South Carolina2

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[55-2 USTC ¶9650]United States of America, Plaintiff v. Pee Dee Coach Lines, Incorporated, a corporation; J. B. Aiken; John G. Hyman; Myrtle Cooper Evans; P. H. Arrowsmith, as guardian ad litem for Myrtle Cooper Evans; Mrs. A. J. Rainwater, trading as A. J. Rainwater Gas and Oil Company; The Gerlach-Barklow Company, a corporation; Briell-Rodgers Cotton Goods Company, a corporation; Standard Parts Company, a corporation; The MacDonald Manufacturing Company, a corporation; Standard Securities Corporation, a corporation; Thomas A. Anderson; South Carolina Employment Security Commission; County of Florence, South Carolina; City of Florence, South Carolina, and Markel Service, Incorporated, Defendants

In the United States District Court for the Eastern District of South Carolina, Florence Division, Civil Action File No. 3995, February 18, 1955

[1954 Code Sec. 6339(b)(2)]

Tax liens: Sale of taxpayer's real property: Title of purchaser.--The Collector could not give a deed to delinquent taxpayer's real property free and clear of all liens of others against such property to one who tendered the price of the property at a sale thereof for the nonpayment of assessed income taxes due. The Code provides for the passage by such a deed of only "the right, title, and interest the party delinquent had in and to the real estate thus sold. . . ." Thus, if liens exist against the property, the purchaser cannot acquire a deed thereto free and clear of those liens.

[1954 Code Secs. 6323(a) and 6342]

Tax liens: Order of priority: Judgment liens against delinquent taxpayer.--Out of the proceeds of the sale of a delinquent taxpayer's real and personal property subject to numerous federal and local tax liens and other judgment liens, the liens are to be satisfied in the following order of priority: first, the mortgage lien on the real estate; next, tax liens of the United States represented by assessment lists received prior to January 1, 1953; next, real property taxes due the County and then the City for 1953; next, tax liens of the United States represented by assessment lists received subsequent to January 1, 1953 and prior to January 1, 1954; next, real property taxes due the Court and then the City for 1954; and then judgment liens of others and certain tax liens of the United States . The priority as between the federal tax liens and the local property tax liens was determined in accordance with the "first in time is the first in right" doctrine. The priority of each lien depends, therefore, on the time it attached to the property in question and became choate.

[1954 Code Secs. 6323(a) and 6342]

Tax liens: Perfection by distraint: Personal property: Order of priority.--The required levy or execution by judgment creditors and by the County and City for property tax liens against a delinquent taxpayer was not made against the taxpayer's personal property. The distraint of such personal property by the Collector of Internal Revenue in 1952, however, was effective to perfect and make choate the federal tax liens for the collection of which such distraint was made. The fact that the sale under such distraint was not completed did not affect the validity of the distraint itself. Therefore, if there are any proceeds remaining from the sale of the personal property ordered by the court, the same shall be applied to the payment of the federal tax liens for which distraint was made against said personal property.

[1954 Code Secs. 6323(a) and 6342]

Proceeds of levy: Sale of motor vehicles.--Delinquent taxpayer's motor vehicles subject to a mortgage are to be sold separately from an unmortgaged motor vehicle and the proceeds from the sale thereof should be applied first to the payment of the mortgage, then to the payment of the federal tax liens against taxpayer. The proceeds of the unmortgaged motor vehicle, on the other hand, should be applied first to the payment of the federal tax liens.
[1954 Code Sec. 6342]

Proceeds of levy: Costs and expenses of proceedings.--After ordering the sale of a delinquent taxpayer's real and personal property, the court directed that there be paid first out of the proceeds of such sale the expenses of the sale and the costs of the proceedings before the Special Master.

[1954 Code Sec. 6335]

Sale of seized property: Manner and conditions.--The court ordered a sale of a delinquent taxpayer's mortgaged property for payment of the federal income tax liens as well as all other liens against the property, such sale to be advertised and held for cash at public auction in May, 1955, or thereafter, subject to confirmation by the court. The successful bidders at such sale, other than holders of first mortgages, must make a cash deposit of earnest money. If the deposit is not made, the property will then be resold at the bidder's risk.

N. Welch Morrisette, Jr., United States Attorney, Columbia , S. C., Arthur G. Howe, Assistant United States Attorney, Charleston , S. C., for plaintiff. C. W. Muldrow, Willcox, Hardee, Houck & Palmer, Bridges & Bridges, P. H. McEachin, W. H. Caldwell, Phillip H. Arrowsmith, J. Walter Wilkerson, Florence County Tax Collector, all of Florence, S. C., and James J. Bush, South Carolina Employment Security Commission, Columbia, S. C., for defendants.

Report of Special Master

This matter was referred to me by Honorable Ashton H. Williams, U. S. District Judge, by order bearing date of May 6, 1954 , to hear the case and to report my conclusions of fact and of law at the earliest possible moment.

A reference was held in Florence, South Carolina on the 23rd day of July, 1954 at which counsel for all of the parties were present, and testimony was taken, which is herewith submitted to the Court. The reference was concluded at Florence , South Carolina , on the 8th day of January, 1955, and the testimony then taken is likewise submitted herewith to the Court.

[Nature of Complaint]

The complaint by the United States is for the foreclosure of Federal tax liens upon the real and personal property of the defendant, Pee Dee Coach Lines, Inc., a South Carolina corporation. The defendants, J. B. Aiken and John G. Hyman, are the holders of a mortgage upon the real estate described in the complaint. The defendant, Standard Securities Corporation, is the holder of a mortgage upon the personal property described in the complaint. The defendants, County of Florence , South Carolina and the City of Florence, South Carolina, have property tax liens upon both the real and personal property described in the complaint. The remaining defendants, with the exception of Thomas A. Anderson, have judgment liens filed of record against the defendant, Pee Dee Coach Lines, Inc., in the office of the Clerk of Court for the County of Florence, South Carolina.

