A Great Quiet Title Victory
You can
sue the individual who purchases your property from the IRS in a seizure sale and because the IRS makes so many mistakes,
you might win. Vern Holland, the excellent paralegal from Tulsa, Oklahoma has pioneered this approach and people all
over the country are using his techniques. The following action is a suit by Larry Bartel, in the United States District
Court for the District of Kansas, Bartel, v. USA and Jost, NO. 96 1022 MLB. The case was decided September 29, 1997.
The judge really blasted the IRS hard and the guy who bought the property from the IRS, lost. If more people would challenge
everything that the IRS does, it would be impossible for the IRS to continue its oppressive maneuvers. The entire court order
is reprinted here because it is full of excellent comments and law about the IRS' procedures. It can be used effectively
to develop a case against the IRS and the purchaser of property because the IRS makes many mistakes.
MEMORANDUM AND ORDER
Pursuant
to Fed. R. Civ. P. 72(b), the court reviews Magistrate Judge Reid s report and recommendation filed July 22,1997 (Doc. 49).
See D..Kan. Rule 72.1.4(b). Defendants timely filed written objections (Docs. 52 and 53), and the court thus reviews the Magistrate's
report and recommendation de novo. Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir.
1991). In undertaking the Rule 72(b) review, the court has reviewed all the underlying motions and memoranda.
I. UNDISPUTED FACTS
By January 9, 1995, the IRS had found plaintiffs
delinquent in their 1991 and 1992 federal income tax in the amount of $30,599.15 (Doc. 11, Ex. 3). Plaintiffs received
a copy of the Final Notice (Notice of Intent to Levy) by certified mail on or about January 11, 1995 (Doc. 46, Stipulation
A). On April 1, 1995, plaintiffs received a copy of the Notice of Seizure by certified mail (Doc. 46, Stipulation B). The IRS
made no attempt to personally serve the Notice of Seizure on plaintiffs nor did they leave the Notice of Seizure at plaintiff
s residence or place of business (Doc. 49 at 2). On May 17, 1995, Officer Jane Bicknell sent a minimum
bid worksheet to plaintiffs by registered mail which was delivered on May 18 and signed for by plaintiff Larry Bartel (Doc.
46, Stipulation C; Doc. 11, Ex. A.9 10). On June 27, 1995, Officer Bicknell attempted personal service of the Notice of Sale
to plaintiffs at their residence (Doc. 49 at 2). Officer Bicknell did not attempt to leave the Notice of Sale at plaintiff
s residence or place of business (Doc. 49 at 2). Instead, in June and July of 1995, she caused to be published Notices of
Sale in the local newspapers (Doc. 11, A.ll). On or about July 5, 1995, plaintiffs learned about the pending sale from reading
a local newspaper (Doc. 54, Ex. A and B). At public sale on July 18, 1995, the IRS sold plaintiffs' property to defendant
Keith Jost (Doc. 49 at 2). Plaintiffs did not redeem their property within the one-hundred eighty (180) days provided by law,
whereby the IRS issued a quitclaim deed to defendant Jost on January 17, 1995 (Doc. 11, Ex. A.l3).
On
January 24, 1996, plaintiffs filed this civil suit, titled "Complaint to Quiet Title" (Doc. 1). Plaintiffs also
filed an administrative claim with the IRS, as required by 26 U.S.C. 7433 (Doc. 11, Ex. C).
II. NATURE OF CASE
Plaintiffs base their suit to quiet title, brought
under 28 U.S.C. 2410, on the failure of the IRS to comply strictly with the procedural requirements for notice of seizure
and sale under 26 U.S.C. 6335(a) (b). Failure to comply, argue plaintiffs, invalidates the IRS tax sale of their property.
Defendants contend, however, that the count lacks subject matter jurisdiction under 28 U.S.C. 24l0. Specifically, defendants
suggest that the government maintains no further interest in the property, and thus cannot be sued under section 2410, because
the IRS (1) substantially complied with the code procedures regarding the property sale; (2) held no lien on the property
as of the time plaintiffs filed this complaint; or (3) does not waive its immunity through the Declaratory Judgment Act or
impliedly waive its immunity through notions of sovereign immunity. Plaintiffs counter that the IRS does maintain an interest
in the property, and thus can be sued, by not conferring good title to defendant Jost under the statutory obligations of 26
U.S.C. 6339(b)(2).
