Friday, January 9, 2009

The Smith case is interesting because the taxpayer was denied the right to redeem personal property from a tax lien. As a practical matter, taxpayers subject to tax liens do dispose of personal property subject to a tax lien.
In re J.R. Smith, January 9, 2009-In re JERIESHA ROSE SMITH, Debtor.UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA. Case No. 08-00574. (Chapter 7). Not for Publication in West's Bankruptcy Reporter. The document below is hereby signed. Signed: December 17, 2008.
TEEL JR., United States Bankruptcy Judge: The debtor seeks to redeem certain personal property from the tax liens of the Internal Revenue Service. Specifically, the debtor's motion states:
The item to be redeemed is Debtor's tangible personal property intended primarily for personal, family or household use listed on Schedule B and more particularly described as follows:
Cash on Person $ 25.00 Checking Account with Bank of America $108.00 Savings Account with Bank of America $ 7.75 Savings Account with BB&T $187.00 Personal furniture $850.00 Clothing $800.00 Bicycle $200.00 TOTAL: $2,177.75
The motion also seeks an order directing the Internal Revenue Service to release its tax liens upon the debtor paying the value of the redeemed property. The motion cannot be granted as presently cast.
I
A debtor's checking and savings accounts are not tangible personal property, and redemption is limited to tangible personal property. A bank account "consists of nothing more or less than a promise to pay, from the bank to the depositor." Citizens Bank of Maryland v. Strumpf , 516 U.S. 16, 21 (1995) (citations omitted). Redemption cannot be ordered as to the checking and savings accounts.
II
The motion may be motivated by a desire to have a ruling limiting the tax liens to the value of the property the debtor now owns, the property sought to be redeemed, with the tax liens not reaching property acquired in the future. But as a matter of law, by reason of the debtor's forthcoming discharge, the tax liens will not reach property that was acquired by the debtor after the petition date. See , e.g. , In re Schneiderman , 254 B.R. 296 (Bankr. D.D.C. 2000); United States v. Sanabria , 424 F.2d 1121, 1123 (7th Cir. 1970). There is no necessity to obtain a decree to that effect as the Internal Revenue Service will not engage in a prohibited attempt to collect its discharged claims from assets acquired postpetition. The debtor's discharge will be all she needs to establish that her assets acquired postpetition are not subject to the tax liens.The debtor seeks an order compelling the Internal Revenue Service to release the tax liens, but that would be inappropriate as such an order would be injunctive in nature, requiring an adversary proceeding by reason of Fed. R. Bankr. P. 7001. Moreover, non-redeemed property (the bank accounts) will remain subject to the tax liens, so a release of the tax liens (which releases the tax liens in toto ) would be inappropriate. The court has no authority to order a release under 26 U.S.C. § 6325(a) (declaring that the lien no longer attaches to any property) when the lien continues as a lien against any assets the debtor has not redeemed (including any assets the debtor may not have disclosed). Isom v. United States (In re Isom) , 901 F.2d 744 (9th Cir. 1990).At most the debtor would be entitled to obtain from the Internal Revenue Service a discharge of the redeemed property from the tax liens. 26 U.S.C. § 6325(b) . Once the debtor redeems the property, if the Internal Revenue Service refuses to issue a certificate of discharge, the debtor could then sue in an adversary proceeding for an injunction compelling the Internal Revenue Service to issue a certificate of discharge. But the debtor could by motion obtain an order directing deposit of the necessary funds for redeeming the property into the registry of the court, awaiting granting of the redemption motion. The order granting redemption and directing transmittal of the deposited redemption funds to the creditor could decree that the property has been redeemed from the liens. 1 Upon recording of that order where the notices of tax liens are recorded, it would achieve the same effect as a certificate of discharge.
III
Because the court would not grant the debtor's request in her motion for a release of the tax liens, the debtor may not wish the balance of her motion to be granted. I am reluctant to grant the motion in part when that would not seem necessary to advance the debtor's interests. The debtor's clothing, furniture, and bicycle are exempt from levy under 26 U.S.C. § 6334(a)(1) and (2). The tax liens, therefore, cannot be enforced by way of levy against those items of personal property. It is unlikely that a civil action would be brought to foreclose on property worth only $1,850.00 that, at foreclosure sale, would likely fetch less. There are no reported decisions of which I am aware in which the United States has sought to foreclose on property exempt from levy. Enforcement of the lien against the $25 in cash (if the debtor still has it) is exceedingly unlikely, and, in any event, there is no apparent reason why the debtor would take the step of redeeming cash with cash.Although 11 U.S.C. § 722 provides that the debtor may redeem property, I am reluctant to sign an order granting the motion in part, and directing that redeemable property can be redeemed by prompt payment of the specified values, unless it is clear that the debtor intends to go forward with redemption even though redemption appears unnecessary to advance any interest of the debtor.
IV
In light of the foregoing, it isORDERED that the motion is denied with respect to the checking and savings accounts and with respect to the request for an order directing the Internal Revenue Service to issue (upon payment of the redemption amounts) a certificate of release of the tax liens. It is furtherORDERED that if the debtor desires to pursue the balance of her motion even though it does not appear to be necessary to advance her interests, then within 28 days after entry of this order, the debtor shall file a statement that she wishes to pursue the balance of her motion, together with a revised proposed order (a) eliminating the request for an order directing the Internal Revenue Service to issue a release of its liens and (b) limiting redemption to the items of tangible personal property. It is furtherORDERED that if the debtor neglects to timely file a revised proposed order, the court will enter an order dismissing the motion without prejudice.1 Pursuant to an amendment made in 2005, the statute now requires payment to the lienholder "in full at the time of redemption." 11 U.S.C. § 722 . When the funds are deposited in the registry of the court, and transmitted to the creditor upon entry of the order authorizing redemption, there is no issue regarding the payment having been made at the time of redemption.

