Annotations- Child Support

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6334 Annotations: Child Support- Levy

Property Exempt from Levy: Child Support

 

[81-2 USTC ¶9565]Fidelity Equipment Leasing Corporation, et al., Plaintiff v. United States of America, et al., Defendants, Georgia Ann Harmon, Intervenor Federal Deposit Insurance Corporation, qua corporation, Plaintiff v. The United States of America, et al., Defendants Urban Industries, Inc. of Kentucky, et al., Plaintiffs v. Velda Joan Thevis, et al., Intervenor/Plaintiffs v. Michael G. Thevis, et al., Defendants

U. S. District Court No. Dist. Ga., Atlanta Div., Civil Action Number C78-1811A, C80-278A, C79-1991A, 6/30/81

[Code Sec. 6334]

Tax levies: Property exempt from levy: Child support: Proof of amount.--The divorced spouse of a taxpayer, upon whose property the IRS had levied for unpaid taxes, was not entitled to claim funds for child support out of the levied-upon property pursuant to the exemption from levy for judgments for support of minor children in Code Sec. 6334(a)(8). The divorced spouse was not a proper party to seek the exemption. Neither the taxpayer nor the minor children through their guardian had appeared to establish the amount of child support covered by the exemption. Further, it was impossible to designate any specific amount that the taxpayer was required to pay as child support, since the terms of the payments the taxpayer was required to make monthly to his ex-wife, pursuant to the divorce decree, suggested that the payments were to be treated as alimony, and not child support.

Edward T. M. Garland, John R. Martin, Robert W. Hassett, Garland, Nuckolls, Kadish & Cook, 1012 Candler Bldg., Atlanta, Ga. 30303, David F. Rock, 1500 Tower Place, Atlanta, Ga. 30326, for plaintiff. William L. Harper, United States Attorney, Atlanta, Ga. 30303, Richard F. Mitchell, Department of Justice, Washington, D. C. 20530, for defendants. William W. Taylor, III, Zuckerman, Spaeder & Taylor, 1800 M. St. N. W., Washington, D. C. 20036, for intervenor. Charles W. Boyle, 1409 P'tree St., N. E., Atlanta, Ga. 30309, for Ibron Ind., Inc., Anwar Enterprises, Lagrange Trading Co., Corporal Limited, Guess What, Inc., Tick Inc., Ick Inc., Richland Book Mart Inc., R. Wayne Byrd, Brown, Byrd, Blakely & Massey, P. O. Box 2464, Greenville, S. C. 29602, Jerome J. Froelich, Jr., 2 P'tree St., Atlanta, Ga. 30383, for Ibron Ind.

Order

MURPHY, District Judge:

Presently before the Court is the motion of petitioner Velda John Thevis to release certain funds claimed the property of Michael G. Thevis, for the purposes of payment of petitioner's alimony and child support. In support of this motion, petitioner offers the following:

As a result of petitioner's marriage to Michael G. Thevis in 1951, five children were born: George Michael, age 26; Christina, age 20; Stephanie and Anthony, both age 14; and Jason, age 8. The latter three minors are living with petitioner at 5300 Powers Ferry Road , Atlanta , Georgia .

On May 3, 1978 , petitioner was granted a final divorce from Michael G. Thevis in the Superior Court of Fulton County . The final divorce decree incorporated therein a settlement agreement between the parties dated April 27, 1978 . Under paragraph 3 of the settlement agreement, Michael G. Thevis agreed to pay $144,000.00 per year to petitioner for her support and maintenance and for the support, maintenance and education of the minor children of the parties. As security for the payment of this obligation, Michael G. Thevis created an alimony trust for the benefit of the wife and the minor children. The rest of the alimony trust was a two million dollar note of Fidelity Equipment Leasing Company, Inc., which was assigned to the trustee by Michael G. Thevis. The payments to petitioner from the trust, though not always timely, have been made through January 1981, but the trust owes petitioner $9,000.00 for the month of February and $12,000.00 for the month of March, 1981.

On March 12, 1981 , this Court entered an order in the case of Fidelity Equipment Leasing Company, et al. v. United States of America [18-1 USTC ¶9319], et al., C78-1811A, which allowed the Internal Revenue Service (IRS) to levy upon the assets of Fidelity, and the IRS has proceeded to close down the remaining businesses owned by Fidelity. The Court noted in its order of March 13, 1981 , that, as a result of this order, "it is likely that there will be no assets from which any payment can be made in this case to the Trust," and petitioner states that such has come to pass insofar as income from which Fidelity could make payments to the Trust is concerned.

Petitioner states that she has received no payments from the Trust since January, 1981, and, upon inquiry to the Trustee, Georgia Ann Harmon, petitioner has learned that Fidelity has made no payment to the Trust since January, 1981. Petitioner further states that, except for the rental received from 5346 Powers Ferry Road ($500.00 per month, less $390.56 paid by petitioner on the mortgage thereon), petitioner's sole source of income has been the payments received from the Alimony Trust.

The expenses of petitioner for the year 1980 have been submitted to the Court pursuant to this Court's order of November 25, 1980 . Petitioner states that she has for some time been desirous of selling her house at 5300 Powers Ferry Road , but the IRS lien forbids such sale and she has been unable to reach a mutually satisfactory arrangement with the IRS though negotiations have been ongoing since early 1980. The expenses of maintaining the house average approximately $5,000.00 per month. If petitioner vacated the house, the insurance premiums would be in excess of $5,000.00 per month. Petitioner states that she is without any money or any source of income and consequently is unable to pay insurance premiums on her house, has been unable to pay her attorneys for representing her in these matters, and is unable to provide food and clothing for herself and her children.

Plaintiff states that the Court's order of March 12, 1981 , has placed petitioner in an extreme financial crisis. She states that she is without support for herself and her minor children and has been in this predicament since February, 1981, yet the IRS through liens and seizures, has taken all property of the petitioner's ex-husband and holds same to satisfy the as yet unliquidated, contested tax liability which may not be determined until some indefinite time in the future.

Petitioner by this motion seeks funds which she claims are the property of her ex-husband or which were security for same and which, but for the liens of the IRS, petitioner submits would be available to her based upon the priority of her claim ¹ and upon the exemption provided by §6334 of the Internal Revenue Code. Petitioner requests alternatively, if such funds are not awarded to the petitioner as a result of this motion, that the income or interest from these funds, or some of them, be paid out to the petitioner pending the resolution of the tax court litigation in such amount as will provide for the necessary support of petitioner and her minor children.

The Court has carefully considered petitioner's motion to release funds and determined that it is unable to grant petitioner's request.

Petitioner is bringing this motion because of the effect upon her of the Government's attempts to collect federal taxes. Section 7421(a) of the Internal Revenue Code prohibits any court from assuming jurisdiction to enjoin or restrain collection of a federal tax.

Petitioner argues nevertheless that she is entitled to an exemption from levy for taxes by virtue of Section 6334(a)(8) of the Internal Revenue Code. That section exempts:

Judgment for support of minor children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

The applicable regulation under this statute is §301.6334-1(a), 26 C. F. R., Treasury Regulations on Procedure and Administration (1954 Code), which provides:

Judgments for support of minor children.--If the taxpayer is required under any type of order or decree (including an interlocutory decree or a decree of support pendente lite) of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children so much of his salary, wages, or other income as is necessary to comply with such order or decree. The taxpayer must establish the amount necessary to comply with the order or decree. The district director is not required to release a levy until such time as he is satisfied that the amount to be released from levy will actually be applied in satisfaction of the support obligation. The district director may make arrangements with a delinquent taxpayer to establish a specific amount of such taxpayer's salary, wage, or other income for each pay period which shall be exempt from levy. Any request for such an arrangement shall be directed to the Chief, Special Procedures Staff, for the internal revenue district in which the taxpayer resides. Where the taxpayer has more than one source of income sufficient to satisfy the support obligation imposed by the order or decree, the amount exempt from levy may at the discretion of the district director be allocated to one salary, wage, or source of other income or be apportioned between the several salaries, wages, or other sources of income. This subparagraph applies with respect to levies made on or after January 30, 1970 .

