IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 07-11119

QUI P. WAGNER

Plaintiff-Appellant

v.

UNITED STATES OF AMERICA; DEPARTMENT OF

TREASURY; INTERNAL REVENUE SERVICE

Defendants-Appellees

Appeal from the United States District Court 

for the Northern District of Texas

Before DAVIS, CLEMENT, and ELROD, Circuit Judges.

DAVIS, Circuit Judge:

Plaintiff-Appellant Qui Wagner appeals the district court’s grant of

summary judgment in favor of the Defendant-Appellee, the United States of

America, on her sole claim for a return of funds allegedly wrongfully levied by

the government. Because the district court lacked subject matter jurisdiction to

hear the suit, we vacate the district court’s judgment and dismiss the suit for

lack of subject matter jurisdiction.

I.

The relevant facts are not in dispute. Qui Wagner was married to

Frederick Wagner until June 20, 2003, when a Final Decree of Divorce was

entered in Tarrant County, Texas. As part of the Final Decree, Ms. Wagner was

United States Court of Appeals

Fifth Circuit

F I L E D

October 10, 2008

Charles R. Fulbruge III

Clerk
No. 07-11119

2

awarded all net proceeds from the sale of the marital residence in Colleyville,

Texas. Ms. Wagner did not separately record the divorce decree in the deed

records of Tarrant County.

On June 2, 2004, the Internal Revenue Service (1) assessed taxes against

Mr. Wagner individually pursuant to I.R.C. § 6672 and (2) filed a notice of tax

lien against Mr. Wagner in Tarrant County, Texas. In either February or March

of 2006, Ms. Wagner attempted to sell the house, but the IRS refused to release

the tax lien and issue a certificate of discharge unless and until Ms. Wagner

agreed to pay the IRS Mr. Wagner’s community interestin the home equity from

the sale ofthe property. On March 6, 2006, Ms. Wagner paid the IRS $35,409.63

from the sale proceeds. On the same day, the IRS acknowledged, by letter,

receipt of the $35,409.63 check and informed Ms. Wagner that the certificate of

discharge would not be distributed until she paid the full amount of Mr.

Wagner’s interest, including the additional amount of $3,515.00. By letter dated

April 4, 2006, the IRS informed her that, because it had not received the amount

of $3,515.00 as set out in the March 6 letter, “the application for a Certificate of

Discharge is being closed without the issuance of the certificate.” In September

of 2006, Ms. Wagner sought a refund from the IRS, but the IRS denied the

request in October.

On November 8, 2006, Ms. Wagner filed the instant suit against the

United States in the district court, alleging subject matter jurisdiction under 28

U.S.C. § 1346(a) and asserting three claims: wrongful levy, pursuant to I.R.C.

§ 7426, in the amount of $35,409.63; pre-judgment interest on that amount,

pursuant to I.R.C. § 7426(g); and attorney’s fees and costs, pursuant to I.R.C. §

7430.

In July 2007, the government filed the motion for summary judgment at

issue in Ms. Wagner’s appeal, arguing that Ms. Wagner had failed to state a

claim upon which relief may be granted, based upon this Court’s opinions in
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3

Prewitt v. United States, 792 F.2d 1353 (5th Cir. 1986), and United States v.

Creamer Industries, Inc., 349 F.2d 625 (5th Cir. 1965). In opposition, Ms.

Wagner argued that other circuits have rejected Prewitt and Creamer based on

United States v. National Bank of Commerce, 472 U.S. 713 (1985), which was

decided before Prewitt but was not cited therein. The district court held a

telephone conference with the parties on August 27, 2007, during which the

court agreed with the government and held, consistent withPrewitt,thatthe tax

lien had priority over the unrecorded divorce decree. Accordingly, the district

court granted the government’s motion for summary judgment in a final

judgment dated August 27, 2007.