III. SUMMARY
JUDGMENT STANDARDS
Rule 56(c) of the Federal
Rules of Civil Procedure directs the entry of summary judgment in favor of the party who "shows
that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."
Fed. R. Civ. p. 56(c). The usual and primary purpose "of the summary judgment rule is to isolate and dispose of factually
unsupported claims or defenses . . . ." Celotex Corp. v. Cartrett, 477 U.S.
317, 323 24, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265, 274 (1986). The moving party bears the initial burden of demonstrating
the absence of a genuine issue of material fact by informing the court of the basis for its motion. Martin
v. Nannie and the Newborns. Inc., 3 F.3d 1410, 1414 (10th Cir. 1993). The non-moving party must then "set
forth specific facts showing that there is a genuine issue for trial." Muck v. United States, 3 F.3d
1378, 1380 (10th Cir. 1993). The rare case presents little or no dispute of the facts by the parties; the parties instead
demand a clarification of the law as it applies to their situation. In this setting, where unresolved issues are merely legal
rather than factual, summary judgment is particularly appropriate. In State Mint. Inc. v. Riedel Environmental
Services. Inc., 29 F.3d 424, 426 (8th Cir. 1994). The case at hand fundamentally presents legal questions rather
than factual ones. The parties request wholly different interpretations of the governing law while offering consistent, if
not relatively harmonious, factual accounts of the dispute. In this light, the court accepts the challenge of sorting out
and clarifying the following sections of code as they apply to the legal issues presented: 28 U.S.C. 2410 (1994 & Supp.
1997), 26 U.S.C. 6335(a) (b) (1989), and 26 U.S.C. 6339(b)(2) (1989).
IV. DISCUSSION
Both parties suggest entirely different conclusions
about the application of 28 U.S.C. 15 2410, 26 U.S.C. 15 6335(a) (b), and 26 U.S.C.15 6339(b) (2) to the undisputed facts
of this case. This requires a brief summary of the code sections and their relationship to one another. Also, in addition
to providing an overview of the relevant code sections, the court offers an analytical framework for working through the issues
of the case. Analysis and a resolution of these issues follow. Overview and Framework of Relevant Code and Issues A party
may bring suit in district court, naming the United States as party, to quiet title to property on which the United States
has or claims a mortgage or lien." Schmidt v. King, 913
F.2d 837, 839 (10th Cir. 1990) (citing 28 U.S.C. 15 2410(a)). The text of section 2410(a) clearly allows for a waiver of the
United States sovereign immunity, yet any consent language must "be construed strictly in favor of the sovereign and
may not be extended beyond the explicit language of the statute." Fostvedt v. United States, 978
F.2d 1201, 1202 03 (10th Cir. 1992) (citing Ruckelshaus v. Sierra Club, 463
U.S. 680, 685, 103 5. Ct. 3274, 3278, 77 L. Ed. 2d 938 (1983)). The Tenth Circuit has held that section 2410 "does
waive sovereign immunity with respect to procedural violations arising from assessment, levy, and seizure." Guthrie
v. Sawyer, 970 F.2d 733, 735, 735 n.3 (10th Circuit 1992) (reaching this conclusion, in the context
of a deficiency notice procedure pursuant to 26 U.S.C. 6213). The Guthrie holding
obviously rests, however, on the firm understanding that "the United States has or claims a mortgage or lien" over
the taxpayer s property. Unfortunately, the present case offers no such clear understanding of the present mortgage or lien
situation. In fact, the overarching question confronting this court is whether the government continues to hold a lien over
plaintiff's property. If the government does currently retain a lien over the property, the facts of the present case implicate
the Guthrie holding, thus validating the section 2410 action and a waiver of sovereign
immunity. If, however, the government does not still hold a lien (interest in the property), sovereign immunity protects it
from a section 2410 action and the suit must fail for lack of subject matter jurisdiction. See, e.g., Powelson
v. United States, 979 F.2d 141, 145 (9th Cir. 1992). To address the lien issue, the court must first consider 26
U.S.C. 6339(b) (2), which states: If the proceedings of the Secretary as set forth have been substantially in accordance
with the provisions of law, such deed shall be considered and operate as a conveyance of all the right, title, and interest
the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto.
