custodial accounts. (Tr.155) Mr. Marshall further testified that at the time he borrowed the money it was his understanding the money lent to him "were a gift from their grandmother and that Ellen [Marshall], as custodian, had the right to make investments of that money by loans as long as they were prudent and in conformity with a prudent man's rule, a business person's rule." (Tr.155). As of the date of trial, he has not repaid either the interest on or the principal of the loans from his children's custodial accounts. (Tr.153-154)
SelmaLee Kaufman testified that her son-in-law in 1989 also received a loan from her for $ 25,000. This loan was documented in a handwritten I.O.U. signed by him, dated October 13, 1989. Gov't Ex. A. Included in that I.O.U was the principal amount borrowed, the date the money was lent and the fact that interest would be paid.
The testimony also revealed that SelmaLee Kaufman loaned her son-in-law $ 35,000 from her business. Similarly, this loan was documented in that same handwritten I.O.U. Gov't Ex. A. Included in that I.O.U was the principal amount borrowed, the date the money was lent and the fact that interest would be paid.
According to Mr. Marshall, these loans from SelmaLee Kaufman, individually, and from her business were made because: (1) he had still not received any of the proceeds from the dissolution of his former law partnership; (2) an additional $ 50,000 had been laid out for legal fees in connection with that dissolution; and (3) monies were needed for disbursements in certain personal injury and medical malpractice cases he was handling. (Tr.157) To date, neither of these loans have been repaid.
2. To Louis Cutajar
Ellen Marshall loaned $ 5,334.85 to her friend, Louis Cutajar, by endorsing over to him CD 0580 -- funds from Sabrina's 1986 custodial CD. (Tr.112-113); Gov't Ex. E. She also loaned him an additional $ 5,147.09 by endorsing over to him CD 0770 -- also funds from Sabrina's custodial CD. (Tr.115); Gov't Ex. I. Both loans were made on February 26, 1988. See Gov't Ex. E and I. There was never a written loan agreement between Ellen Marshall and Mr. Cutajar. (Tr.115) However, Ellen Marshall testified that interest would be paid based on the going rate. (Tr.115)
Ellen Marshall claims that these loans were repaid in full. (Tr.116). However, only a check, dated March 6, 1989, for $ 7,000 from Mr. Cutajar made payable to Ellen Marshall was produced at trial. (Tr.116) This check was deposited on March 22, 1989 into account #305, Sabrina's custodial account.
This check is the only evidence supporting any repayment of the Cutajar loan to Sabrina. Gov't Ex. Q at p. 2. While Ms. Marshall claims the full amount of the loan was repaid, she does not remember in what form Mr. Cutajar repaid any outstanding amount. (Tr.116) It does not appear from the court's review of the evidence that any other check was ever deposited into any of the various custodial accounts of Sabrina to reflect a complete repayment by Mr. Cutajar of the loans. See (Tr.117-121) It is not clear whether the $ 7,000 check was even a partial repayment of the loans.
D. The Tax Lien
The tax liabilities at issue in the instant case arose in connection with certain limited partnership tax shelter investments Ellen Marshall, plaintiff, and her husband made in 1982, 1983 and 1984. In 1985, Ellen Marshall's husband received notification that the IRS was auditing those tax shelters. On or about June 9, 1986, he received from the IRS a Notice of Deficiency. Thereafter, the Marshalls filed a joint petition in tax court seeking a redetermination of the IRS's finding of a tax deficiency.
On August 23, 1991, the IRS served a Levy on The Bank of New York restraining the various custodial accounts. On September 16, 1991, plaintiffs commenced the instant action and moved by order to show cause requesting that a temporary restraining order be issued enjoining the Government from enforcing the Levy. On September 17, 1991, United States District Judge Arthur D. Spatt granted the temporary restraining order preventing the Government from enforcing its Levy against bank accounts 438-944670 for $ 11,482.93 and 438-945305 for $ 25,415.38 and a certificate of deposit #696-0152032 for $ 37,363.63.
