United States v. McWilliams

• Decision Date: 29 September 1964
• Docket Number: Civ. No. 8151.
• Citation: 234 F. Supp. 117
• Parties: UNITED STATES of America v. John D. McWILLIAMS, Ethel McWilliams, Elizabeth McWilliams, Connecticut General Life Insurance Company, Mutual Benefit Life Insurance Company, Connecticut Mutual Life Insurance Company.
• Court: U.S. District Court — District of Connecticut

234 F. Supp. 117

UNITED STATES of America v. John D. McWILLIAMS, Ethel McWilliams, Elizabeth McWilliams, Connecticut General Life Insurance Company, Mutual Benefit Life Insurance Company, Connecticut Mutual Life Insurance Company.

Civ. No. 8151.

United States District Court D. Connecticut.

June 30, 1964.

Rehearing Denied September 29, 1964.

F. Owen Eagan, Asst. U. S. Atty., Hartford, Conn., for plaintiff.

Curtiss Thompson, William M. Mack, Thompson, Weir & Barclay, New Haven, Conn., for John D., Ethel and Elizabeth McWilliams.

John Fassett, Frank E. Callahan, Wiggin & Dana, New Haven, Conn., for Conn. Gen. Life Ins. Co. and Conn. Mut. Life Ins. Co.

Edward Hennessey, III, Bruce W. Manternach, Robinson, Robinson & Cole, Hartford, Conn., for Mutual Benefit Life Ins. Co.

BLUMENFELD, District Judge.

This action is brought by the United States to obtain judgment against the defendant John McWilliams, the taxpayer, for certain outstanding and unpaid assessments of federal tax liabilities and to foreclose tax liens arising from these assessments against certain policies of life insurance issued and outstanding on the life of the taxpayer. Joined as parties defendant are Ethel McWilliams, the taxpayer's wife, who is named as beneficiary of all three policies; his daughter, Elizabeth, who is named as contingent beneficiary in one of them; and the insurance companies who issued the policies.

Notices of the federal tax liens were filed in 1948 with the Town Clerk of Norwich, Connecticut, where the taxpayer lived. The tax claims were filed and allowed In the Matter of John D. McWilliams, Bankruptcy No. 24460; but the proceeding terminated on February 20, 1952, without producing any payment on those claims owing to insufficient assets. Next, the government served formal notices of its tax liens against the taxpayer's property upon the Connecticut Mutual Life Insurance Company on January 29, 1957, upon the Mutual Benefit Life Insurance Company on January 29, 1957, and upon the Connecticut General Life Insurance Company on February 18, 1957.

The Connecticut General Life and the Connecticut Mutual Life policies had been assigned by John D. McWilliams to his wife on November 14, 1956, in consideration of love and affection. This was after the government's liens were filed, but before the insurance companies received actual notice of those liens. The Mutual Benefit Life policy was never assigned and record ownership remains in the taxpayer.

After a motion for summary judgment was filed by the government and briefs and arguments by the parties were presented, the government requested, and all of the parties agreed, that the decision of the court on the motion should be postponed pending the decisions on appeal of several cases cited by the parties in their briefs which had reached conflicting results on issues similar to those presented here. Those cases have been decided. Supplemental briefs have been filed. Further arguments have been heard.

The taxpayer does not contest the validity or amount of the government's claims against him. The issues presented concern the effectiveness of the government's liens as against Mrs. McWilliams, and the appropriate method for their enforcement.

Attachment of the Liens — Mrs. McWilliams' Interest

Section 3670 of the Internal Revenue Code of 1939, 53 Stat. 448 (now Int. Rev.Code of 1954, § 6321), provides that if a person fails after demand to pay a tax due the United States, the amount of the tax "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." (Emphasis added.) The lien "arises" at the time the tax assessment is made, and "continues" until the liability for the amount so assessed is either satisfied or becomes unenforceable by reason of lapse of time. Int.Rev.Code of 1939, § 3671, 53 Stat. 449 (now Int.Rev.Code of 1954, § 6322). From the moment of assessment, the lien is, in the words of § 3670, upon all of the taxpayer's property or rights to property. "Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes." Glass City Bank of Jeanette, Pa. v. United States, 326 U.S. 265, 267, 66 S.Ct. 108, 110, 90 L.Ed. 56 (1945). The lien covers all property existing at the time of assessment and all acquired after assessment. Glass City Bank v. United States, supra, 326 U.S. at 267, 66 S.Ct. 108. Its attachment and enforcement is unaffected by state exemption statutes. United States v. Bess, 357 U.S. 51, 57, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958); Knox v. Great West Life Assur. Co., 212 F.2d 784 (6th Cir. 1954).

