Owed to the Taxpayer page6
[55-1 USTC ¶9192]Margaret B. Spagnuolo,
Plaintiff-Appellant v. Joseph A. Bonnet, formerly Sheriff of Essex
County, Neil G. Duffy, Sheriff of Essex County, John E. Cash, Treasurer
of the County of Essex, and County of Essex, Defendants-Respondents, and
United States of America, Intervenor-Appellant
the Supreme Court of
, No. A 41, September Term, 1954, 109 A2d 623, November 29, 1954
On appeal from the Essex County Court, Law Division.
[1939 Code Sec. 3670--same as 1954 Code Sec. 6321]
Lien for taxes: Validity against third parties: Money seized as
contraband.--The Government had no lien on the money seized in the
arrest of taxpayer on charges of operating a lottery, since under the
State law the money became contraband and its forfeiture absolute on the
date of seizure which preceded the Collector's receipt of the assessment
list. The claim of taxpayer's mother that the money belonged to her was
dismissed for lack of proof. Affirming
the decision of the County Court, reported at 54-2 USTC ¶9533.
Walter D. Van Riper, 744
Broad Street, Newark, N. J., Van Riper & Belmont, for the
plaintiff-appellant. George J. Rossi, Assistant United States Attorney,
Federal Building, Newark, N. J., Raymond Del Tufo, Jr., United States
Attorney, H. Brian Holland, Assistant Attorney General, Andrew D. Sharpe
and F. A. Michels, Special Assistants to the Attorney General, for the
intervenor-appellant. Marshall Crowley,
810 Broad Street
, N. J., for the respondents.
This case concerns the
title to money seized by police in a raid on the headquarters of a
As the result of
incriminating information obtained police officers on March 2, 1951,
raided the home of one A. Edward Spagnuolo at
536 South 20th Street
. After being admitted to the house by Mrs. Spagnuolo the officers were
led to the bedroom occupied by herself and husband. In a dresser drawer
were found lists of numbers sold, result slips, a list of agents, names
of players and bill wrappers. In a small iron safe, in a corner of the
bedroom, were found a list of some agents, a list of numbers sold and
result slips. There was a small locked compartment in the safe for which
Mrs. Spagnuolo produced the key. Upon it being opened $50,000 in cash
was found, removed and taken to the office of the Sheriff of Essex
Upon being arrested
Spagnuolo admitted that he, with others, had for sometime conducted a
lottery. He was indicted on two counts for violation of R. S. 2:135-3 to
which he pleaded "non-vult" and on June 20, 1951, was
sentenced to the State Prison for a term of one to two years.
On March 19, 1951, the
Commissioner of Internal Revenue made a jeopardy assessment against A.
Edward Spagnuolo of additional income taxes in the amount of $85,664.04
with interest and penalty. On March 21, 1951, he gave notice of the
assessment to Spagnuolo, filed a Notice of Lien in the Essex County
Register of Deed's Office and served a Notice of Levy together with a
Warrant of Distraint and Notice of Tax Lien on the Sheriff of Essex
County who had possession of the seized $50,000. 26 U. S. C., sec. 3670,
Because of the levy and
distraint by the Collector the Sheriff was compelled to retain the
$50,000 in his possession although the usual procedure would have been
to deposit the money with the
subject to the supervision of the Prosecutor. R. S. 2:178-7.2, now N. J.
On January 28, 1952, the
plaintiff here, who is the mother of A. Edward Spagnuolo, instituted
suit against the Sheriff of Essex County claiming the $50,000 as her
property. The Sheriff, not claiming the money in his own right, filed a
counterclaim for interpleader and obtained an order adding as additional
United States of America
, the Collector of Internal Revenue, A. Edward Spagnuolo, Lillian
Spagnuolo, his wife, John E. Cash, Treasurer of Essex County, and the
. Upon motion there was a dismissal as to the United States and the
Collector and by the same order the United States was granted leave to
intervene to assert its alleged lien, and thereupon it filed a petition
in intervention by which it sought a judgment that the $50,000 was the
property of A. Edward Spagnuolo on and after March 21, 1951, the date of
its alleged lien for income taxes, and subject thereto.
