judgment. The basis for the dismissal sought is the absence of a
waiver of sovereign immunity and the consequent lack of
jurisdiction by this Court.
Standard Acceptance Company ("Standard") seeks to recover funds
allegedly wrongfully received by the government in payment of tax
liabilities assessed against Perfection Hand Laundry, Inc.
("Perfection"). Standard claims to have had a prior and superior
interest in the payments made to the government by Perfection as
the result of a security agreement between Perfection and
Plaintiff bases jurisdiction on 26 U.S.C. § 7426 in conjunction
with 28 U.S.C. § 1331, 1340, 1346(a)(1) and 1346(e). The
sections of Title 28 of the United States Code which Standard
cites cannot confer jurisdiction by themselves since they only
operate as general grants of jurisdiction. They do not authorize
a federal district court to entertain suit where the government
has not previously consented to be sued, as is the case here.
Nehf v. United States, 302 F. Supp. 356 (N.D.Ill. 1969).
Jurisdiction under 26 U.S.C. § 7426 presents a more complex
question. Section 7426(a)(1) provides that civil actions may be
brought against the United States by persons other than the
taxpayer when there has been a wrongful levy and the non-taxpayer
has an interest or lien in the property allegedly wrongfully
levied upon. Thus, sovereign immunity is waived under these
conditions. 28 U.S.C. § 1346(e) provides for jurisdiction in the
district courts of civil actions brought under 26 U.S.C. § 7426.
It must be noted initially that statutes by which a sovereign
waives its immunity, such as 26 U.S.C. § 7426, must be narrowly
construed. McMahon v. United States, 342 U.S. 25, 72 S.Ct. 17, 96
L.Ed. 26 (1951). In light of that condition, the question here is
whether a plaintiff may bring a § 7426 action if there has been
no levy, but only a "threat" of one, and a subsequent transfer to
the government of the claimed funds.
The parties are agreed that the government never levied upon
Perfection for its tax assessment. Rather, a field agent of the
Internal Revenue Service ("IRS") contacted Perfection's president
in April 1970 about Perfection's withholding tax liabilities of
approximately $16,000. At a May 1970 meeting, this executive was
told by the IRS that his business would be "closed down" and
notice of a levy served if the arrearages were not paid within
one week. Thereafter, Perfection was sold for $26,000, and checks
totaling $16,000 were endorsed and delivered to the IRS later in
A levy is defined by 26 U.S.C. § 6331(b) and 7701(a) (21) to
mean the "power of distraint and seizure by any means." The
government correctly notes that there can be no levy within the
meaning of Title 26 until there has been service of a formal
notice of levy. Rosenblum v. United States, 300 F.2d 843 (1st
Cir. 1962); United States v. Manufacturers National Bank,
198 F. Supp. 157 (N.D.N.Y. 1961). Standard suggests that the phrase
"seizure by any means" is meant to include all actions by the
government whereby property is brought into the government's
possession by affirmative action or threat of action.
Standard also notes that if formal written notice of levy is a
requirement for jurisdiction under Section 7426, then the
government can defeat the rights of secured creditors by simply
persuading "delinquents" to pay after an assessment has been made
and notice thereof given, but before a formal written notice of
levy has to be served. See 26 U.S.C. § 6331. However, Congress
does not appear to have acted unknowingly.
Section 7426 of the Internal Revenue Code was developed by
Congress in cooperation with the American Bar Association's
Special Committee on Federal Tax Liens. The legislative history
of the Federal Tax Lien Act of 1966, and law
review articles thereon, reveal that the ABA committee's proposal
was to allow non-taxpayer suits where a levy was threatened or
the property was voluntarily delivered to the IRS by the
taxpayer. The legislative history and the literature on the
subject do not reveal why this proposal was rejected. See 84 ABA
Rep. 645, 728 (1959). Nevertheless, a strong inference arises
that Congress chose to restrict the non-taxpayer's right to sue
the government to those instances where there had been a levy.
Plaintiff's only post-legislation authority, United Pacific
Insurance Co. v. United States, 320 F. Supp. 450 (D.Or. 1970),
does not support its argument. There the government had served a
notice of lien rather than a notice of levy. The court denied the
government's motion to dismiss and held that it had jurisdiction
because the IRS considered a notice of lien equivalent to a
notice of levy.
Standard also claims jurisdiction on the basis of Section
7426(a)(3) which expressly waives sovereign immunity where
property is sold pursuant to an agreement between the taxpayer
and the IRS. However, Section 7426(a)(3) requires an agreement
between the taxpayer and the IRS pursuant to 26 U.S.C. § 6325(b)
(3). The procedures for such an agreement are defined in IRS
regulations. Temporary Treasury Regulations on Procedure and
Administration, Section 400.2-1(b); Rev.Pro. 68-9, 1968-1
Cum.Bull. 756. It is clear from the parties' submissions that
there was no Section 6325(b)(3) agreement here.
Unfortunately, the result here appears to be out of keeping
with the general legislative intent of Congress; but the Court
cannot escape the unequivocal wording of Section 7426 and the
Senate Finance Committee's comments on that section. S.Rep. No.
1708, 1966 U.S.Code Cong. & Admin.News 3722, 3750-51. The Federal
Tax Lien Act of 1966 was intended to conform the lien provisions
of the internal revenue laws to the concepts developed in the
Uniform Commercial Code. S.Rep. No. 1708, 1966 U.S.Code Cong. &
Admin.News at p. 3722-23. That has not been achieved here,*fn*
but any necessary change is for Congress, not the courts.
For the reasons stated, defendant's motion for summary judgment
is granted and the complaint herein is dismissed.