Internal Revenue Service Notices of Levy on Undelivered Commerce Department Fishing Quota Permits

Internal Revenue Service Notices of Levy on Undelivered
Commerce Department Fishing Quota Permits
The Department of Commerce may lawfully withhold delivery of fishing quotas or quota shares to
eligible fishermen under the federal fishery laws in order to comply with a notice o f levy served
on the Department by the Internal Revenue Service to satisfy federal tax delinquencies.
January 26, 1995
M e m o r a n d u m O p in io n f o r t h e G e n e r a l C o u n s e l
D epa r tm en t o f C o m m erce
This responds to your letter of November 4, 1994, requesting our opinion
whether the Department of Commerce (“ DOC” ) may withhold delivery of quota
shares or individual1fishing quotas issued to eligible fishermen under the provi­
sions of federal fishery laws in order to comply with a notice of levy served
on the DOC by the Internal Revenue Service (“ IRS” ), demanding that the permits
be surrendered to IRS to satisfy tax delinquencies.1 Upon receipt of your letter,
we solicited and received a submission from the IRS setting forth its views on
this inter-departmental dispute.2
We conclude that the IRS notices of levy may be lawfully applied to the
undelivered quota shares and individual fishing quotas, and we find no legal basis
for the DOC to refuse to comply with them. Our analysis follows.
I. BACKGROUND
A. The Halibut and Sablefish Fishing Quota Programs
The Secretary of Commerce (“ Secretary” ) is authorized to maintain limited
access to certain fisheries under the Magnuson Fishery Conservation and Manage­
ment Act, 16 U.S.C. §§1801-1883 (“ Magnuson Act” ), and the Northern Pacific
Halibut Act of 1982, 16 U.S.C. §§773—773k (“ Halibut Act” ). Under the authority
of these acts, the Secretary has instituted a system whereby the allowable catch
of a species is divided into shares or quotas, which are then allocated among
the eligible fishermen.
The resultant system is based upon quota shares and individual fishing quotas
(“ IFQ” ). A quota share is a long-term permit to fish for a particular species
(here, halibut or sablefish) in a particular area. These shares are issued to “ quali­
1Letter for Walter Dellinger, Assistant Attorney General, Office o f Legal Counsel, from G inger Lew, G eneral
Counsel, U.S. Department o f Commerce (Nov. 4, 1994) ( “ DOC Ltr.” ).
2 Letter for Richard Shiffrin, Deputy Assistant Attorney General, Office of Legal Counsel, from Stuart L. Brown,
C hief Counsel, Internal Revenue Service (Dec. 23, 1994) ( “ IRS Ltr.” ). In resolving this matter, w e also considered
the Letter for Jay S. Johnson, Deputy General Counsel, National Marine Fisheries Service, from Arnold E. Kaufman,
Assistant C hief Counsel, Internal Revenue Service (Oct. 12, 1994) ( “ Kaufman Ltr.“ ).
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Opinions o f the Office o f Legal Counsel in Volume 19
fied persons” — i.e., those who have owned or leased vessels which harvested
halibut or sablefish during the qualifying years of 1988 through 1990. Quota
shares (which are represented by Quota Share Certificates) are transferable to other
qualified persons, subject to approval by the National Marine Fisheries Service
(“ NMFS” ), the agency within DOC that administers the fisheries laws. See 50
C.F.R. §§676.20-21 (1995).
An IFQ is an annual permit issued only to the owners of quota shares.3 In
early 1995, the NMFS plans to issue IFQ’s for halibut and sablefish based upon
the ratio between a qualified fisherman’s quota share and the total number of
quota shares in the applicable pool for the species and area. The IFQ is represented
by an “ IFQ Annual Fishing Permit,” certifying that the bearer may take a speci­
fied poundage of the indicated species in a specific area for the year in question.
IFQ’s may also be sold, leased, or otherwise transferred with NMFS approval.
Only persons with IFQ’s are allowed to fish for halibut and sablefish.
NMFS regulations state that quota shares and IFQ’s are not absolute rights or
interests subject to the Fifth Amendment’s Takings Clause. See 50 C.F.R.
