Annotations- Homestead Page1

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6334 Annotations: Homesteads- Levy

 

Property Exempt from Levy: Homesteads

 

[49-2 USTC ¶9429]Chloe Potter Morgan, et vir., Plaintiffs v. Maurice C. Moynahan, Deputy Collector, Treasury Department, Internal Revenue Service, Defendant

In the United States District Court for the Southern District of Texas, Houston Division, Civil Action No. 5147, 86 FSupp 522, September 19, 19 49

Validity of tax lien against real estate subject to homestead exemption: Texas.--Taxpayer's wife was entitled to enjoin the sale of her homestead interest, as well as any act or conduct that would tend to disturb her right to its full and complete enjoyment. Therefore, the Government's lien against the taxpayer-husband could not be enforced, since in Texas , the homestead interest is indivisible.

Spiner & Pritchard (Chas. B. Spiner), of Houston , Texas , for Plaintiffs. Brian S. Odem, U. S. Attorney, and William R. Eckhardt, Assistant U. S. Attorney, of Houston, Texas, for Defendant.

KENNERLY, Chief Judge:

This suit is by the Plaintiff, Mrs. Chloe Potter Morgan (Joined pro forma by her husband, Claude F. Morgan), against a United States Deputy Collector of Internal Revenue, to restrain and enjoin the sale of the homestead of herself and husband, Claude F. Morgan, situated in the City of Houston, in this District and Division, for income taxes assessed against and owing by her husband to the United States of America for the years 1944, 1947, and 1948. On the date set for the hearing of Plaintiffs' Petition for Preliminary Injunction, it was agreed that the case should be heard, and this is a hearing, on the merits.

[The Facts]

The facts are substantially as follows:--

(a) It is undisputed that such taxes were duly assessed against and are owing by the husband, Claude F. Morgan, to the United States, and that all steps have been taken to fix and constitute same a lien against said Claude F. Morgan's interest in such property.

It also appears that the Defendant, Maurice C. Moynahan, Deputy Collector, levied upon the property in question as the property of Claude F. Morgan, and proposes to offer same for sale. ¹

(b) It is shown that Mr. and Mrs. Morgan were married December 26, 19 45, and that the property in question was purchased by them on the 8th day of July, 1947. The Deed of Conveyance was to both of them. When purchased, the property became, has been since, and still is their homestead within the meaning of the Constitution and other Laws of Texas. It is and has been occupied since such purchase, and is now occupied, as a homestead by them and their minor daughter. They and their minor daughter constitute a family within the meaning of the Laws of Texas.

(c) Plaintiff Mrs. Morgan claims that such property was purchased with money belonging to her separate estate. It is unquestionably true that Morgan, her husband, received from her, a considerable period of time prior to such purchase, funds belonging to her separate estate which she intended should be used by him to pay for or make a payment on a home. These funds of Plaintiff were mixed and mingled with his own funds, and it is not clear that they were on hand at the time of the purchase of this property. The evidence is far from satisfactory that any part of Plaintiff's funds went into the purchase of such property. I find that they did not, but that the cash or down payment therefor was made out of community funds of Morgan and Plaintiff, and the deferred payment of $10,000 was evidenced by the Note of Morgan and Plaintiff. Some of the payments on such Note have, however, been made out of the separate property and estate of Plaintiff.

[Property Acquired During Marriage]

1:--Citing Section 3653(a), Title 26, U. S. C. A. ² Defendant says that this Court is without power to enjoin, and is prohibited from enjoining, the sale of such property. This Section applies to the enjoining of the sale of the taxpayer's property. This is not a suit by the taxpayer to enjoin the sale of his property, but a suit by Plaintiff, Mrs. Morgan, to enjoin the sale of property which she claims to be a part of her separate property and estate and also which she claims to be her homestead.

