Internal Revenue Code 6323

Internal Revenue Code 6323

Internal Revenue Code §6323. VALIDITY AND PRIORITY AGAINST CERTAIN PERSONS

6323(a) PURCHASERS, HOLDERS OF SECURITY INTERESTS, MECHANIC'S LIENORS, AND JUDGMENT LIEN CREDITORS. --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.

6323(b) PROTECTION FOR CERTAIN INTERESTS EVEN THOUGH NOTICE FILED. --Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid --

6323(b)(1) SECURITIES. --With respect to a security (as defined in subsection (h)(4)) --

6323(b)(1)(A) as against a purchaser of such security who at the time of purchase did not have actual notice or knowledge of the existence of such lien; and

6323(b)(1)(B) as against a holder of a security interest in such security who, at the time such interest came into existence, did not have actual notice or knowledge of the existence of such lien.

6323(b)(2) MOTOR VEHICLES. --With respect to a motor vehicle (as defined in subsection (h)(3)), as against a purchaser of such motor vehicle, if --

6323(b)(2)(A) at the time of the purchase such purchaser did not have actual notice or knowledge of the existence of such lien, and

6323(b)(2)(B) before the purchaser obtains such notice or knowledge, he has acquired possession of such motor vehicle and has not thereafter relinquished possession of such motor vehicle to the seller or his agent.

6323(b)(3) PERSONAL PROPERTY PURCHASED AT RETAIL. --With respect to tangible personal property purchased at retail, as against a purchaser in the ordinary course of the seller's trade or business, unless at the time of such purchase such purchaser intends such purchase to (or knows such purchase will) hinder, evade, or defeat the collection of any tax under this title. 6323(b)(4) PERSONAL PROPERTY PURCHASED IN CASUAL SALE . --With respect to household goods, personal effects, or other tangible personal property described in section 6334(a) purchased (not for resale) in a casual sale for less than $1,000, as against the purchaser, but only if such purchaser does not have actual notice or knowledge (A) of the existence of such lien, or (B) that this sale is one of a series of sales.

6323(b)(5) PERSONAL PROPERTY SUBJECT TO POSSESSORY LIEN. --With respect to tangible personal property subject to a lien under local law securing the reasonable price of the repair or improvement of such property, as against a holder of such a lien, if such holder is, and has been, continuously in possession of such property from the time such lien arose.

6323(b)(6) REAL PROPERTY TAX AND SPECIAL ASSESSMENT LIENS. --With respect to real property, as against a holder of a lien upon such property, if such lien is entitled under local law to priority over security interests in such property which are prior in time, and such lien secures payment of --

6323(b)(6)(A) a tax of general application levied by any taxing authority based upon the value of such property;

6323(b)(6)(B) a special assessment imposed directly upon such property by any taxing authority, if such assessment is imposed for the purpose of defraying the costs of any public improvement; or

6323(b)(6)(C) charges for utilities or public services furnished to such property by the United States, a State or political subdivision thereof, or an instrumentality of any one or more of the foregoing.

6323(b)(7) RESIDENTIAL PROPERTY SUBJECT TO A MECHANIC'S LIEN FOR CERTAIN REPAIRS AND IMPROVEMENTS. --With respect to real property subject to a lien for repair or improvement of a personal residence (containing not more than four dwelling units) occupied by the owner of such residence, as against a mechanic's lienor, but only if the contract price on the contract with the owner is not more than $5,000.

6323(b)(8) ATTORNEYS' LIENS. --With respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under local law, holds a lien upon or a contract enforcible against such judgment or amount, to the extent of his reasonable compensation for obtaining such judgment or procuring such settlement, except that this paragraph shall not apply to any judgment or amount in settlement of a claim or of a cause of action against the United States to the extent that the United States offsets such judgment or amount against any liability of the taxpayer to the United States.

