Court Opinion

ID: 4665074
Source: CourtListenerOpinion
Date Created: 2021-03-05 01:00:41.671351+00
Date Added: 2024-06-11T08:02:39.987349
License: Public Domain

Case: 19-10186     Document: 00515766518         Page: 1    Date Filed: 03/04/2021

           United States Court of Appeals
                for the Fifth Circuit                                United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                        March 4, 2021
                                  No. 19-10186                         Lyle W. Cayce
                                                                            Clerk

   United States of America,

                                                            Plaintiff—Appellee,

                                      versus

   Thomas Roy Clark,

                                                        Defendant—Appellant.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                            USDC No. 2:17-CR-17

   Before Higginbotham, Costa, and Oldham.
   Gregg Costa, Circuit Judge:
          Thomas Clark owes more than half a million dollars in restitution for
   health care fraud. To recover some of this amount, the United States sought
   to garnish accounts Clark maintains with brokerage firms and life insurance
   companies.    The district court issued writs of garnishment for those
   accounts. Clark argues that two retirement accounts should not be garnished
   because of a law exempting “salary, wages, or other income . . . necessary to
   comply” with child-support orders. 26 U.S.C. § 6334(a)(8). Both sides
   agree the accounts are not “salary” or “wages.” So the issue on appeal is
Case: 19-10186      Document: 00515766518          Page: 2   Date Filed: 03/04/2021

                                    No. 19-10186

   whether the retirement accounts are “other income” within the meaning of
   this statute.
                                         I.
          Clark pleaded guilty to health care fraud after operating a chiropractic
   clinic that fraudulently billed insurance companies for services he performed
   without a license.    The district court sentenced Clark to 41 months’
   imprisonment and ordered him to pay the defrauded insurance companies
   $514,576.29 under the Mandatory Victim Restitution Act (MVRA). See 18
   U.S.C. § 3613(a).
          The Act generally allows the government to garnish any of the
   defendant’s property to satisfy a restitution order. United States v. Elashi,
   789 F.3d 547, 549 (5th Cir. 2015) (citing 18 U.S.C. § 3613(a)). Only certain
   categories of property are exempt. The restitution statute borrows these
   exemptions from the federal tax code. 18 U.S.C. § 3613(a)(1) (incorporating
   26 U.S.C. § 6334(a)). If the IRS cannot seize a particular type of property for
   failure to pay taxes, then in most cases the government cannot garnish that
   property to satisfy a defendant’s restitution obligation. See id. (“[P]roperty
   exempt from levy for taxes pursuant to section 6334(a)(1), (2), (3), (4), (5),
   (6), (7), (8), (10), and (12) of the Internal Revenue Code of 1986 shall be
   exempt from enforcement of the judgment under Federal law.”).
          Clark invokes one of those exemptions. It provides that a defendant
   who has a court-ordered child-support obligation can prevent the
   government from garnishing “so much of his salary, wages, or other income
   as is necessary to comply with” the child-support judgment. 26 U.S.C. §

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   6334(a)(8). Because Clark did not timely raise his other objections to the
   garnishment, 1 this appeal addresses only this child-support exemption.
           Clark estimates that he owes $1,000 per month in child support (his
   Presentence Report listed the figure as $634/month). He argues that funds
   he holds in two “retirement accounts” are exempt from garnishment to the
   extent that, if withdrawn, they would constitute “other income” he needs to
   meet these support obligations. One of the accounts is a revocable living trust
   with Edward D. Jones & Co. As of April 2018, the account had a “value of
   $4,486.05 comprised of shares of 3 mutual funds.” The other is an Individual
   Retirement Account (IRA) 2 with Southern Farm Bureau Life Insurance. In
   April 2018, it had a value of $52,825.57. We must determine if the district
   court properly granted a final garnishment order permitting the government
   to seize these funds to help satisfy Clark’s restitution debt.

           1
             A defendant must object to a writ of garnishment within twenty days of receiving
   notice from the court clerk. 28 U.S.C. § 3202(d). Clark obtained two extensions of this
   deadline. Still, several of his objections to the garnishment writs were made for the first
   time in a response filed after his extra time had already run out and the court had granted a
   final garnishment order.
            Clark also argues that the district court abused its discretion by declining to hold
   an evidentiary hearing on his objections to the government’s garnishment writs. He is not
   entitled to an evidentiary hearing, however, unless he “adequately demonstrate[s] the
   probable validity of [his] claim of exemption.” United States v. Stone, 430 F. App’x 365,
   368 (5th Cir. 2011) (per curiam). As we explain below, Clark has not made this showing.
           2
              An IRA is an account that offers tax advantages to individuals saving for
   retirement. Bittker, McMahon, & Zelenak, Federal Income Taxation
   of Individuals ¶ 40.05 (3d ed. 2020). Individuals who qualify can pay into a traditional
   IRA annually and deduct those contributions from taxable income, allowing the
   accountholder to avoid paying taxes on funds held in his IRA until he withdraws them,
   typically during retirement. Id. The funds in an IRA can be invested “in any type of
   financial assets other than life insurance or ‘collectibles.’” Id.