Spagnuolo and his wife
Lillian failed to answer the counterclaim for interpleader and at the
time of the pre-trial conference judgment by default was entered against
Under the pre-trial order
the factual issues to be tried were limited to the following: (1) Was
the plaintiff the owner of the currency in question; (2) Whether or not
the plaintiff is the owner of the currency, was it earmarked and
segregated and being held as part of a gambling operation, namely, the
lottery at 536 South 20th Street, Newark; (3) Whether the fund of
$50,000 was the property of A. Edward Spagnuolo against whom the United
States asserts a claim for unpaid income taxes; and the determination of
the question of priority between the United States and the County of
Essex, if it be determined that the money was the property of A. Edward
By consent of counsel the
case [54-2 USTC ¶9533] was tried before the court without a jury and
Judge Daniel A. Brennan, after hearing the testimony, adjudged that the
$50,000 was not the property of the plaintiff but that of A. Edward
Spagnuolo and that that money was employed by him in his gambling
operations and was as such contraband of the law; that the money was
received and held by Spagnuolo in those gambling operations, earmarked
and segregated for gambling purposes; that it was contraband when seized
and still remained contraband at the precise time it was seized and its
legal status never changed. The judgment provided that the money be
forfeited to the
and be paid over to the Treasure of that County. The judgment further
sets forth that as of March 2, 1951, the date of the seizure of the
had no lien thereon and the relief sought by the
was therefore denied.
The plaintiff and the
United States of America
appealed from the judgment entered in the Essex County Court to the
Appellate Division of the Superior Court and before the case was heard
there we certified it on our own motion. Rule 1:10-1(a).
by Taxpayer's Mother]
We deal first with the
appeal of the plaintiff Margaret B. Spagnuolo.
The pertinent statutory
provisions relating to money seized in connection with an arrest for
violation of a gambling law of this state are found in N. J. S. 2A:152-6
to 11 inclusive.
The trial court found that
the $50,000 was not the property of the plaintiff but that of her son
Edward and with that finding of fact, we are in entire accord. She had
the burden of proof of overcoming the presumption of ownership in Edward
by reason of his possession of the money. The possessor of personal
property is prima facie the owner of it. Bordine v. Combs,
15 N. J. L. 412 (Sup.
1836); City Bank of
v. O'Mara, 88 N. J. L. 499 (Sup.
v. N. J. Historical Society, 132 N. J. Eq. 464 (E. & A.
We need not make a complete
analysis of the testimony adduced on behalf of the plaintiff but content
ourselves with the observation that the story relating to the hoarding
of this large sum of money by the plaintiff and its transfer by her to
her daughter-in-law in a paper bag without the amount of it being stated
and without it being even counted by either Edward or his wife was
wholly improbable, unbelievable and as stated below "implausible to
the point of fantasy".
The evidence in the case
comes largely from the mouths of the Spagnuolos but "testimony to
be believed must not only proceed from the mouth of a credible witness
but must be credible in itself. It must be such as the common experience
and observation of mankind can approve as probable in the circumstances
* * *". In re Perrone, 5 N. J. 514, 521 (1950). When a
finding of fact is amply supported by the evidence it will not be
disturbed on appeal.
If the plaintiff was not
the owner of the $50,000, as we hold, then she has no standing to
complain that there was error below because it was not proven that the
money in question was "earmarked and segregated as part of a
gambling operation". Edward, who was found to be the owner, alone
could raise this issue and judgment by his own default had been entered
against him. The question is therefore now moot. This likewise question
is therefore now moot. This likewise that it was "the duty of the
defendants to establish by a preponderance of the believable evidence
that the money was segregated as an integral part of the gambling
operation". Both of these questions were only material if the
plaintiff was the owner of the money.
County and U. S.]
This brings us then to the
problem of priority as between the
United States of America
Title 26 U. S. Code, sec.
3670 (26 U. S. C. 1952 ed., sec. 3670) reads as follows:
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".
Section 3671 provides:
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".
