United States v. Rogers
461 U.S. 677 (1983)

Annotate this Case

U.S. Supreme Court

United States v. Rogers, 461 U.S. 677 (1983)

United States v. Rogers

No. 81-1476

Argued December 6, 1982

Decided May 31, 1983*

461 U.S. 677

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

Syllabus

These cases present the issue whether § 7403 of the Internal Revenue Code of 1954 which authorizes a federal district court, in a suit instituted by the Government, to decree a sale of certain properties to satisfy the tax indebtedness of delinquent taxpayers -- empowers a district court to order the sale of the family home in which a delinquent taxpayer had an interest at the time he incurred his indebtedness, but in which the taxpayer's spouse, who does not owe any of that indebtedness, also has a separate "homestead" right as defined by Texas law. Under Texas statutory and constitutional provisions, each spouse -- regardless of whether one or both owns the fee interest -- has a separate and undivided possessory interest in the homestead, which is only lost by death or abandonment and may not be compromised by either the other spouse or his or her heirs, and which, in effect, is an interest akin to an undivided life estate in the property. In the Rodgers case, the Government filed suit against respondents, the widow, children, and executor of Philip Bosco, to reduce to judgment, assessments made against Philip before his death for unpaid taxes and to enforce the Government's tax liens, including one that had attached to his interest in the homestead. The District Court granted summary judgment on respondents' claim that the tax liens could not defeat the widow's state-created right not to have her homestead (which she continued to occupy) subjected to a forced sale. The Court of Appeals affirmed. In the Ingram case, which involved tax assessments made before a divorce both against the husband alone relating to unpaid taxes withheld from employee's wages and against both spouses relating to their joint income tax liability, the residence was destroyed by fire shortly before the divorce, and the Government, as a defendant in quiet title proceedings in Federal District Court, filed a counterclaim against both spouses, seeking judicial sale of the property under § 7403. Pursuant to the parties' stipulation, the property was sold and the proceeds were deposited in the court's registry, the parties agreeing that their rights would be determined as if the sale had not taken place and that the proceeds would be divided according to their respective interests. The District Court granted summary judgment on the Government's counterclaim. Affirming in part, and reversing

Page 461 U. S. 678

and remanding in part, the Court of Appeals agreed that the Government could foreclose its lien on the proceeds to collect for the income tax owed by both spouses jointly, but held that the Government could not reach the proceeds to collect the husband's individual liability if the wife had maintained her homestead interest in the property. The court remanded for a factual determination of whether the wife had "abandoned" the homestead by dividing the fire insurance proceedings with the husband and by attempting, before the stipulation with the Government, to sell the property and divide the proceeds with the husband.

Held:

1. Section 7403 grants power to a federal district court to order the sale of the home itself, not just the delinquent taxpayer's interest in the property. If the home is sold, the nondelinquent spouse is entitled, as part of the distribution of proceeds required under § 7403, to so much of the proceeds as represents complete compensation for the loss of such spouse's separate homestead interest. Pp. 461 U. S. 690-702.

(a) While the Government's lien cannot extend beyond the property interests held by the delinquent taxpayer, the plain meaning of the statute authorizes sale of the entire property. Section 7403(a) provides that the Government may seek to

"subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. "

Section 7403(b) then provides that all persons "claiming any interest in the property involved in such action" shall be made parties thereto, and § 7403(c) provides that the district court should "determine the merits of all claims" to the property, and, if the Government's claim is established,

"may decree a sale of such property . . . and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States."

Reading § 7403 to authorize sale of the entire property is also consistent with the policy of prompt and certain collection of delinquent taxes and with the history of state in rem tax enforcement proceedings, and is further bolstered by a comparison with the statutory language which limits the Government's administrative remedy, available under 26 U.S.C. § 6331, to sale of the delinquent taxpayer's interest in property. Moreover, § 7403's requirements for distribution of the proceeds of the sale provide compensation for the taking of the property interest (such as the homestead estate in Texas) of an innocent third party, thus precluding any difficulties under the Due Process Clause of the Fifth Amendment. Pp. 461 U. S. 690-700.

(b) Nor do the special protections accorded by the exemption aspect of Texas homestead law immunize property held as a homestead by a nondelinquent third party from the reach of § 7403. No such exception appears on the face of § 7403, and the Supremacy Clause -- which provides the underpinning for the Federal Government's right to sweep

Page 461 U. S. 679

aside state-created exemptions in the first place -- is as potent in its application to innocent bystanders as in its application to delinquent debtors. Pp. 461 U. S. 700-702.

