The U.S. Tax Court settled a case in July between a landlord and a tenant who wasn’t paying rent – and the court came down on the side of the tenant.
John E. Burgess owned a piece of land that he rented to Dennis Mineni. The land was used as an overflow parking lot for Mineni’s business, Atwater Flea Market. The two men had a handshake agreement that required Mineni to pay Burgess $2,000 (later reduced to $1,500) a month for the use of the land.
Burgess failed to file income tax returns for the years 1999 through 2007. The IRS assessed taxes for each unfiled year, and the total amount was almost $5 million.
Because of the assessment, Burgess was considered a delinquent taxpayer. This designation allows the IRS to place a levy upon a taxpayer’s property or rights to property.
Burgess brought up tax-protestor-type arguments, claiming that he is not a federal citizen and therefore is not subject to the jurisdiction of any federal institution or law, including but not limited to Congress, the IRS and the Social Security Administration.
Burgess felt that he did not owe any federal income tax and that the levy placed against him was invalid.
Mineni’s business was required by law to report the rent payments made to Burgess on IRS Form 1099. A copy of the Form 1099 was sent to Burgess and another copy was submitted to the IRS as required. The IRS became aware of Burgess’s income through the Form 1099.
The IRS sent a notice of levy to Atwater Flea Market, which was now incorporated and renamed Franklynn Properties, Inc. Through payments made by his business, Mineni honored the notice of levy by paying his monthly rent payment directly to the IRS instead of Burgess.
Over a 21-month period, Franklynn Properties, Inc., paid $31,500 to the IRS.
Under Internal Revenue Code Section 6332, anyone in possession of property, or rights to property, that belongs to a delinquent taxpayer upon whom a levy has been made must surrender to the IRS the property or rights to the property. Failure to honor the levy may result in personal liability.
The person who surrenders the property or rights to the property to the IRS will be discharged from any obligation or liability to the delinquent taxpayer. Immunity under IRC Section 6332 has been interpreted generously to protect people who honor levies.
The U.S. government requested and received summary judgment on the grounds that Mineni is immune from suit for his surrender of rental payments, owed to Burgess, to the IRS under an IRS levy.
So Mineni was not required to reimburse Burgess for the rent payments that were sent to the IRS. In fact, he is to continue making the rent payments directly to the IRS until such time as the levy is found invalid or stopped (John E. Burgess, Plaintiff, v. Dennis Mineni, Defendant/Dennis Mineni, Counterclaim-Plaintiff, v. John E. Burgess, United States of America, Counterclaim-Defendants, U.S. District Court, Eastern District of California, 2015-2 U.S.T.C., July 20, 2015).