her lifetime, Mrs. O'Hagan retains the right to exclude all people,
other than Mr. O'Hagan, from the homestead property. This right derives
statute addressing homestead property and would apply equally to joint
tenants and tenants in common.
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.
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
Right of Survivorship
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.
earlier noted, Mrs. O'Hagan can prohibit the conveyance of an interest
in the homestead property under
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
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."
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.
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
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.
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").
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 ],
at 703-12; United States v. Bierbrauer [91-2
USTC ¶50,331 ], 936 F.2d 373, 375 (8th Cir. 1991).
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.
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
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.
law, a severance of a joint tenancy is legally effective only when:
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.
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.
Stat. §500.19, subd. 5 (1996 Supp.).
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.);
Stat. §507.02. Moreover, severing the joint tenancy does not completely
destroy the other spouse's survivorship interest because
provides statutory protection for a joint tenant's survivorship interest
in homestead property.
Stat. §525.145 (1996 Supp.).
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,
1979); Renneke v. Shandorf, 371 N.W.2d 12, 14 (Minn. Ct. App.
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 ],
at 706; United States v. Bierbrauer [91-2
USTC ¶50,331 ], 936 F.2d 373, 375 (8th Cir. 1991).
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.
Stat. §525.145 (1996 Supp.).
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,
has apparently replaced the act of conveyance with the act of
recordation as the triggering event that severs a joint tenancy.
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.
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 ],
at 702-03 n.31.
, Circuit Judge
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.
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.
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.
at 6-7. But Enochs has no application to this case.
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.
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) .
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.
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
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
Stat. Ann. §500.19.5(1). Such an instrument is "valid without the
signatures of both spouses." See
Stat. Ann. §507.02.
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
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 (
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.
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.
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.
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
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.
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).
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) .
court responds that monetary relief can never provide adequate
compensation for the loss of an interest in real property. But the court
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.
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
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.
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
District Court, Dist. Minn., Third Div., Civ. 3-95-554,
, 921 FSupp 641, 921 FSupp 641
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 (
) 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
, 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.
OPINION AND ORDER
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.
Marshall commenced this action seeking to quiet title in residential
real estate ("
") located in
. 3 Mrs.
Marshall and Defendant Joseph R. Marshall ("Mr. Marshall"),
her estranged husband, owned the
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
to collect his delinquent federal income taxes. Mrs. Marshall's interest
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
. (See Sitzmann Aff., attach.)
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
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.
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.
Standard of Review
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)
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
Validity of Levy and
issue in the IRS's Motion is whether the IRS had authority to sell Mr.
's undivided one-half interest in the
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.
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
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
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
at the time of the lien. Mr. Marshall had an undivided one-half interest
and held that interest with Mrs. Marshall in joint tenancy with right of
survivorship. This interest was subject to at least one restriction. In
, 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
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
to Sitzmann while the
was held in joint tenancy.
recognizing that it only acquired Mr. Marshall's rights in the
, 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." (
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
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
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.
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,
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,
's "homestead exemption" is contained in Minn. Stat. Ch. 510.
'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
's homestead exemption inoperative as against the IRS. Plaintiff
correctly has not asserted a defense under this Chapter.
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
, defined the property right a spouse had in the homestead to be
inalienable without the other spouse's consent.
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."
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.
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
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
by severing the joint tenancy in accordance with Minnesota Statutes
section 500.19, subdivision 5. This Section provides in relevant part:
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....
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
'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 (
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.
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
on the foregoing, the Court finds that Mr. Marshall would not be able to
convey an interest in the jointly held
without Mrs. Marshall's consent. Because the IRS stepped into Mr.
Marshall's shoes when it acquired a tax lien on the
, it could not convey any interest in the
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
. 8 The sale of
Mr. Marshall's interest in the
is void and the IRS maintains a tax lien on the property. 9
Motion to Amend the Complaint
claims the IRS failed to compensate her for the decreased value in her
portion of the
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.
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:
Defendant District Director's Motion to Dismiss (Doc. Nos. 4 & 14)
Plaintiff's Motion to Amend the Complaint (Doc. No. 7) is DENIED AS
it is hereby ORDERED, ADJUDGED AND DECREED that the
March 15, 1994
sale of the property located at
5045 Second Avenue
, legally described as:
19 and 20, Block 2, in
, Second Division, according to the Recorded Plat thereof, and situated
Defendant Sitzmann is VOID. 10
Except where otherwise noted, the Court will refer to Defendant District
Director and the United States Internal Revenue Service jointly as the
The complete factual and procedural background in this case is set out
in the R & R and accompanying memoranda and will not be fully
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.)