2. Section 7403, which provides that a district court "may" decree the sale of property, does not require the court to authorize a forced sale under absolutely all circumstances. Some limited room is left in the statute for the exercise of reasoned discretion. Pp. 461 U. S. 703-712.

(a) The principle of statutory construction that the word "may" usually implies some degree of discretion can be defeated by indications of contrary legislative intent or by obvious inferences from the statute's structure and purpose. Such indications or inferences are not present here. Pp. 461 U. S. 706-709.

(b) In determining whether to authorize a sale under § 7403 when the interests of nondelinquent third parties are involved, a district court should consider such factors as the following: (1) the extent to which the Government's financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes; (2) whether the third party with a nonliable separate interest in the property would, in the normal course of events, have a legally recognized expectation that such separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors; (3) the likely prejudice to the third party, both in personal dislocation costs and in practical undercompensation; and (4) the relative character and value of the nonliable and liable interests held in the property. Pp. 461 U. S. 709-711.

(c) In the Rodgers case, no individualized equitable balance of such factors has yet been attempted, this being a matter for the District Court in the first instance. In the Ingram case, a question remains under Texas law as to whether the divorced wife had abandoned the homestead. Assuming no abandonment, and if the wife discharges her personal income tax liability before the Government can proceed with its "sale," the District Court will be obliged to strike an equitable balance under the relevant factors. P. 461 U. S. 712.

649 F.2d 1117, reversed and remanded; 649 F.2d 1128, vacated and remanded.

BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, MARSHALL, and POWELL, JJ., joined. BLACKMUN, J., filed an opinion concurring in the result in part and dissenting in part, in which REHNQUIST, STEVENS, and O'CONNOR, JJ., joined, post, p. 461 U. S. 713.

Page 461 U. S. 680

JUSTICE BRENNAN delivered the opinion of the Court.

These consolidated cases involve the relationship between the imperatives of federal tax collection and rights accorded by state property laws. Section 7403 of the Internal Revenue Code of 1954, 26 U.S.C. § 7403 (1976 ed. and Supp. V), authorizes the judicial sale of certain properties to satisfy the tax indebtedness of delinquent taxpayers. The issue in both cases is whether § 7403 empowers a federal district court to order the sale of a family home in which a delinquent taxpayer had an interest at the time he incurred his indebtedness, but in which the taxpayer's spouse, who does not owe any of that indebtedness, also has a separate "homestead" right as defined by Texas law. We hold that the statute does grant power to order the sale, but that its exercise is limited to some degree by equitable discretion. We also hold that, if the home is sold, the nondelinquent spouse is entitled, as part of the distribution of proceeds required under § 7403, to so much of the proceeds as represents complete compensation for the loss of the homestead estate.

I

A

Section 7403 provides in full as follows:

"(a) Filing. -- In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary [of the Treasury], may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any

Page 461 U. S. 681

property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. For purposes of the preceding sentence, any acceleration of payment under section 6166(g) shall be treated as a neglect to pay tax."

"(b) Parties. -- All persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto."

"(c) Adjudication and decree. -- The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States. If the property is sold to satisfy a first lien held by the United States, the United States may bid at the sale such sum, not exceeding the amount of such lien with expenses of sale, as the Secretary directs."

"(d) Receivership. -- In any such proceeding, at the instance of the United States, the court may appoint a receiver to enforce the lien, or, upon certification by the Secretary during the pendency of such proceedings that it is in the public interest, may appoint a receiver with all the powers of a receiver in equity."

As a general matter, [Footnote 1] the "lien of the United States" referred to in § 7403(a) is that created by 26 U.S.C. § 6321, which provides:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any

Page 461 U. S. 682

interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. [Footnote 2]"

Section 7403, whose basic elements go back to revenue legislation passed in 1868 (§ 106 of the Act of July 20, 1868, ch. 186, 15 Stat. 167) is one of a number of distinct enforcement tools available to the United States for the collection of delinquent taxes. [Footnote 3] The Government may, for example, simply sue for the unpaid amount, and, on getting a judgment, exercise the usual rights of a judgment creditor. See 26 U.S.C. §§ 6502(a), 7401, 7402(a). Yet a third route is administrative levy under 26 U.S.C. § 6331(a), which provides:

"If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary [or his delegate] to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. . . ."

