Priority of IRS tax liens under section 6321. Lien priority questions involving a federal tax lien are decided by federal law under the principle of "the first in time is the first in right ." United States v. McDermott, 507 U.S. 447, 449 (1993). Under 26 U.S.C. § 6321, once the IRS makes an assessment that tax is due from a taxpayer, a lien is created in favor of the Untied States without any particular filing requirement. Id. at 449. The "general rule is that the tax collector prevails even if he has not recorded at all." Id. at 454.

Section 6323 of the Internal Revenue Code, however, establishes that certain interests can be superior to a tax lien. Subsection (d) of Section 6323 provides for priority against a filed federal tax lien for security interests in property arising out of advances made within 45 days of the filing of the IRS's tax lien or until knowledge is obtained of the filing of the lien, if earlier. 26 U.S.C. § 6323; see also Slodov v. United States, 436 U.S. 238, 258 n.22 (1978) ("when a security agreement exists and filing has occurred prior to the filing of a tax lien to secure advances made after the tax filing, perfection is, at the least, achieved when the secured party makes the advance. When that occurs after the tax lien has been filed, section 6323(d) protects the secured party from the federal tax lien if the advance is made not later than 45 days after the filing of the tax lien or upon receipt of actual notice of the tax lien filing, whichever is sooner.").

Federal tax liens had priority over a third-party creditor's security interest in the proceeds a corporation received from the settlement of a lawsuit because the security interest was not choate when the government filed the tax liens. In the Rich case, the security interest covered the corporation's receivables and was properly perfected before the recording of the first tax lien, but it did not cover the settlement proceeds. The settlement agreement did not specifically identify the funds as payment of outstanding accounts receivable. The tax liens had priority because the security interest and the tax liens became choate simultaneously. The creditor's subsequent amendment of its security interest to include the settlement proceeds suggested that the creditor did not believe it had a security interest in those proceeds under the original agreement.


Rich Financial, LLC, Plaintiffs v. United States of America, Defendant.

U.S. District Court, Dist. Utah, Central Div.; 2:07CV403DAK, January 12, 2009.

[ Code Secs. 6323 and 7426] Priority of tax liens: Security interest: Settlement proceeds: Accounts receivable: Chronological priority: Doctrine of choateness. --




MEMORANDUM DECISION AND ORDER


KIMBALL, United States District Judge: This matter is before the court on cross motions for summary judgment on the issue of the priority of the parties' rights in funds levied by the IRS. The court held a hearing on these motions on November 25, 2008. At the hearing, Plaintiff was represented by Craig Howe, and Defendant was represented by Rick Watson. The court took the motions under advisement. The court has carefully considered all pleadings, memoranda, and other materials submitted by the parties, the arguments made by counsel at the hearing, and the law and facts relevant to the motions. Now being fully advised, the court enters the following Memorandum Decision and Order.


BACKGROUND


Plaintiff Rich Financial is a third party creditor who loaned money to BCBU, or Rocky Mountain Home Care. Rich Financial is an entity controlled by Lamar and Jay Bangerter. Rocky Mountain is controlled by their cousin Dee Bangerter. On March 5, 1995, Rich Financial and Rocky Mountain signed a promissory note for $2.1 million in favor of Rich Financial. Pursuant to the promissory note, Rich Financial established a line of credit to Rocky Mountain ("Rocky Mountain account"). The promissory note was secured by a security agreement, which granted Rich Financial a lien in and to all of BCBU's accounts receivable, equipment, leasehold improvements, and the proceeds of each.

Paragraph 4 of the promissory note states that it is secured by "all Accounts Receivable of [Rocky Mountain] in addition to all leasehold improvements on [its] premises." The security agreement further defines collateral as "All of [Rocky Mountain]'s accounts receivable evidencing any right to payment for goods sold or leased or for services rendered." The security agreement also defines Rocky Mountain's payment obligations as "the sum evidenced by the above-mentioned note or any renewals or extensions thereof executed pursuant to this security agreement in accordance with the terms of such note and any other obligations that now exist or may hereafter accrue from [Rocky Mountain] to [Rich Financial]."

The line of credit agreement was periodically renewed between the two parties on essentially the same terms. None of these renewals changed the collateral or terms of the line of credit or the security agreement. Beginning on March 3, 1995, and continuing until at least April 9, 2007, Rich Financial regularly made advances to Rocky Mountain under this line of credit. The purpose of the line of credit and the advances was to fund the operations of Rocky Mountain. Rich Financial recorded the line of credit and security agreement with the Department of Commerce on July 9, 2002.

At various dates prior to and including December 31, 2002, Rich Financial also began including obligations other than those representing advances directly to Rocky Mountain in the Rocky Mountain account. On October 9, 1997, Rich Financial added an obligation of $118,000 to the Rocky Mountain account representing a distribution or loan to the mother of Dee and Lee Bangerter, the individuals who controlled Rocky Mountain. Rich Financial provides no explanation for why Rocky Mountain would be responsible to Rich Financial for monies distributed to an individual rather than the company.

In addition, between May 1997 and August 1999, Rich Financial also established lines of credit with several other entities controlled by Dee and Lee Bangerter. These other entities included United Alternative Home Care, Nurse Network of Utah, Pro Med, Inc., United Home Health Care of Southern California, United Home Care dba CSM Home Health Care, and Premier Home Care Services. However, no documents related to these lines of credit were ever recorded with the Utah Department of Commerce, with the exception of documents relating to the line of credit with CSM Home Health Care.

Rich Financial made advances to these entities under the separate lines of credit. The advances were made for the separate entity, not Rocky Mountain. However, all of these additional lines of credit ultimately went into default. On February 15, 2000, the defaulted lines of credit between Rich Financial and United Alternative Home Care, Nurse Network of Utah, Pro Med, Inc., United Home Health Care of Southern California, and Premier Home Care Services were consolidated into the line of credit between Rich Financial and Rocky Mountain. On December 31, 2002, the line of credit between Rich and United Home Care dba CSM Home Health Care was consolidated into the line of credit between Rich Financial and Rocky Mountain. These consolidations were done to make payment of the separate obligations more convenient for Dee and Lee Bangerter.

On March 20, 2003, a representative of the Secretary of the Treasury recorded a Notice of Federal Tax Lien ("NFTL") concerning the tax liabilities of Rocky Mountain with the County Recorder in Davis County, Utah, the proper place to record such an instrument. Other NFTLs concerning the liabilities of Rocky Mountain were recorded in Salt Lake and Davis Counties at this time and subsequently. The total amount ultimately levied by the IRS pursuant to the NFTLS was $1,306,227.00.

As of May 5, 2003, which is legally significant because it is 45 days after the NFTL was filed, the principal balance on Rocky Mountain's line of credit for sums directly advanced to Rocky Mountain was $423,959.40. The consolidated amount due and owing on May 5, 2003, however, was $2,875,181.42.

The last advance to Rocky Mountain under the line of credit prior to May 5, 2003, was on July 22, 2002. But, beginning again on December 23, 2003, and continuing until at least April 9, 2007, Rich Financial continued to make other regular advances to Rocky Mountain. Also after May 5, 2003, Rocky Mountain made payments to Rich Financial totaling $1,510,000. Neither Rich Financial, Rocky Mountain, nor the underlying documents made any designation as to how these payments were to be applied.

On December 13, 2002, Rocky Mountain and other entities controlled by Dee and Lee Bangerter, none of which include the entities who received a line of credit from Rich Financial and whose obligations were consolidated into Rocky Mountain's account, filed a lawsuit against the State of Utah. The lawsuit alleged breach of contract and breach of the implied covenant of good faith and fair dealing relating to the State's Medicaid reimbursements to Rocky Mountain. The entities claimed that the State had established and paid rates to them that were below the reimbursement rates required by certain Medicaid policies, standards, and methods. Rocky Mountain and the other entities sought damages of over $16 million and injunctive relief.

On March 14, 2007, the parties to the action filed a stipulated motion for dismissal with prejudice. That motion indicated that the parties had "resolved the matter, without either party denying or admitting liability to the other, based on a payment from [the State] to Plaintiffs in the amount of $7 million dollars and in exchange for mutual releases concerning the subject matter of the claims." On March 20, 2007, the court dismissed the suit based on the stipulation. On April 5, 2007, the IRS levied on the settlement funds Rocky Mountain was to receive from the State.

On June 19, 2007, Rich Financial filed this action against the United States asserting two causes of action: (1) wrongful levy pursuant to 26 U.S.C. § 7426; and (2) declaratory judgment pursuant to the federal Declaratory Judgment Act, 28 U.S.C. § 2201, and the Utah Declaratory Judgments Act, Utah Code Ann. § 78-33-1. On a previous motion to dismiss, this court dismissed Rich's second cause of action.

After this litigation began, on November 10, 2008, Rich re-recorded with the Utah Department of Commerce a new UCC-1 filing statement concerning the line of credit between Rich Financial and Rocky Mountain. The collateral obligation was now defined to include proceeds from the litigation against the Utah Department of Health, although the terms of the line of credit did not change.


