1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-2-1995

Monica Fuel v IRS

Precedential or Non-Precedential:

Docket 94-5406

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Monica Fuel v IRS" (1995). 1995 Decisions. Paper 147.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/147
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 94-5406 

 ___________ 

 MONICA FUEL, INC. 

 Appellee, 

 vs. 

 INTERNAL REVENUE SERVICE, DEPARTMENT OF 

TREASURY, UNITED STATES OF AMERICA; STATE OF 

NEW JERSEY, DEPARTMENT OF TREASURY, DIVISION 

OF TAXATION 

 Division of Taxation, Department of the 

Treasury, State of New Jersey, 

 Appellant. 

 ___________ 

 APPEAL FROM THE UNITED STATES DISTRICT COURT 

 FOR THE DISTRICT OF NEW JERSEY 

 (D.C. Civil No. 91-cv-00748) 

 ___________ 

 ARGUED JANUARY 24, 1995 

 BEFORE: SLOVITER, Chief Judge, LEWIS and WEIS, Circuit Judges. 

 (Filed June 2, 1995) 

 ___________ 
Martin L. Wheelwright 

Kevin M. Schatz (ARGUED) 

Office of Attorney General of New Jersey 

Richard J. Hughes Justice Complex 

CN 112 

Trenton, NJ 08625 

 Attorneys for Appellant

David A. Kasen 

Kasen, Kasen & Braverman 

1874 East Marlton Pike 

Post Office Box 4130, Suite 3 

Cherry Hill, NJ 08034 

 Attorney for Appellee, Monica Fuel, Inc.

Gary R. Allen 

William S. Estabrook 

David A. Shuster (ARGUED) 

Pamela C. Berry 

United States Department of Justice 

Tax Division 

Post Office Box 502 

Washington, DC 20044 

 Attorneys for Appellee, Internal Revenue

 Service, Department of the Treasury,

 United States of America

 ___________ 

 OPINION OF THE COURT 

 ___________ 

LEWIS, Circuit Judge. 

 This case presents a single issue of law: the relative 

priority of Internal Revenue Service ("IRS") liens, which arise 

upon assessment under 26 U.S.C. §§ 6321 and 6322,1 versus New 

 

1. 26 U.S.C. § 6321 provides: 
Jersey motor fuels tax liens, which arise under New Jersey's 

State Tax Uniform Procedure Law. At summary judgment, the United 

States District Court for the District of New Jersey found the 

federal liens to be superior. Because we believe the state liens 

were choate before the liens of the IRS arose and were, 

therefore, entitled to priority, we will reverse the district 

court's judgment. 

I. 

 The material facts of this case are generally 

undisputed. The necessary factual background concerns New 

Jersey's uniform procedures for assessing and collecting taxes 

and the State of New Jersey, Division of Taxation's ("Division") 

activities with respect to Monica Fuel, Inc. ("Monica Fuel"). 

(..continued) 

 If any person liable to pay any tax neglects 

or refuses to pay the same after demand, the 

amount (including any interest, additional 

amount, addition to tax, or assessable 

penalty, together with any costs that may 

accrue in addition thereto) shall be a lien 

in favor of the United States upon all 

property and rights to property, whether real 

or personal, belonging to such person. 

 26 U.S.C. § 6322 provides: 

 Unless another date is specifically fixed by 

law, the lien imposed by section 6321 shall 

arise at the time the assessment is made and 

shall continue until the liability for the 

amount so assessed (or a judgment against the 

taxpayer arising out of such liability) is 

satisfied or becomes enforceable by reason of 

lapse of time. 
A. 

 The state liens involved in this case arose under N.J. 

Stat. Ann. § 54:49-1, which provides in pertinent part: 

 The taxes fees, interest and penalties 

imposed by any such State tax law . . . from 

the time the same shall be due, shall be a 

personal debt of the taxpayer to the State, 

recoverable in any court of competent 

jurisdiction in an action in debt in the name 

of the State. Such debt, whether sued upon 

or not, shall be a lien on all the property 

of the debtor except as against an innocent 

purchaser for value in the usual course of 

business and without notice thereof, and 

except as may be provided to the contrary in 

any other law . . . . 

