Bona Fide Purchaser for
Value Page 2
considerable body of precedent, and after an exhaustive search of
caselaw, relevant and otherwise, the Court was only able to locate two
cases directly supporting Defendants' position. The first case, In re
Smith, involved the IRS' refusal to remit the debtor's income tax
withholding, post-discharge. 35 B.R. 451 (Bankr. N.D.
1983). The court held that the IRS' claim was provided for in the
debtor's Chapter 13 plan, and upon discharge, the debtor is entitled to
have the IRS tax lien canceled.
case, In re Campbell, is procedurally similar to the instant
action, also arising under Chapter 13. 160 B.R. 198 (Bankr. M.D. Fla.
1993). It is worth recounting the background of
as it parallels the case at bar. The government initially filed a claim
for unpaid taxes composed primarily of a secured claim. An amended claim
was filed changing the composition of the government's claim by reducing
the amount initially asserted as secured to reflect the debtor's free
assets to which a tax claim could attach.
at 199. The court entered an order determining the amount of the
government's secured claim.
at 200. After the allowed secured claim was paid in full, the
debtors filed a motion and sought an order to compel the government to
release the tax lien on the grounds that there was no longer an
underlying obligation validly secured by a lien.
The government failed to appear at the scheduled motion hearing,
the motion was granted and the government subsequently moved to set
aside the court's order.
In analyzing the issue, the
court attempted to reconcile 11 U.S.C. §506 with 26 U.S.C. §6325(a)(1).
Finding that a contradiction arises because Section 506 provides that
"an allowed claim of a creditor secured by a lien on property in
which the estate has an interest, . . . is a secured claim to the extent
of the value of such creditor's interest in the estate's interest in
such property, . . . and is an unsecured claim to the extent that the
value of such creditor's interest . . . is less than the amount of such
allowed claim," whereas Section 6325(a)(1) provides that the tax
lien shall remain and shall not be released until the obligation of the
taxpayer is paid in full or became unenforceable.
Further, Section 506(d) provides, "to the extent that a lien
secures a claim against the debtor that is not an allowed secured claim,
such lien is void . . ."
Paskay considered the government's concerns that although there was no
existing property to which the lien could attach, if the Chapter 13 plan
were to abort and be dismissed the debtor might encumber the estate by
granting liens to parties who would then not be on notice of the federal
at 201. Finding the government's fears too remote, and following the
"Congressional mandate that the provisions of Chapter 13 shall be
construed liberally in favor of Debtors who are making a sincere effort
to repay their debts either in full, or, at least, in part," the
court reaffirmed its order compelling the government to release the
federal tax lien.
appealed to the district court which issued a terse affirmance holding
that the "lien must be voided as to the unsecured claim"
pursuant to Section 506(d). Internal Revenue Service v.
, 180 B.R. 686, 687 (M.D. Fla. 1995).
case at bar and
are facially similar, the factual discrepancies and the overwhelming
body of opposing precedent dictate divergent results. In Campbell, the
IRS was not asserting a claim against remaining property of the debtor,
rather, its sole concern was protecting its lien in the event the
reorganization plan failed. There were no other assets to potentially
attach. This limitation of
is further buttressed by Chief Judge Paskay's decision some three years
later in Aylward. Therein, Judge Paskay granted the government's summary
judgment motion dismissing debtor's claim that a discharge in bankruptcy
extinguished an IRS tax lien on the debtor's property. [97-2 USTC ¶50,796],
208 B.R. at 568. Moreover, as indicated supra, the Second Circuit does
not consider property fraudulently conveyed property of the estate until
a judicial determination has been rendered to that effect. If the
Government's fraudulent conveyance argument is upheld, the property will
now be subject to the federal tax lien, notwithstanding the bankruptcy's
discharge of the parents' personal liability. See Johnson, 501
at 84, 111
There is an
opposing body of caselaw standing for the general proposition that a
debtor is entitled to a release of a lien after paying off the secured
portion of a creditor's claim pursuant to a reorganization plan. See,
e.g., In re Johnson, 213 B.R. 552, 558 (Bankr. N.D. Ill. 1997)
(finding that a Chapter 13 plan may require an undersecured creditor to
release its lien on a debtor's personal property after full payment of
its allowed secured claim); In re Nicewonger, 192 B.R. 886, 889
(Bankr. N.D. Ohio 1996) (finding that the holder of a secured claim can
be required to release its lien upon receiving payment through the
chapter 13 plan of the value of its interest in estate property that is
not surrendered); In re Jones, 152 B.R. 155 (Bankr. E.D. Mich.
1993) (holding that a debtor cannot require an undersecured creditor to
release its lien until debtors have made all payments under the chapter
13 plan); In re Murry-
, 147 B.R. 960 (Bankr. N.D. Cal. 1992) (holding that debtor can
require an undersecured creditor to release its lien while Chapter 13
still pending). These cases typically apply the "cram down"
provisions of Section 1325(a) as a method of lien avoidance to confirm
the plan. Another case, In re Butler, allowed a Chapter 13 debtor
to avoid a tax lien to the extent that the tax claim exceeded the value
of the debtor's property. 139 B.R. 258, 259 (Bankr. E.D. Ok. 1992). That
holding was predicated upon a rejection of the application of Dewsnup to
Chapter 13 cases.
case at bar is not a characteristic "lien-stripping" case in
which the value of the collateralized property is determined at the
bankruptcy proceeding and the lien is stripped as the debtor pays the
value of the collateral securing the undersecured creditor's claim and
the lien is released. The property at issue was never before the
What is the
effect, if any, of the Government's failure to address the parents'
interest in the property during the confirmation proceeding. This issue
has indirectly arisen in the context of a creditor's knowledge of the
debtor's fraudulently prepared bankruptcy plan, and the courts have
regularly held that the creditor cannot sit back and wait till after
confirmation before attempting to revoke the confirmation order. See,
e.g., In re Ritacco, 210 B.R. 595, 598 (Bankr. D. Ore. 1997)
(recognizing the distinctions between Sections 1329(a) and 1328(e),
notwithstanding, the court held that only when discovery of the fraud
occurs after confirmation can the motion for revocation be brought by
creditors); In re Kouterick, 161 B.R. 755, 760 (Bankr. D. N.J.
1993) ("Where a creditor knows of a basis for challenging
confirmation and fails to object, the creditor cannot be permitted to
use that basis to claim fraud under Code §1330 after
confirmation."). However, the IRS is not challenging the
confirmation or seeking its revocation. Cf. Young v. Internal Revenue
Serv., 132 B.R. 395, 397 (S.D. Ind. 1990) (holding error in
classification of priority claim was insufficient ground for
reconsideration of confirmation order).
In light of
the overwhelming precedent permitting a federal tax lien to survive a
discharge in bankruptcy, the Court is obliged to grant Plaintiff's
motion for summary judgment based on the lien theory of recovery.
FRAUDULENT CONVEYANCE CLAIM
avers a claim based on the premise that an intervening bankruptcy cannot
perfect a fraudulent conveyance. Plaintiff moves to set aside the
conveyance of the property pursuant to Sections 273 and 276 of the New
York State Debtors and Creditors Law. Plaintiff turns to state law
because the validity of the conveyance is governed by
law. See United States v. McCombs [94-2 USTC ¶50,363], 30 F.3d
310, 323 (2d Cir. 1994) (citing Aquilino v. United States [60-2
USTC ¶9538], 363 U.S. 509, 512-13, 80 S. Ct. 1277, 1279, 4 L. Ed. 2d
1365 (1960) ("federal . . . courts must look to state law" to
ascertain whether a taxpayer has a property interest in property
subjected to a federal tax lien)); see also Rodgers [83-1 USTC ¶9374],
461 U.S. at 683, 103 S. Ct. at 2137 ("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 of federal law.").
the merits of Plaintiff's motion, it must be determined whether the
parents' conveyance to the Defendants was fraudulent. This is so because
"the lien imposed by section 6321 shall not be valid as against any
purchaser . . . until notice . . . has been filed by the
Secretary," 26 U.S.C. §6323(a), and it is undisputed that the IRS
did not file a lien before the parents conveyed the property to the
Defendants as the tax lien arose in or about September and October of
1986, and the property was conveyed on or about October 17, 1983.
Therefore, the Government must prove either that the Defendants are not
"purchasers" within the meaning of the code or that the
conveyance was fraudulent and must be set aside, or else, the IRS is
without a claim against the property. See McCombs [94-2 USTC ¶50,363],
30 F.3d at 322 (finding absent a set aside of the pre-assessment
conveyance under state law, the taxpayer did not have a legal interest
in the property at the time the tax lien attached).
Fraudulent Conveyance Pursuant to Section 273
states, in relevant part:
conveyance made and every obligation incurred by a person who is or will
be thereby rendered insolvent is fraudulent as to creditors without
regards to his actual intent if the conveyance is made or the obligation
is incurred without a fair consideration.
Debt.&Cred. Law §273. This section has been interpreted to cover
constructive fraud. See e.g., Elgin Sweeper Co. v. Melson Inc.,
884 F. Supp. 641, 649 (N.D.N.Y 1995) (holding that under New York law,
plaintiff can recover for fraudulent conveyance without directly proving
intent, by establishing "constructive fraud," which can be
proven merely by showing that the transfer was made without fair
consideration, thus it constitutes a fraudulent conveyance regardless of
establish a fraudulent conveyance under this section, the Government
must prove that: (1) the property was conveyed from Nicholas J. Alfano
and Rita Alfano to Nicholas A. Alfano and Lisa Marie Alfano; (2)
Nicholas and Rita were or would become insolvent at the time of the
conveyance, and (3) the conveyance was made without fair consideration.
There is no dispute that the property was so conveyed and the first
element is established.
the second element, is defined in Section 271, and a person is deemed
fair salable value of his assets is less than the amount that will be
required to pay his probable liability on his existing debts as they
become absolute and matured.
Debt.&Cred. Law §271. The parents as much as admit their insolvency
at the time of the conveyance. During Nicholas J. Alfano's deposition
testimony the following pertinent examination occurred:
Q. Back in
1983, what assets did you own? A. I didn't have any assets. You mean
before I transferred the home? Q. At the time of the transfer. We know
about the house, that it was in yours and your wife's name before and
your children's name after the transfer. Correct? A. You mean did I have
any stocks, bonds, things like that? Q. Anything. A. No.
Q. Did you own
any other property? A. No. Q. Did you have any cars? A. I have cars,
yes. Q. Did you have cars in 1983? A. Yes. Q. Were those cars in your
name or your children's? A. My name. Q. At some point did you transfer
the title to one of the cars to Lisa? A. No. Q. Do you have a guess as
to how much the cars would have been worth at the time? A. Couple
thousand. Q. Total? A. Probably. Q. More than five or less than five
thousand dollars? A. Probably less than five. Q. Is it likely that you
had savings at that time? A. I don't know. I don't recall having a
savings account. Q. Any other types of bank accounts, checking account
or anything like that, savings and loan or savings bank? A. No. No. Q.
Money market, mutual fund, anything like that? A. No, I never had any of
that. Q. No other real property anywhere? A. No. Q. No vacation homes?
A. No. Q. Do you understand now that you owed the IRS taxes back then?
A. Oh, I understand it now, yes. Q. Did you have more in assets then
than you owed to the IRS in taxes? A. Then? Q. Right. A. No.
Alfano's Dep. at 46-49.) Rita Alfano's deposition testimony is
consistent with Nicholas J. Alfano's, she recollects having less than $
1,000.00 in the bank, and furnishings and jewelry worth less than an
additional $ 1,000.00 each. At the time of the transfer, the parents
owed approximately $ 22,181.00 in income taxes for 1980 and 1981.
element of insolvency is presumed when a conveyance is made without fair
consideration, and the burden of overcoming such presumption is on the
transferee. See Snyder v.
Dist. LEXIS 13283, *30, No. 88-CV-2136, 1995 WL 724529, at *10
(E.D.N.Y. 1995). As discussed below, fair consideration was not provided
in exchange for the property. Accordingly, for all the aforementioned
reasons, the element of insolvency has been established.
to the element of fair consideration, the Debtor and Creditor law
definition is found in Section 272, which provides:
consideration is given for the property, or obligation, (a) When in
exchange for such property, or obligation, as a fair equivalent thereof,
and in good faith, property is conveyed or an antecedent debt is
satisfied, or (b) When such property, or obligation is received in good
faith to secure a present advance or antecedent debt in amount not
disproportionately small as compared with the value of the property, or
Debt.&Cred. Law §272.
intrafamily transfers made without any signs of tangible consideration
as presumptively fraudulent. Thus, in McCombs, the court found
that "shifting the burden of persuasion to an intrafamily
transferee is triggered under
law by the presence of one of two factors in the conveyance: (1) the
absence of any tangible consideration, or (2) a clandestine transfer of
property designed to conceal the nature and value of the
consideration." [94-2 USTC ¶50,363], 30 F.3d at 325. In the case
at bar there is no allegation that the transfer was effectuated in a
clandestine manner. Rather, the conveyance was recorded in accordance
with the laws of the State of
. However, the deposition testimony of the parents and the deed
recording the transfer support the conclusion that there was no tangible
consideration given. The following deposition testimony of Nicholas J.
Alfano is telling:
Q. First, what
did your children pay for the house, if anything? A. I don't believe
there was any payment.
Alfano's Dep. at 29.) Nor was the transfer payment for an antecedent
Q. Did your
son or your--did you or your wife owe your son or daughter money at the
time of the transfer? A. No. Q. Was there anything that they gave you of
any value in exchange for this transfer; that is, the transfer of the
house to your kids? A. I don't remember. I don't remember. Q. Would you
look at Exhibit 1? At the top left is says "zero
consideration." Do you see that? A. Yes. Q. And a little bit lower,
in the middle it says "witnesseth that the party for the first
part, in consideration of $ 10 and other valuable consideration,"
and goes on from there. Do you see that? A. Yes. Q. Do you have anything
that would lead you to believe that anything more than zero or $ 10 was
paid for that house by your children? A. I guess not. Q. Let me be clear
with you. There may be a trial in this case, When we go to trial and I
ask you what has been paid for the house, are you going to say
"zero" or is there going to be something else? A. We just
transferred the house to the children for the reasons I gave. Q. It
wasn't a business deal of any sort? A. No. Q. And it wasn't a sale? A.
No. Q. It was a gift? A. I guess so.
Alfano's Dep. at 31-33.) Although the parents provided an explanation
for the conveyance which does not suggest a motivation to evade tax
liability, a showing of actual fraudulent intent is specifically not
required by the statutory language of Section 273.
Q. Whose idea
was it to transfer the property? A. Both me and my wife. Q. Why? A. We
were having marriage problems and we were talking about divorce. Q. And
so? A. We decided to give the house to the children so that they would
have a roof over their heads. We didn't want to--we didn't want it to go
to court, and that is what we did.
Alfano's Dep. at 12.) However, although the conveyance satisfied the
formal legal requisites, the parents still treated the property as their
own for tax purposes.
Q. Did you
make the payments for real estate taxes and mortgage? A. I don't
remember. Q. Did your wife? A. I don't know. Q. What about for 1985?
Were you living in the house? A. I don't remember--was I living in the
house? Q. Right. A. I think I had come back sometime in '85. I don't
remember when. Q. Were you making--were you paying the real estate taxes
for the house that year, 1985? A. I don't know. I don't remember. I
believe my son was, but I don't know. Q. What about the mortgage
payments? A. I don't know if there were any. Q. I would like to show you
what has been marked Exhibit Number 5. At the top of the form it says
"1040 U.S. Individual Tax Return, 1984," and has the names
Nicholas and Rita Alfano. Do you see that? A. Yes. Q. Is this your 1984
tax return? A. Yes. Q. Did you own any real estate in 1984? A. No. Q. Do
you see where it says "real estate taxes"? A. Yes. Q. It says
that $ 1,442 were paid in real estate taxes in 1984. Do you see that? A.
Yes. Q. Is that the amount of real estate tax that you paid for that
year? A. I don't remember. Q. Could you look at line 11. . . . It says $
672 in home mortgage interest was paid that year. Do you see that? A.
Yes. Q. Did you pay that amount for home mortgage? A. I don't know. I
don't remember. Q. Was there any other home mortgage that you might have
been paying in 1984 other than the house on
? A. No. Q. Was there any other property you would be paying real estate
taxes on in 1984 other than the house on
? A. No. Q. So when you filed this tax return, you honestly thought that
you paid a home mortgage interest of $ 672 and real estate taxes of $
A. I don't
know. I guess so. I don't know.
Alfano's Dep. at 36-40.) A similar inquiry pertaining to his 1985 tax
return took place, culminating in the following inquiry: you see where
it says that you paid $ 1,542 in real estate taxes? A. Yes. Q. Do you
know what property that was on? A.
11 Alden Lane
, I guess. Q. The house that you transferred to your children? A. Yes.
to financial institutions, it says $ 657. Do you see that? A. Yes. Q.
For which home was that interest paid? A. On the
11 Alden Lane
(N.J. Alfano's Dep. at 41.) The parents testified that they paid rent to
the transferees, Defendants herein, who paid all of the bills including
the underlying mortgage and real estate taxes, however, this was done in
an informal manner.
Q. Did your
son formally take on the mortgage of the house after the transfer? A.
What do you mean formally? Q. Did you sign any papers so that you were
off the mortgage and he was on it? A. No. Q. Other than fill out a deed,
which we showed you earlier as Exhibit 1, were there any other documents
created in connection with the transfer of the house to your children?
A. No. Q. So there is nothing that would show that your children took on
the mortgage on
11 Alden Lane
. A. No. Q. Did your children assume the mortgage? A. You mean legally?
