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Reminder - Class is this Thursday December 20, 2007
Everything else in just that - Reference Material only!
The following is not part of the upcoming Class agenda. Also note the information being sent out is Reference Material for Information Only!
Misc RM 15 Misc reference material Reference Material - For Information Only!
Over time we have collected a lot of reference material. We figured it would be better to share with all rather than just delete it. If you want it, keep it, otherwise just delete it. Due to the volume it will take more than one mailing.
We have been requested for court cases concerning Notice of Levy" (Form 668-W. Below are a few cases from my personal file. Hope it helps. Results: The bank took the funds anyway but taking Ken Evans advice after a year the funds were returned and I have heard nothing since! Once again Thanks Ken
As you can tell this is being sent out of order this being #15.
Williamson v Boulder Dam Credit Union The following is part of the decision, verbatim, in the case of Peggie and Bill Williamson v. Boulder Dam Credit Union and "Bill" William G. Ference, Justice Court - Boulder Township , Case No. 97A017, filed May 19, 1998 . Apparently, on the basis of a "Notice of Levy" (Form 668-W), the Credit Union turned Williams' property over to the IRS in the amount of $1,110.87. Williams sued and won. Hopefully the details of this case will be helpful to others who may face similar unlawful actions by financial institutions.
JUSTICE COURT
BOULDER TOWNSHIP PEGGIE and BILL WILLIAMSON ) CASE NO. 97A017 ) Plaintiffs, ) v. ) ) ) BOULDER DAM CREDIT UNION and ) "BILL" WILLIAM G. FERENCE, ) ) Hearing Date: Defendants. ) Hearing Time:
Case #97A017
113Supp878 In re Holdsworth Notes:
113 Supp. 878 Page 878 In re Holdsworth Under sections of Internal Revenue Code providing for collection of taxes by levy and distraint , a mere notice of levy is not tantamount to an effective levy upon and distraint of all sums of money due from debtors of bankrupts, in absence of warrant of distraint. 26 U.S.C.A. § 3690, 3692, 3710(a).
113 Supp. 878 Page 880 In re Holdsworth Under sections of Internal Revenue Code providing for collection of taxes by distraint and sale, and for levy upon property and rights of property belonging to delinquent taxpayer , an actual or constructive seizure is essential to a valid levy and distraint, and where subject matter is an account receivable or chose in action, seizure may be effected by a levy and the service of a warrant of distraint upon the debtor. 26 U.S.C.A. §§ 3690, 3692, 3710(a).
113 Supp. 878 Page 880 In re Holdsworth We are of the opinion that in the absence of a warrant of distraint a mere notice of levy is not tantamount to an effective levy upon and distraint of "all sums of money due" from the said debtors of the bankrupts. United States v. O'Dell, 6 Cir., 160 F.2d 304, 30 Givan v. Cripe, 7 Cir., 187 F.2d 225, 228. An actual or constructive seizure is essential to a valid levy and distraint ;
113 Supp. 878 In re Holdsworth (Page 878)
In re HOLDSWORTH et al. No. 279-50. United States District Court D. New Jersey. July 27, 1953.
Proceeding upon petition of trustee In bankruptcy for adjudication that certain tax liens in favor of United States were invalid, for injunction against their enforcement and for turnover order requiring certain debtors of bankrupts to pay to trustee debts allegedly due and payable. The referee denied re1ief, and petitioner filed petition for review. The District Court, Smith, J., held that evidence was insufficient to support determination that conditions precedent to creation of statutory liens, as prescribed by Internal Revenue Code, were met, a determination essential to conclusion that tax liens were existent and valid, and hence referee's conclusion to effect that valid liens existed was erroneous. Remanded with instructions.
1. Internal Revenue 1712 Provisions of Internal Revenue Code creating a statutory lien for taxes in favor of United States are unambiguous and must be literally construed. 26 U.S.C.A. §§ 3670, 3671.