§ 676.20(g). Both DOC and IRS recognize that the quota shares and IFQ’s are
temporary, revocable, and alterable permits. At the same time, it is not disputed
that both quota shares and IFQ’s have monetary value and are, or will be, saleable
in a secondary market.
From the standpoint of the federal fisheries laws, the purpose of the IFQ system
was described as follows in commentary accompanying NMFS’s promulgation
of a Final Rule on this subject:
[The IFQ] will modify the distribution of harvesting allocations
among fishermen. Therefore, the IFQ program sustains existing
management measures that prevent overfishing. Further, the IFQ
program will improve the prevention of overfishing by providing
for reductions in bycatch and deadloss that normally increase with
increased fishing effort in open access fisheries.
58 Fed. Reg. 59,375, 59,377 (1993). The Commerce Department describes the
purpose and effect of the IFQ system as follows:
An IFQ system is considered to improve fishery management by
decreasing fleet size and effort levels; dispersing fishing effort over
a longer season; allowing a closer monitoring of landings; amelio­
rating unsafe fishing practices; reducing bycatch, deadloss, and lost
fishing gear; enhancing the quality and price of fish landed; and
3 As defined in the regulations at 50 C.F.R. §676.11 (1995), an IFQ means:
[T]he annual catch limit o f sablefish or halibut that may be harvested by a person who is lawfully
allocated a harvest privilege for a specific portion o f the total aJJowable catch o f sablefish or halibut.
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Internal Revenue Service Notices o f Levy on Undelivered Commerce Department Fishing Quota
Permits
giving the participants more of a stake in the long-term health of
the fishery.
DOC Ltr. at 2. Under the governing statutory criteria, allocations of these fishing
privileges among U.S. fishermen must be: (1) fair and equitable to all such fisher­
men; (2) reasonably calculated to promote conservation; and (3) carried out in
such a manner that no individual, corporation, or other entity acquires an excessive
share of such privileges. 58 Fed. Reg. at 59,378.
NMFS was prepared to issue quota shares to qualified Alaska fishermen starting
November 7, 1994. However, NMFS has withheld issuance of the quota shares
to some 300 qualifying fishermen due to the notices of levy received from the
IRS.
B. IR S Procedures and Actions
On October 11, 1994, the IRS issued a Notice of Levy (IRS Form 668A) to
the NMFS in Juneau, Alaska, asserting a lien for $8,793,465, in unpaid taxes,
interest, and penalties owed by some 250 fishermen identified as delinquent tax­
payers. The Notice stated: “ This levy requires you to turn over to us this person’s
property and rights to property (such as money, credits, and bank deposits) that
you have or which you are already obligated to pay this person.” 4 By letter to
the DOC dated October 12, 1994, the IRS further explained the nature of the
levy it is asserting:
Based on our understanding that the Halibut EFQs at issue are
transferable and have value in the marketplace, we conclude that
they constitute property or rights to property which are subject to
the tax lien and levy. . . . The Service can levy on these rights
by serving the levy on NMFS before NMFS actually transfers the
IFQs to the delinquent taxpayers. Such a levy obligates NMFS to
turn over to the IRS all IFQ rights of the taxpayers who are covered
by the levy, including coupons, certificates or other documents
which represent the IFQ rights.
We note that the property interest which the Service is proposing
to attach is only the taxpayers’ right to receive the EFQs as deter­
mined by NMFS. Upon service of the levy, the Service will merely
be “ standing in the shoes” of the taxpayers and will be eligible
to receive what the taxpayers were eligible to receive.
4 Also on O ctober 11, 1994, the IRS issued a Press Release announcing its action ( “ IRS Levies on Quota Shares” ),
stating: “ The Interna] Revenue Service (IRS) today took action which will prevent the issuance o f halibut and sable­
fish quota shares to approximately 250 Alaska fishermen who owe back taxes.” Id. at 1. The Release further stated:
“ This is the first in a series o f IRS levies to NMFS [the National Marine Fisheries Service]. Subsequent levies
will also include those fishermen who have failed to file one or more returns and who have not responded to IRS
inquiries.”
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Opinions o f th e Office o f Legal Counsel in Volume 19
Kaufman Ltr. at 4 (footnote omitted).
