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(For Frank ‘Austin’ England III) 
 

Section 6321 of the Internal Revenue Code, which gives rise to what is commonly described as a statutory lien, is obviously subject to the common-law relation-back doctrine:

Sec. 6321. Lien for taxes.
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 such person.

Likewise, 26 U.S.C. § 6331(a), the basic authority for levy and distraint, is subject to the common-law relation-back doctrine:

Sec. 6331. Levy and distraint

(a) Authority of Secretary.

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.  Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official.
If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section. [Underscore added for emphasis]

(Foot Note 3)

Contrary to appearance of the two Code sections, the government’s interest in property, either for purposes of lien or levy, does not attach to or encumber rights, title or interest until the appropriate judicial action is initiated. This principle was articulated by the Ninth Circuit Court of Appeals (March 18, 2002) in United States of America v. Real Property At 2659 Roundhill Drive, Alamo, California , No. 00-16772.

As was the case for the Buena Vista decision by the Supreme Court, the Roundhill case was drug-related. In this particular instance, part of the property purchase price was allegedly money derived from drug trafficking, but a healthy sum was also borrowed from a financial institution. When the government attempted to forfeit the property, the financial institution perfected its claim as the superior lien holder, the mortgage lien having been filed at the time the property was purchased. The financial institution subsequently held a non-judicial foreclosure sale; an investment group purchased the property at the auction. In the interim, the government filed a lis pendens (pending litigation notice) in the United States District Court. In spite of the lis pendens, the financial institution proceeded with sale and the investment group made the purchase. The government subsequently attempted to forfeit the property in an in rem action (admiralty/maritime). The district court judge ruled in favor of the government; the Ninth Circuit, basing its decision on the 1993 Buena Vista decision, ruled against the government:

The district court ruled that (1) the government’s acquiescence in the foreclosure sale did not constitute a release of its forfeiture interest in the property; (2) the government’s interest vested prior the purchasers’ interest by virtue of 21 U.S.C. § 881(h), n4 the forfeiture statute’s “relation back” provision; and (3) the purchasers were not “innocent owners “since the notice of lis pendens was sufficient to alert them to the forfeiture proceedings. While the forfeiture action was pending, the purchasers sold the property (with the court’s approval) and placed the proceeds in escrow. The district court granted summary judgment to the United States, which left the purchasers sustaining a net loss on their investment in the Roundhill property. The purchasers appealed.
We reversed, holding that the government had no legal interest in the property. United States v. 2659 Roundhill Drive, 194 F.3d 1020, 1027 (9th Cir. 1999) (“Roundhill I”). We applied United States v. 92 Buena Vista Ave., 507 U.S. 111 (1993), which held that the relation-back rule of 21 U.S.C. § 881(h) cannot be invoked until a final judgment of forfeiture has been entered; the United States had never obtained a final judgment. Therefore, according to Buena Vista, the government’s interest in the Roundhill property could not have related back to 1974 (when the Paytons engaged in drug trafficking), but rather dated back only to October 19, 1994, when it recorded its lis pendens. Since the lis pendens was recorded after the date World recorded its deed of trust (which also was the effective date of the purchasers’ interest) the government’s interest was extinguished by normal operation of long-standing California foreclosure law. n5 Thus, the purchasers took title to the property free and clear of the government’s interest. Roundhill I, 194 F.3d at 1027.

The in rem action is against the thing, the res, where so-called civil actions are against the party who is allegedly liable. The Internal Revenue Code segregates the two forms of action at 26 U.S.C. §§ 7323 & 7404:

Sec. 7323. Judicial action to enforce forfeiture.

(a) Nature and venue.
The proceedings to enforce such forfeitures shall be in the nature of a proceeding in rem in the United States District Court for the district where such seizure is made.

Sec. 7402. Jurisdiction of district courts.
(a) To issue orders, process, and judgments.
The district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws. …

The two sections cited above specify the two forms of judicial action federal government has available when and if there is an act or omission contrary to internal revenue laws of the United States. Even though any given Code section may give rise to an interest, the interest isn’t perfected until there is a judgment from a court of competent jurisdiction. The interest is perfected via the judgment, but it dates to the act or omission that gave rise to the interest. This is the essence of relation-back doctrine, which is a common-law doctrine that predates the Constitution of the United States.

The definition of “relation back” in Black’s Law Dictionary, Sixth Edition, is useful in understanding the relation of the original act to the time of a judgment perfecting a statutory lien:

Relation Back. General rule of “relation back” is that a pleading may not be amended to allege a new or different claim or defense unless it arose out of, or is based on or related to, claim, transaction or occurrence originally set forth or attempted to be set forth. [Cites omitted]
A principle that an act done today is considered to have been done at an earlier time. A document held in escrow and finally delivered is deemed to have been delivered as of the time at which it was escrowed.

