Title Agency, Inc., Plaintiff v. Terry Karl, as Temporary Guardian of
the Property of Leonard Rosen, United States of America, Mats Group,
Inc., as assignee of Reliance Security, Inc., Sheriff of Suffolk County,
and Gary Rosen, Defendants.
District Court, East.
; 03-CV-1795 (SLT)(MLO),
February 2, 2005
Validity and priority of liens: Priority of creditors: Inherited
property: Renounced interest. --
IRS liens had
priority over a state judgment creditor with respect to the proceeds
from the sale of real property that a taxpayer would have been entitled
to if he had not renounced his interest in his mother's estate. The IRS
liens had priority regardless of whether or not the renunciation was
valid under state law. If the renouncement was valid, it did not operate
to exempt the inheritance from the definition of property to which a
federal lien attaches even though the lien of the judgment creditor
would not have been valid against the property. If the renouncement was
invalid, the state lien, unlike a federal lien, was considered perfected
for purposes of determining priority status only when the specific
property subject to the lien was identifiable at the death of the
mother. The federal liens were valid for priority purposes at the time
filed even though they had not attached to an identifiable property
until the death. Certified copies of the IRS liens were sufficient to
establish the existence and validity of those liens.
Heller, Somer & Heller, for plaintiff. David Steiner, Department of
Justice, for defendants.
TOWNES, District Judge: Defendant United States moves for summary
judgment on the issue of the parties' entitlement to the escrow funds
currently held in the court registry and requests an order directing
that the funds be turned over to the Government. Upon consideration of
the written submissions of each party and oral argument on
January 28, 2005
, and for the reasons set forth below, the
' motion is GRANTED.
This case arises out of an interpleader action brought by Advantage
Title Company ("Plaintiff") on February 25, 2003, against the
United States (the "Government"), Mats Group, Inc.
("Mats"), Gary Rosen, and the Sheriff of Suffolk County
("Sheriff") (collectively the "Defendants"), to
determine which defendant was entitled to the funds it held in escrow,
totaling $36,804.00. Plaintiff, as a disinterested stakeholder faced
with competing claims by the various Defendants, asked the Court to
allow it to deposit the funds in the registry of the Court while proper
ownership of the funds was litigated. The Court (Spatt, J.) granted
Plaintiff's request and the escrow funds were deposited into the court
The Government, Mats, and Gary Rosen 2
each claim entitlement to the funds and this Court must decide which
party has the superior claim. 3
Irene Rosen died testate on
November 29, 1999
, and her will was admitted to probate at some point shortly thereafter.
On or about
July 6, 2000
, Leonard Rosen filed a Renunciation disclaiming his interest in any
proceeds of his mother's will. Mats now claims that Leonard Rosen lacked
the capacity to execute the renunciation, rendering it invalid. On
August 29, 2000
, Leonard Rosen, along with co-executors Aaron Rosen and Paul Rosen,
sold certain real property that had belonged to Irene Rosen, the
proceeds of which were to be divided among the co-executors. Leonard
Rosen's share of the proceeds was $38,804.00. After Leonard Rosen
informed Plaintiff that he had renounced his right to any proceeds under
the will, Plaintiff agreed to hold the $38,804.00 in escrow until
December 1, 2000
, pending the release of all federal tax liens. 4
In August of 2002, Gary and Kim Rosen filed a petition with the Supreme
Court of New York,
, for the appointment of a guardian for the person and property of
Leonard Rosen. On
September 19, 2003
, the Supreme Court declared Leonard Rosen to be legally incapacitated
as defined by section 81.02 of
's Mental Hygiene Law and appointed a guardian to manage his property
and personal needs.
Mats now claims entitlement to the escrow funds as holder of a judgment
entered on September 23, 1993, against Leonard Rosen and 4R Security,
Inc., in the amount of $86,691.72 5
, which was assigned to Mats by Reliance Security, Inc. on December 18,
2002. The Government does not dispute that Mats holds this judgment, but
claims that its federal tax liens have priority. The Government asserts
that it filed notice of four federal tax liens against the property of
Leonard Rosen on the following dates and in the following amounts:
February 14, 1995 --$108,442.31; December 30, 1998 --$533,864.12;
January 5, 1999 --$425,412.81; October 8, 1999 --$13,433.09. Mats claims
to have no independent knowledge to verify the existence of such liens,
but, relying on Plaintiff's complaint, it admits the existence of a
February 14, 1995
tax lien for $9.992,38 and an
April 12, 1999
tax lien for $18.242.88.
Standard of Review
Summary judgment is appropriate where "there is no genuine issue as
to any material fact" such that the moving party is entitled to
"judgment as a matter of law." Fed. R. Civ. P. 56(c). "A
fact is 'material' for these purposes if it 'might affect the outcome of
the suit under the governing law.'" Holtz v. Rockefeller &
Co., 258 F.3d 62, 69 (2d Cir. 2001) (quoting Anderson v. Liberty
Lobby, Inc., 477
242, 248 (1986)). To be "genuine," an issue of fact must be
supported by evidence "such that a reasonable jury could return a
verdict for the nonmoving party." Holtz, 258 F.3d at 69.
"In determining whether summary judgment is appropriate, a court
must resolve all ambiguities and draw all reasonable inferences against
the moving party." Alston v. New York City Transit Authority,
2003 U.S. Dist. LEXIS 21741, at *4 (S.D.N.Y.
Dec. 3, 2003
) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
574, 587 (1986)).
II. Timing of the
Mats argues that the Government's motion is premature since there has
been no discovery in this case. However, documents in the record
indicate that the parties have already engaged in some preliminary
discovery. Moreover, nothing in Rule 56 prohibits the entry of summary
judgment in the absence of full-fledged discovery. In fact, the rule
permits a party to move for summary judgment "at any time after the
expiration of 20 days from the commencement of the action...with or
without supporting affidavits." Fed. R. Civ. P. 56(a). While the
rule also permits a court to deny the motion or order a continuance to
permit further discovery if it deems that further opportunity for
factual development is warranted ( see Rule 56(f)), it is not
required that the court do so and the lack of discovery cannot, as Mats
argues, "bar" an otherwise appropriate and properly supported
motion for summary judgment. Thus, this Court may decide the
Government's motion for summary judgment on the current record.
III. Validity of the Federal Tax Liens
Insofar as Mats disputes the existence of the federal tax liens asserted
by the Government based on an alleged inability to verify the liens, the
Government has submitted certified copies of each lien, except for the
December 30, 1998 lien, for which it submitted an uncertified copy, as
exhibits to the sworn affidavit of David M. Steiner. 6
Therefore, at least as to the
February 14, 1995
January 5, 1999
October 8, 1999
liens, the Government has met its burden under Rule 56(e), which
provides as follows:
opposing affidavits shall be made on personal knowledge, shall set forth
such facts as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify to the matters
stated therein. Sworn or certified copies of all papers or parts thereof
referred to in an affidavit shall be attached thereto or served
therewith.... When a motion for summary judgment is made and supported
as provided in this rule, an adverse party may not rest upon the mere
allegations or denials of the adverse party's pleading, but the adverse
party's response, by affidavits or as otherwise provided in this rule,
must set forth specific facts showing that there is a genuine issue for
Fed. R. Civ. P. 56(e). Mats has failed to set forth any evidence that
the federal tax liens asserted by the Government do not exist or are not
valid. Instead, it relies on the Plaintiff's complaint, which, it
admits, "is not evidence which would be admissible pursuant to
Local Civil Rule 56.1 and Federal Rule of Civil Procedure 56(e),"
for information about the federal liens that purportedly contradicts the
Government's assertion. Not only does Mats selectively present only the
portions of Plaintiff's complaint which disagree with the Government's
assertion of its own tax liens 7
, the allegations made by Plaintiff (which were apparently based on the
results of its own title search for tax liens encumbering the sale of
the property) are not sworn to or certified and are not admissible
evidence which would effectively rebut the Government's certified
Thus, Mats has not raised a triable issue of fact as to the existence of
the tax liens asserted by the Government.
IV. Priority of the Federal Tax Liens
Mats does not appear to dispute the Government's argument that if
Leonard Rosen validly renounced his interest in his mother's estate,
then the Government is entitled to the funds in the court registry. The
Supreme Court held in United States v. Drye [ 99-2
USTC ¶60,363], 528 U.S. 49, 59 (1999), that a taxpayer's disclaimer
of rights to an inheritance under state law does not exempt the
inheritance from the definition of "property" to which a
federal tax lien may attach. The Court noted that "[j]ust as exempt
status under state law does not bind the federal collector, so federal
tax law is not struck blind by a disclaimer."
(internal quotation marks and citations omitted). Thus, if the
renunciation is valid, Mats' state law judgment lien cannot reach the
property (or the proceeds of the property) renounced by Leonard Rosen,
while the federal tax lien remains in full effect.
There appears to be a genuine factual dispute as to whether the
renunciation is valid. If material, this factual dispute would preclude
the entry of summary judgment in favor of the Government. However,
summary judgment is still appropriate because the issue is immaterial
--the federal tax liens retain priority over the competing state
judgment liens even if the renunciation is invalid. 9
In United States v. McDermott [ 93-1
USTC ¶50,164], 507 U.S. 447, 448-53 (1993), the Supreme Court held
that a federal tax lien is rendered extant for first-in-time priority
purposes at the time of filing, regardless of whether it has yet
attached to identifiable property, while a competing state lien comes
into existence for priority purposes only after it has been
"perfected." A state lien is considered perfected when
"the identity of the lienor, the property subject to the lien, and
the amount of the lien are established."
at 449-50 (quoting United States v.
