United States District Court, D. Arizona
Russel Holland United States District Judge
to Strike Notice of Levy
Bigley defendants move to strike the Notice of Levy. This
motion is opposed.Oral argument has not been requested and is
not deemed necessary.
commenced this action “to reduce the outstanding
federal tax liabilities assessed against [the Bigley
defendants] to judgment and to foreclose federal tax liens on
real property.” In its May 10, 2017 summary judgment
order, the court determined that the Bigley defendants'
liability for federal income taxes, interest, and penalties
for the tax years 2004, 2005, and 2006 was $261, 781.34, plus
interest. The court also determined that the Kelso
defendants were nominees, alter egos, and fraudulent
transferees of the Bigley defendants with respect to the real
property located at 3115 East Park Avenue, Gilbert, Arizona
85234 (“the subject property”). Judgment was
entered in plaintiff's favor on May 10,
2017. The Bigley defendants filed a notice of
appeal on September 28, 2017.
September 14, 2017, the court entered an Order of Foreclosure
and Judicial Sale of the subject property. The subject
property was thereafter sold for $385, 000.00; and the
proceeds of the sale were deposited in the registry of the
court. The sale of the subject property was
confirmed on March 6, 2018, and $277, 670.92 was distributed
to plaintiff in satisfaction of plaintiff's
judgment. $107, 329.08 remains in the court
6, 2019, the court received the mandate of the Ninth
Circuit Court of Appeals covering the appeal court's
memorandum decision which affirmed this court's judgment.
On June 10, 2019, the court entered an order in which it
“invite[d] plaintiff to levy on the funds held in the
registry of the court if the Bigley defendants owe
additional, unpaid taxes[.]” On July 2, 2019, pursuant
to 26 U.S. § 6331, the Internal Revenue Service served a
Notice of Levy on the clerk of court. The Notice of
Levy names Carolyn Bigley as the taxpayer and claims that she
owes $178, 383.46 in 1040 taxes and statutory additions for
the 2007, 2008, and 2009 tax years. The Notice of Levy was
signed by Suzy Taylor, a revenue officer.
Bigleys defendants now move to strike the Notice of Levy,
raising primarily constitutional and procedural objections to
the Notice of Levy.
6331(a) of the Internal Revenue Code of 1986 authorizes the
Secretary of the Treasury (or a delegate) to collect taxes
‘by levy upon all property and rights to property'
belonging to a person who neglects or refuses to pay any tax
liability within ten days after notice and demand.”
Maisano v. Welcher, 940 F.2d 499, 500-01 (9th Cir.
1991) (quoting 26 U.S.C. § 6331(a)). “Section
6331(b) defines ‘levy' as including “the
power of distraint and seizure by any means'.”
Id. at 501 (quoting 26 U.S. § 6331(b)).
“Both real estate and personal property, tangible and
intangible, are subject to levy under section 6331(a)).
initial matter, plaintiff argues that the Bigley defendants
lack standing to challenge the Notice of Levy. Plaintiff
contends the Bigley defendants are arguing that the levy is
“wrongful” and that 26 U.S.C. § 7426(a)(1)
is the exclusive remedy for third-party wrongful levy claims.
“Title 26 U.S.C. § 7426(a)(1) provides that
‘any person (other than the person against whom is
assessed the tax out of which such levy arose) who claims an
interest in or lien on such property and that such property
was wrongfully levied upon may bring a civil action against
the United States. . . .'” Arford v. United
States, 934 F.2d 229, 231-32 (9th Cir. 1991) (quoting 26
U.S.C. § 7426(a)(1)). The elements of a wrongful levy
claim are as follows:
First, the person must not be one “against whom is
assessed the tax.” Second, the person must claim a
legally cognizable “interest” in the property.
Third, the property must have been “wrongfully levied
Id. at 232 (quoting 26 U.S.C. § 7426(a)(1)). To
the extent that the Bigley defendants are attempting to
assert a wrongful levy claim pursuant to Section 7426, such a
claim would fail because Mrs. Bigley is the person against
whom the tax is assessed and she does not claim an interest
in the funds remaining in the court's
registry. That said, the Bigley defendants'
motion cannot be read as solely asserting a wrongful levy
claim. That the Bigley defendants cannot assert a wrongful
levy claim does not dispose of the instant motion.
next argues that the Anti-Injunction bars the instant motion.
“The Anti-Injunction Act, 26 U.S.C. § 7421, limits
actions to enjoin the assessment and collection of
taxes.” Sokolow v. United States, 169 F.3d
663, 664-65 (9th Cir. 1999). “The Act provides, in
part, that ‘no suit for the purpose of restraining the
assessment or collection of any tax shall be maintained in
any court by any person. . . .'” Id. at
665 (quoting I.R.C. § 7421(a)). “There are,
however, several statutory exceptions to the Act, as well as
one judicial exception.” Id. “An action
that does not fall within one of the exceptions must be
dismissed for lack of subject matter jurisdiction.”
Id. “Thus, ordinarily, once a tax has been
assessed, the taxpayer's only recourse is to pay the tax
in full and then sue for a refund in district
extent that the instant motion could be construed as an
attempt to restrain tax collection, the only possible way the
Bigley defendants could avoid the jurisdictional bar of the
Anti-Injunction Act would be to show that the judicial
exception applies. The judicial exception to the
Anti-Injunction Act requires a plaintiff to show that the
“the Government's claim is baseless” and that
he “is entitled to equitable relief[, ]” which
requires a showing that “he has no adequate remedy at
law and that the denial of injunctive relief would cause him
immediate, irreparable harm.” Church of Scientology
of Calif. v. United States, 920 F.2d 1481, 1486 (9th
Cir. 1990) (citation omitted). The constitutional arguments
raised by the Bigley defendants in the instant motion can be
construed as arguments that the Notice of Levy is baseless.
the Bigley defendants argue that Mrs. Bigley's Fourth
Amendment rights have been violated because no warrant based
upon probable cause has been issued. “The Fourth
Amendment protects, among other things, a person's right
not to have their property unreasonably seized by the
government.” Recchia v. City of Los Angeles
Dep't of Animal Services, 889 F.3d 553, 558 (9th
Cir. 2018). However, “[t]he Supreme Court has noted
that where the government seizes property to collect
delinquent taxes, the seizure, if it involves no invasion of
the taxpayer's premises, does not violate the Fourth
Amendment.” Hutchinson v. United States, 677
F.2d 1322, 1328 (9th Cir. 1982). “Here, the Internal
Revenue Service has committed no invasion of [Mrs.
Bigley's] personal effects or premises. Rather, it levied
upon” the funds in the court's registry.
Id. Thus, there has been no Fourth Amendment
Bigley defendants also argue Mrs. Bigley's Seventh
Amendment right to a jury trial has been violated. But,
“the seventh amendment does not apply to actions
against the United States.” ...