Wisconsin2

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[78-1 USTC ¶9121] United States of America , Plaintiff v. Mary R. Houston, et al., Defendants. Wisconsin Department of Revenue, Respondent

U. S. District Court. East. Dist. Wis., Case No. 73-C-89, 10/25/77

[Code Sec. 6323--result unchanged by '76 Tax Reform Act]

Lien for taxes: Priority: Validity of state lien: Wisconsin law.--Even though a warrant had been docketed by the state of Wisconsin one day preceding an assessment made by the Federal government for delinquent taxes, under Wisconsin law the warrant became a lien only as to a taxpayer's real property. Because the object of the liens was personalty, the state did not have a lien and was not, therefore, a judgment lien creditor.

William E. Schirger, Schirger, Graff & Beger, Ltd. 217 W. Exchange St., Freeport, Ill. 61032, for Mary R. Houston, Myron L. Joseph, 811 E. Wisconsin Ave., Milwaukee, Wis. 53202, for Rob ert E. Meldman and Louis L. Meldman, Douglas M. McMillan, O'Connor, Green, Thomas, Walters & Kelly, 845 Northwestern Bank Bldg., Minneapolis, Minn. 55402, for Maurice W. Vandeputee, James J. Bonifas, Deputy Corp. Counsel, Courthouse, Milwaukee, Wis. for Francis X. McCormack.

Memorandum and Order

WARREN, District Judge:

Jurisdiction exists in this action by virtue of 28 U. S. C. §§ 1340 and 1345. There is presently pending in this action a motion for summary judgment filed on behalf of the plaintiff. On December 21, 1976, this Court granted the plaintiff's motion for summary judgment as against Mrs. Houston, Mr. Vandeputte, the Meldmans, and Mr. McCormack and stated that the only remaining issue is the State of Wisconsin Department of Revenue's claim (hereinafter, the State).

The fund being foreclosed amounts to $25,000 and was paid to the Clerk of Milwaukee County Court on December 10, 1972 by Mrs. Houston's ex-husband as the last payment of a divorce settlement. An order of this Court transferred the fund to this Court's clerk. Mrs. Houston owes the United States nearly $60,000 in taxes for the years 1966 through 1971. The government is attempting to foreclose its tax lien on the $25,000 fund. The Wisconsin Department of Revenue maintains it has priority as to a portion of the $25,000; the United States contends the State of Wisconsin has no priority over any of the federal liens.

Title 26 of the U. S. C., §§ 6321 and 6322 state that a federal tax lien arises at the time the assessment is made and that the lien is upon both real and personal property. The United States Internal Revenue Service made seven tax assessments against Mrs. Houston totalling $59,459.69. The first assessment occurred on October 20, 1967 ; the last occurred on September 25, 1972 .

The State of Wisconsin made six tax assessments against Mrs. Houston totalling $16,581.99. Wisconsin Statutes §71.13(3)(a) and (b) relate to the collection of delinquent taxes and provide in pertinent part:

(3)(a) If any income or franchise tax be not paid within 30 days after the same becomes delinquent, the department of taxation shall issue a warrant to the sheriff of any county of the state commanding him to levy upon and sell sufficient of the taxpayer's real and personal property found within his county to pay such tax with the penalties, interest and costs, and to proceed upon the same in all respects and in the same matter as upon an execution against property issued out of a court of record, and to return such warrant to the department and pay to it the money collected . . .

(b) The sheriff shall within 5 days after the receipt of the warrant file with the clerk of the circuit court of his county a copy thereof, . . . The clerk shall docket the warrant as required by s. 270.745, and thereupon the amount of such warrant, . . . shall become a lien upon the real property of the taxpayer against whom it is issued . . .

The State argues that, since the warrant docketed by it on October 19, 1967 preceded the plaintiff's assessment of October 20, 1967, it takes priority as a judgment creditor as against the plaintiff at least as to that particular assessment.

The priority of competing liens with respect to a federal tax lien must be determined by federal law. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 (1960); Major Electrical Supplies, Inc. v. J. W. Pettit Co. [77-1 USTC ¶9280], 427 F. Supp. 752 (M. D. Fla. 1977). Section 6323(a) of Title 28 U. S. C. states that a federal tax lien shall not be valid as against a judgment lien creditor until certain notice provisions have been complied with. The notice requirements are not at issue here; the question here is whether the State is a judgment lien creditor.

The plaintiff asserts that the State is not a judgment lien creditor because Wis. Stats. §71.13(3)(b) provides that the amount of a docketed warrant shall become a lien only upon the taxpayer's real property. The plaintiff further argues that since the $25,000 fund here is personalty, the State has no lien and is therefore not a judgment lien creditor. The plaintiff is correct.

The State has filed no memoranda in opposition to the plaintiff's motion for summary judgment. However, in a letter to the Court, the State's counsel requests that the Court consider the fact that Wis. Stats. §71.13(3)(b) has been amended such that a docketed warrant now becomes a lien on both real and personal property. The effective date of the amendment is January 1, 1976 , and none of the State's warrants against Mrs. Houston were docketed later than 1971. The amendment, thus, is of no use to the State in the instant case. Even if a lien was created as of January 1, 1976 , it would not take priority over the prior federal tax lien.

