Div., Civil No. 3456, 7/25/58

[1954 Code Secs. 6332 and 7402--similar to 1939 Code Secs. 3710 and 3800]

Lien for taxes: Property subject to levy: Judgment fund: Jurisdiction of District Court: Intervention by United States.--A money judgment recovered by taxpayer in this action was deposited with the Court by defendant Convair. Thereupon the United States , which held a lien against taxpayer for unpaid income and unemployment taxes, intervened in the suit seeking payment of its claim out of the fund on deposit. The state of Texas and taxpayer's lawyer also intervened seeking collection of unpaid state unemployment taxes and attorney's fees. After allowing the state unemployment taxes to be credited against the federal unemployment taxes, the interveners' claims were ordered to be satisfied out of the proceeds of the judgment, the remaining balance going to the taxpayer.

Irvin W. Shelman, for plaintiff and for himself. Sam Lane, Assistant Attorney General, State of Texas, A. W. Christian, Assistant United States Attorney, for defendant.

Final Judgment

ESTES, District Judge:

On the 8th day of July, 1958, came on to be heard in the above entitled and numbered cause the interventions of United States of America, State of Texas and Irvin W. Shelman, whereupon appeared the intervener United States of America, by and through the United States Attorney for the Northern District of Texas, the intervener State of Texas, by and through the Attorney General of the State of Texas, and intervener Irvin W. Shelman, in person and in his own behalf, and plaintiff Paul A. Kush, acting by and through his attorney, the said Irvin W. Shelman, and announced ready for trial, and thereupon all matters in controversy herein, as well of fact as of law, were submitted to the Court without the intervention of a jury.

The Court, after hearing and considering the stipulations and the evidence herein, and the pleadings and the argument of counsel, is of the opinion and finds as follows:

1. That on June 5, 1957, judgment was entered herein in favor of plaintiff, Paul A. Kush, and against the defendant General Dynamics Corporation, the corporate name of Convair, in the amount of $2,386.77, which said amount was deposited by the defendant Convair in the Registry of this Court, and is now on deposit herein, and that all issues of fact and of law have heretofore been disposed of except the respective claims of the interveners herein and the plaintiff to said fund on deposit.

2. That the intervener Irvin W. Shelman is entitled, for the services rendered by him herein, to an attorney's fee in the amount of $300.00, to be paid out of the said deposit.

3. That Internal Revenue taxes, payable to intervener United States of America , have heretofore been assessed against plaintiff Paul A. Kush as follows:

(a) Income taxes for the year 1954, which were duly assessed on May 31, 1955, and for which notice of tax lien was filed in the Office of the County Clerk of Tarrant County, Texas, on May 28, 1956, and recorded in Volume 11, Page 495, Federal Tax Lien Records of said county, and on which said taxes there is unpaid the principal sum of $441.85, plus interest to July 8, 1958, in the amount of $138.36, or a total of $580.21.

(b) Unemployment taxes for the year 1953, which were duly assessed on May 23, 1955, and for which notice of tax lien was filed in the Office of the County Clerk of Tarrant County, Texas, on July 27, 1955, and recorded in Volume 11, Page 87, Federal Tax Lien Records of said County, and on which said taxes there is unpaid, without any credit under the provisions of Section 3302, Internal Revenue Code of 1954, the principal sum of $354.56, plus interest to July 8, 1958, in the amount of $91.03, or a total of $445.59.

(c) Additional unemployment taxes for the year 1953, which were duly assessed on January 23, 1956, and for which notice of tax lien was filed in the Office of the County Clerk of Tarrant County, Texas, on March 28, 1956, and recorded in Volume 11, Page 496, Federal Tax Lien Records of said county, and on which said taxes there is unpaid, without any credit under the provisions of Section 3302, Internal Revenue Code of 1954, the principal sum of $946.66, plus interest to July 8, 1958, in the amount of $127.68, or a total of $1,074.34.

4. Notices of levy for said Internal Revenue taxes were served on Convair on March 5, 1956, and March 29, 1956, and final demand therefor was served on Convair on May 10, 1957, and on June 28, 1957, the date of said deposit in the Registry of this Court by Convair, a notice of levy for said taxes was served on the Clerk of this Court.

5. That plaintiff Paul A. Kush is indebted to intervener State of Texas for unemployment taxes for the third and fourth quarters of the year 1953, on which there is past due and unpaid the sum of $969.62.

6. That the said Texas unemployment taxes should be paid out of the fund on deposit herein and credit given therefor on the said Federal unemployment and additional unemployment taxes, pursuant to the provisions of Section 3302, Internal Revenue Code of 1954.

7. That under the provisions of Section 3302, Internal Revenue Code of 1954, upon the payment of said Texas unemployment taxes, in the amount of $969.62, and the issuance by the State of Texas of proof of credit therefor, the amounts payable to United States of America for said Federal unemployment taxes for the year 1953 will be reduced to $474.84, which amount, plus the said sum of $580.21, due and payable for said income taxes, or a total of $1,055.05, is payable to intervener United States of America out of said fund on deposit herein.

8. That the remainder of said fund on deposit, after deduction of said amounts payable to Irvin W. Shelman, State of Texas and United States of America, is payable to plaintiff Paul A. Kush.

It is, therefore, ORDERED, ADJUDGED and DECREED that the said fund in the amount of $2,386.77, on deposit herein, be paid out and disbursed by the Clerk of this Court as follows:

(a) To Irvin W. Shelman, as attorney's fees, the sum of $300.00.

(b) To State of Texas $969.62.

(c) To United States of America , by check payable to the District Director of Internal Revenue, $1,055.05.

(d) To Paul A. Kush $62.10.

 

[67-1 USTC ¶9406]Richard Bishop, Plaintiff v. Neal S. Warren, District Director, Internal Revenue Service, Defendant

U. S. District Court, East. Dist. Wash. , No. Div., Civil Action No. 2586, 270 FSupp 156, 4/14/67

[1954 Code Sec. 6332]

Levy: Surrender of property subject to levy: Joint checking account: Property held by court.--In a suit to recover monies paid under notices of levy resulting from his parents' tax delinquencies, R was the presumptive owner of a one-half interest in a checking account and was allowed recovery. A sum in the hands of a court paid in satisfaction of a judgment in favor of R's father was properly surrendered as was money collected by another upon a collection account referred to it by R's father.

Howard K. Michaelsen, Michaelsen & Richard, 2315 N. Monroe, Spokane, Wash., for plaintiff. Smithmoore P. Myers, United States Attorney, Robert M. Sweeney, Assistant United States Attorney, 334 Federal Bldg., Spokane, Wash., for defendant.

Findings of Fact and Conclusions of Law

LOWELL, District Judge:

This matter came on regularly for trial before this Court on December 20, 1966, the plaintiff being represented by Howard K. Michaelsen, attorney at law, and the defendant by Robert M. Sweeney, Assistant United States Attorney, and the Court having considered the pretrial order herein, the evidence adduced at trial, the argument of counsel, now makes the following

Findings of Fact

I. The plaintiff Richard Bishop is, and at all times material hereto was, a resident of the city of Newport , Pend Oreille County , State of Washington . The defendant Neal S. Warren is, and at all times material hereto was, the District Director for the Internal Revenue Service, Department of the Treasury of the United States .

II. The plaintiff is the son of Charles E. Bishop and Ruth N. Bishop, who at all times material hereto were also residents of the city of Newport , Pend Oreille County , State of Washington .

III. By quit-claim deed dated February 8, 1957, Charles E. Bishop conveyed to his son, the plaintiff herein, a motion picture theater business located in Newport , Washington , and operated under the name of the Roxy Theater. Thereafter, there was operated from the theater building in Newport , Washington , a loan and collection business.

