Bales v. Henderson

California Court of Appeal Dec 23, 1975 No. Civ. No. 14826Published

Before: Paras

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Holding. The court held that a federal tax lien attaches to a taxpayer's contract rights only to the extent of the value of the asset, which is the contract price minus the cost of performance; therefore, the case must be remanded to determine the portion of the contract proceeds attributable to the taxpayer's work versus the assignee's work.

Issues

Whether a federal tax lien attaches to contract proceeds when the contract is executory and performance is incomplete at the time of the lien.
How to determine the value of a taxpayer's property interest in a contract subject to a federal tax lien when the contract involves both the taxpayer and an assignee.

Disposition. reversed

Quotations verified verbatim against the opinion

“The correct rule to apply in this case is that the “asset” of Henderson to which the tax lien attached is the contract price less the actual cost of making it due and payable.”

Opinion

PARAS, J. Appellant Donald R. Bales appeals from a judgment of the Superior Court of Sacramento County awarding the United States Internal Revenue Service $6,024.40 from Staiger Construction Company, a corporation, which Bales claims should have been ordered paid to him instead.

Taxpayer Roy Henderson conducted a business under the name and style of Alpha Omega Drywall. Bales conducted a business under the name and style of Donald R. Bales Custom Painting Service. At various times prior to August 1971, Bales and Henderson had worked together on various construction contracts, as a result of which Henderson was indebted to Bales in an undisclosed amount.

[3]On or about August 16, 1971, Henderson entered into a contract with Staiger by which Henderson was to perform certain work as subcontractor for Staiger on Staiger’s contract with the Church of Jesus Christ of Latter Day Saints, on a project located in Lincoln, California. The total contract price payable to Henderson on this subcontract was $7,300.

On October 13, 1971, the United States Internal Revenue Service made an assessment against Henderson for unpaid social security and withholding taxes for the period ending-June 30, 1971. A notice of federal tax lien relating to this assessment was recorded in the official records of Sacramento County (Henderson’s place of residence) on November 2, 1971. As of the date of trial, July 10, 1973, the balance due and owing on this assessment was $5,085.41. On December 24, 1971, the United States Internal Revenue Service made another assessment against Henderson for unpaid social security and withholding taxes for the period ending September 30, 1971. A notice of federal tax lien relating to this assessment was recorded in the official records of Sacramento County on January 11, 1972. As of the date of trial, the balance due and owing on this assessment was $2,075.60.

On or about December 15, 1971-, after the first tax lien above-mentioned was filed against Henderson, Henderson entered into an oral agreement with Bales which was in the nature of a joinder of Bales into Henderson’s contract with Staiger, and amounted to an assignment from Henderson to Bales of any money which was or would become due from Staiger to Henderson. Staiger was not a party to and did not participate in the assignment, but maintained its contractual relationship exclusively with Henderson.

Bales v. Henderson

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