- Sovereignty Forms and Procedures Manual, Section 2.5.4.21: Challenge All Liens and Levies
- Sovereignty Forms and Instructions, Step 4.21: Challenge All Liens and Levies
Sovereignty Forms and Instructions Online, Instruction 4.21: Challenge all Liens and Levies
Title 26, Appendix, Title XXXII: Lien and Levy Actions
IRS Not Following Proper Levy Procedures-Treasury Inspector General Report!
IRS Levy Forms:
TITLE 26 > Subtitle F > CHAPTER 79 > Sec. 7701.
(a)(21) Levy
The term ''levy'' includes the power of distraint and seizure by any means.
26 U.S.C. §6332: Period of lien
26 U.S.C. §6334: Property exempt from levy
26 U.S.C. §6335: Sale of seized property
26 U.S.C. §6343: Authority to release levy and return property
26 U.S.C. §6332(c): Requires COURT ORDER!
TITLE 26 > Subtitle F > CHAPTER 64 > Subchapter D > PART II > § 6332
§ 6332. Surrender of property subject to levy(c) Special rule for banks Any bank (as defined in section 408 (n)) shall surrender (subject to an attachment or execution under judicial process) any deposits (including interest thereon) in such bank only after 21 days after service of levy.
42 U.S.C. §1717: Assignment of benefits; execution, levy, etc., against benefits
TITLE 42 > CHAPTER 12 > SUBCHAPTER II > § 1717
§ 1717. Assignment of benefits; execution, levy, etc., against benefits
The right of any person to any benefit under subchapter I of this chapter shall not be transferable or assignable at law or in equity except to the United States, and none of the moneys paid or payable (except money paid hereunder as reimbursement for funeral expenses or as reimbursement with respect to payments of workmen’s compensation or in the nature of workmen’s compensation benefits), or rights existing under said subchapter, shall be subject to execution, levy, attachment, garnishment, or other legal process or to the operation of any bankruptcy or insolvency law.
levy, v: (Black's Law Dictionary, Sixth Edition, page 907)
To assess; raise; execute, exact; tax; collect; gather; take up; seize. Thus, to levy (assess, exact, raise, or collect) a tax; to levy (raise or set up) a nuisance; to levy (acknowledge) a fine; to levy (inaugurate) war; to levy an execution, i.e., to levy or collect a sum of money on an execution.
levy, n: (Black's Law Dictionary, Sixth Edition, page 907) A seizure.
The obtaining of money by legal process through seizure and sale of property; the raising of the money for which an execution has been issued.
The process whereby a sheriff or other state official empowered by writ or other judicial directive actually seizes, or otherwise brings within her control, a judgment debtor's property which is taken to secure or satisfy the judgment.
In reference to taxation, the word may mean the legislative function and declaration of the subject and rate or amount of taxation. People v. Mahoney, 13 Cal.2d 729, 91 P.2d 1029; or the rate of taxation rather than the physical act of applying the rate to the property, Lowden v. Texas County Excise Board, 187 Okl. 365 103 P.2d 98, 100; or the formal order, by proper authority declaring property subject to taxation at fixed rate at its assessed valuation, State v. Davis, 335 Mo. 159, 73 S.W.2d 406, 407; or the ministerial function of assessing, listing and extending taxes, City of Plankinton v. Kieffer, 70 S.D. 329, 17 N.W.2d 494, 495, 496; or the extension of the tax, Day v. Inland Steel Co., 185 Minn. 53, 239 N.W. 776, 777; or the doing of whatever is necessary in order to authorize the collector to collect the tax, Syracuse Trust Co. v. Board of Sup'rs of Oneida County, 13 N.Y.S.2d 390, 394. When used in connection with authority to tax, denotes exercise of legislative function, whether state or local, determining that a tax shall be imposed and fixing amount, purpose and subject of the exaction. Carkonen v. Williams, 76 wash.2d 617, 458 P.2d 280, 286. The qualified electors "levy" a tax when they vote to impose it.
See also Assess; Assessment; Tax.
Internal Revenue Manual, Section 5.11: Notice of Levy
Prerequisites to levy and seizure
- Notice of Federal Tax Lien, 26 U.S.C. §6322.
- Notice of Assessment, Treasury Decision 1995 (This is to be established by making a special FOIA request to the Department of the Treasury).
