Opinion ID: 799600
Heading Depth: 4
Heading Rank: 2

Heading: Balancing Factors

Text: The Rodgers factors are not to be used as a `mechanical checklist' to the exclusion of common sense and consideration of special circumstances, but the court's limited equitable discretion must be exercised rigorously and sparingly. Rodgers, 461 U.S. at 711, 103 S.Ct. 2132.
First, a court should consider the extent to which the Government's financial interests would be prejudiced if it were relegated to a forced sale of the partial interest [belonging to the party] actually liable for the delinquent taxes. Id. at 710, 103 S.Ct. 2132. The Court in Rodgers explained that there would be no reason to force a sale of the entire property if the value of the delinquent taxpayer's partial interest is likely to be equal to or greater than its value as a fraction of the total value of the entire property. Id. But, there is no question that Malcolm Winsper's partial contingent interest has minimal, if any, independent value. Also, there would be no prejudice to the government from disallowing forced sale of the entire property if the proceeds of a partial sale could be expected to fully satisfy the indebtedness; if the indebtedness could be satisfied out of other property owned solely by the delinquent taxpayer; or if the non-delinquent third party's interest could be expected to lapse in the relatively near future. Id. at n. 41. None of these circumstances are present in this case either. Finally, even when the partial interest would be worth less if sold separately, the possibility of prejudice to the Government can still be measured as a matter of degree. Id. That is, the higher the expected market price [of the partial interest], the less the prejudice, and the less weighty the Government's interest in going ahead with a sale of the entire property. Id. Given the minimal value of Malcolm Winsper's partial interest, the government has a greater interest in a forced sale of the entire property. Without finding to the contrary, the district court concluded that this factor does not weigh heavily for either side because the taxes have been due and owing for over a decade and the sale will result in collection of only a small portion of it. Neither of these considerations is mentioned in Rodgers, however, and the government persuasively argues that neither negates the prejudice to its financial interests that will result from being limited to a forced sale of the partial interest in this case. First, although the district court seems to have relied on the discussion in United States v. Reid, 127 F.Supp.2d 1361, 1385 (S.D.Ga.2000), it was not simply the passage of time in Reid, but also a finding that dilatory conduct by the government had contributed to its inability to collect the tax. Without deciding whether the government's conduct would be an appropriate consideration, Reid is not analogous to this case. Moreover, if the age of the assessment were to weigh against a finding of prejudice, it would penalize the government for pursuing other less-disruptive means of collection first, and it would encourage the institution of judicial foreclosure actions earlier in the ten-year period for collection of assessments under 26 U.S.C. § 6502(a)(1). The age of the assessment does not lessen the prejudice to the government's financial interests that would result from being limited to the sale of the delinquent taxpayer's partial interest. Second, although defendants argue that it is reasonable to consider what fraction or percentage of the tax liability might be satisfied, the only support for this view is the reference in Reid to the fact that any proceeds would satisfy only a tiny fraction of the tax liability. Reid, 127 F.Supp.2d at 1382 (Even if the Government levied on Reid's interest in the Flagler Road residence, which is subject to exemptions, prior security interests, and the rights of parties in possession, any proceeds would satisfy only a tiny fraction of Reid's tax liability, which may be as great as $500,000.). It is hardly clear from this reference that the court was making the distinction urged in this case consideration of the percentage of the debt that would be satisfied rather than the dollar amount that would be collected particularly when the rest of the discussion makes clear that there was no evidence at all in the record about the value of the property to be sold. Moreover, this is inconsistent with the focus in Rodgers on the amount that could be expected from the sale of the taxpayer's partial interest as compared to the sale of the entire property; not a comparison (percentage or otherwise) between the amount of the proceeds and the extent of the tax liability. To find an absence of prejudice because the percentage of the debt satisfied may be small would tend to favor delinquent taxpayers with the largest tax liability ( i.e., the greater the debt, the smaller the percentage of that debt would be satisfied in most cases by a forced sale under § 7403). The district court misapplied this factor in finding no prejudice to the government's financial interests if it were to be relegated to a forced sale of Malcolm Winsper's partial interest as a tenant by the entirety with his non-delinquent spouse.