DISCUSSION


The parties have filed cross motions for summary judgment asserting a priority of interest in the settlement funds levied by the IRS. Rich Financial claims that its security interest in the funds is superior to the IRS's NFTL and that the IRS wrongfully levied Rocky Mountain's settlement funds. Conversely, the government argues that the NFTL is superior to Rich Financial's security interest and that Rich Financial does not have a security interest in the settlement funds that Rocky Mountain obtained from the State of Utah.



A. Priority of Interests

Lien priority questions involving a federal tax lien are decided by federal law under the principle of "the first in time is the first in right ." United States v. McDermott, 507 U.S. 447, 449 (1993). Under 26 U.S.C. § 6321, once the IRS makes an assessment that tax is due from a taxpayer, a lien is created in favor of the Untied States without any particular filing requirement. Id. at 449. The "general rule is that the tax collector prevails even if he has not recorded at all." Id. at 454.

Section 6323 of the Internal Revenue Code, however, establishes that certain interests can be superior to a tax lien. Subsection (d) of Section 6323 provides for priority against a filed federal tax lien for security interests in property arising out of advances made within 45 days of the filing of the IRS's tax lien or until knowledge is obtained of the filing of the lien, if earlier. 26 U.S.C. § 6323; see also Slodov v. United States, 436 U.S. 238, 258 n.22 (1978) ("when a security agreement exists and filing has occurred prior to the filing of a tax lien to secure advances made after the tax filing, perfection is, at the least, achieved when the secured party makes the advance. When that occurs after the tax lien has been filed, section 6323(d) protects the secured party from the federal tax lien if the advance is made not later than 45 days after the filing of the tax lien or upon receipt of actual notice of the tax lien filing, whichever is sooner.").

It is undisputed in this case that the United States first filed an NFTL in Davis County, Rocky Mountain's place of business, on March 20, 2003. Under Section 6323(d), Rich had 45 days from that date, or until May 5, 2003, to make advances to Rocky Mountain under the line of credit in order to secure them against the United States's NFTL. All later extensions of credit, and interest and costs accrued thereon, are similarly secured, but remain in third-priority position behind the United States' tax lien. Therefore, the parties' dispute focuses on the amount Rocky Mountain was obligated to pay Rich Financial as of May 5, 2003.

The government does not dispute that Rich Financial properly perfected its security interest on July 9, 2002. Also, the government does not dispute both that the Medicaid payments at issue constitute "accounts receivable" and that the accounts receivable arose when Rocky Mountain performed the Medicaid services, which was before the recording of the first NFTL. Rather, in its motion, the government contends that it has priority to the disputed funds because Rocky Mountain discharged any amount that would have had priority, Rich Financial's security interest in accounts receivable does not include the settlement funds with the State, and, even if Rich had an interest in the settlement funds, it was inchoate at the time the government filed the first tax lien.

Between May 5, 2003, and December 8, 2006, Rocky Mountain made $1,510,000 in payments to Rich Financial on its line of credit. Rocky Mountain also made numerous draws on the line of credit after May 5, 2003. However, where the security is the same, payments are applied to the oldest balance first, unless otherwise designated. United States v. Kirkpatrick, 22 U.S. 720, 737-38 (1824); American Investment Financial v. United States, 364 F. Supp. 2d 1321 (D. Utah 2005) (security interest only protected for 45 days after the filing of a notice of federal tax lien).

In Lee v. Yano, 997 P.2d 68 (Hawaii Ct. App. 2000), the court noted that, as a "general rule, a third person who is secondarily liable on a debt, such as a guarantor, surety, or endorser, cannot control the application which either the debtor or the creditor makes of a payment, and neither the debtor nor the creditor need apply the payment in the manner most beneficial to such person." Id. at 76.

Rich Financial relies on this language from Lee to argue that the court should not apply the presumptive rule because it is most beneficial to the government. Moreover, Rich Financial claims that the presumptive rule relied on by the government applies, if at all, only when the parties themselves have not agreed on an allocation of the payments or have not otherwise allocated the payments. See Standard Surety & Cas. Co. v. United States, 154 F.2d 335, 337 (10th Cir. 1946) (stating that if both parties to a contract fail to make the allocation, "then the law will make the allocation"). When the law makes the allocation according to its own notions of justice, the Standard Surety case explained that the correct rules is that "[w]hen the security is the same, the state and federal rule is to apply the payment first to the oldest obligation. When the security is not the same, the rule is to apply the payment first to the obligation least secured, or whose security is most precarious." Id.

Rich Financial claims that in the promissory notes executed by Rich and Rocky Mountain, the parties agreed on how payments would be allocated to the outstanding obligations. The allocation of payments described in the line of credit agreement, however, is: 1) costs of enforcement; 2) interest; and 3) the unpaid principal under the Note. In this case, there are no costs of enforcement and there is no dispute over interest payments. The relevant issue is how to apply payments after the perfection of the federal tax liens to the unpaid principal under the Note. The issue is not enforcement costs or interest. Here, the underlying instrument does not specify that payments are to be applied to specific advances, nor do the payments themselves contain any such designation. In this case, the security for the line of credit was the same throughout. Although the line of credit was renewed several times before and after May 5, 2003, the definition of security in the line of credit and the security agreement did not change. Neither Rich, nor Rocky Mountain, nor the line of credit itself, made any designation of how the payments were to be applied. Accordingly, the court must apply the general presumption and Rocky Mountain's payments are deemed to be applied against the oldest incurred advance on a first-in-first-out basis. Kirkpatrick, 22 U.S. at 737-38.

The question, then, becomes what was the balance owed by Rocky Mountain on the line of credit on May 5, 2003. Plaintiff provided a summary chart of all activity on this line of credit from its inception until the present date. From this chart, the amount due on May 5, 2003, the 46th day from the filing of the tax lien, is $2,875,181.42. This amount includes debt that was incurred on several other lines of credit that were entered into with other entities controlled by Dee and Lee Bangerter and Rich Financial. Rich Financial agreed to consolidate these other obligations with Rocky Mountain's line of credit. In addition, money that was given or loaned to Lee and Dee Bangerter's mother was consolidated in Rocky Mountain's line of credit. But Rich Financial has agreed that the amount due and owing should be reduced by the $49,086.05 paid to the Bangerters' mother. Therefore, Rich Financial asserts that the consolidated amount due and owing to it on May 5, 2003, was $2,806,267.47.

The government, however, contends that Rocky Mountain was not obligated in any way on these other notes, and, in such a situation, any priority accorded to the line of credit between Rich Financial and Rocky Mountain would not apply to these other obligations. Rich Financial claims that it has an oral guaranty to pay the amounts consolidated into its line of credit with Rich Financial. The government claims that the correct amount due and owing Rich Financial was $305,959.40, which includes the amount directly received by Rocky Mountain on its line of credit minus $118,000 that the government alleges was paid to the Bangerter's mother.

Rich Financial asserts that the government is not in a position to argue that the amount owed to Rich Financial as of May 5, 2003, should be reduced by the amounts of the notes executed by United Alternative, Nurse Network, ProMed, and the other related third-party entities that it combined with the Rocky Mountain note-receivable account. because Rocky Mountain owed Rich Financial the amounts set forth in the documents produced by Rich Financial. Rich Financial and Rocky Mountain claim that they entered into an oral guaranty agreement whereby Rocky Mountain agreed to be a guaranty on these other lines of credit and agreed to consolidate the defaulted lines of credit into its own line of credit with Rich Financial.

The government has not cited to any authority that two parties to a guaranty agreement cannot orally agree to such an obligation. Under Utah law, a party to an oral agreement to guarantee an obligation may assert the statute of frauds as a defense to the enforcement of the agreement. See Utah Code Ann. § 25-5-4(b). However, a third party cannot raise the statute of frauds defense to an oral guaranty agreement. See Garland v. Fleischmann, 831 P.2d 107, 109 (Utah 1992).

Representatives of both Rich and Rocky Mountain consistently testified that Rocky Mountain had, in fact, guaranteed the payment of the obligations. Also, there is no evidence that Rocky Mountain itself has ever disputed the amounts due to Rich Financial, including amounts owed to Rich Financial pursuant to Rocky Mountain's guaranty of other debtors' obligations. The government's argument that the obligations were combined simply to make the payment obligations more convenient ignores that Rocky Mountain guaranteed the payment of the related entities' obligations to Rich Financial. The court finds no basis in the law or the factual circumstances in this case that would invalidate the alleged oral guaranty.

Given that these consolidated amounts are guaranteed by Rocky Mountain, the court must then determine whether these obligations were secured obligations under Rich Financial and Rocky Mountain's security agreement. By its terms, the security agreement provides that Rocky Mountain's payment obligations to Rich Financial include amounts of any notes executed pursuant to the security agreement "and any other obligations that now exist or may hereafter accrue from [Rocky Mountain] to [Rich Financial]."

