6332 - Annotations- Summary Judgment

6332 - Annotations - Summary Judgment

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Annotations- Summary Judgment

6332 Annotations: Summary Judgment- Levy

Penalty for Failure to Surrender Property: Summary Judgment

[43-1 USTC ¶9476] United States of America v. National Bank of Middlesboro, Middlesboro , Ky.

United States District Court, Eastern District of Kentucky, at London., No. 143., 05/13/43

Charges in distraint and seizure cases: Summary judgment.--The Court allowed the Government's motion for a summary judgment against a bank which was the depositary of funds of the assignee of a corporation against which a deficiency had been assessed on the ground that the assignee was conducting the business of the corporation, the deed of assignment not effecting a distribution of the assets of the corporation in kind to its stockholders.

John T. Metcalf, U.S. District Attorney, for plaintiff. H.L. Bryant, Pineville, Ky., F.R. Whalin, Middlesboro, Ky., and W.T. Davis, Pineville, Ky., for defendants.

FORD, D.J.:

This cause having been assigned for hearing at London, Kentucky on May 12, 1943 upon plaintiff's motion for a summary judgment and the intervenor's motion for summary judgment and the Court having heard arguments and having considered the pleadings, exhibits and briefs, finds that, upon the record, there is no genuine issue as to any of the material facts hereinafter stated and therefore the Court makes the following findings of fact and conclusions of law:

Findings of Fact

1. That an additional or re-assessment of $2,139.08 and interest in the amount of $261.61 for the year 1937 was made against the Louisville Property Company, H.C. Williams, Assignee, Middlesboro, Kentucky, by the Commissioner of Internal Revenue as shown on that portion of the March 1940 Income Tax Assessment List--Kentucky Collection District, No. 529,000.

2. That the Commissioner of Internal Revenue mailed to the Louisville Property Company, H.C. Williams, Assignee, a 90 day letter notifying the said taxpayer of said deficiency assessment hereinabove referred to.

3. That H.C. Williams, Successor Assignee, Louisville Property Company, filed with the Board of Tax Appeals on October 27, 1939 a petition challenging the validity of said re-assessment or deficiency tax.

4. That on November 27, 1939, the Commissioner of Internal Revenue filed a motion to dismiss said petition, which was sustained on December 20, 1939.

5. That no appeal was taken from the action of the Board of Tax Appeals in dismissing the petition of H.C. Williams, Successor Assignee.

6. That on May 23, 1941 a notice of levy was served upon the defendant, National Bank of Middlesboro, Kentucky, notifying said bank that all property or monies or bank deposits in its possession belonging to Louisville Property Company, H.C. Williams, Assignee, were seized and levied upon for the payment of taxes aggregating $2,131.58, together with penalties and interest and at the time thereof there was on deposit in defendant bank funds to the credit of and in the name of H.C. Williams, Assignee, Louisville Property Company.

7. That on May 24, 1941 a final notice and demand was served upon the defendant, National Bank of Middlesboro, demanding that said bank pay over, surrender and deliver to the Collector of Internal Revenue, for the District of Kentucky, or his deputy, the funds levied upon on May 23, 1941.

8. That thereafter the defendant, National Bank of Middlesboro, declined and refused to surrender to the United States of America , any funds on deposit to the credit of H.C. Williams, Assignee, Louisville Property Company.

9. That on March 31, 1942 the Honorable Guy T. Helvering, Commissioner of Internal Revenue, authorized and requested the Attorney General to institute a civil action against the National Bank of Middlesboro pursuant to Section 3710 of the Internal Revenue Code to enforce the surrender of funds levied on for taxes for the year 1937 assessed against the Louisville Property Company, H.C. Williams, Assignee.

10. That on April 20, 1942, John T. Metcalf, United States Attorney, for the Eastern District of Kentucky, was authorized and directed by the Attorney General to institute this suit against the defendant, National Bank of Middlesboro , Kentucky .

11. That the funds on deposit in the National Bank of Middlesboro, Middlesboro, Kentucky, which have been levied upon are proceeds realized from rents, royalties and the sale of assets conveyed by Louisville Property Company, Incorporated, to the United States Trust Company as Assignee by deed of assignment dated November 6, 1919 and which passed to H.C. Williams as Successor Assignee, pursuant to order of the Whitley Circuit Court entered in May 1935.

12. That pursuant to and by virtue of the aforesaid deed of assignment, H.C. Williams, Successor Assignee of Louisville Property Company, since his appointment and qualification as such, has sold and leased lands so acquired and the timber and coal rights thereon, has received the income therefrom and has incurred expenses in so doing.

Conclusions of Law

The Court makes the following conclusions of law:

1. That H.C. Williams, Assignee, Louisville Property Company, at the time of the assessment of the taxes herein, was conducting the business of the Louisville Property Company and that the deed of assignment dated November 6, 1919 and subsequent proceedings did not effect a distribution of the assets of the Louisville Property Company in kind to its stockholders. Hellebush v. Commissioner of Internal Revenue, 65 Fed. (2d) 902 [3 USTC ¶1136].

2. That the funds on deposit in the National Bank of Middlesboro, Middlesboro, Kentucky, represent proceeds derived from rents, royalties and sale of assets embraced in the aforesaid deed of assignment, and are subject to the taxes assessed by the Commissioner of Internal Revenue on March 29, 1940 against Louisville Property Company, H.C. Williams, Assignee.

3. That the order of the Board of Tax Appeals dismissing the petition of H.C. Williams, Successor Assignee, for lack of jurisdiction, Docket No. 100,467, entered December 20, 1939 is not res judicata of this action.

4. That the funds levied upon by the plaintiff, United States of America, which are on deposit in defendant bank, in the name and to the credit of H.C. Williams, Assignee, Louisville Property Company, were properly levied upon and are subject to the payment of the tax claim asserted herein and should be paid to the plaintiff, United States of America.

5. That the motion for summary judgment herein filed by the plaintiff, United States of America , should be sustained and the motion for summary judgment herein filed by the intervening petitioner, H.C. Williams, Assignee, Louisville Property Company, should be overruled.

6. That the intervening petition filed herein by H.C. Williams, Assignee, Louisville Property Company, on May 26, 1943 should be and same is hereby dismissed.

7. That the plaintiff, United States of America, is entitled to a judgment against the defendant, National Bank of Middlesboro, in accordance with the prayer of its complaint.

8. The Court has jurisdiction of the parties and the subject matter of this action.

Let judgment be prepared and submitted in accordance with these findings and conclusions, to all of which rulings the defendant, National Bank of Middlesboro, and the intervenor, H.C. Williams, Assignee, Louisville Property Company, object and are allowed exceptions.

[79-1 USTC ¶9250] United States of America , Plaintiff v. New England Merchants National Bank, Defendant

U. S. District Court, Dist. Mass., Civil Action No. 72-1345-G, 465 FSupp 83, 1/29/79

[Code Sec. 6332]

Levy and distraint: Bank safety deposit box: Failure to surrender: Property of taxpayer: Ownership: Seizure.--Judgment was entered ordering the defendant bank to permit removal of the contents of a taxpayer's safety deposit box, subject to a notice of levy and seizure, following failure of the taxpayer to pay a jeopardy assessment upon demand. (1) The bank could not defend its refusal to turn over the contents of the box because it may have lacked "possession" under state law. State law cannot bar application of federal law if applying state law would frustrate the controlling federal statutory scheme. (2) The government's failure to join the taxpayer was not applicable to the seizure of leviable property but only to foreclosure of the tax lien, which the government did not pursue. (3) The bank did not rebut the presumption of the taxpayer's ownership of the safety deposit box evidenced by the lease of the box by the taxpayer. The bank was, therefore, compelled to cooperate and summary judgment was entered for the government.

Wayne B. Hollingsworth, Assistant United States Attorney, Boston , Mass. 02109 , for plaintiff. Harry T. Daniels, Hale and Dorr, 28 State St. , Boston , Mass. 02109 , for defendant.

Memorandum of Decision

GARRITY, District Judge:

This case is now before the court on the Government's motion for summary judgment seeking an order that would direct the defendant, New England Merchants National Bank, to permit access by authorized representatives of the District Director of Internal Revenue into a safe deposit box rented by a delinquent taxpayer. The established facts can be briefly summarized as follows. On February 8, 1971, a delegate of the Secretary of the Treasury made an assessment in the amount of $47,360 against Jeffrey F. Perreault for upaid marihuana transfer tax, made a finding that the collection of the assessment was in jeopardy, gave the taxpayer notice of the assessment and demanded payment. The Government has been able to collect only $305 of the delinquent amount; the taxpayer has failed to pay the remaining $47,055 as well as accrued interest from February 8, 1971 and a $6 lien filing fee.

The taxpayer on February 8, 1971 was the lessee of a safe deposit box located at the defendant bank. Upon the taxpayer's failure to pay the assessment following demand, a notice of federal tax lien issued on February 9, 1971, and a copy was delivered to the defendant. Also on February 9 a notice of levy and a notice of seizure covering the contents of the safe deposit box were served on the defendant.

Believing that it contains leviable property of the taxpayer, plaintiff seeks access to the box. Although the Government has the taxpayer's key, the box can be opened only with the combined use of another key held by the bank, and the bank refuses to cooperate.

The United States commenced this action to compel the defendant's cooperation. The defendant moved to strike its answer and to file an amended answer, which motion was granted at a hearing held on February 27, 1978. The plaintiff filed this motion for summary judgment, ¹ which was also debated at the February 27 hearing. Upon considering the parties' briefs, affidavits and oral argument, the motion is granted for the reason that there is no genuine issue of material fact in dispute and the Government is entitled to judgment as a matter of law. Fed. R. Civ. P., Rule 56(c).

At the outset it will be helpful briefly to summarize the statutory background. The Internal Revenue Code affords the federal government two options for collecting taxes due and owing after the taxpayer has failed to pay following formal assessment and demand for payment. The taxpayer's failure to pay upon demand gives rise to a tax lien, in favor of the United States, which attaches to "all property and rights to property, whether real or personal, belonging to such person [the delinquent taxpayer]." 26 U. S. C. §6321. The United States may at this stage initiate a plenary civil proceeding pursuant to 26 U. S. C. §7403 to foreclose the tax lien or to subject property in which the taxpayer has any right, title or interest to payment of the tax; and all persons with liens in or claiming an interest in the property must be joined. 26 U. S. C. §7403(b).

Alternatively, the United States may pursue the administrative option provided by 26 U. S. C. §§ 6331-6344 and collect the tax by levy upon "all property and rights to property . . . belonging to such person [delinquent taxpayer] or on which there is a lien provided in this chapter for the payment of the tax." 26 U. S. C. §6331(a) (emphasis added). Levy is the equivalent of seizure, and the government is authorized physically to seize the property. 26 U. S. C. §6331(b). In the event "property or rights to property subject to levy upon which a levy has been made" are in the "possession" of someone other than the taxpayer, that person is obligated to surrender the property upon demand, 26 U. S. C. §6332(a) (emphasis added), or face personal liability for the unpaid assessment and a possible penalty. 26 U. S. C. §6332(c).

In the instant case, the United States chose the second alternative--levy and distraint--a remedy that operates, for the most part, extra-judicially. See, G. M. Leasing Corp. v. United States , 1977, [77-1 USTC ¶9140] 429 U. S. 338. A court order is sought pursuant to 26 U. S. C. §7402(a) only because inspection and seizure of the contents of the safe deposit box requires access to the box, which access is blocked by the defendant bank.

The defendant presses three objections to the Government's motion: (1) that the absence of possession by the defendant of the contents of the safe deposit box removes the defendant from the reach of 26 U. S. C. §6332(a) and thus renders improper any order based on a failure to comply with the obligations created by that Section, (2) that the action cannot proceed at all without the taxpayer being joined as a party-defendant, and (3) that the presence of a factual dispute as to the ownership of the contents of the safe deposit box, if any, precludes summary judgment. We discuss each of these arguments in turn.