Accordingly the lien of the
Federal Government became effective March 20, 1951, the date on which
the assessment list was received by the Collector of Internal Revenue.
The money was seized by the
Sheriff on March 2, 1951, eighteen days prior to the effective date of
the Government's lien.
The contention of the
Government is that the County of Essex had nothing more than an inchoate
lien or potential contingent property right in the money until the order
of forfeiture which was dated May 5, 1954; that at most any right of the
County to the money was purely contingent at least until June 20, 1951,
the date of Spagnuolo's conviction.
The position of the County
is that the money was contraband at the time of its seizure, prior to
the effective date of the Government's lien, and that the judgment below
merely declared a title in the County which had existed from the time of
An owner of property has no
vested or constitutional right to use or allow the use of such property
for purposes injurious to the public health or morals, and the State has
the right in the exercise of its police power to provide for the seizure
and destruction of property so used or intended to be used, without
giving the custodian thereof notice or opportunity to be heard, and by
authorizing it to be declared contraband. 47 Am. Jur. p. 531, sec. 51.
Where the matter is
regulated by statute the question is one of statutory intention. The
seizure in this case was unquestionably made under N. J. S. 2A:152-6,
formerly R. S. 2:178-7 as amended by P. L. 1951, c. 174, which merely
added a proviso authorizing the disposition of property seized to the
State, County or Federal institutions rather than merely destroying it.
The statute makes it
unlawful to return any property so seized to the person or persons
owning the same or to any other person. It is the clear intention of
this section to call for an absolute seizure and immediate confiscation
together with a declaration that property so seized shall be considered
The seizure of money is
justified where the crime charged is in violation of R. S. 2:135-3 and
where the money is earmarked and segregated as part of a gambling
operation it constitutes a gambling device and is contraband. Kenny
v. Wachenfeld, 14 N. J. Misc. 322 (Sup.
1936); Krug v. Board of
Freeholders, 3 N. J. Super. 22 (App. Div. 1949); Farley v.
Manning, 4 N. J. 571 (1950); State v. Link, 14 N. J. 446, 452
It can be conceded that
where an article is not inherently contraband but becomes so because of
the use to which it is put, due process requires notice and opportunity
to be heard before a forfeiture is effectuated. 12 Am. Jur. p. 358, sec.
Where property is
inherently dangerous to the public health and morals it may be declared
contraband and destroyed under the sovereign power of the state and the
only question for review in a judicial proceeding is whether the
officers making the seizure exceeded their authority under the
applicable statute. But where property is not inherently dangerous to
the public health and morals but becomes so because of the use to which
it is put, due process requires notice and opportunity to be heard
before the taking of the property as contraband results in an absolute
forfeiture of all rights therein. The diversity of the various problems
and the facades thereof and the forfeiture of rights in property
declared by statute to be contraband are discussed in Berry &
Ackley v. DeMaris, et al., 76 N. J. L. 301, 307 (Sup.
1908); 12 Am. Jur. 358, sec. 678 et. seq.
The argument of the
in this case is predicated on certain language that was introduced into
the law by P. L. 1941, c. 70, a supplement to the Criminal Procedure
Act. Prior to its enactment it seems only one whose property was
subjected to unreasonable search and seizure had an action to recover
the property. See State v. Condon, 40 N. J. L. J. 293 (Oyer &
Terminer 1917); Zaft v. Milton, 96 N. J. Eq. 576 (
1924); Miller v. Atlantic City, 111 N. J. Eq. 260 (
1932); Kenny v. Wachenfeld, supra; Burgess v. Drewen, 8 N. J.
Misc. 179 (
The supplement relates only
to money seized and its purpose was to establish a proceeding by which a
claim of property could be asserted against monies seized in a gambling
raid and it permits the State to be sued on a claim of property by other
persons not accused of the crime in which the property was seized.
Section 2 of the Act makes the
a custodial officer, not of money belonging to an individual but of
money already seized and confiscated by the State, such custody being
subject to the supervision of the Prosecutor of the Pleas of the county.
