United States v. Rodgers

PETITIONER:United States
RESPONDENT:Rodgers
LOCATION:U.S. Court of Appeals for the Fifth Circuit

DOCKET NO.: 81-1476
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 461 US 677 (1983)
ARGUED: Dec 06, 1982
DECIDED: May 31, 1983

ADVOCATES:
George W. Jones – on behalf of the Petitioner
L. Lynn Elliott – on behalf of Respondents Ingram and Bates
William D. Elliott – on behalf of Respondents Rodgers, et al

Facts of the case

Phillip Bosco died with a great deal of tax debt, so the government sued his widow, Lucille Mitzi Bosco Rodgers, to force her to sell the house in which she currently resided to pay off his debt. Rodgers, however, was not in debt and under Texas law, had a separate right to the homestead. The district court held Rodgers had a state-created right not to have her homestead subjected to a force sale. The U.S. Court of Appeals for the Fifth Circuit affirmed.

Question

Does section 7403 of the Internal Revenue Code of 1954 grant the government the power to order the sale of a home of a delinquent taxpayer, even if a third party has interest in the home as well?

Warren E. Burger:

We will hear arguments next in United States against Rodgers.

Mr. Jones… Do we have someone missing here?

George W. Jones:

No.

Warren E. Burger:

Mr. Jones, I think you may proceed whenever you are ready.

George W. Jones:

Mr. Chief Justice, and may it please the Court, broadly stated, the controlling issue in these cases is whether the homestead rights of a delinquent taxpayer’s spouse preclude enforcement of a federal tax lien against the delinquent taxpayer’s interest in the homestead property.

The Internal Revenue Service made substantial tax adjustments… tax assessments against Respondent Rodgers’ husband as well as the husband of Respondent Ingram.

This litigation arises from the government’s efforts to collect those taxes.

The pertinent facts are undisputed.

Respondent Rodgers and her former husband, Philip Bosco, were married in 1937.

In 1955, they purchased the real property involved in this case.

The property was community property, and Respondent and her husband claimed the property as a homestead under Texas law.

In 1971 and 1972, the Internal Revenue Service made assessments against Philip Bosco in excess of $900,000 for federal wagering taxes.

Bosco died in 1974.

The assessed taxes remain unpaid.

Respondent Rodgers remarried, and she now occupies the property with her new husband.

The government filed this action in the United States District Court for the Northern District of Texas, seeking to reduce its assessments against Bosco to judgment to enforce the liens, the tax liens against any property belonging to Bosco, and to secure a deficiency judgment for any unpaid tax liability or unsatisfied tax liability.

In the other case, Respondent Ingram and her husband, Donald Ingram, acquired real property during their marriage that they claimed as a homestead.

As in the Rodgers case, the property was community property.

In 1972 and 1973, the Internal Revenue Service made assessments against Donald Ingram for unpaid taxes withheld from the wages of the employees of a company of which Donald Ingram was the president.

The unpaid balance of the assessments is about $9,000.

In connection with their subsequent divorce, Donald Ingram conveyed his interest in the homestead properties to Respondent Ingram.

After unsuccessfully attempting to dispose of the properties, Respondent Ingram and the trustee for the properties filed this action against the United States and several other Ingram creditors in state court to quiet title to the property and to remove any liens encumbering the property.

The United States removed the action to the United States District Court for the Northern District of Texas, and filed a counterclaim seeking enforcement of its tax liens.

Donald Ingram was added as a defendant on the government’s counterclaim.

Without explanation, the district court refused to enforce the tax liens in the Rodgers case, but the same court enforced the tax liens in the Ingram case.

On appeal, the two cases were consolidated for oral argument.

The court of appeals held that because the homestead interest of a spouse is characterized as a property interest under Texas law, the government cannot enforce its tax lien against the homestead property while the delinquent taxpayer’s spouse chooses to maintain her homestead interest in the property.

Accordingly, the court affirmed the judgment for Respondent Rodgers in pertinent part and reversed the judgment for the government against Respondent Ingram in pertinent part.

The questions in these cases are matters of statutory interpretation.

The relevant provisions of the Internal Revenue Code are Section 6334, which exempts certain classes of property from the reach… from levy for federal taxes, Section 6321, which creates a lien against all property belonging to a delinquent taxpayer and in favor of the government, Section 7403, which provides for a civil action to enforce a tax lien against any property in which a delinquent taxpayer has any right, title, or interest.

George W. Jones:

Except for the very narrow exemptions set out in Section 6334, all of the delinquent taxpayer’s property and rights in property are subject to levy to satisfy federal tax liens, federal tax claims.

Homestead property is not mentioned in Section 6334, nor does any other federal statute purport to exempt such property from federal tax claims.

State laws exempting property from the claims of private creditors are wholly ineffective against the federal government.

The Internal Revenue Service’s regulations are quite explicit on this point.

No provision of a state law may exempt property or rights to property from levy for the collection of any federal tax.

Thus, property exempt from execution under state personal or homestead exemptions… exemption laws is nevertheless subject to levy by the United States for collection of its taxes.

Under Section 6321, the United States has a lien on all property and rights to property belonging to any person who fails to pay his taxes after appropriate demand.

Whether the taxpayer–

Harry A. Blackmun:

Let me get the government’s position straight.

I don’t think any of us question the susceptibility of a homestead to the enforcement of a federal tax lien, but is it the government’s position that if the delinquent taxpayer owns any interest in a homestead, any partial interest, that it may proceed to sell the entire homestead?

George W. Jones:

–Our position is that Congress has authorized the Attorney General to file suit against any property in which the delinquent taxpayer has an interest, and our position is that there may be circumstances, not present here, in which it would be appropriate to sell only the delinquent taxpayer’s interest, but where that can’t be done, the government is entitled to sell the entire property with division of the proceeds as the means of accommodating the interest of any other parties who have interest.