 The Division is authorized to make an assessment after 

a report is filed and it is determined that there is a deficiency 

in payment. Notice of such a deficiency assessment is then given 

to the taxpayer and demand for payment is made. N.J. Stat. Ann. 

§ 54:49-6. The taxpayer must remit to the Division the assessed 

amount within fifteen days after the notice and demand are 

mailed. N.J. Stat. Ann. § 54:49-8. Non-payment within the 

15-day period results in the imposition of an additional penalty 

of five percent. N.J. Stat. Ann. § 54:49-9. 

 The Division is not limited to demand and imposition of 

penalties as the only tools for effectuating collection of unpaid 

taxes. The Division may, as an alternative remedy, issue a 

certificate of debt to the Clerk of the New Jersey Superior 

Court. The clerk immediately enters upon the record of docketed 

judgments the name and business address of the debtor, the 

certified amount of the debt and the name of the tax. N.J. Stat. 
Ann. § 54:49-12. The entries are given the same force and effect 

as any entry of a docketed judgment, and provide the Division 

with all of the remedies available for recovery of a judgment in 

action. We note that this alternative remedy creates no 

additional rights nor additional liabilities; rather "[i]t is a 

device for collecting taxes[.]" C.J. Kowasaki, Inc. v. New 

Jersey, 13 N.J. Tax 160, 168-169 (N.J. Tax Ct. 1993). 

 The New Jersey statute provides an additional remedy to 

enforce collection of taxes. The Division may issue a warrant of 

execution to the sheriff of any county who, in turn, files the 

warrant with the county clerk.2 The clerk then enters in the 

judgment docket the name of the taxpayer and the amount the 

taxpayer owes to the State. As with the certificate of debt, the 

warrant does not create the lien; instead the warrant provides a 

procedural tool for enforcing a judgment. In re Blease v. New 

Jersey, 605 F.2d 97, 98 (3d Cir. 1979). 

B. 

 On March 23, 1989, the Division made an assessment of 

$76,554.19 against Monica Fuel, a Williamstown, New Jersey 

corporation, engaged in the business of retail fuel oil 

distribution, for unpaid motor fuels taxes. On August 30, 1989, 

the Division assessed against Monica Fuel an additional 

$2,125.61, bringing the total state assessments to $78,679.70. 

 

2. The Division may also issue a warrant to any Division 

employee who may execute the warrant with all the powers of a 

sheriff. N.J. Stat. Ann. § 54:49-13(a). In this case the 

Division exercised this option. 
Thereafter, between September 18, 1989, and June 4, 1990, the IRS 

made seven separate assessments against Monica Fuel for unpaid 

federal excise and employment taxes, totalling $68,288.37.3 On 

February 5, 1990, the Division filed a certificate of debt with 

the clerk of the New Jersey Superior Court, who entered judgment 

on the record of docketed judgments on February 14, 1990. Nine 

days later, on February 23, 1990, the Division issued a warrant 

of execution on the personalty of Monica Fuel which was available 

for payment of the taxes due. This amounted to $60,000 which 

Monica Fuel expected to receive from the bulk sale of its 

business assets to Star Oil Company, Inc. ("Star Oil").4

 

3. The amounts and dates of the IRS assessments are as 

follows: 

