Court Opinion

ID: 9476434
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:56:11.234594+00
Date Added: 2024-06-11T17:45:19.349856
License: Public Domain

CELEBREZZE, Senior Circuit Judge,
respectfully dissenting.
The majority holds that interest on any judgment obtained prior to October 1, 1982 on a tax lien is calculated pursuant to state law, 28 U.S.C. § 1961 (1976), amended by 28 U.S.C. § 1961(c)(1) (1982). Since I believe that this result improperly alters the government’s right to enforce a federal tax lien, I respectfully dissent.
A review of the statutory framework surrounding federal tax liens is critical to a proper understanding of this case. If after a “demand” a taxpayer neglects or refuses to pay any tax upon which he is liable, a tax lien arises in the government’s favor upon all of the taxpayer’s property. I.R.C. § 6321 (1982). The tax lien includes interest, id., which is computed pursuant to Section 6621, I.R.C. § 6621 (1982). I.R.C. § 6601(a) (1982). Thus, up until the time a judgment is entered upon a tax lien interest accrues according to Section 6621.
In order to prevent a tax lien from becoming unenforceable “by reason of lapse of time,” I.R.C. § 6322 (1982), the government must bring “a proceeding in court” within six years from the time of assessment, I.R.C. § 6502(a)(1) (1982). E.g., Moyer v. Mathas, 458 F.2d 431, 433-34 (5th Cir.1972). The judgment “merely confirms the validity of the lien arising out of the tax assessment.” H.R.Rep. No. 1884, 89th Cong., 2d Sess. 31 (1966); S.Rep. No. 1708, 89th Cong., 2d Sess. 32 (1966), 1966 U.S. Code Cong. & Ad. News 3722, 3754. The “tax lien is not merged into a judgment on the assessed tax liability.” S.Rep. No. 1708, supra, at 32; H.R.Rep. No. 1884, supra at 31, 1966, U.S.Code Cong. & Ad. News 3754. Rather, “the judgment is merely one way in which the underlying tax liability remains enforceable, and therefore the judgment serves merely as a measuring rod for the life of the lien.” United States v. Hodes, 355 F.2d 746, 749 (2d Cir.1966), cert. dismissed, 386 U.S. 901, 87 S.Ct. 784, 17 L.Ed.2d 779 (1967); see United States v. Weintraub, 613 F.2d 612, 620-21 & n. 30 (6th Cir.1979), cert. denied, 447 U.S. 905, 100 S.Ct. 2987, 64 L.Ed.2d 854 (1980) (“There is no time limit whatsoever *916on an action to enforce a timely filed levy or judgment obtained in a timely filed court proceeding.”)* Accordingly, a judgment on a tax lien serves to confirm the validity of the tax lien and to extend the limitations period on the lien. The majority, however, also holds that the obtaining of a judgment relegates the government to the post-judgment interest provided by state law. With this, I am unable to agree.
The majority’s expansive view of the effect of a judgment on a tax lien conflicts with Congress’ intent in passing the Tax Lien Act of 1966. Congress amended Section 6322 to ensure that “entry of a judgment confirming an assessed tax liability [would] not cut back on the rights of the Government.” S.Rep. No. 1708, supra, at 32; H.R.Rep. No. 1884, supra, at 31, 1966 U.S.Code Cong. & Ad. News 3754. Specifically, “the Government’s right to collect taxes due by administrative levy is neither curtailed nor expanded by the judgment.” H.R.Rep. No. 1884, supra, at 31; S.Rep. No. 1708, supra, at 33, 1966 U.S.Code Cong. & Ad. News 3754. The rate of post-judgment interest under state law, however, will often vary substantially from that provided by Section 6621. Hence, under the majority’s approach, the government will rarely be in the same position it held before a judgment was obtained; the government will either gain or lose substantial amounts of money depending upon the difference between the rate of interest under state law and under Section 6621. In this particular case, for example, the majority’s decision cost the government over $10,000 in interest. In my view, such a result improperly curtails the government’s rights under the tax lien.
Also, in cases like the one at bar in which the rate of interest under Section 6621 exceeds that under state law, the majority’s decision has the effect of rewarding dilatory behavior. Since in these situations the obtaining of the judgment relegates the government to a lower interest rate, the government has lost money by bringing prompt judicial proceedings. I do not believe that the government should be penalized for obtaining prompt judicial confirmation of the validity of a tax lien.
Finally, I have difficulty with the majority’s statement that “[e]ven though the tax lien has an independent existence from a judgment, the underlying obligation merges with that judgment.” In my view, since a tax lien merely represents a person’s tax liability, I.R.C. § 6321 (1982), if the taxpayer’s liability merges with the judgment, as the majority holds, the tax lien is rendered nugatory. Ostensibly, the majority may be holding that two liabilities exist in this case: an “underlying liability” which merges with the judgment and a general liability represented by the tax lien. Yet, since “[b]oth the judgment and the lien arise out of the same tax liability,” S.Rep. No. 1708, supra, at 32; H.R.Rep. No. 1884, supra, at 31, 1966 U.S.Code Cong. & Ad. News 3754, I see no reason why the liability represented by the tax lien should be different from that represented by the judgment. Despite the foregoing reasons for limiting the effect of tax lien judgments, the majority supports its position relying upon the Ninth Circuit’s opinion in United States v. Overman, 424 F.2d 1142, 1147 (9th Cir.1970), the 1982 amendment to Section 1961, the traditional distinction between pre- and post-judgment interest, and the fact that tax cases are civil cases. I will consider each of these in turn.
