Quatloos! > Tax
Scams > Tax
Protestors > EXHIBIT:
Tax Protestor Dummies > Cases
("Damn, We Lost Again! And why is
it that people who sell
tax protestor materials file their tax returns anyway . . .")
Not Reported in F.Supp.
77 A.F.T.R.2d 96-1234, 96-1 USTC P 50,197
Tregan P. ALBERS, Plaintiff,
INTERNAL REVENUE SERVICE, Kenneth Schroeder, et al., Defendants.
United States District Court, D. Nebraska.
Feb. 15, 1996.
Jerry D. Anderson, Heinrisch, Bryan Law Firm, Geneva, Nebraska
Sally R. Johnson, Assistant U.S. Attorney, Lincoln, Nebraska,
Carol E. Schultze, U.S. Department of Justice, Tax Division, Washington,
DC, for defendant.
Kenneth E. Schroeder, pro se.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISBURSE FUNDS
URBOM, District Judge.
Pending are Kenneth and Norma Schroeder's and the United States' cross motions
to disburse funds, filings 39 and 35, respectively, that were deposited with
this court by Tregan P. Albers, the named plaintiff. The plaintiff filed a
state interpleader action after receiving notice from the Internal Revenue
Service (IRS) that funds he owed to the Schroeders for the rental of farmland
were subject to a federal tax lien and levy. Albers' state court action was
removed to this court by the United States Attorney pursuant to 28 U.S.C. s
1441 (Supp. V 1993). The defendants claim adverse interests to the deposited
I. FACTUAL BACKGROUND
During the 1994 crop year, the plaintiff, Tregan P. Albers, rented from the
Schroeders several parcels of farmland located in Thayer County, Nebraska.
At the end of the period he calculated that he owed them $12,064.70 for the
use of the land. See (Petition, Affidavit & Application for Interpleader
Remedy, Filing 1.) However, before he could pay, Albers received several
notices from the IRS requesting that he turn over to that agency any property
owned by the Schroeders or to which they were entitled, which he possessed.
See (Ex.'s B, C, D, and Albers Aff. at PP 4-6, filing 32.) The IRS sought
the property from the plaintiff because the Schroeders had failed to pay
any federal income tax assessed against them between 1980 and 1990. The IRS
had filed a lien against the Schroeders and sought to satisfy the lien amount
through levying against property that was in the possession of Albers, but
to which the Schroeders were entitled. In response to the levies, Albers
turned over to the IRS $3294.00, but did not turn over the rent monies. Instead,
the plaintiff filed an interpleader action in Nebraska state court. He named
the Schroeders, the IRS, [FN1] and the Schroeders' children as potential
claimants to the funds.
The United States Attorney, representing the IRS, (i.e. the United States),
pursuant to 28 U.S.C. s 1441, removed the case from state court. (Filing 1.)
The Schroeders, in response, moved to have it remanded to the state court in
which it was originally filed. (Filing 6.) Magistrate Judge Piester denied
their motion. (Filing 7.) Dissatisfied, the Schroeders appealed his ruling
to the Eighth Circuit, but their appeal was dismissed for lack of an appealable
order. (Filing 19.) Following the failure of their appeal and a hearing on
the matter, I ordered the plaintiff discharged of liability to the defendants
with respect to the disputed monies and dismissed him from this action following
his depositing the funds into the registry of this court. (Filing 29.) I ordered
all persons with any claim to the funds to file a notice of such by September
28, 1995. Only Kenneth and Norma Schroeder and the United States have filed
any claim to the funds.
II. STANDARD OF REVIEW
I will treat the parties' motions for disbursement of interpleaded funds as
cross-motions for summary judgment, as they involve materials outside the
pleadings. See FED.R.CIV.P. 7 & 12. A motion for summary judgment shall
be granted when, viewing the facts and reasonable inferences arising therefrom
in the light most favorable to the nonmoving party, "there is no genuine
issue as to any material fact and ... the moving party is entitled to a judgment
as a matter of law." FED.R.CIV.P. 56(c); Buller v. Buechler, 706 F.2d
844, 846 (8th Cir.1983). A genuine issue of material fact exists when there
is sufficient evidence favoring the party opposing the motion for a jury
to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). In determining whether a genuine issue of material
fact exists, the evidence is to be taken in the light most favorable to the
nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).