Q. Yes. A. No.
Alfano's Dep. at 44-45.) Assumption of mortgage debt may constitute fair
consideration, where, for example, the debt assumed nearly approaches
the relative value of the property, See McCombs [94-2 USTC ¶50,363],
30 F.3d at 326, or where the conveyance satisfied an antecedent debt. See
In re Fair, 142 B.R. 628, 631 (Bankr. E.D.N.Y. 1992) (although the
deed indicated that the property was conveyed for "no
consideration," the prior divorce decree indicated that the wife
agreed to make no claim for maintenance in consideration of her husband
signing over his interest in the property to their daughter, and this
amounted to fair consideration). However, where the property was taken
subject to the mortgage, or where transferors received nothing for their
equity, fair consideration was not given. See, e.g., McCombs
[94-2 USTC ¶50,363], 30 F.3d at 327 (vacating district court's
decision, in part, because purchasers did assume mortgage and did not
just take property subject to the mortgage); In re Davis, 169
B.R. 285, 300 (E.D.N.Y. 1994) (finding a fraudulent conveyance because
debtors received nothing for their equity in the house and therefore did
not receive fair consideration, notwithstanding fact that mortgage and
mortgage arrears were paid off).
In the instant
action, the evidence supports a singular conclusion; the property was
not transferred for fair consideration. A conservative estimate of the
value of the property at the time of the conveyance was approximately $
50,000.00. The IRS and Nicholas J. Alfano so estimated. (Pl.'s 56. 1 P
15.) The Defendants made application for a loan approximately two years
later and valued the property at $ 140,000.00. (Pl.'s 56. 1 P 15.) The
pre-existing mortgage had a face value of $ 15,000.00, and an
outstanding balance of $ 9,100.00 at the time of the aforementioned loan
application, and the Defendants did not assume the mortgage. (Pl.'s 56.
1 P 15.)
courts have considered the issue of fair consideration inappropriate for
summary adjudication, see
[94-1 USTC ¶50,283], 1994 U.S. Dist. LEXIS 7690, No. 2:90CV00268,
1994 WL 389473, at *6, 7 (D. Conn. 1994), it is an available remedy,
readily employed. See, e.g., Snyder, 1995 WL 724529, at *12
(granting summary judgment on government's fraudulent conveyance claim);
U.S. v. Bushlow [93-2 USTC ¶50,556], 832 F. Supp. 574, 581-82,
(E.D.N.Y. 1993) (holding that sufficient evidence established that
taxpayers' transfer of their house to their son was fraudulent under New
York law, and could be set aside in an action by the United States to
collect income taxes owed, where the language of the instrument of
transfer indicated that the consideration was "ten dollars and
other valuable consideration," and the taxpayers' joint liability
exceeded $ 200,000 at the time of the transfer); United Sates v.
Nirelli [97-2 USTC ¶50,751], 1997 U.S. Dist. LEXIS 15451, No.
92-CV-563C, 1997 WL 718443, at *5 (W.D.N.Y. 1997) (finding no record of
release of antecedent support payments serving as consideration for
transfer of residence from husband to wife and granting government's
motion to set aside the conveyance).
In the instant
action, Defendants' have failed to challenge the Government's fraudulent
conveyance claim. As indicated above, and according to the deed, the
parents conveyed the property to the Defendants for ten dollars, and
although the Defendants agreed to make the monthly payments, they did
not assume the existing mortgage. Additionally, the facts show that the
parents were rendered insolvent by this transfer.
the Court holds that Defendants have presented no credible evidence to
meet their burden of proving that the property was conveyed for
"fair consideration" as defined under prevailing
law. Summary adjudication is appropriate "against a party who fails
to make a showing sufficient to establish the existence of an element
essential to that party's case, and on which the party will bear the
burden of proof at trial." Celotex Corp. v. Catrett, 477
317, 322, 106
2548, 2552, 91 L. Ed. 2d 265 (1986). Therefore, the Court finds that the
transfer from Nicholas J. Alfano and Rita Alfano to Nicholas A. Alfano
and Lisa Alfano of the property located at
11 Alden Lane
, was a fraudulent conveyance as defined by Section 273 of the Debtor
and Creditor Law of New York.
Fraudulent Conveyance Pursuant to Section 276
also moves to set aside the transfer pursuant to Section 276 of the New
York State Debtors and Creditors Law. Section 276 provides: Every
conveyance made and every obligation incurred with actual intent, as
distinguished from intent presumed in law, to hinder delay or defraud
either present or future creditors, is fraudulent as to both present and
Debt.&Cred. Law §276. As explained by the Second Circuit,
"unlike section 273 which creates constructive fraud by virtue of
the lack of fair consideration, section 276 focuses on the "actual
intent" of the transacting parties. Indeed, where actual intent to
defraud creditors is proven, the conveyance will be set aside regardless
of the adequacy of the consideration given." McCombs [94-2
USTC ¶50,363], 30 F.3d at 327-28. However, intent can be inferentially
proven. See In re Montclair Homes, 200 B.R. 84, 97 (Bankr.
E.D.N.Y. 1996) (finding that intent does not need to be shown by direct
evidence, and is normally inferred from the circumstances surrounding
the transfer). Still, actual intent to defraud must be proven by the
party seeking to set aside the conveyance by clear and convincing
evidence. McCombs [94-2 USTC ¶50,363], 30 F.3d at 328 (citing Marine
Midland Bank v. Murkoff, 120 A.D.2d 122, 126, 508 N.Y.S.2d 17, 20
) & ACLI Gov't Sec. v. Rhoades, 653 F. Supp. 1388, 1394
utilized by courts to circumstantially infer actual intent--which have
been termed "badges of fraud"--include: (1) whether the
consideration received was adequate or existent at all; (2) whether the
transferee was a relative; (3) whether the debtor retained possession;
and (4) whether the debtor's financial condition change after the
transfer. In re Kaiser, 722 F.2d 1574, 1582-83 (2d Cir. 1983).
More recently the Second Circuit noted that the " 'fraudulent
nature of a conveyance may be inferred from the relationship among the
parties to the transaction and the secrecy of the sale, or from
inadequacy of consideration and hasty, unusual transactions.' " McCombs
[94-2 USTC ¶50,363], 30 F.3d at 328 (quoting In re Grand Jury Subpoena
Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1041 (2d Cir. 1984)).
Although a strong argument could be made to support the conclusion that
these factors have been established herein, because the parents
proffered a plausible non-fraudulent explanation for the
conveyance--namely, to ensure that their children, the Defendants, would
have a home impervious to the vagaries of divorce proceedings--their
intent becomes a factual issue unsuited for summary adjudication. See
United States v. Digiulio [97-2 USTC ¶50,987], 1997 U.S. Dist.
LEXIS 19062, No. 95-CV-219S, 1997 WL 834820, at *11 (W.D.N.Y. 1997)
(denying fraudulent conveyance claim because evidence did not convince
the court that the transfer qualified as an "exception to the
well-established rule that summary judgment is normally inappropriate
when deciding questions of intent").
because Plaintiff has establish a fraudulent conveyance claim pursuant
to Section 273, the Court need not decide at trial whether Plaintiff can
establish a fraudulent conveyance claim pursuant to Section 276.
Defendants Are Not Purchasers Excepted From the Lien
raised by the Government, if the Defendants are not bona fide purchasers
of the subject property, they are not entitled to protection from the
lien. The IRS code specifically provides that a federal tax lien
"shall not be valid against any purchaser, holder of a security
interest, mechanic's lienor, or judgment lien creditor[s]" unless
notice of that lien has been properly filed. See 26 U.S.C. §6323(a).
A purchaser is defined therein as "a person who, for adequate and
full consideration in money or money's worth, acquires an interest in
property. . . ." See 26 U.S.C. §6323(h)(6). As described
above, the evidence shows that the Defendants did not give adequate and
full consideration for the property, and are therefore not entitled to
statutory protection as purchasers. See United States v. O'Day
[97-1 USTC ¶50,250], 1996 U.S. Dist. LEXIS 19633, No. 95-86-CIV-ORL-18,
1996 WL 814496, at *5 (M.D. Fla. 1996). In O'Day, as in the instant
action, the government sought to foreclose on federal tax liens and to
set aside a conveyance of real property. The taxpayer conveyed his
property to his sons for no consideration and later voluntarily filed
for Chapter 7 bankruptcy protection.
at *3. The court granted the government's summary judgment
motion, holding that the federal tax liens survived bankruptcy and the
sons were not purchasers under §6323(a).
at *5. The court also concluded that property was fraudulently conveyed.
counsel's failure to address the Government's tax lien and fraudulent
conveyance analyses reflects either an acknowledgment of the perceived
futility of Defendants' position, or abject inept advocacy, nonetheless,
for all the aforementioned reasons, Plaintiff's motion for summary
judgment is granted with respect to its claim pursuant to the lien
theory and with respect to the fraudulent conveyance theory pursuant to
PLAINTIFF'S MOTION FOR ATTORNEYS' FEES
moves for attorneys fees pursuant to New York Debtor and Creditor Law §276-a,
which provides in relevant part:
In an action
or special proceeding brought by a creditor . . . to set aside a
conveyance by a debtor, where such conveyance is found to have been made
by the debtor and received by the transferee with actual intent, as
distinguished from intent presumed in law, to hinder, delay or defraud
either present or future creditors, in which action or special
proceeding the creditor . . . shall recover judgment, the justice . . .
presiding at the trial shall fix the reasonable attorney's fees of the
creditor . . . in such action. N.Y. Debt.&Cred. Law §276-a.
However, because the Court has found genuine issues of material fact
respecting the parents intent, actual fraud cannot be established by
summary adjudication, and accordingly, Plaintiff's motion for costs is
ENFORCEMENT OF THIS ORDER
determined that the parents' tax liability, although personally
discharged in bankruptcy, remains as a valid tax lien against the
property at issue, which was fraudulently conveyed to the Defendants,
the Court must determine the proper resolution of this action. Clearly,
pursuant to 26 U.S.C. §7403, the Court may decree a sale of such
property and distribute the proceeds in respect to the interests of the
parties and the United States, however, because "financial
compensation may not always be a completely adequate substitute for a
roof over one's head," Rodgers [83-1 USTC ¶9374], 461 U.S.
at 703, 103 S. Ct. at 2148, it would be preferable if the parties could
reach an agreement resolving this action without requiring the forced
sale of the property. Although Rodgers has provided guidelines for a
court to consider when weighing the interests of third parties before
authorizing a forced sale, id. at 709-11, [83-1 USTC ¶9374], 103
at 2151-52, analysis thereof is not presently necessary. Accordingly, a
settlement conference will be scheduled by the Court.
for all the aforementioned reasons, Defendants' motion for summary
judgment is denied in its entirety and Plaintiff's motion for summary
judgment is granted to the extent provided in this Memorandum and Order.
Plaintiff's motion for attorneys' fees is denied.
enforcement of this Memorandum and Order is stayed until further
instructions of the Court.
The only documents pertaining to the 1991 Chapter 13 proceeding provided
to the Court were copies of the United States' Response to Debtors'
Motion to Reclassify Claims of IRS and the Order Discharging Debtor
After Completion of Chapter 13 Plan. (Exs. D&F of Defs.' Aff. in
Support of Summ. J.)
United States of America
, Plaintiff v. Gerald J. Landsberger, et al., Defendants
, CIV 94-0883-PHX-SMM,
Property subject to lien: Trusts: Nominee or alter ego: Economic
realty: Sham transactions.--The IRS was entitled to foreclose on
residential property that was held in a married couple's nominee or
alter ego trust. The nominee or alter ego theory applied because the
creation of the trust did not coincide with economic realty and the
trust was, in effect, a sham. The husband admitted that the trust was
set up as a shell for the purpose of keeping his property at arm's
length from potential creditors, including the IRS, and the undisputed
facts established that he maintained active and substantial control over
the trust. Since the trust was the nominee or alter ego of the couple,
the timing of its creation was irrelevant.
Validity of lien: Priority over third-party interests: Bona fide
purchaser.--Pursuant to both federal and state (
) law, federal tax liens on residential property took priority over any
interest held by alleged bona fide purchasers who took title with full
knowledge of the tax liens.
September 29, 1995
, this Court entered an Order holding that the
' tax assessments against Defendants Gerald and Betty Landsberger for
the years of 1979, 1980, 1981 and 1982 could be reduced to judgment.
Additionally, the Court held that the
could foreclose its tax liens on the Landsberger's residential property
related to the assessments made against them for the years of 1979 and
1980. However, subsequent to the entry of judgment, the
moved to enter default judgment against Defendants Nancy Fieldman and
Jeffrey Fadden as trustees of the trust that held the residential
property. The Court denied the motion for default judgment and order and
decree of foreclosure with respect to the property, and set discovery
deadlines for this action to proceed forward on the issue of foreclosure
of the property.
pending before this Court is Plaintiff's Renewed Motion for Summary
Judgment on a different theory again seeking an Order that would allow
to foreclose on the tax liens arising from the 1979 and 1980 income tax
facts are undisputed. In October of 1961, Defendants Gerald and Betty
Landsberger took title to property at
1677 West County Road
("St. Paul Property"), and lived in the property until March
of 1982. In January of 1981, the Landsbergers transferred the
property to the G. J. Landsberger Family Trust 2-372 ("Trust
#2-372") for "$1.00 and other good and valuable
consideration"). See Deposition Transcripts Filed in Support
Renewed Motion for Summary Judgment, Deposition of Gerald J. Landsberger
("Depo. G. Landsberger"), at p. 19 at ll. 2-4, p. 23 at ll.
6-23, and Exh. 2. The
property was worth in excess of $100,000 at the time of the transfer. See
id. at p. 25, ll. 4-7. Gerald Landsberger was the trustee of Trust
#2-372 and directed the activities of the trust. See id. at p.
24, ll. 2-4, and p. 3, ll. 6-20.
Landsberger has maintained and espoused tax protester-type beliefs since
the late 1970's. See id. at p. 20, ll. 1-15, p. 21, ll. 7-21, p.
22, ll. 8-17, p. 52, ll. 1-7, p. 53, ll. 7-23, and Exhs. 13-15; see
v. Gerald Landsberger [82-1 USTC ¶9171], 534 F.Supp. 142 (D.
1981). Mr. Landsberger had many trusts set up in 1977, the purpose of
which was to keep himself an "arms length" from any
transaction related to the subjects of the trust, in order to protect
the properties from potential creditors including the IRS. See
Depo. of G. Landsberger, at p. 49, l. 9-p. 51, l. 25. Mr. Landsberger
did not at that time have any tax deficiency assessments against him. See
id. at p. 51, ll. 1-2.
the transfer of the
property to Trust #2-372, the trust sold the property to an unrelated
third party for a cash down payment of approximately $37,000, plus
monthly payments and assumption of the mortgage. See id. at p.
29, ll. 23-25, p.30, ll. 1-20, and Exh. 3. After the sale of the
property, the proceeds and all future payments for the property were
transferred to Gerald Landsberger Investments, a Trust under Trust
#2-988 (Trust #2-988), with the beneficiary being Constitutional Trust
#1-988. Second Declaration of Gerald J. Landsberger ("Sec. Decl. G.
Landsberger"), at ¶4; see also, Depo. G. Landsberger, at p.
30, ll.21-25, p. 31, ll. 1-25, p. 32 ll. 1-25, and p. 34, ll. 6-18. Mr.
Landsberger was also the trustee of Trust #2-988, and directed the
trust's activities. See id. at p. 32, ll. 12-14, p. 33, ll.
21-25, p. 34, ll. 1-2 and 19-25, and p. 35, ll. 1-4.
1981 or 1982, Trust #2-988 used the proceeds of the sale of the
property to purchase the residential real property at 4502 Cortez in
, also referred to as Lot No. 127, Village Fairways ("Cortez
property"). See id. at p. 34, ll. 6-18, and Exh. 4. The
Landsbergers resided at the Cortez property. See id. at p. 6, ll.
10-21; Deposition Transcripts Filed in Support of the United States
Renewed Motion for Summary Judgment, Deposition of Nancy (Landsberger)
Fieldman ("Depo. N. Fieldman"), at p. 6, ll. 11-24.
On or around
November 21, 1984
, Mr. Landsberger received a Notice of Deficiency from the IRS
pertaining to the tax years of 1979 and 1980. See Depo. G.
Landsberger, at p. 16, ll. 13-25, p. 17, ll. 1-17, and Exhs. 14 &
January 4, 1985
, Trust #2-988 transferred the Cortez property to Esther, a Trust under
Trust #2-1703 (the "Esther trust"). See id. at p. 37,
ll. 1-10, and Exh. 17; Sec. Decl. of G. Landsberger, at ¶5.
Fieldman, the Landsberger's daughter, and Jeffrey Fadden were
co-trustees of the Esther trust. Depo. G. Landsberger, at p. 38, ll.
5-7. Fieldman never had a communication with Fadden, and knew of him
only by her father's mention of him. See Depo. N. Fieldman, at p.
12, ll. 1-10. Fieldman became a co-trustee of the Esther trust at the
behest of her father. See id. at p. 10, ll. 10-25.
In July of
1985, Fieldman signed a "Joint Tenancy Deed" as trustee of the
Esther trust conveying the Cortez property to an unrelated third party.
In June of 1986, the Esther trust used the proceeds of the Cortez
property sale to purchase the residential real property located at
11815 North 91st Place
"). Sec. Decl. G. Landsberger, at ¶6; see also, Depo. N.
Fieldman, at p. 17, ll. 23-25, p. 18, ll. 1-11, and Exh. 5. The
Landsbergers then moved into the
property where they continue to reside today. See Sec. Decl. G.
Landsberger, at ¶5; Depo. G. Landsberger, at p. 5, ll. 18-25, p. 6, ll.
