UNITED STATES of America, Plaintiff-Appellant, v. Carole F. LIBRIZZI, Defendant-Appellee.
No. 95-2550.
United States Court of Appeals, Seventh Circuit.
Argued Sept. 13, 1996. Decided March 5, 1997.
108 F.3d 136
Thomas P. Schneider, Office of U.S. Atty., Milwaukee, WI, Gary R. Allen, William S. Estabrook (argued), Marion E. Erickson, Department of Justice, Tax Division, Appellate Section, John A. Marrella, Washington, DC, for plaintiff-appellant.
William A. Jennaro, Thomas J. Lonzo, Pamela A. Johnson (argued), Cook & Franke, Milwaukee, WI, for defendant-appellee.
Before RIPPLE, DIANE P. WOOD and EVANS, Circuit Judges.
DIANE P. WOOD, Circuit Judge.
This case presents a narrow questiоn about the scope of a valid federal tax lien on property the taxpayer held in joint tenancy, when the lien attaches (and is recorded) prior to the taxpayer‘s death, but the Internal Revenue Service forecloses on the lien some two years later. Mrs. Carole Librizzi, аn innocent spouse, argues that the Government may recover no more than one-half the value of the property at the time of her husband‘s death, while the United States asserts that once the lien attached to the property, it may recover one-half the amount the proрerty fetches at the foreclosure sale. Although the district court ruled for Mrs. Librizzi, we con-
The underlying facts are undisputed. In 1975, Salvadore Librizzi (the taxpayer) and his wife Carole acquired real property located at 307 Eаst Carlisle Avenue, Whitefish Bay, Wisconsin, which they held under Wisconsin law as joint tenants with a right of survivorship. A decade later, in 1985 and 1986, the Secretary of the Treasury made a number of tax assessments totaling $1,468,312.72 against Mr. Librizzi relating to wagering activities and associated interest and penalties. When Mr. Librizzi did not pay the amоunts due, a federal tax lien arose pursuant to
Upon her husband‘s dеath, Mrs. Librizzi took full title to the Carlisle Avenue property. Two years later, on October 6, 1992, the United States filed a suit for foreclosure of its liens under
When dealing with tax liens under
... the I.R.C. does not create any property rights, but merely attaches federally defined consequences to rights which are created under state lаw. Once state law has been used to determine the nature and existence of a property interest, further state law is inoperative, and the tax consequences thenceforth are dictated by federal law.
Elfelt v. Cooper, 168 Wis.2d 1008, 485 N.W.2d 56, 61 (1992) (citations omitted). Furthermore, the U.S. Supreme Court noted in Rodgers that “once a lien has attached to an interest in property, the lien cannot be extinguished (assuming proper filing and the like) simply by a transfer or conveyance of the interest.” 461 U.S. at 691 n. 16, 103 S.Ct. at 2141 n. 16.
A federal tax lien attaches at the time the tax assessment is made, and it continues until the liability has been satisfied or it becomеs unenforceable due to the lapse of time.
In Musa, the Wisconsin Supreme Court considered the effect of a judgment lien on property held in joint tenancy, after the joint tenant who was the judgment debtor died. The judgment lien there had been docketed, but not executed, on the date of the debtor‘s death. The supreme court decided that “the lien of the judgment in question could attach only to such interest or estate as Adam Musa [the debtor] actually and effectively had in the premises.” Id., 272 N.W. at 658. Because his interest was only that of a joint tenant, it was limited by the right of survivorship. Upоn his death, when the property passed to the other joint tenant, the judgment lien itself was extinguished: there was no more property of the debtor on which the lien could operate. Mrs. Librizzi does not take her argument as far as Musa might suggest, as she does not contend that the tax liens vanished when Mr. Librizzi died. She dоes say, however, that Musa means that the lien attached only to the interest Mr. Librizzi had while alive, and that this interest was finally determined as of the moment of his death.
Later legislation and court decisions in Wisconsin indicate that the Musa rule does not have the consequences Mrs. Librizzi claims for it.
A real estate mortgage, a security interest under ch. 409, or a lien under s. 71.91(5)(b), s. 72.86(2), 1985 stats., ch. 49 or 779 on or against the interest of a joint tenant does not defeat the right of survivorship in the event of the death of such joint tenant, but the surviving joint tenant or tenants take the interest such deceased joint tenant could have transferred prior to death subject to such mortgage, security interest or statutory lien.
