6321 After Acquired 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.

¹ The Department of Treasury regulations defining "judgment lien creditor" for purposes of §6323(a) set forth only three specific requirements for a choate lien (corresponding to the three "establish[ment]" criteria of New Britain ). The judgment creditor must "obtai[n] a valid judgment" (thus establishing the lienor) for the recovery of "specifically designated property or for a certain sum of money" (thus establishing the amount of the lien), and if recording or docketing is "necessary under local law" for the lien to be effective against third parties, the judgment lien "is not perfected with respect to real property until the time of such recordation or docketing." 26 CFR §301.6323(h)-1(g) (1992). The last requirement--recording or docketing--is the only specific requirement recognized in the regulations for establishing the real property subject to the judgment lien. The regulations in no way suggest that §6323(a) imposes any "attachment" condition for after-acquired property. Such a condition would be, in effect, an additional recordation requirement that is not otherwise imposed by local law.

² Even assuming, as the majority does, that the debtor in Vermont acquired its interest in the bank account before the federal lien arose, the critical argument that we rejected in that case was the contention that the State's claim could not be superior unless the account had been "specifically identified" as property subject to the State's lien. [64-2 USTC ¶9520 ] 377 U.S. , at 355. At the time of the federal filing, the debtor's interest in the bank account, like the McDermotts' interest in the property at issue here, could have been uncertain or indefinite from the creditors' perspective. Nevertheless, in both cases, the particular property was "known to be subject to the [state] lien," ante, at 4, n. 3, simply because that lien, by its terms, applied without limitation to all property acquired at any time by the debtor.

³ Article 9 of the Uniform Commercial Code is inapposite, and the Court's reliance on it misplaced. See ante, at 5. The technical rules governing the perfection and priority of the special security interests in personal property created by Article 9 have no application to traditional judgment liens in real property, see §9-102, 3 U.L.A. 73 (1992), and should have no bearing on the federal doctrine of "choateness." In the context of determining the relative priority of a competing statutory judgment lien, it is Article 9's notion of perfection that is the more "unusual." Ante, at 4.

⁴ Even if the Court were correct that attachment is the determinative criterion of choateness, we would have a tie, since the federal lien "did not attach [to the after-acquired property] until the same instant the state lien attached." Ante, at 6. That being so, 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. See 3 Powell ¶481[1]. Section 6323(a) 's requirement that the federal lien be "filed" to be effective may determine when the lien arises for general priority purposes, but the word "filed" provides no textual basis for concluding that a tie goes to the Government, and simply declaring that it does, see ante, at 6, does not make it so. The special exception in §6323(c) , which protects later-arising security interests that are based on certain preferred financing agreements, see ante, at 6-7, does not imply that judgment creditors lose out. Indeed, §6323(c) demonstrates that Congress has considered the question of later-arising property, and the absence of an analogous provision in §6323(a) suggests that Congress was content to let the courts apply one of the existing background rules to determine the relative priority (or parity) of the federal lien as against competing judgment liens in after-acquired property.

 

 

United States of America , Plaintiff-Appellant-Cross-Appellee v. James Neal Blakeman, As Executor of the Estate of C.E. Blakeman, Deceased, Robert Earl Blakeman and Karen A. Whaley, Defendants-Appellees- -Cross-Appellants and Cross-Appellees. Ridglea Bank, et al., Defendants-Appellees v. Maudine Blakeman, Defendant-Appellee-Cross-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, 91-1027, 7/28/93, 997 F2d 1084, 997 F2d 1084. On motion for reconsideration of a CA-5 decision, 92-2 USTC ¶50,455

[Code Secs. 6321 and 7520 ]

Lien for taxes: Property subject to lien: After-acquired property: Valuation: Homestead interest.--A federal tax lien, arising from an unpaid estate tax, reached property owned by a decedent's estate from the date of the assessment until the tax debt was satisfied. Therefore, it was proper to determine the proportionate values of the widow's homestead interest and the estate's interest in that property as of the date of the foreclosure sale, rather than as of the date the lien arose. The widow's interest was to be valued according to the Code Sec. 7520 valuation tables. The fact that she raised her argument concerning the applicability of these tables in her proposed findings of fact and conclusions of law was sufficient to preserve that argument for appeal, even though it was not raised again at trial.

Marvin Collins, United States Attorney, Waymon G. DuBose, Jr., Assistant United States Attorney, Dallas, Tex. 75242-0599, Gary R. Allen, David A. Hubbert, Kenneth L. Greene, Joy L. Pritts, Department of Justice, Washington, D.C. 20530, for U.S. William L. Kirkman, Bourland & Kirkman, 777 Taylor St., Penthouse I, Fort Worth Club Tower, Fort Worth, Tex. 76102, for defendants-appellees-cross-appellants and cross-appellees. David R. Seidler, Shannon, Gracey, Ratliff & Miller, 2200 First City Bk. Tower, 201 Main St., Fort Worth, Tex. 76102-9990, for Ridglea Bk. Stephen T. Meeks, Michael W. Deeds, Heard, Goggan, Blair, Williams & Harrison, 309 W. 7th St., Fort Worth, Tex. 79102, for Tarrant County. William D. Elliott, Brian Collins, William H. Hornberger, Jackson & Walker, 901 Main St., Dallas, Tex. 75202-3797, for Maudine Blakeman.

Before JOLLY, JONES, and GARZA, Circuit Judges.

ON PETITION FOR REHEARING

 

PER CURIAM:

IT IS ORDERED"EC THAT THE PETITION FOR REHEARING FILED IN THE ABOVE ENTITLED AND NUMBERED CAUSE BE AND THE SAME IS HEREBY GRANTED. WE HEREBY WITHDRAW PARTS II.C. AND III. OF OUR ORIGINAL OPINION, -- F.2D -- (5TH CIR. 1992), AND SUBSTITUTE THE FOLLOWING:

II

 

C

 

The district court, finding that Mrs. Blakeman's homestead interest was the economic equivalent of a life estate, used the Treasury tables set forth in Treasury Regulation §20.2031-10(f) ¹⁴ to determine its value. ¹⁵ The district court measured the value of the estate as of the date of the tax assessment and determined that the value of Mrs. Blakeman's homestead estate (life estate) was 74.423 percent of the total value of the 100 acres. The district court then held that the government's lien attached only to the estate's remainder interest in the 100 acres and held that the remainder interest was worth 25.577 percent of the value of the homestead as of the date of the assessment. ¹⁶ The district court, however, found that "inequity would result if Mrs. Blakeman were to . . . have the use of the homestead for the ten years that have passed since date of assessment, as she has had, and at the same time to receive sales proceeds representing the value of the homestead life estate for that same ten-year period," and concluded that Mrs. Blakeman's interest in the 100 acres should be determined by the value of Mrs. Blakeman's homestead interest as of the present date. Using the Treasury tables, then, the district court found Mrs. Blakeman's interest in the property to be 60.352 percent of the value of the land as of judgment. The district court then determined that the difference between the 74.423 percent representing the value of Mrs. Blakeman's homestead estate at date of assessment (June 17, 1980) and the 60.352 percent (Mrs. Blakeman's interest at judgment) should be given to the estate. ¹⁷

The government argues that Mrs. Blakeman's interest in the Randol Mill Property should be valued as of the foreclosure date and contends that the district court erred in holding that the government's tax lien was limited to the estate's interest in the property on the lien's attachment date. Mrs. Blakeman, on the other hand, argues that the district court should have determined the interests of the respective parties as of the date the lien arose. In the alternative, Mrs. Blakeman argues that, if her homestead interest is to be valued as of the foreclosure date, it should be valued under the tables promulgated pursuant to 26 U.S.C. §7520 , and the district court erred in using the tables under Treas. Reg. §20.2031-10. ¹⁸

Mrs. Blakeman contends that she is entitled to at least 74.423 percent of the gross proceeds realized from the sale of the homestead property without any reduction to account for the period she occupied the property. Mrs. Blakeman relies on Harris v. United States [85-2 USTC ¶9511 ], 764 F.2d 1126 (5th Cir. 1985), contending that the government should be estopped from asserting a position contrary to that taken in Harris. We find Mrs. Blakeman's contention without merit.

It is well-settled that a federal tax lien reaches property and interests in property owned by the taxpayer on the date of the assessment, as well as property and interests in property acquired by the taxpayer from that date until the tax debt is satisfied. See Texas Commerce Bank--Fort Worth v. United States [90-1 USTC ¶50,155 ], 896 F.2d 152, 161 (5th Cir. 1990) ("The lien arises on the date the IRS assesses unpaid taxes, applies to currently owned as well as after-acquired property, and continues until the taxpayer satisfies the debt or the statute of limitations runs."), citing 26 U.S.C. §6322 ; Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267, 66 S.Ct. 108, 110, 90 L. Ed. 56 (1945); United States v. Cache Valley Bank [89-1 USTC ¶9157 ], 866 F.2d 1242, 1244 (10th Cir. 1989); Prewitt v. United States [86-2 USTC ¶9513 ], 792 F.2d 1353, 1355 (5th Cir. 1986); see also Rice Investment Co. v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 568 (5th Cir. 1980) ("After-acquired property . . . is reached by the lien.") (citations omitted). Therefore, the federal tax lien reaches the interests of C.E.'s estate as of the date of the foreclosure sale.

Mrs. Blakeman's next argument is that, if her homestead interest is to be valued as of the foreclosure date, her interest should be valued according to the tables promulgated pursuant to 26 U.S.C. §7520 . ¹⁹ The government agrees that the tables promulgated pursuant to 26 U.S.C. §7520 are the proper tables to determine Mrs. Blakeman's interest in the property, but argues that, because Mrs. Blakeman failed to raise properly the issue of the applicability of §7520 in the district court, she has waived her right to assert that the district court should have used the tables promulgated pursuant to 26 U.S.C. §7520 . We disagree.

Mrs. Blakeman raised her argument concerning §7520 in her proposed findings of fact and conclusions of law, but she did not raise it again at trial. ²⁰ We believe, in light of our decision in Laney v. Comm'r of Internal Revenue [82-1 USTC ¶9355 ], 674 F.2d 342 (5th Cir. 1982), and decisions of other courts of appeals, that that was sufficient to preserve Mrs. Blakeman's argument for appeal. In Laney the taxpayers urged an issue on appeal which they had not pleaded before the tax court, and which the tax court had not addressed. See id. at 351. The Commissioner contended that the taxpayers had waived the argument. See id. We held that the argument was not waived, because the taxpayers had included the issue in their trial memo before the tax court. See id. The D.C. Circuit reached a similar result in Kapar v. Kuwait Airways Corp., 845 F.2d 1100 (D.C. Cir. 1988), where it held that an unpleaded issue was preserved for appeal by inclusion in memoranda of law submitted to the district court. See id. at 1103 n.7. In Hellenic Lines, Ltd. v. United States, 512 F.2d 1196 (2d Cir. 1975), the Second Circuit held that an issue was preserved for appeal because it was raised in proposed conclusions of law and in a post-trial memorandum. See id. at 1205 n.15 Because in those cases memoranda of law and proposed conclusions of law were adequate to preserve issues for appeal, we conclude that Mrs. Blakeman's proposed findings and conclusions were adequate to preserve her argument under §7520 .