Harry A. Blackmun:

So that here you would, in effect, sell the homestead under Mrs. Rodgers, who continued to occupy it, and who under state law had the right to occupy it for the balance of her lifetime.

You would in effect evict her and give her her share of the proceeds?

George W. Jones:

That’s essentially correct.

Harry A. Blackmun:

Well, essentially?

Isn’t it correct?

George W. Jones:

That is absolutely correct.

Harry A. Blackmun:

Now, then, let me ask you this.

Suppose your delinquent taxpayer is a person who holds a mortgage on my property, and the government moves in to enforce the lien, the tax lien on the mortgage.

Does that mean that it can sell my property?

George W. Jones:

Well, I am not clear that the mortgagee’s interest in your property would be sufficient for the government’s tax lien to attach.

Harry A. Blackmun:

Well, it is an interest in property.

It is an interest in my homestead property, isn’t it?

George W. Jones:

Well, if it is, Congress has said that under Section 7403, the government may proceed against any property in which the taxpayer has an interest or in which the government has a lien.

Now, the district director or the Secretary certainly may take into account your interest in the property or any other interest in the property in determining whether to proceed against the property by means of foreclosure under Section 7403 or by administrative levy, but once the district director or the Secretary of the Treasury has made that determination, Congress has provided for enforcement of the tax lien.

Harry A. Blackmun:

Well, I am just suggesting that I think the ultimate… your argument taken to the ultimate conclusion means that they can sell my property in order to foreclose the lien on the mortgagee’s property.

Let me put it another way.

Suppose that my next door neighbor has an easement over my homestead property, and he is delinquent in taxes.

May the government foreclose on his easement and hence sell my property?

George W. Jones:

Well, the easement might be marketable independent of the property, and it might be permissible to attempt to sell the easement without selling your property as well.

Sandra Day O’Connor:

Well, isn’t that in fact what the government does, is sell the interest of their holding of the easement?

George W. Jones:

Where that is possible, where there is a separate market for the property, the government may indeed decide to proceed in that manner.

Sandra Day O’Connor:

Why can’t the government in this case sell Mr. Rodgers’ interest, Mr. Rodgers’ estate’s interest in the homestead, which is basically an interest that will become possessory after Mrs. Rodgers either dies or gives up the homestead?

George W. Jones:

The reason is that there is no separate market for Mr. Rodgers’ fractional interest–

Sandra Day O’Connor:

Well, how do you know that?

If Mrs. Rodgers is elderly, and isn’t going to live long, and the property has substantial value, how can you say there is no interest?

George W. Jones:

–Well, I said there is no separate market for a fractional interest of the sort involved in this case.

The sale–

Harry A. Blackmun:

You just told me that that is not the government’s position, that you want the whole bundle of was.

You want to sell the whole homestead, and give her her share of the proceeds.

George W. Jones:

–Well, this case is quite different from the hypotheticals you posed, because under Texas law community property under the joint control of both spouses is subject to the claims of creditors of either spouse for debts incurred during the marriage, and therefore our position is that Mrs. Rodgers isn’t entitled to any part of the proceeds in this case.

Harry A. Blackmun:

Well, under Texas law, Mr. Rodgers, while he lived, could not sell that homestead.

Correct?

George W. Jones:

That’s correct, without Mrs. Rodgers’ consent.

Harry A. Blackmun:

Consent.

Why should the government in asserting its lien against him for delinquent taxes have any greater right than he had?

George W. Jones:

Because in enforcing its lien, the government doesn’t simply step into the shoes of the delinquent taxpayer.

Harry A. Blackmun:

Well, then again I say, the government wants the whole hog.

It wants to sell the property out from under Mrs. Rodgers’ life occupancy.

George W. Jones:

Justice Blackmun, the government’s position is only that Congress decides what property is exempt from levy.

Congress has not provided an exemption for homestead property.

Under the facts of this case, Mrs. Rodgers is being denied nothing that she is entitled to.

William H. Rehnquist:

You say that the government, though, doesn’t simply stand in the shoes of Mr. Rodgers.

Whose shoes does it stand in?

George W. Jones:

The government is entitled to the rights Congress has provided.

Under Section 7403–

William H. Rehnquist:

What rights has Congress provided other than the rights that belonged to Mr. Rodgers, against whom the lien–

George W. Jones:

–Well, Congress created a lien on the property for the payment of the taxes, and under Section 7403, the government is entitled to enforce that lien by forcing sale of the property and division of the proceeds in accordance with the respective interests of any other parties who have claims against the property.

Harry A. Blackmun:

–What is your definition of the word “property”?

The husband’s interest or the entire fee?

George W. Jones:

Well, state law defines–

Harry A. Blackmun:

Apart from state law, what is your definition of the word “property” in the federal statute?

It is the husband’s interest, isn’t it?

It has to be.

George W. Jones:

–I am not sure I understand the question.

State law says that the husband had a property interest, and the court of appeals held that each of the delinquent taxpayers in these cases had an undivided one-half interest in the property.

In addition, however, under Texas law, community property is subject to the claims of creditors for debts incurred during the marriage.

It appears therefore that in Texas both spouses have a sufficient property interest in all community property to subject it, the property to the claims of any creditors of either one of them.

To further answer Justice O’Connor’s question, where there is no interest, or no separate market for a fractional interest, both the taxpayer and the government would be harmed or suffer detriment by attempting to sell just the fractional interest.

William H. Rehnquist:

What if you have A and B, tenants in common under state law, not related by marriage or otherwise, and the law of the state is that one tenant in common cannot force another tenant in common to sell the property.

All you can do is sell your interest.

And the government has a tax claim against A.

Do you think under the statute that you are claiming under that the government can force both tenants in common to sell the property, to sell the physical property rather than just the tenancy in common interest of the one against whom it has a tax lien?

George W. Jones:

If there were a separate market for A’s half of the property, then there wouldn’t be any need to sell both interests, but if there wasn’t, the government would be entitled to have the entire property sold and division of the proceeds in accordance with the interests of A and B.

