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IRS levies-Supremacy Clause on backwards

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  • Legalbear
    Below is an excerpt of a Utah brief that got a void judgment set aside. At issue in that case was the failure of the plaintiff bank to comply with Federal law
    Message 1 of 1 , Apr 26, 2006

      Below is an excerpt of a Utah brief that got a void judgment set aside. At issue in that case was the failure of the plaintiff bank to comply with Federal law (Fair Credit Billing Act) barring them from using state court and state law to obtain a judgment against the debtor. I have bolded what I want you to pay attention to.


      This email pertains to 26 USC 6332 giving those that honor the “Notice of Levy” immunity for having honored the levy; the pertinent subparts which say (underlining and bolding added):


      (e) Effect of honoring levy Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property (or discharges such obligation) to the Secretary (or who pays a liability under subsection (d)(1)) shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment.


      (f) Person defined The term ''person,'' as used in subsection (a), includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to surrender the property or rights to property, or to discharge the obligation.


      On to the brief:


      With respect to preemption principles and the Supremacy Clause of the Federal Constitution [the Utah Supreme Court] has also enunciated and collected together the following principles:

      "Consideration under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law." (In a levy situation, if subsections (e) & (f) of 6332 were not applicable, state law would permit you to sue whoever wrongfully gave away your money for conversion, breach of contract, or breach of fiduciary duty.) [cites omitted in the interested of brevity]  The United States Supreme Court has stated that:


      * * * where Congress has not entirely displaced state regulation in a specific area, state law is preempted to the extent that it actually conflicts with federal law. (In the instance of an IRS levy, the Supreme Federal law, i.e. the Constitution, says that there can be no direct tax without apportionment; therefore, Congress “has not entirely displaced state regulation in a specific area…”) Such a conflict arises when . . . state law "stands as an obstacle to the accomplishment of the full purpose and objectives of Congress."  [cites ommited] (In an IRS levy situation what would “the full purpose and objectives of Congress” be? Since Title 26 is not positive law, wouldn’t we have to go to the Statutes at Large to find out? I suspect that the Statutes at Large would reflect the prohibitions of the Constitution with respect to direct taxes and show that Congress was only trying to reach the accrued salaries and wages of Federal workers that neglected or failed to pay a tax they were liable for.) A state statute will therefore be held to be void to the extent to which it conflicts with a federal statute if, for example, "compliance with both federal and state regulations is a physical impossibility." [cites ommited] Further, the state law will also be found to be void where it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." [cites ommited] (How could your state law respecting conversion, breach of contract, or breach of fiduciary duty stand in the way of a levy on Federal workers? I don’t think it could meaning that § 6332 would not protect most employers that honor a “notice of levy.”)


      That a federal statute should preempt state law in a specific area may be evidenced in several ways. For example, "the scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplant it." [cites ommited] Further evidence of preemption may be found if an Act of Congress "touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject." [cites ommited] Also, evidence of preemption may be found by examining the "object sought to be obtained by federal law and the character of the obligations imposed by [the law]." [cites ommited] (How could a Federal levy that applies only to Federal employees or those exercising a privilege rise to the level of preemption of state law?) Finally, the state policy may simply "produce a result inconsistent with the objective of the federal statute." [cites ommited]  Johnson-Bowles Company V. Division, 1991.UT.286 <http://www.versuslaw.com> ¶¶ 56-59; 829 P.2d 101 (Utah App. 1991).


      The brief this excerpt came succeeded in stopping a creditor from using state law to collect from a debtor because the Federal law the creditor asserted preempted state law. My point in writing this email is to look at things in the other direction. Since there is no way Congress could preempt state law because of Constitutional prohibitions against it (no direct taxes without apportionment), then there would seem to be no way § 6332 could give immunity to a non-governmental employer for honoring a levy having no authority under the Federal Constitution. If you sue, or even threaten to sue, an employer for honoring a levy § 6332 will be the section their lawyer will pull out in support of the give the IRS anything they want so long as it is not our money attitude. He will use that section as proof that the employer can get away with giving the IRS your money on the levy. If you have this problem you may want to further research this and bring it to the attention of your employer and their lawyer. Bear


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