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[98-1 USTC 50,417] United States of America , Plaintiff v. Eleanor Fay Ressler, Paul Eugene Ressler, Cullman Savings and Loan Association, and State of Alabama Department of Revenue, Defendants

U.S. District Court, No. Dist. Ala., Northeastern Div., Civ. CV-96-S-2464-NE, 3/16/98

[Code Sec. 6321 ]

Lien for taxes: Priority: State liens: Perfection of liens: Assessment.--Federal tax liens were superior to state (Alabama) tax liens, even though the state had notified the taxpayer of her state deficiencies before the federal deficiencies were assessed. The federal assessments themselves perfected the federal liens, while the state notices of deficiency were simply the start of a multi-step process to determine and collect the state deficiencies.

[Code Sec. 6323 ]

Lien for taxes: Priority: State liens: Perfection of liens: Assessment: Judgment creditor.--Federal tax liens were superior to state ( Alabama ) tax liens, even though the state had notified the taxpayer of her state deficiencies before the federal deficiencies were assessed. The federal assessments themselves perfected the federal liens, while the state notices of deficiency were simply the start of a multi-step process to determine and collect the state deficiencies. The state also did not qualify as a judgment creditor superior to the federal government. Although the state had determined its final assessments and recorded its liens before the federal liens were recorded, it had not reduced its liens to judgment in a court of record.

[Code Sec. 7122 ]

Settlement: Offer in compromise: Acceptance: Evidence.--The co-owner of property foreclosed by a federal tax lien failed to show that he and the government had reached a settlement to release the property from the lien. There was no evidence that the government accepted his offer in compromise.


SMITH, District Judge:

The United States filed this action on behalf of the Internal Revenue Service to foreclose its liens upon two parcels of real property jointly owned by defendants Paul Ressler and the State of Alabama . The State of Alabama executed against the same property and obtained a Sheriff's Deed on December 16, 1994 , foreclosing the undivided interest of defendant Eleanor Ressler in the real property which is the subject of this case.

The federal and state tax liens both arise from tax years 1988 through 1992. Tax returns for those years were received by the State of Alabama and the Internal Revenue Service at approximately the same time. The State recorded its lien before the IRS.


This case involves a conflict between a federal tax lien arising under the provisions of 26 U.S.C. 6321 and 6322, and, an antecedent state tax lien arising under Alabama Code 40-29-20.

Section 6321 of the federal statute provides that:

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

26 U.S.C. 6321. Section 6322 adds:

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

Alabama Code 40-29-20 is substantially similar to 26 U.S.C. 6321, and provides that:

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

Following a pretrial conference, the parties entered into the following stipulations:

1. Prior to 1990, defendants Eleanor Ressler and Paul Ressler jointly acquired two parcels of real property in Cullman County , Alabama . The first parcel was approximately 31 acres and identified with a street address of 1104 County Road 998. The second parcel was approximately one acre and identified with a street address of 1121 County Road 998.

2. Cullman Savings Bank has mortgage lien against the 31-acre parcel which is senior to all other liens against that parcel, including the federal and state tax liens.

3. Federal income taxes were assessed against Eleanor Ressler based on tax returns filed with the Internal Revenue Service, on the dates and for the amounts stated below:


                                  Date Return     Date Tax     Amount of

YEAR                               Received       Assessed     Assessment

1988 ..........................  
June 16, 1993
August 16, 1993

1989 ..........................  
June 16, 1993
August 23, 1993

1990 ..........................  
June 16, 1993
August 30, 1993

1991 ..........................  
June 16, 1993
August 30, 1993

1992 ..........................  
June 14, 1993
July 19, 1993


4. On July 30, 1993 , the State of Alabama entered and mailed Notices of Tax Determination and Demand for Payment to Eleanor Ressler for state income tax liabilities for the years 1988 and 1989. On August 3, 1993 , the State of Alabama entered and mailed Notices of Tax Determination and Demand for Payment to Eleanor Ressler for state income tax liabilities for the years 1990, 1991, and 1992. The state income tax liabilities approximated $17,000.

5. The State of Alabama made preliminary income tax assessments against Eleanor Ressler for those same tax years for an adjustment to the admitted tax liabilities to the State of Alabama on October 22, 1993 , which totaled approximately $17,000.

6. The State of Alabama made five final income tax assessments for those same tax years for an adjustment to the admitted tax liabilities to the State of Alabama on January 20, 1994 , which totaled approximately $17,000.

7. On February 11, 1994 , the State of Alabama filed a Notice of Lien for Taxes in the Office of the Judge of Probate, Cullman Country , Alabama for the state income tax liabilities of Eleanor Ressler for the three years 1986 to 1992.

8. Or May 13, 1994 , the Internal Revenue Service filed a Notice of Federal Tax Lien in the Office of the Judge of Probate, Cullman County , Alabama for the federal income tax liabilities of Eleanor Ressler for the years 1988 to 1992.

9. A Sheriff's Deed concerning the two subject parcels was executed in favor of the State of Alabama on December 16, 1994 based on a judgment execution by the State of Alabama against the remaining interest of Eleanor Ressler. The Sheriff's Deed was signed on June 13, 1995 , and recorded in Cullman County Probate Court on January 17, 1997 . The State of Alabama did not provide notice to the Internal Revenue Service of the described execution and deed. The Sheriff's Deed did not alter or foreclose any prior interests, liens, or levies of either the State of Alabama or the Internal Revenue Service.

10. The United States filed this foreclosure action on September 19, 1996 and filed a Notice of Lis Pendens with the Office of the Judge of Probate, Cullman County , Alabama on or about the same day.

(Stipulated Facts filed November 12, 1997: Document No. 22.)

The action presently is before the court on the United States ' motion for partial summary judgment and defendant Paul Ressler's motion to compel settlement. Upon consideration of the pleadings, briefs, and evidentiary submissions, this court concludes the government's motion is due to be granted and defendant's motion denied.