[Claim of Alleged Purchaser of Property]

The defendant, Thomas A. Anderson, has filed his answer alleging that on or about May 26, 1952, the Collector of Internal Revenue for the District of South Carolina, after due and proper advertisement of same, sold the real estate described in the complaint in this action at public auction under a warrant for distraint for the nonpayment of assessed taxes due, as provided by Sec. 3701, [1939] Internal Revenue Code, and at such sale he was the highest bidder, and purchased the real property for the sum of Twelve Thousand ($12,000.00) Dollars. That thereafter, he delivered to the agent of the Collector of Internal Revenue a check for Twelve Thousand ($12,000.00) Dollars, and demanded a deed for the property free and clear of all liens but that the Collector of Internal Revenue has failed and refused, and continues to fail and refuse, to deliver a deed to him, and that the said Collector of Internal Revenue has retained the said check, although the same has never been cashed.

He further alleges that he is entitled to a deed to this real estate free and clear of all liens as the high bidder at the sale referred to, and that he has been ready and willing to comply with his bid at any time since the sale was had in May, 1953.

Considerable testimony was taken relative to this claim of the defendant, Thomas A. Anderson. However, reference to the statutes under which the property was sold, Secs. 3700 through 3706, [1939] Internal Revenue Code, show that the claim is without any foundation. The answer and the testimony of Thomas A. Anderson show that he tendered the check for Twelve Thousand ($12,000.00) Dollars on the condition that he be given title to the real estate free and clear of all liens. This the Collector could not do. Sec. 3704(C)(2) of the Internal Revenue Code provides: "If the proceedings of the officer as set forth have been substantially in accordance with the provisions of law, such deed shall be considered and operate as a conveyance of all the right, title, and interest the party delinquent had in and to the real estate thus sold at the time the lien of the United States attached thereto."

The foregoing clearly disposes of all claims of the defendant, Thomas A. Anderson.

The defendant, Myrtle Cooper Evans and of P. H. Arrowsmith, as guardian ad litem for Myrtle Cooper Evans is disposed of by the answer filed by P. H. Arrowsmith as such guardian ad litem which acknowledges that said defendants now have no claim against Pee Dee Coach Lines, Inc.

[ Sale of Property and Disbursement of Funds]

Both of the real property and personal property of the Pee Dee Coach Lines, Inc. described in the complaint should be ordered sold in accordance with the law and statutes in such cases made and provided and in accordance with the practice of this Court. I recommend that the funds resulting from such sale be ordered distributed in accordance with the findings hereinafter set forth.

The real property and the personal property should be separately sold and the costs and expenses of this action should be paid pro rata from the proceeds received from both. The remaining fund from the sale of the real estate should be disbursed according to the following priority:

1. An amount equal to the real estate property taxes due the County of Florence and the City of Florence should be first segregated and held out of the proceeds of the sale to be disbursed as will hereinafter be provided.

2. Out of any proceeds of the sale in excess of the aforesaid amount, there should be paid to the defendants, J. B. Aiken and John G. Hyman, the sum of Seven Thousand Three Hundred Sixty-two and 86/100 ($7,362.86) Dollars, with interest thereon at the rate of six (6%) per cent per annum from January 8, 1955 to and inclusive of the date of the payment thereof; that the sum of Five Hundred ($500.00) Dollars is a reasonable fee for their attorney for his services herein, which fee shall be paid in addition to the aforesaid amount which I find to have been proved to be the amount of the mortgage indebtedness due these defendants.

3. Out of the fund segregated and held in accordance with Paragraph Number 1, above, to the extent thereof, there should be paid:

First, the tax liens of the United States represented by assessment lists received by the Collector prior to January 1, 1953 . These liens and the amount due thereon are:

Amount of

Tax with                           Date

Interest                Assessment List              Date Notice

to 
10-1-54
           Rec'd by Collector            of Lien Filed

$1,189.44          October 12, 1949           
March 8, 1950

503.22             
November 23, 1949
          
March 17, 1950

1,011.24           
December 30, 1949
          
March 8, 1950

834.20             
March 22, 1950
             
July 6, 1951

594.45             
June 12, 1950
              
July 6, 1951

551.82             
July 27, 1950
              
July 6, 1951

676.91             
July 27, 1950
              
July 6, 1951

544.50             
September 14, 1950
         
July 6, 1951

620.37             
September 14, 1950
         
July 6, 1951

694.58             
October 13, 1950
           
July 6, 1951

789.38             
October 30, 1950
           
July 6, 1951

803.14             
November 27, 1950
          
July 6, 1951

670.89             
January 2, 1951
            
July 6, 1951

634.43             
February 12, 1951
          
July 6, 1951

584.33             
March 12, 1951
             
July 6, 1951

488.17             
April 12, 1951
             
July 6, 1951

463.01             
July 12, 1951
              
August 3, 1951

299.17             
April 12, 1951
             
July 6, 1951

307.59             
May 24, 1951
               
July 6, 1951

211.01             
August 20, 1951
            
January 10, 1952

518.48             
March 26, 1952
             
March 22, 1953

 

Second, the real property taxes due the County of Florence for the calendar year 1953 in the amount of $71.98.

Third, the real property taxes due the City of Florence for the calendar year 1953 in the amount of $85.05.

Fourth, the tax liens of the United States represented by assessment lists received by the Collector subsequent to January 1, 1953 and prior to January 1, 1954. These liens and the amount due thereon are:

Amount of                     Date

Tax with                Assessment

Interest                List Rec'd                Date Notice

to 
10-1-54
            by Collector              Of Lien Filed

$ 95.90            May 26, 1953          September 22, 1953

210.77             
June 23, 1953
         
September 22, 1953

262.04             Not proved            Not proved

 

Fifth, the real property taxes due the County of Florence for the calendar year 1954 in the amount of $62.17, plus penalties.

Sixth, the real property taxes due the City of Florence for the calendar year 1954 in the amount of $75.90, plus penalties.

4. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on the 17th day of March, 1950 and which are listed on exhibit C-4.

5. Judgment of Mrs. A. J. Rainwater, trading as Rainwater Gas & Oil Company, entered in the office of the Clerk of Court of Florence County on June 3, 1950 as judgment roll No. 15304, upon which there is due and unpaid the sum of One Thousand, Two Hundred Twenty-five ($1,225.00) Dollars with interest thereon at six (6%) per cent per annum from June 3, 1950 to the date of payment.