In the same letter the State's counsel argues that since the funds were not distributed and are still Mrs. Houston's property, the State has an equitable lien. No authority is cited for this proposition. An equitable lien is a right not recognized by law, to have a fund or specific property applied to the payment of a particular debt and is based upon the doctrine of unjust enrichment. United States v. Adamant Co., 197 F. 2d 1 (9th Cir. 1952), cert. denied, sub nom., Buelen v. Scoville, 344 U. S. 903 (1952). Under this definition, an equitable lien does not exist in the instant situation. Further, "[s]tatutory lien concepts are not determined by equities but must be governed by the interpretation of the federal statutes as construed by the Federal courts." United States v. Oakland Truck Sales, Inc. [62-2 USTC ¶9642], 207 F. Supp. 175, 176 (1962).

The State also points out that one John Romann, Esq. has been appointed receiver in the case, In the Matter of the Wisconsin Department of Revenue v. Mary Houston, and that the receiver has right, title and interest to all of Mrs. Houston's property. No authority is given as to how or why the appointment of a receiver affects the instant dispute. If the State had no lien before the receiver's appointment, it is difficult to see how it acquired one after the appointment. "It is the rule that one having no lien when a receiver was appointed cannot acquire one after the appointment . . . of the receiver, and thus obtain a preference. . . ." Lehman v. Heherle, 9 F. Supp. 100, 101 (W. D. N. Y. 1934).

The provisions protecting certain interests against federal tax liens are to be strictly construed, and in order to be protected the claimant must show that he is within one of the protected classes. In Re Litt [55-1 USTC ¶9187], 128 F. Supp. 34, 38 (E. D. Pa. 1955). The State has failed to show that it is judgment lien creditor as to any of the $25,000 in the fund. It is therefore ordered that the Government's motion for summary judgment must be and is hereby granted.

 

 

[78-2 USTC ¶9598]United States of America, Plaintiff v. Perpetual Help's Boys Home, also known as Perpetual Help's Society, Inc.; Helen Grammer; Security Savings and Loan Association: Rudolph A. Zivnuska, Executor of the Estate of Flora A. Zivnuska, Deceased; Milwaukee Home for Aged Jews, also known as Jewish Home for the Aged; and The City of Milwaukee, Defendants Helen Grammer, Plaintiff v. United States of America; Perpetual Help's Boys Home, a/k/a Perpetual Help's Society, Inc.; Clyde J. Sarzin; Max Owens, Theo L. Kahn, Ludwig Kahn and Bertha Kahn, co-partners doing business as U. S. Surplus Stores; Dernehl-Taylor Co., Inc.; and City of Milwaukee, Defendants

U. S. District Court, East. Dist. Wis., Civil Action Nos. 76-C-193, 77-C-34, 451 FSupp 270, 5/15/78

[Code Sec. 6323--result unchanged under '76 Tax Reform Act]

Lien for taxes: Priority: Priority of state taxes: Mortgage.--In a suit to foreclose federal tax liens and collect unpaid taxes owed by the taxpayer, the court found that the City and County of Milwaukee had outstanding tax assessments entitling them to first priority over proceeds from the judicial sale of property in which the taxpayer had an interest, that security interests in the form of recorded mortgages held by two persons were entitled to second priority and that the government was entitled to third priority.

John A. Nelson, Assistant United States Attorney, 361 Federal Bldg., Milwaukee, Wis. 53202, for plaintiff. Gerald V. Kortsch, Assistant City Attorney, 200 East Wells St., Milwaukee, Wis. 53202, for City of Milwaukee. Noreen H. Bengston, 115 W. Main St., Madison, Wis. 53703, for Perpetual Helps Boys Home and Zivnuska, Earl J. Kuehl, 152 West Wisconsin Ave., Milwaukee, Wis. 53203, for defendant Grammer.

Decision and Order

REYNOLDS, Chief Judge:

United States v. Perpetual Help's Boys Home, et al., C. A. No. 76-C-193, is an action to foreclose federal tax liens and to collect unpaid federal taxes allegedly owing from the defendant Perpetual Help's Boys Home, a/k/a Perpetual Help's Society, Inc. ("Boys Home"), to the plaintiff United States. The other defendants, including Helen Grammer, are persons who have or may claim some interest in the property in which the plaintiff claims an interest.

Grammer v. United States, et al., C. A. No. 77-C-34, is an action for amounts due on a land contract allegedly entered into by the plaintiff Helen Grammer and her husband Vernon Grammer with the defendant Perpetual Help's Boys Home. The other defendants are persons who have or may claim some interest in the property which is the subject of the land contract.

The defendant United States has moved in C. A. No. 77-C-34 to consolidate that action with C. A. No. 76-C-193, alleging that the same issues, the same parcel of property, and many of the same parties are involved in both actions. The motion is unopposed and will be granted. The complaint in C. A. No. 76-C-193 concerns two parcels of property--one, in which Helen Grammer also claims an interest, is located at 2905 West Highland Boulevard, Milwaukee, Wisconsin, and the other is located at 2915 West Highland Boulevard, Milwaukee, Wisconsin. The Court finds that it will be in the interests of judicial economy and a consistent resolution of the issues to consolidate these actions.

There are three motions pending. The plaintiff United States has moved in C. A. No. 76-C-193 for summary judgment. It seeks a judicial resolution of the priorities among the claimants to the two parcels of property, judgment of foreclosure and an order for distribution of the proceeds of the sale in accordance with the priorities established, and judgment against the defendant Boys Home in the amount which may remain due and owing to the plaintiff United States from that defendant following distribution of the proceeds. In C. A. No. 77-C-34, the defendant United States has moved for dismissal as to itself of the first cause of action, in which the plaintiff Grammer seeks a monetary judgment on her claim. Plaintiff Grammer seeks summary judgment. For the reasons hereinafter stated, the motions of the United States will be granted, and the motion of Helen Grammer will be granted in part and denied in part.

