6321 After Aquired Property page3

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OPINION AND ORDER ON COMPLAINT TO DETERMINE PRIORITY OF LIENS

SELLERS, Bankruptcy Judge:

On April 9, 1992, Larry E. Staats, Trustee, filed a complaint seeking to determine the validity, extent and priority of liens against the assets of the bankruptcy estate of B&B Printing Co., Inc. All claims against the estate's assets have been dismissed, compromised, or reduced to default judgment except those of defendants John J. Guzzo ("Guzzo"); the United States of America , Internal Revenue Service (" United States "); and the Ohio Bureau of Employment Services ("OBES").

Pursuant to 28 U.S.C. §§1334(b), 157(b)(2), and the General Order of Reference entered in this district, this Court has jurisdiction to hear and finally determine this core proceeding.

The parties have stipulated to the relevant facts in this matter, including a stipulation recognizing the validity of each party's lien. The issues presented for determination are: (1) whether the filing date of the first United States' notice of tax lien acted as an attachment for all subsequent federal tax lien filings through relation back, and (2) whether, based on the 45-day rule and choate lien theory, the liens of the United States, once choate, attached prior to the liens of other parties with interests in after-acquired property.

I. The "Relation Back" Theory

In its brief, the United States asserts that all notices of tax lien filings relate back to its first filings on September 16, 1985. (United States Brief, p. 5). In support of this proposition, the United States cites United States v. Bank of Celina [83-2 USTC ¶9688 ], 721 F.2d 163 (6th Cir. 1983).

In Bank of Celina, the bank attempted to set off a customer's debt even though the United States previously had filed notices of tax liens against the customer's assets. The Court of Appeals for the Sixth Circuit held that the United States was entitled to the monies used to set off the customer's obligation to the bank. In so holding, the court stated that "once a federal tax lien has attached to a taxpayer's property, that property remains subject to the lien when transferred from the taxpayer to a third party." Id. at 169.

United States ' reliance on Bank of Celina for support of its "relation back" theory is misplaced. Although the Sixth Circuit espouses such a theory, it was expressed "[b]efore proceeding to the merits" of the case, and was not used by the court in its legal analysis. Bank of Celina at 166. Thus, the support of the "relation back" theory used by the United States in the case at bar is mere dicta, and has no legal authority.

United States , citing Peterson v. United States [81-1 USTC ¶9469 ], 511 F.Supp. 250 (D.Utah 1981), further states that the filing of the first tax lien notice puts interested parties on notice and imparts to the parties an obligation to inquire as to the accumulating tax obligation. (United States Brief, p. 5). Thus, United States argues, it is secured for the actual amount of tax liability as it accumulates, not just for the amount recorded.

The problem with the United States ' analysis is two-fold. First, Peterson is a district court decision from Utah and, thus, is not controlling authority for the "relation back" theory. Second, Peterson is contrary to the applicable statutory authority.

26 U.S.C. §6321 states:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property, whether real or personal, belonging to such person." (Emphasis added).

The application of a "relation back" theory in which a subsequent tax lien "relates back" to the filing date of a prior tax lien disregards the fact that 26 U.S.C. §6321 requires that a person be liable for the tax before the lien is created. If a lien "relates back" to a filing date before the creation of that lien, it allows the United States a lien before the taxpayer is liable for the tax.

Moreover, 26 U.S.C. §6322 states:

. . . [T]he lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed . . . is satisfied or becomes unenforceable by reason of lapse of time. (Emphasis added).

This statutory language is in direct conflict with the theory relied upon by the United States . If a subsequent tax lien "relates back" to the filing date of a prior lien, it becomes effective for purposes of priority against holders of state created liens before the actual date of assessment. Such a result is clearly contrary to the express language of 26 U.S.C. §6322 .

Finally, 26 U.S.C. §6323(a) states that a 26 U.S.C. §6321 lien "shall not be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof . . . has been filed . . .". The purpose of this provision is to protect subsequent secured creditors from a "secret tax lien"--a lien in which the creditor would have no notice--imposed by the United States . The "relation back" theory thwarts such a purpose. Such a theory allows a secured creditor to be defeated by a lien of which he/she had no notice. Therefore, 26 U.S.C. §6232(a) implicitly speaks against such a theory.

