* Dis trict Judge of the Western District of Texas, sitting by

designation. UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 98-11170

OXFORD CAPITAL CORPORATION,

Plaintiff-Appellant,

VERSUS

UNITED STATES OF AMERICA; ET AL,

Defendants,

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Texas

May 2, 2000

Before JONES and DENNIS, Circuit Judges, and PRADO, * Distric t

Judge:

PER CURIAM:

This is an appeal from the decision of a magistrate judge that

a levy imposed by the Internal Revenue Service (“IRS”) on bank

accounts of Oxford Capital Corporation (“Oxford”) to satisfy tax

liabilities of one of its subsidiaries was not a wrongful levy

under 26 U.S.C. § 7426. Oxford filed this appeal, contending that-2-

t he magistrate judge erred both in its application of the

applicable standard and in its factual findings. For the reasons

discussed, we vacate the decision of the magist rate judge and

remand for further proceedings consistent with this opinion.

I.

Oxford is a publicly-traded corporation incorporated in

Nevada, which operates as a holding company for multiple

subsidiaries. RX was incorporated in the state of Texas as an

employee leasing company in 1995 by Jerry Stovall and Rick Tarrell.

Due in part to substantial unauthorized withdrawals by an employee,

RX suffered severe financial difficulties and fell into arrears in

its payment of employee payroll taxes. Due to these financial

difficulties, Stovall and Tarrell sold RX to Oxford in 1996, at

which time RX became a wholly-owned subsidiary of Oxford. RX

continued to fall into arrears with respect to its payment of

payroll taxes, and by November 1997 RX owed over three million

dollars in back payroll taxes to the government for the third and

fourth quarter of 1996 and the first quarter of 1997.

In its attempt to collect the unpaid payroll taxes, the

Internal Revenue Service (“IRS”) issued notices of levy on RX and

on clients of RX that owed accounts payable to RX in November 1997.

Soon afterwards, Oxford directed clients of RX to remit payments

owed to RX directly into a bank account in the name of Oxford

rather than to RX. Fearing that assets of RX were being diverted,-3-

the IRS issued a notice of levy against three bank accounts of

Oxford in satisfaction of RX’s tax liabil ity -- contending that

Oxford was a nominee of RX.

Oxford brought thi s suit in the Northern District of Texas

contending that the levies a gainst its bank accounts constituted

“wrongful levies” under 26 U.S.C. § 7426. The parties consented to

the case being heard before a magistrate judge pursuant to 28

U.S.C. § 636(c). Before the magistrate judge, the government

intr oduced evidence to support the contention that Oxford was in

reality the “alter ego” of RX, rather than a mere nominee. The

government introduced evidence collected subsequen t to the levy

that Oxford and RX shared officers and directors in common, filed

consolidated financial statements, share d a common floor in an

office building and fa iled to follow many corporate formalities.

Based on this information, the magistrate judge held that Oxford

was in fact an alter ego of RX and thus the levies were not

wrongful. Oxford timely filed a notice of appeal to this court.

II.

A.

A lien in favor of the Unite d States arises with respect to

all property and rights to property of a taxpayer upon failure to

pay a tax liability after demand. See 26 U.S.C. § 6321. The IRS

has broad authority to impose levies on property and rights to-4-

property of taxpayers upon which liens have attached. S ee 26

U.S.C. § 6331(a). This power is not unlimited, however. For

example, the IRS may not impose a levy on property until a thorough

investigation of the status of such property has been co mpleted.

See 26 U.S.C. § 6331(j)( 1). Similarly, a levy is wrongful if

imposed upon property in which the taxpayer had no interest at the

time the lien arose or thereafter or if the levy or sale pursuant

t o levy effectively destroys or otherwise irreparably injur es a

person’s proprietary interest that is s enior to the Federal tax

lien. See 26 C.F.R. § 301.7426-1(b)(1). Congress has waived the

sovereign immunity of the United States for suits claiming wrongful

levy and has allowed persons other than the taxpayer to file suit

against the United States for either damages or return of the

property. See 26 U.S.C. § 7426.

