United States v. Orr, No. 16-CV-00218-RCL

CourtUnited States District Courts. 5th Circuit. Western District of Texas
Writing for the CourtROYCE LAMBERTH, UNITED STATES DISTRICT JUDGE
Citation336 F.Supp.3d 732
Parties UNITED STATES of America, Plaintiff, v. Tom & Carolyn ORR, Defendants.
Decision Date28 August 2018
Docket NumberNo. 16-CV-00218-RCL

336 F.Supp.3d 732

UNITED STATES of America, Plaintiff,
v.
Tom & Carolyn ORR, Defendants.

No. 16-CV-00218-RCL

United States District Court, W.D. Texas, San Antonio Division.

Signed August 28, 2018


336 F.Supp.3d 738

Ramona Stephens Notinger, U.S. Dept. of Justice, Dallas, TX, for Plaintiff.

Clint Lewis Taylor, Stutzman Bromberg Esserman & Plifka, P.C., Dallas, TX, for Defendants.

Memorandum Opinion:

Explaining Judgment in Favor of the Plaintiff

ROYCE LAMBERTH, UNITED STATES DISTRICT JUDGE

One of the defendants, Mr. Tom Orr, is liable to the United States for unpaid income taxes. ECF No. 31. He and his wife, Mrs. Carolyn Orr (the other defendant), now live on a 101.595-acre tract of land in Cost, Texas (the "Cost Property"). The Government has filed federal tax liens against Mr. Orr and all his property. The only remaining issue is this: May the government satisfy Mr. Orr's tax liability by foreclosing on and selling the Cost Property?

This question is made difficult by the defendants' assertion that the Cost Property is Mrs. Orr's sole and separate property. If that is true, then it is not clear that the Government may foreclose on and sell the property to satisfy her husband's tax liabilities. But if Mr. Orr owns any interest in the property, then the law is clear that the property may be foreclosed on and sold to satisfy his tax liabilities, with leftover funds being used to compensate Mrs. Orr for her interest in the property.

The Court held a bench trial on these issues between February 28 and March 2, 2018, in San Antonio, Texas. Having reviewed the record, the applicable law, and all the evidence admitted at that trial, and for the reasons given below, the Court concludes that the Cost Property is not Mrs. Orr's sole and separate property. Rather, it is community property. Mr. Orr owns an interest in it as well. Therefore, the Government may foreclose the tax liens on and sell the property in order to satisfy Mr. Orr's tax liability.

Analysis

I. Legal Frameworks

For federal tax purposes, a taxpayer's rights and interests are determined under the laws of the taxpayer's state of domicile. See United States v. Mitchell , 403 U.S. 190, 197, 91 S.Ct. 1763, 29 L.Ed.2d 406 (1971) ("[F]ederal income tax liability follows ownership. In the determination of ownership, state law controls.") (internal citations omitted). The Orrs' state of domicile is Texas. Therefore, the Court must look to Texas law to see what property interests, if any, Mr. Orr has in the Cost Property and the consequences of those ownership interests.

A. Texas Marital Property

In Texas, marital property consists of all property that a spouse brings into the marriage or acquires during marriage. Marital property can be categorized as separate, community, or mixed. See Hilley v. Hilley , 161 Tex. 569, 342 S.W.2d 565, 567 (1961) ; Gleich v. Bongio , 128 Tex. 606, 99 S.W.2d 881, 883 (1937). These types of property and the rights and liabilities associated with them are defined in Chapter 3 of the TEXAS FAMILY CODE.

The Code first defines separate property. As is relevant to this case, "separate property consists of: (1) the property owned or claimed by the spouse before marriage; [and] (2) the property acquired by the spouse during marriage by gift, devise, or descent." TEX. FAM. CODE § 3.001(1) – (2). The Code then defines "community property" negatively in relation to separate property. Any "property,

336 F.Supp.3d 739

other than separate property, acquired by either spouse during marriage" is community property. Id. § 3.002.

"There is a presumption under the Family Code that property held during marriage is community property: ‘[p]roperty possessed by either spouse during or on dissolution of marriage is presumed to be community property.’ " Barnett v. Barnett , 67 S.W.3d 107, 111 (Tex. 2001) (quoting TEX. FAM. CODE § 3.003(a) ). The status of a particular piece of property is generally determined by its character at inception. Id.