6. Judgment of South Carolina Unemployment Commission entered in the office of the Clerk of Court of Florence County on June 20, 1950 as judgment roll No. 15359, upon which there is due and unpaid the sum of Seventy-three and 66/100 ($73.66) Dollars with interest thereon at six (6%) per cent per annum from June 20, 1950 to the date of payment.

7. Judgment of the Gerlach-Barklow Company entered in the office of the Clerk of Court of Florence County on November 16, 1950 as judgment roll No. 15491, upon which there is due and unpaid the sum of Ninety-four and 75/100 ($94.75) Dollars with interest thereon at six (6%) per cent per annum from November 16, 1950 to the date of payment.

8. Judgment of the Briell-Rodgers Cotton Goods Company entered in the office of the Clerk of Court of Florence County on April 10, 1951 as judgment roll No. 15780, upon which there is due and unpaid the sum of Fifty-two and 54/100 ($52.54) Dollars with interest thereon at six (6%) per cent per annum from March 28, 1951 to the date of payment.

9. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on the 6th day of July, 1951 and which are listed on exhibit C-5.

10. Judgment of Standard Parts Company entered in the office of the Clerk of Court of Florence County on July 17, 1951 as judgment roll No. 15864, upon which there is due and unpaid the sum of One Thousand, One Hundred Sixty-two and 14/100 ($1,162.14) Dollars with interest thereon at six (6%) per cent per annum from July 17, 1951.

11. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on August 3, 1951 and which are listed on exhibit C-6.

12. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on January 10, 1952 and which are listed on exhibit C-7.

13. Judgment of Marcell Service, Inc. entered in the office of the Clerk of Court of Florence County on June 30, 1952 as judgment roll No. 16141, upon which there is due and unpaid the sum of Two Thousand, Two Hundred Forty-eight and 46/100 ($2,248.46) Dollars with interest thereon at six (6%) per cent per annum from June 30, 1952.

14. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on March 27, 1953 and which are listed on exhibit C-3.

15. Judgment of the MacDonald Manufacturing Company entered in the office of the Clerk of Court of Florence County on April 20, 1953 as judgment roll No. 16644, upon which there is due and unpaid the sum of One Hundred Eighty-eight and 26/100 ($188.26) Dollars with interest thereon at six (6%) per cent per annum from April 20, 1953.

16. The tax liens of the United States , notice of which were filed in the office of the Clerk of Court for Florence County , South Carolina on September 22, 1953 and which are listed on exhibit C-2.

[Priority of Liens]

The priority of the foregoing liens has been fixed under the provisions of the Internal Revenue Code, now Section 6323(A)(1) which provides that federal tax liens shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate in the office designated by the law of the State in which the property is situated, which office in the State of South Carolina is the office of the Clerk of Court in the County where such property is situated.

The priority as between the federal tax liens and the property tax liens of the County of Florence and the City of Florence has been determined in accordance with the decision of the Supreme Court of the United States in the case of United States v. City of New Britain, Conn., 347 U. S. 81, 74 S. Ct. 367 [54-1 USTC ¶9191]. It was there held that in a situation such as we have here the doctrine of "the first in time is the first in right" applies and the priority of each lien depends on the time it attached to the property in question and became choate. The doctrine was held to apply even though under the State law the County and City property taxes are superior to mortgages and judgments and Congress has by statute subordinated the federal liens to such mortgages and judgments.

Such fund as shall remain from the proceeds of the sale of the personal property described in the complaint, after payment of the pro rata portion of the costs and expenses of this action should be disbursed first to the payment of the mortgage indebtedness owed by Pee Dee Coach Lines, Inc., to Standard Securities Corporation. That mortgage was recorded in the office of the Clerk of Court for Florence County on January 28, 1950, which is prior to the time of the filing of any of the federal tax liens which plaintiff is seeking to foreclose herein; that the sum of Five Hundred ($500.00) Dollars is a reasonable fee for their attorney for his services herein, which fee shall be paid in addition to the aforesaid amount which I find to have been proved to be the amount of the mortgage indebtedness due this defendant.

I find that the amount due and unpaid on the mortgage indebtedness to Standard Securities Corporation is the sum of Eight Thousand, Nine Hundred Seventy-Six and 93/100 ($8,976.93) Dollars, with interest thereon at the rate of six (6%) per cent per annum from December 31, 1954, and inclusive of the date of payment.

There was no proof of a levy or execution by any of the judgment creditors to perfect their liens against the personal property involved. This, of course, is required by Sec. 10-1711 of the 1952 Code of Laws of South Carolina, to create a lien upon the personal property of the judgment debtor. There was likewise no proof as to any levy made by the County of Florence or City of Florence in order to perfect their tax liens against the personal property. The distraint of the personal property involved by the Collector of Internal Revenue, for the District of South Carolina, in 1952, was in my opinion effective to perfect and made choate the federal tax liens for the collection of which such distraint was made. The fact that the sale under such distraint was not completed, would not, in my opinion, affect the validity of the distraint itself. Therefore, if there by any proceeds remaining from the sale of the personal property, the same shall be applied to the payment of the federal tax liens for which distraint was made against said personal property. Should there be any excess, the same should be held pending further order of the Court as to its distribution.

I recommend that there be taxed as costs the sum of $49.50 for stenographic service and that same be paid to J. W. Wilkinson, for such service.

Decree--(April 2, 1955)

WILLIAMS, District Judge:

This matter comes before me upon the report of the Special Master, H. E. Yarborough, Esquire, to whom this cause was referred.

