Annotations- Bank
Accounts Page4

[48-1
USTC ¶9180]
United States of America
, Plaintiff, v. The Mutual National Bank of Chicago, Defendant
In
the District Court of the United States for the Northern District of
Illinois, Eastern Division, No. 4513, 77 FSupp 609, February 5, 1948
Collection of taxes: Distraint: Bank account.--The United States
was allowed to recover by distraint levy the amount of cash in the
custody of the defendant bank derived from the sale of securities
deposited therein by a delinquent taxpayer under a pseudonym and
liquidated at his request.
Otto Kerner,
Jr.
,
U. S.
Attorney, for the plaintiff. Francis E. Hinckley, 100 W. Monroe St.,
Chicago, Ill.; Chester W. Kulp, Rathje, Sabel & Sullivan, 100 W.
Monroe St., Chicago, Ill., for the defendant.
Findings
of Fact and Conclusions of Law
Findings of Fact
SULLIVAN,
District Judge:
1. That the
plaintiff is a corporation sovereign and body politic.
2. That the
defendant is a national banking corporation duly organized, created and
existing under and by virtue of the laws of the
United States of America
as a banking institution with its office and principal place of business
in
Chicago
,
Illinois
.
3. That one J.
Roy Brangenberg and his wife, Nelda Brangenberg, are jointly and
severally liable for income taxes to the plaintiff for the years 1924,
1926, 1927 and 1928, together with penalties and interest on said income
tax liability, in the total amount of $25,411.64.
4. That said
income tax liability and penalties and interest thereon have never been
paid by the said J. Roy Brangenberg or said Nelda Brangenberg to the
plaintiff.
5. That the
defendant had in its possession certain securities which have been
deposited with defendant by one Leo Lundquist, and that said securities
consisted of bonds or certificates of deposit for bonds on five
different parcels of real estate all situated in Cook County, Illinois,
and that all such securities have been liquidated by the defendant at
the request and direction of the said Leo Lundquist, and have been
converted into cash, so that the defendant now holds in its possession
for the said Leo Lundquist the sum of $3,918.00.
6. That the
said J. Roy Brangenberg and the said Leo Lundquist are one and the same
person.
7. That on
June 12, 1941 the Collector of Internal Revenue served upon the
defendant on account of the aforesaid income tax liability of J. Roy
Brangenberg liens and levies against all properties held by the
defendant for the said J. Roy Brangenberg, alias Leo Lundquist.
8. That the
aforesaid tax liability of said J. Roy Brangenberg was assessed on the
June 1935 Special #6 List of the Commissioner of Internal Revenue, and
that prior to the expiration of six years from that date the plaintiff
herein commenced an action in the United States District Court for the
Northern District of Illinois against the said J. Roy Brangenberg as
case number 3115 for the collection of said tax liabilities.
Conclusions
of Law
1. The
aforesaid tax liability was legally, duly and timely assessed against
the said J. Roy Brangenberg.
2. That the
said J. Roy Brangenberg is indebted to the plaintiff for income taxes,
plus penalties and interest for the years 1924, 1926, 1927 and 1928 in
the total amount of $24,411.64.
3. That the
said sum of $3,918.00 held by the defendant in the name of Leo Lundquist
is the property of the aforesaid J. Roy Brangenberg.
4. That by
virtue of the provisions of law in such cases made and provided the
United States by virtue of the said assessment of income tax liabilities
has a lien upon all property or rights to property, whether real or
personal, belonging to said J. Roy Brangenberg, and that lien is still
in full force and effect.
5. That this
action was commenced at the request of the Commissioner of Internal
Revenue and at the direction of the Attorney General of the
United States
to enforce said lien against said moneys held by the defendant for the
aforesaid J. Roy Brangenberg.
6. That the
plaintiff is entitled to judgment against the defendant, The Mutual
National Bank of Chicago, in the sum of $3,918.00, said sum being all
the moneys, properties or rights to property held by the defendant for
the said J. Roy Brangenberg, and the payment of said judgment by the
defendant shall relieve it of any obligations to the said J. Roy
Brangenberg for said funds.
[42-2 USTC ¶9590]
United States of America
, Plaintiff, v. The Marine Midland Trust Company of
New York
, Defendant
United
States District Court, Southern District of New York, Civil 14-105, 46
FSupp 38, Filed July 2, 1942
Distraint: Proceeding against bank account.--Action was brought
to collect taxes assessed for the year 1936, together with a delinquency
penalty, by levy against the deposit of taxpayer in the defendant bank.
The bank declined to deliver the funds because taxpayer's account was
designated as a "Special Account." The Court holds that the
term "Special Account" is not indicative of a trust
relationship in the absence of supporting evidence and that the taxpayer
had both legal title and beneficial interest in the account which was
subject to distraint for his unpaid taxes.
Mathias F.
Correa, U. S. Attorney for the Southern District of New York, for
plaintiff. John B. Creegan, of Counsel. Sullivan & Cromwell, for
defendant. Frank J. Berberich, of Counsel.
GALSTON, D.
J.:
This is an
action of a civil nature arising under the Internal Revenue Laws and
instituted pursuant to the authority and sanction of the Commissioner of
Internal Revenue under the direction of the Attorney General.
I find the
following facts:
[The
Facts]
On September
14, 1939, the Commissioner of Internal Revenue duly assessed against
Fred B. Lloyd and Genevieve Lloyd an income tax in the amount of $125
for the year 1936. On January 22, 1940 the Commissioner duly assessed
against the same taxpayers a delinquency penalty of $31.25 for the year
1936. These taxes were not paid though notices and demand were issued by
the Collector of Internal Revenue for the Second District of New York on
September 11, 1939, and again on January 31, 1940.
On October 26,
1939 a notice of levy was served on the defendant. The Marine Midland
Trust Company of
New York
, by the Collector; and on March 25, 1940 an amended notice of levy was
served on the defendant demanding that it turn over the amount of
$179.53, which was the amount of tax and interest then due and owing by
the taxpayer. On March 25, 1940 the defendant bank had on deposit in the
name of Fred B. Lloyd the sum of $223.50 in an account designated
"Special Account". The defendant declined to turn over any
part of the said deposit of Fred B. Lloyd.
The foregoing
facts are not in dispute. In addition it appears that Fred B. Lloyd
disappeared on October 26, 1936 and has not since been heard from. The
defense apparently rests on the contention, as set up in the answer,
that it is not clear to defendant that persons other than said Fred B.
Lloyd had no interest in this "Special Account" and that the
defendant requested the Collector to withhold further proceedings until
the situation was clarified either by the re-appearance of Lloyd or by
the appointment of a temporary administrator.
[Statutes
Involved]
The statutes
involved are Sec. 3690, Title 26, U. S. C., and Sec. 3710, Title 26, U.
S. C. The former statute authorizes the Collector to collect taxes with
interest and other additional amounts by distraint, "in the manner
provided in this sub-chapter, of the goods, chattels, or equities,
including * * * bank accounts, and evidences of debt of the person
delinquent as aforesaid." And the latter statute provides that any
person in possession of property subject to distraint shall, on demand
by the Collector, surrender such property to said Collector,
"unless such property or right is, at the time of such demand,
subject to any attachment or execution under any judicial process."
Clearly then,
if the account opened by the taxpayer Lloyd, designated "F. B.
Lloyd, Special Account", is the property of the taxpayer, the
United States has a right of action against the bank for failure to turn
over the funds sought.
United States
v. American Exchange Irving Trust Company, 43 Fed. (2d) 829 [2
USTC ¶577]; United States v. National City Bank of New York, 32
F. Supp., 890 [40-1 USTC ¶9253]. The sole asserted defense of the bank
seems to be that because the account is designated "Special
Account" it served as a notice to it that some persons other than
F. B. Lloyd "may have an interest in the monies in the
account". But the defendant admits in its brief that it has found
no authority to sustain its position.
[Term
"Special Account" Not Indicative of Trust Relationship]
Thus so far as
the record in this case reveals, the funds standing to the credit of the
"Special Account" of F. B. Lloyd, were deposited by Lloyd.
Clearly then he had legal title to these funds and there is no evidence
of any beneficial or otherwise equitable or adverse interest therein. To
conclude that the term "Special Account" is indicative of a
trust relationship would go beyond any authoritative interpretation of
the nature of a trust fund. The usual indicia of a trust are lacking.
There was no agreement either written or oral proved. There is no
evidence of a named trustee or named beneficiary, nor indeed is there
any evidence of any of the usual or ordinary terms provided for in a
trust instrument. So far as the proof in the case demonstrates, Lloyd
held both the legal title and the beneficial interest in the
"Special Account". It must be concluded than that a trust was
not created by him. See generally Restatement of the Law, Trusts, Secs.
2, 4 and 17. It must be concluded that the term "special" in
the present instance was merely by way of distinguishing the account,
perhaps, from other accounts. No other reason has been disclosed.
Finally it may
be observed that the defense of the bank that it may be subject to
double liability is not sustainable. Sec. 3710, Title 26, U. S. C. would
relieve the bank only in the event that the funds had been shown to be
subject to an attachment or execution under judicial process. See Coler
v. Corn Exchange Bank, 250
New York
136; affirmed 280
U. S.
218.
Judgment is
accordingly directed in favor of the plaintiff against the defendant in
the amount of $179.53, with interest thereon from March 25, 1940,
together with costs and disbursements.
[58-2 USTC ¶9723]Richard D.
Leuschner, Appellant v. First Western Bank and Trust Company, a
California Banking Corporation, and
United States of America
, Appellees
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 15,618, 261 F2d 705, 7/1/58,
Affirming District Court, 57-2 USTC ¶9734
[1954 Code Sec. 6332 and R. S. Sec. 3466]
Collection: Lien for taxes: Priority in administration: Beneficiary
of spendthrift trust and lien by Government.--First, the Government
can reach the interest of a beneficiary of a spendthrift trust to
enforce its claim for unpaid taxes. It is for the very reason that the
taxpayer-beneficiary acquires a property right to receive the trust
income that the Government has the power to levy thereon. Second, a
claim of the United States for unpaid taxes, filed but not adjudicated
in a voluntary bankruptcy proceeding of the beneficiary, did not bar the
right of the United States of enforce a lien filed subsequent to the
adjudication of bankruptcy. The filing of notice of levy and seizure
after adjudication by the bankruptcy court seemed to preclude any
jurisdiction over the lien by that court.
C. Ray
Robinson, Merced, Calif., Lewis, Field, DeGoff & Stein, Sidney F.
DeGoff, M. S. Huberman, A. B. Canelo, San Francisco, Calif., for
appellant. Charles K. Rice, Assistant Attorney General, Arthur I. Gould,
A. F. Prescott, Lee A. Jackson, Department of Justice, Washington, D.
C., Lloyd H. Burke, United States Attorney, Lynn J. Gillard, Assistant
United States Attorney, San Francisco, Calif., for United States.
Orrick, Dahlquist, Herrington & Sutcliffs, Christopher M. Jenks, San
Francisco, Calif., for First Western Bank and Trust Co.
Before HEALY,
POPE and FEE, Circuit Judges.
FEE, Circuit
Judge:
In this case
there are only two questions for decision. First, the trial court held
[57-2 USTC ¶9734] that the right of the United States to collect unpaid
income taxes prevails over spendthrift provisions of a trust
notwithstanding the statute of the State of California, which exempts a
portion of the right of a beneficiary thereunder for his education and
support. Second, it was also held that the claim of the United States
for preference on the unpaid taxes, filed in a voluntary bankruptcy
proceeding of the beneficiary, did not bar a subsequent adjudication in
the District Court of the right of the United States to enforce a lien
upon property of the bankrupt filed subsequent to the adjudication.
The technical
framework whereby these questions were raised need not delay us.
Leuschner brought suit against his co-trustees, including the First
Western Bank and Trust Company, in the state court for moneys held by
the Bank as depository and claimed to be due him as a beneficiary of a
trust. The bank filed interpleader, joining the United States. The
United States removed the cause to the federal court and sued the Bank
independently, pursuant to 26 U. S. C. A. §6322(b), for penalty because
of failure to turn over to the United States funds belonging to
Leuschner. The adjudication of bankruptcy of Leuschner was dated July 7,
1955. The government filed lien on July 22, 1955, and on that same date
delivered a notice of levy to a trust officer of the First Western Bank
and Trust Company. On April 5, 1956, a final demand was delivered. The
court found that the Bank had made no payments to Leuschner from the
trust after that date, that the Bank was not subject to penalty, that
the United States did not state a claim in the pleadings for the
foreclosure of its lien, and that the Bank and trustee who interpleaded
were entitled to attorney fees. None of these findings has been
appealed. After determining the questions first above set out, the
District Court dismissed the complaint filed by Leuschner, and he
appeals.
The mother of
Leuschner, executed a trust agreement where he, Erida Leuschner
Reichert, Armin O. Leuschner and First Western Bank and Trust Company
were trustees, and he, along with others, was a beneficiary. The
pertinent provisions of the trust agreement reads:
"Each and
every beneficiary under this trust is hereby restrained from and shall
be without right, power or authority to sell, transfer, pledge,
mortgage, hypothecate, alienate, anticipate or in any other manner
affect or impair his, her or their beneficial and legal rights, titles,
interests, and estates in and to the income and/or principal of this
trust during the entire term hereof; nor shall the rights, titles,
interests and estates of any beneficiary hereunder be subject to the
rights or claims of creditors of any beneficiary, and all the income
and/or principal of this trust shall be transferable, payable and
deliverable solely to the beneficiaries as herein provided, and the
Trustees may require the personal receipt of any beneficiary as a
condition precedent to the payment of any money or other property to
such beneficiary."
The
provision is legal under §867 of the California Civil Code. 1 But, by
another section of the same Act, ordinary creditors are permitted to
reach all income of a beneficiary of such a provision except so much as
is necessary for his education and support. 2
It is the
claim of the United States that, under the Income Tax Amendment to the
Federal Constitution, a lien for unpaid income tax may be levied and
collected from all property or income received by a person, irrespective
of private agreements or laws of the states to the contrary. The
position of the government is that the California legislation above
considered attempts to provide an exemption for the beneficiary which is
valid as to creditors. 3 In view of
the paramount amendment, such income cannot be isolated from the lien of
the United States.
This rule is
stated in the Restatement of the Law as follows:
"Although
a trust is a spendthrift trust or a trust for support, the interest of
the beneficiary can be reached in satisfaction of an enforceable claim
against the beneficiary, * * * (d) by the United States * * * to satisfy
a claim against the beneficiary." Restatement, Trusts, §157 (1948
Supp.). 4
There
is no doubt that the paramount right to collect taxes of the federal
government overrides a state statute providing for exemptions. 5
But the
bastion of the claim built up by Leuschner is that he had a property
right to receive this income for education and support. Thus it is
sought to construe the California statute to avoid the inference that an
exemption is granted thereby. It is for the very reason that Leuschner
acquires a property right that the government has the power to levy
thereon. 6 No opinion
is expressed as to what result would follow if the trust provided that,
upon seizure of the proceeds, the gift would lapse and thereafter the
income would be payable to the other cestui que trust. So long,
however, as Leuschner has a property interest in these payments, the
government has the power to seize them. 7
The last point
made by Leuschner is not maintainable. Leuschner filed a voluntary
petition in bankruptcy and was so adjudicated. The government filed a
claim that the tax liability of Leuschner be paid in preference to other
creditors. Leuschner suffered no detriment from the filing of such a
claim, and it was not discharged by the adjudication. The trustee did
seek to have the trust income applied to the claims of creditors. The
referee held that this fund could not be reached. The claim of the
government was never passed upon or adjudicated in any way. Sometime
after the petition was filed, the lien notice was served on the Bank. No
estoppel is involved. If the referee had held that the government had no
claim or that there was no lien upon the fund by the service of the
notice, some question might be raised. 8 But the
filing of the notice of levy and seizure after the adjudication seems to
preclude any jurisdiction over the lien by the bankruptcy court. None of
the cases cited by Leuschner bears upon the point.
Affirmed.
1 "The
beneficiary of a trust for the receipt of the rents and profits of real
property, or for the payment of an annuity out of such rents and
profits, may be restrained from disposing of his interest in such trust,
during his life or for a term of years, by the instrument creating the
trust." Cal. Civ. Code, §867.
2 "Where
a trust is created to receive the rents and profits of real or personal
property, and no valid direction for accumulation is given, the surplus
of such rents and profits, beyond the sum that may be necessary for the
education and support of the person for whose benefit the trust is
created, is liable to the claims of the creditors of such persons, in
the same manner as personal property which cannot be reached by
execution." Cal. Civ. Code, §859.
3 Section 859
of the California Civil Code is an exemption statute. By enactment of
it, "the legislature has provided that the amount of income
necessary for [the] * * * 'education and support' [of beneficiaries of
the proceeds of a spendthrift trust] shall be free from claims of
creditors." Canfield v. Security First National Bank, 13
California 2d 1, 12. The New York Court of Appeals, in dealing with a
similar enactment, said that "the provisions of law which afford
protection to the beneficiaries of trusts are practically simply
statutes of exemption." Brearley School, Ltd. v. Ward, 201
New York 358, 364.
4 The leading
case in support of this proposition is similar to the instant one. It is
In re Rosenberg's Will, 269 New York 247 [35-2 USTC ¶9650],
cert. den. sub nom. Rosenberg v. United States, 298 U. S. 669.
See also United States v. Dallas National Bank, 5 Cir., 152 Fed.
(2d) 582 [46-1 USTC ¶9117]; United States v. Canfield, 29 Fed.
Supp. 734 [39-2 USTC ¶9641], appeal dismissed sub nom. Security-First
National Bank v. United States, 9 Cir., 113 Fed. (2d) 491.
"It has
been held in a number of cases that the government can reach the
interest of a beneficiary of a spendthrift trust to enforce its claim
for unpaid taxes. * * * It seems clear that the creator of a trust ought
not to be permitted to exempt the interest of the beneficiary from
liability for taxes payable by the beneficiary, even where he can exempt
it from the claims of ordinary creditors." Scott, Trusts, §157.4
(1956 ed.).
"Although
a spendthrift trust is held valid against creditors and assignees of the
beneficiary, it does not necessarily follow that the same conclusion
must be reached when a state or the United States seeks to reach the
beneficiary's interest." Griswold, Spendithrift Trusts, §342, p.
403 (2d ed., 1947).
5
"Against [federal tax] * * * liens, exemptions prescribed by State
laws are ineffective."
United States
v. Heffron, 9 Cir., 158 Fed. (2d) 657, 659 [47-1 USTC ¶9194],
cert. den., 331
U. S.
831 (state homestead exemption); Fried v. New York Life Insurance
Company, 2 Cir., 241 Fed. (2d) 504 [57-1 USTC ¶9412], cert. den.
354
U. S.
922 (proceeds of disability insurance exempt from claims of creditors by
state statute not exempt from federal tax liens). See also Knox v.
