Annotations- Minimum Price

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6335 Annotations: Minimum Price- Levy

 

Sale of Seized Property: Minimum Price

 

[66-1 USTC ¶9308]Lewis F. Crump, Plaintiff v. United States of America and Internal Revenue Service, Defendants

U. S. District Court, No. Dist. Ga. , Atlanta Div., Civil Action No. 9580, 10/11/65

[1954 Code Sec. 7402]

Civil suits: Jurisdiction: United States was real party in interest.--The court held that there is no jurisdictional basis for a suit against the Internal Revenue Service because the real party in interest is the United States .
[1954 Code Secs. 6212 and 6335]

Sale of seized property: Notice: Mailing to last known address.--Notices of seizure and sale of the taxpayer's automobile to satisfy his tax liability were mailed to his last known permanent address. The government was not required to mail the notices to a prison where the taxpayer was temporarily sojourning.

[1954 Code Sec. 6335]

Seized property: Valuation: Sale subject to chattel mortgage.--The government was not required to fix the minimum bid price for the taxpayer's automobile high enough to cover his full equity in the vehicle where the sale was made subject to a chattel mortgage. A minimum bid price that covered the taxpayer's unpaid taxes and the expense of the sale was approved.

Lewis F. Crump, 506 M. I. , P. O. Box 1000 , Marion , Ill. , for plaintiff. Charles L. Goodson, United States Attorney, Slaton Clemmons, Assistant United States Attorney, Atlanta, Ga., for U. S.

Order of Court

HOOPER, District Judge:

Petitioner filed this petition on July 13, 19 65 seeking the return of property alleged to have been wrongfully taken by the United States and the Internal Revenue Service.

On March 2, 19 65 C. H. O'Farrell and A. C. Allen, duly authorized and commissioned Internal Revenue Officers, seized one 1964 Mercury Park Lane Convertible belonging to the petitioner pursuant to Section 6331 of the Internal Revenue Code of 1954. The purpose of this seizure was to satisfy petitioner's income tax liability for the year 1963 in the amount of $56.12, plus interest as provided by law.

Subsequently, a notice of seizure was mailed on March 2, 19 65 to Lewis Frank Crump pursuant to Section 6335(a) of the Internal Revenue Code of 1954, at 3999 Withdrow Drive , Doraville , Georgia , said address being the last known address of the petitioner according to records in the office of the District Director, Atlanta , Georgia .

On March 8, 19 65 a notice of sale of the automobile was mailed pursuant to Section 6335(b) of the Internal Revenue Code of 1954 to Lewis Frank Crump at 3999 Withdrow Drive , Doraville , Georgia . Also, on March 8, 19 65 notices of sale were posted at the Post Office, Decatur, Georgia; DeKalb County Court House, Decatur, Georgia; and at the Federal Building, Atlanta, Georgia, Room 119. On March 11, 19 65 notice of the sale of the above automobile was published in the DeKalb New Era, a newspaper published and circulated in DeKalb County , Georgia , the county where the seizure took place.

Petitioner's automobile was sold on March 23, 19 65 at the Peachtree Towers Parking Garage, 31 Baker Street, N. E. , Atlanta , Georgia . Prior to the sale the District Director set a minimum price of $81.00, pursuant to Section 6335(e)(1) of the Internal Revenue Code of 1964, which included $58.00 representing the tax liability and $23.00 representing the expenses of the levy and sale. The automobile was sold to Ferrell Lincoln-Mercury Company, Decatur , Georgia for the minimum price of $81.00, but subject to a conditional sales contract in the approximate unpaid amount of $2,400.00 which was entitled to priority over the federal tax lien.

Also, a certificate of sale pursuant to Section 6338 of the Internal Revenue Code of 1954 was given Ferrell Lincoln-Mercury Company, and a record of said sale was made pursuant to Section 6340 of the Internal Revenue Code of 1954 in the office of the District Director, Atlanta , Georgia .

Conclusions of Law

(1) Petitioner has not alleged any jurisdictional basis for bringing this action against the Internal Revenue Service. There is no jurisdictional basis for proceeding against the Internal Revenue Service because the real party in interest is not the Internal Revenue Service but the United States of America . Cooper Agency, Inc. v. McLeod [64-2 USTC ¶9776], 235 F. Supp. 276, 283 (E. D. S. Car.); Sidbury v. Gill [52-1 USTC ¶9213], 102 F. Supp. 485 (E. D. N. Car.).

(2) The United States as a rule cannot be sued unless there has been a waiver of sovereign immunity, but may be sued where there is an unlawful taking of property without due process of law. See Dugan v. Rank, 372 U. S. 609(2).

(3) The complaint fails, however, to state a claim upon which relief can be granted. Petitioner does not deny that he was indebted to the United States of America on March 2, 19 65, for income taxes in the amount of $56.12, plus interest as provided by law. Also, petitioner does not deny that notices of seizure and sale required by Sections 6335(a) and (b) of the Internal Revenue Code were mailed; and in fact, petitioner admits (Compl. pars. 4, 5, 6, 7) that he received a notice of sale dated March 3, 19 65. His only contention is that he was entitled to be personally notified of the seizure and sale in prison prior to the sale.

The affidavit of the District Director of Internal Revenue, Atlanta , Georgia , attached to respondent's Motion to Dismiss, shows that said notices of seizure and sale were mailed to petitioner at his last known address, 3999 Withrow Drive , Doraville , Georgia , according to the records in his office. (Aff. par. IV).

The question of whether the mailing of notices of seizure and sale to a taxpayer's last known address complies with Section 6335(a) and (b) when taxpayer is in prison appears to be one of first impression. However, the case of Cohen v. United States [62-1 USTC ¶9202], 297 F. 2d 760 (C. A. 9th) is dispositive of this question. In that proceeding, the court was faced with taxpayer's contention that the notice of deficiency, although mailed to his home, was not mailed to his last known address as required by Section 6212 of the Internal Revenue Code of 1954, because the Government knew he was in prison. The court stated (p. 773):

"Commissioner or one of his agents may learn that the taxpayer has changed his address, or he may be advised by the taxpayer. In such a case, he must use the new address. The Commissioner or one of his agents may also learn that the taxpayer is temporarily sojourning elsewhere, as in a hotel or hospital or vacation resort or jail, or even abroad, while still retaining the same 'permanent' address. He is not required to treat the address of the temporary sojourn as the 'last known address.' To so require would place an impossible burden on the Commissioner. * * * The Commissioner can hardly make a daily check to see where the taxpayer may leave such temporary address."

Assuming petitioner's allegations are correct, Cohen v. United States , supra, supports the mailing of the notices to his last known address because it would be an impossible administrative burden on the Commissioner of Internal Revenue and his delegates to keep records of every taxpayer's temporary address.

(4) The petitioner states in essence (Compl. par. 8) that the minimum bid price of $81.00 set by the District Director did not represent his interest in the automobile. Section 6335(e)(1) provides:

"* * * In determining the minimum price, the Secretary or his delegate shall take into account the expense of making the levy and sale."

Therefore, the District Director, a delegate of the Secretary of the Treasury, did not have to fix the minimum bid price based upon petitioner's equity in the automobile. However, since the automobile was sold subject to a chattel mortgage having an unpaid balance in the approximate amount of $2,400.00, the minimum bid price which included not only the expenses of levy and sale but also petitioner's unpaid taxes, was more than fair to taxpayer. Accordingly, this latter point raised by the Complaint does not amount to a claim upon which relief can be granted.

(5) The Complaint is hereby DISMISSED for failure to state a valid cause of action.

 

 

[93-1 USTC ¶50,274] Sally Conforte, Plaintiff-Appellant v. United States of America , et. al., Defendant-Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 91-16713, 11/19/92 , Affirming an unreported District Court decision

[Code Secs. 6331 , 6335 , 7402 and 7433 ]

IRS levy and sale: Liquidation valuation of property: Quiet title action: Exhaustion of administrative remedies.--The owner of a legal brothel was not entitled to litigate her tax liabilities by bringing a quiet title action against the IRS after its levy upon and subsequent to the sale of her property. Because a quiet title action may only contest the procedural validity of a tax lien, the court lacked jurisdiction to hear her challenge of the tax liabilities. The owner was not entitled to damages from the IRS or its agents for the sale of the property at its liquidation price rather than the going concern value, since the brothel was no longer in operation. Further, the property was properly valued at its liquidation price because it was no longer in business when levied upon by the IRS. Finally, the taxpayer was not entitled to bring an action for damages from the government since she did not exhaust her administrative remedies.

Darrell V. Rippy, 1440 E. Missouri Ave. , Phoenix , Ariz. 85014 , for plaintiff-appellant. Joel A. Rabinovitz, Department of Justice, Washington , D.C. 20530 , for defendant-appellee.

Before: CHOY, NOONAN, JR. and O'SCANNLAIN, Circuit Judges.

OPINION

NOONAN, Circuit Judge:

With tax liabilities of over $17 million, Sally Conforte has brought this action in an effort to get a $15 million credit against these liabilities, asserted by her to be the going concern value of her brothel, now levied upon and sold by the United States. Her effort to litigate her tax liabilities in this fashion fails. We dismiss those causes of action of which the district court had no jurisdiction. We affirm summary judgment against Conforte as to those causes of action over which the district court had jurisdiction.

BACKGROUND

Conforte was the owner with her husband Joseph of the Mustang Ranch, a brothel legal under the law of Storey County , Nevada . The Confortes incurred liability for unpaid federal income and employment taxes in an amount over $19 million. On November 26, 1982 Sally Conforte filed a petition under Chapter 11 of the Bankruptcy Code. In 1984 the bankruptcy court approved a plan of reorganization that permitted the Mustang Ranch to operate for six years, during which all claims were to be paid. By 1990 the tax debt was still largely unpaid. The Internal Revenue Service (the IRS) gave the Confortes several extensions, and the Confortes conveyed to the United States title to 12 lots of real property to be sold by the United States with the sum realized to be credited to partial satisfaction of the tax claims. But in September 1990 the IRS, still the largest unpaid creditor, asked the bankruptcy court to convert the case to Chapter 7. The bankruptcy court so ordered. The trustee in bankruptcy found it impossible to run the brothel legally. On September 21, 1990 , pursuant to an order of the bankruptcy court, the trustee turned over, and the IRS levied upon pursuant to Internal Revenue Code §6331(a) , the Mustang Ranch. On November 13, 14 and 15 the IRS conducted a sale of this property, receiving $1,991,000. A large tax debt remained.

CONFORTE'S COMPLAINT

On May 3, 1991 Conforte file her amended complaint in this case. The causes of action set out were as follows:

First and Second. To quiet title to the 12 lots conveyed to the United States in 1990. Conforte asserted that the United States had only a tax lien on this property and that the tax had been "fully paid."

Third and Fourth. Violation of Conforte's rights under the Fifth Amendment by the individual defendants, officers or employees of the Internal Revenue Service, wasting Conforte's property by not selling the Mustang Ranch at its going concern value.

Fifth. Reckless and intentional disregard by the individual defendants of the Internal Revenue Code and regulations thereunder.

The plaintiff sought clear title to the lots; damages of $15 million from the individual defendants; and damages from the United States under Internal Revenue Code §7433 of $100,000.

The district court granted summary judgment on all causes of action. Conforte appeals.

ANALYSIS

The Quiet Title Action. The gravamen of Conforte's suit here is that her federal taxes are "fully paid." She is, in other words, litigating her federal tax liability, avoiding the two standard routes prescribed by statute: suit in the tax court or suit for refund in the district court. She cannot in this fashion run around the law. A quiet title action "may only contest the procedural validity of a tax lien." Elias v. Connett [90-2 USTC ¶50,397 ], 908 F.2d 521, 527 (9th Cir. 1990). This rule, stated as to quiet title actions under 28 U.S.C. §2410, is equally applicable to quiet title actions under section 2409(a). The provisions of 26 U.S.C. §7506(d) permitting release of property conveyed to the United States as security for a debt if the debt is paid have no relevance here; the debt was not paid. The district court lacked jurisdiction to hear the two causes of action that challenged her tax liability, and they must accordingly be dismissed. The question was not addressed by the district court, but jurisdiction is open to challenge at any time.

The Taking of Property Actions. These causes assert injury by individuals to Conforte because the Mustang Ranch was not sold as a going concern. They fail for two reasons: first, it was the trustee in bankruptcy, not the IRS, who found it impossible to continue to operate the Mustang Ranch as a legal going concern; second, when the IRS levies upon property, it has the right to sell the property as levied upon--here as property that is no longer in business but in the possession of the IRS and in liquidation. Such property is valued at its liquidation price, see, e.g., United States v. Whiting Pools, Inc. [83-1 USTC ¶9394 ], 462 U.S. 198, 200 (1983). Conforte complains of normal practice. Summary judgment was properly granted the defendants.

The Intentional or Reckless Disregard of the Rules Action. Conforte may not bring this action against the United States under 26 U.S.C. §7433 without exhausting her administrative remedies. Id. §7433(d)(i). She has not done so. The court lacked jurisdiction to hear her. The two year period set by the statute of limitations has now run. Id. §7433(d)(3) .

Conforte's complaint is DISMISSED WITH PREJUDICE as to the first, second and fifth causes of action. Summary judgment against Conforte on the third and fourth causes of action is AFFIRMED.

 

 

[95-1 USTC ¶50,014] Arthur Skipwith, Jr., and Amelia A. Skipwith, Plaintiffs v. Gary Gover, Angela Gover and United States of America, Defendants

U.S. District Court, Dist. Mass., Civ. 93-40108-NMG, 11/29/94 , 868 FSupp 400, 868 FSupp 400

[Code Secs. 6331 and 6335 ]

Levy and distraint: Sale of seized property: Sufficiency of notice: Real estate.--The seizure and sale of a couple's residence for nonpayment of taxes was proper because a notice of intent to levy issued three years earlier in connection with the seizure of other property applied to all of the couple's property. Another notice with respect to the residence was not needed. The IRS was not required to send a copy of the seized property sale report to the couple, and it properly exercised its discretion not to void the sale due to late payment by the buyer. The sale price was not so low as to shock the conscience. Further, the couple failed to file a claim for refund to receive the surplus sale proceeds.

