6321
After Aquired Property page2

Dissenting
Opinion
BROWN,
Circuit Judge, dissenting:
This
is a startling result. Laws of Texas which are designed to protect
innocent persons dealing in faith on the revelations of title records
are twisted to permit the great national sovereign to take property from
one who is the acknowledged owner of it to apply on the tax debts of
another, the former owner who--as the trial Court found and this Court
does not dispute--has transferred 1
the property. I do not believe that Congress ever intended any such
result. I do not think that a Court should lend its hand to anything so
demeaning to a sovereign. 2
The
Federal Statute creates a lien only "upon all property and rights
to property * * * belonging to such person [taxpayer]." 3
Unless there is property belonging to the taxpayer, the Government's
lien is nonexistent. The Texas Statute 4
which protects business creditors and those parting with consideration
on the faith of apparent record title speaks in terms of the persons
against whom the conveyance is not good, such as bona fide purchaser,
judgment creditors, etc. Unlike this, the Federal Statute speaks in
terms of the origin of the lien. The tax lien arises, the tax lien comes
into being, only as to property or rights to property belonging to the
taxpayer.
Clearly
this property did not belong to Taxpayer. It had no right to such
property. True, under
Texas
law a judgment creditor had a superior claim against the purchaser whose
deed was imperfect for late recordation. But one thing clear is that
Taxpayer here had no right in or to the property. 5
Not a single
Texas
case could possibly be dredged up which in even the most remote way
would suggest the faintest hope that Maxwell, the vendor-taxpayer, had
any rights, legal or equitable, against anyone--Creamer, the public, or
the Publican to get the property back or assert any interest in it.
And
yet it is this--ownership by the taxpayer--which gives rise to the lien
for the National Government. Congress has not said that this Nation has
a tax lien against any and all property once owned by a delinquent
taxpayer to the same extent as some innocent purchaser or judgment
creditor might have under local recordation statutes.
Once
Congress so declares, Courts must enforce it. But the morality of the
Government's taking property which the Court's opinion reflects was sold
to, paid for by, and in equitable conscience and law belonged to a
stranger, is so disturbing to me that before the heavy hand of the tax
gatherer falls, it is for Congress to speak clearly to declare that this
is the conscience of the country.
I
therefore respectfully dissent.
1
See, e.g., "The deed had inadvertently failed to
include certain real property * * *. The question is whether the federal
tax lien attaches to the property erroneously omitted from the *
* * deed. * * * By inadvertence the contract failed to list or
describe * * * the six lots of land * * *." (Emphasis supplied)
2
I am at a loss to understand why there is any question about
jurisdiction. United States v. Morrison, 5 Cir., 1957, [57-2 USTC
¶9801] 247 F. 2d 285. Under F. R. Civ. P. 54(c) the power of the Court
is not affected by the particular section of the code cited in the
complaint or the magic words used to describe the relief sought.
3
26 USCA §6321, note 6 Court's opinion.
4
Tex.
Civ. Stat. Ann. art. 6627.
5
Texas
' Article 6627, set out in the Court's opinion, does speak in terms of
conveyances being "void as to all creditors and subsequent
purchasers * * * unless * * * recorded * * *" But the concluding
portion of the section is positive that "as between the parties * *
*" the conveyance "shall be valid and binding."
Edna Kathleen Terry, as Trustee, etc.,
Plaintiff v.
United States of America
, Defendant-Appellant, Professional Technical Representatives Money
Purchase Plan, Defendant-Respondent
U.S.
Court of Appeal of the State of
Calif.
, 2nd Appellate Dist., Div. One, B117644, B119401, 1/21/99, Affirming an
unreported SuperCt. of Calif. decision
[Code
Secs. 6321 and 6323
]
Tax liens: Priority against third parties: Attachment of: After-acquired
property: Trust assets: Beneficial interest: Personal v. real property
interests: Equitable conversion: When conversion occurs.--A lender's
security interest in a delinquent taxpayer's residual interest in trust
property was accorded priority over earlier IRS tax liens. Under state (
California
) law, the tax liens, which were filed in the county where the taxpayer
resided, attached only to his personal property and to any real property
located in that county. Although the trust's remaining asset was real
property, the IRS did not file its liens in the county where the
property was located. The taxpayer's interest in the trust was equitably
converted to a personal property interest, however, since the trust had
to sell the real estate to distribute the residue to the beneficiaries.
However, such conversion did not occur until the closing date of the
property's sale. As a result, the tax lien did not attach to the
taxpayer's interest until after it was assigned to the lender.
Nora M.
Manella, United States Attorney, Loretta C. Argrett, Assistant Attorney
General, Edward M. Robbins, Jr., Thomas D. Coker, Randolph L. Hutter,
for defendant-appellant.
W. Montgomery
Jones, Jones and Jones, for defendant-respondent.
Caution:
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
ORTEGA, Acting
P.J.: In June 1990, Nellie Whitaker Beasley created a revocable trust
into which she transferred both her real and personal property. Beasley,
the trust's sole income beneficiary during her lifetime, used the trust
as a will substitute to pass her assets to her beneficiaries upon her
death, when the trust was to terminate. Beasley died on January 27,
1994. This appeal concerns two competing claims to the interest of
Beasley's grandnephew, Marvin Stone, a residual beneficiary of 30
percent of the trust residue. The two claimants are the United States of
America (on behalf of the Internal Revenue Service), 1
which had assessed $2.8 million in tax liens against Stone for
delinquent federal taxes, penalties, and interest, and Professional
Technical Representatives Money Purchase Plan (Plan), to whom Stone had
assigned his interest in the trust residue as additional security for a
loan.
For the
reasons that follow, we affirm the trial court order awarding Stone's
remaining residual interest of $83,985.72 to the Plan. We direct the Los
Angeles County Treasurer, who is holding Stone's interpleaded share of
the residue, to transfer the funds to the Plan.
BACKGROUND
Before
Beasley's death, a conservatorship was established over Beasley and her
estate. (Conservatorship of the Person and Estate of Nellie Whitaker
Beasley (Super. Ct. L.A. County, 1991, No. BP000175).) The trust
instrument was amended to require the trustee to obtain court approval
before selling, distributing, or transferring any trust assets.
Following Beasley's death, the court exercised its continuing
jurisdiction and supervision over the trustee's disposition of the trust
assets in accordance with Beasley's testamentary intent as expressed in
the trust instrument.
When Beasley
died, the trust had personal property valued at about $380,000 and real
property in
Los Angeles
valued at about $400,000. 2
On September 1, 1994, the court entered an order confirming the sale of
the trust's real property in
Los Angeles
. (The escrow on that sale did not close, however, until March 21,
1996.)
In December
1994, the trustee made an initial distribution to the residual
beneficiaries, including Stone. Assets remaining to be distributed to
the residual beneficiaries included the anticipated proceeds from the
sale of the real property (which was in escrow) and about $100,000 in
personal property.
Stone
anticipated that following the close of escrow, he would receive a
second distribution of about $90,000. On August 4, 1995, Stone assigned
to the Plan his interest in the remaining residue. 3
The assignment served as additional security for a $140,000 loan to
third parties, John and Heather Bomarito. In return for his assignment,
Stone received a portion of the Bomaritos' loan proceeds. With Stone's
approval, the Plan's attorney instructed the trustee to send the
attorney Stone's second distribution check.
Unbeknownst to
the Plan, the IRS had assessed $2.8 million in tax liens against Stone.
In 1993 and 1994, the IRS had filed notices of federal tax lien in
Monterey
County
, where Stone resides. 4
The bulk of the tax liens were filed before Beasley's death and well
before Stone assigned his interest to the Plan in August 1995. In 1996,
the IRS served the trustee with a notice of levy against Stone's
interest in the trust. 5
Escrow closed
on the real property sale on March 21, 1996. After receiving the
proceeds from that sale, the trustee filed a final report asking the
court to approve her final distributions to the residual beneficiaries,
except for Stone. Faced with the two competing claims to Stone's
interest, the trustee interpleaded Stone's share of $83,985.72 by
depositing that sum with the Los Angeles County Treasurer.
The IRS
(through the
United States of America
) petitioned for an order establishing its right to the interpleaded
funds. (In re The Nellie W. Beasley Revocable Trust (Super. Ct. L.A.
County, 1997, BP014805).) The IRS contended it was entitled to priority
over the Plan, having recorded its tax liens in 1993 and 1994, well
before the Plan received Stone's assignment as additional security for
the loan. The Plan, on the other hand, contended the notices of lien
were recorded in the wrong county with regard to the trust's real
property in
Los Angeles
. The Plan asserted the notices of lien filed in
Monterey
County
did not establish the IRS' priority as to Stone's interest in the
Los Angeles
property.
The trial
court ruled in favor of the Plan. It concluded that the notices of tax
lien filed in Monterey County were "of no force and effect inasmuch
as the Claimant, UNITED STATES OF AMERICA, failed to record the lien in
the County of Los Angeles, where the principal assets were located,
pursuant to the provisions of 26 U.S.C. Section 6323(f)." The trial
court awarded the Plan all of the deposited funds. This appeal followed.
CONTENTIONS
ON APPEAL
(I) The IRS
contends its notices of tax lien attached to Stone's interest in the
trust's real property before the Plan's security interest arose. The IRS
asserts it is thus entitled to the whole of the interpleaded funds.
(II)
Alternatively, the IRS contends its notices of tax lien attached to
Stone's interest in the trust's personal property before the Plan's
security interest arose. The IRS asserts it is thus entitled to a
portion of the interpleaded funds.