The government argues that Rich Financial provides no authority for its proposition that oral guaranties can bring the obligations of other entities within the security agreement between Rich Financial and Rocky Mountain and that oral guaranties can defeat a properly filed NFTL. In order to defeat the general rule that the tax lien prevails, Rich Financial must show that it falls within an exception to the general rule as set out in 26 U.S.C. § 6323. There is no dispute, however, that Rich Financial has a perfected security agreement. Therefore, the issue is whether the terms of the security agreement cover those obligations. The language of the security agreement states "any other obligations." Rocky Mountain's guaranty of the other lines of credit constitute other obligations. There is no dispute between the parties to the agreement, Rich Financial and Rocky Mountain, that the guaranteed obligations reflect proper contractual obligations of Rocky Mountain to Rich Financial under the secured line of credit. Therefore, Rich Financial's security interest covering Rocky Mountain's obligations was properly perfected before the recording of the first NFTL in the amount of $2,806,267.47.

It is undisputed that between May 5, 2003, and December 8, 2006, Rocky Mountain made $1,510,000 in payments to Rich Financial on the line of credit. It is clear that subsequent payments can extinguish this obligation. See United States v. Kirkpatrick, 22 U.S. 720, 737-38 (1824). Rocky Mountain's subsequent payments, however, are not enough to extinguish the total amount Rocky Mountain owed Rich Financial on May 5, 2003.

Next, the court must determine whether Rich Financial's security interest in Rocky Mountain's accounts receivable included Rocky Mountain's settlement proceeds from its litigation against the State and whether its interest in such proceeds were choate before the government filed its NFTL. Rocky Mountain reached its settlement with the state several years after the government filed its first NFTL.

If a security interest is to prevail over a subsequently filed federal tax lien, the interest must "exist" within the meaning of 26 U.S.C. § 6323(h)(1). To determine whether a security interest exists and has priority over a competing tax lien under the federal rule, courts look at two factors: (1) chronological priority and (2) compliance with the doctrine of choateness. United States v. 110-118 Riverside Tenants Corp., 886 F.2d 514, 518 (2d Cir. 1989). Therefore, not only does the security interest need to be first in time, it must also be choate to defeat the federal tax lien.

"A lien is choate where (1) the identity of the lienor, (2) the property subject to the lien, and (3) the amount of the lien are established." National Communications Ass'n v. National Telecommunications Ass'n, 1995 U.S. Dist. LEXIS 5333, *42 (S.D.N.Y. April 21, 1995). "Where the three-part test for choateness is satisfied at the time the IRS files its notice of tax lien, or within 45 days thereafter, the state-created security interest takes priority over the competing tax lien." Id. at *43.

The dispute in this case is whether Rich Financial's security interest in Rocky Mountain's settlement proceeds were in existence before the federal tax lien arose. The government argues that the settlement proceeds did not come into existence until Rocky Mountain reached its settlement with the State. Rich Financial, however, argues that the settlement proceeds consist of accounts receivable that the State owed it for services rendered prior to the government's federal tax lien.

Both parties agree that Medicaid reimbursements can constitute accounts receivable. Both parties also agree that a lien on accounts receivable becomes choate, and the receivables exist, when the services giving rise to the accounts receivable are performed and payment becomes due . However, the parties dispute whether the settlement funds can be characterized as accounts receivable and whether they were choate prior to the filing of the federal tax lien.

Rocky Mountain's claims against the state was for breach of contract and breach of the covenant of good faith and fair dealing. The suit challenged the State's formula for payments on Medicaid reimbursements under Medicaid policies. Rocky Mountain sought $16 million from the State. The parties ultimately reached a settlement in which neither party admitted fault or liability and the State agreed to pay Rocky Mountain and the other named plaintiffs $7 million.

In National Communications, the court addressed a dispute over settlement funds between a party with a security interest in accounts receivable and the government, who had filed a federal tax lien. Id. at *61. Similar to Rich Financial, the secured party claimed that the settlement fund was simply proceeds of the preexisting accounts receivable because his security interest was in the underlying collateral itself and his lien became choate when the debtor performed services giving rise to the debt. Id. The court stated that the secured party's security interest in the accounts receivable would have had priority over the federal tax lien "had there been no dispute over the payment of those accounts, and no subsequent litigation resulting in the compromise of multiple claims between the parties." Id. at *65. The court found that the settlement was not directly linked enough to the underlying collateral --accounts receivable. Id. at *67. The proceeds of the settlement fund were not specifically earmarked as settlement of the claims for accounts receivable, but rather a compromised amount for multiple claims and included monies owed under the contract and claims for damages. Id. Accordingly, the court found that the settlement fund represented a new asset that did not exist for priority purposes at the time the federal tax lien was filed. Id. The court concluded that because the settlement occurred after all the liens had arisen, the security interest lien and the federal tax lien attached to the settlement proceeds and became choate simultaneously. Id. at *67-68.

Rich Financial claims that this case is distinguishable from National Communications because Rocky Mountain's settlement proceeds consist only of payment on accounts receivables. Rich Financial relies on Mecco Inc. v. Capital Hardware Supply, Inc., 486 F. Supp. 2d 537 (D. Md. 2007), in which the court concluded after a bench trial that the case was distinguishable from National Communications because the settlement agreement in Mecco referred specifically to the settlement of a claim for unpaid labor and materials and sufficiently earmarked an amount for the resolution of the claim for unpaid accounts receivable. Id. at 548.

The court finds this case more similar to National Communications than to Mecco. The settlement between Rocky Mountain and the State did not specifically earmark the monies as past due reimbursements. In fact, the State did not admit to any liability and the parties agreed to exchange mutual releases for the subject matter of the litigation. The settlement agreement in this case represents a compromise reached by the parties that is not specifically earmarked as a payment of outstanding accounts receivable. The court cannot conclude that Rich Financial's security interest was choate prior to the government's filing of the NFTLs. Because both the security interest and the NFTLS were in existence at the time that Rocky Mountain and the State entered into the settlement agreement, both the security interest and the NFTLS became choate simultaneously. Accordingly, the NFTLs have priority over Rich Financial's security interest.

Based on the court's conclusion that the security interest was not choate at the time the government filed the NFTLs, the court need not address whether the settlement proceeds were in fact accounts receivable or general intangibles. The court, however, notes that this court has previously found that a claim to a tax refund was a general intangible rather than account receivable. See In re Certified Packaging, Inc., 1970 U.S. Dist. LEXIS 13030 (D. Utah 1970). A cause of action is generally considered to be a general intangible. Utah Code Ann. § 70A-9a-102(42)(a).

In this case, Rich Financial had a security interest in Rocky Mountain's accounts receivable but, unlike the secured parties in National Communications and Mecco, it did not have a security interest in general intangibles. The court notes, however, that the security agreement provided Rich Financial with the right to bring an action on Rocky Mountain's behalf for collection of accounts receivable. Rich Financial, however, chose not to be a plaintiff in the action against the State. In addition, Rich Financial amended its security interest to include the proceeds of Rocky Mountain's settlement with the State after it instituted this action. Such an amendment suggests that Rich Financial did not believe it had a security interest in the settlement proceeds under its original security agreement that was in place at the time that the government filed the NFTLs.

The court concludes that the government's NFTLs have priority over Rich Financial's security interest in the settlement proceeds. Accordingly, the court grants the government's Motion for Summary Judgment and denies Rich Financial's motion for summary judgment.


CONCLUSION


For the reasons stated above, the government's Motion for Summary Judgment is GRANTED, and Rich Financial's Motion for Summary Judgment is DENIED. The Clerk of Court is directed to close this case, each party to bear its own fees and costs.

DATED this 12 th day of January, 2009.

Security interest. --Validity and Priority Against Third Parties: Security interest

A flying service corporation was held to have a valid equitable lien upon contract proceeds held by a bank. The lien was based upon a contract of payment from the bank and the flying service corporation had a security interest and took priority over the government's lien since the latter was not filed until after the security interest was perfected.

Morrison Flying Service, CA-10, 68-2 USTC ¶9465, 404 F2d 856.

A private security interest was subordinate to federal tax liens where the security interest had not been perfected under applicable state law prior to the time the federal tax liens were duly filed.

Sams, Pa. SCt, 70-1 USTC ¶9315.

A.E. Richardson, DC, 73-1 USTC ¶9319, 358 FSupp 994.

Lanning Equipment Corp., DC 73-1 USTC ¶9160, 346 FSupp 1068.

Nevada Rock and Sand Co., DC 74-2 USTC ¶9617.

L.B. Smith, Inc., DC, 72-1 USTC ¶9230, 341 FSupp 810.

Interstate Tire Co., DC 73-1 USTC ¶9428.

M. Blide, DC, 73-2 USTC ¶9716.

T.C. Trigg, CA-8, 72-2 USTC ¶9642, 465 F2d 1264.

R. Brennecke, DC, 75-1 USTC ¶9358.

Security Savings Bank of Marshalltown, Iowa, DC, 77-2 USTC ¶9738, 440 FSupp 444.

