2005 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-16-2005

Popky v. USA

Precedential or Non-Precedential: Precedential

Docket No. 04-2798

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Recommended Citation

"Popky v. USA" (2005). 2005 Decisions. Paper 600.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 04-2798

____________

HOWARD D. POPKY;

SHEILA A. POPKY,

 Appellants

v.

UNITED STATES OF AMERICA

____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 03-cv-01487)

District Judge: Honorable Thomas N. O’Neill, Jr.

____________

Submitted Under Third Circuit LAR 34.1(a)

May 12, 2005

Before: SLOVITER, FISHER and ALDISERT, Circuit Judges.

(Filed: May 17, 2005)
2

John R. Crayton

33 West Second Street

Moorestown, NJ 08057

Attorney for Appellants

Joan I. Oppenheimer

Jonathan S. Cohen

United States Department of Justice

Tax Division

P.O. Box 502

Washington, DC 20044

Attorneys for Appellee

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OPINION OF THE COURT

____________

FISHER, Circuit Judge.

Appellants Howard and Sheila Popky, husband and wife,

appeal from the District Court’s grant of summary judgment in the

government’s favor in connection with their attempt to recover

monies obtained by the government in satisfaction of a tax lien.

Appellants contend that the federal tax lien could not attach to Sheila

Popky’sinterest in property owned by her and her husband as tenants

by the entireties. Appellants also argue that even if the tax lien could

attach to Sheila Popky’s interest, the District Court erred in valuing

her interest at fifty percent of the property. We disagree with

Appellants on both points and will therefore affirm the judgment of

the District Court.
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I.

Sheila Popky had failed to pay employment taxes that were

required to be withheld from the wages of the employees of Sheila’s

EMS, Inc., a business which she owned. The Internal Revenue

Service (“IRS”) assessed taxes of $42,799.20 against Sheila Popky

attributable to these unpaid taxes, and in September 2002, filed a

notice of tax lien against her in Montgomery County, Pennsylvania,

for the same amount plus accruals. Shortly after the filing of the lien

notice, the Popkys sold real property located in Narbeth,

Pennsylvania, which they owned as tenants by the entireties. The title

insurance company held $48,000 of the sale proceeds in escrow due

to the outstanding federal tax lien, and eventually issued a check to

the government for $43,324.43 to satisfy the lien. The Popkys

initiated this quiet title action to recover the proceeds paid to the IRS,

and the government counterclaimed seeking unpaid employment

taxes and unpaid income taxes. The District Court granted summary

judgment to the government and entered an order awarding the

government $43,324.43 on the Popkys’ claim and $15,814.47 on the

government’s counterclaim. The Popkys filed this timely appeal.

II.

The District Court had jurisdiction under 28 U.S.C. §§ 1331,

1340 and 1345. We have jurisdiction under 28 U.S.C. § 1291, and

apply plenary review to the District Court’s grant of summary

judgment. Bonneville Int’l Corp. v. Peters, 347 F.3d 485, 490 (3d

Cir. 2003). The primary issue in this appeal is whether the District

Court erred in concluding that the federal tax lien here could attach

to Sheila Popky’s interest in the Narbeth property owned by her and

her husband as tenants by the entireties. The nature of Sheila Popky’s

interest in the Narbeth property is crucial because federal tax liens

attach to “all property and rights to property” of any taxpayer who
While Michigan law did not give each tenant the power to

1

unilaterally alienate entireties property, the Court in Craft rejected the

contention that such a power was essential to the category of

“property” for purposes of § 6321. Craft, 535 U.S. at 284 (noting that

in prior cases it had “already stated that federal tax liens may attach

to property that cannot be unilaterally alienated.”) (discussing cases).

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neglects or refuses to pay taxes after demand. 26 U.S.C. § 6321. The

Supreme Court has made clear that whether a taxpayer’s interest in

property “held as a tenant by the entirety constitutes ‘property and

rights to property’ for the purposes of the federal tax lien statute, 26

U.S.C. § 6321, is ultimately a question of federal law.” United States

v. Craft, 535 U.S. 274, 278 (2002). However, this federal question

“largely depends upon state law.” Id. See also United States v. Bess,

357 U.S. 51, 55 (1958) (stating that federal tax lien statute “creates no

property rights but merely attaches consequences, federally defined,

to rights created under state law.”).

In Craft, the Supreme Court, looking to Michigan law, held

that a federal tax lien resulting from unpaid taxes attributable to one

tenant by the entireties could attach to that tenant’s interest in

entireties property. The Court found that Michigan’s law of tenancy

by the entireties conferred “some of the most essential property

rights” on each tenant: “the right to use the property, to receive

income produced by it, and to exclude others from it.” Craft, 535

U.S. at 283 (citations omitted). It also noted that Michigan law gave

tenants the right to alienate or otherwise encumber the property with

the consent of the other tenant, as well as the right of survivorship.

