United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 97-6010

_______________

In re: *

*

R. EUGENE JANSSEN and EUNICE *

JANSSEN, *

Debtors. *

* Appeal from the United

R. EUGENE JANSSEN and EUNICE * States Bankruptcy Court

JANSSEN, * for the Northern District

* of Iowa

Plaintiff-Appellees, *

* 

v. * 

*

UNITED STATES OF AMERICA, * 

*

Defendant-Appellant. *

_______________

Submitted: September 18, 1997

 Filed: October 24, 1997 

_______________

Before KOGER, Chief Judge, HILL, and DREHER, Bankruptcy Judges.

_______________

WILLIAM A. HILL, Bankruptcy Judge:

The Internal Revenue Service (“IRS”), through the United

States, appeals from a judgment in favor of the debtors, R. Eugene

Janssen and Eunice Janssen (“Janssens”). The bankruptcy court

permitted avoidance of an IRS tax lien pursuant to Section 545(2)

of the Bankruptcy Code. The court further held that the IRS lien

did not reach property held in the name of REJ Farm Enterprises,

Inc. (“REJ”), a corporation wholly owned by the Janssens. For the

reasons set forth below we reverse, in part, and affirm, in part

the rulings of the bankruptcy court.
2

I

The Janssens formed REJ as an Iowa corporation on December 27,

1983. At that time, they personally held warranty deeds to nine

parcels of real property located in Woodbury County, Iowa,

consisting of both farmland and their homestead. 

On January 2, 1984, the Janssens transferred by quitclaim deed

their entire interest in the nine parcels of real property, as well

as all interest in their farm machinery and livestock, to REJ, in

exchange for stock in the corporation. Although they retained no

residual interest in any of the transferred property, the Janssens

continued to live on the homestead. Also on January 2, the

Janssens, as directors of REJ, called its first organizational

meeting, in the course of which R. Eugene Janssen was elected

president and treasurer, Eunice Janssen was elected secretary, and

the Janssen’s son, Darloe Janssen, was elected vice-president.

On December 27, 1985, the Janssens amended their timely filed

federal income tax returns for the tax years of 1980 and 1981 to

show previously unreported income. On February 10, 1986, the IRS

assessed the Janssens’ tax liability for the tax years of 1980 and

1981 at $275,359.22 and $140,157.98, respectively. On February 9,

1987, the IRS filed a Notice of Federal Tax Lien Under Internal

Revenue Law with the Register of Deeds for Woodbury County against

the Janssens in the amount of $245,725.38. The IRS renewed the

notice on February 16, 1992. 

In 1992, the IRS filed a complaint in the United States

District Court for the Northern District of Iowa against the

Janssens, their son Darloe, and REJ, in order to establish that REJ

was effectively the alter ego of the Janssens, as well as to

foreclose the federal tax liens on property formerly owned by the

Janssens but which was subsequently titled in REJ. On October 28,

1993, the Janssens filed a petition for relief under Chapter 11 of

the United States Bankruptcy Code. At the time of their filing,
3

the Janssens’ only non-exempt assets consisted of money and REJ

stock. 

On November 15, 1993, the IRS filed a Proof of Claim for

Internal Revenue Taxes in the amount of $592,371.50, for the unpaid

federal income tax, statutory penalties, and accrued interest owed

by the Janssens as of the petition date. On April 14, 1995, the

Janssens commenced this adversary proceeding against the IRS, in

which they disputed both the amount and validity of the IRS’ proof

of claim, and additionally sought, inter alia, to determine the

validity of, and to avoid, the lien claimed by the IRS on their

money and REJ stock. The IRS answer to the Janssens’ complaint

raised an “affirmative defense,” to wit, that REJ is the alter ego

of the debtors, and further sought a determination that the IRS

claim was both valid and wholly secured by the federal tax lien

which attached to all property and rights to property held by the

debtors in their own name and in the name of REJ, as their alleged

alter ego. The IRS did not, however, take any steps to make REJ a

party.