American Fidelity Fire Ins. Co., DC, 75-2 USTC ¶9636.

Merchants and Marine Bank, Miss. SCt, 74-1 USTC ¶9392, 392 So2d 151.

E.G. Smith, Jr., DC, 75-1 USTC ¶9138.

J. Iversen, DC, 75-2 USTC ¶9806.

Commercial Credit Corp., DC, 78-1 USTC ¶9113.

R.E. Dever, DC, 81-1 USTC ¶9163. Taxpayer on appeal to CA-6.

J.S. Minges, DC, 81-1 USTC ¶9336.

J. Sanchez, CA-2, 83-1 USTC ¶9126, 696 F2d 213.

New York City Transit Authority, DC N.Y., 84-1 USTC ¶9112, 565 FSupp 388.

First National Bank of Valdosta, DC, 83-2 USTC ¶9487.

Hunter's Supply Co., Inc., DC Ind., 86-1 USTC ¶9423.

M.L. Schons, DC Wash., 85-2 USTC ¶9764, 54 BR 665.

P.D. Rotherham, CA-7, 88-1 USTC ¶9135, 836 F2d 359.

Rocky Mountain F.S.B., DC Wyo., 89-2 USTC ¶9546.

Crystal Bar, Inc., DC S.D., 91-1 USTC ¶50,114, 758 FSupp 543.

Citizens State Bank, CA-6, 91-1 USTC ¶50,228, 932 F2d 490.

G.M. Poling, DC Ohio, 99-2 USTC ¶50,886.

Wayne County Board of County Commissioner, DC Ohio, 2000-2 USTC ¶50,562. Aff'd, CA-6 (unpublished opinion), 2001-2 USTC ¶50,734.

Air Operations International Corp., DC Fla., 2002-1 USTC ¶50,423.

A corporation's security interest in a motor vehicle did not take priority over the federal tax lien because the corporation did not perfect its security interest by recording it with the Motor Vehicle Division under the applicable Minnesota statute.

Ceco Corp., DC, 83-1 USTC ¶9135, 554 FSupp 569.

A steel floating dry dock, although not specifically described in the pertinent security agreements or financing statements, fell within the general references made in these documents to all "docks", "machinery", "tangible personal property" and "equipment". Thus, a security interest was perfected and took priority. The Uniform Commercial Code, as adopted in California, contemplates a system of "notice filing".

National Equipment Rental, Ltd., DC, 78-2 USTC ¶9780.

A federal lien took priority over a security interest because, under Indiana law, it was possible for a hypothetical creditor to obtain a judgment lien against property purportedly in the custody of the law without obtaining knowledge of the security interest.

H. Dragstrem, CA-7, 77-1 USTC ¶9301, 549 F2d 20.

Although Florida law mandates the filing of an assignment of a claim, a secured creditor's failure to file did not defeat his priority over a tax lien. The Florida requirement is designed to protect those who part with something of value, in dealing with a debtor, on the basis of the state or local public records. The government is not in the position of such a person.

Major Electrical Supplies, Inc., DC, 77-1 USTC ¶9280, 427 FSupp 752.

A creditor's interest in an unacknowledged and unrecorded assigned cause of action was protected under Arkansas law and entitled to priority over the government's subsequent lien for taxes.

Brown & Root, Inc., CA-8, 85-2 USTC ¶9523, 767 F2d 464.

Where the secured creditor perfected its interest at the same time that the government perfected its interest in the accounts receivable by filing a notice of lien, Code Sec. 6323 required the secured creditor and the government to share in the fund in proportion to their claims.

Southern Rock, Inc., CA-5, 83-2 USTC ¶9529, 711 F2d 683.

The "office" of a bankrupt professional basketball player was located in the state in which he deposited his salary checks and in which was located the office of the team for which he played. Thus, a security interest filed in the proper location in that state, in an executory contract of employment, was properly filed and had priority over a federal lien.

C. Neumann, DC, 78-1 USTC ¶9322.

C. Neumann, DC, 79-1 USTC ¶9375.

A bank's security interest had priority over a federal tax lien.

First Natl. Bank of Louisville, DC, 73-1 USTC ¶9223.

A tax lien did not have priority over a bank's security interest in accounts receivable held by a debtor even though the bank's interest was originally in the inventory.

Fourth Natl. Bank of Tulsa, DC, 75-2 USTC ¶9594.

Under the 1966 version of the Uniform Commercial Code, as adopted in Florida, insurance payable by reason of loss or damage to collateral is proceeds. That the drafters of the UCC so intended is evidenced by the fact that they expressly incorporated this rule in the 1972 amendments.

J. Paskow, CA-5, 78-2 USTC ¶9697, 579 F2d 949.

A debtor has not received its interest in accounts receivable at the time a bank filed a security interest and the bank's lien did not have priority.

Juengel Construction Co., DC, 78-2 USTC ¶9812.

A bank's secured interest in funds owed to a contractor by a city did not have priority over a federal tax lien because the interest did not meet the choateness requirement.

City of Houston, Texas, DC Tex., 86-1 USTC ¶9101.

A corporation was a purchaser within the meaning of Code Sec. 6323(a) where it gave consideration consisting of $1, an extension of further credit to the taxpayer, and a forbearance of its right to repossess certain tools.

Roselyn Corp., Calif. SCt, 57-2 USTC ¶9842.

The lower court did not err when it found that the taxpayer's relatives, who paid him $10 and assumed his obligation, were purchasers for valuable consideration.

S.O. Smith, CA-5, 66-1 USTC ¶9378, 359 F2d 924.

A bank had no security interest in funds in a creditor's account. There was no contractual security interest and the bank's interest was not protected under local (New York) law against a subsequent judgment lien arising out of an unsecured obligation.

Manufacturers and Traders Trust Co., DC, 75-2 USTC ¶9872.

A purchaser of property who had no actual knowledge that a tax lien had been filed against the property but who had actual notice of existence of the lien itself was subordinated to the lien.

Gallup, DC, 73-2 USTC ¶9684.

A government's lien for taxes which was filed on October 3, 1967, had priority status to insurance proceeds over that of an assignor whose interest arose from an assignment dated October 2, 1967, but which was not recorded until October 30, 1967. Nor was the assignor entitled to priority under the Uniform Commercial Code since claims or interests in insurance policies cannot be the subject of a security interest. Likewise, the Government's lien was prior in time to those of other claimants whose claims arose after the filing of the Government's lien.

Aetna Casualty & Surety Co. of Hartford, Conn., DC, 69-1 USTC ¶9214.

A purchase money security interest or mortgage valid under local law is protected even though it may arise after a notice of federal tax lien has been filed.

Rev. Rul. 68-57, 1968-1 CB 553.

An individual who had a security interest in property that took precedence over a tax lien lost such priority when a second trust deed was executed later which secured a larger and different sum of indebtedness than originally created.

G.A. Peterson, DC, 81-1 USTC ¶9469, 511 FSupp 250.

A purchase money security interest perfected after a federal tax lien was perfected but two months after the debtor had taken possession of the collateral was not entitled to priority over the federal lien. The secured interest holder did not come within the penumbra of Rev. Rul. 68-57, which merely gives priority to a security interest arising after a tax lien has been filed if the interest is filed within ten days after the debtor takes possession of the collateral.

First National Bank of Marlton, DC, 76-1 USTC ¶9450.

A landlord who financed the raising of a crop on his farm in consideration for his tenants' agreement to pay him half of the proceeds had a lien that was superior to a federal tax lien. The landlord's financing gave him a security interest.

Willstead, Ill. CA Ct., 73-1 USTC ¶9329.

A security interest arising from an optional advance made within 45 days after the filing of a federal tax lien, without actual notice or knowledge of the lien, is protected against the lien, provided the applicable local law is Article 9 of the Uniform Commercial Code and provided that the security interest has been perfected within the meaning of Article 9 prior to filing of the lien.

Rev. Rul. 72-290, 1972-1 CB 385.

Bank loans were made more than 45 days after a federal tax lien was filed; so a secured creditor was not entitled to priority status.

Penetryn International, Inc., DC, 75-1 USTC ¶9361, 391 FSupp 729.

A security interest in all of the delinquent corporate taxpayer's existing accounts receivable and contract rights attached to the taxpayer's right to recover any part of a security deposit required under a lease that it executed. Accordingly, the Government was not entitled to priority over the holder of the security interest who had perfected his security interest before the federal tax lien was filed.

Samel Refining Corp., CA-5, 72-2 USTC ¶9480, 461 F2d 941.

The IRS improperly levied upon a bank account to satisfy a tax lien that was inferior to the bank's lien.

Trust Company of Columbus, CA-11, 84-2 USTC ¶9614.

The IRS wrongfully levied upon the proceeds of a promissory note that had been in the possession of a law firm acting as an agent/bailee for the secured party.

Sacramento Valley Insurance, Inc., DC Calif., 86-1 USTC ¶9136.

