Annotations- Retirement Accounts- Levy
Property Exempt from
Levy: Retirement Accounts
USTC ¶50,354] In re Thomas J. Taylor, Hattie M. Taylor, Debtors
Bankruptcy Court, Dist. Md., Rockville, 90-4-3273-PM,
401 , 6321 and 6334 ]
Liens: Validity: Exemption: Qualified retirement account:
The bar against assignment or alienation of a qualified retirement
account does not preclude a tax levy or a judgment in favor of the
government resulting from unpaid taxes. Because the IRS obtained neither
a pre-bankruptcy petition levy nor a judgment as provided in Reg.
§1.401(a)-13(b)(2) , its lien is inchoate regarding such
asset. The federal tax lien on the remaining property became choate
before the bankruptcy petition was filed and constitutes a valid
prebankruptcy petition lien on such property. After deducting from the
debtor's assets the value attributable to the retirement account and the
value of a secured claim on an automobile, the remaining value of the
debtor's property was determined and was considered the extent of the
IRS's secured claim on the prepetition tax lien. The balance of the IRS
claim was considered an unsecured priority claim.
Lawrence Toombs, Murray & Price, 1915 I St., N.W., Washington, D.C.
20006-2107, for debtors.
Blaskopf, Department of Justice,
, for IRS.
the court is debtors' objection to the allowance of certain claims by
the Internal Revenue Service ("IRS") and for valuation of
security. The IRS on
November 14, 1990
, filed a timely proof of claim in the amount of $64,154.52 claiming all
but $7,462.65 as secured. Certain facts, as summarized below, are
pursuant to 26 U.S.C §6323(f)(1)(A)
, the IRS filed a tax lien against the debtors in the Circuit
April 19, 1989
. The debtors filed this case under Chapter 13 of the Bankruptcy Code on
October 2, 1990
. Debtors' Chapter 13 statement shows ownership of personal property
valued at $30,740.16 and no real property. Prior to debtors' Chapter 13
filing, the IRS had done nothing further after filing the tax lien to
obtain payment such as levy, obtain a judgment or do any other act, with
respect to any property of the debtor.
issue before this court is the validity and extent of IRS liens with
respect to certain property, namely (1) multiple retirement accounts
that debtors claim are qualified pursuant to the Internal Revenue Code,
26 U.S.C. §401 ; (2) A 1986 Toyota
Cressida automobile, the $975.06 equity of which is claimed exempt by
the debtor; (3) $200.00 in bank deposits which are similarly claimed by
the debtor as exempt; and (4) various items of tangible personal
property said to aggregate $4572.25 in value 1.
starting point for analysis is the Federal Tax Lien Act of 1966 (the
"Tax Lien Act"). 26 U.S.C.S. §§6321
et seq. 2 The statute
sets forth the three requirements for the creation of a Federal tax
lien: (1) an assessment by the IRS of the tax liability; (2) demand by
the IRS for payment of the tax liability; and (3) failure on the part of
the taxpayer to pay. A valid tax lien arises as to all property without
the federal government filing notice thereof in a public recordation
system. The procedure for filing and effect of such notice of the lien
is set out in 26 U.S.C. §6323 .
26 U.S.C. §6331 , if any person
liable to pay any tax fails to pay the same within ten days after notice
and demand, the Secretary of the Treasury or a delegate may proceed to
collect such taxes by levy upon all property and rights to property
belonging to the taxpayer.
broad pervasive language of the nature of the lien contained in §6321 may be contrasted
with the narrow limits of §6334
providing specific exemptions from levy, none of these being
applicable to this case.
the filed tax lien by the IRS, the
has a lien on all of the property of the debtors, including the property
that is the subject of this action unless exceptions exist. We shall now
deal with each item of property in turn.
RETIREMENT AND SAVINGS ACCOUNTS 3
is no dispute that the retirement and savings accounts (jointly the
"accounts") are qualified accounts pursuant to 26 U.S.C.S. §401(a) . Under the plan,
assignment or alienation of these accounts are prohibited.
§1.401(a)-13(b)(2) (as amended in 1990) provides as follows:
Federal tax levies and judgments. A plan provision satisfying the
requirements of subparagraph (1) of this paragraph shall not preclude
The enforcement of Federal tax levy made pursuant to section 6331 .
The Collection by the
on a judgment resulting from an unpaid tax assessment.
§1.401(a)-13(b)(2) (as amended in 1990).
such as these have the power of statutes and "must be sustained
unless unreasonable and plainly inconsistent with the revenue
statutes". Bingler v. Johnson [69-1
USTC ¶9348 ], 394 U.S. 741, 704 (1969), citing Commissioner
v. South Texas Lumber Co.[48-1
USTC ¶5922 ], 333 U.S. 496, 501 (1948).
part of the list of property exempt from levy of 26 U.S.C. §6334 provides a safe
harbor for qualified plans from tax levy however regulations
circumscribe how the IRS may pursue qualified plans. Treas. Reg.
§1.401(a)-13(b)(2) (as amended in 1990). Therefore, accounts
such as these may properly be subject to either a tax levy or a judgment
in favor of the
resulting from unpaid taxes. Here the IRS neither obtained a
pre-petition levy or judgment on these accounts. It has only obtained a
filed tax lien. Under the above regulation, the mere filing of tax liens
effected no transfer of interest in a qualified plan.
as the IRS obtained neither a pre-petition levy nor judgment with
respect to these accounts, its lien is inchoate, vis a vis the accounts.
that the validity and extent of the Federal tax liens on the remaining
property presents common issues of law and fact, the court will dispose
of these items collectively.
assert that in order for the IRS to have a valid interest in the
remaining property, it must have complied with the applicable state law
requirements. Specifically, the debtors assert that the IRS would be
with respect to the automobile, to perfect their interest by filing a
form with the state department of transportation;
with respect to the bank accounts, to serve legal process upon the
with respect to the remaining assets, to take possession of the assets
or obtain a security interest in the property under applicable state
assertion is clearly contradictory to the provisions of §6321 that provides, as we
have stated above, that the tax lien, in this instance a filed tax lien,
is a lien on all of the property of the debtor, whether real or
personal, unless exceptions exist. The court has found, and debtors have
cited, no exception in either the Internal Revenue Code or the
Bankruptcy Code or IRS regulations that would provide for unique
treatment of the remaining property.
as the federal tax lien on the remaining property became choate prior to
the filing of the bankruptcy petition, the IRS was not required to take
any other action and therefore the court finds there exists a valid
pre-petition lien on the remaining property.
determined the validity of the federal tax liens, the court now turns to
the extent of these liens given the debtors Chapter 13 bankruptcy. It is
a fundamental principle of bankruptcy law that a creditor is only
secured to the extent of the value of such creditor's interest in the
estate's interest in such property. 11 U.S.C. §506(a). The IRS asserts
that all but $7,462.65 of its $64,154.52 is secured. The debtors'
schedules of assets show personal property in the amount of $30,740.16
and no real property. After deducting from the debtors' assets the value
attributable to the retirement accounts and the sum of $5,749.94
attributable to the value of the secured claim on the automobile, the
remaining value of the debtors' property is $4,572.25. Therefore, the
IRS's prepetition tax lien results in a secured claim to the extent of
the value of the debtors' remaining property or $4,572.25. The remaining
claim of the IRS is an unsecured priority claim.
for the debtors shall submit an order on notice in accordance with the
This value excludes a $5,749.94 secured claim with respect to the
automobile that has undisputed superior priority to the claims of the
26 U.S.C.S. §§6321
-6322 provide as follows:
. Lien for taxes.
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount (including any interest, additional amount,
addition to tax, or assessable penalty, together with any costs that may
accrue in addition thereto) shall be a lien in favor of the United
States upon all property and rights to property, whether real or
personal, belonging to such person.
. Period of lien.
another date is specifically fixed by law, the lien imposed by section 6321 shall arise at
the time the assessment is made and shall continue until the liability
for the amount so assessed (or a judgment against the taxpayer arising
out of such liability) is satisfied or becomes unenforceable by reason
of lapse of time.
College Retirement Equities Fund--Retirement Unit-Annuity Certificate
Number Q-677375-1; Teachers Insurance And Annuity Association of
--Retirement Annuity Contract Number B-677375-4; Teachers Insurance And
Annuity Association of
--Supplemental Retirement Annuity Contract Number K-302507-5; College
Retirement Equities Fund--Supplemental Retirement Unit-Annuity
Certificate Number J-302507-7;
Government Thrift Savings Plan.
the last plan is the property of the debtor, Hattie M. Taylor.
Md. Com. Law Code Ann. §§9-101 through 9-507 (1975 & Supp. 1990).
USTC ¶50,512] Theodore Shanbaum, Plaintiff-Appellant v.
United States of America
and the Pension Benefit Guaranty Corporation, Defendants-Appellees
U.S. Court of Appeals, 5th Circuit, 94-10199, 9/16/94, Affirming an
unreported District Court decision
6321 , 6331 and 6334 ]
Tax liens: Property subject to lien: Pension benefits: Levy and
distraint: Wrongful levy.--An IRS levy on qualified pension plan
benefits in order to collect unpaid income taxes of a plan retiree was
not a violation of the Employee Retirement Income Security Act of 1974
or was otherwise wrongful. The plan benefits were not specifically
exempt from collection, and, therefore, the general provision creating a
lien in favor of the government and permitting levy and collection
7422 and 7426 ]
Civil actions: Jurisdiction: Sovereign immunity.--A retiree of a
terminated qualified pension plan who had received benefits from the
Pension Benefit Guaranty Corporation (PBGC) prior to an IRS levy was
barred from bringing suit against the government for alleged violations
by the IRS of the Employee Retirement Income Security Act (ERISA). He
was also barred from bringing suit against the PBGC trustee for its
failure to pay the full amount of his guaranteed pension benefit because
the trustee honored the levy. The retiree failed to satisfy the
jurisdictional prerequisites for filing suit because he did not pay the
amount of tax due or file an administrative claim for refund so that
sovereign immunity was not waived. Nor was sovereign immunity waived by
the provision allowing an action for wrongful levy, because only a
person other than the person against whom is assessed the tax out of
which the levy arose may bring such an action. In addition, the suit was
not considered to be brought on behalf of the plan since the levy was
served on the PBGC's paying agent assigned to collect the participant's
monthly benefits, and not on the plan assets.
1717 Main St.
, for plaintiff-appellant. Nancy S. Heermans, Ralph L. Landy, 1200 K
St., Washington, D.C. 20005-4026, for defendant-appellee Pension Benefit
Guaranty Corp. Gary R. Allen, Billie L. Crowe, Ann B. Durney, Department
of Justice, Washington, D.C. 20530, Paul E. Coggins, 1100 Commerce St.,
Dallas, Tex. 75242, for defendant-appellee United States.
GARWOOD, HIGGINBOTHAM and DAVIS, Circuit Judges.
Shanbaum appeals the district court's dismissal of his suit against both
and the Pension Benefit Guaranty Corporation ("PBGC"). We
affirm the decision of the lower court.
Shanbaum is a beneficiary of the Lee Optical and Associated Companies
Pension Plan (the "Plan"), a qualified pension plan under the
Employment Retirement Income Security Act ("ERISA"). Shanbaum
retired in 1978 and began receiving pension benefits. In 1991, the Plan
was terminated and PBGC was appointed trustee of the Plan. 1 On
June 24, 1991
the Plan's prior trustee notified Shanbaum that his pension would be
reduced to the Title IV guaranteed amount. Shanbaum began receiving an
estimated monthly pension benefit of approximately $734.00 from the
PBGC, pending an initial determination of his guaranteed benefit.
Plaintiff has not yet received his initial benefit determination from
October 17, 1992
, the Internal Revenue Service ("IRS") levied upon Shanbaum's
pension benefits in order to collect his unpaid income taxes for tax
years 1974 through 1982, excluding 1979. The levy was served on State
Street Bank of
, the PBGC's paying agent. Since the levy, Shanbaum has not received any
of his monthly pension benefits because they are being paid to the IRS.
filed suit against the
seeking damages and declaratory relief on the grounds that the IRS levy
violated ERISA. Shanbaum also filed a claim against PBGC alleging that
PBGC paid him less than the full amount of his guaranteed pension
benefit under the Plan and that PBGC improperly honored the IRS notice
moved to dismiss Shanbaum's complaint, and the district court granted
the motion on the grounds that Shanbaum had not exhausted his
administrative remedies regarding the amount of his guaranteed benefit. See
29 C.F.R. §2606.7 ("[A] person aggrieved by an initial
determination of the PBGC . . . has not exhausted his or her
administrative remedies until he or she has filed a request for
reconsideration . . . or an appeal . . . and a decision granting or
denying the relief requested has been issued."). Shanbaum has not
appealed this issue. Issues not raised by the appellant are normally not
considered on appeal, and, in any event, the district court's ruling on
this issue was correct.
its order dismissing Shanbaum's cause against PBGC, the lower court did
not address the merits of Shanbaum's claim that PBGC breached its
fiduciary duty to protect Plan assets from levy by the IRS. However,
since this Court reviews de novo a dismissal of a complaint for lack of
subject matter jurisdiction or for failure to state a claim upon which
relief may be granted, Bradley v. Barnes, 989 F.2d 802, 804 (5th
Cir.1993); Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278,
284 (5th Cir.1993), we may consider whether Shanbaum's substantive claim
also supports the lower court's dismissal.
Government moved to dismiss, or alternatively for summary judgment,
contending that the court lacked subject matter jurisdiction because the
Government had not waived sovereign immunity for the action.
Additionally, the Government asserted that the facts alleged by the
taxpayer did not state a claim upon which relief could be granted.
Shanbaum also filed a motion for summary judgment claiming that the
United States had waived sovereign immunity pursuant to 29 U.S.C. §1132,
28 U.S.C. §§1331, 1340 and 1346, and section 7426 of the
Internal Revenue Code. The district court found no waiver of sovereign
immunity and granted the Government's motion to dismiss.
initially turn to Shanbaum's claim against the
. The district court was correct in holding that Shanbaum is barred from
bringing suit because the Government has not waived sovereign immunity.
may not be sued except to the extent it has consented to such by
v. Testan, 424
392, 399, 96 S.Ct. 948, 953-54, 47 L.Ed.2d 114 (1976); Smith v.
Booth, 823 F.2d 94, 96 (5th Cir.1987). A waiver of sovereign
immunity cannot be implied, but must be unequivocally expressed.
v. Mitchell, 445
535, 538, 100 S.Ct. 1349, 1351-52, 63 L.Ed.2d 607 (1980).
reliance on 29 U.S.C. §1132 is misplaced. Although this section gives
plan participants the right to bring civil actions to redress violations
of ERISA, this section does not provide a waiver of sovereign immunity
which would permit the suit to be brought against the
. 2 Similarly,
28 U.S.C. §1331 is a general jurisdiction statute and does not provide
a general waiver of sovereign immunity. Voluntary Purchasing Groups,
Inc. v. Reilly, 889 F.2d 1380, 1385 (5th Cir.1989).
assertion that 28 U.S.C. §1346 provides a waiver of sovereign immunity
is also without merit. Section 1346 is a general jurisdiction statute
that does not constitute a separate waiver of sovereign immunity. Standard
Acceptance Co. v.
, 342 F.Supp. 45, 47 (N.D.Ill.1972). Section 1346 operates in
conjunction with 26 U.S.C. §7422 to provide a waiver
of sovereign immunity in tax refund suits only when the taxpayer has
fully paid the tax and filed an administrative claim for a refund.
Neither of these jurisdictional prerequisites to a refund suit has been
met in the instant case.
26 U.S.C. §7426 does not support
Shanbaum's contention that the government waived sovereign immunity. Section 7426 expressly
provides that only a person other than the taxpayer (the person against
whom is assessed the tax out of which the levy arose) who has an
interest in or lien on the property at issue may bring a civil action
for wrongful levy of the property. Shanbaum argues that he is only a
nominal plaintiff bringing suit on behalf of the Plan, and he
characterizes the property at issue as the Plan's assets rather than his
pension benefits. His position is without merit. The IRS did not levy on
Plan assets; the levy was served on PBGC's paying agent to collect
taxpayer's monthly pension benefits as they become due. Shanbaum, the
taxpayer, instituted this suit specifically requesting to recover the
loss of the benefits.
if Shanbaum could overcome the jurisdictional issue, he would still not
prevail against the Government on the merits because his underlying
claim is based solely on the erroneous contention that the IRS levy
violated ERISA. In order for a pension plan to be qualified under ERISA,
it must state that "benefits provided under the plan may not be
assigned or alienated." 29 U.S.C. §1056(d)(1) . Shanbaum's
pension plan complied with this requirement. On the basis of this
non-alienation provision, Shanbaum attempts to argue that his pension
benefits are exempt from levy by the IRS.