6323(b)(9) CERTAIN INSURANCE CONTRACTS. --With respect to a life insurance, endowment, or annuity contract, as against the organization which is the insurer under such contract, at any time --

6323(b)(9)(A) before such organization had actual notice or knowledge of the existence of such lien;

6323(b)(9)(B) after such organization had such notice or knowledge, with respect to advances required to be made automatically to maintain such contract in force under an agreement entered into before such organization had such notice or knowledge; or

6323(b)(9)(C) after satisfaction of a levy pursuant to section 6332(b), unless and until the Secretary delivers to such organization a notice, executed after the date of such satisfaction, of the existence of such lien.

6323(b)(10) DEPOSIT-SECURED LOANS. --With respect to a savings deposit, share, or other account, with an institution described in section 581 or 591, to the extent of any loan made by such institution without actual notice or knowledge of the existence of such lien, as against such institution, if such loan is secured by such account.

6323(c) PROTECTION FOR CERTAIN COMMERCIAL TRANSACTIONS FINANCING AGREEMENTS, ETC . --

6323(c)(1) IN GENERAL. --To the extent provided in this subsection, even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid with respect to a security interest which came into existence after tax lien filing but which –

6323(c)(1)(A) is in qualified property covered by the terms of a written agreement entered into before tax lien filing and constituting --

6323(c)(1)(A)(i) a commercial transactions financing agreement,

6323(c)(1)(A)(ii) a real property construction or improvement financing agreement, or

6323(c)(1)(A)(iii) an obligatory disbursement agreement, and

6323(c)(1)(B) is protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation.

6323(c)(2) COMMERCIAL TRANSACTIONS FINANCING AGREEMENT. --For purposes of this subsection --

6323(c)(2)(A) DEFINITION. --The term "commercial transactions financing agreement" means an agreement (entered into by a person in the course of his trade or business) --

6323(c)(2)(A)(i) to make loans to the taxpayer to be secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade or business, or

6323(c)(2)(A)(ii) to purchase commercial financing security (other than inventory) acquired by the taxpayer in the ordinary course of his trade or business; but such an agreement shall be treated as coming within the term only to the extent that such loan or purchase is made before the 46th day after the date of tax lien filing or (if earlier) before the lender or purchaser had actual notice or knowledge of such tax lien filing.

6323(c)(2)(B) LIMITATION ON QUALIFIED PROPERTY. --The term "qualified property", when used with respect to a commercial transactions financing agreement, includes only commercial financing security acquired by the taxpayer before the 46th day after the date of tax lien filing.

6323(c)(2)(C) COMMERCIAL FINANCING SECURITY DEFINED. --The term "commercial financing security" means (i) paper of a kind ordinarily arising in commercial transactions, (ii) accounts receivable, (iii) mortgages on real property, and (iv) inventory.

6323(c)(2)(D) PURCHASER TREATED AS ACQUIRING SECURITY INTEREST. --A person who satisfies subparagraph (A) by reason of clause (ii) thereof shall be treated as having acquired a security interest in commercial financing security.

6323(c)(3) REAL PROPERTY CONSTRUCTION OR IMPROVEMENT FINANCING AGREEMENT. --For purposes of this subsection --

6323(c)(3)(A) DEFINITION. --The term "real property construction or improvement financing agreement" means an agreement to make cash disbursements to finance --

6323(c)(3)(A)(i) the construction or improvement of real property,

6323(c)(3)(A)(ii) a contract to construct or improve real property, or

6323(c)(3)(A)(iii) the raising or harvesting of a farm crop or the raising of livestock or other animals. For purposes of clause (iii), the furnishing of goods and services shall be treated as the disbursement of cash.

6323(c)(3)(B) LIMITATION ON QUALIFIED PROPERTY. --The term "qualified property", when used with respect to a real property construction or improvement financing agreement, includes only --

6323(c)(3)(B)(i) in the case of subparagraph (A)(i), the real property with respect to which the construction or improvement has been or is to be made,

6323(c)(3)(B)(ii) in the case of subparagraph (A)(ii), the proceeds of the contract described therein, and

6323(c)(3)(B)(iii) in the case of subparagraph (A)(iii), property subject to the lien imposed by section 6321 at the time of tax lien filing and the crop or the livestock or other animals referred to in subparagraph (A)(iii).

