UNITED STATES OF AMERICA v. WEBB et al
ORDER ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT - The Webbs argue that summary judgment should be granted in their favor, dkt. 59 at 2 n. 1, so the Court treats dkt. 59 as a cross-motion for summary judgment. The United States' motion for partial summary judgment is GRANTED. Dkt. 51 . The Webbs' cross-motion for partial summary judgment is DENIED. Dkt. 59 (SEE ORDER FOR ADDITIONAL INFORMATION). Signed by Judge James Patrick Hanlon on 9/14/2020. (DWH)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
UNITED STATES OF AMERICA,
RUSSELL M. WEBB, JR.,
SUSAN E. WEBB,
INTERNAL REVENUE SERVICE OF THE )
UNITED STATES OF AMERICA Petitioner )
ORDER ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT
In this lawsuit, the United States seeks to recover allegedly unpaid
income tax liabilities from Russell Webb, Jr., and Susan Webb. In its motion
for partial summary judgment, the United States seeks a determination that
certain federal tax liens attached to all property and rights belonging to the
Webbs, including their residence, as of the petition date of their bankruptcy.
Dkt. . The Webbs contend that they are entitled to partial summary
judgment on this issue because their tax liabilities were discharged in their
bankruptcy case, the IRS released the tax liens, and the United States is
equitably estopped from enforcing the tax liens. Dkt. . For the reasons
below, the United States' motion is GRANTED, and the Webbs' motion is
Facts and Background
In 2010, the IRS filed notices of tax liens (the "Tax Liens") regarding
certain taxes, interest, and penalties that the IRS assessed against the Webbs
(the "Tax Liabilities"). Dkt. 51-3; dkt. 51-4; dkt. 51-5; dkt. 51-6; dkt. 51-7; dkt.
51-8; dkt. 51-9; dkt. 51-10. In 2013, the Webbs filed a bankruptcy petition
(the "Petition"). Dkt. 59-2. Among the assets listed in the Webbs' Schedules
and Statements was their residence located at 6061 Timber Bend Drive,
Hendricks County, Indiana. Dkt. 51-1 at 4. The Webbs received a bankruptcy
discharge on November 4, 2013. Dkt. 59-4. On February 10, 2014, the IRS
abated the Tax Liabilities and released the Tax Liens. Dkt. 51-2 at ¶ 6; dkt.
51-3; dkt. 51-11; dkt. 51-12; dkt. 51-13. Then, in December 2016, the IRS
reversed its abatement of the Tax Liabilities. Dkt. 51-2 at ¶¶ 7, 8. From 2017
to 2019, the IRS filed several revocations of its releases of the Tax Liens. Dkt.
51-14; dkt. 51-15; dkt. 51-19; dkt. 51-20; dkt. 51-21. Additional undisputed
material facts are set forth throughout Part III.
The United States contends that the Tax Liens attach to the Webbs'
property because the Tax Liens were unaffected by the bankruptcy. The United
States also contends that although the IRS erroneously abated Tax Liabilities
and released the Tax Liens, the IRS later reinstated them. The Webbs argue
that Tax Liens cannot be reinstated because the Tax Liabilities were
discharged; the Tax Liens were not erroneously released; even if the Tax Liens
can be reinstated, the amount is limited; and the United States is equitably
estopped from enforcing the liens.
Summary Judgment Standard
The parties have filed cross-motions 1 for summary judgment under
Federal Rule of Civil Procedure 56(a), so the Court takes the motions "one at a
time." American Family Mut. Ins. v. Williams, 832 F.3d 645, 648 (7th Cir.
2016). For each motion, the Court construes all facts and draws all reasonable
inferences in favor of the non-moving party. Id.
Summary judgment shall be granted "if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party must
inform the court "of the basis for its motion" and specify evidence
demonstrating "the absence of a genuine issue of material fact." Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party meets this
burden, the nonmoving party must "go beyond the pleadings" and identify
"specific facts showing that there is a genuine issue for trial." Id. at 324.