Dennis F. Gorman, Fletcher, Tilton & Whipple, P.C., 370 Main St. , Worcester , Mass. 01608 , for plaintiff. Henry J. Riordan, Department of Justice, Washington , D.C. 20530 , for defendant. Jeffrey S. Raphaelson, Raphaelson & Raphaelson, 340 Main St. , Worcester , Mass. 01608 , for defendant (Gover, A.)

 

 

MEMORANDUM AND ORDER

GORTON, J.: Arthur and Amelia Skipwith ("the Skipwiths") brought this action against defendants, Angela and Gary Gover ("the Govers") and the United States , seeking to set aside a tax sale of their property on the grounds that the government failed to comply with certain statutory and procedural requirements.

Pending before this Court are the following motions:

1) motion of the United States to dismiss, or, alternatively, for summary judgment,

2) motion of the Govers for summary judgment, and

3) motion of the Skipwiths for summary judgment.

For the reasons stated below, the Court will allow the motions of defendants for summary judgment, and will deny the motion of the Skipwiths.

I. BACKGROUND

The relevant facts are recited in the light most favorable to the Skipwiths. O'Conner v. Steeves, 994 F.2d 905, 907 (1st Cir.1993).

In 1988, the Internal Revenue Service ("the IRS") assessed the Skipwiths with additional taxes of approximately $14,305 for tax year 1984 and approximately $1,500 for tax year 1985. The IRS served the Skipwiths with a Notice of Intention to Levy for the 1984 taxes on November 21, 1988 , and a similar notice to levy for the 1985 taxes on January 23, 1989 .

On February 24, 1992 , the IRS levied upon all of the Skipwiths' property for the total amount due of $28,141.25 for the tax years 1984 and 1985. ¹ In March, 1992, the IRS seized the Skipwiths' boat and sold it for $1,200. On June 16, 1992 , after giving appropriate notice pursuant to 26 U.S.C. §6335(a) , the IRS seized the Skipwiths' residence located at 10 Greenwood Avenue in Shrewsbury, Massachusetts, ("the Property"), for nonpayment of taxes. That seizure, along with the subsequent sealed bid sale, is the subject of this action.

After the IRS seized the Property, the Skipwiths and the IRS, through its agent, Revenue Officer James Brennan ("Officer Brennan"), attempted to negotiate a settlement whereby the Skipwiths would be able to retain their residence. Those negotiations ultimately failed, however, and, the IRS proceeded with the tax foreclosure.

The IRS properly advertised the Property for sale in the Worcester Telegram & Gazette on September 6, 1992 , and held a sealed bid sale on September 17, 1992 . At that sale, the Govers, who were the only party bidding on the Property, submitted a bid for the minimum sale price of $29,296 (subject to two mortgages totalling $41,611). The IRS accepted their bid, and the Govers made a partial payment on the day of the sale.

The IRS advised the Skipwiths of their rights after the tax sale, but the Skipwiths chose not to exercise their right to redeem the Property. On October 28, 1992 , the Govers received a Certificate of Sale of Seized Property, and, on March 18, 1993 , they were granted a Quitclaim Deed to the Property. Although the government granted the deed to the Govers in March, 1993, the IRS apparently maintained a tax lien on the Skipwiths' former residence until at least February 22, 1994 .

The Skipwiths initiated this action on May 17, 1993 , to set aside the sale of the Property. They argue that the IRS did not comply with 26 U.S.C. §6331(d) or Internal Revenue Manual 56(12)1.1, because the second Notice of Intention to Levy was delivered on January 23, 1989 , prior to the seizure of their boat and more than three years before the seizure of their house. They claim that, after their boat was seized, both notices of intention to levy were extinguished and no other property was subject to seizure. According to the Skipwiths, the IRS was required to send out an additional notice expressing an intent to levy upon their residence.

The Skipwiths also argue that the government improperly depressed the bidding by informing Mr. Gover on the morning of the sealed bid sale that no one had yet submitted a bid to buy the subject property. ² Officer Brennan and Mr. Gover, however, both deny such a conversation took place. The Skipwiths further allege that they failed to receive either the Seized Property Sale Report, IRS Form 2436, or the $708.94 surplus proceeds from the sale. Finally, they claim that the IRS improperly extended the time within which the Govers were allowed to tender the balance of the purchase price beyond the 30-day limit proscribed in 26 U.S.C. §6335(e)(2) and (3) .

II. DISCUSSION

A. Motion to Dismiss

The government argues that this Court should dismiss this case for lack of jurisdiction and failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(1), (2) and (6). In essence, the government contends that this Court lacks jurisdiction because the United States has not waived its sovereign immunity under 28 U.S.C. §2410.

The government relies on a recent line of cases decided by the Ninth Circuit Court of Appeals which has held that:

while a taxpayer may contest the procedural validity of a tax lien under [28 U.S.C.] §2410, he may do so only if, at the time the action is commenced, the government still claims a lien or a mortgage on the property. If the government has sold the property prior to the filing of the suit, and no longer claims any interest in the property, §2410 does not apply.

Hughes v. United States [92-1 USTC ¶50,086 ], 953 F.2d 531, 538 (9th Cir.1992); see also Hansen v. United States , 7 F.3d 137, 138, n.1 (9th Cir.1993); Farr v. United States [93-1 USTC ¶50,229 ], 990 F.2d 451, 453 (9th Cir.1993). Because the government has, in this case, already transferred title to the Property to the Govers, it argues that §2410 does not apply and this Court, therefore, does not have jurisdiction over the United States .

The law in this area is unsettled. The Third Circuit Court of Appeals has held that under §2410 the government waives sovereign immunity even in cases where it has already transferred the subject property to a third party. Aqua Bar & Lounge, Inc. v. Internal Revenue Service [76-2 USTC ¶9554 ], 539 F.2d 935, 939-40 (3d Cir.1976). Similarly, this United States District Court has ruled that "[s]ection 2410 deals with law suits in which the United States either claims a mortgage or lien in the property, or in which the plaintiff challenges the validity of the tax auction sale." Lawrence v. Beaman, 90-2 USTC ¶50,514 at ¶85,731 (n.5) (D.Mass. 1990); See also Freedom Mission Church v. Green Bay Packaging, Inc. [93-1 USTC ¶50,148 ], 816 F.Supp. 513 (E.D.Ark. 1993).

There is another line of cases, however, that holds that the United States has not waived sovereign immunity in a suit challenging a tax sale if it has already transferred the subject property to a third party. See Hughes [92-1 USTC ¶50,086 ], 953 F.2d at 538; Bay Savings Bank, F.S.B. v. I.R.S., 837 F.Supp. 150, 153 (E.D.Va. 1993); Erickson v. United States , 780 F.Supp. 733 (W.D.Wash. 1990).

The reasoning of the Hughes decision is persuasive because it appears to be founded on the unambiguous language of the statute. Nevertheless, this Court declines to choose between the two divergent lines of interpretation of §2410 for two important reasons:

1) There is evidence that the government was still maintaining a tax lien on the Property at the time that the Skipwiths initiated this action. When confronted with an identical situation, the Ninth Circuit Court of Appeals recently declined to address the question of whether the government had waived its sovereign immunity. Hansen, 7 F.3d at 138-39, n.1. That court, which, of course, was bound to follow Hughes, refused to decide the issue because the record did not "contain any evidence to show that the IRS, in addition to selling the property, no longer claim[ed] a mortgage or lien interest in the property." Id.

2) This Court is reluctant to rely upon a proposition of law that is not generally accepted to dispose of a case, especially where there are other, more compelling grounds on which to base its ruling.

B. Motions for Summary Judgment

The defendants, the United States and the Govers, have moved for summary judgment. They argue that the Skipwiths have failed to present any evidence showing that either the seizure or the sale of the Property was invalid. In addition, the Skipwiths have filed a cross-motion for summary judgment.

1. Summary Judgment Standard

Summary Judgment shall be rendered where the pleadings, discovery on file and affidavits, if any, show "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court must view the entire record in the light most favorable to the Skipwiths, the nonmoving party, and indulge all reasonable inferences in their favor. O'Conner, 994 F.2d at 907.

With respect to a motion for summary judgment, the burden is on the moving party to show that "there is an absence of evidence to support the non-moving party's case." FDIC v. Municipality of Ponce, 904 F.2d 740, 742 (1st Cir.1990), quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the movant satisfies that burden, it shifts to the non-moving party to establish the existence of a genuine material issue. Id. In deciding whether a factual dispute is genuine, this Court must determine whether "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Andersen v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); accord Aponte-Santiago v. Lopez-Rivera, 957 F.2d 40, 41 (1st Cir.1992) (citing Andersen ). The nonmovant's assertion of mere allegation or denial of the pleadings is insufficient on its own to establish a genuine issue of material fact. Fed.R.Civ.P. 56.

2. Defendants' Motions for Summary Judgment

In this case, the Court finds that the defendants have carried their burden of proving that there are no material facts in issue, and that the defendants are entitled to judgment as a matter of law.

The IRS must adhere to the strict statutory requirements governing the seizure and sale of a taxpayer's property. Kulawy v. United States [90-2 USTC ¶50,565 ], 917 F.2d 729, 735 (2d Cir.1990). Where a taxpayer's allegations of a failure to comply with the notice requirements set forth in §6335 are proven, the tax sale must be set aside. Lawrence [90-2 USTC ¶50,514 ], ¶50,514 USTC at ¶85,732. The Skipwiths argue that her. the IRS did not comply with those strict requirements and that the tax sale should, therefore, be set aside.

This Court concludes, however, that the government, in this case, did comply with the various requirements imposed by Congress. The record reflects that the Skipwiths received notice that their property was subject to seizure. They may have believed incorrectly that the notice applied only to their boat and other personal property, but the notice stated on its face that the government levied on all property and rights to property, "either real or personal, as may be necessary to pay the unpaid balance of assessment shown." IRS Form 668-B, June 2, 1992 . The Internal Revenue Code does not require the IRS to send multiple notices to the taxpayer. See Hansen, 7 F.3d at 138 (holding that IRS Form 4340 is probative evidence that plaintiff had notice of tax sale). Indeed, there is no evidence or logic that can support the Skipwiths' belief that the notice of intent to levy for $28,141.25 was extinguished upon the seizure of a $1,500 boat.

In addition, there is no evidence to support the Skipwiths' mere allegations that the sealed bid sale was invalid. See Fed.R.Civ.P. 56(e) (an adverse party may not rest upon mere allegation to oppose a summary judgment motion). The Skipwiths allege (without support) that the IRS revealed to the Govers that no one else had bid on the Property, but both the IRS and the Govers deny that charge. Furthermore, even if the Court accepts the Skipwiths' allegations as true, section 6335 provides for a "public" sealed bid sale. 26 U.S.C. §6335 . Thus, any party was entitled to attend the sealed bid sale in this case and to witness the submission, or the non-submission, of bids.

The Skipwiths' remaining allegations also lack merit. Although the IRS claims that it sent a copy of the Seized Property Sale Report to them, the Skipwiths contend that they never received it. Even if they did not receive it, however, there is no statutory requirement compelling the IRS to send the Report to the taxpayers. ³ In addition, the Skipwiths complain of not receiving the surplus proceeds of $708.94 from the tax sale, but do not contend that they filed a claim for refund as required by tax regulations. They also seek to nullify the tax sale because the Govers paid the balance of the purchase price late, but the IRS properly exercised its discretion not to void the sale on account of that late payment. See 26 U.S.C. §6335(e)(3) (stating that, if there is late payment, "in the discretion of the [IRS], the sale may be declared . . . to be null and void" (emphasis added)). Finally, the Court finds that the purchase price was not so low as to "shock the conscience" of the Court and thereby provide grounds for setting aside the sale. See Ringer v. Basile [87-1 ustc ¶9229 ], 645 F.Supp. 1517 (D. Colo. 1986).

3. Skipwiths' Motion for Summary Judgment

The Skipwiths have filed a cross-motion for summary judgment. They argue that this Court should set aside the tax sale of their property because the IRS did not comply with the relevant tax regulations. Because the Court finds that the IRS did, in fact, comply with those regulations, and because the Court will allow the defendants' motions for summary judgment, the Skipwiths' motion for summary judgment will be denied.

III. CONCLUSION

Based on the facts recited in the light most favorable to the plaintiffs, the Court finds no evidence tending to show that the government violated the statutory requirements governing the seizure and sale of the Skipwiths' property. Moreover, even if there were some irregularities, they would be insufficient to support the Skipwiths' claim against the defendants. See Lawrence [90-2 USTC ¶50,514 ], ¶50,514 USTC at ¶85,734 (where plaintiff's actual knowledge of the tax sale estopped her from challenging the government's noncompliance with the notice requirements of 26 U.S.C. §6335 ); See also Howard v. Adle [82-1 USTC ¶9176 ], 538 F.Supp. 504 (E.D.Mich. 1982). This Court, therefore, will allow the defendants' motions for summary judgment and deny the plaintiffs' motion for summary judgment.

ORDER

For the foregoing reasons, the motion of defendant United States for summary judgment is ALLOWED, the motion of defendants Govers for summary judgment is ALLOWED and the motion of plaintiffs Skipwiths for summary judgment is DENIED.

So Ordered.

¹ The IRS increased the original assessments to account for interest and other statutory additions.

² The Skipwiths contend that the property was assessed for property taxes at $123,000. They allege that the total purchase price received through the tax sale was $70,880 (which includes the bid of $29,269 plus the mortgages of approximately $41,611). The government places a higher value on the mortgages and thus estimates the purchase price at $79,125.