Landsbergers do not pay rent to live on the
property. See Depo. G. Landsberger, at p. 56, ll. 21-23; Depo. J.
Wilde, at p. 55, ll. 2-25, and p. 56, ll. 18-24. The Landsbergers pay
all the utilities and maintenance costs of the property as they did with
the Cortez property. See Depo. G. Landsberger, at p. 56, ll.
24-25, and p. 57, ll. 1-10; Deposition Transcripts Filed in Support of
the United States Renewed Motion for Summary Judgment, Deposition of
John Wilde ("Depo. J. Wilde"), at p. 56, ll. 1-20.
June 16, 1988
, Nancy Fieldman signed her resignation as trustee of the Esther trust. See
Depo. N. Fieldman, at p. 29, ll. 2-10, and Exh. 27. She was replaced by
Jimmy C. Chisum. Sec. Decl. G. Landsberger, at ¶9.
September 29, 1988
, the Arizona Tax Court upheld the deficiency determination for the tax
years of 1979 and 1980, and found Betty and Gerald Landsberger liable
for deficiencies of $13,554.00 for the taxable year of 1979 and
$55,631.00 for the taxable year of 1980, with a fraud addition of
$34,593.00. See Court's Order of
Sept. 29, 1995
, at p. 3. On
February 13, 1989
, the IRS assessed Gerald and Betty Landsberger's deficiency for 1979
and 1980, plus interest, and sent a demand for payment to the
In November of
1995, the title to the
property was transferred to John Wilde and Eileen Lipari for "ten
dollars and other valuable considerations." See Depo. J.
Wilde, at p. 10, ll. 3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs.
10 & 11. John Wilde is a "very good friend" of Mr.
Landsberger who also assists Mr. Landsberger in this litigation although
he is not a lawyer. See Depo. J. Wilde, at p. 13, ll. 17-25, and
p. 14, ll. 1-13. Mr. Wilde decided that the property should be
transferred to him, and his friend Eileen Lipari, as a litigation tactic
to so that they could join in this action as defendants and proceed pro
se as the owners of the property. See id. at p. 59, l. 9-p. 60,
l. 18. At the time of the transfer the property was worth in excess of
$100,000. See id. J. Wilde, at p. 65, ll. 12-18.
of 1995, the Arizona Tax Court ordered Mr. Landsberger incarcerated for
failure to comply with the court's order compelling him to comply with a
subpoena for tax records. Declaration of James A. Susa ("Susa
Decl."), at ¶3. In an attempt to comply with the subpoena and to
have him released from jail, in December of 1995, Mr. Landsberger's
attorney submitted a document to James M. Susa, an Assistant Attorney
General for the State of
at ¶4. The document, signed under penalty of perjury on, lists the
property under Real Estate assets of Mr. Landsberger, and states that he
is the one half owner of the property. See id., Exh. A. 2
STANDARD OF REVIEW
A court must
construe a pro se litigant's pleadings and papers liberally. McGuckin
v. Smith, 974 F.2d 1050, 1055 (9th Cir. 1992). Nevertheless, a pro
se litigant is held to the same legal standard in determining
whether summary judgment should be granted. See King v. Atiyeh,
814 F.2d 565, 567 (9th Cir. 1987). Where a motion to dismiss contains
matters outside the pleadings, a court must construe the motion as a
motion for summary judgment and give the parties "reasonable
opportunity" to present all material pertinent to a motion for
summary judgment. Fed. R. Civ. P. 12(b) (1995).
A court must
grant summary judgment if the pleadings and supporting documents, viewed
in the light most favorable to the nonmoving party, "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." Fed. R. Civ. P.
56(c) (1995); see also Celotex Corp. v. Catrett, 477
317, 322-23 (1986); Jesinger v. Nevada Federal Credit Union, 24
F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts
are material. Anderson v. Liberty Lobby, 477
242, 248 (1986); see also Jesinger, 24 F.3d at 1130. "Only
disputes over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary
judgment." Anderson, 477
at 248. The dispute must also be genuine, that is, "the evidence is
such that a reasonable jury could return a verdict for the nonmoving
party." Id.; see also Jesinger, 24 F.3d at 1130.
purpose of summary judgment is "to isolate and dispose of factually
unsupported claims." Celotex, 477
at 323-24. Summary judgment is appropriate against a party who
"fails to make a showing sufficient to establish the existence of
an element essential to that party's case, and on which that party will
bear the burden of proof at trial."
at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964
(9th Cir. 1994). The moving party need not disprove matters on which the
opponent has the burden of proof at trial. Celotex, 477
at 317. The party opposing summary judgment "may not rest upon the
mere allegations or denials of [the party's] pleadings, but . . . must
set forth specific facts showing that there is a genuine issue for
trial." Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus.
Co. v. Zenith Radio, 475
574, 585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d
1044, 1049 (9th Cir. 1995).
attempting to foreclose on the tax lien on the
property for the tax assessments made on Defendants for the tax years of
1979 and 1980 reduced to judgment on
February 13, 1989
. Section 6321 of Title 26 of the United States Code reads:
If any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount (including any interest, additional amount, addition to tax,
or assessable penalty, together with any costs that may accrue in
addition thereto) shall be a lien in favor of the United States upon all
property and rights to property, whether real of personal, belonging to
U.S.C. §6321. Defendants in this action allege that the
property belonged to another since before the time of the assessment
through today, and that accordingly, the government cannot foreclose on
the lien on the property.
seeks to foreclose on the tax lien on the
property under three alternative theories. The government first argues
that the Esther Trust was the nominee of the Landsbergers who held
equitable title to the property on the date that the tax assessments
were made. Accordingly, under 26 U.S.C. §6321, the government may
foreclose on the property. Alternatively, Plaintiff argues that the
transfer of the Cortez property from Trust #2-998 was fraudulent, and
should be set aside under the Arizona Uniform Fraudulent Transfer Act,
A.R.S. §44-1001, et seq. Finally, Plaintiff argues that any
interest held in the property by John Wilde and Eileen Lipari is
inferior to the Federal tax liens under 26 U.S.C. §6323(a) and
makes three counter arguments. First, Defendant argues that Plaintiff
impermissibly amends its Complaint in this action without leave of Court
by including its claim under the Arizona Fraudulent Transfer Act.
Secondly, Plaintiff argues that under
law the "nominee/alter ego theory" can only arise against a
corporation. In any event, the theory is not available where the
transfer took place before the tax assessment. Finally, Plaintiff argues
that assuming arguendo that either the nominee/alter ego theory or the
fraudulent transfer theory can be raised, genuine issues of material
fact exist precluding summary judgment.
Nominee/Alter Ego Theory
"nominee/alter" ego theory is clearly viable in this instance
even though the assets are held by a trust, and not a corporation. See
e.g., F.P.P. Enterprises and D & S Trust v. United States [87-2
USTC ¶9536], 830 F.2d 114 (8th Cir. 1987); Neely v.
[85-2 USTC ¶9791], 775 F.2d 1092 (9th Cir. 1985). The underlying
principle is the "sham" nature of the arrangement. See
F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117 ("A
transaction will not be given effect according to its form if that form
does not coincide with the economic reality and is, in effect, a
sham."); Neely [85-2 USTC ¶9791], 775 F.2d at 1094 (sham
transaction will not be recognized for tax purposes).
there is no requisite that the nominee/alter ego arrangement come into
existence after the assessment of the tax liability. If the Court finds
that the Esther trust was the alter ego of the Defendant existing at the
time of the assessment simply to avoid creditors, then the timing of its
creation has no import. See G.M. Leasing Corp. v. United States
[77-1 USTC ¶9140], 97 S.Ct. 619, 627 (1977) (under §6321 assets of
alter ego are properly levied as assets to satisfy tax liability of tax
payer) (F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 118
(property held by alter ego trusts not held by "separate
persons" apart from taxpayer, and therefore, my be levied). The
timing of the trust arrangement, may however, be a factor for the Court
to consider in determining whether the trust is actually a nominee or
held in the name of an entity which is the alter ego of the taxpayer may
be levied on to satisfy the tax liabilities of the taxpayer." F.P.P.
Enterprises [87-2 USTC ¶9536], 830 F.3d at 118; See G.M. Leasing
Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627-28
(1977); Shades Ridge Holding Co, Inc. v. United States [89-2 USTC
¶9472], 888 F.2d 725, 728 (11th Cir. 1989). The Court may find that an
entity is the alter ego of the taxpayer where:
taxpayer treats the property as it belongs to him, See F.P.P.
Enterprises [87-2 USTC ¶9536], 830 F.2d at 116, Shades Ridge
Holding Co., Inc. [89-2 USTC ¶9472], 888 F.2d at 729;
(2) minimal or
no consideration is paid by the entity in consideration for the
property, see e.g., F.P.P. Enterprises [87-2 USTC ¶9536], 830
F.2d at 116;
taxpayer has expressed the intent to shelter the asset via the trust
mechanisms, see, F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d
taxpayer maintains "active" or "substantial" control
over the operations and decisions of the property, see Valley
Finance, Inc. v.
[80-2 USTC ¶9554], 629 F.2d 162, 172 (1980), Shades Ridge
Holding Co. [89-2 USTC ¶9472], 888 F.2d at 728 (11th Cir. 1989);
(5) a family
or close relationship exists between the taxpayer and the holding
entity, see Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d
substantial evidence in this action that the Esther trust, as well as
the many other Landsberger trusts, existed as the alter ego or nominee
of Mr. Landsberger. He specifically states that the trusts were set up
as "shells" for the purpose of keeping his property at an
"arms length" to shelter them from potential creditors
including the IRS. Nor has he attempted to argue any other reason for
the existence of his trusts. Under these facts alone it is difficult to
see how any court could find a question of fact with respect to the
alter ego/nominee status of the Landsbergers' trusts.
Landsbergers continued to treat the property as their own at all times. See
F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117. Despite
living in the
property for over 10 years, they never paid rent, and they paid all the
utilities, upkeep, and maintenance costs of the property. See
Depo. G. Landsberger, at p. 56.
The main issue
Defendants raise as a genuine issue of material fact is in relation to
the contradicting testimony of Mr. Landsberger and his daughter, Nancy
Fieldman, regarding her role as a trustee. Fieldman testifies that she
became trustee at the request of her father, that she felt obligated to
do so because she was living in their home, that she believed he chose
her because she was family which allowed him to maintain control over
the trust. Mr. Landsberger does not dispute any of these facts.
addition, Fieldman testified that she performed no duties as trustee
other than signing her name as trustee wherever and whenever her father
requested, that she never had control over the trust or made any
decisions regarding the transactions of the trust, that her father made
all decisions regarding the trust including the decision to sell the
Cortez property and purchase the 91st Place property. See Depo.
Fieldman, at p. 12, ll. 11-18, pp. 13-15, pp. 17-25. She testifies that
she never had any checks for the Trust account, and that she never saw
nor had control over the $100,000 used by the trust as a downpayment on
at 23-25. Additionally, she testifies that Mr. Landsberger signed her
signature on at least two documents conducting trust business without
her knowledge or permission. See Depo. p. 27, ll. 23-25; p. 28,
ll. 11-17; Exhs. 24 & 25.
Landsberger admits that he signed his daughter's signature on several
occasions, but testifies that he did so to help her out and with her
permission. He testifies that because she was inexperienced in her
knowledge and duties as trustee, that she relied heavily on his advise
and guidance as she carried out her duties. He also testifies that he
drafted the majority of the trust documents in the record. Ultimately,
however, Mr. Landsberger states that his daughter had control over the
trust and could do whatever she wanted. Depo. G. Landsberger, at p. 43.
to the Cortez property, Mr. Landsberger testifies that he had nothing to
do with the transfer of the property, and that Mr. Fadden and his
daughter, as co-trustees handled the transfer. The deed transferring the
Cortez property to the third party, however, bears only the signature of
Nancy Landsberger (Fieldman). Mrs. Fieldman testifies that she never had
a conversation with Mr. Fadden. Plaintiff provides no evidence to
support Mr. Fadden's involvement or otherwise controvert Mrs. Fieldman's
statements that she never spoke with Mr. Fadden. From the evidence, the
Court must conclude the no reasonable jury could find that Mr. Fadden
was involved in the transaction where the relevant trust transaction
documents bear only the signature of Nancy Landsberger as co-trustee,
and avers that she never had a conversation with Mr. Fadden.
accepting as true Mr. Landsberger's testimony, the remaining undisputed
facts show that he maintained active and substantial
control over the trust through his involvement. Moreover, the degree of
control Mr. Landsberger maintained is not dispositive. There are a
multitude of undisputed facts in this litigation supporting the
conclusion that the Esther trust, and others, were alter egos of Mr.
Landsberger. Mr. Landsberger's own admission as to his purpose and
intent for creating and operating the trust is the most probative of
all. Nowhere does Mr. Landsberger provide controverting evidence
establishing any legitimate purpose for the trust. Accordingly,
Plaintiff is entitled to summary judgment in its favor on the theory
that the Esther trust was a mere nominee/alter ego of the Landsbergers
at the time the tax was assessed in February of 1989.
John Wilde and Eileen Lipari's Interest
Revenue Code provides that a federal tax lien takes priority over an
interest held by an alleged bonafide purchaser when the purchaser
acquired the property with notice of the lien. 26 U.S.C. §6323(a).
law on judgments is consistent with this principle. See
v. Whithall Income Fund, 823 P.2d 689 (Ariz. App. 1991); Hatch
Companies contracting Inc. v. Arizona Bank, 826 P.2d 1179 (Ariz.
was conveyed to Wilde and Lipari for "ten dollars and other
valuable considerations." See Depo. J. Wilde, at p. 10, ll.
3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. It is
undisputed that Mr. Wilde and Ms. Lipari took title to the
property with full knowledge that the property was subject to the
federal tax liens. See Depo. J. Wilde, at p. 59, l. 9-p. 60, l.
18. Accordingly, any interest these third parties may have in the
property is clearly subordinate.
There is no
genuine issue of material fact in dispute that precludes summary
judgment in Plaintiff's favor on the issue of the trust functioning as
the alter ego or nominee of Gerald Landsberger. In addition, there is no
dispute that any interest in the
property the current title holders may have is subordinate to the
federal tax liens. 3
Accordingly, Plaintiff is entitled summary judgment as a matter of law,
and may foreclose on the
property accordingly. For the foregoing reasons,
THEREFORE ORDERED Defendant's Renewed Motion for Summary Judgment
September 3, 1996
is GRANTED. [doc. #106].
FURTHER ORDERED the United States shall lodge and serve a copy upon
all Defendants, a Proposed Order and Decree of Foreclosure pursuant to
28 U.S.C. §2001 no later than October 31, 1997.
FURTHER ORDERED the Clerk of the Court shall MAIL copies of
the Order to each Defendant and to all counsel of record.
This motion was stayed pending resolution of a series of motions that
may ultimately have affected its resolution. See Order of
August 19, 1997
. The previous issues now resolved, the Court lifts the stay as to
Defendant's renewed motion for summary judgment.
Mr. Landsberger disputes the accuracy of this document on the grounds
that the information was provided by his wife, and that she does not
understand how the Trusts operate. See Depo. G. Landsberger, at
Because it is unnecessary to the resolution of this action, the Court
declines to determine the remaining issues raised by the parties
¶50,885] Internal Revenue Service, Plaintiff v. Jack B. Larsen,
Defendant. Jack B. Larsen and Adele E. Larsen, Petitioners
District Court, West.
Wrongful levy action: Bona fide purchaser for value: Adequate and
full consideration.--Since an individual received only nominal
consideration for the transfer of real property to his wife, she did not
qualify as a bona fide purchaser for value. Therefore, the IRS levy
against the property to satisfy the husband's outstanding tax liability
was not wrongful. Her claim that forgiveness of loans to her husband
constituted adequate and full consideration was not credible as the
funds were used to purchase a family vehicle, no documentation of the
loans existed, and no repayment was ever made.
MEMORANDUM AND ORDER
District Court Judge:
This is a
civil action for wrongful levy on real property located at
334 West Eighth Street
May 24, 1993
the Internal Revenue Service (IRS) assessed Jack B. Larsen ("Mr.
Larsen") a delinquency for unpaid Federal Income taxes for the
years 1987-1991. As a result of this failure, a lien arose in failure of
against all of his property. 26 U.S.C. §6321. The lien related back to
the date of assessment. 26 U.S.C. §6322. The lien was perfected on
April 29, 1994
by filing in the prothonotary's office of
January 28, 1994
, Mr. Larsen, by quit claim deed, transferred the
property to himself and his wife, Adele E. Larsen (Mrs. Larsen) as
tenants by the entireties. Although the deed recited consideration of
$1.00, the Larsens' claim that the consideration actually given was
forgiveness of a debt in the amount of $15,225.00 that Mr. Larsen owed
When the IRS
served a levy for the property on
October 18, 1995
, the Larsens erroneously filed a "Petition for Rule to Show Cause
Why the Court Should Not Stay Execution" in the Court of Common
December 7, 1997
removed the matter to this Court. Thereafter, the
moved for summary judgment contending that Mrs. Larsen had not produced
sufficient evidence to demonstrate that she paid "adequate and full
consideration" for the property. By Memorandum Order dated January
17, 1997, this Court denied the Motion for Summary Judgment finding that
there were material issues of fact as to whether the actual
consideration for the property was forgiveness of loans totalling
$15.225.00 as alleged by the Larsens.
trial was held before this Court on
March 12, 1997
. The following are the Court's Findings of Fact and Conclusions of Law.
July 19, 1978
, Mr. Larsen acquired real estate located at
334 West Eighth Street
for the sum of $30,000.00. A single story, concrete block, commercial
building is situated on the real property.