William H. Rehnquist:

So it is almost a separate inquiry in each one of these cases whether there is a separate market, as you put it?

Do you find that in the statute somewhere?

George W. Jones:

No, the focus of the 1936 amendments was on providing… amendments to Section 7403 was on providing an effective remedy for foreclosure against personal property, and Congress–

John Paul Stevens:

Can I interrupt you?

To put this on a little broader proposition… I guess some of the other questions the same way… in the Rodgers brief at Page 18, they rely on a rather broad principle that the collector has rights no greater than those of the taxpayer whose rights to property he seeks to foreclose on, that you can’t go beyond the shoes of the taxpayer in fact, and you didn’t respond to that in your reply brief.

I just wonder if other than this case, has the government ever asserted a greater right than the taxpayer himself could have asserted?

George W. Jones:

–Well, I don’t know how many cases.

There is at least one.

In Herndon, the government levied on homestead property even though under the law of the state the taxpayer would have no right to sell his interest in the property without the consent of his spouse.

The government in enforcing a lien exercises the rights Congress has provided.

It is not an assignee of the taxpayer.

And contrary to the suggestion of the Fifth Circuit in the case of Folsom, the government is not obliged to first acquire the taxpayer’s interest and then attempt–

John Paul Stevens:

Let me change my question just a bit.

Herndon was another homestead case.

George W. Jones:

–Right.

John Paul Stevens:

Which we didn’t review.

John Paul Stevens:

And the question here is, what are the government’s rights in a homestead context.

And I am asking outside of the homestead context, is there any precedent for the government asserting a greater right, greater property right than that of the taxpayer against whom the government seeks to foreclose.

Or of… and take that… go beyond the government in a tax situation.

Any lienholder having a greater right than the property right of the lienee.

In any context.

George W. Jones:

It is somewhat difficult to answer that question, because the rights of a lienholder would be, except for the federal government, would be determined by state law, and that would depend of the law of the particular state in which the lien is asserted.

John Paul Stevens:

I just wanted to give you a broader range.

Let’s leave it then with the government.

Any time the government has done this.

George W. Jones:

I am not aware of any circumstances where the question has come up, but it is fairly well established that state exemptions don’t provide any obstacle to the government’s attempts to enforce its tax liens.

Here, there is assertedly a joint owner of the property.

The government is attempting to enforce its lien against the property interest of the delinquent taxpayer.

In order to do that, the entire property must be sold, because, as I mentioned before, there is no separate interest or separate market for the homestead property which a tax sale purchaser couldn’t do anything with under state law.

Harry A. Blackmun:

That brings me back to my easement hypothetical.

George W. Jones:

Well, for an easement, there… an easement, as I remember from law school, may well be of value to individuals other than the person holding it, and they are transferrable, unless there is a limitation in the document granting the easement, and it may well be that an easement can be sold without interfering with your interest in the property at all.

Harry A. Blackmun:

And if it can’t?

George W. Jones:

And if it can’t–

Harry A. Blackmun:

You are driven right back to Justice Rehnquist’s inquiry.

But you can never keep any more than the value of the easement.

George W. Jones:

–That’s right.

Byron R. White:

Which may not be very much.

If you can’t sell it, it is not worth anything.

George W. Jones:

That is absolutely right.

Byron R. White:

But you probably wouldn’t be selling the property anyway.

George W. Jones:

True, and all of those factors are–

Sandra Day O’Connor:

Well, if you can’t keep any more than the value of the easement in the Rodgers case, you couldn’t keep any more then than the value of Mr. Rodgers’ estate’s interest.

George W. Jones:

–That is–

Sandra Day O’Connor:

Which you have asserted is very small.

George W. Jones:

–No, there is a difference, I think, between saying that a property… that a particular fractional interest is unmarketable because no one would be willing to buy it and saying that the taxpayer’s interest is without value.

Here, it is clear beyond any question that both of the delinquent taxpayers had an undivided one-half interest, 50 percent interest in the homestead property.

George W. Jones:

In addition, and just as to that, the… well, and in addition, the Rodgers homestead is estimated to be worth about $150,000, so the government is entitled to at least 50 percent of the proceeds of any sale.

Our point is that attempting to sell Mr. Rodgers’ one-half interest that a tax sale purchaser couldn’t do anything with until Mrs. Rodgers decided to abandon the homestead or for some other reason terminated, because nobody would be interested in buying this one-half interest, or at least there is no established market for it, because of the limitations on its use, we say that the only way the government and the interests of the taxpayer can be served is by selling the entire property and dividing the proceeds among the respective claimants to the property.

And it is our position that that is the accommodation Congress intended under the circumstances of this case, or these cases.

The Fifth Circuit has taken the position that under 7403, the only thing that can be sold is the taxpayer’s interest in the property.

Every other court of appeals that has considered that question has rejected the Fifth Circuit’s position.

The Fifth Circuit’s reading of 7403 is based, we submit, on a misapprehension of the rights of the government under 7403.

The Fifth Circuit–

Harry A. Blackmun:

Are you speaking of the Folsom case?

George W. Jones:

–Excuse me?

Harry A. Blackmun:

Are you speaking of the Folsom case?

George W. Jones:

Yes.

Harry A. Blackmun:

Of course, the Folsom case isn’t before us.

George W. Jones:

That’s right, but in this case the court of appeals–

Harry A. Blackmun:

It may well be wrong if it had come here.

George W. Jones:

–And in this case, the court of appeals adopted the exact… exactly the same reasoning, and applied it in this case.

Harry A. Blackmun:

Except you have different facts.

You have homestead interest as distinguished from a tenancy in common, as I understand the Folsom case was.

George W. Jones:

That’s right.

But it is well settled that state laws exempting property from the claims of private creditors are simply ineffective against the federal government.

So this case in pertinent part, the facts in this case, the relevant facts in this case are no different from Folsom.

