Notice of levy for income taxes under workmen’s compensation.

WORKMEN ' S COMPENSATION : RE : Notice of levy for income taxes under workmen 's compensation . TAXATION : Opinion No . 11 (64) Answered by letter . February 28, 1964 Mr. Spencer H. Gi vens Di rector Division of Workmen ' s Compensation Jofferaon City, Missouri Dear Mr. Gi vens: Th1s l~tter is in response to your request of August 20, 1963, f or an official opinion of t his office You i nquire : - f'll "I s compensati on due from an employer to an employee under t he Workman's Compensation Law {Chapter 287, RSMo 1959) subject to l evy by t he United 8tatos for i ncome taxes cl aimed by t he Internal Revenue Service, Un~ted Statee Treasury Department, to be due from t he injured employee, who would otherwioe be entitled t o receive ouch compensation payments? In t hat connection attention i s invited t o th~ pr~visions of Section 287.260, RSMo 1959. ,, Is the Notice of t.:;,vy, a photo"St atic copy or which is enclosed, legal and binding on t he employer named therein?" Section 287 .260, RSMo 1959, t o which you refer provides: 11The compensation payable under thio chapter, whether or not it bas been awarded or is due , shall not be assignable, shall bo exempt from attachment, garni shment, and execu- tion, shall not be aubject t o setoff or counterclaim, or be in any way \ l Mr. Spencer H. Givens -2- l i able for any debt and in case of the insolvency of an employer or his in- surer, or the levy or an attachment or an execution against an employer or insurer shall be entitled to the same prafcr3nco and priority as claims for wages , without l imit as to time or amount, * • *" The Notice of Levy of the Federal Internal Rovonue Service enclosed with your request \'las made under author1 ty of Secti on 6321 of the Internal Revenue Code or 1954, 26 u.s.c. §6321, which creates a lien 1n favor or the United States upon the taxpayer' s property or right to property. I t 1~ ell ostabliohod that the federal power to tax and to collect ths tax is suprame and prevails over the state'G power to exempt property from claims or creditors. State law cannot create an exemption from the collection of federal taxes. Kier~rdorr v. Commission of Internal Revenue, 142 F2d 723, 725; ' u.s. v. tiaffron, 158 P2d 657, 658; Leuschnor v. First Western Dank, 261 F2d 705, 707 . Thus, the exemption provided by Section 287 .260, RSMo 1959, does not prevent th federal tax authorities from levying on workmen compensation benefits. We do not, how,...ver, rule that workmen's compensation benefits are or ara not subject to federal tax levy. I I Although federal power to collect taxes prevails over state exemption laws, there are exemptions provided under the federal laws. Por axample, Section 6334 of the Internal Revenue Code, 26 u.s.c. §6334, provides such exemptions . I t is our opinion that whethsr or not workmen compensation bene- f1 ts colDe within any federal exemption is a question to be determined by the courts through an adversary procee~ng in- volving proper parties-in-interest. Your request in effect asks us to rule how the federal tax levy effects the rights and liabilities or tho empl oyer and the employee and also the federal government. This we cannot and should not attempt . Piret, as explained supra, the scope of federal tax exemptions should be determined by court action. Second, the validity or any levy and its effect on the partieo can only be daterm1.ned upon a case by caoc basis. The employee may have defenses to the collection or the tax . Tbs employer may havo obligations to give notice and raise de- fensos which the employee may have . The relative rights of tho parties can only be determined upon the oparat1 ve ~acts. Such facta vary in each case . Mr. Spencer H. Gi vens - 3- Furthermore, the rolat1vo rights and duties affected by the tax levy are ootveen t he employer, employee and the federal tax authorities . Wa have attempted, but fail to see how the Workmen' s Compensation Commission is legally affected by the federal levy. Thus, it i s not a party-in-interest to t he i ssues . It t s our opinion that the Commission is not a proper party to e:! t:he r litigate or determine these issues but t hat the legal consequences of a not~ce to levy is a matter to be resolved batween tho employer, the employee and the federal t ax authorities. LCD/dg Yours very truly# TROJUs F. ElGtETON Attorney General