2. The Larsens
were married on
September 19, 1979
3. The real
334 West Eighth Street
was owned solely by Mr. Larsen from 1978-1993.
4. Jack B.
Larsen filed federal income tax returns for the years 1988-1991 with the
filing status of "married filing separately".
5. In May,
August, October and December 1993, the IRS assessed federal income taxes
against Mr. Larsen for the tax years 1987-1991.
6. Pursuant to
26 U.S.C. §7426(c), the assessments of tax against Mr. Larsen are
conclusively presumed to be valid.
7. In 1988,
the IRS selected the Larsen's 1987 joint return for an audit.
1988-1991 Mr. Larsen failed to timely file federal income tax returns.
In March, June, August and October 1993, Mr. Larsen separately filed
delinquent returns prepared by a local certified public accountant, for
the years 1988-1991 respectively. These returns reflected a significant
amount of tax due. Including the 1987 liability, Mr. Larsen owed the IRS
approximately $190,000.00. (Defendant Exhibits D5, D6 and D12)
9. The IRS had
forwarded to Mr. Larsen collection notices in March, June, August,
October, and January 1994 asking for payment of the delinquent taxes.
(Defendant's Exhibit D5)
January 28, 1994
, Mr. and Mrs. Larsen executed a deed transferring the real property at
334 West Eighth Street
to Jack B. Larsen and Adele E. Larsen as husband and wife. The deed
recited consideration of $1.00.
January 6, 1992
, Mrs. Larsen wrote a check (#5343) payable to Mr. Larsen for $7,000.00
December 14, 1992
, she wrote a check (#5783) payable to Mr. Larsen for $5,000.00. In July
1993, a separate draft in the amount of $225.00 (#6074) was allegedly
made payable to Jack B. Larsen and signed by Adele E. Larsen for a
personal loan. (Plaintiff's Exhibit 1)
$5,000.00 check was utilized by Mr. Larsen to purchase a 1992 Isuzu
vehicle was utilized both in Mr. Larsen's business and as a family
14. At the
time of the purchase of the 1992 Isuzu Trooper, Mrs. Larsen purchased a
matching vehicle and the payment of the $5,000.00 enabled the Larsens to
obtain a more favorable deal on both vehicles.
15. The check
was not documented as a loan and no writings of any kind memorializing
the alleged loans were made.
respect to the $7,000.00 check it was not designated as a loan nor was
there any type of writing memorializing the alleged loan transaction.
17. No single
payment was ever made by Mr. Larsen relative to either the $5,000.00 or
$7,000.00 alleged loans.
respect to the $225.00 alleged loan, the testimony revealed that Mr.
Larsen signed his wife's name on the check and neither party at trial
had any recollection as to what the proceeds were for or whether they
constituted a "loan" as contended by the Larsen's pretrial.
19. On a prior
occasion, in 1988, Mrs. Larsen had provided monies to her husband but
the monies were not repaid as a loan.
respect to the alleged $3,000.00 loan Mrs. Larsen could not recall what
it was for or when it was made.
21. No written
documentation of this loan exists.
22. The Court
finds no credible evidence that such a loan was ever made.
observed the demeanor of Mr. and Mrs. Larsen and the previously
described circumstances surrounding the alleged loan transactions, the
Court concludes the above-described proceeds were not considered by the
Larsens to have been loans.
24. The Court
further finds that the transference of the real property at
334 West Eighth Street
to Jack B. Larsen and Adele E. Larsen as husband and wife, was
unsupported by adequate consideration as it did not represent a
repayment of any loans allegedly made by Mrs. Larsen to Mr. Larsen.
25. Under 26
U.S.C. §6321, a lien arises in favor of the
upon all of the taxpayers property and rights to property, whether real
or personal. When that taxpayer neglects or refuses to pay a tax
liability after notice and demand. The lien relates back to the date of
assessment. 26 U.S.C. §6322.
6321 of the Internal Revenue Code provides as follows:
If any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount (including any interest, additional amount, additional 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
27. The IRS
may lawfully enforce its liens by levying on property of the taxpayer,
including seizing and selling real property. 26 U.S.C. §6331(a) and
to Section 6321 of the Internal Revenue Code, federal tax liens arose on
May 24, 1993
the date of the earliest tax assessments against Mr. Larsen, and
automatically attached to all property and rights to property acquired
by Mr. Larsen during the life of the lien. 26 U.S.C. §6322; Glass
City Bank v. United States [45-2 USTC ¶9449], 326 U.S. 265, 268
(1946); In Re Atlantic Business and Community Dev. Corp. [93-1
USTC ¶50,333], 994 F.2d 1069, 1071-72 (3d. Cir. 1993).
law determines whether the taxpayer has an interest in the property
which can be reached by the federal tax lien. United States v. Durham
Lumber Company [60-2 USTC ¶9539], 363 U.S. 522 (1960); Aquilino
v. United States [60-2 USTC ¶9538], 363 U.S. 509 (1960).
law determines the consequences of the existence of a federal tax lien,
and whether it will, in fact, attach to the property. United States
v. Bess [58-2 USTC ¶9595], 357 U.S. 51 (1958), and the priority of
the federal tax liens in relation to competing liens. United States
v. Pioneer American Insurance Company [63-2 USTC ¶9532], 374 U.S.
84 (1963); United States v. City of New Britton [54-1 USTC ¶9191],
81, 86 (1954).
31. 26 U.S.C.
§6323(a) provides that:
A lien imposed
by Sections 6321 shall not be valid as against any purchaser . . . until
notice thereof which meets the requirements of subsection (f) has been
filed by the secretary.
32. 26 U.S.C.
§6323(a) (supp. 1996). A "purchaser" is further defined as:
A person who,
for adequate and full consideration in money or monies worth, acquires
an interest (other than a lien or security interest) in property which
is valid under local law against a subsequent purchaser without actual
notice. 26 U.S.C. §6323(h)(6) (supp. 1996).
consideration is insufficient as a matter of law.
, 741 F. Supp. 92, 95 (W.D.Pa. 1990).
Larsen bears the burden of proving that the IRS levy was wrongful. 26
U.S.C. §7426; Valley Finance, Inc. v. United States [80-2 USTC
¶9554], 629 F.2d 161, 171 (D.C. Cir. 1980), cert. den., sub. nom.,
Pacific Development, Inc. v.
35. The term
"adequate and full consideration" is defined in the Treasury
Regulations as "consideration in money or monies worth having a
reasonable relationship to the true value of the interest in property
acquired." 26 C.F.R. 301.6323(h)-1.
previously indicated the Court finds that Mrs. Larsen's claim of
"debt satisfaction" relative to the transfer of the West
Eighth Street Property is not credible and as such she has failed to
establish that she was a "purchaser" within the meaning of 26
U.S.C. §6323(a)(6) as she did not pay "adequate and full
consideration" for her interest in the property.
37. Since the
federal tax liens attached to the property at the time of the transfer
and the liens are valid liens against the property, the property was
properly seized in October, 1995 to satisfy Mr. Larsen's unpaid federal
income tax liabilities and the
may proceed to sell the property.
An action to challenge a wrongful levy must be brought in a district
court of the
. 26 U.S.C. §§7246(a)(1). The Court of Common Pleas issued a Rule and
later issued an Order staying issuance of a levy, execution or sale of
December 27, 1995
United States of America
, Plaintiff v. Maggie Inez Thompson, et al., Defendants
District Court, So.
, No. Div., 95-0431-BH-C, 1/21/97, 966 FSupp 1140, 966 FSupp 1140
Liens: Property: Foreclosure: Sale to third party: Bona fide
purchaser for value.--The IRS could not foreclose federal tax liens
on real property sold by married taxpayers to the husband's mother
because she was a bona fide purchaser entitled to protection under Code
Sec. 6323(h)(6) . Although the property was purchased for an amount
less than its fair market value, the purchase amount represented
valuable consideration and bore a reasonable relationship to the
property's value. Moreover, the husband's mother, who received a bank
loan to purchase the property, which she rented to the taxpayers, was
indebted to the bank and obligated to repay the loan. The fact that the
parties seemed to have arranged for the loan payment to equal the rent
paid by the taxpayers did not change the mother's ownership of the
property or her duty to discharge the loan.
Sawyer, Mobile, Ala. 36602, Carol Ide Koehler, Lynne M. Murphy,
Department of Justice, Washington, D.C. 20530, for plaintiff.
ert R. Blair,
P.O. Box 976
, for defendant. J. Garrison Thompson, P.O. Drawer 537,
This is an
action brought by the government to foreclose federal tax liens on real
property. This case came on for non-jury trial on
January 6, 1997
. Upon careful consideration of the arguments and the testimony
presented, the court concludes as follows.
1. Each year from 1984 to 1990, Paul and Sharon Thompson failed to pay
some or all of their personal income taxes (assessments were made in
June of every year, 1985-1991, to no avail). As of
July 28, 1995
, the Thompsons owed the federal government $88,774.49 in income taxes,
interest, and penalties. In addition, as of
March 13, 1995
, Paul Thompson owed the federal government $34,613.10 for unpaid
employment taxes, interest, and penalties for the years 1986 to 1989.
2. The Thompsons were discharged from all personal liability for these
debts by order of the Bankruptcy Court on
January 8, 1996
, except for Paul Thompsons personal liability for the trust fund
portion of his employment taxes in the amount of $7,751.12 as of
July 28, 1995
The Bankruptcy order also did not relieve the Thompsons from any
government liens on their real property arising out of non-payment of
3. On February 15, 1979, the defendants Paul and Sharon Thompson owned
or had an interest in real property near Thomasville, Alabama, in
Marengo County Alabama (hereinafter "Marengo Property").
4. Paul Thompson's wood pulp business had failed by
August 21, 1991
, and the Thompsons decided to sell their house. By deed dated
August 26, 1991
, the defendants Paul and Sharon Thompson purportedly conveyed their
interest in the Marengo property to James Leroy Thompson (now deceased)
and Maggie Inez Thompson, the parents of Paul Thompson.
5. The elder Thompsons took out a $15,000 loan from Sweetwater Bank to
purchase the property. Sweetwater secured the loan--with a mortgage
September 6, 1991
, with the Judge of Probate in Marengo County. Approximately $10,000 of
the loan proceeds went to pay off the prior mortgage on the real
property, and the remaining proceeds went to James Leroy Thompson and
November 1, 1991
, a Notice of Federal Tax Lien was filed with the Judge of Probate,
Marengo County, Alabama, with respect to the federal personal income tax
liabilities mentioned in paragraph one. This was the first Notice of
Federal Tax Lien filed in Marengo County for the personal income tax
liabilities of the Thompsons, some of which dated back to 1985.
7. Subsequent to the sale of the house to the elder Thompsons, Paul and
Sharon Thompson continued to live in the house and paid $300.00 per
month in rent to Paul's parents.
8. The monthly note to pay off the loan from Sweetwater Bank used to
purchase the house amounted to $300.00 a month.
9. Sharon Thompson testified that the house was worth "about
$20,000" at the time it was transferred to the elder Thompsons. A
real estate appraisal, dated
August 19, 1991
, conducted by Sweetwater Bank estimated the value of the house and land
to be $27,500. Both Paul and Sharon Thompson testified that the house
had deteriorated considerably since they sold it.
CONCLUSIONS OF LAW
1. When Paul and Sharon Thompson failed to pay their assessed tax
liabilities, liens arose in favor of the government on all property and
rights to property of the Thompsons, including the Marengo property. 26
U.S.C. §§6321, 6322. These liens arose as early as the first
June 3, 1985
2. Even though the bulk of the Thompson's assessed federal tax
liabilities were discharged in their bankruptcy case, the discharge does
not prohibit the Government from seeking to foreclose the tax liens
arising out of those liabilities. "A bankruptcy discharge
extinguishes only one mode of enforcing a claim--namely, an action
against the debtor in personam--while leaving intact another--namely, an
action against the debtor in rem." Dewsnup v. Timm, 502
410, 418 (1992).
3. Federal tax liens, however, do not automatically have priority over
other liens or other rights to the property. "Absent provision to
the contrary, priority for purposes of federal law is governed by the
common-law principle that 'the first in time is the first in
v. McDermott, 507
447, 449 (1993).
4. In the present case, the Internal Revenue Code provides that,
"[t]he lien imposed by section 6321 shall not be valid as against
any purchaser ... until notice thereof ... has been filed by the
Secretary." 26 U.S.C. §6323(a). A "purchaser" is defined
a person who,
for adequate and full consideration in money or money's worth, acquires
an interest (other than a lien or security interest) in property which
is valid under local law against subsequent purchasers without actual
5. It is undisputed that James Leroy and Maggie Inez Thompson
purportedly "purchased" and acquired title to the Thompson
property at issue prior to the filing of the Notice of Federal Tax Lien.
The only issue in this case is whether Maggie Inez Thompson is a
"purchaser" so as to be afforded the protection granted by §6323(a).
6. The government first contends that because the Thompsons still live
in the house and because the rent payment owed by Paul and Sharon
Thompson to Maggie Inez Thompson is the same amount that Maggie Inez
Thompson owes to the bank on the loan, that the house was never actually
sold. It is undisputed, however, that it is Maggie Inez Thompson who is
indebted to the bank and who must satisfy the obligation. The fact that
the parties seemed to have arranged for the loan payment to equal the
rent does not change Maggie Inez Thompson's ownership of the house or
her duty to discharge the house loan.
7. The government next argues, without citing any legal authority, that
the house was actually purchased for approximately $10,000, not $15,000,
because approximately $5,000 of the proceeds from the sale of the house
was returned to the buyers. The evidence indicates, however, that the
actual price of the house was $15,000. The fact that Paul and Sharon
Thompson paid approximately $5,000 from the sale of the house to the
elder Thompsons does not indicate that the actual consideration for the
house is reduced by that amount. Both Sharon and Maggie Inez Thompson
testified that the house was sold and purchased for $15,000 and that the
proceeds of the sale were used to pay off a prior mortgage 2
and to satisfy "other indebtedness." See e.g.,
Affidavits of Sharon Thompson and Maggie Inez Thompson. The court
therefore finds that the house was sold for $15,000.
8. The question remains whether $15,000 is enough to qualify the elder
Thompsons as bona fide purchasers. The evidence indicates that the house
certainly was worth more than $15,000. The appraisal done
contemporaneously with the 1991 sale indicates that the property was
worth $27,500. Sharon Thompson's own estimate is closer to $20,000.
There is little case law actually defining "adequate and full
consideration" under 26 U.S.C. §6323(h)(6). `Full and adequate
consideration' is interpreted by Treasury regulations to be an amount
'having a reasonable relationship to the true value of the interest in
property acquired.'" Rodeck v.
, 697 F.Supp. 1508, 1511 (D.Minn. 1988) (citing 26 C.F.R. §301.6323(h)-1(f)(3)).
The property involved is in rural
. Sharon Thompson has testified that the family needed money after her
husband's business failed and the $15,000 price was the best they could
get on short notice. See Affidavit of Sharon Thompson. Under these
circumstances, the court concludes that $15,000 represents valuable
consideration and bears a reasonable relationship to the value of the
Thompson's property. The fact that the house was purchased for an amount
somewhat less than its value does not mean that Maggie Inez Thompson is
not a bona-fide purchaser entitled to the protection of §6323(h)(6).
holds that the government is not entitled to foreclose the tax liens by
selling the real property sold by Paul and Sharon Thompson to James
Leroy and Maggie Inez Thompson. The government is, however, entitled to
a personal judgment against Paul Thompson for the unpaid trust fund tax
liabilities of which there is no dispute among the parties.
The parties agree that Paul Thompson is indebted to the government for
the trust fund portion of employment taxes in the amount of $7,751.12 as
July 28, 1995
The first mortgage was to Mid-State Homes. The balance owed to Mid-State
at the time of the sale was $9,953.76. See Affidavit of Sharon Thompson.
¶50,702] Gary Rogers, Plaintiff v.
United States of America
District Court, So. Dist.
, CIV 94-1305-BTM(AJB),
[Code Secs. 6323 and
Liens and levies: Third persons: Bona fide purchaser: Priority of
claims.--An interest in a business purchased by an individual
taxpayer from a debtor was subject to IRS liens because the liens had
attached to the property before the sale. Moreover, the taxpayer did not
qualify as a purchaser for purposes of establishing superior priority
over a tax lien because the taxpayer did not give adequate consideration
for the property.
[Code Sec. 7426 ]
Wrongful levy suit: Ownership of assets: Evidence.--Summary
judgment was denied on the issue of whether IRS liens attached to fax
machines, paper and checks for services rendered to a business that had
been owned by a debtor. Questions of fact existed as to whether the
taxpayer purchased the business from the debtor, whether the taxpayer
purchased the assets after the sale and whether the checks were for work
performed by the taxpayer.
[Code Secs. 6103 and
Wrongful disclosure: Confidentiality of returns: Debtor's tax
liabilities.--The IRS did not wrongfully disclose return information
when it contacted customers who owed money to a business the taxpayer
had bought from a debtor and instructed them to pay the IRS directly.
Notices of tax liens were filed against the debtor prior to the sale of
the business. Therefore, the debtor's tax liabilities were a matter of
public record. The information lost its protected status, and IRS agents
were permitted to disclose tax return information necessary to collect
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR
came before the Court on Defendant's motion for summary judgment, which
was orally argued on
May 6, 1996
. Supplemental briefs were submitted by both parties and further oral
argument took place on
June 3, 1996
. Based on the papers submitted by all parties, upon oral argument and
for good cause shown, for the reasons set forth below, Defendant's
motion is granted in part and denied in part.
