United States v. Winsper

• Citation: 680 F.3d 482,109 A.F.T.R.2d 2012
• Decision Date: 10 May 2012
• Docket Number: No. 11–5032.,11–5032.
• Parties: UNITED STATES of America, Plaintiff–Appellant, v. Malcolm C. WINSPER, Barbara L. Winsper, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

680 F.3d 482

109 A.F.T.R.2d 2012-2069

UNITED STATES of America, Plaintiff–Appellant,

v.Malcolm C. WINSPER, Barbara L. Winsper, Defendants–Appellees.

No. 11–5032.

United States Court of Appeals,

Sixth Circuit.

Argued: April 12, 2012.

Decided and Filed: May 10, 2012.

ARGUED: Ivan C. Dale, United States Department of Justice, Washington, D.C., for Appellant. Harry B. O'Donnell IV, Louisville, Kentucky, for Appellees. ON BRIEF: Ivan C. Dale, Gilbert S. Rothenberg, Bruce R. Ellisen, United States Department of Justice, Washington, D.C., for Appellant. Harry B. O'Donnell IV, Louisville, Kentucky, for Appellees.

Before: GUY and DONALD, Circuit Judges; O'MEARA, District Judge. ^*

OPINION

RALPH B. GUY, JR., Circuit Judge.

The United States of America appeals from the district court's final decision denying its motion to foreclose tax liens against residential property, owned by defendants Malcolm C. Winsper and his wife Barbara L. Winsper, pursuant to 26 U.S.C. § 7403. The district court entered summary judgment reducing to judgment the tax assessment against Malcolm Winsper only, but denied foreclosure of the entire property in reliance on the discretion recognized in United States v. Rodgers, 461 U.S. 677, 709, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983). Finding an abuse of that discretion, we reverse and remand for further proceedings consistent with this opinion.

I.

The United States filed this action in December 2008, seeking to reduce to judgment separate federal tax assessments against Malcolm and Barbara Winsper, individually (counts 1 and 2), and to foreclose the tax liens against the real property they owned as tenants by the entirety at 410 Belgravia Court, Louisville, Kentucky (“the property”) (count 3). The assessments against Malcolm Winsper, made in February 1999, arose out of his failure to file returns, report income, or pay income tax for the years 1986 through 1993. His liability in unpaid taxes, penalties, and interest totaled $901,052.17 as of January 30, 2010. A separate assessment of $50,575.00, plus penalties and interest, was made against Barbara Winsper in 2003 based on an audit of the tax return she filed for the year 2000, which declared taxable income of $475,119.00. Notices of federal tax liens were filed against the property, although the government stipulated in this case that Fifth Third Bank had a superior mortgage lien that would be paid from the proceeds of the sale in accordance with its priority.

The Winspers filed an answer to the complaint, but failed to respond to the discovery requests that followed. The United States moved for summary judgment in January 2010. Defendants filed a response in opposition in April 2010, and finally responded to the earlier discovery requests in May 2010. Before the district court decided the motion for summary judgment, however, Barbara Winsper paid $40,227.30 in full satisfaction of her own tax liability. That resulted in the dismissal of the claims against her personally, although she continued to be an indispensable party as a non-delinquent third party with an interest in the property. On July 6, 2010, the district court granted summary judgment to the government with respect to the assessment against Malcolm Winsper and reduced the tax liability to judgment as of January 30, 2010, in the amount of $901,052.17. That decision, which is not contested on appeal, did not reach the question of foreclosure but directed the United States to file a separate motion seeking that relief.

The government did so, filing a motion for foreclosure of the lien and sale of the entire property to partially satisfy Malcolm Winsper's tax liability. Since the property was held by the Winspers as tenants by the entirety, Malcolm Winsper'sindividual tax lien attached to his partial contingent survivorship interest in the property. See Raybro Elec. Supplies, Inc. v. Barclay, 813 F.Supp. 1267, 1269 (W.D.Ky.1992); United States v. Real Prop. Located at 5205 Mount Howard Court, Louisville, Ky., 755 F.Supp. 169, 172–73 (W.D.Ky.1990). Defendants urged the district court to exercise its limited discretion to disallow a forced sale of the entire property, and the parties submitted sworn declarations in support of their positions.