2. Internal Revenue 1714 Receipt by Collector of Internal Revenue of an assessment list certified by Commissioner of Internal Revenue, and demand for payment by collector and neglect or refusal of taxpayer to pay, are conditions precedent to creation of statutory lien for taxes in favor of United States, and lien arises only upon fulfillment of such conditions. 26 U.S.C.A. §§ 61, 3640, 3641, 3670, 3671.
3. Bankruptcy 357 In proceeding upon petition of trustee in bankruptcy for adjudication that certain tax liens in favor of United States were invalid, evidence was insufficient to support determination that conditions precedent to creation of statutory lien, prescribed by Internal Revenue Code, had been met, a determination essential to conclusion that tax liens were existent and valid, and referee's conclusion to effect that valid liens existed was erroneous. 26 U.S.C.A. §§ 61,3640, 3641, 3670, 3671.
4. Internal Revenue 129 Sections of Internal Revenue Code providing for collection of taxes by distraint and sale of goods, chattels or effects of person delinquent, and for levy upon property belonging to such person, are not in pari materia with sections creating statutory lien for taxes in favor of United States. 26 U.S.C.A. §§ 3670, 3671, 3690, 3692.
5. Bankruptcy 357 In proceeding upon petition of trustee in bankruptcy for adjudication that certain tax liens in favor of United States were invalid, evidence was insufficient to support a determination that conditions precedent to an effective levy and distraint, as set forth in Internal Revenue Code, had been met, a determination essential to conclusion that there was an effective levy and distraint. 26 U.S.C.A. §§ 3690, 3692.
6. Internal Revenue 1781 Under sections of Internal Revenue Code providing for collection of taxes by levy and distraint , a mere notice of levy is not tantamount to an effective levy upon and distraint of all sums of money due from debtors of bankrupts, in absence of warrant of distraint. 26 U.S.C.A. § 3690, 3692, 3710(a).
7. Internal Revenue 1781 Under sections of Internal Revenue Code providing for collection of taxes by distraint and sale, and for levy upon property and rights of property belonging to delinquent taxpayer , an actual or constructive seizure is essential to a valid levy and distraint, and where subject matter is an account receivable or chose in action, seizure may be effected by a levy and the service of a warrant of distraint upon the debtor. 26 U.S.C.A. §§ 3690, 3692, 3710(a).
8. Bankruptcy 238(1) In proceeding upon petition of trustee in bankruptcy for adjudication that certain tax liens in favor of United States were invalid, for injunction against their enforcement, and for turnover order requiring certain debtors of bankrupts to pay to trustee (Page 879) debts allegedly due and payable, debtor of bankrupts, who were joined as partial but who failed to enter an appearance or otherwise consent to summary jurisdiction of Court of Bankruptcy, were not subject to court's summary jurisdiction.
9. Bankruptcy 288(14) A hearing before the Court of Bankruptcy is summary, but it must be full and adequate if issues raised are to be justly decided on merits, and where issues are submitted on stipulation of facts, facts should be fully and adequately stated, and, if not so stated, stimulation of facts should be supplemented by competent and relevant evidence.
Feld & Breitner, Newark, N. J., for trustee. William F. Tompkins, U. S. Atty., Newark, N. J., for Government.
SMITH, District judge.
This proceeding originated with a petition filed by the trustee in bankruptcy and an order to show cause entered thereon by the referee in bankruptcy. The prayers for relief were poorly drafted, but it sufficiently appears from the petition and the record now before the Court that the petitioner sought: first, an adjudication that certain tax liens in favor of the United States were invalid; second, an injunction against the enforcement of the tax liens by the Collector of Internal Revenue; and third, a turnover order requiring certain debtors of the bankrupts to pay to the trustee the debts allegedly due and payable. The referee, after hearing, denied the relief sought. The proceeding is now before this Court on a petition for review filed by the trustee.
The action of the referee was obviously predicated upon the conclusions: first, that the tax liens in favor of the United States were existent and valid; and second, that a mere notice of "Levy," served upon each of three debtors of the bankrupts, was tantamount to an effective levy upon and distraint of "all sums of money due" from the said debtors of the bankrupts. These conclusions were based solely on the meager facts contained in a Stipulation of Facts, which was deficient; several essential facts were omitted from the stipulation and were not established by competent evidence. The facts before the referee do not support his conclusions.
