Washington2

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[2002-2 USTC ¶50,560] United States of America , Plaintiff v. Stephen C. Burdine, et al., Defendants

U.S. District Court, West. Dist. Wash. , Tacoma Div., C01-5286RJB, 4/3/2002 , 2002 U.S. Dist. LEXIS 12058.

[Code Sec. 6203 ]

Assessments, validity of: Evidence: Form 4340: Presumption of correctness.--The government was entitled to foreclose on a married couple's property because Forms 4340 were presumptive proof that the taxes at issue were duly assessed and recorded, and that adequate notice and demand had been made. The taxpayers' contention that the forms were unreliable and could not be verified by an audit trail of supporting documents was rejected. Documents they submitted did not show errors in their accounts. In addition, they failed to show any existing or potential problems with the master file system used to record the assessments, or how the absence of such a system rebutted the presumption of correctness of the Forms 4340.
[Code Secs. 6212 and 6321 ]

Liens and levies: Creation of lien: Notice of deficiency: Necessity of notice: Self-reported liability: Employment taxes.--Liens against a married couple who failed or refused to pay income and employment taxes properly arose on the date of assessment and attached to the taxpayers' residence. The taxpayers' contention that the liens were invalid because the IRS failed to issue a notice of deficiency prior to filing them was rejected. The IRS was not required to issue a notice of deficiency because the income taxes at issue were based on amounts voluntarily reported and because employment taxes are not subject to the Code Sec. 6212 deficiency procedures.

[Code Sec. 6323 ]

Priority of liens: Deed of trust.--Valid federal tax liens that attached to a married couple's residence were junior in priority to a deed of trust in favor of the taxpayers' mortgage company because the deed was recorded before the government recorded its notices of lien.
[Code Sec. 6323 ]

Priority of liens: Judgment creditors.--Valid federal tax liens that attached to a married couple's residence were superior in priority to judgment liens against the property that were held by two entities because the tax liens were recorded prior to those judgments.
[Code Sec. 6323 ]

Priority of liens: State property taxes.--Valid federal tax liens that attached to a married couple's residence were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments.

[Code Sec. 7403 ]

Liens and levies: Action to enforce lien: Foreclosure: Priority of liens.--The government was entitled to foreclose on property belonging to a married couple who failed or refused to pay income and employment taxes that they voluntarily reported for three tax years. Valid federal tax liens attached to the property were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments. The liens were also junior to a deed of trust in favor of their mortgage company because the deed was recorded before the government recorded its notices of lien. However, the federal tax liens were superior to judgment liens against the property because the tax liens were recorded prior to those judgments.

W. Carl Hankla, Jeremy N. Hendon, Department of Justice, Washington, D.C. 20530, for plaintiff. Stephen C. Burdine, Michelle S. Burdine, Tacoma , Wash. , pro se.

ORDER GRANTING UNITED STATES' MOTION FOR SUMMARY JUDGMENT

BRYAN, District Judge:

This matter comes before the court on the United States ' Motion for Summary Judgment. Dkt. 31. The court has considered the pleadings filed in support of and in opposition to the motion and the file herein.

A. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only 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 and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim in the case on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1985). There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a rational trier of fact to find for the non moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L.Ed.2d 538, 106 S.Ct. 1348 (1986) (nonmoving party must present specific, significant probative evidence, not simply "some metaphysical doubt."). See also Fed.R.Civ.P. 56(e). Conversely, a genuine dispute over a material fact exists if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); T.W. Elec. Service Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987).

The determination of the existence of a material fact is often a close question. The court must consider the substantive evidentiary burden that the nonmoving party must meet at trial--e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254, T.W. Elect. Service Inc., 809 F.2d at 630. The court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elect. Service Inc., 809 F.2d at 630 (relying on Anderson , supra). Conclusory, non specific statements in affidavits are not sufficient, and "missing facts" will not be "presumed." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89, 111 L.Ed.2d 695, 110 S.Ct. 3177 (1990).

B. PROCEDURAL AND FACTUAL BACKGROUND

Stephen C. Burdine and Michelle S. Burdine (The Burdines) have been married continuously since at least January 1, 1990 . The Burdines currently reside at 4506 Country Club Dr. N.E. , Tacoma Washington 98422 (The Property). The Burdines acquired the property on or about July 30, 1999 . They gave a deed of trust on the property to WMC Mortgage Corporation to finance the purchase, which WMC subsequently assigned to Nations Credit Home Equity Services Corporation. Bishop, Lynch & White, P.S. is the trustee under that deed of trust.

