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Taxes May Be Collected From Forfeited Property, Maybe

By William Vogeler, Esq. | Last updated on

The thing with gambling is, you never know what you're going to get -- or lose.

That's what happened with George Marcus Hall and property he got gambling. The federal government charged him with running an illegal gambling and money laundering operation, and took away his property.

But things got complicated when the local government liened on the property for unpaid taxes. The feds didn't want to give it all up in United States of America v. Hall.

"Substantial Amount"

In a plea deal, Hall surrendered all the properties he acquired in his illegal enterprise. The federal government then secured title to eighteen parcels of land that he owned in Knox County, Tennessee.

About the same time, Knox County officials discovered that Hall owed a "substantial amount" of property taxes. Under state law, the county had a first lien on the property.

The county sued to assert its lien and for a sale order, but federal attorneys said the county had no right to tax the property after title passed. A trial judge dismissed the county's claim, saying the federal property was "exempt from state taxation."

The district court also said the county lacked standing . The county appealed to the U.S. Sixth Circuit Court of Appeals.

Lack of Standing

Writing for the appeals panel, Judge Karen Nelson Moore said the judge should not have dismissed the case because the county had a legally cognizable interest in the property.

"This does not mean, however, that Knox County is necessarily entitled to a hearing on the validity of its claim," the judge reasoned. "(T)he district court may be able to ascertain the scope of Knox County's interest on a motion for summary judgment by the government without holding a hearing."

The Sixth Circuit also offered procedural guidance under Federal Rule of Criminal Procedure Section 32.2, which authorizes the government to file a motion for summary judgment before holding a hearing.

Plus, the appeals court said, the trial judge correctly denied the county's motion to sell the property. In other words, it's a crap shoot whether and how much taxes the county will actually collect.

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