6321 Bank Deposits page1

---

In re Arthur J. Cobb, Paula K. Cobb, Debtors. Arthur J. Cobb and Paula K. Cobb, Plaintiffs v. Samera L. Abide, as Chapter 7 Trustee for the bankruptcy estate of Arthur J. Cobb and Paula K. Cobb, Defendant United States of America, Plaintiff v. Arthur J. Cobb, Paula K. Cobb, Samera L. Abide, Citicorp Mortgage, Inc., and Sunburst Bank, Defendants

U.S. Bankruptcy Court, Mid. Dist. La. , 93-11077, 5/1/2002

[Code Secs. 6321 and 6323 ]

Tax liens: Annuities: Property transferred to third parties: Validity and priority against third parties: Super-priority safe harbor: Filing of notice.--

The IRS was entitled to recover funds subject to tax liens that debtors had transferred to third party creditors. The debtors had transferred cash and assigned rights under annuity contracts to their mortgage holder banks after the IRS perfected the tax liens. That the banks had a perfected security interest in real property secured by a mortgage did not give them priority as to the government with respect to the encumbered funds. Moreover, the creditors' were not entitled to the super-priority safe harbor relief under Code Sec. 6323 . The banks were not includible in the classes of interest holders addressed by the statute; moreover, even if they were, the banks took the funds from the annuities after notice had been filed.

[Code Sec. 6332 ]

Surrender of property subject to levy: Post-judgment interest: Pre-judgment interest: Congressional intent.--

The IRS was entitled to post-judgment interest on debtors' funds that were erroneously transferred to other creditors after the imposition of a tax lien. Pre-judgment interest, however, was denied as unsupported by statute or equity. Because pre-judgment interest is intended to encourage payment of taxes, it was inapplicable in the present case where third-party creditors held the funds.

REASONS FOR JUDGMENT

PHILLIPS, Bankruptcy Judge:

BEFORE THE COURT are the motions by the United States of America ("US") to reopen this matter, substitute party, and for the addition of pre and post-judgment interest. For the reasons that follow, the Court will grant the motion to reopen and will render judgment therein; will grant the motion to substitute party to reflect the proper party Defendant as Union Planters Bank, National Association ("Union Planters"); ¹ will deny the US's motion for pre-judgment interest, but grant the US post-judgment interest.

I. BACKGROUND AND PROCEDURAL HISTORY

Prior to filing bankruptcy, Arthur and Paula Cobb were practicing attorneys with a substantial practice. As compensation for attorney's fees in a case in which the Cobbs were counsel for the plaintiff, the Cobbs agreed to accept annuity payments. As part of the structured settlement of that case, the Cobbs became the beneficiaries of four annuity policies issued by Manufacturers Life Insurance Co. The annuity policies entitle the Cobbs to receive (without the right of acceleration) monthly payments, semi-annual payments, and certain lump sum payments over the course of the life of the annuity.

Beside being relatively successful attorneys, the Cobb's were also serially delinquent taxpayers who failed to either file returns and/or pay taxes, both for personal income and for that of Mr. Cobb's business, for an extended period of time beginning in 1978. The Internal Revenue Service ("IRS") finally began assessments against Mr. Cobb, and on November 22, 1991, the IRS filed a notice of federal tax lien for the tax periods, 1987, 1988, 1989, and 1990. On July 15, 1992, the IRS filed an additional notice of federal tax lien for the 1991 tax period. ²

In addition to being abundantly indebted to the IRS for unpaid taxes, Mr. Cobb and his wife were obligors on two different loans secured by two mortgages placed on their personal residence. Citicorp Mortgage, Inc. ("Citicorp") held a first priority mortgage on the residence, while Union Planters occupied a second priority position with respect to its mortgage.