- Notice and Demand for payment, 26 U.S.C. §6303. See also 26 CFR §301.6303-1(a).
- Notice of Intent to Levy, 26 U.S.C. §6331(d). See also 26 CFR §301.6331-1(a)(1) for levy made upon outstanding federal tax lien.
- Levy, 26 U.S.C. §6331, and 26 CFR §301.6331-1(c)-service of notice of levy by mail.
- Notice of Seizure, 26 U.S.C. §6502(b), and 26 U.S.C. §6335(a). See also 26 CFR §301.6502-1(b)
Applicable to Real and certain personal property
- Notice of Sale, 26 U.S.C. §6335(b).
- Manner and Condition of Sale, 26 U.S.C. §6335(e)
- Redemption of property, within 180 days after sale, 26 U.S.C. §6337(a)(1).
26 U.S.C., Subchapter D - Seizure of Property for Collection of Taxes
Sec. 6331. Levy and distraint
(a) Authority of Secretary
If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section.
(b) Seizure and sale of property
The term ''levy'' as used in this title includes the power of distraint and seizure by any means. Except as otherwise provided in subsection (e), a levy shall extend only to property possessed and obligations existing at the time thereof. In any case in which the Secretary may levy upon property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible).
Freeman v. Mayer, 152 F.Supp. 383 (1957):
A "levy" requires that property be brought into legal custody through seizure, actual or constructive, levy being an absolute appropriation in law of property levied on, and mere notice of intent to levy is insufficient. United States v. O'Dell, 6 Cir., 1947, 160 F.2d 304, 307. Accord, In re Holdsworth, D.C.N.J. 1953, 113 F.Supp. 878, 888; United States v. Aetna Life Ins. Co. of Hartford, Conn., D.C.Conn. 1942, 146 F.Supp. 30, 37, in which Judge Hincks observed that he could "find no statute which says that a mere notice shall constitute a 'levy.'" There are cases which hold that a warrant for distraint is necessary to constitute a levy. Givan v. Cripe, 7 Cir., 1951, 187 F.2d 225; United States v. O'Dell, supra. The Court of Appeals for the Third Circuit state in is opinion, 221 F.2d at page 642, "These sections [26 U.S.C. §§3690-3697] require that levy by a deputy collector be accompanied by warrants of distraint [issued by a judge in a legal proceeding]." In re Brokol Manufacturing Co., supra.
I am constrained to conclude that a levy upon both tangible and intangible property under §3692 requires the execution of warrant for distraint and then effective only to amounts affixed thereon. As noted above, the Court of Appeals for this Circuit declared when this matter was before it that §§3690-3697 "require that a levy by a deputy collector be accompanied by warrants of distraint."
The distress authorized by §3690 is different from anything know to the common law, both because it authorizes sale of the property seized, and because it extends to other personality than chattels. By its very nature it requires that demands of procedural due process of law be rigorously honored.
26 U.S.C. Sec. 6502(b): "The date on which a levy on property or the rights to property is made shall be the date on which the notice of seizure ... is given."
20 Fed. Proc. L Ed §48.548. WHAT MAY BE LEVIED UPON.
“…[W]ith regard to a levy on salary or wages [26 U.S.C.S. §6331(e)(1); 26 CFR §301.6331-2(c )] a levy extends only to property possessed and obligations existing at the time of the levy [26 U.S.C.S. §6331(b); 26 CFR §301.6331-1(a)(1)]. Levy may be made upon the salaries of federal, [26 U.S.C.S. §6331(a)] state, and municipal, [26 CFR §301.6331(a)(4)(ii)] employees and a pension payable to a former state employee may be levied upon [Revenue Ruling 55-226, 1955-1 CB551].”