IV. The plaintiff Richard Bishop devoted the majority of his time to the operation and management of the theater business. Charles E. Bishop devoted most of his time to and controlled the operation of the collection business. The said Charles E. Bishop prepared and filed complaints for collection in the Pend Oreille County courts. The complaints were filed in the name of Charles E. Bishop as the party in interest. Charles E. Bishop contacted other collection agencies in the course of the collection business. The collection agency bond required under the law of the State of Washington was written to Charles E. Bishop as the operator of the collection business.

V. For the taxable year 1958, and for the years thereafter, Charles E. Bishop and Ruth N. Bishop did not file income tax returns. During these years, the plaintiff Richard Bishop claimed Charles E. Bishop and Ruth N. Bishop as dependents on his tax returns.

VI. At the time this action was commenced, there was no federal tax liability assessed by the Internal Revenue Service against the plaintiff Richard Bishop.

VII. Prior to the commencement of this action, assessments for delinquent federal income and excise taxes had been duly and properly made against Charles E. Bishop and Ruth N. Bishop. Notices of such delinquent taxes against Charles E. Bishop and Ruth N. Bishop had been duly and properly filed in Pend Oreille County , Washington , as follows:

Type of Tax        Assessment          Amount of         Date Notice of

and period            Date            Assessment         Tax Lien Filed

Income 1947 .....     4/12/63         $ 8,975.39                 6/4/63

Income 1948 .....     4/12/63           2,653.67                 6/4/63

Income1949 ......     4/12/63           1,315.38                 6/4/63

Income 1950 .....     4/12/63           4,478.79                 6/4/63

Income 1951 .....     4/12/63          16,607.94                 6/4/63

Income 1952 .....     4/12/63           8,871.70                 6/4/63

Income 1953 .....     4/12/63           3,273.63                 6/4/63

Income 1953 .....     4/12/63           3,970.28                 6/4/63

Income 1954 .....     4/12/63           3,436.99                 6/4/63

Income 1955 .....     4/12/63          12,005.49                 6/4/63

Excise 6/30/54 ..     8/9/63           49,668.65                9/17/63

Said delinquent taxes remain due, owing and unpaid to the United States , except for credits in the total amount of $684.62.

VIII. On May 7, 1964, a Notice of Levy was served by the defendant upon the National Bank of Commerce, Newport Branch, directing the bank to pay to the defendant any property it had belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notice of Levy, the National Bank of Commerce on June 5, 1964 paid to the defendant the sum of $409.10, which sum was paid from a checking account at the bank under the name of "City Finance Company," and upon which the plaintiff Richard Bishop and his father, Charles E. Bishop, were authorized to draw checks. The sum of $409.10 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

IX. On May 8, 1964 and June 18, 1964, Notices of Levy were served by the defendant upon the Clerk of the Superior Court of Pend Oreille County, Washington, directing the clerk to pay to the defendant any property he held belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notices of Levy, the Clerk of the Pend Oreille County Superior Court on July 6, 1964 paid to the Internal Revenue Service the sum of $268.85. This sum had been paid into the registry of the Pend Oreille County Clerk's office in satisfaction of a judgment obtained in favor of Charles E. Bishop by the said Charles E. Bishop as a part of the collection business. The sum of $268.85 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

X. On May 12, 1964, a Notice of Levy was served by the defendant upon the Bonded Adjustment Company of Spokane , Washington , directing the company to pay to the defendant any property it held belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notice of Levy, the Bonded Adjustment Company on July 13, 1964 paid to the defendant the sum of $6.67, which sum was held by the Bonded Adjustment Company as an amount recovered by it upon a collection account referred to it from Charles E. Bishop operating as Bishop's Credit Service. The sum of $6.67 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

XI. In addition to the Notices of Levy mentioned in Findings of Fact Nos. VIII, IX and X, the Internal Revenue Service prior of the commencement of this action had served Notices of Levy upon fourteen other parties in connection with the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop. No money or other property was paid to the Internal Revenue Service by virtue of these notices, all of which Notices named Charles E. Bishop and Ruth N. Bishop as taxpayers from whom there were federal taxes due, owing and unpaid and made demand for any money or property belonging to said taxpayers. No assets of the theater business were seized or levied upon the Internal Revenue Service.

XII. The sum of $268.85 paid by the Clerk of the Pend Oreille County Superior Court to the Internal Revenue Service pursuant to levy was money belonging to Charles E. Bishop and Ruth N. Bishop and not to the plaintiff Richard Bishop.

XIII. The sum of $6.67 paid by Bonded Adjustment Company to the Internal Revenue Service pursuant to levy was money belonging to Charles E. Bishop and Ruth N. Bishop and not to the plaintiff Richard Bishop.

XIV. There is no evidence by which it can be determined the division of interest, if any, as between the plaintiff Richard Bishop and Charles E. Bishop in the sum of $409.10 paid to the Internal Revenue Service by the National Bank of Commerce pursuant to levy from the City Finance Checking account and upon which the plaintiff Richard Bishop and Charles E. Bishop were authorized to draw checks.

From the foregoing Findings of Fact, the Court makes the following

Conclusions of Law

I. By virtue of 28 U. S. C. 2201, this Court does not have jurisdiction to enter a declaratory judgment herein. The Court had jurisdiction over the remaining subject matter of this action and over the parties expense for the taxable year. If, however,

II. At all times material herein, and pursuant to 26 U. S. C. 6321, the United States had valid and subsisting liens upon all the property and rights to property belonging to the delinquent taxpayers Charles E. Bishop and Ruth N. Bishop.

III. The sum of $268.85 paid by the Clerk of the Pend Oreille County Superior Court to the Internal Revenue Service pursuant to levy was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop.

IV. The sum of $6.67 paid by Bonded Adjustment Company to the Internal Revenue Service pursuant to levy was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop.

V. The sum of $409.10 paid by the National Bank of Commerce to the Internal Revenue Service pursuant to levy was presumptively owned by the plaintiff Richard Bishop and Charles E. Bishop in undivided one-half interests as joint tenants, and one-half thereof, or $204.55, was money belonging to Charles E. Bishop and was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop. The remaining one-half thereof, or $204.55, was presumptively owned by the plaintiff Richard Bishop.

VI. Except for the sum of $204.55 mentioned in Conclusion V, the defendant has not levied upon or attempted to levy upon property belonging to the plaintiff.

VII. The defendant is entitled to a judgment dismissing the complaint herein and dismiss the injunction issued by Order of this Court on November 6, 1964, provided that the plaintiff is entitled to a judgment that the defendant be directed to return to the plaintiff the sum of $204.55 besides interest.

 

[78-2 USTC ¶9526] United States of America , Plaintiff v. The Board of County Commissioners for Lucas County , et al., Defendants

U. S. District Court, No. Dist. Ohio , West. Div., No. C 76-35, 5/19/78

[Code Sec. 6332--result unchanged under '76 Tax Reform Act]

Levy and Distraint: Failure to surrender seized property: Legal custody.--The county sheriff was liable for failing to surrender property for which the government had served a notice of levy. The notice of levy was served after a court order of distribution had been made in another case involving the delinquent taxpayer. Thus, the property was not in legal custody and was not subject to an attachment or execution under any judicial process. The sheriff was merely holding the property as a debtor to the persons to whom the court order of distribution had directed be paid.

Anthony G. Pizza, Assistant Prosecuting Attorney, Lucas County Court House, Toledo, Ohio 43624, Lewis H. Kirshner, 1048 Spitzer Bldg., Toledo, Ohio 43604, William Bamman, Finn, Mahahan & Pietrykowski, 420 Madison, Toledo, Ohio 43624, for defendants.