The Court has determined that the petitioner does not fall within the provisions of §6334(a)(8). The taxpayer in this action is Michael G. Thevis. Hence, it is his income to which the exemption has arguable application. Under the above-quoted regulations, the taxpayer must establish the amount covered by the exemption. The taxpayer has not appeared in this action to establish the amount covered by the exemption. Assuming that the children, through their guardian, have standing to make the requisite showing, they have not done so as of this date. An examination of the settlement agreement indicates that Thevis agreed to pay $12,000 per month to the movant for so long as she lives. Although the money is designated as both alimony and child support, there is no allocation between the two. The terms of the payment suggest that the $12,000 per month is to be treated as alimony, and not child support: the payments continue for so long as Joan Thevis lives, and there is no reduction duction or adjustment upon the emancipation (or death) of any of the Thevis children. Thus, it is impossible to designate any specific amount that Michael Thevis is required to pay exclusively as child support, and the exemption provided for in §6334 is inapplicable.

In light of this disposition of petitioner's claim for an exemption under §6334, it is not necessary for the Court to address the various sources of funds which petitioner claims are available as a means of support for petitioner and her minor children.

ACCORDINGLY, for the foregoing reasons, petitioner's motion to release funds is denied.

¹ Petitioner has argued that her judgment of May 3, 1978 , precedes the date of all other claimants to various funds at issue. As noted by petitioner, the question of priority of petitioner's claim is before the Court in Federal Deposit Insurance Corp. v. United States of America , et al., C80-278A, on petitioner's motion for summary judgment. Petitioner requested this Court to consider this motion to release funds before her motion for summary judgment. For this reason, and because of the number of claimants having an interest in the funds at issue in that case, the question of the priority of petitioner's claim will be addressed in the Court's order with respect to the motion for summary judgment.

 

 

 

[91-2 USTC ¶50,474] Don King Productions, Inc. and Don King, Plaintiffs v. Pinklon Thomas, Jr., Richard Gidron, Roland Jankelson, Althea Jones, and The United States , Defendants. Althea Jones and Richard Gidron, Defendants-Appellees. Richard Gidron and The United States , Defendants-Appellants

(CA-2), U.S. Court of Appeals, 2nd Circuit, 91-6067, 91-6083, 9/23/91 , Affirming and reversing a District Court decision, 90-2 USTC ¶50,524 , 749 F.Supp. 79

[Code Secs. 6321 and 6323 ]

Tax lien: Assignment: Priority.--Federal tax liens on a boxer's anticipated prize money were superior to the claim of the boxer's former manager that was based on a stipulation of settlement which predated the liens. Through the settlement agreement, the former manager was entitled to a portion of the purse of an upcoming fight; however, the stipulation was never reduced to a judgment under state ( New York ) law, so the manager did not attain the priority status of a judgment lien creditor. Furthermore, since the assignment was for prize money to be earned from a future fight, the manager's claim was inchoate and the federal liens had priority by being first in time. The subordination of the federal tax liens to the child support claims was affirmed.

Robert M. Sosin, Alspector, Sosin, Mittenthal & Barson, P.C., 30100 Telegraph Rd., Birmingham, Mich., for Althea Jones. Steven K. Meier, Shatz, Meier & Scher, 18 E. 48th St. , New York , N.Y. , for Richard Gidron. Otto G. Obermaier, United States Attorney, Kathleen A. Zebrowski, Edward T. Ferguson III, Assistant United States Attorneys, New York, N.Y. 10007 for defendant-appellant.

Before: CARDAMONE, MINER and MAHONEY, Circuit Judges.

MINER, Circuit Judge:

Defendant-appellant the United States (the "government") and defendant-appellant-appellee Richard Gidron appeal from a judgment entered in the United States District Court for the Southern District of New York (Haight, J.) establishing that the claim of defendant-appellee Althea Jones to interpleader funds had priority over the claim of Richard Gidron, which had priority over tax liens of the government. Don King Prods. v. Thomas [90-2 USTC ¶50,524 ], 749 F.Supp. 79, 85 (S.D.N.Y. 1990).

The government contends that the district court erred in determining that Gidron's claim had priority over its tax liens. First, it argues that since the stipulation of settlement dated December 11, 1985 upon which the claim is based, never was reduced to judgment, Gidron cannot avail himself of the statutory exception which protects certain persons, including "judgment lien creditors," against unrecorded federal tax liens. Second, the government maintains that the stipulation of settlement cannot be found to be prior to the government's tax liens because it represents an inchoate claim. In the stipulation of settlement, Thomas purported to assign to Gidron proceeds from purses of three prizefights to occur at some unspecified time in the future.

Gidron argues that the district court erred in finding that Althea Jones' claim of child support has priority over his claim, since his claim accrued on December 11, 1985 and Jones' judgment of filiation and order for support is dated January 6, 1988 .

We agree with the government that the district court erred in finding that Gidron's claim had priority over the federal tax liens. Because Gidron's stipulation of settlement was not reduced to judgment, Gidron was required to establish that his lien was "first in time" and choate. However, the right to the proceeds of future unspecified prizefight purses arising from the assignment by Thomas, evidenced by the stipulation of settlement, was inchoate.

Regarding the order of priority between Gidron and Jones, we hold that the district court correctly found that a judgment of filiation and order for support has priority over a stipulation of settlement never reduced to judgment, even though the support judgment was filed after the stipulation of settlement was entered into.

BACKGROUND

One-time holder of the World Boxing Council Heavyweight title, Pinklon Thomas, Jr. contracted with Don King and Don King Productions (collectively, "DKP") to receive a purse of $150 thousand for participating in a boxing match with Evander Holyfield. The event was scheduled to be held on December 9, 1988 in Atlantic City , New Jersey . In accordance with the terms of the contract, DKP disbursed $117,090.67 as advances and payments to Thomas, his manager, and his trainer, Angelo Dundee. Faced with conflicting claims to the balance of the purse, $32,909.33, DKP commenced an interpleader action, pursuant to 28 U.S.C. §1335(a), placing the $32,909.33 in the registry of the district court and naming five interpleader defendants. Only three of the named defendants--the government, Richard Gidron and Althea Jones--litigated their claims to the interpleaded fund.

Althea Jones ("Jones") claimed priority to the funds by reason of a January 6, 1988 judgment of filiation and order for support entered by a Michigan state court. Apparently, Thomas had acknowledged that he was the father of Paquana Shareces Jones in a paternity action commenced by Althea Jones in 1986. Under the judgment of filiation and order for support, Thomas was required to pay $7,500 in support and maintenance obligations that had accrued from the time of Paquana Shareces Jones' birth until November 9, 1987 and to pay $100 per week for support and maintenance from November 9, 1987 until Paquana reached the age of majority. Additionally, Thomas was ordered to notify Jones about any professional boxing matches in which he was to participate. However, Jones learned about the Thomas/Holyfield bout not from Thomas but through a newspaper advertisement. On December 6, 1988 , at Jones' request, the Michigan court issued a Writ of Garnishment, which was served on DKP, ordering DKP to disclose its indebtedness to Thomas. At that time, $14,025 in unpaid child support allegedly was owed to Jones.

Richard Gidron claimed priority by reason of a stipulation of settlement, dated December 11, 1985 , allegedly entered in the New York Supreme Court, Bronx County . At that time, Gidron had initiated an action against Thomas and DKP for money owed under a management contract between Thomas and Gidron, which Thomas had breached when he entered into a management contract with DKP. Under the settlement agreement, Thomas agreed, among other things, to pay to Gidron $50 thousand from each of his next three prizefight purses. DKP agreed that in the event it promoted any of the next three fights, it would withhold $50 thousand per fight and pay that amount to Gidron. The stipulation of settlement never was docketed as a judgment.