Sims v. United States, 359 U.S. 108 (1959)
Nothing in the Constitution requires that the salaries of state employees be treated any differently, for federal tax purposes, than the salaries of others, Helvering v. Gerhardt, 304 U. S. 405; Graves v. New York ex rel. O'Keefe, 306 U. S. 466, and it is quite clear, generally, that accrued salaries are property and rights to property 111*111 subject to levy.[4] In plain terms, § 6331 provides for the collection of assessed and unpaid taxes "by levy upon all property and rights to property" belonging to a delinquent taxpayer.[5] Pursuant to that statute a regulation was promulgated expressly interpreting and declaring § 6331 to authorize levy on the accrued salaries of employees of a State to enforce collection of any federal tax.[6]
Although not disputing these principles, petitioner advances two arguments in support of his claim that the statutes do not authorize a levy on the accrued salaries of employees of a State. First, he contends that a State is not a "person" within the meaning of § 6332, and, second, he argues that Congress, by specifically authorizing in § 6331 a levy "upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality" thereof, but not similarly specifically authorizing levy upon the accrued salaries or wages of 112*112 employees of a State, evinced its intention to exclude the latter from such levies.
Though the definition of "person" in § 6332 does not mention States or any sovereign or political entity or their officers among those it "includes" (Note 3), it is equally clear that it does not exclude them. This is made certain by the provisions of § 7701 (b) of the 1954 Internal Revenue Code that "The terms `includes' and `including' when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined." 26 U. S. C. (Supp. V) § 7701 (b). Whether the term "person" when used in a federal statute includes a State cannot be abstractly declared, but depends upon its legislative environment, Ohio v. Helvering, 292 U. S. 360, 370; Georgia v. Evans, 316 U. S. 159, 161. It is clear that § 6332 is stated in all-inclusive terms of general application. "In interpreting federal revenue measures expressed in terms of general application, this Court has ordinarily found them operative in the case of state activities even though States were not expressly indicated as subjects of tax." Wilmette Park Dist. v. Campbell, 338 U. S. 411, 416, and cases cited. We think that the subject matter, the context, the legislative history, and the executive interpretation, i. e., the legislative environment, of § 6332 make it plain that Congress intended to and did include States within the term "person" as used in § 6332.
Nor is there merit in petitioner's contention that Congress, by specifically providing in § 6331 for levy upon the accrued salaries of federal employees, but not mentioning state employees, evinced an intention to exclude the latter from levy. The explanation of that action by Congress appears quite clearly to be that this Court had held in Smith v. Jackson, 246 U. S. 388, that a federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee 113*113 to the Government against the employee's salary, and, pursuant to that opinion, the Comptroller General ruled that an "administrative official served with [notices of levy] would be without authority to withhold any portion of the current salary of such employee in satisfaction of the notices of levy and distraint." 26 Comp. Gen. 907, 912 (1947). It is evident that § 6331 was enacted to overcome that difficulty and to subject the salaries of federal employees to the same collection procedures as are available against all other taxpayers, including employees of a State.
Accordingly we hold that §§ 6331 and 6332 authorize levy upon the accrued salaries of state employees for the collection of any federal tax.
This brings us to petitioner's contention that even if the salaries of state employees are subject to levy, he is not personally liable to the Government for refusing to honor its levies because, contrary to the holding of the courts below, he was not a person "obligated with respect to" the salaries covered thereby. Congress did not define the questioned phrase, nor do we feel called upon here to delimit its scope, for we think it includes, at least, a person who has the sole power to control disposition of the fund, and we also think that, under the West Virginia law, petitioner both had and exercised that power. By a West Virginia statute, 1 W. Va. Code, 1955, § 1031 (1), he was empowered and obligated to deduct and withhold from the salaries of state employees sums "to pay taxes as may be required by an act or acts of the congress of the United States of America"; and, similarly, another West Virginia statute, 2 W. Va. Code, 1955, § 3834 (18), authorizes garnishments to be served upon him to sequester the salaries of state employees. He alone has the obligation and power to issue warrants for the payment of salaries, and state employees entitled to payment for services may enforce their rights by mandamus against him. State 114*114 ex rel. Board of Governors of West Virginia University v. Sims, 133 W. Va. 239, 55 S. E. 2d 505; State ex rel. Board of Governors of West Virginia University v. Sims, 136 W. Va. 789, 68 S. E. 2d 489; State ex rel. Board of Governors of West Virginia University v. Sims, 140 W. Va. 64, 82 S. E. 2d 321. By and to the extent of these West Virginia laws petitioner was obligated and empowered in respect to the sequestered salaries. These laws empowered him completely to control the disposition of that fund. He exercised that power by refusing to honor the Government's valid levies and to surrender the fund to the Government. Instead he surrendered the fund to the taxpayers. That action by petitioner resulted in defeat of the Government's valid levies.
