Annotations- Child Support

---

 

 

6334 Annotations: Child Support- Levy

Property Exempt from Levy: Child Support

 

[81-2 USTC ¶9565]Fidelity Equipment Leasing Corporation, et al., Plaintiff v. United States of America, et al., Defendants, Georgia Ann Harmon, Intervenor Federal Deposit Insurance Corporation, qua corporation, Plaintiff v. The United States of America, et al., Defendants Urban Industries, Inc. of Kentucky, et al., Plaintiffs v. Velda Joan Thevis, et al., Intervenor/Plaintiffs v. Michael G. Thevis, et al., Defendants

U. S. District Court No. Dist. Ga., Atlanta Div., Civil Action Number C78-1811A, C80-278A, C79-1991A, 6/30/81

[Code Sec. 6334]

Tax levies: Property exempt from levy: Child support: Proof of amount.--The divorced spouse of a taxpayer, upon whose property the IRS had levied for unpaid taxes, was not entitled to claim funds for child support out of the levied-upon property pursuant to the exemption from levy for judgments for support of minor children in Code Sec. 6334(a)(8). The divorced spouse was not a proper party to seek the exemption. Neither the taxpayer nor the minor children through their guardian had appeared to establish the amount of child support covered by the exemption. Further, it was impossible to designate any specific amount that the taxpayer was required to pay as child support, since the terms of the payments the taxpayer was required to make monthly to his ex-wife, pursuant to the divorce decree, suggested that the payments were to be treated as alimony, and not child support.

Edward T. M. Garland, John R. Martin, Robert W. Hassett, Garland, Nuckolls, Kadish & Cook, 1012 Candler Bldg., Atlanta, Ga. 30303, David F. Rock, 1500 Tower Place, Atlanta, Ga. 30326, for plaintiff. William L. Harper, United States Attorney, Atlanta, Ga. 30303, Richard F. Mitchell, Department of Justice, Washington, D. C. 20530, for defendants. William W. Taylor, III, Zuckerman, Spaeder & Taylor, 1800 M. St. N. W., Washington, D. C. 20036, for intervenor. Charles W. Boyle, 1409 P'tree St., N. E., Atlanta, Ga. 30309, for Ibron Ind., Inc., Anwar Enterprises, Lagrange Trading Co., Corporal Limited, Guess What, Inc., Tick Inc., Ick Inc., Richland Book Mart Inc., R. Wayne Byrd, Brown, Byrd, Blakely & Massey, P. O. Box 2464, Greenville, S. C. 29602, Jerome J. Froelich, Jr., 2 P'tree St., Atlanta, Ga. 30383, for Ibron Ind.

Order

MURPHY, District Judge:

Presently before the Court is the motion of petitioner Velda John Thevis to release certain funds claimed the property of Michael G. Thevis, for the purposes of payment of petitioner's alimony and child support. In support of this motion, petitioner offers the following:

As a result of petitioner's marriage to Michael G. Thevis in 1951, five children were born: George Michael, age 26; Christina, age 20; Stephanie and Anthony, both age 14; and Jason, age 8. The latter three minors are living with petitioner at 5300 Powers Ferry Road , Atlanta , Georgia .

On May 3, 1978 , petitioner was granted a final divorce from Michael G. Thevis in the Superior Court of Fulton County . The final divorce decree incorporated therein a settlement agreement between the parties dated April 27, 1978 . Under paragraph 3 of the settlement agreement, Michael G. Thevis agreed to pay $144,000.00 per year to petitioner for her support and maintenance and for the support, maintenance and education of the minor children of the parties. As security for the payment of this obligation, Michael G. Thevis created an alimony trust for the benefit of the wife and the minor children. The rest of the alimony trust was a two million dollar note of Fidelity Equipment Leasing Company, Inc., which was assigned to the trustee by Michael G. Thevis. The payments to petitioner from the trust, though not always timely, have been made through January 1981, but the trust owes petitioner $9,000.00 for the month of February and $12,000.00 for the month of March, 1981.

On March 12, 1981 , this Court entered an order in the case of Fidelity Equipment Leasing Company, et al. v. United States of America [18-1 USTC ¶9319], et al., C78-1811A, which allowed the Internal Revenue Service (IRS) to levy upon the assets of Fidelity, and the IRS has proceeded to close down the remaining businesses owned by Fidelity. The Court noted in its order of March 13, 1981 , that, as a result of this order, "it is likely that there will be no assets from which any payment can be made in this case to the Trust," and petitioner states that such has come to pass insofar as income from which Fidelity could make payments to the Trust is concerned.

Petitioner states that she has received no payments from the Trust since January, 1981, and, upon inquiry to the Trustee, Georgia Ann Harmon, petitioner has learned that Fidelity has made no payment to the Trust since January, 1981. Petitioner further states that, except for the rental received from 5346 Powers Ferry Road ($500.00 per month, less $390.56 paid by petitioner on the mortgage thereon), petitioner's sole source of income has been the payments received from the Alimony Trust.

