[86-1 USTC ¶9347] Lorraine Ellen Garner, Plaintiff v. The Internal Revenue Service , United States of America , Defendant

U.S. District Court, So. Dist. Tex. , Houston Div., H-83-7283, 3/27/86, (632 FSupp 390.)

[Code Secs. 6321 , 6323(a) and 7425 ]

Assessment: Collection: Lien for taxes: Property subject to liens: Property transferred during a divorce: Validity and priority against third parties: Discharge of liens: State judicial foreclosure.--A district court concluded that federal law was applicable to determine the validity and priority of competing liens asserted against real property which had been transferred by an ex-wife to her former husband pursuant to a divorce decree that specified that a deed of trust with the power of sale would provide security for part of the monetary judgment awarded the wife. Even though the deed of trust was executed around the time of the conveyance it was not recorded until two years later and in the interim the IRS filed notices of federal tax liens. Following the ex-husband's default on his payments due to his ex-wife, the wife proceeded to purchase the property at a foreclosure sale. Since the former husband owned the property as his separate property at the time the tax liens attached, the court concluded that the issue was not one of state law but rather an issue concerning the priority of liens governed by federal law. Moreover, because the former wife's interest came into existence after the tax liens were filed the former wife's liens against such property were considered junior to the IRS 's tax liens under federal law. Furthermore, the court did not accept the wife's additional contention that an equitable lien had been created by the divorce judgment, since the lien was not specific or perfected in the federal sense prior to the filing of the tax liens. In addition, the special warranty deed referred to in the divorce decree did not provide constructive notice to the IRS of the lien's existence. Finally, in light of the court's determination that the ex-wife's interest was junior to the tax liens, the IRS 's failure to redeem the property within 120 days did not discharge the liens on the property.

Richard L. Petronella, Houston , Tex. 77006 , for plaintiff. Cary L. Jennings, Department of Justice, Dallas , Tex. 75242 , for defendant

MEMORANDUM

Hughes, District Judge:

Factual Background. Under a divorce decree, Lloyd Garner was awarded real property as his separate property. ¹ Lorraine Garner acknowledged the transfer of her interest in this property to Lloyd by special warranty deed recorded March 9, 1981. The deed recited that: (1) the conveyance was "pursuant to Final Decree of Divorce rendered in Cause No. 80-14607 . . . in the 311th Judicial District Court of Harris County . . ." and (2) Lloyd Garner had assumed the payments on the outstanding note payable to the North American Mortgage Co.

The divorce decree also provided that the property secure part of the monetary judgment awarded to Lorraine . A deed of trust with power of sale was executed in February, 1981. The deed of trust, however, was not recorded until two years later. Prior to its recordation, notices of federal tax liens against Lloyd Garner were filed pursuant to 26 U.S.C. §6321 .

The power of sale in the deed of trust was exercised when Lloyd defaulted on the payments due to his ex-wife under the divorce decree. Lorraine purchased the property at the foreclosure sale. Proper notice of the sale was given to the Internal Revenue Service ( IRS ) in accordance with 26 U.S.C. §7425 .

Lorraine has moved for a summary judgment declaring that her title to the property was superior to that of the United States and that the tax liens were extinguished by the foreclosure sale. The IRS has countered with a request for summary judgment declaring that the tax liens remain on the property because they were superior to Lorraine 's interest.

Issue 1. Does federal or state law apply in determining the priority of competing liens asserted against the Garner property?

Conclusion

Federal law applies. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 514 (1960).

Discussion and Authority. According to the Aquilino case, once a federal tax lien has attached to a taxpayer's property, federal law "determines the priority of competing liens" asserted against the property. Aquilino, supra at 514.

State law is utilized to determine the extent and nature of the interest the taxpayer has in the property. Here, however, there is no dispute that under Texas law Lloyd owned the real property as his separate property at the time the tax liens attached. The issue is the priority of the liens, and that is governed by federal law under Aquilino. Id.

Issue 2. Is Lorraine Garner's security interest entitled to priority over the federal tax liens?

