Opinion ID: 436319
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: 10 Arth raises two issues on appeal. First, he contends that the district court incorrectly held that the money in the account was the property of T/I, the taxpayer, thereby making the levy proper. Second, he argues that Dauphin was not entitled to immunity from suit for the alleged constitutional violations. 11 Our conclusion that the district court was correct in finding the levy proper makes it unnecessary to resolve the immunity issue. The question whether IRS agents are entitled to absolute or qualified immunity in this situation, see Bothke v. Fluor Engineers and Constructors, Inc., 713 F.2d 1405 (9th Cir.1983), and Stankevitz v. IRS, 640 F.2d 205 (9th Cir.1981) (per curiam), must wait another day. 12 In 26 U.S.C. Sec. 7426, Congress has given third parties the right to bring an action against the United States when it is shown property was wrongfully seized pursuant to levy by the IRS. Property is wrongfully levied if it does not, in whole or part, belong to the taxpayer against whom the levy originated. See Al-Kim, Inc. v. United States, 650 F.2d 944, 947 (9th Cir.1979); Flores v. United States, 551 F.2d 1169, 1172 (9th Cir.1977). Pursuant to Sec. 7426(b)(2), the third party may recover the property or the value of his or her interest. 13 In Flores, this court held that the government has the burden of persuading the trier of fact that there is a nexus between the taxpayer and the property. 551 F.2d at 1175-76 & n. 8. We have no doubt that the government met its burden in this case. The funds were located in a T/I bank account. That is sufficient to establish a connection between the funds and the taxpayer, T/I. 14 Flores expressly reserved the question of where the burden of proof lies once the government traces the property to the taxpayer and the third party makes a claim to the property derivatively from the taxpayer, through gift or otherwise. Id. at 1176 n. 8. We are faced with such a situation here. Arth claims that because the T/I account was assigned to him and the funds in the account may be traced to him, the money is his, not that of the taxpayer. In this circumstance, we believe it is reasonable to require the third party to prove that property which appears to belong to the taxpayer is actually his. The rationale behind requiring the government to establish the nexus between the property and the taxpayer is that the government will often have greater access to the facts than the third party. Id. at 1175-76 & n. 7. In this case, however, the property has been traced to the taxpayer, but a third party is making a claim of ownership which depends on facts that are peculiarly within his knowledge. 15 The district court correctly allocated the burden of proof. Also, its decision on who owned the money in the account, T/I or Arth, is a factual finding subject to the clearly erroneous standard of review. See id. at 1172 n. 1. 16 Arth makes two arguments to show that the money in the account was his, not T/I's. First, he states that T/I assigned him the account. Second, he contends that the funds in the account can be traced to him. The government does not dispute either of these contentions. Nor do we. Pursuant to the production agreement, T/I did assign the account to Arth. The more than $10,000 in the account can easily be traced to Arth's separate funds; Arth deposited the money in the account on September 10, 1981, to pay T/I production costs. 17 The effect of these undisputed facts does not detract from the district court's decision that once placed in the account, the money belonged to T/I. The relevant facts as found by the district court follow: Arth assumed full control of T/I, but nonetheless it remained a separate entity; even though the bank account was assigned to Arth, it remained in T/I's name and the bank continued to consider the account as belonging to T/I; Arth satisfied T/I obligations with funds from the account; Arth characterized the transfer of his funds into the account as loans to T/I and Arth satisfied these debts owed to himself by T/I with money from the account; and, although Arth testified that he had in effect set up a separate business entity to manage T/I and he placed funds in the account with the intent of transferring the money to this new entity, the court did not find this testimony believable and no other evidence supported it. 18 This evidence supports the district court's conclusion that the funds in the account belonged to T/I and were properly subject to IRS levy in order to partially satisfy T/I's tax obligations. The decision of the district court is 19 AFFIRMED.