Sometime prior to bankruptcy, the Cobbs began experiencing financial difficulty and defaulted on the mortgage obligations owed to Citicorp and Union Planters. In an attempt to stave off foreclosure, the Cobbs made several lump sum payments to Citicorp and Union Planters to try and bring their loan obligations current. The payments made by the Cobbs totaled $91,578.87 and were made in the following amounts: $55,614.21 to Citicorp on November 25, 1992; $4,638.51 to Citicorp on January 26, 1993; $4,544.52 to Citicorp on March 11, 1993; $19,527.58 to Union Planters in January, 1993; and $7,254.05 to Union Planters in April, 1993.

In addition, the Cobbs assigned their rights as annuitants to the proceeds from the annuity policies to Union Planters. The purported assignment was confected on January 29, 1993. Under the assignment, payments due under the policies were remitted directly to Union Planters by the policy issuer. ³

After the Cobbs filed bankruptcy, the US filed adversary proceeding no. 95-1022. This adversary proceeding was consolidated with another pending adversary proceeding involving claims made by the Cobbs against the trustee, no. 94-1103. The matter was tried on August 29, 1995. Thereafter, a consent judgment was entered in the consolidated adversary proceeding and the consolidated adversary proceeding was closed by order of dismissal. On January 27, 1997, this Court entered an order dismissing the Cobb's bankruptcy case. In its order of dismissal, the Court reserved jurisdiction over Paragraphs 1(B) and 1(C) of the US 's complaint filed in the instant adversary proceeding, no. 95-1022. A similar reservation of jurisdiction was included within the consent judgment entered in the consolidated adversary proceeding. Despite this reservation of jurisdiction, the Court issued an order administratively closing the instant adversary proceeding on September 28, 2001. The Court does not know exactly how, but it seems that this matter has fallen through the proverbial cracks, so to speak, perhaps because of a minute entry that incorrectly referred to this proceeding as being settled and to be made the subject of a dismissal by consent order (the administrative close was done as a ministerial act, upon the Court not having received the consent dismissal erroneously referred to in the minute entry). At any rate, the Court has been made aware of the pending claims and will issue and order reopening the adversary proceeding and will now rule on the merits. Apologies are extended for the delay.

II. ANALYSIS

Paragraphs 1(B) and 1(C), including subparts, essentially allege that the US 's lien claims were properly and validly perfected. More specifically, the paragraphs allege that such liens attached to the annuity payments received by the banks and to the lump sum payments to the banks made by the Cobbs, and therefore such payments must be returned to the US .

The voluminous compendium of laws on the subject of federal taxes, commonly referred to as the Internal Revenue Code, 26 U.S.C., et seq., provides that if any person required to pay taxes:

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. ⁴

The Supreme Court, examining the lien created by 26 U.S.C. §6321, has expounded that the scope, "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." ⁵ In addition to being extraordinarily broad, the lien imposed by 26 U.S.C. §6321 arises at the time the IRS assessment is made and continues until the liability for the amount of such assessment is made. ⁶

In this case, the IRS made assessments of the Cobbs federal tax liability at various times between 1991 and 1992. The assessments totaled approximately 2.5 million dollars. Pursuant to the statutes cited above, a tax lien arose at that time on all the Cobbs' property (and rights to property), whether immediately in their possession or which was acquired by them after the date of the assessment. According to the statutes, the lien continued in effect until the Cobbs satisfied the debt. ⁷

The next question, is to what did the tax liens attach? The foremost inquiry required under the tax lien statute is whether there is "property" or "right to property" to which the tax lien could encumber. The federal tax lien statutes do not create property rights, but rather attach consequences, federally defined, to rights which are created under state law. ⁸ Resort must first be made to underlying state law to determine the existence and nature of an interest to which the federal tax lien could be asserted. ⁹ If the taxpayers interest under state law is considered "property" or a "right to property," the tax lien attaches to that interest, and "the tax consequences thenceforth are dictated by federal law." ¹⁰

In this instance, the Cobbs' interests at issue are several lump sum payments of cash to the banks to cure a default in the mortgage notes, and the rights to payments due under the various annuity policies. Clearly, without the need for citation, Louisiana state law recognizes that money, i.e., the money used as payments on the mortgage notes, is a form of property, moveable (or personal) property, but property nonetheless. The money was the Cobbs to have, hold, and use, and therefore, was property to which the US 's tax lien attached.