 Assessment Date Amount 

 09/18/89 $ 9,253.99 

 09/25/89 40,365.94 

 12/04/89 8,472.31 

 12/18/89 0.00 

 03/19/90 264.20 

 03/19/90 7,570.84 

 06/04/90 2,361.09

 Total $68,288.37 

4. On February 7, 1990, Star Oil, pursuant to N.J. Stat. Ann. 

§ 54:32-22(c) (West 1986), filed a Notification of Sale, Transfer 

or Assignment in Bulk with the Division indicating that Star Oil 

would be purchasing some of Monica Fuel's business assets. The 

sale was completed in mid-June. At or about that time, Monica 

Fuel, Star Oil, the IRS and the Division executed an escrow 

agreement whereby the proceeds from the sale were to be placed in 

escrow for the purpose of satisfying the claim of either the IRS 

or the Division or both. The agreement further provided that (1) 

the funds were to be interpleaded within 90 days absent a 

resolution regarding the distribution of the funds between the 

IRS and the Division; and (2) the funds were to be disbursed in 
C. 

 On October 26, 1990, Monica Fuel instituted this 

interpleader action in the Superior Court of New Jersey. The IRS 

then removed the action to the district court. On cross-motions 

for summary judgment, the district court concluded that the IRS's 

statutory liens were superior to those of New Jersey, and granted 

judgment in favor of the IRS. Specifically, the court held that 

the Division's tax liens, arising under N.J. Stat. Ann. 

§ 54:49-1, were not sufficiently choate to defeat the priority of 

the federal tax liens arising under sections 6321 and 6322. The 

court further found that the Division's tax assessments did not 

"elevate the state to the level of `judgment creditor' within the 

meaning of 26 U.S.C. § 6323(a)."5 Monica Fuel, Inc. v. IRS, 

No. 91-748 at 10 (D. N.J. Nov. 20, 1991) (order granting summary 

judgment). The Division moved for reargument, claiming that the 

tax deficiency assessments it issued in 1989 rendered its tax 

liens fully choate and, therefore, superior to the federal liens 

in question. The court again rejected the Division's argument, 

noting that "the state liens were not choate at the time assessed 

because N.J.S.A. 54:49-1 contemplates judicial enforcement of 

(..continued) 

accordance with the court's final order once it was no longer 

subject to appeal. 

5. 26 U.S.C. § 6323(a) provides: 

 Except as otherwise provided in subsection 

(c), the lien imposed by section 6321 shall 

not be valid as against any mortgagee, 

pledgee, purchaser, or judgment creditor 

until the notice thereof has been 

filed . . . . 
state liens."6 Monica Fuel, Inc. v. IRS, No. 91-748 at 3 (D. 

N.J. May 10, 1994) (order granting summary judgment). The 

Division now appeals. We have jurisdiction under 28 U.S.C. 

§ 1291. 

 The district court's determination that New Jersey's 

tax liens were inchoate and therefore not entitled to priority is 

a legal conclusion subject to plenary review. Keystone Chapter, 

Associate Builders and Contractors, Inc. v. Foley, 1994 WL 513971 

at *5 (3d Cir. 1994), citing Gregoire v. Centennial School Dist., 

907 F.2d 1366, 1370 (3d Cir. 1990). 

II. 

 Federal tax liens do not automatically prime all other 

liens. Rather, priority is governed by the federal common-law 

principle that "`the first in time is the first in right.'"7 

 

6. In its motion for reargument the Division also claimed that 

the court had failed to consider adequately the certificate of 

debt which, under state law, entitled the Division to treatment 

as a judgment lien creditor. The district court granted 

reargument on the narrow issue of whether the entry of a 

certificate of debt raises the state to the status of judgment 

lien creditor. The court concluded that upon such entry the 

Division did not acquire judgment lien creditor status because a 

certificate of debt "does not qualify as a `valid judgment, in a 

court of record and of competent jurisdiction' as specifically 

required by 26 C.F.R. 301 6323(h)-1(g)." Monica Fuel, Inc. v. 

IRS, No. 91-748 at 7 (D. N.J. May 10, 1994) (order granting 

summary judgment). The Division does not contest this aspect of 

the district court's judgment on appeal. 

7. Over the years, the Supreme Court and this court have 

consistently held that federal law is determinative where the 

question involved is the priority to be accorded a lien of the 

federal government, whatever its source. United States v. 