During 1990, Mr. Burdine operated a sole proprietorship business under the name "Burdine & Associates." He filed Form 941 federal employment tax returns for the second, third and fourth quarters of 1990, but did not pay the tax due on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self reported employment tax liabilities assessed against the Burdines was $15,954.69, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The Burdines filed federal Form 1040 income tax returns for their 1992 and 1993 tax years. They did not pay the tax reported on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self-reported income tax liabilities assessed against the Burdines was $33,910.16, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The United States contends that the total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

C. MOTION FOR SUMMARY JUDGMENT

The United States filed this action to (1) reduce federal tax assessments against the Burdines to judgment; and (2) foreclose tax liens against their residence property. The United States contends that the assessments are presumptively correct, and the priority of the federal tax liens against the Property is undisputed.

The Burdines oppose the motion for summary judgment, contending that (1) they did not receive a statutory notice of deficiency; (2) the absence of a Non-Master File account in their transcripts raises an issue for trial; (3) the Forms 4340 are unreliable; and (4) the Forms 4340 cannot be verified by an audit trail of supporting documents. Dkt. 36.

D. ISSUES

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

E. DISCUSSION

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

Included in the record are Form 4340 Certificates of Assessments and Payments, which substantiate the Burdines' tax liabilities. Dkt. 32, Exh. G, H, I, L, and M. Generated under seal and signed by an authorized delegate of the Secretary of the Treasury, Forms 4340 are admissible into evidence as self-authenticating official records of the United States, and these documents carry a presumption of correctness. Rossi v. United States , 755 F.Supp. 314, 318 (D.Or. 1990); Fed.R.Civ.P. 803(8) and 902(1). The "23-c" entries on the Form 4340 show that the taxes at issue were duly assessed and recorded. United States v. Chila [89-1 USTC ¶9299 ], 871 F.2d 1015, 1017 (11th Cir. 1989); Rossi, 755 F.Supp. at 318. The "Notice" entries on the Form constitute proof that adequate notice and demand was made. United States v. Lorson Electric Co., Inc. [73-1 USTC ¶9449 ], 480 F.2d 554, 555-56 (2d Cir. 1973).

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 941 employment tax liabilities due from Stephen C. Burdine and the marital community of Stephen C. Burdine and Michelle S. Burdine was $14,954.69. Dkt. 32 and 33.

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 1040 income tax liabilities due from Stephen C. Burdine and Michelle S. Burdine was $33,910.16. Dkt. 32 and 33.

The total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

The Burdines contend that the Forms 4340 are unreliable, and that these forms cannot be verified by an audit trail of supporting documents. These arguments are without merit. The FOIA documents submitted by the Burdines do not show any errors in their accounts; and the Burdines have not shown any existing or potential problems with the Master File system used to record assessments of income or employment taxes against taxpayers such as the Burdines. The Burdines also argue that the absence of a "Non-Master File" account raises an issue of fact for trial. A Non-Master File is a manual accounting system controlling certain types of returns that are not processed through the general IRS computer system to the Master File. Non-Master File assessments are relatively uncommon. IRM 35.13.10.3. The Burdines have not shown how the absence of a Non-Master File rebuts the presumption of correctness of the Forms 4340.

The Burdines are indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties.

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

Under IRC §6321, the United States obtains a lien "upon all property and rights to property, whether real or personal, belonging to" any taxpayer who neglects or refuses to pay taxes after notice and demand. This lien arises as of the date of assessment and continues until the tax liability is extinguished. 26 U.S.C. §6322. It thus attaches to property acquired after the date of assessment but before the tax liability is extinguished. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267, 90 L.Ed. 56, 66 S.Ct. 108 (1945) (tax lien effective as against after-acquired property). It is effective as against the taxpayer without the filing of a notice of lien. See 26 U.S.C. §6323(a). It is effective as against third parties entitled to notice upon the filing of a notice of lien. 26 U.S.C. §6323(a), (f).

Federal tax assessments have been made against the Burdines, and they have failed to pay them after notice and demand. Statutory tax liens arose as of the dates of the assessments and attached to all of their property and rights to property then owned or after-acquired, including community property such as the Property. See Hyde v. United States [93-2 USTC ¶50,605] , 1993-2 U.S.T.C. P 50,605 (D.Ariz. 1993) (federal tax assessment against husband was community debt).

