Purchasers Entitled to Notice

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[92-1 USTC ¶50,297] United States of America , Plaintiff v. Valco Enterprises, Inc., Marlboro Savings Bank, Paul F. McAllister, and James E. Collins, Defendants

U.S. District Court, Dist. Mass., Civ. 80-1259-Y, 5/19/92

[Code Sec. 6323 ]

Tax liens: Validity against third parties: Purchasers: Notice.--Tax liens filed by the IRS in 1974 and 1975 on property owned by a company were effective against subsequent purchasers even though the name of the company on the title was different from the name of the company on the liens. The purchasers argued that a reasonable title search using the owner of record would not disclose tax liens against the property. However, the court disagreed for two reasons. First, that section of the code requiring tax lien indexing in such a manner that a reasonable inspection would reveal its existence applies only to interests in real property acquired after November 6, 1978 . Second, the court applied the reasoning of prior decisions that a notice of tax lien properly filed under the name of the taxpayer is sufficient to validate the lien against all property owned by the taxpayer, under whatever name acquired.

[Code Sec. 7465 ]

Tax liens: Sale of property: Notice.--Oral notice to the IRS of the sale of property that was the subject of liens and oral consent by the IRS to the sale of property did not destroy the liens even though the bank that sold the property alleged that the IRS told it to proceed with the sale and apply for a discharge of the lien after the sale. Such advice would have been a misrepresentation of law, for which collateral estoppel would not afford relief.

[Code Sec. 6323 ]

Tax liens: Discharge of liens: Refiling.--A tax lien filed by the IRS did not fail because of a failure to renew. Although it was not refiled within the six-year period, an exception to the refiling rule applied because the lien was the subject of a suit to which the U.S. was a party and which commenced prior to the expiration of the required refiling period.

MEMORANDUM OF DECISION

YOUNG, District Judge:

In this action, the United States seeks to foreclose certain tax liens against real property formerly owned by Valco Enterprises, Inc.; sell the property; and apply the sale proceeds to the unpaid taxes. The United States and Marlboro Savings Bank ("the Bank") have filed cross motions for summary judgment. Paul F. McAllister and James E. Collins, subsequent purchasers, have opposed the government's motion.

FACTS ¹

Valco, Inc. was incorporated under the laws of Massachusetts on May 9, 1960 . It owned certain land in the town of Hudson , Massachusetts ("the Property"). In July, 1970, Valco, Inc. gave a mortgage to the Bank on the Property. That mortgage was recorded in the Middlesex County Registry of Deeds. In March, 1973, Valco, Inc. changed its name to Valco Enterprises, Inc. This fact was never communicated to the Bank. According to the deed, title to the Property remained in Valco, Inc.

In 1974, Valco Enterprises, Inc. incurred tax obligations to the United States . Three notices of tax lien were recorded by the Internal Revenue Service ("IRS") in February and March, 1975, in the Middlesex County Registry of Deeds. They were indexed under the name Valco Enterprises, Inc., not Valco, Inc.

In September, 1975, the Bank foreclosed its mortgage. No written notice of the sale was given to the United States . No written consent was received. ²

On September 10, 1975 , defendant Paul McAllister purchased the Property from the Bank for $76,200. During September, 1975, the Bank applied to the IRS for a discharge from the tax lien. The IRS declined to approve the discharge. Four years later, McAllister sold the Property to defendant James Collins, subject to the Bank mortgage. The Bank mortgage remains outstanding today.

In June, 1980, the United States filed this action. The United States did not refile its notices of lien against Valco, Enterprises, Inc. at any time after the original filings in 1974 and 1975. The United States never filed notices of lien against Valco, Inc.

ANALYSIS

1. The tax liens filed by the IRS in 1974 and 1975 against Valco Enterprises, Inc. were effective against subsequent purchasers.

A lien against all of one individual's property automatically comes into existence if that individual neglects, or refuses after a demand, to pay any tax for which he is liable. 26 U.S.C. §6321 ; see Pioneer Nat'l Title Ins. Co. v. United States [81-2 USTC ¶9482 ], 1981 WL 1816 (D.N.J. 1981). The lien arises when an assessment is made and continues until the liability is satisfied or becomes unenforceable by reason of lapse of time. 26 U.S.C. §6322 ; see Pioneer [81-2 USTC ¶9482 ], 1981 WL 1816. A lien is not valid against a purchaser of the encumbered property, however, unless proper notice has been filed prior to the sale. 26 U.S.C. §6323(a) . The requirements for proper notice are found in 26 U.S.C. §6323(f) .

Section 6323(f) provides that, in the case of real property, notice must be filed "in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated." Id. ; §6323(f)(1)(A)(i) . There is no dispute that notice of the tax lien was filed in the Middlesex County Registry of Deeds and that this was the proper place of filing pursuant to Massachusetts law.

Because a federal tax lien is created entirely by federal statute, federal law establishes the content of a sufficient filing. United States v. Polk [87-2 USTC ¶9432 ], 822 F.2d 871, 873 (9th Cir. 1987) (citing United States v. Brosnan [60-2 USTC ¶9516 ], 363 U.S. 237, 240 [1960]). ³ Section 6323(f)(3) provides that "[t]he form and content of the notice . . . shall be prescribed by the Secretary [of the Treasury]" and that "[s]uch notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien." 26 U.S.C. §6323(f)(3) . Pursuant to this authority, the Secretary has published regulations which require simply that "[t]he notice . . . shall be filed on Form 668, 'Notice of Federal Tax Lien under Internal Revenue Laws.'" 26 C.F.R. §301.6323(f)-1(c)(1) . In the instant case, no evidence regarding Form 668 has been submitted, but no one suggests that the wrong form was used.

Section 6323(f)(4) , as amended on November 6, 1978, requires indexing the tax lien in the local registry of deeds when state law mandates that a lien is not valid against a purchaser unless such lien is recorded in a public index in such a manner that a reasonable inspection of the index would reveal its existence. Massachusetts has such a law and, hence, indexing is required. See Mass. Gen. L. ch. 183, §4 .

It is undisputed that the IRS indexed its tax liens in the Middlesex Registry of Deeds under the name of Valco Enterprises, Inc. The defendants assert that since record title of the property was in Valco, Inc., a reasonable title search using the owner of record would not disclose tax liens against the property. The defendants' arguments fail, however, for the following reasons.

First, section 6323(f)(4) is inapplicable to the instant case. The language relied upon by the defendants was added to the statute in 1978 and only applies to "interests in real property acquired after the date of the enactment of this Act [ Nov. 6, 1978 ]." 26 U.S.C. §6323 . Since the IRS acquired its interest in the property in 1974 and 1975, the statute does not apply. ⁴ See Puls v. United States [74-1 USTC ¶9322 ], 387 F.Supp. 760 (N.D. Cal. 1974).

Second, even if this language were applicable, the IRS would still win. In United States v. Polk, the Ninth Circuit rejected arguments similar to those made in the instant case. In Polk, a purchaser bought property at a mortgage foreclosure sale that was encumbered with a tax lien. The lien was filed under the taxpayer's proper legal name, "Roy Bruce Polk." The property was recorded only under the name of "Bruce Polk." The Ninth Circuit rejected the purchaser's argument that the statutory scheme was inadequate to give notice to subsequent purchasers. Rather, the court explained that the IRS is required to file the lien notice only under the taxpayer's legal name and is not required to file under every name in which the IRS knows the taxpayer has recorded title to property. Polk [87-2 USTC ¶9432 ], 822 F.2d at 873. The court adopted the reasoning of Pioneer, which stated that "Section 6323(f) . . . clearly provides that a notice of tax lien properly filed under the name of the taxpayer is sufficient to validate the lien against all property owned by the taxpayer, under whatever name acquired." Polk [87-2 USTC ¶9432 ], 822 F.2d at 874 (quoting Pioneer [81-2 USTC ¶9482 ], 1981 WL 1816, *4). The Polk court continued, explaining that "[i]f Congress had intended to impose upon the IRS the duty to investigate what property is owned by a delinquent taxpayer, record the name under which it was acquired, and file a separate notice of tax lien for each such name, it could have done so." Id. The federal statutory scheme preempts any contrary state regulation.

This Court agrees with the other courts that have held that the controlling federal statute provides all the process that is due, and this Court rules that a reasonable search for federal tax liens against a corporate entity encompasses a search of the relevant indices for that corporation by whatever name it is or has been known.

The defendants rely on a number of cases which hold that a federal tax lien may be invalidated if the IRS misspells or otherwise materially alters a taxpayer's name in its notice of lien, such that a reasonable and diligent search by a purchaser would not reveal the existence of the lien. See, e.g., Haye v. United States [79-1 USTC ¶9192 ], 461 F.Supp. 1168 (C.D. Cal. 1978). These cases are irrelevant here, however, because in the instant case the IRS used the proper name of the taxpayer. See Polk [87-2 USTC ¶9432 ], 822 F.2d at 873.

For these reasons, the IRS did establish a valid lien on the property and it was effective against subsequent purchasers.

2. Oral notice to the IRS of the sale and oral consent by the IRS to the sale do not destroy the lien.

The defendants admit that no written notice was given to the IRS regarding the foreclosure sale. They also admit that no written consent was given by the IRS to proceed with the sale. Nevertheless, the defendants assert that oral notice was given to the IRS and that the IRS gave oral consent to the sale. They argue that oral notice and consent are sufficient to satisfy the statutory requirement; or alternatively, that the IRS made a misrepresentation to the defendants on which they relied to their detriment and as such the government should be equitably estopped from now asserting its lien.

The law is clear that a sale of property on which the United States has a lien, made pursuant to an instrument creating some other lien on the property,

shall . . . be made subject to and without disturbing such lien . . . if notice of such lien was filed . . . in the place provided by law for such filing . . . more than 30 days before such sale and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1) . . .

26 U.S.C. §7425(b)(1) .

Furthermore, notice of a sale of such property "shall be given (in accordance with regulations prescribed by the Secretary or his delegate) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary or his delegate." 26 U.S.C. §7425(c)(1) (emphasis added).

The relevant regulations repeat the language of the statutory scheme by requiring notice "in writing by registered or certified mail or by personal service, not less than 25 days prior to the date of sale." 26 C.F.R. §400.4-1(c). ⁵ Moreover, a sale of the type described above "shall discharge or divest such property of the lien . . . if the United States consents to the sale of such property free of such lien or title." 26 U.S.C. §7425(c)(2) . Treasury regulations provide that "consent shall be effective only if given in writing . . . ." 26 C.F.R. §404.4-1(d)(1); 26 C.F.R. §301.7425-3(b)(1) .

The courts have confirmed that such notice is to be in writing. In Puls, the court ruled that notice to the IRS sent by regular mail, not special mail as required by the statute, is insufficient and that, even where the IRS had actual notice of the sale 24 days in advance, that is not enough. The Puls court refused to tamper with the established statutory requirements imposed by Congress:

This court cannot substitute its notions of what constitutes adequate notice for the type of nonjudicial sale in question where the national legislature, in response to specific tax collection problems thoroughly researched and considered, has articulated in clear language in statutory form what equals necessary notice. The court hesitates to tamper with the legislative scheme.

Puls [74-1 USTC ¶9322 ], 387 F.Supp. at 763.

The Tenth Circuit has likewise ruled that even actual notice to the IRS sent by regular mail is insufficient. Colorado Property Acquisitions, Inc. v. United States [90-1 USTC ¶50,055 ], 894 F.2d 1173, 1175 (10th Cir. 1990). The Tenth Circuit reasoned that "[t]he method of delivery of the notice has been directed by Congress and as such is mandatory." Id. The court continued, explaining that "[W]e recognize the harshness of this rule. This rule allows the IRS to receive actual notice, . . . ignore the notice and still retain the right to levy upon the property. The remedy, if any there is to be, must come from Congress and not from the Courts." Id.

Accordingly, any oral notice to the IRS is insufficient. ⁶ Although the requirement of written consent comes from the Treasury regulation and not from Congress, the regulation has the force of law and this Court is persuaded by the legal precedents.

The defendants assert that the IRS told the Bank to proceed with the sale and apply for a discharge of the lien after the sale. They assert that this is a question of fact. The IRS claims this is a question of law. This dispute is significant because, although the doctrine of equitable estoppel might be invoked against the IRS when misrepresentations made by admin istrative officials about factual matters have injured a taxpayer, the doctrine does not apply in tax cases concerning misrepresentations of law. Puls [74-1 USTC ¶9322 ], 387 F.Supp. at 764 (emphasis in original) (citations omitted).

In Puls, an IRS official told the taxpayer that a second notice resetting a sale date would conform to the notice requirements of certain statutes. Although the taxpayer relied to his detriment on this erroneous advice, the court ruled that this advice constituted a question of law as to which the doctrine of equitable estoppel is inapplicable: "the United States does not lose its revenue because of the erroneous ruling of an admin istrative official." Id.