Security Trust & Savings Bank of San Diego, 340 U.S. 47, 49 

(1950); In re Lehigh Valley Mills, Inc., 341 F.2d 398, 400 (3d 

Cir. 1965) (collecting cases). 
United States v. McDermott, 113 S.Ct. 1526, 1528 (1993), quoting 

United States v. New Britain, 347 U.S. 81, 85 (1954). As stated 

by Chief Justice Marshall in Rankin & Schatzell v. Scott, 12 

Wheat. (25 U.S.) 177, 179 (1827): "The principle is believed to 

be universal that a prior lien gives a prior claim, which is 

entitled to prior satisfaction, out of the subject it 

binds . . . ." 12 Wheat. at 179. It is critical, therefore, for 

the purpose of determining priority, to ascertain when competing 

liens, whether federal- or state-created, arise. 

 Under 26 U.S.C. §§ 6321 and 6322, federal tax liens 

arise when the underlying taxes are assessed. The priority of a 

state lien depends on when it "attached to the property in 

question and became choate." New Britain, 347 U.S. at 86. As 

the Supreme Court has stated, "a competing state lien [is 

considered] to be in existence for `first in time' purposes only 

when it has been `perfected . . . .'" McDermott, 113 S.Ct at 

1528, quoting New Britain, 347 U.S. at 84. That is, the state 

lien must be "perfected in the sense that there is nothing more 

to be done to have a choate lien -- when the identity of the 

lienor, the property subject to the lien, and the amount of the 

lien are established." United States v. Vermont, 377 U.S. 351, 

355 (1964). 

 The Division argues that New Britain controls this case 

and that the state liens have priority because the identity of 

the lienor (the State of New Jersey), the property subject to the 

lien (all of Monica Fuel's property, according to N.J. Stat. Ann. 

§ 54:49-1) and the amount of the lien (the amount of the 
assessments) were all established prior to when the federal liens 

arose. 

 The IRS does not dispute that the first two choateness 

requirements were satisfied. It concedes that the identity of 

the lienor and the property subject to the lien were known well 

before the federal liens arose. The IRS does, however, claim 

that the amount of the state liens were not sufficiently 

established and, consequently, not entitled to priority. 

Moreover, in the event that we find the state lien amounts were 

sufficiently fixed to satisfy the final New Britain factor, the 

IRS makes an additional argument, namely that the state tax liens 

were inchoate because they were not summarily enforceable.8 We 

will address these two distinct issues in turn. 

A. 

 As noted above, one requirement of choateness under the 

standard articulated by the Supreme Court in New Britain is that 

 

8. The IRS posits an additional argument which presents a much 

broader challenge to the Division's right to the interpleaded 

funds: 

 "[I]t is submitted that the assets at issue 

here were not subject to the section 54:49-1 

lien because they were purchasable (indeed, 

they were purchased) in the usual course of 

business . . . . Thus, not until the 

Division filed its warrant [of execution] or 

levied on the property could it be said that 

the Division had a lien, choate or otherwise, 

on the property at issue here." 

Appellee's Br. at 30. 

 We have considered this argument and find it to be without 

merit. 
the amount of the state lien be "established." In an attempt to 

convince us that the liens met the requirements of New Britain, 

the Division makes two separate arguments. First, it contends 

that the amounts were sufficiently established upon assessment. 

Alternatively, the Division claims that the amounts became fixed 

when the period for filing a protest expired.9 The IRS suggests 

that when assessed, the amounts were neither final nor 

established; rather, they represented nothing more than debts 

which were open to contest and revision.10 Appellee's Br. at 17. 

Indeed, the taxpayer may, within thirty days of the notice of 

assessment, file a protest and request a hearing, N.J. Stat. Ann. 