Great Western Life Assurance Co., 6 Cir., 212 Fed. (2d) 785.
6 See
United States
v. Dallas National Bank, 5 Cir., 152 Fed. (2d) 582, 584-585
[46-1 USTC ¶9117].
7 "If 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 whether real or personal,
belonging to such person." Internal Revenue Code of 1954, §6321.
See Glass City Bank v. United States, 326 U. S. 265 [45-2 USTC ¶9449].
8 The referee
in his findings did recite that the government had levied upon the
property claimed to be exempt on July 22, 1955, many days after the
adjudication. But this amounts to a disclaimer of jurisdiction over this
lien, which, by virtue of §67(6) of the Bankruptcy Act, was valid
against the Trustee. It is also recited in the conclusion of the referee
that the creditors have no claim on the exempt property. This finding
does not intimate that the referee is attempting to pass upon the right
of the government to levy a lien for unpaid taxes upon the property
which the referee has held exempt from claims of ordinary creditors.
[58-1 USTC ¶9499]United States of
America, Plaintiff v. R. E. Williams, Special Administrator for the
Estate of George D. Stout, and United States Savings Bank of Newark, New
Jersey, Defendants
U.
S. District Court, Dist. N. J., Civil Action, File No. 24-56, 160 FSupp
761, 4/3/58
[1954 Code Sec. 6332]
Property subject to levy and distraint: Bank account: "Totten
Trust": Beneficiary predeceased depositor: New Jersey law.--The
Government was not entitled to a savings account standing in the name of
"George D. Stout, in trust for Merritt Lane, friend," where
its claim arose through a levy and distraint for income tax deficiencies
assessed against Merritt Lane, who had predeceased Stout. The earlier
death of the beneficiary terminated the tentative trust..
Chester A.
Weidenburner, United States Attorney, Barbara Ann Morris, Assistant
United States Attorney, for plaintiff. Alden Reid, Harrigel, Bolan &
Herrigel, Joseph Ginsburg, for defendant.
Opinion
WORTENDYKE,
District Judge:
In this action
the Government sues to recover from defendant Bank the amount of the
balance due upon a savings account, No. 142,631 therein, standing in the
name of "George D. Stout, in trust for Merritt Lane, friend."
The Government's claim arises through a levy and distraint upon the
account for income tax deficiencies assessed against Merritt Lane,
deceased. 26 U. S. C. §§ 3670, 3678, 3690 and 3692. Demand for payment
or the aggregate amount of those deficiencies was made upon decedent's
executrix, who made certain payments on account thereof but left a
balance unpaid for which said levy and distraint was made.
George Stout,
the creator of the savings account levied upon, died intestate, a
resident of San Bernardino County, California, on April 9, 1947, and
defendant R. E. Williams, as Public Administrator of that County, was
duly appointed administrator of the estate of said intestate. The
beneficiary, Merritt Lane, a resident of Madison, New Jersey, died on or
before June 23, 1939. The Government seeks judgment in this action
declaring that said administrator has no interest in said savings
account. Defendant Bank admits the account which it says was opened
September 25, 1933 in the amount of $1,950.29. The following withdrawals
from the account were made by the depositor, viz.: $400 on December 12,
1933; $400 on August 25, 1936; and $200 on June 5, 1937. Items of
accrued interest were added from time to time through June 30, 1957,
when the credit balance was $1,529.38.
[Interpleader]
On October 9,
1954 the executrix of Merritt Lane duly assigned all her right, title
and interest in the bank account to the Government. The Bank concedes
its liability to pay the amount due under said Account, but alleges
doubt as to whether the Government or Williams is entitled to the
balance therein. Accordingly, the Bank has sought interpleader between
plaintiff and Williams, and an adjudication of their respective rights
in the fund. Service by mail having been effected upon the Administrator
(Williams) in accordance with order of this Court, he has answered and
claims that the balance in the bank account belongs to the estate of
George D. Stout, of which he is Administrator. In lieu of trial, the
parties have submitted the case upon a written stipulation of facts, and
upon briefs for Government and Bank respectively. No brief has been
filed for Williams.
The contract
between the Bank and the depositor having been made and to be performed
in the State of New Jersey, both the Government and the Bank concede
that right to the fund must be governed by New Jersey law. Cutts v.
Neidrowski, E. & A. 1938, 123 N. J. Eq. 481; Fidelity Trust
Co. v. Field, 1940, 311 U. S. 169. The single question here
presented, therefore, will be answered by a determination of the
ownership of the bank account as of June 23, 1939, the latest possible
date of the taxpayer's death.
[Law]
In 1933, when
the bank account here in dispute was opened, N. J. R. S. 17:9-4 read as
follows:
"When
a deposit has been or shall be made in a bank, savings bank or trust
company by a person in trust for another, and no other or further notice
of the existence and terms of a legal and valid trust has been given in
writing to the bank, savings bank or trust company, in the event of the
death of the trustee, the same or any part thereof, together with the
dividends or interest thereon, shall be paid to the person in trust for
whom the deposit was made, or to his legal representative and the legal
representative of the deceased trustee shall not be entitled to the
funds so deposited nor to the dividends or interest thereon
notwithstanding that the funds so deposited may have been the property
of the trustee. * * *"
The foregoing
statutory provisions were considered and construed in Bendix v.
Hudson County National Bank, E. & A. 1948, 142 N. J. Eq. 487,
where the Court said at p. 491:
"* * * R.
S. 17:9-4 does not give rise to a conclusive presumption of the
existence of an intention to make an absolute gift inter vivos or
to create an irrevocable trust. * * * The statute has application only
where 'no other or further notice of the existence and terms of a legal
and valid trust has been given in writing to the bank;' * * *. The form
of the account is but prima facie evidence of a gift or a trust inter
vivos; it constitutes presumptive evidence of an intention to make
the purported gift or to create the trust which stands until overthrown
by proof contra. The statute simply raises a rebuttable
presumption of a valid and enforceable gift or trust. * * *"
The evidence
in this case does not disclose some unequivocal act during the
depositor's lifetime which would give rise to an irrevocable trust, and
we are, therefore, relegated to the presumption which arises under the
statute. In the absence of any evidence which would rebut the
presumption of an intention to create a trust, or a revocation thereof pro
tanto by the withdrawal of sums by the depositor, the intended
beneficiary, had he survived the depositor, would have been entitled to
what remained in the account free from any claim on the part of the
depositor's representatives. Abruzzese v. Oestrich, Ch. 1946, 138
N. J. Eq. 33; Hickey v. Kahl, Ch. 1941, 129 N. J. Eq. 233. Where,
however, as here, the beneficiary predeceased the depositor, the
question presented is whether such survival by depositor of the
beneficiary did not terminate the tentative trust. Although the
stipulated facts, of necessity, raised this question as an issue, it was
not briefed, and my research did not result in the disclosure of any
controlling authority explicitly so holding.
["Totten
Trusts"]
Before the
passage of R. S. 17:9-4, a deposit of money in a savings account in the
name of the depositor in trust for another who was dead at that time did
not give rise to a trust. Nicklas v. Parker, Ch. 1905, 69 N. J.
Eq. 743; aff'd, E. & A. 1907, 71 N. J. Eq. 777. In New York, where a
tentative trust of savings bank deposited money was first sustained, the
rule was laid down that the trust, in absence of some unequivocal act on
the part of the depositor manifesting an intent to create an irrevocable
trust, did not arise unless the depositor died before the beneficiary
before revocation. In re Totten, 1904, 179 N. Y. 112; Conry v.
Maloney, 1950, 5 N. J. 590. Therefore, where the beneficiary
predeceases the depositor, the trust is automatically terminated. Rs.
Trusts, §58, Comment b; 1 Scott, Trusts (2nd ed.) §58.4. However, the
phrase "* * * or to his legal representative" is suggestive of
a trend toward a contrary rule.
In Jefferson
Trust Co. v. Hoboken Trust Co., Ch. 1930, 107 N. J. Eq. 310, the
court held, at p. 313, that statute which included the phrase "or
to his or her legal representatives" was intended "merely to
protect a trust company from liability in the event of its making
payment * * *." We know, today, that more was intended. Bendix
v. Hudson County National Bank, supra. However, in Thatcher v.
Trenton Trust Co., Ch. 1936, 119 N. J. Eq. 408, 411, the court said,
in answer to the argument that the 1932 act also merely intended to
protect depositaries:
"From
a comparison of the language of the acts of 1903 and 1932, and
consideration of the fact that the act of 1932 was enacted shortly after
the decision in Jefferson Trust Co. v. Hoboken Trust Co., supra,
it may well be assumed that the purpose back of the 1932 act was to
accomplish such a change in the law as to prevent in future such result
as had been adjudicated in the last named case. The meaning and effect
of a statute, however, must be determined on the basis of the language
which has actually been used."
Therefore,
there has been a gradual advancement toward the acceptance of the
"Totten Trust" in New Jersey, but a recognition that the
statute was meant to do more than protect depositories does not answer
the question of what is the effect of the death of the beneficiary
before the depositor. I doubt that the phrase in question was meant to
do more than to protect the depository in its payment while also
providing for the creation of a tentative trust in a proper case. Bendix
v. Hudson County National Bank, supra. Beyond this the legislature
did not appear to intend to permit such a trust to arise despite the
prior death of the beneficiary. In subsequent legislation, although not
conclusive as to this issue, the legislature specifically provided that
the prior death of the beneficiary terminates the trust. N. J. S.
17:9-216A(2).
The precise
question here presented was before the court in Abruzzese v.
Oestrich, supra, where the beneficiary had predeceased the
depositor. Because the beneficiary died testate leaving her property to
the depositor, thereby accomplishing the same ultimate disposition,
whether the depositor received the money because the trust was
terminated by the beneficiary's prior death or under the will of the
beneficiary, the court declined to rule on the problem, saying at pp.
43-44:
"Now for
the devolution of Mrs. Smith's half of the fund. In
New York
, it is considered that upon the death of the named beneficiary in the
lifetime of the depositor, the interest of the beneficiary terminates
and the depositor holds free of any trust, tentative or otherwise. The
direction in our statute that payment be made to the beneficiary 'or to
his or her legal representatives,' may indicate a different rule.
However, Mrs. Smith died testate, making her mother, Mrs. Bear, her sole
legatee and naming her executrix. * * * So, either because of the nature
of these bank account trusts, or by force of Mrs. Smith's will, the
representatives of Mrs. Bear are entitled to one-half of the fund."
Subsequently,
in Bendix v. Hudson County National Bank, supra, the court in
construing this statute described the beneficiary as being merely a putative
cestui who must survive the depositor, saying at pp. 490, 492:
"* * *
[I]f the decedent's design was not a presently operative gift, but
rather a transfer to himself as trustee with a reservation of full
ownership and absolute dominion over the fund or chose in action until
his death, the putative cestui to take the balance of the credit
in the event of his survival, without any immediate interest in the
deposit, there was not a gift in praesenti or a valid trust inter
vivos; and the gift in case of survival, i. e., to take
effect upon the death of the transferor, would be testamentary in
character and void for non-conformance with the Statute of Wills.
(Citing cases.)"
"Apart
from the protection afforded the depository, the evident purpose was to
raise, as between the depositor and the putative cestui inter se,
a rebuttable presumption of an inter vivos gift or trust from the form
of the account, nothing more."
If the trust
remained revocable in the lifetime of the depositor, it continued to be
revocable after the beneficiary's death. If there still remained any
trust after the beneficiary's death, it was, at best, tentative. But who
was the cestui after the death of the beneficiary? No provision
was expressed by the depositor for the contingency, which has occurred,
in which the beneficiary has predeceased the depositor. But the interest
of the beneficiary here was, at the time of his death, purely
contingent. There was no expression of intent by the depositor that the
"trust" created by the deposit was to pass to the
beneficiary's administrator, executor, or legatee upon the beneficiary's
death before the death of the depositor. There was no vesting of
equitable title to the trust res in the named sole beneficiary. No title
to the res passed to the beneficiary's executor. There was no interest
of the beneficiary which could be reached by his creditors. Restatement
Trusts, §162. See, Muller v.
Cox
,
Ch.
1925, 98 N. J. Eq. 188.
[Conclusion]
Therefore, I
hold that the prior death of the putative cestui terminated the
tentative trust and that the representative of the deceased depositor,
Stout, is entitled to the fund. Since the trust is held terminated, it
is unnecessary to discuss the effect of the deposit in trust as aided by
the rebuttable presumption raised by the statute.
This opinion
shall constitute my findings of fact and conclusions of law, as required
by Rule 52(a), and an order for judgment accordingly may be presented.
[82-1 USTC ¶9182]United Stated of
America
v. Equitable Trust Company
U.
S. District Court,
Dist.
Md.
, No. M-81-704, 524 FSupp 1133, 1/21/82
[Code Sec. 6332]
Levy and distraint: Property subject to levy: Trust account.--Where
the uncontroverted evidence established that depositors opened and
maintained a joint checking account, which was labeled a trust account
solely due to the practices of a trust company, the United States was
entitled to summary judgment against the trust company for failure to
comply with a federal tax levy made against one of the depositors. No
trust was created under state law so as to deprive the taxpayer of
property rights in the account.
Russell T.
Baker, Jr., United States Attorney, David Dart Queen, Assistant United
States Attorney, Baltimore, Maryland 21202, Mitchell R. Berger.
Department of Justice, Washington, D. C. 20530, for plaintiff, John S.
Hebb, III, Timothy L. Mullin, Jr., Miles & Stockbridge, 10 Light
Street, Baltimore, Maryland 21202, for defendant.
Memorandum
and Order
MILLER, JR.,
District Judge:
The United
States brought this action to obtain a judgment against the Equitable
Trust Company (Equitable) for Equitable's failure to comply with a
federal tax levy served on July 24, 1980. 1 I. R. C. §6331.
The levy purported to attach any property and property rights in
Equitable's possession but belonging to Douglas R. Cranston. I. R. C. §6332.
At the time of
the levy, Equitable had on deposit funds in checking account
#515-6565-5, titled in the names of Cranston and Melody L. McManus. 2 The
signature cards used by Equitable to establish the account list two
authorized signatures, "Douglas R. Cranston" and "Melody
L. McManus," and bear the legend "in trust for self and joint
owners, subject to the order of either, balance at the death of either
to belong to the survivor." 3 $qEquitable
has refused to honor the levy on the ground that it possesses no
property belonging to Cranston. According to Equitable, account
#515-6565-5 is a trust account under Maryland law, in which Cranston
does not have "property" rights subject to levy. 4 The
Government contends, among other things, that the account was not a
trust account and that, in any event, Maryland law relating to the
seizing of funds held in trust does not affect the enforcement of a
federal tax levy.
This case is
before the court on cross-motions for summary judgment. 5 Having
reviewed the entire record, the court concludes that no hearing is
necessary. Local Rule 6(E).
I. Overview.
As noted above, the signature card establishing the account indicates
that it was to be a "trust" account. 6
Nevertheless, McManus' deposition testimony indicates that neither she
nor Cranston ever requested or intended that the account be opened
"in trust" for herself or Cranston. 7
McManus was
the one who actually went to Equitable's office to open the account. She
told the bank employee who opened the account, Kathy Roach, that she and
Cranston wanted a "joint checking account." 8 According to
McManus, both she and Cranston intended to establish with Equitable only
a "regular joint checking account." 9 During her
visit at the Equitable branch, McManus made this intent known to Roach,
and there was no discussion between them regarding other available forms
of accounts. 10
McManus
testified at her deposition that the purpose of the account was to
enable her, as Cranston's fiancee, to pay bills, primarily on Cranston's
behalf, during his regular absences from their home occasioned by his
work as a moved and truck driver. 11 Both
McManus and Cranston had authority to spend from the account without
limit, and they regarded the funds as being available to either of them.
12
It is
Equitable's practice to style all joint checking accounts as "in
trust" accounts unless the parties to the account request
otherwise. 13 Apparently
because of this practice, Equitable personnel provided McManus with a
signature card bearing the "in trust" legend. 14 According
to McManus, she does not now recall the content of the signature card
and does not recall ever discussing it with Cranston. 15 McManus
simply signed the card presented to her by Equitable, and then secured
Cranston's signature on the card by bringing it to him at his work place
that same day. 16 When she
returned the completed card to Equitable, McManus received no
explanation as to the significance of the "in trust" legend. 17
The initial
deposit used to open the account came entirely from Cranston's paycheck.
18 The
majority of all subsequent deposits were derived from Cranston's
earnings, and the frequency of those deposits depended upon the
regularity of Cranston's salary payments. 19 According
to McManus, both she and Cranston understood that each of them had
unlimited access to the funds in the account. 20
II. Discussion.
In determining whether the federal tax levy attached to the checking
account, it must first be determined whether Cranston had, at the time
of the levy, property rights in the account under Maryland law. E.g.,
Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 512-13
(1960); United States v. Baldwin [78-1 USTC ¶9441], 575 F. 2d
1097, 1098 (4th Cir. 1978). Should Cranston be held to have property
rights in the account, federal law determines whether that interest can
be seized for federal tax purposes. E.g., United States v. Bess
[58-2 USTC ¶9595], 357 U. S. 51, 56-57 (1958); United States v.
Baldwin, 575 F. 2d at 1098.
The parties
disagree both as to the nature of the checking account and whether a
federal tax levy can attach the funds in that account. Equitable's
argument is two-fold. First, due to the manner in which the account is
titled, Equitable contends that the funds associated therewith are held
"in trust." Second, Equitable asserts that Maryland law
precludes any attachment of funds held in trust because neither party
has a "property" interest in the funds.
The Government
first contends that the evidence of record establishes conclusively that
the checking account is, under Maryland law, a joint account with
Cranston having the absolute right to the entire fund. The Government
next contends that regardless of the form of the account, Maryland law
cannot prevent an otherwise valid federal tax levy from attching to the
account.
Given the
language on the account signature card, there is a presumption under
Maryland law that the account was held "in trust" for Cranston
and McManus. See, e.g., Bierau v. Bohemian Building S. & L.
Ass'n, 205 Md. 456, 461 (1954); Milholland v. Whalen, 89 Md.
212, 216 (1899). Nevertheless, as the Court of Appeals stated in Shaffer
v. Lohr, 264 Md. 397 (1972),
"Even
though the account be entered in trust form, the presumption that it was
intended to import survivorship may be rebutted by a showing that the
trust was intended for a limited purpose, such as paying bills, Ragan
v. Kelly, 180 Md. 324, 24 A. 2d 289 (1942), or that no right of
survivorship was intended, Shirk v. Suburban Trust, 248 Md. 114,
235 A. 2d 549 (1967); Shook v. Shook, 213 Md. 603, 607, 132 A. 2d
460 (1957); Bierau v. Bohemian Bldg. Etc. Assn., supra, 205 Md.
at 461, or that the account was set up in trust form without a
request made by the depositor, Pearre v. Grossnickle, 139 Md. 274,
115 A. 49 (1921)."
264
Md. at 408 (emphasis supplied).