The government claims priority on account of federal tax liens. Thomas owes the government income taxes for the years 1986 and 1987 in the amounts of $149,905.90 and $120,361.53, respectively, plus interest and penalties. The IRS made a deficiency assessment against Thomas for the unpaid 1986 taxes on November 9, 1987 and for the unpaid 1987 taxes on June 6, 1988 . Federal tax lien notices were filed on December 5, 1988 in Atlantic City , the place of the Holyfield-Thomas fight, and on December 8, 1988 , in Oakland County , Michigan , the place where Thomas resides. On December 9, 1988 , DKP was served with the government's notice of levy, in which DKP was directed to pay to the government any wages or other income that was to be paid to Thomas.

In 1986, Thomas lost his World Boxing Council heavyweight title to Trevor Berbik; in accordance with the terms of the stipulation of settlement, $50 thousand was paid to Gidron from the purse for that fight. Thereafter, in May 1987, Thomas suffered a devastating knockout loss to Michael Tyson. After defeating Thomas, Tyson went on to defeat Tony Tucker, the then-International Boxing Federation heavyweight titleholder, resulting in the unification of the heavyweight championship titles--World Boxing Council, World Boxing Association and International Boxing Federation--in one professional boxer. After further litigation, Gidron was able to recover $50 thousand from the proceeds of the Tyson match.

Gidron learned about the upcoming Thomas/Holyfield match from an advertisement in the New York Post. Fearing that DKP would not pay the final $50 thousand from the last of the three fights, Gidron obtained in the Bronx County court an order directing Thomas to show cause by December 16, 1988 why $50 thousand should not be paid to Gidron from the proceeds of the fight scheduled for December 9, 1988 . It was in response to that order that DKP filed an interpleader action in federal district court on December 12, 1988 . The district court enjoined the state court proceedings. [90-2 USTC ¶50,524 ], 749 F. Supp. at 82.

On October 2, 1990 , the district court in a Memorandum Opinion and Order held that Jones had priority over Gidron and the government, and that Gidron had priority over the government. Id. at 85. After further litigation to determine whether additional funds were to be added to the amount held in the registry of the district court, the government moved pursuant to Fed. R. Civ. P. 54(b) for entry of a final judgment on the interpleader priority question. Finding no just cause to delay the entry of a partial judgment, the district court granted the government's motion, and a judgment was entered on January 3, 1991 . Remaining for disposition are cross-claims interposed against DKP to recover a money judgment. The government appeals from the portion of the judgment in which the court determined that Gidron's claim had priority over its federal tax liens. Gidron appeals from the portion of the judgment in which the court determined that Jones' support claim had priority over his claim.

DISCUSSION

The government contends that the district court's rationale in finding that Gidron's claim has priority over federal tax liens is flawed. The district court reasoned that Thomas, having made an assignment of funds to Gidron in 1985, prior to the assessment of taxes and the consequent attachment of the tax liens, see 26 U.S.C. §6322 , had no further interest in the assigned funds when the tax liens attached. The court concluded the tax liens could not "attach under §6321 in the first place." 749 F. Supp. at 85. The flaw in this, the government asserts, is that Gidron's claim to proceeds from the Thomas/Holyfield prizefight purse as assignee was inchoate and, as such, subordinate to federal tax liens. We agree with the government's position.

Section 6321 of the Internal Revenue Code provides that

[i]f any person liable to pay 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.

26 U.S.C. §6321 (1988). The language of section 6321 is broad, revealing a congressional intent to reach "every interest in property that a taxpayer might have." United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 720 (1985).

A federal tax lien, described as a "secret lien," see United States v. Security Trust & Savings Bank [50-2 USTC ¶9492 ], 340 U.S. 47, 53 (1950) (Jackson, J., concurring) (citation omitted), is effective upon assessment against all persons, even in the absence of recordation of the lien. See Rice Investment Co. v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 568 (5th Cir. 1980). However, under 26 U.S.C. §6323(a) , certain persons are protected against unrecorded federal tax liens. Section 6323(a) provides:

The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirement of subsection (f) has been filed by the Secretary.

Only those persons specifically listed in the statute are entitled to priority over unrecorded federal tax liens. See 14 Mertens, Law of Federal Income Taxation §15A.03, at 15-16 (1991).

During oral argument, Gidron contended that he is a "judgment lien creditor" by virtue of the stipulation of settlement dated December 11, 1985 , which he argues was a judgment entered in the Bronx County court. If Gidron were a "judgment lien creditor," and his status as such was acquired prior to December 5 and 8, 1988, when the government recorded its federal tax liens, Gidron would be entitled to priority over the government.

A "judgment lien creditor," undefined by statute, is described in treasury regulations as

a person who has obtained a valid judgment . . . for the recovery of . . . a certain sum of money. . . . [and as] a person who has perfected a lien under the judgment on the property involved.

26 C.F.R. §301.6323(h)-1(g) . "In determining . . . whether a judgment creditor's lien is perfected . . . , we look first to the local law setting forth the lien procedure and its legal consequences." Hartford Provision Co. v. United States [78-1 USTC ¶9392 ], 579 F.2d 7, 9 (2d Cir. 1978).

Under New York law, a judgment creditor becomes a "judgment lien creditor" as to personal property only after execution is delivered to the sheriff. See N.Y. Civ. Prac. L. & R. §5202(a) ( McKinney 1978); see also Corwin Consultants, Inc. v. Interpublic Group of Companies, Inc. [75-1 USTC ¶9299 ], 512 F.2d 605, 607 n.2 (2d Cir. 1975). Since there is no evidence that the stipulation of settlement was reduced to and docketed as a judgment, see 749 F. Supp. at 81 n.1, and there is no evidence of the delivery of a judgment execution to the sheriff, clearly, under the New York requirements, Gidron cannot be a judgment lien creditor. See Lerner v. United States [87-1 USTC ¶9339 ], 637 F. Supp. 679, 680 (S.D.N.Y. 1986); In re Estate of Robbins, 74 Misc. 2d 793, 795, 346 N.Y.S.2d 86, 90 (Sur. Ct. 1973) ("As to personal property, docketing of a judgment [alone] does not create a lien; such a lien upon personal property comes into being only when execution is issued to the proper officer.").

For all persons who are not specifically listed in section 6323 , priority as a lienor is determined by the common law rule of "first in time is the first in right." United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 87-88 (1954). Under that rule, a federal tax lien takes priority over competing liens unless the competing lien was choate, or fully established, prior to the attachment of the federal lien. See id. at 86. Not only does a lienor's interest have to be first chronologically, but the interest must be choate to defeat the federal tax lien. A choate lien is one in which the identity of the lienor, the property subject to the lien and the amount of the lien are established. Id. at 84. A lien that is "choate" has been described as a lien that is "specific and perfected" and for which "nothing more [need] be done." United States v. Equitable Life Assurance Society [66-1 USTC ¶9444 ], 384 U.S. 323, 327-28 (1966) (citation omitted).

Under the federal revenue statute, federal law determines the rights of priority among competing lienors; however, state law controls in determining the nature of a taxpayer's interest in property. SEC v. Levine, 881 F.2d 1165, 1175 (2d Cir. 1989); see also National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 722; Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 513 (1960). "[W]hether the [federal] tax lien has attached depends on the state law question of ownership, since the lien can only attach to property that the taxpayer owns." United States v. Fontana [82-1 USTC ¶9237 ], 528 F.Supp. 137, 143 (S.D.N.Y. 1981). "This follows from the fact that the federal statute 'creates no property rights but merely attaches consequences, federally defined, to rights created under state law.' " National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 722 (quoting United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 55 (1958)). Thus, we must look initially to the nature of Thomas' interest in the property under New York law.