Memorandum and Order

WALINSKI, District Judge:

This cause came to be heard on two motions: Motion of Plaintiff for Summary Judgment against Defendant Sheriff of Lucas County, Ohio, filed pursuant to Rule 56(a), F. R. Civ. P.; and Defendants' Motion for Summary Judgment, filed pursuant to Rule 56(b), F. R. Civ. P. All issues have been briefed by the parties and the matter is now ripe for disposition.

Preliminary Statement

This action is brought by the United States pursuant to §6332(c) of the Internal Revenue Code of 1954, 26 U. S. C. §6332(c). ¹ Jurisdiction is predicated on 28 U. S. C. §§ 1340 and 1345. Plaintiff herein seeks to recover damages in the sum of $10,117.56 against the Sheriff of Lucas County, the Board of County Commissioners of Lucas County, Ohio, and the American States Insurance Company, for the refusal of the Sheriff of Lucas County to surrender the property of taxpayer Mod-Com, Inc., to the United States in accordance with a levy served on the Sheriff on July 18, 1974.

Cross Motions for Summary Judgment

Rule 56(c), F. R. Civ. P., provides that: * * * judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Upon review of the pleadings and the admissions on file in this action, the Court finds that there is no genuine issue as to any material fact. The events giving rise to this suit are as follows:

United Savings and Loan Association v. Mod-Com, Inc., et al., Civil No. 73-2370, was a mortgage foreclosure action commenced in the Court of Common Pleas of Lucas County, Ohio, and assigned to Common Pleas Judge George Kiroff. Pursuant to an order of the Court of Common Pleas (Kirkoff, J.), a judicial sale of property owned by Defendant Mod-Com, Inc. (taxpayer herein) was held on July 12, 1974. The proceeds of the sale amounted to $53,500.00, and on July 16, 1974, an Order Confirming Sale, Ordering Deed and Distribution was entered which provided for payment in sums certain to various parties, and further provided that the balance, if any, was to be paid to Defendant Mod-Com, Inc. The United States was not a party to the state court action due to a defect in service of process, and accordingly the Order of Distribution made no provision for any liens on the property held by the federal government. The Sheriff's Return on the sale demonstrates that after satisfaction of the claims of all other defendants, and payment of costs, the sum of $10,177.56 remained from the proceeds of the sale. On July 18, 1974, William M. Callanan, Sheriff of Lucas County, was the custodian of said monies, which were held in a bank account at the Toledo Trust Company.

On July 18, 1974, Sheriff Callanan was served, through an agent, with a "Notice of Levy", notifying him that there was then owing and unpaid to the United States from Mod-Com, Inc. the sum of $30,481.09. Sheriff Callanan failed to honor the Notice of Levy served on him, but instead paid out the sum of $10,177.56 to Mod-Com, Inc. on August 15, 1974, by a check drawn on an account at the Toledo Trust Company.

Prior to making the payment to Mod-Com, Inc., an employee of the Lucas County Sheriff's Office presented the "Notice of Levy" to Judge John J. Connors, then presiding judge on the Court of Common Pleas, Lucas County, Ohio. Judge Connors placed the following notation on the bottom portion of the Notice of Levy: "Received subsequent to the Order of Distribution (7/16/74) not allowed."

The statutory obligation of surrender of property subject to levy is set forth in §6332(a) of the Internal Revenue Code of 1954, 26 U. S. C. §6332(a), which provides, inter alia:

* * * any person in possession of * * * property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary or his delegate surrender such property or rights * * * to the Secretary or his delegate, except such part of the property or rights as is at the time of such demand, subject to an attachment or execution under any judicial process. (Emphasis added.)

The sole issue before the Court in this action is whether or not the sum of $10,177.56, which represented the balance of the proceeds of the judicial sale after all claims had been satisfied, was property "subject to an attachment or execution under any judicial process", on July 18, 1974, the date the Secretary demanded surrender. It is plaintiff's position that after the Order Confirming Sale, Ordering Deed and Distribution was entered by Judge Kiroff on July 12, 1974, the proceeds of the sale were no longer subject to attachment, but rather were held by the Sheriff as agent for the parties to whom the money was to be paid, including taxpayer Mod-Com, Inc. Defendants, on the other hand, contend that the property and its proceeds became subject to judicial process with the commencement of the action by United Savings, and remained subject to such process until the proceeds were paid out by the Defendant Sheriff, thus excepting the proceeds from the reach of 26 U. S. C. §6332(a).

In resolving this dispute, it should first be noted that the issue of the priority of the federal tax lien in relation to the claims of other lien holders is not before the Court. Accordingly, the Court finds the case of First National Bank v. Charles Henneman Co., 10 Wis. 2d 260, 103 N. W. 2d 24, cert. denied, 364 U. S. 836 (1960), relied upon by the federal government, to be inapposite. The case of United States v. Swink [41-2 USTC ¶9794], 41 F. Supp. 98 (E. D. Va. 1941), relied on by defendants, is somewhat more helpful.

In Swink, an action was instituted by the State of Virginia in the Corporation Court of the City of Norfolk, Virginia, to subject funds in the hands of the taxpayer's trustee to payment of certain taxes due to the state. After the state court action was commenced, but before an order was entered, the United States served a Notice of Levy for taxes due the United States with the Corporation Court of the City of Norfolk . Thereafter, the United States commenced an action in the United States District Court for the Eastern District of Virginia, seeking to impose liability upon the taxpayer's trustee for failing to turn over property of a delinquent taxpayer upon notice of distraint. Said action was commenced under 26 U. S. C. §3710, the predecessor to 26 U. S. C. §6332(a). In denying the federal government's claim, District Court Judge Wyche stated:

* * * It must be remembered that at the time such distraint was served upon the defendant a suit, under 382 of the Tax Code of Virginia, had already been commenced in the State Court by virtue of which the property of the delinquent taxpayer was brought into that Court and attached with a specific lien, and made subject to judgment and execution thereunder. The effect of this action in the State Court was to bring the funds of the delinquent taxpayer in custodia legis and to make of the defendant a mere custodian for the State Court and not of the delinquent taxpayer. Accordingly, when the distraint was served upon him by the Collector of Internal Revenue he did not have any property of the taxpayer which under the terms of section 3710 was "subject to distraint" because the fund which he had in possession hal already been taken into the custody and under the control of the State Court. It seems obvious that property already in the custody of a court is not subject to a summary distraint by an administrative officer. Moreover, section 3710 provides that if the property of the taxpayer is at the time of the distraint "subject to an attachment or execution under any judicial process" the person holding such property does not incur personal liability if he fails to turn the same over to the federal government. It seems to me that the quoted language should be given a liberal construction to avoid any unseemly and irreconcilable conflict between the federal government and the state courts. For this reason, I believe that a liberal construction of the statute should be had, and that it should be held that when a fund is taken into the custody of a State Court subject to distribution pursuant to the judgment and execution of that court the fund is "subject to an attachment or execution" under the judicial process of the State Court. For this reason, I am of opinion that the provisions of section 3710 do not apply to the instant case, and that the defendant did not incur any personal liability to the United States Government for failure to turn over to it money which was not subject to distraint and which was subject to an attachment or execution under decree of a competent court.

41 F. Supp. at 101-02.

The Court is in full accord with Judge Wyche's analysis and holding. However, the facts of the case sub judice differ from those in Swink in one critical respect. Whereas in Swink the federal government's Notice of Levy was served prior to the state court's order of distribution, in the instant case the Notice of Levy was served after Judge Kiroff's Order Confirming Sale, Ordering Deed and Distribution was journalized. While the proceeds of the foreclosure sale of taxpayer Mod-Com, Inc.'s property were clearly subject to attachment or execution under judicial process prior to the entry of the July 14, 1974 Order, the Court finds that, under Ohio law, they were not so held after the Order was entered.