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                                            II.
          Although we generally review a district court’s garnishment order for
   abuse of discretion, we take a closer look when the appeal turns on an issue
   of statutory interpretation. That is because “[a] district court necessarily
   abuses its discretion if its conclusion is based on an erroneous determination
   of the law.” Elashi, 789 F.3d at 548. We therefore consider de novo whether
   Clark’s accounts qualify for the child-support exemption.
          The MVRA generally permits the government to garnish assets held
   in a retirement account, including an IRA, to satisfy a restitution order. See
   United States v. Berry, 951 F.3d 632, 636 (5th Cir. 2020). But we have not
   decided whether retirement account assets otherwise subject to garnishment
   may qualify as “salary, wages, or other income” exempt from seizure under
   section 6334(a)(8) when needed for child support. This question came up in
   a case last year, but we declined to answer it because that defendant had not
   demonstrated that his IRA assets were “necessary to comply with [a] child
   support judgment.” United States v. Dominguez, 820 F. App’x 312, 313 (5th
   Cir. 2020). In contrast, Clark, who was incarcerated and had no source of
   income when he challenged the garnishment, likely needed at least some of
   the money in his retirement accounts to meet his child-support obligations. 3
          To determine whether retirement account assets constitute “other
   income” beyond the government’s reach, we start with the law’s text. See
   United States v. Mahmood, 820 F.3d 177, 188 (5th Cir. 2016). The tax code
   does not provide a standalone definition of “income.” It instead targets
   “gross income,” which includes “all income from whatever source

          3
           If we were to hold that the accounts are “other income” within the meaning of
   the exemption, a hearing in the district court would be needed to determine how much
   money from those accounts Clark requires to meet his child-support obligations.

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   derived,” subject to specific exclusions.       26 U.S.C. § 61(a); see also
   Bittker, McMahon, & Zelenak, Federal Income Taxation
   of Individuals ¶ 3.01 (3d ed. 2020). The Supreme Court has explained
   that a taxpayer’s “gross income” encompasses all “undeniable accessions to
   wealth.”    Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955).
   Dictionaries likewise broadly define income to cover money received “from
   employment, business, investments, royalties, gifts, and the like.” Income,
   Black’s Law Dictionary (11th ed. 2019); see also Income,
   Webster’s Third New International Dictionary (2002)
   (defining income, in part, as “a gain or recurrent benefit that is usu[ally]
   measured in money and for a given period of time”).
          Despite these expansive definitions of income, income is a different
   category than assets.    An asset is “an item of value owned.” Asset,
   Webster’s Third New International Dictionary (2002).
   Assets themselves are usually not income, though assets often generate
   income. See Bittker et al. ¶ 34.01 (describing “stocks, bonds, real
   estate, or other income-producing assets”). Consider an asset like real
   estate. The value of a home is not income, though rental payments the home
   might “periodically” generate would be income. 26 U.S.C. § 61(a)(5).
          A bank or investment account is similar. The corpus of the account—
   amounts previously deposited into the account which counted as income
   when they were first received by the accountholder—is an asset but not
   income. Cf. Usery v. First Nat’l Bank of Ariz., 586 F.2d 107, 110–11 (9th Cir.
   1978) (holding that money deposited into a bank account no longer
   constituted “earnings” under the Consumer Credit Protection Act);
   Citronelle-Mobile Gathering, Inc. v. Watkins, 934 F.2d 1180, 1191 (11th Cir.
   1991) (checks received for personal services no longer considered
   “compensation” under state law “once commingled with other funds” in a
   bank account). The accountholder does not have to keep paying tax on the

