Elfelt v. Cooper

• Decision Date: 29 May 1991
• Docket Number: No. 90-1326,90-1326
• Parties: James M. ELFELT, Joseph P. Elfelt, Anthony J. Elfelt, Lawrence W. Elfelt, Paul G. Elfelt, David C. Elfelt and Steven M. Elfelt, Plaintiffs-Respondents-Cross Appellants, v. Albina COOPER, Defendant-Appellant-Cross Respondent, d Dale T. Cooper, Defendant.
• Court: Wisconsin Court of Appeals

Page 303

471 N.W.2d 303

163 Wis.2d 484

James M. ELFELT, Joseph P. Elfelt, Anthony J. Elfelt,

Lawrence W. Elfelt, Paul G. Elfelt, David C.

Elfelt and Steven M. Elfelt, Plaintiffs-Respondents-Cross Appellants, v. Albina COOPER, Defendant-Appellant-Cross Respondent,

d

Dale T. Cooper, Defendant.

No. 90-1326.

Court of Appeals of Wisconsin.

Submitted on Briefs March 15, 1991.

Opinion Released May 29, 1991.

Opinion Filed May 29, 1991.

[163 Wis.2d 489] William A. Pangman of William A. Pangman & Associates, S.C., Waukesha, for defendant-appellant-cross respondent.

Richard R. Kobriger and Kay E. Felker of Cramer, Multhauf & Hammes, Waukesha, for plaintiffs-respondents-cross appellants.

Before NETTESHEIM, P.J., and BROWN and ANDERSON, JJ.

ANDERSON, Judge.

Albina Cooper appeals from a judgment declaring the respondents (the Elfelts) owners of an undivided one-half interest in Albina's home, ordering a partition of the property and determining rent due from Albina to the Elfelts. The Elfelts acquired their interest after the Internal Revenue Service (IRS) levied upon and sold Dale Cooper's equal interest in the home to satisfy his income tax arrears. The Elfelts cross-appeal and argue that Albina brought frivolous claims and defenses and refused to admit facts later proven at trial. The Elfelts also argue that Albina's appeal is frivolous. The Elfelts request attorney's fees for each of their claims. We hold that the Elfelts may receive rent and partition, and that Albina's claims, defenses and appeal were not frivolous. However, we remand for the trial court to make the necessary factual findings to determine whether it was reasonable for Albina to refuse to admit facts later proven at trial, and to determine the amount of rent due.

Dale Cooper and his wife, Albina, owned their homestead as joint tenants. Dale was delinquent in his income taxes, but Albina was not liable for any delinquent income taxes. In 1985, the IRS placed a levy on Dale's interest in the property pursuant to 26 U.S.C. (I.R.C.) sec. 6331. After the period of redemption expired, the IRS sold Dale's interest to John and Stacy Elfelt by a quitclaim deed. They subsequently granted a quitclaim deed to their children. The children (the Elfelts) brought an action against Albina for rent and to partition the property. Dale died just before trial.

The issue at trial was whether the IRS complied with the statutory requirements in selling Dale's property interest. The jury found that the IRS did comply with the legal requirements. Therefore, the Elfelts had title, and the trial court granted the Elfelts' request for rent and partition.

Albina appeals and argues that because the IRS lacked the legal authority to sell Dale's interest in their homestead, the Elfelts do not have good title and they cannot receive rent or partition. ¹ The Elfelts cross-appeal and claim that Albina made frivolous claims and defenses and they request attorney's fees. The Elfelts also claim that because Albina refused to admit facts later proven at trial, they should receive attorney's fees for proving those facts.

APPEAL

The first issue is whether I.R.C. sec. 6331 gave the IRS the legal authority to levy and sell Dale's equal interest in the homestead held in joint tenancy. ² The jury's factual findings are not disputed on appeal. The application of a statute to an undisputed set of facts presents a question of law which this court reviews without deference to the trial court. Park Bank- West v. Mueller, 151 Wis.2d 476, 482, 444 N.W.2d 754, 757 (Ct.App.1989).

The IRS code provides that if any person does not pay income tax, a lien shall attach on "all property and rights to property" belonging to the person. I.R.C. sec. 6331(a). The language "all property and rights to property" is broad and reveals that Congress meant to reach every interest in property that a taxpayer may have. United States v. National Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 2923-24, 86 L.Ed.2d 565 (1985). Because a lien is not self-executing, affirmative action by the IRS is required. Id. at 720, 105 S.Ct. at 2924. There are two tools for collection: a lien-foreclosure suit pursuant to I.R.C. sec. 7403 and a collection of unpaid tax by administrative levy, including the power to seize and sell, pursuant to I.R.C. sec. 6331. ³ National Bank, 472 U.S. at 720, 105 S.Ct. at 2924.

