United States By and Through Internal Revenue Service v. McDermott

PETITIONER:United States By and Through Internal Revenue Service
RESPONDENT:Mcdermott et al.
LOCATION:Superior Court of the District of Columbia

DOCKET NO.: 91-1229
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 507 US 448 (1993)
ARGUED: Dec 07, 1992
DECIDED: Mar 24, 1993

James A. Feldman – on behalf of the Petitioner
T. Richard Davis – on behalf of the Respondents

Facts of the case


Media for United States By and Through Internal Revenue Service v. McDermott

Audio Transcription for Oral Argument – December 07, 1992 in United States By and Through Internal Revenue Service v. McDermott

Audio Transcription for Opinion Announcement – March 24, 1993 in United States By and Through Internal Revenue Service v. McDermott

William H. Rehnquist:

The opinion of the Court of No. 91-1229, United States against McDermott will be announced by Justice Scalia.

Antonin Scalia:

The case is here on writ of certiorari to the Tenth Circuit.

The dispute involves competing priorities of a federal tax lien and a private creditor’s judgment lien.

The United States assessed respondents Mr. and Mrs. McDermott for unpaid federal income taxes for the years 1977 through 1981.

That assessment automatically created a lien in favor of the United States upon all of the McDermotts’ property, both existing and to be acquired in the future.

Under 25 U.S.C. Section 6323(a) however, this federal tax lien could “not be valid as against any judgment lien creditor until notice thereof has been filed”.

Before the United States filed the lien with the Salt Lake County Clerk, a bank the other competing lienor here, docketed a State Court judgment it had won against the McDermotts.

Thereby, creating a state law judgment lien on all of the Mcdermotts’ existing and after acquired real property in the County.

Thereafter, the United States filed its lien and later still the McDermotts acquired the property that is the subject of this action.

It is an interpleader action, that is to say, a suit by the McDermotts against both the bank and the United States asking the court to decide which of the two has superior security rights in the property.

The District Court awarded priority to the bank’s lien with the bank lien and the Tenth Circuit affirmed.

In an opinion filed with the Clerk today, we reverse and remand for further proceedings.

Priority for purposes of the federal law governing tax liens is determined by the common law principle that the first in time is the first in right.

A state created lien that compete with a federal lien, however, is deemed to be in existence for first in time purposes only when it has been perfected in the sense that, the identity of the lien or the property subject to the lien and the amount of lien are all established.

The bank argued that its judgment lien was perfected as to all real property then and hereafter acquired by the McDermotts as of the date that the bank docketed its judgment lien.

We reject that notion.

As indicated in our earlier cases and as we think common usage prescribes, a lien is not perfected until it has actually attached to identifiable property.

The bank’s lien did not become perfected with respect to the property at issue here in other words until McDermotts acquired that property.

Since, that occurred after filing of the federal tax lien, the bank’s lien was not first in time.

Though, the bank’s lien was not first in time, the federal tax lien was not necessarily first in time either.

It could have been a tie, it also, was a lien in covering after acquired property and it also attached and became perfected when the McDermotts acquired the property.

We think , however, that under the language and Section 6323(a), the filing of the notice renders the federal tax lien extant for first in time purposes regardless of whether it has yet attached to identifiable property.

That reading is confirmed by the Provision, two subsections later and Section 6323(c)(1) which, for reasons too tedious to describe, reflects the assumption at the tax lien once filed will prevail regardless it when it attaches.

Justice Thomas has filed a dissenting opinion in which Justice Stevens and Justice O’Connor join.