A security interest granted under a lease in items of property in the leased premises was perfected prior to filing of a tax lien and took priority over it. The taxpayer was given ninety days to foreclose its interest in those assets.

Huntsville Real Estate Investment Trust, DC, 72-1 USTC ¶9463.

The lower court erred in deciding that a tax lien was entitled to priority over the lien of a security interest holder because the property was not described specifically enough in the security agreement. Instead, it should have decided what portion of the value of products finished more than 45 days after filing of the lien was attributable to the value of property that the secured creditor owed within the 45-day period, and it should have awarded the creditor priority on the portion so attributable.

P. Donald, CA-10, 73-2 USTC ¶9623, 483 F2d 837.

Although the "security interest" contemplated by Code Sec. 6323(h)(1) must be in existence at the time of filing of a tax lien in order to have priority over the lien, the same is not true of a Code Sec. 6323(c) security interest. A claim arising out of a commercial transactions financing agreement had priority over a federal lien.

Natl. Bank of Commerce of Birmingham, DC, 76-2 USTC ¶9532.

A bank that filed its financing statement covering an assignment of accounts and a security interest in contract rights before the government filed its tax lien had a prior lien on the debtor's assets. Rights in a valid, binding contract that could be ordered to be specifically performed if breached are "existing property" under the Tax Lien Act of 1966, even though the contract has not yet been performed.

Centex Construction Co., Inc., DC, 72-1 USTC ¶9289.

A company was not exempted from filing a financing statement by that section of the Uniform Commercial Code (as adopted in Utah) that exempts from filing security interests consisting of assignments of accounts or contract rights when the assignments are an insignificant part of the outstanding accounts or rights of the assignor. Since there was no evidence that the assignment was not one of a significant part of the rights, it did not matter that the transaction was an isolated or casual one for the assignor.

Consolidated Film Industries, CA-10, 77-1 USTC ¶9188, 547 F2d 533.

Federal tax liens were found to have priority over claims of a New York taxpayer's creditors to assets in a fund held by the court in an interpleader action.

G. Mantovani, DC, 80-2 USTC ¶9468.

The Government's tax lien was superior to a bank's claim that it held a security interest in interpleaded funds transferred to the court by the delinquent taxpayer. The lien relied on by the bank was not in an established amount nor was there identifiable property to which it attached until the expiration of the 45-day grace period after the filing of the Notice of Federal Tax Lien.

Texas Oil & Gas Corp., CA-5, 72-2 USTC ¶9653, 466 F2d 1040. Cert. denied, 410 US 929.

Followed.

North Side Deposit Bank, DC, 83-2 USTC ¶9503, 569 FSupp 948.

A secured creditor was not entitled to priority over a tax lien because the account subject to the security agreement was not acquired by the debtor until well after the 45-day grace period. And, since a security interest could not attach until the debtor acquired rights in the collateral, the interest had to lose out because the tax lien was filed prior to the time those rights were acquired.

Community State Bank of Hayti, DC, 77-1 USTC ¶9436.

A lien for unpaid FICA and withholding taxes on the assets of a debtor had priority over a creditor's security interest in the debtor's after-acquired inventory, even though the creditor's lien arose and was filed before the tax lien. The creditor did not know when the debtor acquired the inventory that had been seized to satisfy the lien and thus was unable to show that the inventory was acquired by the debtor before the 46th day after the filing of the tax lien. The creditor therefore could not show that his security interest came within the exception to the priority of a federal tax lien for a security interest that came into existence before the 46th day after the date of the filing of the tax lien.

Rice Investment Co., CA-5, 80-2 USTC ¶9654, 625 F2d 565.

The district court erred in extending the priority of the commercial lender's private lien over the unsatisfied federal tax lien beyond the forty-five day safe harbor period.

Shawnee State Bank, CA-8, 84-1 USTC ¶9513.

A bank had no security interest in funds in a depositor's account and so did not have priority over a federal lien.

Farmers-Peoples Bank, DC, 74-1 USTC ¶9382.

A bank had not perfected its security interest by filing in accordance with the Uniform Commercial Code and, therefore, its interest was subordinate to the duly filed federal tax lien.

George W. Ultch Lumber Co., DC, 80-1 USTC ¶9396, 477 FSupp 1060.

A bank with a valid security interest in accounts receivable of a hospital held a lien superior to a federal tax lien that was filed more than five years after the bank had perfected its security interest. A California law that may have made the bank's security interest unenforceable against the state or its agents did not render assignments unenforceable against the U.S.

Bank of America N.T. & S.A., DC, 79-2 USTC ¶9699.

A wife who was assigned a fund of her husband in return for her agreement to allow him to be released from custody was not a purchaser of a security interest. The agreement was not consideration in money or money's worth. Thus, she was subordinated to a federal tax lien filed before the assignment, even though she was unaware of the lien at that time.

D. Fritz, DC, 71-1 USTC ¶9425, 328 FSupp 1343.

A secured creditor had priority as to a relocation payment due the debtor as the result of a condemnation action even though the amount of the payment was not finally determined by a court until after the government had filed its lien. The payment had accrued at the time of the original judgment (when the lien was not filed) and so was a "thing in action" within the meaning of the Uniform Commercial Code.

M. Kapp, DC, 77-1 USTC ¶9227.

A secured creditor did not lose its priority merely by lending the debtor further money, cancelling an old deed and executing another deed after the federal lien was filed. The original debt was not cancelled but was merely intended by the parties to be "brought forward". However, the additional sum advanced after the lien was filed was not entitled to priority.

P.A. Gant, DC, 78-2 USTC ¶9789.

A financing statement that listed an individual as a debtor did not take priority over a lien filed against a corporation of which he was the dominating force. The corporation and the individual were separate entities.

Watkins Corp., DC, 78-2 USTC ¶9726.

A document in which the bankrupt authorized a bank to assign funds held by the bank to his attorney (P) was not a security and did not give P priority over the government's tax lien. It was merely a nonnegotiable instrument evidencing money held by the bank for the bankrupt. The document was never in P's possession and was unknown to him prior to the levy.

First National Bank of Memphis, CA-6, 72-1 USTC ¶9357, 453 F2d 560.

A security interest in an aircraft is not necessarily invalid against all parties for all purposes and under all conditions solely because it is not filed with the Federal Aviation Administration. The case was remanded where the evidence indicated that the levy was wrongful because the debtor had no interest in the seized property and such seizure would have destroyed the creditor's senior lien.

CIM International, CA-9, 81-1 USTC ¶9146, 641 F2d 671.

A security interest properly filed under state law (Virginia) had not lapsed. Commencement of the instant litigation tolled any obligation by the interest-holder to subsequently file a continuation statement.

Chrysler Credit Corp., DC, 78-2 USTC ¶9481.

Insurance payments made to a debtor as a result of the destruction of collateral were not proceeds of the collateral.

National Fire Insurance Co., DC, 77-2 USTC ¶9660.

Insurance proceeds are merely the collateral in another form. Thus, a security interest was transferred to the proceeds paid when the collateral was destroyed. The interest existed and had priority over a federal lien.

Aetna Insurance Co., DC, 77-2 USTC ¶9726, 436 FSupp 371. Aff'd, per curiam, CA-5, 79-1 USTC ¶9287, 591 F2d 1035.

Although the power of attorney executed by a taxpayer gave his lawyer the authority to apply funds seized in a drug arrest against his attorney's fees, a tax lien accompanying a termination had priority since the power of attorney merely created a security interest in the funds.

J.D. Brooks, DC, 82-1 USTC ¶9321.

The father of a delinquent taxpayer failed to prove that he had a secured interest in his son's truck.

Hess, CA-10, 82-2 USTC ¶9676, 693 F2d 113.

When a tavern was sold to a corporation, the seller failed to perfect a lien against the transferred liquor license. As a result, his interest was subordinate to that of the government.

American Way Food Service Corp., BC-DC Mich., 85-1 USTC ¶9296, 48 BR 79.

The IRS had no claim to a client's interest in Oriental rugs that had been delivered into the physical possession of a law firm as security for the client's payment of legal fees.

Fritschler, Pellino, Schrank & Rosen, DC Wis., 89-1 USTC ¶9111, 716 FSupp 1157.

The surety of a performance and maintenance bond was entitled to summary judgment because the principal possessed no right to a city's partial payment to which an IRS lien could attach. Even if the principal possessed an interest or right in the partial payment, the surety's equitable lien to funds owing to the principal upon the surety's performance was superior to the IRS's lien.

Kansas City, Mo., DC Mo., 89-1 USTC ¶9148.

A Delaware corporation's perfected security interest in a Texas corporation's accounts receivables ceased having priority over a federal tax lien filed against the Texas corporation for delinquent employment taxes. The Delaware corporation had only been granted a security interest in the Texas corporation's collateral; it had not purchased all of the corporation's rights to property.

Heller Financial, Inc., DC Tex., 89-1 USTC ¶9368.