2:--Under the foregoing facts, it is well settled in Texas that since the property in question was acquired by Mr. and Mrs. Morgan during marriage, it became and has remained their community property. Certainly it is presumed to be their community property. Article 4619, Vernon 's Civil Statutes of Texas . ³ Stiles v. Japhet, 84 Tex. 95, 19 S. W. 450, ⁴ and cases cited and which follow. The burden is on Plaintiff to show to the contrary. This burden she has failed to meet.

Plaintiff is, therefore, not entitled to restrain the sale of the property on the ground or theory that it is her separate property.

[Property Was Homestead and Interest Therein Is Indivisible]

3:--But since the property is her homestead, I think Plaintiff is entitled to enjoin the sale, not only of her homestead right or interest, but she may enjoin any act or conduct that tends to disturb her right to the possession and the full and complete enjoyment thereof. In order to so protect her right, it appears to be necessary to enjoin the sale of the interest of her husband, Claude F. Morgan, and I think she may do so. Her homestead right or interest is indivisible and extends to all and every part of the property. She and her child or children are entitled to use it as a home either with or without the presence of the husband. Speer's Law of Marital Rights in Texas , Section 454. ⁵ Any disposition of the husband's interest which interferes with her possession and use, reduces or affects its value, or clouds her title may be enjoined. Burton B. Paddock, Trustee, v. Siemoneit, 218 S. W. (2d) 428. Jones v. Kemp, 144 Fed. (2d) 478 [44-2 USTC ¶9410]. Shambaugh v. Scofield, 132 Fed. (2d) 345 [42-2 USTC ¶9826]. United States v. Dallas National Bank, 152 Fed. (2d) 582 [46-1 USTC ¶9117]. Dallas National Bank v. United States , 167 Fed. (2d) 468 [48-1 USTC ¶9242].

[Lien Not Enforceable]

This does not mean that the Government's lien against the interest of the husband is set aside or held for naught. It remains intact but may not under present conditions be enforced by the proposed sale to the hurt and injury of the wife.

The facts in Shambaugh v. Scofield, supra, the leading case in this Circuit, differ from the facts here. In that case, both Shambaugh and his wife owed the taxes and the Collector proposed to sell the entire interest of both husband and wife in the homestead. Here it is not claimed that the wife owes the taxes, and she is not mentioned in, nor is she a party to, any of the proceedings looking to the sale of the property. The proceedings are wholly against the husband.

Decree will enter, granting Plaintiff the relief prayed for.

¹ The notice of seizure and sale is as follows:

"Treasury Department, Internal Revenue Service

Office of Deputy Collector First District of Texas , First Texas .

Place Houston , Texas

Date July 15, 19 49

NOTICE OF SEIZURE AND SALE

Claude F. Morgan, 2003 Chilton Road , Houston , Texas .

By virtue of a warrant for distraint placed in my hands for service by the Collector of Internal Revenue for the First District of Texas, I have this day levied on the following described real property owned by you:

Lot 14, Block 50, River Oaks #3, Harris Co. Tex. Vol. 60, Page 156--Assessors Bk. Book. H. Edward Maddox, Jr. D--Rendered by Deed, Dated July 8, 19 47 from H. Edward Maddox Jr., et al., Grantor to Claude F. & Chloe P. Morgan, Grantees filed on July 11, 19 47 in Deed Records, Book 1626, Page 499. 19.25 1.10 M Consideration 18,500.00, Lien held Prudential Life Ins. for $10,000.00.

You are hereby notified that I will offer same for sale at public auction to be held on Tuesday, August 9, 19 49 at 10:00 o'clock A. M. at the front entrance of the United States Post Office Building, corner of Capitol and San Jacinto Streets, Houston, Texas.

Maurice C. Moynahan

Deputy Collector

1500 Rusk, Houston , Tex. "

² Such Section is as follows:--

"(a) Tax. Except as provided in sections 272(a), 871(a) and 1012(a), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court."