The holding in United States v. Indiana Bonding & Sur. Co., 625 F.2d 26 (5th Cir. 1980), appears at first blush to support a contrary conclusion. In Indiana Bonding we held that the defendant, Indiana Bonding and Surety Company ("Indiana"), had waived its statute-of-limitations defense, because "[e]ven though this issue was listed as one of [Indiana's] contentions in the pretrial order . . . Indiana's failure to present evidence in support of the defense before the district court preclude[d] our review of it." See Indiana Bonding, 625 F.2d at 29. However, Indiana Bonding is distinguishable. Because the issue waived there--whether a cause of action was barred by the statute of limitations--required the presentation of evidence, we recognized Indiana 's failure to present evidence as a waiver of the issue. ²¹ See id. (" Indiana 's failure to present evidence in support of the defense before the district court precludes our review of it here."). In this case, by contrast, there was no need for Mrs. Blakeman to offer evidence regarding the applicability of §7520 , because the applicability of that section followed automatically from the date of valuation of Mrs. Blakeman's homestead interest. ²² Because it was unnecessary for Mrs. Blakeman to present evidence, we do not recognize her failure to do so as a waiver of her argument. Therefore, the logic of Indiana Bonding lacks force here, and we believe that Laney, Kapar, and Hellenic Lines offer better guidance for the resolution of this dispute.

Because Mrs. Blakeman did not waive her argument under §7520 , and because the government concedes that §7520 is applicable, we reverse and remand so that Mrs. Blakeman's homestead interest may be valued according to the tables promulgated pursuant to 26 U.S.C. §7520 .

III

 

For the foregoing reasons, we AFFIRM in part and REVERSE and REMAND in part for the district court to determine the government's interest in the Randol Mill Property as of the date of the foreclosure sale, in accordance with the tables set forth in the Treasury Regulations, and for the district court to determine the value of Mrs. Blakeman's homestead interest according to the tables promulgated pursuant to 26 U.S.C. §7520 .

¹⁴ See 26 C.F.R. §20.2031-10(f).

¹⁵ The court found that the parties agreed that "the value of Mrs. Blakeman's homestead estate is the economic equivalent of a life estate and that use of the tables set forth in Treas. Reg. §20.2031-10(f) in determining the value of said estate is appropriate." United States v. Blakeman, 750 F.Supp. 216, 222 (N.D. Tex. 1990) ("Memorandum Opinion")

¹⁶ The court so reasoned because "the general federal tax lien described in 26 U.S.C. §6321 and on which federal levy may be had under 26 U.S.C. §7403(a) attaches only to the interest of the delinquent taxpayer in particular property and not to the entire property." See Blakeman, 750 F.Supp. at 222 ("Memorandum Opinion") (citing United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 690 (1983)). This amount represents 14.071 percent.

¹⁷ See Blakeman, 750 F.Supp. at 222 ("Memorandum Opinion").

¹⁸ Federal district courts in tax foreclosure cases are authorized to order a sale of the homestead property and distribute the sale proceeds in accordance with the interests of the parties. See 26 U.S.C. §7403(c) . Section 7403(c) does not, however, provide a precise method of (1) valuing the interests of the parties to the foreclosure and (2) distributing the sales proceeds realized on the foreclosure sale. Id.

¹⁹ Mrs. Blakeman contends that the district court erred when it stated that she agreed that the tables under Treas. Reg. §20.2031-10 should be used to determine the extent of her homestead interest.

²⁰ Mrs. Blakeman's proposed findings and conclusions stated:

3. In 1988, Congress enacted Section 7520 , which is the determining provision for valuing life estates and remainder interests at this time. Section 7520 requires the life estate and remainder to be determined

a. Under the tables prescribed by the Secretary, and

b. By using an interest rate equal to 120% of the Federal midterm rate in effect under Section 1274(d)(1) for the month in which the valuation date falls.

If the date of measurement is the date of foreclosure, then the Federal midterm rate for September 1990 is 8.53%. The second element of the formula is 120% of the Federal midterm rate, which is 10.28%. Table R(1) (located at [paragraph] 311AB of CCH Standard Federal Tax Reporter) for a person age 62 (Maudine Blakeman's current age) at 10.2% reflects a remainder factor of .25532% [sic], and therefore, results in a life estate factor of 74.468% of the gross sale price of the property sold at foreclosure.

Record on Appeal, vol. 4, at 866-67.:

²¹ We do not mean to suggest that, in every case where the admission of evidence is appropriate to the resolution of a disputed issue, failure to elicit testimony leads to waiver of the issue. That question is not before us, and we express no opinion on the subject.

²² Section 7520 applies if the valuation date occurs on or after May 1, 1989. The district court determined that the valuation date was the date of foreclosure, and ordered a foreclosure sale within 120 days of October 30, 1990. Therefore, the valuation date occurred after May 1, 1989, and it automatically followed that §7520 applied.

 

 

 

United States of America, Plaintiff-Appellant v. Big Value Supermarkets, Inc. d/b/a Perry's Pantry, Toledo Trust Company, Country Charm Properties, State of Ohio, Bureau of Workman's Compensation, State of Ohio, Bureau of Employment Services, Heilman & Meyer, Inc., Perrysburg Land Company, Defendants-Appellees

(CA-6), U.S. Court of Appeals, 6th Circuit, 89-3210, 3/12/90, 898 F2d 493, 898 F2d 493. Reversing and remanding an unreported District Court decision

[Code Sec. 6321 ]

Lien for taxes: After-acquired property: Vendee's interest: State law: Land installment contract.--A ruling that a tax lien on property of which the taxpayer was a vendee under an installment contract was limited to the amount paid on the contract was erroneous. Before the taxpayer entered into the installment contract with the lessor, a tax lien was filed by the lessee against any property or rights in property the taxpayer owned. Because the lien was in existence at the time the taxpayer entered into the installment contract, the lien attached to whatever interest the taxpayer acquired at the time the contract was executed. Under state ( Ohio ) law, the government succeeded to interests that were not limited solely to the amount the taxpayer paid toward the purchase price.

Before KRUPANSKY and NELSON, Circuit Judges, and BROWN, Senior Circuit Judge.

BROWN, Senior Circuit Judge:

The United States appeals a district court order that limited the extent of a tax lien on real property of which the taxpayer was the vendee under an installment contract to the amount that the taxpayer had paid on the contract. The order also discharged the subject real property from the tax lien. Because we find that under Ohio law a vendee's interest that is created pursuant to a land installment sale contract is not limited to the amount paid on the contract, we reverse.

FACTS

On December 7,1976, Big Value Supermarkets, Inc. ("Big Value") leased from Heilman & Meyer, Inc. ("Heilman") real property located in Ohio . The agreement granted Big Value an exclusive option to purchase the property. In May, 1981, Big Value notified Heilman of its intention to exercise the option. Big Value requested that Heilman convey the property directly to Norman C. Hartsell, Trustee of the Joseph Trust; ¹ however, Heilman refused to convey to anyone other than Big Value. On September 30, 1981, the federal government filed notices of federal tax liens, in the amount of $28,590.97, against any property or rights in property owned by Big Value. ²

Big Value entered into an installment contract with Heilman on November 15, 1981. The purchase price was $120,000, including a $10,000 down payment and 150 monthly installments of $1,163.55 each. The exact market value of the property at the time of this agreement is not known; however, there is evidence to indicate that the property was worth between $155,000 and $250,000. ³ The standard form contract that the parties executed provided that "[a]dditional payments or entire payment of the principal may be made at any time." It also provided that "[u]pon fulfillment of Vendee's obligations under the terms of this contract, Vendor agrees to convey said property to Vendee by deed of general warranty." Joint Appendix 47. ⁴ The Joseph Trust paid to Heilman for Big Value both the $10,000 down payment and $3,200 that was due in back rent. ⁵

Immediately after the parties had entered into the installment contract, Big Value quitclaimed any interest it had obtained to the Joseph Trust in exchange for a forgiveness of indebtedness of $50,000 owed by Victor Joseph to the trust. Subsequently, as the result of further transfers, Country Charm became the owner of the interest that Big Value originally had acquired.

During this period of Country Charm's ownership, the United States filed suit to reduce its lien to judgment and to foreclose on the subject real property. Country Charm responded that assuming the lien was valid, it attached only to Big Value's interest in the installment contract and not to the real property. The district court determined that the government could reach the real property, but only to the extent of the $13,200 that Big Value had paid towards the purchase price.

Subsequently, Country Charm tendered a check in the amount of $13,200 to the United States with a restrictive endorsement that stated that acceptance or negotiation of the check constituted full payment of the claim of the United States . After a government employee had sent the check to a depositary bank, the United States Attorney notified Country Charm that the government's acceptance of the check did not constitute an accord and satisfaction. The United States tendered a $13,200 check to Country Charm; however, Country Charm refused to accept it. Country Charm then moved for satisfaction of the judgment and release of the liens. The district court granted the motion and released the subject real property from the tax liens. ⁶

ANALYSIS

The government contends that the district court erred by finding that Big Value's interest in the real property subject to the government's lien was limited to the amount Big Value had paid towards the purchase price. The government's theory is that the taxpayer also owned the value equal to the difference between the contract price and the market value of the property. Because this difference was at least $35,000, Big Value's interest, according to the government, more than covered the total amount due under the tax liens. Country Charm, on the other hand, argues that the district court properly applied Ohio law, which Country Charm contends limits the vendee's interest in real property that is purchased pursuant to an installment contract to the amount that has been paid towards the contract price. Because the question in this case is one of law, we review it de novo. In re Edward M. Johnson & Assoc., 845 F.2d 1395, 1398 (6th Cir. 1988).

A federal tax lien arises once an assessment occurs, and it attaches once the taxpayer fails to pay the taxes after demand has been made. I.R.C. §§6321 , 6322 (1989); Harris v. United States , 764 F.2d 1126, 1128 (5th Cir. 1985). The lien attaches to all property and all rights to property of the taxpayer, I.R.C. §6321 , including those acquired by the taxpayer after the lien arises, Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267 (1945). In the instant case, the tax lien was in existence at the time that Big Value exercised its option and entered into the contract with Heilman; therefore, the lien attached to whatever interest Big Value acquired at the time the contract was executed.