6323(c)(4) OBLIGATORY DISBURSEMENT AGREEMENT. --For purposes of this subsection --

6323(c)(4)(A) DEFINITION. --The term "obligatory disbursement agreement" means an agreement (entered into by a person in the course of his trade or business) to make disbursements, but such an agreement shall be treated as coming within the term only to the extent of disbursements which are required to be made by reason of the intervention of the rights of a person other than the taxpayer.

6323(c)(4)(B) LIMITATION ON QUALIFIED PROPERTY. --The term "qualified property", when used with respect to an obligatory disbursement agreement, means property subject to the lien imposed by section 6321 at the time of tax lien filing and (to the extent that the acquisition is directly traceable to the disbursements referred to in subparagraph (A)) property acquired by the taxpayer after tax lien filing.

6323(c)(4)(C) SPECIAL RULES FOR SURETY AGREEMENTS. --Where the obligatory disbursement agreement is an agreement ensuring the performance of a contract between the taxpayer and another person --

6323(c)(4)(C)(i) the term "qualified property" shall be treated as also including the proceeds of the contract the performance of which was ensured, and

6323(c)(4)(C)(ii) if the contract the performance of which was ensured was a contract to construct or improve real property, to produce goods, or to furnish services, the term "qualified property" shall be treated as also including any tangible personal property used by the taxpayer in the performance of such ensured contract.

6323(d) 45- DAY PERIOD FOR MAKING DISBURSEMENTS. --Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid with respect to a security interest which came into existence after the tax lien filing by reason of disbursements made before the 46th day after the date of tax lien filing, or (if earlier) before the person making such disbursements had actual notice or knowledge of tax lien filing, but only if such security interest --

6323(d)(1) is in property (A) subject, at the time of tax lien filing, to the lien imposed by section 6321, and (B) covered by the terms of a written agreement entered into before tax lien filing, and

6323(d)(2) is protected under local law against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation.

6323(e) PRIORITY OF INTEREST AND EXPENSES. --If the lien imposed by section 6321 is not valid as against a lien or security interest, the priority of such lien or security interest shall extend to --

6323(e)(1) any interest or carrying charges upon the obligation secured,

6323(e)(2) the reasonable charges and expenses of an indenture trustee or agent holding the security interest for the benefit of the holder of the security interest,

6323(e)(3) the reasonable expenses, including reasonable compensation for attorneys, actually incurred in collecting or enforcing the obligation secured,

6323(e)(4) the reasonable costs of insuring, preserving, or repairing the property to which the lien or security interest relates,

6323(e)(5) the reasonable costs of insuring payment of the obligation secured, and

6323(e)(6) amounts paid to satisfy any lien on the property to which the lien or security interest relates, but only if the lien so satisfied is entitled to priority over the lien imposed by section 6321, to the extent that, under local law, any such item has the same priority as the lien or security interest to which it relates.

6323(f) PLACE FOR FILING NOTICE; FORM . --

6323(f)(1) PLACE FOR FILING. --The notice referred to in subsection (a) shall be filed --

6323(f)(1)(A) UNDER STATE LAWS . --

6323(f)(1)(A)(i) REAL PROPERTY. --In the case of real property, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated; and

6323(f)(1)(A)(ii) PERSONAL PROPERTY. --In the case of personal property, whether tangible or intangible, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated, except that State law merely conforming to or reenacting Federal law establishing a national filing system does not constitute a second office for filing as designated by the laws of such State;

6323(f)(1)(B) WITH CLERK OF DISTRICT COURT. --In the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State has not by law designated one office which meets the requirements of subparagraph (A); or

6323(f)(1)(C) WITH RECORDER OF DEEDS OF THE DISTRICT OF COLUMBIA. --In the office of the Recorder of Deeds of the District of Columbia, if the property subject to the lien is situated in the District of Columbia.

