United States v. S. M. Sage, Trustee in Bankruptcy for Guy O. Foss, National Bank of Commerce of Seattle and John Maddex

This is an action in interpleader brought by the United States to determine the rights of John Maddex and of S. M. Sage, trustee in bankruptcy for Guy 0. Foss. Each claims the surplus proceeds of about $7,500 from the tax sale of Foss’s yacht “Princess Mary,” sold by the Internal Revenue Service to Maddex for $27,500, pursuant to 26 U.S.C. § 6335 .

The government’s tax lien was junior to a mortgage held by Marc Venable. Maddex paid $15,000 to Venable to discharge the senior mortgage, and $27,500 to the government, out of which the IRS satisfied its tax lien and paid the costs of sale, totalling together about $20,000. Maddex claims the $7,500 surplus, arguing that he received an “assignment” of the senior mortgage from Venable and that the senior mortgage is next in line for satisfaction. Foss’s trustee in bankruptcy claims the surplus as the remaining owner’s equity. The district court found for the purchaser Maddex. We reverse.

Any surplus proceeds remaining after a levy and sale pursuant to 26 U.S.C. § 6335 are to be paid to the “person or persons legally entitled thereto.” 26 U.S.C. § 6342 . According to 26 C.F.R. § 301.6342-1 , this means “the delinquent taxpayer unless…