After Acquired Property page3
AND ORDER ON COMPLAINT TO DETERMINE PRIORITY OF LIENS
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");
United States of America
, Internal Revenue Service ("
"); 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.
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.
The "Relation Back" Theory
In its brief,
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
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
previously had filed notices of tax liens against the customer's assets.
The Court of Appeals for the Sixth Circuit held that the
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
' 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
in the case at bar is mere dicta, and has no legal authority.
, 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,
argues, it is secured for the actual amount of tax liability as it
accumulates, not just for the amount recorded.
' analysis is two-fold. First, Peterson is a district court
and, thus, is not controlling authority for the "relation
back" theory. Second, Peterson is contrary to the applicable
26 U.S.C. §6321
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).
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
a lien before the taxpayer is liable for the tax.
. . [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.
statutory language is in direct conflict with the theory relied upon by
. 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
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
. 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.
"relation back" theory espoused by the
is contrary to the statutory authority of 26 U.S.C. §§6321
, and 6323(a)
. Moreover, the
has presented no colorable authority to this Court to uphold such a
theory. Thus, this Court holds that tax liens of the
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
The Choate Lien Theory
perfected tax lien requires a notice of federal tax lien to be filed. 26
U.S.C. §6823. Thus, perfection of
' 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
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.,--
--, 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
Defendant Guzzo's state lien were perfected before the
' 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
(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
. However, Guzzo's lien was not "perfected" within the
because the property subject to the lien was not established as required
, and the debtor did not have rights in the property. Thus, the
security interest had not attached to the property as required by McDermott.
state lien was not "perfected" within the meaning of
does not necessarily mean that the
was "first in time." As with Guzzo, the
' 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
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,--
at--, 113 S.Ct. at 1530.
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,--
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
competing interests, from the time of its filing, regardless
of when it attaches to the subject property." McDermott,--
at--, 113 S.Ct. at 1530.
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,--
at--, 113 S.Ct. at 1531. Thus, in this situation, "the federal tax
lien must be given priority." McDermott,--
at--, 113 S.Ct. at 1531.
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
, 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.
Based on the
foregoing, the Court finds that the priority of liens shall be the
$5,200 to Defendant Guzzo for a purchase money security interest in one
Miller color printing press;
Up to $1,710.75 to Defendant OBES for personal property in existence on
$19,386.80 to Defendant
for all property in existence and/or after-acquired;
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;
Up to $78,679.18 to Defendant Guzzo for all property in existence from
2/10/88 to 2/28/88;
Up to $53,564.11 to Defendant
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,
will be issued consistent with this finding.
IT IS SO
by and through Internal Revenue Service, Petitioner v. Bruce J.
McDermott, et al
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
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
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.
Feldman, Department of Justice,
, for petitioner. T. Richard Davis, Callister, Duncan & Nebeker,
P.C., 800 Kennecott Bldg., Salt Lake City, Utah 84133, for Bruce J.
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
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.' "
[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."
, 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.
USTC ¶50,491 ], 945 F.2d 1475, reversed and remanded.
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.
opinion of the Court.
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.
On December 9,
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
, 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.
, 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
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.
law, that created a judgment lien on all of the McDermotts' real
, "owned . . . at the time or . . . thereafter acquired during the
existence of said lien."
Code Ann. §78
23, 1987 the McDermotts acquired title to certain real property in
. To facilitate later sale of that property, the parties entered into an
escrow agreement whereby the
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
removed to the United States District Court for the District of Utah.
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,
USTC ¶50,491 ], 945 F.2d 1475 (1991). We granted certiorari.
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.' "
[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."
[54-1 USTC ¶9191 ], 347
, 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).
question we must answer, then, is whether the Bank's judgment lien was
perfected in this sense before the
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
USTC ¶50,491 ] 945 F.2d, at 1480. That is too expansive a
reading. Our opinion in
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
that . . . 'the property subject to the lien . . . [be] established.'
" 377 U.S., at 358 (citation omitted). 2
The argument of the
that we rejected in
was the contention that a state lien is not perfected within the meaning
if it "attach[es] to all of the taxpayer's property,"
rather than "to specifically identified portions of that
, at 355 (emphasis added). 3
We did not consider, and the facts as recited did not implicate, the
quite different argument made by the
in the present case: that a lien in after-acquired property is not
"perfected" as to property yet to be acquired.
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
. See [54-1 USTC ¶9191 ], 347
, 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
. 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
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
; United States v. Snyder, 149
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
of the Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
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.
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
. 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).
The dissent claims that "the Government's 'specificity' claim
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,"
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.
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
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
. "[N]othing more to be done to have a choate lien"
(the language of
) 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
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.
The dissent suggests, post, at 3-4, n. 1, that the Treasury
Department regulation defining "judgment lien creditor," 26
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).
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
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)
the text of §6323(a)
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.
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.
THOMAS, with whom JUSTICE STEVENS and JUSTICE O'CONNOR join
agree with the Court that under 26 U.S.C. §6323(a)
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.
USTC ¶9532 ],
374 U.S. 84, 88 (1963).
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.
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)
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.
