6334 Annotations: Child Support- Levy
Property Exempt from Levy: Child
[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
S. District Court No. Dist. Ga., Atlanta Div., Civil Action Number
C78-1811A, C80-278A, C79-1991A,
[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.
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
5300 Powers Ferry Road
May 3, 1978
, petitioner was granted a final divorce from Michael G. Thevis in the
. 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.
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
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.
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.
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.
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.
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.
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
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
applicable regulation under this statute is §301.6334-1(a), 26 C. F.
R., Treasury Regulations on Procedure and Administration (1954 Code),
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
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
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.
for the foregoing reasons, petitioner's motion to release funds is
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
[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
, Defendants. Althea Jones and Richard Gidron, Defendants-Appellees.
Richard Gidron and The
U.S. Court of Appeals, 2nd Circuit, 91-6067, 91-6083,
, Affirming and reversing a District Court decision, 90-2
USTC ¶50,524 , 749 F.Supp. 79
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 (
) 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.
Sosin, Alspector, Sosin, Mittenthal & Barson, P.C., 30100 Telegraph
Rd., Birmingham, Mich., for Althea Jones. Steven K. Meier, Shatz, Meier
18 E. 48th St.
, 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.
CARDAMONE, MINER and MAHONEY, Circuit Judges.
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).
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
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.
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.
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
December 9, 1988
. 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.
("Jones") claimed priority to the funds by reason of a
January 6, 1988
judgment of filiation and order for support entered by a
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
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.
claimed priority by reason of a stipulation of settlement, dated
December 11, 1985
, allegedly entered in the New York Supreme Court,
. 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
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
November 9, 1987
and for the unpaid 1987 taxes on
June 6, 1988
. Federal tax lien notices were filed on
December 5, 1988
, the place of the Holyfield-Thomas fight, and on
December 8, 1988
, 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.
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.
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
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.
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.
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.
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
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.
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:
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.
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).
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
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.
"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.
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).
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) (
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
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.").
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.
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).
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
USTC ¶9482 ], 472
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
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
purported to assign to Gidron a portion of his interest in income to be
earned some time in the future. Under
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.
, 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
) ("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
v. Gold Metal Packing Corp., 54 Misc. 2d 708, 710, 283 N.Y.S.2d 611,
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.").
government's liens attached when the assessments were made in 1987 and
1988, but Gidron only acquired a future interest in the prizefight
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).
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
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.
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.
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
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)
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."
§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.
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),
Court of Appeals, 6th Circuit, 93-6478, 93-6590,
, 46 F3d 21, 46 F3d 21. Reversing and remanding a District Court
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.
Kellerman, Middleton & Rautlinger, 2500 Brown & Williamson
Tower, Louisville, Ky. 40202, for plaintiff-appellee (Woods, R.S.). R.
Thomas Blackburn, Jr.,
2301 S. Third St.
, 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
, for defendant-appellant (
and BATCHELDER, Circuit Judges; and EDGAR, District Judge. *
interpleader action the
United States of America
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
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
Kentucky Revenue Cabinet
; and David Simpson's former wife, Jimmi Jones. The
removed the case to federal court.
Simpson's claim to the interpleaded funds was dismissed by the district
court. He has not appealed. The
' claim is for David Simpson's unpaid income taxes, penalties and lien
fees for the years 1973 through 1987 totaling $331,434.52. The
filed a notice of federal tax lien with the Jefferson County, Kentucky
Court Clerk on
October 13, 1988
had recorded its lien for state taxes on
July 28, 1988
. As of
March 25, 1993
, David Simpson owed
$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.
There is no
question that the lien of the
is superior to that of the
. Both the federal and state tax liens were filed before the debtor,
David Simpson, acquired his inheritance. Even though
's lien was recorded before that of the
, these liens attached simultaneously when David Simpson acquired his
property interest in the estate of Mary Simpson at the time of her
lien, therefore, has priority. United States v. McDermott [93-1
USTC ¶50,164 ], --
1526, 1530, 123 L.Ed.2d 128, 136 (1993).
The lien of
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
[54-1 USTC ¶9191 ],
347 U.S. 81, 85 (1954)).
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:
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
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
, 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.
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).
Since the tax
liability to the
is well in excess of David Simpson's inheritance, the
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
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,
United States of America
District Court, No. Dist.
, West. Div., 3:96 CV 7509,
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.
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
This is an
action seeking monetary damages, injunctive and declaratory relief
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.
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.
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
for monies wrongfully levied. In response, defendant filed a Motion to
TO DISMISS STANDARD
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.
, 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.
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."
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.
(citing Nishiyama v.
, 814 F.2d 277, 279 (6th Cir. 1987)).
"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).
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
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.
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 . . ."
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
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.
Dept. of Treasury, 960 F.2d 187 (1st Cir 1991); Banjenski v.
Chivatero, 818 F.Supp. 1085 (N.D.
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).
fails to allege compliance with the statutory prerequisites.
Consequently, this court lacks jurisdiction of plaintiff's
refund/wrongful levy claim.
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.
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).
Anti-Injunction Act serves two related purposes. The primary purpose is
to "to permit the
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).
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.
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.
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)
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.
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
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.
reasons, defendant's Motion to Dismiss (Docket No.4) is GRANTED
and plaintiff's complaint is DISMISSED.
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
District Court, No. Dist.
, East. Div., 1:93 CV 1258,
, 83 FSupp 2 d 889
On remand from CA-6
USTC ¶50,434 , 90 F3d 143.
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.
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.
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
, 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
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.
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
November 21, 1991
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.
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
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.
SUMMARY JUDGMENT STANDARD
of Civil Procedure 56(c) governs summary judgment motions and provides:
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. . . .
specifies the materials properly submitted in connection with a motion
for summary judgment:
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.
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
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.,
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
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."
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
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
, 801 F. Supp. 1, 4 (S.D.
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.
LAW AND ANALYSIS
A. Was the Levy Wrongful?
, 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
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.
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,
Enumeration. There shall be exempt from levy--
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.
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.
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.
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:
In addition to exemptions allowed as a matter of Internal Revenue
Service policy, there shall be exempt from levy--
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
C.F.R. §301.6334(8). Examination of the record reveals that although
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.
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.
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
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).
"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.
governs special liens for estate and gift taxes. See 26 U.S.C. §6324.