B-167575, AUG. 27, 1969

B-167575, AUG. 27, 1969

CONTRACTS - PAYMENTS - SET-OFF DECISION TO A CERTIFYING OFFICER OF FOREST SERVICE, AGRICULTURE, CONCERNING CLAIM OF ATTORNEY FOR OFFSET AGAINST MONIES DEPOSITED AS SECURITY BONDS BY CONTRACTOR, A-AND-M FOREST INDUSTRIES, WHO IS INDEBTED TO INTERNAL REVENUE SERVICE FOR DELINQUENT TAXES. UNDER 26 U.S.C. 6321, IRS ACQUIRES LIEN ON PROPERTY OF DELINQUENT TAXPAYERS AT TIME ASSESSMENT OF TAXES IS MADE THEREFORE AMOUNTS HELD MUST BE OFFSET AGAINST TAX DEBT. SINCE IRS CLAIM EXCEEDS DEPOSITS CLAIM OF ATTORNEY MUST BE DISALLOWED.

TO MR. KARL J. KELLNER:

REFERENCE IS MADE TO YOUR LETTER DATED JULY 25, 1969, WITH ENCLOSURES, SUBMITTING VOUCHER NO. 17-31 (5-0031) IN FAVOR OF A-AND-M FOREST INDUSTRIES, C/O GARY LOCKWOOD, ATTORNEY IN FACT FOR A-AND-M FOREST INDUSTRIES, FOR DECISION AS TO WHETHER MONIES DEPOSITED AS SECURITY ON A CONTRACT MAY BE OFFSET TO COVER AN INDEBTEDNESS TO THE GOVERNMENT FOR UNPAID TAXES AND INTEREST. IT IS REPORTED THAT THE SEQUENCE OF EVENTS WAS AS FOLLOWS:

"1. A-AND-M FOREST INDUSTRIES WAS AWARDED TWO CONTRACTS, 05-298 AND 05- 301, FOR TREE PLANTING IN YEAR 1967.

"2. ON JUNE 27, 1967, MR. MUNKOFF (A-AND-M FOREST INDUSTRIES) ADVISED HE COULD NOT COMPLETE CONTRACT 05-301.

"3. JULY 18, 1967, THE INTERNAL REVENUE SERVICE SERVED A NOTICE OF LEVY, $6,330.47, ON THE ASSETS OF A-AND-M FOREST INDUSTRIES FOR UNPAID WITHHOLDING TAXES. AN ADDITIONAL LEVY IN DECEMBER 1968 RAISED THE AMOUNT TO $6,687.49 TO COVER INTEREST. ONLY $4,800 OF THE TOTAL AMOUNT ACCRUED FROM ACTIVITY ON CONTRACTS 05-298 AND 05-301.

"4. OCTOBER 1967, CONTRACT 05-298 WAS COMPLETED. A CHARGE OF $35.00 WAS ASSESSED FOR COSTS TO FOREST SERVICE FOR CLEANING UP WORK FORCE CAMPSITE.

"5. MAY 1968, THE CONTRACTOR AND THE FOREST SERVICE REACHED AN AGREEMENT WHEREBY HE WOULD COMPLETE CONTRACT 05-301. THE IRS AGREED NOT TO SEIZE PAYMENTS UNDER THIS ARRANGEMENT IN ORDER THAT THERE WOULD BE AMPLE FUNDS FOR THE WORK FORCE.

"6. JULY 1968, CONTRACT 05-301 WAS COMPLETED.

"7. GARY E. LOCKWOOD FILED AN ATTORNEY'S LIEN, DECEMBER 5, 1968, FOR SERVICES RENDERED IN HANDLING MATTERS RELATED TO THE CONTRACTS.

"8. SUMMARY OF PERFORMANCE BONDS ON COMPLETION OF CONTRACT: CONTRACT 05- 298, PERFORMANCE BOND (CASH) $1,855.00 (NET) CONTRACT 05 301, PERFORMANCE BOND (CASH) 1,955.64" SPECIFICALLY, YOUR QUESTIONS ARE AS FOLLOWS:

1. MAY THE CASH SECURITY BONDS BE USED TO OFFSET THE INDEBTEDNESS TO THE GOVERNMENT FOR UNPAID TAXES AND INTEREST?

2. ARE WE CORRECT IN TAKING THE POSITION THAT THE ATTORNEY'S LIEN IS EQUIVALENT TO GARNISHMENT AND NOT FOR CONSIDERATION IN REFUND OF THE SECURITY DEPOSITS?

UNDER THE PROVISIONS OF 26 U.S.C. 6321 THE INTERNAL REVENUE SERVICE ACQUIRES A LIEN ON PROPERTY, REAL OR PERSONAL, OF A DELINQUENT TAXPAYER FROM THE TIME AN ASSESSMENT OF SUCH TAXES IS MADE, SUBJECT TO CERTAIN CONDITIONS STATED IN SECTIONS 6322 AND 6323 OF 26 U.S.C., NOT HERE INVOLVED. APPROPRIATE ACTION SHOULD BE TAKEN THEREFORE TO HONOR THE NOTICE OF LEVY DATED JULY 18, 1967, ISSUED BY THE INTERNAL REVENUE SERVICE. QUESTION NO. 1 IS ANSWERED IN THE AFFIRMATIVE.

SINCE THE CLAIM OF THE INTERNAL REVENUE SERVICE EXCEEDS THE AMOUNTS HELD BY THE FOREST SERVICE, CONSIDERATION OF THE CLAIM OF THE ATTORNEY IS NOT NECESSARY.

VOUCHER NO. 17-31 (5-0031) IS STATED IN FAVOR OF THE CONTRACTOR WITH CHECK TO BE MAILED TO THE ATTORNEY. HENCE IT IS NOT FOR PAYMENT AS STATED AND WILL BE RETAINED HERE.