The expenses of petitioner for the year 1980 have been submitted to the Court pursuant to this Court's order of November 25, 1980 . Petitioner states that she has for some time been desirous of selling her house at 5300 Powers Ferry Road , but the IRS lien forbids such sale and she has been unable to reach a mutually satisfactory arrangement with the IRS though negotiations have been ongoing since early 1980. The expenses of maintaining the house average approximately $5,000.00 per month. If petitioner vacated the house, the insurance premiums would be in excess of $5,000.00 per month. Petitioner states that she is without any money or any source of income and consequently is unable to pay insurance premiums on her house, has been unable to pay her attorneys for representing her in these matters, and is unable to provide food and clothing for herself and her children.

Plaintiff states that the Court's order of March 12, 1981 , has placed petitioner in an extreme financial crisis. She states that she is without support for herself and her minor children and has been in this predicament since February, 1981, yet the IRS through liens and seizures, has taken all property of the petitioner's ex-husband and holds same to satisfy the as yet unliquidated, contested tax liability which may not be determined until some indefinite time in the future.

Petitioner by this motion seeks funds which she claims are the property of her ex-husband or which were security for same and which, but for the liens of the IRS, petitioner submits would be available to her based upon the priority of her claim ¹ and upon the exemption provided by §6334 of the Internal Revenue Code. Petitioner requests alternatively, if such funds are not awarded to the petitioner as a result of this motion, that the income or interest from these funds, or some of them, be paid out to the petitioner pending the resolution of the tax court litigation in such amount as will provide for the necessary support of petitioner and her minor children.

The Court has carefully considered petitioner's motion to release funds and determined that it is unable to grant petitioner's request.

Petitioner is bringing this motion because of the effect upon her of the Government's attempts to collect federal taxes. Section 7421(a) of the Internal Revenue Code prohibits any court from assuming jurisdiction to enjoin or restrain collection of a federal tax.

Petitioner argues nevertheless that she is entitled to an exemption from levy for taxes by virtue of Section 6334(a)(8) of the Internal Revenue Code. That section exempts:

Judgment for support of minor children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

The applicable regulation under this statute is §301.6334-1(a), 26 C. F. R., Treasury Regulations on Procedure and Administration (1954 Code), which provides:

Judgments for support of minor children.--If the taxpayer is required under any type of order or decree (including an interlocutory decree or a decree of support pendente lite) of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children so much of his salary, wages, or other income as is necessary to comply with such order or decree. The taxpayer must establish the amount necessary to comply with the order or decree. The district director is not required to release a levy until such time as he is satisfied that the amount to be released from levy will actually be applied in satisfaction of the support obligation. The district director may make arrangements with a delinquent taxpayer to establish a specific amount of such taxpayer's salary, wage, or other income for each pay period which shall be exempt from levy. Any request for such an arrangement shall be directed to the Chief, Special Procedures Staff, for the internal revenue district in which the taxpayer resides. Where the taxpayer has more than one source of income sufficient to satisfy the support obligation imposed by the order or decree, the amount exempt from levy may at the discretion of the district director be allocated to one salary, wage, or source of other income or be apportioned between the several salaries, wages, or other sources of income. This subparagraph applies with respect to levies made on or after January 30, 1970 .

The Court has determined that the petitioner does not fall within the provisions of §6334(a)(8). The taxpayer in this action is Michael G. Thevis. Hence, it is his income to which the exemption has arguable application. Under the above-quoted regulations, the taxpayer must establish the amount covered by the exemption. The taxpayer has not appeared in this action to establish the amount covered by the exemption. Assuming that the children, through their guardian, have standing to make the requisite showing, they have not done so as of this date. An examination of the settlement agreement indicates that Thevis agreed to pay $12,000 per month to the movant for so long as she lives. Although the money is designated as both alimony and child support, there is no allocation between the two. The terms of the payment suggest that the $12,000 per month is to be treated as alimony, and not child support: the payments continue for so long as Joan Thevis lives, and there is no reduction duction or adjustment upon the emancipation (or death) of any of the Thevis children. Thus, it is impossible to designate any specific amount that Michael Thevis is required to pay exclusively as child support, and the exemption provided for in §6334 is inapplicable.

In light of this disposition of petitioner's claim for an exemption under §6334, it is not necessary for the Court to address the various sources of funds which petitioner claims are available as a means of support for petitioner and her minor children.

ACCORDINGLY, for the foregoing reasons, petitioner's motion to release funds is denied.

¹ Petitioner has argued that her judgment of May 3, 1978 , precedes the date of all other claimants to various funds at issue. As noted by petitioner, the question of priority of petitioner's claim is before the Court in Federal Deposit Insurance Corp. v. United States of America , et al., C80-278A, on petitioner's motion for summary judgment. Petitioner requested this Court to consider this motion to release funds before her motion for summary judgment. For this reason, and because of the number of claimants having an interest in the funds at issue in that case, the question of the priority of petitioner's claim will be addressed in the Court's order with respect to the motion for summary judgment.