If the moving party meets the initial burden of establishing the nonexistence
of a genuine issue, then the burden shifts to the opposing party to produce
evidence of the existence of a genuine issue for trial. Celotex Corp. v.
Catrett, 477 U.S. 317 (1986). The opposing party "may not rest upon
mere allegation or denials of his pleading, but must set forth specific facts
showing that there is a genuine issue for trial," and "must present
affirmative evidence in order to defeat a properly supported motion for summary
judgment." Anderson, 477 U.S. at 256-57 (citations omitted).
III. LEGAL DISCUSSION
The United States removed this case from Nebraska state court pursuant to 28
U.S.C. s 1441, contending that this is an interpleader action over which
the district courts have original jurisdiction and arises under the Constitution,
treaties, or laws of the United States. 28 U.S.C. s 1441(a) & (b) (Supp.
V 1993). (Filing 1.) Removal of this matter pursuant to the above statute
is proper. Pursuant to 28 U.S.C. s 1335 (Supp. V 1993), the federal statutory
interpleader provision, a plaintiff who in good faith believes he faces two
or more adverse claims, or potential claims, to money or property in his
possession or custody, valued at $500.00 or more, may place the money or
property into the registry of the district court and seek the court's assistance
in determining the party rightfully entitled to it. The district courts are
granted original jurisdiction over such claims. There must be minimum diversity,
however, meaning that any two defendants claiming adversely to each other
meet the diverse citizenship requirements of 28 U.S.C. s 1332 (Supp. V 1993).
The United States, which is not a citizen of any state, may not be considered
for the purpose of establishing the minimum diversity required, however.
See, e.g., Commercial Union Ins. Co. v. United States, 999 F.2d 581, 584
(D.C.Cir.1993) (citing General Ry. Signal Co. v. Corcoran, 921 F.2d 700,
703 (7th Cir.1991)). In this case, the plaintiff also named the Schroeders'
children, several of whom reside in states other than Nebraska. While they
did not submit claims for the disputed funds by the deadline I established,
the jurisdiction of this court must be determined at the time the lawsuit
is filed. Thus, when the action was removed from state court, the children
were still potential claimants to the disputed funds, regardless of whether
they subsequently filed claims. Therefore, the minimum diversity needed for
the purposes of this action was established at the time of filing (removal,
in this case).
Even if, however, subject-matter jurisdiction is lacking under the statutory
interpleader provisions of Section 1335, subject-matter jurisdiction may also
be based on federal-question jurisdiction under 28 U.S.C. s 1340 (Supp. V 1993).
Section 1340 grants the district courts original jurisdiction over "any
civil action arising under any Act of Congress providing for internal revenue...." Id.
The question as to which claimant is entitled to the disputed funds is a question
involving the application of the internal revenue laws of the United States.
The plaintiff is seeking an adjudication of his obligation to pay a party claiming
entitlement to the disputed funds. In this case, this necessarily involves
a federal question because one of the parties claiming the fund does so by
the operation of a federal statute. Therefore, I find that this action is properly
founded on Section 1340 and that this court has subject - matter jurisdiction.
I also consider this action to have retained its interpleader character pursuant
to Federal Rule of Civil Procedure 22, "rule interpleader." [FN2]
Furthermore, I understand the Eighth Circuit in St. Louis Union Trust Co. v.
Stone, 570 F.2d 833, 835 (8th Cir.1978), to mean what it said, and in an interpleader
action, "matters directly affecting the nature or operation of such [federal
tax] liens are federal questions, regardless of whether the federal statutory
scheme deals with them or not." St. Louis Union Trust Co., 570 U.S. at
835 (quoting United States v. Brosnan, 363 U.S. 237, 240 (1960)). [FN3]
Several other related issues should be noted at this point. All lawsuits for
the purpose of restraining the assessment or collection of any tax, other than
those specifically permitted by statute, regardless of the person bringing
them, are barred by 26 U.S.C. s 7421(a) (Supp. V 1993). I do not find that
the plaintiff's action is within this provision. He merely seeks the court's
assistance in determining the party rightfully entitled to the interpleaded
funds, having himself denied any stake in the disputed funds. Furthermore,
he partially complied with the IRS levies, remitting approximately $3,000.00,
in response to one such levy. See (Ex.'s B & C, Filing 32.) In light of
this, and in the absence of other facts suggesting an improper purpose, I do
not conclude that he interposed this suit for the purpose of frustrating the
collection of taxes owed to the United States by the Schroeders. Therefore,
I do not believe this lawsuit violates the limitations imposed in Section 7421.