USTC ¶9191], 347 U.S. 81, 84 (1954)). The Court held that "the
property subject to a lien is not 'established' until one knows what
specific property it is, and that a lien cannot be anything other than
'inchoate' with respect to property that is not yet subject to the
at 452 n.5. Thus, the Court held, a federal tax lien has priority over a
previously executed state lien with respect to property acquired by the
debtor after the federal lien was filed.
at 455. See also Don King Prods., Inc. v. Thomas [ 91-2
USTC ¶50,474], 945 F.2d 529, 533 (2d Cir. 1991) ("Not only
does a lienor's interest have to be first chronologically, but the
interest must be choate to defeat the federal tax lien.") As the
property whose sale yielded the proceeds currently in dispute was not
"established" for the purposes of Leonard Rosen's interest in
it until the November 28, 1999 death of Irene Rosen, at the earliest,
and as all of the federal tax liens at issue had been filed prior to
that point, the federal liens have priority and the Government is
entitled to the funds. Thus, Mats has not raised a triable issue of fact
as to which party is entitled to the $38,804 in the court registry.
Because there is no genuine issue of material fact requiring a trial in
this case, summary judgment is hereby entered in favor of the United
States. The Clerk of the Court is directed to turn over to the
escrow funds in the amount of $38,804.00, currently being held in the
By stipulation dated June 8, 2004, Plaintiff withdrew from this action
and waived any claim to attorneys' fees, costs, or expenses arising out
of this litigation.
Defendant Gary Rosen affirms that he is the President of Co-Defendant
Mats Group, Inc. The two parties are represented by the same counsel and
both claim entitlement to the disputed funds based on a judgment, to be
discussed shortly, that is held by Mats as assignee. Therefore, the
Mats/Gary Rosen defendants are referred to as "Mats" for
purposes of this opinion.
The Sheriff is named as a defendant in this case based on a Notice of
Levy served on Plaintiff for $168,225.12, apparently on behalf of Mats.
The Sheriff is not represented by counsel, has submitted no papers with
respect to this motion, and is not mentioned by any other defendant in
its moving papers. The Sheriff appears to have no independent claim to
the disputed funds.
As such a release was never forthcoming, Plaintiff held the funds in
escrow until depositing them in the court registry pursuant to an order
of this Court, as noted above.
The parties seem to agree that the judgment in question was for
$86,298.72, but the certified documents of assignment in the file list
the amount of the judgment as $86.691.72. In any event, the discrepancy
is immaterial, as the sum of the judgment far exceeds the sum held in
the court registry.
The Government also submitted a certified copy of the
February 14, 1995
lien as re-filed on
January 29, 2004
. Such timely re-filing preserves the lien's priority. See 26
Plaintiff's allegations regarding a January 5, 1999 lien in the amount
of $425,412.81 and an October 8, 1999 lien in the amount of $13,433.09
support the Government's assertions.
As to the one federal lien for which the Government submitted only an
uncertified copy --the December 30, 1998 lien for $533,864.12 --the
existence or non-existence of this lien is immaterial to the
determination of this motion, as the remaining liens would more than
cover the $38,804 in dispute should the Government prevail.
This discussion assumes without deciding that Mats'
predecessors-in-interest attained judgment lien creditor status with
regard to the 1993 judgment prior to
February 14, 1995
, as would have been required to achieve priority over the federal tax
lien filed on that date. Mats argues that it needs further discovery to
ascertain whether judgment lien creditor status was ever obtained, but
this factual dispute is immaterial because a federal tax lien trumps
even a duly executed state lien with regard to property acquired
subsequent to the imposition of the liens, as discussed in this section.
USTC ¶50,102] Bernice C. Williams, Executor, etc., Plaintiff v.
Department of Treasury, Defendant
District Court, No. Dist.
, West. Div., 3:01 CV 7077, 6/14/2001
Secs. 6321 and 6323 ]
Tax liens, validity of: Motion to dismiss: Interpleader actions:
State law: Equitable interest: Attachment of liens.--Tax liens
attached to a legatee's interest in the property of a decedent's estate
because, under state (Ohio) law, he had a current equitable interest in
any property of the estate to which he was entitled. Accordingly, the
legatee was not entitled to dismissal of an interpleader action filed by
the estate's executor to determine the proper distribution of the
property in the estate.
This matter is
before the Court on the motion for dismissal of interpleader filed by
Defendant Douglas Smith in the Probate Court of Auglaize County, Ohio,
January 31, 2001
. The case was removed to this Court pursuant to 28 U.S.C. §§1441,
1442, 1444, and 1446. For the following reasons, the motion to dismiss
will be denied.
January 26, 2001
, Bernice Williams, executor for the Estate of Wayne H. Williams, filed
an action for interpleader in the Probate Court of Auglaize County,
Ohio. In her complaint, the executor averred knowledge that one of the
legatees of the estate, Douglas Smith ("Smith"), was the
subject of two liens filed by the Department of Treasury, Internal
Revenue Service ("IRS"). 1
The executor then stated her desire not to make a final estate
distribution to Smith until her concerns regarding the liens were
On January 31,
2001, Smith filed a motion to dismiss the interpleader for failure to
state a claim upon which relief can be granted, pursuant to Ohio Civ. R.
12(b)(6). Smith argued that the action should be dismissed because the
IRS had not claimed any right or interest in the estate, and because the
executor lacked the authority to file an action in interpleader. On
February 21, 2001
, the action was removed to this Court by the IRS. Finally, on
March 22, 2001
, the IRS filed a memorandum in opposition to Smith's motion to dismiss.
Smith did not reply, and the matter is ripe for consideration. The
parties' contentions are discussed below.
Motion to Dismiss Standard
In deciding a
motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
function of the Court is to test the legal sufficiency of the complaint.
In scrutinizing the complaint, the Court is required to accept the
allegations stated in the complaint as true, Hishon v. King &
Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59
(1984), while viewing the complaint in a light most favorable to the
plaintiffs, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683,
1686, 40 L.Ed.2d 90 (1974); Westlake v. Lucas, 537 F.2d 857, 858
(6th Cir. 1976). The Court is without authority to dismiss the claims
unless it can be demonstrated beyond a doubt that the plaintiff can
prove no set of facts that would entitle it to relief. Conley v.
41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957);
, supra, at 858. See generally 2 JAMES W. MOORE,
'S FEDERAL PRACTICE, §12.34 (3d ed. 1997).
Potential Applicability of Tax Liens
purposes of this motion to dismiss, this Court must assume that tax
liens were assessed against Smith on September 14, 1992, and December
28, 1992, pursuant to Sections 6321 2
and 6322 3
of the Internal Revenue Code, 26 U.S.C. §6321-22. Further, the Court
must assume that those liens have neither been satisfied nor rendered
unenforceable. With those assumptions having been made, it is clear that
Smith's motion to dismiss must be denied.
of Sections 6321 and 6322, a tax lien in favor of the
arose against Smith on all of Smith's real and personal property and
rights to such property. Under
law, Smith has a current equitable interest in any property of the
estate to which he is entitled. See Braun v. Central Trust Co.,
109 N.E.2d 476, 479-80, 92
App. 110, 115-16 (1st Dist. 1952); 31
Jurisprudence 3d, Decedents' Estates, §1277 (1997). The Supreme Court
has made clear that there is no lien exception for an inheritance. See
Drye v. United States [99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528
U.S. 49, 56, 120 S.Ct. 474, 480, 145 L.Ed.2d 466 (1999); see also
v. McDermott [93-1 USTC ¶50,164], 507 U.S. 447, 453, 113 S.Ct.
1526, 1530, 123 L.Ed.2d 128 (1993) (holding that interest in property of
the estate attaches at the death of the testator). Therefore, the liens
against Smith would attach to his interest in the property of the
to dismiss is utterly without merit. Although Smith's claim that the IRS
has not placed any lien against the assets of the estate may be true,
the existence of such liens against the estate is irrelevant to
the motion to dismiss when the action for interpleader alleges liens
against Smith himself. 4
When the allegations of the action for interpleader are taken as true
and viewed in the light most favorable to the non-movant, there clearly
exists a claim upon which relief may be granted. Accordingly, Smith's
motion to dismiss will be denied.
foregoing reasons, Douglas Smith's motion to dismiss (filed on
January 31, 2001
, and contained in Doc. No. 10) will be denied.
IT IS SO
The interpleader action also requests an order allowing distribution to
two other legatees. Those legatees are not material to the resolution of
the pending motion to dismiss. The matter in the state court was Williams
v. Department of Treasury, Case No. 201-99.
Section 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
26 U.S.C. §6321
Section 6322 provides:
date is specifically fixed by law, the lien imposed by section 6321
shall arise at the time the assessment is made and shall continue until
the liability for the amount so assessed (or a judgment against the
taxpayer arising out of such liability) is satisfied or becomes
unenforceable by reason of lapse of time.
26 U.S.C. §6322
Similarly unavailing are Smith's unsupported arguments that the action
must fail because the Will does not give the executor power to withhold
or place other contingencies on Smith's funds.
United States of America
, Plaintiff v. Helen Stolle, Stolle Revocable Living Trust, Krisler
Management Company, Adler Holding Company, and Arrow Investment Company,
District Court, Cent.
, CV 99-00823-GAF (CWx),
Tax liens: Creation: Validity of assessment: Evidence.--Tax liens
against married taxpayers were issued pursuant to a valid assessment of
deficiencies that resulted from the deceased husband's scheme to evade
taxes by claiming false deductions. The government presented a certified
transcript indicating that the IRS sent the taxpayers timely notice and
demand for payment, and the widow presented no evidence to challenge the
validity of the assessments. Accordingly, the liens were enforceable.