 

 

 

[91-2 USTC ¶50,474] Don King Productions, Inc. and Don King, Plaintiffs v. Pinklon Thomas, Jr., Richard Gidron, Roland Jankelson, Althea Jones, and The United States , Defendants. Althea Jones and Richard Gidron, Defendants-Appellees. Richard Gidron and The United States , Defendants-Appellants

(CA-2), U.S. Court of Appeals, 2nd Circuit, 91-6067, 91-6083, 9/23/91 , Affirming and reversing a District Court decision, 90-2 USTC ¶50,524 , 749 F.Supp. 79

[Code Secs. 6321 and 6323 ]

Tax lien: Assignment: Priority.--Federal tax liens on a boxer's anticipated prize money were superior to the claim of the boxer's former manager that was based on a stipulation of settlement which predated the liens. Through the settlement agreement, the former manager was entitled to a portion of the purse of an upcoming fight; however, the stipulation was never reduced to a judgment under state ( New York ) law, so the manager did not attain the priority status of a judgment lien creditor. Furthermore, since the assignment was for prize money to be earned from a future fight, the manager's claim was inchoate and the federal liens had priority by being first in time. The subordination of the federal tax liens to the child support claims was affirmed.

Robert M. Sosin, Alspector, Sosin, Mittenthal & Barson, P.C., 30100 Telegraph Rd., Birmingham, Mich., for Althea Jones. Steven K. Meier, Shatz, Meier & Scher, 18 E. 48th St. , New York , N.Y. , for Richard Gidron. Otto G. Obermaier, United States Attorney, Kathleen A. Zebrowski, Edward T. Ferguson III, Assistant United States Attorneys, New York, N.Y. 10007 for defendant-appellant.

Before: CARDAMONE, MINER and MAHONEY, Circuit Judges.

MINER, Circuit Judge:

Defendant-appellant the United States (the "government") and defendant-appellant-appellee Richard Gidron appeal from a judgment entered in the United States District Court for the Southern District of New York (Haight, J.) establishing that the claim of defendant-appellee Althea Jones to interpleader funds had priority over the claim of Richard Gidron, which had priority over tax liens of the government. Don King Prods. v. Thomas [90-2 USTC ¶50,524 ], 749 F.Supp. 79, 85 (S.D.N.Y. 1990).

The government contends that the district court erred in determining that Gidron's claim had priority over its tax liens. First, it argues that since the stipulation of settlement dated December 11, 1985 upon which the claim is based, never was reduced to judgment, Gidron cannot avail himself of the statutory exception which protects certain persons, including "judgment lien creditors," against unrecorded federal tax liens. Second, the government maintains that the stipulation of settlement cannot be found to be prior to the government's tax liens because it represents an inchoate claim. In the stipulation of settlement, Thomas purported to assign to Gidron proceeds from purses of three prizefights to occur at some unspecified time in the future.

Gidron argues that the district court erred in finding that Althea Jones' claim of child support has priority over his claim, since his claim accrued on December 11, 1985 and Jones' judgment of filiation and order for support is dated January 6, 1988 .

We agree with the government that the district court erred in finding that Gidron's claim had priority over the federal tax liens. Because Gidron's stipulation of settlement was not reduced to judgment, Gidron was required to establish that his lien was "first in time" and choate. However, the right to the proceeds of future unspecified prizefight purses arising from the assignment by Thomas, evidenced by the stipulation of settlement, was inchoate.

Regarding the order of priority between Gidron and Jones, we hold that the district court correctly found that a judgment of filiation and order for support has priority over a stipulation of settlement never reduced to judgment, even though the support judgment was filed after the stipulation of settlement was entered into.

BACKGROUND

One-time holder of the World Boxing Council Heavyweight title, Pinklon Thomas, Jr. contracted with Don King and Don King Productions (collectively, "DKP") to receive a purse of $150 thousand for participating in a boxing match with Evander Holyfield. The event was scheduled to be held on December 9, 1988 in Atlantic City , New Jersey . In accordance with the terms of the contract, DKP disbursed $117,090.67 as advances and payments to Thomas, his manager, and his trainer, Angelo Dundee. Faced with conflicting claims to the balance of the purse, $32,909.33, DKP commenced an interpleader action, pursuant to 28 U.S.C. §1335(a), placing the $32,909.33 in the registry of the district court and naming five interpleader defendants. Only three of the named defendants--the government, Richard Gidron and Althea Jones--litigated their claims to the interpleaded fund.