Where actions filed in courts of law are concerned, the principle more or less says, “You can’t change horses in the middle of the stream.” The second definition more closely characterizes the lien process. Internal Revenue Code § 6321 is the primary section that gives rise to statutory liens where there is a failure to perform, and the date of lien existence is determined by the date of non-performance, but only after there is a judgment for a delinquent tax debt (Federal Debt Collection Procedure Act, 28 U.S.C. § 3201). The lien is choate, or perfected, after judgment; it is inchoate or unperfected prior to judgment. Definitions from Black’s Law Dictionary, Sixth Edition, are again useful:


Choate lien.
Lien which is perfected so that nothing more need be done to make it enforcible. Identity of lienor, property subject to lien and amount of lien are all established. Walker v. Paramount Engineering Co., C.A.Mich., 353 F.2d 445, 449; United States v. City of New Britain, Conn., 347 U.S. 81, 74 S.C. 367, 369, 98 L.Ed. 520. The lien must be definite and not merely ascertainable in the future by taking further steps. Gower v. State Tax Commission, 207 Or. 288, 295 P.2d 162.

Inchoate. Imperfect; partial; unfinished; begun, but not completed; as a contract not executed by all the parties. State ex rel. McCubbin v. McMillian, Mo.App., 349 S.W.2d 453, 462.

A federal tax lien, i.e., a “notice of lien,” that is issued prior to there being a judgment to perfect the lien is at best inchoate. It is incomplete, imperfect:

Under the law of California as declared in Puissegur v. Yarbrough, 29 CAL. 2D 409, 412, 175 P.2D 830, 831-832, an attaching creditor obtains “only a potential right or a contingent lien” until a judgment perfecting the lien is rendered, and that meanwhile, the lien is contingent or inchoate – merely a lis pendens notice that a right to perfect a lien exists. Id, At 50. U.S. v. Ball Construction Co., 355 U.S. 587

The United States Attorney’s Manual confirms this same principle with respect to notices of lien issued by the Internal Revenue Service. The notice must include the abstract of judgment on the back of the Form 668-Y used as the notice of federal tax lien:

3-10.200 Civil Postjudgment Financial Litigation Activity – Perfecting the Judgment

Immediately following expiration of the 10-day automatic stay after entry of the judgment (whether by default, stipulation, court determination, or by the referral of a judgment from another district), see Fed. R. Civ. P. 62(a), immediate action shall be taken to perfect the judgment as a lien in accordance with the Federal Debt Collection Procedures Act. See 28 U.S.C. § 3201.

Special care should be taken to ensure that the judgment is perfected as a lien by filing a certified copy of the abstract of the judgment in the manner in which a notice of tax lien would be filed under paragraphs (1) and (2) of § 6323(f) of the Internal Revenue Code of 1986. A lien should be filed in accordance with state law filing requirements and should be filed in any state where the debtor owns real property.

6-8.000 POST-JUDGMENT COLLECTION MATTERS
6-8.400 Differences Between Tax Judgments and Other Civil Judgments – Collection Procedures
The Tax Division’s Judgment Collection Manual should be consulted for an in depth discussion of special procedures for the collection of tax judgments that are not available for, or are different from, the procedures for collecting other judgments in favor of the United States. For example, an IRS levy can be used to collect a tax judgment; the state exemption statutes are inapplicable to tax judgments; federal tax liens have special characteristics; and post-judgment interest on tax judgments accrues at a different rate than the normal judgment rate and is compounded daily. [Underscore added for emphasis]

Although it is rarely if ever completed, the Form 668-Y has a designated space on the back for the abstract of judgment. The purpose of the abstract is to enable interested parties to locate the judgment so they can review particulars. Unless the notice has the abstract on the back, the paper trail necessary to verify that there is a judgment and the nature, amount and object of the judgment is incomplete. If the document is incomplete with respect to essential elements, or includes vague or misleading information, it is an uttered instrument.