DISCUSSION
I
Stone resided
in
Monterey
County
, but the trust's real property was located in
Los Angeles
County
. As a general rule, filing the notice of tax lien in
Monterey
County
would have had no effect with regard to the trust's property in
Los Angeles
County
. Both parties agree that, as a general rule in
California
, a tax lien notice recorded in one county has no effect with regard to
real property located in another county. The IRS states in its opening
brief. "Under I[nternal ]R[evenue ]C[ode] section 6323(f) and
applicable California law, the liens must be filed with the office of
the recorder for the county in which the real property is located (where
the [trust] assets involved are real property) or in which the Trust
beneficiary resides (where the [trust] assets involved are personal
property)."
The IRS
contends, however, that under the doctrine of equitable conversion,
Stone's interest in the trust's real property was converted, upon entry
of the order confirming sale, from a real property interest to a
personal property interest. Under the IRS' theory, the tax liens
attached to Stone's personal property interest in the
Los Angeles
property as of the date of the order confirming sale.
We will first
ascertain the nature of Stone's interest in the trust assets on the date
of Beasley's death. We begin by noting that in federal tax lien cases,
" 'Property' is a concept which draws its definition from state,
not federal, law. Aquilino v. United States [60-2 USTC ¶9538],
363 U.S. 509, 512-13 . . . (1960)." (Cavanaugh v. Cavanaugh
(B.R. Ct., N.D. Ill., E.D. 1993) 153 B.R. 224, 228.) Accordingly, we
took to
California
law to determine the nature of Stone's property interest in the trust
assets.
Under
California
law, when Beasley transferred her real property to the revocable trust,
she transferred legal title to the trustee. Beasley still retained,
however, her beneficial ownership of the real property as sole
beneficiary of the trust during her lifetime. This conclusion is
consistent with
California
real property tax law. When Beasley transferred her real property to the
revocable trust, that transfer did not constitute a change of ownership
to trigger a reassessment because the rights conferred to the residual
beneficiaries were entirely contingent during Beasley's lifetime. "
'If the trust is revocable it is excluded [from reassessment] because
the rights conferred are contingent. If the trustor is the sole
beneficiary during his lifetime, his retained interest is considered to
be "substantially equivalent in value" to the fee interest in
any real property covered by the trust. He is therefore the true owner
and the change in ownership does not occur until the property passes to
the remaindermen on the trustor's death.' " (Empire Properties
v. County of Los Angeles (1996) 44 Cal.App.4th 781, 788, quoting
January 1979 Report of the Task Force on Property Tax Administration
commissioned by the Legislature after passage of Proposition 13.)
When Beasley
died on January 27, 1994, the revocable trust became irrevocable and was
terminated under the express provisions of the trust instrument. (Empire
Properties v. County of Los Angeles, supra, 44 Cal.App.4th at pp.
786-787.) At that time, Stone acquired a present beneficial interest in
the trust's residual assets, including the trust's real property. The
question we face is whether Stone's beneficial interest in the trust's
real property is properly classified as a personal or a real property
interest.
Ordinarily,
because the asset at issue is real property, Stone's beneficial interest
would be classified under
California
law as a real property interest. The IRS contends that upon entry of the
order confirming sale, however, Stone's beneficial interest in the real
property was equitably converted into a personal property interest.
Under the doctrine of equitable conversion, "Where real property is
conveyed to a trustee with directions to sell in any event it will be
treated in equity as personal property. But where the property in kind
is, or may be, conveyed to the beneficiary no such equitable conversion
results." (Lynch v. Cunningham (1933) 131 Cal.App. 164,
173.)
Although the
trustee theoretically possessed discretion either to sell the real
property or convey it in kind, Beasley's gifts to the residual
beneficiaries were not so large as to afford the trustee the option of
giving any single beneficiary the real property in whole. Stone, with a
30-percent share of the residuary, received the largest gift of all. By
the time the real property was in escrow, Stone knew he was to receive
only an additional $90.000, less than half the value of the
Los Angeles
property. When Stone assigned his interest in the trust's remaining
assets, both he and the lender knew the real property was going to be
sold and Stone was to receive only a portion of the sale proceeds.
We agree with
the IRS that the trustee, by entering into a contract for sale and
obtaining an order confirming sale, had legally bound the trust to sell
the property. "[W]hen a binding agreement of sale is entered into
by the parties, an equitable conversion is worked; the purchaser becomes
the equitable owner of the land and the seller the owner of the purchase
price." (Vigli v. Davis (1947) 79 Cal.App.2d 237, 254; Lynch
v. Cunningham, supra, 131 Cal.App. at p. 173.)
That is not to
say, however, that the conversion occurred upon the date of the order
confirming sale. Prior decisions have held that the conversion occurs on
the closing date, whether or not the sale takes place. " 'The rule
of equitable conversion merely amounts to this, that where there is a
mandate to sell at a future time, equity, upon the principle of
regarding that done which ought to be done, will for certain purposes
and in aid of justice consider the conversion as effected at the time
when the sale ought to take place, whether the land be then really sold
or not.' " (Vigli v. Davis, supra, 79 Cal.App.2d at p. 255.)
The IRS would
have us advance the date of sale in this case to the date of the order
confirming sale. We see no reason to depart from the existing rule. If a
buyer defaults before the closing date, the court may vacate its order
confirming sale and direct the trustee to find another buyer. Although a
defaulting buyer would remain subject to liability for losses, including
consequential damages, caused by the default (Prob. Code. §§10350,
10351), the buyer would not be obligated to purchase the property. We
conclude, applying the usual rule, that the IRS' preexisting tax liens
immediately attached to Stone's personal property interest upon the date
escrow closed, March 21, 1996. 6
Before the IRS
liens could attach, however, Stone had assigned his interest to the Plan
on August 4, 1995. Accordingly, the IRS' liens are not entitled to
priority. "Under federal tax law, a contest between the federally
created tax lien and a competing lien is resolved by the first-in-time,
first-in-right rule. United States v. City of New Britain [54-1
USTC ¶9191], 347 U.S. 81, 85 . . . (1954)." (Cavanaugh v.
Cavanaugh, supra, 153 B.R. at p. 228.) This priority rule applies
"unless Congress has created a different priority rule to govern
the particular situation." (Petro Source Partners, Ltd. v. 3-B
Rattlesnake Refining (1990) Ltd., supra [93-1 USTC ¶70.029; 94-1
USTC ¶50,053], 827 F.Supp. at p. 1269.) There is no contention that a
special priority applies here.
We hold that
the federal tax liens are inferior to the Plan's previously acquired
assignment of Stone's interest in August 1995. Accordingly, the trial
court correctly awarded the interpleaded funds to the Plan.
II
The IRS
alternatively contends that it "is entitled to an award of
$55,010.65, or 65.5 percent, of the funds deposited with the Los Angeles
County Treasurer. This is because at the time of Beasley's death
$380,704.90, or 65.5 percent of the total Trust assets worth
$580,996.57, consisted of cash, stocks, and bonds, i.e., personal
property. This fact is reflected in the Trustee's Final Report--to
which no party filed an objection and which the Superior Court
approved--and nothing in the record contradicts it."
The trustee's
final report, however, was not filed until July 31, 1996, several months
after the escrow on the sale of real property had closed on March 21,
1996. The final report indicated that "a significant portion of the
residue of the Trust was distributed to the residuary
beneficiaries" pursuant to a court order entered on December 29,
1994. That order and the resulting initial distribution were made while
the real property transaction was still in escrow. Accordingly, the
initial distribution could not have been made with proceeds traceable to
the sale of the real property, and must necessarily have been made with
personal property assets. It thus follows that the IRS' reliance upon
the final report to show the ratio of real and personal property held by
the trust at the time of Beasley's death is misplaced. Even assuming
there was once a 65.5 to 34.5 percent ratio of real to personal property
assets when Beasley died, that ratio no longer existed when the
trustee's final report was filed, due to the initial distribution made
by the trustee while the real property transaction was in escrow.
The IRS has
failed to demonstrate that the trial court's award of the whole of the
interpleaded funds to the Plan was erroneous. We rely on the familiar
rule that, " 'A judgment or order of the lower court is presumed
correct. All intendments and presumptions are indulged to support it
on matters as to which the record is silent, and error must be
affirmatively shown. . . .' [Citations.]" (Denham v. Superior
Court (1970) 2 Cal.3d 557, 564.)
DISPOSITION
We affirm the
order awarding the interpleaded funds to the Plan. We direct the county
treasurer to release the funds accordingly. The Plan is entitled to
costs on appeal.
We
concur:
VOGEL (Miriam A.), J.
DUNN, J. *
1
For the sake of convenience, all further references to the Internal
Revenue Service (IRS) are meant to include the appellant
United States
.
2
This initial $400,000 valuation was only an estimate by the trustee of
the property's value. According to the trustee's final report, the
$400,000 valuation was "arbitrarily placed on the property for
purposes of this Trust by [the trustee], without benefit of any
appraisal, at the time of the creation of this Trust in 1990."
Ultimately, the property was sold in 1996 for about $200,000. The
trustee's final report explained that the property value "declined
substantially because of the effects of both the general real estate
depression in Southern California as well as the civil unrest which
occurred in the area of
Los Angeles
County
in which the property was located." In her final report, the
trustee reported a loss (for accounting purposes) on the sale of
$199,708.33.