Thomas purported to assign to Gidron a portion of his interest in income to be earned some time in the future. Under New York law, income to be earned in the future may be assigned. "[T]he right to receive [such income], though liable to be defeated, is vested, and, in the absence of [a statutory restriction], . . . is assignable." 6 N.Y. Jur. 2d Assignments §23 , at 260 (1980). However, like the assignment of accounts receivable where the assignor has no existing contract under which such accounts are to arise, the assignment of a right to receive income contingent upon the occurrence of a future event, does not convey a present interest to the assignee. See Central State Bank v. New York , 73 Misc. 2d 128, 129, 341 N.Y.S.2d 322, 324 (Ct. Cl. 1973); see also Stathos v. Murphy, 26 A.D.2d 500, 503, 276 N.Y.S.2d 727, 730 (1st Dep't 1966 ) ("There is no doubt that the assignment of a truly future . . . interest does not work a present transfer of property. It does not because it cannot; no property yet exists."), aff'd, 19 N.Y.2d 883, 227 N.E.2d 880, 281 N.Y.S.2d 81 (1967). Rather, the rights that Gidron acquired, contingent upon the occurrence of a prizefight at some unspecified time in the future, were "truly future interests." See In re Estate of Rosenberg, 62 Misc. 2d 12, 17, 308 N.Y.S.2d 51, 58 (Sur. Ct. 1970) ("An assignment of a future 'contingent' interest . . . is an assignment of a truly future interest, not an assignment of present rights."); see also In re Holt, 28 A.D.2d 201, 205, 284 N.Y.S.2d 208, 212 (3d Dep't 1967) (" 'future rights' . . . are those rights which arise in the future; or, more aptly stated in its most precise definition, a right which the assignor does not have at the time of the assignment but which he expects to have under some arrangements he is about to enter." (emphasis in original)). These rights could not ripen into present rights or interests until the occurrence of the third fight. See Central State Bank, 73 Misc. 2d at 129, 341 N.Y.S.2d at 324; City of Utica v. Gold Metal Packing Corp., 54 Misc. 2d 708, 710, 283 N.Y.S.2d 611, 613 (Sup. Ct. 1967) ("The courts recognize equitable assignments of future interests which will create a lien between the parties at the time the property comes into existence"); 6 N.Y. Jur. 2d Assignments §20, at 256 ("the assignment of contingent interests . . . , although resting in a mere possibility, is recognized and takes effect when the thing . . . assigned comes into existence.").

The government's liens attached when the assessments were made in 1987 and 1988, but Gidron only acquired a future interest in the prizefight purses on December 11, 1985 by virtue of his assignment. Cf. United States v. Colby Academy [82-2 USTC ¶9450 ], 524 F.Supp. 931, 934 (E.D.N.Y. 1981). At that time, Gidron's interest was inchoate. Although the identity of the lienor was known and the amount of the lien was established, the property subject to the lien was not in existence at the time the government's lien arose. See Lerner [87-1 USTC ¶9339 ], 637 F.Supp. at 681 (court held that "lien remains inchoate until the underlying debt becomes due." (citation omitted)); MDC Leasing Corp. v. New York Property Ins. Underwriting Ass'n [79-1 USTC ¶9122 ], 450 F.Supp. 179, 181 (S.D.N.Y. 1978), aff'd mem., 603 F.2d 213 (1979). Therefore, under applicable federal law, the government had priority over Gidron. See United States v. Pioneer Am. Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88 (1963).

Gidron contends that the district court erred in determining that Jones' claim to interpleader funds had priority over his claim because his stipulation of settlement, dated December 11, 1985 , was prior in time to Jones' judgment of filiation and order for support. Noting that "[u]nder New York law, the legislature has given priority to child support orders over wage assignments and garnishments," the district court found Jones' claim to have priority over Gidron's claim. 749 F.Supp. at 85.

Gidron argues that Thomas' assignment to him is not a wage assignment or garnishment and, therefore, the district court erred in subordinating his claim to Jones' claim. He contends that the transaction constituted a valid present transfer of property rights from Thomas to King to be paid to Gidron, thereby divesting Thomas of any rights in the specified prizefight purses. Gidron's defeat in his fight against the government, however, precludes him from arguing (successfully) in his fight against Jones that he was assigned a present interest in 1985.

There is another reason why Gidron's argument must fail. Section 5241 of the New York Civil Practice Laws and Rules, entitled "Income execution for support enforcement," provides that a "levy pursuant to this section or an income deduction order pursuant to section 5242 of this chapter shall take priority over any other assignment, levy or proccess." N.Y. Civ. Prac. L. & R. §5241(h) (McKinney Supp. 1991) (emphasis added); see also id. §5242(c) McKinney Supp. 1991). "[T]he intent and purpose of the[se] enforcement statutes is to enable a former spouse to enforce a support judgment against 'income,' in a priority basis over the income execution of a normal judgment creditor." Dawson v. Krolikowski, 140 Misc. 2d 343, 346, 530 N.Y.S.2d 931, 934 (Sup. Ct. 1988); see also Long Island Trust Co. v. United States Postal Serv., 647 F.2d 336, 339 (2d Cir. 1981). Under the statute, "income" includes "any earned, unearned, taxable or non-taxable income." N.Y. Civ. Prac. L. & R. §5241(a)(6) .

Clearly, the monies to be paid to Thomas by DKP for Thomas' participation in the boxing match fall within the meaning of "income" under section 5241 . Therefore, it is immaterial whether the assignment embodied in the stipulation of settlement is called a wage assignment or any other kind of assignment. The statute gives priority to orders for support over "any other assignment." Id. §5241(h) . It subordinates all normal judgment creditors to the former spouse who has a support judgment. See id. Thus, even if Gidron were considered to be a judgment creditor, his claim must be found to be subordinate to Jones' judgment of filiation and order for child support.

CONCLUSION

The judgment of the district court is reversed insofar as it establishes the priority between Gidron's claim over the government's federal tax liens. The portion of the judgment establishing the priority of the claim of Althea Jones over the claims of both the government and Gidron is affirmed. The order of priority of claims to the interpleaded funds is fixed as follows: 1) child support (Jones); 2) federal tax liens (government); and 3) claim based on stipulation (Gidron). 

 

 

 

 

[95-1 USTC ¶50,079] Rebecca S. Woods, Individually and as Administratrix of the Estate of Mary Ruth Simpson, Plaintiff-Appellee v. David Simpson, Jimmi Simpson Jones, United States Department of Treasury, Internal Revenue Service (93-6478), Commonwealth of Kentucky, Revenue Cabinet (93-6590), Defendants-Appellees, The Commonwealth of Kentucky Revenue Cabinet (93-6478), United States Department of Treasury, Internal Revenue Service (93-6590), Defendants-Appellants

(CA-6), U.S. Court of Appeals, 6th Circuit, 93-6478, 93-6590, 2/8/95 , 46 F3d 21, 46 F3d 21. Reversing and remanding a District Court decision, 93-2 USTC ¶50,377

[Code Secs. 6323 and 6334 ]

Property exempt from levy: Child support: State liens: Priority: Kentucky.--An individual's inheritance that was subject to federal and state (Kentucky) tax liens was not exempt from levy in satisfaction of delinquent taxes despite the existence of his former wife's judgment lien for child support. The inheritance did not qualify as "other income" under the statutory exception for judgments for the support of minor children. "Other income" refers to amounts received for services rendered, such as bonuses, tips, fees, and commissions. Further, the federal tax lien was superior to the earlier recorded state tax lien because the two liens attached simultaneously when the individual received the inheritance. Also, the federal lien was superior to the former wife's judgment lien because it attached before the lien for child support was recorded. Therefore, since the individual's federal tax liability exceeded the amount of his inheritance, the government was entitled to the entire inheritance.