Upon these principles four judges who are constantly required to pass upon West Virginia laws have held that, under the law of that State, petitioner is a person who was obligated with respect to the salaries covered by the Government's levies. Their conclusion appears to be founded on reason and authority, and under familiar principles will be accepted here. Propper v. Clark, 337 U. S. 472, 486-487. Being a person who, under the law of West Virginia, was obligated with respect to the salaries covered by the Government's levies, petitioner is, by § 6332 (b), made personally liable to the Government in a sum equal to the amount, not exceeding the delinquent taxes, which he refused to surrender to the Government but surrendered instead to the taxpayers in defeat of the Government's levies. The judgment of the Court of Appeals was therefore correct and must be
Affirmed.
Calpino v. Comm'r, 819 Fed.Appx. 860, 2020 U.S. App.Lexis 22232, 2020-2 U.S.TaxCase (CCH) P50,150, 2020 WL 4036592 (July 17, 2020)
The Calpinos' primary argument is that they are not taxable persons subject to the [*862] levy authority under 26 U.S.C. § 6331 and that their wages are not taxable because they do not fall within the class of persons identified [**4] by § 6331(a). Their specific argument is that § 6331(a) only authorizes levies against "the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality" thereof, and because they are not an "officer, employee, or elected official," the levy against them was unauthorized. HN3 But this argument ignores the preceding sentences in § 6331(a), which make clear that levies can be applied against "any person liable to pay any tax [who] neglects or refuses to pay the same within 10 days after notice and demand[.]" 26 U.S.C. § 6331(a).
As the Supreme Court explained in Sims v. United States, the specific provision in § 6331(a) was enacted following its previous decision in Smith v. Jackson "that a federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee to the Government against the employee's salary[.]" Sims v. United States, 359 U.S. 108, 112-13, 79 S. Ct. 641, 3 L. Ed. 2d 667, 1959-1 C.B. 636 (1959) (citing Smith v. Jackson, 246 U.S. 388, 38 S. Ct. 353, 62 L. Ed. 788 (1918)). Accordingly, the Court concluded in Sims, the provision upon which the Calpinos presently rely "was enacted to overcome that difficulty"—that is, the difficulty of levying a federal employee's salary—"and to subject the salaries of federal employees to the same collection [**5] procedures as are available against all other taxpayers[.]" Id. at 113.
We conclude that the plain language of the first sentence of § 6331(a) clearly authorizes levy upon the Calpinos:
I.R.C. § 6331(a). The Calpinos' argument that only employees of the United States and the District of Columbia are subject to levy is frivolous. Accord Maisano v. Welcher, 940 F.2d 499, 502 (9th Cir. 1991) (holding that the levy provisions in § 6331(a) do not exclusively apply to federal government employees, noting that "[Appellants'] reading ignores the first sentence of section 6331(a), which gives the statute its broad scope and clearly states that it applies to all property of any person liable to the IRS.") (emphasis in original); James v. United States, 970 F.2d 750, 755 n.9 (10th Cir. 1992) (citing Sims, 359 U.S. at 112-13) (noting that this argument was "frivolous" because "Section 6331(a) empowers the IRS to levy the property of all taxpayers"). The Supreme Court in Sims rejected an argument analogous to the one presented to us by the Calpinos. There, the Court held that the express mention of federal employees'—but not state employees'— liability to levies did not mean that state employees' salaries and property could [**6] not be levied. Sims, 359 U.S. at 112 ("Nor is there merit in petitioner's contention that Congress, by specifically providing in § 6331 for levy upon the accrued salaries of federal employees, but not mentioning state employees, evinced an intention to exclude the matter from levy.").If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy[.]
Accordingly, we reject the Calpinos' argument that they were not subject to a levy under § 6331(a). We also note that the Calpinos' argument is due to be rejected because they received a notice of deficiency and therefore cannot challenge their underlying tax liability in the collection due process hearing, see I.R.C. § 6330(c)(2)(B). Because they cannot challenge the underlying tax liability and good cause existed, the Tax Court did not err in [*863] permitting the levy. See id. § 6330(e)(2). Accordingly, we affirm as to this issue.