The "relation back" theory espoused by the United States is contrary to the statutory authority of 26 U.S.C. §§6321 , 6322 , and 6323(a) . Moreover, the United States has presented no colorable authority to this Court to uphold such a theory. Thus, this Court holds that tax liens of the United States arising from assessments for discrete tax obligations made subsequent to the initial lien filing do not "relate back" to the prior tax lien filed by the United States .

II. The Choate Lien Theory

A validly perfected tax lien requires a notice of federal tax lien to be filed. 26 U.S.C. §6823. Thus, perfection of United States ' lien did not commence prior to the filing of such notice.

For a state lien, the identity of the lienor, the property subject to the lien, and the amount of the lien must be established in order for such lien to be choate. See , United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81 at 84, 74 S.Ct. 367 at 369, 98 L.Ed. 520 (1954) and United States v. Pioneer American Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963). In determining the property subject to the state lien, the Supreme Court stated that the test is that the identity of the property subject to the lien must be established. United States v. Vermont [64-2 USTC ¶9520 ], 377 U.S. 351 at 358, 84 S.Ct. 1267 at 1271, 12 L.Ed.2d 370 (1964). In United States v. McDermott [93-1 USTC ¶50,164 ], et al.,-- U.S. --, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993), the Supreme Court clarified that "attachment to particular property was also an element of what was meant by 'perfection' in New Britain ."

Clearly, if Defendant Guzzo's state lien were perfected before the United States ' tax lien was perfected, Guzzo's lien would have priority under the doctrine of "first in time, first in right." Rankin & Schatzell v. Scott, 25 U.S. (12 Wheat) 177 at 179, 6 L.Ed. 592 (1827). In these circumstances, Guzzo's state lien properly identified the lienor and the amount of such lien as required by New Britain . However, Guzzo's lien was not "perfected" within the meaning of New Britain because the property subject to the lien was not established as required in Vermont , and the debtor did not have rights in the property. Thus, the security interest had not attached to the property as required by McDermott.

That Guzzo's state lien was not "perfected" within the meaning of New Britain does not necessarily mean that the United States was "first in time." As with Guzzo, the United States ' after-acquired portion of the tax lien did not attach to established property, and, therefore, was not "perfected" when notice was filed. However, the recently decided McDermott case speaks squarely to the issue of competing interests in after-acquired property where one party is the federal government and one party is a state lienor.

In McDermott, the Supreme Court stated that the filing of notice under 26 U.S.C. §6323 "renders the federal tax lien extant for 'first in time' priority purposes regardless of whether it has yet attached to identifiable property." McDermott,-- U.S. at--, 113 S.Ct. at 1530.

The Supreme Court further specified that because 26 U.S.C. §6323 set out specific exceptions to the filing of notice provision (e.g. commercial transactions financing agreements), matters not falling within an exception presume that the federal tax lien prevails. McDermott,-- U.S. at--,113 S.Ct. at 1530. The Supreme Court stated that "the federal tax lien is ordinarily dated, for purposes of 'first in time' priority against §6323(a) competing interests, from the time of its filing, regardless of when it attaches to the subject property." McDermott,-- U.S. at--, 113 S.Ct. at 1530.

The policy rationale of not adhering to a strict "first in time" rule emanates from the nature of the competing liens. Although a strict presumption is ordinarily appropriate as between private parties, a different standard applies when one of the parties is the government, acting in a taxing capacity. The government is "unable to decline to hold the taxpayer liable for taxes," and "notice of a previously filed security agreement in after-acquired property does not enable the government to protect itself." McDermott,-- U.S. at--, 113 S.Ct. at 1531. Thus, in this situation, "the federal tax lien must be given priority." McDermott,-- U.S. at--, 113 S.Ct. at 1531.

Relying on Ohio Rev.Code §1309.01(A)(15), Guzzo argues that accounts receivable are not after-acquired property. Assuming, for purposes of argument, that accounts receivable are not after-acquired property under state law, the result is the same. The case before the Court involves competing liens of the federal government and a private party asserting rights under state law. Federal law, decided in New Britain , Pioneer American, and McDermott, is controlling. Future accounts receivable, whether or not called after-acquired property for Uniform Commercial Code purposes, are not property identified and established at the time the lien is recorded.