(Foot Note 4 and 5)

Since promulgation of the Internal Revenue Code of 1954, the Form 668-B Levy has been the proper form for legitimate levies. The “notice of levy” merely conveys information and is supposed to provide notice to the party a levy is executed against, not third parties.5 The notice of levy, which is commonly sent to third-party custodians of financial assets, is not an enforceable levy instrument. The Form 668-B Levy must be accompanied by the applicable writ issued from a court of competent jurisdiction in order for it to be enforceable – third-party custodians are supposed to receive the actual levy and writ.
In the criminal forfeiture handbook, the Internal Revenue Manual acknowledges effect of relation-back doctrine at § [9.7] 14.17.6 (04-30-1998):
6. The Relation Back Doctrine maintains that property is actually forfeited at the time it is used illegally, unless the statute states otherwise. At that instant, all rights and legal title to the asset pass to the government. Seizure and formal proceedings simply confirm, or proclaim, the forfeiture that has already taken place. Therefore, any liens placed on the property after the date the asset is used illegally will be a lien filed against government property. Theoretically, no third party can acquire a legally recognizable interest in the property after the illegal use. However, the Supreme Court ruled that a good faith purchaser can assert an Innocent Owner defense prior to the government obtaining a judgment of forfeiture U.S. v. 92 Buena Vista Ave., Rumson, N.J. 113 S.Ct. 1126 (1993). In all instances, District Counsel shall be consulted prior to releasing a tax lien or to releasing the seized property to satisfy a tax lien. [Underscore added for emphasis]

Although the IRM section is phrased in a manner that probably doesn’t convey the substance of the Buena Vista decision, cited supra, unless someone actually reads the decision, Internal Revenue Service attorneys and ranking officers, if not lower-level IRS personnel, are obviously aware of the need for judicial due process before government agencies can lawfully encumber or convert private property. The Fifth Amendment due process clause is as much a barrier to civil action as the right to remain silent is to criminal. See Miranda v. Arizona, cited supra.

Two erroneous perceptions contribute to misunderstanding of federal tax administration and enforcement. The first, and possibly most serious, is that the Internal Revenue Code (Title 26 of the United States Code) is organized in such a fashion that administration follows the order of Code sections. The second is that the Internal Revenue Code contains all federal law relating to federal tax administration and enforcement. Neither is the case.

So far as Internal Revenue Code section and other arrangement is concerned, the matter is addressed by 26 U.S.C. § 7806(b):
(b) Arrangement and classification.
No inference, implication, or presumption of legislative construction shall be drawn or made by reason of the location or grouping of any particular section or provision or portion of this title, nor shall any table of contents, table of cross references, or similar outline, analysis, or descriptive matter relating to the contents of this title be given any legal effect. The preceding sentence also applies to the sidenotes and ancillary tables contained in the various prints of this Act before its enactment into law.

The United States Code is a classification system for laws of the United States. Annual session laws are published sequentially in the Statutes at Large; each section in any given statute Congress enacts is then “codified” in one or more titles of the United States Code. In order to determine “legislative construction” of any given Code section (it’s proper application), it is necessary to go to the section genesis in original legislation. Just because one Internal Revenue Code section follows another, or one categorical subtitle or chapter follows another, does not mean that the two sections, chapters, subtitles or whatever have more than passing relationship to each other unless there is internal reference that establishes the link.

Lien and levy authority (26 U.S.C. §§ 6321 & 6331) are in Subtitle F, Chapter 64 of the Internal Revenue Code. Crimes, seizures and forfeitures, and the judicial authority for seizures (§ 7323), are in Chapter 74. Proceedings for judicial action (civil action; § 7402) are in Chapter 75. If these sections were interpreted to be applicable in numerical sequence, it would appear that the Internal Revenue Service has unilateral authority to issue notices of lien and levy without judgments from courts of competent jurisdiction. However, the relation-back doctrine demonstrates that judicial process must be antecedent to encumbering and converting privately owned assets on behalf of the government. This is the reason § 7806(b) of the Internal Revenue Code, and comparable disclaimers for each of the other titles, withholds implications of legislative construction.

Analogously, the United States Code is somewhat like a library card catalog organized by subject. At least ten titles in addition to Title 26 have sections and sometimes complete chapters relating to administration and enforcement of internal revenue laws. For example, administration of Subtitle E (alcohol, tobacco and firearms) of the Internal Revenue Code crosses over to Title 27. Section 7327 of the Internal Revenue Code acknowledges another expanded application crossover:
Sec. 7327. Customs laws applicable.
The provisions of law applicable to the remission or mitigation by the Secretary of forfeitures under the customs laws shall apply to forfeitures incurred or alleged to have been incurred under the internal revenue laws.

Unfortunately, the links between titles may work in the inverse and may not be as conspicuous as the two examples above. This is the case for Federal Debt Collection Procedure Act in Chapter 176 of Title 28, which contains federal judicial procedure and rules. At 28 U.S.C. § 3001, application is prescribed:
Sec. 3001. Applicability of chapter
(a) In general. – Except as provided in subsection (b), the chapter provides the exclusive civil procedures for the United States –
(1) to recover a judgment on a debt; or
(2) to obtain, before judgment on a claim for a debt, a remedy in connection with such claim.
(b) Limitation. – To the extent that another Federal law specifies procedures for recovering on a claim or a judgment for a debt arising under such law, those procedures shall apply to such claim or judgment to the extent those procedures are inconsistent with this chapter.