The United States moves for partial summary judgment on the issue of the priority of the federal and state tax liens. Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact that the moving party is entitled to judgment as a matter of law." "An issue of fact is 'material' if it is a legal element of the claim under the applicable substantive law which might affect the outcome of the case." Allen v. Tyson Foods, Inc., 121 F.2d 642, 646 (11th Cir. 1997) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). "It is 'genuine' if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party." Id.

The moving party has the initial burden of showing the absence of a genuine issue as to any material fact. Id. In determining whether this burden is met, the court must view the evidence "and all factual inferences arising from it in the light most favorable to the nonmoving party." Id. (quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970)). Once the movant's initial burden is met, the burden shifts to the nonmoving party to point out "specific facts showing that there is a genuine issue for trial." Id. (quoting Fed. R. Civ. P. 56(e)). In meeting its burden, the nonmoving party may "avail itself of all facts and justifiable inferences in the record taken as a whole." Id. (quoting Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 998 (11th Cir. 1992) (citation omitted)). "The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Allen, 121 F.3d at 646 (quoting Tipton, 965 F.2d at 999 (citations omitted)). Even so, a "mere 'scintilla' of evidence supporting the [nonmoving] party's position will not suffice; there must be enough of a showing that the jury could reasonably find for that party." Id. (quoting Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir.1990)).

Thus, "[t]he basic issue before the court on a motion for summary judgment is 'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.' " Id. (quoting Anderson v. Liberty Lobby, Inc., 447 U.S. 242, 251, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986)).


Federal Tax liens do not automatically acquire priority over all other liens. United States v. McDermott [93-1 USTC 50,164], 507 U.S. 447, 449, 113 S.Ct. 1526, 1528, 123 L.Ed.2d 128 (1993). Rather, the priority of federal tax liens in relation to competing liens is a federal question, determined by application of the common law rule of "the first in times is the first in right." United States v. New York Britain [54-1 USTC 9191], 367 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L. Ed. 520 (1954); see also United States v. Acri [55-1 USTC 9138], 348 U.S. 211, 213, 75 S.Ct. 239, 241, 99 L. Ed. 264 (1955) (priority of federal tax liens is "always a federal question to be determined finally by the federal courts"). A lien which is first in time will be deemed first in right if, but only if, it is "perfected" under federal law. McDermott [93-1 USTC 50,164], 507 U.S. at 449, 113 S.Ct. at 1528 ("Our cases deem a competing state lien to be in existence for 'first in time' purposes only when it has been 'perfected'. . . .") (citing New Britain [54-1 USTC 9191], 347 U.S. at 84, 74 S.Ct. at 369). The first question this court must answer then is, which liens were perfected first?

A. Which Liens Were Perfected First?

The court's analysis depends in part upon the dates on which various events occurred, and the legal significance of those events. The following chart summarizes relevant information.

     Event         1988      1989      1990      1991      1992

Federal Tax


Received ......   6/16/93   6/16/93   6/16/93   6/16/93   6/14/93 2 

State's Motion

& Demand

Letters .......   7/30/93   7/30/93    8/3/93    8/3/93    8/3/93

Federal Taxes

Assessed ......   8/16/93   8/23/93   8/30/93   8/30/93   7/19/93 3 



Assessment ....  10/22/93  10/22/93  10/22/93  10/22/93  10/22/93

State's Final

Assessment ....   1/20/94   1/20/94   1/20/94   1/20/94   1/20/94

State's Notice

of Lien Filed .   2/11/94   2/11/94   2/11/94   2/11/94   2/11/94

IRS's Notice of

Lien Filed ....   5/13/94   5/13/94   5/13/94   5/13/94   5/13/94

Sheriff's Deed

Executed ......  12/16/94  12/16/94  12/16/94  12/16/94  12/16/94

1. Perfection of federal liens

Federal tax liens need not be filed to gain priority over competing interests: rather, they are perfected at the time taxes are assessed. 26 U.S.C. 6322 ("the lien imposed by section 6321 shall arise at the time assessment is made"); see also, e.g., McDermott [93-1 USTC 50,164], 507 U.S. at 448, 113 S.Ct. at 1527 ("Upon that assessment", the law created a lien in favor of the United States on all real and personal property belonging to the [taxpayer]") (emphasis added). Thus, only events which occurred before the federal tax assessments could act to prime the resulting federal liens.

Here, federal taxes were assessed against the Resslers for the years 1988 through 1992, respectively, on the following dates:

1988 ......................................................  
August 16, 1993

1989 ......................................................  
August 23, 1993

1990 ......................................................  
August 30, 1993

1991 ......................................................  
August 30, 1993

1992 ......................................................    
July 19, 1993

(Stipulated Facts at 2. 3.) IRS assessments are presumptively correct. Welch v. Helvering [3 USTC 1164], 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). Moreover, the State of Alabama stipulates that the assessment dates for the years 1988 through 1991 are accurate. Accordingly, the court accepts the assessment dates for those years as the dates on which federal liens arising from those assessments were perfected.

The State of Alabama refused to stipulate to the accuracy of the 1992 assessment date provided by the IRS, however. The state argues that, because all the returns were mailed to the IRS on the same date and in the same envelope, the 1992 assessment could not have been made more than one month before the others, as claimed by the United States . Evidence must be construed in the light most favorable to the non-moving party on a motion for summary judgment. Therefore, the court rejects the proffered date for the 1992 assessment. Instead, the court assumes that the 1992 federal tax assessments occurred after the state's notice and demand letter was mailed, consistent with the other tax years. 4 In any event, that curious discrepancy does not change the result in this case. The state liens must have been perfected before the federal tax assessments arose if they are to prime the federal liens. Only one event could possibly have accomplished that: the mailing of the state's notice and demand letters.