An additional Notice of Levy issued October 19, 1994, brought the total of
tax-delinquent fishermen covered by the notices to some 300. By letter dated
November 16, 1994, IRS reiterated its demand that DOC turn over “ all property
and rights to property of the listed taxpayers pursuant to our levy authority under
section 6331 [of the Internal Revenue Code], with respect to the updated list of
taxpayers and tax liabilities which is attached.” Letter for Steven Pennoyer,
Regional Director, NMFS, from Charles M. Stromme, Chief, Special Procedures,
IRS at 1 (Nov. 16, 1994). The letter further explained:
The property and rights to property of the taxpayers in your posses­
sion or control include the taxpayers’ rights to receive permanent
fishing allocations, known as Quota Shares, as well as the rights
to receive annual allocations of poundage, known as Individual
Fishing Quotas, pursuant to the fishery management programs for
halibut and sablefish under your jurisdiction. Pursuant to section
6332 [of the Internal Revenue Code], this demand for turnover
requires you to surrender this property and rights to property to
the Internal Revenue Service.
Id. at 1-2.
C. Positions o f the Agencies
Although the DOC and IRS have differing views on the legal effect of the
IRS levy on the issuance of quota shares and IFQ’s, the agencies appear to be
in agreement on one aspect of the matter. Specifically, the DOC letter states:
The Department of Commerce does not question the IRS’s
authority to levy upon delinquent taxpayers’ property, nor that these
quota shares and IFQs might constitute the sort of property to which
an IRS lien attaches. No doubt the IRS could serve a notice of
levy on a permit holder, who would have to settle his debt or risk
seizure and sale of the permit. The IRS, however, has not cited
any precedent for enforcing a levy upon a Federal permit at the
very moment it is issued by the agency, before it is even in the
hands o f the permit holder, and before any monetary value is asso­
ciated with it.
DOC Ltr. at 3 (emphasis added). Consequently, the issue in dispute is not whether
the IRS can properly levy upon quota shares or IFQ’s as rights to property as
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Internal Revenue Service Notices o f Levy on Undelivered Commerce Department Fishing Quota
Permits
such, but whether it can do so before such rights have actually been issued and
delivered to the taxpayers who have otherwise qualified for them.
II. ANALYSIS
A. Property Interest Subject to Levy
Section 6331(a) of the Internal Revenue Code provides that the Government
may collect the taxes of a delinquent taxpayer “ by levy upon all property and
rights to property . . . belonging to such person.” 26 U.S.C. §6331 (a). The scope
of this authority has been broadly construed by the courts. In United States v.
National Bank of Commerce, 472 U.S. 713, 719-20 (1985), for example, the
Supreme Court observed: “ The statutory language ‘all property rights and rights
to property,’ appearing in §6321 (and, as well, in §§6331(a) and, essentially,
in 6332(a) . . .), is broad and reveals on its face that Congress meant to reach
every interest in property that a taxpayer might have.”
The rights subject to IRS levy include intangible personal property. See G.M.
Leasing Corp. v. United States, 429 U.S. 338, 350 (1977). For example, the courts
have upheld IRS authority to assert a levy against a delinquent taxpayer’s state
liquor license, Paramount Finance Co. v. United States, 379 F.2d 543, 544 (6th
Cir. 1967), or federal broadcast license, In re Atlantic Business and Community
Development Corp., 994 F.2d 1069, 1075 (3d Cir. 1993). The key issue in such
cases is whether the right at issue is transferable and has value. See id. at 1072([Ljiquor license held to constitute property under §6321 “ because it was alien­
able and had value.” ); 21 West Lancaster Corp. v. Main Line Restaurant, Inc.,
790 F.2d 354, 357 (3d Cir. 1986). Despite the recognition that licenses and permits
are considered privileges and not rights under state law, that the state controls
their alienability, and that they are beyond the reach of private creditors, the courts
nonetheless treat them as property subject to levy within the meaning of §6321.
In re Atl. Bus., 994 F.2d at 1072; 21 West Lancaster, 790 F.2d at 356-58.
