For six years, Grable and Sons Metal Products Inc. failed to pay its federal income taxes. Eventually, the Internal Revenue Service decided to seize Grable’s real estate and sell it to pay the unpaid income taxes.
The IRS seized Grable’s property. This dispute involves how the IRS notified Grable of the tax sale. The relevant federal statute says notice must be “given” personally to the owner of the property. Instead, the IRS sent a certified-mail letter notice of the sale, which Grable received.
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The property was sold by the IRS at its tax seizure sale to Darue Engineering and Manufacturing Co. for $44,500. Grable did not challenge the sale at that time in 1994.
But in late 2000, Grable filed this quiet title lawsuit against Darue, alleging the IRS tax sale was improperly conducted because Grable was notified by certified mail rather than by personal service. Darue replied there was no question Grable had notice of the IRS tax sale so Darue’s title should not be questioned.
If you were the judge would you rule Grable is entitled to receive title back to its former property six years after it was sold at an IRS tax seizure sale?
The judge said no!
Both parties agree, the judge began, the IRS should have personally served Grable with notice of the IRS tax seizure sale rather than serving Grable by certified mail. However, Grable received notice of the sale and did not object at that time.
“If strict compliance is necessary, then Grable is entitled to get its property back because the IRS did not comply with the letter of the statute,” the judge explained. But the evidence shows Grable was informed of the property sale, but failed to object, he emphasized.
Under the substantial compliance doctrine, the judge continued, there is no evidence Grable was prejudiced by the service of notice, which did not exactly comply with the statute. But the interest of protecting bona fide purchasers, such as Darue, without notice is also an important aspect of a quiet title analysis, the judge noted.
“In this case, however, Grable was amply protected. It received actual notice of the tax sale, which was one of several resulting from its six-year hiatus from paying taxes. It has not alleged any actual prejudice as a result of receiving notice through certified mail, nor did it take any action against Darue for six years,” the judge commented.
Because Grable failed to protest the IRS tax sale of its property, and waited six years to bring this quiet title action, there is no valid reason Grable is entitled to receive title to its property returned, the judge ruled.
Based on the 2004 U.S. Court of Appeals decision in Grable and Sons Metal Products Inc. v. Darue Engineering and Manufacturing, 2004-2 USTC 50311.
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