Annotations- Seaman's Wage
Annotations: Seaman’s Wage Statute- Levy
Property Exempt from
Levy: Seaman's Wage Statute
United States of America
v. Offshore Logistics International, Inc.
S. District Court, West. Dist. La., Lafayette-Opelousas Div., Civil
Action No. 79-0011, 483 FSupp 1055,
[Code Sec. 6334]
Levy for taxes: Exempt property: Seaman's wage statute: Levy
upheld.--The court found that wages owed a master seaman were
correctly levied upon for taxes, penalties and interest owed. Although
46 U. S. C. §601 provides that wages owing to a master seaman are not
subject to attachment, the court ruled that Code Sec. 6334, which
contains a list of property exempt from levy for taxes that does not
include seaman's wages, effectively controlled the situation.
L. Shaheen, United States Attorney, Frances O. Allen, Assistant United
States Attorney, Shreveport, La. 71161, for plaintiff. James H. Roussel,
Phelps, Dunbar, Marks, Claverie & Sims, Hibernia Bank Bldg., New
Orleans, La. 70112, for defendant.
on Cross-Motions for Summary Judgment
parties filed cross-motions for summary judgment raising the legal issue
of whether the IRS may levy on the wages of a seaman to satisfy the
seaman's tax liabilities.
The defendant owns and operates vessels. From
March 2, 1977
May 21, 1978
, Joseph W. Adair, Jr., was employed by the defendant as a master of
December 7, 1977
, the IRS served the defendant with a notice of levy on Adair's wages
for $1,203.40 for taxes, penalties and interest owed by Adair as of the
date of the service of the levy.
defendant-employer declined to honor the IRS levy and paid to Adair
wages which were due him in amounts which exceeded the amount of the IRS
The defendant-employer declined to honor the IRS levy because of 46
C. §601 which provides:
wages due or accruing to any master seaman or apprentice shall be
subject to attachment or arrestment from any court, and every payment of
[such] wages . . . shall be valid in law, notwithstanding . . . any
attachment, encumbrance or arrestment thereon . . ..
Government contends that defendant-employer was not justified in its
refusal to withhold wages from Adair because of 26
C. §6334(a) and (c). 26
C. §6334(a) contains a list of property exempt from federal tax levies.
This list does not include the wages of seamen. Subsection (c) provides:
any other law of the
, no property or rights to
property shall be exempt from levy other than the property specifically
made exempt by subsection (a). (Emphasis added)
the following reason, I agree with the position taken by IRS and
conclude that 26
C. §6334 must prevail over 46
Both statutes are "special" statutes. 46
C. §601 deals with the special circumstance of exempting seamen's wages
from attachment. 26
C. §6334 deals with property which is subject to attachment by the IRS
for tax liabilities. I am unable to say that one of these statutes is
"general" and the other "special" so that the
special statute should be given priority.
The underlined introductory phrase in Section 6334(c)
"notwithstanding any other law of the United States . . ."
leads me to the conclusion that Congress intended to exempt no property
from federal tax levies except property specifically referred to in the
previous subsection (a).
In 1966, Congress amended Section 6334 to expand the list of exempt
property to include, for example, military retirement pay and military
medal of honor pensions. In each instance, the benefits in question were
already covered by exemptive language similar to that contained in 46
C. §601. See 38 U. S. C. §562(a) and 10 U. S. C. §1040. Congress did
not elect to amend Section 6334 at that time to include seamen's wages.
I conclude that Congress intended to provide in Section 6334 an
exclusive listing of property exempt from federal tax levies; since
seamen's wages are not included in that list, this property does not
enjoy exempt status.
The motion for summary judgment filed by defendant is denied; the
plaintiff's motion for summary judgment is granted.
USTC ¶9833]Sea-Land Service, Inc., Plaintiff v. United States of
America, Commissioner, Internal Revenue Service, G. Glendenning, Kenneth
Kramlich and Nelson Sala, Defendants
District Court, N.J., Civil Action No. 85-825, 622 FSupp 769,
[Code Secs. 6332 and 6334, 28 USC §2201, and 42 USC §11109]
Levy and distraint: Surrender of property subject to: Seamen's wages:
Penalty under shipping laws: Declaratory Judgment Act.--An employer
was required to honor IRS levies on the wages of seamen despite a
provision in the shipping laws, 46 U.S.C. §11109, that exempts seamen's
wages from attachment. Congress did not intend the shipping laws to
prohibit the execution of federal tax levies against seamen's wages.
Code Sec. 6334 provides an exclusive list of property exempt from
federal tax levies and does not include seamen's wages. The court also
declared that under Code Sec. 6332 the employer would not be liable for
the double wage penalty under the shipping laws with respect to the
wages paid over to the IRS. The Declaratory Judgment Act did not bar the
L. Reiner, Geralyn A. Boccher, Meyner and Landis, Gateway One,
, for plaintiff. W. Hunt Dumont, United States Attorney, Edward G.
Spell, Assistant United States Attorney,
, for plaintiff. Robert L. Handros, Department of Justice,
, for defendants.
Court is presented with a suit for declaratory judgment, brought under
the Declaratory Judgment Act, 28 U.S.C. §2201, and the Shipping Laws of
the United States, 46 U.S.C. §§ 1 et seq. Plaintiff seeks to
prevent the Internal Revenue Service (the "IRS") from
attaching the wages of three of its employees, seamen G. Glendenning,
Kenneth Kramlich and Nelson Sala.
and defendants the United States and the IRS Commissioner (the
"government") cross-moved for summary judgment, raising the
issue of whether the IRS may garnish the wages of seamen to satisfy the
seamen's tax liabilities in spite of a provision in the shipping laws
exempting seamen's wages from "attachment or arrestment from any
court." 46 U.S.C. §11109. The government also moved, as a
threshold matter, to dismiss for lack of jurisdiction. 1
Court heard oral argument on
July 22, 1985
. We now deny the government's motion to dismiss for lack of
jurisdiction and grant summary judgment upholding the IRS's garnishment
power. We also grant plaintiff's motion for summary judgment freeing it
from liability for honoring such levies. Our decision on these issues
renders moot the remaining issue concerning the Court's power to enjoin
the IRS's attachment powers.
