Fact-Finding Page2

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c. Foreclosure of Tax Liens

By statute, when a person refuses to pay a tax debt on demand, the amount due (plus penalties and costs as they accrue) becomes a lien upon all the person's property, 26 U.S.C. §6321. These tax liens arise when the assessment is made and continue until the liability is satisfied. 26 U.S.C. §6322. In this case, notice of the tax lien was recorded in the Kitsap County Auditor's office on October 2, 1992, in compliance with 26 U.S.C. §6323(f).

The United States has submitted proof of the assessments and outstanding tax debt of Albert C. Reid, in the Forms 4340. Mr. Reid has not paid these assessments after notice and demand, thus the statutory liens created at the time of assessment remain in effect. Mr. Reid has not submitted any evidence which creates a question of fact about the validity of these underlying assessments. See Arford, supra.

The two properties at issue here are marital community property under RCW 26.16.030 since the Reids acquired them after marriage. Mr. Reid's tax liabilities are presumed to be community debts since they were incurred after marriage. Beyers v. Moore , 45 Wash.2d 68, 70, 272 P.2d 626 (1954) The burden of proving otherwise rests on the community. Id. This presumption may only be overcome by clear and convincing evidence. Id. Where a husband had acquired federal tax debt before marriage, the United States could enforce its lien against his interest in community property. United States v. Overman [70-1 USTC ¶9342], 424 F.2d 1142 (1970). In this case, where the debt was acquired by the community, the community will be held liable. Mr. Reid has not submitted any evidence which controverts the liability of the community for these debts.

The district court is specifically vested with jurisdiction over actions to enforce the internal revenue laws, pursuant to 26 U.S.C. §7402. The court is further authorized to order a sale and distribution of the proceeds to the United States and other parties, according to the findings of the court. 26 U.S.C. §7403.

Therefore, the court finds that the community properties at issue here shall be sold to satisfy the tax debt of Albert C. Reid. The property shall be sold at auction by the U.S. Marshals Service, with proceeds distributed (1) to the U.S. Marshal for allowed costs of sale, (2) to Kitsap County for any real property tax or special assessment liens having priority on either of the properties under 26 U.S.C. §6323(b)(6),(3) to defendant GMAC Mortgage Corp. to satisfy the balance of the mortgage on the residence and (4) to the United States, to be applied to the unpaid tax liabilities of Albert C. Reid.

THEREFORE IT IS HEREBY ORDERED:

(1) The plaintiffs' motion for partial summary judgment (docket #32) is DENIED.

(2) The defendant's motion to amend its complaint (docket #35) is GRANTED.

(a) The complaint is deemed amended as of the date of the United States motion for summary judgment, without service to the "Truth in Life Society".

(3) The defendant's motion for summary judgment (docket #35) is GRANTED.

(a) The court finds that the transfer of the lakefront property was made with the intent to delay or defraud; that the United States may avoid this transfer as fraudulent and proceed to establish and foreclose its tax liens on the property.

(b) Mr. Reid is liable for the assessed tax liabilities, statutory interest, penalties and additions, minus any credits as calculated by the United States as of the date of this order.

(c) The court finds that the community properties at issue here shall be sold to satisfy the tax debt of Albert C. Reid. The property shall be sold at auction by the U.S. Marshals Service, with proceeds distributed to (1) the U.S. Marshal, (2) Kitsap County , (3)defendant GMAC Mortgage Corp and (4) the United States .

 

 

[92-2 USTC ¶50,526] American Buildings Company, an Alabama corporation, Plaintiff v. Turner Construction Company, Inc., etc., et al., Defendant

U.S. District Court, Mid. Dist. Fla., Orlando Div., 91-596-CIV-ORL-19, 7/22/92

[Code Secs. 6321 and 6323 ]

Lien for taxes: Validity: Priority of liens.--A judgment lien creditor failed to present any evidence that his lien became choate prior to the filing of the notice of tax lien. The judgment lien creditor did not establish that the funds in question were subject to levy and sale prior to the tax lien. Accordingly, the federal tax lien prevailed because the tax lien was created and perfected as to all property, including after-acquired property, upon assessment of the tax against the debtor.

ORDER

FAWSETT, District Judge:

This case is before the Court upon Motion by Intervenor United States of America for Summary Judgment and Memorandum in Support thereof (Doc. Nos. 10 and 11, filed March 9, 1992); Memorandum by Intervenor Hughes Supply, Inc. in Opposition to the Motion for Summary Judgment (Doc. No. 13, filed March 31, 1992); Supplemental Memorandum by Intervenor Hughes Supply, Inc. Pursuant to Court Order of May 26, 1992 (Doc. No. 19, filed June 9, 1992); and the materials submitted in support of and in opposition to the Motion for Summary Judgment.

In its Order of May 26, 1992 (Doc. No. 17), the Court determined that the Government had met its burden of showing the absence of a genuine issue as to any material fact and announced its intention to grant the Government's Motion for Summary Judgment unless Hughes could establish that an execution lien attached to the funds that are the subject of this action prior to the Notice of Federal Tax Lien filed on July 5, 1990. Hughes has failed to present to the Court any materials indicating that the funds in question were subject to levy and sale at the time the writ of execution was delivered to the Seminole County Sheriff or at any time prior to July 5, 1990 . Instead, Hughes reasserts its arguments that the Government's tax lien could not have arisen prior to its own. Hughes contends that even if it became a judgment lien creditor at the time Casey acquired the property on March 9, 1991 , its claim is superior to that of the Government because the federal tax lien could not have attached prior to that time.

Hughes's argument is unpersuasive. A federal tax lien is created and perfected as to all property and rights to property, including after-acquired property, upon assessment of the tax against the debtor. 26 U.S.C. §§6321 , 6322 ; Rice Investment Company v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 568 (5th Cir. 1980). The federal tax lien prevails against a judgment lien creditor unless the judgment lien became choate prior to the filing of the Notice of Federal Tax Lien. 26 U.S.C. §6323(a) ; United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 88-89 (1963); Fore v. United States [65-1 USTC ¶9101 ], 339 F.2d 70, 72-73 (5th Cir. 1965); Baybank Middlesex v. Electronic Fabricators, Inc., 751 F.Supp. 304, 310 (D.Mass. 1990). As discussed in the Court's Order of May 26, 1992 , Hughes has failed to set forth any evidence to suggest that Hughes's judgment lien on the funds became choate prior to July 5, 1990 . Consequently, Hughes has not carried its burden of production in response to the Government's showing that the federal tax lien is superior to Hughes's judgment lien. Accordingly, the Government is entitled to summary judgment on its claim to the funds.

For the foregoing reasons, the Court GRANTS the Motion by Intervenor United States of America for Summary Judgment (Doc. No. 10). The Government is directed to file by July 29, 1992 , materials establishing the payout figure necessary to satisfy its lien as it will stand on August 10, 1992 . Objections to these calculations may be filed on or before August 9, 1992 .

 

 

[91-2 USTC ¶50,489] Middlesex Savings Bank, Plaintiff v. Raymond A. Johnson, et al., Defendants

U.S. District Court, Dist. Mass. , CIV. 90-12711-WD, 9/9/91

[Code Sec. 6323 ]

Federal tax lien: Priority: State tax lien: Attachment lien.--The IRS was granted summary judgment because its federal tax lien had priority over a tax lien of the Commonwealth of Massachusetts and an attachment lien of a bank. The tax lien in favor of the U.S. arose prior to that of Massachusetts ; the fact that the federal lien was not filed until after the state's claim arose did not affect the priority of the federal lien. The U.S. lien was also superior to that of the bank. Although the federal tax lien was recorded after the date the bank's lien attached to the property, the bank did not obtain a judgment, and thus become a judgment creditor, until after the U.S. lien was filed. Until reduced to judgment, the attachment was inchoate and, therefore, was insufficient to defeat the federal priority.

[Code Secs. 6323 and 7426 ]

Federal tax lien: Challenge by third parties: Notice: Discovery.--Judgment creditors did not have standing to challenge the validity of the tax assessment that gave rise to a federal tax lien assessed against the taxpayer's property. The presumption that the assessment underlying the lien was valid did not offend notions of due process because the judgment creditors acknowledged the priority of the U.S. lien. Further, the judgment creditors' objection that the IRS failed to present evidence that the creditors were notified of the assessment against the taxpayer was overruled because the priority of a federal tax lien attaches regardless of whether "competing claimants have actual notice or knowledge of the lien".

MEMORANDUM AND ORDER

WOODLOCK, District Judge:

Plaintiff, Middlesex Savings Bank, commenced this interpleader action in the state court after foreclosing a lien against real estate owned by defendant Raymond Johnson ("Johnson") at 27-29 Crane Ave. , in Maynard , Massachusetts . The foreclosure resulted in surplus proceeds of $56,115.11, to which Middlesex Savings Bank makes no claim. Excluding Johnson, ¹ six other defendants were named, each appearing to have an interest in the aforementioned real property.

Now before me are three motions for summary judgment and one motion to compel discovery. ² No matters of fact seem to be in dispute. The United States , as a defendant under 28 U.S.C. §2410, removed the case to this court pursuant to 28 U.S.C. §1444 . The United States has now moved for summary judgment based on its alleged lien on Johnson's property, which arose from the federal tax assessment of $51,273.31 ³ made against him on April 10, 1989, pursuant to 26 U.S.C. §6672 . The motion of the United States is well founded and will be allowed. The motion by one set of defendants to delay ruling on summary judgment and to compel the United States to respond to their discovery requests has no foundation in the law and will be denied. As a consequence of these decisions, the issues raised by the other two pending summary judgment motions are moot, and those motions will also be denied. ⁴

I

 

I will consider the property interests of the various parties and their claims to priority seriatim.

A. Tax Lien of the United States

Johnson's failure to pay the federal tax assessment made against him, after notice and demand, created a federal lien attaching to all his property effective April 10, 1989 --the date the assessment was made. 26 U.S.C. §6321 -6322. Under federal law, the rule of "first in time, first in right" generally determines priority. See United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85-86 (1954). And, it is well established that "[t]he 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." United States v. Security Trust & Savings Bank [50-2 USTC ¶9492 ], 340 U.S. 47, 49 (1950).

However, a federal tax lien is "valid" against certain third persons (e.g., judgment lien creditors) only after being recorded by filing a notice of the lien pursuant to §6323(f) . 26 U.S.C. §6323(a) . On July 19, 1989 , the United States filed notice of the lien arising from the assessment. Thus, the federal tax lien on property belonging to Johnson is superior to any subsequently perfected claim. ⁵

B. Tax Lien of Commonwealth

The Commissioner of Revenue initially moved for summary judgment in favor of the Commonwealth (hereinafter both the Commissioner and the State of Massachusetts will be referred to as "the Commonwealth") on the basis of its allegedly superior tax lien pursuant to Mass. Gen. L. ch. 62C, §50 . That motion has been opposed by the five other participating defendants. However, the Commonwealth has not filed an opposition to the motion of the United States for summary judgment.

The tax lien of the Commonwealth against the assets of Johnson arose on July 7, 1989 --the date the assessment was made. See Mass. Gen. L. ch. 62C, §50(a) . The notice of the state tax lien against Johnson was not filed until August 24, 1989 . ⁶

The tax lien in favor of the United States arose prior to that of the Commonwealth, and consequently the claim of the United States has priority. It does not matter that the Commonwealth's lien arose prior to the date on which the federal lien was filed. The lien of the Commonwealth does not come within any of the classifications of persons (e.g., purchasers, judgment lien creditors) to whom the federal law accords priority until notice of the federal tax lien has been filed. See 26 U.S.C. §6323(a) ; see also New Britain [54-1 USTC ¶9191 ], 347 U.S. at 88 (predecessor statute indicates Congress did not intend antecedent federal tax liens to rank behind any but the specific categories of interests set out); United States v. Gilbert Associates, Inc. [53-1 USTC ¶9291 ], 345 U.S. 361, 363-65 (1953) (under predecessor statute, state tax assessments are not "judgments" and notice is not required for federal tax lien to have priority over them).

C. Attachment by South Shore Bank

Defendant South Shore Bank (" South Shore ") originally filed a "limited opposition" to the summary judgment motion made by the Commonwealth, objecting to the extent that the motion sought to establish that the claim of the Commonwealth to the interpled monies was superior to its own. Although South Shore requested an extension of time to oppose the motion of the United States for summary judgment, it has not filed any opposition.

South Shore bases its claim to the interpled funds on a prejudgment attachment against Johnson of $150,000. According to South Shore , the attachment was filed with the Registry of Deeds on November 30, 1988 , but as of December, 1990, no judgment had been entered in its favor.

The tax lien of the United States is superior to the claim of South Shore . In this case, as in Security Trust, "the federal tax lien was recorded subsequent to the date of the attachment lien but prior to the date the attaching creditor obtained judgment." [50-2 USTC ¶9492 ], 340 U.S. at 48. As Justice Jackson noted in Security Trust, in relation to the predecessor of the current tax lien statute, a federal tax lien is not valid against a judgment creditor without notice, but this protection only applies to "a judgment creditor in the conventional sense." Id. at 52 (Jackson, J., concurring). South Shore was not a judgment creditor at the time of the filing of the federal tax lien, even if it eventually becomes one by receiving a judgment in its favor. ⁷ Because an attachment is contingent or inchoate--giving the attachment creditor "no right to proceed against the property unless he gets a judgment"--it is insufficient to defeat the federal priority. Id. at 50-51; accord United States v. Acri [55-1 USTC ¶9138 ], 348 U.S. 211, 213 (1955) Clearly, the lien claimed by South Shore was not choate before the United States filed notice of its federal tax lien. Thus South Shore is not entitled to priority.

D. Interest of the Judgment Creditors

Only defendants Thomas Nadolski, Rosemary Nadolski and Rob ert Lyons (collectively, "the Judgment Creditors") have formally opposed the summary judgment motion of the United States . Earlier, they also opposed the motion of the Commonwealth and sought summary judgment against the Commonwealth.

The Judgment Creditors obtained a prejudgment attachment for $80,000 against Johnson's property on December 1, 1988 , which was filed with the Registry of Deeds on December 7, 1988 . Subsequently, they obtained a judgment against Johnson in the amount of $672,505.41 on September 26, 1989 , and a writ of execution for the property in Maynard on January 12, 1990 , which was levied and recorded on January 31, 1990 . ⁸

The lien of the Judgment Creditors cannot defeat the priority of the federal lien any more than the attachment by South Shore could. The Judgment Creditors did not qualify as "judgment lien creditors" on July 19, 1989 --the date the United States filed its notice of tax lien. Prior to attaining the judgment, the Judgment Creditors had only an attachment: an inchoate lien, not protected under 26 U.S.C. §6323 . See supra, §I,C. As conceded by the Judgment Creditors themselves, the federal lien has priority because their judgment was obtained after the federal tax lien was filed.

