United States v. Hutcherson, 14257.

• Decision Date: 17 April 1951
• Docket Number: No. 14257.,14257.
• Citation: 188 F.2d 326
• Parties: UNITED STATES v. HUTCHERSON et al.
• Court: U.S. Court of Appeals — Eighth Circuit

188 F.2d 326 (1951)

UNITED STATES v. HUTCHERSON et al.

No. 14257.

United States Court of Appeals Eighth Circuit.

April 17, 1951.

Harry Marselli, Sp. Asst. to Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen. and Ellis N. Slack, Sp. Asst. to Atty. Gen., on the brief, Sam M. Wear, U. S. Atty., Kansas City, Mo., and William Aull, III, Asst. U. S. Atty., Lexington, Mo., of counsel), for appellant.

Marcy K. Brown, Jr., Kansas City, Mo., for appellees.

Before COLLET and STONE, Circuit Judges, and DELEHANT, District Judge.

COLLET, Circuit Judge.

This action involves the question of whether the lien of the United States for unpaid federal income taxes owed by a husband, attaches to the interest of the husband in Missouri real estate owned by the husband and wife as tenants by the entirety so that the husband may not join with the wife in conveying the property free from the lien. That question arises from the following facts.

On March 26, 1947, the real estate involved was conveyed to J. E. Hutcherson and Lois G. Hutcherson, his wife, as tenants by the entirety. For the year 1947 Hutcherson and his wife filed separate income tax returns. On December 15, 1947, Hutcherson filed a suit for divorce against his wife. May 26, 1948, the United States filed in the office of the Recorder of Deeds for Jackson County, Missouri, (in which county the real estate was located) a Notice of Federal Tax Lien in the sum of $1,091.61 for unpaid 1947 income taxes assessed against Hutcherson individually. There was and is no claim made that the United States had any claim against Mrs. Hutcherson. On June 9, 1948, Hutcherson and his wife entered into a written pre-divorce property settlement agreement by which it was provided, among other things, that the real estate in question was to be conveyed by both Hutcherson and his wife to a third person. Although the written agreement does not expressly so provide, it is assumed that the understanding at the time was that the third person was to reconvey the property to Mrs. Hutcherson after the divorce so as to vest in her the entire interest in the real estate. Pursuant to that agreement, Hutcherson and his wife conveyed the property to Esther C. Moberly on June 9, 1948. There was and is no contention that the transfer of the title to Moberly and through her to Mrs. Hutcherson was without consideration for the purpose of defrauding the United States of the opportunity to collect its tax claim against Hutcherson or to defraud any creditor, or for any purpose other than to pass the entire title to Mrs. Hutcherson as a part of the divorce settlement. Therefore this case is not complicated by any issues of fraud or related questions. A divorce was granted Mrs. Hutcherson on her cross bill on June 30, 1948. July 2, 1948, Esther C. Moberly conveyed the property to Lois G. Hutcherson alone. On December 1, 1949, Lois G. Hutcherson sold and deeded it to Raymond W. Hutton and Mary S. Hutton, his wife. Thereafter, Lois G. Hutcherson, Raymond W. Hutton and Mary S. Hutton filed this action in the Jackson County Circuit Court against the United States to quiet the title to the real estate in question in Raymond W. Hutton and Mary S. Hutton, and specifically to obtain a judgment that the United States had no interest in the property as a result of the notice of the federal tax lien. The cause was properly removed to the United States District Court where it was tried and a judgment was entered quieting the title in the Huttons and decreeing that the Notice of Tax Lien was not a cloud upon the title. It is from that judgment that this appeal was taken. The trial court's Memorandum Opinion is reported 92 F.Supp. 168.

Appellant contends the provision of Section 3670 of the Internal Revenue Code, 26 U.S.C.A. § 3670,¹ that the United States shall have a lien upon all property and rights to property belonging to the taxpayer, results in the attachment of the lien to the interest of Hutcherson in the real estate on the date the tax notice was filed. And that the lien having attached, his interest in the property could not thereafter be conveyed free of the lien.² The entire problem turns upon the question of whether the lien actually attached to the husband's interest. If it did, then his voluntary conveyance could not defeat the lien. State of Michigan v. United States, 317 U.S. 338, loc.cit. 340, 63 S.Ct. 302, 87 L.Ed. 312. But if the lien did not attach to the property interest, then it could not follow the title.

To determine whether the lien attached to the husband's interest in the property it is necessary to examine that interest and to ascertain whether it is such an interest to which any lien can attach. That ascertainment will be made by the application of the law of Missouri determining and defining the law of property rights in that state. Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991; Warburton v. White, 176 U.S. 484, loc. cit. 496, 20 S.Ct. 404, 44 L.Ed. 555.

