Annotations- Retirement Accounts Page2

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In deciding a motion to dismiss under Rule 12(b) Fed. R. Civ. P., the function of the Court is to test the legal sufficiency of the complaint. In scrutinizing the complaint, the Court is required to accept the allegations stated in the complaint as true, Hishon v. King & Spalding 467 U.S. 69 (1984), while viewing the complaint in a light most favorable to the plaintiffs. Scheuer v. Rhodes, 416 U.S. 232 (1974); Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976). The Court is without authority to dismiss the claims unless it can be demonstrated beyond a doubt that the plaintiff can prove no set of facts that would entitle it to relief. Conley v. Gibson, 355 U.S. 41 (1957); Westlake , supra, at 858. See generally 2A J. Moore, W. Taggert & J. Wicker, Federal Practice, 12.08 (2d ed. 1985).

The Court's function in ruling on a motion for summary judgment is to determine if any genuine issue exists for trial, not to resolve any factual issues, and to deny summary judgment if material facts are in dispute. United States v. Articles of Device, etc., 527 F.2d 1008, 1011 (6th Cir. 1976); Tee--Pak, Inc. v. St. Regis Paper Co., 491 F.2d 1193, 1195 (6th Cir. 1974). Further, "[i]n ruling on a motion for summary judgment, the evidence must be viewed in a light most favorable to the party opposing the motion." Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1324 (6th Cir. 1983). To summarize, summary judgment is only appropriate when no genuine issue of material fact remains to be decided, and when the undisputed facts, viewed in a light most favorable to the non-moving party, entitle the movant to judgment as a matter of law. Smith v. Pan Am World Airways, 706 F.2d 771, 773 (6th Cir. 1983).

A principle purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Rule 56(e) places responsibility on the party against whom summary judgment is sought to demonstrate that summary judgment is improper, either by showing the existence of a material question of fact or that the underlying substantive law does not permit such a decision. In relevant part, the provision states:

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.

Rule 56(e), Fed. R. Civ. P. Rule 56(e) requires the non-moving party to go beyond the pleadings, and by affidavits, depositions, answers to interrogatories, or admissions on file, designate specific facts showing a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. at 324.

The United States bases its motion to dismiss and/or for summary judgment on a single argument, that this Court lacks jurisdiction to entertain this action over the United States . The gist of its argument in this regard is that the action before this Court fails as an interpleader action for the reason that defendant Tucker and the United States are not adverse claimants and that there is no potential for exposure to double or multiple liability on the part of the plaintiff Plan. These arguments are without merit.

The suit before this Court is one for interpleader. In pertinent part the statute invoked by plaintiff in this suit states as follows:

(a) The district courts shall have original jurisdiction of any civil action of interpleader . . . if

(1) Two or more adverse claimants, . . . are claiming or may claim to be entitled to such money . . . and if (2) the plaintiff has deposited such money . . . into the registry of the court, there to abide the judgment of the court, or has given bond payable to the clerk of the court in such amount . . . as the court or judge may deem proper, conditioned upon the compliance by the plaintiff with the future order or judgment of the court with respect to the subject matter of the controversy.

28 U.S.C. §1335. Second, under the Federal Rules of Civil Procedure, it is required that plaintiff be exposed to potential double or multiple liability in order to bring a proper interpleader action. Fed. R. Civ. P. 22.

While plaintiff concedes that under 28 U.S.C. §2410 the United States has waived its sovereign immunity to be sued in interpleader actions, it maintains that the present action is not one for interpleader or in the nature of interpleader. The United States bases this contention on two key assertions. First, the IRS claims that defendant David A. Tucker and the United States are not adverse claimants, as required under the rule. Second, the IRS maintains that plaintiff is not exposed to double or multiple liability, as required by Fed. R. Civ. P. 22. For the following reasons, this Court disagrees.

It is true, as the IRS contends, that defendant David A. Tucker and the United States are not adverse claimants in the case before this Court. This is true because the United States may only claim the taxpayer's interest in the fund, that is, may only collect that which the taxpayer himself has a right to collect. See 26 U.S.C. §6331(a) and United States v. Winnett, 165 F.2d 149 (9th Cir. 1947). This essentially means that its claim is not adverse but rather derived from and through the defendant taxpayer. Interlake Fuel Oil v. Andy Farkas, Semi-Trucking, Civil No. 84-7488 (USDC ND Ohio, January 25, 1985 ).