David S. Beggs
owed assessed federal taxes for the years 1982 to 1992, and Revenue
Officer Stephen Silverman was assigned to collect the outstanding tax
liabilities. Silverman determined that Beggs owned Axis Printing, a
printing company located in downtown
January 8, 1993
Beggs informed Silverman that he had sold Axis Printing to an employee
named Marie Nicoletti. On
December 28, 1993
, Silverman was told by Beggs that Axis had now been sold to plaintiff
Gary Rogers, effective
December 1, 1993
IRS notified Beggs that his assets would be levied upon under 26 U.S.C. §6672
. Unable to obtain consent to levy, the United States obtained a
writ of entry on July 1, 1994, and the IRS seized the business on July
14, 1994, by placing a padlock on the door to the premises.
uncontroverted that taxes were assessed against Beggs before either
or Nicoletti supposedly purchased Axis. Defendant submits an affidavit
by Nicoletti in which she states that the initial sale to her from Beggs
was a sham sale for the purpose of avoiding tax liability. Plaintiff
submits affidavits from himself, from Beggs, and from an Axis employee
contradicting Nicoletti's testimony. Plaintiff Gary Rogers contends that
he purchased the business on December 1, 1993, and therefore the IRS
wrongfully levied on property he owned for which he was not compensated,
that the levy precluded him from operating his business for over a
month, that numerous mistakes were made during the execution of the
levy, that valuable consideration was present in both sales, and that
his tax return information was disclosed to his customers.
A federal tax
lien arises upon assessment and demand, and attaches to all property or
rights to property of the taxpayer, including property acquired after
the date of the assessment. 26 U.S.C. §§6321
and 6322 ;
State Bank v.
USTC ¶9513 ], 735 F.2d 308, 309 (8th Cir.1984). A properly filed
Notice of Federal Tax Lien validates a tax lien as to purchasers,
holders of a security interest, and judgment lien creditors.
, §6323 . Any
third party possessing property to which a lien has attached holds that
property subject to the lien, unless the third party can claim an
exception under 26 U.S.C. §6323
and once a federal tax lien has attached, it follows the property into
the hands of third parties. U.S. v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51, 57 (1958). If a person other than the
taxpayer claims an interest in property seized by the government, that
party may bring an action challenging the seizure under 26 U.S.C. §7426
. In a wrongful levy action under §7426
, the plaintiff carries the initial burden of showing an interest in
the property. The burden then shifts to the government to prove by
substantial evidence the nexus between the property and the delinquent
taxpayer. The plaintiff retains the ultimate burden to prove that the
levy was wrongful. Xemas, Inc. v. U.S. [88-1
USTC ¶9282 ], 689 F.Supp. 917, 922 (D. Minn.1988).
contends that the property levied upon belonged to Beggs because the
sales of Axis were either shams calculated to avoid tax liability, or
were otherwise invalid. They also contend that even if the sales were
valid, the tax liens were attached to the property at the time of any
purported sales, and
took the property subject to the liens.
agrees that any interest
acquired in Axis was subject to the attached liens. Defendant attaches
certified copies of the Notices of Federal Tax Liens to the declaration
of Jeffrey R. Meyer filed with their supplemental brief in support of
the motion for summary judgment which clearly establishes that the tax
liens had attached to Axis' property as early as 1983. A valid tax lien
continues in force until the liability is paid in full or becomes
unenforceable due to lapse of time, and once effective, follows the
property. United States v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51, 59 (1958). It is clear that the liens
attached prior to the sale of Axis to either Nicoletti or Rogers.
be able to establish superior priority over a federal tax lien if the
interest is acquired before the Government has filed its notice of
federal tax lien. 26 U.S.C. §6323(h)(6)
; Newnham v. United States [87-1
USTC ¶9255 ], 813 F.2d 1384 (9th Cir.1987). In order to qualify as
a purchaser, a person must "for adequate and full consideration in
money or money's worth," acquire an interest (other than a lien or
security interest) in property which is valid under local law against a
subsequent purchaser without actual notice. 26 U.S.C. §6323(h)
; Newnham v. U.S. [87-1
USTC ¶9255 ], 813 F.2d 1384, 1385 (9th Cir. 1987). The statute
provides that "a written executory contract to purchase or lease
property ... which is not a lien or security interest shall be treated
as property." 26 U.S.C. §6323(h)(6)(B)
. Defendant contends Plaintiff's purchase was not for valuable
consideration as he supposedly paid only $1,000 (Silverman Decl. ¶4(a)
and (1)) for a business with assets which were eventually auctioned off
for $53,816.50, and which Beggs valued at $12,500 in a bankruptcy
September 21, 1992
. Plaintiff submits an affidavit in which he states that he purchased
the business, which he contends had a net worth at the time at $45,000,
subject to the responsibility to pay the liabilities and obligations of
Nicoletti. He contends he paid over $15,000 towards liabilities of the
business, which were obligations of Nicoletti, including various taxes
which were received by the IRS. However, even assuming plaintiff paid
$15,000, and assuming Axis was valued at $45,000 as plaintiff contends
in his affidavit, this is still inadequate consideration, as it would be
a mere 35.55% of the value of the assets. Thus, under either analysis,
took Axis subject to the tax liens.
Plaintiff contends that although liens on an asset follow the asset, he
contends that any new assets purchased, or new interests obtained in
property by making payments on the assets purchased, remain the property
of the purchaser. Plaintiff contends that apart from the initial
purchase of Axis, he later purchased additional assets which were seized
along with all the other assets, and that he made installment payments
on others. (
Dec. ¶¶16-17). He also contends he purchased a computer (which was
stolen while the premises was padlocked), two fax machines and all the
stock paper in the shop at the time of the seizure.
also contends that the padlocking of the premises was a wrongful levy
because he owned the leasehold on the premises by virtue of the sale.
However, anything Beggs or Nicoletti sold
was affected by the liens. In a wrongful levy suit under 26 U.S.C. §7426
, plaintiff must establish: 1) he had an interest in the property; and
2) that the interest in the property was wrongfully levied upon. 26
U.S.C. §7426(a)(1) ;
26 CFR §301.7426-1(b)
; Sessler v. U.S. [93-2
USTC ¶50,599 ], 7 F.3d 1449, 1451 (9th Cir. 1993).
As the Sessler
court stated: "As the IRS has expounded in its regulations, a levy
is wrongful if: 1) it's placed on property exempt under §6334
; 2 ) it wasn't placed
on property in which the delinquent taxpayer had an interest; 3) it's
invalid under §6323 or
6324(a)(2) or (b)
; or 4) the plaintiff's interest in the property is senior to the
federal lien and will be destroyed by the levy. 26 CFR §301.7426-1(b)
, at 1451.
does not have a senior property interest to any of the property
purportedly purchased from Beggs or Nicoletti because the liens attached
before he purchased the property. The second exception may apply if
plaintiff can show some of the property levied on was purchased by
him after the sale. According to his declaration,
purchased a computer (which was stolen so it was not seized or levied
upon), two fax machines, and stock paper. He paid installments on the
press, the "folder", and possibly the film processor. He was
prevented from doing business for a month which caused him to lose
business, lose customers, lose three sub-tenants he was sub-leasing to,
and lose well over $15,000 in orders that customers were not allowed to
pick up, and for which he never collected. Also, there were at least
three checks seized which are identified in count one of Plaintiff's
Second Amended Complaint, written by customers paying for completed
has contended these items were seized and sold.
The type of
business entity Axis is legally considered to be and the validity of the
sales of Axis are disputed issues of fact precluding summary judgment as
to property acquired after the sale of Axis. This property includes the
two fax machines and the stock paper. The checks identified in count one
of the Second Amended Complaint represent payments for work done by
as the owner of Axis. Because a material issue of fact is in dispute
with regard to the validity and circumstances surrounding the transfer
of Axis to Rogers, and specifically what type of business entity Axis
was (i.e. sole proprietorship, etc.), the income from work performed by
Rogers before the seizure (i.e. the checks identified in count one of
the Second Amended Complaint) may or may not have been properly levied
upon. Thus, summary judgment is denied as to the two fax machines, the
stock paper and the checks identified in count one of the Second Amended
cannot recover for lost business while Axis was padlocked because both
the business and the equipment were properly seized, and
had no right to use it to carry on his business. This would include
Roger's claims for loss of business, including the orders which were not
picked up during the lock-out, the loss of the sub-tenants, and the
installment payments on the property that originally belonged to Axis.
The only remedy available to
is under 26 U.S.C §7426 .
Winebrenner v. U.S. [91-1
USTC ¶50,057 ], 924 F.2d 851, 854-55 (9th Cir.1991). Lost profits
or general damages are not included as remedies available under §7426
. Winebrenner, at 855 n.4. Additionally, Plaintiff's
Complaint does not include a prayer for lost profits or general damages.
For these reasons, and because the seizure of Axis was proper, summary
judgment is granted as to all other claims by
for incidental damages suffered during the seizure.
third cause of action is for wrongful disclosure of his tax return
information. 26 U.S.C. §7431(a)(1)
provides that if "any officer or employee of the United States
knowingly, or by reason of negligence, discloses any return information
with respect to a taxpayer in violation of section
6103 , such taxpayer may bring a civil action for damages against
the United States in a district court of the United States."
Defendant contends only information from Beggs' tax returns was arguably
only has standing to bring such an action for disclosure of his own
returns. Brown v. U.S. [90-2
USTC ¶50,547 ], 755 F.Supp. 285 (N.D.
1990). Plaintiff contends that during the time he owned Axis, the IRS
contacted customers who owed money to Axis and instructed them to pay
the IRS directly. In his opposition, plaintiff responds to defendant's
standing argument with "The question that is yet unanswered is how
the customers were contacted and the extent of information disclosed to
the customer. The defendant interestingly has refused to disclose the
customers contacted and the extent of disclosure despite discovery
requests for this information." (Opp. p. 8) Plaintiff states that
the reasonable assumption made by the customers contacted was that plaintiff
owed back taxes, and that the IRS intentionally did nothing to make the
disclosure more clear. Defendant attaches a declaration of the IRS agent
Silverman stating that at no time during that collection action were
there disclosures of
' tax return information. (Silverman Decl. ¶14). Fed. R. Civ. P. 56(e)
requires plaintiff's opposition to be in the form of an affidavit, not
mere allegations or denials in his pleadings. British Airways Bd. v.
Boeing Co., 585 F.2d 946, 951 (9th Cir.1978), cert. denied,
440 U.S. 981 (1979)(legal memorandum and oral argument are not evidence
and they cannot themselves create a factual dispute to defeat summary
judgment). Furthermore, a Rule 56(f) request requires an affidavit by
plaintiff which must include the nature of uncompleted discovery, show
that the facts sought are reasonably expected to create a genuine issue
of material fact, detail what efforts affiant has made to obtain those
facts, and explain why those efforts were unsuccessful. Paddinton
Partners v. Bouchard, 34 F.3d 1132, 1138 (2nd Cir. 1994). Plaintiff
has failed to satisfy the requirements of Rule 56(f). Therefore, a
denial of summary judgment based on uncompleted discovery is
As a further
argument, defendant contends that a prerequisite to liability under §7431
is confidentiality of the disclosed information. Schrambling
Accountancy Corp. v. United States [91-2
USTC ¶50,345 ], 937 F.2d 1485, 1488 (9th Cir.1991), cert. denied,
1066 (1992). Defendant contends that the notices of federal tax liens
were filed prior to the purported sale of Axis, and renders Beggs' tax
liabilities a matter of public record. (Silverman Decl. ¶2, Exhibits A,
B and C). Once there has been an authorized disclosure of tax return
information on the public record, that information loses its protected
status under §6103 . Schrambling;
Lampert v. United States [88-2
USTC ¶9463 ], 854 F.2d 335 (9th Cir.1988), cert. denied, 490
1034 (1989). Finally, IRS agents are permitted to disclose tax return
information if necessary to collect taxes. 26 U.S.C. §6103(K)(6)
. Therefore, summary judgment is granted in favor of Defendant
regarding Plaintiff's third cause of action for wrongful disclosure of
motion for summary judgment is granted in part and denied in part as
judgment is GRANTED to Defendant as to the levy of all assets of Axis
owned by Beggs and transferred to
judgment is DENIED as to the fax machines, stock paper, and the checks
identified in count one of the Second Amended Complaint, as disputed
issues of fact exist as to whether Rogers owned Axis and purchased these
items himself, and as to whether Axis was a sole proprietorship; and
judgment is GRANTED to Defendant on count three of Plaintiff's Second
Amended Complaint for wrongful disclosure of tax return information.
IT IS SO
These exception are: the property was exempt under §6334
, the levy wasn't placed on property in which the delinquent
taxpayer had an interest, the levy is invalid under §6323
or 6324(a)(2) ,
or the plaintiff's interest in the property is senior to the federal
lien and will be destroyed by the levy. Sessler v. U.S. [93-2
USTC ¶50,599 ], 7 F.3d 1449 (9th Cir.1993).
United States of America
, Plaintiff v. Thomas E. O'Day, David H. Eiland, Thomas E. O'Day II, and
Barnett Bank of
District Court, Mid. Dist. Fla., Orlando Div., 95-86-CIV-ORL-18,
Secs. 6321 , 6323 and
Tax liens: After-acquired property: Fraudulent conveyances: Transfers
to third parties: Priority against third parties: Bona fide purchasers:
Action to enforce lien: Foreclosure.--The government was entitled to
foreclose on the property of a delinquent taxpayer in satisfaction of
his tax liabilities. The taxpayer's transfer of the property following
the issuance of assessments to his son and stepson while retaining a
life estate was fraudulent under state (
) law. The taxpayer received no consideration and continued to live on
the property. Therefore, the transferees acquired their interest in the
property subject to the government's tax lien. Furthermore, the tax lien
was superior to the transferees' interest because they were not bona
Assessments: Presumption of correctness.--A delinquent taxpayer
failed to present evidence refuting the accuracy of IRS assessments made
against him. Therefore, he did not meet his burden of proving that the
assessments were arbitrary or erroneous.
Bankruptcy: Dischargeability.--Since a delinquent taxpayer
fraudulently attempted to evade tax by conveying property to his son and
stepson, closing his bank accounts, and dealing solely in cash, his tax
liabilities were not dischargeable in bankruptcy. Instead, the
liabilities were reduced to a judgment in favor of the government.
Gable, Orlando, Fla. 32801, Brian L. Schwalb, Department of Justice,
Washington, D.C. 20530, for plaintiff. Roy L. Beach,
, for Thomas E. O'Day. Roy L. Beach,
, for David H. Eiland. Dkyes C. Everett, Winderweedle, Haines, Ward
& Woodman, P.A., 390 N. Orange Ave., Orlando, Fla. 32802, for
Barnett Bk. of Cent.
United States of America
brings this instant action against Thomas E. O'Day (O'Day), David H.
Eiland (Eiland), Thomas E. O'Day II (O'Day II), and Barnett Bank of
(Bank) alleging that O'Day failed to pay his federal tax liabilities
owed to the federal government. In their suit, the government seeks to
have the court: (1) determine and adjudge O'Day's tax liability; (2)
determine the respective priorities of the federal tax liens already in
place; (3) determine that a purported real property transfer was
fraudulent and void pursuant to Florida Statute chapter 726.105(1); (4)
order a foreclosure of the federal tax liens; and (5) grant a deficiency
judgment against O'Day if the proceeds from the sale of the real
property do not satisfy his indebtedness. The case is presently before
the court on the United States' motion for summary judgment against
defendants O'Day and Eiland, 1
to which the defendant have responded in opposition. Following a review
of the case file and relevant law, the court concludes that the
' motion should be granted.
Findings of Fact
examination by the Internal Revenue Service (IRS) of O'Day's federal
income tax returns, they determined that O'Day owed the federal
government additional taxes, plus interest and penalties for the years
of 1981, 1982, 1984, 1985, 1986. Following an audit, the IRS sent O'Day
a Notice of Deficiency and Report of Individual Income Tax Examination
Changes for the years 1982, 1984 and 1985 which explained the basis of
the proposed income tax adjustments and also advised O'Day of his right
to challenge the proposed adjustments in the United States Tax Court.
Additionally, O'Day signed a Revised Report of Individual Income Tax
Examination Changes for the 1986 tax year acknowledging his agreement
with the IRS adjustment of the 1986 tax liability and waived his right
to exercise his
istrative appellate rights or to contest the adjusted tax deficiency in
the United States Tax Court. Because O'Day did not file a petition with
the United States Tax Court challenging the IRS adjusted liabilities for
the years of 1981, 1982, 1984 and 1985, the Secretary of the Treasury
issued assessments against O'Day for his tax deficiencies, plus interest
and penalties. The IRS, pursuant to 26 U.S.C. §6.303(a), also sent
O'Day notice of his tax liabilities and demands for payment. Later,
O'Day failed to file an income tax return for 1990 and the IRS sent him
a Notice of Deficiency. Since O'Day took no action contesting the
notice, the Secretary of the Treasury issued an assessment and demand
for payment of his tax liability. As of
November 1, 1996
, O'Day's unpaid assessed federal income tax liability for the years
1981, 1982, 1984, 1985, 1986, and 1990 totaled $55,011.57.
was involved in his tax controversy, he worked as a modest electrical
contractor, usually out of his home. O'Day has and continues to live in
the same residential property which he purchased on
February 27, 1969
March 9, 1990
, O'Day allegedly conveyed his interest in the subject property to his
son, O'Day II, and his stepson, Eiland, while retaining a life estate in
the property for himself. Neither O'Day II or Eiland paid O'Day any
consideration for the interest in the subject property and O'Day has
continued to reside on and oversee the management of the property.
September 25, 1995
, O'Day filed for Chapter 7 bankruptcy protection in the United States
Bankruptcy Court for the Middle District of Florida, Orlando Division.