II

 

Despite their concession concerning the superiority of the federal tax lien, the Judgment Creditors object to summary judgment in favor of the United States on grounds that

the Government has presented no evidence whatsoever that (1) the taxes on which it relies were properly assessed and levied and (2) that the Judgment Creditors were given any notice of the assessments or opportunity to challenge such assessments.

Opp. to S.J. for U.S. , docket no. 20, at 1. Echoing this first theme, the Judgment Creditors pray, in the alternative, for a delay to examine the tax file for Johnson and they have separately moved to compel compliance with discovery requests which seek a range of documents including the entire IRS file on Johnson.

A. Challenging The Assessment

Authority addressing a variety of related issues suggests that a third party may not collaterally challenge a tax assessment, and thus the assessment is conclusively presumed valid in an action under §2420. ⁹ Generally, a third party lacks standing and "is not entitled to contest the tax liability of another." In re Campbell [85-1 USTC ¶9406 ], 761 F.2d 1181, 1185-86 (6th Cir. 1985). The fact that a party may bear the ultimate economic burden as a result of payment of a tax does not make that party the taxpayer or establish standing. See Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. United States IRS [88-1 USTC ¶16,466 ], 845 F.2d 139, 142 (7th Cir. 1988) (manufacturer is taxpayer of excise tax, even if passed on directly to consumer).

In a variety of contexts courts have recognized that tax assessments are not open to collateral attack by non-taxpayers. See Myers v. United States [81-2 USTC ¶9490 ], 647 F.2d 591, 604 (5th Cir. Unit A June 1981) (citing Moyer v. Mathas [72-1 USTC ¶9342 ], 458 F.2d 431, 434 & n.4 (5th Cir. 1972)); see, e.g., Falik v. United States [65-1 USTC ¶9295 ], 343 F.2d 38, 41-42 (2d Cir. 1965) (§2410 permits third parties to inquire into validity of lien, as distinct from the underlying tax assessment); Graham v. United States [57-1 USTC ¶9645 ], 243 F.2d 919, 922 (9th Cir. 1957) (nontaxpayer may not question validity of tax assessment in action to foreclose tax liens). In addition, there is considerable authority suggesting that tax assessments are not subject to attack except by means of specifically provided procedures. See, e.g., United States v. Brosnan [60-2 USTC ¶9516 ], 363 U.S. 237, 260 (1960) (Clark, J., dissenting) (dicta) (validity of tax may not be tested under §2410 and §7424 procedures); Arford v. United States, 934 F.2d 229, 232 (9th Cir. 1991) (merits of underlying tax assessments may not be challenged in quiet title actions); Pollack v. United States [87-2 USTC ¶9463 ], 819 F.2d 144, 145 (6th Cir. 1987) (suit under §2410 is proper only to contest procedural regularity of lien, not to challenge the underlying tax liability).

Similarly, in an action for wrongful levy brought by a third party pursuant to 26 U.S.C. §7426 , the merits of the tax assessment are not subject to attack. Morris v. United States [86-2 USTC ¶9728 ], 652 F.Supp. 120, 122 (M.D. Fla. 1986), aff'd, [87-1 USTC ¶9241 ] 813 F.2d 343 (11th Cir. 1987). The IRC provides that for purposes of such an action, "the assessment of tax upon which the interest or lien of the United States is based shall be conclusively presumed to be valid." 26 U.S.C. §7426(c) .

I conclude that as a general proposition, collateral attacks by third parties should not be permitted under the instant circumstances. ¹⁰ If one considers the tax assessment as similar to a judgment, see Bull v. United States [35-1 USTC ¶9346 ], 295 U.S. 247, 260 (1935), this prohibition is analogous to practices protecting the finality of judgments. See Myers [81-2 USTC ¶9490 ], 647 F.2d at 604.

The prompt collection of taxes is an essential governmental function, and to allow third parties "to raise the entire history of the tax assessment in question in a full adversary proceeding would result in a substantial impediment to a process that is designed to be swift and efficient." In re Campbell [85-1 USTC ¶9406 ], 761 F.2d at 1186 (action arising from order authorizing entry to effect levy). ¹¹ I decline to erect such an impediment in this proceeding.

B. Due Process

The Judgment Creditors argue that "fundamental fairness" embodied in concepts of due process requires that they have an opportunity to review and raise objections to the IRS assessment against Johnson. Opp. to S.J. for U.S. , docket no.20, at 4; see also Mem. on Motion to Compel, docket no. 19, at 4. They do not cite any authority in support of this position.

The conclusion that the Judgment Creditors are precluded from contesting the validity of the tax assessment which gave rise to the federal tax lien does not create a due process problem. Their attachment lien fails to achieve priority precisely because it was too contingent to qualify as a property interest sufficient to displace another. Cf. Security Trust [50-2 USTC ¶9492 ], 340 U.S. at 50 (attachment is merely a lis pendens notice that a right to perfect a lien exists). It is the existence and superiority of the federal tax lien (not the legitimacy of the assessment) which results in their loss. The Judgment Creditors are entitled to a judicial determination of the nature and priority of the respective interests claimed by the other defendants, including the United States . However, due process does not require the underlying tax assessment to be opened to collateral attack by a third party. Myers [81-2 USTC ¶9490 ], 647 F.2d at 604. In fact, allowing such a collateral attack makes no more sense than opening the judgment obtained by the Judgment Creditors to attack by one of the other defendants whose claim is junior.

Nothing precludes the Judgment Creditors from contesting the validity or superiority of the federal tax lien. As the Myers court noted with respect to contesting a levy, a person with a competing claim is

entitled to show that the liens had not properly attached to the property in question, that the liens had been discharged through foreclosure and sale of the property, that the liens had been discharged through payment of the tax assessed, that his own interest in the property was superior in rank to the federal liens[], and that the government had failed to follow the procedural requirements of the [Federal Tax Lien] Act--in short, [he] was entitled to raise virtually any legitimate and available objection he might have had to the validity of the [lien]. What he could not do is challenge the merits of the tax assessment itself . . . .

[81-2 USTC ¶9490 ], 647 F.2d at 603; see also Arford v. United States, 934 F.2d 229, 232 (9th Cir. 1991) (procedural aspects of tax liens may be challenged in quiet title actions under §2410).

The Judgment Creditors have not raised direct objections to the validity or superiority of the federal tax lien, see, Mem. on Motion to Compel, docket no. 19, at 3 (position of the U.S. is correct, assuming that Johnson "in fact owes or should owe the taxes assessed. Thus the only issue in this case is whether the taxes were properly assessed and are owed by the taxpayer . . . ."). I conclude that the objections of the Judgment Creditors to the motion for summary judgment by the United States are without merit.

C. Notice

Although one stated objection of the Judgment Creditors is that the Government failed to present evidence that they were notified of the assessment against Johnson, it is not clear what the Judgment Creditors think is required or on what basis. In order for a tax lien to arise, the IRS must notify the taxpayer concerning the assessment to make demand for payment. 26 U.S.C. §6321 . No other notification is necessary for the lien to be established, although notice of the lien must be filed in order for the lien to be valid against certain persons. 26 U.S.C. §6323 . Once the lien is recorded in the manner required by §6323(f) , the appropriate priority attaches regardless of whether competing claimants have actual notice or knowledge of the lien. 25 Fed. Tax Coordinator 2d (Res. Inst. Am.) ch. V, §6316 (citing Dimmitt & Owens Fin. Inc. v. Unique Indust. Inc. [84-1 USTC ¶9228 ], 589 F.Supp. 14 (D. Ill. 1983), aff'd, [86-1 USTC ¶9326 ], 787 F.2d 1186 (7th Cir. 1986)). In short, although the government has not presented any evidence that the Judgment Creditors were given notice of the assessment other than by means of the filing, none is required.

D. Motion to Compel

The document requests of the Judgment Creditors include such things as "[t]he entire IRS file relating to any tax which forms the basis for any federal tax lien assessed against Raymond A. Johnson for taxes which are sought to be collected through payment of the funds held by the Plaintiff in this action." Request For Production No. 6. The United States objects to such requests as overbroad, burdensome, and not likely to lead to any relevant information which is not privileged. Cf. Fed. R. Civ. P. 26(b)(1) (information relevant to the subject matter of the action is generally discoverable).

In support of their motion to compel the production of these documents, the Judgment Creditors represent that they are necessary to permit them to review the IRS assessment against Johnson to determine if it is excessive or improper. Since these issues are entirely beyond the scope of the instant interpleader action and are of no possible consequence to it, the United States should not be compelled to produce the requested documents.

III

For the reasons discussed above, I ALLOW the motion of the United States for Summary Judgment and DENY the motion of the Judgment Creditors to compel discovery. Furthermore, because the claim of the United States has been established as senior on the basis of uncontested facts, the summary judgment motions of the Commonwealth and the Judgment Creditors are DENIED to the extent they challenge the superiority of the lien of the United States . The remaining issues, bearing on priority relative to other parties, are moot because the federal assessment is sufficient to absorb the interpled surplus. The clerk shall enter judgment for the United States awarding the entire interpled amount.

¹ Johnson never answered the complaint commencing this action.

² In addition, several defendants seek a determination of material facts which exist without substantial controversy, see Fed. R. Civ. P. 56(d), and there are several motions to extend deadlines already past.

³ The United States represents that the balance due on this assessment, including accrued interest, amounted to $61,502.38 as of November 19, 1990 . No party has raised the question of whether the priority accorded the lien should extend to interest accrued subsequent to the date the lien arose. The code itself, although failing to distinguish clearly between pre- and post-demand interest, suggests that post-demand interest is included. Section 6321 states:

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.

See also United States v. Vermont, 377 U.S. 351, 352 (1964) (Vermont statute which refers to the amount of the tax lien as "including interest after such demand" is "worded in terms virtually identical to the provisions of th[e] federal statute[]").

Section 6303(a) requires that the notice state the amount at issue, although the form of the notice filed to "validate" the lien is not prescribed by the statute itself, see §6323(f)(3) . The form, however, is defined by IRS regulations as Form 668, see 26 CFR §301.6323(f)-1(c) . Although the copy of Form 668 actually filed in this case states that the unpaid balance as of the date of assessment was §51 ,263.21, that form warns that the lien includes "the amount of these taxes, and additional penalties, interest, and costs that may accrue." See Mem. of U.S. , docket no. 12, ex. B. In addition, §6103(2) allows for disclosure of the amount of an outstanding lien "to any person who furnishes satisfactory written evidence that he has a right in the property subject to such lien or intends to obtain a right in such property." Consequently, I conclude that the amount of the lien in favor of the United States includes the subsequently accrued interest and therefore exceeds the interpled funds.

⁴ Memoranda filed in support of these motions for summary judgment concern the priority of various claims made by the moving defendants. The relative priority of all claims inferior to that of the United States is moot, since the superior claim of the United States exhausts the interpled funds.

⁵ Section 6323(b) protects certain claimants even if their claim arises after the tax lien is properly recorded. No such "superpriorities" are of concern in the instant case.

⁶ In its motion for summary judgment, the Commonwealth relies in part on an assessment against Kenbo Inc., a corporation for which Johnson was allegedly the responsible officer. Based on a Massachusetts statute, the Commonwealth argues that such an assessment is deemed to be assessed against Johnson personally. Mem. of Commonwealth, docket no. 4, at 5 (citing Mass. Gen. L. ch. 62C, §31A). A notice of lien against Kenbo, Inc. was filed on November 30, 1988 . Thus, the Commonwealth suggests that its lien against Johnson's assets is effective against all subsequent creditors (etc.) as of November 30, 1988 . Id. at 6 (citing Mass. Gen. L. ch. 62C, §50(b) ).

However, the "deemed assessment" against the responsible officer provided for in §31A requires that the Commonwealth notify a liable individual of the assessment against the corporation. Heritage Bank for Savings v. Doran, 399 Mass. 855, 861 (1987). Not only has the Commonwealth failed to present evidence that such notice was directed at Johnson personally (the Loconto Aff. is inadequate in this and several other respects; including the fact that the notices in question are not attached as exhibits), it does not even make such an allegation. Furthermore, even if under Massachusetts law a lien against property personally owned by Johnson could be created simply by a notice of assessment against Kenbo, Inc., it is doubtful that such a lien would be sufficiently "choate" under federal standards to have priority over a federal tax lien. See New Britain [54-1 USTC ¶9191 ], 347 U.S. at 84 (requiring certainty with respect to the identity of the lienor and the property subject to the lien).

⁷ In opposing the motion of the Commonwealth for summary judgment, South Shore maintains that under Massachusetts law its lien will be superior to that of the Commonwealth if it perfects its attachment by obtaining a judgment and execution and by properly levying thereon. Opp. of South Shore , docket no. 5, at 3 (citing Kahler v. Marshfield, 347 Mass. 514 (1964)). However, regardless of the law in Massachusetts , Security Trust specifically rejected this very doctrine of "relation back" as ineffective against a federal lien. [50-2 USTC ¶9492 ], 340 U.S. at 50. Thus even if, under Massachusetts law, South Shore as a successful attaching creditor would stand in the same position as a purchaser for value with respect to the tax lien of the Commonwealth, see Kahler, 347 Mass. at 516, no such rule would apply to the tax lien of the United States, whose priority is determined by federal law.

⁸ The Judgment Creditors argue that they had rights as a secured creditor as of December 7, 1988 because on that date their attachment was recorded and it was later perfected by levying the execution, pursuant to Mass. Gen. L. Ch. 223, §59 , within 30 days. They argue that a properly perfected attachment places them "in the position of a purchaser for value with an 'immediate lien' as of the date of the attachment." Opp. to Commonwealth, at 3, (citing Kahler v. Marshfield, 347 Mass. 514 (1964)). Thus, because the state tax lien was not valid against a judgment creditor until notice was filed on August 24, 1989, see Mass. Gen. L. ch. 62C, §50 , the claim of the Judgment Creditors allegedly has priority over the lien of the Commonwealth. Regardless of its validity under Massachusetts law, however, this means of "relation back" to an attachment prior to the assessment cannot defeat the federal tax lien which the IRS assessment gives rise to. See supra note 8.