2. Perfection of state liens

The State of Alabama mailed "Notices of Tax Determination and Demands for Payment" for tax years 1988 and 1989 to Eleanor Ressler on July 30, 1993, and, for tax years 1990, 1991, and 1992 on August 3, 1993. Both actions occurred before federal taxes for those years were assessed. 5 No other action by the State occurred before the last federal tax assessment was made on August 30, 1993 .

Therefore, the perfection question reduces to whether Alabama 's liens were perfected at the time of its notice and demand letters. If so, the State's liens prevail. If not, the federal liens are superior.

The rule for perfection of non-federal liens is different than the rule for federal liens. Non-federal liens are "perfected in the sense that there is nothing more to be done to have a choate lien--when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." New Britain [54-1 USTC 9191], 347 U.S. at 84, 74 S.Ct. at 369.

Most courts also impose an additional requirement: summary enforceability. Monica Fuel, Inc. v. Internal Revenue Service [95-2 USTC 50,477], 56 F.3d 508, 512 (3d Cir. 1995) ("We agree that a right to enforce a lien summarily (that is, without a judicial proceeding) is a requirement of choateness in addition to the tripartite rule of fixed identity, property and amount"); In re Terwilliger's Catering Plus, Inc. [90-2 USTC 50,460], 911 F.2d 1168, 1176 (6th Cir. 1990) ("[T]he state lien holder must show that he had the right to enforce the lien at some time prior to the attachment of the federal lien"), cert. denied, 501 U.S. 1212, 111 S.Ct. 2815, 115 L. Ed.2d 987 (1991); T. H. Rogers Lumber Co. v. Apel, 468 F.2d 14, 18 (10th Cir. 1972) ("This requirement can be met only if the claim is final; that is; not subject to a judicial contest as to its amount, and also only if it is enforceable by summary proceedings") [citations omitted]; United States v. Utah State Tax Comm'n, 642 F. Supp. 8, 10 (D. Utah 1983) (nonfederal lien must be summarily enforceable and not have conditions that affect its viability); cf. Burrus v. Oklahoma Tax Commission, 59 F. 3d 147 149 (10th Cir. 1995) (explaining its holding in T. H. Rogers to mean "that at the time of enforcement, whenever that should occur, a lienholder may satisfy its debt by resort to a summary proceeding because the lien will be both choate and perfected") see also United States v. McDermott [93-1 USTC 50,164], 507 U.S. at 453 n.5, 113 S.Ct. at 1530 n.5 (lien on property not yet owned was not perfected because it was not definite, contingent, and summarily enforceable at time of filing).

The United States does not dispute that, at the time of the state's notice and demand letters, the identity of the lienors and the property subject to the liens were established. The two questions presented here are: whether the amount of the state's liens was established at the time of notice and demand; and whether the state's liens were summarily enforceable at the time of notice and demand.

(a) Was the amount of the lien established?

The Supreme Court instructs that the proper focus of such an inquiry is on whether the state's liens were free from "contingencies" that would prevent execution at the relevant time. See Security Trust & Savings Bank, 340 U.S. at 50, 71 S.Ct. at 113. In Security Trust, the Supreme Court refused to accord priority to an attachment lien not yet reduced to judgment, because "[n]umerous contingencies might arise that would prevent the attachment lien from ever becoming perfected by a judgment awarded and recorded. Thus, the attachment lien is contingent or inchoate--merely a lis pendens notice that a right to perfect a lien exists." Id.

A review of the statutory two-step procedure under which Alabama tax authorities enforce that State's tax liens reveals that the amounts of such liens are not fixed at the time a notice and demand letter is issued. Instead, that letter begins an arms-length negotiation process between the taxpayer and the Alabama Department of Revenue designed to uncover the actual amount of taxes owed. A taxpayer who does not pay the requested amount upon receipt of a notice and demand letter will receive a preliminary assessment of his tax liability, as determined by the Department of Revenue. The taxpayer has a 30 day period within which to object to that assessment. Upon timely objection to a preliminary assessment, the department

shall schedule a conference with the taxpayer for the purpose of allowing the taxpayer and the department to present their respective positions, discuss any omissions or errors, and to attempt to agree upon any changes or modifications to their respective positions.

Alabama Code 40-2A-7(b)(4)(a). A final assessment is made only after those objections are resolved. 6 Id. at 7(b)(4)(b). Hence, any assessment made before a taxpayer has had an opportunity to effect such "changes or modifications" cannot be said to have fixed the amount of the lien for purposes of priority. Under this statutory scheme, the State's liens clearly were subject to "[n]umerous contingencies" of the sort described in Security Trust at the time the notice and demand letters were sent.

Indeed, the State characterizes its preliminary assessment as a complaint, and the final assessment as a judgment. (State of Alabama , Depart of Revenue's Brief in Opposition to the Motion for Partial Summary Judgment of the Internal Revenue Service at 6 and 9.) such characterizations support a finding that the State's notice and demand letter was nothing more than a first estimate of the Resslers' tax deficiency, subject to "changes or modifications" upon timely, valid objections by the Resslers. 7

(b) Were the liens summarily enforceable?

In United States v. Vermont [64-2 USTC 9520], 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964), the Supreme Court concluded that a state tax lien primed competing federal tax liens because it was "summarily enforceable" upon assessment and demand. Vermont [64-2 USTC 9520], 377 U.S. at 359 and n. 12, 84 S.Ct. at 1272-73 and n. 12 ("it is as true of Vermont's lien here as it was of the federal lien in New Britain that 'The assessment is given the force of a judgment, and if the amount assessed is not paid when due, admin istrative officials may seize the debtor's property to satisfy the debt' "). The State of Alabama glosses over this significant distinction by asserting that the summary enforceability of the Vermont lien "was not basic to [the Court's] decision." [State of Alabama , Department of Revenue's Brief in Opposition at 7.] Yet, the distinction is fundamental, because Alabama law--contrary to the State's assertion--does not permit summary enforcement of tax liens. Rather, the statute cited by the State permits enforcement only after the appeals period following a final assessment has expired, not before. See Alabama Code 40-23-23(a) ("If any person liable to pay any final assessment of tax neglects or refuses to pay the same or fails to appeal such final assessment within 30 days, it shall be lawful for the Commissioner to collect such tax [by] levy upon all property . . . belonging to such person") (emphasis supplied). Final assessment in this case occurred on January 20, 1994 . Thus, the state's power to summarily enforce its lien arrived 30 days later, six months too late to prime the federal liens.