SEC. 6325. RELEASE OF LIEN OR DISCHARGE OF PROPERTY.
6325(a) RELEASE OF LIEN. --Subject to such regulations as the Secretary may prescribe, the Secretary shall issue a certificate of release of any lien imposed with respect to any internal revenue tax not later than 30 days after the day on which --

6325(a)(1) LIABILITY SATISFIED OR UNENFORCEABLE. --The Secretary finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable; or

6325(a)(2) BOND ACCEPTED. --There is furnished to the Secretary and accepted by him a bond that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof, within the time prescribed by law (including any extension of such time), and that is in accordance with such requirements relating to terms, conditions, and form of the bond and sureties thereon, as may be specified by such regulations.

6325(b) DISCHARGE OF PROPERTY. --

6325(b)(1) PROPERTY DOUBLE THE AMOUNT OF THE LIABILITY. --Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to any lien imposed under this chapter if the Secretary finds that the fair market value of that part of such property remaining subject to the lien is at least double the amount of the unsatisfied liability secured by such lien and the amount of all other liens upon such property which have priority over such lien.

6325(b)(2) PART PAYMENT; INTEREST OF UNITED STATES VALUELESS. --Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to the lien if --

6325(b)(2)(A) there is paid over to the Secretary in partial satisfaction of the liability secured by the lien an amount determined by the Secretary, which shall not be less than the value, as determined by the Secretary, of the interest of the United States in the part to be so discharged, or

6325(b)(2)(B) the Secretary determines at any time that the interest of the United States in the part to be so discharged has no value.

In determining the value of the interest of the United States in the part to be so discharged, the Secretary shall give consideration to the value of such part and to such liens thereon as have priority over the lien of the United States.

6325(b)(3) SUBSTITUTION OF PROCEEDS OF SALE. --Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any part of the property subject to the lien if such part of the property is sold and, pursuant to an agreement with the Secretary, the proceeds of such sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property.

6325(b)(4) RIGHT OF SUBSTITUTION OF VALUE. --

6325(b)(4)(A) IN GENERAL. --At the request of the owner of any property subject to any lien imposed by this chapter, the Secretary shall issue a certificate of discharge of such property if such owner --

6325(b)(4)(A)(i) deposits with the Secretary an amount of money equal to the value of the interest of the United States (as determined by the Secretary) in the property; or

6325(b)(4)(A)(ii) furnishes a bond acceptable to the Secretary in a like amount.