³ Article 4619, Vernon 's Civil Statutes of Texas, is in part as follows:--

"All property acquired by either the husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife; and all the effects which the husband and wife possess at the time the marriage may be dissolved shall be regarded as common effects or gains, unless the contrary be satisfactorily proved. During coverture the common property of the husband and wife may be disposed of by the husband only; provided, however, if the husband shall have disappeared and his whereabouts shall have been and remain unknown to the wife continuously for more than twelve months, the wife shall after such twelve month period and until the husband returns to her and the affidavit hereinafter provided for is made and filed for record, have full control, management and disposition of the community property, and shall have the same powers with reference thereto as are conferred by law upon the husband, and her acts shall be as those of a feme sole."

⁴ The Court in Stiles v. Japhet, with respect to such matter, says:--

"We do not see that it would subserve any useful purpose to review the authorities. The decisions of the Supreme Court are numerous upon the point, and we will cite some of them. Scott v. Maynard, Dall., p. 548; Parker v. Chance, 11 Texas 513; Cooke v. Bremond, 27 Texas 457; Kirk v. Navigation Co., 49 Texas 213; Wallace v. Campbell, 54 Texas 87; Dooley v. Montgomery, 72 Texas 429. It has become not only a rule of decision but a settled rule of property in this State, that all property acquired by the husband and wife during marriage, whether the deed be in the name of the one or the other, upon a consideration deemed valuable in law, is presumed to be community property." etc.

⁵ Such Section 454 is in part as follows:--

"The statute defines the homestead in words almost identical with the section of the Constitution above quoted and in suitable language exempts the same from every species of forced sale save for the purchase money, for taxes due thereon, and for work and material used in constructing improvements thereon.

Back of these provisions one cannot fail to discern the object of the framers of our Constitution and statutes. Very far have they gone in their efforts to vouchsafe to the wife a shelter for herself and children against the improvidence of the husband and the greed of creditors. Observing only the rights of those who in a measure supply that shelter, and the demands of the Sovereign, the wife is given the power to continue under its protection at any hazard. It is not for the husband, nor yet for their children, that the law has thus interposed; but, possibly in a measure to ameliorate the burdens imposed upon her by our marital laws, it has graciously permitted her the privilege of saying whether or no she will part with it. As was said by Justice Moore in Iken v. Olenick, 42 Tex. 195: 'The leading and fundamental idea connected with a homestead is unquestionably associated with that of a place of residence for the family, where the independence and security of a home may be enjoyed, without danger of its loss, or harassment and disturbance by reason of the improvidence or misfortune of the head or any other member of the family. It is a secure asylum of which the family cannot be deprived by creditors. Within its sanctuary, however urgent may be their demands, they cannot intrude.' In matters of sale and contracts for improvements, the wife is the residuary of all power. Without her consent, her home can never be taken from her, except it be for unpaid purchase money or the taxes due thereon. This ample protection of the law extends to the business as well as the residence homestead of the family."

 

 

 

 

[40-2 USTC ¶9645]P. E. Faust and Gertrude Dee, A. Feme Sole and Widow v. W. A. Thomas, Personally and in his official capacity as Collector of Internal Revenue for the Treasury Department of the United States of America for the Second District of Texas, and Ralph Kenniston, Personally and in his official capacity as Deputy Collector of Taxes for the Internal Revenue Department of the United States of America for the Northern District of Texas

U. S. District Court, Northern District of Texas, Amarillo Division, Civil Action No. 117, June 3, 19 40

Distraint: Joint ownership of homestead.--Motion to dissolve temporary restraining order relative to distraint is denied where court finds that property involved is owned jointly by plaintiff as their homestead and that at least one of them is not indebted for taxes alleged to be due.

