Miles v. Comm., (CA 9 10/07/2010) 106 AFTR 2d 2010-6563, cert denied 4/18/2011
The Supreme Court has refused to review the decision of the Court of Appeals for the Ninth Circuit, that held that IRS could proceed with collection of a taxpayer's tax liability from IRA funds which had been subject to IRS liens before the taxpayer's filing for bankruptcy. The preexisting liens on her IRA remained enforceable post-bankruptcy discharge.
Background. Under Code Sec. 6321, when a taxpayer fails to pay a tax liability after notice and demand, a lien arises that attaches to all the taxpayer's property and rights to property. Under Code Sec. 6331, IRS is authorized to seize and sell the taxpayer's property and rights to property subject to a federal tax lien. Thus, IRS may seize any property or property right (unless it's exempt under Code Sec. 6334(a)) of a delinquent taxpayer (whether held by him or someone else), sell it, and apply the proceeds to pay the unpaid taxes. Seized property may be real, personal, tangible, or intangible, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions or compensation. (Code Sec. 6331(a), Reg. §301.6331-1(a))
Facts. In’98 and’99, IRS filed federal tax liens for Corrie Miles'‘97 and’98 tax liabilities that attached to her IRA. In 2003, she filed a petition under Chapter 7 of the U.S. Bankruptcy Code in the bankruptcy court, which discharged her’96,’97, and’98 tax liabilities in August of 2003.
Appellate court. The Ninth Circuit, affirming the Tax Court, concluded that although the bankruptcy court discharged Miles' personal tax liability, the preexisting liens on her IRA remained enforceable post-discharge. Accordingly, IRS could proceed in rem against Miles' IRA to the extent of $142,545.90—the amount of the pre-petition funds in her IRA.
The Ninth Circuit found that the Tax Court had properly concluded that the liens remained valid even after Miles allegedly transferred her IRA into an ERISA-qualified plan. The transfer of property following the attachment of a lien didn't affect the lien itself. Thus, Miles couldn't in effect extinguish the lien by transferring the IRA funds to a different account. Any funds Miles transferred from her IRA to an ERISA-qualified plan were subject to levy by the IRS under Code Sec. 6331.
The Ninth Circuit also found that the Tax Court properly rejected Miles' assertion that she had no existing property rights in an ERISA account that was not in “payout” status.
No further review. On Apr. 18, 2011, the Supreme Court refused to review the decision of the Court of Appeals for the Ninth Circuit in Miles.
References: For property subject to levy, see FTC 2d/FIN ¶V-5200; United States Tax Reporter ¶63,314.03; TaxDesk ¶902,200; TG ¶71935.