Sea-Land Service, Inc. ("Sea-Land") operates vessels in
foreign and interstate commerce, maintaining approximately 5,000 seamen
vessel payroll. Defendants Glendenning, Kramlich and Sala have been
employed as seamen aboard Sea-Land's ships.
April 2, 1984
, the IRS served Sea-Land with notices of levy on the wages of
defendants Glendenning, Kramlich and Sala for taxes, penalties and
interest owed to the federal government by the seamen. In each case
Sea-Land informed the IRS that it could not honor the levies because the
shipping laws precluded the withholding of seamen's wages. Sea-Land
further noted its belief that, in the event it paid over the wages to
the IRS, it would be liable for the double wage penalty described in the
shipping laws at 46 U.S.C. §10313(g). When the IRS persisted in its
demands, Sea-Land filed this action to ascertain whether it must respect
the IRS levies.
complaint contains three counts. Count one seeks a judgment declaring
whether Sea-Land must honor the IRS levies. Count two asks the Court to
enjoin the IRS from levying on the wages of Sea-Land's seamen and from
enforcing the levies, pursuant to 26 U.S.C. §6332(c). Count three seeks
a declaration that if Sea-Land must comply with the levies, it will
neither violate Title 46, United States Code, Section 11109, nor incur
double wage liability under section 10313(g).
government first moves to dismiss for lack of jurisdiction on counts one
and two. Alternatively, it urges the Court to dismiss count one for
failure to state a claim upon which relief can be granted. Plaintiff
cross-moves for summary judgment, arguing that the levies are invalid
under the shipping laws. In the alternative, it seeks summary judgment
on count three to bar liability if it is obligated to respect the
I. The Government's Motion to Dismiss for Lack of Jurisdiction.
government offers the threshold argument that plaintiff's claim in count
one is barred by the Declaratory Judgment Act, 28 U.S.C. §2201. That
statute restricts the court's power to grant declaratory relief by
providing that federal courts shall issue declaratory judgments
"except with respect to Federal taxes . . .." 28 U.S.C. §2201(a).
is, however, well-settled that the exception for federal taxes does not
bar actions by nontaxpayers who seek neither to restrain the
assessment of taxes nor to dispute the taxpayer's ultimate tax
liability. Kentucky Welfare Rights Organization v. Simon, 506
F.2d 1278, 1284 (D.C. Cir. 1975), rev'd on other grounds, 426
U.S. 26 (1976); Church of Scientology of Celebrity Centre v. Egger
[82-1 USTC ¶9386], 539 F. Supp. 491, 494 (D.D.C. 1982); Henshel v.
Guilden [69-1 USTC ¶9255], 330 F. Supp. 470, 472 (S.D.N.Y. 1969); Hoye
v. United States, 109 F. Supp. 685, 686 (S.D. Cal. 1953). In Hoye,
for example, a city comptroller sought a judgment declaring whether he
was required to honor an IRS levy on the wages or pension of a city
employee. 109 F.Supp. at 686. The Hoye court recognized that the
comptroller faced an intractable conflict between two sets of laws:
merely holds as a trustee the money which is due to the defendant
taxpayer, Champion. Furthermore, under the law of the State of
California, Sec. 710, Cal. C.C.P., the plaintiff Hoye as City Controller
cannot pay money owed by the city of Los Angeles to anyone other then
the one to whom the money is due unless and until there is filed with
him an authenticated abstract of judgment of a court showing that the
person is entitled thereto. If the plaintiff, Hoye, recognized the
demand and levy by the Collector and paid the sum of $121.71 therein
demanded, the plaintiff, Hoye, would still be liable to pay that same
amount to Champion under the terms of Section 710 of the California Code
of Civil Procedure.
parallel between the Hoye case and the present action is
unmistakable. Sea-Land like comptroller Hoye, is not the taxpayer. Like
him, Sea-Land does not ask the Court to declare whether any tax is due
, or if so, how much, but only whether it must turn over the
unchallenged assessment to the IRS.
Sea-Land finds itself, like comptroller Hoye, confronted with two laws
that makes observance of both impossible. The Internal Revenue Code
requires Sea-Land to obey the IRS orders attaching its employees wages,
26 U.S.C. §6332(c), and does not specifically exempt seamen's wages
from such levy, 26 U.S.C. §6334(a). But the shipping laws state that
Sea-Land may not withhold from seamen any portion of their full wages,
excepting only court-ordered spouse and child support payments. 46
U.S.C. §11109(a). Furthermore, if an employer wrongfully delays paying
a seaman's wages it faces the imminent threat of double wage liability
under 46 U.S.C. §10313(g). Like comptroller Hoye, therefore, Sea-Land
is entitled to a declaration proclaiming whether it must honor the IRS
levies. We hold that the relief sought in count one is available under
Title 28, United States Code, Section 2201. 2
The Motions for Summary Judgment.
A. Count One
the government styled its motion as one to dismiss for failure to state
a claim, we treat the motions on count one as cross-motions for summary
judgment because they raise the identical legal issue, and the parties
appear to agree that no material facts are in dispute. See Fed.
