§ 3713 applied, the United States is still entitled to priority in disposition of the estate's assets.
C. Helen Young Gallagher
The federal government has also moved for summary judgment against Helen Young Gallagher. As noted above, Gallagher shared ownership of the Farm Tract and Development Tract with Mr. Young as tenant in common. After Young's death and the ensuing will contest, she transferred her one-half interest in the Development Tract to the executrix in exchange for undivided ownership of most of the Farm Tract plus other consideration. Now confronted with the government's assertion of a lien under sections 6321 and 6324 of the Internal Revenue Code, Gallagher argues that she is a "purchaser" with respect to her acquired one-half interest in the Farm Tract, and that the government therefore has no lien superior to her interest in that land. I conclude, however, that, even assuming that Gallagher qualifies as a purchaser, the government's special estate tax lien takes precedence over her claim to the estate's original one-half interest in the Farm Tract.
At the outset, it should be made clear that the government is not entitled to, nor does it appear to assert, a lien against Mrs. Gallagher's original one-half interest as tenant in common with the decedent in the Farm Tract. Although § 6324(a)(2) of the Code imposes personal liability for unpaid estate taxes on the "surviving tenant" of a joint interest in property, the Code limits the surviving tenant's potential liability to the value of property received by, or in the possession of, the surviving tenant, which is included in the decedent's gross estate under sections 2034 to 2042 (non-probate property).
Among these provisions, only § 2040 arguably had bearing upon the estate's tax liability. As it read when the decedent's estate tax return was filed, § 2040 required inclusion in the decedent's gross estate of "the value of all property to the extent of the interest therein held as joint tenants by the decedent and any other person. . . ."
The regulations promulgated under § 2040 made clear, however, that "the section has no application to property held by the decedent and any other person (or persons) as tenants in common." 26 C.F.R. § 20.2040-1(b) (1976). The decedent's one-half interest in the Farm Tract was properly included in the estate's return as probate property under § 2033. Thus, § 6324(a)(2) does not render Gallagher liable for nonpayment of the estate's tax, nor does it create a lien in favor of the government against her original one-half interest in the Farm Tract.
The one-half interest allegedly purchased by Mrs. Gallagher from the estate, however, stands on different footing. Under § 6324, the "lien against property in an estate attaches upon the death of a decedent without the filing of a notice of lien and continues for ten years." Chevron, U.S.A., Inc. v. United States, 705 F.2d 1487, 1490 (9th Cir. 1983). See Detroit Bank v. United States, 317 U.S. 329, 87 L. Ed. 304, 63 S. Ct. 297 (1943). The interest of the estate acquired by Mrs. Gallagher was thus impressed with the government's lien at the time of Mr. Young's death. The remaining question, then, is whether the government's lien takes precedence over Mrs. Gallagher's claim to her acquired interest in the Farm Tract.
In support of her attempt to avoid the government's asserted lien, Gallagher contends that she is neither a beneficiary nor a transferee of the estate, but that she is a purchaser with respect to the estate's interest in the Farm Tract. Assuming, however, that Gallagher is justified in her assertion of purchaser status, I conclude that her acquired interest in the Farm Tract is superseded by the government's lien. Under § 6324, the special estate tax lien statute, a federal lien attached to the estate's property at the time of Mr. Young's death. That lien, moreover, may be enforced against subsequent transferees of the property. Detroit Bank, supra. For "unless a federal statute requires a government tax lien to be recorded, the unrecorded lien may be enforced against subsequent transferees . . . [and section] 6324 makes no provision for recording the special estate tax lien nor does it condition the lien's enforceability against the transferees upon recording." United States v. Vohland, 675 F.2d 1071, 1074 (9th Cir. 1982) (citations omitted).
Gallagher's argument that her alleged purchase of the estate's interest in the Farm Tract divested her acquired interest of the lien is simply inaccurate. Under § 6324(a)(2), transfer to a purchaser divests the estate tax lien with respect to " property included in the gross estate under sections 2034 to 2042 " (i.e., non-probate property) 26 U.S.C. § 6324(a)(2) (emphasis added).
The decedent's interest in the Farm Tract, however, was included in his gross estate as property within the probate estate under § 2033.23 Gallagher fares no better under the protections afforded purchasers by § 6324(a)(3); under that provision, property included in the gross estate is divested of the estate tax lien when transferred to a purchaser after the estate's executrix has been discharged from personal liability pursuant to § 2204 of the Code.
See United States v. Vohland, 675 F.2d at 1075. See also Rev. Rul. 69-23, 1969-1 C.B. 302. But there is no suggestion in the record that the executrix of Mr. Young's estate ever sought or received such a discharge. Therefore, even assuming that Gallagher was a purchaser of the estate's interest in the Farm Tract, she took that property subject to the government's superior lien under § 6324.