Defendant's first point--the bank's lack of possession of the contents of the safe deposit box--raises a question of law, not one of fact, and, therefore, does not prevent us from granting summary judgment, since we decided the issue in the Government's favor. The defendant argues as follows: first, 26 U. S. C. §6332(a), which imposes a duty on third parties to surrender property subject to levy, applies by its terms only when the third party is in "possession" of the property; second, the issue of "possession" is decided by reference to state law, and finally according to Massachusetts law the lessor of a safe deposit box is not in possession of the contents of that box. This tripartite argument is defective in both its second and third premises. Although state law creates the legal interests and rights, federal law controls as to which of those interests and rights are subject to federal tax. Morgan v. Commissioner, 1940, [40-1 USTC ¶9210] 309 U. S. 78, 80-81. By the same token, it would appear that federal law should govern the determination of whether property subject to levy is in the "possession" of a third party, for any other result would permit states to frustrate the collection of federal taxes. Cf. Aquilino v. United States, 1960, [60-2 USTC ¶9538] 363 U. S. 509, 512-14. Even if "possession" were in general a question of state law, state law should give way to federal law in circumstances, like those present here, where following the state's rule would frustrate the purposes, terms and uniformity of the controlling federal statutory scheme. See R. F. C. v. Beaver County , 1946, 328 U. S. 204, 210.

Massachusetts law on the question of the bank's possession is unclear. See Hurley v. Noone, 1964, 347 Mass. 182, 187, n. 7; cf., 5 Op. Atty. Gen. ( Mass. ) 688 (1920). See generally, Annot. 138 A. L. R. 1137, 1142 (1942); Annot. 133 A. L. R. 279, 280-82 (1940) (majority rule is that lessor of safe deposit box is bailee in possession of contents); Annot. 40 A. L. R. 874 (1926). However, in this case the bank would appear to have sufficient control over the safe deposit box and the surrounding area, to give it "possession" of the contents of the box for purposes of applying 26 U. S. C. §6332(a). See United States v. First National City Bank, S. D. N. Y. 1974, [74-1 USTC ¶9361] 388 F. Supp. 1044, 1045-46, aff'd, 2 Cir. 1977, [77-1 USTC ¶9198] 568 F. 2d 853; cf., Carples v. Cumberland Coal & Iron Co., 1945, 240 N. Y. 187, 148 N. E. 185, 186. Otherwise, a taxpayer could insulate his property from levy simply by placing it in a safe deposit box prior to its seizure. First National City Bank, supra, 388 F. Supp., at 1046.

Regarding defendant's second ground of opposition to the instant motion, viz., failure to join the taxpayer as a party required for just adjudication, Fed. R. Civ. P. Rule 19, it is enough to note that the weight of authority opposes treatment of the taxpayer as a Rule 19 party. The summary nature of the administrative levy and seizure process, justified by the need for speedy collection of taxes and the desirability of encouraging voluntary compliance, see, Matter of Carlson, 10 Cir. 1978, [78-2 USTC ¶9562] 580 F. 2d 1365, 1368, ought not be further complicated by making the taxpayer a necessary party to any court action brought pursuant to 26 U. S. C. §7402(a) only to make possible the seizure of leviable property. First National City Bank, supra, 568 F. 2d, at 857-58; United States v. Mellon Bank, N. A., 3 Cir. 1975, [75-2 USTC ¶9690] 521 F. 2d 708, 711, n. 11. The final judgment in such an action settles no rights in the property subject to seizure, and the owner of the property has an opportunity for a prompt post-seizure hearing to protect his interests. First National City Bank, supra, 388 F. Supp. at 1045; see, e.g., 26 U. S. C. §§ 7422, 7426.

Before treating defendant's third contention involving ownership of the contents of the safe deposit box, we consider first a rather difficult threshold question of timing: whether the defendant ought to be permitted to raise the ownership issue as a defense to an action like the instant one brought by the government to seize property or whether assertion of the defense ought to be postponed until post-seizure judicial proceedings. On the one hand, it is well established that a defendant in an analogous action brought by the United States under 26 U. S. C. §6332(c) to enforce a levy by holding the defendant personally liable for the unpaid assessment may defend by showing that none of the levied-upon property possessed by him belongs to the taxpayer or is subject to a tax lien. E.g., United States v. Third Nat. Bank & Trust Co., M. D. Pa., 1953, [53-1 USTC ¶9255] 111 F. Supp. 152, 155. Furthermore, the government may search for and seize levied-upon property pursuant to a judicially authorized warrant based on probable cause. See, G. M. Leasing Corp. v. United States , 1977, [77-1 USTC ¶9140] 429 U. S. 338; Matter of Carlson, 10 Cir. 1978, [78-2 USTC ¶9562] 580 F. 2d 1365. Permitting an ownership defense in an action like the instant case brought under Section 7402(a), therefore, would not unduly hamper speedy collection of taxes by the government.

On the other hand, it can be argued that allowing a defendant to dispute the ownership of levied-upon property complicates and delays the summary administrative process which was intended to be a speedy method of tax collection. Moreover, unlike an enforcement proceeding under Section 6332(c), an action brought under Section 7402(a) to facilitate seizure of property results in no personal liability on the part of the defendant. Hence a showing of probable cause to believe that levied-upon property possessed by the defendant belongs to the taxpayer or is subject to a tax lien ought to be sufficient to obtain an order opening the safe deposit box to government inspection. Cf. G. M. Leasing Corp., supra; United States v. Mellon Bank, N. A., 3 Cir. 1975, [75-2 USTC ¶9690] 521 F. 2d 708, 711, n. 15 (dictum). The owner of the property would then be limited to his post-seizure remedies.

Bearing these arguments in mind, we conclude that on the facts of this case consideration of the ownership defense is appropriate. The ownership issue in a case involving seizure of contents of a safe deposit box is relatively simple, and the available evidence is limited. Moreover, because the United States possesses the key to the safe deposit box, the taxpayer is unable to purloin its contents. The need for rapid action, thus, is not as pronounced as in some other cases. Finally, our granting the Government's motion in the face of the ownership defense makes a decision of this question less crucial. On the whole, we feel that thorough analysis of the timing issue should await a case of more urgency, in which the competing policies are in sharper focus.

Turning now to the merits of defendant's third argument, it is clear that Section 6332(a) imposes an obligation on the defendant to surrender only property subject to levy and that according to Section 6331 the property subject to levy is property belonging to the taxpayer or to which a federal tax lien has attached. Therefore, the taxpayer's ownership of property in the safe deposit box (or the presence of property subject to a lien) is a necessary condition to any duty on the part of the bank to surrender that property to the United States .

Massachusetts law creates a rebuttable presumption that the contents of a safe deposit box are owned by the lessee of the box, a presumption which is especially strong when the property is currency. Hurley v. Noone, 1964, 347 Mass. 182, 187-88 states the rule: ²

Possession of property, with the exercise of the rights of ownership, is evidence of title. . . . Proof of Beatrice's [the lessee's] possession of the currency in the box (or of the bank's possession as her bailee for safekeeping) thus established a prima facie case of her ownership.

The Government introduced evidence that the taxpayer leased the safe deposit box at defendant bank. Affidavit of Michael B. Dickman, February 26, 1974, at ¶6. We do not understand the defendant to dispute this fact. The Government having made a showing sufficient to support the presumption of ownership, the defendant, in order to avoid summary judgment, must offer evidence that the contents of the box are not owned by the taxpayer or submit a so-called 56(f) affidavit explaining its inability to present, by affidavit, facts essential to justify its opposition. Fed. R. Civ. P., Rule 56(e), (f). Although it had notice of the existence of the presumption, see, Defendant's Memorandum In Support Of Motion To Strike and File Amended Answer and In Opposition to Motion for Summary Judgment, at p. 10, the defendant has failed to identify any evidence that it might have in rebuttal, nor has it submitted a 56(f) affidavit justifying this evidentiary gap. Instead it merely asserts its ignorance of the contents of the box. In the face of the presumption of ownership, this showing is quite clearly inadequate. See, First National Bank v. Cities Service, 1968, 391 U. S. 253, 288-89.

There being no genuine issue of material fact for trial and the Government being entitled to judgment as a matter of law, the motion for summary judgment is hereby granted. Judgment shall enter ordering the defendant to allow the Government access to Safe Deposit Box No. 4298 as though the Government were the lessee of that box and to permit removal of its contents.

¹ The standard governing summary judgment in this Circuit is summarized in Gottlieb v. Isenman, 1 Cir. 1954, 215 F. 2d 184, 186:

The plaintiffs have a right to a trial ". . . where there is the slightest doubt as to the facts." Peckham v. Ronrico Corporation, 1 Cir. 1948, 171 F. 2d 653, 657: Landy v. Silverman, 1 Cir. 1951, 189 F. 2d 80.

² Although Hurley invokes the familiar proposition that possession is evidence of title, it does not make the presumption of the lessee's ownership depend on the technicalities of the relationship between the bank and the lessee relative to who has possession of the contents of the box. The bank is treated as a sort of agent of the lessee for purposes of the presumption.

[82-1 USTC ¶9237]United States of America, Plaintiff v. Fred B. Fontana, Virginia Fontana, Great Lakes Carbon Corporation and the Sheriff of Westchester County, Defendants Great Lakes Carbon Corporation, Plaintiff v. Fred B. Fontana, Virginia Fontana, Material Handling Consultants, and The United States of America, Defendants

U. S. District Court, So. Dist. N. Y., Nos. 80 Civ. 1527 (LBS), 80 Civ. 4105 (LBS), 528 FSupp 137, 10/14/81

[Code Sec. 6332]

Lien for taxes: Money held by sheriff: Motion for summary judgment: Existence of constructive trust.--Because a material question of fact existed as to whether the taxpayers had a sufficient property interest in money held by a county sheriff for the government's tax lien to attach, summary judgment was inappropriate. The existence of a constructive trust in favor of the taxpayer's former employer was not determinable without further proceedings.

John S. Martin, Jr., United States Attorney, J. D. Pope, Assistant United States Attorney, New York , New York 10007 , for plaintiff. Stuart Potter, David K. Fiveson, Butler, Fitzgerald & Potter, 200 Park Avenue, New York, New York 10166, for Great Lakes Carbon Corporation, Samuel S. Yasgur, Brian Powers, 600 County Office Building, White Plains, New York 10601, for Sheriff of Westchester County, Dennis M. Fox, Two William Street, White Plains, New York 10601, for Fred B. Fontana, Virginia Fontana and Material Handling Consultants.

Opinion

SAND, District Judge:

The United States has, by order of this Court dated July 8, 1981, obtained a judgment against the Fontanas in the amount of $102,404.92. The underlying debt which gives rise to this judgment represents unpaid federal income taxes owed for the years 1974 and 1975, plus statutory additions, interest and penalties.

[Background]

Prior to obtaining judgment, the United States attempted to levy upon a fund of money held by the Sheriff of Westchester County which money, the Government contends, belongs to the Fontanas. The Sheriff has refused to relinquish the fund because it is subject to a competing claim asserted by Great Lakes Carbon Corporation (" Great Lakes "). Great Lakes is the former employer of Fred Fontana, and it has asserted, in prior litigation in state court and in a currently pending action removed from state court and consolidated with this proceeding, that the fund in question is traceable to wrongful acts by Fontana in breach of his fiduciary obligations as an employee and that such fund should be found to be held in constructive trust for the benefit of Great Lakes. Great Lakes disputes the Government's claim to priority of lien over the fund on the grounds that the taxpayers were not the beneficial owners of the fund but held bare legal title for the benefit of Great Lakes . See Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 (1960).

The Government now moves for summary judgment, and Great Lakes moves for an order directing that an inquest be held to determine whether such a constructive trust exists.

[Jurisdiction]

I. Subject Matter Jurisdiction. Initially, this Court must address the question of subject matter jurisdiction. In its Memorandum of Law at pp. 8-12, the Government argued that the expiration of the time within which Great Lakes could sue the Government for wrongful levy deprives this Court of subject matter jurisdiction over Great Lakes' claim to the Fontana fund. Although the Government has since withdrawn its argument at the request of the Internal Revenue Service, letter of J. D. Pope, Assistant United States Attorney, dated June 11, 1981, the Court is nevertheless compelled to consider the issue because it raises a question of subject matter jurisdiction, not waivable by the parties. See Fed. R. Civ. P. 12(h).