It is settled federal law that the United States may seize and sell both real and personal property of the taxpayer, both tangible and intangible, to satisfy its liens. G.M. Leasing Corp. v. United States [77-1 USTC ¶9140 ], 429 U.S 338, 349-50 & 349 n.15 (1977); see also I.R.C. §6331 . However, federal law requires the government to join all parties who have an interest in the property so that the proceeds of the sale are correctly distributed. I.R.C. §7403(b) ; United States v. Overman [70-1 USTC ¶9342 ], 424 F.2d 1142, 1146 (9th Cir. 1970); United States v. Trilling [64-1 USTC ¶9292 ], 328 F.2d 699, 703 (7th Cir. 1964). Once the sale is made, the government must distribute the proceeds according to the "first in time, first in right" theory. United States v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1473 (10th Cir. 1987), cert. dismissed sub nom. County of Boulder v. United States , 108 S. Ct. 1762 (1988). The government may not obtain from the sale an amount greater than the extent of the interest the taxpayer held, which is determined by state law. Overman, 424 F.2d at 1146. We look to Ohio law, therefore, to determine Big Value's interest.

The district court relied on Woloveck v. Schueler, 19 Ohio App. 210 (1922), for its determination that Big Value's interest was limited to the amount paid on the contract. We find, however, that Woloveck is not controlling. In that case, the issue was whether a court of equity would declare a forfeiture of all payments made pursuant to a land installment contract and declare the contract void when the plaintiff-vendor could not convey marketable title to the defaulting vendee, who had paid a substantial portion of the contract price. The Ohio Court of Appeals refused to declare a forfeiture. The court made the following statement in the case, on which Country Charm relies:

We regard it as settled in this state, as it is in many states in the union, that a contract for the sale and purchase of real estate, where the vendee takes possession, which contract binds the vendee to pay therefor and binds the vendor to convey on payment of the price, gives to the vendee an equitable estate in the land equal to the amount of the purchase money paid by him, and which, upon full payment, may ripen into a complete equity, entitling him to conveyance of the legal title according to the terms of the contract, and that until such full payment and conveyance are made the vendor has the legal title and a beneficial interest in the lands to the extent of the unpaid purchase money.

Woloveck, 19 Ohio App. at 217-18. This statement defines the vendee and vendor's interests as they relate only to the contract price. Woloveck does not answer the question of who as between the vendor and vendee owns the difference in value between the market value and the contract price when land is sold by installment contract for less than its market value.

Ohio law defines a land installment contract as an executory agreement, which by its terms is not required to be fully performed within one year, and under which the vendor agrees to convey title to the vendee and the vendee agrees to pay the purchase price in installments, while the vendor retains title to the property as security for the vendee's obligation. Ohio Rev. Code Ann. §5313.01 ( Anderson 1989). We note that the vendor may not place a mortgage on the property in an amount greater than the balance due on the contract without the consent of the vendee. Id. §5313.02(B) .

The real property interests of the parties to the contract were defined in Blue Ash Building & Loan v. Hahn, 20 Ohio App.3d 21, 484 N.E.2d 186 (1984). Although the vendee is not the sole owner of the real property, he stands as the equitable owner with all obligations and incidents of ownership. The vendor, on the other hand, holds legal title. Id. at 24, 484 N.E.2d at 189. The Blue Ash court analogized these interests to the interests that arise between vendor and purchaser in an outright purchase of land during the period between when they enter into the contract to sell and purchase the land and when the actual conveyance takes place, under the doctrine of equitable conversion. The purchaser is considered in equity as the owner, similar to a mortgagor, while the vendor holds the bare legal title to the property as a trustee. Id. Under the doctrine, the purchaser bears all losses, Sanford v. Briedenbach, 111 Ohio App. 474, 482, 173 N.E.2d 702, 707 (1960), and he is entitled to all gains, Gilbert & Ives v. Port, 28 Ohio St. 276, 292 (1876).

In the instant case, the agreement between Big Value and Heilman also created contract rights in both parties. These contract rights are choses in action, which are valuable property rights under Ohio law. Lucas v. Limbach, 35 Ohio St. 3d 71, 73, 518 N.E.2d 944, 946 (1988). Big Value had the right under the contract to compel the conveyance of the legal title upon its paying the remainder of the purchase price. At the same time, Heilman had the right to receive the remainder of the purchase price according to the payment terms agreed to by the parties.

At the instant when the installment contract was executed, the government acquired a lien on the same real property and contract rights that Big Value had acquired. Moreover, federal law gave the government the right to seize and sell the real property to satisfy its liens. The government had the choice, under the contract, of selling the property subject to Heilman's right to receive future payments or of paying the balance due Heilman in a lump sum and selling the property free of that encumbrance. Had it chosen this latter route, it could have recovered from the sale first, the $106,800 paid to Heilman, the full amount that Heilman was entitled to under the law, and second, $28,590.97 plus interest and penalties in satisfaction of the liens. The remainder, if anything, would have been distributed to Big Value, because all other interests with a higher priority would have been satisfied. ⁷

Because the property in this case was worth at least $155,000, the government had the opportunity, through seizure and sale, to realize more than $13,200, the amount paid by Big Value on the contract. Regardless of the amount it would have received, however, the government succeeded to interests under Ohio law that were not limited in value solely to the amount that Big Value had paid towards the purchase price.

Country Charm urges us to find that because Big Value immediately quitclaimed its interest to the Joseph Trust, Big Value could not have acquired any interest greater than the amount of the down payment. We disagree. The interests we have described arose at the instant that Big Value and Heilman executed the agreement. Big Value acquired its interests prior to transferring these interests to the trust. It is settled federal law that transfers subsequent to the attachment of a federal lien do not affect the lien in any way. United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 57 (1958).

For the foregoing reasons, we REVERSE and REMAND to the district court for further proceedings not inconsistent with this opinion.

¹ One beneficiary of the Joseph Trust was Victor Joseph, the sole Big Value shareholder.

² Big Value has stipulated that the amount of the tax liens is $28,590.97 plus interest and penalties since October 31, 1986, and that Big Value failed, neglected or refused to pay the assessments. The taxes were assessed in part on December 15, 1980, and in part on July 6, 1981.

³ An opinion letter from Paul J. Burnor, A.S.A., dated May 7, 1981, indicated that the property had a value-in-use worth of $250,000 and a rental property value of $155,000. Supplemental Joint Appendix 49-50. Country Charm Properties ("Country Charm"), the present owner of the interest that Big Value originally acquired, does not dispute the fact that the market value of the property was greater than the contract price. Instead, it argues that the value of the property is irrelevant to the disposition of this case.

⁴ The contract further indicated that the property was encumbered by a mortgage in favor of Citizens Banking Company, dated July 13, 1972. No information concerning the terms of this mortgage was made available to this court. Neither of the parties made any oral or written reference to it during the pendency of this appeal. Moreover, the government's complaint did not name Citizens Banking Company as a defendant-interested party. This opinion does not take into account any interest that Citizens Banking Company might have asserted.

⁵ Although the installment contract indicates that a down payment of $10,000 was made and the purchase price was $120,000, the parties agree that the balance due was $106,800 rather than $110,000, because the $3,200 payment of back rent was considered to be part of the purchase price.

⁶ The district court analyzed the motion as one claiming accord and satisfaction, and it denied the motion. Country Charm then moved the district court to vacate its order of denial and to find that Country Charm's payment constituted a complete satisfaction of the district court's original order that had limited the extent of the government's right to recover to the $13,200. The district court vacated its order and granted the motion. Country Charm does not contend that it is entitled to prevail on the theory that the government's initial acceptance of the check constituted an effective accord and satisfaction.

⁷ We realize that there are other parties who have acquired interests in the subject property since Big Value quitclaimed its interest to the trust. Any sale of the property would, of course, require the government's joining all interested parties and distributing the proceeds according to the "first in time, first in right" theory.

 

 

 

Estate of Sandra Limbaugh, by and through its special administrator, Stacey Limbaugh, Plaintiff-Appellant v. Department of the Treasury, Internal Revenue Service, Lisa Garcia, Ava Mills, Howard Baltazar, Ruth Beck, Defendants-Appellees

(CA-9), U.S. Court of Appeals, 9th Circuit, 98-16630, 5/1/2000, 2000 U.S. App. LEXIS 8814. Affirming an unreported District Court decision

[Code Sec. 6321 ]

Levy and distraint: Wrongful levy: After-acquired property: Recording of lien.--An individual's wrongful levy action that her estate continued after her death was properly dismissed. Although the lien on the real property that the decedent had received from father resulted from assessments made against him before he took ownership of the property, it also applied to his after-acquired property. The lien was properly recorded; thus, regardless of whether the state ( California ) Uniform Fraudulent Transfer Act could extinguish the transferor's interest in the property, the lien remained with the property even after the transfer to the taxpayer's estate.

[Code Secs. 6331 and 7426 ]

Levy and distraint: Wrongful levy: Creation of levy: Ownership: Extinguishment.--An individual's wrongful levy action that her estate continued after her death, was properly dismissed. Code Sec. 7426 did not provide the estate with a cause of action since the transferor of the real property at issue, the decedent's father, had an interest in the property when the IRS levied on its tax lien. The relevant date for determining whether the lien was wrongful was the date on which the lien arose. Under state ( California ) law, the transferor had an interest in the property from the date it was purchased to the date that the California Uniform Fraudulent Transfer Act's (CUFTA) limitations period lapsed. Since CUFTA did not extinguish the transferor's interest in the property before the tax lien arose, the levy could not be characterized as wrongful under Code Sec. 7426 .

Stacey Limbaugh, East Palo Alto, Calif, pro se. Willard D. Horwich, Beverly Hills, Calif., for plaintiff-appellant. John A. Dudeck, Jr., Department of Justice, Washington, D.C. 20530, for Department of Treasury, I.R.S. Marcus A. Christian, Department of Justice, Washington, D.C. 20530, David Denier, for defendants-appellees.

Before: TASHIMA and GRABER, Circuit Judges, ¹ and STOTLER, District Judge. ²

 Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.

MEMORANDUM ³

The estate of Sandra Limbaugh, acting by and through the special administrator of the estate, Stacey Limbaugh, appeals from the district court's judgment in favor of Defendant in this wrongful levy action. ⁴ Sandra Limbaugh filed this action, after the Internal Revenue Service (IRS) levied on her residence in East Palo Alto , California , to collect taxes owed by her father, Harry Stamp. After a bench trial, the district court concluded that the IRS's levy was not wrongful. This timely appeal followed.