David J. Kellerman, Middleton & Rautlinger, 2500 Brown & Williamson Tower, Louisville, Ky. 40202, for plaintiff-appellee (Woods, R.S.). R. Thomas Blackburn, Jr., 2301 S. Third St. , Louisville , Ky. 40201 , for defendant-appellee (Simpson, D.B.). Michael F. Spalding, Assistant United States Attorney, 510 W. Broadway, Louisville, Ky. 40202, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, Department of Justice, Washington, D.C. 20530, for defendant-appellee (U.S.). Michael F. Spalding, Assistant United States Attorney, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, for defendant-appellee (I.R.S.). Arnold C. Jones, Revenue Cabinet Enforcement Legal Section, P.O. Box 491 , Frankport , Ky. 40602 , for defendant-appellant ( Commonwealth of Ky. ).

Before: RYAN and BATCHELDER, Circuit Judges; and EDGAR, District Judge. ^*

EDGAR, District Judge:

In this interpleader action the United States of America and the Commonwealth of Kentucky appeal the decision of the district court on cross motions for summary judgment establishing the priority of competing federal and state tax liens, and state court judgments for child support. The district court determined that the child support judgments are to be paid from the interpleaded funds prior to satisfaction of the federal tax lien. We REVERSE.

I.

Mary Ruth Simpson died on November 1, 1989 . Rebecca S. Woods, administratrix of the estate of Mary Ruth Simpson, was required by Mrs. Simpson's will to distribute a share of the estate's residue to David B. Simpson, one of Mrs. Simpson's children. David Simpson's share amounted to $76,411.20, and this sum was paid into state court by the administratrix who filed an interpleader action against four claimants: David Simpson, the United States Department of the Treasury, Internal Revenue Service; the Commonwealth of Kentucky Revenue Cabinet ; and David Simpson's former wife, Jimmi Jones. The United States removed the case to federal court.

David Simpson's claim to the interpleaded funds was dismissed by the district court. He has not appealed. The United States ' claim is for David Simpson's unpaid income taxes, penalties and lien fees for the years 1973 through 1987 totaling $331,434.52. The United States filed a notice of federal tax lien with the Jefferson County, Kentucky Court Clerk on October 13, 1988 . The Commonwealth of Kentucky had recorded its lien for state taxes on July 28, 1988 . As of March 25, 1993 , David Simpson owed Kentucky $27,498.58. Jimmi Jones obtained civil judgments in 1980 and 1989 against David Simpson for back child support. She recorded notices of her judgment lien on March 21, 1990 . ¹ As of September 30, 1993 , the unpaid balance of these judgments was $23,955.22.

II.

There is no question that the lien of the United States is superior to that of the Commonwealth of Kentucky . Both the federal and state tax liens were filed before the debtor, David Simpson, acquired his inheritance. Even though Kentucky 's lien was recorded before that of the United States , these liens attached simultaneously when David Simpson acquired his property interest in the estate of Mary Simpson at the time of her death. The United States lien, therefore, has priority. United States v. McDermott [93-1 USTC ¶50,164 ], -- U.S. --, 113 S. Ct. 1526, 1530, 123 L.Ed.2d 128, 136 (1993).

The lien of the United States is also prior to Jimmi Jones' judgment lien. The federal lien was perfected and attached to David Simpson's acquired property before Jimmi Jones recorded her lien on March 21, 1990 . "Absent provision to the contrary, priority for the purposes of federal law is governed by the common-law principle that 'the first in time is the first in right.' " McDermott [93-1 USTC ¶50,164 ], 113 S.Ct. at 1528, 123 L.Ed.2d at 133 (citing United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954)).

The district court decided that 26 U.S.C. §6334(a)(8) exempted Jimmi Jones' claim from the federal tax lien. We think not. 26 U.S.C. §6334(a)(8) exempts from Internal Revenue Service levy the following:

(8) Judgments for Support of Minor Children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

We conclude that David Simpson's inheritance is not "other income" specified by 26 U.S.C. §6334(a)(8) . In so concluding we are guided by the ejusdem generis rule of statutory construction. The general term, "other income," should be "understood in light of the specific terms that surround it." Kurinsky v. United States , 33 F.3d 534, 596-97 (6th Cir. 1994). More specifically, "where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." 2A NORMAN J. SINGER, SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION §47.17, at 188 (5th ed. 1992). Here, an inheritance is not in the same category as salary and wages. This is borne out by reference to another part of the levy exemption statute, 26 U.S.C. §6334(d) , which provides an exemption in specified amounts for "wages, salary, and other income" received by individuals on a weekly and other than weekly basis. Clearly "other income" refers to items received by individuals for services rendered, such as bonuses, tips, commissions, and fees. This conclusion derives further support from the proposition that tax exemptions are to be narrowly construed. United States v. Burke [92-1 ustc ¶50,254 ] ,-- U.S. --, 112 S.Ct. 1867, 1876, 119 L.Ed.2d 34, 49 (1992) (Scalia, J., concurring); United States v. Centennial Savings Bank [91-1 ustc ¶50,188 ], 499 U.S. 573, 583-84 (1991); Commissioner v. Jacobson [49-1 ustc ¶9133 ], 336 U.S. 28, 49 (1949); Elam v. Commissioner [73-1 ustc ¶9456 ], 477 F.2d 1333, 1335 (6th Cir. 1973). Given our conclusion that 26 U.S.C. §6334(a)(8) does not exempt an inheritance from levy, we need not decide whether 26 U.S.C. §6334 also operates to exempt certain property from a 26 U.S.C. §6321 federal lien for taxes, nor need we decide whether the Commonwealth of Kentucky prevails on a theory that it is entitled to "circular priority" on the authority of United States v. City of New Britain [54-1 ustc ¶9191 ], 347 U.S. 81 (1954).

III.

Since the tax liability to the United States is well in excess of David Simpson's inheritance, the United States is entitled to the entire interpleaded fund except for $1,211.38 which the district court awarded to plaintiff's attorney as an administrative expense. The judgment of the district court is REVERSED and this case is REMANDED to the district court for proceedings consistent with this opinion.

^* The Honorable R. Allan Edgar, United States District Judge for the Eastern District of Tennessee, sitting by designation.

¹ This lien appears to have been recorded only against David Simpson's real property. We will, however, for the purposes of this case, regard it as applicable to all of David Simpson's real and personal property.

 

 

 

[97-2 USTC ¶50,892] Nick Batt, Plaintiff v. United States of America , Defendant

U.S. District Court, No. Dist. Ohio , West. Div., 3:96 CV 7509, 5/23/97

[Code Sec. 7422 ]

Levy and distraint: Wrongful levy: Civil action: Conditions precedent: Claim for refund: Payment of tax.--An action by an individual seeking refunds of amounts collected by levies against his rental income and wages was dismissed for lack of subject matter jurisdiction. The taxpayer failed to show that he had filed a claim for refund with the IRS or paid the assessed tax before filing the action.

[Code Secs. 6334 , 7402 and 7421 ]

Levy and distraint: Wrongful levy: Injunction: Declaratory judgment: Property exempt from levy: Child support.--Injunctive relief limiting the scope of IRS levies was unavailable to an individual because he failed to establish that the government could not prevail on the merits or that he would suffer irreparable harm. A declaratory judgment that levies on his wages were illegal was precluded by the Declaratory Judgment Act since the action clearly related to federal taxes. Finally, absent a prior court order regarding child care payments, any wages that were earmarked for that purpose were still the income and property of the taxpayer and therefore not exempt from levy.
MEMORANDUM AND ORDER

ARMSTRONG, Magistrate Judge:

This is an action seeking monetary damages, injunctive and declaratory relief against the United States and its agency, the Internal Revenue Service. The parties have consented to have the undersigned United States Magistrate Judge conduct any and all further proceedings in this case. Pending is Defendant's Motion to Dismiss (Docket No. 4). Plaintiff filed an Opposition (Docket No. 5) and a Supplemental Opposition (Docket No. 11) to which Defendant filed a Reply (Docket No. 7) and a Supplemental Reply (Docket No. 12). For the reasons that follow, Defendant's Motion to Dismiss is GRANTED.