So here. The Bank asserts that the IRS assured it that a discharge of the lien would be forthcoming once an application was submitted after the sale. If these representations were actually made, they misrepresent the requirements of the law. The governing law requires written notice prior to the sale and written consent by the director of the IRS in the district in which the sale is to take place. Alternatively, even if the statements of the IRS offical were construed as misrepresentations of fact, this Court rules that the doctrine of equitable estoppel will not lie against the United States . See Phelps v. Fed. Emergency Management Agency, 785 F.2d 13, 16-17 (1st Cir. 1986) (Supreme Court has consistently refused to apply the equitable estoppel argument against the government, no matter how compelling the circumstances).

3. The lien did not fail because of a failure to renew.

Once a federal tax lien has been filed, it is effective for six years. See 26 U.S.C. §§6322 & 6502(a)(1). The lien may, however, be effectively refiled within the period ending thirty days after six years from the original filing date. See 26 U.S.C. §6323(g)(3) . In the instant case, one of the liens was filed on February 26, 1975. Therefore, the IRS would normally have had until March 28, 1982, to refile. It is undisputed that the IRS did not refile prior to this date.

Section 301.6323(g)-1 of 26 C.F.R., however, provides an exception to this general rule. This section states in relevant part that:

the failure of the district director to refile a notice of lien during the required refiling period will not, following the expiration of the refiling period, affect the effectiveness of the notice with respect to:

(i) Property which is the subject matter of a suit, to which the United States is a party, commenced prior to the expiration of the required refiling period . . ..

The instant action was filed in 1980, and thus falls within the requirements of this regulation. In fact, the defendants concede that the actions of the IRS comply with the regulation. But they also argue that the regulation is contrary to the express language and legislative intent of 26 U.S.C. §6323(g) , which requires refiling within six years.

At least two cases have upheld the Treasury regulation and applied it as an exception to the statute. See e.g., Title Guar. Co. of WY, Inc. v. Internal Revenue Serv., United States Dep't of the Treasury, 667 F.Supp. 767, 771 (D. Wyo. 1987); Federal Deposit Ins. Corp. v. Internal Revenue Service [87-1 USTC ¶9332 ], 1987 WL 15460 (N.D.Ga. 1987).

In the instant case, the defendants concede that they have had notice of the lien since at least 1980, when they became involved in the present suit. The legislative history of 26 U.S.C. §6323(g) indicates that the purpose of the refiling requirement is to alert potential creditors to the uncertainty of using the property as security. See S. Rep. No. 1708, 39th Cong., 2d Sess., reprinted in 1966 U.S.C.C.A.N. 3722, 3733. The defendants here do not fit within that category. Accordingly, in the circumstances of this case, this Court upholds and applies the Treasury regulation as consistent with the goals of the governing statute.

CONCLUSION

For the foregoing reasons, the government's motion for summary judgment is GRANTED. The motion by the Marlboro Savings Bank for summary judgment is DENIED. The United States shall prepare a form of judgment.

¹ The parties all agree that the case is ripe for decision by summary judgment. All facts are undisputed unless otherwise noted.

² The Bank asserts that its counsel was contacted by James McLaughlin of the IRS early on the very day of the sale. The Bank alleges that the IRS informed it of the lien on the Property but gave oral consent to the sale and advised the Bank that it would remove the lien after the sale. The Bank asserts that it had no actual knowledge of the lien and that it relied on these assertions by the IRS. McLaughlin does not remember the conversation.

³ Although federal law determines the sufficiency of the filing and the priority of liens once attached, state law determines whether there is a property interest to attach. The defendants assert that under Massachusetts law, Valco Enterprises, Inc. had no property interest to which a lien could attach because record title to the property was in Valco, Inc. This argument is unpersuasive.

First, no party cites Massachusetts law to support this contention. Second, a tax lien attaches to any property interest which the taxpayer has, and need not be complete record title. Record title is not dispositive of the property interest. A property interest may involve factors such as use and possession. See Provincetown Chamber of Commerce, Inc. v. Grace, 14 Mass. App. Ct. 903 (1982) (Possessury interest in Chamber of Commerce, but record title in its predecessor, Board of Trade). It is the defendants who must come forward to show that the taxpayer had no attachable interest in the property. No such showing has been made here.

⁴ Section (f)(4) was originally added in 1976. Prior to this amendment, the pertinent statutory language provided only for a fillng "in a public index at the district office of the Internal Revenue Service for the district in which the property subject to the lien is situated." Pioneer [81-2 USTC ¶9482 ], 1981 WL 1816, *3. This is the language applicable to the tax lien in the instant case. It is undisputed that the IRS made such a filing. Even in the event that the language added in section (f)(4) were to be deemed retroactive, however, it still avails the defendants nothing.

⁵ The regulations in chapter 400 were promulgated in 1968 and are applicable in the instant case because the relevant time period is 1975. The government has cited inapposite regulations in chapter 301 which were not promulgated until 1976.

⁶ The government disputes that it even received oral notice but, given the law, this factual dispute is immaterial.

 

 

[91-1 USTC ¶50,143] Justine W. Long, Aaron H. Richardson, and Jerry Marcus Hiers and Bullseye Development, Inc., Plaintiffs v. United States of America, Fred C. Heistand, Kathy V. Heistand, Tabitha Lynn Wrenn and James S. Chadwick, Defendants

U.S. District Court, Dist. S.C., Greenwood Div., Civ. 9:90-1962-3, 3/7/91

[Code Secs. 6323 and 6331 ]

Levy and distraint: Lien for taxes: Subsequent purchasers: Notice of lien.--A federal tax lien was valid against the purchasers of the attached real property, and the property was properly seized by the government to satisfy the federal tax liability of the seller. Although the seller claimed that he had sold the property to a partnership that subsequently sold it to the ultimate purchasers, it should have been apparent to an examiner conducting a reasonable title search of the property that the partnership was a sham and that the seller was, in fact, the true owner of the property. Therefore, the purchasers were considered to have had notice that the property was subject to a federal tax lien and could be seized by the government.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

ANDERSON, JR., District Judge:

1. This is an action by which plaintiffs allege that defendant United States of America has wrongfully determined that a federal tax lien attaches to real property owned by them and that the United States has wrongfully seized that real property to satisfy the federal tax liability asserted against F. Harold McElmurray.

2. The real property in question is located in Edgefield County and is more fully described as follows:

All that certain piece, parcel or tract of land, situate, lying and being in Edgefield County, South Carolina, containing 51.24 acres and being more particularly described and shown by plat of C. Ashley Abel, RLS, dated July 22, 1986, which plat is recorded in Plat Book 28 at page 46, records of Edgefield County and reference being made to said plat for more accurate metes, bounds, distances and location. Said lands being bounded on the NORTH by lands of H. C. McGowan, Trust Office of Trust Company Bank of Augusta, Executor and Trustee of the Estate of Marshall B. Garner; on the EAST by lands of Mike Woosley, Inc. and Dr. T.M. Mappus; on the SOUTH by lands of J.W. Manders; and on the WEST by right-of-way of a county road.

This is the identical lands conveyed to the Grantor by deed dated July 31, 1986 and recorded in Deed Book 106 at page 29, records of Edgefield County , South Carolina .

All that certain piece, parcel or tract of land, situate, lying and being in the Counties of Edgefield and Aiken, State of South Carolina, containing 147.11 acres as shown by plat of Joe L. Grant, RLS, dated December 28, 1953 and recorded in Plat Book 11 at page 65, records of Edgefield County and reference being made to said plat for more accurate metes, bounds, distances and location. Said lands being bounded on the NORTH by lands of Michael D. Fulford, Trustee and lands of Champion International; on the EAST by John Price Harley and Elbert Duke Harley; on the SOUTH by lands of Theodore W. Mappus, Thomas R. Rosier, Elizabeth Rose, et al. and John P. Harley and Elbert Duke Harley; and on the WEST by lands of Mike Woosley, Inc.

This is a portion of the lands conveyed to the Grantor by deed dated June 25, 1986 and recorded in Deed Book 105 at page 124, records of Edgefield County, and recorded in Deed Book 939 at page 248, records of Aiken County; and by deed dated July 31, 1986 and recorded in Deed Book 106 at page 28, records of Edgefield County and recorded in Deed Book 943 at page 254, records of Aiken County, South Carolina. ¹

3. On February 22, 1989 , the Internal Revenue Service assessed against F. Harold McElmurray a penalty, pursuant to Section 6672 of the Internal Revenue Code, in the amount of $125,118.47.

4. Notices of a federal tax lien securing Mr. McElmurray's liability for the above mentioned penalty were duly filed with the Registers of Mesne and Conveyance in Aiken County on March 1, 1989 and Edgefield County on July 5, 1989 .

5. By warranty deed dated December 23, 1986 , Mike Woosley, Inc. conveyed the real property that is the subject of this case, to "American Heartland Farms" for $76,000.

6. The aforementioned Warranty Deed fails to indicate whether "American Heartland Farms" is a partnership, corporation or any other type of entity, nor does it indicate who are the partners of "American Heartland Farms."

7. Janice McElmurray and Lisa McElmurray Tyler, the wife and daughter of F. Harold McElmurray, claim to be the partners of American Heartland Farms.

8. Ms. McElmurray and Ms. Tyler assert that they formed the partnership solely to purchase the real property. However, neither Ms. McElmurray nor Ms. Tyler made a capital contribution to the partnership, participated in negotiations for the purchase or sale of the real property or otherwise conducted the business affairs of the purported partnership; nor did they sign checks on the checking account or balance the account. The Court also finds that "American Heartland Farms" has never filed partnership tax returns.

9. Ms. McElmurray and Ms. Tyler further claim that a partnership agreement was entered into in November 1986. However, the partnership agreement was not filed with the Register of Mesne and Conveyance until September 1989, nearly three years after the agreement was supposedly executed. In any event, the "agreement" gave F. Harold McElmurray full authority to manage the partnership.

10. When the real property was purchased from Mike Woosley, Inc., a down payment of $10,000 was made, all of which came from a cash management account which consisted primarily of stocks which F. Harold McElmurray inherited from his mother.

11. Neither Ms. Tyler nor Ms. McElmurray made a contribution for the purchase of the real property.

12. A promissory note dated December 23, 1986 in the amount of $66,000 was executed in favor of Mike Woosley, Inc. The promisor is listed as F. Harold McElmurray and the name "American Heartland Farms" appears above McElmurray's name. The note was signed by F. Harold McElmurray in his own capacity. The note does not list the partners of American Heartland Farms.

13. At the same time that the real property was purchased, a mortgage in the amount of $66,000 was executed in favor of Mike Woosley, Inc. to secure the note identified in the previous paragraph. The mortgage was filed with the Registers of Mesne and Conveyances of Edgefield and Aiken Counties . The mortgagor is listed as "Harold McElmurray/American Heartland Farms" and is signed by F. Harold McElmurray apparently in his own capacity.

14. Pronouns and adjectives in the mortgage referring to the mortgagor are in the first person, i.e., "I", "me", and "my." This usage further shows that Mr. McElmurray and not "American Heartland Farms" owns the real property.

15. With respect to the mortgage to Mike Woosley, Inc., the "Direct or Mortgagor Index to Real Estate Mortgages" of Edgefield County lists both Mr. McElmurray and "American Heartland Farms" as the mortgagors. The listing of the mortgage under the name of Harold McElmurray cross references the listing under "American Heartland Farms" and the listing of the mortgage under the name of F. Harold McElmurray cross references the listing under "American Heartland Farms."

16. The attorney representing Mike Woosley, Inc. in the sale of the real property was Charles Coleman. The Purchaser's Closing Statement is titled "Mike Woosley, Inc. to Harold McElmurray--51.24 acres and 147.11 acres in Edgefield County , SC. " "American Heartland Farms" was not listed on the closing statement.

17. The Closing Statement was available to a person inquiring into the title to the real property.

18. In July 1987, the real property held in the name of "American Heartland Farms" was mortgaged to the Republic National Bank in consideration for a loan of $350,000 to McElmurray Investment Company. The mortgage listed "F. Harold McElmurray (also F. Harold/American Heartland Farms)" as the mortgagor. Mr. McElmurray's signature appears above a signature line for "F. Harold McElmurray" and again above a signature line for "F. Harold McElmurray/American Heartland Farms." Neither Ms. McElmurray nor Ms. Tyler signed the mortgage, nor are they listed on the mortgage as partners of "American Heartland Farms."

19. Neither Ms. McElmurray nor Ms. Tyler received any economic benefit from the mortgage.

20. This mortgage was filed with the Registers of Mesne and Conveyance of Edgefield County and Aiken Counties .

21. With respect to the mortgage to Republic National Bank, the "Direct or Mortgagor Index to Real Estate Mortgages" of Edgefield County lists both Mr. McElmurray and American Heartland Farms as the mortgagors. The listing of the mortgage under the name of Harold McElmurray cross references the listing under "American Heartland Farms" and the listing of the mortgage under the name of F. Harold McElmurray cross references the listing under "American Heartland Farms."