Prior to the enactment of I. R. C. §7426(a)(1), sovereign immunity, which bars suit against the Government except to the extent that the Government has consented, prevented persons other than the taxpayer from suing the Government to recover their property after the Government had wrongfully levied upon it in satisfaction of the taxpayer's liability. United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626], 624 F. 2d 733, 739 (5th Cir. 1980) (citing S. Rep. No. 1708, 89 Cong., 2d Sess., reprinted in [1966] U. S. Code Cong. & Admin. News, pp. 3722, 3750-55). The nine month limitation period governing §7426, I. R. C. §6532(c), represents the legislative definition of the extent of the sovereign's consent to suit. Id. Thus, the Court would lack subject matter jurisdiction over an action pursuant to §7426(a)(1) commenced more than nine months after the cause of action accrued.

The United States and Great Lakes disagree as to whether the cause of action ever accrued. The raise the issue whether a levy actually occurred when the IRS served notice of levy on the Sheriff in November, 1977. The United States argues that service of notice of levy upon the person in possession of the property constitutes a levy. Great Lakes argues that the Government is merely stating the general rule, to which there is an exception when the property is in custodia legis. Great Lakes Memorandum at 18-23. Neither party cites authority directly dealing with this issue. But it is not necessary to determine whether in fact a levy took place, and therefore this Court refrains from deciding this unclear issue.

[Nongovernmental Entity]

The jurisdictional issue is simply resolved by the recognition that Great Lakes is not attempting to sue the United States . In one of the two cases presently before the Court, Great Lakes is suing the Fontanas to recover property it alleges they wrongfully hold. The Government has intervened in that proceeding on the ground that its rights to the Fontana fund might be impaired thereby. In the second action, the Government is suing Great Lakes , the Fontanas, and the Sheriff to enforce its claimed levy on the fund. Great Lakes is not availing itself of the wrongful levy remedy provided by §7426(a)(1), so the nine month's limitation is irrelevant. The Government stated, however, that "the remedy provided by section 7426, which in effect waives the sovereign immunity of the United States in cases where third persons are challenging the propriety of tax levies, is exclusive. United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626], 624 F. 2d 733, 739 (5th Cir. 1980)." Government Memorandum at 9. But more accurately, §7426 is the third person's "exclusive remedy against the United States ." 624 F. 2d at 739 (emphasis added). When the property is in the hands of a nongovernmental party, other remedies may be available. Id. For example, in World Marketing, Ltd. v. Hallam, 608 F. 2d 392 (9th Cir. 1979), the alleged owner of a sailing vessel levied upon and sold by the Government in satisfaction of a taxpayer's liability had sued the transferee of the vessel to quiet title. Reversing the district court's determination that I. R. C. §7426 was the exclusive remedy for property wrongfully seized and sold by the United States, the court found that the alleged owner could seek a state law remedy against the transferee. Id. at 394-95. In Crow v. Wyoming Timber Products Co. [70-2 USTC ¶9561], 424 F. 2d 93, 96 (10th Cir. 1970), the court held that the suit for replevin against the purchaser of timber at a tax sale originally brought in state court by the alleged owner of the timber was not merely a concealed §6426 action, and therefore not removable to federal court. The court noted that although §7426 was the exclusive remedy against the United States , "nothing in §7426 purports to cover" a suit against the purchaser in a federal tax sale, and remanded the case to the state court. Id.

The Government presented no theory explaining how a non-governmental entity could cloak itself in sovereign immunity. The fact that Great Lakes' right to sue the Government may have expired does not mean that its property rights arising under state law have expired and that the Sheriff is now obligated to surrender the property to the Government despite the corporation's competing claim. A statute of limitations governs the times in which a particular remedy may be sought in court, not the underlying rights, which may command other remedies. United States v. Studivant, 529 F. 2d 673, 675 (3d Cir. 1976). Section 6532(c) and §7426(a)(1), taken together, do not reveal any legislative purpose to foreclose other avenues of relief or to extinguish underlying rights. ¹

The vindication of Great Lakes ' property rights, which are the subject of its litigation, does not depend upon the availability of a remedy against the Government. The property in question remains in the possession of the Sheriff, in accordance with I. R. C. §6332(a), which exempts him from the obligation to surrender the property subject to levy while it is "subject to an attachment or execution under any judicial process." ² If at the close of this litigation, Great Lakes were adjudged the beneficial owner of the fund, or some portion of it, the Sheriff would release the fund to Great Lakes. ³ At that point, it would be clear that the Government's lien could not have attached, since the lien can only attach to the taxpayer's property. The Government's only argument that Great Lakes would then be forced to use §7426(a)(1) would be that even though no lien could have attached, and thus its levy--assuming a levy has occurred--is known to have been wrongful, the Court should nevertheless enforce a wrongful levy and order the disposition of the fund to the Government. Clearly, there is a difference between the Government's inadvertently levying on a third person's property without the aid of any court and a court's enforcing what it knows is a wrongful levy on property it has adjudged to belong to another. The Court is not compelled to do wrong simply because it could no longer remedy the wrong if it had occurred in the past. Therefore, the Court finds that §7426(c) is not Great Lakes' exclusive means to recover its property and that sovereign immunity does not deprive the Court of jurisdiction over Great Lakes' suit for a state law remedy against the Fontanas.

The only real issue remaining ⁴ upon which the appropriateness of summary judgment depends is whether the Fontanas had a sufficient interest in the fund to which the Government's tax lien could have attached.

[Ownership of Funds]

II. Ownership of the Fontana Fund Great Lakes Claim. The history of the Great Lakes ' state court litigation is somewhat complex. For these purposes, however, it suffices to note that the first action was commenced by Great Lakes on May 16, 1975. This action was discontinued by stipulation entered into between Great Lakes and the Fontanas on June 17, 1975. However, on June 20, 1975, Great Lakes commenced a second action against the Fontanas and a corporation they controlled alleging the same basic allegations they had previously asserted in the initial action, plus a claim that the stipulation discontinuing that action had been fraudulently induced. On April 25, 1978, Great Lakes moved for judgment by default on the grounds that the Fontanas had wilfully failed to obey certain disclosure orders of the court and on September 5, 1978, the Supreme Court issued an order which awarded Great Lakes judgment against Mr. Fontana in the sum of $31,997.03, plus interest, costs and disbursements, and granted other relief, including a direction that an inquest be held for the purpose of enabling Great Lakes to establish its damages on various causes of action asserted by it. On September 18, 1978, a formal judgment in the amount of $38,460.42 on Great Lakes' third cause of action was filed in the County Clerk 's Office in New York County . Potter Affidavit, ¶19-20. By order entered May 1, 1980, the Supreme Court of New York County ordered that the inquest be held to ascertain the damages in the action in which the Fontanas had defaulted. It is this action which was removed to this Court on application of the United States , which intervened in the state court action asserting a claim to the fund. And it is that proceeding (80 Civ. 4105 (LBS)) in which Great Lakes seeks an order setting a date for the inquest which the state court had ordered.

[Attachment Orders]

In December, 1975, in connection with the claims it was pursuing against the Fontanas in state court, Great Lakes obtained two orders of attachment against the assets of the Fontanas. "Pursuant to the first order of attachment, the Sheriff of Westchester County levied upon and reduced to possession $78,131.39 contained in the bank accounts of the Fontanas and M. H. C. [the Fontanas' corporation] at the National Bank of Westchester." Potter Affidavit, ¶14, p. 8.

As noted, fn. 4, supra, the Government filed its notices of tax liens in Texas in February and April of 1978. Its notice is thus some three years subsequent to the Great Lakes ' December 1975 attachment. It is, however, prior to the September 1978 judgment against the Fontanas, obtained by Great Lakes in the state court.

The Government asserts and the law is clear that an attachment lien is subordinant to a tax lien, because an attachment lien is contingent and inchoate and therefore insufficient to defeat a choate federal tax lien. 26 C. F. R. §301.6323(h)-(1)(g), United States v. Acri [55-1 USTC ¶9138], 348 U. S. 211, 213-14 (1955). Great Lakes has never obtained execution on its judgment. The Government urges that under both federal and state law, its prejudgment attachment does not give rise to a specific, presently enforceable lien.

The Government asserts that, viewing Great Lakes' case in its most favorable light, that is, assuming the September 1978 default judgment had been perfected, the priority question posed by this case would be: "[W]hether a tax lien of the United States is prior in right to an attachment lien where the federal tax lien was recorded subsequent to the date of the attachment lien but prior to the date the attaching creditor obtained judgment." United States v. Security Trust & Savings Bank [50-2 USTC ¶9492], 340 U. S. 47, 48 (1950); see also United States v. Acri [55-1 USTC ¶9138], 348 U. S. 211, 213 (1955). In both of these cases, the Supreme Court has answered the question by ruling that the federal tax lien has priority. ⁵

Although Great Lakes cannot have had any lien prior to the Government's tax lien, using a constructive trust theory, Great Lakes could show that the Government has no lien because the fund was the property of Great Lakes and not the taxpayer.

[Property Interest]

Constructive Trust Theory. A tax lien creates no property rights in itself. Aquilino v. United States , 363 U. S. 509, 513 (1960). Federal law merely determines the priority of liens once the federal tax lien attaches. Id. But whether the tax lien has attached depends on the state law question of ownership, since the lien can only attach to property that the taxpayer owns. When title to property is bifurcated, so that the taxpayer owns mere legal title and serves as the trustee for the benefit of a third party, the taxpayer's interest is insufficient for the tax lien to attach. Id.

In Aquilino v. United States, 10 N. Y. 2d 271, 219 N. Y. S. 2d 254, 176 N. E. 2d 826 (1961), the New York Court of Appeals, deciding the question of state property law on remand from the Supreme Court, found a direct trust created by statute to protect the interests of subcontractors in funds in the hands of general contractors. In the present case, the Court is presented with no New York statute expressly creating a trust, but the same bifurcation of title occurs in a constructive trust and would deprive the taxpayer of sufficient property interest for a tax lien to attach. A constructive trust is not a true trust: it is not intended, but it is treated as if it were intended, to avoid unjust enrichment; and it does not impose extensive fiduciary duties on the trustee, but only the duty to make restitution. 5 Scott, Trusts [3d ed.] §462.4. It is, however, analogous to a trust with respect to the bifurcation of title. 4 Pomeroy's Equity Jurisprudence §1044 (1941).

The crucial question in determining whether the Government is entitled to summary judgment is: when does a constructive trust arise? For unless the bifurcation of title, if a constructive trust should be found to exist, would have preceded the attachment of the federal tax lien, the Government must prevail. The parties present two different theories.

[Bare Title Held]

Great Lakes' analysis of the constructive trust theory is as follows: the Fontanas hold bare legal title to the fund; the corporation owns the beneficial title and the right to compel the Fontanas to convey legal title to it, which would unify the bifurcated title; the Government's tax lien, capable of attaching only to the taxpayers' property, never attached to the property beneficially owned by the corporation. Therefore, the disposition of the fund depends upon the unresolved question whether the fund is subject to a constructive trust, and the Government's motion for summary judgment must be denied.

[Trust Is Judicial Remedy]

The Government contends that a constructive trust is merely a remedy imposed by a court, and does not exist until a court declares it to exist. Its analysis produces a different result: since no court has yet imposed the remedy, no bifurcation of legal and equitable title has taken place; ⁶ and the Fontanas possessed a sufficient property interest to which the tax lien attached. Since the tax lien attached, the Government argues, no subsequent action divesting the Fontanas can defeat the Government's claim to the fund, and it is entitled to summary judgment.

The Government cites numerous cases, none of which directly states that a constructive trust arises only when a court declares its existence. It relies entirely on the interpretation of language selected from a case in which the outcome did not depend on the timing of the bifurcation of title. It quotes the seminal New York case written by Judge Cardozo, Beatty v. Guggenheim Exploration Co., 225 N. Y. 380, 386, 122 N. E. 378, 380 (1919) (citing Moore v. Crawford, 130 U. S. 122, 128 (1888)): "When property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." The Government emphasizes the word "retain" and concludes: "the trustee has title, but he may not retain it--through the remedy of a constructive trust the court finds and enforces an 'equitable duty' to convey that title." Government's Reply Memorandum at 11. But the meaning of even this quotation is susceptible to another interpretaion. Judge Cardozo wrote that "equity converts [the holder of legal title] into a trustee" (emphasis added), not that the court of equity converts him into a trustee. The word "equity" connotes broad principles of fairness and justice. See Simonds v. Simonds, 45 N. Y. 2d 233, 239, 380 N. Y. 2d 189, 192, 408 N. Y. S. 2d 359, 362 (1978). This connotation indicates that it is the circumstance of unfairness which causes the bifurcation of title. ⁷

[Timing of Title Bifurcation]

Other language in Beatty itself supports this view. Judge Cardozo, analyzing the facts of that case, wrote that an excessive payment procured by the plaintiff "was a breach of the plaintiff's duty to his employer. The payment, thus unlawfully swollen, was subject to a constructive trust." He did not write that the breach compelled the court to create a constructive trust. In addition, he wrote that the employer, not the court, faced with a contract made in breach of the employee's fiduciary duties, "would have the right, if he so elected, to hold the plaintiff as trustee." Id. at 385, 122 N. E. at 380 (emphasis added) (the employer might instead consent to the contract). Taken as a whole, Beatty does not support the Government's interpretation. The rest of the Government's citations merely point to repetitions of Judge Cardozo's language.