With respect to the Schroeders' claims, I shall deal with their arguments insofar
as they relate to the issue of entitlement to the disputed funds. In addressing
any argument which may be considered to be directed at the merits of the levy
or assessment of their tax liability I will construe them to be raising solely
procedural issues. 28 U.S.C. s 2410 (Supp. V 1993), permits a lawsuit regarding
the procedural validity of a tax lien. See, e.g., Schmidt v. King, 913 F.2d
837, 839 (10th Cir.1990); Elias v. Connett, 908 F.2d 521, 527 (9th Cir.1990);
Pollack v. United States, 819 F.2d 144, 145 (6th Cir.1987); Aqua Bar & Lounge,
Inc. v. United States Dep't of Treas. Internal Rev. Serv., 539 F.2d 935, 939
(3d Cir.1976). As stated, I will construe the Schroeder's claims as being such
a procedural attack. [FN4]
The Schroeders claim that the United States has no claim to the deposited
rent monies for a number of reasons. [FN5] Among these are that: this court
does not have original jurisdiction of this matter, the Schroeders are non-resident
aliens to the United States, and that they do not fall within the provisions
of the tax code and, thus, are not subject to it. All of these claims are without
First, as noted above, this court has original jurisdiction of this matter
pursuant to 28 U.S.C. s 1335, because it involves potential or actual adverse
claims to disputed property valued at $500.00 or more, with at least, minimum
diversity among the adverse claims. Further, and as discussed above, this court's
jurisdiction is also founded on 28 U.S.C. s 1340, as this matter involves the
internal revenue laws of the United States. Finally, the United States is a
proper party in that it has a claim to the property arising from a lien imposed
by federal law. See 28 U.S.C. s 2410(a)(5) (Supp. V 1993). While Section 2410
does not provide an independent basis of subject- matter jurisdiction for the
federal courts, see Shaw v. United States, 331 F.2d 493 (9th Cir.1964); St.
Louis Union Tr. Co. v. Stone, 428 F.Supp. 988 (E.D.Mo.1977), it is recognized
as a waiver of sovereign immunity, under certain circumstances, in those cases
included in its provisions in which a court's subject-matter jurisdiction already
exists. [FN6] See Aqua Bar & Lounge, Inc., 539 F.2d at 938-40 (holding
Section 2410 constitutes waiver of sovereign immunity where plaintiff does
not contest merits of underlying tax assessment). Therefore, the Schroeders'
contention that this court does not have original jurisdiction is incorrect.
The Schroeders also contend that they are non-resident aliens to the United
States, seeming to interpret "United States" to mean only where the
seat of its government is located, the District of Columbia. In their capacity
as non-resident aliens, they assert they can have no tax liability to the United
States. This position is wholly without merit.
The term "United States" is properly used to "designate the
territory over which the sovereignty of the United States extends." Hooven & Allison
Co. v. Evatt, 324 U.S. 652, 671- 72 (1945), overruled on other grounds sub
nom. Limbach v. Hooven & Allison Co., 466 U.S. 353 (1984). The sovereignty
of the United States extends to all the states comprising it. The United States
was not created as a separate state, but as a union of other states, of which
each state is a part. Thus, at the time of the ratification of the Constitution,
the "United States" referred to those states which had adopted the
Constitution. Since that time, the United States has come to comprise the fifty
states. Furthermore, when the United States came into being it was not limited
to the territory of the District of Columbia, which did not yet even exist.
Instead, the authority of the United States under the Constitution was understood
to extend to the area bounded by the "several states."