[Calpino v. Comm'r, 819 Fed.Appx. 860, 2020 U.S. App.Lexis 22232, 2020-2 U.S.TaxCase (CCH) P50,150, 2020 WL 4036592 (July 17, 2020);
EDITORIAL: This is an unpublished case. In short: levies can be applied against “any person liable to pay any tax [who] neglects or refuses to pay the same within 10 days after notice and demand[.]” 26 U.S.C. §6331(a). That "person" is defined in 26 U.S.C. §6671(b) as an officer or employee of a corporation or a partnership who has a duty.]
26 C.F.R. §301.6331-1 Levy and Distraint
(i) Federal Employees. Levy may be made upon the salary or wages of any officer or employee (including members of the Armed Forces) or elected or appointed official of the of the United States, the District of Columbia or any agency or instrumentality of the United States or the District of Columbia, who has control of payment or wages…
(ii) State and Municipal employees. Salaries, wages or other compensation of any officer, employee, or elected or appointed official of a State or Territory, or of any agency, instrumentality, or political subdivision thereof, are also subject to levy to enforce collection of any Federal tax.
(iii) Seamen..wages of seamen, apprentice seamen, or fishermen employed on fishing vessels are subject to levy.”
Federal Register Vol. 55 No. 220 Wed Nov. 14 , 1990 at page 47623 in describing the 26 USC 6331 process Section 70.161 Levy and Distraint
(a) (4) (i) Federal Employees. Levy may be made upon the salary or wages of any officer or employee (including members of the Armed Forces), or elected or appointed official, of the United States, the District of Columbia, or any agency or instrumentality of either, by serving a notice of levy on the employer of the delinquent taxpayer. PLEASE NOTE, THERE IS NO MENTION OF PRIVATE SECTOR PEOPLE. As used in this paragraph, the term "employer" means:
(A) The Officer or employee of the United States, the District of Columbia, or of the agency or instrumentality of the United States or the District of Columbia, who has the control of the payment of wages, or
(B) Any other officer or employee designated by the head of the branch, department, or agency, or instrumentality of the United States or of the District of Columbia as the party upon whom service of the notice of levy may be made.
If the head of such branch, department, agency or instrumentality designates an officer or employee other than the one who has control of the payment of the wages as the party upon whom service of the notice of levy may be made, such head shall promptly notify the Director of the name and address of each officer or employee so designated and the scope or extent of the authority of such designee.
(NOTE THAT THE ABOVE IS WHY THE NOTICE OF LEVY SENT TO ALL PRIVATE EMPLOYERS, WHO ARE NOT MENTIONED ABOVE, IS DEFICIENT OF 6331 PARAGRAPH (a) ON THE BACK OF THE NOTICE. AS I HAVE WRITTEN BEFORE ALL GOVERNMENT EMPLOYERS AND EMPLOYEES ARE DESIGNATED TO PART 70 OF THE 27 USC/CFR TITLES AND ARE LISTED AS SUBJECTS OF THIS LEVY PROCESS. NOT ONE MENTION OF PRIVATE EMPLOYERS AND EMPLOYEES. THE REASON THE DEFINITION INCLUDES PRIVATE EMPLOYERS IN 6103 IS THE FACT THAT A GOVERNMENT EMPLOYEE MAY ALSO WORK FOR A PRIVATE EMPLOYER IN WHICH THE GOVERNMENT EMPLOYEE MUST HAVE HIS WAGES INCLUDED IN HIS INCOME TAX WITHHOLDING. THIS 6103 IS THE ONLY SECTION THAT USES "MEANS" WHEN DESCRIBING THE UNITED STATES, AS ALSO INCLUDING THE 50 STATES BECAUSE OF INFORMATION SHARING ONLY. EVERY OTHER STATUTE DESCRIBING THE UNITED STATES USES INCLUDES WHICH IS RESTRICTIVE TO THOSE STATES DEFINED WHICH DOES NOT INCLUDE ANY OF THE 50 STATES. NOTE THAT IN THE FEDERAL REGISTER THE WORD "MEANS" IS USED AND NOT INCLUDES WHICH IS TELLING YOU THAT WHAT THEY SAY MEANS WHAT THEY SAY AND DOES NOT INCLUDE ANY OTHER ENTITY SUCH AS A PRIVATE SECTOR EMPLOYER OR EMPLOYEE. ITS ALL A "TERM" GAME. The term game can be found on the Informer's article at http://www.atgpress.com)
United States
v. O'Dell, 160 F.2d 304 (1947)
[2] KeyCite Notes
220 Internal Revenue
(Formerly 220k1781)
A “levy” requires that property be brought into legal custody through seizure, actual or consturctive, levy being an absolute appropriation in law of the property levied on, and mere notice is insufficient.[. . .]