Other New York cases support Great Lakes ' interpretation. In cases in which the New York Court of Appeals has found a legatee involved in fraud or misdoing obligated to turn property over to the testator's intended beneficiary, the court has repeated that the constructive trust "acts upon the gift itself as it reaches the possession of the legatee, or as soon as he is entitled to receive it." Trustees of Amherst College v. Ritch, 151 N. Y. 282, 324, 45 N. E. 876, 887 (1897) (emphasis added), quoted in Latham v. Father Divine, 299 N. Y. 22, 30, 85 N. E. 2d 168, 172 (1949); Ahrens v. Jones, 169 N. Y. 555, 561, 62 N. E. 666, 668 (1902). ⁸ In that context, the court has indicated that a constructive trust, similar to an express trust, "springs from the intention of the testator and the promise of the legatee," Trustees of Amherst College v. Ritch, 151 N. Y. at 323, 45 N. E. at 887, quoted in Ahrens v. Jones, 169 N. Y. at 561, 62 N. E. at 668, and not from any act of the court.

In Coane v. American Distilling Co., 298 N. Y. 197, 81 N. E. 2d 87 (1948), the Court of Appeals discussed the constructive trust remedy in the context of a shareholder derivative suit in which directors were charged with misappropriation of corporate assets and opportunities. The court spoke of bifurcation of title preexisting any court decree: "While legal title [to the misappropriated property] is in the individual defendants, the res actually belongs, by operation of law, to American Distilling." Id. at 206, 81 N. E. 2d at 90. The intervention of the court of equity was essential to "strip the individual wrongdoers of specific property and to decree its restitution to its proper and equitable owner." Id. In other words, the court's role is to specifically enforce the trust, not to create it. ⁹

[Recent State Decision]

The New York State Court of Appeals' most extensive recent discussion of constructive trusts appeared in Simonds v. Simonds, 408 N. Y. 2d 233, 380 N. E. 2d 189, 408 N. Y. S. 2d 359 (1978). In this case, a finding of constructive trust required the second wife of a decedent to pay the proceeds of life insurance policies, in which the second wife had been the named beneficiary, to the decedent's first wife. The second wife's equitable duty arose out of the decedent's breach of a promise, contained in his separation agreement with his first wife, to maintain certain insurance policies naming the first wife as beneficiary. The court noted that the first wife was not limited to her now worthless legal right against her former husband, but "due to the husband's failure to do what he should have done [she] . . . also [had] an equitable right in the policies, a right which, upon the husband's death, attached to the proceeds." Id. at 240, 380 N. E. 2d at 193, 408 N. Y. S. 2d at 363. Significantly, the court reached the property that the husband wrongfully diverted from the first wife in the hands of the second wife who was innocent of any wrongdoing, applying the traditional equitable principle: "equity regards as done that which should have been done." Id. , 380 N. E. 2d at 193, 408 N. Y. S. 2d at 362. ¹⁰

In the case at hand, if Great Lakes' allegations are proven, the same principle would direct regarding the money in the Fontana fund as the property of the corporation as of the time of Fontana 's wrongful act. Moreover, equitable principles in general urge this result. The Government's argument is intended to achieve a result which is fundamentally unfair: to seize property that, should Great Lakes prevail on the merits in its underlying claim, good conscience would convey to Great Lakes . It is this Court's opinion that the New York Court of Appeals would reject such a result. That court recently affirmed the traditional importance of equity in avoiding injustice and stated that "to evolve formalisms narrowing the broad scope of equity is to defeat its purpose." ¹¹ The Government's argument is just such an attempt to narrow the reach of equity. If the law in this area is unclear, this Court should interpret New York law as would produce an equitable result.

The most direct statement of when a constructive trust arises appears in 5 Scott, Trusts [3d ed.] §462.4 ("At what time the constructive trust arises"). ¹² Professor Scott is absolutely clear: "Where the title to property is acquired by one person under such circumstances that he is under a duty to surrender it, a constructive trust immediately arises. . . . It would seem that there is no foundation whatever for the notion that a constructive trust does not arise until it is decreed by a court. It arises when the duty to make restitution arises, not when the duty is subsequently enforced." Id. The indisputable fact that the defrauded person can reach the property in the hands of a transferee, see Simonds v. Simonds, 45 N. Y. 2d 233, 242, 380 N. E. 2d 189, 194, 408 N. Y. S. 2d 359, 364 (1978), unless the transferee is a bona fide purchaser, demonstrates that "[t]he beneficial interest in the property is from the beginning in the person who has been wronged." 5 Scott, Trusts [3d ed.] §462.4. It is a misunderstanding of the word "constructive" to think that the court "constructs" rather than "construes" a trust. Id. Cf. Beatty v. Guggenheim Exploration Co., 225 N. Y. 380, 388, 122 N. E. 378, 381 (1919) (questioning whether the circumstances demand the Court's "implication" of a trust). The court thus construes--or interprets--the circumstances and finds that "some of the consequences which would follow from the creation of an express trust should also follow." 5 Scott, Trusts [3d ed.] §462.4.

[Conclusion]

This Court therefore finds that New York law holds a constructive trust to exist from the time of the occurrence of the circumstances giving rise to the duty to surrender the property in question to another.

Conclusion. The question of fact whether Fontana 's acts gave rise to a constructive trust for the benefit of Great Lakes remains unsettled. The validity of the Government's tax lien depends on whether the Fontanas had a sufficient property interest in the fund, which they lack if a constructive trust is found. The Government's claim upon the fund, therefore, cannot be determined without a hearing on the merits. Accordingly, the Government's motion for summary judgment is denied.

The Court will hold a pre-trial conference on November 2, 1981 at 9:30 A. M. to deal with the scheduling of further proceedings herein.

SO ORDERED.

¹ The Fifth Circuit has stated that the purpose of §6532(c) is to protect the interests of the United States after it has credited seized property to the taxpayer's account; in the event of a successful §7426(a) suit, the Government would be forced to look to other assets of the taxpayer, and would be prejudiced by the passage of time. United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626], 624 F. 2d 733, 739 (5th Cir. 1980). This consideration is not present in the instant case.

² I. R. C. §6332(a) reads in pertinent part:

[A]ny 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 or his delegate, surrender such property or rights (or discharge such obligation) 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).

It is on the basis of this section that Great Lakes argues no levy has taken place. Great Lakes ' Memorandum at p. 23.

³ This result would only obtain if Great Lakes succeeds on its constructive trust theory, see pp. 9-15, infra. A constructive trust should be distinguished from a judgment for damages, which would only give Great Lakes a judgment lien as of the date of the judgment. A judgment lien subsequent to the Government's tax lien would be inferior to the tax lien. See pp. 8-9, infra.

⁴ Great Lakes previously contended that the Government's tax notices were defective because they were not filed in Texas , the state in which the Fontanas had taken up residence in June, 1976. Affidavit of Stuart L. Potter, counsel for Great Lakes , ¶13, p. 8. It appears, however, from the affidavit of Robert M. McKeever, district director of Internal Revenue Service at Austin, Texas, that in addition to notices which had been filed with the County Clerk of Westchester County, New York, notices of federal tax lien were filed with the County Clerk in Hays County, Texas, on February 3, 1978 in the amount of $79,857.94 and on April 25, 1978 in the amount of $78,306.54. McKeever affidavit, ¶3. Thus, Great Lakes cannot and does not claim that notices of tax lien were not filed in the county of residence as required by I. R. C. §6323(a), although it does contend that the notices were insufficient to cover all of the Government's present claims. See fn. 5, infra.

⁵ Great Lakes contends that the Texas filings are inadequate to cover the Government's full claim because they are for less than the Government's judgment ($102,404.92). Great Lakes alternatively contends, therefore, that it should be awarded priority to the extent to which the Government's Texas filings are exceeded in amount by the fund held by the Sheriff. The Government, however, notes that the amount covered by the notices it filed in Texas were for the principal amount the unpaid balance of assessment ($79,857.94), the January 31, 1978 filing, and $78,306.54 in the April 20, 1978 filing, both of which filings were for the amount of taxes "together with penalties, interest, and costs that may accrue in addition thereto." It is these latter items which account for the difference between the amounts specified in the tax notices filed and the amount of the Government's judgment. Great Lakes ' contention is therefore without merit and is rejected.

⁶ The illogic of the Government's position appears at this point in the Government's scheme: "the trust, if and when it is obtained, conveys legal title and beneficial interest from the 'trustee' to the beneficiary--but until the court adjudges a constructive trust legal title and beneficial interest are with the person holding the property." Reply Memorandum at p. 11. But if legal and beneficial title are never in two different persons, there would be no reason to use the trust analogy.

⁷ This conclusion would similarly flow from the Restatement's wording of the same concept: "Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a construct trust arises." Restatement of Restitution §160 (1936), cited by Simonds v. Simonds, 45 N. Y. 2d 233, 242, 380 N. E. 2d 189, 194, 408 N. Y. S. 2d 359, 364 (1978).

⁸ In these cases, the Court was faced with the problems of overriding the policy of the statutory requirement that wills be executed with certain formalities. The Court resolved the problem by first giving effect to the will and then, to avoid unjust enrichment, finding the legatee obligated to turn over the legacy to the intended beneficiary. Thus, it should be noted that the timing issue dealt with in these cases differed from the one presented in the instant case.

⁹ The Court cites, 298 N. Y. at 206, 81 N. E. 2d at 90, the Restatement of Restitution §160 (1936), Comment e of which reads:

"Where property is held by one person upon a constructive trust for another, the latter has the beneficial interest therein. In many cases the beneficiary of the constructive trust can by a proceeding in equity compel the transfer of the property to him in specie; he is entitled to specific enforcement of the constructive trust."

The Restatement terminology seems to be an accurate statement of what courts usually reduce to the shorthand "the court impresses (or imposes) a constructive trust," when the issue of timing is not relevant. The Restatement notes that the constructive trust may exist in some cases and nevertheless be unenforceable because the beneficiary's remedy at law is adequate. Id. at Comment f. Clearly, then it is the enforcement and not the creation of the constructive trust that comes from the court.

¹⁰ The Simonds court cites 2 Pomeroy, Equity Jurisprudence [5th ed.] §364, for this principle. Pomeroy elaborates, id. at §375:

"The principle is no less truly and directly the source of the equitable ownership regarded as held by the beneficiary in all trusts which arise by operation of law. . . ." Although there is no express trust "yet by the settled doctrines of the equity jurisprudence, an equity exists between the parties which is treated as worked out; an obligation to convey the subject-matter rests upon the holder of the legal title, which is treated as though performed." A constructive trust is seen only as an analogy to a trust but that view "does not deny, and was not intended to deny, the existence of the real, equitable property in the beneficiary. He is admitted to be the equitable owner, with all the incidents of ownership, although the legal title is vested in another person. The beneficiary may not have anything which the law requires as a 'title,' he may be without written evidence of his right, his proprietorship may rest wholly upon acts and words, but still he is the equitable owner because equity treats that as done which in good conscience ought to be done."