David A. Tucker is entitled to no distribution without the consent of his wife, Mary A. Tucker, which consent is being denied. 29 U.S.C. §1055(c)(2) and 26 U.S.C. §417(a)(2) . The IRS does not dispute the fact that Mary A. Tucker is not liable for the alleged tax deficiency. Obviously, her interest in the disputed fund, then, would be adverse to the interest of the IRS. This would be true even if Mary A. Tucker had not been allowed to intervene as a defendant. Interpleader relief is not limited to adverse claimants presently claiming a right to the fund but includes potential claimants. See 21 Fed. Proc., L. Ed. §49.4 (1984) and cases cited therein. As a result of this order, however, Mrs. Tucker is an adverse claimant.

The IRS also contends that plaintiff does not meet the requirement under Rule 22 of the Federal Rules of Civil Procedure that it be exposed to the potential for double or multiple liability. It cites for this proposition 26 U.S.C. §6332(e) and Johnson v. United States, 566 F. Supp. 1012 (M.D. Fla. 1983). In pertinent part, the statute provides:

Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property (or discharges such obligation) to the Secretary . . . shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment. (Emphasis added). ¹

The Johnson case held that the IRS could not be interpled because the trustees of a union vacation fund were not subject to the risk of double liability in light of the immunity from suits by the taxpayer granted by the above statute. However, the Johnson case did not need to consider the issue before this Court. That issue is whether the trustees of a fund who surrendered levied property of third parties would be immune from suits by those third parties. The court in Johnson noted that immunity is not extended to a person who mistakenly surrenders the property of a third party who is not subject to an IRS levy. Id. at 1014. See also 26 C.F.R. §301.6332-1(c) .

Mrs. Tucker is not subject to an IRS levy. Thus, were she to bring suit against the Plan as a result of its honoring of the IRS levy, no immunity would be available to the Plan as the result of 26 U.S.C. §6332 . On the other hand, if the Plan fails to honor the levy imposed by the IRS, it is potentially liable to the IRS in an amount equal to the value of the property not surrendered. 26 U.S.C. §6332(d) . It is clear that plaintiff is exposed to a potential for double or multiple liability. Having satisfied the requirements of adversity and double or multiple liability, plaintiff has brought a proper action in interpleader. Jurisdiction is thus proper in this Court under 28 U.S.C. §2410 and dismissal on jurisdictional grounds is thus, inappropriate.

This Court also has jurisdiction over the crossclaims of David A. Tucker. Determining jurisdiction in this regard is a two-step inquiry. National Co-Op. Refinery Ass'n v. Rouse, 60 Bankr. R. 857, 860-61 (D. Colo. 1986). First, the Court needs to determine whether subject matter jurisdiction over the underlying interpleader action exists. Id. Second, the Court needs to determine whether jurisdiction over the crossclaims is ancillary to that of the underlying proceeding. Id. Since this Court's answer to step one is in the affirmative, the first prong is satisfied. David A. Tucker's crossclaim is for unauthorized disclosure of return information under 26 U.S.C. §7431(a)(2) . Specifically, Mr. Tucker claims such disclosure by defendant United States , by and through its Internal Revenue Officer, Jo-An Pszenny. The complained of disclosures were made to both attorneys and agents of Mr. Tucker. Clearly, this is ancillary to the underlying case in this matter and thus, jurisdiction is proper.

However, defendant United States is correct that these crossclaims are meritless. The IRS is authorized to disclose return information during the course of collecting a taxpayer defendant's unpaid tax liability. 26 U.S.C. §6103(k)(6) and Treas. Reg. §301.6103(k)(6)-1(b)(6) . No dispute of material fact exists with regard to the fact that any disclosures made were made by the IRS in an attempt to collect a tax liability. Thus, there has been no wrongful disclosure here. Even if there were, however, the IRS incurs no liability for wrongful disclosures made in good faith. 26 U.S.C. §7431(b) . Nothing in the facts as alleged by David A. Tucker indicates such lack of good faith. In sum, defendant United States is entitled to summary judgment with respect to David A. Tucker's wrongful disclosure crossclaims.

However, defendant United States is not entitled to summary judgment with regard to the remainder of this action since it is not entitled to judgment as a matter of law. Very simply, the IRS is only entitled to levy the property belonging to a delinquent taxpayer. 26 U.S.C. §6331 . The funds that the IRS is attempting to levy belong to two individuals, jointly, the delinquent taxpayer, David A. Tucker and Mary A. Tucker, an innocent party. It would be manifestly unjust to Mary A. Tucker to allow the IRS to levy funds held for her benefit. David A. Tucker also argues that pursuant to statute, the IRS failed to give proper notice before levy. Id.