Conclusion. No, Lorraine 's lien was junior to the federal tax liens, because under federal law, her interest "came into existence" after the tax liens were filed. 26 U.S.C. §6323(a) ; Treas. Reg. §301.6323(h)-1(a)(1)(i) .

Discussion and Authority. Under 26 U.S.C. §6321(a) , the amount of tax demanded by the IRS but not paid becomes a lien on property belonging to the taxpayer. If there is a security interest "in existence" prior to the filing of the notice of the lien, however, the tax lien is invalid against that interest. 26 U.S.C. §6323(a) .

The regulations provide that a security interest exists when ". . . the interest has become protected under local law against a subsequent judgment lien . . . ." Treas. Reg. §301.6323(h)-1(a) 1(i). For this purpose, protection against a subsequent judgment lien occurs when "all actions required under local law to establish the priority of a security interest against a judgment lien have been taken." Treas. Reg. §301.6323(h)-1(a)(2)(A) .

Here, Lorraine had a deed of trust conveying real property. Under Texas law, this instrument must be recorded to protect its priority against third parties acquiring interests in the property. Tex. Prop. Code §13.001(a). Her interest, therefore, "came into existence" under federal law when she recorded her deed of trust on February 1, 1983, perfecting the interest against subsequent judgment lien claimants. Because this was subsequent to the filing of the tax lien, the tax lien took precedence and was effective against her secured interest. 26 U.S.C. §6323(a) .

The result is not altered given Lorraine's argument that she had an equitable lien created by the divorce judgment ² since the lien was not specific nor perfected in the federal sense prior to the filing of the tax lien. United States v. Morrison [57-2 USTC ¶9801 ], 247 F.2d 285, 287 (5th Cir. 1957). In the Morrison case, an equitable vendor's lien on Texas real property arising prior to the filing of a federal tax lien was held to be junior in rank to the government's lien. Id. at 289. Though the lien did have standing under Texas law, the lien did not have "sufficient completeness" to meet federal standards. Id.

The fact that the special warranty deed referred to the final decree of divorce (which, in turn, provided for the lien) should not charge the IRS with constructive notice of the lien. The reference was incidental. The bare reference states nothing to arouse the suspicion of the existence of a lien. Miles v. Martin, 321 S.W.2d 62 ( Tex. 1959). Cases charging constructive notice to creditors encompass situations where the creditors are charged with notice of the terms of the outstanding debt referred to in the deed. ³

In addition, the Lasater case cited by Lorraine is not analogous to the facts here. Lasater v. Hinson, 84 S.W.2d 874 (Tex. Civ. App.--Ft. Worth 1935, no writ). The deed here does not refer to the divorce decree for further information clearly critical to the real property transaction. Id.

Lorraine 's interest was junior to the tax liens according to both Texas law and federal law. Texas law required Lorraine to record the deed of trust before the filing of the tax liens to protect the priority of her interest against the interest of the United States . Tex. Prop. Code §13.001(a). Even if the United States had a deed of trust rather than the tax liens on the property, Lorraine would still be required to record her deed of trust to protect its priority.

Under federal law, Lorraine 's interest was also junior to the tax liens, because the interest "came into existence" after the tax liens were filed. 26 U.S.C. §6323(a) ; Treas. Reg. §301.6323(h)-1(a)(1)(i) .

Issue 3. Does the IRS 's failure to redeem the property within 120 days discharge the liens on the Garner property under 26 U.S.C. §7425 ?

Conclusion. No, the tax liens are not discharged because the IRS failed to redeem the property within 120 days since Lorraine 's interest was junior to the tax liens. 26 U.S.C. §7425(d)(1) ; Treas. Reg. §301.7425-2(a) .

Discussion and Authority. Section 7425 of the Code provides protection for tax liens which may be discharged by nonjudicial foreclosing proceedings, including the right of the United States to redeem the property within 120 days from the date of the foreclosure sale. 26 U.S.C. 7425(d). Here, Lorraine argues that the foreclosure sale extinguished the tax liens because the United States did not redeem the property within 120 days of the sale and because none of the other protection provisions apply.

