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November 28, 1934

KYLE, Acting Collector of Internal Revenue

The opinion of the court was delivered by: DICKINSON

DICKINSON, District Judge.

Leave was given to file briefs in this cause, which are now before us.

The cause is unique in several features. In the first place, it grows out of the anomalous situation of the enforcement of the collection of an income tax against an insolvent. In the second place, the collection is sought to be made out of property which does not belong to the taxpayer. In the third place, the procedural features of the petition in the pending cause present novelties.

 The Fact Situation.

 A policy of insurance was issued by the Travelers' Insurance Company upon the life of John J. McGuirk. The policy is payable to the petitioner, who is the wife of the insured. The policy has a small cash value. The collector has lodged with the insurance company a form of process called warrant of distraint. The practical effect is, of course, to tie up the money in the hands of the insurance company preventing the petitioner from receiving it. The only basis for the seizure is that the insured is the husband of the beneficiary, plus perhaps the feature that the beneficiary may be changed.


 The procedural questions suggested present a difficulty in formulating a subheading for the case. The purpose of the petition is to get rid of the distraint or attachment, whatever it may be called, so as to leave the insurance company free to meet the obligations of its contract. We understand that the collector submits himself to the ruling of the court and that the United States will abide by the decision reached. As this is a very gracious and at the same time proper attitude of the taxing authorities, we go directly to the question of the legal rights of the parties.

 Basically the question is one of property right. If the moneys otherwise payable by the insurance company are found to be the moneys of the taxpayer and open to execution process, the prayer of the petition should be denied; otherwise it should be granted. All property rights are the creatures of the law. Under our plan of government we are amenable to dual systems of law. The petitioner and her husband are, for illustration, citizens of Pennsylvania and owe allegiance to the state and are subject to its laws. They are likewise citizens of the United States owing a like allegiance to it and subjection to its laws. Further under our system of government property rights are ordinarily determined by the laws of the state. Under the laws of Pennsylvania the moneys in question are the property of the beneficiary and not subject to any execution process against the husband. Act of June 28, 1923, P.L. 884 (40 PS Pa. § 517).

 The attachment process here, however, is instituted under the law of the United States. Out of this situation the question presented arises. Congress has, fortunately for the petitioner, provided for just such a situation. Whenever any form of execution process issues out of a court of the United States, Rev. St. § 933 (28 USCA § 746), provides that the process writs shall be quashed, whenever under a like situation attachment process "would be dissolved upon like process instituted in the courts" of the state. It is admitted that the moneys in question could not be seized under process of the state courts. The like result would in consequence be visited upon process of the United States courts. Here a possible distinction can be made. Is the process in question "process" within the meaning of the cited statute? Because of the attitude of the taxing authorities, we do not go into this further than to state the conclusion reached that the process in question is within the provisions of the statute.

 The conclusions reached are that the moneys in question belong to the petitioner and not to the taxpayer and are not subject to levy, distraint, or other execution process to enforce the collection of his debts.

 In the brief submitted the question discussed is one of exemption from the operation of execution process. The proposition that such an exemption must be found in the laws of the United States and not in the laws of the state is fortified by the citation of numerous authorities. We, however, do not regard the question as one of exemption but one of property right. No one would stand for the proposition that the property of one man could be seized in satisfaction of the debt of another. The question of property right is determined, as before stated, by the laws of the state. Under the laws of Pennsylvania the property in question belongs not to the taxpayer and debtor but to another. The fact that the real owner happens to be the wife of the debtor taxpayer does not change the situation. The property in question cannot be seized under execution process, not because it is exempt, but because the defendant in the execution process has no property rights in it.

 The prayer of the petition should be granted.

 An appropriate form of decree may be submitted.


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