In addition, the rights held by the Cobbs to payments due under the annuity policies was property. Though the Cobbs did not have a present interest in the actual monies due for future payments, what the Cobbs possessed was the right, under the annuity contract, to receive those payments when they became due. ¹¹ Contract rights are a form of property under Louisiana law, and those rights became impressed with the tax lien at the time it arose. ¹² Furthermore, any payments actually made to the Cobbs under the annuity policies would immediately succumb to attachment by the tax lien as well, being both "property" of the Cobbs in the parlance of 26 U.S.C. §6321, and as a consequential transformation of the right to receive that payment, which right was encumbered by the tax lien. ¹³

Once it has been determined that a particular interest a taxpayer holds constitutes "property" or a "right to property," federal law determines the relative priority of competing claims in and to that particular interest. ¹⁴ Priority of competing claimants is generally determined by the "rule of first in time, first in right," meaning that whichever entity perfects a lien on the subject property first is entitled to priority to the property or proceeds of the property. ¹⁵

In this case, the IRS assessed the Cobbs for delinquencies in taxes in November 1991 and July 1992. The liens at issue arose on these dates. The liens covered all property interests presently held by the Cobbs at that time and all property interests thereafter acquired. At the time the liens arose, the Cobbs possessed present interests in the rights to future payments under the annuity contracts. The lien attached to those rights to the extent of the Cobbs' tax liability exigent within the assessments. Additionally, the liens attached to any property interests, including sums of money, to which the Cobbs acquired after the tax lien arose.

At the time the Cobbs transferred lump sums of money to the banks, those sums of money were impressed with the federal tax liens. Moreover, at the time the Cobbs purportedly assigned their rights under the annuities, those rights were encumbered by the tax liens as well. ¹⁶ Both sets of transfers occurred after the IRS had assessed tax deficiencies and the liens arose under 26 U.S.C. §6322.

Furthermore, in no instance did the banks have a prior perfected security interest in the property transferred to them. The banks did have a perfected security interest in the real property secured by a mortgage. However, the "first in time, first in right" rule refers to competing interests on the particular property at issue. The US does not contest that the banks prior perfected mortgages would prime their tax liens regarding the subject matter of the mortgages, i.e., the Cobbs' residence. However, the tax lien is broader than the security interest held by the banks. The tax liens attached to all property to the extent not otherwise validly encumbered. That the Cobbs paid the banks money that the banks used to satisfy an underlying obligation for which they had distinct security for does not mean that the banks had a security interest in those funds used to pay such obligations. The funds themselves (and the rights allegedly transferred by the assignment of the annuity payments) were previously encumbered by the governments tax liens, and passed to the banks subject to that encumbrance. ¹⁷

The "first in time, first in right" general rule is qualified, however, by the "super-priority" provisions of 26 U.S.C. §6323. ¹⁸ According to this statute, a tax lien may be primed by other competing interests under certain limited circumstances, which the banks claim are present in this case.

The provisions of 26 U.S.C. §6323 pertinent to this case provide:

(a) . . .--The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.

(b) . . .--Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid--

(1) . . .--With respect to a security (as defined in subsection (h)(4))--

(A) as against a purchaser of such security who at the time of purchase did not have actual notice or knowledge of the existence of such lien; and

(B) as against a holder of a security interest in such security who, at the time such interest came into existence, did not have actual notice or knowledge of the existence of such lien. ¹⁹

Subsection (a) of the statute does not apply in this instance. The provisions of subsection (a) extend priority to certain classes of interest holders if notice has not been properly filed at the time the interest holder accepted or took such interest. In this case, the IRS properly filed its notice as required by 26 U.S.C. §6323(f). ²⁰ Additionally, the transfers from the Cobbs to the banks took place after the IRS had properly filed its notice. Even if the banks fit within the categories described within subsection (a) (which the Court is not convinced they would), the banks took the money and payments from the annuities after notice had been filed. Therefore, the provisions of subsection (a) afford the banks no safe harbor from the government's tax lien.