There is no factual dispute. The parties, ¹ including the United States, Helen Grammer, and the Boys Home, have agreed by stipulation of facts filed on June 16, 1977, in C. A. No. 76-C-193 that the defendant Boys Home has an interest in two parcels of real property, one located at 2905 West Highland Boulevard, Milwaukee, Wisconsin, ² and the other located at 2915 West Highland Boulevard, Milwaukee, Wisconsin; ³ that the Boys Home acquired its interest in the 2905 West Highland Boulevard property by land contract with Vernon Grammer and the defendant Helen Grammer, which document was recorded with the Milwaukee County Register of Deeds on June 25, 1969, and on which there remains due and owing to Helen Grammer the principal amount of $12,211.06; that the Boys Home acquired its interest in the 2915 West Highland Boulevard property by warranty deed dated March 25, 1967, from Flora A. Zivnuska, and Flora Zivnuska received a mortgage from the Boys Home in the original amount of $15,570, recorded with the Milwaukee County Register of Deeds on April 22, 1967, and a second mortgage in the amount of $18,870.69, recorded on November 26, 1968; that on March 20, 1970, the United States assessed against the Boys Home unpaid employment and social security taxes in the amount of $6,778.01 and filed a lien as to the two properties listed above on April 9, 1970, with the Milwaukee County Register of Deeds and the Wisconsin Secretary of State; that the City of Milwaukee has special assessment claims against the two properties totaling $4,745.26 and $3,072.84 as of July 31, 1976; and that the County of Milwaukee has outstanding assessment claims against the properties totaling $294.84 and $316.56 as of July 31, 1976.

There is also no dispute among the parties as to the status of and legal priorities among the claimants. The United States in its motion for summary judgment, which is unopposed, and its brief in support thereof, asserts (1) that the outstanding assessment claims by the City of Milwaukee and County of Milwaukee against the two parcels of real estate are entitled to first priority of proceeds of sale of the properties pursuant to 26 U. S. C. §6323(b)(6) and §66.20, Wis. Stats. (1975); ⁴ (2) that the security interest held by Helen Grammer is entitled to second priority as to the 2905 West Highland Boulevard property pursuant to 26 U. S. C. §§ 6323(a) and (h); (3) that the security interests held by the estate of Flora Zivnuska are entitled to second priority as to the 2915 West Highland Boulevard property pursuant to 26 U. S. C. §§ 6323(a), (f), and (g); and (4) that the tax liens held by the plaintiff United States are entitled to third priority in the proceeds from a sale of the two parcels pursuant to 26 U. S. C. §§ 6323(a), (f), and (g). The Court agrees with the statement of the applicable law as set forth in the brief of the plaintiff United States and finds that the priorities are as set forth above.

In regard to the motions filed in C. A. No. 77-C-34, the motion of the defendant United States to dismiss the first cause of action as to itself is granted. Plaintiff seeks in that cause of action a monetary judgment against the defendants. Section 2410 of Title 28 U. S. C. permits suits against the United States to foreclose a mortgage or other lien upon real property on which the United States claims a lien. However, pursuant to 28 U. S. C. §2410(c):

"* * * [A]n action to foreclose a mortgage or other lien, naming the United States as a party under this section, must seek judicial sale. * * *"

Since the plaintiff has not sought judicial sale, her action is barred against the United States .

As to the plaintiff Grammer's other demands, she will be granted judgment on her first cause of action against the defendant Boys Home for any amount which may remain due and owing to her following distribution of the proceeds of sale of the land. ⁵ As to her second cause of action, the Court has determined above that her claim has priority over that of the defendant United States in the 2905 West Highland Boulevard property.

For the foregoing reasons,

IT IS ORDERED that the motions of the plaintiff United States for summary judgment in C. A. No. 76-C-193 and for dismissal of the first cause of action as to itself in C. A. No. 77-C-34 are granted.

IT IS FURTHER ORDERED that the two parcels of property located at 2905 and 2915 West Highland Boulevard, the legal descriptions of which are set forth in footnotes numbered "2" and "3" of this decision and order, in which the defendant Perpetual Help's Boys Home, a/k/a Perpetual Help's Society, Inc., has an interest, be sold at foreclosure under the direction and control of the United States Marshal on or before July 17, 1978.

IT IS FURTHER ORDERED that the proceeds of such sale be distributed in accordance with the priorities set forth above.

IT IS FURTHER ORDERED that following distribution of the proceeds, judgment be entered for the plaintiff United States against the defendant Perpetual Help's Boys Home, a/k/a Perpetual Help's Society, Inc., in the amount which may remain due and owing to the plaintiff on the tax liens held by plaintiff on the property of said defendant located at 2905 and 2915 West Highland Boulevard, plus statutory interest.

IT IS FURTHER ORDERED that following distribution of the proceeds, judgment be entered for the plaintiff Helen Grammer in C. A. No. 77-C-34 against the defendant Perpetual Help's Boys Home, a/k/a Perpetual Help's Society, Inc., in the amount which may remain due and owing to her under the land contract entered into between her and said defendant in reference to the 2905 West Highland Boulevard property.

¹ The defendants Security Savings and Loan Association and Milwaukee Home for Aged Jews, a/k/a Jewish Home for the Aged, have failed to appear in C. A. No. 76-C-193 and are not parties to the stipulation of facts. The defendants Clyde J. Sarzin, Max Owens, Theo L. Kahn, Ludwig Kahn, and Bertha Kahn, copartners d/b/a U. S. Surplus Stores, and Dernehl-Taylor Co., Inc., have failed to appear in C. A. No. 77-C-34 and are not parties to the stipulation of facts.

