B-176905 November 1, 1972

B-176905 November 1, 1972

Office of Chief Counsel Internal Revenue Service Washington, D. C. 20224

Attention: Lee H. Henkel, Jr., Esquire

Gentlemen:

This is in reply to your letter CC:NY-GL-11667-ML, dated August 25, 1972, wherein you requested our decision regarding a set off for tax liabilities against an amount which may become payable to the Cosmos Navigation Corporation (Cosmos) pursuant to a claim currently being considered by the Armed Services Board of Contract Appeals.

You report that on August 11, 1966, Cosmos assigned to the meadow Brook National Bank, now known as the National Bank of North America, its rights to all moneys due or to become due in connection with the operation of the vessel SS Cosmos Trader. On May 29, 1968, Cosmos and the Military SeaTransportation Service (MSTS) (now the Military Sealift Command) entered into a contract for the time charter of the SS Cosmos Trader. The contract was amended on September 12, 1969, to allow the substitution of the SS Sofia in place of the SS Cosmos Trader. On December 15, 1969, Cosmos assigned to the National Bank of North America its rights to all moneys under the contract with MSTS. The bank notified MSTS of this assignment on the same date.

You further report that Cosmos has filed a claim for $369,075.80 under its contract with MSTS, and that this claim is pending before the Amred Services Board of Contract Appeals. Inaddition, it is reported that the law fim representing Cosmos is owed money in commection with this matter, and has indicated its possible unwillingness to continue representing Cosmos unless it received written assurance from the Government that it will receive its upaid fees out of any proceeds recovered on the claim.

Citing 31 U.S.C. 71, you request a decision as to whether Cosmos' tax liability of approximately $250,000 may properly be set off against any proceeds recovered on the claim and whether the law firm has a paramount lien against any funds their efforts create for the benefit of Cosmos.

It appears that you are requesting a decision on the propriety of levying on proceeds that may become due to Cosmos from the Military Sealift Command and the effect that a claim by Cosmos' attorneys might have on that levy. However, neither 31 U.S.C. 71, which authorizes us to settle claims by or against the United Staes, nor 31 U.S.C. 74, under which we advise certifying officals and heads of executive agencies as to the legality of proposed payments of public funds, grants us authority to provide you with a decision at this time. If the Board of Contract Appeals allows the Cosmos claim and there is a question regarding how payment should be made, we would formally consider the matter at the time based on the complete record of legal and factual issues presented. See Madden v. United States, 178 Ct. Cl. 121, 371 F. 2d 469 (1967).

Therefore, we are unable to comply with your request for a decision. As you know, however, under the Assignment of Claims Act of 1940, as amended, 31, U.S.C. 15, the Government is precluded from asserting a set off against funds payable under a Government contract containing a "no set off" provision when the rights to those funds have been assigned to a financial institution. However, if as you indicate in you letters, the debt underlying an assignment has been satisfied or if such assignment is not based on any underlying debt, and the assignee-bank is not asserting any interest in the assignment, the assignment in these circumstances would not prevent the processing of a set off against funds which may be payable under the contract. See 37 Comp. Gen. 9(1957); 49 id. 44(1969), and the case cited therein; B-175670, May 25, 1972.

We think it is clear that attorneys do not acquire any priority over a Federal tax lien when the funds subject to the lien are owed by the United States. Aetna Ins. Co. v. United States, Ct. Cl. No. 371-70, March 17, 1972; Madden v. United States, supra; 49 Comp. Gen.

We hope this information will be useful to you.

Sincerely yours,

PAUL G. DEMBLING General Counsel