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August 22, 1984

ESTATE OF GEORGE C. YOUNG, HANNAH A. LAWLER, Executrix, HELEN A. YOUNG, COMMONWEALTH OF PENNSYLVANIA, Department of Revenue, and ATTORNEY GENERAL, Department of Justice, State of Pennsylvania

The opinion of the court was delivered by: LUONGO


 This is an action brought by the government to foreclose its tax lien against real property owned or transferred by the estate of George C. Young. The government has filed a motion for summary judgment, and defendant Helen A. Young (now Gallagher) has responded with a cross-motion for summary judgment and a petition for costs and attorney's fees under the Equal Access to Justice Act. For the reasons discussed below, I will grant the government's motion against all defendants, and I will deny the motions filed by Mrs. Gallagher.

 I. Background

 This litigation marks the climax of an unfortunate series of events in the disposition of the estate of George C. Young. On December 15, 1975, Mr. Young died testate, leaving his entire estate to his niece Hanna Lawler (now Ruggiero), whom he also named as his executrix. *fn1" At the time of his death, the value of Mr. Young's "total gross estate" was $ 395,986.91, resulting in a federal gross estate tax liability of $ 77,905.36, and a Pennsylvania inheritance tax of $ 52,221.22. *fn2" By far the most valuable assets in Mr. Young's estate were his one-half interests in two large tracts of real estate in Newlin Township, Chester County, Pennsylvania. It is against those parcels of land that the federal government now seeks to assert its claim.

 Before his death, Mr. Young shared ownership of the real property as tenant in common with his sister-in-law, Mrs. Gallagher. Mr. Young's testamentary disposition caused Mrs. Gallagher to contest probate of the will. Mrs. Gallagher and her daughter Mrs. Ruggiero settled the will contest. The settlement agreement, dated May 17, 1978, provided that Mrs. Gallagher would receive an undivided interest in most of one parcel referred to as the "Farm Tract;" *fn3" that Mrs. Ruggiero would receive the portion termed the "Development Tract;" *fn4" that Mrs. Ruggiero was then required to sell the Development Tract and pay to Mrs. Gallagher one-half of any proceeds in excess of $ 390,000. *fn5"

 While the probate litigation was going on, however, several changed circumstances affecting real estate in the area sharply reduced the value of the Ruggiero land. As recounted in Mrs. Ruggiero's affidavit, "the real estate market began to fall off, interest rates climbed substantially and a landfill dump began operation on a tract of ground immediately adjacent to mine." *fn6" As a consequence, Mrs. Ruggiero has been unable to dispose of the property for a price even remotely approximating the $ 304,000 value at which it was appraised at the time of Mr. Young's death.

 Meanwhile, both state and federal estate taxes have remained unpaid, and statutory interest has continued to accrue. The federal government made an initial assessment of tax liability in the amount of $ 72,764.82 on November 1, 1976, and a supplementary assessment of $ 5,140.54 on September 11, 1979. A Notice of Lien was filed on July 21, 1980. *fn7" As of September 30, 1980, the estate remained indebted to the federal government in the amount of $ 110,649.84, and subsequent charges rendered the estate liable, as of July 1, 1984, for $ 174,882.35. *fn8" The Commonwealth of Pennsylvania recorded its inheritance tax lien on May 11, 1981. The Commonwealth's tax was initially assessed at $ 52,221.22, and statutory interest charges have increased the Commonwealth's claim by an undetermined amount.

 II. Government's Motion For Summary Judgment

 In its effort to collect the overdue tax from the Young estate, the government seeks in this proceeding to foreclose its lien against the real estate which passed from the estate, via the settlement agreement, to Mrs. Ruggiero and Mrs. Gallagher. Relying on §§ 6321 and 6324 *fn9" of the Internal Revenue Code, the government argues that there are no disputed issues of material fact, and that it is entitled to judgment as a matter of law. In support of its motion, the government contends that its lien attached to all property of the estate at the time of Mr. Young's death, regardless of assessment or filing, and that the lien extends to all property derived from the estate now in the defendants' possession. Additionally, the government invokes the Commissioner's presumption of correctness with respect to the tax assessments involved in this case.

 A. Estate of George G. Young, Hanna A. Lawler (Ruggiero), Executrix

 As to defendant Hanna Ruggiero, executrix of the estate, I conclude that the government's motion must be granted. Pursuant to both the general tax lien provision (§ 6321) *fn10" and the special estate tax lien statute (§ 6324(a)), *fn11" the government has a valid lien on all interests in the Development Tract and the Farm Tract now held by the executrix. *fn12"

 The estate's answer to the government's motion does not take issue with the legal basis of the government's claim; the estate requests either a further extension of time for payment of taxes, or a re-calculation of the tax due, based on the current value of the property. I am not persuaded, however, that a further delay in payment of the tax would accomplish anything except to increase the statutory interest charges against the estate. Moreover, the estate cites no authority for its contention that I have discretion to substitute the property's current market value for its previously assessed worth, and I find no basis for shifting the risk of real estate depreciation to the government.