Administrative levy, unlike an ordinary lawsuit and unlike the procedure described in § 7403, does not require any judicial intervention, and it is up to the taxpayer, if he so

Page 461 U. S. 683

chooses, to go to court if he claims that the assessed amount was not legally owing. See generally Bull v. United States,295 U. S. 247, 295 U. S. 260 (1935). [Footnote 4]

The common purpose of this formidable arsenal of collection tools is to ensure the prompt and certain enforcement of the tax laws in a system relying primarily on self-reporting. See G. M. Leasing Corp. v. United States,429 U. S. 338, 429 U. S. 350 (1977); United States v. Security Trust & Savings Bank,340 U. S. 47, 340 U. S. 51 (1950); Bull v. United States, supra, at 295 U. S. 259-260. [Footnote 5] Moreover, it has long been an axiom of our tax collection scheme that, although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter left to federal law. See United States v. Mitchell,403 U. S. 190, 403 U. S. 205 (1971) (state law determines income attributable to wife as community property, but state law allowing wife to renounce community rights and obligations not effective as to liability for federal tax); United States v. Union Central Life Insurance Co.,368 U. S. 291, 368 U. S. 293-295 (1961) (federal tax lien not subject, even as against good faith purchaser, to state filing requirements); Aquilino v. United States,363 U. S. 509, 363 U. S. 513-515 (1960), and cases cited (attachment of federal lien depends on whether "property" or "rights to property" exist under state law; priority of federal lien depends on federal law); United States v. Bess,357 U. S. 51, 357 U. S. 56-57 (1958) (once it has been determined that state law has created property interests sufficient for federal tax lien to attach, state law "is inoperative to present the attachment" of such liens); Springer v. United States,102 U. S. 586, 102 U. S. 594 (1881) (federal tax sale not subject to state requirement that independent lots be sold separately).

Page 461 U. S. 684

B

The substance of Texas law related to the homestead right may usefully be divided into two categories. Cf. Woods v. Alvarado State Bank, 118 Tex. 586, 590, 19 S.W.2d 35, 35 (1929). First, in common with a large number of States, Texas establishes the family home or place of business [Footnote 6] as an enclave exempted from the reach of most creditors. Thus, under Tex. Const., Art. 16, § 50:

"The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for [certain exceptions not relevant here]. . . . No mortgage, trust deed, or other lien on the homestead shall ever be valid, except for [certain exceptions not relevant here]. [Footnote 7]"

Second, in common with a somewhat smaller number of States, Texas gives members of the family unit additional rights in the homestead property itself. Thus, in a clause not included in the above quotation, Tex.Const., Art 16, § 50, also provides that

"the owner or claimant of the property

Page 461 U. S. 685

claimed as homestead [may not], if married, sell or abandon the homestead without the consent of the other spouse, given in such manner as may be prescribed by law. [Footnote 8]"

Equally important, Art. 16, § 52, provides:

"On the death of the husband or wife, or both, the homestead shall descend and vest in like manner as other real property of the deceased, and shall be governed by the same laws of descent and distribution, but it shall not be partitioned among the heirs of the deceased during the lifetime of the surviving husband or wife, or so long as the survivor may elect to use or occupy the same as a homestead, or so long as the guardian of the minor children of the deceased may be permitted, under the order of the proper court having the jurisdiction, to use and occupy the same. [Footnote 9]"

The effect of these provisions in the Texas Constitution is to give each spouse in a marriage a separate and undivided possessory interest in the homestead, which is only lost by death or abandonment, and which may not be compromised either by the other spouse or by his or her heirs. [Footnote 10] It bears emphasis that the rights accorded by the homestead laws vest independently in each spouse regardless of whether one spouse, or both, actually owns the fee interest in the homestead. Thus, although analogy is somewhat hazardous in

Page 461 U. S. 686

this area, it may be said that the homestead laws have the effect of reducing the underlying ownership rights in a homestead property to something akin to remainder interests and vesting in each spouse an interest akin to an undivided life estate in the property. See Williams v. Williams, 569 S.W.2d 867, 869 (Tex.1978), and cases cited; Paddock v. Siemoneit, 147 Tex. 571, 585, 218 S.W.2d 428, 436 (1949), and cases cited; Hill v. Hill, 623 S.W.2d 779, 780 (Tex.App.1981), and cases cited. This analogy, although it does some injustice to the nuances present in the Texas homestead statute, [Footnote 11] also serves to bring to the fore something that has been repeatedly emphasized by the Texas courts, and that was reaffirmed by the Court of Appeals in these cases: that the Texas homestead right is not a mere statutory entitlement, but a vested property right. As the Supreme Court of Texas has put it, a spouse

"has a vested estate in the land of which she cannot be divested during her life except by abandonment or a voluntary conveyance in the manner prescribed by law."