We review the district court's findings of fact for clear error. See Valley Eng'rs Inc. v. Electric Eng'g Co., 158 F.3d 1051, 1052 (9th Cir. 1998), cert. denied sub nom., Electric Eng'g Co. v. Calpine Corp., 526 U.S. 1064, 119 S.Ct. 1455, 143 L.Ed.2d 542 (1999). We review de novo the district court's conclusions of law. See Cigna Property & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 418 (9th Cir. 1998), cert. denied, 145 L.Ed.2d 46, 120 S.Ct. 53 (1999).

I. THE "EXTINGUISHMENT" PROVISION OF CUFTA

First, Appellant argues that the California Uniform Fraudulent Transfer Act (CUFTA) bars the IRS's levy. The section of that statute on which she relies is California Civil Code §3439.09. According to Appellant that provision is not merely a state statute of limitations that could not be applied against the federal government under the rule of United States v. Summerlin [40-2 USTC ¶9633], 310 U.S. 414, 84 L.Ed. 1283, 60 S.Ct. 1019 (1940). Rather, Appellant asserts that the provision extinguished an element of the IRS's fraudulent transfer claim and "created absolute and unassailable ownership of the subject property in [Sandra Limbaugh] on February 26, 1995" (or four years after she purchased the property). Because the IRS did not levy on the East Palo Alto house until 1997, Appellant concludes, its levy was directed at property in which the taxpayer had no interest and, accordingly, was wrongful. We need not interpret section 3439.09 in this case, however, because Appellant cannot prevail even under her interpretation of it.

The wrongful levy statute, 26 U.S.C. §7426, allows a third party--that is, a party other than the delinquent taxpayer or the IRS--to challenge an IRS levy. To state a claim for wrongful levy, a party must show (1) an interest in or lien on the property; and (2) "that such property was wrongfully levied upon." 26 U.S.C. §7426. The first requirement is not in dispute here; Sandra Limbaugh had an interest in the East Palo Alto house as record title owner. Only the requirement of a "wrongful levy" is in dispute.

The IRS has defined the term "wrongful levy" by regulation. As relevant, that regulation states that a levy is wrongful if it "is upon property in which the taxpayer had no interest at the time the lien arose or thereafter." 26 C.F.R. §301.7426-1(b). Here, Appellant is arguing that the IRS is levying on property in which the taxpayer (Harry Stamp) did not have an interest.

The difficulty with Appellant's argument is one of timing. She argues that Harry Stamp had no interest in the property when the IRS levied on its lien in 1997, because his interest was extinguished in 1995. But the regulation explicitly states that the relevant date for determining whether a levy is wrongful is not the date of the levy but, rather, the date on which the lien arose. See 26 C.F.R. §301.7426-1(b)(2). Thus, the levy would have been "wrongful" under Appellant's theory only if CUFTA had extinguished Harry Stamp's interest in the house before the lien arose.

A federal tax lien is created in the amount of any unpaid tax on "all property and rights to property, whether real or personal, belonging to [the delinquent taxpayer]." 26 U.S.C. §6321. State law governs the initial inquiry into whether the taxpayer has an interest that can be defined as "property," to which a lien can attach. See United States v. Battley (In re Kimura) [92-2 USTC ¶50,397], 969 F.2d 806, 811 (9th Cir. 1992) (so stating). Under California law, Harry Stamp had an interest in the East Palo Alto house at least from the date it was purchased, February 26, 1991, to the date that CUFTA's limitations period lapsed, February 26, 1995, because he provided funds for its purchase through his sham trust.

The next question is whether, for purposes of 26 C.F.R. §301.7426-1(b)(2), the IRS's tax lien "arose" during the period when Harry Stamp's ownership interest in the property is undisputed. The questions of when the lien arose, and what effect it had once it arose, are questions of federal law. See Kimura [92-2 USTC ¶50,397], 969 F.2d at 811 n.1.

A federal tax lien arises when unpaid taxes are assessed. See 26 U.S.C. §6322; United States v. McDermott [93-1 USTC ¶50,164], 507 U.S. 447, 448, 123 L.Ed.2d 128, 113 S.Ct. 1526 (1993). That lien attaches to all real or personal property belonging to the delinquent taxpayer and remains attached to that property until either the tax is paid or the lien becomes unenforceable because of lapse of time, i.e., upon expiration of the federal statute of limitations for collection of the underlying debt. See 26 U.S.C. §6322; United States v. Donahue Indus., Inc. [90-2 USTC ¶50,343], 905 F.2d 1325, 1330 (9th Cir. 1990). The lien also attaches to after-acquired property. See McDermott [93-1 USTC ¶50,164], 507 U.S. at 453. To be valid against certain subsequent purchasers and lienholders, a federal tax lien must be recorded. See 26 U.S.C. §6323. Here, the IRS first recorded notice of its lien on the East Palo Alto house in 1994. A federal tax lien "continues to attach to a taxpayer's property regardless of any subsequent transfer of the property." Donahue Indus. [90-2 USTC ¶50,397], 905 F.2d at 1331.

The IRS may levy on property on which it has a lien to collect delinquent taxes. See 26 U.S.C. §6331(a). The IRS may levy on such property even if the taxpayer no longer has an interest in it, so long as the lien remains. See Donahue Indus. [90-2 USTC ¶50,397], 905 F.2d at 1331.

Applying those general principles to the facts of this case, it is clear that the IRS had a lien on Harry Stamp's interest in the East Palo Alto house before that interest was "extinguished" under Appellant's theory. The IRS assessed delinquent taxes against Stamp in 1988, 1989, and 1990. Those assessments covered tax years 1983 and 1985-87. When the IRS made those assessments, a lien arose that attached to all Stamp's real and personal property and remained in effect until it was satisfied or it lapsed. That lien also attached to any property interests that Stamp acquired later; when he acquired a 75.47 percent interest in the East Palo Alto house on February 26, 1991, the lien attached immediately to that interest.

The lien was not dislodged before the IRS levied on the house in 1997. As noted, tax liens continue until the taxpayer's liability "is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C. §6322. Further, the duration and termination of a tax lien are wholly issues of federal law. See Kimura [92-2 USTC ¶50,397], 969 F.2d at 811 n.1. In this case, the taxpayer's liability has not been satisfied, and the relevant federal limitations period governing the duration of the tax lien has not expired. Even if CUFTA extinguished any interest that Harry Stamp had in the property, as Appellant contends, the IRS's lien remained on the property, because tax liens remain attached to property even after the delinquent taxpayer is divested of his or her interest. A valid federal tax lien cannot be extinguished by operation of CUFTA.

Under 26 C.F.R. §301.7426-1(b)(2), a levy is "wrongful" if it is upon property in which the taxpayer "had no interest at the time the lien arose or thereafter." Here, the lien "arose" in 1988, when the IRS first assessed delinquent taxes against Harry Stamp. Stamp acquired an interest in the East Palo Alto house "thereafter," on February 26, 1991. The IRS properly recorded notice of that lien in 1994. The lien attached to Stamp's interest and was never dislodged from the property. Therefore, the IRS's levy on that lien was not "wrongful" under 26 U.S.C. §7426 and the IRS's regulations interpreting that statute, regardless whether CUFTA extinguished Stamp's interest in the property in 1995.

II. CONSTRUCTIVE TRUST

Appellant also argues that the IRS's levy was too large by half because, under Wisconsin law, a constructive trust encompassing half the value of the Lake Geneva property arose in favor of Marilyn Stamp when she conveyed that property to Harry Stamp. That argument is unpreserved, and we decline to address it.

AFFIRMED.

¹ The panel unanimously finds this case suitable for decision without oral argument. See Fed.R.App.P. 34(a)(2).

² The Honorable Alicemarie H. Stotler, United States District Judge for the Central District of California, sitting by designation.

³ This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3.

⁴ Sandra Limbaugh was the original plaintiff in this case and brought this appeal. Regrettably, she died in February 2000. Pursuant to a motion under Fed.R.App.P. 43(a), we substituted her daughter, Stacey Limbaugh, acting as special administrator of Sandra Limbaugh's estate, as appellant.

 

 

 

Joe Conzola and Bernard N. Hochberg t/a Jonar, a Texas partnership, Plaintiff v. City of Miami, a municipal corporation, Defendant/ /Counter-Plaintiff/Third-Party Plaintiff v. Internal Revenue Service, an agency of the United States, and INTEXX Corporation, a Nevada corporation, Third-Party Defendants

U.S. District Court, So. Dist. Fla. , 90-0001-CIV-Graham, 1/4/93

[Code Secs. 6321 and 6323 ]

Lien for tax: Property subject to lien: Priority of security interest.--A secured party's claim to funds prevailed over the government's lien under the "first in time, first in right" rule, since the interest, which was assigned to the secured party, was perfected before the IRS filed its notice of tax lien. Although the interest came into existence before the federal lien for taxes arose, such lien may attach to after-acquired property. The assignee's interest in the property was perfected at the time of assignment, even though no financing statement was filed. Under state ( Nevada ) law, the assignee was not required to file a financing statement because the assignment did not constitute a significant part of the assignor's accounts.

MEMORANDUM OPINION AND FINAL JUDGMENT

GRAHAM, District Judge:

Plaintiffs, Joe Conzola and Bernard Hochberg, t/a Jonar ("Jonar") filed suit against the City of Miami ("the City") to recover funds due under an alleged contract between Jonar and the City. The City filed an action for interpleader against Third-Party Defendants Intexx Corporation ("Intexx") and the Internal Revenue Service ("IRS"), who made claims to all or part of the money demanded by Jonar. The City's complaint for interpleader was granted and the funds due under the contract were deposited into the court's registry. Subsequently, a default was entered against Intexx for failure to serve or file any response to the third-party complaint. Since both Jonar and the IRS claim an interest in the funds, the action proceeded in order to determine the party entitled to the funds. Prior to trial, the United States of America was substituted as a party in place of the IRS ("the Government").

This matter was tried on August 18, 1992 before the court sitting without a jury. Having heard and considered the testimony of the witnesses and the arguments of counsel, and reviewed the exhibits presented, the court makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

In July 1988, the City sought bids on the construction of two prefabricated floorless restroom buildings ("Modulars"). The sole bidder for the construction project was Intexx, whose principal place of business was Washoe County , Reno , Nevada . In October 1988, Intexx's bid was accepted by the Miami City Commission, which must approve all bids exceeding $4,500.00. The City prepared and sent a purchase order to Intexx.

Blazer Manufacturing, Inc. ("Blazer"), a Texas corporation which built modular restroom facilities, was engaged by Intexx to build the Modulars ordered by the City. These Modulars were to be made at Blazer's manufacturing site located on Texas property it leased from Jonar. Intexx encountered financial difficulties and could not fulfill its contract with the City. Blazer defaulted on the lease agreement between it and Jonar, resulting in the termination of the lease.

