6335 Annotations- Homesteads Page3

---

 

During her lifetime, Mrs. O'Hagan retains the right to exclude all people, other than Mr. O'Hagan, from the homestead property. This right derives from the Minnesota statute addressing homestead property and would apply equally to joint tenants and tenants in common. Minn. Stat. §507.02. Mrs. O'Hagan's right to exclude all persons other than Mr. O'Hagan from using or occupying the homestead property demonstrates that her right is superior to that of the government or a third-party purchaser who would be attempting to exercise a possessory right that is limited and personal to Mr. O'Hagan. Therefore, Mrs. O'Hagan satisfies the first prong of the statutory exception to the Anti-Injunction Act by demonstrating that she has a right superior to that of the government in Mr. O'Hagan's right to use and occupy the homestead property.

The second prong of the statutory exception to the Anti-Injunction Act requires Mrs. O'Hagan to demonstrate irreparable injury resulting from the forced sale of Mr. O'Hagan's interest in the homestead property. Allowing any person other than Mr. O'Hagan to exercise his right to use and occupy the homestead property would destroy Mrs. O'Hagan's right to exclude all persons other than Mr. O'Hagan from the homestead property. Moreover, as a practical matter, the sale of Mr. O'Hagan's interest would undoubtedly diminish the value of Mrs. O'Hagan's property interest. More fundamentally, monetary relief fails to provide adequate compensation for an interest in real property, which by its very nature is considered unique. See, e.g., Shaughnessy v. Eidsmo, 23 N.W.2d 362, 368 (Minn. 1946) (stating that when an interest in land is involved, the common-law remedy is deemed to be inadequate); Strangis v. Metropolitan Bank, 385 N.W.2d 47, 48 (Minn. Ct. App. 1986) (stating that the property owners "would suffer irreparable harm by the foreclosure of the mortgage on their homestead [because] [r]eal property is unique, which money damages may not adequately compensate"). ⁶ Thus, Mrs. O'Hagan would suffer irreparable injury by the proposed forced sale of Mr. O'Hagan's possessory interest in the homestead property. Accordingly, we conclude that the district court has jurisdiction to enjoin the sale of Mr. O'Hagan's right to use and occupy the homestead property.

C. Right of Survivorship

We must next analyze whether Mrs. O'Hagan's interest is superior to that of the government with regard to Mr. O'Hagan's right of survivorship. We conclude that although Mrs. O'Hagan could probably prohibit the conveyance of Mr. O'Hagan's right of survivorship, she cannot demonstrate irreparable injury. Thus, the government can attempt to convey this interest, subject to the limitations discussed below.

As earlier noted, Mrs. O'Hagan can prohibit the conveyance of an interest in the homestead property under Minnesota law. See Minn. Stat. §507.02. Mrs. O'Hagan has failed to demonstrate how the conveyance of her husband's survivorship interest would cause her irreparable injury. We recognize that the applicable Minnesota statutes demonstrate a public policy in favor of protecting a spouse's continued occupancy of the homestead. Hendrickson, 161 N.W.2d at 691 (citing Minn. Stat. §§507.02 & 525.145(1)). This public policy, however, "does not necessarily apply to the remainder interest, which can be disposed of without adversely affecting the right of the surviving spouse to continue in possession and enjoyment for so long as she might live." Id. In the present case, therefore, the government can levy upon and attempt to convey a single straw from the proverbial "bundle of interests," namely, Mr. O'Hagan's right of survivorship to Mrs. O'Hagan's interest in the homestead property.

In attempting to convey this solitary interest, however, the government must clearly articulate the precise nature of the interest in the notice of sale. See 15 U.S.C. §6335(b) (stating that "[s]uch notice shall specify the property to be sold, and the time, place, manner, and conditions of the sale thereof"). First, the government must make it clear that the only interest in the homestead property subject to sale is Mr. O'Hagan's survivorship interest. The third-party purchaser, in fact, would simply be gambling that Mrs. O'Hagan will predecease Mr. O'Hagan because if Mr. O'Hagan were to die first, the right acquired by the third-party purchaser would vanish in its entirety. ⁷

Second, we emphasize, as the government must in the notice of sale, that this solitary interest is subject to a further, and substantial limitation. Ironically, once Mr. O'Hagan's right of survivorship is conveyed by the government to a third-party purchaser, that interest cannot be recorded because recordation would sever the joint tenancy, thereby extinguishing the very right of survivorship that was acquired. See Minn. Stat. §500.19, subd. 5 (1996 Supp.). ⁸ Moreover, as discussed above, Mr. O'Hagan does not have the right to unilaterally sever the joint tenancy and thus neither the government nor a third-party purchaser would have that right.

Finally, we note that the third-party purchaser would acquire Mr. O'Hagan's obligations under the mortgage if Mrs. O'Hagan were to predecease Mr. O'Hagan. This fact must also be made clear to potential purchasers. Therefore, it is vital that the government recognize and accurately articulate the precise, and limited, nature of the interest it would be conveying in the present case. See Herndon, 501 F.2d at 1223 (requiring, as a matter of fairness under the circumstances, that the government advise all prospective purchasers that the real property is being sold subject to the homestead interest in the other spouse and that the government inform all prospective purchasers about the litigation in the case). Although we believe it is highly improbable that a fully-informed third-party purchaser would buy such a limited property right, we acknowledge that the government does have a valid lien on Mr. O'Hagan's survivorship interest, which, while held by the government, provides protection for the government without affecting Mrs. O'Hagan's interests. See William T. Plumb, Jr., Federal Liens and Priorities--Agenda for the Next Decade II, 77 Yale L.J. 605, 638 (1968) (suggesting "that the tax lien, if and when it cannot be satisfied from other sources, should be fastened to the property by appropriate judicial proceedings within the period of limitations, with actual enforcement by sale deferred until the survivorship contingency is resolved").

Lastly, we are not called upon to resolve the merits of the present case, except to the extent necessary to determine whether Mrs. O'Hagan has satisfied the statutory exception to the Anti-Injunction Act. ⁹ We conclude that Mrs. O'Hagan has adequately demonstrated that the district court has jurisdiction to issue a preliminary injunction to prevent the sale of Mr. O'Hagan's right to use and occupy the homestead property. ¹⁰ We do not express any opinion as to the likely outcome of a judicial lien foreclosure proceeding under section 7403 of the IRC. See Rodgers [83-1 USTC ¶9374 ], 461 U.S. at 703-12; United States v. Bierbrauer [91-2 USTC ¶50,331 ], 936 F.2d 373, 375 (8th Cir. 1991).

III. CONCLUSION

The district court has subject matter jurisdiction to enjoin the forced sale of Mr. O'Hagan's right to use and occupy the homestead property, but cannot enjoin the government from attempting to sell Mr. O'Hagan's right of survivorship, subject to the limitations set forth in this opinion. Accordingly, the district court's order granting Mrs. O'Hagan's motion for a preliminary injunction is affirmed in part and reversed in part.

¹ In Enochs, the Supreme Court held that federal courts have jurisdiction to hear cases brought by an allegedly delinquent taxpayer in which the collection or assessment of taxes would be enjoined because: (1) the government cannot prevail on the merits even if the facts and law are examined in the light most favorable to the government; and (2) equity jurisdiction would otherwise exist. [62-2 USTC ¶9545 ], 370 U.S. at 7-8.

² As we have often noted, we review judgments, not the text of opinions, and thus may affirm on any ground supported by the record regardless of whether it was argued below or considered by the district court. See, e.g., African American Voting Rights Legal Defense Fund, Inc. v. Villa, 54 F.3d 1345, 1356 (8th Cir. 1995), cert. denied, Tyus v. Bosley, 116 S. Ct. 913 (1996); United States v. Sager, 743 F.2d 1261, 1263 n.4 (8th Cir. 1984), cert. denied, 469 U.S. 1217 (1985). In the present case, however, the district court expressly recognized both the statutory exception and the Enochs exception and the government argued in its opening brief that Mrs. O'Hagan did not satisfy either exception.

³ Under Minnesota law, a severance of a joint tenancy is legally effective only when:

(1) the instrument of severance is recorded in the office of the county recorder or the registrar of titles in the county where the real estate is situated; or (2) the instrument of severance is executed by all of the joint tenants; or (3) the severance is ordered by a court of competent jurisdiction; or (4) a severance is effected pursuant to bankruptcy of a joint tenant.

A decree of dissolution of marriage severs all joint tenancy interests in real estate between the parties to the marriage, except to the extent the decree declares that the parties continue to hold an interest in real estate as joint tenants.

Minn. Stat. §500.19, subd. 5 (1996 Supp.).

⁴ A joint-tenant spouse who unilaterally severs a joint tenancy in homestead property, however, would nevertheless be precluded from conveying any interest in that homestead property. Minn. Stat. §500.19, subd. 4 (1996 Supp.); Minn. Stat. §507.02. Moreover, severing the joint tenancy does not completely destroy the other spouse's survivorship interest because Minnesota provides statutory protection for a joint tenant's survivorship interest in homestead property. Minn. Stat. §525.145 (1996 Supp.).

⁵ According to the dissent, a spouse can unilaterally convey homestead property, thereby severing a joint tenancy, simply by recording an instrument of severance pursuant to Minn. Stat. §500.19, subd. 5. In a case strikingly similar to the one before us, Judge Kyle expressly rejected the dissent's construction of Minn. Stat. §507.02. Marshall v. Marshall, 921 F. Supp. 641, 645-46 (D. Minn. 1995) ("To hold that one spouse could deprive the other spouse of this interest by recording a deed after having unilaterally and wrongfully sold the homestead would defeat [the purpose of the homestead law, which is to create a property interest that could not be conveyed without the consent of both spouses]"), vacated on other grounds, 921 F. Supp. 647 (D. Minn. 1996). In light of the clear statutory language prohibiting a unilateral conveyance of homestead property without the written consent of both spouses, Minnesota case law holding that a conveyance of homestead property without the signature of both spouses is void, and the public policy justification for granting extra protection to homestead property, we leave it to Minnesota courts to adopt the dissent's counterintuitive construction of Minn. Stat. §507.02 if they so chose. See, e.g., Dvorak v. Maring, 285 N.W.2d 675, 677 ( Minn. 1979); Renneke v. Shandorf, 371 N.W.2d 12, 14 (Minn. Ct. App. 1985).

⁶ We emphasize that even the judicial lien foreclosure proceeding set out in 15 U.S.C. §7403 --which might enable the government to sell the entire homestead and compensate the innocent spouse with monetary damages--allows the supervising court equitable discretion as to whether it would authorize the transaction. See Rodgers [83-1 USTC ¶9374 ], 461 U.S. at 706; United States v. Bierbrauer [91-2 USTC ¶50,331 ], 936 F.2d 373, 375 (8th Cir. 1991).

⁷ Furthermore, neither the government nor a third-party purchaser would acquire Mr. O'Hagan's statutorily protected right of survivorship in the homestead property--e.g., to a life estate--because this protection is limited to a surviving spouse. Minn. Stat. §525.145 (1996 Supp.).

⁸ This anomaly would not occur under the common-law rule, which assumes that a conveyance severs a joint tenancy because the act of conveyance destroys at least one of the four unities (time, title, interest, or possession). In abrogating the common-law rule, Minnesota has apparently replaced the act of conveyance with the act of recordation as the triggering event that severs a joint tenancy.

⁹ Without deciding whether it is essential to this type of case, we conclude that the four factors normally considered in a preliminary injunction claim also have been satisfied regarding the sale of Mr. O'Hagan's right to use and occupy the homestead property. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc). In Dataphase, we held that a court considers four factors when evaluating a motion for a preliminary injunction: (1) whether there is a substantial threat that the plaintiff will suffer irreparable harm if the relief is not granted; (2) whether the irreparable harm would outweigh any potential harm in granting the preliminary injunction; (3) whether there is a substantial probability that the plaintiff will prevail on the merits; and (4) the public interest. Id.

¹⁰ Our conclusion is consistent with the Supreme Court's decision in Rodgers, in which the Court held that homestead property could be sold--pursuant to the judicial lien foreclosure procedure under section 7403 of the IRC--to satisfy tax obligations owed by only one spouse. The Court also acknowledged, however, that its decision did not affect the traditional rule that the homestead property rights of an unindebted spouse could not be sold pursuant to an administrative levy, such as the IRS is attempting here, to satisfy the other spouse's tax liability. Rodgers [83-1 USTC ¶9374 ], 461 U.S. at 702-03 n.31.

[Dissenting Opinion]

Morris Sheppard ARNOLD , Circuit Judge

I respectfully dissent.

The court decides this case on a ground never presented to it, namely, that the taxpayer's inability to alienate his interest in homestead property without Mrs. O'Hagan's consent gives her a right in property, superior to the government's interest, that will be irreparably damaged by a sale of the taxpayer's property. Mrs. O'Hagan did assert below and in this court that the taxpayer's interest was not alienable without her consent, but not in order to demonstrate that she had an interest in the taxpayer's property superior to the government's. Rather, she did that in an effort to show that her right to veto, as it were, any alienation by the taxpayer meant that the government could not convey title to the taxpayer's interest at a tax sale.

In other words, her argument was that the government can by levy acquire no more rights in property than the taxpayer had, and, since the taxpayer could not alienate his interest without his wife's consent, neither can the government. See, e.g., United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 690-91 (1983). That argument itself has a certain syllogistic appeal and presents a nice question, but, as I understand it, it is a question that the court does not decide today. It is, moreover, entirely irrelevant to the case.

The district court accepted Mrs. O'Hagan's argument and granted her motion for an injunction based on Enochs v. Williams Packing and Navigation Company, Inc. [62-2 USTC ¶9545 ], 370 U.S. 1 (1962). That case established the principle that an injunction against a tax levy and sale can issue if (1) the government cannot prevail on the merits even if the facts and law are examined in the light most favorable to the government and (2) irreparable harm to the property owner would ensue if the sale were allowed to proceed. Id. at 6-7. But Enochs has no application to this case.

First of all, the benefit of Enochs may extend only to the taxpayer, not to affected third parties. In fact, Mrs. O'Hagan conceded this proposition at oral argument in the district court. Enochs requires, moreover, an inquiry into whether the government can prevail on the merits of the tax claim, not whether the taxpayer has any interest in the property that can be levied on and sold. Id. at 7. The district court therefore focused on the merits of the wrong issue. The relevant question under Enochs is whether the taxpayer might conceivably owe taxes, and it does not seem to have been controverted that the taxpayer in this case owes taxes. The district court therefore erred in relying on Enochs as a way to overcome the prohibition of the Anti-Injunction Act, 26 U.S.C. §7421(a) .

Because it found Enochs applicable and satisfied, the district court did not address the question of whether 26 U.S.C. §7426(b)(1) might provide a basis for an injunction. Indeed, this possibility was never mentioned until the government itself raised it in its brief filed in response to the plaintiff's brief in support of her motion for an injunction below. Even on appeal the plaintiff makes only one reference in her brief to this statutory provision, and then in an attempt to demonstrate what is plainly not so, namely, that the district court relied on it in deciding the case. And, more to the point, the plaintiff has never made an effort to identify what interest she had in the taxpayer's property that was superior to the government's, much less has she ever asserted that that very interest was the taxpayer's inability unilaterally to convey his interest in the residence. This last is a theory that the court constructed on its own.

