United States Court of Appeals

Fifth Circuit



## FILED

January 3, 2006

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

____________

No. 05-50068

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EC TERM OF YEARS TRUST,

Plaintiff - Appellant,

versus

UNITED STATES OF AMERICA,

Defendant - Appellee.

Appeal from the United States District Court

For the Western District of Texas

Before REAVLEY, GARZA, and BENAVIDES, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

EC Term of Years Trust (“the Trust”) appeals from the district court’s dismissal of its refund

claim under 28 U.S.C. § 1346. The district court held that because the Trust’s sole and exclusive

remedy lay in a wrongful levy action under 26 U .S.C. § 7426, the Trust’s refund claim must be

dismissed for lack of subject matter jurisdiction. Appellant now argues that the district court erred

when it determined that § 7426 was the exclusive remedy available to the Trust.1 26 U.S.C. § 7426(a)(1) provides:

If a levy has been made on property or a property has been sold pursuant to a levy,

any person (other than the person against whom is assessed the tax out of which the

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 agains t the United States i n 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.

2 28 U.S.C. § 1346(a)(1) provides:

The district courts shall have original jurisdiction

. . . of

. . . [a]ny civil action against

the United States for the recovery of any inte rnal-revenue tax alleged to have been

erroneously or illegal ly assessed or collected, or any penalty claimed to have been

collected without authority or any sum alle g ed to have been excessive or in any

manner wrongfully collected under the internal-revenue laws.

3 Because the statute of limitations had lapsed on the § 7426 claim, the government had

not waived its sovereign immunit y, thus precluding suit. S ee Block v. North Dakota

, 461 U.S. 273,

287 (1983) (“When waiver legislation contains a statute of limitations, the limitations provisi on

constitutes a condition on the waiver of sovereign immunity.”); Bank One Texas v. United States

, 157

F.3d 397, 403 (5th Cir. 1998) (discussing a statute of limitations as a “condition” to the waiver of

sovereign immunity). The district court also dismissed the claim under § 1346, noting that § 7426

was “the exclusive remedy for an innocent third party whose property is confiscated by the IRS to

satisfy another person’s tax liabilit y.” T ex. Commerce Bank Fort Worth, N.A. v. United States

, 895

F.2d 152, 156 (5th Cir. 1990) (citing United Sand and Gravel Contractors v. United States

, 624 F.2d

733, 739 (5th Cir. 1980)). Because the district court held that § 7426 was the only remedy available

to the Trust, the government had not waived sovereign immunity under § 1346 either.

-2- After assessing federal income taxes, penalties, and interest against Elmer and Dorothy

Cullers, the Trust’s creators, the Internal Revenue Service (“IRS”) filed transferee tax liens against

the Trust for the Cullers’s tax liabilit y. Ultimately, the IRS seized the total amo unt owed from an

account created by the Trust for the purpose of dispatching the Cullers’ debt. The Trust then sought

to recover the funds under 26 U.S.C. § 7426(a)(1) 1 and 28 U.S.C. § 1346(a)(1) 2

. Because the Trust

brought suit after the statute of limitations had run on the wrongful levy action under § 7426, see 26

U.S.C. § 6532(c)(1) (providing a 9 month statute of limitations for suits brought under § 7426), the

district court dismissed that claim for lack of subject matter jurisdiction. 3-3-

The Trust then brought suit a second time, again seeking a refund under § 1346(a)(1). After

determining that the earlier decision had not been a decision on the mer its for the purposes of r es

judicata , the district court directly addressed the question of whether a wrongful levy claim under

§ 7426 rema ined the “sole and exclusive” remedy for third parties such as the Trust in light of the

Supreme Court’s decision in United States v. Williams

, 514 U.S. 527 (1995), which allowed a third

party who had removed a lien on her property by paying the tax liabilit y of another individual to bring

a refund action under § 1346(a)(1). In a well-reasoned opinion, the district court distinguished

Williams and held that a wrongful levy action remained the exclusive remedy fo r the Trust and

dismissed the Trust’s complaint for lack of subject matter jurisdiction. The Trust now appeals. We

review a dismissal for lack of subject matter jurisdiction de novo

. B ank One Texas

, 157 F.3d at 403.

This appeal presents the straightforward questi o n of whether a wrongful levy action under

§ 7426 is the “exclusive remedy for an innocent third party whose property is confiscated by the IRS

to satisfy another person’ s t ax liability.” S ee Tex. Commerce Bank

, 895 F.2d at 156. This court

historically has held that if § 7426 is available to an individual, then it is his sole and exclusive remedy.