The elements of a wrongful levy action under section 7426 are

well settled

-- to establish a wrongful levy claim a plaintiff must

show (1) that the IRS filed a levy with respect to a taxpayer’s

liability against property held by the non-taxpayer plaintiff, (2)

the plaintiff had an interest in that property superior to that of

the IRS and (3) the levy was wrongful. S ee T exas Commerce BankFort Worth v. United States

, 896 F.2d 152, 156 (5 th Cir. 1990). To

prove that a levy is wrongful, (1) a plaintiff must first show some

interest in the property to establish standing, (2) the burden then

shifts to the IRS to prove a nexus between the property and the-5-

taxpayer, and (3) the burden then shifts back to the plaintiff to

prove the levy was wrongful, e .g., that the property in fact did

not belong to the taxpayer. See Century Hotels v. United States

,

952 F.2d 107, 109 (5 th Cir. 1992).

The Fifth Circuit, joined by the majority of the other

circuits addressing the issue, has held that the IRS must prove a

nexus between the property levied upon and the taxpa yer by

substantial evidence while a minority of circuits hav e required

only proof by a preponderance of the evidence. S ee, e.g.

, L iButti

v. United States

, 107 F.3d 110, 118 ( 2 nd Cir. 1997) (“If the

government satisfied that substantial evidence burden, meaning that

the evidence was ‘considerably more than a preponderance but less

than clear and convincing p roof’ the plaintiff would have the

‘ultimate burden’ to prove that the levy wa s wrongful.”) ( c iting

Century Hotels

, 952 F.2d at 109). The policy behind requiring such

a heightened standard of proof is that the government has unique

access to the information it used as a basis for its levy and,

after an opportunity to fully develop the factual record, fairness

mandates that the government come forward with substantial evidence

of t he connection between the property levied upon and the

taxpayer. See Valley Finance, Inc. v. United States

, 629 F.2d 162,

171 n. 19 (D.C. Cir. 1980) (“Considerations of fairness impel us to

conclude that once the factual record has been fully developed over

time

. . . the government must establish its asserted nexus between-6-

taxpayer and a third party by substantial evidence.”); Flores v.

United States

, 551 F.2d 1169, 1175-76 (9 th Cir. 1977) (“Principles

of fair play and common sense dictate the result which we reach.”).

B.

In the present case, the IRS issued a levy against multiple

bank accounts in the name of Oxford. The notice of levy indicated

that the levy was being imposed on funds of Oxford as “nominee,

transferee, alter ego, agent and/or holder of a beneficial interest

of taxpayer RX Staffing Corporation.” The levy applied to two bank

accounts - the so-called “2020 account” and the so-called “2069

account.” According to the field notes of Wayne Honeycutt, the

revenue officer respon sible for issuing the notice of levy, the

levy was issued against Oxford’s accounts because funds owed to RX

were transferred to Oxford’s 2020 account

-- making this “a

possible c ase for either a DBA [Doing Business As] levy or a

NOMIN EE levy.” At the evidentiary hearing, Honeycutt testified

that at the time of the levy the only information he had to support

a levy on Oxford was the direct wiring of funds into the 2020

account. Honeycutt further testified that at the time of the levy,

he had no information with respect to the officers, directors,

accounting methods, tax returns or employees o f either RX or

Oxford. Before the magistrate judge, however, the government

contended that the levy against Oxford’s accounts was not wrongful

because Oxford was the “alter ego” of RX.1 The court in Towe listed the following factors that are

genera lly considered in determining nominee status: “(a) No

consideration or inadequate consideration paid by the nominee; (b)

P roperty placed in the name of the nominee in anticipation of a

suit or occurrence of liabilities while the transferor continues to

exercise control over the property; (c) Close relationship between

transferor and the nominee; (d) Failure to record conveyance; (e)

Retention of possession by the transferor; and (f) Continued

enjoyment by the transferor of benefits of the transferred

property.” T owe Antique Ford Foundation

, 791 F. Supp. at 1454

( citing United States v. Miller Bros. Constr. Co.

, 505 F.2d 1031

(10th Cir. 1974)).

-7- While related, the concepts of “nomine e”, “transferee”, and

“alter ego” are independent bases for attaching the property of a

third party in satisfaction of a delinquent taxpayer’s liability.

“A nominee theory involves the determination of the true beneficial

ownership of property. An alter ego theory focuses more on those

facts associated with a ‘piercing the corporate veil’ analysis. In

contrast, a transferee theory requires (1) an intent to defraud the

Internal Revenue Service as a creditor or (2) a transfer without

consideration which rendered the taxpayer insolvent. These issues

are fact-intensive and involve imprecise legal rules.” W I LLIAM D

.

E LLIOT

, F EDERAL T AX C OLLECTIONS

, L IENS AND L EVIES ¶ 9.10[2] (2 nd Ed. 2000).