Upon reading and filing the said report, and after due consideration thereof, it is, on motion of Willcox, Hardee, Houck & Palmer, attorneys for the defendants, J. B. Aiken and John G. Hyman,

ORDERED, ADJUDGED AND DECREED that the said report be, and it is hereby, confirmed in all respects, and adopted as and for the judgment of this court, except insofar as the same might be inconsistent herewith.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the defendants J. B. Aiken and John G. Hyman have judgment against the defendant, Pee Dee Coach Lines, Incorporated, for the sum of Seven Thousand, Three Hundred Sixty-two and 86/100 ($7,362.86) Dollars, with interest from January 8, 1955, at the rate of six (6%) per cent. per annum, and for Five Hundred ($500.00) Dollars attorney's fees.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the defendant, Standard Securities Corporation, have judgment against the defendant, Pee Dee Coach Lines, Incorporated, for the sum of Eight Thousand, Nine Hundred Seventy-six and 93/100 ($8,976.93) Dollars, with interest from December 31, 1954, at the rate of six (6%) per cent. per annum, and for Five Hundred ($500.00) Dollars attorney's fees.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Special Master in this cause, H. E. Yarborough, Esquire, do proceed to advertise and sell for cash, separately, as provided by law, the mortgaged properties described in the complaint, and as hereinbelow set forth, at public auction before the Court House door in Florence, South Carolina, on the 2nd day of May, 1955, or upon some subsequent and convenient Sales Day to be designated by any lien holder, or its attorneys, said sale, to be made during the legal hours of sale, which sale shall be subject to confirmation by this Court, and, after confirmation by this Court, the proceeds derived therefrom, after the payment pro-rata of the expenses of said sale and the costs and disbursements of this action, including the sum of Twelve Hundred and 00/100 ($1,200.00) Dollars as the fees and commissions of the Special Master for his services herein, shall be applied to the satisfaction of the liens set forth in the Master's report, according to the priorities and in the amounts herein set forth, with interest to the date of payment and attorney's fees as found, and, in the event there remains a surplus, that the same shall be held subject to the further order of this Court.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the said Special Master shall require the successful bidders at said sale, other than the holders of the first mortgages thereon, to make a cash deposit of five (5%) per cent., of the bid in cash, cashier's or certified check as earnest money or evidence of good faith, the same to be applied on the bid should there be a compliance, and in the event the successful bidder or bidders at said sale, other than the mortgagees mentioned, fail to make such deposit immediately at the time of the acceptance of the bid, then said premises shall be resold on the same date at such bidder's risk, or upon some subsequent Sales Day at the option of any of the lien holders, or its attorneys, and if the successful bidder, or bidders, making such deposit fail to comply with his or their bids, without legal excuse being shown, then such deposit shall be delivered to the mortgagee of the properties so sold, and retained by said mortgagees as liquidated damages, and the premises shall thereafter be resold upon the same terms, and at such purchaser's risk, on some subsequent Sales Day to be designated by the mortgagee involved, or its attorneys, without the further order of this Court.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that since the lien holders have not waived the right to a personal or deficiency judgment in their pleadings that the bidding at the same hereunder shall remain open, as provided by Section 10-1770 of the 1952 Code of Laws of South Carolina, and all bidders thereunder shall be required to deposit immediately with the Special Master five (5%) per centum of the bid, and all persons thereafter who raise the bid shall likewise be required to forthwith deposit five (5%) per centum of the bid immediately with the said Special Master.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, upon the terms of the sale being duly complied with, after confirmation of the sale by this Court, the said Special Master shall make title thereto in fee to the purchaser, or purchasers, who shall be let into possession of respective mortgaged properties, real and personal, upon presentation of the deed.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the purchaser, or purchasers, shall pay for the preparation and recording of all papers, including requisite revenue stamps.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the defendants, and all persons claiming by, through or under them be forever barred and foreclosed of all rights, title, interest and equity of redemption in and to the mortgaged premises, or any part thereof.

The following is a description of the premises herein ordered to be sold:

That certain piece, parcel or lot of land, together with the improvements thereon situated, lying and being in the City and County of Florence, State of South Carolina, and commencing at a point on the west side of Irby Street three hundred (300) feet south of the northeast corner of that certain lot conveyed by Marie Rogers to P. B. Thornell by deed dated September 11, 1941, and from thence running in a westerly direction on a line perpendicular to Irby Street two hundred (200) feet to a point; thence South on a line parallel with the western margin of Irby Street sixty (60) feet to a point, thence East in a line perpendicular to Irby Street two hundred (200) feet to the Western margin of Irby Street, and thence North along the western margin of Irby Street sixty (60) feet to the point of beginning; the said lot lies in block between DeJongh Alley and Cherokee Road; the said lot being bounded on the North and South by property of Marie B. Rogers, and on the East by Irby Street.

The following is a description of the motor vehicles upon which the defendant, Standard Securities Corporation, has a mortgage:

1. 1945 Flexible Buick 29 Pass. Bus, S #6511, M #FB-4556995

2. 1940 Yellow Coach 29 Pass. Bus, S # T4-2902018, M #426678

3. 1940 Yellow Coach 29 Pass. Bus, S # PG-2902046, M #477-AG15

4. 1945 Flexible Buick 29 Pass. Bus, S #700214625, M #4557397

5. 1942 Yellow Bus SPADO5701177, M #4715220

6. 1947 GMC 29 Pass. Bus, S # TD2903256, M #47125644

7. 1947 GMC 29 Pass. Bus, S # TD2903257, M #47125647.

The following is a description of a motor vehicle upon which United States of America has a lien for taxes, which vehicle is not included in the mortgage to Standard Securities Corporation:

1948 Two-ton Chevrolet truck or bus bearing Serial No. FBA 728442, Motor No. D23047.

It does not appear that the Special Master took note of the fact that the last mentioned vehicle is not included in the mortgage to Standard Securities Corporation, nor does it appear that United States of America, in its complaint, claims a lien upon the vehicles described above included in the mortgage to Standard Securities Corporation as Items Nos. 2, 3 and 4, but the liens nevertheless attached to said vehicles, or such as them as were in the possession of Pee Dee Coach Lines, Inc., at the time the several liens attached, as found by the Special Master. The Special Master's report is, therefore, amended to the extent that the motor vehicles mortgaged to Standard Securities Corporation should be sold separately from the one motor vehicle above described not included in said mortgage, and the proceeds of sale of the motor vehicles mortgaged to Standard Securities Corporation should be disbursed, as provided in the Special Master's report, but that, as to the proceeds of sale of the motor vehicle not included in said mortgage, the same shall, after pro-rata payment of the costs and expenses of this action, be disbursed first to the payment of liens of the United States of America, and the surplus, if any, to the general liens mentioned in the Special Master's report. Of course, any surplus proceeds of the sale of the motor vehicles mentioned above mortgaged to Standard Securities Corporation will be disbursed in accordance with the recommendations contained in the report of the Special Master.