The undisputed
evidence produced by the Government establishes the following: (1)
McManus and Cranston decided to open a joint checking account for the
sake of convenience; (2) McManus went to Equitable with the intent to
open, for herself and Cranston, a joint checking account, and believes
that she conveyed that intent to Equitable; (3) McManus did not intend,
either for herself or on behalf of Cranston, to open a trust account;
(4) McManus did not understand the legal import of the "in
trust" legend on the signature card; (5) Cranston signed the
signature card while he was at work without discussing with McManus the
meaning of the signature card legend; (6) no employee of Equitable ever
explained to either McManus or Cranston the legal meaning of the
"in trust" legend; and (7) McManus and Cranston treated the
account as a simple joint checking account, opened for the sake of
convenience. This evidence, if left uncontroverted, establishes that the
account was labeled a trust account solely due to the practices of
Equitable, and not because of any intent on the part of Cranston or
McManus to establish a trust. See Pearre v. Grossnickle, 139 Md.
at 278-79. Consequently, the Government has met its initial burden under
Rule 56(c), Fed. R. Civ. P., to show the absence of a genuine issue
concerning any material fact. Adickes v. S. H. Kress & Co.,
398 U. S. 144, 159-60 (1970).
It is not
inconceivable that Cranston could testify at a trial that, as the owner
of the original fund, he intended that the checking account be a trust
account, and thereby create an issue for the finder of fact.
Nevertheless, that possibility, given the Government's showing, does not
preclude the granting of summary judgment. Since the Government has
fulfilled its initial burden under Rule 56(c), Equitable must, to avoid
summary judgment, go forward under Rule 56(e) and show through competent
evidence specific facts indicating that there is a genuine issue for
trial, including any issue of credibility. See, e.g., Atkinson v.
Bass, 579 F. 2d 865, 866 (4th Cir. 1978); Kipps v. Ewell, 538 F. 2d
564, 566 (4th Cir. 1976); Carroll v. United Steelworks of America,
498 F. Supp. 976, 978 (D. Md.), aff'd mem., 639 F. 2d 778 (4th
Cir. 1980).
Equitable has
made no such showing, and has not attempted to proceed pursuant to Rule
56(f) and request a continuance until Cranston becomes available for
deposition or affidavit. See, e.g., Atkinson v. Bass, 579 F. 2d
at 866; 6 Moore's Federal Practice ¶56.24 (2d ed. 1979).
Since the
Government has demonstrated that the checking account is not a trust
account, it is simply a joint checking account, there being no evidence
of a gift. 21 See Tyler
v. Suburban Trust Co., 247 Md. 461, 469-70 (1967). Thus, prior to
the federal tax levy, both Cranston and McManus owned the account as
joint tenants, each having the absolute right to use or withdraw the
entire fund. See, e.g., Haneke v. United States [77-1 USTC ¶13,176],
548 F.2d 1138, 1140 (4th Cir. 1977); Kornmann v. Safe Deposit &
Trust Co., 180 Md. 270, 273-74 (1942). Consequently, Cranston had
property rights in the checking account, for the purpose of I. R. C. §6332,
at the time of Notice of Levy, and Equitable was required by federal law
to surrender to the Government the proceeds of the account.
The Government
has indicated that it is not seeking in this proceeding to impose on
Equitable any penalty for failing to comply with the levy. See I. R. C.
§6332(c)(2). In addition, the Government has requested the opportunity
to provide the court with an updated account of Cranston's tax liability
to ensure that Equitable's liability in the instant case does not exceed
that amount. 22
Consequently, the entry of judgment in this case will be withheld
pending the Government's submission of an updated statement of
Cranston's tax liability.
In light of
the above ruling, there is no need for the court to address the other
issues raised by the parties.
Accordingly,
it is this 21st day of January, 1982, by the United States District
Court for the District of Maryland, ORDERED:
1. The motion
of the United States for summary judgment is GRANTED.
2. The motion
of Equitable for summary judgment is DENIED.
3. The Clerk
shall withhold entry of judgment until directed to do so by the court.
4. The United
States shall submit an updated statement regarding Cranston's federal
tax liability and a proposed judgment order within twenty (20) days of
the date of this Memorandum and Order.
5. The Clerk
shall forward a copy of this Memorandum and Order to counsel for the
parties.
1 Stipulation
of Facts, Paper No. 22, at ¶1.
2 Stipulation
of Facts, supra note 1, at ¶5.
3 Stipulation
of Facts, supra note 1, at ¶6; Paper No. 19, Ex. A.
4 Equitable's
Interrogatory Answer Numbers 3 & 4, Paper No. 7.
5 Paper Nos.
23 & 24.
6 See note 3
and accompanying text supra.
7 Deposition
of Melody L. McManus, Paper No. 15, at 8-9, 12, & 22-23.
8 McManus
Deposition, supra note 7, at 10.
9 Id.
at 10. See id. at 8-10- & 22.
10 Id.
at 22-23
11 Id.
at 6, 11-12, 18-19 & 28-31.
12 Id.
at 17 & 27.
13 Stipulation
of Facts, supra note 1, at ¶12.
14 McManus
Deposition, supra note 7, at 9.
15 Id.
at 23-24.
16 Id.
at 8 & 23-24.
17 Id.
at 24.
18 Id.
at 39.
19 Id.
at 13, 16 & 33.
20 Id.
at 17 & 24-28.
21 Although
clearly cognizant of this case, McManus has not attempted to assert, by
way of intervention or otherwise, that Cranston made a gift to her of
the account. In any event, her deposition testimony would not support
such a claim.
22 Paper No.
24, at 5-6 n. 4.
[51-1 USTC ¶9169]Clinton H. Givan,
Receiver of the Steel or Bronze Piston Ring Corporation,
Plaintiff-Appellant v. Ralph W. Cripe, Individually and as Collector of
Internal Revenue for the District of Indiana, and Fidelity Trust
Company, Defendants-Appellees
(CA-7),
In the United States Court of Appeals for the Seventh Circuit, No.
10275. October Term, 1950, January Session, 1951, 187 F2d 225, February
9, 1951
Appeal from the United States District Court for the Southern District
of Indiana, Indianapolis Division.
Threatened distraint of assets: Notice of levy on bank assets:
Injunction suit by receiver.--The receiver of the taxpayer brought
suit to enjoin the Collector from issuing a warrant of distraint against
the corporation-taxpayer's bank assets to satisfy certain taxes due
which have become final. The dismissal of the suit was upheld on appeal
on the grounds that the receiver acquired no greater rights than the
taxpayer from whom his rights came, and the notice of levy which acted
to freeze the taxpayer's bank assets was permissible in view of the fact
that the taxes in question had become fixed by the final decision of the
Tax Court. The ten-day period after notice and demand was not required
by statute with reference to notice of levy, and no warrant of
distraint, which would have required the ten-day period, was issued.
Merlin M.
Dunbar and Lucien L. Dunbar, Indianapolis, Indiana, for plaintiff.
Theron Lamar Caudle, and Ellis N. Slack, Washington, D. C., for
defendants.
Before KERNER,
FINNEGAN, and LINDLEY, Circuit Judges.
KERNER,
Circuit Judge:
Plaintiff, the
receiver of the taxpayer corporation, appeals from the dismissal of his
petition "to enjoin and restrain unlawful acts of defendants"
who are the Collector of Internal Revenue for the District of Indiana
and a bank in which the taxpayer maintained a checking account and a
safe deposit box. We shall refer to these defendants as the Collector
and the Bank.
The unlawful
acts sought to be restrained relate to steps taken by the Collector for
the purpose of collecting income and excess profits taxes in the total
sum of $156,302. According to the petition, written notice of assessment
of the taxes and demand for immediate payment thereof was delivered
personally to the taxpayer on February 17, 1950, and, on the same day,
notice of levy was served on the Bank, which notice and attempted levy
it alleges were in violation of §§ 3690 and 3692 of the Internal
Revenue Code.
On February
18, plaintiff was appointed by the Superior Court of Marion County,
Indiana, receiver of the taxpayer to take charge of taxpayer's property
and assets including all checking accounts and safe deposit boxes, and
to operate the taxpayer for the purpose of filling all orders on hand.
And he obtained leave of that court to file the petition or complaint
here involved.
[Receiver's
Allegations]
In this
petition he alleged that the Collector threatened to issue a warrant of
distraint against the corporation's checking account and safe deposit
box and to sell the contents if the same were surrendered to him; that
if the Collector were permitted to pursue his illegal acts this
plaintiff would not be able to carry out the orders of the state court
which had jurisdiction of the assets and property of the corporation;
that the plaintiff could not operate said corporation without the monies
on deposit and the property in the box; that his failure to finish work
in process and on order would result in such materials and labor
theretofore expended thereon becoming worthless; and that the loss would
be irreparable. He therefore prayed that the Collector be required to
release the money on deposit and the safe deposit box and that the Bank
be required to turn them over to him; that the notice of levy be
quashed; and that the Collector be "perpetually enjoined and
restrained from in any manner attempting to enforce the collection of
the demands * * * and from in any manner so attempting to levy upon the
money on deposit and to sell the contents of the safe deposit box * * *
and for such other and proper relief to which the plaintiff may be
entitled."
The Bank filed
answer stating that it had refused to deliver the property to plaintiff
in obedience to the notice of levy. The Collector filed motion to
dismiss on the ground that the complaint failed to state any grounds
upon which any relief could be granted as against him. The court
sustained the motion and dismissed the action as to him. The appeal is
from that order of dismissal.
The notice of
levy is not attached to the petition, and the petition does not state
the year or years for which the taxes were assessed. However, plaintiff
states in his brief that they were for the years 1942 and 1943, and the
Collector calls our attention to the fact that review had been had by
the Tax Court which rendered its decision on October 24, 1949. 13 T. C.
636 [CCH Dec. 17,254]. The principal question there presented was
whether the income for the years involved was due in any material part
to the development of patents, formulae and manufacturing processes in
prior years rather than to an increased wartime demand for the
taxpayer's products, and the court determined the issues adversely to
the taxpayer. Since there was no petition for review filed in this
court, that decision became final ninety days thereafter.
Section 3690
of the Internal Revenue Code grants authority to distrain:
"If
any person liable to pay any taxes neglects or refuses to pay the same
within ten days after notice and demand, it shall be lawful for the
collector * * * to collect the said taxes * * * by distraint and sale,
in the manner provided in this subchapter, of the goods * * * including
stocks, securities, bank accounts * * *."
And
§3692 provides that in case of neglect or refusal under §3690, the
collector may levy upon the property of the delinquent taxpayer.
[Relief Sought]
It is somewhat
difficult to understand upon what theory plaintiff relies for the relief
sought. It appears to be two-fold, first that his appointment as
receiver of the taxpayer a day after service of the notice and
demand--without notice to the Collector, according to that
official--removed the assets of the taxpayer to the protective custody
of the state court beyond reach of the Collector for the collection of
the taxes finally determined by the Tax Court to be due, and second,
that the simultaneous service of the notice and demand upon the taxpayer
and the notice of levy upon the Bank rendered the procedure for
collection wholly void. He asserts that his proceeding is one to quash
an illegal levy and seizure and not a suit to restrain the assessment or
collection of the tax which is, of course, prohibited by §3653.
Insofar as
plaintiff relies upon his status as receiver, we think that he is in no
better position that the taxpayer itself would be--of course he took the
assets of the taxpayer subject to all obligations and liens in its own
hands and could acquire no greater rights than the taxpayer from which
he derived whatever rights he did have.
["Ten-Day"
Requirement]
As to the
alleged illegality of the proceeding for failure of the Collector to
allow ten days after notice and demand, that official asserts that the
taxpayer had already had its notice and demand, construing the
ninety-day letter which preceded the Tax Court review and
redetermination as such notice and demand. Without deciding whether or
not that letter satisfied the requirements of §3690, we are convinced
that the Collector's action in serving notice on the Bank, if it was
premature, was irregular rather than illegal. Cf. Commonwealth Bank
v. United States, 115 Fed. (2d) 327 [40-2 USTC ¶9769].
As we read the
allegartions of the petition, it asserts a threat to distrain rather
than an actual distraint. The Collector was entitled under the statute
to make a seizure any time after ten days after notice, and we see no
reason why he should not serve notice of intent to do so at any time,
including the date of notice and demand for collection. The facts here,
insofar as the procedure is concerned, appear to be quite similar to
those in United States v. O'Dell, 160 Fed. (2d) 304, 307 [47-1
USTC ¶9190]. There it was held that a Collector's notice to a trustee
in bankruptcy that there were unpaid taxes due from the bankrupt, and
that all money and other property in his hands belonging to the bankrupt
was seized and levied upon for payment of the taxes did not constitute a
seizure of such property but was only a statement or notice of claim.
"Nothing alleged to have been done amounts to a levy, which
requires that the property be brought into legal custody through
seizure, actual or constructive, levy being 'an absolute appropriation
in law of the property levied upon.' * * * Levy is not effected by mere
notice. * * * No warrants of distraint were issued here." We think
the same is true in our case. So far as the petition shows, there was no
seizure, but only a threat of seizure--the petition alleges that the
Collector threatens to issue a warrant of distraint. As we interpret the
facts, the notice of levy operated to freeze the assets of the taxpayer
in the hands of the Bank, and no more. We find nothing in the statute to
prohibit such freezing, particularly in view of the fact that the law
liability had become fixed by the final decision of the Tax Court.
[Conclusion]
We conclude
that the plaintiff is not entitled to have the notice of levy quashed.
And there is no basis whatever for his prayer that the Collector be
enjoined from in any manner attempting to enforce the collection of the
demands and attempting to levy upon the assets of the taxpayer in the
Bank. The most plaintiff could have had was a ten-day delay in
proceedings to distrain, and since that period had elapsed long before
the action of the District Court dismissing the petition (on July 21,
1950), there was no error in that action. In reaching this conclusion we
have not overlooked the cases cited by plaintiff claimed to be in
support of his contention that the court erred in dismissing the
petition or complaint. These we have considered, but find they have no
bearing on the questions presented in view of the facts here appearing.
Affirmed.
[53-2 USTC ¶9540]Mrs. Carolyn M.
Abney, et vir, James K. Abney, Appellants v. Ellis Campbell, Jr.,
Collector of Internal Revenue for the Second Collection District of
Texas, Appellee
(CA-5),
In the United States Court of Appeals for the Fifth Circuit, No. 14251,
206 F2d 836, August 18, 1953
Appeal from the United States District Court for the Northern District
of Texas.
Collection of income tax at source: Constitutionality of withholding
requirement.--The 1950 law, which requires an employer to withhold
and pay social security taxes on wages of a domestic employee, is held
to be constitutional. Code Sec. 1622(a) at 534 CCH ¶1755C.21. Affirming
the decision of the District Court reported at 52-2 USTC ¶9445.
R. Dean
Moorhead,
Austin
,
Tex.
, for appellants. Carlton Fox, Ellis N. Slack, Special Assistants to the
Attorney General, Charles S. Lyon, Acting Assistant Attorney General,
Department of Justice, Washington, D. C., William Cantrell, Jr.,
Assistant United States Attorney, Fort Worth, Tex., for appellee.
Before
HUTCHESON, Chief Judge, and RUSSELL, and STRUM, Circuit Judges.
HUTCHESON,
Chief Judge:
Brought
against the collector by appellants, the suit was for the recovery of
sums alleged to have been erroneously and illegally seized from them
under the purported authority of the 1950 Amendment to the Federal
Insurance Contributions Act. 1
The matter
comes up in this way. Appellee having seized from taxpayers the sums
claimed to be due from them under the the act for the first, 2 second and
third/3/ quarters of the calendar year 1951, they brought this suit
alleging that the said sums had been exacted of, and seized from, them
in violation of Section 9 of Art. 1 and of the Fifth and Tenth
Amendments to the Constitution of the
United States
. Their claim was that the amendment 4 is
unconstitutional as to appellants for that, as employers of domestic
servants, they cannot be subjected to an excise tax, nor can they be
compelled to withhold and pay to the United States income taxes due by
their domestic employees.
Appellee,
answering, took issue with appellants' claim that the sums sued for were
collected from them in violation of the constitution, and therefore,
without authority of law, and the parties agreeing in open court that
there was no issue of fact between them but only one of law, the cause
was submitted and argued upon the agreed facts. 5 Thereafter,
the district judge, agreeing with the appellee that the sums had been
rightfully collected by him, entered judgment in his favor, and
taxpayers have appealed.
Here, in their
attack upon the exactions from them, appellants put forward four
specifications of error, 6 each in
theory presenting a separate and different ground of attack. The gist,
however, the sum and substance of their attack is, as stated above, that
the 1950 amendment is unconstitutional and invalid as to them because
domestic, as contrasted with business, employment may not be subjected
to an excise tax, nor may domestic employers be burdened, as
uncompensated tax collectors, as it is conceded business employers may
be, by being required to withhold and account to the government for
portions of wages, withheld for payment of their employees' income
taxes.
[Domestic
Employees Excepted Prior to 1950 Amendment]
In reply the
United States
points out that the original act in terms covered all employers, with an
express exemption, however, of domestic service in private homes, and
that this court, in Charles C. Steward Machine Co. v. Davis, 89
Fed. (2d) 207, and the Supreme Court, in Steward Machine Co. v.
Davis, 301
U. S.
548, and Helvering v. Davis, 301
U. S.
619, in thorough and thoughtful opinions, sustained its validity against
massive attacks upon it. Carefully canvassing and completely rejecting
the contentions vigorously made and pressed there, that the employment
relation could not be subjected to an excise tax, Mr. Justice Cardozo
assembled and called attention to numerous examples and instances of the
imposition of such taxes upon business and domestic employment alike. So
pointing, appellee urges upon us: that appellants are but seeking to
rethresh old straw; that, however appealing but for those decisions
their arguments and contentions might have been, appellants, in putting
them forward now, are running a completely covered track; that either
expressly or by implication every question raised and every argument put
forward by them has been already decided against them; and that we
should treat the questions argued against them as already foreclosed
against them.
Appellants on
their part agree that the validity of the act as applied to business
employment has been definitely and finally adjudicated, and that,
because of the decisions appellee cites, the case presented here is in
narrow compass. They yet urge upon us that the questions they present
for decision are different from those already adjudicated and must be
considered as open and not foreclosed.
They
particularly insist that since the
Davis
cases dealt with a statute which, while covering employers generally,
expressly exempted domestic service, they did not decide, they could not
have decided, the question arising here. This question is whether the
1950 Amendment, which was drawn to cover and did cover domestic
employers and employees who were expressly exempted from the coverage of
the earlier act, is valid and enforceable as against such employers.
