[95-2 USTC ¶50,473] Capital Tracing, Inc., Plaintiff-Appellant v. United States of America , Defendant-Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 92-55885, 8/17/95 , Reversing and remanding an unreported District Court decision

[Code Secs. 6331 and 7426 ]

Civil actions by nontaxpayers: Statute of limitations: Wrongful levy: Bail bonds.--A corporation's wrongful levy action that was filed after the expiration of the original limitations period was not time-barred because the limitations period was equitably tolled by the court's decision in a related case. The IRS levied on a bond that was posted by the corporation for an individual who was later convicted of tax fraud. In the related decision, the court directed the district court to comply with the IRS notice of levy on the bond without any inquiry into the levy's validity or without any determination of how much of the bond belonged to the individual. The corporation filed its wrongful levy action within nine months of this decision. The corporation's failure to know that it could only reclaim its bond by a wrongful levy action was not due to a lack of diligence because the law in the area was unsettled. Furthermore, the corporation was not unreasonable by waiting until the exoneration proceeding to assert its ownership rights over the bond.

Arnold I. Weber, Eytan, Mattaniah, 600 Montgomery St. , San Francisco , Calif. 94111 , for plaintiff-appellant. Kevin M. Brown, Department of Justice, Washington , D.C. 20530 , for defendant-appellee.

Before: NELSON, REINHARDT, and BRUNETTI, Circuit Judges.

OPINION

BRUNETTI, Circuit Judge:

On January 6, 1992 , Plaintiff/Appellant Capital Tracing, Inc. ("Capital") filed a wrongful levy action against the United States under 26 U.S.C. §7426 ¹ based on the Internal Revenue Service's (" IRS ") notice of levy filed on August 22, 1985 . The district court dismissed the action on May 8, 1992 , for lack of subject matter jurisdiction, finding that the time for filing a wrongful levy action under §7426 had expired on May 22, 1986 , nine months after the IRS served its notice of levy. Capital appealed the district court's decision.

Capital contends that the district court erroneously granted the government's motion to dismiss, arguing that the limitations period did not commence until we issued our 1991 ruling in United States v. Badger [91-1 USTC ¶50,198 ], 930 F.2d 754 (9th Cir. 1991)(Badger II). It is unnecessary for us to decide the disputed issue of when the limitations period began to run, as determined by the "date of the levy" on the cash bond. We assume, without deciding, that the IRS ' notice of levy served upon the clerk of the district court on August 22, 1985, triggered the limitations period. As a result, Capital's wrongful levy action, filed on January 6, 1992, after the expiration of the limitations period, was untimely. However, we find that equitable factors tolled the limitations period from the date of the notice of levy until we decided Badger II on April 16, 1991. Because Capital filed its wrongful levy action within nine months of our 1991 decision in Badger II, this action is not time-barred. We therefore reverse and remand.

FACTS AND PROCEEDINGS

On or before July 13, 1982, the IRS assessed $180,582.48 in income taxes against John James Badger ("Badger"). Badger was indicted on six fraud-related offenses in July 1985 and was ordered to post a $100,000 cash bond. Capital alleges that on July 29, 1985 it posted the bond with approximately $73,000 of its own funds and approximately $27,000 loaned to Badger by other people or entities for the purpose of posting bond.

On August 22, 1985, the IRS served a notice of levy upon the Clerk of the District Court for the Central District of California. The notice of levy stated that "[t]he intent and purpose of this levy is to attach to the $100,000 cash bond " posted for Badger.

Badger was found guilty, and we affirmed his conviction in United States v. Badger, 849 F.2d 1476 (9th Cir.)(Badger I), cert. denied, 488 U.S. 891 (1988). Badger surrendered himself for incarceration, and thereafter the district court ordered that the cash bond be exonerated. Upon being apprised of the IRS ' notice of levy, the district court ordered the IRS to show cause why the $100,000 cash bond should not be exonerated and paid over to Capital. The district court held a hearing on the show cause order and, on May 11, 1989, ordered that the $100,000 be paid over to Capital on May 18, 1989. The district court held that Internal Revenue Code ("I.R.C.") §6331 does not allow the IRS to levy upon bail bonds.