The United States has valid and subsisting liens on all property and rights to property of the Burdines, including the Property.

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

IRC §7403 provides authority for the court to order a judicial sale to satisfy unpaid tax liabilities, as follows:

In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability.

All parties having liens upon or claiming any interest in the property involved in this action have been named as defendants to this action, as is required by 26 U.S.C. §7403(b), including the beneficiary of the purchase money deed of trust, the trustee under that deed of trust, the local taxing authority, and several judgment creditors. Nations Credit Home Equity Services Corporation and Bishop, Lynch & White were named as defendants solely because they have interests of record in the Property. They and defendant Pierce County were dismissed without prejudice pursuant to stipulations with the United States approved by the court on January 25, 2002 . Dkt. 30. The other defendants to this action, R.J. Coyer, Southern Washington Collection Bureau, Inc. and Lease & Industrial Collectors, Inc. were named as parties because their judgments against the Burdines may constitute liens on the Property; the court entered an order of default against these defendants on January 18, 2002 . Dkt. 29. The Burdines appear to have discharged their debt to Lease & Industrial Collectors, Inc. in a Chapter 7 bankruptcy case filed in August 1992. Dkt. 32, Exh. 20-22.

Under 26 U.S.C. §7403(c),

The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of a court in respect to the interests of the parties and of the United States.

See United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 76 L.Ed.2d 236, 103 S.Ct. 2132 (1983) (family home sold under section 7403 to satisfy tax liens arising from husband's tax liability).

The Burdines contend that they did not receive proper notice because they did not receive a statutory notice of a deficiency. This argument is without merit. The income taxes at issue were based on amounts voluntarily reported by the Burdines on Forms 1040. The employment taxes at issue are not subject to the deficiency procedures of 26 U.S.C. §6212(a).

In summary, the record shows that the Burdines have refused or neglected to pay federal tax liabilities. Liens for taxes have arisen against all of their property and rights to property, including the Property. The tax liens against the Property should be foreclosed. Those liens are junior in priority to any lien in favor of Pierce County for unpaid property taxes and special assessments. See 26 U.S.C. §6323(b)(6). They are also junior to the deed of trust in favor of Nations Credit Home Equity Services Corporation, since that deed of trust was recorded before the IRS recorded its notices of federal tax lien with the Auditor's office in Tacoma . See Dkt. 25 and 30. The government's tax liens are superior to the judgment liens against the Property held by R.J. Coyer and southern Washington Collection Bureau, d/b/a Pioneer Credit Company, because the notices of federal tax lien were recorded prior to the judgments. Dkt. 32, PP 16-18; 22-23. As between the two judgment liens, R.J. Coyer's is superior. Id. at PP 22-23.

Accordingly, the court should order a judicial sale of the Property, subject to the deed of trust in favor of Nations Credit Home Equity Services Corporation, with the proceeds to be distributed (1) to the U.S. Marshals Service for allowed costs of sale; (2) to Pierce County, for any real property taxes or special assessments constituting a lien having priority under 26 U.S.C. §6323(b)(6) as of the date of sale; (3) to the United States, to be applied toward the unpaid tax liabilities of the Burdines until those liabilities, including all accruals, are satisfied or the funds are exhausted; (4) if any excess funds remain after the subject liabilities are satisfied in full, to R.J. Coyer on account of his judgment lien; (5) if any excess funds remain after R.J. Coyer's judgment lien is satisfied, to Southern Washington Collection Bureau, d/b/a Pioneer Credit Company on account of its judgment lien; and (6) if any excess funds remain thereafter, to the Burdines.

Therefore, it is hereby

ORDERED that the United States ' Motion for Summary Judgment (Dkt. 31) is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.85, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States ' liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States is ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

The Clerk is directed to send uncertified copies of this Order to all counsel of record and to any party appearing pro se at said party's last known address.

JUDGMENT IN A CIVIL CASE

Decision by Court. This action came under consideration before the Court. The issues have been considered and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that the United States ' Motion for Summary Judgment is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.86, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above-described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States' Liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a/ Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States if ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

 

 

[56-1 USTC ¶9488]Louise Weitz, Respondent v. Electrovation, Inc., et al., Defendants, The State of Washington, Respondent, The United States of America, Appellant

In the Washington Supreme Court, No. 33498. Department Two, 295 P2d 728, April 5, 1956

Appeal from a judgment of the Superior Court for Spokane County , No. 135868.