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
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.)
the Supreme Court's decision in
supports this Court's conclusion regarding the IRS's ability to
administratively foreclose on the
pursuant to 26 U.S.C. §6331
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
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.
at 713-715, 103
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
at 702 n.31, 103
at 2147 n.31. However, the majority specifically stated it was "in
agreement" with the dissent regarding the administrative levy
This appeal is pending. The IRS does not attempt to distinguish O'Hagan
and instead claims it was wrongly decided.
The parties have not cited Elfelt.
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.
In addition to supporting the IRS's alleged right to convey Mr.
Marshall's interest in the
. 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
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).
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.
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.
In her Complaint, Plaintiff also requested an order declaring Plaintiff
"fee owner" of the
. (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.
USTC ¶50,238] Lois Carole Stevens, Debtor-Appellant v. Michael D. Baas,
et al., Appellees
District Court, No. Dist.
, West. Div., 3:95 CV 7603, 12/28/95, 197 BR 57, Affirming an unreported
Bankruptcy Court decision
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.
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.
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.
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.
608 Madison Ave.
, for plaintiff. Thomas M. Balyeat, Cline, Cook & Weisenburger,
300 Madison Ave.
, for defendant.
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.
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.
January 25, 1995
, Debtor-Appellant's home, located at
4198 Hurley Drive
("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
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
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,
August 1, 1995
, moved the Bankruptcy Court for relief from the automatic stay.
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.
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.
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.
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
Court addresses these arguments below.
A. Does the Bankruptcy Court's finding that the tax sale was properly
conducted render the issue of the "innocent spouse" defense
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.
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.
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
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.
USTC ¶50,320 ], 25 F.3d 1289 (5th Cir. 1994); Quinn v.
USTC ¶9764 ], 524 F.2d 617 (7th Cir. 1975); cf. Erdahl v.
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.
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
Debtor-Appellant cannot be an innocent spouse, it was harmless error for
the Bankruptcy Court not to consider this issue.
Is the burden of production and persuasion on the validity of the tax
sale on Debtor-Appellant or the IRS?
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.
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.
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.
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.
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.
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.
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?
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.
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
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.
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.
The Bankruptcy Court's interpretation of 26 U.S.C. §6334(e) .
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) .
Bankruptcy Court committed no reversible error when it granted
Appellees' Motion for Relief from Stay. The Order of the Bankruptcy
Court is, therefore, affirmed.
IS SO ORDERED.
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
District Court, Mid. Dist. Fla.,
, 970 FSupp 1022.
[Code Sec. 7402 ]
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.
Joy Militello, pro se.
ON MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT
Chief District Judge:
cause is before the Court on the following motions and responses:
Motion to Dismiss (Dkts. 7, 8)
Motions for Summary Judgment (Dkts. 11, 14)
Opposition to Plaintiff's Second Motion for Summary Judgment (Dkt. 16)
Response to Defendants' Opposition to Plaintiff's Motion for Summary
Judgment (Dkt. 13)
Standard of Review
Court must read Plaintiff's pro se allegations in a liberal fashion. Haines
v. Kerner, 404
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.
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
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
411, 421 (1969).
Statement of Facts
Internal Revenue Service ("IRS") made assessments against
Plaintiff for tax liabilities for the tax years of 1987, 1988, 1989, and
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
maintains that the
must seek a judicial sale of the property to foreclose a Federal Tax
Lien under 28 U.S.C. §2410.
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.
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.
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.
Plaintiff requests this Court to set aside the sale of her
"homestead property" as void, and return the property to
The Government's Motion to Dismiss
Defendant Mike Barr
United States of America
, (hereinafter, "the Government") claim that a suit against
IRS employees in their official capacity is a suit against the
. 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.
Court agrees with the Government's contention that this is a suit
. 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).
Immunity As To The
Government asserts that the doctrine of sovereign immunity bars any
lawsuits against the
. Further, a party cannot sue the
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.
584, 586 (1941). The Government further alleges that "the waiver of
' 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).