The court therefore decides this case on a principle never presented to it and without giving the government the opportunity to convince it to the contrary. Perhaps that is partly because the government, in an effort to rebut Mrs. O'Hagan's argument that it could not sell the taxpayer's interest in the residence, has already advanced its best argument to the contrary, namely, that the district court misconstrued the relevant Minnesota statutes. But there may well be other arguments that the government could have advanced against the court's holding, and at the least it should have been given a chance to make them. In any case, I suggest with respect that the court has indeed misread the applicable Minnesota law.

In my view, Minnesota statutes do give a spouse who jointly owns homestead property the right unilaterally to sever the joint tenancy by conveyance. That power is conferred by the portion of Minn. Stat. Ann. §507.02 that allows joint owners of homesteads to make "a severance of a joint tenancy pursuant to section 500.19," that is, by simply recording an instrument of severance (presumably either a deed to a third party or to the grantor) in an appropriate governmental office. See Minn. Stat. Ann. §500.19.5(1). Such an instrument is "valid without the signatures of both spouses." See Minn. Stat. Ann. §507.02.

Section 507.02 was amended in 1979 specifically to allow such severances, perhaps partly in response to Hendrickson v. Minneapolis Federal Savings and Loan Association, 161 N.W.2d 688, 691 (Minn. 1968), which had held, construing the former version of the statute, that a joint tenancy in homestead property could not be severed by a conveyance to a third party by one of the cotenants. The provisions of Minn. Stat. Ann. §500.19.4(a) are not to the contrary, because they must be taken to refer only to those portions of §507.02 that require the consent of a spouse to a conveyance. The first paragraph of §507.02 allows unilateral severance; it is the second paragraph that requires spousal consent to certain kinds of conveyances. Any other construction of the relevant statutes would render the first paragraph of §507.02 difficult to comprehend.

Plaintiff evidently believes (and perhaps the court does too) that §507.02 merely confers on a joint owner of a homestead property the power to convert the joint tenancy into a tenancy in common. That is certainly one way of severing a joint tenancy, or one ultimate result to which a severance may lead. But the statute speaks generally of a right to sever, and the Minnesota cases quite clearly recognize, as do cases from other common-law jurisdictions, that one way to sever a joint tenancy is for one cotenant to convey his or her interest to a third party. See, e.g., Application of Gau, 41 N.W.2d 444, 447 ( Minn. 1950). If the legislature had intended the scope of the statute to be as narrow as the plaintiff urges, it could easily have said so. It did not.

The court holds that even if the taxpayer had a unilateral right to alienate his interest in the jointly held homestead, that general right is restrained by the principles announced in Hendrickson. But that case held, at most, in relevant part, that the survivorship feature of a joint tenancy could not be destroyed by the unilateral act of one joint tenant if another tenant had somehow acted in reliance on the continuing existence of that survivorship feature. Hendrickson, 161 N.W.2d at 692. There is a good argument that this is only dictum: The Minnesota Supreme Court said simply that "it would seem reasonable to insist" that this was so, id. But assuming arguendo that the court correctly describes the holding in Hendrickson, it is an extraordinary holding indeed. In fact, it is evidently unique.

The ordinary rule is that joint tenants take the risk that their cotenant will alienate his or her interest and destroy their right of survivorship. This circumstance alone provides some basis for believing that the Minnesota Supreme Court might overrule this aspect of Hendrickson if given the opportunity. Furthermore, the holding in Hendrickson was based in part on the fact that the version of §507.02 in effect when the case was decided did not allow for unilateral severance of a joint tenancy in a homestead property by deed to a third person. Since it now does, and since it contains no exceptions to the joint tenant's power to sever, the Minnesota Supreme Court might well hold that the legislature had rejected the holding in Hendrickson.

Finally, an application of Hendrickson, as the court interprets it, will not lead to the result that Mrs. O'Hagan urges. We simply do not know whether Mrs. O'Hagan would have signed the mortgage note if she had anticipated the destruction of the survivorship feature of her cotenancy with her husband. There is no evidence in the record one way or the other on this point, so there is no basis for the court's finding that Mrs. O'Hagan acted in reliance on the continued existence of her right of survivorship. She has the burden of proof on this issue, and it cannot be satisfied by conjecture. In fact, there is every reason to believe that she would have signed the note anyway, because, since the residence was homestead, if she survives her husband, she would be entitled to at least a life estate, and perhaps to a fee simple, even without the presence of a survivorship feature in the ownership arrangement. See Minn. Stat. Ann. §524.2-402(a). Even if she eventually received only a life estate, that could be the near equivalent of a fee simple, depending on when Mrs. O'Hagan became entitled to exclusive possession.

Mrs. O'Hagan therefore has no right in the taxpayer's property that is superior to the government's. What is more, she cannot carry her burden of showing that she will be irreparably injured by a tax sale. The court asserts that Mrs. O'Hagan has a right to exclude anyone but Mr. O'Hagan from the residence, and that the loss of this right occasioned by a sale to a third party is irreparable. But that proves too much, because such a loss is attendant upon a sale of any commonly-held property interest. The possibility that a cotenant might sell is a risk that inheres in coownership generally and freights the property rights of all cotenants (except tenants by the entireties).

The court also maintains that the sale of the taxpayer's interest would undoubtedly diminish the value of Mrs. O'Hagan's interest. This is a dubious proposition at best. In fact, her interest might well become more valuable, since it is not likely that any buyer of her husband's interest would move in with her. Mrs. O'Hagan would thus have the exclusive use of the premises, and she could invite her husband to live with her. Even if a sale did diminish the value of her property, that would simply give her a right to an action for money damages under 26 U.S.C. §7426(b)(2)(C) .

The court responds that monetary relief can never provide adequate compensation for the loss of an interest in real property. But the court cites only Minnesota state-law authority for this proposition, and the relevant question is the meaning of a federal statute. No federal case is marshaled in support of this extraordinary proposition, because none can be. In fact, the principle that the court adopts would evidently be applicable in every case under 26 U.S.C. §7426 that involves a levy on realty. This takes a greater bite out of the levy statute than Congress could possibly have intended. Reliance on a state-law equitable aphorism that supplies the basis for extraordinary relief in cases involving land contracts is simply not at home in a federal tax case.

The most fundamental objection, however, to the court's holding is that the court fails to connect Mrs. O'Hagan's alleged injuries to the allegedly superior property interest that she has, namely, her right to restrain the taxpayer's alienation of his interest. The injuries that the court identifies are injuries to her right to possess and enjoy her own interest, not to her right to withhold consent to her husband's conveyance. Such injuries do not qualify her for relief under the statute.

For the foregoing reasons, I believe that the district court erred in granting the injunction prayed for in this suit. I would therefore reverse the court's judgment and direct it to dismiss the motion for injunction for lack of jurisdiction in the district court to grant it.

 

 

 

[96-1 USTC ¶50,122] Carole Marshall, Plaintiff v. Joseph R. Marshall, Eugene V. Sitzmann, District Director of Internal Revenue Service for the St. Paul District, Northland Mortgage Company, Federal National Mortgage Corporation, John Doe and Mary Roe, Defendants

U.S. District Court, Dist. Minn., Third Div., Civ. 3-95-554, 12/18/95 , 921 FSupp 641, 921 FSupp 641

[Code Secs. 6321 and 6331 ]

Lien for taxes: Nondeliquent spouse: Homestead property: Levy and distraint: Sale of property.--The IRS's sale of an undivided one-half interest in jointly held homestead property to satisfy a tax lien was not valid. The IRS sold the property without the taxpayer's consent in order to satisfy her estranged husband's delinquent tax liabilities. The IRS did not acquire the right to unilaterally convey a portion of the homestead because, under state ( Minnesota ) law, the husband did not have such a right. Even though it appeared that the husband had the ability to sever the homestead without the taxpayer's consent, the IRS did not exercise this right once it was acquired. Moreover, state law may have prohibited the husband from unilaterally severing the property and conveying his remaining one-half interest.

Roy D. Hawkinson, Minneapolis , Minn. , for plaintiff. Rachel D. Cramer, Department of Justice, Washington, D.C. 20530, for District Director of I.R.S., William R. Busch, 803 Degree of Honor Bldg., St. Paul, Minn., for Eugene V. Sitzmann.

MEMORANDUM OPINION AND ORDER

Introduction

KYLE, District Judge:

Before the Court is Plaintiff Carole Marshall's ("Mrs. Marshall") Objections to the November 1, 1995 Report and Recommendation of United States Magistrate Judge Ann D. Montgomery ("R & R"). This matter was referred to Magistrate Judge Montgomery pursuant to 28 U.S.C. §636(b)(1)(A) and (B) and Local Rule 72.1(c). In the R & R, Magistrate Judge Montgomery recommends (1) Defendant District Director's ¹ Motion to Dismiss the claims against it be granted, (2) Plaintiff's Motion to Amend the Complaint be denied, and (3) this action be remanded to Hennepin County District Court. For the reasons set forth below, the Court declines to adopt the R & R.

Background ²

Mrs. Marshall commenced this action seeking to quiet title in residential real estate (" Homestead ") located in Minneapolis , Minnesota . ³ Mrs. Marshall and Defendant Joseph R. Marshall ("Mr. Marshall"), her estranged husband, owned the Homestead as joint tenants from 1974 through 1994. On February 18, 1994 , the IRS placed a federal tax lien, pursuant to 26 U.S.C. §6321 , on Mr. Marshall's interest in the Homestead to collect his delinquent federal income taxes. Mrs. Marshall's interest in the Homestead is not encumbered by this lien, and she does not currently contest the lien's validity. After acquiring the lien, the IRS levied on Mr. Marshall's interest in the Homestead pursuant to the administrative procedures set out in 26 U.S.C. §6331 , and conducted a public auction at which Defendant Sitzmann ("Sitzmann") "purchased" Mr. Marshall's interest in the Homestead. Neither Mr. Marshall nor Mrs. Marshall, on his behalf, attempted to redeem the property pursuant to 26 U.S.C. §6337(b) . Following the expiration of the redemption period, the IRS gave Sitzmann a quit claim deed purporting to convey Mr. Marshall's undivided one-half interest in the Homestead . (See Sitzmann Aff., attach.)

Plaintiff subsequently commenced this quiet title action in Hennepin County District Court. The IRS timely removed that action to this Court and moved to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure on the grounds that the IRS no longer had an interest in the Homestead and therefore was not a proper party. The Plaintiff resisted this Motion, claiming that the sale of the property was void and that the IRS maintained a valid lien on the property. Plaintiff also moved to amend the Complaint to add a claim for an unconstitutional taking under the Due Process Clause of the Fifth Amendment.

In the R & R, the Magistrate Judge determined that the sale of Mr. Marshall's interest in the property was valid and that the IRS was accordingly not subject to the Court's jurisdiction in this matter. The Magistrate Judge further determined that Plaintiff's proposed amendment would be futile.

Analysis

I. Standard of Review

A district court must make an independent determination of those portions of a report and recommendation to which objection is made and may accept, reject. or modify, in whole or in part, the findings or recommendations made by the magistrate judge. 28 U.S.C. §636(b)(1)(C) .

II. Discussion

Plaintiff objects to the R & R on two grounds: (1) the R & R failed to apply the correct legal standard in determining whether the tax sale of the subject property was valid, and (2) the R & R erroneously denied the Plaintiff's Motion to Amend her Complaint. Both the IRS and Sitzmann filed responses to the Plaintiff's Objections as well as memoranda in support of the IRS's Motion to Dismiss. Mr. Marshall, the Northland Mortgage Company and the Knutson Mortgage Corporation have not submitted responses to the R & R or material in support of the IRS's Motion to Dismiss.

A. Validity of Levy and Sale

The issue in the IRS's Motion is whether the IRS had authority to sell Mr. Marshall 's undivided one-half interest in the Homestead to satisfy its tax lien. If the sale was valid, the IRS no longer has an interest in the Homestead and, for the reasons set forth in the R & R (R & R at 3-5), the IRS must be dismissed as a party pursuant to 28 U.S.C. §2410(a). If the sale was not valid, the IRS is a proper party in this action and its Motion must be denied. The Court finds the sale was not valid.

1. Legal Standard

All parties agree on the general principle to be applied in this case: the government "steps into the shoes" of the delinquent taxpayer when it acquires a tax lien. See United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 724, 105 S. Ct. 2919, 2926 (1985) (citations omitted). Accordingly, in a levy proceeding, the "IRS acquires whatever rights the taxpayer himself possesses" in the homestead property. Id.; Thompson v. United States, 66 F.3d 160, 162 (8th Cir. 1995) ("[t]he IRS acquires by its lien and levy no greater right to property than the taxpayer himself has at the time the tax lien arises") (citing cases); Gardner v. United States [94-2 USTC ¶50,482 ], 34 F.3d 985, 988 (10th Cir. 1994) ("the tax collector not only steps into the taxpayer's shoes but must go barefoot if the shoes wear out") (quotation omitted). The parties also agree that, in applying the Internal Revenue Code, state law defines the nature of the taxpayer's interest in the homestead property. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 2926, 105 S. Ct. at 2926; see also Gardner [94-2 USTC ¶50,482 ], 34 F.3d at 987 ("it has long been the rule that in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property ... sought to be reached by the statute" and "[i]t is only after a taxpayer's legal interest in the property is so determined that federal law dictates the tax consequences") (quoting Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-13, 80 S. Ct. 1277, 1378-80 (1960) (internal quotations omitted)).

2. Application

In order to determine the interest the IRS acquired by its lien, the Court must first consider the nature and extent of the property right Mr. Marshall had in the Homestead at the time of the lien. Mr. Marshall had an undivided one-half interest in the Homestead and held that interest with Mrs. Marshall in joint tenancy with right of survivorship. This interest was subject to at least one restriction. In Minnesota , the nature of homestead property held by husband and wife is such that it may not be conveyed without consent of the other unless the joint tenancy is officially severed. See Minn. Stat. §507.02 ("If the owner is married, no conveyance of the homestead, except ... a severance of a joint tenancy pursuant to section 500.19, subdivision 5 ... shall be valid without the signatures of both spouses"). Thus a spouse's interest in marital homestead property under Minnesota law does not include the right to unilaterally convey the property while it is held in joint tenancy. This is the property right the IRS acquired when it stepped into Mr. Marshall's shoes. Since the IRS did not acquire property rights superior to Mr. Marshall's, the IRS did not acquire the right to unilaterally convey a portion of the Homestead to Sitzmann while the Homestead was held in joint tenancy.

While recognizing that it only acquired Mr. Marshall's rights in the Homestead , the IRS claims the sale is valid because courts, in accordance with IRS regulations, have determined that state "homestead exemptions" do not impair the IRS's ability to levy on marital property. The IRS relies heavily on Herndon v. United States [74-1 USTC ¶16,127 ], 501 F.2d 1219 (8th Cir. 1974) to support this position, and claims Herndon "present[s] no significant distinctions from the instant case." ( United States ' Reply Br. at 7.) A close review of the facts of Herndon shows the IRS's reliance is misplaced. The issue in Herndon was whether the IRS could levy on the plaintiff's homestead to collect her spouse's delinquent taxes. The plaintiff's homestead was located in Arkansas , and Arkansas law provided the following exemption: "Homestead exemptions from legal process--Exemptions. The homestead of any resident of this State who is married ... shall not be subject to the lien of any judgment, ... or to sale under execution. ..." Herndon [74-1 USTC ¶16,127 ], 501 F.2d at 1220 n.2 (quoting Ark. Const. art. 9, §3 ). The Eighth Circuit concluded that state laws which purport to exempt property from foreclosure have no effect as against federal tax liens. Id. at 1222.