[1939 Code Sec. 3672--corresponding to 1954 Code Sec. 6323]

Priority of federal tax lien.--The federal government's liens for withholding tax, Federal insurance contributions, and federal unemployment tax became effective at various dates between July 31, 1950 , and January 8, 1951 , the dates the assessment lists were received by the collector of internal revenue. The proceeds of a foreclosure sale were subject to the following liens in addition to those of the federal government: county real estate taxes, state department of labor and industries, mortgagee, state employment security department, and state tax commission. It is held that the liens for county real estate taxes, that of the state department of labor and industries for workmen's compensation premiums (which arose when work was begun on January 1, 1950 ), and the mortgage judgment had priority over the federal government's tax lien. The tax lien of the federal government had priority over the liens of the state employment security department and the state commission.

William B. Bantz, William M. Tugman, and Dale M. Green, for appellant. Cameron Sherwood for respondent Weitz. The Attorney General and James J. Krinbring, Assistant, for respondent state of Washington .

[Priority of Liens]

ROSELLINI, Judge:

This appeal involves a dispute between the United States and the state of Washington as to the priorities of their respective liens against the proceeds of a mortgage and lien-foreclosure sale of a parcel of real estate located in Spokane county, belonging to the defendant Electrovation, Inc. It is before us on an agreed statement of facts, which reveals that the Federal government's liens for withholding tax, Federal insurance contributions, and Federal unemployment tax became effective at various dates between July 31, 1950 , and January 8, 1951 , the dates the assessment lists were received by the collector of internal revenue. These liens were all recorded on December 12, 1951 , with the auditor of Spokane county.

It appears from the statement of facts that the liens of the state tax commission were filed with the county clerk on April 13, 1950, and April 19, 1951; the lien of the department of labor and industries was filed with the county auditor on November 8, 1951, and the lien of the employment security department was filed with the county auditor on October 23, 1950. The work for which the workmen's compensation premiums were incurred commenced on January 1, 1950 . Under the view we take of the case, it is unnecessary to set forth here the amounts of the various liens and the exact dates on which they attached or were recorded.

In providing for the distribution of the proceeds of the foreclosure sale, which amounted to $7,500, the trial court gave the following priorities:

(1) Lien of Spokane county for real-estate taxes, in the sum of $643.15, with interest at eight per cent per annum from April 1, 1954 ;

(2) Lien of state department of labor and industries, in the amount of $910.94, with interest thereon at the legal rate from November 8, 1951 , until paid, together with costs and disbursements;

(3) Mortgage of the plaintiff, Louise Weitz, in the principal sum of $3,000, with interest in the sum of $1,312.50 to April 30, 1955, with interest at seven per cent per annum on the principal from that date until paid; reasonable attorney's fees, $650; and costs and disbursements taxed in the sum of $114.65;

(4) Lien of the state employment security department, in the amount of $1,083.78, together with interest from September 1, 1952 , at the rate of one per cent per month until paid;

(5) Lien of the state tax commission in the amount of $3,662.18, with interest at one per cent per month from September 1, 1952 , until paid:

(6) Lien of the United States of America in the amount of $4,107.03, with interest at six per cent per annum from December 12, 1951, until paid, and costs in the amount of $20.

It is conceded by the appellant and the respondent that the county taxes should be paid first, and we do not inquire into the propriety of that determination.

The appellant, the United States, contends that, on the date the assessment rolls are received by the collector, the lien of the United States for taxes becomes effective (1) against all subsequent liens other than those of a mortgagee, pledgee, purchaser, or judgment creditor perfecting his lien before the lien of the United States is recorded, and (2) against all prior liens which have not been perfected. Appellant further contends that none of the liens of the state were perfected either prior to the date the assessment rolls were received or prior to the date the liens of the United States were recorded, and that, consequently, all of the claims of the United States should be satisfied before those of the state.

[Study of the Several Statutes]

It is the contention of the respondent state of Washington that (1) the lien of the employment security department was perfected by the filing of the lien in the office of the county auditor of Spokane county on October 23, 1950, and the lien of the department of labor and industries was perfected by the filing of the lien in the office of the county auditor on November 8, 1951; and (2) these liens having been perfected prior to the date the Federal lien was perfected (December 12, 1951), the rule of "first in time, first in right" requires that they be given priority. The respondent makes no argument in support of the priority given by the superior court to the claim of the tax commission.