Jurisdiction of this matter is retained for any further orders that may be required in connection with the sale of the properties, and the liquidation of the liens thereon.

 

 

[41-1 USTC ¶9381] United States of America , Appellant v. City of Greenville , South Carolina and County of Greenville , South Carolina , Appellees. In the Case of United States of America v. Rob ert I. Woodside, et al. United States of America, Appellant v. City of Greenville, South Carolina and County of Greenville, South Carolina, Appellees. In the case of United States of America v. John T. Woodside, et al.

United States Circuit Court of Appeals, Fourth District., Nos. 4748, 4749., 118 F2d 963, Argued March 13, 1941 . Decided April 7, 1941 .

Appeals from the District Court of the United States for the Western District of South Carolina at Greenville .

Federal and state liens for taxes: Priority.--Liens of the United States for income taxes, which became liens upon the property, are no less valid than if they had been assessed against the property itself. They therefore have priority over subsequently acquired liens arising by reason of the assessment of state, county, and city taxes against specific property. Further, while the statute does not give priority to the federal tax, it does not grant permission to the states to interfere with a lien of the federal government by subsequent exercise of their taxing powers.

Courtnay C. Hamilton, Special Assistant to the Attorney General, (Samuel O. Clark, Jr., Assistant Attorney General; Sewall Key, Special Assistant to the Attorney General, and Oscar Henry Doyle, U.S. Attorney, on brief) for appellant, and Wilton H. Earle (A.C. Mann on brief) for appellees.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge:

This is an appeal in two suits instituted under R.S. 3207, 26 USCA 3678, to foreclose liens of the United States for income taxes due by Rob ert I. Woodside and John T. Woodside on real estate owned by them. The court below held that tax claims of the State of South Carolina and the County of Greenville and tax and special assessment claims of the City of Greenville were liens prior to the liens of the United States and accordingly directed the distribution of funds received in the foreclosure suit to the payment of these claims to the exclusion of the claims of the United States. From this judgment the United States has appealed.

[The Facts]

 

The facts are that income taxes due the United States were assessed against Rob ert I. Woodside for the years 1920, 1921, 1924 and 1925 in the aggregate amount of $15,364.03 and against John T. Woodside for the years 1920, 1921, 1925 and 1926 in the amount of $52,182.63. The assessment list, as to each taxpayer, was received by the Collector of Internal Revenue for the district and was filed in his office May 20, 1930 and demand upon taxpayer for payment was duly made. Subsequently these suits were filed for the foreclosure of the liens so obtained and the lands subject to the liens were sold by the marshal under order of court. The tax claims of the state, city and county represent taxes assessed against this property subsequent to the year 1930, and the same is true as to the special assessment claims of the City of Greenville, with the exception of an item of $835.75 assessed in 1929, as to which the United States concedes priority of lien to the city. The proceeds of the lands sold are not sufficient to satisfy the claims for taxes; and the question is squarely presented whether the liens of the United States have priority over the liens of the state, county and city for taxes and special assessments subsequently assessed or whether these are to be given priority over the antecedent liens acquired by the United States.

[State and Local Liens Subsequently Acquired]

The decision of the learned judge below accorded priority to the liens of the state, county and city on the ground that they were specific liens against the property, whereas the liens of the United States were general liens; but we see no basis for this distinction. It is true, of course, that the state, county and city taxes were assessed against the specific property and became liens upon it. S.C. Code of 1932, secs. 2569, 2571 and 7470. And the same is true of the paving assessments made by the city. Code sec. 7376. Beatty v. Wittekamp et al., 171 S.C. 526, 172 S.E. 122. But these liens were acquired subsequent to the acquisition of the liens of the United States for income taxes, which became liens upon the property, no less valid than if they had been assessed against the property itself, as soon as the assessments were filed in the office of the Collector of Internal Revenue. R.S. 3186, (as amended by the Act of May 29, 1928 , c. 852, sec. 613, 45 Stat. 875) 26 USCA 3670-3671-3672, provides:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.

(b) Such lien shall not be valid as against any mortgagee, purchaser, or judgment creditor until notice thereof has been filed by the collector--

(1) in accordance with the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law provided for the filing of such notice; or

(2) In the office of the clerk of the United States District Court for the judicial district in which the property subject to the lien is situated, whenever the State or Territory has not by law provided for the filing of such notice; or

(3) in the office of the clerk of the Supreme Court of the District of Columbia , if the property subject to the lien is situated in the District of Columbia .

[Status of Federal Statutory Lien]

 

To say that the lien provided by this statute is a general lien on all the property of the taxpayer does not help in the solution of the problem presented; for a lien is not deprived of validity because it attaches to a number of pieces of property instead of to a single piece, nor is it for that reason to be subordinated to a junior lien attaching to a single piece of property. When properly perfected, the lien under the statute constitutes a charge upon specific property of the taxpayer for the satisfaction of which that property may be sold under proceedings instituted for the purpose. As said in Metropolitan Life Ins. Co. v. United States, 6 Cir. 107 F.2d 311, 313 [39-2 USTC ¶9771], "The federal statutes create specific liens for taxes and as a corollary give a specific remedy for their removal and when such liens once attach, they may be lifted only as provided thereunder." Such lien is clearly not a mere inchoate lien, or right to lien, as held in Gerson et al. v. Shubert Theater Corp. 7 F. Supp. 399 [1934 CCH ¶9330]; for not only was it deemed necessary in the statute itself to provide that the lien should not be valid against any mortgagee, purchaser or judgment creditor until the proper filing of notice, but provision also was made by the Act of June 29, 1939, 53 Stat. 882, 26 USCA 3672(b) that, notwithstanding the filing of such notice, such lien should not be a valid lien upon certain described securities as against mortgagees, pledgees or purchasers, if they were holders for an adequate and full consideration and "without notice or knowledge of the existence of such lien." No such provisions would be necessary if the lien were intended to be a mere inchoate right to a lien which would attach to specific property only after proceedings had been instituted for its enforcement.