22. On September 6, 1989 , the property was sold to plaintiff Justine Long. All of the proceeds of the sale were used to satisfy the mortgages to Mike Woosley, Inc. and Republic National Bank. Neither Ms. McElmurray nor Ms. Tyler received any of the sale proceeds.

23. F. Harold McElmurray negotiated the sale of the real property to Ms. Long and agreed upon the purchase price. Mr. McElmurray signed both the option and the sales agreement as the agent of American Heartland Farms. Neither Ms. McElmurray nor Ms. Tyler signed the option or the sales agreement, nor does the option or sales agreement identify them as partners.

24. Neither Janice McElmurray nor Lisa M. Tyler took part in the negotiations for the sale of the property.

25. At the time of the September 6, 1989 sale, Ms. McElmurray and Ms. Tyler ratified the partnership agreement dated November 1, 1986 . Only at that time was the partnership agreement filed with the Register of Mesne and Conveyances, Aiken County . The ratification was done at the request of Ms. Long's attorney.

26. Also on September 6, 1989 , Mr. McElmurray quitclaimed to Justine Long his interest in the real property.

27. At the time of the sale of the real property to plaintiff Justine W. Long, notices of federal tax liens against F. Harold McElmurray were duly filed and of record with the Registers of Mesne and Conveyance of Aiken and Edgefield counties, as were the mortgages to Mike Woosley, Inc. and the Republic National Bank listing both F. Harold McElmurray and American Heartland Farms as the mortgagors. Indeed, Ms. Long's attorney knew of these filings.

28. On September 7, 1989 , Ms. Long conveyed a portion of the real property to Fred and Kathy Heistand.

29. On October 3, 1989 , Ms. Long sold a portion of the real property to Tabitha Lynn Wrenn and James Chadwick.

30. On January 4, 1990 , Ms. Long sold a portion of the real property to Bullseye Development, Inc.

31. On January 31, 1990 , Ms. Long sold a portion of the real property to Aaron Richardson.

32. On March 8, 1990 , Ms. Long conveyed a portion of the real property to Jerry Marcus Hires.

33. The manner in which the December 23, 1986 Warranty Deed, Promissory Note, Mortgage are drafted and executed combined with the wording of the Purchaser's Closing Statement establishes that F. Harold McElmurray exercised complete dominion and control over the property. This finding is further supported by the testimony of Janice McElmurray and Lisa M. Tyler that neither one of them participated in the affairs of the purported partnership or exercised any rights in the property consistent with an ownership interest.

34. The mortgage to Republic National Bank in which property allegedly owned by the partnership was pledged by F. Harold McElmurray as security for another entity further demonstrates that F. Harold McElmurray owned the property.

35. As of the time of the sale of the real property to Justine Long, the following factors put an examiner conducting a reasonable title search of the property in question on notice that the property in question was, in fact, owned by F. Harold McElmurray:

(a) the failure of the warranty deed to "American Heartland Farms" as a partnership and its failure to list the partners;

(b) the language on the mortgage to Mike Woosley, Inc. of "Harold McElmurray/American Heartland Farms" as the mortgagor, the pronouns and adjectives referring to the mortgagor in the first person, and the signing of the mortgage by F. Harold McElmurray in his own capacity;

(c) the language on the mortgage to the Republic National Bank of "F. Harold McElmurray (also F. Harold McElmurray/American Heartland Farms)" as the mortgagor, coupled with the fact that only Mr. McElmurray's signature appears on the document;

(d) the fact that the mortgages do not list the partners of "American Heartland Farms";

(e) the cross referenced listing in the "Direct or Mortgagor Index to Real Estate Mortgages" of Edgefield County of both "American Heartland Farms" and F. Harold McElmurray as the mortgagors of the real property in question to Mike Woosley, Inc. and the Republic National Bank;

(f) the failure of the partnership agreement of "American Heartland Farms" to be filed until September 1989; and

(g) the availability of the Purchaser's Closing Statement from Mike Woosley Inc. to Harold McElmurray showing Mr. McElmurray to be the owner of the real property.

36. An examiner who conducted a title search for those who purchased portions of the real property from Ms. Long had notice of the quitclaim deed from F. Harold McElmurray to Justine Long.

37. All of the purchasers acquired the real property with constructive notice that it was encumbered by a federal tax lien against F. Harold McElmurray.

CONCLUSIONS OF LAW

1. The Court has jurisdiction over the action pursuant to 28 U.S.C. Section 1346(e).

2. The assessment against F. Harold McElmurray is conclusively presumed to be valid. Section 7426(e) of the Internal Revenue Code.

3. If a taxpayer neglects or refuses to pay a federal tax liability after demand, a lien arises in favor of the United States against all property and rights to property of the taxpayer. Section 6321 of the Internal Revenue Code.

4. State law determines what property or rights to property belong to a taxpayer. United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51 (1958). Federal law determines the priority of the liens with respect to other interests in the property, as well as the requirements for the form and content of the notice of federal tax lien. Tony Thorton Auction Service, Inc. v. United States [86-1 USTC ¶9434 ], 791 F.2d 635, 638 (8th Cir. 1986).

5. Where property is purchased by one person and placed in the name of another person, a resulting trust arises in favor of the person who purchased the property. While a gift is presumed where a close relative purchases real property and places it in the name of another close relative, the presumption is rebuttable. Green v. Green, 117 S.E.2d 583 (S.C. 1961); McDowell v. S.C. Department of Social Services, 370 S.E.2d 878 (S.C. 1987); Ex Parte Stokes, 182 S.E.2d 306 (S.C. 1971).

6. Mr. McElmurray's payment of the purchase price for the real property, along with his total control over the property, including its purchase, sale, listing it on his personal financial statements shows that he is, in fact, the owner of the real property. The federal tax lien securing his liability attached to the real property.

7. Once a federal tax lien attaches to the property of a taxpayer, it remains on the property even after it is transferred by the taxpayer to a third party. United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51 (1958); United States v. Eshelman [87-2 USTC ¶9419 ], 663 F.Supp. 285, 288 (D. Del. 1987).

8. If a federal tax lien attaches to property, it may be seized through levy and distraint. Section 6331(a) of the Internal Revenue Code.

9. A federal tax lien is not valid against a subsequent purchaser until notice of the federal tax lien is duly filed. Section 6323 of the Internal Revenue Code.

10. Notice of the federal tax lien against F. Harold McElmurray was duly filed with the Registers of Mesne and Conveyance of Aiken and Edgefield Counties .

11. If the notice of federal tax lien is filed under the proper name of the taxpayer, the federal tax lien is valid against a subsequent purchaser regardless of the name used by the taxpayer when he held the property. United States v. Polk [87-2 USTC ¶9432 ], 822 F.2d. 871, 874 (9th Cir. 1987). As Polk stated, "[i]f Congress had intended to impose upon the IRS a duty to investigate what property is owned by a delinquent taxpayer, record the name under which it was acquired, and file a separate notice of tax lien for each such name, it could have done so." Id. See also Pioneer National Title Insurance Co. v. United States, 81-2 USTC ¶9482 (D.N.J. 1981).

12. The cases of Davis v. United States [89-2 USTC ¶9592 ], 705 F.Supp. 446 (C.D. Ill. 1989) and United States v. Clark, 81-1 USTC ¶9406 (S.D. Fla. 1981) are inapplicable. In those cases, a woman acquired property under one surname, but incurred a federal tax liability under a different surname. The notices of federal tax liens were filed under the surname used by the taxpayer at the time that the lien arose. The courts held that the federal tax liens were not valid against the subsequent purchasers. In those cases, however, there was no way that a title search would have revealed that the record owner of the property was the taxpayer. Davis, supra, [89-2 USTC ¶9592 ], 705 F.Supp. at 453. Clark, supra, at 87,119. While the Court does not agree with the holdings of Clark and Davis, it notes that those cases are inapplicable. In this case, it could be ascertained from a title search that F. Harold McElmurray had an interest in the property.

13. The federal tax lien is valid against the purchasers of the property. This action will be dismissed with prejudice.

¹ At one time, the property was situated in both Aiken and Edgefield Counties . The county lines were redrawn. At all times pertinent to this suit, the property was located in Edgefield county.

 

 

[61-1 USTC ¶9202]Keystone Mercantile Corporation, Plaintiff v. Francis P. Graham, District Director of Internal Revenue, Scranton , Pa. , Defendant

U. S. District Court, Middle Dist. Pa., Civil Action No. 5296, 192 FSupp 90, 1/17/61

[1954 Code Sec. 6323 and 1939 Code Sec. 3672]

Validity of liens: Time of attachment: Assignee of delinquent taxpayer.--The assignee of a delinquent taxpayer of all rights under conditional sales contracts of machinery and equipment under which the taxpayer had purchased the machinery and equipment acquired the property subject to Federal tax liens where the notices of lien had been properly filed as designated by the state law before the date of assignment.

Nogi, O'Malley & Harris, Miller Building , 422 Spruce Street , Scranton 3, Pa. , for plaintiff. Daniel H. Jenkins, United States Attorney, William D. Morgan, Assistant United States Attorney, Scranton, Pa., for defendant.

Memorandum

FOLLMER, District Judge:

In this action plaintiff, Keystone Mercantile Corporation (hereinafter called "Keystone"), seeks to recover from the District Director of Internal Revenue (hereinafter called "Director"), the sum of $4,050.29 presently held in a suspension account pending an adjudication of the rights of the respective parties to the said fund.

The parties filed certain stipulations which in pertinent part may be briefly summarized as follows:

Taxpayer Jersey Shore Manufacturing Corporation (hereinafter called " Jersey Shore ") entered into various conditional sales contracts for the purchase of certain machinery and equipment as follows, to wit:

(1) On November 5, 1952 with Ginsberg Machine Co., Inc.

(2) On March 26, 1953 with Hutkin Company.

(3) On February 4, 1954 with Hutkin Company.

(4) On December 14, 1953 with Singer Sewing Machine Co.

These conditional sales contracts all were duly filed of record in the Office of the Prothonotary of Lycoming County, Pennsylvania.

Being unable to meet its commitments under the four conditional sales contracts, Jersey Shore arranged with plaintiff, Keystone, for financing the same, whereby Keystone did on and after July 1954 advance sufficient funds for the payment in full of the several debts. Under date of December 14, 1954 , Jersey Shore assigned all of its right, title and interest in the several conditional sales contracts to Keystone, but up to and including April 15, 1955 none of the said assignments had been recorded.

Prior to July 12, 1954 (the time at which plaintiff contends it advanced funds to Jersey Shore to be applied against Jersey Shore's indebtedness arising from its defaults on the various conditional sales contracts), the Commissioner of Internal Revenue made various assessments against the conditional vendee-taxpayer (Jersey Shore) for which notices of Federal tax liens in the amount of $93,265.71 were duly filed in the Office of the Prothonotary, Lycoming County, Pennsylvania, in accordance with 26 U. S. C. §6323(1). ¹ An additional notice of Federal tax lien in the amount of $11,223.35 was duly filed in the Office of the said Prothonotary on October 20, 1954 .

As above indicated, the assignments of the several conditional sales contracts were not made by taxpayer to plaintiff at the time plaintiff advanced funds to the conditional vendee-taxpayer as alleged.

The pertinent Federal statutes are as follows:

26 U. S. C. (1946 Edition)

"§3670. 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.

"§3671. 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. ²

When the notices of the six Federal tax liens were duly filed of record in the Office of the Prothonotary of Lycoming County, six separate tax liens attached and they all attached a matter of months prior to the time the advances were allegedly made by plaintiff and prior to the date on which an assignment of taxpayer's right, title and interest in and to the conditional sales contracts were executed. Furthermore, as previously indicated, up to and including April 15, 1955 , the assignments of the conditional sales contracts were not recorded.

Certainly, plaintiff has no basis for claiming an interest in the property covered by the conditional sales contracts before the date of the assignments. All of the asserted Federal tax liens had arisen and had been duly filed of record before plaintiff took an assignment of taxpayer's interest in the said conditional sales contracts. There can be no question but the lien of the Government attached according to law. "After the lien provided by the statute attaches, the property has in a sense two owners, the taxpayer and, to the extent of the lien, the United States ." United States v. City of Greenville et al., 4 Cir., (1941) [41-1 USTC ¶9381], 118 F. 2d 963, 965. In United States v. Bess (1958) [58-2 USTC ¶9595], 357 U. S. 51, 57, the Court said: "The transfer of property subsequent to the attachment of the lien does not affect the lien, for 'it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere . . ..'"

Judgment will be entered in favor of the defendant.