On April 16, 1991, we reversed the district court order and remanded for the district court to comply with the IRS ' notice of levy. Badger II [91-1 USTC ¶50,198 ], 930 F.2d 754, 755. We stated that:

I.R.C. §6331 provides for a lien on "all property and rights to property" belonging to the delinquent taxpayer. There is no exception for bail bonds. Moreover, there is no requirement that the IRS prove that any portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. Under I.R.C. §7421(a) , the Anti-Injunction Act [footnote omitted], if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 or other provisions specified in the Anti-Injunction Act. These I.R.C. sections indicate that the district court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belongs to Badger.

Id. at 756.

On June 25, 1991 , the district court on remand directed payment of the $100,000 to the IRS ; payment was made on June 27, 1991 . On January 6, 1992 , Capital filed a complaint in the district court under §7426 alleging that the IRS had "wrongfully levied on the [bail bond]." ²

On March 11, 1992 , the government moved to dismiss Capital's complaint for lack of subject matter jurisdiction. Specifically, the government contended that Capital's wrongful levy action was untimely under §6532(c) , because it was not brought within nine months after the IRS ' August 22, 1985 , service of notice of levy on the bail bond. As a result, the government argued that the district court lacked subject matter jurisdiction over the case.

Following a hearing, the district court entered an order on May 8, 1992 , dismissing Capital's complaint for lack of subject matter jurisdiction. The district court denied Capital's motion for reconsideration and vacation of its May 8, 1992 order. Capital filed a timely appeal from the district court's order.

STANDARD OF REVIEW

The district court's order dismissing Capital's complaint on the ground that statutory limitations bar the action involves questions of law which we review de novo. Washington v. Garrett, 10 F.2d 1421, 1429 (9th Cir. 1993).

DISCUSSION

I.

The United States, as a sovereign, may be sued only with its consent, United States v. Testan, 424 U.S. 392, 399 (1976), and waivers of sovereign immunity are to be strictly construed. United States v. Michel [2 USTC ¶677 ], 282 U.S. 656, 660 (1931); Dieckmann v. United States [77-1 USTC ¶9224 ], 550 F.2d 622, 624 (10th Cir. 1977). However, once the government has waived its sovereign immunity, the doctrine of equitable tolling may apply to toll the statutory limitation. Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96 (1990). ³

II.

We assume, without deciding, that the IRS ' service of the notice of levy on the clerk of the district court on August 22, 1985 , triggered the limitations period which, unless equitably tolled, would have required Capital to bring its wrongful levy action on or before May 22, 1986 to avoid summary judgment.

In Williams-Scaife v. Department of Defense Dependent Sch., 925 F.2d 346, 347 (9th Cir. 1991), we applied the Supreme Court's decision in Irwin and stated that "equitable tolling is applicable in employment discrimination cases filed by federal employees [against the government.]" The Irwin decision overruled a long line of Ninth Circuit cases ⁴ which refused to apply equitable tolling in cases against the government. In Irwin, the Court held that "the same rebuttable presumption of equitable tolling applicable to suits against private defendants should also apply to suits against the United States." 498 U.S. at 95-96. The Court noted that federal courts have allowed equitable tolling in situations where the claimant diligently sought judicial relief by filing a defective pleading during the statutory period or where the complainant had been induced by his adversary to allow the filing deadline to pass. Id. at 96.

There are other situations in which the courts have indicated that it may be proper for courts to exercise their equitable powers. In Catawba Indian Tribe of South Carolina v. United States, 982 F.2d 1564 (Fed. Cir.), cert. denied, 113 S. Ct. 2995 (1993), the court stated that even where there is no applicable express tolling provision, "courts may when circumstances require invoke the concept of tolling as an equitable matter.... A court in an appropriate case may temper the application of the bar in exercise of its equitable powers." Id. at 1571 & n.10.

In Dempsey v. Pacific Bell Co., 789 F.2d 1451 (9th Cir. 1986), in determining whether statutory limitations may be equitably tolled, we directed the district court to consider such factors as the lack of clear precedent in the circuit regarding the issue, and the absence of prejudice to the defendant. Id. at 1453 (the "lack of clear precedent in this circuit regarding the jurisdictional requirements pertaining to" plaintiff's age discrimination claim against a private employer may serve as an equitable factor justifying tolling of the statute of limitations); see also Vance v. Whirlpool Corp., 707 F.2d 483, 489-90 (4th Cir. 1983) (plaintiff permitted to refile his complaint because there was no clear precedent on the issue and there was no demonstration of prejudice to defendant; statute of limitations effectively tolled), supp. op., 716 F.2d 1010 (1983), cert. denied, 465 U.S. 1102 & 467 U.S. 1226 (1984). Because of Irwin, we can now apply the Dempsey factors in cases against the government.