§ 54:49-18, or, in the alternative, file an appeal with the New 

Jersey Tax Court within 90 days of being notified of an 

assessment.11 N.J. Stat. Ann. § 54:51A-13. Although either 

 

9. Based on language in the New Jersey statute providing that 

a lien on unpaid taxes arises "from the time the [taxes] shall be 

due[,]" the Division initially argued that the amounts were 

sufficiently established when Monica Fuel filed its tax returns 

indicating the amount due. The district court rejected this 

contention relying primarily upon In re Priest, 712 F.2d 1326 

(9th Cir. 1983), modified, 725 F.2d 477 (1984), wherein the Court 

of Appeals for the Ninth Circuit concluded that the "mere receipt 

of a delinquent State tax return is too vague and indefinite a 

standard by which to establish a lien that is capable of taking 

priority over a federal lien." In re Priest, 712 F.2d at 1329. 

The Division has abandoned this argument on appeal. 

10. Although in the portion of its brief challenging the 

specificity of the state lien amounts upon assessment, the IRS 

consistently refers only to the Division's March 23, 1989, 

assessment ("[t]he Division's earliest claim to the fund," 

Appellee's Br. at 11), we understand the IRS's argument to apply 

to both of the Division's assessments. 

11. Effective July 1, 1993, the 30-day protest period was 

expanded to 90 days. In addition, the commencement date for the 

90-day period for appeal to the Tax Court was changed from the 
process might result in an order modifying or vacating the 

assessment, these remedies do not interfere in the first instance 

with the right of the Division to collect the unpaid tax. 

Significantly, the New Jersey statute specifically authorizes 

collection by the Division of the amounts assessed prior to the 

expiration of the protest period. N.J. Stat. Ann. § 54:49-18. 

See also N.J. Stat. Ann. §§ 54:49-12 and 54:49-13a. In fact, 

payment must be made within fifteen days of notification to avoid 

the imposition of an additional penalty of five percent. N.J. 

Stat. Ann. §§ 54:49-8 and 54:49-9. 

 The state lien amounts unquestionably were, in our 

view, established once the 90-day period for filing an appeal 

with the tax court lapsed, as they became impervious to challenge 

and were therefore fixed and specific. We also agree with the 

Division, however, that the amounts were established sufficiently 

when the Division notified Monica Fuel of the assessments. The 

fact that the Division had the authority to enforce the liens -- 

whether sued upon or not -- prior to the expiration of the 

protest period persuades us that the specificity of the amount of 

a lien arising under N.J. Stat. Ann. § 54:49-1 is unaffected by 

the taxpayer's right to appeal. See In re Lehigh Valley Mills, 

Inc., 341 F.2d 398, 401 (3d Cir. 1965) (where a lien is 

enforceable against the property by a summary proceeding, the 

certainty of the lien amount is established). Accordingly, we 

(..continued) 

issuance of the tax assessment to the issuance by the Division of 

a final determination on any protest. N.J. Stat. Ann. § 54:49-18 

(West 1994). 
conclude that on August 30, 1989 -- the date Monica Fuel was 

notified of the Division's second and final assessment -- both of 

the state tax liens satisfied the New Britain test for 

choateness, as the identity of the lienor, the property subject 

to the lien and the amount of the lien were all established.12

B. 

 The IRS insists that the Division nevertheless failed 

to achieve choate liens because the assessments were not 

summarily enforceable. The IRS cites several cases -- McDermott, 

Vermont and T.H. Rogers Lumber Co. v. Apel, 468 F.2d 14 (10th 

Cir. 1972) -- which, it contends, stand for the proposition that 

in addition to satisfying the New Britain test, state liens must 

also be summarily enforceable to prime a competing federal lien. 

Appellee's Br. at 17. 

 We agree that a right to enforce a lien summarily (that 

is, without a judicial proceeding) is a requirement of choateness 

in addition to the tripartite rule of fixed identity, property 

and amount, articulated in New Britain.

13 Indeed, a number of 

 

12. Consequently, we need not reach the federal government's 

claim that the Division's failure, once the appeal period 

expired, to "formally record in its books [Monica Fuel's] debt to 

the State," itself renders the lien inchoate. Appellee's Br. at 

25-26. 