This analysis is in accord with the Ninth Circuit Court of Appeals' treatment of this issue in United States v. Vohland, supra. In that case, the taxpayers purchased property without notice of the government's special estate tax lien under § 6324. The district court granted the government's motion for summary judgment, enforced the lien, and ordered a foreclosure sale of the subject property. On appeal, the Ninth Circuit confronted the question "whether the Internal Revenue Code requires a special estate tax lien to be recorded in order for it to be enforceable against property subsequently purchased for full consideration by persons who had no notice of the lien. . . ." 675 F.2d at 1073.
The court of appeals affirmed the district court's order, ruling that the taxpayers, even as purchasers, had no defense to the government's lien. The court summarized the protections offered purchasers against the lien, distinguishing between property included in the gross estate pursuant to § 2033 (probate property) and property included in the estate pursuant to §§ 2034 to 2042 (non-probate property). The court's analysis, and result, apply squarely to the facts of the instant case:
The statute provides purchasers considerable, though not complete protection. Upon transfer of non-probate property
to a purchaser, the property is divested of the lien, so that a purchaser of such property is fully protected. I.R.C. § 6324(a)(2). Property that was part of the "probate" estate, i.e., I.R.C. § 2033 property, is divested of the lien when it is transferred to a subsequent purchaser, but only if the estate's executor has been discharged from personal liability pursuant to I.R.C. § 2204. I.R.C. § 6324(a)(3). Appellants' property was probate property, but appellants concede that the executor was never discharged under § 2204. None of the provisions of § 6324 therefore protect appellants, and the lien created by the statute survived the transfer of the property to them.
675 F.2d at 1074-1075 (some footnotes omitted).
Finally, I note that a revenue ruling published in 1969 supports my conclusion. Rev. Rul. 69-23, 1969-1 C.B. 302. There it was ruled that, although a purchaser might be protected against an unfiled general federal tax lien under § 6321 of the Code, a purchaser who obtains probate property of a decedent's estate "is not protected against the Federal estate tax lien . . . except as . . . specifically provided in section 6324 of the Code." The revenue ruling also pointed out that the government's special estate tax lien under § 6324 operates independently of the general lien arising from unpaid taxes which is imposed by § 6321. Thus, in the case at bar, even if the federal lien under § 6321 were inferior to Gallagher's acquired interest in the Farm Tract, the special lien under § 6324 provides the government a superior claim.
As noted above, the government seeks in this action to foreclose its lien by sale of the real property now subject to the lien. It is clear that, under 26 U.S.C. § 7403,
the government is entitled to foreclose by sale against the real property now in the possession of Hanna Ruggiero. It is likewise apparent that the Farm Tract is subject to foreclosure sale, despite Helen Gallagher's nonliable one-half interest in that tract. Although the Supreme Court has interpreted section 7403 to accord district courts "some limited room . . . for the exercise of reasoned discretion" in ordering the sale of property in which a nonliable third party holds an interest, United States v. Rodgers, 461 U.S. 677, , 103 S. Ct. 2132, 2149, 76 L. Ed. 2d 236 (1983), I have not been asked to exercise my discretion to order an alternative form of relief. Mrs. Gallagher has not advanced, and the current record does not disclose, equitable considerations warranting modification of the foreclosure remedy sought by the government.
Against the property held by the executrix, the government is entitled to enforcement of its lien and sale of the property under § 7403. Against the Commonwealth of Pennsylvania, the federal government in entitled to priority in the disposition of the proceeds. Against Mrs. Gallagher, the government is entitled to a lien on the estate's former one-half interest as tenant in common, and to enforcement of that lien by foreclosure.
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 592 F. Supp.]
This 22nd day of August, 1984, it is
1. The Motion of plaintiff, the United States of America, to Amend the Complaint is GRANTED.
2. The Motion of defendant Helen A. Young (Gallagher) for Summary Judgment is DENIED.
3. The Motion of defendant Helen A. Young (Gallagher) for Attorney's Fees is DENIED.
4. The Motion of plaintiff, the United States of America, for Summary Judgment is GRANTED against all defendants.
5. Within ten (10) days after the filing of this Order, the United States of America shall submit to the Court a calculation of the then current amount of its lien together with the daily rate at which interest accrues. Any party desiring to object to the United States' calculation, or to the form of relief, shall do so within ten (10) days after the filing of the United States' calculation. Thereafter the Court will enter judgment in favor of the United States in a specific amount and ordering sale of the subject property to foreclose its lien.