Liability of the United States for State and Local Taxes on Seized and Forfeited Property
| Decision Date | 18 October 1993 |
| Docket Number | 93-13 |
| Citation | 17 Op. O.L.C. 104 |
| Parties | Liability of the United States for State and Local Taxes on Seized and Forfeited Property |
| Court | Opinions of the Office of Legal Counsel of the Department of Justice |
WALTER DELLINGER, Assistant Attorney General Office of Legal Counsel
In civil forfeiture proceedings (under 21 U S C § 881), the United States is obligated to pay liens for stale and local taxes accruing after the commission of the offense leading to forfeiture and before the entry of a judicial order of forfeiture, if the hen-holder establishes, before the court enters the order of forfeiture, that it is an innocent owner of the interest it asserts
In criminal forfeiture proceedings (under 18 U S C. § 1963 or 21 U S C. § 853), the United States may not pay such hens because state and local tax lien-holders are not bona fide purchasers for value of the interests they would assert, and therefore do not come within any applicable exception to a statute that, upon entry of a court's final order of forfeiture, vests full ownership retroactively in the United States as of the date of the offense.
MEMORANDUM OPINION FOR THE DIRECTOR AND CHIEF COUNSEL EXECUTIVE OFFICE FOR ASSET FORFEITUREYou have asked us to reconsider our opinion that property seized by and forfeited to the United States is not subject to state or local taxation for the period between the commission of the offense that leads to the order of forfeiture and the entry of the order of forfeiture. See Liability of the United States for State and Local Taxes on Seized and Forfeited Property, 15 Op. O.L.C. 69 (1991) ("Harrison Memorandum"). In light of the Supreme Court's decision in United States v. 92 Buena Vista Ave., 507 U.S. 111 (1993), we partially reverse our opinion.
Because states and localities may not tax federal property (absent express congressional authorization), [1] the time at which ownership of forfeited property passes to the United States and the extent of the ownership interest that passes to the United States determine whether state and local taxes are owed. In many property transactions, the time and the extent of transfer of ownership are unambiguous and independent issues. In cases of transfers of ownership under the federal forfeiture statutes, however, the answer to the question of when ownership is transferred has been a matter of dispute and of great consequence for the extent of the interest transferred.
The Harrison Memorandum expresses the Justice Department's traditional view that title vests in the United States at the time of the offense. This view is based on [ 105] an interpretation of the "relation back" doctrine which provides that a judicial order of forfeiture retroactively vests title to the forfeited property in the United States as of the time of the offense that leads to forfeiture, not as of the time of the judicial order itself. See 21 U.S.C. § 881(h) (); 18 U.S.C. § 1963(c), 21 U.S.C § 853(c) (). Under the Department's traditional interpretation, title in forfeited property vests in the federal government at the time of the offense. The date of the judicial order of forfeiture is not significant. From the date of the offense, states and other parties are barred from acquiring interests in the property from the owner whose interests are forfeited to the United States. See In re One J985 Nissan, 889 F.2d 1317, 1319-20 (4th Cir. 1989); Eggleston v. Colorado, 873 F.2d 242, 245-48 (10th Cir. 1989), cert, denied, 493 U.S. 1070 (1990) (cases decided before Buena Vista and consistent with the Harrison Memorandum).
The Harrison Memorandum considers and rejects several possible grounds for limiting the operation of the relation back doctrine and requiring payment of state and local tax liens for the period between the offense and the forfeiture order. The two grounds of principal concern here are the "innocent owner" defense in the civil drug forfeiture statute, see 21 U.S.C. § 881(a)(6)[2], and the "bona fide purchaser" defense in the criminal drug forfeiture statute, see 21 U.S.C. § 853(c), and in the forfeiture provision of the RICO statute, see 18 U.S.C. § 1963(c). The Harrison Memorandum concludes that these defenses do not protect a state or locality (or anyone else) who innocently acquires a property interest after the time of the offense. The Supreme Court's decision in Buena Vista forces us to reconsider this conclusion. We conclude that the Harrison Memorandum's conclusion concerning the innocent owner defense must be reversed, but that the Harrison Memorandum's conclusion regarding the bona fide purchasers defense is correct (although this latter conclusion is less certain than the Harrison Memorandum indicates and we reach it through an analysis different from that set forth in the Harrison Memorandum).
