United States District Court, E.D. New York
August 10, 2005.
SIDNEY D. YOUNG, Plaintiff,
THE UNITED STATES INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY Defendant.
The opinion of the court was delivered by: RAYMOND DEARIE, District Judge
MEMORANDUM & ORDER
Plaintiff filed this action pursuant to
28 U.S.C. Section 1346(a)(1) against defendant the Internal Revenue Service.
Plaintiff alleges that the IRS improperly effected a $214,536.08
levy upon plaintiff and he seeks a tax refund. Defendant moves
for summary judgment pursuant to Rule 56 of the Federal Rules of
Civil Procedure, arguing that (1) plaintiff has no standing to
bring a refund suit because the IRS assessed tax liabilities
against Castle Creek, not plaintiff; (2) even if plaintiff has
standing, plaintiff is jointly and severally liable for Castle
Creek's tax liabilities; and (3) plaintiff failed to bring a
timely wrongful levy action under 26 U.S.C. Section 7426.
Plaintiff argues in opposition (1) that he was not subject to
levy for the partnership's unpaid taxes; (2) that he did not have
notice that the IRS would levy his personal assets; and (3) that
defendant has waived its limitations defense to
26 U.S.C. Section 7426. In plaintiff's supplemental brief submitted following oral
argument, plaintiff also argues that defendant failed to follow
codified procedures for affording plaintiff due process when
levying against his Individual Retirement Account ("IRA").
Defendant argues that its collection actions are irrelevant to the present motion. For the reasons stated at oral
argument and below, the Court grants defendant's motion for
In 1990 plaintiff acquired a partnership interest in Castle
Creek Inn & Resort, located near San Diego, California. On or
about August 1996, the IRS made notice and demand to Castle Creek
for payment of the outstanding federal taxes. Multiple
assessments were made against Castle Creek for unpaid federal
employment taxes, unpaid federal income taxes, and unpaid federal
unemployment taxes. Schissler Decl. at 1-2.
While still owing federal taxes, the partnership dissolved in
December 1996 when the Castle Creek assets were sold to Gopher
Canyon Lodge. On or around January 13, 1997, plaintiff received
the IRS' Final Notice, Notice of Intent to Levy, mailed to Castle
Creek in care of plaintiff at his Floral Park, New York address.
In May 1997, the IRS served a Notice of Levy on Smith Barney to
collect the outstanding taxes from plaintiff's Smith Barney
accounts including his personal IRA account. Def. Statement at ¶
6. The unpaid balance was $214,536.08. Id. at ¶ 7. According to
plaintiff, he had his representative contact the revenue officer
listed on the Notice of Levy to request an opportunity to make
payment other than by levy on his IRA, but the revenue officer
denied his request. Pl. Mem. at 4. On June 18, 1997, plaintiff
filed a collection appeals request offering to pay Castle Creek's
tax liabilities in installments. Def. Statement at ¶ 8, Pl. Mem.
at 4, Complaint Ex. D. Plaintiff also contends that in his
request he explained that the Notice did not state that the IRS
would levy plaintiff's personal assets and requested that
defendant seek payment from Castle Creek's property and assets.
Pl. Mem. at 4. On June 30, 1997 the IRS notified plaintiff that
it had reviewed his request and sustained the levy action. Def. Statement at ¶ 9. In
accordance with the levy, on July 2, 1997 Smith Barney paid the
IRS $214,536.08 from plaintiff's personal accounts. Id. at ¶
10. Plaintiff filed claims for a tax refund. When the IRS denied
plaintiff's refund claims on April 14, 1999, plaintiff brought
A. Joint and Several Liability
The Court need not decide whether plaintiff has standing
because regardless of whether he has standing, plaintiff does not
make a valid claim. Under both New York and California law, as a
general partner of Castle Creek, plaintiff is jointly and
severally liable for Castle Creek's liabilities. Therefore, the
payment from his IRA account was not an overpayment of taxes.
