United States v. Estate of Donnelly

PETITIONER: United States
RESPONDENT: Estate of Donnelly
LOCATION: Gwinnett County Courthouse

DOCKET NO.: 104
DECIDED BY: Burger Court (1969-1970)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 397 US 286 (1970)
ARGUED: Jan 12, 1970
DECIDED: Mar 23, 1970

Facts of the case

Question

Media for United States v. Estate of Donnelly

Audio Transcription for Oral Argument - January 12, 1970 in United States v. Estate of Donnelly

Warren E. Burger:

I think we are on 104, United States against Donnelly.

Mr. Zinn, you may proceed whenever you're ready.

Matthew J. Zinn:

Mr. Chief Justice, may it please the Court.

This is a federal tax lien case here on a writ of certiorari to the United States Court of Appeals for the Sixth Circuit.

It involves the question whether a federal tax lien with respect to a parcel of improved real property, located in Livingston County, Michigan is prior to the interest in that property of subsequent purchases of the property.

The United States acquired its lien in 1950, when it secured a tax court judgment against Thomas Donnelly for some $26,000.00.

When that judgment went unpaid, United States acquired a lien under Section 3670 of the Internal Revenue Code of 1939, which appears at page 17 of our brief in the appendix and the lien arose in favor of the United States ?upon all property and rights to property whether real or personal belonging to such person.

In 1945 in this Court's decision in the Glass City Bank case, it was held that the lien of the United States under Section 3670 applies not only to a taxpayer's present property, but also to any after acquired property.

To ensure that its lien would be prior to the interest of subsequent purchases and others however, the United States must give due notice of the lien by filing a notice of the lien in accordance with the provisions of Section 3672 of the Internal Revenue Code, which also appear beginning on page 17 of our brief.

Section 3672 provides that ?such lien shall not be valid as against any mortgagee, pledgee, purchaser or judgment creditor until notice thereof has been filed by the collector; one, in the office in which the filing of such notice is authorized by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law authorized the filing of such notice in an office within the State or Territory; Or Two, in the office of the Clerk of the United States District Court for the judicial district in which the property is subject to the lien is situated whenever the State or Territory has not by law authorized the filing of such notice in an office within the State or Territory.

? In short, the question whether the United States is to file locally under Subdivision 1 of Section 3672 A or Subdivision 2 thereof, turns on whether the local law authorizes local filing.

The Michigan statute which purported to authorize local filing here appears on page 18 of our brief, and with respect to real property, it provides in the pre penultimate line on page 18 that a description of the land upon which a lien is claimed is to be included in the notice of the lien.

The consistent practice of the United States, however, is not to describe any property in a notice of lien but simply to file what is commonly referred to as a blanket notice of lien which merely re-echoes the provisions of Section 3670, names the taxpayer and specifies the amount of his indebtedness to the United States.

In United States against Union Central Life Insurance Company, decided by this Court in 1961, it was held that the Michigan law because of its description requirement did not authorize local filing and that the United States in that case had properly filed its notice of lien in the Federal District Court.

Quoting from the opinion of Mr. Justice Black, 368 U.S. at 296, the Michigan law authorizing filing only if a description of the property was placed, was given, placed obstacles to the enforcement of federal tax liens that Congress had not permitted and consequently no state officer was quote ?authorized? for filing within the meaning of the federal statute.

It was therefore error for the Michigan courts to fail to give priority to the Government's lien here, notice of which had been filed in the District Court in accordance with federal law.

As in the Union Central case, the United States here filed its tax lien in the Eastern District Court for Michigan rather than would be local office of the recorder of deeds for Livingston County and the question is whether its filing was proper under Section 3672 of the 1939 Code.

The taxpayer, Thomas Donnelly, acquired the property in question here in 1949 by purchase with his wife as tenants by the entireties and it was held by the entireties until 1960 when Mrs. Donnelly died and by operation of law, Mr. Donnelly became a sole owner.

Shortly after Mrs. Donnelly's death, Mr. Donnelly sold the property to Mr. and Mrs. Carlson, who are the real parties in interest here.

The Carlsons where bona fide purchasers of the property, admittedly.

They had an abstract prepared by the Livingston County Abstract Office which covered only the local filings in Livingston County, Michigan, and with specifically accepted covering any filings that were made in the federal district court for the Eastern District of Michigan.

The Attorneys, who passed upon the marketability of the title for the Carlsons, relied upon the abstract that had been prepared by the Livingston County Abstract Office and accordingly, they did not find notice of the federal tax lien that had been filed in the District Court.

After the Carlsons purchased the property in 1960, the United States move to foreclose its tax lien, and the Carlsons objected.

They move for summary judgment in the District Court and summary judgment in their favor was granted.

The Sixth Circuit affirmed on appeal without opinion.

Is this a -- rather the unique situation is involved the States or just the -- elsewhere in the country to --

Matthew J. Zinn:

So far as description requirement, Your Honor?

No, so far as the position the Governments in this case [Inaudible] spoiled to that matter --

Matthew J. Zinn:

We don't think it is.

There are several hundreds of cases in Michigan alone which we think that the decision here would control and in addition as we pointed out in our brief, there are some 40,000 tax liens that might be cast in jeopardy in four other states, Illinois, Pennsylvania, Wisconsin, and Massachusetts if the Court were to affirmed the judgment below.