The above statute provides that for levies issued on or after July 1, 1990 , the IRS must provide the taxpayer no less than thirty days notice before the day of the levy unless there is a finding that the collection of tax is in jeopardy. Id. No such finding is asserted anywhere in the record. The IRS argues, however, that proper notice was given. The IRS includes no copies of such notice. Rather, they refer the Court to their answer to defendant David A. Tucker's crossclaims at ¶31 in which they claim to have complied with 26 U.S.C. §6331(d)(4) by giving notice to him of his tax deficiencies. Even if this is true, however, this does not constitute notice of levy. From this Court's perusal of the record, the only notice of levy given was to plaintiff.

This notice was given to plaintiff on August 28, 1990 , the day on which defendant David A. Tucker was required to appear in response to a summons issued by the United States District Court in Ann Arbor , Michigan for the purpose of showing cause as to his allegedly delinquent taxes. Mr. Tucker argues that this is in contravention of 26 U.S.C. §6331(g) . That statute precludes the IRS from making a levy on the property of any person on any day on which such person is required to appear in response to a summons issued by the Secretary for the purpose of collecting underpayment of tax. Id. Since the summons did not come directly from the Secretary, however, defendant's argument in this respect fails. However, this Court concludes that the IRS levy was illegal, unenforceable, and void as a matter of law as the result of the IRS' failure to comply with the 30-day notice provisions of 26 U.S.C. §6331(d)(2) . ² This plus the fact that the levy itself is an improper attempt to levy the funds of an innocent party leads this Court to the conclusion that Defendant United States' motion for summary judgment must be denied in all respects except with regard to David A. Tucker's crossclaims against it.

It is therefore,

ORDERED that Mary A. Tucker's motion to intervene is hereby granted.

ORDERED that defendant United States ' motion for summary judgment is denied with respect to plaintiff's original claim.

FURTHER ORDERED that defendant United States ' motion for summary judgment is granted with respect to the crossclaims of defendant David A. Tucker.

FURTHER ORDERED that defendant David A. Tucker's motion for summary judgment with respect to plaintiff's original claim is hereby granted and it is declared that defendant United States has no right to compel plaintiff to process and turn over to it the entire balance held for the benefit David A. and Mary Tucker.

¹ Oddly enough, the applicable Treasury regulation eliminates the phrase "and any other person" such that, presumably, any immunity in this case would only apply to suits against the plaintiff by the taxpayer, David A. Tucker. No immunity would exist for suits against the plaintiff by Mary A. Tucker. See 26 C.F.R. §301.6332-1(c) .

² David A. Tucker also argues that the notice to plaintiff was defectively prepared. That argument fails as a matter of fact as this Court finds that such notice was in substantial compliance with the requirements of §536 (14.5(2) of the Internal Revenue Manual.

 

 

 

[96-1 USTC ¶50,143] Travelers Insurance Company, Plaintiff v. John J. Rattermann, et al., Defendants

U.S. District Court, So. Dist. Ohio , West. Div., C-1-94-466, 1/12/96

[Code Sec. 401 ]

Levy and distraint: Pension plans: Ownership: Property exempt from levy: Assignment or alienation of benefits.--The IRS could levy against an individual's private pension plan benefits to satisfy his liability for the trust fund recovery penalty. Despite the fact that the Employment Retirement Income Security Act of 1974 (ERISA) contains a prohibition against the assignment and alienation of pension plan benefits, the IRS was generally authorized under the Internal Revenue Code to levy upon all property and property rights. Further, although some pension plans are exempted from levy under the Code, private ERISA-qualified plans were not included in the exemption. In addition, the levy did not impinge upon the rights of the taxpayer's wife because no qualified domestic relations order permitting the wife to receive all or a portion of the benefits payable to the husband was in effect.

[Code Sec. 6331 ]

Levy and distraint: Pension plans: Ownership: Assignment or alienation of benefits.--The IRS could levy against an individual's private pension plan benefits to satisfy his liability for the trust fund recovery penalty. The levy was not barred even though the taxpayer's wife was an innocent party who had not consented to the levy. Since the IRS sought only to attach the amounts as they became due and payable to the husband, its levy did not impinge upon the wife's contingent, survivorship interest in the husband's benefits. The wife did not have a present interest in the pension funds under state ( Ohio ) law or the annuity contract, and no qualified domestic relations order permitting the wife to receive all or a portion of the benefits payable to her husband was in effect. However, the IRS was prevented from levying on the funds received by the wife after her husband's death.

[Code Sec. 6334 ]

Levy and distraint: Pension plans: Property exempt from levy: Assignment or alienation of benefits.--The anti-alienation provision under the Employment Retirement Income Security Act of 1974 (ERISA) did not prevent the IRS from levying on an individual's private pension plan payments to satisfy his liability for the trust fund recovery penalty. The IRS was generally authorized under the Internal Revenue Code to levy upon all property and property rights, and although some pension plans are exempted from levy under the Code, private ERISA-qualified plans were not included in the exemption.