What you have are joint owners of property, one of the joint owners being a delinquent taxpayer, and the question is to what extent the government is entitled to sell the interests of the non-delinquent taxpayer in order to maximize the return of the sale or the proceeds of its sale to the benefit of both the government’s tax collection efforts and the interest of the taxpayer in satisfying his tax liability.

The court of appeals in this case focused on the non-delinquent taxpayer’s interest in the property.

According to the court of appeals, if the delinquent taxpayer’s homestead rights are characterized as property rights under state law, the government cannot enforce a concededly valid lien against the property until the delinquent taxpayer’s spouse decides to abandon his homestead.

Whatever the amount of the taxpayer’s liability, and however valuable the property, the government is, according to the Fifth Circuit, powerless to enforce its lien against the property.

We submit that this Court’s decisions establish the proposition that if the delinquent taxpayer has an interest that constitutes property under state law, the federal lien attaches, and the lien is enforceable under 7403.

The–

Byron R. White:

The question here isn’t whether the lien is good.

The question is, when can it be enforced.

George W. Jones:

–Whether it is enforceable.

Here, the–

Byron R. White:

No, no, not whether.

It ultimately and inevitably will be enforced.

The lady has, under state law, has a life estate in the property.

She has got the right to occupy it during her lifetime.

When she dies, the lien will still be good, won’t it?

George W. Jones:

–Well–

Byron R. White:

And if she wants to sell it, the lien will have to be satisfied.

George W. Jones:

–It is not clear that that is true but–

Byron R. White:

Why isn’t that true?

George W. Jones:

–Well, there’s–

Byron R. White:

Is anybody suggesting that the lien is invalid here?

The lien will have to be satisfied up to his share of the value of the property.

George W. Jones:

–Well, whatever that is, but–

Byron R. White:

Well, that is all you can get anyway.

George W. Jones:

–That’s right.

There are some… The court of appeals recognized that the delinquent taxpayers here owned at least 50 percent of the property.

The other question is, how much more than that the government is entitled to.

But although the court of appeals purported to… how much… under state law, whether his rights in the community property are sufficient to constitute property, and whether the government’s tax lien would attach to the entire property because of the rights accorded–

Byron R. White:

It would attach to the entire property, but you… if you were allowed to foreclose this lien, all you would get to satisfy your lien is the value of his interest in the property.

George W. Jones:

–That’s right, and although the court of appeals purported to leave open the possibility that at some point the government might be allowed to enforce its lien, there is no guarantee that the value of the liens won’t be substantially eroded in the meantime, and furthermore, the liens might be lost altogether, either because the government fails to keep track of this woman, the taxpayers’ spouses, or fails to keep track of the proceeds of any disposition of the properties.

Byron R. White:

Well, if you filed… if you actually recorded your lien, anybody who is going to buy that property is not going to… they are either going to pay a lesser price if the property is going to be subject to the lien, or they are going to insist on its being satisfied so they can get clear title.

George W. Jones:

That is true, but it is not quite clear how… which of those alternatives would be pursued, and whether the government would ever be paid without reasserting its rights.

The court of appeals suggested that the lien attached to the homestead, and that the homestead rights of the spouse would continue to protect the homestead from enforcement of the lien for as long as Mrs. Rodgers maintained the homestead, even if she maintained her homestead by substituting another property, okay, or selling this property and then investing the proceeds in something else.

Sandra Day O’Connor:

Does the homestead interest attach in Texas law to the property acquired in substitution for the original homestead property?

Does the homestead roll over into the new property?

George W. Jones:

That is what the court of appeals said, and–

Sandra Day O’Connor:

What is your view of Texas law on that point?

George W. Jones:

–I have no basis for disagreeing with that assertion by the court of appeals, and that is not a question… that is no anything to question–

Byron R. White:

Well, the court of appeals didn’t rule that if there was a substitution, that your lien would have to attach to the substituted property.

They didn’t say you couldn’t collect on your lien right then, did they?

Byron R. White:

Because there was no occasion to rule on that.

George W. Jones:

–That’s right, and that’s why I was not quite as sanguine about the possibilities of the government collecting upon the sale.

Federal tax liens are enforceable against all of the delinquent taxpayer’s property.

Congress has provided for the sale of any property in which the delinquent taxpayer has an interest and for division of the proceeds as the means of accommodating the interest of any co-owners of the property.

John Paul Stevens:

Mr. Jones, suppose the taxpayer had the fee interest in a piece of property, and he gave his wife or someone else a life estate in the property, and thereafter the lien attached.

Could you evict the life tenant?

George W. Jones:

For purposes of selling the property?

John Paul Stevens:

Correct.

George W. Jones:

I think so.

John Paul Stevens:

You think you could evict the life tenant?

George W. Jones:

Subject to division of the proceeds for whatever value the life estate would have had.

John Paul Stevens:

Even though the fee owner could not have evicted the life tenant.

George W. Jones:

That’s right.

John Paul Stevens:

I imagine you had a little difficulty finding any cases that hold that.

George W. Jones:

Well, Congress has provided for the means–

John Paul Stevens:

I understand.

George W. Jones:

–of accommodating the interests of any people who have interest in the property other than the taxpayer.

Byron R. White:

This is a life estate case, isn’t it?

Among other things, a homestead interest entitles a person, the lady in this case, to occupy the property for her lifetime.

George W. Jones:

It is not precisely a life estate case, because–

Byron R. White:

Well, I know it isn’t precisely, but she has an interest during her lifetime that her heirs will not have.

George W. Jones:

–Right, for so long as she chooses to use it, and she could move and abandon it.

John Paul Stevens:

She has both a life estate and a 50 percent interest in the remainder, whereas in my case she didn’t even have the 50 percent interest in the remainder, is the only difference.

George W. Jones:

Well, in order to maintain her life estate in the property, she has to continue to occupy the property.

She has to stay there.