Minnesota Statute section 507.02 is fundamentally different from the provisions considered in Herdon and those in the supporting cases cited by the IRS. Unlike these provisions, Minnesota Statute section 507.02 does not create an "exemption" from a creditor's ability to levy upon the homestead. Rather, section 507.02 alters the very nature of one spouse's property right in the homestead. As such, this case is not within the purview of Herdon and related "homestead exemption" cases. Put another way, this is not a "homestead exemption" case. Indeed, Minnesota 's "homestead exemption" is contained in Minn. Stat. Ch. 510. Minnesota 's homestead exemption is similar to the exemptions in Herndon and in the cases cited by the IRS, and the rationale of those cases would apply to render Minnesota 's homestead exemption inoperative as against the IRS. Plaintiff correctly has not asserted a defense under this Chapter.

The Court has found only two cases which have specifically addressed whether the IRS may use an administrative levy proceeding ⁴ to sell a delinquent spouse's share in the homestead when state law defines that interest as prohibiting unilateral transfer. Both these cases support Plaintiff's position in this case. The first is indistinguishable from the material facts presented in the IRS's Motion. See O'Hagan v. United States [95-1 USTC ¶50,082 ], Civ. No. 4-94-952, 1995 WL 113417 (D. Minn. 1994), appeal docketed, No. 95-1185MNMI (8th Cir. argued Nov. 13, 1995). ⁵ The second is nearly identical to the facts presented here and is on all fours with this Court's rationale. In Elfelt v. Cooper [92-2 USTC ¶50,338 ], 168 Wis.2d 1009, 485 N.W.2d 56 (1992), cert. denied, 113 S. Ct. 1251 (1993), ⁶ the IRS had filed a tax lien on the husband's portion of jointly held homestead property. The IRS subsequently sold that portion following a §6331 administrative levy proceeding. Wisconsin , like Minnesota , defined the property right a spouse had in the homestead to be inalienable without the other spouse's consent. Id. at 61 (citing Wis. Stat. §706.02(1)(f)). The IRS did not obtain the nondelinquent spouse's consent. Elfelt determined that "the statutory requirement of spousal consent illustrates that the nature of the property interest owned by a spouse in a jointly held homestead is a limited interest that can only be alienated with the consent of both spouses or by court action." Id. at 62. Based on this, Elfelt observed that "the IRS cannot gain an interest superior to that which [the delinquent spouse] himself had" and concluded the IRS did not have authority to sell the husband's interest in the jointly held homestead property. Elfelt accordingly voided the sale.

In addition to wrongly claiming Minnesota Statute section 507.02 creates an unenforceable homestead "exemption" rather than a substantive property interest, the IRS claims the sale was nevertheless valid because Mr. Marshall had the ability to sever the Homestead without Mrs. Marshall's consent. The IRS's argument is again misplaced. The IRS may be correct insofar as Mr. Marshall could change the nature of his property interest in the Homestead by severing the joint tenancy in accordance with Minnesota Statutes section 500.19, subdivision 5. This Section provides in relevant part:

A severance of a joint tenancy interest in real estate by a joint tenant shall be legally effective only if (1) the instrument of severance is recorded in the office of the county recorder or the registrar of titles in the county where the real estate is situated....

Minn. Stat §500.19, subd. 5. When the IRS acquired a lien on Mr. Marshall's property, it acquired this right. It did not, however, exercise it. ⁷ Moreover, at least one court has construed Sections 507.02 and 500.19, subdivision 5 to prohibit one spouse from unilaterally severing homestead property under Section 500.19, subdivision 5 and then unilaterally conveying the remaining one-half interest. See O'Hagan v. United States [95-1 USTC ¶50,082 ], Civ. No. 4-94-952 (D. Minn. 1994) ("the correct construction of Minnesota law, although it may allow the unilateral severance of property held as joint tenants, does not allow one spouse to sever and then convey an interest in homestead property") (citing Minn. Stat. §507.02, 500.19, subd. 5). The Court concurs with this rationale; any other construction of these sections would eviscerate the property interests created by Section 507.02. Minnesota 's homestead law was enacted to create a property interest which could not be conveyed without consent of both spouses. See, e.g., Craig v. Baumgartner, 254 N.W. 440 ( Minn. 1934). To hold that one spouse could deprive the other spouse of this interest by recording a deed after having unilaterally and wrongfully sold the homestead would defeat this purpose.

Finally, the IRS argues that the sale was proper because "state law serves only to define a taxpayer's property rights; the consequences of those rights for tax collection are set by federal law," (IRS Reply Br. at 6 (citing National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 722, 105 S. Ct. at 2926)), and because the "validity and priority of the lien are questions of federal law," not state law (IRS Response to Obj. at 2 (citing Thompson, 66 F.3d at 162 n.1)). These arguments are not persuasive. The IRS apparently claims the prohibition against unilateral conveyance of the homestead is merely a "consequence" of a state right and therefore does not apply. As stated above, this is not correct. The prohibition against unilateral conveyance of the homestead is part of the nature of the property right Mr. Marshall and Mrs. Marshall each owned. It was not a "consequence" of their property rights. Similarly, this prohibition is not related to the validity or priority of the lien; it is related to the rights the IRS acquired when it filed the lien.

3. Summary

Based on the foregoing, the Court finds that Mr. Marshall would not be able to convey an interest in the jointly held Homestead without Mrs. Marshall's consent. Because the IRS stepped into Mr. Marshall's shoes when it acquired a tax lien on the Homestead , it could not convey any interest in the Homestead pursuant to a §6331 administrative levy proceeding without Mrs. Marshall's consent. Consequently, Sitzmann did not obtain and does not own an interest in the Homestead . ⁸ The sale of Mr. Marshall's interest in the Homestead is void and the IRS maintains a tax lien on the property. ⁹

B. Motion to Amend the Complaint

Plaintiff claims the IRS failed to compensate her for the decreased value in her portion of the Homestead caused by the IRS's purported sale of Mr. Marshall's interest to Sitzmann. She filed a motion to amend the Complaint to add a Fifth Amendment takings claim on this basis. Because the Court finds the sale void, the Plaintiff's Motion to Amend is moot and will be denied.

Conclusion

Based on the foregoing, and all the files, records, and proceedings herein, the Court declines to adopt the November 1, 1995 Report and Recommendation of Magistrate Judge Montgomery (Doc. No. 19) and IT IS ORDERED that:

(1) Defendant District Director's Motion to Dismiss (Doc. Nos. 4 & 14) is DENIED;

(2) Plaintiff's Motion to Amend the Complaint (Doc. No. 7) is DENIED AS MOOT; and

(3) it is hereby ORDERED, ADJUDGED AND DECREED that the March 15, 1994 sale of the property located at 5045 Second Avenue South, Minneapolis , Hennepin County , Minnesota , legally described as:

Lots 19 and 20, Block 2, in Thorpe Bros. Washburn Park , Second Division, according to the Recorded Plat thereof, and situated in Hennepin County , Minnesota

to Defendant Sitzmann is VOID. ¹⁰

¹ Except where otherwise noted, the Court will refer to Defendant District Director and the United States Internal Revenue Service jointly as the "IRS."

² The complete factual and procedural background in this case is set out in the R & R and accompanying memoranda and will not be fully repeated here.

³ This property is located at 5045 Second Avenue South, Minneapolis, Hennepin County, Minnesota, and is legally described as: "Lots 19 and 20, Block 2, in Thorpe Bros. Washburn Park, Second Division, according to the Recorded Plat thereof, and situated in Hennepin County, Minnesota." (Am. Compl. §I, attach. at Def. District Director's Pet. for Removal.)

⁴ Several courts have held that the IRS may levy upon and sell a nondelinquent spouse's portion of the homestead, notwithstanding statutory provisions to the contrary, using the judicial proceeding called for under 26 U.S.C. §7403 . See United States v. Rogers [83-1 USTC ¶9374 ], 461 U.S. 677, 103 S. Ct. 2132 (1983). The IRS did not pursue a judicial proceeding to levy on Mr. Marshall's property. The cases upon which it relies to justify sale at issue today involve judicial levies under §7403 , not administrative levies under §6331 . (See IRS Reply at 9.)

Moreover, the Supreme Court's decision in Rogers supports this Court's conclusion regarding the IRS's ability to administratively foreclose on the Homestead pursuant to 26 U.S.C. §6331 . The Rogers dissent presented an argument similar to the Plaintiff's argument in this case. Justice Blackman recognized that "[i]n a small number of joint ownership situations ... the delinquent taxpayer has no right to force partition or otherwise to alienate the entire property without the consent of the co-owner," and reasoned

the Government [has] the power to sell or force the sale of jointly owned property only insofar as the tax debtor's interest in that property would permit him to do so; it does not confer on the Government the power to sell jointly owned property if an unindebted co-owner enjoys an indestructible right to bar a sale and to continue in possession.

Id. at 713-715, 103 S. Ct. 2152-53 (Blackman, J., concurring in part and dissenting in part). The majority criticized the dissent for relying on administrative levy cases and overlooking "the important distinction between the power of sale under §7403 ... and the power of administrative levy" under §6331 . Id. at 702 n.31, 103 S. Ct. at 2147 n.31. However, the majority specifically stated it was "in agreement" with the dissent regarding the administrative levy cases. Id.

⁵ This appeal is pending. The IRS does not attempt to distinguish O'Hagan and instead claims it was wrongly decided.

⁶ The parties have not cited Elfelt.

⁷ Defendant Sitzmann argues that the joint tenancy was severed when the IRS conducted the sale or when he filed a "Certificate of Sale of Seized Property" with the Hennepin County Recorder's Office. Neither of these actions was sufficient to sever the joint tenancy. Section 507.02 provides that a conveyance of the marital homestead is invalid unless the homestead is severed "pursuant to section 500.19. subdivision 5." The tax sale was not a severance pursuant to that subdivision and does not validate the sale. Similarly, the fact that Sitzmann filed a certificate of sale of seized property does not validate the sale. The issue in the matter before the Court is whether the IRS possessed an interest which could be sold without Plaintiff's consent at the time of sale. If it did not, Sitzmann had no interest to sever, and his subsequent actions are irrelevant.

⁸ In addition to supporting the IRS's alleged right to convey Mr. Marshall's interest in the Homestead . Sitzmann argues that Mr. Marshall did not own "homestead" property because he separated from Mrs. Marshall in September, 1992 and moved out of their residence. This argument is unavailing. As noted above, state law defines the nature of one's property interest for the purposes of federal tax law. Under Minnesota law, homestead treatment may not be denied because one spouse is absent due to marriage dissolution proceedings or separation. Minn. Stat. §273.124 , subd. 1(e). Moreover, Minnesota courts have specifically held that only one spouse need reside on property to qualify that property as "homestead" for the purposes of prohibiting unilateral transfer under Minn. Stat. §507.02. See Renneke v. Shandorf, 371 N.W.2d 12, 14 n.1 (Minn. Ct. App. 1985); Cleys v. Cleys, 363 N.W.2d 65, 69-71 (Minn. Ct. App. 1985).

⁹ Although the validity of the sale involves certain factual findings, the IRS specifically placed this in issue for final resolution when it moved to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Under this Rule, the Court must distinguish between a "facial attack" to jurisdiction and a "factual attack." Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990) (citing cases). On a "facial attack," the Court must restrict itself to the face of the pleadings; the non-moving party receives the same protections as it would in defending against a Rule 12(b)(6) motion. In a "factual attack," the non-movant does not enjoy the benefits of the Rule 12(b)(6) safeguards; the district court has the authority to consider matters outside the pleadings and may resolve disputed issues of material fact to determine the jurisdictional issue. Osborn, 918 F.2d at 728 n.4 & 729; Dou Yee Enter. (S) PTE, Ltd. v. Advantek, Inc., 149 F.R.D. 185, 187 (D. Minn. 1993). The IRS's motion was a "factual" attack on the Court's jurisdiction. Based on the standards set out in Osborn and the Court's findings in this case, final judgment with respect to the validity of the sale is appropriate.

¹⁰ In her Complaint, Plaintiff also requested an order declaring Plaintiff "fee owner" of the Homestead . (Compl. at 5 ¶1.) Such relief does not appear to be warranted, and the Court anticipates this action may be dismissed. The parties have not, however, addressed this issue in their memoranda. The parties are accordingly directed to submit a status report within twenty (20) days from the date of this Order setting forth what issues raised in the Complaint, if any, remain for final resolution in this Court.

 

 

 

 

 

 

[96-1 USTC ¶50,238] Lois Carole Stevens, Debtor-Appellant v. Michael D. Baas, et al., Appellees

U.S. District Court, No. Dist. Ohio , West. Div., 3:95 CV 7603, 12/28/95, 197 BR 57, Affirming an unreported Bankruptcy Court decision

[Code Sec. 6013 ]

Joint returns: Innocent spouse: Knowledge of erroneous credits: Knowledge of tax consequences.--Although a bankruptcy court should have determined whether a debtor was an innocent spouse before determining whether a tax sale of the debtor's principal residence was properly conducted, the error was harmless. The debtor's knowledge of the transaction underlying the erroneous credits precluded her from obtaining innocent spouse status. The debtor was aware of the transactions, approved of them, and claimed that they had a reasonable basis in law when taken.

[Code Sec. 6335 ]

Sale of seized property: Notice of sale: General circulation newspaper.--The IRS properly published notice of a tax sale of a debtor's principal residence in a generally circulated newspaper. It was not required to publish notice in the most widely circulated newspaper in the county where the residence was located.
[Code Sec. 6334 ]

Levy: Property exempt: Principal residence: Exception: Proper execution: Signature.--A debtor did not overcome the presumption that a Notice of Levy form for her residence was validly signed by a district director or assistant director. She provided no evidence beyond speculation that the notice was improperly signed; therefore, the IRS was not required to present evidence of the sale's validity. Further, the court properly concluded that an approved signature, that of the acting district director, appeared on the form. It did not err as a matter of law by holding that the signature of a director or assistant director was not required on the form.
[Code Sec. 1 ]

Constitutional rights: Due process: Failure to provide evidentiary hearing.--Failure of a bankruptcy court to provide a debtor with an evidentiary hearing on issues of innocent spouse status and the validity of tax sale procedures did not constitute a denial of due process. Although the court did not determine whether the debtor was an innocent spouse, the determination could have been made on the record before the court. Also, the debtor had the opportunity to present evidence of procedural defects, without the necessity of an evidentiary hearing.

Mark R. McBride, 608 Madison Ave. , Toledo , Ohio 43604 , for plaintiff. Thomas M. Balyeat, Cline, Cook & Weisenburger, 300 Madison Ave. , Toledo , Ohio 43604-2605 , for defendant.

MEMORANDUM OPINION

KATZ, District Judge:

Debtor-Appellant Lois Carole Stevens appeals an order of the Bankruptcy Court granting relief from an automatic stay on the transfer of real property purchased by Appellees at a tax sale. For the following reasons, the Bankruptcy Court's order will be affirmed.