Sp ecific property in which a third person has legal title may be

levied upon as a nominee of the taxpayer if the taxpayer in fact

has beneficial ownership of the property. S ee, e.g., Towe Antique

Ford Foundation v. Internal Revenue Servic e , 791 F. Supp. 1450,

1 454 (D.Mont.1992), a ff’d w/o opinion

, 999 F.2d 1387 (9 th Cir.

19 9 3). 1 Under the alter ego doctrine, however, all the assets of

an alter ego corporation may b e levied upon to satisfy the tax2 While adopting a totality of the circumstances test, this

circuit has developed a non-exhaustive list of factors to consider:

(1) the parent and subsidiary have common stock ownership; (2) the

parent and subsidiary have common directors or offi cers; (3) the

parent and subsidi ary have common business departments; (4) the

parent and subsidiary file consolidated financial statements; (5)

the parent finances the s ubsidiary; (6) the parent caused the

incorporation of the subsidiary; (7) the subsidiary operated with

grossly inadequate capital; (8) the parent pays salaries and other

expenses of subsidiary; (9) the subsidiary receives no business

except that given by the parent; (10) the parent uses the

subsidiary’s property as its own; (11) the daily operations of the

two corporations are not kept separate; (12) the subsidiary does

not observe corporate formalities. S ee Century Hotels

, 952 F.2d at

110 n.5 (5 th Cir. 1992).

-8- liabilities of a delinquent taxpayer-shareholder if the separate

corporate identity is merely a sham, i.e., it does not exist

independent of its controlli ng shareholder and that it was

established for no reasonable business purpose or for fraudulent

purposes. S ee United States v. Jon-T Chemicals , 768 F.2d 686 (5 th

Cir. 1985). 2 Cause to believe that a third party is holding

particular property of the taxpayer as a nominee, without cause to

believe alter ego status, justifies a levy upon the property of the

third party only with respect to that specific property held as a

nominee.

At the evidentiary hearing, the magistrate judge found that

the government had introduced substa ntial evidence of alter ego

status, e.g., that Oxford and RX shared officers and directors in

common, that they shared office space and telephone numbers, that

corporate formalities were rarely if ev er followed and that one

individual, Robert Che ney, exercised d e facto control over both-9-

corporations. Based on this evidence, the magistrate judge

determined that Oxford was, in fact, the alter ego of RX and thus

the levy was not wrongful. The magistrate judge did not apply the

t raditional wrongful levy burden shifting analysis described in

Texas Commerce

, however. Rather, the magistrate judge looked

solely at the evidence before it, based on a fully developed

record, to determine whether in fact Oxford was the al ter ego of

RX.

It is not possible to determine from the record whether

application of the proper burden-shifting framework to the present

case would have produced a different result. It is clear that the

property levied upon was in the hands of Oxford, as the bank

accounts were clearly registered in the name of Oxford and not in

the name of RX. Thus, the burden shifted back to the government to

prove a nexus between Oxford’s bank accounts and the taxpayer at

the time of the trial by substantial evidence.

The sole evidence introduced by the IRS to justify the levy at

the time the levy was imposed was the trac ing of specific funds

owed to RX to Oxford’s 2020 account. Based solely on this

information, the government levied upon funds in both the 2020

account and the 2069 account. As noted by Honeycutt, such tracing

possibly justified a nominee levy on the 2020 account (as Oxford

could have been holding funds of RX as its nominee) but alone was

insufficient to support an alter e go levy on all the assets of

Oxford. That the government may have subsequently compiled3 As a general rule, the internal operating procedures of the IRS

as described in the Internal Revenue Manual do not create rights in

the taxpayer and thus a violation of these procedures does not

establish a cause of action for the taxpayer. S ee United States v.

Caceres

, 440 U.S. 741, 752 (1973); Cargill, Inc. v. United States

, 173 F.3d 323, 340 n.43 (5 th Cir. 1999). A corollary to this broad

rule has developed however -- that internal operating procedures

intended to protect a citizen’s constitutional rights can establish

a cause of action. S ee, e.g.

, United States v. McKee

, 192 F.3d

535, 544 (6 th Cir. 1999) (“If the IRS’s internal operating

procedures afford anything less than faithful adherence to

constitutional guarantees, then public confidence in the IRS will

necessarily be undermined”); United States v. Horne

, 714 F.2d 206,

207 (1 st Cir. 1983) (per curiam). Since we are remanding to apply

the proper shifting burden of proof, we need not address whether

the failure to follow section 5.12.1.33 of the Internal Revenue

-10- sufficient facts to establish alter ego status by substantial

evidence is irrelevant to the issue of whether it had grounds to

believe alter ego sta tus at the time of the levy. Based on the

record before us, it appears that at the time of the levy, the IRS

may have had cause to believe that Oxford held property of RX as a

nominee, but not cause to believe that RX was Oxford’s alter ego.