³ The Internal Revenue Manual provides that the IRS should mail a copy of the Sale Report to the taxpayer, but, as the government correctly asserts, the Internal Revenue Manual is not mandatory and does not create a right of action for the plaintiff. United States v. Horne [83-2 ustc ¶9548 ], 714 F.2d 206, 207 (1st Cir.1983).

 

 

 

[96-2 USTC ¶50,675] Charles Parker and Carol Parker, Plaintiffs v. United States of America , Defendant

U.S. District Court, So. Dist. Calif. , CV 96-984 H(CM), 10/24/96

[Code Sec. 6203 ]

Tax assessment: Validity: Form 4340: Presumption of correctness.--Assessments executed on Form 4340, Certificate of Assessments and Payments, constituted presumptive evidence that individuals were given a procedurally valid assessment. The individuals' statements that the assessments were not proper was not sufficient evidence to overcome the presumption that the assessments were valid.
[Code Sec. 6303 ]

Notice and demand: Evidence: Form 4340.--Individuals who received Form 4340, Certificate of Assessments and Payments, received sufficient notice of the assessments against them. The taxpayers' assertions that they never received notice failed to rebut the presumptive showings made by the IRS, which included a declaration by a revenue officer stating that the assessments were made and the notices were sent to the individuals. Moreover, the individuals' seven offers-in-compromise requests concerning the assessments showed that they were aware of the assessments against them.
[Code Sec. 6331 ]

Levy: Notice: Evidence.--A revenue officer's statement, as well as certified mail receipts for two final notices, constituted sufficient evidence of the IRS's intent to levy against the property of two individuals. The individuals' mere contentions that they never received such notices were not sufficient to rebut the presumption established by the IRS.

[Code Sec. 6335 ]

Seized property: Notice: Sale : Minimum bid.--A revenue officer's declaration that individuals received notice of seizure and notice of sale and copies of those documents established that the individuals received proper notice of the seizure and sale. Since notice was published in a newspaper, the IRS was not required to display notice of the sale in the post office and two other public places. Further, the revenue officer established that a minimum bid worksheet was properly prepared and served to the individuals. The individuals' assertions that they never received notice or that a minimum bid was not properly prepared did not rebut the IRS's presumptive evidence.
[Code Secs. 6323 and 6502 ]

Statute of limitations: Standing: Collateral attack.--Two individuals lacked standing to challenge the statute of limitations in an action contesting the procedural validity of a tax lien, since such a contention constituted a collateral attack on the merits of the tax assessment. Even if they had standing, their claim lacked merit. Because they submitted numerous requests for offers in compromise, the statute of limitations was suspended during the period the offer was running plus one year. Since even the oldest assessment made against them was within the tolled limitations period, the assessments were timely.
[Code Secs. 7422 and 7433 , prior to amendment by P.L. 104-168 ]

Refund of tax: Condition precedent to suit: Payment of tax: Civil damages: Unauthorized tax collection: Motion for reconsideration.--Individuals were not allowed to amend their complaint to add causes of action for a tax refund and for civil damages for unauthorized tax collection. Proceeds from the forced sale of their property did not constitute payments of tax that were made voluntarily. Thus, they did not meet the minimum requirement for bringing a civil refund action. The individuals simply restated their argument contained in their original motion for civil damages for unauthorized tax collection. Since they did not present any new evidence or show that the court erred in the initial decision, their motion for reconsideration was denied.

Charles Parker, Carol Parker, 9953 Blossom Valley Rd., El Cajon, Calif. 92021, pro se. Robert H. Plaxico, Assistant United States Attorney, San Diego, Calif. 92189, Jeffrey R. Meyer, Department of Justice, Washington, D.C. 20530, for defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON ALL CLAIMS, ORDER DENYING PLAINTIFFS' MOTION FOR RECONSIDERATION (9,30)

HUFF, District Judge:

On June 3, 1996 , plaintiffs filed a complaint challenging, among other aspects, the procedural validity of the United States ' lien against plaintiffs' real property. On June 24, 1996 defendant United States moved for summary judgment on plaintiffs' complaint, pursuant to Federal Rule of Civil Procedure 56. By its Order of July 25, 1996 , this court denied as premature defendant's motion for summary judgment, finding that the plaintiffs should be granted an opportunity to pursue further discovery pursuant to Federal Rule of Civil Procedure 56(f). In this same Order, the court calendared a hearing on defendant's motion for summary judgment for October 21, 1996 .

On August 9, 1996 and August 12, 1996 , plaintiffs moved to amend their complaint to add new claims and a new defendant. By its Order of September 13, 1996 , this court denied plaintiffs' motion to both amend their complaint and add a new defendant. Plaintiffs now ask this court to reconsider its Order of September 13, 1996 .

After giving plaintiffs time to prepare their opposition, the court now considers defendant's motion for summary judgment, as well as plaintiffs' motion for reconsideration. Having fully reviewed the parties' papers, including plaintiffs' Opposition to United States ' motion for summary judgment filed October 7, 1996 , the court grants defendant's motion for summary judgment on all claims and denies plaintiffs' motion for reconsideration of the court's Order of September 13, 1996 .

BACKGROUND

On June 3, 1996 , plaintiffs in propria persona filed a complaint in this court seeking to quiet title to a piece of real property located in the city of El Cajon . Plaintiffs allege that they are the rightful owners of the property and that the Internal Revenue Service ("IRS") attempted to seize the property by issuing a May 22, 1996 Notice of Seizure. (Compl. ¶¶8, 10). Plaintiffs further allege that the lien is invalid because defendant failed to comply with certain statutory and procedural requirements. (Compl. ¶11). On June 5, 1996 , plaintiffs submitted to this court a notice of lis pendens for signature. In an effort to ascertain plaintiffs' legal basis for the requested authorization, the court held a hearing on June 6, 1996 , and declined to sign the property encumbrance. The court held an additional hearing on the matter on June 12, 1996 , at which the court again denied without prejudice plaintiffs' request for it to sign a notice of lis pendens.

On June 24, 1996 the United States moved for summary judgment, which on July 25, 1996 , this court denied as premature, finding that the plaintiffs should be granted an opportunity to pursue further discovery pursuant to Federal Rule of Civil Procedure 56(f). (Order denying Def.'s motion for Summary Judgment, p.4). In this same Order, the court determined that it would consider defendant's motion for summary judgment at a hearing set for October 21, 1996 .

On June 25, 1996 plaintiffs filed with the IRS in Laguna Nigel, California, an administrative claim for refund of taxes, interest, damages, and penalties unlawfully collected under the provisions of 26 U.S.C. Sections 6401 , 6402 , 7422 , and 7433 . On July 9, 1996 the IRS informed the plaintiffs that as their claim did not meet the minimum requirements as set forth in Treasury Regulation 301.7433 .1, a valid claim was not actually filed. The IRS notification to plaintiffs pointed out that the IRS was not rejecting their claim, and that they were free to re-file. (Exhibit R to Decl. of Revenue Officer Piazza).

On August 9, 1996 plaintiffs moved to amend their complaint pursuant to Federal Rule of Civil Procedure 15(a), seeking to add claims against the defendant United States for both a tax refund, pursuant to 26 U.S.C. §7422 , and for civil damages for unauthorized tax collection, pursuant to 26 U.S.C. §7433 . On August 12, 1996 plaintiffs moved to amend their complaint to add new claims against a new defendant, either pursuant to Federal Rule of Civil Procedure 19, or Federal Rules of Civil Procedure 20 or 21. (Proposed First Amended Compl., ¶21). This new proposed defendant was Gary Fleak, the purchaser of the real property at issue.

By its Order of September 13, 1996 , this court denied plaintiffs' motion to both amend their complaint and add a new defendant, finding that neither the amended complaints nor the claims against the new defendant could survive a motion to dismiss under either Federal Rule of Civil Procedure 12(b)(1) or 12(b)(6).

After allowing plaintiffs time to pursue their discovery, the court now considers both defendant's motion for summary judgment and plaintiffs' motion for reconsideration.

DISCUSSION

I. Summary Judgment

Absent proof of malfunction, the party moving for summary judgment is "entitled to judgment as a matter of law because the nonmoving party has failed to make sufficient showing on an essential element of [his] case with respect to which [he] has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

A motion for summary judgment shall be granted where "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); British Airways Bd. v. Boeing Co., 585 F.2d 946, 951 (9th Cir. 1978), cert. den., 440 U.S. 981 (1979). The opposing party cannot rest on the mere allegations or denials of his pleading, but must "go beyond the pleadings and by her own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file' designate 'specific facts showing that there is a genuine issue for trial.' " Celotex Corp., 477 U.S. at 324.

Viewing these facts in the light most favorable to plaintiff, the court cannot find that plaintiff's submissions would be persuasive to a rational trier of fact. The existence of a "scintilla" of evidence is insufficient to withstand a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). Plaintiff must offer evidence based upon which a jury could reasonably find for the opposing party. Id.

A. Jurisdiction pursuant to 28 U.S.C. §2410

Under 28 U.S.C. §2410(a), "the United States may be named a party in any civil action or suit in any district court ... (1) to quiet title to ... real or personal property upon which the United States has or claims or mortgage or other lien." However, it is clear that a taxpayer may not use a section 2410 action to collaterally attack the merits of an assessment, but may rather only contest the procedural validity of a tax lien. Hughes v. U.S. [92-1 USTC ¶50,086 ], 953 F.2d 531, 538 (9th Cir. 1993), citing Elias v. Connett [90-2 USTC ¶50,397 ], 908 F.2d 521, 525 (9th Cir. 1990); see also Arford v. U.S. [92-1 USTC ¶50,229 ], 934 F.2d 229, 232 (9th Cir. 1991) ("Section 2410 has been interpreted to allow quiet title actions challenging the procedural aspects of tax liens, but not the merits of the underlying tax assessments"). It is therefore clear that plaintiffs have standing only to challenge whether or not the United States properly followed its tax lien procedures.

B. Procedurally valid assessment pursuant to 26 U.S.C. §6203

Plaintiffs first allege that a procedurally valid assessment has not been executed against them pursuant to 26 U.S.C. §6203 and 26 C.F.R. §301.6203-1 . 26 U.S.C. §6203 reads:

The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with rules or regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish the taxpayer a copy of the record of the assessment.

Similarly, in its pertinent part, 26 C.F.R. §301.6203-1 reads:

If the taxpayer requests a copy of the record of assessment, he shall be furnished a copy of the pertinent parts of the assessment which set forth the name of the taxpayer, the date of the assessment, the character of the liability assessed, the taxable period, if applicable, and the amounts assessed.

The Ninth Circuit has held that official certificates, such as the Form 4340 Certificate of Assessments and Payments, can constitute proof of the fact that the assessments were actually made. Hughes [92-1 USTC ¶50,086 ], 953 F.2d at 535; see also Huff v. U.S. [93-2 USTC ¶50,633 ], 10 F.3d 1440, 1445 (9th Cir. 1993), cert. denied 114 S.Ct. 2706 (1994) ("Generally courts have held that IRS form 4340 provides at least presumptive evidence that a tax has been assessed under §6203 ").

In this case, plaintiffs submit as exhibits the Form 4340 Certificates of Assessments and Payments that were provided to them, which explicitly list all assessments made against them. Since these forms clearly satisfy the requirements of both 26 U.S.C. §6203 and 26 C.F.R. §301.6203-1 , the court finds that the IRS has submitted presumptive evidence that the plaintiffs were given all the documentation that they were entitled to. The court further notes that plaintiffs offer only their statements that the assessments were not proper to rebut this presumptive evidence. Therefore, the court finds that plaintiffs have failed to present sufficient evidence to rebut the presumption that the assessments were valid, and as such concludes that a procedurally valid assessment has been executed against the plaintiffs in this case. ¹

C. Service Required by 26 U.S.C. §6303

Plaintiffs allege that the United States has not provided them with copies or any proof that notices of the assessments made against them were ever sent out. Although they don't state so explicitly, the court understands plaintiffs' argument to be that they never received notice of any of the number of assessments that were made against them.

After the assessment of a tax, 26 U.S.C. §6303 requires:Where it is not otherwise provided by this title, the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment of a tax pursuant to section 6203 , give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address.

As evidence that the plaintiffs did receive proper notice, the United States presents the declaration of Tony Corpus, the Revenue Officer assigned to aid in the collection of plaintiffs' federal tax liabilities. This declaration states that the following assessments made and notices were duly sent out: (1) April 11, 1985 : Carol Parker was assessed a liability for the tax period ending December 31, 1982 , and notice was sent the same day (Corpus Decl. ¶¶14, 15); (2) May 20, 1985 : Carol Parker was assessed a liability for the tax period ending June 20, 1983 , and notice was sent the same day ( ¶¶22, 23); (3) January 29, 1987 : Carol Parker was assessed a liability for the tax period ending December 31, 1984 , and notice was sent the same day ( ¶¶30, 31); (4) April 14, 1986 : Charles Parker was assessed a liability for the tax period ending December 31, 1982 , and notice was sent the same day ( ¶¶36, 37); (5) January 27, 1987 : Charles Parker was assessed a liability for the tax period ending December 31, 1984 , and notice was sent the same day.

The Form 4340 Certificates of Assessments and Payments, copies of which were submitted by plaintiffs, are also considered to be "sufficient to establish that notices and assessments were properly made." Hansen v. United States , F.3d 137, 138 (9th Cir. 1993). In Hansen, as in this case, the plaintiffs claimed that they never received the proper notice pursuant to §6303 , and argued that the fact that the IRS could not submit evidence to prove that such notice was sent created a genuine issue of material fact. Id. The Hansens supported their position by submitting their own declaration which stated that they never received notice of the assessment and demand for payment. Id. This argument was rejected by the Ninth Circuit, which found that the Form 4340 was sufficient proof that the notices were sent, and that an affidavit claiming that notice was never received did not meet the requirement that plaintiffs show "specific facts" that the IRS did not send them notice and demand. Id.