Section 3466 does not create a lien, but establishes a priority. Beaston v. Farmers' Bank of Delaware, 37 U.S. 102, 9 L.Ed. 1017; United States v. Fisher, 6 U.S. 358, 2 Cranch 358, 2 L.Ed. 304. Section 3670, however, does create a lien in favor of the Government which arises at the date when the assessment list is received by the Collector. Section 3671. As to the first four excise tax items listed in the stipulation, the assessment lists were received before the date of the delivery of the mortgage, and the lien of the Government as to $386.11 is clearly prior to possession of the assets *307 by the trustee, although not prior to the attachment of a majority of the liens for local taxes, under Michigan law. But under this record the question of priority is not conclusive. The judgment was correct, not for the reasons stated by the District Court, but because of the failure of the Government to comply with the statutory requirements.
Section 3710 requires the surrender of property or rights to property (1) subject to distraint; (2) upon which a levy has been made; (3) unless such property is subject to an attachment or execution under judicial process. This section is new, having been enacted in 1926, Act of Feb. 26, 1926, section 1114(e) and (f), 44 Stat. 117; but the provision authorizing the Collector after failure or refusal of the taxpayer to pay taxes due, to levy upon his property or property rights (section 3692) dates from 1866. As pointed out in United States v. Metropolitan Life Ins. Co., 2 Cir., 130 F.2d 149, 151, the procedure for distraint authorized under section 28 of the Revenue Act of 1864, 13 Stat. page 233, was in substance like that of Section 3692 except that nothing was said about a levy. In 1866, 14 Stat. 107, Sec. 9, Congress, among other changes, provided that a levy was required to be made ‘upon all property and rights to property * * * belonging to’ the taxpayer. The provision authorizing levy is unchanged in the statute applicable here (section 3692). Thus Congress enacted section 3710 with knowledge that for some sixty years levy had been authorized in these cases. In section 3710, which provides a method of forcing a third person to surrender property of the taxpayer for the payment of the taxes due, Congress not only required that the property surrendered should have been levied upon, but emphasized this provision by making the allowance for costs and interest contained in subsection (b) run ‘from the date of such levy.’ The property involved here falls within the classes of property subject to distraint, section 3690, and is not subject to an attachment or execution; but the record fails to show that levy has been made.
The stipulation covering levy is as follows:
‘That one Giles Kavanagh, the duly appointed, qualified and acting Collector of Internal Revenue for the District of Michigan, on September 8, 1941, as said Collector, gave written notice to the defendant LeRoy E. O'Dell that the tax assessment . . . totalling $1,336.84, including interest thereon, were unpaid and due and further notified the defendant that all property, rights to property, moneys, credits and/or bank deposits then in his possession or under his control and belonging to said Howie Company, and all sums of money owing from the defendant to said Howie Company, were seized and levied upon for the payment of said taxes, together with penalties and interest, and demand was then made upon the defendant for the sum of $1,336.84, or such lesser sum as he was then indebted to said Howie Company, to be applied in payment of said tax liabilities.’
[2]This paragraph describes a mere statement or notice of claim. Nothing alleged to have been done amounts to a levy, which requires that the property be brought into legal custody through seizure, actual or constructive, levy being ‘an absolute appropriation in law of the property levied upon.’ Rio Grande R. Co. v. Gomila, 132 U.S. 478, 10 S.Ct. 155, 33 L.Ed. 400; In re Weinger, Bergman & Co., D.C., 126 F. 875, 877; Smith v. Packard, 7 Cir., 98 F. 793. Levy is not effected by mere notice. Hollister v. Goodale, 8 Conn. 332, 21 Am.Dec. 674; Meyer v. Missouri Glass Co., 65 Ark. 286, 45 S.W. 1062, 67 Am.St.Rep. 927; Jones v. Howard, 99 Ga. 451, 27 S.E. 765, 59 Am.St.Rep. 231.