On November 5, 1988, Blazer, Intexx, Jonar and Nevada National Bank, a Nevada corporation ("NNB") entered into an agreement ("the Agreement") whereby Blazer, Intexx and NNB released to Jonar all of their respective rights, title and interest to the buildings located on Jonar's property, including the partially constructed Modulars. The Agreement allocated the proceeds of the sale of certain properties, including the Modulars, to Jonar and directed that payment be made directly to Jonar. Jonar accepted the transfer and release of the Modulars and agreed to use its best efforts to complete the Modulars and deliver them to the City. Jonar also agreed to file "all such lien notices or stop notices which may be required in the applicable jurisdictions to protect the right of Jonar to collect such proceeds against the claims of any and all third party creditors, including but not limited to the State of California." To date, Jonar has not filed any notices regarding the assignment of proceeds at issue here.

Jonar advised the City that it would not deliver the completed Modulars until it received a purchase order directed to Jonar. In April 1989, Jonar received a purchase order for the Modulars at the agreed purchase price of $99,758.00.

An authorized representative of the Secretary of the Treasury assessed taxes against Intexx in the amounts listed as follows: $20,275.72 was assessed on July 6, 1987 (notice was filed on April 23, 1991); $4,011.67 was assessed on March 26, 1990 (notice was filed on May 9, 1990); $11,104.08 was assessed on July 15, 1991 (notice was filed on May 12, 1992; and $320.35 was assessed on March 13, 1989 (notice was filed on April 23, 1991).

II. CONCLUSIONS OF LAW

When a taxpayer fails to pay his tax after notice and demand has been made, a federal tax lien arises from the date of assessment. In re Hamilton Associates, Inc., 66 B.R. 674 (Bankr. D. Nev. 1986). The tax lien attaches to "all property and rights to property, whether real or personal" belonging to the taxpayer. 26 U.S.C. §6321 . "The threshold question in any case involving the federal government's assertion of its tax lien is whether and to what extent the taxpayer had "property" within the meaning of the federal tax lien statute." Randall v. H. Nakashima & Co., Ltd. [76-2 USTC ¶9770 ], 542 F.2d 270, 272 (5th Cir. 1976); see also, Nevada R. & S. Co. v. United States Dep't. of Treasury I.R.S. [74-2 USTC ¶9617 ], 376 F. Supp. 161 (D. Nev. 1974) ("NRSC"). State law determines whether a taxpayer has property to which a tax lien may attach. Randall [76-2 USTC ¶9770 ], 542 F.2d at 272; Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-14 (1960). If, under applicable state law, the taxpayer has no property interests in the funds sought to be subjected to a tax lien, there is nothing to which the lien can attach. NRSC, 376 F.Supp. at 164, citing United States v. Durham Lumber Co. [60-2 USTC ¶9539 ], 363 U.S. 522 (1960). In this case, Nevada law governs whether Intexx had property upon which a lien could be attached since Intexx's principal place of business is Nevada . Thus, the tax lien can attach to the contract amount at issue here only if Nevada law establishes Intexx had a property interest in the money.

A federal tax lien extends to after-acquired property and the lien applies to "property owned by the delinquent at any time during the life of the lien", Randall [76-2 USTC ¶9770 ], 542 F.2d at 275, citing Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 268-69 (1945). Here, the earliest assessment of tax liability was on July 6, 1987. ¹ Intexx entered into its contract with the City in October 1988 and the assignment by Intexx to Jonar did not occur until November 5, 1988. Thus, Intexx had property or rights to property to which a tax lien could attach.

The court must look to federal law to determine matters of priority once it is determined that a tax lien attaches. Randall [76-2 USTC ¶9770 ], 542 F.2d at 272; Aquilino [60-2 USTC ¶9538 ], 363 U.S. at 512-14 (1960). A tax lien imposed pursuant to section 6321 is not valid against "any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor" until notice of the lien is filed by the Secretary of the Treasury. 26 U.S.C. §6323 . In the instant case, the notice of tax lien regarding the July 6, 1987 assessment was not filed until April 23, 1991, which is more than two years after the Agreement assigning Intexx's rights under the contract with the City to Jonar was entered.

The Government argues that Jonar was required by the Agreement and Nevada law to perfect its interest in the contract proceeds and because it did not, Jonar's interest is inferior to the Government's perfected interests. The Government asserts that, pursuant to N.R.S. §9302, Jonar was required to file a financing statement to perfect its interest in the assignment. Jonar argues it was not required to file any document in order to perfect its interest in the contract proceeds. The court agrees with Jonar's assertion.

Under Nevada law, Jonar was not required to file a financing statement in order to perfect its interest in Intexx's rights under the contract with the City because it was excused from filing a financing statement. N.R.S. §104.9302(e) provides that filing of a financing statement is not required to perfect a security interest in "[a]n assignment of accounts which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor." A thorough review of the Agreement reveals that Intexx's assignment to Jonar did not transfer a "significant part" of Intexx's outstanding accounts to Jonar, rather the assignment transferred Intexx's "accounts" in certain specified areas. Applying §104.9302(e) to the facts, Jonar was not required to file a financing agreement to perfect its interest under the Agreement. ² The court also notes that the Government's argument that Jonar was required to file notices pursuant to paragraph 1.b. of the Agreement fails. That paragraph states that Jonar agrees to file "all such lien notices or stop notices which may be required in the applicable jurisdictions to protect the right of Jonar to collect such proceeds against the claims of any and all third party creditors". (emphasis added). Because Nevada law does not require Jonar to file a notice in order to perfect its interest, Jonar was not required to do so under the Agreement.

The assignment was complete as between Jonar and Intexx the moment it was made, see NRSC, 376 F.Supp. at 164, citing Jones v. P.W.L. & F. Co., 13 Nev. 359, 373 (1878), and Jonar's interest in the contract proceeds attached at that time. Pursuant to N.R.S. §104.9303, a security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. Since, as stated before, Jonar was not required to file a financing statement to perfect its interest, the assignment was perfected on November 5, 1988 when the parties entered the Agreement.

Having determined that Jonar's interest in the assignment has been perfected, the court now addresses basic federal rule that "first in time, first in right" determines whether a federal tax lien or competing state-created lien has priority. Valley Bank of Nevada v. City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. 907, 913 (D. Nev. 1981), citing United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954). Under this standard, a federal tax lien takes priority over a state-created lien unless the state lien is specific and perfected in the federal sense before the federal tax lien arises. United States v. Trigg [72-2 USTC ¶9642 ], 465 F.2d 1264, 1269 (8th Cir. 1972), cert. denied, 410 U.S. 909 (1973); see also City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. at 913. Under 26 U.S.C. §6323(a) , a federal tax lien is not valid against a holder of a security interest until the tax lien is filed. In other words, to obtain a security interest sufficient to defeat an unfiled federal tax lien, Jonar must perfect its security interest against a hypothetical judgment lien creditor prior to the time the Government files a notice of federal tax lien. City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. at 912; N.R.S. §104.9301(1)(b). A security interest is defined in 26 U.S.C. §6323 (h)(1) as follows:

The term "security interest" means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money's worth.

In the case at bar, Jonar held a security interest in the assignment from Intexx which was perfected at the date of the November 5, 1988 Agreement. Because the Government did not file notice of its lien until April 23, 1991, Jonar's security interest takes priority over the Government's lien. The court does not address Jonar's argument that it entered into a separate contract with the City concerning the Modulars since it finds the Government's lien to be subordinate to Jonar's security interest.

III. CONCLUSION

Based upon the foregoing discussion, it is ORDERED AND ADJUDGED that Jonar's claim to the interplead fund is GRANTED and the Government's claim against the interplead fund is DISMISSED to the extent it conflicts with the full payment of Jonar's claim to the fund.

DONE AND ORDERED.

¹ The court will discuss only the July 6, 1987 tax assessment since the other three assessments arose after the November 5, 1988 Agreement. See discussion infra in text regarding perfection of Jonar's interest on the date of the Agreement.

² The court notes there may be an alternate basis for concluding that Jonar was not required to file a financing statement in order to perfect its interest. Article 9 of the Uniform Commercial Code ("UCC") and the correlative section of the Nevada commercial code, N.R.S. §104.9104, exempts certain transactions from the scope of the UCC. Specifically, N.R.S. §104.9104(6) provides that the UCC does not apply to "a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract". In paragraph 1 of the Agreement titled "Assignment to Jonar", Jonar was required to use its best efforts to complete construction of the Modulars and deliver the Modulars to the City as part of the assignment of interest under the contract. Additionally, Charles Kaufman, III, the former chief executive officer of Intexx, testified by affidavit that all manufacturing for the City's Modulars was done by Jonar and Blazer. Thus, there is evidence in the record which could support the conclusion that the transaction at issue here does not fall within the scope of the UCC. However, because the court bases its holding on §104.9302(e), it is unnecessary to reach this issue.

 

 

 

American Buildings Company, an Alabama corporation, Plaintiff v. Turner Construction Company, Inc., etc., et al., Defendant

U.S. District Court, Mid. Dist. Fla., Orlando Div., 91-596-CIV-ORL-19, 7/22/92

[Code Secs. 6321 and 6323 ]

Lien for taxes: Validity: Priority of liens.--A judgment lien creditor failed to present any evidence that his lien became choate prior to the filing of the notice of tax lien. The judgment lien creditor did not establish that the funds in question were subject to levy and sale prior to the tax lien. Accordingly, the federal tax lien prevailed because the tax lien was created and perfected as to all property, including after-acquired property, upon assessment of the tax against the debtor.

ORDER

FAWSETT, District Judge:

This case is before the Court upon Motion by Intervenor United States of America for Summary Judgment and Memorandum in Support thereof (Doc. Nos. 10 and 11, filed March 9, 1992); Memorandum by Intervenor Hughes Supply, Inc. in Opposition to the Motion for Summary Judgment (Doc. No. 13, filed March 31, 1992); Supplemental Memorandum by Intervenor Hughes Supply, Inc. Pursuant to Court Order of May 26, 1992 (Doc. No. 19, filed June 9, 1992); and the materials submitted in support of and in opposition to the Motion for Summary Judgment.

In its Order of May 26, 1992 (Doc. No. 17), the Court determined that the Government had met its burden of showing the absence of a genuine issue as to any material fact and announced its intention to grant the Government's Motion for Summary Judgment unless Hughes could establish that an execution lien attached to the funds that are the subject of this action prior to the Notice of Federal Tax Lien filed on July 5, 1990. Hughes has failed to present to the Court any materials indicating that the funds in question were subject to levy and sale at the time the writ of execution was delivered to the Seminole County Sheriff or at any time prior to July 5, 1990. Instead, Hughes reasserts its arguments that the Government's tax lien could not have arisen prior to its own. Hughes contends that even if it became a judgment lien creditor at the time Casey acquired the property on March 9, 1991, its claim is superior to that of the Government because the federal tax lien could not have attached prior to that time.

