[89-1 USTC ¶9260] United States of America , Appellant v. State of Colorado , Appellee

(CA-10), U.S. Court of Appeals, 10th Circuit, 87-1957, 4/7/89 , 872 F2d 338, Affirming an unreported District Court decision

[Code Sec. 7425 ]

Discharge of liens: State tax lien: Priority of liens: Purchase by state of seized property: Doctrine of merger: Notice of sale.--The purchase by the State of Colorado of property it seized did not extinguish the lien it had filed against the property. In affirming the federal court's holding, the U.S. Court of Appeals at Denver determined that the state doctrine of merger did not operate to merge the state's lien with the fee title it acquired to the property, which would extinguish the state lien and elevate the federal tax lien to first priority, because the state intended to preserve its lien when it purchased the property. The court also ruled that the state lien's priority existed despite the fact that the state had failed to provide notice of the sale of the property to the government prior to the sale.

Robert N. Miller, United States Attorney, Michael C. Durney, Acting Assistant United States Attorney General, William S. Eastabrook, Michael L. Paup, Wynette J. Hewett, Richard J. Driscoll, Department of Justice, Washington, D.C. 20530, for appellant. Duane Woodard, Attorney General, Steven M. Bush, Assistant Attorney General, Charles B. Howe, Deputy Attorney General, Richard H. Forman, Solicitor General, Denver, Colo., for appellee.

Before ANDERSON, MCWILLIAMS, and TACHA, Circuit Judges.

TACHA, Circuit Judge:

This appeal arises from a dispute between the United States Government and the State of Colorado (State) over property that the State seized and sold to satisfy state tax liens. The district court granted summary judgment in favor of the State, holding that the State's purchase of seized property at a tax sale did not extinguish the State's tax liens, and that state liens retained their priority over federal tax liens despite the fact that the State failed to give notice to the government prior to sale as required by I.R.C. §7425 . We affirm.

I.

We will affirm a grant of summary judgment if it is clear from the record that there are no genuine issues of material fact and the defendant is entitled to judgment as a matter of law. Willner v. Budig, 848 F.2d 1032, 1033-34 (10th Cir. 1988), cert. denied, 109 S.Ct. 240 (1989). Such affirmance need not be based on the grounds relied upon by the district court, but may be based on any proper grounds for which there is a record sufficient to permit conclusions of law. Griess v. Colorado , 841 F.2d 1042, 1047 (10th Cir. 1988). The district court decided this case based upon stipulated facts; therefore no material facts are in dispute.

On September 16, 1981, and March 29, 1982, the State filed liens against the taxpayer, Gourmet Junk Foods, Inc., for $3,087.66 of unpaid Colorado labor and employment taxes. On March 29, 1982, the IRS also made assessments against the taxpayer for unpaid federal withholding and FICA taxes totaling $7,067.59. The IRS filed notices of federal tax liens with Pitkin County , Colorado on June 23, 1982, and with the Secretary of State on June 24, 1982. The parties concede that the state liens initially had priority over the federal liens.

On January 24, 1983, the State seized and stored personal property of the taxpayer for the purpose of protecting its liens. On February 7, 1983, the State held a public auction of the seized property pursuant to Colorado law. See Colo. Rev. Stat. §39 -21-114 (1982). The State did not give prior notice of this sale to the IRS as required by I.R.C. §7425(c)(1) . Because the highest bid tendered at the auction was insufficient, the State purchased the property. See Colo. Rev. Stat. §39 -21-114(2)(a) (1982).

On March 31, 1983, the IRS served a notice of levy on the State, demanding that the State turn over all property in its possession that belonged to the taxpayer. The State did not comply with this demand and, furthermore, sold the property to a third party for $7,000 on April 14, 1983. The IRS served a final demand for the property on April 15, 1983, and the State persisted in refusing to turn over the property or the proceeds.

The Government initiated litigation in the district court on April 9, 1985. The Government argued that because the State did not comply with the notice requirements of I.R.C. §7425(c)(1) , its junior lien survived the sale of the property. Further, because the State purchased the property at the sale, the Government contended that the doctrine of merger operated to extinguish the State's lien. The State conceded that the federal tax liens survived the sale, but disputed the extinguishment of the state tax liens.

The district court granted summary judgment in favor of the State, ordering that the State retain that portion of the property necessary to satisfy state tax liens and costs, with the remainder to be paid to the Government. The Government appeals from this order.

II.

We must decide whether the State's purchase of the property, without giving notice to the government as required by I.R.C. §7425 , extinguished the State's senior lien by merging that lien with fee title to the property, thereby elevating the federal tax lien to first priority. Federal law governs the priority of a tax lien against other claims to property. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 513-14 (1960); United States v. Wingfield [88-1 USTC ¶9367 ], 822 F.2d 1466, 1473 (10th Cir. 1987), cert. dismissed, 108 S.Ct. 1762 (1988); see I.R.C. §§6321 -6323. Unless Congress has stated otherwise, however, we look to state law in determining what constitutes a property interest or right to property to which a federal tax lien may attach. United States v. Brosnan [60-2 USTC ¶9516 ], 363 U.S. 237, 240-42 (1960); see Bigheart Pipeline Corp. v. United States [88-1 USTC ¶9110 ], 835 F.2d 766, 767 (10th Cir. 1987). Accordingly, whether merger applies in this case must be answered by reference to state law. See First American Title Ins. Co. v. United States [88-2 USTC ¶9408 ], 848 F.2d 969, 971 (9th Cir. 1988) (applying California law of merger); United States v. Polk [87-2 USTC ¶9432 ], 822 F.2d 871, 874 (9th Cir. 1987) (applying Arizona law of merger); Southern Bank v. IRS [85-2 USTC ¶9670 ], 770 F.2d 1001, 1007 (11th Cir. 1985) (applying Alabama law of merger), cert. denied, 476 U.S. 1169 (1986). ¹

A.

Under Colorado law, the doctrine of merger does not automatically apply when the same person acquires a greater estate and a lesser estate in property. "The doctrine of merger . . . is not a rule of property; the question of merger depends upon intent. . . ." Hart v. Monte Vista Bldg. Ass'n, 257 P. 1079, 1079 ( Colo. 1927).

In law a merger always takes place when a greater estate and less[er] [estate] coincide and meet in one and the same person, in one and the same right, without any intermediate estate, unless a contrary intent appears. The question is upon the intention, actual or presumed, of the person in whom the interests are thus united.

Goldblatt v. Cannon, 37 P.2d 524, 526 ( Colo. 1934) (emphasis added); see Colorado Nat'l Bank-Exchange v. Hammar, 764 P.2d 359, 361 (Colo. Ct. App. 1988).

If no actual intention to preserve the lien has been expressed, such an intent

will be presumed from what appear to be the best interests of the party, as shown by all the circumstances. If his interests require the incumbrance to be kept alive, his intention to do so will be inferred.

Vaughn v. Comet Consol. Mining Co., 39 P. 422, 424 ( Colo. 1894) (quoting Pomeroy, Equity Jurisprudence §791); see Sellers v. Floyd, 52 P. 674, 675-76 ( Colo. 1898) (intent to preserve junior liens inferred when property owner purchased such liens to protect himself in the event that his title to property was defeated). ²

Here, the State's interests plainly support an inference that the State intended to preserve its lien in the property. By purchasing the property at the auction, the State intended to protect its lien, and perhaps junior lienholders, by preventing the property from being purchased at below its market value. It would be an absurd result to conclude that the State intended to destroy its own lien, which in this case would preclude collecting any part of its debt, by taking action that arguably benefited junior lienholders. Absent evidence of intent to the contrary, we therefore presume that the State intended to preserve its lien.

B.

The Government contends that, regardless of the state law doctrine of merger, section 7425 requires that a senior lienholder who fails to give notice to the government prior to sale of property held as collateral, and who purchases such property at the sale, loses the priority of that senior lien. The Government draws this interpretation from the statutory language which states that the party who acquires the property in such a sale takes the property "subject to" the federal tax liens. See I.R.C. §7425(b) .

Section 7425 provides in relevant part:

[A] sale of property on which the United States has or claims a lien . . .

(1) shall, except as otherwise provided, be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded in the place provided by law for such filing or recording more than 30 days before such sale and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1); or

(2) shall have the same effect with respect to the discharge or divestment of such lien or such title of the United States , as may be provided with respect to such matters by the local law of the place where such property is situated, if--

(A) notice of such lien or such title was not filed or recorded in the place provided by law for such filing more than 30 days before such sale,

(B) the law makes no provision for such filing, or

(C) notice of such sale is given in the manner prescribed in subsection (c)(1).

Id. (emphasis added). Subsection (c)(1) requires the senior lienholder to provide written notice of a sale of collateral to the government "not less than 25 days prior to such sale." Id. §7425(c)(1) .

The practical effect of this statute may be summarized as follows. The statute creates two duties to give notice--one on behalf of the government, and one on behalf of the senior lienholder who desires to sell collateral. The government must give a senior lienholder notice of its junior federal tax lien at least thirty days prior to the time that the senior lienholder sells collateral. If the government fails to file such notice, the sale of the collateral extinguishes the government's lien on that property, and the purchaser takes free of the junior federal lien. By timely filing notice of its tax lien, however, the government triggers the requirement that the senior lienholder give notice to the government at least twenty-five days prior to selling the collateral.

If the senior lienholder gives timely notice of the sale to the government, the government's junior liens on collateral are extinguished by the sale to the extent provided by local law. Thus, the purchaser generally will take the property free of all such liens. If, however, the senior lienholder fails to give notice of the sale to the government, the government's junior lien is preserved and the purchaser of collateral takes property "subject to" the government's lien.

The legislative history of section 7425 shows that Congress was responding to the problems caused by the practice of foreclosing a senior security interest without notifying the government. S. Rep. No. 1708, 89th Cong., 2d Sess., reprinted in 1966 U.S. Code Cong. & Admin. News 3722, 3748. Foreclosure without notice had the effect of extinguishing the junior lien of the United States "under circumstances where it is not possible for the Internal Revenue Service to take steps to protect the United States in the collection of its tax revenues." Id. By adding the notice requirement, the government was given "an opportunity to review its position and determine the appropriate action without placing an undue burden on a foreclosing creditor."

Id.

Neither the language nor the purpose of section 7425 supports the Government's claim that failure to comply with the notice provisions automatically elevates junior tax liens to priority status. By making property sold without notice "subject to" the lien of the United States, section 7425 merely preserves federal tax liens from being extinguished through sale of the underlying collateral; it does not otherwise alter the federal priority rules of I.R.C. §§6321 -6323.

Under the federal law of priority, the State's tax liens are senior to the federal tax liens. The district court therefore correctly granted summary judgment in favor of the State and ordered that the State had priority to satisfy its lien from the proceeds that resulted from the State's sale of the property to a third party.

We recognize that federal tax liens are important tools used to protect the "vital national interest" in collecting federal taxes. Southern Bank, 770 F.2d at 1009. We further agree with the Eleventh Circuit that

[b]ecause of this important interest, we cannot permit states to nullify the effectiveness of the federal tax lien by enacting nonjudicial foreclosure laws or by applying various equitable principles recognized by the state. The legislative history of 26 U.S.C. §7425 makes clear that Congress did not intend such a result.

Id. By applying the state law of merger, which here permitted an exception when the purchaser did not intend merger, we have neither nullified the effectiveness of federal tax liens nor allowed the states to alter the federal law of priority among competing liens. Rather than creating an exception to section 7425 , as the Government argues, the result in this case is entirely consistent with the statute. The federal tax lien is preserved, and the priority among competing lienholders is decided on the basis of the federal law of priority.

The judgment of the district court is therefore AFFIRMED.

¹ One district court has interpreted Southern Bank as requiring application of the doctrine of merger as a matter of federal law. See Title Guar. Co. v. IRS , 667 F.Supp. 767, 771-72 (D. Wyo. 1987). We reject this interpretation. We read Southern Bank as holding that the foreclosure sale there resulted in a complete merger of title as a matter of Alabama state law. To the extent Southern Bank's analysis may rely on preemption by I.R.C. §7425(b) , we disagree.