Althea Jones ("Jones") claimed priority to the funds by reason of a January 6, 1988 judgment of filiation and order for support entered by a Michigan state court. Apparently, Thomas had acknowledged that he was the father of Paquana Shareces Jones in a paternity action commenced by Althea Jones in 1986. Under the judgment of filiation and order for support, Thomas was required to pay $7,500 in support and maintenance obligations that had accrued from the time of Paquana Shareces Jones' birth until November 9, 1987 and to pay $100 per week for support and maintenance from November 9, 1987 until Paquana reached the age of majority. Additionally, Thomas was ordered to notify Jones about any professional boxing matches in which he was to participate. However, Jones learned about the Thomas/Holyfield bout not from Thomas but through a newspaper advertisement. On December 6, 1988 , at Jones' request, the Michigan court issued a Writ of Garnishment, which was served on DKP, ordering DKP to disclose its indebtedness to Thomas. At that time, $14,025 in unpaid child support allegedly was owed to Jones.

Richard Gidron claimed priority by reason of a stipulation of settlement, dated December 11, 1985 , allegedly entered in the New York Supreme Court, Bronx County . At that time, Gidron had initiated an action against Thomas and DKP for money owed under a management contract between Thomas and Gidron, which Thomas had breached when he entered into a management contract with DKP. Under the settlement agreement, Thomas agreed, among other things, to pay to Gidron $50 thousand from each of his next three prizefight purses. DKP agreed that in the event it promoted any of the next three fights, it would withhold $50 thousand per fight and pay that amount to Gidron. The stipulation of settlement never was docketed as a judgment.

The government claims priority on account of federal tax liens. Thomas owes the government income taxes for the years 1986 and 1987 in the amounts of $149,905.90 and $120,361.53, respectively, plus interest and penalties. The IRS made a deficiency assessment against Thomas for the unpaid 1986 taxes on November 9, 1987 and for the unpaid 1987 taxes on June 6, 1988 . Federal tax lien notices were filed on December 5, 1988 in Atlantic City , the place of the Holyfield-Thomas fight, and on December 8, 1988 , in Oakland County , Michigan , the place where Thomas resides. On December 9, 1988 , DKP was served with the government's notice of levy, in which DKP was directed to pay to the government any wages or other income that was to be paid to Thomas.

In 1986, Thomas lost his World Boxing Council heavyweight title to Trevor Berbik; in accordance with the terms of the stipulation of settlement, $50 thousand was paid to Gidron from the purse for that fight. Thereafter, in May 1987, Thomas suffered a devastating knockout loss to Michael Tyson. After defeating Thomas, Tyson went on to defeat Tony Tucker, the then-International Boxing Federation heavyweight titleholder, resulting in the unification of the heavyweight championship titles--World Boxing Council, World Boxing Association and International Boxing Federation--in one professional boxer. After further litigation, Gidron was able to recover $50 thousand from the proceeds of the Tyson match.

Gidron learned about the upcoming Thomas/Holyfield match from an advertisement in the New York Post. Fearing that DKP would not pay the final $50 thousand from the last of the three fights, Gidron obtained in the Bronx County court an order directing Thomas to show cause by December 16, 1988 why $50 thousand should not be paid to Gidron from the proceeds of the fight scheduled for December 9, 1988 . It was in response to that order that DKP filed an interpleader action in federal district court on December 12, 1988 . The district court enjoined the state court proceedings. [90-2 USTC ¶50,524 ], 749 F. Supp. at 82.

On October 2, 1990 , the district court in a Memorandum Opinion and Order held that Jones had priority over Gidron and the government, and that Gidron had priority over the government. Id. at 85. After further litigation to determine whether additional funds were to be added to the amount held in the registry of the district court, the government moved pursuant to Fed. R. Civ. P. 54(b) for entry of a final judgment on the interpleader priority question. Finding no just cause to delay the entry of a partial judgment, the district court granted the government's motion, and a judgment was entered on January 3, 1991 . Remaining for disposition are cross-claims interposed against DKP to recover a money judgment. The government appeals from the portion of the judgment in which the court determined that Gidron's claim had priority over its federal tax liens. Gidron appeals from the portion of the judgment in which the court determined that Jones' support claim had priority over his claim.

DISCUSSION

The government contends that the district court's rationale in finding that Gidron's claim has priority over federal tax liens is flawed. The district court reasoned that Thomas, having made an assignment of funds to Gidron in 1985, prior to the assessment of taxes and the consequent attachment of the tax liens, see 26 U.S.C. §6322 , had no further interest in the assigned funds when the tax liens attached. The court concluded the tax liens could not "attach under §6321 in the first place." 749 F. Supp. at 85. The flaw in this, the government asserts, is that Gidron's claim to proceeds from the Thomas/Holyfield prizefight purse as assignee was inchoate and, as such, subordinate to federal tax liens. We agree with the government's position.

Section 6321 of the Internal Revenue Code provides that

[i]f any person liable to pay tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

26 U.S.C. §6321 (1988). The language of section 6321 is broad, revealing a congressional intent to reach "every interest in property that a taxpayer might have." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 720 (1985).