BACKGROUND

The tax deficiency resulting in the sale at issue accrued between the years 1978 and 1982, when Debtor-Appellant's late husband obtained tax credits for certain investments in what he believed to be a tax shelter program. These credits were subsequently disallowed by the Internal Revenue Service ("IRS"), and Debtor-Appellant's late husband was assessed a tax deficiency of $103,058.02. Debtor-Appellant was held jointly and severally liable with her husband for the amount of the deficiency pursuant to 26 U.S.C. §6013(d)(3) , because she signed the joint tax return.

On January 25, 1995 , Debtor-Appellant's home, located at 4198 Hurley Drive , Toledo , Ohio ("the property"), was sold by the IRS to satisfy part of the tax deficiency. Appellees Michael D. Baas and Joan H. Baas purchased the property for $36,000. Under 26 U.S.C. §6337(b) , Debtor-Appellant was permitted to redeem the property at any time within 180 days after the sale; this redemption period expired on July 23, 1995 .

Debtor-Appellant filed this Chapter 13 bankruptcy proceeding on April 3, 1995 . Pursuant to 11 U.S.C. §362(a) , an automatic stay issued as to the enforcement of all judgments against Debtor-Appellant.

On July 25, 1995 , two days after expiration of the property's redemption period, the IRS executed a deed transferring title of the property to Appellees. Also on July 25, 1995 , Debtor-Appellant attempted to redeem the property by personal check tendered to Appellees. Appellees refused Debtor-Appellant's offer, and, on August 1, 1995 , moved the Bankruptcy Court for relief from the automatic stay.

Debtor-Appellant opposed Appellees' motion for relief from the automatic stay on two grounds. First, she claimed that the sale of the property was void ab initio because she was an "innocent spouse" under 26 U.S.C. §§6013(e) & 6653(b), and the property was not subject to IRS foreclosure. Second, she claimed that certain procedural defects in the IRS's conduct of the tax sale rendered the sale void under 26 U.S.C. §6335 .

The Bankruptcy Court granted Debtor-Appellant until August 30, 1995 to produce evidence that there were, in fact, procedural irregularities in the tax sale. In an Order dated September 15, 1995 , the Bankruptcy Court found that the sale was executed in the manner prescribed by law, and ordered that the automatic stay be lifted.

The Bankruptcy Court subsequently denied as moot both Debtor-Appellant's request for an evidentiary hearing on the sale and her motion for an order deeming her an innocent spouse.

Debtor-Appellant appealed. Debtor-Appellant raises four points of error on appeal. (1) She argues first that the Bankruptcy Court erred by finding that the tax sale was properly conducted, rendering moot the issue of the innocent spouse defense. (2) She argues next that the Bankruptcy Court erred by shifting the burden of production and persuasion on the validity of the tax sale to Debtor-Appellant instead of the IRS. (3) Third, she argues that the Bankruptcy Court erred by failing to grant Debtor-Appellant's request for an evidentiary hearing on the issues of her status as an innocent spouse and the possibility of procedural defects in the tax sale. (4) Finally, she argues that the Bankruptcy Court erred in its interpretation of 26 U.S.C. §6334(e) , which sets forth special prerequisites for IRS levy on a taxpayer's principal residence.

The Court addresses these arguments below.

DISCUSSION

A. Does the Bankruptcy Court's finding that the tax sale was properly conducted render the issue of the "innocent spouse" defense moot?

The Internal Revenue Code makes both spouses jointly and severally liable on the amount of tax owed when a joint return is filed. 26 U.S.C. §6013(d) . An exception to this rule exists when one spouse substantially understates the tax owed because of claim of credit for which there is no basis in fact or law, and the other spouse establishes that she did not know, and had no reason to know, that there was such substantial understatement. 26 U.S.C. §6013(e). Debtor-Appellant claims that this "innocent spouse" defense applies to her.

As her first point of error on appeal, Debtor-Appellant argues that the Bankruptcy Court decided the issue of her innocent spouse defense and the issue of procedural irregularities in the sale in the wrong order. Since an adjudication that Debtor-Appellant is an innocent spouse under 26 U.S.C. §6013(e) would relieve her entirely from tax liability, the sale would be void ab initio,, whatever procedural safeguards might have otherwise attached to it.

The Court agrees. The Bankruptcy Court should have determined whether Debtor-Appellant was an innocent spouse. For the following reason, however, the Bankruptcy Court's failure so to determine was harmless error.

The Sixth Circuit has held that a spouse's knowledge of the transaction underlying the erroneous deduction or credit precludes her from obtaining innocent spouse status. The test is not whether the spouse knew the tax consequences of the transaction, but whether she knew of the transaction itself. Purcell v. Commissioner [87-2 USTC ¶9479 ], 826 F.2d 470, 472-74 (6th Cir. 1987); accord Bliss v. Commissioner [95-2 USTC ¶50,370 ], 59 F.3d 374 (2d Cir. 1995); Park v. Commissioner [94-2 USTC ¶50,320 ], 25 F.3d 1289 (5th Cir. 1994); Quinn v. Commissioner [75-2 USTC ¶9764 ], 524 F.2d 617 (7th Cir. 1975); cf. Erdahl v. Commissioner [91-1 USTC ¶50,184 ], 930 F.2d 585 (8th Cir. 1991) (knowledge of transaction not an absolute bar to innocent spouse status). Further, if there is any factual or legal basis for the deduction or credit at the time it is taken, i.e., if a fully informed spouse would join in the claim, the innocent spouse defense is not available. Purcell [87-2 USTC ¶9479 ], 826 F.2d at 474.

It is evident from the record that Debtor-Appellant cannot be an innocent spouse under this standard. Debtor-Appellant nowhere claims that she was unaware of the transactions into which her late husband entered. All evidence is that she was aware of the transactions and approved of them. Further, she nowhere claims that there was no apparent basis for the tax credit at the time they were taken. Indeed, she claims the opposite. She states that the tax credits were disallowed because of changes in the tax law made some years after the credits were claimed. (Mot. for an Order Deeming Debtor an Innocent Spouse, etc., at 2.) Based on Debtor-Appellant's representation that the credits had a reasonable basis in law taken, the Court is compelled to hold that she is not an innocent spouse.

Since Debtor-Appellant cannot be an innocent spouse, it was harmless error for the Bankruptcy Court not to consider this issue.

B. Is the burden of production and persuasion on the validity of the tax sale on Debtor-Appellant or the IRS?

The Internal Revenue Code makes a deed of sale of real property prima facie evidence of the facts therein stated. 26 U.S.C. §6339(b)(1) . While the IRS is held to strict compliance with Internal Revenue Code procedures before a tax sale can be valid, see Thatcher v. Powell, 19 U.S. (6 Wheat.) 119, 5 L.Ed. 221 (1821), once the deed of sale is produced, the burden shifts to the party challenging the sale to show that the tax sale was invalid.

Debtor-Appellant raised two objections to the validity of the tax sale procedures. First, she claimed that the notice provisions were inadequate because the IRS did not publish notice in a newspaper "generally circulated within the county wherein [the] seizure is made," as required by 26 U.S.C. §6335(b) . The parties agree that the IRS published a notice containing the information specified by 26 U.S.C. §6335(b) in The Herald, a weekly publication. The Bankruptcy Court found as a matter of fact that The Herald was a newspaper of general circulation.

Debtor-Appellant points out that The Toledo Blade has a wider circulation than The Herald, and asks this Court to hold that the Bankruptcy Court was clearly erroneous in its determination that The Herald is a newspaper of general circulation, because it is not the most widely circulated newspaper in the area. This the Court cannot do. The statute does not specify that the IRS utilize the most widely circulated newspaper in the area; it requires only that a newspaper of general circulation be used. The Bankruptcy Court's determination that The Herald is generally circulated in the county where the property is located is not clearly erroneous.

Debtor-Appellant's second objection is that the seizure of her residence was not approved in writing by a district director or assistant director of the IRS. The Internal Revenue Code generally makes the principal residence of a taxpayer exempt from levy. 26 U.S.C. §6334(a)(13) . Levy on a principal residence is permitted only if (1) a district director or assistant director of the IRS personally approves such a sale in writing, or (2) the Secretary finds that the collection of tax is in jeopardy. 26 U.S.C. §6334(e) . In this case, the signature line for the district director in the form approving the sale contains a stamped "acting for," followed by the signature "Joseph Briacombe." Joseph Briacombe was the acting district director at the time the sale was approved.

Debtor-Appellant claims that the signature line "appears to have been signed by Ronald K. Zielinski, the Group Manager in the Toledo District." (Addendum to Mot. for Order Deeming Debtor an Innocent Spouse, etc., at 7.) However, she provides no evidence beyond her speculation that Joseph Briacombe did not, in fact, sign the form. As Debtor-Appellant herself admits, it "is simply speculation as to who signed the Notice of Levy form." (Reply Brief at 2-3.) The conclusion that the signature on the Notice of Levy form is Joseph Briacombe's is not clearly erroneous. In the absence of hard evidence to the contrary, the presumption that the sale was validly conducted stands.

The Bankruptcy Court correctly placed the burden of showing that the tax sale was not validly conducted on Debtor-Appellant. She failed to discharge this burden. Since Debtor-Appellant never rebutted the presumption of validity given in the controlling statute, the IRS was not required to come forth with evidence of the sale's validity.

C. Should the Bankruptcy Court have granted Debtor-Appellant's request for an evidentiary hearing on the issues of her status as an innocent spouse and the possibility of procedural defects in the tax sale?

As this Court has already held, supra, the Bankruptcy Court should have determined whether Debtor-Appellant was an innocent spouse, but this determination could have been made on the record before the Bankruptcy Court. The failure of the Bankruptcy Court to hold an evidentiary hearing was not error.

As to the issue of procedural defects in the tax sale, the Court finds that Debtor-Appellee should have been permitted to present evidence that Joseph Briacombe did not sign the form that bears his name. Such evidence need not have been presented at an evidentiary hearing, but might have been produced by affidavit or deposition testimony. The Bankruptcy Court did in fact grant Debtor-Appellant until August 30, 1995 to present evidence to sustain her position. During this period, she could have marshaled whatever evidence was available that Briacombe did not sign the Notice of Levy. Her procedural rights were adequately protected.

The Bankruptcy Court found as a matter of fact on September 15, 1995 that the signature was not inadequate. He had available to him all of the evidence produced by Debtor-Appellant to that date. In her appeal and reply briefs of October 19 and November 13, 1995 , Debtor-Appellant still has been unable to provide any evidence that the form in issue was not signed by an individual with authority. This Court cannot say that the Bankruptcy Court's failure to provide Debtor-Appellant with an evidentiary hearing denied her due process.

It was not necessary for the Bankruptcy Court to provide Debtor-Appellant an evidentiary hearing on her innocent spouse defense and the validity of the tax sale procedures.

D. The Bankruptcy Court's interpretation of 26 U.S.C. §6334(e) .

Debtor-Appellant claims that the Bankruptcy Court erred as a matter of law by holding that the signature of a director or assistant director was not required on the Notice of Levy form. This Court is unable to find any indication that the Bankruptcy Court so held. The Bankruptcy Court's decision appears to rest not on a legal conclusion that such a signature was not required, but on a factual conclusion that an approved signature did in reality appear on the Notice of Levy form. The Bankruptcy Court did not err in its interpretation of 26 U.S.C. §6334(e) .

CONCLUSION

The Bankruptcy Court committed no reversible error when it granted Appellees' Motion for Relief from Stay. The Order of the Bankruptcy Court is, therefore, affirmed.

IT IS SO ORDERED.

 

 

[97-2 USTC ¶50,853] Sara Joy Militello, Plaintiff v. Michael W. Bardell, a/k/a/ M. Barr, Mike Barr, M. Bardell, in his Official Capacity as Revenue Officer with the Internal Revenue Service and the United States of America, Defendants

U.S. District Court, Mid. Dist. Fla., Tampa Div., 96-2249-CIV-T-17C, 7/10/97 , 970 FSupp 1022.

[Code Sec. 7402 ]

Levies: Homestead property: State exemptions: Tax liens: Attachment of: Suits against the government: Sovereign immunity: IRS employee: Qualified immunity.--The IRS properly levied against an individual's homestead property in satisfaction of her tax liabilities. The IRS agent who initiated the levy had qualified immunity from suit because he acted within his discretionary authority. Also, after the government was substituted as defendant in the action, it was immune from any lawsuit with respect to which it did not consent to be a party. The taxpayer's arguments that this case met certain exceptions to the sovereign immunity of the government were meritless because her case was not a tax refund appeal, she did not pay her taxes before bringing suit, and the government no longer had a lien interest in the property at the time of the lawsuit. A state homestead exemption statute did not shield her property from attachment of a tax lien. The government had placed a lien against her property and the state statute did not govern the validity of such tax liens. Also, Code Sec. 6334 does not provide an exception for homestead property, and no judicial intervention is needed for an administrative levy under Code Sec. 6331.

Sara Joy Militello, pro se.

ORDER ON MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

KOVACHEVICH, Chief District Judge:

This cause is before the Court on the following motions and responses:

Defendants' Motion to Dismiss (Dkts. 7, 8)

Plaintiff's Motions for Summary Judgment (Dkts. 11, 14)

Defendants' Opposition to Plaintiff's Second Motion for Summary Judgment (Dkt. 16)

Plaintiff's Response to Defendants' Opposition to Plaintiff's Motion for Summary Judgment (Dkt. 13)

I. Standard of Review

This Court must read Plaintiff's pro se allegations in a liberal fashion. Haines v. Kerner, 404 U.S. 519 (1972). Plaintiff's complaint should not be dismissed for failure to state a claim unless it appears beyond a reasonable doubt that Plaintiff can prove no set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). A trial court, in ruling on a motion to dismiss, is required to view the complaint in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232 (1974). The allegations in the complaint should be taken as admitted by Defendants and liberally construed in favor of the plaintiff. Jenkins v. McKeithen, 395 U.S. 411, 421 (1969).

II. Statement of Facts

The Internal Revenue Service ("IRS") made assessments against Plaintiff for tax liabilities for the tax years of 1987, 1988, 1989, and 1990.

On August 14, 1995 , Defendant, Revenue Officer Mike Barr, filed with the Hillsborough County Official Records a notice of Federal Tax Lien on Plaintiff's property for the unpaid tax balances from 1987 to 1990. Plaintiff, the paramount owner of the property, held a fee simple title to the real property at issue in Hillsborough County , Florida .

Plaintiff maintains that the United States must seek a judicial sale of the property to foreclose a Federal Tax Lien under 28 U.S.C. §2410.

On April 25, 1996 , Plaintiff alleges that Mike Barr, in his official capacity, violated the law when he offered Plaintiff's homestead property at a public auction for sale to a third-party bidder for $14,100. Defendant, Mike Barr, sold the property subject to a prior mortgage from Meritor Savings Bank. Plaintiff alleges that her property is exempt from a forced sale under Article 10, Sec. 4(a) of the Florida Constitution.

Plaintiff asserts that Article 4, Sec. 4(a) of the Florida Constitution provides three provisions under which a lien may be recorded and enforced against a homestead property. They include a mechanic's lien, property tax, and money purchase mortgage.

Plaintiff further maintains that Defendant, Mike Barr, acted wrongfully, fraudulently, and without legal authority in the filing a notice of lien, seizing and selling Plaintiff's homestead property.

Accordingly, Plaintiff requests this Court to set aside the sale of her "homestead property" as void, and return the property to Plaintiff.