They emphasize
the fact that, in the Steward case, the employment involved was a
business one and, while the argument there, that the right of one man to
employ and of another to be employed in a business relation is a
natural, inherent, inalienable right and not a privilege, and therefore
excises which are taxes imposed upon the enjoyment of privileges could
not be imposed upon the relation, was general in its nature, the only
impoyment involved was a business one. They, therefore, scout as mere dicta
what the court, after setting out instances of excises imposed upon
domestic employments, there said, "In 1777, before our
Constitutional Convention, Parliament laid upon employers an annual
'duty' of 21 shillings for 'every male Servant' employed in stated forms
of work."
Insisting that
this statement cannot possibly be regarded as deciding that such excises
may be constitutionally imposed, they urge upon us that the questions
they present here, involving as they do domestic employment which was
expressly exempted from the statute there under construction, are new
ones and should be considered and determined as such.
We agree with
appellants that the precise questions they present have not been
presented and decided in haec verba, and with appellee that they
have, though, been in substance decided against appellants. We shall,
therefore, with respect to each of appellants' contentions point out
briefly our reasons for thinking that this is so.
[Meaning
of the Term "Excise"]
Turning first
to their basic contention, indeed the one on which all the others rest,
that the relation of domestic employment does not come within Art. I,
Sec. 8, 7 and is
therefore immune from the imposition of federal taxes and burdens, we
find ourselves in no doubt that appellants are neither historically nor
etymologically correct in their claim in substance that excises are
limited to taxes laid on the manufacture, sale or consumption of
commodities within the country, upon licenses to pursue certain
occupations and upon corporate privileges only. It is true that taxes of
the kind referred to are excise taxes but it is also true, as was held
in Steward v. Davis, that the excises which congress has power to
impose are not limited to vocations or activities which may be
prohibited altogether or to those which are the outcome of franchise,
but extend to vocations or activities pursued as of common right. The
term "excise" is and was before and at the time of the
adoption of the Constitution a term of very wide meaning.
In the
Brittanica article on Excises, it is stated that "excise" is a
word derived through the Dutch "excijs" or "accijs"
from late Latin "accensare--to tax", meaning in British
law any branch of the revenue placed by statute under the aegis of the
commissioners of excise. In Steward Machine Co. v. Davis, supra,
the court saying, "The subject matter of taxation open to the power
of the Congress is as comprehensive as that open to the power of the
states", 8 took
occasion to point to the wideness of the meaning of the significant
words in Art. I, Section 8, "The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises". It then went on to
say:
"Together,
these classes include every form of tax appropriate to sovereignty. Cf. Burnett
v. Brooks, 288 U. S. 378, 403, 405; Brushaber v. Union Pacific R.
Co., 240 U. S. 1, 12 [1 USTC ¶4]. Whether the tax is to be
classified as an 'excise' is in truth not of critical importance. If not
that, it is an 'impost'. (Pollock v. Farmers' Loan & Trust Co.,
158 U. S. 601, 622, 625; Pacific Insurance Co. v. Soule, 7 Wall.
433, 445), or a 'duty' (Veazie Bank v. Fenno, 8 Wall. 533, 546,
547; Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429;
570; Knowlton v. Moore, 178 U. S. 41, 46). A capitation or other
'direct' tax it certainly is not. 'Although there have been from time to
time intimations that there might be some tax which was not a direct tax
nor included under the words 'duties, imposts and excises', such a tax
for more than one hundred years of national existence has as yet
remained undiscovered, notwithstanding the stress of particular
circumstances has invited thorough investigation into sources of power.'
Pollock v. Farmers' Loan & Trust Co., 157
U. S.
429, 557."
[Classification
Not Arbitrary]
When it is
considered that what we are here dealing with is not congressional
policy but congressional power, when it is not only admitted that
business employment is a relation subject to excise taxation, but it is
also established that excise taxes on domestic employments have been
commonly laid and collected, it is quite plain that appellants' position
needs something more to support it than an argument based on
considerations of policy. Indeed, when it is considered that in law and
in fact there is no substantial difference between the relation of
business employers to their employees and that of domestic employers to
theirs, it is clear that it would take some compelling, some overruling,
authority to justify this or any other court in holding that Congress
had the power to subject appellants as business employers to the act but
did not have the power to subject them to it as domestic employers.
With their
first, their main, contention decided against them, appellants can find
nothing solid to stand on with respect to their other positions. Their
position, that the act violates the Fifth Amendment because it is
arbitrary and discriminatory in the respect pointed out, that it does
not apply to all domestic servants but only to those who receive more
than $50 and work more than 24 days in the quarter, while different in
detail from the contentions made in the Davis cases, was answered
completely in them. There, basing its decision on settled law that in
the exercise of the taxing power, Congress has the widest powers of
selection and classification, and that only in cases where the
classification is so arbitrary as to have no reasonable basis whatever,
can either the Fifth Amendment or the Fourteenth Amendment be invoked
against a taxing law, 9 the court in
Steward Machine Co. v. Davis, at page 584, said:
"The
classifications and exemptions directed by the statute now in
controversy have support in considerations of policy and practical
convenience that cannot be condemned as arbitrary. The classifications
and exemptions would therefore be upheld if they had been adopted by a
state and the provisions of the Fourteenth Amendment were invoked to
annul them. * * * Carmichael v. Southern, Coal & Coke Co.,
and Carmichael v. Gulf States Paper Corp., ante, p. 495."
Appellants'
contention, that the taxes are not levied for the general welfare, falls
both because of our holding that the tax imposed is a proper excise tax
and because of the decisions in the Davis cases, supra,
where all the matters argued and discussed under appellants' third point
were fully canvassed and flatly decided against their contention.
For the same
reasons and upon the same considerations it is equally clear that the
claim of the specification, that the tax is a direct tax, also falls.
[No
Imposition of Involuntary Servitude]
The
specification, that the act violates the Thirteenth Amendment by
imposing involuntary servitude upon an employer of domestic servants,
seems to us farfetched, indeed frivolous. There is no suggestion, in the
law, of the imposition of a servitude, there is merely a requirement
that as to the tax due by domestic employees on account of the wages
paid them by their employer, the employer must withhold the amount fixed
by law and account it to the
United States
. The enforcement of the act is not the imposition of a servitude. It is
the collection of a tax and the enforcement of an obligation, which
under settled federal law appellants may be and are lawfully subjected
to. From our holding that the taxes and burdens imposed are valid, it
must follow that the enforcement of the law imposing them is not, it
cannot be, a violation of the Thirteenth Amendment.
Appellants
recognize that the law in the
United States
has been declared as above stated in respect of business employees. They
go on though to say, "However, as is stated elsewhere in this
brief, the operation of a household has not yet become an activity which
the government can tax. Neither have matters yet progressed so far that
a license from the government is required for the operation of a
household. Unlike the situation with respect to a gasoline retailer or a
bank, a householder does not occupy his or her status as a result of a
government license or boon, or at the pleasure of the government."
Thus, all of
appellants' positions return to, they base upon, their primary one, and
thus all of them fall with it. In numerous cases, including the
Davis
cases, the Supreme Court has upheld withholding requirements, indeed
withholding provisions have now become a familiar part of our system of
taxation and can no longer be successfully challenged. Brushaber v.
Union Pacific, 240
U. S.
1 [1 USTC ¶4]; Allen v. Regents, 304
U. S.
439 [38-2 USTC ¶9321]; Wilmette Park Dist. v. Campbell, 338
U. S.
411 [50-1 USTC ¶9105].
After all is
said and done, what appellants really present here is a claim based upon
the assumption that a tax on a domestic employer is not, it cannot be,
an excise tax and is therefore invalid, and that the relation between
such employer and his employee is not properly the subject of
congressional action and therefore congress may not impose upon such an
employer the duty of withholding and paying over.
If we could
agree with appellants that the tax imposed upon them with respect to
wages for domestic service was not validly imposed upon them, and that
the relation of domestic employer and domestic employee was not
regulable to the extent of imposing upon appellants the duty of
withholding and paying income taxes imposed upon and due by their
domestic employee on account of wages paid her by appellants, we should,
of course, agree that the moneys sued for by appellants were wrongfully
exacted from, and should be returned to, them. Of quite the contrary
opinion, that, in short, both the taxes and the withholding obligations
were properly imposed, we are bound to hold, as we have done: that the
sums sued for were rightfully exacted of and collected from plaintiffs;
that the judgment was right; and that it must be affirmed.
AFFIRMED.
1 26 U. S. C.
A. Secs. 1400-1432.
2 For this
quarter the employee paid directly the tax imposed upon her. The amount
collected was therefore $2.51, the excise tax imposed upon the taxpayers
as employers on account of cash wages paid in the amount of $156 to Emma
Lee Adams, their employee, for domestic services in their private home.
3 For these
quarters the employee did not pay the tax directly imposed upon her. The
amount collected for these quarters was, therefore, $10.06. This sum
included both the excise tax imposed on the taxpayers as employers and
the income tax imposed upon the employee and required to be withheld by
the employers.
4 26
U. S.
C. A. Sec. 1426(a)(7).
5 As stated in
appellants' brief, these are:
During the
first calendar quarter of the year 1951. Appellants paid cash
remuneration to an employee for domestic service in their private home
in an amount sufficient to render them liable for the sum of $4.68 under
the provisions of the Federal Insurance Contributions Act, as amended,
if said Act is constitutional as applied to Appellants. One-half of this
amount was due as the excise tax levied upon Appellants, and the other
one-half was the "additional income tax on employees" which
the Act required Appellants to withhold from the wages of their
employee.
Appellants
paid their employee the full amount of the wages due her for this
calendar quarter, without withholding the amount of the "additional
income tax on employees". However, the employee herself paid the
additional income tax on her wages for this period. Hence, Appellants
were liable only for the amount of the excise tax imposed upon them. The
amount of this tax, plus interest or a penalty, was $2.51.
Appellants
reported to the Commissioner of Internal Revenue the amount of cash
remuneration which they paid for domestic service in their private home
during the first calendar quarter of 1951, but, because of their belief
that the Federal Insurance Contributions Act, as amended, is
unconstitutional as applied to them, Appellants did not pay to the
Appellee Ellis Campbell, Jr., as Collector of Internal Revenue, the
aforementioned amount of $2.51.
During the
second and third calendar quarters of 1951, Appellants paid cash
remuneration to an employee for domestic service in their private home
in an amount sufficient to render them liable for the sum of $10.06, if
the Act is constitutional as applied to them. One-half of this amount
was due as the excise tax, and the other one-half was the
"additional income tax on employees" which the Act required
Appellants to withhold from the wages of their employee.
Appellants
also reported to the Commissioner of Internal Revenue the amount of cash
remuneration which they paid for domestic service in their private home
for these two quarter years, but they did not pay to Appellee the
aforementioned sum of $10.06.
During these
two quarter years, Appellants' domestic employee did not herself pay the
additional income tax on her wages, as she had done during the first
quarter. Hence, if the Federal Insurance Contributions Act, as amended,
can validly be applied to Appellants, Appellants were liable for the
full sum of $10.06 for the second and third calendar quarters of 1951.
On August 6,
1951, Appellee caused to be seized from Appellants' bank account the sum
of $2.51, and on February 13, 1952, he caused to be seized from such
bank account the sum of $10.06. No question is raised in this case
concerning the regularity of the methods employed in these distraints.
Within the
period provided by law, Appellants filed with Appellee claims for refund
of the amounts so seized, alleging as a basis for such claims that the
Federal Insurance Contributions Act, as amended, is unconstitutional as
applied to them; and that this suit for refund of the amounts seized
from Appellants was instituted within the time required by law for the
institution of such a suit after the disallowance of a claim for refund.
6 (1) That the
law, as amended in 1950, is arbitrary and discriminatory with respect to
wages which are taxed and wages which are not taxed, and thus violates
the Fifth Amendment to the Constitution;
(2) that the
tax imposed by the law upon employers is not a lawful excise tax, but a
direct tax in contravention of Section 9 of Article I of the
Constitution;
(3) that the
taxes imposed by the law are not levied for the general welfare, but
constitute a taking of property in contravention of the Fifth and Tenth
Amendments to the Constitution; and
(4) that the
withholding provisions of the law impose involuntary servitude upon
employers in violation of the Thirteenth Amendment to the Constitution,
and deprive them of their property and liberty in violation of the Fifth
Amendment to the Constitution.
7
"Section 8. The Congress shall have Power To lay and collect Taxes,
Duties, Imposts and Excises, to pay the Debts and provide for the common
Defence and general Welfare of the United States; but all Duties,
Imposts and Excises shall be uniform, throughout the United
States;"
8 Cf. Gold
Dredging Co. v. Balderston, 78 Pac. (2d) 105, where it was held that
excise includes every form of taxation which is not a burden laid
directly upon persons or property; in other words that excise includes
every form of charge imposed by public authority for the purpose of
raising revenue, upon the performance of an act, the employment of a
privilege, or the engaging in an occupation.
9 Cf. Sonzinsky
v.
U. S.
, 300
U. S.
506 [37-1 USTC ¶9195],
Illinois
Central RR. Co. v. Minnesota, 309 U. S. 157, Oliver Iron Co.
v. Lord, 262 U. S. 172, Brushaber v. Union Pacific, 240 U. S.
1 [1 USTC ¶4], and Magnano Co. v. Hamilton, 292 U. S. at p. 44.
[92-1 USTC ¶50,280] Bank of Mill
Creek, Plaintiff v. United States Department of Treasury-Internal
Revenue Service and Stephen I. Lester and Joyce A. Lester, husband and
wife, Defendants
U.S.
District Court, No. Dist., W.Va., Civ.
90-0148-E(S), 3/16/92
[Code Sec.
6332 ]
Tax levy: Surrender of property.--A bank that received a notice
of levy regarding a depositor's account in the bank's possession
remained liable to turn over the levied funds to the IRS, despite its
assertion that it did not surrender the levied funds because it was
uncertain whether the levy was proper. Instead of submitting the funds
to the IRS, the bank sought a court order to have the money paid to a
county court and to release it from liability. However, the bank did not
establish either of the two possible defenses to a failure to comply
with a levy demand: namely, that it was not in possession of the
property or that the property was subject to a prior judicial attachment
or execution.
MEMORANDUM OPINION AND ORDER DISMISSING PLAINTIFF'S COMPLAINT AS TO
DEFENDANTS STEPHEN I. LESTER AND JOYCE A. LESTER, AND GRANTING THE
UNITED STATES' MOTION FOR SUMMARY JUDGMENT
STAMP, Jr.,
District Judge:
This action
was originally instituted in the Circuit Court of Randolph County, West
Virginia on September 24, 1990. On October 24, 1990, this action was
removed by the United States Department of Treasury-Internal Revenue
Service ("
United States
") to this Court pursuant to 28 U.S.C. §§1340 and 1441. Defendant
United States
filed its responsive pleading on November 2, 1990. According to the
information available to the Court, defendants Stephen I. Lester and
Joyce A. Lester have not, to date, been served with the complaint and
have not therefore filed a responsive pleading.
On August 12,
1991, this Court ordered plaintiff to show cause why service was not
made upon the defendants Stephen I. Lester and Joyce A. Lester within
the one hundred twenty (120) days following the filing of the complaint
as proscribed by Rule 4(j) of the Federal Rules of Civil Procedure.
After this Court granted plaintiff an extension of time to answer the
show cause order, as well as permitting plaintiff to substitute counsel,
plaintiff filed its response on October 1, 1991. Plaintiff indicated
that there had been some confusion by plaintiff's former counsel as to
the service of process on defendants Stephen I. Lester and Joyce A.
Lester. Plaintiff indicated that it required a reasonable amount of time
to effect service on the remaining defendants.
A reasonable
amount of time, in fact a considerable amount of time, has now elapsed.
Inasmuch as five (5) months has now passed and plaintiff has failed to
comply with this Court's order, plaintiff's complaint is DISMISSED
without prejudice as to defendants Stephen I. Lester and Joyce A.
Lester.
The
United States
, which was properly served by plaintiff and filed its responsive
pleading, filed a Motion for Summary Judgment and a memorandum in
support thereof on August 2, 1991. Plaintiff has failed to file a
response to the
United States
' motion and pursuant to Local Court Rule 2.07(f) plaintiff is deemed
not to oppose the motion. As grounds for its motion, the
United States
asserts that no genuine issue of material fact exists and therefore the
United States
is entitled to judgment as a matter of law.
The
United States
' motion seeks summary judgment pursuant to Fed.R.Civ.P. 56(c). Under
Fed.R.Civ.P. 56(c), summary judgment is appropriate if "the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show there is no genuine
issue as to material fact and the moving party is entitled to judgment
as a matter of law." The defendant seeking summary judgment bears
the initial burden of showing the absence of any issues of material
fact. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477
U.S.
317, 322-323 (1986). However, as the United States Supreme Court noted
in Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986),
"Rule 56(c) itself provides that a party opposing a properly
supported motion for summary judgment may not rest upon mere allegation
or denials of his pleading, but must set forth specific facts showing
that there is a genuine issue for trial."
Id.
at 256. "The inquiry performed is the threshold inquiry of
determining whether there is the need for a trial--whether, in other
words, there are any genuine factual issues that properly can be
resolved only by a finder of fact because they may reasonably be
resolved in favor of either party."
Id.
at 250. See also Trivathan v. Newport News Shipbuilding and Dry Dock
Company, 944 F.2d 902 (4th Cir. 1991) [table] ("Summary
judgment should be granted only in those cases where it is perfectly
clear that no issue of fact is involved and inquiry into the facts is
not desireable to clarify the application of the law." citing Charbonnages
De France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979); Stevens v.
Howard D. Johnson Co., 181 F.2d 390, 394 (4th Cir. 1950)).
In Celotex,
the Court stated that "the plain language of Rule 56(c) mandates
the entry of summary judgment, after adequate time for discovery and
upon motion, against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at trial."
Id.
at 322. Summary judgment is not appropriate until after the non-moving
party has had sufficient opportunity for discovery. Oksanen v.
Page
Memorial
Hospital
, 912 F.2d 73, 78 (4th Cir. 1990). In reviewing the supported
underlying facts all inferences must be viewed in the light most
favorable to the party opposing the motion. Matsushita Electric
Industrial Co. v. Zenith Radio Corp., 475
U.S.
574, 587 (1986).
In this case,
plaintiff held property belonging to Stephen I. Lester and Joyce A.
Lester in the amount of $21,806.39. Plaintiff received a Notice of Levy
from the
United States
against the account of Stephen I. Lester and Joyce A. Lester, delinquent
taxpayers, in the amount of $81,545.27. Plaintiff alleged in its
complaint that it was not sure whether the Lester account had been
properly levied upon and accordingly sought a court order to have the
money paid to the Clerk of the
Circuit
Court
of
Randolph
County
and the plaintiff released from any liability.
26 U.S.C. §6332 provides for the surrender of
property subject to levy. 26 U.S.C. §6332(a) , specifically,
provides for the requirements of surrender as follows:
(a)
Requirement. Except as otherwise provided in this section, any person in
possession of (or obligated with respect to) property or rights to
property subject to levy upon which a levy has been made shall, upon
demand of the Secretary, surrender such property or rights (or discharge
such obligation) to the Secretary, except such part of the property or
rights as is, at the time of such demand, subject to an attachment or
execution under any judicial process.