Section 6321 of the
Internal Revenue Code creates a lien for unpaid taxes in favor of the
upon all property and rights to the property of the taxpayer. Under section 6331 , the IRS is
authorized to levy upon all property and rights to property belonging to
the taxpayer in order to collect his assessed income tax liabilities. See
generally United States v. National Bank of Commerce [85-2 USTC ¶9482 ],
472 U.S. 713, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). Section 6334 , which
specifically exempts certain property from levy, does not exempt pension
plan benefits from collection. 3 Moreover, section 6334(c) provides
any other law of the
(including section 207 of the Social Security Act), no property or
rights to property shall be exempt from levy other than the property
specifically made exempt by subsection (a).
also provides that it shall not be "construed to alter, amend,
modify, invalidate, impair, or supersede any law of the
. . . or any rule or regulation issued under any such law." 29
U.S.C. §1144(d). Reading the unambiguous language of Internal Revenue
Code section 6334(c) with the
mandate contained in section 1144(d) of ERISA, Shanbaum's argument that
the IRS levy authority yields to the later enacted non-alienation
provision is without merit. 4
lower court's dismissal of Shanbaum's suit against PBGC may also be
upheld on the basis that PBGC did not breach any fiduciary duty to
Shanbaum or to the Plan. Shanbaum contends that PBGC breached its
fiduciary duty by not contesting the "wrongful and illegal
levy." This contention fails because, as shown above, the IRS levy
on Shanbaum's pension benefits was not wrongful or illegal. See Quinn
v. IRS, 84-1 USTC (CCH) ¶9337, 1984 WL 25 (E.D.La.1984) (holding
trustees of employee welfare plan have no standing under §7426 to attack IRS levies
against benefits to employee-participants under the plan and any person
who complies with a levy is discharged from liability to the delinquent
Shanbaum's suit against the
is barred under the doctrine of sovereign immunity and since the IRS
levy was neither wrongful nor illegal, we affirm the district court's
dismissal of Shanbaum's actions against the
PBGC is a wholly-owned
government corporation established under ERISA to administer the
mandatory pension plan termination insurance program in Title IV. Under
the insurance program, PBGC guarantees the payment to participants of
certain pension benefits described in and limited by 29 U.S.C. §1322 in
the event a covered pension plan terminates with insufficient assets to
pay for those benefits. If a covered pension plan terminates without
sufficient funds to pay benefits, PBGC generally becomes trustee of the
plan under 29 U.S.C. §1342(c).
The only waiver of sovereign immunity found in 29 U.S.C. §1132 is found
in §1132(k), allowing specific actions against the Secretary of Labor
of which this action clearly is not one.
Section 6334(a)(6) exempts certain pension rights, but the pension
benefits at issue in this case are not among them.
Indeed, the applicable Treasury Regulation provides that pension
benefits are not protected from federal tax levies. 26 C.F.R. §1.402(a)-13(b)(2)(ii)
(plan provisions satisfying the requirements of the general rule against
assignment and alienation of benefits do not preclude enforcement of a
federal tax levy made pursuant to section
6331 ). Other courts have come to the same conclusion. See
In re Raihl [93-1
USTC ¶50,290 ], 152 B.R. 615, 618 (Bankr. 9th Cir.1993); Ameritrust
Co. v. Derakhshan [94-1
USTC ¶50,007 ], 830 F.Supp. 406, 410 (N.D.Ohio 1993); Hyde
v. United States, 93-2 USTC (CCH) ¶50,432, 1993 WL 328375 (D.Ariz
1993), aff'd on other grounds without published opinion, 26 F.3d
130 (9th Cir.1994); Jacobs v. IRS, 147 B.R. 106, 107-08
(Bankr.W.D.Pa.1992); In re Taylor, 91-2 USTC (CCH) ¶50,354, 1991
WL 185110 (Bankr.D.Md.1991); In re Perkins, 134 B.R. 408, 411
(Bankr.E.D.Cal.1991); In re Reed, 127 B.R. 244, 248
(Bankr.D.Haw.1991); Quinn v. IRS, 84-1 USTC (CCH) ¶9337, 1984 WL
USTC ¶50,117] Georgia Cort, Plaintiff v.
United States of America
District Court, No. Dist. Calif., C-91-4178-DLJ,
, 816 FSupp 574
6334 and 7430 ]
Attorneys' fees: Substantially justified government position: Levies:
Retirement accounts: Community property: State exemptions.--A
retired teacher whose state retirement fund was levied upon by the IRS
because her estranged husband owed back taxes was denied attorneys' fees
for her action to obtain a temporary restraining order against the
government because she was not the prevailing party and she did not
exhaust her administrative remedies. Her action became moot when the
estranged husband entered into a settlement agreement with the
government. However, her retirement fund was community property in which
her estranged husband had an interest under state law. The state could
not exempt the property from a levy for federal taxes, and, therefore,
the IRS's levy was substantially justified.
S. Albery, Gordon & Rees,
275 Battery St.
, for plaintiff. Thomas Moore, Assistant United States Attorney,
, for defendant.
November 18, 1992
the Court heard plaintiff's motion for attorneys' fees. Robert S. Albery
of Gordon & Rees appeared on behalf of plaintiff. Assistant United
States Attorney Thomas Moore appeared on behalf of defendant. Having
considered the papers submitted, the arguments of counsel, the
applicable law, and the entire record herein, the Court DENIES
plaintiff's motion for attorneys' fees.
action concerns a non-debtor spouse whose state retirement fund was
levied by the IRS because her husband owed back taxes. In August 1991,
the Internal Revenue Service gave notice to plaintiff Georgia Cort's
husband, Arnold Cort, that he owed approximately $122,000 in back taxes
and fines. These alleged back taxes were the result of Arnold Cort's
failure to report certain income on his 1986 income tax returns.
worked as a teacher for twenty-seven years in the
public school system, plaintiff was a beneficiary of a
state public retirement fund. In attempting to collect back taxes
allegedly owed by Arnold Cort, the Internal Revenue Service
("IRS"), through the United States Attorney, filed a lien
against the California State Teacher's Retirement Fund of Georgia Cort.
Plaintiff has been estranged from her husband for many years and has
received no income from him for at least the last ten years. Instead she
relies on the retirement fund as her source of income. See
Declaration of Georgia Cort, at 2.
a result of the attempted levy, plaintiff filed an action in this Court
for a Temporary Restraining Order ("TRO"). On
November 26, 1991
, this Court deferred the hearing on plaintiff's motion and the
government agreed to forego pursuing its lien until such time as this
Court determined whether the defendant was entitled to levy upon
plaintiff's retirement benefits. The parties stipulated that plaintiff's
scheduled hearing on the TRO be changed to a motion for summary judgment
on the issue of whether the government was entitled to levy upon
plaintiff's retirement benefits. This Court subsequently heard argument
on plaintiff's summary judgment motion.
Court did not rule on that motion as it became moot when Arnold Cort and
entered into a settlement agreement as to the IRS claim against Arnold
Cort. Plaintiff now moves for the recovery of attorneys' fees and costs
which were incurred in the prosecution of the underlying action as to
the IRS levy.
Legal Standard for Recovery of Attorneys' Fees Against the
in a Tax Case
Code Section 7430 of Title 26
7430 "), which governs the awarding of attorneys' fees
and costs against the
in a tax case, provides that:
In General--In any administrative or court proceeding which is brought
by or against the United States in connection with the determination,
collection, or refund of any tax, interest, or penalty under this title,
the prevailing party may be awarded a judgment or a settlement for--
reasonable litigation costs incurred in connection with such court
A judgment for reasonable litigation costs shall not be awarded under
subsection (a) in any court proceeding unless the court determines that
the prevailing party has exhausted the administrative remedies available
to such a party within the Internal Revenue Service.
The term "prevailing party" means any party in any proceeding
to which subsection (a) applies (other than the
or any creditor of the taxpayer involved)--
which establishes that the position of the
in the proceeding was not substantially justified,
has substantially prevailed with respect to the most significant issue
or set of issues presented, and
which meets the requirements of the 1st sentence of section
2412(d)(1)(B) of title 28, United States Code (as in effect on
October 22, 1986
) except to the extent differing procedures are established by rule of
court and meets the requirements of section 2412(d)(2)(B) of such title
28 (as so in effect).
Equal Access to Justice Act, 28 U.S.C. §2412(d)(1)(B), provides that:
party seeking an award of fees and other expenses shall within thirty
days of final judgment in the action, submit to the court an application
for fees and other expenses which shows the party is a prevailing party
and is eligible to receive an award under this subsection . . . . The
party shall also allege that the position of the
was not substantially justified.
claims that she is entitled to attorneys' fees and costs because the
defendant was not "substantially justified" in levying
plaintiff's retirement account and that therefore, this Court should
adjudge plaintiff the "prevailing party" even though the Court
never entered judgment in the underlying action. Plaintiff claims that
defendant was not "substantially justified" because defendant
had relied on California Civil Code §5120.110(a) in levying on the
community property of Arnold Cort which included an interest in
plaintiff's retirement account. California Civil Code §5120.110(a)
as otherwise expressly prohibited by statute, the community property is
liable for debts incurred by either spouse before or during marriage . .
. regardless of whether one or both spouses are parties to the debt.
Civ. Code 5120.110(a).
argues that California Code of Civil Procedure §704.110(b) sets forth
an exemption from levy against a community property asset which is a
state retirement account, by providing that:
amounts held, controlled, or in the process of distribution by a public
entity derived from contributions by the public entity or by an officer
or employee of the public entity for public retirement benefit purposes,
and all rights and benefits accrued or accruing to any persons under
public retirement system, are exempt without making a claim.
Civ. Proc. Code 704.110(b).
argues that the defendant's ability to levy against plaintiff's
retirement fund is derived from
law, and that therefore, the statutory exemption applied prohibiting
defendant from levying on the retirement account. Since defendant levied
the retirement account when it was prohibited from doing so, defendant
was not substantially justified in its actions.
plaintiff requests that the Court adjudge
to be the prevailing party based on the fact that defendant was not
substantially justified in levying on plaintiff's retirement account.
Plaintiff requests that this Court not let the fact that there was a
settlement of the underlying action deter it from pronouncing plaintiff
as the prevailing party.
counters that plaintiff has not fulfilled the three requirements of section 7430 because she
did not exhaust the administrative remedies and she was not the
prevailing party since defendant was substantially justified in levying
plaintiff's retirement fund. Section
7430 requires that the Court must decide whether or not a
party has exhausted the administrative remedies before that party could
be awarded fees. Defendant alleges that plaintiff failed to exhaust her
administrative remedies before filing suit, in that plaintiff could have
sought a review of its case before an IRS supervisor. Plaintiff argues
that it initially sought a TRO because plaintiff had a very important
financial interest in the retirement account. This issue does not need
to be resolved, since the Court will find that plaintiff was not the
prevailing party because defendant was substantially justified in
levying the retirement account. Nonetheless, plaintiff does not appear
to have satisfied the requirement that she exhaust her administrative
remedies in order to be able to be awarded attorneys' fees under the
to the other requirements of section
7430 , defendant argues that its actions were substantially
justified and therefore plaintiff could not be the prevailing party.
Under section 7430 , a position
is substantially justified if it has a reasonable basis in both law and
fact. See Timms v. United States [84-2 USTC ¶9774 ],
742 F.2d 489, 492 (9th Cir. 1984) (EAJA case considering meaning of
substantially justified). The government's position is not substantially
justified where its position is not clearly reasonable, well founded in
law and fact or solid, though not necessarily correct. Kenagy v.
United States [91-2
USTC ¶50,386 ], 942 F.2d 459 (8th Cir. 1991); Oliver v.
United States [91-1
USTC ¶50,010 ], 921 F.2d 916 (9th Cir. 1990). Further, the
plaintiff and not the
has the burden of proving that the government's litigation position was
not substantially justified. 26 U.S.C. §7430(c)(4)(A)(i) ; General
Inv. Corp. v. United States [87-2 USTC ¶9453 ],
823 F.2d 337, 342 (9th Cir. 1987).
claims that plaintiff argues that the government's position was not
substantially justified because the government levied on a retirement
fund which under state law was exempted from levy. However, defendant
argues that plaintiff has incorrectly characterized the type of levy
here in question, as the government under federal law moved to levy the
Code Section 6321 of Title 26
6321 ") states that the amount of the delinquent
taxpayer's liability "shall be a lien in favor of the
upon all property and rights to property, whether real or personal,
belonging to such person." The statute incorporates state law for
the limited purpose of ascertaining whether or not the taxpayer's
interest is "property" or "rights to property." Aquilino
v. United States [60-2 USTC ¶9538 ],
80 S.Ct. 1277 (1960). "If state law raises the taxpayer's interest
to the status of property or rights to property, federal law will cause
a lien to attach to that interest." United States v. Overman
[70-1 USTC ¶9342 ],
424 F.2d 1142, 1144 (9th Cir. 1970). Under California Civil Code §5120.110(a),
the retirement fund would be community property and therefore Arnold
Cort would have an interest in such property.
is well settled law that where a taxpayer has an interest in property
under state law, a state cannot exempt that property from a levy for
federal taxes. United States v. Mitchell [71-1
USTC ¶9451 ], 91 S.Ct. 1763, 1771 (1971); United States
v. Rodgers [83-2
USTC ¶9572 ], 103 S.Ct. 2132 (1983). A state rule of
exemption is ineffective against a
tax lien. United States v. Heffron [47-1
USTC ¶9194 ], 158 F.2d 657 (9th Cir. 1947), cert. denied,
67 S.Ct. 1510. U.S. Code Section 6634(c) Title 26 ("Section
6634") of the IRS Code provides that "no property or rights to
property shall be exempt from levy other than the property specifically
made exempt from levy by subsection (a)." In Mitchell, the
Supreme Court stated that the language of section 6634 "is specific
and it is clear and there is no room in it for automatic exemption of
property that happens to be exempt from state levy under state
law." Mitchell [71-1 USTC ¶9451 ],
91 S.Ct. at 1771.
exclusivity of section 6334 does not
permit the California Code of Civil Procedure §704.110(a) to exempt
public retirement funds from the IRS levy. Since the exemption from levy
for public pensions is ineffective against federal tax levy, the levy
properly attached Arnold Cort's community interest in his wife's
pension. United States v. Overman [70-1
USTC ¶9342 ], 424 F.2d at 1145; In re Ackerman [70-1 USTC ¶9343 ],
424 F.2d 1148 (9th Cir. 1970). Moreover, even if the Court were to find
that the government position was not correct, it is the Court's opinion
that the attempted levy had a reasonable basis in fact and law.
the government's position was substantially justified and plaintiff was
not the prevailing party. Since the plaintiff has failed to satisfy the
three requirements of section
7430 , plaintiff is not entitled to the award of attorneys'
fees and costs.
the foregoing reasons, the Court ORDERS as follows:
Plaintiff's motion for attorneys' fees is DENIED.
The Clerk of the Court shall close the file for this case.
IS SO ORDERED.
USTC ¶50,118] In re Michael Duawayne Jacobs, Sr., and Susan Irene
Jacobs, Debtors. Michael Duawayne Jacobs, Sr., and Susan Irene Jacobs,
Plaintiffs v. Internal Revenue Service, Department of the Treasury,
United States of America, and Gary J. Gaertner, Trustee, Defendants
Bankruptcy Court, West. Dist. Pa., 91-00748E,
401 , 6321 and 6334 ]
Lien for taxes: Bankruptcy: Pension plans: Alienation of benefits:
Property exempt from levy.--
The non-alienation provision of Code Sec. 401(a)(13) did not
preclude the IRS's tax lien on a bankrupt debtor's assets from attaching
to his pension plan. The pension plan at issue was not included in the
list of specific property items exempt from levy under Code Sec. 6334(a) . Further, a
spendthrift clause in the debtor's pension plan that insulated the
pension from claims of creditors under state (
) law was inoperative with respect to the debtor's federal tax
E. McBride, 504 Masonic Bldg.,
, for debtors/plaintiffs. Richard I. Miller, Internal Revenue Service,
, for defendants.
facts are not in dispute. The Internal Revenue Service ("IRS")
properly filed a tax lien on
May 2, 1991
in the office of the Prothonotary of Erie County, against Michael
Duawayne Jacobs, Sr. ("Debtor") for the years 1985 and 1986 in
the amount of $5,009.45. This Chapter 13 case was filed
September 17, 1991
. Included in the bankruptcy estate of Debtor is the following property:
Savings Account #1/37160 .................................. $ 85.00
1977 Ford Thunderbird ..................................... 45.00
Wages earned, not yet paid ................................ 520.30
Zurn Industry Pension Plan ................................ Value
dispute is whether the IRS's lien may attach to Debtor's Zurn Industry
Pension Plan. The liability for the income taxes for the years 1985 and
1986 are dischargeable and will be discharged in this bankruptcy, and
hence, will not be paid unless the IRS can establish that it has a lien
on Debtor's assets, including the pension plan. The value of the pension
plan is far in excess of the tax liability.