The custody continues until the ultimate disposition of the charge or
charges relating to the violation of the statutes on gambling. It then
sets up alternative remedies by which the claim or claims of property
may be asserted depending upon whether the trial of the gambling charges
results in a conviction or an acquittal.
The 1941 supplement must be
construed in pari materia with the basic section of the Act, R.
S. 2:178-7 now N. J. S. 2A:152-6, to which it was a supplement. The
basic section in effect declared that all property used for gambling was
contraband and such property was construed to include all money
earmarked and segregated as part of a gambling operation.
It is true that the statute
as supplemented, declares "that said money, currency, or cash shall
be deemed prima facie to be contraband of law as a gambling
device, or as part of a gambling operation". This declaration of
the statute was not and could not be intended to have the effect of
leaving the legal title to such money in the gambler or player.
Money is the sine qua
non of a gambling operation. To attempt to ascribe to the
Legislature an intent to place money used in gambling in a different
category for the purpose of seizure as contraband, from dice, roulette
wheels, racing sheets, gambling tables, etc., based on a theory or an
academic question as to where legal title to such money rests at a given
moment, is an absurdity which we shall not impute to the Legislature.
The intention of the
Legislature in making such a declaration is obvious. It was and is to
establish a rule of evidence, by a prima facie presumption to be
used in the trial of the claim of property created by the act. Such
presumption places the burden upon the claimant of coming forward with
evidence to overthrow it. Such a presumption is not required for the
forfeiture of dice, roulette wheels, etc., because such instruments of
gambling speak louder than mere words. Further for obvious reasons money
cannot be destroyed and the State of
has not the constitutional power to destroy it. Such power is an
incident of the federal power "to coin money, and regulate the
value thereof, * * *". Article I, sec. 8,
Const.; Ling Su Fan v.
302, 54 L. ed. 1049, 31 Sup.
21 (1910); 31
C. A. sec. 420 et. seq.
The moneys seized in this
case are admittedly legal tender and the rule is that the taker, holder
or finder, in good faith or by law, of money has a good title thereto
against the whole world in the absence of proper and sufficient evidence
to prove bad faith on his part. The
lawfully took possession of this contraband by virtue of the sovereign
power of the State of
, and had good title to the money, from the date of the seizure to the
confirming judgment of forfeiture, against the whole world including the
owner, Edward Spagnuolo, against whom the
asserts its lien.
In the trial below the
owner, by his default, admitted that as far as his title and possession
was concerned the money was contraband. The claimant, his mother,
attempted to prove her title to the property and that the money was not
used for gambling purposes. The trial court on the proofs offered
declared the money to be contraband and entered the confirming judgment
of forfeiture under the statute. He had no other alternative. Where a
forfeiture is absolute under the statute, as it is here, the judgment of
condemnation or forfeiture when entered relates back to the commission
of the wrongful act and takes date from the wrongful acts, not from the
date of sentence or decree.
v. 1960 Bags of Coffee, 8 Cranch. 398, 3 L. ed. 603 (1814); United
States v. 100 Barrels of Distilled Spirits, John Henderson, Claimant,
81 U. S. 44, 20 L. ed. 815 (1872); United States v. Pacific Finance
Corp., 110 Fed. (2d) 732 (1940) and the cases cited therein. Cf.
97, 79 L. ed. 1327, 55 Sup.
661 (1935); 51 Harvard Law Review p. 1112.
The established rule is
that the forfeiture becomes absolute at the commission of the prohibited
acts and the title from that moment vests in the state or government in
all cases where the statute in terms denounces the forfeiture of the
property as a penalty for a violation of the law, without giving any
alternative remedy or providing any substitutes for forfeiture or
allowing any exceptions to its enforcement, and that in all such cases
it is not in the power of the offender or the former owner to defeat the
forfeiture by any subsequent transfer of the property even as to a bona
fide purchaser for value without notice of the wrongful acts done or
committed by the former owner. The forfeiture is considered as directed
against the thing itself, not merely the possessor's interest in it. United
States v. 100 Barrels of Distilled Spirits, John Henderson, Claimant,
Therefore, we must conclude
that at the time the jeopardy assessment was attempted to be levied
against the particular monies in this case, seized under the
circumstances in which they were, title to the property was then in the
County of Essex. At most the federal lien could only attach to Edward
Spagnuolo's inchoate right to sue for the return of the funds in the
event of his acquittal and not to the confiscated funds themselves. The
federal lien can rise no higher than the rights of the taxpayer. Bankers
Title & Abstract Co. v. Ferber Co., 15 N. J. 433, 441 (1954)
[54-2 USTC ¶9459], and the authorities cited therein.