JAMES C. WILSON, District Judge:

On May 14, 19 40, came on for further hearing in the above entitled and numbered cause, a motion of defendants to vacate the restraining order heretofore issued herein and to dismiss the complaint, the same being a continuation of the hearing begun at Fort Worth, Texas, on May 2, 19 40, and all parties being present in person or by attorneys, the Court proceeded to hear the evidence and argument of counsel. Plaintiffs P. E. Faust and Gertrude Dee were present in person and represented by their attorneys of record, Julius Dorenfield, Jr., and Newton P. Willis. Defendants W. A. Thomas and Ralph Kenniston, personally and in their official capacities, represented by Frank B. Potter, Assistant United States Attorney for the Northern District of Texas, appeared also. All parties announcing ready for trial, Court proceeded to hear the evidence and finds from the evidence as follows:

That plaintiff Gertrude Dee is a feme sole and widow; that both plaintiffs P. E. Faust and Gertrude Dee for several years prior to January, 1934, operated a business as co-partners in the city of Pampa, Gray County, Texas, known as the Union Bakery; that prior to 1932 said business was operated by said defendants as co-partners under the name and style of City Bakery, which name was changed to Union Bakery in 1932. Court further finds from the evidence that in January, 1934, the plaintiff Gertrude Dee sold and transferred by duly executed bill of sale all of her right, title and interest in and to the partnership business to her co-partner P. E. Faust, and since said time the said Gertrude Dee has had no proprietory interest in said business; that prior to the sale of her interest in said business, and up until the time the business was discontinued in 1939, the same was owned solely and independently by plaintiff P. E. Faust.

The court further finds that the real estate described in plaintiffs' complaint which was seized under warrant of distraint for non-payment of assessed taxes is jointly owned by plaintiffs P. E. Faust and Gertrude Dee and at the present time occupied by them jointly as their homestead, each owning an undivided 1/2 interest therein.

Court concludes as a matter of law that the plaintiff Gertrude Dee is not indebted to the United States for taxes assessed against the plaintiffs as co-partners in the operation of the Union Bakery subsequent to the year 1934, but that all of such taxes if owed by anyone are owed by and should be assessed against the plaintiff P. E. Faust, individually.

It is therefore ORDERED, ADJUDGED and DECREED by the Court that the motion of defendants, each and both, filed by them personally and in their representative and official capacities to dissolve the temporary restraining order heretofore issued by this Court is hereby in all things denied and overruled.

It is further added that defendants' motion to dismiss this complaint is hereby denied and overruled.

It is further ORDERED, ADJUDGED and DECREED by the Court that the plaintiffs be, and they are hereby, allowed and granted a temporary injunction against each and both of the defendants personally and in their representative and official capacities, temporarily restraining and enjoining the detendants in all things as prayed for in plaintiffs' petition, and as they were restrained in the temporary restraining order heretofore issued and served upon them, and particularly restraining the defendants, and each of them, from selling the lands described in plaintiffs' complaint filed in this cause.

It is further ORDERED, ADJUDGED and DECREED by the Court that this temporary injunction shall continue in force until the further orders of this Court shall be entered in this cause upon the trial hereof on its merits.

To all of which action and ruling of the Court the defendants, each and both, in their respective official and representative capacities then and there is open court excepted.

Done and approved in open court this, the 3rd day of June, A. D. 1940. 

 

 

 

[42-2 USTC ¶9826]Scott Shambaugh, et al., Appellants, v. Frank Scofield, Collector of Internal Revenue for the First Collection District of Texas, et al., Appellees

(CA-5), United States Circuit Court of Appeals for the Fifth Circuit, No. 10298, 132 F2d 345, December 15, 19 42

Appeal from the District Court of the United States for the Western District of Texas.

Authority to distrain: Homesteads ( Texas ).-- Homestead realty is liable to seizure and sale to satisfy unpaid income taxes when sufficient personalty is not found.

Authority to distrain: Interest of minor child in parents' homestead.--Texas law holds that a homestead cannot exist in a remainderman as long as the particular estate is undetermined, and a minor child, who is not liable for income tax, does not have a sufficient possessory interest in his parents' homestead to enable him to maintain an action to stop the confiscation of the parents' homestead in satisfaction of their tax debt.

Limitations upon assessment and collection: Statute of limitations.--Where taxpayers submitted various offers in an effort to compromise their income tax liability, the statute of limitations was tolled during the consideration of the offers, despite the fact that Commissioner did not sign the executed waivers submitted by taxpayers with said offers.