In summary, Alabama 's tax liens were not perfected upon notice and demand for two reasons. First, the amounts of the liens were subject to revision upon timely objection by the Resslers, and thus were not fixed at the time notice and demand was sent. Second, Alabama tax authorities had no power to enforce liens against the Resslers until 30 days after the State had issued a final assessment of their tax liability, an event which occurred six months after federal taxes were assessed. Accordingly, Alabama 's liens were not "first in time" for purposes of priority over federal liens.

That determination does not end the court's inquiry, however, because there are limited statutory exceptions to the common law rule. The second question before the court is whether the State tax liens fall into one of the categories of liens enumerated it 26 U.S.C. 6323(a), which are exempt from the "first in time, first in right" rule.

B. Is the State a "judgment lien creditor"?

Title 26, United States Code, Section 6323(a) creates certain exceptions to the "first in time, first in right" rule of priority:

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

Under this provision, federal liens which have not yet been filed cannot prime certain non-federal liens. The State contends it is entitled to the protection of 6323 as a judgment lien creditor by virtue of either its final assessment on January 20, 1994 , or its notice of lien filed on February 11, 1994 . Both events occurred before the IRS recorded its liens in Cullman County Probate Court on May 13, 1994 . 8 Thus, this court must determine whether those acts were sufficient to bring the State's liens under 6323's protective wing. 9

Although the term, "judgment lien creditor," is not defined in the statute, the Supreme Court has interpreted it "in the usual, conventional sense of a judgment of a court of record. . . ." United States v. Gilbert Associates, Inc. [53-1 USTC 9291], 345 U.S. 361, 364, 73 S.Ct. 701, 703, 97 L.Ed. 1071 (1953). In Gilbert Associates, the Court considered "whether the Town of Walpole, New Hampshire, or the Federal Government has the prior right to a fund in the hands of a state court receiver of the respondent-taxpayer, an insolvent corporation." Gilbert Associates [53-1 USTC 9291], 345 U.S. at 362, 73 S.Ct. at 702. The Supreme Court of New Hampshire held that the town's assessments for ad valorem taxes, which preceded filing of the federal government's tax liens, were "in the nature of a judgment" under the law of New Hampshire, making the town a judgment creditor under 26 U.S.C. 3672; the predecessor statute to 6323. The United States Supreme Court reversed, holding that, although "[t]he state is free to give its own interpretation for the purpose of its own internal admin istration, . . . the meaning of a federal statute is for this Court to decide." Id. at 363, [53-1 USTC 9291], 73 S.Ct. at 703. The Court elaborated:

A cardinal principle of Congress in its tax scheme is uniformity, as far as may be. Therefore, a "judgment creditor" should have the same application in all the states. In this instance, we think Congress used the words "judgment creditor" in 3672 [now 6323] in the usual, conventional sense of a judgment of a court of record, since all states have such courts. We do not think Congress had in mind the action of taxing authorities who may be acting judicially as in New Hampshire and some other states, where the end result is something "in the nature of a judgment, while in other states the taxing authorities act quasi-judicially and are considered admin istrative bodies."

Id. at 364, [53-1 USTC 9291], 73 S.Ct. at 703-04. 10 Thus, the Court concluded that "whatever the tax proceedings of the Town of Walpole may amount to for the purpose of the State of New Hampshire, they were not such proceedings as resulted in making the Town a judgment creditor within the meaning of 3672 [now 6323]." Id. at 365, [53-1 USTC 9291], 73 S.Ct. at 704. This court finds that analysis persuasive in the present case.

The principle of "uniformity" would be undermined if each state could decide that its particular procedures for assessing and recovering past-due taxes rendered it a judgment lien creditor entitled to priority even without a conventional court judgment. That is essentially what the State of Alabama is asking this court to do--deny priority to federal liens which arose and were recorded before the State reduced its liens to judgment. Admittedly, the State issued its final assessment and recorded its liens before the IRS recorded its liens. The State did not, however, reduce its liens to judgment in a court of record before the IRS recorded its liens. Under the holding of Gilbert, such a judgment is necessary to garner the protection of 6323.

Accordingly, the State's reliance on State v. Woodroof, 46 So. 2d 553 ( Ala. 1950), and the Department of Revenue's view that a final assessment is "like a judgment," are unavailing. Neither the Alabama Supreme Court's nor the Department of Revenue's internal understanding of the nature of the State's tax recovery procedures is dispositive on this federal question, particularly in light of the Supreme Court's contrary holding in Gilbert Associates.

Additionally, United States Department of Treasury regulations interpreting the phrase, "judgment lien creditor," instruct that: "The term 'judgment' does not include the determination of a quasi-judicial body or of an individual acting in a quasi-judicial capacity such as the action of State taxing authorities." 26 C.F.R. 301.6323(h)-1(g). The Supreme Court has long recognized that an agency's interpretation of a statute it is charged with enforcing should be given "considerable weight," and should not be disturbed unless it appears from the statute or legislative history that Congress intended a different construction. Chevron U.S.A. , Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). No contrary intent is evident.

