United States Court of Appeals Second Circuit.
UNITED STATES of America, Plaintiff-Appellant,
v.
Charles HODES, Bess Berkowitz, Mid-City Park View Apartments, Inc.,
andJefferson County Savings Bank, Defendants-Appellees, Dale Kaiser,
EvalynKaiser, 330 East 77th Street Corp., 77 Holding Corporation, 330 East
77thStreet Associates,Sterling Investment Corp. and Sea-Ways Shipping
Corporation, Defendants.
No. 95, Docket 29784.
Argued Oct. 8, 1965.
Decided Feb. 8, 1966.
Proceeding by United States government to enforce federal tax assessment liens.
Both parties moved for summary judgment. The United States District Court for
the Southern District of New York, Charles M. Metzner, J., granted summary
judgment to defendant owner and mortgagees of property against which government
asserted liens and government appealed. The Court of Appeals, Lumbard, Chief
Judge, held that where government's withholding tax assessment lien was filed in
New York county in 1955, debtor in 1957 purchased realty located in New York
County and in 1958 government obtained judgment in its suit to reduce
assessments to judgment, even though government failed to docket its judgment
until 1963, after defendants had obtained their respective mortgage interests
and title to that property, government in 1964 was entitled to foreclose liens.
Reversed and case remanded with instructions that District Court enter summary
judgment for United States.
Hays, Circuit Judge, dissented.
West Headnotes
[1] Judgment 766.1
228k766.1 Most Cited Cases
(Formerly 228k766)
Under New York law, federal judgment must be docketed with office of clerk of
county before it obtains status of judgment lien on judgment debtor's real
property in that county. CPLR § 5018(b).
[2] Judgment 766.1
228k766.1 Most Cited Cases
(Formerly 228k766)
New York statute requiring docketing of federal judgment with office of clerk of
county before it obtains status of judgment lien on judgment debtor's real
property in county is applicable in determining rights of federal judgment
creditor. CPLR § 5018(b); 28 U.S.C.A. § 1962.
[3] Judgment 785(1)
228k785(1) Most Cited Cases
Where United States government's 1958 judgment was docketed in New York in
February 1963, government's rights to property arising out of a judgment were
subordinate to those who obtained their respective mortgage interests and title
after judgment and before it was docketed. CPLR § 5018(b).
[4] Internal Revenue 4792
220k4792 Most Cited Cases
(Formerly 220k1720)
Under Internal Revenue Code, assessment lien once valid survives so long as
liability for tax is enforceable. 26 U.S.C.A. (I.R.C.1954) § § 6322, 6323(a)
(1).
[5] Internal Revenue 4793
220k4793 Most Cited Cases
(Formerly 220k1720)
Tax collection waiver agreement or institution of suit to enforce assessment
lien or tax liability extends life of assessment lien beyond normal six-year
period. 26 U.S.C.A. (I.R.C.1954) § § 6322, 6502(a).
[6] Internal Revenue 4793
220k4793 Most Cited Cases
(Formerly 220k1720)
Under Internal Revenue Law, tax assessment liens continue to exist independently
of suit or judgment which has extended their existence. 26 U.S.C.A.
(I.R.C.1954) § § 6322, 6502(a).
[7] Internal Revenue 4793
220k4793 Most Cited Cases
(Formerly 220k1720, 220k1785)
Under Internal Revenue Code, assessment lien does not merge into judgment which
is merely one way in which underlying tax liability remains enforceable and
therefore judgment serves merely as measuring rod of lien. 26 U.S.C.A.
(I.R.C.1954) § § 6322, 6502(a).
[8] Attachment 184
44k184 Most Cited Cases
Attachment of lien merges into judgment.
[9] Internal Revenue 4766
220k4766 Most Cited Cases
(Formerly 220k1712)
Purpose of section of Internal Revenue Code requiring filing of notice of lien
was to meet harsh effect of cases holding that secret tax lien was good against
subsequent bona fide purchaser. 26 U.S.C.A. (I.R.C.1954) § 6323(a), (1).
[10] Internal Revenue 4766
220k4766 Most Cited Cases
(Formerly 220k1712)
Statute requiring docketing of federal judgment according to state law merely
conforms with congressional policy that execution of federal judgment shall be
done according to state law, but was not intended to disturb statutory scheme
for effective collection of taxes. 28 U.S.C.A. § 1962.