The provisions of subsection (b) similarly do not apply to provide the banks with "super-priority" above the government's tax liens. The US sets forth a litany of reasons why the banks fail to fall within the purview of the provisions of subsection (b). While the Court believes that the US 's arguments are well founded, it is unnecessary to discuss in detail most of them because the Court finds that the banks had notice of the tax liens at the time the banks accepted the lump sum and annuity payments.

Subsection (b) affords "super-priority" to certain classes of persons involved in specifically listed categories of transactions. For the purposes of the instant case, only the provisions of 26 U.S.C. §6323(b)(1) could conceivably apply. However, both classes of persons for whom "super-priority" could be available requires that the entities take a security, whether by purchase or by taking a security interest therein, without notice of the existence of the tax lien.

In this case, the record and evidence adduced at trial indicate that both banks were aware of the tax liens at the time the lump sum and annuity payments were made. The Court finds that Citicorp was aware of tax liens on October 29, 1992--a month before their acceptance of the first lump sum payment. ²¹ Additionally, the Court finds that Union Planters was aware of tax liens, at the latest, by March 26, 1992--again, prior to acceptance of lump sum and annuity payments. As both banks were aware of the government's tax liens the relevant provisions of 26 U.S.C. §2623(b)(1) do not confer "super-priority" status sufficient to avoid the government's tax lien on the lump sum and annuity payments.

For these reasons, the Court will grant the US a judgment against Citicorp in an amount equal to the total of the lump sum payments received by it from the Cobbs. The Court will also enter a judgment against Union Planters in an amount equal to the amount received by it in lump sum payments from the Cobbs as well as for the total amount of all payments made under the annuity policies until such time as the annuity became the subject of the interpleader action referenced in footnote 2, supra, without prejudice to any right Union Planters has or may have against Citicorp for contribution, etc., due to the payment arrangement made between the two banks regarding the disposition of annuity payments.

III. INTEREST

The US urges this Court to grant pre-and post-judgment interest on the amounts incorporated into this Court's judgment. ²² Regarding post-judgment interest, 28 U.S.C. §1961 provides, "Interest shall be allowed on any money judgment in a civil case recovered in a district court." according to the statute, such interest shall be calculated from the date of the entry of the judgment. Accordingly, the Court will grant the motion of the US to award post-judgment interest to be calculated in accordance with 28 U.S.C. 1961(a). ²³

A right to pre-judgment interest is not specifically conferred by statute. However, the United States Supreme Court has stated that awards of pre-judgment interest be governed by traditional judge-made principles. ²⁴ Among the principles to be considered are: 1) the relative equities between the beneficiaries of the obligation and those on whom it is imposed; 2) fairness; 3) ensuring full compensation; 4) expeditious settlement; 5) the need to conform to historical legislative and judicial precedent. ²⁵ The Fifth Circuit also requires that the Court inquire whether the federal act that creates the cause of action precludes an award of interest, and whether the award furthers the congressional policy behind the act creating the cause of action.

In this case, the Court does not know of any statutory prohibition on recovery of pre-judgment interest in a case such as this. However, the Court does not believe that an award of pre-judgment interest in this specific case and based on the specific facts underlying it would further congressional policy. Congressional policy creates a lien on the taxpayer's property. The policy behind the act is to facilitate payment of tax liability by the taxpayer. In this case, an award of pre-judgment interest would be against a third party not liable for the underlying tax obligation, but rather because the third party possesses former property of the taxpayer (but not as a result of a fraudulent transfer by the taxpayer). The Court sees no reason how congressional policy would be furthered by shouldering a third party should bear an enormous pre-judgment interest award.