The title and possession of
the County of Essex was not that of a creditor or a judgment creditor
but a title and possession acquired by an exercise of sovereign power,
and therefore the case of United States v. Security Trust &
Savings Bank, 340 U. S. 47, 95 L. ed. 53, 71 Sup. Ct. 111 (1950)
[50-2 USTC ¶9492] is not in point.
The case of Illinois v.
362, 91 L. ed. 348, 67 Sup. Ct. 340 (1946) involved the priority of
state unemployment compensation liens and federal insurance
contributions and unemployment compensation taxes and the taxpayer was
insolvent, and the Federal Government's priority existed by the express
provisions of 26 U. S. C. A. sec. 3466, which provides for the priority
of payment of debts due the United States in cases of insolvent debtors
and is likewise not in point.
The judgment below is
HEHER, Judge, for
I would modify the judgment
to sustain the lien for income taxes asserted by the
[65-1 USTC ¶9284]State of Florida and County of
Dade, Petitioner v. Twenty-Six Thousand, Six Hundred Forty-Eight Dollars
and Seventy-Four Cents ($26,648.74) in Currency and Coins of the United
States, E. B. Leatherman, Clerk of the Circuit Court of Dade County,
Florida, and the United States of America, Respondents
Circuit Court, Eleventh Judicial Circuit,
, 62 L 1967, 12/23/64
[1954 Code Sec. 6321]
Tax lien: Priority: Monies confiscated in gambling raid.--Federal
tax liens did not attach to monies properly seized by a
sheriff in a gambling raid since such monies were subject to
confiscation and forfeiture to the State of
Richard E. Gerstein, State
Attorney, Roy S. Wood, Assistant State Attorney, Courthouse,
, for State of
. Thomas C. Britton, 1626 Court House,
, for E. B. Leatherman. William A. Meadows, Jr., United States Attorney,
Angus M. Stephens, Jr., 805 Dade Federal Bldg.,
and Final Judgment of Forfeiture
CANNON, Circuit Judge:
This cause coming on to a
final hearing pursuant to notice and the parties having presented
evidence and the Court having heard argument of counsel, the Court finds
that the funds involved herein are not subject to the liens claimed by
the Internal Revenue Service of the United States. The Court further
finds that the monies were seized in a raid on a suspected gambling
house made by the deputies of the Sheriff of Dade County, Florida, in
the execution of a search warrant and were found in the said house which
was the residence at the time of Isabell Thompson, and the monies were
actually in her custody and possession. The said Isabell Thompson was
arrested and charged in the Criminal Court of Record of Dade County with
violation of the gambling laws of the State of Florida and convicted on
one count of such charges as shown by the testimony of the deputy clerk
of the Criminal Court of Record and the judgment of the Court, a
certified copy of which has been received in evidence.
It appears that the agents
of the Internal Revenue Service learned about the seizure of these funds
and their deposit with E. B. Leatherman, Clerk of the Circuit Court of
Dade County, from the deputies of the Dade County Sheriff who were
involved in the raid on the said suspected gambling house, the residence
of the said Isabell Thompson, and in the arrest of the said Isabell
Thompson and the seizure of the said monies, and it was only several
days after the said monies were found and seized and were already in the
possession of the authorities of Dead County when the United States of
America through the agents of the Internal Revenue Service made an
effort to claim and attach the said funds.
The court finds that the
said monies were used in connection with illegal gambling and properly
seized by the deputies of the Sheriff of Dade County, Florida, properly
deposited in the vault of the Clerk of the Circuit Court of Dade County
for safekeeping and then by the Clerk duly retained in his possession to
await a determination by proper order and judgment of a court of
competent jurisdiction of the rights of the parties to such funds and
his duty as to the disposition of them. The Court finds that the funds
are subject to confiscation under the laws of the State of
and should be deposited in the Fine and Forfeiture Fund of Dade County.
