United States District Court, E.D. Missouri, Eastern Division
MEMORANDUM AND ORDER
JOHN A. ROSS, District Judge.
This matter is before the Court on cross motions for summary judgment. The motions are fully briefed and ready for disposition.
The relevant facts are not in dispute. Plaintiff filed this action pursuant to 26 U.S.C. § 7426 to challenge the Internal Revenue Service's ("IRS") levy of $26, 914.97 held in escrow by Integrity Land Title Insurance Company, Inc. ("Integrity") in connection with his purchase at a short sale of the property commonly known and numbered as 16691 Kehrsgrove Dr., Chesterfield, MO 63005 (the "Property"). At the time of purchase, the Property was encumbered by Federal Tax Lien, serial number XXXXXXXXX dated May 17, 2012 and recorded June 1, 2012 in the amount of $23, 834.99, plus penalties and interest. The delinquent taxpayer is Stephen A. Kincade.
Pursuant to a court order dated August 20, 2012, the Property was conveyed by attorney Alan Weber on behalf of Mr. Kincade to Amelia Kincade via Quit Claim Deed dated September 13, 2011 [sic] and recorded September 20, 2012 in Book 20167 page 1780 of the St. Louis County Records. Mr. Kincade retained no interest in the Property. Nevertheless, the conveyance did not affect the government's lien. See United States v. Bess, 357 U.S. 51, 56 (1958). The short sale of the Property closed October 30, 2012 and the Property was conveyed by Amelia Kincade to Plaintiff via general warranty deed. At closing, Plaintiff signed a HUD-1 Statement, certifying that it was "a true and accurate statement of all receipts and disbursements made on my account or by me in this transaction." The HUD-1 listed a disbursement of $35, 752.49 for "Federal Tax Lien Escrow to United States Treasury." (Defendant's Statement of Uncontroverted Material Facts ("SUF"), Doc. No. 17 at ¶ 15)
In connection with the purchase of the Property, and pursuant to an Escrow and Indemnity Agreement dated October 31, 2012 ("Escrow Agreement, " Doc. No. 17-10) between Plaintiff and Integrity, Plaintiff placed $38, 859.85 in escrow with Integrity. Mr. Kincade was not a party to the Escrow Agreement and had no interest in the escrowed funds. Pursuant to the terms of the Escrow Agreement, Plaintiff had "up to and including January 26, 2013 to obtain a release of the Liens from the appropriate taxing authority(ies). If the Liens have been released by January 26, 2013, Integrity shall release the Escrow Funds to [Plaintiff]. If the Liens have not been released by January 26, 2013, Integrity shall have the right to pay the Liens from the Escrow Funds." (Escrow Agreement at ¶ 6) Plaintiff did not obtain a release of the federal tax lien on or before January 26, 2013. (Defendant's SUF at ¶ 20)
Under the Escrow Agreement, Plaintiff agreed that Integrity could, "without any demand or notice to [Plaintiff] whatsoever, " use the escrowed funds "to obtain release of the Liens." (Defendant's SUF at ¶ 21) The Escrow Agreement further provided that "[w]here, in Integrity's absolute subjective opinion, all matters for which Integrity is indemnified... are resolved in such a manner that Integrity can have no further liability, " then Integrity "may, at Integrity's sole option, return, or order, such monies or security as may have been deposited by [Plaintiff] hereunder to [Plaintiff]." (Id. at ¶ 22)
On or about December 13, 2012, Plaintiff filed an Application for Certificate of Discharge of Property from Federal Tax Lien (Form 14135). His discharge application was denied by letter dated January 8, 2013 for the reason that it "was not submitted prior to the closing that took place on 10/30/2012. As a result, the Federal tax lien still attaches to the real property and the liability must be paid in full to resolve this issue. Once the liability is paid, the Federal tax lien will release automatically, so a discharge application is not required." (Doc. No. 19-6)
On or about February 20, 2013, the IRS issued a Notice of Levy in the amount of $26, 914.97 to Integrity to levy the escrow funds. On March 28, 2013, Plaintiff filed an Administrative Wrongful Levy Claim under I.R.C. § 6343(b). On April 23, 2013, the IRS denied Plaintiff's claim for the reason that the IRS had not received any funds from the sale and the Notice of Federal Tax Lien was not extinguished on the Property. (Doc. No. 19-9)
On or about May 15, 2013, Integrity paid the federal tax lien with the escrowed funds. The IRS released the federal tax lien on June 5, 2013 because it was fully paid.
Plaintiff renewed his Administrative Wrongful Levy Claim by letter dated June 14, 2013. By letter dated June 19, 2013, the IRS again denied Plaintiff's claim because it "fails to establish that the levied property belongs to someone other than Stephen Kincade or that you have an interest in the property that is superior to the lien interest of the United States." (Doc. No. 19-11)
Plaintiff then submitted a Collection Appeal Request to the IRS dated July 29, 2013. By correspondence dated August 19, 2013, the IRS denied Plaintiff's request, stating that because the HUD-1 settlement statement indicated that the funds were set aside "in payment of the federal tax lien, " the IRS "took the position that the funds ceased to be the property of [Plaintiff] at the time the sales contract was completed" and that "the Service properly issued the levy to attach the funds in escrow which were specifically identified for payment of the tax to release the property from the attachment of the lien. Money in escrow can be attached by a levy." (Doc. No. 19-13)
Plaintiff filed an administrative claim for return of the levied funds, but did not file an administrative claim for damages pursuant to I.R.C. ...