Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-03121/USCOURTS-azd-2_06-cv-03121-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America, 

Petitioner, 

vs.

Sue Taylor,

Respondent. 

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No. CV-06-3121-PHX-SRB

ORDER

This matter is before the undersigned on referral from United States District

Judge Susan R. Bolton pursuant to 28 U.S.C. § 636(b). (docket # 48)

BACKGROUND

On May 25, 2006, the United States commenced an action pursuant to 26

U.S.C. §§ 7402(a) and 7604(a) to enforce an Internal Revenue Service ("IRS") summons

issued to Respondent Sue Taylor ("Taylor"). (docket # 1) The District Court set a show

cause hearing for July 17, 2006. (docket # 3) When Taylor failed to appear on July 17, 2006

as ordered, the Honorable Susan R. Bolton, United States District Judge, issued an order

enforcing the IRS summons and ordered Taylor to produce the materials described in the IRS

summons within 45 days of the Court's Order. (dockets ## 11,12) The Court warned Taylor

that noncompliance may result in a finding of civil contempt. (docket # 12) 

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 The Order was signed by Judge Bolton on July 17, 2006 but was not entered on the

docket by the Clerk until July 18, 2006.

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Taylor's subsequent failure to comply with the Court's July 18, 20061 Order

prompted the United States to file a Motion to Show Cause for Contempt against Taylor.

The Court set a November 27, 2006 hearing for Taylor to show cause why she should not be

held in contempt. When Taylor failed to appear for the show cause hearing, Judge Bolton

found her in civil contempt of its July 18, 2006 Order and issued a bench warrant for her

arrest. (dockets ## 16, 17) 

Taylor was arrested on January 11, 2007 and appeared before the undersigned

as the criminal duty Magistrate Judge. (docket # 22) The undersigned ordered Taylor

detained, consistent with Judge Bolton's November 28, 2006 Order, until Taylor fully

complies with Judge Bolton's July 17, 2006 Order and produces the documents in accordance

with the IRS summons. (docket # 22) The undersigned set a January 19, 2007 status

hearing regarding Taylor's efforts, if any, to purge the contempt order. (docket # 22) Several

hours before the hearing, the United States filed a sealed document notifying the undersigned

that on December 5, 2006, the Department of Treasury referred a recommendation for the

prosecution of Sue Taylor for violating 26 U.S.C. § 7212(a). (docket # 24, sealed) On

January 9, 2007, the IRS made a referral to the United States Justice Department

recommending the initiation of a grand jury investigation of Sue Taylor related to potential

violations of Title 26 and other tax related offenses. (Id.) On January 17, 2007, a grand jury

was authorized to investigate matters covered in the two separate recommendations. (Id.) 

Recognizing that these developments could hinder Taylor's ability to comply

with the Judge Bolton's July 18, 2006 and related orders, the undersigned ordered Taylor

released on conditions including the posting of a $100,000 cash bond. (dockets # 30-34) On

January 19, 2007, the $100,000 cash bond was posted by R.J. McBride on behalf of Taylor

and she was released on conditions. (dockets ## 32-35) Thereafter, on March 7, 2007, the

United States filed a Notice of Levy, addressed to the Clerk of the Court, stating that it

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"attaches to the $100,000 cash bond [and the IRS] expect[s] disbursement of the bond to the

IRS only when the court determines the bond is to be released" posted for and on behalf of

Taylor. (docket # 56) The IRS claims that Taylor owes roughly $200,000 in taxes assessed

for the tax period ending December 31, 1998. (Id.) The Notice of Levy does not indicate

that non-party R. J. McBride was served with the Notice.

After learning of the Notice of Levy, on March 12, 2007, R. J. McBride filed

a letter claiming that he posted the bond for Taylor and asserting that the Court is not

authorized to "release it to anyone other than the issuer." (docket # 60) The Court construes

McBride's letter as a challenge to the IRS's levy. 

ANALYSIS

As an initial matter, McBride's challenge to the IRS's levy is premature. Taylor

is still released on bond and the issue of exonerating the bond is not before the Court.

Additionally, McBride's letter is not in the proper form of a motion as required by the Court's

Local Rules. LRCiv. 7.1(a)(3) and 7.2. Moreover, even if the issue of exonerating the bond

were before the Court, this Court lacks jurisdiction to address the validity of the IRS levy in

a bail exoneration proceeding. 

An IRS's notice of levy is authorized by Internal Revenue Code § 6331 which

provides that:

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. 

26 U.S.C. § 6331(a). Section 6331 authorizes the IRS to levy upon "all property and rights

to property" belonging to the delinquent taxpayer. Section 6331 does not make an exception

for bonds. United States v. Badger (Badger II), 930 F.3d 754, 756-57 (9th Cir. 1991).

"Moreover, there is no requirement that the IRS prove that any portion of property being

levied upon belongs to the delinquent taxpayer before it can levy on the property." Id. at

757. 

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 Section 7426 provides, in part:

(a) Actions permitted.--

(1) Wrongful levy.--If a levy has been made on property or property has been sold

pursuant to a levy, any person (other than the person against whom is assessed the tax

out of which such levy arose) who claims an interest in or lien on such property and

that such property was wrongfully levied upon may bring a civil action against the

United States in a district court of the United States. Such action may be brought

without regard to whether such property has been surrendered to or sold by the

Secretary.

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Thus, any person "other than the person against whom is assessed the tax out

of which such levy arose" who wishes to contest the IRS's levy, must bring a wrongful levy

action under I.R.C. § 7426.2

 Id.; 26 U.S.C. § 7426(a). In view of the relevant provisions of

the Internal Revenue Code, this Court lacks the authority to determine the ownership of the

bond in the context of this matter. Id. see also, Capital Tracing, Inc. v. United States, 63

F.3d 859 (9th Cir. 1995). Rather, when it is time to exonerate the bond, this Court is required

"to honor the IRS's levy without inquiring into its validity or determining how much of the

. . . bond belongs to" McBride. Badger II, 930 F.3d at 756; United States v. Doyal, 462 F.2d

1357 (5th Cir. 1972) (concluding that the IRS could not be restrained from levying on a bond

unless a separate suit was brought under I.R.C. § 7426.)

In view of the foregoing, the Court concludes that R.J. McBride's March 12,

2007 letter challenging the IRS's levy (docket # 60) is not properly before the Court. The

letter is neither in the proper form required by the Local Rules, LRCiv. 71.(a)(3), nor does

it properly raise an issue which may be reviewed by the District Court in this proceeding.

Absent an agreement with the I.R.S., if R.J. McBride wishes to contest the Notice of Levy,

he must file an action authorized by Title 26 U.S.C. § 7426.

In accordance with the foregoing, 

IT IS ORDERED that the Clerk of Court shall STRIKE the letter filed on

March 12, 2007 (docket # 60) by R.J. McBride without prejudice.

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IT IS FURTHER ORDERED that the Clerk shall mail R.J. McBride a copy

of this Order to the P.O. Box identified in docket # 60.

DATED this 23rd day of March, 2007.

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