III. Conclusion

Based on the foregoing, the Court finds that the priority of liens shall be the following:

(1) $5,200 to Defendant Guzzo for a purchase money security interest in one Miller color printing press;

(2) Up to $1,710.75 to Defendant OBES for personal property in existence on 8/7/85;

(3) $19,386.80 to Defendant United States for all property in existence and/or after-acquired;

(4) Up to $13,069.23 to Defendant OBES for personal property in existence on 10/2/85, 1/6/86, 4/3/86, 7/2/86, 9/29/86, 1/2/87, 9/28/87, and 1/7/88;

(5) Up to $78,679.18 to Defendant Guzzo for all property in existence from 2/10/88 to 2/28/88;

(6) Up to $53,564.11 to Defendant United States for all property remaining.

To the extent the OBES and Guzzo lien amounts require proof of property in existence at certain times and such property cannot be shown, United States has priority.

A judgment will be issued consistent with this finding.

IT IS SO ORDERED.

 

 

 

United States by and through Internal Revenue Service, Petitioner v. Bruce J. McDermott, et al

Supreme Court of the United States, 91-1229, 3/24/93, 113 SCt 1526, Reversing and remanding CA-10, 91-2 USTC ¶50,491 , 945 F.2d 1475

On Writ of Certiorari to the United States of Appeals for the Tenth Circuit.

[Code Sec. 6323 ]

Federal tax lien: Priority: After-acquired property.--A federal tax lien had priority over a private creditor's previously filed judgment lien against a delinquent taxpayer's after-acquired real property. Although Code Sec. 6323(a) provided that the tax lien was not valid against other creditors until it was filed, the state judgment lien was not perfected until the after-acquired property was obtained by the taxpayer. Only then was the property subject to the lien identified with the specificity necessary for the judgment lien to attach to the property. Further, under the language of Code Sec. 6323(a) , the filing of the tax lien rendered that lien extant for "first in time" priority regardless of whether it had yet attached to identifiable property. The presumption that the first lien recorded had priority was not applied to federal tax liens because the government, unlike a private lender, may not decline to hold a taxpayer liable for taxes; notice of a previously filed security interest does not enable the government to protect itself from loss by refusing to extend credit to a taxpayer.

James A. Feldman, Department of Justice, Washington , D.C. 20530 , for petitioner. T. Richard Davis, Callister, Duncan & Nebeker, P.C., 800 Kennecott Bldg., Salt Lake City, Utah 84133, for Bruce J. McDermott.

Syllabus

The United States' federal tax lien on the respondent McDermotts' property applied to after-acquired property, Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, but could "not be valid as against any . . . judgment lien creditor until notice thereof . . . has been filed," 26 U.S.C. §§6323(a) . Before that lien was filed with the Salt Lake County Clerk, a bank docketed a state-court judgment it had won against the McDermotts, thereby creating a state-law judgment lien on all of their existing or after-acquired real property in the county. After both liens were filed, the McDermotts acquired certain real property in the county and brought this interpleader action. The District Court awarded priority in that property to the bank's lien. The Court of Appeals affirmed.

Held: A federal tax lien filed before a delinquent taxpayer acquires real property must be given priority in that property over a private creditor's previously filed judgment lien. Priority for purposes of federal law is governed by the common-law principle that " 'the first in time is the first in right.' " United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85. A state lien that competes with a federal lien is deemed to be in existence for "first in time" purposes only when it has been "perfected" in the sense that, inter alia, "the property subject to the lien [is] established." Id. , at 84. Because the bank's judgment lien did not actually attach to the property at issue until the McDermotts acquired rights in that property, which occurred after the United States filed its tax lien, the bank's lien was not perfected before the federal filing. See id., at 84-86. United States v. Vermont [64-2 USTC ¶9520 ], 377 U.S. 251, distinguished. It is irrelevant that the federal lien similarly did not attach and become perfected until the McDermotts acquired the property, since §6323(c)(1) demonstrates that such a lien is ordinarily dated, for purposes of "first in time" priority against §6323(a) competing interests, from the time of its filing. Pp. 2-8.

[91-2 USTC ¶50,491 ], 945 F.2d 1475, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, KENNEDY, and SOUTER, JJ., joined. THOMAS, J., filed a dissenting opinion, in which STEVENS and O'CONNOR, JJ., joined.

JUSTICE SCALIA

delivered the opinion of the Court.

We granted certiorari to resolve the competing priorities of a federal tax lien and a private creditor's judgment lien as to a delinquent taxpayer's after-acquired real property.

