Court Opinion

ID: 9480456
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:48:34.399595+00
Date Added: 2024-06-11T17:47:42.140724
License: Public Domain

WALLACE, Circuit Judge,
concurring in part and dissenting in part:
I concur in parts I and II of the majority opinion. However, because I do not think Rainier should be penalized for litigating this case, I dissent from part III of the majority opinion.
As the majority explains, supra at 1331, a penalty should not be imposed “in cases where [a] bona fide dispute exists concerning the ... legal effectiveness of the levy.” 26 C.F.R. § 301.6332-l(b)(2) (1989). Elaborating on this standard, the majority adopts the Second Circuit’s conclusion in United States v. Sterling Bank & Trust Co., 494 F.2d 919 (2d Cir.1974), that a bona fide legal dispute exists when there is “an unsettled question of law.” Id. at 923. I agree with the majority that whether this case presents an unsettled question of law is the proper focus for our inquiry. However, I cannot concur in the majority’s application of that standard in this case.
The majority concludes that this case does not present an unsettled question of law because “[t]he law is settled that a levy may effectively reach property on which a federal tax lien has attached regardless of any subsequent transfer of the property.” Supra at 1332. This conclusion, however, conflates an issue that is settled with one that is not: it is well-established that a lien continues to attach to a taxpayer’s property regardless of any subsequent transfer of that property, see, e.g., United States v. Bess, 357 U.S. 51, 57, 78 S.Ct. 1054, 1058, 2 L.Ed.2d 1135 (1958) (Bess); United States v. Oil Resources, Inc., 817 F.2d 1429, 1433 n. 3 (9th Cir.1987) (Oil Resources); Omnibus Financial Corp. v. United States, 566 F.2d 1097, 1103 (9th Cir.1977) (Omnibus Financial), but it is not settled that a levy may be made on property on which there is a lien but which is no longer in the possession of the taxpayer. Only the latter issue is contested in this case; and, while I concur with the majority’s resolution of the issue, see supra, part II, I submit that the reasoning employed to reach that resolution is more novel than the majority modestly implies by claiming the issue is well-settled.
As the majority relates, Rainier argues that the language of 26 U.S.C. § 6331(a), which clearly states that the government may “levy upon all property and rights to property ... belonging to [the taxpayer] or on which there is a lien,” (emphasis added) is limited by the language of 26 U.S.C. § 6331(b) which provides that “a levy shall extend only to property possessed and obligations existing at the time thereof.” Section 6331(b) cuts back on section 6331(a), Rainier contends, by permitting a levy to *1334extend only to property and rights to property that belong to the taxpayer at the time of the levy. Plainly, on its face, section 6331(b) does not indicate whether a levy extends only to a taxpayer’s property possessed at the time of the levy or whether a levy extends only to property possessed by any person at the time of the levy. Although I agree with the majority that the latter reading is the proper interpretation of the statutory gap, I do not think Rainier’s interstitial argument is as implausible as the majority suggests.
Rainier’s interpretation of section 6331(b) has some support in that section’s legislative history. The Senate Report accompanying the Federal Tax Lien Act of 1966 states:
the bill adds a sentence specifying that this right to levy extends only to property Of the taxpayer and in the possession of the person on whom the levy is made, or obligations to the taxpayer of the person on whom the levy is made which are existing at the time of the levy.
S.Rep. No. 1708, 89th Cong., 2d Sess., reprinted in 1966 U.S.Code Cong. & Admin. News 3722, 3738 (emphasis added). Because the legislative history uses the conjunctive “and" rather than a disjunctive “or” between the two prepositional phrases modifying/describing the property to which a levy may extend, it suggests, as Rainier contends, that a levy may only extend to property if two requirements are met: first, the property must be property of the taxpayer, and second, the property must be in the possession of the person on whom the levy is made. See 14 J. Mertens, The Law of Federal Income Taxation, § 49E.20 (1989) (“A levy extends only to property possessed at the time of the levy, which is property of the taxpayer and in possession of the person on whom the levy is made, and obligations existing at the time of the levy.”) (emphasis added).