[11] Internal Revenue 4792
220k4792 Most Cited Cases
(Formerly 220k1719.11)
Where government's withholding tax assessment lien was filed in New York county
in 1955, debtor in 1957 purchased realty located in New York county and in 1958
government obtained judgment in its suit to reduce assessments to judgment, even
though government failed to docket its judgment until 1963, after defendants had
obtained their respective mortgage interests and title to that property,
government in 1964 was entitled to foreclose liens. 26 U.S.C.A. (I.R.C.1954) §
§ 6322, 6323(a) (1), 6325(a) (1), 6331, 7403(a).
*747 Dawnald R. Henderson, Asst. U.S. Atty., New York City (Robert M.
Morgenthau, U.S. Atty., for Southern Dist. of New York, and Arthur S. Olick,
Asst. U.S. Atty., New York City, on the brief), for plaintiff-appellant.
Martin Schlesinger, New York City, for appellee Mid-City Park View Apartments,
Inc.
Samuel Kirschenbaum, Dreyer & Traub, Brooklyn, N.Y., for appellees Charles
Hodes, Bess Berkwitz and Jefferson County Savings Bank.
Before LUMBARD, Chief Judge, and WATERMAN and HAYS, Circuit Judges.
LUMBARD, Chief Judge.
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.
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, [FN1] 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. [FN2]
FN1. 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.
FN2. 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.).
*748 In November 1957, Kaiser purchased the realty in question, which is
located in New York County. In February 1958, the government brought suit in
the District Court for the Southern District of New York to reduce the aforesaid
assessments to judgment; this suit was timely because Kaiser had signed a series
of tax collection waiver agreements in 1956 and 1957 extending the period in
which the assessments could be collected until December 31, 1959. I.R.C. §
6502(a). In May 1958, judgment was entered for the government in the amount of
$8,642.25 (including interest), of which $8,511.90 remains unsatisfied.
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.
[1][2][3] 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.
[4][5] There is no specific time limitation on the life of an assessment lien;
under I.R.C. § 6322, [FN3] the lien, once valid, survives so long as the
underlying liability for the tax is enforceable. Under I.R.C. § 6502(a), the
tax assessed may be collected by levy or by a proceeding in court which is begun
within six years of the assessment or prior to the expiration of a timely tax
collection waiver agreement. This being so, a tax collection waiver agreement
or the institution of a suit to enforce the lien of the tax liability extends
the life of an assessment lien beyond the normal six-year period. See United
States v. Ettelson, 159 F.2d 193 (7 Cir. 1947); United States v. Herman, 186
F.Supp. 98 (S.D.N.Y.1960); United States v. Diamond, 142 F.Supp. 441
(S.D.N.Y.1956). And a number of courts have held that the lien is also extended
by a judgment against the taxpayer. *749 See Investment & Sec. Co. v. United
States, 140 F.2d 894 (9 Cir. 1944); United States v. Birns, 223 F.Supp. 94
(N.D.Ohio 1963); United States v. Saslavsky, 160 F.Supp. 883 (S.D.N.Y.1957).
FN3. See note 1 supra.
[6][7][8][9] 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 government had obtained a judgment and had docketed it as
required under Ohio law. However, under Ohio law even a prior docketed judgment
could not have gained priority over the particular mortgagee in question.
Nevertheless, the court held that the government's assessment lien retained
independent force when extended by the judgment; since the priority of an
assessment lien is a matter of federal law, see United States v. Acri, 348 U.S.
211, 75 S.Ct. 239, 99 L.Ed. 264 (1954), the government prevailed.
[10][11] Although permitting the government to foreclose its assessment liens
against this property may lessen the Commissioner's incentive to docket federal
judgments as required by 28 U.S.C. § 1962, we think that our decision is
consistent with the intent of Congress. The purpose behind I.R.C. §
6323(a)(1), which requires the filing of a Notice of Lien, was to meet the harsh
effect of cases holding that a secret tax lien was good against a subsequent
bona fide purchaser. Compare United States v. Snyder, 149 U.S. 210, 13 S.Ct.