Ms. Wagner appeals thatjudgment, arguing only that we should overturn

Prewitt. The government argues that the district court’s opinion was

substantively correct but argues, for the first time on appeal, that the district

court lacked subject matter jurisdiction over the dispute. We requested

additional briefing from the parties on the issue of subject matter jurisdiction.

Both parties having submitted their briefs on that point, we now find that the

district courtindeed lacked subject matter jurisdiction to hear Ms. Wagner’s sole

claim.

II.

“We review questions of subject matter jurisdiction de novo.” In re

Bissonnet Investments LLC, 320 F.3d 520, 522 (5th Cir. 2003) (citing Lundeen

v. Mineta, 291 F.3d 300, 303 (5th Cir. 2002)).

III.

In its original brief in opposition, the government asserted that the district

court was otherwise substantively correct but lacked subject matter jurisdiction

to render judgment, for the following reasons: (a) the IRS had not levied upon

the property in question, so the district court lacked jurisdiction for a wrongful

levy action under I.R.C. § 7426; (b)the IRS never issued Ms. Wagner a certificate
No. 07-11119

1 Section 1346 provides, in relevant part:

(a) The district courts shall have original jurisdiction, concurrent with the

United States Court of Federal Claims, of:

(1) Any civil action against the United States for the recovery of

any internal-revenue tax alleged to have been erroneously or

illegally assessed or collected, or any penalty claimed to have

been collected without authority or any sum alleged to have been

excessive or in any manner wrongfully collected under the

internal-revenue laws; . . . .

(e) The district courts shall have original jurisdiction of any civil action against

the United States provided in section 6226, 6228(a), 7426, or 7428 (in the case

of the United States district court for the District of Columbia) or section 7429

4

of discharge of the property subject to the lien, so the district court lacked

jurisdiction to hear a substitution-of-value refund clam under I.R.C. § 7426(a)(4);

and (c) Ms. Wagner did not pay the outstanding tax liability in full, so the

district court lacked jurisdiction to hear a refund claim, assuming one could be

viable, under 28 U.S.C. § 1346(a)(1).

In addition to the complaint’s assertions noted above, Ms. Wagner now

specifically argues, in her brief on jurisdiction,thatthe district court had subject

matter jurisdiction under I.R.C. § 7426(a)(4). Taking into account the

complaint’s alleged wrongful levy cause of action; Ms. Wagner’s current

argument that jurisdiction exists under I.R.C. § 7426(a)(4); and the complaint’s

stated basis for jurisdiction under 28 U.S.C. § 1346(a), each of the government’s

arguments must be addressed by this court. If the district court had subject

matter jurisdiction under any one of those three bases—or any other basis—to

hear her suit, then we may address the merits of her appeal. Otherwise, we

must dismiss the suit for lack of subject matter jurisdiction.

As an initial matter,the government argues thatthe complaint’s assertion

of jurisdiction under 28 U.S.C. § 1346(a) is improper if the complaint asserts a

true wrongful levy claim because § 1346(a) relates only to tax-refund suits.

Instead, jurisdiction for the wrongful levy claim must be found, if at all, under

§ 1346(e).1 While that is apparently true, we will examine generally whether the
No. 07-11119

of the Internal Revenue Code of 1986.

Id.

5

district court had subject matter jurisdiction to hear the case, whatever the

precise statutory basis.

The government properly reiterates that suits againstthe government are

controlled by general principles of sovereign immunity, citing, inter alia, United

States Department of Energy v. Ohio, 503 U.S. 607 (1992).

We start with a common rule, with which we presume congressional

familiarity,that any waiver of the National Government’s sovereign

immunity must be unequivocal. Waivers of immunity must be

construed strictly in favor ofthe sovereign, and not enlarged beyond

what the language requires.

Id. at 615 (citations, internal quotation marks, and textual modifications

omitted). Section 1346(a)(1) and (e) constitute waivers of sovereign immunity.

See United States v. Williams, 514 U.S. 527, 531 (1995) (discussing § 1346(a)(1));

United States v. Wingfield, 822 F.2d 1466, 1471 (10th Cir. 1987) (“Congress has

specifically waived sovereign immunity for actions under § 7426 through the

enactment of 28 U.S.C. § 1346(e).”).