The Court does not believe that the traditional principles outlined above help the US either. Those principles form an equitable balancing test. While it may be argued that pre-judgment interest would compensate the US for the time-value of the money, other factors militate against such an award. First, as stated above, the US is requesting interest not from the taxpayer-obligor, but from a third party who accepted property (albeit burdened with the tax lien) from the taxpayer and gave value to the taxpayer in return (in the form of a credit on the balance due under the notes it held).

Secondly, the evidence in the record and introduced throughout the pendency of this proceeding indicates the IRS knew of the annuities well prior to the purported assignment. The IRS also knew that the Cobbs had not paid proper taxes for years. The IRS had ample time to protect its interest in property of the Cobbs to which the lien attached. ²⁶ While the Court finds today that the banks must disgorge the proceeds received from the Cobbs upon which the tax liens were impressed, the banks nonetheless took such proceeds without malice towards the government and with a good faith belief that they had a right to the proceeds. The banks are not the ones who owed the underlying tax debt.

It would be extremely unfair, considering the circumstances surrounding this case, to award pre-judgment interest against the third-party banks in the face of the governments knowledge of the Cobbs property and dilatory actions involving protection of its rights thereto. ²⁷ In sum, the Court finds that an award of pre-judgment interest is not appropriate in this instance and will deny the US 's motion for such.

IV. CONCLUSION

For the foregoing reasons, the Court will issue an order granting the US 's motion to reopen the case, and will allow substitution of Union Planters Bank, National Association as the proper party defendant. Further the Court will enter a judgment against Citicorp equal to the amount it received from the Cobbs in the lump sum payments discussed above. In addition, the Court will enter a judgment against Union Planters equal to the amount it received from the Cobbs in the lump sum payments described above, as well as equal to the amount of all annuity payments dispersed under the annuity that it received pursuant to the purported assignment of the Cobbs rights thereto, without prejudice to Union Planter's right to contribution or other legal and equitable rights against Citicorp for recoupment of sums Union Planters paid to Citicorp under its agreement with Citicorp. The Judgments will include an award of post-petition interest to be calculated in accordance with 28 U.S.C. 1961(a). The Judgments will not include an award of pre-judgment interest.

¹ The original defendant, Sunburst Bank changed its name to Union Planters Bank of Louisiana on June 15, 1995. On August 29, 1995 this Court allowed the substitution of Union Planters Bank of Louisiana . Subsequently, Union Planters Bank of Louisiana merged with Union Planters Bank, National Association. Pursuant to 12 U.S.C. §215(e), the Court will allow the substitution of Union Planters Bank, National Association as proper party defendant.

² In a collateral proceeding entitled, "Manufacturers Life Insurance Co. v. Arthur J. Cobb, et al.," U.S.D.C., E.D.La., No. 93-3325, the district court specifically determined that the November 1991 and July 1992 notice of federal tax liens were properly filed. This Court believes that the District Court's determination on that issue is entitled to issue preclusive effect in this proceeding as it involved the same parties, the issue is identical to one at issue in this proceeding, the issue was litigated and decided by the district court, and the district court's determination was integral to its ultimate conclusion. See, Stripling v. Jordan Production Co., LLC, 234 F.3d 863, 868 (5th Cir. 2000). Therefore, the Court will consider the notices of tax liens filed November 1991 and July 1992 to have been properly filed.

³ Union Planters apparently acted as a receiving agent for Citicorp with regard to the annuity payments, and upon receipt of such would remit a portion of the annuity payment to Citicorp to satisfy a portion of its first priority mortgage.

⁴ 26 U.S.C. §6321 (emphasis added).

⁵ United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719-720 (1985).

⁶ 26 U.S.C. §6322.

⁷ See, Texas Commerce Bank-Fort Worth, N. A. v. United States [90-1 USTC ¶50,155], 896 F.2d 152, 161 (5th Cir. 1990).