National Bank sets forth the appropriate analysis. ⁴ " '[O]nce it has been determined that state law creates sufficient interests in the [taxpayer] to satisfy the requirements of [the statute], state law is inoperative,' and the tax consequences thenceforth are dictated by federal law." Id. at 722, 105 S.Ct. at 2925, quoting United States v. Bess, 357 U.S. 51, 56-57, 78 S.Ct. 1054, 1058, 2 L.Ed.2d 1135 (1958). Furthermore, "[s]tate law define[s] the nature of the taxpayer's interest in the property, but the state-law consequences of that definition are of no concern to the operation of the federal tax law." National Bank, 472 U.S. at 723, 105 S.Ct. at 2926. Because the tax consequences attach to "property" or "rights to property," the threshhold question is whether Dale had "property" or "rights to property" under Wisconsin law.

Dale and Albina owned their homestead as joint tenants. Each of two or more joint tenants has an equal interest in the whole property for the duration of the tenancy. Section 700.17(2)(a), Stats. Joint tenants have the right to sell their shares or seek and obtain partition. Nichols v. Nichols, 43 Wis.2d 346, 349, 168 N.W.2d 876, 878 (1969); see also sec. 842.02, Stats. A joint tenant, absent some prohibition of a specific nature, always has the power to sell his or her interest. Lutzke v. Lutzke, 122 Wis.2d 24, 32, 361 N.W.2d 640, 644 (1985). Therefore, Dale's equal interest in their home was a "right to property" under Wisconsin law, and the federal tax consequences of I.R.C. sec. 6331 apply. Because homestead and joint tenancy property were not listed as a type of property exempted from federal seizure in I.R.C. sec. 6334, the federal tax consequences included seizing and selling Dale's right to the property. See I.R.C. sec. 6331(b); see also footnote 3, supra.

The restrictions accompanying homesteads and joint tenancies are state law consequences of the rights to the property. For example, a state law consequence of a property interest existing as a homestead is that a conveyance must contain both spouses' signatures. Section 706.02(1)(f), Stats. A state law consequence such as the signature requirement, is inoperative and does not prevent the levy and sale of Dale's right to the property. See National Bank, 472 U.S. at 722, 105 S.Ct. at 2925. Furthermore, it has been held that state homestead exemptions do not prevent the IRS from levying Dale's right to the property. See United States v. Hoffman, 643 F.Supp. 346, 349 (E.D.Wis.1986).

In State Bank of Drummond v. Christophersen, 93 Wis.2d 148, 157, 286 N.W.2d 547, 552 (1980), the Wisconsin Supreme Court held that a transaction is void if a joint tenant of a homestead attempts to convey the other joint tenant's interest without the signature of the other joint tenant. Drummond does not prevent the conveyance in this case because the I.R.S. levied and sold Dale's property interest, and not Albina's property interest.

Albina argues that the IRS was without legal authority to seize and sell Dale's property interest in their homestead. She relies on language in National Bank which explicitly states that I.R.C. sec. 6331 is a provisional remedy which allows the IRS to levy on the property immediately and leave ownership disputes to be resolved in post-seizure administrative or judicial proceedings. National Bank, 472 U.S. at 728-31, 105 S.Ct. at 2928-32. She argues that because administrative proceedings were absent, the IRS had no authority to sell the property.

The language Albina relies upon is in the Supreme Court's discussion of the rights of third parties and whether or not the third parties' rights must be protected before the property is seized pursuant to I.R.C. sec. 6331. See id. We conclude that the Supreme's Court language does not limit the IRS's authority to sell the property after seizure pursuant to I.R.C. sec. 6331. The Supreme Court recognized that, although third parties' interests may be indirectly implicated in I.R.C. sec. 6331 actions, third parties' interests do not prevent the IRS from acting under I.R.C. sec. 6331. See National Bank, 472 U.S. at 728-31, 105 S.Ct. at 2928-30. The Court pointed out that I.R.C. sec. 7403 is the tool which can adjudicate all interested parties' rights in one proceeding. See National Bank, 472 U.S. at 720, 105 S.Ct. at 2924. In contrast, I.R.C. sec. 6331 is intended to reach only one party's interest. See United States v. Rodgers, 461 U.S. 677, 696, 103 S.Ct. 2132, 2144, 76 L.Ed.2d 236 (1983). In such cases, I.R.C. sec. 6331 is an appropriate tool to collect delinquent taxes. National Bank, 472 U.S. at 728-31, 105 S.Ct. at 2928-30. Here, the IRS levied and sold only Dale's right to the property. Thus, I.R.C. sec. 6331 was the appropriate tool authorized by Congress to seize and sell Dale's rights to the property.

Although the Court stated that I.R.C. sec. 6331 is provisional, it is provisional only because third parties' rights are not resolved. The fact that the code section is provisional does not prevent the IRS from doing what I.R.C. sec. 6331 specifically allows: seizing and selling the property. Neither the Supreme Court nor the code requires that an adjudication of third parties' interests occur before the explicit statutory authority to sell the property is invoked.

In the case where third parties' interests are inadvertently impaired and the IRS has chosen to proceed under I.R.C. sec. 6331, Congress provided a means to adjudicate those rights pursuant to I.R.C. secs. 6343(b) or 7426. These statutory remedies for third parties contemplate the sale of property...