6325(b)(4)(B) REFUND OF DEPOSIT WITH INTEREST AND RELEASE OF BOND. --The Secretary shall refund the amount so deposited (and shall pay interest at the overpayment rate under section 6621), and shall release such bond, to the extent that the Secretary determines that --

6325(b)(4)(B)(i) the unsatisfied liability giving rise to the lien can be satisfied from a source other than such property; or

6325(b)(4)(B)(ii) the value of the interest of the United States in the property is less than the Secretary's prior determination of such value.

6325(b)(4)(C) USE OF DEPOSIT, ETC., IF ACTION TO CONTEST LIEN NOT FILED. --If no action is filed under section 7426(a)(4) within the period prescribed therefor, the Secretary shall, within 60 days after the expiration of such period --

6325(b)(4)(C)(i) apply the amount deposited, or collect on such bond, to the extent necessary to satisfy the unsatisfied liability secured by the lien; and

6325(b)(4)(C)(ii) refund (with interest as described in subparagraph (B)) any portion of the amount deposited which is not used to satisfy such liability.

6325(b)(4)(D) EXCEPTION. --Subparagraph (A) shall not apply if the owner of the property is the person whose unsatisfied liability gave rise to the lien.

6325(c) ESTATE OR GIFT TAX. --Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of discharge of any or all of the property subject to any lien imposed by section 6324 if the Secretary finds that the liability secured by such lien has been fully satisfied or provided for.

6325(d) SUBORDINATION OF LIEN. --Subject to such regulations as the Secretary may prescribe, the Secretary may issue a certificate of subordination of any lien imposed by this chapter upon any part of the property subject to such lien if --

6325(d)(1) there is paid over to the Secretary an amount equal to the amount of the lien or interest to which the certificate subordinates the lien of the United States,

6325(d)(2) the Secretary believes that the amount realizable by the United States from the property to which the certificate relates, or from any other property subject to the lien, will ultimately be increased by reason of the issuance of such certificate and that the ultimate collection of the tax liability will be facilitated by such subordination, or

6325(d)(3) in the case of any lien imposed by section 6324B, if the Secretary determines that the United States will be adequately secured after such subordination.

6325(e) NONATTACHMENT OF LIEN. --If the Secretary determines that, because of confusion of names or otherwise, any person (other than the person against whom the tax was assessed) is or may be injured by the appearance that a notice of lien filed under section 6323 refers to such person, the Secretary may issue a certificate that the lien does not attach to the property of such person.

6325(f) EFFECT OF CERTIFICATE. --

6325(f)(1) CONCLUSIVENESS. --Except as provided in paragraphs (2) and (3), if a certificate is issued pursuant to this section by the Secretary and is filed in the same office as the notice of lien to which it relates (if such notice of lien has been filed) such certificate shall have the following effect:

6325(f)(1)(A) in the case of a certificate of release, such certificate shall be conclusive that the lien referred to in such certificate is extinguished;

6325(f)(1)(B) in the case of a certificate of discharge, such certificate shall be conclusive that the property covered by such certificate is discharged from the lien;

6325(f)(1)(C) in the case of a certificate of subordination, such certificate shall be conclusive that the lien or interest to which the lien of the United States is subordinated is superior to the lien of the United States; and

6325(f)(1)(D) in the case of a certificate of nonattachment, such certificate shall be conclusive that the lien of the United States does not attach to the property of the person referred to in such certificate.

6325(f)(2) REVOCATION OF CERTIFICATE OF RELEASE OR NONATTACHMENT. --If the Secretary determines that a certificate of release or nonattachment of a lien imposed by section 6321 was issued erroneously or improvidently, or if a certificate of release of such lien was issued pursuant to a collateral agreement entered into in connection with a compromise under section 7122 which has been breached, and if the period of limitation on collection after assessment has not expired, the Secretary may revoke such certificate and reinstate the lien --

6325(f)(2)(A) by mailing notice of such revocation to the person against whom the tax was assessed at his last known address, and

6325(f)(2)(B) by filing notice of such revocation in the same office in which the notice of lien to which it relates was filed (if such notice of lien had been filed).

Such reinstated lien (i) shall be effective on the date notice of revocation is mailed to the taxpayer in accordance with the provisions of subparagraph (A), but not earlier than the date on which any required filing of notice of revocation is filed in accordance with the provisions of subparagraph (B), and (ii) shall have the same force and effect (as of such date), until the expiration of the period of limitation on collection after assessment, as a lien imposed by section 6321 (relating to lien for taxes).

