Sumpter v. U.S., 01-10214-BC.
| Decision Date | 01 April 2004 |
| Docket Number | No. 01-10214-BC.,01-10214-BC. |
| Citation | 314 F.Supp.2d 684 |
| Parties | J.L. SUMPTER and Shaundra Sumpter, Plaintiffs and Counter-defendants, v. UNITED STATES of America, Defendant and Counter-plaintiff. |
| Court | U.S. District Court — Eastern District of Michigan |
Joseph Falcone, Joseph Falcone Assoc., Southfield, MI, for Plaintiffs and Counter Defendants.
James A. Brunson, U.S. Attorney's Office, Bay City, MI, Michael W. Davis, U.S. Department of Justice, Washington, DC, for Defendant and Counter Claimant.
SUPPLEMENTAL OPINION
In an opinion and order dated February 5, 2004, the Court found in favor of the United States on part of its claim to assert a federal tax lien on certain real property titled in the names of the plaintiffs. The Court determined that valid federal tax liens attached to the interest of Jerry Sumpter in six parcels of certain real estate, which the Court found to be a one-half interest in each of those six parcels "subject to appropriate set-offs for reimbursement for expenses ... as may be determined by the Court at a later time." The Court instructed each party to file a brief addressing (1) the value of the six lots, (2) the appropriate manner of disposition of the property, (3) the manner of calculating and the amount of the set-off for reimbursement to which the plaintiffs may be entitled, and (4) the distribution of the proceeds. After reviewing the parties' submissions, the Court now holds that the tax liens attach to the property at the time they were filed and the government may assert its interest against its aliquot share of the present value of the property, the plaintiffs are entitled to credit for the payment of expenses to maintain the property over the years, and it is appropriate to appoint a receiver to determine the present value of the property and sell it or make other arrangements to satisfy the government's interest.
The plaintiffs contend that the government is not entitled to any judgment because under Mich. Comp. Laws § 566.19, which was in effect at the time of the transfer, a creditor, such as the Trust, who paid fair value for the property and did not have knowledge of the fraud, may enforce the conveyance even against the defrauded creditor. The government acknowledges that the Court found that the Trust paid fair consideration for the six parcels at issue and had no knowledge of the fraud, which it characterizes as dicta (incorrectly, since the finding was necessary to the decision of whether the plaintiffs are entitled to credit for expenditures they made to maintain the property), and suggests that this language must be reconciled with the finding that Jerry Sumpter fraudulently transferred the six parcels.
Mich. Comp. Laws § 566.19 states:
Rights of creditors whose claims have matured
(1) Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such purchaser;
(a) Have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim, or
(b) Disregard the conveyance and attach or levy execution upon the property conveyed.
(2) A purchaser who without actual fraudulent intent has given less than a fair consideration for the conveyance or obligation, may retain the property or obligation as security for repayment.
The statute addresses conveyances deem fraudulent because they were made for less than fair value. However, the Court found that Jerry Sumpter's transfers of the six parcels of real estate were fraudulent for another reason: he made the conveyances with the actual intent to defeat the IRS's claim against him and hinder collection. The amount of consideration paid under such circumstances is immaterial. When such a transfer by a debtor is fraudulent, it is void as against the creditor.
Similarly, the plaintiffs contend that the government's tax lien against Jerry Sumpter's asset is ineffective as to them because 26 U.S.C. § 6323(a) provides that a federal tax lien cannot have priority over a good faith purchaser unless the federal tax lien is recorded prior to the filing of the purchaser's deed or mortgage, and the government did not record its liens until after the transfer. This argument ignores the Court's prior determination that the transfer was fraudulent and thus void as to the government. The date of recording the lien therefore is immaterial.
The plaintiffs next argue that if the transfer is to be ignored, the value of the IRS lien must be fixed as of the date of the transfer in 1988, at which time the plaintiffs suggest the fair market value of the property was approximately $117,800. The plaintiffs cite United States v. Bess, 357 U.S. 51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958), in support of their argument. The weight of authority, however, requires a different holding.
The general rule is that federal law governs the priority of tax liens that compete with other claims to property, Aquilino v. United States, 363 U.S. 509, 513-14, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960), but state law defines the nature of the property interest to which the lien attaches. United States v. Brosnan, 363 U.S. 237, 240, 80 S.Ct. 1108, 4 L.Ed.2d 1192 (1960). In Bess, the Court was called upon to determine the competing claims to a policy of life insurance that the deceased, delinquent taxpayer owned at the time of his death. The Court held that the tax lien under 26 U.S.C. § 3670 attached only to the property that the taxpayer possessed during his lifetime. In the case of life insurance, the taxpayer could not possess the death benefit while alive, so the tax lien attached only to the cash value of the policy. See Bess, 357 U.S. at 55-56, 78 S.Ct. 1054.
Bess does not suggest, however, that the government is not entitled to the appreciated value of property to which a lien attaches. In Cardinal v. United States, 26 F.3d 48 (6th Cir.1994), the Sixth Circuit clearly stated that a "tax lien attaches to whatever equity interest the taxpayer has in the property" and "[t]he value of the equity interest depends on the fair market value of the property." Id. at 49 (emphasis added). The Third Circuit reached a similar holding in United States v. Avila, 88 F.3d 229 (3d Cir.1996). In that case, the delinquent taxpayer divested himself of property for less than fair value after a tax lien came into being. The transferee argued that she took the property subject only to a lien on the government's interest valued at the time of the transfer. The court of appeals rejected that argument. The court stated that "`[t]he transfer of property subsequent to the attachment of the lien does not affect the lien, for it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere.'" Id. at 233 (quoting Bess, 357 U.S. at 57, 78 S.Ct. 1054). The court held that because Bess prohibits "[f]ixing the value of the lien at the time the taxpayer transfers the property," ibid., the tax lien attached to the "appreciated value of [the taxpayer]'s former interest" in the property. Id. at 234. See also Han v. United States, 944 F.2d 526 (9th Cir.1991) () (quoting 26 U.S.C. § 6322 (1988)); United States v. Blakeman, 997 F.2d 1084, 1092-93 (5th Cir.1993) ().
The precedents compel the same result here. A lien attached to Jerry Sumpter's property as of the date of each assessment of delinquent federal income taxes. See 26 U.S.C. §§ 6321, 6322. Although Sumpter attempted to convey the six parcels before the tax lien was perfected by recording, the transfer was fraudulent and has been set aside by the Court with respect to Sumpter' one-half interest in the property. The lien attaches, therefore, to the property presently, and the government is entitled to today's fair market value, subject to adjustments discussed below.
Once it is determined that a valid tax lien exists, the court "may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States." 26 U.S.C. § 7403(c); see Hatchett v. United States, 330 F.3d 875, 884 (6th Cir.2003). The court may also appoint a receiver to enforce the tax lien "at the insistence of the United States." 26 U.S.C. § 7403(d). That action is particularly appropriate when innocent third parties retain an ownership interest and there exists "the possibility that [they] will be harmed by the effort [to sell the property]." United States v. Rodgers, 461 U.S. 677, 709, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983).
The government has taken the position in its supplemental briefing that a receiver should be appointed to facilitate the sale because it would likely result in a substantially higher sales price, which would benefit both parties. Alternatively, the government suggests that the plaintiffs could agree to pay the government an amount equal to the value of fifty percent interest in the subject property at this time. The Court agrees that a receiver will advance the interests of the parties, and one will be appointed to determine the fair market value and make arrangements to satisfy the government's lien interest by sale of the property or otherwise.
The government contends that the plaintiffs are not entitled to reimbursement for the payment of taxes and other expenses to maintain the property because federal law does not give...
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