Annotations- Retirement Accounts Page1

6334 Annotations- Retirement Accounts- Levy

Property Exempt from Levy: Retirement Accounts

[91-2 USTC ¶50,354] In re Thomas J. Taylor, Hattie M. Taylor, Debtors

U.S. Bankruptcy Court, Dist. Md., Rockville, 90-4-3273-PM, 5/14/91

[Code Secs. 401 , 6321 and 6334 ]

Liens: Validity: Exemption: Qualified retirement account: Bankruptcy.--

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.

Alfred Lawrence Toombs, Murray & Price, 1915 I St., N.W., Washington, D.C. 20006-2107, for debtors. Lawrence Blaskopf, Department of Justice, Washington , D.C. 20530 , for IRS.

MEMORANDUM OF DECISION

MANNES, Chief Judge:

Before 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 undisputed.

THE FACTS

Acting pursuant to 26 U.S.C §6323(f)(1)(A) , the IRS filed a tax lien against the debtors in the Circuit Court for Montgomery County , Maryland , on 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.

The 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.

THE LAW

The 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 .

Under 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.

The 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.

Given the filed tax lien by the IRS, the United States 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.

DEBTORS' RETIREMENT AND SAVINGS ACCOUNTS ³

There 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.

However, Treas. Reg. §1.401(a)-13(b)(2) (as amended in 1990) provides as follows:

(2) Federal tax levies and judgments. A plan provision satisfying the requirements of subparagraph (1) of this paragraph shall not preclude the following:

(i) The enforcement of Federal tax levy made pursuant to section 6331 .

(ii) The Collection by the United States on a judgment resulting from an unpaid tax assessment.

Treas. Reg. §1.401(a)-13(b)(2) (as amended in 1990).

Regulations 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).

No 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 United States 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.

Inasmuch 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.

REMAINING PROPERTY

In 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.

Debtors 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 required;

1. with respect to the automobile, to perfect their interest by filing a form with the state department of transportation;

2. with respect to the bank accounts, to serve legal process upon the banks;

3. with respect to the remaining assets, to take possession of the assets or obtain a security interest in the property under applicable state law. ⁴

This 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.

Inasmuch 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.

EXTENT OF LIENS

Having 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.

Counsel for the debtors shall submit an order on notice in accordance with the foregoing.

¹ This value excludes a $5,749.94 secured claim with respect to the automobile that has undisputed superior priority to the claims of the IRS.

² 26 U.S.C.S. §§6321 -6322 provide as follows:

§6321 . Lien for taxes.

If 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.

§6322 . Period of lien.

Unless 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.

³ College Retirement Equities Fund--Retirement Unit-Annuity Certificate Number Q-677375-1; Teachers Insurance And Annuity Association of America --Retirement Annuity Contract Number B-677375-4; Teachers Insurance And Annuity Association of America --Supplemental Retirement Annuity Contract Number K-302507-5; College Retirement Equities Fund--Supplemental Retirement Unit-Annuity Certificate Number J-302507-7; United States Government Thrift Savings Plan.

Only the last plan is the property of the debtor, Hattie M. Taylor.

⁴ Md. Com. Law Code Ann. §§9-101 through 9-507 (1975 & Supp. 1990).

[94-2 USTC ¶50,512] Theodore Shanbaum, Plaintiff-Appellant v. United States of America and the Pension Benefit Guaranty Corporation, Defendants-Appellees

(CA-5), U.S. Court of Appeals, 5th Circuit, 94-10199, 9/16/94, Affirming an unreported District Court decision

[Code Secs. 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 applied.

[Code Secs. 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.

Joe B. Abbey, 1717 Main St. , Dallas , Tex. 75201 , 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.

Before: GARWOOD, HIGGINBOTHAM and DAVIS, Circuit Judges.

PER CURIAM:

Theodore Shanbaum appeals the district court's dismissal of his suit against both the United States and the Pension Benefit Guaranty Corporation ("PBGC"). We affirm the decision of the lower court.

I.

Theodore 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 PBGC.

On 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 Massachusetts , 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.

Shanbaum filed suit against the United States 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 of levy.

