The opinion of the court was delivered by: THOMAS P. GRIESA
This is an action about conflicting claims to the proceeds of a fire insurance policy on plaintiff's home, which burned. After the Internal Revenue Service levied on these proceeds, plaintiff Catherine Arred brought this action against the United States and the insurance company, General Accident, alleging wrongful levy. Subsequently, the following defendants have been added: Ralph Arred, plaintiff's husband; Metropolitan Adjustment Company, the adjuster of the insurance claim; The Dime savings Bank of New York, the holder of a mortgage on the burned premises; and the New York State Department of Taxation and Finance, which is asserting a state tax claim.
Plaintiff moves for summary judgment. The United States, the New York Department of Taxation, and Metropolitan Adjustment Bureau cross-move for summary judgment.
The issues in the case can be determined on the basis of the present motion. There are no triable issues of fact. Plaintiff's motion is denied. The cross-motions are granted to the extent of the specific rulings contained herein.
Although Dime Savings Bank was brought into the action, no relief is now being asked by or against Dime. The action is dismissed as to Dime.
There are two basic issues in the case. The first relates to the amount of tax liabilities of the Arreds to the Federal Government and to New York State. The second relates to the question of whether the insurance proceeds are subject to the tax claims. No issue has been raised about the right of Metropolitan Adjustment Bureau to be paid out of the insurance proceeds.
Arred Electrical Contracting Corp., a company owned by Ralph Arred, withheld FICA taxes from its employees, but failed to remit them to the Government during certain periods. Under the law Mr. Arred was personally liable. In 1987 the IRS made an assessment against him for such liability in the amount of about $ 800,000. This assessment related to a period of time ending September 30, 1986. In 1990 the IRS made a similar assessment in the amount of about $ 20,000 for a period of time ending March 31, 1988.
Mr. Arred did not pay these assessments. In 1992 the IRS levied on the cash loan value of two life insurance policies belonging to Mr. Arred and recovered $ 25,330. By this time interest had accrued on both assessments. The total amount due on the first assessment was over $ 1 million and the amount on the second assessment was $ 24,897. The amount recovered in the levy was applied first to satisfy the $ 24,897 liability. The remaining $ 433 was applied to slightly reduce the larger liability.
There was also a problem about the personal income taxes of Mr. and Mrs. Arred. They failed to make timely payments for the years 1986 through 1989. The IRS made assessments of $ 41,453 for 1986, $ 35,575 for 1987, $ 13,681 for 1988, and $ 40,711 for 1989. These assessments were not paid at the time they were made, and interest and penalties subsequently accrued.
At some point the Arreds commenced making payments. The unpaid balance as of February 1991 was $ 89,130. The Arreds paid a total of $ 62,000 in 1991 reducing the balance to $ 27,130. However, according to the IRS, this balance has not been further reduced and has been increased by interest and penalties. The IRS contends that the balance as of January 1, 1993 was $ 37,322.
The plaintiff in this action, Mrs. Arred, disputes the latter figure. She contends that an installment agreement was entered into in 1991, which prevented further accrual of interest and penalties. She further contends that the $ 25,330 received by the IRS from the levy on Mr. Arred's insurance policies was applied against the personal income tax liability of herself and her husband. Thus, it is her position that the $ 27,130 remaining due after the payment of $ 62,000 was reduced by the $ 25,330, leaving a balance of $ 1,800 with no further interest or penalties.
The court accepts the position of the IRS. The IRS has submitted an affidavit denying any installment agreement. Mrs. Arred has submitted no actual signed agreement or any other satisfactory evidence to support her allegation of a settlement agreement. It seems clear that the IRS did not waive any of its rights' to claim full payment plus interest and penalties. Also, as to the application of the $ 25,330, the court finds that this amount was applied against ...