3
The trust instrument contained a spendthrift clause that prohibited the
beneficiaries from selling, assigning, pledging, mortgaging,
encumbering, alienating, or impairing all or any part of their interest
in the trust or in the trust's principal or income. The Plan argued
successfully below that the spendthrift clause was extinguished upon
Beasley's death, when the trust terminated. The IRS does not challenge
on appeal the trial court's ruling on this point. Accordingly, we will
not address it.
4
When a federal tax liability is assessed, a lien automatically attaches
as of the date of the assessment unless the liability is paid within the
allotted time. (26 U.S.C. §6321.) When a notice of federal tax lien is
filed, it gives "notice to the rest of the world that the IRS has a
tax lien against the taxpayer." (Petro Source Partners, Ltd. v.
3-B Rattlesnake Refining (1990) Ltd. (W.D. Tex. 1993) [93-1 USTC ¶70,029;
94-1 USTC ¶50,053], 827 F.Supp. 1265, 1268.) The notice of tax lien
does not affect the validity of the lien itself. It does, however,
affect the priority of the lien as against the claim of a third party
against the taxpayer's property. (Id. at pp. 1268-1269.)
5
The IRS does not, as a general rule, have to levy against the taxpayer's
property in order to perfect its liens. In most cases a tax lien is
perfected when the notice of federal tax lien is filed. (Petro Source
Partners, Ltd. v. 3-B Rattlesnake Refining (1990) Ltd., supra [93-1
USTC ¶70,029; 94-1 USTC ¶50,053], 827 F.Supp. at p. 1269.)
6
When notices of tax lien are filed, they attach and " 'continue[to
exist] until the taxpayer satisfies the debt, or the statute of
limitations runs.' Texas Commerce Bank[-
Fort Worth
, N.A. v.
United States
(5th Cir. 1990)] [90-1 USTC ¶50,155], 896 F.2d[ 152.] 161; 26
U.S.C. §6322." (Petro Source Partners, Ltd. v. 3-B Rattlesnake
Refining (1990) Ltd., supra [93-1 USTC ¶70,029; 94-1 USTC ¶50,053],
827 F.Supp. at p. 1268.)
*
Judge of the Municipal Court for the Long Beach Judicial District
assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
In the Matter of Succession of Bernice
Addison Brumfield.
United States of America
, Petitioner v. Noel A. Brumfield, William Brumfield, Vincent Brumfield,
and Succession of Bernice Addison Brumfield, Respondents
U.S.
District Court, Mid. Dist. La., Civ. 96-7508-B-M1, 9/30/98
[Code
Secs. 6321 and 6323
]
Tax liens: Validity: Attachment: After-acquired property: Inherited
property: Renunciation of bequest, consideration for: Constructive or
tacit acceptance.--A federal tax lien attached to two parcels of real
estate inherited by a delinquent taxpayer despite his valid renunciation
of the bequest. Under state (
Louisiana
) law, he was deemed to have actually accepted the properties. While
Louisiana
statutes provide that a valid renunciation will retroactively preclude a
transfer of ownership from a decedent to a renouncing heir, renunciation
of the heir's rights to a co-heir for a "price" can
nonetheless result in an irrevocable acceptance. The taxpayer's receipt
of a release from his co-heir for liabilities for inheritance taxes and
monetary claims was a valuable consideration, or "price," for
his renunciation. Thus, the taxpayer had an interest in the properties
that dated back to the decedent's death and to which the outstanding
federal tax liens attached despite his renunciation
Lyman Edgar
Thornton III,
Baton Rouge
,
La.
70801
, for plaintiff. Greg Gouner, 5515 S. Sherwood Forest Blvd., Baton
Rouge, La. 70816, John R. Rarick, Rarick & Brumfield, 9821 Royal
St., St. Francisville, La. 70775, Cherie Rarick Brumfield, 435 W.
Ardenwood Dr., Baton Rouge, La. 70806, David L. Guerry, Daniel D.
Holliday III, 8550 United Plaza Blvd., Baton Rouge, La. 70809, for
defendants.
RULING
POLOZOLA,
Chief District Judge:
This case
requires the Court to resolve important issues involving the rights of
the Internal Revenue Service ("IRS") against a taxpayer's
interest in the estate of his mother. There are now five motions pending
before the Court. 1
The Court has also questioned its subject matter jurisdiction. For
reasons which follow, the Court finds it does have subject matter
jurisdiction. The Court also finds that the tax lien of the IRS attached
to the properties of the taxpayer at the time of his mother's death.
Therefore, the
United States
is entitled to foreclose on the taxpayer's property interest and sell
the real estate at a judicial sale.
I.
Background
Noel A.
Brumfield owed income taxes for 1983 and 1984. The IRS assessed these
taxes on December 2, 1985 and February 6, 1993, respectively. Noel A.
Brumfield, his brother William Brumfield, his son Vincent Brumfield, and
the succession of his mother, Bernice Addison Brumfield, were named as
defendants in the federal foreclosure action filed by the
United States
in 1996. Later, the succession suit was removed from the Nineteenth
Judicial District Court for the Parish of East Baton Rouge and
consolidated with the federal suit.
The
United States
then filed a contempt action against Noel A. Brumfield regarding certain
properties, located in the
Cayman Islands
, in which Noel A. Brumfield possessed an interest. Noel A. Brumfield
was held in civil contempt of court on July 31, 1996 and has been in
custody since that time.
There is
little dispute in the underlying facts except for the validity of the
renunciation allegedly made by Noel A. Brumfield of his interest in his
mother's estate.
As previously
stated, the IRS assessed income taxes for 1983 and 1984 against Noel A.
Brumfield on December 2, 1985 and on February 6, 1993. The
United States
filed a Notice of Federal Tax Lien with respect to Noel A. Brumfield's
unpaid tax liabilities in East Baton Rouge Parish,
Louisiana
on July 19, 1993.
Despite notice
of the assessments and demand for payment, Noel A. Brumfield has refused
to pay the full amount of the assessments described above. As of July
19, 1993, Noel A. Brumfield remained indebted to the United States in an
amount exceeding $2.4 million, plus statutory additions according to
law. Additional unassessed interest and all statutory additions thereon
as provided by law continue to accrue on this liability, which exceeds
$3.5 million.
Bernice
Addison Brumfield died testate on November 8, 1995. On November 14,
1995, the state court ordered the olographic will of Bernice Addison
Brumfield to be executed according to law. The will of Bernice Addison
Brumfield granted to her son, William Louis Brumfield, everything which
she possessed "except the following two properties; the six and
one-half acres with improvements located at 11136 Julia Aubin Lane,
Baton Rouge, La. and the house and lot located at 10590 Toledo Bend,
Baton Rouge, La. which I leave and bequeath to my grandson Noel Vincent
Brumfield II with Noel Addison Brumfield usufruct." 2
Despite this
specific bequest and his right to a "forced portion" in the
assets of his mother's succession under
Louisiana
law, Noel A. Brumfield executed a document on July 15, 1996 which
purported to renounce his usufruct interest in the two subject
properties. On July 28, 1996, Noel A. Brumfield executed another
document which purported to renounce both his usufruct interest in the
two subject properties and his "forced portion" in the
succession's assets.
The state
court had previously granted a judgment of possession to the legatees
for all of the succession property except for the two parcels which are
the subject of the petition by the
United States
to foreclose, thus leaving the disposition of these two properties as
the only matter pending in the succession. The
United States
then intervened in the state court succession case as a creditor of Noel
A. Brumfield. Thereafter, the
United States
filed a petition in state court to foreclose the tax liens on the
usufruct interest of Noel A. Brumfield in the
Aubin Lane
and Toledo Bend properties. The succession action was removed to federal
court. Thereafter, this Court denied defendant's motion to remand. The
case is now before the Court on the pending motions.
In its motion
for summary judgment and motion for default judgement, the United States
seeks an order "determining that the tax liens of the United States
encumbered, as of November 8, 1995, Noel Brumfield's interests in the
assets of the Succession and specifically in the two parcels of property
bequeathed to him under his mother's will." 3
The United States also seeks an order allowing it to foreclose its tax
liens on Noel A. Brumfield's interest in the succession through a
judicial sale.
II.
Subject Matter Jurisdiction
This Court
clearly has subject matter jurisdiction under 28 U.S.C. §1331 to
determine whether or not the government has a lien on Noel A.
Brumfield's "forced portion" and his usufructs over the two
pieces of real estate. 4
The Court also has subject matter jurisdiction over the underlying
issues of the validity and effect of the purported renunciations
executed by Noel A. Brumfield. The basis for the government's
foreclosure suit is 26 U.S.C. §6321, which provides for a lien on the
property of the delinquent taxpayer.
The more
difficult question regarding jurisdiction is whether this Court can
exercise jurisdiction over the property and whether it can subsequently
order its transfer in accordance with the Court's decision finding that
the government has an enforceable lien on the property. This issue
implicates the "probate exception" cases cited by the
Brumfields in their prior memoranda. 5
Noel A. Brumfield's forced portion and the proceeds from the sale of the
properties, until adjudicated by the state court handling the
succession, remain property of the succession. 6
The probate exception cases hold that a federal court has no
jurisdiction to probate a will or administer an estate. However, a
federal court may exercise its jurisdiction to adjudicate rights in
estate property provided its judgment does not interfere with the state
court's possession of the property or its probate proceedings, except
for the state court's obligation to accord full faith and credit to the
federal court's judgment regarding the lien. 7
While the
government may obtain a judgment from this Court recognizing the
validity of its lien on the property, this Court may not order the
transfer of the property nor exercise control over the property because
either action would constitute an exercise of control over property
under probate. Therefore, this Court's jurisdiction is limited to
declaring the validity or invalidity of the government's lien and
leaving the
United States
to assert this Court's judgment as res judicata in the state court
succession proceedings.