Hughes's argument is unpersuasive. A federal tax lien is created and perfected as to all property and rights to property, including after-acquired property, upon assessment of the tax against the debtor. 26 U.S.C. §§6321 , 6322 ; Rice Investment Company v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 568 (5th Cir. 1980). The federal tax lien prevails against a judgment lien creditor unless the judgment lien became choate prior to the filing of the Notice of Federal Tax Lien. 26 U.S.C. §6323(a) ; United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88-89 (1963); Fore v. United States [65-1 USTC ¶9101 ], 339 F.2d 70, 72-73 (5th Cir. 1965); Baybank Middlesex v. Electronic Fabricators, Inc., 751 F.Supp. 304, 310 (D.Mass. 1990). As discussed in the Court's Order of May 26, 1992, Hughes has failed to set forth any evidence to suggest that Hughes's judgment lien on the funds became choate prior to July 5, 1990. Consequently, Hughes has not carried its burden of production in response to the Government's showing that the federal tax lien is superior to Hughes's judgment lien. Accordingly, the Government is entitled to summary judgment on its claim to the funds.

For the foregoing reasons, the Court GRANTS the Motion by Intervenor United States of America for Summary Judgment (Doc. No. 10). The Government is directed to file by July 29, 1992, materials establishing the payout figure necessary to satisfy its lien as it will stand on August 10, 1992. Objections to these calculations may be filed on or before August 9, 1992.

 

 

 

Gramercy Enterprises and Columbian National Title Insurance Company, Plaintiffs v. United States of America, Western Exchange Corporation, Pacific Western Industries, Inc., Pacific Western Resources, Inc., Charles W. Ackerlow, Richard J. Anderson, and Mark E. McSwain, Defendants Pacific Western Industries, Inc., Pacific Western Resources, Inc., Charles W. Ackerlow, Richard J. Anderson, and Mark E. McSwain, Counterclaimants v. Columbian National Title Insurance Company, Counterdefendant

U.S. District Court, Dist. Utah , C.D., C-84-0570S, 7/7/86, 643 FSupp 687

[Code Sec. 6321 --Result unchanged by the Tax Reform Act of 1986 ]

Collection: Lien for taxes: Real property.--A federal tax lien attached to a corporation's option to purchase truckstop property and to the real property itself when the option was exercised. Therefore, the IRS could proceed to foreclose and sell the property to satisfy the corporation's tax liability. The court rejected an argument by the insurer of title on the sale that the corporation was merely an agent in the transaction and did not have sufficient ownership in the property to subject it to the tax lien. It found that the corporation was neither an agent nor a trustee because the corporation had no duty to surrender the property; it merely exercised an option to buy and transfer property in which it held an interest. For lien-attachment purposes, the corporation possessed ownership of the property the moment it exercised its option to buy. Additionally, the court found that the lien attached to the corporation's option to purchase the property, a property right within the purview of the controlling authorities. Prior to the IRS's filings of a series of federal tax liens against a corporation's property, the corporation sold a truckstop to an investment company and leased back the property from the company, securing an exclusive, nonassignable option to repurchase the property. Subsequent to the tax liens, the corporation exercised its option, and simultaneously transferred the real property by warranty deed to another corporation that, in turn, simultaneously transferred the property by warranty deed to another corporation. All the warranty deeds were recorded on the same day.

Thomas T. Billings, Van Cott, Bagley, Cornwall & McCarthy, 50 S. Main St., Salt Lake City, Utah 84145, for Gramercy, Jeffrey L. Shields, Callister, Duncan & Nebeker, 800 Kennecott Bldg., Salt Lake City, Utah 84145, for Columbian National Title Ins. Co. Brent D. Ward, United States Attorney, Glen R. Dawson, Assistant United States Attorney, Salt Lake City, Utah, for U.S. William G. Fowler, Roe, Fowler & Moxley, Salt Lake City, Utah, for Western Exchange Corp. Douglas J. Parry, Larsen, Kimball, Parr & Crockett, Salt Lake City, Utah, for Pacific Western Industries, Inc., Pacific Western Resources, Inc., Charles W. Ackerlow, Richard J. Anderson, and Mark E. McSwain. Jon C. Heaton, James A. Boevers, Prince, Yeates & Geldzahler, Salt Lake City, Utah, for McGhie Land Title Co. Gary L. Paxton, Clyde & Pratt, Salt Lake City, Utah, for Jon R. Brinton.

DECISION

SAM, District Judge:

This action is before the court on a Motion for Summary Judgment brought by defendant United States of America against plaintiffs Gramercy Enterprises and Columbian National Title Insurance Company. Also before the court is a Motion for Summary Judgment brought by third-party defendants, Reed W. Brinton, Steven M. Brinton, and Robert L. Brinton against third-party plaintiff McGhie Land Title Company. Movants raise identical issues, and the following Decision is dispositive of both motions at bar.

THE PARTIES

The present case involves the transfer of property against which tax liens were filed. Parties relevant to the Motions are: plaintiff Gramercy Enterprises ("Gramercy"), final purchaser of the subject property; plaintiff Columbian National Title Insurance Company ("Columbian"), insurer of title on the sale; third-party plaintiff McGhie Land Title Company ("McGhie"), local agent for Columbian; the United States of America, Department of Internal Revenue Service, a party to this action by consent, under 26 U.S.C. §7426 ; defendant Western Exchange Corporation ("Westex"), holder of option on and seller of the property; and third-party defendants Reed W. Brinton, Steven M. Brinton, and Robert L. Brinton (the "Brintons"), offficers of Westex.

UNCONTESTED FACTS

On August 2, 1982, the Internal Revenue Service began a series of tax lien filings against Westex to recover liabilities amounting to $681,527.00. Westex owned real property located at 4255 South 300 West, Salt Lake (the "truckstop property"), until January 8, 1982, when it sold the property to McGillis Investment Company ("McGillis"). At the time of sale, Westex leased back the property from McGillis and secured an exclusive, nonassignable option to repurchase it. On January 6, 1984, Westex exercised its option by purchasing the property, and, at the same time, transferred it by warranty deed to Pacific Western Industries ("P.W.I."). ¹ P.W.I. then transferred the property by warranty deed to plaintiff Gramercy Enterprises ("Gramercy"). All warranty deeds were recorded at 11:43 A.M. on January 6, 1984.

The sole question before the court is whether the federal tax lien attached to Westex' option and to the truckstop property when the option was exercised.

I. Standing.

At hearing on these motions, McGhie asserted that the Brintons lack standing to bring their motion on the lien-attachment issue because the United States is the sole party having power to enforce the tax lien. In that regard, the court finds persuasive the Brintons' argument that where McGhie seeks indemnification from them for any liability McGhie might incur, the Brintons have standing to request declaratory relief on the lien-attachment issue regardless of their power to enforce the lien. Therefore, the court rules the Brintons have standing to bring their present motion.

II. Lien-attachment.

Authority for the imposition of the subject tax lien arises under 26 U.S.C. §6321 and Treasury Regulation §301.6321-1 , ² both of which provide that the United States may impose a lien in the amount of any unpaid taxes against all property and rights to property possessed by the tax offender at the time of assessment as well as any property or rights acquired during the lien period. Glass City Bank v. United States [45-2 USTC ¶9479], 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56 (1954); 26 U.S.C. §6322 (1954). Interpretative caselaw holds that any person to whom an interest in the property is transferred after the lien arises takes subject to it regardless of whether he had actual or constructive knowledge of the lien. ³ United States v. Snyder, 149 U.S. 361 [210], 13 S.Ct. 846, 37 L.Ed. 705 (1893).

The United States and the Brintons claim the lien attached to Westex' option to purchase the property because the option was a right to property contemplated in the controlling authorities, and the option was acquired after the initial assessment of March 22, 1982. They assert the lien also attached to the property itself at the time the option was exercised, and therefore, the lien was properly imposed on the property and property rights belonging to the tax offender, Westex. The United States now seeks to foreclose and sell the property to satisfy Westex' tax liability. ⁴

McGhie, as insurer of title on the sale, counters that the court should look to the "quality" of the transaction to determine whether the property was ever in Westex' possession for tax liability purposes. They claim that where the property was in Westex' actual possession momentarily (that is, where the sale was merely a paper transaction that accomplished virtually simultaneously the transfer from McGillis to Gramercy via Westex and P.W.I.), Westex was never its true owner, and therefore, the United States is barred from initiating a foreclosure action against the property. For the proposition that Westex was merely an "agent" in the transaction and did not have the quality of interest in the property, e.g., the beneficial ownership, ⁵ sufficient to subject it to the tax lien, McGhie relies on two cases, both of which are distinguishable from the instant suit. United States v. Fontana [82-1 USTC ¶9237 ], 528 F.Supp. 137 (S.D.N.Y. 1981) held that a party who is merely a "constructive trustee" (or "agent" as McGhie claims here) is not an owner for tax lien purposes. However, a constructive trust is only created "where the title to the property is acquired by one person under such circumstances that he is under a duty to surrender it." Id. at 146. (Emphasis added). Fontana dealt with parties who were truly conduits for the property, that is, their sole participation in the land transaction involved its conveyance. Their roles were similar to that of an escrow agent who possesses no interest in the property and has a duty to give up monies on the completion of a transaction. ⁶

Similarly, Hobson v. United States of America [58-2 USTC ¶9877 ], 168 F.Supp. 117 (E.D.Mich.N.D.1958) centered on parties who were archetypical agents for purchasers of property in that Hobsons received money from the buyers, transferred the money to the sellers, then received title to the property and transferred it to the buyers. The buyers paid the Hobsons to secure title to property, and that was the Hobsons' sole function. They, too, were under a duty to surrender title to the buyers.

In this case, before the first tax lien was filed, Westex owned the property, sold it to McGillis, then leased it back with the exclusive option to buy. Clearly, Westex was neither an agent nor a trustee because it had no duty to surrender the property; it merely exercised an option to buy and transfer property in which it held an interest. That choice to buy and transfer the truckstop property rested solely with Westex because the option was exclusive, and McGillis refused to sell the property to any other party. ⁷ Thus, the court finds Westex possessed ownership of the truckstop property, for lien-attachment purposes, the moment it exercised its option to buy.