III. The Government's Motion to Dismiss

A. Defendant Mike Barr

Defendants, the United States of America , (hereinafter, "the Government") claim that a suit against IRS employees in their official capacity is a suit against the United States . Since Mike Barr is a Revenue Officer with the IRS, the Government argues that Mike Barr should be dismissed as a Defendant in this action.

The Court agrees with the Government's contention that this is a suit against the United States . The Court therefore grants the Government's motion to dismiss Mike Barr as a defendant in this action. Rosado v. Curtis, 885 F.Supp. 1538, 1542 (M.D. Fla. 1995), aff'd 84 F.3d 437 (11th Cir. 1996), cert. denied 117 S.Ct. 689 (1997).

B. Immunity As To The United States

The Government asserts that the doctrine of sovereign immunity bars any lawsuits against the United States . Further, a party cannot sue the United States without its consent. See United States v. Dalm [90-1 USTC ¶50,154; 90-1 USTC ¶60,012], 494 U.S. 596, 608 (1990); United States v. Sherwood, 312 U.S. 584, 586 (1941). The Government further alleges that "the waiver of the United States ' immunity from suit must be strictly construed, unequivocally expressed, and cannot be implied." United States v. King [69-1 USTC ¶9410], 395 U.S. 1, 4 (1969).

In Plaintiff's Complaint (Dkt. 1), Plaintiff alleges that this Court has subject matter jurisdiction of her claims pursuant to 28 U.S.C. §§1346(a)(1), 2410(c), and 7804(b). The Court considers these sections below.

1. Section 1346

With respect to the 28 U.S.C. §1346(a)(1), this Court has held that §1346(a)(1) applies to tax refund cases only. Also, the Court requires the taxpayer to pay the tax assessment before challenging the validity of §1346(a)(1) in court. Rosado, 885 F.Supp. at 1542. In this case, Plaintiff is not seeking a tax refund, but is seeking instead to have the sale of her home set aside. See Young v. I.R.S. [84-2 USTC ¶9860], 596 F.Supp. 141, 147 (N.D. Ind. 1984) (stating that the Government reserves its immunity regarding claims arising out of tax assessment and collection). As to Section 1346, the Court finds that sovereign immunity bar this case.

2. Sections 2410(c) and 7804(b)

Under 28 U.S.C. §2410, "the United States may be joined as a party to a quiet title action affecting property upon which it claims a lien." Erickson v. Unites States, 780 F.Supp. 733, 736 (W.D. Wash. 1990), aff'd 952 F.2d 1399 (9th Cir. 1992). See also MacElvain v. United States [94-2 USTC ¶50,531], 867 F.Supp. 996, 1003 (M.D. Ala. 1994) (stating that the purpose of a quiet-title action §2410 is to "determine who owns the title to the real or personal property over which the United States has asserted some interest").

While it is true that §2410 waives sovereign immunity as to actions contesting the procedural validity of a tax lien, Section 2410 does not apply to Plaintiff's claim. At the time when Plaintiff commenced this action, the Government no longer had a lien interest in the property at issue. Since the Government had already sold the property prior to the filing of the suit, and no longer claimed any interest in the property, §2410 does not apply. Bay Savings Bank, F.S.B. v. I.R.S., 837 F.Supp. 150, 153 (E.D. Va. 1993); Hughes v. United States [92-1 USTC ¶50,086], 953 F.2d 531, 538 (9th Cir. 1992). Finally, " §2140 should not be read to provide a means of disturbing a sale long since final." Erickson, 780 F.Supp. at 736.

With respect to 28 U.S.C. §7804(b) as basis for jurisdiction, no such section exists.

This Court therefore concludes that neither §2410(c) nor §7804(b) contains a waiver of sovereign immunity that is applicable to this case. As stated above, these sections do not provide a basis for the Court to exercise subject matter jurisdiction of Plaintiff's claim against the Government.

C. Florida's Homestead Exemption

The Government alleges that the IRS has authority to seize and sell Plaintiff's homestead property to satisfy a federal tax lien. The Government relies on 26 U.S.C. §6331(a) and (b).

Section 6331(a) and (b) provide:

(a) AUTHORITY OF SECRETARY. If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax by levy upon all property and rights to property (except such property as is exempt under Section 6334) belonging to such person or on which there is a lien provided in this Chapter for payment of such tax . . .

b) SEIZURE AND SALE OF PROPERTY. The term "levy" as used in this title includes the power of distraint and seizure by any means. Except as otherwise provided in this subsection (e), a levy shall extend only to property possessed and obligations existing at the time thereof. In any case in which the Secretary may levy on property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible).

Plaintiff argues that her residential property is a homestead property, and is therefore exempt from the forced sale by the IRS. Article 10, Section 4(a) of the Florida 's Homestead Exemption Statute is inapplicable here. A party cannot use a state's homestead exemption statute against the United States in its attempt to enforce a federal tax lien. United States v. Rodgers [83-1 USTC ¶9374], 461 U.S. 677, 700 (1983).

Additionally, this Court has consistently held that 26 U.S.C. §6334(a) and (c) do not provide an exception for homestead property. Thompson v. Adams , 685 F.Supp. 842, 846 (M.D. Fla. 1988). See also United States v. Mitchell [71-1 USTC ¶9451], 403 U.S. 190, 204-05 (1971); United States v. Estes [71-2 USTC ¶9677], 450 F.2d 62, 65 (5th Cir. 1971) (stating that the homestead exemption does not erect a barrier around a taxpayer's home sturdy enough to keep out the Commissioner of Internal Revenue).

Plaintiff further contends that a judicial foreclosure was necessary to sell her property. However, the administrative levy provided for in §6331 does not require any judicial intervention. Rodgers [83-1 USTC ¶9374], 461 U.S. at 682-83. The Court therefore grants the Government's motion to dismiss Plaintiff's Florida Homestead Exemption claim.

IV. Summary Judgment

Summary judgment is appropriate if 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); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "The substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of a summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. The moving party bears the burden of proving that no genuine issue of material facts exists. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986).

In determining whether a material fact exits, the Court must consider all evidence in the light most favorable to the non-moving party. Sweat v. The Miller Brewing Co. , 708 F.2d 655 (11th Cir. 1983). All doubt as to the existence of a genuine issue of material fact must be resolved against the moving party. Anderson, 477 U.S. at 255.

I. Immunity As To Defendant Mike Barr

Plaintiff alleges that Defendant, Mike Barr, was acting in bad faith in his official capacity as an IRS agent. Plaintiff further alleges that Defendant, Mike Barr, willfully and knowingly filed a Federal Tax Lien on Plaintiff's residential property. Plaintiff cites to Larson v. Domestic & Foreign Commerce Corporation, 337 U.S. 682 (1949) as support for her claim. In Larson, the United States Supreme Court held that "an officer of the government [who] wrongfully takes or holds specific property to which Plaintiff has title then his taking or holding is a tort, and 'illegal' as a matter of general law, whether or not it be within his delegated powers." Larson, 337 U.S. at 692.

The above case is inapplicable to the instance case, i.e., the United States does have a legitimate lien against Plaintiff's property. See Plaintiff's Complaint (Dkt. 1), Ex. #3 and Ex. #5.

Additionally, this Court agrees with the Government's contention to drop Mike Barr as a defendant in this action. See Rosado 885 F.Supp. at 1542. Even if Defendant Mike Barr should remain as a defendant in this action, he is still entitled to qualified immunity. Id. at 1543. As submitted in Plaintiff's Affidavit (Dkt. 21), Ex. #2 and Ex. #3 clearly show that Defendant, Mike Barr, was acting within his discretionary authority as an IRS agent at the time when he filed a Federal Tax Lien on Plaintiff's homestead property. Accordingly, the Court finds Defendant Mike Barr is entitled to qualified immunity.

II. Sovereign Immunity

Plaintiff also claims that the Government should not be entitled to sovereign immunity because it failed to respond to Plaintiff's request for the "release of levy" of her property. As stated above, the Government is not subject to 28 U.S.C. §2410 since at the time when Plaintiff commenced this action, the United States no longer claimed a lien or a mortgage on Plaintiff's property. Hughes [92-1 USTC ¶50,086], 953 F.2d at 538. See Defendants' Opposition to Plaintiff's Second Motion for Summary Judgment (Dkt. 16), Ex. #1.

Plaintiff further argues that the Government puts forth a false assertion in its Motion to Dismiss (Dkt. 7 and Dkt. 8). Plaintiff asserts that at the time when the Government filed its motion to dismiss, the Government still had an ownership interest in the property at issue. Plaintiff points to the issuance date of the Deed of Real Estate on January 8, 1997 . Since the Government filed its Motion to Dismiss on January, 6, 1997, which was before the issuance date of the Deed, Plaintiff contends that the Government still claimed an interest in Plaintiff's homestead property.

The Government claims that it could not issue a Deed of Real Estate at the time of sale in June 1996. Instead, it had to wait 180 days after the date of sale to give Plaintiff the opportunity to redeem the property under 28 U.S.C. §6337. During this 180-day period, the United states no longer retained any interest in the sold property.

This Court agrees with the Government's contention that at the time when the Government sold Plaintiff's homestead property on June 5, 1996 , it ceased to retain any interest in the property during the 180-day period. The fact that the county did not issue a Deed of Real Estate until January 6, 1997 is consistent with the 180-day requirement under 28 U.S.C. §6337. This Court denies Plaintiff's Motion for Summary Judgment under the sovereign immunity claim.

III. Florida Homestead Exemption Claim

Plaintiff cites Meyer v. United States [64-1 USTC ¶9111], 375 U.S. 233 (1963) to support her position that "property and rights to property" are measured by policy contracts as enforced by applicable state law. The Supreme Court in Meyer states that "absent a lien, recovery of federal income taxes can be had only to the extend applicable state law permits such recovery." Meyer [64-1 USTC ¶9111], 375 U.S. at 236.

This Court finds Plaintiff's argument unavailing. In this case, the United States did place a lien on Plaintiff's property for back taxes owed. Plaintiff contradicts herself when she alleges that the United States still "claims a lien or mortgage on her property" in defeating the Government's sovereign immunity claim. At the same time, Plaintiff claims that the United States cannot place a lien on her residential property because it is homestead property. See Plaintiff's Response to Defendants' Opposition to Plaintiff's Motion for Summary Judgment (Dkt. 13), pp. 3-8.

Plaintiff also relied on City of Tampa for Use and Benefit of City of Tampa Code Enforcement Bd. v. Braxton, 616 So.2d 554 (Fla. 2d DCA 1993) to support her contention that homestead property is not subject to lien or "notices of lien" by any person.

The Supreme Court has held that "the relative priority of federal tax liens is always a federal question to be determined finally by the federal courts." United States v. Acri [55-1 USTC ¶9138], 348 U.S. 211, 213 (1955); United States v. Security Trust & Savings Bank of San Diego [50-2 USTC ¶9492], 340 U.S. 47, 49 (1950). Plaintiff's reliance on state law authority is inapplicable here.

Finally, as stated above, Florida 's Homestead Exemption statute does not prevent a federal tax lien from attaching to Plaintiff's property. Thompson, 685 F.Supp. at 842. For the reasons stated, the Court denies Plaintiff's Motion for Summary Judgment on the Florida Exemption Claim. Accordingly, it is

ORDERED that Defendants' Motion to Dismiss (Dkt. 7) is granted, and Plaintiff's Motions for Summary Judgment (Dkt. 11 and Dkt. 14) is denied. The Clerk of Court shall enter a final judgment of dismissal.

DONE AND ORDERED.

 

 

 

 

 

 

[62-2 USTC ¶9773]Raymond Weitzner, Administrator of the Estate of Joe H. Weitzner, Deceased, Lillie Weitzner, Raymond Weitzner, and Virginia Raider, Appellants v. United States of America, Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 19248, 309 F2d 45, 10/17/62

[1954 Code Sec. 6321]

Lien for taxes: Florida homestead: Nature of property rights in taxpayer.--The 5th Circuit Court of Appeals affirmed the judgment of the District Court that the full property rights were lodged in the decedent taxpayer in Florida homestead property, prior to his demise, and at the time Federal income tax liens attached, notwithstanding the deceased taxpayer's power to alienate was somewhat curtailed, and he was deprived of the right to devise the same, while it retained its homestead character, by Article X of the state constitution. Therefore, the widow's life estate and the remainder interest of the surviving children, which interest came into being upon the taxpayer's death, were subject to the incumbrances of the first mortgage and income tax liens.

Aaron M. Kanner, Richard Kanner, Security, Trust Bldg., Miami , Fla. , for appellants. Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, John B. Jones, Acting Assistant Attorney General, John J. Gobel, A. F. Prescott, Department of Justice, Washington 25, D. C., Edward F. Boardman, United States Attorney, Lloyd G. Bates, Jr., Assistant United States Attorney, Miami, Fla., for appellee.

Before RIVES, JONES, and GEWIN, Circuit Judges.

JONES, Circuit Judge:

Before considering the merits of this appeal we dispose of the motion of the appellant to certify the case to the Supreme Court of Florida under Florida Statutes §25.031 and Florida Appellate Rule No. 4.61. This motion was carried with the case. It is denied.

The facts are stipulated. By the stipulation it is shown that, on December 12, 1946, Joe H. Weitzner purchased a parcel of land in Dade County , Florida , upon which a dwelling had been erected. He and his wife promptly occupied the property and resided upon it until his death on October 9, 1956. At the time of the purchase and at all times thereafter Weitzner and his wife were the parents of two grown children, neither of whom ever resided upon the property. In January of 1954, federal income tax assessments were made against Joe H. Weitzner in the amount of $125,717.63 for tax deficiencies for 1942 and 1943. A tax lien notice was filed in the office of the Clerk of the Circuit Court of Dade County, Florida, on April 9, 1954. On August 17, 1956, Joe H. Weitzner, without joinder of his wife, executed a deed, without valuable consideration, purporting to convey the property to his wife. The United States brought suit to foreclose its tax lien. Joined as defendants were the widow of Joe H. Weitzner, his two children and the administrator of his estate. It was the contention of the defendants that, although exemptions do not generally preclude the United States from levying upon property for the satisfaction of tax liens, the Florida Constitution and statutes gave to the wife and children of Weitzner, at the time the property was acquired and occupied as homestead, a vested property interest and estate which is separate and apart from the the title of the husband. This property interest, the widow and children contend, cannot be attached for obligations which they did not incur and for which they are not liable. The interest of the husband in the property they assert, was not such an interest as could be levied upon and sold separate from the interests of widow and children. The district court held that Weitzner had full property rights in the homestead and the constitutional and statutory restrictions upon his power to convey and devise the homestead property did not prevent the tax lien from attaching nor prevent its foreclosure. The court's decree directed the foreclosure of the tax lien and the sale of the property. The widow, the children and the administrator have appealed.

Homestead in Florida is created and governed by the State Constitution ¹ and Statutes. ² There are, as clearly appears, two aspects of homestead in Florida, ³ the exemption from judicial sale and the transfer of title by conveyance, devise or descent. As Mertens has said, "It is well settled that state exemption laws do not protect property against federal tax liens . . . Nevertheless, there is a conflict in the cases as to whether a tax lien is valid upon a homestead interest. The resolution of this issue may depend upon whether there is involved a single interest of the taxpayer who is subject to tax liability, or whether both spouses have an interest while only one is under a tax liability." 9 Mertens Law of Federal Income Taxation, Ch. 54, p. 102, §54.52. If it is determined that a wife does not have, during the lifetime of her husband, a property right in a homestead where the title is in his name alone, we need proceed no further and the Government should prevail.