Paddock v. Siemoneit, supra, at 585, 218 S.W.2d at 436; see United States v. Rogers, 649 F.2d 1117, 1127 (CA5 1981), and cases cited. [Footnote 12]

II

The two cases before us were consolidated for oral argument before the United States Court of Appeals for the Fifth Circuit, and resulted in opinions issued on the same day. United States v. Rogers, supra; [Footnote 13] Ingram v. Dallas Dept. of

Page 461 U. S. 687

Housing & Urban Rehabilitation, 649 F.2d 1128 (1981). They arise out of legally comparable, but quite distinct, sets of facts.

A

Lucille Mitzi Bosco Rodgers is the widow of Philip S. Bosco, whom she married in 1937. She and Mr. Bosco acquired, as community property, a residence in Dallas, Texas, and occupied it as their homestead. Subsequently, in 1971 and 1972, the Internal Revenue Service issued assessments totaling more than $900,000 for federal wagering taxes, penalties, and interest, against Philip for the taxable years 1966 through 1971. These taxes remained unpaid at the time of Philip's death in 1974. Since Philip's death, Lucille has continued to occupy the property as her homestead, and now lives there with her present husband.

On September 23, 1977, the Government filed suit under 26 U.S.C. §§ 7402 and 7403 in the United States District Court for the Northern District of Texas against Mrs. Rodgers and Philip's son, daughter, and executor. The suit sought to reduce to judgment the assessments against Philip, to enforce the Government's tax liens, including the one that had attached to Philip's interest in the residence, and to obtain a deficiency judgment in the amount of any unsatisfied part of the liability. On cross-motions for summary judgment, the District Court granted partial summary judgment on, among other things, the defendants' claim that the federal tax liens could not defeat Mrs. Rodgers' state-created right not to have her homestead subjected to a forced sale. Fed.Rule Civ.Proc. 54(b).

The Court of Appeals affirmed on the homestead issue, [Footnote 14] holding that, if

"a homestead interest is, under state law, a property right, possessed by the nontaxpayer spouse at the time the lien attaches to the taxpayer spouse's interest, then the federal tax lien may not be foreclosed against the homestead

Page 461 U. S. 688

property for as long as the nontaxpayer spouse maintains his or her homestead interest under state law."

649 F.2d at 1125 (footnotes omitted). The court implied that the Government had the choice of either waiting until Mrs. Rodgers' homestead interest lapsed or satisfying itself with a forced sale of only Philip Bosco's interest in the property.

B

Joerene Ingram is the divorced wife of Donald Ingram. During their marriage, Joerene and Donald acquired, as community property, a residence in Dallas, Texas, and occupied it as their homestead. Subsequently, in 1972 and 1973, the Internal Revenue Service issued assessments against Donald Ingram relating to unpaid taxes withheld from wages of employees of a company of which he was president. Deducting payments made on account of these liabilities, there remains unpaid approximately $9,000, plus interest. In addition, in 1973, the Service made an assessment against both Donald and Joerene in the amount of $283.33, plus interest, relating to their joint income tax liability for 1971. These amounts also remain unpaid.

In March 1975, at about the time the Ingrams were seeking a divorce, their residence was destroyed by fire. In September, 1975, the Ingrams obtained a divorce. In connection with the divorce, they entered into a property settlement agreement, one provision of which was that Donald would convey to Joerene his interest in the real property involved in this case in exchange for $1,500, to be paid from the proceeds of the sale of the property. Joerene tried to sell the property, through a trustee, but was unsuccessful in those efforts, apparently because of the federal tax liens encumbering the property. To make matters worse, she then received notice from the City of Dallas Department of Housing and Urban Rehabilitation (Department) that unless she complied with local ordinances, the remains of the fire-damaged

Page 461 U. S. 689

residence would be demolished. Following a hearing, the Department issued a final notice and a work order to demolish. Joerene Ingram and the trustee then filed suit in Texas state court to quiet title to the property, to remove the federal tax liens, and to enjoin demolition. The defendants were the United States, the Department, and several creditors claiming an interest in the property.