¹¹ 45 N. Y. 2d at 238, 380 N. E. 2d at 192, 408 N. Y. S. 2d at 361-62. The Court states:

"Born out of the extreme rigidity of the early common law, equity in its origins drew heavily on Roman law, where equitable notions had long been accepted (see 1 Pomeroy, Equity Jurisprudence [5th ed.], §§ 2-29). 'Its great underlying principles, which are the constant sources, the never-failing roots, of its particular rules, are unquestionably principles of right, justice, and morality, so far as the same can become the elements of a positive human jurisprudence' (id., §67, at p. 90). Law without principle is not law; law without justice is of limited value. Since adherence to principles of 'law' does not invariably produce justice, equity is necessary (Aristotle, Nichomachean Ethics, Book V, ch. 9, pp. 1019-1020 [McKeon, ed. Oxford: Clarendon Press, 1941]). Equity arose to soften the impact of legal formalisms; to evolve formalisms narrowing the broad scope of equity is to defeat its essential purpose."

¹² Although no New York case has cited this subsection, the New York Court of Appeals frequently refers to Scott. See, e.g., Simonds v. Simonds, 45 N. Y. 2d 233, 242, 380 N. E. 2d 189, 194, 408 N. Y. S. 2d 359, 364 (1978); Coane v. American Distilling Co., 298 N. Y. 197, 206, 81 N. E. 2d 87, 90 (1948). It is likely that the New York Court, if faced with a problem similar to the one before this Court, would look to Scott for guidance, particularly since Scott's view represents the established tradition in the field (Professor Scott was an author of both the Restatement of Restitution and the Restatement of Trusts), and the New York Court's recent decisions such as Simonds disclose no trend toward restricting the traditional law of constructive trusts.

[86-2 USTC ¶9561] Lewis G. Allen, Plaintiff v. United States of America and Johnson County National Bank, Defendants United States of America and James L. Gaunce, Jr., Revenue Officer, Internal Service, Petitioners v. Johnson County National Bank and Trust Company, Respondent Lewis G. Allen, individually and as Trustee for the Lewis G. Allen Family Trust, Plaintiff v. The Internal Revenue Service, with Clarence M. King, Jr. as District Director and James L. Gaunce, Jr., as Revenue Agent, The United States of America, with Vernon E. Lewis, as Assistant U.S. Attorney and Robert S. Streepy, as Assistant U.S. Attorneys, and Johnson County National Bank and Trust Company, with Michael Best, as Trust Officer, Defendants

U.S. District Court, D.C. Kan., 83-2078, 83-2185A, 83-2331, 8/3/84, 630 FSupp 367

[Code Sec. 61 ]

Tax protestors: Constitutional arguments: Frivolous claims.--The taxpayer's contentions that he was subjected to double and triple jeopardy in a civil case were found to be frivolous. Various other constitutional arguments were also found to be frivolous.
[Code Sec. 6332 ]

Levy and distraint: Summary judgment.--The court did not determine whether motions for summary judgment with respect to a levy on the taxpayer's bank account should be granted. Additional facts were needed concerning the procedure used in enforcing the levy and in making jeopardy assessments. A question as to the legal effect of a change in the basis of the levy also existed. The court delayed its decision pending further information from the parties.
[Code Sec. 7122 ]

Agreements: Equitable estoppel.--The government was not estopped from further litigating the tax liability of a taxpayer for years other than those covered in an agreement between the taxpayer and the IRS. The government took no affirmative action regarding deficiencies for those other years on which the taxpayer could rely to his detriment. The taxpayer also failed to show that he was unaware of his tax liability for the additional years.
[Code Sec. 7402 ]

District court: Jurisdiction: Amount in controversy.--The district court had no subject matter jurisdiction where the taxpayer's claim against the government for breach of contract exceeded $10,000.
[Code Sec. 7402 ]

Suits by taxpayer: Immunity.--Assistant United States Attorneys were immune from suit under the doctrine of quasi-judicial immunity and were therefore dismissed. Other individuals, sued in their official capacity, were also dismissed, and the United States was substituted as defendant in their place.

Lewis G. Allen, Ash Flat, Ark. 72513, pro se. Robert A. Olsen, 812 N. 7th St., Kansas City, Kan. 66101, Robert F. Bennett, Bennett, Lytle, Wetzler, Winn & Martin, 5100 W. 95th St., Prairie Village, Kan. 66207, Stephen G. Fuerth, Michael P. Haney, Department of Justice, Washington, D.C. 20530, for defendants.

MEMORANDUM AND ORDER

O'CONNOR, Chief Judge:

These cases involve claims brought by Lewis G. Allen, pro se, a radiologist, against the United States Government, various officials thereof, the Johnson County National Bank, and one of the bank's trust officers. Allen alleges that the defendants have committed numerous wrongs against him in connection with the assessment and collection of back-taxes.

Plaintiff is no stranger to this court. In 1980, the Internal Revenue Service (IRS) was sued by the Lewis G. Allen Family Trust, a creation of the plaintiff, over a sum of money the IRS claimed. The IRS filed a counterclaim against Lewis G. Allen and Deloris A. Allen, his wife, to recover back-taxes. On March 24, 1982, the Honorable Dale E. Saffels of this court determined that the Lewis G. Allen Family Trust was invalid and that the Allens owed $43,149.55, and Lewis G. Allen, individually, owed $138,339.26 in back-taxes. See Lewis G. Allen Family Trust v. United States , No. 80-2109 (D. Kan., unpublished, 3/24/82). The court of appeals affirmed the district court's decision. Lewis G. Allen Family Trust v. United States , No. 82-1709 (10th Cir., unpublished, 10/27/82).

In 1982 plaintiff was found guilty after a jury trial on two counts of failing to file income tax returns in violation of 26 U.S.C. §7203 . He was sentenced to one year on each count, the sentences to run consecutively, and he was also fined the sum of $20,000.00.

On March 7, 1983, Allen filed case 83-2078 against "The Government of the United States , et al." and Johnson County National Bank. Plaintiff alleges several grounds for recovery. First, he attacks the offense severity rating determined by the United States Parole Commission as being unconstitutional. The commission, in determining the length of Allen's incarceration, apparently took into consideration the total amount of federal income taxes that plaintiff allegedly evaded. Allen contends that this rating has resulted in double jeopardy, cruel and unusual punishment, and constitutes a bill of attainder, all in violation of the United States Constitution. On the same day, plaintiff filed an amended complaint based on 42 U.S.C. §1983 for monetary damages resulting from the alleged double jeopardy.

On March 17, 1983, Allen filed a second amended complaint which listed, as individual defendants, Attorney General William French Smith; IRS Official Glen L. Archer, Jr., Roscoe L. Eggers, Jr., and K.E. Luke (who was later replaced by Clarence M. King, Jr.); Norman Carlson, the Director of the Bureau of Prisons; J.D. Williams, the National Director of the United States Parole Commission; and Robert Vincent, Regional Director of the United States Parole Commission. All of these defendants are officials of the United States Government and are being sued in their official capacities.

On June 10, 1983, plaintiff filed a motion for leave to further amend his complaint in case 83-2078 and add a cause of action alleging that he was subjected to "triple jeopardy" by the enforcement of a levy imposed by the IRS. The triple jeopardy claim arose out of civil action 83-2185A in this court, wherein the IRS, pursuant to 28 U.S.C. §7402(a) and §6332 , sought to enforce a notice of levy upon the Johnson County National Bank and Trust Company for back-taxes in the amount of $321,269.45, owed by Allen for the years 1975 and 1976. The notice was served upon Michael L. Best, trust officer for the bank, on May 11, 1983. It stated that demand had been made on the taxpayer, and that the assessment was made on April 20, 1983. In its petition, IRS alleged that because the district court had held and the Tenth Circuit had affirmed that the trust was invalid, the IRS was entited to the 1975 and 1976 back-taxes. The order by this court directed the bank to comply with the notice of levy, and was issued the same day as the petition was filed, May 25, 1983. Thereafter, the bank complied and remitted the funds.

On July 1, 1983, the Lewis G. Allen Family Trust, by Lewis G. Allen, Trustee, even though not a party in case 83-2185A, filed a counterclaim in that case alleging that the funds which had been held by the bank were the property of the Trust. No response was filed to this pleading. On July 20, 1983, the United States filed a motion in case 83-2185A to amend the May 25 order, and a motion to enforce the judgment rendered in case 80-2109. In its motion to amend, the government apprised the court of the pending case 83-2078, and modified the amount sought to be levied upon and the basis for the levy. In essence, the government sought to retain the money turned over by the bank, but changed its legal theory of entitlement by asking that $303,429.10 be charged to the judgment rendered by Judge Saffels in case 80-2109, and any remaining amounts be applied against that owed the government for tax years 1975 and 1976 pursuant to the May 11, 1983 levy. On the same day, the bank filed a response alleging that it was not in a position to defend the allegations and that the Allens should be made parties to the action. Pursuant to the government's motion, the court ordered the bank to pay $303,429.10 to the United States in accordance with the judgment in case 80-2109. Further, the court ordered the remaining amount to be paid to the United States pursuant to the levy in case 83-2185A.

On July 29, 1983, Lewis G. Allen filed a motion to intervene in the now-closed case (83-2185A) in an attempt to remedy alleged improprieties in the procedural aspects of the assessment and levy. Allen alleges that the levy was fraudulently obtained, and advises the court of his allegations made in case 83-2078.

Not content with the two pending cases, Allen filed yet a third action, case 83-2331, on August 31, 1983. There he alleges that the IRS and two of its agents, two Assistant United States Attorneys, and the Johnson County National Bank and one of its trust officers, breached or caused to be breached an escrow agreement between the Allens, as trustees for the Lewis G. Allen Family Trust, and the Internal Revenue Service. This agreement was made to facilitate the sale of certain real estate owned by the Allens which was encumbered by federal income tax liens. The agreement allowed the Allens to sell the real estate free of the IRS liens, and have the proceeds deposited in an escrow account with Johnson County National Bank. The proceeds would then be distributed by agreement of the IRS and the Allens, or by a court order.

Allen alleges that the agreement between the parties limits any claim for back-taxes to the years 1973 and 1974, and that the IRS is estopped from enforcing the levy for the years 1975 and 1976 because of his due process claims made in case 83-2078. Plaintiff's theory is that because the IRS should have known about any 1975 and 1976 deficiencies before the agreement was signed, it is now barred because there is no indication that the agreement covered those years. Further, he alleges that each defendant has violated the agreement by obtaining a court order by fraud and misrepresentation. Plaintiff seeks monetary damages for these alleged unlawful acts.

After defendants answered, plaintiff filed a motion for leave to amend his complaint by deleting a reference to 28 U.S.C. §1331, and clarifying his claims. The amendment avers that five separate causes of action were contained within the original complaint, namely: (1) breach of contract; (2) deprivation of constitutional rights without due process; (3) wrongful taking and conversion; (4) conspiracy; and (5) violation of banking laws.

On August 15, 1983, before case 83-2331 was filed, plaintiff filed a motion to consolidate cases 83-2185A and 83-2078. The court, on its own motion, then ordered the three pending cases consolidated on March 2, 1984. Further, we directed counsel to respond to motions pending in 83-2185A and Allen was given time to reply. These various motions, along with others Allen has interspersed throughout his pleadings, are being construed as motions for summary judgment.

We note that all defendants in cases 83-2078 and 83-2331, except Johnson County National Bank and its trust officer, have filed motions to dismiss or, in the alternative, for summary judgment. Because the parties have included matters outside the pleadings, these motions must be construed as motions for summary judgment pursuant to Fed. R. Civ. P. 12(b).

In reviewing the motions for summary judgment, we are required to view the facts in the light most favorable to the opposing party, and give him the benefit of all reasonable inferences to be drawn therefrom. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970); Robert Johnson Grain Co. v. Chemical Interchange Co., 541 F.2d 207, 209-210 (8th Cir. 1976). If, after reviewing the evidentiary record, we find that "there is no genuine issue as to any material fact," then we may grant summary judgment. Fed. R. Civ. P. 56(c). However, where different inferences may properly be drawn, the case is not one for summary judgment. Luckett v. Bethlehem Steel Corp., 618 F.2d 1373 (10th Cir. 1980). The summary judgment procedure is useful in avoiding expense and delay of an unnecessary trial if there is no dispute as to the facts governing the claims and defenses presented. Allison v. Menendez, No. 81-2191 (D. Kan., unpublished, 9/8/83). With these standards in mind, we turn to the merits of the motions.

