If a debtor has no “ascertainable” residence, the Internal Revenue Service cannot obtain a valid and enforceable tax lien on a debtor’s personal property, according to Bankruptcy Judge M. Ruthie Hagan of Memphis, Tenn.
In her June 17 opinion, Judge Hagan explained how there’s a gap in the federal tax lien statute that Congress has yet to close.
For the years in which she had unpaid federal taxes, the debtor moved from pillar to post. Having no fixed residence, she listed her mother’s home address on her W2 and on her income tax returns.
According to Judge Hagan, a tax lien arose in favor of the IRS in June 2016, the date of assessment. Two years later, the IRS filed a notice of tax lien in the county where the debtor’s mother lived. After another two years had passed, the debtor filed a chapter 13 petition. By that time, the debtor had settled down, but she was not living in the county where the IRS had filed the notice of lien.
The IRS filed a proof of claim for some $5,000, claiming that the debt was secured by a lien on the debtor’s personal property. The debtor objected to the secured status of the claim and won.
From the interplay of the IRS Code and Tennessee law, a federal tax lien attaches to personal property when filed in the county where the debtor resides. To decide whether the notice of the filing of the lien was “effective” and “attached” to the debtor’s personal property, Judge Hagan said she was required “to make a factual finding as to whether [the debtor] resided in [the county where her mother lived], where the lien was recorded.”
Citing the Second Circuit in Corwin Consultants, Inc. v. Interpublic Group of Cos., Inc., 512 F.2d 605 (2d Cir. 1975), Judge Hagan said that the residence of a delinquent taxpayer is a question of fact turning on several criteria, such as physical presence as an inhabitant as opposed to a mere transient, the permanence of the residence and the existence of other residences.
Corwin went on to say that when a taxpayer does not have an “ascertainable residence, the Government can never properly file its notice of tax lien.” Id. at 611. Sending a message that evidently was not received, the Second Circuit ended its opinion by saying, “We hope that Congress will see fit to eliminate the possibility of such a result in the future.” Id.
The IRS contended that the debtor’s residence should be the address that she held out to be her residence. However, Judge Hagan found “no binding legal support that the IRS was entitled to use the address [that the debtor] held out as her home address as the place [in which the debtor] resided when it was not in fact the address where she physically resided.”
Finding facts, Judge Hagan said that the debtor never “physically resided” in the county where the IRS filed the notice of lien. Her residence was elsewhere at the time of filing.
Although a federal tax lien was created in favor of the IRS upon assessment, Judge Hagan held that “under federal and Tennessee law, the lien does not attach to personal property and gain secured status until it is properly filed in the office of the register of deeds of the county where the taxpayer resides.” The facts, she said, did not support a finding that the notice of lien was properly filed.
Although the federal tax lien had arisen, Judge Hagan held that it had not attached, meaning that the claim was not secured but instead was a general unsecured claim. She sustained the debtor’s objection to the secured status of the claim.
If a debtor has no “ascertainable” residence, the Internal Revenue Service cannot obtain a valid and enforceable tax lien on a debtor’s personal property, according to Bankruptcy Judge M. Ruthie Hagan of Memphis, Tenn.
In her June 17 opinion, Judge Hagan explained how there’s a gap in the federal tax lien statute that Congress has yet to close.
For the years in which she had unpaid federal taxes, the debtor moved from pillar to post. Having no fixed residence, she listed her mother’s home address on her W2 and on her income tax returns.
According to Judge Hagan, a tax lien arose in favor of the IRS in June 2016, the date of assessment. Two years later, the IRS filed a notice of tax lien in the county where the debtor’s mother lived. After another two years had passed, the debtor filed a chapter 13 petition. By that time, the debtor had settled down, but she was not living in the county where the IRS had filed the notice of lien.