The United States removed the suit to the District Court for the Northern District of Texas. It then filed a counterclaim against Joerene Ingram and Donald Ingram (who was added as a defendant on the counterclaim) for both the unpaid withholding taxes and the joint liability for unpaid income taxes. In its prayer for relief, the Government sought, among other things, judicial sale of the property under § 7403. Pursuant to a stipulation of the parties, the property was sold unencumbered and the proceeds (approximately $16,250) were deposited into the registry of the District Court pending the outcome of the suit. The parties agreed that their rights, claims, and priorities would be determined as if the sale had not taken place, and that the proceeds would be divided according to their respective interests. On cross-motions for summary judgment, the District Court granted summary judgment on the Government's counterclaims.

The Court of Appeals affirmed in part, and reversed and remanded in part. It agreed that the Government could foreclose its lien on the proceeds from the sale of the property to collect the $283.33, plus interest, for the unpaid income tax owed by Joerene and Donald Ingram jointly. Applying its decision in Rodgers, however, it also held that the Government could not reach the proceeds of the sale of the property to collect the individual liability of Donald Ingram, assuming Joerene Ingram had maintained her homestead interest in the property. The court remanded, however, for a factual determination of whether Joerene had "abandoned" the

Page 461 U. S. 690

homestead by dividing the insurance proceeds with Donald and by attempting -- even before the stipulation entered into with the Government -- to sell the property and divide the proceeds of that sale with Donald. [Footnote 15]

C

The Government filed a single petition for certiorari in both these cases. See this Court's Rule 19.4. We granted certiorari, 456 U.S. 904 (1982), in order to resolve a conflict among the Courts of Appeals as to the proper interpretation of § 7403.

III

A

The basic holding underlying the Court of Appeals' view that the Government was not authorized to seek a sale of the homes in which respondents held a homestead interest is that,

"when a delinquent taxpayer shares his ownership interest in property jointly with other persons, rather than being the sole owner, his 'property' and 'rights to property' to which the federal tax lien attaches under 26 U.S.C. § 6321, and on which federal levy may be had under 26 U.S.C. § 7403(a), involve only his interest in the property, and not the entire property."

649 F.2d at 1125 (emphasis in original). According to the Court of Appeals, this principle applies not only in the homestead context, but in any cotenancy in which unindebted third parties share an ownership interest with a delinquent taxpayer. See Folsom v. United States, 306 F.2d 361 (CA5 1962).

We agree with the Court of Appeals that the Government's lien under § 6321 cannot extend beyond the property interests

Page 461 U. S. 691

held by the delinquent taxpayer. [Footnote 16] We also agree that the Government may not ultimately collect, as satisfaction for the indebtedness owed to it, more than the value of the property interests that are actually liable for that debt. But, in this context at least, the right to collect and the right to seek a forced sale are two quite different things.

The Court of Appeals for the Fifth Circuit recognized that it was the only Court of Appeals that had adopted the view that the Government could seek the sale, under § 7403, of only the delinquent taxpayer's "interest in the property, and not the entire property." 649 F.2d at 1125, and n. 12. We agree with the prevailing view that such a restrictive reading of § 7403 flies in the face of the plain meaning of the statute. See, e.g., United States v. Trilling, 328 F.2d 699, 702703 (CA7 1964); Washington v. United States, 402 F.2d 3, 6-7 (CA4 1968); United States v. Overman, 424 F.2d 1142, 1146 (CA9 1970); United States v. Kocher, 468 F.2d 503, 506507 (CA2 1972); see also Mansfield v. Excelsior Refining Co.,135 U. S. 326, 135 U. S. 339-341 (1890). [Footnote 17]

Page 461 U. S. 692

Section 7403(a) provides, not only that the Government may "enforce [its] lien," but also that it may seek to "subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability" (emphasis added). This clause, in and of itself, defeats the reading proposed by the Court of Appeals. [Footnote 18]

Page 461 U. S. 693

Section 7403(b) then provides that "[a]ll persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto" (emphasis added). Obviously, no joinder of persons claiming independent interests in the property would be necessary if the Government were only authorized to seek the sale of the delinquent taxpayer's own interests. Finally, § 7403(c) provides that the district court should

determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property . . . and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.