13. The Supreme Court has made passing references to summary 

enforceability, implicitly recognizing that the right to 

summarily enforce a state lien is a requirement of choateness. 

See, e.g., United States v. McDermott, 113 S. Ct. 1526, 1529-30 

n.5 (1993); United States v. Vermont, 377 U.S. 351, 359 n.12 

(1964). See also In re Thriftway Auto Rental Corp. v. Herzog, 

457 F.2d 409, 414 n.8 (2d Cir. 1972), citing Vermont, 377 U.S. at 

359 & n.12. 
courts have expressly indicated that such a requirement exists. 

See In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168, 1176 

(6th Cir. 1990) (state lien holder must show that he or she had 

the right to enforce the lien prior to the attachment of the 

federal lien); Apel, 468 F.2d at 18 (choateness requirement can 

only be met if the lien is enforceable by summary proceedings); 

Burrus v. Oklahoma Tax Comm'n, 850 F. Supp. 963, 964 (W.D. Okl. 

1993) (nonfederal tax lien must be enforceable as well as 

otherwise choate); Homestead Land Title Company v. United States, 

1993 WL 360389, at *3 (D. Kan. August 17, 1993) (lien which is 

not summarily enforceable is inchoate); United States v. Utah 

State Tax Comm'n, 642 F. Supp 8, 10 (D. Utah 1981) (nonfederal 

lien must be summarily enforceable and not have conditions that 

affect its viability); In re Bright Designed Floors, Inc., 66-2 

U.S. Tax Cas. (CCH) ¶ 9752 (S.D. N.Y. 1966) (test of perfection 

is whether a lien is "presently enforceable"). 

 Although we agree with the IRS that state liens must be 

summarily enforceable to attain priority over later arising 

federal tax liens, we do not agree that New Jersey's liens fail 

to satisfy this requirement. The IRS argues that the Division's 

February 1990 filing of its certificate of debt did not perfect 

the state liens because the Division did not levy on Monica 

Fuel's property. The IRS argues further that because the 

Division's warrant of execution (also issued in February 1990) 

had expired before the Division could actually collect the funds 

owed, the lien, itself, also expired, leaving the Division 

without a means for summary enforcement. 
 As an initial matter, we note again that a warrant of 

execution does not create the state lien. In re Blease, 605 F.2d 

at 98. Thus, the expiration of the warrants in this case did not 

terminate the Division's lien. Moreover, the requirement that 

state liens be summarily enforceable does not, in our view, 

compel the state to take possession of the debtor's property in 

order to obtain a choate lien and achieve priority. Choateness 

only requires that the state have a right to enforce its lien in 

a summary fashion. 

 As the Court recognized in Vermont, where ministerial 

acts which do not affect the viability of the lien remain, the 

lien is nevertheless summarily enforceable. See Utah State Tax 

Comm'n, 642 F. Supp at 10, citing Vermont, 377 U.S. at 359 

n.11.14 Section 54:49-1 of the New Jersey tax code gives New 

Jersey the right to enforce its liens upon assessment. The New 

Jersey statute also provides two tools for enforcement -- the 

certificate of debt and the warrant of execution -- neither of 

which require the Division to engage in a judicial contest to 

attain a judgment in its favor. Therefore, the state liens at 

issue in this case were not susceptible to "[n]umerous 

contingencies which might prevent the lien from becoming 

perfected by a judgment awarded and recorded." See United States 

v. Security Trust & Savings Bank of San Diego, 340 U.S. 47, 50 

 

14. In footnote 11 the Court cites to a footnote in United 

States v. Vermont, 317 F.2d 446, 448 n.2 (2d Cir. 1963), wherein 

the Court of Appeals for the Second Circuit describes the steps 

required before Vermont could foreclose on the real property at 

issue in that case. 
(1950). In other words, the Division's liens were "given the 

force of a judgment" upon assessment. Vermont, 377 U.S. at 359. 