In State, ex rel. Boller v. Peffly, 78 Ohio App. 242 (Montgomery Co. 1946), the issue presented was whether funds in the hands of the Clerk of Courts were held in custodia legis, and therefore free from attachment, or were merely held by the Clerk as a debtor of the person to whom the funds were payable, and therefore subject to attachment. The funds in question had been paid over to the Clerk as bond in a criminal case. When the criminal action was concluded, an order was entered releasing the bond and ordering the money refunded to one Mable Boller. While the cash bond was still held by the Clerk of Courts, Ralph Skilken commenced a civil action to recover a sum allegedly owed him by Boller, and attached the money in the possession of the Clerk of Courts. Thereafter, Boller sought a writ of mandamus against the Clerk to compel return of the bond.

In resolving the issue before it, the court noted the general rule that property held in custodia legis is not subject to attachment prior to fulfillment of the purpose for which it is held. However, the court went on to state that:

* * * after the purpose for which the fund has been held has been fulfilled and an order made determining who is entitled to the fund and ordering payment thereof, the fund ceases to be in custodia legis. Thereafter the officer holding the fund holds it as debtor of the person to whom it is payable. The purpose of the law having been fulfilled, the officer thereafter is liable to the owner of the fund.

78 Ohio App. at 246-47. See generally, Hubbard v. Elden, 43 Ohio St. 380, 384 (1885).

Under the rule enunciated in Peffly, a fund held by a public official ceases to be in custodia legis when the court has determined who is entitled to the fund, and has ordered payment thereof. 78 Ohio App. at 249-50. See also Weicht v. Automobile Banking Co., 354 Pa. 433, 47 A. 2d 705 (1946), followed in Wheatcraft v. Smith, 362 A. 2d 416, 418 (Pa. Sup. 1976). Applying this rule to the instant case, the Court finds that the funds held by the Defendant Sheriff as a result of the foreclosure sale of taxpayer Mod-Com, Inc.'s property ceased to be in custodia legis when Judge Kiroff entered the Order of Distribution on June 14, 1974. ² Thereafter, Sheriff Callanan held the funds as a debtor to the persons to whom Judge Kiroff had ordered the proceeds paid, including taxpayer Mod-Com, Inc. The funds were therefore not "subject to an attachment or execution under any judicial process" at the time the plaintiff served the Notice of Levy upon the Defendant Sheriff, and the Defendant Sheriff is therefore liable to plaintiff for his failure to surrender to the federal government the sum of $10,177.56 due taxpayer Mod-Com, Inc. under Judge Kiroff's Order. ³

For the reasons set forth above,

IT IS ORDERED that the Motion of Plaintiff for Summary Judgment against Defendant Sheriff of Lucas County should be and hereby is granted for the reason that there are no genuine issues of material fact, and plaintiff is entitled to judgment as a matter of law.

IT IS FURTHER ORDERED that Defendants' Motion for Summary Judgment should be and hereby is denied.

This matter is set for pretrial Friday, May 19, 1978, at 9:30 a. m.

¹ 26 U. S. C. §6332(c), provides, inter alia:

(1) * * * Any person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary or his delegate, shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of taxes for the collection of which such levy has been made, together with costs and interests on such sum at the rate of 6 percent per annum from the date of such levy. * * *

² Whatever the legal significance of the notation placed upon the Notice of Levy by Judge Connors, it is clear to the Court that such a notation was not effective under Ohio law to subject the funds held by the Sheriff as a debtor to taxpayer Mod-Com, Inc. to an attachment or execution under judicial process within the meaning of 26 U. S. C. §6332(a).

³ Compare Bank v. Tomaszczyk, 27 Ohio St. 2d 55, 59 (1971), wherein the court found that prior to confirmation, property sold pursuant to a decree of foreclosure remained under the control of the court.

 

[86-2 USTC ¶9614] United States of America , Plaintiff v. William V. McPherson, Jr., Defendant

U.S. District Court, Mid. Dist. N.C., Durham Div., C-84-763-D, 3/21/86

[Code Sec. 6332 ]

Levy and distraint: Property: Custody of state court: North Carolina.--A temporary receiver for a liquidating law firm was not liable, either individually or as a trustee, for levies asserted by the IRS because the property was already in the custody of a North Carolina state court subject to an attachment or execution at the time the levies were served upon the receiver. If the receiver had complied with the IRS levies, he would have been subjected to contempt sanctions and other liabilities for violation of his duty to the state court. The receiver "did all he could to protect the IRS tax lien;" he informed the court of the levies and even attempted to have the court extend the receivership in order to settle the claims before he turned the taxpayer's interest over to the clerk of court. The receiver had "a valid defense against the IRS because the property was subject to a prior judicial attachment or execution by virtue of the property being the subject of a state court supervised receivership;" therefore, the receiver "could not be held personally liable for what he was required to do by the state court."

Robert L. Welsh, Department of Justice, Washington , D.C. 20530 , for plaintiff. William V. McPherson, Jr., 1920 Front St. , Durham , N.C. 27705 , pro se.

MEMORANDUM OPINION AND ORDER

WARD, Chief Judge:

This case is a civil action brought by the United States against the defendant William V. McPherson, Jr. (McPherson) for the purpose of obtaining a judgment against McPherson personally for failure to honor a levy under 26 U.S.C. §6332(c) . ¹ The United States seeks to collect the sum of $9,149.37 from McPherson pursuant to the statute. The Court finds McPherson not liable for any amount to the United States in connection with this action because the taxpayer's property involved was subject to an attachment or execution by a state court for which McPherson was acting as a receiver.

McPherson was appointed by State Superior Court Judge Thomas Lee on April 21, 1982 for the purpose of taking possession of all the assets of the partnership of "McCain & Moore." Joint Stipulation # 10 (J.Stip. --). "McCain & Moore" was a partnership which had engaged in the practice of law. This partnership dissolved on May 18, 1981. J.Stip. # 8. Subsequent to the dissolution legal disputes arose between the partners concerning identification, acccounting of, and division of the partnership's assets. J.Stip. ## 7, 8, 9, and 10. It was in this flurry of litigation that Judge Lee determined that a temporary receiver was appropriate.

The principal asset of the partnership was the 100% ownership of the outstanding capital stock of American Preservation Ltd. (American). American's sole asset was a house and lot located in Durham , North Carolina . J.Stip. #7.

On June 4, 1982 McPherson filed his initial report with the Clerk of Superior Court, disclosing partnership assets of $133,058.79 and debts of $102,133.84. McPherson requested, by motion filed June 11, 1982, and the Superior Court gave him authority and direction to sell the house and lot in Durham pursuant to a written contract. J. Stip. ##15 & 16.

The Sheriff of Durham County served McPherson on June 13, 1982 with an order of attachment and garnishment issued by the District Court of Durham County . This order purported to attach the interest of William H. Moore, Jr., (Moore), in the funds and property in the hands of McPherson as Temporary Receiver, to secure an indebtedness of $3,564.49, due from Moore, to Hugh Thomas Driver d/b/a Speed Dee Que Instant Printing. J.Stip. #18.

McPherson was served with Notices of Levy by Thomas Urich, a Revenue Officer of the Internal Revenue Service, on July 22, 1982 in the amount of $1,931.34 and on August 10, 1982 in the amount of $20,195.78 for past due taxes of Moore . The Notices of Levy were against all property or rights of property belonging to Moore , in the hands of McPherson. J.Stips. ##22 & 23.