Thus, the
proper course for this Court seems to be an order transferring the sales
proceeds from the registry of this Court to the registry of the state
court handling the succession. The prevailing party could then assert
this Court's judgment regarding the validity of the government's lien in
the ongoing probate proceedings in state court. Whether it is really
necessary to transfer the proceeds to the state court is unclear since
the government has no objections to this Court's jurisdiction over the
proceeds and since the Brumfields requested, via motion, that the
proceeds be deposited into the registry of this Court. To avoid a
problem, the Court will schedule a separate hearing to determine which
court should distribute the proceeds from the sale.
III.
The Validity of the Government's Tax Lien
As noted
earlier, there are five pending motions before the Court. These pending
motions can be resolved by the Court's ruling on the issue of whether or
not the
United States
has a valid tax lien on Noel A. Brumfield's property interest in the
succession.
The resolution
of this issue requires an analysis of both
Louisiana
succession law and federal law. It is the ownership of the succession
property which the Court is concerned with on these motions. Ownership
is transmitted at the moment of death to the heirs and legatees. 8
Thus, Noel A. Brumfield acquired the forced portion and the two
usufructs on November 8, 1995, the date of Bernice Brumfield's death.
The
United States
' tax lien, which was filed against Noel A. Brumfield pursuant to 26
U.S.C. §6321, arose at the time of its assessments of Noel A.
Brumfield's deficiencies on December 2, 1985 and February 6, 1993. 9
This tax lien attached to "all property and rights to
property" belonging to Noel A. Brumfield, whether owned at the time
of the assessments or subsequently acquired. 10
The Court must look to state law to determine whether and when Noel
owned "property" or "rights to property." 11
As noted
above, it is clear that Noel A. Brumfield acquired the right to his
forced portion and to the usufructs at the moment Bernice Brumfield died
on November 8, 1995. Since Noel acquired "rights to property"
on November 8, 1995, the conclusion would seem to be that the
United States
' tax lien attached to the property on the same date and is effective as
of the date of the assessments. 12
However,
Louisiana Civil Code article 946, which was cited by the Brumfields in
their prior memoranda, complicates the Court's resolution of the issue
and is at the crux of the dispute between the parties. Article 946
provides that while Noel A. Brumfield is said to acquire the right to
his forced portion and to the usufructs at the time of Bernice
Brumfield's death, such right is "in suspense" until he
decides whether to accept or renounce the part of the
succession that has fallen to him.
The article
further provides that if Noel A. Brumfield accepts his part of the
succession, he is deemed to have succeeded to such part from the moment
of Bernice Brumfield's death. However, if he renounces such part, he is
considered as never having received it. The Court cannot overlook
the retroactive nature of this code article.
Louisiana
law provides that no one may be compelled to accept a succession and
that one may accept or renounce a succession. 13
The
Brumfields, relying on this retroactive language and on the Fifth
Circuit's recent decision in Leggett v. United States, 14
argue that the July 28, 1996 renunciation by Noel A. Brumfield of his
rights to the property was valid. Thus, the Brumfields argue that under
article 946, it must be that Noel A. Brumfield never succeeded to the
property. Accordingly, the Brumfields argue that since Noel is deemed to
never have had any rights in the property, the government's tax liens
could not attach to the property.
In Leggett,
the Fifth Circuit was confronted with a similar fact scenario in which a
delinquent taxpayer renounced her succession rights in an alleged
attempt to prevent the government's tax lien from attaching to her
rights. Applying
Texas
succession law containing a retroactivity provision similar to
Louisiana
's article 946 and an immediate vesting provision similar to
Louisiana
articles 940 and 1626, the Fifth Circuit attempted to determine whether
the taxpayer ever had a property interest in the succession property to
which the government's lien could attach. The court noted the contradiction
between the two provisions of
Texas
law which on the one hand provided that the heir was vested with a
property right from the moment of death, while on the other hand
provided that the renouncing heir never had a property interest at all. 15
There is a similar contradiction between article 946 and articles 940
and 1626 of the Louisiana Civil Code.
The Fifth
Circuit noted two ways to resolve this apparent contradiction: the
"transfer theory" and the "acceptance-rejection
theory". 16
The court then examined
Texas
succession law and noted that under
Texas
law, like
Louisiana
law, the heir had the right to accept or reject the succession. 17
The court then concluded that the
Texas
courts have followed the "acceptance-rejection theory". 18
Based on this analysis, the Fifth Circuit concluded that the taxpayer
had not accepted the bequest but rather had executed a valid
renunciation and, accordingly, the taxpayer never had a property right
to which the tax lien could attach. 19
The
United States
argues, based on the language of article 946, that its tax lien against
Noel A. Brumfield attached at the time of Bernice Brumfield's death and,
thus, federal law controls thereafter. It further argues that since
federal law controls once the lien attached to the property, state law
(namely, Noel's renunciation and the retroactivity provision under
article 946) could not defeat the attachment of the lien. The United
States relies on United States v. Comparato, 20,
which cites the Supreme Court's decisions in United States v. Rodgers
21
and United States v. Bess. 22
The
New York
successions provisions noted in the Comparato opinion are also
similar to
Louisiana
's provisions. 23
The Fifth
Circuit in Leggett distinguished Comparato, noting that
New York
law was at issue and that the
New York
courts had held heirs to have a property interest in the right to accept
or reject the inheritance to which the federal tax lien attached. 24
Therefore,
New York
law follows the so-called "transfer theory". 25
Thus, the delinquent taxpayers in Comparato could not destroy the
property right by renouncing the underlying succession. 26
The Court's
research reveals that the
Louisiana
courts have not decided whether
Louisiana
follows the "transfer theory" or the
"acceptance-rejection theory". In fact, there are very few
cases applying or interpreting the above-cited code articles. Thus, the
Court must rely on the language of the code articles and the Fifth
Circuit's guidance in Leggett.
The situation
this Court is now faced with is similar to the situation the Ninth
Circuit was faced with in Mapes v.
United States
. 27
In Mapes, the court was applying
Arizona
law which had not been interpreted by the
Arizona
courts. Thus, the Ninth Circuit assumed that Arizona's statutory scheme
followed the so-called "acceptance-rejection theory." 28
The Fifth Circuit in Leggett noted that the
"acceptance-rejection theory" is the majority rule. 29
Because (a) the "acceptance-rejection theory" is the majority
rule; (b) there is a substantial similarity between the Texas statutes
cited in Leggett and the Louisiana provisions; and (c) the
language of Louisiana Civil Code article 946 states that the heir's
right is in suspense until the heir decides whether to accept or reject
the succession, it is reasonable to conclude that the Louisiana Supreme
Court would follow the "acceptance-rejection theory" and that
the Fifth Circuit would so hold.
Therefore,
this Court finds that it is bound by the Fifth Circuit's holding in Leggett.
Thus, the validity of the
United States
' tax lien on Noel A. Brumfield's interest in the succession property is
dependent on the Court's resolution of three issues:
A.
Was Noel A. Brumfield's July 28, 1996 Renunciation a Valid Renunciation?
If Noel A.
Brumfield's renunciation of July 28, 1996 was a valid renunciation, Leggett
dictates that he never had an interest in the property to which the tax
lien could attach. Thus, the property would pass unencumbered by the
lien. In its prior memoranda, the
United States
contests the validity of the renunciation. On its face, the renunciation
appears valid because it meets all of the codal requirements. The
renunciation was, on its face, executed by notarial act before a notary
and two witnesses. 30
Noel A. Brumfield had the requisite capacity to make the renunciation. 31
Further, his right to renounce had not proscribed. 32
The court
believes that what the government is really asserting when it claims the
renunciation was invalid is that the renunciation should be annulled
because of its allegedly fraudulent purpose. The United States cites, in
its memorandum opposing the defendants' motion for summary judgment and
in its memorandum supporting its earlier-filed motion for summary
judgment, several bases for annulling the renunciation: 1) a revocatory
action under articles 2036-2043 of the Louisiana Civil Code; 2) an
oblique action under article 2044 of the Louisiana Civil Code; 3) a
finding that the renunciation is a simulation under articles 2025-2028
of the Louisiana Civil Code; 4) an action allowing the government to
accept the succession, despite the renunciation, in the name of Noel A.
Brumfield, under Louisiana Civil Code article 1021 on the basis of the
prejudice caused the United States by the renunciation; and 5) an
avoidance of the renunciation as a fraudulent transfer under the Federal
Debt Collection Procedures Act. 33
The simulation
articles are not a basis for annulling the renunciation and are not
applicable under the facts of this case.
The revocatory
action is prescribed by the one year prescription of Louisiana Civil
Code article 2041.
The oblique
action must be brought via a separate action with both Noel A. Brumfield
and the succession joined as defendants therein. This requirement has
not been met here.
In order for
the
United States
to exercise the right to accept the succession in Noel A. Brumfield's
stead, Louisiana Civil Code article 1071 requires that a petition to
obtain such authorization be presented to the judge of the place where
the succession is opened with service of process made on the debtor
(Noel A. Brumfield). The
United States
has failed to meet these requirements.