In addition, the United States Constitution provides for the admission of
new states to the Union. See UNITED STATES CONST. art. IV, s 3, cl. 1. Pursuant
to that provision, Nebraska voluntarily entered into the Union created by the
United States Constitution on March 1, 1867. The Proclamation of Admission
of the State reads: [The people of Nebraska] now ask for admission into the
Union: Therefore, Be it enacted by the Senate and House of representatives
of the United States of America, in Congress Assembled, That the constitution
and State government which the people of Nebraska have formed for themselves
be, and the same is hereby, accepted, ratified, and confirmed, and that the
said State of Nebraska shall be, and is hereby, declared to be one of the United
States of America; and is hereby admitted into the Union upon an equal footing
with the original States, in all respects whatsoever. Thus, Nebraska entered
the Union by actions initiated by its own citizens. As a state of the Union,
it became subject to the laws of the United States, including those enacted
by Congress dealing with the generation of revenue for the federal government.
[FN7] Nebraska is a part of the whole of the United States of America, rather
than a state foreign to it. Thus, its residents are residents of the United
States. Therefore, the Schroeders are not "non-resident aliens" to
the United States. As a result, any claim that they are not subject to its
revenue laws because they are non-resident aliens is without merit. [FN8]
The Schroeders also argue that Nebraska is not a State as that term is defined
by 26 U.S.C. ss 3121(e)(1) and (2), 4612(a)(4)(A), and 7701(a)(9) and (10)
(Supp. V 1993). The Schroeders in citing these statutes in support of their
position, fail to note that these sections define the stated term (for example, "State" and "United
States" in s 3121(e)(1) & (2), "United States" in s 4612(a)(4)(A),
and "United States" and "State" in s 7701(a)(9) & (10))
to be more inclusive than might otherwise be commonly understood. This result
is easily reached by reading each of these sections in conjunction with the
definition of "includes" and "including" contained in 26
U.S.C. s 7701(c) (Supp. V 1993), which states that "[t]he terms 'includes'
and 'including' when used in a definition contained in this title [i.e. Title
26] shall not be deemed to exclude other things otherwise within the meaning
of the term defined." Thus, the definition of "State" clearly
includes what would be its commonly understood meaning--one of the fifty states
forming a part of the entire United States. So, too, with "United States," the
Union and sovereign entity produced through the association of all of the states.
The Schroeders attempt, unsuccessfully, to remove from the language of the
statutes its commonly understood meaning and usage. [FN9] The Schroeders base
their claim to the disputed funds on the existence of a private, oral contract
for the lease of real estate entered into between themselves and the plaintiff,
Tregan Albers. They contend that under the Nebraska State Constitution no law
may be made that impairs the obligation of such a contract. NEB. CONST., art.
I, s 16. The implication to be drawn is that the federal statutes pursuant
to which the United States makes its claim to the disputed funds are laws impairing
the obligation of contract. [FN10] However, the Schroeders have failed to understand
that the United States Constitution and laws enacted pursuant to it, as well
as treaties, are the supreme law of the land, notwithstanding any state law
or constitution to the contrary. U.S. CONST. art VI, cl. 2. Thus, they cannot
base their argument on Nebraska law. Furthermore, the impairment provision
of the Nebraska Constitution is understood to provide that state laws in force
at the time when the contract is entered into form a part of the contract,
see Norris v. Tower, 102 Neb. 434 (1918), and that the state may not subsequently
enact laws that retroactively alter obligations under an existing contract,
see Travelers Inc. Co. v. Ohler, 119 Neb. 121 (1929). Thus, the federal tax
laws remain unaffected by the application of this state constitution provision.
The United States' claim to the rental monies now deposited with this court
is based on the existence of a federal tax lien [FN11] against the Schroeders.
At the time when the tax is assessed, a federal tax lien in favor of the United
States automatically arises on "all property and rights to property, whether
real or personal," of "any person liable to pay any tax [who] neglects
or refuses to pay [the] same after demand." 26 U.S.C. s 6321 (Supp. V
1993). It remains in effect until satisfied or becomes unenforceable because
of lapse of time. 26 U.S.C. s 6322 (Supp. V 1993). It is, therefore, valid
against the taxpayer at the time of assessment.
The lien given by Section 6321 is both broad and comprehensive. It attaches
to all property and rights to property which are subject to ownership and which
can be transferred; it attaches not only to land and tangible personal property
but also to claims, demands, and causes of action which the taxpayer can assert
against third persons. See, e.g., Bank of Nevada v. United States, 251 F.2d
820 (9th Cir.), cert. denied, 356 U.S. 938 (1958); United States v. Barndollar & Crosbie,
166 F.2d 793 (10th Cir.1948); Citizens State Bank of Barstow, Tex. v. Vidal,
114 F.2d 380 (10th Cir.1940). The lien also attaches to the defaulting taxpayer's
after-acquired property. Glass City Bank v. United States, 326 U.S. 265 (1945).
