Annotations- Husband and Wife

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6335 Annotations: Husband and Wife- Levy

 

 

Sale of Seized Property: Husband and Wife

 

[64-1 USTC ¶9423]Lorraine Conley Bice, joined by her husband, E. Frank Bice, Plaintiffs v. Ellis Campbell, Jr., District Director of Internal Revenue and United States of America, Defendants

U. S. District Court, No. Dist. Tex., Dallas Div., Civil Action No. 3-422, 231 FSupp 948, 4/9/64

[1954 Code Sec. 6335]

Property seized for taxes: Sale to taxpayer's wife: Good faith purchaser.--Where the government levied upon an automobile as the property of the taxpayer, or as community property of himself and his wife, and then arranged to have the automobile delivered to the wife upon payment of a specified sum out of her separate funds, the government could not again levy upon the automobile to satisfy the taxes of her husband incurred prior to their marriage.
[1954 Code Sec. 6335]

Property seized for taxes: Damage suit against District Director.--A damage claim made by a taxpayer against a District Director for the alleged unlawful seizure of property was denied where the action was brought against the District Director not in his individual capacity but as an official of the government. In order to hold a government official responsible for damages for any act done by him, the suit must be brought against him in his individual capacity.
[1954 Code Sec. 6321]

Tax liens: Community property: Separate property of wife: Texas law.--Although in Texas community property is generally liable for ante-nuptial debts of either spouse, the state law establishes a category of community property, known as "special community" property, which consists of that portion of community property under her exclusive control and is not liable for the husband's debts. Therefore, it was held that funds owned by a wife prior to her marriage and maintained separately from the community property were not subject to liens for delinquent taxes owed by the husband and his former wife.

William F. Billings, Fanning, Billings, Harper, Pierce & Gilley, Fidelity Union Tower, Dallas, Tex., for plaintiffs. Barefoot Sanders, United States Attorney, Federal Bldg., Kenneth J. Mighell, Assistant United States Attorney, Dallas, Tex., for defendant.

Opinion of the Court

[Issues Involved]

DAVISON, District Judge:

This action arises out of a levy made by representatives of the Internal Revenue Service which levy was made for the purpose of collecting an alleged delinquent income tax assessment dated May 8, 19 59, against E. Frank and Bonnie Bice in the amount of $3,906.12.

The notice of levy was served upon the First National Bank in Dallas and called for payment out of any funds held by the bank which were community property of E. Frank Bice and his present wife Lorraine Conley Bice.

The suit also involves a question of title to an automobile. The question of damages is raised by the plaintiff in her pleading in which she charges that the defendant had tied up the funds of the plaintiff by the levy and had greatly inconvenienced her and tends to charge the defendant in connection with the seizure of the automobile and the tying up of the funds with causing the plaintiff Lorraine Conley Bice material loss.

The suit therefore involves three questions: First, the title to the automobile; secondly, the question of damages by reason of the levy on the automobile and the funds being the separate property of the present wife; and third, it raises the material question of whether or not those funds in the bank and the property generally of the plaintiff Lorraine Conley Bice might be seized and claimed by the government to pay the taxes of the husband, E. Frank Bice.

It should be remembered in considering the matter that the tax in question against E. Frank Bice arose before this marriage to the present wife, Lorraine Conley Bice. The levy in question was made upon the income from the separate property, according to the contention of plaintiff, of the wife of the second marriage, the said Mrs. Lorraine Conley Bice.

[Wife as Good Faith Purchaser]

As to question No. 1 touching the title to the car, it appears that the car was levied upon as the property of the husband E. Frank Bice or as community property of himself and wife.

The evidence is conclusive to the effect that after the automobile was levied upon that an arrangement was made to deliver it to Mrs. Bice for the sum of $1200.00 and that she paid such out of her separate funds. After she had done this, it was levied upon again to satisfy the tax of her husband due or alleged to have been due before her marriage to him.