Fred W. Moore, Houston , Tex. , for appellants. Earl C. Crouter and Sewall Key, Special Assistants to Attorney General, Samuel O. Clark, Jr., Assistant Attorney General, all of Washington, D. C., Ben F. Foster, U. S. Attorney, and J. M. Burnett, Assistant U. S. Attorney, both of San Antonio, Texas, for appellees.

Before HOLMES and MCCORD, Circuit Judges, and STRUM, District Judge.

STRUM, District Judge:

This suit was instituted to enjoin a Collector of Internal Revenue from selling, under warrant of distraint, Texas homestead realty owned by Scott Shambaugh, and his wife Annie, to satisfy unpaid income tax assessments against the Shambaughs for the year 1930. The appeal is from a judgment below denying the injunction.

[ Homestead Realty Not Immune from Enforced Sale to Satisfy Income Tax Lien]

Appellants assert that under Art. 16, Sec. 50, of the Texas Constitution, their homestead realty is immune from forced sale to satisfy an income tax lien. This contention is untenable. It is unnecessary to explore at length the interesting historical background of this contention, involving the terms of the "annexation" of Texas to the Union in 1845. Texas , like other States, occupies her place in the Union subject to the paramount authority of the United States under the Sixteenth Amendment to lay and collect taxes on incomes. The Federal statute authorizes the seizure and sale of real estate to satisfy unpaid income taxes when sufficient personalty is not found. 26 U. S. C. A. 3700. Homesteads are not exempted. 26 U. S. C. A. 3691. These statutes, enacted to effectuate a constitutional power, are the supreme law of the land. If they are in conflict with State law, constitutional or statutory, the latter must yield. U. S. v. Greenville , 118 Fed. (2d) 963, 965 [41-1 USTC ¶9381]. Cf. McCullough v. Maryland , 4 Wheat. (U. S.) 436, 4 L. Ed. 579. The Courts of Texas reached the same conclusion upon this precise question. Staley v. Vaughn, 50 S. W. (2d) 907.

Minor unmarried children living with the taxpayers as a part of their family, and against whom no tax is assessed, also join in the suit and assert that as to them the Collector's action is arbitrary and capricious, amounting to an illegal confiscation of the children's property rights in the homestead to satisfy the tax debt of their parents. ¹ The Courts of Texas hold that a homestead cannot exist in a remainderman so long as the particular estate is undetermined. For the purpose here under consideration, a child's homestead rights do not attach prior to the death of his parents. Until then, a child has no possessory interest. He has only an expectancy or contingent interest, which may be lost through the acts of his parents. Greenawalt v. Cunningham, 107 S. W. (2d) 1099; Johnson v. Prosper Bank, 125 S. W. (2d) 707, affirmed 138 S. W. (2d) 1117. As these parents are living, the minor children have no such present interest in the homestead as would justify the issuance of the injunction sought. Miller v. Standard Nut Margarine Co., 284 U. S. 498, 76 L. Ed. 422 [3 USTC ¶878], relied upon by appellants as authority for equitable relief, is wholly unlike this case. There, the tax itself was illegal and its assessment unauthorized. Here, the validity of the tax is conceded. Only the method of its collection is challenged.

Appellants further assert that the tax in question is barred by the six-year statute of limitation, 26 U. S. C. A. 3312(d), and that they are financially unable to pay the tax and sue to recover it. They contend that together these circumstances constitute a case of illegality, coupled with extraordinary circumstances, justifying injunctive relief, notwithstanding 26 U. S. C. A. 3653(a) ² and 28 U. S. C. A. 384. ³

[Offers of Compromise]

Because of their asserted inability to pay, the Shambaughs submitted three offers of compromise, each containing waivers and extensions of limitation agreements which, if valid, would extend the limitation period to July 11, 19 41, according to appellants' computation. The Collector gave notice of distraint on June 5, 19 41. This suit was brought June 30, 19 41.

