Opinion
Civil Action No. 1:01-CV-2253.
March 11, 2004
MEMORANDUM
Presently before the court in this interpleader action is a motion (Doc. 82) by the Internal Revenue Service ("IRS") seeking reconsideration of the order of court granting summary judgment in favor of Patrick Kelley and against the IRS. In a memorandum accompanying the order, the court found that Patrick Kelley, as designated beneficiary under a pension benefit plan administered by plaintiff, was entitled to receive payments owed to him free of liens asserted by the IRS against Richard Kelley, the participant in the plan. See Asbestos Workers Local No. 23 Pension Fund ex rel. Norcross v. United States, No. 1:01-CV-2253, 2004 WL 75289 (M.D. Pa. Jan. 12, 2004). The court held that benefits payable to the designated beneficiary did not constitute "property" of Richard Kelley for purposes of the tax lien statute, 26 U.S.C. § 6321, because his interest in those payments was limited to the power of designation. Asbestos Workers, 2004 WL 75289, at *6.
A more extensive discussion of the underlying facts of the case was presented in the court's previous decision, and familiarity with that opinion is presumed.
The IRS does not challenge the proposition that the right to designate a beneficiary is insufficient to satisfy the federal definition of "property." Instead, it argues that Richard Kelley had an additional interest in the benefits payable to Patrick Kelley: "the right to choose the manner of disposition of his pension benefits." (Doc. 84 at 3-4). According to the IRS, this additional interest offered Richard Kelley "beneficial control of the disposition of the pension assets," qualifying the benefits payable to the designated beneficiary as Richard Kelley's "property." (Doc. 84 at 4).
That Richard Kelley had the power to alter the scheme of distribution of the pension benefits is clear. The plan offered two options: an "employee-only pension" and a "ten-year-guarantee pension." (Doc. 29, Ex. 7 at 17a). Both options provided lifetime monthly benefits to the participant. If the participant died before receiving a "guaranteed" number of payments — 60 for the "employee-only pension" and 120 for the "ten-year-guarantee pension" — a designated beneficiary would receive monthly payments equal to the difference between the guaranteed number and the number of payments already made to the participant. (Doc. 29, Ex. 7 at 17a). The two plans differed only in the monthly benefit amount and the "guaranteed" number of payments.
The plan also offered a third option, a "husband-wife pension," that was unavailable to Richard Kelley, a widower. (Doc. 27 ¶ 8; Doc. 29, Ex. 7 at 17a).
Richard Kelley's ability to choose between these plans did not translate into an additional interest in the guaranteed benefits payable to his designated beneficiary. Both options provided Richard Kelley with the contractual right to collect lifetime payments upon his retirement. He did not have a right to compel payment of the "guaranteed" benefits, nor could he gain such a power through his choice of retirement packages. Under either option, only the beneficiary could sue to collect the minimum payments. Like the power to designate a beneficiary, the right to choose between the two pension plans did not offer Richard Kelley a personal benefit in the guaranteed payments. See Asbestos Workers, 2004 WL 75289, at *5. Accordingly, these payments cannot be considered the "property" of Richard Kelley.
Challenging this conclusion, the IRS places primary, but mistaken, reliance on Drye v. United States, 528 U.S. 49 (1999). In Drye, the Supreme Court held that a taxpayer's irrevocable disclaimer of rights to an inheritance did not defeat federal recognition of the inheritance as the taxpayer's "property" for purposes of attachment of a tax lien. Id. at 52. The Court surmised that the "power to channel the estate's assets warrants the conclusion that [the taxpayer] held `property' . . . subject to the Government's liens." Id. at 61. The IRS seizes on this statement as confirmation that Richard Kelley's power to channel the guaranteed payments through his choice of pension plans satisfies the federal definition of "property."
While the taxpayer's right to channel the asset to others undoubtedly supported the recognition of "property" in Drye, the Court's decision rested principally on the taxpayer's right to channel the asset to himself. See id. at 60-61 ([The taxpayer] determines who will receive the [inheritance] — himself if he does not disclaim, a known other if he does."). The Court did not suggest that the right to channel to others was itself a sufficient beneficial interest. Only when combined with a personal right to receive did the taxpayer enjoy sufficient control over the asset to satisfy the federal definition of "property." See id. at 58, 60 (stating that the taxpayer had an "unqualified right to receive the entire value" of the inheritance); see also United States v. Nat'l Bank of Commerce, 472 U.S. 713, 725 (1985) (stating that a "a right to withdraw" an asset qualifies the asset as "property" of the taxpayer); United States v. Bess, 357 U.S. 51, 59-60 (1958) (holding that right to withdraw surrender value of insurance policy qualifies surrender value, but not entire proceeds, as "property" of the insured); Asbestos Workers, 2004 WL 75289, at *5 ("Satisfaction of the federal standard for "property" requires . . . that the interests give the taxpayer, at the time of attachment, a minimal level of control of the disposition of the asset for his or her personal benefit.").
Unlike Drye, this case involves only a bare right to channel an asset to others. This right is analogous to the power to designate a beneficiary, and the court's previous conclusion applies with equal force:
The mere right to designate a beneficiary . . . is not a sufficiently "beneficial interest" to satisfy the federal definition of property. As the Supreme Court stated nearly fifty years ago [in United States v. Bess, 357 U.S. 51 (1958)] in the context of life insurance policies, the power of designation offers the owner no ability to use the funds for his or her personal benefit. Because disposition of the funds occurs after the death of the owner, that party cannot enjoy the asset or otherwise use it to his or her advantage. Only the beneficiary stands to gain. Whatever incidental benefits the owner may obtain from the authority to designate is simply insufficient to meet the federal definition of "property."Asbestos Workers, 2004 WL 75289, at *5 (citations omitted). Richard Kelley had the power to channel the asset in the manner and to another person of his choice. However, without any ability to channel the asset for his own use, he lacked a sufficient beneficial interest in the guaranteed payments to qualify those payments as his "property" for purposes of the tax lien statute.See 26 U.S.C. § 6321; Bess, 357 U.S. at 59-60; see also Drye, 528 U.S. at 52, 59 n. 6. The court will deny the motion for reconsideration.
An appropriate order will issue.