Debtor agrees that the pension plan is included in his estate, but
believes that the non-alienation provision of the Internal Revenue Code,
26 U.S.C. §401(a)(13) , precludes
the IRS's lien from attaching to it.
trust shall not constitute a qualified trust under this section unless
the plan of which such trust is a part provides that the benefits under
the plan may not be assigned or alienated. 26 U.S.C. §401(a)(13)
IRS contends that Treasury Regulation
1.401(a)(13) (b) provides an exception to the non-alienation
provision, by allowing the IRS lien to affix to the pension plan, as
well as the other property listed above. We find it unnecessary to
address the question of the validity of the regulation.
206(d) of The Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. §1056(d) essentially
provides for the same non-alienation provision as 26 U.S.C. §401(a)(13) (A). §206(d)(1)
of ERISA provides that each pension plan "shall provide that
benefits provided under the plan may not be assigned or alienated."
ERISA, 29 U.S.C. §1144(d) states that:
in this title shall be construed to alter, amend, modify, invalidate,
impair or supersede any law of the
. . . or any rule or regulation issued under any such law.
U.S.C. §6334(a) provides that
"there shall be exempt from levy" various specific items
enumerated in 10 subparagraphs. Subparagraph (6) relates to pensions
under the Railroad Retirement Act, the Railroad Unemployment Insurance
Act, and various military pensions. Nowhere does it exempt the type of
pension here in question.
U.S.C. §6334(c) provides:
any other law of the
. . . no property or rights to property shall be exempt from levy other
than the property specifically made exempt by subsection (a).
is apparent that the Internal Revenue Code did not intend an exemption
for pensions of the type here in question.
may assume that the spendthrift clause in Debtor's pension plan would,
law, insulate the pension from claims of creditors.
state law yields to the federal statute in this instance. As stated in U.S.
v. National Bank of Commerce [85-2 USTC ¶9482 ],
472 U.S. 713, 722, 105 S.Ct. 2919, 86 L.Ed. 2d 565 (1985):
the application of a federal revenue act, state law controls in
determining the nature of the legal interest which the taxpayer had in
the property." Aquilino v. United States [60-2
USTC ¶9538 ], 363 U.S. 509, 513 (1960), quoting Morgan v.
USTC ¶9210 ], 309 U.S. 78, 82 (1940). See also Sterling
National Bank [74-1
USTC ¶9336 ], 494 F.2d, at 921. 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." United States v. Rodgers [83-1 USTC ¶9374 ],
, at 683. "[O]nce it has been determined that state law creates
sufficient interests in the [taxpayer] to satisfy the requirements of
[the statute], state law is inoperative," and the tax consequences
thenceforth are dictated by federal law. United States v. Bess [58-2 USTC ¶9595 ],
, at 56-57. See also Fidelity & Deposit Co. of
v. New York City Housing Authority [57-1
USTC ¶9410 ], 241 F.2d 142, 144 (CA-2 1957); Note, Property
Subject to the Federal Tax Lien, 77 Harv. L. Rev. 1485, 1486-1487
at page 723, in discussing the Bess case:
law defined the nature of the taxpayer's interest in the property, but
the state-law consequences of that definition are of no concern to the
operation of the federal tax law.
the Supreme Court in this 5-4 decision held that Arkansas state law
which protected the levied bank account from levy or attachment by
creditors, where the bank account was jointly held by the taxpayers and
third parties, should yield to the right of the IRS to levy under 26
U.S.C. §6321 et seq.
Debtor argues that National Bank related to a lien on a bank
account and should not be applied to an attempted lien on an ERISA
qualified plan with spendthrift provisions. We conclude that we must
follow the expressly stated rule that state law, once having fixed the
ownership of property, is ineffective in the face of federal tax law
governing the consequence of that ownership.
to the applicable federal law, Debtor points out that the Internal
Revenue Code itself provides that a pension trust cannot be
"qualified" unless it contains spendthrift provisions, citing
26 U.S.C. §401(a)(13) , thus
evincing a legislative intent that pensions be protected from creditors'
claims. While there is merit to Debtor's argument, we observe that 26
U.S.C. §6334 provides for
specific exemptions and provides that there are no others. Included in
the specific listed exemptions are certain pension rights, but not a
pension right such as Debtor's. We must conclude that if Congress
intended all ERISA qualified plans to be exempt from IRS levy (in
addition to exemption from the levy of other creditors), it knew how to
do so and would have done so as a simple amendment to 26 U.S.C. §6334
argues that Treasury Regulation
1.401(a)-13(b)(2) is void as being contrary to the Internal
Revenue Code. Regulation
1.401(a)-13(b)(2) is as follows:
Federal tax levies and judgments. A plan provision satisfying the
requirements of subparagraph (1) of this paragraph shall not preclude
The enforcement of a federal tax levy made pursuant to section 6331 .
The collection by the
on a judgment resulting from an unpaid tax assessment.
we reach our conclusions as to the applicable rule without reference to
the Regulation. We have relied only on the statutes and the U.S. Supreme
Court. Whether the regulation is lawful or unlawful, the IRS lien in
question is valid. See also In re Perkins, 134 BR 403 (Bankr. ED
Cal. 1991); In re Connor, 1991 WL 337537 (Bankr. D. Alaska); In
re Raihl [92-1
USTC ¶50,016 ], 1991 WL 322632 (Bankr. D. Alaska).
also cites us to Patterson v. Shumate, 112 S.Ct. 2242 (1992). Shumate,
however, does not involve the Internal Revenue Code. The issue in Shumate
was whether certain assets were excluded from or a part of the
bankruptcy estate assets. More specifically, the issue was whether the
spendthrift provisions of an ERISA qualified pension plan, constituted a
restriction on the transfer of a beneficial interest of the debtor that
is enforceable "under nonbankruptcy law," under 11 U.S.C. §541(c)(2) , and hence,
enforceable in bankruptcy. The conclusion there, that the bankruptcy
trustee cannot get access to a debtor's ERISA qualified pension plan,
does not have a significant bearing on the rights of the IRS to reach
the same assets under the Internal Revenue Code.
IRS had a valid lien on all of the Debtor's assets including the pension
plan in the amount of its claim.
USTC ¶50,202] In re Elmer J. Schreiber and Linda Schreiber a/k/a Linda
Spies, Debtors. Linda Schreiber a/k/a Linda Spies, Plaintiff v. The
United States of America
, Department of the Treasury, Internal Revenue Service, Defendant
Bankruptcy Court, No. Dist.
, East. Div., 91 B 16970, 1/21/94, 163 BR 327, 163 BR 327
Bankruptcy and receivership: Lien for tax.--
In determining how much money was available to be applied against an IRS
lien for taxes, the bankrupt owners' equity in their home was determined
as of the date the home was sold, not the date the bankruptcy petition
was filed. Due to a post-petition agreement by the second mortgage
lender to settle its claim for less than the face amount, the owners'
equity in the home went from a negative amount on the date the
bankruptcy petition was filed to a positive balance. It had been argued
that, at the time of filing, there was no equity for the IRS to attach.
However, the confirmed plan of reorganization specifically mandated that
any proceeds from the sale of the home should be distributed in
accordance with local law to allowed secured claims. Thus, the proceeds
remaining after payment of the mortgage lenders were properly allocable
to the payment of the IRS's lien.
6321 and 6334 ]
Bankruptcy and receivership: Levy and distraint: Collection of tax:
Seizure of property for unpaid taxes: Retirement accounts.--
A statutorily required clause in a pension plan that precluded ordinary
creditors from attaching an employee's pension payments did not prevent
a bankrupt couple's IRA from being subject to an IRS lien. Such
anti-alienation clauses are not effective to block tax liens, tax
judgments or tax levies.
Bankruptcy and receivership: Interest on tax: Post-petition
As an over-secured creditor, the IRS was entitled to post-petition
interest from the date the bankruptcy petition was filed to the date the
secured claim was fully paid. The value of the bankrupts' available
assets following the sale of their residence was more than enough to
satisfy the pre-petition IRS lien.
Bankruptcy and receivership: Lien for taxes: Property transferred
The liability of a former wife who divorced after a tax lien was filed
and after she and her ex-husband filed a bankruptcy petition was not
limited to the value of the property apportioned to her in the divorce.
The IRS lien attached to the property, no matter who held it, and was
unaffected by the divorce proceedings.
G. Jaros, Jr., Richter & Jaros, 1200 Harger Rd., Oak Brook, Ill.
60521, for plaintiff. Samuel D. Brooks, Department of Justice,
, for defendant.
adversary proceeding relates to the bankruptcy petition of Elmer and
Linda Schreiber ("Schreibers" or "Debtors") filed
under Chapter 11 of the Bankruptcy Code, Title 11 U.S.C. Their Plan was
confirmed. Pursuant thereto, their house was later sold. The net
proceeds of that sale are here in dispute. The
asserts a tax lien against those proceeds.
Schreiber filed this action partly to determine the extent of the
government's lien on Debtors' home. Mr. Schreiber is not a party to this
adversary proceeding. Ms. Schreiber contends that, for purposes of the
Internal Revenue Service's ("IRS") lien under 11 U.S.C. S 6321 , the amount of its
allowed secured claim should be determined as of the petition date. She
thereby seeks to take advantage of certain work by her attorney during
the bankruptcy which resulted in a negotiated reduction of the second
mortgage on the house. The home has since been sold and net proceeds
resulted. The IRS claims that its lien applies to those proceeds.
Pre-bankruptcy, the IRS held a tax lien on Debtors' property of
$41,486.92. Ms. Schreiber says that the IRS had no equity to attach to
when the bankruptcy was filed, and therefore cannot claim such equity
Schreiber further maintains that Mr. Schreiber's Qualified Individual
Retirement Annuity ("IRA") should be excluded from the
property subject to the IRS lien when determining extent of that lien.
Plaintiff maintains that the IRA is exempt from the IRS lien pursuant to
Treasury Regulation 401(a) -13(b)(2),
and therefore should be excluded from Debtors' property subject to the
lien. Finally, she contends that the government lien on other property,
to the extent it applies to her, only applies to the value of
"her" portion of those properties because the Schreibers are
IRS argues that the government is an oversecured creditor, as defined by
§506(b), and thereby is entitled to post-petition interest. In
addition, the government maintains that there is no legal basis for
valuing the Schreiber's residence as of the petition date or for
excluding the IRA from the reach of its lien.
parties herein filed cross-motions for summary judgment. Both parties
have made their respective filings required under Local District Rule
12(m) and (n).
reasons discussed below, the government's allowed secured claim is
valued as of the date of sale and at the actual sale price of the home,
and Mr. Schreiber's IRA is found to be included in Debtors' property
subject to the IRS lien. After those rulings, Debtors' home equity
exceeds the amount of the IRS allowed secured claim, and so the IRS lien
and claim accrued interest post-petition.
Schreiber's contentions as to the extent of the government's lien on
other property are not supported by authority and are overruled.
by separate order the IRS motion for summary judgment is allowed and
that of Ms. Schreiber is denied. Judgment will enter accordingly.
the respective filings these facts emerge as undisputed:
the bankruptcy was filed, in addition to their home and Mr. Schreiber's
IRA, Debtors had personal property subject to the IRS lien, and that
other property is valued at $23,850.00. 1 In addition,
Mr. Schreiber owned an IRA valued at $15,856.87.
Schreibers filed their petition for relief under Chapter 11 of the
Bankruptcy Code on
August 9, 1991
. Their marriage has since been dissolved. Debtors scheduled an IRS
secured claim of $40,000 pursuant to 26 U.S.C. §6321
, for income taxes, penalties, and interest for the tax
periods ending December 1986 and 1987. In addition, an IRS unsecured
priority claim for $84,000.00 was scheduled due to an asserted 100% tax
liability of Mr. Schreiber as responsible officer of his corporate
business under 26 U.S.C. §6672 . The latter claim
arose because of withholding taxes owed by Princeton Products, Inc., for
tax periods through August of 1991.
IRS filed proofs of claims on
October 11, 1991
December 16, 1991
July 2, 1993
. The amounts sought included $41,486.92 related to the secured claim
under §6321 , and $35,016.35 for
all IRS unsecured claims under §6672
for tax periods ending September of 1991. On
September 18, 1990
, the IRS had recorded a revenue lien against the Debtors in the Cook
County, Illinois, Recorder of Deed's office for $33,772.28. Its
$41,486.92 secured claim includes pre-petition interest and penalties on
top of the recorded revenue lien.
the bankruptcy petition was filed, the IRS lien against Debtors'
residence was subordinate both to a first mortgage having a balance
between $65,000.00 and $70,000.00 and a second mortgage of $195,000.00.
Thus, on the filing date, the home was encumbered with a total of
$265,000.00 in liens superior to that of the IRS. Since the home was
appraised at $230,000.00 and ultimately sold for $231,000.00, a sum far
less than this total of pre-bankruptcy liens, Plaintiff argues that the
Debtors had no equity when the proceeding was filed. Subsequent to the
bankruptcy filing, however, through settlement the second mortgage was
allowed in the sharply reduced amount of $97,338.12, thereby lowering
the total of the two superior liens to $167,661.88, at the time of sale,
much less than the sale price.
May 28, 1992
, (nine and one-half months after the bankruptcy filing), Debtors' First
Amended Plan of Reorganization as modified ("Plan") was
confirmed herein. That Plan provided for sale of the Debtors' residence
and for distribution following sale of all proceeds according to
priorities of liens under non-bankruptcy law. On
April 30, 1993
, (eleven months after Plan confirmation) the Debtors' residence was
sold for a gross selling price of $231,100.00. After disbursing proceeds
in full payment to holders of the two mortgages and paying closing
costs, $45,022.59 remained. The parties here each seek some or all of
actual sale price of $231,100.00 may be compared to the estimated home
value of $275,000.00 scheduled by Debtors when they filed in bankruptcy,
appraised value of that property at $230,000.00, and the Debtors' asking
price of $268,500.00. Disclosure Statement at p. 10. Thus, the ultimate
sale price was very close to the appraised value reported in the
Disclosure Statement, but well below the Debtors' hopes for the sale.
litigation and negotiation, the total of mortgage liens on the property
was reduced and the house sale produced a surplus. Who gets the benefit,
Debtors or the government?
matters are before the Court pursuant to 28 U.S.C. §157, and are
referred here under Local District Rule 2.33. This Court has subject
matter jurisdiction under 28 U.S.C. §1334, and this is a core
proceeding under 28 U.S.C. §157(b)(2)(K).
order for a party to prevail on a motion for summary judgment, the
movant must meet the criteria set forth in Fed. R. Civ. P. 56 (Fed. R.
Bankr. P. 7056). A summary judgment avoids unnecessary trials when there
is no genuine issue of material fact in dispute. Trautvetter v. Quick,
916 F.2d 1140, 1147 (7th Cir. 1990).
burden is on the moving party to show that no genuine issue of material
fact is in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 322 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 585-86 (1986); Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986).
a summary judgment motion, inferences to be drawn from the underlying
facts must be viewed in the light most favorable to the party opposing
the motion. Anderson, 477
at 255; Matsushita, 475
at 586; Billups v. Methodist Hosp. of
, 922 F.2d 1300, 1302 (7th Cir. 1991). However, the existence of a
material factual dispute is sufficient only if the disputed fact is
determinative of the outcome under applicable law. Anderson, 477
at 248; Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir. 1987).
the record taken as a whole could not lead a rational trier of fact to
find for the non-moving party, there is no genuine issue for trial and
summary judgment should be granted. Matsushita, 475
Motions for Summary Judgment
each side seeks summary judgment, that does not by itself indicate that
there are no genuine issues of material fact. The Court must rule on
each motion separately in determining whether or not each judgment
should be entered, in accordance with applicable principles. ITT
Indus. Credit Co. v. D.S. America, Inc., 674 F.Supp. 1330, 1331
1987) (Shadur, J.); In re
Assoc. I, Inc., 120 B.R. 436, 442 (Bankr. N.D.
1990). See C. Wright, A. Miller & M. Kane, Federal
Practice and Procedure §2720 (2d ed. 1983 & Supp. 1987). The
Court can deny both motions if both parties fail to meet their burden. ITT,
674 F.Supp. at 1331; Wolf v.
Casualty, 617 F.Supp. 456, 458 (S.D.