In order to pass good title by deed and extinguish the lien on seized property, the IRS must comply with section 6339(b) (2).
The key to section 6339(b) (2) rests with the language "substantially in accordance with the provisions of the law"
and a reasoned understanding of what government behavior satisfies the stated requisite standard. The argument follows that
if the government proceedings have not "been substantially in accordance with the provisions of law," as defined
and clarified below, then good title does not get passed to the purchaser, the government s lien on the property does not
expire, and a taxpayer may bring a valid section 2410 action. The "provisions of law" with which the IRS must be
"substantially in accordance" is a reference to 26 U.S.C.15 6335. The IRS conducts a tax sale of seized property
in accordance with 26 U.S.C. 6335. Section 6335, in its pertinent part, requires both notice of the seizure and sale of the
property. 26 U.S.C. 6335(a) (b). Subsection (a), titled "Notice of seizure," states: As soon as practicable after
seizure of property, notice in writing shall be given by the Secretary to the owner of the property (or, in the case of personal
property, the possessor thereof), or shall be left at his usual place of abode or business if he has such within the internal
revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business
within such district, the notice may be mailed to his last known address. Such notice shall specify the sum demanded and shall
contain, in the case of personal property, an account of the property seized and, in the case of real property, a description
with reasonable certainty of the property seized. Subsection (b), covering "Notice of sale," also requires "notice
to the owner[] in the manner prescribed in subsection (a)." A failure to satisfy the notice elements required by section
6335 could well equate to a failure of the "substantially in accordance" standard of section 6339(b)(2). In the
analysis below, the court addresses the, following sub issues provoked by section 6335(a) (b) and the interplay of sections
6335(a) (b) and 6339(b) (2): (1) whether the government failed to provide adequate notice to plaintiffs as demanded by section
6335(a) (b) and (2) whether a notice failure by the government necessarily means a breach of the "substantially in accordance"
standard of section 6339(b) (2). The following statements summarize the overall logic and framework of the issues as the court
sees them. If the government failed to comply with the notice requirement of section 6335, and, because of that failure, the
proceedings do not meet the "substantially in accordance" standard of section 6339(b) (2), then good title does
not get passed to the purchaser, the government s lien on the property does not expire, and plaintiff may bring a valid section
2410 action. If, however, any piece of the puzzle does not fit as the court works backwards from section 6335 to section 6339(b)
(2) to section 2410, plaintiffs claim will fail. Essentially, without the government's lien on the property, sovereign
immunity protects the government from suit, and the 2410 action will be dismissed for want of subject matter jurisdiction.
B. Analysis Notice Requirement of Section 6335 Notice requirements under section 6335 "are designed to protect the taxpayer
by giving him an opportunity to be present at the tax sale and bid on the property." Reece
v. Scoggins, 506 F.2d 967, 971 (5th Cir. 1975) (noting that Congress prescribes precise measures "[i]n
recognition of the Damoclean nature" of a governmental seizure and sale of property). These notice provisions allow the
taxpayer to protect his interest in the property and provide him with adequate due process. Verba
v. Ohio Casualty Ins. Co., 851 F.2d 811, 816 (6th Cir. 1988). The "language and purpose"
of section 6335(a) (b), demand "that the government be held accountable for failure to strictly comply with the procedures
prescribed by the two provisions." Powelson, 979 F.2d at 143 (quoting Goodwin
v. United States, 935 F.2d 1061, 1065 (9th Cir. 1991)). Without "literal compliance" to the language
of the section, "the government sale of land cannot stand." Id. (citing Reece, 506 F.2d at 971). The Tenth
Circuit supports the "literal compliance" approach to notice procedure. Both Colorado
Property Acquisitions. Inc. v. United States, 894 F.2d 1173 (10th Cir. 1990), and Title
Ins. Co. of Minnesota v. IRS of the United States, 963 F.2d 297 (10th Cir. 1992), present scenarios
where the notice requirements are implicated in the context of 26 U.S.C.15 7425 rather than section 6335. Section 7425 covers
generally the discharge of liens and contains specific mandates in its language (and the language of relevant regulations)
for notice procedures. See 26 U.S.C. 7425(c) (1) (1989); 26 C.F.R.15 301.7425 4(b) (4) (ii) (1997). The court finds the purpose
behind and clarity of the language in section 7425 significantly analogous to that of section 6335. Thus, the court concludes
that Colorado Property and Title Insurance provide controlling authority
on this issue.