At that time the 2020 account appears to have been the only Oxford

accoun t that the IRS had cause to believe held property of the

taxpayer, RX. If that was the case, the levy upon the 2069 account

would have been wrongful under section 7426 fo r lack of cause at

the time of the levy to believe that the 2069 account held funds of

the taxpayer as a nominee.

While not dispositive, the IRS’s failure to follow its own

internal operating procedures is a further indication that it did

not have cause to believe that RX was the alter ego of Oxford at

the time the levy was imposed. 3 IRS internal operating proceduresManual renders the levy per se wrongful for purposes of section

7426.

-11- provide:

Do not file a NFTL [Notice of Fe deral Tax Lien] in the

name of an alter ego without legal r eview, advice and

written direction from District Counsel as to:

the need for a supplemental assessment,

a new notice and demand, and

the language to be incorporated in the NFTL and levy.

I NTERNAL R EVENUE M ANUAL § 5.12.1.33. Although Honeycutt did consult a

more experienced revenue agent prior to imposing the levy, it is

undisputed that he did not receive the written approval of District

Counsel prior to filing the notice of levy. Rather, Honeycutt

testified that he did not distinguish between the terms “nominee

levy” or “alter ego levy” and did not request advice from district

counsel as to which to pursue, although the manual specifically

recommends pursuing other options prior to i mposing an alter ego

levy. This failure to pursue the internal policies further

indicates that the IRS did not have cause to impose an alter ego

levy at the time the levy was imposed.

However, because the magistrate judge did not apply the proper

burden-shifting framework, it is not possible to determine based on

the record as developed whether and to what extent the I RS had

developed cause to believe alter ego status at the time the levy

was imposed. Further, it is not possible to determine if the IRS

alternatively developed substantial evidence of nominee liability

at the time of the evidentiary hearing sufficient to prevent a-12-

finding of a wrongful levy under Texas Commerce . Accordingly, we

vacate the magistrate judge’s judgment and remand the case for

further proceedings to apply the proper burden shifting framework

to determine (1) if the IRS proved a nexus by substantial evidence

and (2) if Oxford can then prove that the levy was otherwise

wrongful, e.g., that the levy was imposed without a sufficient

evidentiary basis to do so. S ee Smithwick v. Green Tree Financial

Services Corp. , 121 F.3d 211, 215 (5 t h Cir. 1997) (remanding t o

apply the proper presumption); Cooper v. Brookshire , 70 F.3d 377,

378 (5 th Cir. 1995) (remanding to magistrate judge to reinstate

impr operly dismissed cause of action); c f. United States v.

Stricklin

, 591 F.2d 1112, 1124 (5 th Cir. 1979) (remanding to apply

proper burden-sh ifting framework). In so doing, we state no

opinion as to the magistrate judge’s factual finding of alter ego

status at the time of evidentiary hearing.

III.

In the present case, after Oxford established s tanding, the

magistrate judge erred in failing to place the burden of proof on

the IRS to demonstrate a nexus between Oxford’s property and RX by

substantial evidence and then shift the burden back to Oxford to

prove the levy was nonetheless wrongful, and thus failed to make

the requisite factual determinations necessary to properly

determine wrongful levy status. Accordingly, we VACATE the-13-

judgment of the magistrate judge and REMAND the case for further

proceedings consistent with this opinion.

VACATED AND REMANDED.-14-

DENNIS, Circuit Judge, concurring:

I agree that the magistrate judge erred in failing to apply

t he proper burden-shifting analysis and that the case should be

remanded so that Oxford may have the opportu nity to demonstrate

that the levy was wrongful. I write separately because this appeal

presents an issue that courts have had few opportunities to

address, viz., the evidentiary criterion necessary to sustain the

IRS’s initial imposition of a levy upon property. It is

indisputable that a levy is a seizure of property. See 26 U.S.C.

§ 6331(b) (“the term ‘levy’ as used in this title includes the

power of distraint and seizure by any means”). The Supreme Court

has clearly held that seizures of property, whether made pursuant

to a search or not, are subj ect to the limitations of the Fourth

Amendment regardless of any additional protections that may be

afforded by the Fifth Amendment. S ee Soldal v. Coo k County , 506

U.S. 56, 63 (1992) (“our cases unmistakably hold that the [Fourth]

Amendment protects property as well as privacy.”); United States v.