Joseph P. Thomas, Benesch, Friedlander, Coplan & Aronoff, 600 Vine St., Cincinnati, Ohio 45202, for plaintiff. Paul David Rattermann, Kepley, MacConnell & Eyrich, Cincinnati , Ohio 45202 , for defendant (Rattermann, J.J.). Jan Martin Holtzman, Stacy Hallet, Department of Justice, Cincinnati , Ohio 45202 , for defendant ( U.S. ).

ORDER

STEINBERG, Magistrate Judge:

In June 1994, plaintiff Travelers Insurance Company filed this interpleader action in the Hamilton County, Ohio Court of Common Pleas. Travelers sued John J. Rattermann, who has a vested interest in an annuity under a group annuity contract Travelers issued to Rattermann's prior employer, Ruth Rattermann (John Rattermann's wife); and the United States. A dispute arose between the Rattermanns and the United States regarding the legal effectiveness of tax levies issued by the Internal Revenue Service (IRS) to Travelers for attachment of annuity funds designated to be paid to John Rattermann. In order to avoid exposure to liability, Travelers brought this action requesting an order setting forth the respective rights of the defendants to the annuity funds and the amount of the annuity payments to be made, if any, to each of the defendants. Travelers also requested that it be allowed to deposit monthly annuity payments currently payable to the Rattermanns with the Court during the pendency of the action, as well as an order enjoining the defendants from instituting any action against it. (See Doc. 1, Complaint for Interpleader).

Defendant United States removed the action to this Court on July 8, 1994 . (Doc. 1). On December 7, 1994 , the Court issued an order directing Travelers to deposit the monthly annuity payments, after deducting taxes, with the Clerk of Court. (Doc. 8).

The parties have consented to disposition of the case by the United States Magistrate Judge. (Doc. 7). After a hearing on July 31, 1995 , the matter is now before the Court on defendants' cross-motions for summary judgment. (Docs. 10, 11). The Court's rulings on these motions will constitute a final disposition of this case.

Factual Background

Defendants agree there are no disputed facts in this matter. (Doc. 18, p. 4). John and Ruth Rattermann have been married to each other for over forty years. (Id., p. 1, ¶1). John Rattermann is in his late sixties and is currently retired. He was employed by the Lunkenheimer Company in Cincinnati , Ohio from 1945 to 1984. ( Id. , ¶¶2-3). The Lunkenheimer Company offered to its employees a retirement benefit in the form of a qualified group survivor annuity plan under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §1001 , et seq. (Id., pp. 1-2, ¶¶4-5). John Rattermann obtained a fully vested interest in the plan. (Id., p. 1, ¶4).

The group annuity contract was issued by plaintiff to the Lunkenheimer Company. (Doc. 1, Complaint for Interpleader, Plt. Ex. A, p. 1). The contract contains the following non-assignability provision:

No person entitled to receive any benefits or payments hereunder shall have the right to assign, commute or encumber the benefits or payments herein provided. To the maximum extent permitted by law, the benefits or payments herein provided shall not in any way be liable to attachment, garnishment or other process, or to be seized, taken, appropriated or applied by any legal or equitable process, to pay the debt or liability of such person.

(Id., p. 23).

John Rattermann elected an immediate longer life annuity benefit that was offered in the contract with an annuity commencement date of November 1, 1986 . ( Id. , attached Ex. E). The benefit was a joint and survivor annuity, wherein Travelers was to pay the "immediate annuitant," John Rattermann, $1,044.86 each month for the remainder of his life. (Id., pp. 6, 19 (Section K), and attached Ex. E; Doc. 18, p. 2, ¶6). The contract further provided that if she survived him, upon the immediate annuitant's death, the "contingent annuitant," Ruth Rattermann, was to receive $522.43 per month for the remainder of her life. Id. Ruth Rattermann's claim to the annuity payments is as a joint annuitant entitled to receive upon her husband's death one-half of the monthly amount payable to him during his lifetime. Ruth Rattermann does not have an interest in the plan pursuant to a Qualified Domestic Relations Order (QDRO). (Doc. 18, p. 2, ¶7).

The Lunkenheimer Company ceased doing business in the Cincinnati area in 1984. ( Id. , ¶8). Thereafter, John Rattermann became employed by Cincinnati Bronze, Inc. (CBI), where he held the office of President. Id. Ruth Rattermann was never employed at CBI and never was a member of CBI's Board of Directors or held any office or other type of position with that company. (Id., p. 3, ¶11). CBI eventually failed and ceased doing business in 1988. (Id., p. 2, ¶8).