(Emphasis added.) Again, we must read the statute

Page 461 U. S. 694

to contemplate, not merely the sale of the delinquent taxpayer's own interest, but the sale of the entire property (as long as the United States has any "claim or interest" in it), and the recognition of third-party interests through the mechanism of judicial valuation and distribution.

Our reading of § 7403 is consistent with the policy inherent in the tax statutes in favor of the prompt and certain collection of delinquent taxes. See supra at 461 U. S. 683. It requires no citation to point out that interests in property, when sold separately, may be worth either significantly more or significantly less than the sum of their parts. When the latter is the case, it makes considerable sense to allow the Government to seek the sale of the whole, and obtain its fair share of the proceeds, rather than satisfy itself with a mere sale of the part.

Our reading is also supported by an examination of the historical background against which the predecessor statute to § 7403 was enacted. In 1868, as today, state taxation consisted in large part of ad valorem taxation on real property. In enforcing such taxes against delinquent taxpayers, one usual remedy was a sale by the State of the assessed property. The prevailing -- although admittedly not universal -- view was that such sales were in rem proceedings, and that the title that was created in the sale extinguished not only the interests of the person liable to pay the tax, but also any other interests that had attached to the property, even if the owners of such interests could not otherwise be held liable for the tax. See generally H. Black, Law of Tax Titles §§ 231-236 (1888); W. Burroughs, Law of Taxation § 122 (1877). Where in rem proceedings were the rule, they were generally held to cut off as well dower or homestead rights possessed by the delinquent taxpayer's spouse. See Lucas v. Purdy, 142 Iowa 359, 120 N.W. 1063 (1909); Robbins v. Barron, 32 Mich. 36 (1875); Jones v. Devore, 8 Ohio St. 430 (1858); Black 299; Burroughs 348. But cf. R. Blackwell, Power to Sell Land for the Non-Payment of Taxes 550 (3d ed. 1869).

Page 461 U. S. 695

One evident purpose of the federal judicial sale provision enacted in 1868 was to obtain for the federal tax collector some of the advantages that many States enjoyed through in rem tax enforcement. As one commentator has put it, echoing almost exactly the usual description of state in rem proceedings, the § 7403 proceeding

"from its very nature, is a proceeding in rem. The purchaser receives a complete new title, and not just somebody's interest. The court finds the state of the title to the real estate in question, orders it sold if the United States has a lien on it, and divides the proceeds accordingly. All prior interests are cut off, and the title starts over again in the new purchaser."

Rogge, The Tax Lien of the United States, 13 A.B.A.J. 576, 577 (1927). See also G. Holmes, Federal Income Tax 546-547 (1920).

Even as it gave the Government the right to seek an undivided sale in an in rem proceeding, however, the predecessor to § 7403 departed quite sharply from the model provided by the States by guaranteeing that third parties with an interest in the property receive a share of the proceeds commensurate with the value of their interests. This apparently unique provision was prompted, we can assume, by the sense that, precisely because the federal taxes involved were not taxes on the real property being sold, simple justice required significantly greater solicitude for third parties than was generally available in state in rem proceedings. [Footnote 19]

Finally, our reading of the statute is significantly bolstered by a comparison with the statutory language setting out the administrative levy remedy also available to the Government. [Footnote 20]

Page 461 U. S. 696

Under 26 U.S.C. § 6331(a), the Government may sell for the collection of unpaid taxes all nonexempt "property and rights to property . . . belonging to such person [i.e., the delinquent taxpayer] or on which there is a lien provided in this chapter for the payment of such tax" (emphasis added). This language clearly embodies the limitation that the Court of Appeals thought was present in § 7403, and it has been so interpreted by the courts. [Footnote 21] Section 6331, unlike § 7403, does not require notice and hearing for third parties, because no rights of third parties are intended to be implicated by § 6331. Indeed, third parties whose property or interests in property have been seized inadvertently are entitled to claim that the property has been "wrongfully levied upon," and may apply for its return either through administrative channels, 26 U.S.C. § 6343(b), or through a civil action filed in a federal district court, § 7426(a)(1); see §§ 7426(b)(1), 7426(b)(2)(A). [Footnote 22] In the absence of such "wrongful levy," the entire proceeds of a sale conducted pursuant to administrative levy may be applied, without any prior distribution of the sort required by § 7403, to the expenses of the levy and sale, the specific tax liability on the seized property, and the general tax liability of the delinquent taxpayer. 26 U.S.C. § 6342.