6325(f)(3) CERTIFICATES VOID UNDER CERTAIN CONDITIONS. --Notwithstanding any other provision of this subtitle, any lien imposed by this chapter shall attach to any property with respect to which a certificate of discharge has been issued if the person liable for the tax reacquires such property after such certificate has been issued.

6325(g) FILING OF CERTIFICATES AND NOTICES. --If a certificate or notice issued pursuant to this section may not be filed in the office designated by State law in which the notice of lien imposed by section 6321 is filed, such certificate or notice shall be effective if filed in the office of the clerk of the United States district court for the judicial district in which such office is situated.

6325(h) CROSS REFERENCE. --

For provisions relating to bonds, see chapter 73 ( sec. 7101 and following).
SEC. 6334. PROPERTY EXEMPT FROM LEVY.
6334(a) ENUMERATION. --There shall be exempt from levy --

6334(a)(1) WEARING APPAREL AND SCHOOL BOOKS. --Such items of wearing apparel and such school books as are necessary for the taxpayer or for members of his family;

6334(a)(2) FUEL, PROVISIONS, FURNITURE, AND PERSONAL EFFECTS. --So much of the fuel, provisions, furniture, and personal effects in the taxpayer's household, and of the arms for personal use, livestock, and poultry of the taxpayer, as does not exceed $6,250 in value;

6334(a)(3) BOOKS AND TOOLS OF A TRADE, BUSINESS, OR PROFESSION. --So many of the books and tools necessary for the trade, business, or profession of the taxpayer as do not exceed in the aggregate $3,125 in value.

6334(a)(4) UNEMPLOYMENT BENEFITS. --Any amount payable to an individual with respect to his unemployment (including any portion thereof payable with respect to dependents) under an unemployment compensation law of the United States, of any State, or of the District of Columbia or of the Commonwealth of Puerto Rico.

6334(a)(5) UNDELIVERED MAIL. --Mail, addressed to any person, which has not been delivered to the addressee.

6334(a)(6) CERTAIN ANNUITY AND PENSION PAYMENTS. --Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U. S. C. 562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

6334(a)(7) WORKMEN'S COMPENSATION. --Any amount payable to an individual as workmen's compensation (including any portion thereof payable with respect to dependents) under a workmen's compensation law of the United States, any State, the District of Columbia, or the Commonwealth of Puerto Rico.

6334(a)(8) JUDGMENTS FOR SUPPORT OF MINOR CHILDREN. --If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

6334(a)(9) MINIMUM EXEMPTION FOR WAGES, SALARY, AND OTHER INCOME. --Any amount payable to or received by an individual as wages or salary for personal services, or as income derived from other sources, during any period, to the extent that the total of such amounts payable to or received by him during such period does not exceed the applicable exempt amount determined under subsection (d).

6334(a)(10) CERTAIN SERVICE-CONNECTED DISABILITY PAYMENTS. --Any amount payable to an individual as a service-connected (within the meaning of section 101(16) of title 38, United States Code) disability benefit under --

6334(a)(10)(A) subchapter II, III, IV, V, or VI of chapter 11 of such title 38, or

6334(a)(10)(B) chapter 13, 21, 23, 31, 32, 34, 35, 37, or 39 of such title 38.

6334(a)(11) CERTAIN PUBLIC ASSISTANCE PAYMENTS. --Any amount payable to an individual as a recipient of public assistance under --

6334(a)(11)(A) title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act, or

6334(a)(11)(B) State or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test.

6334(a)(12) ASSISTANCE UNDER JOB TRAINING PARTNERSHIP ACT. --Any amount payable to a participant under the Job Training Partnership Act (29 U.S.C. 1501 et seq.) from funds appropriated pursuant to such Act.

6334(a)(13) RESIDENCES EXEMPT IN SMALL DEFICIENCY CASES AND PRINCIPAL RESIDENCES AND CERTAIN BUSINESS ASSETS EXEMPT IN ABSENCE OF CERTAIN APPROVAL OR JEOPARDY. --

6334(a)(13)(A) RESIDENCES IN SMALL DEFICIENCY CASES. --If the amount of the levy does not exceed $5,000 --

6334(a)(13)(A)(i) any real property used as a residence by the taxpayer; or

6334(a)(13)(A)(ii) any real property of the taxpayer (other than real property which is rented) used by any other individual as a residence.