Although the State claims that the Supreme Court's decision in United States v. Speers [66-1 USTC 9101], 382 U.S. 266, 86 S.Ct. 411, 15 L.Ed.2d 314 (1965), raises doubts about the present validity of Gilbert Associates, this court disagrees. Speers simply is not applicable to the present case: it involved priority rights conferred by federal bankruptcy laws, not priority rights conferred based on a particular state's tax assessment procedures. Thus, as the Supreme Court recognized, Speers raised "no problem of evaluating widely differing state laws, . . . no possibility of unequal application of the federal tax laws, depending upon variances in the terms and phraseology of different state and local tax assessment statutes and judicial rulings thereon." Speers at 271, at 414. Rather, it involved "an unequivocal statement by Congress that [a trustee in bankruptcy] shall have 'all' the rights of a judgment lien creditor. . . ." Id. In the absence of any similar pronouncement by Congress or the Supreme Court with regard to state tax liens like those at issue in this case, the State of Alabama is not entitled to invoke the status of a judgment lien creditor to ward off the priority of federal tax liens.

Finally, the State suggests that a failed Congressional effort to clarify the phrase "judgment creditor" supports its rendering of the term. The proposed legislation purportedly would have made clear that 6323 does not protect those who "have not actually obtained a judgment in the conventional sense." From the failure of that legislation, the State seems to be suggesting that this court should infer that such a construction of the phrase was rejected by Congress. An equally valid inference, however, is that such a clarification was unnecessary given the clear holding of Gilbert Associates.

Although this court concedes that the State of Alabama may be the "sovereign more diligent," in the sense that it recorded its liens first, 6323 requires diligence of a specific sort: i.e., diligence in obtaining a judgment in a court of record. In that regard, the State's delay in obtaining such a judgment is fatal to its claim of priority.


Ressler claims a settlement was reached under which both the State of Alabama and the IRS agreed to release all tax liens against Ressler in exchange for his payment of $32,000. Such a scenario would permit Ressler to remove himself from the priority dispute between the State and the IRS. Yet, Ressler presents no evidence to support a finding that such a settlement exists.

The United States concedes that Ressler made a settlement offer, but the United States ' two written responses to that offer clearly, and in bold print, state: "Unless you receive a formal notice of acceptance from this office, the Department is in no way committed to a settlement." (Response of United States to Motion to Compel Settlement, Exhibits 1 and 2.) No such "formal notice of acceptance" is before the court. Thus, the court finds that no settlement agreement was reached, and Ressler's motion is due to be denied. 11


For the foregoing reasons, plaintiff's motion for partial summary judgment is due to be granted, and defendant Paul Ressler's notion to compel settlement is due to be denied. An order consistent with this memorandum opinion shall be entered contemporaneously herewith.


1 The State of Alabama does not stipulate to these dates for the 1992 tax year. See infra note 4 and accompanying text.

2 This date is disputed by the State of Alabama : see discussion at page 8-9 infra.

3 This date also is disputed by the State of Alabama : see discussion at page 8-9 infra.

4 The precise date on which the 1992 assessment occurred cannot be ascertained from the present record.

5 As already noted, for purposes of deciding this motion, the court assumes that the 1992 federal taxes were assessed after the state's notice and demand letter was mailed, consistent with the other tax years.

6 An accelerated procedure is permitted when the Department of Revenue makes a jeopardy determination, i.e., when the department believes the taxpayer is about to remove the subject property from state jurisdiction or otherwise take steps which would make recovery by the state impossible. See Alabama Code 40-29-91. No such jeopardy determination was made in this case.

7 The court notes that the amount of at least one of the assessments was, in fact, changed between the time of the preliminary assessment and final assessment. For example, the penalty amount of $543.17 recited in the preliminary assessment for 1991 was increased to $599.36 in the subsequent final assessment for that year. See Defendant State of Alabama 's Evidentiary Submission in Opposition, Exhibit 5 at 6-7.

8 See supra stipulation 8 at page 3.

9 The state obtained a judgment in the Probate Court of Cullman County, Alabama on December 16, 1994 , but that judgment came too late to prime the federal tax liens.

10 The Court noted one tax treatise's agreement that "assessments, though they may be enough like judgments to definitely establish a demand for taxes, are not technical judgments." Gilbert Associates [53-1 USTC 9291], 345 U.S. at 364 n.2, 73 S.Ct. at 704 n.2 .

11 The court recognizes Ressler's need to have the tax liens on his property released by impleading a sum of money ($32,000) into this court. The IRS has agreed to accept that sum as substituted collateral for its tax liens, but the State of Alabama apparently has not so agreed. In the absence of such an agreement, the court must deny Ressler's motion.



[82-2 USTC 9619]Max Pope, as Trustee under Trust Agreement dated December 31, 1977, Plaintiff v. Birmingham Trust National Bank, et al., Defendants

U. S. District Court, No. Dist. Ala. , So. Div., Civil Action No.: CV82-PT-0017-S, 8/13/82

[Code Sec. 6323]

Lien for taxes: Validity and priority against third parties: State Department of Industrial Relations.--Liens of the Alabama Department of Industrial Relations were judgment liens and were entitled to priority over unrecorded federal tax liens under Code Sec. 6323, which provides that unfiled tax liens are invalid against judgment lien creditors. The state department's lien became choate at the time the taxpayer-employer field reports with the state required by state law since the identity of the lienor, the property subject to the lien, and the amount of the lien were established at that time. The fact that the department did not comply with notice procedures required by state law to employers who failed to file such reports did not defeat its lien since those provisions were inapplicable to the present case in which the taxpayer-employer filed the returns but did not make payments. BACK REFERENCES: 82FED 5362.8001.

R. Clifford Fulford, 2326 Highland Avenue, Birmingham, Alabama 35205, for plaintiff, Michael G. Kendrick, Gorham, Waldrep, Stewart & Kendrick, 1507 City Federal Building, Birmingham, Alabama 35203, for Rob bie D. Wood (deft. interpleader), G. Guy Hayes, George Cocoris, J. R. Vaughan, Department of Industrial Relations, Montgomery, Alabama 36130, for Saint Ala. Dept. of Industrial Relations, Frank W. Donaldson, Frank S. James, III, Karl L. Keller, Department of Justice, Washington, D. C. 20530, John B. Harper, Internal Revenue Service, Birmingham, Ala. 35203, Rob ert S. More, Department of Interior, Knoxville, Tenn. 37901, for defendant, Earl V. Brown, Jr., Cooper, Mitch & Crawford, Birmingham, Alabama 35203, for United Mine Workers, W. W. Conwell, Raymond P. Fitzpatrick, Jr., Foster & Conwell, Birmingham, Alabama 35203, For B'ham. Trust Natl. Bank, Charles M. Thompson (Defendant in interpleader) 300 Vestavia Office Park, Birmingham , Alabama 35216 , pro se.