Thereupon, it is
CONSIDERED, ORDERED AND
ADJUDGED that the claim of The United States of America and its Internal
Revenue Service against the said funds be, and it hereby is, denied, and
it is further
ORERED AND ADJUDGED that
the said monies in the amount of TWENTY-SIX THOUSAND SIX HUNDRED
FORTY-EIGHT DOLLARS AND SEVENTY-FOUR CENTS ($26,648.74) be, and it
hereby is, confiscated and forfeited to the State of Florida and the
County of Dade subject to the payment of such costs out of said funds as
the Court may hereafter direct on a proper claim therefor by the Clerk
and other parties to this action who may have lawful claim for costs,
which costs are found to be $355.75, and it is further
ORDERED AND ADJUDGED that
the said funds less any costs that may be authorized as aforesaid be
deposited in the Fine and Forfeiture Fund of Dade County, Florida.
[81-1 USTC ¶9173]
, Plaintiff v.
United States of America
, et al., Defendants-Appellees v. State of
U. S. Court of Appeals, 5th Circuit, Unit B, No. 79-2038, 635 F2d 512,
1/30/81, Affirming an unreported DC decision
[Code Sec. 6321]
Lien for taxes: Property in custody of state: Currency seized in
gambling raid: Taxpayer's interest in property.--Federal tax liens
did not attach to currency seized by county police incident to several
gambling arrests because the money had escheated to the state,
terminating the taxpayer's interest in the currency.
Atlee W. Wampler, III,
United States Attorney, Stephen M. Pave, Assistant United States
Attorney, Miami, Florida 33132, William S. Estabrook, Karl Schmeidler,
Gilbert E. Andrews, Crombie J. D. Garrett, Department of Justice,
Alvarez LeCesne, Jr., Attorney, Tax Division, U. S. Department of
Justice, Washington, D. C. 20530 for Defendants-Appellees. Jim Smith,
Attorney General, Joseph C. Mellichamp, Assistant Attorney General,
Tallahassee, Florida 32304, for Movant-Appellant, Philip T. Weinstein,
Special Assistant Attorney General, 2250 S. W. Third Avenue, Miami,
Before HILL, KRAVITCH and
HATCHETT, Circuit Judges.
KRAVITCH, Circuit Judge:
In this case we are asked
to determine whether confiscated funds seized by the state of
under the authority of a specific gambling statute are subject to an IRS
tax levy. We hold that the funds had escheated to the state at the time
of the IRS notice of levy and reverse the district court's award to the
Facts. The dispute
had its genesis on February 2, 1974, when
police officers seized $31,733.90 incident to the arrest of several
persons on gambling charges. The persons arrested (the taxpayers) were
tried in state court for violation of specific
gambling statutes (F. S. §849.09(1)(a) and (b) (1975)). During the
criminal trial, the judge ordered that the confiscated funds be held by
the Property Custodian of the Dade County Public Safety Department
pending further order of the court.
Meanwhile, on February 11,
1974, nine days after the arrest and seizure, the Internal Revenue
Service made assessments against the taxpayers in the amount of
$118,873.79 for wagering excise taxes. On February 22, 1974, the IRS
served a notice of levy on the Dade County Public Safety Department,
property Bureau, for the amount of $118,873.79.
In February 1975, the
taxpayers were convicted in state court of the gambling charges. After
exhausting their appeals, they filed a motion for return of seized
property in the criminal division of the court in which they had been
convicted. That court, on February 9, 1977, ordered that $7,646.50 1
of the seized currency was "contraband and an escheat to the state
of Florida." 2
At the time of this ruling
by the state court, two legal proceedings concerning ownership of the
funds were pending.