Pursuant to the Southern District of Indiana's Local Rule 56-1(b), a party
opposing summary judgment must include in its response brief "a section
labeled 'Statement of Material Facts in Dispute' that identifies the potentially
determinative facts and factual disputes that the party contends demonstrate a
dispute of fact precluding summary judgment." The Webbs' response brief
includes a Local Rule 56-1 Statement that claims to identify disputed material
facts, dkt. 59 at 7–9, but the disputes that the Webbs identify are about the
The Webbs argue that summary judgment should be granted in their favor, dkt. 59 at 2 n. 1,
so the Court treats dkt. 59 as a cross-motion for summary judgment.
legal effect of undisputed facts. In other words, what the Webbs dispute is the
legal effect of certain actions, not whether the actions took place.
For example, the Webbs dispute the United States' assertion that the
Webbs "have failed, neglected, or refused to pay in full the Alleged Obligations
described." Dkt. 59 at 8. But the Webbs have not designated evidence that
creates a disputed issue of fact as to whether the IRS made the assessments,
whether the Webbs received notice of the assessments, or whether the Webbs
have paid the amounts assessed. Rather, the Webbs' argument is that the
assessments made by the IRS following the Webbs' bankruptcy discharge do
not have the legal effect that the United States claims they do. Similarly, the
Webbs identify as a disputed material fact the United States' assertion that
"[o]n or about December 27, 2016, the IRS reinstated the Webbs' liabilities [sic]
tax years 2004, 2005, 2007, and 2008…"). Id. at 9. But the designated
evidence demonstrates that's what the IRS did, and the Webbs do not
designate evidence to the contrary. Rather, the Webbs dispute the legal effect
of the IRS's reinstatement of the liabilities and argue that the reinstatement did
not create a valid lien.
Such arguments do not identify an issue of material fact that would
preclude summary judgment.
The Court's analysis begins with the broad reach of a federal tax lien. A
federal tax lien arises when "any person liable to pay any tax neglects or
refuses to pay the same after demand." 26 U.S.C. § 6321. A tax lien
automatically "arise[s] at the time the assessment [of a tax] is made." 26
U.S.C. § 6322. Federal tax liens attach to "all property and rights to property"
owned by the delinquent taxpayer during the life of the lien, 26 U.S.C. § 6321,
and continue "until the liability for the amount so assessed . . . is satisfied or
becomes unenforceable by reason of lapse of time," 26 U.S.C. § 6322; see also
Glass City Bank of Jeanette, Pa., v. United States, 326 U.S. 265, 268 (1945);
United States v. Sanabria, 424 F.2d 1121, 1122 (7th Cir. 1970) ("… a taxing
authority's lien upon property already subjected to the lien at the time of
bankruptcy is not released or affected by the discharge…").
The language of Section 6321 "is broad and reveals on its face that
Congress meant to reach every interest in property that a taxpayer might
have....'Stronger language could hardly have been selected to reveal a purpose
to assure the collection of taxes.'" United States v. National Bank of Commerce,
472 U.S. 713, 719-20 (1985) (quoting Glass City Bank, 326 U.S. at 267). With
these principles in mind, the Court turns to the parties' arguments.
1. Undisputed material facts
Since 1998, the Webbs have owned real property located at 6061 Timber
Bend Drive, Hendricks County, Indiana ("the Hendricks County Property").
Dkt. 59-2. Beginning in 2007, the IRS assessed Tax Liabilities against the
Webbs. Dkt. 51-3, dkt. 51-4, dkt. 51-5, dkt. 51-6, dkt. 51-7. The IRS gave the
Webbs notice of the Tax Liabilities and demanded payment, but the Webbs did
not pay. Dkt. 51-2 at 2 (¶3). In 2010, pursuant to its authority under 26
U.S.C. §§ 6621-6623, the IRS filed notices of the Tax Liens arising from the Tax
Liabilities with the Hendricks County Recorder. Dkt. 51-8, dkt. 51-9, dkt. 5110.