¹ Dates of filing notices and amounts as follows:

April 21, 1953
 ......         $14,308.73

April 21, 1953
 ......          19,608.99

October 29, 1953
 ....          25,422.21

May 17, 1954
 ........           1,348.15

June 28, 1954
 .......          30,871.72

May 17, 1954
 ........           1,705.91

Total ...............         $93,265.71

 

² Similar provisions are found in the 1954 Internal Revenue Code, 26 U. S. C. §§ 6321 and 6322.

 

 

[40-2 USTC ¶9492] United States of America , Plaintiff, v. Rob ert I. Woodside, The Securities Investment Company, L. C. Woodside, S. W. Snelling, W. N. Watson, and Federal Land Bank of Columbia , Defendants

District Court of the United States of America, Western District of South Carolina, Decree of Foreclosure and Sale, Eq. No. 521, Filed May 7, 1940

Lien for taxes: Statute of limitations: Priority, etc.--In a suit to enforce and foreclose a lien in favor of the United States on account of taxes and interest for 1920, 1921, 1924, and 1925, the Court holds that the suit was properly begun within the statutory period as extended by a waiver, that the suit is dismissed as to certain parties who are purchasers for value without actual or constructive notice of the Government's lien, that certain parties bought subject to such lien, that taxpayer's wife had no claim or dower interest in the lands in question, and that the property be sold in the manner described, the proceeds to be held until such time as the rank of certain parties is determined.

O. H. Doyle, U. S. Attorney, and E. P. Riley and T. A. Wofford, Assistant U. S. Attorneys, all of Greenville, S. C., for plaintiff. W. D. Workman and W. B. McGowan, both of Greenville , S. C., for certain of the defendants.

LUMPKIN, District Judge:

This is a suit in equity, commenced on October 7, 1936, by the filing of a bill to enforce and foreclose a lien in favor of the United States , on account of an assessment of income taxes and interest against Rob ert I. Woodside, for the years 1920, 1921, 1924, and 1925, in the aggregate amount of $15,364.03. An amended Bill was filed January 18, 1939, but the allegations are the same as those contained in the original bill, with the exception of the fact that certain tracts of land in Pickens County, South Carolina, are included in the description of the property which the government seeks to sell and have the proceeds of sale applied to its lien debt, and it is alleged that these tracts of land were inadvertently omitted from the original bill. The amended bill alleges that prior to the commencement of this suit, Rob ert I. Woodside became indebted to the United States on account of income taxes and interest duly assessed against him for said years, and in said amount, and that such assessments were entered on the Commissioner's May, 1930, No. 3 List, and signed by the Commissioner May 17, 1930, and that the assessment list covering the total assessments against the said Rob ert I. Woodside was received by the Collector of Internal Revenue for the Collection District of South Carolina on May 20, 1930; that notice and demand for payment was made May 22, 1930, and numerous times thereafter, and the said taxpayer has failed and refused to pay the said taxes and interest; and the lien of the United States then and there attached to and became a charge upon all real and personal property belonging to the said taxpayer. (See Sec. 1560, Title 26, U. S. C. A.) The bill further alleges that on January 23, 1931, the defendant, Rob ert I. Woodside, executed and delivered to Securities Investment Company, a corporation, of which Rob ert I. Woodside was president and treasurer, certain tracts of land, fully described in paragraphs 9, 10, and 11 of the said Amended Bill, and that on the date of said conveyance the lien of the United States had attached to and become a lien upon all of the said real estate because of the fact that the Securities Investment Company, through its officers and agents, had actual notice, information and knowledge of the existence of said lien. The said Amended Bill also alleges that notice of said tax lien was filed with the Clerk of the Court for Greenville County, South Carolina, on June 11, 1932, and with the Clerk of the United States District Court for the Western District of South Carolina, on June 16, 1932, as provided by Section 1562, Title 26, U. S. C. A.; that on the 9th day of May, 1935, the defendant, Rob ert I. Woodside, submitted to the Commissioner of Internal Revenue and Secretary of the Treasury an offer in compromise of his tax liability, which said offer of compromise contained the following waiver provision:

2. The benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agree to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending or the period during which any installment remains unpaid and for one year thereafter.

and that said offer of compromise was rejected on October 29, 1935.

The defendants other than Rob ert I. Woodside are made parties to the said suit on account of their interest, or apparent interest, in certain of the said parcels of land.

The defendant, Securities Investment Company, has filed an answer, alleging that the assessments made against the defendant, Rob ert I. Woodside, at the time they were entered were barred by the statute of limitations. It denies that the said taxes are justly due and owing from the defendant, Rob ert I. Woodside, and alleges further that Lot No. 1, according to plat recorded in Plat Book F, page 152, R. M. C. Office for Greenville County, South Carollina, was sold to L. C. Woodside, and that Lot No. 2 of same plat was sold to S. W. Snelling; that said two parties are bona fide purchasers, without notice of the government's lien; that W. N. Watson is likewise a bona fide purchaser, without notice, of tract of land described in the original Bill as a one-half undivided interest in 220 acres of land situated in Gantt Township, Greenville County, South Carolina, and that this defendant further alleges that the suit of the plaintiff is barred by the statute of limitations.

S. W. Snelling and L. C. Woodside filed answers, setting up the same defenses claimed by the defendant, Securities Investment Company, and particularly that they were each purchasers of a tract or parcel of said lands, without either actual or constructive notice of the existence of a lien in favor of the United States .

The defendant, Rob ert I. Woodside, filed an answer claiming substantially the same defenses as set up by the answer of the Securities Investment Company, and in addition thereto he alleges that the City of Greenville claims a lien for paving assessments and taxes, which he believes to be a lien, superior to the plaintiff's lien, if any; that the County of Greenville and State of South Carolina claim a lien on all of the said property on account of unpaid county and state taxes; and, further, that his wife, Mrs. Lula B. Woodside, claims a dower interest in all of the property described in the bill and amended bill, in the event it is adjudged that the plaintiff has a valid lien against the specific property described, and is not barred by the statute of limitations from bringing suit to enforce said lien.

The defendant, The Federal Land Bank of Columbia , South Carolina , filed an answer, alleging that it had a first lien by way of mortgage on the tract of land first described in paragraph 10 of the original Bill.

The defendant, W. N. Watson, filed an answer alleging that he was the owner of the 220 acre tract of land last described in paragraph 10 of the original Bill, and that he acquired the one-half undivided interest of Rob ert I. Woodside without either actual or constructive notice of the government's lien.

Since the filing of the Bill in Equity, the defendant, W. N. Watson, has petitioned the Court to dismiss him as a party defendant, and on March 30, 1938, Judge H. H. Watkins, United States District Judge, signed an order adjudging that the tax lien of the United States was not enforcible against the one-half undivided interest of the said Rob ert I. Woodside conveyed to the said W. N. Watson on May 19, 1932, which was prior to the date upon which notice of the said tax lien was recorded in the office of the Clerk of Court for Greenville County, South Carolina, there being no evidence that he had actual notice of the lien, and the said W. N. Watson is no longer a party to the said action.

Upon the call of the case for trial, W. D. Workman, Esq., representing the defendants, Securities Investment Company, Rob ert I. Woodside, L. C. Woodside, and S. W. Snelling, stated that he had no testimony to offer. The United States Attorney thereupon introduced testimony which sustains all of the allegations of the said Bill and Amended Bill, and from this testimony it appears conclusively that the United States acquired a lien on all of the real and personal property of the said Rob ert I. Woodside on May 22, 1930. The defendant, Rob ert I. Woodside, conveyed all of the lands described in the original and amended Bill to Securities Investment Company on January 23, 1931, and although the lien of the United States was not recorded in the office of the Clerk of Court for Greenville County, South Carolina, until June 11, 1932, the Securities Investment Company had actual notice of the existence of said lien by reason of the fact that its president and treasurer had knowledge of the same, and his knowledge is imputed to the corporation, and the conveyance was therefore made to said corporation subject to the lien of the United States. Heyward v. U. S. , 2 Fed. (2d) 467 [1925 CCH ¶7019]; U. S. v. Snyder, 149 U. S. 120 * * *; U. S. v. Curry, 201 Fed. 371 * * *.

Although Mrs. Lula B. Woodside, the wife of the defendant, Rob ert I. Woodside, is not a party to the action, the answer of the defendant, Rob ert I. Woodside, alleges that his wife claims a dower interest in said lands, if it is determined that the United States has a lien and a right to foreclose same. It appears that Mrs. Lula B. Woodside renounced her inchoate right of dower on all of the conveyances made by Rob ert I. Woodside to the Securities Investment Company. She therefore has no valid claim or right to dower interest in said lands.

As already stated, the United States recorded a notice of its lien in the office of the Clerk of Court for Greenville County , South Carolina , on June 11, 1932. It appears that the defendant, L. C. Woodside, purchased one of the lots of land described in paragraph 9 of the Amended Bill on July 21, 1932. The said L. C. Woodside, therefore, had constructive notice of the existence of the lien of the United States , and took said lot of land subject to the said lien. Likewise, the defendant, S. W. Snelling, purchased one of the lots described in paragraph 9 of the said Amended Bill on February 21, 1933, having constructive notice of the said lien, and the conveyance to him is subject to the lien of the United States .

When the defendant, Rob ert I. Woodside, submitted his offer in compromise on May 9, 1935, he agreed that the benefit of any statute of limitations applicable to assessment and collection be suspended while the said offer in compromise was pending and for one year thereafter. The offer was rejected on October 29, 1935 , and this suit was filed October 27, 1936 . Therefore, the statute of limitations did not bar the plaintiff's lien or action to enforce the same.

It appears from the testimony that since the commencement of this action, the Federal Land Bank of Columbia , South Carolina , has instituted action in the Court of Common Pleas of Greenville County, South Carolina, to foreclose its mortgage lien on the tract of 54 acres first described in paragraph 10 of the amended bill. It is conceded by counsel for the United States that the Federal Land Bank of Columbia . South Carolina , has a first lien on said lands. The United States appeared in said action and answered, and the Court of Common Pleas of Greenville County, South Carolina, had decreed that the said mortgage be foreclosed and said lands be sold, and that the lien debts against the same be paid in the order of their rank.

It further appears that the lot of land last described in paragraph 10 of the Amended Bill is involved in an action now pending in the Court of Common Pleas for Greenville County , South Carolina , in which one L. A. Wertz is seeking to foreclose an alleged mortgage. The United States is a party in this action, and its rights with respect to said lot of land may be asserted in the State Court.

The Testimony further shows that Rob ert I. Woodside conveyed all of the tracts of land described in paragraph 11 of the Amended Bill to Securities Investment Company on January 23, 1931 , and that said company conveyed the same on April 15, 1935 , to Pickens County , South Carolina , and the said county subsequently conveyed to South Carolina State Commission of Forestry. Notice of the lien of the United States has never been filed with the Clerk of Court of Common Pleas for Pickens County, South Carolina, in which county said lands are situated, and the said South Carolina State Commission of Forestry is therefore an innocent purchaser, for value, without notice of the lien of the United States; now, therefore, on motion of O. H. Doyle, United States Attorney for the Western District of South Carolina.

IT IS ORDERED, ADJUDGED AND DECREED:

(1) That the United States of America has a valid and subsisting lien against all of the real and personal property of the defendant, Rob ert I. Woodside, and has a right to foreclose said lien and have all of the property hereinafter more particularly described sold and the proceeds of sale applied to the payment of liens against the same in the order of their rank:

(2) That the suit in so far as it affects the several tracts of land described in paragraph 11 of the Amended Bill, being the lands now owned by the South Carolina State Commission of Forestry, purchased for value, without notice, actual or constructive, of the lien of the United States, be, and it is hereby dismissed;

(3) That Honorable Reuben Gosnell, United States Marshal for the Western District of South Carolina, do sell, at public outcry, to the highest bidder, for cash, in front of the Greenville County Court House, at Greenville, South Carolina, on Monday, June 3, 1940, being Salesday in June, 1940, during the usual hours of public sales, commencing at 11 o'clock, A. M., on said date, the lots or tracts of land hereinafter described, in separate parcels, and that the said United States Marshal do advertise the said sale and the terms thereof by publication in the Greenville News, a daily newspaper published at Greenville, South Carolina, once a week for three weeks next preceding the date of said sale, a description of the said lands to be so advertised and sold being as follows, to wit:

All those certain lots of land in the County and State aforesaid, in the city of Greenville, being known and designated as lots Nos. 1, 2, and 3, according to map or plat of property of J. W. Jervey, made by R. E. Dalton, Engineer, recorded in Plat Book F, page 152, being the same lots of land conveyed to me by J. W. Jervey, by deed dated October 4, 1923, recorded in R. M. C. office for Greenville County in Vol. 97, page 538, reference to said plat and deed being hereby made for a more complete description thereof.