In case 83-2331, the federal government defendants assert that this court lacks subject matter jurisdiction. It is well settled that the United States cannot be sued without its consent. Wright, Law of Federal Courts, p. 115 (1983). The Tucker Act, enacted in 1887, grants jurisdiction to federal courts in certain cases, including a contract claim against the United States . 28 U.S.C. §1346. Such a claim, however, must be brought in the Court of Claims if it exceeds $10,000.00. It is readily apparent that whether plaintiff's claim is for the total amount of money contained in the escrow account, or only the excess therein after the levy for 1973 and 1974, it will exceed $10,000.00. Therefore, this court is without jurisdiction to entertain the breach of contract claim. See Alamo Navajo School Board, Inc. v. Andrus, 664 F.2d 229, 233 (10th Cir. 1981).

Plaintiff's claim that the United States is estopped from litigating the alleged 1975 and 1976 tax liability is without merit. To sustain his claim, plaintiff must prove the traditional elements of estoppel: (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his injury. Sweeten v. U.S. Dept. of Agr. Forest Service, 684 F.2d 679, 682 n.5 (10th Cir. 1982). Further, when estoppel is asserted against the government, some affirmative misconduct by the government must be shown. Id. at 682.

Plaintiff's theory is that the government's inaction in including any deficiencies for 1975 and 1976 in the agreement permitting the sale of real estate, bars further collection of taxes for 1975 and 1976. Obviously this inaction on the part of the government does not meet the affirmative conduct standard applicable when estoppel is attempted to be applied against the government. Further, there is no showing that Allen relied on the government's conduct to his detriment, or that he was unaware that he might owe taxes for 1975 and 1976. See City & County of Denver v. Bergland, 695 F.2d 465 (10th Cir. 1982); United States v. Capital Savings Association [83-2 USTC ¶9585 ], 576 F.Supp. 790 (N.D. Ind. 1983).

Defendants Lewis and Streepy, Assistant United States Attorneys, are, of course, immune from suit because of the doctrine of quasi-judicial immunity. A prosecutor is absolutely immune from suit in initiating, prosecuting and presenting the government's case. Imbler v. Pachtman, 424 U.S. 409 (1976). This rationale has been extended to government attorneys involved in civil tax litigation. Flood v. Harrington [76-1 USTC ¶9335 ], 532 F.2d 1248 (9th Cir. 1976); see also, Dacey v. Dorsey, 568 F.2d 275 (2d Cir. 1978); Butz v. Economou, 438 U.S. 478 (1978).

In 83-2185A, the case in which Allen attempts to intervene, he asserts several grounds in attacking the enforcement of the IRS levy. First, he claims that the procedure followed by the IRS was not proper. He raises questions pertaining to the disparity in amounts between the notice of deficiency and the levy, that there was no valid deficiency determination, and that the levy was a misrepresentation to the court. Plaintiff further attacks the court's order of May 25, 1983, by alleging the property was under "judicial process," as that term is used in 28 U.S.C. §6332(a) , and, therefore, could not be levied upon. Finally, Allen asserts that the Johnson County National Bank violated its fiduciary responsibility by failing to challenge the actions of the IRS.

Plaintiff's argument that §6332 bars a levy by the IRS on the property held by the bank is without merit. That section states only that property subject to attachment or execution under judicial process need not be surrendered. The mere filing of an action challenging the collection of taxes does not bring plaintiff within this statute.

Plaintiff's claims of alleged improper procedure by the IRS in levying on his property were raised in all three cases. They will be addressed in our discussion of case 83-2078.

Turning to the merits of that case--84-2078--we find that several of plaintiff's contentions are without substance. First, any contention that plaintiff has been subjected to double or triple jeopardy is, of course, wholly frivolous. "The Double Jeopardy Clause 'protects against a second prosecution for the same offense after acquittal. It protects against a second prosecution for the same offense after conviction. And it protects against multiple punishments for the same offense.' " Brown v. Ohio, 432 U.S. 161 (1977) (citing North Carolina v. Pearce, 395 U.S. 711, 717 (1969). The Double Jeopardy Clause applies only to the prosecutorial and judicial discretion involved in criminal proceedings. Cordova v. Romero, 614 F.2d 1267 (10th Cir. 1980). It has nothing to do with a civil proceeding involving back-taxes.

Nor is the use of the offense severity rating precluded by the Double Jeopardy Clause. The sentences imposed were authorized by Congress, and the refusal to allow parole is within the discretion of the Parole Commission. Young v. United States Parole Commission, 682 F.2d 1105 (5th Cir. 1982); Robinson v. Hadden, 723 F.2d 59 (10th Cir. 1983). The Parole Commission may take into consideration numerous factors in exercising its parole functions. See Schuemann v. Colorado State Board of Adult Parole, 624 F.2d 172 (10th Cir. 1980).

Further, plaintiff alleges that he has been subjected to cruel and unusual punishment in violation of the Eighth Amendment. There is no indication from the record how plaintiff has been subjected to cruel and unusual punishment. Apparently, he argues that the use of the offense severity rating supports his claim. This argument is utterly frivolous. The same may be said with respect to plaintiff's claim that he has been subjected to a bill of attainder because of his prison sentence. A bill of attainder ¹ is a legislative determination of guilt and imposition of punishment upon a specified group or specified individual without the safeguards of a judicial trial. Nixon v. Administrator of General Services, 408 F. Supp. 321 (D. D.C. 1976). In this case, there has been no legislative act which singles out Allen or any specific group, thereby making a determination of guilt. Cf. Cracchiola v. Commissioner of Internal Revenue, 643 F.2d 1383 (9th Cir. 1981).

It is apparent that this action is against the United States and only nominally against the individuals named. The general rule is that an action against an officer of the federal government, in his official capacity (which Allen alleges), is a suit against the sovereign. Helton v. United States, 532 F.Supp. 813, 819 (S.D. Ga. 1982) (citing Hawaii v. Gordon 373 U.S. 57, 58 (1963). This is true when the relief sought would "expend itself on the public treasury or domain." Id. [citing Land v. Dollar, 330 U.S. 731, 738 (1947)]. Plaintiff seeks damages and a return of money paid to the IRS, and it is apparent that such an award would be paid by the government. Thus, the action is treated as one against the United States, and the individuals must be dismissed. Cf. Yannicelli v. Nash [72-2 USTC ¶9763 ], 354 F.Supp. 143, 149 (D. N.J. 1973).

In all three cases Allen has attacked the procedures utilized by IRS. In the interests of justice and judicial economy, the court will consider the arguments made in all three cases to be applicable to case 83-2078. On the basis of the record before us, we are unable to determine whether summary judgment is appropriate for either side concerning the claims made by Allen as to the procedures employed by the Internal Revenue Service in collecting the back-taxes in case 83-2185A. For example, we are unable to discern whether any demand was made on Allen before the IRS began its enforcement proceedings against the bank, see L.O.C. Industries, Inc. v. United States [76-2 USTC ¶9573 ], 423 F.Supp. 265 (M.D. Tenn. 1976); Martinez v. United States, 669 F.2d 568 (9th Cir. 1981); Yannicelli v. Nash [76-2 USTC ¶9763 ], 354 F.Supp. 143 (D. N.J. 1972); Hill v. McMartin, 432 F.Supp. 99 (E.D. Mich. 1977); but see Bremsor v. United States [78-2 USTC ¶9772 ], 459 F.Supp. 128 (W.D. Mo. 1978), or whether the proper jeopardy assessment procedures were followed. Fidelity Equipment Leasing Corp. v. United States [79-1 USTC ¶9404 ], 462 F.Supp. 845 (N.D. Ga. 1978). Further, there remains a question as to the legal effect of a change in the basis for the levy in case 83-2185A. Therefore, we will hold in abeyance a ruling on the cross-motions for summary judgment on these issues. The parties may submit any additional supporting evidence or briefing within fifteen (15) days. Each side will then have an additional ten (10) days to respond to the other's submission.

Thereafter, we will be in a position to make final rulings on the summary judgment motions.

IT IS SO ORDERED.

¹ Because the punishment for the crime which Allen was convicted of is not death, this would not be a bill of attainder, but rather a bill of pains and penalties. A bill of pains and penalties is also prohibited, however, by Article I, §9, cl. 3 of the Constitution. Nixon v. Administrator of General Services, 408 F.Supp. at 371. Although the terminology is different, the legal analysis to be used in determining whether a person has been subjected to a bill of attainder or bill of pains and penalties is identical.

[56-1 USTC ¶9495]United States of America, Plaintiff v. Franklin Federal Savings and Loan Association, Sidney Kirschner, Roberta Kirschner, Defendants, Luzerne Lumber Company, Inc., Intervening Defendant

In the United States District Court for the Middle District of Pennsylvania, Civil Action No. 4776, 140 FSupp 286, April 30, 1956

[1939 Code Sec. 3670--similar to 1954 Code Sec. 6321; 1939 Code Secs. 3671-3672--changed in 1954 Code Secs. 6322-6323; 1939 Code Sec. 3710-- similar to 1954 Code Sec. 6332]

Validity of tax liens against mortgagees, etc.: Assignment for past due consideration: Summary judgment.--On January 11, 1952, taxpayer-debtor assigned certain credits or funds owing to him by defendants A and B for the purpose of securing a pre-existing indebtedness owing to C, the intervenor-creditor, for building materials previously sold to taxpayer on credit. On May 22, 1952, a warrant for restraint for collection of income taxes against taxpayer was issued. On June 11, 1952, notices of lien and levy were served on A and B who contended that they were not indebted to taxpayer on May 22, 1952, by reason of the assignment to C, although they were still in possession of the funds. It was held that the Government's lien dated from the date the assessment list was received by the Collector, which date was prior to taxpayer's assignment. Since the assignment was not for any present consideration, C, as assignee, could not be considered a purchaser within the recording acts. Summary judgment was allowed in favor of the Government against A and B by reason of their failure to surrender the fund as required by 1939 Code Sec. 3710.

J. Julius Levy, United States Attorney, Federal Building, Scranton, Pa., for plaintiff. Joseph J. Saintz, Miners Bank Building, Wilkes-Barre, Pa., for defendants. Al J. Kane, Brooks Building, Wilkes-Barre, Pa., for intervening defendant.

Opinion

WATSON, District Judge:

In this action the government requests judgment against the defendants, the Franklin Federal Savings and Loan Association and Sidney Kirschner and Roberta Kirschner, in the amount of $2736.00 with interest from July 11, 1952. The government's claim is based upon Section 3710 of the Internal Revenue Code of 1939, 26 U. S. C. A. §3710, which provides:

"(a) Requirement. Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process.

(b) Penalty for violation. Any person who fails or refuses to so surrender any of such property or rights 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 the taxes (including penalties and interest) for the collection of which such levy has been made, together with costs and interest from the date of such levy."

[The Facts]

The Commissioner of Internal Revenue duly assessed certain taxes against one Lewis H. Dixon and assessment lists containing these assessments were received by the Collector of Internal Revenue. On May 22, 1952, a warrant for distraint for the collection of taxes assessed against Dixon was issued, and on June 11, 1952, notices of lien and levy were served on the defendants, the Franklin Federal Savings and Loan Association and Sidney and Roberta Kirschner, who were indebted to Dixon in the sum of $2736.00. The defendants contend that on May 22, 1952, when the warrant for distraint was issued, they were not indebted to Dixon for the reason that on January 11, 1952 Dixon assigned credits in the sum of $2700.00 against the Franklin Federal Savings and Loan Association and the Kirschners to the Luzerne Lumber Company, Inc.

On March 31, 1954, an order was entered by this Court permitting the Luzerne Lumber Company, Inc. to intervene as a defendant. On the same date the intervening defendant filed its motion for summary judgment, which is now before the Court for disposition.

Paragraphs 8 and 9 of intervening defendant's motion for summary judgment admit that the sum of $2736.00 is still in the possession of the Franklin Federal Savings and Loan Association, and had not been turned over to the intervening defendant, Luzerne Lumber Company, Inc., on June 11, 1952, when notice of lien and levy was served on the association and the Kirschners. Attached to the intervening defendant's motion, and identified as "Intervening Defendant's Exhibit #1", is a photostatic copy of the assignment dated January 11, 1952. It should be noted that the assignment states that Lewis H. Dixon, "in consideration of the sum of $2700.00 now justly due and owing by me to the Luzerne Lumber Company . . . for lumber and building materials furnished to and used by me in the erection and construction of that certain dwelling or building for Sidney Kirschner and Roberta Kirschner . . . and for better securing of the said sum to the said Luzerne Lumber Company . . ." assigns to the Luzerne Lumber Company the sum of $2700.00 "to be paid out of the balance now due and owing to me" by the Kirschners "for carpenter labor and materials furnished by me" to the Kirschners. This instrument of assignment clearly indicates by its language that the assignment was not made for any present consideration but for the securing of the payment of a preexisting indebtedness between Dixon and the Luzerne Lumber Company, for lumber and building materials previously sold by the Luzerne Lumber Company to the taxpayer Dixon on credit.

