United Sand and Gravel Contractors, Inc. v. U.S., 79-2322

Citation624 F.2d 733
Decision Date22 August 1980
Docket NumberNo. 79-2322,79-2322
Parties80-2 USTC P 9626 UNITED SAND AND GRAVEL CONTRACTORS, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

D. Irvin Couvillion, Baton Rouge, La., Tucker L. Melancon, Marksville, La., for plaintiff-appellant.

M. Carr Ferguson, Asst. Atty. Gen., Jay Miller, Tax Div., Dept. of Justice, Washington, D.C., Gilbert E. Andrews, Chief Appellate Section, Crombie J. D. Garrett, Tax Div., Dept. of Justice, Washington, D.C., for the U.S.

Appeal from the United States District Court for the Western District of Louisiana.

Before GOLDBERG, GARZA and REAVLEY, Circuit Judges.

GOLDBERG, Circuit Judge:

Appellant United Sand and Gravel Contractors, Inc. ("United Sand"), plaintiff below, is attempting to recover from the United States, appellee, $8,600 it has never received for work performed as a subcontractor on a prime contract between Americ Constructions of New Orleans, Inc. ("Americ") and the United States Army Corps of Engineers ("Corps"). The court below dismissed the suit, holding that the suit was not filed within the nine-month time period established by the relevant statute. We agree with the district court and therefore affirm its decision.

Most of the material facts are not seriously disputed. On review of this dismissal on the pleadings, we accept United Sand's factual allegations on any issues which are not free from doubt. United Sand is a sand and gravel contractor. In 1974, it entered into a subcontract with Americ to perform services under a prime contract between Americ and the Corps. The prime contract related to improvements to the West Atchafalaya River Levee near Krotz Springs, Louisiana.

On September 1, 1976, Americ notified the Corps that the final payment of $8,600 due on the prime contract should be made payable jointly to Americ and United Sand. This payment would also have been the final payment to United Sand for its work as a subcontractor.

On September 30, 1976, before the $8,600 had been disbursed, the Internal Revenue Service ("I.R.S.") served the Corps with a notice of levy in the amount of $13,189.52 for the seizure of all property held by the Corps for the account of Americ. The $13,189.52 represented unpaid tax obligations of Americ. The Corps submitted a check in the amount of $8,600 to the I.R.S. United Sand asserted a claim to the $8,600 by letter to the I.R.S. dated August 9, 1977. 1 On January 12, 1978, the I.R.S. denied the request as untimely.

On June 2, 1978 United Sand filed its complaint "for enforcement of assignment proceeds and for return of property wrongfully levied." The United States moved to dismiss for lack of subject matter jurisdiction or, in the alternative, for failure to state a claim upon which relief can be granted. The court below granted the motion of the United States, holding that the action was not filed within the period established by I.R.C. § 6532(c) and that no claim was stated against the Corps because it had no right to resist the levy.

I.R.C. § 7426 allows persons other than the taxpayer against whom an assessment is made who claim an interest in property which has been levied upon to sue to recover their property. 2 I.R.C. § 6532(c) requires that such suits be filed within nine months from the date of the levy unless a request is made for the return of the property. 3 If a request is made, the period for filing is extended to the shorter of twelve months from the filing of the request or six months from notification of denial of the request.

Since the levy at issue here occurred on September 30, 1976 and the suit was not filed until June 2, 1978, the suit was not timely under § 6532 unless United Sand's request dated August 9, 1977 effectively extended the period. If the request extended the period, the suit is timely because it was filed less than six months after January 12, 1978, the date of the denial of the request by the I.R.S.

Section 6532(c)(2) does not explicitly specify when a request must be made to the I.R.S. However, it is implicit in the structure of section 6532(c) that the request must be filed within nine months of the levy. If the nine month period during which a suit must be filed could be extended by filing a request after the nine month period has ended, the nine month rule would be without effect, and there would be no effective limitation period. Both the Treasury Regulations, see Treas. Regs. § 301.6532-3(c) (1974), § 301.6343-1(b)(1) (1972), and the only courts that have faced the issue, see Universal Specialties, Inc. v. United States, 443 F.Supp. 87 (D.D.C.1977); De Gregory v. United States, 395 F.Supp. 171 (E.D.Mich.1975), adopt the position that a section 6532(c)(2) request must be filed within nine months of the date of levy to extend the nine month period. We agree.