² The legal description of this parcel of property is: "Lot numbered One (1), in Block numbered Five (5), in Subdivision of Block numbered Five (5) of the Subdivision of Lots numbered Ten (10) to Nineteen (19) inclusive, in Dousman's Subdivision, in the North East One-quarter (1/4) of Section numbered Twenty-five (25), in Township numbered Seven (7) North, Range numbered Twenty-one (21) East, in the City of Milwaukee."

³ The legal description of this parcel of property is: "Lot numbered Two (2) and the East Twenty-five (25) feet of Lot numbered Three (3) in Subdivision of Block Five (5) in Subdivision of Lots numbered Ten (10) to Nineteen (19) inclusive in Dousman's Subdivision of the North East One-quarter (1/4) of Section numbered Twenty-five (25), Town numbered Seven (7) North, of Range numbered Twenty-one (21) East, in the City of Milwaukee."

⁴ Plaintiff Helen Grammer in C. A. No. 77-C-34 has failed to name Milwaukee County as a claimant, and she asserts in her motion for summary judgment that the only person or entity with a possible priority over her claim to the 2905 West Highland Boulevard property is the City of Milwaukee . However, she has agreed in paragraph 14 of the stipulation of facts filed in C. A. No. 76-C-193 that Milwaukee County has a claim for assessments as to the 2905 West Highland Boulevard property.

⁵ The defendant Boys Home answered the complaint in C. A. No. 77-C-34, asserting that it was improperly named as a party therein because it had assigned the land contract to a third party. It did not respond to plaintiff's motion for summary judgment and cannot rely on the allegations of the pleadings for purposes of a summary judgment motion. Furthermore, it has agreed in paragraphs 3 and 4 of the stipulation of facts filed in C. A. No. 76-C-193, that it has an interest in the 2905 West Highland Boulevard property, which interest it acquired by way of land contract with Vernon and Helen Grammer.

 

 

[60-1 USTC ¶9131] United States of America , Plaintiff v. Bruce J. Waters, Gladys Waters, V. I. Timblin, County Treasurer for Barron County , Wisconsin , Wisconsin Department of Taxation, Northwestern State Bank, Defendants

U. S. District Court, West. Dist. Wis., Civil No. 3107, 12/1/59

[1959 Code Sec. 3672--similar to 1954 Code Sec. 6323]

Federal tax liens: Priority over tax deed to county: Failure to appear.--The Federal Government had a tax lien, for 1947 taxes owed by the taxpayers, against real estate owned by the taxpayers and situated in Barron County, Wisconsin, which was prior and superior to the county's tax deed to the property issued to it on December 27, 1957, for delinquent taxes for 1952-1956, where notice of federal tax lien was filed with the Register of Deeds for Barron County, on January 27, 1951. The taxpayers and representatives on behalf of the county having failed to appear at the trial and the court having heard the testimony granted judgment of foreclosure and sale to the Government.

George E. Rapp, United States Attorney, Rob ert J. Kay, Assistant United States Attorney, Madison, Wis., for plaintiff. John P. Santerre, Barron , Wis. , for V. I. Timblin.

Findings of Fact and Conclusions of Law

STONE, District Judge:

The issues joined in this action coming on for trial before the above court, The Honorable Patrick T. Stone, Presiding, and without a jury, and having been tried before me, the undersigned Judge, the plaintiff having appeared by its attorney, George E. Rapp, United States Attorney for the Western District of Wisconsin, by Rob ert J. Kay, Assistant United States Attorney, and no appearance having been made by defendants, Bruce J. Waters, Gladys Waters and Wisconsin Department of Taxation, and defendant, North-western State Bank, having been dismissed as a party defendant, and defendant, V. I. Timblin, County Treasurer for Barron County, Wisconsin, by John P. Santerre, District Attorney for Barron County, Wisconsin, having answered the plaintiff's complaint, but otherwise failing to make an appearance at the trial of this cause, and it further appearing by the affidavit of George E. Rapp, Attorney for the plaintiff, on file herein, that defendants, Bruce J. Waters, Gladys Waters, and State Department of Taxation, are in default, and it appearing that Waiver of Notice of Application for Judgment has been executed by the attorney appearing as above recited, and the Court having heard the testimony and being fully advised in the premises, therefore makes and files the following Findings of Fact and Conclusions of Law constituting its decision in this action.

Findings of Fact

1. That the allegations of the complaint are proven as true.

2. That there is now due and owing the United States the sum of $654.56, representing the balance due for interest on income taxes assessed by the Commissioner of Internal Revenue against the defendant-taxpayer, Bruce J. Waters, for the year 1947, and the further sum of $71.00 for attorney's fees, and costs and disbursements, which I find reasonable, being a total sum of $724.56.

3. That a notice of federal tax lien for the hereinbefore mentioned assessment of income taxes for the year 1947 was filed on January 27, 1951, with the Register of Deeds for Barron County, Wisconsin, by the then Collector of Internal Revenue.

4. That in a collection waiver executed July 13, 1956 , the defendant-taxpayer, Bruce J. Waters, and the Commissioner of Internal Revenue agreed that the statutory period within which to collect the unpaid taxes was extended to December 31, 1961 .