The lien of the United States is claimed under the following provisions of Title 26, U. S. C. 1946 ed.:

§3670. "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." (53 Stat. 448.)

§3671. "Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time. (53 Stat. 449.)

§3672. "Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector . . . in the office in which the filing of such notice is authorized by . . . law . . ."

The lien statute created for the employment security department is found in RCW 50.24.050, the pertinent portions of which read:

"The claim of the unemployment compensation division for any contributions, including interest thereon, not paid when due, shall be a lien prior to all other liens or claims and on a parity with prior tax liens against property of the employer. In order to avail itself of the lien hereby created, the unemployment compensation division shall file with the county auditor of the county in which such property is located a statement in writing describing in general terms the specific property upon which the lien is claimed and stating the amount of the lien claimed by the division."

The lien statute created for the department of labor and industries is found in RCW 51.16.170, which provides inter alia:

"The lien created by this section shall attach from the date of the commencement of the labor upon such property for which such premiums are due. In order to avail itself of the lien hereby created, the department shall, within four months after the employer has made report of his payroll and has defaulted in the payment of his premiums thereupon, file with the county auditor of the county within which such property is then situated, a statement in writing describing in general terms the property upon which a lien is claimed and stating the amount of the lien claimed by the department. If any employer fails or refuses to make report of his payroll, the lien hereby created shall continue in full force and effect, although the amount thereof is undetermined and the four months' time within which the department shall file its claim of lien shall not begin to run until the actual receipt by the department of such payroll report. From and after the filing of such claim of lien, the department shall be entitled to commence suit to cause such lien to be foreclosed in the manner provided by law for the foreclosure of other liens on real or personal property, and in such suit the certificate of the department stating the date of the actual receipt by the department of such payroll report shall be prima facie evidence of such fact."

The lien statute of the tax commission is found in RCW 82.32.210-.220, the pertinent portions of which are as follows:

RCW 82.32.210. "If any tax, increase, or penalty or any portion thereof is not paid within fifteen days after it becomes due, the tax commission may issue a warrant under its official seal directed to the sheriff of any county of the state, commanding him to levy upon and sell the real and/or personal property of the taxpayer found within his county, or so much thereof as may be necessary, for the payment of the amount of such warrant, together with interest thereon."

RCW 82.32.220. "The sheriff shall file with the clerk of the superior court of his county a copy of the warrant, and thereupon the clerk shall enter in the judgment docket, the name of the taxpayer mentioned in the warrant and in appropriate columns the amount of the tax or portion thereof and any increases and penalties for which the warrant is issued and the date when such copy is filed, and thereupon the amount of such warrant so docketed shall become a specific lien upon all goods, wares, merchandise, fixtures, equipment, or other personal property used in the conduct of the business of the taxpayer against whom such warrant is issued. . . . The amount of such warrant so docketed shall thereupon also become a lien upon the title to and interest in all other real and personal property of the taxpayer against whom it is issued the same as a judgment in a civil case duly docketed in the office of such clerk, and the sheriff shall thereupon proceed upon the same in all respects and with like effect as prescribed by law with respect to execution or other process issued against rights or property upon judgments of the superior court. Such warrants so docketed shall be sufficient to support the issuance of writs of garnishment in favor of the state in the manner provided by law in the case of judgments wholly or partially unsatisfied."

The provisions of RCW 82.32.210-.220 quoted above are substantially the same as those contained in chapter 180, Laws of 1935, §202, p. 839, as amended by chapter 227, Laws of 1937, §20, p. 1162, which were construed by this court in Spokane Merchants' Ass'n v. State, 15 Wn. (2d) 186, 130 P. (2d) 373 (1942), a case dealing with priority of liens upon the property of an insolvent debtor. We held that the lien which the state acquires upon the property of a taxpayer for unpaid occupation taxes through the filing of warrants is only an inchoate, general lien, which can become specific only by distraint or levy of execution; and where the state took no steps to make its lien specific until it laid claim to the proceeds from the sale of the taxpayers' assets, the lien did not operate to defeat the priority right of the United States under 31 U. S. C., §191, which gives the debts due the United States priority over other debts of an insolvent. The Federal courts had previously held that the claims of the United States were inferior to those of a mortgagee (Conard v. Atlantic Ins. Co., 1 Peters (26 U. S.) 386, 7 L. Ed. 189), but superior to those of general judgment creditors. Thelusson v. Smith, 2 Wheat. (15 U. S.) 396, 4 L. Ed. 271. In this respect, the Federal claims are given greater protection under 31 U. S. C., §191 than under 26 U. S. C., §3672, which gives priority to judgment creditors.