Section 7425 applies only where the sale of real property is to satisfy a lien prior to that of the United States , i.e. when the United States is the junior lien claimant. 26 U.S.C. §7425(d)(1) ; Treas. Reg. §301.7425-2(a) . As previously stated, Lorraine 's security interest was junior to the federal tax liens; therefore, §7425 does not apply, and the fact that the property was not redeemed within 120 days has no bearing on this case.

A summary judgment will be granted in favor of the IRS because:

(1) The federal tax liens were superior to Lorraine Garner's security interest because her interest was recorded subsequent to the IRS 's liens, and

(2) The foreclosure by Lorraine Garner did not extinguish the tax liens under 26 U.S.C. §7425 .

Garner v. IRS

Appendix A

A. Divorce decree awards Lloyd Garner real property as his separate property (2/13/81)

B. Lloyd Garner executes deed of trust on property in favor of Lorraine Garner (2/23/81)

C. Lorraine executes special warranty deed acknowledging transfer of her title in the property to Lloyd (3/6/81)

D. Lorraine records special warranty deed (3/9/81)

E. IRS records liens in favor of the United States upon all property of Lloyd Garner (7/22/81--10/21/82)

F. Lloyd defaults on payments owed to Lorraine

G. Lorraine records deed of trust executed in 1981 (2/1/83)

H. Lorraine sends notice of foreclosure sale to the IRS (2/2/83)

I. Lorraine purchases property at the foreclosure sale (3/1/83)

FINAL JUDGMENT

The motion for summary judgment of the Internal Revenue Service is granted. The federal tax liens remain on the property because they were superior to Ms. Garner's interest.

Accordingly, Lorraine Garner's motion for summary judgment is denied.

¹ Appendix A to this memorandum is a time chart of this case's events.

² Lorraine 's argument is based on Day v. Day, 610 S.W.2d 195 (Tex. Civ. App.--Tyler, 1980, writ ref'd n.r.e). There the court held that where a divorce decree expressly fixed a lien on property to secure the money judgment, an equitable lien arose which could not be defeated against a subsequent homestead claim by the ex-spouse. Day, supra, at 199. The court stated that this equitable lien could "stand independent of any statutory recording requirements, at least as to the parties to the divorce." Id. at 198 (emphasis supplied).

³ See Crews v. Taylor, 56 Tex. 461 (1882) (record of deed reciting a consideration of $1,500 paid and secured is notice of unpaid purchase money); Clementz v. M.T. Jones Lumber, 18 S.W. 599 (Tex. 1891) (recorded real-estate mortgage describing note and debt, but omitting amount of note held constructive notice of mortgage); Fennimore v. Ingham, 181 S.W. 513 (Tex. Civ. App.-Amarillo, 1915), modified on other grounds, 215 S.W. 956 (Tex. Comm'n App. 1919, judgmt adopted) (deed describing note and its terms was notice to purchaser of outstanding debt even though note had been assigned).

[74-1 USTC ¶9114]Jerry Bain v. United States of America

U. S. District Court, East. Dist. Tex. , Tyler Div., No. TY-73-CA-70, 9/25/73

[Code Sec. 7425]

Civil suits: Discharge of liens: Redemption by the United States.--A parcel of real property which had been sold at a foreclosure sale on December 5, 1972, was encumbered by three Federal Tax liens and was redeemed by the United States . Since two Federal Tax liens were assessed and filed against the transferors of real property and attached to the property on the date title to the property was reconveyed to them, and a third Federal Tax lien attached subsequent to the reconveyance and prior to the foreclosure sale, the property was encumbered by the tax liens and was subject to redemption. Also, the Government's good faith tender of $30,711.24 within 120 days of the foreclosure sale was sufficient to preserve redemption rights although the check was rejected.

Jerry Bain, 237 S. Broadway, Tyler , Tex. , for plaintiff. Roby Hadden, United States Attorney, Houston Abel, Assistant United States Attorney, Tyler, Tex., for defendant.