Secs. 6321 and 6323 ]
Tax liens: Property subject to: Trusts: Control of assets: Community
property: Character as: Joint and several liability.--Married
taxpayers' community property was subject to federal tax liens that
arose after the couple transferred the property to a revocable trust.
Since the taxpayers retained total control of the trust assets, they
effectively owned the property under state (
) and federal law. They were the settlors, trustees and beneficial
owners of the trust with the right to withdraw its assets or dissolve
the trust at any time. Moreover, the husband was jointly and severally
liable for the entire amount of the deficiencies that arose from the
couple's joint returns, and state law permitted a creditor to reach the
entire community property in order to satisfy a debt owed by one spouse.
Tax liens: Property subject to: Community property: Innocent spouse
relief: Joint and several liability: Personal liability.--A widow
was not entitled to innocent spouse relief from tax liens that attached
to community property that had belonged to her and her late husband.
Their deficiencies arose from joint returns on which the husband claimed
false deductions. Thus, he was jointly and severally liable for the
entire amount of the deficiencies, and state (
) law permitted a creditor to reach the entire community property in
order to satisfy a debt owed by one spouse. Moreover, the government was
not attempting to collect against the widow personally; it was merely
pursuing liens that arose against her husband. Innocent spouse relief
did not prevent the government from collecting against community
property in accordance with state law.
Tax liens: Property subject to: Community property: Death of spouse:
Extinguished liens: Amount of lien: Interest: Inherited property.--A
husband's death did not extinguish tax liens against community property
that he had owned with his wife. The property presumably passed to the
widow's sole ownership, but it did so subject to the liens, which
functioned like a mortgage that reduced the value of the property. The
court reserved the question of whether the amount of the liens continued
to increase to account for interest that accrued on the deficiencies
after the husband's death.
[Code Sec. 1 ]
Double jeopardy: Criminal conviction: Collection actions.--The
collection of tax liens against an individual who was convicted of
filing false tax returns did not violate his protection against double
jeopardy. His conviction represented punishment for committing a crime,
while the liens were intended to collect the taxes that the couple
should have paid.
ORDER GRANTING PLAINTIFF UNITED STATES MOTION FOR PARTIAL SUMMARY
District Court Judge:
motion concerns the relationship between federal tax liens and property
held in a revocable trust. 1
The Court must determine the extent to which a federal tax lien against
an individual attaches to community property held by a revocable trust
on behalf of the individual and his wife. The Court finds first that, in
, a tax lien can attach to property held within a revocable trust,
notwithstanding the fact that the trust nominally holds title to the
property. The Court next finds that a tax lien may attach to community
property for the tax debts of an individual. Thus, in
, the tax lien may attach to community property that is held on behalf
of the individual and his wife by a revocable trust, and the property
may be used to satisfy the tax debts of the individual.
in greater detail below, Emile Stolle II ("Stolle")
fraudulently overstated certain expenses on his family's tax returns for
1985, 1986, 1987, 1989, 1990, and 1991, and then significantly underpaid
his taxes for those years. In 1992, Stolle was convicted of criminal
charges relating to the false tax returns for 1985, 1986, and 1987. In
1992 and 1993, the government calculated the amount of tax that Stolle
ought to have paid for the years 1985, 1986, 1987, 1989, 1990, and 1991;
the government then served Stolle with a demand that the Stolles pay the
difference between what was already paid and what he should have paid
(plus interest and penalties). Stolle's debt to the government for his
underpayments in 1985, 1986, and 1987 exceeded $400,000, while his debts
for the underpayments in 1989, 1990, and 1991 exceeded $10,000. 2
In the current
case, the government seeks to validate tax liens filed on four pieces of
real property. Stolle and his wife originally owned the four pieces of
property as community property in
. In 1989, Stolle and his wife transferred the property to a revocable
trust. In 1992 and 1993, the government served Stolle with assessments
for amounts owed as a result of Stolle's underpayment of taxes, and
Stolle failed to either contest or pay those assessments.
contends that Stolle's failure to contest or pay the assessments
resulted in a lien against all of Stolle's property. The government
further contends that, as viewed by federal tax law, Stolle continued to
have an interest in the four pieces of real property. As such, the
government contends that Stolle's interest in those four pieces of
government property became subject to lien. The government seeks
validation of those liens.
above, the Court agrees that under federal tax law Stolle continued to
have an interest in the four pieces of property. As such, the
government's tax liens attached in 1992 and 1993 to Stolle's interest in
the four pieces of property. Finally, because Stolle and his wife held
the property in 1992 and 1993 as community property, all of the property
became subject to the liens and the liens attached to the entire
property. As a result, the liens have continued to exist on the property
since 1992 and 1993 and Stolle's subsequent death did not remove the
On a motion
for summary judgment, the Court must resolve all disputed facts in favor
of the non-moving party, and draw all reasonable inferences in favor of
the non-moving party. In this motion, Stolle's widow Helen Stolle
("Helen Stolle") and the Stolle Revocable Family Trust
("Revocable Trust") are the non-moving parties. As a result,
the Court resolves all disputed facts in favor of Helen Stolle and the
Revocable Trust, and draws all reasonable inferences in their favor. 3
standard, the relevant facts are as follows:
Stolle Establishes a Scheme to Inflate Expenses Reported on His
Family's Tax Returns and Thereby Underpay Tax
In a nutshell,
it appears that Stolle created various off-shore trusts and then
purported to execute mortgages on various parcels of real property in
favor of those trusts. 4
Stolle then made payments to the trusts, and treated those payments as
deductions in his family's income tax filings as though the payments
were business (or residential interest) expenses. In fact, the payments
to the trusts were not expenses, but were no more than the transfer of
Stolle's own money from one Stolle account to another Stolle account. As
such, Stolle's treatment of the payments as deductions was improper, and
he claimed higher deductions than he should have.
claimed higher deductions than he should have, Stolle claimed that his
income tax was lower than it should have been. Stolle filed
inappropriate deductions on his joint tax returns for 1985, 1986, 1987,
1989, 1990, and 1991, and he significantly underpaid taxes for those
Stolle and His Wife Establish a Revocable Living Trust and Transfer
Four Parcels of Community Property Into the Revocable Living Trust
August 23, 1989
, Stolle and his wife established the Stolle Revocable Living Trust
Stolle and His Wife Retain Total Control of the Assets in the Trust
the terms of the Revocable Trust, Stolle and his wife retained the
"express and total power to control and direct payments, add or
remove trust property, and amend or revoke this trust."
Stolle and His Wife Transfer Four Parcels of Community Property Into
Schedule A to
the Revocable Trust lists property that Stolle and Helen Stolle
transferred into the trust at the inception of the trust. Schedule A
indicates that "all of the following described property is the
community property of the Settlors, unless otherwise specified."
The first four
items listed in Schedule A are: "Real property located at 4900
Briggs Avenue, La Crescenta, California 91214," "Real property
located at 3651 Foothill Blvd., La Crecenta, California 91214,"
"Real property located at 3852 Vista Court, La Crescenta,
California, 91214," and "Real property located at 2910
Sycamore, La Crescenta, California 91214."
There is no
indication that any of this property was separate property of either
spouse, and consequently it appears undisputed that the property was
community property at the time of the transfer to the trust.
At the same
time that the Stolles executed the Revocable Trust, they signed and
subsequently filed quitclaim deeds for the four properties, transferring
their interest in the properties to the Revocable Trust. 5
The fact that both Stolles signed the quitclaim deeds reinforces the
conclusion that the properties were held by the Stolles as community
The Trust Maintains Community Property As Community Property Unless
the terms of the Revocable Trust, "[a]ny community property,
including the proceeds from such property, which is or becomes trust
property, shall remain community property during the lives of both of
us." Moreover, any "conveyance or transfer of community
property to our trust, whether directly transferred or transferred to a
nominee or agent on behalf of our trust, shall not be construed as a
partition of community property unless there is an express written
agreement to that effect between us."
Stolle Is Criminally Convicted For Filing False Returns In Three of
the Years During Which He Engaged In This Scheme
In August of
1992, Stolle was convicted of criminal charges relating to the false tax
returns for 1985, 1986, and 1987. The criminal case did not involve
Stolle's underpayment for 1989, 1990, and 1991. 6
The Government Sends Stolle and His Wife Notices of Jeopardy
Assessment and Deficiency
1. Notices Related to Tax Years 1985, 1986, and 1987
July 15, 1992
, the government sent Stolle and his wife a notice of jeopardy
assessment amounting to $428,130. These assessments included
underpayments, interest, and penalties for underpayment.
September 11, 1992
, the government sent Stolle and his wife a notice of deficiency,
allowing them to challenge the
July 15, 1992
assessment in front of the tax court. The Stolles did not challenge or
contest the jeopardy assessment.
September 11, 1992
, the government seized approximately $397,884 from bank accounts
controlled by Stolle and his wife. These funds were applied to the
July 15, 1992
jeopardy assessments, leaving a balance of $30,245.
Notices Related to Tax Years 1989, 1990, and 1991
April 9, 1993
, the government sent the Stolles a notice of deficiency arising out of
Stolle's underpayment of his family's taxes for the years 1989, 1990,
and 1991. This notice assessed taxes and penalties totaling $12,226 for
the tax years 1989, 1990 and 1991. 7
The Stolles did not challenge or contest this notice of deficiency.
7, 1993 and September 27, 1993, following the Stolles' default on the
April 9, 1993 notice of deficiency, the government assessed additional
taxes and penalties against the Stolles such that the total amounted to
$12,371 for the tax years 1989, 1990, and 1991.