⁹ The authorities, however, are not entirely univocal. See generally Annotation, Right to Attack Merits of Assessment, in Proceeding Under 26 U.S.C. §7403 to Enforce, or Under 28 U.S.C. §2410 to Discharge. Federal Tax Lien, 100 A.L.R.2d 869 (1961 & Supp. 1983); Conclusiveness of the Merits of a Tax Assessment and the Congressional Policy of Summary Tax Collection, 71 Yale L.J. 1329 (1962).

¹⁰ The Second Circuit has directly considered the scope of the inquiry into the validity of tax liens by a third party under §2410. See Pipola v. Chicco [60-1 USTC ¶15,276 ], 274 F.2d 909 (2d Cir. 1960). Pipola held that in a §2410 action, purchasers of a taxpayer's realty could not question the assessment which was the basis of a lien on the property. Shortly thereafter, the Second Circuit announced Pipola was overruled in an opinion which held that a taxpayer may challenge the merits of a tax assessment in an action to enforce tax liens. United States v. O'Connor [61-2 USTC ¶9495 ], 291 F.2d 520, 527 (2d Cir. 1961) (in suit under §7403 , assessment is presumptive but not conclusive). O'Connor created considerable confusion and some disagreement as to the extent to which it overruled Pipola. Compare. e.g., Quinn v. Hook [64-2 USTC ¶9609 ], 231 F.Supp. 718, 721 (E.D. Pa. 1964) (district court opinion in Pipola has survived as the correct interpretation of §2410), aff'd, [65-1 USTC ¶9273 ], 341 F.2d 920 (3d Cir. 1965) and Cooper Agency, Inc. v. McLeod [64-2 USTC ¶9776 ], 235 F.Supp. 276, 284 (E.D.S.C. 1964) (O'Connor court did not intend to overrule holding in Pipola that non-taxpayer could not commence action under §2410 and inquire into merits of assessment), aff'd, [65-2 USTC ¶9603 ], 348 F.2d 919 (4th Cir. 1965), with Sonitz v. United States [63-2 USTC ¶9715 ], 221 F.Supp. 762 (D.N.J. 1963) (plaintiff in §2410 action may challenge merits of tax assessment) and Falik v. United States [62-2 USTC ¶9751 ], 206 F.Supp. 181 (E.D.N.Y. 1962) (third party may attack validity of lien, as distinct from assessment, under §2410), rev'd, [65-1 USTC ¶9295 ], 343 F.2d 38 (2d Cir. 1965).

The Pipola court had reasoned that a challenge to the assessment by a third party was prohibited because the taxpayer himself could not test the validity of the assessment in a government action to enforce under §7403 . While O'Connor undermined the stated rationale of the Pipola decision, it did not necessarily dictate a different result. In fact, although it declined to address the issue as applied to the same circumstances as Pipola, the Second Circuit has more recently refused to permit a taxpayer to initiate a suit under §2410 to challenge the validity of a tax assessment underlying a lien. Falik v. United States [65-1 USTC ¶9295 ], 343 F.2d 38 (2d Cir. 1965) (§2410 was not meant to enable challenges to tax assessments); cf. Remis v. United States [59-1 USTC ¶9458 ], 172 F.Supp. 732, 733 (D.Mass. 1959) (Congress passed §2410 to enable complete relief in certain circumstances, and not to create new jurisdiction in the federal courts to challenge tax assessments), aff'd, [60-1 USTC ¶9183 ], 273 F.2d 293 (1st Cir. 1960).

¹¹ Section 2410 waives the sovereign immunity of the United States so as to permit its joinder as a party in certain cases where a lien is involved. It seems unlikely that this waiver extends to permit an attack upon the merits of a tax assessment upon which a lien is based; for it to do so would undermine the general policy of judicial noninterference with tax collection.

 

 

[65-1 USTC ¶9253]Dean Construction Company, Inc., Plaintiff v. Simonetta Concrete Construction Corp., et al., Defendants United States of America, Plaintiff-in-Intervention v. Dean Construction Company, Inc., Simonetta Concrete Construction Corp., et al., Defendants-in-Intervention

U. S. District Court, So. Dist. N. Y., 62 Civ. 4159, 37 FRD 242, 2/11/65

[1954 Code Sec. 6323]

Lien for taxes: Perfection: Summary judgment.--In an action between several creditors of a taxpayer, the United States was granted summary judgment as to a certain part of a deposited fund because of a tax lien filed prior to all other liens, but was denied summary judgment as to other tax liens because of disputed facts concerning the claims of another creditor.

Rob ert M. Morgenthau, United States Attorney, Arthur M. Handler, Assistant United States Attorney, New York, N. Y., for plaintiff-in-intervention. Levy, Murphy & Stolz, 99 Park Ave., New York, N. Y., Bernard I. Weinstein, 101 16th Ave., Brooklyn, N. Y., for Royal National Bank of New York. Louis J. Lefkowitz, Attorney General, 80 Centre St., Herbert J. Wallenstein, Assistant Attorney General, New York, N. Y., for State Tax Commission of the State of New York. Goldman, Horowitz & Cherno, 390 E. Old Country Rd., Mineola, N. Y., for Local Steel & Supply Co., Inc.

[Opinion]

LEVET, District Judge:

This is a motion for summary judgment by the United States , plaintiff-in-intervention, in an interpleader action. Cross-motions for summary judgment have been made by Royal National Bank of New York ("Royal") and Local Steel & Supply Co., Inc. ("Local").

The action was originally brought by Dean Construction Company, Inc. ("Dean") to determine which of the creditors of Simonetta Concrete Construction Corp. ("Simonetta") were entitled to $10,000 owed by Dean to Simonetta. Royal, Local, Sargent Building Specialties, Inc. ("Sargent") and the New York State Tax Commission have answered the United States' intervention complaint claiming to be creditors of Simonetta and entitled to all or part of the $10,000 deposited by Dean with this court. The New York State Tax Commission has withdrawn its opposition to the motion of the United States and Sargent has made no response. Therefore, the only claims to the fund that must be considered on this motion are those of Royal, Local and the United States .

Rule 56(c) of the Federal Rules of Civil Procedure states that summary judgment "shall be rendered forthwith if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Subsection (e) of Rule 56 further provides that affidavits shall be made on personal knowledge.

[Genuine Fact Issue]

The burden is on the moving party to establish that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. Moore , 6 Federal Practice 2123 (1953). "[T]he inferences to be drawn from the underlying facts contained in such materials [e.g., affidavits and pleadings] must be viewed in the light most favorable to the party opposing the motion." United States v. Diebold, Inc., 369 U. S. 654 (1962). Where there is the slightest doubt as to the facts, a trial is called for. Moore , supra at 2124.

The United States , Royal and Local have each submitted affidavits and Royal and Local have included exhibits. The affidavit submitted on behalf of the United States by Arthur M. Handler, Assistant United States Attorney ("Handler affidavit") was on "information and belief based upon the records and files in the possession of the United States Attorney for the Southern District of New York." This does not meet the personal knowledge requirement of Rule 56(e). However, the facts set forth therein are for the most part also included in the pleadings and a summary judgment motion may be based on the pleadings alone.

Allegations included in the Rule 9(g) Statements of Material Facts which have been submitted may not be considered unless supported by pleadings or affidavits.

Facts

The $10,000 fund was created as follows:

1. On or about May 21, 1958 , Dean and Simonetta entered into a sub-contract for the performance of certain work by Simonetta relating to the construction of the White Plains Senior High School . (Dean complaint, pars. 7, 8)

2. On or about July 22, 1959 , Simonetta filed a notice of lien against Dean with the Treasurer of the Board of Education of the City of White Plains, New York, in the amount of $446,200.09. (Dean complaint, par. 10)

3. On or about November 17, 1960 , Simonetta commenced an action in the Supreme Court, New York County , against Dean and its surety to foreclose the lien mentioned above. (Dean complaint, par. 12)

4. On or about December 1, 1961 , the lien foreclosure action was settled in favor of Simonetta for $10,000 which is now on deposit with this court. (Dean complaint, par. 12)

The creditors of Simonetta competing for the $10,000 assert the following claims:

(1) The United States is the creditor of Simonetta for $89,295.43 plus interest in unpaid taxes. The taxes were assessed and notices of lien filed as follows:

                                              Notice and          Notice

Assessment              Outstanding             Demand         of Lien

Date                        Balance             Issued           Filed

12-24-58
 ......          $ 1,894.98           
12-24-58
         
3-20-59

3-25-60
 .......              694.66            
3-25-60
         
5-17-60

3-4-60
 ........              766.90             
3-7-60
         
5-17-60

4-1-60
 ........            3,510.91             
4-1-60
          
6-3-60

4-8-60
 ........           22,386.97             
4-8-60
          
6-3-60

9-30-60
 .......              282.38            
9-30-60
         
12-5-60

4-1-60
 ........           20,036.04             
4-1-60
          
6-3-60

4-1-60
 ........           38,921.15             
4-1-60
          
6-3-60

9-30-60
 .......              502.80            
9-30-60
         
12-5-60

9-23-60
 .......              255.78            
9-23-60
         
12-5-60

9-30-60
 .......               42.86            
9-30-60
         
12-5-60

Total .........          $89,295.43

( United States intervention complaint, par. 5)

(2) Local has a judgment against Simonetta in the amount of $293.76 which was filed on October 1, 1959 . (Local answer, pars. 4, 6; Local answer to intervention complaint, pars. 4, 6) Execution was issued to the Sheriff of Westchester County on or about the 9th day of October, 1959 as shown by copies of correspondence with the Sheriff around that date. (Affidavit of Isidore Cherno, attorney for Local, pp. 2-3)

(3) Royal has a judgment against Simonetta in the amount of $24,041.50 which was filed on June 13, 1960 . (Royal answer, par. 7; Royal answer to intervention complaint, par. 7) Simonetta assigned accounts receivable to Royal on May 20, 1959 in connection with loans and/or extensions of credit which had been made by Royal to Simonetta. The assignment included an account receivable from Dean for $61,563.95 and one from M. E. Maloney & Co., Inc. for $45,300. (Affidavit of Anthony J. LePage ("LePage Affidavit"), Assistant Vice President of Royal, p. 2)

Discussion

The competition among the asserted claims must be decided by ascertaining when each was perfected or developed into a choate lien. The priority of the federal tax lien as against the state-created liens which arise from the judgments and the assignment is governed by the common-law rule, "the first in time is the first in right." United States v. New Britain [54-1 USTC ¶9191], 347 U. S. 81, 85-86 (1954). "It is critical, therefore, to determine when competing liens, whether federal- or state-created, come into existence or become valid for the purpose of the rule." United States v. Pioneer American Ins. Co. [63-2 USTC ¶9826] 374 U. S. 84, 87 (1963).

Federal tax liens are created when an assessment is made, except as otherwise specifically fixed by law. 26 USC §6322. As against mortgagees, pledgees, purchasers and judgment creditors a statutory provision provides that a tax lien is perfected upon the filing of notice. 26 USC §6323. The tax liens on which the United States bases its claim are choate since both assessment and filing have taken place.

[Lien]

A judgment in and of itself does not constitute a lien upon any property unless made so by statute. Miller v. Bank of America [48-1 USTC ¶9185], 166 F. 2d 415 (9th Cir. 1948); see United States v. Ruby Luggage Corp. [54-2 USTC ¶9512], 142 F. Supp. 701 (S. D. N. Y. 1954). Under New York law a judgment lien is acquired against the personal property of a judgment debtor by delivering an execution to the sheriff, N. Y. C. P. A., §679; N. Y. C. P. L. R. §5202; In re Vanity Fair Shoe Corp., 84 F. Supp. 533 (S. D. N. Y. 1949); Rev. Rul. 53-225, Cum. Bul. 1953-2, 467, and as against funds of a judgment debtor in the hands of a third party, upon the service of a third party subpoena and restraining order in supplementary proceedings, N. Y. C. P. A. §781; N. Y. C. P. L. R. §5222; In re Airmont Knitting & Undergarment Co., 182 F. 2d 740 (2d Cir. 1950); United States v. Ruby Luggage Corp., supra; Rev. Rul. 54-125, Cum. Bul. 1954-1, 282.

Royal has made no allegation in the papers on file that execution was issued or a third party subpoena served pursuant to its judgment. Therefore, it is clear that Royal did not perfect a judgment lien. On the other hand, Local has made a showing by affidavit and exhibit that it issued execution on its judgment. However, as noted above, execution is insufficient to create a lien against funds in the hands of a third party. Therefore, Local's judgment lien is ineffective as against the $10,000 deposited by Dean with this court.

On the basis of the pleadings and affidavits filed herein, it is clear that Royal and Local have not acquired judgment liens on the $10,000 fund. "Choate state created liens take priority over later federal tax liens, while inchoate liens do not." United States v. Pioneer Ins. Co., supra at 88. Therefore, the United States has a right to the fund on deposit with the court prior to Royal or Local based on their judgments.

[Burden of Proof]

In order to decide whether judgment is warranted in the dispute between the United States and Royal based on its assignment, it must be determined whether either movant has sustained its burden in showing that no genuine issues of material fact remain to prevent a conclusion that the assignment had or had not matured into a choate lien. Neither the pleadings nor the affidavit of the United States contain allegations regarding the assignment.

At least two factors must be present for an assignment of accounts receivable to mature into a choate lien. First, where the assignment is made to secure a debt, as here, the debt must be outstanding before a lien against it is perfected. In other words, "an assignee's or mortgagee's lien to secure future indebtedness of the taxpayer-debtor" is inchoate. United States v. Pioneer Ins. Co., supra at 91. However, "the fact that the assignment was * * * [to secure a future indebtedness] does not make it unperfected or inchoate as to money advanced to and due from the taxpayer at the time of the federal lien notice." United States v. L. R. Foy Constr. Co., [62-1 USTC ¶9325], 300 F. 2d 207, 211 (10th Cir. 1962).

[Choate Lien]

The LePage affidavit submitted on behalf of Royal states only that Simonetta executed and delivered the assignment of accounts receivable to Royal "in connection with the loans and/or extension of credit which had been made by defendant Royal * * * to Simonetta." I do not regard this bare and somewhat indirect assertion to be sufficient to establish that Simonetta's assignment was to secure only past indebtedness. A stronger showing is required.