R. Civ. P. 56(c).
has refused to honor the IRS levies as a result of 46 U.S.C. §11109(a),
due or accruing to a master or seaman are not subject to attachment or
arrestment from any court, except for an order of a court about the
payment by a master or seamen of any part of the master's or seaman's
wages for the support and maintenance of the spouse of minor children of
the master or seaman, or both. A payment of wages to a master or seaman
is valid, notwithstanding any prior sale or assignment of wages or any
attachment, encumbrance, or arrestment of the wages.
government contends, however, that provisions of the Internal Revenue
Code, 26 U.S.C. §§ 6334(a) and (c), take precedence over the Shipping
Laws provisions. Subsection (a) lists property exempt from federal
levies. Seamen's wages are not included. Subsection (c) states that:
any other law of the
(including section 207 of the
Social Security Act), no property or right to property shall be exempt
from levy other than the property specifically made exempt by subsection
U.S.C. §6334(c) (emphasis added).
cross-motions for summary judgment ask this Court to resolve the
apparent conflict between these two laws.
the outset we note that we find only one case where this issue has been
addressed directly: United States v. Offshore Logistics
International, Inc. [80-1 USTC ¶9154], 483 F. Supp. 1055 (
1979). The Offshore court held that section 6334 of the Internal
Revenue Code must prevail over the predecessor to section 11109 of the
shipping laws. 483 F. Supp. at 1057. It grounded this conclusion in
three considerations: (1) as both statutes as "special"
statutes, the rule of statutory construction giving "special"
statutes priority over "general" statutes does not apply; (2)
the plain language of the introductory phrase in section
6334(c)--"notwithstanding any other laws of the United
States"--suggests that the list of exempt property enumerated in
subsection (a) was intended to be exhaustive; and (3) Congress in 1966
expanded the list of exempt property in subsection (a), but, again, did
not include seamen's wages.
urges us to reject this holding, contending that the Offshore
court found an inconsistency in the law where none exists. Section
6334(a), argues Sea-Land, enumerates the types of property exempt
from IRS levies; section 11109, on the other hand, exempts from such
levies a category of person--seamen. The exemption of seamen's
wages from the attachment power of the IRS, it is argued, thus does not
fun afoul of the exhaustive list of property exemptions contained in
argument is attractive, but it is based on an untenable distinction.
Both section 11109 and section 6334 describe their subject matter as a
mixture of both person and property. Section 11109 concerns seamen and
their wages. Similarly, section 6334 exempts various sorts of
persons--Medal of Honor winners, railroad annuity recipients, any
unemployed persons, to name a few--and their property--pension,
annuities, and unemployment benefits. The conflict between the statutes
cannot be resolved by an unconvincing logical distinction between person
asserts that the treatment of state withholding taxes under the shipping
laws shows that even tax claims cannot touch seamen's wages. We note,
however, that the legislative history of the shipping laws reveals no
intention to extend the protection of section 11109 to federal tax
1948, a district court held that defendant state commissioners could not
enforce state laws requiring income tax withholding from seamen's wages
because the withholding was an "attachment" prohibited by the
shipping laws. American Hawaiian S.S. Co. v. Fisher, 82 F. Supp.
193, 196 (D. Or. 1948). A year later, a court in
reached the opposite conclusion. Alaska S.S. Co. v. Mullaney, 84
F. Supp. 561, 567 (D. Alaska 1949), aff'd, 180 F.2d 805 (9th Cir.
1950). Subsequently Congress amended Title 46 to clarify that section
601, the predecessor to section 11109, prohibited withholding state
income taxes from seamen's wages.
the need for the amendment, Congress cited the conflict between the
federal shipping law and the state tax provisions--a conflict exactly
analogous to the conflict before the Court today--which left shipowners
"faced with a staggering potential legal and financial liability if
they do not withhold as apparently required under state tax law."
S. Rep. No. 433, 86th Cong., 1st Sess. 2, reprinted in 1959 U.S.
Code Cong. & Ad. News 2531. But Congress did not apply the same
reasoning to federal income taxes. As the Senate Report noted:
1958 would relieve the seamen and the steamship companies of the
accounting burden enumerated above; it would also clarify the legal
conflict between State and Federal law.
is to be noted, however, that this legislation will not relieve the
seaman of his liability to pay taxes properly due, will not effect [sic]
the Federal withholding taxes,
and will not in any way impair the general tax authority of the States.
at 2532 (emphasis added). Thus Congress adopted the view that
withholding wages for state taxes was a type of attachment which
encroached on the traditional protection afforded seamen's wages under
federal law. 3 But it chose
not to prohibit withholding of federal taxes from seamen's wages.
believe this distinction is significant for the federal tax levies at
issue here. An IRS levy, like the withholding of taxes, is a type of
attachment which at first blush appears to conflict with the
prohibitions of section 11109. The legislative history of this section,
however, provides reason to think that Congress did not mean those
prohibitions to extend to federal tax collection.
conclude that Congress did not intend Title 46, United States Code,
Section 11109 to prohibit the execution of federal tax levies against
seamen's wages. Furthermore, we agree with the Offshore court's
conclusion that section 6334(a) of the Internal Revenue Code provides an
exclusive list of property exempt from federal tax levies.
accumulation of these reasons leads the Court to grant the government's
motion for summary judgment on count one.
maintains that, should the government prevail on count one, Sea-Land is
entitled to summary judgment on count three declaring that it will not
violate the shipping laws, nor be subject to the double wage penalty
under 46 U.S.C. §10313(g), nor incur any other obligations with respect
to the seamen's wages paid over to the IRS. The government does not
oppose this motion, commenting that section 6332(d) of the Internal
Revenue Code protects plaintiff against liability. That section
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 or his delegate, surrenders such property
or rights to property (or discharges such obligation) to the Secretary
or his delegate (or who pays a liability under subsection (c)(1)) shall
be discharged from any obligation or liability to the delinquent
taxpayer with respect to such property or rights to property arising
from such surrender or payment. . . .
agree that the language of section 6332(d) relieves Sea-Land of further
obligations with respect to the wages it pays over to the IRS due to the
notices of levy. Further, it follows from our resolution of count one
that Sea-Land does not violate Section 11109 of Title 46 by honoring the
plaintiff's motion for summary judgment on count three is granted.
the reasons set forth in the Court's opinion filed herewith;
is on this 21 day of November, 1985,
that the motion of defendants United States of America and Commissioner,
Internal Revenue Service for summary judgment on count one be, and it
hereby is, granted; and it is further
that plaintiff's motion for summary judgment on count three be, and it
hereby is, granted; and it is further
that the Court's ruling on count one renders count two of plaintiff's
The three seamen are not represented on these motions. Defendants
Kramlich and Sala have defaulted and defendant Glendenning cannot be
found for service.
