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United States v. Tanchak

2009 WL 348270 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

FORECLOSURES; TAXATION; TENANCY BY THE ENTIRETY — Judicial power to decree a foreclosure sale of property is both limited and discretionary and among the factors to be considered is whether a third party, such as a tenant by the entirety, with a non-liable separate interest, would be harmed far more than the government if the government is allowed to foreclose on a property on account of a federal tax assessment.

The United States filed suit in United States District Court seeking to reduce federal tax assessments to judgment against a taxpayer for income taxes, penalties, and interest for five tax years. The Internal Revenue Service (IRS) served a notice and demand for payment on the taxpayer for each of these assessments, but the taxpayer neglected or refused to pay in full. Money remained due and owing, and statutory interest continued to accrue. The IRS sought to foreclose its tax liens on the taxpayer’s primary residence, ownership of which he shared with his wife. The liens were valid, having been filed with the county clerk. The IRS requested a judgment ordering that the real property be sold and that one-half of the proceeds be paid over to the wife with the balance to be applied to the taxpayer’s indebtedness. In the alternative, the IRS sought a judgment that one-half of the current rental value of the property be turned over until the debt was paid. The taxpayer filed a summary judgment motion for relief, disputing that he owed any tax, and asserting that the claims were brought beyond the applicable ten year statute of limitations.

The Court denied the taxpayer’s motion and granted the United States’ motion for judgment. It did not force a sale of the real property, but instead ordered the homeowner to pay one-half of the imputed rental value of the real property to the IRS every month. The Court found that the IRS presented a valid Certificate of Assessments and Payments to the Court. Such a certificate is generally presumed valid and establishes liability against a taxpayer. It is treated as evidence that requires a taxpayer to submit rebuttal. Here, the Court found the taxpayer offered no evidence to refute the IRS’s determination of his income. The Court explained that the taxpayer’s mere conclusory statement that the assessments were invalid were insufficient to overcome the presumption of correctness of the certified assessments.

The Court understood that the property was held by the taxpayer and his wife as a tenancy by the entireties, and refused to foreclose on the entire property to satisfy the lien. It held that the judicial power to decree a foreclosure sale of property was both limited and discretionary under the law. Mentioning that such power was to be used “sparingly,” the Court ruled there are four factors to be considered when determining whether a foreclosure sale should be ordered: (i) the extent the government’s financial interest would be prejudiced if it were relegated to a forced sale of the partial interest actual liable for the delinquent taxes; (ii) whether a third party with a non-liable separate interest would have an expectation that its interest would not be susceptible to a forced sale; (iii) the likely prejudice to a third party; and (iv) the relative character and value of the non-liable and liable parties interests in the property. The Court recognized that a sale of only the taxpayer’s interest would yield little value. It also found that the taxpayer’s wife had no expectation that her home would be susceptible to a forced sale. The Court further found that the taxpayer’s wife had a possessory interest in the property and opined that giving her one-half of the sale proceeds to use to purchase or rent another home was not a proper remedy. As a result, the Court ordered the taxpayer to pay one-half of the property’s monthly imputed rental income to the government, concluding that the government’s financial interest would be adequately protected by such a ruling.


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