State of Oregon, by and through the
State Board of Higher Education, composed of Charles R. Holloway, Jr.,
J. W. Forrester, Jr., Philip A. Joss, George H. Layman, Elizabeth H.
Johnson, John C. Merrifield, Ralph E. Purvine, John W. Snyder and Ray T.
Yasui, Plaintiffs v. Magnolia Lumber Corporation, a Mississippi
corporation; Lithia Lumber Company, an Oregon corporation; Lawrence
Warehouse Company, a California corporation; the State of Oregon, acting
by and through the Department of Employment; the State of Oregon, acting
by and through the Public Utility Commission; the United States of
America; the County of Jackson, State of Oregon, a political
subdivision; Jack Medley and Norman E. Yocom dba Conifer Logging
Company; Montgomery Ward & Co., Incorporated, an Illinois
corporation; Mautz, Souther, Spaulding, Kinsey & Williamson,
attorneys at law; and Collins & Redden, attorneys at law, Defendants
of Ore. Circuit Court, County of Jackson, No. 64-1008L, 6/2/67
[1954 Code Sec. 6321]
Liens for taxes: Property subject to lien: Mortgage: Mortgagee's
taxes.--A U. S. tax lien attached to a mortgagee's promissory note
and mortgage (and subsequently, on foreclosure, to the final judgment
and decree) when notice of the lien was filed (April 28, 1961), and any
offset claimed by the mortgagor by virtue of a subsequent judgment it
obtained against the mortgagee on July 15, 1964, did not operate to
defeat the Government's lien.
[1954 Code Sec. 6323]
Liens for taxes: Priority over attorney's fees: Mortgage
foreclosure.--A U. S. tax lien had priority over a lien for
attorney's fees in a mortgage foreclosure proceeding since the
attorney's lien did not become choate (that is, fixed by the foreclosure
decree) until after the filing of the Government's tax lien.
Otterstedt, Assistant Attorney General,
, for plaintiffs. Sidney I. Lezak, United States Attorney, Roger G.
Rose, Assistant United States Attorney, Portland, Ore., Donald Seymour,
George L. Evans, Leon L. Hagen, Assistant Attorney Generals, Salem,
Ore., Thomas J. Owens, District Attorney, Medford, Ore., Collins &
Redden, 107 E. Main St., Medford, Ore., Mautz, Souther, Spaulding,
Kinsey & Williamson, 12th Floor, Standard Plaza, Portland, Ore.,
Lloyd G. Hammel, Assistant Attorney General, Portland, Ore., for
Findings and Conclusions
originated as an action in eminent domain in which
Board of Higher Education brought action to acquire for Southern Oregon
College a tract of land in
of approximately ten acres particularly described in the complaint. At
the commencement of the action the land was owned by defendant, Lithia
Lumber Company, but was involved in suit for foreclosure of mortgage of
the defendant Magnolia Lumber Corporation. Decree of foreclosure was
entered July 11, 1963, was appealed to the Supreme Court, and the
foreclosure decree was affirmed July 15, 1965, except for remand for the
taking of further testimony for determination as to deficiency judgment
on the mortgage. See Magnolia Lumber Corporation v. Lithia Lumber
Company et al., Case No. 61-633E this Court, 241 Or. 65. Magnolia
and Lithia joined in defense of the eminent domain proceeding in this
case, stipulated with plaintiff for waiver of jury trial and tried the
case to the Court on March 17, 1966. The Court thereafter entered
verdict and judgment of just compensation for the taking in the sum of
$23,750.00. This sum has been deposited with the Clerk by plaintiff and
awaits decree of the Court for its disbursement. Plaintiff has taken
possession of the lands involved. Title thereto was vested in plaintiff
by judgment previously entered herein.
Commission v. Burke, 200 Or. 211, at 251, the Court on March 18,
1966, received testimony from various defendants and cross complainants
to establish their respective claims to the fund, which under Burke,
were upon determination and payment of just compensation transferred
from the land to the fund. Subsequently they submitted their briefs on
the remaining question before the Court, namely, the determination of
priority among the claims presented.
question is somewhat simplified by the fact that the lands involved here
were part and parcel of the lands involved in the mortgage foreclosure
suit, Magnolia v. Lithia, being Tract No. 8 as described in the
mortgage, and with one exception hereinafter noted, the claimants with
the highest priority were parties defendant and cross complainants in
in Magnolia v. Lithia determined the respective priorities so far
as liens involving Lithia were concerned, and no appeal was taken by any
of them from that portion of the decree which established such
priorities. That portion of the decree is thus final and conclusive
between such claimants and Lithia. ORS 43.130(2), 43.150, 43.160, Glenn
v. Savage, 14 Or. 567, Finley v. Houser, 22 Or. 562,
, 54 Or. 560, 577, Basche Sage Hdwe. Co. v. DeWolfe, 113 Or.
in Magnolia v. Lithia established such priorities as follows:
of the State of
, Department of Employment, in the amount of $1,855.63 filed November
14, 1960, in Volume 19, page 58, and in the amount of $15.20 dated March
14, 1961 filed in Volume 19, page 140.
Mortgage of Magnolia in the sum of $536,644.68 with interest, plus
$26,628.81 with interest, and $4,500.00 attorneys fees.
lien of the State of
, Tax Commission No. 7818 filed March 4, 1960 in the Lien Records of
Jackson County in the sum of $2,190.18, plus interest.
lien of the
United States of America
, Lien No. 61283 filed in the Lien Records of Jackson County, April 28,
1960 in the amount of $6,481.14, plus interest.
Judgment of State of
, Department of Employment, entered June 1, 1960 in this Court in the
amount of $3,657.08, plus interest.
lien of the State of Oregon, State Tax Commission, Warrant No. 8077
filed in the Lien Records of Jackson County January 10, 1961, in the
amount of $2,187.51.
lien of the United States of America No. 64516, recorded in the Lien
Records of Jackson County, January 18, 1961, in the amount of
$14,380.11, plus interest.
lien of the State of
, Tax Commission, Instrument No. 8204, recorded in the Lien Records of
Jackson County on March 14, 1961, in the amount of $136.58, plus
liens of the
United States of America
bearing No. 63570 in the amount of $844.01, a lien in the amount of
$488.01, and Lien No. 65370 in the amount of $529.48, all filed in the
Lien Records of Jackson County, April 19, 1961.
of the State of
, Department of Employment, recorded July 21, 1961, in Volume 19, page
298 of the Lien Records of Jackson County in the amount of $75.09, plus
complication which prevents the priorities determined by the decree in Magnolia
v. Lithia from being decisive of distribution of the fund in this
case is that in case No. 61-699L in this Court in which Lithia is
plaintiff and Magnolia defendant with R. Drew Lamb and others, on July
15, 1964 by jury verdict, Lithia was awarded joint and several judgment
against all defendants in that case, including Magnolia, in the sum of
$1,700,000.00. In the same judgment, the judgment entered in the
foreclosure suit of Magnolia v. Lithia is reentered and thus is
merged with and operates as an offset against the Lithia judgment. The
case is now on appeal to the Supreme Court, but neither the judgment nor
execution thereon has been stayed by supersedeas undertaking, and thus
at this time Magnolia's judgment in the mortgage foreclosure is
effectively offset by Lithia's larger judgment in which it is presently
incorporated. ORS 19.040, Daly v. Wolfard Bros., Inc., 204 Or.
241, Hecht v. James and Farmers Mut. Ins. Co., 218 Or. 251, 49
CJS 1035, Judgments, Sec. 561, annotation 158 ALR 859. This present
merger, of course, is subject to the result of the appeal.
exception previously mentioned of a claimant in this proceeding not
before the Court in the Magnolia Lithia foreclosure, is that the United
States of America in its amended answer in this case asserts a lien
claim for income taxes against Magnolia for fiscal year ending June 30,
1954, assessed December 23, 1960, with lien thereon filed with the
County Clerk of Jackson County, April 28, 1961, in the sum of
$37,119.25, upon which payments of $749.63 were made April 8, 1963, and
$787.21, December 31, 1964. The
established proof of such lien by its exhibits nos. A1, A3, A4 and A5.
States contends that this lien attached to Magnolia's mortgage as of
date of assessment on December 23, 1960, and in any event on the date of
filing the lien, April 28, 1961, and prior to foreclosure judgment in
July, 1963, and that any offset of such judgment as Lithia claims by
virtue of it being merged in the judgment in case No. 61-699L, is
necessarily subject to the lien of the United States of America for
Magnolia's income taxes.
upon which the lien in question is filed and based, Sec. 6321, Internal
Revenue Code, USCA, Title 26, provides:
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount (including any interest, additional amount,
addition to tax, or assessable penalty, 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".
statute has been held to be a broad, comprehensive statute intended to
subject all of the taxpayers' property, except that specifically exempt,
to taxes. Citizens State Bank of Barstow, Texas v. Vidal [40-2
USTC ¶9603], 114 F. 2d 380, Cannon v. Nicholas [35-2 USTC ¶9672],
80 F. 2d 934.
State Bank of Barstow, Texas v. Vidal, supra, Spade v. Salvatorian
Fathers (N. J.) 189 A. 2d 738, and Filipowicz v. Rothernsies
[40-1 USTC ¶9250], 31 F. Supp. 716, it was held to include choses in
action. And in Citizens Nat. Trust & Savings Bank of Los Angeles
v. U. S. [43-1 USTC ¶9426], 135 F. 2d 527, In Re Victor Brewing
Co. [45-1 USTC ¶9157], 146 F. 2d 831, Salsbury Motors Inc. v. U.
S. [54-1 USTC ¶9217], 210 F. 2d 171, Nelson v. U. S. [43-2
USTC ¶9648], 139 F. 2d 162, In re Burch [50-2 USTC ¶9406], 89
F. Supp. 249, and U. S. v. Taft [42-1 USTC ¶9411], 44 F. Supp.
564, it was held the statutory lien for unpaid taxes attached to after
thus holds that the tax lien of the
upon its filing attached to Magnolia's promissory note and mortgage, and
that upon entry of judgment and decree attached as well to such judgment
can have no offset or merger of its judgment against Magnolia which
would discharge and satisfy the latter's judgment in the mortgage
foreclosure without first assuming and discharging the tax lien of the
which has attached. Thus Lithia has no reasonable basis for objection if
the fund be disbursed to payment of the lien of the
filed against Magnolia, since it would be required in any event in order
to discharge such judgment to pay such claim.
judgment against Magnolia should be reversed upon appeal so that there
is in fact no merger or offset of judgments, by reason of the high
priority of Magnolia's mortgage as decreed in the foreclosure, and by
reason of Magnolia's obligation for the taxes claimed by the United
States in its lien against Magnolia, Magnolia would have no reasonable
basis for objection if the Court directs disbursement of the fund to
apply on such tax lien.
stipulated at the supplemental hearing on this matter that the first
priority claim to the fund is the amount of the lien of
plead in its answer under tax deed recorded September 6, 1960, in Volume
495, page 113, under Certificate of Delinquency No. C11199, together
with interest to date of payment, and that the second priority claim to
the fund are the liens of the State of Oregon, Department of Employment,
in the amount of $1,885.63 filed November 14, 1960 in Volume 19, page
58, and in the amount of $15.20 filed in Volume 19, page 140. After
payment of these priority claims with interest from the fund, the Court
finds and holds that the remainder of the fund should be disbursed to
United States of America
in partial payment of principal and interest on the tax lien filed April
28, 1961 for income taxes assessed against Magnolia for the fiscal year
ending June 30, 1954.
agrees with the
attorney that the lien for these income taxes is superior to that of the
attorneys for Magnolia in the foreclosure for the reason that the lien
for attorneys fees did not become choate until such time as the
foreclosure suit became final. Thus such lien did not become choate
until long after the tax lien. The tax lien being first in time is also
first in right. Gower v. State Tax Commissioner, 207 Or. 288, United
States v. City of New Britain [54-1 USTC ¶9191], 347 U. S. 81, United
States v. Pioneer American Insurance Company [63-2 USTC ¶9532], 374
U. S. 84, United States v. R. G. Ball Construction Company [58-1
USTC ¶9327], 355 U. S. 587, United States v. Buffalo Savings Bank
[63-1 USTC ¶9166], 371 U. S. 228.
statements of fact herein are the Court's findings of fact and the
Court's statements of law, the Court's conclusions of law. Each of the
parties hereto are granted ten days from receipt of these findings and
conclusions within which to file their objections and suggested
substitute findings and conclusions.
Commercial Standard Insurance
Company, a corporation, et al., Plaintiffs v. Otis Ward, et al.,
Defendants United States of America, Intervenor Petitioner
, in Chancery, 4/3/62
[1954 Code Sec. 6321]
Tax liens: Attachment to real estate held as tenants by entireties:
Proceeds from insurance policies on real estate.--The Government
failed to prove fraud on the part of the delinquent taxpayer. The
Government's tax lien existing before and after the acquisition of title
to real property by the taxpayer did not attach to such property or the
proceeds arising from insurance policies covering improvements on the
property because the property was acquired and held as an estate by the
entireties by the delinquent taxpayer and his wife.
Hepner, Fisher & Hepner, 406-413 Florida National Bank Bldg.,
Pensacola, Fla., for plaintiff. J. Montrose Edrehi, 406-413 Florida
National Bank Bldg., Bert Lane, Beggs, Lane, Daniel, Middlebrooks &
Gaines, 700 Brent Annex, Grover C. Robinson, Jr., Robinson & Roark,
215 Professional Bldg., Patrick G. Emmanuel, Holsberry & Emmanuel,
245 Professional Bldg., Pensacola, Fla., for defendants.
coming on to be heard on the 6th day of March, pursuant to the Order of
this Court dated 6 February 1962, upon the Petition for Intervention
filed by the United States of America (which Petition was granted by
said Order of February 6, 1962) and upon Amendment to Petition for
Intervention filed by the United States of America; and the Court having
received and heard evidence and testimony presented by the United States
of America in support of the allegations of its pleadings, and evidence
and testimony on behalf of certain of the other parties in this cause in
opposition thereto; and all parties having announced that evidence
relating to this phase of this matter had been presented to the Court,
as required by the Order referred to above; and counsel for the United
States of America and the other parties having presented arguments, and
the Court having considered said pleadings, evidence, testimony and
arguments; and being advised of its opinion;
THEREFORE, FOUND, ORDERED, AND DECREED as follows:
1. That the
United States of America
has failed to prove the fraud alleged by it on the part of the Defendant
2. That the
real estate and improvements located thereon, which improvements were
burned in the fire referred to in the pleadings in this cause, were
purchased by Otis Ward and Vivian Ward, husband and wife, at the time of
the acquisition of said properties, and title to said real and personal
property was taken in the name of Otis Ward and Vivian Ward, husband and
wife thereby creating an estate in the entireties under the laws of the
State of Florida.
