Annotations- Notice of Adjournment

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6335 Annotations: Notice of Adjournment- Levy

 

Sale of Seized Property: Notice of Adjournment

 

[74-1 USTC ¶9187] United States of America , Plaintiff v. Leonard M. Conry and Alene Conry, Defendants

U. S. District Court, No. Dist. Calif. , No. C-73-2041 RFP, 12/28/73
[Code Sec. 6343]

Collection of tax: Authority to release levy: Effect on other liens.--Where levies were filed on January 9, 1973 and April 25, 1973 by the government, a notice releasing the first levy did not have the effect of also releasing the second levy.

[Code Sec. 6335(d)]

Collection of tax: Sale of seized property: 40-day limit.--The mere fact that seized property was sold more than 40 days from the time of giving notice of the sale did not invalidate the sale, where the delay was to benefit the interest of the government or the taxpayer.
[Code Sec. 6335(b)]

Collection of tax: Sale of seized land: Notice of sale: Notice of adjournment.--The sale of the taxpayer's property was held invalid because the government failed to provide the property owner with notice of the sales adjournment.

[Code Sec. 7421]

Collection of tax: Suits enjoining assessment and collection of tax: Suit by government: Lack of notice: Defense.--Where the suit is initiated by the government to obtain possession of land, the taxpayer may raise the defense of lack of notice. Code Sec. 7421 does not prohibit this defense.

Benjamin Sanchez, Department of Justice, Washington , D. C. 20530, for plaintiff. Richard Daly, 10850 Wilshire Blvd. , Sixth Floor, Los Angeles , Calif. , for defendants.

Memorandum and Order

[Facts]

PECKHAM, District Judge:

The federal government brings this action in an attempt to acquire possession of a parcel of real property presently occupied by defendants; the government asserts that it acquired valid title to this property pursuant to a valid seizure and tax sale as authorized by 26 U. S. C. §§ 6331, 6335.

On April 25, 1973 , subsequent to an assessment of tax deficiencies against defendants in the amount of $29,174.33, a notice of levy and seizure was served upon defendants. On May 2, 1973 , a notice of sale of the property was published in the local newspaper, posted in three public buildings, and mailed to defendants (who admit receipt thereof). The sale was set for May 18, 1973 , but was blocked on that date by a temporary restraining order issued from this court; accordingly, the revenue officer responsible for the sale twice postponed the date of sale, first until June 1, 1973 , and then until June 15, 1973 .

On June 8, 1973 , the temporary restraining order was lifted when defendants [plaintiffs therein] agreed to dismiss their action with prejudice. On June 15, 1973 , the sale was held; there were no bids, so the property passed to the United States at the minimum price of $6000.00, under 26 U. S. C. §6335(e)(1). Defendants failed to exercise their statutory right of redemption within the allotted 120 days, and on October 31, 1973 , a quitclaim deed was recorded in Humboldt County in favor of the United States .

[Three Defenses]

Defendants assert three defenses to this action for possession, all based upon alleged defects in the government's seizure and sale of the premises.

The first two defenses may be rejected summarily. First is the contention that there was no proper levy or seizure in effect at the time of sale, since defendants received on May 2nd a notice releasing the prior levy, and no subsequent levy was ever attempted. The notice of May 2nd was clearly intended to release only the levy filed on January 9, 1973 , and did not purport to have any effect upon the levy filed on April 25, 1973 . Under 26 U. S. C. §6343, the Secretary or his delegate has the power to release a prior levy, without prejudice to any subsequent levy which might be entered; this court finds no reason or authority to support the proposition that a release which, on its face, purports to release only one of two existing levies should nevertheless be held to have the effect of releasing the other as well.

The second contention is that the sale did not occur within 40 days of the original notice, as required by §6335(d). Treasury Department Regulation §301.6335-1(c)(2) specifically permits the adjournment of a sale for up to one month from the original date when such adjournment would best serve the interest of the United States or that of the taxpayer; specific statutory authority for the promulgation of regulations of this very subject is found at 26 U. S. C. §6335(e)(2)(F). Where the regulations have been complied with, the mere fact that the statutory 40-day time limit has been exceeded is not sufficient to invalidate the sale.