5. That at the time of the filing of said notice of tax lien, defendant-taxpayer, Bruce J. Waters, owned as joint tenant with defendant, Gladys Waters, a one-half interest in the real estate described as follows:

"A parcel of land in the original plot of the Village of Turtle Lake, Barron County, Wisconsin, described as follows: Beginning at the Northwest corner of Lot 6, Block 2, original plot of the Village of Turtle Lake, thence running North along the West line of Lot 1, said Block 2, and said line extended South 46 feet, thence running East parallel in the North line of Lots 5 and 6, said Block 2, 100 feet to the West line of Lot 3, Block 2, thence North along the West line of Lot 3, a distance of 64 feet to the Northwest corner of said Lot 3, thence running East on the North line of said Lot 3, 15 feet, thence running South parallel with the West line of said Lot 3 to the North line of Lot 4, Block 2, thence running West along the North line of said Lots 4, 5 and 6 to the point of beginning."

6. That defendant, V. I. Timblin, as Treasurer of Barron County and on behalf of Barron County, certified as delinquent taxes for 1952, 1953, 1954, 1955, and 1956, upon the above described property; that said property was listed upon the tax rolls of Barron County in the names of Bruce Waters and Gladys Waters; that the total amount of said real estate taxes certified as delinquent was $2,435.66 plus interest of $762.27, and that on December 17, 1957, the said County of Barron, by its Clerk, Ralph J. Hill, issued a tax deed to Barron County, recording said deed in Vol. 4 of Tax Deeds, page 376, in the office of the Register of Deeds for Barron County, Wisconsin.

7. That the real estate described is not the homestead of the defendants, Bruce J. Waters and Gladys Waters; that said property is not so situated that it can be sold in parcels without injury to the interests of the parties, and that the sale of the whole will be more beneficial to the parties hereto.

8. That due notice of the pendency of this action was duly filed, after the filing of the complaint herein, on April 27, 1959 , and more than 20 days prior to the trial of this action, in the office of the Register of Deeds for Barron County , Wisconsin , in the manner and form required by law.

Conclusions of Law

1. That the plaintiff is entitled to judgment of foreclosure and sale in the usual form, as prayed for in plaintiff's complaint, and in accordance with the above Findings of Fact.

2. That the summons and complaint in the above entitled action were duly and personally served on the defendant, V. I. Timblin, County Treasurer for Barron County , Wisconsin , on August 6, 1958 , and on the defendant, Wisconsin Department of Taxation on August 11, 1958 . That an order of this Court, dated April 23, 1959, commanding defendants, Bruce J. Waters and Gladys Waters, to appear or plead, was duly and personally served upon said defendants on April 26, 1959, pursuant to 28 U. S. C. 1655, they being outside the State of Wisconsin and unable to be served with summons, and that said defendants, Bruce J. Waters and Gladys Waters, have failed to appear or plead as ordered; that the time for answering said complaint has expired and that defendant, Wisconsin Department of Taxation, has failed to answer or otherwise appear; that defendant, V. I. Timblin, County Treasurer for Barron County, Wisconsin, has answered plaintiff's complaint but has failed to appear at the trial of this cause; that defendant, Northwestern State Bank, was dismissed from this cause by order of this Court dated September 11, 1958; that affidavits of default signed by George E. Rapp, Attorney for the plaintiff, regarding defendants Bruce J. Waters, Gladys Waters, and Wisconsin Department of Taxation have been duly filed herein.

3. That plaintiff is entitled to recover from defendant-taxpayer, Bruce J. Waters, the sum of $654.56, together with the further sum of $71.00 for attorney's fees, and coats and disbursements.

4. That plaintiff has a valid and subsisting tax lien in the sum of $654.56 upon the property, both real and personal, of defendant-taxpayer, Bruce J. Waters, until said tax indebtedness is satisfied in full.

5. That plaintiff's tax lien is prior and superior to the tax deed issued to Barron County , Wisconsin , on the real estate described in the Findings of Fact.

6. That the real estate of defendant-taxpayer, Bruce J. Waters, and defendant, Gladys Waters, described in the Findings of Fact, be sold as a whole at public sale.

7. That the sale of said real estate shall be conducted by the United States Marshal for the Western District of Wisconsin at the Court House at the city of Barron, in the county of Barron, Wisconsin, as required by law; that notice of such sale shall be made by publication in the Barron County News-Shield, a newspaper published in the city of Barron, county of Barron, Wisconsin, and said publication shall be made once a week for four successive weeks prior to such sale.

8. That the defendants, their heirs, successors and assigns, and all persons claiming under them, or any or either of them, after the filing of notice of the pendency of this action, be forever barred and foreclosed of all right, title, and interest in said real estate so sold.

NOW, on motion of George E. Rapp, United States Attorney, by Rob ert J. Kay, Assistant United States Attorney, Attorneys for plaintiff,

IT IS ORDERED that judgment of foreclosure and sale of said described real estate, in the usual form as provided by law and in accordance with the above findings and conclusions, be entered in this action.

 

 

[67-1 USTC ¶9384]North Gate Corp., a Wis. corp., Plaintiff, Industrial Comm. of Wisconsin , Intervening Plaintiff-Appellant , United States of America , Intervening Plaintiff-Respondent v. North Gate Bowl, Inc., a Wis. corp., et al., Defendnats

Wis. Supreme Court, No. 217, 149 NW2d 651, 150 NW2d 826, 4/14/67, Aff'g Wisconsin County Court, 66-2 USTC ¶9735

[1954 Code Sec. 6323]

Lien for taxes: Priorities: Wisconsin: Judgment creditor: When lien attaches.--The U. S. lien for nonpayment of withholding taxes was superior to the claim of the Wisconsin Industrial Commission based on unpaid unemployment compensation taxes where the Industrial Commission was not a judgment creditor because its "judgment lien" was obtained by an admin istrative procedure. Furthermore, even assuming the Industrial Commission was a judgment creditor, the lien of the U. S. attached on June 14, 1965 , the day on which its lien was filed with a Wisconsin register of deeds, and not on June 24, when the notice of assessment and demand was sent to the taxpayer. Since the Industrial Commission's lien was not docketed until June 17, 1965 , the U. S. lien was superior.