In Colorado Property, a bank
loaned a taxpayer money against his home and, one year later, the IRS recorded a Notice of Federal Tax Lien against the property.
After the taxpayer failed to make required payments to the bank, the bank initiated nonjudicial foreclosure proceedings. The
bank sent written notice of the foreclosure proceedings to the IRS via regular mail. The bank did not send notice by registered
or certified mail, nor did it personally serve the IRS. The bank successfully bid on the property and subsequently assigned
it to Colorado Property. Colorado Property brought suit to quiet title, arguing that the IRS should not be able to rely on
"technical noncompliance with the notice requirement" to "stymie the normal foreclosure process" when
the IRS did receive actual notice. The Tenth Circuit disagreed. The court looked carefully at the language of section 7425(c)
(1), which states that "[n)otice of a sale . shall be given in writing, by registered or certified mail or by personal
service, not less than 25 days prior to such sale, to the Secretary." The court concluded that "[t]he statute uses
clear and simple language," allowing "for no alternative to the specified methods of delivery." 894 F.2d at
1174. "Congress has the right to specify a particular method of delivery of notice," the court continued, "and
when it does so the statutory requirement must be met in order to effect a valid notice." Id. at 1175 (noting Botany
Worsted Mills v. United States, 278 U.S. 282, 289, 49 S. Ct. 129, 132, 73 L. Ed. 379 (1929)). Such a
firm stance allows, as is illustrated in Colorado Property, "the IRS to-receive actual notice, ... ignore the notice
and still retain the right to levy upon the property." Id. Without a doubt, the results can be harsh and unforgiving,
but the Colorado Property court emphasized that "[t]he remedy .must come from Congress and not from the Courts."
Id. Title Insurance confirmed Colorado Property and "literal
compliance" as the standard when a statute clearly specifies the method of notice delivery. Again, actual notice
did not suffice when the statute mandated other specific notice requirements. In Title Insurance, the IRS
did not comply with 26 C.F.R. 301.7425-4(b) (4) (ii), and the court held that "the IRS's failure to strictly comply .
. . invalidated its certificate of redemption." 963 F.2d at 302. The Title Insurance court not only reiterated
the rationale of Colorado Property in its decision, id. at 302 03, it also relied on an analogous section 6335 case for support.
Id. at 303 (highlighting Goodwin, 935 F.2d at 1061, which required that a taxpayer
whose property had been seized be given notice by personal service, per the priority of the statute, rather than by certified
mail). Another example, in the section 6335 context, illustrates the stringency with which the
statutorily mandated notice requirements must be followed. Powelson, from
the Ninth Circuit, provides a factual set of circumstances reasonably similar to the present case. In Powelson, the
IRS attempted to personally serve a Notice of Sale at the taxpayer s residence. Powelson, 979
F.2d at l43. Upon finding the taxpayer absent, the IRS officers left without leaving notice at his residence. The IRS
did not attempt personal service again. The IRS instead sent notice to the taxpayer by regular and certified mail, notice
that the taxpayer received. The Ninth Circuit concluded that although section 6335(a) (b) may allow the IRS several options
for giving notice to a property owner, "strict compliance with the statute is required." Id. The Powelson court
also noted that "[i]f the IRS wishes to give notice by mail, it must satisfy the pre-conditions for doing so." Id.