The history of the instant case illustrates the lack of clarity in the law that would justify a court's equitable tolling of a limitations period. At the exoneration proceeding in 1989, the district court ruled against the IRS and ordered that the bond proceeds be paid over to Capital. In 1991, we overturned that decision and remanded for the district court to comply with the IRS ' notice of levy. We said that "if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 .... [The Anti-Injunction Act] indicate[s] that the district court was required to honor the IRS levy without inquiring into its validity ...." Badger II [91-1 USTC ¶50,198 ], 930 F.2d at 756. At issue in Badger II was "whether the power to rule on the validity of the IRS ' levy 'can fairly be implied as necessarily ancillary to the exoneration of the bond.' " Id. (quoting United States v. Arnaiz, 842 F.2d 217, 220 (9th Cir. 1988)). In Arnaiz, we held that a district court had jurisdiction ancillary to its power to exonerate a bail bond to consider disputes related to the bond if "denial of jurisdiction would necessarily interfere with the district court's ability to carry out its statutory mandate[to exonerate the bond]." Id. at 220-21. In Arnaiz, the defendant posted collateral with the surety and therefore became an "obligor" under Rule 46(f). ⁵ We held that the district court needed jurisdiction to decide whether the surety was required to return collateral to the defendant, because, without jurisdiction, it could not determine which obligor was entitled to receive the proceeds of the bail bond.

In contrast, in Badger II we held that the district court did not need to conduct a hearing to determine who owned the bond, because "there is no requirement that the IRS prove what portion of the property being levied upon belongs to the delinquent taxpayer before it can levy on the property." Badger II [91-1 USTC ¶50,198 ], 930 F.2d at 757. We said that Capital's only recourse lay in a wrongful levy action under §7426 . Id.

In United States v. Rubenstein, 971 F.2d 288 (9th Cir. 1992), we followed Arnaiz, stating that"[t]he district court thus had jurisdiction to consider Sherman's motion because it was 'necessarily ancillary' to release of the bail funds." Id. at 293. We distinguished Badger II, stating that there "we ruled on a 'narrow jurisdictional issue' and held that under the Anti-Injunction Act the district court lacked power to settle a dispute as to who owned the bail funds when one claim took the form of an IRS levy." Id. at 293 n.4.

A unique situation arose in Badger II, and we set forth new law. In other situations, both before and after Badger II, we have stated that district courts have jurisdiction to determine the rightful owner of bail funds. Capital's failure to know that the only way it could reclaim its bail bond was by filing a wrongful levy action was not due to its lack of diligence. The law was unclear, and we cannot say that Capital chose an unreasonable course of action by waiting until the exoneration proceeding to assert its ownership rights over the bond. Capital exercised its rights at what it thought was the earliest opportunity; Capital commenced actively protecting its interest in 1989 when, at the time of exoneration of the bail bond, it was apprised of the IRS ' notice of levy on the bond. Capital was a major participant, as real party in interest, in the United States' appeal to our court from the district court's determination that the bond should be returned to Capital.

The lack of clarity in our circuit's law on the district court's jurisdiction to determine ownership of bail funds and the absence of demonstrated prejudice to the government justifies equitable tolling of the limitations period from the date of the levy until April 16, 1991 , the date we issued our opinion in Badger II. Since Capital filed its wrongful levy action on January 6, 1992 , within nine months of our decision, we hold that this action is not time-barred.

Accordingly, we reverse the order granting the government's motion to dismiss and remand to the district court to consider the merits of the case.

REVERSED AND REMANDED.

¹ Section 7426 states in pertinent part:

(a) Actions permitted.--

(1) Wrongful levy.--If a levy has been made on property or property has been sold pursuant to a levy, and any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.