Arnold J. Spencer, W. H. Putnam, Madison, Wis., for Industrial Comm. of Wis. Edmund A. Nix, United States Attorney, for defendants.

SACHTJEN, Circuit Judge:

This action was originally commenced by North Gate Corporation against its tenant, North Gate Bowl, Inc., to recover money for back rent and unpaid utility bills. North Gate Corporation subsequently attached the defendant's liquor and beer stock and the sheriff's levy thereon occurred on June 4, 1965 . The Industrial Commission and the United States of America intervened in the action to assert their claims against the defendant. North Gate Corporation recognized the priority of their claims and bowed out of the litigation.

The claim of the federal government is based upon unpaid withholding taxes together with interest and fees in the total amount of $3,937.33. On May 12, 1965 , pursuant to sec. 6203, I. R. C. 1954, the federal government assessed the defendant for the total amount due. On June 14, 1965 , the federal government filed a notice in the office of the Register of Deeds for Dane county of its tax lien accruing under the assessment. Demand was made by the federal government on North Gate Bowl, Inc., on June 24, 1965 .

The claim of the Industrial Commission is based on unpaid unemployment compensation taxes under sec. 108.22(2), Stats., in the amount of $663.83. The commission's tax warrant for this amount was docketed with the clerk of the circuit court for Dane county on June 17, 1965 .

Two sections of the Internal Revenue Code, 1954, are pertinent and provide as follows:

"6321. Lien for taxes

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may 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." ¹

and

"6323. Validity against mortgagees, pledgees, purchasers, and judgment creditors

"(a) Invalidity of lien without notice.--Except as otherwise provided in subsection (c), the lien imposed by section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate--

"(1) Under state or territorial laws.--In the office designated by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law designated an office within the State or Territory for the filing of such notice; . . ." ²

The United States asserted that its lien dated from the time notice of the lien was filed, June 14, 1965 . The Industrial Commission contended that notice of the tax lien of the United States could not be effective against it until a demand was made upon the taxpayer, or until June 24, 1965 . Thus, the Industrial Commission"s lien, docketed on June 17, 1965, three days after the federal government notice, was entitled to priority. Both parties moved for summary judgment. The trial judge held that the requirement of notice and demand as a condition precedent to a lien has no relation to determining priority of liens between the United States and other lienholders, under sec. 6323, I. R. C. 1954. Judgment was entered in favor of the United States and the Industrial Commission appeals.

WILKIE, Judge:

Three issues are presented on this appeal:

1. Is there an issue of fact as to whether the federal government made a demand upon the defendant taxpayer sufficient to validate its tax lien?

2. Must the federal government file notice of its tax lien with the Register of Deeds in Dane county in order to acquire priority against the lien of the Industrial Commission acquired pursuant to sec. 108.22(2), Stats.?

3. If filing is required, where demand is made on the taxpayer after the date of filing, does the effective date of the tax lien accrue at the time of filing or at the time when demand is made?

No Issue of Fact on Demand

A demand is necessary to establish the validity of the federal government's lien, and no lien can arise until there has been a demand for payment. ³ Appellant asserts that summary judgment should never have been entered in favor of the United States because there was an issue of fact as to whether demand for payment of withholding taxes was ever made upon the defendant.

However, in paragraph 2 of the complaint of the United States , the United States alleged that the admin istrative assessments of tax liability were made on May 12, 1965 . Paragraph 7 of the same complaint asserts that notice of assessment and demand for payment were made upon the defendant taxpayer on June 24, 1965 . The Industrial Commission did not controvert either of these two allegations in its complaint, ⁴ or by affidavits filed in connection with the motions for summary judgment.

Thus the parties, in essence, submitted an agreed case to the trial court. No argument was made in the trial court that there was an issue of fact as to whether demand was ever made. This defense is raised for the first time on this appeal. The raising of this defense comes too late. ⁵

Accordingly, there is no issue of fact as to whether or not the federal government made a demand upon the defendant taxpayer. The only issue to be resolved here is what is the effective date of the federal tax lien as against the lien of the industrial commission. This is a question of law which can properly be resolved by summary judgment. ⁶ In answering this question, federal law must be applied. In United States v. Security Trust & Savings Bank the United States Supreme Court said:

"The effect of a lien in relation to a provision of federal law for the collection of debts owing the United States is always a federal question. Hence, although a state court's classification of a lien as specific and perfected is entitled to weight, it is subject to reexamination by this court." ⁷

Thus, the question of whether filing the federal tax lien is required to acquire priority against the lien of the Industrial Commission and whether the federal tax lien stems from the date of filing or the date of demand must be resolved by applying federal law.