The Government Files Notices of Federal Tax Lien
July 16, 1992
April 6, 1994
, the government filed Notices of Federal Tax Lien in connection with
the assessments noted above. These Notices indicated the existence of a
lien against all property and all rights to property belonging to the
taxpayers and were filed in the
's office for
Los Angeles County
Emile Stolle II Passes Away
December 16, 1994
, Stolle passed away. Stolle's interest in community property presumably
passed to his wife, Helen Stolle, subject to any appropriate claims on
the property that existed at the time of Stolle's death on
December 16, 1994
The Government Brings This Action to Seek to Validate Liens on the
Four Parcels Pursuant to 26 U.S.C. §6321
January 27, 1999
, the government filed this action to validate the tax liens on the four
Standard for Summary Judgment
Federal Rules of Civil Procedure, summary judgment is proper only where
"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). The moving party has the burden of demonstrating the absence
of a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc.,
242, 256, 106
2505, 2514 (1986). If the moving party satisfies the burden, the party
opposing the motion must set forth specific facts showing that there
remains a genuine issue for trial.
; see Fed. R. Civ. P. 56(e). Summary judgment may be granted on
part of an action, Lewis v. Anderson, 615 F.2d. 778 (9th Cir
1979), FRCP 56(a) (plaintiff may seek summary judgment upon all or any
part of an action), including questions of liability. KMLA
Broadcasting v. Twentieth Century Cigarette Vendors, 264 F.Supp 35
The Court Must Accept the Validity of the Tax Assessments
has presented this Court with a certified transcript indicating that
timely notice and demand for the outstanding assessments has been made
and that there remains an unpaid balance. The certified transcript is prima
facie evidence that the assessments therein are valid, meaning that
the transcript will constitute sufficient evidence of the validity of
the assessments unless Defendants provide evidence that would show an
error in the assessments. Welch v. Helvering [3 USTC ¶1164], 290
U.S. 111, 114 (1933); Hughes v. United States [92-1 USTC ¶50,086],
953 F.2d 531, 535 (9th Cir. 1992).
As noted in
the factual discussion, Defendants have not provided any evidence to
challenge the validity of the assessments. As such, the Court must
accept the validity of the tax assessments.
Emile Stolle II Was Jointly And Severally Liable For the Entire Sum
Pursuant to 26
U.S.C. §6013(d)(3), both husband and wife are normally jointly and
severally liable for all tax liability when a joint return is filed.
may collect no more than the total amount due, joint and several
liability means that the
may normally pursue either spouse (or both) for the amount of the tax
instances, one spouse may be an "innocent spouse." See
26 U.S.C. §6015(b). In those circumstances, the
may be precluded from pursuing the "innocent spouse" for the
full amount of the tax liability.
if one spouse is an innocent spouse, the culpable spouse remains
individually liable for the full amount of the tax liability. In this
case, Emile Stolle II was net an innocent spouse, and Stolle was
therefore liable for the full amount of the tax liability.
A Lien Arose under 26 U.S.C. §6321 on Stolle's Community Property
Interest in the Four Parcels, Notwithstanding the Trust's Nominal
Ownership of the Parcels
26 U.S.C. §6321
provides that: [i]f any person liable to pay any tax neglects or refuses
to pay the same after demand, the amount . . . 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.
As the United
States Supreme Court reaffirmed last December in Drye v. United
States, the language of §6321 is broad and " 'reveals on its
face that Congress meant to reach every interest in property that a
taxpayer might have.' " Drye [99-2 USTC ¶51,006; 99-2 USTC
¶60,363], 120 S.Ct. 474, 480 (1999) (quoting United States v.
National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719-20
whether a taxpayer possesses property or rights to property, the Court
begins by looking to state law to determine what rights the taxpayer has
in the property. In this case, Stolle and his wife had a right under the
Revocable Trust to withdraw all four parcels from the Revocable Trust,
and indeed they had the absolute right to dissolve the Revocable Trust
at any time. Stolle and his wife were not only the settlors of the
trust, but also the trustees and beneficial owners with the right to
dispossess any other beneficial interest. As
law recognizes, Stolle and his wife effectively owned the property. See,
e.g., Gagan v. Gouyd, 73 Cal.App.4th 835, 842 (1999) (noting that
creditors may reach property held in revocable trust); Dawes v. Rich,
60 Cal.App.4th 24 (1997) (holding that creditors of husband may reach
community property held in family trust).
determined whether a taxpayer could have a right to the property under
state law, the Court then applies federal law to determine whether such
a right constitutes property or a right to property under §6321. Drye
[99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 120
at 481. Given the broad scope of §6321, the Court has little difficulty
concluding that Emile Stolle II and his wife owned the property within
the Stolle Revocable Trust within the meaning of federal tax law. Don
Gastineau Equity Trust v. United States [88-1 USTC ¶9314], 687 F.
Supp. 1422, 1426 (C.D. Cal. 1987) (holding that taxpayers owned property
within Revocable Trust where third parties held rights in trust but
taxpayers could unilaterally ignore and eliminate the rights of the
third parties); see also Neely v. United States [85-2 USTC ¶9791],
775 F.2d 1092 (9th Cir. 1985) (holding that income of trust can be
attributed to individual taxpayer); Belshe v. Hope, 33
Cal.App.4th 161, 175 (1995) (holding that decedent's revocable inter
vivos trust constituted "estate" for purposes of federal
Medicaid act allowing reimbursement to state from decedents
because Stolle and his wife had effective dominion at all times over the
property, the federal lien statute simply treats the property as though
it belonged to Stolle and his wife. As such, liens arose against that
property for the tax liabilities of Stolle and his wife when they were
presented with the notices of deficiency and failed to pay.
Court notes that the Stolles clearly expressed their intention that said
property be community property: it was community property at the
inception of the Revocable Trust, and it was intended to be maintained
as community property during the existence of the trust.
The Government May Reach The Entire Community Property To Satisfy a
Debt Owed by the Husband
Law Permits a Creditor to Satisfy a Debt of One Spouse Out of
Community Property Owned by Both Spouses
California Family Code §910(a), "the community estate is liable
for a debt incurred by either spouse before or during marriage,
regardless of which spouse has the management and control of the
property and regardless of whether one or both spouses are parties to
the debt or to a judgment for the debt."
words, community property is available to satisfy a debt from either
spouse, even if the other spouse is not responsible for the debt.
In this case,
even if Helen Stolle were to be treated as an "innocent
spouse," Emile Stole II would still have been responsible for the
entirety of the debt, and all of his separate and community assets would
have been subject to lien to satisfy that debt. See Dawes v. Rich,
60 Cal.App.4th 24 (1997) (holding that creditors of husband may reach
community property held in family trust). As noted above, the four
parcels of property were held as community assets, and as assets of the
community, they were available to satisfy the debts of Emile Stolle II.
Whether Helen Stolle Is an "Innocent Spouse" Is Irrelevant
Because the Innocent Spouse Provision of 26 U.S.C. §6015(b) Does Not
Protect Community Property
argues that she is an innocent spouse and that her property should not
be taken to satisfy the liabilities of Emile Stolle.
the property could only belong to Helen Stolle to the extent that it is
free of the liens of the
. It helps to remember that a lien is like a mortgage. If Emile and
Helen had mortgaged one of the properties to a bank, the bank would have
a mortgage on the property to secure payment. Emile and Helen's equity
in the property would exist only to the extent that the value of the
property were to exceed the value of the mortgage. If Emile were to die,
the property might pass to Helen as sole owner--but the mortgage would
still exist on the property. Helen's interest in the property would
still exist only to the extent that her equity exceeded the value of the
In 1992 and
1993, the government served the Stolles with notices of deficiency. When
the Stolles failed to pay, both of them became individually liable for
that debt, and liens arose against each of their property.
Even if Helen
Stolle were an innocent spouse, the liens still arose against all of
Emile's property, and all of the community property available to satisfy
Emile's debt. See Dawes v. Rich, 60 Cal.App.4th 24 (1997). The
federal government therefore had liens on the properties in 1992 and
1993 to guarantee that Emile would pay the debts he owed. The liens
acted like mortgages, in the sense that the value of the liens
diminished the value of the properties left in the hands of the owners.
Emile and Helen only owned equity in the properties to the extent that
the value of the properties exceeded the value of the liens.
died in 1994, the properties presumably became Helen's sole property.
However, she did not receive the properties free and clear. She received
the properties subject to the government's lien, just as she would have
received the properties subject to a mortgage. Her interest in the
property amounts only to the equity that existed beyond the value of the
December 16, 1994
Nothing in the
language or the case law suggests that the "innocent spouse"
provisions of the Internal Revenue Code prevents the government from collecting
against community property in accordance with state law. 9
Rather, the innocent spouse provisions of 26 U.S.C. §6015 are designed
to prevent the government from pursuing an individual independently for
tax liability that arose out of a joint return. At the present time, the
government is not pursuing Helen Stolle individually, but is rather
seeking to confirm the validity of liens that arose against the assets
of Emile Stolle II while he was alive. His death no more removes those
previously valid liens than his death would remove a previously valid
mortgage. Emile's debts to the IRS were secured by an interest in the
property, and the property passed to his heirs subject to that interest.
reasons discussed above, the motion of Plaintiff United States for
Partial Summary Judgment is GRANTED and the Court confirms that valid
tax liens arose against the community property of Emile Stolle II.