A third party served with an IRS notice of levy is required to surrender to
the IRS all of the taxpayer’s property (or rights to property) in its possession,
except property subject to prior attachment or execution under judicial process.
As stated by the Court in the National Bank opinion, when a levy is served upon
a third party, the IRS “ steps into the taxpayer’s shoes” and acquires whatever
rights the taxpayer himself possesses in property held by the third party. 472 U.S.
at 725. That party’s failure to comply with the levy results in liability to the
IRS up to an amount equal to the value of the property that the party declines
to surrender. 26 U.S.C. § 6332(d).
Here, the right at issue is a fisherman’s right to be issued a quota share and
IFQ by the NMFS, entitling him to catch certain quantities of a species of fish
that is otherwise protected from fishing. It does not appear to be in dispute that,
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Opinions o f the Office o f Legal Counsel in Volume 19
once issued, the quota shares and IFQ’s may be sold to others in a secondary
market, and thus have marketable money value. The DOC has stipulated that
“ quota shares and IFQs might constitute the sort of property to which an IRS
lien attaches” and that “ the IRS could serve a notice of levy on a permit holder,
who would have to settle his debt or risk seizure and sale of the permit.” DOC
Ltr. at 3.
We find no sound basis for concluding that the quota shares or IFQ’s do not
qualify as “ property or property rights” generally subject to IRS levy under the
governing provisions. The courts have held that such intangible interests as liquor
licenses and broadcast licenses are subject to levy, and there appears to be no
logical basis for distinguishing the fishing quota permits in that regard. See gen­
erally Jon David Weiss, Comment, A Taxing Issue: Are Limited Entry Fishing
Permits Property?, 9 Alaska L. Rev. 93 (1992).
B. Levy Asserted Against Unissued and Undelivered Permit in Government
Hands
In the case of a delinquent taxpayer, §6331(a) authorizes the IRS to collect
the tax due ‘‘by levy upon all property and rights to property (except such property
as is exempt under section 6334) belonging to such person or on which there
is a lien provided in this chapter for the payment of such tax.” Where the DOC
has not yet issued or delivered a quota share or IFQ to a person, the question
arises whether the quota or share in question— or the right to receive it— falls
within the coverage of §6331(a).
Initially, the mere fact that the right to property at issue is in the hands of
a government agency does not prevent the IRS from asserting a tax levy against
it. As recognized by the court in United Sand and Gravel Contractors, Inc. v.
United States, 624 F.2d 733, 736 (5th Cir. 1980):
[TJhere is nothing in the general levy authorization statute, I.R.C.
§ 6331, excepting from its reach property which is in the hands
of an agency of the United States. The authorization to collect
unpaid taxes by levy applies to “ all property and rights to property
(except . . . property . . . exempt under section 6334),” id.
(emphasis added), of the tax delinquent. See Field v. United States,
263 F.2d 758, 763 (5th Cir. 1959).
(Footnote omitted).
The more significant question is whether the undelivered fishing permits con­
stitute property or rights to property “ belonging to” the subject taxpayers, such
as to fall within the coverage of 26 U.S.C. §§6321 (tax lien authority) and 6331
(tax levy authority). We believe that a government permit can be said to “ belong”
to a person for IRS collection purposes when all the necessary preconditions to
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Internal Revenue Service Notices o f Levy on Undelivered Commerce Department Fishing Quota
Permits
the issuance of the permit to that person have been fulfilled and all that remains
is for the issuing agency to issue and deliver the permit. Under the analysis in
the National Bank opinion, for example, the organization receiving a notice of
levy must comply unless it is neither “ in possession of” nor “ obligated with
respect to” the property or “ rights to property” in issue. 472 U.S. at 721-22(emphasis added). This opinion also stressed that the language of § 6331(a) was
broadly intended by Congress “ to reach every interest in property that a taxpayer
might have.” Id. at 719-20. Once a government agency becomes legally “ obli­
gated” to issue a license or permit to the taxpayer, we think the license can be
said to “ belong to” the taxpayer for purposes of IRS lien and levy authority.