Findings of Fact

JUSTICE, District Judge:

The parties have stipulated to the following facts:

(1) On May 4, 19 65, the property that is the subject of this civil action (hereinafter "the King property") was encumbered by a deed of trust in favor of East Texas Savings and Loan Association by its owners, Kenneth R. King and Neva J. King (hereinafter "the Kings"). See Exhibit 1.

(2) On February 24, 19 69, the Kings purported to convey the King property to John Cowan. On December 10, 19 69, Cowan purported to re-convey the King property to the Kings. See Exhibit 5.

(3) As reflected in exhibits 2, 3, and 4, federal tax liens were assessed and filed against the Kings as follows:

                             Assessed                 Filed            Amount

Mr. King ......         
June 19, 19
69         
June 20, 19
69         $8,925.59

Mrs. King .....         
June 19, 19
69         
June 30, 19
69          6,719.96

Mr. & Mrs.

King ..........          May 29, 1972         Oct. 17, 1972          1,039.77

(4) On December 5, 1972 , after giving proper notice to the Internal Revenue Service as provided by the Tax Lien Act of 1966, East Taxes Savings and Loan Association foreclosed its deed of trust on the King property and sold the property, at a foreclosure sale, to Jerry Bain, Esquire (hereinafter "Bain"), for $30,010.00. See Exhibit 6.

(5) On January 8, 1973, Glenn Ray (hereinafter "Ray"), an agent of the Internal Revenue Service, requested by letter certain information from Bain regarding expenses and income in the King property. See Exhibit 7. Bain responded by letter to this request on January 12, 1973 (see Exhibit 8) and responded to a subsequent request for updating of expenses and income on March 26, 1973 (see Exhibit 9). As reflected in both Exhibits 8 and 9, Bain makes the following claims:

1. Cash advanced to East Texas Savings and Loan Association

at foreclosure sale .............................................                        $30,010.00

Six percent interest from Dec. 5, 1972 ..........................                            600.20

2. Preparation of trustee's deed ................................                             30.00

3. Preparation of note and deed of trust to Tyler bank ..........                             30.00

4. Homestead designation ........................................                             25.00

5. Title opinion on property in question ........................                            150.00

6. Recording fees ...............................................                             11.50

7. Fire and Extended Coverage Insurance on the

property in question (annual premium $215)--two

months short-term cancellation rate .............................          58.05

Additional premium ..............................................          37.95              96.00

8. Fair market rental value ($350 per month) ....................         700.00

Additional rental value (2 mo.) .................................         700.00           1,400.00

9. Time and effort expended in his own behalf in connection

with review and research of applicable law and conference

with Internal Revenue Service officials .........................                            500.00

10. Trips to the house to light the furnace and drain

the faucets to protect the property from freezing

(7 trips at $10.00 ea.) .........................................          70.00

2 additional trips ..............................................          20.00              90.00

11. Taxes (contingent liability) as of November 30, 1972 ........                          3,598.44

12. Repair of the roof ..........................................                             40.00

(6) On March 28, 1973, two officers of the Internal Revenue Service appeared at Bain's office and placed a check for $30,711.24 on his desk. Bain refused to accept the check. See Exhibit 10.

(7) On March 28, 1973, Bain filed with the County Clerk of Smith County an affidavit contesting any Internal Revenue Service certificate of redemption on the King property. See Exhibit 11 (Deed Records, volume 1444, page 833).

(8) On March 29, 1973, the United States filed a certificate of redemption with the County Clerk of Smith County . See Exhibit 12.

(9) On April 3, 1973, Bain requested by letter to Ray that the Internal Revenue Service revoke its certificate of redemption. See Exhibit 13.

(10) No tender was made by the defendant to Bain before March 28, 1973; and no tender has been made to Bain since March 28, 1973.

(11) Under the ordinary and customary real estate practice in Texas , the expense of preparing the promissory note, deed of trust, homestead designation, and title opinion are borne by the buyer and the expense of preparing the trustee's deed is borne by the seller.