1985). See C. Wright, A. Miller & M. Kane, Federal
Practice and Procedure §2720 (2d ed. 1983 & Supp. 1987).
that is not the result indicated here. For reasons discussed below,
Plaintiff's motion for summary judgement will be denied and that of the
will be allowed.
Valuation of the IRS Allowed Secured Claim
moment at which an allowed secured claim should be valued is not
expressly stated in the Bankruptcy Code. In re Melgar Enterprises,
Inc., 151 B.R. 34, 39 (Bankr. E.D.N.Y. 1993); In re Johnson,
145 B.R. 108, 112 (Bankr. S.D.
1992). Section 506(a) of the Code provides in relevant part that:
value shall be determined in light of the purpose of the valuation and
of the proposed disposition or use of such property,
and in conjunction with any hearing on such disposition or use of such
property, and in conjunction with any hearing on such disposition or use
or on a plan affecting the creditor's interest.
added) 11 U.S.C. §506(a) (1993). In accordance with the underscored
statutory language, courts determine the value of allowed secured claims
on a case-by-case basis in light of the purpose for valuation and
proposed disposition of the subject property. In re Landing
Associates, Ltd., 122 B.R. 288, 293 (Bankr. W.D. Tex. 1990) (quoting
S. Rep. No. 989, 95th Cong., 2d Sess. 68 (1978) reprinted in 1978
U.S. Code Cong. & Admin. News 5787, 5854); In re Melgar
Enterprises, Inc., 151 B.R. at 39; In re Johnson, 145 B.R. at
112. A ruling that the value of collateral is conclusively fixed on the
date a bankruptcy petition is filed would disregard the underscored
language of 11 U.S.C. §506(a) quoted above. In re Seip, 116 B.R.
709, 711 (Bankr. D.
purposes of passing on plan confirmation issues, secured claims are
valued at the time of Plan confirmation. Dewsnup v. Timm, 112
S.Ct. 773, 778 (1992); Ahlers v. Norwest Bank Worthington (In re
Ahlers), 794 F.2d 388, 399 (8th Cir. 1986) ("[f]or purposes of
a reorganization plan, the value of the collateral is to be determined
at the time for confirmation of that plan"), rev'd in part,
108 U.S. 964 (1988) (reversed solely on an unrelated issue regarding the
absolute priority rule) ; In re Melgar Enterprises, Inc., 151
B.R. at 3; In re Seip, 116 B.R. 709, 711 (Bankr. D.
valuation is ascertained dependent on the purpose for evaluation and
case circumstances, value of the property securing a claim, and thus the
allowed amount of the secured claim, may change during the course of a
bankruptcy case. 3 King, Collier on Bankruptcy, ¶506.04, pp.
506-26 (15th ed. 1993) citing Bray v. Shenandoah Federal Savings and
Loan Ass'n. (In re Snowshoe Co.), 789 F.2d 1085, 1088-9 (4th Cir.
1989). In event the property is actually sold, regardless of the purpose
for valuation, valuation of the collateral should normally be based on
the sale price, provided that such consideration is fair and was arrived
at by parties at arm's length. 3 King, Collier on Bankruptcy ¶506.04
Schreiber maintains that all secured claims must be valued as of the
bankruptcy petition filing date at a time when the liens exceeded
property value. She cites several cases that assertedly support her
position. 3 However,
those cases are all distinguishable in that they either involved
property that was merely valued but not sold, or involved claims based
on judgment liens rather than tax liens.
in contrast, we have a property that was actually sold, and the sale was
pursuant to a Plan providing for distribution at that time based on
priorities under non-bankruptcy law.
here a tax lien is involved, not a judgment lien. Tax liens are distinct
from judgment liens and are accorded preferred treatment. Taxing
authorities are granted such treatment because they are involuntary
creditors; they can neither choose their debtors nor take security in
advance of the time the taxes become due. In re New England Carpet
Co., Inc., 26 B.R. 934, 941 (Bankr. S.D.N.Y. 1983).
also relies on In re Reilly, 88 B.R. 906 (Bankr. W.D. Wis. 1987).
Reilly is factually similar to the case at hand, as the Reilly
residence was sold after Plan confirmation.
at 909. The court there held that tax liens may be avoided under §506(d)
to the extent they are under-collateralized when the bankruptcy petition
at 912. However, the court used the proceeds from the sale of the
debtor's residence, sold two years after confirmation, to determine the
amount of the allowed secured claims of the taxing authorities.
at 909, 915. That suggested that there was no difference in value at the
different dates. Consequently, there was no need to reach the timing
issue and the weight of Reilly's reasoning is doubtful. Moreover,
that case focused on the issue of when to value the property because
that value determined whether the lien in issue had value. It did not
involve the unusual circumstance present here where one of the mortgage
liens was reduced by agreement after the petition filing, thus resulting
in equity after the two mortgages were paid. Finally, terms of the
confirmed Plan there were not analogous.
re Cuisinarts, 115 B.R. 744
1990), was also cited by Plaintiff. There, the bankruptcy court rejected
the argument that allowed secured claims should be valued as of the
petition filing date. Instead, the court used the actual sales price of
the debtor's assets to determine the extent of the relevant allowed
attempt to establish the amount of the IRS allowed secured claim as of
the petition filing date is contrary to the holding of Dewsnup v.
Timm, 112 S.Ct. at 778, as applied to Chapter 11 proceedings by In
re Bloomingdale Partners, 160 B.R. 93, 97 (Bankr. N.D.
1993). In Dewsnup, the Supreme Court refused to limit the amount
of the allowed secured claim to the collateral value on the bankruptcy
filing date, under §506(a), holding that "[a]ny increase over the
judicially determined valuation during the bankruptcy rightly accrues to
the benefit of the creditor, not to the benefit of the debtor." Dewsnup,
112 S.Ct. at 778.
Bloomingdale, the Bankruptcy Judge reasoned that the Dewsnup
analysis applied as well to Chapter 11 proceedings. The opinion suggests
that, since Dewsnup requires that increases in the value of
collateral accrue to the secured creditor, then the "best
interests" test of 11 U.S.C. §1129(a)(7)(A)(ii) 4 must be
interpreted to entitle a creditor at least to the present value of its
secured claim at time of confirmation, as increased during the pendency
of the case. In re Bloomingdale, 160 B.R. at 97. Bloomingdale
found no reason why increases in value should accrue to creditors in
Chapter 7 cases but not in Chapter 11 cases.
Schreiber points out that the secured residential property was sold long
after title had revested in Debtors by Plan confirmation. The Chapter 11
Plan was confirmed in May 1992 and the residence sold in April 1993.
Therefore, Plaintiff contends that the sale date of the property is
irrelevant, as that sale occurred after the residence was no longer
property of the estate. It follows, she argues, that the only question
to be determined is whether Debtors had equity in the property as of the
this argument does not give proper weight either to the reasoning in Dewsnup
and Bloomingdale or to Article 8 of the confirmed Plan. Article 8
provided that, "in the event of the sale of the residence, the net
proceeds shall be distributed in accordance with the priorities under
local law to the allowed secured claims with any balance retained by the
Debtors." The confirmed Plan thus looked prospectively to
distribution of sale proceeds post-confirmation. A confirmed plan is a
contract, and the parties to a plan are bound by its terms. In re
Cook, 126 B.R. 575, 583 (Bankr. D.S.D. 1991). As a result, Ms.
Schreiber is bound by the terms of the Plan as confirmed. Pursuant
thereto, sale proceeds were subject to the IRS lien as of the date of
sale, for that is what Plan Article 8 requires.
the residence was sold, the Schreibers had equity available to satisfy
the IRS lien. The Schreibers' Plan looked forward to the possibility of
that happening after sale. Therefore, after distributing sale proceeds
to the senior claims, the remaining proceeds, to the extent necessary,
must be applied to satisfy the IRS allowed secured claim.
The Qualified Individual Retirement Annuity.
also argues that the IRS lien should not attach to Mr. Schreiber's
rights in his pension plan because of the "spendthrift trust"
clause in that plan. A "spendthrift trust" or
"anti-alienation" clause prevents ordinary creditors from
attaching pension payments. Such classes are statutorily required for a
plan to "qualify" under ERISA. 5 In order for
a corporation to obtain the federal tax benefits of providing a pension
plan, the plan must "qualify" under ERISA. Ms. Schreiber
relies on In re Taylor, 91-2
USTC ¶50,534 (Bankr. D. MD. 1991) and her reading of Treas. Reg.
§1.401(a)-13(b)(2) to support her argument.
§1.401(a) -13(b)(2) provides that anti-alienation clauses
are not effective to block tax judgments or tax levies. 6 If it
applies, Plaintiff's point is clearly lost. The
court, however, distinguished between tax judgments and levies and tax liens.
That court interpreted this Treasury Regulation as providing that
anti-alienation clauses, despite not being effective to preclude tax
judgments and levies, are nonetheless effective against tax liens
because tax liens were not expressly listed in the regulation. In re
Taylor, 91-2 USTC at ¶50,534 [50,354].
court declines to follow
. One who fails to pay a tax assessment or levy after notice and
demand is subject to a lien, in the amount of the unpaid tax, which
attaches "to all property and rights to property, whether real or
personal belonging to" the delinquent taxpayer. 26 U.S.C. §6321
. The Bankruptcy Code, in 11 U.S.C. §6334
, provides a list of property exempt from levy. However, even
assets exempt from levy under §6334 are
secured by a federal tax lien. United States v. Barbier [90-1
USTC ¶50,107 ], 896 F.2d 377, 378 (9th Cir. 1990). Tax liens
remain enforceable in rem against the property after discharge of
personal liability in bankruptcy. In re Isom [90-1
USTC ¶50,216 ], 901 F.2d 744 (9th Cir. 1990).
interpreting §6321 , the Supreme Court
found that Congress, when creating this lien, selected strong and clear
words to reveal a purpose to assure collection of taxes. Glass City
Bank v. United States [45-2
USTC ¶9449 ], 326 U.S. 265, 267-68 (1945). The language in
this statute "is broad and reveals on its face that Congress meant
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, 719-20 (1985). As Mr. Schreiber's beneficial interest in
his IRA is property or rights to property, it is subject to a tax lien.
Mere anti-alienation or spendthrift trust language cannot override §6321 and prevent a lien
from attaching. In re Raihl [93-1
ustc ¶50,290 ] , 152 B.R. 615, 618 (9th Cir. BAP 1993), citing
Leuschner v. First Western Bank and Trust Co. [58-2 ustc ¶9723 ],
261 F.2d 705 (9th Cir. 1958).
§514(d) of ERISA provides
that "nothing in this title shall be construed to alter, amend,
modify, invalidate, impair or supersede any law of the United States ...
or any rule or regulation issued under any such law." 29 U.S.C. §1144(d)
(1993); In re Jacobs, 147 B.R. 106, 107-8 (Bankr. W.D. Pa. 1992).
most courts addressing this issue have ruled that an IRS lien attaches
to taxpayer's interest in an IRA. In re Palmore, No. 92-C-899-C,
1993 U.S. Dist. WL 246301 (N.D. Okla. 1993); In re Raihl [93-1
USTC ¶50,290 ], 152 B.R. at 619; In re Cook, 159 B.R.
439 (E.D. Ark. 1993); In re Jacobs, 147 B.R. at 108.
506(b) provides in relevant part: "To the extent that an allowed
secured claim is secured by property the value of which ... is greater
than the amount of such claim, there shall be allowed to the holder of
such claim, interest on such claim." This provision plainly
entitles the holder of an oversecured claim to post-petition interest. United
States v. Ron Pair Enterprises, Inc. [89-1 USTC ¶9179 ],
489 U.S. 235, 241 (1989). The right to such post-petition interest is
; Rake v. Wade, 113 S.Ct. 2187, 2193 (1993).
total amount of post-petition interest to be added to principal due is
limited by the collateral value.
Ass'n v. Timbers of Inwood Forest, 484
365, 372 (1988). Post-petition interest pursuant to §506(b) is measured
from the date of petition filing until payment of the secured claim, or
until the effective date of the plan. Rake v. Wade, 113 S.Ct. at
2190; 3 King, Collier on Bankruptcy, ¶506.05, pp. 506-44 (15th
in this case, after valuing the IRS allowed secured claim as of the date
the Schreiber residence sold and including net sale proceeds therefrom,
then also including Mr. Schreiber's qualified IRA and other available
assets, the total property available to the IRS totals $84,729.46. 7 This is more
than enough to satisfy the pre-petition IRS lien in the amount of
$41,486.92. Therefore, the IRS is oversecured and entitled to all
post-petition interest under §506(b) from the date the petition was
filed until the secured claim is fully paid.
Ownership of Marital Property
Plaintiff Linda Schreiber's Motion for Summary Judgment, she argues
that, because Debtors are now divorced (subsequent to filing of the
bankruptcy), the lien as applied to herself is limited to the value of
her individual portion of those properties. For purposes of this
argument, she seems to ask that the IRS lien be valued at the time of
the divorce rather than at the time of the bankruptcy filing.
Schreiber contends that her individual portion of the properties
described in note 1 above is equal to $6,800.00. Of this amount,
$6,000.00 represents her contended interest in those joint properties.
The remaining $800.00 represents a claim owned solely by Ms. Schreiber.
Consequently, Ms. Schreiber requests that this Court determine under 11
U.S.C. §506(a) that the IRS lien as applied to her is limited to this
$6,800.00. She did not demonstrate by affidavit that the $6,000.00 value
was all of the joint properties in which she retained an interest.
than referring generally to the legislative history of 11 U.S.C. §302 , she does not
provide any case authority or other specific support for this position.
Nor did the government respond to this point. Her legally unsupported
request to limit the IRS lien to the value of property later apportioned
to her (evidently through the divorce) is denied. A lien applies to
whatever property it attaches to, no matter who holds that property.
Absent authority to the contrary, it appears evident that the government
may not be deprived of a part of its lien through or because of divorce
the foregoing reasons, Plaintiff's motion for summary judgment will be
denied. The IRS motion for summary judgment will be allowed, and Ms.
Schreiber's complaint will be dismissed. The government will be asked to
submit a proposed judgment in accord with this ruling.
The following property, excluding the Debtors' residence and Mr.
Schreiber's IRA, is listed in the Debtors' schedules:
Value Per Debtors'
Checking Account ...................................... $ 350.00
Misc. Household Goods and Furniture ................ .. 5,000.00
Jewelry, Sporting Goods, and Clothing ................. 12,000.00
Contingent and Unliquidated Claim * ................... 800.00
1985 Cadillac .......................................... 5,700.00
Total .................................................. $23,850.00
' Statement of Uncontested Facts at p. 6; Linda Schreiber's
Local Rule 12(m) Statement of Material
Facts at p. 2.
* The Debtors' schedules of claims lists this $800.00 claim as belonging to
Mrs. Schreiber for a claim against Hello World Travel.
The summary judgment papers filed by both sides demonstrate only one
value for the home--the actual price at which it was sold. Debtors'
scheduled estimate of higher value at the time the bankruptcy was filed
is merely an opinion unsupported by any affidavit demonstrating
knowledge of the home market and comparable sales in the area of their
home. Thus, there is nothing in the record (nothing at least that should
be considered under Fed. R. Civ. P. 56 (Fed. R. Bankr. P. 7056)) that
establishes any value of the home as of any of the dates in issue, other
than the actual sale price. Debtors' scheduled value upon filing stands
in this record as a mere estimate or a representation of value to the
creditors, not as evidence or establishment of value under summary
These citations include: In re Brager, 39 B.R. 441 (Bankr. E.D.
Pa. 1984); In re Wells, 52 B.R. 368 (Bankr. E.D. Pa. 1985); In
, 82 B.R. 872 (Bankr. S.D.
1987); In re Flager-At-First Associates, Ltd., 101 B.R. 372
); and In re Beard, 108 B.R. 322 (Bankr. N.D.
Each holder of a claim or interest . . . will receive or retain under
the plan on account of such claim or interest property of a value, as
of the effective date of the plan, that is not less then the amount.
. . .
added) 11 U.S.C §1129(a)(7)(A)(ii) (1993).
Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§1001 -1461.
§1.401(a)-13(b)(2) (as amended in 1990) provides as follows:
Federal tax levies and judgments. A plan provision satisfying the
requirements of subsection (1) of this paragraph shall not preclude the
The enforcement of Federal tax levy made pursuant to Section 6331 .
The Collection by the
in a judgment resulting from an unpaid tax assessment.
The Debtors' equity subject to the IRS lien of $44,772.28 consists of
$23,850.00 Property of Debtors concededly subject to the IRS lien. (See supra n.1.)
$45,022.59 Net Proceeds from sale of Debtors' residence.