The civil drug forfeiture statute provides that "no property shall be forfeited . . ., to the extent of the interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner." 21 U.S.C. § 881(a)(6). The Harrison Memorandum [ 106] accepted that "owner" could include a state or locality holding a tax lien on the property. See Harrison Memorandum, 15 Op. O.L.C. at 72 . The Memorandum concluded, however, that this "innocent owner" provision does not apply to asserted property interests that arise after the time of the offense because, as of the moment of the offense, the property belongs (by operation of the relation back doctrine) to the United States, and not to the person from whom a third party innocently acquires an interest.
We conclude, consistent with the Harrison Memorandum, that a state or locality holding a tax lien can be an "owner" as that term is defined in the civil forfeiture statute's innocent owner provisions. The broad language of the statute — "[a]ll . . . things of value" and "[a]ll real property, including any right, title and interest" — provides no reason to exclude a tax lien-holder from the definition of "owner." 21 U.S.C. § 881(a)(6), (7). The legislative history urges a broad reading.[3] And the courts have followed, sometimes explicitly, the path suggested by Congress.[4] The "innocence" requirement of an innocent owner defense would seem to be easy to satisfy in most cases. Like an innocent donee or purchaser, a state or locality holding a tax lien generally has obtained its interest without knowledge of the offense giving rise to the forfeiture.
The Harrison Memorandum's further conclusion with regard to the innocent owner defense, however, cannot survive the ruling in Buena Vista. The plurality and concurring opinions reject the interpretation of the relation back doctrine set forth in the Harrison Memorandum, and agree that the innocent owner defense is available to persons who acquire interests in forfeitable property after the commission of the offense that rendered the property subject to forfeiture. The opinions differ only as to the reading of the statute that leads to this result.
The plurality and the concurrence both analyze the common law doctrine of relation back as transferring ownership of forfeited property retroactively to the date of the offense but only upon the entry of a judgment of forfeiture. Until a court issues such a judgment, this retroactive vesting of ownership in the United States does not occur, and all defenses to forfeiture that an owner of the property otherwise may invoke will remain available. Thus, a person who has acquired an interest in the property may raise any such defense in a forfeiture proceeding. If that [ 107] person prevails, a judgment of forfeiture will not vest (retroactively) ownership of that property interest in the United States. Buena Vista, 507 U.S. at 125-27, 128-30 (plurality opinion) 131-38 (Scalia, J., concurring).
The plurality and the concurrence both conclude that the federal civil forfeiture statute is fully compatible with the common law, and that the statutory innocent owner clause provides a defense for a third party who innocently acquires ownership of the property after the offense and before a judgment of forfeiture. The plurality notes that § 881(h), which sets forth the relation back doctrine for the civil forfeiture statute, applies that doctrine only to "property described in subsection (a) of this section." Subsection (a)(6) excepts, from its description of forfeitable property, the property of an innocent owner. Therefore, in the plurality's analysis, subsection (a) places the property of an innocent owner beyond the reach of the forfeiture and relation back provisions in subsection (h). See Buena Vista, 507 U.S. at 127-30. Accordingly, an ownership interest in forfeitable property that is transferred to an innocent person (after the offense giving rise to forfeiture) does not vest in the United States as of the time of the offense. Indeed, it does not vest in the United States at all.
Interpreting the civil forfeiture statute as a more straightforward codification of common law doctrine, [5] the concurrence reads the phrase, in subsection (h), '"shall vest in the United States upon commission of the act giving rise to forfeiture'" as meaning '"shall vest in the United States upon forfeiture, effective as of commission of the act giving rise to forfeiture.'" Buena Vista, 507 U.S. at 134 (Scalia, J concurring).[6] The result, of course, is the same as under the plurality's analysis: a property interest innocently...
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