United States v. Rizzo

Background

In December 1932 Customs and Coast Guard officials seized a cargo of alcohol and the United States sued in a federal maritime court to forfeit the shipment. Rizzo, who claimed the cargo, won in the Court of Appeals, which ordered the alcohol sold and the proceeds paid into the court registry, directing that the sale be treated as tax paid and that the buyer take the alcohol free of tax claims. The marshal sold the alcohol for $1.85 per wine gallon.

Reasoning

The Government later asked the Court of Appeals to pay the sale proceeds to the Treasury to satisfy unpaid federal taxes, showing the taxes exceeded the sale proceeds and filing notices of levy. The Court of Appeals refused, saying the Government had not raised the tax question earlier, and ordered the proceeds paid to Rizzo. The Supreme Court reviewed the matter and held that the tax on distilled spirits is not a penalty but a basic federal tax that creates a lien as soon as the alcohol exists. The Court found no waiver or estoppel stopping the Government from enforcing that lien. It explained that proceeds held in the court registry are subject to existing liens and that admiralty practice allows the court to apply those proceeds to satisfy claims like tax liens.

Real world impact

The Court reversed and directed the appeals court to pay the registry proceeds to the United States, after usual court charges, to satisfy the tax lien. As a result, claimants and purchasers cannot take registry funds free of federal alcohol tax liens when taxes remain unpaid. This ruling enforces collection of internal revenue liens against funds held by the court.