$15,856.87 Mr. Schreiber's IRA
$84,729.46 Total available equity.
USTC ¶50,432] Onie L. Hyde, Plaintiff v.
United States of America
District Court, Dist. Ariz., CIV 90-1258 PHX EHC,
6331 and 6334 ]
Levy and distraint: Retirement plans: Community property.--The
IRS could levy one-half of an individual taxpayer's interest in a
retirement plan to satisfy delinquent taxes owed by the taxpayer's
husband. The husband, as a responsible corporate officer, was assessed a
tax deficiency and penalty tax for his company's failure to collect FICA
taxes. Under state (
) community property law, the husband owned a one-half interest in the
portion of his wife's retirement plan earned during the marriage.
Because the husband's interest in the plan was considered
"property" under state law, it was proper to attach a lien to
that interest under Code Sec.
Benham, James Benham, P.C. 1144 E. Jefferson St., Phoenix, Ariz. 85034,
for plaintiff. James P. Loss, Richard Glenn Patrick, 230 N. 1st Ave.,
Phoenix, Ariz. 85025, J. Scott Moede, Department of Justice, Washington,
D.C. 20530, for defendant.
Re: Motion for Summary Judgment
is a wrongful levy action brought pursuant [to] 26 U.S.C. §7426(a)(1) through which
plaintiff Onie L. Hyde seeks an injunction against enforcement of an
Internal Revenue Service (I.R.S.) levy. The parties have stipulated to
the following facts: 1
the time of bringing this action the plaintiff, Onie Hyde, was a
resident of the State of
and had been for over forty years. On
March 1, 19
65, plaintiff commenced her employment with United Dairymen of Arizona.
September 30, 19
67, Onie L. Hyde became a participant in the United Dairymen of Arizona
Trust (hereafter referred to as the benefit plan). On
August 21, 1971
, plaintiff married Farrell W. Hyde in
. Both Onie L. Hyde and Farrell W. Hyde were residents of the State of
at the time of their marriage and have been at all times since. Onie L.
Hyde's participant interest in the benefit plan was $506.36 at the time
of her marriage to Farrell W. Hyde.
W. Hyde was an officer of J.B. Architectural and Mechanical, Inc.,
6807 N. 17th Street
January 1, 1983
through and including
March 31, 1985
. As a responsible officer of J.B. Architectural and Mechanical, Inc.,
Farrell W. Hyde was assessed a 100% penalty tax pursuant to 26 U.S.C. §6672
for his willful failure to collect, truthfully account for
and pay over to the government the withheld income and FICA taxes of
J.B. Architectural and Mechanical's employees. The assessment was for
$242,693.50 representing all of 1983 and 1984, and the first quarter of
1985. This penalty tax was assessed on
April 11, 1988
income made by Onie L. Hyde as an employee of United Dairymen was used
for the benefit of the marital community. The income made by Farrell W.
Hyde as an employee of J.B. Architectural and Mechanical, Inc., was used
for the benefit of the marital community. There are no premarital
agreements which extinguish the couples' community property rights.
order to collect the §6672
penalty assessed to Farrell Hyde, on
June 26, 1990
, an I.R.S. officer prepared a notice of levy to be served on the United
July 10, 1990
, the I.R.S. mailed the notice of levy for Farrell W. Hyde's one-half
community interest in Onie L. Hyde's participant interest in the benefit
August 21, 1990
, in response to the notice of levy, the I.R.S. received a check from
the United Dairymen in the amount of $39,493.26.
May 16, 1991
the government filed a motion to dismiss pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure on the basis that the plaintiff has
failed to state a claim upon which relief can be granted, and in the
alternative for summary judgment pursuant to Rule 56, Fed. R. Civ. P.
Because the government relies on stipulated facts outside of the
pleadings, the Court will treat its motion as one for summary judgment.
See Rule 12(b), Fed. R. Civ. P. 2
government argues that under
property law, Farrell W. Hyde has a present one-half community interest
in the defined benefit plan of his wife. Because
recognizes this interest as a property right, the government argues that
his interest in the benefit plan is subject to I.R.S. levy for
delinquent taxes pursuant to 26 U.S.C. §6331 . In addition, the
government claims that the tax debt owed by Farrell W. Hyde is a debt of
the marital community, thus giving the I.R.S. the power to levy the
entire account. 3
response, plaintiff argues that because her husband could not exercise
any "present" property interest or rights, the defined benefit
plan was beyond the reach of Government levy. Plaintiff also contends
that the tax debt of Farrell Hyde as a "penalty" is his sole
and separate debt and, as such, the property of Onie L. Hyde is not
subject to levy. Plaintiff further contends that a levy on the
retirement plan rights would force a divestiture of the plan
participant's interest, which would incur unnecessary taxes and result
in the loss of accrued benefit. 4
Hyde's Interest in the Defined Benefit Plan
rights are determined by state law. Aquilino v. United States [60-2 USTC ¶9538 ],
363 U.S. 509, 513, 80 S.Ct. 1277, 1280 (1960); United States v.
USTC ¶9342 ], 424 F.2d 1142, 1146 (9th Cir. 1970). Under
law, property acquired during marriage is presumed to be community
property. A.R.S. §25 -211. Employee pension
plans are considered a deferred form of compensation and, as such, any
portion earned during marriage is community property. Koelsch v.
176, 181, 713 P.2d 1234, 1239 (1986); Johnson v. Johnson, 131
38, 41, 638 P.2d 705, 708 (1981). In the context of retirement benefits,
the Arizona Supreme Court has stated that "during marriage a
husband and wife have an equal, immediate, present, and vested interest
in the community assets." Koelsch, 713 P.2d at 1239 citing
Hatch v. Hatch, 113
130, 131, 547 P.2d 1044, 1045 (1976).
recognizes property held prior to
marriage as separate property. A.R.S. §25
-213. Accordingly, Farrell Hyde has an immediate, present,
and vested one-half interest in the portion of the benefit plan accrued
August 21, 1971
, the date of his marriage to plaintiff.
of Tax Assessments to Retirement Plans
amount of a delinquent taxpayer's liability results in a "lien in
favor of the
upon all property and rights to property." 26 U.S.C. §6321 . The levy
provisions of the Internal Revenue Code provide that the government may
levy "all property and rights to property (except such property as
is exempt under section
6334 )" belonging to delinquent taxpayers. 5
statutory language "all property and rights to property"
appearing in §6321 "is broad and
reveals on its face that Congress meant 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, 719, 105 S.Ct. 2919, 2924
(1985). Internal Revenue Code §6334(c)
states in no uncertain terms that notwithstanding other laws
, "no property or rights to property shall be exempt from levy
other than the property specifically made exempt by subsection
(a)." The plaintiff's retirement account does not fall within any
of the exceptions provided by the Code.
contends that because Farrell W. Hyde could not quit, demand
distribution, or alienate any benefit, the government could not levy the
benefit plan of the plaintiff. Plaintiff argues that by doing so the
I.R.S. wrongfully exercised a property right superior to that of Farrell
law raises the delinquent taxpayer's interest to the status of property
or rights to property, federal law will cause a lien to attach to that
interest. United States v. Overman [70-1
USTC ¶9342 ], 424 F.2d 1142 (9th Cir. 1970). "It is of
no statutory moment how extensive may be those rights under state law,
or what restrictions exist on the enjoyment of those rights."
at 1145. I.R.S. levy of the community property of a taxpayer for
separate tax debts is proper to the extent that the levy does not exceed
the taxpayer's interest in the community.
question of whether Mr. Hyde's interest in the benefit plan is subject
to I.R.S. levy involves the application of a statute and
law to an undisputed set of facts; it is strictly a question of law.
community property law, Mr. Hyde has a present, immediate, and vested
one-half interest in the benefit plan property that his wife accrued
after their marriage. Federal tax liens attach to all property and
rights to property. The levy of Mr. Hyde's interest in the benefit plan
is proper and the government is entitled to judgment as a matter of law.
IS ORDERED granting defendant's Motion for Summary Judgment (Dkt. #10).
IS FURTHER ORDERED that plaintiff's complaint is dismissed with
See Stipulation of Facts, Defendant's Motion to Dismiss or in the
Alternative for Summary Judgment, Exhibit A.
As plaintiff has treated the government's motion at one for summary
judgment, there is no issue as to whether plaintiff has been given
reasonable opportunity to present all material made pertinent to a
motion by Rule 56.
As stated supra, the government has sought to levy only one-half,
or what it defines as Farrell Hyde's community property interest, in the
Plaintiff's assertion that the penalty itself is invalid will not be
discussed because plaintiff does not have standing to contest this
issue. Accord, Pottorf v.
, 738 F.Supp. 1369, 1371 (D.
1990). Farrell Hyde may challenge the underlying tax assessment against
him in a suit for refund under 28 U.S.C. §1346(a).
Section 6334(a) provides for certain property to be exempt from levy:
(1) wearing apparel and school books; (2) fuel, provisions, furniture,
and personal effects; (3) books and tools of a trade, or business
profession; (4) unemployment benefits (5) undelivered mail; (6) certain
annuity and pension payments; (7) workmen's compensation; (8) judgments
for support of minor children; (9) minimum exemptions for wages, salary,
and other income; (10) certain service-connected disability payments.
U.S.C. 26. None of these exceptions is applicable to the circumstances
before the Court.
Depending on whether the tax penalty is determined to be a separate or
community tax debt, the Government could arguably levy the entire amount
of the benefit plan. However, as the government only seeks to levy
Farrell Hyde's interest in the benefit plan, this issues is not
currently before the Court.
United States of America
, Petitioner v. Robert E. Cleveland, Respondent
District Court, No. Dist.
, East. Div., 93 C 1767, 93 C 1768,
7481 and 7483 and Tax Court Rule 155
Summonses: Tax Court decision: Finality: Notice of appeal: Time
limit.--An individual's challenge to an action in which the
government sought enforcement of IRS summonses failed because he had not
filed a timely appeal to the Tax Court decision to which the summonses
pertained. Although the taxpayer alleged that the IRS had not served him
with a copy of the original court order, the Tax Court docket showed
that he had been served. In addition, failure to serve the court order
would not toll the 90-day filing period for appeal. Finally, his
argument that he had never been served with a copy of the IRS's
computations was without merit because service was not required and the
Tax Court records showed that he had, in fact, been served.
Levy: Social Security benefits: Not exempt.--An individual's
Social Security benefits were subject to levy by the IRS. Section 407(a) of the
Social Security Act, which generally exempts Social Security benefits
from levy and garnishment, is superseded by Code Sec. 6334(c) , which does
not provide that such benefits are exempt from IRS levy. Accordingly,
the individual's motion for order of repayment was denied.
Collection after assessment: Statute of limitations: 10-year
period.--An individual's motion for the return of his Social
Security benefits that had been levied by the IRS was denied. The IRS
levy had been proper, and the 10-year statute of limitations applied,
not the six-year period, because the period of collection of the taxes
had not expired as of
November 5, 1990
Rita Kelecius, 219 S. Dearborn St., Chicago, Ill. 60604, Gerald H.
Parshall, Calvin C. Curtis, Department of Justice, Washington, D.C.
20530, for plaintiff. Robert E. Cleveland,
134 N. LaSalle St.
, for defendant.
OPINION AND ORDER
matter comes before the court on respondent Robert E. Cleveland's motion
to dismiss, motion for order of repayment and motion for return of funds
and other relief. For the reasons set forth below, respondent's motions
case has been brought by petitioner, the United States, pursuant to 26
U.S.C. §§7402(b) and 7604(a) to obtain judicial
enforcement of two Internal Revenue Service ("IRS") summonses
served upon the respondent on September 6 and 11, 1990. The summonses
seek documents and testimony from respondent relating to (1) the
collection of federal income tax liability from the respondent for the
year 1964 as determined by the United States Tax Court in Cleveland
v. Commissioner, No. 1958-78 (Feb. 6, 1984) ("1984
Order"), and (2) the determination of respondent's outstanding
federal income tax liabilities for the period
September 1, 1989
to the present.
July 9, 1993
, respondent was ordered to appear before Judge Holderman to show cause
why he should not be compelled to obey the summonses. Respondent
responded by filing a motion to strike the petition, a motion to quash
the summonses, and a motion for a restraining order, all of which were
denied. Undaunted, respondent has filed a motion to dismiss, arguing
that the 1984 Order determining his liability for 1964 taxes never
became a final, appealable order and therefore is unenforceable.
Respondent also has moved for an order of repayment on the grounds that
the IRS has unlawfully levied upon his social security benefits and a
motion for return of funds based on expiration of the statute of
claims that the IRS failed to serve him or his attorney with a copy of
the 1984 Order. As a result, respondent argues, the 1984 Order never
became a final, appealable order and is unenforceable. In response,
petitioner argues that it had no duty to serve respondent with a copy of
the order but that, in any event, the Tax Court docket sheet reflects
that respondent was served with a copy of the order. The court takes
notice that a column on the docket sheet titled "Date Served"
indicates that respondent was served with a copy of the order on
February 6, 1984
Rule of Civil Procedure 77(d) provides that "[i]mmediately upon the
entry of an order or judgment the clerk shall serve a notice of the
entry by mail in the manner provided for in Rule 5 upon each party who
is not in default for failure to appear, and shall make a note in the
docket of the mailing." However, the clerk's failure to do so does
not affect the finality of the order or the running of the time in which
to file a notice of appeal. As the Advisory Committee Notes explain,
"Rule 77(d) as amended makes it clear that notification by the
clerk of the entry of a judgment has nothing to do with the starting of
the time for appeal; that time starts to run from the date of entry of
judgment and not from the date of notice of the entry. Notification by
the clerk is merely for the convenience of litigants."
party who wishes to appeal a decision of the Tax Court must file "a
notice of appeal with the clerk of the Tax Court within 90 days after
the decision of the Tax Court is entered." 26 U.S.C. §7483
. If the ninety days elapses without a notice of appeal being
filed, the Tax Court decision becomes final. 26 U.S.C. §7481 . These statutes,
read in conjunction with Rule 77, establish that even if the clerk had
failed to serve respondent with a copy of the 1984 Order, the ninety-day
period for filing a notice of appeal was not tolled. Respondent did not
file a notice of appeal within the requisite time period, and therefore
the 1984 Order constitutes a final, enforceable order by which
respondent is bound.
if the court were to treat respondent's motion as a motion to enlarge
the time for filing a notice of appeal, the case law provides no relief
for respondent. In Spika v. Lombard, 763 F.2d 282, 284 (7th Cir.
1985), cert. denied, 474 U.S. 1056 (1986), defendants appealed a
district court order granting plaintiffs' Rule 60(b)(6) motion
requesting the court to vacate an earlier order of dismissal and reenter
its judgment so that a timely notice of appeal could be filed. The sole
basis for the motion was plaintiffs' counsel's sworn affidavit stating
that neither he nor opposing counsel had received notice from the clerk
of the court's entry of judgment even though the docket contained a
notation that notices were mailed. The court granted the motion and the
court of appeals reversed. "Rule 77(d) bars Rule 60(b) relief when,
as here, the sole reason asserted for that relief is the failure
of a litigant to receive notice of the entry of an order or
at 286. See also In re Longardner & Assoc., 855 F.2d 455, 464
(7th Cir. 1988), cert. denied, 489
1015 (1989) (relief from a final judgment cannot be granted when the
sole reason asserted for relief is the failure of a party to receive
notice of entry of the judgment).
further grounds for his motion to dismiss, respondent claims that he was
never served with, and thus is not bound by, the computation of tax
liability filed by the IRS and adopted by the Tax Court in the 1984
proceedings. Rule 155 of the Tax Court Rules of Practice provides that
if the parties disagree about the amount of any tax deficiency
"then either of them may file with the Court a computation . . .
believed by such party to be in accordance with the Court's findings and
conclusions. The Clerk will serve upon the opposite party a notice of
such filing accompanied by a copy of such computation." However, as
discussed more fully above, a party need not receive service of a court
document in order to be bound by its contents. In addition, the court's
review of the Tax Court docket sheet indicates not only that respondent
was served with a copy of the IRS's computation on
January 4, 1984
, but that respondent filed an objection to it on
January 27, 1984
. Therefore, Respondent's motion to dismiss must fail.
for Order of Repayment
also has filed a motion for repayment claiming that the IRS has
improperly levied his social security benefits. Pursuant to an order
entered by Judge Holderman on
November 24, 1993
, respondent's social security benefits have been levied upon by the
IRS, and paid into the Registry of the Court, on a monthly basis.