Significantly, the government offered evidence, which was uncontested, that Malcolm Winsper's partial interest would have minimal value if sold separately. The district court agreed that few buyers would consider purchasing such an interest. As for the value of the entire property, defendants provided an appraisal from 2006 that estimated the value to be $136,000. The government estimated the value to be $300,000 based on an inspection by an IRS Property Appraisal and Liquidation Specialist (PALS), although it was agreed that a judicial sale would be expected to bring roughly 80% of that fair market value or $240,000. The district court, faulting the government for not providing an actual appraisal but believing the defendants' appraisal undervalued the property, concluded that “the real value of the property is more likely to be $200,000 and that, therefore, the property would bring $160,000 at a foreclosure sale.” A payoff letter from Fifth Third Bank reflected that its mortgage interest and principal was $14,572.36 as of October 10, 2010. The district court estimated that, after payment of the mortgage and expenses of the sale, and assuming a 50/50 division of the proceeds, the United States and Barbara Winsper each could be expected to receive $71,500 from a forced sale of the entire property.

Through her own declaration in August 2010, Barbara Winsper stated that she and her husband, ages 60 and 68, respectively, had been married for 34 years and had lived at 410 Belgravia Court for the last 29 years. She explained that she had paid her own tax liability in order to avoid foreclosure, so was “stunned and appalled” that the government continued to pursue it. With respect to her own finances, Barbara Winsper averred that, despite having college degrees in History and English, her employment prospects were limited due to her age and the economy; that she had worked for the past two years as a nursing assistant clearing $12.00 per hour; and that she expected her future income to be limited to the $250–per–week payments she was receiving from a trust fund and an unspecified amount in Social Security retirement benefits. Also, the 1894 Victorian home had “enormous sentimental value” to Barbara Winsper because she had worked countless hours restoring it with her own hands, and it was the place where she had experienced “births, deaths and all the events that make up our lives.” Finally, Barbara Winsper stated that she would incur substantial moving expenses in the event of foreclosure and that, although her “emotions and labor add nothing to the market value,” they are what makes it her “Home,” and if she was “forced out, it would be impossible for [her] to ever find another place to live, like [her] Home, at any cost.”

In orders entered September 23 and November 4, 2010, the district court discussed the Rodgers factors; solicited further briefing of Kentucky law, the value of the property, and the amount or portion of the proceeds due to other creditors; denied the government's motion to reopen discovery regarding the value of the property and matters relevant to the Rodgers factors; and finally concluded, after revisiting the Rodgers factors, that “the United States has not presented sufficient evidence supporting the exercise of its authority to force the sale of the property and collect Mr. Winsper's share of the sale.” This timely appeal followed.

II.

A. Legal Framework

The failure to pay federal taxes after demand empowers the government to place 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. § 6321; see United States v. Rodgers, 461 U.S. 677, 681–82, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983). Further, “although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter left to federal law.” Id. at 683, 103 S.Ct. 2132. Raising no challenge to the determination of Malcolm Winsper's tax liability, defendants also concede that Malcolm Winsper's interest in the property he possesses with his non-delinquent wife as tenants by the entirety under Kentucky law constitutes property, or the right to property, to which a federal tax lien may attach. See United States v. Craft, 535 U.S. 274, 288, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002); United States v. Barczyk, 434 Fed.Appx. 488, 492 (6th Cir.2011), cert. denied,––– U.S. ––––, 132 S.Ct. 1118, 181 L.Ed.2d 981 (2012).¹

The United States has a “formidable arsenal of collection tools,” including the authority under 26 U.S.C. § 7403 to bring an action in the district court for judicial sale of any property of the delinquent taxpayer, or any property in which the delinquent taxpayer has any right, title or interest. Rodgers, 461 U.S. at 683, 103 S.Ct. 2132. In an action brought under § 7403, the district court adjudicates all matters, determines all claims and liens against such property, and, when a claim or interest of the United States is established, “may decree a sale of such property ... and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.” 26 U.S.C. § 7403(c). Foreclosure under § 7403 contemplates a forced sale of the entire property, not merely the delinquent taxpayer's interest, and is consistent with due process. Rodgers, 461 U.S. at 694, 697–98, 103 S.Ct. 2132. However, because the sale and distribution language is permissive, the Court in Rodgers also recognized that “§ 7403 does not require a district court to authorize a forced sale under absolutely all circumstances, and that some limited room is left in the statute for the...