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.
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.
Sections 2410(c) and 7804(b)
28 U.S.C. §2410, "the
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
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.
respect to 28 U.S.C. §7804(b) as basis for jurisdiction, no such
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 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).
6331(a) and (b) provide:
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 . . .
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).
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
's Homestead Exemption Statute is inapplicable here. A party cannot use
a state's homestead exemption statute against the
in its attempt to enforce a federal tax lien. United States v.
Rodgers [83-1 USTC ¶9374], 461 U.S. 677, 700 (1983).
this Court has consistently held that 26 U.S.C. §6334(a) and (c) do not
provide an exception for homestead property. Thompson v.
, 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
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],
at 682-83. The Court therefore grants the Government's motion to dismiss
Plaintiff's Florida Homestead Exemption claim.
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
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
at 248. The moving party bears the burden of proving that no genuine
issue of material facts exists. Celotex Corp. v. Catrett, 477
317, 324-25 (1986).
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
, 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
Immunity As To Defendant Mike Barr
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
above case is inapplicable to the instance case, i.e., the
does have a legitimate lien against Plaintiff's property. See
Plaintiff's Complaint (Dkt. 1), Ex. #3 and Ex. #5.
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.
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.
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.
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
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
no longer retained any interest in the sold property.
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
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
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
Court finds Plaintiff's argument unavailing. In this case, the
did place a lien on Plaintiff's property for back taxes owed. Plaintiff
contradicts herself when she alleges that the
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
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.
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.
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
as stated above,
'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
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.
[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
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.
Kanner, Richard Kanner, Security, Trust Bldg.,
, 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.
JONES, and GEWIN, Circuit Judges.
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
, 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
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.
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,
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
333, 22 So. 687; Johns v. Bowden, 68
32, 66 So. 155; 1 Redfearn, Wills and Administration of Estates in
416, §232; 16
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
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
were and are valid and enforceable against the property claimed as
homestead. The judgment of the district court is
defined; nature of exemption.
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.
Exemption to inure to widow and heirs.
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.
Alienation of homestead.
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.
Const. Art. X.
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.
Stat. Ann. §731.05.
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.
Stat. Ann. §731.27.
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.
Stat. Ann. §731.34.
We omit, as wholly inapplicable, any consideration of the homestead tax
Const. Art. X, Section 7.
Jur. 55, Dower §21, and cases there cited.
United States of America
, Plaintiff v. Michael J. Stalker, a/k/a Michael John Stalker, Gabriele
Stalker, and Crystal River Bank, a
Banking Association, Defendants
District Court, Mid. Dist. Fla., Ocala Div., 5:99-CV-15-Oc-10C,
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.
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.
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.
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
AND PROCEDURAL BACKGROUND
following facts appear undisputed in the record. On or about
February 10, 1995
, Defendant Michael J. Stalker sold his residence (located in
) 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).
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
July 15, 1996
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).
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).
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.
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.
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.
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
's homestead exemption. 1 Both the
Plaintiff and Defendant Crystal River Bank have filed responses opposing
Defendant's motion for summary judgment.
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.
, 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
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
at 324, 106 S.Ct. at 2553.
Motion for Summary Judgment
Gabrielie Stalker argues that the subject property is exempt from
federal tax liability due to
's homestead exemption. For the reasons set forth below, however, the
Defendant's argument is without merit because
'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
has long since been established that
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
, 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:
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. . . .
U.S.C. §7403(a) (emphasis added).
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
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. . . ."
at 2138. The Court thus concluded that
' homestead right was not mere "statutory entitlement but a vested
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.
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
's homestead exemption in applying
'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
'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
Defendant Gabriele Stalker's motion (Doc. 30) for summary judgment
"to confirm and establish spousal interest in homestead
property" is Denied.
Motion for Summary Judgment
moves for summary judgment as to whether, under
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.
a taxpayer has fraudulently disposed of property prior to the existence
of a federal tax lien, the
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.
's Uniform Fraudulent Transfer Act, which covers transfers made to evade
present and future creditors, provides as follows:
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:
With actual intent to hinder, delay, or defraud any creditor of the
Without receiving a reasonably equivalent value in exchange for the
transfer or obligation, and the debtor:
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
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
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.
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:
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?
No assets or funds. It was on the basis of good consideration rather
than valuable consideration.