6323(f)(2) SITUS OF PROPERTY SUBJECT TO LIEN. --For purposes of paragraphs (1) and (4), property shall be deemed to be situated --

6323(f)(2)(A) REAL PROPERTY. --In the case of real property, at its physical location; or

6323(f)(2)(B) PERSONAL PROPERTY. --In the case of personal property, whether tangible or intangible, at the residence of the taxpayer at the time the notice of lien is filed. For purposes of paragraph (2)(B), the residence of a corporation or partnership shall be deemed to be the place at which the principal executive office of the business is located, and the residence of a taxpayer whose residence is without the United States shall be deemed to be in the District of Columbia.

323(f)(3) FORM . --The form and content of the notice referred to in subsection (a) shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.

6323(f)(4) INDEXING REQUIRED WITH RESPECT TO CERTAIN REAL PROPERTY. --In the case of real property, if

6323(f)(4)(A) under the laws of the State in which the real property is located, a deed is not valid as against a purchaser of the property who (at the time of purchase) does not have actual notice or knowledge of the existence of such deed unless the fact of filing of such deed has been entered and recorded in a public index at the place of filing in such a manner that a reasonable inspection of the index will reveal the existence of the deed, and

6323(f)(4)(B) there is maintained (at the applicable office under paragraph (1)) an adequate system for the public indexing of Federal tax liens, then the notice of lien referred to in subsection (a) shall not be treated as meeting the filing requirements under paragraph (1) unless the fact of filing is entered and recorded in the index referred to in subparagraph (B) in such a manner that a reasonable inspection of the index will reveal the existence of the lien.

6323(f)(5) NATIONAL FILING SYSTEMS. --The filing of a notice of lien shall be governed solely by this title and shall not be subject to any other Federal law establishing a place or places for the filing of liens or encumbrances under a national filing system.

6323(g) REFILING OF NOTICE. --For purposes of this section --

6323(g)(1) GENERAL RULE. --Unless notice of lien is refiled in the manner prescribed in paragraph (2) during the required refiling period, such notice of lien shall be treated as filed on the date on which it is filed (in accordance with subsection (f)) after the expiration of such refiling period.

6323(g)(2) PLACE FOR FILING. --A notice of lien refiled during the required filing period shall be effective only --

6323(g)(2)(A) if --

6323(g)(2)(A)(i) such notice of lien is refiled in the office in which the prior notice of lien was filed, and

6323(g)(2)(A)(ii) in the case of real property, the fact of refiling is entered and recorded in an index to the extent required by subsection (f)(4); and

6323(g)(2)(B) in any case in which, 90 days or more prior to the date of a refiling of notice of lien under subparagraph (A), the Secretary received written information (in the manner prescribed in regulations issued by the Secretary) concerning a change in the taxpayer's residence, if a notice of such lien is also filed in accordance with subsection (f) in the State in which such residence is located.

6323(g)(3) REQUIRED REFILING PERIOD. --In the case of any notice of lien, the term "required refiling period" means --

6323(g)(3)(A) the one-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax, and

6323(g)(3)(B) the one-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.

6323(g)(4) TRANSITIONAL RULE. --Notwithstanding paragraph (3), if the assessment of the tax was made before January 1, 19 62, the first required refiling period shall be the calendar year 1967.

6323(h) DEFINITIONS. --For purposes of this section and section 6324 --

6323(h)(1) SECURITY INTEREST. --The term "security interest" means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money's worth.

6323(h)(2) MECHANIC'S LIENOR. --The term "mechanic's lienor" means any person who under local law has a lien on real property (or on the proceeds of a contract relating to real property) for services, labor, or materials furnished in connection with the construction or improvement of such property. For purposes of the preceding sentence, a person has a lien on the earliest date such lien becomes valid under local law against subsequent purchasers without actual notice, but not before he begins to furnish the services, labor, or materials.