George W. Jones:

So it is different in that respect.

Warren E. Burger:

Mr. Elliott?

William D. Elliott:

Mr. Chief Justice, and may it please the Court, in this case, the government takes the awesome position that the property of one may be used to satisfy the tax liability of another.

To this claim, we make two arguments.

First, there can be no foreclosure of the separate homestead property because in Texas it is indivisible, it is individual to her, and it is indefeasible during her lifetime or until her earlier voluntary relinquishment.

William D. Elliott:

Secondly, that the district court’s judgment not ordering foreclosure in the Rodgers case should not be disturbed here, because the government has made no claim of abuse of discretion, and hasn’t even attempted to overturn that finding on that ground.

Since the Congress defined the source from which tax liability may be enforced, that is, property and rights to property of the taxpayer, it is clear here that the government is simply attempting to attack and utterly destroy the property of someone else.

It is imperative that we examine not only the property and rights to property of the taxpayer here, the deceased husband, but similarly we must examine those property interests of others who would be affected or who own individually property that doesn’t belong to the taxpayer.

In Texas, it has been a venerable policy for over 100 years, Texas constitutional law since 1876, and statutory law for many years before that, that each spouse is entitled to use and possess the homestead for as long as they want to or until their death.

Byron R. White:

That is an interest over and above a half-interest in the property, as Justice Stevens indicated.

William D. Elliott:

Yes, it is, Justice White.

It is important to understand the peculiar nature of the Texas homestead law.

In fact, homesteads originated in Texas.

Each spouse can own a community one-half interest in the home, or one spouse may own it all as separate property.

But each spouse is given a separate property right, a homestead right, to use and possess, as that term is defined in the Texas Constitution, for their entire life.

Sandra Day O’Connor:

Now, under Texas law, I suppose the survivor needn’t even live on the homestead in order to preserve it, but could rent it out to others.

William D. Elliott:

That is correct.

Abandonment of the homestead–

Sandra Day O’Connor:

And still maintain the homestead.

William D. Elliott:

–That is correct.

Abandonment of the homestead does not occur even in those situations where there is a rental.

Sandra Day O’Connor:

What if it is sold?

William D. Elliott:

It is abandoned.

Sandra Day O’Connor:

That is an abandonment, if it is sold?

William D. Elliott:

Yes.

It is a voluntary relinquishment.

Whether she leaves the home with no intention to return or sells it, it is a–

Sandra Day O’Connor:

And if there is a divorce, it is terminated.

Is that right?

William D. Elliott:

–Yes, but the terms of the property settlement agreement have a bearing on it, and each spouse… for example, in the Woods case, the Texas Supreme Court, the Texas Supreme Court there held that each spouse has an indivisible, individual, both, property right in this homestead, and in that case the husband was claiming that even though he had had a divorce, and even though his children had left the home, he was still entitled as a spouse of the marriage to continue in that homestead for as long as he lived, and the Texas Supreme Court in 1929 said, yes, clearly, this property right, this homestead right is his.

In this case, we are claiming it is hers.

And the fact that her husband died, or if he had gotten a divorce from her, it makes no difference.

It is her property right.

And it is that which the government seeks to foreclose.

Byron R. White:

How do you distinguish the joint tenancy?

William D. Elliott:

Right of possession, Justice White.

In all those cases that the government claims are inconsistent, Folsom, Trilling, Washington, Kosher, they all involve joint tenancy cases where the taxpayer has a right of possession.

Here, the taxpayer is deceased.

His heirs cannot compel the non-taxpayer spouse to leave the property, nor do they have any right to possess it with her.

What they have is simply a remainder in one-half.

That will become possessory upon her death or voluntary relinquishment.

Therefore, it is unnecessary for this Court to consider the alleged conflict in Folsom and the other circuits.

Byron R. White:

Is that the same with undivided interests, other undivided interests in property?

William D. Elliott:

Yes, sir.

Byron R. White:

Tenants in common?

William D. Elliott:

Yes, sir.

Byron R. White:

And you say it is the peculiarities of Texas homestead law.

I suppose if they had the same provisions with respect to some other estates on joint tenants, that each party… they gave the same rights to each of the… What if a joint tenant has died?

William D. Elliott:

Who would be the taxpayer, Your Honor?

Byron R. White:

Well, the taxpayer… the joint tenant dies when he is a taxpayer.

He owes some taxes when he dies.

William D. Elliott:

Then Section 7403(c) would entitle the district court to have the equitable discretion to compel foreclosure or not, as it chooses to do so.

Byron R. White:

Well, the taxpayer no longer has a right to possess.

William D. Elliott:

His heirs would.

Sandra Day O’Connor:

Under a joint tenancy, with right of survivorship?

No, no.

William D. Elliott:

I didn’t understand you to say right of survivorship, Your Honor.

I understood you to say joint tenancy.

Byron R. White:

Well, I say a joint tenancy with a right of survivorship then.

William D. Elliott:

In that situation, that interest expires and the survivor takes the property.

Byron R. White:

Yes, but it was subject to a lien.

William D. Elliott:

That’s true.

Byron R. White:

You wouldn’t say that the lien is destroyed, would you?

William D. Elliott:

No, but the underlying property that supports–

Byron R. White:

So you say your rationale is going to support… you get the same result in joint tenancy with a right of survivorship as you will in this case.

William D. Elliott:

–That’s right, Your Honor, and we would also have the same result in a tenancy by the entirety.

Byron R. White:

Well, then there is a conflict among the circuits.

William D. Elliott:

Yes, there is, Your Honor.

It is clear that the Fifth Circuit is taking a position different from the other circuits, but we are not relying on the Folsom decision.

We don’t believe that the Folsom decision was central to the Fifth Circuit’s opinion.

Byron R. White:

Well, most joint tenancies are with right of survivorship, and so you are really talking about that category of cases, too, as well as homesteads.

William D. Elliott:

Yes, Your Honor, it would be included within that category.