In other words, in consideration of love and affection?
That's correct. Amongst other qualities.
of Michael Stalker (Doc. 24, pg. 36).
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:
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.
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
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
'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."
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.
upon due consideration:
the Plaintiff's motion for summary judgment (Doc. 23) is GRANTED;
the Defendant's motion for summary judgment (Doc. 30) is DENIED;
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
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;
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
IS SO ORDERED.
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.
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.
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
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
. See Jameson v. Jameson, 387 So.2d 351 (
whether the transfer of property was valid does not affect the validity
of the mortgage agreement which was signed by both Michael and Gabriele
Art. X, sec. 4 of the Florida Constitution provides as follows:
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. . .
These exemptions shall inure to the surviving spouse or heirs of the
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.
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
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.
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
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.
District Court, So.
September 6, 2002
Tax liens: Bankruptcy: Superiority over mortgage: Interpleader:
Attorneys' fees. --
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
) 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..
Tax liens: Bankruptcy: Homestead property exemption. --
property and the sale proceeds that came from it were subject to a
federal tax lien. The property was not exempt under state (
) law as homestead property. The federal tax lien preempted the state
exemption statute; thus, the
homestead exemption did not immunize the debtors' homestead property
from the lien..
GRANTING UNITED STATES'S MOTION FOR SUMMARY JUDGMENT
GOLD, District Judge: THIS CAUSE is before the court upon
") motion for summary judgment (D.E. #92). The plaintiff, Deborah
Menotte ("Trustee"), has filed an interpleader complaint
, 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
's motion, (DE #94) and (DE #95) respectively. The Trustee has also
filed a limited opposition to the
'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
's motion and the Trustee's cross-motion. After carefully considering
the motions, evidence, and arguments of counsel, the court grants the
's motion for summary judgment.
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. (
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
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
, which sent the borrowed funds directly to the Garcias. (Landron Depo.
at 9). Landron has not made any payments to the lender in the
. (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.
Ex. #1). This new mortgage was recorded on August 2, 1999. (
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). (
Mot. SJ at 3). The Trustee objected to the exemption because the
property was in a municipality and exceeded 1/2 acre. (
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. (
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
had served a Notice of Levy on the Trustee. (
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
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
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. (
This matter involves a dispute over funds originally assessed in the
bankruptcy court. The
, 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
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.
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
v. Liberty Lobby, Inc., 477
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
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
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
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
at 255, 106 S.Ct. at 2513.
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
. Finally, this court must decide if the Trustee is entitled to costs
and attorney's fees for bringing this interpleader action.
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
constitution, the property is homestead property. The
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
that the law is clear, as discussed below, that the
state exemption statute for homestead property does not avoid a federal
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.
6331 indicates that 26 U.S.C. §6334 outlines the circumstances under
which certain property are exempt from a federal tax lien.
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
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
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
's homestead exemption does not immunize homestead property from federal
's Levy and Landron's Mortgage
Does Landron have a recognized interest?
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
law when it was recorded on August 2, 1999. See FLA. STAT. ch.
695.01; see also People's Bank of
v. Arbuckle, 82
479, 487, 90 So. 458, 460 (
1921) ("The due record of a mortgage is statutory notice of the
contract lien, binding all who deal with reference to liens upon the
does not dispute whether Landron's mortgage is valid under
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
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
'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:
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
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
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
( 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
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
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
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
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.").
Does Landron's interest have a priority over the
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
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.
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
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
has admitted during oral argument that no notice has been filed in the
appropriate office in the state. The
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
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,
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
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
failed to properly record the federal tax lien is irrelevant; the
prevails by default since it is not competing against a valid security
interest and the federal tax lien is otherwise valid.
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
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.
, 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 "
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 (
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
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
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.
concludes that the
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
Landron Garcia, Case No. 97-11159-BKC-RAM.
support of its motion for summary judgment, the
has filed a statement of material facts pursuant to Southern District of
Florida Local Rule 7.5. In addition, the
has submitted several exhibits, including depositions and documentary
evidence. The co-defendants dispute and/or supplement some of the
allegations contained in the
'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
's Local Rule 7.5 statement, and any factual disputes between the
parties are noted.
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.
, 661 F.2d 1206, 1209 (11th Cir. 1981).
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.
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).
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.