² Colorado has codified a rule of merger with regard to mortgages. Colo. Rev. Stat. §38 -38-109 (1982) provides:

If the holder of such mortgage acquires the title conveyed by virtue of such foreclosure, the title evidenced

Glasgow Realty, LLC, Plaintiff v. Robert C. Withington, et al., Defendants. United States of America , Counterclaim-Crossclaim-Plaintiff v. Glasgow Realty, LLC, Counterclaim-Defendant, Robert C. Withington, et al., Crossclaim-Defendants.

U.S. District Court, East. Dist. Mo. , East. Div.; 4:02CV1903 TIA, September 27, 2004.

[ Code Sec. 7425]

Tax liens: Discharge: Notice to U.S. : Quiet title. --

A third-party purchaser of property subject to a tax lien was granted summary judgment in its quiet title case against the IRS . The property subject to the tax lien was sold by the local county collector for past due real estate taxes. Although the purchaser timely notified the IRS of the sale as required by Code Sec. 7425, the notice was incorrectly addressed. The IRS argued that the purchaser's failure to correctly address the notice made the notice fatally inadequate and, therefore, its obligation to notify the petitioner of any inadequacies in the notice never arose. However, the court determined that, under Reg. §301.7425(d)(2), the timely notice of sale triggered the IRS 's duty to provide notice of any inadequacy to the foreclosing party. The IRS cannot use a technical deficiency to disregard its obligation to provide notice of inadequacy.

MEMORANDUM AND ORDER

ADELMAN, Magistrate Judge: This matter is before the Court on defendant/counterclaim plaintiff United States of America 's Motion for Summary Judgment (filed October 24, 2003/Docket No.28), and plaintiff/counterclaim defendant Glasgow Realty, LLC's Motion for Summary Judgment (filed October 24, 2003/Docket No. 27). All matters are pending before the undersigned United States Magistrate Judge, with consent of the parties, pursuant to 28 U.S.C. §636(c).

Plaintiff Glasgow Realty, LLC ("Glasgow") originally filed a First Amended Petition for Quiet Title and Declaratory Judgment against Robert C. Withington, Melvin Diehl, Helen Diehl, Internal Revenue Service, Department of Revenue, State of Missouri , and Division of Employment Security, in the Circuit Court of St. Louis County, Missouri on October 8, 2002. (Docket No. 1/filed December 13, 2002). In the petition, Glasgow seeks "an Order and Judgment declaring and quieting title to [ 7956 Page Avenue , St. Louis , MO 63133 ] to Plaintiff free and clear of all prior liens." On December 13, 2002, the United States of America removed the case to this court. The United States of America (" United States ") filed a counterclaim/crossclaim seeking to foreclose its tax liens against the property and against Glasgow on its quiet title action. (Docket No. 10/filed February 12, 2003).

Both Glasgow and the United States have filed motions for summary judgment claiming that there are no genuine issues of material fact and that they are entitled to judgment as a matter of law. Glasgow has responded to the United States ' motion to which Glasgow has replied. The United States has responded to Glasgow 's motion to which the United States has replied.

When deciding cross-motions for summary judgment, the approach is only slightly modified, as explained in International Brotherhood of Electrical Workers, Local 176 v. Balmoral Racing Club, Inc., 293 F.3d 420, 404 (7th Cir. 2002): "The usual Rule 56 standard applies to cross-motions for summary judgment. ... [S]ummary judgment is proper if the record demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law under the familiar standards of Fed. R. Civ. P. 56(c)." This Court must grant summary judgment if, based upon the pleadings, admissions, depositions and affidavits, there exists not genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In ruling on a motion for summary judgment, the court is required to view the facts in the light most favorable to the nonmoving party and must give that party the benefit of all reasonable inferences to be drawn from the underlying facts. AgriStor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir. 1987). The moving party bears the burden of showing both the absence of a genuine issue of material fact and his entitlement to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita, 475 U.S. at 586-87; Fed. R. Civ. P. 56(c). Once the moving party has met his burden, the nonmoving party may not rest on the allegations of his pleadings but must set forth specific facts, by affidavit or other evidence, showing that a genuine issue of material fact exists. Fed. R. Civ. P. 56(e). Rule 56(c) "mandates the entry of summary judgment ... against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. Where the unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate. See Crain v. Board of Police Comm'rs, 920 F.2d 1402, 1405-06 (8th Cir. 1990). When reviewing the record in connection with a pending motion for summary judgment, the court may not weigh the evidence, determine credibility, or decide the truth of any factual matter in dispute. However, "there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 249.

The Undisputed Evidence before the Court

Viewing all facts and drawing all reasonable inferences in the light most favorable of the nonmoving party, A. Brod, Inc. v. SK & I Co., L.L.C., 998 F.Supp. 314, 320 (S.D. N.Y. 1998) the Court sets forth the following facts ¹ :

Plaintiff Glasgow Reality, LLC, ("Glasgow"), is a Missouri limited liability company. William J. Glasgow, the managing member of Glasgow , has the authority to act on behalf of Glasgow and acted on behalf of Glasgow in the activities at issue in this case.

Prior to 2001, Shirley B. Dillard was the titleholder of the property. Due to unpaid federal taxes and assessments, the Internal Revenue Service (" IRS ") filed notices of federal tax liens with the St. Louis County Recorder of Deeds.

On August 27, 2001, the Collector of Revenue of St. Louis County offered the following property for sale in a delinquent real estate tax sale:

Lot 3 in Block 1 of Vinita Place, a subdivision in St. Louis County , Missouri , according to the plat thereof recorded in Plat Book 22, Page 86 of the St. Louis County Records.

Known and numbered as 7956 Page (Parcel Locator No. 16J4200028).

("property") (Exhibit 13, attached to Glasgow 's Motion for Summary Judgment). The amount of delinquent real estate taxes was $12,222.74. Glasgow submitted a bid of $12,300.00 to the Collector of Revenue to purchase the property in the delinquent real estate tax sale and was the successful purchaser of the property.

Glasgow sent notices, by United States mail, certified mail-return receipt requested to Richard W. Withington, Trustee for Melvin and Helen Diehl, the Missouri Division of Employment Security, the State of Missouri Department of Revenue, and the Internal Revenue Service. The notice directed to the Internal Revenue Service dated August 31, 2001, reads as follows:

This is to inform you that on August 27, 2001, the Collector of Revenue of St. Louis County Missouri offered the above-referenced real estate for sale in a delinquent tax sale. This offering was the third offering of such property by the Collector of Revenue. At the sale, Glasgow Reality, LLC was the successful purchaser.

As per the statute if such publicly recorded deed of trust, mortgage, etc. is not redeemed in a timely manner, such recorded security or claim will be extinguished.

Notice is hereby given to any person who holds a publicly recorded deed of trust per Section 140.250 & 140.405 of the revised statutes of Missouri upon real property known as 7956 Page Ave. Lot 3 in Block 1 of Vinita Park Place, a subdivision in St. Louis County, Missouri, according to the plat thereof recorded in Plat Book 22, Page 86 of the St. Louis County Records. Locator # 16J420028. Of such person's right to redeem within 90 days of the date of this notice.

(Glasgow Exh. 2, attached to Glasgow 's Motion for Summary Judgment). No party attempted to redeem the property in response to the notices sent out by Glasgow .

The notice sent to the Internal Revenue Service was mailed certified mail-return receipt requested, on September 6, 2001. The sender filled in the article addressed to section as follows: "Internal Revenue Service, 2218 N. Hwy 67, Florissant , MO. 63031 ." (Glasgow Exh. 3, attached to Glasgow 's Motion for Summary Judgment). The Domestic Return Receipt for the notice was returned to Glasgow . A "M. Olsen" signed the Domestic Return Receipt and entered September 10, 2001, as the date of delivery. In August and September, 2001, the IRS maintained an office, housing a Taxpayer Assistance Center , located at 2218 North Highway 67, Florissant . Located in the IRS Florissant office were employees from the collection and the examination groups. Maureen Olsen, an IRS employee, worked as a group secretary for the examination division in the IRS Florissant office during August and September, 2001. Ms. Olsen duties included typing, filing, and mail collection. To date, Ms. Olsen is employed by the IRS in the same capacity and at the same location. Ms. Olsen has stipulated that the signature of "M. Olsen" on the Domestic Return Receipt is her signature. Nonetheless, Ms. Olsen has no specific or current recollection regarding receiving this piece of certified mail or signing for the certified mail by singing the Domestic Return Receipt. Further, Ms. Olsen has no specific or current recollection concerning whether she received the letter dated August 31, 2001, from Glasgow to the IRS . Ms. Olsen indicated that after signing the Domestic Return Receipt, she would have given the letter to the secretary for the collection group in the Florissant IRS office.

The United States has no record that the IRS or the United States responded to Glasgow 's notice in any manner. Glasgow never received any communication from the IRS in response to the notice.

On December 12, 2001, Robert Peterson, the Collector of Revenue for St. Louis County , executed the Collector's Deed for Taxes, conveying the property to Glasgow . The Collector's Deed for Taxes was recorded at Book 13469, Page 1441 of the St. Louis County , Recorder of Deeds, on December 14, 2001.

On December 20, 2001, Shirley Dillard, the owner of the property prior to the delinquent real estate tax sale, executed a quit claim deed transferring the title and granting her interest in the property to Glasgow . On January 7, 2002, Glasgow filed the quit claim deed with the St. Louis County , Recorder of Deeds, and the quit claim deed was recorded in Book 13532, Page 1087 of the St. Louis County , Recorder of Deeds, on that date.

In a letter dated January 25, 2002, R. H. Robinson, a Collection Services Supervisor for the Collector of Revenue, notified Glasgow that the collector's deed for the property would be available for pickup on February 1, 2002. Glasgow picked up the collector's deed on or about that date.

On May 13, 2002, the Court dismissed defendant Missouri Division of Employment Security after the defendant affirmatively represented to the Court that it "disclaims any interest in the property which is the subject of this action." On November 6, 2003, the Court dismissed defendant Missouri Department of Revenue, State of Missouri , by granting the defendant's Disclaimer of Interest and Motion to Dismiss It as a Party. With respect to defendants Melvin and Helen Diehl and their trustee, Richard W. Withington, the Court dismissed their claims on January 8, 2004, after the parties reached a settlement agreement whereby the Diehls executed a Deed of Release on the property by the Diehl Deed of Trust. Glasgow now seeks to quiet title in the property as against the United States . In the cross motion for summary judgment, the United States seeks to foreclose certain federal tax liens it claims attached to the property prior to the delinquent real estate tax sale and to force a sale of the property to satisfy its claims.

Discussion

Neither party asserts that there is a genuine issue of material fact. On the record before the Court, the undersigned notes that the resolution of the cross motions for summary judgment hinges on whether Glasgow 's notice of sale was sufficient to extinguish the federal tax liens and the interest of the United States in the property.

The record clearly establishes that when Shirley Dillard failed to pay federal taxes, a lien attached by operation of law to the property. 26 U.S.C. §6321 ("If a 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."). The lien arises at the time the assessment is made unless another date is specifically fixed by law. 26 U.S.C. §6322. It is undisputed that at the time Glasgow purchased the property in the delinquent real estate tax sale that the property was encumbered by federal tax liens.

To discharge a federal tax lien through a nonjudicial sale, such as the one in this case, proper notice of the sale must be given to the United States . §7425(b). Once a lien is imposed, the sale of any property on which the United States has such a lien is subject to notice requirements set forth in 26 U.S.C. § 7425(c). Notice of sale must be given in accordance with regulations prescribed by the Secretary in writing, by registered or certified mail or by personal service, not less than twenty-five days prior to such sale, to the district director for the internal revenue district in which the sale is to be conducted. 26 U.S.C. §7425(c); 26 C.F.R. §301.7425-3. If the IRS does not receive notice in accordance with §7425(c)(1) and the treasury regulations, the federal tax lien remains intact, unaffected by the sale. See Tompkins v. United States [ 91-2 USTC ¶50,540], 946 F.2d 817, 820 (11th Cir. 1991) (explaining that failure to notify the IRS of sale as prescribed by §7425 results in the lien remaining intact). In relevant part, the regulation provides notice of a nonjudicial sale be given to the district director (marked for the attention of the chief, special procedures staff) for the internal revenue district in which the sale is to be conducted and must contain the following information to be considered adequate:

(i) The name and address of the person submitting the notice of sale;

(ii) A copy of each notice of Federal Tax Lien (Form 668) affecting the property to be sold, or the following information as shown on each such Notice of Federal Tax Lien --

(A) The internal revenue district named thereon,

(B) The name and address of the taxpayer, and

(C) The date and place of filing the notice;

(iii) With respect to the property to be sold, the following information --

(A) A detailed description, including location, of the property affected by the notice (in the case of real property, the street address, city, and State and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title),

(B) The date, time, place, and terms of the proposed sale of the property, and ***

(iv) The approximate amount of the principal obligation, including interest, secured by the lien sought to be enforced and a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds.