3. That the
entire purchase price of the real estate, improvements thereon,
furniture, fixtures and equipment located therein, and the original
stock in trade and inventory, of the property referred to in the various
pleadings herein, and generally known as Patti's Bar and Package Store,
was financed by the said Otis Ward and Vivian Ward, husband and wife, at
the time of the acquisition thereof, part of said financing being a
first purchase money mortgage in favor of the Sellers of said
properties, and the balance being financed by Escambia Land Co., Inc.,
as Trustee; and that the only funds paid or contributed by the said Otis
Ward and/or Vivian Ward at the time of the purchase of said real and
personal property was $185.74, and the Court further finds that the
attorneys fees, and miscellaneous costs (stamps, intangible tax,
recording fees, and the like) incident to said purchase and the
financing thereof more than exceeded said sum of $185.74.
4. That the
lien of the United States of America existing of record at the time of
the acquisition of title to said property by the said Otis Ward and
Vivian Ward, husband and wife, did not attach to said property because
of its status as an estate by the entirety, and, in addition thereto,
because of the financing thereof in the manner set forth hereinabove.
That liens claimed by the
against Otis Ward filed subsequent to the purchase of said property by
Otis Ward and Vivian Ward, his wife, do not constitute liens upon said
property because said property was acquired by them as an estate by the
5. That the
proceeds arising from insurance policies insuring improvements upon said
premises constitute property held as an estate by the entirety by Otis
Ward and Vivian Ward, husband and wife and are not subject to any of the
liens claimed herein by the
6. That the
Petition filed by the
United States of America
in this cause be, and the same is hereby, dismissed, with prejudice.
of the Defendants in this cause filed Motions to Dismiss the Petition
for Intervention, as amended, by the
United States of America
, and certain Defendants filed Answers to said Petition, as amended. The
Court, prior to the hearing referred to hereinabove, took said Motions
to Dismiss under advisement, but no rulings on said Motions to Dismiss,
as such, are made, in that the Court has heard the evidence and
testimony presented by the United States of America in this cause, and
the testimony and evidence in opposition thereto, and this Order is
based upon the merits of the Claim of the United States of America.
B. Paddock, Trustee in Bankruptcy et al., Petitioners v. C. J.
Siemoneit et al., Respondents
the Supreme Court of
, No. A-1976, 218 SW2d 428, March 2, 1949
, Second District.
Withholding on wages: Civil penalty for failure to pay taxes when
due: Willfulness.--The disbursing officer of a corporation, who
failed to cause the corporation to pay federal income and social
security taxes due on wages paid to employees, was liable for a civil
penalty in the amount of the taxes due, even though the reason for
nonpayment of the taxes was that the corporation was in a precarious
financial condition and was expected to be able to make payment later.
Code Sec. 2707(a), imposing a penalty upon "any person who
willfully fails to pay, collect or truthfully account for the
taxes," intends a civil sanction, so that the word
"willfully" does not require a showing of fraudulent or evil
purpose, as in the case of criminal penalties, and the finding that the
officer intentionally and deliberately failed to pay the taxes when due
was sufficient to make him liable for the civil penalty.
Lien for taxes:
: Foreclosure of lien.--The lien imposed to secure the payment of
federal taxes extends to homestead property occupied by the person
liable for the tax or, in this case, the penalty. However, a lien to
secure payment of taxes owing by a husband does not attach to his wife's
property, and, since a wife has a vested interest in a homestead in
, her interest cannot be subjected to levy and sale for the satisfaction
of the federal tax liability of her husband. Reversing the judgment of
the Texas Court of Civil Appeals with respect to the intervention of the
United States and reforming the judgment of the district court, 214 S.
W. (2d) 651, reported at 49-1 USTC ¶9161.
Adler, Fort Worth, Texas, Theron L. Caudle, Assistant Attorney General
of the U. S., Andrew D. Sharpe and Frank K. Foster, Special Assistants
to the Attorney General of the U. S., Frank B. Porter, U. S. Attorney
and A. W. Christian, Assistant U. S. Attorney, Fort Worth, Texas, for
the petitioners. Ernest May and Van Zandt Smith,
, for the respondents.
in bankruptcy of Siemoneit Drilling Company, Inc., brought this suit
against C. J. Siemoneit and his wife and others, seeking to establish a
constructive trust in favor of the bankrupt corporation upon certain
real estate and personal property. The
United States of America
intervened in the suit, asking for a judgment for a tax penalty against
Mr. and Mrs. Siemoneit and foreclosure of a tax lien upon the same
property. In a trial before the court without a jury, judgment was
entered against the trustee in bankruptcy but in favor of the
, as against C. J. Siemoneit. The Court of Civil Appeals affirmed the
judgment against the trustee in bankruptcy, but reversed the judgment in
favor of the
and rendered judgment in favor of Siemoneit. 214 S. W. 2d 651 [49-1 USTC
* * * * *
[Employer's Failure to Pay Federal Taxes]
application for writ of error filed by the
presents the question of the liability of C. J. Siemoneit for a civil
penalty in the amount of Federal taxes due to the Government from the
corporation. It is admitted that the taxes were due from the corporation
and that C. J. Siemoneit was the disbursing officer of the corporation
who decided that the taxes would not be paid when they were due. The
trial court found the facts to be that C. J. Siemoneit, in failing to
cause the corporation to pay the taxes, had no fraudulent motive or
intent or purpose to defraud the Government of its revenue, but that he
"deliberately and intentionally" failed to cause payment of
the taxes when they were due. The court further found as follows:
all times after April, 1943, Siemoneit Drilling Company, Inc. was
embarrassed financially. Its operations in the interval of April, 1943,
to the filing of its petition for reorganization, March 2, 1945,
required that it borrow money and liquidate capital assets continually.
The executive officers of the corporation, C. J. Siemoneit and E. R.
Land, deemed it prudent to delay payment of Federal taxes after the same
were due, for each quarter of the period for which such taxes were
assessed, in order to conserve funds for operations. If the operations
had been successful, the corporation would have recovered from its
embarrassment and would have paid the taxes owing the Government."
statutes involved are Sections 1400-1432 and 1621-1627 of the Internal
Revenue Code (26
C. A.) relating to Social Security and Withholding taxes. Under Sections
1420 and 1627 the same penalties are provided with respect to these
taxes as are prescribed for taxes imposed by Section 2700 of the
Internal Revenue Code (26 U. S. C. A.). These penalties are set out in
Section 2707 of the Internal Revenue Code (26
C. A.), which reads as follows:
Any person who willfully fails to pay, collect or truthfully account for
and pay over the tax imposed by Section 2700(a), or willfully attempts
in any manner to evade or defeat any such tax or the payment thereof,
shall, in addition to other penalties provided by law, be liable to a
penalty of the amount of the tax evaded, or not paid, collected, or
accounted for and paid over, to be assessed and collected in the same
manner as taxes are assessed and collected. No penalty shall be assessed
under this subsection for any offense for which a penalty may be
assessed under authority of Section 3612.
Any person required under this subchapter to pay any tax, or required by
law or regulations made under authority thereof to make a return, keep
any records, or supply any information, for the purposes of the
computation, assessment, or collection of any tax imposed by this
subchapter who willfully fails to pay such tax, make such returns, keep
such records, or supply such information, at the time or times required
by law or regulations, shall, in addition to other penalties provided by
law, be guilty of a misdemeanor and, upon conviction thereof, be fined
not more than $10,000, or imprisoned for not more than one year, or
both, together with the costs of prosecution.
Any person required under this subchapter to collect, account for and
pay over any tax imposed by this subchapter, who willfully fails to
collect or truthfully account for and pay over such tax, and any person
who willfully attempts in any manner to evade or defeat any tax imposed
by this subchapter or the payment thereof, shall, in addition to other
penalties provided by law, be guilty of a felony and, upon conviction
thereof, be fined not more than $10,000, or imprisoned for not more than
five years, or both, together with the costs of prosecution.
The term 'person' as used in this section includes an officer or
employee of a corporation, or a member or employee of a partnership, who
as such officer, employee, or member is under a duty to perform the act
in respect of which the violation occurs. 53 Stat. 290."
conclusions of law of the trial court as to the liability of C. J.
Siemoneit were as follows:
Liability to the civil penalty authorized by Section 2707(a), 26 U. S.
C. A. does not depend upon the same criminal intent as required for
conviction under Section 2707(b) or (c), but arises when there is a
deliberate, intentional failure to pay taxes when due.
C. J. Siemoneit is therefore liable to the government for the penalties
assessed by the Commissioner of Internal Revenue."
of Civil Appeals reversed the judgment of the trial court on this part
of the case, holding that the findings of fact made by the trial judge
did not establish C. J. Siemoneit's liability for the penalties sought
to be imposed upon him.
question before us is the interpretation of "willful" as used
in Section 2707(a). In determining the meaning of Federal laws, this
Court is controlled by the decisions of the Supreme Court of the
. Emmons v. Pacific Indemnity Co., 146
496, 208 S. W. 2d 884; State v. Wynne, 134
455, 133 S. W. 2d 951; Southwestern Greyhound Lines v. Railroad
560, 99 S. W. 2d 263, 109 A. L. R. 1235. In this instance, however,
there does not appear to be any decision by the United States Supreme
Court which is directly in point, and we have to try to arrive at the
meaning of the statute from that Court's opinions in more or less
It seems to
be settled that in the internal revenue statutes imposing criminal
penalties, willfulness includes "some element of evil motive and
want of justification in view of all the financial circumstances of the
taxpayer". See Spies v. United States, 317
492, 498 [43-1 USTC ¶9243]. This holding, that the word
"willfully" means "an act done with a bad purpose"
and that "an evil motive is a constituent element of the
crime", is regarded as being in harmony with the interpretation
usually given to "willful" in other statutes imposing criminal
penalties. See United States v. Murdock, 290
389, 394, 395 [3 USTC ¶1194]. However, it is recognized that
"willful . . . is a word of many meanings, its construction often
being influenced by its context". See Spies v. United States,
492, 497 [43-1 USTC ¶9243]. And one of the meanings which it may have
is "an act which is intentional, or knowing, or voluntary, as
distinguished from accidental". See United States v. Murdock,
389, 394 [3 USTC ¶1194]; Screws v. United States, 325
v. United States, 96
699, has been cited by respondent as controlling in his favor. In that
sued to recover a civil penalty of $1000 under an internal revenue
statute imposing such a penalty for "knowingly and willfully"
failing to equip a distillery with apparatus of an adequate capacity.
The trial court refused to instruct the jury that the defendants would
not be subject to the penalty if the inadequacy of the apparatus was
unknown to the defendants and their superintendent, and judgment was
entered against the defendants for the penalty. This judgment was
reversed by the Supreme Court. After reviewing the evidence, the court
at p. 702):
was, therefore, the absence of that knowledge which could render the
neglect willful, and therefore actionable. They must have 'knowingly and
willfully' omitted to furnish a receiver of sufficient capacity, before
the severe penalty prescribed could be imposed upon them and their
distilled spirits subjected to forfeiture. Doing or omitting to do a
thing knowingly and willfully, implies not only a knowledge of the
thing, but a determination with a bad intent to do it, or to omit doing
it. 'The word "willfully'", says Chief Justice Shaw, 'in the
ordinary sense in which it is used in statutes, means not merely
"voluntarily", but with a bad purpose.' Com. v. Kneeland,
20 Pick., 220. 'It is frequently understood', says Bishop, 'as
signifying an evil intent without justifiable excuse.' Cr. L., Vol. I,
apparent from a study of the opinion in the Felton case that it
could have been disposed of on the ground that the evidence failed to
show that the defendants had knowingly or intentionally failed to comply
with the law. It was unnecessary for the court to hold that the word
"willful" requires the showing of "a determination with a
bad intent" or "with a bad purpose" not to do the
required act, since the evidence showed that the defendants' failure was
unknowing and unintentional. We do not think that the Felton case
can be regarded as settling the law in a case such as the one before us,
where the trial court has expressly found that there was "a
deliberate, intentional failure to pay taxes when due". So far as
we can discover, the Felton case has not been cited subsequently
by the Supreme Court of the
as stating the correct rule in suits for civil penalties, but rather as
stating the rule which is to be applied where criminal penalties are
sought. See Screws v. United States, 325 U. S. 91, 101; United
States v. Murdock [3 USTC ¶1194], 290 U. S. 389, 394; Spurr v.
United States, 174 U. S. 728, 734; Potter v. United States,
155 U. S. 438, 446.
2707(a) provides that the penalty imposed therein shall be
"assessed and collected in the same manner as taxes are assessed
and collected". Thus it is clear that the statute intended a civil,
not a criminal, sanction. The imposition of civil as well as criminal
sanctions for the same act or omission is permissible; and one sanction
which has long been recognized as civil, rather than criminal, in spite
of its possible severity, is the payment of fixed or variable sums of
money. See Helvering v. Mitchell, 303
391, 399-400 [38-1 USTC ¶9152]. Even in a case where the penalty was
double the value of goods illegally imported, it was considered that the
statute was remedial, as providing indemnity for loss of the Government
resulting from expense incident to the enforcement of tax obligations. Stockwell
, 13 Wall. 531.
States v. Illinois Central Railroad Company, 303
239, suit was brought to recover a civil penalty for violation of a
Federal statute requiring the periodical unloading of livestock in
transit. The Supreme Court there rejected the argument that
"willful" included an evil motive or bad purpose and approved
its definition as the attitude of a person "who, having a free will
or choice, either intentionally disregards the statute or is plainly
indifferent to its requirements." See 303
at p. 243.
v. Regents of the University System of Georgia, 304 U. S. 439 [38-2
USTC ¶9321], the Court held that the regents were liable for admission
taxes which the Federal statute required to be collected on admissions
charged to athletic contests. In its opinion the Court says, ". . .
here the assessment is not of a tax payable by respondent but of a
penalty for failure to collect it from another". The Court does not
discuss the meaning of "willful" as used in the statute
involved in that case, but since there was no showing of any evil intent
or bad purpose on the part of the regents, the inference which we think
must be drawn from the Court's decision is that voluntary and
intentional failure to comply with the statute was sufficient to create
liability for the penalty.
in this case argues that "willful" must be given the same
meaning in all subdivisions of Section 2707, and therefore that the same
evil or fraudulent purpose must be shown in a civil suit brought under
subsection (a) as in a criminal prosecution under subsections (b) and
(c). The presumption ordinarily is that a term is used throughout the
same statute in the same sense. See Pampanga Sugar Mills v. Trinidad,
211, 218. However, the meaning of "willful" in the different
sections of the statute must be considered in the different contexts in
which the word is found in the separate sections. We do not believe that
the Congress intended to require no more proof of the Government in a
case where criminal punishment is sought than where civil recovery is
the object of the suit, as in this case. It has been recognized that
differences in the nature of the penalties imposed may properly lead to
differences in construction of the word "willfull", even when
used in different sections of the same statute. See Spies v. United
492, 497 [43-1 USTC ¶9243].