CONCLUSIONS OF LAW
To prove a wrongful levy, plaintiffs are required to show: (1) the IRS filed a levy covering taxpayer liability against property held by Sabrina and Grant Marshall; (2) Sabrina and Grant Marshall had an interest or lien on that property superior to the interest of the United States; and (3) the levy was wrongful because Ellen Marshall did not own the property. Century Hotels v. United States, 952 F.2d 107, 109 (5th Cir. 1992); Texas Commerce Bank-Fort Worth, N.A., v. United States, 896 F.2d 152, 156 (5th Cir. 1990); Hall v. United States, 1992 WL 394160 at *5 (N.D. Ga. Oct. 28, 1992).
1. Burden of Proof
In the typical wrongful levy action case, pursuant to 26 U.S.C. § 7426, the initial burden of proof is on the plaintiff to prove title to or an ownership interest in the property levied upon by the Government and that the Government levied upon the property because of a tax assessment against another taxpayer. Morris v. United States, 813 F.2d 343, 345 (11th Cir. 1987); Hall, 1992 WL 394160 at *5; William L. Comer Family Equity Trust v. United States, 732 F. Supp. 755 (E.D. Mich. 1990); Xemas, Inc. v. United States, 689 F. Supp. 917 (D. Minn. 1988). This burden is appropriate when the plaintiffs, in the instant case, are viewed as Sabrina and Grant Marshall with Ellen Marshall, their mother, as guardian. See Fed. R. Civ. P. 17(c). Here, in effect, the children are suing the Government claiming wrongful levy on their bank accounts.
Plaintiff, Ellen Marshall, is also suing in her individual capacity. Ellen Marshall is suing as a "wronged" custodian who sees to prevent the levy on the custodial funds viz. her status as an UGMA fiduciary for those funds. However, besides being the custodian, Ellen Marshall is also the delinquent taxpayer because of whose tax liabilities the Government seeks to levy on the funds owned by Sabrina and Grant Marshall. Thus, with respect to her individual status in this case, the burden is on the plaintiff/custodian to prove that he/she does not have title to or an ownership interest in the levied property.
Under either circumstance, the burden then shifts to the Government to prove by "substantial evidence" ( Century Hotels, 952 F.2d at 109; Hall, 1992 WL 394160 at *5; Xemas, 689 F. Supp. at 922), the nexus between the property and the taxpayer. Century Hotels, 952 F.2d at 109; Morris, 813 F.2d at 345; Hall, 1992 WL 394160 at *5; Xemas, 689 F. Supp. at 922. In any event, under either situation, the plaintiff has the ultimate burden of proving that the levy was wrongful and should be overturned. Century Hotels, 952 F.2d at 109; Hall, 1992 WL 394160 at *5; Comer, 732 F. Supp. at 755; Xemas, 639 F. Supp. at 922.
If plaintiff fails to sustain the burden, the levy on the property interest will be upheld. See Hall, 1992 WL 394160 at *6 (custodial account can be levied where husband and wife attempted to conceal funds from the IRS by forming shell corporation and placing funds in UGMA accounts allegedly for the benefit of their children); Comer, 732 F. Supp. at 760 (property held in the form of a trust can be levied where trust is an "alter ego" of the taxpayers and where: (a) property transfer lacked sufficient consideration; (b) taxpayers were insolvent at the time of transfer; and (c) taxpayers lived on the property as though it were their own notwithstanding the fact it had been purchased by the trust); Xemas, 689 F. Supp. at 922 (property held in a trust can be levied where husband and wife attempted to conceal funds from the IRS by forming a shell trust, by filing "fraudulent" conveyances and where the couple continued to "have complete beneficial use and enjoyment of the property and without the payment of rent").
As noted below, plaintiffs, Ellen Marshall, individually, and Sabrina and Grant Marshall, as owners of the funds have only sustained their burden for certain specified funds in the accounts.
2. Donative Intent
UGMA provides the following:
7-4.2 Manner of making gift.
(a) An adult person, may during his lifetime, make a gift of . . . money to a person who is a minor on the date of the gift:
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