Those two certain tracts of land in Grove Township, County and State aforesaid, about ten miles south of the City of Greenville, on both sides of Reedy Fork Creek, waters of Reedy River, containing 21 acres, and 383/4 acres, more or less, respectively, and being the same tracts of land conveyed to me by J. B. Davenport by deed dated December 31, 1927, recorded in R. M. C. office for Greenville County, in Vol. 126, page 369, reference to said deed being hereby made for a more complete description.

All that tract of land in Gantt Township, County and State aforesaid, containing twenty-five and 19/100 (25.19) acres, more or less, being the same conveyed to me by Mrs. S. K. Tindal by deed dated December 18, 1926, recorded in R. M. C. office for Greenville County in Vol. 126, page 452, reference to said deed being hereby made for a more complete description thereof.

All that tract of land in Gantt Township, County and State aforesaid, containing 9.91 acres, more or less, being the same conveyed to me by E. Inman, Master, March 9, 1923, recorded in Vol. 94, page 143, R. M. C. office for Greenville County, reference to said deed being hereby made for a more complete description thereof.

All that tract of land in Greenville Township, County and State aforesaid, designated as Lots Nos. 11, 12, 13, 14, 15, and 16, Plat Book E, Page 218, containing in the aggregate 69.73 acres, more or less, being the same conveyed to me by Howard Caldwell, October 30, 1922, Vol. 89, page 129, reference to the said deed being made for a more complete description thereof.

All that lot of land on Augusta Road , County and State aforesaid, as described in deed to me by Ida L. and W. R. Lupo, dated May 1, 1928 , recorded in Vol. 106, page 316, reference to which deed is hereby made for a more complete description thereof.

All those three tracts of land on and near Augusta Road, conveyed to me by --, and more fully described in deed of G. E. Cunningham, February 5, 1924, Vol. 103, page 10, reference to which deed is hereby made for a more complete description thereof.

All that tract of land in Gantt Township , containing 17.12 acres, more or less, being same conveyed to me by Janie A. and Francis H. Earle, May 31, 1927 , Vol. 124, page 335, reference to which deed is hereby made for a more complete description thereof.

All that tract of land in Greenville County , South Carolina , about three miles from the City of Greenville , conveyed to me by G. L. Walker, February 5, 1924 , Vol. 103, page 11, reference to which deed is hereby made for a more complete description.

(4) That the United States Marshal, conducting the sale, require the highest bidder on each of said parcels or lot of land to immediately make a cash deposit or five per cent of the bid as earnest money or evidence of good faith, such deposit to be applied on the bid should there be a compliance of same, and in the event of noncompliance to be forfeited and paid over to the plaintiff and retained by it as liquidated damages, and the premises as to which there is a failure of compliance with the bid, within ten days from the date of sale, shall be re-advertised and re-sold, upon the same terms, at such bidder's risk, on the next ensuing salesday, or some convenient salesday thereafter, to be designated by the plaintiff's attorney. If the person making the last highest bid on any lot or parcel of said land fails to make the required deposit immediately at the time of the acceptance of his bid, then the said premises shall be immediately re-sold, at such bidder's risk, on the same salesday or some subsequent salesday, at the option of plaintiff's attorney. The provision for making deposit as evidence of good faith shall not apply to the plaintiff or its agents. The purchaser will pay for documentary stamps.

(5) That upon the terms of the sale being fully complied with, the said United States Marshal do execute and deliver to the purchasers deeds, fee simple in form, to the lots or parcels so purchased, and that he thereupon pay over the entire proceeds of said sale to W. D. White, Clerk of the United States District Court for the Western District of South Carolina, to be held in the Registry of this Court until the further order of the court establishing the rank of the claims as between the City of Greenville, the County of Greenville, the State of South Carolina, and the United States of America.

(6) That the said action be and remain open on the calendar of the court for such other and further orders as may be proper for the final disposition of all issues involved in said suit, and particularly with reference to the tract and lot of land described in paragraph 10 of the said Amended Bill, both the said tract and the said lot being now involved in suit pending in the Court of Common Pleas for Greenville County, South Carolina.

 

 

[41-2 USTC ¶9793] United States of America , Plaintiff, v. Morris Bessen, Defendant

United States District Court, Southern District of New York, 8 FRD 75, Filed November 29, 1941

Collection of excise taxes from purchaser of property which has belonged to tax delinquent: Applicability of statute of limitations: Property subject to lien: Period of lien: "Constructive" notice.--Defendant, who, with judicial approval, bought assets of an insolvent manufacturer from a person to whom a general assignment of assets for the benefit of creditors had been made, is liable for excise taxes due from insolvent assignor, in consequence of provision in purchase contract for payment by defendant of assignor's taxes, although assignee had misinformed defendant as to the amount of taxes due. Since defendant's liability for taxes is contractual, he is without benefit of the federal statute of limitations, and the New York State statute of limitations is inapplicable. The final order of the State court discharging receiver (assignee) and cancelling liability under his bond is not res judicata and does not bar recovery, because defendant was not a party to that proceeding and there was no adjudication of rights between defendant and the Government. Furthermore, the suit was timely, being brought within the statutory period after rejection of an offer in compromise by the assignee, and the defendant had constructive notice of the Government's claim.

Mathias F. Correa, U. S. Attorney, for plaintiff. Thomas McCall, of Counsel. Jasper I. Manning, 261 Broadway, New York , N. Y., for defendant.

HULBERT, D. J.:

The jury having been waived when this cause came on for trial, and the case having been submitted on an agreed statement of facts supplemented by certain documentary proof, I make the following.

Findings of Fact

1. Some time prior to November 14, 1932 , Nathan Bader, Isadore Bader and Julius Pollack were engaged in business as manufacturing furriers in this district under the co-partnership name and style of N. Bader & Company, (hereinafter referred to as Bader).

2. On the date stated Bader made, executed and delivered to one Henry Rosen as assignee, a general assignment of assets for the benefit of their creditors, and such assignment was filed in the office of the Clerk of the County of New York , who was also the Clerk of the New York Supreme Court in and for said county.

On December 15, 1932, while the assignment proceeding was pending in the State Court, Morris Bessen, the defendant in this action, made an offer in writing to Rosen, as assignee, to purchase all the assets of Bader.

3. The offer of Bessen so far as now material, read as follows:

"I agree to pay 42 per cent of the claims of all creditors appearing on the books of the assignor or whose claims may be filed and approved by the Court or approved by the assignor and you, in addition to the payment in full of taxes and claims entitled to priority by law, as well as the payment of all reasonable admin istration expenses approved by the Court or by the undersigned and you."

4. By order of the State Court dated January 17, 1933, the assignor was authorized to accept the defendant's offer and he transferred the assets of Bader to Bessen, receiving the sum of $7594 in payment thereof.

5. When Bessen made the offer to purchase the assets of Bader, he was informed by the assignee that there was due for taxes $368.29, which amount was included in the sum of $7594.

6. There was due and owing plaintiff by Bader, excise taxes for the month of August, 1932, in the sum of $583.37 plus interest, and for the month of September, 1932, the sum of $1015.47 plus interest, according to Bader's computation as set forth in reports filed by Bader.

7. Defendant had no actual notice of plaintiff's claim against Bader when he made his offer to purchase Bader's assets.

8. On February 10, 1933, the Collector of Internal Revenue for the First District of New York filed a claim with the assignee for the sums above mentioned aggregating $1598.84 with interest, that being the amount in suit.

9. On October 26, 1933, Rosen delivered his certified check as assignee for $368.29 to the Collector as an offer in compromise in full for the Government's claims together with an offer in compromise verified October 20, 1933, which reads in part, as follows:

"It is understood that this offer does not afford relief from the liability incurred unless and until it is actually accepted by the Commissioner with the advice and consent of the Secretary of the Treasury, and for cases in suit with the recommendation of the Attorney General of the United States , costs, if any, to be paid by the undersigned.

"In making this offer, and as a part of the consideration thereof, the taxpayer hereby expressly agrees that all payments and other credits heretofore made to the account(s) for the year(s) under consideration for which an unpaid liability exists shall be retained by the United States and, in addition, the taxpayer hereby expressly waives--

"1. Any and all claims to refunds or overpayments to which * * * may be entitled under the Internal Revenue laws for any years, calendar or fiscal, or any period fixed by law, expiring prior to the date of the acceptance of the offer, due through overpayments of any tax, interest or penalty, or interest on overpayments or otherwise, as is not in excess of the difference between the tax liability sought to be compromised herewith and the amount herein offered, and agrees that the United States may retain such refunds or overpayments, if any.

"2. The benefit of any statute of limitations affecting the collection of the liability sought to be compromised, and in the event of the rejection of the offer, expressly consents to the suspension of any statute of limitations affecting the collection of the liability sought to be compromised by the period of time (not to exceed two years) elapsed between the date of the filing of this offer and the date on which final action thereon is taken."

10. The proceeds of that check were deposited in a special account pending the determination of the offer of compromise, which was rejected by the Commissioner of Internal Revenue on October 20, 1939, and this action was commenced on November 21, 1939.

11. Meanwhile on April 27, 1934 , an order was made in the State Court proceeding requiring all creditors of Bader to show cause why the assignee should not be discharged and liability under his bond cancelled. Service of notice pursuant to that order was authorized to be made by mail and was so made upon the Collector of Internal Revenue who did not appear on the return day, and an order was entered on May 15, 1934, in the State Court proceeding granting the assignee's application.

[Contentions of Defendant]

Discussion:--It is argued by the defendant that the contract for the purchase of the assets of Bader was not made for the benefit of the Government and hence it has no claim for which relief can be granted it.

This contention is wholly without merit. In American Equitable Association v. Helvering, 68 Fed. (2d) 46 (C. C. A. 2) [1933 CCH ¶9613] the Court construed a contract wherein the purchaser bound himself to pay as part of the debts assumed all taxes of the Norwegian Company, Federal, State or otherwise, when and if determined for all years prior to 1926.

And the Court said (page 48):

These taxes were by the terms of the contract made by the petitioner (the purchaser) with the Norwegian Company, to be paid by the petitioner. The Government, as the party to whom the Norwegian Company owed the taxes and the real party they intended to be benefited by this agreement, may enforce the provision (Citing cases).

[Application of Federal and State Statutes of Limitations]

The defendant next contends that when he paid the purchase price for Bader's assets on January 20, 1933, his agreement with the assignee was completely and fully executed; that the statute of limitations as to any claim which the Government might have against him began to run from that date and effectively barred recovery prior to the institution of this action. The statute upon which the defendant relies is set forth in the United States Code, Annotated, Title 26, Section 3312 (formerly Title 26, Section 1432). ¹ This is a six-year statute of limitation. The defendant insists that in submitting the offer in compromise the assignee was without authority to waive any rights of the defendant and extend the period of limitation. But the defendant had no rights to waive. The statute is plainly for the benefit of the taxpayer; whereas the defendant's liability, if any, is contractual and he cannot accept the benefit of any statute whose provisions are not made applicable to him.

The next point urged by the defendant is that the contract of purchase and sale was made between parties who were residents of the State of New York to be performed in the State of New York and that the New York State statute of limitations ² is applicable. It has been held otherwise in United States v. National City Bank, 28 Fed. Supp. 144.

[Effects of Discharge of Receiver and Cancellation of His Bond]

The defendant contends that the Collector of Internal Revenue having appeared in the State Court proceeding and having defaulted upon the presentation of the final account and the judicial settlement thereof, the final order of the State Court discharging the receiver and his bond, is res adjudicata and bars any recovery.

The defendant was not a party to that accounting or that proceeding. There was no adjudication of rights as between the defendant and the Government. It may be that the order of the State Court discharged any claim which the plaintiff may have had against the assignee, although it appears (a) that the Collector had filed a claim for the full amount in suit; (b) that the assignee had made an offer in compromise; (c) that the acceptance of the offer of the compromise was conditional; (d) that the condition had not been complied with; and (e) the assignee had not disclosed these facts to the Court. But the fact remains that the defendant had assumed to pay whatever legal liability existed against Bader for taxes at the time of the offer and purchase and transfer of Bader's assets, and the defendant has never been discharged from or relieved of that duty.

[Timeliness of Suit]

Finally, the defendant contends that the Government has been guilty of laches in having delayed the institution of this action because the assignee having been discharged and his bond cancelled, the defendant has lost his recourse against him. This suit was brought within thirty days after the claim was rejected. The defendant had constructive notice of the Government's claim and the proceedings had thereon and by the exercise of reasonable diligence it might be expected he would have learned the true facts. He placed his faith in the assurance of the assignee and that proved to be unreliable. Therefore, I make my

Conclusion of Law

1. That the plaintiff is entitled to judgment against the defendant for the sum of $1,598.84 and interest, together with the costs and disbursements of this action.

Let a judgment be submitted in accordance with these findings.

¹ Sec. 3312(d).

Except in the case of income, estate, and gift taxes--"Where the assessment of any tax imposed by this title has been made within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun--(1) Within six years after the assessment of the tax, or (2) Prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer."