United Sand contends that since both the I.R.S. and the Corps are agencies of the United States government, any levy purportedly conducted by the I.R.S. upon property held by the Corps was not actually a levy but was rather a set off which affected only the rights of Americ. Neither party disputes that the United States may refuse to pay funds owed to a contractor who owes taxes to the United States, and may apply these funds as a set off against the tax indebtedness. See, e. g., United States v. Trinity Universal Insurance Co., 249 F.2d 350 (5th Cir. 1957); Aetna Insurance Co. v. United States, 456 F.2d 773, 197 Ct.Cl. 713 (1972). United Sand, however, contends that even if the the I.R.S. goes through the formalities of levying upon property or rights to property of a tax delinquent in the hands of another agency of the government, the legal effect of such action is the same as if the government has proceeded by set off. We disagree.

First, there is nothing in the general levy authorization statute, I.R.C. § 6331, 4 excepting from its reach property which is in the hands of an agency of the United States. The authorization to collect unpaid taxes by levy applies to "all property and rights to property (except . . . property . . . exempt under section 6334)," id. (emphasis added), of the tax delinquent. See Field v. United States, 263 F.2d 758, 763 (5th Cir. 1959).

Second, it has been an established practice of the I.R.S., recognized by the courts, to proceed against property in the hands of other federal agencies by a formal levy rather than by set off. See, e. g., United States v. Freedman, 444 F.2d 1387 (9th Cir. 1971); Carlo v. United States, 286 F.2d 841, 848-49 (2d Cir.), cert. denied, 366 U.S. 944, 81 S.Ct. 1672, 6 L.Ed.2d 855 (1961); Simpson v. Thomas, 271 F.2d 450 (4th Cir. 1959); Field, supra. United Sand attempts to distinguish these cases by noting that in none were rights of third parties involved. This distinction, however, does not affect the conclusion reached by the cases; to wit, that the reach of section 6331(a) is broad and that the section contains no implied exclusion for property in the hands of a federal agency.

United Sand attempts to find such an implied exclusion in the second sentence of section 6331(a), in which Congress explicitly stated that the salary or wages of federal employees is subject to levy. A similar argument was made, and rejected by the Supreme Court, in Sims v. United States, 359 U.S. 108, 79 S.Ct. 641, 3 L.Ed.2d 667 (1959). In Sims, the Court faced the argument that "by specifically providing in § 6331 for levy upon the accrued salaries of federal employees, but not mentioning state employees (Congress) evinced an intention to exclude the latter from levy." Id. at 112, 79 S.Ct. at 645. The Court rejected this argument, noting that the specific inclusion of salaries of federal employees was intended to overcome the holding of Smith v. Jackson, 246 U.S. 388, 38 S.Ct. 353, 62 L.Ed. 788 (1918), that, absent congressional authorization, federal disbursing officers have no authority to withhold the salary of a federal officer.

Just as the specific inclusion of salaries of federal employees was held in Sims not to exclude by implication salaries of state employees, we now hold that the specific inclusion of federal salaries does not exclude by implication federal contract payments. Since there has never been a holding like Smith, supra, prohibiting those in charge of federal payments other than salaries from withholding those payments to satisfy other debts, Congress would have perceived no necessity to provide specific authorization to withhold any type of payment other than salaries. The general language of the first sentence of section 6331 is sufficient to empower the I.R.S. to levy upon property or rights to property which is in the hands of other government agencies.

Third, the contention that the transfer of funds from one federal agency to another has no real effect but is merely a bookkeeping transfer misses the point that the I.R.S. levies upon rights to property of the taxpayer, not the other agency. See I.R.C. § 6331(a). Prior to the notice of levy, the Corps was obligated to deliver the $8,600 in question to Americ. After the levy, the Corps was obligated to deliver the funds to the I.R.S. See I.R.C. § 6332. The rights seized by levy belonged to Americ not the Corps. 5

United Sand contends that 28 U.S.C. § 2410 provides an alternate waiver of the sovereign immunity of the United States 6 to suits like this one. United Sand alleged that it possessed a security interest in the $8,600 levied upon by the United States, and that its present action is one to "foreclose a mortgage or other lien upon . . . property on which the United States has or claims a mortgage or other lien." 28 U.S.C. § 2410. This argument fails for two reasons.

First, the United States does not "ha(ve) or claim a mortgage or other lien" upon the $8,600 but rather possesses the $8,600 outright. Although there is a dearth of authority on the question of whether the...

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