Mr. Librizzi could have transferred his undivided one-half interest to Mrs. Librizzi before his death, by taking steps to sever the joint tenancy and then to convey his interest to her. In that case, the federal tax lien would have continued to encumber his one-half interest in her hands. See, e.g., United States v. Bess, 357 U.S. 51, 57, 78 S.Ct. 1054, 1058, 2 L.Ed.2d 1135 (1958) (“The transfer of property subsequent to the attachment of the lien does not affect the lien[.]“). Thе effect of
Taking another approach, Mrs. Librizzi points to Avila, in which the Third Circuit held that the Government could recover on a tax lien imposed on a husband‘s one-half interest in a joint tenancy, even though the property had later been transferred to his wife (first for a payment of $100, and later in a divorce settlement). There, as here, the district court had held that the Government could recover only the amount that the lien was worth at the time the debtor transferred his interest to his wife. Citing the Ninth Circuit‘s decision in Han v. United States, 944 F.2d 526 (9th Cir.1991), the court reversed, holding that “because the lien is unaffected by sale, we see no basis for fixing the amount of the lien at the time of sale.” Avila, 88 F.3d at 233 (internal quotations omitted). The lien continued to attach to the debtor‘s entire former interest in the property, limited only by the amount of the debt it secured and a third party‘s right to equitable subrogation (a complication not present in Mrs. Librizzi‘s case).
So far, Avila provides more support for the Government‘s position than the reverse, but Mrs. Librizzi relies on one additional part of the Avila decisiоn to support her claim for a limitation on value. Similar to the Wisconsin court in Musa, the Third Cir-
Finally, nothing in Musa or Avila supports the rather odd notion that the lien survived Mr. Librizzi‘s death, but became frozen in value as of the dаte of his death. The Government notes that such a rule might be unwelcome to an innocent spouse if the value of the property had declined after the date of death, since in that event she would be required to pay more than one-half the fair market value at sale. But we do not nеed to explore this possibility further, other than to note that the rule we adopt is not systematically biased either for or against the taxpayer. Under Wisconsin law, the tax lien ran against Mr. Librizzi‘s undivided one-half interest. If the Government had enforced its lien during his lifetime, it could have compelled a severance of the property and Mrs. Librizzi would have received only her one-half interest (plus an additional uncontested $21,719.25 which she paid to retire the balance of the mortgage). Wisconsin law gives her no more interest in the estate she received through the joint tenancy rule of survivorship than she would have had if Mr. Librizzi had lived.
We therefore REVERSE the judgment below and REMAND for further proceedings consistent with this opinion.
EVANS, Circuit Judge, dissenting.
My colleagues find Ms. Librizzi‘s contention that the federal tax lien extends only to the value of the property at the time of her husband‘s death to be an “odd notion.” If it is odd, it is not the first, nor will it be the last, odd notion to grow out of what a legislature has done.
As the court correctly notes, we must look to Wisconsin law to evaluate Ms. Librizzi‘s claim. There we find that joint tenancy is different from other types of co-ownership, and survivorship is a concept with considerable force, as Musa v. Segelke & Kohlhaus Co., 224 Wis. 432, 272 N.W. 657 (Wis.1937) illustrates. If Musa were аll Wisconsin had to say on the subject, we would have to conclude that the IRS lien was extinguished altogether upon Mr. Librizzi‘s death. The result in Musa is part of the court‘s recognition of the special nature of a joint tenancy, in which upon the death of one joint tenant the survivor becomes the “sole and absolute owner of the property, and there consequently exists no longer any interest or property right whatsoever in the deceased joint tenant or his estate.” 224 Wis. at 436, 272 N.W. 657. Musa also tells us that in the absence of a severance of the joint tenancy, “there remains no interest or property right in a deceased joint tenant or his estate upon his death....” Id. Joint tenancy then presents a unique situation—one in which the usual rule that a lien follows the property does not hold true under the common law.
However, as my colleagues also point out, Musa is not the last word in Wisconsin law.
On this point, I acknowledge that the statute is not as clear as a bell. But if it is read in light of Wisconsin joint tenancy law, it seems to me that Ms. Librizzi should win this case.
To back up a moment, there is a difference between a transfer of an interest in a joint tenancy either by sale or through court order upon a divorce and the transfer of ownership which occurs through survivorship upon the death of a joint tenant. See, e.g., Eloff v. Riesch, 14 Wis.2d 519, 111 N.W.2d 578 (1961); Wozniak v. Wozniak, 121 Wis.2d 330, 359 N.W.2d 147 (1984). The former sеvers the joint tenancy and consequently eliminates survivorship; the transfer of interest is like the sale of any other property. In that case, the seller receives the value as of the moment of the sale and the buyer receives the property subject to any lien which may exist on the рroperty. If Mr. Librizzi had found a buyer for his interest in the property, that incredibly foolish fellow would have taken title subject to a huge federal tax lien. The lien would follow the property and become the problem of the buyer, and the value of Mr. Librizzi‘s interest would never be more than it was at the moment of the sale. In contrast, in the transfer of ownership through joint tenancy, absent a statute such as
Under this reading of the statute the IRS‘s interest in the property is wоrth less when the ownership is transferred under survivorship than it would have been if, while still alive, Mr. Librizzi transferred his interest to Ms. Librizzi and severed the joint tenancy. The statute, I think, tries to strike a balance between the rights of survivors and the rights of lien holders, sustaining the lien but putting a limit on the damage it can inflict on a survivor. For these reasons, I would find in favor of the innocent widow Librizzi and affirm the judgment of the district court.