U.S. v. Davenport

• Decision Date: 11 February 1997
• Docket Number: No. 96-1299,96-1299
• Citation: 106 F.3d 1333
• Parties: -1006, 97-1 USTC P 50,213 UNITED STATES of America, Plaintiff-Appellee, v. Amos D. DAVENPORT, Jr. and Norma L. Davenport, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1333

106 F.3d 1333

79 A.F.T.R.2d 97-1006, 97-1 USTC P 50,213

UNITED STATES of America, Plaintiff-Appellee, v. Amos D. DAVENPORT, Jr. and Norma L. Davenport, Defendants-Appellants.

No. 96-1299.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 24, 1996.

Decided Feb. 11, 1997.

Gary R. Allen, David I. Pincus, Annette M. Wietecha (argued), Department of Justice, Tax Division, Appellate Section, Washington, DC, Douglas W. Snoeyenbos, Department of Justice, Tax Division, Washington, DC, Thomas P. Walsh, Samuel D. Brooks, Office of the United States Attorney, Civil Division, Chicago, IL, for Plaintiff-Appellee.

Andrew B. Spiegel (argued), Wheaton, IL, for Defendants-Appellants.

Before CUMMINGS, ESCHBACH, and FLAUM, Circuit Judges.

ESCHBACH, Circuit Judge.

From 1980-1987, Amos Davenport chose not to file federal income tax returns. Although the transgression was his alone, the consequences extended to his wife, Norma Davenport, when the district court ordered the sale of the Davenports' marital residence to satisfy the federal tax liens that had allegedly attached to the property. The Davenports argue for reversal of the district court's order on the grounds that the sale of their residence violates Illinois homestead law, the Illinois tenancy by the entirety statute, and Internal Revenue Service procedural regulations. Although we sympathize with Norma Davenport's unenviable position, the law requires affirmance for the reasons below.

I. BACKGROUND

The Davenports have owned their residence at 443 Luella, Calumet City, Illinois (the "marital residence") since April 2, 1955. In 1989, the tax man came knocking: the United States assessed taxes and penalties totalling $168,429.26 for Amos' failure to pay federal income taxes from 1980-1987. Notices of assessments and demands for payment dated December 11, 1989, were sent to Mr. Davenport, but the demands were ignored. Finally, on August 16, 1994, the United States initiated this action in district court seeking to reduce the assessments to judgment and to foreclose its liens on Amos' interest in the marital residence.

At the time the demands for payment were made, the Davenports owned the marital residence as joint tenants. However, on March 20, 1995 (after commencement of the government's foreclosure suit) the Davenports transferred the property to a tenancy by the entireties under Illinois law, presumably in hopes that the estate would then be impervious to Amos' creditors, including the United States taxing authorities.

On December 12, 1994, in response to the government's motion for summary judgment, the district court issued an order 1) entering judgment in favor of the United States in the amount of $208,003.72, ¹ 2) foreclosing the federal tax liens, and 3) ordering the sale of the marital residence in satisfaction of the liens. The court reserved ruling on whether Amos was also liable for fraud penalties for the years 1981-1987. In addition, the court refrained from specifying a specific dollar amount or percentage due Norma Davenport as a portion of the proceeds of the sale.

The Davenports appeal the partial summary judgment order decreeing the sale of the marital residence. We review this order de novo, drawing all reasonable inferences in the non-movant's favor. Hoornstra v. United States, 969 F.2d 530, 532 (7th Cir.1992).

II. JURISDICTION

As a threshold matter, we must determine whether the district court's order is reviewable at this juncture. Although appellants' brief relies on § 1291 jurisdiction, the government correctly discerns that the December 12 order did not dispose of all claims against all parties. When questioned at oral argument, the parties finally agreed that jurisdiction existed under the finality doctrine enunciated in Forgay v. Conrad, 47 U.S. (6 How.) 201, 12 L.Ed. 404 (1848). ² Despite the parties' ultimate agreement, however, we are obliged to independently confirm the basis of our appellate jurisdiction. See Mt. Healthy City School Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278, 97 S.Ct. 568, 571-72, 50 L.Ed.2d 471 (1977); Stearnes v. Baur's Opera House, Inc., 3 F.3d 1142, 1144 (7th Cir.1993).

The courts of appeal have jurisdiction over "all final decisions of the district courts of the United States ... except where a direct review may be had in the Supreme Court." 28 U.S.C. § 1291. The government correctly points out that, under conventional doctrine, the district court's order was not a final decision because it did not dispose of all claims against all parties. Specifically, the court left unresolved the issues of additional fraud penalties for 1981-1987 and Norma Davenport's apportioned share of the judicial sale proceeds.

