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Not Reported in F.Supp.
77 A.F.T.R.2d 96-1234, 96-1 USTC P 50,197

Tregan P. ALBERS, Plaintiff,
v.
INTERNAL REVENUE SERVICE, Kenneth Schroeder, et al., Defendants.
No. 4:CV95-3068.
United States District Court, D. Nebraska.
Feb. 15, 1996.

Jerry D. Anderson, Heinrisch, Bryan Law Firm, Geneva, Nebraska for plaintiff.

Sally R. Johnson, Assistant U.S. Attorney, Lincoln, Nebraska, and
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 funds.

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 merit.

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 funds.

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 issues.

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. s 6323(f).

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.

Return to Tax Protestor Exhibit