26 C.F.R. §301.7425-3(a); (d)(i)-(iv).

If the notice is inadequate, the district director is required to notify in writing the person who submitted the notice of the inadequate items of information. 26 C.F.R. §301.7425(d)(2). However, "[a] notice of sale which does not contain the name and address of the person submitting such notice shall be considered to be inadequate for all purposes without notification of any specific inadequacy." Id. ; Whiteside v. United States [ 87-2 USTC ¶9644], 833 F.2d 820, 823 (9th Cir. 1987) ("the regulations do provide that the IRS may stand mute in the face of one type of defect in the notice of sale"). If the district director fails to give written notification of the inadequate notice more than five days prior to the date of the sale, the notice shall be considered adequate. 26 C.F.R. §301.7425-3(d)(2).

It is undisputed that the instant notice did not comply with the "regulations prescribed by the Secretary" because the notice was not addressed to district director and failed to include a copy of the Federal Tax Lien. ² Timeliness is not an issue in this case. Glasgow asserts that its notice, though inadequate, triggered the district director's responsibility to provide notification of inadequacy. The United States asserts that though the notice was timely, the failure to properly address the notice to the district director made the notice fatally inadequate and thus its obligation to notify Glasgow of inadequacies in the notice never arose.

Although the Eighth Circuit has not yet ruled on this issue, the Court finds under the facts presented in the instant case that the timely notice of sale triggered the United States ' duty to provide notice of the inadequacy to the foreclosing party, Glasgow. In an analogous case, Elfelt v. Abbott [ 95-1 USTC ¶50,129], 1995 WL 238335 (E.D. Mich), the deficiencies in the notice of sale were similar to those alleged by the United States with respect to Glasgow's notice of sale in the instant case. The court in Elfelt found that the notice of sale was sufficient to trigger the IRS 's duty to provide notice of inadequacy even though the notice was not addressed "to the attention of the Chief, Special Procedures Staff and was not titled Notice of Sale under 26 U.S.C. §7425" as specified by the regulation. Id. at * 5. As in the instant case, the notice met the statutory requirements and was delivered by a method delineated in the statute thereby giving the notice an added air of authority. Id. at * 4. In further support, the undersigned notes that the regulation has been found to be "ambiguous and overly burdensome" thereby enabling the IRS "to sit back and lay in wait for [the foreclosing creditor] to stumble and fall into its trap." Edmundson v. United States [ 95-2 USTC ¶50,345], 886 F.Supp. 1314, 1318 ( W.D. La. 1995). The court opined as follows:

In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin and its purpose. According to the House Report, the purpose of the notice regulations is to give the I.R.S. an opportunity to review its position 'without placing an undue burden of the foreclosing creditor.' We find that the effect of regulation 301.7425 -3(d)(2) runs contrary to Congress' intent because it places an undue burden on the foreclosing creditor.

Id. (internal citations omitted).

Upon careful consideration, the Court does not believe that the United States cannot use the technical deficiency of Glasgow 's notice as a basis for disregarding its obligation to provide notice of inadequacy and sit back and wait for the sender of a notice to fall into a trap. As mandated by §7425(c)(1), Glasgow properly served the United States by mailing the notice to the Internal Revenue Service certified mail-return receipt requested. Despite the fact that Glasgow 's notice of sale was not marked to the attention of the district director, the IRS through an employee, executed the return receipt and the receipt for the notice was returned to Glasgow . When the United States failed to provide notice of inadequacy or to redeem the property within the statutory period, any deficiencies in the notice of sale were cured and the United States ' interest in the property was extinguished. Whiteside [ 87-2 USTC ¶9644], 833 F.2d at 822.

Therefore, for all the foregoing reasons,

IT IS HEREBY ORDERED that Plaintiff Glasgow Realty, LLC's Motion for Summary Judgment (filed October 24, 2003/Docket No. 27) is granted.

IT IS FURTHER ORDERED that Defendant United States of America's Motion for Summary Judgment (filed October 24, 2003/Docket No.28) is denied.

A separate Judgment in accordance with this Memorandum and Order is entered this same date.

¹ Unless otherwise indicated, the facts are primarily derived from the undisputed portions of Glasgow's Statement of Uncontroverted Material Facts that were submitted with Glasgow's pending Motion for Summary Judgment.

² The United States acknowledges that it is not seeking summary judgment on the basis of Glasgow's failure to include certain information described in 26 C.F.R. 301.7425-3(d)(1), in particular the federal tax lien. United States of America's Opposition to Glasgow Realty, LLC's Motion for Summary Judgment, at 4 (filed November 13, 2003/Docket No. 30) ( "The Government, however, does not seek summary judgment because Glasgow sent an 'inadequate' notice that did not contain the information described in paragraph (d)(1). The Government seeks summary judgment solely because Glasgow 's notice was not addressed to the correct party as described in paragraph (a).").

[95-2 USTC ¶50,345] Elizabeth D. Edmundson v. United States of America

U.S. District Court, West. Dist. La., Lafayette Div., Civ. 93-2036, 6/5/95 , 886 FSupp 1314

[Code Sec. 7425 ]

Liens: Mortgage holder: Foreclosure: Notice: Adequate: Good faith.--An IRS junior tax lien was extinguished at a property's foreclosure sale because the mortgage holder, who purchased the property at the sale, provided adequate notice of the foreclosure sale to the IRS and acted in good faith. After learning of the notification requirements, the mortgage holder canceled the original foreclosure sale and sent the IRS a "Notice of Sheriff's Sale " more than 25 days prior to the sale. Although the notice omitted the amount of outstanding principal plus expenses, the mortgage holder's attorney called the IRS with these amounts. Upon receipt of the IRS 's notice of inadequacy with respect to the omission of the outstanding principal, only days before the sale, the creditor immediately sent a revised notice of the foreclosure sale. Moreover, such an omission required only a correction of the omission and did not require the mortgage holder to give the IRS a new 25-day period. In addition, the redemption period following the foreclosure sale had run. Further, the notification requirements in Reg. §301.7425-3(d)(2) were unduly burdensome and ambiguous, and contrary to congressional intent.

James R. Leonard, McBride, Foret, Rozas & Leonard, 1019 Lafayette St. , Lafayette , La. 70502 , for plaintiff. Neal I. Fowler, Department of Justice, Washington , D.C. 20530 , for defendant.

OPINION

SCOTT, District Judge:

Trial of this matter was held on January 4, 1995 in Lafayette , Louisiana . Technically speaking, the central issue in this case is whether Elizabeth D. Edmundson's failure to give the I.R.S. proper notice of a foreclosure sale results in the survival of the I.R.S.' lien on her property. If we hold that the I.R.S.' lien survives, the I.R.S. has the power to levy on Mrs. Edmundson's property. However, for the common mortgagee and taxpayer, the real issue is whether the I.R.S. can use a burdensome, ambiguous and highly technical notice provision to trip unwary mortgage holders who buy back the property at the foreclosure sale. And trip you will. Indeed, beware those who own a mortgage encumbered by a junior federal lien because when you pull yourselves from the ground you may find that the I.R.S. now owns your property.

After considering the trial testimony and the record as a whole, we find that Mrs. Edmundson made every effort to provide the I.R.S. with proper notice. Her actions wreak of good faith. We also find that certain aspects of the notice provision drafted by the Secretary of the Treasury are unduly burdensome and confoundedly ambiguous. Because of the latitude that is built into this notice provision, the I.R.S. was able to sit back and wait for Mrs. Edmundson to fall into its trap. In short, if we accept the government's position, Mrs. Edmundson would lose her property and be forced to pay someone else's taxes. Such a result is more than unfair, it borders on naked illegal confiscation. Accordingly, we hold that the notice was sufficient and that the I.R.S.' lien was extinguished at the foreclosure sale.

To the extent any of the following findings of fact constitute conclusions of law, they are adopted as conclusions of law. To the extent any of the conclusions of law are findings of fact, they are adopted as findings of fact.

FINDINGS OF FACT

Prior to trial, the parties stipulated to the relevant facts. Therefore, instead of reciting the entire stipulation in this opinion, we briefly summarize the important facts set forth in the stipulation. In addition, when necessary, we will make additional factual findings.

In February of 1991, Mrs. Edmundson sold the real property at issue to the Adlers by credit sale. The Adlers made a down-payment of $7,500.00 and gave Mrs. Edmundson a promissory note secured by a mortgage in the amount of $35,000.00. Unbeknownst to Mrs. Edmundson, in April of that same year, the Adlers sold the property to Total Piping Corporation (Total Piping). Later, in February of 1992, the United States properly filed a Notice of Federal Tax Lien against the property in the amount of $51,188.58 for the tax liabilities of Total Piping.

After the Adlers became delinquent on their mortgage payments, Mrs. Edmundson filed a petition for executory process seeking the seizure and sale of the property. She obtained an order authorizing the sale but prior to the sale she became aware of the transfer to Total Piping and the federal tax lien. ¹ In order to give proper notice to the I.R.S., she rescheduled the sale.

On May 14, 1992, Mrs. Edmundson's counsel, James Leonard, mailed a letter styled "Notice of Sheriff's Sale " by certified mail both to the Chief of the Special Procedures Function of the I.R.S. and to Nicholas Brady, Secretary of the Treasury. The "Notice" stated the name of the taxpayer, a description of the property, the taxpayer's address, the taxpayer's employment identification number, the amount $51,188.58, and the name of the revenue officer who signed the filed Federal Notice of Tax Lien. The letter also stated the place of the sale and that the sale was set for July 8, 1992 at 10:00 a.m.

On June 24, 1992, the I.R.S. mailed an acknowledgement to James Leonard stating that the "Notice of Sheriff's Sale " was inadequate. The letter stated that "[t]he approximate amount of the principal obligation, including interest, due the person selling the property, and a description of any expenses that will be chargeable against the sale proceeds were omitted." Mr. Leonard received the letter on June 29, 1992, only eight days prior to the scheduled sale.

That very same day Mr. Leonard responded with a letter sent by regular mail stating that "the approximate amount of the principal obligation, including interest, is $18,023.92, and the estimated expenses chargeable against the proceeds are $1,250.00." On July 6, 1992, after realizing that the principal obligation stated in the prior letter was incorrect, Mr. Leonard mailed a second letter by regular mail stating the correct principal obligation amount as $19,732.40. Neither of these letters was sent by registered mail. The parties had no further communication prior to the August 8 sale. While the I.R.S. whines that neither of these letters stated whether the sale was still set for July, 8, 1992, the I.R.S. admits in the stipulation that it had actual notice of the July 8 sale date prior to the sale.

On the ill-fated date of July 8, 1992, Mrs. Edmundson purchased the property at the Sheriff's sale for $15,000.00, plus costs of sale. As a result of the sale, she was awarded the deed to the property and the junior mortgage interests were extinguished by operation of law. Although the I.R.S. had 120 days to redeem the property, it did not do so.

On October 18, 1993, the I.R.S. served a Notice of Levy against Total Piping to collect the company's outstanding tax liabilities. Shortly thereafter, the I.R.S. served a Notice of Seizure on Mrs. Edmundson for the property at issue in the amount of $75,403.00, which represented the tax liability of Total Piping, including interest. The total unpaid assessed tax liabilities of Total Piping up to September 12, 1994 is $104,762.78.

CONCLUSIONS OF LAW

Under facts of this case, the notice provision promulgated by the Secretary of the Treasury is unreasonable, ambiguous and unduly burdensome. Several factors convince us that the I.R.S. has too much latitude under the notice provision and that the notice Mrs. Edmundson provided to the I.R.S. was sufficient in this case. First, she made every effort to give the I.R.S. proper notice. Second, the I.R.S. has admitted to having actual notice of the July 8 sale. Finally, the I.R.S.' failure to redeem the property, which would have been an equitable solution in this case, convinces us that the notice provision is slanted too heavily in favor of the government. Accordingly, we hold that Mrs. Edmundson provided sufficient notice to the I.R.S. and, therefore, that the I.R.S. tax lien was extinguished by the foreclosure sale and the running of the redemption period.