FACTUAL BACKGROUND

Plaintiff owns real property which produces rental income. Defendant Internal Revenue Service through its agent, executed levies upon such income in January and February 1996. Plaintiff also receives income from his position as property manager for New Batt Rental Corporation and Property and Management Connection. Defendant executed levies upon his salary/wages as property manager in May and June 1996.

The complaint alleges that defendant's levy on rental income is unlawful for the reason that plaintiff, as landlord, is entitled to certain exemptions pursuant to 26 U.S.C. §6334. Plaintiff also claims that his wages as property manager for Property and Management Connection, Inc. are subject to certain exemptions. Specifically, plaintiff claims that the portion of his wages earmarked by his employer for child care is exempt from levy. Consequently, plaintiff seeks an order limiting the scope of levies and awarding judgment against the United States for monies wrongfully levied. In response, defendant filed a Motion to Dismiss.

MOTION TO DISMISS STANDARD

The procedural standard for determining a motion to dismiss is governed by Fed. R. Civ. P. 12(b)(6) which allows a defendant to test whether, as a matter of law, the plaintiff is entitled to relief even if everything alleged in the complaint is true. Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993) (citing Nishiyama v. Dickson County , Tennessee , 814 F.2d 277, 279 (6th Cir. 1987)). The fundamental purpose of pleadings under the federal rules is to give adequate notice of each side's claims and allow the cases to be decided upon the merits after adequate development of the facts. Id. at 638 (citing Oil Chem. & Atomic Worker's Int'l Union. AFL-CIO v. Delta Ref. Co., 277 F.2d 694 (6th Cir. 1960)). "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. at 638 (quoting Conley v. Gibson, 78 S.Ct. 99 (1957)).

A motion to dismiss is filed pursuant to the Federal Rules of Civil Procedure 12(b)(6) which tests whether plaintiff has stated a claim in the complaint. The basic pleading requirements are set forth in Rule 8(a) which call for a short and plain statement of the claim showing that the pleader is entitled to relief. Broyde v. Gotham Tower, Inc. 13 F.3d 994, 996 (6th Cir. 1994) cert. denied 114 S.Ct. 2137 (1994). In considering a Rule 12(b)(6) motion, the court must accept as true all factual allegations in the complaint. Id. (citing Nishiyama v. Dickson County , Tenn. , 814 F.2d 277, 279 (6th Cir. 1987)).

If "matters outside the pleadings are presented to and not excluded by the court, the motion will be treated as one for summary judgment and disposed of as provided in Rule 56. All parties will be given a reasonable opportunity to present all material made pertinent to such a motion by Rule 56." The decision to exclude material outside the pleadings is entirely within the discretion of the trial court. Wiley v. Hughes Capital Corporation, 746 F. Supp. 1264 (D.N.J. 1990).

DISCUSSION

In his complaint, plaintiff alleges three causes of action and as relief, he seeks: 1) a refund for wrongful levy of his rental income, 2) a refund for the wrongful levy against his wages and 3) injunctive and declaratory relief.

In response, defendant filed a Motion to Dismiss which asserts that the Court is without subject matter jurisdiction to address the issues presented since plaintiff has failed to satisfy the statutory prerequisites to suit. Plaintiff has neither established that he filed a claim for refund with the Secretary of the Treasury or that he fully paid the taxes assessed. Defendant also argued in its initial brief that plaintiff's cause of action alleging that his rental income is exempt from levy under 26 U.S.C. §6334 fails to state a claim for which relief can be granted. Subsequently, defendant withdrew such argument ¹. Finally, defendant contends that plaintiff is barred from seeking injunctive and declaratory relief under the Anti-Injunction Act, 26 U.S.C. §7421, and the Declaratory Judgment Act, 28 U.S.C. §2201.

I.

In plaintiff's first cause of action, he seeks a refund for the alleged wrongful levy of his rental income. Plaintiff contends that defendant failed to recognize that a portion of his rental income is exempt from levy. Pursuant to 28 U.S.C. §1346(a) and 26 U.S.C. §7422, the United States has waived its sovereign immunity with respect to refund suits by taxpayers to recover taxes alleged to have been erroneously or illegally collected. Abadi v. United States [92-1 USTC ¶50,143], 782 F.Supp. 59, 61 (E.D. Mich. 1992). Section 1346(a)(1) of Title 28 provides that the district courts shall have original jurisdiction of "Any civil action against the United States for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . ."

Section 7422(a) provides in pertinent part that:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for a refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

26 U.S.C. §7422(a) (West's 1997).

Thus, a duly filed administrative claim for refund is a jurisdictional prerequisite to an action for refund of taxes in district court. Ameel v. United States [70-1 USTC ¶12,689], 426 F.2d 1270, 1274 (6th Cir. 1970); Huff v. U.S. [93-2 USTC ¶50,633], 10 F.3d 1440 (9th Cir. 1993), cert. den. 114 S.Ct. 2706 (1994); McMillen v. U.S. Dept. of Treasury, 960 F.2d 187 (1st Cir 1991); Banjenski v. Chivatero, 818 F.Supp. 1085 (N.D. Ohio 1993). Additionally, a taxpayer must fully pay the assessed tax before invoking the jurisdiction of the district court for the refund of any portion of federal income tax. See Flora v. United States [60-1 USTC ¶9347], 80 S.Ct. 630, 647 (1960); Moon v. I.R.S., 755 F.Supp. 112 (S.D.N.Y. (1991) aff'd 948 F.2d 1276 (1991).

Plaintiff fails to allege compliance with the statutory prerequisites. Consequently, this court lacks jurisdiction of plaintiff's refund/wrongful levy claim.

II.

Plaintiff's second claim is that a portion of his wages as property manager for Property Management and Connection, Inc. are exempt from levy by the Service. Although the precise amount of the claimed exemption is unclear, the magistrate construes plaintiff's claim as seeking an exemption of $20.04 per week. ² Specifically, plaintiff seeks an injunction or declaratory judgment directing the Service to limit the scope of its levies and finding that the "purported levy of wages without exemption is unlawful . . ." The Anti-Injunction Act and the Declaratory Judgment Act prohibit the remedy Plaintiff seeks.

The Anti-Injunction Act states that except as specifically provided: ". . . no suit for the purpose of restraining the collection of any tax shall be maintained in any court by any person . . . 26 U.S.C. §7421(a) (1989) ³ . See Jones v. U.S. [89-2 USTC ¶9671], 889 F.2d 1448 (5th Cir 1989) (once tax has been assessed, taxpayer's only recourse is to fully pay tax and sue for refund).

The Anti-Injunction Act serves two related purposes. The primary purpose is to "to permit the United States to assess and collect taxes alleged to be due without judicial intervention" and the "collateral objective of the Act [is]--protection of the collector from litigation pending a suit for refund." Enochs v. Williams Packing Co. [62-2 USTC ¶9545], 82 S.Ct. 1125, 1129 (1962).

A judicial exception to the Anti-Injunction Act permits the district court to grant injunctive relief if plaintiff satisfies a two-prong test by demonstrating that "under no circumstances can the government ultimately prevail on the merits; and (2) the taxpayer will suffer irreparable injury without injunctive relief." Elias v. Connett [90-2 USTC ¶50,397], 908 F.2d 521, 525 (9th Cir. 1990) (citing Maxfield v. U.S. Postal Service [85-1 USTC ¶9274], 752 F.2d 433, 434 (9th Cir. 1984). Plaintiff has the burden of pleading and proving facts to show that the government cannot prevail. Elias [90-2 USTC ¶50,397], 908 F.2d at 525.