IT IS SO
This motion originally came before the Court on
January 24, 2000
. At that time, Helen Stolle was not present and her son Emile Stolle
III ("Emile III") sought to represent her pursuant to a
general power of attorney. The Court explained to her son that, under
Ninth Circuit precedent, a party must either retain an attorney or
represent him or herself. A party may not designate a non-attorney
representative, even by way of a general power of attorney. Jons v.
, 114 F.3d 874, 876 (9th Cir. 1997). The Court therefore continued
the hearing for three weeks to permit Helen Stolle to appear or retain
III had indicated that his mother was very elderly and infirm, the
logical solution would have been for Mrs. Stolle (or her children,
acting on her behalf) to have retained counsel for her.
The hope that
logic would prevail was dashed when the matter came again for hearing on
February 14, 2000
. Having ignored the two possibilities explained at the prior hearing,
Emile III announced that he had brought his mother "as the Court
had asked." The Court did not in fact ask him to bring his mother,
but had merely informed him of the two possibilities available under Jons:
Mrs. Stolle could represent herself or Mrs. Stolle could retain counsel.
Although Emile III sought to represent his mother, the Court again
explained that he could not speak on her behalf.
The fact that
Emile III could not speak for his mother in this case should have been
apparent from the
January 24, 2000
hearing. It appears to the Court that Emile brought his mother (who is
wheelchair bound and appears quite infirm) for the sole purpose of
putting her on display. The Court wishes at this point to express its
disappointment that neither Mrs. Stolle nor her children (as her
representative) retained counsel for her to handle this tax case on her
February 14, 2000
hearing, the Court very briefly attempted to conduct the hearing with
Helen Stolle but it was immediately apparent that Mrs. Stolle could not
meaningfully participate because she could not even hear the Court. At
that point, the Court asked the government to report on the status of
the settlement negotiations that the Court had ordered at the last
hearing. Government counsel began by stating that Emile III had made an
offer to settle, but Emile III began violently shaking his head back and
forth indicating that no offer had been made. By that time, it was
apparent that nothing productive could be accomplished at the hearing
and the Court took the matter under submission.
In 1992, the federal government seized over $397,000 from bank accounts
controlled by Stolle and his wife to satisfy the assessments for taxes
underpaid for 1985, 1986, and 1987.
Although the Court resolves all disputed facts in favor of Helen
Stolle and the Revocable Trust, the Court must accept all undisputed
facts supported by competent evidence. In other words, once the
government has established a fact, the fact will be accepted unless
Helen Stolle and/or the Revocable Trust provide contrary evidence.
In this case,
neither Helen Stolle nor the Revocable Trust have provided any
contrary evidence. Quite the opposite, in fact: Helen Stolle has
attested that she has "no knowledge of these matters" and that
she is "unable to rebut, correct, respond or otherwise defend this
matter properly." The entirety of her affidavit amounts to a
declaration that she was in total ignorance of the events at issue and
that she cannot provide any evidence on the subject. As a result, there
is no contrary evidence that could create disputed issue of fact, and
the evidence must be evaluated as presented by the government.
As a final
matter, the Court notes that Helen Stolle did request the Court to delay
resolution of this motion pursuant to Rule 56(f) because she has not yet
received the answers to unspecified interrogatories served on the
government after the government's original motion. Although Helen Stolle
did not use the proper form for making a Rule 56(f) motion, she is pro
se and the Court will consider her request as though it were a formal
Rule 56(f) motion.
upon a Rule 56(f) motion, a party must identify specific facts that
establishe that evidence may exist on an important fact, the reasons why
evidence cannot be presented at the current time, and the steps that the
party has taken to obtain the evidence.
instance, Helen Stolle has failed to identify any specific facts that
suggest that the government possesses evidence that might help her. In
fact, Helen Stolle attests that the government's response "may or may
not enlighten" her. As such, the Court denies her request to
postpone consideration pursuant to Rule 56(f). Terrell v. Brewer,
935 F.2d 1015, 1018 (9th Cir. 1991); Brae Transportation, Inc. v.
Coopers & Lybrand, 790 F.2d 1439, 1443 (9th Cir. 1986).
Because Stolle executed liens in favor of the offshore trusts on the
property at issue in this suit, the trusts were originally named as
defendants in the current suit as parties with potential interests in
the real property at issue. The offshore trusts failed to appear despite
appropriate service, and the Court granted summary judgment against the
offshore trusts in an earlier summary judgment motion. Any interests
that the offshore trusts may have had in the real property at issue has
thus been extinguished and the Court's discussion of the facts will
largely omit facts related to any interests purportedly held by the
In its briefing and in its proposed Statement of Uncontroverted Facts
and Conclusions of Law, the
indicates that the Stolles signed the quitclaim deeds in favor of the
Revocable Trust in July, 1989. This is both nonsensical, because the
Revocable Trust did not exist until August, 1989, and flatly
contradicted by the deeds themselves which are dated
August 23, 1989
This is but
one of several indicia of carelessness in the government's briefing. (See
also Plaintiff's Mem. of P & A at 17 (citing 26 U.S.C. §6621
rather than 26 U.S.C. §6321). The Court strongly cautions counsel
against unprofessional behavior.
The criminal case also did not constitute an attempt by the government
to collect on Stolle's underpayment of taxes. Helen Stolle argues in her
opposition papers that the current action violates the protection of
double jeopardy because she believes that the government is further
attempting to punish Stolle for his underpayment. However, Stolle
committed a crime when he filed false tax statements, and his criminal
conviction represented the punishment for the mere fact of filing false
statements. Stolle also owed the government money because he paid
less than he should have. The sums assessed by the government constitute
the money that Stolle should have paid, plus interest and penalties. In
this respect, the government behaves no differently than a credit card
company or other private entity: failure to pay the government money you
owe results in a balance to be paid, plus accrued penalties and
interest. Collection of delinquent taxes along with penalties and
interest on those delinquent taxes is not punishment for the crime of
filing a false statement and does not constitute double jeopardy after
conviction of the crime. This principle was established by the Supreme
Court in 1938 in Helvering v. Mitchell [38-1 USTC ¶9152], 303
U.S. 391, 404 (1938) and has been recently reaffirmed by the Supreme
Court in Hudson v. United States, 522 U.S. 93 (1997). See also
I & O Publishing Co. Inc. v. Commissioner of Internal Revenue
[98-1 USTC ¶50,115], 131 F.3d 1314, 1416 (9th Cir. 1997); United
States v. Alt [96-1 USTC ¶50,267], 83 F.3d 779, 781 (6th Cir.
1996); Thomas v. C.I.R. [95-2 USTC ¶50,439], 62 F.3d 97, 100-02
(4th Cir. 1995).
The notice also assessed $24,194 in taxes and penalties for tax year
1998, but that year is not at issue in this current motion.
The terms of the Revocable Trust may have modified the normal course of
inheritance. Those modifications are not relevant to the current motion,
inasmuch as the government seeks only to confirm the validity of liens
that arose on the community property assets before Stolle's death. Any
lien validly existing on the property at the date of Stolle's death
remains on the property unless satisfied or otherwise expunged.
Section 6015(b) does indicate that community property should be
ignored in determining what income should be attributed to an individual
for the purpose of determining their tax. In other words, since Helen
Stolle apparently had no income herself during this period, and assuming
without deciding that she were an innocent spouse, the IRS could
not attribute half of Emile Stolle II's income to her and request that
she pay tax on that income.
The Court at this time concludes only that the government has valid tax
liens on the properties to secure the debt owed by Emile Stolle II at
the time of his death. The Court does not address the question of
whether those liens continued to grow after his death. In other words,
although the debt of Emile Stolle II may have continued to accrue
interest, it is not clear to the Court that the liens on the properties
continue to grow after Stolle's death in 1994 because the remainder of
the equity became separate property upon Emile Stolle's death. It is
therefore possible that any additional interest remains a debt of Emile
Stolle II but not a lien against his wife's equity in the
property. The Court expressly reserves this question, concluding today
only that valid tax liens arose in favor of the
for the full value of Emile Stolle's debts up to the day he died. At the
very least, therefore, the government currently has valid liens
on the property for the value of Stolle's tax debt as of the date of his
juncture, it appears to the Court that both parties would benefit from
another attempt to settle this case. Although the government has
prevailed in this motion and demonstrated that tax liens currently exist
for at least the value of Stolle's tax debts at the time of his death,
the government will have to continue to litigate this case to determine
whether or not the tax liens continued to grow. This should provide some
incentive for the government to settle.
Stolle's perspective, the benefits to resolving this situation should be
evident. If the government can be satisfied with the moneys from one or
two of the properties, the tax liens on the other properties can be
removed. Moreover, Mrs. Stolle may not even have to surrender any of the
properties if she can get a loan on one or more of the properties to
settle the case. The existence of the tax liens should not be an
impediment to getting a loan if the banks know that the proceeds of the
loan will go to remove the tax lien as part of the loan transaction. By
contrast, if Mrs. Stolle continues to litigate, all four properties will
continue to be subject to the tax liens and she runs the risk that
interest will keep accruing against the properties.
¶50,861] In the Matter of Succession of Bernice Addison Brumfield.
United States of America
, Petitioner v. Noel A. Brumfield, William Brumfield, Vincent Brumfield,
and Succession of Bernice Addison Brumfield, Respondents
District Court, Mid. Dist. La., Civ. 96-7508-B-M1, 9/30/98
Secs. 6321 and 6323 ]
Tax liens: Validity: Attachment: After-acquired property: Inherited
property: Renunciation of bequest, consideration for: Constructive or
tacit acceptance.--A federal tax lien attached to two parcels of
real estate inherited by a delinquent taxpayer despite his valid
renunciation of the bequest. Under state (
) law, he was deemed to have actually accepted the properties. While
statutes provide that a valid renunciation will retroactively preclude a
transfer of ownership from a decedent to a renouncing heir, renunciation
of the heir's rights to a co-heir for a "price" can
nonetheless result in an irrevocable acceptance. The taxpayer's receipt
of a release from his co-heir for liabilities for inheritance taxes and
monetary claims was a valuable consideration, or "price," for
his renunciation. Thus, the taxpayer had an interest in the properties
that dated back to the decedent's death and to which the outstanding
federal tax liens attached despite his renunciation.
