United States v. Donahue Industries, Inc., Dba Donahue Printing Company, and Rainier National Bank

905 F.2d 1325 66 A.F.T.R.2d 90 -5202, 59 USLW 2028 , 90-2 USTC P 50,343 UNITED STATES of America, Plaintiff-Appellee, v. DONAHUE INDUSTRIES, INC., dba Donahue Printing Company, Defendant, and Rainier National Bank, Defendant-Appellant. No. 88-4354. United States Court of Appeals, Ninth Circuit. Argued, Submission Deferred Dec. 5, 1989. Resubmitted Dec. 13, 1989. Decided June 18, 1990. Craig Miller, Davis, Wright & Jones, Seattle, Wash., for defendant-appellant. Joan I. Oppenheimer, Atty., Tax Div., Dept. of Justice, Washington, D.C., for plaintiff-appellee. Appeal from the United States District Court for the Western District of Washington. Before WALLACE, PREGERSON and NELSON, Circuit Judges. PREGERSON, Circuit Judge: 1 The United States government brought this action in district court to enforce an administrative tax levy against Rainier National Bank for the unpaid taxes of Donahue Industries, Inc. The district court found for the government and ordered the bank to pay a total of $83,215.23, including penalty and interest. On appeal, the bank contends (1) that the government's levy enforcement action was time-barred, (2) that even if the action was not time-barred, the bank…

The United States government brought this action in district court to enforce an administrative tax levy against Rainier National Bank for the unpaid taxes of Donahue Industries, Inc. The district court found for the government and ordered the bank to pay a total of $83,215.23, including penalty and interest. On appeal, the bank contends (1) that the government’s levy enforcement action was time-barred, (2) that even if the action was not time-barred, the bank was not required to honor the levy, and (3) that even if the bank was required to honor the levy, it was not liable for a penalty because it had reasonable cause for refusing to honor the levy. We have jurisdiction under 28 U.S.C. § 1291 . We affirm.

BACKGROUND

In January 1980,'Rainier National Bank (“the bank”) loaned money to Donahue Industries, Inc., also known as Donahue Printing Company, Inc. (“the taxpayer”). As collateral for the loan, the bank took a security interest in the taxpayer’s accounts receivable. Meanwhile, the Internal Revenue Service (“IRS”) assessed deficiencies against the taxpayer for unpaid employment taxes incurred in 1978 and 1979, and filed notices of federal tax liens. On July 14, 1980; the IRS…

concurring in part and dissenting in part:

I concur in parts I and II of the majority opinion. However, because I do not think Rainier should be penalized for litigating this case, I dissent from part III of the majority opinion.

As the majority explains, supra at 1331, a penalty should not be imposed “in cases where [a] bona fide dispute exists concerning the ... legal effectiveness of the levy.” 26 C.F.R. § 301.6332 -l(b)(2) (1989). Elaborating on this standard, the majority adopts the Second Circuit’s conclusion in United States v. Sterling Bank & Trust Co., 494 F.2d 919 (2d Cir.1974), that a bona fide legal dispute exists when there is “an unsettled question of law.” Id. at 923 . I agree with the majority that whether this case presents an unsettled question of law is the proper focus for our inquiry. However, I cannot concur in the majority’s application of that standard in this case.

The majority concludes that this case does not present an unsettled question of law because “[t]he law is settled that a levy may effectively reach property on which a federal tax lien has attached regardless of any subsequent transfer of the property.” Supra at 1332. This conclusion,…