A federal tax lien, described as a "secret lien," see United States v. Security Trust & Savings Bank [50-2 USTC ¶9492 ], 340 U.S. 47, 53 (1950) (Jackson, J., concurring) (citation omitted), is effective upon assessment against all persons, even in the absence of recordation of the lien. See Rice Investment Co. v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 568 (5th Cir. 1980). However, under 26 U.S.C. §6323(a) , certain persons are protected against unrecorded federal tax liens. Section 6323(a) provides:

The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirement of subsection (f) has been filed by the Secretary.

Only those persons specifically listed in the statute are entitled to priority over unrecorded federal tax liens. See 14 Mertens, Law of Federal Income Taxation §15A.03, at 15-16 (1991).

During oral argument, Gidron contended that he is a "judgment lien creditor" by virtue of the stipulation of settlement dated December 11, 1985 , which he argues was a judgment entered in the Bronx County court. If Gidron were a "judgment lien creditor," and his status as such was acquired prior to December 5 and 8, 1988, when the government recorded its federal tax liens, Gidron would be entitled to priority over the government.

A "judgment lien creditor," undefined by statute, is described in treasury regulations as

a person who has obtained a valid judgment . . . for the recovery of . . . a certain sum of money. . . . [and as] a person who has perfected a lien under the judgment on the property involved.

26 C.F.R. §301.6323(h)-1(g) . "In determining . . . whether a judgment creditor's lien is perfected . . . , we look first to the local law setting forth the lien procedure and its legal consequences." Hartford Provision Co. v. United States [78-1 USTC ¶9392 ], 579 F.2d 7, 9 (2d Cir. 1978).

Under New York law, a judgment creditor becomes a "judgment lien creditor" as to personal property only after execution is delivered to the sheriff. See N.Y. Civ. Prac. L. & R. §5202(a) ( McKinney 1978); see also Corwin Consultants, Inc. v. Interpublic Group of Companies, Inc. [75-1 USTC ¶9299 ], 512 F.2d 605, 607 n.2 (2d Cir. 1975). Since there is no evidence that the stipulation of settlement was reduced to and docketed as a judgment, see 749 F. Supp. at 81 n.1, and there is no evidence of the delivery of a judgment execution to the sheriff, clearly, under the New York requirements, Gidron cannot be a judgment lien creditor. See Lerner v. United States [87-1 USTC ¶9339 ], 637 F. Supp. 679, 680 (S.D.N.Y. 1986); In re Estate of Robbins, 74 Misc. 2d 793, 795, 346 N.Y.S.2d 86, 90 (Sur. Ct. 1973) ("As to personal property, docketing of a judgment [alone] does not create a lien; such a lien upon personal property comes into being only when execution is issued to the proper officer.").

For all persons who are not specifically listed in section 6323 , priority as a lienor is determined by the common law rule of "first in time is the first in right." United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 87-88 (1954). Under that rule, a federal tax lien takes priority over competing liens unless the competing lien was choate, or fully established, prior to the attachment of the federal lien. See id. at 86. Not only does a lienor's interest have to be first chronologically, but the interest must be choate to defeat the federal tax lien. A choate lien is one in which the identity of the lienor, the property subject to the lien and the amount of the lien are established. Id. at 84. A lien that is "choate" has been described as a lien that is "specific and perfected" and for which "nothing more [need] be done." United States v. Equitable Life Assurance Society [66-1 USTC ¶9444 ], 384 U.S. 323, 327-28 (1966) (citation omitted).

Under the federal revenue statute, federal law determines the rights of priority among competing lienors; however, state law controls in determining the nature of a taxpayer's interest in property. SEC v. Levine, 881 F.2d 1165, 1175 (2d Cir. 1989); see also National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 722; Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 513 (1960). "[W]hether the [federal] tax lien has attached depends on the state law question of ownership, since the lien can only attach to property that the taxpayer owns." United States v. Fontana [82-1 USTC ¶9237 ], 528 F.Supp. 137, 143 (S.D.N.Y. 1981). "This follows from the fact that the federal statute 'creates no property rights but merely attaches consequences, federally defined, to rights created under state law.' " National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 722 (quoting United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 55 (1958)). Thus, we must look initially to the nature of Thomas' interest in the property under New York law.

