Court Opinion

ID: 9466420
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:15:08.571289+00
Date Added: 2024-06-11T17:39:43.265077
License: Public Domain

KEITH, Circuit Judge,
concurring.
I concur in part I and most of part II of Judge Celebrezze’s well-done opinion.
It is with reluctance that I vote to affirm. There is no reasonable excuse for the government’s long delay in proceeding to collect against the defendant. Nonetheless, I must agree that established case law makes laches unavailable here to halt the government’s suit.
The statute of limitations question is closer, however. I.R.C. § 6502 provides a six-year statute of limitations from the date of assessment to the levy of “any tax.” Judge Celebrezze states that the government action in this case was not to collect a tax, “but rather is to enforce the personal liability for failure to surrender property after receiving a notice of levy.” This is literally true. However, I would construe § 6502 as applying to third-party enforcement actions under § 6332. The plain language of § 6502 states that “[any] tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun within six years after the assessment of the tax . . . .” It should make no difference whether collection of the tax is against the taxpayer himself or against a third-party who has the taxpayer’s property. In my view, the situation under § 6502 is analogous to that of a transferee taxpayer. In United States v. Updike, 281 U.S. 489, 494, 50 S.Ct. 367, 74 L.Ed. 984 (1930), the Supreme Court held that the limitations period applied to a transferee taxpayer in language which is fully applicable here:
It seems plain enough, without stopping to cite authority, that the present suit, though not against the corporation but against its transferees to subject assets in their hands to the payment of the tax, is in every real sense a proceeding in court to collect a tax. The tax imposed upon the corporation is the basis of the liability, whether sought to be enforced directly against the corporation or by suit against its transferees. The aim in the one case, as in the other, is to enforce a tax liability . . . . Indeed, when used to connote payment of a tax, it puts no undue strain upon the word “taxpayer” to bring within its meaning that persons whose property, being impressed with a trust to that end, is subjected to the burden. Certainly it would be hard to convince such a person that he had not paid a tax.
In my view, the six year limitations period should be deemed-to run from the date of assessment of the tax against a third party; the IRS should have no more than *624six years to either seize the property or begin legal proceedings. It is true that this suggested construction results in some anomaly in that if the IRS obtains a judgment against the principle taxpayer, then no statute of limitations bar exists on enforcement of the judgment. The IRS can go after the taxpayer’s property, almost wherever it is. This, however, is an anomaly which currently exists regarding transferee liability. See Hall v. United States, 403 F.2d 344 (5th Cir. 1968), cert. denied, 394 U.S. 958, 89 S.Ct. 1306, 22 L.Ed.2d 560 (1969); United States v. Oscar Frommel & Bro., 50 F.2d 73 (2d Cir.), cert. denied, 284 U.S. 647, 52 S.Ct. 25, 76 L.Ed. 549 (1931).
On balance, I think that construing the statute in this manner is a fair way to harmonize the Internal Revenue Code and the multiplicitous fact situations which arise: 1) property is in the hands of the taxpayer — the IRS, by the express terms of § 6502 has six years from assessment to seize the taxpayer’s property or file suit; 2) property is in the hands of a transferee taxpayer — Updike mandates compliance with § 6502; 3) property is in the hands of a third party such as the defendant, I don’t think that the result should be different; § 6502 should apply as well.
Unfortunately, as Judge Celebrezze notes, this suggested construction does not help the defendant. The reason is that unlike real or personal property, the property in this case was an intangible debt owed by a third party (Weintraub) to the taxpayer. The government served a notice of “demand” upon the defendant third party pursuant to § 6332, requesting that he turn over to the government any money owed to taxpayer Frank J. Andrews. There is no doubt that this “demand” was made within six years of the initial assessment against Andrews. The case law seems clear that the serving of this “demand” was the equivalent of a seizure of the debt and, as Judge Celebrezze says, “reduces the property or property right ... to the constructive possession of the United States.”
Were we writing on a clean slate, I would prefer requiring the government to bring suit within the six year limitations period, at least when, dealing with an intangible debt. When dealing with real or personal property, the government can physically seize the property. However, as Judge Hastie said in In re Cherry Valley Homes, Inc., 255 F.2d 706, 707 (3d Cir.), cert. denied, 358 U.S. 864, 79 S.Ct. 96, 3 L.Ed.2d 97 (1958), “. . . the possessory concept of ‘seizure’ is not strictly applicable to a debt . .” In such situations, I would hold the mere serving of a notice of “demand” insufficient to operate as a seizure and would require the government to file suit.
The case law, however, clearly establishes that the opposite is true. The serving of the notice of levy operates to reduce property or property rights to the constructive possession of the government. This was the effective holding of Miller v. United States, 11 Wall 268, 297, 78 U.S. 268, 297, 20 L.Ed. 135 (1870) where the Court stated that:
In all cases where the garnishee is a debtor, or where the garnishment is of stocks, it is effected by serving notice upon the debtor, or corporation . . . The service of an attachment, though it is but a notice, binds the debt or the stock in the hands of the garnishee, from the time of the service, and henceforward it is potentially in “gremio legis.”
Although § 6332 uses the term “demand” instead of the term “levy,” it is clear that a “demand” upon a third party operates as a levy or seizure so far as property rights are concerned. This has the effect of reducing the property or property rights to the constructive possession of the United States. Phelps v. United States, 421 U.S. 330, 335-37, 95 S.Ct. 1728, 44 L.Ed.2d 201 (1975). See Am. Acceptance Corp. v. Glendora Better Builders, 550 F.2d 1220, 1222-23 (9th Cir. 1977); Matter of Rowand Co., 414 F.Supp. 1155, 1156-57 (E.D.Ark.1976) (Henley J.).
Given this authority, all that the government had to do to comply with the six year statute of limitations was to serve a timely levy (demand) upon the defendant debtor. There is no question that this was done. As *625Judge Celebrezze points out, ante at pp. 620-621, the government could then wait as long as it wished to bring the instant proceeding, over twelve years later, to enforce the constructive seizure of the debt accomplished by the initial demand. In effect, the government was collecting what it had constructively seized twelve years earlier. Judge Merritt whimsically argues that this construction of the statute is irrational. He is perhaps correct, but that is the law.