2. The IRS established valid pre-Petition Tax Liens.
There is no dispute that the IRS established valid Tax Liens before the
bankruptcy. The evidence shows that the Webbs had unpaid Tax Liabilities;
the IRS demanded payment from the Webbs; and the Webbs did not pay. The
Tax Liens thus automatically arose when the IRS assessed the Tax Liabilities
against the Webbs. See 26 U.S.C. § 6322. Accordingly, the IRS established
valid pre-Petition Tax Liens.
1. Undisputed material facts
On February 27, 2013, the Webbs filed the Petition under Chapter 7 of
Title 11 of the Bankruptcy Code. Dkt. 59-2. The Webbs listed the Hendricks
County Property as an asset on the Schedules and Statements filed in
connection with their Petition, claiming $35,000 in equity as exempt from
bankruptcy. Dkt. 59-2 (Schedules C, D). On November 4, 2013, the Webbs
received a bankruptcy discharge. Dkt. 59-4.
2. The Tax Liens were unaffected by the bankruptcy
Tax liens survive bankruptcy and may be enforced in rem even after the
debtor has been discharged. See Johnson v. Home State Bank, 501 U.S. 78, 84
(1991) ("[A] bankruptcy discharge extinguishes only one mode of enforcing a
claim -- namely, an action against the debtor in personam -- while leaving
intact another -- namely, an action against the debtor in rem."). The
Bankruptcy Code preserves "debt secured by . . . a tax lien" against exempt
property such as a residence. 11 U.S.C. § 522(c)(2).
The Webbs acknowledge that "generally tax liens . . . pass through a
bankruptcy undisturbed", dkt. 59 at 10, but argue that the general rule does
not apply here because the Tax Liabilities were discharged in bankruptcy and
the IRS released the Tax Liens. See id. While the bankruptcy discharge
extinguished the Webbs' personal liability for the Tax Liabilities, it did not
affect the IRS's right to seek in rem relief for the Tax Liabilities. See Johnson,
501 U.S. at 84; see also United States v. Buckner, 264 B.R. 908, 913 (N.D. Ind.
2001). The Tax Liabilities continued to exist after the bankruptcy discharge
and the Tax Liens remained intact.
C. Release, Reinstatement and Reattachment of the Tax Liens
1. Undisputed material facts
About three months after the discharge, the IRS abated the Tax
Liabilities because the IRS believed they had been discharged in bankruptcy.
Dkt. 51-2 at ¶ 6. The IRS also filed certificates with the Hendricks County
Recorder releasing the Tax Liens. Dkt. 51-11, dkt. 51-12, dkt. 51-13.
In December 2016, the IRS reversed its abatements of the Tax Liabilities.
Dkt. 51-2 at ¶¶ 7, 8. In 2017, the IRS filed revocations of its releases of the
Tax Liens. Dkt. 51-14; dkt. 51-15. The IRS gave the Webbs notice of these
revocations. Dkt. 51-2 at ¶ 9. The IRS also filed notices of federal tax lien with
the Hendricks County Recorder, but did not timely refile notice of federal tax
lien with respect to tax years 2002 and 2005. Because the IRS failed to timely
refile, those notices expired and the Tax Liens for tax years 2002 and 2005 selfreleased. Dkt. 51-16; dkt. 51-17; dkt. 51-18. The IRS then filed additional
revocations of releases, including the 2002 and 2005 releases, dkt. 51-19; dkt.
51-20; dkt. 51-21; dkt. 51-22, as well as notices of federal tax liens for those
tax years, dkt. 51-22.
2. The abatements of the Tax Liabilities were reversed.
The United States contends that it reversed these abatements and
reinstated the Tax Liabilities. Dkt. 51-1 at 10–14; dkt. 60 at 6–7. The Webbs
maintain that the IRS "did not abate the [liabilities], the [liabilities] were
discharged" in bankruptcy. Dkt. 59 at 17–18.