Failure to Pay Taxes]
light of the decisions of the Supreme Court of the United States, and
even though we agree that penalty statutes should generally be construed
in favor of the taxpayer, we have concluded that the district court's
finding that the respondent intentionally and deliberately failed to pay
the taxes when due was sufficient to make him liable for the civil
penalty under Section 2707(b). Respondent admittedly knew that the taxes
were due. There was no contention that the statute was inapplicable to
the taxpayer, as in cases cited by respondent, such as One 1941 Buick
Sedan v. United States, 158 Fed. 2d 445 (C. C. A. 10th) or Carson
Naval Stores Co. v.
, 29 Fed. Supp. 818 (D. C.,
) [39-2 USTC ¶9702]. Nor does the proof show that the corporation could
not have paid the taxes when they were due. The proof merely shows that
it was inconvenient for the corporation to pay the taxes at that time,
and that it was thought that the corporation would have a better chance
to operate profitably if it postponed the payment of its tax obligation
and used the funds for its own purposes instead of paying them over to
the Government as the law requires. The choice was knowing, deliberate
and intentional, and with the full realization that the law was being
violated. In our opinion this is the kind of case which Section 2707(a)
was intended to cover. The respondent cannot be excused or justified
because he hoped or even reasonably expected that the corporation would
at a later date be in a better financial condition so that the payments
could be made with less embarrassment. The purpose of the statute, to
insure the prompt payment of taxes when due, would obviously be defeated
by such an interpretation. The district court correctly held that C. J.
Siemoneit was liable for the penalties.
overrule the respondent's contention that the district court improperly
allowed a recovery of interest. Section 2707(a) provides that the
penalty shall be assessed and collected in the same manner as taxes are
assessed and collected, and the statute provides for the collection of
interest on taxes from the date of notice. 26
C. A. (Internal Revenue Code) Sec. 3655(b).
of Tax Lien]
district court decreed a foreclosure of the Government's lien as against
both C. J. Siemoneit and his wife, Lelia Mae Siemoneit, of its lien on
real property which the defendants admittedly bought and occupy as their
homestead. This judgment was entered in spite of the district court's
finding that Lelia Mae Siemoneit was not a disbursing officer of the
corporation and therefore was not liable for the penalty. Upon appeal
the Government has abandoned its claim for personal judgment against
Lelia Mae Siemoneit, but asserts that it has a lien against the
homestead as a whole. The Court of Civil Appeals did not pass on this
point, since it held that even C. J. Siemoneit was not liable for any
penalty. Since we have reached a contrary conclusion as to C. J.
Siemoneit's liability, we must decide whether the Government's lien
extends to and can be foreclosed against the interest of Lelia Mae
Siemoneit as well as the interest of her husband.
imposed to secure the payment of federal taxes extends to "all
property and rights to property, whether real or personal, belonging
to" the person liable therefor. Even the homestead of C. J.
Siemoneit therefore is subject to the lien. Shambaugh v. Scofield,
132 F. (2d) 345 [42-2 USTC ¶9826]; Staley v. Vaughn, 50 S. W.
(2d) 907 [1932 CCH ¶9420] (Tex. Civ. App., writ of error refused).
However, the question remains whether the lien also extends to the
interests of Lelia Mae Siemoneit in the property. The statute by its
terms applies only to the property belonging to the person who is liable
for the tax or, in this case, the penalty, and the cases hold that a
lien to secure payment of taxes owing by a husband does not attach to
his wife's property. Sheridan v. Allen, 153 Fed. 568 (C. C. A.
8th); Cannon v. Nicholas, 80 Fed. (2d) 934 [35-2 USTC ¶9672] (C.
C. A. 10th); Adler v. Nicholas, 166 Fed. (2d) 674 [48-1 USTC ¶9205]
(C. C. A. 10th). In
, we have held that the homestead is to be regarded as an estate created
not only for the protection of the family as a whole, but for the units
of the family. Woods v. Alvarado State Bank, 118
586, 19 S. W. (2d) 35. The wife has a vested estate in the land of which
she cannot be divested during her life except by abandonment or a
voluntary conveyance in the manner prescribed by law. As applied to the
situation in Oklahoma, where it is recognized that the wife has a vested
interest in the homestead, it has been held that the wife's interest
cannot be subjected to levy and sale for the satisfaction of the Federal
tax liability of her husband. Jones v. Kemp, 144 Fed. (2d) 478
[44-2 USTC ¶9410] (C. C. A. 10th). We think that this conclusion is
sound and that the district court erred in decreeing a foreclosure of
the lien on the homestead as against Mrs. Siemoneit.
respect to the suit by the trustee in bankruptcy, the judgment of the
district court and the Court of Civil Appeals are affirmed. With respect
to the intervention of the
, the judgment of the Court of Civil Appeals is reversed, the judgment
of the district court is reformed so as to eliminate a foreclosure of
the government's lien as against Lelia Mae Siemoneit in the real estate
therein described, and as so reformed the judgment of the district court
Sydney J. Wallace v. Egidio
Mestichelli and Angelina Mestrichelli, his wife, and Alfred Pizzi and
Rosella Pizzi, his wife
of Common Pleas, Montgomery County, Pa., No. 37, October 16, 1946
Property subject to lien: Husband and wife: Partnership.--Judgment
obtained against partnership for unpaid Social Security taxes does not
become a lien upon real property held by partners and their wives as
tenants by the entireties.
to sheriff's distribution.
Forrest, for exceptant. Morris Gerber, of Wisler, Pearlstine, Talone
& Gerber, for defendants.
21, 1943, the above-named defendants became the owners of a certain
tract of land in Conshohocken as tenants by the entireties.
On May 18,
1944, the United States Government entered judgment on a social security
tax claim for tax owed by the partnership of Egidio Mestichelli and
On May 22,
1944, Mestichelli et ux. and Pizzi et ux. executed a mortgage upon the
aforesaid property to Sydney J. Wallace. This mortgage was later
assigned to James J. McDade, Jr., the exceptant. Such mortgage having
become in default, it was foreclosed and the property sold by the
sheriff for the sum of $360 to James J. McDade, Jr., the plaintiff in
the execution. The sheriff set forth his schedule of distribution as
follows: distribution costs, $195.63; tax lien
, $164.37; total, $360.
McDade, Jr., the plaintiff in the execution, excepts to the allowance of
$164.37 upon the Government tax lien. Counsel for the plaintiff stated
that he had sent a copy of the exceptions to the collector of internal
revenue on May 20, 1946, and that he had since been advised by an
attorney representing such collector that the Government would probably
not oppose the allowance of such exception.
question to be decided is whether or not a judgment entered by the
Government of the
against two business partners becomes a lien upon property held by such
partners and their wives as tenants by the entireties. We feel that this
question must be decided in the negative. Admittedly, under the law of
a judgment against a husband does not become a lien upon property held
by such husband and wife as tenants by the entireties. There is
apparently nothing in any federal law which would give the Federal
Government greater rights than any ordinary judgment creditor to recover
for taxes due.
In the case
of United States v. Nathanson, 60 Fed. Supp. 193, 194 (1945)
[45-1 USTC ¶9194], the court said: "We find no designation in the
Federal Revenue Act by which a tax may be imposed upon property held by
the entirety for taxes due from the husband alone.
decisions covering property by the entirety follow the common law and
have withstood the onslaught of creditors for years." The
rule as to tenancy by the entireties is based upon the common law. Upon
the authority of the Nathanson case and the law of Pennsylvania,
we feel that the judgment entered by the United States Government
against Mestichelli and Pizzi did not become a lien upon any property
which they held as tenants by the entireties at the time of such entry
of such judgment.
this 16th day of October, 1946, for the reasons given, the exceptions to
the sheriff's distribution must be sustained as to the item of $164.37
awarded to the
United States of America
, and such item is therefore directed to be stricken from such schedule
and such purported lien is discharged from the property in question
United States of America
, Plaintiff v. Fred A. Kerr, et al., Defendants
S. District Court, East.
, No. CIV-2-77-110, 11/31/78
[Code Sec. 6321]
Lien for taxes: Fraudulent conveyances hindering collection.--The
taxpayers who took title to various parcels of real estate as tenants by
the entirety, did not make the conveyances fraudulently with respect to
the government so the conveyances were not set aside. Over a 43-year
period, the taxpayers neither filed tax returns nor paid taxes. During
this period, the taxpayers took title to real estate as tenants by the
entirety that the government claimed was fraudulent. There was no
evidence that the taxpayers utilized this method of deeding with the
intention of insulating themselves from their tax liabilities.
Crockett, III, Department of Justice,
, D. C. 20530, for plaintiffs. Wendal D. Jackson, 131 Eighth Street
& Luther H. Icenhour, 900 Anderson Street, Bristol, Tennessee 37620,
remaining contested issue in this lawsuit is whether 6 conveyances of
real estate by third-parties to the defendants Mr. and Mrs. Kerr, as
tenants by the entirety, should be set aside as fraudulent of the
national sovereign in the matter of Mr. Kerr's delinquency in reporting
timely and paying his federal income taxes for certain years. A bench
trial was conducted on October 2, 1978. This Court has jurisdiction of
the subject matter and of the parties. 28 U. S. C. §§ 1340, 1345, 26
U. S. C. §§ 7402, 7403.
has engaged in the business of owning and operating amusement devices
for some 45 years. He and Mrs. Kerr have been married for the most
recent 43 of those years.
neglected to pay any federal income taxes at all during those 45 years
until an informant "tipped" the Internal Revenue Service (IRS)
concerning his continuing illegality. He testified that he commenced his
business operations with but little capital and "* * * plowed all
profits * * *" back into his business operation. He undertook to
explain his failure to report his income and pay taxes due thereon, by
saying he was under the initial impression that, unless he "* * *
made * * *" more than $600 annually from his operations, he was not
required to make any report of his income; that, when he eventually
discovered otherwise, he was "* * * scared * * *" to file any
federal tax returns. 1
This fear provided no justification for his continued inaction. Stoltzfus
v. United States [68-2 USTC ¶9499], C. A. 3d (1968), 398 F. (2d)
1002, 1005-1006 , certiorari denied (1969), 393
1020, 89 S. Ct. 627, 21 L. Ed. (2d) 565.
operated his business under the name of Kerr Music Company. He
commingled his commercial funds with his personal funds and kept no
formal business records. He, at all times, and he and Mrs. Kerr for the
past 43 years, "* * * lived out-of-the-business * * *" and
profited from it far beyond that. Contributions were also made from the
funds acquired by Mr. and Mrs. Kerr to the capital of DeLuxe Vendors,
operated by their son, which offered for sale through vending devices
cigarettes, confections, coffee, etc.
worked in this amusement-device business from the beginning of her
marriage to Mr. Kerr, 2
in addition to managing their home and family affairs. She not only
assisted with the paper-work of that operation but engaged also in
manual jobs such as helping load and unload pinball and other machines
from their trucks and drove the truck and accompanied the Kerr's sons to
"* * * rob * * *" the funds from the devices located in places
attracting public traffic.
Kerr nor Mrs. Kerr received salaries, wages or other compensation for
their personal services to their business operation. When either of them
required funds for any family or personal use, these were withdrawn from
the business account in a bank. When they acquired any type of asset, it
was deemed by them to belong to them jointly; 3
title to all real estate they acquired was taken by them as tenants by
the entirety. When an indebtedness was created, both Mr. and Mrs. Kerr
assumed its repayment.
In 1940 or
1941, the Kerrs purchased, as tenants by the entirety, a parcel of real
estate. In 1959 they purchased a farm and took title to it as tenants by
the entirety. That same year, as such tenants, they purchased an
apartment building. In 1962 and 1964, as tenants by the entirety, Mr.
and Mrs. Kerr purchased continguous commercial lots in
, and, in the latter year, constructed thereon a building which has
served since as a base of operations of both Kerr Music Company and
DeLuxe Vendors. The following year, as tenants by the entirety, Mr. and
Mrs. Kerr bought an unimproved lot in a subdivision; and the same year,
as such tenants, they purchased their present residential property, as
well as a lot on which was located a restaurant or salesoffice
structure. During this period, they made an unsecured loan of $21,000 to
Mr. Ben A. Paduch and took no promissory note or other indicia of
indebtedness from him.
pleaded guilty in 1970 to charges that he had failed wilfully to file
federal income tax returns for the respective tax years of 1963 and
As to those years, Mr. and Mrs. Kerr elected to file belated returns
jointly and to pay the taxes, interest and penalty thereon. For this and
other purposes, Mr. and Mrs. Kerr borrowed jointly $50,000 and
hypothecated their joint property as security for its repayment. The
Kerrs have not elected to file joint federal income tax returns for any
of the other tax years involved in this litigation, viz.,
1956-1959, inclusive, 1961, 1964, 1965. 5
plaintiff contends that Mr. Kerr's maximum interest as a tenant by the
entirety of the property jointly held with his wife has a value of 20%
of its fair cash market value. 6
It contends furthermore that Mr. Kerr has escaped paying substantial
amounts of income taxes to its IRS over a great many years by the device
of having all his property conveyed to his wife and himself as tenants
by the entirety; that he has no other property subject to levy from
which it may realize unpaid taxes, penalties and interest; that there is
no ready market for the sale and purchase of survivorship interests in
joint tenancy estates; and that Mr. Kerr's causing his real assets to be
conveyed to him and his wife in such a manner worked a fraud on the
are in agreement (as is this Court) that the question of whether the
foregoing conveyances were fraudulent as to the national government is
law. Thereunder, to justify this Court in finding such conveyances
fraudulent and setting them aside, this Court must have found either:
(1) that Mr. Kerr caused such conveyances to be made to Mrs. Kerr and
himself with actual intent to delay, hinder, or defraud the national
government as one of his creditors (in which event such conveyances are
void), T. C. A. §§ 64-301, 64-315; or (2) that each of the foregoing
respective conveyances in 1959, 1962, 1964 and 1966 was fraudulent
because it was caused to be made by Mr. Kerr at 3 time when he was
insolvent and was without fair consideration, 7
T. C. A. §§ 64-309, 64-311, 64-312. The causing of the creation of
estates of tenancies by the entirety is within the reach of the Uniform
Fraudulent Conveyance Act, T. C. A. §§ 64-308, et seq. Cf. Taylor
v. Kaufhold (1954), 379 Pa. 191, 199, 108 A. (2d) 713.
has 2 groups of statutes dealing with allegedly fraudulent conveyances
and devises, all codified as T. C. A., title 64, chapter 3. The earlier
statutes relating thereto appear at T. C. A. §§ 64-301--64-307, and
the uniform laws thereon appear at T. C. A. §§ 64-308--64-321. The
latter merely enlarged upon the former. Bowery v. Vines (1941),
98, 103, 156 S. W. (2d) 395.