6334(a)(13)(B) PRINCIPAL RESIDENCES AND CERTAIN BUSINESS ASSETS. --Except to the extent provided in subsection (e) --

6334(a)(13)(B)(i) the principal residence of the taxpayer (within the meaning of section 121); and

6334(a)(13)(B)(ii) tangible personal property or real property (other than real property which is rented) used in the trade or business of an individual taxpayer.

6334(b) APPRAISAL. --The officer seizing property of the type described in subsection (a) shall appraise and set aside to the owner the amount of such property declared to be exempt. If the taxpayer objects at the time of the seizure to the valuation fixed by the officer making the seizure, the Secretary shall summon three disinterested individuals who shall make the valuation.

6334(c) NO OTHER PROPERTY EXEMPT. --Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).

6334(d) EXEMPT AMOUNT OF WAGES, SALARY, OR OTHER INCOME. --

6334(d)(1) INDIVIDUALS ON WEEKLY BASIS. --In the case of an individual who is paid or receives all of his wages, salary, and other income on a weekly basis, the amount of the wages, salary, and other income payable to or received by him during any week which is exempt from levy under subsection (a)(9) shall be the exempt amount.

6334(d)(2) EXEMPT AMOUNT. --For purposes of paragraph (1), the term "exempt amount" means an amount equal to --

6334(d)(2)(A) the sum of --

6334(d)(2)(A)(i) the standard deduction, and

6334(d)(2)(A)(ii) the aggregate amount of the deductions for personal exemptions allowed the taxpayer under section 151 in the taxable year in which such levy occurs, divided by

6334(d)(2)(B) 52.

Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with only 1 personal exemption.

6334(d)(3) INDIVIDUALS ON BASIS OTHER THAN WEEKLY. --In the case of any individual not described in paragraph (1), the amount of the wages, salary, and other income payable to or received by him during any applicable pay period or other fiscal period (as determined under regulations prescribed by the Secretary) which is exempt from levy under subsection (a)(9) shall be an amount (determined under such regulations) which as nearly as possible will result in the same total exemption from levy for such individual over a period of time as he would have under paragraph (1) if (during such period of time) he were paid or received such wages, salary, and other income on a regular weekly basis.

6334(e) LEVY ALLOWED ON PRINCIPAL RESIDENCES AND CERTAIN BUSINESS ASSETS IN CERTAIN CIRCUMSTANCES. --

6334(e)(1) PRINCIPAL RESIDENCES. --

6334(e)(1)(A) APPROVAL REQUIRED. --A principal residence shall not be exempt from levy if a judge or magistrate of a district court of the United States approves (in writing) the levy of such residence.

6334(e)(1)(B) JURISDICTION. --The district courts of the United States shall have exclusive jurisdiction to approve a levy under subparagraph (A).

6334(e)(2) CERTAIN BUSINESS ASSETS. --Property (other than a principal residence) described in subsection (a)(13)(B) shall not be exempt from levy if --

6334(e)(2)(A) a district director or assistant district director of the Internal Revenue Service personally approves (in writing) the levy of such property; or

6334(e)(2)(B) the Secretary finds that the collection of tax is in jeopardy.

An official may not approve a levy under subparagraph (A) unless the official determines that the taxpayer's other assets subject to collection are insufficient to pay the amount due, together with expenses of the proceedings.

6334(f) LEVY ALLOWED ON CERTAIN SPECIFIED PAYMENTS. --Any payment described in subparagraph (B) or (C) of section 6331(h)(2) shall not be exempt from levy if the Secretary approves the levy thereon under section 6331(h).

6334(g) INFLATION ADJUSTMENT. --

6334(g)(1) IN GENERAL. --In the case of any calendar year beginning after 1999, each dollar amount referred to in paragraphs (2) and (3) of subsection (a) shall be increased by an amount equal to --

6334(g)(1)(A) such dollar amount, multiplied by

6334(g)(1)(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, by substituting "calendar year 1998" for "calendar year 1992" in subparagraph (B) thereof.

6334(g)(2) ROUNDING. --If any dollar amount after being increased under paragraph (1) is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10.

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