It is not questioned that the policies are "property" or "rights to property" to which the lien attaches. Thus if the policies were owned by the taxpayer when the assessment was made, the assignments of two of the policies to Mrs. McWilliams on November 14, 1956, subsequent to the dates of assessments and hence subsequent to the government's liens, are of no aid to her in establishing her ownership of the policies as against the government. "The 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 * * *.' cases omitted." United States v. Bess, supra, 357 U.S. at 57, 78 S.Ct. at 1058; United States v. Hoper, 242 F.2d 468 (7th Cir. 1957); United States v. Behrens, 230 F.2d 504 (2d Cir.), cert. denied, 351 U.S. 919, 76 S.Ct. 709, 100 L.Ed. 1451 (1956).

But, Mrs. McWilliams contends that when the liens arose she, rather than the taxpayer, was and continues to be the owner of such property rights as there are in the three insurance policies. In order to raise an issue as to the material fact of ownership, Mrs. McWilliams relies on affidavits and her statements in her deposition that she was the beneficiary of the policies and in constant possession of the policies from the date of their issuance and that she made substantial, though undetermined, contributions toward the payment of premiums before the liens arose, as well as some $3000 since that date. Assuming that this was indeed the case, as I must for purposes of summary judgment, the question is whether this is sufficient in law to constitute ownership of the policies when the taxpayer enjoyed, at the dates on which the government liens arose, the right to change the named beneficiary, to borrow against the cash surrender values, to surrender each policy for cancellation in return for payment of surrender value plus any available dividends and the right to exercise other options under each of the policies.

This question is to be determined by state law. In determining whether a taxpayer has "property" or "rights to property" to which the government's lien can attach, "both federal and state courts must look to state law." Aquilino v. United States, 363 U.S. 509, 512-513, 80 S.Ct. 1277, 1280, 4 L.Ed.2d 1365 (1960). Since Connecticut is unquestionably the locus of the contract, the court will look to the law of that state. See United States v. Fried, 309 F.2d 851 (2d Cir. 1962); United States v. Burgo, 175 F.2d 196 (3d Cir. 1949).

Connecticut recognizes the interest of a beneficiary of a life insurance policy as being vested though subject to defeasance by the owner where the latter retains his right to change the named beneficiary and does so in accordance with the terms of the policy. O'Connell v. Brady, 136 Conn. 475, 72 A.2d 493 (1950); Allen v. Home Nat'l Bank, 120 Conn. 306, 180 A. 498 (1935); Neary v. Metropolitan Life Ins. Co., 92 Conn. 488, 103 A. 661, L.R.A.1918F, 306 (1918). The beneficiary, however, has no legal right to compel the insurance company to strictly follow its agreed procedure with regard to the method of changing the beneficiary. Shaw v. John Hancock Mutual Life Ins. Co., 120 Conn. 633, 643, 182 A. 472 (1936). In the absence of a binding contract between the insured and the beneficiary whereby the latter agrees to pay the premiums in return for the proceeds when due, a beneficiary who pays premiums and maintains possession of the policy does not acquire thereby any legal right to the proceeds. See Bachrach v. Herrup, 128 Conn. 74, 20 A.2d 395 (1941). The payment of premiums does not necessarily give rise to an implied contract to pay the proceeds to the named beneficiary. Masonic Mutual Benefit Ass'n v. Tolles, 70 Conn. 537, 40 A. 448 (1898). See also United States v. Fried, 309 F.2d 851 (2d Cir. 1962) (applying New York law). Here, the interrogatories reveal that Mrs. McWilliams did not regard those payments of premiums she made as having been given as consideration for any contractual obligation on the part of her husband not to change the name of the beneficiary, and there is no indication that her possession of the policies was for the purpose of preventing the insured from changing the beneficiary. Compare United States v. Burgo, 175 F.2d 196 (3d Cir. 1949). If the payments of premiums may be regarded as giving rise to an equitable lien against the surrender value of the policies in favor of the beneficiary, see Bachrach v. Herrup, supra, 128 Conn. 74, 20 A.2d 395, such an equitable lien cannot defeat a federal tax lien. United States v. Morrison, 247 F.2d 285 (5th Cir. 1957).

The insured applied for these policies himself and was the sole record owner of all three policies at all times prior to the perfection of the government's liens. Compare United States v. Burgo, supra, 175 F.2d 196. There is no Connecticut authority that would give the beneficiary ownership rights in the policy. At the time the tax lien arose, the policies were owned by the taxpayer, and Mrs. McWilliams' possession of them amounted to nothing more than her holding of them in custody for her husband. To whatever extent the policies constituted "property" or "rights to property" they "belonged" to the taxpayer.

Enforcement of...