T. C. A. §64-315,
supra, distinguishes between fraudulent conveyances made with
"* * * actual intent * * * to hinder, delay, or defraud * * *
either present or future creditors * * *" and fraudulent
conveyances made with "* * * intent presumed in law * * * to
hinder, delay, or defraud * * * either present or future creditors. * *
*" In the former instance, actual intent to defraud must
have been shown by a preponderance of the evidence. James v. Joseph
417, 424-426(4), 1 S. W. (2d) 1017. 8
Mr. Justice R. L. Caruthers long ago defined the statutory words,
"* * * hinder, delay, or defraud, * * *" as being in their
legal or technical, not their literal, sense; he observed that the
"* * * statute only refers to an improper or illegal hinderance or
delay--not such as is reasonable and fair in the exercise of the
well-established right to prefer creditors. * * *" Hefner v.
Metcalf (1958), 38
577, 580. Of course, we have no factual situation herein involving
preferential treatment of creditors, but a federal judge, in instructing
a jury, once explained the meaning of these words in more congruity with
our present situation. He stated:
* * By hindering and delaying creditors in the collection of their debts
is meant the doing of an * * * act which causes or presents an obstacle
in the collection of the debt by a creditor. The act done by the debtor
may not defraud the creditor in fact, and yet be fraudulent in law,
because it hinders and delays creditors in the collection of their
debts. Thus, for instance, a debtor may have property more than
sufficient to pay all his debts, yet if he puts his property out of his
hands so that it cannot be reached by the ordinary process of law, it is
hindering and delaying in the eyes of the law, and a legal fraud. Such
hindering and delaying of creditors in the collection of their debts,
the law denounces and treats as a fraud. * * *
v. Richardson, C. C. W. D.
Mo. (1883), 19 F. 68, 69-70.
This is precisely what the national sovereign claims Mr. Kerr has done
here: having put his real estate partially out of his hands, so that it
cannot be reached by the ordinary process of law relating to the
collection of deliquent taxes and assessments, at times when Mr. Kerr's
real estate is more than adequate to pay those taxes and assessments. He
does appear to have done so. There is no question that the plaintiff was
a creditor of Mr. Kerr; his taxes were due and owing the plaintiff on
each date on which he was due to file a federal income tax return. United
States v. Adam Bldg. Co., Inc. [76-1 USTC ¶9221], C. A. 6th (1976),
531 F. (2d) 342, 343 fn. 2.
question, accordingly, is whether Mr. Kerr did this with an actual
intent to delay, hinder or defraud the federal government as his
creditor. This Court FINDS that it has not been shown by a preponderance
of the evidence that Mr. Kerr entertained any such intent at the time of
the conveyances at issue.
Kerr negotiated a transaction for the purchase of any real estate
throughout the protracted course of his marriage, in each instance, his
attorney made the decision that Mr. and Mrs. Kerr would take title to
such real estate as tenants by the entirety. This was because Mr. Kerr
felt that his wife and codefendant Mrs. Kerr was an equal partner with
him in all aspects of his business, as well as his home and family,
transactions; and that "* * * the least he could do * * *" was
to join her name with his in all the married couple's real estate
There is a
dearth of evidence that, at the pertinent times of conveyance, Mr. Kerr
even recognized that a joint survivorship relationship was being created
with his wife in such property, although it is inferrable reasonably
that he understood that Mrs. Kerr would "* * * get * * *" his
property if he predeceased her, and that he would own such property
outright if she predeceased him. There is no showing that the attraction
of insulating himself against viable liability to pay his federal income
taxes by this method of deeding ever crossed his mind.
it is inferrable reasonably also that, after Mr. Kerr became alarmed
over the ultimate consequences of his failure ever to have filed federal
income tax returns, Mrs. Kerr became aware of the reason for his deep
concern. This does not permit reasonably, however, the further inference
that Mr. Kerr ever contemplated the protection against the collection by
the national government of his income taxes the creation of the entirety
tenancies had provided, was providing or might have provided. This Court
does not find any actual intent to delay, hinder or defraud the
plaintiff on Mr. Kerr's part from this record. So it is that the
plaintiff is entitled to no relief herein under the provisions of T. C.
A. §§ 64-301, 64-315.
the plaintiff asserts also its rights to relief under the provisions of
T. C. A. §§ 64-309, 64-311, 64-312, on the ground that Mr. Kerr was
insolvent in 1959, 1962, 1964 and 1966 where various conveyances were
made to him and Mrs. Kerr as such tenants. Mr. Kerr was insolvent at
those times under the provisions of T. C. A. §64-309, 9
if the fair market value of his property would not then have covered his
obligations as they fell due. Hyde Properties v. McCoy [75-1 USTC
¶9470], C. A. 6th (1974), 507 F. (2d) 301, 307, citing State ex
rel. v. Caldwell, et al., C. A. Tenn. (1937), 21 Tenn. App. 396, 400
certiorari denied (1937). Under that rule, the Court hereby FINDS that
Mr. Kerr was not insolvent at the time of the creation of the respective
tenancies by the entirety in 1959, 1962, 1964 and 1966.
which this Court does not find, the fair cash market value of Mr. Kerr's
interest in the real estate involved was as much as 20% of such value,
the value of all his property on the market at the given times to a
willing, but uncoerced, seller and buyer was not shown to have been in
such amount that he was unable at any of those times to meet his
obligations as they matured in the usual course of his business
of the amusement devices owned by Kerr Music Company at the end of 1966,
alone, was more than $175,000, for example. The plaintiff's IRS elected
not to include these items of property in their computation of Mr.
Kerr's net worth at the pertinent times, because many of them had
depreciated (under the government's theory) to the point of no market
value. However, the proof is undisputed that, at all pertinent times,
the market value of those machines was far greater than the amounts IRS
computations found to be the negative net worth of Mr. Kerr. In
addition, it is undisputed that Mr. Kerr did pay his obligations as they
matured in the ordinary course of his commercial operations.
Furthermore, as a matter of policy, IRS decided against making a levy on
and offering for sale "gaming" devices in order to enforce
collection of Mr. Kerr's assessed taxes, penalties and interest.
that the plaintiff is entitled to no relief under the provisions of T.
C. A. §§ 64-309, 64-311, and 64-312.
defendant Mr. Fred A. Kerr has admitted that the plaintiff
United States of America
is entitled to recover from him $67,410.78 with interest to the date of
judgment and the statutory additions. (The final judgment herein will so
provide.) Although the Court has found and concluded that the plaintiff
is not entitled to the setting aside as fraudulent of the aforementioned
6 conveyances to Mr. and Mrs. Kerr, as tenants by the entirety, this
must not be construed as an adjudication that the plaintiff is precluded
from pursuing other available methods of undertaking to collect the
income taxes due from Mr. Kerr.
"* * *
[T]he 'Power to lay and collect Taxes' is a specifically enunciated
power of the Federal Government, Const, Art. I, §8 cl. 1, * * *" G.
M. Leasing Corp. v. United States [77-1 USTC ¶9140] (1977), 429
338, 354, 97 S. Ct. 619, 50 L. Ed. (2d) 530, 544-545. Mr. Justice Brewer
stated for the Supreme Court many years ago:
* * Taxes proper, or general taxes, proceed upon the theory that the
existence of government is a necessity; that it cannot continue without
means to pay its expenses; that for those means it has the right to
compel all citizens and property within its limits to contribute; and
that for such contribution it renders no return of special benefits to
any property, but only secures to the citizen that special benefit which
results from protection of his person and property, and the promotion of
those various schemes which have for their object the welfare of all.
"The public revenues are a portion that each subject gives of his
property in order to secure and enjoy the remainder. * * *"
Central Railroad Co. v. City of
190, 198, 13
293, 37 L. Ed. 132, 134.
Our government has a need to secure promptly the collection of its
revenues. Phillips v. Commissioner of Internal Revenue [2 USTC ¶743]
589, 596, 51 S. Ct. 608, 75 L. Ed. 1289, 1297.
Mrs. Kerr have created a sizable estate during, and briefly before,
their marriage. In so far as this record reflects, neither of them paid
any federal income taxes on their acquisitions, at times when citizens
generally, as it is noticed judicially, paid taxes on their earnings. It
is pertinent that it is easier to accumulate a modicum of wealth while
not paying taxes on the income derived than to amass a fortune after
making such payments.
liability to the plaintiff for taxes is a debt and is subject to
collection in the same manner in which other debts are collectible. Price
v. United States [1 USTC ¶158] (1926), 269
492, 500, 46 S. Ct. 180, 70 L. Ed. 373, 377-378. Included specifically
in the plaintiff's case is its right of collection by summary
istrative means. Phillips v. Commissioner of Internal Revenue, supra,
at 595, 75 L. Ed. at 1296. Where Mr. Kerr, or any person liable for a
federal tax, has neglected or refused to pay it after demand, the amount
of that tax, interest and penalty becomes a lien in its favor on "*
* * all property and rights to property, whether real or personal,
belonging to such person * * *" liable to pay that amount. 26
C. §6321; Metropolitan Life Ins. Co. v. United States [39-2 USTC
¶9771], C. C. A. 6th (1939), 107 F. (2d) 311, 313.
It may be
that from the evidence adduced herein the real estate acquired by Mr.
and Mrs. Kerr from their joint activities constitutes equal partnership
property, in which he owes a 50% interest. Cf. T. C. A. §61-105.
Under the Uniform Partnership Act in Tennessee, T. C. A. §§ 61-101, et
seq., when a partnership once acquires realty with partnership funds and
for partnership purposes, the realty then becomes personalty for all
purposes. Cultra, et al. v. Cultra, et al. (1949), 188
506, 511(2), 221 S. W. 533. Where a partner owes an individual tax, the
government's tax lien with respect to partnership property extends to
his interest in the surplus of the partnership property. United
States v. Kaufman [1 USTC ¶116] (1925), 267
408, 414, 45 S. Ct. 322, 69 L. Ed. 685, 689 (headnote 1). Such interest,
in other words, is "* * * his full interest in the partnership
property free and clear of other partnership indebtedness." F.
P. Baugh, Inc. v. Little Lake Lumber Co. [61-2 USTC ¶9726], C. A.
9th (1961), 297 F. (2d) 692, 3 A. L. R. (3d) 625, 632, certiorari
denied (1962), 370
1256, 8 L. Ed. (2d) 404. The ultimate answer to these questions, in the
light of Mr. and Mrs. Kerr's having taken deeds to these properties as
tenants by the entirety, would appear to lie within their respective
intentions at the times of conveyance to them. It is said:
* * [T]here was also a presumption that the ownership of real estate was
where the minument of title placed it. Thus, if by all the circumstances
attending the transaction, it appeared that in the intention of the
parties it was purchased for and was treated as a partnership property,
the presumption of ownership arising from the face of the deed would be
overcome, and the property would be treated as belonging to the
partnership. The provision of the Uniform Partnership Act that unless
the contrary intention appears, the property acquired with partnership
funds is partnership property, must also be applied in this context.
[Footnote references omitted.] * * *
Am. Jur. (2d) 22, Partnership, §92, citing inter alia (as
authority for the last statement hereinabove), Brown v. Brown, C.
A. Tenn. (1958), 45 Tenn. App. 78, 320 S. W. (2d) 721, certiorari denied
then, it is the decision of this Court:
that the plaintiff United States of America recover from the defendant
Mr. Fred A. Kerr the sum of $67,410.78 with interest 11
and statutory additions herein relating to the tax years 1956, 1957,
1958, 1959, 1961, 1964 and 1965;
(2) that as to the claim of the plaintiff against the defendants Mr. and
Mrs. Kerr, that the conveyances of 6 parcels of real estate conveyed to
them in 1959, 1962, 1964 and 1966, respectively, were fraudulent as to
the plaintiff as a creditor of the plaintiff, the plaintiff is denied
all relief; and
(3) that nothing in the decision of this Court herein shall be construed
as precluding the plaintiff from pursuing other available methods of
collecting any and all federal income taxes due from the defendant Mr.
Fred A. Kerr.
Rule 58(1), Federal Rules of Civil Procedure.
Mr. Kerr was especially frightened of the consequences of his unlawful
conduct when he heard that another amusement-device operator had been
"* * * sold-out * * *" by the government in another state to
satisfy his unpaid federal taxes.
Mr. Kerr testified to his belief that Mrs. Kerr was entitled to one-half
of "* * * all I got. * * *"
Mr. Kerr emphasized in his testimony that Mrs. Kerr was working "*
* * with * * *" me, not "* * * for * * *" me.
The Court overruled Mr. Kerr's objection to this evidence at trial but
has reconsidered upon more mature judgment and hereby SUSTAINS such
objection in light of the fact that Mr. Kerr has withdrawn his
contention that the assessment of his tax liability is incorrect. Cf.
Kreps v. C. I. R. [65-2 USTC ¶9652], C. A. 2d (1965), 351 F. (2d)
1, 6 , and United States v. Wainer [54-1 USTC ¶49,032], C. A.
7th (1954), 211 F. (2d) 669, 671. The conviction is mentioned herein
at all only as it is of assistance in establishing a time-frame for the
election of Mr. and Mrs. Kerr to file joint tax returns.
The limitation of 26 U. S. C. §6502 was enlarged by Mr. Kerr's
submitting an offer in compromise of the tax liabilities for those of
these years which are more than 6 years before the commencement of this
The Court does not accredit the testimony to this effect and gives it no
weight, because this estimate is grossly overestimated.
As indicated, infra, this Court is led toward the conclusion,
which would constitute mere dictum herein, that Mr. and Mrs. Kerr may
have constituted themselves a partnership, so that the "fair
consideration" concept, with reference to Mrs. Kerr's becoming a
tenant by the entirety in the transactions involved, is not implicated,
in the Court's mind.
It is only where the creditor presents evidence to create a suspicion
that the conveyance involved was fraudulent that the allegedly
fraudulent conveyor or conveyee must show freedom from the alleged
fraud. James v. Joseph, supra, 156
"* * * A person is insolvent when the present fair salable value of
his assets is less than the amount that will be required to pay his
probable liability on his existing debts as they become absolute and
matured. * * *" T. C. A. §64-309.
The rule is atually stated therein, as follows: "* * * The only way
to tell whether a[n] * * * individual is solvent or insolvent at a given
time is to take into consideration the value of all the property on the
market at that time, that is, the valuation placed upon such property
should be the price it would bring in the open market taking into
consideration the fact that the owner would sell, but did not have to
sell, and the buyer would buy, but did not have to buy. Alloway v.
510, 13 S. W. 123; 66 C. J. 418. And, taking all of his property
together, if he is unable to meet his obligations as they mature in the
usual course of business, he is insolvent. Minton v. Stahlman, 96
98, 108, 34 S. W. 123 S. W. 222. * * *" Idem.