26 U.S.C. §7426(a)(1) (1988). All statutory references hereafter are to 26 U.S.C. (1988) unless otherwise indicated.

² On August 22, 1991, Capital filed with the IRS an administrative claim for the return of the $100,000 to Capital. Under §6532(c)(2) , an administrative filing can extend the limitations period in which a party must file its wrongful levy action under §7426 . A party must file an administrative claim within nine months of the date of levy to extend the limitations period. Williams v. United States [91-2 USTC ¶50,529 ], 947 F.2d 37, 40 (2d Cir. 1991), cert. denied, 504 U.S. 942 (1992); United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626 ], 624 F.2d 733, 736 (5th Cir. 1980). Thus, because we hold that the notice of levy on August 22, 1985 triggered the limitations period, Capital's filing of an administrative claim more than nine months later does not permit Capital to take advantage of the §6532(c)(2) extension. In addition, based upon our holding with respect to equitable tolling, further consideration of §6532(c)(2) is unnecessary.

³ The district court construed the statute of limitations as a jurisdictional requirement. As we stated in Washington, 10 F.3d at 1437, however, the Irwin Court "held that federal statutory time limitations on suits against the government are not jurisdictional in nature. " See also Fadem v. United States, 52 F.3d 202, 206 (9th Cir. 1995). We thus treat the district court's action as a dismissal for failure to state a claim, rather than as a dismissal for lack of subject matter jurisdiction.

⁴ Johnston v. Horne, 875 F.2d 1415 (9th Cir. 1989); Lubniewski v. Lehman, 891 F.2d 216 (9th Cir. 1989); Hymen v. Merit Sys. Protection Bd., 799 F.2d 1421 (9th Cir. 1986), cert. denied 481 U.S. 1019 (1987); Koucky v. Department of Navy, 820 F.2d 300 (9th Cir. 1987); Lofton v. Heckler, 781 F.2d 1390 (9th Cir. 1986); Cooper v. United States Postal Serv., 740 F.2d 714 (9th Cir. 1984) cert. denied, 471 U.S. 1022 (1985).

⁵ Rule 46(f) provides:

(f) Exoneration. When the condition of the bond has been satisfied or the forfeiture thereof has been set aside or remitted, the court shall exonerate the obligors and release any bail. A surety may be exonerated by a deposit of cash in the amount of the bond or by a timely surrender of the defendant into custody. Fed. R. Crim. P. 46(f) (emphasis added).

[91-1 USTC ¶50,198] United States of America, Plaintiff-Appellant v. John James Badger, Defendant-Appellee, Capital Tracing, Inc., Real Party-in-Interest, Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 89-5025, 4/16/91 , Reversing and remanding the District Court, 89-2 USTC ¶9656 , 711 F.Supp. 1078

[Code Secs. 6331 and 7426 ]

Levy and distraint: Bail money: Suits by nontaxpayers: Application of statute.--The District Court has no jurisdiction to question the validity of the IRS 's levy under the principles of separation of powers in a proceeding where the IRS was seeking to attach a bail bond posted on the taxpayer's behalf as property in which the taxpayer has an interest. Any party claiming an interest in the bond money could seek a refund under the Anti-Injunction Act. No statutory exception is provided in the IRS 's levy powers for bail bonds. Further, there is no requirement that the IRS prove that any portion of the property on which a levy is being sought belongs to the taxpayer. The District Court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belonged to the taxpayer. As a preliminary issue, the court concluded that the order to release the bail bond was appealable as a collateral order and that the IRS had standing to prosecute the appeal even though it was not a party to the criminal action for which the bond was posted. District Court, 89-2 USTC ¶9656 reversed.

Charles Bricken, Department of Justice, Washington, D.C. 20530, for plaintiff-appellant. Lesile T. Jones, Jr., Gallagher & Kennedy, P.A., 360 E. Coronado Rd., Phoenix, Ariz. 85004-1524, for J.J. Badger, Capital Tracing, Inc.

Before ALARCON, BRUNETTI and O'SCANNLAIN, Circuit Judges

OPINION

BRUNETTI, Circuit Judge: Appellee John James Badger ("Badger") was indicted on criminal charges and ordered to post a $100,000.00 bail bond. The bond was posted by third parties. After Badger was convicted, the IRS attempted to levy on the bond for unpaid taxes owed by Badger. The district court ordered the IRS to show cause why the bond should not be exonerated and paid over to those who had posted it. After a hearing, the district court concluded that allowing the IRS to levy on bail bonds would impermissibly interfere with the integrity of the judicial branch and ordered the bond exonerated. We reverse and remand.