The pertinent provisions of the Internal Revenue Code, 26 U.S.C.A. §§ 3670 and 3671, create a statutory lien for taxes in favor of the United States but only upon the fulfillment of the conditions therein prescribed. Section 3670 provides: "If 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 belonging to Section 3671 provides : "Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector ***. (Emphasis by the Court.)
[1,2] These provisions of the Code are unambiguous and must be literally construed. When these provisions are thus construed it is clear that the conditions precedent to the creation of the statutory lien are: first, the receipt by the Collector of Internal Revenue of an assessment list certified by the Commissioner of Internal Revenue in accordance with Sections 61, 3640 and 3641 of the Internal Revenue Code, Title 26 U.S.C.A.; and second, a demand for payment by the Collector of Internal Revenue, and the neglect or refusal of the taxpayer to pay. Cf. Detroit Bank v. United States , 317 U.S. 329, 335, 63 S.Ct. 297, 87 L.Ed. 304; United States v. Reese, 7 Cir., 131 F.2d 466, 467; Citizens State Bank of Barstow, Tex. v. Vidal, 9 Cir., 114 F.2d 380, 384; Alac Kenzie v. United States, 9 Cir., 109 F.2d 540, 541, 542; Metropolitan Life Ins. Co. v. United States, 6 Cir., 107 F.2d 311, 313; Filipowicz V. Rothensies , D.C., 43 F.Supp. 619, 623. The lien arises only upon the fulfillment of these conditions.
[3] An examination of the record discloses no facts which will support a determination that the conditions prescribed by the Code were met, a determination essential to the conclusion that the tax liens (Page 880) were existent and valid. This conclusion of the referee was therefore erroneous.
[4] We may assume, although the record does not support the assumption, that the action taken by the Collector of Internal Revenue was pursuant to Sections 3690 and 3692 of the Internal Revenue Code, .Title 26 U.S.C.A. Section 3690 provides: "If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector * * * to collect the said taxes, * * *, by distraint and sale, in the manner provided in this subchapter, of the goods, chattels, or effects, including * * * evidences of debt, of the person delinquent as aforesaid." Section 3692 provides: "In case of neglect or refusal under section 3690, the collector may levy, * * *, upon all property and rights to property, * * *, belonging to such person, or on which the lien provided in section 3670 exists, for the payment of the sum due, * * *." (Emphasis by the Court.) We note that these sections are not in pari materia with sections 3670 and 3671, supra.
[5] The right of the Collector of Internal Revenue to proceed under these sections is conditioned upon: first, a notice to the taxpayer of his delinquency and a demand for payment; and second, the neglect or refusal of the taxpayer to pay "within ten days after notice and demand." The record is devoid of facts upon which to predicate a determination that these conditions were met, a determination essential to the conclusion that there was an effective levy and distraint. The conclusion that there was an effective levy and distraint is therefore erroneous.
[6, 7] It sufficiently appears from the Stipulation of Facts that a notice of "Levy" was served upon each of the three debtors of the bankrupts, and that thereafter, pursuant to Section 3710(a) of the Code, Title 26 U.S.C.A., a formal "Final Notice and Demand" was served upon each of them. We assume, in the absence of any stipulation to the contrary, that no other or further action was taken. We are of the opinion that in the absence of a warrant of distraint a mere notice of levy is not tantamount to an effective levy upon and distraint of "all sums of money due" from the said debtors of the bankrupts. United States v. O'Dell, 6 Cir., 160 F.2d 304, 30 Givan v. Cripe, 7 Cir., 187 F.2d 225, 228. An actual or constructive seizure is essential to a valid levy and distraint; where as here, the subject matter is an account receivable or chose in action, the may be effected by a levy and the service of a warrant of distraint upon the debtor. The reported cases would indicate that this was the usual practice followed by the Collector of Internal Revenue.
