The opinion of the court was delivered by: MCNICHOLS
Robert J. McNichols, United States District Judge
The plaintiff commenced this action against the United States pursuant to 26 U.S.C. § 7426(b) to enjoin the tax sale of his residence.
Initially the plaintiff sought a Temporary Restraining Order, however, the Government agreed to postpone the sale pending a hearing on an injunction.
An evidentiary hearing was held on November 21, 1984 and November 27, 1984. Post trial memoranda were filed in late January, and the issues were submitted for decision.
In December of 1981 a tax lien was filed against Mr. Visintainer's estate based upon a 100% penalty for the failure to pay withholding taxes.
At the time of Mr. Visintainer's death he and his wife were in the process of constructing a home in Spokane. The structure was not yet completed. The partially completed home was listed on the inventory in the probate initially at a value of $130,000. Shortly thereafter, on April 29, 1982 it was reevaluated and inventoried at $80,000. The real property was set aside to Mrs. Visintainer in lieu of homestead in accordance with Washington law.
During the period following Mr. Visintainer's death, Mrs. Visintainer continued to operate the business and made efforts to resolve the tax liabilities. She was unable to generate funds to meet the tax obligations or the penalties and interest which accrued thereon.
In March of 1982 Mrs. Visintainer agreed to sell the house to plaintiff, Mr. Sodorff, for the price of $62,500.
I conclude that under all of the circumstances that was the fair market value of the partially completed house at that time. I further conclude that the sale from Mrs. Visintainer to Mr. Sodorff, although not placed of record, was a bona fide arms length sale. Mr. Sodorff, at that time, paid $2500 as earnest money, took possession of the property and commenced to restore and complete the structure.
Prior to March 11, 1983, Mr. Workland, a local tax lawyer, was in communication with representatives of the Internal Revenue Service (IRS) relating to the release of the tax lien insofar as it affected the residential property sold to Mr. Sodorff. The formal closing of the sale from Mrs. Visintainer to Mr. Sodorff was delayed. Mr. Sodorff testified that he was required to have the house more completely finished prior to obtaining a loan. The finishing took a substantial amount of time.
Meanwhile, Mr. Workland was in communication to one extent or another with Mrs. Weisenbach, one of the local revenue officers, who often acted in a supervisory capacity, as well as with other Internal Revenue agents. On March 11, 1983, for example, Mr. Workland wrote to the closing attorney, Mr. Clausen, indicating what obligations should be paid out of the purchase price and instructing that the balance of the sale proceeds should be held to abide appropriate claims, including the Internal Revenue Service lien. A copy of that letter went to Mrs. Weisenbach in the Internal Revenue Service. Again, on April 22, 1983, a similar letter was written by Mr. Workland to Agent Weisenbach. It is true that neither of these letters constituted a formal request for a release of the lien nor a formal agreement that the Government would release its lien. It is clear however, at least as of March 11, 1983, that the IRS was aware that a sale of the property was in progress. The deed from Mrs. Visintainer to Mr. Sodorff was executed on June 2, 1983 and was recorded on June 15, 1983. Meanwhile, on June 14, 1983, the Internal Revenue Service filed its lien against Mrs. Visintainer. Subsequently, an agent of the Internal Revenue Service communicated with Mr. Clausen, the closing attorney, and determined the details of the sale, including the prior claims against the property which had been paid at the closing. That agent instructed Mr. Clausen that the balance of the proceeds should be held to abide the IRS lien.
Meanwhile, Mr. Sodorff had expended over $100,000 completing the house. This was in addition to the $62,500 purchase price. The Government does not dispute the fact that the other claims, which were paid out of the sale proceeds were superior to the claims of IRS. In July of 1984 the IRS decided to enforce its tax lien and sell the residential property at a forced tax sale. Subsequently, the tax sale was scheduled, triggering this action by Mr. Sodorff. I will now address the issues.
1. That this court has jurisdiction under 26 U.S.C. 7426(b) to ...