, which had custody of the funds, had filed an interpleader action in
state court seeking to determine ownership of the funds, and the
had brought an independent action in federal court against
to require the county to pay the funds to the IRS. The
then removed the state interpleader action to federal court, and on
February 14, 1977, three days after the state court had declared the
funds an escheat to the state of
, the federal district court ordered the funds paid into the registry of
the court. The district court ultimately granted summary judgment for
the IRS in the interpleader action. The state of
now appeals that order.
the facts and the procedural history of the controversy are complex, the
issue before this court is relatively straightforward. Certain
propositions are not in dispute: a federal tax lien arose in favor of
upon all property and rights to property belonging to the taxpayers on
February 11, 1974. To the extent the funds seized by the state of
belonged to the taxpayers on February 11, 1974, such funds passed to the
with the federal tax liens attaching. See United States v. Security
Trust & Savings Bank [50-2 USTC ¶9492], 340
47, 71 S. Ct. 111, 95 L. Ed. 53 (1950); Glass City Bank v. United
States [45-2 USTC ¶9449], 326
265, 66 S. Ct. 108, 90 L. Ed. 56 (1945). If, on the other hand, the
taxpayers had no property interest in the confiscated currency, a
federal tax lien could not attach. Federal tax liens may attach only
"to the property of the person liable to pay the tax." I. R.
C. §6321. The controlling issue, therefore, is whether the taxpayers
had a property interest in the seized currency at the time the IRS filed
Whether a taxpayer has an
interest in property for purposes of federal taxation is a question of
state law. Aquilino v. United States [60-2 USTC ¶9538], 363
509, 512-14, 80
1277, 1279-80, 4 L. Ed. 2d 1365 (1960). The parties agree that the
law on this question is found in a single statute:
§933.14 Return of Property Taken Under Search Warrant
it appears to the magistrate or judge before whom the warrant is
returned that the property or papers taken are not the same as that
described in the warrant, or that there is no probable cause for
believing the existence of the grounds upon which the warrant was
issued, or if it appears to the magistrate before whom any property is
returned that the property was secured by an "unreasonable"
search, the judge or magistrate may order a return of the property
taken; provided, however, that in no instance shall contraband such as
slot machines, gambling tables, lottery tickets, talley sheets, rundown
sheets, or other gambling devices, paraphernalia and equipment, or
narcotic drugs, obscene prints and literature be returned to anyone
claiming an interest therein, it being the specific intent of the
Legislature that no one has any property rights subject to be protected
by any constitutional provision in such contraband; provided further,
that the claimant of said contraband may upon sworn petition and proof
submitted by him in the circuit court of the county where seized, show
that said contraband articles so seized were held, used or possessed in
a lawful manner, for a lawful purpose, and in a lawful place, the burden
of proof in all sworn affidavit or complaint upon which the search
warrant was issued or the testimony of the officers showing probable
cause to search without a warrant or incident to a legal arrest, and the
finding of such slot machines, gambling tables, lottery tickets, talley
sheets, rundown sheets, scratch sheets, or other gambling devices,
paraphernalia, and equipment, including money used in gambling or in
furtherance of gambling, or narcotic drugs, obscene prints and
literature, or any of them, shall constitute prima facie evidence of the
illegal possession of such contraband and the burden shall be upon the
claimant for the return thereof, to show that such contraband was
lawfully acquired, possessed, held, and used.
The state relies on the
following language of this statute: ". . . it [is] the specific
intent of the Legislature that no one has any property rights subject to
be protected by any constitutional provision in such contraband."
If, as this language indicates, the taxpayers had no property rights in
the seized currency, a federal tax lien could not attach.