I. The Applicable Law Governing Notice

A. When the I.R.S. Properly Files its Lien, the Foreclosing Mortgagee must give Proper Notice to Extinguish the Lien.

Title 26, section 7425(b) sets out the law concerning the discharge and survival of federal liens after a sale of the encumbered property:

. . . a sale of property on which the United States has or claims a lien, or a title derived from the enforcement of a lien, under the provisions of this title, made pursuant to an instrument creating a lien on such property, pursuant to a confession of judgement on the obligation secured by such an instrument, or pursuant to a nonjudicial sale under a statutory lien on such property--

(1) shall . . . be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded in the place provided by law for such filing or recording more than 30 days before such sale ² and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1); or

(2) shall have the same effect with respect to the discharge or divestment of such lien or such title of the Unites States, as may be provided with respect to such matters by the local law of the place where such property is situated, if--

(A) notice of such lien or such tile was not filed or recorded in the place provided by law for such filing more than 30 days before such sale, ³

(B) the law makes no provision for such filing, or

(C) notice of such sale is given in the manner prescribed in subsection (c)(1). 26 U.S.C.S. §7425(b) (1994).

Subsection (c)(1), "Notice of sale," states that "[n]otice of sale to which subsection (b) applies shall be given (in accordance with the regulations provided by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary." (Emphasis added). Id. at §7425(c)(1) . Finally, subsection (d) provides that the United States may redeem the property within 120 days from the date of sale, or within the period allowable under local law, whichever is longer. Id. at §7425(d) .

B. What is Proper Notice?

Under the authority granted by Congress in 26 U.S.C. section 7425(c)(1) , the Secretary of the Treasury has spelled out the specific notice requirements necessary to discharge a federal lien. Regulation Section 301.7425-3 reads as follows:

(d) Content of notice of sale--(1) in general. With respect to a notice of sale described in paragraph (a) or (c) of this section, the notice will be considered adequate if it contains the information in paragraph (d)(1)(i), (ii), (iii), and (iv) of this section.

(i) The name and address of the person submitting the notice of sale;

(ii) A copy of each notice of Federal Tax lien (Form 668) affecting the property to be sold, or the following information as shown on each such Notice of Federal Tax lien--

(A) The internal revenue district named thereon,

(B) The name and address of the taxpayer, and

(C) The date and place of filing of the notice;

(iii) With respect to the property to be sold, the following information--

(A) A detailed description, including location, of the property affected by the notice (in the case of real property, the street address, city, and State and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title),

(B) The date, time place, and terms of the proposed sale of the property, and

(C) (perishable property--not applicable)

(iv) The approximate amount of the principal obligation, including interest, secured by the lien sought to be enforced and a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds. (Emphasis added.) Treas. Reg. §301.7425-3 .

The I.R.S. complained in its letter dated June 24, 1992 that Mrs. Edmundson had not complied with section (d)(1)(iv) of the Secretary's notice provision. ⁴

C. What is Inadequate Notice and how must the I.R.S. Respond?

In regulation 301.7425-3(d)(2) , titled "Inadequate Notice," the Secretary attempts to define insufficient notice, the effects of various insufficiencies and the minimal steps the I.R.S. must take in response. While this provision is as technical as it is vague, we include it in toto because the provision is at the heart of this controversy. It reads as follows:

[e]xcept as otherwise provided in this subparagraph, a notice as described in paragraph (a) which does not contain the information described in paragraph (d)(1) of this section shall be considered inadequate by a district director. If a district director determines that the notice is inadequate, he will give written information of the items of information which are inadequate to the person who submitted the notice. A notice of sale which does not contain the name and address of the person submitting such notice shall be considered to be inadequate for all purposes without notification of any specific inadequacy. In any case where a notice of sale, given after December 31, 1976 , does not contain the information required under paragraph (d)(1)(ii) of this section with respect to a Notice of Federal Tax Lien, the district director may give written notification of such omission without specification of any other inadequacy and such notice of sale shall be considered inadequate for all purposes. In the event the district director gives notification that the notice of sale is inadequate, a notice complying with the provisions of this section (including the requirement that the notice be given not less than 25 days prior to the sale in the case of a notice described in paragraph (a) of this section) must be given. However, in accordance with paragraph (b)(1) of this section, in such a case the district director may, in his discretion, consent to the sale of the property free of the lien or title of the United States even though notice of sale is given less than 25 days prior to the sale. In any case where the person who submitted a timely notice which indicates his name and address does not receive, more than 5 days prior to the date of sale, written notification from the district director that the notice is inadequate, the notice shall be considered adequate for purposes of this section. Id.

For the reader who has made it this far, rejoice, for we include no more U.S. Code sections or Treasury regulations.

II. Regulation 301.7425-3(d)(2) , "Inadequate Notice," is Unreasonable

When we consider Mrs. Edmundson's actions together with the I.R.S.' response, we find that this regulation is ambiguous and overly burdensome. See Rowan Cos. v. United States [81-1 USTC ¶9479 ], 452 U.S. 247, 252-253 (1981); Commissioner v. South Texas Lumber Co. [48-1 USTC ¶5922 ], 333 U.S. 496, 501 (1948); Brown v. U.S. [90-1 USTC ¶50,026 ], 890 F.2d 1329, 1336 (5th Cir. 1989). We could focus our attack on the I.R.S.' actions by finding that, in this particular case, it acted unreasonably under the regulation, but such a finding would do little to eradicate the real cancer, the regulation itself. While we do take issue with the I.R.S.' actions, we find that the great ambiguity and latitude of the regulation allowed the I.R.S. to sit back and lay in wait for Mrs. Edmundson to stumble and fall into its trap. "In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin and its purpose." Rowan Cos. [81-1 USTC ¶9479 ], 452 U.S. at 253 (citations omitted). According to the House Report, the purpose of the notice regulations is to give the I.R.S. an opportunity to review its position "without placing an undue burden on the foreclosing creditor." H.Rep. No. 1884, 89th Cong., 2d Sess. , U.S. Code Cong. & Admin. News p. 3722 (1966), reprinted in 1966-2 C.B. 815, 832-33. We find that the effect of regulation 301.7425-3(d)(2) runs contrary to Congress' intent because it places an undue burden on the foreclosing creditor.

A. Mrs. Edmundson made Several Good Faith Efforts to Comply with the Notice Regulation

The facts plainly show that Mrs. Edmundson, through her attorney, Mr. Leonard, made several good faith attempts to give the I.R.S. proper notice of the sale. We are satisfied that in this case the notice she gave was sufficient for the I.R.S. to protect its interests. First, she cancelled the original sale when she learned of the transfer to Total Piping and the federal tax lien in order to provide the government with proper notice. Second, on May 14 1992, she sent the I.R.S. a notice, styled "Notice of Sheriff's Sale ," informing the I.R.S. that the sale would be held on July 8, 1992. While it is true that this notice omitted the amount outstanding on the principal obligation, plus expenses, there is some evidence suggesting that the I.R.S. had actual notice of these figures. Mrs. Edmundson's attorney claims that he called and informed an I.R.S. agent of these figures. In his deposition, Eugene Nepveaux, the agent assigned to this I.R.S. file admitted to having a phone conversation concerning Mrs. Edmundson's property. Deposition, p. 12-13, 30-31. Unfortunately, Mr. Nepveaux's memory is extremely poor and he can only recall that the conversation concerned "a discharge." Id. at 12, 30. Nonetheless, the court is convinced that this is but another example of Mrs. Edmundson's good faith effort to provide the I.R.S. with sufficient information. Finally, Mrs. Edmundson responded to the I.R.S.' notice of inadequacy on the same day she received it; also, she promptly sent a follow-up letter in an attempt to provide the accurate figures.

B. The Regulation is Ambiguous and Unduly Burdensome

The first example of ambiguity inheres in the phrase "inadequate for all purposes." To the layman, this phrase implies that some notice is sufficient for some purposes but insufficient for others; it implies degrees of notice. However, the use of this language appears to relate to the response which the I.R.S. must take to different forms of notice. We say "appears to relate" because the relationship is by no means clear to us. The phrase is first used where the regulation states that if the name and address of the person submitting the notice is omitted, then the notice is "inadequate for all purposes without notification of any specific inadequacy." We assume that what is meant is that no notice of inadequacy must be sent by the I.R.S., apparently because it would not know to whom to send the notice of inadequacy. ⁵ However, the phrase might also be construed as meaning, especially in light of the sentence preceding it, that the I.R.S. must send a general notice of inadequacy, if it can find an address to send it to, ⁶ but need not specify particular inadequacies.

The phrase "inadequate for all purposes" next appears where the regulation states that if the notice does not include the required information on the federal tax lien ⁷, "the district director may give written notification of such omission without specification of any other inadequacy and such notice of sale shall be considered inadequate for all purposes." There are at least two problems with the quoted language. First, the use of "may" can be construed to mean either that the district director has total discretion in deciding whether to give a notice of inadequacy or that when the district director does give a notice of inadequacy, he or she may specify only that the inadequacy concerns the tax lien information without citing additional inadequacies in the notice. Second, the use of "shall be considered inadequate for all purposes" implies that some types of notice are sufficient for some purposes and not others, or that some forms of notice can be "cured."

While these ambiguities are troublesome, the most onerous part of the statute is the requirement that a perfect notice, one that complies with regulation in every way, be received by the I.R.S. not less than 25 days prior to the sale. ⁸ The application of this requirement, combined with the latitude the I.R.S. has in responding to inadequate notices, demonstrates that the I.R.S. has too much room to maneuver and delay.

In the present case, Mrs. Edmundson sent her notice of sale on May 14, 1992, giving the I.R.S. fifty four days to receive the notice and reply concerning inadequacies. In what seems like typical fashion, the I.R.S. waited until June 24, 1992, fourteen days before the scheduled sale, to send a notice of inadequacy. As outlined above, Mrs. Edmundson's responses to the I.R.S. letter were prompt and in good faith. Obviously, she did not know that her attempts at "curing" her original notice were insufficient because she did not allow the I.R.S. another 25 days upon receipt of the corrections. Had the I.R.S. taken five minutes to draft a letter or make a phone call advising Mrs. Edmundson of this problem, she certainly would not have proceeded with the sale knowing that she would lose her property. Needless to say, the benevolent I.R.S., which has admitted having actual notice that the sale would be held on July 8 and which requires the taxpayer to give it every bit of information about its own liens, chose to sit on its hands. Either intentionally or unintentionally, and we lean towards the former, the I.R.S. waited for Mrs.Edmundson to trip over the regulation with the result that she loses her property to the I.R.S. because an unrelated company failed to pay its taxes. The I.R.S. easily could have and should have notified Mrs. Edmundson that she needed to delay the sale for at least 25 days after her corrections were received. Considering her prior efforts to comply, she certainly would have rescheduled the sale.

Mrs. Edmundson argues that some inadequacies in a notice of sale, namely those whose omission do not make the notice inadequate for all purposes, are not subject to the 25 day rule. In other words, the omission of the outstanding principal amount does not require the foreclosing mortgagee to give the I.R.S. a new 25 day period; the foreclosing mortgagee need only correct the omission prior to the sale. Given the ambiguities in the regulation, this is a reasonable argument. We find it particularly appealing because, to some extent, it equalizes the burden of procuring information and does away with the disproportionate punishment for technical noncompliance. Currently, the regulation requires the foreclosing mortgagee to provide the I.R.S. with all sorts of information, most of which the I.R.S. has access to, and within a certain lengthy period of time so the I.R.S. can digest it. If you fail to comply in any manner, and you purchase the property at the sale, you lose because your mortgage is extinguished and the I.R.S.' lien survives. As the tapestry of regulations purportedly reads now, the punishment, loss of the mortgagee's lien with the survival of the I.R.S.', does not fit the crime, a good faith omission of technical information.