⁸ See, United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 55, 78 S.Ct. 1054, 1057 (1958).

⁹ See, United States v. Craft [2002-1 USTC ¶50,361], 122 S.Ct. 1414, 1420 (2002); Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 512-514, 80 S.Ct. 1277, 1280-1281 (1960).

¹⁰ See, Medaris v. United States [89-2 USTC ¶9565], 884 F.2d 832, 833 (5th Cir. 1989), quoting National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. at 722, 105 S.Ct. at 2925.

¹¹ See, In re Wessel [93-2 USTC ¶50,549], 161 B.R. 155, 159 (Bankr. D.S.C. 1993); c.f., United States v. Metropolitan Life Ins. [89-1 USTC ¶9362], 874 F.2d 1497 (11th Cir. 1989).

¹² Accord, Randall v. H. Nakashima & Co., Ltd. [76-2 USTC ¶9770], 542 F.2d 270 (5th Cir. 1976) (contract rights are "right to property").

¹³ See generally, Phelps v. United States [75-1 USTC ¶9467], 421 U.S. 330, 334-335, 95 S.Ct. 1728, 1731 (1975) (the lien attaches to the thing and to whatever is substituted for it).

¹⁴ See, Aquilino [60-2 USTC ¶9538], 363 U.S. at 814, 80 S.Ct. at 1280.

¹⁵ See, Texas Commerce Bank [90-1 USTC ¶50,155], 896 F.2d at 161.

¹⁶ Union Planters has previously argued that it took a security interest in the annuities by virtue of the assignment. While the Court does address the question of whether Union Planters received a security interest by virtue of the assignment, the Court notes that even if it had, the assignment occurred after the tax liens had already attached to the Cobbs' rights under such annuities. Therefore, regardless of whether a security interest was created, the governments' lien would have primed Union Planters' rights to the payments under the assignments.

¹⁷ See, Bess [58-2 USTC ¶9595], 357 U.S. at 57, 78 S.Ct. at 1058 ("The transfer of the property subsequent to the attachment of the lien does not affect the lien, for 'it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere.' ").

¹⁸ See, Western National Bank v. United States [94-1 USTC ¶50,017], 8 F.3d 253, 255 (5th Cir. 1993).

¹⁹ "Security" is defined by 26 U.S.C. §6323(h)(4) as "any bond, debenture, note, or certificate or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form, share of stock, voting trust certificate, or any certificate of interest or participation in, certificate of deposit or receipt for, temporary or interim certificate for, or warrant or right to subscribe or to purchase any of the foregoing; negotiable instrument; or money.

²⁰ See, n. 2, supra.

²¹ As part of a discovery sanction against Citicorp during the conduct of this proceeding, the Court prevented Citicorp from producing any evidence that it did not have knowledge of the government's tax liens. See, Order dated August 11, 1995, Doc. No. 111.

²² The banks have objected to imposition of interest on the basis that they were never put on notice of the US 's claim for such prior to trial. While the US never explicitly stated in its complaint, "We want interest," the Fifth Circuit has upheld interest awards based on very relaxed pleading standards. In this case, the US prayed for such other relief deemed equitable and just under the circumstances, and the Fifth Circuit has previously upheld an award of interest premised upon similar language. See, Federal Savings and Loan Ins. Corp. v. Texas Real Estate Counselors, Inc., 955 F.2d 261, 270 (5th Cir. 1992).

²³ The US urges the court to award post-judgment interest pursuant to 28 U.S.C. §1961(c)(1). Although this matter originally stems from tax liability, the Court does not believe that this action qualifies as a tax case, but rather is an exercise upon a lien. This interpretation is bolstered by the fact that the US is not proceeding against the taxpayer, but rather against third-parties to enforce its lien. Therefore, interest is appropriate under subsection (a) of the statute, not subsection (c)(1).

