Annotations- Husband and
Husband and Wife- Levy
of Seized Property: Husband and Wife
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
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:
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.
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.
of the Court
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.
notice of levy was served upon the First National Bank in
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
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.
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.
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.
as Good Faith Purchaser]
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.
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.
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.
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.
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.
Property of Wife]
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.
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.
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.
Owned Prior to Marriage]
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
, 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.
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.
Right v. Exemption]
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
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
's Annotated Texas Statutes does establish a property right in the
income from the separate property of the wife.
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
applying the Federal tax lien
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.
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
for Federal taxes. U. S. v. Hoper, 7 Cir., 1957, [57-1 USTC ¶9508]
242 F. 2d 468.
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.
4616, V. A. T. S. states:
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 * * *"
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.
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.
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.
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.
Liability of "Special Community" Property]
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.
Court considers our statutes analogous to those dealt with in the Stone
case for the State of Washington.
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.
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.
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.
will therefore be rendered as above indicated.
USTC ¶50,274] Henry Molko, Jr. and Carol I. Molko, Plaintiffs v. United
States of America, Defendant
District Court, Dist. Ida., Civ. 89-1058,
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
§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
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"
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.
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
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]
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).
July 14, 1989
, at 3. Accordingly, the United States' motion was denied without
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
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.
The United States' Motion to Dismiss
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).
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.
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
The United States' Motion for Summary Judgment
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.
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.
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.
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
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
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
April 26, 1990
, Exhibit E103.
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:
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.
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
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
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).
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.
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).
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.
on the foregoing and the court being fully advised in the premises,
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
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.
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