Memorandum Opinion

PROPST, District Judge:

This case is before the court upon Motions for Summary Judgment filed by the State of Alabama Department of Industrial Relations (ADIR) and by the United States of America . It is agreed by the said movants that no factual issues exist and that summary judgment can be granted with respect to the case.

None of the other defendants have opposed these motions or filed Motions for Summary Judgment with respect to their claims. The plaintiff in interpleader has, by letter dated May 18, 1982 , indicated that a decision on the undisputed facts would be appropriate and has assumed the risk of future legal action by parties later asserting a claim to the trust funds involved in this case.

Section 6321 of Title 26 of the United States Code provides for a lien in favor of the United States on all property and rights to property of a taxpayer who fails to pay taxes for which he is liable. That lien becomes effective on the date of assessment. In the instant case liens were assessed by the IRS against plaintiff on June 18, 1979 ; September 10, 1979 ; June 4, 1979 ; and March 19, 1979 . A notice of lien was filed on April 9, 1980 . ADIR recorded its Certificate of Lien on September 17, 1979 . The returns on which ADIR's lien is based were filed in May 1979 and August 1979.

The relative priority of a federal lien for unpaid taxes is a federal question. See United States v. Equitable Life Assurance Society [66-1 USTC 9444], 384 U. S. 323 (1966); United States v. Acri [55-1 USTC 9138], 348 U. S. 211 (1955). The courts look to state law to determine the nature of a party's interest in property subject to lien litigation. United States v. Bess [58-2 USTC 9595], 357 U. S. 51 (1958); United States v. Creamer Industries, Inc. [65-2 USTC 9527], 349 F. 2d 625 (5th Cir.), cert. denied, 382 U. S. 957 (1965). State law is applied to determine the existence and characteristics of the state lien. United States v. Truss Tite, Inc. [68-1 USTC 9296], 285 F. Supp. 88 (S. D. Tex. 1968).

Section 6323(a) of the Internal Revenue Code provides that an unfiled lien imposed pursuant to 26 U. S. C. 6321 is not valid against any purchaser, holder of a security interest, judgment lien creditor, or mechanic's lienor. ADIR contends that it is a holder of a security interest and is protected by 6323(a). This court finds that the interest held by ADIR does not constitute a security interest for the purposes of 6323(a). A "security interest" is defined in 6323(h) as:

[A]ny interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability.

Although 6323(h) defines "security interest," "mechanic's lienor" and "purchaser," it does not define "judgment lien creditor." As indicated, state law is looked to in order to determine the existence and character of the state lien. Alabama Code 25-4-134(a) (1975) provides as follows:

The contributions, interest and penalties required to be paid under this chapter shall be a first and prior lien upon all property and rights to property, real or personal, of any employer subject to this chapter. The lien shall arise at the time the contribution report, or the payment of the contributions, as the case may be, was due to have been filed with or made to the department of industrial relations. The director may file in the office of the judge of probate of any county in this state a certificate which shall show the name of the department for which it is filed, the amount and nature of the contributions, interest and penalties for which a lien is claimed together with any costs that may have accrued, the name of the employer against whose property a lien for such contributions, interest and penalties is claimed and the date thereof. An error in the certificate of the amount shall not invalidate the lien for the amount actually due. Such certificates shall be indexed and recorded under the same provision of law in this state relating to the filing and recording of certificates of judgment and without costs; provided, however, that such lien shall be effective as to purchasers, mortgagees and judgment creditors only from the time a certificate shall have been duly filed for record in the office of the judge of probate in the county wherein is located the property to be subjected to such lien.

(Emphasis added.) Alabama Code 25-4-134(b)(5) provides:

Whenever any contributions, interest and penalties required to be paid under this chapter are not paid within 30 days of the date due and upon final assessment in any of the manners provided in this section, the director is authorized to issue an execution therefor directed to any sheriff of the state of Alabama, commanding him to levy upon and sell the real and personal property of the employer against whom such execution is directed, found in his county, for the payment of contributions and interest due, together with penalties assessed. The sheriff shall, within five days after the receipt thereof, file with the clerk of the circuit court of his county a copy thereof and thereupon the circuit clerk shall enter in the judgment roll in the column of judgment debtors the name of the employer named in the execution, the amount of contributions, interest and penalties for which the execution is issued and the date when such copy is filed. The sheriff shall thereupon levy upon any property of the employer with like effect and in the manner prescribed by law in respect to executions issued upon judgments of the circuit court and the remedies of attachment and garnishment shall apply fully to such executions and the officer shall be entitled to the same fees for his services as now allowed by law for like services, to be collected in the same manner as now provided by law for like services.

(Emphasis added.) The court deems that, under Alabama law, liens such as are claimed by ADIR are treated as judgment liens and are entitled to be so treated under 6323.

Assuming that ADIR, under 25-4-134, becomes a "judgment lien creditor" at some time, the court is not persuaded by the argument of the United States that ADIR's lien would not become choate until the notice procedures of 25-4-134(c)(2)(a) are followed.

Alabama Code 25-4-134(c)(1)a. provides:

If an employer fails to make and file with the department any report as and when required by the terms and provisions of this chapter or by any rule and regulation of the director for the purpose of determining the amount of contributions due by said employer, under this chapter, the director may issue a written notice by registered or certified mail to such employer, addressed to his last known address or place of business, to make such report or reports forthwith, and if such employer fails or refuses to make such report within 15 days from the date of such notice, then the director shall make a report for such employer upon such information as he may reasonably obtain, and shall assess the contributions and penalties due thereon and interest at the rate of one percent per month, or fraction thereof, from the date such contributions were due.