In
this case, plaintiff readily admits that it was in possession of
property upon which a Notice of Levy was received. Plaintiff has failed
to demonstrate that the property in question was subject to a judicial
attachment or execution. In fact, plaintiff simply asserts that it is
uncertain whether or not the property has been properly levied upon.
Plaintiff
attempted to relieve itself from liability by placing the property, or
funds, in question with the Clerk of the
Circuit
Court
of
Randolph
County
. Plaintiff would have discharged itself from liability to the Lesters,
or others, if it had honored the levy. 26 U.S.C. §6332(e) provides:
(e) Effect of
honoring levy. Any person in possession of (or obligated with respect
to) property or rights to property subject to levy upon which a levy has
been made who, upon demand by the Secretary, surrenders such property or
rights to property (or discharges such obligation) to the Secretary (or
who pays a liability under subsection (d)(1)) shall be discharged from
any obligation or liability to the delinquent taxpayer and any other
person with respect to such property or rights to property arising from
such surrender or payment.
In
this case plaintiff failed to honor the levy placed on the Lesters'
account. Plaintiff has not offered any evidence to prove that the levy
was improper. Similarly, plaintiff has failed to offer any evidence that
the property in question was subject to a judicial attachment or
execution. Since it failed to follow the provisions of 26 U.S.C. §6332 plaintiff has not removed itself
from liability.
The
United States
correctly asserts that the Supreme Court has established that when a
bank receives a notice of levy and the bank is in possession of property
of the delinquent taxpayer, the bank must comply with the levy unless
the property is subject to a prior judicial attachment or execution. United
States v. National Bank of Commerce [85-2
USTC ¶9482 ], 472 U.S. 713 (1985). The Supreme Court further
stated that "a bank served with a notice of a levy has two, and
only two, possible defenses for failure to comply with the demand: that
it is not in possession of the property of the taxpayer, or that the
property is subject to a prior judicial attachment or execution."
Id.
at 727.
Plaintiff
admits to having been in possession of the property when it received the
notice of levy. Additionally, plaintiff has failed to demonstrate that
the property was subject to a prior judicial attachment or execution.
Pursuant to the standard established by the Supreme Court in National
Bank of Commerce, plaintiff has failed to meet either of the two
defenses specifically available to banks for failure to comply with the
demands of a tax levy.
Additionally,
the Ninth Circuit, in a factually similar case, held that the district
court properly dismissed an interpleader action because the bank was
clearly obligated to pay over to the government the amount of money in
the account which had been levied upon. Bank of
America
National Trust & Savings Ass'n. v. Mamakos [75-1 USTC ¶9211 ],
509 F.2d 1217 (9th Cir. 1975). In that case, a bank responded to a
notice of a tax levy on a customer's account by filing an interpleader
action, which the
United States
subsequently removed to federal court. The district judge granted the
United States
' motion for summary judgment. See Bank of
America
National Trust & Savings Ass'n. v. Mamakos, 73-1 USTC (CCH) ¶9290,
31 A.F.T.R. 2d (P-H) ¶73-548 (N.D. Cal. 1972).
"Summary
judgment is appropriate if the evidence offered demonstrates that there
is no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law." Kientzler v. Sun Line
Greece Special Shipping, 779 F. Supp. 342, 343 (S.D.N.Y. 1991) citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).
[A] party
opposing a properly supported motion for summary judgment 'may not rest
upon the mere allegations or denials' of its pleadings, but must go
beyond the pleadings and by affidavits, or by 'depositions, answers to
interrogatories, and admissions on file,' designate 'specific facts
showing that there is a genuine issue for trial.'
United
States v. CPS Chemical Co., Inc.,
779 F. Supp. 437 (E.D. Ark. 1991) citing Fed.R.Civ.P. 56(e).
Plaintiff has failed to file a response to the
United States
' motion for summary judgment. Even if this Court relies solely upon
plaintiff's complaint and any inferences which can be drawn therefrom,
this Court cannot and does not find that any dispute exists as to any
issue of material fact.
Accordingly,
Defendant United States' motion for summary judgment is hereby GRANTED.
The Clerk of the
Circuit
Court
of
Randolph
County
is hereby DIRECTED to pay over to the Internal Revenue Service the
amount of $21,806.39 paid by the plaintiff, plus all interest which has
accrued on this account.
Inasmuch as
the Court has DISMISSED plaintiff's complaint without prejudice as to
Defendants Stephen I. Lester and Joyce A. Lester and GRANTED summary
judgment to Defendant United States, the Court directs the Clerk that
this action be STRICKEN from the active docket of this Court.
The Clerk is
directed to transmit certified copies of this order to counsel of record
herein and to the appropriate agencies.
[92-2 USTC ¶50,343]
United States of America
, Plaintiff v. First Interstate Bank of
Idaho
, N.A., Defendant
U.S.
District Court, Dist. Ida., CIV. 89-3053,
3/30/92, 793 FSupp 934
[Code
Secs. 6332 and 7402 ]
Notice of levy: Escrow accounts, assigned.--A bank's motion for
summary judgment was granted because it was not liable for failing to
honor an IRS tax lien on an escrow account. After an IRS lien on the
escrow account, the delinquent taxpayer who owned the account assigned
his interest to another party. Although the lien had priority over the
assignment, the bank justifiably decided not to turn over the funds. The
language in the lien demanded property belonging to the delinquent
taxpayer at the time the bank received notice of the levy, which was
after the assignment. Further, as a third-party escrow holder, the bank
was not asserting an ownership interest in the funds. Thus, the bank was
not responsible for failing to honor the levy. Additionally, a motion
for leave to file a counterclaim made by the delinquent taxpayer was
denied since his claim was not the subject of the litigation.
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT AND DISMISSING COMPLAINT
I.
FACTS AND PROCEDURE
RYAN, District
Judge:
This suit
arises out of a Complaint filed by the
United States
against Defendant First Interstate Bank, N.A. (Bank), for its failure to
honor a Notice of Levy served upon it on June 27, 1983. On May 25, 1981,
the Internal Revenue Service (IRS) made an assessment against taxpayer
Daniel Bauer for unpaid federal income taxes for the tax year of 1977 in
the amount of $8,939.31. On January 14, 1982, the IRS filed a notice of
federal tax lien in
Kootenai County
,
Idaho
, the county of taxpayer's residence and the county in which the escrow
account was located. (See Moore Decl., filed Nov. 5, 1990, Ex. 1.) On
June 27, 1983, the IRS served upon the Bank a Notice of Levy in the
amount of $11,857.76. (See Complaint, filed Aug. 20, 1989, Ex. A.) In
this Notice of Levy, the IRS sought all property, rights to property,
credits, and bank deposits in the possession of the bank which belonged
to the taxpayer. The IRS assumed that the Notice of Levy should
encompass an escrow account in the name of the taxpayer. 1
The Bank
responded to the Notice of Levy by stating: "We do not find any
checking or savings account at this branch. Also the escrow listed has
been assigned and is not in the name of Daniel Bauer." (See Seaman
Aff. Supp. Def.'s Summ. J., filed Oct. 15, 1990, Ex. A.) The bank took
the position then, and continues to assert that same position now, that
because the funds in the escrow account had been assigned on August 31,
1982, to Mr. and Mrs. James D. Bauer, the bank no longer had in their
possession any funds of Mr. Daniel Bauer to turn over to the IRS.
Subsequently,
the IRS returned the Notice of Levy, advising the bank that the levy had
priority over any assignment that occurred subsequent to January 18,
1982. On October 27, 1983, the IRS made a Final Demand for payment
pursuant to the Notice of Levy. (See Complaint, filed Aug. 30, 1989, Ex.
B.) However, the bank maintained its position and did not honor the
levy.
The government
filed this suit against the Bank on August 30, 1989, claiming that the
Bank is liable under 26 U.S.C. §6332 in an amount equal to the value of
property or funds that they had in their possession on June 27, 1983,
the date the Notice of Levy was served. 2 On June 26,
1990, the bank filed its Answer and alleged that at the time of the
service of the Notice of Levy the bank possessed no property, rights to
money, or credits of taxpayer Bauer, as the funds in the escrow account
had been assigned to a Mr. and Mrs. James Bauer.
On October 15,
1990, the defendant moved for summary judgment. The government responded
to this motion on November 5, 1990, by filing its own Motion for Summary
Judgment. The parties have filed their respective responses and replies
to these motions. On May 9, 1991, a hearing on these motions was held in
Boise
,
Idaho
. During the hearing, the court took the motions under advisement and
encouraged the parties to work out a solution to this case. Shortly
thereafter, on May 31, 1991, the Bank filed a Motion for Leave to File
Counterclaim. The government filed its brief in opposition to this
motion on May 30, 1991. On June 6, 1991, the Bank filed its reply brief.
On July 22, 1991, Daniel Bauer and Helen Bauer both moved to intervene
in this action pursuant to Rule 24 of the Federal Rules of Civil
Procedure. In addition, these parties also conditionally filed an answer
to the Complaint should the court decide to allow them to intervene. The
government filed its response to the motions to intervene on August 2,
1991, and a reply to this response was filed on September 3, 1991.
Accordingly, the motions are now fully briefed and ripe for review.
II.
ANALYSIS
A.
CROSS-MOTIONS FOR SUMMARY JUDGMENT
1.
Summary of arguments.
In the Bank's
brief in support of its Motion for Summary Judgment, the Bank argues
that when it received the Notice of Levy on June 27, 1983, it did not
possess any property or rights to property of the taxpayer, Daniel
Bauer. The Bank notes that the funds in the escrow account had been
assigned to James D. Bauer and Helen E. Bauer 3 on August
31, 1982, and therefore, the funds belonged to these third parties and
not Daniel Bauer. (Seaman Aff. Supp. Def.'s Summ. J., filed Oct. 15,
1990, at 4.) In addition, the Bank argues that both the Notice of Levy, 4 and the
Final Demand 5 requested
that funds which belonged to Daniel Bauer, at that time, should be
turned over. However, because of the assignment, the Bank argues that it
did not, at that time, have in its possession any property, rights to
property, money, credits, or bank deposits belonging to the taxpayer.
The Bank concludes that it is entitled to judgment as a matter of law
because its failure to turn over the funds in the escrow account was
legally justifiable.
The
government, in its brief in support of its own Motion for Summary
Judgment and in response to the Bank's Motion for Summary Judgment,
argues that when it filed, on January 14, 1982, the notice of a federal
tax lien in Kootenai County, Idaho, that lien took priority over any
subsequent assignment by the taxpayer pursuant to 26 U.S.C. §6322 . Section 6322 provides in
part that the tax lien "shall arise at the time the assessment is
made and shall continue until the liability for the amount so assessed .
. . is satisfied or becomes unenforceable by reason of lapse of
time." 26 U.S.C.S. §6322 (Law. Co-op. 1991).
The government
notes that when the taxpayer attempted to convey his rights in the
escrow account via the assignment, the lien had not yet been satisfied,
and therefore, the lien, as long as it was properly filed, had priority
over the assignment. The government notes that it properly filed its
notice of federal tax lien in the county where the real property, the
bank account, and the residence of the taxpayer were all located. See 26
U.S.C.S. §6323(a)
, -(f) (Law. Co-op. 1991) and
Idaho
Code §45 -202 (1979).
The government
also argues that even if it would not have filed its notice of federal
tax lien, the assignment was not valid because the taxpayer's brother
cannot be a protected "purchaser" under Section
6323 because the taxpayer's family members are not purchasers
unless adequate consideration is paid to the taxpayer in exchange for
the taxpayer's property. Here, the executed assignment stated that James
and Helen Bauer were to pay $1.00 for the right to receive the remaining
funds in the escrow account.
The government
then argues that once that lien attached to the escrow account, it
remained in effect until satisfied, and that any of the taxpayer's
property acquired by others is subject to the tax lien. United States
v. Donahue Indus., Inc. [90-2
USTC ¶50,343 ], 905 F.2d 1325, 1330-31 (9th Cir. 1990); United
States v. Oil Resources, Inc. [87-2
USTC ¶9461 ], 817 F.2d 1429, 1433 n.3 (9th Cir. 1987); United
States v. Bess [58-2 USTC ¶9595 ],
357 U.S. 51, 57 (1958). The government concludes by asserting that
because its lien had priority over the assignment, the Bank, pursuant to
Section 6331 of Title 26,
should have relinquished possession of the funds in the escrow account.
26 U.S.C.S. §6331 (Law. Co-op. 1991); Chevron,
USA, Inc. v. United States [83-1
USTC ¶13,523 ], 705 F.2d 1487, 1490 (9th Cir. 1983).
Accordingly, the government seeks to recover against the Bank the value
of the funds in the escrow account at the time of the Notice of Levy was
served, 6 plus
statutory interest and costs. 26 U.S.C. §6332(d)(1)
.
In response,
the Bank argues that there is some confusion on the date of assessment
and whether or not a notice of federal tax lien was actually filed for
taxes assessed on September 20, 1980. The Notice of Levy reflects an
assessment date of September 20, 1980, which is in contrast to the May
25, 1981, assessment date that appears on the notice of federal tax
lien. However, having reviewed the Certificate of Assessments and
Payments, the court finds that there was only one assessment that
occurred on May 25, 1981, and that the September 20, 1980, date, which
is listed as the date of assessment in the Notice of Levy, was actually
the date that the IRS noted that the no-liability return was filed for
the 1977 tax year. (Moore Decl., filed Jan. 8, 1991, Ex. 11.) Therefore,
it does appear that the September 20, 1980, assessment date noted in the
Notice of Levy is simply a typographical error. The court finds that
there is no genuine issue of material fact as to this argument raised by
the Bank, as the records are clear and speak for themselves.
2.
Summary Judgment Standard.
Motions for
summary judgment are governed by Rule 56 of the Federal Rules of Civil
Procedure. Rule 56 provides, in pertinent part, that judgment
"shall be rendered forthwith if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law."
U.S.C.S. Court
Rules, Federal Rules of Civil Procedure, Rule 56(c), (Law. Co-op. 1987).
The Supreme
Court has made it clear that under Rule 56, summary judgment is mandated
if the non-moving party fails to make a showing sufficient to establish
the existence of an element which is essential to his case and upon
which he will bear the burden of proof at trial. See Celotex Corp. v.
Catrett, 477
U.S.
317, 322 (1986). If the non-moving party fails to make such a showing on
any essential element of his case, "there can be no 'genuine issue
as to any issue of material fact' since a complete failure of proof
concerning an essential element of the non-moving party's case
necessarily renders all other facts immaterial."
Id.
at 323. 7
Moreover,
under Rule 56, it is clear that in order to preclude entry of summary
judgment an issue must be both "material" and
"genuine." An issue is "material" if it affects the
outcome of the litigation. An issue, before it may be considered
"genuine," must be established by "sufficient evidence
supporting the claimed factual dispute . . . to require a jury or judge
to resolve the parties' differing versions of the truth at trial." Hahn
v. Sargent, 523 F.2d 461, 464 (1st Cir. 1975) (quoting First
Nat'l Bank v. Cities Serv. Co., Inc., 391
U.S.
253, 289 (1968)). The Ninth Circuit cases are in accord. See e.g.,
British Motor Car Distrib., Ltd. v.
San Francisco
Automotive Indus. Welfare Fund, 882 F.2d 371 (9th Cir. 1989).
According to
the Ninth Circuit, in order to withstand a motion for summary judgment,
a party
(1) must make
a showing sufficient to establish a genuine issue of fact with respect
to any element for which it bears the burden of proof; (2) must show
that there is an issue that may reasonably be resolved in favor of
either party; and (3) must come forward with more persuasive evidence
than would otherwise be necessary when the factual context makes the
non-moving party's claim implausible.
Id.
at 374 (citation omitted).
3.
Application of summary judgment standard.
Having
thoroughly reviewed the record in this matter, the court finds that
summary judgment is clearly appropriate in this case as there are no
genuine issues of material fact. The controlling facts in this case are
clearly not disputed.
Having
reviewed the facts involved in the case, the court questions if the
government has sued the right party. It would seem to this court that
when the Bank notified the IRS that the escrow account had been
assigned, the IRS, at that point in time, had other options to collect
the funds in the account. If the IRS was aware of the assignment, and
knew that its lien had priority over that assignment, the court
questions why the IRS did not bring an action against the third-party
assignees on the grounds that the assignees took the funds in the escrow
account subject to the government's lien and that the assignment was
voidable because of the lack of consideration in a family transaction.
To the court, this would seem to have been a better approach than
waiting nearly six years to file a lawsuit against the Bank for failure
to honor the levy.
The court also
recognizes that the Bank also had other options. Once the Bank became
aware of the fact that the IRS was not going to back down on its
position regarding the funds in the escrow account, it too could have
avoided the current nature of this lawsuit by filing an interpleader
action. From reviewing the correspondence between the Bank and the IRS,
it would appear that the Bank initially had every intention of filing an
interpleader action as early as March of 1985, yet the Bank failed to
initiate this procedure until recently when it filed its motion for
leave to file a counterclaim. (Motion for Leave to File Counterclaim,
filed May 10, 1991.)
Regardless of
this court's view of how this case was poorly managed by both parties,
the court still must decide the issue before it today. The issue that
this court must decide is not whether the IRS has named the right
parties in this litigation, or whether the Bank should have filed an
interpleader; but instead, the only question that is before this court
is whether the Bank should be held liable for its failure to honor the
Notice of Levy that was served upon it by the IRS. The court finds,
after reviewing the entire record in this matter and the authority cited
by the respective parties, that the Bank should not be liable under Section 6332 for failing to
honor the Notice of Levy.
The court does
not question the fact that the tax lien which was filed on January 14,
1982, has priority over the subsequent assignment of the funds in the
escrow account. The lien clearly existed prior to transfer. However, the
court is not convinced that it necessarily follows that because the lien
had priority, the Bank, when it received the Notice of Levy, was
required to pay over the funds in an escrow account, which at the time
was in someone's name other than the taxpayer listed in the Notice of
Levy.
The Bank in
this case is not a transferee or assignee. The Bank in this case did not
and has not claimed any interest in the funds in the escrow account. It
is simply a third-party escrow holder which has contractual obligations
to the parties of the escrow. Had the Bank paid over the funds to the
IRS, the Bank would have run the risk of the assignees suing the Bank
for turning over funds to the IRS that rightfully belonged to them. As
counsel for the Bank stated in his November 20, 1984, letter to the IRS:
[W]e are
caught between the proverbial rock and the hard place. On one hand, we
are in possession of property which appears to be subject to IRS Levy.
On the other hand, we are potentially subject to suit from the assignees
of the escrow contract for failure to remit payments to them pursuant to
the assignment. . . .