I

On December 9, 1986 the United States assessed Mr. and Mrs. McDermott for unpaid federal taxes due for the tax years 1977 through 1981. Upon that assessment, the law created a lien in favor of the United States on all real and personal property belonging to the McDermotts, 26 U.S.C. §§6321 and 6322 , including after-acquired property, Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265 (1945). Pursuant to 26 U.S.C. §6323(a) , however, that lien could "not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof . . . has been filed." (Emphasis added.) The United States did not file this lien in the Salt Lake County Recorder's Office until September 9, 1987. Before that occurred, however--specifically, on July 6, 1987--Zions First National Bank, N.A., docketed with the Salt Lake County Clerk a state-court judgment it had won against the McDermotts. Under Utah law, that created a judgment lien on all of the McDermotts' real property in Salt Lake County , "owned . . . at the time or . . . thereafter acquired during the existence of said lien." Utah Code Ann. §78 -22-1 (1953).

On September 23, 1987 the McDermotts acquired title to certain real property in Salt Lake County . To facilitate later sale of that property, the parties entered into an escrow agreement whereby the United States and the Bank released their claims to the real property itself but reserved their rights to the cash proceeds of the sale, based on their priorities in the property as of September 23, 1987. Pursuant to the escrow agreement, the McDermotts brought this interpleader action in state court to establish which lien was entitled to priority; the United States removed to the United States District Court for the District of Utah.

On cross-motions for partial summary judgment, the District Court awarded priority to the Bank's judgment lien. The United States Court of Appeals for the Tenth Circuit affirmed. McDermott v. Zions First Nat'l Bank, N.A. [91-2 USTC ¶50,491 ], 945 F.2d 1475 (1991). We granted certiorari. 504 U.S. -- (1992).

II

Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, priority for purposes of federal law is governed by the common-law principle that " 'the first in time is the first in right.' " United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954); cf. Rankin & Schatzell v. Scott, 12 Wheat. 177, 179 (1827) (Marshall, C.J.). For purposes of applying that doctrine in the present case--in which the competing state lien (that of a judgment creditor) benefits from the provision of §6323(a) that the federal lien shall "not be valid . . . until notice thereof . . . has been filed"--we must deem the United States' lien to have commenced no sooner than the filing of notice. As for the Bank's lien: our cases deem a competing state lien to be in existence for "first in time" purposes only when it has been "perfected" in the sense that "the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. , at 84 (emphasis added); see also id., at 86; United States v. Pioneer American Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84 (1963).

The first question we must answer, then, is whether the Bank's judgment lien was perfected in this sense before the United States filed its tax lien on September 9, 1987. If so, that is the end of the matter; the Bank's lien prevails. The Court of Appeals was of the view that this question was answered (or rendered irrelevant) by our decision in United States v. Vermont, 377 U.S. 351 (1964) [64-2 USTC ¶9520 ], which it took to "stan[d] for the proposition that a non-contingent . . . lien on all of a person's real property, perfected prior to the federal tax lien, will take priority over the federal lien, regardless of whether after-acquired property is involved." ¹ [91-2 USTC ¶50,491 ] 945 F.2d, at 1480. That is too expansive a reading. Our opinion in Vermont gives no indication that the property at issue had become subject to the state lien only by application of an after-acquired-property clause to property that the debtor acquired after the federal lien arose. To the contrary, the opinion says that the state lien met (presumably at the critical time when the federal lien arose) "the test laid down in New Britain that . . . 'the property subject to the lien . . . [be] established.' " 377 U.S., at 358 (citation omitted). ² The argument of the United States that we rejected in Vermont was the contention that a state lien is not perfected within the meaning of New Britain if it "attach[es] to all of the taxpayer's property," rather than "to specifically identified portions of that property." 377 U.S. , at 355 (emphasis added). ³ We did not consider, and the facts as recited did not implicate, the quite different argument made by the United States in the present case: that a lien in after-acquired property is not "perfected" as to property yet to be acquired.

The Bank argues that, as of July 6, 1987, the date it docketed its judgment lien, the lien was "perfected as to all real property then and thereafter owned by" the McDermotts, since "[n]othing further was required of [the Bank] to attach the non-contingent lien on after-acquired property." Brief for Respondents 21. That reflects an unusual notion of what it takes to "perfect" a lien. ⁴ Under the Uniform Commercial Code, for example, a security interest in after-acquired property 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. §§9-203(1) and (2), 3 U.L.A. 363 (1992); §9-303(1), 3A U.L.A. 117 (1992). And attachment to particular property was also an element of what we meant by "perfection" in New Britain . See [54-1 USTC ¶9191 ], 347 U.S. , at 84 ("when . . . the property subject to the lien . . . [is] established"); id., at 86 ("the priority of each statutory lien contested here must depend on the time it attached to the property in question and became [no longer inchoate]"). ⁵ The Bank concedes that its lien did not actually attach to the property at issue here until the McDermotts acquired rights in that property. Brief for Respondents 16, 21. Since that occurred after filing of the federal tax lien, the state lien was not first in time. ⁶