Counsel for the parties will undertake to agree on the proper amount of
accrued interest and additions on such date and so advise the clerk of
Batrus, Foldenauer & Madigan,
Inc., Plaintiff v.
United States of America
, et al., Defendants
S. District Court, East. Dist. Va., Alexandria Div., Civil Action No.
[Code Sec. 6321]
Lien for taxes: Tenants by the entirety: Virginia.--Under
Virginia law, the United States was not entitled to attach proceeds from
the sale of real estate held by taxpayer and his wife as tenants by
entireties for taxes due by the husband for this status carried over to
the sale proceeds and no partition of the funds had been effected.
Madigan, 6201 Leesburg Pike,
, for plaintiff. Carrington Williams, 3976 Chain Bridge Rd., P. O. Box
338, Fairfax, Va., for J. P. Burd, H. Harrison Pledger, Jr., 3619
Camelot Dr., Annandale, Va., for I. H. Hoover, for defendants.
having come on before the Court for trial this 1st day of May, 1972; and
the Court having considered the pleadings, the stipulation of facts, and
having heard the arguments of counsel; and the Court being of the
opinion that the tenancy by the entireties in real estate held by the
defendants, Paul M. Burd and Janice P. Burd, upon sale carried over and
continued in the cash proceeds from such sale under Virginia law; that
those defendants have not effected any partition thereof; and that the
claims of the United States of America and of the defendant, Isaac
Hoover, being against the defendant Paul M. Burd alone, cannot attach to
such proceeds held as tenants by the entireties under Virginia law; it
ORDERED and DECREED that the defendants,
United States of America
and Isaac Hoover, take nothing in this action; and this interpleader is
further ORDERED that the Clerk issue a check for all funds ($3,105.81)
held in the registry of this Court payable to Paul M. Burd and Janice P.
Burd, as tenants by the entireties with survivorship, and forward such
check to plaintiff, Batrus, Foldenauer and Madigan, Inc., 6201 Leesburg
Pike, Falls Church, Virginia 22044.
shall forward copies hereof to counsel.
United States of America
, Plaintiff v. Meyer Fried and Fannie Fried, Defendants
S. District Court, East. Dist.
, East. Div., No. 62 C 224(3), 222 FSupp 760, 8/21/63
[1939 Code Secs. 3678 and 3694--similar to 1954 Code Secs. 7403 and
Action to enforce lien: Application of proceeds from promissory notes
and deeds of trust.--The Government was entitled to judgment for the
unpaid tax liabilities of the taxpayers for the taxable years 1952-1954
as determined by a stipulated decision of the Tax Court. Promissory
notes and deeds of trust voluntarily placed in the hands of a trustee
for the purpose of collection and liquidation to satisfy the tax
liabilities of the taxpayers were not "property" under 1939
Code Sec. 3694, since they were not seized upon distraint or subject to
a specific tax. Therefore, the tax liabilities for the taxable years
1952-1954 were not extinguished since the Government was not required to
apply the amounts collected from the notes and deeds of trust to income
tax due in the year of collection to extinguish the tax liability for
Newton, Assistant United States Attorney, 1114 Market St., St. Louis 1,
Mo., for plaintiff. Max Sigoloff,
706 Chestnut St.
, Gerald Cohn,
722 Chestnut St.
, for defendant.
is brought by the Government under Title 26 U. S. C. 7401 and 7403 to
reduce to judgment the unpaid balance due on income tax liabilities of
the defendants for the years 1952, 1953 and 1954. The tax liabilities,
and penalty and interest additions to the tax, totaling $122,872.55,
were determined by a stipulated decision of the Tax Court of the
in the case of Meyer Fried and Fannie Fried v. Commissioner of
Internal Revenue, which decision was entered June 13, 1962. It is
undisputed that payments have been made on the tax liabilities so as to
diminish the liability as determined by the Tax Court. The Government
introduced Form 899 entitled "Certificate of Assessment and
Payments" showing the balance unpaid, plus interest and penalties,
as computed by the Commissioner of Internal Revenue.
do not question the validity of the tax lien but answer that the tax
liabilities for the years involved have been fully paid. It is
defendants' position that during each of the years in question the
Government had received from the taxpayer an amount in excess of the
income tax liability for each respective year, and that under the
provisions of Section 3694 of the Internal Revenue Code of 1939, the
amount collected should be first applied to income tax due in the year
of collection, thus extinguishing the tax liability for those years.
3694 which is a part of the subchapter entitled "Distraint"
and appears under the caption "Distraint on Personal
Property", reads as follows:
of specific tax liability on distrained property. When property
subject to tax, but upon which the tax has not been paid, is seized upon
distraint and sold, the amount of such tax shall, after deducting the
expenses of such sale, be first appropriated out of the proceeds thereof
to the payment of the tax. And if no assessment of such tax has been
made upon such property, the collector shall make a return thereof in
the form required by law, and the Commissioner shall assess the tax
thereon. 53 Stat. 452."
and the files of the Court show that the payments made during the years
1952, 1953 and 1954 were derived from monthly collections on promissory
notes and deeds of trust belonging to the taxpayer which were placed in
the hands of a trustee for the purpose of collection and liquidation to
satisfy the tax liability of the defendants which was previously
assessed and unpaid. The trust arrangement was apparently the result of
an agreement between the Collector of Internal Revenue and the taxpayer
entered into during April, 1952.
reliance upon the application of Section 3694 is untenable. Section 3694
refers to "property subject to tax . . . seized upon distraint and
sold." The property, if defendants intend the notes and deeds of
trust, was not shown to be seized upon distraint, and furthermore was
not property subject to a specific tax. If defendants refer to the
proceeds of the collection and liquidation of the notes and deeds of
trust as the "property" under Section 3694, the description
"seized upon distraint and sold" is not satisfied. The Statute
cannot be applied to income tax on the collection proceeds as defendants
apparently contend. Income tax liability could not be finally computed
until the close of the taxable year and was not assessable on a monthly
the evidence indicates that the taxpayer understood and consented to the
application of the proceeds from the promissory notes and deeds of trust
to assessments for years prior to 1952.
Government has established the validity of its claim, and, subject to
any payments since the date of the hearing, the amount thereof. Section
3694 does not apply, and, therefore, the liability remains unpaid.
Plaintiff is entitled to judgment for the unpaid balance of tax
liabilities for the years 1952, 1953 and 1954, plus interest. The entry
of judgment will be withheld until the amount thereof has been computed
by the parties in accordance with these Findings and Conclusions and has
been approved by the Court.
Arthur G. Pettengill and Barbara S.
Pettengill v. The
United States of America
and Fulton D. Fields, District Director of Internal Revenue for the
District of Vermont
S. District Court, Dist. Vt., Civil No. 3331, 205 FSupp 10, 4/25/62
[1954 Code Secs. 6321, 7421 and 7424]
Lien for taxes: Tenants by entirety: Jurisdiction: Suits to quiet
title: Waiver of procedural requirements: Prohibition of suits
restraining assessment or collection.--A lien against a home and
land owned by a delinquent taxpayer (a member of a dissolved partnership
owing withholding taxes) and his wife, as tenants by the entirety, was
null and void since a husband's interest in an estate by the entirety,
under Vermont law, is not subject to claims for his sole debts. Where
the government filed an answer, proceeded through one hearing, and
entered an agreed statement of the facts before raising jurisdictional
objections, the court held that the United States had waived its right
to object on such grounds and had also waived any procedural
requirements in Sec. 7424 governing a person's action to clear title to
property of a tax lien. Nor did the prohibition of Sec. 7421 against
suits to restrain assessment or collection of taxes prevent jurisdiction
since the joint interest in the property had a third-party status which
was separate and distinct from the taxpayer's sole interests.
Eldredge, Calhoun & Free,
, for plaintiff. Joseph F. Radigan, United States Attorney, Rutland,
Vt., John G. Penn, Department of Justice, Washington 25, D. C., for
and Decree on Petition for Declaratory Judgment
Statement of Case and Findings of Fact
Barbara Pettengill brought this action for declaratory judgment, seeking
to free certain property owned by them from the tax liens of the
United States of America
. After filing an answer to the petition, the
and the petitioners set forth an agreed statement of facts which bind
this Court, and are as follows:
G. Pettengill and Barbara S. Pettengill, husband and wife, petitioners,
herein, are the owners by the entirety of a certain piece of land, with
a dwelling house thereon, located in the Town of Waterbury, in the
County of Washington and District aforesaid, which is the home place of
the said petitioners, being the same land and premises as conveyed by
Ernest C. Perkins, of Waterbury, aforesaid, to Arthur G. Pettengill and
Barbara S. Pettengill, as tenants by the entirety, under date of August
24, 1953 and recorded September 2, 1953 in the office of the Town Clerk
in said Waterbury in Book 54, Page 116 of the Waterbury Land Records.
Petitioner Arthur G. Pettengill, with one Robert P. Flannery, also of
said Waterbury, were formerly engaged in business as co-partners doing
business under the firm name and style of O'Clair Granite Works, with
said business situated at said Waterbury, Vermont. Mrs. Barbara S.
Pettengill, wife of the said Arthur G. Pettengill, was at no time
connected with the said partnership in any manner and never had any
There was executed by Arthur G. Pettengill under date of September 18,
1961 and acknowledged the same date before Gelsie J. Monti, Esq., a
Notary Public, a cessation of partnership certificate indicating that
the partnership of the said Arthur G. Pettengill and Robert P. Flannery,
doing business as O'Clair Granite Works, had ceased to do business as of
March 10, 1958, the reason for the ceassation of partnership being that
the business of the O'Clair Granite Works was dissolved by reason of
bankruptcy. No petition in bankruptcy was filed however and no discharge
was ever issued by the bankruptcy court. However, the business was
insolvent and had been subjected to foreclosure proceedings by the
Lamoille County Savings Bank and Trust Company and action by the
relative to tax liens. This Cessation Certificate was filed with the
Commissioner of Taxes and with the Town Clerk in said
on or about September 18, 1961.
There is owing to the United States certain taxes, in the category of
Withholding and Social Security Taxes accumulated and assessed during
the time that the said Arthur G. Pettengill and Robert R. Flannery,
co-partners doing business as O'Clair Granite Works, were engaged in
said partnership and owing at the time that said partnership was
dissolved. The amount of said taxes claimed due is in excess of
$10,000.00 and it is agreed by and between the parties that the current
amount of taxes due, together with interest and costs, is to be verified
by the Internal Revenue Service and submitted to the Court with the
least practicable delay.
, in an attempt to collect said taxes, has filed notice of tax liens
against all of the real estate of the said partnership of O'Clair
Granite Works. These liens have been filed pursuant to the provisions of
Section 6321, 6322, and 6323 of the Internal Revenue Code of 1954, which
in substance results in the creation of a lien in favor of the United
States upon all property and rights to property belonging to the
taxpayer and this lien is intended to cover both real and personal
property. The question presented and at issue herein is whether, under
the said recited provisions of the Internal Revenue Code of 1954, the
interest of Arthur G. Pettengill, as a tenant by the entirety in and to
the premises recited in Paragraph 1 of this stipulation, can be
subjected to or impressed with such a lien.
On two separate occasions the petitioners have been approached by
purchasers desiring to purchase their home place and sale to either one
of these prospective purchasers has been prevented by the refusal of
lending agencies to consider loans to prospective purchasers, secured by
a mortgage on the property, until the question of the validity of the
Federal tax liens as applied against the interest of Arthur G.
Pettengill as tenant by the entirety has been resolved and
further that the first of the tax liens claimed by the
was filed and recorded on August 15, 1956. Other liens were recorded in
1956, 1957 and 1958.
does not bring into question the validity of any tax assessments. It
merely brings into issue the validity of federal tax liens as they
relate to one certain parcel of land. Being a "part of the
machinery for the collection of federal taxes", the tax liens arise
under an Act of Congress providing for internal revenue. This Court
therefore has original jurisdiction over the matter by virtue of Section
1340 of Title 28, U. S. C. A. United States v. Coson [61-1 USTC
¶9219], 286 Fed. 2d 453 (C. C. A. 9th Cir., 1961). The plaintiffs
present an actual controversy, and properly invoke 28
C. A. Sec. 2201, which sets out the jurisdiction of this Court to
declare the rights and legal relations of the parties.
has very belatedly raised jurisdictional objections to the maintenance
of this action. These I will mention before proceeding to the merits of
the case. First, while Section 2201 of Title 28, U. S. C. A. expressly
excepts controversies with respect to Federal taxes, this particular
controversy is not excluded thereby. Nor does Section 7421 of Title 26,
U. S. C. A. prohibit this action. In Tomlinson v. Smith [42-2
USTC ¶9540], 128 Fed. 2d 808 (CCA 7th Cir., 1942), it was held that the
above statutory provisions apply to suits by the taxpayer, but not to a
suit by a third party, who in that case was seeking to protect a
competing lien on the taxpayer's property. Mr. and Mrs. Pettengill, as
tenants by the entirety, may be said to have the status of a third party
in contradistinction to Mr. Pettengill's position as the taxpayer. In
the eyes of the law, their joint property rights in the real estate
involved are just as separate from Mr. Pettengill's sole interests as
are the rights, whether by lien or otherwise, of any other third party.
That this is most obviously true as to Mrs. Pettengill, see Jones v.
Kemp [44-2 USTC ¶9410], 144 Fed. 2d 478 (CCA 10th Cir., 1944); it
necessarily follows that it must be true as to both Mr. and Mrs.
Pettengill. Adler v. Nicholas [48-1 USTC ¶9205], 166 Fed. 2d 674
(CCA 10th Cir., 1948): Botta v. Scanlon [61-1 USTC ¶9293], 288
Fed. 2d 504 (CCA 2nd Cir., 1961).
objection of the government is that there is no jurisdiction over the
defendant, because the
has not consented to be sued. This can be answered shortly. Section 2410
of Title 28, U. S. C. A. constitutes consent of the
to be sued in an action to quiet title to lands on which the
claims a lien or mortgage. And the government's actions are even more
fatal to the objection it now raises. By filing an answer without
raising the jurisdictional question, proceeding through one hearing on
the matter, and then entering into an agreed statement of facts before
raising the question, the
has waived any objection as to jurisdiction over the parties, and has
consented to the action. Rule 12(b) F. R. C. P. governs the objection of
lack of jurisdiction over the person and accordingly the objection is
not timely in this case.
finally, any procedural requirements of a person's action to clear title
to property of a tax lien, as set out in 26
C. A. 7424, have been waived by the government. For it to come in with
this belated and untimely objection after filing an answer and agreeing
to the facts, which must bind this Court in its decision, seems to be a
grasping at straws.
therefore has jurisdiction over both the persons and the subject matter
of this action. Guttman v. United States [61-2 USTC ¶9586], 196
Fed. Supp. 384 (D. C. N. Y. 1961).
to the merits of the matter, the precise rights and legal relations in
this case involve just this question. Do the tax liens of the
attach to the property owned by the petitioners as tenants by the
entirety? If they do, the declaratory relief sought by petitioners
should be denied. If they do not, then the land records relating to that
property, and the recordation of the tax liens, must show that the
property is free and clear of the tax liens.
matters directly affecting the nature and operation of federal tax liens
arising under 26 U. S. C. A. Sec. 6321 are federal questions, there is
another factor involved here. That is, state law governs the question of
what is "property or rights to property" of the taxpayer to
which the government's liens may attach. Aquilino v. United States
[60-2 USTC ¶9538], 363
509, 80 S. Ct. 1277, 1285, 4 LE 2d 1365, 1371, (1960); United States
v. Durham Lumber Co. [60-2 USTC ¶9539], 363
1282, 1285, 4 LE 2d 1371 (1960).