The United States , through the IRS, issued a tax assessment against John Rattermann, individually, for "trust fund taxes" that were withheld from CBI employees but not paid to the IRS. ( Id. , ¶9; Doc. 10, Affidavit of John J. Rattermann, ¶8). The IRS issued several notices of levy to plaintiff in order to attach the monthly payments that John Rattermann was to receive under the terms of the Lunkenheimer Company group annuity contract. (Doc. 18, pp. 2-3, ¶9). Ruth Rattermann has refused to give her consent to the levy of the annuity payments. (Id., p. 3, ¶13). The defendants have stipulated that as of December 27, 1995 , John Rattermann owes $184,009.99 to the United States "on the one hundred percent penalty liability, including payments and interest." (Doc. 27).

In September 1994, the IRS issued a levy attaching John Rattermann's social security benefits. (Doc. 23, p. 38; see also Doc. 18, p. 3, ¶14). Rattermann was automatically granted a "minimal exemption" from the levy, wherein the IRS could only attach approximately $300.00 from a $900.00 monthly social security payment. (Doc. 23, p. 38). In November 1994, the IRS issued another levy against John Rattermann's social security benefits. No exemption was allowed for that levy, and from November 1994 through June 1995, the entire amount of Rattermann's monthly social security benefits were paid to the IRS. (Doc. 23, p.39; see also Doc. 18, p. 3, ¶14). The IRS apparently discovered that it had erred in levying against all of Rattermann's social security benefits. The IRS agreed to the disbursement of $3,850.00 from the funds deposited with the Clerk of Court in order to reimburse John Rattermann for the amount owed to him during the eight-month period when no exemption had been allowed. (Doc. 20).

Since July 1995, John Rattermann has been allowed an exemption from the levy on his social security benefits. The Rattermanns have conceded they are entitled to only one exemption from levy for provision of funds upon which to live. (See Doc. 23, pp. 39-40, 43-45).

OPINION

A motion for summary judgment should be granted if the evidence submitted to the court demonstrates that there is no genuine issue as to any material fact and that the movant is entitled to summary judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' " Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Although cross-motions for summary judgment do not necessarily demonstrate that no genuine issues of material fact exist, see United States v. Byrum [72-2 USTC ¶12,859 ], 408 U.S. 125 (1972), the parties have agreed that this case does not involve any disputed facts. Therefore, the Court's determination of the defendants' cross-motions for summary judgment depends entirely upon resolution of questions of law.

ERISA Does Not Prohibit The IRS From Attaching Pension Plan Benefits

The Rattermanns contend that ERISA prohibits the IRS from levying against their pension benefits. Private pension plans qualifying under ERISA are required to contain a provision prohibiting the assignment or alienation of benefits. See 29 U.S.C. §1056(d)(1) . ERISA's anti-alienation provision reflects a congressional policy choice "to safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps usually are, blameless)" over creditors' lawful claims. Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365, 376 (1990).

Although ERISA's anti-alienation clause prevents ordinary creditors from attaching pension payments, the courts that have dealt with the particular issue facing this Court have unanimously held that a federal tax lien or levy may be imposed upon private ERISA-qualified pension plan funds. See, e.g., Shanbaum v. United States [94-2 USTC ¶50,512 ], 32 F.3d 180, 183 (5th Cir. 1994); Raihl v. United States (In re Raihl) [93-1 USTC ¶50,290 ], 152 B.R. 615, 618 (9th Cir. 1993); Ameritrust Co. v. Derakhshan [94-1 USTC ¶50,007 ], 830 F. Supp. 406, 410-11 (N.D. Ohio 1993); Palmore v. United States ex rel. IRS (In re Palmore) [93-1 USTC ¶50,118 ], 71 A.F.T.R.2d 93-1588 (P-H) (N.D. Okla. March 15, 1993 ); Schreiber v. United States (In re Schreiber) [94-1 USTC ¶50,202 ], 163 B.R. 327, 334 (Bankr. N.D. Ill. 1994); Jacobs v. IRS (In re Jacobs) [93-1 USTC ¶50,118 ], 147 B.R. 106, 108-09 (Bankr. W.D. Pa. 1992); In re Perkins, 134 B.R. 408, 411 (Bankr. E.D. Cal. 1991); In re Reed, 127 B.R. 244, 248 (Bankr. D. Haw. 1991). The Court agrees with this line of cases.