Second, the account receivable which is assigned must itself be specific and definite to create a choate lien. Thus, where the receivable is for services rendered, as here, the assignment will be choate only after the work has already been performed. United States v. Pay-O-Matic Corp. [58-2 USTC ¶9533], 162 F. Supp. 154 (S. D. N. Y.), aff'd [58-1 USTC ¶9478] 256 F. 2d 581 (2d Cir.), cert. denied 358 U. S. 830 (1958). This proposition is supported by United States v. Crest Finance Co., Inc. [62-1 USTC ¶9105], 368 U. S. 347 (1961), (per curiam), where the Supreme Court adopted the concession of the Solicitor General to the effect that an assignment lien was choate because the assignment was of amounts due under the terms of a contract for work already performed. (Memorandum of the United States, p. 5, United States v. Crest Finance Co., Inc., supra)

Copies of the assignment and of a subcontractor's payment requisition from Dean have been annexed to Royal's affidavits. The assignment states: "That the foregoing accounts represent bona fide accounts, and the amounts set forth are due and owing to the Assignor." The sub-contractor's payment requisition discloses that Simonetta's net requisition from Dean for the work period April 1, 1959 to April 30, 1959 was $61,563.95.

The copies of the assignment and requisition are some evidence that the account receivable due from Dean to Simonetta was for work already performed. However, its impact is softened by the fact that litigation took place between Dean and Simonetta with reference to the same subcontract under which the account receivable arose. (Dean complaint, pars. 7-12) Therefore, I conclude that Royal has not met its burden in establishing that the account receivable from Dean was for work already performed.

I cannot conclude that there is no real doubt as to the existence of genuine issues with respect to the past or future character of the credit extended by Royal to Simonetta and the completion of the work performed by Simonetta for Dean rendering the assigned account receivable due. No showing has been offered relating to the Maloney account receivable which was also assigned. Therefore, a trial is warranted on the question of whether the assignment held by Royal matured into a choate lien. A decision should not be based on an interpretation of "incomplete and ambiguous affidavits." Miller v. General Outdoor Advertising Co., Inc., No. 28781 (2d Cir., October 27, 1964 ).

[First Tax Lien Earlier]

Despite the fact that genuine issues of material fact preclude a conclusion as to when Royal's assignment lien became choate, it is clear it could not have been perfected prior to the date of the assignment on which it is based, May 20, 1959 . (LePage affidavit, p. 2) The first tax lien filed by the government against Simonetta was for $1,894.98 on March 20, 1959 . ( United States intervention complaint, par. 5) As to this the United States would prevail over Royal since it is first in time. As noted earlier, this claim of the United States also takes priority over the claims of all other parties to the action.

Under Rule 54(b) a final decision may be granted as to less than all the claims in a multiple claim action where there is no just reason for delay. This rule is applicable to a motion for summary judgment. Moore , 6 Federal Practice 2308, 2310 (2d ed. 1953).

An interpleader action is a multiple claim action due to the rival claims of the interpleaded parties to the action. Moore , 6 Federal Practice 253 (2d ed. 1953). Therefore, the present case is suitable for the application of the rule. See Republic of China v. American Express Co., Inc., 190 F. 2d 334, 336, 337 and cases cited at 337 (2d Cir. 1951).

[Partial Disposition of Claims]

The disposition of some but not all the claims to the fund in issue on this motion is the most expeditious way of handling the present motion. The existence of genuine issues of fact regarding a claim advanced by Royal will not here affect the outcome of the case respecting any other parties except the United States . It is clearly in the spirit of the Federal Rules that all constructive results be salvaged from a motion for summary judgment. See F. R. Civ. P. 56(d). Therefore, I see no reason to delay the entry of judgment on those claims not dependent on remaining factual issues for their disposition.

Judgment should be entered for the United States in the amount of its earliest filed notice of lien, $1,894.98, against all other parties herein. Further, as to the remaining $8,105.02 of the $10,000 fund on deposit with this court, judgment should be entered dismissing the claims of all parties to the action except the United States and Royal insofar as its assignment of accounts receivable is concerned.

The only dispute remaining for trial, then, is that between the United States , based on its tax liens other than that filed March 20, 1959 in the amount of $1,894.98, and Royal, based on its assignment of accounts receivable. The amount in dispute is the $8,105.02.

Settle order and judgment on notice promptly in accordance with this opinion, including a direction that the residual issues be tried.

 

 

[74-2 USTC ¶9742] United States of America , Plaintiff v. United Bank of Arizona , Louis N. Fine and Maurice Van Praag, Defendants

U. S. District Court, Dist. Ariz. , No. CIV-73-138-PHX-CAM, 9/19/74

[Code Sec. 6323]

Priority of liens: Funds held by bank.--The United States had a prior lien upon the bank account of the taxpayer.

William Smitherman, United States Attorney, Phoenix , Ariz. , for plaintiff. Brazlin & Tutnick, 753 E. McDowell Rd., Phoenix, Ariz., Harry M. Beggs, Carson, Messinger, Elliott, Laughlin & Ragan, 3550 N. Central Ave., Phoenix, Ariz., Wallace J. Baker, Jr., 508 United Bank Bldg., 3550 North Central Ave., Phoenix, Ariz., for defendants.

Judgment

MUECKE, District Judge:

The Court having considered the pleadings filed in this action and having granted the United States of America's Motion for Summary Judgment as to defendants, United Bank of Arizona and Louis N. Fine; and having considered the "Stipulation for Entry of Judgment" filed by plaintiff, United States of America and defendant, Maurice Van Praag; therefore.

[Conclusion]

IT IS ORDERED, ADJUDGED AND DECREED that:

1. The United States of America has a valid, existing and prior lien upon the bank account of defendant, Maurice Van Praag and deposited with the defendant, United Bank of Arizona .

2. The Federal Tax Lien of the United States of America upon the aforementioned bank account is hereby foreclosed and the United Bank of Arizona is hereby ordered to distribute all monies in said account to the United States of America .

3. Defendant, United Bank of Arizona , is not entitled to recover, against said funds, attorney's fees or court costs.

4. The Federal Tax Lien of the United States of America is prior and superior to the lien rights claimed by defendant, Louis N. Fine and that defendant, Louis N. Fine, is not entitled to attorney's fees or court costs.

5. Defendant, Maurice Van Praag is indebted to the United States of America on account of the aforementioned valid and existing Federal Tax Lien and that plaintiff, United States of America have judgment against defendant, Maurice Van Praag, in the sum of $21,973.20.

 

 

[59-2 USTC ¶9620] United States of America , Plaintiff v. Leland E. Holzer, et al., Defendants

U. S. District Court, So. Dist. Calif., Central Div., No. 18339-TC Civil, 7/17/59

[1954 Code Sec. 7403]

Action to enforce lien: Priority of liens: Evidence.--Since none of the third parties claiming liens against the properties of the taxpayers offered any evidence establishing or tending to establish any claim, lien or interest, the Federal government was entitled to priority in enforcing its tax lien against the taxpayers' properties which were ordered to be sold.

Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax Division, Eugene N. Sherman, Assistant United States Attorney, 808 Federal Building Los Angeles 12, Calif., for plaintiff. Paul Magasin, 300 South Beverly Drive , Beverly Hills , Calif. , for defendants.

Findings of Fact, Conclusions of Law and Judgment and Order of Sale

CLARKE, District Judge:

The above-entitled matter came on for trial on November 4, 1958, before the Honorable Thurmond Clarke, United States District Judge, sitting without a jury, Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax Division, Eugene N. Sherman, Assistant United States Attorney, appearing as attorneys for plaintiffs; Paul Magasin, appearing as attorney for defendants, Florence Coombs, formerly known as Florence Holzer, (hereinafter referred to as "Florence Coombs") and Chester Coombs; the defendants, The Bank of America National Trust and Savings Association, a national banking association, Corporation of America, a California corporation, Continental Auxiliary Company, a California corporation sued as Doe Corporation, a corporation, and R. Raymond having disclaimed; defaults having been entered as to the defendants Leland E. Holzer, also known as John F. Holzer, also known as Tony Holzer, also known as "Honest John" (hereinafter referred to as "Leland Holzer"), S. I. Corporation, a California corporation, Tad Corporation, a California corporation, Los Angeles Safe Deposit Company, a California corporation, they having been regularly served with process and having failed to appear and answer the complaint; the State of California having answered, but been excused from all further appearances by Order of Court on April 9, 1956, on its representation that it would offer no contest in said matter; the plaintiff having dismissed all fictitious parties defendant not hereinabove mentioned; and the plaintiff having introduced evidence and none of the defendants having introduced evidence, the Court after considering the evidence makes its findings of fact and conclusions of law as follows:

Findings of Fact

I. The plaintiff, United States of America , and the defendant, State of California , are corporations sovereign and bodies politic.

II. The defendant, The Bank of America National Trust and Savings Association, is a national banking association, and the defendants, Tad Corporation, Los Angeles Safe Deposit Company, S. I. Corporation, Corporation of America , and Continental Auxiliary Company, are California corporations, each maintaining an office within the jurisdiction of this Court.

III. The Commissioner of Internal Revenue assessed against defendant, Leland Holzer, deficiencies in income taxes, penalties, and interest, on the dates, in the amounts, and for the taxable periods set out as follows:

                                                                       Assessment             Notice of

Date Assessed                Amount         Taxable Period             List Rec'd            Lien Filed

Aug. 3, 1951
            $102,656.12             1943                 Aug. 6, 1951         
Dec. 28, 1951

Aug. 3, 1951
              31,812.03             1945                 
Aug. 6, 1951
         
Dec. 28, 1951

Aug. 3, 1951
             149,628.68             1946                 
Aug. 6, 1951
         
Dec. 28, 1951

Sept. 9, 1952
                177.05             1951               Sept. 15, 1952                  None

Feb. 8, 1954
               1,034.97             1952                 Feb. 8, 1954          May 21, 1954

Nov. 10, 1954
              1,335.80             1953                
Nov. 10, 1954
         
Feb. 17, 1955

 

IV. The lists covering said assessments were received by the Collector or Director of Internal Revenue in Los Angeles on the dates set out above, at which times liens arose in favor of the United States on all property or rights to property of said defendant.

V. Notices of said assessments were given to said defendant and demands were made for payment thereof. Notices of said liens were filed with the County Recorder for Los Angeles County , California , on the dates set out above.

VI. Partial payment was made on the deficiencies assessed for 1951 set out above, in the amount of $114.00, but no further payment was made, so that the assessed balance due the plaintiff amounts to $286,530.65, together with accrued interest thereon in the amount of $123,837.67, and lien filing fees in the amount of $4.50, or a total of $410,372.82, plus interest at the statutory rate of 6% per annum, which amounts to $47.10 per day, from November 4, 1958, until paid.

VII. On August 13, 1952 , the said Commissioner assessed a deficiency against the defendants, Leland Holzer and Florence Coombs, with respect to taxes on transportation of persons in the amount of $31,817.64 for the period April 21, 1950 to July 5, 1950 .

VIII. The list covering said assessment was received by the Collector of Internal Revenue in Los Angeles on August 18, 1952 , at which time a lien arose in favor of the plaintiff on all property or rights to property of said defendants.

IX. Notice of said assessment was given to said defendants and demand was made for payment thereof. Notice of said lien was filed with the County Recorder for Los Angeles County , California , on August 25, 1952 , as Number 2004.

X. No amount of said liability has been paid and the entire amount thereof is due the plaintiff, together with accrued interest in the amount of $11,856.21, and lien filing fees in the amount of $.90, or a total of $43,674.75, plus interest at the statutory rate of 6% per annum, which amounts to $5.23 per day, from November 4, 1958, until paid.

XI. The said Commissioner assessed against defendants, Leland Holzer and Florence Coombs, deficiencies in income taxes, penalties and interest, on the dates, in the amounts, and for the taxable periods set out as follows:

                                                                     Assessment             Notice of

Date Assessed               Amount         Taxable Period            List Rec'd            Lien Filed

Aug. 3, 1951
            $24,388.65             1944                Aug. 6, 1951         
Dec. 28, 1951

June 28, 1949
            17,407.55             1948               
June 28, 1949
         
Oct. 28, 1949

June 28, 1949
             1,000.00             1948               
June 28, 1949
         
Oct. 28, 1949

June 28, 1949
             1,000.00             1948               
June 28, 1949
         
Oct. 28, 1949

 

XII. The lists covering said assessments were received by the Collector of Internal Revenue in Los Angeles on the dates set out above, at which times liens arose in favor of the plaintiff on all property or rights to property of said defendants.

XIII. Notices of said assessments were given to said defendants and demands were made for payment thereof. Notices of said liens were filed with the County Recorder for Los Angeles County , California , on the dates set out above.

XIV. Partial payment was made on the deficiency assessed for 1948 set out first above, in the amount of $14,750.00, but no further payment was made, so that the assessed balance due the plaintiff amounts to $29,046.20, together with accrued interest in the amount of $15,436.97, and lien filing fees in the amount of $3.60, or a total of $44,486.77, plus interest at the statutory rate of 6% per annum, which amounts to $4.76 per day, from November 4, 1958, until paid.

XV. The said Commissioner assessed against defendant, Florence Coombs, deficiencies in income taxes on the dates, in the amounts, and for the taxable periods set out as follows:

                                                                        Assessment             Notice of

Date Assessed                 Amount         Taxable Period             List Rec'd            Lien Filed

Aug. 3, 1951
             $ 32,204.00             1945                 Aug. 6, 1951         
Dec. 28, 1951

Aug. 3, 1951
              150,032.59             1946                 
Aug. 6, 1951
         
Dec. 28, 1951

Sept. 11, 1953
                270.41             1952               
Sept. 11, 1953
          
Nov. 1, 1954

 

XVI. The lists covering said assessments were received by the Collector of Internal Revenue in Los Angeles on the dates set out above, at which times liens arose in favor of the United States on all property or rights to property of said defendant.

XVII. Notices of said assessments were given to said defendant and demands were made for payment thereof. Notices of said liens were filed with the County Recorder for Los Angeles County , California , on the dates set out above.

XVIII. A partial credit was made against the deficiency assessed for 1945 set out above, in the amount of $9,135.50, but no further payment was made, so that the assessed balance due the plaintiff amounts to $173,371.50, together with accrued interest thereon in the amount of $69,263.13, and lien filing fees in the amount of $3.00, or a total of $242,637.63, plus interest at the statutory rate of 6% per annum, which ammounts to $28.49 per day, from November 4, 1958, until paid.

XIX. Pursuant to Order of Court dated May 15, 1959, a certain safe deposit box held by defendant, Los Angeles Safe Deposit Company, in the name of "John F. Holzer" was opened by the United States Marshal, but no property, or rights to property, of the defendants, Leland Holzer or Florence Coombs, were found to be contained therein.

XX. Defendant, Florence Coombs, owns a parcel of improved real property known as 3948 South Orange Drive , Los Angeles , California , more fully described as:

Lot 8, Tract 13372, in the City of Los Angeles, California, as per Map recorded in Book 275, Pages 20 and 21 of Maps in the Office of the County Recorder of said County.