But that does not complete our inquiry: Though the state lien was not first in time, the federal tax lien was not necessarily first in time either. Like the state lien, it applied to the property at issue here by virtue of a (judicially inferred) after-acquired-property provision, which means that it did not attach until the same instant the state lien attached, viz., when the McDermotts acquired the property; and, like the state lien, it did not become "perfected" until that time. We think, however, that under the language of §6323(a) ("shall not be valid as against any . . . judgment lien creditor until notice . . . has been filed"), the filing of notice renders the federal tax lien extant for "first in time" priority purposes regardless of whether it has yet attached to identifiable property. That result is also indicated by the provision, two subsections later, which accords priority, even against filed federal tax liens, to security interests arising out of certain agreements, including "commercial transactions financing agreement[s]," entered into before filing of the tax lien. 26 U.S.C. §6323(c)(1) . That provision protects certain security interests that, like the after-acquired-property judgment lien here, will have been recorded before the filing of the tax lien, and will attach to the encumbered property after the filing of the tax lien, and simultaneously with the attachment of the tax lien (i.e., upon the debtor's acquisition of the subject property). According special priority to certain state security interests in these circumstances obviously presumes that otherwise the federal tax lien would prevail--i.e., that the federal tax lien is ordinarily dated, for purposes of "first in time" priority against §6323(a) competing interests, from the time of its filing, regardless of when it attaches to the subject property. ⁷

The Bank argues that "[b]y common law, the first lien of record against a debtor's property has priority over those subsequently filed unless a lien-creating statute clearly shows or declares an intention to cause the statutory lien to override." Brief for Respondents 11. ⁸ Such a strong "first-to-record" presumption may be appropriate for simultaneously-perfected liens under ordinary statutes creating private liens, which ordinarily arise out of voluntary transactions. When two private lenders both exact from the same debtor security agreements with after-acquired-property clauses, the second lender knows, by reason of the earlier recording, that that category of property will be subject to another claim, and if the remaining security is inadequate he may avoid the difficulty by declining to extend credit. The Government, by contrast, cannot indulge the luxury of declining to hold the taxpayer liable for his taxes; notice of a previously filed security agreement covering after-acquired property does not enable the Government to protect itself. A strong "first-to-record" presumption is particularly out of place under the present tax-lien statute, whose general rule is that the tax collector prevails even if he has not recorded at all. 26 U.S.C. §§6321 and 6322 ; United States v. Snyder, 149 U.S. 210 (1893). Thus, while we would hardly proclaim the statutory meaning we have discerned in this opinion to be "clear," it is evident enough for the purpose at hand. The federal tax lien must be given priority.

The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

So ordered.

¹ As our later discussion will show, we think it contradictory to say that the state lien was "perfected" before the federal lien was filed, insofar as it applies to after-acquired property not acquired by the debtor until after the federal lien was filed. The Court of Appeals was evidently using the term "perfected" (as the Bank would) in a sense not requiring attachment of the lien to the property in question; our discussion of the Court of Appeals' opinion assumes that usage.

² The dissent cannot both grant the assumption "that the debtor in Vermont acquired its interest in the bank account before the federal lien arose," post, at 4-5, n. 2, and contend that "the debtor's interest in the bank account . . . could have been uncertain or indefinite from the creditors' perspective," id., at 5, n. 2. In the same footnote, the dissent misdescribes the "critical argument that we rejected" in Vermont . Ibid. It was not that "the State's claim could not be superior unless the account had been 'specifically identified' as property subject to the State's lien," ibid., but rather that the State's claim could not be superior unless it had "attach [ed ] to specifically identified portions of that property," United States v. Vermont, 377 U.S. 351 [64-2 USTC ¶9520 ], 355 (1964) (emphasis added).