We are not entirely unmoved by the force of the basic intuition underlying the Court of Appeals' view of § 7403 -- that the Government, though it has the "right to pursue the property

Page 461 U. S. 697

of the [delinquent] taxpayer with all the force and fury at its command," should not have any right, superior to that of other creditors, to disturb the settled expectations of innocent third parties. Folsom v. United States, 306 F.2d at 367-368. In fact, however, the Government's right to seek a forced sale of the entire property in which a delinquent taxpayer had an interest does not arise out of its privileges as an ordinary creditor, but out of the express terms of § 7403. Moreover, the use of the power granted by § 7403 is not the act of an ordinary creditor, but the exercise of a sovereign prerogative, incident to the power to enforce the obligations of the delinquent taxpayer himself, and ultimately grounded in the constitutional mandate to "lay and collect taxes." [Footnote 23] Cf. Bull v. United States, 295 U.S. at 295 U. S. 259-260; Phillips v. Commissioner,283 U. S. 589, 283 U. S. 595-597 (1931); United States v. Snyder,149 U. S. 210, 149 U. S. 214-215 (1893).

Admittedly, if § 7403 allowed for the gratuitous confiscation of one person's property interests in order to satisfy another person's tax indebtedness, such a provision might pose significant difficulties under the Due Process Clause of the Fifth Amendment. [Footnote 24] But, as we have already indicated, § 7403 makes no further use of third-party property interests than to facilitate the extraction of value from those concurrent property interests that are properly liable for the taxpayer's debt. To the extent that third-party property interests are "taken" in the process, § 7403 provides compensation for that "taking" by requiring that the court distribute the proceeds of the sale "according to the findings of the court in respect to the interests of the parties and of the United

Page 461 U. S. 698

States." Cf. United States v. Overman, 424 F.2d at 1146. Moreover, we hold, on the basis of what we are informed about the nature of the homestead estate in Texas, that it is the sort of property interest for whose loss an innocent third party must be compensated under § 7403. Cf. United States v. General Motors Corp.,323 U. S. 373, 323 U. S. 377-378 (1945). [Footnote 25] We therefore see no contradiction, at least at the level of basic principle, between the enforcement powers granted to the Government under § 7403 and the recognition of vested property interests granted to innocent third parties under state law.

The exact method for the distribution required by § 7403 is not before us at this time. But we can get a rough idea of the practical consequences of the principles we have just set out. For example, if we assume, only for the sake of illustration, that a homestead estate is the exact economic equivalent of a life estate, and that the use of a standard statutory or commercial table and an 8% discount rate is appropriate in calculating the value of that estate, then three nondelinquent surviving or remaining spouses, aged 30, 50, and 70 years, each holding a homestead estate, would be entitled to approximately 97%, 89%, and 64%, respectively, of the proceeds of the sale of their homes as compensation for that

Page 461 U. S. 699

estate. [Footnote 26] In addition, if we assume that each of these hypothetical nondelinquent spouses also has a protected half-interest in the underlying ownership rights to the property being sold, [Footnote 27] then their total compensation would be approximately 99%, 95%, and 82%, respectively, of the proceeds from such sale.

In sum, the Internal Revenue Code, seen as a whole, contains a number of cumulative collection devices, each with its own advantages and disadvantages for the tax collector. Among the advantages of administrative levy is that it is quick and relatively inexpensive. Among the advantages of a § 7403 proceeding is that it gives the Federal Government the opportunity to seek the highest return possible on the forced sale of property interests liable for the payment of federal taxes. The provisions of § 7403 are broad and profound. Nevertheless, § 7403 is punctilious in protecting the vested rights of third parties caught in the Government's collection effort, and in ensuring that the Government not receive out of the proceeds of the sale any more than that to which it is properly entitled. Of course, the exercise in any particular case of the power granted under § 7403 to seek the forced sale of property interests other than those of the delinquent taxpayer is left in the first instance to the good sense and common decency of the collecting authorities. 26 U.S.C. § 7403(a). We also explore in 461 U. S. S. 700

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