## Facts

- Edgar F. Bradley II was a commissioned sales agent for American Community Mutual Insurance Company (American Community).
- Between 1988 and 1992, Bradley entered agreements under which other American Community agents assigned to him their rights to commissions generated from their sales.
- On December 4, 1992, Bradley assigned the rights to all commissions—both his own and those he had received by assignment—to an irrevocable trust (American Trust), and American Community thereafter paid monthly commissions directly to the trust.
- On August 9, 1993, the IRS assessed federal income-tax deficiencies against Bradley for tax years 1987–1989, which gave rise to federal tax liens on all of Bradley’s “property and rights to property” under 26 U.S.C. § 6321.
- Instead of filing an immediate lien-foreclosure action, the IRS served American Community with a notice of administrative levy seeking Bradley’s property or rights to property in American Community’s possession, including commissions.
- Faced with competing claims to the commissions, American Community filed a state-court interpleader action and deposited the disputed funds.
- The United States removed the interpleader action to federal court and asserted a claim under § 6321 to enforce its tax liens against the commissions.
- The district court granted summary judgment for the United States, held the tax liens attached to the commissions and had first priority, and ordered turnover of Bradley’s accumulated commissions.
- Bradley appealed, arguing the judgment should be reduced by applying the wage/earnings exemption limits of 26 U.S.C. § 6334(a)(9), because the IRS initially attempted collection by administrative levy.

## Issues

1. Whether the wage/earnings exemption limits in 26 U.S.C. § 6334(a)(9), which restrict administrative levies, apply to reduce the government’s recovery in a judicial proceeding enforcing federal tax liens under 26 U.S.C. § 6321.
2. Whether the IRS’s earlier service of an administrative levy notice requires a court, in a later interpleader-based lien-enforcement action, to apply § 6334(a)(9) as if the collection remained an administrative levy.

## Decision

- The Sixth Circuit affirmed the district court’s summary judgment for the United States.
- Section 6334(a)(9) limits administrative levy under § 6331; it does not limit the amount recoverable through judicial enforcement of a § 6321 tax lien.
- The fact that the IRS first attempted collection by administrative levy did not transform the later court action into a levy proceeding or carry levy exemptions into the judicial lien-enforcement case.
- Because the federal tax liens were valid and had priority, the United States was entitled to the disputed commissions without a reduction based on § 6334(a)(9).

## Legal Principles

- A federal tax lien under 26 U.S.C. § 6321 attaches to “all property and rights to property” belonging to the taxpayer; state law defines the taxpayer’s interests in the property, and federal law determines lien attachment and enforcement consequences.
- The administrative levy power in 26 U.S.C. § 6331 is a collection method separate from judicial enforcement of a tax lien; exemptions in 26 U.S.C. § 6334 apply to levy, not to lien enforcement through court judgment.
- Property may be protected in whole or in part from administrative levy yet still be subject to a federal tax lien; the exemption statute does not rewrite the lien’s reach when the government proceeds in court.

## Conclusion

American Trust v. United States holds that the wage and earnings protections in § 6334(a)(9) restrict only the IRS’s administrative levy process and do not reduce the government’s recovery when it seeks a court judgment enforcing a federal tax lien under § 6321, even when the dispute reached court because a third party filed an interpleader after receiving a levy notice.


American Trust v. United States, 142 F.3d 920 (1998)