(Moore
Decl., filed Dec. 6, 1990, Ex. 6)
The court
simply is not willing to penalize the Bank for what the court finds is a
justifiable decision not to turn over the funds. Upon service of the
Notice of Levy, the Bank looked at their records and found that the
escrow account no longer belonged to Daniel Bauer; that is, it was no
longer in Daniel Bauer's name. At that point, they advised the IRS that
the funds in the escrow account would be held by the Bank until the IRS,
the taxpayer, and the third parties, resolved the conflicting claims to
the funds. Given the facts in this case, the position taken by the Bank
was justified. The Notice of Levy served upon the Bank stated that all
property and monies "now" in the Bank's possession which
"belonged" to the taxpayer were levied upon for payment of
taxes. The escrow account, at the time the Notice of Levy was served
upon the Bank, did not belong to the taxpayer. The demands made upon the
Bank did not request the Bank to turn over property or monies owned by
the taxpayer on the date of the original assessment in 1980.
Accordingly, the bank had a defense for its failure to comply with the
demand. United States v. National Bank of Commerce [85-2 USTC ¶9482 ],
472 U.S. 713 (1985).
The government
asserts that "possession of the property does not provide the
answer to the question of entitlement to the property; rather, the
nature of the underlying claims to the property must be analyzed to
determine who is entitled to the property." (Reply Mem. Supp.
U.S.
's Summ. J., filed Dec. 6, 1990, at 6 (emphasis added)). The government
would have the responsibility of evaluating the nature and validity of
these underlying claims [that] fall upon the innocent stakeholder, the
third-party escrow holder. That is, the government wants the bank to be
responsible for determining whom the funds originally belonged to and
whether or not the funds rightfully belong to someone else. The court,
however, strongly disagrees with this rational. It should not be the
Bank's obligation to research and investigate the validity of the
assignment and whether or not the assignment was subject to the 1980
assessment. The court simply is not persuaded that all the risk, burden,
and costs associated with that obligation should somehow be placed upon
the innocent third-party escrow holder. It is not the Bank's duty to do
the work of the IRS, who after all is the party seeking to have access
to the funds.
The court has
also reviewed in detail the main authority cited by the government in
support of its position and finds that each case is clearly
distinguishable from the facts in this case. In each of the cases cited
by the government, the party that was found to be responsible for not
honoring the levy was not a third-party escrow holder, an innocent
stakeholder, a non-buyer, or non lien holder. Rather, in each of the
cases cited by the government, the party whose actions were in question
had some kind of interest in the funds. In all these cases, the Bank was
in the position similar to the assignees in this case. The parties in
these cases were attempting to take the funds of the taxpayer to satisfy
the taxpayer's debts and obligations with the bank. For example, in the
Ninth Circuit case of United States v. Donahue Indus., Inc. [90-2
USTC ¶50,343 ], 905 F.2d 1325 (9th Cir. 1990), the
government brought an action to enforce the levy against Rainier
National Bank. The bank had loans outstanding with the taxpayer, and as
one of the conditions to the loans, the bank could set off the deposits,
checking and savings accounts of the taxpayer against the loan amounts.
Upon learning that federal agents had seized the taxpayer's premises,
the bank officer had the taxpayer's due and payable loans set off
against the taxpayer's bank accounts. Two and one-half hours later, the
government served the Notice of Levy upon the bank. The Ninth Circuit
found that even though the taxpayer's property interest in those
accounts was extinguished prior to the notice of levy, the bank took the
funds subject to the government's lien and should be held liable for
failure to honor the levy.
Id.
at 1331. Thus, the Donahue case is clearly distinguishable as the
bank in that case was a transferee, who would be in a similar position
as the assignees in the case before this court. See also United
States v. Cache Valley Bank [89-1 USTC ¶9157 ],
866 F.2d 1242 (10th Cir. 1989) (Bank had right of offset against
unsecured loans on any bank account of the taxpayer. When bank received
notice of levy, there were negligible funds in the taxpayer's accounts;
thus, bank responded that there were no funds available. Later on that
same day, Bank received a significant deposit to the taxpayer's account
and immediately off-set the entire amount in the accounts against the
unsecured loan balances. Court held bank took deposits subject to tax
lien.); United States v. Bank of Celina [83-2
USTC ¶9688 ], 721 F.2d 163 (6th Cir. 1983) (Bank obtained
payment on its loans to the taxpayer by setting off outstanding loan
balances against the bank accounts of the taxpayer. After receiving
notice that the IRS had padlocked the taxpayer's premises, a bank
official directed, on that same day, that the due and payable loans be
set-off against taxpayer's bank accounts. Two and a half hours after the
bank processed these set-offs, the IRS served a notice of levy upon the
bank. Court held tax lien had attached to taxpayer's accounts prior to
the set-off by the bank; thus set-off was an invalid transfer.)
As can be seen
from a review of these cases, these cases only support the proposition
that subsequent transferees and assignees will take subject to the
government's preexisting lien; they do not address the issue of the
third-party escrow account holder or innocent stakeholder who has no
interest in the subject funds. Accordingly, the court finds the
government's authority is not persuasive. The cases would only be
persuasive if the government would have sued the third-party assignees
who claimed their interest in the escrow account ahead of the tax lien,
or if the Bank in the case was attempting to claim some ownership
interest in the funds in the account.
4.
Conclusion.
Based upon the
foregoing analysis and the applicable standards under Rule 56, the court
finds that the Bank is entitled to summary judgment on the government's
claims raised in the Complaint. In light of the undisputed facts in this
case, the government has simply failed to state a claim upon which
relief can be granted.
B.
MOTION FOR LEAVE TO FILE COUNTERCLAIM AND MOTIONS TO INTERVENE
As noted
above, on May 10, 1991, the Bank moved for leave to file a counterclaim
in this action which would allow the Bank, pursuant to Rule 22 of the
Federal Rules of Civil Procedure, to interplead the funds in question.
The government opposes this motion based upon the grounds that this
action does not involve who actually is entitled to the funds in the
escrow account, but instead is focused on whether the Bank should be
personally liable for its failure to honor the levy served upon it. The
government emphasizes that its action against the Bank and the Bank's
proposed counterclaim interpleader are two separate and distinct
actions. The government argues that any person who claims an interest in
funds may bring a separate Section 7426 wrongful levy
action, and that the time to interplead the funds was in 1983, not some
seven years later.
The Bank, in
response, argues that its motion for leave to file a counterclaim was
made only in the alternative, if the court were to deny its Motion for
Summary Judgment. If the court grants the Bank's Motion for Summary
Judgment, then the motion to file the counterclaim for interpleader
purposes would be moot. The IRS may, if it so chooses, then attempt to
set aside the assignment and enforce its lien by the institution of
another civil action under 26 U.S.C §7403
. This new potential suit, then, would address the question
of who actually is entitled to the funds and whether the assignment was
valid.
The court,
having granted the Bank's Motion for Summary Judgment, finds that the
Motion for Leave to File Counterclaim is moot in that the court has
determined that the Bank is not personally liable for its failure to
honor the Notice of Levy. It is clear that this action, currently before
the court, is an action regarding only whether the Bank should be liable
for its failure to honor the levy. The Complaint in this action clearly
does not deal with the merits of who actually is entitled to the funds
in the escrow account. This issue will have to be the subject of a
separate action brought either by the Bank in an interpleader action or
brought by the IRS under 26 U.S.C. §7403 to enforce its lien
upon the escrow account. Under either scenario, all the parties with an
interest in the funds would be joined and the court in that action could
adjudicate the respective claims and interests of the involved parties
in respect.
Accordingly,
the Motion for Leave to File Counterclaim should be denied. For these
same reasons, the motions to intervene by the Daniel and Helen Bauer
should also be denied. The claims asserted by the Bauers are not the
subject of the litigation currently before the court. Their claims
relate to the question of a wrongful levy and/or a valid assignment, and
are separate and distinct claims from a failure to honor levy action
which this court is dismissing. The court, pursuant to Rule 24 of the
Federal Rules of Civil Procedure, finds that denying the motions to
intervene will not impair, impede, or prejudice the ability of these
parties to protect their claims and interests in the funds in the escrow
account, as these claims and interests can be asserted in a separate
action.
III.
ORDER
Based upon the
foregoing, and the court being fully advised in the premises,
IT IS HEREBY
ORDERED that the
United States
' Motion for Summary Judgment, filed November 5, 1991, should be, and is
hereby, DENIED.
IT IS FURTHER
ORDERED that the defendant's Motion for Summary Judgment, filed October
15, 1990, should be, and is hereby, GRANTED.
IT IS FURTHER
ORDERED that the plaintiff's Complaint in this action, should be, and is
hereby, DISMISSED.
IT IS FURTHER
ORDERED that the defendant's Motion for Leave to File Counterclaim,
filed May 10, 1991, should be, and is hereby, DENIED.
IT IS FURTHER
ORDERED that the motions to intervene, filed by Helen Bauer and Daniel
Bauer on July 22, 1991, should be, and are hereby, DENIED.
1 This escrow
account was established in 1973 as a result of the sale of some of Mr.
Bauer's property. (See Mem. Opp. Def.'s Summ. J. and Supp.
U.S.
's Summ. J., filed Nov. 5, 1990, at 2.)
2 By the
government's calculations, the balance of the escrow account on July 27,
1983, was $7,849.79. (Mem. in Opp. to Def.'s Summ. J. and Supp.
U.S.
's Summ. J., filed Nov. 5, 1990, at 6 n.1.) This amount does not appear
to be disputed by the Bank.
3 James Bauer
was identified by the government in its responsive brief as Daniel
Bauer's brother. The Bank argues that one of the material facts that
prevent the government from prevailing on summary judgment is that there
is no evidence before the court which establishes the relationship
between James and Daniel Bauer. (Statement of Material Fact, filed Nov.
14, 1990, at 2.) However, the court finds that this issue is not
material or relevant to the granting or denial of summary judgment.
Moreover, the
court notes that this issue has subsequently been clarified. In the
reply brief filed by the potential intervenors, Helen Bauer and Daniel
Bauer, the intervenors state that James Bauer was the father of Daniel
Bauer and not his brother. James Bauer has subsequently passed away
since the institution of this litigation. (Reply Supp. of Intervenors,
filed Sept. 3, 1991, at 1).
4 The Notice
of Levy provided in part that: "All property, rights to property,
money, credits, and bank deposits now in your possession and belonging
to this taxpayer . . . and all money or other obligations owing from you
to this taxpayer, are levied upon for payment of the tax plus all
additions provided by law." (Complaint, filed Aug. 30, 1989, Ex.
A.)
5 The Final
Demand provided in part that: "On June 27th, 1983, a notice of levy
was served on Beverly Garland. . . . The notice of levy attached
property, rights to property, money, credits, and bank deposits then in
your possession, to the credit of, belonging to, or owned by Daniel R.
Bauer of Rt. 3 Box 422, Coeur d'Alene, Idaho 83814." (Complaint,
filed Aug. 30, 1989, Ex. B.)
6 As stated
above, the government argues that the balance of this account at the
time the Notice of Levy was served on June 27, 1983, was $7,840.79.
7 See also
Rule 56(e), which provides in part:
When a motion
for summary judgment is made and supported as provided in this rule, an
adverse party may not rest upon the mere allegations or denials of the
adverse party's pleading, but the adverse party's response, by
affidavits or as otherwise provided in this rule, must set forth
specific facts showing that there is a genuine issue for trial. If the
adverse party does not so respond, summary judgment, if appropriate,
shall be entered against the adverse party.
U.S.C.S. Court
Rules, Rules of Civil Procedure, Rule 56(e) (Law. Co-op. 1987 &
Supp. 1990).
[93-1 USTC ¶50,129] Dean Meminger,
Sr., Plaintiff v.
United States
Internal Revenue Service and Republic National Bank, Defendants
U.S.
District Court, So. Dist. N.Y., 91 Civ. 6971
(MBM), 1/20/93
[Code Secs.
6332 , 6532 and 7426 ]
Levy and distraint: Personal property: Bank accounts: Suits by
nontaxpayers: Statute of limitations.--Despite an individual's claim
that the IRS wrongfully levied upon his bank account for the delinquent
taxes owed by his son, his wrongful levy action, which was filed 16
months after the bank received notice of the IRS levy, was dismissed for
failure to comply with the nine-month statute of limitations for
wrongful levy actions. Although the individual claimed that the IRS
should have notified both him and his bank, the IRS was not required to
notify the individual, and the parties did not dispute that the bank was
given adequate notice. Further, the individual did not demonstrate that
the nine-month period should have been extended since he failed to file
an administrative claim for return of the levied account. Finally, the
bank honored the IRS levy; therefore, the individual's federal claims
against the bank were dismissed.
Joseph A.
Bailey,
630 W. 158th St.
,
New York
,
N.Y.
10032
, for plaintiff. Edward Scarvalone, Assistant United States Attorney,
New York, N.Y. 10007, for U.S., Malcolm B. Choset, Wrenn & Schmid,
103 W. Main St., East Islip, N.Y. 11730, for Republic Natl. Bk.
OPINION
AND ORDER
MUKASEY,
District Judge:
Plaintiff
claims that on June 21, 1990 the United States Internal Revenue Service
wrongfully levied upon his bank account at Republic National Bank in the
amount of $25,269.11. He sues defendant
United States
for wrongful levy, pursuant to 26 U.S.C. §7426(a)(1) (1988), and
defendant Republic National Bank under state law for negligence in
releasing his account to the IRS. Defendant
United States
moves to dismiss plaintiff's claim for failure to comply with the
nine-month statute of limitations for wrongful levy actions. 26 U.S.C. §6532(c)(1) (1992). For
the reasons stated below, the motion is granted and plaintiff's claims
against the
United States
are dismissed. Because plaintiff and
defendant
Republic
are each citizens of
New York
, plaintiff's claims against Republic are dismissed for lack of
jurisdiction. 28 U.S.C. §1332 (1992). This court retains jurisdiction
over Republic's cross-claim against the IRS, as described in the final
section of this opinion.
I.
By Notice of
Levy dated June 21, 1990, the IRS directed that Republic National Bank
transfer $25,269.11 from the bank account of "Dean Meminger"
to the IRS. (Scarvalone Decl. Exs. A & B) At that time, both
plaintiff Dean Meminger, Sr. and plaintiff's son Dean Meminger, Jr. held
accounts at Republic, and Republic possessed both of their Social
Security numbers. (Bailey Aff. ¶2-6) The IRS Notice of Levy listed only
the Social Security number of plaintiff's son, Dean Meminger, Jr.
(Scarvalone Decl. Ex. A) Following the Notice of Levy, the IRS sent
Republic two Final Demands for the money. Each listed "Dean
Meminger" as accountholder, but neither indicated Jr. or Sr. (Id.
Ex. B) Republic paid to the IRS $25,269.11 in satisfaction of the levy
by check dated August 28, 1990. (
Id.
Ex. C).
Plaintiff
claims, and defendants do not dispute, that "Dean Meminger, Sr. was
not indebted to the Internal Revenue Service." (Compl. ¶7) Rather,
the IRS levy had targeted plaintiff's son, who, according to plaintiff,
"was in the process of negotiating with I.R.S. agents . . . and in
fact had reached an agreement with them on a payment plan to settle his
account with the Internal Revenue Service." (Bailey Aff. ¶4)
Because "[t]he levy was intended for [Dean Meminger, Jr.] and not
the plaintiff," (Bailey Aff. ¶6) plaintiff claims (1) that
defendant United States wrongfully levied on plaintiff's account, and
(2) that Republic negligently released plaintiff's money to the IRS.
(Bailey Aff. ¶2; Compl. ¶7) Plaintiff argues that "[t]he question
now remains as to which of the defendants bears the responsibility for
the wrong done to plaintiff." (Bailey Aff. ¶5)
Plaintiff sued
first in New York State Supreme Court for
New York
County
by complaint verified April 13, 1991. (Scarvalone Decl. Ex. D) Plaintiff
commenced this action on October 17, 1991--approximately 16 months after
the IRS Notice of Levy. As noted above, defendant
United States
has moved to dismiss plaintiff's complaint as barred by the nine-month
statute of limitations for wrongful levy actions. 26 U.S.C. §6532(c)(1)
(1992).
II.
Section 6331(a) of the
Internal Revenue Code provides that the IRS may collect the taxes of a
delinquent taxpayer "by levy upon all property and rights to
property . . . belonging to such person." 26 U.S.C. §6331(a) (1992). Section 6332(a) provides
further that "any person in possession of . . . property or rights
to property subject to levy upon which a levy has been made shall, upon
demand of the [
United States
], surrender such property or rights." 26 U.S.C. §6332(a) (1992).
It is well
established that a bank account is property "subject to levy"
within the meaning of §§6331 and 6332 . United States v. Nat'l Bank of
Commerce [85-2
USTC ¶9482 ], 472 U.S. 713 (1985). Courts have permitted
levies on bank accounts since the Revenue Act of 1924; Treasury
Regulations explicitly authorize such levies. See 26 C.F.R. §301.6331-1(a)(1)
(1984).
To levy upon a
bank account, the IRS must notify the bank in writing of its intention
to levy. 26 U.S.C. §6331(d) (1992). However,
the IRS need not notify the accountholder. See, e.g., Williams v.
United States
[91-2
USTC ¶50,529 ], 947 F.2d 37 (2d Cir. 1991), cert. denied,
60 U.S.L.W. 3798 (1992); Winebrenner v. United States [91-1
USTC ¶50,057 ], 924 F.2d 851, 855 (9th Cir. 1991); Douglas
v. United States [83-1 USTC ¶9182 ],
562 F.Supp. 593, 596 (S.D. Ga. 1983); American Honda Motor Co. v.
United States [73-2
USTC ¶9670 ], 363 F.Supp. 988, 991 (S.D.N.Y. 1973). A bank
is required to comply with an IRS levy unless (1) it is neither "in
possession of" nor "obligated with respect to" property
belonging to the delinquent taxpayer, or (2) the taxpayer's property is
"subject to prior judicial attachment or execution." 26 U.S.C.
§6332(a)
; see Nat'l Bank of Commerce [85-2 USTC ¶9482 ],
472
U.S.
at 721-22 (citing United States v. Sterling Nat'l Bank & Trust
Co. of New York [74-1
USTC ¶9336 ], 494 F.2d 919, 921 (2d Cir. 1974)). Failure to
comply subjects a bank to liability. See 26 U.S.C. §6332(d)
(1992); United States v. Donahue Indus., Inc. [90-2
USTC ¶50,343 ], 905 F.2d 1325 (9th Cir. 1990); Texas
Commerce Bank-Fort Worth, N.A. v. United States [90-1
USTC ¶50,155 ], 896 F.2d 152 (5th Cir. 1990); United
States v. Philadelphia Yearly Meeting of the Religious Society of
Friends [91-1
USTC ¶50,042 ], 753 F.Supp. 1300 (E.D. Pa. 1990).
