Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-05-35520/USCOURTS-ca9-05-35520-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FIRST AMERICAN TITLE INSURANCE 

COMPANY; COMMONWEALTH LAND

TITLE INSURANCE COMPANY;

No. 05-35520 CHICAGO TITLE INSURANCE

COMPANY D.C. No. ,  Plaintiffs-Appellants, CV-04-00429-JLR

v. OPINION

UNITED STATES OF AMERICA,

Defendant-Appellee. 

Appeal from the United States District Court

for the Western District of Washington

James L. Robart, District Judge, Presiding

Argued and Submitted

September 12, 20061—Seattle, Washington

Filed March 27, 2008

Before: Mary M. Schroeder, Andrew J. Kleinfeld and

Carlos T. Bea, Circuit Judges.

Opinion by Judge Kleinfeld

1We withdrew this case from submission because the Supreme Court

granted certiorari in EC Term of Years v. United States, 549 U.S. ___

(October 27, 2006). After the decision came down in that case, we

requested letter briefs speaking to the effect of EC Term of Years, and then

resubmitted this case. 

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COUNSEL

Robert J. Henry, Lasher, Holzapfel, Sperry & Ebberson,

PLLC, Seattle, Washington, for the appellants. 

John A. Dudeck, Jr., Tax Division, U.S. Department of Justice, Washington, DC, for the appellee. 

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OPINION

KLEINFELD, Circuit Judge: 

This is a tax collection case about a third party challenge

to a tax assessment and lien on an earlier owner’s property.

FACTS

In 1991, Penny Jensen’s mother, Roberta Smith, died, and

Jensen was named the personal representative of her mother’s

estate. The estate consisted of three houses and the stock of

a corporation that owned a hamburger drive-in (Frisko Freeze,

Inc.). 

The estate filed its federal estate tax return in 1992. The

return valued the estate at $1,302,129, calculated taxes at

$144,323, and elected to pay the $144,323 with about $45,000

down and the rest on an installment plan.2 Jensen then conveyed the three houses to herself and her husband. 

Over the next two years, Jensen sold the houses to three

different purchasers. All were bona fide purchasers for value,

and all obtained title insurance from the three plaintiffs in this

case. Despite their title searches, all three title insurance companies did not discover that the houses were encumbered by

tax liens because the taxes on the estate were largely unpaid.

Subsequently the IRS audited the estate and concluded that

the hamburger drive-in was worth more than the $762,275

valuation the estate had put on it. Eventually, in 1994 (after

the three houses had been sold) the IRS and Jensen, as personal representative of the estate, compromised on a value of

$911,987, increasing the estate taxes by $49,416. Jensen, as

2

26 U.S.C. § 6166 provides for installment plans for payment of estate

taxes where much of the estate’s value is an interest in a closely held business. 

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personal representative, signed an IRS Form 890 waiving

restrictions on assessment and collection and agreeing that

“by signing this waiver, a petition in the United States Tax

Court may not be made.” 

The problem that generated this case arose when, not long

after agreeing to the higher assessment, Ms. Jensen quit paying the estate taxes.3

 She and Frisko Freeze, Inc. eventually

filed for bankruptcy. The estate left the IRS short by a

claimed $189,372. Since by now the supposedly undervalued

Frisko Freeze, Inc. hamburger drive-in had failed and Jensen

was not paying the tax debt, the IRS went after the three

houses. The homeowners made claims on their title insurers,

and the title insurers paid off the tax liens under protest and

brought this case. On the merits, which we cannot reach, this

case challenges the IRS’s high valuation of the hamburger

drive-in. 

The title companies sued under 28 U.S.C. § 1346 to recover

“federal estate tax . . . erroneously or illegally assessed and

collected.” The district court concluded that the court lacked

jurisdiction to decide the title insurers’s claims under § 1346,

and denied leave to amend to join Ms. Jensen as a plaintiff

because amendment would make no difference. The title

insurers appeal, and we affirm. 

ANALYSIS

[1] Sovereign immunity protects the government from suit

except to the extent of its consent. 28 U.S.C. § 1346 is the

general statute providing jurisdiction in the district courts for

taxpayer suits against the IRS. 26 U.S.C. § 7426 is the statute

providing jurisdiction for suits by persons other than taxpayers. The problem for the title insurers is that § 7426(c) does

not let them challenge the assessment of how much Frisko

3The estate made one additional payment ($15,898 in July of 1994), but

nothing more. 

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Freeze was worth, and the assessment is what they claim

makes the taxes they paid too high. 