After the lien provided by the statute attaches, the property has in a sense two owners, the taxpayer and, to the extent of the lien, the United States . Com'r v. Coward, 3 Cir. 110 F.2d 725, 727 [40-1 USTC ¶9292]. The lien cannot be affected by state legislation respecting the recording or registering of mortgages or liens. United States v. Snyder, 149 U.S. 210; In re Dartmont Coal Co., 4 Cir. 46 F.2d 455. Nor can it be affected by homestead, spendthrift trust or stock transfer acts of the states. Staley v. Vaughn, -- Tex. --, 50 S.W.2d 907; Re Estate of Rosenbery, 269 N.Y. 247, 199 N.E. 206, 105 A.L.R. 1238; United States v. Rosenfield, 26 F. Supp. 433 [39-1 USTC ¶9204]; Cannon v. Nicholas, 10 Cir. 80 F.2d 934 [35-2 USTC ¶9672]. And we think it equally clear that, without the consent of Congress, it cannot be affected by the exercise of state taxing power. McCulloch v. Maryland , 4 Wheat. 316, 436; United States v. Wright, 4 Cir. 53 F.2d 301.

[Extent of State Power]

 

Whether viewed as an interest of the federal government in the property to which it has attached or as an instrumentality of the federal government for the collection of taxes due that government, it is beyond impairment by the exercise of state power. In the first view, it must be remembered that property of the federal government may not be taxed by the states without the consent of Congress, and, in the second, that Congress has power to lay and collect taxes of the sort here involved and to make all laws necessary and proper for that purpose, and that such laws, when made, are the supreme law of the land. Constitution Art. 1 sec. 8, Art. VI; 26 R.C.L. 107-108; McCulloch v. Maryland , supra; Florida v. Mellon, 273 U.S. 12, 17 [1 USTC ¶205]. In the case last cited, which involved the contention that the federal estate tax interfered with the state's power of taxation, the court said:

The act assailed was passed by Congress in pursuance of its power to lay and collect taxes, and, following the decision of this court in respect of the preceding act of 1916, New York Trust Co. v. Eisner, 256 U.S. 345 [1 USTC ¶49], must be held to be constitutional. If the act interferes with the exercise by the state of its full powers of taxation or has the effect of removing property from its reach which otherwise would be within it, that is a contingency which affords no ground for judicial relief. The act is a law of the United States made in pursuance of the Constitution and, therefore, the supreme law of the land, the constitution or laws of the states to the contrary notwithstanding. Whenever the constitutional powers of the federal government and those of the state come into conflict, the latter must yield.

In McCulloch v. Maryland , supra, the court, speaking through Chief Justice Marshall, said:

The court has bestowed on this subject its most deliberate consideration. The result is a conviction that the states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which the constitution has declared.

[Principle Applied]

 

Whether the lien provided by the statute is entitled to priority over antecedent liens for taxes duly perfected by states or municipalities, is a question which is not before us and which we need not decide. It would seem, however, that the lien was intended to attach to the property of the taxpayer subject to existing encumbrances; and this is borne out by the provision that it shall not be valid as against mortgagees, purchasers or judgment creditors until notice thereof is duly filed as provided by the act. This interpretation places liens of the federal government and liens of the states on an equal basis for the application of the principle first in time, first in right (Rankin v. Scott, 12 Wheat. 177, 179), which is the principle ordinarily applied with respect to priority of liens, and the one applied between a tax lien and other liens where the tax lien is not made paramount by statute. 61 C.J. p. 934. The contention that priority of right should not be accorded a lien of the federal government prior in time because the statute contains no provision that the federal tax shall be first paid ^* ignores the principle that a state may not burden the taxing power of the federal government without its consent, and that, in the absence of such consent, no tax upon the property of the federal government or any of its instrumentalities can be sustained. The thing of significance to be noted is, not that the statute does not give priority to the federal tax, but that it does not grant permission to the states to interfere with a lien of the federal government by subsequent exercise of their taxing powers.

[Cited Cases Not Followed]

 

We have noted the cases of City of Winston-Salem v. Powell Paving Co., 7 F. Supp. 424 [4 USTC; ¶1309] and Berrymont Land Co. v. Davis Creek Coal Co., 119 W.Va. 186, 192 S.E. 577 [37-2 USTC ¶9422]; but, with great respect to the courts by which these decisions were rendered, we are unable to follow them. They fail to take account of the fact that when the lien created by the federal statute has once attached to the property of the taxpayer it is as specific a lien on that property as the lien for a tax asserted against the property itself; and they ignore the principle that, without the consent of the federal government, no action of the states may affect its property or any instrumentality which it has created for exercise of its lawful functions. As pointed out above, the lien for taxes is a property right of the federal government. At the least, it is an instrumentality created by that government for the collection of its revenues. We know of no principle upon which it may be subordinated or its value impaired by state action, whether through exercise of the taxing power or otherwise. The error of these cases seems to have arisen from considering the statutory lien of the federal government as analogous to that of the holder of a lien under mortgage, which is of course subject to the power of the state to tax the mortgaged property. The difference is that the rights of the mortgagee as well as of the mortgagor in the mortgaged property are held subject to the power of the state to tax it, whereas the rights of the federal government are not held subject to that power.

[Conclusion]

 

The delay in proceeding with the foreclosure of the liens presents no difficulty. It is not contended that the bar of the statute of limitations has fallen; and it is well settled that the rights of the government are not affected by laches of its officers and that it is not estopped by their conduct from asserting its rights. United States v. Kirkpatrick, 9 Wheat. 720, 735; Utah Power & Light Co. v. United States, 243 U.S. 389, 409; Chesapeake & Delaware Canal Co. v. United States, 250 U.S. 123, 125.

We agree with the court below that, as no distribution in an insolvency proceeding is involved, the provision of sec. 3466 of the Revised Statutes, 31 USCA 191, providing for priority of payment of debts due the United States , has no application.

For the reasons stated, the judgments appealed from will be reversed, except in so far as the judgment in No. 4748 accords priority to the item of $835.75 for paving assessments ratified in 1929, and the causes will be remanded for further proceedings not inconsistent herewith.

Reversed.