An Order of Attachment and Garnishment was served on McPherson on October 4, 1982. This order issued by the District Court of Durham County purported to attach the interest of Moore , in the funds and property in the hands of McPherson as receiver, to secure an indebtedness of $5,000.00 due from Moore to Griffin Associates, Inc. J.Stip. #24.

A judgment dated December 20, 1982 entered by Judge Preston determined the interest of Moore , in the funds of McCain & Moore held by McPherson as Temporary Receiver, to be $9,149.37. The judgment directed McPherson to pay the sum of $9,149.37 to the Clerk of Superior Court for the use and benefit of Moore and his creditors. On December 22, 1982, McPherson deposited the sum of $9,149.37 in the office of the Clerk of Superior Court of Durham County, in accordance with the Judgment entered by Judge Preston. J.Stip. #26.

Written notice from McPherson of the judgment and of the deposit with the Clerk of Superior Court of the funds otherwise due Moore was sent on December 22, 1982 by certified mail--return receipt, to the Internal Revenue Service, and to the attorneys for Driver and Griffin Associates, Inc. Enclosed therewith was a copy of the Judgment, in accordance with the terms of the Judgment entered by Judge Preston. J.Stip. #30. The letter of notice dated December 22, 1982, from McPherson to Mr. Uhrich was received by the Internal Revenue Service on December 23, 1982. J.Stip. #31.

Homa J. Freeman, Jr., attorney for Driver filed a motion, on January 5, 1983, in the cause in an action entitled "Hugh Thomas Driver, d/b/a Speed Dee Que Instant Printing, Plaintiff, vs. William H. Moore, Jr., Defendant, No. 82-CvD-467," then pending in the District Court of Durham County. The motion sought an order directing the disbursement of $3,595.59 to Driver out of the funds on deposit with the Clerk of Superior Court for the use and benefit of Moore . J.Stip. #32.

On January 10, 1983, Thomas W. Urich, of the Internal Revenue Service, served a Notice of Levy upon the Clerk of Superior Court of Durham County, in the amount of $23,823.51, against all property or rights of property belonging to Moore in the hands of the Clerk of Superior Court. J.Stip. #33. On January 21, 1983, the civil proceeding entitled "Hugh Thomas Driver, d/b/a Speed Dee Que Instant Printing, Plaintiff, v. William H. Moore, Jr., Defendant, No. 82-CvD-467," came on for hearing before David Q. LeBarre, Judge of the District Court of North Carolina, upon Driver's motion for an order directing the disbursement of $3,595.59 out of the funds on deposit with the Clerk of Superior Court. The Internal Revenue Service did not appear at the hearing. Judge LaBarre entered an Order directing the disbursement of $3,595.59 by the Clerk of Superior Court to Driver, out of the funds deposited with him for the use and benefit of Moore and his creditors. ² J.Stip. #34. On February 11, 1983, the Clerk of Superior Court disbursed the sum of $3,595.59 to Driver out of the funds deposited by the defendant pursuant to the Judgment of Judge Preston. The sum of $5,539.09 (net of 1982 and 1983 North Carolina Intangibles Taxes) remains on deposit with the Clerk of Superior Court for the use and benefit of Moore and his creditors. J.Stip. #35.

The United States contends simply that since McPherson did not pay over any funds to the IRS pursuant to levies, for unpaid taxes of Moore, served on him on July 22, 1982 and August 10, 1982, he is personally liable for the sum of $9,149.37--the amount of Moore's interest in the partnership assets, as determined by the state court, held by McPherson as temporary receiver. McPherson first asserts that as a temporary receiver, he was not in possession of property or rights to property belonging to Moore, nor was he a person obligated with respect to such rights within the meaning of 26 U.S.C. §6323(a) . McPherson also contends that the property of McCain & Moore in his hands as a receiver were subject to an "attachment or execution under any judicial process," and therefore not subject to surrender under 26 U.S.C. §6332(a) .

Initially a brief sketch of the nature of the position of a receiver under North Carolina law is necessary. ³ In North Carolina a judge has the power to appoint a receiver to protect rights and prevent the perpetration or continuance of wrong in respect to the subject matter of the action. N.C.Gen.Stat. §1 -501, -502; John L. Raper Lumber Co. v. Wallace, 93 N.C. 22 (1885). The appointment of a receiver rests in the sound legal discretion of the judge. Whitehead v. Hale, 118 N.C. 601, 24 S.E. 360 (1896). A receiver may be appointed by a court to preserve specific property that is the subject of litigation pendente lite or to enforce a decree of a court of equity. See F. Wyatt, State Court Receiverships in North Carolina , 17 Wake Forest Law Review 745 (Oct. 1981).

A receiver is an officer of the court, and his possession of the property is the possession of the court. See generally 20 C.F.R. §301.633-1. ⁴ He holds it as a custodian until the rightful claimant is ascertained by the court. Battle v. Davis , 66 N.C. 252 (1872). A receiver is a ministerial officer of a court, appointed as an indifferent person between the parties to a suit merely to take possession of and preserve, pendente lite, the fund or property in litigation when it does not seem equitable to the court that either of the litigants should have possession of the property. Skinner v. Maxwell, 66 N.C. 45 (1872).

He holds the property for the benefit of all the parties interested. His title and possession is that of the court, and any attempt to disturb his possession, or to interfere with him, when he is acting under the authority and orders of the court, is contempt, and punishable accordingly.

State v. Norfolk & S.R. Co., 152 N.C. 785, 67 S.E.42 (1910) (emphasis added). "A receiver is sometimes called 'the hand of the court,' by which it holds and controls the property, not for any party, but for the benefit of all, and without affecting the title of any of the litigants." 2 McIntosh, N.C. Practice and Procedure, §2251 (2d ed. 1956). The receiver is an officer of the court and subject to its orders in relation to the property for which he is responsible until discharged by the court. Federal S. & L. Ins. Corp. v. PSL Realty Co., 630 F.2d 515 (7th Cir. 1980), cert. denied, 452 U.S. 961 (1981). A receiver's possession does not interfere with any existing liens, priorities, or prevent preferences, but does prevent their enforcement until a court can determine the relative rights. Id. See also, Vanderwal v. Vanco Dairy Co., 200 NC. 314, 156 S.E. 512 (1930). A receiver, therefore, is under the control of the court and must obey its orders to avoid sanctions by the supervising court. ⁵

Against this background the Court must determine if McPherson's position as receiver and his subsequent actions in that position provide a defense against personal liability for failure to surrender property to the United States pursuant to 26 U.S.C. §6332(a) . The Court finds McPherson to have a valid defense.

The only recognized defenses to a suit by the IRS to obtain possession of property subject to a tax levy is that: (1) the property was subject to an attachment or execution under judicial process at the time the levy was served or; (2) defendant was not in possession of the taxpayer's property. ⁶ See United States v. National Bank of Commerce [85-2 USTC ¶9482 ], -- U.S. --, 105 S.Ct. 2919, --, 86 L.Ed.2d 565, 575 (1985); United States v. Weintraub [80-1 USTC ¶9172 ], 613 F.2d 612, 620 (6th Cir. 1979), cert. denied, 447 U.S. 905 (1980); United States v. Trans-World Bank [74-2 USTC ¶9632 ], 382 F.Supp. 1100 (D.C. Cal. 1974).

