Popky v. U.S.

• Decision Date: 15 June 2004
• Docket Number: No. Civ.A. 03-1487.,Civ.A. 03-1487.
• Citation: 326 F.Supp.2d 594
• Parties: Howard D. and Sheila A. POPKY v. UNITED STATES OF AMERICA
• Court: U.S. District Court — Eastern District of Pennsylvania

326 F.Supp.2d 594

Howard D. and Sheila A. POPKY v. UNITED STATES OF AMERICA

No. Civ.A. 03-1487.

United States District Court, E.D. Pennsylvania.

June 15, 2004.

COPYRIGHT MATERIAL OMITTED

John R. Crayton, Crayton & Belknap, Bensalem, PA, for Plaintiffs.

Pat S. Genis, U.S. Attorney's Office, U.S. Dept of Justice, Washington, DC, for Defendant.

MEMORANDUM

O'NEILL, District Judge.

I. INTRODUCTION

Plaintiffs Howard D. and Sheila A. Popky seek to quiet title to proceeds from the sale of a property held in a tenancy by the entireties. Plaintiffs also seek a refund of the proceeds that the Internal Revenue Service collected by levy and applied to satisfy the trust fund tax liabilities of Sheila A. Popky in the amount of $43,324.43. Defendant United States seeks a judgment against Sheila Popky for the balance of the unpaid trust fund taxes. Now before me are the parties' cross-motions for summary judgment. For the reasons set forth below, I will grant defendant's motion and will deny plaintiffs' motion.

II. BACKGROUND

On November 23, 1998, a delegate of the Secretary of the Treasury of the United States assessed $42,799.20 in taxes against Sheila A. Popky under 26 U.S.C. Section 6672. This amount represented unpaid employment taxes which should have been withheld from the wages of employees of Sheila's EMS, Inc. during the tax period from December 31, 1995 through December 31, 1996. When the taxes were not paid, a notice of federal tax lien was filed in Montgomery County, Pennsylvania on September 11, 2002.

In December, 2002, plaintiffs sold a property which they held as tenants by the entireties at 816 Margo Lane, Narberth Pennsylvania for $475,000. The title company held in escrow the net proceeds from the sale of $48,000 along with $12,000 in excess deposit money paid by the purchasers and $26,649 in cash paid to the plaintiffs at closing.

The IRS wrote the purchasers of the property on February 28, 2003 to inform them that there was a federal tax lien attached to the property. The title company subsequently sent the IRS a check in the amount of $42,324.43. The IRS applied this amount to Sheila Popky's trust fund tax liability and alleges that a balance of $15,814.47 remained due and owing as of July 7, 2003, with statutory additions accruing thereon.

III. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. The Supreme Court has recognized that the moving party "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions ... which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). After the moving party has filed a properly supported motion, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The nonmoving party may not rest upon the mere allegations or denials of the party's pleading. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548.

I must determine whether any genuine issue of material fact exists. An issue is "material" only if the dispute over facts "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the record taken as a whole in a light most favorable to the nonmoving party, "could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita Elec. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation omitted). If the evidence for the nonmoving party is merely colorable, or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted).

IV. DISCUSSION

At issue here is whether, under Pennsylvania law, the property held by Howard and Sheila Popky in a tenancy by the entireties¹ qualifies as property or a right to property belonging to Sheila Popky for the purposes of the tax code. The Internal Revenue Code creates a lien in favor of the United States on "all property and rights to property, whether real or personal," belonging to a person who neglects or refuses to satisfy a tax obligation after demand from the government. 26 U.S.C. § 6321. Although under Pennsylvania law, a creditor against one spouse only cannot attach a lien to property held by both spouses in a tenancy by the entireties, see, United States v. Parcel of Real Property Known as 1500 Lincoln Avenue, 949 F.2d 73, 75 (3d Cir.1991), this prohibition does not apply where federal tax liens are concerned. See Drye v. United States, 528 U.S. 49, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999) (holding petitioner taxpayer's control over property brought it within the meaning of 26 U.S.C. Section 6321 and hence the property was subject to federal tax liens). State law controls when determining the nature of a taxpayer's legal interest in particular property. What consequences attach to that right are a matter of federal law.