Plaintiff has failed to meet this burden. He has failed to set forth facts to establish that the government cannot prevail and further that irreparable injury will occur to him if the injunction does not issue. In fact, plaintiff's request for injunctive relief is moot. The levy was effectuated in May and June 1996. Even if injunctive relief were feasible, there is no allegation that deprivation of two months' wages caused irreparable injury and no showing that the government cannot ultimately prevail on the merits.

III.

Plaintiff also seeks a declaratory judgment that levy of his wages is illegal. The Declaratory Judgment Act, 28 U.S.C. §2201, provides in pertinent part:

(a) In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, . . . (emphasis added)

As plaintiff's action is clearly related to federal taxes, declaratory judgment is available only if one of the exceptions cited in the statute apply. The exception provided in Section 7428 relates to entities seeking tax exempt status and the second exception relates to bankruptcy proceedings pursuant to Chapter 11 of the Bankruptcy Code.

The Supreme Court has stated that the "federal tax exemption to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act." Bob Jones University v. Simon [74-1 USTC ¶9438], 94 S.Ct. 2038, 2044 (1974). The magistrate has found that injunctive relief is unavailable. Similarly, relief is also unavailable pursuant to the Declaratory Judgment Act.

IV.

Plaintiff also contends that the levy of monies paid to him for payment to child care providers furnished by his employer was neither income nor property. Such an argument is without merit. Only if the taxpayer is required by judgment from a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of minor child(ren), is the taxpayer's income, salary, wages or other income necessary to comply with the judgment, exempt. 26 U.S.C. §6334(a)(8) (1989 and Supp. 1997). There is no evidence that plaintiff's receipt of money from his employer designated for child care is pursuant to a valid judgment.

For these reasons, defendant's Motion to Dismiss (Docket No.4) is GRANTED and plaintiff's complaint is DISMISSED.

SO ORDERED.

¹ See Docket No. 7, Page 2, note 1.

² In paragraph 11 of the complaint, plaintiff alleges that defendant disallows "the remaining $20.04/week of exemption unused by Property and Management Connection, Inc. for wages . . ."

³ The specific exceptions from the Act and the topics they address are: Sections 6212(a) and (c), 6213(a) (notices and restrictions applicable to deficiencies); 6672(b) (failure to collect and pay tax); 6694(c) (income tax preparer); 7426(a) and (B)(1) (actions by persons other than taxpayers and 7429(b) (jeopardy tax assessment). None of the foregoing statutory exceptions apply to plaintiff. 

 

 

 

[99-2 USTC ¶50,647] Joseph T. McGinness, Plaintiff v. Commissioner of Internal Revenue Service, et al., Defendants

U.S. District Court, No. Dist. Ohio , East. Div., 1:93 CV 1258, 6/22/99 , 83 FSupp 2 d 889

On remand from CA-6

96-2 USTC ¶50,434 , 90 F3d 143.

[Code Sec. 6334 ]

Property exempt from levy: Child support payments: Wrongful levy.--Tax levies that were issued while a taxpayer's child support payments were delinquent were not wrongful because the taxpayer was no longer delinquent on the payments when funds were transferred to the government pursuant to the levies.

[Code Sec. 7426 ]

Wrongful levy suit: Court-appointed receiver: Taxpayer's property.--A delinquent taxpayer's court-appointed receiver did not hold a senior interest in funds levied upon by the IRS because the tax liens arose before he acquired lien creditor status via his appointment as receiver.
ORDER

OLIVER, JR., District Judge:

Plaintiff, Joseph T. McGinness ("Plaintiff"), brings this action against Defendant, Commissioner of Internal Revenue Service ("Defendant or IRS"), pursuant to Internal Revenue Code ("I.R.C.") §7426, seeking reimbursement of funds levied upon by Defendants. Plaintiff originally named the Commissioner of the IRS, the District Director of the IRS, Attorney General of the United States , Janet Reno, United States Attorney for the Northern District of Ohio, Emily Sweeney, and Iraj Derakhshan as Defendants in the instant matter. However, because the dispute in the instant matter involves funds levied upon by the IRS, the government officials named in the Complaint are improperly named. Thus, for the purposes of the instant order, the term "Defendant" refers to the real party in interest, the IRS. Iraj Derakhshan is named as a Defendant, but he has not made an appearance in this case. In any event, he is a nominal party; the dispute in the instant matter is between Plaintiff, as receiver, and the IRS.

Currently pending before the court are cross-motions for summary judgment. For the reasons set forth below, Plaintiff's Motion for Summary Judgment (Doc. No. 30) is denied, and Defendant's Motion for Summary Judgment (Doc. No. 31) is granted.

I. FACTS

On October 19, 1990 , the Lake County Court of Common Pleas, Ohio, appointed Plaintiff receiver to take possession of the property of Iraj Derkhshan ("Derkhshan"), M.D. Plaintiff took possession of Derkhshan's property to satisfy a judgment in a divorce action between Derkhshan and his former wife, Linda Jaenson. The Common Pleas Court ordered Nationwide Mutual Insurance ("Nationwide"), a fiscal intermediary for disbursement of Medicare claims, to tender all funds due to Derakhshan or a professional corporation bearing his name that were in their possession or which might become a due in the future to Plaintiff.

Notices of Levy, dated November 21, 1991 , and April 21, 1992 , were issued by Defendant to Nationwide. These levies were in the amounts of $407,059.49 and $468,679.54, respectively. On July 19, 1993 , pursuant to the previously filed notices of levy, Defendant received $80,497.27 from Nationwide.

On June 15, 1993 , Plaintiff brought the instant matter, seeking reimbursement of the funds levied upon by Defendant. Defendant moved to dismiss Plaintiff's Complaint, arguing that Plaintiff, as receiver, stood in the place of the taxpayer and, therefore, lacked standing to bring this suit. ¹ In granting Defendant's Motion to Dismiss, the court adopted a report and recommendation which concluded that Plaintiff did stand in the place of the taxpayer. Consequently, this court concluded that Plaintiff could not meet the prerequisites necessary for a third party to sue the United States for interference with its property rights. However, on appeal, the Sixth Circuit Court of Appeals concluded that Plaintiff did not stand in the place of the taxpayer. As such, this matter was reversed and remanded for proceedings consistent with that court's decision. The appeals court concluded that Plaintiff had fulfilled the first two prerequisites in establishing Defendant's waiver of sovereign immunity. However, the instant matter was remanded to this court for determination of whether the levy was wrongful.

II. SUMMARY JUDGMENT STANDARD

Federal Rule of Civil Procedure 56(c) governs summary judgment motions and provides:

The judgment sought 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. . . .

Rule 56(e) specifies the materials properly submitted in connection with a motion for summary judgment:

Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. . . . The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits. 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 denial 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.

However, the movant is not required to file affidavits or other similar materials negating a claim on which its opponent bears the burden of proof, so long as the movant relies upon the absence of the essential element in the pleadings, depositions, answers to interrogatories, and admissions on file. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).

In reviewing summary judgment motions, this court must view the evidence in a light most favorable to the non-moving party to determine whether a genuine issue of material fact exists. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970); White v. Turfway Park Racing Ass'n, Inc., 909 F.2d 941, 943-44 (6th Cir. 1990). A fact is "material" only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Determination of whether a factual issue is "genuine" requires consideration of the applicable evidentiary standards. Thus, in most civil cases the Court must decide "whether reasonable jurors could find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict." Id. at 252.