To be perfected against certain claims of third parties to the taxpayer's
property or rights to property, and as a result to receive priority over these
other claims, notice of the lien imposed by Section 6321 may need to be filed.
Thus, a federal tax lien against the real property of the taxpayer who fails
to pay his taxes must be filed in one office in the State or county or other
governmental subdivision, according to state law, in which the property is
situated. 26 U.S.C. s 6323(f)(1)(A) (Supp. V 1993). Pursuant to Nebraska law,
the proper place to record a federal lien (that is, to file notice of a lien)
against real property is in the Office of the Register of Deeds of the county
in which the property is located. See NEB.REV.STAT. s 52- 1001(1) (1993 Reissue).
The notice of lien [FN12] was properly filed on June 20, 1994, in the Thayer
County, Nebraska, Office of the Register of Deeds, the county in which the
property is located. The government has provided a certified copy of the lien
notice. (Ex. 3, Filing 32.) Therefore, the Schroeders' argument that the lien
was not properly filed because it was not filed in the District of Columbia
is baseless. [FN13] The government was not required to file its lien as against
the Schroeders, in Nebraska, the state in which the property is situated, let
alone in the District of Columbia, where none of the taxpayers' property is
found. It filed in order to protect itself against third parties who might
subsequently make a claim against the same property held by the taxpayer. However,
as against the taxpayer, the lien, filed or unfiled, is superior. For the purposes
of Title 26, a levy includes the "power of distraint and seizure by any
means," 26 U.S.C. s 6331(b) (Supp. V 1993), and extends to "property
possessed and obligations existing at the time [it is made]." Id. Contrary
to the Schroeders' arguments, no judicial action is required to seize the defaulting
taxpayer's property. [FN14] As was recognized in Phelps v. United States, 421
U.S. 330 (1975), service of notice historically has been sufficient to seize
a debt. Id. at 337 (citing Miller v. United States, 11 Wall. 268, 297 (1871));
see also Sims v. United States, 359 U.S. 108 (1959) (holding notice of levy
and demand equivalent to seizure). However, in order for the federal government
to levy on the property of a taxpayer who fails to pay any tax to which he
is obligated, the property sought by the levy must be the taxpayer's, or he
must have an interest in that property. His interest in the property is derived
from the operation of state law and is not federally created. See, e.g., Peoples
Nat'l Bank of Wash. v. United States, 608 F.Supp. 672 (D.Wash.1984) (state
law determines nature of property rights to which federal tax lien attaches).
Thus, if the taxpayer has a right to the property under state law, that property
may be reached by the United States in the form of a levy, whether possessed
by the taxpayer himself or by a third party. See Expoimpe v. United States,
609 F.Supp. 1098 (D.Fla.1985).
In addition, in order to effectuate its levy, other than in circumstances
where the collection of the tax is in jeopardy, the government must notify
the defaulting taxpayer of its intention to levy. 26 U.S.C. s 6331(a) & (d)(3).
It then makes demand on the party in possession of the taxpayer's property,
or right to property, to surrender such to the federal government. 26 U.S.C.
s 6332(a) (Supp. V 1993). That party is obligated to do so, or himself be liable
for the amount of the property he refuses to turn over (up to the amount of
the tax owed), as well as penalties. 26 U.S.C. s 6332(c)(1) & (2) (Supp.
V 1993). As stated above, no judicial action is required to obtain possession
of the property. Phelps v. United States, 421 U.S. at 337. If the United States
notified the Schroeders of its intention to levy, made demand on the person
in possession of the property, and if under Nebraska law, the Schroeders were
entitled to the funds as against anyone other than the United States at the
time of the levy, the United States is rightfully entitled to the deposited
Nebraska law provides that an oral lease of real property for a period not
exceeding one year, is valid even though not in writing. Guynan v. Guynan,
208 Neb. 775, 782-83 (1981). This lease did not extend beyond one year. Both
the plaintiff and the Schroeders state that the amount of the rent to which
the Schroeders are entitled is the $12,064.70 now held by this court. In addition,
neither the plaintiff nor the Schroeders dispute that they entered into the
contract. Based on the aforementioned facts, I accept that a valid contract
existed between Albers and the Schroeders. Nebraska law also provides that
in the case of an oral lease for the rental of real property, where the date
of payment of the rent amount is not established, the rent is due at the end
of the period of the tenancy. In Holtman v. Lallman, 122 Neb. 183, 239 N.W.