See Stern v. Low, 27 A.D.2d 756 (N.Y.App. Div. 1967); see
N.Y. P'ship Law §§ 24, 26 (McKinney 2005); see United States
v. West Prods., Ltd., 168 F.Supp.2d 84 (S.D.N.Y. 2001) (finding
defendant liable for assessments against partnership in her
capacity as partner under New York Partnership Law Sections 24
and 26, and holding that the IRS could choose between imposing
penalty for unpaid taxes upon responsible party or collecting
partnership's unpaid taxes from partner or partners). See
also Cal. Corp. Code § 16306(a) (West 2005) ("[P]artners are
liable jointly and severally for all obligations of the
partnership. . . ."). See In re Crockett, 150 F.Supp. 352,
354 (D.C.Cal. 1957) (stating that under California law an
individual partner is liable to the United States for the taxes
of a partnership).*fn1 Plaintiff is liable for Castle
Creek's tax assessment. The levy on his personal accounts satisfied the debt
owed by the partnership for which plaintiff was personally
Plaintiff's argument that defendant is authorized to agree to
an installment agreement instead of a levy (Pl. Supp. Mem. at
2-3) is irrelevant to defendant's grounds for summary judgment.
Plaintiff was jointly and severally liable for Castle Creek's
taxes and defendant could thus collect the taxes owed by Castle
Creek by levying plaintiff's personal accounts. Plaintiff's
reliance on 26 U.S.C. Section 6159 is misplaced. The Secretary is
authorized but not required to enter into agreements with
Plaintiff complains that he did not have notice that the IRS
was going to levy his personal assets. In January 1997 the Final
Notice of the IRS' Intent to Levy was mailed to plaintiff's
address and addressed to Castle Creek Inn & Resort, in care of
the plaintiff. The Notice referenced Castle Creek's federal tax
identification number but did not list plaintiff's social
security number. Since the Notice did not explicitly state that
the IRS may issue a levy on plaintiff specifically, plaintiff
contends that he did not have fair notice.
By his own admission, plaintiff received notice in May 1997 of
the IRS' intent to levy his personal Smith Barney funds.
Complaint Ex. C, Pl. Mem. at 4 ("[u]pon learning of IRS' levy of
the Smith Barney Retirement accounts" plaintiff had his
representative contact an IRS revenue officer, indicating
plaintiff had knowledge of the levy). At that time he had the
opportunity to commence a wrongful levy action and failed to do
Plaintiff also argues that he did not have the required notice
under 26 U.S.C. Section 6331(d), swearing in his affidavit that
despite the Final Notice of Intent to Levy's assertion that Publication 594 was enclosed, no instruction or notice or
publication was included in the Final Notice of Intent to Levy he
received in January 1997.*fn2 Pl. Supp. Mem. Ex. C at ¶ 2.
However, the Court notes that upon receipt of the Notice of Levy
against plaintiff's IRA funds in May 1997, plaintiff acted
immediately. He tried to arrange an installment plan with the IRS
and when this plan was rejected, he filed a collection appeal
request, which was denied. Plaintiff cannot seriously argue that
he did not have notice of the administrative appeals and the
alternatives to levy since he availed himself of these
procedures, albeit unsuccessfully.
C. Wrongful Levy
Defendant contends that plaintiff cannot bring a refund suit
but could have brought a wrongful levy action under Section 7426
of the Internal Revenue Code. 26 U.S.C. § 7426(a)(1). However,
plaintiff's wrongful levy action is time barred under
26 U.S.C. Section 6532(c)(1) and (2).
Plaintiff does not dispute that the time for bringing a
wrongful levy action has expired but rather asserts that
defendant has waived the limitations defense by failing to assert
it in its Answer. Pl. Mem. at 20. However, since this case was
brought pursuant to 28 U.S.C. Section 1346(a)(1), which applies
to tax refund suits, and not brought under
28 U.S.C. Section 1346(e), which applies to Section 7426 wrongful levy actions,
defendant was not required to raise the limitations defense as an
affirmative defense in its Answer. A suit for wrongful levy is
thus time barred. III. Conclusion
For the reasons stated above and at oral argument, defendant's
motion for summary judgment is granted. The Clerk of the Court is
directed to close this case.
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