United States v. Herman, Civ. 19739.

• Decision Date: 27 July 1960
• Docket Number: Civ. 19739.
• Citation: 186 F. Supp. 98
• Parties: UNITED STATES of America, Plaintiff, v. Max HERMAN, Mattie Herman, State Tax Commission, Mollie Morell, Best Coat and Apron Mfg. Company, Inc., Webster Factors, Inc., Industrial Bank of Commerce, School District 7 of Nassau County, Town of North Hempstead, Nassau County and Mohar Realty Co., Defendants.
• Court: U.S. District Court — Eastern District of New York

186 F. Supp. 98

UNITED STATES of America, Plaintiff, v. Max HERMAN, Mattie Herman, State Tax Commission, Mollie Morell, Best Coat and Apron Mfg. Company, Inc., Webster Factors, Inc., Industrial Bank of Commerce, School District 7 of Nassau County, Town of North Hempstead, Nassau County and Mohar Realty Co., Defendants.

Civ. 19739.

United States District Court E. D. New York.

July 27, 1960.

Cornelius W. Wickersham, Jr., U. S. Atty., E. D. New York, Brooklyn, N. Y., for plaintiff; Myron Beldock, Asst. U. S. Atty., Brooklyn, N. Y., Robert L. Handros, Dept. of Justice, Washington, D. C., of counsel.

Otterbourg, Steindler, Houston & Rosen, New York City, for defendant Mollie Morell; Leonard Margid, New York City, of counsel.

Moe Krivis, Westbury, N. Y., for defendant Mohar Realty Co.

BARTELS, District Judge.

Motion by plaintiff for summary judgment pursuant to Rule 56, Fed.Rules Civ. Proc., 28 U.S.C.A. Although it is alleged in the answering affidavits that factual issues exist herein, it appears to the Court that there is no genuine issue as to any material fact.

This action was commenced by the United States of America (hereinafter sometimes referred to as "the Government") pursuant to Sections 7401 through 7403 of the Internal Revenue Code of 1954, 26 U.S.C.A., and 28 U.S.C.A. § 1340, to obtain personal judgments against defendant-taxpayers Max Herman and Mattie Herman for unpaid balances of their income tax liabilities for the years 1946 and 1947, and to foreclose liens of the Government securing such balances on certain real estate located in Nassau County. The only defendants who appeared and filed answers in the action were Mohar Realty Co. (hereinafter referred to as "Mohar") and Mollie Morell (hereinafter referred to as "Morell"), both of whom allege that the Government's lien is invalid as to them.

For the year 1946 the Commissioner of Internal Revenue (hereinafter referred to as the "Commissioner") made an assessment of income taxes against the defendant-taxpayers in the amount of $56,521.39. The assessment list was originally received by the Collector for the Third District of New York on November 20, 1947 and later transferred to the Collector for the First District of New York on April 29, 1949. Notice of federal tax lien was filed on May 15, 1951 with the County Clerk of Nassau County where the property is located. The amount of the assessment was reduced by payments to a principal balance of $21,570.76, the last of such payments having been made on June 25, 1957. As of January 30, 1960 interest has accrued in the amount of $22,637.40 and is continuing to accrue.

For the year 1947 the Commissioner made an assessment of income taxes against the defendant-taxpayers in the amount of $9,664.58, the assessment list having been received by the Collector on September 15, 1950. The amount of the assessment was reduced by payments to a principal balance of $500. As of January 30, 1960 interest has accrued in the amount of $419.18 and is continuing to accrue. No notice of federal tax lien as to this assessment was filed with the County Clerk of Nassau County; hence this lien is invalid as against the objecting defendants Mohar and Morell.

On May 11, 1953 defendant-taxpayers signed a Tax Collection Waiver (hereinafter referred to as the "waiver"), agreeing with the Commissioner that the amount of their income taxes for 1946 might be collected on or before December 31, 1957 "by distraint or by a proceeding in court", and on August 2, 1956 a further extension of time for collection through December 31, 1961 was executed. A similar waiver with regard to the taxes assessed for 1947 was executed on May 17, 1956, extending the time for collection of the tax through December 31, 1957, which time was further extended on December 21, 1957 through December 31, 1959. This action was commenced on May 1, 1959.

Morell holds a mortgage on the property involved dated and recorded September 10, 1954, and Mohar is the purchaser of state and local tax liens imposed upon the property for the years 1957 and 1958. Although the notice of federal tax lien was filed prior to the acquisition by these defendants of their respective liens, they contend that (i) the lien on its face expired prior to the date that the defendants acquired their respective interests in the property, and that the extension of time to collect taxes does not ipso facto constitute an extension of liens against property owned by the taxpayers, (ii) even if such extension does extend the lien, the failure of the Government to file the extension and place defendants on notice invalidates the lien as against these recorded lienors, and (iii) in the event the Government prevails as to (i) and (ii) above, that the Government is guilty of laches in allowing an unreasonable time to elapse before commencing suit, thereby allowing the accrual of interest to wipe out any surplusage that would otherwise accrue to Mohar and Morell.

In reply to the first contention it appears from the Internal Revenue Code of 1939, 26 U.S.C.A. (hereinafter referred to as the "1939 Code") that an extension of time to collect taxes constitutes an extension of the lien of those taxes. Section 3670 of the 1939 Code, provides: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount * * * shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." Section 3671, 1939 Code, then provides that "Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time." Section 276(c), 1939 Code, further provides that:

...