III.
First,
plaintiff challenges the levy procedure described above as
"lawless," and claims that the IRS was required to notify both
Republic and plaintiff. (Bailey Aff. at 1) However, the
constitutionality of the levy procedure "has long been
settled" as a function of the power of Congress to lay and collect
taxes. United States v. Nat'l Bank of Commerce [85-2 USTC ¶9482 ],
472
U.S.
at 721 (quoting Phillips v. Comm'r [2 USTC ¶743 ], 283 U.S.
589, 595 (1931)). The Second Circuit has ruled that notifying all
potential competing claimants would be impractical and overly burdensome
on the government and, therefore, is not required. Williams v. United
States [91-2
USTC ¶50,529 ], 947 F.2d at 39 (citing cases). Moreover, the
IRS was not required to notify plaintiff, and the parties do not dispute
that Republic was given adequate notice.
Second,
plaintiff claims that the IRS wrongfully levied upon his account. One
claiming an interest in property seized for another's taxes may bring a
civil action against the United States to have the property returned,
pursuant to 26 U.S.C. §7426(a)(1) (1988). See, e.g.,
Nat'l Bank of Commerce [85-2 USTC ¶9482 ],
472
U.S.
at 728; American Honda [73-2 USTC ¶9670 ],
363 F.Supp. at 991; Carlos v. United States [82-1 USTC ¶9142 ],
531 F.Supp. 359, 361 (N.D.N.Y. 1981). Section
7426(a)(1) provides that "[i]f a levy has been made on
property . . ., any person (other than the person whom is assessed the
tax out of which such levy arose) who claims an interest in or lien on
such property and that such property was wrongfully levied upon may
bring a civil action against the United States in a district court of
the United States." 26 U.S.C. §7426(a)(1) (1988).
The statute of
limitations for wrongful levy actions states that "no suit or
proceeding under section 7426 shall be begun
after the expiration of 9 months from the date of the levy or agreement
giving rise to such action." 26 U.S.C. §6532(c)(1) (1988). Courts
have interpreted the "date of levy" as the date on which the
person possessing the property received notice of the levy. See, e.g.,
Winebrenner v. United States [91-1
USTC ¶50,057 ], 924 F.2d 851, 855 (9th Cir. 1991); State
Bank of Fraser v. United States [88-2
USTC ¶9592 ], 861 F.2d 954, 967 (6th Cir. 1988) (notice to
holder of accounts receivable); Dieckmann v. United States [77-1
USTC ¶9224 ], 550 F.2d 622, 624 (10th Cir. 1977) (entrusted
funds); Douglas v. United States [83-1
USTC ¶9182 ], 562 F.Supp. 593, 596 (S.D. Ga. 1983) (savings
and loan account); Carlos v. New York State Dep't of Taxation [82-1 USTC ¶9142 ],
531 F.Supp. 359, 361-62 (N.D.N.Y. 1981) (cash in possession of police
department); American Honda Motor Co. v. United States [73-2 USTC ¶9670 ],
363 F.Supp. 988, 991-92 (E.D. Mo. 1973); Treas. Reg.
301.6532-3(c) ex. 1 (tangible personal property). Republic
received notice of the levy on June 21, 1990. Plaintiff filed this suit
on October 17, 1991, 16 months after Republic received notice of the IRS
levy.
Finally,
plaintiff has not demonstrated that the nine-month period should be
extended. The period is extended if a plaintiff makes an administrative
request for return of the property. 26 U.S.C. §6532(c)(2) . Such a
request must be "in writing, addressed to the district director of
the IRS, and contain certain information about the parties and property
involved." Winebrenner [91-1
USTC ¶50,057 ], 924 F.2d at 856 (citing Treas. Reg.
301.6343-1(2) ,-1(3)). Plaintiff did not file an
administrative claim for return of the levied account. (Scarvalone Decl.
¶¶7-8 and Exs. E & F) Moreover, even if plaintiff's state court
action should be regarded as a "suit or proceeding under section
7426 " for the purposes of the statute of limitations,
that state court action was not commenced until April 13, 1991, also
more than nine months after the IRS levy. Accordingly, I need not decide
whether the state court action should be so regarded.
As a
sovereign, the
United States
is subject to civil liability only when it consents to be sued. See, e.g.,
Block v.
North Dakota
, 461
U.S.
273, 287 (1983); Williams v. United States [91-2
USTC ¶50,529 ], 947 F.2d at 39. When a plaintiff who sues
the
United States
fails to comply with the relevant statute of limitations, the court is
deprived of subject matter jurisdiction. Williams [91-2
USTC ¶50,529 ], 947 F.2d at 39. Therefore, because plaintiff
has not satisfied the nine-month statute of limitations, his claims
against the
United States
are dismissed for lack of subject matter jurisdiction. Because plaintiff
and
defendant
Republic
are both citizens of
New York
, plaintiff's claims against Republic are dismissed also for lack of
jurisdiction. 28 U.S.C. §1332 (1992).
IV.
As a fourth
affirmative defense and as a cross-claim against the IRS, Republic
claims that it acted properly in responding to the IRS Notice of Levy
and Final Demands, (Def. Republic Answer ¶10) and that, consequently,
the IRS is liable in indemnity to Republic for any judgment against
Republic. (Def. Republic Answer ¶11)
Section 6332(e) provides
that any person honoring a federal tax levy by surrendering property
subject to levy "shall be discharged from any obligation or
liability to the delinquent taxpayer with respect to such property or
rights to property arising from such surrender or payment," 26
U.S.C. §6332(e) (1992). Republic
honored the IRS levy and plaintiff's federal claims against Republic are
dismissed.
However,
plaintiff may still sue Republic for negligence in state court.
Therefore, defendants are to submit by February 13, 1993 memoranda of
law not to exceed ten pages addressing two questions: (1) is Republic's
cross-claim against the IRS viable? and (2) if the claim is viable,
should the claim be heard in this or another court? Until that date,
this court retains jurisdiction over Republic's cross-claim against the
IRS.
*
* *
For the
reasons stated above, defendant's motion is granted, and plaintiff's
claims are dismissed.
SO ORDERED:
[93-2 USTC ¶50,494] Martin B.
Quillen, et al., Plaintiffs v.
United States of America
, et al., Defendants
U.S.
District Court, West. Dist. Va., Big Stone
Gap Div., Civ. 92-0097-B, 8/9/93
[Code Secs.
6103 , 6331 , 6332 , 7430 , 7431 , 7432 and 7433 ]
Bankruptcy: Levy and distraint: Seizure of property.--The court
had no jurisdiction over a bankrupt individual's claim that the IRS
violated the automatic stay provision of the Bankruptcy Code. The IRS
levied on the taxpayer's bank account and real property subsequent to
his bankruptcy. However, the taxpayer could not recover damages against
the IRS for a violation of the automatic stay provision because the
U.S.
had not waived sovereign immunity with respect to that provision.
Furthermore, the automatic stay was dissolved when the Chapter 11
discharge was confirmed, which occurred prior to the levies. As a
result, the IRS did not violate Code Secs. 6331 --6343
(provisions related to the seizure of property). Nor were the
disclosures of tax returns by the IRS improper. The taxpayer did not
allege any facts to the contrary. Finally, the taxpayer's bank was not
liable to him for surrendering his account funds to the IRS because Code
Sec. 6332 released the bank
from liability for complying with the levy.
Joseph E.
Wolfe, Wolfe & Farmer, P.O. Box. 625,
Norton
,
Va.
24273-0625
, for plaintiff. Richard A. Lloret, Poff Bldg., 4th Flr., Roanoke, Va.
24008-1709, Angelo A. Frattarelli, Department of Justice, Washington,
D.C. 20530, for defendant (I.R.S.) Mark L. Esposito, Penn, Stuart,
Eskridge & Jones, Abington, Va. 24210, for defendant (Hamilton Bk.
of Upper E. Tenn.)
MEMORANDUM
OPINION
WILSON,
District Judge:
Plaintiffs
Martin B. Quillen, Sr. and Marlene C. Quillen bring this action against
the
United States
and Hamilton Bank of Upper East Tennessee ("Hamilton Bank").
Liberally construed, the Quillens' complaint alleges that the Internal
Revenue Service ("IRS") violated 26 U.S.C. §§6331
--6343 and 11 U.S.C. §362
by levying on a bank account at Hamilton Bank that was
subject to an automatic stay, violated 26 U.S.C. §§6331
--6343 by filing a tax lien on certain real property owned by
the Quillens, and violated 26 U.S.C. §6103
by making unauthorized disclosures of income tax returns and
return information. The complaint further alleges that Hamilton Bank
violated 11 U.S.C. §362 as well by complying with the levy,
violated 26 U.S:C. §6332
by failing to remit all funds in the account to the IRS, and
violated 26 U.S.C. §6334 by failing to exempt certain amounts
from the funds remitted to the IRS. The court has jurisdiction over the
title 26 claims against the
United States
pursuant to 26 U.S.C. §§7431 and 7433 and jurisdiction over the claims
against Hamilton Bank pursuant to 28 U.S.C. §§1331 and 1334(b) and 11 U.S.C. §362(h). Both defendants have
moved for dismissal under Rule 12(b) of the Federal Rules of Civil
Procedure. Because, with respect to the claims against the
United States
, matters outside the pleadings are before the court, the court will
treat the
United States
' motion as one for summary judgment. 1 Finding no
jurisdictional basis for the title 11 claim against the
United States
and finding that the Quillens' other claims fail as a matter of law, the
court will grant the defendants' motions.
I.
On April 3,
1986, the Quillens filed for reorganization under chapter 11 of the
Bankruptcy Code. They subsequently opened a bank account at Hamilton
Bank for use as an operating account while in reorganization. On March
1, 1988, the bankruptcy court confirmed their chapter 11 plan and
granted discharge.
On October 10,
1989, the IRS provided the Quillens notice of its intention to levy on
their property under 26 U.S.C. §6331(d) due to
outstanding federal tax liabilities. On March 15, 1990, the IRS served a
Notice of Levy on Hamilton Bank with respect to the Quillens' account.
Hamilton Bank complied with the levy by withdrawing $1,372.35 from the
account on April 24. On April 27 the IRS again served a Notice of Levy
on Hamilton Bank, which complied by withdrawing $2,171.14 on May 29. On
April 27 the IRS filed a tax lien on certain real property belonging to
the Quillens. The IRS then served a third Notice of Levy on June 19, but
Hamilton Bank did not comply with that levy. The Quillens subsequently
sought administrative review of the tax lien and the levies, which was
rejected by the IRS.
II.
Initially, the
court finds no jurisdictional basis for the Quillens' claim under title
11 that the
United States
violated the automatic stay from the Quillens' prior bankruptcy. To
assert a claim against the
United States
, the Quillens must show a waiver of sovereign immunity. In their
amended complaint the Quillens assert jurisdiction for all of their
claims under 26 U.S.C. §§7430 --7433. However, §7430 contains no waiver of immunity for
any kind of claim; §7431
waives immunity only for unauthorized disclosure claims; §7432 waives immunity only for claims
alleging failure to release a lien; and §7433 waives immunity only for claims
alleging a violation of title 26. Clearly, none of those sections waives
immunity for the claim that the IRS violated 11 U.S.C. §362 . 2 Furthermore,
while 11 U.S.C. §106 waives sovereign immunity for certain
claims under the bankruptcy code, it has been held not to waive immunity
for monetary claims. See United States v. Nordic Village Inc. [92-1
USTC ¶50,109 ], --
U.S.
--, 112 S.Ct. 1011, 60 U.S.L.W. 4159, 4161 (1992). Indeed, the Court
stated in
Nordic
Village
that the
United States
has nowhere waived immunity for monetary claims under title 11.
Id.
Accordingly, the court finds that it does not have jurisdiction over the
Quillens' claim under 11 U.S.C. §362(h).
III.
The Quillens
also allege violations of 26 U.S.C. §§6103 and 6331--6343 by the
United States
, which they maintain are actionable under 26 U.S.C. §7433(a) . The court finds
that those claims fail as a matter of law. 3 The
Quillens' claims for alleged violation of §§6331
--6343, a subchapter of the Internal Revenue Code concerning
the procedures by which the IRS may collect taxes and seize property,
are premised on the theory that the IRS's collection actions violated
the automatic stay from the Quillens' prior bankruptcy proceedings. That
underlying theory is in error, however, because the automatic stay
ceased to exist as of March 1, 1988, when the Quillens received
confirmation of their Chapter 11 plan and discharge. At that time all
property of the estate vested in the Quillens as debtors, see 11 U.S.C.
§1142(b), and the automatic stay dissolved, see 11 U.S.C. §362(c)(1) . See United
States, Dep't of the Air Force v. Carolina Parachute Corp., 907 F.2d
1469, 1474 (4th Cir. 1990). The stay was, therefore, not in effect in
1990 when the IRS levied on the Quillens' bank account and placed a tax
lien on their property.
The Quillens'
claim that the IRS violated §6103 by willfully making unauthorized
disclosures of tax returns and return information fails as a matter of
law as well. Section
6103 provides that returns and return information are
confidential and shall not be disclosed. 26 U.S.C. §6103(a)
(West Supp. 1993); see also Mallas v. United States [93-1
USTC ¶50,302 ], 993 F.2d 1111, 1117 (4th Cir. 1993). The
section, however, authorizes disclosure by the IRS
to the extent
that such disclosure is necessary in obtaining information, which is not
otherwise reasonably available, with respect to the correct
determination of tax, liability for tax, or the amount to be collected
or with respect to the enforcement of any other provision of this title.
Such disclosures shall be made only in such situations and under such
conditions as the Secretary may prescribe by regulation.
26
U.S.C. §6103(k)(6) . Treasury
Regulations promulgated under the section allow disclosure "to
apply the provisions of the [Internal Revenue] Code relating to the
establishment of liens against [a taxpayer's] assets, or levy on, or
seizure, or sale of, the assets to satisfy any . . . liability"
under the Code. Treas. Reg.
§301.6103(k)(6)-1(b) (1980). There is no evidence, and
indeed the Quillens do not even allege, that confidential information
was disclosed in any context other than that described in the statute
and regulation. The court therefore finds that any disclosures made by
the IRS in connection with its levies were authorized under 26 U.S.C. §6103(k)(5) . See Maisano
v. United States [90-2
USTC ¶50,399 ], 908 F.2d 408, 410 (9th Cir. 1990). 4
IV.
All of the
Quillens' claims against Hamilton Bank are based upon Hamilton Bank's
compliance with the IRS's levies on funds held by the Quillens at
Hamilton Bank. 26 U.S.C. §6332(e) states:
Any person in
possession of . . . property . . . subject to levy upon which a levy has
been made who, upon demand by the Secretary, surrenders such property .
. . to the Secretary . . . shall be discharged from any obligation or
liability to the delinquent taxpayer and any other person with respect
to such property . . . arising from such surrender or payment.
26
U.S.C. §6332(e) (West Supp.
1993). That section clearly discharges Hamilton Bank from any liability
to the Quillens based on its compliance with the levies. See Burroughs
v. Wallingford [86-1
USTC ¶9173 ], 780 F.2d 502, 503 (5th Cir. 1986); Schiff
v. Simon & Schuster, Inc. [86-1
USTC ¶9204 ], 780 F.2d 210, 212 (2nd Cir. 1985); DiEdwardo
v. First Nat'l Bank of Bath [78-1
USTC ¶9380 ], 442 F.Supp. 499, 500 (E.D. Pa. 1977).
Accordingly, the court finds that the Quillens' claims in that respect
are deficient as a matter of law.
V.
For reasons
stated, the court will grant summary judgment to the
United States
and will grant Hamilton Bank's motion to dismiss.
An appropriate
order will issue.
1 See Gay
v. Wall, 761 F.2d 175, 177 (4th Cir. 1985).
2 26 U.S.C. §7433(a) provides:
If, in
connection with any collection of Federal tax with respect to a
taxpayer, any officer or employee of the Internal Revenue Service
recklessly or intentionally disregards any provision of this title . .
., such taxpayer may bring a civil action for damages against the United
States in a district court of the United States.
26 U.S.C.A. §7433(a) (West 1989). As
framed, the Quillens' complaint alleges violations of title 26, and the
court therefore has jurisdiction over those claims under §7433(a) . However, their
claims under 26 U.S.C. §§6331
--6343 are ultimately premised on alleged violations of the
automatic stay provision, 11 U.S.C. §362 . The court expresses
no opinion as to whether there might be circumstances under which a levy
in violation of the automatic stay provision would somehow contravene
the procedures set forth in §§6331
--6343 and, by that fact, become actionable under §7433(a) . It is
unnecessary to reach that question because, as stated in Part III of
this opinion, the court finds no violation of the automatic stay.
3 The court
finds that issues of material fact preclude entry of summary judgment
based upon the limitations periods provided in 26 U.S.C. §§7431(d)
and 7433(d)(3) .
4 The
Quillens' amended complaint does not specify any facts pertaining to the
alleged unlawful disclosure, but merely consists of the bare allegation
that the IRS made an unlawful disclosure. The court has liberally
construed the complaint as alleging the unlawful disclosure in
connection with the levies. To the extent that the Quillens allege
unlawful disclosure apart from the levies, the court finds that the
claim is unsupported by facts sufficient to survive a motion for summary
judgment.
[94-1 USTC ¶50,119] Shyrl Brown,
Plaintiff v.
United States
, et al., Defendants
U.S.
District Court, Dist.
Utah
, Cent. Div., Civ. 92-C-788 G, 11/5/93
[Code Secs.
7402 and 7433 ]
Jurisdiction: District courts: Immunity: Civil damages: IRS
conduct.--An individual's suit for tortious conversion arising from
an IRS levy of his bank accounts was dismissed for lack of subject
matter jurisdiction. The government did not waive its immunity to the
suit under the Federal Tort Claims Act (28 U.S.C. Sec. 2671), because
the allegation of tortious conversion related to the collection of
taxes.
[Code Secs.
6331 and 6332 ]
Levy and distraint: Constitutional rights: Surrender and demand:
Notice: Bank accounts.--An individual's claim for damages arising
from an allegedly wrongful levy was dismissed because the individual
failed to state a claim that an officer or agent of the IRS acted
recklessly or with intentional disregard of the Code and the regulations
in the collection of taxes. Although the levy did constitute a seizure,
no Fourth Amendment violation occurred because the IRS merely levied his
bank account and did not enter his premises. His Fifth Amendment rights
were not violated since there was adequate opportunity for
post-collection review of the actions. No constitutional rights were
impaired by the IRS's failure to notify him of their intention to levy.
Further, the individual's arguments that the levy and surrender were
improper in the absence of attachment or execution under judicial
process and in the absence of any formal adjudication or determination
of the parties' claims to the property were meritless. Finally, the IRS
did not act improperly by accepting the property from the bank less than
21 days after the notice of levy.
[Code Sec.