Id. The Court concluded that such essential rights in property

enjoyed by tenants by the entireties under Michigan law were “rights

to property” under the federal tax lien statute, and therefore that the

federal tax lien there properly attached to the responsible tenant’s

interest in the entireties property.1
The Popkys emphasize that a tenant in Pennsylvania cannot 2

alienate the entireties property without the other tenant’s consent.

This is true but unavailing given the Court’s clear statement in Craft

that the right of unilateral alienation is not “essential to the category

of ‘property’ [under § 6321].” Craft, 535 U.S. at 284.

5

The Craft analysis requires us to look to the law of the state

where the subject property is located, here, Pennsylvania. Because

Pennsylvania’s law of tenancy by the entireties is materially similar

to Michigan’s, we are compelled to reach the same result reached by

the Court in Craft. As in Michigan, tenants by the entireties in

Pennsylvania have the right to possess and use the property, see

United States v. Parcel of Property Known as 1500 Lincoln Ave., 949

F.2d 73, 77 (3d Cir. 1991), the right to receive a share of income

produced by the property, see Wylie v. Zimmer, 98 F. Supp. 298, 300

(E.D. Pa. 1951) (“The rents, issues and profitsfrom real property held

by entireties are received and owned in a like manner.”); Johns v.

Johns, 52 Pa. D. & C. 2d 99 (Pa. Com. Pl. 1971) (each tenant can

collect and keep rental income), and rights of survivorship.

Clingerman v. Sadowski, 519 A.2d 378, 381 (Pa. 1986). These rights

are sufficient to bring this case within Craft. We therefore conclude

that Sheila Popky had “rights to the [Narbeth] property” owned by her

and her husband as tenants by the entireties to which the federal tax

lien here could attach.2

Appellants contend that even if the federal tax lien properly

attached to Sheila Popky’s interest in the proceeds from the sale of

the Narbeth property, the District Court erred in valuing her interest

at fifty percent of the property. In Craft, the Supreme Court left open

the question of how to value the respective tenants’ interests in

entireties property in these circumstances. See Craft, 535 U.S. at 289

(“We express no view as to the proper valuation of respondent’s

husband’s interest in the entireties property”). The Popkys argue that
6

the valuation should be based on some variation of their life

expectancies. Some courts have adopted or endorsed the use of life

expectancies derived from actuarial tables in determining the value

of a tenant’s interest in entireties property in this context. See, e.g.,

In re Murray, 318 B.R. 211, 214 (Bankr. M.D. Fla. 2004); In re

Basher, 291 B.R. 357, 364 (Bankr. E.D. Pa. 2003).

The District Court properly rejected this approach. Valuing

the interests of tenants by the entireties equally accords with the

longstanding Pennsylvania common law definition of tenancies by the

entirety. See In re Estate of Brose, 206 A.2d 301, 304-05 (Pa. 1965)

(in a tenancy by the entireties, “each of the tenants holds the entire

estate by the half and by the whole.”); Lindenfelser v. Lindenfelser,

153 A.2d 901, 905 (Pa. 1959) (noting that each spouse in a tenancy

by the entireties “is entitled to equal use, enjoyment, and possession”

and “entitled equally to the usufruct of the properties.”). As the

District Court correctly observed, “the equal division of assets

between spouses ... parallels the distribution of entireties property

when an entireties estate is severed because of a sale with consent of

both tenants, divorce or other reasons.” 326 F. Supp. 2d at 602; see

also Reifschneider v. Reifschneider, 196 A.2d 324 (Pa. 1964)

(holding that wife was entitled to fifty percent share of proceeds from

husband’s sale of bonds); In re Prichard, 59 A.2d 101, 102 (Pa.

1948) (observing that when tenants by the entireties agree to

terminate the tenancy and sell the property, the sale proceeds are

divided equally between them). Sound policy reinforces the District

Court’s approach to valuation, as an equal valuation is far simpler and

less speculative than the valuation contemplated by the Popkys.

Thus, we agree with the District Court’s valuation of Sheila Popky’s
The Popkys also contend that the government obtained the 3

escrowed funds from the title company improperly, and that they

should have been permitted to retain and use the $43,324.43 subject

to the tax lien. We see no merit in either argument.

7

interest in the proceeds from the sale of the Narbeth property at fifty

percent.3

Accordingly, we will affirm the judgment of the District

Court.