Thomas purported to assign to Gidron a portion of his interest in income to be earned some time in the future. Under New York law, income to be earned in the future may be assigned. "[T]he right to receive [such income], though liable to be defeated, is vested, and, in the absence of [a statutory restriction], . . . is assignable." 6 N.Y. Jur. 2d Assignments §23 , at 260 (1980). However, like the assignment of accounts receivable where the assignor has no existing contract under which such accounts are to arise, the assignment of a right to receive income contingent upon the occurrence of a future event, does not convey a present interest to the assignee. See Central State Bank v. New York , 73 Misc. 2d 128, 129, 341 N.Y.S.2d 322, 324 (Ct. Cl. 1973); see also Stathos v. Murphy, 26 A.D.2d 500, 503, 276 N.Y.S.2d 727, 730 (1st Dep't 1966 ) ("There is no doubt that the assignment of a truly future . . . interest does not work a present transfer of property. It does not because it cannot; no property yet exists."), aff'd, 19 N.Y.2d 883, 227 N.E.2d 880, 281 N.Y.S.2d 81 (1967). Rather, the rights that Gidron acquired, contingent upon the occurrence of a prizefight at some unspecified time in the future, were "truly future interests." See In re Estate of Rosenberg, 62 Misc. 2d 12, 17, 308 N.Y.S.2d 51, 58 (Sur. Ct. 1970) ("An assignment of a future 'contingent' interest . . . is an assignment of a truly future interest, not an assignment of present rights."); see also In re Holt, 28 A.D.2d 201, 205, 284 N.Y.S.2d 208, 212 (3d Dep't 1967) (" 'future rights' . . . are those rights which arise in the future; or, more aptly stated in its most precise definition, a right which the assignor does not have at the time of the assignment but which he expects to have under some arrangements he is about to enter." (emphasis in original)). These rights could not ripen into present rights or interests until the occurrence of the third fight. See Central State Bank, 73 Misc. 2d at 129, 341 N.Y.S.2d at 324; City of Utica v. Gold Metal Packing Corp., 54 Misc. 2d 708, 710, 283 N.Y.S.2d 611, 613 (Sup. Ct. 1967) ("The courts recognize equitable assignments of future interests which will create a lien between the parties at the time the property comes into existence"); 6 N.Y. Jur. 2d Assignments §20, at 256 ("the assignment of contingent interests . . . , although resting in a mere possibility, is recognized and takes effect when the thing . . . assigned comes into existence.").

The government's liens attached when the assessments were made in 1987 and 1988, but Gidron only acquired a future interest in the prizefight purses on December 11, 1985 by virtue of his assignment. Cf. United States v. Colby Academy [82-2 USTC ¶9450 ], 524 F.Supp. 931, 934 (E.D.N.Y. 1981). At that time, Gidron's interest was inchoate. Although the identity of the lienor was known and the amount of the lien was established, the property subject to the lien was not in existence at the time the government's lien arose. See Lerner [87-1 USTC ¶9339 ], 637 F.Supp. at 681 (court held that "lien remains inchoate until the underlying debt becomes due." (citation omitted)); MDC Leasing Corp. v. New York Property Ins. Underwriting Ass'n [79-1 USTC ¶9122 ], 450 F.Supp. 179, 181 (S.D.N.Y. 1978), aff'd mem., 603 F.2d 213 (1979). Therefore, under applicable federal law, the government had priority over Gidron. See United States v. Pioneer Am. Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88 (1963).

Gidron contends that the district court erred in determining that Jones' claim to interpleader funds had priority over his claim because his stipulation of settlement, dated December 11, 1985 , was prior in time to Jones' judgment of filiation and order for support. Noting that "[u]nder New York law, the legislature has given priority to child support orders over wage assignments and garnishments," the district court found Jones' claim to have priority over Gidron's claim. 749 F.Supp. at 85.

Gidron argues that Thomas' assignment to him is not a wage assignment or garnishment and, therefore, the district court erred in subordinating his claim to Jones' claim. He contends that the transaction constituted a valid present transfer of property rights from Thomas to King to be paid to Gidron, thereby divesting Thomas of any rights in the specified prizefight purses. Gidron's defeat in his fight against the government, however, precludes him from arguing (successfully) in his fight against Jones that he was assigned a present interest in 1985.

There is another reason why Gidron's argument must fail. Section 5241 of the New York Civil Practice Laws and Rules, entitled "Income execution for support enforcement," provides that a "levy pursuant to this section or an income deduction order pursuant to section 5242 of this chapter shall take priority over any other assignment, levy or proccess." N.Y. Civ. Prac. L. & R. §5241(h) (McKinney Supp. 1991) (emphasis added); see also id. §5242(c) McKinney Supp. 1991). "[T]he intent and purpose of the[se] enforcement statutes is to enable a former spouse to enforce a support judgment against 'income,' in a priority basis over the income execution of a normal judgment creditor." Dawson v. Krolikowski, 140 Misc. 2d 343, 346, 530 N.Y.S.2d 931, 934 (Sup. Ct. 1988); see also Long Island Trust Co. v. United States Postal Serv., 647 F.2d 336, 339 (2d Cir. 1981). Under the statute, "income" includes "any earned, unearned, taxable or non-taxable income." N.Y. Civ. Prac. L. & R. §5241(a)(6) .

Clearly, the monies to be paid to Thomas by DKP for Thomas' participation in the boxing match fall within the meaning of "income" under section 5241 . Therefore, it is immaterial whether the assignment embodied in the stipulation of settlement is called a wage assignment or any other kind of assignment. The statute gives priority to orders for support over "any other assignment." Id. §5241(h) . It subordinates all normal judgment creditors to the former spouse who has a support judgment. See id. Thus, even if Gidron were considered to be a judgment creditor, his claim must be found to be subordinate to Jones' judgment of filiation and order for child support.