[8] The record discloses that the three debtors of the bankrupts were joined as parties to this proceeding but failed to enter an appearance or otherwise consent to the summary jurisdiction of the Court of Bankruptcy. We agree with the Referee's conclusion that under the circumstance they were not subject to the Court's summary jurisdiction. We would suggest, however, that if the debts are not disputed a multiplicity of actions might be avoided if the debtors would voluntarily enter their appearance in this proceeding. This would permit the determination of all the issues in a single action.
The matter will be remanded to the Referee in Bankruptcy with instructions to grant a rehearing. We direct the attention of the Referee in Bankruptcy to the applicable provisions of the Internal Revenue Code, supra, which arc determinative of the validity, scope and effect of both the liens and the distraints. We further direct his attention to the applicable provisions of the Bankruptcy Act, and particularly to Sections 67 and 70 thereof, 11 U.S.C.A. §§ 107 and 110, which are determinative of the relative rights of the trustee and the Collector of Internal Revenue. See Collier on Bankruptcy, Vol. 4, pages 155 to 224, inclusive.
[9] We observe that this is another case in which there has been a regrettable waste of judicial time occasioned by the palpable inadequacy of the record made before the Referee in Bankruptcy. We have previously reminded attorneys that the issues which arise in the many collateral matters incident to the administration of a bankrupt estate should be fully and properly tried. A hearing before the Court of Bankruptcy is Summary but it must be full and adequate if the issues raised are to be justly decided on the merits. Where, as here, the issues are submitted on a stipulation of facts, the facts should be fully and adequately stated, and, if not so stated, the stipulation of facts should be supplemented by competent and relevant evidence.
46 F. Supp 30 Page 37 United States v Aetna Life Ins I can find no statute which says that a mere notice shall constitute a "levy". Under Section 3672, 26 U.S.C.A. Int.Rev.Code
160 F.2d 304 UNITED STATES v. O'DELL. [2] This paragraph describes a mere statement or notice of claim. Nothing alleged to have been done amounts to a levy, which requires that the property be brought into legal custody through seizure, actual or constructive, levy being "an absolute appropriation in law of the property levied upon." .... Levy is not effected by mere notice
[Kulway v. United States, 917 F 2d 729 , 735 ( 2"' Cir, 1990)]. There are specific procedures that must be followed for a garnishment to be lawful unless one voluntarily consents.
Page 1104 470 F.2d 1104 JOHNSON v GARTLAN The general rule is that strict compliance with statutory provisions is required to validate tax sales
The District Court, 334 F.Supp. 438, held the tax sale void because the IRS violated provisions of the statute regulating such sales
187 F.2d 225 Page 228 Givan v Cripe which requires that the property be brought into legal custody through seizure, actual or constructive, levy being 'an absolute appropriation in law of the property levied upon.' Levy is not effected by mere notice . No warrants of distraint were issued here." We think the same is true in our case. So far as the petition shows, there was no seizure, but only a threat of seizure-the petition alleges that the Collector threatens to issue a warrant of distraint. As we interpret the facts, the notice of levy operated to freeze the assets of the taxpayer in the hands of the Bank, and no more.
152 F. SUPP 383 Page 385 Freeman v Mayer A "levy" requires that property be brought into legal custody through seizure, actual or constructive, levy being an absolute appropriation in law of the property levied on, and mere notice of intent to levy is insufficient . United States v. O'Dell, 6 Cir., 1947, 160 F.2d 304, 307. Accord, In re Holdsworth, D.C.N.J.1953, 113 F.Supp. 878, 888; United States v. Aetna Life Ins. Co. of Hartford, Conn. , D.C.Conn.1942, 146 F.Supp. 30, 37, in which Judge Hincks observed that he could "find no statute which says that a mere notice shall constitute a 'levy."' There are cases which hold 'that a warrant for distraint is necessary to constitute a levy. Givan v. Cripe, 7 Cir., 1951, 187 F.2d 225; United States v. O'Dell, supra. The Court of Appeals for the Third Circuit stated in its opinion, 221 F.2d at page 642, "These sections [26 U.S.C. §§ 3690-3697] require that a levy by a deputy collector be accompanied by warrants of distraint." In re Brokol Manufacturing Co., supra.
We have the complete cases on most of these but it would take too much time and space at this time.
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