III. 

 For the reasons set forth above, we conclude that the 

state tax liens were choate and, therefore, entitled to priority 

over the liens of the IRS. Accordingly, we will reverse the 

district court's grant of summary judgment in favor of the IRS 

and remand the case for further proceedings consistent with this 

opinion. 
Monica Fuel, Inc. v. IRS, No. 94-5406

SLOVITER, Chief Judge, concurring in the judgment. 

 The majority has written a creditable opinion which 

reaches a plausible result in light of the positions taken (and 

not taken) by the Internal Revenue Service in this case. I 

believe, however, that there are additional considerations that 

require some discussion. 

 Of concern to me is that despite the fact that New 

Jersey's tax scheme does provide methods for enforcement of a tax 

lien after public notice of the lien, as a result of this opinion 

the mere assessment of taxes due is enough to render that lien 

choate and hence entitled to priority over a federal tax lien. I 

do not question that New Jersey's tax lien would become summarily 

enforceable, and therefore choate, under United States v. 

Vermont, 377 U.S. 351 (1964), when a certificate of debt issued 

by the Director of the Division of Taxation is docketed by the 

Clerk of the Superior Court under N.J. Stat. Ann. § 54:49-12, or 

when a warrant issued by the Director is filed with the county 

clerk and docketed under N.J. Stat. Ann. § 54:49-13a. However, 

in this case, neither of these procedures was effectively 

utilized until the first three federal tax assessments, totalling 

almost $60,000, had been made.15 Nonetheless, the majority 

 

15. Three federal tax assessments totalling almost $60,000 were 

made against Monica Fuel on September 18 and 25, 1989 and 

December 4, 1989. Thereafter, (1) the Division issued a 

Certificate of Debt to the clerk of the New Jersey Superior Court 

on February 5, 1990, and the clerk entered judgment on the record 

of docketed judgments on February 14, 1990, and (2) the Division 

issued a warrant of execution to one of its employees on February 
relies merely on New Jersey's assessments on March 23, 1989 and 

August 30, 1989 as fulfilling the requirements for choateness. I 

am far less certain than the majority that some additional act 

that would provide public notice of the state tax lien is not 

required to render the lien summarily enforceable.16

 It is true, as the Division argues, that the Supreme 

Court stated in Vermont that the assessment under Vermont's 

statutory scheme "was given the force of a judgment." Vermont, 

377 U.S. at 359 (quoting Bull v. United States, 295 U.S. 247, 260 

(1935)). But the State of Vermont in that case had not only 

assessed taxes; it also had filed a notice of lien with the city 

clerk before the federal taxes were assessed. See United States 

v. Vermont, 317 F.2d 446, 447 (2d Cir. 1963), aff'd, 377 U.S. 351 

(1964). The Court's holding that Vermont's tax lien was entitled 

to priority over the subsequent federal tax lien may therefore 

have reflected an unspoken premise that the public recording of 

(..continued) 

23, 1990, which was filed with the Camden County Clerk on the 

same day. 

16. The Division suggests that any requirement of public 

recording of state tax liens would impose a "double standard" in 

determining the choateness of federal and state tax liens. I 

recognize that a federal tax lien need not be publicly recorded 

in order to become choate. See 26 U.S.C. §§ 6321-22; United 

States v. McDermott, 113 S. Ct. 1526, 1531 (1993). Whether 

public recording is required to render a state lien choate is a 

matter of federal law to be resolved with reference, in the first 

instance, to the particular state scheme. See United States v. 

Security Trust & Sav. Bank, 340 U.S. 47, 49-50 (1950). The 

Division cites us to no New Jersey appellate case holding that 

mere assessment, absent more, renders the state tax lien 

summarily enforceable. 
the lien was an element of choateness, either as a matter of 

federal law or under Vermont's particular statutory scheme. 