We do not need to address the jurisdictional issue the government raises
concerning this Court's power to enjoin the IRS from levying on the
seamen's wages. Given our disposition of the issues before us, this
issue is moot.
Currently, a separate provision of the shipping laws, Section 11108 of
Title 46, explicitly prevents states from withholding taxes from
USTC ¶50,408] In re Cheryl Jones, Debtor. Cheryl Jones, Plaintiff v.
Internal Revenue Service, Defendant
Bankruptcy Court, D.C., 94-01296,
Secs. 6321 , 6331
, 6334 and 6871 ]
Bankruptcy: Tax liens: Attachment: Thrift savings plan:
An IRS tax lien attached to a debtor's Thrift Savings Plan (TSP)
account. Although the TSP statute (5 U.S.C. §8431, et seq.) contains
anti-alienation provisions, it cannot be interpreted as proscribing a
tax levy on a TSP account. Since a lien is a less invasive collection
measure than, and operates in conjunction with, a levy, Congress
probably did not intend to allow a TSP account to be subject to a levy
but not to a lien. Thus, the TSP statute was construed as not preventing
the attachment of a tax lien. The lien did not transfer the debtor's
title, possession, or interest in the account and, therefore, did not
result in alienation of the debtor's property. Even though the IRS had
not perfected the lien by levy or judgment, it was still enforceable.
P.O. Box 3223
, for (Jones, C.).
RE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
JR., Bankruptcy Judge:
stipulated facts, the defendant Internal Revenue Service
("IRS") seeks summary judgment adjudicating that its tax liens
attached to the debtor's Thrift Savings Plan ("TSP") account 1 and that it
has an allowed secured claim for the amount of that account despite the
anti-alienation provisions of 5 U.S.C. §8437(e)(2) and the failure of
the IRS to levy on the account before the debtor filed her bankruptcy
case. The motion will be granted.
plaintiff, Cheryl Jones, filed her bankruptcy petition under chapter 13
of the Bankruptcy Code and later filed this adversary proceeding to
determine the amount of the IRS's allowed secured claim. On the date of
filing her petition, she was liable to the IRS for $61,347.17 in income
taxes and associated interest and penalties. 2 The IRS had
previously filed a notice of federal tax liens relating to the
assessments of the income taxes. The first issue is whether the liens
attached to the debtor's TSP account in the approximate net amount of
$8,375.00. 3 The second
issue is whether the lien is avoidable as unperfected because the IRS
never proceeded against the account.
account is subject to the protections of 5 U.S.C. §8437(e)(2), enacted
June 6, 1986
, which provides, with exceptions inapplicable here, that TSP accounts
"may not be assigned or alienated and are not subject to execution,
levy, attachment, garnishment, or other legal process."
Nevertheless, the court concludes that the account is subject to an
enforceable federal tax lien under 26 U.S.C. §6321. As discussed in
part A below, general principles counsel against repealing §6321 in the
case of TSP accounts unless §6321 and §8437(e)(2) are in
irreconcilable conflict. As discussed in part B below, because IRS
levies are excepted from §8437(e)(2), Congress implicitly intended that
tax liens, which levies serve to enforce and which accord the IRS
priority as against other creditors, would continue to attach to TSP
accounts. In any event, as discussed in part C below, the definition of
alienation ought not be viewed as including the attachment of a tax lien
which may be enforced by levy. A holding that the IRS claim may be
enforced as a secured claim under the debtor's chapter 13 plan neither
effects a prohibited alienation (part D below) nor subjects the TSP
account to other creditors' claims (part E below).
26 U.S.C. §6321, the assessment of a tax liability gives rise to a tax
lien on all of the taxpayer's property and rights to property. The TSP
statute should not lightly be interpreted as repealing §6321 in the
case of TSP accounts.
follows from well settled principles of repeal by implication. See
generally Chamber of Commerce v. Reich, 74 F.3d 1322, 1333 (D.C.
Cir. 1996). It is a "cardinal rule . . . that repeals by
implication are not favored."
v. National City Bank, 296
497, 503 (1936). This should particularly be so in the case of federal
tax collection remedies because the Supreme Court has recognized that
the collection of taxes is the "life-blood of government." Franchise
Tax Board v. USPS, 467
512, 523 (1984) (quoting Bull v. United States [35-1 USTC ¶9346],
295 U.S. 247, 259-60 (1935)).
by implication should be allowed here only if the two statutes'
provisions are in irreconcilable conflict. Radzanower v. Touche Ross
& Co., 426
148, 155 (1976). That is to say, the provision of §6321 that the tax
lien attaches to all of the debtor's property should be deemed repealed
in the case of TSP accounts only if necessary to make the TSP statute
work. Radzanower, 426
at 155. Demonstrably the TSP statute is susceptible to a reasonable and
workable interpretation which does not bar the attachment of federal tax
liens to TSP accounts.
TSP account is subject to seizure by levy under 26 U.S.C. §6334(a)
because 26 U.S.C. §6334(c) provides that no properties other than those
specifically listed in §6334(a) shall be exempt from levy
"[n]otwithstanding any other law of the
. . . ." This plain language bars interpreting 5 U.S.C. §8437(e)(2)
as proscribing a §6331 levy on a TSP account. Cf. Shanbaum v. United
States [94-2 USTC ¶50,512], 32 F.3d 180, 183 (5th Cir. 1994) (based
in part on plain language of §6334(c), ERISA pension benefits subject
to IRS levy despite ERISA's requirement that pension plan contain
debtor points to earlier bills in Congress that would have included
"debts owed by the individual to the
" as an additional exception to the proscriptions of 5 U.S.C. §8437(e)(2).
See S. 1527, 99th Cong., 1st Sess. (1985) (proposed 5 U.S.C. §8426(d)(1))
and H.R. 3660, 99th Cong., 1st Sess. (1985) (proposed 5 U.S.C. §8434(d)(1)).
