Opinion ID: 339205
Heading Depth: 1
Heading Rank: 1

Heading: The Transferee Tax

Text: 10 The assessment of the transferee tax is not challenged. The issue is whether plaintiff, who was not personally liable for the tax but paid it to remove an encumbrance from the title to her land, can sue for a refund of the payment. Both parties agree that only the taxpayer can bring a refund suit under 28 U.S.C. § 1346(a)(1), but they disagree over the meaning of that term. 11 There is some conflict in the authorities on the question of whether a refund suit can be filed by a person who pays a third party's taxes. The plaintiff's position is supported by United States v. Halton Tractor Co., 258 F.2d 612 (9th Cir. 1958), in which the plaintiff, who had a lien on goods owned by a third party, paid that third party's taxes to avoid a sale of the goods by the government, which he mistakenly believed to possess a superior lien. The court held that a refund suit under § 1346 was proper because the plaintiff had not made the payment as a donation for the benefit of the person who owed the tax. In an earlier case, the same court allowed a refund suit where the plaintiff paid another's taxes to avoid penalties that would have been assessed if, as she believed and the IRS asserted, she had been liable as a transferee. Parsons v. Anglim, 143 F.2d 534 (9th Cir. 1944). Two district courts have adopted the related test that a person may qualify as a taxpayer if the payment of the third party's taxes was not voluntary. Adams v. United States, 380 F.Supp. 1033, 1035 (D.Mont.1974); McMahon v. United States, 172 F.Supp. 490, 494 (D.R.I.1959). 12 In the Parsons case, and apparently in Adams as well, the plaintiff seeking a refund paid the tax believing himself to be at least potentially liable for the taxes assessed. In the same situation, the Court of Claims has held that even such a plaintiff as this cannot sue for a refund because the definition of a taxpayer in § 1346(a)(1) is strictly limited to the taxpayer who has overpaid his own taxes. Collins v. United States, 532 F.2d 1344, 1347 n.2 (Ct.Cl.1976). 2 We need not decide whether potential personal liability is a sufficient qualification for taxpayer status or whether, as the government argues, there must have been an actual assessment against the plaintiff. Plaintiff's only argument here is that, although she paid a tax for which she concededly was not liable, she paid it to release a lien against her property and is therefore entitled to bring a refund suit. We find this argument unpersuasive. 13 There are no cases precisely in point. It is clear, however, that a refund suit cannot be brought by a person who owns or has an interest in property that has been levied upon to satisfy the tax obligations of a third party. Phillips v. United States, 346 F.2d 999 (2d Cir. 1965); First National Bank of Emlenton v. United States, 265 F.2d 297 (3d Cir. 1959); Stuart v. Chinese Chamber of Commerce, 168 F.2d 709, 712 (9th Cir. 1948) (dicta); Mill Factors Corp. v. United States, 391 F.Supp. 387, 389 (S.D.N.Y. 1975); Economy Plumbing & Heating Co. v. United States, 470 F.2d 585, 589, 200 Ct.Cl. 31 (1972). The Halton Tractor Co. and McMahon cases, supra, which would seem to contradict this result, must be viewed in light of the failure of the Code prior to 1966 to provide a remedy for a third party whose property or interest in property was harmed by a wrongful government levy. The Senate Report on 26 U.S.C. § 7426, which remedied this deficiency, noted that some courts tried to cure the inequitable situation by allowing suits in such cases against IRS' district directors. Sen.Rep. No. 1708, 89th Cong., 2d Sess., 1966 U.S. Code Cong. & Adm. News at 3750. The courts in Halton Tractor Co. and McMahon were perhaps motivated by a similar concern. 14 Given that a person whose property has been wrongfully levied upon cannot maintain a refund action, it follows that plaintiff in this case should also be barred from maintaining such a suit. We see no reason for distinguishing between a person whose property is seized to satisfy another person's taxes and a person who pays the tax to eliminate the threat of seizure. 15 Because 28 U.S.C. § 1346(a)(1) is a waiver of sovereign immunity, it must be construed narrowly. Phillips v. United States, supra, 346 F.2d at 1000; Eighth Street Baptist Church, Inc. v. United States, 431 F.2d 1193 (10th Cir. 1970). As the court said in Phillips: 16 Here, as in many cases, the answer to the question of statutory interpretation depends on the spirit in which it is approached. Unfortunately for the plaintiff, the spirit proper to judicial consideration of a waiver of sovereign immunity is not one of generosity and broad interpretation (Citation omitted.) Faced with what is at best an absence of any evidence as to intent to waive sovereign immunity with respect to suits by non-taxpayers, we think that § 1346(a)(1) should be interpreted as not extending to such suits. 17 Other remedies are available to contest a tax lien, including a suit to quiet title under 28 U.S.C. § 2410, and, as noted above, if the government attempts to enforce the lien by levy, an action challenging the wrongful levy under 26 U.S.C. § 7426. The owner of the property may also negotiate with the IRS to transfer the lien from the property to the proceeds of sale, so that a clear title can be conveyed. 26 U.S.C. § 6325(b)(3). We see no need to provide an additional remedy even if it were within our power to do so. 18 We conclude that the suit for refund of the transferee taxes could not be brought under 28 U.S.C. § 1346(a)(1).