United States v. Stutsman County Implement Co.

• Decision Date: 21 January 1960
• Docket Number: 16167.,No. 16166,16166
• Parties: UNITED STATES of America, Appellant, v. STUTSMAN COUNTY IMPLEMENT COMPANY, Inc., Appellee. UNITED STATES of America, Appellant, v. MIDWEST MOTORS, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

274 F.2d 733 (1960)

UNITED STATES of America, Appellant, v. STUTSMAN COUNTY IMPLEMENT COMPANY, Inc., Appellee.

UNITED STATES of America, Appellant, v. MIDWEST MOTORS, Appellee.

Nos. 16166, 16167.

United States Court of Appeals Eighth Circuit.

January 21, 1960.

John J. Pajak, Atty., Tax Division Dept. of Justice, Washington, D. C., for appellant.

Philip B. Vogel, Fargo, N. D., for appellees.

Before GARDNER, WOODROUGH and BLACKMUN, Circuit Judges.

WOODROUGH, Circuit Judge.

On May 22, 1958, the United States brought an action in the District Court of North Dakota under section 7403 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7403, to foreclose tax liens and for the appointment of a receiver of all the properties of the taxpayer, Fay Heasley, that were subject to the tax liens. Assessments for income taxes, fraud penalties and interest against the taxpayer were made by the Commissioner of Internal Revenue on February 18, 1954, and on February 24, 1954, after demand was made upon him for the payment of the taxes and payment was refused, notice of tax liens was duly filed in accordance with section 6323 of the 1954 Code. By the terms of section 6321 the amounts of the unpaid taxes constituted liens upon all properties and rights to property belonging to the taxpayer and section 6322 fixed the time of origin and duration of the liens. Relevant parts of the four sections are as follows:

"§ 6321. Lien for taxes. If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) 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." 26 U.S.C.A. § 6321.

"§ 6322. Period of lien. Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C.A. § 6322.

"§ 6323. Validity against mortgagees, pledgees, purchasers, and judgment creditors. (a) Invalidity of lien without notice. — Except as otherwise provided in subsection (c), the lien imposed by section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate * * *" 26 U.S. C.A. § 6323.

"§ 7403. Action to enforce lien or to subject property to payment of tax. (a) Filing. — 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 or his delegate, may direct a civil action to be filed in a district court 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."

Among the defendants named in the government's complaint were two corporations, the Stutsman County Implement Company and Midwest Motors, appellees herein, as to which it appears that after the notice of the tax lien was filed the taxpayer transferred to the Stutsman company certain items of his farm machinery and to the Midwest company his used automobile. The complaint prayed among other things for foreclosure of the tax liens upon all these items of property so transferred by the taxpayer. Both of the defendant companies filed petitions in the case presenting the facts that each of the transfers of property of the taxpayer to the companies on which foreclosure of lien was prayed was part of a transaction in which the taxpayer traded used property and cash for new property. In the case of the Motor company it was an old automobile for a new one and with the Implement company the trade was old farm machinery for new. The aggregate of cash given by the taxpayer in addition was $16,633.65. Neither company denied the validity of the government's tax lien upon the property transferred to them by the taxpayer but both companies prayed that the federal tax liens upon said property be discharged upon equitable considerations.

After a hearing upon the petitions and objections made to them by the government, the court entered orders that "the lien of plaintiff be and the same is hereby discharged from One 1953 Model Dodge Two-Door Sierra Station Wagon, * * * being the automobile transferred to Midwest Motors in the possession of the Defendant Midwest Motors and that "the lien of the United States of America on the following described property describing old machinery consisting of four diesel tractors, three plows, two disk tillers and one press drill, being the machinery transferred by the taxpayer to Stutsman County Implement Company be in all things discharged and terminated * * *"

The government appeals from the orders contending that the court erred in discharging the federal tax liens from the property transferred by the taxpayer to the appellees after notice of such liens had been duly filed.

The parties agree that the facts are simple and uncontroverted and that United States duly assessed the taxes and gave due notice of the tax lien and that thereafter while the lien remained unsatisfied the taxpayer traded and transferred to the appellees his old automobile and his old farm machinery together with $16,633.65 in cash for a new automobile and new farm machinery of exactly the same kind. They agree that "the tax lien immediately attached to the new property" acquired by the taxpayer but appellees contend that "to allow the tax lien to be a charge on both the old and the new property would be to unjustly enrich the government".

They argue that it would be "inequitable", "unjust", and "unconscionable" that the government should have a lien on the used property traded to them and also a lien on the property sold to and received by the taxpayer from them. Furthermore that the position of the government was so greatly bettered when the valuable new property acquired by the taxpayer became subject to the tax lien that it would be inequitable for the government to also retain the lien it had on the traded property. There is no contention by appellees that the lien attached to the old automobile and farm machinery transferred to them were invalid. The lien admittedly was created and became effective pursuant to the provisions of the internal revenue statutes. The reliance of appellees is entirely upon so-called equitable considerations which they claim justify the discharge of the liens by the court. The point relied on is stated: "Equitable principles are applicable to tax assessments and collections." It is apparently in accord with this view that the court held that the liens were valid but that they should notwithstanding be and they were ordered discharged. No opinion was filed.

It is contended for the government that there was no statutory authority for such discharge of tax liens upon alleged equitable considerations; that in the absence of such authority the court should not have discharged the tax liens and that the fact that tax liens also attached to property which appellees sold to the taxpayer and for which the encumbered items were part payment, is no reason for the discharge of such liens.

Among the decisions cited by appellees to support the orders is United States v. Detroit Timber & Lumber Company, 1906, 200 U.S. 321, 26 S.Ct. 282, 288, 50 L.Ed. 499. It was not a tax case but was one in which the Court made application of general principles of equity in a suit for the...