That language was dropped from the final statute. 4 That
deletion is inconsequential. The plain language of 26 U.S.C. §6334(c)
made it unnecessary to retain the deleted language (which applied to all
claims of the United States) or some modification thereof in order for
IRS levies to be excepted from the proscriptions of 5 U.S.C. §843(e)(2).
concluded that a federal tax levy is not barred by the
proscriptions of 5 U.S.C. §8437(e)(2), it is doubtful that Congress
intended that the attaching of a federal tax lien, a much less
drastic and invasive collection enforcement measure, is barred by §8437(e)(2).
Particularly in light of the adjunct role a levy plays to a tax lien,
Congress would not likely have intended that a TSP account could be
levied on but could not be subjected to a tax lien under 26 U.S.C. §6321.
§6321 the federal tax lien attaches to "all property and rights to
property, whether real or personal, belonging to [the taxpayer]."
This language "is broad and reveals on its face that Congress meant
to reach every interest in property that a taxpayer might have." United
States v. Nat'l Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713,
719-20 (1985) (citation omitted). "A federal tax lien, however, is
not self-executing. Affirmative action by the IRS is required to enforce
collection of the unpaid taxes."
at 720. As observed in United States v. Whiting Pools, Inc. [83-1
USTC ¶9394], 462 U.S. 198, 209-210 (1983), the levy power is a means of
enforcement of the tax lien and "[t]he Service's interest in seized
property is its lien on that property." Viewing a levy as an
adjunct to tax liens, it is implicit that a TSP account's exposure to
tax levy includes subjecting the account to the tax lien which the levy
by the terms of §6331 itself, a levy can be made on either property
belonging to the taxpayer or on property subject to a tax lien (as in
the case of property the debtor has conveyed to another before levy has
been attempted). 5 But because
Congress wanted to preserve the IRS's right to levy, it surely must have
intended to preserve the IRS's right to take steps to assure that the
levy power would be enforceable to the hilt.
examples of how a tax lien maximizes the effectiveness of a levy
suffice. First, consider those instances in which other creditors
execute on a TSP account 6 and would
defeat a subsequent §6331 levy if no notice of tax lien had been
earlier filed under 26 U.S.C. §6323. Second, consider the protection
the tax lien would give the IRS if the ownership of the account passed
by reason of the death of the taxpayer to someone else. The lien would
remain on the funds and the IRS could levy on the funds as subject to
the tax lien.
some courts have held that a federal tax levy does not serve to accord
the IRS any secured status against subsequent lienors, such that the IRS
has no priority secured status unless it earlier filed a notice of tax
lien. 7 If that is a
correct holding, that would only strengthen the case for holding that a
federal tax lien attaches to a TSP account. 8 But even if,
as other courts have held, 9 a levy can
serve to accord the IRS a secured status, Congress would not likely have
deprived the levy power of the assistance that would be afforded it by
the attaching of an earlier-filed federal tax lien.
did not intend in enacting the TSP statute to diminish the property that
a tax levy could reach with a first priority by immunizing a TSP account
from the reach of the tax lien itself. Its concern, instead, was to
prevent other creditors from taking steps allowing them to collect from
a lien is not a levy. For example, property can be subject to a lien
which is exempt from a levy. In re Voelker [95-1 USTC ¶50,028],
42 F.3d 1050, 1052 (9th Cir. 1994); United States v. Barbier
[90-1 USTC ¶50,107], 896 F.2d 377, 379 (9th Cir. 1990). It does not
follow from this that a TSP account which, in regard to an IRS levy, is
expressly excepted by 26 U.S.C. §6334(c) from the TSP statute's
anti-alienation provisions, is in the absence of express congressional
provision, exempt by reason of those same anti-alienation provisions
from being subject to a federal tax lien.
is because Section 8437(e)(2) addresses a goal of guarding against
unwise assignments by the employee beneficiary of a TSP account and
safeguarding the account from being subject to attack by creditors in
general. The federal tax lien statute "relates to the
taxpayer's rights to property and not to his creditors' rights." National
Bank of Commerce [85-2 USTC ¶9482], 472
the IRS is in a different status from ordinary creditors by reason of
its right to levy on a TSP account. Unless §8437(e)(2) expressly
overrides the tax lien statute, which it does not, the doctrine against
implicit repealers requires that tax liens should attach to a TSP
account because such accounts are subject to collection-attack by
the IRS (via levy) and because the tax lien furthers that right of levy.
is evident that by providing that TSP accounts are subject to levy under
§6331, Congress confirmed the broader presupposition that such accounts
are subject to Federal tax liens. Cf. In re Taylor, 81 F.3d 20,
24 (3d Cir. 1996) ("these sections, read together, evidence a
congressional concern to preserve the collectability of tax
claims"); Seminole Tribe of Florida v. Florida, 116 S.Ct.
1114, 1122 (1996) (although Eleventh Amendment is limited on its face to
diversity jurisdiction, it confirms the broader presupposition that
"federal jurisdiction over suits against nonconsenting states 'was
not contemplated by the Constitution when establishing the judicial
power of the United States' " quoting Hans v. Louisiana, 134
U.S. 1, 15 (1890)).
it might be possible to argue that the TSP statute does not alter the
federal tax lien statute one whit, namely, to argue that a §6331 levy
is an auxiliary to enforcement of a §6321 lien and the exception for
tax levies necessarily carries with it tax liens as well, together with
all remedies for enforcement of the lien, such as foreclosure. It is not
necessary for purposes of this decision to go that far. 10 It suffices
to conclude that the tax lien attaches at least to the extent of
preserving the right of levy and that the lien is enforceable as a
secured claim which assures the priority of any potential exercise of
the right of levy, whether the levy power is exercised or not.
close examination of the anti-alienation provisions of the TSP statute
further supports the conclusion that the §6321 lien, in the context of
TSP accounts, is at least enforceable as auxiliary to the §6331 levy
power that is excepted from the anti-assignment and anti-alienation
provisions of the TSP statute. Section 8437(e)(2) bars a federal tax
lien from attaching to a TSP account only if the funds in the account
would thereby be "assigned or alienated or . . . subject[ed] to
execution, levy, attachment, garnishment, or other legal process."