²⁴ See, City of Milwaukee v. Cement Div. Nat'l Gypsum Co., 515 U.S. 189, 194, 115 S.Ct. 2091, 2095 (1995); see also, Gore, Inc. v. Glickman, 137 F.3d 863, 868 (5th Cir. 1998).

²⁵ Gore, 137 F.3d at 866.

²⁶ In fact, the Court finds that the annuities could have been seized even before this adversary proceeding, and even before the bankruptcy case, was filed. Why the government failed to act has never been explained. While such failure on the part of the government does not offer help to the defendants regarding the main demand, if provides the Court guidance to refuse to issue post-judgment interest.

²⁷ The Court finds that factors 4) and 5) above are neutral and do not sway the Court either way.

 

 

 

The Prudential Insurance Company of America, Plaintiff/Stakeholder v. Stephen Allen, Vicki S. Allen and the United States Department of the Treasury-Internal Revenue Service, Defendant/Claimants

U.S. District Court, So. Dist. Ind., New Albany Div., NA 96-118 C B/G, 3/31/98

[Code Sec. 6321 ]

Lien for taxes: Attachment: Annuities: Ownership: Ineffective transfers: Incarcerated taxpayer.--A tax lien attached to a taxpayer's insurance annuities because he failed to transfer them to his wife before his deficiencies were assessed. Under state ( Indiana ) law, his wife's payment of the premiums while he was incarcerated did not make her the owner of the annuities. Instead, the taxpayer had to substantially comply with the annuity's contract terms regarding a change in ownership, or show that he was unable to do so despite all reasonable efforts. However, the taxpayer failed to inform the issuing insurance company of the purported change in ownership, and failed to show that he attempted but was unable to inform them. Thus, he remained the owner of the annuities at the time his delinquencies were assessed, and the tax lien attached to the annuities prior to any equitable interest of his wife.

John W. Woodward, Jr., Wyatt, Tarrant & Combs, 117 E. Spring St., New Albany, Ind. 47151-0649, R. Thomas Blackburn, Jr., P.O. Box 3844, Louisville, Ky. 40201, for plaintiff/stakeholder. Jeffrey L. Hunter, Assistant United States Attorney, Indianapolis, Ind. 46204, S. Robert Lyons, Department of Justice, Washington, D.C. 20530, for defendant/claimants.

ORDER GRANTING SUMMARY JUDGMENT

BARKER, Chief Judge:

This matter is before the Court on the Motion for Summary Judgment filed by Defendant United States on November 3, 1997. Plaintiff brought this litigation as a stakeholder of insurance proceeds and asserts no substantive position with regard to the issues raised in the Summary Judgment Motion. Defendants Stephen H. Allen and Vicki S. Allen have opposed the Motion for Summary Judgment through their brief filed on January 16, 1998, to which the United States replied on February 12, 1998. The Court, being duly advised, finds that the Summary Judgment in favor of the United States is required, based on the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. The Prudential Insurance Company of America ("Prudential") issued three annuity contracts (contract numbers 36-991-887, 76-990-247, R4-127-584) that are the subject of this interpleader case on or about April 16, 1984, May 26, 1986, and October 2, 1987, respectively.

2. Each of the three annuity contacts provided that Stephen Allen was both the owner and the insured, and that Vicki Allen, his wife, was the designated beneficiary of the contract.

3. Each contract further provided the following with respect to the ownership of the contract:

GENERAL PROVISIONS

Definitions.--We define here some of the words and phrases used all through this contract.

We, Our and Us.--Prudential.

You and Your.--The owner of the contract.

Contract Modifications.--Only a Prudential officer may agree to modify this contract, and then only in writing.

Ownership and Control.--Unless we endorse this contract to say otherwise: (1) the owner of the contract is the Insured; and (2) while the Insured is living the owner alone is entitled to (a) any contract benefit and value, and (b) the exercise of any right and privilege granted by the contract or by us.

4. On or about March 27, 1991, Mr. Allen pled guilty to a violation of federal law.

5. After being sentenced to a term of imprisonment of five years, Stephen Allen wrote a letter to his wife expressing regret for his actions and telling her that everything he owned was hers, including the annuities. No physical copy of this letter is in existence, or at least none has yet been produced.