Paige , 136 F.3d 1012, 1016 (5 th Cir. 1998). Thus, it appears that

as a threshold matter the Fourth Amendment requires that the IRS

have probable cause to believe that the property to be levied upon

is actually owned by the delinquent taxpayer.

The Supreme Court has never direct ly addressed the issue of

whether the existe nce of such probable cause is necessary before

the IRS may levy upon property. However, the Court has held that-15-

a judicial warrant is mandated under the Fourth Amen dment before

the IRS may enter a taxpayer’s home to seize assets pursuant to a

properly issued levy. S ee G.M. Leasing Corp. v. United States

, 429

U.S. 338 (1977). Although the Court did not directly address the

issue, in G.M. Leasing it assumed that a showing of probable cause

to believe the targeted property belonged to the taxpayer was

necessary before a levy thereon may properly issue, stating:

We therefore approach this case accepting the Court of

Appeals’ determinations that the assessments and levies

were valid and tha t petitioner was Norman’s alter ego.

Those facts necessarily establish probable cause to

believe that assets held by petitioner were properly

subject to seiz ure in satisfaction of the assessments.

Petitioner does not claim that there was no probable

cau se to believe that the automobiles were held by

petitioner, nor does it claim that there was no probable

cause to believe that its offices would contain other

seizable goods. There being probable cause for the search

and seizures

, the only questions before the Cour t are

whether warrants were required to make “reasonable”

either the seizures of the cars or the entry into and

seizure of goods in the cottage.

Id . at 351 (emphasis added).

The circuits that have addressed this issue have consistently

recognized this implicit holding in G.M. Leasing and have held that

the IRS must make a showing of probable cause at the time a levy is

imposed to comply with the Fourth Amendment. See Valley Finance

,

629 F.2d 162, 171 (D.C. Cir. 1980); F lores v. United States

, 551

F.2d 1169, 1174 (9 th Cir. 1977). Specifically, the Ninth Circuit

in Flores held:

We start by observing that just as police need probable-16-

cause to believe that evidence sought is to be found in

the area to be searched and that such evidence relates to

a crime, so, too, the Internal Revenue Service needs

probable cause at the time assets are initially seized to

connect those assets to a taxpayer with outstanding taxes

due.

Flores , 551 F.2d at 1174. In describing the policy behind such a

requirement, the Ninth Circuit noted:

Were this not the case, the taxes of a California

resident could be collected from a totally unrelated

person in New York, and the New Yorker would be forced to

prove a negat ive fact about which he has absolutely no

information, i.e., that the Californian has no interest

in his property.

Id

. at 1175 (citing Elkins v. Un ited States , 364 U.S. 206, 218

(1960) (“as a practical matter it is never easy to prove a

negative”)). The District of Columbia Circuit has employed similar

reasoning. S ee Valley Finance , 629 F.2d at 171 n. 19 (“A

government showing of probable cause, familiar in other Fourth

Amendment settings, can rebuff immediate challenges to the

propriety of a levy”).

Although not directly addressing the presen t issue, this

circuit, in addition to many others, has cited Flores and Valley

Finance with approval. S ee, e.g.

, LiButti v. United States

, 107

F.3d 110, 118 (2 nd Cir. 1997); Texas Com merce Bank-Fort Worth v.

United States

, 896 F.2d 152, 156 (5 th Cir. 1990); Security

Counselors, Inc. v. United States

, 860 F.2d 867, 869 (8 t h Cir.

1988); Morris v. United States

, 813 F.2d 343, 345 (11 th Cir. 1987);

Arth v. United States , 735 F.2d 1190, 1193 (9 th Cir. 1984); United4 This circuit has stated in dicta that tax seizures that do not

involve the invasion of one’s premises do not violate the Fourth

Amendment. See Baddour, Inc. v. United States , 802 F.2d 801, 807

(5 th Cir. 1986). Such an argument was subsequently rejected by the

Supreme Court in Soldal

. Regardless, B addour was a case brought

under 42 U.S.C. § 1983 and not under section 7426 of the Internal

Revenue Code. Thus, the holding in B addour is solely that, at the

time, the application of the Fourth Amendment to non-invasive tax

levies was not sufficiently “clea r ly established” to overcome

qualified immunity for purposes of section 1983.

-17- States v. Bailey

, 707 F.2d 19, 21 (1 st Cir. 1983). The other courts

that have addressed this issue directly are markedly consistent in

holding that the Fourth Amendment applies to all levies of property

by the government, including tax levies. S ee, e.g.