PBGC 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.

In 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.

The 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.

II.

We initially turn to Shanbaum's claim against the United States . The district court was correct in holding that Shanbaum is barred from bringing suit because the Government has not waived sovereign immunity.

The United States may not be sued except to the extent it has consented to such by statute. United States v. Testan, 424 U.S. 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. United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351-52, 63 L.Ed.2d 607 (1980).

Shanbaum's 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 United States . 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).

Shanbaum's 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. United States , 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.

Finally, 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.

Even 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 United States 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 the following:

Notwithstanding any other law of the United States (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).

ERISA also provides that it shall not 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). 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

III.

The 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 taxpayer).

IV.

Since Shanbaum's suit against the United States 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 United States and PBGC.

AFFIRMED.

¹ PBGC is a wholly-owned United States 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).

² 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.

³ Section 6334(a)(6) exempts certain pension rights, but the pension benefits at issue in this case are not among them.

⁴ 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 25 (E.D.La.1984).

[93-1 USTC ¶50,117] Georgia Cort, Plaintiff v. United States of America , Defendant

U.S. District Court, No. Dist. Calif., C-91-4178-DLJ, 11/21/92 , 816 FSupp 574

[Code Secs. 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.

Robert S. Albery, Gordon & Rees, 275 Battery St. , San Francisco , Calif. 94111 , for plaintiff. Thomas Moore, Assistant United States Attorney, San Francisco , Calif. , for defendant.

ORDER

JENSEN, Dis.J.: On 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.

I. BACKGROUND

This 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.

Having worked as a teacher for twenty-seven years in the California public school system, plaintiff was a beneficiary of a California 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.

As 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.

The Court did not rule on that motion as it became moot when Arnold Cort and the United States 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.

II. DISCUSSION

A. Legal Standard for Recovery of Attorneys' Fees Against the United States in a Tax Case

U.S. Code Section 7430 of Title 26 ("Section 7430 "), which governs the awarding of attorneys' fees and costs against the United States in a tax case, provides that:

(a) 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--

(2) reasonable litigation costs incurred in connection with such court proceeding.

(b) Limitations.--

(1) 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.

(c)(4)(A) The term "prevailing party" means any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved)--

(i) which establishes that the position of the United States in the proceeding was not substantially justified,

(ii) which--

(II) has substantially prevailed with respect to the most significant issue or set of issues presented, and

(iii) 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).

26 U.S.C. §7430 .

The Equal Access to Justice Act, 28 U.S.C. §2412(d)(1)(B), provides that:

A 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 United States was not substantially justified.

28 U.S.C. §2412(d)(1)(B).

B. Application

Plaintiff 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) provides that:

Except 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.

Cal. Civ. Code 5120.110(a).

Plaintiff 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:

All 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.

Cal. Civ. Proc. Code 704.110(b).

Plaintiff argues that the defendant's ability to levy against plaintiff's retirement fund is derived from California 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.

Furthermore, plaintiff requests that the Court adjudge

her 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.

Defendant 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 statute.

As 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 United States 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).

Defendant 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 retirement fund.

U.S. Code Section 6321 of Title 26 ("Section 6321 ") states that the amount of the delinquent taxpayer's liability "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." 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.

It 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 United States 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.

The 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.

Therefore, 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.

III. CONCLUSION

For the foregoing reasons, the Court ORDERS as follows:

1. Plaintiff's motion for attorneys' fees is DENIED.

2. The Clerk of the Court shall close the file for this case.

IT IS SO ORDERED.

[93-1 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

U.S. Bankruptcy Court, West. Dist. Pa., 91-00748E, 11/17/92

[Code Secs. 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 ( Pennsylvania ) law was inoperative with respect to the debtor's federal tax liability.

Robert E. McBride, 504 Masonic Bldg., Erie , Pa. , for debtors/plaintiffs. Richard I. Miller, Internal Revenue Service, Washington , D.C. 20224 , for defendants.

OPINION

Background

BENTZ, Bankruptcy Judge:

The 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

                                                             Unspecified

Zurn Industry Pension Plan ................................ Value

The 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.