820 (1931), the court said: "Generally in this state, in the absence of
any different agreement, a yearly lease of farm lands begins on March 1 and
ends on February 28, of the succeeding year, and the rental becomes due at
the expiration of the term." Holtman, 122 Neb. at 183 (Syllabus of the
court). [FN15] Regardless of the payment terms under the oral contract, however,
the Schroeders had rights under the contract at the time it was entered into.
Nebraska recognizes the contract law doctrine of "anticipatory breach." See
Chadd v. Midwest Franchise Corp., 226 Neb. 502 (1987). An anticipatory breach
of contract is one committed by a contracting party before the time for whose
present duty to perform his promise under the contract has arisen. It is the
result of actions or words that indicate a party to the contract will not perform
his promises thereunder. In the case of a purely executory contract, the party
faced with the breach may do any of three things. He may act as if there never
was a contract, he may perform his obligations under the contract and wait
for the time when the other party has a present duty to perform and then claim
breach, or he may claim anticipatory breach and sue immediately. Further, under
Nebraska law a lease is to be construed as any other contract. Omaha Country
Club v. Dworak, 186 Neb. 336 (1971). Therefore, from the moment the lease between
the plaintiff and the Schroeders was entered into, the Schroeders had legal
rights under it. Had the tenant, Tregan Albers, failed to perform, the Schroeders
had legal recourse against him. I find that this is a sufficient interest in
property on which the federal tax lien could attach. Therefore, the proceeds
were subject to the lien and levy of the United States at any point following
the creation of the contract.
The existence of the property interest noted above, the United States' unrefuted
contentions that it notified the Schroeders of the tax assessments and made
demand for the unpaid taxes, (filing 32, PP 4, 5, 6), proof that it filed a
notice of lien, and then levied against their interest in property held by
the plaintiff, are sufficient to establish the United States' claim to the
rent monies as superior to the Schroeders. Therefore, Albers was obligated
to pay over to the government the entire amount of the rent when the United
States first made its levy. I find that the United States' claim to the interpleaded
funds deposited with this court, in the amount of $12,064.70, is superior and
its motion for the disbursement of interpleaded funds should be granted. The
Schroeders make several other claims. The Schroeders claim that Section 6331
only applies to employees of the federal government and that only the "Secretary" is
permitted to collect the tax due by means of levy. See (Schroeder Aff. at P
6, filing 31; Def.'s Rebuttal to Schultze's Mot. For Disbursement of Funds
at P 3.) Their interpretation is incorrect for two reasons. First, as the Supreme
Court made clear in Sims v. United States, 359 U.S. 108, 113 (1959), the language
in Section 6331 referring to "any officer, employee, or elected official,
of the United States ..." was included in order to "subject the salaries
of federal employees to the same collection procedures as are available against
all other taxpayers...." Id. (emphasis added). By its terms Section 6331
otherwise applies to "any person liable to pay any tax...." 26 U.S.C.
s 6331; United States v. National Bank of Commerce, 472 U.S. 713, 714-15 (1985).
Therefore, the Schroeders' property is subject to levy. [FN16] Second, the
term "Secretary" when used in this Title is defined to include the
Secretary of the Treasury as well as his delegate, 26 U.S.C. s 7701(a)(11)(B)
(Supp. V 1993), where his delegate includes any "officer, employee, or
agency ... duly authorized ... directly, or indirectly by one or more redelegations
of authority, to perform the function mentioned...." 26 U.S.C. s 7701(a)(12)(A)(i).
[FN17] Since the Schroeders have failed to present any evidence that IRS employee,
Patricia Price, was without proper authority to levy pursuant to Section 6331
as a "duly authorized" delegate of the Secretary, I find that their
allegation is meritless.