It is immediately apparent, from a reading of the statutory provisions protecting the claims of the employment security department, the department of labor and industries, and the tax commission, that the claims of the tax commission are made more secure than those of the other two agencies. The warrants of the tax commission are equivalent to judgments; whereas, the claims of the employment security department and the department of labor and industries are mere liens, which require foreclosure before they obtain the force and effect of judgments. If the liens of the tax commission are not "specific and perfected" until distraint or levy, much less so are the liens of the other agencies.

[1] In order for a general lien to achieve priority over a Federal internal revenue lien, it must have become specific and perfected, within the meaning given to those terms by the Federal courts, prior to the date the assessment rolls are received by the collector. Fleming v. Brownfield, 147 Wash. Dec. 772, 290 P. (2d) 993. As we pointed out in that case, since 1950, the Federal courts have consistently held that, in order for a lien to become "specific and perfected," the claim must be reduced to judgment.

The liens of the state not having become specific and perfected prior to the effective date of the Federal liens, the trial court erred in giving them priority.

We are not called upon to decide whether, in view of the decisions in Roeblings Sons Co. v. Frederickson Logging & Tbr. Co., 153 Wash. 580, 280 Pac. 93 (1929), and State v. Lawton, 25 Wn. (2d) 750, 172 P. (2d) 465 (1946), the court properly placed the lien of the department of labor and industries ahead of the mortgage. No appeal was taken by the mortgagee, Louise Weitz, from that portion of the judgment which gave to the lien of the department of labor and industries priority over her mortgage. This being the case, the priority should be preserved in the distribution of the proceeds, and the amount of the department's lien should be paid out of the sum allotted to the mortgagee. By the same token, the priority of the lien of the employment security department over that of the tax commission should be retained, since the propriety of that determination has not been questioned.

[New Priority Listing]

Applying the rules of priority herein announced, the result would be as follows:

1. Lien of Spokane county (this priority was not contested);

2. Lien of the department of labor and industries (to be deducted from the total amount of the Weitz mortgage);

3. Mortgage of the plaintiff, Louise Weitz (the difference between the amount of the labor and industries' lien and her mortgage judgment);

4. Lien of the United States government;

5. Balance of plaintiff Louise Weitz' mortgage (since both the mortgage and the lien of the department of labor and industries are superior to the liens of the employment security department and the tax commission);

6. Lien of the state employment security department;

7. Lien of the state tax commission.

The judgment is reversed in part and the cause remanded, with instructions to enter a decree in accordance with the views expressed herein.

HAMLEY, Chief Judge, MALLERY, HILL, and WEAVER, Judges, concur.

 

 

[53-2 USTC ¶9611] United States v. Carroll Construction Co.

In the Supreme Court of the United States , No. 49, October Term, 1953, 346 US 802, 74 SCt 22, October 12, 1953

On Certificate from the Supreme Court of the State of Washington .

Lien for taxes: Priority of State taxes.--The Supreme Court of the State of Washington held that, notwithstanding R. S. Sec. 3466, a tax lien of the State of Washington against particular articles of personal property of an insolvent corporation, which was filed before a tax lien of the United States against the corporation attached, had priority over the latter lien, because, under the laws of Washington, the State's lien was specific and perfected (53-1 USTC ¶9176, 249 P. (2d) 234). This judgment is vacated and the case is remanded by the Supreme Court of the United States for consideration in the light of U. S. v. Gilbert Associates, 53-1 USTC ¶9291, 345 U. S. 361. In the latter case it was held, in effect, that a lien of a State remains a general lien unless such lien has been perfected by reducing the attached property to possession, and where the lien of the State and that of the Federal Government are both general, and the taxpayer is insolvent, Sec. 3466 of the Revised Statutes awards priority to the United States. Two dissents.

Rob ert L. Stern, Acting Solicitor General, for United States .

PER CURIAM:

The petition for writ of certiorari is granted. The judgment is vacated and the case is remanded for consideration in the light of United States v. Gilbert Associates, 345 U. S. 361 [53-1 USTC ¶9291]. Mr. Justice Reed and Mr. Justice Jackson dissent. They are of the opinion that United States v. Gilbert Associates is not pertinent.