Finally, the
use of the Federal Debt Collection Procedures Act to set aside the
renunciation also requires a separate complaint with service of process.
Therefore, this Act does not apply herein.
Thus, in the
absence of a separate petition filed by the
United States
seeking to set aside the renunciation on one of the above grounds, Noel
A. Brumfield's renunciation appears to be a valid renunciation.
B.
Did Noel A. Brumfield Actually Accept the Succession?
The Court must
now determine whether Noel A. Brumfield, by his actions, actually
accepted the succession, thus making his right to the property, under
Louisiana Civil Code article 946, effective as of the date of Bernice
Brumfield's death. If Noel A. Brumfield actually accepted the
succession, the
United States
tax lien, under Leggett, attached to the property at the same
time. An acceptance of the succession by an heir is irrevocable. 34
An acceptance can be either express or tacit. 35
There was clearly no express acceptance by Noel A. Brumfield under the
facts of this case.
However, the
United States
contends that Noel A. Brumfield tacitly accepted the succession by
residing in and on one of the properties, in the capacity of an heir,
from 1994 until the time he was incarcerated in 1996. While the
United States
did not cite a code article, the Court presumes it is relying on article
993 and/or article 994 of the Louisiana Civil Code. Considering that
Noel resided in and on the property before Bernice Brumfield's death in
1995, the Court does not believe it would be proper to conclude that he
was occupying the property after his mother's death in the capacity of
an heir. Thus, the Court concludes that there was no tacit acceptance of
the succession by Noel A. Brumfield on this basis.
However, the
Court finds that Noel A. Brumfield, via his renunciation and the
"receipt and full release" agreement of July 28, 1996,
accepted the succession under article 1003 of the Louisiana Civil Code.
Article 1003 provides that a renunciation in favor of a coheir is an
acceptance when the renouncing party receives a "price" for
the renunciation. Noel's renunciation was in favor of his co-heir and
brother William Brumfield as the civil code provides that Noel's portion
of the succession, once renounced, falls to William as the instituted
universal legatee. 36
Although the
United States
contends several times in its memoranda that the renunciation was in
favor of the son, Vincent Brumfield, the Court can find no support for
this in the language of the renunciation or in the civil code.
The Court
finds that Noel A. Brumfield did receive a "price" for his
renunciation. A careful reading of the "receipt and full
release" agreement reveals that Noel received valuable
consideration in exchange for his renunciation, including a release from
William for any and all liability for inheritance taxes pertaining to
his part of the succession and a release from any and all claims that
William had against Noel, including the claims pertaining to the
Livingston suit debt and to Noel's alleged wrongful taking of items'
from Bernice Brumfield's home after her death. While the Court could not
locate any cases interpreting the meaning of the term "price"
as used in the article, it is reasonable to conclude that the valuable
consideration set forth above clearly satisfies this requirement.
Therefore, the
Court concludes that under the clear terms of article 1003 of the
Louisiana Civil Code and Leggett, Noel A. Brumfield accepted his
mother's succession. Thus, the Court finds, under the facts of this case
and as a matter of law, that the
United States
' tax lien attached to the property at the time of Bernice Brumfield's
death.
The Court also
finds as a matter of law that Noel A. Brumfield accepted the succession
under article 1002 of the Louisiana Civil Code. This article provides
that a donation, sale, or assignment by a coheir of his/her rights of
inheritance to a fellow coheir is considered to be an acceptance of the
succession. Since Noel A. Brumfield executed the renunciation in
exchange for the valuable consideration mentioned above, it follows that
such a transaction was a sale or assignment of Noel's rights in the
succession.
C.
Does
Louisiana
's Succession Law Follow the "Acceptance-Rejection Theory" or
the "Transfer Theory" as Termed and Defined by the Fifth
Circuit in Leggett?
For reasons
noted above, the Court concludes that
Louisiana
follows the "acceptance-rejection theory" and thus the Court
is bound by the Leggett holding.
IV.
Summary and Conclusion
For reasons
set forth above, the Court finds that the renunciation was valid in form
and that
Louisiana
follows the "acceptance-rejection theory." However, because
Noel A. Brumfield accepted the succession under articles 1002 and 1003
of the Louisiana Civil Code, the Court finds that, pursuant to article
946 of the Louisiana Civil Code, Noel had rights in the succession as of
the moment of Bernice Brumfield's death at which time the
United States
' tax liens attached.
Therefore, the
Court concludes that the
United States
' tax liens are valid and that the
United States
is entitled to foreclose on the property. The
United States
is also entitled to a lien for its share of the proceeds from the
judicial sale of the property.
The parties
shall have until October 16, 1998 to submit a prepared judgment which
shall include a provision for the disposition of the funds in the
registry of the Court.
Therefore:
IT IS ORDERED
that plaintiff's motion for summary judgment be and it is GRANTED.
IT IS FURTHER
ORDERED that plaintiff's motion for a default judgment against Noel A.
Brumfield and Vincent Brumfield be and it is DENIED.
IT IS FURTHER
ORDERED that defendants Succession of Bernice Addison Brumfield and
William Brumfield's motion for summary judgment be and it is DENIED.
IT IS FURTHER
ORDERED that defendants Succession of Bernice Addison Brumfield and
William Brumfield's motion for hearing of pending probate rule to place
legatee in possession of property be and it is DENIED.
IT IS FURTHER
ORDERED that defendant Vincent Brumfield's motion for summary judgment
be and it is DENIED.
1
Motion for summary judgment, filed by plaintiff United States of America
("United States") on April 10, 1997 (Rec. Doc. No. 39); motion
for default judgment against Noel A. Brumfield and Vincent Brumfield,
filed by plaintiff United States on April 10, 1997 (Rec. Doc. No. 39);
motion for partial summary judgment, filed by defendants Succession of
Bernice A. Brumfield and William L. Brumfield on June 24, 1997 (Rec.
Doc. No. 46); motion for hearing of pending probate rule to place
legatee in possession of property, filed by defendants Succession of
Bernice A. Brumfield and William L. Brumfield on June 24, 1997 (Rec.
Doc. No. 46); and motion for summary judgment, filed by defendant
Vincent Brumfield on March 3, 1998 (Rec. Doc. No. 1)
2
Will of Bernice Addison Brumfield, dated October 27, 1995, as contained
in Exhibit C of the
United States
' Statement of Material Facts filed April 10, 1997 (Rec. Doc. No. 40).
3
Memorandum of Law by the
United States
in Support of its Motion for Summary Judgment and Motion for Default
Judgment, page 3, filed April 10, 1997 (Rec. Doc. No. 41).
4
See generally American Well Works Co. v. Layne & Bowler
Co., 241 U.S. 257, 36 S.Ct. 585, 60 L.Ed. 987 (1916).
5
See
Markham
v. Allen, 326
U.S.
490, 66 S.Ct. 296, 90 L.Ed. 256 (1946) and Turton v. Turton, 644
F.2d 344 (5th Cir. 1981).
6
See generally La. Civ. Code art. 872.
7
Markham
v. Allen, 326
U.S.
490, 66 S.Ct. 296, 90 L.Ed. 256 (1946); Turton v. Turton, 644
F.2d 344 (5th Cir. 1981).
8
Baten v. Taylor, 386 So.2d 333 (
La.
1979) and La. Civ. Code arts. 940 and 1626.
9
United States
' Statement of Material Facts, filed April 10, 1997 (Rec. Doc. No. 40).
10
26 U.S.C. §6321 and J.N. Randall v. H. Nakashima & Co.,
Ltd. [76-2 USTC ¶9770], 542 F.2d 270 (5th Cir. 1976).
11
Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 80
S.Ct. 1277, 4 L.Ed.2d 1365 (1960); Leggett v. United States, 120
F.3d 592 (5th Cir. 1997); and Medaris v. United States [89-2 USTC
¶9565], 884 F.2d 832 (5th Cir. 1989).
12
26 U.S.C. §§6321 & 6322.
13
La.
Civ. Code art. 977.
14
120 F.3d 592 (5th Cir. 1997).
15
Leggett, 120 F.3d at 594-595.
16
Id.
at 595.
17
Id.
at 595-596.
18
Id.
19
Id.
at 596.
20
[94-2 USTC ¶50,354], 22 F.3d 455 (2d Cir.), cert denied, 513
U.S. 986, 115 S.Ct. 481, 130 L.Ed.2d 394 (1994).
21
[83-2 USTC ¶9572], 461 U.S. 677, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983)
22
357
U.S.
51, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958)
23
Comparato [94-2 USTC ¶50,354], 22 F.3d at 457.
24
Leggett, 120 F.3d at 596.
25
Id.
26
Id.
27
15 F.3d 138 (9th Cir. 1994).
28
Mapes, 15 F.3d at 140-141.
29
Leggett, 120 F.3d at 597.
30
La.
Civ. Code art. 1017.
31
La.
Civ. Code art. 1018.
32
32
La.
Civ. Code art. 1030.
33
33 28 U.S.C. §3001 et seq.
34
La.
Civ. Code art. 1009.
35
La. Civ. Code arts. 989 and 990.
36
La. Civ. Code arts. 1703 and 1709.
Gordon Kim, Plaintiff v. United States of
America, Harry E. Yanellas, Wespaq Computer Systems, Inc., Helen
Yanellas, Thomas M. Foley, Defendants
U.S.
District Court, Dist. Hawaii, Civ. 95-00365 ACK, 7/1/96
[Code Sec.