These fishing quota permits constitute a right to intangible property — i.e., a
valuable and transferable legal right to catch and land certain quantities of halibut
or sablefish. Under 50 C.F.R. § 676.20(a) (1995), once a person’s status as a
“ qualified person” is established, the NMFS Regional Director is obligated to
assign such person a quota share. As that section states: “ The Regional Director
shall initially assign to qualified persons . . . halibut and sablefish fixed gear
fishery QS [quota shares] that are specific to IFQ regulatory areas and vessel
categories.” Id. (emphasis added). Similarly, the regulations provide for the
allocation of IFQ’s to qualified persons in mandatory terms: “ The Regional
Director shall assign halibut or sablefish IFQs to each person holding unrestricted
QS for halibut or sablefish, respectively, up to the limits prescribed at § 676.22(e)
and (f).” Id. § 676.20(f) (emphasis added).
In that regard, we have been advised by the DOC that the fishermen identified
in the notices of levy have satisfied all requirements to be classified as ‘‘qualified
persons” by NMFS and are therefore entitled to be issued quota shares and the
associated IFQ’s.5 In other contexts, it is recognized that an IRS levy attaches
to all rights of the taxpayer which are fixed and determinable at the time of the
levy, even though such rights have not been fully perfected or matured. See St.
Louis Union Trust Co. v. United States, 617 F.2d 1293, 1302 (8th Cir. 1980)
(“ The unqualified contractual right to receive property is itself a property right
subject to seizure by levy, even though the right to payment of the installments
has not matured at the time of the levy.” ). Here, a qualified fisherman’s right
to be issued a quota share, as well as an associated IFQ, is recognized in the
provisions of 50 C.F.R. § 676.20(a). The full extent of that right, to be determined
on an annual basis when IFQ’s are issued, need not be fixed with precision in
order for it to fall within the coverage of §6331.
Consequently, we conclude that the quota shares and IFQ’s which the fishermen
are entitled to receive under 50 C.F.R. §676.20 constitute rights to property
5 The NMFS regulations define a ‘‘qualified person” as follows:
(1) Qualified person. A s used in this section, a “ qualified person” means a “ person,” as defined in
§ 676.11 o f this part, that owned a vessel that made legal landings o f halibut or sablefish, harvested with
fixed gear, from any IFQ regulatory area in any QS qualifying year.
50 C.F.R. § 676.20(a)( 1X1994).
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Opinions o f the Office o f Legal Counsel in Volume 19
“ belonging to” them within the meaning of §6331(a). Absent a countervailing
legal requirement, DOC/NMFS would therefore be obligated to comply with the
IRS Notice of Levy.
C. Interference with the Statutory Fisheries Programs
DOC’s request for opinion suggests that the notices of levy at issue are legally
invalid because they would unduly interfere with the performance of DOC’s
obligations under the Magnuson Act and the Halibut Act. As the DOC’s letter
states: “ Although the IRS’s novel collection action may be helpful in accom­
plishing its statutory goals, it is detrimental to our efforts to implement our own
statutory mandate. We doubt that Congress intended such a result in enacting the
authority cited by the IRS in this matter.” DOC Ltr. at 4.
This contention calls into play the provisions of 26 U.S.C. § 6334(c), which
state: ‘‘Notwithstanding any other law o f the United States . . . no property or
rights to property shall be exempt from levy other than the property specifically
made exempt by subsection (a).” (emphasis added). Federal permits or licenses
such as those at issue are not among the categories of property or property rights
that are itemized and exempted from levy under § 6334(a). Moreover, courts have
held that the list of exemptions enumerated in § 6334(c) is exclusive and definitive.
Sea-Land Service, Inc. v. United States, 622 F. Supp. 769, 772-73 (D. N.J. 1985);
United States v. Offshore Logistics I n f I, Inc., 483 F. Supp. 1055, 1057 (W.D.
La. 1979).
As noted above, the courts have recognized that the IRS’s levy authority extends
to property or entitlements that are held by federal government agencies. United
Sand and Gravel, 624 F.2d at 736; Simpson v. Thomas, 271 F.2d 450, 452 (4th
Cir. 1959). Thus, there is no implied exception from the levy authority for prop­
erty, interests, or rights to property that are in the government’s possession or
control. Additionally, the legislative history of § 6334(c) indicates that Congress
intended the IRS levy authority to prevail over other provisions of federal law
in the case of conflicting provisions.6 This view has been confirmed in court
decisions. E.g., Sea-Land, 622 F. Supp. at 773; Offshore Logistics, 483 F. Supp.
at 1056-57.