Summary judgment is appropriate whenever the non-moving party 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. Celotex, 477 U.S. at 322. Moreover, "the trial court no longer has a duty to search the entire record to establish that it is bereft of a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80 (6th Cir. 1980) (citing Frito-Lay, Inc. v. Willoughby, 863 F.2d 1029, 1034 (D.C. Cir. 1988)). The non-moving party is under an affirmative duty to point out specific facts in the record as it has been established which create a genuine issue of material fact. Fulson v. City of Columbus , 801 F. Supp. 1, 4 (S.D. Ohio 1992). The non-movant must show more than a scintilla of evidence to overcome summary judgment; it is not enough for the non-moving party to show that there is some metaphysical doubt as to material facts. Id.

III. LAW AND ANALYSIS

A. Was the Levy Wrongful?

The United States , as a sovereign, cannot be sued for damages without its prior consent, and the terms of its consent define the court's subject matter jurisdiction. See McGinniss [96-2 USTC ¶50,434], 90 F.3d at 145. Section 7426 of the I.R.C. provides the exclusive remedy for persons whose property has been wrongfully levied upon by the United States in payment of another person's liability. Texas Commerce Bank Fort Worth, N.A. v. United States [90-1 USTC ¶50,155], 896 F.2d 152, 156 (5th Cir. 1990).

To establish a waiver of sovereign immunity under §7426, a plaintiff must show: (1) that the plaintiff is not the party against whom the tax is assessed; (2) that the plaintiff has a legally cognizable interest in the property; and (3) that the property was wrongfully levied upon. McGinness [96-2 USTC ¶50,434], 90 F.3d at 145; see generally United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713 (1985). With regard to the third element, a levy is wrongful if: (1) it is placed on property exempt from a levy under 26 U.S.C. §6334; or (2) it is placed on property in which the delinquent taxpayer had no interest; or (3) it is invalid under 26 U.S.C. §6323 or §6324(a)(2) or (b) ²; or (4) the plaintiff's interest in property is senior to the federal tax lien and will be destroyed by the levy. 26 C.F.R. §301.7426-1 (1996); McGinness [96-2 USTC ¶50,434], 90 F.3d at 147.

Plaintiff argues that the levies in the instant matter were wrongful because the relevant funds are necessary to satisfy outstanding child support payments. He relies upon 26 U.S.C. §6334 which, in relevant part, states:

(a) Enumeration. There shall be exempt from levy--

(8) Judgments for support of minor children. If a taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

In relying upon §6334, Plaintiff points to a Lake County Common Pleas Court order dated October 23, 1991 . In that order, Derakhshan was held in contempt for failure to pay, inter alia, $39,132.28 in pre-decree child support. Derakhshan was also held in contempt for failure to pay $8,350 in post-decree child support. Thus, according to Plaintiff, because Derakhshan's child support payments were delinquent, the levies filed upon the relevant funds were void ab initio Plaintiff's Brief in Opp. at 8.

Defendant argues that, at the time the levies were issued, Derakhshan was not delinquent in his child support payments; therefore, the relevant funds were not exempt from levy under §6334. Consequently, Defendant maintains, the levies were not wrongful.

The court agrees with Defendant. The relevant regulation, 29 C.F.R. §301.6334(8), is particularly instructive when interpreting §6334(8). Section 301.6334(8), in relevant part, reads:

(a) Enumeration. In addition to exemptions allowed as a matter of Internal Revenue Service policy, there shall be exempt from levy--

(8) Judgments for support of minor children. If the taxpayer is required under any or order or decree . . . entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or income as is necessary to comply with such order or decree. The taxpayer must establish the amount necessary to comply with the order or decree. The district director is not required to release a levy until such time as he is satisfied that the amount to be released from levy will actually be applied in satisfaction of the support of obligation.

29 C.F.R. §301.6334(8). Examination of the record reveals that although the Common Pleas Court order, dated October 23, 1991, held Derakhshan in contempt for failure to pay $39,132.28 in pre-decree child support and $8,350 in post-decree child support, when Nationwide transferred funds to Defendant pursuant to the relevant levies, both delinquent amounts were paid in full. Specifically, the record indicates that Derakhshan satisfied the pre-decree child support amount with a check dated November 12, 1991, in the amount of $49,306. See Defendant's Brief in Opp. to Summary Judgment Ex. 30. See id. The post-decree child support was paid by a check dated July 17, 1992, in the amount of $14,000. The levies were noticed on November 21, 1991, and April 21, 1992; however, the funds paid pursuant to those levies were not transferred to Defendant until July 14, 1993. Thus, although Plaintiff has attached a statement indicating that Derakhshan was delinquent in his payments of child support as of October 28, 1997, the relevant inquiry is whether Derakhshan owed child support as of July 14, 1993, the date Nationwide transferred the relevant funds to Defendant. Because the transfer of funds from Nationwide to Defendant was not continuing in nature and there is no indication that there was an outstanding balance for child support on July 14, 1993, Plaintiff is unable to establish a particular amount of the relevant funds that was necessary to bring Derakhshan in compliance with the Common Pleas Court order. That is, absent a delinquent balance in Derakhshan's child support payments at the time Nationwide transferred the relevant funds to Defendant, those funds were not necessary for Derakhshan's compliance with the Common Pleas Court 's order. In determining whether the levy was wrongful, the court cannot properly consider amounts of child support that became due after Defendant received payment from Nationwide. Therefore, notwithstanding the fact that Plaintiff has submitted evidence indicating that as of October 1997 Derakhshan owed a substantial amount of delinquent child support, the fact that, as of July 14, 1993, no amount of the funds from Nationwide was necessary to bring Derakhshan in compliance with the Common Pleas Court order is controlling.

Although Plaintiff does not argue that the levies were wrongful because: (1) it was placed on property in which Derakhshan had no interest; or (2) they were invalid under 26 U.S.C. §6323 or §6324(a)(2) or (b), he does maintain that his status as a lien creditor arose before Defendant filed its tax liens against Derakhshan. However, the record indicates that Defendant's liens arose before Plaintiff acquired lien creditor status. Exhibits 21 and 22 of the Government's Brief in Opposition to Summary Judgment detail liens that Defendant filed against Derakhshan on February 6, 1987 , in the amount of $14,716.38 and December 31, 1986 , in the amount of $83,201.88. Plaintiff was not appointed receiver by the Lake County Court of Common Pleas until October 19, 1990 . Therefore, it is clear that Plaintiff's interest in the relevant funds is not senior to Defendant's interest. Inasmuch as Plaintiff cannot establish that the relevant funds were necessary to comply with the Common Pleas Court's order, and Defendant's liens arose prior to Plaintiff's interest, the levies were not wrongful under §6334(8). Consequently, Defendants are entitled to judgment as a matter of law. Because of the nature of its ruling herein, the court finds it unnecessary to address the other arguments advanced by the parties.

IV. CONCLUSION

In sum, for the above stated reasons, Plaintiff's Motion for Summary Judgment (Doc. No. 30) is denied, and Defendants' Motion for Summary Judgment (Doc. No. 31) is granted.

IT IS SO ORDERED.

¹ Pursuant to I.R.C. §7426(a)(1), there are three prerequisites for establishing waiver of sovereign immunity: (1) "the person asserting a wrongful levy claim must not be one against whom the tax is assessed;" (2) "that person must claim a legally cognizable interest in the property;" and (3) "the property must have been wrongfully levied upon." McGinness v. United States [96-2 USTC ¶50,434], 90 F.3d 143, 145 (6th Cir. 1996).

² "Section 6323 provides that a federal tax lien is not valid against a judgment lien creditor until notice of that lien has been properly filed and protects certain interests even when notice has been property filed." McGinness [96-2 USTC ¶50,434], 90 F.3d at 147 n.2.

Section 6324 governs special liens for estate and gift taxes. See 26 U.S.C. §6324.