A federal tax lien is not a form of "legal process" in the
category of the enumerated forms of "legal process." Nor is
the attaching of a federal tax lien a form of "assignment."
That leaves the question whether the attaching of a federal tax lien is
a form of "alienation." The TSP statute does not define the
General Definition of Alienation
definition of "alienate" in Black's Law Dictionary and other
dictionaries limits alienation to acts resulting in a change in title.
For example, Webster's Third New International Dictionary defines
alienate as "to convey or transfer to another (as title, property,
or right): part voluntarily with ownership of." Cases interpreting
"alienate" in federal pension statutes have looked to this
definition. Rodney L. Powell [CCH Dec. 49,431], 101 T.C. 489, 497
(1993); Boggs v. Boggs, 849 F. Supp. 462, 464 n.1 (
1994). This definition precludes affixing the label
"alienation" to the attaching of a tax lien because that act
does not result in a change in title. The lien does not transfer the
taxpayer's title, possession or interest in the property. United
States v. Diemer [94-2 USTC ¶50,420], 859 F. Supp. 126 (D.N.J.
1994). Rather, the attachment of a tax lien merely serves as a charge
upon the property securing payment to the
. In re Voelker [95-1 USTC ¶50,028], 42 F.3d 1050, 1052 (7th
Cir. 1994); United States v. Barbier [90-1 USTC ¶50,107], 896
F.2d 377, 379 (9th Cir. 1990); United States v. Sullivan [64-1
USTC ¶9392], 333 F.2d 100 (3d Cir. 1964); United States v. Phillips
[59-1 USTC ¶9457], 267 F.2d 374 (5th Cir. 1959). "The
inalienability of the pension interests does not destroy their character
as property or immunize the interest from the attachment of a federal
tax lien." In re Raihl [93-1 USTC ¶50,290], 152 B.R. 615,
618 (9th Cir. BAP 1993). Here the tax lien secures payment to the
via the right of levy which is expressly not subject to the
anti-garnishment provisions of the TSP statute.
Comparison to ERISA Anti-Alienation Provisions
Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, contains an anti-assignment and anti-alienation provision
similar to the TSP statute's provision. ERISA pension benefit plans are
required by ERISA §206(d)(1), 29 U.S.C. §1056(d)(1), to contain a
prohibition against assignment or alienation. The governing regulations
define "assignment" and "alienation" as "[a]ny
direct or indirect arrangement (whether revocable or irrevocable)
whereby a party acquires from a participant or beneficiary a right or
interest enforceable against the plan in, or to, all or any part of a
plan benefit payment which is, or may become, payable to the participant
or beneficiary." 26 C.F.R. §1.401(a)-13(c)(1)(ii). As stated in Guidry
v. Sheet Metal Workers National Pension Fund, 39 F.3d 1078, 1082
(10th Cir. 1994), "[t]he terms 'alienation' and 'assignment' are
meant only to cover those arrangements that generate a right enforceable
against a plan." Because TSP accounts are already subject to the
right of collection enforceable by levy, subjecting such accounts to tax
liens in aid of the right of levy does not constitute an alienation.
in the case of TSP accounts, the IRS already has a right enforceable
against an ERISA pension benefits plan by means of levy. 26 C.F.R. §1.401(a)-13(b)(2).
Although tax liens are not specifically exempted from being affected by
an anti-alienation clause in an ERISA plan, the courts have given tax
liens effect against such plans based, in part, on the fact that such
plans are subject to §6331 levies. In re Reed, 127 B.R. 244,
247-48 (Bankr. D. Ha. 1991); In re Perkins, 134 B.R. 408, 411
(Bankr. E.D. Cal. 1991); In re Jacobs [93-1 USTC ¶50,118], 147
B.R. 106, 108-109 (Bankr. W.D. Pa. 1992); In re Evans, 155 B.R.
234, 235 (Bankr. N.D.
those cases cite as well cases holding that state law exemptions cannot
immunize property from federal tax collection. But the anti-alienation
provision an ERISA plan must contain is federally mandated. Indeed, when
an ERISA-required anti-alienation provision does not suffice under state
law to qualify the trust as a spendthrift trust, the ERISA
anti-alienation provision is enforceable as a matter of federal law.
See Patterson v. Shumate, 504
must be further acknowledged that some cases rest as well on the fact
that ERISA contains a provision that it shall not be "construed to
alter, amend, modify, invalidate, impair, or supersede any law of the
. . . ." 29 U.S.C. §1144(d). Ameritrust Co., N.A. v. Derakhshan
[94-1 USTC ¶50,007], 830 F. Supp. 406, 410 (N.D. Ohio 1993); In re
Schreiber [94-1 USTC ¶50,202], 163 B.R. 327, 334 (Bankr. N.D.
1994). Regardless, there is no evidence that Congress intended to
abrogate long-standing federal tax lien law and to make a different
result apply in the case of the TSP statute's anti-alienation provision.
The exemption of levies from the anti-alienation provision implicitly
carries with it attachment of the related lien, just as in the case of
ERISA pension benefits. Congress did not need expressly to preserve the
reach of the federal tax lien. It sufficed to express that intent by
sound reasons, the fact that a tax claim is already enforceable by levy
against either ERISA pension benefits or a TSP account ought to preclude
labeling the attachment of a tax lien under 26 U.S.C. §6321 as an
alienation of the property. It is the levy which allows the account to
be seized and an alienation to be accomplished. 11 The
attachment of the lien to the account is merely a prelude to undertaking
levy itself and does not effect an alienation. The lien, which is not
self-executing, merely encumbers the TSP account for eventual
enforcement via levy and can be viewed as a step in the levy process. It
is an auxiliary to the right of eventual levy and collection of the tax.