It is further provided in Title 26, U. S. C. A.

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

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

² Sec. 48. Actions to be commenced within six years.

(1) Action upon a contract obligation or liability express or implied, except a judgment or sealed instrument.

(2) An action to recover upon a liability created by statute, except a penalty or forfeiture

 

 

[64-2 USTC ¶9600] Rob ert R. Sanders, Appellee v. United States of America , Appellant

Kansas Supreme Court, No. 43,345, 3/7/64

[1954 Code Sec. 6323]

Lien for taxes: Priority against purchaser: Bulk Sales Act.--A federal tax lien, notice of which was filed after the delinquent taxpayer had "sold" linotypes, printing presses, and other machinery and equipment to the holder of a chattel mortgage in lieu of foreclosure, was not valid as against the purchaser, although there was no attempt to comply with the state Bulk Sales Act. The properties were not "stock of merchandise or the fixtures pertaining thereto" within the meaning of the law, the sale was therefore valid, and the tax lien was not valid as against the purchaser without notice.

Elmer Hoge, Assistant United States Attorney, Newell A. George, United States Attorney, Topeka, Kan., for appellant. Russ B. Anderson, City Attorney, Emporia , Kan. , for appellee.

The opinion of the court was delivered by

HATCHER, C.: This appeal stems from an action to quiet title to certain personal property, the title being clouded by a tax lien filed by the United States government.

It is agreed that the tax lien cannot reach the property in question unless certain challenged transfers are set aside as void for failure to comply with the provisions of the bulk-sales act. We will summarize the facts which present the issues.

On December 4, 1957 , Kenneth T. Anderson conveyed to Milo W. Sutton and his wife the personal property used in the publication of a newspaper known as the Salina Advertiser-Sun. The property consisted of linotypes, printing presses and other machinery and equipment used in the preparation and publication of a newspaper. Anderson executed a bill of sale and received as consideration a note in the amount of $29,000 which was secured by a chattel mortgage on the property, subject to a first chattel mortgage to the Planters State Bank in the sum of $20,000. The chattel mortgages were duly recorded.

[Repossession of Property]

The Suttons made no payments on the notes and mortgages held by the Planters State Bank and Anderson. On January 23, 1959, Anderson took the property in lieu of foreclosure. The transfer was accomplished by a bill of sale. The value of the property was less than the amounts of the notes and mortgages. It is conceded that there was no attempt to comply with the bulk-sales act (G. S. 1949, 58-101) in connection with any of the transactions.

On April 25, 1959, the United States Internal Revenue Service filed with the Register of Deeds, Saline County , Kansas , a notice of tax lien against "Milo W. Sutton-Salina Advertiser-Sun," 122 South 5th Street , Salina , Kansas , in the aggregate sum of $4,943.80. This tax represented withholding and federal insurance, commonly known as social security, taxes with the exception of one item for unemployment insurance tax, in the sum of $64.95, and covered the periods ending March 31, 1958, June 30, 1958, September 30, 1958 and December 31, 1958, on the withholding and federal insurance, and for the year 1958 on the unemployment tax.

On the 28th day of May, 1959, the United States Internal Revenue Service filed an additional notice of a tax lien with the Register of Deeds, Salina County, Kansas, against "Milo W. Sutton-Salina Advertiser-Sun," 122 South 5th Street, Salina, Kansas, for withholding tax and social security for the period of January 1, through January 22, 1959, in the sum of $197.77.

[Suit to Remove Tax Lien]

On April 1, 1960, Anderson sold the personal property to Rob ert R. Sanders. It was then discovered that the tax lien had been filed. Sanders brought this action against the United States to quiet title and to have the tax lien removed as a cloud on the title to the property.

The court entered judgment in favor of the plaintiff which reads in part:

"It is further by the court considered, ordered, adjudged, and decreed that the Plaintiff is the absolute owner in fee simple of the property described in the Plaintiff's amended petition free and clear of all liens, claims and interests of the Defendant and that the Plaintiff's title in and to said property be quieted in the Plaintiff as against the Defendant."

The defendant, The United States, has appealed.

It is conceded that the tax lien has no validity unless the transfer of the property by the Suttons to Anderson on January 23, 1959, is void. The tax lien was not filed until April 25, 1959. The Internal Revenue Code of 1954 (26 U. S. C. A. §6323) provides in part:

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

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

[Bulk Sales Act]

Appellant states its contention as follows:

"It is the contention of the appellant, defendant below, United States of America, that the Kansas Bulk Sales Act, Section 58-101, G. S. Kan., the pertinent part of which reads as follows:

`The sale or disposal of any part or the whole of a stock of merchandise or the fixtures pertaining thereto, otherwise than in the ordinary course of his trade or business, shall be void as against the creditors of the seller, unless the purchaser receives from the seller a list of names and addresses of the creditors of the seller certified by the seller under oath to be a complete and accurate list of his creditors and unless the purchaser shall, at least seven days before taking possession of the property, or before paying therefor, notify in person or by registered mail, every creditor whose name and address is stated in said list, or of whom he has knowledge of the proposed sale.' is applicable to the sale of the property by Milo W. Sutton to Kenneth T. Anderson, and by Kenneth T. Anderson to Rob ert R. Sanders, the appellee, plaintiff below."

Our attention is called to Joyce v. Armourdale State Bank, 127 Kan. 539, 274 Pac. 200, in which it was held:

"Where a merchant borrows money, and to secure the same gives a chattel mortgage on his stock of goods and fixtures, and, finding himself unable to make the required payments, surrenders and delivers to the mortgagee all or a substantial portion of the goods and fixtures in compliance with the terms of the mortgage it is such a disposal of the merchandise and fixtures as is contemplated to be within the meaning of the term 'sale and disposal' as used in the bulk-sales law and is a disposal otherwise than in the ordinary course of his trade or business as described in that law.

"If a merchant surrenders and delivers his stock of merchandise to the mortgagee under the circumstances outlined in paragraph one and pursuant to the terms of the chattel mortgage covering the same, without complying with the requirements of the bulk-sales law, either at the time of the execution of the chattel mortgage or at the time of the surrender or delivery of the merchandise, the disposal is void as against creditors of the mortgagor, and the mortgagee becomes a trustee for the creditors of the mortgagor." (Syl. 1 and 2.)

[Stock in Trade]

The above case determines the rights of the parties if, but only if, the transfer of the property was subject to the provisions of the bulk-sales law. The question remaining for determination is, does the equipment used in publishing a newspaper constitute "a stock of merchandise or the fixtures pertaining thereto" as that term is used in the bulk-sales law? We must conclude that such equipment is not a stock of merchandise or the fixtures pertaining thereto.

The bulk-sales act was not intended to cover all businesses but merely the property of one engaged in the particular class of business contemplated, i.e., that of buying and selling goods or merchandise. Unless the seller carries what may be designated a stock of merchandise, the bulk-sales law does not apply.

A newspaper is devoted to the dissemination of news and information on any variety of subjects which are of interest to the general public. It sells news and information, not merchandise. News and information cannot be considered as a stock of merchandise. It is argued that a newspaper uses and sells paper. It does make use of paper incidental to its business. However, the paper is not a stock of merchandise for sale. It takes on more the form of a carton in which the news and information is transported to the reader.

In National Bank v. Hannaman, 115 Kan. 370, 223 Pac. 478, it is stated at page 372 of the opinion:

"Do the provisions of the statute relate to and cover the restaurant business? We think not. While the restaurateur buys merchandise and resells same, ordinarily, it is not sold in the same form as when purchased. He buys foodstuffs and converts it into edible dishes which are sold. The statute covers only a stock of merchandise and fixtures pertaining thereto. A merchant is one who traffics or carries on trade, one who buys goods to sell again, one who is engaged in the purchase and sale of goods. ( Campbell v. City of Anthony , 40 Kan. 652, 20 Pac. 492.)" (Italics supplied.)

The appellant contends that the Hannaman case was superseded, and in effect overruled, by the more recent case of Stockyards Petroleum Co. v. Bedell, 120 Kan. 549, 278 Pac. 739, which held:

"Under the facts and circumstances related in the opinion, appliances for the conduct of a filling-station business, comprising gasoline pumps, tanks and an air compressor, are held to be fixtures pertaining to the business under the provisions of the bulk-sales statute. (R. S. 58-101.)" (Syllabus 1.)

The two cases are readily distinguishable. A filling station, including the fixtures pertaining thereto, is maintained solely for the purpose of buying and retailing merchandise to the general public. The merchandise consists of oil, gas and motor vehicle appliances. In the Bedell case the merchandise consisting of oil, gas, etc. were sold in bulk along with the fixtures.

A newspaper does not carry a stock of merchandise for sale. The sale or mortgage of its machinery and equipment is, therefore, not subject to the provisions of the bulk-sales law.

The judgment is affirmed.

APPROVED BY THE COURT.

FONTRON, Judge, not participating.

 

 

[60-2 USTC ¶9782] United States of America v. Boston and Berlin Transportation Company, Inc., Romeo J. Lavigne, The Francis M. Curtin Insurance Agency and Catherine M. Nevins

U. S. District Court, Dist. of N. H., Civil Action No. 1674, 188 FSupp 304, 4/12/60

[1939 Code Sec. 3672 and similar 1954 Code Sec. 6323]

Validity of liens: Contract for purchase of trucking business: Passage of title conditioned on I. C. C. approval: "Purchaser".--The District Court held that, where the government had filed liens against a trucking business one month after the delinquent taxpayer had contracted to sell the business to Lavigne, the liens did not attach to the business, even though title to the propery did not pass at the time of the contract, but later when the Interstate Commerce Commission gave its provisional approval to the sale. By the contract, Lavigne obtained an "interest" in the property and was a "purchaser" within the meaning of 1939 Code Sec. 3672 and 1954 Code Sec. 6323.

Maurice P. Bois, United States Attorney, Concord , N. H., for plaintiff. Walter D. Hinkley, Lancaster, N. H., Arthur O. Dupont, 33 Main St., Berlin, N. H., J. L. Blais, Sheridan Bldg., Berlin, N. H., Rob ert D. Branch, 136 North Main St., Concord, N. H., for defendant.

Supplementary Order on Plaintiff's Motion for Summary Judgment

CONNOR, District Judge:

This is an action by the United States to collect taxes, penalties, interest and additions owing by the defendant Boston and Berlin Transportation Company, Inc., hereafter referred to as Boston and Berlin . The United States filed a motion for summary judgment containing three paragraphs, the first and third of which were disposed of by order of this Court dated February 26, 1959 . Disposition of the second paragraph was postponed pending an additional hearing on the question whether Romeo J. Lavigne was a "purchaser" within the meaning of Title 26 U. S. C. §6323 of the 1954 Internal Revenue Code and Title 26 U. S. C. §3672 of the 1939 Internal Revenue Code. Unfortunately, neither at the first hearing, nor at the second hearing, at which Romeo J. Lavigne failed to appear, was the issue adequately presented.

[Findings of Fact]

The facts are briefly these. On February 15, 1952 , Lavigne contracted with the defendant Boston and Berlin to purchase the latter's trucking business for $27,000. Although both Lavigne and Boston and Berlin had trucking certificates from the Interstate Commerce Commission, title to Boston and Berlin 's business could not pass, because of I. C. C. regulations, until the I. C. C. approved the sale. Other facts regarding this contract will later appear.

Assessments by the Internal Revenue Service against Boston and Berlin were duly recorded on March 11, 1952, approximately one month after the contract was entered into. Other assessments were similarly recorded later at various times until November 10, 1952.

Under the contract, Lavigne was not to begin payments until the I. C. C. granted to him authority to operate the motor carrier business under a lease agreement or otherwise. Such a "provisional" approval was made by the I. C. C. on August 28, 1952, and payments were made by Lavigne after that date directly to Boston and Berlin , pursuant to the contract, until May 13, 1955, and thereafter to an escrow agent.

At various times from September, 1952, to January, 1956, the Internal Revenue Service filed notices of levy against Lavigne on property of or obligations owing to Boston and Berlin .

[When Was the Contract Binding?]

Apparently, the government's theory is that the contract of February, 1952, was not binding on the parties until the I. C. C. provisionally approved the sale in August, 1952. At that point, it is claimed, title passed, and Lavigne became obligated to Boston and Berlin for the purchase price. Because liens on the trucking business were placed in March, 1952, prior to the passing of title, the government contends that Lavigne bought subject to the liens. And since liens were placed on Lavigne's purchase obligations to Boston and Berlin at various times from September, 1952, the government claims it is also entitled to the purchase payments. Thus Lavigne, who is not claimed to be a delinquent taxpayer, becomes the owner of a common carrier business subject to a substantial government lien for taxes which Lavigne does not owe and the existence of which he could not feasibly discover when he signed the agreement of February, 1952.