Respondent asserts that social security benefits are statutorily exempt
from levy by the IRS and requests that the money collected be repaid to
him with interest. Petitioner challenges respondent's assertion and
argues that the Internal Revenue Code contains a specific provision
permitting the IRS to levy social security benefits to collect unpaid
correctly cites 42 U.S.C. §407(a)
of the Social Security Act for the proposition that social
security benefits are exempt from levy. According to section 407(a) , "None
of the moneys paid or payable or rights existing under this subchapter
shall be subject to execution, levy, attachment, garnishment or other
legal process." However, subsection (b) of the same section
recognizes that another provision of law may supersede §407 if it does so by
means of an "express reference" to the section.
respondent's protestations to the contrary, the relevant section of the
Internal Revenue Code contains just such an "express
reference." Section 6334(c) provides:
"Notwithstanding any other law of the
(including [42 U.S.C. §407 ]) no property or
rights to property shall be exempt from levy other than the property
specifically made exempt by subsection (a)." 26 U.S.C. §6334(c) (emphasis added).
Although subsection (a) of §6334
lists various property exempt from levy by the IRS, social
security benefits are not one of them.
case law confirms that social security benefits are subject to levy by
the IRS. In Cleveland v. Secretary of Health and Human Services,
No. 93 C 0994, 1993 WL 321755 (N.D. Ill.
Aug. 19, 1993
), the plaintiff (respondent in the present case) claimed that the IRS's
levy on his social security checks was wrongful. Judge Williams held
that social security benefits were subject to levy for unpaid taxes
pursuant to §6334(c)
, and granted the defendant's motion to dismiss for lack of
subject matter jurisdiction.
at *3-4. Likewise, in Bonetti v. Department of the Treasury [90-2
USTC ¶50,541 ], No. 90 C 2394, 1990 WL 155619 (S.D.N.Y.
Oct. 12, 1990
), Mr. and Mrs. Bonetti, a retired couple, contested the IRS's attempt
to levy on their social security checks to collect a tax deficiency owed
by the husband's former corporation. Like respondent in the present
case, the Bonettis argued that social security benefits were exempt from
IRS levy. The court found in favor of the IRS and held that
"[s]ection 6334(c) expressly provides that Social Security funds
are not exempt from levy."
social security benefits are subject to levy by the IRS, no claim for
repayment exists and respondent's motion must be denied.
for Return of Funds and Other Relief
claims that the IRS improperly has continued to levy upon his social
security benefits after the expiration of the statute of limitations. As
authority, respondent points to language in a prior order entered by
Judge Holderman denying respondent's motion for restraining order and
motion to quash the summonses on statute of limitations grounds:
applicable limitation period for the collection of any tax is six years
after its assessment. 26 U.S.C. §6502
. In this case, the assessments of tax, interest and
penalties were made against Mr. Cleveland for the year 1964 on
April 1, 1985
. . . . Therefore, the statute of limitations on collection for the year
1964 would not have expired until
April 1, 1991
. The summonses sought to be enforced were served on Mr. Cleveland in
September of 1990, well within the six-year limitations period.
, Nos. 93 C 1767, 93 C 1768 (N.D. Ill.
March 14, 1994
). Respondent reads this language as proof that the limitations period
for collecting 1964 taxes expired on
April 1, 1991
reference to the statute cited by Judge Holderman belies this
interpretation. According to 26 U.S.C. §6502
, once the assessment is made, the collection process need
only be commenced--not completed--within the applicable statute of
limitations. Further, section 6502(a) was amended
in 1990 to replace the six-year statute of limitations with a ten-year
statute of limitations:
the assessment of any tax imposed by this title has been made within the
period of limitation properly applicable thereto, such tax may be
collected by levy or by a proceeding in court, but only if the levy is
made or the proceeding begun--
within 10 years after the assessment of tax . . .
a timely proceeding in court for the collection of a tax is commenced,
the period during which such tax may be collected by levy shall be
extended and shall not expire until the liability for the tax (or a
judgment against the taxpayer arising from such liability) is satisfied
or becomes unenforceable.
Historical and Statutory Notes to §6502 further state that
the revised ten-year limitations period "shall apply to taxes
Nov. 5, 1990
, unless the period for collection of taxes has not expired." In
the present case, respondent's 1964 taxes were assessed on
April 1, 1985
. The six-year limitations period for collection would not have expired
March 30, 1991
, well before the
November 5, 1990
cut-off date. Therefore, pursuant to the 1990 amendment, the ten-year
period applies and respondent has no claim for return of his funds on
statute of limitations grounds.
the court sympathizes with the respondent's predicament, the court has
no choice but to apply the clear precedent governing the legal issues in
this case. Respondent's failure to receive notice of the orders entered
against him is unfortunate, but not sufficient to avoid their
consequences. Nor does the law protect social security checks from the
IRS's reach. Finally, although the general public may be dismayed by the
IRS's belated efforts to collect a 1964 tax delinquency, the petitioner
is within the limitations period Congress has enacted for collecting
this liability. Therefore, respondent's motions are denied.
motion to dismiss, motion for order of repayment, and motion for return
of funds and other relief are denied. Respondent is denied leave to file
any further motions seeking to avoid the summonses or to obtain return
of any levied funds. Within ten days, petitioner should present an
Enforcement Order and Judgment for the court's approval containing a
time and date for respondent to comply with the September 1990
USTC ¶50,538] In re Vinton Deming, Debtor. Vinton Deming, Plaintiff v.
Internal Revenue Service, Defendant
Bankruptcy Court, East. Dist. Pa., 92-17755F,
IRS levy: Retirement accounts: State exemption laws.--
A Chapter 7 debtor could not avoid the IRS's properly noticed,
prepetition tax lien on his individual retirement account, even though
the account was exempt from execution by a judgment creditor under state
(Pennsylvania) law, because the property was not exempt under Bankruptcy
Code section 522(b). State law was relevant in determining the debtor's
interest in the account; however, federal law, not state law, determined
whether the IRS could execute against his interest. Consequently, the
lien could not be avoided because there was no federal exemption from
levy for the IRA.
Goldberger, James H. Feldman, Jr.,
, for plaintiff. David M. Katinsky, Department of Justice,
, for defendant.
debtor initiated the above-captioned adversary proceeding against the
Internal Revenue Service in December, 1993. The complaint is styled
"Debtor's Complaint to Avoid a Filed Federal Tax Lien on Debtor's
Individual Retirement Account". 1 The
defendant's answer admits the existence of the challenged lien, but
denies, for a variety of reasons, that the debtor is entitled to avoid
me now for resolution are the parties' cross-motions for summary
judgment under Fed.R.Bankr.P. 7056. The debtor alleges that he is
entitled to entry of a judgment avoiding the defendant/IRS's lien on his
IRA deposit as a matter of law; the defendant asserts that lien
avoidance by a debtor of a duly noticed tax lien is not permitted and
judgment must be entered in its favor. In support of their respective
positions, the parties have submitted memoranda, reply memoranda and
following facts, which are relatively modest in complexity, are agreed
upon by the parties as relevant, undisputed and determinative of the
legal question before me.
debtor filed a voluntary chapter 7 petition in bankruptcy on
December 16, 1992
. The parties agree that the debtor owes a federal tax debt to the IRS.
In the debtor's complaint, he concedes that the IRS recorded a
"Notice of Federal Tax Lien Under Internal Revenue Laws" with
respect to this debt, and he acknowledges that the IRS presently holds a
security interest on personal property of the debtor. Complaint, ¶2.
The debtor admits that the federal tax debt is secured in favor of the
IRS "to the extent of $1,549.29 plus statutory additions under
law." Debtor's Motion for Summary Judgment, ¶2. 2
this tax lien arose from a federal tax obligation owed to the
for the tax year which ended
December 31, 1983
. The IRS recorded a Notice of Federal Tax Lien under applicable federal
internal revenue law on or about
December 16, 1987
. By virtue of federal tax law, the recordation of this notice created a
statutory lien against the debtor's real and personal property. 26
U.S.C. §6321 . 3
parties agree that the debtor opened an Individual Retirement Trust
Account in 1983 with the Berean Federal Savings Bank; as of March 1994
this account contained $3,320.34. This account is in the form of a
certificate of deposit. The certificate states that it is "not
transferable except on the books of the depository institution."
Declaration of Gerlean Silver, and Exs. A and B. 4
the debtor accepts that federal law allowed the IRS's statutory lien to
attach to the debtor's IRA deposit held by the bank. Accord In re
USTC ¶50,110 ], 150 D.R. 291, 295 (Bankr. D.R.I. 1993).
Deposits into IRA accounts are not listed among the property
"exempt from [IRS] levy" under section
6334(a) of the Internal Revenue Code. 5
law, 42 Pa.C.S.A. §8124(b)(1):
as provided in paragraph (2), 6 the
following money or other property of the judgment debtor shall be exempt
from attachment or execution on a judgment:
Any retirement or annuity fund provided for under section 401(a) , 403(a) and (b) , 408 or 409 of the Internal Revenue
Code of 1986 . . . the appreciation thereon, the income therefrom and
the benefits or annuity payable thereunder. . . . 7
state statute was intended to exempt from execution by a judgment
creditor individual retirement accounts, contributions into which are
tax deferred under the Internal Revenue Code. See Bakaric v. Bakaric,
6 D. & C. 4th 380 (C.P. Mercer 1990).
addition, 26 U.S.C. §6323(b)(1)(A)
states that the statutory tax lien is not valid with respect
to "securities 8 . . . as
against a purchaser of such security who at the time of purchase did not
have actual notice or knowledge of the existence of such lien. . .
." The debtor asserts that his IRA deposit is a
"security", while the IRS contends that it is not so
a variety of reasons, the parties disagree over whether the debtor is
empowered to avoid the IRS's statutory lien; each relies upon various
provisions of the Bankruptcy Code.
noted at the outset, the instant motions before me are cross motions for
summary judgment. The general standard for deciding a Rule 56 motion for
summary judgment, as applicable to this proceeding through Bankr.R.
7056, is as follows.
56(c) provides that a movant is entitled to summary judgment "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 judgment as a matter of law." The moving party has the
initial burden of producing evidence which demonstrates the absence of a
genuine issue of material fact. Celotex Corporation v. Catrett,
317, 325 (1986). As to materiality, the substantive law will identify
which facts are material. Anderson v. Liberty Lobby, Inc., 477
242 (1986). A court's function is not to weigh the evidence and
determine the truth of the matter, but to determine whether there is a
genuine issue for trial.
. at 251. Further, it should avoid credibility determinations, as those
must be left to the trial stage.
the application of Rule 56 must be construed with due regard not only
for the rights of persons asserting claims and defenses to summary
judgment but also for the rights of movants where such claims and
defenses have no such legitimate bases. Lujan v. National Wildlife
871 (1990); Celotex Corp., 477
at 327. For purposes of resolving these motions only, I must accept the
truth of the evidence of the non-movant offered in opposition to summary
judgment; in addition, any reasonable inferences from the evidence are
drawn in favor of the non-movant. Anderson, 477
at 255. However, when the moving party has carried its burden of
demonstrating an absence of material facts in dispute, the non-movant
must come forward with evidence showing that there is more than some
metaphysical doubt as to the material facts. Matshusita Electric
Industrial Co. v. Zenith Radio Corporation, 475
574, 586 (1986). Where the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party, there is no
"genuine issue for trial."
the evidence is merely colorable, . . . , or is not significantly
probative, . . . , summary judgment may be granted."
at 249 (cites omitted). "That this is the proper focus of the
inquiry is strongly suggested by the rule itself. Rule 56(e) provides
that, when a properly supported motion for summary judgment is made, the
adverse party 'must set forth specific facts showing that there is a
genuine issue for trial.'" Anderson, 477
at 250. Stated differently, once the moving party carries its burden,
Rule 56(e) requires the non-moving party to "designate"
specific facts showing that there is a genuine issue for trial as to
each element essential to the non-moving party's case and on which that
party will bear the burden at trial. Celotex Corp., 477
at 322, 324. Accord, Lujan v. National Wildlife Federation.
"If the adverse party does not so respond, summary judgment, if
appropriate, shall be entered against the adverse party."
F.R.Civ.P. 56(e). "[T]he opposing party is not entitled to hold
back evidence until trial, and is not entitled to a trial on the
possibility that an issue of material fact might arise if the case were
to go to trial on the merits." 6-Pt.2 J. Moore, Moore's Federal
Practice, ¶56.23 at 56-784 (2d ed. 1993). (footnotes omitted). See
Lujan v. National Wildlife Federation. 9
parties maintain, and I agree, that there are no material facts in
dispute in this proceeding. Thus, summary judgment should be entered in
favor of the party whose legal assertions are correct. Here, the
particular legal question posed is whether a chapter 7 debtor may avoid
a properly noticed, prepetition, statutory federal tax lien on property
which is exempt from execution by a judgment creditor under state law.
thoughtful memoranda submitted in this proceeding raise a number of
issues, some of which I need not resolve. In sum, and for the following
reasons, I agree with the result reached by all courts that have
considered this precise issue and conclude that the debtor is not
entitled to avoid the IRS's lien on his IRA deposit. E.g., In re
Mattis, 93 B.R. 68 (Bankr. E.D.Pa. 1988) (TWARDOWSKI, B.J.).
parties agree that the government's lien arose pursuant to the terms of
Title 26 of the United States Code, section
6321 . (See footnote 3, supra.) The Bankruptcy Code
differentiates among "security interests", "statutory
liens" and "judicial liens." 11 U.S.C. §§101(36)
, (51) , (53) . The lien in question
here arose solely by force of federal tax law, and so is classified as a
statutory lien. Accord, e.g., In re Robinson, 166 B.R. 812
(Bankr. D.Vt. 1994); In re Mills, 37 B.R. 832, 834-35 (Bankr.
section 522(f)(1), a debtor is authorized to avoid the fixing of a
judicial lien in certain circumstances. See generally In re Simonson,
758 F.2d 103 (3d Cir. 1985). Since the defendant's lien in this instance
is not a judicial lien, the provisions of section 522(f)(1) are
inapplicable. E.g., In re Senyo, 82 B.R. 401, 402 (Bankr. W.D.Pa.
1988); In re Ridgley, 81 B.R. 65, 68 (Bankr. D.Or. 1987); see
also In re
, 97 B.R. 789, 792 (Bankr. E.D.Pa.), aff'd sub nom Aikens v.
, 100 B.R. 729 (E.D.Pa.), aff'd sub nom McLean v. City of
, Water Rev. Bureau, 891 F.2d 474 (3d Cir. 1989).
the debtor seeks to avoid the IRS' lien through the provisions of
section 522(h). This subsection states:
debtor may avoid a transfer of property of the debtor or recover a
setoff to the extent that the debtor could have exempted such property
under subsection (g)(1) of this section if the trustee had avoided such
such transfer is avoidable by the trustee under section 544 , 545 , 547 , 548, 549, or 724(a) of this title or
recoverable by the trustee under section 553 of this title;
the trustee does not attempt to avoid such transfer.
defendant does not contest the general premise that the fixing of any
type of lien upon the debtors interest in property--including a
statutory lien--represents the "transfer of property of the
debtor." 11 U.S.C. §101(58) (defining
"transfer"); accord, e.g., In re Ridgley, 81 B.R. at
67-68; see In re Aspen Data Graphics, Inc., 109 B.R. 677, 680-81
(Bankr. E.D.Pa. 1990); In re Bistransin, 95 B.R. 29 (Bankr.
W.D.Pa. 1988). Further, the IRS concedes that the chapter 7 trustee is
not seeking to avoid the challenged transfer. However, the defendant
does contend that two requirements of section 522(h) cannot be
demonstrated in this proceeding.
the IRS maintains that the fixing of its statutory lien could not have
been avoided by a chapter 7 trustee using the avoidance powers found in sections 544 , 545 , 547 , 548, 549 or 724(a) . If so, then a
debtor may not use the provisions of section 522(h) to avoid the lien.
only avoidance power raised by the plaintiff is that found in section 545(2) . 10 The debtor
asserts that the statutory lien held by the IRS on his IRA deposit was
neither perfected nor enforceable against a bona fide purchaser. See
generally McLean v. City of Philadelphia, Water Rev. Bureau, 891
F.2d 474 (3d Cir. 1989). The IRS disagrees and maintains that this
taxpayer's interest in his certificate of deposit cannot be sold under
if a chapter 7 trustee could not avoid the IRS tax lien in this
bankruptcy case, the debtor can not utilize the avoidance powers found
in section 522(h). E.g., In re Sacco, 99 B.R. 647, 652 (Bankr.
W.D.Pa. 1989). While it is most logical to consider this issue first,
neither party has located any reported decision which expressly
discusses the question of the transferability of this account, under
either federal or state law. And in the context of resolving this
proceeding I am reluctant to pass on a possibly novel issue,
particularly one of state law.