In addition to the statements of Officer Corpus that notice was given, the presumed validity of the Form 4340, and the Hansen holding which is directly on point, the court also notes that between November 7, 1986 and May 17, 1989 , plaintiffs filed seven Form 656 Offer In Compromise requests with respect to their various assessed liabilities (Corpus Decl. ¶¶17, 19, 25, 27, 33, 39, 47). At no point in their complaint or opposition do plaintiff's contest the fact that these offers to compromise were made. Finding it hard to believe that plaintiffs would have filed seven different offers to compromise their assessed liabilities without ever being notified of the liabilities in the first place, the court considers this further evidence that plaintiffs were properly notified of their assessed liabilities pursuant to §6303 .

In summary the court finds that the declarations of Officer Corpus, the Form 4340, and the filing of seven offers to compromise by plaintiffs all present presumptive evidence that proper notice of liabilities was made. The court also finds plaintiffs' mere contentions that they never received notice fail to rebut these presumptive showings made by defendant. Consequently, the court finds that plaintiffs did properly receive notice of the assessed liabilities against them pursuant to 26 U.S.C. §6303 .

D. Requirement of Notice Before Levy pursuant to 26 U.S.C. §6331(d)

Plaintiffs also allege that they never received any notice of the government's intent to levy. The pre-levy notice required by §6331(d) provides that:

Levy may be made under subsection (a) upon the salary or wages or other property with respect to any unpaid tax only after the Secretary has notified such person in writing ... sent by certified of registered mail to such person's last known address, no less than 30 days before the day of levy.

As evidence that the plaintiffs did in fact receive notice of intent to levy, the Corpus declaration states that on May 9, 1988 , October 7, 1991 , and July 13, 1994 , plaintiffs were sent notices of intent to levy pursuant to §6331(d) (Corpus Decl. ¶¶18, 21, 26, 28, 29, 34, 35, 40, 42, 43, 48, 49). In addition, defendant has submitted a copy of the two Final Notices (Notice of Intention to Levy) that were each sent individually to both Charles and Carol Parker on July 13, 1994 (Corpus Exhs. B, C). Significantly, these letters are also accompanied by copies of the "Receipt for Certified Mail" for both Charles and Carol Parker. Id. Finally, defendant has also submitted a copy of the "Domestic Return Receipt" which was signed by Charles Parker and dated July 18, 1994 (Corpus Exh. D). See United States v. Zolla [84-1 USTC ¶9175 ], 724 F.2d 808, 810 (9th Cir. 1984), cert. denied 469 U.S. 830 (1984) (postal form certifying notices deficiency are official certificates which "are highly probative, and are sufficient, in the absence of contrary evidence, to establish that notices and assessments were made").

Similar to the notice of assessment requirements addressed supra, the court finds that the defendant United States has submitted presumptive evidence that plaintiffs were also properly notified of the government's intent to levy. The court additionally finds that the plaintiffs' mere contentions that they never received such notice are not sufficient to rebut the presumption established by defendant. As such, the court finds that the government did properly notify plaintiffs of its intent to levy pursuant to 26 U.S.C. §6331(d) .

E. Sale of Seized Property pursuant to 26 U.S.C. §6335

Plaintiffs contend that they did not properly receive either the Notice of seizure, or the Notice of sale, both of which are required by §§6335(a) and (b) . Section 6335(a) , Notice of seizure, reads: "As soon a practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property ..." Section 6335(b) , Notice of sale, reads:

The Secretary shall as soon as practicable after the seizure of the property give notice to the owner, in the manner prescribed in section (a), and shall cause a notification to be published or generally circulated within the county wherein such seizure is made, or if there be no newspaper published or generally circulated in such county, shall post such notice at the post office nearest the place where the seizure is made, and in not less than two other public places. Such notice shall specify the property to be sold, and the time, place, manner, and conditions of the sale thereof.

As proof that plaintiffs received both Notice of the sale and the seizure, the Corpus declaration states that on May 22, 1996 , a copy of the Levy, Notice of Seizure, Minimum Bid Worksheet, and Notice of Sealed Bid Sale were served personally to Charles Parker, with Carol Parker standing next to him, in the front yard of their house ( ¶50). Defendant also offers copies of the above documents, the most significant being the Levy, ² which states that Charles Parker was present at the inventory, and the Notice of Sealed Bid Sale, which specifies the time, place, manner, and conditions of the sale (Corpus Decl. Exhs. F, G, H, I). Finally, the court notes that plaintiffs' brought this action on June 3, 1996 challenging the levy and seizure, which further supports the government's position that the Notice of seizure and sale were proper. Again, the only evidence plaintiffs offer in the face of this presumptive evidence supplied by the government is their contention that they never received notice. Consequently, the court finds that the plaintiffs did receive proper notice of both the sale and seizure pursuant to 26 U.S.C. §§6335(a) and (b) .

As to the Notice of sale being published, defendant offers a copy of the proof of publication of the notice of sale as published in the San Diego Commerce on May 29 and May 30, 1996 (Corpus Decl. Exh J). Although plaintiff's assert in their complaint that defendants failed to post notice of the sale in the post office and in two other public places, it is clear from the language of the statute that if publication is made in a newspaper, no other publication is required. Consequently, the court finds that defendant did properly publish notice of the sale as required by 26 U.S.C. §6335(b) .

F. Minimum Bid

In their complaint and in their opposition to defendant's motion for summary judgment, plaintiffs claim that a minimum bid was not properly determined for the sale of their seized house, pursuant to 26 U.S.C. §6335(e) . However, the Corpus Declaration states that on April 23, 1996 , a Minimum Bid Worksheet was prepared, and was served to plaintiffs on May 22, 1996 . (Corpus Decl. ¶51). Additionally, the defendant has presented a copy of the Minimum Bid Worksheet (IRS Form 4585), signed by both Revenue Officer Corpus and the Group Manager on April 23, 1996 . (Corpus Exh. H).

The court again notes that the only evidence plaintiffs offer to counter this presumptive evidence offered by the government is their assertions that a minimum bid was never prepared. As the plaintiffs have failed to present any specific facts to show that a minimum bid was not properly prepared, the court finds that a minimum bid for sale was properly prepared in accordance with 26 U.S.C. §6335(e) .

G. Statute of Limitations

Plaintiffs also assert that the collection of the tax liabilities against them is barred by the ten year collection statute of 26 U.S.C. §6502(a)(1) , which limits collections to ten years from the date of assessment. However, as noted earlier, under 28 U.S.C. §2410, a taxpayer may not use a section 2410 action to collaterally attack the merits of an assessment, but may rather only contest the procedural validity of a tax lien. See Hughes v. U.S. [92-1 USTC ¶50,086 ], 953 F.2d 531, 538 (9th Cir. 1993); Arford v. U.S. [92-1 USTC ¶50,229 ], 934 F.2d 229, 232 (9th Cir. 1991). As the court finds that a statute of limitations claim is in effect a collateral attack on the merits of the assessment, it concludes that plaintiffs do not have standing to challenge the statute of limitations in this action.

However, even were the court to consider plaintiffs, statute of limitations claim, in this case the statute of limitations has not expired. Pursuant to §6502(a)(2) , the ten year collections period is subject to extension by agreement. As described above, plaintiffs submitted numerous IRS Form 656 Offers In Compromise, which by their terms operate to suspend the collection statute during the period the offer is running, plus one year. Applying this to even the oldest assessment at issue, April 11, 1985 , the statute of limitations has not expired for this or any of the later claims.

H. Summary

Under 28 U.S.C. §2410, plaintiffs may challenge only the procedural validity of the execution of the lien against them. As the court finds that the Internal Revenue Service followed both the required procedures to give rise to a valid lien, and the required procedures in seizing and selling the subject property, the court grants defendant's motion for summary judgment on all claims. Fed. R. Civ. P. 56.

II. Reconsideration

Pursuant to Federal Rule of Civil Procedure 54(b), an order denying leave to amend and to add additional parties is an interlocutory decree, and as such is subject to revision by this court at any time prior to the entry of final judgment. The Ninth Circuit has held that reconsideration is appropriate if the district court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law. School Dist No. 1J, Multnomah County v. AcandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993) (citations omitted), cert. denied 114 S.Ct. 2742 (1994). This same court also noted that a motion for reconsideration is not justified on the basis of "new evidence" which could have been discovered prior to the court's ruling. Finally, Local Rule 7.1(i)(1) requires that a motion for reconsideration identify what new or different facts and circumstances are claimed to exist which did not exist upon prior application. As plaintiffs here present no new facts and do not claim that there were any intervening changes in the existing law, the court interprets their claim to be that the Order of September 13, 1996 was one of clear error and/or manifestly unjust.

A. Additional Defendant

In their motion for reconsideration, plaintiffs allege that the court clearly erred in not allowing them to add the purchaser of their seized property as an additional defendant in this action, arguing that a purchaser at a tax sale must be considered a real party in interest. The court first notes that this is essentially just a restatement of the same argument that plaintiffs made, and the court rejected, in their original motion.

More importantly, the court finds that in their motion for reconsideration, plaintiffs fail to address the court's reasoning for denying their original motion, how any of their proposed claims against the new defendant could survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Accordingly, the court finds that it did not clearly err in denying plaintiffs' motion to add an additional defendant, and as such denies the motion for reconsideration.

B. Additiona1 Claims

In their motion for reconsideration, plaintiffs allege that the court clearly erred in not allowing them to amend their complaint to add causes of action for both a tax refund and for civil damages for unauthorized tax collection, pursuant to 26 U.S.C. §§7422 and 7433 . To bring a claim under either statute, a plaintiff is first required to both pay at least a divisible portion of the assessment for which a refund is sought, and to exhaust his administrative remedies. Flora v. United States [60-1 USTC ¶9347 ], 362 U.S. 145, 177 (1960); Thomas v. United States [85-1 USTC ¶9263 ], 755 F.2d 728, 729 (9th Cir. 1985); United States v. Toyota of Visalia [91-2 USTC ¶50,327 ], 772 F. Supp. 481, 492-93 (E.D. Cal. 1991), aff'd 988 F.2d 126 (9th Cir. 1993).

Plaintiffs first again allege, as they did in their original motion, that the sale price of their seized home, $40,102, constitutes at least a divisible portion of the assessment for the refund they seek. However, as a general rule, the IRS has maintained a long-standing policy of permitting taxpayers to designate the application of tax payments that are voluntarily made. U.S. v. Energy Resources, Inc. [90-1 USTC ¶50,281 ], 495 U.S. 545, 548 (1990), citing Rev. Rul. 79-284 , 1979-2 C.B. 83; see also Rev. Rul. 73-304 , 1973-2 C.B. As the proceeds obtained from the forced sale of plaintiffs' property are clearly not payments that were voluntarily made, the court rejects plaintiffs' argument that they have paid at least a divisible portion of the assessments against them.

Plaintiffs also allege that the court erred in finding that the administrative claim they filed with the IRS on June 25, 1996 did not meet the minimum requirements as set forth in Treasury Regulation 301.7433 .1. However, as the arguments plaintiffs put forward in their motion for reconsideration are simply a restatement of the arguments in their original motion, the court continues to find that the plaintiffs have not yet filed a proper claim for a refund with the IRS. In summary, as the court finds that it did not clearly err in denying plaintiffs' motion to amend their original complaint, the motion for reconsideration is denied.

CONCLUSION

Having fully reviewed the parties' papers, the court grants defendant's motion for summary judgment on all claims and denies plaintiffs' motion for reconsideration of the court's Order of September 13, 1996 .

IT IS SO ORDERED.

¹ Plaintiffs cite Jones v. U.S. [95-2 USTC ¶50,373 ], 60 F.3d 584, 590 (9th Cir. 1995) for the proposition that in some instances, a Form 4340 will not be considered sufficient evidence of a valid assessment. However, in Jones, the assessment forms were not dated, and none of the amounts claimed against the plaintiff matched any of the assessments listed on the assessment form. The gravamen of the holding in Jones was that "one must read the official documents to see what they say." Id. In. this case, the Form 4340s on their faces clearly meet all the requirements of both 26 U.S.C. §6203 and 26 C.F.R. §301.6203-1 , and as such Jones is not applicable.

² In their complaint, plaintiffs assert that authority to seize the residence was not properly obtained pursuant to 26 U.S.C. §6334(e) , which requires a district director or assistant district director to approve a levy on a principal residence. However, in this case approval was granted by the assistant district director on May 3, 1996 , as is witnessed by the signature on the levy form (Corpus Decl. ¶50, Exh. F).

 

 

 

[98-1 USTC ¶50,239] Charles Parker, Carol Parker, Plaintiffs-Appellants v. United States of America , Defendant-Appellee

(CA-9), U.S. Court of Appeals, 9th Circuit, 97-55103, 2/20/98 , Affirming a District Court decision, 96-2 USTC ¶50,675

[Code Secs. 6203 , 6672 and 7422 ]

Assessment and collection: Method of assessment: Presumption of correctness: Failure to collect and pay over tax: Periods covered: Civil actions for refund: Discovery.--The IRS could assess the trust fund recovery penalty for several tax periods against married individuals as a lump sum. The original notices of assessment, notices of intention to levy, and notice of levy identified the applicable tax periods in issue. A federal district court did not abuse its discretion in refusing to allow the taxpayers additional time for discovery since they sought information that the IRS had already disclosed or was relevant only to the merits of the underlying assessments, not their procedural validity.
[Code Sec. 6532 ]

Civil actions by taxpayers: Period of limitations: Six-month limitation after claim filed.--Taxpayers were not allowed to amend their complaint to include a tax refund claim since they were precluded from filing suit until six months after the filing of their refund claim with the IRS.