, for plaintiff. Greg Gouner, 5515 S. Sherwood Forest Blvd., Baton
Rouge, La. 70816, John R. Rarick, Rarick & Brumfield, 9821 Royal
St., St. Francisville, La. 70775, Cherie Rarick Brumfield, 435 W.
Ardenwood Dr., Baton Rouge, La. 70806, David L. Guerry, Daniel D.
Holliday III, 8550 United Plaza Blvd., Baton Rouge, La. 70809, for
Chief District Judge:
requires the Court to resolve important issues involving the rights of
the Internal Revenue Service ("IRS") against a taxpayer's
interest in the estate of his mother. There are now five motions pending
before the Court. 1
The Court has also questioned its subject matter jurisdiction. For
reasons which follow, the Court finds it does have subject matter
jurisdiction. The Court also finds that the tax lien of the IRS attached
to the properties of the taxpayer at the time of his mother's death.
is entitled to foreclose on the taxpayer's property interest and sell
the real estate at a judicial sale.
Brumfield owed income taxes for 1983 and 1984. The IRS assessed these
December 2, 1985
February 6, 1993
, respectively. Noel A. Brumfield, his brother William Brumfield, his
son Vincent Brumfield, and the succession of his mother, Bernice Addison
Brumfield, were named as defendants in the federal foreclosure action
filed by the
in 1996. Later, the succession suit was removed from the Nineteenth
Judicial District Court for the Parish of East Baton Rouge and
consolidated with the federal suit.
then filed a contempt action against Noel A. Brumfield regarding certain
properties, located in the
, in which Noel A. Brumfield possessed an interest. Noel A. Brumfield
was held in civil contempt of court on
July 31, 1996
and has been in custody since that time.
little dispute in the underlying facts except for the validity of the
renunciation allegedly made by Noel A. Brumfield of his interest in his
stated, the IRS assessed income taxes for 1983 and 1984 against Noel A.
December 2, 1985
February 6, 1993
filed a Notice of Federal Tax Lien with respect to Noel A. Brumfield's
unpaid tax liabilities in East Baton Rouge Parish,
July 19, 1993
of the assessments and demand for payment, Noel A. Brumfield has refused
to pay the full amount of the assessments described above. As of July
19, 1993, Noel A. Brumfield remained indebted to the United States in an
amount exceeding $2.4 million, plus statutory additions according to
law. Additional unassessed interest and all statutory additions thereon
as provided by law continue to accrue on this liability, which exceeds
Addison Brumfield died testate on
November 8, 1995
November 14, 1995
, the state court ordered the olographic will of Bernice Addison
Brumfield to be executed according to law. The will of Bernice Addison
Brumfield granted to her son, William Louis Brumfield, everything which
she possessed "except the following two properties; the six and
one-half acres with improvements located at 11136 Julia Aubin Lane,
Baton Rouge, La. and the house and lot located at 10590 Toledo Bend,
Baton Rouge, La. which I leave and bequeath to my grandson Noel Vincent
Brumfield II with Noel Addison Brumfield usufruct." 2
specific bequest and his right to a "forced portion" in the
assets of his mother's succession under
law, Noel A. Brumfield executed a document on
July 15, 1996
which purported to renounce his usufruct interest in the two subject
July 28, 1996
, Noel A. Brumfield executed another document which purported to
renounce both his usufruct interest in the two subject properties and
his "forced portion" in the succession's assets.
court had previously granted a judgment of possession to the legatees
for all of the succession property except for the two parcels which are
the subject of the petition by the
to foreclose, thus leaving the disposition of these two properties as
the only matter pending in the succession. The
then intervened in the state court succession case as a creditor of Noel
A. Brumfield. Thereafter, the
filed a petition in state court to foreclose the tax liens on the
usufruct interest of Noel A. Brumfield in the
and Toledo Bend properties. The succession action was removed to federal
court. Thereafter, this Court denied defendant's motion to remand. The
case is now before the Court on the pending motions.
In its motion
for summary judgment and motion for default judgement, the United States
seeks an order "determining that the tax liens of the United States
encumbered, as of November 8, 1995, Noel Brumfield's interests in the
assets of the Succession and specifically in the two parcels of property
bequeathed to him under his mother's will." 3
The United States also seeks an order allowing it to foreclose its tax
liens on Noel A. Brumfield's interest in the succession through a
Subject Matter Jurisdiction
clearly has subject matter jurisdiction under 28 U.S.C. §1331 to
determine whether or not the government has a lien on Noel A.
Brumfield's "forced portion" and his usufructs over the two
pieces of real estate. 4
The Court also has subject matter jurisdiction over the underlying
issues of the validity and effect of the purported renunciations
executed by Noel A. Brumfield. The basis for the government's
foreclosure suit is 26 U.S.C. §6321, which provides for a lien on the
property of the delinquent taxpayer.
difficult question regarding jurisdiction is whether this Court can
exercise jurisdiction over the property and whether it can subsequently
order its transfer in accordance with the Court's decision finding that
the government has an enforceable lien on the property. This issue
implicates the "probate exception" cases cited by the
Brumfields in their prior memoranda. 5
Noel A. Brumfield's forced portion and the proceeds from the sale of the
properties, until adjudicated by the state court handling the
succession, remain property of the succession. 6
The probate exception cases hold that a federal court has no
jurisdiction to probate a will or
ister an estate. However, a federal court may exercise its jurisdiction
to adjudicate rights in estate property provided its judgment does not
interfere with the state court's possession of the property or its
probate proceedings, except for the state court's obligation to accord
full faith and credit to the federal court's judgment regarding the
government may obtain a judgment from this Court recognizing the
validity of its lien on the property, this Court may not order the
transfer of the property nor exercise control over the property because
either action would constitute an exercise of control over property
under probate. Therefore, this Court's jurisdiction is limited to
declaring the validity or invalidity of the government's lien and
to assert this Court's judgment as res judicata in the state court
proper course for this Court seems to be an order transferring the sales
proceeds from the registry of this Court to the registry of the state
court handling the succession. The prevailing party could then assert
this Court's judgment regarding the validity of the government's lien in
the ongoing probate proceedings in state court. Whether it is really
necessary to transfer the proceeds to the state court is unclear since
the government has no objections to this Court's jurisdiction over the
proceeds and since the Brumfields requested, via motion, that the
proceeds be deposited into the registry of this Court. To avoid a
problem, the Court will schedule a separate hearing to determine which
court should distribute the proceeds from the sale.
The Validity of the Government's Tax Lien
earlier, there are five pending motions before the Court. These pending
motions can be resolved by the Court's ruling on the issue of whether or
has a valid tax lien on Noel A. Brumfield's property interest in the
of this issue requires an analysis of both
succession law and federal law. It is the ownership of the succession
property which the Court is concerned with on these motions. Ownership
is transmitted at the moment of death to the heirs and legatees. 8
Thus, Noel A. Brumfield acquired the forced portion and the two
November 8, 1995
, the date of Bernice Brumfield's death.
' tax lien, which was filed against Noel A. Brumfield pursuant to 26
U.S.C. §6321, arose at the time of its assessments of Noel A.
Brumfield's deficiencies on
December 2, 1985
February 6, 1993
This tax lien attached to "all property and rights to
property" belonging to Noel A. Brumfield, whether owned at the time
of the assessments or subsequently acquired. 10
The Court must look to state law to determine whether and when Noel
owned "property" or "rights to property." 11
above, it is clear that Noel A. Brumfield acquired the right to his
forced portion and to the usufructs at the moment Bernice Brumfield died
November 8, 1995
. Since Noel acquired "rights to property" on
November 8, 1995
, the conclusion would seem to be that the
' tax lien attached to the property on the same date and is effective as
of the date of the assessments. 12
Louisiana Civil Code article 946, which was cited by the Brumfields in
their prior memoranda, complicates the Court's resolution of the issue
and is at the crux of the dispute between the parties. Article 946
provides that while Noel A. Brumfield is said to acquire the right to
his forced portion and to the usufructs at the time of Bernice
Brumfield's death, such right is "in suspense" until he
decides whether to accept or renounce the part of the
succession that has fallen to him.
further provides that if Noel A. Brumfield accepts his part of the
succession, he is deemed to have succeeded to such part from the moment
of Bernice Brumfield's death. However, if he renounces such part, he is
considered as never having received it. The Court cannot overlook
the retroactive nature of this code article.
law provides that no one may be compelled to accept a succession and
that one may accept or renounce a succession. 13
Brumfields, relying on this retroactive language and on the Fifth
Circuit's recent decision in Leggett v. United States, 14
argue that the July 28, 1996 renunciation by Noel A. Brumfield of his
rights to the property was valid. Thus, the Brumfields argue that under
article 946, it must be that Noel A. Brumfield never succeeded to the
property. Accordingly, the Brumfields argue that since Noel is deemed to
never have had any rights in the property, the government's tax liens
could not attach to the property.
the Fifth Circuit was confronted with a similar fact scenario in which a
delinquent taxpayer renounced her succession rights in an alleged
attempt to prevent the government's tax lien from attaching to her
succession law containing a retroactivity provision similar to
's article 946 and an immediate vesting provision similar to
articles 940 and 1626, the Fifth Circuit attempted to determine whether
the taxpayer ever had a property interest in the succession property to
which the government's lien could attach. The court noted the contradiction
between the two provisions of
law which on the one hand provided that the heir was vested with a
property right from the moment of death, while on the other hand
provided that the renouncing heir never had a property interest at all. 15
There is a similar contradiction between article 946 and articles 940
and 1626 of the Louisiana Civil Code.