See id ; United Sand and Gravel Contractors

, 624 F.2d at 739 (“When someone other than the

taxpayer claims an interest in property or rights to property which the United States has levied upon,

his exclusive remedy against the United States is a wrongful levy action under I.R.C. § 7426.”); see

also Oxford Capital Corp. v. United States

, 211 F.3d 280, 289 (5th Ci r. 2000) (Denni s, J.,

concurring) (“[A] wrongful levy action under section 7426 is the exclusive remedy of a third person

whose property has been seized without probable cause of a nexus between the property and the tax

debtor.”). § 7426 reflects the government’s strong interest in resolving “doubts concerning the status

of the taxpayer’s account swiftly.” U nited Sand and Gravel Contractors

, 624 F.2d at 739. The short-4-

statute of limitations governing claims under § 7426 allows for t he expeditious resol uti on of tax

liabilit y. S ee Gordon v. United States , 649 F.2d 837, 844 (Ct. Cl. 1981) (reviewing the legislative

history of the nine month statute of limitations under § 6532(c)).

Appellant now argues that the Supreme Court’s decision in Williams has altered the landscape

of recovery actions against the IRS and allows litigants to bring a refund action under § 1346, even

if § 7426 was a vailable to them. In W illiams

, the Supreme Court held that § 1346 authorized a

refund suit by a third party who had paid a tax under protest to remove a federal tax lien from her

p roperty. 514 U.S. at 529. The Court parsed the l anguage of § 1346 and determ i ned that the

“provision does not say that only the person assessed may sue,” and thus did not speak directly to the

issue of whether a third party could bring suit under § 1346. I d. at 5 31 (emphasis added).

Ultimately, the Court determined that Williams had standing to sue under § 1346. Id. at 540.

We disagree with appellants that Williams must be read to allow litigants who could bring suit

under § 7426 also to bring suit under § 1346. The W illiams decision does not suggest that a refund

action under § 1346 is available in addition to a wrongful levy action under § 7426. The Supreme

Court specifically noted that Williams could not have brought a claim under § 7426, and would have

wholly lacked a remedy in the absence of a claim under § 1346. W illiams

, 514 U.S. at 536. Indeed,

the Court noted that by authorizing “ some third-party suits

. . . the levy

. . . reme d[y does not]

become superfluous.” I

d. at 538 (emphasis added). The W illiams opinion can fairly be read to apply

when a remedy under § 7426 is unavailable, a situation that does not exist in the instant case. To

construe Williams to allow an alternative remedy under § 1346, with its longer statute of limitations

period, see 26 U.S.C. §§ 6511(a), 6532(a)(1), would undermine the surety provided by the clea r

avenue to recovery under § 7426.-5-

In the wa ke of Williams , several of our sister circuits have maintained that § 7426 is the

exclusive remedy for third party wrongful levy claims. See Dahn v. United States

, 127 F.3d 1249,

1253 (10th Cir. 1997) (holding that Williams did not “overturn, sub silentio, the separate and wellestablished principle that § 7426 provides the exclusive remedy for a wrongful levy”); see also Becton

Dickinson &

Co. v. Wolckenhauer , 215 F.3d 340, 352 (3d Cir. 2000) (discussing the exclusivity of

the remedy available to third parties for wrongful levies under § 7426); Miller v. Tony and Susan

Alamo Found. , 134 F.3d 910, 916 (8th Cir. 1998) (“Section 7426(a)(1) is the exclusive remedy of

third parties who seek to assert claims on IRS-levied property.”); Audio Investments v. Robertson

,

67 Fed. Appx. 795, 797 (4th Cir. 2003) (per curiam) (unpublished) (“An act ion for wrongful levy

under [§ 7426] is the exclusive means for challenging a levy on property that ‘does not . . . belong

to the taxpayer against whom the levy originated.’”). The only exception is the Ninth Circuit, which

has permitted third parties whose bank accounts were levied to bring refund actions under § 1346.

See WWSM Investor

s v. United States , 64 F.3d 456, 458-59 (9th Cir. 1995). B ut see Fidelity &

Deposit Co. of Maryland v. City of Adelanto

, 87 F.3d 334, 335 (9th Cir. 1996) (holding that “where

suit is by a nontaxpayer third party and § 7426(a)(1) applies, and the alternative basis proffered for

waiver of sovereign immunit y is an action to quiet title under § 2410(a)(1)

. . . § 7426 is the exclusive

remedy.”).

We conclude that the Supreme Court’s decision in Williams does not alter our long-standing

rule regarding the exclusivity of the remedy available under § 7426. S ee United Sa n d and Gravel

Contractors

, 624 F.2d at 739. Therefore, we follow our prior holdings that when § 7426 is available

to an individual, then it is his sole and exclusive remedy.

Accordingly, we AFFIRM the district court’s decision to dismiss for lack of subject matter-6-

jurisdiction.