The IRS concedes that under
law no one has property rights in seized contraband such as gambling
devices, paraphernalia, and equipment. It contends, however, that
law treats this type of contraband differently from currency used
for gambling purposes. Essentially, it argues that money is not
contraband per se; rather, money is only considered contraband
and an escheat to the state upon a court determination that it was used
in gambling or in furtherance of gambling. Thus, the IRS concludes,
because there had not yet been a court determination of forfeiture, the
seized currency was the property of the taxpayers when the federal tax
We cannot accept this
argument. The parties have not directed us to any
appellate court cases, nor have we found any, that distinguish currency
from contraband per se for purposes of §933.14. 3
Further, we cannot agree with the IRS that the language of the statute
itself suggests such a distinction. Chapter 933 contains no general
definition of the term "contraband"; section 933.14(1) simply
lists the types of contraband covered by the statute. The phrase
"money used in gambling or in furtherance of gambling" does
not occur in the list of contraband in the first part of subsection (1);
the phrase concerning money occurs in the list of contraband in the
latter part of subsection (1), the portion of the statute which gives a
claimant a right to show that the contraband articles "were held,
used, or possessed in a lawful manner for a lawful purpose." The
IRS urges us to find in this language a legislative intent to treat
money differently from gambling paraphernalia.
Reading the statute as a
whole, we find no indication of a legislative intent to treat money
differently from other contraband. The fact that money used for gambling
purposes may be recovered by the claimant upon a showing of lawful
purpose is of no benefit to the IRS; all contraband under the
statute may be so recovered. The unescapable intent of the
legislature is that all contraband, including money, escheats upon
In contending that the
taxpayer retained a property interest in the currency after it was
confiscated, the IRS relies on United States v. Security Trust and
Savings Bank [50-2 USTC ¶9492], 340 U. S. 47, 71 S. Ct. 111, 95 L.
Ed. 53 (1950). In that case the Supreme Court held that a federal tax
lien had priority over an attachment lien on property, where the federal
tax lien was recorded after the date of the attachment lien but before
the attaching creditor obtained judgment. The Court found that under
law an attachment lien is merely contingent or inchoate unless and until
the creditor obtains a judgment. The IRS contends that the act of
confiscation in this case is analogous to an attachment lien. Thus, it
argues, confiscation did not immediately divest the taxpayers of their
property rights in the currency; rather, the forfeiture was inchoate
until the criminal court entered its order of escheature.
Again, however, the
language of the statute refutes the argument of the IRS. Under the
statute, the "owners" of seized contraband are not
"divested" of any property rights; the legislature expressly
stated that "no one has any property rights" in seized
contraband. Section 933.14 provides a procedure whereby a claimant to
seized contraband may recover such contraband if he can show that the
"contraband was lawfully acquired, possessed, held, and used,"
but the burden is expressly placed on the claimant. We conclude that
confiscation under §933.14 is not analogous to a "contingent or
inchoate" attachment lien.
forfeiture cases cited by the IRS are inapposite. Many
cases state that as a general rule forfeitures are not favored. See, e.g.,
Boyle v. State, 47 So. 2d 693 (
1950); General Motors Acceptance Corp. v. State, 152
297, 11 So. 2d 482 (1943); City of
v. Miller, 148
349, 4 So. 2d 369 (1941). None of these cases, however, interpert the
statute at issue here. Section 933.14 is not couched in terms of
forfeiture at all; as noted above, the statute specifically disclaims
any property rights in contraband.
currency at issue here had already been seized and thus had escheated to
the state when the IRS filed its notice of levy. Consequently, a federal
tax lien could not attach. Accordingly, we REVERSE.
This figure is the actual amount in dispute in this case. The court
found the remainder of the funds not to be contraband and therefore the
property of the taxpayers.
The IRS was not a party in this action, although an agent of the IRS was
present at the hearing as, in the words of the IRS agent, "a friend
of the court." The state contends that by failing to intervene in
those proceedings, the IRS waived any rights in the currency. See United
States v. Bleasby [58-2 USTC ¶9747], 257 F. 2d 278 (3d Cir. 1958).
Because we decide this case on other grounds, we need not address this
The state has referred us to one trial court opinion on point: State
v. Twenty-Six Thousand, Six Hundred, Forty-Eight Dollars and
Seventy-Four Cents [65-1 USTC ¶9284], 15 A. F. T. R. 2d 271 (1964),
aff'd 179 So. 2d 890 (Fla. 3d DCA 1965). In that case the circuit
court determined that funds seized from a gambling house, and upon which
the IRS subsequently filed liens, were confiscated to the state. The
claim of the IRS was accordingly denied.
The IRS has not challenged the constitutionality of §933.14.