[3]
The cases relied on by the Government as supporting recovery under section 3710 *308 arise in the main out of situations where a bank has been sued, or joined as a party to an action claiming a bank deposit. No such procedure was followed in this case. Moreover, it does not appear that notice and demand were served upon the person liable to pay the taxes, namely, the Howie Company, in accordance with sections 3670 and 3690. This being the case, query, whether the property or rights to property were within the meaning of section 3710 ‘subject to distraint,’ for under section 3690 the right to collect the taxes by distraint and sale arises only after notice and demand.
[4]
The judgment is affirmed.
FN1. Section 3710, I.R.C.
‘(a) * * * Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process.
‘(b) * * * Any person who fails or refuses to so surrender any of such property or rights shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes (including penalties and interest) for the collection of which such levy has been made, together with costs and interest from the date of such levy.’
Section 3670, I.R.C.
‘If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.’
Section 3671, I.R.C.
‘Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.’
Section 3672, I.R.C.
‘(a) * * * Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector- * * * .’
Section 3690, I.R.C.
‘If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy to collect the said taxes, with such interest and other additional amounts as are required by law, by distraint and sale, in the manner provided in this subchapter, of the goods, chattels, or effects, including stocks, securities, bank accounts, and evidences of debt, of the person delinquent as aforesaid.’
Section 3692, I.R.C.
‘In case of neglect or refusal under section 3690, the collector may levy, or by warrant may authorize a deputy collector to levy, upon all property and rights to property, except such as are exempt by the preceding section, belonging to such person, or on which the lieu provided in section 3670 exists, for the payment of the sum due, with interest and penalty for nonpayment, and also of such further sum as shall be sufficient for the fees, costs, and expenses of such levy’.
Section 3466, R.S., 31 U.S.C. § 191, 31 U.S.C.A. § 191.
‘Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed.’
Freeman v. Mayer,
152 F.Supp. 383 (1957)
The procedure of accomplishing a levy may be spelled out from the reported cases. A ‘levy’ requires that property be brought into legal custody through seizure, actual or constructive, levy being an absolute appropriation in law of the property levied on, and mere notice of intent to levy is insufficient. United States v. O'Dell, 6 Cir., 1947, 160 F.2d 304, 307. Accord, In re Holdsworth, D.C.N.J.1953, 113 F.Supp. 878, 888; United States v. Aetna Life Ins. Co. of Hartford, Conn., D.C.Conn. 1942, 146 F.Supp. 30, 37, in which Judge Hincks observed that he could ‘find no statute which says that a mere notice shall constitute a ‘levy.“ There are cases which hold that a warrant for distraint is necessary to constitute a levy. Givan v. Cripe, 7 Cir., 1951, 187 F.2d 225; United States v. O'Dell, supra. The Court of Appeals for the Third Circuit stated in its opinion, 221 F.2d at page 642, ‘These sections [26 U.S.C. §§ 3690-3697] require that a levy by a deputy collector be accompanied by warrants of distraint.’ In re Brokol Manufacturing Co., supra.
Research has not disclosed any case which deals with the precise issue here involved relating to the right of the Collector to retain possession of a bankrupt's assets so that he may assert additional warrants. In the case of Brust v. Sturr, D.C.S.D.N.Y.1955, 128 F.Supp. 188, reversed in part 2 Cir., 1956, 237 F.2d 135, the facts are somewhat similar to the instant matter, except that the Government had failed to issue warrants for the full amount of taxes due. The trustee instituted a plenary action for the surplus realized from a sale under authority of the three warrants which had been issued and levied upon. The Government defended by invoking the set-off provisions of § 68 of the Bankruptcy Act, 11 U.S.C.A. § 108. Judge Palmieri held for the trustee. The Court of Appeals sustained as to the ‘set-off’ aspect of the case, but reversed on other aspects. On reading the appeal decision several times, it is not clear on what grounds the District Court was reversed. Nonetheless, the court concluded that the Government's status as a lienor was perfected by a lawful acquisition of possession of the property. Only in the appeals decision do we read that blanket warrants for distraint were levied upon, and apparently these covered all taxes assessed, and hence the surplus realized from the sale could be retained. Even so, it is worthwhile to note the liability of the Collector as the court saw it:
‘On the intervention of bankruptcy the Collector was subject only to a contingent liability, viz., to account to the bankrupt for so much of his property as should not be required to satisfy the lien under process of enforcement by distraint.’ 237 F.2d 135, 137. (Emphasis supplied.)