IT IS THEREFORE ORDERED that the Schroeders' motions for disbursement of interpleaded
funds, filings 37 and 39, are hereby denied. IT IS FURTHER ORDERED that the
United States' motion for disbursement of interpleaded funds, filing 35, is
hereby granted in full.
FN1. The plaintiff named the IRS as a defendant in
his state court complaint. In doing so, I understand him to have named the
United States of America as a defendant.
FN2. Rule 22 is similar to its statutory counterpart, although not providing
subject-matter jurisdiction, unlike Section 1335. See FED.R.CIV.P. 82. Rule
22 permits a plaintiff who faces multiple liability from person with claims
to disputed funds, regardless of their value, to deposit these with the district
court and implead the claimants. The underlying cause of action, however, must
provide the proper subject-matter jurisdiction to the court (e.g. 28 U.S.C.
s 1332, or some other statutory or constitutional grant of jurisdiction). In
the present case, as was mentioned above, I find that the court's subject-matter
jurisdiction is founded on 28 U.S.C. s 1340.
FN3. I would also add that I am not alone in this circuit in finding subject-matter
jurisdiction over an interpleader action involving a federal tax lien. See
Blackmon Auctions v. Van Buren Truck Ctr., Inc., 901 F.Supp. 287 (W.D.Ark.1995),
as well as the Stone case above.
FN4. In its motion for disbursement of the interpleaded, filing 35, the United
States asserts that because this is an interpleader action, it is an inappropriate
forum for the taxpayer to contest his tax liabilities. I agree, the taxpayer
should not be permitted to bring an interpleader action in order to contest
his federal tax obligation. The taxpayer is entitled to contest his tax liability
pursuant to 26 U.S.C. s 7422 (Supp. V 1993). He may do so in district court
pursuant to 28 U.S.C. s 1346(a)(1) (Supp. V 1993), provided he first pays the
tax owing. See Flora v. United States, 362 U.S. 145 (1960). He may also file
a claim in the United States Tax Court. The benefit of doing so is that the
taxpayer does not have to first pay the tax. A taxpayer who does not follow
one of these methods may not rely on 28 U.S.C. s 1340 instead. Geurkink Farms,
Inc. v. United States, 452 F.2d 643 (7th Cir.1971). However, I believe the
preceding discussion makes it clear that this is a proper action by a third
party, and that the Schroeders' claims will be considered as raising procedural
FN5. As the Schroeders are not represented by counsel, I shall construe all
of their pleadings liberally and draw from them the claims I understand them
to be making. In doing so, I have particularly considered filings 6, 31 and
39, as well as their rebuttal to the government's response to the Schroeders'
claim for disbursement of the interpleaded funds.
FN6. Section 2410(a)(5) allows the United States to be made a party to any
interpleader action with respect to "real or personal property on which
the United States claims a mortgage or other lien." Id.
FN7. The authority of Congress to "lay and collect" taxes is granted
by U.S. CONST. art. I, s 8, cl. 1. The laws created by Congress are the "supreme
Law of the Land." U.S. CONST. art. VI, cl. 2.
FN8. This makes irrelevant the Schroeders' denial of being dual status citizens,
(Filing 6.), as well as their claim that they are not taxpayers within
the meaning of Section 7701(a)(14). Moreover, it also disposes of their circular
argument, as I understand them to be making, that because Nebraska Revised
Statute s 77-2715 "defines" federal income tax liability as a function
of whether the persons paid any federal income tax, and since they are non-resident
aliens to the United Stated they did not pay any tax, therefore, they are not
required to do so. (Filing 31 at P 14.) (Their reading of the Nebraska statute
at issue is incorrect, in any case, and Nebraska law would have no bearing
on the applicability of federal tax law were the Schroeders' interpretation
correct.) Having concluded that they are residents of the United States, the
question of whether they paid any tax is irrelevant; they were obligated to
do so under federal law. The Schroeders also assert that I previously declared
them to be nonresident aliens in the case of Joeckel, et al., v. Collector
of Internal Revenue, 4:CV95-3016, by saying: "The simple truth is,
however, that the moment the plaintiffs voluntarily paid their federal
income tax, whether or not at that time they were also non-resident aliens,
they each became a taxpayer ..." The Schroeders evidently have overlooked
or have ignored the words "whether or not." In no sense does
the sentence say that the plaintiffs were or are non-resident aliens.