In United States v. Swink [41-2 USTC ¶9794 ], ⁷ 41 F.Supp. 98 (E.D.Va. 1941), F.G. Swink by deed of assignment for the benefit of creditors received assets of the taxpayer corporation. Swink held the assets as trustee--a custodian of the court, subject to distribution upon the order of the state court. As trustee he sold the assets conveyed to him, and after payment of costs and expenses, deposited the remaining fund in a special account in his name as Trustee. A warrant of distraint was served upon Swink for taxes due by the taxpayer corporation. Swink as trustee failed to turn over the property of the delinquent taxpayer to the IRS. The IRS sought recovery against Swink individually pursuant to 26 U.S.C. §3710. ⁸

The court found that Swink was not personally liable to the IRS because at the time of the distraint the property was "subject to an attachment or execution under any judicial process." In interpreting the defense that the property was "subject to an attachment or execution under any judicial process" the court stated:

It seems to me that the quoted language should be given a liberal construction to avoid any unseemly and irreconcilable conflict between the federal government and the state courts. For this reason, I believe that a liberal construction of the statute should be had, and that it should be held that when a fund is taken into the custody of a State Court subject to distribution pursuant to the judgment . . . of that Court the fund is 'subject to an attachment or execution' under the judicial process of the State Court.

United v. Swink, 41 F.Supp. at 102 (emphasis added). In Swink as in the present case the trustee or receiver was holding property of the taxpayer as a custodian for the court. Neither Swink nor McPherson was able to distribute funds without a court order. ⁹

Swink points out the inequity of holding a trustee or receiver personally liable when his only activity was compliance with a state court's orders. The Court is also mindful of the Swink Court 's adherence to comity and federalism and its resistance to trampling a state court's lawful function. The United States ' position in this case is untenable. If Swink or McPherson had complied with the IRS notice of levy and turned property over to the IRS they would have been subject to contempt sanctions from the state court and other liability for a violation of their duties to the state court.

McPherson did all he could to protect the IRS tax lien. He informed the state court of the notices of levy and even asked the state court to extend the receivership to allow him to settle the claims. The state court, however, after determining Moore 's interest ordered McPherson in a final judgment to turn Moore 's interest over to the Clerk of Superior Court. McPherson followed the court's order and placed the money with the Clerk. It is this action which seems to have triggered the United States ' wrath. ¹⁰

In essence the United States seeks to have this Court undermine the authority of a state court and work a miscarriage of justice on McPherson. The IRS would have the court through its ruling send a message to the trustee and receivers under direction of a state court that their duty to obey the state court order is subservient to an IRS notice of levy. The IRS's regulations themselves recognize that property in state court receivership is under the control of the court in which such proceeding is pending. The regulation further states that "[t]axes cannot be collected by levy upon assets in the custody of a court, whether or not such custody is incident to a bankruptcy or receivership proceeding." 26 C.F.R. §301.6331-1 (1984) (emphasis added). ¹¹ If the IRS's views were followed, individuals would not accept a state court appointment as a receiver or trustee whose duties would include inventoring, collecting, and selling property of an individual, partnership, or corporation. Under the United States ' position, any potential tax liability clouding the estate would require the trustee, if he accepted the court's appointment, to choose and accept either personal tax liability for the taxpayer's taxes, or a contempt citation or bond forfeiture in the state court. The tax levy statute was not intended to have such a execrable result.

The Court determines that McPherson has a valid defense against the IRS because the property in this action was subject to a prior judicial attachment or execution by virtue of the property being the subject of a state court supervised receivership. The Court cannot find McPherson to be personally liable for what he was required to do by a state court. The United States has undertaken an unreasonable suit, one whose result could have been predicted from a reading of case law, regulations, and an inquiry into common sense and fairness. The Court would agree that under certain circumstances, when a receiver has acted beyond the state court's orders and violated his duties as a receiver, he could be personally liable for the taxes of a taxpayer whose property is in receivership. However, this is not that case.

The Court finds that McPherson is not liable to the United States upon its claim.

A judgment will be entered accordingly.

¹ Section 6332(c)(1) reads as follows:

Extent of personal liability.--Any person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary or his delegate, shall be liable in his own person . . . to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of taxes for the collection of which such levy has been made. . . .

Section 6332(a) requires:

[A]ny person in possession of property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary or his delegate, surrender such property or rights to the Secretary or his delegate, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

² The record is silent concerning whether the IRS challenged this disbursement.

³ In North Carolina two types of receivers are delineated in the statute. The first is the receiver appointed as a provisional remedy in an ordinary suit. N.C.Gen.Stat. §§1 -501 -507. This receiver is an officer of the court for a specific purpose. He has only such powers as are designated in the order of appointment, or as may be incidental to the purpose of appointment. The receiver in this case, McPherson, was this type of a receiver. Therefore, the discussion of the position of a receiver will center on the duties and responsibilities of this type of receiver.

The second type of receiver in North Carolina is the receiver of a corporation. N.C.Gen.Stat. §§1 -507.1 -507.11. The corporate receiver involves a longer tenure and much more active control. All of the property of the corporation vests in him at the time of his appointment, and the title of the corporation is thus divested. N.C.Gen.Stat. §1 -507.3. The United States wrongly classifies McPherson as this type of receiver--clearly he was not.

⁴ This regulation, discussed later in this opinion, equates a bankruptcy action with a receivership. A federal court would have little trouble finding a bankruptcy trustee, in the performance of his duty, not personally liable for an IRS levy.

⁵ Beyond the contempt powers of the supervising court, a receiver must post a bond. N.C.Gen.Stat. §1 -504. Where the receiver's delinquency is manifest, and he fails to comply with the order of the court in respect to the fund, that failure is a breach of the bond. A suit may be brought by leave of court. See Bank of Washington v. Creditors, 86 N.C. 323 (1882).

⁶ McPherson's argument that the property was not in his possession but instead in the Court's possession would be an alternate ground for this holding. However, this defense would involve the Court in resolving difficult and murky questions of possession: such as the exact nature of the state court and the receiver's interest in the estate and whether the receiver's interest rises to that of possession satisfying the tax levy statute. Possession is often read broadly under this tax statute, in order to cover the varieties of fact patterns that may arise. The Court, therefore, grounds its opinion principally under the "attachment or execution" defense.

⁷ The United States has seen fit not to cite the Swink case in its Trial Brief. Such an omission violates the spirit the reasonable inquiry standard imposed by Rule 11, Fed.R.Civ.P. Swink is one of the few cases in this circuit in this area, it is on point with the present case, and has been cited with approval in other circuits. While the United States may disagree with Swink's result, an attempt to distinguish it or reject it is more appropriate than ignoring it.

⁸ Section 3710 was a similar and earlier version of section 6332 .

⁹ Unlike cases concerning joint bank accounts where a taxpayer has an unrestricted right to withdraw funds, in Swink and the present case the taxpayer had no access to funds during the receivership.

¹⁰ The United States seeks from McPherson $9,149.37. This amount was not determined by the state court until December 22, 1982 some six months into the receivership. McPherson at that point was simply to pay the fund over to the clerk of superior court. Until December 22, 1982 the taxpayers' interest in the partnership was unknown.

¹¹ 26 C.F.R. §301.6331-1 recognizes that receivers and bankruptcy trustee are similar in the sense of not being personally liable the IRS under 26 U.S.C. §6332(c) .

 

 

 

[94-2 USTC ¶50,360] Anita Mock, Plaintiff v. United States of America , Internal Revenue Service, and The Equitable Life Assurance Society of the United States , Defendants

U.S. District Court, Mid. Dist. Pa., 4:CV-93-1634, 3/28/94

[Code Secs. 6321 , 6332 , 6532 and 7426 ]

Lien for taxes: Levy: Civil actions by nontaxpayers: Statute of limitations: Jurisdiction.--A wrongful levy action instituted by the former spouse of a delinquent taxpayer with respect to amounts paid to the IRS was barred by the statute of limitations because the suit was filed more than nine months after the levy on the property. It was irrelevant that neither the government nor the insurance company that issued the annuity contract to which a federal tax lien had attached notified the former spouse, since neither party had a duty to notify potential third-party claimants. The lien attached to the annuity payments awarded to the spouse notwithstanding the fact that the property was in the divorce court's custody at the time of attachment, and the insurance company was obligated to surrender the property upon demand.