The Internal Revenue Code, 26 U.S.C. §6321 , creates a lien for unpaid taxes in favor of the United States upon "all property and rights to property" of the debtor taxpayer. Under 26 U.S.C. §6331 , the IRS is authorized to levy upon "all property and rights to property" belonging to the taxpayer for the collection of taxes. The language contained in the statute is broad and "reveals on its face that Congress meant 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, 719-20 (1985); see also Shanbaum [94-2 USTC ¶50,512 ], 32 F.3d at 183. The Internal Revenue Code, 26 U.S.C. §6334(a) , specifically exempts certain enumerated property from levy, including some pension plans, but not private ERISA-qualified plans like the one involved in this case. ¹ Cf. Shanbaum [94-2 USTC ¶50,512 ], 32 F.3d at 183; In re Jacobs [93-1 USTC ¶50,118 ], 147 B.R. at 108. Section 6334(c) expressly provides: "Notwithstanding any other law of the United States ..., no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." Given that certain pension rights are already included as enumerated exemptions in §6334(a) , this Court concludes that if Congress had intended all ERISA-qualified plans to be exempt from IRS levy, it knew how to do so and would have done so as a simple amendment to 26 U.S.C. §6334 . See also In re Jacobs, 147 B.R. at 108-09. Thus, the Internal Revenue Code provides the IRS with authority to levy against private ERISA-qualified pension funds. See Shanbaum [94-2 USTC ¶50,512 ], 32 F.3d at 183; Derakhshan [94-1 USTC ¶50,007 ], 830 F. Supp. at 410-11. Indeed, under the applicable Treasury Regulation, the prohibition against the assignment and alienation of benefits does not protect ERISA-qualified plans from enforcement of a federal tax levy made pursuant to 26 U.S.C. §6331 . 26 C.F.R. §1.401(a)-13(b)(2) ; see also Shanbaum [94-2 USTC ¶50,512 ], 32 F.3d at 183 n.4; Derakhshan [94-1 USTC ¶50,007 ], 830 F. Supp. at 410-11;

Citing Guidry and Patterson v. Shumate, 504 U.S. 753 (1992), the Rattermanns argue that the policy considerations underlying ERISA override the United States' interest in enforcing its tax laws and collecting unpaid tax assessments and render the Treasury Regulation void. In Guidry and Shumate, the Court declined to create exceptions to ERISA's anti-alienation provision. The Court reasoned:

As a general matter, courts should be loath to announce equitable exceptions to legislative requirements or prohibitions that are unqualified by the statutory text. The creation of such exceptions, in our view, would be especially problematic in the context of an antigarnishment provision. Such a provision acts, by definition, to hinder the collection of a lawful debt. A restriction on garnishment therefore can be defended only on the view that the effectuation of certain broad social policies sometimes takes precedence over the desire to do equity between particular parties. It makes little sense to adopt such a policy and then refuse enforcement whenever enforcement seems inequitable. A court attempting to carve out an exception that would not swallow the rule would be forced to determine whether application of the rule in particular circumstances would be "especially" inequitable. The impracticability of defining such a standard reinforces our conclusion that the identification of any exception should be left to Congress.

Guidry, 493 U.S. at 376-77.

Guidry and Shumate are distinguishable from the case at hand. Neither case involved or discussed the United States ' power under the Internal Revenue Code to attach a debtor taxpayer's pension assets. Although ERISA does not specifically exempt federal tax liens or levies from its alienation prohibition, the statute does provide that it shall not be "construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States ... or any rule or regulation issued under any such law." 29 U.S.C. §1144(d). In light of this provision, and given the fact that 26 U.S.C. §6334(c) unambiguously provides that notwithstanding any other law, only the property specifically enumerated in §6334(a) shall be exempt from IRS levy, the Court rejects the Rattermanns' argument that the IRS levy authority yields to the later enacted non-alienation ERISA provision. Cf. Shanbaum [94-2 USTC ¶50,512 ], 32 F.3d at 183; Derakhshan [94-1 USTC ¶50,007 ], 830 F. Supp. at 411.

The Rattermanns have not cited, and the Court could not find, any case which holds that the IRS is prohibited from levying against ERISA-qualified pension assets. Accordingly, this Court concludes as other courts have that ERISA's prohibition against the assignment and alienation of pension plan benefits does not preclude the IRS from levying against John Rattermann's annuity pension benefits.

The IRS May Levy Against the Monthly Annuity Payments To John Rattermann During His Lifetime

Citing Toledo Plumbers & Pipefitters Retirement Plan & Trust v. United States, 91-2 U.S. Tax Cas. (CCH) ¶50,343 (N.D. Ohio June 21, 1991 ) (Toledo Plumbers), the Rattermanns contend the IRS is prohibited from levying against the group annuity funds, which are being held for the benefit of both John and Ruth Rattermann, because Ruth Rattermann is an innocent party who has not consented to the levy.