The 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.

A 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) .

The 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.

Section 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."

§514(d) of ERISA, 29 U.S.C. §1144(d) states 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.

26 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.

26 U.S.C. §6334(c) provides:

Notwithstanding any other law of the United States . . . no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).

It is apparent that the Internal Revenue Code did not intend an exemption for pensions of the type here in question.

We may assume that the spendthrift clause in Debtor's pension plan would, under Pennsylvania law, insulate the pension from claims of creditors.

But 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):

"[I]n 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. Commissioner [40-1 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 ], 461 U.S. , 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 ], 357 U.S. , at 56-57. See also Fidelity & Deposit Co. of Maryland 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 (1964).

Further, at page 723, in discussing the Bess case:

State 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.

Thus, 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.

The 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.

As 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 .

Debtor 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:

(b)(2) Federal tax levies and judgments. A plan provision satisfying the requirements of subparagraph (1) of this paragraph shall not preclude the following:

(i) The enforcement of a federal tax levy made pursuant to section 6331 .

(ii) The collection by the United States on a judgment resulting from an unpaid tax assessment.

However, 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).

Debtor 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.

The IRS had a valid lien on all of the Debtor's assets including the pension plan in the amount of its claim.

[94-1 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

U.S. Bankruptcy Court, No. Dist. Ill. , East. Div., 91 B 16970, 1/21/94, 163 BR 327, 163 BR 327

[Code Sec. 6321 ]

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.

[Code Secs. 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.

[Code Sec. 6871 ]

Bankruptcy and receivership: Interest on tax: Post-petition interest.--

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.

[Code Sec. 6321 ]

Bankruptcy and receivership: Lien for taxes: Property transferred during divorce.--

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.

Arthur G. Jaros, Jr., Richter & Jaros, 1200 Harger Rd., Oak Brook, Ill. 60521, for plaintiff. Samuel D. Brooks, Department of Justice, Washington , D.C. 20530 , for defendant.

MEMORANDUM OPINION

SCHMETTERER, Bankruptcy Judge:

This 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 United States asserts a tax lien against those proceeds.

Ms. 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 now.

Ms. 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 now divorced.

The 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.

The parties herein filed cross-motions for summary judgment. Both parties have made their respective filings required under Local District Rule 12(m) and (n).

For 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.

Ms. Schreiber's contentions as to the extent of the government's lien on other property are not supported by authority and are overruled.

Accordingly, by separate order the IRS motion for summary judgment is allowed and that of Ms. Schreiber is denied. Judgment will enter accordingly.

UNDISPUTED FACTS

From the respective filings these facts emerge as undisputed:

When 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.

The 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.

The IRS filed proofs of claims on October 11, 1991 ; December 16, 1991 ; and 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.

When 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.

On 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 those proceeds.

The 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, ² the 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.

Through 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?

JURISDICTION

These 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).

SUMMARY JUDGMENT STANDARDS

In 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).

The 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).

On 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 U.S. at 255; Matsushita, 475 U.S. at 586; Billups v. Methodist Hosp. of Chicago , 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 U.S. at 248; Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir. 1987).

When 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 U.S. at 587.

Cross Motions for Summary Judgment

When 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 (N.D. Ill. 1987) (Shadur, J.); In re Woodstock Assoc. I, Inc., 120 B.R. 436, 442 (Bankr. N.D. Ill. 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. Maryland Casualty, 617 F.Supp. 456, 458 (S.D. Ill. 1985). See C. Wright, A. Miller & M. Kane, Federal Practice and Procedure §2720 (2d ed. 1983 & Supp. 1987).

However, that is not the result indicated here. For reasons discussed below, Plaintiff's motion for summary judgement will be denied and that of the United States will be allowed.

DISCUSSION

A. Valuation of the IRS Allowed Secured Claim

The 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. Ga. 1992). Section 506(a) of the Code provides in relevant part that:

Such 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.

(Emphasis 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. Neb. 1990).

For 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. Neb. 1990).

As 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 at 506-27.

Ms. 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.

Here, 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.

Moreover, 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).

Plaintiff 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. Id. 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 was filed. Id. 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. Id. 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.