6323(h)(3) MOTOR VEHICLE. --The term "motor vehicle" means a self-propelled vehicle which is registered for highway use under the laws of any State or foreign country.

6323(h)(4) SECURITY. --The term "security" means any bond, debenture, note, or certificate or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form, share of stock, voting trust certificate, or any certificate of interest or participation in, certificate of deposit or receipt for, temporary or interim certificate for, or warrant or right to subscribe to or purchase, any of the foregoing; negotiable instrument; or money.

6323(h)(5) TAX LIEN FILING. --The term "tax lien filing" means the filing of notice (referred to in subsection (a)) of the lien imposed by section 6321.

6323(h)(6) PURCHASER. --The term "purchaser" means a person who, for adequate and full consideration in money or money's worth, acquires an interest (other than a lien or security interest) in property which is valid under local law against subsequent purchasers without actual notice. In applying the preceding sentence for purposes of subsection (a) of this section, and for purposes of section 6324 --

6323(h)(6)(A) a lease of property,

6323(h)(6)(B) a written executory contract to purchase or lease property,

6323(h)(6)(C) an option to purchase or lease property or any interest therein, or

6323(h)(6)(D) an option to renew or extend a lease of property, which is not a lien or security interest shall be treated as an interest in property.

6323(i) SPECIAL RULES. --

6323(i)(1) ACTUAL NOTICE OR KNOWLEDGE. --For purposes of this subchapter, an organization shall be deemed for purposes of a particular transaction to have actual notice or knowledge of any fact from the time such fact is brought to the attention of the individual conducting such transaction, and in any event from the time such fact would have been brought to such individual's attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routine. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.

6323(i)(2) SUBROGATION. --Where, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by section 6321 or 6324.

6323(i)(3) FORFEITURES. --For purposes of this subchapter, a forfeiture under local law of property seized by a law enforcement agency of a State, county, or other local governmental subdivision shall relate back to the time of seizure, except that this paragraph shall not apply to the extent that under local law the holder of an intervening claim or interest would have priority over the interest of the State, county, or other local governmental subdivision in the property.

6323(i)(4) COST -OF-LIVING ADJUSTMENT. --In the case of notices of liens imposed by section 6321 which are filed in any calendar year after 1998, each of the dollar amounts under paragraph (4) or (7) of subsection (b) shall be increased by an amount equal to --

6323(i)(4)(A) such dollar amount, multiplied by

6323(i)(4)(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting "calendar year 1996" for "calendar year 1992" in subparagraph (B) thereof. If any amount as adjusted under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.

6323(j) WITHDRAWAL OF NOTICE IN CERTAIN CIRCUMSTANCES. --

6323(j)(1) IN GENERAL. --The Secretary may withdraw a notice of a lien filed under this section and this chapter shall be applied as if the withdrawn notice had not been filed, if the Secretary determines that --

6323(j)(1)(A) the filing of such notice was premature or otherwise not in accordance with administrative procedures of the Secretary,

6323(j)(1)(B) the taxpayer has entered into an agreement under section 6159 to satisfy the tax liability for which the lien was imposed by means of installment payments, unless such agreement provides otherwise,

6323(j)(1)(C) the withdrawal of such notice will facilitate the collection of the tax liability, or

6323(j)(1)(D) with the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of such notice would be in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and the United States. Any such withdrawal shall be made by filing notice at the same office as the withdrawn notice. A copy of such notice of withdrawal shall be provided to the taxpayer.

6323(j)(2) NOTICE TO CREDIT AGENCIES, ETC . --Upon written request by the taxpayer with respect to whom a notice of a lien was withdrawn under paragraph (1), the Secretary shall promptly make reasonable efforts to notify credit reporting agencies, and any financial institution or creditor whose name and address is specified in such request, of the withdrawal of such notice. Any such request shall be in such form as the Secretary may prescribe.

