Debts Owed to the Taxpayer page6

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[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

In the Supreme Court of New Jersey , 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 , Newark , N. J., for the respondents.

OLIPHANT, Judge:

This case concerns the title to money seized by police in a raid on the headquarters of a lottery operation.

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 in Newark . 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 County.

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, 3671, 3672.

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 County Treasurer subject to the supervision of the Prosecutor. R. S. 2:178-7.2, now N. J. S. 2A:152-8.

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 defendants the 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 County of Essex . 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 them.

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 Spagnuolo.

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 County of Essex 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 money, the United States had no lien thereon and the relief sought by the United States 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).

[Appeal 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. Ct. 1836); City Bank of Bayonne v. O'Mara, 88 N. J. L. 499 (Sup. Ct. 1916); Redmond v. N. J. Historical Society, 132 N. J. Eq. 464 (E. & A. 1942).

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.

[Between County and U. S.]

This brings us then to the problem of priority as between the County of Essex and the United States of America .

Title 26 U. S. Code, sec. 3670 (26 U. S. C. 1952 ed., sec. 3670) reads as follows:

"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".

and Section 3671 provides:

"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".

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 seizure.

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.

[State Statute Construed]

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 contraband.

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. Ct. 1936); Krug v. Board of Chosen 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 (1954).

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. 677.

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. Ct. 1908); 12 Am. Jur. 358, sec. 678 et. seq.

The argument of the United States 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 ( Ch. 1924); Miller v. Atlantic City, 111 N. J. Eq. 260 ( Ch. 1932); Kenny v. Wachenfeld, supra; Burgess v. Drewen, 8 N. J. Misc. 179 ( Cir. Ct. 1930).

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 County Treasurer 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.

[Money as Contraband]

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 New Jersey 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, U. S. Const.; Ling Su Fan v. United States , 218 U. S. 302, 54 L. ed. 1049, 31 Sup. Ct. 21 (1910); 31 U. S. 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 County of Essex lawfully took possession of this contraband by virtue of the sovereign power of the State of New Jersey , 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 United States 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. United States 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. Motlow v. Missouri , 295 U. S. 97, 79 L. ed. 1327, 55 Sup. Ct. 661 (1935); 51 Harvard Law Review p. 1112.

[Forfeiture Absolute]

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, supra.

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. Campbell, 329 U. S. 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 affirmed.

HEHER, Judge, for modification.

I would modify the judgment to sustain the lien for income taxes asserted by the United States .

 

 

[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

Fla. Circuit Court, Eleventh Judicial Circuit, Dade County , 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 Florida sheriff in a gambling raid since such monies were subject to confiscation and forfeiture to the State of Florida .

Richard E. Gerstein, State Attorney, Roy S. Wood, Assistant State Attorney, Courthouse, Miami , Fla. , for State of Florida and County of Dade . Thomas C. Britton, 1626 Court House, Miami , Fla. , for E. B. Leatherman. William A. Meadows, Jr., United States Attorney, Federal Bldg., Miami , Fla. , for U. S. Angus M. Stephens, Jr., 805 Dade Federal Bldg., Miami , Fla. , for I. Thompson.

Order 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 Florida 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] Metropolitan Dade County , Plaintiff v. United States of America , et al., Defendants-Appellees v. State of Florida , Movant-Appellant

(CA-5), 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, Florida 33129.

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 Florida 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 United States .

Facts. The dispute had its genesis on February 2, 1974, when Dade County 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 Florida 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. Dade County , which had custody of the funds, had filed an interpleader action in state court seeking to determine ownership of the funds, and the United States had brought an independent action in federal court against Dade County to require the county to pay the funds to the IRS. The United States 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 Florida , 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 Florida now appeals that order.

Discussion. Although 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 the United States 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 Florida belonged to the taxpayers on February 11, 1974, such funds passed to the state of Florida with the federal tax liens attaching. See United States v. Security Trust & Savings Bank [50-2 USTC ¶9492], 340 U. S. 47, 71 S. Ct. 111, 95 L. Ed. 53 (1950); Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 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 its levy.

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 U. S. 509, 512-14, 80 S. Ct. 1277, 1279-80, 4 L. Ed. 2d 1365 (1960). The parties agree that the relevant Florida law on this question is found in a single statute:

FLORIDA STATUTES §933.14(1) (1973)

§933.14 Return of Property Taken Under Search Warrant

(1) If 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 Florida law no one has property rights in seized contraband such as gambling devices, paraphernalia, and equipment. It contends, however, that Florida 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 lien arose.

We cannot accept this argument. The parties have not directed us to any Florida 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 Florida legislature is that all contraband, including money, escheats upon seizure. ⁴

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 California 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.

Likewise, the Florida forfeiture cases cited by the IRS are inapposite. Many Florida cases state that as a general rule forfeitures are not favored. See, e.g., Boyle v. State, 47 So. 2d 693 ( Fla. 1950); General Motors Acceptance Corp. v. State, 152 Fla. 297, 11 So. 2d 482 (1943); City of Miami v. Miller, 148 Fla. 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.

Conclusion. The 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.

¹ 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.

² 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 contention.

³ 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.

⁴ The IRS has not challenged the constitutionality of §933.14.