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
, supra, at 86, and was therefore "contingent upon taking
subsequent steps for enforcing it," [50-2
USTC ¶9492 ],
, 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.
, at 355. With or without specific attachment,
's general lien was "sufficiently choate to obtain priority over
the later federal lien," because it was "summarily
enforceable" upon assessment and demand.
, at 359, and n. 12.
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
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
Code Ann. §78
(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 (
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 (
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.
USTC ¶9191 ],
, at 84. See
, supra, at 355. 1
Court brushes aside the relevance of our
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
is analytically indistinguishable from the "attachment"
argument the Court accepts today.
'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 ]
, 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 ]
, at 359, then neither is specific acquisition. 2
the majority's reasoning today, see ante, at 5, the Government's
rested in part on dicta from
suggesting that "attachment to specific property [is] a condition
for choateness of a State-created lien." Brief for
], supra, at 19. See
USTC ¶9191 ],
, 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).
, however, involved competing statutory liens that had concededly
"attached to the same real estate."
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
provided no occasion to consider the necessity of attachment to property
that was not specifically identified at the time the state lien arose.
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, p. 38-36 (P.
Rohan rev. 1991) (hereinafter Powell). See, e.g., Lowe v. Reierson,
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, pp. 38-35 to 38-36. See, e.g., Bank of
v. Haufler, 20
App. 668, 674, 482 N.E.2d 542, 547 (1985); McAllen State Bank v.
USTC ¶9146 ],
561 F.Supp. 636, 639 (SD
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
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)
renders a choate judgment lien in after-acquired property subordinate to
a "secret lien for assessed taxes." Pioneer American [63-2
USTC ¶9532 ],
, at 89. I would adhere to a more flexible choateness principle, which
would protect the priority of validly docketed judgment liens.
I respectfully dissent.
The Department of Treasury regulations defining "judgment lien
creditor" for purposes of §6323(a)
only three specific requirements for a choate lien (corresponding to the
three "establish[ment]" criteria of
). 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)
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
"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.
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
USTC ¶9520 ]
, 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,
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. 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
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,
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
6321 and 7520
Lien for taxes: Property subject to lien: After-acquired property:
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.
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.
JONES, and GARZA, Circuit Judges.
PETITION FOR REHEARING
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:
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
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
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.
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.
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
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.
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
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
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
's failure to present evidence as a waiver of the issue. 21
See id. ("
'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
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.
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
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
See 26 C.F.R. §20.2031-10(f).
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."
v. Blakeman, 750 F.Supp. 216, 222 (N.D.
1990) ("Memorandum Opinion")
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.
See Blakeman, 750 F.Supp. at 222 ("Memorandum
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)
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.
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.
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.
Appeal, vol. 4, at 866-67.:
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.
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
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,
Court of Appeals, 6th Circuit, 89-3210, 3/12/90, 898 F2d 493, 898 F2d
493. Reversing and remanding an unreported District Court decision
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 (
) law, the government succeeded to interests that were not limited
solely to the amount the taxpayer paid toward the purchase price.
KRUPANSKY and NELSON, Circuit Judges, and BROWN, Senior Circuit Judge.
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
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
7,1976, Big Value Supermarkets, Inc. ("Big Value") leased from
Heilman & Meyer, Inc. ("Heilman") real property located in
. 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
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
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
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
period of Country Charm's ownership, the
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
Country Charm tendered a check in the amount of $13,200 to the
with a restrictive endorsement that stated that acceptance or
negotiation of the check constituted full payment of the claim of the
. 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.
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
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
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.
, 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);
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.
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
law, therefore, to determine Big Value's interest.
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.
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.
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
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.
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.
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
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
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
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.
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).
foregoing reasons, we REVERSE and REMAND to the district court for
further proceedings not inconsistent with this opinion.
One beneficiary of the Joseph Trust was Victor Joseph, the sole Big
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.
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.
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.
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
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
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"
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
Court of Appeals, 9th Circuit, 98-16630, 5/1/2000, 2000
App. LEXIS 8814. Affirming an unreported District Court decision
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 (
) 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.
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 (
) 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 .
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.
TASHIMA and GRABER, Circuit Judges, 1
and STOTLER, District Judge. 2
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
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
, 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).
THE "EXTINGUISHMENT" PROVISION OF CUFTA
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.
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.
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
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
v. Battley (In re Kimura) [92-2 USTC ¶50,397], 969 F.2d 806, 811
(9th Cir. 1992) (so stating). Under
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.
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
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
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
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.
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
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.
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.
argues that the IRS's levy was too large by half because, under
Wisconsin law, a constructive trust encompassing half the value of the
property arose in favor of Marilyn Stamp when she conveyed that property
to Harry Stamp. That argument is unpreserved, and we decline to address
The panel unanimously finds this case suitable for decision without oral
argument. See Fed.R.App.P. 34(a)(2).
The Honorable Alicemarie H. Stotler, United States District Judge for
the Central District of California, sitting by designation.
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.
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
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
District Court, So.