.01 Amended by P.L. 105-206, P.L. 104-168, 101-508, P.L. 100-647, P.L. 99-514, P.L. 95-600, P.L. 94-455, P.L. 89-719, P.L. 89-493 and P.L. 88-272. For details, see the Code Volumes.

§301.6323(a)-1., Purchasers, holders of security interests, mechanic's lienors, and judgment lien creditors

(a) Invalidity of lien without notice. --The lien imposed by section 6321 is not valid against any purchaser (as defined in paragraph (f) of §301.6323(h)-1), holder of a security interest (as defined in paragraph (a) of §301.6323(h)-1), mechanic's lienor (as defined in paragraph (b) of §301.6323(h)-1), or judgment lien creditor (as defined in paragraph (g) of §301.6323(h)-1) until a notice of lien is filed in accordance with §301.6323(f)-1. Except as provided by section 6323, if a person becomes a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor after a notice of lien is filed in accordance with §301.6323(f)-1, the interest acquired by such person is subject to the lien imposed by section 6321.

(b) Cross references. --For provisions relating to the protection afforded a security interest arising after tax lien filing, which interest is covered by a commercial transactions financing agreement, real property construction or improvement financing agreement, or an obligatory disbursement agreement, see §§301.6323(c)-1, 301.6323 (c)-2, and 301.6323 (c)-3, respectively. For provisions relating to the protection afforded to a security interest coming into existence by virtue of disbursements made before the 46th day after the date of tax lien filing, see §301.6323(d)-1. For provisions relating to priority afforded to interest and certain other expenses with respect to a lien or security interest having priority over the lien imposed by section 6321, see §301.6323(e)-1. For provisions relating to certain other interests arising after tax lien filing, see §301.6323(b)-1. [Reg. §301.6323(a)-1.]

.01 Historical Comment: Proposed 1/4/73. Adopted 8/20/76 by T.D. 7429.

§301.6323(b)-1., Protection for certain interests even though notice filed

(a) Securities

(1) In general. --Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid with respect to a security (as defined in paragraph (d) of §301.6323(h)-1) against --

(i) A purchaser (as defined in paragraph (f) of §301.6323(h)-1) of the security who at the time of purchase did not have actual notice or knowledge (as defined in paragraph (a) of §301.6323(i)-1) of the existence of the lien;

(ii) A holder of a security interest (as defined in paragraph (a) of §301.6323(h)-1) in the security who did not have actual notice or knowledge (as defined in paragraph (a) of §301.6323(i)-1) of the existence of the lien at the time the security interest came into existence or at the time such security interest was acquired from a previous holder for a consideration in money or money's worth; or

(iii) A transferee of an interest protected under subdivision (i) or (ii) of this subparagraph to the same extent the lien is invalid against his transferor.

For purposes of subdivision (iii) of this subparagraph, no person can improve his position with respect to the lien by reacquiring the interest from an intervening purchaser or holder of a security interest against whom the lien is invalid.

(2) Examples. --The application of this paragraph may be illustrated by the following examples:

Example (1). On May 1, 19 69, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to A's delinquent tax liability. On May 20, 19 69, A sells 100 shares of common stock in X corporation to B, who, on the date of the sale, does not have actual notice or knowledge of the existence of the lien. Because B purchased the stock without actual notice or knowledge of the lien, under subdivision (i) of subparagraph (1) of this paragraph, the stock purchased by B is not subject to the lien.

Example (2). Assume the same facts as in example (1) except that on May 30, 19 69, B sells the 100 shares of common stock in X corporation to C who on May 5, 19 69, had actual notice of the existence of the tax lien against A. Because the X stock when purchased by B was not subject to the lien, under subdivision (iii) of subparagraph (1) of this paragraph, the stock purchased by C is not subject to the lien. C succeeds to B's rights, even though C had actual notice of the lien before B's purchase.