FN9. The Schroeders also rely on provisions found under Title 28 to support
their contentions that the terms used do not include their commonly understood
meanings. As under Title 26, however, such a reading of the provisions at issue
is not accurate.
FN10. The Schroeders also imply that because the funds arise out of a private
contract involving private property they are not income subject to federal
taxation. However, this view is erroneous. Under 26 U.S.C. s 61(a) (Supp.
V 1993), "gross income" is defined as "income from whatever source
derived," and Section 61(a)(5) specifically enumerates "rents" as
income. Therefore, they are subject to federal income tax.
FN11. The establishment of a tax lien by Congress is the exercise of its
constitutional power to "lay and collect taxes." State of Michigan
v. United States, 317 U.S. 338 (1943).
FN12. The Schroeders' claim that the "notice of lien" did not comply
with NEB.REV.STAT. s 52-1002, is not accurate, as that section provides that
a federal lien may be filed on the "notice" of such a lien, as well
as a "certificate" of lien or a "certification of notice" of
lien. Any of these three documents is to be accepted for filing. Id.
Furthermore, pursuant to Treasury Regulation 301.6323(f)-1(d)(1) & (2),
Form 668 is valid for filing a notice of lien. Exhibit 3, Form 668(Y), is a
Notice of Federal Tax Lien. See Filing 32. In response to the Schroeders' claim
that there must be a "formal" lien to be effective it should be understood
that because a federal tax lien arises by operation of law, it is a "formal" lien
at the instant of its creation.
FN13. The Schroeders base this claim on their belief that, because they do
not reside in the District of Columbia, they reside outside of the United States.
As was demonstrated earlier, they do reside within the United States and are
residents of it. Therefore, the Code provides that the lien is to be filed
where the real property of the United States resident is situated. 26 U.S.C.
FN14. Thus, the Schroeders' argument that the United States must first receive
a "warrant of distraint" from a state court before it may enforce
its lien, pursuant to the uniform commercial code is erroneous.
FN15. This result is in accord with the RESTATEMENT (SECOND) OF PROPERTY s
12.1 cmt. c.
FN16. Also defeated is the Schroeders' claim that Section 6331 applies only
to taxes assessed under Title 27. (Filing 31 at P 13.) Again, by its own language
Section 6331 applies to any tax, clearly including taxes owed under Title 26
of the United States Code. This result is reached notwithstanding the Schroeders'
citation of California Bankers Ass'n v. Shultz, 416 U.S. 21 (1974). This proposition,
for which they cite Shultz, is not even implied in that case. Shultz dealt
with the constitutionality of the Bank Secrecy Act of 1970. Pub.L. No. 91-508,
84 Stat. 1114 (codified at 12 U.S.C. ss 1730(d), 1829(b), 1951- 59, and 31
U.S.C. ss 1051-62, 1081-83, 1101-05, 1121-22).
FN17. The Schroeders also contend that there is no delegated authority to
execute a tax return on their behalf. (Filing 31 at P 11.) Pursuant to 26 U.S.C.
s 6020(b)(1) (Supp. V 1993), the secretary, or his delegate may execute a tax
return on behalf of any person who fails to file, or who willfully files a
false or fraudulent return. However, although the IRS has the authority to
do so, it is not required to make or file such return for the taxpayer, and
it properly may determine or assess a deficiency in the absence of such a return.
See, e.g., Maisano v. Commissioner, 894 F.2d 1344 (9th Cir.1990); Roat v. Commissioner,
847 F.2d 1379, 1382 n. 1 (9th Cir.1988); Smalldridge v. Commissioner, 804 F.2d
125, 127-28 n. 2 (10th Cir.1986); Moore v. Commissioner, 722 F.2d 193, 196
(5th Cir.1984); United States v. Verkuilen, 690 F.2d 648, 657 (7th Cir.1982).
Moreover, the tax court in Hartman v. Commissioner, 65 T.C. 542 (1975), held
that 26 U.S.C. s 6020(b)(1) does not make it mandatory that the Secretary of
the Treasury file a tax return before issuing a statutory notice of deficiency.
Therefore, their argument lacks merit.
to Tax Protestor Exhibit