In Toledo Plumbers, the IRS attempted to levy against a joint and survivor annuity held for the benefit of a union employee and his wife in accordance with ERISA requirements, in order to satisfy the delinquent federal income taxes owed by the employee. Apparently, in that case, the IRS sought a lump-sum distribution of the employee's entire pension fund account. The employee argued in part that the levy was invalid because under ERISA, 29 U.S.C. §1055 , he had no right to request and receive a lump-sum distribution of the annuity funds without his wife's consent. ( Toledo Plumbers, Doc. 16, Defendant David A. Tucker's Motion For Summary Judgment With Memorandum Of Facts, Points And Authorities In Support Thereof Attached). The court held the levy was an improper attempt to attach the funds of an innocent party and denied the United States ' motion for summary judgment. Toledo Plumbers, 91-2 U.S. Tax Cas. (CCH) ¶50,343, at 89,201 (N.D. Ohio June 21, 1991 ). The court reasoned the United States only has authority under 26 U.S.C. §6331(a) to levy the property belonging to the delinquent taxpayer. Id. at 89,200-01. The court noted that the employee's wife was not liable for the asserted tax deficiency and that the employee was not entitled to obtain the distribution from the retirement plan without his wife's consent, which was being denied. Id. at 89,200. The court concluded:

The funds the IRS is attempting to levy belong to two individuals, jointly, the delinquent taxpayer, David A. Tucker and Mary A. Tucker, an innocent party. It would be manifestly unjust to Mary A. Tucker to allow the IRS to levy funds held for her benefit.

Id. at 89,201.

This case is distinguishable from Toledo Plumbers. In this case, the IRS is seeking to attach only the monthly annuity payments as they become due and payable under the annuity contract to John Rattermann during his lifetime. (Doc. 11, pp. 6-7; Doc. 23, p. 20). It is not seeking a distribution of the entire annuity account and recognizes that Ruth Rattermann has a survivorship interest in receiving annuity payments from the fund upon John Rattermann's death, with which it may not interfere. (Doc. 11, pp. 6-7; Doc. 23, pp. 21, 24). Ruth Rattermann does not have an interest in the annuity plan pursuant to a QDRO. Therefore, it appears the IRS levy on annuity payments to John Rattermann is not impinging on any of the annuity funds held for Ruth Rattermann's benefit.

The Rattermanns argue that pursuant to Ohio law, a wife has a present enforceable interest in her husband's retirement benefits. (Docs. 22, 26). Ohio Rev. Code §3103.04 provides: "Neither husband nor wife has any interest in the property of the other, except as mentioned in section 3103.03 of the Revised Code, the right to dower, and the right to remain in the mansion house after the death of either." Under Ohio Rev. Code §3103.03, "[e]ach married person must support himself or herself and his or her spouse out of his or her property or by his or her labor." The Rattermanns claim that this right to support under §3103.03 provides Ruth Rattermann with a current interest in John Rattermann's annuity payments, which precludes the IRS from levying against those payments without her consent. To support their claim, the Rattermanns have cited Ohio cases involving settlement of property rights upon divorce, including a case which holds that unvested pension benefits are a marital asset subject to division on divorce. See Lemon v. Lemon, 537 N.E.2d 246 (Ohio Ct. App. 1988); see also Hoyt v. Hoyt, 559 N.E.2d 1292 ( Ohio 1990). However, they have cited no cases to support their contention that the right to support constitutes a present interest by a married person in a spouse's pension benefits or other property or that the right to support overrides a lawful third-party creditor's interest in the collection of a debt by attachment of property belonging to the debtor spouse. Indeed, in one case cited by the Rattermanns, the Ohio Supreme Court expressly stated that the "property of the husband is subject to the support of his wife, except where the rights of bona fide creditors intervene." Block v. Block, 135 N.E.2d 857, 865 ( Ohio 1956). In the absence of any authority to the contrary, the Court concludes that Ruth Rattermann does not have a property right under Ohio law to her husband's annuity payments, which would override the IRS's interest in the collection of unpaid taxes owed by John Rattermann.