As discussed above, the Tax Liabilities survived the bankruptcy
discharge. The question is whether the IRS's abatements and reversals of the
abatements were valid. There is no statute covering the abatement of taxes
that are discharged in bankruptcy. Dkt. 51-1 at 13 n. 1. While the IRS could
keep the tax assessments on the books after a discharge, as a practical matter
the IRS usually abates liabilities discharged in bankruptcy for the sake of
administrative convenience. Id.
The United States claims that the abatements here were made for the
sake of administrative convenience and can thus be reversed. Dkt. 51-1 at 10–
14; dkt. 60 at 6–7. While there is no controlling statute, the United States
argues that 26 U.S.C. § 6404, which covers abatement of tax liabilities in other
contexts, is instructive. Section 6404(a) permits abatement of assessments
that were excessive, or erroneously or illegally assessed, while Section 6404(c)
covers small tax liabilities which are deemed not to justify the cost of collecting
them. The statute is silent as to whether abatements are reversible, and the
United States does not cite any binding authority on this point. The Court
therefore looks to non-binding authority. See Kroyer v. United States, 55 F.2d
495 (Ct. Cl. 1932); In re Becker, 407 F.3d 89 (2d Cir. 2005); United States v.
Buckner, 264 B.R. 908, 914 (N.D. Ind. 2001); Crompton-Richmond Co. v. United
States, 311 F.Supp. 1184 (S.D.N.Y. 1970).
In Buckner, the IRS abated taxes based on the IRS's mistaken belief that
no pre-petition assets were available to pay the subject liabilities. 264 B.R. at
912. The court explained, "[A] § 6404(c) abatement is not designed to reflect a
taxpayers [sic] true liability, but only the judgment of the I.R.S. that collecting
the tax would not be cost effective, and that it should therefore be removed
from the books. Indeed, § 6404(c) simply codifies early I.R.S. administrative
practices." 264 B.R. at 914. Buckner held that "the § 6404(c) abatements here
did not extinguish Buckner's debt, and the I.R.S. was free to reverse them
when it later determined that at least a portion of his taxes were collectible as a
result of the pre-petition levy." Id.
The facts are similar here. The IRS abated the Tax Liabilities because it
mistakenly believed that the Tax Liabilities were uncollectible. Later, the IRS
discovered that the discharge did not mean that the Tax Liabilities were
uncollectible since the IRS maintained its right to seek in rem relief for the Tax
Liabilities. The Court finds Buckner's reasoning persuasive and applicable
here. The IRS reversed the abatements, thereby reinstating the Tax Liabilities.
3. The IRS reinstated and reattached the Tax Liens.
The United States argues the IRS revoked its releases of the Tax Liens,
thereby reinstating them. Dkt. 51-1 at 9–14. The Webbs respond by again
arguing that the Tax Liabilities were discharged in bankruptcy, and liens
released post-discharge "cannot be reinstated as to debts that were discharged"
since a creditor "cannot have a lien without an underlying liability." Dkt. 59 at
2. But the Tax Liabilities continued to exist after the discharge. See Johnson,
501 U.S. at 84. The question is whether the IRS could revoke its Certificates of
Release of Federal Tax Lien.
A Certificate of Release of Federal Tax Lien operates to show "that the
lien referred to in such certificate is extinguished." 26 U.S.C. § 6325(f)(1)(A).
Under 26 U.S.C. § 6325(f)(2), the Secretary of the Treasury is permitted to
revoke a Certificate of Release of Federal Tax Lien if the release "was issued
erroneously or improvidently." Such a release may be revoked by "mailing
notice of such revocation to the person against whom the tax was assessed,"
and "by filing notice of such revocation in the same office in which the notice of
lien to which it relates was filed (if such notice had been filed)." 26 U.S.C. §
6325(f)(2). The revocation "reinstate[s]" the lien that arose under 26 U.S.C. §
In the Notice of Revocation of Certificate of Release of Federal Tax Lien,
an appropriate official certifies that the IRS "mistakenly issued a certificate of
release" and declares that the release "is revoked and that the lien is
reinstated." E.g., dkt. 51-14 at 1; dkt. 51-15 at 1; dkt. 51-19 at 1; dkt. 51-20
at 1; dkt. 51-21 at 1. See also 26 U.S.C. § 6325(f)(2); Municipal Trust and Sav.