Circuit noted two ways to resolve this apparent contradiction: the
"transfer theory" and the "acceptance-rejection
The court then examined
succession law and noted that under
law, the heir had the right to accept or reject the succession. 17
The court then concluded that the
courts have followed the "acceptance-rejection theory". 18
Based on this analysis, the Fifth Circuit concluded that the taxpayer
had not accepted the bequest but rather had executed a valid
renunciation and, accordingly, the taxpayer never had a property right
to which the tax lien could attach. 19
argues, based on the language of article 946, that its tax lien against
Noel A. Brumfield attached at the time of Bernice Brumfield's death and,
thus, federal law controls thereafter. It further argues that since
federal law controls once the lien attached to the property, state law
(namely, Noel's renunciation and the retroactivity provision under
article 946) could not defeat the attachment of the lien. The United
States relies on United States v. Comparato, 20,
which cites the Supreme Court's decisions in United States v. Rodgers
and United States v. Bess. 22
successions provisions noted in the Comparato opinion are also
's provisions. 23
Circuit in Leggett distinguished Comparato, noting that
law was at issue and that the
courts had held heirs to have a property interest in the right to accept
or reject the inheritance to which the federal tax lien attached. 24
law follows the so-called "transfer theory". 25
Thus, the delinquent taxpayers in Comparato could not destroy the
property right by renouncing the underlying succession. 26
research reveals that the
courts have not decided whether
follows the "transfer theory" or the
"acceptance-rejection theory". In fact, there are very few
cases applying or interpreting the above-cited code articles. Thus, the
Court must rely on the language of the code articles and the Fifth
Circuit's guidance in Leggett.
this Court is now faced with is similar to the situation the Ninth
Circuit was faced with in Mapes v.
In Mapes, the court was applying
law which had not been interpreted by the
courts. Thus, the Ninth Circuit assumed that Arizona's statutory scheme
followed the so-called "acceptance-rejection theory." 28
The Fifth Circuit in Leggett noted that the
"acceptance-rejection theory" is the majority rule. 29
Because (a) the "acceptance-rejection theory" is the majority
rule; (b) there is a substantial similarity between the Texas statutes
cited in Leggett and the Louisiana provisions; and (c) the
language of Louisiana Civil Code article 946 states that the heir's
right is in suspense until the heir decides whether to accept or reject
the succession, it is reasonable to conclude that the Louisiana Supreme
Court would follow the "acceptance-rejection theory" and that
the Fifth Circuit would so hold.
this Court finds that it is bound by the Fifth Circuit's holding in Leggett.
Thus, the validity of the
' tax lien on Noel A. Brumfield's interest in the succession property is
dependent on the Court's resolution of three issues:
Was Noel A. Brumfield's
July 28, 1996
Renunciation a Valid Renunciation?
If Noel A.
Brumfield's renunciation of
July 28, 1996
was a valid renunciation, Leggett dictates that he never had an
interest in the property to which the tax lien could attach. Thus, the
property would pass unencumbered by the lien. In its prior memoranda,
contests the validity of the renunciation. On its face, the renunciation
appears valid because it meets all of the codal requirements. The
renunciation was, on its face, executed by notarial act before a notary
and two witnesses. 30
Noel A. Brumfield had the requisite capacity to make the renunciation. 31
Further, his right to renounce had not proscribed. 32
believes that what the government is really asserting when it claims the
renunciation was invalid is that the renunciation should be annulled
because of its allegedly fraudulent purpose. The United States cites, in
its memorandum opposing the defendants' motion for summary judgment and
in its memorandum supporting its earlier-filed motion for summary
judgment, several bases for annulling the renunciation: 1) a revocatory
action under articles 2036-2043 of the Louisiana Civil Code; 2) an
oblique action under article 2044 of the Louisiana Civil Code; 3) a
finding that the renunciation is a simulation under articles 2025-2028
of the Louisiana Civil Code; 4) an action allowing the government to
accept the succession, despite the renunciation, in the name of Noel A.
Brumfield, under Louisiana Civil Code article 1021 on the basis of the
prejudice caused the United States by the renunciation; and 5) an
avoidance of the renunciation as a fraudulent transfer under the Federal
Debt Collection Procedures Act. 33
articles are not a basis for annulling the renunciation and are not
applicable under the facts of this case.
action is prescribed by the one year prescription of Louisiana Civil
Code article 2041.
action must be brought via a separate action with both Noel A. Brumfield
and the succession joined as defendants therein. This requirement has
not been met here.
In order for
to exercise the right to accept the succession in Noel A. Brumfield's
stead, Louisiana Civil Code article 1071 requires that a petition to
obtain such authorization be presented to the judge of the place where
the succession is opened with service of process made on the debtor
(Noel A. Brumfield). The
has failed to meet these requirements.
use of the Federal Debt Collection Procedures Act to set aside the
renunciation also requires a separate complaint with service of process.
Therefore, this Act does not apply herein.
Thus, in the
absence of a separate petition filed by the
seeking to set aside the renunciation on one of the above grounds, Noel
A. Brumfield's renunciation appears to be a valid renunciation.
Did Noel A. Brumfield Actually Accept the Succession?
The Court must
now determine whether Noel A. Brumfield, by his actions, actually
accepted the succession, thus making his right to the property, under
Louisiana Civil Code article 946, effective as of the date of Bernice
Brumfield's death. If Noel A. Brumfield actually accepted the
tax lien, under Leggett, attached to the property at the same
time. An acceptance of the succession by an heir is irrevocable. 34
An acceptance can be either express or tacit. 35
There was clearly no express acceptance by Noel A. Brumfield under the
facts of this case.
contends that Noel A. Brumfield tacitly accepted the succession by
residing in and on one of the properties, in the capacity of an heir,
from 1994 until the time he was incarcerated in 1996. While the
did not cite a code article, the Court presumes it is relying on article
993 and/or article 994 of the Louisiana Civil Code. Considering that
Noel resided in and on the property before Bernice Brumfield's death in
1995, the Court does not believe it would be proper to conclude that he
was occupying the property after his mother's death in the capacity of
an heir. Thus, the Court concludes that there was no tacit acceptance of
the succession by Noel A. Brumfield on this basis.
Court finds that Noel A. Brumfield, via his renunciation and the
"receipt and full release" agreement of
July 28, 1996
, accepted the succession under article 1003 of the Louisiana Civil
Code. Article 1003 provides that a renunciation in favor of a coheir is
an acceptance when the renouncing party receives a "price" for
the renunciation. Noel's renunciation was in favor of his co-heir and
brother William Brumfield as the civil code provides that Noel's portion
of the succession, once renounced, falls to William as the instituted
universal legatee. 36
contends several times in its memoranda that the renunciation was in
favor of the son, Vincent Brumfield, the Court can find no support for
this in the language of the renunciation or in the civil code.
finds that Noel A. Brumfield did receive a "price" for his
renunciation. A careful reading of the "receipt and full
release" agreement reveals that Noel received valuable
consideration in exchange for his renunciation, including a release from
William for any and all liability for inheritance taxes pertaining to
his part of the succession and a release from any and all claims that
William had against Noel, including the claims pertaining to the
Livingston suit debt and to Noel's alleged wrongful taking of items'
from Bernice Brumfield's home after her death. While the Court could not
locate any cases interpreting the meaning of the term "price"
as used in the article, it is reasonable to conclude that the valuable
consideration set forth above clearly satisfies this requirement.
Court concludes that under the clear terms of article 1003 of the
Louisiana Civil Code and Leggett, Noel A. Brumfield accepted his
mother's succession. Thus, the Court finds, under the facts of this case
and as a matter of law, that the
' tax lien attached to the property at the time of Bernice Brumfield's
The Court also
finds as a matter of law that Noel A. Brumfield accepted the succession
under article 1002 of the Louisiana Civil Code. This article provides
that a donation, sale, or assignment by a coheir of his/her rights of
inheritance to a fellow coheir is considered to be an acceptance of the
succession. Since Noel A. Brumfield executed the renunciation in
exchange for the valuable consideration mentioned above, it follows that
such a transaction was a sale or assignment of Noel's rights in the
's Succession Law Follow the "Acceptance-Rejection Theory" or
the "Transfer Theory" as Termed and Defined by the Fifth
Circuit in Leggett?
noted above, the Court concludes that
follows the "acceptance-rejection theory" and thus the Court
is bound by the Leggett holding.
Summary and Conclusion
set forth above, the Court finds that the renunciation was valid in form
follows the "acceptance-rejection theory." However, because
Noel A. Brumfield accepted the succession under articles 1002 and 1003
of the Louisiana Civil Code, the Court finds that, pursuant to article
946 of the Louisiana Civil Code, Noel had rights in the succession as of
the moment of Bernice Brumfield's death at which time the
' tax liens attached.
Court concludes that the
' tax liens are valid and that the
is entitled to foreclose on the property. The
is also entitled to a lien for its share of the proceeds from the
judicial sale of the property.
shall have until
October 16, 1998
to submit a prepared judgment which shall include a provision for the
disposition of the funds in the registry of the Court.
IT IS ORDERED
that plaintiff's motion for summary judgment be and it is GRANTED.