6323 ]
Tax liens: Priority of claims: First in time: After-acquired property:
Settlement proceeds.--The IRS was entitled to the net settlement
proceeds awarded to a delinquent taxpayer in a personal injury action
because its tax liens against his property were first in time with
respect to other potential claims and, therefore, had priority over
them. Although several parties may have had a claim to the settlement
proceeds, none of them appeared in the action to establish their
interests or opposed the IRS's motion for summary judgment with regard
to disposition of the proceeds. Moreover, those parties' claims were not
perfected. Despite the fact that the IRS recorded its tax liens before
the taxpayer was awarded his settlement, those liens were first in time,
even with respect to after-acquired property. However, the other
potential claimants could not have perfected their interests in the
settlement proceeds before the funds were awarded to the taxpayer.
Gordon Kim,
1188 Bishop St.
,
Honolulu
,
Hawaii
96813
, for plaintiff. Michael Chun, Honolulu, Hawaii 96850, Thomas J. Sawyer,
Department of Justice, Washington, D.C. 20530, Mark J. Bernardin,
Brooks, Tom & Miller, 737 Bishop St., Honolulu, Hawaii 96813, for
defendant.
ORDER
GRANTING UNITED STATES' MOTION FOR SUMMARY JUDGMENT AND DIRECTING
INTERPLEADER FUNDS TO BE DISBURSED
BACKGROUND
KAY, Chief
Judge:
This suit is
an interpleader action in which the
United States
seeks to recover monies owed by defendant Harry Yanellas for unpaid
taxes. The
United States
("Government") and the other defendants in this action each
claim potential interests in a $250,000 personal injury settlement
awarded to defendant Harry Yanellas. The net proceeds of this settlement
award form the basis of this interpleader action.
Attorney
Gordon Kim, who represented Harry Yanellas in the personal injury
action, filed this interpleader suit in
Hawaii
state court on April 13, 1995. The Government thereafter removed the
case to federal court on May 15, 1995. Kim subsequently paid the net
settlement proceeds of $150,753.40 into the registry of this Court.
On February
23, 1996 the Government filed the instant motion for summary judgment on
grounds that it is the sole entity entitled to the net settlement
proceeds. Harry Yanellas did not file an opposition to the Government's
motion prior to the hearing, but after the hearing he faxed a letter to
the Court, which the Court construed as an opposition and has considered
as such. The other potential claimants to the funds, defendants Wespaq,
Thomas Foley, Ruth Trina Yanellas, and Helen Yanellas, have not filed
opposition to this motion.
This motion
came before the court for hearing on June 24, 1996.
FACTS
Defendant
Harry Yanellas ("Yanellas") was injured in a 'slip and fall'
accident on December 29, 1989, on the premises of Wespaq Computer
Systems ("Wespaq"). Yanellas is the President of Wespaq. Due
to injuries stemming from this accident, Yanellas sought benefits from
Wespaq's insurance company, Paul Revere Life Insurance Company
("Paul Revere"). When Paul Revere did not readily pay the
benefits to Yanellas, Yanellas filed suit against Paul Revere and the
parties subsequently entered into a settlement agreement for $250,000.
According to the Government, the settlement proceeds were paid jointly
to Harry Yanellas and Wespaq. This personal injury settlement award
forms the basis of the instant interpleader action.
The Government
contends that it is entitled to the entire net settlement proceeds of
$150,753.40 1
due to unpaid federal tax liabilities owed by Yanellas and by Wespaq. A
declaration provided by the Government indicates that Yanellas owes
$170,106.64 in unpaid federal taxes. These taxes cover the tax periods
from 1987 to 1991 and were officially assessed against him on May and
June of 1994. The Internal Revenue Service ("IRS") filed liens
for these amounts with the State of Hawaii Bureau of Conveyances on July
14, 1994. (Exhibits A and B to Government's Memorandum In Support of
Motion For Summary Judgement ("Memorandum")). The Government's
declaration also shows that Wespaq owes $190,999.59 in unpaid federal
taxes. These taxes cover the tax periods from 1987 to 1990 and were
assessed against Wespaq in October and November of 1991. The IRS filed a
lien for these amounts with the State of Hawaii Bureau of Conveyances in
1991 on November 4, 15, and 29. (Exhibits C, D, and E to Government's
Memorandum).
Other than the
Government, the defendants who might claim interests in the settlement
proceeds are as follows: (1) Harry Yanellas, who received the initial
settlement award, (2) Ruth Yanellas, the estranged wife of Harry
Yanellas, (3) Thomas Foley, a prior attorney for Harry Yanellas, (4)
Wespaq Computer Systems, which according to the Government received the
settlement award jointly with Harry Yanellas and (5) Helen Yanellas, the
mother of Harry Yanellas. Of these defendants, only Harry Yanellas filed
an opposition to the Government's motion (albeit an untimely opposition)
and it appears that he and Wespaq are the only remaining actual
litigants in this case.
In the June
25, 1996 fax from Harry Yanellas, which the Court construes as an
opposition to the Government's motion, Yanellas objects to the
Government's supplemental memorandum which discusses its pending
settlement agreement with Ruth Yanellas. Apparently the couple is
divorced or separated and Harry Yanellas' main concern is that
disbursement to Ruth Yanellas will violate a supposed order in family
court which directs the settlement proceeds to not be distributed. In
his opposition Harry Yanellas also contests the amount of taxes he owes
the Government.
Ruth Yanellas
has not filed an opposition or response to the Government's motion. She
previously filed an answer in state court, claiming that she is entitled
to some of the funds because (1) they form part of the marital estate
and therefore she is entitled to a share of the proceeds and (2) there
is a child support order against Harry Yanellas in the amount of $360
per month. The Government and Ruth Yanellas have purportedly entered
into a settlement agreement under which Ruth Yanellas will receive
$5,000 of the interpleaded funds if the Government prevails in this
motion. However, the Court expresses no opinion as to the existence or
validity of that settlement agreement.
The interests
of the other two defendants are unclear. Thomas Foley is an attorney who
represents Harry Yanellas in an unrelated matter, but he has conceded
that he does not claim an interest in the interpleader funds. Helen
Yanellas, the mother of Harry Yanellas, may have loaned money to Harry
at some unspecified point. However the existence of the loan is
uncertain and, even if she did loan him money, there is no indication
that this loan was secured. In addition Helen Yanellas has not filed
anything with this court or with the state court (before the case was
removed to federal court). Plaintiff served her with a copy of the state
court complaint but she never filed an answer.
STANDARD
OF REVIEW
Summary
judgment shall be granted where there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c). One of the principal purposes of the summary
judgment procedure is to identify and dispose of factually unsupported
claims and defenses. Celotex Corp. v. Catrett, 477
U.S.
317, 323-24, 106 S.Ct. 2548, 2553 (1986). Summary judgment must be
granted against a party who fails to demonstrate facts to establish an
element essential to his case where that party will bear the burden of
proof of that essential element at trial.
Id.
at 322, 106 S.Ct. at 2552.
If
the party moving for summary judgment meets its initial burden of
identifying for the court the portions of the materials on file that it
believes demonstrate the absence of any genuine issue of material fact,
the nonmoving party may not rely on the mere allegations in the
pleadings in order to preclude summary judgment.
T.W.
Electrical Serv. v. Pacific Elec. Contractors Assoc.,
809 F.2d 626, 630 (9th Cir. 1987) (citations omitted). Instead, Rule
56(e) requires that the nonmoving party set forth, by affidavit or as
otherwise provided in Rule 56, " 'specific facts showing
that there is a genuine issue for trial.' "
Id.
(quoting Fed.R.Civ.P. 56(e)) (emphasis in original). At least some
" 'significant probative evidence tending to support the complaint'
" must be produced.
Id.
(quoting First Nat'l Bank v. Cities Serv. Co., 391
U.S.
253, 290, 88 S.Ct. 1575, 1593 (1968)). Legal memoranda and oral argument
are not evidence and do not create issues of fact capable of defeating
an otherwise valid motion for summary judgment. British Airways Bd.
v. Boeing Co., 585 F.2d 946, 952 (9th Cir. 1978), cert. denied,
440 U.S. 981, 99 S.Ct. 1790 (1979).
The standard
for a grant of summary judgment reflects the standard governing the
grant of a directed verdict. See Eisenberg v. Ins. Co. of North
America, 815 F.2d 1285, 1289 (9th Cir. 1987) (citing,
Anderson
v. Liberty Lobby, Inc., 477
U.S.
242, 250, 106 S.Ct. 2505, 2511 (1986)). Thus, the question is whether
"reasonable minds could differ as to the import of the
evidence."
Id.
The Ninth
Circuit has established that "[n]o longer can it be argued that any
disagreement about a material issue of fact precludes the use of summary
judgment." California Architectural Bldg. Products, Inc. v.
Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987), cert.
denied, 484
U.S.
1006, 108 S.Ct. 698 (1988). Moreover, "[w]hen the moving party has
carried its burden under Rule 56(c), its opponent must do more than
simply show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475
U.S.
574, 586, 106 S.Ct. 1348, 1356 (1986) (footnote omitted). Indeed,
"if the factual context makes the non-moving party's claim implausible,
that party must come forward with more persuasive evidence than would
otherwise be necessary to show that there is a genuine issue for
trial." Franciscan Ceramics, 818 F.2d at 1468 (emphasis in
original) (citing, Matsushita, 475
U.S.
at 587, 106 S.Ct. at 1356.). Of course, all evidence and inferences to
be drawn therefrom must be construed in the light most favorable to the
nonmoving party. T.W. Elec. Services, 809 F.2d at 630-31.