As a result, this civil action was stayed until O'Day's bankruptcy
proceeding had concluded. On
January 4, 1996
, the Bankruptcy Court entered an order of discharge, resulting in the
removal of the automatic stay and the renewal of this civil suit.
Summary Judgment Standards
judgment is authorized if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law." Fed. R. Civ. P. 56(c); accord Anderson v. Liberty Lobby,
242, 250 (1986). "[A]t the summary judgment stage the judge's
function is not himself to weigh the evidence and determine the truth of
the matter but to determine whether there is a genuine issue for
trial." Anderson, 477
at 249. "[T]he 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 summary
judgment. Factual disputes that are irrelevant or unnecessary will not
party bears the burden of proving that no genuine issue of material fact
exists. Celotex Corp. v. Catrett, 477
317, 323 (1986). In determining whether the moving party has satisfied
the burden, the court considers all inferences drawn from the underlying
facts in a light most favorable to the party opposing the motion, and
resolves all reasonable doubts against the moving party. Anderson,
477 U.S. at 255; see Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587-88 (1986). The moving party may rely solely
on his pleadings to satisfy this burden. Celotex, 477
at 323-24; Fed. R. Civ. P. 56(c).
that is required [to proceed to trial] is that sufficient evidence
supporting the claimed factual dispute be shown to require a jury or
judge to resolve the parties' differing versions of the truth at
trial." Anderson, 477
at 249 (quoting First Nat'l Bank v. Cities Serv. Co., 391 U:S.
253, 288-89 (1968)). Summary judgment is mandated, however,
"against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at trial." Celotex,
The Merits of Plaintiff's Motion
motion for summary judgment against O'Day and Eiland, the government
seeks to foreclose the federal tax liens placed on the subject property,
and to reduce the assessed tax liabilities to judgment entered in the
government's favor. The court will address each issue in their
Foreclosure of Federal Tax Liens
motion for summary judgment, the government explained how the tax lien
issued against O'Day's property pursuant to 26 U.S.C. §§6321 and 6622
was lawfully executed and thus capable of a foreclosure action. Section
6321 states in pertinent part that:
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.
U.S.C. §6321 (1994). Section 6322 goes on to state that "unless
another date is specifically fixed by law, the lien imposed by section
6321 shall arise at the time of assessment is made and shall continue
until the liability for the amount so assessed ... is satisfied or
becomes unenforceable by reason of lapse of time." 26 U.S.C. §6322
(1994). The government maintains that because it holds a lawful lien
against any interest O'Day has in any property, that the court may force
the sale of such property to satisfy the debtor's obligation to the
government pursuant to 26 U.S.C. §7403. Section 7403 states that:
shall, after the parties have been notified of the action, proceed to
adjudicate all matters involved therein and finally determine the merits
of all claims to and liens upon the property, and ... may decree a sale
of such property, by the proper officer of the court, and a distribution
of the proceeds of such sale according the findings of the court in
respect to the interests of the parties and of the United States....
U.S.C. §7403 (1994). Accordingly, the government is motioning this
court to allow them to foreclose on the subject property and use the
sale proceeds to satisfy O'Day's federal tax obligations.
In response to
the government's motion, O'Day contends that the government is not
entitled to foreclose on the subject property for two reasons. First,
O'Day claims that when he voluntarily filed for Chapter 7 bankruptcy
protection, all creditor claims and liens against him and his property
were thereby discharged. Second, O'Day contends that he conveyed his
interest in the subject property to his son and stepson and thus the
subject property is not susceptible to the government's foreclosure
attempting to foreclose on the subject property and have the proceeds
used to satisfy O'Day's tax liabilities, O'Day argues that his Chapter 7
bankruptcy and the bankruptcy court's order of discharge absolved him of
payment of those liabilities. The government denies that O'Day's Chapter
7 bankruptcy discharged his federal tax liabilities, and argues that
even if O'Day's assertions were true, that such a discharge does not
prohibit the government from seeking to foreclose the tax liens on
O'Day's interest in real property resulting from those federal tax
liabilities. The government cites to several United States Supreme Court
cases which support their position. See Dewsnup v. Timm, 502 U.S.
410, 418 (1992) (stating that a bankruptcy discharge extinguishes only
one mode of enforcing a claim--namely, an action against the debtor in
personam--while leaving intact another--namely, an action against
the debtor in rem) (quoting Johnson v. Home State Bank,
501 U.S. 78, 84 (1991)) (emphasis in original); Farrey v. Sanderfoot,
500 U.S. 291, 297 (1991) (stating that ordinarily, liens and other
secured interests survive bankruptcy). See also, In Re Millsaps,
133 B.R. 547, 550 (Bankr. M.D. Fla. 1991) (holding that whether or not
the personal prepetition tax obligations are discharged, however, exempt
real property remains subject to any properly filed tax liens). The
court agrees with the government's argument and finds that the O'Day's
Chapter 7 bankruptcy does not prohibit the government from seeking to
foreclose on the subject property in an effort to satisfy O'Day's tax
argues that even if the government is entitled to foreclose their
federal tax liens on the subject property, he claims that he properly
conveyed the property to O'Day II and Eiland while retaining a life
estate interest for himself. O'Day claims that he suffers from a serious
medical condition, hyperliperdemia, which was the cause of death for
both of his parents. He contends that he was afraid of the same fate
occurring to him, so as an estate planning exercise, he conveyed the
subject property to both O'Day II and Eiland. (O'Day Aff. at 1; Doc.
maintains that even if O'Day trasferred his interest to the subject
property to O'Day II and Eiland, that it can still foreclose the
property to recoup O'Day's tax liabilities for three reasons. First, the
government claims that both O'Day II and Eiland transferred their
interest in the subject property back to O'Day by use of a quitclaim
deed, though O'Day never recorded the instrument. The government offers
two documents (Doc. 34; Exh. 9, 10) which purport to show that both
O'Day II and Eiland executed and delivered quitclaim deeds relinquishing
all their interest in the subject property back to O'Day for the sum of
May 2, 1992
June 10, 1992
respectively. The deeds, however, were never recorded by O'Day. The
government claims that O'Day's failure to record the quitclaim deeds
does not affect O'Day's ownership interest in the subject property. See
Sweat v. Yates, 463 So. 2d 306, 307 (Fla. Dist. Ct. App. 1984)
(holding that a deed takes effect from the date of delivery, and the
recording of a deed is not essential to its validity as between the
parties or those taking with notice).
government contends that if O'Day II and Eiland still possess an
interest in the subject property, that they acquired the property
subject to a federal tax lien which allows the government to foreclose.
The government contends that both O'Day II and Eiland allegedly acquired
their interests in the subject property on
March 9, 1990
, after the government had already made assessments, demands for
payment, and the imposition of liens against O'Day for his tax
liabilities. The government relies heavily on the United States Supreme
Court case of United States v. Bess, which states that a
"transfer of property subsequent to the attachment of the lien does
not affect the lien, for it is the very nature and essence of a lien,
that no matter into whose hands the property goes, it passes cum
onere...." United States v. Bess [58-2 USTC ¶9595], 357
U.S. 51, 57 (1958) (citations omitted). See also, United States v.
Avila [96-2 USTC ¶50,357], 88 F.3d 229, 233 (3rd Cir. 1996)
(holding that a transfer of property subsequent to the attachment of a
lien does not affect the lien); accord Jarro v. United States,
830 F. Supp. 606, 608 (S.D. Fla. 1993) (holding that tax liens follow
the property to which they have attached wherever it may be
transferred). Thus, the court finds that O'Day II and Eiland acquired
their interest in the subject property subject to a federal tax lien
which allows the government to foreclose on the subject property.
also contends that because O'Day II and Eiland were not bona fide
purchasers of the subject property, that they are not entitled to any
protection. See Rodeck v. United States, 697 F. Supp. 1508, 1510
(D. Minn. 1988) (holding that a lien need not be filed to be effective
against the delinquent taxpayer or against third party claimants of the
taxpayer's property except for those creditors and transferees
specifically protected under section 6323(a), which provides that a
federal tax lien will not be superior to four particular interests
unless notice of that lien has been properly filed). Section 6323(a)
provides that a lien imposed by section 6321, as is the case here, shall
not be valid against any purchaser, holder of a security interest,
mechanic's lienor, or judgment lien creditors. 26 U.S.C. §6323(a)
(1994). Section 6323 goes on to define a purchaser as "a person
who, for adequate and full consideration in money or money's worth,
acquires an interest (other than a lien or security interest) in
property...." 26 U.S.C. §6323(h)(6) (1994). Because the
governments claims that neither O'Day II nor Eiland paid any
consideration for their interest in the subject property, the two can
not be considered "purchasers" for section 6323 purposes and
therefore the federal lien is superior to any interest O'Day or Eiland
may have in the subject property. The court agrees with the government's
argument and concludes that foreclosure of the federal tax liens on the
subject property is lawful and will therefore grant their motion for
summary judgment on that issue.
court determined that summary judgment was appropriate on the
government's motion for foreclosure on the subject property, it need not
analyze the government's remaining arguments, namely that O'Day's
transfer of the subject property constituted a fraudulent conveyance and
thus not subject to protection. The court notes however that it agrees
with the government's argument and finds that O'Day's supposed transfer
to O'Day II and Eiland constituted a fraudulent conveyance. In support
of their argument, the government cites to Florida Statute chapter
726.101 which states in pertinent part that:
made or obligation incurred by a debtor is fraudulent as to a creditor
whose claim arose before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred the obligation
without receiving a reasonably equivalent value in exchange for the
transfer or obligation and the debtor was insolvent at that time or the
debtor became insolvent as a result of the transfer or obligation.
726.101(1) (1995). Prior to conveying the subject property, O'Day was
indebted to the government for unpaid, assessed income tax liabilities.
Neither O'Day II nor Eiland paid O'Day any consideration for the subject
property, and after the conveyance. O'Day was rendered insolvent. Thus,
all the elements of Florida Statute chapter 726.101 are satisfied. In
addition to satisfying Florida Statute chapter 726.101, certain actions
made by O'Day may constitute badges of fraud and render the conveyance
fraudulent as well. The court may use various kinds of circumstantial
evidence to infer fraudulent intent since direct evidence of such an
intent rarely exists. In re
, 161 B.R. 727, 733 (Bankr. S.D. Fla. 1993) (citations omitted).
Some of these badges of fraud include: (1) inadequate financial records;
(2) transfer of assets to a family member; (3) transfer for inadequate
consideration; (4) transfer that greatly reduced assets subject to IRS
execution; (5) transfers that were made in the face of serious financial
O'Day satisfies all of these examples as evidence of badges of fraud.
While O'Day contends that his transfer was simply for estate planning
purposes, the court is not persuaded. The court agrees with the
governments contentions outlined in their memorandum and concludes that
March 9, 1990
transfer of the subject property was fraudulent and therefore the
government has the authority to foreclose their federal tax liens on the
Reduce Assessed Tax Liabilities to Judgment
In addition to
foreclosing the federal tax liens on the subject property, the
government wishes to reduce O'Day's assessed income tax liabilities to
judgment. When evaluating the IRS's tax liability determinations, the
court is required to consider their conclusions presumptively correct. See
United States v. Chila [89-1 USTC ¶9299], 871 F.2d 1015, 1018 (11th
Cir. 1989) (stating that the Certificate of Assessment and Payment
submitted by the government is presumptive proof of a valid claim); George
v. United States [87-2 USTC ¶9384], 819 F.2d 1008, 1013 (11th Cir.
1987) (stating that the commissioner's determination of a tax deficiency
is presumed to be correct and that the taxpayer bears the burden of
proving otherwise). Once the Certificate of Assessments and Payment is
filed, the burden then shifts to the taxpayer to show that the
government's assessment was arbitrary or incorrect. Bar L Ranch, Inc.
v. Phinney [70-1 USTC ¶9399], 426 F.2d 995, 999 (5th Cir. 1970). If
the taxpayer does not present evidence indicating to the contrary, a
district court may properly rely on the certificates and conclude that
valid assessments were made. Guthrie v. Sawyer [92-2 USTC ¶50,391],
970 F.2d 733, 737-38 (10th Cir. 1992) (citing Hughes v. U.S., 531
F.2d 531, 535 (9th Cir. 1992)).
cites to numerous examples of how O'Day failed to present evidence or
question the incorrectness of the assessments, and thereby fails to meet
his burden of proof in this case that the assessments were erroneous.
First, the government points out that O'Day voluntarily signed a Revised
Report in 1986 consenting to the change in assessments made for that
year. Second, the government mentions that O'Day failed to file a
petition with the Tax Court regarding any of the assessments at issue in
this case. The government argues that a taxpayer:
the Government's assessment on mere allegations that such assessment was
arbitrary, excessive, invalid and illegal. The assessment can be
overturned only by the taxpayer producing records and other evidence
which clearly demonstrates the proper amount of tax which he owes the
Government. Failing to produce such evidence, the Government's
assessment is entitled to be reduced to judgment.
v. United States [67-2
USTC ¶15,757 ], 1967 WL 14746 (C.D. Cal. 1967), aff'd [69-1
USTC ¶15,888 ], 408 F.2d 1016 (9th Cir. 1969) (citing O'Neill v.
United States [61-2
USTC ¶15,371 ], 198 F. Supp. 367, 370 (
1961). Because O'Day can not substantiate his expenses or deductions, or
demonstrate the source of his unreported income due to the inadequacy or
non existence of any records, the government argues that it is proper to
reduce the assessments to judgments in favor of the government.
producing any records or evidence of the government's error in
calculating their assessment, O'Day relies on his filing for Chapter 7
bankruptcy protection for discharging his federal income tax
liabilities. The court has previously ruled that O'Day's filing for
Chapter 7 bankruptcy protection did not discharge the government's lien
against his real property, and now rules that his tax liabilities were
not discharged either. First, because O'Day failed to file a tax return
for the year 1990, the government prepared a substitute return for him.
Accordingly, O'Day is not entitled to a discharge for a return that was
never filed. See 11 U.S.C. §523(a)(1)(B)(i) (1994) (stating that
a discharge under section 727 ... does not discharge an individual
debtor from any debt for a tax ... with respect to which a return, if
required--was not filed). Because O'Day presents no evidence to disprove
the IRS's assessment, the court must presume it to be correct. George
[87-2 USTC ¶9384], 819 F.2d at 1013.
the government contends that a debtor is not entitled to have his tax
liabilities discharged if he acted fraudulently while preparing a return
or attempting to evade the tax due. See 11 U.S.C. §523(a)(1)(C)
(1994) (stating that a discharge under section 727 ... does not
discharge an individual debtor from any debt--from a tax or a customs
duty--with respect to which the debtor made a fraudulent return or
wilfully attempted in any manner to evade or defeat such tax). The
government argues that O'Day fraudulently transferred his interest in
the subject property to protect it from seizure; closed all of his bank
accounts and began dealing solely in cash to avoid an IRS levy; in
addition to filing several frivolous lawsuits. The court notes that:
[O]ne of the
primary purposes of the Bankruptcy Code is to give the "honest but
unfortunate" debtor a fresh start. Disallowing a discharge of tax
debts owed by debtors who endeavored to evade taxes will not undermine
the Bankruptcy Code's fresh start objective; however, it will promote an
equally important objective expressed by Congress, namely that the
Bankruptcy Code not become an inappropriate tax evasion device.
re Spirito, 198 B.R. 624, 629
(Bankr. M.D. Fla. 1996). As recited earlier in the government's argument
seeking a foreclosure on the subject property in Count I, the court
agrees with the government's contentions that O'Day acted fraudulently
and in an attempt to disrupt and impede the government's efforts from
imposing and collecting his tax liabilities. Therefore, the court
concludes that O'Day's tax liabilities were not discharged by his
Chapter 7 bankruptcy filing and that his liabilities should be reduced
to a judgment in favor of the government. Accordingly, the court will
grant the government's motion seeking such a result.
motion for summary judgment, the government sought to foreclose the
federal tax lien placed on O'Day's property and to reduce O'Day's
assessed tax liabilities to judgment entered in the government's favor.
First, the court finds that O'Day II and Eiland took whatever interest
they may have in O'Day's property subject to the government's lien.
Additionally, the court finds that O'Day's conveyance of the subject
property was fraudulent in violation of
statute chapter 726.101(1). For both of the above reasons, the court
concludes that the government is entitled to foreclose on the subject
property to satisfy O'Day's assessed federal tax liability. Next, the
court finds that the IRS' certificates and assessments are presumptively
correct and that O'Day failed to meet his burden to persuade the court
otherwise. Additionally, the court concludes that because both his
property conveyance and attempted evasion of his tax liabilities were
fraudulent activities, O'Day's tax liabilities were thereby never
discharged by his filing for Chapter 7 bankruptcy protection. There
being no issue of material fact to preclude the entry of judgment, the
court GRANTS the government's motion for summary judgment (Doc.
42) and directs the Clerk of Court to enter judgment accordingly.
It is SO
O'Day II is not a named party in the government's present motion for
summary judgment. O'Day II has already waived service of process and
because he did not answer the government's compliant within 60 days of
his waiver pursuant to Fed. R. Civ. P. 12, the government is filing an
application for an entry of default on O'Day II in a separate legal
The subject property is more fully described as:
21, SUNLAND ESTATES, FIRST ADDITION, as per plat thereof recorded in
Plat Book 12 at pages 97 and 98 of the Public Records of Seminole
County, Florida. The mailing address of the subject property is
307 Tucker Drive
¶50,171] Internal Revenue Service, Appellant v. Sandra E. Diperna,
District Court, East. Dist. N.C., West.