The first waiver, signed by all parties, extended the limitation period to September 28, 19 39. Appellants assert that the subsequent waivers were ineffectual because executed only by the taxpayers, and not by the Commissioner of Internal Revenue, so that the extensions subsequent to September 28, 19 39, were not "agreed upon in writing between the Commissioner and the taxpayer," as required by the statute, 26 U. S. C. A. 276(c).

The statute does not require that the "agreement" shall be embodied in one writing, nor evidenced alone by the formal extension agreement tendered by the taxpayer, nor does it prescribe the time within which the Commissioner's assent thereto must be evidenced. No particular formula of words is necessary. The sole requirement is that the agreement be "in writing". Any writing, formal or informal, if made for the purpose of evidencing the Commissioner's approval, and from which his approval may be gathered by reasonable inference, is sufficient. ⁴ The statutory provision requiring a written agreement is for administrative purposes,--not to convert into a contract what is essentially a voluntary unilateral waiver of a defense by the taxpayer. ⁵ In construing such waivers, the intention of the parties is an important factor. ⁶

The taxpayers intended, and all parties understood, that the waivers were submitted in aid, and as a part of, the taxpayers' efforts to effect a compromise adjustment of the tax, and that the purpose of the waivers was to suspend the running of the statute while the offers were under consideration. It was certainly not contemplated that while the taxpayers negotiated to better their position the statute should continue to run, so that even though the compromise offers were rejection collection of the tax would be barred by limitation.

The compromise offers were considered on the merits and were rejected by letters signed by the Commissioner, stating in effect that "careful consideration has been given the offer and supporting data." These rejection letters relate to, and are to be considered in connection with, the offers which contained the waivers. They constitute presumptive proof of the Commissioner's agreement to the waivers, unless overcome by countervailing evidence, which is here lacking. ⁷ Had the Commissioner formally signed the waivers themselves, the taxpayers could have gained nothing more. Having had full advantage of the waivers, the taxpayers should not now be heard to repudiate them unless they were clearly inoperative. In the circumstances here presented, we hold the waivers sufficient to satisfy the requirements of the statute and effective to toll the statute of limitation beyond the date of distraint. ⁸

As no basis for injunctive relief is established, the judgment is affirmed.

¹ Cf. Hubbard Investment Co. v. Brast, 59 Fed. (2d) 709 [1932 CCH ¶9366]; Long v. Rasmussen, 281 Fed. 236; Pool v. Walsh, 282 Fed. 620; Trinacia Real Estate Co. v. Clarke, 34 Fed. (2d) 325 [1 USTC ¶422]; Lion Coal Co. v. Anderson, 62 Fed. (2d) 325 [1932 CCH ¶9583].

² "* * * No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court." (Rev. Stat. 3224.)

³ "Suits in equity shall not be sustained * * * in any case where a plain, adequate and complete remedy may be had at law."

⁴ Stearns Co. v. U. S. , 291 U. S. 54; 78 L. Ed. 647 [4 USTC ¶1210].

⁵ Stange v. U. S., 282 U. S. 270; 75 L. Ed. 335 [2 USTC ¶638]; Florsheim Bros. Dry Goods Co., Ltd. v. U. S., 280 U. S. 453; 74 L. Ed. 542 [2 USTC ¶485].

⁶ U. S. v. Havner, 101 Fed. (2d) 161 [39-1 USTC ¶9286]; Helvering v. Ethel D. Co., 70 Fed. (2d) 761, 762 [4 USTC ¶1267].

⁷ Stearns Co. v. U. S. , 291 U. S. 54; 78 L. Ed. 647, headnotes 4 and 5 [4 USTC ¶1210].