The permitted causes of action against the United States by a taxpayer

(here, Mr. Wagner) or a third party (here, Ms. Wagner) are found in I.R.C. §

7421, et seq. Specifically, for suits by third parties (“persons other than

taxpayers”), the relevant statute is I.R.C. § 7426, which “constitutes a waiver by

the United States of its sovereign immunity to suit.” Baddour, Inc. v. United

States, 802 F.2d 801, 804 (5th Cir. 1986). Section 7426(a) provides four causes

of action, two of which are potentially relevant to this case:

(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
No. 07-11119

6

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. . . .

(4) Substitution of value.--If a certificate of discharge is issued to

any person under section 6325(b)(4) with respect to any property,

such person may, within 120 days after the day on which such

certificate is issued, bring a civil action against the United States in

a district court of the United States for a determination of whether

the value of the interest of the United States (if any) in such

property is less than the value determined by the Secretary. No

other action may be brought by such person for such a

determination.

Id.

III.A.

The government first argues that the district court lacked subject matter

jurisdiction to hear Ms. Wagner’s stated wrongful levy claim because she failed

to satisfy the requirements to bring such a claim under § 7426(a)(1). “In order

to state a cause of action under this provision, the plaintiff must show: (1) that

a levy has been filed against property in plaintiff’s hands, (2) that plaintiff has

an interest in or a lien on the property which is senior to the interest of the

United States, and (3) that the levy was wrongful.” Texas Commerce Bank-Fort

Worth, N.A. v. United States, 896 F.2d 152, 156 (5th Cir. 1990). Naturally, “[i]f

the Government has not levied on property . . . the owner cannot challenge such

a levy under 26 U.S.C. § 7426.” Williams, 514 U.S. at 536.

The government points outthat no levy was ever filed againstthe property

in this case. Indeed, Ms. Wagner has presented no evidence to that effect. See

I.R.C. § 6331(b) (“The term ‘levy’ as used in this title includes the power of

distraint and seizure by any means. . . .”); EC Term of Years Trust v. United

States, 127 S. Ct. 1763, 1765 (2007) (“‘A federal tax lien, however, is not

self-executing,’ and the IRS must take ‘[a]ffirmative action . . . to enforce
No. 07-11119

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collection of the unpaid taxes.’” (quoting United States v. National Bank of

Commerce, 472 U.S. 713, 720 (1985))).

In this case, the government filed a lien and nothing else. This court’s

opinion in Interfirst Bank Dallas, N.A. v. United States, 769 F.2d 299, 304 (5th

Cir. 1985), suggests that nothing short of an actual levy is enough to satisfy §

7426(a)(1). In Interfirst, we examined the difference between a threatened lien

and a levy, but the Interfirst rationale retains its force with respect to an actual

lien in light of the major differences between a levy and a lien, as summarized

by the Ninth Circuit:

A levy forces debtors to relinquish their property. It operates as a

seizure by the IRS to collect delinquent income taxes. See American

Acceptance Corp. v. Glendora Better Builders, Inc., 550 F.2d 1220,

1223 (9th Cir.1977); see also Interfirst Bank Dallas, N.A. v. United

States, 769 F.2d 299, 304-05 (5th Cir.1985), cert. denied, 475 U.S.

1081, 106 S.Ct. 1458, 89 L. Ed. 2d 716 (1986); Chevron, U.S.A., Inc.

v. United States, 705 F.2d 1487, 1489-90 (9th Cir.1983) (levy

operates as a seizure). The IRS’s levying power is limited because

a levy is an immediate seizure not requiring judicial intervention.

