U.S. v. Thornton

• Decision Date: 14 September 1988
• Docket Number: No. 87-2171,87-2171
• Parties: Unpublished Disposition NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. UNITED STATES of America, Plaintiff-Appellee, v. Barbara Jean THORNTON, a/k/a Barbara J. Cook, Marie Saunders, Defendants- Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 151

859 F.2d 151

Unpublished Disposition

NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.

UNITED STATES of America, Plaintiff-Appellee, v. Barbara Jean THORNTON, a/k/a Barbara J. Cook, Marie

Saunders, Defendants- Appellants.

No. 87-2171.

United States Court of Appeals, Fourth Circuit.

Argued May 4, 1988.

Decided Sept. 14, 1988.

Jacob Sheeskin (Sheeskin, Hillman & Lazar, P.C. on brief) for appellants.

Janet A. Bradley (William S. Rose, Jr., Assistant Attorney General, Gary R. Allen, David English Carmack, Tax Division, Department of Justice, Breckinridge L. Willcox, United States Attorney on brief) for appellee.

Before JAMES DICKSON PHILLIPS, MURNAGHAN, and ERVIN, Circuit Judges.

PER CURIAM:

Benjamin Thornton owes the federal government $804,428.54 in unpaid gambling excise taxes, individual income taxes, and penalties and interest. Barbara Jean Thornton, Benjamin's wife, and Marie Saunders, Benjamin's sister, are record owners of 4321 Ranger Avenue, Temple Hills, Maryland. The government asserted that Barbara Jean and Saunders were nominees of Benjamin and on December 9, 1983 filed with the Clerk of the Circuit Court for Prince George's County, Maryland (the county where the property is located) a notice of federal tax lien against the property. ¹ The government then sued Barbara Jean and Saunders under 26 U.S.C. section 7403 to foreclose the tax lien. It asked the court to declare the validity of the lien, foreclose it, order a sale and distribute the proceeds to the United States.

The district court did exactly that. It declared that Barbara Jean and Saunders held the Ranger Avenue property as nominees for Benjamin, it foreclosed the government's lien and ordered the house sold. All proceeds were ordered paid to the government except $7500 to be paid to Saunders. The district court also ordered forfeited to the government a motorbike and two automobiles that he found were owned by Benjamin.

The government's complaint did not seek foreclosure on property other than the Ranger Avenue real estate. Evidently, the district court sua sponte added the three vehicles to its judgment. Appellants, so far as the record appears, did not object at the district court level to the forfeiture of those vehicles. No argument was made before this Court either on brief or in oral argument questioning the correctness of the portion of the judgment regarding the vehicles. All appellate argument has been directed exclusively toward the Ranger Avenue property. We, therefore, affirm that portion of the district court's judgment that relates to the three vehicles.

Among the parties' stipulations were (1) that the Ranger Avenue property was purchased in 1971 for $48,000, (2) that Saunders paid $7500 as a down payment, (3) that Barbara Jean paid $7500 as a down payment of which at least $2,000 was provided by Benjamin, (4) that a mortgage for the balance was obtained by Barbara Jean and Saunders, (5) that the mortgage was paid by monthly payments until 1981, at which time it was paid in full by a single payment.

The issues at trial included the source of the remaining $5500 of Barbara Jean's down payment and the source of the mortgage payments. The trial court, sitting without a jury, found Benjamin to be the source. It accepted the stipulation that Marie contributed $7500 to the down payment but found that she contributed no money after that. ²

Appellants preemptively argue that the government's action is time barred and point to 26 U.S.C. section 6901 as the statute so limiting the government's action. Section 6901 deals generally with the transferees of property of taxpayers and provides a means for the government to collect taxes from a transferee of an indebted taxpayer. Section 6901 does not create the transferee's liability, it only provides a means (largely administrative) of enforcing that liability. Phillips v. Commissioner, 283 U.S. 589, 602 (1931) (construing Sec. 280(a)(1) of the Revenue Act of 1926, 44 Stat. 61, predecessor of 26 U.S.C. Sec. 6901(a)(1)).

