United States v. Firestone
In United States v. Firestone, the United States (Government or U.S.) sought to enforce a judgment against Defendant Omar Firestone (Omar) for outstanding tax liabilities related to the Estate of Ghaida M. Firestone (Estate), which Omar served as executor of. The Government sought to levy a highly valuable Italian violoncello (Cello) owned by Omar to satisfy the tax debt. Omar filed a Motion to Quash U.S.’ Writ of Execution and Exclude Cello from Collections, but the U.S. District Court for the Western District of Washington ultimately denied his motion.
The origins of the case date back to January 2012 when the Internal Revenue Service audited Omar as the executor of the Estate. The I.R.S. determined that the Estate’s recomputed estate tax liability, including penalty and interest, amounted to $1,869,254.00. Omar then created “The Firestone Irrevocable Cello Trust” (Trust), transferring the Cello from himself as the grantor of the Trust to himself as the trustee of the Trust. Omar was also a beneficiary of the Trust. Despite repeated notices and demands from the I.R.S., Omar failed to pay the tax assessment.
In January 2019, the Government commenced an action in the U.S. District Court for the Southern District of California against Omar to reduce the unpaid estate tax to judgment and foreclose on certain real property. The court entered judgment against Omar in the amount of $2,537,554.16, plus statutory accruals and interest. To enforce the judgment, the Government filed an Ex Parte Application for Writ of Execution in June 2022, seeking authorization to seize the Cello, which they believed was indeed owned by Omar and not the Trust. The initial writ was quashed due to a typographical error, but a corrected writ was later issued. In response to the corrected writ of execution, Omar filed a motion to quash, arguing that the action was barred by the six-year statute of limitations provided under 28 U.S.C. section 3306(b)(1) and that the Cello was owned by the Trust and therefore not his personal property.
The court determined the case was subject to Federal Debt Collection Procedures Act (FDCPA), which governs standards and procedures for collecting debt owed to the United States. One available remedy under FDCPA is a writ of execution, allowing the Government to levy a debtor’s property to satisfy the debt. To determine whether the property falls within the scope of FDCPA, the court looks at the governing state law property rights. California precedent provides that the meaning of “property” under the FDCPA includes any substantial interest a debtor has that might satisfy the judgment owed to the United States.
The Government argued that Omar lacked standing to challenge the writ because, in a briefing, he claimed the Cello did not belong to him but instead to the Trust. However, in the same briefing, Omar claimed he had a life estate interest in the Cello. Because an interest existed, the court addressed Omar’s arguments regarding the statute of limitations and whether Omar had an interest in the Cello such that a writ of execution, authorized under the FDCPA, may be issued.
First, Omar claimed that the action was barred by the statute of limitations, citing the six-year statute under 28 U.S.C. section 3306(b)(1), which applies to actions to set aside or void fraudulent transfers done with the intent to hinder, delay, or defraud a creditor. The Government, in contrast, contended that the ten-year statute of limitations under the Internal Revenue Code for tax collection actions applies. However, the court said both parties were mistaken. As to Omar’s argument, the court clarified that the case did not involve a fraudulent transfer claim under 28 U.S.C. section 3304(b)(1). As to the Government’s argument, the court said that the instant matter is also not an action to collect taxes under the I.R.C. but rather an action to collect debt under the FDCPA. The court noted that the Government sought and obtained a writ of execution pursuant to 28 U.S.C. section 3203 to collect on a judgment. Because the FDCPA does not provide a time limit for debt collection through writs of execution, the court concluded that the case was not barred by any statute of limitations.
Second, Omar claimed that the Cello was not his personal property but belonged to the Trust. The court determined whether Omar had a substantial interest in the Cello, making it subject to levy and execution under the FDCPA. The court reviewed the Trust agreement and California state law to determine Omar’s control and ownership of the Cello. Since the Trust was created in California and the Trust agreement stated that California state law governs the Trust, the court applied California law. Under California law, trust beneficiaries hold equitable interests in trust property and are considered the real owners of such property. Accordingly, the court said that Omar possessed an equitable interest in the Cello since he was the sole lifetime beneficiary of the Trust. Furthermore, the court noted that Omar had a life estate interest in the Cello, and as the sole trustee, he held legal title to it. Holding both equitable and legal interests in the Cello, the court concluded that Omar was the real owner of the Cello, and therefore, Omar had a substantial nonexempt interest in the Cello, making it eligible for execution to collect the outstanding tax liabilities.
The court denied Omar’s motion to quash the writ of execution, affirming that he had a substantial nonexempt interest in the Cello. The court ordered him to repatriate the Cello if it was no longer within the U.S. The case clarified that the FDCPA’s lack of time limit for debt collection through writs of execution permits the Government to pursue debt collection without being bound by a statute of limitations. Furthermore, Omar’s possession of both equitable and legal interests in the Cello qualifies him as a real owner, making the Cello subject to execution for debt collection purposes.
This article first appeared in the Estate Planning Journal.
Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or [email protected].