In some cases, courts may take shortcuts to ensure that justice is served. While these shortcuts can be effective in obtaining the desired outcome, they can also raise concerns about fairness and due process.
One such case is United States v. Spangler, 224 F. App’x 890 (11th Cir. 2007), where a trial court ordered the transfer of a promissory note to the government to be credited towards the taxpayer’s restitution order, despite lacking the authority to do so. While the appeals court ultimately upheld the order, the case highlights how the courts cannot preempt a government agency, such as the IRS, by skipping over established government processes.
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Facts & Procedural History
The taxpayer owned a nightclub. He plead guilty to tax fraud and was ordered to pay restitution to the IRS.
Prior to sentencing, the taxpayer sold his nightclub to his father in exchange for a $135,000 promissory note. The note called for monthly payments of $1,300.
The trial court thought that this transfer was fraudulently undertaken so as to avoid liability, but noted that it could not officially avoid the transaction because doing so would affect the taxpayer’s father’s rights.
The trial court ordered that the promissory note be transferred to the government so that the payments of $1,300 would be credited towards the amount of his restitution.
The taxpayer filed an appeal contending that the trial court did not have the authority to reach his assets.
Section 3613 Restitution Orders
The court restitution order rules are not provided for in the tax code. They are in Title 18 of the U.S. Code.
Specifically, 18 U.S.C. § 3613 provides for civil remedies to be used by the United States to enforce judgments imposing fines or orders of restitution. The law allows the United States to enforce such judgments against all property or rights to property of the person fined, except for property that is exempt from levy for taxes under the tax code. Exempt property is set out in Section 6334 of the tax code. It covers necessities, such as clothing, etc. It should be noted that the IRS levy does not apply to future payments, which seems to be what the court ordered in this case.
Section 3613 goes on to say that an order of restitution is a lien in favor of the United States on all property and rights to property of the person fined. The lien arises on the entry of judgment and continues for 20 years or until the liability is satisfied, remitted, set aside, or terminated.
Upon the filing of a notice of lien, the lien is valid against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor. A notice of lien that is registered, recorded, docketed, or indexed in accordance with the rules and requirements relating to judgments of the courts of the State where the notice of lien is registered, recorded, docketed, or indexed shall be considered for all purposes as the filing prescribed by this section.
Finally, the law provides that no discharge of debts in a bankruptcy proceeding shall discharge liability to pay a fine pursuant to this section, and a lien filed as prescribed by this section shall not be voided in a bankruptcy proceeding. All provisions of this section are available to the United States for the enforcement of an order of restitution.
The Court Attaches Taxpayer Property
The taxpayer agreed that the IRS had the ability to use the restitution order to collect from his property. He did not challenge this. He challenged the trial court’s ability to do so.
The taxpayer was correct. Section 3613 does not authorize the trial court to access his property. It does say that a lien attaches to his property, but the lien is not self-executing. The IRS has to take action on the lien, which may include filing into the court to collect on the debt. The IRS did not do any of this in this case.
The appeals court noted this but upheld the trial court’s order. It did so because the error was harmless in that the IRS could get the same result given the law that allowed the IRS to do so. The appeals court also noted that the taxpayer failed to object to the trial court’s order in the trial court.
The Takeaway
The appeals court upheld a trial court’s order transferring a promissory note to the government so that the payments could be credited towards the taxpayer’s restitution order. While Section 3613 of the U.S. Code allows for liens to attach to property of the person fined, it does not authorize the trial court to access the property. However, in this case, the court’s error was deemed harmless as the IRS could still collect the debt through other means. The case highlights the importance of understanding the scope of authority granted by relevant statutes and the need to properly object to court orders to protect one’s rights.
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