 

^* See In re Mt. Jessup Coal Co., 7 F. Supp. 603 [1934 CCH ¶9414] and In re Wyley Co., 292 F. 900 [1924 CCH ¶2252]. It is to be noted with respect to the Wyley case, however, that the question specifically dealt with was not priority of liens but of distribution under the Bankruptcy Act.

 

 

[79-2 USTC ¶9434] United States of America , Plaintiff v. William E. Cox, Norma J. H. Cox, Ruth Ann Cox, William E. Cox, Jr., William Daniel Cox and State of South Carolina , Defendants

U. S. District Court, Dist. S. C., Florence Div., Civil Action No. 77-133, 5/3/79

[Code Secs. 6321 and 6323]

Collection of tax: Lien for taxes: Validity of lien: Priority under state law: Conveyance of property after assessment.--In the absence of proof of error, the Court upheld a deficiency judgment against the taxpayer for taxes on reconstructed income derived from wagering operations, based on betting slips seized by the FBI in 1971. Moreover, the conveyance of property by the taxpayer to his children in 1973 was fraudulent and null and void under state law. The Federal tax lien was ordered foreclosed by selling the property, and the priority of the United States in distribution of the proceeds was established over the State of South Carolina by the respective dates of filing of their respective tax liens.
[Code Sec. 6653]

Additions to tax: Failure to pay tax: Negligent understatement of gambling income.--The taxpayer failed to keep adequate records of the wagers he received, and the Commissioner's reconstruction of income, based on betting slips, was upheld when the taxpayer could not produce evidence of error in the Commissioner's deficiency determination.

Randall M. Roden, Department of Justice, Washington , D. C. 20530, for plaintiff. E. N. Zeigler, Zeigler, Dees & McEachin, P. O. Drawer 150, Florence, S. C. 29503, for William E. Cox, Norma J. H. Cox, Ruth Ann Cox, William E. Cox, Jr., William Daniel Cox and Ray Roush. E. Lee Morgan, Hyman, Morgan, Brown, Saleeby, Jeffords & Rush, P. O. Box 1770, Florence, S. C. 29503, Joe L. Allen, Jr., Deputy Attorney General, P. O. Box 125, Columbia, S. C. 29214, for South Carolina Tax Commission.

Order

BLATT, JR., District Judge:

This cause came on for trial before the court sitting without a jury, the court hearing evidence and arguments on June 21, 1978 , and December 5, 1978 . The pleadings were amended at trial dismissing Cornelia Ann Sims, Francis Ann Sims Sports, Cheryl Jean Sims Hobson, and Ray Roush as parties to the action.

Findings of Fact

1. This is a civil action brought by the United States to set aside a fraudulent conveyance, foreclose federal tax liens, and obtain a deficiency judgment. The tax liens and deficiency judgment sought arise from defendant, William E. Cox's, operation of a "numbers" racket in the Florence area. The plaintiff alleged that this defendant failed to report, or underreported, certain income derived from the wagering operation in the period between 1970 and 1973. Plaintiff further alleged that defendant fraudulently conveyed away his real property to avoid subjecting it to liens for tax deficiencies.

2. At trial, plaintiff presented evidence of the following assessments of federal tax, penalties, and interest against defendants William E. Cox and Norma J. H. Cox, and the amounts remaining unpaid on such assessments:

* The assessments and balances owed for income taxes for 1970 and 1973 apply to Norma J. H. Cox and William E. Cox due to their filing status; all others are applicable to William E. Cox alone.

** Figure for 1970 computed exclusive of assessed fraud penalty of $9,099.66 and reflects a payment received February 13, 1978 , in the amount of $4,632.21.

3. The defendants challenged the foregoing assessments, claiming that the amounts of the assessments were in error and that a civil fraud penalty was improperly assessed on the 1970 income tax liability. The taxpayer contended that the income from his lottery business was accurately reported on his wagering excise tax and federal income tax returns and that the determination of the Commissioner of Internal Revenue that defendants owned additional tax was erroneous.

4. The defendant, William E. Cox, offered his own testimony and his notebooks, which he testified were weekly summaries of the wagers he received and the amounts paid on winning bets, in support of his contention that the assessments were erroneous. The taxpayer kept no other records of the income or expenses of his lottery business but asserted that he regularly destroyed the individual betting slips and other documents relating to the lottery because he had been advised to do so by a government agent to avoid the danger of state criminal prosecution. ¹

5. The defendant, William E. Cox, admitted that he was in the lottery business during the periods in issue and regularly filed excise tax returns reporting receipts of wagers for the periods and reported income from wagering of his income tax returns, although no return was filed for 1971.

6. In 1971, the Federal Bureau of Investigation, in connection with a criminal investigation, seized from the taxpayer's premises betting slips acquired during four days of the numbers operations. As acknowledged by the taxpayer at trial, the volume of wagers disclosed by the seized wagering slips was much larger than the volume of wagers reported by the taxpayer on his tax returns.

7. The Internal Revenue Service used the seized betting slips as the basis for its computation of defendants' tax liability. The revenue agents calculated from the seized betting slips the average daily wagers received by the taxpayer during those four days and projected the annual income from the lottery based on those figures. The Internal Revenue Service then assessed the tax deficiencies against William E. Cox and Norma J. H. Cox, as well as a civil fraud penalty for the year 1971, due to the discrepancy between the income reported on the defendants' tax return and that disclosed by this income projection.

8. The circumstantial evidence offered by the plaintiff was not sufficient to establish that the defendants' understatement of income was due to fraud. The fraud penalty of $9,099.66 for 1970 is, thus, improperly assessed.

9. The evidence offered by the defendants was insufficient to overcome the presumptive correctness of the assessments against them.

10. Defendant, William E. Cox, is solely indebted to the United States for federal taxes in the total principal amount of $22,477.67 as of January 1, 1979, by virtue of the assessments set forth in Finding No. 2, plus interest and additions thereon according to law.

11. William E. Cox--(in addition to the amount discussed in Finding No. 10)--and Norma J. H. Cox are jointly and severally indebted to the United States for federal taxes in the principal amount of $22,482.37, as of January 1, 1979, plus interest and additions thereon according to law.