It has long been settled that the homestead provisions of the Florida Constitution do not create property rights in the husband, wife or children. They are exemption provisions and these provisions inure to the widow and heirs if, by the laws of descent the homesteader's title is cast upon them. Hinson v. Booth, 39 Fla. 333, 22 So. 687; Johns v. Bowden, 68 Fla. 32, 66 So. 155; 1 Redfearn, Wills and Administration of Estates in Florida 416, §232; 16 Fla. Jur. 273, Homesteads §3. The Constitution restricts and the statute prohibits the testamentary disposition of homestead. The provisions for the descent of homestead are no more than they purport to be--provisions for the transfer of the homestead property from the homesteader-owner to those designated by the statute as entitled to inherit from him, and fixing the nature of the estates which the law casts upon them at his death. Such provisions neither diminish the character of the estate of the homesteader nor create any ownership interest in the wife. The requirement for the consent of the wife to the alienation of the homestead does not create or recognize a property interest in her.

The wife, in order to acquire the property, or interest in it, must survive her husband, the husband and wife relationship must exist at the time of his death, and the property must have been occupied at the time of his death by a family of which the husband was the head. The homestead was designed for the purpose of protecting the head of the family by securing to him a shelter for himself and the members of his family. Hill v. First National Bank, 79 Fla. 391, 84 So. 190, 20 A. L. R. 270. The rights of a wife to the benefit of this protection during her husband's lifetime are marital rights rather than property rights. As in the case of inchoate dower, ⁴ that which the wife has during her husband's lifetime with respect to homestead ownership is remote, uncertain and a mere expectancy or possibility and not a vested property right, interest or title. It follows that the tax liens of the United States were and are valid and enforceable against the property claimed as homestead. The judgment of the district court is

AFFIRMED.

¹ Section 1. Homestead defined; nature of exemption.

Section 1:--A homestead to the extent of one hundred and sixty acres of land, or the half of one acre within the limits of any incorporated city or town, owned by the head of a family residing in this State, together with one thousand dollars worth of personal property, and the improvements on the real estate, shall be exempt from forced sale under process of any court, and the real estate shall not be alienable without the joint consent of husband and wife, when that relation exists. But no property shall be exempt from sale for taxes or assessments, or for the payment of obligations contracted for the purchase of said property, or for the erection or repair of improvements on the real estate exempted, or for house, field or other labor performed on the same. The exemption herein provided for in a city or town shall not extend to more improvements or buildings than the residence and business house of the owner; and no judgment or decree or execution shall be a lien upon exempted property except as provided in this Article.

Section 2. Exemption to inure to widow and heirs.

Section 2:--the exemptions provided for in section one shall inure to the widow and heirs of the party entitled to such exemption, and shall apply to all debts, except as specified in said section.

* * *

Section 4. Alienation of homestead.

Section 4:--Nothing in this article shall be construed to prevent the holder of a homestead from alienating his or her homestead so exempted, by deed or mortgage duly executed by himself or herself, and by husband and wife, if such relation exists; nor if the holder be without children to prevent him from disposing of his or her homestead by will in a manner prescribed by law. Fla. Const. Art. X.

² Any property, real or personal, held by any title, legal or equitable, with or without actual seisin, may be devised or bequeathed by will; provided, however, that whenever a person who is head of a family, residing in this state and having a homestead therein, dies and leaves either a widow or lineal descendants or both surviving him, the homestead shall not be the subject of devise, but shall descend as otherwise provided in this law for the descent of homesteads. Fla. Stat. Ann. §731.05.

The homestead shall descend as other property; provided, however, that if the decedent is survived by a widow and lineal descendants, the widow shall take a life estate in the homestead, with vested remainder to the lineal descendants in being at the time of the death of the decedent. Fla. Stat. Ann. §731.27.

The homestead shall not be included in the property subject to dower but shall descend as otherwise provided by law for the descent of homesteads. * * * Whenever the decedent has died intestate leaving no lineal descendants and the widow has duly elected dower, all property of the decedent not included in the widow's dower shall descend to her subject to the debts of the decedent except that the homestead of the decedent shall descend to her with the exemptions provided by the constitution. Fla. Stat. Ann. §731.34.

³ We omit, as wholly inapplicable, any consideration of the homestead tax exemption in Florida . Fla. Const. Art. X, Section 7.

⁴ See 11 Fla. Jur. 55, Dower §21, and cases there cited.

 

 

 

 

 

 

 

[2000-2 USTC ¶50,632] United States of America , Plaintiff v. Michael J. Stalker, a/k/a Michael John Stalker, Gabriele Stalker, and Crystal River Bank, a Florida Banking Association, Defendants

U.S. District Court, Mid. Dist. Fla., Ocala Div., 5:99-CV-15-Oc-10C, 6/6/2000

[Code Secs. 6321 and 7403 ]

Tax liens: Validity and priority: Fraudulent conveyance.--A delinquent spouse's transfer of property he purchased to his nondelinquent spouse was void under the state's (Florida) fraudulent conveyance statute since the transfer was not made in exchange for adequate consideration, and the delinquent spouse admitted the transfer was made to avoid paying his tax liability. Consequently, the IRS's lien on the property was valid.
[Code Secs. 6321 and 6334 ]

Tax liens: Validity and priority: State exemptions: Florida homestead: Nature of property right.--A state (Florida) homestead exemption did not afford a nondelinquent spouse protection against federal tax liens assessed against her delinquent husband, because, under the rationale adopted by the Fifth Circuit Court of Appeals (R. Weitzner (CA-5), 62-2 USTC ¶9773 ), she did not have a vested right in the property purchased by her husband. The state's requirement that a spouse consent to the alienation of the homestead, in and of itself, did not create a property right.

[Code Sec. 6323 ]

Tax liens: Validity and priority: Mortgage: Priority of liens.--A mortgage taken out by a married couple on their homestead was valid even though the nondelinquent wife did not have an ownership interest in the property at the time the mortgage was entered into. Rather, the mortgage was properly executed and the interest of the bank holding the mortgage was entitled to priority over the later-filed IRS tax liens.

ORDER

HODGES, District Judge:

Plaintiff, the United States of America , has filed this action seeking inter alia to collect certain unpaid income tax liabilities assessed against Defendant Michael J. Stalker. The case is now before the Court on the Plaintiff's motion for summary judgment (Doc. 23) and on Defendant Gabriel Stalker's response and cross motion for summary judgment (Doc. 30). Upon due consideration, the Court has determined that the Plaintiff's motion is due to be Granted.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts appear undisputed in the record. On or about February 10, 1995 , Defendant Michael J. Stalker sold his residence (located in Germany ) for the sum of $215,667.00. Subsequently, on February 15, 1995 , Michael Stalker purchased a parcel of real property located at 9160 N. Rainelle Avenue, Crystal River, Citrus County, Florida ("the subject real property") (Doc. 23, Exh. E). The purchase was made by wire transfer of $65,964.34 from the Navy Federal Credit Union to the title company that handled the sale. On October 20, 1995 , Michael Stalker then conveyed this property to his wife, via Quitclaim Deed, which was recorded in the Citrus County Public records on October 24, 1995 . (Doc. 23, Exh. F).

Upon receiving an extension from the Internal Revenue Service, Michael Stalker filed his 1995 income tax return on June 12, 1996 (Doc. 23, Exh. A). The return reflected a tax liability in the amount of $62,933.00, the result of a capital gain from the sale of his residence in Germany . On July 15, 1996 , the United States assessed a total tax liability of $65,155.83 (including taxes owed, interest and fees) against Michael Stalker, giving him notice and demand for payment of this amount for the 1995 tax year. (Doc. 23, Exh. B). The Plaintiff filed its notice of federal tax lien on January 14, 1997 . (Doc. 23, Exh. D).

On September 9, 1997 , Gabriele Stalker executed, a promissory note for $16,368.48. (Doc. 23, Exh. C). On that same day, Gabriele and Michael Stalker executed a Mortgage secured by the subject real property in favor of Defendant Crystal River Bank (Doc. 23, Exh. C).

The United States commenced this action on January 22, 1999 with the filing of a complaint (Doc. 1) seeking: to collect certain outstanding federal income tax liabilities assessed against Defendant Michael Stalker; to set aside the allegedly fraudulent transfer of property, via Quitclaim Deed, from Michael Stalker to Gabriele Stalker; to foreclose federal tax liens against the subject property; to sell such property and apply the proceeds to Michael Stalker's federal tax liabilities; and to obtain a deficiency judgment against Michael Stalker for any of his tax liabilities not satisfied by the foreclosure and sale. Defendant Crystal River Bank was joined as a party to this action, pursuant to section 7403(b) of the Internal Revenue Code, as a person who has or may have an interest in the subject real property.

The Plaintiff has now moved for summary judgment pursuant to Fed.R.Civ.P. 56. In so doing, the Plaintiff contends that no material fact issues remain and that it is entitled to judgment as a matter of law that the conveyance, via Quitclaim Deed, was a "fraudulent transfer" pursuant to Florida's Uniform Transfer Act, §§726.101 et seq., Fla. Stat. (1999), and that the United States has a valid federal tax lien on the subject real property.

In response, Defendant Gabriele Stalker, as the alleged holder of the subject property, has filed a memorandum of law and "simultaneous" motion for summary judgment "to confirm and establish her percentage interest and the priority of such interest in her spouse's homestead property. . . ." (Doc. 30). Defendant Michael Stalker has filed no response.

As a preliminary matter, the Court notes that the Defendants do not challenge the existence of the assessed tax liability. Nor do they deny that the property was conveyed in an attempt to avoid federal tax liability. Rather, in opposing summary judgment, Gabriele Stalker alleges, in essence, that the subject property is exempt from federal tax liens because it is entitled to protection under Florida 's homestead exemption. ¹ Both the Plaintiff and Defendant Crystal River Bank have filed responses opposing Defendant's motion for summary judgment.

STANDARD

The entry of summary judgment is appropriate only when the Court is satisfied that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the Court must examine the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits and other evidence in the record "in the light most favorable to the non-moving party." Samples on Behalf of Samples v. Atlanta , 846 F.2d 1328, 1330 (11th Cir. 1988). The moving party bears the initial burden of establishing the nonexistence of a triable fact issue. Celotex Crop. Catrett, 477 U.S. 317, 106 S.Ct. 2458, 91 L.Ed.2d 265 (1986). If the movant is successful on this score, the burden of production shifts to the non-moving party who must then come forward with "sufficient evidence of every element that he or she must prove." Rollins v. Techsouth, 833 F.2d 1525, 1528 (11th Cir. 1987). The non-moving party may not simply rest on the pleadings, but must use affidavits, depositions, answers to interrogatories, or other admissible evidence to demonstrate that a material fact issue remains to be tried. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.

Defendant's Motion for Summary Judgment

Defendant Gabrielie Stalker argues that the subject property is exempt from federal tax liability due to Florida 's homestead exemption. For the reasons set forth below, however, the Defendant's argument is without merit because Florida 's homestead exemption, in and of itself, neither creates a vested property interest in the spouse nor shields homestead property from federal tax liability. ²

It has long since been established that Florida 's Homestead exemption "does not erect a barrier around a taxpayer's home sturdy enough to keep out the Commissioner of the Internal Revenue Service." U.S. v. Estes [71-2 USTC ¶9677], 450 F.2d 62, 65 (5th Cir. 1971). Section 6321 of the Internal Revenue Code provides for a Federal Tax Lien to attach to any property and rights to property, real or personal, belonging to any individual liable to pay any tax who neglects or refuses to pay such tax after demand is made. See 26 U.S.C. §6321; In re McFadyen, 216 B.R. 1006, 1008 (M.D. Fla. 1998). A general tax lien arises by operation of law if a person is unable to pay tax liability after demand is made for the payment. 26 U.S.C. 6321; Suarez v. United States [95-1 USTC ¶50,268], 182 B.R. 916 (S.D. Fla. 1995); Veigle v. U.S., 888 F.Supp. 1134, 1139 (1995). Section 6334(a) lists categories of property exempt from levy and provides no exception for homestead property. See id.; Thompson v. Adams , 685 F.Supp. 842, 846 (M.D. Fla. 1988). Section 7403(a) of the Internal Revenue Code provides that the lien may be enforced as follows:

In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he as any right, title, or interest, to the payment of such tax or liability. . . .

26 U.S.C. §7403(a) (emphasis added).

In United States v. Rodgers, the Supreme Court provided some guidance into the complex "relationship between the imperatives of federal tax collection and rights accorded by state property laws." [83-1 USTC ¶9374], 461 U.S. 677, 680, 103 S.Ct. 1232, 2135 (1983). The Rodgers Court determined that the homestead exemption created in the Texas Constitution gave each spouse in a marriage a "separate and undivided possessory interest in the homestead. . . ." Id. at 2138. The Court thus concluded that Texas ' homestead right was not mere "statutory entitlement but a vested property right." Id. at 2139 (emphasis added). As a result, the tax lien would only attach to the portion of the homestead property owned by the delinquent party, and would not apply to the innocent third party. The Court also held, however, that section 7403 empowers federal district courts, in their discretion, to order a foreclosure of the entire estate to enable the government to extract from the foreclosed property the amount owed by the delinquent taxpayer.

The question before the Court in this case, however, is whether Florida's homestead exemption ³ creates the type of "vested property right" at issue in Rodgers. This question appears to have been answered in the negative by the Fifth Circuit, however, long before the Supreme Court's decision is Rodgers. In Weitzner v. United States, the Fifth Circuit addressed the nature of Florida 's homestead exemption in applying Florida 's homestead provision in a case remarkably similar to the one at hand. The Fifth Circuit noted that "[i]f it is determined that a wife does not have, during the lifetime of her husband, a property right in a homestead where the title is in his name alone, we need proceed no further and the government should prevail." (emphasis added). In making this evaluation, the court recognized that Florida 's requirement for the consent of the wife to the alienation of the homestead does not create or recognize a property interest in her. [62-2 USTC ¶9773], 309 F.2d 45, 48. Rather "that which the wife has during her husband's. lifetime with respect to homestead ownership is remote, uncertain, and a mere expectancy or possibility and not a vested property right, interest, or title." Id. ⁴

Accordingly, Defendant Gabriele Stalker's motion (Doc. 30) for summary judgment "to confirm and establish spousal interest in homestead property" is Denied.

Plaintiff's Motion for Summary Judgment

The United States moves for summary judgment as to whether, under Florida law, Defendant Michael Stalker fraudulently conveyed his property to his wife, Gabriele Stalker. If so, it follows that the government has a valid federal tax lien on the subject property.

Where a taxpayer has fraudulently disposed of property prior to the existence of a federal tax lien, the United States may seek relief under the applicable state fraudulent conveyance statute. Veigle, 888 F.Supp. at 1139 (citing Commissioner v. Stern [58-2 USTC ¶9594], 357 U.S. 39, 78 S.Ct. 1047 (1958)). "If the disposition of property is found to be a fraudulent conveyance, then the conveyance is vitiated, the taxpayer remains responsible for the tax liability, and the government may foreclose its liens to satisfy the taxpayer's indebtedness." Thompson, 685 F.Supp. at 845.