Example (3). On June 1, 1970, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to D's delinquent tax liability. D owns 20 $1,000 bonds issued by the Y company. On June 10, 1970, D obtains a loan from M bank for $5,000 using the Y company bonds as collateral. At the time the loan is made M bank does not have actual notice or knowledge of the existence of the tax lien. Because M bank did not have actual notice or knowledge of the lien when the security interest came into existence, under subdivision (ii) of subparagraph (1) of this paragraph, the tax lien is not valid against M bank to the extent of its security interest.

Example (4). Assume the same facts as in example (3) except that on June 19, 1970 , M bank assigns the chose in action and its security interest to N, who had actual notice or knowledge of the existence of the lien on June 1, 1970 . Because the security interest was not subject to the lien to the extent of M bank's security interest, the security interest held by N is to the same extent entitled to priority over the tax lien because N succeeds to M bank's rights. See subdivision (iii) of subparagraph (1) of this paragraph.

Example (5). On July 1, 1970, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to E's delinquent tax liability. E owns ten $1,000 bonds issued by the Y company. On July 5, 1970, E borrows $4,000 from F and delivers the bonds to F as collateral for the loan. At the time the loan is made, F has actual knowledge of the existence of the tax lien and, therefore, holds the security interest subject to the lien on the bonds. On July 10, 1970, F sells the security interest to G for $4,000 and delivers the Y company bonds pledged as collateral. G does not have actual notice or knowledge of the existence of the lien on July 10, 1970. Because G did not have actual notice or knowledge of the lien at the time he purchased the security interest, under subdivision (ii) of subparagraph (1) of this paragraph, the tax lien is not valid against G to the extent of his security interest.

Example (6). Assume the same facts as in example (5) except that, instead of purchasing the security interest from F on July 10, 1970 , G lends $4,000 to F and takes a security interest in F's security interest in the bonds on that date. Because G became the holder of a security interest in a security interest after notice of lien was filed and does not directly have a security interest in a security, the security interest held by G is not entitled to a priority over the tax lien under the provisions of subparagraph (1) of this paragraph.

(b) Motor vehicles

(i) At the time of the purchase, the purchaser did not have actual notice or knowledge (as defined in paragraph (a) of §301.6323(i)-1) of the existence of the lien, and

(ii) Before the purchaser obtains such notice or knowledge, he has acquired actual possession of the motor vehicle and has not thereafter relinquished actual possession to the seller or his agent.

(2) Examples. --The application of this paragraph may be illustrated by the following examples:

Example (1). A, a delinquent taxpayer against whom a notice of tax lien has been filed in accordance with §301.6323(f)-1, sells his automobile (which qualifies as a motor vehicle under paragraph (c) of §301.6323(h)-1) to B, an automobile dealer. B takes actual possession of the automobile and does not thereafter relinquish actual possession to the seller or his agent. Subsequent to his purchase, B learns of the existence of the tax lien against A. Even though notice of lien was filed before the purchase, the lien is not valid against B, because B did not know of the existence of the lien before the purchase and before acquiring actual possession of the vehicle.

Example (2). C is a wholesaler of used automobiles. A notice of lien has been filed with respect to C's delinquent tax liability in accordance with §301.6323(f)-1. Subsequent to such filing, D, a used automobile dealer, purchases and takes actual possession of 20 automobiles (which qualify as motor vehicles under the provisions of paragraph (c) of §301.6323(h)-1) from C at an auction and places them on his lot for sale. C does not reacquire possession of any of the automobiles. At the time of his purchase, D does not have actual notice or knowledge of the existence of the lien against C. Even though notice of lien was filed before D's purchase, the lien was not valid against D because D did not know of the existence of the lien before the purchase and before acquiring actual possession of the vehicles.

(3) Cross reference. --For provisions relating to additional circumstances in which the lien imposed by section 6321 may not be valid against the purchaser of tangible personal property (including a motor vehicle) purchased at retail, see paragraph (c) of this section.