Rainier’s contention also finds support in some opinions of our sister circuits. For example, in United States v. Bank of Celina, 721 F.2d 163 (6th Cir.1983) (Bank of Celina), the government brought an action to foreclose a tax lien pursuant to 26 U.S.C. § 7403 and to enforce a levy pursuant to 26 U.S.C. § 6331. Id. at 165. Since the government relied “solely upon its lien to support its claim of entitlement,” the court did not reach the levy issue. Id. at 166-67. However, in distinguishing between a lien foreclosure suit and a levy enforcement action, the court stated that “[t]he levy extends only to the taxpayer’s property that is possessed at the time of service. 26 U.S.C. § 6331(b).” Id. at 166 (emphasis added). The court went on to conclude that the government’s lien entitled it to the money which the bank had tried to set off, holding that “once a federal tax lien has attached to a taxpayer’s property, that property remains subject to the lien when transferred from the taxpayer to a third party.” Id. at 169. That the court pronounced this holding, however, should not be surprising. As I stated above in describing the two issues which the majority mistakenly conflates, it is well-settled that a lien attaches to property regardless of any subsequent transfer. See, e.g., Bess, 357 U.S. at 57, 78 S.Ct. at 1058; Oil Resources, 817 F.2d at 1433 n. 3; Omnibus Financial, 566 F.2d at 1103. But, in this case, there is no argument, indeed Rainier concedes, that the government could have prevailed in a lien foreclosure action. The issue here is the scope of a levy enforcement action and the language from Bank of Celina — a case mistakenly cited by the majority for the proposition that its resolution of the levy issue is well-established— suggests that Rainier is correct: a levy only extends to the taxpayer’s property.
United States v. Cache Valley Bank, 866 F.2d 1242 (10th Cir.1989), is another lien enforcement action with language supporting Rainier’s interpretation of section 6331(b). In Cache Valley Bank, the Tenth Circuit, also distinguishing a lien foreclosure action from a levy action, interpreted section 6331(b) to mean that “[t]he levy itself is effective only against those funds present in the taxpayer’s account at the time the levy was received.” Id. at 1245 (emphasis in original), citing Bank of Celina, 721 F.2d at 166; 26 U.S.C. § 6331(b).
The Third Circuit’s decision in Pittsburgh National Bank v. United States, 657 F.2d 36 (3d Cir.1981), also lends support to Rainier’s interpretation of 6331(b). *1335There, the Bank brought a wrongful levy action against the government, contending that the government’s levy was improper because the taxpayer did not have a property interest in his account at the time of the levy. Id. at 37-38. The Third Circuit agreed, concluding that “[i]f the taxpayer did not have a property interest in the checking account under Pennsylvania law, the district court’s determination that the Government’s levy was wrongful must be affirmed.” Id. at 38. Finding that the taxpayer did not have a property interest in his bank account, the court invalidated the levy. Id. at 40. Thus, like Bank of Celina and Cache Valley Bank, Pittsburgh National Bank makes it clear that Rainier’s proffered interpretation of 6331(b) does not struggle against an overwhelming tide of well-settled authority as the majority suggests.
My contention that the legislative history and the language in these three decisions from our sister circuits render unsettled the proper interpretation of section 6331(b)’s facially ambiguous language is further bolstered by the fact that the majority points to no case that has adopted our interpretation of section 6331(b) as its holding. The majority does cite five cases to support its conclusion that our decision is only following well-settled authority, supra at 1332, but none of the five are on point. Neither Bess, Oil Resources, nor Omnibus Financial even consider the language of section 6331. As previously discussed, those three cases stand only for the proposition that a lien attaches to a taxpayer’s property regardless of any subsequent transfer — a proposition that is not disputed in this case. Another of the five is Bank of Celina, but, as I explained above, that case involved a lien foreclosure action not a levy action, and when the court did discuss section 6331(b), its interpretation supported Rainier.
The fifth case cited by the majority, Myers v. United States, 647 F.2d 591 (5th Cir.1981), does have language supporting our interpretation of section 6331(b). Id. at 601 (A “levy and seizure need not be accomplished while the property is in the hands of the taxpayer; so long as the property is subject to a valid federal tax lien, it may be seized in the hands of any subsequent purchaser.”). However, the only issue presented in Myers was whether the prescribed levy procedures violated an individual’s right to procedural due process because “they permit the seizure of private property without a preseizure hearing or a prompt and adequate postseizure hearing.” Id. at 602. Thus, the court was not required to resolve the issue with which we are faced in this case. In sum, the majority has directed us to no case which directly refutes the interpretation of section 6331(b) Rainier has offered — an interpretation which itself is not unsupported by language from the decisions of our sister circuits. Under these circumstances, it is simply incorrect to suggest that the issue before us is well-settled.
While I completely support our interpretation of section 6331(b), I cannot overlook the fact that it is novel, that the legislative history suggests a contrary interpretation, and that our interpretation goes against language in the decisions of our sister circuits. In essence, this is a case of first impression in which we were required to interpret a poorly-drafted facially ambiguous statute. I, therefore, respectfully dissent from the majority’s conclusion that our interpretation of section 6331(b) is well-settled and the majority’s consequent decision to penalize Rainier for litigating this case.