It is the
that tenants by the entirety hold the estate with but one title. Each
has no power without the concurrence of the other to convey the estate
to third persons. Kennedy v. Rutter, 110
332, 6 A. 2d 17 (1939). It is also clear that the wife, holding an
estate by the entireties, has a real, separate interest in the estate,
by virtue of the so-called married women's statute as set out in 15 V.
S. A. Sec. 64. Sargent v. Platt, 111
185, 13 A. 2d 195 (1940). And it has long been established that the
husband's interest in an estate by the entireties is not one which can
be subjected to claims for his sole debts.
v. Emery, 63
505, 22 A. 618, 25 A. S. R. 780 (1891). The Vermont Supreme Court in the
Corinth case dealt with the provisions of now 15 V. S. A. Sec. 68
which exempt the rents, issues and products of, and the monies and
obligations arising from the sale of, the real estate of a married
woman. The provisions include real estate held by the married woman
before marriage and that acquired after marriage. The Court in the
case made it clear that this rule applied to a married woman's interest
in an estate by the entireties. George v. Dutton's Estate, 94
76, 108 A. 515 (1919).
Pettengill's interest in the particular property located in the town of
, owned by him and his wife as tenants by the entirety, is not property
which is available for his sole debts. Cf. 15 V. S. A. Secs. 67
and 68. This determination applies to claims of the
for taxes arising from Mr. Pettengill's business activities. It applies
with equal force to claims of any other creditor.
hereby ordered, adjudged and decreed that the tax liens asserted by the
United States against Arthur G. Pettengill for taxes arising out of his
business activities in partnership with one Robert P. Flannery, d/b/a
O'Clair Granite Works, are null and void as attempted by the United
States to be levied on a certain place of land with dwelling house
thereon located in the Town of Waterbury owned by petitioners as tenants
by the entirety, and to which a more particular description may be had
by reference to Book 54, Page 116 of the Land Records of the Town of
Waterbury, Vermont. The tax liens levied against the particular piece of
real estate in the years 1956, 1957 and 1958 are hereby declared to be
null and void and to constitute no encumbrance or cloud whatsoever on
the petitioners' title to the aforesaid real estate.
Nettie Mae Moore, Plaintiff v. C.
W. Glotzbach, District Director of Internal Revenue, et al., Defendants
S. District Court, East. Dist. Va., Norfolk Div., Civil Action No. 3125,
188 FSupp 267, 10/27/60
[1954 Code Sec. 6331]
Collection of tax: Levy and distraint: Rents from real property: Real
property held by entireties.--Under Virginia law, the United States
was not entitled to levy upon accrued rents derived solely from real
estate owned by the plaintiff and her husband as tenants by the
entireties for taxes due by the husband.
, for plaintiff. Joseph S. Bambacus, United States Attorney, Post Office
Box 60, Norfolk, Va., for defendant.
in this case is whether the United States, acting through its District
Director of Internal Revenue, may require the tenant of property, owned
as tenants by the entireties with the right of survivorship as at common
law, to pay to the Internal Revenue Department, pursuant to a notice of
levy, the rental due on said property; federal taxes being due and
unpaid by one of the tenants by the entireties. Stated otherwise, the
question presented is whether rents, which are derived from realty held
by husband and wife as tenants by the entireties, are subject to a
judgment creditor's levy against the lessee of said property for the
debt of the husband only.
has been submitted to the Court as to whether said property is rented
furnished and, if so, what proportion of the rental should be properly
allocated to personal property contained within the realty; nor is the
ownership of such personal property, if any, involved herein. Moreover,
the Court is not concerned with the validity of the instrument creating
the tenancy by entirety which, according to
law, is presumed to be fraudulent. First National Bank v. House,
149, 133 S. E. 664.
The law of
, which controlls this decision, is silent on the right of parties to
hold personal property as tenants by the entireties. There is some
suggestion in King v. Merryman, 196 Va. 844, 86 S. E. (2d) 141,
146, that such is permitted where Justice Spratley discusses the effect
of §55-20 and §55-21 of the Code of Virginia, 1950. We turn, however,
to the history of a tenancy by the entirety and the effect, if any, of
those laws known as the Married Woman's Property Statutes.
law spouses were considered as one person. They could not hold the
estate by moieties as joint tenants or tenants in common--both were
seized of the entirety--neither could dispose of any part without the
assent of the other, and the whole remained to the survivor. However,
during coverture, the husband was entitled to the full control and
benefits of property hold by the entirety. This right was not derived
from the nature of the estate but from the general principal of
common-law vesting of the wife's property in the husband. Not only was
the husband's right to rents and profits during their joint lives
subject to execution, but the husband could convey the property so as to
divest the wife of possession during his life and, in the event he
survived her, to vest in the grantee an absolute estate. Fairclaw v.
Forrest, D. C. C. A., 130 F. (2d) 829; Vasilion v. Vasilion,
735, 66 S. E. (2d) 599.
agree that, for the purposes of this action, the United States could not
levy upon the realty held by Clyde L. Moore and Nettie Mae Moore,
husband and wife, as "tenants by the entireties", with the
right of survivorship as at common law, to obtain payment of cabaret
taxes due by Clyde L. Moore, the husband. Such appears to be the law in
. Vasilion v. Vasilion, supra; In re Black, E. D. Va., 145
F. Supp. 689. But, the
contends, the rents and profits from such property cannot be held by the
entirety as such rents and profits are personalty and
has not recognized tenancies by the entirety in personalty and, even if
so recognized, the instrument establishing the entirety in realty does
not extend to derivatives therefrom. Plaintiff urges that rents derived
from entirety property are governed by the same laws applying to
tenancies by the entirety in real estate.
legislative history of the Virginia Married Woman's Property Act is
contained in Vigilant Insurance Company v. Bennett, 197 Va. 216,
89 S. E. (2d) 69, where Justice Miller states:
55-35 and 55-36 are parts of what was originally called the Married
Woman's Act. . . . These acts and similar acts passed in other states
were designed to enlarge the personal rights of married women and secure
to them separate legal estates over which they were granted greater
dominion and control than they had formerly enjoyed."
55-35 of the Code of Virginia, 1950, now specifies that the husband is
not entitled to "the possession . . ., or to the rents, issues, and
profits of such real estate (the wife's property) during the
coverture." Thus it follows, as Justice Whittle said in Vasilion
v. Vasilion, supra, that the husband no longer has exclusive
possession or control over any portion of property held as tenants by
the entireties. We believe that logic dictates the same rule should
apply to the rents, issues and profits derived from such entirety
property, and that the rent involved herein is not subject to levy by
, subject, however, to the comments previously noted concerning issues
not now before this Court.
recognized that some states are not in accord with this view.
hold that the Married Woman's Property Act has no effect upon tenancies
by the entirety, and the husband retains his common-law rights regarding
rents, etc. These two states allow judgment creditors of the
husband--but not those of the wife--to attach derivatives of entirety
property. Lewis v. Pate, 212 N. C. 253, 193 S. E. 20; Pineo v.
487, 70 N. E. (2d) 294. A study of the Vasilion case would not
lead to the belief that
intended to adopt this approach to the problem.
sixteen jurisdictions permit personal property to be held by parties as
tenants by the entireties. 64 A. L. R. (2d) 23. Seven states deny the
right to hold personal property by the entirety, although permitting
such tenancies in realty. 64 A. L. R. (2d) 27. No property of any kind
may be held as tenants by the entireties in five jurisdictions. 64 A. L.
R. (2d) 30. In four places the statute expressly precludes entireties in
personalty. 64 A. L. R. (2d) 30. Five states refuse to permit entireties
in personalty except where the personalty is derived from realty
held by the entirety. 64 A. L. R. (2d) 31. As stated, with two
exceptions (64 A. L. R. (2d) 57):
". . .
The conclusion reached was that the derivatives of entirety property
particularly in question were, or were to be treated as, entirety
question frequently arises with respect to crops and timber grown on
real property held by the entireties. Several states, including Indiana,
Michigan, Arkansas, Vermont and North Carolina, while refusing to accept
the principle that personalty may be held by the entirety, have treated
the derivative from realty held by entirety "in the same manner and
subject to the same law as the land itself, and not subject to levy and
sale on an execution against the husband."
While not a
part of the stipulation in this case, it was suggested to counsel that
there are many instances of
residents holding stock certificates as tenants by the entireties with
the right of survivorship as at common law. It is also noted that
imposes an inheritance tax upon property, real, personal and mixed,
passing by virtue of the fact that the property is held by the decedent
and another "as joint tenants or tenants by the entireties, with
the right of survivorship." §58-152 of the Code of
, 1950. The practice, while not expressly approved by statute or
judicial pronouncement, leads to the belief that
recognizes the right to hold personalty as tenants by the entireties.
Furthermore, even assuming that such is not the case, the greater weight
of authority supports the view that derivatives of entirety property are
treated as such.
We do not
have the problem as to whem the rent ceases to be entirety property
under the facts of this case. It had never been paid by the tenant of
the property to either the plaintiff or her husband. It retained its
original character at all times.
provisions of §55-20 of the Code of Virginia, 1950, survivorship
between joint tenants was abolished "whether the estate be
real or personal". Section 55-20 goes on to state:
if hereafter any estate, real or personal, be conveyed or devised to a
husband and his wife, they shall take and hold the same by moieties in
like manner as if a distinct moiety had been given to each by a separate
converted, in so far as dower and curtesy are concerned, all joint
tenancies into tenancies in common, the General Assembly of Virginia
engrafted an exception to §55-20 providing, in part, as follows (§55-21):
preceding section shall not apply . . . to an estate conveyed or devised
to persons in their own right when it manifestly appears from the tenor
of the instrument that it was intended the part of the one dying should
then belong to the others."
statutes, when read together, carry an inference that
recognizes the right to hold personalty as tenants by the entireties. It
is also abundantly clear that the tenor of the instrument creating the
tenancy by entirety as to the real estate falls within the exception as
stated in §55-21.
States urges, however, that the deed to plaintiff and her husband
conveying the real property does not provide for any rental contract or
the proceeds therefrom, and is therefore not an "instrument"
creating a survivorship estate in accrued rents owed by the tenant of
such real property to the tenants by the entireties. The short answer to
this argument is that neither §55-20 nor §55-21 was intended to apply
to derivatives of property held by the entireties. Moreover, the lease
to the tenant does not qualify as a conveyance or devise to a
husband and his wife as provided by §55-20, and hence the exception
stated in §55-21 would be inapplicable to the lease and rental flowing
that the defendants are not entitled to levy upon accrued rents derived solely
from real estate owned by plaintiff and her husband as tenants by the
entireties for taxes due by the husband, and assuming, but not deciding,
the validity of the instrument creating the aforesaid tenancy in said
real property, an appropriate decree will be presented for entry.
Charlie A. Sulli and Vera Sulli,
Plaintiffs v. United States of America and Laurie W. Tomlinson, District
S. District Court, So.
, Tampa Div., No. 2382-Civ, 4/15/58
[1939 Code Sec. 3670--same as 1954 Code Sec. 6321]
Tax liens: Wagering taxes:
real properties held as estates by the entireties.--Under Florida
law, real property held as an estate by the entireties is not subject to
the debt of either spouse while so held. A jeopardy assessment and a
Federal tax lien for wagering taxes do not attach to such property where
the debt is that of the husband alone, the parties are lawfully married,
the properties were acquired with funds accumulated through joint
efforts, and title was taken in their joint names in good faith.
308 Tampa Street
, for plaintiffs. Richard Kelly, Assistant United States Attorney, 308
Post Office Building,
, for defendants.
Judgment and Decree
coming on this day to be heard upon plaintiffs' Complaint and Amendment
to Complaint and defendants' Answer thereto, Stipulation of Facts of the
plaintiffs' and defendants', Affidavit of plaintiffs', and the Court
having considered the briefs submitted by counsel of the respective
parties hereto, and upon thorough consideration of the facts and the law
applicable thereto, the Court finds as follows:
August 3, 1953, the defendant, Laurie W. Tomlinson, issued an immediate
assessment, against the plaintiff, Charlie A. Sulli, requiring payment
of wagering taxes, pursuant to Section 3285 et seq. of the Internal
Revenue Code, as added by Section 471(a) of the 1951 Revenue Act,
effective November 1, 1951, in the sum of $13,670.93, including
penalties and interest thereon. By Notice of Federal Tax Lien dated
August 4, 1953, and recorded August 7, 1953, among the Public Records of
Hillsborough County, Florida, the aforesaid defendant purported to
establish of record a lien for the foregoing taxes together with
penalties, interest and costs that may accrue in addition thereto, upon
all property and rights belonging to Charlie A. Sulli. A copy thereof
was served upon or delivered to Charlie A. Sulli on August 19, 1953, by
mail. The aforesaid immediate assessments and Federal Tax Lien were made
against Charlie A. Sulli, individually. The debt for which the Federal
Tax Lien was issued and recorded is the debt of Charlie A. Sulli only
and is not the debt of Vera Sulli, his wife.
2. A home
1907 Carmen Street
, and more particularly described as follows:
Twenty-one (21), Block Seven (7), BENJAMIN'S FIFTH ADDITION TO WEST
TAMPA, according to map or plat thereof recorded in Plat Book 2, Page
76, of the Public Records of Hillsborough County, Florida,"
the residence of the plaintiffs herein and constitutes their homestead
under the laws of the State of
. The plaintiffs have resided in said home continuously since November
26, 1943. That the aforesaid real property was acquired by the
plaintiffs Charlie A. Sulli and Vera Sulli, his wife, from Clare F.