³ The dissent claims that "the Government's 'specificity' claim rejected in Vermont is analytically indistinguishable from the 'attachment' argument the Court accepts today," since "[i]f specific attachment is not required for the state lien to be 'sufficiently choate,' then neither is specific acquisition." Post, at 4 (citation omitted). But the two are not comparable. Until the debtor has acquired the subject property, it is impossible to say that "the property subject to the lien [has been] . . . established," United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 84 (1954). Judicial attachment, on the other hand (and it is important to note that judicial attachment of the property, rather than attachment of the lien to the property, was what the Government's argument in Vermont involved), merely brings into the custody of a court property that is already--prior to judicial attachment--known to be subject to the lien.

⁴ The dissent accepts the Bank's central argument that perfection occurred when "there was 'nothing more to be done' by the Bank 'to have a choate lien' on any real property the McDermotts might acquire." Post, at 3 (quoting United States v. New Britain, supra, at 84); see also post, at 6. This unusual definition of perfection has been achieved by making a small but substantively important addition to the language of New Britain . "[N]othing more to be done to have a choate lien" (the language of New Britain ) becomes "nothing more to be done by the Bank to have a choate lien." Once one recognizes that the dissent's concept of a lien's "becom[ing] certain as to the property subject thereto," see post, at 3, 6, is meaningless, see n. 5, infra, it becomes apparent that the dissent, like the Bank, would simply have us substitute the concept of "best efforts" for the concept of perfection.

⁵ The dissent refuses to acknowledge the unavoidable realities that the property subject to a lien is not "established" until one knows what specific property that is, and that a lien cannot be anything other than "inchoate" with respect to property that is not yet subject to the lien. Hence the dissent says that, upon its filing, the lien at issue here "was perfected, even as to the real property later acquired by the McDermotts, in the sense that it was definite as to the property in question, noncontingent, and summarily enforceable." Post, at 3. But how could it have been, at that time, "definite" as to this property, when the identity of this property (established by the McDermotts' later acquisition) was yet unknown? Or "noncontingent" as to this property, when the property would have remained entirely free of the judgment lien had the McDermotts not later decided to buy it? Or "summarily enforceable" against this property when the McDermotts did not own, and had never owned, it? The dissent also says that "[t]he lien was immediately enforceable through levy and execution against all the debtors' property, whenever acquired." Post, at 3 (emphases added). But of course it was not "immediately enforceable" (as of its filing date, which is the relevant time) against property that the McDermotts had not yet acquired.

⁶ The dissent suggests, post, at 3-4, n. 1, that the Treasury Department regulation defining "judgment lien creditor," 26 CFR §301.6323(h)-1(g) (1992), contradicts our analysis. It would, if it contained only the three requirements that the dissent describes. In fact, however, it says that to prevail the judgment lien must be perfected, and that "[a] judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established." Ibid. (emphasis added).

⁷ The dissent contends that "there is no persuasive reason for not adopting as a matter of federal law the well-recognized common-law rule of parity and giving the Bank an equal interest in the property." Post, at 7, n. 4. As we have explained, the persuasive reason is the existence of §6323(c) , which displays the assumption that all perfected security interests are defeated by the federal tax lien. There is no reason why this assumption should not extend to judgment liens as well.A "security interest," as defined in §6323 , is not an insignificant creditor's preference. The term includes only interests protected against subsequent judgment liens. See 26 U.S.C. §§6323(h)(1) and 6323(c)(1)(B) . Moreover, the text of §6323(a) ("The lien . . . shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor") treats security interests and judgment liens alike. Parity may be, as the dissent says, a "well-recognized common-law rule," post, at 7, n. 4, but we have not hitherto adopted it as the federal law of tax liens in 127 years of tax lien enforcement.

⁸ The dissent notes that "[n]othing in the law of judgment liens suggests that the possibility, which existed at the time the Bank docketed its judgment, that the McDermotts would not acquire the specific property here at issue was a 'contingency' that rendered the Bank's otherwise perfected general judgment lien subordinate to intervening liens." Post, at 5. Perhaps. But priorities here are determined, not by "the law of judgment liens" but by §6323(a) , as our case-law has interpreted it. The requirement that competing state liens be perfected is part of that jurisprudence.

Dissenting Opinion

JUSTICE THOMAS, with whom JUSTICE STEVENS and JUSTICE O'CONNOR join

I agree with the Court that under 26 U.S.C. §6323(a) we generally look to the filing of notice of the federal tax lien to determine the federal lien's priority as against a competing state-law judgment lien. I cannot agree, however, that a federal tax lien trumps a judgment creditor's claim to after-acquired property whenever notice of the federal lien is filed before the judgment lien has "attached" to the property. Ante, at 5. In my view, the Bank's antecedent judgment lien "ha[d] [already] acquired sufficient substance and ha[d] become so perfected," with respect to the McDermotts' after-acquired real property, "as to defeat [the] later-filed federal tax lien." United States v. Pioneer American Ins. Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88 (1963).