If the car had been sold or disposed of in the same manner that this one was to a third party, we think that there is no doubt but that the third party would have received title to the car. It being the separate money of Mrs. Bice, we think she is to all intents and purposes a third party and that the money accepted by the government was paid by her in good faith and that she is entitled to the car, and it will be so ordered.

[Damage Claim Denied]

As to the element of damage claimed by the plaintiff, this suit is brought against the defendant not in his individual capacity but as an officer of the government. In order to hold an official of the government responsible in damages for acts done by him, such acts must be done in violation of law and capricious. If judgment should be rendered for damages, no fund of the government would be liable for the judgment nor would a successor to the defendant Ellis Campbell in any sense be liable for the judgment.

To make the defendant Campbell liable in monetary damages for the act of himself and his agents the suit must have been brought against him in his individual capacity as being an act capricious and unlawful, and a judgment would not run against him as a public official. The claim for damages will therefore be denied.

[Separate Property of Wife]

The above questions arose on motions of the plaintiff on the question of the automobile and motion of damage by the defendant. At the hearing of said motions the third question as to whether or not the levy upon the income from the separate property of the second wife, Mrs. Lorraine Conley Bice, was proper, gives us more concern.

After indicating our views at this hearing certain arguments were made and whch were stipulated and filed with the papers of the case by which the further hearing of the matter would be deferred for two weeks and during such time there would be no sale of the automobile and certain funds in the bank would be temporarily released. And it was further stipulated that the parties would be ready foe trial at that time if some agreement had not been reached as to the disposition as to the automobile and the remaining acts under levy at the First National Bank.

This stipulation was made without prejudice to the rights of either party but brings before the Court not only the two questions raised by motion but a final question disposing of the third question and disposing of the entire case on the merits, which question gives us more concern than the first two, the disposition of which we have indicated.

[Property Owned Prior to Marriage]

Lorriane Conley Bice was married to E. Frank Bice on June 15, 19 62 at which time she had a separate estate on deposit in the First National Bank of Dallas , Texas , which had been maintained separately from the community estate. She has derived income from the separate trust estate and interest income from her separate savings account.

The Internal Revenue Service levied on her bank account which includes interest income and income from the trust asserting that these funds are applicable to delinquent taxes due by her husband E. Frank Bice and his former wife Bonnie Bice which were incurred, however, prior to her marriage to the plaintiff E. Frank Bice.

[Property Right v. Exemption]

This question raises as we have indicated the subject of the husband's tax liability being placed upon the separate property and the income from the separate property of the wife of the second marriage. The answer to the question we think rests upon the interpretation of the Texas law, to wit: Whether or not Article 4616 V. A. T. S. establishes a property right or whether it is a mere exemption. Stated very simply, if said article is an exemption the Federal tax lien will attach but if the article defines the right to separate property, then the lien will not attach. The Court is of the opinion that Article 4616 of Vernon 's Annotated Texas Statutes does establish a property right in the income from the separate property of the wife.

Although Title 26, U. S. C. A., Section 6321, authorizes a tax lien upon all property of the person liable for unpaid taxes, it is well established that if the property levied upon is by laws of the State recognized and defined as the separate property of the spouse, then no Federal lien will attach.

In applying the Federal tax lien statute State laws control the determination of the taxpayer's legal interest in the property and Federal law only defines the consequences to be attached to the State created rights. Chicago Federal Savings and Loan v. Cacciatore, 1961, 178 N. E. 2d 888. Federal law has made a distinction between property rights and exemptions established by the State. An exemption provided by a State law is ineffective against the statutory lien of the United States for Federal taxes. U. S. v. Hoper, 7 Cir., 1957, [57-1 USTC ¶9508] 242 F. 2d 468.

[ Texas Law]

The Legislature of Texas has established a category of community property referred to as "special community." "Special community" property is that portion of the community which is under the wife's exclusive control and not liable for the husband's debts. Moss v. Gibbs, 370 S. W. 2d 452.