["Purchaser"]

It is concluded that by the agreement of February, 1952, Lavigne became a "purchaser" within the meaning of Title 26 U. S. C. §6323 of the 1954 Internal Revenue Code, and Title 26 U. S. C. §3672 of the 1939 Internal Revenue Code and the government's lien does not attach to the assets which were the subject of the contract. By that contract, Lavigne became obligated to retain the services of counsel, at his own expense, in order to obtain authorization from the I. C. C. It does not appear that this approval was anything more than a formality, particularly since both Lavigne and Boston and Berlin were already licensed by the I. C. C. The contract is more than just an "agreement to agree." No additional agreement was even entered into after I. C. C. approval, nor was any necessary, because the February, 1952, agreement spelled out all the obligations of the parties.

Lavigne had no possible way to guard himself from subsequent government liens in making this purchase. Unlike mortgagees, who could preserve their security by recording, and pledgees, who could obtain protection by taking possession, Lavigne could do neither. As a purchaser, the most he could do was to check past liens and obligations of Boston and Berlin and then enter into a firm agreement. Such a firm agreement was in all probability necessary before the I. C. C. would grant approval. The contract describes Lavigne as the "purchaser" and Boston and Berlin as the "seller." Although this designation is not controlling, the contract spells out very real obligations on both sides. The approval by the I. C. C. was not a condition precedent to the validity of the contract because the parties were under an obligation to attempt to secure such approval. To saddle Lavigne with a tax lien on the business purchased, is not only unjust but also inhibitive of normal business negotiations.

The purpose of Title 26 U. S. C. §6323, providing that government liens are not valid as against any prior purchaser, is to alleviate the harsh condition which existed where federal tax liens were held valid as against purchasers for value without notice. See U. S. v. Gilbert Associates, Inc., 345 U. S. 361, 363 (1953) [53-1 USTC ¶9291], a case originating in this District.

Treasury Regulation 301.6323-1(a)(2)(a) defines the word "purchaser": "The term 'purchaser' means a person who, for a valuable present consideration, acquires property or an interest in property."

Although Lavigne may not have obtained title to property by the contract of February, 1952, he obtained an "interest" in property within the meaning of the Treasury Regulation quoted. The present consideration was his promise to attempt to secure I. C. C. approval and to pay $27,000 upon the happening of that event.

In United States v. Scovil, et al., 348 U. S. 218, 221 [55-1 USTC ¶9137], it is stated that "[a] purchaser within the meaning of §3672 usually means one who acquires title for a valuable consideration in the manner of vendor and vendee." It is to be noted that the case at bar is an unusual case because of the necessity of securing I. C. C. approval before title could pass.

Other cases which have defined the word "purchaser" either support the conclusion reached here or are distinguishable on their facts. See United States v. Franklin Federal Savings and Loan Association, et al., 140 F. Supp. 286 (D. C. Pa., 1956) [56-1 USTC ¶9495]; United States v. Hoper, et al., 242 F. 2d 468 (7th Cir. 1957) [57-1 USTC ¶9508]; National Refining Co. v. United States, 160 F. 2d 951 (8th Cir. 1947) [47-1 USTC ¶9221]; United States v. Hawkins, 228 F. 2d 517 (9th Cir. 1955) [56-1 USTC ¶9143]; Marteney v. United States, 245 F. 2d 135 (10th Cir. 1957) [57-1 USTC ¶9670].

In Leipert v. R. C. Williams & Company, Inc., et al., 161 F. Supp. 355 (D. C. N. Y. 1957) [57-2 USTC ¶10,044], several persons entered into contracts to purchase land. They assumed the relation of landlord and tenant until title passed to them at various dates. The government recorded tax liens on November 28, 1949 , which was prior to the passing of some of the deeds and subsequent to the transfer of others. The Court held that those receiving deeds after the recording date were not "purchaser," overlooking the fact that they, even though without title, had an "interest in property" within the meaning of the Treasury Regulation quoted above.

[Judgment of Court]

Accordingly, in disposing of paragraph 2 of plaintiff's motion for summary judgment, it is concluded that the lien of the United States of America does not attach to the property of Boston and Berlin Transportation Company, Inc. which I find was purchased by Romeo J. Lavigne.

 

 

[99-1 USTC ¶50,503] Sejax Warehousing, Ltd., Plaintiff v. United States of America , et al., Defendants

U.S. District Court, Mid. Dist. Fla., Tampa Div., 97-1241-CIV-T-23(B), 4/12/99

[Code Secs. 6321 and 6323 ]

Liens: Validity and priority against third parties: Application of state law.--A tax lien attached to property purchased by a corporation from a delinquent taxpayer because the deed was recorded after the lien arose. The question of the type of interest that the taxpayer had in the property on the date when the tax assessment was made had to be determined under state ( Florida ) law. Pursuant to Florida law, the unrecorded deed was not "good and effectual in law or equity against creditors," and the government qualified as a "creditor" of the taxpayer. The corporation would be able to defeat the tax lien by showing that it had paid "adequate and full consideration" for the property. Even if it failed to make such a showing, it was not likely to suffer a gross inequity because the amount of the levies was probably less than the difference between the value of the property obtained and the price paid for that property. Creamer Industries, Inc. (CA-5), 65-2 USTC ¶9527 , followed.

[Code Secs. 7402 and 7426 ]

Wrongful levy: Civil actions by nontaxpayers: Property owner: Summary judgment: Existence of unresolved factual issues.--A corporation that had purchased real property from a delinquent taxpayer was not entitled to summary judgment in its suit alleging that the IRS wrongfully levied against rents due from the lessee of the property. Since a factual dispute existed as to whether the corporation purchased the property for full and adequate consideration, the issue regarding whether its deed had priority over IRS tax liens could not be resolved on a motion for summary judgment.

ORDER

WILSON, Magistrate Judge:

THIS CAUSE came on to be heard upon the Plaintiff's Motion for Summary Judgment (Doc. 34) and the Defendant's Motion for Summary Judgment (Doc. 38). For the following reasons, both motions will be denied.

I.

This is a suit by the plaintiff Sejax Warehousing, Ltd., seeking recovery for an alleged wrongful levy arising from a federal tax lien against Rich Photos, Inc. The levy was upon an interest in real property located at 1600 West Flagler Street , Miami , Florida . That property was owned by Rich Photos until at least July 1994.

Rich Photos in 1992 had filed a bankruptcy petition. In connection with a purported reorganization plan, on July 1, 1994 , a warranty deed was executed which reflected a sale of the 1600 West Flagler Street property from Rich Photos to Sejax. In September 1994, before the deed was recorded, federal taxes were assessed against Rich Photos. On May 31, 1995 , the warranty deed from Rich Photos to the plaintiff was finally recorded. In September 1995 and February 1996, notices of federal tax liens, reflecting the earlier tax assessments, were filed. In May 1996 a notice of federal tax liens was filed against the plaintiff as a nominee of Rich Photos. The Internal Revenue Service (IRS) subsequently levied upon rents due the plaintiff from the lessee of the property at 1600 West Flagler Street .

The Second Amended Complaint in this case alleges that the levy was wrongful. Such an action may be brought pursuant to 26 U.S.C. 7426. Prior to the filing of the Second Amended Complaint, the parties had consented to the exercise of jurisdiction in this case by a United States Magistrate Judge (Doc. 13).

The plaintiff filed a Motion for Summary Judgment on the grounds (1) that the taxpayer Rich Photos was not an owner and had no interest in the Flagler Street property in September 1994 when the federal tax lien arose, and (2) that, in all events, the plaintiff was a purchaser of the property for adequate and full consideration and its deed has priority over the tax liens under 26 U.S.C. 6323(a). The defendant's motion contends, in essence, that the opposite of the plaintiff's assertions is true.

Argument at the hearing demonstrated that there is a factual dispute whether the plaintiff paid adequate and full consideration for the Flagler Street property. Consequently, the issue whether the plaintiff was protected by §6323(a) could not be resolved on the motions for summary judgment.

II.

The plaintiff argues that, even if there is a dispute concerning whether it paid adequate and full consideration for the Flagler Street property, it is nevertheless entitled to summary judgment because, as of September 1994, Rich Photos, the taxpayer, had no interest in that property. This contention is based upon 26 U.S.C. 6321, which provides:

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.

The plaintiff argues that, since Rich Photos had sold the property prior to September 1994, the time when the first tax lien arose, Rich Photos had no interest in the property to which the tax lien could attach. If the warranty deed had been promptly recorded, that argument would prevail. ^*

The deed to the property, however, was not recorded prior to the time the first tax lien arose. This fact changes the outcome of the plaintiff's §6321 argument under a binding decision of this circuit. United States v. Creamer Industries, Inc. [65-2 USTC ¶9527], 349 F.2d 625 (5^th Cir. 1965).

The question of what interest Rich Photos had in the property as of September 1994 is determined by state law. Id. at 628. Consequently, the Government relies upon the Florida recording statute, Fla. Stat. §695.01(1), which provides:

No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law; nor shall any such instrument made or executed by virtue of any power of attorney be good or effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice unless the power of attorney be recorded before the accruing of the right of such creditor or subsequent purchaser.

By this statute's plain language, the plaintiff's unrecorded deed was not "good and effectual in law or equity against creditors." And importantly, the former Fifth Circuit in Creamer held that, "[a]s to the taxes owed to it, the United States was a 'creditor' within the Texas recording statute." [65-2 USTC ¶9527], 349 F.2d at 628. Similarly, the Government in this case would be a "creditor" of Rich Photos within the meaning of the Florida recording statute.

In Creamer, when land was purchased from the taxpayer, the deed incorrectly failed to include several lots. A correcting deed was recorded only after federal tax liens against the seller had arisen and been filed. Noting that the seller's interest could differ with respect to the purchaser and a creditor, the court of appeals held that, under the Texas recording statute, the Government's tax liens had priority over the purchaser's right to reformation of the deeds. This decision is binding precedent in this circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11^th Cir. 1981) (en banc).

Creamer has been criticized by other courts of appeals. Those decisions simply look at the respective interests of the taxpayer and the person to whom the property was conveyed, and, unlike Creamer, do not permit the United States to take advantage of a state recording statute. United States v. Gibbons [96-1 USTC ¶50,008], 71 F.3d 1496, 1500-1501 (10^th Cir. 1995); Thomson v. United States [95-2 USTC ¶50,549], 66 F.3d 160 (8^th Cir. 1995); United States v. V & E Engineering & Construction Company, Inc. [87-1 USTC ¶9355], 819 F.2d 331, 333-334 (1^st Cir. 1987). On the other hand, a panel of the new Fifth Circuit has followed Creamer. Prewitt v. United States [86-2 USTC ¶9513], 792 F.2d 1353, 1355-1356 (5^th Cir. 1986).

Arguably, Creamer might be limited to the particular factual situation presented in that case. However, none of the courts of appeals has attempted to distinguish Creamer on that basis. Moreover, the plaintiff has not sought to do so here, either. Consequently, any effort to limit Creamer to its facts would seemingly not constitute a fair reading of that decision.

Moreover, Creamer should not be given a crabbed construction based upon the notion, gleaned from the decisions of other circuits, that virtually all the equities favor the party to whom a taxpayer has conveyed property by an unrecorded document. A rule that permits a taxpayer to transfer its property interest by unrecorded deed and does not afford the IRS the benefit of state recording statutes can easily be unfairly manipulated to avoid a levy upon the taxpayer's property. In other words, neither of the solutions advocated by the federal appellate decisions is satisfactory for all situations. Particularly in that circumstance, there is no justification for second-guessing the position adopted in Creamer by Judges Rives and Wisdom.

Furthermore, this case does not present a situation where the plaintiff is likely to suffer a gross inequity. As indicated, the plaintiff, pursuant to §6323(a), can defeat the federal tax liens by showing that it paid "adequate and full consideration" for the property. Even if it fails to make such a showing, the amount of the levies in this case is most likely less than the difference between the value of the property obtained and the price paid for it. This circumstance thus contradicts any notion that Creamer needs to be modified in order to avoid a perceived unfairness in this case.

In sum, Creamer, a binding decision in this circuit, establishes that the IRS is entitled to take advantage of state recording statutes. Further, it demonstrates that the IRS by virtue of its tax lien is a creditor within the meaning of Florida 's recording statute. Therefore, the deed to the Flagler Street property was not "good or effectual in law or equity" against the IRS prior to the time it was recorded. Fla. Stat. §695.01(1). Since that recording occurred after the federal tax lien arose, the tax lien attached to the property under §6321. Whether the plaintiff can trump that lien by virtue of §6323(a) as a purchaser for adequate and full consideration presents a factual question that cannot be resolved on a motion for summary judgment.