Byron R. White:

And tenants of entirety?

William D. Elliott:

Yes, Your Honor.

John Paul Stevens:

Mr. Elliott–

–Is that really correct?

Because during the lifetime of the joint tenants, is it not true that the taxpayer would have had the right to sell and have a partition of the proceedings in the event of a dispute with the joint owner?

William D. Elliott:

As I understand property law in other states other than Texas, a tenant in common would have the right to compel partition because he has the right to possess.

John Paul Stevens:

Well, that is true of joint tenancy, too, isn’t it?

William D. Elliott:

But with the right of survivorship, I am not sure that is the law, Your Honor.

I understand it to be that the right of survivorship does not compel one of the tenants–

John Paul Stevens:

How about before the death of the taxpayer?

They are joint tenants and own property.

You are suggesting that neither one of them could compel the sale in the event of a dispute between them?

William D. Elliott:

–We don’t have Texas law that is as active in the survivorship area as other states, so I am speaking without a great familiarity with the total command of the survivorship rule, but I understand it to be that neither spouse can sell the property because of the survivorship feature without the consent of the other.

John Paul Stevens:

Or without a partition proceeding?

William D. Elliott:

If it is jointly agreed to, Your Honor, yes.

John Paul Stevens:

It has to be jointly agreed to in a joint tenancy situation?

William D. Elliott:

With right of survivorship, I understand that to be the case.

It is certainly the case in Texas homestead law applicable here.

Texas law is absolutely clear that neither spouse can partition, sell, or affect the other spouse’s interest in the homestead without that spouse’s consent, and here–

Byron R. White:

I understand the homestead, but–

William D. Elliott:

–This Court has said, Aquilino, and Durham Lumber Company, and Busse, authored by Justice Brennan, that this Court must examine the rights defined by the states that the taxpayer has in the property, and only then will we attach consequences federally defined to those state interests.

Here, we think this case is very analogous to the Durham Lumber Company decisions and the Aquilino decisions.

There, the taxpayer was a general contractor who was owed money allegedly from the owner of the building.

William D. Elliott:

He owed, in turn, subcontractors who claimed the property as well.

This Court held in both instances, in Durham Lumber Company and Aquilino, that under state law, having examined it, that the relative states, New York and North Carolina, did not give the owner, the taxpayer… I mean, the general contractor, the taxpayer, any property or rights to property in that chosen action owed from the owner.

In fact, under state law, the subcontractors had a superior, either direct right of action against the owner for that money or in the other case, the general contractor held it in trust.

In both case, this Court held that because the general contractor taxpayer, the IRS could not enforce its tax lien against it.

Only after the subcontractors claims were fulfilled could the IRS collect its money from the, in essence, excess chosen action.

That is analogous to the situation here.

We have another related party, the spouse.

Her interest is individual to her.

Only after her interest expires through death or voluntary relinquishment may the government enforce its lien.

Sandra Day O’Connor:

–Why couldn’t, under your theory, the government at least try to market the non-possessory interest of the taxpayer, sell it and use the proceeds of that sale to satisfy its lien?

William D. Elliott:

They could, Your Honor.

They have not sought to do so.

Well, in that case they would just selling the lien.

They would be selling the future possessory interest in one-half of the community, Your Honor.

Byron R. White:

Well, you don’t suggest at all that… nothing in your position would indicate that the lien is invalid?

William D. Elliott:

Oh, not at all, Your Honor.

Byron R. White:

Or that it would ever become invalid?

William D. Elliott:

The lien attaches to his interest in the underlying homestead, which is–

Byron R. White:

And it is going to be collectable no later that the end of her life.

William D. Elliott:

–She is 70 years old, and it will be, you know, her life expectancy is soon.

Byron R. White:

Or when she sells it, You say that–

William D. Elliott:

Or abandons it, Your Honor.

Byron R. White:

–Or abandons it.

William D. Elliott:

She could swap homestead, to answer your question, Justice O’Connor, and would lose the protection we are seeking here.

Byron R. White:

If she swapped.

William D. Elliott:

Yes, Your Honor.

Under Texas law–

Byron R. White:

But she would have a homestead in the substitute property?

William D. Elliott:

–That’s exactly right.

Byron R. White:

But it wouldn’t be protected against this lien.

William D. Elliott:

That’s right, because her second homestead would not have arisen prior to the attachment and assessment of the tax.

In this case, she acquired the homestead in 1955, certainly long before the tax lien arose.

Warren E. Burger:

And you are saying that there is nothing here that will defeat the federal government’s right to collect the tax.

It merely is deferring the date, deferring the time.

William D. Elliott:

That is precisely what we are saying, Your Honor, Mr. Chief Justice.

Warren E. Burger:

What is the interest these days on federal delinquent taxes?

William D. Elliott:

I think they just lowered it to 16 percent, Your Honor.

It was 21 percent last year.

John Paul Stevens:

Mr. Elliott, what about Mr. Rodgers, the second husband here?

Does he have a homestead interest in the property?

William D. Elliott:

He does, but it is subject to this federal tax lien, Your Honor.

John Paul Stevens:

Subject to the lien.

William D. Elliott:

Yes, sir.

In this case, there have been various courts of appeals that have considered these cases involving one taxpayer liable but a homestead affecting two states… affecting both spouses.

There is a consistent patter, we think, in all of these decisions.

There are not the Folsom line of cases.

These are those other cases, such as Herndon, Hershberger, Hefron, Weitzner; in all those cases the courts of appeals have exhibited a consistent theme: does the state give the non-taxpayer spouse a property right, as we have in Texas, as Hershberger sought in Kansas, or is it simply an exemption form creditors, as the Fifth Circuit witnessed in Weitzner?

We suggest that that is the proper rule.

As this Court said repeatedly, as we pointed out earlier, Busse, Durham Lumber Company, and others, it is a proper balance, a logical and sound position to rely on the state law and what is that law insofar ad the taxpayer is concerned, and then attach consequences federally defined.