Applying the governing "first in time" rule, the Court recognizes--as it must--that if the Bank's interest in the property was "perfected in the sense that there [was] nothing more to be done to have a choate lien" before September 9, 1987 (the date the federal notice was filed), United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 84 (1954), "that is the end of the matter; the Bank's lien prevails," ante, at 3. Because the Bank's identity as lienor and the amount of its judgment lien are undisputed, the choateness question here reduces to whether "the property subject to the lien" was sufficiently "established" as of that date. New Britain, supra, at 84. Accord, Pioneer American, supra, at 89. See 26 CFR §301.6323(h)-1(g) (1992). The majority is quick to conclude that "establish[ment]" cannot precede attachment, and that a lien in after-acquired property therefore cannot be sufficiently perfected until the debtor has acquired rights in the property. See ante, at 5-6. That holding does not follow from, and I believe it is inconsistent with, our precedents.

We have not (before today) prescribed any rigid criteria for "establish[ing]" the property subject to a competing lien; we have required only that the lien "become certain as to . . . the property subject thereto." New Britain, supra, at 86 (emphasis added). Our cases indicate that "certain" means nothing more than "[d]etermined and [d]efinite," Pioneer American, supra, at 90, and that the proper focus is on whether the lien is free from "contingencies" that stand in the way of its execution, United States v. Security Trust & Savings Bank [50-2 USTC ¶9492 ], 340 U.S. 47, 50 (1950). In Security Trust, for example, we refused to accord priority to a mere attachment lien that "had not ripened into a judgment," New Britain , supra, at 86, and was therefore "contingent upon taking subsequent steps for enforcing it," [50-2 USTC ¶9492 ], 340 U.S. , at 51. And in United States v. Vermont [64-2 USTC ¶9520 ], 377 U.S. 351 (1964), we recognized the complete superiority of a general tax lien held by the State of Vermont upon all property rights belonging to the debtor, even though the lien had not "attach[ed] to [the] specifically identified portions of that property" in which the Federal Government claimed a competing tax lien. Id. , at 355. With or without specific attachment, Vermont 's general lien was "sufficiently choate to obtain priority over the later federal lien," because it was "summarily enforceable" upon assessment and demand. Id. , at 359, and n. 12.

Although the choateness of a state-law lien under §6323(a) is a federal question, that question is answered in part by reference to state law, and we therefore give due weight to the State's " 'classification of [its] lien as specific and perfected.' " Pioneer American, supra, at 88, n. 7 (quoting Security Trust, supra, at 49). Here, state law establishes that upon filing, the Bank's judgment lien was perfected, even as to the real property later acquired by the McDermotts, in the sense that it was definite as to the property in question, noncontingent, and summarily enforceable. Pursuant to Utah statute, from the moment the Bank had docketed and filed its judgment with the clerk of the state court on July 6, 1987, it held an enforceable lien upon all nonexempt real property owned by the McDermotts or thereafter acquired by them during the existence of the lien. See Utah Code Ann. §78 -22-1 (1953). The lien was immediately enforceable through levy and execution against all the debtors' property, whenever acquired. See Belnap v. Blain, 575 P.2d 696, 700 ( Utah 1978). See also Utah Rule Civ. Proc. 69. And it was "unconditional and not subject to alteration by a court on equitable grounds." Taylor National, Inc. v. Jensen Brothers Constr. Co., 641 P.2d 150, 155 ( Utah 1982). Thus, the Bank's lien had become certain as to the property subject thereto, whether then existing or thereafter acquired, and all competing creditors were on notice that there was "nothing more to be done" by the Bank "to have a choate lien" on any real property the McDermotts might acquire. New Britain [54-1 USTC ¶9191 ], 347 U.S. , at 84. See Vermont , supra, at 355. ¹