Bank v. U.S., 114 F.3d 99,102 (7th Cir. 1997).
The United States claims it erroneously or improvidently issued the
Certificates of Release of Federal Tax Lien. Dkt. 51-1 at 9–12 (citing 26 U.S.C.
§ 6325(f)(2). The Webbs argue that the United States has failed to produce
evidence that the Tax Liens were erroneously or improvidently released. Dkt.
59 at 19–20; dkt. 64 at 2. But the United States designated multiple
Revocations of Certificate of Release of Federal Tax Lien, in which the Secretary
of Treasury certified that the Tax Liens were mistakenly released. See dkt. 5114; dkt. 51-15, dkt. 51-19, dkt. 51-20, dkt. 51-21. The IRS followed the
requisite procedures to revoke the releases, thereby reinstating the Tax Liens
and reattaching the Tax Liens to the Webbs' pre-bankruptcy assets. See 26
U.S.C. § 6325(f)(2); dkt. 51-3, dkt. 51-4, dkt. 51-5, dkt. 51-6, dkt. 51-7
(certificates of showing the taxes were assessed against the Webbs); dkt. 51-8,
dkt. 51-9, dkt. 51-10; dkt. 51-16, dkt. 51-17, dkt. 51-18, dkt. 51-22 (Notice of
Federal Tax Liens filed with the Hendricks County Recorder); dkt. 51-11, dkt.
51-12, dkt. 51-13 (Certificates of Release of Federal Tax Lien filed with the
Hendricks County Recorder); dkt. 51-14; dkt. 51-15, dkt. 51-19, dkt. 51-20,
dkt. 51-21 (Revocations of Certificates of Release of Federal Tax Lien filed with
the Hendricks County Recorder).
Based on the foregoing, the IRS reinstated the Tax Liens, resulting in the
reattachment of the Tax Liens to the Webbs' pre-bankruptcy assets.
D. Limitation of Liens
1. Undisputed material facts
In the bankruptcy proceedings, the IRS filed a proof of claim in the
amount of $388,897.01. Dkt. 59-3. About three and a half years after filing
that proof of claim, the IRS filed an amended proof of claim. Dkt. 59-7. The
amended proof of claim lists a secured amount of $12,357.00 and an
unsecured amount of $383,527.99. Dkt. 59-7 at 3.
2. The Tax Liens are not limited to the amount listed as
secured on the IRS's amended proof of claim.
The Webbs contend that even if the Tax Liens are valid, the Tax Liens are
limited to $12,357.00 (the portion of the claim characterized as secured on the
amended proof of claim). Dkt. 59 at 10–12. The United States argues that the
Tax Liens are valid and include the remaining $383,527.99 characterized as
general unsecured. Dkt. 60 at 1.
The Bankruptcy Code requires a creditor to file a proof of claim that
includes the amount the debtor owes. Fed. R. Bankr. P. 3002(a). A prepetition lien "that secures a claim against the debtor is not void due only to the
failure of any entity to file a proof of claim." Id. The Bankruptcy Code
preserves "debt secured by . . . a tax lien" against exempt property. 11 U.S.C. §
The Webbs cite several opinions 2 from other circuits for the proposition
See Trustees of Operating Engineers Local 324 Pension Fund v. Bourdow Contracting, Inc., 919
F.3d 368 (6th Cir. 2019); EDP Medical Comput. Sys., Inc. v. United States, 480 F.3d 621 (2d Cir.
2007); Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525 (9th Cir. 1998); Matter of Baudoin,
981 F.2d 736 (5th Cir. 1993); Giles World Mktg., Inc. v. Boekamp Mfg., Inc., 787 F.2d 746 (1st
that a proof of claim conclusively states the nature and the amount of a
creditor's claims, and only the amount listed as secured on a proof of claim is
enforceable. See dkt. 59 at 12–13. But those cases do not involve the issue
here—whether tax liens associated with an underlying tax liability can be
enforced outside of bankruptcy. Those cases also do not differentiate between
secured and unsecured amounts asserted as claims by the IRS.
