United States v. Boardwalk Motor Sports, Ltd.
692 F.3d 378
5th Cir.2012Background
- IRS assessed Rand’s 2000–2002 federal income taxes, with liens filed 2003–2004 totaling over $3 million, and Plains Capital held Rand’s Ferrari to secure its lien (awareness of the lien).
- In 2007 Rand agreed to sell the Ferrari to satisfy tax liabilities; IRS and Boardwalk arranged the sale, with Boardwalk to handle proceeds subject to IRS and Plains Capital dispute over distribution.
- Boardwalk delivered the Ferrari to Boardwalk on July 3 under a consignment agreement; IRS directed that no proceeds be released until liens were resolved and interpleader possible if needed.
- Boardwalk sold the Ferrari on July 25 for $210,454 and, after commissions and costs, sent roughly $195,000 to Plains Capital to satisfy its lien and released its own title; remaining proceeds were directed to the IRS and Rand’s debt was updated on August 16.
- IRS levies were served: July 2 on Boardwalk and August 28 on Plains Capital; Plains Capital later applied proceeds to Rand’s debt on August 16, arguing no funds remained subject to levy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IRS had a possessory right to sue for conversion against Boardwalk. | IRS claims it had immediate possession via levy; conversion requires possession or right to possession. | IRS levy on Boardwalk was ineffective because possession did not exist at the time; no immediate right to possession. | Conversion claim against Boardwalk fails. |
| Whether Plains Capital can be liable for conversion as a beneficiary of proceeds subject to a tax lien. | IRS may sue for conversion because proceeds remained traceable to tax lien. | No immediate possession by IRS; bank merely holds proceeds; no conversion by bank in Texas law. | Plains Capital is not liable for conversion; Boardwalk and Plains Capital not liable for conversion. |
| Whether Plains Capital is liable for failing to honor a tax levy on the proceeds. | Tax lien attached to the sale proceeds and levy against Plains Capital should have been honored. | By the time the levy was served, Plains Capital had already dissipated the funds by applying them to Rand’s debt and thus lacked funds subject to levy. | Plains Capital liable for failure to honor levy; levy attached to proceeds despite offset. |
Key Cases Cited
- EC Term of Years Trust v. United States, 550 U.S. 429 (U.S. 2007) (tax lien not self-executing; IRS must take affirmative action to enforce collection)
- TXNB Internal Case, 483 F.3d 292 (5th Cir. 2007) (lienholder’s liability for conversion requires ownership or immediate possession; lienee’s right to sue limited)
- Phelps v. United States, 421 U.S. 330 (U.S. 1975) (lien attaches to property and substitutes; IRS can follow proceeds by tracing)
- United States v. Bank of Celina, 721 F.2d 163 (6th Cir. 1983) (offsetting funds still subject to lien; tracing required for levy response)
- United States v. Donahue Industries, Inc., 905 F.2d 1325 (9th Cir. 1990) (levy may reach funds subsequently deposited and liens remain until paid or unenforceable)
- City of Wichita Falls v. ITT Commercial Fin. Corp., 827 S.W.2d 6 (Tex.App.—Fort Worth 1992) (ownership/possession requirement for conversion; lien does not confer immediate possession)