6. No copy of this letter was ever sent to Prudential.

7. Prudential has never endorsed the three annuities to make Mrs. Allen the owner.

8. Mr. Allen has produced no evidence to establish that he did all within his power or all that was reasonable to comply with the policy provisions respecting a change of ownership, or that through no fault of his own he was unable to achieve his goal.

9. During the five years Mr. Allen was incarcerated, Mrs. Allen paid the premiums on the annuities.

10. The Internal Revenue Service, on June 1, 1992, assessed $26,222.49 and $113,425.87 in tax for 1989 and 1990, plus penalties, against Mr. Allen, and filed a notice of federal tax lien with respect to that liability on August 8, 1992.

CONCLUSIONS OF LAW

1. A showing by the United States that federal taxes have been assessed and that such assessment has not been paid is presumptively correct and establishes a prima facie case that taxes are due. United States , et. al. v. Janis [76-2 USTC ¶16,229], 428 U.S. 433 (1976).

2. A taxpayer's failure to pay a federal tax assessment after notice and demand results in a federal tax lien upon all of the taxpayer's property and rights to property, including property subsequently acquired by the taxpayer. 26 U.S.C. §6321.

3. The Certificates of Assessments and Payments submitted by the United States are presumptive proof in this case and otherwise that taxes are owing and that notice and demand was sent. Pursifull v. United States [93-2 USTC ¶50,584], 849 F.Supp. 597 (USDC SD OH 1993), aff'd by unpublished opinion, 19 F.3d 19 (6th Cir. 1994).

4. A federal tax lien arises on the date of assessment, and continues until the taxpayer's liability "is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C. §6322.

5. The United States ' lien attached to all property and rights to property of Stephen Allen on June 1, 1992, the date the taxes were assessed.

6. While federal law governs the right of the United States to enforce a tax lien, the determination of rights as to property claimed by a taxpayer is a question of state law. United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 722-23 (1985).

7. The annuities at issue are "property" or "rights to property" to which a federal tax lien attaches. United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51 (1958).

8. There is no authority under Indiana law that establishes that the mere payment of the premiums due on an annuity makes the payor the owner of the annuity. Cf. United States v. Fried [63-1 USTC ¶9106], 309 F.2d 851, 852 (2nd Cir. 1962).

9. Under Indiana law, substantial compliance with the requirements of policy must occur to effect a change in ownership of the policy. Cf. Borgman v. Borgman, 420 N.E. 1261, 1263 (Ind. Ct. Appeals 1981).

10. The requirement that the terms of the policy be substantially complied with is not exclusively for the protection of the insurance company. Cook v. The Equitable Life Assurance Society of the United States , 428 N.E.2d 110, 115 (Ind. Ct. Appeals 1981).

11. The letter Mr. Allen sent to Mrs. Allen did not substantially with the terms of the annuities in terms of effecting a change in ownership.

12. The letter Mr. Allen sent to Mrs. Allen therefore did not effect a legal transfer of ownership of the annuities.

13. In the absence of substantial compliance with the terms of the annuities respecting a change in ownership, Mr. Allen was required to show that he did all within his power or all that reasonably could have been expected of him to comply with the policy provisions respecting a change of ownership, and despite that, through no fault of his own, he was unable to achieve his goal. Cf. Cook v. The Equitable Life Assurance Society of the United States , 428 N.E.2d 110, 115 (Ind. Ct. Appeals 1981). Mr. Allen failed to satisfy these requirements.

14. The United States ' tax lien attached to the annuities.

15. An equitable lien does not defeat the United States ' federal tax lien. 26 U.S.C. §6323.

16. The United States ' tax lien is prior to any equitable interest Mrs. Allen may have in the annuities.

17. The United States is entitled to the interpled property.

IT IS SO ORDERED.