For the following reasons, the court is not moved from that ruling by McGhie's claims that Westex assigned its option to P.W.I. before the January 6, 1984 transaction and that McGillis impliedly consented to the assignment. First, the order of transaction of the truckstop property belies the alleged assignment and indicates Westex still owned the option at the time it was exercised because the title was transferred from McGillis to Westex to P.W.I. to Gramercy, rather than from P.W.I. to Gramercy, which would have been the order of transfer had Westex previously assigned the option to P.W.I. Second, the leaseback/option agreement between McGillis and Westex required that McGillis should give written consent to any assignment. Under cross-examination at his deposition, Mr. McGillis repeatedly testified that he had not given his written consent and that he would never have agreed to sell the truckstop property to P.W.I. Third, McGhie admits that several tax liens were filed before the time of the alleged assignment by Westex to P.W.I. As stated above, at the initial assessment of tax liability, a lien in favor of the United States attaches to all property or rights to property then in possession of the tax offender and to all property or rights acquired during the lien period. 26 U.S.C. §6321 ; Treas. Reg. §301.6321-1 . Therefore, even if the alleged assignment had been made, the lien would have attached to Westex' option to purchase, which is a property right within the purview of controlling authorities.

Finally, McGhie argues that this court will work a severe injustice by finding that the lien attached to the truckstop property because McGhie and its parent company, Columbian, as title insurers on the sale, were led to believe title passed from P.W.I. free of encumbrances. McGhie further asserts that should it be forced to honor a claim by Gramercy against it, McGhie will essentially be required to pay taxes incurred and avoided by Westex. The court need not respond to those assertions at this time because it is aware McGhie has an indemnification claim against the Brintons involving personal liability for withholding and excise taxes. Moreover, those issues are not presently before the court and their resolution would not affect the outcome on the lien-attachment issue.

Accordingly, the Motion for Summary Judgment brought by defendant United States of America against plaintiffs Gramercy and Columbian and the Motion for Summary Judgment brought by the Brintons against McGhie are granted.

¹ The evidence indicates P.W.I. is a wholly owned subsidiary of Westex.

² Sec. 6321, 26 U.S.C. states:

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

Treas. Reg. §301.6321-1 states in relevant part:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, tangible or intangible, belonging to such person. . . .

The lien attaches to all property and rights to property belonging to such person at any time during the period of the lien, including any property or rights to property acquired by such person after the lien arises.

(Emphasis added.)

³ Considering the well-settled rule in Snyder, the court summarily rejects Gramercy's defense that it is the true owner of the truckstop property because it was a bonafide purchaser for value without knowledge of the tax lien.

⁴ Tax liens may be enforced through administrative levy or the initiation of a foreclosure action. United States v. Bank of Celina [83-2 USTC ¶9688 ], 721 F.2d 163, 166 (6th Cir. 1983).

⁵ The court is unpersuaded by McGhie's argument that the mere fact Westex did not possess the assets to purchase the property outright demonstrates Westex had no beneficial interest in the property sufficient to subject that interest to the tax lien.

⁶ Fontana also held the court must look to state laws governing ownership to determine whether a tax lien attached to the property at issue because the lien can only attach to property the taxpayer owns. However, the court need not reach the state law question in this case because it rejects application of the "constructive trustee" theory to the instant facts.

⁷ Throughout his deposition, Mr. McGillis consistently maintained that, under the terms of the option agreement, he neither would have nor could have sold the truckstop property to any person or entity other than Westex.

 

 

 

Sidney W. Mintz, Judgment Creditor-Respondent v. Irving L. Fischer, Judgment Debtor and United States of America , Claimant-Appellant

N. Y. Supreme Court, Appellate Div., First Department, 5998, 8/7/63

[1954 Code Secs. 6321 and 6323]

Lien for taxes: Filing of notice: Situs of property v. situs of taxpayer: Priority of creditors.--Federal tax liens, filed in the county in which the taxpayer-creditor resided, had priority over a judgment against the taxpayer's debtor subsequently docketed in the county in which the debtor resided. The debt was after-acquired property and, as such, was subject to the lien..

Robert M. Morgenthau, United States Attorney, John Paul Reiner, Arthur S. Olick, Assistant United States Attorneys, New York, N. Y., for appellant. Sidney W. Mintz, 86-15 Broadway Elm, Queens , N. Y., pro se.

MCNALLY, Justice:

The question presented is one of priority between a United States tax lien and a judgment lien.

[Facts]

The judgment-debtor Irving L. Fischer is the taxpayer and at all relevant times was a resident of Queens County . He owes Federal income tax for the years 1957 to 1959 in the sum of $4,099, and $5,960.77 for the year 1960. Assessments therefor were made during 1961 and liens thereon filed on October 17, 1961 and November 1, 1961, in the office of the Register of Queens County. The United States asserts the priority of its liens from the filing aforesaid.

Sidney W. Mintz is the judgment-creditor of Fischer. His judgment for $2,469 was docketed in the office of the Clerk of Bronx County on March 2, 1960 and in the office of the Clerk of the County of New York on January 25, 1962. It is unsatisfied to the extent of $1,319. On January 30, 1962 a third-party subpoena in aid of Mintz's judgment was served on Robert P. Sheldon, Inc., engaged in the real estate brokerage business in New York County . This subpoena contained the statutory injunction provided for in section 781 of the Civil Practice Act. Robert P. Sheldon, Inc., is presently indebted to Fischer in the sum of $1,424.50. On February 13, 1962 the Director of Internal Revenue served a notice of levy upon Robert P. Sheldon, Inc.

[Scope of Federal Tax Lien]

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount * * * shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." (U. S. Code, tit. 26, §6321.) The lien applies to all property of the taxpayer at the time it arises and at any time thereafter. (Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 265, 268.) It arises at the time the assessment is made and continues until the tax liability is satisfied or outlawed by reason of lapse of time. (U. S. Code, tit. 26, §6322.)

The lien is valid upon assessment of the tax as to all except a "mortgagee, pledgee, purchaser, or judgment creditor." As to these the lien is not perfected until notice of the lien is filed "in the office designated by the law of the State * * * in which the property subject to the lien is situated"; if not so designated, then not until filed "in the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated." (U. S. Code, tit. 26, §6323.)

[Priority of Creditors]

The tax assessments and the filing of the notice of lien thereof in Queens County , the place of residence of the taxpayer, antedated the docketing of the judgment and the service of the third-party subpoena on the debtor of the taxpayer in New York County . Mintz, the judgment-creditor, claims priority of his judgment lien contending that the United States was required to file notice of its lien in New York County , the place of residence of Robert P. Sheldon, Inc., the debtor of the taxpayer-judgment-debtor Fischer. We hold the filing of the notice of tax lien in Queens County gives priority to the claim of the United States .

New York has designated the office of the City Register as the place to file notices of Federal tax liens affecting personal property and requires the notices to be filed in the county of residence of the owner and "in the county where the property is situated". (Lien Law, §240, subd. 2.)

The nature, scope and operation of the Federal tax lien is a matter of Federal law. Unless expressly excluded all the property of the taxpayer is within its scope. (United States v. Security Trust & Savings Bank [50-2 USTC ¶9492], 340 U. S. 47.) Of course, property rights are a matter of state law. (United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 56-57.)

Filing of the notice of lien is a Federal requirement as to property "situated". (U. S. Code, tit. 26, §6323.) A debt has no independent situs. (84 C. J. S. §116a; Restatement, Conflict of Laws, §51, comment a.) Generally, the domicile of the creditor is considered the situs of the debt. (United States v. Webster Record Corp. [62-2 USTC ¶9670], 208 F. Supp. 412, 415, and cases cited.)

Uniformity is essential in the application and enforcement of Federal tax laws. (United States v. Gilbert Associates [53-1 USTC ¶9591], 345 U. S. 361, 364.) Taxation is a practical matter and it is not to be assumed that its enforcement depends on the accident of the residence of an unknown debtor of the taxpayer. If resort to legal fiction is necessary, then the necessities of tax uniformity and requirements dictate the selection of the domicile of the owner of the intangible. "At the root of the selection is generally a common sense appraisal of the requirements of justice and convenience in particular conditions." (Severnoe Securities Corp. v. London & Lancashire Ins. Co., 255 N. Y. 120, 123 [ Cardozo , Ch. J.].)

In Matter of Oxford Distributing Co. v. Famous Robert's Inc. [58-2 USTC ¶9538] (5 A D 2d 507) the notice of lien was filed in New York County, the place of residence of the corporate taxpayer, and although not filed in Albany the tax lien was held prior to a judgment-creditor's third-party subpoena served on the State Comptroller in Albany in respect of a refund incident to the surrender of the taxpayer's liquor license. The omission to file the notice of lien in Albany was not urged; it was assumed that the filing requirement had been met by the filing in New York County (See, also, Spade v. Salvatorian Fathers, Superior Court, N. J., Law Division, Camden County, decided April 2, 1963, 1963 CCH Rep. ¶9450.) The Federal cases treating with the question are to the effect that no filing is required other than at the place of residence of the owner of intangible property. (United States v. Eiland [55-1 USTC ¶9487], 223 F. 2d 118, 122; United States v. Kings County Iron Works, Inc. [55-2 USTC ¶9536], 224 F. 2d 232; Matter of Cle-Land Co. [58-1 USTC ¶9185], 157 F. Supp. 859; Weir v. Corbett [58-1 USTC ¶9208], 158 F. Supp. 198.)

Moreover, in this instance, the debt is after-acquired property, it having come into existence after the filing of the tax lien. Such property is subject to the lien. (Glass City Bank v. United States, supra.) If it be assumed the debt is located in New York County by reason of the residence there of the taxpayer's debtor, it does not appear the debt was so situated at the time the notice of lien was filed in Queens County. Subdivision 2 of section 240 of the Lien Law requires a filing in the county where the property is located only in the event the property is in existence at the time the tax lien arises. As the then situs in New York County of the debt does not appear, the prior filing in Queens County , the county of the debtor's residence, satisfies the New York statute.

[Judgment of the Court]

The order should be reversed, on the law, and Robert P. Sheldon, Inc., the debtor of the taxpayer-judgment-debtor Irving L. Fischer, directed to pay the balance of the indebtedness, to wit, $1,424.50, to claimant-appellant United States of America , without costs.

All concur.

 

 

 

Roberts and McInnis v. Emery's Motor Coach Lines, Inc.

In the West Virginia Circuit Court. Berkeley County, September 16, 1950

Tax liens: Priority of federal tax liens over subsequent execution creditor: Recordation requirements: Property subject.--The assessment lists were received by the Collector and demands made upon the tax delinquent prior to the time execution and garnishee summons were issued. This had the effect of perfecting the lien and, as against an execution creditor, the federal tax lien had priority since such a creditor is not in the class of a mortgagee, pledgee, purchaser, or judgment creditor against whom such liens are not valid unless there has been compliance with recordation requirements. Moreover, the lien in favor of the federal government is a continuing one upon all property, including bank deposits.

Martin & Seibert, Martinsburg, West Virginia, for Roberts et al. Howard Caplan, Assistant United States Attorney, Clarksburg, West Virginia, for the government.