See National Bank of Commerce, 472 U.S. at 720-21, 105 S.Ct. at

2924-25. A levy connotes compulsion or a forcible means of

extracting taxes from “a recalcitranttaxpayer.” Interfirst Bank, 769

F.2d at 305. A taxpayer subject to an IRS levy is provided certain

protections such as notice and an opportunity to pay the taxes due

before the seizure. National Bank of Commerce, 472 U.S. at 720-21,

105 S.Ct. at 2924-25; Interfirst Bank, 769 F.2d at 305; Martinez v.

United States, 669 F.2d 568, 569 (9th Cir.1981).

A lien, however, is merely a security interest and does not involve

the immediate seizure of property. A lien enables the taxpayer to

maintain possession of protected property while allowing the

government to preserve its claim should the status of property later

change. If, for instance, the debtor later sells his exempt personal

property for cash,the IRS would be entitled to obtain such proceeds.
No. 07-11119

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United States v. Barbier, 896 F.2d 377, 379 (9th Cir. 1990). Because the

property in this case was subject only to a lien, not a levy, the district court had

no jurisdiction to hear a wrongful levy claim.

III.B.

Second,the government argues thatthere is no jurisdictional basis to hear

a substitution of value claim under § 7426(a)(4) (permitting such a claim “within

120 days after the day on which such certificate [of discharge] is issued”). The

basis for the government’s argument is the plain language of § 7426(a)(4), which

clearly requires the issuance of a certificate of discharge prior to bringing a claim

under the section. See id. (“If a certificate of discharge is issued to any person

. . . .”).

Significantly, that provision is also the only one upon which Ms. Wagner

now asserts jurisdiction. In her brief on jurisdiction, she asserts that she at

least requested a certificate of discharge, before conceding that she cannot

produce one. She suggests that the certificate may have been sent to an office

that has since gone out of business but admits the IRS may never have issued

it. These are frail hooks upon which to hang a jurisdictional argument. Ms.

Wagner, as the plaintiff under I.R.C. § 7426, bears the burden of proof. See

Texas Commerce Bank-Fort Worth, 896 F.2d at 156 (discussing burden of proof

under § 7426(a)(1)). The reasons for her failure are irrelevant; it is enough that

she has not presented a certificate of discharge. Under the plain terms of §

7426(a)(4), the district court had no jurisdictional basis to hear a claim under

that subsection.

III.C.

Third and finally, the government argues that even if Ms. Wagner were

allowed to pursue a general third party refund action under 28 U.S.C. §

1346(a)(1),the district court still lacked subject matter jurisdiction. In Williams,

supra, the Supreme Court authorized a third party to bring a refund action
No. 07-11119

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under § 1346(a)(1) after paying someone else’s taxes in full to remove a federal

tax lien from her property. 514 U.S. at 538-40. Following Williams, Congress

enacted § 7426(a)(4), and recent cases have noted that § 7426 is now the only

avenue for third party actions. See, e.g., First American Title Insurance

Company v. United States, 520 F.3d 1051, 1053 (9th Cir. 2008) (“[T]he Court's

recent decision in EC Term of Years Trust v. United States 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.”).

Even if § 7426(a)(4) had not been enacted and the Williams rule was still

applied, Williams recognized that a prerequisite to a refund suit under §

1346(a)(1) is payment in full of the tax at issue. 514 U.S. at 538 (citing Flora v.

United States, 362 U.S. 145 (1960)). Here, it is undisputed that Ms. Wagner

failed to pay Frederick Wagner’s outstanding tax in full prior to filing suit

against the IRS. Thus, even if the Williams cause of action under § 1346(a)(1)

remained viable, Ms. Wagner failed to satisfy a jurisdictional prerequisite to that

cause of action.

It is clear that subject matter jurisdiction does not exist under any of the

three potential jurisdictional bases urged by Ms. Wagner. We can find no other

basis for jurisdiction, under I.R.C. § 7426 or otherwise, given the facts before us.

Accordingly, we must conclude that the district court lacked subject matter

jurisdiction, and this case must be dismissed without prejudice.

CONCLUSION

For the reasons stated above, the district court’s judgment is VACATED,

and the suit is DISMISSED without prejudice.