XXI. None of the defendants alleged in the complaint to claim a lien or interest in the property hereinabove set forth has offered any evidence establishing or tending to establish any such claim, lien, or interest.

XXII. This action is brought under the direction of a delegate of the Attorney General of the United States at the request of a delegate of the Secretary of the Treasury.

Conclusions of Law

I. Jurisdiction is conferred on this Court by virtue of Title 28 U. S. C. §§ 1340 and 1345 and 26 U. S. C. §7403.

II. There is now due, owing, and unpaid to the plaintiff from defendant, Leland Holzer, the sum of $410,372.82, plus interest at the statutory rate of 6% per annum, which amounts to $47.10 per day, from and after November 4, 1958, until paid.

III. There is now due, owing, and unpaid to the plaintiff from defendant, Florence Coombs, the sum of $242,637.63, plus interest at the statutory rate of 6% per annum, which amounts to $28.49 per day, from and after November 4, 1958, until paid.

IV. There is now due, owing, and unpaid to the plaintiff from defendants, Leland Holzer and Florence Coombs, jointly and severally, the sum of $88,161.52, plus interest at the statutory rate of 6% per annum, which amounts to $9.99 per day, from and after November 4, 1958 , until paid.

V. The plaintiff is entitled to judgment against the defendant, Leland Holzer, for the amounts set forth in paragraph II of the Conclusions of Law herein to be due, owing, and unpaid to the plaintiff from said defendant.

VI. The plaintiff is entitled to judgment against the defendant, Florence Coombs, for the amounts set forth in paragraph III of the Conclusions of Law herein to be due, owing, and unpaid to the plaintiff from said defendant.

VII. The plaintiff is entitled to judgment against the defendants, Leland Holzer and Florence Coombs, jointly and severally, for the amounts set forth in paragraph IV of the Conclusions of Law herein to be due, owing, and unpaid to the plaintiff from said defendants.

VIII. The plaintiff is entitled to judgment against the defendants, Leland Holzer and Florence Coombs, jointly and severally, for its costs of suit herein expended.

IX. The plaintiff has valid and subsisting tax liens against the aforesaid real property, for the amounts set forth in paragraphs III and IV of the Conclusions of Law herein, and for its costs of suit herein expended, which said tax liens are prior and paramount to the claims of all the world against said real property.

X. The plaintiff is entitled to judgment enforcing its aforesaid tax liens against the aforesaid real property by having as much of said property sold as may be necessary to satisfy its said tax liens.

Judgment

In accordance with the foregoing findings of fact and conclusions of law,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED:

(1) That plaintiff do have and recover from the defendant, Leland Holzer, the sum of $410,372.82, together with interest at the statutory rate of 6% per annum which amounts to $47.10 per day, from and after November 4, 1958, until paid;

(2) That plaintiff do have and recover from the defendant. Florence Coombs, the sum of $242,637.63, together with interest at the statutory rate of 6% per annum which amounts to $28.49 per day, from and after November 4, 1958 , until paid;

(3) That plaintiff do have and recover from the defendants, Leland Holzer and Florence Coombs, jointly and severally, the sum of $88,161.52, together with interest at the statutory rate of 6% per annum which amounts to $9.99 per day, from and after November 4, 1958, until paid;

(4) That plaintiff do have and recover from the defendants, Leland Holzer and Florence Coombs, jointly and severally, its costs taxed by the Clerk of this Court in the sum of $. . . . .;

(5) That the real property described in the complaint herein shall be sold by the Marshal of this Court, pursuant to 28 U. S. C. §2001 in the manner prescribed by the laws of the State of California and according to the rules and practice of this Court, with the proceeds of said sale to be applied as follows:

FIRST: to the payment of the Marshal's fees, disbursements and expenses of said sale;

SECOND: to the payment to the plaintiff, United States of America , of its costs of suit expended and to be taxed herein;

THIRD: to the payment to the plaintiff, United States of America, of the said sum of $242,637.63, together with interest at the statutory rate of 6% per annum, which amounts to $28.49 per day, from November 4, 1958, until paid;

FOURTH: to the payment to the plaintiff, United States of America, of the said sum of $88,161.52, together with interest at the statutory rate of 6% per annum, which amounts to $9.99 per day, from November 4, 1958, until paid;

FIFTH: the remaining balance, if any, to the defendant, Florence Coombs.

(6) That at said sale any of the parties hereto shall be allowed to bid and purchase. Said Marshall shall execute and deliver for recordation his certificate of sale to the highest bidder in the manner provided by the laws of the State of California and, after the time allowed by law for redemption has expired, said Marshal shall execute his deed to said property to the purchaser thereof at said sale. The defendants, and all persons claiming under them, or any of them, having liens subsequent to the liens of the plaintiff, and their personal representatives, and all persons claiming under them, shall be forever barred and foreclosed of and from all equity of redemption and claim in, of, or to said property from and after the delivery of said Marshal's deed; and if any of the parties to this action who may be in possession of said real property, or any part thereof, or any person who since the commencement of this action has come into possession under them, refuses to deliver possession thereof to such purchaser, or any part thereof, a Writ of Assistance may, without further notice, be issued to compel such delivery of possession to the purchaser. Said United States Marshal is hereby ordered and directed to sell said real property pursuant to the decree herein and to make his return of sale to this Court; the clerk of this Court is ordered to transmit to said Marshal a certified copy of the decree and order of sale herein. Before any sale of any of said real property under this decree shall be held, notice of the time and place of said sale shall be served upon the plaintiff by service upon the United States Attorney for the Southern District of California, 808 Federal Building, Los Angeles 12, California, and shall be served upon the other parties to this action by serving their respective attorneys. Any such notices must be served not less than ten days prior to the date of sale.

 

 

[64-1 USTC ¶9430]Springfield Brewing Co., an Illinois corporation, Plaintiff v. The First National Bank of Springfield , a National Banking Association; Clarence B. Davis, Admr. of the Estate of Harry D. Anderson; Clarence B. Davis , Admr. with Will Annexed of the Estate of Margaret I. Anderson; George P. Gardner; Dorothy M. Gardner, Defendants; United States of America , Intervenor

Ill. Circuit Court, County of Sangamon, In Equity, No. 94971, 12/20/63

[1954 Code Secs. 6321-6323]

Tax lien: Determination of priorities between tax lien and various creditors.--Where a corporation had filed a complaint in 1948 charging the decedent, an employee, with embezzlement and purchasing assets with its funds, the Court determined the rights and priorities of various creditors and claimants, including the corporation, the United States, under a lien based upon income tax deficiencies of the decedent, and legatees and devisees of the decedent's wife, to the assets of decedent and his deceased wife.

Hugh H. Graham, Jr., 404 Reisch Bldg., William P. Rob erts, 908 Ridgely Bldg., Mark O. Rob erts, 1028 S. Grand Ave., W., Springfield, Ill., for plaintiff. Brown, Hay & Stephens, 714 First Nat'l Bank Bldg., A. M. Fitzgerald, (Deceased) 504 E. Monroe St. , for defendants. Harlington Wood, Jr., Ridgely Bldg., Edward F. Casey, Assistant United States Attorney, Illinois Bldg., Springfield, Ill., for U. S., Intervenor.

Order

CROWN, Circuit Judge:

This matter came on to be heard upon the issues formed by the amended complaint of Springfield Brewing Company against George P. Gardner and Dorothy M. Gardner, defendants, their answers and the plaintiff's reply thereto and upon the intervening petition of the United States of America, the answer of the plaintiff thereto and the reply of the United States to the answers, and upon the issues presented by the original complaint as amended against Clarence B. Davis, Administrator of the estate of H. D. Anderson and Clarence B. Davis, admin istrator with the will annexed of Margaret I. Anderson, and the answers to said amended complaints and the plaintiff's replies to said answers.

Evidence was taken before the court and arguments of counsel were heard after briefs submitted. The court, being fully advised, finds:

1. The original complaint against H. D. Anderson charging embezzlement and purchase of assets with plaintiff's funds was filed October 14, 1948 and an injunction supported by bond was issued enjoining H. D. Anderson and others who received notice, including the First National Bank of Springfield , from transferring any assets in which H. D. Anderson had any interest.

2. The original defendant, H. D. Anderson, being subject to a criminal indictment, asserted his rights under the Fifth Amendment of the Constitution of the United States and refused to answer any questions concerning his accounts or his property. H. D. Anderson first testified in the cause in 1957, and also died in that year. All of H. D. Anderson's property would descend to his wife, Margaret I. Anderson, who also died in 1957.

3. Subsequent to the death of H. D. Anderson, Clarence B. Davis, Administrator of the estate of H. D. Anderson, and Clarence B. Davis, Administrator with the will annexed of Margaret I. Anderson, were made defendants. Also, after the death of Margaret I. Anderson, Dorothy M. Gardner and George P. Gardner, who were the legatees and devisees of Margaret I. Anderson, were made parties defendant.

4. Subsequently, on June 23, 1958 , the United States of America , on behalf of the Collector of Internal Revenue, filed an intervening counterclaim asserting a lien based on income tax deficiencies of H. D. Anderson and asserted that the lien was prior to the rights of the plaintiff as to any property of H. D. Anderson.

5. The United States filed notice of lien on February 13, 1953 , for tax deficiencies as follows:

1944 ....         $ 5,899.29

1945 ....          12,729.70

1946 ....           1,788.24

                  $21,417.33

together with interest and penalties.

6. On June 29, 1961, a judgment based on the original complaint against the substituted defendant, Clarence B. Davis, admin istrator of the estate of H. D. Anderson, deceased, in the amount of $114,906.93, which included specific embezzlements of $67,592.39 and interest of $47,314.54. The decree also found, following the Master's report, that at least $45,800.00 of the plaintiff company's funds had been deposited in H. D. Anderson's personal bank account. The decree reserved the right to prove additional embezzlements.

7. The issues regarding the tracing of assets or funds were not presented to or decided by the Master in Chancery nor dedecided in the decree of June 29, 1961 .

8. Various tables compiled by the plaintiff from records in evidence showing earnings of H. D. Anderson, bank deposits of H. D. Anderson, embezzlements determined by the Master in Chancery, embezzlements determined by the auditors, payments made on a real estate contract, cash deposits made by H. D. Anderson, personal expenditures of H. D. Anderson, income tax payments of H. D. Anderson, were presented, and are not specifically disputed by any of the other parties. These tables are stated to be taken from records admitted in evidence and available for inspection and reference is made in each case to a specific exhibit number.

9. From the testimony and from inventories of the admin istrator, the following assets appear to be on hand:

(A) 5 rooms of furniture of a value of $500.00 and miscellaneous furniture of a value of $10.00. This item is listed in both the estates of H. D. Anderson and Margaret I. Anderson.

(B) 125 shares of Paul Steele Lumber Co. stock, This is listed in the H. D. Anderson estate only.

(C) Unknown securities in a lock box at the First National Bank. It was subsequently determined by inspection of the box that such securities do not exist.

(D) Lot 10 in Charles S. Wanless West Jackson Parkway , Springfield , Sangamon County , Illinois , valued at $15,000.00, listed in the estate of Margaret I. Anderson.

(E) Currency on hand which was found in a safe in the attic of the home after the decease of Margaret I. Anderson, in the amount of $6,200.00.

(F) Checking account in the name of H. D. Anderson or Margaret I. Anderson in the First National Bank of Springfield, Illinois, the transfer of which had been enjoined since October 14, 1948, in the sum of $620.48.

(G) Checks of the Treasurer of the United States payable to Margaret I. Anderson in the amounts of $150.00 and $151.20.

(H) Dividend of First State Bank of Beardstown--$10.00.

(I) 5 shares of stock, par $100.00, First State Bank of Beardstown--$500.00.

(J) A fur coat and a diamond ring.

10. H. D. Anderson first testified in the cause in 1957 at which for the first time he admitted certain exhibits, M-1 through M-65, which are a statement of expenditures from the First National Bank account, certain deposits in both the First National Bank and the Springfield Marine Bank, certain net worth statements and certain security purchases and sales. He admitted mixing company money and his own.

11. The Master in Chancery's report describes some of this testimony as follows:

"Anderson's own admissions were somewhat amazing, the keeping of as much as $5,000 or $6,000 of the Company's funds in his personal safety box at the bank, from $3,000 to $5,000 at a time of the Company's cash in his own home, $3,000 to $4,000 of the company's cash in his own pocket on a single trip. There were checks of the company irregularly deposited in Anderson 's account in an amount of $45,800."

12. An exhibit labelled petitioner's exhibit #1, introduced in evidence for the first time, was introduced at the hearing of this cause before the court. It is a photostate of the contract book between H. D. Anderson and Margaret I. Anderson, buyers, and Charles S. Wanless, Seller, for 437 West Jackson Parkway ( Lot 10, Charles S. Wanless, West Jackson Parkway ). It shows a purchase price of $10,500.00, September 24, 1943 , and the following payments:

September 24, 1943
 ...........         $4,000.00

September 24, 1943
 (ins.) ....             72.00

November 5, 1943
 .............            500.00

December 6, 1943
 .............            500.00

January 3, 1944
 ..............          1,500.00

January 27, 1944
 .............          1,000.00

February 5, 1944
 .............            500.00

March 24, 1944
 (interest) ....            116.87

May 24, 1944
 (interest) ......             21.81

May 24, 1944
 (balance) .......          2,638.68

 

13. Margaret I. Anderson did not work during any of the period in question.

14. H. D. Anderson's earnings shown by the record were $50.00 a week, which resulted in take home pay of $39.30 per week. From July, 1941 through May of 1944, Anderson 's take home earnings were $6,591.58. His personal bank deposits during the periods were $21,723.24. Embezzlements found by the Master in Chancery during the period were $9,620.75 and embezzlements listed by the auditors were $29,288.94. The following month (June, 1944) the Master in Chancery lists additional embezzlements of $2,646.00. There is no evidence of H. D. Anderson's personal living expenses during this period.

15. On September 25, 1944 , a check cleared H. D. Anderson's bank account at the First National Bank in the sum of $4,072.00, which is the exact amount as the September 24, 1944 payments on the home shown in exhibit 1.