Article 4616, V. A. T. S. states:

"Neither the separate property of the wife * * * nor the revenue from her separate property shall be subject to the payment of debts contracted by the husband * * *"

Thus it is made clear under the law of Texas, Article 4616, that it determines and defines property instead of creating exemptions or giving the right by law to a debtor to retain a portion of his property free from the claims of his creditors.

It is not contended in this case that the plaintiff appears in the role of a debtor but is asserting her right under separate property as defined by the statutes of Texas.

"* * * During the marriage the wife shall have the sole management, control and disposition of her separate property, both real and personal." 4614 V. A. T. S.

This article gives married women the same power and capacity as if she were a femme sole acting in her own name. The husband's contractual obligations and debts shall not be binding upon her separate property.

Although no Federal cases have been found which directly bear upon this point as applied to Texas law, the Court has and does consider the opinion of the Federal District Judge in the State of Washington in the case of Stone v. Warren [64-1 USTC ¶9204] (1963) 225 F. Supp. 201.

[No Liability of "Special Community" Property]

Non-liability of community real and personal property for separate debts of one spouse have long been the rule in the State of Washington. Although in Texas community estate in general is liable for antenuptial debts of either spouse, the Texas Legislature has by the above mentioned Article 4616 specifically forbidden liability of the wife's "special community" property for debts contracted by her husband.

This Court considers our statutes analogous to those dealt with in the Stone case for the State of Washington.

Under the Washington State law the immunity of community property from the debts of the husband was an inherent characteristic of the property interest involved. Such immunity from liability was not a State exemption and would prevent attachment of the tax lien to the interest of the husband in the community property.

In the light of the foregoing it is the opinion of this Court that the Texas statute, Article 4616 V. A. T. S., defines a property right and not an exemption.

It further appears to the Court that the plaintiff is entitled to judgment as a matter of law. Moreover, the question of justice in the light of fair play and that which is just, right and wrong enters into our thinking to the extent that we cannot concur that the property of a second marriage should be subjected to the indebtedness of the former spouse and her husband as such.

Judgment will therefore be rendered as above indicated.

 

 

[90-1 USTC ¶50,274] Henry Molko, Jr. and Carol I. Molko, Plaintiffs v. United States of America, Defendant

U.S. District Court, Dist. Ida., Civ. 89-1058, 5/2/90

[Code Sec. 6335 ]

Levy and distraint: Husband and wife: Injunctive relief.--The government's motion to dismiss the taxpayers' complaint seeking to challenge the underlying tax assessments made by the IRS, for satisfaction of which the IRS had levied on a piece of the taxpayers' real property, was granted. However, to the extent the taxpayers sought to challenge the procedural regularity of the IRS levy on their property, the motion was denied. Although the property was sold in a county other than the one in which it was located, the service of notice of levy was sufficient to seize the property levied upon, that is, the real property was seized as a matter of law in the county in which it was located. Moreover, the location of the sale of the property did not constitute a procedural irregularity that invalidated the sale, because the administrative determination that substantially higher bids could be obtained if the property were sold in another county was made pursuant to Reg. §301.6335-1(c)(1) , which specifically provides for the district director to order that a sale be held in a place where substantially higher bids may be obtained. Finally, the taxpayers' contention that the IRS had improperly seized the wife's share of the property was inappropriate as a matter of law, because the wife had quitclaimed all rights and interest in the property to her husband.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PARTIALLY GRANTING MOTION TO DISMISS

I. FACTS & PROCEDURE

RYAN, District Judge:

On February 15, 1989 , pursuant to 28 U.S.C. §§1340 and 2410(a), Henry and Carol Molko (appearing pro se) filed a Complaint seeking to quiet title on a piece of real property contending that the Internal Revenue Service (IRS) wrongfully levied thereon in order to satisfy "alleged" tax debts.