Are delinquent taxes classified as debts? According to definitions applicable to the Federal Debt Collection Procedure Act, they are:
Sec. 3002. Definitions
As used in this chapter:
(3) “Debt” means –
(B) an amount that is owing to the United States on account of a fee, duty, lease, rent, service, sale of real or personal property, over-payment, fine, assessment, penalty, restitution, damages, interest, tax, bail bond forfeiture, reimbursement, recovery of a cost incurred by the United States, or other source of indebtedness to the United States, but that is not owing under the terms of a contract originally entered into by only persons other than the United States. . . [Underscore added for emphasis]

Per § 3001, Federal Debt Collection Procedure in Chapter 176 of Title 28 provides exclusive civil procedure (judicial process) for the United States to collect debts “to the extent that another Federal law” doesn’t provide alternative procedure. Section 3002(3)(B) defines tax “owing to the United States” as a “debt” for purposes of Federal Debt Collection Procedure prescribed in Chapter 176 of Title 28. While there are technical exceptions for enforcement of tax law at 28 U.S.C. § 3003(b), the only alternative jurisdictional authority for judicial action to collect delinquent tax obligations is the admiralty/maritime in rem action accounted for at 26 U.S.C. § 7323 – jurisdiction of courts of the United States fall under the “arising under” clause or the admiralty/maritime clause. In either jurisdiction, whenever an alleged liability is contested, the matter must be adjudicated.

In either forum, the claim must be verified by a witness competent as a matter of law to make a complaint. Where the civil action is concerned, the requirement for a claim to be supported by affidavit is at 28 U.S.C. § 3006:   (Foot Note 6)
Any affidavit required of the United States by this chapter may be made on information and belief, if reliable and reasonably necessary, establishing with particularity, to the court’s satisfaction, facts supporting the claim of the United States.  (Foot Note 7)

To Be Continued . . . .

Foot Notes:

Foot Note 3
26 U.S.C. § 6331(a) and the section in general is an amalgamation that relates to several jurisdictions. Per the Parallel Table of Authorities and Rules, located in the Index to the Code of Federal Regulations, the only implementing regulation for 26 U.S.C. §§ 6321 (lien) and 6331 (levy and distraint) is 27 CFR § 70, which is under jurisdiction of the Bureau of Alcohol, Tobacco and Firearms. However, there are two jurisdictions that are generally exempt from publishing requirements of the Federal Register Act. One is the regulation or administrative procedure that applies exclusively to government agencies and personnel (5 U.S.C. § 301), and the other is admiralty and maritime jurisdiction (Federal Register Act, 44 U.S.C. §§ 1501-1510). The underscored portion of § 6331 applies to government agencies and personnel, as defined at 26 U.S.C. §§ 3401(c) & (d). There are no corresponding regulations listed for Part 1 (Subtitle A income taxes) and Part 31 (Subtitle C employment taxes (Social Security, etc.) and government agency administration (Chapters 24 & 25)) of Title 26 of the Code of Federal Regulations

Foot Note 4
Black’s Law Dictionary, Sixth Edition: “Utter, v. To put or send (as a forged check) into circulation; to publish or put forth; to offer. To utter and publish an instrument, as a counterfeit note, is to declare or assert, directly or indirectly, by words or actions, that it is good; uttering it is a declaration that it is good, with an intention or offer to pass it. To utter, as used in a statute against forgery and counterfeiting, means to offer, whether accepted or not, a forged instrument, with the representation, by words or actions, that the same is genuine.”

Foot Note 5
See 26 U.S.C. § 6335(a), Notice of seizure. “As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property (or, in the case of personal property, the possessor thereof), or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made…”

Foot Note 6
Those authorized to submit affidavits for tax-related criminal prosecution are listed at 18 U.S.C. § 3045. The Fourth Amendment and Rule 3 of the Federal Rules of Criminal Procedure control criminal procedure. In general, however, testimony of a competent witness is necessary to secure civil judgments or criminal convictions. If there isn’t a competent witness who has first-hand knowledge of facts, any judgment is void.

Foot Note 7
While a civil complaint may be supported by an affidavit submitted on “information and belief,” if allegations in the affidavit are contested, the burden of proof still lies with the government. Contested facts are determined by juries in cases at law, i.e., in the course of the common law.

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