In re Cuisinarts, 115 B.R. 744 (Bankr. D. Conn. 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 secured claims. Id. at 748.

Plaintiff's 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. Ill. 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.

In 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. Id.

Ms. 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 petition date.

However, 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.

After 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.

B. The Qualified Individual Retirement Annuity.

Plaintiff 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.

Treasury Regulation §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 Taylor 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].

This court declines to follow Taylor . 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).

In 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).

Finally, §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).

Accordingly, 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.

C. Post-petition Interest

Section 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 unqualified. Id. ; Rake v. Wade, 113 S.Ct. 2187, 2193 (1993).

The total amount of post-petition interest to be added to principal due is limited by the collateral value. United States Ass'n v. Timbers of Inwood Forest, 484 U.S. 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 Ed. 1993).

Accordingly, 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.

D. Ownership of Marital Property

In 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.

Ms. 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.

Other 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 proceedings.

CONCLUSION

For 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.

¹ The following property, excluding the Debtors' residence and Mr. Schreiber's IRA, is listed in the Debtors' schedules:

                                                           Value Per Debtors'

Property                                                       Schedules

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

                                                     ------------------

United States

' 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.

² 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 judgment requirements.

³ 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 re Richardson , 82 B.R. 872 (Bankr. S.D. Ohio 1987); In re Flager-At-First Associates, Ltd., 101 B.R. 372 (Bankr. S.D. Fla. ); and In re Beard, 108 B.R. 322 (Bankr. N.D. Ala. 1989).

⁴ 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. . . .

(emphasis added) 11 U.S.C §1129(a)(7)(A)(ii) (1993).

⁵ Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§1001 -1461.

⁶ Treas. Reg. §1.401(a)-13(b)(2) (as amended in 1990) provides as follows:

(2) Federal tax levies and judgments. A plan provision satisfying the requirements of subsection (1) of this paragraph shall not preclude the following:

(i) The enforcement of Federal tax levy made pursuant to Section 6331 .

(ii) The Collection by the United States in a judgment resulting from an unpaid tax assessment.

⁷ The Debtors' equity subject to the IRS lien of $44,772.28 consists of the following:

$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. 

[93-2 USTC ¶50,432] Onie L. Hyde, Plaintiff v. United States of America , Defendant

U.S. District Court, Dist. Ariz., CIV 90-1258 PHX EHC, 6/7/93

[Code Secs. 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 ( Arizona ) 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. 6331 .

James 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.

ORDER

Re: Motion for Summary Judgment

I. Background

CARROLL, District Judge:

This 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

At the time of bringing this action the plaintiff, Onie Hyde, was a resident of the State of Arizona and had been for over forty years. On March 1, 19 65, plaintiff commenced her employment with United Dairymen of Arizona. On 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 Las Vegas , Nevada . Both Onie L. Hyde and Farrell W. Hyde were residents of the State of Arizona 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.

Farrell W. Hyde was an officer of J.B. Architectural and Mechanical, Inc., located at 6807 N. 17th Street , Phoenix , Arizona , from 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 .

The 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.

In 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 Dairymen. On 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 plan. On 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.

II. Argument

On 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

The government argues that under Arizona property law, Farrell W. Hyde has a present one-half community interest in the defined benefit plan of his wife. Because Arizona 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

In 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

III. Discussion

Mr. Hyde's Interest in the Defined Benefit Plan

Property 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. Overman [70-1 USTC ¶9342 ], 424 F.2d 1142, 1146 (9th Cir. 1970). Under Arizona 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. Koelsch, 148 Ariz. 176, 181, 713 P.2d 1234, 1239 (1986); Johnson v. Johnson, 131 Ariz. 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 Ariz. 130, 131, 547 P.2d 1044, 1045 (1976).

Arizona 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 after August 21, 1971 , the date of his marriage to plaintiff.

Applicability of Tax Assessments to Retirement Plans

The amount of a delinquent taxpayer's liability results in a "lien in favor of the United States 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

The 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 of the United States , "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.

Plaintiff 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 Hyde.

If Arizona 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." Id. 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. Id.