Before: PREGERSON, CANBY and LEAVY, Circuit Judges. ^*

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

MEMORANDUM ^**

I.

The Internal Revenue Service ("IRS") imposed several responsible party assessments against Charles and Carol Parker as a penalty for failure to remit federal withholding taxes. See 26 U.S.C. §6672 (Supp. 1997). The IRS eventually seized and sold the Parkers' home to partially satisfy their tax debt. See 26 U.S.C. §6334(e) (Supp. 1997). Pending the sale of their home, the Parkers filed a quiet title action in district court challenging the procedural validity of the responsible party assessments. See 28 U.S.C. §2410 (1994). The Parkers now appeal from the district court's grant of defendant's motion for summary judgment. We affirm.

II.

The facts are known to the parties. We will repeat them here only as necessary.

III.

The IRS produced certified copies of the Certificate of Assessments and Payments (Form 4340) for each of the five responsible party assessments imposed on the Parkers. These forms are presumptive proof that the IRS made the assessments and timely notified the Parkers. See Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993); Hughes v. United States [92-1 USTC ¶50,086], 953 F.2d 531, 535 (9th Cir. 1992). The Parkers presented no contrary evidence, except for theirown declarations. Accordingly, the district court correctly concluded that the Parkers' claim of insufficient notice of assessment could not withstand summary judgment. ¹

Nevertheless, the Parkers argue that they received several IRS documents--such as a notice of seizure and a minimum bid worksheet--that refer to the assessments as a lump sum, rather than identifying individual assessments for each of the applicable tax periods. The Parkers infer from these documents that the IRS imposed a single assessment for multiple tax periods, a practice which they mistakenly contend is improper.

A responsible party assessment is not a tax liability imposed for a particular tax period, but is instead an aggregate sum penalty equal to the total amount of unpaid withholding taxes. See 26 U.S.C. §6672. The IRS may make an aggregate assessment of §6672 penalties as long as it identifies the particular tax periods for which the taxpayer is liable. See Purcell v. United States [93-2 USTC ¶50,460], 1 F.3d 932, 940-41 (9th Cir. 1993); accord Taylor v. IRS [95-2 USTC ¶50,578], 69 F.3d 411, 418-19 (10th Cir. 1995); Stallard v. United States [94-1 USTC ¶50,056], 12 F.3d 489, 495 (5th Cir. 1994). Here, the Parkers received several IRS documents which identified the applicable tax periods, such as the original notices of assessment (as evidenced in the Certificates of Assessments and Payments), the notices of intention to levy, and the notice of levy. Accordingly, we find no procedural irregularity.

IV.

The Parkers argue that the district court abused its discretion by granting defendant's motion for summary judgment before they had completed discovery. A district court may order a continuance on a motion for summary judgment to permit discovery. Fed. R. Civ. P. 56(f). Here, the Parkers did not file a Rule 56(f) motion. Nevertheless, the district court initially denied the defendant's motion for summary judgment to allow the Parkers additional time for discovery.

The Parkers' subsequent discovery requests were not productive. They largely sought information that the IRS had already disclosed. Other requested information could only be relevant to the merits of the underlying assessments, and not to the procedural validity of those assessments. The Parkers, however, could not use a quiet title action to collaterally attack the merits of the assessments; rather, they could only use §2410 to contest the assessments' procedural validity. See Hughes [92-1 USTC ¶50,086], 953 F.2d at 535. Under these circumstances, we affirm the district court's conclusion that additional time for discovery would not have enabled the Parkers to raise a genuine issue of material fact. ² See Brae Transp., Inc. v. Coopers & Lybrand, 790 F.2d 1439, 1443 (9th Cir. 1986).

V.

The Parkers filed a tax refund claim with the IRS. Shortly thereafter, they sought to amend their complaint in district court by adding a tax refund claim pursuant to 26 U.S.C. §7422. However, 26 U.S.C. §6532(a) prohibited the Parkers from filing suit under §7422 until six months after the filing of their claim with the IRS. The Parkers failed to comply with this jurisdictional prerequisite. See Boyd v. United States [85-2 USTC ¶9458], 762 F.2d 1369, 1371-72 (9th Cir. 1985). We therefore affirm the district court's decision to deny the Parkers' motion to amend. ³

VI.

The decision of the district court is

AFFIRMED.

^* The panel unanimously finds this case suitable for decision without oral argument. See Fed. R. App. P. 34(a); 9th Cir. R. 34-4.

^** This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir. R. 36-3.

¹ We review de novo the district court's grant of summary judgment. Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir. 1997).

² We review for an abuse of discretion the district court's decision not to permit additional discovery. Nidds v. Schindler Elevator Corp., 113 F.3d 912, 920 (9th Cir. 1997).

³ We review for an abuse of discretion the district court's denial of the Parkers' request to amend their complaint. See Keams v. Tempe Technical Inst., Inc., 110 F.3d 44, 46 (9th Cir. 1997).

 

 

[2000-1 USTC ¶50,388] Edward Kabakjian and Nancy B. Kabakjian v. United States of America , Luann Parmer, William Snider and Nancy Snider

U.S. District Court, East. Dist. Pa. , CIV. 97-5906, 4/12/2000 , 92 FSupp2d 435. 2000 U.S. Dist. LEXIS 4604. Prior decision by the District Court in this same case, 99-1 USTC ¶50,150

[Code Secs. 6335 and 7433 ]

Jurisdiction: Suits by taxpayers: Sale of seized property, validity of: Notice of sale.--Married taxpayers' claim for damages against the government for the allegedly improper tax sale of their real property was dismissed. The taxpayers received actual notice of the seizure and sale by certified mail, and they would not have been in any better position to contest their tax liability, redeem their property or otherwise challenge the IRS actions if they had been provided notice by personal delivery as required by Code Sec. 6335 .

[Code Secs. 6335 and 7433 ]

Sale of seized property, validity of: Minimum price: Fair market value: Sale price: Adequacy of.--The IRS properly established the minimum bid price for the sale of real property seized from married taxpayers. The minimum bid provision of Code Sec. 6335(e) does not require the IRS to determine the fair market value of seized assets, or to base the minimum bid on that value. Furthermore, the taxpayers' argument that the sale should be set aside because of the alleged inadequacy of the sales price was rejected because the price received did not "shock the conscience of the court." Rather, the sale price was nearly double the minimum bid price, and almost half of the taxpayers' own unsupported estimate of its fair market value. D.S. Ringer v. T.M. Basile (DC Colo.), 1987-1 USTC ¶9229, distinguished.
[Code Sec. 7432 ]

Jurisdiction: Suits by taxpayers: Failure to release tax liens: Exhaustion of remedies: Economic damages.--Married taxpayers' claim for damages as a result of the IRS's failure to timely release tax liens was dismissed. The taxpayers exhausted their administrative remedies by submitting an administrative claim for damages at the same time that they submitted their request for release of liens. Moreover, the IRS acted knowingly or negligently when it delayed the release of the liens more than 32 months after the sale of the property, more than 17 months after the taxpayers' requested the release, and more than five months after the Department of Justice recommended the release. However, the taxpayers failed to show that they suffered actual economic damages.

Edward Kabakjian, Nancy B. Kabakjian, Pennsburg, Pa. pro se. Melvin E. Newcomer, Kluxen & Newcomer, Lancaster, Pa., Charles M. Flesch, Shannon Cohen, Department of Justice, Washington, D.C. 20530, for defendants.

OPINION: MEMORANDUM

I. Introduction

WALDMAN, Judge:

Plaintiffs assert claims for damages against the United States under the Internal Revenue Code, 26 U.S.C. §§7433 & 7432, for the allegedly improper tax sale of their property and failure to release tax liens filed by the Internal Revenue Service with two Pennsylvania county prothonotaries. ¹

26 U.S.C. §7433(a) provides a cause of action for damages to a taxpayer from the reckless, intentional or negligent disregard by any IRS official or employee of any provision of the Internal Revenue Code or regulation promulgated thereunder. "Upon a finding of liability," a plaintiff may recover the "actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent actions of the [IRS] official or employee" up to $1,000,000 or $100,000 in a case of negligence, plus the costs of the action. See 26 U.S.C. §7433(b). ² 26 U.S.C. §7432(a) provides a cause of action for damages resulting from the knowing or negligent failure of an IRS official or employee to release a lien on a taxpayer's property. "Upon a finding of liability," the taxpayer may recover any "actual, direct economic damages" which "but for the actions of the defendant, would not have been sustained," plus the costs of the action. See 26 U.S.C. §7432(b).

Plaintiffs seek to recover pursuant to §7433 the difference between the amount realized from the tax sale and the amount they allege their property was worth plus lost rental income. Plaintiffs' claim for damages under §7432 is predicated on a denial of their application for a platinum mastercard, allegedly because of the liens.

The court has original jurisdiction over these claims pursuant to 28 U.S.C. §1331. ³ Presently before the court is the motion of the United States for summary judgment.

II. Legal Standard

In considering a motion for summary judgment, the court must determine whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); Arnold Pontiac-GMC, Inc. v. General Motors Corp., 786 F.2d 564, 568 (3d Cir. 1986). Only facts that may affect the outcome of a case are "material." See Anderson, 477 U.S. at 248. All reasonable inferences from the record must be drawn in favor of the non-movant. See id. at 256.

Although the movant has the initial burden of demonstrating the absence of genuine issues of material fact, the non-movant must then establish the existence of each element on which it bears the burden of proof. See J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir. 1990) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1986)), cert. denied, 499 U.S. 921 (1991). A plaintiff cannot avert summary judgment with speculation or by resting on the allegations in his pleadings, but rather must present competent evidence from which the fact-finder could reasonably find in his favor. See Anderson , 479 U.S. at 248; Ridgewood Bd. of Educ. v. N.E. for M.E., 172 F.3d 238, 252 (3d Cir. 1999); Williams v. Borough of West Chester , 891 F.2d 458, 460 (3d Cir. 1989); Woods v. Bentsen, 889 F.Supp. 179, 184 (E.D. Pa. 1995).

III. Facts

From the competent evidence of record, as uncontroverted or otherwise taken in the light most favorable to plaintiffs, the pertinent facts are as follow.

On December 17, 1995 , the Internal Revenue Service ("IRS") seized plaintiffs' property at 1730 Valley Forge Road , Lancaster , Pennsylvania for failure to pay taxes. On February 23, 1996 , the IRS sold the real property to defendants William and Nancy Snider and LuAnn Palmer as the highest bidders in a public sealed bid sale. The IRS issued a deed conveying title to the purchasers on September 18, 1996 , following the expiration of the 180 day redemption period.

On October 5, 1995 , Revenue Officer Chesna White estimated the value of plaintiffs' property at $100,000 based on an external viewing during a drive-by. By December 4, 1995 , Ms. White had determined a market value of $80,000 on IRS Form 2433. Using the IRS Minimum Bid Worksheet, Form 4585, Officer White then established a reduced forced sale value of $48,000 and a minimum bid price of $36,178.33. The reduction from $80,000 to $48,000 reflects adjustments within IRS guidelines for the forced nature of the sale and marketability factors specific to the county of sale. The minimum bid price was dictated by a provision in the IRS manual which sets a ceiling for a minimum bid at the sum of the tax owed, interest, penalties and expenses of sale. The Minimum Bid Worksheet prepared by Officer White was reviewed and approved by an IRS Group Manager.

On December 11, 1995 , Ms. White sent notice of levy, notice of seizure and a copy of the Minimum Bid Worksheet by certified mail to plaintiffs at their personal residence at 1730 Fels Road , Pennsburg , Pennsylvania . On January 24, 1996 , she sent notice of the sale by certified mail. On January 29, 1996 , she posted public notice of the sale at the Lancaster County Post Office and at the place of sale and mailed notice to real estate agents and individuals on the bidding list. On February 1, 1996 , she posted notice on the seized property. On February 8, 1996 notice of the sale was published in an area newspaper.

Plaintiffs' usual place of abode was within the internal revenue district where the seizure and sale of the property occurred. The IRS neither served plaintiffs in person with written notice of the seizure and sale nor left such notice at their usual abode. Plaintiffs do not dispute that they timely received actual notice of the seizure and sale via certified mail for which receipts were signed on December 15, 1995 and January 27, 1996 respectively. ⁴

In October 1992, September 1995 and December 1995, the IRS had filed Notices of Federal Tax Lien with the Lancaster and Bucks County prothonotaries referring to plaintiffs' tax liabilities for the years 1987, 1988, 1989 and 1993. ⁵

The property was sold for $65,509 of which $38,050.19 was applied to plaintiffs' tax liability, leaving a surplus of $27,458.81. Because the IRS believed that plaintiffs may have had other tax debts at the time the property was sold, it did not provide a refund to plaintiff from the sale until October 19, 1998 .

On May 15, 1997 , plaintiffs filed an administrative claim for damages pursuant to Treasury Regulation 26 C.F.R. §301.7432-1. Although they had not previously filed a proper request for certificate of release of lien pursuant to Treasury Regulation 26 C.F.R. §401.6325-1(f), they included such a request with their administrative claim. By letter of May 21, 1998 , Department of Justice attorney Shannon Cohen advised IRS District Counsel H. Stephen Kesselman that plaintiffs' claim to excess proceeds from the sale appeared valid and recommended that any true surplus be refunded and any corresponding liens be released immediately. The IRS refunded the surplus on October 19, 1998 and released the liens on November 2, 1998 .

