6321 After Aquired Property page2

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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.