The Court brushes aside the relevance of our Vermont opinion with the simple observation that that case did not involve a lien in after-acquired property. Ante, at 3-4. This is a wooden distinction. In truth, the Government's "specificity" claim rejected in Vermont is analytically indistinguishable from the "attachment" argument the Court accepts today. Vermont 's general lien applied to all of the debtor's rights in property, with no limitation on when those rights were acquired, and remained valid until the debt was satisfied or became unenforceable. See [64-2 USTC ¶9520 ] 377 U.S. , at 352. The United States claimed that its later-filed tax lien took priority over Vermont's as to the debtor's interest in a particular bank account, because the State had not taken "steps to perfect its lien by attaching the bank account in question" until after the federal lien had been recorded. Brief for United States in United States v. Vermont, O. T. 1963, No. 509, p. 12. "Thus," the Government asserted, "when the federal lien arose, the State lien did not meet one of the three essential elements of a choate lien: that it attach to specific property." Ibid. In rejecting the federal claim of priority, we found no need even to mention whether the debtor had acquired its property interest in the deposited funds before or after notice of the federal lien. If specific attachment is not required for the state lien to be "sufficiently choate," [64-2 USTC ¶9520 ] 377 U.S. , at 359, then neither is specific acquisition. ²

Like the majority's reasoning today, see ante, at 5, the Government's argument in Vermont rested in part on dicta from New Britain suggesting that "attachment to specific property [is] a condition for choateness of a State-created lien." Brief for United States in United States v. Vermont [64-2 USTC ¶9520 ], supra, at 19. See New Britain [54-1 USTC ¶9191 ], 347 U.S. , at 86 ("[T]he priority of each statutory lien contested here must depend on the time it attached to the property in question and became choate") (emphasis added). New Britain , however, involved competing statutory liens that had concededly "attached to the same real estate." Id. , [64-2 USTC ¶9520 ] at 87. The only issue was whether the liens were otherwise sufficiently choate. Thus, like Security Trust (and, in fact, like all of our cases before Vermont ), New Britain provided no occasion to consider the necessity of attachment to property that was not specifically identified at the time the state lien arose.

Nothing in the law of judgment liens suggests that the possibility, which existed at the time the Bank docketed its judgment, that the McDermotts would not acquire the specific property here at issue was a "contingency" that rendered the Bank's otherwise perfected general judgment lien subordinate to intervening liens. Under the relevant background rules of state law, the Bank's interest in after-acquired real property generally could not be defeated by an intervening statutory lien. In some States, the priority of judgment liens in after-acquired property is determined by the order of their docketing. 3 R. Powell, Law of Real Property ¶481[1], p. 38-36 (P. Rohan rev. 1991) (hereinafter Powell). See, e.g., Lowe v. Reierson, 201 Minn. 280, 287, 276 N.W. 224, 227 (1937). In others, the rule is that "[w]hen two (or more) judgments are successively perfected against a debtor and thereafter the debtor acquires a land interest[,] these liens, attaching simultaneously at the time of the land's acquisition by the debtor, are regarded as on a parity and no priority exists." 3 Powell ¶481[1], pp. 38-35 to 38-36. See, e.g., Bank of Boston v. Haufler, 20 Mass. App. 668, 674, 482 N.E.2d 542, 547 (1985); McAllen State Bank v. Saenz [83-1 USTC ¶9146 ], 561 F.Supp. 636, 639 (SD Tex. 1982). Thus, under state common law, the Bank would either retain its full priority in the property by virtue of its earlier filing or, at a minimum, share an equal interest with the competing lienor. ³ The fact that the prior judgment lien remains effective against third parties without further efforts by the judgment creditor is enough for purposes of §6323(a) , since the point of our choateness doctrine is to respect the validity of a competing lien where the lien has become certain as to the property subject thereto and the lienor need take no further action to secure his claim. Under this federal-law principle, the Bank's lien was sufficiently choate to be first in time. ⁴

I acknowledge that our precedents do not provide the clearest answer to the question of after-acquired property. See ante, at 8. But the Court's parsimonious reading of Vermont undercuts the congressional purpose--expressed through repeated amendments to the tax lien provisions in the century since United States v. Snyder, 149 U.S. 210 (1893)--of "protect[ing] third persons against harsh application of the federal tax lien," Kennedy, The Relative Priority of the Federal Government: The Pernicious Career of the Inchoate and General Lien, 63 Yale L.J. 905, 922 (1954). The attachment requirement erodes the "preferred status" granted to judgment creditors by §6323(a) , and renders a choate judgment lien in after-acquired property subordinate to a "secret lien for assessed taxes." Pioneer American [63-2 USTC ¶9532 ], 374 U.S. , at 89. I would adhere to a more flexible choateness principle, which would protect the priority of validly docketed judgment liens.

Accordingly, I respectfully dissent.

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