(12) The property is not needed by the United States for any area crucial to national defense or for other public purposes.

Conclusions of Law

(1) This court has jurisdiction of this civil action to quiet title to property under 28 U. S. C. A. §1346(f) (Supp. 1973). See also 28 U. S. C. A. §2409(a) (Supp. 1973) (waiver of immunity by the United States ).

(2) Assuming for purposes of this action that title to the King property was conveyed by the Kings to Cowan on February 24, 19 69, and from Cowan back to the Kings on December 10, 19 69, the two federal tax liens assessed and filed against the Kings during this interim of Cowan ownership nevertheless attached to the King property on the date title was reconveyed to the Kings, i. e., December 10, 19 69. See Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 265 (1945).

(3) The third federal tax lien assessed and filed against the Kings subsequent to December 10, 19 69, but prior to the foreclosure sale on December 5, 1972, attached to the King property on the date of assessment, i. e., May 29, 1972. 26 U. S. C. A.

(4) Since title to the King property was held by the Kings on the date of the foreclosure sale, December 5, 1972, and the property was encumbered by the three federal tax liens on that date, such property was subject to redemption by the United States . 26 U. S. C. A. §7425.

(5) The tender in good faith of a check for $30,711.24 by Ray to Bain, on March 28, 1973, within 120 days of the foreclosure sale, was sufficient, despite the rejection of such check by Bain, to preserve the redemption rights of the United States . See Equity Mortgage Corporation v. Loftus [70-2 USTC ¶9722], 323 F. Supp. 144 (E. D. Va. 1970) (dispute between United States and purchaser at foreclosure sale over the amount required for redemption does not give rise to a waiver of redemption rights by the United States).

(6) In order to satisfy the amount specified for redemption in 28 U. S. C. A. §2410(d), the United States must pay the following amounts:

1. The actual amount paid by the purchaser at such sale, i. e., $30,010.00;

2. Interest on the amount paid by the purchaser at such sale at 6 percent per annum from the date of such sale;

3. The amount equal to the excess of (A), the expenses necessarily incurred in connection with such property, over (B), the income from such property plus (to the extent such property is used by the purchaser) a reasonable rental value of such property, as follows:

(A) The expenses necessarily incurred in connection with such property:

(i) Note, deed of trust--$30.00

(ii) Homestead designation--$25.00

(Although the matter is not entirely free from doubt, the court concludes that the inclusion of Bain's expense for the promissory note, deed of trust, and homestead designation in financing his purchase that is, under Texas practice, normally incurred by the buyer, is reasonable and is an expense necessarily incurred in connection with the property. Performance of this legal work by Bain, an attorney, for himself as client, does not change the result.)

(iii) Recording fees--$11.50

(iv) Fire and extensive coverage insurance--$96.00

(v) Repair to the roof--$40.00 (By agreement of the United States )

(B) Since the statute allows only those expenses in Section A that exceed the income from the property plus (to the extent such property is used by the purchaser) a reasonable rental value of such property, and since the reasonable rental value claimed by Bain of $1400.00 clearly exceeds the total expenses claimed in Section (A) of $202.50, it is clear that, under Bain's interpretation, he would be entitled to no reimbursement under this third section. Nevertheless, since no evidence was introduced at the hearing that would indicate that Bain either rented or used the property, and since the court agrees with the United States that Bain merely misinterpreted Section (B), the court concludes that it would be unfair to penalize Bain for his misinterpretation.

Thus, all the expenses listed above in Section 3(A) will be included among those to be borne by the United States .

(7) Bain's claim of $30.00 for preparation of a trustee's deed is disallowed on the ground that this expense is not, under Texas practice, normally incurred by the buyer and therefore does not constitute an expense necessarily incurred in connection with the property.

(8) Bain's claim of $150.00 for preparation of a title opinion was not shown by credible evidence at the hearing to be the result of an agreement to pay such sum or the result of an actual out-of-pocket expense and is therefore disallowed.

