accrue, but the balance due well exceeds the purchase price of the property and therefore the exact amount is not material.
Although the Internal Revenue records temporarily reflected that the assessed balance for the third quarter of 1974 was zero, a certificate of release was not issued.
As stated above, this is primarily an action to enforce the federal tax lien on the proceeds of the sale of the Smallman Street property. Under 26 U.S.C. § 7403, the Court must first determine if the United States has established its claim on the underlying tax liability.
We start with the legal proposition that federal tax assessments are presumptively correct and establish a prima facie case of liability. Helvering v. Taylor, 293 U.S. 507, 55 S. Ct. 287, 79 L. Ed. 623 (1935); United States v. Tinghino, 396 F. Supp. 743 (E.D.N.Y.1975); United States v. Duffy, 378 F. Supp. 22 (M.D.Pa.1974). Waite, Inc. was assessed for third quarter employment taxes on December 2, 1974 and the balance due as of June 30, 1979 was $ 39,745.62. The taxpayer was properly served with the complaint in this action and was given ample opportunity to contradict the assessment, but chose not to do so. The assessment, unimpeached, is therefore sufficient to establish the claim of the United States. See also United States v. Raleigh Restaurant, 398 F. Supp. 496 (E.D.N.Y.1975) (default judgment to the United States if taxpayer fails to appear to contest tax assessment).
Federal law determines the priority of competing liens on property on which there is a federal tax lien or levy. Aquilino v. United States, 363 U.S. 509, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1960). Section 6321 of the Internal Revenue Code, 26 U.S.C. § 6321, provides that upon assessment of a taxpayer for failing to pay any federal taxes owed, a lien in favor of the United States in the amount of the unpaid tax and any interest, penalty and additional tax which accrues immediately attaches to all property and rights to property, real or personal, belonging to such person.
A contest between the federally created tax lien and a competing lien is resolved by the first in time, first in right rule enunciated in United States v. City of New Britain, 347 U.S. 81, 74 S. Ct. 367, 98 L. Ed. 520 (1954). See also United States v. Beaver, 252 F.2d 486 (3rd Cir. 1958). Section 6323 of the Code, 26 U.S.C. § 6323, provides that the federal lien is not valid as against judgment lien creditors until the filing of notice of the lien in accordance with 26 U.S.C. § 6323(f). The state lien is prior in time if it becomes a choate lien against the property prior to the filing of the federal tax lien. See Bank of California v. United States, 520 F.2d 302 (9th Cir. 1975); Atlas, Inc. v. United States, 459 F. Supp. 1000 (D.N.D.1978); United States v. Pennsylvania Department of Highways, 349 F. Supp. 1370 (E.D.Pa.1972). A state created lien is choate if the lienor has obtained judgment on the lien or if the lien is enforceable against the property by summary proceedings. United States v. Equitable Life Assurance Society, 384 U.S. 323, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966); New York Life Insurance Co. v. Central National Bank, 453 F. Supp. 37 (N.D.Ill.1978).
The record indicates that notice of the federal tax lien was filed in Allegheny County on December 10, 1974, in accordance with 26 U.S.C. § 6323.
Pennsylvania's and Atlantic Richfield's liens were not choate as of that date, and thus the federal tax lien is superior to the state liens.
Finally, we must decide whether the federal lien was released. Subsequent to the filing of the federal lien, the Internal Revenue collected tax payments from or on behalf of Waite, Inc., and Waite, Inc. became entitled to a tax credit, all of which were applied to Waite's tax liabilities other than the third quarter of 1974. As we stated earlier, these payments were directed away from the third quarter of 1974 assessment pursuant to an agreement between the attorney for Waite, Inc. and an Internal Revenue Agent. Neither the Commonwealth nor Atlantic Richfield have challenged the propriety of this selective application of payments, and our review of the applicable provisions of the Internal Revenue Code reveals such latitude is afforded the taxpayer and the Internal Revenue Service. See, e.g., 26 U.S.C. § 6402 (the Secretary may credit overpayments against Any tax liability of the person who made the overpayment).
For a period of approximately seven months (August 1976 through March 1977), the Internal Revenue records mistakenly showed that a tax credit had been applied to Waite, Inc.'s third quarter tax liability. (The credit was subsequently applied to different tax liabilities.) However, the mistaken application of a payment or credit on Internal Revenue records to a tax liability secured by a tax lien does not per se release the lien.
Section 6325 of the Internal Revenue Code, 26 U.S.C. § 6325, governs the release of federal tax liens. The Secretary or his delegate must issue a certificate of release of the lien which must be filed in the same office as the notice of lien or in the Clerk's office. 26 U.S.C. § 6325(f) and (g).
The Secretary issues the certificate when he makes a finding that the liability for the amount assessed has been fully satisfied or has become legally unenforceable, or if he accepts a bond conditioned upon payment of the amount assessed. 26 U.S.C. § 6325(a). The lien, however, is not released until the certificate is issued. Should the Secretary, for any reason, refuse to issue the certificate of release, the taxpayer may institute action to force issuance of a certificate. In the interim, the lien stands. Cf. Brunwasser v. Jacob, 453 F. Supp. 567 (W.D.Pa.1978); Roberts v. United States, 436 F. Supp. 560 (E.D.Tex.1977); Kurio v. United States, 281 F. Supp. 252 (S.D.Tex.1968).
Here, there was no finding by the Secretary that Waite, Inc.'s liability for the 1974 third quarter employment taxes was satisfied or legally unenforceable, and no certificate of release was issued by the Secretary. Thus, the lien was not released and continues to date.
We conclude that the federal tax lien on the Smallman Street property (properly filed on December 10, 1974) was superior to the claims of other lien creditors, the Commonwealth of Pennsylvania and Atlantic Richfield Company. In view of the fact that the Government's lien is for an amount in excess of the selling price of the property, we need not make further findings on priorities.
The foregoing shall constitute the Court's findings of fact and conclusions of law as required by F.R.Civ.P. 52. An appropriate order shall be entered distributing the proceeds from the sale of the property to the United States.