Section 726.105 of Florida 's Uniform Fraudulent Transfer Act, which covers transfers made to evade present and future creditors, provides as follows:

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(1) Was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(2) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

Plaintiff contends that under §726.105(1)(b), Michael Stalker's transfer of his property to his wife was fraudulent, because it was made "without receiving a reasonably equivalent value in exchange" and because the debtor knew that he had incurred debts beyond his ability to pay.

A review of the record reveals two key undisputed facts dispositive to this inquiry. First, it is undisputed that the subject property was not conveyed for a "reasonably equivalent value." Defendant Michael Stalker acknowledges in his deposition, that he received no "valuable consideration" for the property:

Q: When you made the transfer of property of the house that you live in now by quick claim [sic] deed to your wife did she give you any assets or funds in exchange for it?

A: No assets or funds. It was on the basis of good consideration rather than valuable consideration.

Q: In other words, in consideration of love and affection?

A: That's correct. Amongst other qualities.

Deposition of Michael Stalker (Doc. 24, pg. 36).

Second, the Michael Stalker states, both in his answers to interrogatories and in his deposition, that he transferred the property to his wife in order to escape federal tax liability. In his answers to the Plaintiff's second interrogatories, the Defendant states that his CPA, Ronald Cohen, advised him as follows:

with reference to how best to minimize the tax liability arising from the sale of the foreign residence in 1995, he advised that a homestead would be protected against all creditors, including the Internal Revenue Service, that income taxes could be discharged by filing bankruptcy, but that transfers of property within one year of filing would be subject to scrutiny, and that finally, in an abundance of caution, a transfer of the homestead should be made to the wife who was not liable for any preexisting debts. According to Mr. Cohen, no consideration was necessary to support transfers made between husband and wife.

Defendant's answer to Plaintiff's Second Interrogatory (Doc. 23, Exh. G). During his deposition, the Defendant acknowledges the veracity of the statements made in his answer to the Plaintiffs second interrogatory stating that it was correct to the "best-of [his] knowledge." See Deposition of Michael Stalker (Doc. 27, pgs. 32-34). ⁵

The Defendant, in responding to the Plaintiff's motion for summary judgment, does not dispute that the transfer was made to avoid tax liability. Rather, the Defendant's sole argument is that the property at issue is protected by Florida 's homestead exemption. Accordingly, the Court concludes that no material issue of fact remains as to whether the transfer of the subject property constituted a "fraudulent conveyance" under Fla. Stat. §726.105, and that as a result, the Plaintiff is entitled to avoid the transfer pursuant to Fla. Stat. §726.108(1) "to the extent necessary to satisfy the creditor's claim."

As a final matter, the Defendant Gabriele Stalker argues that the encumbrance of the subject property by mortgage held by Defendant Crystal River Bank is invalid because she did not have ownership of the property at the time the mortgage was executed. A review of the mortgage agreement reveals that it was signed by both Michael and Gabriele Stalker. Thus, even presuming that Michael Stalker still owned the property--whether due to fraudulent conveyance or due to the fact that the property was not properly conveyed--, the mortgage was properly executed. Furthermore, it appears that Defendant Crystal River Bank and the Plaintiff agree that Crystal River Bank is "the holder of a security interest" without actual notice or knowledge of the existence of a tax lien and is entitled to priority over the tax lien pursuant to 26 U.S.C. §6323(b)(1)(B). ⁶ As a result, the Plaintiff and Defendant Crystal River Bank request that any distribution of proceeds resulting from the forced sale of the subject real property should occur consistent with that priority.

Accordingly, upon due consideration:

(1) the Plaintiff's motion for summary judgment (Doc. 23) is GRANTED;

(2) the Defendant's motion for summary judgment (Doc. 30) is DENIED;

(3) Defendant Michael Stalker/taxpayer's conveyance of the subject property is VOID, by operation of 26 U.S.C. §6321, the government's tax lien attaches to the subject property located at 9160 N. Rainelle Avenue, Crystal River, Florida against Defendants Michael J. Stalker and Gabriele Stalker;

(4) upon motion made by the Plaintiff, the federal tax liens against Defendant Michael Stalker may be foreclosed by sale of the above described property in accordance with 26 U.S.C. §7403. The mortgage held by Defendant Crystal River Bank takes precedence over the United States tax liens as discussed herein, and following the satisfaction of the mortgage held by Defendant Crystal River Bank, the United States shall recover its tax assessments, interest, costs, and penalties from the sale of the subject property. To the extent that the proceeds from the sale of the property are insufficient to satisfy the government's claims, the Court shall, upon motion, enter a deficiency judgment for any government indebtedness remaining unsatisfied;

(5) the Plaintiff shall have fifteen (15) days from the entry date of this Order in which to file a motion for foreclosure and sale of the subject property.

IT IS SO ORDERED.

DONE and ORDERED.

¹ In arriving at this conclusion, the Defendant asserts three interdependent legal conclusions. First, she asserts that her husband's conveyance of the subject homestead property to her was not valid due to the fact that she did not join in the conveyance. Second, she argues that as a result of the invalid conveyance, her execution of the promissory note and securing of the note by mortgage held by Defendant Crystal River Bank is invalid. Finally, she argues that the Plaintiff's interest is inferior to her "spousal" interest in the homestead property of her husband.

² Defendant Gabriele Stalker argues that the October 15, 1995 transfer of the subject property to her was invalid, and that as a result, her subsequent encumbrance of the property by mortgage to Defendant Crystal River Bank was also invalid. She further contends that the property is not subject to the Plaintiff's lien because it is homestead property in which she has a vested property interest.

As a preliminary matter, the Court concludes that the transfer of the subject property from Defendant Michael Stalker to his wife Gabrielie Stalker, although clearly a fraudulent transfer, was not invalid, as the Defendant suggests, because it was not made by both spouses. While Florida law clearly used to provide that homestead property could only be conveyed by both spouses (even if the conveyance was from one spouse to the other), this no longer appears to be the case in Florida . See Jameson v. Jameson, 387 So.2d 351 ( Fla. 1980).

Moreover, whether the transfer of property was valid does not affect the validity of the mortgage agreement which was signed by both Michael and Gabriele Stalker.

³ Art. X, sec. 4 of the Florida Constitution provides as follows:

Section 4. Homestead ; exemptions.

(a) There shall be exempt from forced sale under process of any court, and do judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted. . . .

* * *

(b) These exemptions shall inure to the surviving spouse or heirs of the owner.

⁴ It should be noted that the issue of whether Florida's homestead exemption creates a vested property interest for the purposes of imposition of a federal tax lien is separate and distinct from the issue of whether a tenancy by entirety has been created which under Florida law, would give a husband and wife an undivided interest in a single homestead, a circumstance that might well affect a federal tax lien.

There is no allegation that the subject property in this case was either a tenancy by entirety or a tenancy in common. Rather, the warranty deed (Doc. 23, Exh. E) reflects that the property was deeded to Michael Stalker individually.

⁵ The Defendant initially states that he cannot recall the reason that his accountant (Cohen) advised him to transfer the property to his wife but upon re-reading his answer to the Plaintiff's second interrogatory, he acknowledges the veracity of his previous statement.

⁶ The United States contends that because the notice of lien was filed solely against Michael Stalker, Crystal River Bank is a holder of a security interest without prior notice pursuant to 26 U.S.C. §6323(b)(1)(B). 

 

 

 

 

[2003-1 USTC ¶50,147] In re Angel Mario Garcia and Margarita Lourdes Landron Garcia. Deborah Menotte, as Chapter 7 Trustee for the Bankruptcy Estate of Angel Mario Garcia and Margarita Lourdes Landron Garcia, Plaintiff v. United States of America, Angel Mario Garcia, Margarita Lourdes Landron Garcia and Rafaela V. Landron, Defendants.

U.S. District Court, So. Dist. Fla. ; 01-945-CIV-GOLD, September 6, 2002 .

[ Code Sec. 6323]

Tax liens: Bankruptcy: Superiority over mortgage: Interpleader: Attorneys' fees. --

The government was entitled to the full amount of interpled funds calculated in debtors' bankruptcy proceeding. The federal tax lien was superior to a mortgage. Before reaching the federal inquiry regarding priority, the court determined that the mortgage was a valid property interest under state ( Florida ) law. However, it was not a security interest that could compete with a federal tax lien. The mortgagee did not have priority over the federal tax lien because it did not meet all four conditions of a security interest as defined by Code Sec. 6323, even though the government failed to properly record the tax lien. Moreover, the bankruptcy trustee was not entitled to attorney's fees and costs because the interpled funds were insufficient to cover the government's tax liens..

[ Code Sec. 6334]

Tax liens: Bankruptcy: Homestead property exemption. --

Debtors' property and the sale proceeds that came from it were subject to a federal tax lien. The property was not exempt under state ( Florida ) law as homestead property. The federal tax lien preempted the state exemption statute; thus, the Florida homestead exemption did not immunize the debtors' homestead property from the lien..

ORDER GRANTING UNITED STATES'S MOTION FOR SUMMARY JUDGMENT

GOLD, District Judge: THIS CAUSE is before the court upon defendant United States 's (" United States ") motion for summary judgment (D.E. #92). The plaintiff, Deborah Menotte ("Trustee"), has filed an interpleader complaint against the United States , Rafaela v. Landron ("Landron"), and Angel Mario Garcia and Margarita Lourdes Landron Garcia("Garcias") for Declaratory Relief. The Trustee, as stakeholder, seeks a declaratory judgment as to who is entitled to disputed funds in the amount of $83,000, calculated in a bankruptcy proceeding in the United States Bankruptcy Court for the Southern District of Florida. ¹ The Trustee also seeks an award of costs and attorney's fees. Co-defendants Landron and the Garcias have responded to the United States 's motion, (DE #94) and (DE #95) respectively. The Trustee has also filed a limited opposition to the United States 's motion with a cross-motion for summary judgment (DE #96). The court has subject matter jurisdiction pursuant to 28 U.S.C. §1335 because this is an interpleader action with two or more claimants of diverse citizenship. The court also has subject matter jurisdiction pursuant to 28 U.S.C. §1331, and 28 U.S.C. §1340 in so far as this matter involves claims that come under this court's federal question jurisdiction.

On August 30, 2002, the court heard oral argument on the United States 's motion and the Trustee's cross-motion. After carefully considering the motions, evidence, and arguments of counsel, the court grants the United States 's motion for summary judgment.

The Undisputed Facts ²

On February 18, 1997, the Garcias filed a petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida. ( U.S. Mot. SJ at 3). On April 17, 1997, the Garcias entered into a balloon mortgage agreement with Landron as mortgagee for one of the Garcias's real property at the time, a home at 2 Tahiti Beach Island Road , Coral Gables , Florida . ( U.S. Ex. #3). The Garcias, in accordance with the mortgage agreement with Landron, were to pay Landron $69,000 by April 17, 1998. Landron had borrowed the funds loaned to the Garcias from a company in the Dominican Republic , which sent the borrowed funds directly to the Garcias. (Landron Depo. at 9). Landron has not made any payments to the lender in the Dominican Republic . (Landron Depo. at 16). When the Garcias failed to make any payment on the April 17, 1997 loan, a new mortgage was executed on April 17, 1998. ( U.S. Ex. #1). This new mortgage was recorded on August 2, 1999. ( U.S. Mot. SJ at 4). Landron denies any knowledge of the bankruptcy proceeding when she entered the agreement with the Garcias. ( See Landron Resp. to Mot. SJ at 4).

On Schedule A of their bankruptcy schedules, the Garcias listed their interest in the property and on Schedule C of the bankruptcy schedules, claimed that the property was exempt from any tax liens under Article X, Section 4 of the Florida Constitution (homestead property). ( U.S. Mot. SJ at 3). The Trustee objected to the exemption because the property was in a municipality and exceeded 1/2 acre. ( U.S. Mot. SJ at 4). The bankruptcy court sustained the objection and calculated the monies owed to the Trustee and the Garcias and issued an order that the remaining funds ($83,000) from the proceeds of the sale of the property was due the Garcias. ( U.S. Ex. 6). The court further ordered, however, that the amount due was subject to the satisfaction of the recorded lien by Landron.

On September 8, 2000, before the bankruptcy court's Order Determining Debtors' Interest in Sale Proceeds, the Internal Revenue Service of the United States had served a Notice of Levy on the Trustee. ( U.S. Ex. 5). The Notice of Levy noticed the Trustee that the Garcias allegedly owed income taxes for the years 1992, 1994, 1995, and 1996, totaling over $200,000. The United States made a claim to the entire $83,000 allegedly due the Garcias based on the federal tax liabilities. Pursuant to the Notice of Levy, the Trustee requested that the bankruptcy court reconsider its September 26, 2000 Order. ( U.S. Mot. SJ at 5). The bankruptcy court denied the motion to reconsider and directed the Trustee to either follow its Order or to file an interpleader action in this court if she wished to resolve the dispute over the $83,000, because the bankruptcy court lacked jurisdiction over the funds derived from exempt property. ( U.S. Ex. 7).

Introduction

This matter involves a dispute over funds originally assessed in the bankruptcy court. The United States , citing In re Wesche, 178 B.R. 542 (Bankr. M.D. Fla. 1995) and In re Graziadei, 32 F.3d 1408 (9th Cir. 1994), argues that the bankruptcy court did not have jurisdiction to order the distribution of the disputed funds because the funds were exempt property no longer within the jurisdiction of the bankruptcy court. Based on a review of the applicable statutes and case law, this court concludes that the bankruptcy court did not have jurisdiction over the distribution of exempt property. See Novak v. O'Neal, 201 F.2d 227, 231 (5th Cir. 1953) ("As to assets of the bankrupt exempt by State laws, the court of bankruptcy exercises jurisdiction only to the extent necessary to segregate and set aside the property or money as so exempt by the bankrupt.... [The] adjudication of claims thereto by creditors or lienees therefore can not be properly be made by the court of bankruptcy."). ³

This court has jurisdiction over the matter because it involves a federal question, namely the priority of federal tax liens. The applicable provision is 28 U.S.C. §1340, which provides that "district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue." The Eleventh Circuit has noted that once a federal tax lien arises, "federal law governs the priority of competing liens asserted against a taxpayer's property." Griswold v. United States [ 95-2 USTC ¶50,419], 59 F.3d 1571, 1575 (11th Cir. 1995). Accordingly, this court concludes that its subject matter jurisdiction over this matter has been established.

Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure authorizes summary judgment when the pleadings and supporting materials show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The court's focus in reviewing a motion for summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997). The moving party has the burden to establish the absence of a genuine issue as to any material fact. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608 (1970); Tyson Foods, Inc., 121 F.3d at 646. Once the moving party has established the absence of a genuine issue of material fact, to which the nonmoving party bears the burden at trial, it is up to the nonmoving party to go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Celotex v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553 (1986). Issues of fact are genuine only if a reasonable jury, considering the evidence presented could find for the nonmoving party. See Anderson, 477 U.S. at 247-51, 106 S.Ct. at 2510-11. In determining whether to grant summary judgment, the district court must remember that, "credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. 477 U.S. at 255, 106 S.Ct. at 2513.

Analysis

Three issues must be resolved in this case. First, this court must determine if the Garcias' property is exempt from the federal tax lien because of its classification as homestead property. Second, if the property is not exempt from the federal tax lien, then this court must rule on who has priority over the disputed funds, Landron or the United States . Finally, this court must decide if the Trustee is entitled to costs and attorney's fees for bringing this interpleader action.