Validity of Assessment.

For purposes of an adjudication under this section,

the assessment of tax upon which the interest or lien

of the United States is based shall be conclusively

presumed to be valid.4

To avoid the irrebuttable presumption of the validity of the

assessment on the hamburger stand, the title insurers seek to

sue under § 1346, which does not have that presumption,

instead of § 7426, which does. 

The title insurers had a good argument (though we need not

reach the question whether it was correct) under the Supreme

Court’s decision in United States v. Williams5 (though that

decision expressly did not decide whether a third party could

challenge an assessment under section 1346)6 and our decision in the same case.7

 But the Court’s recent decision in EC

Term of Years Trust v. United States8 narrows the permissible

interpretation of Williams and there can no longer be a good

argument for allowing a third-party challenge to an assessment, barred by § 7426, to be made under § 1346. 

[2] EC Term of Years involved a third party trying to avoid

the statute of limitations in § 7426 by suing under § 1346.9

The Court granted certiorari in EC Term of Years “[b]ecause

the Ninth Circuit, [disagreeing with the Fifth], has held that

4

26 U.S.C. § 7426(c). 

5

514 U.S. 527 (1995). 

6

Id. at 540 n.10. 

7

24 F.3d 1143, 1145 (9th Cir. 1994). 

8

550 U.S. ___ (April 30, 2007). 

9

Id. at *4. 

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§ 7426(a)(1) is not the exclusive remedy for third parties challenging a levy.”

10 The Court held that the third party could not

sue under § 1346 because that would be irreconcilable with

the general principle that a “detailed statute pre-empts more

general remedies.”

11 Because § 7426 was the more detailed

statute for third party challenges to a levy, the § 7426 statute

of limitations applied.12

[3] The case before us involves a challenge to an assessment (of the value of the Frisko Freeze, Inc. stock), not a levy,

but this is a distinction without a difference. We conclude that

§ 7426 is the sole remedy here, for the same reason that it was

in EC Term of Years. Unlike § 1346, § 7426 applies specifically to third party actions, and § 7426 limits the third party

to an action for a determination that the value of the government’s interest in the property is less than the value determined by the Secretary.13 The assessment cannot be

challenged in a § 7426 action.14 In this case, the title insurers

challenge the assessment the IRS made of the value of Frisko

Freeze, Inc., and that, under § 7426(c), they cannot do. By

analogy to the reasoning in EC Term of Years, the general

remedy of § 1346 cannot be made available to challenge the

assessment, because § 7426, which gives district courts jurisdiction over third party challenges, is more specific and prohibits the challenge. 

[4] In district court, the plaintiffs sought to cure the § 7426

bar to third-party challenges to the assessment by amending

their complaint to include as a plaintiff Ms. Jensen, the personal representative of the estate. The district court denied

leave to amend because the amendment would have been

10Id.

11Id.

12Id. at *7. 

1326 U.S.C. § 7426(a)(4). 

1426 U.S.C. § 7426(c). 

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futile. That was correct. Under 26 U.S.C. § 6402(a), a refund

may only be made to “the person who made the overpayment,” and Ms. Jensen did not make the overpayment, assuming there was one, so she could not sue for a refund.15 Also,

she had agreed to the assessment. 

The title insurers argue that they should still fall under Williams, not EC Term of Years, because EC Term of Years

involved a levy, while Williams, like this case, involved a

lien. There is a difference between a lien, which is an encumbrance on property, and a levy, which is a seizure of the property. This distinction, though, does not justify treating all lien

cases, whatever the case may be, under Williams (§ 1346) as

opposed to EC Term of Years (§ 7426). The insuperable

obstacle to doing so is that it would evade the specific limitation in § 7426 on challenges to the assessment. 

[5] Justice does not require that § 1346 be embraced to

avoid the § 7426 limitation on challenges to assessments. Had

Jensen paid the estate taxes when due, or paid the installments

and not gone bankrupt, she could not have challenged the

assessment, because she had agreed to it. There is no good

reason why her failure to pay the estate’s taxes should reopen

the valuation of Frisko Freeze, Inc. True, the homeowners and

the title insurers that stepped into their shoes did not have a

chance to challenge the assessment. But the assessment was

not really their problem. Their problem was that the real

estate chain of title included an estate that had not paid its

taxes. A third party that pays a tax to eliminate a tax lien on

the third party’s property is, under § 7426(c), bound by the

assessment on the property. 

AFFIRMED. 

15See Bruce v. United States, 759 F.2d 755, 758-59 (9th Cir. 1985). 

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