16. The law is that the burden is upon a trustee and those taking through him to distinguish his own property and that the entire mass will be treated as trust property except insofar as the trustee may be able to distinguish what is his. 54 Am. Jur. "Trusts", Sec. 256, p. 199 bottom; Grodsky v. Sipe, (1940) 36 F. Supp. 656; Winger v. Chicago City Bank and Trust Co. (1946) 394 Ill. 94 on 111; Halle v. National Park Bank, 140 Ill. 413 on 421. There is a conclusive presumption that a trustee spends his own funds first. People v. Peoples Bank and Tr. Co. 353 Ill. 479 on 487. This bank account was in the name of H. D. Anderson or Margaret I. Anderson. Where a wife's funds are mingled with a husband's and are used as a common fund for necessities, the commingled property, including the wife's funds, are subject to a judgment against the husband. Steel v. Henry, 78 Ill. App. 400.

17. The defense of the statute of limitations asserted in defendant George P. Gardner and Dorothy M. Gardner's answering brief was not pleaded. The original defendant, H. D. Anderson, by taking advantage of the Fifth Amendment, concealed facts from the plaintiff, which he later admitted in 1957, concerning the mixing of funds. Suit was immediately, in the same year, filed against Margaret I. Anderson's Administrator. The records concerning payment for the real estate were not produced until the hearing of this cause in 1963. Suspicion and rumor are not sufficient to start the running of the statute of limitations. Fraudulent concealment stops the running of the statute until the cause of action is discovered. Pelcak v. Bartos, 328 Ill. App. 435 on 446. Winger v. Chicago City Bank and Trust Co., 325 Ill. App. 459.

18. The other defenses presented by defendants, George P. Gardner and Dorothy M. Gardner are defense to the merits of the cause of action for embezzlement and are not open to review here.

19. From the evidence introducted, it is apparent that a portion of the house payments were directly traceable to the bank account in which company funds were commingled and that during the short period of the purchase, H. D. Anderson did not have access to any other funds than illegally obtained company funds sufficient to purchase the real estate.

20. The United States , in its brief, makes no claim to the home.

21. The Court finds that the plaintiff is entitled to a lien upon the real estate known as Lot 10 in Chas. S. Wanless West Jackson Parkway, Springfield, Sangamon County, Illinois, in the amount of the embezzlements found by the Master in Chancery through the period of purchase of said real estate, which amount is $9,620.75, and to a lien for interest thereon, at the rate of five percent (5%) per annum from the date of filing suit against the Administrator with the Will annexed of Margaret I. Anderson, to-wit: October 1, 1957.

22. There is no direct evidence as to the purchase of the furs, the diamond ring and the furniture, the time when they were acquired.

23. The checking account in The First National Bank of $620.48 was in the account October 14, 1948 when the transfer was enjoined and an equitable lien was established thereon in favor of the plaintiff. However, the United States contends that its statutory lien is superior.

24. The Paul Steele Company stock appears to be of no value and is of no present concern to the parties.

25. The $6,200.00 in currency found in the safe in the attic of the home after the death of Margaret I. Anderson presents a more difficult question. The plaintiff asserts that by circumstantial evidence in this case, it is company money. The United States asserts that it has a lien on the funds. However, the United States asserts this lien only if the funds belong in the H. D. Anderson estate.

26. In therefore appears that if the funds cannot be traced neither the plaintiff nor the United States can prevail as to the funds.

27. If the funds can be traced as embezzled money, the United States asserts that its lien for income taxes is superior to the plaintiff's equitable ownership.

28. Plaintiff reasons that the $26,485.25 excess of earnings over expenditures in the period July, 1941 through December 31, 1945 were exactly wiped out by the deficit of $26,423.57 in the year 1956 and that the total remaining assets as of the end of 1946 had to be plaintiff's funds on the principle that a trustee spends his own funds first. Plaintiff further supports its theory by the fact that transfers from Anderson 's bank account and lock box were enjoined and that he would naturally hide the money.

29. Plaintiff's view is further supported by the fact that Anderson knew it was charged that he purchased assets with company funds and made no effort while on the witness stand in 1957 to account for his assets or to show earnings between 1947 and 1957. The specific issue of the $6,200 was not raised because it was unknown. However, Anderson did admit to keeping company money at home.

30. There may be drawn a reasonable inference that the funds found in the safe were company funds but the court finds the lapse of time between 1947, the conclusion of plaintiff's analysis of defendant Anderson's assets, and the defendant Anderson's death in 1957, makes the identification of the currency found in the attic highly speculative and the court cannot find that these funds have been traced. Accordingly, they are held to be the funds of the last possessor, Margaret I. Anderson.

31. This leaves the question of priority between the plaintiff company and the United States as to the bank account of $620.48. This is the same bank account in which the original defendant, Harry D. Anderson, admitted mixing company funds. The court finds that the lien of the United States upon these funds is superior to the asserted lien of the plaintiff against these funds.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED, That A. The Springfield Brewing Company, plaintiff, has a first lien upon all right, title and interest of H. D. Anderson, Margaret I. Anderson, George P. Gardner, and Dorothy M. Gardner in Lot 10, in Chas. S. Wanless West Jackson Parkway, Springfield, Sangamon County, Illinois, in the amount of $9,620.75, and a lien for interest thereon, at the rate of five percent (5%) per annum, from October 1, 1957, which lien for interest to October 1, 1963, is $2,886.18. In the event of the failure of George P. Gardner and Dorothy M. Gardner to pay said sum to plaintiff on or before ninety (90) days from date hereof the Master in Chancery of the Circuit Court of Sangamon County, Illinois is hereby directed to duly publish for sale and sell, as provided by law, the premises known as Lot 10 in Charles S. Wanless West Jackson Parkway, Springfield, Illinois, in satisfaction of said lien and pay the balance of said proceeds after deduction for lawful costs of sale to George P. Gardner and Dorothy M. Gardner.

B. The United States of America has a first lien upon the bank account in the First National Bank of Springfield, originally in the name of Harry D. Anderson or Margaret I. Anderson, and now in the name of Clarence B. Davis, as Administrator of the estate of Harry D. Anderson or Administrator with the will annexed of Margaret I. Anderson, in the sum of $620.48, and said admin istrator is directed to pay over the sum of $620.48 to the United States of America, on or before thirty (30) days from date hereof.

C. The currency, in the amount of $6,200.00, found in a safe in the attic of the home after the death of Margaret I. Anderson, is a part of the estate of Margaret I. Anderson to be admin istered by Clarence B. Davis, Administrator with the will annexed of Margaret I. Anderson, in due course of admin istration.

D. The furniture, the proceeds of the State Bank of Beardstown stock, the proceeds of the government checks, in the sum of $301.20, the dividend of First State Bank of Beardstown, in the amount of $10.00, the fur coat and diamond ring are all assets of the estate of Margaret I. Anderson, to be admin istered upon by Clarence B. Davis, Administrator with the will annexed of Margaret I. Anderson, in due course of admin istration.

 

 

[50-1 USTC ¶9222] United States of America , Plaintiff v. M. K. Widdekind, et al., Defendants

In the United States District Court for the Northern District of Iowa, Eastern Division, Civil No. 475, February 21, 1950

Lien for taxes: Period of lien.--The federal government's lien for certain excise and employment taxes due from a partnership was prior to that of the wife of one of the partners under a valid alimony decree and that of a county for real and personal property taxes. Since the land to which the government's lien attached was not of sufficient value to satisfy its claim, the priority of other junior liens was not established by the court.

Tobias E. Diamond, United States Attorney, Wm. B. Danforth, and Franklin E. Gill, Assistant United States Attorneys, all of Sioux City 6, Iowa, and Carl R. Perkins, Special Attorney, United States Treasury Department, St. Paul, Minnesota, for plaintiff. Isadore Meyer, County Attorney, Winneshiek County, Decorah, Iowa and Rob ert S. Milner, 635 Higley Bldg., Cedar Rapids, Iowa, for defendants.

Findings of Fact, and Conclusions of Law, and Order for Judgment

GRAVEN, District Judge:

Now on this 21st day of February, 1950, the Plaintiff appears in open Court by Franklin E. Gill, Assistant United States Attorney, and Carl R. Perkins, Esquire, Special Attorney, United States Treasury Department; the Defendants, M. K. Widdekind, R. M. Threlkeld, Margaret Widdekind, Decorah Building and Loan Association, a corporation, Electronics, Inc., a corporation, Ward Leonard Electric Co., a corporation, Helfer and Co., a corporation, and Hermyone Threlkeld, each, and all failing to appear and having heretofore been defaulted herein, are now found to be in default for want of appearance or pleading; and the Defendant, County of Winneshiek in the State of Iowa, having heretofore appeared by its County Attorney, Isadore Meyer, and filed an Answer herein under date of June 27, 1949, and the Defendant, Lou Jane Threlkeld, having heretofore appeared by her attorney, Rob ert S. Milner, and filed an Answer under date of August 17, 1949; this matter comes on for hearing and determination upon the issues drawn by the pleadings of the parties.

Findings of Fact

The Court finds that it has jurisdiction of the subject matter involved and the parties hereto.

1. The Plaintiff commenced this action under Title 26, U. S. C. A., Internal Revenue Code, Section 3678, for the purpose of foreclosing a lien for income taxes alleged to exist in favor of the United States of America . The real estate involved is located in Winneshiek County , Iowa , and is owned by M. K. Widdekind and R. M. Threlkeld as partners in the Midland Manufacturing Company formerly an association manufacturing radios and equipment in Decorah , Iowa , which real estate is described as follows:

" Lot 3 of that part of the Northeast Quarter of the Northwest Quarter of Section 21, Township 98 North, Range 8 West of the 5th Principal Meridian."

2. The Defendant, Lou Jane Threlkeld, is the divorced wife of the Defendant, R. M. Threlkeld, her divorce and the alimony judgment against the Defendant, R. M. Threlkeld, having been entered in the District Court of Winneshiek County, Iowa, on February 14, 1947, the precise provisions of which and the amount of alimony awarded are immaterial here for reasons which will appear in the Conclusions of Law.

3. The Defendant, County of Winneshiek in the State of Iowa , has a claim for real estate taxes upon the premises hereinabove described, as follows:

Year               Amount

1946 ....         $135.45

1947 ....          150.66

1948 ....          184.64

and also has a claim for personal property tax against the Defendants, M. K. Widdekind and R. M. Threlkeld, partners in Midland Manufacturing Company of Decorah , Iowa , for the year 1946 in the sum of $4391.12, together with interest and penalties according to law, which said taxes were proven in the amount claimed for each type of tax.

4. The Collector of Internal Revenue for the District of Iowa, has filed in behalf of the United States of America , Plaintiff, tax claims to-wit:

                                                                                                                         
Conclusions of Law

1. Section 1400, Title 26 of the Internal Revenue Code provides:

"RATE OF TAX.

In addition to other taxes, there shall be levied, collected, and paid upon the income of every individual a tax equal to the following percentages of the wages (as defined in section 1426(a)) received by him after December 31, 1936, with respect to employment (as defined in section 1426(b)) after such date:

(1) With respect to wages received during the calendar years 1939 to 1949, both inclusive, the rate shall be 1 per centum.

(2) With respect to wages received during the calendar years 1950 and 1951, the rate shall be 11/2 per centum.

(3) With respect to wages received after December 31, 1951 , the rate shall be 2 per centum. * * *"

2. Section 1600, Title 26 of the Internal Revenue Code provides:

"RATE OF TAX.

Every employer (as defined in section 1607(a)) shall pay for the calendar year 1939 and for each calendar year thereafter an excise tax, with respect to having individuals in his employ, equal to 3 per centum of the total wages (as defined in section 1607(b)) paid by him during the calendar year with respect to employment (as defined in section 1607(c)) after December 31, 1938. 53 Stat. 183, as amended Aug. 10, 1939 , c. 666, Title VI, Sec. 608, 53 Stat. 1387."

3. Section 1622, Title 26 of the Internal Revenue Code provides:

"INCOME TAX COLLECTED AT SOURCE

(a) REQUIREMENT OF WITHHOLDING. Every employer making payment of wages shall deduct and withhold upon such wages a tax equal to 15 per centum of the amount by which the wages exceed the number of withholding exemptions claimed multiplied by the amount of one such exemption as shown in subsection (b)(1).

(b) (1) The table referred to in subsection (a) is as follows: * * *"

and there following are the rates and tables for withholding from the wages of individuals.

4. Section 1658, Title 26 of the Internal Revenue Code provides:

"TELEGRAPH, TELEPHONE, RADIO, AND CABLE FACILITIES

Notwithstanding section 1650, the rates therein prescribed with respect to the taxes imposed by section 3465(a)(1), (2), and (3) shall continue to apply with respect to amounts paid pursuant to bills rendered prior to the rate reduction date; and, in the case of amounts paid pursuant to bills rendered on or after the rate reduction date for services for which no previous bill was rendered, the decreased rates shall apply except with respect to such services as were rendered more than two months before such date; and, in the case of services rendered more than two months before such date, the provisions of sections 1650 and 3465 in effect at the time such services were rendered shall be applicable to the amounts paid for such services. Added Nov. 8, 1945 , 5:17 p. m., E. S. T., c. 453, Title III, Sec. 302, 59 Stat. 576."

5. Section 3670, Title 26 of the Internal Revenue Code provides:

"PROPERTY SUBJECT TO LIEN

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

6. Section 3671, Title 26 of the Internal Revenue Code provides:

"PERIOD OF LIEN

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

7. That the amount of Miscellaneous Excise Tax, and Federal Insurance Contribution Tax owing to the Plaintiff from the Defendants, M. K. Widdekind and R. M. Threlkeld, arising out of their partnership operations under the firm name of Midland Manufacturing Company of Decorah, Iowa, is in the total sum of Eighty-Seven Thousand Four Hundred Twelve and 36/100 Dollars, ($87,412.36) as represented by items No. 4, and 11 to 17, inclusive, as set out in the tabulation of said taxes set out heretofore, and each and all of said items of taxes were justly owing and had become liens upon the foregoing described real estate before January 1, 1947.

8. That subsequent to January 1, 1947, the total amount of taxes due to the Plaintiff from the aforesaid M. K. Widdekind and R. M. Threlkeld doing business as a copartnership under the name of Midland Manufacturing Company of Decorah, Iowa, in accordance with the tabulation of Federal Taxes hereinabove set out, are in a total sum of Thirteen Thousand Nine Hundred Ninety and 42/100 Dollars ($13,990.42), including interest and penalties, and none of said items became a lien against the real property hereinabove described until after February 14, 1947, the date of the decree and alimony judgment in favor of the Defendant, Lou Jane Threlkeld, and against the Defendant, R. M. Threlkeld.

9. That in the opinion of the parties as evidenced by their stipulations filed herein, the expected recovery from a sale of the real estate described above cannot exceed Ten Thousand Dollars, ($10,000.00).