Furthermore, under the Treasury's regulation, the I.R.S. can give a foreclosing mortgagee a notice of inadequacy up until five days prior to sale and then the I.R.S. is entitled to a new 25 day period beginning when a perfect notice is received. Armed with this provision, even when the I.R.S. spots an inadequacy on a notice which is submitted six months in advance, it can wait until there are less than 25 days until the sale and then send a notice of inadequacy. Essentially, the I.R.S. can postpone a sale because its agents are behind in their work or because there is a better chance of attracting more bidders to a later sale or for any other imaginable reason; and under some case law, this proposition holds true even when the I.R.S. has actual notice of the technical omissions. Also, there appears to be no limit to the number of times the I.R.S. can delay a sale if the notice regulations are not strictly complied with. There must be a better way. The I.R.S. must share some responsibility in procuring this information and informing the foreclosing mortgagee in a timely fashion.

CONCLUSION

We find that Mrs. Edmundson provided the I.R.S. with sufficient notice to protect its interests. We also find that regulation 301.7425 -3(d)(ii) in unreasonable. Finally, we would be dissatisfied with our efforts herein if we concluded without a few final remarks about the I.R.S.' actions in this case. Irresponsible. Reprehensible.

Accordingly, we hold that the I.R.S.' lien was extinguished by the foreclosure sale and the running of the redemption period.

Plaintiff is instructed to prepare a judgment in conformity with this Opinion and submit it to this court for execution after it has been approved as to form and content evidenced by the signatures of the attorneys of record.

¹ She likely was made aware of the transfer and the lien because they were listed on the mortgage certificate customarily issued by the Clerk of Court in connection with a foreclosure sale.

² The I.R.S., properly and timely filed its lien.

³ See footnote 1.

⁴ The I.R.S. asserts that Mrs. Edmundson's notice of sale was also inadequate because she did not set out the date on which the Notice of Federal Tax Lien was filed and because she did not provide an adequate description of the property. The I.R.S. also complains that Mrs. Edmundson's did not send her letters by registered mail. We find that since the I.R.S. failed to raise these problems in its notice of inadequacy, they are waived. Whiteside v. United States [87-2 USTC ¶9644 ], 833 F.2d 820 (9th Cir. 1987).

⁵ Interestingly, in Estate of Oskey v. U.S. [88-2 USTC ¶9427 ], 695 F. Supp. 422 (D. Minn. 1988), the district court for the District of Minnesota held that the failure to include the name and address of the person submitting the notice did not make the notice "inadequate for all purposes."

⁶ Most of the time, the I.R.S. will have the address of the foreclosing creditor because regulation 301.7425 -3(d)(ii) requires it.

⁷ Regulation 301.7425 -3(d)(ii) requires the foreclosing mortgagee to either provide a copy of the Notice of Federal Tax Lien or all the detailed information that appears thereon, including the internal revenue district where it was filed and the date and place of filing of the notice. How nice it must be for the I.R.S. agents who sit back and let the foreclosing mortgagees do all of their work for them. The liens are I.R.S. liens: the I.R.S. should be responsible for collecting such information. At most, the taxpayer should have to make the I.R.S. aware that there is an I.R.S. lien on the property.

⁸ While 26 U.S.C. §7425(c)(1) states that the foreclosing creditor must submit a notice 25 days prior to sale, Congress likely did not foresee that the Secretary would write such an onerous an detailed notice provision which requires strict compliance and provides little opportunity to cure inadequacies.

[87-2 USTC ¶9651] United States , Plaintiff v. Darrell W. Cope et al., Defendants

U.S. District Court, West. Dist. Ky., Paducah Div., Civ. C86-0051P(J), 10/23/87

[Code Sec. 7425 --Result unchanged by the Tax Reform Act of 1986 ]

Tax liens: Discharge of: Notice of sale: Effect.--An IRS lien was discharged when another creditor gave the IRS proper notice that it had repossessed and sold the property. Under state law ( Kentucky ), a lien similar to the IRS 's would not have continued in the surplus proceeds of a nonjudicial sale if the claimant did not (as the IRS had not) demanded satisfaction before distribution of the sale proceeds.

[Code Secs. 6672 , 7422 and 7502 --Result unchanged by the Tax Reform Act of 1986 ]

District court: Jurisdiction: Refund action: Refund claim: Receipt of.--The court lacked jurisdiction over a refund action filed by the secretary of a corporation, so therefore she was a responsible person liable for unpaid withholding taxes. The IRS lacked records to show that it had received the refund claim, so the court had to presume it had not. The court could not find that a claim had been mailed solely on the basis of the secretary's external evidence (a check cashed by the IRS ).

Michael J. Salem, Department of Justice, Washington , D.C. 20530 , for plaintiff. James A. Anderson, Hurt, Jones, Anderson & Jones, Murray, Kentucky, for Darrell W. Cope, Quality Construction Co., Debbie W. Croley, Intervenor. Joseph A. Hammer, Hammer & Weber, 01 Hurstbourne Pk. Plaza, Louisville, Ky., for I.T.T Industrial Credit Corp.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JOHNSTONE, Chief Judge:

A trial was held in this matter on April 15, 1987 in Paducah , Kentucky . This is a six-count civil action in which the Internal Revenue Service (hereinafter the IRS ) seeks to reduce certain tax assessments to judgments and to foreclose tax liens against defendants Darrell W. Cope, d/b/a Cope Mining Company and Quality Construction Corporation. In addition, the IRS seeks damages against defendant I.T.T. Industrial Credit Corporation for failing to honor two Internal Revenue Service levies or for tortious conversion. Intervenor Debbie Sexton Croley joins this suit, claiming that taxes and penalties assessed against her as a responsible person in charge of paying Cope Mining Company's taxes were improper. Jurisdiction is proper under 28 U.S.C. §§1340, 1345, 1346 and 26 U.S.C. §7402 .

FINDINGS OF FACT

Upon the record before the court, the stipulations of the parties and the evidence adduced at this trial, the court finds the following to be the facts of this case.

1. Defendant, Darrell W. Cope (hereinafter Cope), formerly doing business as Cope Mining Company (taxpayer identification number 61-0910620), resides at 2100 Pepper Lane , Benton , Kentucky .

2. Defendant, Quality Construction Corporation (hereinafter Quality), also known as Quality Corporation (taxpayer identification number 61-0607667), is a Kentucky corporation formerly having its principal place of business at 337 North Poplar, Benton , Kentucky .

3. Defendant, I.T.T. Industrial Credit Corporation ( ITT ) is a corporation doing business within the Commonwealth of Kentucky and having an office at Suite 228 , 4429 Bardstown Road , Louisville , Kentucky .

4. Cope was assessed for the following:

a. On February 11, 1980, Cope was assessed Federal Insurance Contribution Act taxes and Federal Employee Income Withholding taxes (hereinafter cumulatively referred to as FICA taxes) for the quarter ending September 30, 1979. This sum was not paid to the IRS . The unpaid assessed balance due the IRS as of April 29, 1985 was $42,947.35. Interest and penalties accrued after April 29, 1985. Notice of a Federal Tax Lien was filed in Marshall County, Kentucky with respect to that tax on June 28, 1980.

b. On March 19, 1980 Cope was assessed FICA taxes for the quarter ending December 31, 1979. The assessment was not paid. The unpaid assessed balance due the IRS as of May 29, 1980 was $38,908.03. Interest and penalties accrued after May 26, 1980. A Notice of Federal Tax Lien was filed with respect to that tax in Marshall County, Kentucky on June 28, 1980.

c. On May 16, 1980 Cope was assessed FICA taxes for the quarter ending March 31, 1980. Those taxes were not paid. The unpaid assessed balance due the IRS as of May 16, 1980 was $28,105.38. Interest and penalties accrued after May 16, 1980. A Notice of Federal Tax Lien was filed with respect to that tax in Marshall County, Kentucky on June 28, 1980.

d. On February 23, 1981 Cope was assessed Federal excise taxes for the quarter ending March 31, 1980. This assessment was not paid. The unpaid assessed balance due the IRS as of May 4, 1981 was $3,406.43. Interest and penalties accrued after May 4, 1981 . Notice of Federal Tax Lien was filed in Marshall County, Kentucky on April 1, 1981 .

e. On March 23, 1981 , Cope was assessed Federal Unemployment Act taxes for the year ending December 31, 1980 . The unpaid assessed balance for those taxes is $879.08 as of May 25, 1981 . Interest and penalties accrued after May 25, 1981 . A Notice of Federal Tax Lien was filed in Marshall County, Kentucky on May 4, 1981 .

5. Quality was assessed for the following:

a. On March 17, 1980 , Quality was assessed FICA taxes. This assessment was not paid. The unpaid assessed balance due the IRS as of December 29, 1986 was $5,076.17. Interest and penalty accrued after December 29, 1986 . A Notice of Federal Tax Lien was filed in Marshall County, Kentucky on June 28, 1980 .

b. On May 16, 1980 , Quality was assessed FICA taxes for the quarter ending March 31, 1980 . This assessment was not paid. The unpaid assessed balance due the IRS as of December 29, 1986 was $41,758.77. Interest and penalties accrued after December 29, 1986 . A Notice of Federal Tax Lien was filed in Marshall County, Kentucky on June 28, 1980 .

c. On October 27, 1980 , Quality was assessed FICA taxes for the quarter ending June 30, 1980 . This assessment was not paid. The unpaid assessed balance due the IRS was $21,461.65. Interest and penalties accrued after December 29, 1986 . A Notice of Federal Tax Lien was filed in Marshall County, Kentucky on December 2, 1980 .

6. Notices and demands for payment of the aforementioned assessments were made on Cope and Quality.

7. Quality bought the following property on the following dates:

a. A Grove RT 6205 rough terrain crane, serial number 40092, from Whayne Supply Company on November 1, 1978 .

b. A Caterpillar 627 wheel tractor, serial number 1551266, from Whayne Supply Company on September 14, 1979 .

c. A Caterpillar 627 push-pull cushion hitch tractor, serial number 68M711, from Whayne Supply Company.

8. Security agreements with respect to the property described in paragraph 7 were assigned to ITT on November 20, 1978 and September 13, 1979 .

9. ITT repossessed the three pieces of property described in paragraph 7.

10. ITT gave proper notice to the IRS under Internal Revenue Code §7425 by giving written notice to the IRS at least 25 days before the proposed sale.

11. ITT sold the property described in paragraph 7 on February 25, 1981 for $260,000.00.

12. ITT expended the sum on $10,000.00 for broker's services in selling the collateral.

13. After the sale on February 25, 1981 , ITT immediately distributed all the proceeds according to KY. REV . STAT . §355.9-504 by applying $10,000.00 to the broker's fee, $42,220.27 to satisfy the debt on the property described in paragraph 7.a., and $200,981.00 to satisfy the debt on the property described in paragraphs 7.b. and 7.c. The remainder of the proceeds were also distributed and applied by ITT at the time.

14. IRS levies with respect to taxpayers Cope and Quality was served on ITT on May 4, 1981 ., These levies seized all property and rights belonging to Cope and Quality then in the possession of ITT , in the amounts of $134,161.94 and $132,444.57.

15. Debbie W. Croley resides in Marshall County, Kentucky.

CONCLUSIONS OF LAW

After consideration of the applicable statutes and caselaw before it, the court makes the following conclusions of law.

1. The assessments, judgments and liens against defendants Cope and Quality are valid.

Assessments duly made by the Secretary or his delegates are presumptively correct and proper. United States v. Besase [80-2 USTC ¶16,343 ], 623 F.2d 463, 465 (6th Cir. 1980), cert. denied, 449 U.S. 1062 (1982). The burden is on the taxpayer to show that the Secretary's assessments are improper. Helvering v. Taylor [35-1 USTC ¶9044 ], 55 S.Ct. 287 (1935). In the present case, the assessments against Cope and Quality were properly made by a delegate of the Secretary and certified to the Court. United States v. Haley [76-2 USTC ¶9683 ], 38 A.F.T.R.2d 5897, 59901 (S.D. Ohio 1976), aff'd, [78-2 USTC ¶9593 ], 582 F.2d 1281 (6th Cir. 1978), cert. denied, 440 U.S. 959 (1970); Adams v. United States, 358 F.2d 986, 994 (Ct.Cl. 1966). At the trial of this action, neither Cope and Quality presented evidence tending to defeat the assessments made against them. They therefore failed to meet their burden of proving that the assessments were incorrect. Sinder v. United States [81-2 USTC ¶9612 ], 655 F.2d 729, 731 (6th Cir. 1981).