(Emphasis added.) Alabama Code 25-4-134(c)(1)b. (1975) provides:

If an employer who has made and filed with the department any report required and such report is signed by the employer or his duly authorized representative but he has not paid, or has not paid in the correct amount, any contribution due within 30 days from the date due, then the director shall assess the correct amount of contributions due to be paid, along with penalties due thereon and interest at the rate of one percent per month, or fraction thereof, from the date such contributions were due, without any further notice or hearing as is provided for in subdivision (2) of this subsection (c) and such assessment shall be final unless an appeal is taken as is provided in subdivision (3) of this subsection (c).

(Emphasis added.)

The court does not deem the notice provisions of 25-4-134(c)(2) to be applicable to this case where the employer filed the returns, but did not make payment. 1 Thus, applying the federal rule that a lien is choate when the identity of the lienor, the property subject to the lien, and the amount of the lien are established, see United States v. Pioneer American Insurance Co. [63-2 USTC 9532], 374 U. S. 84, 89, 83 S. Ct. 1651, 10 L. Ed. 2d 770 (1963); and Rice Investment Company v. United States [80-2 USTC 9654], 625 F. 2d 565, 568 (5th Cir. 1980), the court concludes that the state lien was perfected when the employer made and filed the report with the Department of Industrial Relations under 25-4-134(c)(1)b. In light of the federal rule governing priorities of liens, "first in time is the first in right," United States v. Equitable Life Assurance Society of the United States [66-1 USTC 9444], 384 U. S. 323, 327, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966), the court ultimately concludes that the lien of ADIR is prior to that of the United States.

Within five days after the entry of this memorandum opinion, the United States shall submit to the court and ADIR a proposed judgment in accordance with this Memorandum Opinion. ADIR will file objections thereto, if any, within five days after service. Thereafter, the court will enter the judgment.

Consent Judgment

It is ORDERED, ADJUDGED, and DECREED that the Defendant and Counterclaimant State of Alabama Department of Industrial Relations have and recover of the interpleaded funds the sum of $9,264.50 which includes unpaid unemployment taxes of $6,339.50, interest of $2,561.05, and penalties of $633.95 less a deduction of $270.00 for court filing fees and expenses of certified mail service paid by Plaintiff.

It is further ORDERED, ADJUDGED, and DECREED that the Defendant and Counterclaimant United States of America have and recover all other funds interpled in this action including interest accruing since the filing of the action.

It is further ORDERED that payment of the proceeds of this judgment shall be made directly to the attorneys of record for the above-named Defendants and Counterclaimants and that upon receipt thereof such attorneys shall satisfy this judgment on the records of this Court.

It is finally ORDERED, for good cause shown, that the Memorandum Opinion entered in this cause on August 16, 1982 is WITHDRAWN and held for nought.

Done this the 8th day of September, 1982.

1 The language of 25-4-134 in the cumulative supplement is different from that in the original volume. The court has not attempted to determine which language is applicable to the time of this case. The United States has apparently referred to the language in the supplement. In any event, the court does not discern a distinction which makes a difference in its analysis.



[62-2 USTC 9556] United States of America , Intervenor v. Mary F. Costas, A. Costas, et al.

Alabama Supreme Court, 6 Div. 739, 142 SO2d 699, 6/14/62

[1954 Code Sec. 6323(a)]

Lien for taxes: Priorities: Mechanics' and materialmen's liens: State income taxes: Attorney's fee.--A lien for federal income taxes which were assessed before mechanics' and materialmen's liens were reduced to judgment had priority over the latter liens, which remained inchoate under the applicable Alabama law until prosecuted to final judgment. The federal lien also had priority over a lien for state income taxes, the assessment of which became final after the assessment of the federal taxes. The federal lien was, however, subordinate to the lien of the attorney who had represented the taxpayer in proceedings to partition the property against which the liens were asserted, since, under Alabama law, attorneys' fees in partition proceedings are taxed as a part of the cost of the proceedings.

W. L. Longshore, United States Attorney, R. Macey Taylor, Assistant United States Attorney, Birmingham , Ala. , for intervenor. Murray A. Battles, James F. Berry, St. John & St. John, Bland & White, John H. Chapman, Cullman, Ala., MacDonald Gallion, Attorney General, Montgomery, Ala., for Costas et al.

SIMPSON, Justice:

Mary F. Costas and A. Costas were tenants in common of the suit property, a house and lot in Cullman , Alabama . Mary F. Costas filed a bill in equity against A. Costas for a sale of the property for division, which contained the usual prayer that her solicitor be allowed a reasonable solicitor's fee from the proceeds of the sale.

The bill was later amended alleging that certain firms and individuals claimed liens for labor and materials in connection with improvements on the property, listing the names of these firms and individuals, and the amounts claimed and making them parties respondent. The bill was later amended to make the United States and the State of Alabama parties, alleging that these last two parties claimed liens for unpaid income taxes. The bill as amended also alleged that Home Improvement Co. had a conditional sales contract on certain equipment installed in the house and that there was a prior lien for taxes in favor of the City of Cullman and Cullman County , Alabama .

The United States intervened and alleged in its petition that it had a lien already assessed and final through the Internal Revenue Service and that this lien was superior to all other liens. The State of Alabama also intervened asserting its lien.

[Priority of Liens]

The property was sold at private sale but did not bring enough to pay all claims. After the coming in of the register's report the trial court ordered to be first paid: A solicitor's fee to the complainant's solicitor, the other court costs, the claim of Home Improvement Co., the tax liens of the City of Cullman and Cullman County , recognizing these claims as prior to all other liens.

The decree of the court further ordered that all other liens or claims, including that of the United States , be paid pro rata from the balance of the proceeds of the sale.