12. Notices of federal tax liens pertaining to the assessments set forth in Finding No. 2 were filed with the Clerk of Court for Florence County as shown below:

                                  Type of Tax and            Unpaid Balance of

Date Notice Filed                  Taxable Period         Assessment on Notice

January 14, 1974
          Income--1970                               $29,849.87

January 14, 1974
          Income--1971                                14,479.28

                          Wagering--Nov., 1970,

                          Jan., 1971, Feb., 1971,

                          Mar., 1971, Apr., 1971,

February 13, 1974
         May, 1971, June, 1971                         463.07

October 21, 1974
          Income--1973                                   212.95

July 21, 1975
             Wagering--Feb., 1970                            11.79

 

13. Defendant State of South Carolina established records of liens for state taxes which were recorded with the Clerk of Court for Florence County on January 30, 1975 , in Tax Lien Book 7, at page 211, and in Tax Lien Book 7, at page 212. The unpaid amounts to which these liens relate, after deducting the fraud penalty and payments, are $3,478.45 for 1970 and $2,863.26 for 1971, for a total of $6,341.71.

14. By warranty deed dated December 5, 1973, defendant, William E. Cox--(also referred to as the taxpayer)--conveyed his real estate at 28191/2 East Palmetto Street, Florence, South Carolina, where his residence and other buildings are located, to his children, defendants Ruth Ann Cox, William E. Cox, Jr., and William Daniel Cox, the deed being recorded at the office of the Clerk of the Court of Common Pleas for Florence County in Book A-139, page 662.

15. The taxpayer's conveyance of real property to his children was made at a time when he was indebted to the United States for federal taxes as described in Finding No. 2 herein. As admitted by the taxpayer at trial, the conveyance in question was a voluntary conveyance to his children made without consideration. The taxpayer and his family have continued to occupy the residence and the taxpayer collected the rent on the other buildings on the property, and he otherwise treated this property as his own. The conveyance by the taxpayer to his children was, therefore, in fraud of his creditor, the United States of America .

Conclusions of Law

1. The court has jurisdiction of the parties and the subject matter pursuant to 28 U. S. C., Sections 1340 and 1345.

2. Defendant William E. Cox is solely indebted to the United States of America for federal taxes, penalties and interest in the amount of $22,477.67 as of January 1, 1979 , and the United States is entitled to judgment for that amount.

3. Defendants, William E. Cox and Norma J. H. Cox, are jointly indebted to the United States of America for federal taxes, penalties, and interest in the amount of $22,482.37, as of January 1, 1979, and the United States is entitled to judgment for those amounts.

4. The unpaid balances of the assessments against William E. Cox and Norma J. H. Cox, plus interest and additions thereon according to law, are secured by federal tax liens in favor of the United States of America, which attach to all property and rights to property of the defendants, William E. Cox and Norma J. H. Cox, both real and personal, tangible and intangible. 28 U. S. C. §§ 6321, 6322.

5. The conveyance of real estate by defendant, William E. Cox, to his children by deed dated December 5, 1973 , was in fraud of creditors under Section 27-23-10, Code of Laws of South Carolina (1976). Gardner v. Kirven, 184 S. C. 37, 191 S. E. 814 (1937); Coleman v. Daniel, 261 S. C. 198, 199 S. E. 2d 74 (1973).

6. The aforesaid conveyance described in Finding No. 14 is hereby declared to be null and void. The federal tax liens of the United States attach to the interest of William E. Cox in this property, and the plaintiff is entitled to foreclose said liens by selling this property in accordance with law, with the proceeds to be first distributed to the United States for application on the unpaid tax liabilities of William E. Cox.

7. Plaintiff had the burden of proving fraud by evidence that is clear and convincing. Plaintiff failed to meet this burden of proof, and defendants are entitled to judgment in their favor on such issue. Gilbert v. Mid-South Machinery, 267 S. C. 211, 227 S. E. 2d 189.

8. Once the plaintiff proved that assessments had been made against defendants, defendants had the burden of proving by a preponderance of the evidence that the assessments were erroneous. Higginbotham v. United States [77-2 USTC ¶12,265], 556 F. 2d 1173 (4th Cir. 1977). Defendants have failed to carry this burden and the assessments are therefore presumed to be correct.

9. The taxpayer was under a statutory duty to keep adequate daily records of the wagers he received--Internal Revenue Service Code of 1954 Sections 4403, 4423, 6001(a); Treas. Regs. Sections 44.4403-1 and 44.6001-1; Carson v. United States [75-1 USTC ¶9203], 560 F. 2d 693 (5th Cir. 1977). In this case, the taxpayer failed to keep such records.

10. When a taxpayer fails to keep adequate records, the Commissioner is authorized to reconstruct the taxpayer's income by any reasonable method. Gatling v. Commissioner [61-1 USTC ¶9198], 286 F. 2d 139 (4th Cir. 1961); United States v. Firtel [71-2 USTC ¶16,002], 446 F. 2d 1005 (5th Cir. 1971).

11. Having failed to keep adequate records, the oral testimony of the taxpayer and the alleged summaries of wagers are not sufficient to overcome the presumption of correctness attached to the Commissioner's determination. Burka v. Commissioner [50-1 USTC ¶9167], 179 F. 2d 483 (4th Cir. 1950); DeLorenzo v. United States [77-1 USTC ¶16,262], 555 F. 2d 27 (2d Cir. 1976); Heyman v. United States [74-1 USTC ¶16,154], 497 F. 2d 121 (5th Cir. 1974); Mitchell v. Commissioner [69-2 USTC ¶9587], 416 F. 2d 101 (7th Cir. 1969).

12. The defendant State of South Carolina has tax liens against the property which are junior to the liens of the United States as established by the respective dates of filing. The unpaid amounts to which the liens relate, after deducing the fraud penalty and payments, are $3,478.45 for 1970, and $2,863.26 for 1971, for a total of $6,341.71.

AND IT IS SO ORDERED.

¹ It came as quite a surprise to this court to hear that an agent of the government would sell plaintiff a tax stamp for his wagering business and advise him to destroy his records to avoid state gambling prosecution; however, this court does not sit to investigate the internal policies of the IRS.