In accordance with the foregoing, the court concludes that the assessments against Cope and Quality are valid and that Cope and Quality are liable to the United States in the amounts of the assessments against them, plus statutory additions thereto, including statutory interest from the dates set forth above.

2. ITT properly refused to honor the Internal Revenue Service's levies.

The IRS made a demand upon both Quality and Cope for taxes due and owing to the federal government. Quality and Cope did not pay. Upon failure to pay the taxes after demand therefore, the amount of the taxes, plus interest, penalties, and accrued costs became a lien in favor of the United States . 26 U.S.C. §6321 . The lien so created arose at the time the taxes were assessed and attached to all property and rights to property belonging to Cope and Quality. 26 U.S.C. §§6321 , 6322 . Thereafter, the IRS could collect the taxes by levy, which is precisely what the IRS did. 26 U.S.C. §6331(a) .

Two months after ITT repossessed and sold its collateral, the IRS levied on Cope and Quality's property and rights to property in ITT 's possession. Specifically, the IRS claimed, that $16,798.73 of Cope and Quality's property remained in ITT 's possession. ITT refused to honor the levy claiming that it had already disbursed the proceeds from the sale of the collateral according to KY. REV . STAT . §355.9-504(1)(a)-(c) and that it no longer had any property belonging to Cope in its possession at that time. The IRS claimed that its lien continued into the surplus proceeds of the collateral sale in ITT 's possession and that ITT wrongfully disbursed those funds and wrongfully refused to honor the IRS 's levy. For the reasons stated below, the court must hold for ITT .

The methods by which an inferior tax lien of the IRS may be discharged through a nonjudicial sale under local law are set out in 26 U.S.C. §7425 . Under §7425

a sale of property on which the United States has or claims a lien . . . shall have the same effect with respect to the discharge of divestment of such lien or such title of the United States, as may be provided with respect to such matters by the local law of the place where such property is situated, if . . . notice of such sale is given in the manner prescribed in subsection (c)(1).

26 U.S.C. 7425(b)(2)(c) (emphasis added). ¹ The parties have stipulated that ITT gave adequate and proper notice under the terms of 26 U.S.C. §7425(c)(1) before selling the collateral in question.

The wording and meaning of this statute are clear,

[w]here foreclosures covered by this provision are made without proper notice to the Government, the bill provides that this does not affect the Government's claim under a tax lien . . . . In these cases, the Government's claim continues against the property into the hands of a third party. On the other hand, . . . where the Government is notified of the proceeding, a sale has the same effect on the claim as local law provides with respect to similar claims.

H.R. REP . No. 1884, 89th Cong., 2d Sess (1966) (emphasis added). Accordingly, the narrow question before the court is whether, under local law, a lien similar to the IRS 's would continue in the surplus proceeds to a nonjudicial sale if the claimant did not demand satisfaction before distribution of the sale proceeds.

It is undisputed in this case that Kentucky law, in particular KY. REV . STAT . §355.9-504, is the applicable local law under 26 U.S.C. §7425 . KY. REV . STAT . §355.9-504 provides that proceeds from the sale of repossessed collateral shall be applied first to the reasonable expenses of retaking and selling the collateral, second to the debt under which the collateral was sold and finally to the debt of any subordinate security interest, "if written notification of demand therefor is received before distribution of the proceeds is complete." ² KY. REV . STAT . §355.9-504 (emphasis added). In the present case, ITT repossessed its collateral. In conformity with 26 U.S.C. §7425(c)(1) , ITT informed the IRS of its intent to sell the collateral. The IRS did not make a demand for satisfaction of its debt at that time. The collateral was sold. The IRS made no written demand at that time either. The proceeds were applied to the expenses of sale, KY. REV . STAT . §355.9-504(1)(a), and to satisfy ITT 's debt, KY. REV . STAT . §355.9-504(1)(b). Some proceeds remained. ITT distributed the surplus proceeds according to KY. REV . STAT . §355.9-504(1)(c) to satisfy other debts. Just over two months after the sale of the collateral and complete distribution of the proceeds the IRS levied on ITT and demanded satisfaction of the IRS 's debt. Under Kentucky law, this demand was two months too late. A secured creditor holding a lien similar to the IRS 's, asserting a demand two months after sale and distribution, would not be able to reach either collateral or proceeds already distributed. KY. REV . STAT . §355.9-504(1)(c). Under the plain terms of 26 U.S.C. §7425 , the same holds true for the IRS .

In accordance with the foregoing, the court concludes that after ITT distributed all of the proceeds of its sale of the collateral under KY. REV . STAT . §355.9-504, ITT no longer had any property belonging to Cope in its possession. The Court accordingly concludes that ITT properly refused to, and in fact could not have complied with the IRS levy of May 4, 1981 against property belonging to Cope and Quality in ITT 's possession. The court must also conclude under 26 U.S.C. §7425 that the IRS levy did not continue in the proceeds of ITT 's nonjudicial sale of the collateral because the IRS did not give notification of its claim in the collateral before complete distribution of the proceeds as required by KY. REV . STAT . §355.9-504.

3. This court has no jurisdiction over the claim of Intervenor Debbie Croley.

Intervenor Debbie Croley (hereinafter Croley) was assessed under 26 U.S.C. §6672 ³ for $88,809.59 in taxes and penalties. In her "Intervening Pleading", Croley seeks to have the IRS 's assessments "expunged." The IRS claims that this court lacks jurisdiction over Croley's intervening claim because she did not first pay over her taxes and seek a refund as required by 26 U.S.C. §7422 . Miller v. United States [86-1 USTC ¶9261 ], 784 F.2d 728, 729 (6th Cir. 1986). 26 U.S.C. §7422 provides that

[n]o suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

26 U.S.C. §7422 (emphasis added).

A taxpayer seeking a refund or adjudication of his claim that an assessment and penalty under §7425 is improper need only pay a divisible part of the assessment to meet the statutory jurisdictional prerequisites to bringing a suit in federal district court. Boynton v. U.S. [77-2 USTC ¶9703 ], 566 F.2d 50 (9th Cir. 1977); 26 U.S.C. §6672(b) . However, the taxpayer must still "duly file" a claim for refund or credit before she may maintain a suit in federal court.

A taxpayer's claim is "duly filed" with the IRS when it has been "delivered and received." See United States v. Lombardo, 36 S.Ct. 508 (1916); Miller v. United States [86-1 USTC ¶9261 ], 784 F.2d 728, 730 (6th Cir. 1986). This is the physical delivery rule. The only two exceptions to the §7422(a) physical delivery rule are contained in §7502 . Section 7502 provides that if any document which must be filed within a prescribed period and which is after that period "delivered by United States mail" to the office where it is to be filed, the date of the U.S. postmark stamped on the envelope "shall be deemed to be the date of delivery." 26 U.S.C. §7502(a)(1) . This rule only applies where the document is actually received. The second exception set out in §7502 provides that if a document is sent by registered mail, such registration shall be prima facie evidence that the document was delivered to the office to which it was addressed, and that in that case the postmark shall be deemed the date of delivery. 26 U.S.C. §7502(c)(1) . Obviously, this rule applies only where the document is sent by registered mail.

In the present case, the IRS claims that it never received a claim for refund from Croley. As proof of this, the IRS offers a Certificate of Assessments and Payments from the Cincinnati Service Center and a "ledger card" ⁴ from the Internal Revenue Service both of which show that a check for $36.68 was received for Croley's taxes but that the check was dishonored. The Certificate and the ledger card both show that the $36.68 check was received on February 13, 1984 and dishonored on February 13, 1984 . The IRS records do not show any other payment, nor any pending taxpayer claim. ⁵

Croley testified that after she was notified of her assessment, she completed and signed an "843 Form" claiming a refund, wrote a check to the IRS for the amount of $36.68 as payment for one quarter's taxes for one employee, and directed her attorney to mail the Form and the check to the IRS . At trial Croley did not produce a copy of the signed 843 Form she allegedly sent to the IRS . Likewise, no certified mail receipt was produced at trial, and Croley produced no other direct evidence showing that her 843 Form was deposited in the United States mails addressed to the IRS .

As extrinsic evidence of her payment and refund claim, Croley offered her bank account statement showing a debit of $36.68 for check number #537 on February 17, 1984 and sufficient funds to cover that draft. Croley claims that check #537 is a check which was sent to the IRS along with her 843 Form. She did not submit a copy of the canceled check at trial. ⁶.

Upon the proof before it, the court must find that Croley's claim for refund was not sent by registered mail and was never received by the IRS . Therefore, the only two exceptions to the §7422 physical delivery rule do not apply. Miller at 730. Although Croley has produced persuasive extrinsic evidence of her claim, this court may not find that Croley mailed a claim to the IRS upon the basis of extrinsic evidence. Redman v. Commissioner [87-1 USTC ¶9350 ], 820 F.2d 209, 212 (6th Cir. 1987). The court must conclude that Croley has not met her burden of proving that her claim was "duly filed" within the meaning of 26 U.S.C. §7422 . Accordingly, this court has no jurisdiction over Croley's claim. Miller at 731; United States v. Rochelle [66-2 USTC ¶9520 ], 363 F.2d 225, 231 (5th Cir. 1966); 26 U.S.C. §7422(a) ; 28 U.S.C. §1346(a)(1).

The Sixth Circuit Court of Appeals noted in Miller that the provisions of 26 U.S.C. §7502 have produced some "harsh results." See Miller at 731, n.4. This is too mild a phrase. The provisions of 26 U.S.C. §7502 have produced a gross injustice to Croley in this case. Intervenor Croley testified that she filled out a form for refund and she signed a check to the IRS , that the check and the form were sent to the IRS . Her records show that her check was cashed. Croley's testimony was credible. In particular, Croley's explanation of check #537 was credible and logical.

The IRS 's evidence was not so persuasive. "After considerable effort" the IRS was able to produce two cryptic forms which show only that the IRS has no record of Croley's claim. Were this court free to balance the weight of the evidence, it would give more weight to Croley's live and believable testimony than to the arcane and obscure " ADP " ⁷ codes on the IRS 's computer printout and find that Croley had filed a claim. The court is constrained to hold otherwise.

The court must therefore dismiss the complaint of Intervenor Croley for lack of jurisdiction. In so doing, the court will elevate the negative inference presented by the IRS 's lack of records to the status of an irrebuttable presumption. That is apparently what §7502 was designed to do. See Shipley v. Commissioner [78-1 USTC ¶9211 ], 572 F.2d 212, 214 (9th Cir. 1977); Redman at 212. The practical result of this holding will be to confirm that Debbie Croley is a "responsible person" under 26 U.S.C. §6672 , although the evidence on that point is doubtful, ⁸ and that she willfully failed to collect the taxes assessed against Cope, although the evidence on that point is to the contrary. ⁹

In accordance with the foregoing, the court concludes that it does not have the jurisdiction to hear Intervenor Croley's claim.

JUDGMENT

In accordance with the Findings of Fact and Conclusions of Law this date entered, IT IS ORDERED AND ADJUDGED,

1. THE TAX ASSESSMENTS OF THE UNITED STATES AGAINST DARRELL W. COPE, d/b/a Cope Mining Company, ARE VALID AND JUDGMENT IS HEREBY ENTERED FOR THE UNITED STATES AND AGAINST DEFENDANT COPE in the amount of $114,245.17 plus interest accruing according to the law from the dates of assessment set forth in the Findings of Fact to the date of this judgment,

2. THE TAX ASSESSMENTS OF THE UNITED STATES AGAINST QUALITY CONSTRUCTION COMPANY ARE VALID AND JUDGMENT IS HEREBY ENTERED FOR THE UNITED STATES AND AGAINST DEFENDANT QUALITY CONSTRUCTION COMPANY in the amount of $117,696.57 plus interest accruing according to the law from the dates of assessment set forth in the Findings of Fact to the date of this judgment,

3. The claims of the United States against I.T.T. Industrial Credit Corporation are DISMISSED WITH PREJUDICE, and

4. The Intervening Pleading of Debbie Croley is DISMISSED FOR LACK OF JURISDICTION.

¹ Section 7425 provides in pertinent part:

(b) Other sales. Notwithstanding subsection (a) a sale of property on which the United States has or claims a lien, or a title derived from enforcement of a lien, under the provisions of this title, made pursuant to an instrument creating a lien on such property, pursuant to a confession of judgment on the obligation secured by such an instrument, or pursuant to a nonjudicial sale under a statutory lien on such property--

. . .