For example, the Webbs discuss EDP Medical, a case in which the IRS
filed a proof of claim in a taxpayer's bankruptcy case, then later amended the
proof of claim to include additional assessments. 480 F.3d at 623. The
bankruptcy court issued an order allowing the IRS's amended claim, and the
trustee paid the IRS the amount of the amended claim and closed the
bankruptcy case. Id. at 623–624. Thereafter, the taxpayer filed for a refund of
the tax assessment, arguing that the tax assessment was imposed by error. Id.
at 624. The court held that the taxpayer's claim for a refund was barred
because "a bankruptcy court order allowing an uncontested proof of claim
constitutes a 'final judgment' and is thus a predicate for res judicata" as to the
amount of the claim. Id. at 625.
EDP Medical addresses whether a tax assessment was enforceable in
bankruptcy. That case does not deal with the issue that is relevant here—the
enforceability of the Tax Liens outside of bankruptcy. See dkt. 1 at 6–9; dkt.
51 at 1; dkt. 51-1 at 9. Neither do the other cases that the Webbs cite as
persuasive authority. See Trustees of Operating Engineers Local 324 Pension
Fund v. Bourdow Contracting, Inc., 919 F.3d 368 (6th Cir. 2019); Siegel v. Fed.
Home Loan Mortg. Corp., 143 F.3d 525 (9th Cir. 1998); Matter of Baudoin, 981
F.2d 736 (5th Cir. 1993); Giles World Mktg., Inc. v. Boekamp Mfg., Inc., 787 F.2d
746 (1st Cir. 1986). These cases thus do not persuade the Court that their
reasoning applies here.
In sum, the Webbs have not cited any controlling authority that
mandates a finding that the Tax Liens are limited to the amount listed as
secured on the IRS's amended proof of claim. Consequently, the IRS is
permitted to enforce the Tax Liens securing the Tax Liabilities in the full
amount of $395,884.99.
E. Equitable Estoppel
The Webbs last argue that the IRS should be equitably estopped from
enforcing the Tax Liens. Dkt 59 at 20. The Webbs contend that the United
States should be estopped from enforcing the liens because three years elapsed
between when the IRS released the Tax Liens and when the IRS revoked the
releases and reinstated the Tax Liens. Id. The United States argues that under
the applicable test, the IRS should not be estopped. Dkt. 60 at 7. The United
States also contends that lapse of time is not a factor in the equitable estoppel
analysis but is a laches argument, which applies only in a limited set of
circumstances not applicable here. Id.
"[E]quitable estoppel against the government is disfavored and is rarely
successful." Gibson v. West, 201 F.3d 990, 994 (7th Cir. 2000). The traditional
elements of equitable estoppel are: (1) misrepresentation by the party against
whom estoppel is asserted; (2) reasonable reliance on that misrepresentation
by the party asserting estoppel; and (3) detriment to the party asserting
estoppel. Kennedy v. United States, 965 F.2d 413, 417 (7th Cir. 1992); see also
Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123, 1138 (7th Cir. 1988). When
the government is a party, one must also establish affirmative misconduct on
the part of the government. Id.; Gibson, 201 F.3d at 994. Affirmative
misconduct is "more than mere negligence . . . . It requires an affirmative act to
misrepresent or mislead." Id. (internal citations omitted).
Here, the Webbs have not demonstrated that the IRS's actions constitute
affirmative misconduct. There is no designated evidence showing the IRS
released the Tax Liens to misrepresent or mislead the Webbs. For these
reasons, the Webbs' estoppel argument must fail.
The United States' motion for partial summary judgment is GRANTED.
Dkt. . The Webbs' cross-motion for partial summary judgment is DENIED.
Weston E. Overturf
MATTINGLY BURKE COHEN & BIEDERMAN LLP
Bradley A. Sarnell
U.S. DEPARTMENT OF JUSTICE, TAX DIVISION
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