FACTS

The facts of this case are, for the most part, undisputed. Badger was indicted on six fraud-related offenses and was ordered to post a $100,000 cash bond. On July 29, 1985 , Capital Tracing, Inc., ("Capital") posted the $100,000 bond with approximately $73,000 of its own funds and approximately $27,000 loaned to Badger by other people or entities for the purpose of posting bond.

Capital is a publicly held corporation. In 1985, Badger owned 34,000 shares of Capital, which then had approximately 10,310,000 shares outstanding.

On August 22, 1985 , the IRS served a notice of levy upon the Clerk of the District Court for the Central District of California. The notice of levy stated that its purpose was "to attach to the $ 100,000 cash bond" posted for Badger. The IRS claims that Badger owes more than $180,582 in taxes assessed on or before July 13, 1982 .

Badger was found guilty. The Ninth Circuit affirmed his conviction in United States v. Badger, 849 F.2d 1476 (9th Cir. 1988). Thereafter, Badger surrendered himself for incarceration. The district court then ordered that the cash bond be exonerated.

Upon being apprised of the IRS 's notice of levy, the district court ordered the IRS to show cause why the $ 100,000 cash bond should not be exonerated and paid over to Capital. The IRS cited Internal Revenue Code ("I.R.C.") §6331 , which allows the IRS to levy upon nearly all property in which a delinquent taxpayer has an interest. The IRS contended that the property belonged in part to Badger and, in any event, it would be inappropriate to determine ownership in such a proceeding; any party claiming an interest in the property could seek a refund under I.R.C. §6343(6) or §7426(a)(1) . Badger filed a response to the show cause order stating that he did "not own [or] possess any interest in the cash posted for his bond."

On May 8, 1989 , the district court held a hearing on the show cause order. On May 11, 1989 , the district court ordered that the bond proceeds be paid over to Capital on May 18, 1989 . In its memorandum order, the district court did not decide whether Badger had any interest in the disputed bond. Instead, the district court held that I.R.C. §6331 does not allow the IRS to levy upon bail bonds, reasoning that such a levy would impermissibly threaten the institutional integrity of the judicial branch. See Mistretta v. United States, 109 S. Ct. 647 (1989).

On May 15, 1989 , the United States appealed the district court's order and filed an emergency motion for a stay of the district court's order pending appeal. On May 17, 1989 , this court granted the stay.

On December 26, 1989 , this court issued a request for supplemental briefing on:

(1) whether the IRS has standing to appeal the order exonerating the bond in a criminal proceeding;

(2) whether the district court's order exonerating the bond is appealable; and

(3) whether this action is more appropriately treated as a writ of mandamus.

Appellant filed its supplemental brief on January 16, 1990 . Appellee did not file a supplemental brief.

STANDARD OF REVIEW

The material facts are not in dispute. This appeal involves only questions of law, which are reviewed de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984).

DISCUSSION

In the bail exoneration proceedings held below, the district court held that the IRS could not levy on the bail bond posted on behalf of Badger because such a levy would violate the constitutional principle of separation of powers. We reverse because the district court had no jurisdiction to address the validity of the IRS 's levy under separation of powers principles in a bail exoneration proceeding. We remand for the district court to comply with the levy.

I. Standing and Appealability of Order

An order exonerating a bail bond and providing for distribution of the funds is directly appealable as a "collateral order." United States v. Arnaiz, 842 F.2d 217, n. 2 (9th Cir. 1988); Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546 (1949). Thus, the district court's order in this case was appealable.

The IRS had standing to appeal the district court's order. Nonparties may appeal a district court order where: (1) the appellant participated in the district court proceedings even though not a party, and; (2) the equities of the case weigh in favor of hearing the appeal. Id. The IRS participated in the proceeding by responding to the show cause order and "vigorously disputing" the extent to which Badger had an interest in the bail bond. The equities weigh in favor of hearing this appeal. An appeal is the most expeditious way to address the IRS 's claim and, if the IRS prevails, to allow it to collect a major portion of Badger's unpaid taxes. Moreover, it would be unjust to prevent the IRS from seeking appellate review to contest the power of the district court to enter an order which directly addresses the validity of the IRS 's levy upon a bail bond. Additionally, the district court ordered the IRS to show cause why the cash bond should not be exonerated, thereby drawing the IRS into the litigation.