, 90-0001-CIV-Graham, 1/4/93
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 (
) law, the assignee was not required to file a financing statement
because the assignment did not constitute a significant part of the
MEMORANDUM OPINION AND FINAL JUDGMENT
Joe Conzola and Bernard Hochberg, t/a Jonar ("Jonar") filed
suit against the City of
("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
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.
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
. 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.
Manufacturing, Inc. ("Blazer"), a
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
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.
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
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).
CONCLUSIONS OF LAW
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.
1986). The tax lien attaches to "all property and rights to
property, whether real or personal" belonging to the taxpayer. 26
. "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.
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
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,
law governs whether Intexx had property upon which a lien could be
attached since Intexx's principal place of business is
. Thus, the tax lien can attach to the contract amount at issue here
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
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
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
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
. 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.
argues that Jonar was required by the Agreement and
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.
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
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.
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
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.
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
USTC ¶9122 ], 528 F.Supp. 907, 913 (D. Nev. 1981), citing
v. City of
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:
"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.
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.
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.
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
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
American Buildings Company, an
corporation, Plaintiff v. Turner Construction Company, Inc., etc., et
District Court, Mid. Dist. Fla., Orlando Div., 91-596-CIV-ORL-19,
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.
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.
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
; 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.
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
District Court, Dist.
, C.D., C-84-0570S, 7/7/86, 643 FSupp 687
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.
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.
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.
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.
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. 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.
question before the court is whether the federal tax lien attached to
Westex' option and to the truckstop property when the option was
At hearing on
these motions, McGhie asserted that the Brintons lack standing to bring
their motion on the lien-attachment issue because the
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
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
361 , 13 S.Ct. 846, 37 L.Ed. 705 (1893).
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
now seeks to foreclose and sell the property to satisfy Westex' tax
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
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."
at 146. (Emphasis added).
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
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.
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
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.
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
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.
The evidence indicates P.W.I. is a wholly owned subsidiary of Westex.
Sec. 6321, 26 U.S.C. states:
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.
§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. . . .
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.
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.
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).
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.
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.
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
Sidney W. Mintz, Judgment
Creditor-Respondent v. Irving L. Fischer, Judgment Debtor and
United States of America
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..
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,
, N. Y., pro se.
presented is one of priority between a
tax lien and a judgment lien.
judgment-debtor Irving L. Fischer is the taxpayer and at all relevant
times was a resident of
. 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
asserts the priority of its liens from the filing aforesaid.
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
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
. 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.
of Federal Tax Lien]
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
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],
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.)
assessments and the filing of the notice of lien thereof in
, 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
. Mintz, the judgment-creditor, claims priority of his judgment lien
contending that the
was required to file notice of its lien in
, 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
gives priority to the claim of the
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,
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
47.) Of course, property rights are a matter of state law. (United
States v. Bess [58-2 USTC ¶9595], 357
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.)
essential in the application and enforcement of Federal tax laws. (United
States v. Gilbert Associates [53-1 USTC ¶9591], 345
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 [
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
was not urged; it was assumed that the filing requirement had been met
by the filing in
(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.)
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
of the debt does not appear, the prior filing in
, the county of the debtor's residence, satisfies the
of the Court]
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.
Roberts and McInnis v. Emery's Motor
Coach Lines, Inc.
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.
Seibert, Martinsburg, West Virginia, for Roberts et al. Howard Caplan,
Assistant United States Attorney, Clarksburg, West Virginia, for the
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
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.
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.
relies upon the provisions of Section 3670 and 3671 of Title 26 of the
United States Code.
of the United States Code insofar as pertinent to this inquiry, are:
"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."
"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."
"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,"
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.
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.
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.
v. Curry, 201 Fed. 371. Re Dartmount Coal Co., 46 Fed.
v. Snyder, 149 W. S. 210, 37 L. ed. 705, 13
846. Blacklock v.
75, 52 L. ed. 396, 28
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
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.
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.
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
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:
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."
contend that a bank deposit is not property or a right to property under
the law of
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.
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
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.
, 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.
v. Bank, 30 Fed. Supp. 113.
, etc., 46 Fed. Supp. 30 [42-1 USTC ¶9266].
v. Canfield, 29 Fed. Supp. 734 [39-2 USTC ¶9641].
, etc. v.
, 167 Fed. (2d) 468 [48-1 USTC ¶9242]. Goldenberg v. Westover,
150 Fed. (2d) 388 [45-2 USTC ¶9362].
v. Taft, 44 Fed. Supp. 544. Bank v.
, 73 Fed. Supp. 303 [47-1 USTC ¶9296].
, 74 Fed. Supp. 114 [47-2 USTC ¶9363.]
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
, 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:
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."
authorities bearing upon the questions discussed in this opinion, see
annotations in 105 A. L. R. 1245 and 172 A. L. R. 1366.
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
to the government petition as amended is overruled.
George A. Hudspeth et ux., Vona Lee
Hudspeth, Plaintiffs v.
United States of America
S. District Court, No. Dist.
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
Jim Pete Hale, McGowan, McGowan & Hale,
119 South 6th Street
, for plaintiffs. Roger L. McRoberts, Assistant United States Attorney,
Lubbock, Tex., William W. Guild, Tax Div., Dallas, Tex., for defendant.