Stephen J. Hedges
South Florida Business Journal
Volume 9 Number 17
Week of December 27, 1988 - January 1, 1989

Feds dealt big blow in use of liens in tax disputes

MIAMI - The federal government suffered an unexpected blow in its handling of tax investigations when a Florida court ruled recently that the government can put liens only on assets equal to the amount of money the taxpayer allegedly owes. Prior to the ruling, the government was able to freeze all assets in tax disputes.

Tax attorneys are hailing the decision as a tremendous loss for the government and its ability to pressure a taxpayer into forking over the disputed taxes, just to get rid of the lien on assets.
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David Garvin, who represented the taxpayer, Charles Albury, predicted that other taxpayers would use this decision to fight their liens. “With this decision, things may change,” he says.

“It’s a great opinion,” agrees Gary Carmen, partner with the Miami law firm of Holland & Knight. “I like the court making the decision that the government no longer has a blanket right to tax everything you’ve got.”

The statute regarding such government assessments, also known as jeopardy assets, states that a decision on the reasonableness of the assessment cannot be appealed. Nevertheless, the government appealed the decision last week to the U.S. District Court of Appeals. Attorneys predict the court will deny the appeal.

Jeopardy assessments are an important tool for the government when it believes it has uncovered unpaid taxes in the course of an investigation. Thus, any reduction in the government’s power to use this technology to extract taxes is likely to be damaging. Justice Department attorneys who handled the case couldn’t be reached for comment.

Garvin explains that in a typical jeopardy assessment, the government freezes all of the assets of the taxpayer until the taxpayer pays the disputed taxes or the case goes to tax court. However, the taxpayer can appeal the jeopardy assessment.

In this case, Albury v. U.S., the government put a lien on some $1 million worth of property owned by Albury, a Miami resident, even though the government was seeking $595,000 worth of taxes.

In his argument, Garvin cited a previous case heard in a New York federal district court, which essentially says that a taxpayer’s right to an attorney is violated when the government freezes all of the taxpayers’ assets, because then the taxpayer can’t afford to hire a lawyer.

U.S. District Judge Kenneth Ryskamp agreed. He allocated certain properties held by the taxpayer to be earmarked for the government, and ordered that other liens be removed after the taxpayer satisfies the disputed taxes.