U.S. v. Pilla, 82-1943

• Decision Date: 05 July 1983
• Docket Number: No. 82-1943,82-1943
• Citation: 711 F.2d 94
• Parties: 83-2 USTC P 9455 UNITED STATES of America, Appellee, v. Daniel M. PILLA, d/b/a Collins Printing Company; Henry Zappa; Peoples Plumbing and Heating Company; Charles T. Miller Hospital, Division of United Hospitals, Inc.; Gladys E. Munger; Ramsey County, Minnesota; Appeal of Daniel M. PILLA; Michael A. Pilla; Carlyn J. Pilla; Daniel J. Pilla; Paul M. Pilla; and Joseph P. Pilla. UNITED STATES of America, Appellee, v. RAMSEY COUNTY, Minnesota, Appeal of Daniel M. PILLA; Daniel J. Pilla; Michael A. Pilla; Carlyn J. Pilla; Paul M. Pilla; and Joseph P. Pilla.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 94

711 F.2d 94

83-2 USTC P 9455

UNITED STATES of America, Appellee, v. Daniel M. PILLA, d/b/a Collins Printing Company; Henry

Zappa; Peoples Plumbing and Heating Company; Charles T.

Miller Hospital, Division of United Hospitals, Inc.; Gladys

E. Munger; Ramsey County, Minnesota;

Appeal of Daniel M. PILLA; Michael A. Pilla; Carlyn J.

Pilla; Daniel J. Pilla; Paul M. Pilla; and

Joseph P. Pilla.

UNITED STATES of America, Appellee, v. RAMSEY COUNTY, Minnesota,

Appeal of Daniel M. PILLA; Daniel J. Pilla; Michael A.

Pilla; Carlyn J. Pilla; Paul M. Pilla; and

Joseph P. Pilla.

No. 82-1943.

United States Court of Appeals,

Eighth Circuit.

Submitted June 27, 1983.

Decided July 5, 1983.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, William S. Estabrook, Joan I. Oppenheimer, Attys., Tax Div., Dept. of Justice, Washington, D.C., for appellee; James M. Rosenbaum, U.S. Atty., Minneapolis, Minn., of counsel.

Daniel M. Pilla, Michael A. Pilla, Paul M. Pilla, Carlyn J. Pilla, Daniel J. Pilla, Joseph P. Pilla, pro se for appellants.

Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

HENLEY, Senior Circuit Judge.

This is an appeal from the district court's grant of a motion for summary judgment in favor of the United States. The case centers around a house and the government's ability to foreclose on it to satisfy the federal tax obligations of its owner. We believe that the Supreme Court's recent decision in United States v. Rodgers, --- U.S. ----, 103 S.Ct. 2132, 75 L.Ed.2d ---- (1983), requires a limited remand.

In 1969 appellants Daniel M. Pilla and Carlyn J. Pilla moved into a house on Edgerton Street in St. Paul, Minnesota. The house and lot were owned solely by Mr. Pilla.

Every year from 1970 to 1974 the Internal Revenue Service (IRS) made tax assessments against Pilla for unpaid federal withholding taxes totalling $7,193.68. In 1976 the government filed this suit to reduce this debt to judgment. The district court found that Pilla owed that amount, and that a valid tax lien had attached to the Edgerton Street property. The court further held that the Minnesota homestead law did not protect Pilla, nor did it protect Mrs. Pilla, since state homestead exemptions have no effect against federal tax liens.

After the above order was entered, that case was consolidated with a similar case involving Pilla's income tax debts. Pilla failed to file federal income tax returns for the years 1968 through 1972. In 1979 the Tax Court decided that Pilla owed the United States $194,126.44. In 1982 the IRS filed suit under § 7403 of the Internal Revenue Code ¹ to sell Pilla's home on Edgerton Street in partial satisfaction of the debt. Pilla defended on the basis that he had transferred the home in 1976, through a straw man, to his wife and four sons, appellants Michael A., Daniel J., Paul M. and Joseph P. Pilla. The district court found the transfer a fraudulent conveyance under Minnesota law, and held for the government. Judgment was entered allowing the government to sell the property.

The Pillas raise a number of meritless arguments. The district court's findings that Mr. and Mrs. Pilla did not own the Edgerton Street home in joint tenancy and that the 1976 transfer was fraudulent were decided correctly by the district court on the basis of uncontroverted evidence. Further, Minnesota's homestead laws clearly do not protect Mr. Pilla from the imposition of a federal tax lien on his interest in the Edgerton Street property. United States v. Rodgers, --- U.S. at ----, 103 S.Ct. at 2146. United States v. Mitchell, 403 U.S. 190, 204-05, 91 S.Ct. 1763, 1771-72, 29 L.Ed.2d 406 (1973); see 26 U.S.C. § 6334(c). We affirm the district court on these findings.

The protection of the homestead interest of Mrs. Pilla, however, raises a serious question. Mrs. Pilla does not owe any money to the IRS. Further, under Minnesota law, Mrs. Pilla may have a vested property right in her homestead. E.g., In re Joy, 5 B.R. 681 (Bkrtcy.D.Minn.1980); Ryan v. Colburn, 185 Minn. 347, 241 N.W. 388 (1932). Depriving her of this interest without compensation could raise serious due process problems.

In United States v. Rodgers, the Supreme Court addressed an almost identical set of facts. Rodgers involved § 7403 and the Texas homestead law, which, like Minnesota's, provides non-debtor spouses with a great deal of protection. The Court held that when both a non-debtor and a debtor held interests in property, the property itself, rather than merely the debtor's interest, could be sold to satisfy the tax obligations of the debtor. --- U.S. at ----, 103 S.Ct. at 2142. The Court pointed out that the IRS has rights superior to those of an "ordinary creditor," since it...