The second factor asks whether the third party with a non-liable separate interest in the property would, in the normal course of events (leaving aside § 7403 and eminent domain proceedings, of course), have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors. Rodgers, 461 U.S. at 710, 103 S.Ct. 2132. Absent such an expectation, there would seem to be little reason not to authorize the sale. Id. at 711, 103 S.Ct. 2132. The Court recognized a continuum of such expectations and explained that this factor is amenable to considerations of degree. Id. The government concedes that Kentucky law provides a legally recognized expectation that property owned by a husband and wife as tenants by the entirety will not be subject to forced sale to satisfy the debts of one spouse. See Raybro, 813 F.Supp. at 1269-70; Real Property, 755 F.Supp. at 173. [2] Once she was no longer a delinquent taxpayer herself, Barbara Winsper had a legally recognized expectation that the entire property would not be subject to forced sale to satisfy her husband's separate tax liability. Accordingly, the district court properly found that this factor weighed in favor of Barbara Winsper and the exercise of discretion not to foreclose the lien and force the sale of the entire property. [3]
Third, the court should consider the likely prejudice to the non-liable third party both in personal dislocation costs and the sort of practical undercompensation described [in the context of the sale of a homestead interest]. Rodgers, 461 U.S. at 711, 103 S.Ct. 2132. Although § 7403 allows for the conversion of a non-delinquent spouse's homestead estate into its fair cash value, the Court recognized that in practical terms financial compensation may not always be a completely adequate substitute for a roof over one's head. Id. at 704, 103 S.Ct. 2132. The problem of undercompensation is particularly acute in the case of a homestead interest, which may have a value less than the price of a lifetime interest in an equivalent home and must be based on actuarial statistics that will unavoidably undercompensate those who live longer than average. Id. Finding that this factor favored Barbara Winsper, the district court explained that the relatively small amount of proceeds ..., estimated at no more than $71,500, will not permit Mrs. Winsper to relocate to other reasonable housing. The government argues that this is mere speculation unsupported by the record. Barbara Winsper's declaration represented her future income as limited and asserted that if forced from her home she would be unable to purchase another. It is not self-evident, however, that the expected distribution of $71,500 would be insufficient to allow her to find other reasonable housing. Nor is there any indication of how much she could expect to incur in substantial moving expenses. It may be that Barbara Winsper would suffer prejudice in the form of practical undercompensation, but there is no support for such a finding on this record. Barbara Winsper also attested that her home of some 30 years had irreplaceable sentimental value to her that made it a home and not just a house or a piece of `Real Property.' However, this third factor envisions some special circumstances of prejudice to the non-liable third party. Bierbrauer, 936 F.2d at 376. Such circumstances would include personal dislocation costs that were greater than in any other foreclosure against a residence to satisfy a tax lien. Id. at 375. However, if `the inherent indignity and inequity of being removed from one's home' should automatically tip the scales in [the third party's] favor, ... the government could never foreclose against a jointly owned residencea result clearly untenable under § 7403. Id. at 375-76; see also United States v. Barr, No. 11717, 2008 WL 4104507 (E.D.Mich. Sept. 2, 2008), aff'd 617 F.3d 370 (6th Cir.2010). The hardship of having to leave a home with enormous sentimental value itself would not present special circumstances of prejudice that weigh against foreclosure of the entire property.
Fourth, a court should consider the relative character and value of the non-liable and liable interests held in the property. Rodgers, 461 U.S. at 711, 103 S.Ct. 2132. For example, if the non-liable party has no present possessory interest or fee interest in the property, there may be little reason not to allow the sale. Id. However, if the third party not only has such an interest, but that interest is worth 99% of the value of the property, then there might well be virtually no reason to allow the sale to proceed. Id. The district court concluded that assuming Mrs. Winsper's current interest in the property is only 50 percent, that is substantial compared to her husband's interest, and, there is a reasonable possibility that her interest could be greater than 50 percent. Malcolm and Barbara Winsper have identical rights in the property they hold as tenants by the entirety under Kentucky law. See Cowan v. Pleasant, 263 S.W.2d 494 (Ky.1953). There seems to be no dispute that Kentucky law provides for equal division of the property upon divorce or termination of a tenancy by the entirety. See Cowan, 263 S.W.2d at 496; Nelson v. Mahurin, 994 S.W.2d 10, 15 (Ky. App.1998). Any claim that Barbara Winsper might have an interest in the property greater than 50% based on the likelihood that she will outlive her husband is precluded by this court's decision in Barr. Barr, 617 F.3d at 372. There, this court reasoned that because Michigan law provides for equal division of such property upon divorce or consensual sale, differences in life expectancy do not result in different survivorship interests. Id. at 374; see also Barczyk, 434 Fed.Appx. at 494 (holding that non-delinquent spouse had equal interest as tenant in the entirety under Michigan law in proceeds of forced sale under § 7403). Defendants have not offered a compelling reason to disregard a presumption that the Winspers' interests in the property are of equal character and value. That being the case, however, this factor does not weigh heavily for or against allowing the sale of the entire property to proceed because, while Barbara Winsper has a possessory and fee interest in the property, there seems no reason to believe her interest swamps the interest of the delinquent taxpayer. Barr, 617 F.3d at 377 n. 1 (Batchelder, J., dissenting in part).