DISCUSSION
A.
Legal Standards
The Government
may impose tax liens against the real or personal property of any person
who neglects or refuses to pay federal income taxes. 26 U.S.C. §6321
. A tax lien arises at the time the tax is assessed and
continues until the tax liability is satisfied or is unenforceable due
to lapse of time. 26 U.S.C. §6322
. 2
Priority
between competing debts or liens is established by the "first in
time" rule: a tax lien has priority over other debts if it is first
in time.
U.S.
By and Through I.R.S. v. McDermott [93-1
USTC ¶50,164 ], 113 S.Ct. 1526 (1993). Moreover this is
generally the rule even if the tax lien has not been recorded.
Id.
However, the statute accords special priority to certain competing debts
enumerated in §6323
such as purchasers, holders of security interests, mechanic's
lienors and judgement lien creditors. 26 U.S.C. §2623(a)
. A federal tax lien is not valid as to these creditors
unless notice of the tax lien is recorded in accordance with the laws of
the state in which the property sits. 3
26 U.S.C. §§2623(a)
, 2623(f)(1)
.
In order for a
competing lien to be deemed first in time against the federal lien, the
competing lien must be "perfected." McDermott [93-1
USTC ¶50,164 ], 113 S.Ct. at 1528. This requires that the
"the identity of the lienor, the property subject to the lien, and
the amount of the lien are established."
Id.
(quoting
U.S.
v.
New Britain
[54-1
USTC ¶9191 ], 74 S.Ct. 367, 369 (1954) (emphasis added in McDermott)).
A competing lien is not deemed "perfected" as to property yet
to be acquired. Even if the terms of the competing lien extend to
"all current and future property," the recordation will not
establish that lien to be first in time if the property from which the
creditor seeks to payment is not acquired until after the recordation.
Id.
at 1529. Interestingly this rule does not apply to federal tax liens,
which are deemed first in time even if the property is acquired after
the tax lien is recorded.
Id.
at 1530. For this reason the Supreme Court has held that where a
competing lien is filed before the property is acquired and the federal
tax lien is subsequently filed, although also before the property is
acquired, the federal tax lien is deemed to be first in time and has
priority over the competing interest.
Id.
B.
Application
Applied in the
case at bar, the Court finds that the Government's tax lien has priority
over all potential claims asserted in this action.
There appear
to be no perfected liens which could have first in time priority over
the federal lien. In order to have first in time priority, a competing
lien must be "perfected" in that the identity of lienor, the
property subject to the lien, and the amount of the lien are
established. See McDermott. No such interests have been
established in the case at bar. Although it has been suggested that Ruth
Yanellas and Helen Yanellas may have a claim to the settlement proceeds,
the amounts of their interests are not established and these defendants
have not appeared in this action to establish their interests or oppose
the Government's motion. In addition, attorney Thomas Foley claims no
interest in the funds. He stated in his Answer that "he is owed
certain amounts by Harry E. Yanellas for legal services rendered but
denies that he has any interest in or right to the interpleaded
funds." (Answer of Defendant Thomas Foley, ¶8.)
Moreover, even
if these individuals had asserted claims in this action and opposed the
Government's motion, their claims would fail because none of their
claims could be perfected as to the settlement proceeds. The holding in McDermott
dictates the result here. Since the Government recorded the tax liens before
Harry Yanellas was awarded the settlement proceeds, its tax liens were
first in time even before any secured interests the defendants may have
recorded prior to that time. Under the holding in McDermott,
these interests could not have been perfected as to the settlement
proceeds because the settlement proceeds were not in existence before
then. The Government's tax liens are conclusively first in time over the
Defendants' potential interests because the Government recorded the
liens before the settlement was awarded; under McDermott any
prior recordation by the Defendants would have been ineffective.
For these
reasons the Court finds that the Government's tax liens were first in
time to the Defendants' potential claims and therefore have priority
over them. On this basis the Government is entitled to the net
settlement proceeds of $150,753.40 because Harry Yanellas owes
$170,106.64 and Wespaq owes $190,999.59 in back taxes. Although in his
opposition Harry Yanellas contests the amount of taxes he owes, it is
well settled that taxpayers cannot attack their tax liability in such
interpleader actions because the Court's jurisdiction under 28 U.S.C. §2410
does not extend to such claims. See Hughes v. United States [92-1
USTC ¶50,086 ], 953 F.2d 531 (9th Cir. 1992) ("A
taxpayer may not use a section 2410 action to collaterally attack the
merits of an assessment.")
For these
reasons the Court finds there is no genuine issue of fact and awards
summary judgement in favor of the Government.
CONCLUSION
The Court
GRANTS the Government's motion for summary judgement and hereby directs
the entire interpleaded funds to be disbursed to the
United States of America
.
IT IS SO
ORDERED.
1
The settlement award was for $250,000 but net of attorney's fees the
amount at issue in this action is $150,753.40.
2
A tax lien is unenforceable if a court proceeding is not brought within
six years after the date the tax liability is assessed. 26 U.S.C. §6502(a)(1)
. This is not an issue in the case at bar because the
six-year period has not lapsed (the assessment against Harry Yanellas
was made in 1994 and the assessment against Wespaq was made in 1991).
3
Personal property is deemed to be located in the state in which the
taxpayer's residence is located at the time the lien is filed. 26 U.S.C.
§2623(f)(2)(B)
.
Jack F. Wasenius, Barbara F. Wasenius,
Plaintiffs-Appellants v. Fadia O. Shatila, Badrie Abdullah Shatila,
Internal Revenue Service of the
United States of America
, Defendants,
United States of America
, Defendant-Appellee
(CA-11),
U.S. Court of Appeals, 11th Circuit, 96-2666, 4/29/97, Affirming a
District Court decision, 96-1
USTC ¶50,283
[Code
Sec. 6321 ]
Tax liens: After-acquired property: Perfection: Equitable lien:
Priority.--An IRS tax lien against real property owned by delinquent
taxpayers, which was recorded after the realty was sold to third
parties, had priority over the purchasers' equitable lien that arose
following a state (Florida) court-ordered rescission of the sale. The
tax lien was perfected when title reverted to the sellers, but the
purchasers' equitable lien was not perfected until the later date when
the state court's final judgment fixed the amount of their lien.
[Code
Sec. 6321 ]
Tax liens: After-acquired property: Constructive trust.--An IRS tax lien
against real property owned by delinquent taxpayers, which was recorded
after the realty was sold to third parties, had priority over the
purchasers' equitable lien that arose following a state (
Florida
) court-ordered rescission of the sale. The property was not part of a
constructive trust that arose before the tax lien became choate; since
the purchasers sought rescission of the deed, any constructive trust
would encompass only the money paid for the property, and not the
property itself. BACK REFERENCES: ¶39,036.71
[Code
Sec. 6323 ]
Tax liens: After-acquired property: Estoppel: Timely filing of lien.--An
IRS tax lien against real property owned by delinquent taxpayers, which
was recorded after the realty was sold to third parties, had priority
over the purchasers' equitable lien that arose following a state (
Florida
) court-ordered rescission of the sale. The government timely recorded
its tax lien four days after assessing the unpaid taxes against the
sellers. Thus, it was not estopped from asserting the priority of its
lien on the basis of what the purchasers described as "tardy
filing." BACK REFERENCES: ¶39,060.079
.
Before: DUBINA
and BLACK, Circuit Judges, and COHILL, *
Senior District Judge.
Caution:
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
Per
Curiam"
EC: Appellants
Jack and Barbara Wasenius challenge a district court order denying their
motion for summary judgment and granting the
United States
' cross-motion for summary judgment. The Waseniuses instituted this
action to establish the priority of their interest in a parcel of real
property over a federal tax lien claimed by the
United States
. As the material facts were not in dispute, the parties filed
cross-motions for summary judgment. The district court awarded summary
judgment to the
United States
after concluding that the federal tax lien took priority over the
Waseniuses' inchoate equitable lien. We affirm.
I.
BACKGROUND
The property
at the center of this controversy was formerly owned by Osman and Fadia
Shatila. On May 29, 1992, Appellants purchased the property, situated in
St. Augustine
,
Florida
, for $148,500. The Waseniuses paid the Shatilas $48,500 of the purchase
price in cash and the remainder by executing a promissory note and
purchase money mortgage. The Waseniuses recorded a full warranty deed to
the property on June 9, 1992.
Shortly
thereafter, the Waseniuses discovered that their property previously had
served as an unlawful waste disposal site. On August 21, 1992, the
Waseniuses filed a state court action against the Shatilas seeking to
rescind the sale, cancel the mortgage, and secure reimbursement for all
costs. On July 28, 1993, the state court granted partial summary
judgment as to the liability of the Shatilas and ordered rescission of
the deed, note, and mortgage on the property. The state court entered
final judgment on March 14, 1994, at which time it fixed the amount of
the Shatilas' liability at $75,889.36. The court also granted the
Waseniuses an equitable lien on the property to secure payment of the
award. The state court order provided that the lien would relate back to
August 21, 1992, when the Waseniuses filed a lis pendens.
Meanwhile, the
United States
had also been pursuing legal action against the former owners of the
property. On June 25, 1992, 16 days after the Waseniuses recorded their
deed, the
United States
assessed Osman and Fadia Shatila for unpaid federal taxes for the years
1984 through 1990. By operation of law, the assessment created a lien in
favor of the
United States
on any property owned or acquired by the Shatilas. See 26 U.S.C.