[Notice of Adjournment]

Defendants' final contention is that they did not receive any notice of the adjournments. 26 U. S. C. §6335(b) requires that notice of the sale be sent to the property owner, and failure to comply with this notice has been held to render the sale voidable at the option of the taxpayer/owner. Johnson v. Gartlan [73-1 USTC ¶9150], 470 F. 2d 1104 (4th Cir. 1973); Margiotta v. District Director of Internal Revenue [54-2 USTC ¶9540], 214 F. 2d 518 (2d Cir. 1954); Bartell v. Riddell [62-1 USTC ¶9290], 202 F. Supp. 70 (S. D. Cal. 1962). The instant case, however, presents no dispute as to the initial notice; the sole issue is whether notice of adjournment need be given.

The statute itself and the regulations governing adjournment cited supra, are silent on this point. Internal Revenue Manual 5353.2(3) apparently directs the revenue officer to post written notices of adjournment to the original notices of sale, and the government contends that this was done in the instant case, at least as to the notices posted in public buildings. It is not clear whether the Manual requires actual notice to the property owner himself; at and rate, it is undisputed that in the instant case, no such notice was given.

[Directory v. Mandatory]

The government contends that even if the Manual did require such notice, its provisions should be treated as merely "directory" rather than mandatory, and hence binding only as to internal IRS matters. There is no need to reach that question in the present case, however; for in light of the clear Congressional concern for the rights and interest of the property owner, as demonstrated by the notice provision of §6335(b), ¹ the grant of authority in §6.335(e)(2)(F) must be read as subject to an implied restriction that any regulations concerning the adjournment of tax sales must provide for reasonable notice of adjournment to the property owner. Accordingly, since Treas. Reg. §301.6335-1(c)(2) fails to provide for any such notice, the regulation would have to fall for noncompliance with the statutory grant of authority.

Nevertheless, before this court can rule in favor of the taxpayer, Mr. Conry, it feels bound to consider the possible applicability of 26 U. S. C. §7421, prohibiting suits to restrain the assessment or collection of any tax, with certain exceptions not relevant here.

On its face, of course, the present action was initiated by the government itself, as a property owner seeking to enforce its right to possession, rather than by the taxpayer. An argument could be made on behalf of the government, however, that to allow the taxpayer to raise inadequate notice as a defense to the government's action to recover possession of the property would be to allow him to do indirectly what he clearly could not do directly, namely, to seek or obtain injunctive relief against the government's efforts to collect upon the tax liability owing to it.

It is clear that the taxpayer must, at some point, have the right to challenge the government's failure to comply with notice requirements as to a tax sale. In fact, several reported cases have permitted challenges to the validity of title acquired at an inadequately noticed tax sale, under the guise of an action to quiet title. See, e.g., Johnson v. Gartlan, supra; Margiotta v. District Director, supra; and Bartell v. Riddell, supra. It is true that each of these cases involved an action against a third-party purchaser rather than against the government itself, and the normal remedy is to permit the taxpayer to recover the disputed property upon payment of the sale price, with interest, to the purchaser. Thus the government is not directly involved, and its collection of taxes through the forced sale remains undisturbed. Nevertheless, it is simply inconceivable that the taxpayer's sole recourse under the circumstances, where the government has clearly failed to give the statutorily required notice of a sale or adjournment, must be simply to abandon the premises, permit the government to sell the property, and then seek to reacquire it from the purchaser at the sale price plus interest. Such a result would bring serious mischief or even chaos to the realm of tax sales. The multiplication of transactions seems extremely wasteful; moreover, the prospect or repurchase by the taxpayer would undoubtedly constitute a serious cloud on any title the government might seek to convey upon resale. Finally, the potential disruption to the affairs of the presumably innocent third-party purchaser is manifest, when the taxpayer or his heirs may one day resurface and seek to reacquire the property.

[Conclusion]

According, in view of the possible effects of a holding to the contrary, this court feels obliged to decline to extend the reach of §7421 beyond its clear terms; where, as here, the suit is initiated by the government and the taxpayer seeks to raise the notice issue simply as a defense to the government's action, §7421 should not be read to bar assertion of that defense.

For the reasons stated above, the sale of defendants' real property on June 15, 1973 , must be held invalid for failure to provide the property owner with the notice implicitly required by §6335 for adjournment of a sale. Therefore, the sale could not operate to convey title to the United States , and the government has no present right to possession. The order to show cause must ve discharged and the complaint dismissed.

So ordered.

¹ Cf. Bartell v. Riddell, supra, at 75-76.