The lone attempt at personal service, coupled with a failure to leave notice at the taxpayer's residence, amounted to a clearly
unacceptable effort at section 6335 compliance. The undisputed facts in the present case indicate that Officer Bicknell did
not personally serve plaintiffs with either a Notice of Seizure or a Notice of Sale, nor did she leave these notices at plaintiffs
home or place of business (Doc. 49 at 2). Although Officer Bicknell did try to personally serve the Notice of Sale at plaintiffs
residence on one occasion, she neglected to attempt personal service again, and she never did try to personally serve the
Notice of Seizure (Doc. 49 at 2). The court notes that section 6335, in contrast to section 6339, does not allow for substantial
compliance by its terms. Even the dimmest bulb in the IRS officer ranks should be able to figure
out that he or she cannot satisfy the statute by mailing notice unless the owner cannot be readily located. The facts do not
demonstrate nor support any inference that plaintiffs could not be readily located. On the contrary, because Hillsboro is
a small community and Officer Bicknell made no inquiries about where the plaintiffs work or otherwise could be found, the
likely inference is that plaintiffs were readily locatable, and Officer Bicknell simply did not try to find them on her only
trip to Hillsboro. Also, to the extent the government may rely on publication as adequate notice, it bears noting
that the statute does not even mention publication as an alternative to the notice procedures. Clearly, publication is an
additional requirement. The court finds that the IRS clearly did not comply with the pre conditions necessary before giving
notice by mail. The court thus concludes that the government failed the notice requirements of section 6335(a) (b). Analysis
Section 6339 (2) (b) The court now turns to section 6339(2)(b). In the plain language of the section, "the deed
shall be considered and operate as a conveyance of all right, title and interest" the taxpayer had in the property at
the time the government s lien attached as long as the proceedings were carried out "substantially in accordance"
with section 6335. In other words, assuming government compliance with section 6335, a purchaser takes the property subject
to any encumbrances on the property occurring prior to the government's lien attaching. If no encumbrances existed prior to
the government's lien, and the government complies with section 6335, a purchaser will take the property "free and clear"
the very hope of the gambling purchaser at a tax sale. A fair reading of the code suggests, however, that a failure of the
"substantially in accordance" standard would result in "all right, title and interest" not passing with
the deed of real property." The implication is, of course, that the purchaser would be taking a deed clouded by
the government s continued interest in the property. The government s interest continues regardless of whether or not it concludes
the lien has now been satisfied by the sale of the property. Put another way, the government cannot possibly hope to satisfy
its lien against property from the proceeds of an illegitimate sale of the same property. Thus, the government s interest
in the property continues if the "substantially in accordance" standard is not met. The more specific issue now
becomes whether a failure by the government to comply with section 6335 necessarily breaches the "substantially in accordance"
standard of section 6339(b)(2). At first blush, the "substantially in accordance" standard appears to ask for very
little. Yet, a possibility of great loss by the taxpayer exists. As the Scoggin's court
states: "The consequences of seizure and sale are often staggering and irreversible; this action not only deprives a
taxpayer of a sometimes significant capital investment but also denies him a source of additional income." Scoggins, 506
F.2d at 971. This court simply cannot ignore the larger context of sections 6335 and 6339 and the potential unfairness to
the taxpayer that may result from lax government attempts at notice procedure. The notice requirement is perhaps the most
vital ingredient of a legitimate tax seizure and sale. The court is unable to conjure a scenario where the government can
stumble badly over the notice hurdle of section 6335, yet be, able to win in the tax sale race by claiming to be "substantially
in accordance" with section 6339. Also, the government cites no persuasive, affirmative authority to support its substantial
compliance argument. The court thus concludes, under the facts of this case, that the IRS failure to strictly comply
with the notice requirements of section 6335 translates to a failure to meet the "substantially in accordance" standard
of section 6339. In the present case, the government failed the taxpayer under section 6335 and thus also does not pass this
court's scrutiny under section 6339. The government did not pass "all right, title and interest" to defendant Jost,
and retains its interest in the property in relation to plaintiffs. Section 2410 (a) As stated above, if the government
holds an interest in property, a party may bring a quiet title action under section 2410. Even though the Powelson decision
is not binding precedent, the court feels compelled to address further its apparent irreconcilability with the present case.
Although the Powelson court found the notice given to a taxpayer to be inadequate, to have
failed the section 6335 requirements, the court summarily denied jurisdiction under section 2410(a) by stating the government
had no interest in the property when the action was commenced. Powelson, 979
F.2d at 145. The Powelson court provided no explanation for this conclusion and did not discuss
section 6339(b) (2) nor its impact on the government s interest in the property. In fact, the Powelson court
avoided the interest or lien issue entirely other than to conclude that "the government held no interest in the property
when the quiet title action was filed." Id. Again, the court finds Colorado Property and Title Insurance more persuasive
in this area of law. The court particularly takes note of the firm stance taken by the Tenth Circuit in Colorado Property,
where it held a lending institution to exacting notice standards for a sale. Colorado Property, 894 F.2d at 1174-75.