On April 20, 1989 , the United States filed a Motion to Dismiss or, in the Alternative, for Summary Judgment. The plaintiffs did not respond in a timely fashion. However, given that the plaintiffs were proceeding pro se, the court allowed plaintiffs until June 17, 1989 , to file their response.

On July 14, 1989 , after receiving plaintiffs' Affidavit in Opposition to Defendant's Motion to Dismiss and Summary Judgement [sic], this court entered an order denying defendant's motion without prejudice. In so doing, the court noted that while it is true that a taxpayer may not mount a collateral attack on the merits of a tax assessment under Section 2410, a taxpayer may contest the procedural irregularity of a lien under that section. See Order, filed July 14, 1989 , at 2 (citations omitted). Thus, while the memoranda and affidavits in support of the government's motion were, in large part, devoted to the validity of the underlying tax liability and/or assessment against Henry Molko and Carol Molko, the government failed to adequately address the procedural validity of the federal tax lien on the Molko's property. In its order, this court specifically noted that the following alleged procedural irregularities had not been properly addressed by the government:

(1) No seizure of any property located at 5016 E. Powerline Rd. was made by any I.R.S. official as claimed by Pat McDonough . . . [and]

(2) The fraudulent auction of the alleged seized property was held in Ada County and not Canyon County in violation of I.R. Code 6335(d).

Order, filed July 14, 1989 , at 3. Accordingly, the United States' motion was denied without prejudice.

On January 19, 1990 , the court received a second motion from the United States entitled, Motion to Dismiss or in the Alternative for Summary Judgment. In opposition to such motion, plaintiffs maintain, inter alia, that the government failed to meet the requirements of 26 U.S.C. §6335(b) . This matter became ripe for consideration on April 3, 1990 . ¹

Having determined that the facts and legal arguments are adequately presented in the record currently before the court, and finding that the decisional process would not be significantly aided by oral argument, and upon thoroughly reviewing the applicable statutes and case law, the court has determined that summary judgment should be entered in favor of the United States.

II. ANALYSIS

A. The United States' Motion to Dismiss

Before getting to the motion for summary judgment, the court will briefly address the United States' arguments pertaining to jurisdictional issues. Based on the doctrine of sovereign immunity, the United States argues that this court lacks subject matter jurisdiction over the action brought by the plaintiffs. Indeed, it is well established that the United States, as sovereign, is immune from suit, unless it consents to being sued. United States v. Mitchell, 445 U.S. 535, 538 (1980). However, in cases where this identical issue has been raised, the consensus among federal courts has been that under 28 U.S.C. §2401(a)(1) the United States has consented to suits which allege procedural defects in an IRS levy on property. See, e.g., Pollack v. United States [87-2 USTC ¶9463 ], 819 F.2d 144, 145 (6th Cir. 1987).

Accordingly, to the extent the plaintiffs challenge the procedural regularity of the levy on their property, they state a cognizable claim and this court has jurisdiction pursuant to 28 U.S.C. §§1340 and 2410. However, to the extent the plaintiffs seek to attack the merits of the underlying tax assessments made by the IRS, their action should be dismissed. See, e.g., Aqua Bar & Lounge, Inc. v. United States Dep't of Treasury [76-2 USTC ¶9554 ], 539 F.2d 935, 939 (3d Cir. 1976). A taxpayer may only challenge the validity of a tax assessment by filing a claim in Tax Court, or, upon paying the assessment, in a refund action in the district court or the court of claims. Zimmer v. Connett [81-1 USTC ¶9223 ], 640 F.2d 208, 210 (9th Cir. 1981) (citations omitted). Courts have consistently rebuffed taxpayer's attempts to circumvent that procedure. Id. (citations omitted).

Therefore, pursuant to Rule 12 of the Federal Rules of Civil Procedure, to the extent the plaintiffs seek to challenge the underlying tax assessments made by the IRS, the government's motion to dismiss shall be granted; however, to the extent the plaintiffs seek to challenge the procedural regularity of the IRS levy on their property, the motion shall be denied.

