In re Jones, Bankruptcy No. 94-01296

Decision Date26 March 1997
Docket NumberBankruptcy No. 94-01296,Adversary No. 95-0043.
Citation206 BR 614
PartiesIn re Cheryl JONES, Debtor. Cheryl JONES, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.
CourtUnited States Bankruptcy Courts – District of Columbia Circuit

Matthew A. Brennan, III, Carol Waite (Brennan & Waite), Oakton, VA, for debtor.

Samuel A. Mitchell, Washington, DC, for Tax Division of the United States Department of Justice.


S. MARTIN TEEL, Jr., Bankruptcy Judge.

On stipulated facts, the defendant Internal Revenue Service ("IRS") seeks summary judgment adjudicating that its tax liens attached to the debtor's Thrift Savings Plan ("TSP") account1 and that it has an allowed secured claim for the amount of that account despite the anti-alienation provisions of 5 U.S.C. § 8437(e)(2) and the failure of the IRS to levy on the account before the debtor filed her bankruptcy case. The motion will be granted.

The plaintiff, Cheryl Jones, filed her bankruptcy petition under chapter 13 of the Bankruptcy Code and later filed this adversary proceeding to determine the amount of the IRS's allowed secured claim. On the date of filing her petition, she was liable to the IRS for $61,347.17 in income taxes and associated interest and penalties.2 The IRS had previously filed a notice of federal tax liens relating to the assessments of the income taxes. The first issue is whether the liens attached to the debtor's TSP account in the approximate net amount of $8,375.00.3 The second issue is whether the lien is avoidable as unperfected because the IRS never proceeded against the account.


The account is subject to the protections of 5 U.S.C. § 8437(e)(2), enacted on June 6, 1986, which provides, with exceptions inapplicable here, that TSP accounts "may not be assigned or alienated and are not subject to execution, levy, attachment, garnishment, or other legal process." Nevertheless, the court concludes that the account is subject to an enforceable federal tax lien under 26 U.S.C. § 6321. As discussed in part A below, general principles counsel against repealing § 6321 in the case of TSP accounts unless § 6321 and § 8437(e)(2) are in irreconcilable conflict. As discussed in part B below, because IRS levies are excepted from § 8437(e)(2), Congress implicitly intended that tax liens, which levies serve to enforce and which accord the IRS priority as against other creditors, would continue to attach to TSP accounts. In any event, as discussed in part C below, the definition of alienation ought not be viewed as including the attachment of a tax lien which may be enforced by levy. A holding that the IRS claim may be enforced as a secured claim under the debtor's chapter 13 plan neither effects a prohibited alienation (part D below) nor subjects the TSP account to other creditors' claims (part E below).


Under 26 U.S.C. § 6321, the assessment of a tax liability gives rise to a tax lien on all of the taxpayer's property and rights to property. The TSP statute should not lightly be interpreted as repealing § 6321 in the case of TSP accounts.

This follows from well settled principles of repeal by implication. See generally Chamber of Commerce v. Reich, 74 F.3d 1322, 1333 (D.C.Cir.1996). It is a "cardinal rule . . . that repeals by implication are not favored." Posadas v. National City Bank, 296 U.S. 497, 503, 56 S.Ct. 349, 352, 80 L.Ed. 351 (1936). This should particularly be so in the case of federal tax collection remedies because the Supreme Court has recognized that the collection of taxes is the "life-blood of government." Franchise Tax Board v. USPS, 467 U.S. 512, 523, 104 S.Ct. 2549, 2555, 81 L.Ed.2d 446 (1984) (quoting Bull v. United States, 295 U.S. 247, 259-60, 55 S.Ct. 695, 699, 79 L.Ed. 1421 (1935)).

Repeal by implication should be allowed here only if the two statutes' provisions are in irreconcilable conflict. Radzanower v. Touche Ross & Co., 426 U.S. 148, 155, 96 S.Ct. 1989, 1993, 48 L.Ed.2d 540 (1976). That is to say, the provision of § 6321 that the tax lien attaches to all of the debtor's property should be deemed repealed in the case of TSP accounts only if necessary to make the TSP statute work. Radzanower, 426 U.S. at 155, 96 S.Ct. at 1993. Demonstrably the TSP statute is susceptible to a reasonable and workable interpretation which does not bar the attachment of federal tax liens to TSP accounts.