I shall assume arguendo that a chapter 7 trustee could avoid the
fixing of the IRS' statutory lien upon the debtor's interest in his IRA
deposit, by virtue of section 545(2) .
See generally In re Robinson; In re Sierer, 121 B.R. 884, 886
(Bankr. N.D.Fla. 1990); see also Senate Report at S. 989 , 95th Cong. 2d
Sess. 85-86 (1978).
IRS' second contention, and the one often considered by bankruptcy
courts, is its position that this debtor could not have exempted his
interest in this IRA account under section 522(g)(1) if the trustee had
avoided the IRS's lien. By virtue of section 522(h), a debtor may only
avoid transfers of property when, inter alia, the recovered
property could be claimed as exempt under section 522(g)(1). If the IRS
is correct and the IRA account could not be claimed as exempt, then
judgment should be entered in favor of the IRS.
terms of the provisions of section 522(g)(1), it is uncontested that the
fixing of the IRS lien was "involuntary", see generally In
re Bistransin, 95 B.R. at 31, and that the debtor did not conceal
his interest in the IRA certificate of deposit. Thus, the single issue
addressed at length by these parties is whether the debtor could have
exempted his interest in the IRA deposit under section 522(b) if the
property had not been transferred. 11 Section
522(b) is relevant, because section 522(g) does not, by itself,
establish the scope of a debtor's exemption rights. To determine the
scope of an exemption, one must look to section 522(b), which may, in
turn, involve an analysis of nonbankruptcy law or the bankruptcy
exemptions found in section 522(d). Accord 2 Epstein, Bankruptcy,
§8 -22 at 524 (1992).
other words, had the IRS not obtained any prepetition statutory lien on
the debtor's interest in the IRA certificate of deposit, could the
debtor have exempted his interest in this account under relevant
nonbankruptcy law. 12 See In
re Swafford, 160 B.R. 246, 248 (Bankr. N.D.Ga. 1993). Nonbankruptcy
law must be considered because the debtor has elected his nonbankruptcy
law exemptions under section 522(b).
this point in the analysis, two general principles are worth noting.
exempt property is defined as property of the estate which a chapter 7
trustee cannot liquidate or distribute to creditors holding allowed
claims. See, Owen v. Owen, 500
305, 308 (1991) ("An exemption is an interest withdrawn from the
estate (and hence from creditors) for the benefit of the debtor");
2 Epstein, Bankruptcy, §8 -1 at 450-51 (1992).
Instead, this property is retained by or distributed to the debtor and
is to be used (along with the bankruptcy discharge) to provide the
debtor a "fresh start" after bankruptcy. See In re Turner,
724 F.2d 338, 341 (2d Cir. 1983); 2 Epstein, §8
-1 at 450-51 (1992). Thus, exempt property is protected from
the reach even of many creditors whose claims are rendered
nondischargeable by virtue of section 523. 11 U.S.C. §522(c)(1); see
2 Epstein, Bankruptcy, §8 -1 at 455 (1992):
effect of exempting property in bankruptcy is that, whatever the source
of the exemptions, the property generally is not liable during or
after the bankruptcy for any prepetition unsecured debts. Exempt
property is protected even against most nondischargeable debts. The
result is that "items * * * claimed as exempt * * * are subject
neither to the reach of (unsecured) creditors nor to administration by
the Trustee." Exempt property is removed "from the bankruptcy
estate and, [even] after discharge, from the claims of unsecured
creditors" for prepetition debts.
In re Bistransin, 95 B.R. 29, 31 n.4 (Bankr. W.D.Pa. 1989) and In
re Duss, 79 B.R. 821, 823 (Bankr. W.D.Wisc. 1987) (footnotes
omitted) (emphasis in original).
section 522(h) was enacted to empower debtors to utilize the trustee's
avoidance powers in order to protect their exemption rights. See,
e.g., Deel Rent-A-Car, Inc. v. Levine, 721 F.2d 750, 757 (11th Cir.
1983); In re Mattis, 93 D.R. 68, 69 (Bankr. E.D.Pa. 1988);
H.R.Rep. No 95-595, 95th Cong., 1st Sess. 362-63 (1977); 2 Epstein, Bankruptcy,
-23 (1992). When the avoidance of a transfer would not affect
a debtor's exemption claim, then section 522(h) does not authorize the
debtor to act. See, e.g., In re Henderson, 133 B.R. 813, 817
(Bankr. W.D.Tex. 1991) (Nowhere in the Code, including Chapter 5, is the
debtor granted standing to avoid tax liens on non-exempt property); In
re Tash, 80 B.R. 304, 305-06 (Bankr. D.N.J. 1987).
the debtor implicitly recognizes, most courts addressing the debtor's
right to avoid tax liens have, in general, not focused upon the language
of section 522(g)(1). Rather than consider expressly whether the
property liened by the IRS would have been exempt under section 522(b)
but for that lien, these courts have emphasized the provisions of
section 522(c)(2), which state:
Unless the case is dismissed, property exempted under this section is
not liable during or after the case for any debt of the debtor that
arose, or that is determined under section
502 of this title as if such debt had arisen, before the
commencement of the case, except--. . .
a debt secured by a lien that is--
not avoided under subsection (f) or (g) of this section or under section 544 , 545 , 547 , 548, 549, or 724(a) of this title; and
not voided under section 506(d) of this title; or
a tax lien, notice of which is properly filed. . . .
the legislative history surrounding section 522(c)(2) does not mention
tax liens explicitly, it does make clear that the general purpose of
this subsection was to ensure that exempt property would remain subject
to recovery to the extent it was encumbered by valid prepetition liens.
R.R. Rep. No. 595, 95th Cong., 1st Sess. 361 (1977). See, e.g., In re
Bland, 793 F.2d 1172, 1173 (11th Cir. 1986); In re Quillard [93-1
USTC ¶50,110 ], 150 B.R. at 295. This principle is often
stated that unavoided liens are unaffected by a bankruptcy filing. E.g.,
Johnson v. Home State Bank, 501 U.S. 78 (1991); Long v. Dullard,
117 U.S. 617 (1886); In re Isom, 901 F.2d 744 (9th Cir. 1990)
(the bankruptcy discharge of prepetition tax obligation does not release
a tax lien).
522(c)(2)(A) provides an exception to the usual survival of prepetition
liens after bankruptcy. If the prepetition lien is avoided under the
trustee's avoiding powers, then the exempt property is free from the
prepetition encumbrance. See, e.g., Walter v. U.S. Nat. Bank of
Johnstown, 879 F.2d 95 (3d Cir. 1989).
there is a statutory exception to this exception. The clear language of
section 522(c)(2)(B) allows a taxing authority with a properly noticed
prepetition lien on exempt property to proceed against this exempt
property once the bankruptcy stay is terminated (which will occur either
by express court order under section 362(d), or when the case is closed
or the debtor discharged as provided by section
362(c) ). See Koppersmith v.
, 156 B.R. 537 (Bankr. S.D.Tex. 1993); In re Quillard [93-1
USTC ¶50,110 ], 150 B.R. at 295 (concerning IRA accounts
claimed by the debtor as exempt under state law); Matter of Lassiter,
104 B.R. 119, 122 n.3 (Bankr. S.D.Iowa 1989). Indeed, as section
522(c)(2) is written, a properly noticed tax lien may proceed against
exempt property even if the tax lien is avoided by a trustee. 13 See
Matter of Lassiter, 104 B.R. at 122.
upon section 522(c)(2)(B), courts have found it counterintuitive to
construe section 522(h) to permit a debtor to avoid a tax lien on
property claimed as exempt when the taxing authority holding the lien
would be permitted--once the automatic stay is terminated--to recover
its claim against this exempt property. Accord, e.g., In re Robinson;
In re Swafford, 160 B.R. at 248; In re Quillard [93-1
USTC ¶50,110 ], 150 B.R. at 295; In re
, 133 B.R. 813, 817 (Bankr. W.D.Texas 1991) ("The powers
granted in §522(h) are, in turn, limited by §522(c)(2)(B) if a tax
lien is involved"); In re Williams, 109 B.R. 179, 180-81
(Bankr. W.D.N.C. 1989); In re Mattis; In re Perri, 90 B.R. 565
(Bankr. S.D.Fla. 1988); In re Ridgley; Matter of Driscoll, 57
B.R. 322 (Bankr. W.D.Wisc. 1986); In re Gerulis [85-2 USTC ¶9753 ],
56 B.R. 283, 287-88 (Bankr. D.Minn. 1985); see Matter of Lassiter,
104 B.R. at 123. Contra Matter of Coan, 72 B.R. 483 (Bankr.
M.D.Fla. 1987), vacated, 134 B.R. 670 (Bankr. M.D.Fla. 1991). 14
denying a chapter 7 or chapter 13 debtor's request to use section 522(h)
to avoid a properly noticed prepetition tax lien, these courts
implicitly or explicitly conclude that a debtor cannot claim property
which is subject to a properly noticed tax lien as exempt, due to
section 522(c)(2)(B). E.g., In re Mattis 93 B.R. at 70
("[W]e hold that Congress did not intend to allow chapter 13
debtors to circumvent the effects of §522(c)(2)(B) by invoking the
trustee's avoiding power under §545(2)
debtor argues that the provisions of section 522(c) are irrelevant to
this dispute. He suggests that I focus only upon the precise language of
section 522(h), avoid the IRS's lien, and leave perhaps for another day
(and possibly another forum) the effect of lien avoidance upon the IRS's
right to proceed against the IRA deposit. 15 In so
doing, the debtor maintains that section 522(c) is germane only to
issues surrounding a creditor's ability to reach exempt property, not
whether particular property is exempt; nor, in his view, is this
subsection relevant to a debtor's ability to avoid a transfer.
find the debtor's contention unpersuasive. His proposed statutory
construction seems either to undermine the limited purpose of section
522(h)--which is to restrict a debtor's power to avoid liens to those
instances in which the avoidance of a transfer would inure solely to the
debtor's benefit by increasing the amount of property available to be
used by the debtor at the conclusion of the bankruptcy case--or to
render section 522(c)(2)(B) meaningless. Indeed, he fails to offer any
rationale why Congress intended to permit a debtor to avoid a lien which
would then survive the bankruptcy filing even if avoided.
I agree with the result reached in decisions such as In re Mattis.
Property against which a lien creditor may recover upon after bankruptcy
is not "exempt" as to that creditor within the meaning of
section 522(b). Cf. In re Simonson, 758 F.2d at 105 (when there
are unavoidable liens which exceed the value of property, the debtor has
no interest in that property which may be claimed as exempt). Thus, the
debtor has no power to avoid a lien held by that creditor under section
reach the same conclusion in this instance even it I were to accept the
debtor's suggestion and omit any consideration of section 522(c).
noted earlier, the debtor only has authority to avoid a transfer to the
extent the debtor could exempt the recovered property under section
522(b). The debtor acknowledges that he has claimed the exemptions
permitted him under 11 U.S.C. §522(b)(2)(A), that is, those exemptions
available to him under state, local or federal nonbankruptcy law. To the
extent the debtor argues that his interest in the IRA deposit is
exemptible as to the IRS, pursuant to nonbankruptcy law, I disagree.
is long established that exemptions provided by state laws are
ineffective against the execution and the creation of statutory liens of
for federal taxes. See, e.g., Leuschner v. First Western Bank &
Trust Co. [58-2 USTC ¶9723 ],
261 F.2d 705 (9th Cir. 1958); Knox v. Great West Life Assur.
[54-1 USTC ¶9373 ],
212 F.2d 784 (8th Cir. 1954). See generally In re Fidelity Tube Corp.
[60-1 USTC ¶9446 ],
278 F.2d 776 (3d Cir. 1960), cert. denied, 364 U.S. 828 (1961); In
re Jacobs, 147 B.R. 106 (Bankr. W.D.Pa. 1992). "Federal law
controls the enforcement of federal tax liens." In re Williams,
109 B.R. at 180.
underlying considerations which gave rise to 26 U.S.C. §6321 are well understood:
the federally established right to execute upon a taxpayer's property is
an exercise of the constitutional power of Congress to "lay and
collect taxes." Michigan v. United States [43-1 USTC ¶9225 ],
317 U.S. 338 (1943); United States v. second Nat. Bank of North Miami
[74-2 USTC ¶9739 ],
502 F.2d 535 (8th Cir.), cert. denied, 421 U.S. 921 (1974).
virtue of the Supremacy Clause, the right of the federal government to
collect taxes overrides a state statute providing for the exemption of
property. Leuschner v. First Western Bank & Trust Co. This
result also obtains in the context of bankruptcy. E.g., Medaris v.
United States [89-2 USTC ¶9565 ],
884 F.2d 832 (5th Cir. 1989) (Texas statute making spouse's earning
exempt from other spouse's creditors was ineffective against federal
government with regard to its tax lien); In re Quillard [93-1
USTC ¶50,110 ], 150 B.R. at 295 (tax lien attaches to IRA
account made exempt under state law); In re Jacobs; In re Reed,
127 B.R. 244 (Bankr. D.Haw. 1991) (state exemptions do not override
reach of federal tax lien); In re May Reporting Services, Inc. [90-2
USTC ¶50,464 ], 115 B.R. 652 (Bankr. D.S.D. 1990) (federal
tax lien attaches to debtor's property which was otherwise exempt from
levy under state law); In re Cobb & Lawless Kitchens, Inc. [86-1 USTC ¶9205 ],
56 B.R. 701 (Bankr. E.D.Pa. 1986) (same).
law is relevant in determining a taxpayer's interest in property. Accord,
e.g., Aquilino v. United States [60-2 USTC ¶9538 ],
363 U.S. 509 (1960); Medaris v.
. But once that interest is determined, it is federal law, not state
law, which determines whether the IRS may execute against the debtor's
interest. E.g., U.S. v. National Dank of Commerce [85-2 USTC ¶9482 ],
472 U.S. 713, 722 (1985); Medaris v. United States; In re Jacobs; In
re Reed, 127 B.R. at 247.
26 U.S.C. §6334 establishes property
which is exempt from levy for unpaid federal taxes. See In re Jacobs;
In re Ray, 48 B.R. 534, 537 (Bankr. S.D.Ohio 1985); In re Mills,
37 B.R. 832, 835 (Bankr. E.D.Tenn. 1984). 16 The debtor
recognizes that, while state law may insulate an IRA deposit from
judgment creditors, no exemption from IRS levy exists for his interest
in the IRA certificate of deposit. Accord In re Quillard; see also In
re Jacobs, 147 B.R. at 108 (debtor's interest in a pension fund is
not exempt from IRS levy).
522(b)(2)(A) allows a debtor the option (in those states, such as
, which have not "opted out" of the federal exemptions, see
generally Owen v. Owen) to exempt any property "that is exempt
under Federal [nonbankruptcy] law . . . or State or local law. . .
." Property upon which a creditor may levy under nonbankruptcy law
cannot be claimed as exempt, at least as to that creditor, when the
debtor elects section 522(b)(2). See Matter of Driscoll, 57 B.R.
at 327 n.6 ("The debtor does receive a much smaller personal
property exemption under IRC §6334 . . . which
constitutes the sole exemption which may be claimed against a valid
federal tax lien"); In re Ray, 48 B.R. at 537; In re
Mills, 37 B.R. at 835 (insurance proceeds which were exempt under
Tennessee law were not exempt under section 522(b) from IRS levy); see
also Napotnik v. Equibank, 679 F.2d 316 (3d Cir. 1982) (entireties
property which a creditor may execute upon because it holds a joint
claim against a debtor and his spouse may not be claimed as exempt under
section 522(b)(2)(B)). 17
debtor argues that this construction of section 522(b) renders very
little property as available for an exemption claim in bankruptcy when
the IRS is a creditor. This argument is somewhat overbroad.
in those states permitting a debtor to choose the standard bankruptcy
exemptions found in section 522(d), his exemption claim would be
restricted only to the extent that the IRS held a valid prepetition
lien. If there were no lien, the exemptions of section 522(d) would be
even in those states in which the debtor must choose non-bankruptcy law
exemptions, or in those instances when the debtor so elects, the
limitation on the exemption claim only applies to the IRS. A trustee
cannot liquidate assets for distribution to creditors who, under
non-bankruptcy law, would not be entitled to execute upon these assets. Cf.