The 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 Arizona law to an undisputed set of facts; it is strictly a question of law. Based upon Arizona 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. ⁶

Accordingly,

IT IS ORDERED granting defendant's Motion for Summary Judgment (Dkt. #10).

IT IS FURTHER ORDERED that plaintiff's complaint is dismissed with prejudice.

¹ See Stipulation of Facts, Defendant's Motion to Dismiss or in the Alternative for Summary Judgment, Exhibit A.

² 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.

³ 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 pension plan.

⁴ 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. United States , 738 F.Supp. 1369, 1371 (D. Kan. 1990). Farrell Hyde may challenge the underlying tax assessment against him in a suit for refund under 28 U.S.C. §1346(a).

⁵ 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.

⁶ 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.

[94-2 USTC ¶50,421] United States of America , Petitioner v. Robert E. Cleveland, Respondent

U.S. District Court, No. Dist. Ill. , East. Div., 93 C 1767, 93 C 1768, 8/2/94

[Code Secs. 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.

[Code Sec. 6334 ]

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.

[Code Sec. 6502 ]

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 .

Ramune 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. , Chicago , Ill. 60602 , for defendant.

MEMORANDUM OPINION AND ORDER

Castillon, District Judge:

This 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 are denied.

BACKGROUND

This 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.

On 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 limitations.

DISCUSSION

Motion to Dismiss

Respondent 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 .

Federal 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."

A 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.

Even 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 judgment." Id. at 286. See also In re Longardner & Assoc., 855 F.2d 455, 464 (7th Cir. 1988), cert. denied, 489 U.S. 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).

As 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.

Motion for Order of Repayment

Respondent 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 taxes.

Respondent 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.

Despite 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 United States (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.

The 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. Id. 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." Id. at *1.

Because social security benefits are subject to levy by the IRS, no claim for repayment exists and respondent's motion must be denied.

Motion for Return of Funds and Other Relief

Respondent 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:

The 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.

United States v. Cleveland , 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 .

However, 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:

Where 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--

(1) within 10 years after the assessment of tax . . .

If 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.

The Historical and Statutory Notes to §6502 further state that the revised ten-year limitations period "shall apply to taxes assessed after 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 until 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.

Although 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.

CONCLUSION

Respondent's 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 summonses.

[94-2 USTC ¶50,538] In re Vinton Deming, Debtor. Vinton Deming, Plaintiff v. Internal Revenue Service, Defendant

U.S. Bankruptcy Court, East. Dist. Pa., 92-17755F, 7/13/94

[Code Sec. 6334 ]

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.

Peter Goldberger, James H. Feldman, Jr., Chestnut St. at Ninth, Philadelphia , Pa. 19107 , for plaintiff. David M. Katinsky, Department of Justice, Washington , D.C. 20530 , for defendant.

MEMORANDUM

FOX, Bankruptcy Judge:

The 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 that lien.

Before 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 supplemental memoranda.

The 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.

I.

The 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

Apparently, this tax lien arose from a federal tax obligation owed to the United States 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

The 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

Further, 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 Quillard [93-1 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

However, under Pennsylvania law, 42 Pa.C.S.A. §8124(b)(1):

Except 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:

* * *

(ix) 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

This 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).

In 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 classified.

For 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.

II.

As 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.

Rule 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, 477 U.S. 317, 325 (1986). As to materiality, the substantive law will identify which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 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. Anderson , 477 US . at 251. Further, it should avoid credibility determinations, as those must be left to the trial stage. Id. , 477 U.S. at 255.

Moreover, 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 Federation, 497 U.S. 871 (1990); Celotex Corp., 477 U.S. 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 U.S. 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 U.S. 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." Id.

"If the evidence is merely colorable, . . . , or is not significantly probative, . . . , summary judgment may be granted." Anderson , 477 U.S. 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 U.S. 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 U.S. 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

III.

Both 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.

The 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.).

A.

The 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. E.D.Tenn. 1984).