, Andrews v.

Crump , 984 F. Supp. 393 (W.D.N.C. 1996); Colello v. United States

S ecurities and Exchange Commission , 908 F. Supp. 738 (C.D.Cal.

1995); Matter of Stubblefield

, 810 F. Supp. 277 (E.D.Ca. 1992); TMG

II v. United States

, 778 F. Supp. 37 (D.D.C. 1991) (Oberdorfer,

J.); Peters v. Sjoholm , 631 P.2d 937 (Wa. 1981). 4

Such a finding is further supported by the background and

history of the Fourth Amendment itself. The Supreme Court has

noted that “one of the primary evils intended to be eliminated by

the Fourth Amendment was the massive intrusion on privacy

undertaken in the collection of taxes pursuant to general warrants

and writs of assistance.” G .M. Leasing

, 429 U.S. at 355.

Commentat o rs have generally agreed, finding that the intended

purpose of the Fourth Amendment was to prevent abusive enforcement

o f the tax laws through the baseless seizure of property. S ee5 Such a requirement applies to traditional tax enforcement

proceedings, however, and not to emergency “jeopardy assessments”

where if “the Secretary believes that the assessment or collection

of a deficiency

. . . will be jeopardized by delay, he shall

. . . immediately assess such deficiency.” 26 U.S.C. § 6861. “A

taxpayer against whom a jeopardy assessment has been made may seek

administrative review of the reasonableness and appropriateness of

the assessment by requesting it within 30 days after the day on

which the taxpayer is furnished a written stateme nt of the

information upon which the IRS relies in mak ing a jeopardy

assessm ent . . . [f]ollowing administrative review, the taxpayer

may obtain expedited judicial review of the reasonableness of the

IRS’s determination that collection of the taxes would be

jeopardized by delay and of the propriety of the amount assessed.”

Humphreys v. United States

, 62 F.3d 667, 670 (5 t h Cir. 1995) (per

curiam). Such special procedures were implemented by Congress in

response to the Supreme Court’s questioning of the

constitutionality of jeopardy assessments without such prompt post-

-18- g enerally Erin Suzanne Enright, Comment, Probable Cause for Tax

Seizure Warrants , 55 U.C HI .L.R EV . 210, 234 (1988).

Accordingly, I believe tha t the Fourth Amendment applies to

tax levies and mandates that the IRS develop probable cause to

believe the property being levied upon is in fact the property of

a delinquent taxpayer subject to a lien at the time the levy is

imposed. Thus, because the Fourth Amendment applies to a levy as

a seizure of property, a levy made without probable cause to

believe the property seized belongs to the taxpayer amounts to an

unconstitutional seizure and is thus wrongful for purposes of

section 7426 regardless of any post hoc justification offered by

the IRS. Failure to insist upon such probable cause as a

prerequisite to an IRS levy would flout the principles of fairness

and privacy embodied in the Fourth Amendment and the Supreme Court

decisions in G.M. Leasing and Soldal

. 5seizure hearings. S ee B ORIS I. B ITTKER AND L AWRENCE L O KKEN

, F EDERAL

T AXATION OF I NCOME

, E STATES AND G IFTS ¶ 111.6.3 (3 rd ed. 1999) (citing

Commissioner v. Shapiro

, 424 U.S. 614 (1976); Laing v. United

States

, 423 U.S. 161 (1976)). There is no indication that the IRS

pursued a jeopardy assessment in the present case, however.

-19- This does not mean that a third person may refuse to comply

with a levy on the ground that it is not based on probable cause.

See United Sand & Gravel Contractors v. United States

, 624 F.2d 733

(5 th Cir. 1980). A third person has only two possible defenses or

justifications for failure to comply with a levy: (1) that the

third person is not in possession of property of the taxpayer or

(2) that the property is subject to a prior judicial attachment or

execution. S ee United States v. National Bank of Commerce

, 472

U.S. 713, 727 (1985). This is because “levy procedures do not

determine ownership rights, and

. . . third parties whose assets

are ‘wrongfully’ seized may apply to the government for the return

of that property.” T exas Commerce

, 896 F.2d at 157. Thus, 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. S ee

United Sand & Gravel , 624 F.2d at 739.

On remand, I believe that if Oxford can demonstrate that the

IRS levied upon its property without havin g developed probable

cause at the time the levy was imposed to believe that the property

being levied upon was, in reality, the property of RX, then the

levy was wrongful under section 7426.