CONCLUSION

The judgment of the district court is reversed insofar as it establishes the priority between Gidron's claim over the government's federal tax liens. The portion of the judgment establishing the priority of the claim of Althea Jones over the claims of both the government and Gidron is affirmed. The order of priority of claims to the interpleaded funds is fixed as follows: 1) child support (Jones); 2) federal tax liens (government); and 3) claim based on stipulation (Gidron). 

 

 

 

 

[95-1 USTC ¶50,079] Rebecca S. Woods, Individually and as Administratrix of the Estate of Mary Ruth Simpson, Plaintiff-Appellee v. David Simpson, Jimmi Simpson Jones, United States Department of Treasury, Internal Revenue Service (93-6478), Commonwealth of Kentucky, Revenue Cabinet (93-6590), Defendants-Appellees, The Commonwealth of Kentucky Revenue Cabinet (93-6478), United States Department of Treasury, Internal Revenue Service (93-6590), Defendants-Appellants

(CA-6), U.S. Court of Appeals, 6th Circuit, 93-6478, 93-6590, 2/8/95 , 46 F3d 21, 46 F3d 21. Reversing and remanding a District Court decision, 93-2 USTC ¶50,377

[Code Secs. 6323 and 6334 ]

Property exempt from levy: Child support: State liens: Priority: Kentucky.--An individual's inheritance that was subject to federal and state (Kentucky) tax liens was not exempt from levy in satisfaction of delinquent taxes despite the existence of his former wife's judgment lien for child support. The inheritance did not qualify as "other income" under the statutory exception for judgments for the support of minor children. "Other income" refers to amounts received for services rendered, such as bonuses, tips, fees, and commissions. Further, the federal tax lien was superior to the earlier recorded state tax lien because the two liens attached simultaneously when the individual received the inheritance. Also, the federal lien was superior to the former wife's judgment lien because it attached before the lien for child support was recorded. Therefore, since the individual's federal tax liability exceeded the amount of his inheritance, the government was entitled to the entire inheritance.

David J. Kellerman, Middleton & Rautlinger, 2500 Brown & Williamson Tower, Louisville, Ky. 40202, for plaintiff-appellee (Woods, R.S.). R. Thomas Blackburn, Jr., 2301 S. Third St. , Louisville , Ky. 40201 , for defendant-appellee (Simpson, D.B.). Michael F. Spalding, Assistant United States Attorney, 510 W. Broadway, Louisville, Ky. 40202, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, Department of Justice, Washington, D.C. 20530, for defendant-appellee (U.S.). Michael F. Spalding, Assistant United States Attorney, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, for defendant-appellee (I.R.S.). Arnold C. Jones, Revenue Cabinet Enforcement Legal Section, P.O. Box 491 , Frankport , Ky. 40602 , for defendant-appellant ( Commonwealth of Ky. ).

Before: RYAN and BATCHELDER, Circuit Judges; and EDGAR, District Judge. ^*

EDGAR, District Judge:

In this interpleader action the United States of America and the Commonwealth of Kentucky appeal the decision of the district court on cross motions for summary judgment establishing the priority of competing federal and state tax liens, and state court judgments for child support. The district court determined that the child support judgments are to be paid from the interpleaded funds prior to satisfaction of the federal tax lien. We REVERSE.

I.

Mary Ruth Simpson died on November 1, 1989 . Rebecca S. Woods, administratrix of the estate of Mary Ruth Simpson, was required by Mrs. Simpson's will to distribute a share of the estate's residue to David B. Simpson, one of Mrs. Simpson's children. David Simpson's share amounted to $76,411.20, and this sum was paid into state court by the administratrix who filed an interpleader action against four claimants: David Simpson, the United States Department of the Treasury, Internal Revenue Service; the Commonwealth of Kentucky Revenue Cabinet ; and David Simpson's former wife, Jimmi Jones. The United States removed the case to federal court.

David Simpson's claim to the interpleaded funds was dismissed by the district court. He has not appealed. The United States ' claim is for David Simpson's unpaid income taxes, penalties and lien fees for the years 1973 through 1987 totaling $331,434.52. The United States filed a notice of federal tax lien with the Jefferson County, Kentucky Court Clerk on October 13, 1988 . The Commonwealth of Kentucky had recorded its lien for state taxes on July 28, 1988 . As of March 25, 1993 , David Simpson owed Kentucky $27,498.58. Jimmi Jones obtained civil judgments in 1980 and 1989 against David Simpson for back child support. She recorded notices of her judgment lien on March 21, 1990 . ¹ As of September 30, 1993 , the unpaid balance of these judgments was $23,955.22.

II.