A TSP account is subject to seizure by levy under 26 U.S.C. § 6331(a) because 26 U.S.C. § 6334(c) provides that no properties other than those specifically listed in § 6334(a) shall be exempt from levy "notwithstanding any other law of the United States. . . ." This plain language bars interpreting 5 U.S.C. § 8437(e)(2) as proscribing a § 6331 levy on a TSP account. Cf. Shanbaum v. United States, 32 F.3d 180, 183 (5th Cir.1994) (based in part on plain language of § 6334(c), ERISA pension benefits subject to IRS levy despite ERISA's requirement that pension plan contain anti-alienation clause).

The debtor points to earlier bills in Congress that would have included "debts owed by the individual to the United States" as an additional exception to the proscriptions of 5 U.S.C. § 8437(e)(2). See S. 1527, 99th Cong., 1st Sess. (1985) (proposed 5 U.S.C. § 8434(d)(1)). That language was dropped from the final statute.4 That deletion is inconsequential. The plain language of 26 U.S.C. § 6334(c) made it unnecessary to retain the deleted language (which applied to all claims of the United States) or some modification thereof in order for IRS levies to be excepted from the proscriptions of 5 U.S.C. § 8437(e)(2).

Having concluded that a federal tax levy is not barred by the proscriptions of 5 U.S.C. § 8437(e)(2), it is doubtful that Congress intended that the attaching of a federal tax lien, a much less drastic and invasive collection enforcement measure, is barred by § 8437(e)(2). Particularly in light of the adjunct role a levy plays to a tax lien, Congress would not likely have intended that a TSP account could be levied on but could not be subjected to a tax lien under 26 U.S.C. § 6321.

Under § 6321 the federal tax lien attaches to "all property and rights to property, whether real or personal, belonging to the taxpayer." This language "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. Nat'l Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 2924, 86 L.Ed.2d 565 (1985) (citation omitted). "A federal tax lien, however, is not self-executing. Affirmative action by the IRS is required to enforce collection of the unpaid taxes." Id. at 720, 105 S.Ct. at 2924. As observed in United States v. Whiting Pools, Inc., 462 U.S. 198, 209-210, 103 S.Ct. 2309, 2316, 76 L.Ed.2d 515 (1983), the levy power is a means of enforcement of the tax lien and "the Service's interest in seized property is its lien on that property." Viewing a levy as an adjunct to tax liens, it is implicit that a TSP account's exposure to tax levy includes subjecting the account to the tax lien which the levy enforces.

Concededly, by the terms of § 6331 itself, a levy can be made on either property belonging to the taxpayer or on property subject to a tax lien (as in the case of property the debtor has conveyed to another before levy has been attempted).5 But because Congress wanted to preserve the IRS's right to levy, it surely must have intended to preserve the IRS's right to take steps to assure that the levy power would be enforceable to the hilt.

Two examples of how a tax lien maximizes the effectiveness of a levy suffice. First, consider those instances in which other creditors execute on a TSP account6 and would defeat a subsequent § 6331 levy if no notice of tax lien had been earlier filed under 26 U.S.C. § 6323. Second, consider the protection the tax lien would give the IRS if the ownership of the account passed by reason of the death of the taxpayer to someone else. The lien would remain on the funds and the IRS could levy on the funds as subject to the tax lien.

Indeed, some courts have held that a federal tax levy does not serve to accord the IRS any secured status against subsequent lienors, such that the IRS has no priority secured status unless it earlier filed a notice of tax lien.7 If that is a correct holding, that would only strengthen the case for holding that a federal tax lien attaches to a TSP account.8 But even if, as other courts have held9, a levy can serve to accord the IRS a secured status, Congress would not likely have deprived the levy power of the assistance that would be afforded it by the attaching of an earlier-filed federal tax lien.

Congress did not intend in enacting the TSP statute to diminish the property that a tax levy could reach with a first priority by immunizing a TSP account from the reach of the tax lien itself. Its concern, instead, was to prevent other creditors from taking steps allowing them to collect from TSP accounts.

Concededly, a lien is not a levy. For example, property can be subject to a lien which is exempt from a levy. In re Voelker, 42 F.3d 1050, 1052 (7th Cir.1994); United States v. Barbier, 896 F.2d 377, 379 (9th Cir.1990). It does not follow from this that a TSP account which, in regard to an IRS levy, is expressly excepted by 26 U.S.C. § 6334(c) from the TSP statute's anti-alienation provisions, is in the absence of express congressional provision, exempt by reason of those same anti-alienation provisions from being subject to a federal tax lien.

This is because Section 8437(e)(2) addresses a goal of guarding against unwise assignments by the employee beneficiary of a TSP account and safeguarding the account from being subject to attack by creditors in general. The federal tax lien statute "relates to the taxpayer's rights to property and not to his creditors' rights." National Bank of Commerce, 472 U.S. at 727, 105 S.Ct. at 2928.

Thus, the IRS is in a different...

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