(9) Bain's claim of $500.00 for conferences with agents of the Internal Revenue and $90.00 for trips to the King property was not shown to be either reasonable or necessarily incurred in connection with the property and are therefore disallowed.

(10) Since Bain's claim of $3,598.44 for real estate taxes is contingent only and was not, at the time of foreclosure, an out-of-pocket expense, such claim must be disallowed.

[71-1 USTC ¶9341] United States of America , Plaintiff v. Ralph H. Newkirk, et al., Defendants

U. S. District Court, No. Dist. Ill. , East. Div., No. 70 C 565, 3/22/71

[Code Sec. 7425(d)--Result unchanged by '69 Tax Reform Act]

Discharge of liens: Period for redemption by U. S.: Date of sale: Illinois tax sale.--The U. S. waived its right to redeem property from an Illinois tax sale purchaser where it failed to do so within the 120-day redemption period following the date of the sale. The date of the sale was the actual date of the tax sale and not the date the tax deed was issued to the purchaser after the Illinois redemption period expired. Although Temporary Reg. §400.4-1(b)(1)(vi) proclaimed the date of sale for a nonjudicial sale other than a public or private sale to be the date on which junior liens on the property are divested under local law (the date the tax deed is issued in Illinois), the court found that the Treasury Department was contemplating the type of nonjudicial sale that is made after the period of redemption has expired and not a tax sale procedure such as Illinois has, where the sale is held before the redemption period begins to run.

Thomas A. Foran, United States Attorney, Chicago , Ill. , for plaintiff. Thomas E. Foster, Boodell, Sears, Sugrue & Crowley, 33 N. LaSalle, Chicago, Ill., Francis A. Dunn, 503 Joliet Bldg., Joliet, Ill., E. V. Hanrahan, State's Attorney, Peter C. Alexander, Assistant State's Attorney, 500 Chicago Civic Center, Chicago, Ill., for defendants.

Memorandum Opinion

DECKER, District Judge:

The issue presented by the cross-motions for summary judgment in this case is whether the United States made a timely redemption of real property which had been sold to one of the defendants at a time when it was encumbered with a federal tax lien.

The material facts are not in dispute. Defendants Frank lin K. Newkirk and Louise Newkirk, husband and wife, are the former owners of the real property which is the subject matter of this litigation. At the time they still owned the property, the Secretary of the Treasury made an assessment against them for unpaid federal income taxes and filed federal tax liens in the county where the real estate is located. At present, the assessment against the two taxpayers has been only partially satisfied.

In 1965 the Illinois real estate taxes went unpaid on the Newkirk property. On November 9, 19 66, the property was sold pursuant to Ill. Rev. Stat. ch. 120, §719 et seq. The purchaser at the tax sale was defendant Ralph Newkirk, brother of Frank lin Newkirk. ¹ He was issued a certificate of purchase, which he held for the statutory two year redemption period. Ill. Rev. Stat. ch. 120, §§ 729, 734. He elected to extend the redemption period for a third year, Ill. Rev. Stat. ch. 120, §744, and when redemption was not forthcoming, he applied for and was granted a tax deed to the property on November 10, 19 69. Ill. Rev. Stat. ch. 120, §739.

On March 6, 1970 , within 120 days of the issuance of the tax deed, the District Director of Internal Revenue tendered to Ralph Newkirk the amount which was deemed necessary to redeem the property pursuant to 26 U. S. C. §7425(d), a provision of the Internal Revenue Code which was added as part of the Federal Tax Lien Act of 1966. Newkirk refused the tender. Moreover, demand was made upon defendant Clara Woodard, the county clerk, to issue documents of redemption to the federal government. That demand was likewise refused. Finally, on March 9, 1970, the District Director executed a certificate of redemption pursuant to 26 U. S. C. §7425(d)(3) and recorded it with the county recorder and with the clerk of this court. This action followed.