§§6321-6322. The
United States
recorded its lien on June 29, 1992. On February 10, 1994, the Internal
Revenue Service served the Waseniuses with a Notice of Seizure that
purported to arrest the
St. Augustine
property.
II.
DISCUSSION
After
considering these undisputed facts, the district court determined that
the federal tax lien had priority over the Waseniuses' equitable lien.
The court concluded that the federal tax lien achieved priority because
it had been perfected, and thus became choate, before the equitable
lien. The district court indicated the federal tax lien became choate on
July 28, 1993, when the Shatilas reacquired their interest in the
property by virtue of the state court order rescinding the deed. By
contrast, the district court determined the equitable lien did not
become choate until March 14, 1994, the date when the state court fixed
the amount of the Shatilas' liability and, therefore, the amount of the
lien.
We concur with
the district court's determination that the federal tax lien prevails
over the Waseniuses' equitable lien and reject each of the arguments
advanced by the Waseniuses in opposition to this conclusion. First,
although the Waseniuses correctly recognize that the Shatilas had to
regain some interest in the property before the federal tax lien could
attach, they fail to appreciate that this is precisely what happened
when the state court rescinded the deed. At that point, title reverted
to the Shatilas and the lien attached, notwithstanding the continued
occupation of the property by the Waseniuses or the alleged inability of
the Shatilas to convey good and marketable title to any third party.
Second,
although
Florida
law provides that equitable liens arise at the time of the transaction
from which they spring, see Blumin v. Ellis, 186 So. 2d 286, 295
(
Fla. Dist. Ct. App.
), cert. denied, 189 So. 2d 634
Fla.
1966), the relevant inquiry in the present case concerns not when the
equitable lien arose, but when it was perfected. Under federal law, a
state lien comes into existence for "first in time" purposes
only when it has been "perfected" in the sense that identity
of the lienor, the property subject to the lien, and the amount of the
lien are established. United States v. McDermott [93-1 USTC ¶50,164],
113
S. Ct.
1526, 1528 (1993). As a result, it is of no consequence that the
equitable lien may have arisen on June 9, 1992, the time of the
underlying transaction. The lien did not become extant for federal
purposes until perfected.
As a variant
of their second argument, Appellants suggest that the
St. Augustine
property should be considered part of a constructive trust that arose at
the time of the underlying transaction, more than one year before the
federal tax lien became choate. A constructive trust arises where a
person who holds title to property is subject to an equitable duty to
convey it to another on the ground that he would be unjustly enriched if
he were permitted to retain it. Mitsubishi Int'l Corp. v. Cardinal
Textile Sales, Inc., 14 F.3d 1507, 1518 (11th Cir. 1994), cert.
denied, 115
S. Ct.
1092 (1995). The constructive trust argument fails because the Shatilas
were not subject to an equitable duty to reconvey the property to the
Waseniuses after the state court rescinded the deed. The Waseniuses can
hardly claim that equity required the Shatilas to convey the property at
issue back to them when their state court action specifically sought
recision of the deed. Moreover, even if a constructive trust were to be
imposed, the real property would not be included within it. Any
constructive trust would encompass only the money that the Waseniuses
paid to the Shatilas in exchange for the property, not the property
itself.
Third,
Appellants' contention that their equitable lien became choate on June
9, 1992, must be rejected. The mere fact that the purchase price of the
property had been fixed by that date does not mean that the amount of
the lien to be imposed had also been fixed. The amount of the lien,
which included amounts for property improvements, court costs, and
attorneys' fees, was not fixed until the state court issued its final
judgment on March 14, 1994.
Fourth, we
find no merit to Appellants' suggestion that the United States should be
estopped from asserting the priority of its federal tax lien on the
basis of what the Waseniuses describe as "tardy filing." The
uncontroverted evidence establishes that the IRS recorded its tax lien
on June 29, 1992, a mere four days after it assessed the unpaid taxes
against the Shatilas.
In sum, we
hold that the district court properly determined that the
United States
' federal tax lien has priority over the Waseniuses' equitable lien. We
recognize, of course, that the governing legal principles produce a
rather harsh result in the instant case. The Waseniuses are innocent
parties, attempting to recover from the fraud perpetrated upon them by
the Shatilas. If there were any way to find for the Waseniuses while
remaining faithful to our judicial obligations, we would have done so.
In the end, however, we are bound to decide cases in accordance with the
law, not our sympathies.
III.
CONCLUSION
For the
foregoing reasons, we affirm the district court order denying the
Waseniuses' motion for summary judgment and granting the
United States
' cross-motion for summary judgment. 1
AFFIRMED.
*
Honorable
Maurice
B.
Cohill
, Jr., Senior U.S. District Judge for the Western District of
Pennsylvania, sitting by designation.
1
Given this disposition, we deny the
United States
' Motion to Strike Appellants' Record Excerpts and to Require Refiling
of Record Excerpts as moot.
Estelle R. Silverman and Jay N. Silverman
as they are Executors of the Estate of Melvin N. Silverman, et al. v.
United States of America, et al
U.S.
District Court,
Dist.
Mass.
, Civ. 93-10776-RGS, 4/8/94
[Code Sec.
6323 ]
Tax liens: Priority: After-acquired property: Summary judgment:
Debtor.--A federal tax lien was accorded priority over a creditor's lien
despite the fact that it was filed after the creditors obtained a
security interest in the debtor's after-acquired property and filed a
state financing statement. The federal lien was fixed in time on the
date that it was filed, while the creditor's lien could not be perfected
until the date that it attached to the subject property. Thus, since the
federal lien was filed before the debtor acquired rights in the property
and the security interest attached, the federal lien had priority.
Sibley P.
Reppert, Stanley N. Wallerstein, Posternak, Blankstein & Lund, 100
Charles River Plaza, Boston, Mass. 02114, for plaintiff. John V.
Cardone, Department of Justice,
Washington
,
D.C.
20530
, for defendant.
MEMORANDUM
OF DECISION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
STEARNS,
District Judge:
This case
involves a simple issue--which lien as between the
United States
and the holders of a security interest in a debtor's after-acquired
property takes priority. There is no dispute but the federal tax lien
came into existence upon its filing on June 27, 1991. See 26 U.S.C. §6323(a)
. There is also no dispute but that the funds levied by the
Internal Revenue Service were funds earned by the debtor for services
rendered between February 1, 1993 and February 28, 1993. Finally, there
is no dispute but that plaintiffs acquired their security interest in
the debtor's property on January 3, 1984, and duly perfected a UCC
filing on January 5, 1984.
The order of
priority of competing liens "depend[s] on the time [that they]
attached to the property in question and became choate." United
States v. City of New Britain [54-1 USTC ¶9191 ], 347
U.S.
81, 86 (1954). A federal lien becomes fixed in time as of the date of
its filing, "regardless of when it attaches to the subject
property." United States v. McDermott [93-1
USTC ¶50,164 ], 113 S.Ct. 1526, 1530 (1993). A state-created
lien is choate only when "there is nothing more to be done . .
.--when the identity of the lienor, the property subject to the lien,
and the amount of the lien are established."
New Britain
, supra at 84. When a creditor's interest runs to a debtor's
after-acquired property, a creditor's lien under the UCC "is
generally not considered perfected when the financing statement is
filed, but only when the security interest has attached to particular
property upon the debtor's acquisition of that property." McDermott,
supra at 1529. Here the debtor acquired rights in the levied property
only after the services were rendered, that is no sooner than February
1, 1993. The lien of the
United States
thus prevails. 3
ORDER
For the
foregoing reasons, the motion of the
United States
for summary judgment is ALLOWED. Plaintiffs' motion for summary
judgment is DENIED.
SO ORDERED.
3
Holzman v. L.H.J. Enterprises, Inc., 476 F.2d 949, 951 (9th Cir.
1973), to the extent that it suggests a different result, and to the
extent that plaintiffs accurately characterize their interest as a
"purchase money security," does not survive the Supreme
Court's holding in McDermott. Nor am I persuaded that replacement
inventory is "a functional equivalent of accounts receivable"
as plaintiffs contend. Inventory may be fungible, services are not. See First
Interstate Bank of
Utah
. N.A. v. I.R.S. [91-2
USTC ¶50,303 ], 930 F.2d 1521, 1527 (10th Cir. 1991).
("An important distinction exists between funds extended for asset
acquisition and those extended for the ordinary operation of a
business").
In re B&B Printing
Co.
, Inc., Debtor. Larry E. Staats, Trustee, Plaintiff v. John J. Guzzo, et
al., Defendants
U.S.
Bankruptcy Court, So. Dist.
Ohio
, East. Div., 2-91-05227, 12/14/93, 164 BR 273, 164 BR 273
[Code Secs.
6321 , 6322
and 6323
]
Liens: Priority: Relation back theory: Perfected tax liens: Competing
interests.--
A federal income tax lien on after-acquired property that arose from an
assessment made after an earlier tax lien was filed on a separate tax
obligation did not relate back to the earlier lien and was not a validly
perfected tax lien. However, another creditor's lien was also
unperfected until the after-acquired property was identified as the
property subject to the lien and the debtor obtained rights to such
property. Consequently, the government's lien on the debtor's
after-acquired property had priority because the date that the notice of
the second federal tax lien was filed rendered such lien extant for
first-in-time priority purposes regardless of whether it had yet
attached to identifiable property. (B.J. McDermott, SCt [93-1
USTC ¶50,164 ] followed.)