II. Jurisdiction

The IRS 's attempted levy is based on I.R.C. §6331 , which provides:

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 (and such further sum as shall be sufficient to cover the expenses of the levy) 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.

I.R.C. §6331 provides for a lien on "all property and rights to property" belonging to the delinquent taxpayer. There is no exception for bail bonds. Moreover, there is no requirement that the IRS prove that any portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. Under I.R.C. §7421(a) , the Anti-Injunction Act, ¹ if any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 or other provisions specified in the Anti-Injunction Act. These I.R.C. sections indicate that the district court was required to honor the IRS 's levy without inquiring into its validity or determining how much of the bail bond belongs to Badger. We must determine, however, whether the statutory scheme providing for the exoneration of bail bonds requires a different reading of the levy provisions of the internal revenue code or gives the district court jurisdiction to rule on whether the taxpayer-defendant owns any portion of the bail bond.

Under 18 U.S.C. §3149 and Fed.R.Crim.Proc. 46, the district court had jurisdiction to exonerate the bond upon Badger's surrender. However, Section 3149 and Rule 46 do not expressly give the district court jurisdiction to decide competing claims to the bond. This case presents the narrow jurisdictional issue whether the power to rule on the validity of the IRS 's levy "can fairly be implied as necessarily ancillary to the exoneration of the bond." U.S. v. Arnaiz, 842 F.2d 217, 220 (9th Cir. 1989).

In Arnaiz, this court considered whether a district court before which a narcotics prosecution was pending had jurisdiction, ancillary to its power to exonerate a bail bond, to consider disputes related to the bond. We held that the district court had jurisdiction to decide whether the surety was required to return collateral to the defendant. The court reasoned that, if the defendant had posted collateral with the surety, the defendant had indirectly posted a portion of his bail and was therefore an "obligor" under Rule 46(f). ² The district court could not fulfill its statutory duty to release the bail without determining which "obligor" was entitled to receive it.

The Arnaiz court also held, however, that the district court did not have jurisdiction to resolve a dispute between the bondsman and the defendant regarding a bond premium. The court reasoned that the premium dispute was not "so closely related to the purposes of the bail provisions (i.e., to secure the presence of the defendant) that denial of jurisdiction would necessarily interfere with the district court's ability to carry out its statutory mandate." Id.

In the present case, the IRS 's claim to the bail bond is based on I.R.C. §6331 , which allows for levy upon "all property and rights to property" belonging to a delinquent taxpayer. As discussed earlier, there is no requirement that the IRS prove what portion of property being levied upon belongs to the delinquent taxpayer before it can levy on the property. If any person wishes to contest the levy, that person must bring a wrongful levy action under I.R.C. §7426 . Thus, in contrast to Arnaiz, the district court has no need to conduct a hearing to determine what portion of the bond belongs to Badger. If Capital wishes to contest the levy on the ground that it violates separation of powers or that none of the property belongs to Badger, it must bring a wrongful levy action under IRC §7426 .

In United States v. Doyal, 462 F.2d 1357 (5th Cir. 1972), the Fifth Circuit allowed the IRS to levy upon a bail bond and held that a defendant could not properly enjoin the levy because of the Anti-Injunction Act. In Doyal, the defendant filed a motion to restrain the IRS from entering its tax levy against his bail deposit. The court held that the district court could not entertain defendant's motion because the Anti-Injunction Act barred the motion. Thus, the court concluded, the IRS could not be restrained from levying on the property unless a separate suit is brought under relevant I.R.C. provisions (e.g., Section 7426 ). We agree with the Fifth Circuit's analysis in Doyal, and hold that the district court lacked jurisdiction to consider whether the IRS 's lien was valid; the court should have simply complied with the levy by turning over the funds to the IRS . See also Bankers' Mortgage Co. v. McComb, 60 F.2d 218,222 (10th Cir. 1932).

Appellee cites Flores v. United States [77-1 USTC ¶9380 ], 551 F.2d 1169 (9th Cir. 1977), for the proposition that the government has the burden to show that the property belongs to the taxpayer before it can levy upon the property. Flores, however, involved a wrongful levy action under I.R.C. §7426 , and is inapplicable to the present case.

Accordingly, we reverse and remand for the district court to comply with the IRS 's notice of levy.

REVERSED and REMANDED.