B. The United States' Motion for Summary Judgment

Having found that the plaintiffs can proceed with a quiet title action against the United States under 28 U.S.C. §2410, the court will now consider the United States' motion for summary judgment. Basically, plaintiffs claim that the levy on their property was invalid because the United States did not follow proper statutory procedures.

The procedural framework for a valid tax lien requires first that the IRS make a valid assessment of the taxes pursuant to 26 U.S.C. §6203 . Upon reviewing the memoranda, affidavits, and exhibits in the record, the court finds that the IRS made a valid assessment. The United States, in support of its motion for summary judgment, provided certified copies of "Certificates of Assessments and Payments" setting forth the taxes for which plaintiffs were assessed. Where, as here, assessments have been detailed in the Form 4340, a presumption of correctness attaches thereto. See, e.g., United States v. Nuttall [89-2 USTC ¶9460 ], 713 F.Supp. 132, 135 (D.Del. 1989). As required under 26 U.S.C. §6303 , Henry Molko was issued a Notice of Assessment and Demand for Payment for tax years 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985, and 1986. See Declaration of Revenue Officer Pat McDonough, filed April 20, 1989 , at 2.

Given the validity of the assessments, pursuant to 26 U.S.C. §6331(a) , the IRS had the power to collect delinquent taxes "by levy upon all property and rights to property." 26 U.S.C.S. §6331(a) (Law. Co-op. 1989). The term "levy" is defined in Section 6331(b) as including "the power of distraint and seizure by any means." Id.

Mr. Molko principally questions the validity of the collection procedures followed by the IRS because: (1) the property was not physically seized; (2) the property was sold in Ada County, rather than Canyon County where it was located; and (3) that, because Carol Molko had an interest in the property by virtue of the community property laws of Idaho, the seizure and sale of the Molko residence for the purpose of collecting taxes owed solely by Henry Molko was improper. Each argument shall be addressed in turn.

First of all, it is clear that the government may levy upon all property and rights to property belonging to persons indebted to the United States for unpaid, assessed taxes. Moreover, in order for a seizure to take place under 26 U.S.C. §6331 , the IRS does not have to take actual possession of property. American Acceptance Corp. v. Glendora Better Builders [77-1 USTC ¶9348 ], 550 F.2d 1220, 1222 (9th Cir. 1977); Chevron, U.S.A., Inc. v. United States [83-1 USTC ¶13,523 ], 705 F.2d 1487 (9th Cir. 1983). On the contrary, service of the Notice of Levy is sufficient to seize the property levied upon. Id. Therefore, under the circumstances presented in this case, when Henry Molko was served with the Notice of Levy and Notice of Seizure on July 12, 1988 , the plaintiffs' real property in Canyon County was seized as a matter of law. See Declaration of Revenue Officer Pat McDonough, filed January 19, 1990 , Exhibits A and B; Plaintiffs [sic] Affidavit in Opposition to Defendants Answer Dated April 2, 1990 , filed April 26, 1990 , Exhibit E103.

Secondly, plaintiffs maintain that the location of the sale of the property constituted a procedural irregularity which should invalidate the sale. The court recognizes that Section 6335(d) provides that a sale of property "shall be within the county in which the property is seized, except by special order of the Secretary." 26 U.S.C.S. §6335(d) (Law. Co-op. 1989). Indeed, 26 C.F.R. 301.6335-1(c)(1) (1989) specifically provides that:

The time of sale shall not be less than 10 days nor more than 40 days from the time of giving public notice under section 6335(b) . . . . The place of sale shall be within the county in which the property is seized, except that if it appears to the district director under whose supervision the seizure was made that substantially higher bids may be obtained for the property if the sale is held at a place outside such county, he may order that the sale be held in such other place. The sale shall be held at the time and place stated in the notice of sale.

