Opinion ID: 574705
Heading Depth: 2
Heading Rank: 1

Heading: nancy knies' claim

Text: 3 Mrs. Knies' claim is based on § 7426(a). 2 She alleges that the levy on the entire paycheck unlawfully seized property in which she had an interest and, therefore, constitutes a wrongful levy. 3 Section 7426(a) provides: 4 (1) 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. 5 The district court recognized that Nancy Knies, as a third party, could bring suit under this statute. The court stated that to succeed on such a claim, Mrs. Knies needed to show that she has an interest in the property and that the property was the subject of a wrongful levy. In finding that Mrs. Knies could not prevail on this claim, the court wrote: 6 Plaintiff Nancy Knies admits that her husband, plaintiff Leroy Knies, has an interest in the property held by Feldman. Amended Complaint § 2. Nancy Knies bears the burden of proving, however, that the taxpayer has no interest in the funds due to plaintiff Leroy Knies, that she is the owner of the funds, instead, and that her interest is superior to the government's.... Accordingly, plaintiff Nancy Knies cannot sustain her burden, as the levy is not wrongful because taxpayer plaintiff Leroy Knies admittedly has an interest in the funds held by Feldman. 7 (Decision and Order at 5-6). 8 In essence, the district court held that a third party can never bring a suit for wrongful levy if the taxpayer has any interest in the property levied by the government. We disagree. 9 Nancy Knies' claim is controlled by the United States Supreme Court's decision in United States v. National Bank of Commerce, 472 U.S. 713 (1985). The United States initiated suit against National Bank claiming that the bank was liable for its refusal to comply with a tax levy against a delinquent taxpayer. 4 The bank refused to honor the levy because the accounts were not the sole property of the taxpayer, but joint accounts belonging to three individuals. In holding the bank liable, the Supreme Court thoroughly discussed the statutory scheme enabling the IRS to levy upon property and the statutory protections provided to third parties. 10 The Court explained that the government has two tools to enforce the collection of unpaid taxes. First, the government may bring a lien-foreclosure suit in the district court under § 7403. The second instrument for the collection of unpaid taxes is the administrative levy authorized by § 6331. The Court described the administrative levy as a provisional remedy. Section 6331, unlike § 7403, does not 'implicate the rights of third parties,' because an administrative levy, unlike a judicial lien-foreclosure action, does not determine the ownership rights to the property. National Bank of Commerce, 472 U.S. at 731. The Court explained that § 7426 protects the third parties' property rights. Under this section, one claiming an interest in property seized for another's taxes may bring a civil action against the United States to have the property or the proceeds of its sale returned. Id. at 728. The Court noted that the statutory provisions plainly contemplate that a taxpayer's interest in property may be less than full ownership. Id. at 731. The statutory scheme allows the seizure, pursuant to an administrative levy, of any property in which the taxpayer has an interest with postseizure administrative or judicial hearings available for the determination of third party property rights after the levy is made. Id. 11 The district court erred in determining that a wrongful levy action may never stand if the taxpayer has any interest in the disputed property. Although the government clearly possessed the authority to seize this property pursuant to an administrative levy, National Bank of Commerce explained that a proper administrative seizure does not leave third party property interests unprotected. Third parties who have an interest in that property may sue under § 7426 claiming that their interest in the property was improperly levied upon and, thus, sue for return of that portion. Nancy Knies has stated a claim under § 7426; therefore, her claim must be remanded to determine what, if any, rights she has to the checks that were levied upon. 5