Bruce E. Rodger, Peter A. Mardinly, 320 W. Front St., Media, Pa. 19063, for plaintiff. Karl J. Fingerhood, Department of Justice, Washington , D.C. 20530 , for defendant.

ORDER

THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:

MUIR, District Judge:

On October 25, 1993, Plaintiff Anita Mock filed a complaint against Defendants United States of America, Internal Revenue Service, and The Equitable Life Assurance Society of the United States (hereinafter referred to as "Equitable"). Mock sets forth claims against the Internal Revenue Service pursuant to 26 U.S.C. §7426 (Count I) and the Fifth Amendment to the United States Constitution (Count II). Mock sets forth claims against Equitable for breach of contract (Count III), breach of fiduciary duty and negligent misrepresentation (Count IV), fraudulent misrepresentation (Count V), and for injunctive relief (Count VI).

On December 6, 1993, Equitable filed a Motion to dismiss Counts III through VI of Mock's complaint and a brief in support thereof. On January 14, 1994, Mock filed a brief in opposition. Equitable filed a reply brief on February 4, 1994.

On February 7, 1994, the Internal Revenue Service filed a motion to dismiss Counts I and II of the complaint for lack of jurisdiction over the subject matter pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure and a brief in support thereof. On February 28, 1994, Mock filed a brief in opposition. The Internal Revenue Service filed a reply brief on March 11, 1994.

Oral argument was held with respect to both motions on March 11, 1994. Therefore, both motions are ripe for disposition.

The following are facts that from a review of the briefs filed by the parties do not appear to be in dispute: (1) Mock was formerly known as Anita Jean Morrissey, and was previously married to Michael J. Morrissey (hereinafter referred to as "Morrissey" (Complaint at ¶8). (2) On or about November 18, 1985, Equitable issued an annuity contract, contract No. 85901282, providing for scheduled payments to Morrissey and Harold Dietrich and Irene Dietrich, including specifically two payments of $40,000 each to be made on June 20, 1992, and June 20, 1993. (Complaint at ¶10). (3) On June 3, 1986, Morrissey filed a complaint in divorce against Mock in the Court of Common Pleas of Berks County, Pennsylvania, at No. 32 June Term 1986 and Mock answered with a counterclaim. (Complaint at ¶9). (4) On March 12, 1991, a federal tax lien was filed in the Prothonotary's Office of Berks County, Pennsylvania, on Morrissey. (Complaint at ¶11). (5) On October 10, 1991, a marital distribution decree was entered awarding the rights to future payments under the annuity to Mock. (Complaint at ¶12). (6) On April 14, 1992, an Internal Revenue Service levy was served against Equitable with respect to the tax liabilities of Morrissey. (Complaint at ¶17). (7) On or about November 10, 1992, the Internal Revenue Service served a final demand upon Equitable. (Complaint at ¶12). (8) On January 25, 1993, Equitable paid $39,412.55 to the Internal Revenue Service. (Complaint at ¶23). (9) On October 25, 1993, Mock filed a complaint in this matter pursuant to 26 U.S.C. §7426 and the Fifth Amendment to the United States Constitution seeking a repayment of the funds levied upon.

It is further alleged in the complaint that on January 25, 1993, Equitable paid $39,412.55 to the Internal Revenue Service but failed to notify Mock although the enclosure letter shows a copy to Morrissey who was not then the owner of the annuity. (Complaint ¶23). It is contended that Mock first became aware of the levy through a letter from Equitable dated June 17, 1993. (Complaint ¶24). It is alleged that prior to the receipt of the June 17, 1993, letter from Equitable, Mock had no knowledge of the filing of the notice of lien, the fact that the Internal Revenue Service had served a levy on Equitable, the fact that the Internal Revenue Service had served a final demand on Equitable or the payment to the Internal Revenue Service of the sum of $39,412.55 on the account of Morrissey's tax liability. (Complaint ¶26). Moreover, it is alleged that at no time prior to receiving the letter of June 17, 1993, did Equitable or the Internal Revenue Service take any steps to notify Mock of the levy, the final demand, or the $39,412.55 payment. (Complaint ¶27 and 28).

In Counts I and II of the complaint Mock seeks return of the $39,412.55 from the Internal Revenue Service pursuant to 26 U.S.C. §7426 . Section 7426 provides that "[i]f a levy has been made on property . . . any person [other than the taxpayer] who claims an interest in or lien on such property . . . may bring a civil action against the United States in a district court of the United States" seeking return of the property or judgment in the amount of the money levied upon. See 26 U.S.C. §7426(a)(1) and 7426(b)(2)(A) and (B) . Section 7426(h) cross references 26 U.S.C. §6532(c) as providing the period of limitations during which an action under §7426 can be maintained. 26 U.S.C. §7426(h). Section 6532(c) provides "no suit or proceeding under §7426 shall be begun after the expiration of 9 months from the date of the levy. . . ." 26 U.S.C. §6532(c)(1) . The statute provides for a twelve month extension if a written claim is filed with the Internal Revenue Service within the nine month period. 26 U.S.C. §6532(c)(2) .

The Government argues that we lack subject matter jurisdiction over Counts I and II of the complaint because the statute of limitations found at 26 U.S.C. §7426 ran before suit or other proceeding was instituted by Mock. As stated above, the levy in the instant case was served on April 14, 1992. With respect to the levy, the nine month period provided for in §6532(c) expired on January 14, 1993. Mock's complaint was filed October 25, 1993, well after the expiration of the applicable statute of limitations, and the Government thus argues that we are without jurisdiction to decide this matter. The Government contends that it is well established that notice to parties who may claim an interest in property is not required. Furthermore, the Government argues that lack of notice to a person who claims an interest in the property levied upon does not violate the due process clause of the Fifth Amendment.

Although there are no Court or Appeals cases for this Circuit cited by the Government, the Government's position is supported by a substantial body of caselaw from other Circuits. See Williams v. United States [91-2 USTC ¶50,529 ], 947 F.2d 37 (2nd Cir. 1991), cert. denied 112 S.Ct. 2277 (1992) (wrongful levy action filed more than nine months after service or the notice of levy on police department barred by statute of limitations); Winebrenner v. United States [91-1 USTC ¶50,057 ], 924 F.2d 851, 856 (9th Cir. 1991) (wrongful levy action by record owners of real property filed more than nine months after service of the notice of levy on taxpayer in possession of real property barred by statute of limitations); State Bank of Fraser v. United States [88-2 USTC ¶9592 ], 861 F.2d 954, 966-967 (6th Cir. 1988) (wrongful levy action by bank which held a security interest in taxpayer's accounts receivable filed more than nine months after service of the notice of levy on taxpayer's accounts receivable debtors barred by statute of limitations); United Sand and Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626 ], 624 F.2d 733, 735-736 (5th Cir. 1980) (wrongful levy action by subcontractor filed more than nine months after service of levy on Army Corps of Engineers barred by the statute of limitations); Dieckmann v. United States [77-1 USTC ¶9224 ], 550 F.2d 622, 623-24 (10th Cir. 1977) (wrongful levy action by members of a class who entrusted funds to a corporation to be used to purchase silver filed more than nine months after service of the levy on corporation barred by the statute of limitations); Gordon v. United States [81-1 USTC ¶9409 ], 649 F.2d 837, 844-45 (Ct.Cl. 1981) (wrongful levy action by church leader of the Zion Coptic Church who was arrested on drug charges in the state of Florida and released on bond barred by the statute of limitations because the action was filed more than nine months after service of levy on bonding company); Douglas v. United States [83-1 USTC ¶9182 ], 562 F.Supp. 593, 596-97 (S.D. Ga. ) (Alaimo, J.), aff'd without opinion, 723 F.2d 919 (11th Cir. 1983) (wrongful levy action by party to joint savings account filed more than 21 months after service of levy on the savings and loan association barred by statute of limitations); De Gregory v. United States [75-1 USTC ¶9498 ], 395 F.Supp. 171, 174 (E.D. Mich. 1975) (Joiner, J.) (wrongful levy action by subcontractor filed more than nine months after service of levy on general contractor barred by statute of limitations); American Honda Motor Company, Inc. v. United States [73-2 USTC ¶9670 ], 363 F.Supp. 988, 994 (S.D.N.Y. 1973) (MacMahon, J.) (wrongful levy action by wholesale distributor to recover monies which buyers of motorcycles had deposited in special bank account pursuant to purchase money security agreements barred because action was filed more than nine months after service of levy on bank.)