 B. Commonwealth of Pennsylvania

 The federal government's motion for summary judgment against the Commonwealth of Pennsylvania seeks to establish the federal estate tax lien as superior to any claims of the Commonwealth against property of the Young estate. In a Memorandum of Law filed June 1, 1984, the Commonwealth responds that its estate tax lien took effect simultaneously with the federal encumbrance, and that, as a sovereign taxing authority, the Commonwealth should therefore be entitled to share pro rata in distribution of proceeds of the estate. The federal government's reply, filed July 27, 1984, argues that Pennsylvania's lien was not sufficiently choate to avoid attachment of a superior federal estate tax lien which also arose at the time of Mr. Young's death. In addition, the federal government contends that the federal charge would take precedence even if it were established that the Commonwealth's lien became perfected simultaneously. After careful consideration of the parties' arguments, I conclude that the federal lien is superior, and entitled to priority in disposition of the estate's assets.

 The relative priority of debts to the federal government, whether or not secured by liens, is an issue which has long perplexed the courts. Because no federal constitutional principle accords debts to the sovereign absolute priority, "the Federal Government's claim to priority . . . rests as a matter of settled law only on statute." *fn13" United States v. Moore, 423 U.S. 77, 81, 46 L. Ed. 2d 219, 96 S. Ct. 310 (1975). Absent such legislation, the principle governing priority is "'the first in time is the first in right. '" United States v. City of New Britain, 347 U.S. 81, 85, 98 L. Ed. 520, 74 S. Ct. 367 (1954). Nevertheless, on several occasions the Supreme Court has qualified that general precept, holding federal tax liens superior to earlier state-created liens when the antecedent encumbrance was inchoate, indefinite or otherwise unperfected. See, e.g. United States v. Security Trust & Savings Bank, 340 U.S. 47, 95 L. Ed. 53, 71 S. Ct. 111 (1950). See generally Kennedy, From Spokane County to Vermont: The Campaign of the Federal Government Against the Inchoate Lien, 50 Iowa L. Rev. 724, 727-735 (1965) (hereinafter "Kennedy"). Under this "choateness" test, in order for a non-federal lienor to survive the challenge posed by a subsequent federal lien, "the identity of the lienor, the property subject to the lien, and the amount of the lien . . . [must be] established." United States v. City of New Britain, 347 U.S. at 84.

 Application of the choateness test to the case at bar mandates priority treatment of the federal government's claim for taxes. Accepting the Commonwealth's statement that its tax lien arose upon Mr. Young's death, but recognizing that evaluation of the resultant lien is a federal question, *fn14" I am persuaded that the state-created encumbrance failed to attain that degree of perfection which would protect it from federal supervention. In particular, the amount of the Commonwealth's claim was uncertain when the federal special estate tax lien attached, and it remained undetermined until administrative procedures fixed the value of the decedent's property and the amount of the tax. Although such uncertainty as to the amount of the Commonwealth's tax lien might not render Pennsylvania's lien vulnerable to subsequent private lienors, the Commonwealth's lack of a fixed encumbrance deprives its lien of the specific and perfected character needed to prime a subsequent federal tax lien. See United States v. Texas, 314 U.S. 480, 86 L. Ed. 356, 62 S. Ct. 350 (1941); New York v. Maclay, 288 U.S. 290, 77 L. Ed. 754, 53 S. Ct. 323 (1933); In re Priest, 712 F.2d 1326 (9th Cir. 1983). *fn15" Assuming, therefore, that Pennsylvania's lien became effective under state law at the time of Mr. Young's death, the Commonwealth's lien served "merely as a caveat of a more perfect lien to come," New York v. Maclay, 288 U.S. at 294; against the federal government it secured neither priority nor parity for the Commonwealth's tax claim. *fn16"

 In its memorandum of law, the Commonwealth disputes the federal government's claim to priority, arguing that the federal priority statute, 31 U.S.C. § 3713, does not accord federal tax liens a preferred status on the facts of this case. The federal government responds that the priority statute is inapposite because the government did not base its claim on that statute, but the United States contends nevertheless that the priority statute would compel a result in its favor were I to find it applicable.

 Although I have decided that the federal lien is superior under ordinary priority rules, I find further support for my conclusion in consideration of the priority statute. Assuming, as it appears, that the Young estate is currently insufficient to pay its debts, 31 U.S.C. § 3713(a)(1)(B), I note that long-standing legislation substantially improves the national government's claim to priority when the person indebted to the government becomes insolvent. As amended, revised section 3713 provides in full:


§ 3713. Priority of Government claims.