(2) shall have the same effect with respect to the discharge of divestment of such lien or such title of the United States , as may be provided with respect to such matters by the local law of the place where such property is situated, if--

. . .

(C) notice of such sale is given in the manner prescribed in subsection (c)(1).

(c) Special rules.

(1) Notice of sale. Notice of a sale to which subsection (b) applies shall be given (in accordance with regulation prescribed by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary.

² KY. REV . STAT . §355.9-504 provides

(1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Any sale of goods is subject to the Article on Sales (Article 2). The proceeds of disposition shall be applied in the order following to

(a) the reasonable expenses of retaking, holding, preparing for sale, selling and the like and, to the extent provided for in the agreement and not prohibited by law, the reasonable attorneys' fees and legal expenses incurred by the secured party;

(b) the satisfaction of indebtedness secured by the security interest under which the disposition is made;

(c) the satisfaction of indebtedness secured by any subordinate security interest in the collateral if written notification of demand therefor is received before distribution of the proceeds is completed. If requested by the secured party, the holder of a subordinate security interest must reasonably furnish proof of his interest, and unless he does so, the secured party need not comply with his demand.

³ 26 U.S.C. §6672 provides:

§6672 . Failure to collect and pay over tax, or attempt to evade or defeat tax.

(a) General rule. Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable.

⁴ The "ledger card" submitted by the IRS is in fact a copy of a computer printout from the IRS 's records.

⁵ The court's interpretation of IRS records is wholly dependent upon the IRS 's explanation of its own "Automatic Data Processing" codes contained on the "ledger card" submitted as evidence in this case. It is evident that the Certificate of Assessments and Payments was created in reliance on this "ledger card." Therefore, the "ledger card" is the most probative evidence presented to the court.

The ledger card shows Croley's initial assessment and penalties to be $88,809.59. This amount was increased to $88,819.59 on assessment of a "Fees Costs" on March 26, 1984 as denoted by the code "TC 360". Earlier, on February 13, 1984 , Croley's debit was increased by $36.68 across from the code " TCA 671" which the IRS claims means "Bad Ck Subsequent Payment" (sic). Croley's debit was decreased by $36.68 across from the code " TCA 670" which the IRS claims means "Subsequent Payment." The same ledger card shows a further decrease of Croley's debt by $88,819.59 across from the partially marked-out code "TC 530". No explanation is offered for this last entry. $88,819.59 is penciled in as a debit again at the bottom of the ledger card.

The ledger card does not show that any taxpayer action was ever pending. The IRS claims that the code "TC 470" would appear on the ledger card if any claim for refund had been filed. "TC 470" does not appear on the ledger card.

⁶ After the trial of this matter, the record was left open for supplementing by both sides to this controversy. The IRS was given thirty days within which to locate all records pertaining to Intervenor Croley. After an extension of time, the IRS produced all of its documentary proof and placed it in the record. Both sides thereafter submitted post-trial briefs on this case. After the trial, Intervenor Croley offered only a copy of her February 1984 bank statement in support of her contention that she paid over her taxes and sought a refund. Although given ample time to do so, Intervenor Croley has not sought to enlarge the record any further.

⁷ See footnote 5 supra. " ADP " codes are Automatic Data Processing codes used by the IRS .

⁸ Section 6672 was "designed to cut through the shield of organizational form and impose liability upon those actually responsible for the employer's failure to . . . pay over taxes." McGlothin v. U.S. [83-2 USTC ¶9658 ], 720 F.2d 6, 8 (6th Cir. 1983); I.R.S. v. Blais [85-2 USTC ¶9684 ], 612 F.Supp. 700, 707 (D.C. Mass. 1985). Consequently, the person liable under 26 U.S.C. §6672 is broadly defined in 26 U.S.C. §6671 as "an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs."

26 U.S.C. §6671(b) .

Croley testified that she was the "secretary" for Cope. A person who holds the corporate office of Secretary, with the power to make disbursements, is presumptively a "responsible person" for the purposes of section 6672 . Bolding v. United States [77-2 USTC ¶9737 ], 565 F.2d 663, 670 (Ct. Cl. 1977); Hildebrand v. U.S. [83-2 USTC ¶9570 ], 563 F.Supp. 1259, 1262 (D.N.J. 1983). However, liability is not confined to officers of a corporation with the authority to disburse monies. Cellura v. U.S. [65-2 USTC ¶9635 ], 245 F.Supp. 379 (X.D. Ohio 1965). Even one who is merely a clerical secretary may be a "responsible" person within the meaning of §6672 if that employee is the person who has or shares the "final word" as to what bills should be paid. See Walker v. U.S. [71-1 USTC ¶9263 ], 438 F.2d 127 (5th Cir. 1969); Campbell v. Nixon [62-2 USTC ¶9681 ], 207 F.Supp. 826 (X.D. Mich. 1962). Compare Grenker v. United States, 64-1 USTC ¶9135 ( F.D.C. N.J. 1963) (Secretary-treasurer liable); United States v. Galtroff [65-1 USTC ¶9435 ], 245 F.Supp. 158 (D.C. N.Y. 1965) (Secretary of the corporation); Scott v. United States [66-1 USTC ¶9164 ], 354 F.2d 292 (Ct. Cl. 1965) (Secretary-treasurer of corporation) with Mattox v. United States, 59-1 USTC ¶9286 (F.D.C. Minn. 1959) (Secretary-treasurer without control of corporate funds not liable); Sherwood v. United States [65-2 USTC ¶9530 ], 246 F.Supp. (D.C. N.Y. 1965) (Secretary-treasurer of corporation who was really only clerical help was not liable); Lauinger v. Scanlan, 65-1 USTC ¶9336 ( F.D.C. N.Y. 1965) (one who held office of Secretary only nominally was not liable).

Courts have considered the following factors in determining whether a person should be considered a responsible person under §6672 : (1) the ability of the person to sign checks; (2) the identity of officers, directors, and shareholders; (3) the identity of individuals who prepared the tax returns; (4) the identity of the individuals who were in control of the financial affairs of the corporation. Braden v. U.S. [70-2 USTC ¶9554 ], 318 F.Supp. 1189, aff'd [71-1 USTC ¶9428 ] 442 F.2d 342 (6th Cir. 1970); Datlof v. U.S. [60-1 USTC ¶9329 ], 252 F.Supp. 11, 32-33 (E.D. Pa.), aff'd [67-1 USTC ¶9167 ] 370 F.2d 655 (3d Cir. 1966); Blais at 707.

In the present case the evidence was equivocal on whether Intervenor Croley was an officer of the corporation or merely held a clerical position. She testified that she was a "secretary" but it was evident from her testimony that she was unsure of the distinctions between the Secretary of the corporation, and a clerical secretary. In any case, her testimony establishes that she had the power to sign the tax checks as well as the payroll checks, that she completed or signed several tax returns, and that she was aware of the taxes owed at one point. No evidence offered at trial established the identity of Cope's officers, what corporate powers Croley actually possessed, nor who actually had the "final word" as to how money was spent for the corporation. Absent other proof, the court would be inclined to give the IRS the benefit of the doubt and agree that Croley might be a "responsible person" under 26 U.S.C. §6672 since Croley's signature appeared on Cope's 941 Tax Forms. The evidence is not altogether clear however.

⁹ The question of willfulness is one of fact. Dudley v. U.S. [70-2 USTC ¶9520 ], 428 F.2d 1196 (9th Cir. 1970). It is therefore up to this court to determine from the documents and testimony produced at trial whether Croley acted willfully or not. The burden is upon her to establish that she did not act willfully. See Helvering v. Taylor [35-1 USTC ¶9044 ], 55 S.Ct. 287 (1935); Snider v. U.S., 655 F.2d 729, 731 (6th Cir. 1981); Fitzgerald v. U.S. [76-1 USTC ¶9175 ], 407 F.Supp. 1132, 1136 (E.D. Ky. 1976).

Willfulness as that term is used in §6672 may be found if the evidence shows either (1) that the responsible person was aware that the taxes were unpaid and that he possessed the power to pay them with funds of the taxpayer entity, or (2) that the responsible person consciously disregarded known information about the tax obligation and thus acted in "reckless disregard" of the fact that the taxes were due and would not be paid. Blais to 708.

In the present case, the court finds ample evidence that Croley was not aware that Cope's taxes were unpaid or that Cope's taxes would go upaid. Croley's testimony that she made out a check each week for taxes and sent that check off to the IRS was credible. She testified that she thought that all of Cope's taxes were being paid when she sent those checks off. Accordingly, Croley did not have the "awareness" or "knowledge" of the consequence of her actions that would support a finding of willfulness on her part even if Cope's taxes were not being satisfied. Moody v. U.S. [67-2 USTC ¶9520 ], 275 F.Supp. 917 (E.D. Mich 1967).

Similarly, the court finds ample evidence to support a contention that Croley did not act in "reckless disregard" of the fact that the taxes were due and would not be paid. She testified that she made out checks to the IRS periodically and sent them to the Service. There is evidence that Croley discovered an unfiled 941 tax form, inquired of an examining revenue officer from the IRS whether a 941 tax form should be filed, and on his advice completed and filed the form. There is evidence that she thereafter filed the appropriate forms and drafted the appropriate checks each week. There was little other evidence to support actions by Croley that would fall within those generally recognized as constituting reckless disregard of the fact that taxes were due and would not be paid. See, e.g., Gold v. U.S. [81-1 USTC ¶9231 ], 506 F.Supp. 473, 480 (E.D. N.Y. 1981) (reliance on statements of an unreliable person in control of company finances); Kalb v. U.S. [74-2 USTC ¶9760 ], 505 F.2d 506, 571 (2d Cir. 1974) (failure to investigate or correct mismanagement after notice that withholding taxes not remitted); Teel v. U.S. [76-1 USTC ¶9190 ], 529 F.2d 903, 905 (9th Cir. 1975) (continuing to pay other bills of a troubled company without making a reasonable inquiry whether money would be available to pay the tax when due).

[87-2 USTC ¶9632] Gordon L. Musick and Bong Thi Lai Musick, Plaintiffs v. United States of America, By and Through the Internal Revenue Service, Golden Pacific Trust Deed Services, a California corporation, Colony Pacific Escrow, a California corporation, Equity Venture Capital, Ltd., a partnership, and all persons unknown, claiming any legal or equitable right, title, estate, lien or interest in the property described in the Complaint adverse to Plaintiffs' title, or any cloud upon Plaintiffs' title thereto, Defendants

U.S. District Court, Cent. Dist. Calif., CV 86-5582-DT (Px), 7/20/87

[Code Secs. 7425 and 7426 --Result unchanged by the Tax Reform Act of 1986 ]

Liens: Discharge of liens: Nonjudicial foreclosure sale: Notice of sale.--Property purchased by the taxpayers at a nonjudicial foreclosure sale was taken subject to federal tax liens imposed by the government. A federal district court in California ruled that the sale did not discharge the federal tax liens on the property and that the liens occupied first priority on the property. The court further held that notice of the nonjudicial foreclosure sale had not been sent to the proper district director. Consequently, since proper notice was not given, the government's tax liens were not disturbed by the nonjudicial foreclosure sale.

Robert C. Bonner, United States Attorney, Charles H. Magnuson, Edward M. Robbins, Jr., Assistant United States Attorneys, Los Angeles, Calif. 90012, for defendants.

STATEMENT OF UNCONTROVERTED FACTS AND CONCLUSIONS OF LAW

TEVRIZIAN, Jr., District Judge:

For purposes of and in support of the Order of Summary Judgment, the Court makes the following Findings of Fact and Conclusions of Law:

INTRODUCTION

1. On August 26, 1986, the plaintiffs filed the instant complaint in the United States District Court for the Central District of California and asserted the following claims:

The First Claim For Relief: An action to quiet title to real property free and clear of a purported federal tax lien pursuant to 28 U.S.C. §2410, 28 U.S.C. §1346(e), and 26 U.S.C. §7426(a)(1) ;

The Second Claim For Relief: An action to enjoin enforcement of the federal tax lien against plaintiffs' property pursuant to 28 U.S.C. §1346(e) and 26 U.S.C. §7426(a)(1) ;

The Third Claim For Relief: An action for fraud brought against defendants Colony Pacific Escrow, Golden Pacific Trust Deed Services, and Equity Venture Capital, Ltd.;

The Fourth Claim For Relief: An action for negligence brought against defendants Colony Pacific and Golden Pacific;

The Fifth Claim For Relief: An action for breach of warranty of title brought against the defendant Equity Venture Capital, Ltd.