⁸ Parker Co. v. Comr., 49 Fed. (2d) 254 [5 USTC ¶1423]; McCarthy Co. v. Comr., 80 Fed. (2d) 618 [35-2 USTC ¶9674]; Moses Co. v. U. S., 43 Fed. (2d) 653 [1930 CCH ¶9518]; aff. 61 Fed. (2d) 791 [1932 CCH ¶9528], cert. den. 289 U. S. 743; Riverside & Dan River Cotton Mills v. U. S., 11 Fed. Supp. 134 [35-2 USTC ¶9434], cert. den. 296 U. S. 624; U. S. v. Havner, 101 Fed. (2d) 161 [39-1 USTC ¶9286]. Contra S. S. Pierce Co. v. U. S. , 93 Fed. (2d) 599 [37-2 USTC ¶9602].

In Comr. v. U. S. Refractories Corp., 64 Fed. (2d) 69 [1933 CCH ¶9182], relied upon by appellants, affirmed by an equally divided Court, 290 U. S. 591, it was pointed out that the Commissioner did not sign the waiver, "nor any other writing in relation to it".

 

 

 

 

[80-1 USTC ¶9364] United States of America , Plaintiff v. Lonnie Ray St. Clair, Bessie Louise St. Clair, et al., Defendants

U. S. District Court, No. Dist. of Tex., Lubbock Div., Civil No. CA-5-78-117, 3/19/80

[Code Secs. 6331, 6334, and 6672]

Failure to collect tax: responsible person: Levy and distraint: Property exempt from levy: Homestead.--A Texas statute, providing for the exemption from levy, seizure, and sale of an individual's homestead, did not exempt the residence of a taxpayer from Federal tax liens. The liens were properly foreclosed to satisfy unpaid employment taxes incurred in relation to various businesses with which the taxpayer was associated, but such liens were also subject to prior claims by local taxing districts. Therefore, the property was ordered sold and the proceeds distributed in the order in which the claims were filed.

Louise G. Parks Hytken, Department of Justice, Dallas , Tex. 75242 , for plaintiff. Yvonne Faulks, Cleddie Edwards, 1001 Main, Lubbock, Tex. 79401, Carroll Cobb, 1801 Avenue Q. Lubbock, Tex. 79408, for defendants.

Findings of Fact and Conclusions of Law

SKELTON, Senior Judge:

The above-entitled case came on for trial before the Court on February 25, 1980 . The Court having considered the testimony of the witnesses produced at trial, documents introduced into evidence, answers to interrogatories, admissions, the stipulation of facts filed by the parties, the briefs and argument of counsel for the various parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law.

Findings of Fact

1. This is an action brought by the United States to foreclose certain federal tax liens on a parcel of real property owned by defendants Lonnie Ray St. Clair (hereinafter "defendant St. Clair or St. Clair") and Bessie Louise St. Clair (hereinafter "B. L. St. Clair"). Certain other defendants in this action were joined as parties by virtue of claims they might assert as unsecured creditors of L. R. St. Clair and B. L. St Clair. However, all of such unsecured defendant creditors have been dismissed from this case by orders of the Court. In addition to the foreclosure of its federal tax liens against such property, the United States also seeks to obtain a deficiency judgment against L. R. St. Clair for the unsatisfied amount of his federal tax liabilities, if any. Lubbock County , Texas , the City of Lubbock, Texas, and Lubbock Independent School District have tax liens on the above property that are superior to those of the Federal Government, as shown below. These political subdivisions of Texas have been joined as parties defendants herein. They seek to foreclose their tax liens on such property in this suit, and for deficiency judgments if their liens are not satisfied.

2. The federal tax liabilities which give rise to this controversy arose from assessments against L. R. St. Clair for the indicated federal employment tax liabilities for three different business entities which are as follows:

a. Fiesta Del Monterrey Beauty Salon (hereinafter "Beauty Salon"): For federal withholding taxes, for taxes imposed by the Federal Insurance Contributions Act and for penalties and interest for the 2nd, 3rd, and 4th quarters of 1971 and for all quarters of 1972; and for federal unemployment tax liabilities, penalties and interest for the calendar years of 1971 and 1972.

b. Zira Management Corporation (hereinafter "Zira"): For a 100% penalty assessed under 26 U. S. C., §6672 of the Internal Revenue Code of 1954 for withheld taxes due for employees for the 1st and 2nd quarters of 1970.

c. Standard Milling Co., Inc. (hereinafter "Standard Milling"): For a 100% penalty assessed under 26 U. S. C., §6672 of the Internal Revenue Code of 1954 for withheld taxes due for employees for the 3rd quarter of 1968 through the 1st quarter of 1969, inclusive.