Section 6901 provides a period of limitations for assessment of the liability of an initial transferee of "within 1 year after the expiration of the period of limitation for assessment against the transferor." 26 U.S.C. Sec. 6901(c)(1). Appellants argue that once the government made an assessment against Benjamin in 1973 for the taxes involved in the present action, the government had one year to make assessments against Benjamin's transferees. The government did not take action against Barbara Jean and Saunders within one year, and, so the argument goes, it is thereby barred from proceeding against them. ³

The government counters with two arguments. First, is that appellants as nominees are not "transferees" so that section 6901 does not apply. Second, is that even if section 6901 applies, the action is timely. The district court appears to have accepted the first argument. We agree, making it unnecessary to resolve the question of the effect of the statute.

The government has not alleged that Barbara Jean and Saunders are transferees. It has alleged that they are nominees of Benjamin. The government would have proceeded against Barbara Jean and Saunders as transferees if it, for instance, had sought to prove that Benjamin had transferred money or securities to Barbara Jean and Saunders and that they had then proceeded to use the transferred property to purchase 4321 Ranger Avenue. That would involve a fraudulent conveyance theory not considered below. The government unsuccessfully attempted to amend its pleadings to include such a count of fraudulent conveyance under Md.Com.Law Code Ann. Sec. 15-207. The attempt was made in an Amendment to Proposed Pretrial Order filed March 19, 1987. Defendants objected to the timeliness of the count. The district court in a ruling made while deciding preliminary matters immediately prior to trial, did not permit the amendment. The government has not appealed that ruling, therefore its case below, and here as well, rises and falls on its claim that Benjamin is the beneficial owner of the Ranger Avenue property. Barbara Jean and Saunders are parties because they are the legal owners, as nominees, of the Ranger Avenue property who obtained it directly, not through Benjamin's intervention in the chain of title. The government seeks a judgment that divests them of ownership. Barbara Jean and Saunders are thereby not alleged to have been transferees of Benjamin. Therefore, the statute of limitations codified at 26 U.S.C. section 6901 does not apply.

Turning to the merits of the case, the government sought to foreclose on a property interest of its tax debtor Benjamin. The property interest is the equitable or beneficial ownership of the Ranger Avenue property. The action is timely because it was begun within six years following the government's assessment to Benjamin of tax liability. ⁴ The property interest is defined by state law. Aquilino v. United States, 363 U.S. 509, 513 (1960). In order to have a property right upon which to foreclose the government has to prove that Benjamin had such a property right under Maryland law.

The district court found that the government proved that Benjamin had an equitable interest in the Ranger Avenue property. However, the law invoked by the district court is completely inapposite to the case. The district court in defining the real property right of Benjamin to which the government succeeded relied on a statute that grants the State of Maryland, in addition to its right to collect real property taxes from the record owner, the right to collect real property taxes from those in possession or control of the real property as if they were the record owner. That statute, Md.Tax.Prop. Code Ann. Sec. 5-101(b)(2), does not purport to define ownership interests for purposes other than collection of Maryland real estate taxes.

The district court, the appellants, and the government failed to appreciate or allude to the body of law in Maryland controlling the division of legal and equitable ownership in land under circumstances in which one person provides the consideration to purchase property that is placed in the legal ownership of another. That body of law concerns the resulting trust and would have been more pertinent, if invoked. We believe that it rises to the level of plain error for the district judge, not alerted by the parties, to have failed to invoke it.

A resulting trust arises when the consideration given for a property is furnished by one party while the legal title is taken by the other provided the circumstances surrounding the transaction do not demonstrate a contrary intention by the parties. Levin v. Levin, 43 Md.App. 380, 405 A.2d 770 (1979). Whether or not a transaction gives rise to a resulting trust is to be judged as of its date and not upon facts occurring subsequently. Lacey v. Van Royen, 259 Md. 80, 89, 267 A.2d 91, 96 (1970). One of the circumstances surrounding the transaction that can demonstrate an intent contrary to the creation of a resulting trust is where the person supplying the purchase money is under a natural, moral or legal obligation to provide for a person taking title, then the purchase is to be considered a settlement or advancement. Taylor v. Mercantile-Safe Deposit & Trust Co., 269 Md. 531, 307 A.2d 670 (1973). A resulting trust may be rebutted in part; it may be shown that the payor intended the person in whose name record ownership was placed to have a partial beneficial ownership interest with a resulting trust arising in the payor only as to the balance of the beneficial...