 Whether there is such a requirement has not been 

addressed by the Supreme Court,17 and the few federal district 

and appellate courts that have broached the question have reached 

different results. Compare In re Thriftway Auto Rental Corp., 

457 F.2d 409, 412 & 414, n.8 (2d Cir. 1972) (applying state court 

decisions holding city tax lien to arise, not upon assessment, 

but upon docketing of warrant, and holding city tax lien that 

arose upon docketing to be "summarily enforceable" under Vermont) 

with Noriega & Alexander v. United States, 859 F. Supp. 406 (E.D. 

Cal. 1994) (holding that state tax lien under California 

statutory scheme becomes choate upon assessment and rejecting 

argument that it does not become choate until notice of tax lien 

filed). Nonetheless, I do not understand the IRS to so argue in 

this case and thus leave that issue for another day.18

 I also cannot agree with another aspect of the 

majority's analysis. I agree that under the facts of this case 

the tax lien based on the Division's March 23, 1989 assessment 

 

17. The Supreme Court's decision in United States v. New 

Britain, 347 U.S. 81 (1954), does not reveal whether the state 

tax liens at issue in that case had been publicly recorded. Even 

if there was no recording in that case, the state scheme at issue 

may have differed significantly from the scheme at issue in this 

case, where some form of public recording is apparently required 

before the state may enforce its lien. 

18. At oral argument, the IRS counsel, in response to a direct 

question, stated that he was not arguing that its lien was 

entitled to priority on the basis of the lack of any public 

recording in this case. See Transcript of Oral Argument, Jan. 

24, 1995, at 24. 
met the third requirement of Vermont that "the amount of the lien 

[be] established" before the federal assessment. Vermont, 377 

U.S. at 355 (quoting United States v. New Britain, 347 U.S. 81, 

84 (1954)). By then, the time for protest and appeal of that 

assessment under New Jersey law had passed. I would not decide, 

as does the majority, that the requirement that "the amount of 

the lien [be] established" was met under the New Jersey statutory 

scheme while the amounts assessed were still subject to protest 

and appeal under N.J. Stat. Ann. §§ 54:49-18 and 54:51A-13 et

seq. We need not include that dictum here, and I believe it is 

questionable whether the requirement of choateness that the 

amount of the lien have been established is met as long as the 

period for appeal and protest has not passed. 

 Nonetheless, given the IRS's waiver of the public 

recording issue I agree with the majority's result.19 Because 

the Division's lien for $76,554.19 in taxes assessed on March 23, 

1989 became definite in amount as of the expiration of the ninety 

day appeal period, which preceded the first federal tax 

assessment on September 18, 1989 and exceeded the amount of the 

approximately $60,000 in escrowed bulk sale proceeds, I would 

hold in this case that the Division's lien was entitled to 

priority as of that time.20

 

19. I agree with the majority's holding that neither federal nor 

New Jersey law requires a state taxing authority actually to levy 

on a taxpayer's property in order to have a choate lien. 

20. Contrary to the IRS's argument, Brief for Appellee at 25-26, 

such a holding would be consistent with In re Priest, 712 F.2d 

1327, 1329 (9th Cir. 1983), modified, 725 F.2d 477 (9th Cir. 

1984), which held that a tax lien was not choate upon the taxing 
(..continued) 

authority's mere receipt of a delinquent tax return, in part 

because the state had taken no action to determine the amount 

owed by the taxpayer and "the total amount of the lien could not 

be known until the Director computed the interest, penalties and 

fees." Here, the Division's computation of tax, interest and 

penalties was communicated to the taxpayer in the Division's 

March 23, 1989 assessment, and the amounts became fixed at the 

expiration of the appeal period. For the same reason, such a 

holding would also be consistent with Brown v. State of Maryland, 

699 F. Supp. 1149, 1154 (D. Md. 1987), aff'd, 862 F.2d 869, 870 

(4th Cir. 1988), also relied upon by the IRS.