The case at bar and the Brust decision were analyzed by Professor Seligson who concluded:
‘On the merits the answer is not at all clear in either of the two cases. If, as has been said, service of the warrants of distraint is a jurisdictional prerequisite, then the Government must lose. A taking of possession of excess property without statutory authorization should not confer greater rights on the Government than a failure to levy with respect to the excess. The Government*386 simply has no lien on the excess property, which has been converted into cash, and it cannot avail itself of the set-off provisions of section 68.’ 1955 Annual Survey of Amer.Law, 31 N.Y.U.Law R. 515, 529.
Attention is directed to the retention by the defendant of proceeds from accounts receivable of Brokol. Although defendant denied in his answer that he collected these accounts, evidence was submitted which establishes the fact that such collections constitute part of the monies received by the District Director.FN3 Counsel argued the question of whether or not accounts receivable were subject to distraint and sale and to levy. Section 3692, 26 U.S.C.A., states that:
‘In case of neglect or refusal under section 3690, the collector may levy, or by warrant may authorize the deputy collector to levy, upon all property and rights to property, except such as are exempt by the preceding section, belonging to such person, or on which the lien provided in section 3670 exists * * *.’
The courts which have had occasion to construe the scope of this section are not in agreement. Generally the question arises from an attempted levy upon the proceeds of the delinquent taxpayer's insurance policy. Judge Hincks in United States v. Aetna Life Ins. Co of Hartford, Conn., D.C.Conn.1942, 46 F.Supp. 30, 36, has stated that 3692 does not broadly subject ‘all property,’ which under § 3670 is subject to lien, also to levy. He concludes that the levy under § 3692 is limited to corporeal personal property except as otherwise provided in the same section. By contrast, the court in Cannon v. Nicholas, 10 Cir., 1935, 80 F.2d 934, 936, observed:
‘We do not believe, in the light of the sweeping language used throughout these statutes, that Congress intended to limit distraint to tangible property and to the specified classes of intangibles. No reason is apparent why ‘stocks and securities' should be subject to levy and an annuity contract not.’
See also United States v. Metropolitan Life Ins. Co., 2 Cir., 1942, 130 F.2d 149. There is abundant authority holding, however, that a lien for taxes provided for by 26 U.S.C.A. 1 3670 can be asserted against intangible property, such as a debt.FN4 As with corporeal personal property, the problems of the procedure of acquiring possession of intangible property subject to federal tax lien are found in this area of the law. There is conflict among the circuits as to the proper way to assert the lien. The Fourth Circuit, disagreeing with the SixthFN5 and Seventh,FN6 has ruled that *387 where the Government has made a levy upon an indebtedness to the taxpayer, service of notice by the Government upon the taxpayer's debtor is sufficient United States v. Eiland, 4 Cir., 1955, 223 F.2d 118, 121. The cases of the circuits noted in opposition insist that a warrant for distraint is necessary in addition to the notice to the debtor. In the view of the courts taking the latter position, a levy is a jurisdictional prerequisite.
Judge Smith of this District has subscribed to the view that a levy is a jurisdictional prerequisite. He has noted that ‘where, as here, the subject matter is an account receivable or chose in action, the seizure may be effected by a levy and the service of a warrant of distraint upon the debtor.’ In re Holdsworth, D.C.N.J.1953, 113 F.Supp. 878, 880, citing the O'Dell and Cripe cases.
In the case at bar, defendant asserts that the filing of the liens in the Register's Office of Essex County constituted adequate notice to the debtors of Brokol. There was no notice to the taxpayer's debtors, which the Eiland case demanded as a minimum, to say nothing of warrants for distraint accompanying such notice which the courts in the O'Dell and Cripe cases deemed indispensable. It should also be mentioned that the accounts receivable were not listed on the inventory compiled and signed by the Collector.FN7
[Freeman v. Mayer, 152 F.Supp. 383 (1957)]