Court Opinion

ID: 9487962
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:31:44.838661+00
Date Added: 2024-06-11T17:52:35.404159
License: Public Domain

KLEINFELD, Circuit Judge,
dissenting:
I respectfully dissent. I would affirm the district court’s judgment in favor of the trustee, Mr. Hemmen.
Mr. Al-Hadid, not Mr. Hemmen, owed the taxes. Mr. Hemmen can be obHgated only if, when the IRS levied upon him in 1985, he then owed Mr. Al-Hadid a fixed and deter*893minable sum of money. When the IRS levied on Hemmen in 1985, Hemmen could not have paid Al-Hadid any money, and could not have paid the IRS any money. The two court orders purported to . award $30,000 in administrative expenses to Al-Hadid, but did not allow payment of any money to Al-Hadid except upon subsequent order, and did not establish that $30,000 would be the amount payable. In fact, Al-Hadid never became entitled to the $30,000 “allowed.” Instead, in 1987 the distribution to Al-Hadid was $13,-535.91.
The actual notice' of levy issued in 1985 ordered Hemmen to pay “money ... now in your possession and belonging to this taxpayer [Al-Hadid] (or for which you are obligated) and all money or other obligations owing from you to this taxpayer,” up to $93,576.93. If the majority analysis is correct, then the implication must be that when Hemmen received this notice of levy, he should have sent a check to the IRS for $30,000, the amount then subject to Al-Hadid’s administrative expense award. That would plainly have been mistaken. It would have been almost three times too much money, and could not have properly been disbursed at that time.
The IRS, like any other creditor, had either to seek dissolution of the automatic stay in bankruptcy and some special relief, or else await distribution when all creditors’ entitlements became final. See 1A Collier on Bankruptcy ¶ 12.06[1] (15th ed. 1993) (“The automatic stay prohibits the IRS and other creditors from taking actions which are detrimental to the bankruptcy estate or which result in a creditor changing the nature or priority of a claim after the bankruptcy petition is filed.... [T]he IRS cannot take any action to obtain possession of property of the estate or to obtain control over property of the estate”); see also id. at ¶ 12.06[4] (“The automatic stay is extremely broad in scope, and applies to almost any type of collection action against the debtor or property of the bankruptcy estate. Thus the functions of the Collection Division of the IRS are those which are the most severely curtailed by the filing of a case under title 11.”).
The IRS could not properly levy against the bankruptcy estate in 1985, because of the automatic stay. Congress prohibited just such an act as the levy which was made:
(a) Except as provided in subsection (b) of this section, a petition filed ... operates as a stay, applicable to all entities, of—
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate
11 U.S.C. § 362(a); 11 U.S.C. § 101(15) (“ ‘entity1 includes person, estate, trust, governmental unit, and United States Trustee”). The reader will notice that exceptions to the automatic stay are listed in subsection (b). The list includes an exception for “issuance to the debtor by a governmental unit of a notice of tax deficiency.” 11 U.S.C. § 362(b)(9). There is no exception for notices of levy. The tax regulations expressly prohibit a levy upon assets in the custody of the court in a bankruptcy proceeding, “except where the proceeding has progressed to such a point that the levy would not interfere with the work of the court or where the court grants permission to levy.” 26 C.F.R. § 301.6331-l(a)(3); see also 1A Collier on Bankruptcy ¶ 12.06[4] (“The IRS is not permitted to mail postpetition Notices of Intent to Levy any assets of the debtor-”). I see no way that the IRS could in 1985, consistently with the automatic stay statute, take money from Hemmen on its levy which might arguably be due to Al-Hadid, even if the amount to be taken could have been ascertained in 1985.
Even if it had been lawful for the IRS to levy on an account due to Mr. Al-Hadid in 1985, no such account existed in Mr. Hem-men’s hands. The regulation provides that a third party obligation has to be “fixed and determinable” to be subject to levy, and a levy has no effect on money subsequently coming into the third party’s possession.
Levy may be made by serving a notice of levy on any person in possession of, or obligated with respect to, property or rights to property subject to levy, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions, or other compensation. Except as provided in § 301.6631-2(c) with regard to a levy on salary or wages, a levy *894extends only to property possessed and obligations, which exist at the time of the levy. Obligations exist when the liability of the obligor is fixed and determinable although the right to receive payment thereof may be deferred until a later date. For example, if on the first day of the month a delinquent taxpayer sold personal property subject to an agreement that the buyer remit the purchase price on the last day of the month, a levy made on the buyer on the tenth day of the month would reach the amount due on the sale, although the buyer need not satisfy the levy by paying over the amount to the district director until the last day of the month. Similarly, a levy only reaches property in the possession of the person levied upon at the time the levy is made. For example, a levy made on a bank with respect to an account of a delinquent taxpayer is satisfied if the bank surrenders the amount of the taxpayer’s balance at the time the levy is made. The levy has no effect upon any subsequent deposit made by the taxpayer. Subsequent deposits may be reached only by a subsequent levy on the bank.
26 C.F.R. § 301.6331-l(a)(l) (emphasis added). In 1985, when the IRS levied, the bankruptcy trustee’s obligation to Mr. Al-Hadid was not yet “fixed” and “determinable.” It was capped at $30,000, but not fixed at that or any other amount, and no one could then determine how much money Mr. Al-Hadid would get. The amount became fixed in 1987, when it was determined to be a much lower amount, $13,535.91.
' The two examples provided in the regulation illustrate what the words “fixed and determinable” mean. Mr. Al-Hadid’s $13,-535.91 is not like the amount to become payable at the end of the month from the real estate buyer. That amount is fixed and determined, even though not yet payable. The $13,535.91 is more closely analogous to the subsequently made bank deposit. The earlier levy does not make the bank liable to the IRS for the later deposit. The bank does not need to keep track of deposits into the taxpayer’s account as they come in from the taxpayer or third parties and remit them to the IRS. Instead, a levy has no effect on a subsequent deposits. Mr. Hemmen is analogous to the bank, a third party which from time to time owes money to the taxpayer. True, he would foreseeably owe something as of 1985 when the levy was made, but the obligation was not fixed, and he could not determine how much it would be until 1987, long after the levy.
The IRS should have acted to get its money when the trustee sent it the notice of hearing in 1987.