The opinion of the court was delivered by: WEINFELD
WEINFELD, District Judge.
The plaintiffs, owners in fee of a one-story residence in the Bronx, New York, bring this action pursuant to 28 U.S.C. § 2410(a) against the United States of America, to quiet title -- specifically to cancel a lien filed by the Government for unpaid taxes assessed against Mae Chicco, the plaintiffs' grantor. Also named as defendants are Mae Chicco and the Yorkville Savings and Loan Association, which holds a mortgage upon the premises. The Government, in addition to challenging the plaintiff's right to maintain this action, counter-claims for foreclosure of its lien.
It is conceded that the tax lien was properly filed by the Government ten months before the plaintiffs acquired title. Upon delivery of the deed plaintiffs also received from Chicco an affidavit stating that the property was free and clear of all liens and encumbrances. Asserting that through inadvertence their title search failed to disclose the recorded Federal tax lien, and that they relied upon the affidavit of title in paying the purchase price, the plaintiffs now seek the cancellation of the lien upon the ground that the assessment upon which it is based is null and void.
The assessment of taxes against Chicco was made under the wagering provisions of the Internal Revenue Code.
The plaintiffs assert that, in fact, Chicco was not subject to the wagering tax, either as a principal or as one who received wagers on behalf of another, and hence the Commissioner was without jurisdiction to impose the tax.
The relevant facts as developed upon the trial follow: Chicco acquired the fee title to the premises on November 3, 1951. In August 1952 she executed a mortgage in the sum of $10,000 to the North New York Savings and Loan Association, which was duly recorded. In August 1953, New York City police raided the premises, arresting Chicco, her paramour, Salvatore Speciale, and Alfred Fea. All three were charged with operating a policy bank in violation of New York State's Penal Law.
The men pleaded guilty but the charge against Chicco was dismissed. Thereafter, agents of the Internal Revenue Service conducted an investigation of the activities of Chicco, Speciale and Fea, and as a result the Commissioner made an assessment against all three as principals in a joint venture under the wagering provisions of the Internal Revenue Code. A pro-rated assessment, covering taxes and penalty, was entered against Chicco, in the sums of $14,287.44 on January 25, 1954, and $62.50 on February 5, 1954. Due notification of each assessment was sent to her and was followed by a second notice on April 15, 1954.On June 28, 1954, notice of the Federal tax lien was duly filed in the Office of the Register of the City of New York, County of Bronx, where Chicco's property was located.
On April 28, 1955, exactly ten months after the recording of the Federal tax lien, Chicco conveyed the property to the plaintiffs. Simultaneously the defendant, Yorkville Savings and Loan Association, loaned $12,000 to the plaintiffs, of which $8,573.49 was paid to the North New York Savings and Loan Association, in satisfaction of its then existing mortgage; and plaintiffs executed a mortgage to Yorkville to secure the $12,000 loan.
The defendant, Chicco, never filed any protest against the assessment of the tax liability imposed by the Commissioner, nor has she up to this time paid the tax or any part of it. In fact, some months after she executed and delivered the deed to the plaintiffs, she disappeared and her present whereabouts is unknown.
The basic question is whether under § 2410(a) of 28 U.S.C., the plaintiffs, as third parties to the tax proceedings against Chicco, their grantor, may challenge the tax assessment as illegally imposed by the Commissioner. Under existing law, a taxpayer who claims that an illegal tax has been imposed may either (1) contest the assessment in the Tax Court, or (2) pay the tax in full and thereafter sue to recover the amount alleged to have been illegally exacted.
However, the plaintiffs assert that these procedural and administrative remedies are applicable to and binding only upon taxpayers; that they do not apply to nontaxpayers. They contend however that § 2410(a) authorizes them, as nontaxpayers, to attack the validity of the assessment in order to remove the lien as a cloud upon their title. The plaintiffs also urge that they are entitled to equitable relief; that Congress, by permitting suits against the Government in actions to quiet title under § 2410(a), intended to permit a third party nontaxpayer to attack a tax assessment if circumstances warrant equitable relief. This, of course, gives a broad sweep to the section.
In the discussion of the problem, it is desirable to point out the difference between the assessment of a tax and the lien based upon the assessment. The assessment is an administrative determination that one is indebted to the Government for taxes -- in effect, it is a judgment for taxes found due. As stated by the Supreme Court:
"The assessment is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor's property to satisfy the debt."
The lien, on the other hand, is one of the means authorized by law to protect the Government's position as a creditor in its efforts to enforce collection of taxes.
Thus, if one neglects or refuses to pay any tax, all his property, real and personal, is subject to a lien in favor of the Government.
The Internal Revenue Code further provides that the "lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied."
With respect to these provisions the Supreme Court has stated:
"Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes."
Against this background we proceed to consider plaintiffs' contentions. Section 2410(a) simply provides a waiver of immunity by the United States in foreclosure actions or in suits to quiet title in instances where the Government has, or claims to have, a lien upon or other interest in property.
I am satisfied that its essential purpose is not to give, as plaintiffs contend, a third party nontaxpayer the right to attack collaterally an assessment against a taxpayer but rather to waive the Government's immunity from suit so as to permit a Court, either Federal or State, to determine the relative position of the Government lien on property as against other lienors, mortgagees or claimants and the order of disposition of the proceeds realized upon a judicial sale. Necessarily in such a proceeding, the determination of whether a lien is validly filed or is entitled to payment as against other liens, mortgages or encumbrances would come within the power of the Court. But the validity of a lien, depending upon compliance or noncompliance ...