IT IS FURTHER
ORDERED that plaintiff's motion for a default judgment against Noel A.
Brumfield and Vincent Brumfield be and it is DENIED.
IT IS FURTHER
ORDERED that defendants Succession of Bernice Addison Brumfield and
William Brumfield's motion for summary judgment be and it is DENIED.
IT IS FURTHER
ORDERED that defendants Succession of Bernice Addison Brumfield and
William Brumfield's motion for hearing of pending probate rule to place
legatee in possession of property be and it is DENIED.
IT IS FURTHER
ORDERED that defendant Vincent Brumfield's motion for summary judgment
be and it is DENIED.
Motion for summary judgment, filed by plaintiff United States of America
("United States") on April 10, 1997 (Rec. Doc. No. 39); motion
for default judgment against Noel A. Brumfield and Vincent Brumfield,
filed by plaintiff United States on April 10, 1997 (Rec. Doc. No. 39);
motion for partial summary judgment, filed by defendants Succession of
Bernice A. Brumfield and William L. Brumfield on June 24, 1997 (Rec.
Doc. No. 46); motion for hearing of pending probate rule to place
legatee in possession of property, filed by defendants Succession of
Bernice A. Brumfield and William L. Brumfield on June 24, 1997 (Rec.
Doc. No. 46); and motion for summary judgment, filed by defendant
Vincent Brumfield on March 3, 1998 (Rec. Doc. No. 1)
Will of Bernice Addison Brumfield, dated
October 27, 1995
, as contained in Exhibit C of the
' Statement of Material Facts filed
April 10, 1997
(Rec. Doc. No. 40).
Memorandum of Law by the
in Support of its Motion for Summary Judgment and Motion for Default
Judgment, page 3, filed
April 10, 1997
(Rec. Doc. No. 41).
See generally American Well Works Co. v. Layne & Bowler
Co., 241 U.S. 257, 36 S.Ct. 585, 60 L.Ed. 987 (1916).
v. Allen, 326
490, 66 S.Ct. 296, 90 L.Ed. 256 (1946) and Turton v. Turton, 644
F.2d 344 (5th Cir. 1981).
See generally La. Civ. Code art. 872.
v. Allen, 326
490, 66 S.Ct. 296, 90 L.Ed. 256 (1946); Turton v. Turton, 644
F.2d 344 (5th Cir. 1981).
Baten v. Taylor, 386 So.2d 333 (
1979) and La. Civ. Code arts. 940 and 1626.
' Statement of Material Facts, filed
April 10, 1997
(Rec. Doc. No. 40).
26 U.S.C. §6321 and J.N. Randall v. H. Nakashima & Co.,
Ltd. [76-2 USTC ¶9770], 542 F.2d 270 (5th Cir. 1976).
Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 80
S.Ct. 1277, 4 L.Ed.2d 1365 (1960); Leggett v. United States, 120
F.3d 592 (5th Cir. 1997); and Medaris v. United States [89-2 USTC
¶9565], 884 F.2d 832 (5th Cir. 1989).
26 U.S.C. §§6321 & 6322.
Civ. Code art. 977.
120 F.3d 592 (5th Cir. 1997).
Leggett, 120 F.3d at 594-595.
[94-2 USTC ¶50,354], 22 F.3d 455 (2d Cir.), cert denied, 513
U.S. 986, 115 S.Ct. 481, 130 L.Ed.2d 394 (1994).
[83-2 USTC ¶9572], 461 U.S. 677, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983)
51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958)
Comparato [94-2 USTC ¶50,354], 22 F.3d at 457.
Leggett, 120 F.3d at 596.
15 F.3d 138 (9th Cir. 1994).
Mapes, 15 F.3d at 140-141.
Leggett, 120 F.3d at 597.
La. Civ. Code art. 1017.
La. Civ. Code art. 1018.
Civ. Code art. 1030.
33 28 U.S.C. §3001 et seq.
La. Civ. Code art. 1009.
La. Civ. Code arts. 989 and 990.
La. Civ. Code arts. 1703 and 1709.
¶50,354] United States of
, Appellee v. Anthony Comparato, Individually and as the Administrator
of the Estate of John Comparato, Mildred Comparato, Millicent Comparato,
Diana Comparato Carlucci, Appellants
U.S. Court of Appeals, 2nd Circuit, 93-6237, 93-6293, 4/18/94, 22 F3d
455, Affirming a District Court decision, 93-2
Sec. 6321 ]
Lien for taxes: Settlement proceeds: Property rights: Renunciation.--The
parents of a deceased child could not defeat IRS tax liens by renouncing
their interest in escrow accounts representing settlement proceeds from
malpractice actions relating to their son's death. Under state (
) law, the parents acquired vested interests in the accounts at the time
of their son's death. Once the IRS liens attached, they could not be
displaced by subsequent state law renunciation of the parents' property
rights to the accounts.
[Code Sec. 6334 ]
Levy and distraint: Vested interests: State law renunciation.--State
) law permitting renunciation of parents' interests in their deceased
son's estate could not defeat an existing IRS lien on estate property.
Once the parents had vested interests in escrow accounts holding the
proceeds from malpractice actions relating to their son's death, federal
law controlled whether the parents' interests were exempt from levy.
Carter, United States Attorney, Brooklyn, N.Y. 11201, Loretta C.
Argrett, Assistant Attorney General, Gary R. Allen, Gilbert S.
Rothenberg, Sara S. Holderness, Department of Justice, Washington, D.C.
20530, for appellee. Richard F. Thurston,
, for appellants.
TIMBERS, CARDAMONE, and KEARSE, Circuit Judges.
appeal from a summary judgment in favor of the government entered in the
Eastern District of New York, Reena Raggi, District Judge. The
court held that federal tax liens had attached to Anthony and Mildred
Comparato's property interests in malpractice claims arising from their
son's death. The court also held that Anthony and Mildred Comparato's
renunciations of their interests in their son's estate did not defeat
the federal liens because the liens attached prior to the attempted
renunciations. Summary judgment was entered against Anthony and Mildred
Comparato for their tax liabilities for the years 1974, 1975, 1976, and
contend that Anthony and Mildred Comparato's renunciations of their
interests in their son's estate defeated the federal tax liens. They
claim that, pursuant to
law, their renunciations retroactively extinguished their interests in
their son's estate.
only those facts and prior proceedings believed necessary to an
understanding of the issues raised on appeal.
commenced this action to collect on tax assessments against Anthony and
Mildred Comparato. Between 1985 and 1989, the Internal Revenue Service
(IRS) assessed Anthony Comparato a total of $676,534.99 in taxes,
interest, and penalties for the tax years 1974-1976 and 1981-1985. In
1989, the IRS assessed Mildred Comparato a total of $215,515.22 in
taxes, interest, and penalties for the years 1974-1976 and 1981-1984.
Mildred Comparato's principal asset is $650,000 held in escrow accounts
pending the outcome of the litigation related to their tax obligations.
This money represents the proceeds of the settlement of malpractice
actions arising from the death of John Comparato--Anthony and Mildred
Comparato's quadriplegic son who died intestate on
March 30, 1984
. While John Comparato was still alive, a malpractice action which
sought damages for pain and suffering was commenced in New York State
. After John Comparato's death, the Queens County Surrogate's Court
appointed Anthony Comparato as
istrator of John's estate. As
istrator, Anthony Comparato pursued the pain and suffering claim and
commenced another action for wrongful death. Eventually, the pain and
suffering claim was settled for $350,000. The wrongful death claim was
settled for $500,000.
Anthony Comparato petitioned the Surrogate's Court to approve the
settlement and to permit payment of various expenses, including legal
fees. He asked that the net proceeds be distributed equally between
himself and his wife as John's statutory distributees. In August 1989,
before the Surrogate's Court acted on this request, the IRS served
notices of levy on Baron & Vesel, attorneys for the Comparato
estate, citing tax liens against Anthony and Mildred Comparato. The
Surrogate's Court entered an order permitting payment of $200,000 in
attorney's fees, the remainder of the money ($650,000) to be deposited
in eleven separate escrow accounts pending the outcome of Anthony and
Mildred Comparato's challenge to the federal tax assessments.
On April 10,
1991, Anthony and Mildred Comparato executed separate renunciations of
their interests in John's estate pursuant to N.Y. Estates, Powers and
Trusts Law, §2 -1.11
(McKinney 1981 & Supp. 1994). On
September 23, 1991
, the Surrogate's Court permitted the renunciations to be filed, despite
the fact that the renunciations had not been filed within the nine-month
July 21, 1992
, the Surrogate's Court permitted Diana and Millicent Comparato to
intervene in the
istration of their brother John's estate. Under
law, they would succeed their parents as the statutory distributees of
John. N.Y. Estates, Powers and Trusts Law, §4
July 15, 1992
, the government commenced this action which sought to reduce to
judgment the tax liabilities of Anthony and Mildred Comparato. In a
July 2, 1993
order, the court held that Anthony and Mildred Comparato, as the
presumptive heirs and sole statutory distributees of their intestate
son, acquired property interests in the proceeds of the malpractice
claims as of the date of their son's death. The court also held that
Anthony and Mildred Comparato could not renounce their interests in
their son's estate to defeat the federal tax liens. The court granted
summary judgment in favor of the government. On
August 17, 1993
, the court entered a final judgment pursuant to Fed. R. Civ. P. 54(b)
with respect to the assessments for the years 1974-1976 and 1985 against
Anthony Comparato, and for the years 1974-1976 against Mildred
Comparato. Enforcement of the judgment was stayed pending a final
settlement order by the Surrogate's Court.