2. The matter is now before the Court on the motion for summary judgment brought by the United States of America with respect to the first and second claims for relief.

FINDINGS OF FACTS

3. The first and second claims for relief of this action pertain to the defendant, United States of America . The first and second claims are for quiet title (28 U.S.C. §2410) and wrongful levy (26 U.S.C. §7426 ) arising out of an Internal Revenue Service seizure and attempted sale of a certain piece of residential real property ("the subject property") now belonging to the plaintiffs.

4. The subject property is located in the County of Los Angeles , State of California , and is commonly known as 5355 Lime Avenue , Long Beach , California .

5. On November 18, 1980, Alberto and Ethel Sapico, as owners of the subject property in fee simple, recorded a Deed of Trust on the property naming defendant Equity Venture as beneficiary.

6. Alberto Sapico is and was indebted to the United States of America for $30,123.46, not including accrued interest and penalties to date, for unpaid federal withholding and employment taxes as follows:

 Kind  Tax Period  Date of   Unpaid Balance

of Tax   Ended    Assessment of Assessment

 941 .. 12-31-81   08-24-83    $ 5,244.24

 941 .. 12-31-82   08-24-83    $ 6,473.42

 941 .. 06-30-82   03-28-83    $12,213.02

 941 .. 03-31-83   08-24-83    $ 3,637.00

 941 .. 06-30-83   08-24-83    $ 2,555.78

7. On October 19, 1983, the Internal Revenue Service filed with the Los Angeles County Recorder, a Notice of Federal Tax Lien in respect of the assessments identified above.

8. Alberto Sapico subsequently defaulted under the Deed of Trust, and a nonjudicial foreclosure was commenced.

9. The defendant Golden Pacific Trust Deed Service, the trustee of the Deed of Trust, sent notice of the foreclosure sale to the District Director of the Internal Revenue Service for the Laguna Niguel District, dated May 16, 1984. The foreclosure sale was initially set for June 16, 1984, at Los Angeles , California , but due to the Sapico's bankruptcy status, the sale did not occur until November of 1984, when the subject property was sold at public auction held at the Los Angeles County Hall of Records, Los Angeles , California . The subject property was sold by the defendant Colony Pacific Escrow by and through its agents Golden Pacific Trust Deed Service.

10. On November 27, 1984, defendant Equity Venture purchased the subject property at the foreclosure sale and recorded a trustee's deed to the property.

11. Plaintiffs Gordon L. Musick and Bong Thi Lai Musick subsequently purchased the subject property from defendant Equity Venture Capital, Ltd.

12. The plaintiffs assert title to the subject property on the basis of a grant deed dated November 13, 1985, granting them a fee interest in the subject property and recorded in Los Angeles County Recorder's Office on January 6, 1986.

13. To the extent any Conclusion of Law is deemed a Finding of Fact, it is incoporated herein.

CONCLUSIONS OF LAW

14. The United States is contending in its present motion for summary judgment as to the first and second claims for relief that the Internal Revenue Service received improper and ineffective notice of the nonjudicial foreclosure of the subject property.

15. The United States specifically contends that the notice of the nonjudicial foreclosure sale was improperly sent to the District Director of the Internal Revenue Service for the Laguna Niguel District, instead of the District Director for the Los Angeles District.

16. The United States asserts that since the United States earlier properly filed a notice of federal tax lien, the foreclosure sale did not discharge the federal tax liens on the subject property, and the liens currently occupy first priority on the property.

17. The plaintiffs do not dispute the facts set forth in the United States government's motion for summary judgment, except as to the contention that the wrong district director received the notice of the nonjudicial foreclosure sale. The plaintiffs assert that the notice of the foreclosure sale was proper since the place where the sale of the property occurred was within the Laguna Niguel District, and thus the government tax lien was discharged.

18. In addition, the plaintiffs contend that the Internal Revenue Service's interpretation of the district in which the sale is to be conducted pursuant to Treasury Regulation 301.7425-3 is unreasonable and invalid.

19. The plaintiffs also contend that the Internal Revenue Service's interpretation of Treasury Regulation 301.7425-3 is inconsistent with the government's own regulations.

20. The plaintiffs also contend the Internal Revenue Service had adequate notice of the foreclosure sale to fulfill the purpose of 26 U.S.C. §7425 , and was in substantial compliance with Treasury Regulation 301.7425-3 .

21. And finally the plaintiffs contend that genuine issues of material fact exist as to whether the notice on nonjudicial sale was sent to the Los Angeles District due to a moratorium that may have been in effect during the relevant time period.

22. Section 6321 of the Internal Revenue Code of 1954 (26 U.S.C.) provides for the imposition of a federal tax lien encompassing "all property and rights to property whether real or personal, belonging to" a delinquent taxpayer. Pursuant to Section 6322 of the Code, such tax lien arises automatically at the time of the assessment, continues thereafter until the underlying tax liability is satisfied or the statute of limitations intervenes (see Sec. 6502 , Internal Revenue Code 1954 (26 U.S.C.)) and attaches to after-acquired property of the taxpayer. Glass City Bank v. United States [45-2USTC ¶9449], 326 U.S. 265 (1945); J.D. Court, Inc. v. United States [83-2 USTC ¶9454 ], 712 F.2d 258, 260-261 (7th Cir. 1983). Once a federal tax lien has attached to an interest in property, the lien cannot be extinguished simply by a transfer or conveyance of the interest. United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 691, n.16 (1983).

23. In the present case, federal tax liens attached to the subject property at various times in 1983 upon assessment of the identified federal taxes against Alberto Sapico, then the owner of the subject property.

24. Once it is determined that a federal tax lien attaches to property, "we enter the province of federal law * * *" (Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 514 (1960)) and the question whether there is an interest that has priority is exclusively within that province. The priority of federal tax liens vis-a-vis other interests is essentially based upon "first in time is the first in right." United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85-86 (1954). Here, the federal tax liens are prior to the plaintiffs' purchase of the property. Inasmuch as the government also duly recorded its Notice of Federal Tax Liens for the relevant assessments, prior to the time the plaintiffs purchased the property, the plaintiffs are not entitled to priority under 26 U.S.C. §6323(a) . Nor are plaintiffs entitled to priority under the "super priority" sections of 26 U.S.C. §6323(b) which gives protection for certain types of interests, even if a Notice of Federal Tax Lien has been filed.

25. The legal issue presented by this case reduces to the question of whether or not the government's tax lien was discharged by the nonjudicial foreclosure sale pursuant to 26 U.S.C. §7425 .

26. Section 7425(b) of the Internal Revenue Code provides that a nonjudicial sale of real property to which the government claims a title derived from enforcement of a lien "shall . . . be made subject to and without disturbing such lien or title, if notice of such lien was filed . . . more than 30-days before such sale and the United States is not given[written] notice [at least 25-days prior to] such sale . . . ." 26 U.S.C. §7425(b)(1) .

27. The First Trust Deed foreclosure and sale at issue here was such a nonjudicial sale. The government properly filed a notice of the subject tax liens. Thus, the issue here reduces to whether or not the government was given proper notice under Section 7425(b) .

Section 7425 provides, in part:

(c) SPECIAL RULES.--

(1) NOTICE OF SALE.--Notice of a sale to which subsection (b) applies shall be given (in accordance with regulations prescribed by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25-days prior to such sale, to the Secretary.

The Regulations under this subsection provide, in part:

§301.7425-3 DISCHARGE OF LIENS; SPECIAL RULES. (TD 7430 , filed 8-19-76.)

(a) NOTICE OF SALE REQUIREMENTS--

(1) IN GENERAL. Except in the case of the sale of perishable goods described in paragraph (c) of this section, a notice (as described in paragraph (d) of this section) of a non-judicial sale shall be given, in writing by registered or certified mail or by personal service, not less than 25-days prior to the date of sale (determined under the provisions of paragraph (b) of §301.7425-2 ), to the district director (marked for the attention of the chief, special procedures staff) for the internal revenue district in which the sale is to be conducted. Thus, under this section, a notice of sale is not effective if it is given to a district director other than the district director for the internal revenue district in which the sale is to be conducted.

28. The notice in this case was given to the District Director for the Laguna Niguel District. The notice identifies the sale as taking place on June 14, 1984, at the Los Angeles County Hall of Records in Los Angeles , approximately four blocks from the offices of the District Director for the Los Angeles District located at 300 North Los Angeles Street . The sale in fact took place at the Los Angeles County Hall of Records in Los Angeles in November, 1984. Thus, under the law, the identified notice was not effective because it was given to the wrong District Director. Since no proper notice was given, the government's tax liens were not disturbed by the nonjudicial foreclosure sale. See Little v. United States [83-1 USTC ¶9343 ], 704 F.2d 1100, 1107-08 (9th Cir. 1983); Southern Bank of Lauderdale County v. Internal Revenue Service [85-2 USTC ¶9670 ], 770 F.2d 1001, 1105-07 (11th Cir. 1985); Puls v. United States[74-1 USTC ¶9322], 387 F.Supp. 760 (N.D. Cal. 1974).

29. Any argument that the subject sale took place within the Laguna Niguel District is incorrect as a matter of law. The statutory provisions regulating the nonjudicial foreclosure of deeds of trust on real property are contained in California Civil Code Sections 2924-2924h. These sections make plain that under California law the place of sale is the place of the crying of the sale, i.e., the place where the auction is held. See Sections 2924g (sale shall be made at auction), 2924 and 2924f (written notice of place of sale shall be given), and 2924h (completion of sale announced by the fall of the auctioneer's hammer). See also Harth v. Baum, 7 Cal. App. 114, 45 P.2d 284 (2nd Dist. 1935).

30. Since the notice was ineffective, the government's tax lien is unaffected by the nonjudicial foreclosure. Hence, the subject property is presently encumbered by the federal tax liens which occupy a first priority on the property.

31. With regard to whether or not a material fact exists because plaintiffs have asserted in their opposition that the notice of nonjudical sale may have been sent to Los Angeles District, plaintiffs base this contention upon the deposition testimony of Dewey Marine, an advisor to the Special Procedures Staff of the Laguna Niguel District. However, it is unclear from Mr. Marine's deposition testimony what the effect of the moratorium was on the procedures regarding notices that were sent to the wrong district.

32. On the other hand, the United States has attached to its reply the declaration of Marvin J. Chotiner, the Chief, Special Procedures Function in the Collection Division of the office of the District Director of Internal Revenue in Los Angeles . Mr. Chotiner states in his declaration that effective Janaury 3, 1984, the notice required by 26 U.S.C. §7425(c) was required to be given to the proper District Director as determined by place of sale. Mr. Chotiner states that a moratorium had been in effect prior to that time, from October 1, 1983 , for a 90-day period, during which both the Los Angeles District and the Laguna Niguel District, would accept notices of the nonjudicial sales for either district, but that the 90-day period had expired and the moratorium in effect had expired during the periods relevant to this case.

33. The Court grants the motion for summary judgment by the defendant United States of America with prejudice as to the plaintiffs' first and second claims for relief finding that no genuine issue of material fact exists as to the fact that the United States of America, by and through the Internal Revenue Service, did not receive proper and effective notice of the nonjudicial sale regarding the subject of property at issue.

34. To the extent any Finding of Fact is deemed a Conclusion of Law, it is incorporated herein.

plaintiffs, Gordon L. Musick and Bong Thi Lai Musick, take nothing from the United States of America by the first and second claims for relief of their Complaint To Quiet Title; For Injunctive Relief To Restrain Wrongful Levy; Fraud; Negligence; And Breach Of Warranty, and that their action be dismissed against the United States of America on the merits with prejudice, each of the parties to bear their own attorney fees and costs. Execution of this judgment is stayed until the entire final judgment in this case, in order to give the plaintiffs an opportunity to litigate their third, fourth and fifth claims for relief against the remaining defendants.