Need for Filing to Acquire Priority

Sec. 6321, I. R. C. 1954, creates the ubiquitous federal tax lien which attaches to all property of a delinquent taxpayer. Sec. 6322 states that the lien imposed by sec. 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." Sec. 6303 states that within sixty days after assessment the Secretary or his delegate shall "give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof." Although proof of demand is required to validate the lien, the lien relates back to the time of assessment and the date of demand has no bearing on the relative priority of the lien. ⁸

Under the facts in the case at bar the effective date of the lien would be May 12, 1965 , well before the effective date of the lien of the Industrial Commission (June 17, 1965). Sec. 6321 was given a broad scope in United States v. Snyder, ⁹ In Snyder the federal tax lien or assessment arose before Snyder sold his property to a bona fide purchaser for value. The tax lien had never been recorded in Louisiana , the situs of the property, as required by the Louisiana constitution. The United States supreme court made a two-fold holding: (1) that the lien for taxes was not subject to the recording laws of the states, and (2) that the lien was enforceable against a subsequent bona fide purchaser for value without notice. This holding that the federal tax lien is paramount as to purchasers and creditors without notice of the lien was followed in United States v. Curry. ¹⁰

The result of these cases was that the present sec. 6321, I. R. C. 1954, was construed to give a comprehensive secret lien which made it impossible for people dealing in real estate to protect against. To avoid this problem, Congress passed the present sec. 6323 of the Internal Revenue Code, which section mitigates the secret lien as to mortgagees, purchasers, or judgment creditors by requiring that notice of the tax lien be filed in the state before it attaches to the property prior to the above interests. ¹¹ However, the statute has always been strictly construed, and provides relief from the secret lien only when the countervailing lien comes within one of the classes specified in the statute. ¹² All other creditors are subject to the priority of the secret federal tax lien from the date of assessment. ¹³

In the case at bar, both parties and the trial judge have assumed that the Industrial Commission is a judgment creditor under sec. 6323, I. R. C., so that the federal government must file notice of its lien to preserve its rights against the Industrial Commission's lien. Sec. 108.22(2), Stats., provides that the amount due the commission is to be determined by an admin istrative proceeding pursuant to sec. 108.10, Stats. ¹⁴ Once this amount is determined, sec. 108.22(2) specifies that:

". . . The clerk shall enter in the judgment docket the name of the employer mentioned in the warrant and the amount of the contributions, interest, costs and other fees for which the warrant is issued and the date when such copy is filed. Thereupon the warrant so docketed shall be considered in all respects as a final judgment creating a perfected lien upon the employer's right, title and interest in all of his real and personal property located in the county wherein the warrant is docketed."

Thus, the Industrial Commission becomes a judgment creditor only because the statute makes the commission's lien a judgment lien. The lien is not obtained by going through a court procedure nor is it obtained by obtaining a judgment in a state court.

The term "judgment creditor" for purposes of sec. 6323, I. R. C., has always been construed to mean a judgment creditor in the conventional sense. ¹⁵ In the case at bar, a statutory lien is involved which is given the force and effect of a "judgment lien" under state laws. Just such a case was involved in United States v. Gilbert Associates. ¹⁶ In Gilbert, the federal government assessed tax liens for employment, withholding, and income taxes that became due between 1943 and 1948. Notice of the lien was filed on August 6, 1948 , although assessment and demand on the taxpayer had been made by the United States several times within the period. A New Hampshire town made an assessment of an ad valorem tax on the corporate taxpayer on April 1, 1947 , and April 1, 1948 , and the decisions of the New Hampshire supreme court raised this assessment to a judgment.

On appeal to the United States supreme court, the town contended it was a judgment creditor coming within the protection of sec. 3672 of the Internal Revenue Code (presently sec. 6323, I. R. C. 1954). Thus, since notice of the federal tax lien was filed after the town's assessment, the town's lien was prior. The supreme court rejected the town's contention that it was a judgment creditor. The federal tax laws required uniformity of interpretation and the term "judgment creditor" could not be fettered by various state definitions.

". . . In this instance, we think Congress used the word 'judgment creditor' in §3672 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." ¹⁷

In the case at bar, the Industrial Commission is not a judgment creditor for purposes of sec. 6323, I. R. C., because its lien was obtained by an admin istrative procedure without contest and then docketed in the circuit court. The Industrial Commission thus does not come within the class of creditors who are protected by a requirement that notice of the tax lien be filed with the Register of Deeds. The federal tax lien is valid against the Industrial Commission from the date of assessment once demand is made upon the taxpayer. The assessment was made on May 12, 1965 , a full month before the Industrial Commission's lien was filed on June 17, 1965 . The order of the trial court granting summary judgment should be affirmed on this ground.

Priority Is Determined as of the Date Notice Is Filed

Assuming that the Industrial Commission is a judgment creditor for purposes of sec. 6323, I. R. C., that section states that the lien imposed by sec. 6321 shall not be valid against the Industrial Commission until notice is filed. In the case at bar, notice of the federal tax lien was filed on June 14, 1965 . The lien of the Industrial Commission was docketed on June 17, 1965 . However, demand upon the defendant taxpayer was not made until June 24, 1965 . The question is whether the validity of the federal tax lien accrues at the time of demand, when demand is made after notice is filed, or whether the lien is effective as of an earlier date.