A common idiom describes property as a "bundle of sticks" — a collection of individual rights which, in certain combinations, constitute property. State law determines only which sticks are in a person's bundle. Whether those sticks qualify as "property" for purposes of the federal tax lien statute is a question of federal law.

United States v. Craft, 535 U.S. 274, 278, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002).

The Supreme Court considered the issue of whether a federal tax lien could attach to property held in a tenancy by the entireties under Michigan law in Craft and held that Michigan law created sufficient rights in entireties property for a debtor spouse's interest in a property held by the entireties to fall within the language authorizing a federal tax lien. Id. at 276, 122 S.Ct. 1414. In Craft, respondent's husband failed to file income tax returns. As a result, a federal tax lien attached to "all [his] property and rights to the property." Id. Respondent and her husband owned a parcel of real property in Michigan as tenants by the entireties at the time the lien attached. After notice of the tax lien was filed, respondent and her husband executed a deed transferring the husband's interest in the property to respondent alone. When respondent subsequently attempted to sell the property, the IRS allowed her to sell the property with half of the net proceeds held in escrow pending the resolution of the government's interest in the property. The Court looked to Michigan law to determine what rights respondent's husband had in the entireties property and held that although Michigan law precluded her husband from unilaterally alienating the entireties property it did not prohibit him from possessing "property and rights to property" to which the federal tax lien could attach. Id.

"[I]n determining whether a federal taxpayer's state-law rights constitute `property' or `rights to property,' `the important consideration is the breadth of the control the [taxpayer] could exercise over the property.'" Drye, 528 U.S. 49, 120 S.Ct. 474, 145 L.Ed.2d 466, quoting Morgan v. Commissioner, 309 U.S. 78, 83, 84, 60 S.Ct. 424, 84 L.Ed. 585 (1940)(alteration in original). "Satisfaction of the federal standard for `property' requires only that the interests give the taxpayer, at the time of attachment, a minimal level of control of the disposition of the asset for his or her personal benefit." Asbestos Workers Local No. 23 Pension Fund v. United States of America, et al., 303 F.Supp.2d 551, 559 (M.D.Pa.2004), citing Drye, 528 U.S. at 58, 120 S.Ct. 474.

In Craft, 535 U.S. at 282, 122 S.Ct. 1414, the Supreme Court listed some, but not all, of the rights afforded a tenant by the entireties under Michigan law, noting that the rights listed were "among other rights." These rights include the right: 1) to use the property; 2) to exclude third parties from it; 3) to a share of income produced from it; 4) of survivorship; 5) to become a tenant in common with equal shares upon divorce; 6) to sell the property with the other tenant's consent and receive half the proceeds from the sale; 7) to place an encumbrance on the property with the other tenant's consent; and 8) to block the other tenant from encumbering the property unilaterally. Id. The Court further explained that

Michigan law grants a tenant by the entirety some of the most essential property rights: the right to use the property, to receive income produced by it, and to exclude others from it.... These rights alone may be sufficient to subject the husband's interest in the entireties property to the federal tax lien. They gave him a substantial degree of control over the entireties property....

Id. at 283, 122 S.Ct. 1414.

Unlike in Pennsylvania, where tenancies by the entireties are governed by the common law, see, e.g., Clingerman v. Sadowski, 513 Pa. 179, 519 A.2d 378 (1986), in Michigan the law pertaining to tenancies by the entireties has largely been codified. See M.C.L.A. §§ 557.71, 557.81, 557.101, 557.102 and 557.151. Despite this distinction, the rights possessed by a Pennsylvania tenant by the entireties closely follow those held by a Michigan tenant and, importantly, also include the three property rights deemed "essential" in Craft. Pennsylvania tenants by the entireties may use entireties property. See, e.g., 1500 Lincoln Avenue, 949 F.2d at 77 (a tenant by the entireties has "the right to possess and use the whole property"); United States v. One Mercedes-Benz 30 Sel Vin. # WDBCA 33A1BB10331, 604 F.Supp. 1307 (S.D.N.Y.1984), citing Madden v. Gosztonyi Sav. & Trust Co., 331 Pa. 476, ...