The complaint is in the nature of an action to quiet title in the United States to the property now claimed by defendant Ralph Newkirk. 26 U. S. C. §7402(e). Plaintiff prays that this court declare the property to be properly redeemed, that it declare Ralph Newkirk's tax deed null and void and a cloud on its title, and that it order deposited with the clerk of the court the amount necessary to redeem the property from Newkirk. Defendant Ralph Newkirk has moved to dismiss the complaint for failure to state a claim upon which relief can be granted, F. R. Civ. P. §12(b)(6), or in the alternative to grant summary judgment. F. R. Civ. P. §56. Plaintiff has filed a cross-motion for summary judgment. ²

This is a case of first impression, involving the construction of the statutory time limit in which the United States must redeem property subject to a federal tax lien or otherwise foreclosed from asserting a claim thereunder. Section 109(d)(1) of the Federal Tax Lien Act of 1966, 26 U. S. C. §7425(d)(1), provides:

"In the case of a sale of real property to which subsection (b) applies to satisfy a lien prior to that of the United States , the Secretary or his delegate may redeem such property within the period of 120 days from the date of such sale or the period allowable for redemption under local law, whichever is longer. (Emphasis added.)

Several points are not in controversy. It is undisputed that the Federal Tax Lien Act was in effect at the time of the transaction in suit. The tax sale occurred on November 9, 19 66. The Act was made to apply to sales occurring after November 2, 19 66. Temp. Treas. Reg. §400.4-1(a)(2). It is likewise undisputed that the Illinois tax sale was conducted to satisfy a lien, in the form of unpaid real estate taxes, which was prior to that of the United States . 26 U. S. C. §6323(b)(6)(A). Finally, it is undisputed that the United States did not redeem the property "within . . . the period allowable for redemption under local law. . . ." The period for redemption under Illinois law, which had been extended from who two to three years, expired on November 9, 19 69. The payment necessary to work redemption was not rendered until March 6, 1970.

The precise question presented is whether the redemption, which occurred within 120 days of the issuance of the tax deed to defendant Ralph Newkirk, should be deemed to have occurred within 120 days "from the date of such sale", as provided in §7425(d)(1). Newkirk argues that the "sale" referred to is the tax sale that occurred on November 9, 19 66, and that the redemption was thus not timely. Plaintiff argues that the "sale" was not consummated until Newkirk was issued his tax deed, and that the redemption was thus timely.

It is clear from the language of §7425(d)(1) that Congress intended the government to have at least 120 days from the date of sale in which to redeem property subject to a federal tax lien. However, if the period for redemption under local law was longer than 120 days, then the government was to enjoy that longer period. The language thus contemplates two distinct time periods available for the government to redeem property subject to a federal tax lien, with the option open for it to choose the longer period in any given case.

The construction of "date of sale" advanced by plaintiff, the date on which the tax deed issued under Illinois law, would frustrate the clear language of the Act. Plaintiff's interpretation of §7425(d)(1) would permit the government to redeem property within 120 days of the expiration of the state-law period of redemption, no matter how long or short that period was. The effect of that construction would be to emasculate completely that part of the statute which permits the government to redeem property within the period created by state law for redemption, if longer. Under plaintiff's interpretation, the government could always wait until 120 days after the tax deed had issued and the time for redemption under state law had expired. To adopt plaintiff's position would be to violate the cardinal rule of statutory construction that effect should be given to all the provisions of a statute, if reasonably possible. Green v. King Edward Employees' Federal Credit Union, 373 F. 2d 613, 616 (5th Cir. 1967); In re Thomas, 310 F. Supp. 338, 339 (N. D. Cal. 1970).

Plaintiff relies upon Temporary Treasury Regulation §400.4-1(b)(1)(vi), which defines "date of sale" as that date upon which junior liens are divested under local law. In Illinois , that date is the date of the issuance of the tax deed, following the expiration of the period of redemption. However, the examples given in support of the regulation are distinguishable from the Illinois tax sale procedure. Temp. Treas. Reg. §400.4-1(b)(2) (ex. 3) contemplates a strict foreclosure of mortgage procedure. Temp. Treas. Reg. §400.4-1(b)(2) (ex. 4) deals with a type of non-judicial sale wherein the sale is held after the period of redemption has expired, rather than (as in Illinois ) before the period begins to run. In drafting Temp. Treas. Reg. §400.4-1(b)(1)(vi), it thus appears that the Treasury Department did not contemplate the type of tax sale procedure which operates under Illinois law.