In Colorado Property, the government clearly benefitted by the Tenth Circuit's strict application of notice requirements.
Title Insurance, holding against the government under the Colorado Property reasoning, solidified the Tenth Circuit s consistent
and rather strict understanding of notice procedures and the consequences of failing to meet them. The court finds these cases
appropriate, controlling authority. Defendants argue that Powelson provides a bright line of sorts from which to measure section
2410 action legitimacy (Doc. 52 at 3). The court agrees that bright line rules often help litigants and courts, particularly
with procedural matters, but the line suggested here unfairly restricts a legitimate claim by the taxpayer. If defendants
crave a bright line here for clarity, they should look to the beginning of the seizure and sale process. As highlighted
before, section 6335 demands very straightforward action by the IRS to serve notice on the taxpayer. Proper government action
up front alleviates any concern for section 2410 type actions later. The court has every sympathy for defendant Jost, who
unwittingly relied on the government s representation that it had complied with the law. Defendant Jost, reasonable expectation
or not, likely trusted that he would take the property clear of any complications between the government and plaintiff. Unfortunately
for defendant Jost, the court cannot sanction anything less than a stringent adherence to section 6335 notice requirements.
Ultimately, the court must place greater value in safeguarding the procedural protections afforded taxpayers whose property
has been seized than condoning what appears to be lazy, or perhaps just careless, government behavior.
V. CONCLUSION
After careful consideration,
the court concludes the following: (1) the government failed to adhere to the clear notice procedures of section 6335(a) (b);
(2) the government s failure does not meet the "substantially in accordance" standard of section 6339(b)(2); (3)
the government retains an interest in the property; and (4) the government waives sovereign immunity for purposes of section
2410, thereby validating plaintiffs section 2410 action. Accordingly, the court grants plaintiffs summary judgment motion
to the extent that the court orders the tax sale invalidated. Also, the court denies defendant's motion to dismiss.
The court further orders the parties to prepare concise briefs on the appropriate reimbursement process, including the possibility
of accumulated interest, for defendant Jost. If the following issues relate to a possible award of damages in this case, the
court also orders their briefing: (1) whether Sharla Jost, wife of defendant Keith Jost, is an indispensable party to this
suit, and whether the failure to join her to this suit influences these matters (See Pretrial Conference Order at 12); (2)
whether plaintiffs conduct or negotiations with defendant Jost after the tax sale affects these matters (See Pretrial Conference
Order at 12); (3) whether plaintiffs entering into or satisfying any agreement with the IRS to pay off other back taxes affects
these matters (See Pretrial Conference Order at 12); (4) whether the readily located standard in section 6335 rises to the
level of due diligence (See Pretrial Conference Order at 3); and (5) whether the failure of the IRS to serve plaintiffs personally
the Notice of Sale was harmless error because plaintiffs saw the Notice of Sale published in the newspaper on July 5, 1995
and took no action (See Pretrial Conference Order at 4). The parties must submit their briefs no later than October 14, 1997.
A motion for reconsideration is neither invited nor encouraged. Any motion for reconsideration must comply with Rule 7.3 of
this court and standards set out in Comeau v. Rupp, 810 F.Supp. 1172, 1174 (D. Kan.
1992). They must be filed by October 14, 1997. The motion may not exceed four (4) pages in length, including supporting arguments
and authorities, regardless of the number of points raised. All responses must be filed by October 28, 1997. Responses shall
be limited to two (2) pages each. No replies may be filed. Motions for extension of these time periods will be viewed with
disfavor. The filing of such a motion does not relieve the party of its obligation to meet the relevant deadline, even if
the motion is not ruled upon prior to the expiration of the deadline.
This
case is set for a one day bench trial on December 9, 1997, at 9:30 a.m. IT IS SO ORDERED.
Dated this 29th day of September 1997, at Wichita, Kansas.
Monti L. Belot
United States District Judge