Jacobs, a widow, on November 26, 1943, by good and sufficient Warranty
Deed; said Warranty Deed being recorded in Deed Book 1258, page 416, of
the Public Records of Hillsborough County, Florida. The said real
property is held by the plaintiffs in their joint names, as an estate by
the entireties, under the laws of the State of
plaintiffs acquired, in their joint names, the real property located at
205 North Oregon Street
, and more particularly described as follows:
Thirteen (13) less the East Twelve and five-tenths (12.5) feet of the
South Seventy (70) feet of Block Five (5), FULLER'S SUBDIVISION,
according to map or plat thereof as recorded in Plat Book 1, Page 68, of
the Public Records of Hillsborough County, Florida."
said real property was conveyed by a good and sufficient Warranty Deed
to the plaintiffs in their joint names by Nannie E. Logan, a widow, on
April 12, 1946, which Warranty Deed is recorded in Deed Book 1374, page
243, of the Public Records of Hillsborough County, Florida. The
plaintiffs own the last mentioned real property in their joint names, as
an estate by the entireties, under the laws of the State of
plaintiffs, Charlie A. Sulli and Vera Sulli, were married in the City of
Clearwater, Florida, on June 1, 1936. The plaintiffs have co-habitated
together as husband and wife continuously since the date of their
marriage and have at no time been separated, nor has either one of them
ever applied for or obtained a divorce against the other and are
lawfully married on the date of the entry of this Final Decree. The
aforesaid described real properties were acquired by the plaintiffs with
funds accumulated by them through their joint efforts during the time
that they have been married. That said real properties were taken by the
plaintiffs, as aforesaid, in their joint names, in good faith and not
for the purpose of defeating the United States Government or any other
creditors of their lawful claims.
the laws of the State of
real property held as an estate by the entireties is not subject to the
debt of either spouse so long as the real property is so held by them.
above described jeopardy assessment against the plaintiff, Charlie A.
Sulli, under date of August 3, 1953, and the aforesaid Notice of Federal
Tax Lien dated August 4, 1953, and recorded on August 7, 1953, among the
Public Records of Hillsborough County, Florida, does not attach to the
aforesaid real properties and the same are free and clear from said lien
or purported lien so long as the said real properties are held by the
plaintiffs as an estate by the entireties.
United States of America, Plaintiff
v. Lawrence Diamond and Robert L. Gilman and Hattie Gilman, doing
business as Republic Textile Equipment Company, Defendants
S. District Court, So. Dist. N. Y., Civ. 105-224, 142 FSupp 441, 6/11/56
[1939 Code Sec. 276(c)--substantially similar in 1954 Code Sec. 6502(a)]
Transferred assets: Enforcement of lien: Limitation of action against
transferees.--Taxpayers acquired property from a corporate taxpayer
for less than its value. It was alleged that the transfer rendered the
corporation insolvent and unable to pay its income taxes for a prior
year. Although the instant suit for recovery against the transferees
might be barred by limitation of time under 1939 Code Sec. 275, the
corporation and the transferees held the assets subject to the lien for
taxes in favor of the
under 1939 Code Secs. 3670 and 3671. The liability for the tax did not
become unenforceable by lapse of time, since a separate timely action
was previously brought against the corporation within 6 years after the
assessment of the tax as required by 1939 Code Sec. 276(c). The
enforcement of the lien in the present action did not involve liability
of the transferees either individually or as constructive trustees. As
long as they held the property, it could be taken to satisfy the lien.
Motion to dismiss the Government's complaint was denied.
Williams, United States Attorney for the Southern District of New York
(Arthur B. Kramer, Assistant United States Attorney of counsel), for
plaintiff. Greenman, Shea & Zimet, 20 Pine Street, New York 5, N. Y.
(Philip Zimet, Robert H. Haines, Bernard Bressler, of counsel), for
seeks to collect income taxes payable by Edgewater Dyeing and Finishing
Company (hereinafter referred to as "Edgewater") a
corporation. The action is brought against alleged transferees of
Edgewater's assets. Edgewater is not named as a defendant.
now before me is a motion by the transferees to dismiss the amended
complaint on the ground that it shows on its face that the claim is time
complaint alleges that the transferees did not pay full consideration
for the transferred assets, that the deficiency exceeded the amount of
the income tax due and that the transfer rendered Edgewater insolvent.
It is further alleged that the transfers were made with the intent of
hindering, delaying and defrauding the
in the collection of the income taxes and that the transferees knew of
the indebtedness therefor.
three theories on which the
might succeed in the absence of a time bar:
transferees might be held personally liable for Edgewater's income taxes
to the extent that the value of the transferred assets exceeded the
consideration paid. Phillips v. Commissioner, 283 U. S. 589, 592
[2 USTC ¶743], citing United States v. McHatton, D. C. D. Mont.,
266 Fed. 602 [1 USTC ¶35].
2. A trust
might be impressed upon the assets insofar as gratuitously transferred,
or their proceeds, for the payment of Edgewater's income taxes. United
States v. Updike, 281
489 [2 USTC ¶533].
transferees might be declared to hold the transferred assets subject to
a lien in the amount of Edgewater's income taxes.
v. Spreckels, D. C. N. D. Cal. S. D., 50 Fed. Supp. 789 [43-2
chronology is as follows:
June 14, 1946 Edgewater filed its return.
August 16, 1946 Assessment against Edgewater.
August 19, 1946 Collector received assessment list.
August 22, 1946 Demand for payment made.
February 20, 1947 Notice of tax lien filed in the United States District Court.
February 24, 1947 Notice of tax lien filed in County Court.
November 7, 1947 Additional assessment against Edgewater.
November 10, 1947 Collector received assessment list.
November 14, 1947 Demand for payment made.
May 28, 1948 Notice of tax lien filed in United States District Court.
May 28, 1948 Notice of tax lien filed in County Court.
Action begun against Edgewater in United States District Court
August 15, 1952 for Eastern District of Pennsylvania.
December 2, 1955 This action begun.
limitations in the case of deficiencies in taxes, as distinguished from
the limitations in the case of liabilities of transferees, are set forth
in section 275. The general rule is contained in subdivision (a) to the
effect that income taxes "shall be assessed within three years
after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the
expiration of such period."
assessment or suit against a taxpayer for the collection of income taxes
must be made or begun within three years after the return was filed.
Accordingly such an assessment or suit against a transferee must be made
or begun within a like period unless there is a different provision made
in the remainder of section 311. That section, in subdivision (b), does,
however, make a different provision for assessments against transferees.
They must be made, as respects an initial transferee, "within one
year after the expiration of the period of limitation for assessment
against the taxpayer". Thus an assessment must be made against a
transferee within four years after the filing of the return. This leaves
open the question whether a suit against a transferee to recover the tax
must be brought within three years or within four years but that is
immaterial here since this suit was not brought within four years. It is
thus plain that a suit, under the first theory, upon the personal
liability of the transferees for Edgewater's income tax would be barred.
I now pass
to the second theory upon which the
might succeed in the absence of a time bar, i.e. that a trust might be
impressed upon the transferred assets or their proceeds. Section 276(c)
provides that "[w]here the assessment * * * has been made within
the period of limitation, properly applicable thereto, such tax may be
collected * * * by a proceeding in court, but only if begun * * * within
six years after the assessment of the tax * * *." Where, as here,
an assessment has been made against a transferor, an action to impress a
trust upon property in the hands of the transferee must be begun within
six years of the assessment. United States v. Updike, 281
489, supra. This action was not brought within that period and is
thus barred insofar as it seeks to impress a trust.
that third theory, i.e. that the transferees might be declared to hold
the transferred assets subject to a lien. Section 3670 provides that, if
the taxpayer does not pay after demand, the amount of the tax
"shall be a lien in favor of the
upon all property and rights to property, whether real or personal,
belonging to such person." Section 3671 provides that "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".
question here is, therefore, whether the liability for the tax has
become unenforceable by reason of lapse of time. As appears in the above
chronology, on August 15, 1952, an action was brought in the United
States District Court for the Eastern District of Pennsylvania against
Edgewater to recover the amount of the tax. This action was brought
"within six years after the assessment of the tax" as required
by section 276(c) above referred to. It was therefore timely. As long as
it pends the liability for the amount of the tax will not "become
unenforceable by reason of lapse of time" and the lien will
argued that, while the liability for the amount of the tax has not
become unenforceable against the transferor, it has become unenforceable
against the transferees. That is immaterial. The lien originated as a
lien upon the transferor's property for the transferor's debt. Unlike
the first and second theories on which the
might succeed against the transferees, this third theory does not
involve liability of the transferees either individually or as
constructive trustees. This third theory is merely that the transferees
have received property subject to a lien. As long as they hold that
property it can be taken from them to satisfy the lien but, once it
passes from their possession, the
must look to some other theory to collect anything from them. The lien
does not depend upon any liability of the transferees so, as long as the
liability of the transferor subsists, the lien may be enforced on
transferred property in the hands of the transferees.
v. Spreckels, D. C. N. D. Cal. S. D. 50 Fed. Supp. 789 [43-2
USTC ¶9572], supra.
insofar as there is transferred property, in specie, in the hands of
defendant transferees, the action to enforce a lien thereon is timely.
I am not
sure, however, that the
has a valid claim for the enforcement of a lien under section 3671. It
is provided in section 3672(a) that "[s]uch lien shall not be valid
as against any mortgagee, pledgee, purchaser, or judgment creditor until
notice thereof has been filed by the collector" in accordance with
any state law providing for such filing and in the office of the clerk
of the United States district court for the district where the property
is situated. Unless the notices have been filed before a transfer, the
lien of the
is not superior to the interest of the purchaser even though the
purchaser had prior notice of the Government's tax claim. See
v. Beaver Run Coal Co., 3 Cir., 99 Fed. (2d) 610 [38-2 USTC ¶9540].
is an allegation of the filing of the necessary notices but it is not
clear that they were filed before the transfer. Indeed the allegation is
that the transfer took place "subsequent to the time that the
Collector received the assessment lists" leaving the permissible
inference that the transfer took place before the filing of the notices.
I cannot indulge in that inference, however, but must construe the
pleading con amore under the rule of Dioguardi v. Durning, 2
Cir., 139 Fed. (2d) 774. I will therefore leave that question for the
trial. Nor will I prejudge the question whether, even if it appeared
that the transfer predated the filing of the notices, the fact that the
consideration for the transfer was inadequate would give rise to rights
under section 3671 which the
would not otherwise possess. See National Refining Co. v.
, 8 Cir., 160 Fed. (2d) 951 [47-1 USTC ¶9221].
to dismiss the complaint is denied.
United States of America, Plaintiff
v. John Nasif, Annie Nasif, Elias L. Nasif, Pawtucket Institution for
Savings, City of Pawtucket, Rhode Island, Daniel Libutti, John Fleming,
d/b/a J. E. Fleming, and Costello Bros. Inc., Defendants
the United States District Court for the District of Rhode Island, Civil
Action No. 1320, March 30, 1954
Liens: The establishment of tax liens.--The lien of the United
States against certain property of the taxpayers was declared valid and
binding, as the requirements of notice, demand, assessment, and issuance
of distraint warrants were properly met. A hearing was set to determine
the priority of the liens of the government and other creditors of the
Temkin, United States Attorney, 221 Post Office Building,
, R. I., for plaintiff. Clarence L. Woolley, 301 Main Street, Pawtucket,
R. I., William A. Flynn, 87 Weybosset Street, Providence, R. I., Walter
J. Hennessey, 612 Industrial Trust Building, Providence, R. I., John A.
O'Neill, City Solicitor, City Hall, Pawtucket, R. I., for defendants.
came on for hearing before the Court on plaintiff's complaint, and after
consideration thereof, the following entries are ordered to be made:
Findings of Fact
action arose under the Internal Revenue Laws of the
United States of America
and was commenced under the direction of the Attorney General of the
at the request of the United States Commissioner of Internal Revenue.
defendant, Elias L. Nasif, is indebted to the plaintiff in the amount of
defendant, Annie Nasif, is indebted to the plaintiff in the amount of
defendants, Annie Nasif and John Nasif, are indebted to the plaintiff in
the amount of $17,088.49.
5. As to
the defendant, Elias L. Nasif, the assessment list was signed by the
Assistant Collector of Internal Revenue at
, on March 24, 1949, was signed by the Commissioner of Internal Revenue,
, on April 1, 1949, and was received by the Collector of Internal
, on April 5, 1949. Notices and demand were issued on April 5, 1949.
Second notices and demands were issued shortly thereafter. Distraint
warrants were issued on May 27, 1949. Notices of the tax liens were
filed on June 13, 1949 with the City Clerk of the City of Pawtucket,
6. As to
the defendants, John and Annie Nasif, the assessment list was signed by
the Collector of Internal Revenue at
, on April 26, 1951; was signed by the Commissioner of Internal Revenue
, on May 4, 1951, and was received by the Collector of Internal Revenue
, on May 7, 1951. Notices and demands were issued May 14, 1951. Second
notices and demands were issued on June 29, 1951. Distraint warrants
were issued on July 30, 1951. Notices of the tax liens were filed on
August 6, 1951 with the City Clerk of the City of Pawtucket, Rhode
plaintiff is hereby granted judgment against the defendant, Elias L.
Nasif, in the amount of $27,364.62, with interest thereon as provided by
plaintiff is hereby granted judgment against the defendant, Annie Nasif,
in the amount of $21,493.61, with interest thereon as provided by law.
plaintiff is hereby granted judgment against the defendants, Annie Nasif
and John Nasif, in the amount of $17,088.49, with interest thereon as
provided by law.
4. The lien
of the United States, having been established, is hereby declared to be
valid and binding, and may be enforced against the proceeds of the
foreclosure sale of the real estate held pursuant to the order entered
on June 8, 1953 by Mr. Justice Clifford, sitting in this Court by
special assignment, subject, however, to the Following condition:
The City of
Pawtucket, Costello Bros., Inc. and Daniel Libutti, defendants herein,
shall undertake to establish their claims, if any; and thereafter the
order of priority as to said proceeds, as between plaintiff, the City of
Pawtucket, Costello Bros., Inc. and Daniel Libutti, shall be determined
at a hearing subsequently to be held at the convenience of the Court and
of counsel for the said four parties.
United States of America
, Plaintiff v. William A. Greenlee, Helen Greenlee, Sun Insurance
Company, Protection Mutual Fire Insurance Company of Cambria County,
Star Insurance Company of
and Louis A. Wechsler, Defendants
the United States District Court for the Western District of
Pennsylvania, Civil Action No. 10553, December 9, 1952
Collection of tax: Fraudulent conveyance.--The Government sought
to set aside a conveyance of real property as fraudulent and to enjoin
insurance companies from paying insurance money to taxpayer and his
wife. The property was conveyed by taxpayer and another person to
taxpayer's mother in July, 1930. In May, 1947, taxpayer's mother
conveyed the same property to taxpayer and his wife as tenants by
entireties for one dollar and other valuable consideration, and at that
time taxpayer owed income taxes for 1944, 1946 and 1947. Later, the
property was damaged by fire. The agent of the insurance companies was
notified that all money due to taxpayer be paid to the Collector. The
District Court held that the conveyance from taxpayer and another person
to taxpayer's mother was a bona fide transfer and that, as to the
conveyance by the mother to taxpayer and his wife, the Government failed
to prove a fraudulent intent on the part of taxpayer and his wife.