7402 ]
Jurisdiction: District court: Sufficiency of complaint.--An
individual's claim against a bank for an allegedly improper surrender of
property under an IRS levy was dismissed for lack of general or specific
personal jurisdiction. The out-of-state bank did not conduct any
substantial and continuous activity in the state (
Utah
). Further, jurisdiction under the state long-arm statute could not be
based solely upon the financial injury to the state resident.
[Code Sec.
6331 ]
Levy and distraint: Immunity of IRS agents.--An individual's
motion for reconsideration of an order dismissing his complaint against
an IRS agent who executed a levy on his bank account was denied. The
assessment and levy of property in connection with the collection of
taxes did not violate any clearly established constitutional or
statutory right. Therefore, a constitutional tort action did not lie
against the agent. Further, the agent did not act under the color of
state law.
Scott M.
Matheson, Jr., 350 S. Main,
Salt Lake City
,
Utah
84101
, for plaintiff. Kirk C. Lusty, Department of Justice,
Washington
,
D.C.
20530
, for defendants.
MEMORANDUM
DECISION and ORDER
GREENE,
District Judge:
This matter
comes before the court on the following motions:
(1)
Plaintiff's second motion for summary judgment;
(2)
Plaintiff's motion for reconsideration of the order dismissing Defendant
Karen Shields;
(3)
Plaintiff's motion to compel discovery;
(4) Defendant
Blaine State Bank's motion to dismiss for lack of personal jurisdiction
and for failure to state a claim;
(5) Defendant
United States
' second motion to dismiss for lack of subject matter jurisdiction and
for failure to state a claim;
(6)
Plaintiff's motion to disqualify; 1 and
(7) Defendant
United States
' objections to Plaintiff's proposed pretrial order. 2
Memoranda
in opposition to Plaintiff's motions have been filed by Defendant United
States. Memoranda in opposition of Defendants' motions to dismiss have
been filed by Plaintiff. The court has reviewed the file, the motions
and memoranda filed by the parties and has determined that oral argument
would be of no material assistance in determining these pending motions.
Accordingly, the case will be decided on the existing record.
FACTS
Plaintiff
Shyrl Brown did not pay taxes for the years 1984-86. In an effort to
collect the unpaid taxes for those years, the Internal Revenue Service
(IRS) levied Plaintiff's bank account at Blaine State Bank (the Bank).
In response, the Bank surrendered the property subject to levy,
remitting the money on deposit in Plaintiff's bank account to the IRS.
Plaintiff then brought this action against the
United States
, Karen Shields (IRS revenue officer), Blaine State Bank and unnamed
defendants.
Plaintiff made
the following claims against the Defendants:
(1) the IRS
and the Bank unlawfully converted the funds in his bank account;
(2) the IRS
and the Bank conspired to deprive him of his constitutional rights in
violation of 42 U.S.C. §1985 by unlawfully converting funds in his bank
account;
(3) the IRS
and the Bank deprived him of his constitutional rights in violation of
42 U.S.C. §1983 by taking money on deposit in his bank account without
due process of law and by unlawfully searching his personal records and
seizing the money in his bank account; and
(4) the IRS
violated 26 U.S.C. §7433 by recklessly or intentionally
disregarding procedures in the Internal Revenue Code (IRC) and
regulations thereto in collecting the taxes allegedly due.
Plaintiff
maintains that he is not required to pay taxes, that Karen Shields did
not have the authority to levy his account, that he was not properly
notified of the levy, that the Bank unlawfully surrendered the money in
his account without attachment or execution under judicial process, and
that the Bank did not wait the 21 days required by 26 U.S.C. §6332(c) before acting on
the Notice of Levy. Plaintiff seeks return of the money that was
allegedly illegally converted, the costs incurred in the recovery and
$100,000 in punitive damages from each defendant.
The government
moved to dismiss for lack of subject matter jurisdiction and failure to
state a claim. The government argued that the doctrine of sovereign
immunity bars Plaintiff's cause of action, that Plaintiff failed to
exhaust his administrative remedies, that Plaintiff was subject to levy,
that the IRS did not violate any provision of the IRC, and that the levy
procedures did not violate any of Plaintiff's constitutional rights. The
Bank moved to dismiss for lack of personal jurisdiction and failure to
state a claim. Plaintiff opposed the motions to dismiss on several
grounds, including waiver of sovereign immunity by Congress.
On February 2,
1993, this court heard arguments on various motions pending in the case.
3 By order
dated February 26, 1993, this court dismissed Karen Shields as a
defendant in the matter, denied Plaintiff's initial motion for summary
judgment and denied Plaintiff's motion for costs.
Now being
fully advised, the court enters its memorandum decision and order. The
court's analysis is broken down into three sections in which the motions
remaining in this matter are addressed. The first section has to do with
Defendant United States' motion to dismiss. The second section addresses
Defendant Blaine State Bank's motion to dismiss. The last section
addresses Plaintiff's motion for reconsideration as to this court's
order dismissing Defendant Karen Shields.
ANALYSIS
I.
DEFENDANT UNITED STATES' MOTION TO DISMISS
Plaintiff has
two basic claims pending against Defendant United States: 4 (1) tortious
conversion of property and (2) improper income tax collection practices
in violation of 26 U.S.C. §7433 . 5 In response,
Defendant United States asserts two grounds for dismissal. First, the
government argues that the court lacks subject matter jurisdiction
because Defendant United States has not waived sovereign immunity.
Second, the government argues that Plaintiff's claim under 26 U.S.C. §7433
fails to state a claim for which relief can be granted. These
arguments will be addressed seriatim.
A.
Plaintiff's Claim of Tortious Conversion
It has long
been established that the
United States
, as sovereign, is immune from suit save its consent to be sued. United
States v. Testan, 424
U.S.
392, 399 (1976) (citing United States v. Sherwood, 312
U.S.
584, 586 (1941)). However, sovereign immunity cannot be implied. Rather,
it must be unequivocally expressed. Testan, 424
U.S.
at 399 (citing Soriano v. United States, 352
U.S.
270, 276 (1957)). The doctrine of sovereign immunity limits subject
matter jurisdiction over the
United States
to the terms of the specific statute conferring jurisdiction. Affiliated
Ute Citizens of
Utah
v.
United States
, 406
U.S.
128, 141 (1972).
Conversion is
a common law tort. Presumably, Plaintiff intended to proceed against the
United States
under the waiver of immunity granted by the Federal Tort Claims Act, 28
U.S.C. §2671 et seq. However, 28 U.S.C. 2680(c) states that the
immunity of the
United States
is not waived in actions "arising in respect of the assessment or
collection of any tax." See National Commodity and Barter Ass'n
et al. v. Gibbs [90-1
USTC ¶50,147 ], 886 F.2d 1240, 1246 (10th Cir. 1989); Childress
v. Northrop Corporation, 618 F.Supp. 44, 48-49 (D.D.C. 1985).
Because Plaintiff's allegation of tortious conversion of property
relates to the collection of taxes, the
United States
is immune from Plaintiff's claim. The government may properly specify
that it will not be sued for matters related to the collection of taxes
as Plaintiff has claimed in the instant case.
United States
v. Mitchell, 445
U.S.
535, 538 (1980). Accordingly, this court lacks subject matter
jurisdiction over Plaintiff's claim against the
United States
for tortious conversion of property. Therefore, Plaintiff's tortious
conversion claim against the
United States
is dismissed pursuant Fed. R. Civ. P. 12(h)(3).
B.
Plaintiff's Claim Under 26 U.S.C. §7433
Plaintiff
brought a claim for damages against the United States under 26 U.S.C. §7433
alleging that IRS agent Karen Shields recklessly and
intentionally disregarded the provisions of the IRC and regulations
thereto in the collection of Federal income tax owed by him. Congress
waives the sovereign immunity of the
United States
when an officer or employee of the IRS acts recklessly or with
intentional disregard of the IRC and regulations thereto in the
collection of taxes. See 26 U.S.C. §7433(a)
(stating that "if, in the collection of Federal tax with
respect to a taxpayer, an officer or employee recklessly or
intentionally disregards any provision of this title . . . such taxpayer
may bring a civil action against United States in a district court of
the United States"). Therefore, this court has subject matter
jurisdiction over Plaintiff's claim against the
United States
under 26 U.S.C. §7433
because the government expressly has waived sovereign
immunity.
Specifically,
Plaintiff alleges that the IRS illegally converted the money on deposit
in his bank account at the Bank through an improper administrative levy.
In support of his claim Plaintiff maintains: (1) that he is not subject
to levy; (2) that the seizure of his funds violated his constitutional
rights; 6 and (3) that
the Bank surrendered the money on deposit in the bank account without
waiting twenty-one days as required by statute. Each of these assertions
will be addressed in the following sections.
1. Plaintiff
is subject to levy. Plaintiff maintains that he is not subject to
levy because he is not a government employee and the only lawful use of
the Notice of Levy is to serve notice upon the employer of government
employees. Plaintiff erroneously interprets 26 U.S.C. §6331(a) to restrict its
application to government employees. The first sentence of 26 U.S.C. §6331(a) demonstrates the
breadth of the Service's ability to levy property for the payment of
taxes stating, in relevant part, "[i]f any person liable to
pay tax neglects or refuses to pay same . . . it shall be lawful for the
Secretary to collect such tax . . . by levy upon all property . . .
belonging to such person. . ." (emphasis added). 7 Section
6331(a) continues stating that "[l]evy may be made upon the
accrued salary or wages of any officer, employee, or elected official,
of the United States . . . by serving a notice of levy on the employer .
. . of such officer, employee, or elected official." 26 U.S.C. §6331(a) (emphasis added).
The part of Section
6331(a) that Plaintiff cites in support of his proposition
merely provides the government with a procedure to collect taxes from
government employees. It is not the exclusive scope of Section
6331(a) . Indeed, the Tenth Circuit Court of Appeals in Lonsdale
v. United States [90-2
USTC ¶50,581 ], 919 F.2d 1440 (10th Cir. 1990), rejected
Plaintiff's argument that the authority of the United States to levy
property in the collection of taxes is limited and characterized the
argument as "completely lacking in legal merit and patently
frivolous."
Id.
at 1448. Accordingly, Plaintiff's argument that agent Karen Shields
recklessly or intentionally disregarded provisions of the IRC by levying
a non-governmental employee's bank account fails to state a claim upon
which relief can be granted.
2. The levy
did not violate Plaintiff's constitutional rights. Plaintiff claims
that the government's levy violated his constitutional rights against
deprivation of property without due process of law and unlawful searches
and seizures. 8 At times,
Plaintiff appears to contend that the levy per se violated his
Fourth and Fifth Amendment rights. At other times it appears that
perhaps alleged violations 26 U.S.C. §§6331(d) and 6332(c) underlie
Plaintiff's constitutional claims.
The levy is
not a per se violation of Plaintiff's Fourth Amendment rights.
The levy in question did constitute a seizure. 26 U.S.C. §6331(b)
. However, there is no doubt as to the lawfulness of the
seizure. Baddour, Inc. v. United States [86-2 USTC ¶9748 ],
802 F.2d 801, 807 (5th Cir. 1986). The Supreme Court resolved that
question in G.M. Leasing Corp. v. United States [77-1 USTC ¶9140 ],
429 U.S. 338 (1977), holding that where the government seizes property
to collect delinquent taxes, the seizure does not violate the Fourth
Amendment if it involves no invasion of one's premises.
Id.
at 351-352. In the instant case, because the IRS levied Plaintiff's bank
account and did not enter his premises, there was no violation of
Plaintiff's Fourth Amendment rights.
Likewise, the
levy is not a per se violation of Plaintiff's Fifth Amendment
rights. The Supreme Court has specifically upheld the constitutionality
of the Internal Revenue Service levy procedures in a variety of
contexts. See, e.g., Commissioner of Internal Revenue v. Shapiro
[76-1 USTC ¶9266 ],
424 U.S. 614, 630-32 n.12 (1976); Fuentes v. Shevin, 407
U.S.
67, 91-92 (1972); G.M. Leasing Corp. [77-1
USTC ¶9140 ], 429
U.S.
at 352; United States v. National Bank of Commerce [85-2 USTC ¶9482 ],
472 U.S. 713 (1985). A seizure under 26 U.S.C. §6331 is provisional and does not
determine the rights of third parties until after a post-seizure
administrative or judicial hearing. Baddour [86-2 USTC ¶9748 ],
802 F.2d at 807. Summary assessment and collection activities by the
Service do not run afoul of the due process clause of the Fifth
Amendment so long as there is adequate opportunity for post-collection
review of the actions. Baddour [86-2
USTC ¶9748 ], 802 F.2d at 807; Morales v. Haynes [90-2
USTC ¶50,494 ], 890 F.2d 708, 710 (5th Cir. 1989).
Therefore, Plaintiff's attack on the levy procedures as a per se
violation of the Fifth Amendment is similarly without merit.
Plaintiff also
contends that it was improper for the IRS to levy his account or for the
Bank to surrender the money on deposit pursuant to 26 U.S.C. §6332(c)
in the "absence of an attachment or execution under
judicial process." Plaintiff again misconstrues the language of the
Internal Revenue Code. Section 6332(a) states, in
relevant part,
[e]xcept as
otherwise provided in this section, any person in possession of . . .
property . . . upon which a levy has been made shall, upon demand of the
Secretary, surrender such property . . . to the Secretary, except such
part of the property . . . as is, at the time of such demand, subject to
an attachment or execution under any judicial process.
26
U.S.C. §6332(a) . Section 6332(c) qualifies
the general surrender requirements of §6332(a) and provides a
special rule for banks which extends the period of time to surrender
levied property in the bank's possession. See 26 CFR 301.6332-3
(stating that the provisions of Section
6332(a) , which relate generally to the surrender of property
subject to levy, apply to the extent not inconsistent with the special
rules set forth with respect to a levy on property held by banks). Section 6332(c) states that
"[a]ny bank . . . shall surrender (subject to attachment or
execution under judicial process) any deposits . . . in such bank only
after 21 days after service of levy." Plaintiff has read §6332(c) out of context
and incorrectly interpreted it to require banks to wait for attachment
and execution under judicial process prior to surrendering property in
bank accounts. The regulations to Section
6332(c) also illustrate that the parenthetical limitation on
surrender of property subject to attachment properly relates to
competing liens rather than a broad sweeping requirement which would
obviate the effectiveness of an administrative levy. See 26 CFR
301.6332-3 (stating that the bank shall surrender deposits not otherwise
subject to an attachment or execution under judicial process) (emphasis
added). Moreover, courts have made clear that an administrative levy
pursuant to 28 U.S.C. §6331 and the
corresponding surrender provisions of 28 U.S.C. §6332 are valid statutory means by which
the government may collect unpaid taxes. Resolution Trust Corp. v.
Gill [92-1
USTC ¶50,199 ], 960 F.2d 336, 340 (3rd Cir. 1992) (citing National
Bank of Commerce [85-2 USTC ¶9482 ],
472
U.S.
at 720). Furthermore, unlike other methods of enforcing the collection
of taxes, for example the lien-foreclosure suit, an administrative levy
and surrender occurs prior to any formal adjudication and prior to the
determination of the parties' claims to the property. Gill [92-1
USTC ¶50,199 ], 960 F.2d at 340. Therefore, Plaintiff
misinterpreted Section 6332(c) to require
attachment and execution under judicial process prior to the surrender
of property in bank accounts. Accordingly, Plaintiff fails to state a
claim of reckless or intentional disregard of the IRC or regulations
thereto as a result of the levy and surrender procedure. 9
Finally,
Plaintiff claims that he was not provided with notice of levy as
required by 26 U.S.C. §6331(d) . Section
6331(d)(1) states, in relevant part that "[l]evy may be
made under subsection (a) upon the . . . property of any person with
respect to any unpaid tax only after the Secretary has notified such
person in writing of his intention to make such levy." The Service
is required to give notice at least 30 days prior to the day of the
levy. 26 U.S.C. §6331(d)(2) . A levy
includes the notice of levy upon any person in possession of property.
26 CFR §301.6331-1(a) . Section
6331(d)(3) permits the IRS to waive notice of its intention
to levy "if the Secretary has made a finding . . . that the
collection of taxes is in jeopardy." 26 U.S.C. §6331(d)(3)
. The government does not dispute Plaintiff's contention.
However, Defendant Karen Shields stated in her declaration that
Plaintiff's account was marked "Potentially Dangerous
Taxpayer" because he had previously received several written
demands for payment of taxes. Shields Declaration at ¶5. Apparently,
the Service made a determination that collection of Plaintiff's taxes
was in jeopardy and therefore no notice was required pursuant to 26
U.S.C. §6331(d)(3) . Furthermore,
the Service's designation of Plaintiff as a "Potentially Dangerous
Taxpayer" undermines Plaintiff's claim that agent Shields acted
recklessly or with intentional disregard of the IRC and regulations
thereto. Finally, because a levy of property is provisional and the
rights of third parties are not determined until after a post-seizure
administrative or judicial hearing, Plaintiff's constitutional rights
were not impaired because of the Service's failure to notify him of
their intention to levy his bank account. Baddour [86-2
USTC ¶9748 ], 802 F.2d at 807; Morales [90-2
USTC ¶50,494 ], 890 F.2d at 710 (holding that even if a levy
is wrongfully imposed, plaintiff's constitutional rights have not been
violated because he can pursue post-collection, administrative
remedies). Therefore, Plaintiff has failed to establish either a
constitutional violation or a claim under 26 U.S.C. §7433 as a result of the government's
failure to notify Plaintiff of their intention to levy.
3. By
accepting payment from Blaine State Bank the government did not violate
the Internal Revenue Code. Plaintiff claims that the government
violated provisions of the IRC by accepting payment from the Bank
without waiting twenty-one days to pass after the Notice of Levy was
served on the Bank. Section
6332(c) , governing the surrender of property by banks
pursuant to levy, states that "[a]ny bank . . . shall surrender . .
. any deposits . . . in such bank only after 21 days after service of
levy." 26 U.S.C. §6332(c) . Plaintiff again
misinterprets the provisions of the IRC. Section 6332 governs the
surrender of property subject to levy. The section describes the
obligations of the custodian of property subject to levy. Nowhere does Section 6332 impose a
reciprocal obligation on the government to monitor the responsibilities
of the custodian. As the government observes in their motion to dismiss,
Plaintiff's claim is, at best, misdirected. A claim, if any, properly
lies against the Bank for early surrender. Accordingly, the IRS did not
violate the provisions of the IRC and regulations thereto as a result of
the Bank's alleged early surrender of Plaintiff's property.
In conclusion,
Plaintiff is subject to levy. The seizure of Plaintiff's funds from the
Bank did not violate his constitutional rights. The government did not
violate the IRC by accepting payment from the Bank without waiting for
twenty-one days to pass after the Notice of Levy. As all of the
allegations underlying Plaintiff's 26 U.S.C. §7433 claim are without merit, Plaintiff
fails to state a claim for which relief can be granted.