Nevertheless, we take jurisdiction over this appeal under the finality doctrine first announced in Forgay v. Conrad:

[W]hen the decree decides the right to the property in contest, and directs it to be delivered up by the defendant to the complainant, or directs it to be sold ... and the complainant is entitled to have such decree carried immediately into execution, the decree must be regarded as a final one to that extent.

Forgay, 47 U.S. (6 How.) at 204. The doctrine has been judicially shaped to allow the immediate review of orders directing delivery of property where such an order would subject the losing party to irreparable harm. We have repeatedly recognized the vitality of the Forgay finality doctrine, see, e.g., National Tax Credit Partners, L.P. v. Havlik, 20 F.3d 705 (7th Cir.1994); Construction Indus. Retirement Fund of Rockford v. Kasper Trucking, Inc., 10 F.3d 465 (7th Cir.1993), but have been careful to restrict the doctrine's application to instances that pose clearly irreparable harm. See ODC Communications Corp. v. Wenruth Investments, 826 F.2d 509 (7th Cir.1987). Here, the possibility of irreparable harm is plain. The order entered by the district court directs the immediate sale of a unique parcel of land, appellants' marital residence. The bona fide purchaser of the residence at a judicial sale would be under no obligation to later return title to the Davenports should the district court's order be ruled error. The injury occasioned by an erroneous sale of the Davenports' property could be remedied neither by the prior posting of a bond nor by a later award of damages, because the Davenports' interests lie not only in the economic value of the house, but in the specific loss of their marital residence. There can be no questioning the possibility of irreparable harm in this instance. Under these circumstances, the district court's foreclosure and sale order is a final decision subject to our present review. ³

III. FORCED SALE OF THE MARITAL RESIDENCE

Having asserted jurisdiction, we are left with the question of whether the district court's order directing the sale of the Davenports' marital residence was proper. The appellants assert that the sale of the property to satisfy the tax lien of only one spouse violates both the Illinois tenancy by the entireties statute and Illinois homestead law.

As support, however, the Davenports cite cases which merely recite the black letter proposition that creditors of only one spouse cannot attach a lien to property held in a tenancy by the entirety. Their brief thus muddles the two distinct legal questions involved in this case: 1) whether the tax lien properly attached to the marital residence, and 2) whether, if the lien did attach, the district court's sale order was proper.

To answer the first question, we must know whether Amos Davenport had "property" to which the lien could attach. Hoornstra v. United States, 969 F.2d 530, 532 (7th Cir.1992). State law determines what interest a taxpayer has in property. United States v. Rodgers, 461 U.S. 677, 683, 103 S.Ct. 2132, 2137, 76 L.Ed.2d 236 (1983); United States v. Denlinger, 982 F.2d 233, 235 (7th Cir.1992). Here, the Davenports argue that the sale was improper because, under Illinois law, a creditor of one spouse cannot attach a lien to property held in an entireties estate because neither spouse has a separate distinguishable interest in that property. While we have no quarrel with this rule of law, its lesson is irrelevant here because the federal tax lien arose before the Davenports transferred the property from a joint tenancy into an entireties estate.

Under I.R.C. § 6321, "if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to that person." This lien attaches at the time of the assessment. I.R.C. § 6322. In this case, the government gave notice of the assessments and made demands for payment as required by I.R.C. § 6303 on December 11, 1989. ⁴ At that time, the Davenports held the property as joint tenants, not as tenants by the entirety. As a joint tenant, Amos clearly had a defined, separable interest in property to which the federal lien could attach. Furthermore, the Davenports' subsequent transfer of the property into a tenancy by the entirety does not disturb the lien's attachment because "it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere...." United States v. Bess, 357 U.S. 51, 57, 78 S.Ct. 1054, 1058, 2 L.Ed.2d 1135 (1958) (quoting Burton v. Smith, 38 U.S. (13 Pet.) 464, 483, 10 L.Ed. 248 (1839)) (internal quotations omitted).

Having found that the federal lien properly attached, the only question left for our review is whether the marital residence, now held as an entireties estate, can be sold by the government to satisfy the federal tax obligation of only one spouse. The Davenports insist it cannot, relying in error on E.J. McKernan Co. v. Gregory, 268 Ill.App.3d 383, 205 Ill.Dec. 763, 643 N.E.2d 1370 (1994). In McKernan, the plaintiff corporation won a civil judgment against defendant. After the...