In any event, it is not evident that DOC’s compliance with the levies at issue
would significantly undercut the purposes and policies of the applicable federal
fisheries statutes. The general purpose of those statutory schemes is to preserve
the viability of the covered fish species and the health of dependent fishing indus-
6 See H.R. Rep. No. 83-1337, at A409 (1954), reprinted in 1954 U.S.C.C.A.N. 4017, 4556, which states:
Subsection (c) o f this section states that no property or rights to property, other than the properties
specifically made exem pt in this section, shall be exem pt from levy by reason o f any other law o f the
United States. . . . [TJhis subsection m akes it clear that no other provision o f Federal law shall exempt
property fro m levy.
(Em phasis added).
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Internal Revenue Service Notices o f Levy on Undelivered Commerce Department Fishing Quota
Permits
tries by maintaining limited and orderly fishing access. See generally United States
v. Cameron, 888 F.2d 1279, 1280-81 (9th Cir. 1989) (Halibut Act); Lovgren v.
Byrne, 787 F.2d 857, 861 (3d Cir. 1986) (Magnuson Act). If DOC surrenders
the targeted quota shares and IFQ’s in accordance with the levies, there is no
reason to believe that any excessive take of the covered species will result, or
that beneficial management of the halibut and sablefish fisheries will be signifi­
cantly disrupted or impaired.
DOC’s most specific contention regarding the adverse effect of the levies on
the fisheries programs is the following: “ The Secretary of Commerce cannot man­
age fisheries in a responsible manner if one of our most effective techniques —
allocating harvesting privileges by assignment of individual quotas — is com­
promised by our having to serve as a collection arm of the IRS.” DOC Ltr. at
4.
Initially, an agency’s compliance with a lawful federal tax levy does not, with­
out more, render it a “ collection arm of the IRS.” As shown by cases cited above,
other departments and agencies have complied with such levies without apparent
damage or compromise to their statutory mandates.
Moreover, the mere desire to avoid possible “ compromise” of one regulatory
approach chosen by an agency to comply with a general statutory mandate does
not provide a justification for disregarding §6334(c)’s provision that compliance
with federal tax levies takes primacy over other statutory obligations.7 Although
DOC has not provided a detailed explanation of how compliance with the IRS
levies would adversely affect its implementation of the relevant statutory require­
ments, it might be argued that one potential consequence would be some delay
or disruption in the planned utilization of a small percentage of overall IFQ’s.8
This might conceivably have some marginal affect on the overall planned catch
of the subject fisheries during this season. Even that prospect appears conjectural,
however, inasmuch as quota shares and IFQ’s levied by IRS and not reclaimed
by the delinquent taxpayer would likely be sold to other qualified persons who
would then utilize them. We do not consider such a conjectural and marginal
disruption to the fishing quota systems to be of sufficient magnitude to override
§ 6334(c)’s provision that its levy requirements trump the provisions of other laws.
No other adverse consequence that would provide a basis for a different conclu­
sion has been demonstrated.
Given all the foregoing considerations, we find no persuasive basis for recog­
nizing an implied exception from 26 U.S.C. §6334(c)’s straightforward declaration
7 Significantly, neither the Magnuson Act nor the Halibut Act requires DOC to utilize a quota share system in
managing limited access to the protected fisheries. DOC has merely settled on that system as its chosen method
o f complying with the statutory requirements.
8 According to the IRS submission, the approximately 300 fishermen-taxpayers affected by the levies represent
only about 3.9% of the total applicant pool (about 7,600 applicants) for quota shares. IRS Ltr. at 18.
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Opinions o f the Office o f Legal Counsel in Volume 19
that all property is subject to IRS levy except those categories enumerated in sub­
section 6334(a).
RICHARD L. SHIFFRIN
Deputy Assistant Attorney General
Office o f Legal Counsel
32