All of those decisions, even the Herndon decision, allowed the wife to live on the property for the remainder of her life if the wife was given a property right.

Byron R. White:

Well, let’s go back to the joint tenancy with right of survivorship.

You say the law of Texas is that the one joint tenant can’t force the sale of the property and the partition.

William D. Elliott:

Yes, Your Honor.

That is my understanding.

Byron R. White:

Suppose both joint tenants are alive.

The government has a tax lien on the property by virtue of the unpaid taxes of one of the joint tenants, and it wants to foreclose.

May it?

William D. Elliott:

No.

Byron R. White:

So you are talking about not only where a joint tenant is deceased, but at any time there is a joint tenancy with right of survivorship, the government may not foreclose on the property.

William D. Elliott:

That’s correct, because the underlying property interest, Justice White, expires.

William D. Elliott:

It does no longer exist after the death of the first spouse to die.

Byron R. White:

Well, certainly there are a lot of… there are plenty of cases, aren’t there, or maybe not so many, that so permit the government to foreclose during the lifetime of one of the joint tenants.

William D. Elliott:

Section 7403 (c) gives the district court the power compel foreclose in those cases where the taxpayer and the non-taxpayer share an interest in the property.

We contend that Section 7403 does not apply because there is no joint interest here.

The wife, or the interest of the–

Byron R. White:

Well, talk about the joint tenancy.

I don’t understand now.

May the government foreclose to collect its taxes where there is a joint tenancy and a right of survivorship?

William D. Elliott:

–It would be our view that if under state law first spouse to die’s interest in the property expired and extinguished and became defeasible on his death, then no, because his property–

Byron R. White:

All right, but how about during his lifetime?

That is what I to know.

William D. Elliott:

–Yes, they would be empowered to foreclose, Your Honor.

Byron R. White:

Even though the joint tenant who owes the taxes could not force a sale of the sale of the property?

William D. Elliott:

Yes, but the interest of the government would also expire on the death of the taxpayer.

The underlying property interest to which the lien attached is all that the government gets, and it gets no more than that.

And for the government to be able to take a possessory interest in this survivorship property, and have it continue beyond the life of the joint tenant, means that the government’s property interest is stronger than that of the underlying fee owner, and we claim that that is not what the government is entitled to do.

Warren E. Burger:

What if a fee owner conveys property to the Ford Foundation or through his local church, reserving a life estate in himself, and then incurs the tax liability.

Is the tax… well, what is the consequence in terms of the tax lien?

Can it be asserted only against his life estate that he has reserved?

Or is the burden on the whole fee?

William D. Elliott:

The scope of Section 7403(c), Your Honor, does not make clear to me that the government would take any more than what life estate owner had, and what the life estate owner had was merely possession and the normal right and duties attributable to the life estate tenant during his lifetime, and since the Ford Foundation in your case was the transferee of the property before the time the tax lien a rose, I would say that all that the government gets in that case is what the life estate owner had, and expires at this death.

Warren E. Burger:

Now let me change the hypothetical.

He conveyed it to one of his children, reserving a life estate, which is fairly common among… a very common transaction among people with small estates.

William D. Elliott:

I don’t believe, Your honor, that the identity of the transferee makes any difference, except in those instances where under state law the transferor father might have some possibility of reversion after the children expired, which of course is theoretically possible.

In the Ford Foundation hypothetical, I assume that under state law, he has nothing more than what the normal rights and duties of the life estate tenant, and they expire at his death.

Harry A. Blackmun:

May I go back to Justice White’s question, because I didn’t understand your answer.

Assume a joint tenancy, an ordinary joint tenancy, no homestead overlay, and one of the joint tenants is tax delinquent.

May the government under Texas law, is there any provision of Texas law that prevents the government from moving in and selling the delinquent taxpayer’s interest in the joint tenancy?

William D. Elliott:

No, Your Honor, but right of survivorship in Texas is not common.

It is not something that we experience regularly.

William D. Elliott:

It is more–

Harry A. Blackmun:

If the government did move in, isn’t the joint tenancy thereupon destroyed?

William D. Elliott:

–Yes, in the absence of a right of survivorship, I think it is important to distinguish the two.

Justice White, I understood, was asking me about right of survivorship.

In the absence of the right of survivorship, clearly, the government can cash out the other joint interest owners, but in the instance of a survivorship, we submit no, because–

Harry A. Blackmun:

Well, again I am confused by your terms.

Do you have such a thing as joint tenancy in Texas without right of survivorship?

William D. Elliott:

–I call it a tenancy in common.

Harry A. Blackmun:

Of course.

That is a tenancy in common.

But if you have a joint tenancy, you have a right of survivorship.

William D. Elliott:

Then in that in instance I would say that the government does not get any more than the taxpayer had, and his interest expires on his death, and absent a possibility of reversion.

Harry A. Blackmun:

Well, we are not talking about his death.

We are talking about moving in before he died.

William D. Elliott:

Then the government can take his interest.

They can cash out the non-taxpayer, and all that they get is the value attributable to his term.

Byron R. White:

Well, you are now suggesting that if one joint tenant who owes the taxes dies, the government lien ends.

A while ago you said the government never loses its lien.

And that it would just attach to the property.

It was only a question of time.

Now you are suggesting that in joint tenancy cases, the government’s interest expires.

William D. Elliott:

I am suggesting, to clarify, Justice White, that his underlying property interest expires.

The lien does not expire, but the lien attaches only to those property interests that the taxpayer has.

Byron R. White:

Well, when he is dead, he doesn’t have any property interest, you say.

William D. Elliott:

In that particular property, that is correct.

Byron R. White:

Well, then, the lien expires.

William D. Elliott:

Insofar as that property is concerned, yes, Your Honor.

Byron R. White:

Well, that is the only property that it attached to.