[Priority of Lien]

10. That the aforesaid amount of $87,412.36 set out in paragraph 7 hereof, is a lien in favor of the Plaintiff prior to the liens of any, or all other parties in this action; and the liens of any other party hereto, including the Defendants, Winneshiek County in the State of Iowa, and Lou Jane Threlkeld, are junior and inferior to the aforesaid liens of the Plaintiff.

11. That Winneshiek County in the State of Iowa, has a valid and existing lien for its taxes as set out in paragraph 3 of the Findings, in the total sum of $4861.87 and interest and penalties according to law.

12. Since under the most optimistic estimates there will and can be nothing for distribution to any lien claims or rights subject and junior to those of the Plaintiff, the priorities and rights of such junior claims are not being established herein; however, should it develop that the present estimates are erroneous and that any proceeds from the sale of the real estate mentioned above should exceed the amount due to the United States on its prior lien, then, and in that event a further hearing will be had in order to determine the exact amounts and priorities of those junior claimants, to-wit, Winneshiek County in the State of Iowa, and Lou Jane Threlkeld, Defendants.

Order for Judgment

IT IS HEREBY ORDERED, that judgment shall be entered in accordance with the foregoing Findings of Fact, and Conclusions of Law.

 

 

[56-1 USTC ¶9291]United States of America v. Lee Oma, Frances Oma, International Boxing Club of New York, Inc., John McCloskey, Sheriff of the County of New York, Arist Koumides, and Stephen Sullivan ^*

In the United States District Court for the Southern District of New York, Civ. 73-165, February 7, 1956

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

Lien for taxes: Priority of government's lien.--Government's lien for taxes, owing by defendant Lee Oma, on the sum of $6,505.29 held by the defendant International Boxing Club of New York, Inc. was a valid and subsisting lien and was superior to the alleged lien of defendant, Frances Oma.

Paul W. Williams, United States Attorney, for plaintiff. Bernard R. Lieberman, 521 Fifth Avenue , New York 17, N. Y., for Frances Oma.

Judgment-- September 28, 1955

KAUFMAN, District Judge:

This action having been commenced on the 13th day of February, 1952, by the filing of a complaint and the issuance of a summons, and a copy of said summons and complaint having been duly served upon the defendant, Lee Oma, on the 19th day of February, 1952, and the said summons with proof of such service having been duly filed in the Office of the Clerk of this Court on the 20th day of February, 1952, and an order having been entered striking the answers of the defendant Lee Oma and directing the entry of judgment against him.

Now, on motion of Paul W. Williams, United States Attorney for the Southern District of New York, Attorney for the plaintiff, it is Ordered and Adjudged, that the U. S. A., plaintiff, have judgment against Lee Oma, defendant, residing at 85-11, 34th Ave., Jackson Heights, New York, for the sum of $9,680.63, together with interest thereon from the 9th day of January 1951 amounting to $2,741.23, and together with costs and disbursements in the sum of $40.60 amounting in all to the sum of $12,462.46 and that the plaintiff have execution therefor.

Judgment-- September 29, 1955

This action having been commenced on the 13th day of February, 1952, by the filing of a complaint and the issuance of a summons, and a copy of said summons and complaint having been duly served upon the defendant, Frances Oma, on the 19th day of February, 1952, and the said summons with proof of such service having been duly filed in the Office of the Clerk of this Court on the 20th day of February, 1952, and the court having entered an Order on August 23, 1955, striking the answers and affirmative defenses and dismissing the cross claims and counterclaims of the defendant Frances Oma, and directing the entry of judgment against her unless she should appear to be examined by oral deposition on or before August 31, 1955, and the said Frances Oma, having failed to appear in accordance with the said order.

Now on motion of Paul W. Williams, United States Attorney for the Southern District of New York, Attorney for the plaintiff, it is

Ordered, Adjudged and Decreed that the U. S. A. plaintiff, have judgment against Frances Oma, defendant, address c/o Attorney Bernard R. Lieberman, 521 Fifth Ave., New York 17, New York, declaring its lien on the sum of $6,505.29 held by the defendant International Boxing Club of New York, Inc. is a valid and subsisting lien and that said lien is paramount and superior to the alleged lien of defendant, Frances Oma.

^* The plaintiff, U. S. A. consented that the above entitled action may be dismissed pursuant to Rule 41(a), F. R. C. P. as to the defendants Arist Koumides and Stephen Sullivan, only.

 

 

[86-2 USTC ¶9699] Bank of St. Charles v. Alloy & Steel Fabricators, Inc., et al Bank of St. Charles v. United States of America, United States of America v. Bank of St. Charles , et al., Louisiana Power & Light Company, et al. v. The Bank of St. Charles , et al

U.S. District Court, East. Dist. La., 84-5417, 85-2667, 85-4651, 85-5007, 7/31/86, 643 FSupp 206

[Code Sec. 6323 ]

Lien for taxes: Priority.--A collateral mortgage on real property which was recorded prior to a federal tax lien on the same property had legal priority where the act of sale was not recorded until after the tax lien arose. According to the court, the fact that the act of sale was not recorded until approximately three years after the mortgage was recorded, a valid state ( Louisiana ) lien existed from the moment the property was purchased and was perfected on the date of recordation, all of which occurred before the federal tax lien arose. In addition, the court found that all three criteria for a choate security interest under federal law were met when the mortgage was filed for record. The mortgage document established the bank as lienor, the specific property subject to the lien, and the amount that the borrower owed to the bank. Since the United States did not file its first notice of tax lien until approximately two years after the mortgage was recorded, the mortgage in favor of the bank primed the federal tax lien.

Herman C. Hoffmann, Jr., Shannon H. Daigle, Hurley & Hoffman, 925 Common St., New Orleans, La. 70112, for plaintiffs. John Volz, United States Attorney, New Orleans, La. 70130, Steven L. Gremminger, Department of Justice, Washington, D.C. 20530, for defendants.

MEMORANDUM OPINION

MENTZ, District Judge:

The issue before the Court is whether a collateral mortgage on real property which was recorded prior to a federal tax lien on the same property has legal priority where the act of sale was not recorded until after the tax lien arose. This is a question of first impression on which there is a paucity of recent legal authority. The parties stipulated all material facts and brought cross-motions for summary judgment.

On April 24, 1981 , Alloy & Steel Fabricators, Inc. ("Alloy & Steel") executed a collateral mortgage on real property located in St. Charles Parish, Louisiana to the Bank of St. Charles ("Bank"). Alloy & Steel did not own the mortgaged property when the collateral mortgage was executed. Approximately two months later, on June 6, 1981 , Alloy & Steel acquired title to the property by act of sale passed before a notary public. Alloy & Steel recorded the mortgage on September 23, 1981 , but did not record the act of sale until May 4, 1984 . When Alloy & Steel failed to pay federal withholding taxes, assessments were made. Notices of a federal tax lien evidencing those assessments were recorded on October 20, 1983 , December 19, 1983 and March 29, 1984 .

The United States contends that its tax lien has priority even though the mortgage was recorded first because the title was not recorded until after the United States ' tax lien arose. Thus, United States argues that the validity of the mortgage is dependent on the validity of the act of sale, which being unrecorded rendered the mortgage inchoate and precluded it from creating a "security interest" pursuant to 26 U.S.C. §6323 . 26 U.S.C. §6323(a) provides that a tax lien shall not be valid against a holder of a "security interest" until notice of tax lien is filed. "Security interest" is defined by 26 U.S.C. §6323(h)(1) as:

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 . . . 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. . . .

The Bank contends that the unrecorded title did not affect the validity of the mortgage because the mortgage encumbered the property from the moment of purchase and became choate upon recordation.

Federal law governs the priority of competing liens where a federal tax lien is involved. See United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963). Specifically, the Federal Tax Lien Act of 1966 ("Tax Lien Act"), 26 U.S.C. §§6321 -6326 sets forth the rights of private creditors with respect to federal tax liens.

Priority under the Tax Lien Act is governed by "the first in time, first in right rule," whereby priority is given to the lien first perfected. United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954). Under 26 U.S.C. §6323(a) , a federal tax lien arises when proper notice of the tax lien is filed pursuant to 26 U.S.C. §6323(f) . The Tax Lien Act fails to expressly designate when a state lien arises. The courts have established that in order for a state lien to prime a federal tax lien, not only must a valid lien exist under state law, but it must also have been choate under federal law, prior to the filing of a notice of federal tax lien. Pioneer American Insurance Co., 374 U.S. at 88; Asher v. United States [78-1 USTC ¶9281 ], 570 F.2d 682, 683 (7th Cir. 1978). A state lien is deemed to be choate under federal law when "the identity of the lienor, the property subject to the lien, and the amount of the lien are established." New Britain , 347 U.S. at 84.

Applying the foregoing principles, the Court finds that under Louisiana law a valid lien existed in favor of the Bank prior to the filing of the federal tax lien. The parties have stipulated that a mortgage in favor of the Bank was passed on April 24, 1981 and filed for record on September 23, 1981 . It was passed before a notary and two witnesses in authentic form. See La.Civ.Code art. 3305. ¹ The United States concedes that the mortgage specifically identifies the real property which is subject to the mortgage, thereby satisfying the requirement that the property which is subject to the mortgage be definite. See La.Civ.Code Ann. art. 3306. ² The fact that the property was acquired after the mortgage was given does not present a problem because Louisiana law provides that a mortgage may bind after acquired property. See La.Civ.Code art. 3304; ³ Note, Mortgages-After-Acquired Property Clauses-Articles 3304, 3308, Louisiana Civil Code of 1870, XV Tul.L.Rev. 314 (1941). The mortgage also set forth the exact sum for which it was given. See La.Civ.Code art. 3309. ⁴ Clearly, the mortgage met the requirements of the Louisiana Civil Code.

The Supreme Court of Louisiana in Gallaugher v. Hebrew Congregation, 35 La.Ann. 829 (1883), addressed the question of whether a judicial mortgage affects real estate to which a judgment debtor has only an unrecorded title.

On July 18, 1872 , Gallaugher recorded a judgment which he had obtained against the judgment debtor, Delacroix. On October 1, 1875 , Delacroix acquired real estate at the place of registry, but did not record his title until September 15, 1876 , almost one year later. When Delacroix sold the property to the defendant on September 12, 1876 , Gallaugher's judgment against Delacroix was recorded but, Delacroix's title was not recorded. The Court stated that:

While the creditors of the vendor cannot be prejudiced by an unrecorded transfer, those of the purchaser may be benefitted by it, subject however to the superior rights of the former.

The registry of the transfer is no condition precedent essentially required to subject the real estate to judicial or legal mortgages inscribed against purchaser and vendor, and which it is admitted would, beyond doubt, reach the property in case of a registry of the title in the proper Conveyance Book.

The law is, that judicial and legal mortgages registered against the purchaser affect and encumber the property from the very instant of purchase, whether the deed be recorded or not, but rank subordinate to the encumbrances existing on the property against the vendor at the moment of the transfer.

Id. at 831-832. Thus, the Court found that a recorded mortgage affects and encumbers property even though the title is not recorded.

The requirement of La.Rev.Stat.Ann. §2754 that a notarial act concerning immovable property be recorded in order to have effect against third parties protects the creditors of the vendor and bona fide purchasers from the vendor without notice. Gallaugher, at 831; Logan v. Herbert, 30 La.Ann. 727, 732 (1878). It is true that creditors of Alloy & Steel's vendor would not have notice of the act of sale or the mortgage prior to recordation of the act of sale. However, the United States is not a creditor of the vendor, but of the vendee, Alloy & Steel. Once the mortgage was recorded on September 23, 1981 , it served as notice to all creditors of Alloy & Steel. All necessary facts concerning the mortgage were determinable from the St. Charles Parish records by any creditor of Alloy & Steel. Thus, the fact that the act of sale was not recorded until May 4, 1984 does not render the mortgage invalid. A valid state lien existed from the moment the property was purchased and was perfected on the date of recordation, all of which occurred before the federal tax lien arose.

In addition, the Court finds that all three criteria for a choate security interest under federal law were met when the mortgage was filed for record on September 23, 1981 . The mortgage document established the Bank of St. Charles as lienor, the specific property subject to the lien, and the amount Alloy & Steel owed to the Bank.

Therefore, the Court finds that the mortgage was both a valid security interest under Louisiana law and was choate under federal law as of the date of recordation on September 23, 1981 . Since the United States did not file its first notice of tax lien until October 20, 1983 the mortgage in favor of the Bank primes the federal tax lien.

Accordingly, the motion of the United States for summary judgment is DENIED and the motion of the Bank of St. Charles for summary judgment is GRANTED.

¹ Article 3305 provides in pertinent part that:

A conventional mortgage can only be contracted by act passed in presence of a Notary and two witnesses, or by act under private signature.

² Article 3306 provides:

To render a conventional mortgage valid, it is necessary that the act establishing it shall state precisely the nature and situation of each of the immovables on which the mortgage is granted.

³ Article 3304 provides:

If a person contracting an obligation towards another, grants a mortgage on property of which he is not then owner, this mortgage shall be valid if the debtor should ever after acquire the ownership of the property, by whatever right.

⁴ Article 3309 provides:

To render a conventional mortgage valid, it is necessary that the exact sum for which it is given, shall be [sic].

 

[59-2 USTC ¶9741]United States of America, Cross-Claimant v. James S. Currie, Commissioner of Revenue of the State of North Carolina, Plaintiff v. F. D. Smith, alias George Smith, alias G. W. Smith, alias Crip Smith, and wife, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Smith Newbraugh; Nella Smith, alias Gwendolyn Novella Smith; J. B. Webster, Jr., and wife, Helen S. Webster; Huger S. King, Trustee; Security National Bank of Greensboro, Executor of the Estate of Beatrice S. Chamblee, deceased; S. B. Kinser, Jr., alias S. B. Kinzer, Jr., individually and as devisee of Beatrice S. Chamblee, deceased; Frances Smith Lacefield and husband, Joe Morris Lacefield; Elva Noggle Jennings; Florence Duval Smith Profenius and husband, H. C. Profenius; J. Bryan Webster, Sr., and wife, Eula E. Webster; Southeastern Bonding Company; Shenandoah Life Insurance Company, Inc.; A. G. Decker, R. S. Leftwich and N. D. McNairy, Trustees; A. B. Carr and wife, Esther Carr; Mrs. S. G. Scott; J. O. Tally, Jr., Trustee; Fred T. Saussy, Jr., Trustee; Thomas N. Parker, Trustee; V. G. Rainey, Administrator and individually, and wife, Frances Betty Rainey; The State of North Carolina; Howard E. Carr, Ed. T. Coble, John R. Peacock, Zack L. Whitaker, and Mrs. E. M. Burke, as the members of the Guilford County Board of Education; Joseph P. Shore, Clerk of the Superior Court of Guilford County, North Carolina; A. T. August, Clerk of the Chancery Court, Richmond, Virginia; The Richmond Redevelopment and Housing Authority, and Frederick A. Fay, Executive Director; Charles W. Tyner; A. B. Tyner; and Estelle Meier, Defendants

U. S. District Court, Middle Dist. N. C., Greensboro Div., Consolidated Civil Nos. 1082-G, 1083-G, 1084-G, 1085-G, 1086-G, 1087-G, 1088-G, 10/29/59

[1939 Code Sec. 3672(a)--same as 1954 Code Sec. 6323(a)]

Lien for taxes: Fact findings.--Liens for state (North Carolina) income taxes and penalties which were prior in time to liens for federal income taxes had priority as to property located within the state. Judgments in favor of the state for court costs and a fine in criminal cases also had priority over the federal tax liens. The federal tax liens, however, were superior to general liens against the property. Recorded mortgages against other real property were superior to later federal tax liens.