In the Warburton case the rule is stated, 176 U.S. loc. cit. 496, 20 S.Ct. 409: "* * where state decisions have interpreted state laws governing real property or controlling relations which are essentially of a domestic and state nature, in other words, where the state decisions establish a rule of property, this court when called upon to interpret the state law will, if it is possible to do so, in the discharge of its duty, adopt and follow the settled rule of construction affixed by the state court of last resort to the statutes of the state, and thus conform to the rule of property within the state."

And in the Tyler case it is reiterated in the following language, 281 U.S. loc. cit. 501, 50 S.Ct. 358, 74 L.Ed. 991. "The decisions of the courts of Maryland and Pennsylvania follow the common law, and are in accord in respect of the character and incidents of tenancy by the entirety. In legal contemplation, the tenants constitute a unit; neither can dispose of any part of the estate without the consent of the other; and the whole continues in the survivor. In Maryland, such a tenancy may exist in personal property as well as in real estate. These decisions establish a state rule of property, by which, of course, this court is bound. Warburton v. White, 176 U.S. 484, 496, 20 S.Ct. 404, 44 L.Ed. 555."

Counsel for the United States concede that property rights are to be determined in accordance with state law, but say that federal law, in this instance Section 3670 of the Internal Revenue Code, supra, "controls the application of the federal tax lien to whatever `property' or `rights to property' a taxpayer may have under state law." Citing State of Michigan v. United States, 317 U.S. 338, 63 S.Ct. 302, 87 L.Ed. 312; Glass City Bank v. United States, 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56; and Detroit Bank v. United States, 317 U.S. 329, 63 S. Ct. 297, 87 L.Ed. 304. They further say that the federal statutes governing federal tax liens are controlling and override any conflicting provisions of state law and cite in support thereof State of Michigan v. United States, supra, United States v. Rosenfield, D.C.E.D.Mich., 26 F.Supp. 433, and In re Dartmont Coal Co., 4 Cir., 46 F.2d 455. Insofar as the foregoing authorities relate to the subject now under consideration, they deal with the question of whether federal estate taxes may be levied on the inheritance of one of the tenants by the entirety upon the death of the other tenant and the dissolution of the tenancy, and whether state statutes may be enacted over-riding Acts of Congress fixing the time liens for federal taxes shall take effect, the nature of the lien, and the method for perfecting such liens. The answer to neither of these questions determines or affects the rule of property in Missouri defining, without discrimination between the state's interests and those of the United States, the nature of the estate by the entirety in Missouri. For present purposes it may be assumed that Section 3670, supra, requires the attachment of the federal tax lien to a "right to property" created by state law and that Section 3670 would override a state law (if any existed) providing that a federal tax lien should not apply to a specified "right to property" created by state law. But as indicated, neither of these assumptions aids in defining the interest which one of two tenants by the entirety has in Missouri and hence does not answer the question whether that interest is such an interest in real estate or such a "right to property" to which a lien may attach.

The estate by the entirety is of ancient origin. It comes from the common law and exists in Missouri by reason of its adoption by that state. It is built upon the fiction of the law that a husband and wife are one and only one legal entity. It is described in Wimbush v. Danford, 292 Mo. 588, 238 S.W. 460, loc.cit. 466, as follows:

"The character of estate known as an estate by the entirety has long been firmly intrenched in the law of this state. As early as Gibson v. Zimmerman, 12 Mo. 385, 51 Am.Dec. 168, and Garner v. Jones, 52 Mo. 68, the common-law doctrine that a conveyance in fee of real estate to a husband and wife created a tenancy by the entirety was accepted and adopted with judicial approval. In Hall v. Stephens, 65 Mo. 670, 27 Am.Rep. 302, Bains v. Bullock, 129 Mo. 117, 31 S.W. 342, and First Nat. Bank v. Fry, 168 Mo. 492, 68 S.W. 348, the estate was further recognized. With the adoption of the common-law doctrine, there was necessarily adopted the attributes of the estate, viz.: That neither the husband nor wife was seized of moieties but of entireties, each being the owner of the entire estate; that if either died the estate continued in the survivor; and that, upon the death of both, the heirs of the last surviving would take to the exclusion of the heirs of the first deceased. Tiedeman on Real Property (3d Ed.) § 181. In Wilson v. Frost, 186 Mo. 311 loc.cit. 319, 85 S.W. 377, 105 Am.St.Rep. 619, ...