So now you are saying that your rule means the government loses its lien upon the death of a joint tenant.

William D. Elliott:

Yes, Your Honor.

William D. Elliott:

Under your hypothetical, that is correct.

Harry A. Blackmun:

Unless it has foreclosed during his lifetime.

William D. Elliott:

That is correct.

Byron R. White:

You’ve got a hard row to hoe there.

Warren E. Burger:

Mr. Elliott.

L. Lynn Elliott:

Mr. Chief Justice, and it may it please the members of the Court, I had announced I had a voice problem.

I didn’t know that it was this serious.

Can I be heard?

Can you hear me?

John Paul Stevens:

Yes.

L. Lynn Elliott:

All right.

Warren E. Burger:

Barely.

L. Lynn Elliott:

I will try very hard, sir.

I represent, of course, Mrs. Ingram, the companion case to the Rodgers case, and Mr. Elliott has stated for me and on our behalf our position with regard to the homestead rights as they are interpreted under Texas law, and as they have been interpreted by this Court, and by the Supreme Court of Texas in making determinations that the homestead right is a separate estate in property under the Texas Constitution, which differs considerably from a joint tenancy or a tenancy in common, which are not estates or property rights that are popular or known in Texas, unless it be as a part of a partnership, part of a written agreement.

We do not have those characteristics of real property in Texas.

The homestead right–

Sandra Day O’Connor:

Mr. Elliott–

L. Lynn Elliott:

–Yes, Your Honor.

Sandra Day O’Connor:

–your predecessor, Mr. William Elliott, indicated that under Texas law the homestead terminates on the divorce.

Why then in the case of the Ingram situation would the government be precluded from reaching the taxpayer’s interest?

L. Lynn Elliott:

Your Honor, specifically, by constitutional amendment, a single person in Texas was given the same homestead right as a married person, and to say that Mrs. Ingram’s homestead rights ceased on her divorce is an inaccurate statement with regard to the law in Texas.

That is not the law in Texas.

Sandra Day O’Connor:

So you disagree with Mr. William Elliott on that point?

L. Lynn Elliott:

If that’s what he said, I would disagree, Your Honor, yes.

The homestead right of the divorced spouse in this particular case happened to be the subject matter of a property settlement agreement which granted that property to the wife in that case… in this particular case.

The taxpayer, Don Ingram, we are not… there has never been any contention that his interest is not… in the property is not subject to the government’s lien.

Likewise, there was a matter of some $288 worth of joint tax liability which we have no problem with, and their money is on deposit in a bank in Dallas to pay the joint tax liability to the extent of $288.

The… I wanted to point out in relation to questions asked by perhaps Judge Blackmun that we do not feel that the marketability of the property is a problem for the taxpayer.

The marketability of the interest should be the government’s exclusive problem.

In this case, at the district court level and at the Fifth Circuit level, the government has taken the position not that they want one-half of the proceeds of the sale.

L. Lynn Elliott:

They want to be able to sell these properties and take whatever they are in… the lien amounts due, and it might be more than 100 percent even of the proceeds of the sale of the property.

The question is not before the Court as to whether or not the property is to be sold and the proceeds divided equally.

We tried to make that kind of a deal, and–

Warren E. Burger:

We will resume there at 1:00 o’clock.

You may continue, Mr. Elliott.

L. Lynn Elliott:

Thank you, Your Honor, Mr. Chief Justice.

I would like to say to the Court that Mr. Bill Elliott and I have conferred with regard to Justice O’Connor’s question regarding the effect of a divorce on community property, and Mr. Bill Elliott agrees with me that a divorce will… could affect a… the homestead right of a party if in effect, as in this case, Donald Ingram gave up his homestead right by conveying it to his spouse, but a divorce as such does not per se affect the homestead rights of either parties.

It is something that must agreed to or disposed of at time of the divorce.

Obviously, if one party moves to another place, it would probably be said that that party has abandoned the homestead, in light of the rule that one person may have only one homestead, not two.

The party remaining in the home would have… the homestead rights would continue with the residency and the possession of that property, unless by some affirmative act they, the party disavows the homestead right.

Again, in this particular case, the author of the opinion in the Fifth Circuit, Judge Jerry Williams, was a University of Texas professor before he was appointed to the bench, and taught real properly, among other courses there, and when he… in his opinion he describes the homestead right as being one that was actually remanded to the district court for determination of whether there was abandonment or not.

That was the decision in the Fifth Circuit.

It may be a question that, why did the district court, the same judge, the Honorable William Mac Taylor, heard both of these cases within a two weeks’ period of time, and had a different result.

He granted the government’s motion for summary judgment in the one case, and the taxpayers or the non-taxpayer spouse motion in the other case.

It had already been predetermined that the case, both cases would be appealed.

His attitude was, I’ve got to be right in one of the cases, so that is why it was done that way.

He announced that at the time.

0 [Generallaughter.]

Byron R. White:

A 500 ball player.

L. Lynn Elliott:

Yes.

And Taylor didn’t want to try any more jury cases because he is going to be leaving the bench, and he didn’t want to get strung out in a long jury trial.

In this case, the government’s position has been, he announced that that was not my opinion.

That is what he announced at the time.

The government’s position is, we are going to sell this property, and we are going to take your interest, Mrs. Ingram, and although you owe no taxes, we are going to take your interest, and we are going to pay your husband’s tax bill.

That is really what this case bottoms out on.

And we don’t believe that to be the law in this country, and we do not believe that that is consistent with the Constitution in Texas.

We think the effect of a decision supporting the government’s position as it is very narrowly stated would have the effect of abrogating the Texas constitution in its pure language, and the Texas Supreme Court decisions in the Semonet cases.

Judge Taylor’s father sat on the Texas Supreme Court.

That is the case that held the Texas homestead right to be a separate vested right in property, and not subject to being divested except in those manners prescribed.

And with that, I conclude.

L. Lynn Elliott:

Thank you, Your Honors.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.