Plaintiff's position is made even more untenable by the effect that would be given to the provision for the amount necessary to work redemption. Under 28 U. S. C. §2410(d)(2), the United States must upon redemption pay to the tax purchaser interest at the rate of six per cent from the date of the sale. If plaintiff's construction of the "date of sale" were adopted, then the United States would only have to pay interest from the date of the issuance of the tax deed until the date of redemption. No interest would be paid by the United States for the two-year period (or in this case, where an extension was obtained, during the three-year period) during which the tax purchaser held a certificate of purchase which was subject to redemption by the original owner. I cannot imagine that Congress contemplated such a result. While the federal government has a legitimate interest in its tax lien, it cannot strain the construction of a federal statute to extend beyond its plain meaning. United States Gypsum Co. v. United States , 253 F. 2d 738, 744 (7th Cir. 1958). Nor can it gain refuge from a regulation which was intended to apply to other types of non-judicial sales.

Under this court's construction of the statute, plaintiff will still have two years during which to redeem Illinois property subject to a federal tax lien. In this case the holder of the certificate of purchase, Ralph Newkirk, extended the period for an extra year; hence, plaintiff had a full three years. In permitting the state-law period of redemption to expire, which period is longer than 120 days, plaintiff waived the right to redeem the property under 26 U. S. C. §7425(d)(1).

I hold that insofar as the Illinois tax sale procedure is concerned, the "date of sale" provision of 26 U. S. C. §7425(d)(1) refers to the date of the tax sale, at which the purchaser is issued a certificate of purchase and the statutory period of redemption commences. It does not refer to the date at which the tax deed issues, even though it is not until then that the purchaser is issued a deed to the property. The language of the statute does not compel such a strained interpretation. Cf. LeMaistre v. Leffers, 333 U. S. 1, 4 (1948).

Because of the construction this opinion gives to the statute, there is no need to reach the constitutional arguments advanced by defendant.

Accordingly, plaintiff's motion for summary judgment is denied, defendant Ralph Newkirk's motion for summary judgment is granted, and the cause is dismissed.

¹ For a brief explanation of the Illinois tax sale procedure, see Balthazar v. Mari, Ltd., 301 F. Supp. 103, 104 (N. D. Ill. 1969), aff'd 396 U. S. 114.

² Since the parties have submitted matters outside the pleading support of their respective motions, defendant's motion will be considered only as one for summary judgment. F. R. Civ. P. §12.

[89-2 USTC ¶9482] Southwest Products Co., Inc., Plaintiff-Appellant, and Stanley Phillips, Trustee, Plaintiff v. United States of America , acting through the Internal Revenue Service, Defendant-Appellee. Trustee, Estate of Marina Lodge Associates, Amicus Curiae

(CA-4), U.S. Court of Appeals, 4th Circuit, 89-2907, 8/14/89 , 882 F2d 113, Affirming an unreported District Court decision

[Code Sec. 7425 ]

Lien for taxes: Right of redemption: Redemption period.--The IRS properly redeemed property subject to its junior tax lien from a senior lienholder who successfully bid for the property at a public foreclosure sale. The senior lienholder's failure to pay closing costs did not constitute withdrawal of its bid; therefore, it acquired an equitable interest in the property to which the IRS could succeed upon redemption. Furthermore, the redemption was not in violation of a bankruptcy stay because the property had been removed from the bankruptcy estate to conduct the foreclosure sale. Finally, the IRS 's filing of the redemption certificate six days after the 120-day redemption period elapsed did not invalidate the redemption, since the IRS completed the act of redemption by tendering a redemption check to the property owner within the 120-day period.