The lien (along with the filing of notice of tax lien) assures that the
levy will take priority against any other creditor who obtains a lien
against the funds in the account before an IRS levy is made and against
any donee of funds withdrawn from the account.
the lien in the debtor's chapter 13 bankruptcy case is similarly not
barred by §8437(e)(2). That enforcement would be via allowing the IRS a
secured claim under 11 U.S.C. §506(a) and according that secured claim
the payments to which it is entitled under 11 U.S.C. §1325(a)(5) if the
debtor chooses to provide for the claim under her plan. Such enforcement
is not one of the acts proscribed by §8437(e)(2). Rather, it is simply
a recognition of the enforceable non-bankruptcy law rights the IRS holds
against the account.
lien acts to hold the IRS's claims to the account in place until the
levy itself can be made. When, as here, the lien itself is enforced, it
is but in recognition of the rights the IRS would have upon a levy being
served. That is no different than recognizing the amounts that a
mortgagee would realize by foreclosure sale as a secured claim even
though bankruptcy stays the creditor from undertaking the act of
interpretation of the statutes does not create the result, probably
unintended by Congress, of subjecting a TSP account to enforcement under
11 U.S.C. §506(a) of state-created statutory liens. Section 506 only
applies to property of the estate. A TSP account becomes property of the
estate only to the extent that the account is not beyond the reach of
creditors outside bankruptcy. Under 11 U.S.C. §541(c)(2) "[a]
restriction on the transfer of a beneficial interest of the debtor in a
trust that is enforceable under applicable nonbankruptcy law is
enforceable in a case under this title." This is an exception to
the general rule under 11 U.S.C. §541(c)(1) that an interest of the
debtor in property becomes property of the estate notwithstanding
nonbankruptcy law restrictions against transfer. See Patterson v.
at 753 (ERISA anti-alienation provisions required exclusion of ERISA
pension benefits from bankruptcy estate). Accordingly, as regards
state-created statutory liens, a TSP account would not be property of
the estate and, accordingly, 11 U.S.C. §506(a) would be inapplicable to
such liens. 12
as this court has held on slightly different facts, the TSP account
would in effect have a split personality by remaining property of the
estate for purposes of federal tax claims even though it is not property
of the estate for purposes of other creditors' claims. 13 In re
, 148 B.R. 88 (Bankr. D.D.C. 1992). See also In re Carlson,
180 B.R. 593 (Bankr. E.D. Cal. 1995). Because the TSP account would be
estate property only as to the IRS, any plan provision for the IRS's
claim must take account of its secured status. 11 U.S.C. §1325(a)(5). 14
debtor's second argument is that the anti-alienation clause renders the
IRS lien inchoate because the IRS has not perfected its lien by levy or
judgment, citing In re Taylor, 91-2 U.S. Tax Cas. (CCH) ¶50,354
, the IRS claimed to have a lien on the debtor's ERISA-qualified pension
benefit accounts. As discussed in part I(C)(2) of this decision, 26
C.F.R. §1.401(a)-13(b)(2) provides that tax levies and judgments can be
enforced against ERISA pension benefits but is silent as to whether tax
liens attach. The bankruptcy court concluded that due to the regulation
the only way the IRS could enforce its tax claim was by obtaining a
prepetition levy or judgment. Having done neither, the court concluded
that "the mere filing of tax liens effected no transfer of
interests in a qualified plan" and thus that the IRS "lien is
inchoate, vis a vis the accounts."
the extent that Taylor rests on an assumption that federal tax
liens do not attach to ERISA accounts, it is in error for the reasons
discussed in part I(C)(2) of this decision and has been expressly
criticized on this score by Schreiber [94-1 USTC ¶50,202], 163
B.R. at 333-34. To the extent that
rests on the assumption that levy or judgment is necessary to make a
federal tax lien choate, it is similarly in error. United States v.
City of New Britain [54-1 USTC ¶9191], 347 U.S. 81, 84 (1954) (lien
is choate "when the identity of the lienor, the property subject to
the lien, and the amount of the lien are established" and the
federal tax lien, as a general lien which attached at the time of
assessment to all of the taxpayer's property, was thus perfected).
all of these reasons, the court will grant summary judgment in favor of
the IRS. Within 21 days of entry of this decision, the parties shall
submit an order reflecting the court's ruling and their stipulations (see
nn. 2 and 3, supra).
The statute under which the debtor holds the account as an employee of
the federal government--5 U.S.C. §8431, et seq.--refers to such
accounts as Thrift Savings Fund accounts, but they are more commonly
known as Thrift Savings Plan accounts.
Assessed in 1991 and early 1993 for the years 1989 through 1990, these
taxes are of a non-priority character in her bankruptcy case (that is,
not of a character entitled to priority under 11 U.S.C. §507(a)) and
hence not accorded the protection of 11 U.S.C. §1322(a)(2) (requiring
full payment of priority claims). The debtor's confirmed plan, without
objection, did not provide for payment of any general unsecured claims
of the IRS to the extent of the value of the TSP account. (There was an
objection the IRS could have raised as a fall-back position, see
n.14, infra, but the IRS did not raise it.) Accordingly, only if
the IRS claims are secured claims are they entitled to payment to the
extent of the value of the TSP account, and that is what gives rise to
this dispute. The plaintiff has conceded that the IRS has an allowed
secured claim against $1,701.00 of miscellaneous personal property and
$22,000 of the debtor's equity in a cooperative housing unit.
The balance in the account on the petition date was $19,375.00, but the
debtor had a loan charge against the account of approximately $11,000
pursuant to 5 U.S.C. §8433(I). Counsel for the IRS announced at oral
argument that the IRS does not wish to press any argument that
$19,375.00 is the amount of its allowed secured claim. The IRS
recognizes that the debtor is entitled to recover $19,375.00 only if she
repays the $11,000. IRS Brief at 15 n.8. That $11,000 would be repaid
out of post-petition assets which are not subject to the IRS lien.