Plaintiffs received the refund check for $33,445.85, representing the surplus plus interest. They have refused to cash the check, however, as part of their continuing "protest" against the IRS. ⁶

In response to a solicitation or "invitation" from MBNA America Bank, Mr. Kabakjian applied for a platinum mastercard in 1996 or early 1997. He was advised by correspondence of February 20, 1997 from a bank employee that his application could not be approved because he "did not meet the eligibility conditions stated in [his] invitation" as it appeared from a credit report that there were "liens or judgments against [him]." The letter continued that the bank nevertheless "attempted to qualify [his] application on a non-preapproved basis" but determined he was ineligible because of "a history of delinquency with [his] creditors."

As a result of the denial of this credit card, plaintiffs were unable to take advantage of travel opportunities presented "on two occasions" in telephone solicitations from a travel agency in Ft. Lauderdale sometime between February 1996 and February 1997. ⁷ With each solicitation, plaintiffs were offered vacation packages to several different destinations including Ft. Lauderdale , the Bahamas and Brandon , Michigan . Mr. Kabakjian acknowledged that he could afford to pay cash for these trips but that the travel agency required him to provide a credit card number immediately over the telephone to book them. He acknowledged traveling to "a variety of places" during this period, including Florida and Brandon , Michigan . On some of those trips plaintiffs "piggy-backed" on relatives' credit cards and then paid them back in cash.

IV. Discussion

A. Section 7433 Claim

Plaintiffs assert that the IRS disregarded the notice provisions of 26 U.S.C. §6335(a) & (b) when the agency provided notice of the seizure and sale respectively by certified mail rather than personal delivery as prescribed when the property owner has a dwelling or business within the internal revenue district where the seizure occurs. ⁸

Plaintiffs also assert that "Officer White intentionally violated the minimum price provision of §6335(e) by knowingly understating the property value on the Minimum Bid Worksheet." The short answer to this contention is that §6335(e) requires only that a minimum price be set and that no lower bid be accepted. It does not require the IRS to determine fair market value or to base the minimum bid price on such value. As noted, the minimum bid is capped at the sum of taxes owed, interest, penalties and expenses of sale.

If plaintiffs meant to allege that the minimum bid is low in relation to the market value, the short answer is that there is a difference between the minimum bid and sale price. Plaintiffs' property was sold for almost twice the minimum bid price. If plaintiffs meant to allege that the sale price was low in relation to the market value, the short answer is that this would ignore the context in which the sale was made. It is clear that the forced sale value of property will almost invariably be significantly less than the ordinary fair market value. See BFP v. Resolution Trust Corp., 511 U.S. 531, 537-38, 128 L.Ed.2d 556, 114 S.Ct. 1757 (1994) (noting that fair market value is the "very antithesis of forced sale value" because it presumes market conditions which by definition do not exist).

Plaintiffs rely on Ringer v. Basile [87-1 USTC ¶9229], 645 F.Supp. 1517 (D. Colo. 1986) to argue that nevertheless relief is available when the price obtained in a forced sale is not "within the ball park of reason." The Court in Ringer appears to have read into §6335(e) additional limitations based on common law principles to recognize a claim for "inequitable conveyance" predicated on the selling price of the seized property. In denying a motion to dismiss, the Court held that it could set aside a federal tax sale pursuant to 28 U.S.C. §2410 if evidence established that the price realized was so "grossly disproportionate" to the fair market value as to "shock the judicial conscience." Id. at 1522. This standard was derived from cases involving mortgage foreclosures and confirmations of judicial sales going back to a 93 year old Supreme Court case in which the Court stated that such a sale "will not be set aside for mere inadequacy of price unless that inadequacy be so gross as to shock the conscience." Ballentyne v. Smith, 205 U.S. 285, 290, 51 L.Ed. 803, 27 S.Ct. 527 (1907). In Ballentyne, the Court upheld the setting aside of the foreclosure sale of property "worth at least seven times [85%] more" than the highest bid. Id. at 291. See also Jefferson Bank & Trust Co. v. Van Niman, 722 F.2d 251, 252 (5th Cir. 1984) (stating that judicial sale of vessel foreclosed by mortgagee for 1/2% of value "would be a grossly inadequate price, shocking to the conscience"). ⁹

Significantly, the taxpayer in Ringer alleged that she received no notice at all of the sale until after it was executed. This alone stated a claim sufficient to withstand the motion to dismiss. See Ringer [87-1 USTC ¶9229], 645 F.Supp. at 1525. ¹⁰

Even assuming that one may reasonably import into the minimum bid requirement of §6335(e) an obligation not to sell property seized for collection of taxes at a price so below market value as to shock the conscience, there is no competent evidence of record from which one reasonably could find this happened to plaintiffs in the instant case. The sale price in Ringer was barely 4% of market value. The Court in Ringer made clear that an "inadequate" or even "very low" price will not support relief unless it is so low as to be in "the realm of outrageousness." Id. at 1522. The Court, and indeed the plaintiff, in Ringer did not question "the Secretary's right to set a minimum bid price far below the fair market value." Id. at 1519. See also Latvian Shipping Co. v. Baltic Shipping Co., 99 F.3d 690, 694 (5th Cir. 1996) (judicial sale price of 42.5% of market value not so grossly inadequate as to shock conscience).

Plaintiffs' property was sold for more than 80% of the market value determined by the IRS and 65% of the initial estimate of Revenue Office White at the time of her visual inspection. Indeed, it was sold for 47.5% of plaintiffs' own unsupported estimate of market value. One could not find from the competent evidence of record in this case a disparity so gross as to shock the conscience.

The requirements for notice of seizure of property by the IRS are set forth in the Internal Revenue Code as follows:

As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property . . . or shall be left at his usual place or abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address.

26 U.S.C. §6335(a). The Code provides the same procedures for notice to the property owner of the sale. See 26 U.S.C. §6335(b). Plaintiffs argue that these requirements were violated when notice was provided to them by certified mail since they had a dwelling and could have been located within the revenue district.

The failure to provide notice to a delinquent taxpayer of a seizure and sale of his property would constitute a substantial defect. The provision for personal delivery of a notice to a taxpayer resident in the revenue district, however, is not itself a substantive end. The requirement no doubt reflects a judgment that personal delivery best ensures actual notice and thus should be employed when practicable. Where, however, timely notice is provided and actually received by certified mail, the purpose of the notification requirement has been satisfied. See Kaggen v. IRS [95-2 USTC ¶50,635], 71 F.3d 1018, 1022 (2d Cir. 1995) (where taxpayer timely receives actual notice of seizure of property although not in specified manner, "the requirements of §6335(a) have been fulfilled"); Olson v. U.S., 1990 WL 132474, *3 (W.D. Pa. July 5, 1990 ) (noting reason for hand delivery requirement is to ensure actual notice and characterizing use of certified mail as "technical failure"); Person v. U.S., 1990 WL 107423, *3 (D. Haw. June 11, 1990 ) (where mailing to post office box resulted in "actual notice without prejudicial delay," failure of IRS literally to comply with service requirements of §6331(d) regarding notice of levy not actionable under §7433 as disregard of a Code provision).

The court does not suggest that the IRS or any government agency should make less than every effort to comply literally with all procedural as well as substantive legal requirements. Whenever the IRS fails to comply with §6335(a) & (b), it assumes a risk that the tax collection process will be frustrated at some cost in effort and public funds if the agency cannot prove timely notice was actually received. It will be a rare case, however, in which a taxpayer who did timely receive actual notice can establish damages as a proximate result of the failure strictly to comply with the prescribed mode of service.

As noted, §7433(b) limits damages to "actual, direct economic damages" incurred by the plaintiff "as a proximate result" of the disregard by an IRS employee of a Code provision or regulation. It is uncontroverted that plaintiffs received actual notice of the seizure and sale by certified mail within the time required by law. One cannot reasonably find on this record that plaintiffs would have been any better positioned to contest their tax liability, redeem their property or otherwise challenge the seizure or sale of that property if the IRS had provided notice by personal delivery. One cannot reasonably find from the competent evidence of record that plaintiffs sustained any economic damages proximately resulting from service by certified mail.

B. Section 7432 Claim

As a threshold matter, the government contends that plaintiffs failed to exhaust administrative remedies as required to maintain a §7432 claim. Plaintiffs respond that they exhausted their administrative remedies by making a proper request for a certificate of release of lien at the time they filed their administrative claim for damages.

Section 7432(d)(1) imposes a requirement of exhaustion of administrative remedies. Exhaustion of the corresponding administrative remedies specified in 26 C.F.R. §301.7432-1(f) is jurisdictional. See Venen v. United States [94-2 USTC ¶50,536], 38 F.3d 100, 103 (3d Cir. 1994).

The Internal Revenue Code provides in pertinent part that:

Subject to such regulations as the Secretary may prescribe, the Secretary shall issue a certificate of release of any lien imposed with respect to any internal revenue tax not later than 30 days after the day on which [he] finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable.

26 U.S.C. §6325(a).

The thirty day period within which the IRS must release a lien commences upon a finding or action by the Secretary. "It is the IRS, not the taxpayer, who must make the determination required by section 6325." Husek v. Internal Revenue Service, 778 F.Supp. 598, 605 (N.D.N.Y. 1991). Treasury Regulations provide that a finding will be deemed to have been made based upon either an actual finding of full satisfaction or legal unenforceability or a request for a certificate of release of lien which meets requirements set forth in the regulations.

The regulations provide in pertinent part that:

For purposes of this section, a finding under section 6325(a)(1) that the liability . . . has been fully satisfied or has become legally unenforceable is treated as made on the earlier of:

(1) the date on which the district director of the district in which the taxpayer currently resides or the district in which the lien was filed finds full satisfaction or legal unenforceability; or

(2) the date on which such district director receives a request for a certificate of release of lien in accordance with §401.6325-1(f), together with any information which is reasonably necessary for the district director to conclude that the lien has been fully satisfied or is legally unenforceable.

26 C.F.R. §301.7432-1(b).

A request for a certificate of release with respect to a notice of Federal tax lien shall be submitted in writing to the district director (marked for the attention of the Chief, Special Procedures Function) of the district in which the notice of Federal tax lien was filed. The request shall contain the following--

(1) Name and address of the taxpayer;

(2) A copy of the notice of Federal tax lien affecting the property; and

(3) The grounds upon which the issuance of a release is sought.

Treasury Regulation §401.6325-1(f).

Prior to filing a §7432 claim, a taxpayer must submit to the IRS an administrative claim for damages. The administrative claim must be sent in writing to the district director (marked for the attention of the Chief, Special Procedures Function) in the district in which the taxpayer resides or the district in which the notice of federal tax lien was filed. The request must include the taxpayer's identifying information (including addresses, phone numbers with times to be contacted, and taxpayer identification number); a copy of the notice of federal tax lien affecting the property; a copy of the request for release of lien made in accordance with §401.6325-1(f), if applicable; the grounds for the claim (including substantiation); a description of the injuries incurred; the dollar amount of the claim; and, the signature of the taxpayer or duly authorized representative. See 26 C.F.R. §301.7432-1(f); Venen [94-2 USTC ¶50,536], 38 F.3d at 103.

Because plaintiffs simultaneously filed a request for release of lien and an administrative claim for damages, the government argues they failed to file a proper request for certificate of release "prior" to filing their administrative claim for damages. As such, the government argues plaintiffs failed to exhaust their administrative remedies because their administrative claim for damages did not literally include a copy of a request for a certificate of release filed in accordance with §401.6325-1(f).

The standard for taxpayer compliance with the statutory and regulatory requirements is high. See Venen [94-2 USTC ¶50,536], 38 F.3d at 103 (failure to petition IRS correctly constitutes failure to exhaust administrative remedies); Amwest Surety Ins. Co. v. United States [94-2 USTC ¶50,376], 28 F.3d 690, 696 (7th Cir. 1994) (recognizing harsh result but holding that taxpayer who addressed letter to revenue officer rather than district director as required by regulation failed to petition IRS correctly and thus failed to exhaust administrative remedies); Veglia v. United States [97-2 USTC ¶50,700], 1996 WL 392159, *3-4 (N.D. Ill. July 11, 1996 ) (failure to comply strictly with guidelines for filing administrative claim constitutes failure to exhaust administrative remedies).

The standard is exacting but not mindless. The purpose is to ensure that the government has an opportunity to remedy any error prior to being subject to the burden of litigation over matters which could have been resolved efficiently had the government been properly made aware of a mistake. See id.

Plaintiffs filed a request for release of lien simultaneously with an administrative claim for damages. They then waited 125 days before filing suit. Treasury Regulations only require a taxpayer to wait thirty days after filing an administrative claim to initiate a civil action. See 26 C.F.R. §301.7432-1(e)(1)(ii). Neither the statute nor applicable regulations specify any period of time a taxpayer must wait after filing a request for a certificate of release of a tax lien to submit an administrative claim for damages.

It is clear that the government had ample opportunity to review the request and to release the lien or to decline to do so and address the administrative claim. At least in the circumstances of this case, the simultaneous filing of the request for a certificate of release of lien and the administrative claim comports sufficiently with the language and purpose of the statute and regulations as to constitute exhaustion of administrative remedies.

The government also argues that plaintiffs have failed to produce sufficient evidence to show that the IRS knowingly or negligently failed to release the tax liens at issue.

The Treasury Regulations set forth the requirements for release of a tax lien in pertinent part as follow:

(a) The district director shall issue a certificate of release for a filed notice of Federal tax lien not later than 30 days after the date on which the district director finds that the entire tax liability listed in such notice of Federal tax lien has been fully satisfied (as defined in paragraph (c) of this section) or has become legally unenforceable.

. . .

(c) Satisfaction of tax liability. For purposes of paragraph (a) of this section, satisfaction of the tax liability occurs when--

(1) The district director determines that the entire tax liability listed in a notice of Federal tax lien has been fully satisfied. Such determination will be made as soon as practicable after tender of payment

§401.6325-1(a), (c)(1). A finding of full satisfaction is treated as made on the earlier of:

(1) The date on which the district director of the district in which the taxpayer currently resides or the district in which the lien was filed finds full satisfaction or legal unenforceability; or

(2) The date on which such district director receives a request for a certificate of release of lien in accordance with §401.6325-1(f), together with any information which is reasonably necessary for the district director to conclude that the lien has been fully satisfied or is legally unenforceable.