A. Homestead Exemption and Federal Tax Liens

The Garcias argue that their property and the sale proceeds that came from it should not be subject to a federal tax lien because, according to the Florida constitution, the property is homestead property. The United States argues, citing United States v. Mitchell [ 71-1 USTC ¶9451], 403 U.S. 190 (1971) and Weitzner v. United States [ 62-2 USTC ¶9773], 309 F.2d 45 (5th Cir. 1962), that federal tax liens preempt state exemption statutes. This court agrees with the United States that the law is clear, as discussed below, that the Florida state exemption statute for homestead property does not avoid a federal tax lien.

As noted in the United States's summary judgment motion, the applicable statute authorizing the United States to issue a levy is 26 U.S.C. §6331. ⁴ Section 6331 indicates that 26 U.S.C. §6334 outlines the circumstances under which certain property are exempt from a federal tax lien. Homestead state exempt property is not among the property listed as being exempt from levy. See 26 U.S.C. 6334. Additionally, in United States v. Rodgers [ 83-1 USTC ¶9374], 461 U.S. 677, 683, 103 S.Ct. 2132, 2137 (1982), the U.S. Supreme Court noted that "it has long been an axiom of our tax collection scheme that, although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter left to federal law." (citations omitted). In Rodgers, the Court held that the Texas homestead exemption did not exempt the disputed property from the federal tax lien. See id. at 701, 2146.

Other cases have made clear that homestead property is not exempt from federal tax liens. See United States v. Estes [ 71-2 USTC ¶9677], 450 F.2d 62, 65 (5th Cir. 1971) ("Even though the homestead might be exempt under state law from the claims of private creditors, `no provisions of a state law may exempt property or rights to property from levy for the collection of federal taxes owed.") (citing Treas. Reg. on Proc. and Admin. §301.6334-1(c) and United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 56-57, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958)); Weitzner [ 62-2 USTC ¶9773], 309 F.2d at 48 ("It follows that the tax liens of the United States were and are valid and enforceable against the property claimed as homestead."). These cases in conjunction with the applicable statute compels this court's conclusion that Florida 's homestead exemption does not immunize homestead property from federal tax liens.

B. United States 's Levy and Landron's Mortgage

1. Does Landron have a recognized interest?

The United States claims that it is entitled to the disputed funds because of the superiority of the federal tax lien to the Landron mortgage. Before reaching the federal inquiry regarding priority, however, this court must determine if Landron's mortgage is a valid interest in "property or rights to property." Haas v. Internal Revenue Service [ 94-2 USTC ¶50,496], 31 F.3d 1081, 1084 (11th Cir. 1994) (citations omitted). This determination is essential to this court's analysis because the federal statutes involved in this action do not create property rights; they simply define federal consequences to those rights. See United States v. National Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 722, 105 S.Ct. 2919, 2925, 86 L.Ed.2d 565 (1985) (citing Bess [ 58-2 USTC ¶9595], 357 U.S. at 55, 78 S.Ct. at 1057, 2 L.Ed.2d 1135); see also Mitchell [ 71-1 USTC ¶9451], 403 U.S. at 197, 91 S.Ct. at 1768 ("In the determination of ownership, state law controls. `The state law creates legal interests but the federal statute determines when and how they shall be taxed."') (citations omitted). Technically, Landron's mortgage became presumptively protected by Florida law when it was recorded on August 2, 1999. See FLA. STAT. ch. 695.01; see also People's Bank of Jacksonville v. Arbuckle, 82 Fla. 479, 487, 90 So. 458, 460 ( Fla. 1921) ("The due record of a mortgage is statutory notice of the contract lien, binding all who deal with reference to liens upon the property."). The United States does not dispute whether Landron's mortgage is valid under Florida law; it questions the mortgage's validity as a security interest under federal law for tax lien purposes. Thus, this court concludes that Landron's mortgage is a valid property interest under Florida law, but as the cases cited above assert, federal law determines if it is a "security interest" for tax lien purposes.

A federal tax lien is created by operation of law pursuant to 26 U.S.C. §6321, ⁵ and 26 U.S.C. §6322 indicates that the lien is imposed at the date of assessment: "Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time." Despite the fact that the United States 's tax lien is assessed at the time liability is determined, Landron might have a protected security interest if she falls into a certain category and notice of the federal tax lien has not been filed.

26 U.S.C. §6323(a) outlines the four circumstances under which the federal tax lien would not be effective against Landron:

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

Based on the definition of each term in the above statute, Landron is not a purchaser, mechanic's lienor, or a judgment lien creditor. Thus, Landron's mortgage would most qualify as a holder of a security interest, which means "any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against subsequent judgement lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money's worth." 26 U.S.C. 6323(h)(1). Landron must establish all conditions of Section 6323(h)(1) in order to be protected by Section 6323(a). See Haas [ 94-2 USTC ¶50,496], 31 F.3d at 1085. The United States argues that Landron's interest does not qualify under the statute because she has not parted with money or with money's worth. Landron has stated during oral argument as well as in her deposition that she did not pay the Garcias the $69,000 directly, nor has she paid back the loan received from the company in the Dominican Republic ( See Landron. Depo. at 16).

In holding that a bank had not parted with money or money's worth, the Fourth Circuit, quoting Treas. Reg §301.6323(h)-1(a)(3) (1989) [26 C.F.R.], defined money or money's worth as "money, a security ..., tangible or intangible property, services, and other consideration reducible to a money value. Money or money's worth also includes any consideration ... which was parted with before the security interest would otherwise exist if, under local law, past consideration is sufficient to support an agreement giving rise to a security interest .... [A]ny other consideration not reducible to a money value [is not] consideration in money or money's worth." United States v. 3809 Grain Ltd. P'ship [ 89-2 USTC ¶13,813], 884 F.2d 138, 142 (4th Cir. 1989). Based on the definition of money or money's worth, Landron has failed to provide any evidence that she has parted with money's worth and she has already admitted that she has not actually parted with money. In addition, she does not have any documentation of any agreement with the company in the Dominican Republic that sent the $69,000 to the Garcias.

Accordingly, this court concludes that Landron does not possess a security interest that may compete with the federal tax lien. The United States has filed a Declaration of Jacqueline Kelly, an employee of the Internal Revenue Service, which states that as of September 3, 2002, the Garcias owe over $200,000 in federal taxes. Therefore the United States is entitled to the full $83,000 of interpled funds pursuant to 26 U.S.C. §6331(a), unless Landron has a priority over the United States or the Trustee is entitled to attorney's fees. As indicated below, neither situation applies. See United States v. Ruff [ 97-1 USTC ¶50,130], 99 F.3d 1559, 1563 (11th Cir. 1996) ("The IRS is empowered to levy on the property or rights to property of a delinquent taxpayer in the hands of a third party.").

2. Does Landron's interest have a priority over the United States 's interest?

If Landron had provided evidence that she had parted with money or money's worth with reference to the mortgage, the priority of liens would not be so clear. The United States argues that Landron's claim to the disputed funds is inferior to its claims because, citing 26 U.S.C. §6321, Landron's interest in the property arose after the tax assessments because Landron's mortgage was not recorded until August, 2, 1999, while the Garcia tax liabilities date from November 1993 to September 1997. The United States is incorrect, however, with the dates it is using to determine the priority of interests in the Garcia property.

According to the Eleventh Circuit, in Litton Industrial Automation Systems, Inc. v. Nationwide Power Corp. [ 97-1 USTC ¶50,236], 106 F.3d 366, 368 (11th Cir. 1997), "any `security interest' which arises prior to the proper filing of a federal tax lien takes priority over the tax lien." (citing United States v. McDermott [ 93-1 USTC ¶50,164], 507 U.S. 447, 449, 113 S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993)). The Litton court also noted that federal law, as opposed to state law, governs a priority question between a security interest and a federal tax lien. Id. at 371 (citing Haas [ 94-2 USTC ¶50,496], 31 F.3d at 1084-85). Proper filing of notice of the federal tax lien is usually essential in the answer to a priority contest. Based on Litton and the applicable statute, the determining factor is the filing of notice, not the date that the federal tax liability was incurred or assessed, as the United States asserts, unless the dates coincide. The Haas court noted: "The filing requirement is critical: even a holder of a security interest who has actual knowledge of an unfiled tax lien will prevail over the government." Haas [ 94-2 USTC ¶50,496], 31 F.3d at 1084. The United States has admitted during oral argument that no notice has been filed in the appropriate office in the state. The United States stated that they are relying solely on the statutory lien that automatically applies when tax liability is assessed. See Texas Oil & Gas Corp. v. United States [ 72-2 USTC ¶9653], 466 F.2d 1040, 1052 (5th Cir. 1972) (citing 26 U.S.C.A. §6322). This statutory lien may alert the individuals who owe federal taxes, but it fails to alert others who may have a security interest in property owned by the delinquent taxpayers. ⁶

The relevant statue that outlines how the United States is supposed to file a proper notice is 26 U.S.C. §6323(f). Section 6323(f)(1)(A)(i) indicates that the notice shall be filed according to state law an in "the case of real property, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated; and" section 6323(f)(1)(B), in "the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State has not by law designated one office which meets the requirements of subparagraph (A)." Thus, according to the statute, the United States must make another step to protect itself against other security interest holders. See Haas [ 94-2 USTC ¶50,496], 31 F.3d at 1084 ("Thus, section 6323 mandates that notice of the taxing authority's lien `shall be filed' in the public records before it operates as notice effective against any holder of a security interest as that term is defined by section 6323.").

Because the United States has admitted to failing to file the proper notice as required by the applicable statute, the Landron's mortgage should prevail over the federal tax lien. The mortgage falls short of priority, however, because, as discussed above, it does not meet all four conditions of a security interest as defined by section 6323. All four conditions must be met before a security interest can be valid and therefore compete with a federal tax lien. See Litton [ 97-1 USTC ¶50,236], 106 F.3d at 368; Haas [ 94-2 USTC ¶50,496], 31 F.3d at 1085. This court therefore concludes that since Landron failed to meet all four requirements, the fact that the United States failed to properly record the federal tax lien is irrelevant; the United States prevails by default since it is not competing against a valid security interest and the federal tax lien is otherwise valid.

C. Trustee's Entitlement to Attorney's Fees

The United States argues that the trustee is not entitled to attorney's fees, citing Cable Atlanta, Inc. v. Project, Inc. et al. [ 85-1 USTC ¶9268], 749 F.2d 626 (11th Cir. 1984) and Spinks v. Jones [ 74-2 USTC ¶9657], 499 F.2d 339 (5th Cir. 1974), because the interpled funds are insufficient to cover the government's tax liens. The Trustee responds that she is entitled to attorney's fees because the interpled funds exceed the federal tax obligations by more than $20,000. In its reply, the United States points out that the federal tax liens actually total over $200,000. Based on Eleventh Circuit case law discussed below, this court concludes that the trustee is not entitled to attorney's fees in this case.

The Eleventh Circuit has noted that "[n]ormally a stakeholder who brings an interpleader action to determine which of two claimants is entitled to a fund which it holds, but does not claim, is entitled to have attorneys fees it incurs in bringing the action paid out of the fund. No such fees can be paid from the fund, however, when it goes to satisfy a tax lien." Cable Atlanta [ 85-1 USTC ¶9268], 749 F.2d at 626. ⁷ Additionally, in Katsaris v. United States , 684 F.2d 758 (11th Cir. 1982), a sheriff brought an interpleader action as a disinterested stakeholder regarding seized money. The Eleventh Circuit in that case pointed out that " Florida courts have found proper the award of reasonable attorney's fees and costs in an interpleader action where the party brin[g]ing the action is disinterested in the stake held and has not acted to cause the conflicting claims." Katsaris, 684 F.2d at 763 (citing Drummond Title Company v. Weinroth, 77 So.2d 606 ( Fla. 1955); Ellison v. Riddle, 166 So.2d 840 (Fla. App. 1964)). But the Eleventh Circuit further held that "once the government is successful in establishing a federal tax lien upon the funds in question, the judicial prerogative to award fees must give way to the supremacy of the federal tax lien whenever a fee award would encroach upon the fund subject to the tax lien." Katsaris, 684 F.2d at 763 (citing Spinks).

The Trustee contended during oral argument that relevant Eleventh Circuit case law regarding attorney's fees for a plaintiff bringing an interpleader action always applied to debtors and not disinterested stakeholders, but Kutsaris involves a sheriff who as in fact a disinterested stakeholder, and the court still held that attorney's fees could not be awarded if it would encroach on the amount of the federal tax lien. The United States has submitted documentation that the Garcias still owe more than $200,000 in federal taxes. Because an award of attorney's fees to the Trustee would encroach on the funds subject the tax lien (as only $83,000 are in dispute in this case), this court concludes that the Trustee is not entitled to attorney's fees.

Conclusion

This court concludes that the United States is entitled to the $83,000 of disputed funds because the Garcias' homestead property is not immune to a federal tax lien. In addition, Landron's mortgage, although a valid interest under Florida law, does not prevail over the federal tax lien because it fails to meet one of the requirements of a security interest (parting with money or money's worth) according to the applicable federal statute. Finally, the Trustee is not entitled to attorney's fees because the $83,000 of interpled funds do not satisfy fully the Garcias' federal tax liabilities.

It is hereby:

ORDERED AND ADJUDGED THAT:

1. The United States's motion for summary judgment [DE #92] is GRANTED.

2. The Trustee's cross-motion for summary judgment [DE #96] is DENIED.

3. All pending motions are DENIED AS MOOT.

4. This case is hereby DISMISSED WITH PREJUDICE and CLOSED.

DONE AND ORDERED.

¹ In re Angel Mario Garcia & Margarita Lourdes Landron Garcia, Case No. 97-11159-BKC-RAM.

² In support of its motion for summary judgment, the United States has filed a statement of material facts pursuant to Southern District of Florida Local Rule 7.5. In addition, the United States has submitted several exhibits, including depositions and documentary evidence. The co-defendants dispute and/or supplement some of the allegations contained in the United States 's statement with its own Local Rule 7.5, along with depositions and documentary evidence, including several pleadings and orders issued by the bankruptcy court in the Chapter 7 Proceedings. The following facts are derived from the United States 's Local Rule 7.5 statement, and any factual disputes between the parties are noted.

³ The Eleventh Circuit adopted as binding precedent all cases decided by the former Fifth Circuit prior to the close of business on September 30, 1981. See Bonner v. Prichard , 661 F.2d 1206, 1209 (11th Cir. 1981).

⁴ "If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses o[f] the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." 26 U.S.C. 6331(a).

⁵ "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

⁶ The Litton court further provided: "Under the Internal Revenue Code, a tax lien arises at the time of assessment, 26 U.S.C. §6322, on `all property and rights of property, whether real or personal, belonging to' a delinquent taxpayer, [26 U.S.C.] §6321. The FTLA provides, however, that the tax lien `shall not be valid as against any... holder of a security interest ... until notice thereof which meets the requirements of subsection (f) has been filed." (citing 26 U.S.C. §6323(a).

⁷ The court went on to note: "The rationale of this decision is that the provisions of the Internal Revenue Code which establishes the lien, 26 U.S.C.A. §§6321, 6322, prohibit an award of attorney's fees when the effect of such award would diminish the amount recovered by the United States under its prior tax lien." Cable Atlanta [ 85-1 USTC ¶9268], 749 F.2d at 627.