Under 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 McLean , 97 B.R. 789, 792 (Bankr. E.D.Pa.), aff'd sub nom Aikens v. Philadelphia , 100 B.R. 729 (E.D.Pa.), aff'd sub nom McLean v. City of Philadelphia , Water Rev. Bureau, 891 F.2d 474 (3d Cir. 1989).

Accordingly, the debtor seeks to avoid the IRS' lien through the provisions of section 522(h). This subsection states:

The 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 transfer, if--

(1) 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; and

(2) the trustee does not attempt to avoid such transfer.

The 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.

First, 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.

The 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 state law.

Obviously, 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.

Thus, 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).

B.

The 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.

In 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).

In 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).

IV.

At this point in the analysis, two general principles are worth noting.

First, 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 U.S. 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):

The 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.

(quoting 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).

Second, 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, §8 -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).

As 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:

(c) 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--. . .

(2) a debt secured by a lien that is--

(A)(i) 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

(ii) not voided under section 506(d) of this title; or

(B) a tax lien, notice of which is properly filed. . . .

Although 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).

Section 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).

However, 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. United States , 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.

Based 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 Henderson , 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

In 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) ").

The 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.

I 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.

Accordingly, 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 522(h).

V.

I 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).

As 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.

It is long established that exemptions provided by state laws are ineffective against the execution and the creation of statutory liens of the United States 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. Co. [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.

The 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).

By 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).

State 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. United States . 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.

Generally, 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).

Section 522(b)(2)(A) allows a debtor the option (in those states, such as Pennsylvania , 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

The 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.

First, 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 available.

Second, 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 U.S. 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 latter).

Therefore, 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.

VI.

For 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.

ORDER

AND 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 plaintiff.

¹ 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.

Were 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).

² 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.

³ This section provides:

If 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.

26 U.S.C. §6321 .

There 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.

⁴ 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.

⁵ 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.

⁶ This exception is not applicable in this proceeding.

⁷ Certain limitations on this exemption are provided by state law, but are not relevant to this dispute.

⁸ Which term is defined to include a "certificate of deposit" and a "negotiable instrument". 26 U.S.C. §6323(h)(4) .

⁹ 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.

¹⁰ 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.

It 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.

However, 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.

¹¹ 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.

Since 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 Philadelphia , Water Rev. Bureau; In re Mattis. To reach a different conclusion essentially deletes the reference in section 522(h) to sections 544 and 545 .

Furthermore, 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).

One 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.

Section 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.

2 Epstein, Bankruptcy, §8 -22 at 524 n.8 (1992).

For 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).

¹² 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.

¹³ 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.

¹⁴ Indeed, the debtor cites no decisions which permit a debtor, using the provisions of section 522(h), to avoid a properly noticed tax lien.

In 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).

¹⁵ 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).

¹⁶ 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.

¹⁷ 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 process." Id. , at 319.

Nonetheless, 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.

[91-2 USTC ¶50,343] Toledo Plumbers & Pipefitters Retirement Plan and Trust, Plaintiff(s) v. United States of America , Internal Revenue Service, et al., Defendant(s)

U.S. District Court, No. Dist. Ohio , West. Div., 3:90CV7513, 6/21/91

[Code Sec. 6331 ]

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.

[Code Sec. 6331 ]

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.

[Code Sec. 7431 ]

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

WALINSKI, Senior District Judge:

This 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 United States ' 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.

Background

This 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.

On 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 United States 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) .

Discussion

The 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:

Upon 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.

Fed. 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. Id. In exercising this discretion, the Court is charged to consider whether such intervention will unduly delay or prejudice the rights of the original parties. Id.

As 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.

The individual's right to intervene is determined according to a three prong test requiring that there be:

1) a claimed interest relating to the property or transaction that is the subject of the action, and;

2) 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;

3) that the applicant's interest is not adequately represented by existing parties.

See also Blanchard v. Johnson 532 F.2d 1074 (6th Cir.), cert. denied, 412

29 U.S. 869 149 (1976). It is clear that as a beneficiary of the fund levied against by the IRS, the first two prongs are satisfied.

There 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 consent. Id. 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 United States .

However, 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 Lorain 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.

The 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 United States ' motions for dismissal and/or summary judgment must therefore be denied.