26 C.F.R. §301.7432-1(b).

Plaintiffs submitted a proper request for a certificate of release of lien on May 15, 1997. ¹¹ The district director is on constructive notice of information provided in a request for a certificate of release of lien. See Steffen v. U.S. [97-1 USTC ¶50,224], 952 F.Supp. 779, 783 (M.D. Fla. 1997) (taxpayer may show IRS knew or should have known liability was satisfied "at the time [he] requested release of federal tax lien" by showing facts provided in request gave IRS "constructive knowledge" of satisfaction). Pursuant to the regulations, the IRS should have released the liens by June 14, 1997. The liens were not released, however, for more than thirty-two months after the sale of plaintiffs' property, more than seventeen months after plaintiffs submitted a proper request for release of lien and more than five months after a Department of Justice attorney advised the IRS District Counsel that the liens should be released. One reasonably could find that the IRS knowingly or negligently failed to release the tax liens within the meaning of §7432. ¹²

The government ultimately argues that in any event plaintiffs have failed to substantiate any "actual, direct economic damages" resulting from the failure timely to release the liens.

From the competent evidence of record regarding damages, one can find nothing more than the denial of a credit card on February 20, 1997 which resulted in plaintiffs' inability to take advantage of two telephone solicitations for vacation packages which could be booked only be persons immediately providing a credit card number to the solicitor. ¹³

Plaintiffs bear the burden of proving causation. See Information Resources, Inc. v. U.S. [93-2 USTC ¶50,519], 996 F.2d 780, 784-85 (5th Cir. 1993) (testimony of prospective customer's CFO that knowledge of tax lien was "one of the reasons" for deciding not to give profitable contract to plaintiff insufficient to establish that contract would have been awarded "but for" tax lien). See also Jones v. U.S. [98-2 USTC ¶50,863], 9 F.Supp. 2d 1119, 1137 (D. Neb. 1998) (discussing need to prove causation in context of §7431 claim for unauthorized disclosure of tax return information).

In the instant case, one is left to speculate about causation. It appears that MBNA's pre-approval of a credit card was conditioned on the absence of any lien. It also appears, however, that a credit card was ultimately denied in part because of "a history of delinquency" with "creditors" in the plural. It is also far from clear that the presence on a credit report even of a recently discharged lien or recently satisfied delinquent debt would not affect one's eligibility for an MBNA credit card. Also, of course, insofar as the IRS was not required to release the lien under applicable law until June 14, 1997 , the denial of a credit card on February 20, 1997 would not have resulted from an improper failure to release a lien. Even accepting that the only creditor with whom plaintiffs were ever delinquent was the United States, that their request for a credit card was an open or continuing one and that MBNA would be undeterred by a recently satisfied delinquent tax debt, plaintiffs have not established "actual, direct economic damages."

Although it may cause non-economic harm such as humiliation or mental distress, the denial of credit and of a particular vacation opportunity do not alone constitute economic damages. See Stevenson v. TRW, Inc., 987 F.2d 288, 296-97 (5th Cir. 1993) (because "actual" damages provided by Fair Credit Reporting Act are not limited to economic losses, recovery available for mental distress caused by denial of credit); Pinner v. Schmidt, 805 F.2d 1258, 1265 (5th Cir. 1986) (although "plaintiff produced no evidence of any monetary damages" in FCRA case, plaintiff's evidence sufficient to support award of some measure of damages for embarrassment caused by denial of credit); James v. Coors Brewing Co., 73 F.Supp.2d 1250, 1253 (D. Colo. 1999) (loss of reputation resulting in injury to credit standing is neither monetary nor financial in nature absent evidence of some resulting economic loss); Jones [98-2 USTC ¶50,863], 9 F.Supp.2d at 1149 (noting that unlike "actual, direct economic damages" specified in §§7432 & 7433, "actual damages" provided in §7431 include more than "out-of-pocket" or "pecuniary" losses).

"[A] waiver of the Federal Government's sovereign immunity must be unequivocally expressed in statutory text and will not be implied. Moreover, a waiver of the Government's sovereign immunity will be strictly construed, in terms of its scope, in favor of the sovereign." Lane v. Pena, 518 U.S. 187, 192, 135 L.Ed.2d 486, 116 S.Ct. 2092 (1996). See also United States v. Nordic Village, Inc. [92-1 USTC ¶50,109], 503 U.S. 30, 34, 117 L.Ed.2d 181, 112 S.Ct. 1011 (1992) (waiver not to be "enlarged beyond what the language requires"). When strictly construed, the term "actual, direct economic damages" does not encompass the mere denial of a credit card and the resulting loss of particular vacation opportunities.

While the denial of a credit card may result in an inability to purchase something of appreciating value or to acquire something with which one could derive income or to transfer debt to a card with a lower interest rate, there is no competent evidence of record from which one reasonably could find that the denial of a credit card to plaintiffs in this instance resulted in anything other than embarrassment, inconvenience and feelings of disappointment. See Katz v. Dime Sav. Bank, FSB, 992 F.Supp. 250, 257 (W.D.N.Y. 1997) (claim cannot survive summary judgment "merely by listing economic harm that might have occurred as a result of defendants' conduct").

V. Conclusion

Plaintiffs timely received actual notice of the seizure and sale of their property and have presented no competent evidence from which one reasonably could find they sustained any direct economic damages as a proximate result of receiving that notice by certified mail. Even assuming that plaintiffs would have received an MBNA credit card "but for" the failure timely to release the liens on their property, they have not presented any competent evidence that this entailed any "actual direct economic damages." ¹⁴ Accordingly, the government is entitled to summary judgment on the pending claims against it.

The elimination of all federal claims before trial weighs heavily in favor of declining to exercise supplemental jurisdiction over remaining state law claims. See Sullivan v. Conway , 157 F.3d 1092, 1095 (7th Cir. 1998); McClelland v. Gronwaldt, 155 F.3d 507, 520 (5th Cir. 1998); Borough of W. Mifflin v. Lancaster , 45 F.3d 780, 788 (3d Cir. 1995). The remaining dispute among Pennsylvania citizens regarding title to real property in Pennsylvania is best resolved by the state courts and the parties have offered no affirmative justification for exercising federal supplemental jurisdiction over it. Accordingly, the remaining state law claim will be dismissed pursuant to 28 U.S.C. §1367(c)(3), without prejudice to plaintiffs to reassert such a claim in any appropriate state court consistent with 28 U.S.C. §1367(d) and with the good faith requirement of Pa.R.Civ.P. 1023(b).

An appropriate order will be entered.

ORDER

AND NOW, this--day of April, 2000, upon consideration of the Motion of defendant United States for Summary Judgment (Doc. #30) and plaintiff's response thereto, consistent with the accompanying memorandum, IT IS HEREBY ORDERED that said Motion is GRANTED and accordingly JUDGMENT is ENTERED in the above action for the United States and against plaintiffs on all of their pending claims against the United States herein; and, pursuant to 28 U.S.C. §1367(c)(3), plaintiffs' remaining state law claim against defendants Luann Parmer, William Snider and Nancy Snider is DISMISSED without prejudice to assert such claim in an appropriate state court consistent with 28 U.S.C. §1367(d) and applicable state rules of procedure.

¹ Plaintiffs actually cite to 26 U.S.C. §7431 which addresses unauthorized disclosure of tax records. As plaintiffs seek damages for failure to release tax liens, the court assumes their claim is predicated on §7432.

² 26 U.S.C. §7433 was amended effective July 22, 1998 to provide liability for "negligent" conduct. See Internal Revenue Service Restructuring and Reform Act of 1998 §3102, Pub. L. No. 105-206, 112 Stat 685. The amendments to §7433 are not retroactive. See id. §3102(d), Pub. L. No. 105-206, 112 Stat 685, 731 ("amendments made by this section shall apply to actions of officers or employees of the Internal Revenue Service after the date of the enactment of this Act").

³ Plaintiffs also have an outstanding equitable quiet title claim against the individual defendants who purchased the property at the tax sale in question. Plaintiffs have not alleged diversity of citizenship or identified any right owed to them by the purchasers under federal law. Plaintiffs have asserted supplemental jurisdiction for this claim pursuant to 28 U.S.C. §1367(a).

⁴ Indeed, Mr. Kabakjian sent letters to Officer White on December 15, 1995 and January 30, 1996 in which he specifically refers to the notices. He stated that "it is not my intention to pay back taxes, alleged or real, with real estate or any form of personal property" other than "Federal Reserve Notes."

⁵ It appears that in 1997 and 1998 the IRS issued requests for payment of taxes to plaintiffs owed for other years including 1992, 1994 and 1995. The property sale at issue in the instant case, however, was based only on tax liability for the years referenced in the liens.

⁶ Plaintiffs do not quarrel with the government's characterization of them as "tax protesters." For many years they have filed tax returns in blank except to note the non-applicability ("N/A") of each referenced item of income. In written communications to the IRS, Mr. Kabakjian has asserted that the agency "has no jurisdiction outside the territorially limited areas cited in the Constitution" and thus no authority to assess tax liability against citizens of the states.

⁷ At his deposition on February 1, 1999 , Mr. Kabakjian testified that the solicitations had been made "two to three years" earlier.

⁸ Literally reciting the language of each subsection of the statute, plaintiffs also alleged that the IRS failed to comply with virtually every requirement of §6335. Whether in an effort to comply with Fed.R.Civ.P. 11(b)(3) or otherwise, in their response to the instant motion plaintiffs press only their contention regarding notice and an argument about the adequacy of the sale price. Nevertheless, the court has considered all of the failures alleged in the complaint. It clearly appears from uncontroverted evidence of record that the IRS literally complied with each requirement of §6335 other than the notice provisions of subsections (a) and (b).

⁹ In the case of a judicial sale, "the seller is the court itself." First National Bank of Jefferson Parish v. M/V Lightning Power, 776 F.2d 1258, 1261 (5th Cir. 1985). The purpose generally is to maximize a return for creditors and to relieve the debtor of as much debt as practicable. It follows that a court would reasonably assert itself on the question of the adequacy of the sale price. See id. at 1259 (sale price of 1% of market value so grossly disproportionate confirmation should have been withheld at least pending determination of its affect on rights of third party lienholders). The only federal tax case relied on by the Court in Ringer involved the sale of property under court order in proceedings to foreclose tax liens. See U.S. v. Howard [69-1 USTC ¶9157], 296 F.Supp. 264 (D. Or. 1968). The Court in that case actually stated that to collaterally attack the sale, the taxpayer had to show "the sales price was so inadequate as to amount to fraud." Id. at 265.

¹⁰ The Court in Ringer rejected any claim for money damages against the United States for losses resulting from the tax sale. Id. at 1256. Sections 7432 and 7433 had not been enacted. The Court did state that the plaintiff in Ringer could assert a Bivens claims for damages against IRS officials individually for any unconstitutional conduct on their part. Id. at 1526-27. If the Court in Ringer was suggesting that statutory requirements aside, the permanent deprivation of property by government action which shocks the conscience may violate the substantive due process rights of the person so deprived, this court agrees. The remedy in the tax sale context, however, would be an action under 28 U.S.C. §2410 to set aside the sale within the redemption period or while the government otherwise retains an interest in the property. "Because Congress has provided explicit statutory remedies for improper conduct during the assessment and collection of income taxes, a Bivens claim cannot be maintained against IRS employees and agents." Barnard v. Pavlish, 1998 WL 247768, *8 (M.D. Pa. Mar. 30, 1998), aff'd, 187 F.3d 625 (3d Cir. 1999). See also Dahn v. U.S. [97-2 USTC ¶50,847], 127 F.3d 1249, 1254 (10th Cir. 1997) ("individual agents of the IRS are not subject to Bivens actions" on claims related to tax disputes); Wages v. IRS, 915 F.2d 1230, 1235 (9th Cir. 1990); Lang v. Rubin [99-2 USTC ¶50,620], 73 F.Supp.2d 448, 452 (D.N.J. 1999).

¹¹ IRS records include entries for additional interest charges and penalties following February 23, 1996 . The government, however, has not challenged plaintiffs' assertion that the proceeds from the February 1996 property sale satisfied the tax liabilities for which the liens at issue were filed.

¹² The IRS reasonably could have believed that taxpayers who routinely file blank tax returns and dispute the right of the agency to collect taxes from them would have further tax liability. Upon satisfaction of tax liability assessed for the year or years referenced in a lien, however, that lien should be released.

¹³ There is no testimony or allegation in the complaint that plaintiffs suffered any embarrassment or mental anguish. Even if some measure of embarrassment and mental stress may be reasonably inferred, these types of damages are not direct economic losses and thus not compensable under §7432.

¹⁴ As plaintiffs have not sustained a claim under §7433 or §7432 and have not obtained "a finding of liability," they also are not entitled to costs in this action.

 

 

 

[2001-2 USTC ¶50,684] Edward Kabakjian, Nancy B. Kabakjian v. United States of America, Jack P. Parmer, Luann Parmer, William Snider, Nancy Snider, Edward Kabakjian and Nancy Kabakjian, Appellants

(CA-3), U.S. Court of Appeals, 3rd Circuit, 00-1423, 10/1/2001, Affirming a District Court decision, 2000-1 USTC ¶50,388 . Previous decisions by the District court in this same case, 99-1 USTC ¶50,150

[Code Sec. 6335 ]

Liens and levies: Real property: Seizure, sale to third party: Notice requirements: Actual notice: Substantial compliance with statute: Notice of sale of property.--The government's seizure and sale to third parties of a delinquent married couple's real property subject to tax liens was proper, and their quiet title suit in connection with the property was dismissed. Although service of the notices of levy and auction by certified mail was improper under Code Sec. 6335 , the couple received actual notice of the seizure and sale and the IRS was deemed to have substantially complied with the statute.