(a)(1) A claim of the United States Government shall be paid first when --


(A) a person indebted to the Government is insolvent and --


(i) the debtor without enough property to pay all debts makes a voluntary assignment of property;


(ii) property of the debtor, if absent, is attached; or


(iii) an act of bankruptcy is committed; or


(B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.


(2) This subsection does not apply to a case under title 11.


(b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.

 In addition, § 3713 and its predecessors have been accorded a broad judicial construction. Interpreting the priority statute then in effect, the Supreme Court declared in United States v. Vermont, 377 U.S. 351, 357, 12 L. Ed. 2d 370, 84 S. Ct. 1267 (1964):


Section 3466 on its face permits no exception whatsoever from the statutory command that 'whenever any person indebted to the United States is insolvent . . . debts due to the United States shall be first satisfied.' The statute applies to all the insolvent's debts to the Government, whether or not arising from taxes, and whether or not secured by a lien.

 In the context of antecedent state-created liens, the priority statute provides the federal government a particularly potent weapon. Against such encumbrances, the federal claim is entitled to prevail unless the prior lienor can meet a test of "choateness" approaching actual possession of the collateral. United States v. Gilbert Associates, Inc., 345 U.S. 361, 366, 97 L. Ed. 1071, 73 S. Ct. 701 (1953). As the Supreme Court stated in Gilbert Associates : "In claims of this type, 'specificity' requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in the possession of the debtor." 345 U.S. at 366. Thus, although "in theory, the statute does not defeat liens that are choate at the time of insolvency . . . in practice, it has proved difficult for nonfederal lienors to satisfy the strictures of the choateness test." *fn17" United States v. Kimbell Foods, Inc., 440 U.S. 715, 721, n.8, 59 L. Ed. 2d 711, 99 S. Ct. 1448 (1979).

 Measured by this exacting standard, the Commonwealth's estate tax lien certainly cannot withstand the federal claim to priority under § 3713. The Commonwealth's lien did not precede the federal lien; both estate tax liens arose simultaneously upon Mr. Young's demise. Furthermore, neither the Commonwealth's estate tax statute, nor any enforcement action taken by Pennsylvania officials reduced to virtual possession the Commonwealth's interest in the estate's assets before, or at the time of, attachment of the federal encumbrance. Cf. United States v. Gilbert Associates, Inc., supra. Indeed, Pennsylvania's enforcement procedure for estate tax liens, both at the time of Mr. Young's death and under the current Inheritance and Estate Tax Act, provides a judicial hearing before enforcement, and states that "execution may be issued by the court against any real property in the decedent's estate on which a lien . . . exists. . . ." 72 P.S. § 2485-825 (repealed 1982) (emphasis added); 72 Pa. C.S.A. § 1776(e). *fn18" See also 72 P.S. § 2485-821, 822, 823 (repealed 1982); 72 Pa. C.S.A. § 1776(a)-(c). Thus, when the federal lien arose, the Commonwealth's estate tax lien was not sufficiently perfected to overcome the priority established by § 3713.

 The Commonwealth argues, however, that application of the priority statute would not require priority treatment of the federal lien in this case because Mr. Young was not insolvent at his death, because federal estate taxes were not Mr. Young's "debts" before his death, and because the decedent's estate was not initially insolvent, but was so rendered by subsequent events. The Commonwealth's attempt to impose a narrow construction upon § 3713 must fail. As a measure designed to protect the public fisc, § 3713 "'is to be construed liberally. Its purpose is not to be defeated by unnecessarily restricting the application of the word "debts" within a narrow or technical meaning. '" County of Spokane, Washington v. United States, 279 U.S. 80, 93, 73 L. Ed. 621, 49 S. Ct. 321 (1929), quoting Price v. United States, 269 U.S. 492, 500, 70 L. Ed. 373, 46 S. Ct. 180 (1926). See also Schwartz v. Commissioner of Internal Revenue, 560 F.2d 311, 318 n.18 (8th Cir. 1977). "Indeed, under the decisions of . . . [the Supreme] Court, 'only the plainest inconsistency would warrant . . . [a] finding [of] an implied exception to the operation of so clear a command as that of [the priority statute]. '" United States v. Moore, 423 U.S. at 82-83, quoting United States v. Emory, 314 U.S. 423, 433, 86 L. Ed. 315, 62 S. Ct. 317 (1941). At the present time, federal estate taxes are plainly a debt of the Young estate; the estate is bound to pay such taxes; and the estate appears insufficient to satisfy its debts. Contrary to the Commonwealth's arguments, therefore, assuming that § 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). *fn19" 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. . . ." *fn20" 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. *fn21"

  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). *fn22" 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. *fn24" 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 *fn5" 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.

 III. Foreclosure

 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, *fn25" 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.

 IV. Conclusion

 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

 ORDERED that:

 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.

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