, 195 BR 358, 195 BR 358. Reversing an unreported Bankruptcy Court
[Code Sec. 6323 ]
Bankruptcy: Tax liens: Superpriority: Bona fide purchaser: Trustee:
Debtor.--A trustee of a Chapter 13 bankruptcy estate could not avoid
tax liens on the debtor's car and household goods where notice of the
liens was filed before the bankruptcy petition. Although the trustee
stepped into the shoes of a bona fide purchaser for purposes of the
Bankruptcy Code, the trustee was not entitled to the protection of the
Internal Revenue Code's superpriority provisions regarding purchasers
who do not have notice of the tax lien. In order to receive protection,
the trustee needed not just purchaser status but also possession of the
car before obtaining actual notice or knowledge of the tax lien.
Furthermore, the trustee, as hypothetical purchaser of the household
goods in a casual sale for less than $250, would be protected only if
the trustee did not have actual notice or knowledge of the lien or that
the sale was one of a series of sales. In addition, the debtor could not
avoid the tax liens since she was not a purchaser for purposes of the
Blaskopf, Department of Justice,
, for appellant. William E. Brewer, Jr., 619 N. Person St., Raleigh,
N.C. 27604, Trawick H. Stubbs, Jr., Stubbs, Perdue, Chesnutt, Wheeler
& Clemmons, 215 Broad St., New Bern, N.C. 28563-1654, for appellee.
court is the Internal Revenue Service's ("IRS") appeal from
the decision of the bankruptcy court granting the joint motion of
appellee Sandra E. Diperna and the Chapter 13 trustee to avoid federal
tax liens. For the reasons discussed below, the decision of the
bankruptcy court is REVERSED.
a Chapter 13 bankruptcy petition on
27 October 1994
. Thereafter, the IRS filed a proof of claim in the amount of $8140.50,
claimed as secured by federal tax liens. On 14 February 1995, appellee
and the trustee filed a motion to avoid the liens on appellee's
automobile and on her household goods with an individual value of
$250.00 or less pursuant to 11 U.S.C. §545(2)
and 26 U.S.C. §6323(b)
. The IRS opposed the motion. After a hearing on
2 May 1995
, U.S. Bankruptcy Judge A. Thomas Small, by order dated
8 May 1995
, granted the motion. This appeal followed.
STANDARD OF REVIEW
reviews the bankruptcy court's legal conclusions de novo. Umholtz v.
Brady, 169 B.R. 569, 572 (E.D.N.C. 1993), aff'd, 27 F.3d 564
(4th Cir. 1994)(table).
issue on appeal concerns the relationship between the Bankruptcy Code,
11 U.S.C. §545(2) ,
and the Internal Revenue Code ("IRC"), 26 U.S.C. §6323
545(2) provides that
may avoid the fixing of a statutory lien on property of the debtor to
the extent that such lien is not perfected or enforceable at the time of
the commencement of the case against a bona fide purchaser that
purchases such property at the time of the commencement of the case,
whether or nor such a purchaser exists.
to this section, a trustee may step into the shoes of a hypothetical
bona fide purchaser and claim the same defenses to statutory liens on a
debtor's property as would a bona fide purchaser."
v. Hunter (In re Walter) [95-1
USTC ¶50,072 ], 45 F.3d 1023, 1027 (6th Cir. 1995). Federal tax
liens, which arise pursuant to 26 U.S.C. §§6321
and 6322, 2
are statutory liens within the meaning of the Bankruptcy Code,
inson v. United States (In re Carolina Resort Motels, Inc.), 51
B.R. 447, 449 (D.S.C. 1985); see also 11 U.S.C. §101(53)
, thus, they are subject to avoidance. In re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1027.
Although a tax
lien arises automatically upon assessment, see 26 U.S.C. §6322
, the lien is not valid against third parties until the IRS files
notice of the lien, see id. §6323(a)
. However, the IRC does give superpriority to those who purchase
certain property from the taxpayer after such notice has been filed. 4 Collier
on Bankruptcy ¶545.04 (15th ed. Supp. 1995). The IRC, §6323(b)
, states in relevant part:
notice of a lien ... has been filed, such lien shall not be valid. ...
(2) Motor vehicles.--With respect to a motor vehicle ... as against a
purchaser of such motor vehicle, if--
(A) at the
time of the purchase such purchaser did not have actual notice or
knowledge of the existence of such lien, and
(B) before the
purchaser obtains such notice or knowledge, he has acquired possession
of such motor vehicle and has not thereafter relinquished possession of
such motor vehicle to the seller or his agent....
property purchased in casual sale.--With respect to household goods,
personal effects, or other tangible personal property ... purchased (not
for resale) in a casual sale for less than $250, as against the
purchaser, but only if such purchaser does not have actual notice or
knowledge (A) of the existence of such lien, or (B) that this sale is
one of a series of sales.
purpose of this superpriority section is to encourage the transfer of
specified properties and protect those who purchase such property
without notice of the tax lien. In re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1031 n.7.
In this case,
the IRS filed notice of its tax liens prior to the appellee's filing of
her Chapter 13 petition. Appellee argues that "bona fide
purchaser" as that term is used in the Bankruptcy Code §545(2)
includes "purchasers" who are given superpriority status
under the IRC §6323(b)(2)
and (4) . On
the other hand, appellant contends that although the trustee is a
hypothetical bona fide purchaser, the trustee does not fall within the
protection of the IRC's superpriority provisions so as to be able to
avoid the tax liens on appellee's automobile and household goods.
At the outset,
the court must address whether a "bona fide purchaser" under §545(2)
is entitled to the protection afforded a "purchaser" under
"Purchaser" is defined as "a person who, for adequate and
full consideration in money or money's worth, acquires an interest
(other than a lien or security interest) in property which is valid
under local law against subsequent purchasers without actual
notice." 26 U.S.C. §6323(h)(6)
. The Bankruptcy Code does not define "bona fide
purchaser." Thus, the court will accord the term its ordinary
meaning. See Reed v. Health & Human Servs., 774 F.2d 1270,
1274 (4th Cir. 1985)("The starting point for construing the statute
is therefore an examination of the ordinary meaning of the undefined
term; '[w]here Congress uses terms that have accumulated settled meaning
..., a court must infer ... that Congress means to incorporate the
established meaning of these terms.' " (citation omitted)), rev'd
on other grounds, 481 U.S. 368 (1987). "Bona fide
purchaser" has traditionally been defined as "[o]ne who has
purchased property for value without any notice of any defects in the
title of the seller." 3
Black's Law Dictionary 177 (6th ed. 1990).
is a much lower standard than "adequate and full consideration in
money or money's worth." Because a bona fide purchaser is not
necessarily a purchaser for purposes of [IRC] §6323(b)(2)
, it follows that a trustee standing in the shoes of a hypothetical
bona fide purchaser does not fall within the protection of this statute.
re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1030-31 (footnotes omitted) (citing In
re Helper, No. 93-71086, 1993 WL 453370, at *2 (Bankr. D.S.C.
July 30, 1993
); In re McNitt [92-2
USTC ¶50,427 ], 139 B.R. 21, 23 (Bankr. D.
1992); In re Bates [88-1
USTC ¶9124 ], 81 B.R. 63, 64 (Bankr. D. Or. 1987)); see also
v. Battley (In re Berg), 188 B.R. 615, 619-20 (Bankr. 9th Cir.
1995); United States v. Weissing [95-2
USTC ¶50,449 ], No. 93-1507, 1995 WL 579928, at *4-5 (M.D. Fla.
July 20, 1995). But see Askanase v.
(In re Guyana Dev. Corp.), 189 B.R. 393, 397 (Bankr. S.D. Tex.
1995); United States v. Branch [94-2
USTC ¶50,406 ], 170 B.R. 577, 579 (E.D.N.C. 1994); United States
v. Sierer, 139 B.R. 752, 755 (N.D. Fla. 1991). See generally
4 Collier on Bankruptcy, supra, ¶¶545.02-545.04; Morgan D. King
& Jonathan H. Moss, Avoiding Tax Liens on Personal Property in
Bankruptcy: A Look at the Interplay Between the Bona Fide Purchaser
Provisions of the Tax and Bankruptcy Codes, 31 Cal. W. L. Rev. 1
Even if the
court were persuaded that a trustee was entitled to the protection of §6323(b)
, the subsections of §6323(b)
at issue here require something in addition to purchaser status in
order for the tax lien to be invalid as to the purchaser. With respect
to motor vehicles, the purchaser must have acquired possession of the
vehicle before obtaining actual notice or knowledge of the tax lien. 26
U.S.C. §6323(b)(2) .
Furthermore, a purchaser of personal property in a casual sale 4
for less than $250 is protected only if the purchaser did not have
actual notice or knowledge of the lien or that the sale was one of a
"series of sales." 5
. Although the trustee steps into the shoes of a bona fide
purchaser, this is all he or she does; the court will not assume that
the trustee has characteristics beyond that which a hypothetical bona
fide purchaser would have. See In re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1033-34 ("[W]here a bona fide
purchaser is without the power to avoid a lien because the controlling
law requires something more than mere bona fide purchaser status for
protection, the trustee also is without power to avoid the lien.");
Weissing, at *5 (holding Bankruptcy Code does not grant the
hypothetical bona fide purchaser "hypothetical possession" of
a vehicle); Sierer, 139 B.R. at 755 (same); In re Williams,
109 B.R. at 181 (same); In re Bates [88-1
USTC ¶9124 ], 81 B.R. 63, 64 (Bankr. D. Or. 1987) (holding trustee
is not granted hypothetical possession nor is he or she placed in the
situation required by §6323(b)(4)
). But see Branch [94-2
USTC ¶50,406 ], 170 B.R. at 579.
appellant contends that the appellee-debtor lacks standing to avoid the
IRS' lien. Assuming without deciding that the debtor has standing, the
above analysis applies with equal force to the debtor. See In re
USTC ¶50,072 ], 45 F.3d at 1033-34 (Chapter 11
debtors-in-possession are not purchasers within §6323(b)(2)
); In re Williams, 109 B.R. at 181 (Chapter 13 debtors cannot
avoid tax liens); In re Bates [88-1
USTC ¶9124 ], 81 B.R. at 64 (Chapter 13 debtor, whose rights are
derived from the trustee's avoiding powers, may not avoid lien when
trustee not granted hypothetical possession).
foregoing reasons, the decision of the bankruptcy court is REVERSED.
26 U.S.C. §6321 provides:
If any person
liable to pay any tax neglects or refuses to pay the same after demand,
the amount (including any interest, additional amount, addition to tax,
or assessable penalty, together with any costs that may accrue in
addition thereto) shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal, belonging to
"[T]he lien imposed by section
6321 shall arise at the time the assessment is made...." 26
U.S.C. §6322 .
Because the statutory language of §545(2)
is plain and unambiguous, the court need not resort to its
legislative history. See Stiltner v. Beretta U.S.A. Corp., --
F.3d --, No. 94-1323, 1996 WL 42225, at *7 (4th Cir. Feb. 2, 1996); In
re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1027 n.2. Furthermore, the history is of
little assistance, as it is confusing and Congress' intent is unclear. See
In re Walter [95-1
USTC ¶50,072 ], 45 F.3d at 1027 n.2 (citing Znider v.
(In re Znider) [93-1
USTC ¶50,165 ], 150 B.R. 239, 242 (Bankr. C.D. Cal.), vacated on
other grounds, 167 B.R. 603 (C.D. Cal. 1993); In re Williams,
109 B.R. 179, 182 (Bankr. W.D.N.C. 1989)). But see
v. Sierer, 139 B.R. 752, 754 (N.D. Fla. 1991).
A casual sale is one not in the ordinary course of the seller's
business. Treas. Reg.
"[A] sale is one of a series of sales if the seller plans to
dispose of, in separate transactions, substantially all of his household
goods, personal effects, and other tangible personal property...."
¶50,268] In re Rogelio Suarez, Debtor. Rogelio Suarez and
ert L. Roth, Trustee, Plaintiffs v.
United States of America
Bankruptcy Court, So. Dist. Fla.,
[Code Sec. 6323 ]
Validity of lien: Bankruptcy: Judgment creditor: Purchaser: Exempt
An IRS lien against the real property of a debtor was avoidable in
bankruptcy, even though the lien was valid because the debtor, who
received the property in a divorce settlement, was not a purchaser or a
judgment creditor. Although the deed of conveyance was not recorded
until after the IRS filed its notice of lien, the property was conveyed,
under applicable state (
) law, upon the recordation of the final order of distribution of the
marital assets prior to the filing of the notice of lien. However, the
debtor's relinquishment of marital rights did not constitute a
consideration in money or money's worth. In addition, the debtor was not
a judgment lien creditor. The final order and final judgment in the
divorce proceeding did not create a lien. It merely reordered
pre-existing property interests and created new interests in the place
of old. Alternatively, even if the final order created a lien, the final
order did not have the requisite finality to give it priority over the
IRS lien because the amount of the lien was not established. However,
the debtor elected to exempt the property as his homestead. Therefore,
because the IRS did not file its notice of tax lien until after the
debtor filed for bankruptcy, the lien was avoidable.
Bublick, 11645 Biscayne Blvd., #208, North Miami Beach, Fla., 33181, for
ert L. Roth, Keith, Mack, Lewis, Cohen & Lumpkin,
200 S. Biscayne Blvd.
, for trustees.
Decision on Complaint to Determine Extent, Validity, and Priority of
came before the Court on August 16, 1994 on Plaintiffs', Rogelio Suarez
ert L. Roth, Trustee, Second Amended Complaint to Determine Extent,
Validity, and Priority of Liens of the United States of America
(hereinafter "IRS") for Federal Income Taxes, Penalties and
Interest, and Complaint to Avoid Liens, if Any. The matter is before the
Court on the stipulated facts as set forth in the agreed Pretrial Order,
August 3, 1994
, and the exhibits submitted by both parties.
seek a determination by the Court that the IRS does not hold a lien on
any of the property of the estate or property of the debtor, or in the
alternative, to the extent that the IRS may hold a lien on any property
of the estate, such lien is avoidable.
September 17, 1979
, Debtor and his now-former wife, Magaly Suarez, purchased the real
property located at 1424 S.W. 17th Terrace,
(hereinafter "the Property"). Such real property is more
completely described as:
8, Block 5 of Parkway Addition, as recorded in Plat Book 41 at Page 77
of the Public Records of Dade County, Florida.
2. On July 3,
1990 Plaintiff, Rogelio Suarez, filed for divorce from his wife Magaly
Suarez, Case No. 90-31995 FC (26), Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida.
dissolution case was bifurcated for hearing between non-economic issues
and economic issues. The non-economic issues were disposed of in a Final
August 8, 1991
. The economic issues, including the issue of awarding property, were
disposed of in a Final Order on General Master's Concluding Report and
Judgment on all Economic Issues (hereinafter "Final Order")
dated December 2, 1991.
4. The Final
December 2, 1991
stated in pertinent part:
Court . . . grants the Petitioner/Husband the exclusive occupancy,
possession, and ownership of the former marital home with the Wife to
execute a Quit Claim Deed to the Husband of all her right, title, and
interest in said real property located at 1424 S.W. 17th Terrace, Miami
Florida . . . forthwith with the Husband to be thereafter responsible
for the Internal Revenue Service lien, the existing mortgage and all
other encumbrances on said real property. (emphasis provided) (¶3 of
5. The Final
Order was recorded
December 4, 1991
in the Official Records of Dade County, Official Records Book 15290,
following federal income taxes were assessed against both Rogelio Suarez
and Magaly Suarez jointly:
Tax Year Date Assessed Amount Owed
following federal income taxes were assessed against Rogelio Suarez
Tax Year Date Assessed Amount Owed
1991 * 1 $2,981.00
June 17, 1993
, Magaly Suarez delivered a quit-claim deed of her interest in the
Property to Rogelio Suarez. The quit-claim deed was recorded on
November 30, 1993
November 16, 1993
, Rogelio Suarez filed a Chapter 13 petition for bankruptcy.
November 17, 1993, the IRS filed its Notice of Tax Lien in the Public
Records of Dade County, Florida pursuant to 26 U.S.C. Section
6323 ("I.R.C. 6323") as to the income tax assessments
against Rogelio Suarez and Magaly Suarez for tax years 1984, 1985, 1986,
1987, and 1988.
November 17, 1993
, the IRS filed its Notice of Tax Lien in the Public Records of Dade
County, Florida pursuant to 26 U.S.C. Section
6323 as to the income tax assessments against Rogelio Suarez
individually for tax years 1989 and 1990.
December 9, 1993
, the IRS filed its "Notice of Inadvertently Filed Notice of
Federal Tax Lien," which acknowledged that the two notices of
federal tax lien filed on
November 17, 1993
were mistakenly filed, in violation of the automatic stay. In its
December 9th Notice, the IRS claimed that such notification "does
not release the lien imposed by I.R.C. 6321."
January 28, 1994
, the IRS filed an amended proof of claim declaring general unsecured
claims for tax years 1984-1990 in the sum of $30,904.49; and unsecured
priority claims for tax years 1990 and 1991 in the sum of $6,836.16.
14. The Court
takes judicial notice of Debtor's Schedules wherein Debtor claims the
Property as his exempt homestead.
Law and Discussion
A tax lien in
favor of the
arises by operation of law if a person is unable to pay a tax liability
after demand is made for payment. 2
This general tax lien is perfected as to the taxpayer without the filing
of a Notice of Federal Tax Lien. 3
However, before a tax lien will be effective against certain third
parties, a Notice of Federal Tax Lien must be recorded. Specifically,
I.R.C. §6323(a) provides
that 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). 4
argue that pursuant to 26 U.S.C. 6323(a), the IRS does not hold a lien
on the Property since Debtor constitutes both a "purchaser"
and "judgment lien creditor" under the applicable definitions,
and, therefore, the federal tax liens are not valid. In the alternative,
Plaintiffs argue that if the Court determines the IRS holds a valid lien
on the Property, such lien is avoidable pursuant to 11 U.S.C. Sections
545(2) , 544(a)(1) 544(a)(2), and/or 544(a)(3).
