No. 95, 355 F.2d 746, 2d Cir. (1966)
No. 95, 355 F.2d 746, 2d Cir. (1966)
No. 95, 355 F.2d 746, 2d Cir. (1966)
2d 746
UNITED STATES of America, Plaintiff-Appellant,
v.
Charles HODES, Bess Berkowitz, Mid-City Park View Apartments, Inc., and
Jefferson County Savings Bank, Defendants-Appellees,
Dale Kaiser, Evalyn Kaiser, 330 East 77th Street Corp., 77 Holding Corporation,
330 East 77th Street Associates, Sterling Investment Corp. and Sea-Ways
Shipping Corporation, Defendants.
No. 95.
Docket 29784.
The United States appeals from an order of the District Court for the Southern
District of New York which denied its motion for summary judgment and
granted summary judgment to Charles Hodes, Bess Berkowitz, Mid-City Park
View Apartments, Inc., and Jefferson County Savings Bank, the appellees. The
question presented is whether federal tax assessment liens are enforceable
against New York County real property which was formerly owned by the
taxpayer, Dale Kaiser. Notice of the liens was filed in the appropriate New
York registry, but the liens have lapsed unless extended by a 1958 federal
judgment against the taxpayer. Appellees are the property's present owner and
two mortgagees; their interests were perfected after the notice of lien was filed
but before the judgment was docketed as required by New York law. The
judgment below is reversed with instructions to enter summary judgment for
the United States.
2
The facts are undisputed. From June 21, 1949 to October 17, 1951, the District
Director of Internal Revenue made federal withholding tax assessments totaling
$5,751.18 against Kaiser. The bulk of these assessments remain unsatisfied. To
protect the government's lien "upon all property and rights to property, whether
real or personal, belonging to" Kaiser,1 the United States filed a Notice of Lien
with the Register of the City of New York in New York County on July 19,
1955.2
In July 1959, after the property had been transferred to a corporation wholly
owned by Kaiser and his wife, appellee Jefferson County Savings Bank
acquired a first mortgage interest. The mortgage was immediately recorded. In
January 1961, after a series of mesne conveyances, appellees Hodes and
Berkowitz acquired a second mortgage interest, which mortgage was also
recorded. On May 1, 1962, the property was conveyed to appellee Mid-City
Park View Apartments, Inc., the present record holder. The government does
not question the bona fides of any of these transactions.
During this period, the District Director had slept at his guns. In August 1959,
an additional waiver agreement was signed with Kaiser extending the period of
collection to December 31, 1961. But no further action was taken until
February 1963 when the government's 1958 judgment was docketed with the
Clerk of New York County.
Under New York law, a federal judgment must be docketed with the office of
Under New York law, a federal judgment must be docketed with the office of
the clerk of a county before it obtains the status of a judgment lien on the
judgment debtor's real property in that county. C.P.L.R. 5018(b). Since
Congress has made this statute applicable in determining the rights of a federal
judgment creditor, 28 U.S.C. 1962, the government's rights to the property in
question arising out of its 1958 judgment are subordinate to those of appellees,
who obtained their respective mortgage interests and title before the judgment
was docketed. See C.P.L.R. 5203(a). Therefore, in December 1964, the
government instituted this action to foreclose against this property its
assessment liens, notice of which had been properly filed in 1955.
Appellees contend that the assessment liens merged into the government's 1958
judgment; since the government is therefore relegated to its rights under the
judgment, its interest is subordinate under New York law to the appellee's
rights. Judge Metzner decided against the government on a narrower ground.
He held that while the judgment, if docketed, would have extended the life of
the liens, the government cannot prevail here because the appellees are entitled
to the same protection against an undocketed judgment as against an
undocketed lien. We disagree.
From these cases and the statutory language, it seems clear that tax assessment
liens, unlike most liens under state law, continue to exist independently of the
suit or judgment which has extended their existence. See Plumb, Federal Tax
Collection and Lien Problems, 13 Tax L.Rev. 247, 250-51 (1958). The
assessment lien does not merge into the judgment, as would an attachment lien,
for example; the judgment is merely one way in which the underlying tax
liability remains enforceable, and therefore the judgment serves merely as a
measuring rod for the life of the lien. Thus, in United States v. Birns, supra, the
11
12
uncover any such liens outstanding as well as any docketed federal judgments.
The Commissioner has statutory authority, which is utilized upon request as a
matter of course, to file a release of lien when the tax liability has been satisfied
or becomes unenforceable as a matter of law. I.R.C. 6325(a) (1). Moreover, a
purchaser who discovers a lien which may or may not have lapsed can always
write the District Director to discover whether the lien has been extended
beyond six years by subsequent waivers or litigation. We are unwilling to place
upon the Commissioner the cumulative administrative burden of docketing all
judgments as well as notices of liens when taxpayers and purchasers are given
adequate warning by the Notice of Lien and when the release of lien, a statutory
creation, provides a simple means for clarifying a cloudy title.