It is, therefore, upon consideration

ORDERED:

1. That the Plaintiff's Motion for Summary Judgment (Doc. 34) be, and the same is hereby DENIED.

2. That the Defendant's Motion for Summary Judgment (Doc. 38) be, and the same is hereby DENIED.

^* The Government contends that the bankruptcy court had not authorized a sale of the property to the plaintiff and that the sale was therefore a nullity. The Government, however, has cited no authority to support its argument. Moreover, the Government could not satisfactorily explain the status of the title to the property under its contention. Accordingly, that argument was rejected.

 

 

[65-2 USTC ¶9527] United States of America and Ellis Campbell, Jr., Appellants, v. Creamer Industries, Inc., Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 21188, 349 F2d 625, 7/2/65, Reversing and remanding District Court, 63-2 USTC ¶9699

[1959 Code Sec. 6323]

Tax lien: Sale of assets: Imperfect conveyance.--A federal tax lien filed after a delinquent taxpayer sold its assets to a bona fide purchaser was valid against real property which was inadvertently omitted from the contract of sale, since the conveyance of such real property was not recorded as of the date that notice of the federal tax lien was filed.

Louis F. Oberdorfer, Assistant Attorney General, Rob ert J. Golten, Lee A. Jackson, Joseph Kovner, Department of Justice, Washington, D. C. 20530, for appellants. R. B. Cannon, Suite 525, Fort Worth Nat'l Bank Bldg., Fort Worth, Tex., for appellee.

Before RIVES, BROWN, and WISDOM, Circuit Judges.

[Issue]

RIVES, Circuit Judge:

This action was brought by a purchaser from the taxpayer. The deed had inadvertently failed to include certain real property located in Tarrant County , Texas . A correcting deed was executed and recorded after the tax lien was filed. The question is whether the federal tax lien attaches to the property erroneously omitted from the original deed.

[Facts]

On January 21, 1959 , Creamer Industries, Inc., the ultimate purchaser, and Maxwell Steel Company, Inc., the taxpayer, entered into a contract whereby all of Maxwell's assets were to be transferred and conveyed to Creamer. The consideration paid by Creamer was $183,000 and the assumption of some of Maxwell's indebtedness, amounting in total to more than $1,100,000. By inadvertence the contract failed to list or describe in any way the six lots of land, five of which are the subject of this lawsuit. The deeds executed on the same day likewise omitted these six lots.

On March 24, 1959 , the United States made a jeopardy assessment against Maxwell for $430,523.09, which included past due income taxes and excise taxes. Notice of the tax lien which arose by virtue of the assessment was filed on March 26, 1959 , two days after the assessment.

Thereafter, on or about April 1, 1959 , Maxwell executed and delivered a correcting deed, conveying these lots to Creamer. The deed was back-dated to January 21, 1959 , but was recorded on April 28, 1959 .

[Jurisdiction]

Before discussing and deciding the merits, we must dispose of a question of jurisdiction. While Professor Moore questions with deference whether such an inflexible rule is needed or sound, ¹ the present rule is that a fundamental question must be raised sua sponte by a federal appellate court first as to its own jurisdiction and then as to the jurisdiction of the court from which the appeal comes. ² Jurisdiction of this appeal from a final decision of the district court is conferred on this Court by 28 U. S. C. 1291. While the action in the district court sought an injunction, we think that the district judge did not err in treating it as a suit to quiet title to real property clouded by a federal tax lien. The complaint alleged that the proceeding is brought under 28 U. S. Code 2410. The district court stated: "So far as Section 2410 is a point, I do not see any attending lack of jurisdiction in this suit. United States v. Morrison [57-2 USTC ¶9801], 247 F. 2d 285." The Ninth Circuit disagrees with our decision in United States v. Morrison, supra, relied on by the district court, but bases jurisdiction of a suit to quiet title to land attacking the validity or priority of a federal tax lien upon 28 U. S. C. 1340. ³ The Government has now abandoned its attack upon the jurisdiction of the district court. Upon one basis or another, we are satisfied that there was no lack of jurisdiction. ⁴

[Lower Court Holding]

The district court based its ruling with the plaintiff Creamer upon two conclusions of law, expressed as follows:

"1. It is manifest as a matter of law that the buyer corporation had become 'purchaser,' in the most literal sense of Section 6323(a), as to the great mass of property and assets constituting the subject matter of the contract between the two corporations, and stood in that position thereunto at the time the tax lien was filed.

"2. The two corporations had a single contract of sale and, although the subject matter included a multiplicity of items, there was simply a common and blanket consideration for the whole property, and consequently it would be too rigid in the light of the 'realities' referred to in the Regulation to split the concept of 'purchaser' and say that the buyer corporation, at the time the tax lien was filed, had become a 'purchaser' in very large part, but had not become a 'purchaser' as to the very minor part of the subject matter in the contract of sale."

[Statutory Provisions]

26 U. S. C. 6323(a) referred to by the district court reads, in pertinent part, as follows:

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

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

That statute was recently considered by this Court in Fore v. United States, 5 Cir. 1964, [65-1 USTC ¶9101] 339 F. 2d 70. As implicit in that decision, and as held in one of the cases there cited, ⁵ the purpose of the statute was "to protect mortgagees, purchasers and judgment creditors against a secret lien for assessed taxes and to postpone the effectiveness of the tax lien as against these interests until the tax lien was filed." In the present case, as has been seen, the United States made the jeopardy assessment on March 24, and notice of the tax lien was filed on March 26. During the two intervening days there was no happening or occurrence which could change Creamer's rights in the slightest. The rights of the parties were the same at the time the lien arose and at the time when notice was filed. In our opinion, therefore, section 6323(a) has no application to the facts of this case.

The sections providing for the creation of the lien are quoted in the margin. ⁶ The question to be decided is whether at the time of the assessment on March 24, 1959 , the taxpayer, Maxwell, owned any property or rights to property in the six lots upon which the tax lien could fasten. The nature and extent of Maxwell's interest in the lots on that date must be determined by state law. ⁷

As between Maxwell, the seller, and Creamer, the purchaser, Maxwell's interest may differ from its interest with respect to a creditor without notice, such as the United States . Most pertinent is the Texas recording statute, 19 Vernon 's Ann. Tex. Civ. St. , art. 6627:

"All bargains, sales and other conveyances whatever, of any land, tenements and hereditaments, whether they may be made for passing any estate of freehold of inheritance or for a term of years; and deeds of settlement upon marriage, whether land, money or other personal thing; and all deeds of trust and mortgages shall be void as to all creditors and subsequent purchasers for a valuable consideration without notice, unless they shall be acknowledged or proved and filed with the clerk, to be recorded as required by law; but the same as between the parties and their heirs, and as to all subsequent purchasers, with notice thereof or without valuable consideration, shall be valid and binding."

[Valid Federal Lien]

As to the taxes owed to it, the United States was a "creditor" within the Texas recording statute. ⁸ A creditor who has obtained a lien by operation of law is protected by the statute. ⁹ In Henderson v. Odessa Bldg & Finance Co., just cited (n. 9), a judgment creditor asserted its lien against lot 3 which the debtor had intended to convey prior to the levy, but his deed had mistakenly described lot 5 instead of lot 3. It was held:

"The failure to convey the lot levied upon by plaintiffs in error through mutual mistake of the parties gave defendant in error an equitable right to have the deed reformed by correction deed or a decree in equity, but, as plaintiffs in error had no knowledge of such equity at the time their levy was made, the lien thereby fixed was superior to defendant in error's right to such reformation."

24 S. W. 2d at 394.

That decision seems almost "on all fours" with the present case. It follows that the judgment should have gone for the defendants.

The judgment of the district court is therefore reversed and the cause remanded.

REVERSED AND REMANDED

¹ 1 Moore , Federal Practice ¶0.60[4], p. 610.

² Mansfield, C. & L. M. Ry. Co. v. Swan, 1884, 111 U. S. 879, 382; McNutt v. General Motors Acc. Corp., 1936, 298 U. S. 178, 189; Birmingham Post Co. v. Brown, 5 Cir. 1954, 217 F. 2d 127, 130.

³ Shaw v. United States, 9 Cir. 1964, [64-1 USTC ¶9421] 331 F. 2d 493, 496; United States v. Coson, 9 Cir. 1961, [61-1 USTC ¶9219] 286 F. 2d 453, 456-59.

⁴ See the annotation in 5 L. Ed. 2d 867-887 on "construction and application of statute [28 U. S. C. 2410(a)(c)] dealing with actions affecting property on which the United States has a lien."

⁵ United States v. Pioneer American Ins. Co., 1963, [63-2 USTC ¶9532] 374 U. S. 84, 89; see also United States v. Gilbert Associates, 1953, [53-1 USTC ¶9291], 345 U. S. 361, 363-64.

⁶ "§6321. Lien for taxes.

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

"§6322. Period of lien.

"Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time."

26 U. S. C.

⁷ United States v. Bess, 1958, [58-2 USTC ¶9595], 357 U. S. 51, 55; Aquilino v. United States, 1960, [60-2 USTC ¶9538] 363 U. S. 509, 513; Folsom v. United States , 5 Cir. 1962, [62-2 USTC ¶9648] 306 F. 2d 361, 368.

⁸ Underwood v. United States, 5 Cir. 1941, [41-1 USTC ¶9296] 118 F. 2d 760-61; Uhlorn v. Owens, S. D. Tex., 1962, 211 F. Supp. 798, 802, aff'd per curiam "on the reasoning contained in the opinion of the trial court," 5 Cir. 1963, 325 F. 2d 92; Hams v. Marshall, 2 Cir. 1930, 43 F. 2d 703-04 (opinion by Swan, Circuit Judge, concurred in by Judges Learned Hand and Augustus Hand); Edmundson v. Scofield, S. D. Tex. 1950, [50-1 USTC ¶9318] 92 F. Supp. 91, 95.

⁹ Henderson v. Odessa Bldg. & Finance Co. (Texas Com'n of Appeals, 1930), 24 S. W. 2d 393; United States v. Davidson, 5 Cir. 1943, 139 F. 2d 908, 911.

Dissenting Opinion

BROWN, Circuit Judge, dissenting:

This is a startling result. Laws of Texas which are designed to protect innocent persons dealing in faith on the revelations of title records are twisted to permit the great national sovereign to take property from one who is the acknowledged owner of it to apply on the tax debts of another, the former owner who--as the trial Court found and this Court does not dispute--has transferred ¹ the property. I do not believe that Congress ever intended any such result. I do not think that a Court should lend its hand to anything so demeaning to a sovereign. ²

The Federal Statute creates a lien only "upon all property and rights to property * * * belonging to such person [taxpayer]." ³ Unless there is property belonging to the taxpayer, the Government's lien is nonexistent. The Texas Statute ⁴ which protects business creditors and those parting with consideration on the faith of apparent record title speaks in terms of the persons against whom the conveyance is not good, such as bona fide purchaser, judgment creditors, etc. Unlike this, the Federal Statute speaks in terms of the origin of the lien. The tax lien arises, the tax lien comes into being, only as to property or rights to property belonging to the taxpayer.

Clearly this property did not belong to Taxpayer. It had no right to such property. True, under Texas law a judgment creditor had a superior claim against the purchaser whose deed was imperfect for late recordation. But one thing clear is that Taxpayer here had no right in or to the property. ⁵ Not a single Texas case could possibly be dredged up which in even the most remote way would suggest the faintest hope that Maxwell, the vendor-taxpayer, had any rights, legal or equitable, against anyone--Creamer, the public, or the Publican to get the property back or assert any interest in it.

And yet it is this--ownership by the taxpayer--which gives rise to the lien for the National Government. Congress has not said that this Nation has a tax lien against any and all property once owned by a delinquent taxpayer to the same extent as some innocent purchaser or judgment creditor might have under local recordation statutes.

Once Congress so declares, Courts must enforce it. But the morality of the Government's taking property which the Court's opinion reflects was sold to, paid for by, and in equitable conscience and law belonged to a stranger, is so disturbing to me that before the heavy hand of the tax gatherer falls, it is for Congress to speak clearly to declare that this is the conscience of the country.

I therefore respectfully dissent.

¹ See, e.g., "The deed had inadvertently failed to include certain real property * * *. The question is whether the federal tax lien attaches to the property erroneously omitted from the * * * deed. * * * By inadvertence the contract failed to list or describe * * * the six lots of land * * *." (Emphasis supplied)

² I am at a loss to understand why there is any question about jurisdiction. United States v. Morrison, 5 Cir., 1957, [57-2 USTC ¶9801] 247 F. 2d 285. Under F. R. Civ. P. 54(c) the power of the Court is not affected by the particular section of the code cited in the complaint or the magic words used to describe the relief sought.

³ 26 USCA §6321, note 6 Court's opinion.

⁴ Tex. Civ. Stat. Ann. art. 6627.

⁵ Texas ' Article 6627, set out in the Court's opinion, does speak in terms of conveyances being "void as to all creditors and subsequent purchasers * * * unless * * * recorded * * *" But the concluding portion of the section is positive that "as between the parties * * *" the conveyance "shall be valid and binding."