RODGERS, District Judge:

The plaintiffs obtained a judgment in this court on May 19, 1949 against the defendant. Execution and garnishee summons were issued thereon on October 22, 1949. The garnishee summonses were promptly served on the Old National Bank and The Peoples Trust Company. At the February Term, 1950 of this court, the two banks answered that the defendant had on deposit on the dates of service of garnishee summons, the sums of $924.80 and $215.67, in said banks respectively.

The United States of America filed its petition herein on February 27, 1950 and its amended petition on April 29, 1950 claiming a lien, having priority over that of the plaintiffs. The petition alleges that the defendant, on or prior to October 22, 1949, was indebted and still is indebted to petitioner in the sum of $9,989.86 for unpaid Internal Revenue taxes; and alleges, in detail, the dates when the nine various amounts constituting the total, accrued; when the assessment list applicable to each of the nine items of tax was received by the collector; and when the several demands upon each were made by the collector upon the defendant, all of which dates were prior to the issuance of the execution and garnishee summonses by the plaintiffs herein. The petition alleges the dates when notice of the several tax liens were recorded in the office of the Clerk of the County Court of this County, it is alleged that of said total tax, the liens for $8034.34 were recorded before October 22, 1947, and the balance since said latter date. The petition alleges a levy for said taxes by the Collector upon both banks and actual notice to them on or about February 6, 1950.

To this petition as amended, the plaintiffs demur. It is contended: (1) that the Federal lien for internal revenue taxes is an inchoate lien until levy and seizure of the property of the taxpayer and that other liens attaching to the property before that time have priority over the Federal lien; (2) that a bank deposit is a debt and not subject to the Federal lien, because a bank deposit is not "property" or a "right of property" under the law of West Virginia; and (3) that the tax lien attaches only to property of the tax debtor in existence when the Federal tax lien attaches. It is assumed that the money to the credit of the defendant on the date of service of the garnishee summonses was not the debt due the depositor on the date the federal tax lien arose.

The petitioner relies upon the provisions of Section 3670 and 3671 of Title 26 of the United States Code.

The sections of the United States Code insofar as pertinent to this inquiry, are:

Section 3670. "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

Section 3671. "Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time."

Section 3672. "Such lien shall not be valid or against any mortgagee, pledgee, purchaser or judgment creditor until notice thereof has been filed by the collector--in accordance with the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law provided for the filing of such notice," etc.

The statute then exempts from the lien certain securities, including money, mortgaged, pledged or purchased without actual notice or knowledge of the existence of such lien. It may be noted that the debts due by the banks to the taxpayer, in this case, had not been mortgaged, pledged.

Section 1, Article 10, Chapter 38 of the Code of West Virginia provides for the recordation of federal tax liens. This statute provides that no federal tax lien shall be a valid lien as against any mortgagee, purchaser or judgment creditor, until such notice shall be filed in the office of the clerk of the county court of the county or counties in which the property subject to such lien is situated.

The provisions of the federal statute relative to recording the federal tax lien were added to the statute by later amendments. Prior to these amendments, the federal tax lien was valid as against subsequent purchasers and encumbrances without notice. U. S. v. Curry, 201 Fed. 371. Re Dartmount Coal Co., 46 Fed. (2d) 455. U. S. v. Snyder, 149 W. S. 210, 37 L. ed. 705, 13 S. Ct. 846. Blacklock v. U. S. , 208 U. S. 75, 52 L. ed. 396, 28 S. Ct. 228.

These amendments as to recording of the lien now require the recording of the lien as to "any mortgagee, pledgee, purchaser, or judgment creditor". But the plaintiffs in this case, claiming a lien by execution and garnishee summons, falls in none of the excepted classes, named in either the federal or state statutes relative to recording of the lien. These recording statutes are of no benefit to the plaintiffs. The fact that lien creditors of the class to which the plaintiffs belong, are not included in the statutory provisions is strongly indicative of the validity of the government's contention thta the federal tax lien is a specific and perfected lien after assessment and demand, not an inchoate lien that must be perfected by further action by the government.

While recordation of the lien was not necessary as to lien creditors of the class to which plaintiffs belong, yet the government did record two of its tax liens in the total amount of $5261.66, prior to May 19, 1949, the date of plaintiff's judgment.

The court concludes that the government's lien did not have to be recorded as to plaintiffs' lien; and that federal tax liens in excess of the money herein involved, were in fact recorded prior to the plaintiffs' judgment and garnishee proceedings.

The plaintiffs contend that even though the tax lien did not have to be recorded, yet that it was an inchoate lien until levy and seizure of the property of the taxpayer. The federal statute gives these and other remedies to the government for the collection of its taxes, but there is nothing in the statutes that make the exercise of these remedies or any of them prerequisites or conditions precedent to the perfecting of the government's lien. The very specific and unequivocal provisions of section 3671 settles this question, as it provides "the lien shall arise at the time the assessment list was received by the collector".

This question was before the U. S. Circuit Court for the Fourth Circuit in U. W. v. Greenville, 118 Fed. (2d) 963 [41-1 USTC ¶9381]. Holding that the federal tax lien was a specific and perfected lien and not an inchoate lien that must be perfected by levy or distraint, the court said:

"Such a lien is clearly not a mere inchoate lien, or right to lien, as held in Gerson et al. v. Shubert Theater Corp. D. C., 7 Fed. Supp. 399 [1934 CCH ¶9330]; for not only was it deemed necessary in the statute itself to provide that the lien should not be valid against any mortgagee, purchaser or judgment creditor until filing of notice, but provision also was made by the Act of June 29, 1939, 53 Stat. 882, 26 U. S. C. A. Int. Rev. Code S. 3672(b) that, notwithstanding the filing of such notice, such lien should not be a valid lien upon certain described securities as against mortgagees, pledgees or purchasers, if they were holders for an adequate and full consideration and 'without notice or knowledge of the existence of such lien'. No such provisions would be necessary if the lien were intended to be a mere inchoate right to a lien which would attach to specific property only after proceedings had been instituted for its enforcement."

The demurrants contend that a bank deposit is not property or a right to property under the law of West Virginia and rely upon Metropolitan etc. v. U. S., 107 Fed. (2d) 311 [39-2 USTC ¶9771] and Poe v. Seaborn, 282 U. S. 101, 75 L. Ed. 239 [2 USTC ¶611], for the proposition that, since section 3670 of the Federal Code does not define "property", the law of this state must be looked to for the meaning of the word.

However, under Section 10, Article 2, Chapter 2 of the Code of West Virginia "the word 'property' or 'estate' embraces both real and personal estate" and "the words 'personal estate' or 'personal property' includes goods, chattels, real and personal, money, credits, investments, and the evidences thereof."

The federal statute could hardly have used more inclusive terms than "all property and rights to property, whether real or personal". Some doubt might have been removed by saying "either tangible or intangible", but nothing would have been added to the meaning of the words used. The overwhelming weight of authority sustains the proposition that bank deposits, claims for work labor and services, and all other debts and intangible property, are subject to the federal tax liens. McKenzie v. U. S. , 109 Fed. (2d) 540. Miller v. Bank, 166 Fed. (2d) 415 [48-1 USTC ¶9185]. Citizens etc. v. Vidal, 114 Fed. (2d) 380 [40-2 USTC ¶9603]. Philipowicz v. Rothensies, 31 Fed. Supp. 719. U. S. v. Bank, 30 Fed. Supp. 113. U. S. v. Aetna , etc., 46 Fed. Supp. 30 [42-1 USTC ¶9266]. U. S. v. Canfield, 29 Fed. Supp. 734 [39-2 USTC ¶9641]. Dallas , etc. v. U. S. , 167 Fed. (2d) 468 [48-1 USTC ¶9242]. Goldenberg v. Westover, 150 Fed. (2d) 388 [45-2 USTC ¶9362]. U. S. v. Taft, 44 Fed. Supp. 544. Bank v. U. S. , 73 Fed. Supp. 303 [47-1 USTC ¶9296]. U. S. v. Caldwell , 74 Fed. Supp. 114 [47-2 USTC ¶9363.]

A closely related question is raised by the third ground of demurrer and that is whether the lien of the government for taxes attaches only to the money of the taxpayer on deposit on the day the lien is acquired, or does it also attach to money subsequently deposited. Congress thought it did, for the Congress amended section 3672 by exempting from the lien, even when recorded, certain securities, including money, mortgaged, pledged or purchased for value and without actual notice or knowledge of the existence of such a lien.

Some of the federal courts have held that the later deposits were not subject to the lien. U. S. v. Long Island , etc., 115 Fed. (2d) 983 [41-1 USTC ¶9140].

This case and others were expressly disapproved by the Supreme Court of the United States in Glass City Bank v. U. S., 66 S. Ct. 108, 326 U. S. 265, 90 L. ed. 56 [45-2 USTC ¶9449]. A syllabus of the latter case states:

"Section 3670 of the Internal Revenue Code, which provides that the amount of taxes owed the United States government by a taxpayer 'shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person' and section 3671, create a continuing tax lien covering all property or rights to property owned by a tax delinquent at any time during the life of the lien, including property acquired after the lien arose."

For additional authorities bearing upon the questions discussed in this opinion, see annotations in 105 A. L. R. 1245 and 172 A. L. R. 1366.

The federal lien for taxes arises when the assessment list is received by the collector; demand upon the taxpayer is a condition precedent to its enforcement, but the lien is a specific and perfected lien without levy or distraint and requires no notice to subsequent execution creditors; the lien attaches to all the property of the taxpayer, both tangible and intangible, then in existence and after acquired; bank deposits, neither withdrawn from the bank, mortgaged or pledged, are subject to the lien; and said tax lien has priority over subsequent liens by garnishee process.

The demurrer to the government petition as amended is overruled.

 

 

 

George A. Hudspeth et ux., Vona Lee Hudspeth, Plaintiffs v. United States of America , Defendant

U. S. District Court, No. Dist. Tex. , Lubbock Div., Civil Action No. CA-5-74-94, 5/7/75, (394 FSupp 181)

[Code Sec. 165]

Losses: Closed or completed transaction: Identifiable event: Reduction of cotton allotments.--The reduction in the amount of land which the taxpayers-cotton farmers could use in the production of cotton (cotton allotment) did not result in a loss because there was no closed completed transaction fixed by identifiable events giving rise to a deductible loss and also because the cotton allotment was viewed by the Court as a unit capable of being expanded and contracted each year as the Secretary of Agriculture adjusted the national cotton allotment. The Court further held that the yearly adjustments by the Secretary of Agriculture should not be viewed as additions to or deductions from a farmer's allotment.

Bill McGowan, Jim Pete Hale, McGowan, McGowan & Hale, 119 South 6th Street , Brownfield , Tex. , for plaintiffs. Roger L. McRoberts, Assistant United States Attorney, Lubbock, Tex., William W. Guild, Tax Div., Dallas, Tex., for defendant.