Appellant cites cases ¹⁸ in support of the proposition that demand is a condition precedent to a valid federal tax lien. In all these cases, however, no demand at all was made upon the taxpayer. In the case at bar, the demand has been made, but the issue is whether demand must be made before filing of notice in order that the effectiveness of the federal tax lien stem from the date of filing as against judgment creditors. ¹⁹

In In re Baltimore Pearl Hominy Co. ²⁰ the court held that the demand by the government could be waived by the taxpayer. The court said, ". . . The purpose of requiring a demand as a condition precedent to the tax becoming a lien is protection of the taxpayer; and any such right of protection may be waived by the person interested." Macatee, Inc. v. United States ²¹ sheds additional light on the function of demand in tax lien cases. In Macatee, demand was made on the taxpayer before the collector received the assessment list. The court said that although the lien under sec. 3670, I. R. C. (now sec. 6321, I. R. C. 1954) did not arise until after demand was made on the taxpayer, sec. 3670 did not require that the demand be made after the receipt of the assessment list. The court concluded:

"The purpose of requiring such a notice and demand is for the protection of the taxpayer. . . . It has little or no relation to determining priority of liens between the United States and other lienholders. If a demand after receipt of the assessment list . . . is essential, the demand would relate back to the date of such receipt and the lien would take priority from that date." ²²

The Macatee court indicates that once demand has been made, no matter when, the rights of the government to priorities are preserved. In the case at bar, the Industrial Commission argues that the filing of notice was ineffective against its lien because demand had not been made previous to the filing. The statute which requires that notice be filed does not require that demand be made first. Furthermore, once demand is made, the demand relates back to the time of assessment to establish a lien as to all other creditors except those stated in sec. 6323, I. R. C. The lien exists from the date of assessment, but the lien is not effective against judgment creditors until notice is filed.

The requirement of a demand is designed primarily for the benefit of the taxpayer. Other creditors have no way of knowing whether demand for payment has been made upon the taxpayer, but they are aware of the government's assertion of a lien once notice has been filed. Under sec. 6303, I. R. C., demand on the taxpayer may be made any time within sixty days after the date of assessment. The policy of the federal statutes is that while this admin istrative procedure designed for the benefit of the taxpayer is going on, the United States should be able to protect itself against other creditors who do not have to go through the formality of demand and refusal.

Thus, the order granting summary judgment must be affirmed.

By the Court.--Order affirmed.

¹ 26 U. S. C. A., p. 437, sec. 6321.

² 26 U. S. C. A., p. 451, sec. 6323.

³ Sherman B. Ruth, Inc. v. O. S. V. The Marie and Winifred (D. C. Mass. 1957), [57-1 USTC ¶9665] 150 Fed. Supp. 630; Myrick v. United States (5th Cir. 1961), [62-1 USTC ¶9112] 296 Fed. (2d) 312; Textile Products v. Feldan (1959), [59-1 USTC ¶9347] 54 N. J. Super. 291, 148 Atl. (2d) 741.

⁴ In fact, appellant's complaint appears to accept the date of June 24, 1965 , as the date of demand. Paragraph 7 of the Industrial Commission's complaint states: `Notice of assessment and demand for payment were made upon the defendant taxpayer on June 24, 1965 , but said defendant taxpayer has refused or neglected to pay the taxes which are due and owing to the United States of America .'"

⁵ State v. Conway (1967), -- Wis. (2d) --, N. W. (2d) --; Harrington v. Downing (1918), 166 Wis. 582, 166 N. W. 318.

⁶ Leszczynski v. Surges (1966), 30 Wis. (2d) 534, 141 N. W. (2d) 261.

⁷ (1950), [50-2 USTC ¶9492] 340 U. S. 47, 49, 71 Sup. Ct. 111, 95 L. Ed. 53.

⁸ Macatee, Inc. v. United States (5th Cir. 1954), [54-2 USTC ¶9550] 214 Fed. (2d) 717, 719; United States v. Pacific R. (D. C. Mo. 1880), 1 Fed. 97; Internal Revenue Code, 26 U. S. C. A., p. 449, sec. 6322; William T. Plumb, Jr., Federal Tax Collection and Lien Problems, Part I, 13 Tax Law Review 247, 249, 250; Comment, The Relative Priorities of State and Federal Tax Liens to the Lien of Judgment Creditors, 15 American University Law Review 87, 89; Paul E. Anderson, Federal Tax Liens--Their Nature and Priority, 41 California Law Review 241, 271; 9 Mertens, Law of Federal Income Taxation, p. 93, sec. 54.40.

⁹ (1893), 149 U. S. 210, 13 Sup. Ct. 846, 37 L. Ed. 705. Snyder involved an antecedent of sec. 6321, I. R. C. 1954, sec. 3186 of the Revised Statutes.

¹⁰ (D. C. Md. 1912), 201 Fed. 371.

¹¹ In 1939 pledgees were added to the exceptions in the present sec. 6323 so that the statute assumed its present form. United States v. Security Trust & Savings Bank, supra, footnote 7, at page 53.

¹² United States v. Security Trust & Savings Bank, supra, footnote 7, at page 53: "My conclusion from this history is that the statute excludes from the provisions of this secret lien those types of interests which it specifically included in the statute and no others." Note, The Federal Tax Lien--A Practitioner's Guide to the Resolution and Avoidance of Priority Problems, 36 New York University Law Review 1316, 1320; William T. Plumb, Jr., Federal Tax Collection and Lien Problems, Part II, 13 Tax Law Review 467. See also United States v. Gilbert Associates (1953), [53-1 USTC ¶9291] 345 U. S. 361, 73 Sup. Ct. 701, 97 L. Ed. 1071.

¹³ Macatee, Inc. v. United States , supra, footnote 8.

¹⁴ "108.10 Settlement of issues other than benefit claims. (1) In connection with any issue arising under this chapter as to any liability, of an employer of one or more persons in Wisconsin , for which no review is provided under section 108.09 and with respect to which no penalty is provided in section 108.24, the following procedure shall apply:

"(2) A deputy designated by the commission for the purpose shall investigate the existence and extent of any such liability, and may issue an initial determination accordingly; provided, however, that such a deputy may set aside or amend any such determination at any t