In re Anthony, 82 B.R. 386 (Bankr. W.D.Pa. 1987) (trustee's report
of no distribution is a determination that, after debtor's exemptions
are granted, the trustee finds no value in the assets available to
distribute to unsecured creditors). Furthermore, section 6334 may provide
non-bankruptcy law federal exemptions vis-a-vis the IRS. See
In re Ray. Compare In re Voelker [94-1
USTC ¶50,122 ], 164 B.R. 308 (Bankr. W.D.Wisc. 1993)
(holding that §6334 defines property
exempt from an IRS tax lien) with
v. Barbier [90-1
USTC ¶50,107 ], 896 F.2d 377 (9th Cir. 1990) (drawing a
distinction between the fixing of a lien and a "levy", and
concludes that §6334 bars only the
even without considering the effect of section 522(c)(2)(B) on a
debtor's ability to assert exemption claims provided in section 522(b),
I conclude that this debtor cannot claim as exempt--as to the IRS--his
interest in his IRA deposit. Under relevant nonbankruptcy law, the IRS
was free to execute against and recover that certificate of deposit.
all of these reasons, the debtor has no ability pursuant to section
522(h) to avoid the IRS's statutory lien on his IRA certificate of
deposit at Berean Federal Savings Bank. Accordingly, judgment shall be
entered in favor of defendant.
NOW, this 13th day of July 1994, for the reasons stated in the
accompanying memorandum, it is hereby ordered that the plaintiff's
motion for summary judgment is denied. It is further ordered that the
defendant's motion for summary judgment is granted. The clerk of court
shall enter judgment in favor of the defendant and against the
The complaint states, in paragraph one, that it "seeks a judicial
determination of the validity of a lien." More precisely, as will
be discussed below, the complaint seeks to "avoid" a statutory
tax lien by virtue of section 522(h) of the Code.
the debtor requesting to avoid the fixing of a lien pursuant to 11
U.S.C. §522(f), the proper procedural vehicle for such relief is a
motion. Fed.R.Bankr.P. 4003(c). Here, however, since the relief is
sought under section 522(h), the proper procedure is to commence an
adversary proceeding, even though the challenged transfer is the fixing
of a lien and the relief sought is avoidance of the lien. E.g., In re
Ridgley, 81 B.R. 65, 67 (Bankr. D.Or. 1987).
While the debtor agrees that statutory additions to his tax obligation
have accrued, the parties have not indicated whether they agree as to
the total amount owed as of the date of the debtor's bankruptcy filing.
An agreement as to the precise amount owed is not necessary for me to
resolve these cross-motions for summary judgment.
This section provides:
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount (including any interest, additional amount,
addition to tax, or assessable penalty, together with any costs that may
accrue in addition thereto) shall be a lien in favor of the United
States upon all property and rights to property, whether real or
personal, belonging to such person.
U.S.C. §6321 .
is no suggestion by the debtor that the instant lien has become
"unenforceable by reason of lapse of time," 26 U.S.C. §6322
. Thus, the lien was still in effect at the time of the
debtor's bankruptcy filing.
Mr. Silver is an assistant vice-president of the Berean Federal Savings
Bank, which bank holds the deposit account for the benefit of Vinton
Deming. The debtor offers Mr. Silver's affidavit, as well as two
exhibits, in support of his motion for summary judgment.
Section 6334(a) lists the following categories of property as exempt
from IRS levy: (1) wearing apparel and school books; (2) fuel,
provisions, furniture, and personal effects; (3) books and tools of a
trade, business, or profession; (4) unemployment benefits; (5)
undelivered mail; (6) certain annuity and pension payments; (7)
workmen's compensation; (8) judgments for support of minor children; (9)
minimum exemption for wages, salary, and other income; (10) certain
service-connected disability payments; (11) certain public assistance
payments; (12) assistance under Job Training Partnership Act; and (13)
principal residence exempt in absence of certain approval or jeopardy.
This exception is not applicable in this proceeding.
Certain limitations on this exemption are provided by state law, but are
not relevant to this dispute.
Which term is defined to include a "certificate of deposit"
and a "negotiable instrument". 26 U.S.C. §6323(h)(4) .
The existence of cross-motions for summary judgment does not, of course,
require a court to determine that summary judgment is properly awarded
to a party.
The debtor raises for the first time in a supplemental memorandum of
law, filed after argument on these motions, that "Much of the IRS
Lien Is Avoidable Under Code §724(a)
as Well." Debtor's Supplementary Memorandum on
Cross-Motions for Summary Judgment, at p.9. In so doing, he asserts
facts not made a part of the record of these cross-motions.
would be inappropriate to consider this argument, which was neither
raised in the complaint or the motion for summary judgment, nor at the
hearing on the motion. Thus, I determine only the debtor's avoidance
powers under section 545 of the Code.
given that my analysis assumes arguendo that a trustee could have
avoided this statutory lien under section
545(2) , consideration of the avoiding powers found in section 724(a) would not
affect the outcome of this proceeding.
Although not raised by these parties, a few courts have noted that while
section 522(h) allows a debtor to avoid a transfer under sections 544 and 545 in certain
circumstances "to the extent that the debtor could have exempted
such property under subsection (g)(1)", section 522(g) does not
expressly allow a debtor to exempt property recovered by a trustee under
sections 544 and 545 . E.g., In re
Robinson; In re Smith, 105 B.R. 217 (Bankr. W.D.N.Y. 1989). Thus,
some courts conclude that a debtor can never use the avoiding powers of
a trustee under section 522(h), if avoidance is sought under sections 544 or 545.
the parties do not address this issue, I need not resolve it. I do note
that most courts permit a debtor to use the avoiding powers of section 544 and 545 when the result would
yield exempt property. E.g., McLean v. City of
, Water Rev. Bureau; In re Mattis. To reach a different conclusion
essentially deletes the reference in section 522(h) to sections
544 and 545 .
House bill, H.R. 8200--which evolved into the Bankruptcy Reform Act of
1978--omitted any reference to sections
544 and 545 in its original draft
of section 522(g). Nonetheless, the House Committee Report, H.R.Rep. No
95-595, 95th Cong., 1st Sess. 362-63 (1977) expressly stated that
sections 522(g) and (h) were intended to afford a debtor all of the
trustee's avoiding powers in certain circumstances and to exempt any
recovery--to the extent allowed by section 522(b).
commentator argues that section 522(g) does allow a debtor to exempt
recoveries by a trustee under section
544 or 545 . Rather than rely upon
legislative history, this commentator notes that section 522(g) includes
a reference to section 550--the actual recovery provision of the Code.
550, which is referenced in section 522(g), governs the trustee's
recovery upon avoiding a transfer using any of the avoiding powers.
Thus, by referring to section 550, section 522(g) indirectly refers to
and incorporates all of the trustee's avoiding powers. In re Gingery,
48 B.R. 1000, 1002 (D.Colo. 1985) . . .. This answers the case, In re
Smith . . ., in which the court mistakenly opined that section
522(g) was inapplicable to a recovery of an avoidance under section 544 because the
former fails to mention the latter.
Epstein, Bankruptcy, §8 -22 at 524 n.8 (1992).
purposes of resolving this dispute, I need only assume arguendo
that a chapter 7 debtor may use the trustee's avoiding powers under section 545 , although no
express mention of section
545 is found in section 522(g).
The debtor poses the issue as stated above, relying upon Owens v.
Owens, 500 U.S. 305 (1991). Owens involved a construction of
section 522(f)(1), which is phrased somewhat differently from sections
522(g) or (h). Despite this difference in phrasing, it seems to me that
the plain language of section 522(9) requires a determination of the
debtor's ability to exempt property upon the avoidance of the challenged
transfer. The transfer in question here is the creation of the lien on
the IRA deposit.
Thus, the avoidance of the tax lien by a chapter 7 trustee under section 545 would preclude
the taxing authority from receiving the proceeds of its collateral upon
the liquidation of estate property. However, as only non-exempt property
is distributed to creditors, the taxing authority whose lien has been
avoided could proceed against its collateral to the extent that
collateral has been claimed exempt.
Indeed, the debtor cites no decisions which permit a debtor, using the
provisions of section 522(h), to avoid a properly noticed tax lien.
chapter 11, section 1107(a) allows a debtor in possession to exercise
all of the avoiding powers of a trustee, including those provided in section 545 . Accord In
re Cambron Corp., 27 B.R. 723, 725 (Bankr. E.D.Mich. 1983); see
generally In re Coastal Group, Inc., 13 F.3d 81, 84 (3d Cir. 1994).
In chapter 7 or even chapter 13, a debtor is not authorized to exercise
a trustee's avoidance powers, except as limited by section 522(h). See,
Matter of Driscoll, 57 B.R. at 324-25. Thus, those decisions
cited by the debtor here, which sustained a chapter 11 debtor's
avoidance of a statutory tax lien, U.S. v. Sierer, 139 B.R. 752
(N.D.Fla. 1991); In re Zinder [93-1
USTC ¶50,165 ], 150 B.R. 239 (Bankr. C.D.Cal. 1993), do not
construe section 522(h) or the effect of section 522(c)(2)(B).
Given the age of the debtor's tax liability, the debtor is almost
certain to maintain that his in personam liability to the IRS is
discharged under section 524. See generally 11 U.S.C. §523(a)(1)(A),
(B). Further, the debtor believes that a lien which is avoided in
bankruptcy is generally rendered unenforceable after the bankruptcy case
is closed. See debtor's Answer to Defendant's Motion for Summary
Judgment . . ., at 3. Thus, the result the debtor seeks by this
proceeding is to render his exempt property free from the IRS's lien--a
result contrary to the express provisions of section 522(c)(2)(B).
Whether the conclusion of U.S. v. Barbier [90-1
USTC ¶50,107 ], 896 F.2d 377 (9th Cir. 1990)--drawing a
distinction between the ability of IRS to fix a lien upon property
identified in section 6334 , but not levy
upon it--is persuasive is an issue not germane to this dispute.
The debtor distinguishes Napotnik as construing the entireties
provision of section 522(b)(2)(B) as well as the phrase "exempt
from process." The Court of Appeals concluded that "exempt
from process" is slightly different from the term
"exempt", and that the former means "immune from
, at 319.
the underlying premise of Napotnik supports the notion that a
debtor may not avoid a lien by asserting nonbankruptcy law exemptions in
property, when nonbankruptcy law permits that creditor to execute
against the debtor's interest in that very property.
Plumbers & Pipefitters Retirement Plan and Trust, Plaintiff(s) v.
United States of America
, Internal Revenue Service, et al., Defendant(s)
District Court, No. Dist.
, West. Div., 3:90CV7513,
Collection: Levy and distraint: Property subject to levy.--The
IRS could not levy against an employee benefit plan to satisfy
delinquent taxes owed by a plan participant when the benefits accrued
under the plan were also held for the benefit of the employee's spouse
who was not liable for the delinquent taxes. The IRS is only entitled to
levy the property belonging to the delinquent taxpayer. The funds that
the IRS was attempting to levy jointly belonged to two individuals, the
delinquent taxpayer and his wife, an innocent party.
Collection: Levy and distraint: Notice, sufficiency of.--An IRS
levy against monies held in an employment benefit plan to satisfy
delinquent taxes owed by a plan participant was illegal, unenforceable
and void as a matter of law because the IRS failed to comply with the
30-day notice provisions. The only notice of levy was given to the
benefit plan and not to the taxpayer.
Civil suits: Unauthorized disclosure: Fact finding.--The IRS was
not held liable for damages for unauthorized return disclosure. The IRS
revenue office made the disclosures to the individual's attorney and
agents in an attempt to collect a tax liability.
MEMORANDUM AND ORDER
Senior District Judge:
action is before the Court on interpleader defendant's, David A. Tucker,
motion for summary judgment. Interpleader defendant
United States of America
("IRS") responds by its own motion to dismiss, or in the
alternative, for summary judgment, to which David A. Tucker responds.
Plaintiff, The Toledo Plumbers & Pipefitters Retirement Plan and
Trust ("Plan") opposes the
' motion. Also before the Court is Mary A. Tucker's unopposed motion to
intervene as a defendant. This Court has jurisdiction pursuant to 28
U.S.C. §§1335 and 2410.
case is before the Court as the result of an IRS levy issued on
August 28, 1990
on funds held by plaintiff for the benefit of David A. Tucker and his
spouse, Mary A. Tucker ("The Tucker Account"). The IRS levy is
the result of David A. Tucker's alleged deficiency in paying his federal
income taxes for the years 1980-85. The amount of the alleged deficiency
as of the date of the complaint is $126,180.30. The disputed funds are
held in trust in an employee pension benefit plan organized and operated
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), 29 U.S.C. §1001 , et. seq.
Following the notice of levy the Tuckers notified plaintiff of their
opposition to plaintiff's honoring the levy and threatened legal action
against plaintiff and the trustees should they honor the levy.
October 4, 1990
, plaintiff instituted the action in this Court seeking entry of an
order of interpleader and requesting that plaintiff be discharged from
further liability. The complaint also seeks to have defendant
enjoined from taking any action to enforce the levy against plaintiff or
the Tucker Account. Plaintiff also asks that both defendants be
restrained from instituting and/or prosecuting any judicial proceeding
against plaintiff for the recovery of the amount of the Tucker Account
until a determination by this Court. Plaintiff also seeks reasonable
costs and attorneys' fees expended as the result of this action.
Defendant David A. Tucker crossclaims against the
United States of America
for unauthorized disclosure of return information under 26 U.S.C. §7431(a)(2) .
Court will first dispose of Mary A. Tucker's motion to intervene.
Whether Mary Tucker has a right to intervene is guided by statute which
reads in pertinent part:
timely application anyone shall be permitted to intervene in an action:
(2) when the applicant claims an interest relating to the property or
transaction which is the subject of the action and the applicant is so
situated that the disposition of the action may as a practical matter
impair or impede the applicant's ability to protect that interest, unless
the applicant's interest is adequately represented by existing parties.
R. Civ. P. 24. (Emphasis added). In addition, permissive intervention is
allowed at the discretion of the court when an applicant's claim or
defense and the main action have a question of law or fact in common.
In exercising this discretion, the Court is charged to consider whether
such intervention will unduly delay or prejudice the rights of the
grounds for her motion, Mrs. Tucker asserts that she has an interest in
the fund which is the subject matter of this action that may be impeded
by the eventual disposition of this action. She further claims that she
would be harmed by a distribution of the fund and that her interests in
this fund cannot be adequately represented by those already parties to
this action. Plaintiff supports Mrs. Tucker's motion to intervene and
states that her interests in the benefits are not formally represented,
are potentially in conflict with the interests of her defendant husband
and adverse to the interests of the United States. Plaintiff further
asserts that Mrs. Tucker's interests are not and cannot be defended by
plaintiff, the disinterested stakeholder in this proceeding.
individual's right to intervene is determined according to a three prong
test requiring that there be:
a claimed interest relating to the property or transaction that is the
subject of the action, and;
that the applicant for intervention be so situated that disposition of
the action may as a practical matter impair or impede his ability to
protect that interest, and;
that the applicant's interest is not adequately represented by existing
also Blanchard v. Johnson 532 F.2d 1074 (6th Cir.), cert.
869 149 (1976). It is clear that as a beneficiary of the fund levied
against by the IRS, the first two prongs are satisfied.
is no question that Mrs. Tucker has an interest in the disputed fund, as
the spouse of David A. Tucker. ERISA requires covered qualified funds to
provide benefits in the form of joint and survivor annuity. 29 U.S.C. §1055 . As of
June 30, 1990
, the Tucker Account had a vested account balance of $52,261.40. No
distribution from this fund can be made without Mary A. Tucker's
Mrs. Tucker has not and will not so consent. Furthermore, Mrs. Tucker is
not liable for the allegedly delinquent taxes which the IRS seeks to
collect from her husband. These facts are not disputed by the
intervention as of right will not lie if there is a party in the action
charged by law with representing the interest of the intervenor. See
Fed. R. Civ. P. 24(a), supra. This principle applies when there
is formal representation by a fiduciary, such as the trustee of the Plan
in the case at bar. See Meyer Goldberg, Inc. of
v. Goldberg, 717 F.2d 290, 293 (6th Cir. 1983). Because this is an
action in interpleader, however, the trustee of the Plan here, as a
disinterested stakeholder, cannot be seen to be the formal
representative of the interests of either defendant David A. Tucker or
the intervenor Mary A. Tucker. Thus, the interests of the applicant,
Mary A. Tucker are not adequately represented and the third prong of the
Blanchard test is also satisfied. Mary A. Tucker is entitled to
intervene as a matter of right and thus, her motion is well taken.
Court also notes that permissive intervention would also be appropriate
here since the applicant shares a common question of law with the
underlying action, namely whether the IRS can levy against an employee
benefit plan to satisfy allegedly delinquent taxes owed by a plan
participant when the benefits accrued under the plan are also held for
the benefit of the employee's spouse, who is not liable for the
allegedly delinquent taxes. For the following reasons, this Court has
determined that the answer to that question is no and that the
' motions for dismissal and/or summary judgment must therefore be