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   corpus of the account every year. But the money the corpus generates each
   year—whether as interest, dividends, or capital gains—is income. 26 U.S.C.
   §§ 61(a)(3), (4), (7).
          Under this basic distinction between income and assets, the corpus of
   a typical bank or brokerage account would not be considered “other
   income.”     Perhaps this is why Clark does not seek the child-support
   exemption for most of the accounts the government seeks to garnish.
          The “income” question is not so simple, however, when it comes to
   Clark’s IRA. But see United States v. Jones, 2013 WL 1151494, at *7 (D. Kan.
   Jan. 29, 2013) (concluding without detailed analysis that IRA funds were not
   exempt as “other income” under section 6334(a)(8)). The corpus of a
   traditional IRA was never taxed as income. See supra note 2. So when an
   individual withdraws money from a traditional IRA, that distribution—the
   corpus as well as any gains—is taxed. 26 U.S.C. § 408(d)(1). The same is
   true when assets in an IRA are garnished to satisfy the accountholder’s debt
   rather than distributed to the accountholder directly. Vorwald v. Comm’r,
   1997 WL 5788, at *1 (T.C. Jan. 8, 1997) (citing Helvering v. Horst, 311 U.S.
   112, 116 (1940)); see also 26 C.F.R. § 1.408–4. Because the garnishment
   “discharge[s] a legal obligation” owed by the accountholder, the amount of
   the debt discharged is considered part of the accountholder’s income.
   Vorwald, 1997 WL 5788, at *1 (citing Old Colony Tr. Co. v. Comm’r, 279 U.S.
   716, 729 (1929)).
          Looking solely at the ordinary definition of “income” thus does not
   resolve whether a retirement account qualifies. As a result, we turn to canons
   of construction to help resolve the uncertainty.
          One familiar canon instructs us to view “other income” more
   narrowly in the context of section 6334(a)(8). When confronted with a list of
   specific terms that ends with a catchall phrase, courts should often limit the

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   catchall phrase to “things of the same general kind or class specifically
   mentioned.” Antonin Scalia & Bryan A. Garner, Reading
   Law: The Interpretation of Legal Texts 199 (2012). Section
   6334(a)(8) offers a textbook example of this ejusdem generis principle,
   indicating that we should read “salary, wages, and other income” as “salary,
   wages, and other [similar] income.” See United States v. Koutsostamatis, 956
   F.3d 301, 308 (5th Cir. 2020).
          The Sixth Circuit did just that, concluding that an inheritance was not
   protected from an IRS levy as “other income” under section 6334(a)(8)
   because “an inheritance is not in the same category as salary and wages.”
   Woods v. Simpson, 46 F.3d 21, 24 (6th Cir. 1995). The Woods court held that
   “other income” must instead be limited to “items received by individuals for
   services rendered, such as bonuses, tips, commissions, and fees.” Id.; see also
   United States v. Taylor, 2001 WL 1172185, at *1–2 (N.D. Tex. Sept. 27, 2001)
   (holding that funds withdrawn from the defendant’s bank account as cash
   and a certified check did not constitute “other income” under section
   6334(a)(8)).
          Another part of the levy exemption statute reinforces the conclusion
   that “other income” should be limited to things like salary or wages that are
   received for “services rendered.” Woods, 46 F.3d at 24. The subsection of
   the statute immediately following the child-support exemption allows, for tax
   but not restitution purposes, 4 a minimum exemption for “wages, salary, and
   other income.” 26 U.S.C. § 6334(a)(9). The rules for calculating this
   minimum exemption further demonstrate that “other income” is income
   akin to salary and wages. See id. § 6334(d). In calculating the minimum

          4
             The MVRA does not incorporate section 6334(a)(9), so a defendant cannot claim
   this exemption to defend against a writ of garnishment issued to satisfy a restitution
   obligation. See 18 U.S.C. § 3613(a)(1).

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   exemption, the statute first addresses individuals who are “paid or receive[]
   all of [their] wages, salary, and other income on a weekly basis.” Id. §
   6334(d)(1). The only other situation is when the taxpayer receives income
   not weekly but still “during any applicable pay period or other fiscal period.”
   Id. § 6334(d)(3).    And in that case, which still contemplates periodic
   payments, the exempt amount must be calculated “as nearly as possible [to]
   result in the same total exemption from levy for such individual . . . [as if] he
   were paid or received such wages, salary, and other income on a regular
   weekly basis.” Id.
          Calibrating the minimum exemption to a weekly amount makes sense
   for salary, wages, and even less consistent (but still usually periodic)
   payments for services rendered like “bonuses, tips, commissions, and fees.”
   Woods, 46 F.3d at 24 (recognizing that section 6334(d) makes “clear[]” that
   “other income” refers to these types of income). It does not make much
   sense for the one-time liquidation of an investment account. And if an
   investment account is not “other income” for the exemption in subsection
   6334(a)(9), then it should not be “other income” for the child-support
   exemption that directly precedes it. Sorenson v. Sec’y of Treas., 475 U.S. 851,
   860 (1986) (“The normal rule of statutory construction assumes that
   identical words used in different parts of the same act are intended to have
   the same meaning.” (citation omitted)); see also United States v. Grigsby, 2015
   WL 471248, at *2 (D. Kan. Feb. 4, 2015) (noting that section 6334(a)(8) did
   not support an exemption for pension account funds that “may be distributed
   as a lump sum payment” rather than periodically).
          We thus agree with the Sixth Circuit that the child-support exemption
   only applies to money akin to salary and wages—meaning amounts received
   directly for labor such as “bonuses, tips, commissions, and fees.” Woods, 46
   F.3d at 24. That does not describe Clark’s retirement accounts, so the
   judgment garnishing those accounts is AFFIRMED.

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