At the hearing on the motion for summary judgment, the United States Attorney presented pertinent assessment lists, showing the dates on which the assessments against Dixon were made by the Commissioner of Internal Revenue, the dates on which the assessment lists were received by the Collector of Internal Revenue for the Twelfth Collection District, the amount of the assessments, and the present balance. It should be noted that the remaining assessments total in excess of $2736.00, the sum owed by the Kirschners to Dixon and presently being held by the Franklin Federal Savings and Loan Association.

[Opinion]

The intervening defendant contends that since notice of lien and levy was not served on the defendants until after the date of the assignment by Dixon to it, it has prior right to the fund, the assignment being effective under Pennsylvania law as to subsequent execution or attaching creditors. The government takes the position that its lien dates from the date the respective assessment lists were received by the Collector, which was prior to the assignment. The defendants were, therefore, obliged upon demand to turn the fund over to the Collector of Internal Revenue, and having failed to do so are liable to the extent of the fund, plus interest and costs, in accordance with 26 U. S. C. A. §3710.

Section 3670 of the Internal Revenue Code, 26 U. S. C. A. §3670, provides:

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

Section 3671 of the Internal Revenue Code, 26 U. S. C. A. §3671, provides:

"Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time."

This latter section specifically provides that the Government's lien arises at the time the assessment list is received by the Collector, "unless another date is specifically fixed by law . . ." Section 3672 of the Code, 26 U. S. C. A. §3672, does fix another date as to certain types of security interests. It provides:

"(a) Invalidity of lien without notice. Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector--(1) Under State or Territorial laws. In the office in which the filing of such notice is authorized by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law authorized the filing of such notice in an office within the State or Territory;"

[Status of Assignee]

The burden is upon the intervening defendant to prove that he comes within the class of "mortgagee, pledgee, purchaser, or judgment creditor". MacKenzie v. United States, 109 Fed. (2d) 340 [40-1 USTC ¶9229]; Filipowicz v. Rothensies, 43 Fed. Supp. 619 [42-1 USTC ¶9300].

The assignee does not, in the instant case, come within any of the categories described in Section 3672(a). The assignment in January, 1952, was for a past due consideration, and, consequently, the assignee would not be considered a purchaser within the recording acts. Filipowicz v. Rothensies, supra. Therefore, Section 3671 is applicable, and the government's lien was effective from the date the assessment lists were received by the collector, which was prior to the assignment. Intervening defendant's motion for summary judgment must be denied.

There remains the further question as to the proper disposition of the case, since the government has not made a cross-motion for summary judgment. If the plaintiff had made such a motion, it is clear that it would be entitled to summary judgment. As the purpose of the summary judgment procedure under Rule 56 of the Federal Rules of Civil Procedure is to expedite the disposition of cases in which there is no genuine issue as to any material fact requiring trial, the Court may properly enter summary judgment in favor of the party entitled to it. Northland Greyhound Lines v. Amalgamated Ass'n of St. Elec. Ry. and Motor Coach Emp. of America Division 1130, D. C. Minn. 1946, 66 Fed. Supp. 431.

Summary judgment will be entered for the plaintiff in the sum of $2736.00 with interest as provided by law.

An appropriate order will be entered herewith.

[78-2 USTC ¶9524]United States of America v. Central Committee for Conscientious Objectors

U. S. Distirct Court, East. Dist. Pa., C. A. No. 78-273, 5/5/78

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

Levy and distraint: Surrender of property subject to: Taxpayer's property in possession of third party.--The employer of a delinquent taxpayer, who was served with proper notices of levy but who failed to comply with the notices, was liable for the unpaid taxes and for a penalty of 50% of the tax recoverable under the levy. The government may satisfy a tax lien by seizing the delinquent taxpayer's salary or wages (subject to an exemption). The taxpayer's wages from the employer would have satisfied the tax lien. Thus, the employer's failure to surrender the property made it personally liable for the full amount of the lien.

Robert N. DeLuca, United States Attorney, Walter S. Batty, Jr., Assistant United States Attorney, Philadelphia, Pa. 19106, for plaintiff. Joe Landau, 2016 Walnut St., Philadelphia, Pa. 19103, for defendant.

Memorandum, Opinion and Order

WEINER, District Judge:

The question presented in plaintiff's motion for summary judgment is whether the defendant is liable pursuant to the provisions of Section 6332, Internal Revenue Code of 1954 for failure to comply with a tax lien served by the Internal Revenue Service. For the reasons to follow, we hold the defendant liable, and therefore shall grant the motion.

The essential facts are not in dispute. Stephen M. Gulick, a delinquent taxpayer, was recognized as a conscientious objector to war by his Selective Service Board in June, 1970. He has refused to pay taxes based on his religious objection to paying for war and preparation for war. A timely assessment of income tax and interest for the taxable year 1974 was made in the amount of $451.52, on August 9, 1976. Taxpayer has been credited with a payment of $100.00 toward the assessment, leaving an indebtedness to the Government, as of August 31, 1977, in the amount of $402.07.

Taxpayer was employed by defendant from at least December 3, 1976, until September 1, 1977, at a salary of $550.00 per month. On December 3, 1976, proper notice of levy was served on defendant which was dishonored. On January 10, 1977, defendant refused plaintiff's demand for payment. Notice of a Federal Tax Lien was filed for the tax assessment on March 28, 1977. On June 3, 1977, after service of Final Notice before Seizure, taxpayer again refused to pay. That same day, Notice of Levy on Wages and Salary of taxpayer and Final Demand were served on defendant, which was dishonored and refused.

It is well settled that notice of a Federal Tax Lien, which results in the taxpayer's refusal to make payment upon demand creates a lien in favor of the Government in all property and rights to property belonging to the delinquent taxpayer. This lien arises as of the date the assessment is made. See 26 U. S. C. (IRC 1954) §6321, §6322; Runkel v. U. S. [76-1 USTC ¶9152], 527 F2d 914 (9th Cir. 1975); In Re Fidelity Tube Corporation [60-1 USTC ¶9446], 278 F2d 776 (3rd Cir. 1960), cert. denied 364 U. S. 828 (1960). Property which may be seized by the Government to satisfy a tax lien includes the delinquent taxpayer's salary and wage, provided that proper notice and demand is made prior to levy. Detweiller v. U. S. [76-1 USTC ¶9140], 406 F. Supp. 695 (E. D. Pa. 1975), aff'd 544 F2d 512 (3rd Cir. 1976), cert. denied, 429 U. S. 1105 (1977). The effect of the levy on salary and wages continues from the date of levy until the liability is satisfied. See 26 U. S. C. (IRC 1954) §6331. The failure to surrender property subject to levy by one in possession, after proper demand, results in that person's personal liability. 26 U. S. C. (IRC 1954) §6332.

Since on June 3, 1977, defendant was served with proper notice of levy and final demand, as of that date it became obligated to surrender future wages and salary earned by the taxpayer until the lien was satisfied. In that the amount of wages earned by the taxpayer which was subject to the levy ¹ from the above date until the termination of his employment exceeded the $402.07 tax lien, defendant's failure to surrender the property renders it personally liable for the full amount of the lien plus interest. 26 U. S. C. (IRC 1954) §6332(c)(1). Additionally, defendant's disregard of the notice of levy was without reasonable cause, and consequently, subjects it to a penalty of 50% of the tax recoverable under the levy. 26 U. S. C. (IRC 1954) §6332(c)(2); Sims v. U. S., 252 F2d 434 (4th Cir. 1958), aff'd 79 S. Ct. 641, 359 U. S. 108, 3 L. Ed. 2d 667. Accordingly, the Court enters the following Order.

Order

Plaintiff's motion for summary judgment is GRANTED.

Judgment is entered in favor of plaintiff and against defendant as follows:

1. In the amount of $402.07 plus interest.

2. In the amount of 50% of the tax recoverable under the levy.

IT IS SO ORDERED.

¹ Not all of a delinquent taxpayer's wages are subject to levy. Sections 6334(a)(9) and (d)(1) provide for an exemption, which in this case would amount to $260.00 per month. Therefore, $290.00 per month was subject to levy.

[89-1 USTC ¶9131] Symington, Inc., Plaintiff v. United States of America, Defendant

U.S. District Court, East. Dist. Mich., So. Div., Civ. 88CV72047DT, 12/16/88

[Code Secs. 6331 , 6332 and 7426 ]

Levy: Sham corporate entity: Estoppel: Summary judgment.--The bank account of a corporation that was organized and controlled by an individual who had incorporated a previous company that had filed for Chapter 11 bankruptcy owing $43,000 in payroll taxes was subject to levy by the IRS. In granting the government's motion for summary judgment, the court ruled that the second corporation was the alter ego of the first corporation and was organized merely to avoid the payroll tax liability. Further, the government was not estopped from collecting the tax liability because the second corporation was organized under the alleged advice of an IRS Revenue Officer.

MEMORANDUM AND ORDER

DE MASCIO, District Judge:

This matter is before the court on a motion for summary judgment filed by defendant, pursuant to Rule 56 Fed. R. Civ. P. In its complaint, plaintiff alleges that defendant wrongfully placed a levy upon its Comerica Bank account and requests that defendant be enjoined from levying the funds. The court is granted jurisdiction over this matter pursuant to 26 U.S.C. §7426(a) .

In 1980, Symington Associates, Inc. (Associates) was incorporated in Michigan and provided accounting services. Mr. James E. Symington was the sole incorporator, sole shareholder, sole director, president, secretary, and treasurer of plaintiff. In 1982, Associates filed for Chapter 11 bankruptcy. At that time, Associates owed defendant about $43,000 in payroll taxes and unemployment taxes. Under the approved bankruptcy reorganization plan, Associates was to pay the Internal Revenue Service (IRS) $900 per month. Associates did not make all of the required payments and failed to complete the reorganization plan.

On March 2, 1988 IRS Revenue Officer John Greener served Mr. Symington a "final notice" that informed Symington that Associates had ten days to pay the $44,000 in tax liability or the IRS would levy the assets of Associates to satisfy the debt. On either March 11 or March 14, 1988, Symington gave Greener plaintiff's articles of incorporation, which were filed with the Michigan Secretary of State on March 9, 1988. Mr. Symington was the sole incorporator, sole shareholder, sole director, president, secretary, and treasurer of plaintiff. Plaintiff also provided identical accounting services as he did with Associates. Plaintiff's office is located at 2804 North Franklin, Flint, Michigan while Associates' address was 2802 North Franklin, Flint. Both offices are in the same two-office building, which was owned by Symington. Mr. Symington also gave Greener a "Bill of Sale," dated March 9, 1988, which indicated that Associates sold all of its assets to plaintiff for $257,000 in "legal money." However, no money was exchanged between the corporations. Rather, plaintiff assumed the $275,000 secured debt of Associates owed to Michael Rizick; Rizick originally sold his business to Associates in 1980 for $300,000 and Symington personally guaranteed this debt when Associates filed for bankruptcy. Mr. Symington also delivered to Greener, Associates' $12,000 check to relieve Symington of any personal liability he may have incurred with respect to the trust fund liability of Associates. Associates was able to pay this amount because Symington loaned Associates $12,000 of his personal funds.

On April 19, 1988, the IRS levied upon plaintiff's bank account at Comerica Bank. The bank account balance was $28,074. Plaintiff then filed the instant complaint. On May 16, 1988, we ordered Comercia Bank to retain the levied funds until further order of the court. Defendant has now moved for summary judgment.

Defendant contends that plaintiff is the "alter ego" of Associates. Plaintiff argues that it is not liable for Associates' tax liability because it is a separate entity not organized to perpetrate a fraud. We conclude, however, that plaintiff is the alter ego of Associates. We conclude as well that there are no disputed issues of material fact and we grant defendant's motion for summary judgment. Celotex v. Catrett, 477 U.S. 317 (1986).