Boyle, United States Attorney, Room 633, New Federal Building,
Pittsburgh, Pa., for plaintiff. William W. Matson, 2003 Law &
Finance Building, Pittsburgh, Pa., for defendant Star Insurance Co. of
America; Kaplan, Finkel & Roth, Frick Building, Pittsburgh, Pa., for
defendant Louis Wechsler; Pritchard, Lawler, Geltz & Malone, 514
Grant Building, Pittsburgh, Pa., for defendant Protection Mutual Life
Insurance Co. of Cambria County; Dickie, McCamey, Chilcote, Reif &
Robinson, Grant Building, Pittsburgh, Pa., for defendant Sun Insurance
Co.; and Everett E. Utterback, 330 Bakewell Building, Pittsburgh, Pa.,
for defendant William A. Greenlee.
States of America, Plaintiff, brought suit against William A. Greenlee,
Helen Greenlee, Sun Insurance Company, Protection Mutual Fire Insurance
Company of America and Louis A. Wechsler, agent for the aforementioned
insurance companies, to have a conveyance of real property, from Julia
R. Greenlee to William A. Greenlee and Helen Greenlee, his wife, set
aside as fraudulent to the United States, and to enjoin the above named
insurance companies and Louis Wechsler, their agent, from paying any
funds in their possession to the defendants, William A. Greenlee and
property in question is located at
1401 Wylie Avenue
, Fifth Ward, City of
property was conveyed to Julia R. Greenlee by William A. Greenlee and
Richard Gouffney on or about July 7, 1930. Julia R. Greenlee is the
mother of William A. Greenlee.
property was conveyed by Julia R. Greenlee to William A. Greenlee and
Helen Greenlee, his wife, as tenants by entireties on May 31, 1947, said
conveyance being of record in Deed Book Volume 2943, page 539.
conveyance from Julia R. Greenlee to William A. Greenlee and Helen
Greenlee recites that the conveyance was made for One ($1.00) Dollar and
other valuable consideration and the deed bears two cancelled United
States Documentary Stamps totaling fifty-five ($.55) cents.
6. At the
time of the conveyance from Julia R. Greenlee to William A. Greenlee and
Helen Greenlee, William A. Greenlee owed the
income tax for the years 1944, 1946 and 1947, which tax totaled
$29,722.31 and is shown on Assessment Sheets entered into evidence as
plaintiff's exhibit No. 1[not reproduced herein].
7. No funds
of William A. Greenlee were paid to Julia R. Greenlee for the property.
Subsequent to the conveyance to the defendants, William A. Greenlee and
Helen Greenlee, said property was damaged by fire and there is due
William A. Greenlee and Helen Greenlee on policies of insurance issued
by the defendant insurance companies the following sums:
(a) Sun Insurance Company ................. $3,075.39
(b) Protection Mutual Fire Insurance
Company ................................... $4,613.08
(c) Star Insurance Company of
9. Prior to
payment to William A. Greenlee and Helen Greenlee, levies were issued
and served on Louis Wechsler, Agent for the insurance companies, by the
Collector of Internal Revenue as follows:
October 26, 1951 .... $ 2,145.65
October 29, 1951 .... $36,272.60
October 29, 1951 .... $ 3,798.62
demanding that all money due William A. Greenlee and Helen Greenlee be
paid to the Collector of Internal Revenue to be applied to the tax
liability of William A. Greenlee. Copies of said levies were introduced
in evidence as plaintiff's exhibit No. 2 [not reproduced herein].
Subsequent thereto the Plaintiff filed the within captioned suit.
Conveyance of the property in question from William A. Greenlee and
Richard Gouffney on or about July 7, 1930 to Julia R. Greenlee was a
bona fide transfer.
2. Julia R.
Greenlee was the sole owner of the property on May 31, 1947, the date of
the transfer to William A. Greenlee and Helen Greenlee, his wife.
Plaintiff has failed to show a fraudulent conveyance by failing to
present any evidence showing any intent on the part of the defendants,
William A. Greenlee and Helen Greenlee to defraud the plaintiff, or in
reality, any fraud on the plaintiff by said conveyance from Julia R.
Greenlee to William A. Greenlee and Helen Greenlee.
plaintiff has failed to make out a case that would entitle it to relief.
action should be dismissed for failure of proof on the part of the
AND NOW, to
wit, this 9th day of December, 1952, after hearing and upon due and
careful consideration, it is ordered that defendants' motion to dismiss
be, and the same hereby is granted.
Louis H. (R.) Bernstein and Hattie
B. Bernstein, His Wife, Plaintiffs v.
United States of America
the District Court of the United States for the Western Division of the
Western District of Missouri, No. 7355, 106 FSupp 233, July 8, 1952
Property subject to tax liens: Estate by the entirety.--In an
action by husband and wife to quiet title to properties owned by them as
estates by the entireties, instituted because the government had filed a
tax lien against the properties "and the owners thereof,"
plaintiffs' motion for summary judgment was denied because both husband
and wife are liable for tax on the income from such properties. In this
case, the wife had not accounted for her income and, further, the lien
was sought to be imposed on the income as well as on the property.
Brown, Jr., for plaintiffs. Sam W. Wear, United States Attorney, William
Aull III, Assistant United States Attorney, for defendant.
Opinion on Motion for a Summary Judgment
case the plaintiffs seek to quiet title to designated properties owned
by them as estates by the entireties. The government has heretofore
filed a lien against the same properties "and the owners
thereof." (Italics supplied.)
is authorized by Section 2410, Title 28 U. S. C. A. Such section confers
upon the property owner the right to sue to quiet title to real or
personal property on which the
has or acquires a mortgage or other lien.
from Estates by Entireties]
action the plaintiffs rely on the case of United States v.
Hutcherson, 188 Fed. (2d) 326 [51-1 USTC ¶9249]. In that case the
lien asserted was against property, and not against the income.
Moreover, by an affidavit appended to its brief in opposition to the
motion for a summary judgment, the government sets forth in detail that
the coplaintiff, Hattie B. Bernstein, though a co-owner in estates by
the entireties, has not paid an income tax although she was liable for
such from an income derived from the properties in question. Upon this
affidavit it would be the right of the government to file a lien against
the whole property because of the failure of Hattie B. Bernstein to
account for the income to her from these estates held by entireties.
identical question was presented to Judge Hulen of the Eastern District
of Missouri in Morgan v. Finnegan, 87 Fed. Supp. 274 [50-1 USTC
¶9121]. Judge Hulen held that both husband and wife were liable for a
tax on income received from properties held as estates by the
entireties. And that this was true whether one received all of the
income or not. In fact, in the Morgan case, the wife received all
of the income and paid a tax on it. The government allowed her a refund
on the grounds that her husband should have paid a tax on one-half of
the income. The opinion of Judge Hulen was affirmed by the Circuit Court
of Appeals, 182 Fed. (2d) 649 [50-1 USTC ¶9345]. The last paragraph of
that opinion, 1. c. 650, is pertinent here:
Section 22(a), Title 26 U. S. C. A., the fact that the plaintiff chose
not to take rental income from the real estate during the years in suit
did not make the share of it which he might have taken any the less his
for purposes of federal income taxation."
follow from the foregoing that the motion for a summary judgment should
be overruled on two grounds: (a) In this case the government seeks a
lien on the income as well as upon the property itself; (b) upon the
affidavit submitted by the government, the co-plaintiff, Hattie B.
Bernstein, has not paid the tax nor reported her income, and since she
is entitled to one-half the amount and same has not been paid, the
government probably would be entitled to enforce its lien against both
the plaintiffs, and therefore such a lien against both of them would be
valid and proper against the real estate as well as the income thereof.
the motion for a summary judgment should be and will be overruled.
United States of America
, Plaintiff, v. Sebie B. Phillips, et al., Defendants
Court of the
for the Southern District of Georgia--Dublin Division, Civil action. No.
107, 59 FSupp 1006, March 29, 1945
Lien for taxes: Illegal transfer of encumbered property.--A lien
against property for unpaid taxes on illegally distilled spirits having
been established, transfers of property which had been used as locations
for illegal distilleries to members of the family of the delinquent
taxpayer are declared null and void although the transfers occurred
before demand for or assessment of the taxes. As stated in the opinion,
the verdict resulted from evidence that the transfers were fraudulently
made to defeat collection of taxes and failure of the transferees to
introduce evidence to carry their burden of explaining the circumstances
of the transactions.
DeAtley, Special Assistant to the Attorney General, Green B. Everitt,
Assistant U. S. Attorney,
, for plaintiff. Eugene Talmadge, 1422 William Oliver Bldg.,
, for defendant.
complaint in this case two causes of action are set out, one at law, the
other in equity.
The one at
law is for adjudication of amount of unpaid taxes on illegally distilled
spirits. On that cause of action a verdict was returned by a jury for
the plaintiff on March 3, 1944, in the amount of $3,647.44.
second cause of action, to which this opinion relates, the
seeks to have set aside as fraudulent, certain conveyances of real
property made by defendant, Sebie B. Phillips, and by his grantee, and
to have the property conveyed sold and the proceeds of the sale applied
to the payment of the taxes.
has heard the evidence and oral arguments, briefs have been submitted
and the case is now ready for decision.
investigation of defendant Sebie B. Phillips' illegal liquor activities
was begun by government officers in 1937. Several stills and
considerable non-tax paid whiskey were found on this property. In
contemplation of charges being brought against him, a survey was made of
his land, and it was found to consist of a total of 572 acres.
10, 1938, Sebie Phillips, along with his son, one of the defendants (the
other defendants being his wife, his daughter and his daughter-in-law)
was indicted on a charge of conspiracy to violate and the violation of
certain internal revenue laws relating to the illegal manufacture and
sale of distilled spirits. On December 16, 1938, a warranty deed, dated
October 14, 1938, conveying 355 acres of land from Sebie B. Phillips to
his wife in consideration of $100 and love and affection, was recorded
in the office of the clerk of the superior court of the county where the
lands were located. On December 23, 1938, recordation was made in like
manner of another warranty deed, dated September 1, 1938, of all the
remainder of his property consisting of one 72 acre tract and one 145
acre tract from Sebie B. Phillips to his daughter, Marie Phillips in
consideration of $75 and "other valuable consideration."
27, 1939, Sebie B. Phillips was found guilty of the conspiracy charge
and was sentenced to serve three years in prison and pay a fine of
$2,000. Later in that year, demand was made for payment of the taxes on
the illegally made whiskey, and on November 7, 1940, plaintiff's lien
for taxes was filed.
8, 1941, defendant Marie Phillips, the daughter of Sebie B. Phillips,
conveyed the 72 acre tract, which had been deeded to her by her father
in 1938, to her sister-in-law, Mrs. Paul Phillips, for the stated
consideration of $500.
defendants were temporarily restrained, by order of court dated October
29, 1943, from making any further transfers of the property.
of its lien for taxes the government relies primarily upon the
provisions of 26
C. A., Secs. 2800(d) and (e)(1):
* * * every person in any manner interested in the use of, any * * *
distilling appartus, shall be * * * liable for the taxes imposed by law
on the distilled spirits produced therefrom.
The tax shall be a first lien on the spirits distilled, the distillery
used * * * the lot or tract of land whereon the said distillery is
situated, and on any building thereon from the time said spirits are
in existence as such until the tax is paid. (emphasis added).
defendant properly points out that all the land involved here lies in
, and that some of the stills from which the whiskey on which the tax
was levied was produced were situated in
. The defendant then argues that under this statute the land does not
become impressed with a lien except when the proof shows that the
distilled spirits for which the tax is claimed was produced upon that
particular piece of land. The statute declares that the tax shall be a
first lien upon the land where the spirits are distilled. It does not
say it is per se a lien upon any other land.
I put to
one side the merits of this argument by defendants, because however
decided the government's lien must be sustained upon another statute, 26
C. A., Sec. 3670:
any person liable to pay any tax neglects or refuses to pay the
same after demand, the amount . . . shall be a lien in favor of the
United States upon all property and rights to property * * *
belonging to such person. (Emphasis added.)
provisions found in Section 2800, supra, do not forbid the application
of the general provision to this section. 26
C. A., Sec. 3670, n. 5, citing 16 Op. Atty. Gen. 634 (1879).
It is true
that the property here involved had already been transferred before
demand or assessment was made. However, this debt having been reduced to
judgment and a lien having been established, equity will set aside the
transfers if fraudulently made to defeat the collection of taxes. All of
these transfers must be declared void under the provisions of Ga. Code
(1933), Sec. 28-201(2):
following acts by debtors shall be fraudulent in law against creditors
and others, and as to them null and void, viz.:
Every conveyance of real . . . estate . . . made with the intention to
delay or defraud creditors, and such intention known to the party taking
* * *
indicate that the property had been used as locations for illegal
distilleries for several years before the transfers were made. The
transferees, all of them being members of Phillips' immediate family,
and all of whom I find had knowledge of these activities, must be
charged, therefore, with notice that Phillips' land was liable for all
taxes owed by him on account of his illegally produced spirits. They can
not be looked upon as innocent or bona fide transferees without notice.
transfers from Phillips to his wife and daughter, at least, should also
be declared void under the provisions of Ga. Code (1933), Sec. 48-110:
insolvent person may not make a valid gift to the injury of his existing
creditors * * *
rule has been judicially extended to render the conveyance equally void
when the donor thereby renders himself insolvent, Mercantile Nat'l
Bank v. Stein, 158 Ga. 894, 124 S. E. 697 (1924).
[Transfers Made Obligor Practically Insolvent]
defendant's own admission the property was worth $5,000 at the lowest
estimate, and he "practically" gave it away. Clearly the
actual money consideration, $175, if paid at all, was wholly inadequate.
Other material admissions were that Phillips was endorser or surety on
several guano notes and his wife was afraid they would lose the property
unless the took it over, that by making the transfers he completely
divested himself of all property except about $100 worth of clothing and
that he was thereafter without assets to pay the liquor taxes.
transaction between husband and wife is attacked for fraud by the
creditors of either, the burden is on the husband and wife to show that
the transaction was fair.
Code, Sec. 53-505; Tucker v. Talmadge, 186
798; Parker v. Harling, 189
224; Mattox v. West, 194
310. There is no reason why the same rule should not apply to
transactions between parent and child under the facts here shown to
elements of fraudulent transfers having been established and the
transferees having introduced no evidence to carry their burden of
explaining the circumstances of the transactions, each of the
transactions is declared null and void as against creditors and the
prayers of the petition are granted.
will prepare and present on notice appropriate findings of facts and
conclusions of law to conform to this opinion and a decree to carry it