Federal tax liens had priority over the inchoate state wage and benefit claims of the lessee's unpaid coal miners. However, the priority between the tax liens and the perfected, choate security interests of the lessor of the mine, acquired by virtue of the lease, depended upon which was first in time.

C.D. Stratton, W.Va., 88-2 USTC ¶9533.

A bank did not hold a security interest in a corporation's bank accounts which primed the IRS's interest because the bank's interest in the accounts could only arise post-deposit. Since a tax lien attaches to all property or rights in property held by a delinquent taxpayer, any deposits made after the IRS files its tax lien notices would be deposited in the bank already impressed with the tax lien.

Texas Commerce Bank-Fort Worth, N.A., CA-5, 90-1 USTC ¶50,155, 896 F2d 152.

In a dispute regarding the priority of competing interests in a debtor's assets, held in escrow, a private creditor's security interest in the debtor's litigation proceeds had priority over a subsequently filed federal tax lien even though the creditor's security interest was not filed in both places required for perfection. The private creditor filed its security interest with the appropriate state officials, but failed to file a notice in the debtor's local county. However, the IRS's investigating agent obtained actual knowledge of the creditor's competing interest long before the IRS filed its tax lien. The private creditor therefore prevailed under Maryland's good faith filing exception.

Security Finance Group, Inc., DC D.C. 90-1 USTC ¶50,086, 706 FSupp 83.

An individual who was a holder of a security interest and a judgment lien creditor before the IRS filed a notice of federal tax lien with respect to interpleaded funds had priority over the IRS with respect to such funds.

N.S. Holcombe, DC Wash., 90-1 USTC ¶50,177.

A private debtor did not have a valid lien ahead of the IRS's lien for taxes owed as to after-acquired accounts receivable which were acquired after the 46th day of the tax lien filing.

Ralls & Associates, Inc., BC-DC Okla., 90-1 USTC ¶50,299, 114 BR 744.

A corporate assignee possessed a valid security interest in the debtor's present and future accounts receivable that was created before a tax lien, even though the assignment of the commercial financing agreement occurred after the tax lien was filed. Such commercial financing agreement was acquired in the ordinary course of business. The assignee did not have notice or knowledge of the tax lien filing and even if it did such knowledge would not defeat its priority status because the disbursements were made before the tax lien filing.

Western Works, Inc., BC-DC Utah, 90-2 USTC ¶50,351.

A federal tax lien had priority over a savings and loan association's prior security interest in the debtor-taxpayer's savings accounts because the security agreement did not prohibit the debtor from making withdrawals. Although the savings and loan association had met state and federal requirements for creation of a security interest when it lent money to the debtor subject to a security agreement that pledged the debtor's savings deposits with the association, it failed to take priority over the later tax lien because the loan was not mature at the time the federal lien attached and because the debtor was free to make withdrawals from the deposits.

R.G. Weninger, DC Colo., 90-2 USTC ¶50,510, 119 BR 238.

A federal tax lien was superior to the security interest of a bank in a debtor's accounts receivable. The bank did not obtain a purchase money security interest in certain accounts receivable when it advanced funds to the debtor that enabled the debtor to complete performance of specified contractual obligations. Therefore, the bank's interest was not entitled to purchase money priority over a tax lien previously filed by the IRS.

First Interstate Bank of Utah, CA-10, 91-2 USTC ¶50,303, 930 F2d 1531.

An IRS tax lien against real estate was subordinated to a previously recorded security interest in the property. Under Michigan law, the security interest was perfected when an Affidavit of Interest was filed with a county register of deeds.

J. Cipriano, DC Mich., 91-1 USTC ¶50,132, 757 FSupp 1484.

An individual who simultaneously released a mortgage interest on residential property and who was assigned an interest in the land contract for the purchase of farm property had given money or money's worth, and, thereby, he obtained a security interest in the farm property. Accordingly, the interest a second individual purchased in the farm property at an IRS-conducted tax sale was subordinate to the first individual's assigned interest in the farm property because the second individual's priority position was the same as the priority of the federal tax lien at the time of sale. At the time of sale, the first individual's interest was prior to the IRS's interest because he held a security interest in the farm property.

J. Cipriano, DC Mich., 91-2 USTC ¶50,338.

Land contract vendors had a valid lien on restaurant property and priority over subsequently recorded IRS tax liens. The vendor's acquisition of a possessory interest following state (Michigan) forfeiture proceedings did not extinguish any interests held, as claimed by the IRS. The vendor's lien did not merge upon the acquisition of the interest in the property, and the IRS's liens remained solely on the vendee's equitable interest, not the vendor's legal title.

F.J. Vereyken, CA-6, 92-2 USTC ¶50,310, 964 F2d 593.

The IRS was granted summary judgment and a guarantor who claimed a security interest superior to the IRS's April 1989 tax lien on the borrower's accounts receivable was precluded from challenging the levy because the nine-month statute of limitations provided by Code Sec. 6532(c)(1) for claiming an interest in property subject to a wrongful levy had expired.

L. Evangelista, DC N.Y., 92-2 USTC ¶50,533.

Under local (Tennessee) law, past consideration acquired in accordance with an installment sale contract was sufficient to allow a bank to enforce a lien against a motor vehicle seized and sold at auction by the IRS. Thus, the court refused to dismiss the bank's wrongful levy action on the grounds that its lien against the vehicle was inchoate. The bank financed two vehicles purchased by the debtor. The installment sale contract for the second vehicle, which was seized by the IRS, contained a dragnet clause, under which the vehicle was collateral security for any debt owed to the bank. At the time the IRS filed its tax lien, the bank, which had repossessed but not sold the first vehicle, remained free to proceed against the second vehicle to satisfy its security interests.

First Peoples Bank of Jefferson County, DC Tenn., 92-2 USTC ¶50,578, 806 FSupp 187.

Federal tax liens filed against a dairy company's property to satisfy the tax debt of the majority shareholders were valid and properly enforced. The IRS's rights to a corporate checking account levied upon were superior to the rights of a bank which held a security interest in the account. The bank did not properly perfect its interest in the property and it failed to establish that it had exercised its right of setoff.

Horton Dairy, Inc., CA-8, 93-1 USTC ¶50,195, 986 F2d 286.

The debtors' tax debt was given priority over purchase money liens to the extent of the IRS's secured claims against each item of the debtors' property as determined by fixing the value of the debtors' property at the time of the filing of the bankruptcy petition and subtracting the value of any higher priority liens.

T.A. Boch, BC-DC Pa., 93-1 USTC ¶50,197, 154 BR 647.

A secured party's claim to funds prevailed over the government's lien under the "first in time, first in right" rule, since the interest, which was assigned to the secured party, was perfected before the IRS filed its notice of tax lien. Although the interest came into existence before the federal lien for taxes arose, such lien may attach to after-acquired property. The assignee's interest in the property was perfected at the time of assignment, even though no financing statement was filed. Under state (Nevada) law, the assignee was not required to file a financing statement because the assignment did not constitute a significant part of the assignor's accounts.

J. Conzola, DC Fla., 93-1 USTC ¶50,308.

The government's tax lien against a corporation's distributive share of the assets of a partnership had priority over another creditor's security interest because the creditor was not a creditor of the partnership. Although the creditor submitted several documents to evidence the partnership's undertaking of debt, no document explicitly referred to the partnership. Accordingly, because the government properly recorded notices of its tax liens against the corporation, the creditor was not allowed to be paid in preference to the government.

Park Towers, Inc., CA-5, 94-1 USTC ¶50,066.

A creditor's properly filed security agreements gave it a perfected security interest in a debtor's oil and gas properties that had priority over the IRS's subsequently filed notice of tax lien, even for oil and gas produced after the tax lien was filed. Under state (Texas) law, the creditor's security agreements created a single continuous and uninterrupted lien that attached to the minerals under the ground and persisted after extraction.

J.M. Hawn, BC-DC Tex., 94-1 USTC ¶50,165, 149 BR 450.

A state (Florida) court's pre-judgment order requiring the deposit of a check in a bank account pending the outcome of a case to determine the ownership of the funds did not create a security interest for the creditors who were the payees of the checks. Instead, a tax lien, which was filed prior to entry of a final judgment, had priority over the creditors' claims. The tax lien also attached before the initiation of an interpleader action by the bank holding the deposited amount to recover attorney fees and costs.

Central Bank of Tampa, DC Fla., 94-1 USTC ¶50,290, 845 FSupp 860. Aff'd, per curiam, CA-11 (unpublished opinion), 95-2 USTC ¶50,558.

An investor, the holder of a security interest in the proceeds of a liquidated limited partnership, perfected that interest before four of five notices of federal tax lien had been properly filed by the government. Accordingly, the investor, who complied with the state's (Pennsylvania) obligatory financing statement requirements, succeeded in collecting all of the proceeds except those attributable to the government's first lien. Although an IRS lien is afforded priority over most liens and claims asserted against a defaulting taxpayer's property, it is ineffective against the holder of a previously perfected security interest. Consideration for the security interest was adequate because the holder provided value in exchange for the interest, and the fact that he stood to reap a profit from the transaction did not eradicate the existence of consideration. Finally, the fact that the holder gave money to the taxpayer's primary creditor to satisfy the taxpayer's debt, rather than directly to the taxpayer, did not invalidate the security interest. There is no requirement that "money or money's worth" be given directly to the party conveying the security interest as long as the payment to the third party is more than circumstantially connected to the arrangement.