In addition, Ruth Rattermann cannot claim a present interest in her husband's annuity payments under ERISA or the group annuity contract. Pursuant to the annuity contract, Ruth Rattermann is considered a "contingent annuitant" entitled to receive upon her husband's death one-half of the monthly annuity amount payable to him during his lifetime. (Doc. 1, Complaint for Interpleader, Plt. Ex. A, pp. 6, 19 (Section K), and attached Ex. E; Doc. 18, p. 2, ¶6). Ruth Rattermann's interest in the annuity plan attaches only if she survives her husband. Id. ERISA prohibits the participant in a joint and survivor annuity plan from waiving the qualified joint and survivor form of benefit or from obtaining distribution of the present value of the annuity without spousal consent. See 29 U.S.C. §1055(c)(2) and §1055(g). However, the spouse is not considered a plan participant, but rather a beneficiary under the plan. See 26 U.S.C. §414(p)(8) ; see also Hoyt, 559 N.E.2d at 1296; Taylor v. Taylor, 541 N.E.2d 55, 57 ( Ohio 1989). Because a spouse is not a plan participant, ERISA's anti-alienation provision applies to preclude the participant from assigning benefits to his or her spouse unless the spouse is designated an "alternate payee" by way of a QDRO. See 26 U.S.C. §414(p)(8) ; 29 U.S.C. §1056(d)(3) . Congress has only recognized the limited exception of a QDRO to provide for a plan participant's spouse in the face of ERISA's anti-alienation provision. See generally Taylor , 541 N.E.2d at 57. Because no QDRO was issued in this case permitting Ruth Rattermann to receive all or a portion of the annuity benefits payable to her husband, she has no claim under ERISA to the payments made to John Rattermann during his lifetime.

Accordingly, because Ruth Rattermann has no claim to the monthly annuity payments due and payable to John Rattermann under the Lunkenheimer group annuity plan, the IRS may levy against those payments without Ruth Rattermann's consent. The Rattermanns' motion for summary judgment shall be DENIED, and the United States ' motion for summary judgment shall be GRANTED with the caveat that the IRS may not levy against any future survivorship payments due and payable to Ruth Rattermann upon John Rattermann's death. ²

IT IS THEREFORE ORDERED THAT:

1. The United States ' motion for summary judgment is hereby GRANTED. The United States is entitled to receive the monthly annuity funds designated to be paid to John Rattermann during his lifetime as they become due and payable for the collection of unpaid taxes. However, upon John Rattermann's death, Ruth Rattermann is entitled to receive the survivorship annuity funds held for her benefit as they become due and payable, and the United States is prohibited from levying against those funds because she is not liable for the asserted tax deficiency.

2. The Rattermanns' motion for summary judgment is hereby DENIED.

3. All funds deposited during the pendency of this action with the Clerk of Court, which are designated to be paid to John Rattermann, shall be immediately distributed to the United States after the time for appeal has expired or after any appeal has resulted in the affirmance of this Order, whichever is later. If any survivorship annuity funds held for the benefit of Ruth Rattermann are deposited with the Clerk of Court, those funds shall be distributed to Ruth Rattermann after the time for appeal has expired or after any appeal has resulted in the affirmance of this Order, whichever is later.

¹ Pursuant to 26 U.S.C. §6334(a)(6) , pensions under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, and various military pensions are exempt from IRS levy.

² Alternatively, the Rattermanns had argued they were entitled to an exemption under 26 U.S.C. §6334(A)(9) from levy against the entire amount of John Rattermann's monthly annuity payment. (See Doc. 13, p. 3). However, John Rattermann has been allowed an exemption from levy on his monthly social security benefit payments, and the Rattermanns have conceded that they are entitled to only one such exemption. Accordingly, it appears this argument has been abandoned. 

 

[97-2 USTC ¶50,492] Rosser B. Melton, Jr., Plaintiff-Appellant v. Teachers Insurance & Annuity Association of America, Defendant-Appellee, United States of America, on behalf of its agency, the Internal Revenue Service, Intervenor Defendant-Appellee

(CA-5), U.S. Court of Appeals, 5th Circuit, 96-11134, 6/16/97 , 114 F3d 557, 114 F3d 557. Affirming an unreported District Court decision

[Code Sec. 6332 ]

Levies: Annuity payments: Surrender of property: Effect of honoring levy: Immunity: Possession of taxpayer's property: Judicial attachment.--An annuity association did not commit fraud, breach of contract, or breach of fiduciary duty when it remitted an individual's monthly annuity payment to the IRS pursuant to a levy for the payment of delinquent taxes. Once the association received a notice of levy, it was obligated to surrender the funds to the IRS. It could not assert the defense that it was not in possession of the taxpayer's property, and the property was not subject to a prior judicial attachment or execution. Since the association properly complied with the levy, it was immune from liability to the taxpayer for such compliance.

[Code Secs. 6331 and 6334 ]

Levies: Exempt property: Annuity payments: Immunity for complying with levy: Other source of income available: Verified statement.--An individual's annuity payments were not exempt from levy absent proof that he lacked other sufficient sources of income. He produced no evidence to controvert the IRS's finding that other sources of income were available, and he failed to file the requisite verified statement.

Rosser