13
In the case at bar, it appears that appellees made no title search whatsoever.
The assessment liens in question arose about 12 years prior to the time when
appellees acquired their interests. This is not a sufficient period to lull a prudent
purchaser into thinking that the liens must have lapsed. Compare United States
v. Birns, supra (11 years).
14
The judgment is reversed and the case remanded with instructions that the
District Court enter summary judgment for the plaintiff United States.
Notes:
1
Internal Revenue Code of 1954 6321 [hereinafter cited as I.R.C.]. The lien
arises at the time the assessment is made and continues "until the liability for
the amount so assessed is satisfied or becomes unenforceable by reason of lapse
of time." I.R.C. 6322
I.R.C. 6323(a) (1) provides that the Notice of Lien shall be filed in the office
designated by the State in which the property is situated; unless notice is filed,
the lien "shall not be valid as against any mortgagee, pledgee, purchaser, or
judgment creditor." For New York City real property, New York requires that a
notice of liens for taxes payable to the United States be filed with the Register
of New York City in the appropriate county. N.Y. Lien Law 240(1)
(McKinney's Consol.Laws, c. 33, 1965 Supp.)
For example, I.R.C. 6331 provides that the Secretary or his delegate may
collect the tax by levy upon all property "belonging" to the taxpayer or "on
which there is a lien." Such summary administrative seizure is a potent
16
During the period from June 13, 1949 to October 17, 1951, the Internal
Revenue Service made assessments against taxpayer Kaiser for unpaid
withholding taxes. On July 19, 1955, the government filed a Notice of Lien,
pursuant to I.R.C. 6323(a) (1). On May 29, 1958, judgment was entered in
favor of the government in its suit to reduce the assessment to judgment. This
judgment was not docketed until February, 1963. The government concedes
that appellees obtained their security interests prior to the docketing of the
judgment. A federal judgment must be docketed before it becomes a lien on a
debtor's real property. New York Civil Practice Law and Rules 5018(b). It is
for this reason that the government now sues not on its judgment but on its
assessment lien.
17
An assessment lien survives only so long as the liability for the tax does not
become "unenforceable by reason of lapse of time." I.R.C. 6322. I.R.C.
6502 (a) determines the period of enforceability and reads:
19
Where the assessment of any tax imposed by this title has been made within the
period of limitation properly applicable thereto, such tax may be collected by
levy or by a proceeding in court, but only if the levy is made or the proceeding
begun
20
21
(2) prior to the expiration of any period for collection agreed upon in writing by
the Secretary or his delegate and the taxpayer before the expiration of such 6year period (or, if there is a release of levy under section 6343 after such such
6-year period, then before such release).
22
The majority does not refer us to any section of the Code under which an
assessment lien is extended because a judgment has been obtained against the
taxpayer. Without a statutory citation, and without any exposition to justify
their step, the majority, reversing the court below, holds that a lien is extended
by a judgment and continues "to exist independently of the suit or judgment
which has extended [its] existence"; "the judgment serves merely as a
measuring rod for the life of the lien." Under this doctrine an assessment lien
may last "forever." See Plumb, Federal Tax Collection and Lien Problems, 13
Tax L. Rev. 247, 250-51 (1958).
23
The cases my brothers cite do not support this novel and potentially harmful
doctrine. In Investment & Securities Co. v. United States, 140 F.2d 894, 896
(9th Cir. 1944), where an action for collection of a 1934 lien was commenced in
1937 and judgment was entered in 1941, the court concluded:
24
25
26
The majority concedes that analogous liens under state law have no
independent existence. At an earlier stage of the case the government implicitly
rejected its present position. In August 1959, after the government had obtained
a judgment which it now claims extends its assessment lien forever, the I. R. S.
found it necessary to secure a waiver agreement from the taxpayer, to extend
the lien until December 31, 1961.
27
Congress, by providing for the recording of tax assessment liens, I.R.C. 6323
(a) (1), intended to "meet the harsh condition created by the holding in United
States v. Snyder, 149 U.S. 210 [13 S.Ct. 846, 37 L.Ed. 705], when federal liens
were few, that a federal tax lien was good against a purchaser for value without
notice." United States v. Gilbert Associates, 345 U.S. 361, 363-364, 73 S.Ct.
701, 703, 97 L.Ed. 1071 (1953). Congress had a similar intention when it
required the docketing of federal judgments according to state law.
28
29
The majority by the present decision not only obviate the need for the
government to docket judgments in tax assessment cases, but affirmatively
encourage the Internal Revenue Service, because an assessment lien is usually
a more convenient tax collection weapon than a judgment, not to docket tax
judgments at all.1
30
Notes:
1