There is no question that the lien of the United States is superior to that of the Commonwealth of Kentucky . Both the federal and state tax liens were filed before the debtor, David Simpson, acquired his inheritance. Even though Kentucky 's lien was recorded before that of the United States , these liens attached simultaneously when David Simpson acquired his property interest in the estate of Mary Simpson at the time of her death. The United States lien, therefore, has priority. United States v. McDermott [93-1 USTC ¶50,164 ], -- U.S. --, 113 S. Ct. 1526, 1530, 123 L.Ed.2d 128, 136 (1993).

The lien of the United States is also prior to Jimmi Jones' judgment lien. The federal lien was perfected and attached to David Simpson's acquired property before Jimmi Jones recorded her lien on March 21, 1990 . "Absent provision to the contrary, priority for the purposes of federal law is governed by the common-law principle that 'the first in time is the first in right.' " McDermott [93-1 USTC ¶50,164 ], 113 S.Ct. at 1528, 123 L.Ed.2d at 133 (citing United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954)).

The district court decided that 26 U.S.C. §6334(a)(8) exempted Jimmi Jones' claim from the federal tax lien. We think not. 26 U.S.C. §6334(a)(8) exempts from Internal Revenue Service levy the following:

(8) Judgments for Support of Minor Children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

We conclude that David Simpson's inheritance is not "other income" specified by 26 U.S.C. §6334(a)(8) . In so concluding we are guided by the ejusdem generis rule of statutory construction. The general term, "other income," should be "understood in light of the specific terms that surround it." Kurinsky v. United States , 33 F.3d 534, 596-97 (6th Cir. 1994). More specifically, "where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." 2A NORMAN J. SINGER, SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION §47.17, at 188 (5th ed. 1992). Here, an inheritance is not in the same category as salary and wages. This is borne out by reference to another part of the levy exemption statute, 26 U.S.C. §6334(d) , which provides an exemption in specified amounts for "wages, salary, and other income" received by individuals on a weekly and other than weekly basis. Clearly "other income" refers to items received by individuals for services rendered, such as bonuses, tips, commissions, and fees. This conclusion derives further support from the proposition that tax exemptions are to be narrowly construed. United States v. Burke [92-1 ustc ¶50,254 ] ,-- U.S. --, 112 S.Ct. 1867, 1876, 119 L.Ed.2d 34, 49 (1992) (Scalia, J., concurring); United States v. Centennial Savings Bank [91-1 ustc ¶50,188 ], 499 U.S. 573, 583-84 (1991); Commissioner v. Jacobson [49-1 ustc ¶9133 ], 336 U.S. 28, 49 (1949); Elam v. Commissioner [73-1 ustc ¶9456 ], 477 F.2d 1333, 1335 (6th Cir. 1973). Given our conclusion that 26 U.S.C. §6334(a)(8) does not exempt an inheritance from levy, we need not decide whether 26 U.S.C. §6334 also operates to exempt certain property from a 26 U.S.C. §6321 federal lien for taxes, nor need we decide whether the Commonwealth of Kentucky prevails on a theory that it is entitled to "circular priority" on the authority of United States v. City of New Britain [54-1 ustc ¶9191 ], 347 U.S. 81 (1954).

III.

Since the tax liability to the United States is well in excess of David Simpson's inheritance, the United States is entitled to the entire interpleaded fund except for $1,211.38 which the district court awarded to plaintiff's attorney as an administrative expense. The judgment of the district court is REVERSED and this case is REMANDED to the district court for proceedings consistent with this opinion.

^* The Honorable R. Allan Edgar, United States District Judge for the Eastern District of Tennessee, sitting by designation.

¹ This lien appears to have been recorded only against David Simpson's real property. We will, however, for the purposes of this case, regard it as applicable to all of David Simpson's real and personal property.

 

 

 

[97-2 USTC ¶50,892] Nick Batt, Plaintiff v. United States of America , Defendant

U.S. District Court, No. Dist. Ohio , West. Div., 3:96 CV 7509, 5/23/97

[Code Sec. 7422 ]

Levy and distraint: Wrongful levy: Civil action: Conditions precedent: Claim for refund: Payment of tax.--An action by an individual seeking refunds of amounts collected by levies against his rental income and wages was dismissed for lack of subject matter jurisdiction. The taxpayer failed to show that he had filed a claim for refund with the IRS or paid the assessed tax before filing the action.

[Code Secs. 6334 , 7402 and 7421 ]

Levy and distraint: Wrongful levy: Injunction: Declaratory judgment: Property exempt from levy: Child support.--Injunctive relief limiting the scope of IRS levies was unavailable to an individual because he failed to establish that the government could not prevail on the merits or that he would suffer irreparable harm. A declaratory judgment that levies on his wages were illegal was precluded by the Declaratory Judgment Act since the action clearly related to federal taxes. Finally, absent a prior court order regarding child care payments, any wages that were earmarked for that purpose were still the income and property of the taxpayer and therefore not exempt from levy.
MEMORANDUM AND ORDER