During the pendency of this chapter 13 case, the federal tax liens do
not attach to such post-petition property (or, perhaps more accurately,
are not given effect with respect to such property by reason of the
automatic stay of 11 U.S.C. §362(a)). Once the debtor receives a
chapter 13 discharge, the underlying tax liabilities will be discharged
and post-petition assets will not become subject to the tax liens. Thus,
for purposes of this chapter 13 case, the tax lien is not enforceable
against any contributions to the TSP account made with post-petition
property, In re Anderson, 149 B.R. 591, 595 (9th Cir. BAP 1992),
and this would include any amounts used to pay off the TSP loan.
The debtor's counsel was unable to uncover any committee reports or
floor statements explaining this change.
26 U.S.C. §6331(a) provides in relevant part:
Authority of Secretary.--If
any person liable to pay any tax neglects or refuses to pay the same
within 10 days after notice and demand, it shall be lawful for the
Secretary to collect such tax . . . by levy upon all property and rights
to property (except such property as is exempt under section 6334)
belonging to such person or on which there is a lien provided in this
chapter for the payment of such tax. . . .
TSP account can be executed upon, for example, to enforce an employee's
obligations to provide certain child support or make certain alimony
payments. 5 U.S.C. §8437(e)(3).
International Fidelity Insurance Co. V.
[92-1 USTC ¶50,004], 949 F.2d 1042, 1047 (8th Cir. 1991); Southern
Rock. Inc. v. B & B Auto Supply [83-2 USTC ¶9529], 711 F.2d
683, 686-88 (5th Cir. 1983); United States v. Jenison [80-1 USTC
¶9195], 484 F. Supp. 747 (D.R.I. 1980).
If the IRS seized a TSP account by levy and the debtor filed bankruptcy
before the TSP account was paid over to the IRS, the TSP account would
remain property of the estate. In re Wolensky's Ltd. Partnership,
163 B.R. 629, 635-36 (Bankr. D.D.C. 1994). If the levy by itself does
not serve to give the IRS a secured status, and the federal tax lien is
held not to have attached to the TSP account, then the levy would
entitle the IRS to no special treatment in the bankruptcy case. The
court thinks it highly unlikely, given the express exemption of federal
tax levies from the reach of the TSP anti-alienation provisions, that
Congress intended that a taxpayer could defeat the IRS levy by the
expedient of filing a bankruptcy case before the funds were paid to the
American Acceptance Corp. v.
Better Builders, Inc. [77-1 USTC ¶9348], 550 F.2d 1220, 1222 (9th
Cir. 1977); First National Bank of Norfolk v. Norfolk & Western
Ry. [71-1 USTC ¶9458], 327 F. Supp. 196, 199 (E.D. Va. 1971). A tax
levy is tantamount to a judgment execution, reducing the seized property
to the IRS's constructive possession, and turning the obligor into a
custodian on behalf of the IRS. United States v. National Bank of
Commerce [85-2 USTC ¶9482], 472
at 720; United States v. Hemmen [95-1 USTC ¶50,210], 51 F.3d
883, 891 (9th Cir. 1994). That raises an issue whether any creditor can
obtain a possessory lien after service of a notice of levy. Moreover,
under 26 U.S.C. §6332(d), an obligor's payment to the IRS pursuant to a
levy discharges any obligation owed the IRS. If a judgment lienor's
rights can rise no higher than the taxpayer's rights in the obligation,
then a levy may well render any subsequent judgment execution
ineffective against the IRS levy. So the IRS may enjoy a limited secured
status by reason of a notice of levy. But at least one case holds that
the IRS levy does not accord the IRS priority against even a judgment
[80-1 USTC ¶9195], 484 F. Supp. at 755-57.
See footnote 11, infra.
Arguably the TSP statute only allows the federal tax lien to attach in
aid of levy, the only form of alienation via tax collection specifically
excepted from the TSP statute's antialienation provision, and not as an
independent vehicle for effecting an alienation. But once it is
concluded that the tax lien does attach to the TSP account to encumber
it as an auxiliary to the right of eventual levy, the lien itself may be
enforced at the very least to the extent of the potential right of levy
that is preserved by the lien. Here a levy would be fully enforceable:
no exemption under 26 U.S.C. §6334(a) applies here. Accordingly,
whether the TSP statute is viewed as not repealing the lien statute at
all (see part I(B) of this decision) or as repealing it to the
extent that independent lien enforcement rights would be greater than
rights pursuant to levy, the result here would be the same.
It suffices for purposes of this decision to note that a state-created
lien cannot be presently enforced against funds in the TSP account. It
is unnecessary to address what would happen outside bankruptcy once the
funds in the account are paid to the employee and arguably lose their
execution-immune TSP account status. That is to say, it is unnecessary
to address whether the state-created lien would never even attach to the
funds while they are in the TSP account because such a lien would be
unenforceable. See General Motors Corp. v. Buha, 623 F.2d 455,
460 (6th Cir. 1980) (ERISA anti-alienation and anti-assignment
provisions reach all encroachments, both voluntary and involuntary).
Treating the property as non-estate property would have the unintended
result, for example, of depriving a chapter 7 trustee of resort to the
lien under 11 U.S.C. §724(b).
Indeed, even if the IRS were not secured, any plan arguably would have
to assure that the IRS would be paid to the extent of its right to
proceed against the TSP account. The account would be estate property as
to it because of its unique power to reach the account by levy. In a
chapter 7 case, the IRS could receive payment from the TSP account (for
example, by way of the trustee's consenting to relief from the automatic
stay of 11 U.S.C. §362(a) to permit levy in order to maximize
distributions to other creditors). Thus, any chapter 13 plan would
arguably have to provide for the IRS to be paid to the extent of its
right to levy. See 11 U.S.C. §1325(a)(4). If the argument is a
valid one, that does not render academic the issue whether the IRS claim
is secured: the IRS would be entitled to interest under 11 U.S.C. §506(b)
if over-secured and there might be lien priority disputes.