Adelvision, L.P., DC Pa., 94-2 USTC ¶50,394, 859 FSupp 797.

A state (Florida) court's prejudgment order requiring the deposit of a check in a bank account pending the outcome of a case to determine the ownership of the funds did not create a security interest for the creditors who were the payees of the check. Instead, a tax lien, which was filed prior to entry of a final judgment, had priority over the creditors' claims. The tax lien also attached before the initiation of an interpleader action by the bank holding the deposited amount to recover attorney fees and costs. The creditors failed to prove that the government waived its right to the deposited funds when it allowed them to relinquish a landlord lien based on the belief that the funds were available to satisfy the debt owed to them. Because there was no genuine issue of material fact to be decided, the government's motion for summary judgment was granted.

Central Bank of Tampa, DC Fla., 94-1 USTC ¶50,290, 845 FSupp 860.

The merger of two banks following a loan made by the successor bank did not retroactively secure the loan to the time that the target bank had made a loan with an "open-end" provision to the same individual. A second loan made by the target bank prior to the merger and which was secured under the open-end provision of its original loan did not qualify as a security interest until the money for the second loan was actually advanced. Therefore, an IRS lien, which was filed prior to the successor bank's loan and the target bank's second loan, had priority.

R.W. Littleton, BC-DC Ga., 95-1 USTC ¶50,145, 177 BR 407.

A bank's properly perfected security interest in an accounting firm's existing and after-acquired contract rights and accounts receivable had priority over an IRS tax lien with respect to funds received after the filing of the lien because the disputed funds were proceeds received by the firm from a client under a pre-existing contract. A contract existed under state (Tennessee) law because there was a meeting of the minds. The agreement did not fail to qualify as a contract merely because it did not specify a duration or a final price. The firm agreed to provide accounting services to the client, and the client agreed to pay a reasonable fee that would be determined at the end of a specified project. Thus, the bank's security interest extended to the disputed funds.

Dorrough, Parks & Co., DC Tenn., 95-2 USTC ¶50,337.

A creditor who asserted that he had a security interest in a debtor's country club membership that was perfected prior to the filing of the IRS's notice of tax lien had no interest in the proceeds from the sale of the debtor's membership. Pursuant to the country club's by-laws, the debtor could not encumber his membership.

New Las Vegas Country Club, DC Nev., 96-1 USTC ¶50,218.

A bank's security interest in real property was choate and, therefore, had priority over later-filed tax liens. The bank had a valid security interest because the interest was appropriately filed and perfected under state (West Virginia) law and the bank parted with money or money's worth in the form of several large loans in obtaining the interest. The property at issue was not the payment of rent due pursuant to a sublease that was executed after the liens were filed. Instead it consisted of the leasehold estate, the rents, and the underlying real property. The sublease did not alter the essential character of the property subject to the security interest.

Bank One, West Virgina, N.A., DC W.Va., 96-1 USTC ¶50,272.

The IRS's claim to the proceeds of a Miller Act bond prevailed over a bank's security interest in a subcontractor's contracts because the IRS's properly filed tax lien on the subcontractor's property for withholding tax delinquencies was first in time. The bond proceeds resulted from a contractor's default on its contract with the subcontractor. Even though prior to extending a line of credit the bank received assurances from the IRS that a levy against the subcontractor's property had been released, the bank was not told that the lien had been lifted, and it neglected to ascertain whether a tax lien had been filed against the subcontractor. Further, the lien attached to the bond proceeds even though the terms of a security agreement placed the funds directly into the bank's possession.

Norse, Inc., DC Guam, 96-1 USTC ¶50,288.

A bank's security interest in a corporate taxpayer's theft insurance proceeds had priority over federal tax liens and other creditors' claims. Although the tax liens arose before the bank filed its financing statement, the bank's statement was filed, and its lien perfected, before the government perfected its lien by filing its tax lien notices. The IRS tax lien had priority over the claims of other creditors, however, since its lien was perfected earlier.

Accurate Filter Products, Inc., DC Mich., 96-1 USTC ¶50,278.

An IRS tax lien had priority on the proceeds of a bankrupt individual's business account receivable because a bank did not have a security interest in the account receivable. The description of the collateral covered by the security agreement did not encompass any accounts except those arising from a disposition of the debtor's equipment or inventory. Moreover, the security interest was not perfected by filing in the appropriate recording office.

B.A. Straight, BAP-10, 97-1 USTC ¶50,374, 207 BR 217.

Acting on a motion for reconsideration filed by the IRS, the District Court reversed its earlier conclusion and ruled that tax liens against an individual's real property for taxes assessed before the property was transferred into a land trust had priority over the land trust's interest in the property. Since the assessments were made prior to the transfer, the tax liens attached to all of the individual's property. Thus, the real property was transferred to the land trust subject to the tax liens. Further, a creditor who executed, with the individual who was the trust's beneficiary, a collateral assignment of beneficial interest in the land trust was not a holder of a security interest in the beneficial interest of the land trust. The creditor who did not loan any additional funds when she executed the collateral assignment did not part with any "money or money's worth" under Code Sec. 6323. Even if the creditor had a security interest, she did not hold a security interest in the res of the land trust. Under state (Illinois) law, a beneficial interest in a land trust is an interest in personal property, not a direct interest in the res of the trust.

V.H. McAnulty, DC Ill., 96-2 USTC ¶50,485, on motion for reconsideration of 96-2 USTC ¶50,484.

The IRS wrongfully levied on funds owed by a school district to a construction company because a bank had perfected a security interest in the funds under state (Arkansas) law before the tax lien was filed. The description of the property in the financing statement that was required to perfect the security interest was sufficient for third parties to inquire further in identifying the property.

The Twin City Bank, DC Ark., 96-2 USTC ¶50,694.

A corporation that was assigned a bank's perfected security interest in a medical entity's equipment and fixtures did not possess a secured interest in a glove-making machine, which the bank agreed in a letter, issued by its president, to exclude from the collateral. Thus, the corporation did not have priority over an IRS tax lien with respect to the machine. Pursuant to a state (Florida) statute, the bank could release collateral by a signed statement, and the release did not have to be filed with the Secretary of State to be effective. Accordingly, the bank had no interest in the machine to assign to the corporation.

Bradley Factor, Inc., DC Fla., 97-1 USTC ¶50,278.

A bank's perfected security interest in a debtor's contract rights was superior to a federal tax lien. The debtor's accounts receivable generated by its shipment of goods in accordance with a contract's minimum requirements were identifiable proceeds of contract rights and, thus, were rights acquired by the debtor on the date it acquired the contract rights. However, rights to be paid for shipments of goods in excess of a contract's minimum requirements were merely accounts receivable, not proceeds of the debtor's pre-existing contract rights. Therefore, those rights were not acquired until the debtor earned payment by performing its services, which occurred after expiration of the 45-day safe-harbor period for disbursements with respect to security interests. Thus, the bank's perfected security interest in those rights was not superior to the tax lien. The issue of whether and to what extent goods were shipped in fulfillment of minimum requirements provisions in the debtor's contracts with other companies was remanded to the trial court for determination.

Bremen Bank and Trust Co., CA-8, 98-1 USTC ¶50,116, aff'g, rev'g and rem'g in part an unreported District Court decision.

A bank's interest in the accounts of a corporate borrower that had defaulted on its loans did not have priority over IRS tax liens against the borrower for delinquent payroll and unemployment taxes; thus, the IRS properly levied against those accounts. Under state (Indiana) law, the bank did not acquire a security interest in the accounts before the IRS filed its notice of tax lien. While the bank had the right to set-off amounts that the borrower owed with the funds in the accounts, it waived that right when it allowed the borrower to make withdrawals from the accounts following its default on the loans. Also, the loan agreements did not give the bank contractual security interests in the accounts. Finally, the bank failed to show that the funds in the accounts represented proceeds of the borrower's accounts receivable over which it could acquire a continuously perfected security interest.

Farmers State Bank of Mentone, Inc., DC Ind., 98-1 USTC ¶50,258.

A federal tax lien was properly granted priority over a creditor's pre-existing security interest in the sale proceeds of a bankrupt corporation's liquor license. Under state (New Jersey) law, the liquor license and the rights granted under it are not subject to creditors' liens. However, tax liens under Code Sec. 6321 attach to any property of the taxpayer, including property, such as liquor licenses, that is subject to state anti-alienation laws. Thus, the IRS had the only valid lien against the license and was entitled to the proceeds from the sale.

Main Street Beverage Corp., DC N.J. (unpublished opinion), 99-1 USTC ¶50,272, 232 BR 303, aff'g an unreported Bankruptcy Court decision.