Does the IRS Hold a Valid Lien Under I.R.C. Section 6323 ?
In this case,
the tax liens arose on the dates of assessment. However, the liens were
not recorded until
November 17, 1993
, almost two years after the conveyance to Debtor. Therefore, whether
the liens may be enforced against the property now owned by Debtor turns
on whether his interest falls within one of the four exceptions
enumerated in §6323 .
Since Debtor clearly is neither a mechanic's lienor not the holder of a
security interest in the property, he is entitled to relief under §6323(a)
only if he qualifies as a purchaser or judgment lien creditor. United
States v. Brynes [94-1
USTC ¶50,180 ], 848 F.Supp. 1096 (D. R.I. 1994).
6323(h)(6) defines purchaser as follows:
Purchaser. The term "purchaser" means a person who, for
adequate and full consideration in money or money's worth, acquires an
interest (other than a lien or security interest) in property which is
valid under local law against subsequent purchasers without actual
notice. (emphasis added).
a "purchaser," as defined under 6323(h)(6), will take property
free and clear of federal tax liens imposed against the property if no
Notice of Federal Tax Lien has been filed in accordance with the
The IRS argues
that Debtor does not constitute a purchaser because the conveyance by
Magaly Suarez to Debtor was not "valid under local law," since
the deed for the conveyance was not recorded until
November 30, 1993
, after the Notices of Federal Tax Lien were filed on
November 17, 1993
. The Court disagrees.
Statute Section 61.075(4) provides that a judgment distributing marital
have the effect of a duly executed instrument of conveyance, transfer,
release or acquisition which is recorded in the county where the
property is located when the judgment or a certified copy of the
judgment is recorded in the official records of the county in which the
property is located."
Florida Rule of Civil Procedure 1.570(d) provides:
judgment is for a conveyance, transfer, release, or acquittance of real
or personal property, the judgment shall have the effect of a duly
executed conveyance, transfer, release, or acquittance that is recorded
in the county where the judgment is recorded."
Suarez's interest in the property was conveyed to Debtor upon
recordation of the Final Order in the Official Records of Dade County,
December 4, 1991
Stat. Section 61.075(4) (1994); Fla.R.Civ.P. 1.570(d). The
recording of this instrument perfected transfer of title to Debtor as of
December 4, 1991
. The delivery of the quitclaim deed dated
June 17, 1993
from Magaly Suarez to Debtor which was recorded on
November 30, 1993
was not dispositive. Her interest already had been conveyed upon
recordation of the Final Order.
Stat. Section 61.075(4) (1994); Fla.R.Civ.P. 1.570(d). The
conveyance from Magaly Suarez to Debtor was "good and
's recording statute since the Final Order conveying the property was
"recorded according to law."
Stat. Section 691.05.
issue, the Court believes, in determining whether Debtor is a purchaser
under §6323(a) ,
is whether Debtor acquired his interest in the property "for
adequate and full consideration in money or money's worth." 26
U.S.C. §6323(h)(6) .
The regulations promulgated pursuant to that section describe
"adequate and full consideration" as consideration that bears
a "reasonable relationship to the true value of the interest in the
property acquired." 26 C.F.R. §301.6323(h)-1(f)(3)
. The term "money or money's worth" includes money,
tangible or intangible property, services, and other consideration
reducible to a money value. A relinquishment or promised relinquishment
of marital rights is not a consideration in money or money's worth. 26
C.F.R. §301.6323(h)1(a)(3). The validity of the latter provision is at
least debatable since like the relinquishment of any other valuable
legal right, a waiver of alimony has been recognized as consideration. United
States v. Brynes [94-1
USTC ¶50,180 ], 848 F.Supp. 1096 (D. R.I. 1994). See, e.g., Law
v. United States, 83-1 US Tax Cas. (CCH) ¶13,514, 51 A.F.T.R.2d
(P-H) ¶83-1343 (N.D. Cal 1982). Moreover, there is nothing in the
statute indicating that Congress intended to exclude a bona fide waiver
of alimony from the definition of consideration or to delegate to the
Treasure Department the authority to create such an exclusion. United
States v. Brynes [94-1
USTC ¶50,180 ], 848 F.Supp. 1096 (D. R.I. 1994). The Final Order,
however, purports only to grant the marital property to Debtor. While
Debtor requested in his Petition for Dissolution of Marriage that he be
awarded full possession and ownership of the former marital home
"as lump sum alimony," the General Master's Concluding Report
(ratified and approved in the Final Order) provided "[t]hat neither
party be awarded alimony of any kind or description." Nowhere is
"consideration" or the granting of alimony mentioned.
The Court is
of the opinion that the subject real property was awarded to Debtor to
compensate him for relinquishing his marital rights, and therefore was
not purchased "for adequate and full consideration in money or
money's worth" as required by §6323(a)
and consistent with the regulations quoted above. Simpson v.
United States [89-1
USTC ¶9285 ], 1989 WL 73212 (M.D. Fla.); Harris v. United States
¶9511 ], 588 F.Supp. 835 (N.D. Tex. 1984), aff'd [84-2
USTC ¶9715 ], 764 F.2d 1126 (5th
1985); United States v. Brynes [94-1
USTC ¶50,180 ], 848 F.Supp 1096 (D. R.I. 1994). Accordingly, Debtor
is not a "purchaser" within the meaning of §6323(h)(6)
JUDGMENT LIEN CREDITOR
above, the lien created by Section
6321 arises at the time of assessment and attaches to all the
taxpayer's property, both real and personal. Therefore, the IRS has had
a tax lien against Rogelio Suarez's property since
November 11, 1991
, the date of the first assessment. However, Section
6323(a) of the Internal Revenue Code provides that the lien imposed
by Section 6321 is
not valid against "any purchaser, holder of a security
interest, mechanic's lien, or judgment lien creditor until notice
thereof . . . has been filed. . . ." Debtor argues that his
interest in his residence is superior to the tax lien of the IRS because
he was a "judgment lien creditor" by virtue of the Final Order
and Final Judgment entered in the divorce proceedings and recorded in
the Official Records of Dade County, Official Records Book 15290, Page
2643 on December 4, 1991, before the IRS filed its notice of tax lien. 5
Regulations define a "judgment lien creditor" as
who has obtained a valid judgment, in a court of record and of competent
jurisdiction, for the recovery of specifically designated property or
for a certain sum of money." 26 C.F.R. §301.6323(h)-1(g)
In the case of
real property, the regulations state:
or docketing is necessary under local law before a judgment becomes
effective against third parties acquiring liens on real property, a
judgment lien under such local law is not perfected with respect to real
property until the time of such recordation or docketing. 26 C.F.R. §301.6323(h)-1(g)
"lien" and "judicial lien" are also defined by the
Bankruptcy Code. A "judicial lien" is a lien obtained by
judgment, levy, sequestration, or other legal or equitable process or
proceeding. 11 U.S.C. §101(36)
. A "lien" is a charge against or interest in property to
secure payment of a debt or performance of an obligation. 11 U.S.C. §101(37)
To decide if
Debtor has a "judicial lien," the Court must first decide if
the Final Order and Final Judgment obtained in the divorce proceedings
created a "lien" at all. In re Elkhatib, 108 B.R. 650
(Bankr. N.D. I11. 1989).
decree has the effect of either extinguishing or reordering pre-existing
property interests of the parties and creating new interests in the
place of the old. In re Wells, 160 B.R. 726 (Bankr. N.D. N.Y.
1993); see also, Farrey v. Sanderfoot, 500 U.S. 291 (1991); In
re Steffen, 1992 W.L. 308378 (Bankr. N.D.
May 12, 1992
). In the instant case, Debtor was awarded sole title to the marital
residence pursuant to the Final Order and Final Judgment. The Final
Judgment does not give Debtor a charge against or interest in property
to "secure payment of a debt or performance of an obligation."
Rather it is an order "reordering pre-existing property interests
of the parties and creating new interests in place of the old." In
re Wells, 160 B.R. 726 (Bankr. N.D. N.Y. 1993) Therefore, as a
matter of law, the Final Order and Final Judgment on All Economic Issues
did not create a "lien" at all.
if the Court determined the Final Order obtained in the divorce
proceedings created a lien, it would not have the choateness necessary
to allow it priority over the federal tax lien. "[T]he fact that a
lien was perfected before a federal tax lien was recorded does not
necessarily entitle it to priority over the federal tax lien. To enjoy
priority, the previous lien also must be sufficiently choate under
federal law." United States v. Brynes [94-1
USTC ¶50,180 ], 848 F.Supp 1096 (D. R.I. 1994); see also,
USTC ¶9191 ], 347 U.S. 81 (1954). The concept of choateness relates
to the specificity and identifiability of a lien. Liens "may also
be perfected in the sense that there is nothing more to be done to have
a choate lien--when the identity of the lienor, the property subject to
the lien, and the amount of the lien are established." New
Britain, supra, at 84.
Here the Final
Order would not have the choateness necessary to allow it priority over
the federal tax lien because the amount of the lien is not established.
Nor could it ever be established since there is no debt to be secured by
a lien, just the redistribution of an interest in property.
the Court determines Debtor is not a judgment lien creditor within the
meaning of §6323(h)(6)
Avoidance of Liens
taxpayer files a title 11 petition, the presence or absence of a
recorded Notice of Federal Tax Lien will control how the IRS's claim is
treated in the bankruptcy case. A "secret" or unrecorded tax
lien under I.R.C. §6321 is
an unsecured claim in a title 11 case and may be avoided.
argue that any lien held by the IRS is avoidable. The IRS argues that as
a Chapter 13 debtor, Debtor does not have the power to exercise the
avoidance powers granted to trustees in Sections
544 , 545 , 547
, 548, 549 and 550 of the Bankruptcy Code. The IRS submits that
Debtor's avoidance power is specifically limited to exempt property as
provided under §522(h) which is to be read in conjunction with §522(c)(2)(B).
In re Perry, 90 B.R. 565, 566 (Bankr. S.D. Fla. 1988) (chapter 13
debtor can only avoid liens and other transfers as to exempt property).
issue of a chapter 13 debtor's standing to utilize the voiding powers
granted to a trustee was first addressed in 1980, courts have not
developed a uniform resolution of this issue. For instance, several
courts have held that the chapter 13 debtor may utilize the special
voiding power granted by Section
544 . In re Boyette, 33 B.R. 10 (Bankr. N.D.
1983); In re Einoder, 55 B.R. 319 (Bankr. N.D.
1985); In re Ottavioano, 68 B.R. 238 (Bankr. D.
1986); In re Weaver, 69 B.R. 554 (Bankr. W.D. Ky. 1987); In re
Colandrea, 17 B.R. 568 (Bankr. D.
cases have held that a chapter 13 debtor lacks standing to bring
avoidance actions. In re Tillery, 124 B.R. 127 (Bankr. M.D. Fla.
1991); In re Bruce, 96 B.R. 717 (Bankr. W.D. Tex. 1989); In re
Mast, 79 B.R. 981 (Bankr. W.D. Mich. 1987). In In re Tillery,
supra, Judge Paskay receded from his earlier decision in In re
Hall, supra, that a chapter 13 debtor may utilize the special
voiding power granted by §544
, and determined that a chapter 13 debtor lacks the power to use the
lien avoidance power of §544
The Court also
is aware of Judge Britton's decision in In re Perry, 90 B.R. 565
(Bankr. S.D. Fla. 1988), wherein the court ruled that a chapter 13
debtor can only avoid tax liens and other transfers as to exempt
property. In In re Perry the court determined that Congress did
not intend to grant chapter 13 debtors the trustee's power to avoid tax
notes, however, that Section
103 of the Bankruptcy Code specifically provides that the provisions
of Chapter 5 of the Bankruptcy Code are provisions of general
applicability and apply to any case filed under Chapter 7, Chapter 11,
Chapter 12 or Chapter 13. 6
the Court need not address this issue at this time since even under Perry
Debtor can avoid unperfected liens as to exempt property. In re
Perry, supra, [chapter 13 debtor can only avoid tax liens and other
transfers as to exempt property (Section 522 of the Bankruptcy Code)].
Unless the case is dismissed, property exempted under this section is
not liable during or after the case for any debt of the debtor that
arose . . . before the commencement of the case, except--
a debt secured by a lien that is--
a tax lien, notice of which is properly filed
As set forth
in Debtor's schedules, Debtor elected the exemptions to which he was
entitled under Section 522(b)(2) (exemptions available under applicable
non-bankruptcy federal laws and state or local laws) thereby exempting
his homestead under F1. Const. Art. X, Sec.
4 . Accordingly, because the IRS did not properly file its notice of
tax lien to secure the tax liabilities until after Debtor filed
his bankruptcy petition, said liens would not be valid against debtor's
real property under Section 522(c)(2)(B).
review of applicable law compels the conclusion that the tax liens at
issue are avoidable as to Debtor's exempt property under the Bankruptcy
Code and the IRS therefore does not hold a valid lien for federal income
taxes for tax years 1984-1990 on Debtor's exempt property.
memorandum decision contains the agreed upon facts and the Court's
conclusions of law. A separate Final Judgement will be entered in
conformity with this decision in accordance with Bankruptcy Rule 9021.
with this Court's Memorandum Decision on Complaint to Determine Extent,
validity and Priority of Claims entered on even date, it is
that the IRS's lien for federal income taxes for tax years 1984-1990 are
avoided as to Debtor's exempt property.
No assessment was made as of the Petition date for the 1991 tax year.
This general tax lien of I.R.C. §6321
is referred to as a "secret lien" because it arises as a
matter of law against the taxpayer without the necessity of the filing
of a Notice of Federal Tax Lien. Stevan v. Union Trust Co. [63-1
USTC ¶9377 ], 316 F.2d 687 (D.C. Cir. 1963). The lien attaches to
"all property and rights to property, whether real or personal,
belonging to such person," even if some of that property cannot be
seized by the IRS due to applicable exemptions. I.R.C. §6321
1A Collier on Bankruptcy 15th Ed. P 11.04 (1994); I.R.C. Section
6323(a) ; see also, In re May Reporting Servs. [90-2
USTC ¶50,464 ], 115 B.R. 652 (Bankr. D. S.D. 1990).
After a taxpayer files a title 11 petition, the presence or absence of a
recorded Notice of Federal Tax Lien will control how the IRS's claim is
treated in bankruptcy. If a Notice of Federal Tax Lien is recorded, the
IRS is a secured creditor and the priority rules of §507(a)(8) are
inapplicable to that secured claim. In re Reichert, 138 B.R. 522
(Bankr. W.D. Mich. 1992). If, however, a Notice of Federal Tax Lien is
not recorded before the Petition date, the IRS's claims are unsecured
claims governed by §507(a)(8) and may be avoided. Olson v.
(In re Olson), 154 B.R. 276, 280 (Bankr. D .N.D. 1993). The IRS does
not dispute that its claims are unsecured.
A creditor that achieves the status of "judgment lien
creditor" before the filing of the government's Notice of Federal
Tax Lien has priority over the
regarding property subject to the judgment lien, even if the tax
assessments which perfected the tax lien occurred before judgment was
rendered. Central Bank v. United States [93-2
USTC ¶50,586 ], 833 F.Supp. 892 (M.D. Fla. 1993).
§103 Applicability of chapters
(a) Except as
provided in section 1161 of this title, chapters 1, 3, and 5 of this
title apply in a case under chapter 7, 11, 12, or 13 of this title.
¶50,009] In re
ert L. Watt, Debtor
Bankruptcy Court, So. Dist.
, West. Div., 93-30673, 11/14/94, 174 BR 942, 174 BR 942
[Code Secs. 6321 and
Bankruptcy: Lien for taxes: Validity of lien.--
An IRS lien was not secured by a debtor's property or by the settlement
amount paid to the bankruptcy trustee following a fraudulent transfer of
that property, because the property was sold to a bona fide purchaser
before the IRS filed its notice of tax lien. Since the property was sold
following the transfer, the IRS lien had nothing to attach to once
notice was filed. Accordingly, the lien was not secured by the property
or the settlement amount. However, an IRS lien on personal property that
was sold at auction prior to the bankruptcy filing was secured by the
auction proceeds. The notice of tax lien was properly filed before the
date of the bankruptcy filing. The tax and interest portions of the
claim were allowed as a priority claim, while the penalty portion was a
general unsecured claim.
ert L. Watt, 2186 RT.68 South,
, pro se.
proceeding, which arises under 28 U.S.C. §1334(b) in a case referred to
this court by the Standing Order of Reference entered in this district
on July 30, 1984, is determined to be a core proceeding pursuant to 28
U.S.C. §157(b)(2)(A)--matters concerning the
istration of the estate, (B)--allowance or disallowance of claims
against the estate, and (K)--determinations of the validity, extent, or
priority of claims.
proceeding is presently before the court to determine what, if any,
assets obtained by the chapter 7 trustee in this case are subject to the
lien of the Internal Revenue Service.
Based upon the
parties' pleadings, the court makes the following findings of fact:
ert L. Watt ("Watt") for unpaid taxes were made by the
Internal Revenue Service (the "IRS") on the following dates:
Date Kind of Tax Balance at Petition
.................................... WT-FICA $ 235.90
.................................... WT-FICA $ 4,656.11
.................................... FUTA $ 233.77
................................... WT-FICA $ 3,099.69
.................................... WT-FICA $ 3,446.08