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 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. 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. 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 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. 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. 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. 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. 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. 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. 713.