United States v. Gary Cardaci
2017 U.S. App. LEXIS 8115
| 3rd Cir. | 2017Background
- Gary Cardaci owes federal taxes; the United States sued in 2012 to reduce assessments to judgment and to force sale of the Cardacis’ New Jersey home (tenancy by the entirety).
- The house was purchased in 1978, mortgage paid off in 2009; fair market value found by the district court to be $150,500.
- Mrs. Beverly Cardaci is the primary earner; Mr. Cardaci has limited income and health issues. Adult children live in the home and pay no rent.
- The District Court found the government had a valid lien and granted summary judgment on liability but reserved decision on sale pending trial on equitable factors.
- After a bench trial the District Court declined to order a forced sale (applying Rodgers factors), imputed monthly rent of $1,500, and ordered Mr. Cardaci to pay half to the IRS; both parties appealed.
- The Third Circuit affirmed the District Court’s authority to consider a sale but vacated and remanded to recalculate spouses’ economic interests (using proper actuarial treatment) and to reweigh Rodgers factors.
Issues
| Issue | Plaintiff's Argument (United States) | Defendant's Argument (Cardaci) | Held |
|---|---|---|---|
| Authority to subject tenancy-by-entirety property to forced sale | Federal tax lien statute and Craft allow treating entireties interests as "property" subject to §7403 sale | New Jersey statute (N.J.S.A. §46:3-17.4) and entirety protection preclude sale | Court: Federal law controls (Craft). District Court has authority to consider sale. |
| Applicability of NJ statutory protection | N/A (Gov’t argues state-law protections are limited) | Cardaci: NJ statute protects post-1988 entireties and bars foreclosure | Held: The 1988 statutory amendment applies only to tenancies created on/after 1988; Cardaci’s 1978 purchase not covered; must apply NJ common-law and federal law governs ultimate question. |
| Proper analysis under Rodgers equitable factors (whether sale would be inequitable) | Sale should be ordered; District Court misweighed factors and improperly considered rental payments when assessing prejudice to government | District Court: sale inequitable given Mrs. Cardaci’s large survivorship/life-estate interest; alternative (rent) better for collection | Held: District Court misapplied Rodgers (e.g., rental payments irrelevant to first factor); remand to recalculate interests and reweigh Rodgers factors rigorously but sparingly. |
| Method for valuing spouses’ respective interests (life estate & survivorship) | Government: treat present interests as effectively 50/50 for distribution (relying on Popky only for cash) | Cardaci: District Court’s life-estate valuation (gave Mrs. Cardaci 86%) was correct | Held: Popky (50/50) not controlling for real property with life-estates; District Court’s additive method was erroneous. Court directs use of joint-life actuarial tables to compute concurrent present, life-estate, and survivorship values, then reassess under Rodgers. |
Key Cases Cited
- United States v. Rodgers, 461 U.S. 677 (1983) (district courts have limited discretion under §7403; four equitable factors guide sale decisions)
- United States v. Craft, 535 U.S. 274 (2002) (state-defined property sticks are assessed under federal law for tax-lien purposes; entireties interests are property under federal lien statute)
- Popky v. United States, 419 F.3d 242 (3d Cir. 2005) (equal division applied to proceeds of already-liquidated marital assets; not controlling where life-estates matter)
- Freda v. Commercial Tr. Co. of N.J., 570 A.2d 409 (N.J. 1990) (New Jersey common-law treatment of tenancies by entirety and limits of statutory amendments)
- Newman v. Chase, 359 A.2d 474 (N.J. 1976) (equitable reluctance under New Jersey law to dispossess family home to satisfy creditor)
- In re Pletz, 221 F.3d 1114 (9th Cir. 2000) (adopting joint-life actuarial approach for valuing entirety interests in real property)