3. The Beauty Salon was a sole proprietorship operated by defendant St. Clair. There is no dispute as to the liability of defendant L. R. St. Clair for the employment and unemployment taxes assessed against him as Lonnie St. Clair, d/b/a Fiesta Del Monterrey Beauty Salon. As shown by the certificates of assessments and payments and the schedule of unpaid tax liability, these assessments were for employment taxes for the second, third and fourth quarters of 1971 and all quarters of 1972, and for federal unemployment taxes for the calendar years 1971 and 1972. The total amount due for these employment tax liabilities is the sum of $34,906.53 plus interest and penalties from January 30, 1980 , as provided by law. The defendant does not contest the accuracy of this amount.

4. Defendant St. Clair filed all the necessary employment and unemployment tax returns for the quarters in question but did not pay the taxes due in full. He did make periodic nominal payments but never satisfied the total tax liability due. St. Clair had current knowledge of the beauty salon's day-to-day accounts, taxes owed and the overall day-to-day financial position of the business. The evidence showed that he had been advised of and was familiar with the requirements for employment and unemployment taxes.

5. Defendant St. Clair was part owner and the business manager of a business entity known as Zira Management Corporation. The evidence is not clear whether Zira was ever formally incorporated; however, it was represented to be a corporation throughout its existence and it was operated as a de facto corporation.

6. Zira signed a contract to purchase Dean's Meat Company of Hobbs , New Mexico . On March 20, 1970 , an account was opened with the First National Bank of Hobbs , New Mexico , in the name of "Dean's Meat Company." Zira was listed as the owner of the business and as a Texas corporation. Defendant St. Clair's signature appeared on the signature card as "general manager" and he did sign checks. The bank statements were to be mailed to Zira in Lubbock , Texas . Defendant St. Clair signed Zira's Form 941 (Employer's Quarterly Federal Tax Return) for the 1st quarter of 1970. This return was for the employees of Dean Meat Company. A corporate check signed by St. Clair as general manager in the sum of $536.17 was issued to pay the taxes due on the return but it was returned unpaid because of insufficient funds. St. Clair was aware of the returned check.

7. Zira withdrew from efforts to finalize the purchase of Dean's Meat Company and the bank account was closed.

8. Zira's Form 941 for the second quarter of 1970 was prepared by an I. R. S. agent under the authority of 26 U. S. C. §6020(b) from information he obtained from a Mrs. Dean who was operating Dean's Meat Company for Zira in Hobbs, New Mexico.

9. The penalty pursuant to Section 6672, commonly known as the 100 percent penalty, was assessed against L. R. St. Clair on July 10, 1972 , in connection with his involvement with Zira in the amount of $1,190.66. Proper notice and demand for payment of this assessment was made on L. R. St. Clair on July 10, 1972 . As shown by the exhibits presented, the balance due on this assessment as of January 30, 1980 , was the sum of $1,779.58.

10. The Court finds that defendant St. Clair was a person responsible for paying over to the United States the taxes withheld from the employees of the meat packing business which were shown on the quarterly employment tax returns filed for Zira Management Corporation for the 1st quarter of 1970.

11. The Court further finds that defendant St. Clair knew the taxes had not been paid for the 1st quarter of 1970 and failed to exercise his authority to issue a check to pay the United States Government in order to fulfill his responsibility of paying over the withheld taxes. Such failure to pay over the taxes was "willful" within the meaning of §6672 of the Internal Revenue Code of 1954.