Findings of Fact and Conclusions of Law and Final Judgment and Decree

HAYES, District Judge:

These causes came on to be heard and were before his Honor, Johnson J. Hayes, United States District Judge for the middle district of North Carolina, on the 29th day of September, 1959. The United States of America, cross-claimant, appeared by its counsel, James E. Holshouser, United States Attorney, LaFayette Williams, Assistant United States Attorney, both of the Middle District of North Carolina, and Homer R. Miller, Attorney, Department of Justice, Washington, D. C., and consents to this Judgment. The plaintiff, James S. Currie, Commissioner of Revenue of the State of North Carolina, and the defendant, State of North Carolina, appeared by their counsel, Payton B. Abbott, Assistant Attorney General of North Carolina, and consent to this Judgment. The defendants, Francis Duval Smith, Frances Smith Lacefield, Joe Morris Lacefield, Florence Smith Profenius, and H. C. Profenius, appeared by their counsel, Turner L. Smith, Washington, D. C., and consent to this Judgment. The defendant, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, appeared by her counsel, Thomas Turner, Greensboro, North Carolina, and consents to this Judgment. Leo Lazar, not a party to these consolidated civil actions but the husband of the defendant, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, appeared by his counsel, Thomas Turner, Greensboro, North Carolina, and waives an order making him a party, waives service of process and consents to this Judgment. Hubert E. Seymour, Jr., receiver, appeared in his own proper person and by his attorneys, G. C. Hampton, Jr., and T. C. Hoyle, Jr., Greensboro , North Carolina , and consents to this Judgment.

The defendant, Security National Bank of Greensboro , North Carolina , executor of the estate of Beatrice S. Chamblee, deceased, appeared through its attorney, W. H. Holderness, Greensboro , North Carolina , and consents to this Judgment.

The defendants, Howard E. Carr, Ed. T. Coble, John R. Peacock, Zack L. Whitaker, and Mrs. E. M. Burke, as members of the Guilford County Board of Education, appeared by their counsel, John Hardy, Greensboro, North Carolina, and the defendant, V. G. Rainey, Administrator, and V. G. Rainey, individually, and Frances Betty Rainey, appeared by their counsel, H. L. Koontz and C. L. Shuping, Greensboro, North Carolina.

The defendants, Shenandoah Life Insurance Company, Inc., A. G. Decker, R. S. Leftwich, and N. D. McNairy, Trustees, appeared through their attorney, Bryce R. Holt, Greensboro , North Carolina , and consent to this Judgment.

The defendants, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Smith Newbraugh, A. B. Carr, Esther Carr, J. O. Tally, Jr., Trustee J. B. Webster, Jr., Helen S. Webster, Huger S. King, Trustee, J. Bryan Webster, Sr., Eula E. Webster, and Elva Noggle Jennings, were properly served with process by personal service of summons within the State of North Carolina as provided by statute; said defendants did not appear in their own proper person or through counsel.

The defendants, S. B. Kinser, Jr., alias S. B. Kinzer, Jr., Thomas N. Parker, Trustee, Fred T. Saussy, Jr., Trustee, Estelle Meier, Charles W. Tyner, A. T. August, Clerk of the Chancery Court of the City of Richmond, State of Virginia, The Richmond Redevelopment and Housing Authority and its executive director, Frederick A. Fay, were properly served with process by substitute personal service through personal service of an order entered herein upon said defendants outside of the State of North Carolina in the manner provided by statute; said defendants did not appear in their own proper person or through counsel.

The defendants, Mrs. S. G. Scott and Southeastern Bonding Company, were properly served with process by proper and sufficient publication of summons in the manner provided by statute; said defendants did not appear in their own proper person or through counsel.

And the Court, having heard evidence upon the matters at issue and having heard from all counsel present and desiring to be heard, and being fully advised in the premises, and by consent of the parties above indicated, and from the additional evidence submitted by the parties, and pursuant to Rule 52, Federal Rules of Civil Procedure, does specifically find the facts from said evidence and make conclusions of law as follows:

Findings of Fact and Conclusions of Law

I. The Court finds the following obligations due by the defendant, Francis Duval Smith, and the defendant, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, to the plaintiff and the cross-claimant and makes the following conclusions of law as to general lien rights thereon:

(a) The defendant, Francis Duval Smith, is indebted to the plaintiff, James S. Currie, Commissioner of Revenue of the State of North Carolina, as alleged in its several complaints filed herein, for income taxes for the years 1943 to 1947, inclusive, which with penalties and interest to August 15, 1959, amount to a total of $811,543.18 with interest from August 15, 1959, on the sum of $289,309.44 until paid at the rate of six per cent per annum.

(b) The plaintiff, James S. Currie, Commissioner of Revenue of the State of North Carolina, has specific and perfected liens for the taxes, penalties, and interest found in Findings of Fact and Conclusions of Law I(a) against all properties and rights of properties of the defendant, Francis Duval Smith, real and personal, located in the State of North Carolina, and herein adjudicated to be property belonging to Francis Duval Smith or in which he has any interest.

(c) The defendant, Francis Duval Smith, is indebted to the cross-claimant, United States of America, as alleged in its cross-claim and amended cross-claim filed herein, for income taxes for the years 1944 to 1949, inclusive, 1952 and 1953, which with penalties and assessed interest amount to $496,614.06 and with interest from assessment to August 15, 1959, in the amount of $175,936.85, totalling $672,550.91, with interest on the sum of $496,614.06 from August 15, 1959, until paid, at the rate of six per cent per annum.

(d) The defendants, Francis Duval Smith and Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, are jointly and severally indebted to the cross-claimant, United States of America, as alleged in its cross-claim and amended cross-claim filed herein, for income taxes for the years 1950 and 1951, which with penalties and assessed interest amounts to $22,293.06 and with interest from assessment to August 15, 1959, in the amount of $8,027.03, totalling $30,320.09, with interest on the sum of $22,293.06 from August 15, 1959, until paid, at the rate of six per cent per annum.

(e) The defendant, Francis Duval Smith, is indebted to the cross-claimant, United States of America, as alleged in its cross-claim and amended cross-claim filed herein, for wagering taxes for the period from November, 1951, through December 30, 1953, inclusive, which penalties and assessed interest amounts to $6,117.09 and with interest from assessment to August 15, 1959, in the amount of $2,098.78, together with a non-payment penalty of $305.86, totalling $8,521.73, with interest on the sum of $6,117.09 from August 15, 1959, until paid, at the rate of six per cent per annum.

(f) The cross-claimant, United States of America, has specific and perfected liens for income taxes and wagering taxes, penalties and interest found in Findings of Fact and Conclusions of Law I(c), I(d), and I(e) against all properties and rights of properties of the defendant, Francis Duval Smith, real and personal, wherever the same may be situate and herein adjudicated to be the property belonging to Francis Duval Smith or in which he has any interest.

[Findings as to Ownership of Property]

II. The Court finds the following to be property and property rights of the defendant, Francis Duval Smith, and makes the following conclusions of law relative to the rights and remedies of the parties and the receiver, including conclusions of law against the record title holders:

(a) The defendant, Francis Duval Smith, is the real, actual, and sole owner of the real property described as Tracts 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15 less that tract conveyed as hereinafter set forth, 16, 18, 19, 20, 21, and 22 as described in the cross-claim and amended cross-claim of the United States of America and as hereinafter more specifically described in this decree.

(b) The defendants, Florence Smith Profenius, H. C. Profenius, Frances Smith Lacefield, Joe Morris Lacefield, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, Southeastern Bonding Company, Mrs. H. G. Scott, Security National Bank of Greensboro, Executor of the Estate of Beatrice S. Chamblee, deceased, and S. B. Kinser, Jr., Alias S. B. Kinzer, Jr., do not own and have no right, title and interest in and to any of the tracts or real property referred to in Findings of Fact and Conclusions of Law II(a).

(c) The defendant, Francis Duval Smith, has agreed to execute and deliver to the receiver a deed or deeds without warranties conveying to the receiver all of his right, title, and interest, legal and equitable, in and to all of said tracts of real property referred to in Findings of Facts and Conclusions of Law II(a).

(d) The defendant, Francis Duval Smith is the real, actual, and sole owner of the items of tangible and intangible personal property described in the cross-claim and amended cross-claim of the United States of America and as hereinafter more specifically described in this decree.

(e) The defendants, Florence Smith Profenius, H. C. Profenius, Frances Smith Lacefield, Joe Morris Lacefield, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, Southeastern Bonding Company, Mrs. S. G. Scott, Security National Bank of Greensboro North Carlina, Executor of the Estate of Beatrice S. Chamblee, deceased, and S. B. Kinser, Jr., alias S. B. Kinzer, Jr., do not own and have no right, title, and interest in and to any of the items of tangible and intangible property referred to in Findings of Fact and Conclusions of Law II(d).

(f) The defendant, Francis Duval Smith, has agreed to execute and deliver to the receiver such bills of sale, assignments, endorsements or other transfer instruments as shall be necessary to transfer to the receiver all of his right, title, and interest, legal and equitable, in and to all of said items of personal property.

(g) The defendants, Florence Smith Profenius and H. C. Profenius, do not own and have no right, title, or interest in and to any of the tracts of real property referred to in Findings of Fact and Conclusions of Law II(a), but the defendant, Florence Smith Profenius, holds the record title to Tracts 9, 10, and 11 as nominee of and for the defendant, Francis Duval Smith, and the defendants, Florence Smith Profenius and H. C. Profenius, have agreed to execute and deliver to the receiver a deed, or deeds, without warranties, conveying to the receiver all of their right, title, and interest, legal and equitable, in and to said Tracts 9, 10, and 11.

(h) The defendants, Florence Smith Profenius and H. C. Profenius, do not own and have no right, title, or interest in and to any of the items of personal property referred to in Findings of Fact and Conclusions of Law II(d). Said defendants have agreed to execute and deliver to the receiver such bill, or bills, of sale, assignments, endorsements and other transfer instruments as shall be necessary to transfer to the receiver all of said defendants' right, title, and interest, legal and equitable, if any, in and to all of said items of personal property.

(i) The defendants, Frances Smith Lacefield and Joe Morris Lacefield, do not own and have no right, title, or interest in and to any of the tracts of real property referred to in Findings of Fact and Conclusions of Law II(a), but the defendant, Frances Smith Lacefield, holds the record title to Tracts 5, 6, 7, and 8 as nominee of and for the defendant, Francis Duval Smith, and the defendants, Frances Smith Lacefield and Joe Morris Lacefield, have agreed to execute and deliver to the receiver a deed, or deeds, without warranties, conveying to the receiver all of their right, title, and interest, legal and equitable, in and to said Tracts 5, 6, 7, and 8.

(j) The defendants, Frances Smith Lacefield and Joe Morris Lacefield, do not own and have no right, title, or interest in and to any of the items of personal property referred to in Findings of Fact and Conclusions of Law II(d). Said defendants have agreed to execute and deliver to the receiver such bill, or bills, of sale, assignments, endorsements and other transfer instruments as shall be necessary to transfer to the receiver all of said defendants' right, title and interest, legal and equitable, if any, in and to all of the said items of personal property.

(k) The defendant, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, and her husband Leo Lazar, and the defendant, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, do not own and have no right, title, or interest in and to any of the tracts of real property referred to in Findings of Fact and Conclusions of Law II(a), but the defendant, Nella Smith Lazar, holds the record title to Tract 3 and claims to hold the record title to Tract 4 as nominee of and for the defendant, Francis Duval Smith, and the defendant, Nella Smith Lazar, together with her husband Leo Lazar, have agreed to execute and deliver to the receiver a deed, or deeds, without warranties, conveying to the receiver all of their right, title, and interest, legal and equitable, if any, in and to said Tracts 3 and 4. If the defendant, Mrs. F. D. Smith, alias Dorothy Lee Smith, now Dorothy Lee Smith Newbraugh, is in fact the Mrs. F. D. Smith referred to as grantee in the deed to Tract 4, then she holds said title as nominee of and for the defendant, Francis Duval Smith, and does not own any interest therein.

(l) The defendant, Nella Smith, alias Gwendolyn Novella Smith, now Nella Smith Lazar, and her husband Leo Lazar, do not own and have no right, title, or interest in and to any of the items of personal property referred to in Findings of Fact and Conclusions of Law II(d). Said defendant and husband, Leo Lazar, have agreed to execute and deliver to the receiver such bill, or bills, of sale, assignments, endorsements and other transfer instruments as shall be necessary to transfer to the receiver all of said defendant's right, title, and interest, legal and equitable, if any, in and to all of the said items of personal property.

(m) There is no such person as Mrs. S. G. Scott. This is a fictitious name, or alias, used by the defendant, Francis Duval Smith, to hold the record title to Tract 22, and no party to this action other than the defendant, Francis Duval Smith, owns or holds any interest in Tract 22.

(n) All stock issued and subscribed for in the defendant, Southeastern Bonding Company, is in fact owned by and is the property and asset of the defendant, Francis Duval Smith. The defendant, Southeastern Bonding Company, does not own and has no right, title, or interest in and to any of the tracts of real property and items of personal property referred to in Findings of Fact and Conclusions of Law II(a) and II(d), but said defendant owns the record title to Tracts 12, 13, 14, 15, and 16 as nominee of and for the defendant, Francis Duval Smith, who is the real, actual, and sole owner, legal and equitable, of said Tracts 12, 13, 14, 15, and 16.