The Williams case, supra, involved a levy served on a police department which was in possession of property seized during the arrest of two individuals on drug charges. In that case the Court of Appeals for the Second Circuit held that "notice of the levy on the possessor of the property triggers the running of the statute of limitations" and "(n)otice of the levy to all potential competing claimants to the property would be impractical and overly burdensome to the government and is therefore not required." [91-2 USTC ¶50,529 ], 947 F.2d at 39. In the Dieckmann case, supra, the Court of Appeals for the Sixth Circuit held that "§7426 does not impose a duty on the United States to give notice to a possible third-party claimant or to search for them" and that "[w]ithout a duty to give notice, the lack of knowledge [or the levy] does not toll the statute of limitations." [77-1 USTC ¶9224 ], 550 F.2d at 624.

In light of the above cases we are of the view that we lack subject matter jurisdiction over Counts I and II of the complaint.

Furthermore, we would note that Mock's complaint is not only subject to dismissal pursuant to Rule 12(b)(1), it is also subject to dismissal for failing to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). The federal tax lien attached to Morrissey's interest in the annuity on March 12, 1991, when the lien was field [filed] in the Prothonotary's Office of Berks County, Pennsylvania. This filing was prior to the marital distribution decree entered by the Court of Common Pleas of Berks County awarding the rights to future payments under the annuity to Mock. Thus the annuity passed to Mock subject to the federal tax lien. See United States v. Bess [58-2 ustc ¶9595 ], 357 U.S. 51 (1957).

In Bess the Supreme Court held that "once it has been determined that state law creates sufficient interests in the [taxpayer to the property] . . . state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States ." Id. at 57. The Supreme Court further held that "[t]he transfer of property subsequent to the attachment of the lien does not affect the lien, for 'it is of the very nature and essence of a lien, that no matter into whose hand the property goes, it passes cum onere. . . . ' " Id. Moreover, Mock's claim that the notice of federal tax lien was filed in the wrong place because Morrissey was residing in a federal penitentiary in Big Springs, Texas , is devoid of merit. See e.g. Flanagan v. Shively , 783 F.Supp. 922, 935 (M.D. Pa. 1992) (McClure, J.), aff'd without opinion 980 F.2d 722 (3d Cir 1992) (An inmate does not become a resident of a state merely by virtue of his incarceration there if he was a resident of another state before his incarceration); United States v. Bynum, 81-1 USTC ¶9295 (E.D.N.Y. 1981) (Mishler, J.) (A taxpayer's involuntary presence at a prison does not establish the county of his residence for purposes of determining the proper county for filing of a lien). Morrissey did not change his residence when he was transferred to a federal prison in Texas .

Therefore, assuming that all of the allegations in the complaint are true, Mock would not be entitled to recover the $39,412.55 from the Internal Revenue Service.

Equitable contends that the claims against it should be dismissed because it was required to honor the levy pursuant to 26 U.S.C. §6332(a) and that it is discharged from liability to Mock pursuant to §6332(e) with respect to the annuity to the extent of Equitable's payment to the Internal Revenue Service. Section 6332(a) provides as follows:

. . . any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary surrender such property or rights (or discharge such obligation) to the Secretary, except such part or the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

We would note that at the time the levy was served on Equitable, i.e., April 14, 1992, the annuity was not "subject to an attachment or execution under any judicial process." Section 6332(e) provides as follows:

Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property (or discharges such obligation) to the Secretary . . . shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment.

Mock in response to Equitable's motion argues that the federal tax lien could not attach to the annuity payments because the divorce court had not decided which of the parties, Mock or Morrissey, would be entitled to them, i.e. who would have the "right to the property." Coupled to this contention is the claim that after the distribution decree was entered in October 1991, awarding the future payments to Mock, Morrissey's "right to the property" was extinguished and therefore the federal tax lien could not attach to the property. We find these arguments devoid of merit.

The fact of the divorce court's custody of the property did not extinguish Morrissey's right to it, but merely subordinated it to the control of the court. This control, as pointed out in Nicoles v. United States [92-2 USTC ¶50,604 ], 1992 WL 403100 (W.D. Pa. 1992) (Bloch, J.), does not operate to defeat the attachment of a federal tax lien. In the Nicoles case the plaintiff brought, in essence, an action to quiet title to remove federal tax liens filed against the marital residence. As in the present case, the plaintiff and her husband were in the midst of a divorce proceeding when the liens were filed. Plaintiff argued that the liens did not attach based upon the doctrine of custodia legis. The district court held, however, that "this state law condition imposed on property . . . does not affect the imposition of a federal lien . . . The fact that Pennsylvania state law may consider it held custodia legis . . . and therefore not subject to judicial liens is irrelevant." Nicoles [92-2 USTC ¶50,604 ], 1992 WL 403100 at p. 2.

Morrissey had a property right in the proceeds of the annuity contract prior to the equitable distribution decree. If he did not have such a right, there would have been nothing to distribute in that regard. Once it is established that a right exists, state law is inoperative to prevent the attachment of federal tax liens or execution thereon. See United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 103 S.Ct. 2132 (1983) and the cases cited at page 683 therein; and In re Cobb & Lawless Kitchens, Inc. v. CDM Properties, Inc. [86-1 USTC ¶9205 ], 56 B.R. 701 (U.S. Bkrtcy. Ct. , E.D. Pa. 1986).

The only claim raided by Mock that appears to have some merit is the claim that Equitable should be responsible for any additional interest and penalties which accrued as a result of the delay from June of 1992 until January of 1993 in the payment of Morrissey's tax debt from the proceeds of the annuity contract to the Internal Revenue Service from June of 1992 until January of 1993. However, in light of the fact that the interest and penalties are less than $50,000 and our disposition of the Government's motion to dismiss, we will not retain jurisdiction over this case but dismiss that portion of Mock's complaint without prejudice.

NOW, THEREFORE, IT IS ORDERED THAT:

1. The United States 's motion filed on February 7, 1994, to dismiss Counts I and II of the complaint pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction is granted.

2. Equitable's motion filed on December 6, 1993, to dismiss Counts II through VI of Mock's complaint is granted as follows:

(a) Mock's claim for damages resulting from the interest and penalties which accrued as a result of the delay in the payment to the Internal Revenue Service from June of 1992 until January of 1993 is dismissed without prejudice.

(b) All other claims of Mock are dismissed with prejudice.

3. The clerk of court shall close this case.

4. The Clerk shall forthwith transmit a copy of this order by FAX to the offices of those counsel who may be so reached, shall read the dispositive provisions to other counsel over the telephone, and shall mail a copy to each counsel.