Federal tax liens filed on condemnation proceeds owed to a delinquent taxpayer by a state (New York) had priority over the claim of a bank's successor-in-interest to the interpleaded funds. The record established that the bank and the taxpayer intended that the assignment be for collateral/security purposes; the parties' agreement did not constitute an outright assignment of the proceeds. As a result, the successor's position was confined to the original assignment and could not be expanded because the bank failed to perfect its security position. Since the successor merely held an unperfected security interest, the government gained priority by filing valid tax liens against the condemnation proceeds.

Talco Contractors, Inc., DC N.Y., 99-1 USTC ¶50,577.

A local solid waste management committee's security interest was superior to federal tax claims with respect to the interpleaded proceeds of a delinquent waste management facility's fire insurance policy. The committee perfected its security interest in a lien that attached to the facility's fixtures under both state (Nebraska) and federal law before the tax lien was filed.

Allied Mutual Insurance Co., DC Neb., 99-1 USTC ¶50,485.

An attorney who was granted a mortgage on his client's home as security for the debt for fees owed with respect to his criminal defense work and his handling of various civil matters for the client and his company held a valid security interest in the property under state (Alabama) law. Since that interest was perfected before the IRS filed tax liens against the client, the mortgage had priority over the liens. The attorney was found to have "parted with money or money's worth." His billing records substantiated a portion of the fees owed to him for legal work performed on behalf of the client and the company; the record established that the parties had agreed to a fixed fee for the attorney's representation in connection with the client's criminal indictment; and the client testified that he considered himself to be personally liable to the attorney for his legal fees.

C.W. Fletcher, Sr., BC-DC Ala., 99-2 USTC ¶50,709.

A bank's security interest in contract payments arising from a delinquent taxpayer's performance of services to a hospital had priority over the IRS's competing tax lien. The contract between the taxpayer and the hospital qualified as a commercial financial security agreement and the agreement between the bank and the taxpayer was a commercial transactions financing agreement. The bank acquired the hospital contract rights within 45 days of filing the tax lien filing. Therefore, contract rights were qualified property covered by the bank's security interest and protected by the safe harbor provision regarding after-acquired property.

Plymouth Savings Bank, CA-1, 99-2 USTC ¶50,807, 187 F3d 203.

A bank with a security interest in a third party's accounts receivable did not have a perfected security interest in the cash proceeds of the accounts that were voluntarily paid to the IRS. Although the bank perfected its security interest in the accounts receivable prior to an IRS notice of lien, it did not perfect its security interest in the proceeds by taking possession. Moreover, the bank did not allege that the third-party's payments to the IRS were from identifiable proceeds of the accounts receivable or that they were fraudulent.

Bank of New Hampshire, DC N.H., 2000-2 USTC ¶50,657.

The IRS was entitled to recover funds subject to tax liens that debtors had transferred to third party creditors. The debtors had transferred cash and assigned rights under annuity contracts to their mortgage holder banks after the IRS perfected the tax liens. That the banks had a perfected security interest in real property secured by a mortgage did not give them priority as to the government with respect to the encumbered funds. Moreover, the creditors were not entitled to the super-priority safe harbor relief under Code Sec. 6323. The banks were not includible in the classes of interest holders addressed by the statute; moreover, even if they were, the banks took the funds from the annuities after notice had been filed.

A.J. Cobb, BC-DC La., 2002-1 USTC ¶50,446.

The government was entitled to the full amount of interpled funds calculated in debtors' bankruptcy proceeding. The federal tax lien was superior to a mortgage. Before reaching the federal inquiry regarding priority, the court determined that the mortgage was a valid property interest under state (Florida) law. However, it was not a security interest that could compete with a federal tax lien. The mortgagee did not have priority over the federal tax lien because it did not meet all four conditions of a security interest as defined by Code Sec. 6323, even though the government failed to properly record the tax lien. Moreover, the bankruptcy trustee was not entiled to attorney's fees and costs because the interpled funds were insufficient to cover the government's tax liens.

A.M. Garcia, DC Fla., 2003-1 USTC ¶50,147.

On the date when the IRS levied on funds owed by a delinquent airline company to a corporate creditor, the creditor had no security interest or lien with respect to those monies that was superior to the IRS's tax lien. By the time the creditor obtained a perfected security interest or a judgment lien, the levy had been consummated and the government had actual possession of the funds in dispute. Thus, the creditor's wrongful levy claim was properly denied.

Air Operation International Corp., CA-11, 2003-1 USTC ¶50,231.

A third party subrogee was not entitled to summary judgment with respect to its claim of priority interest over an IRS tax lien for funds held by its subcontractor. The court rejected the subrogee's argument that its security interest qualified as an obligatory disbursement agreement pursuant to Code Sec. 6323(c)(1)(B). Even though the bonds issued for the contract qualified as security interests, the subrogee failed to show that its security interest was protected under local law.

Merchants Bonding Co., DC Mich., 2003-1 USTC ¶50,499.

A properly filed federal tax lien had priority over a mortgagee's security interest in residential property. Although the mortgage was executed and recorded before the tax lien arose and the mortgagee had not received notice of the lien, mortgage funds were disbursed to the taxpayers after the expiration of the 45-day grace period under Code Sec. 6323(d).

Bank of America, N.A., DC Okla., 2005-1 USTC ¶50,105, 342 FSupp2d 1009.

Two IRS tax liens on a corporate taxpayer's accounts receivable had priority over a security interest held by the taxpayer's bank in the same accounts receivable, even though the bank's security interest predated the IRS's liens. Both the bank's and the IRS's liens predated creation of the accounts receivable. The IRS's liens and the bank's interest immediately attached to the accounts receivable as soon as they came into existence. In that situation, the federal tax lien has priority. Accordingly, the IRS rather than the bank was entitled to the proceeds from the accounts receivable.

Old National Bank, DC Ind., 2005-1 USTC ¶50,331.

An IRS tax lien took priority over an industrial loan corporation's security interest with regard to the cash amount collected by an after-hours medical care provider for services it rendered after the filing of the federal tax lien. Under the Federal Tax Lien Act, the disputed amount was properly classified as proceeds of accounts receivable because it stemmed from services provided after the 45-day safe harbor period that followed the filing of the federal tax lien had passed. The medical care provider's right to payment under the provider contracts it entered into with various insurance companies arose only when identifiable care was rendered to a patient and a specific account receivable was then created.

American Investment Financial, CA-10, 2007-1 USTC ¶50,301.

A bank's choate security interest in a couple's mortgaged real estate had priority over the IRS's federal tax liens on the couple's property. Since the IRS's tax lien was filed after the bank's security interest was perfected, the bank's lien had priority based on the "first in time, first in right" rule.

J.V. Wells, DC Ky., 2007-1 USTC ¶50,425.

The IRS's subsequently re-filed tax lien was subordinate to an individual's security interest. Contrary to the government's argument, the individual did not proceed on the basis that she was the property's purchaser; rather she argued that she was the holder of a security interest. Under Code Sec. 6323, the holder of a security interest is not required to part with full and adequate consideration; only money or money's worth. Since the individual paid at least $100,000 to purchase the contract she parted with "money or money's worth." Therefore, she held a qualified security interest and the IRS's tax lien was subordinate to that interest.

D. Somers, DC Wis., 2008-1 USTC ¶50,304.

Where a federal tax lien and a corporation's security interest were recorded simultaneously against a debtor corporation's property, the federal tax lien took priority as a matter of law and public policy. Although both liens were perfected at the exact same time, the government was an "involuntary creditor" that could not bargain for additional security, and the collection of taxes was essential to the government's functioning. Further, assuming that monies from two settlements were after-acquired property, both the tax lien and the security interest would have attached and became perfected under the state law simultaneously, but the federal tax lien would be rendered first in time. Finally, the corporation's lien did not satisfy the federal choateness doctrine because it was not reduced to judgment and the forty-five day safe harbor provision was not applicable because the corporation did not extend a line of credit.

In re Hulett Corporation, BC-DC Ill., 2008-2 USTC ¶50,537.

A national banking association's choate security interest in a corporation's account receivables had priority over the IRS's federal tax liens on the corporation's property. Since the association's choate interest arose before the IRS filed its first notice of tax lien, the association's interest had priority based on the "first in time, first in right" rule. The association's choate security interest had priority with respect to the corporation's receivables that arose before the 46th day after the IRS filed its tax lien. Consequently, the IRS's levy of the corporation's receivables was wrongful and the association was entitled to repayment of the levied funds.

Harris N.A., DC Ill., 2008-2 USTC ¶50,546.

A bank's property interest in debtors' after-acquired funds was superior to that of the IRS's interest in those funds because the bank was a perfected secured creditor with a valid security interest in the debtor's accounts receivable. Further, the bank's secured interest in the accounts receivable had priority over the subsequently filed tax lien. The IRS did not file its lien until more than three months after the debtors paid the funds to the IRS.

In re B.R. Zwosta, BAP-6, 2008-2 USTC ¶50,637.