846, 37 L.Ed. 705 (1893). On the other hand, 28 U.S.C. § 1962, which requires
the docketing of a federal judgment according to state law, merely conforms with
the congressional policy that the execution of federal judgments shall be done
according to state law. See Fed.R.Civ.Proc. 69(a). There is no indication that
Congress intended through Section 1962 to disturb its statutory scheme for the
effective collection of taxes, a scheme which on its face gives no indication
that an assessment lien is to merge into the judgment obtained in a suit to
collect the underlying assessment. [FN4]
FN4. 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
alternative to the Commissioner's power to authorize suits to foreclose a tax
lien or collect an assessment, I.R.C. § 7403(a). Retaining the power to
collect by levy may be one reason why 'the Government also sometimes brings
collection suits, not for the purpose of reaching any particular property, but
simply to extend the duration of the tax lien by reducing the claim to
judgment.' Plumb, supra p. 749, at p. 280. No reasons have been advanced why
this policy is undesirable or why the life of assessment liens should be
curtailed.
In arriving at this interpretation of these statutes, we are not unmindful of
the equities involved. The dissenting opinion of Judge Hays implies that our
decision may create a trap for the unwary if a long-outstanding assessment lien
is extended on the basis of an undocketed federal judgment. We disagree. We
believe that the circumstances which flow from our result are not inequitable.
In the first place, a contrary decision requiring the government to docket its
judgment would not significantly ease the burdens on a title searcher. There is
no requirement that a notice of tax collection waiver agreement or of the
institution of an action to collect the assessment be filed. Therefore, one who
discovers an assessment lien more than six years old cannot assume it has lapsed
if no judgment has been docketed. In this case, for instance, the unfiled
waiver agreements admittedly extended the period *750 of collection, and hence
the liens, four-to-six years beyond the normal six-year period.
More important, there is no question in this case of a purchaser receiving no
notice of the government's possible rights. The Notice of Lien is filed
alphabetically according to the taxpayer's name with the appropriate county
official, cf. United States v. Herman, supra, and a proper title search will
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.
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).
The judgment is reversed and the case remanded with instructions that the
District Court enter summary judgment for the plaintiff United States.
HAYS, Circuit Judge (dissenting).
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.
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:
Collection after assessment
(a) Length of period.-- 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-- (1) within 6 years after the assessment of the
tax, or (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 6-year period (or, if there is a release of levy under section 6343
after such such 6-year period, then before such release).
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'; *751 '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).
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:
'There is no federal statutory provision as to a period of limitations on this
judgment; it follows that in the absence of such a limitation a tax can be
collected at any time; therefore, the liability of the tax now merged in the
judgment has not become unenforcible by reason of lapse of time.'
There is no hint in Investment & Securities that an assessment lien exists
independently of a judgment. See Hector v. United States, 255 F.2d 84 (5th Cir.
1958). In United States v. Birns, 223 F.Supp. 94 (N.D.Ohio 1963) the government
claimed under a writ of execution derived from a 'judgment recorded in
compliance with § 317.09, Ohio Revised Code' and not on an independent
assessment lien. In United States v. Saslavsky, 160 F.Supp. 883 (S.D.N.Y.1957),
the government sued on its judgment. The majority cites no other case to
substantiate its 'independent assessment lien' theory.
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.
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.
'(The) effect ascribed to judgments in United States courts led to some
hardship through the loss of their lands by citizens unaware of the fact of the
existence of liens from such judgments, not of record in the county where the
land was situated, and this, with kindred considerations, led Congress to pass
(an Act on which 28 U.S.C. § 1962 is based, requiring the docketing of federal
judgments according to state laws).' Lineker v. Dillon, 275 F. 460, 472-473
(N.D.Cal.1921).
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. [FN1]
FN1. It is astonishing that in spite of this the majority should conclude that:
'Although permitting the government to foreclose its assessment liens against
this property may lessen the Commissioner's incentive to docket federal
judgments as required by 28 U.S.C. § 1962, we think that our decision in
consistent with the intent of Congress.'
Assessment liens 'created by unilateral action of a government office whose
records are closed to public scrutiny * * * may be dangerously secret to the
taxpayer's existing and future creditors.' 63 Colum.L.Rev. 1259, 1272 (1963).
Such a lien seems too powerful a collection weapon to be extended forever by
means of an undocketed judgment.
355 F.2d 746, 17 A.F.T.R.2d 343, 66-1 USTC P 9232
END OF DOCUMENT