[Code Sec. 7402 ]

Liens and levies: Seizure, sale to third party: Quiet title: Jurisdiction: Release of lien.--The existence of federal tax liens vested the district court with jurisdiction to hear and dismiss a married couple's quiet title claim. Jurisdiction existed even after the government released its lien, despite provisions of the Quiet Title Act to the effect that the government may sell property after suit is filed and divest a district court of jurisdiction. The Quiet Title Act did not apply because the parties stipulated that the government could not divest the district court of jurisdiction by selling the property or releasing its lien.

[Code Secs. 7432 and 7433 ]

Liens and levies: Real property: Seizure, sale to third party: Notice requirements: Actual notice: Reckless conduct: Economic damages: Notice of sale of property.--The government's motion for summary judgment was granted with respect to a couple's claim for money damages for the seizure and sale of their real property. Because the couple received actual notice of the lien and sale, they failed to prove that notice by certified mail prejudiced them in any way or caused them to sustain any actual, direct or economic damages. They also failed to prove that the conduct of the IRS agents in failing to comply with the notice requirement was reckless.

Edward Kabakjian, Nancy Kabakjian, 1730 Fels Rd., Pennsburg, Pa. 18073, pro se. Paula M. Junghans, Acting Assistant Attorney General, David English Carmack, Annette M. Wietecha, Sara Ann Ketchum, Department of Justice, Washington, D.C. 20530, Michael R. Stiles, United States Attorney, Philadelphia, Pa. 19106, for appellants.

Before: NYGAARD, WEIS and REAVLEY, ^* Circuit Judges.

OPINION OF THE COURT

REAVLEY, Circuit Judge:

Edward and Nancy Kabakjian appeal a take-nothing judgment in their suit against the federal government and relating to the seizure and sale of their real property. We affirm.

BACKGROUND

The Kabakjians sued the government after property they owned was seized and sold at an auction to recoup unpaid income taxes. The Kabakjians do not dispute the underlying tax obligation. Their complaint alleged that the government failed to comply with 26 U.S.C. §6335, which governs the seizure of property to cover unpaid taxes.

Count 1 of the complaint sought to quiet title to the property. Counts 2 and 3 sought money damages for the wrongful seizure of the property and for failing to release liens on the property. The Kabakjians moved for partial summary judgment, arguing that the notices they received under §6335 were defective because they were delivered by certified mail rather than by personal delivery. The government moved to dismiss count 1 for lack of subject matter jurisdiction. The district court agreed with the government and dismissed count 1, holding that the government was immune from suit on this count. The district court discussed the "substantial compliance" provision found at 26 U.S.C. §6339(b)(2), which we discuss below, but as we read the district court's ruling it ultimately held, as to count 1, that it lacked subject matter jurisdiction.

The court later granted a summary judgment on the remaining federal claims for damages, and dismissed the pendent state law claims. The Kabakjians do not argue on appeal that the district court erred in dismissing the state law claims and in dismissing count 3, which alleged money damages caused by the government's failure to release its liens on the property. We therefore consider whether the district court correctly ruled against appellants on the claims they asserted in counts 1 and 2.

The record discloses that on December 11, 1995 , the government sent to the Kabakjians, at their personal residence, a notice of seizure of the property in issue. This notice was sent by certified mail. The Kabakjians received this notice. On December 17, 1995 , the IRS seized the property. On January 24, 1996 , the government sent the Kabakjians a notice of a sealed bid sale of the property, stating that the sale would take place February 23, 1996 . Again, there is no dispute that the Kabakjians received this notice, which was again sent by certified mail. On February 23 the sale took place. On September 18, 1996 , after the expiration of a statutory 180-day redemption period, see 26 U.S.C. §6337(b)(1), the government conveyed the Kabakjian title to the third parties by written deed. On September 19, 1997 , this suit was filed.

The Kabakjians claim that the notices were defective because they were sent by certified mail and the relevant statute requires personal delivery. Under 26 U.S.C. §6335(a) a notice of seizure

in writing shall be given by the Secretary to the owner of the property . . . or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last know address.

Section 6335(b) requires a notice of sale, to be given in the same manner as the notice of seizure specified in §6335(a). In the pending case a notice of seizure under §6335(a) and a notice of sale under §6335(b) were sent to the home of the Kabakjians, but the notices were sent by certified mail rather than hand delivery.

The statute does not explicitly require hand delivery of the notices, but since it requires notice "to the owner" or notice at the residence or business, and alternatively allows for notice by mail only if the owner cannot be located or he lacks a home or business in the district, courts have interpreted the statute to require notice by hand delivery, and to allow for notice by mail only if the attempt at hand delivery fails. See Goodwin v. United States [91-2 USTC ¶50,323], 935 F.2d 1061, 1064 (9th Cir. 1991) ("The government concedes that under a literal reading of §6335, service by certified mail, as received by Goodwin, is defective."). The government concedes that delivery of the notices by certified mail violates the statute.

A. Quiet Title Claim

1. Jurisdiction

Absent an explicit waiver of sovereign immunity, the federal government cannot be sued and the district court lacks jurisdiction to hear a claim against the government. United States v. Dalm [90-1 USTC ¶50,154; 90-1 USTC ¶60,012], 494 U.S. 596, 608 (1990); Clinton County Comm'rs v. EPA, 116 F.3d 1018, 1021 (3d Cir. 1997). Regarding the quiet title claim asserted in count 1, we conclude that the government was not immune from suit.

Under 28 U.S.C. §2410(a), "the United States may be named a party in any civil action or suit in any district court . . . to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien." In the pending case, the government had seized and sold the property before the suit was filed. Other courts have held that the federal district courts lack jurisdiction to hear a quiet title action against the government if the government has sold the subject property to a third party prior to the time plaintiff files suit. See Koehler v. United States [98-2 USTC ¶50,881], 153 F.3d 263, 267 (5th Cir. 1998), and cases cited therein.

However, the record in the pending case indicates that the government filed federal tax liens on all of appellants' property, and did not release these liens until it prepared a "Certificate of Release of Federal Tax Lien" on November 2, 1998 , after the Kabakjians filed suit. See 26 U.S.C. §6321 (providing for tax lien on all property of taxpayer after demand and refusal to pay tax); 26 U.S.C. §6325 (providing for issuance of certificate of release of lien). The seizure of the property and sale to third parties, which took place before this suit was filed, did not purport to release the then-existing tax liens. The deed from the government to the third parties only purported to convey the interest of the Kabakjians in the property. It did not purport to convey the government's interest or release the federal tax liens on the property. The county real property records did not indicate that the lien on the property had been released until, after this suit was filed, the government prepared and filed its certificate of release of lien.

The existence of the federal tax liens, in our view, vested the district court with jurisdiction to hear the quiet title claim. This result is consistent with our decision in Aqua Bar & Lounge, Inc. v. United States [76-2 USTC ¶9554], 539 F.2d 935 (3d Cir. 1976). There we held that the district court had jurisdiction to hear a quiet title case where the plaintiff claimed that the government had failed to comply with §6335 procedural requirements when it seized and sold his personal property. Id. at 936, 939-40. The property in question was a liquor license. Id. at 936. We held that the suit was properly treated "as an action to quiet title to property on which the United States has a lien," and noted the existence of the tax lien at the time of the proceedings below. Id. at 937.

A related, thornier question is whether the district court retained jurisdiction after the government issued the certificate of release of tax lien on November 2, 1998 . This release was issued after suit was filed but before the district court ruled on the government's motion to dismiss count 1 and motion for summary judgment and entered a final judgment. We hold that the district court retained jurisdiction even after the government released the federal tax lien.

We have recognized as a general principle that jurisdiction is determined at the time the suit is filed. New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1503 (3d Cir. 1996). However, we noted in New Rock that this principle is most often recognized in diversity cases and "has been applied only rarely to federal question cases." Id. Even in diversity cases the rule admits to at least one exception, as 28 U.S.C. §1447(e) provides that "[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court." Hence, a district court can sometimes, after suit is filed, permit the destruction of subject matter jurisdiction.

There is also a provision of the Quiet Title Act, 28 U.S.C. §2409a, which gives us pause. This Act provides that "[t]he United States may be named as a party defendant in a civil action under this section to adjudicate a disputed title to real property in which the United States claims an interest." Id. §2409a(a). The federal district courts have exclusive jurisdiction over actions brought under §2409a. 28 U.S.C. §1346(f). However, the Quiet Title Act goes on to provide:

If the United States disclaims all interest in the real property or interest therein adverse to the plaintiff at any time prior to the actual commencement of the trial, which disclaimer is confirmed by order of the court, the jurisdiction of the district court shall cease unless it has jurisdiction of the civil action or suit on ground other than and independent of the authority conferred by section 1346(f) of this title.

28 U.S.C. §2409a(e) (emphasis added).

Subsection (e) of the Quiet Title Act can be read to provide that the government can, after suit is filed, sell the property in issue and thereby divest the district court of jurisdiction. Some courts have suggested otherwise, although they discuss the Quiet Title Act generally without focusing on subsection (e). See Delta Sav. & Loan Ass'n v. IRS [88-2 USTC ¶9398], 847 F.2d 248, 249 n.1 (5th Cir. 1998); Bank Hemet v. United States [81-1 USTC ¶9379], 643 F.2d 661, 664-65 (99th Cir. 1981).

Regardless, the Quiet Title Act is not applicable to the pending suit, since it expressly, provides that it does not apply to "actions which may be or could have been brought under sections . . . 2410 of this title. . . ." 28 U.S.C. §2409a(a). Both sides agree that §2410 is applicable to the pending suit, as it applies to actions "to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien." In this case, the government seized and sold the property in issue pursuant to a tax lien. Moreover, Congress chose, for whatever reason, to include subsection (e) in the Quiet Title Act and failed to include an analogous provision in §2410, the more narrowly drawn statute. This is,, we think, a case where "a precisely drawn, detailed statute pre-empts more general remedies." Brown v. General Servs. Admin., 425 U.S. 820, 834 (1976). We therefore follow the general rule for determining jurisdiction, and conclude that jurisdiction under §2410 is determined by looking to the facts existing at the time the suit was filed. The government cannot thereafter divest the court of jurisdiction by selling the property in issue or releasing its lien on the property. See Kulawy v. United States [90-2 USTC ¶50,565], 917 F.2d 729, 733-34 (2d Cir. 1990) (holding that government cannot "oust the court of jurisdiction validly invoked" under §2410 by selling the property on which it had a lien at the time suit was commenced).

2. Merits of Quiet Title Claim

Although we conclude that the district court had jurisdiction to hear the quiet title claim, we nevertheless hold that the claim was properly dismissed. We may affirm a judgment on any ground apparent from the record, even if the district court did not reach it. See Resolution Trust Corp. v. Fidelity and Deposit Co. of Maryland , 205 F.3d 615, 635 (3d Cir. 2000). Although there was a failure to comply with the notice requirements of 26 U.S.C. §6335 because the Kabakjians received the required notices by certified mail rather than personal delivery, the record shows that the Kabakjians received actual notice of the seizure and notice of the planned sale of the property. We hold that the notices were not so defective as to void the seizure of the property and its transfer to a third parties. Under 26 U.S.C. §6339(b)(2), where a deed to real property conveys property seized under §6335, such a deed operates as a conveyance of all the delinquent taxpayer's right, title and interest in the property so long as the proceedings "have been substantially in accordance with the provisions of law." The Kabakjians rely on Kulawy v. United States [90-2 USTC ¶50,565], 917 F.2d 729 (2d Cir. 1990) but that case involved the sale of personal property not covered by this substantial compliance provision.

Section 6339(b)(2) therefore provides that title transfers if there has been substantial compliance with the notice and other procedures set out in §6335. The Kabakjians received actual notice under §6335, and although the issue was joined below they failed to show that they were meaningfully prejudiced by receipt of the §6335 notices by certified mail instead of personal delivery. For example, when Mr. Kabakjian was asked in his deposition how he was prejudiced by receipt of the notice of sale by mail rather than personal delivery, he answered that "[a]ny time a citizen's rights are denied they are being prejudiced." Mrs. Kabakjian testified that she agreed with the statement that she had "no independent information or claim for damages other than what your husband has told you." We hold that there was substantial compliance with §6335, and that under 6339(b)(2), all title to the property once vested in the Kabakjians therefore transferred. Their quiet title claim therefore fails on the merits.

B. Claims for Damages

The Kabakjians sought money damages for the allegedly defective seizure and sale of their property. Again, they do not deny that they owed back taxes.

Under 26 U.S.C. §7433(a), a cause of action lies where an IRS employee recklessly or intentionally disregards any provision of the Internal Revenue Code. Under §7433(b), the taxpayer can recover his "actual, direct economic damages sustained" as a "proximate result" of an IRS employee's improper actions under §7433(a).

The count 2 claim for damages is based on the alleged violations of §6335. As discussed above, on December 11, 1995 , the government sent by certified mail to the Kabakjians a notice of seizure of the property. On December 17, the IRS seized the property. On January 24, 1996 , the government sent the Kabakjians by certified mail a notice of a sealed bid sale of the property, stating that the sale would take place February 23, 1996 . There is no dispute that the Kabakjians received the notices. On February 23 the sale took place.

In this case no attempt at hand delivery of the notices was made, as required by §6335. However, the purpose of the notice requirements was met, since the Kabakjians received actual notice. They did not show "actual, direct economic damages sustained" as a "proximate result" of the technical noncompliance with the statutory notice requirements. Accordingly summary judgment was properly granted on the money damages claim.

The judgment of the district court will be AFFIRMED.

^* Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth Circuit, sitting by designation.