May 8, 2017 (Date Decided)
FOR APPELLANT: Julie C. Avetta, Michael J. Haungs, and Curtis C. Pett (United States Department of Justice, Tax Division).
FOR APPELLEES: Anthony P. Monzo (Monzo Catanese Hillegass).
The government appealed from the decision of the district court, which denied the government’s request for a judicial sale of the home owned by appellees Gary Cardaci and his wife Beverly. Mr. Cardaci was the owner of a construction company that began experiencing financial difficulties in 2000 and 2001. To shore up the company’s cash position, Mr. Cardaci began using taxes withheld from his employees’ wages to pay suppliers and wages, rather than payroll taxes. As a result, the government sought to reduce to judgment federal tax assessments against Mr. Cardaci in the amount of $80,083 plus interest. The district court recognized that Mr. Cardaci owed the assessment and that the government had a valid lien on appellees’ property. But the district court declined to grant the government’s request to foreclose on the property, instead ruling that it had limited discretion to order an alternative remedy. Based on equitable factors, the district court concluded that it would have been inequitable to force a sale of property. Instead, the district court, calculating that Mrs. Cardaci would have an 86 percent interest in the property in the event of a forced sale, assigned an imputed monthly rental value of $1,500 to the property and ordered Mr. Cardaci to pay half that value to the IRS monthly until his assessment was satisfied. The government appealed, and appellees cross-appealed, challenging the imputed rental value as inaccurate. The court first ruled that appellees’ property, despite being marital property, was “fair game” under federal tax law. The court further ruled that the district court had authority to fashion an alternative remedy to judicial sale where warranted by equitable considerations, set forth in U.S. v. Rodgers, 461 U.S. 677. However, the court agreed with the government that the district court abused its discretion in evaluating the Rodgers factors. The court held that the proper focus was on whether the government would be adequately compensated by a sale, rather than also considering rental payments, and that the district court erred in considering facially inapplicable state law protections for Mrs. Cardaci’s interest. The court also held that each spouse’s interest was properly calculated according to joint-life actuarial tables, as the district court erred in failing to account for Mr. Cardaci’s interest in a life estate. Accordingly, the court reversed and remanded for recalculation of the respective interests in the property and reconsideration of the Rodgers factors.