The merger dictum in Overman, relied upon by the majority, was derived from the prior Ninth Circuit decision in Investment & Securities Co. v. United States, 140 F.2d 894, 896 (9th Cir.1944). The issue presented in Investment & Securities was whether the statute of limitations had run on the judgment obtained on a tax lien. Id. at 896. The court properly rejected this contention reasoning:
There is no federal statutory provision as to a period of limitations on this judgment; it follows that in the absence of such a limitation a tax can be collected at any time; therefore, the liability of the tax now merged in the judgment has not become unenforcible [sic] by reason of lapse of time.
Id. at 896 (emphasis added). Viewed in context, I believe that the Investment & Securities court’s statement that the liabili*917ty merged into the judgment merely indicates that the liability represented by a tax lien can be enforced by execution on the judgment. This conclusion is supported by the fact that Investment & Securities concerned the enforcement of a judgment — not the tax lien. Id. at 895; Plumb, Federal Tax Lien Problems, 13 Tax L.Rev. 237, 251 n. 23 (1957-58). Moreover, interpreting the merger language as the majority does creates a conflict between the Ninth and Second Circuits. Compare Investment Securities, 140 F.2d at 896 (underlying liability merges) and Overman, 424 F.2d at 1147 (underlying liability merges) with Hodes, 355 F.2d at 749 (judgment merely extends life of tax lien). I therefore disagree with the majority’s interpretation of the Over-man dictum.
The majority places significant reliance upon the 1982 amendment to Section 1961 which explicitly exempts from its coverage “any judgment of any court with respect to any internal revenue tax case.” 28 U.S.C. § 1961(c)(1) (1982). This amendment, according to the majority, would have been unnecessary if post-judgment interest had not previously been calculated under Section 1961. A careful review of the legislative history significantly undercuts the majority’s position.
Section 1961 was amended to create “a realistic and nationally [sic] rate of interest on judgments in the Federal courts.” S.Rep. No. 275, 97th Cong., 1st Sess. 30, reprinted in 1982 U.S.Code Cong. & Ad. News 11, 40. The Senate bill sought to accomplish this by making the interest rate under Section 6621 applicable to all judgments. S. 1700, 97th Cong., 1st Sess. § 302(a)(2) (1981). The legislative history does not indicate why the proposed Senate amendment was not adopted or why Congress opted for the current version of Section 1961(a), which uses the yield rate of Treasury bills in determining the post-judgment interest rate, see 28 U.S.C. § 1961(a) (1982). Nevertheless, the exception clause must be read in light of Congress’ belief that the obtaining of a judgment on a tax lien does not affect the government’s rights under the lien. S.Rep. No. 1708, supra, 32-33; H.R.Rep. 1884, supra, at 30-31. Since the 1982 amendment reaffirms Congress’ view that a judgment does not affect the government’s rights under a tax lien, the amendment should not be interpreted as changing the existing law. Moreover, if Congress intended to change the law, I believe that some mention of this would have been made in the legislative history. Accordingly, I find the majority’s reliance upon the 1982 amendment to Section 1961 unpersuasive.
The majority next points out that a distinction has always been made between pre- and post-judgment interest. No case, however, has been cited by either party and I have been unable in my research to find any case distinguishing between pre- and post-judgment interest in the tax lien context. Further, such a distinction undermines Congress’ desire that a judgment have no effect on the tax lien. H.R.Rep. No. 1884, supra, at 31; Sen.Rep. No. 1708, supra, at 33. Consequently, the historical distinction between pre- and post-judgment interest is irrelevant to this case.
Finally, the majority argues that since Section 1961 applies to all “civil cases” and since tax cases are civil cases, Section 1961 must be applied. The application of Section 1961 to all types of claims is justified, because “[o]nce a claim is reduced to a judgment, the original claim is extinguished and merged into the judgment.... A single rule should govern interest on any such debt, the nature of the original claim having become irrelevant under the doctrine of merger.” Kotsopoulos v. Asturia Shipping Co., 467 F.2d 91, 95 (2d Cir.1972); see Restatement (Second) of Judgments § 17(1), comment a (1980). A “judgment” on a federal tax lien, however, does not have the same effect as a judgment in a civil case; the doctrine of merger is inapplicable. In fact, Congress has emphasized that judgments on federal tax liens are not to be treated like other civil judgments. S.Rep. No. 1708, supra, 32-33; H.R.Rep. No. 1884, supra, 30-31. Due to the limited effect which a judgment on a tax lien has and Congress’ intent to treat judgments on tax liens differently from other judgments, I do not believe that a “judgment on a *918federal tax lien is a “judgment” within the meaning of Section 1961.
For the foregoing reasons, I would affirm the district court’s holding that the interest in this case accrues at the rate specified by Section 6621.