(emphasis added)

Therefore, pursuant to Treasury Regulations, the Secretary delegated the authority to determine the need for a sale to take place in another county to the District Director. Id. In turn, it is undisputed that, the District Director, William M. Jacobs, delegated such authority to the Chief of the Collection Section who approved the sale of the Molko property in Ada County. See Declaration of Revenue Officer Pat McDonough, filed January 19, 1990 , Exhibits E and F. Thus, based on the administrative determination that substantially higher bids could be obtained if the Molko property were sold in another county, the property was sold in Ada County, rather than Canyon County.

Mr. Molko claims that the sale in Ada County was improper. However, despite that contention, based on the relevant law and the undisputed facts in the record, this court finds that the sale in Ada county was proper. The plaintiffs were given sufficient notice of the time and place of the sale. Indeed, as represented in Pat McDonough's declaration, on January 17, 1989 , the original notice of sale was taped to the plaintiffs' front door. Declaration of Revenue Officer Pat McDonough, filed January 19, 1990 , ¶9 at 3. On January 19, 1989 , Henry Molko was sent a certified copy of the notice of sale by certified mail. Id. ¶10. And, finally, on January 23, 1989 , a notice of sale was published in the Idaho Press Tribune in Canyon County. Id. ¶11 and Exhibit G. Thus, mindful of the relevant regulations and procedure, the court finds no basis for invalidating the sale of the Molko property merely because the sale took place in Ada, rather than Canyon County. Moreover, in cases such as this, the court finds that deference to such an administrative determination is warranted. United States v. Vogel Fertilizer Co. [82-1 USTC ¶9134 ], 455 U.S. 16, 24 (1982).

Thirdly, to the extent that the plaintiffs contend that the IRS improperly seized Carol Molko's share of the property at issue, their position is inappropriate as a matter of law. As indicated in Exhibit A to the Declaration of Revenue Officer Pat McDonough, on April 2, 1984 , Carol Molko executed four separate Disclaimer Deeds, disclaiming, releasing and quitclaiming all rights, title and interest in the property at issue to her husband, Henry Molko. The Disclaimer Deed was recorded in the Canyon County Recorder's Office. Id.

Additionally, even assuming, arguendo, that Carol Molko had retained an interest in the property, the seizure and sale of the property would be valid to satisfy the tax debt incurred by the marital community. The tax debt in question arose from unpaid income taxes for the years 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985, and 1986 and is a community debt. See, e.g., Simplot v. Simplot, 96 Idaho 239, 246, 526 P.2d 844, 851 (1974) (debts benefitting the marital community are community debts). And, it is clear under Idaho law that community debts may be satisfied from community property. Twin Falls Bank & Trust Co. v. Holley, 111 Idaho 349, 353, 723 P.2d 893, 896 (1986).

In summary, because undisputed material facts and the applicable law warrant a finding that the IRS levy and subsequent sale were proper, the United States is entitled to summary judgment. Despite this finding, however, the court notes and the government is willing to acknowledge that, although the plaintiffs have not prevailed in this action, they are not foreclosed from continuing to challenge the tax assessments which underlie the levy and sale of their property. Indeed, Henry and Carol Molko may choose to seek further review and clarification on this matter by properly commencing an action for a refund.

III. ORDER

Based on the foregoing and the court being fully advised in the premises,

IT IS HEREBY ORDERED that to the extent the United States' motion seeks dismissal of this case pursuant to Rule 12 of the Federal Rules of Civil Procedure, it should be, and is hereby, GRANTED in part and DENIED in part.

IT IS FURTHER ORDERED that to the extent the United States' motion seeks summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, it should be, and is hereby, GRANTED.

¹ April 3, 1990 , represents the date on which the government filed its Reply Memorandum of Points and Authorities in Support of United States' Motion to Dismiss, or in the Alternative for Summary Judgment. The court notes, however, that on April 26, 1990 , it received and considered what was characterized as "Plaintiffs [sic] Affidavit in Opposition to Defendants Answer Dated April 2, 1990 ."