A party wishing to show that a particular piece of marital property is separate property bears the burden of rebutting the community presumption by clear and convincing evidence. TEX. FAM. CODE § 3.003(b). This burden is often met through tracing. "Tracing involves establishing the separate origin of the property through evidence showing the time and means by which the spouse originally obtained possession of the property." Boyd v. Boyd , 131 S.W.3d 605, 612 (Tex. App.—Fort Worth 2004). "Separate property will retain its separate character through a series of exchanges so long as" the party can "trac[e] the assets on hand during the marriage back to property that, because of its time and manner of acquisition, is separate in character." Id. But when property that was separate at its inception is so commingled with community property "as to defy resegregation and identification, the community presumption prevails." Moroch v. Collins , 174 S.W.3d 849, 855 (Tex. App.—Dallas 2005). Any doubt as to the character of property should be resolved in favor of the community estate. Akin v. Akin , 649 S.W.2d 700, 703 (Tex. App.—Fort Worth 1983, writ ref'd n.r.e.).

Texas further divides interests in community property into what are called "management rights." These rights refer to which spouse has the right to actively manage, control, and maintain community property, even though that property is jointly owned. Management rights come in two types: sole management rights and joint management rights. TEX. FAM. CODE § 3.102. By default, community property is subject to joint management. Id. § 3.102(c). Community property is subject to sole management in two circumstances. First, a "spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single." Id. § 3.102(a). Second, the spouses may "provide otherwise [i.e. , may make the property subject to sole management] by power of attorney in writing or other agreement." Id. § 3.102(c).

Regardless of how it is managed, each spouse owns a 50% interest in all community property regardless of which spouse earned or otherwise acquired that property. Carnes v. Meador , 533 S.W.2d 365, 371 (Tex. App.—Dallas 1975, writ ref'd n.r.e.).

B. The Rights of the IRS to Satisfy Debts Using Marital Property

The Government seeks to foreclose on the federal tax liens encumbering the Cost Property pursuant to 26 U.S.C. § 7403, which reads as follows:

In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. "
336 F.Supp.3d 740

Id. § 7403(a). This section authorizes the Government to enforce its tax lien against Mr. Orr by seizing and selling any property in which Mr. Orr has any right, title, or interest. In interpreting this section, the Supreme Court has held that a lien cannot extend beyond the property interests held by the delinquent taxpayer. United States v. Rodgers , 461 U.S. 677, 690, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983).

To determine what "right, title, or interest" a delinquent taxpayer has in property, courts must apply state law. Id. at 683, 103 S.Ct. 2132. Here, that means applying Texas law. In the previous section, the Court laid out Texas's laws concerning the acquisition and characterization of marital property rights.

The Court must also consider the Government's—and specifically the IRS's—privileged position as a creditor. Under Texas law, a creditor generally cannot reach a non-liable spouse's community property that is subject to the non-liable spouse's sole management. Id. § 3.202(b). The IRS, however, is exempt from that rule. Under 26 U.S.C. § 6321, a delinquent taxpayer's tax liabilities "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to" the delinquent taxpayer. And § 6331(a) of the same title authorizes "levy upon all property and rights to property ... belonging to such person." Property exempt from levy is defined in 26 U.S.C. § 6334(a). The Cost Property does not fit within the exemptions described in that section; there is no argument from any party that it does. Section 6334(c) further provides, "Notwithstanding any other law of the United States ..., no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." The Supreme Court calls this language "specific and it is clear and there is no room in it for automatic exemption of property that happens to be exempt from state levy under state law." United States v. Mitchell , 403 U.S. 190, 205, 91 S.Ct. 1763, 29 L.Ed.2d 406 (1971). So while Texas may...

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2 practice notes
  • United States v. Lothringer, SA-18-CV-00373-XR
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • August 11, 2020
    ...for the loss of her homestead rights, but not for any other property interest she may have under state law. See United States v. Orr, 336 F. Supp. 3d 732, 740 (W.D. Tex. 2018) (concluding the IRS may reach and sell taxpayer's separate property and all property in which he owned a community ......
  • Silverthorne Seismic, LLC v. Sterling Seismic Servs., Civil Action H-20-2543
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • October 7, 2021
    ...a quitclaim deed to be evidence of ownership, a party must present additional evidence of what the grantor owned. United States v. Orr, 336 F.Supp.3d 732, 754 (W.D. Tex. 2018). However, this objection is insufficient to exclude the agreement as Silverthorne also presents evidence that Silve......
2 cases
  • United States v. Lothringer, SA-18-CV-00373-XR
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • August 11, 2020
    ...for the loss of her homestead rights, but not for any other property interest she may have under state law. See United States v. Orr, 336 F. Supp. 3d 732, 740 (W.D. Tex. 2018) (concluding the IRS may reach and sell taxpayer's separate property and all property in which he owned a community ......
  • Silverthorne Seismic, LLC v. Sterling Seismic Servs., Civil Action H-20-2543
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • October 7, 2021
    ...a quitclaim deed to be evidence of ownership, a party must present additional evidence of what the grantor owned. United States v. Orr, 336 F.Supp.3d 732, 754 (W.D. Tex. 2018). However, this objection is insufficient to exclude the agreement as Silverthorne also presents evidence that Silve......

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