Under the alter ego theory, the defendant may pierce the corporate veil of plaintiff in order to satisfy the tax liability of Associates. Wolfe v. U.S. [86-2 USTC ¶9655 ], 798 F.2d 1241, 1243 (9th Cir. 1986); and Terrapin Leasing, Ltd. v. U.S., 81-1 USTC ¶9372 at 87000 (10th Cir. 1981). Under Michigan law, a sham corporate entity may be ignored when the corporation is used to avoid legal obligations. Kline v. Kline, 104 Mich. App. 700, 702 (1981); and see Wells v. Firestone Tire & Rubber Co., 421 Mich. 641, 650-651 (1985). Moreover, when there is not a bona fide discontinuance of a true change of ownership in a corporation, and a new corporation is merely a disguised continuance of the older employer, the alter ego theory is applicable and the corporate shield may be ignored. Laborer's Pension Trust Fund-Detroit Vicinity v. Family Cement Co., 677 F.Supp. 896, 898 (E.D. Mi. 1987), citing NLRB v. Allcoast Transfer, Inc., 780 F.2d 576, 579 (6th Cir. 1986).

In the present case, Symington was the sole incorporator; sole shareholder; sole director; president, secretary, and treasurer of both plaintiff and Associates. Both plaintiff and Associates provided the same accounting services through the same employees. Both corporations had identical telephone numbers and operated out of the same office building. Plantiff's claim that it maintained a separate business address may be technically correct but it is substantively misleading. Although plaintiff's office was at 2804 North Franklin in Flint and Associates' office was at 2802 North Franklin in Flint, Symington owned the building that housed both offices. Moreover, the building only contained two offices. Associates' business was merely moved to the other side of a dividing wall in the same building and continued doing the same business. Therefore, we conclude that plaintiff is merely a disguised continuance of Associates and as such is the alter ego of Associates.

Plaintiff was organized merely to avoid the tax liability of Associates. Transactions motivated solely and entirely by tax considerations and devoid of substantial business justifications are shams. ECD Systems, Inc. v. U.S., 85-1 USTC ¶9223 (D.Colo. 1985). Mr. Symington merely transferred his accounting and marketing skills from Associates to plaintiff. Plaintiff's argument that Associates could no longer operate with the tax burden is not a substantial business justification for forming plaintiff. Significantly, plaintiff assumed Associates' debt to Mr. Risick but failed to assume the tax liability to Associates. Thus, the only evident reason for forming plaintiff was to avoid the tax liability of Associates.

Plaintiff also argues that the government should be estopped from collecting Associates' tax liabilities from plaintiff because plaintiff was organized under the alleged advice of Mr. Greener. Plaintiff cannot establish the estoppel defense against the government in this matter. See Heckler v. Community Health Services, 467 U.S. 51 (1984). It is per se unreasonable for a private party to rely on the advice of a government agent who suggests that the party may avoid its legal obligations. Those who deal with the government are expected to know the law and may not rely on the conduct of government agents, which is contrary to the law. Id. at 63. Plaintiff suffered no detriment by relying on Greener's alleged advice because it is merely paying the tax liability of its alter ego, Associates. Plaintiff cannot justifiably expect to assume all of Associates' liabilities except the latter's tax liability. Even if he did rely on the agent's suggestion, Mr. Symington did not suffer any detriment. His personal liability was satisfied when he forwarded the $12,000 to the government. It any event, the Supreme Court in Heckler made it clear that estoppel cannot be premised upon oral representations. Thus, defendant is not estopped from levying upon plaintiff's assets even if Mr. Greener made the oral representations to Mr. Symington.

Plaintiff is the identical business as Associates absent the latter's tax liability and, further, was organized with the intention of rendering Associates' tax liability uncollectible. In light of these facts, we conclude that plaintiff is the alter ego of Associates, and defendant may levy upon plaintiff's assets to satisfy the tax liability of Associates.

Accordingly, defendant's motion for summary judgment will be granted and plaintiff's complaint will be dismissed with prejudice. Further, Comercia Bank must transfer the levied funds of plaintiff to the Internal Revenue Service.

IT IS SO ORDERED.

JUDGMENT

This cause having come before the court on defendant's motion for summary judgment, and the court having filed its Memorandum and Order,

NOW, THEREFORE, IT IS ORDERED AND ADJUDGED

that defendant's motion for summary judgment be and the same hereby is GRANTED and plaintiff's complaint is hereby DISMISSED WITH PREJUDICE;

IT IS FURTHER ORDERED AND ADJUDGED

that Comerica Bank TRANSFER the levied funds of plaintiff to the Internal Revenue Service.

[2001-2 USTC ¶50,667] United States, Plaintiff v. Park Forest Care Center, Inc., Defendant

U.S. District Court, Dist. Colo., CIV. 99-S-2461, 9/13/2001

[Code Secs. 6331 and 6332 ]

Liens and levies: Wages: Levy and demand, notice of: Service: Employer's obligation to surrender wages: Summary judgment.--The employer of a delinquent individual failed to surrender the individual's wages pursuant to an IRS tax levy and, as a result, the government's motion for summary judgment was granted. The employer offered no evidence or testimony to rebut the government's prima facie showing of proper service and failed to establish either that the company was not in possession of the levied property or that the property was subject to a prior judicial attachment or execution. Moreover, the employer failed to support its contention that the bookkeeper forwarded the notice to the delinquent individual, who was the company comptroller, in the normal course of business.
ORDER

SPARR, Senior District Judge:

THIS MATTER is before the court on the United States' Motion for Summary Judgment (filed April 10, 2001). The court has reviewed the motion; the Amendment to Motion for Summary Judgment (filed May 7, 2001), Defendant's Response (filed May 8, 2001), the entire case file, and the applicable law and is sufficiently advised in the premises.

Background

From March 1992 through March 1996 the Defendant employed Joanie B. Carlton as their financial comptroller. Upon Ms. Carlton's failure to pay personal income tax for the 1988 and 1989 tax years, a lien was imposed on her personal property. 26 U.S.C. §6321. Pursuant to 26 U.S.C. §6331(a), collection of the unpaid tax was authorized by levy upon Ms. Carlton's wages. Accordingly, a notice of the levy was personally served on Ms. Carlton's employer (the Defendant) by handing a copy of the "Notice of Levy on Wages, Salary and Other Income" to Defendant's bookkeeper, Ms. Bruner. The United States later brought this action against the Defendant for failure to surrender Ms. Carlton's wages pursuant to the Notice of Levy. See 26 U.S.C. §6332(d)(1).

Standard of Review

Summary judgment is appropriate 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 judgment as a matter of law." Fed. R. Civ. P. 56(c); Kimber v. Thiokol Corp., 196 F.3d 1092, 1097 (10th Cir. 1999). The moving party bears the initial burden of showing an absence of any genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir. 1991). Once the moving party meets this burden, the party resisting summary judgment must "come forward with specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 320; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "The mere existence of some alleged factual dispute will not defeat an otherwise properly supported motion for summary judgment." FDIC v. Hulsey, 22 F.3d 1472, 1481 (10th Cir. 1994) (emphasis in original).

In applying this standard, the court construes the factual record and any reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Blue Circle Cement, Inc. v. Board of County Comm'rs., 27 F.3d 1499, 1503 (10th Cir. 1994). At the summary judgment stage, the court's function is not to weigh the evidence or find the truth, but to determine whether there is a genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "[T]he relevant inquiry is whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.' " Bingaman v. Kansas City Power & Light Co., 1 F.3d 976,980 (10th Cir. 1993) (quoting Anderson, 477 U.S. at 251-52).

Analysis

Under 26 U.S.C. §6331(a), the United States is authorized to Collect unpaid tax liabilities through levy on a taxpayer's wages. A levy on wages is accomplished by serving a Notice of Levy on the taxpayer's employer. 26 U.S.C. §6331(a). To avoid personal liability, the employer (or any other third party in possession of property subject to levy) must, upon demand, surrender the property subject to levy. Kane v. Capital Guardian Trust Co. [98-2 USTC ¶50,491], 145 F.3d 1218, 1221-22 (10th Cir. 1998).

Any person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary, 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 interest on such sum at the underpayment rate established under section 6621 from the date of such levy.

26 U.S.C. §6332(d)(1).

Courts have recognized only two defenses to an action under 26 U.S.C. §6332(d): (1) that the defendant was not in possession of the property; and (2) that the property was subject to a prior judicial attachment or execution. United States v. Nat'l Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 721-22 (1985); Kane [98-2 USTC ¶50,491], 145 F.3d at 1221-22; Texas Commerce Bank-Fort Worth, N.A. v. United States [90-1 USTC ¶50,155], 896 F.2d 152, 157 (5th Cir. 1990); State Bank of Fraser v. United States [88-2 USTC ¶9592], 861 F.2d 954, 958-59 (6th Cir. 1988); United States v. Sterling Nat'l Bank & Trust Co. Of New York [74-1 USTC ¶9336], 494 F.2d 919, 921 (2d Cir. 1974); Bank of Nevada v. United States [58-1 USTC ¶9228], 251 F.2d 820, 824 (9th Cir. 1957). In this case,Defendant has not asserted either of the two recognized defenses. Instead, Defendant maintains that it lacked knowledge of the levy because the unopened Notice of Levy was forwarded directly to the Defendant's financial comptroller, Ms. Carlton, for enforcement and Ms. Carlton never informed the Defendant that a levy on her wages existed.

A levy may be imposed upon a taxpayer's intangible personal property (including salary and wages) "by serving a notice of levy on any person in possession of, or obligated with respect to,property or rights to property subject to levy." 26 C.F.R. §301.6331-1(a)(1). "The IRS effectuates a levy upon intangible property . . . by the sole act of serving notice of levy upon the third party holding the property." Kane [98-2 USTC ¶50,491], 145 F.3d at 1218 (citing G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338, 350 (1977)). Here, service was accomplished on March 2, 1995 by personally handing the Notice of Levy and Final Demand to Mary Anne Bruner, Defendant's bookkeeper. See Return of Service. (Government Exhibit B, Attachment to Plaintiff's Motion.) A return of service is prima facie evidence that service was accomplished. See Home-Stake Prod. Co. v. Talon Petroleum, C.A., 907 F.2d 1012, 1017 (10th Cir. 1990). Indeed, Defendant admits that Ms. Bruner accepted service of the Notice of Levy. Nevertheless, Defendant argues that Ms. Bruner forwarded the unopened notice to Ms. Carlton in the normal course of business, and Ms. Carlton never informed the company of its existence. See Defendant's Response pp. 4-5.

In opposing summary judgment, the nonmoving party may not rest upon the allegations in the pleadings. Fed. R. Civ. P. 56(e). Nor may a party defeat summary judgment by generalized, unsubstantiated affidavits or testimony that would be inadmissible at trial. Celotex, 477 U.S. at 324. When a motion for summary judgment is supported by depositions and affidavits, the party opposing it must respond with specific facts showing the existence of a genuine issue for trial as to the elements essential to the non-moving party's case. Matsushita Elec. Indus. Co., 475 U.S. at 586-87; Stevens v. Barnard, 512 F.2d 876, 879 (10th Cir. 1975). In this case, Defendant has not presented a single affidavit or deposition, or any other admissible facts, to rebut the sufficiency of the service on Ms. Bruner or to substantiate Defendant's assertion that she forwarded the unopened notice to Ms. Carlton.

While it is unfortunate that the employee responsible for enforcement of the levy is the taxpayer against whose wages the levy was imposed, Defendant admits that service was accomplished,in a manner that comports with the applicable rules and statutory restrictions. Defendant has not asserted either of the two recognized defenses to an action under 26 U.S.C. §2336. Therefore, the court finds, as a matter of law, that Defendant failed to surrender property subject to an IRS levy.

Accordingly,

IT IS ORDERED that the United States' Motion for Summary Judgment is GRANTED as to liability.

IT IS FURTHER ORDERED that, pursuant to Fed. R. Civ. P. 72, this matter is hereby referred to United States Magistrate Judge Schlatter for determination of the amount of judgment and, in particular, any applicable interest and/or penalties to be assessed.