(1) In general. --Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a purchaser (as defined in paragraph (f) of §301.6323(h)-1) of tangible personal property purchased at a retail sale (as defined in subparagraph (2) of this paragraph) unless at the time of purchase the purchaser intends the purchase to (or knows that the purchase will) hinder, evade, or defeat the collection of any tax imposed by the Internal Revenue Code of 1954.

(2) Definition of retail sale. --For purposes of this paragraph, the term "retail sale" means a sale, made in the ordinary course of the seller's trade or business, of tangible personal property of which the seller is the owner. Such term includes a sale in customary retail quantities by a seller who is going out of business, but does not include a bulk sale or an auction sale in which goods are offered in quantities substantially greater than are customary in the ordinary course of the seller's trade or business or an auction sale of goods the owner of which is not in the business of selling such goods.

(3) Example. --The application of this paragraph may be illustrated by the following example:

Example. A purchases a refrigerator from the M company, a retail appliance dealer. Prior to such purchase, a notice of lien was filed with respect to M's delinquent tax liability in accordance with §301.6323(f)-1. At the time of the purchase A knows of the existence of the lien. However, A does not intend the purchase to hinder, evade, or defeat the collection of any internal revenue tax, and A does not have any reason to believe that the purchase will affect the collection of any internal revenue tax. Even though notice of lien was filed before the purchase, the lien is not valid against A because A in good faith purchased the refrigerator at retail in the ordinary course of the M company's business.

(d) Personal property purchased in casual sale

(1) In general. --Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a purchaser (as defined in §301.6323(h)-1(f)) of household goods, personal effects, or other tangible personal property of a type described in §301.6334-1 (which includes wearing apparel; school books; fuel, provisions, furniture, arms for personal use, livestock, and poultry (whether or not the seller is the head of a family); and books and tools of a trade, business, or profession (whether or not the trade, business, or profession of the seller)), purchased, other than for resale, in a casual sale for less than $250 (excluding interest and expenses described in §301.6323(e)-1). For purposes of this paragraph, a casual sale is a sale not made in the ordinary course of the seller's trade or business.

(2) Limitation. --This paragraph applies only if the purchaser does not have actual notice or knowledge (as defined in paragraph (a) of §301.6323(i)-1) --

(i) Of the existence of the tax lien, or

(ii) That the sale is one of a series of sales.

For purposes of subdivision (ii) of this subparagraph, a sale is one of a series of sales if the seller plans to dispose of, in separate transactions, substantially all of his household goods, personal effects, and other tangible personal property described in §301.6334-1.

(3) Examples. --The application of this paragraph may be illustrated by the following examples:

Example (1). A, an attorney's widow, sells a set of law books for $200 to B, for B's own use. Prior to the sale a notice of lien was filed with respect to A's delinquent tax liability in accordance with §301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $250 and involves books of a profession (tangible personal property of a type described in §301.6334-1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B's purchase.

Example (2). Assume the same facts as in example (1) except that B purchases the books for resale in his second-hand bookstore. Because B purchased the books for resale, he purchased the books subject to the lien.

Example (3). In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale a notice of lien was filed with respect to G's delinquent tax liability in accordance with §301.6323(f)-1. Because H had no actual notice or knowledge that substantially all of G's household goods were being sold, or that the sale is one of a series of sales and because the sale is a casual sale for less than $250, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in §301.6334-1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $500 in value.

(e) Personal property subject to possessory liens. --Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a holder of a lien on tangible personal property which under local law secures the reasonable price of the repair or improvement of the property if the property is, and has been, continuously in the possession of the holder of the lien from the time the possessory lien arose. For example, if local law gives an automobile repairman the right to retain possession of an automobile he has repaired as security for payment of the repair bill and the repairman retains continuous possession of the automobile until his lien is satisfied, a tax lien filed in accordance with §301.6323(f)(1) which has attached to the automobile will not be valid to the extent of the reasonable price of the repairs. It is immaterial that the notice of tax lien was filed before the repairman undertook his work or that he knew of the lien before undertaking the work.