The United States brings the appeal. The other respondents were served with notice of the appeal through their attorneys of record but no briefs have been filed to support the action of the trial court in ordering proration. The deduction and payment from the sale price of the property of the actual court costs, the claim of Home Improvement Co., and the claims of the City of Cullman and the County of Cullman for prior tax liens is not controverted by appellant on this appeal. Appellant does, however, contest the proration of the balance of the money among the various mechanics and materialmen, the awarding of a solicitor's fee to complainant's solicitor and allowing any proration to the State of Alabama .

[Mechanics' Liens Not Reduced to Judgment]

The contention of appellant is that since no judgments were rendered in favor of the mechanics and materialmen and because the State's income tax assessment was made final after the date of the jeopardy assessment of the United States became final, the lien of the United States is prior to these claims. We are in accord with this insistence, but think the contest of the payment of the solicitor's fee is untenable.

Appellant in brief states the two questions to be decided:

"1. Does a tax lien in favor of the United States have a priority over a materialman's or labor lien which has not been perfected to the extent of being reduced to judgment.

"2. Does the Court, in the absence of the consent of parties, have the authority to prorate the claims of lien-claimants which are mutually exclusive."

Inasmuch as the first question is answered in the affirmative, consideration of the second question will be pretermitted.

None of the mechanics' or materialmen's liens were ever reduced to judgment when the jeopardy assessment for income taxes due the United States was made. A lien for taxes due the United States is perfected on the date the taxes are assessed.--Title 26, 6321, U. S. C.; Title 26, 6322, U. S. C.; Title 26, 6323(a), U. S. C.; United States v. City of New Britain [54-1 USTC 9191], 347 U. S. 81.

The effect of a State statutory lien in relation to a Federal tax lien is a Federal question and the determination of this relationship is controlled by the United States Code and applicable decisions of the Federal courts.--United States v. Security Trust & Savings Bank [50-2 USTC 9492], 340 U. S. 47.

[Mechanics' Lien Not Perfected]

A lien for labor or material furnished, under Alabama law, is not perfected until every requirement of the statutes creating such lien has been complied with.--Title 33, 37, et seq., Code of Alabama, 1940; Brewton, et al. v. L. F. Sessions, 264 Ala. 123, 84 So. 2d 763; Cray v. McKinley, 34 Ala. App. 630, 43 So. 2d 421, cert. den. 253 Ala. 199; Richards v. Williams Beach Hardware Co., 242 Ala. 535, 7 So. 2d 492; Taylor v. Shaw, 256 Ala. 467, 55 So. 2d 502; Sorsby, et al. v. Woodlawn Lumber Co., 202 Ala. 566, 81 So. 68; Emanuel, et al. v. Underwood Coal & Supply Co., 244 Ala. 436, 14 So. 2d 151; Snellings Lumber Co. v. Porter, 225 Ala. 164, 142 So. 560.

A materialman's or mechanic's lien created by Title 33, 37, et seq., Code of Ala. 1940, remains inchoate and loses all force and vitality unless suit is brought and prosecuted to final judgment.--Young & Co. v. Stoutz & Co., 74 Ala. 574; Eggleston v. Birmingham Purchasing Co., 15 F. 2d 529.

Such statutory lien created by Title 33, 37, et seq., Code of Alabama, 1940, is inchoate and unperfected while it is contingent upon taking subsequent steps for enforcing it, and this inchoate state lien cannot take priority over the subsequent Federal tax lien.--United States v. Security Trust & Savings Bank [50-2 USTC 9492], 340 U. S. 47; United States v. Acri [55-1 USTC 9138], 348 U. S. 211; United States v. Liverpool & London Insurance Co. [55-1 USTC 9136], 348 U. S. 215; United States v. Scovil [55-1 USTC 9137], 348 U. S. 218; United States v. Ball Construction Co. [58-1 USTC 9327], 355 U. S. 587; United States v. Colatta, 350 U. S. 808, reversing 79 So. 2d 474; United States v. White Bear Brewing Co. [56-1 USTC 9440], 350 U. S. 1010, reversing [55-2 USTC 9776] 227 F. 2d 359; United States v. Vorreiter [57-2 USTC 9956], 355 U. S. 15, reversing [57-1 USTC 9415] 307 P. 2d 475; United States v. Hulley [58-2 USTC 9926], 358 U. S. 66, reversing 102 So. 2d 599.

[State Tax Lien Subordinate]

And of course, the State's tax assessment, having become final after that of the United States , its lien is subordinate to that of the latter.

[Priority of Attorney's Fee]

The argument that the decree was in error in allowing a solicitor's fee for the complainant to be taxed as a part of the costs of the proceeding is clearly without merit. Appellant cites in support of its contention United States v. Liverpool & London Insurance Co., supra, construing a Texas statute which provided for the allowance of attorney's fee in certain garnishment proceedings where the United States Supreme Court disallowed such fee. The situation here is quite different. Solicitor's fees in partition proceedings in Alabama are provided for by Code of Ala. 1940, Title 46, 63, and are taxed as a part of the cost of the proceeding, the theory being that, since the services of the solicitor are for the common benefit of all parties, the trust fund created by the sale of the property must bear this expense.--Troy Bank & Trust Co. v. Brantley, 263 Ala. 428, 82 So. 2d 618, and authorities therein cited.

It results from the foregoing that the decree of the lower court must be reversed, and it is here ordered that the trial court decree the United States of America to be a prior and superior lien-holder to all the parties claiming mechanics' and materialmen's liens and also prior to the tax lien of the State of Alabama and to make distribution of the remainder of the trust fund accordingly.

The decree of the lower court awarding solicitor's fee to complainant's solicitor, and the other court costs, the allowance made to Home Improvement Co. under its conditional sales contract, and the City of Cullman and County of Cullman for taxes is affirmed.

Affirmed in part and in part reversed and remanded.

LIVINGSTON, C. Judge, MERRILL and HARWOOD, Judges, concur.

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