Both the Janssens and the IRS moved for summary judgment. The

Janssens sought a judgment in their favor avoiding the IRS lien on

their REJ stock and their money under both the Bankruptcy Code, 11

U.S.C. § 545(2), and the Internal Revenue Code, 26 U.S.C. §

6323(b)(1). They asserted that Section 545(2) of the Bankruptcy

Code permits a trustee, and accordingly a debtor in possession, to

avoid any statutory lien that is not enforceable at the

commencement of a case against a bona fide purchaser. They further

asserted that Internal Revenue Code Section 6323(b)(1) voids

statutory tax liens asserted against purchasers of securities and

that they, as debtors in possession, met the requirements of

“purchaser,” as defined in Internal Revenue Code Section

6323(h)(6). The IRS responded that the Janssens did not qualify as

purchasers within the meaning of Section 6323(h)(6) even though
4

they may have qualified as bona fide purchasers within the meaning

of Section 545(2). Alternatively, the IRS asserted that REJ was

the alter ego of the Janssens and, accordingly, the assets of REJ

were assets of the estate, not of the Janssens.

On August 21, 1996, the bankruptcy court issued its Partial

Summary Adjudication, in which it made two rulings which are now

before us on this appeal. First, as to the matter of the alter ego

status of REJ, the court, relying in part on Zenith Radio Corp. v.

Hazeltine Research, Inc., 395 U.S. 100, 110-11, 89 S. Ct. 1562,

1569-70 (1969), held that “[a]s a matter of law, the alter ego

claim is not a defense to the claims raised by the Janssens. It is

a direct claim against the corporation. Moreover, the IRS cannot

obtain an enforceable judgment against REJ in this adversary

proceeding because REJ is not a party.” On this basis, and as to

this matter, the court granted the Janssens’ motion for partial

summary judgment and struck as insufficient the alter ego defense

of the IRS. 

Second, as to the issue of lien avoidance, the court found the

Janssens’ money and their shares of REJ stock to be securities

within the meaning of 26 U.S.C. § 6323(a), and found the purchasers

of these securities to be protected from the enforcement of tax

liens against them under 26 U.S.C. § 6323(b)(1)(A). The court

found the Janssens, as Chapter 11 debtors in possession, to be

invested with the avoidance powers of a trustee, pursuant to 11

U.S.C. § 1107(a), including the power to avoid statutory liens

pursuant to 11 U.S.C. § 545(2). Relatedly, the court determined

that a federal tax lien is a statutory lien which is subject to

avoidance under Section 545(2).

The court then weighed the Janssens’ contention that the tax

lien which attached to the stock in REJ and the money is avoidable

because it would not be enforceable against hypothetical bona fide

purchasers, against the argument by the IRS that the lien is not
5

avoidable because the bankruptcy trustee’s status as a bona fide

purchaser under 11 U.S.C. § 545(2) is not equivalent to status as

a “purchaser” under 26 U.S.C. § 6323. In doing so, the court

considered case law which directly addresses this issue: Askanase

v. United States (In re Guyana Dev. Corp.), 189 B.R. 393 (Bankr.

S.D. Tex. 1995), which found that “the trustee as a bona fide

purchaser under 11 U.S.C. § 545 meets the requirements of a

purchaser under [26 U.S.C. §] 6323,” id. at 397, and United States

v. Hunter (In re Walter), 45 F.3d 1023 (6th Cir. 1995), which found

that the status of “hypothetical bona fide purchaser” under the

Bankruptcy Code did not rise to that of “purchaser” under the

Internal Revenue Code, id. at 1030.

The court was persuaded by the reasoning of Guyana

Development, and made the following conclusions in accordance

therewith:

The trustee acquires the highest status as a bona fide

purchaser that there may be under the law. In re

Rench, slip op. at 14. I see no reason to treat

trustees as having given nominal or inadequate

consideration in their capacity as bona fide purchasers

solely because minimal consideration is sufficient, in

some circumstances, to meet a definition of ‘value.’

The court is also persuaded by the Janssen’s argument

that the good faith element of bona fide purchaser

status implies adequate consideration. . . . I

conclude that a trustee’s status as a bona fide

purchaser, and thereby the Janssen’s status as debtorsin-possession with all powers of a trustee, is

sufficient to avoid the lien on the REJ stock.

On January 16, 1997, after having resolved remaining issues, the

bankruptcy court entered a final judgment overruling the Janssens’

objection to the IRS’ claim, and ordering that the IRS’ lien on the

Janssens’ money and REJ stock be avoided pursuant to 11 U.S.C. §

545(2). 
Rule 8013 of the Federal Rules of Bankruptcy Procedure 1

reads as follows:

On an appeal the district court or bankruptcy

appellate panel may affirm, modify, or reverse a

bankruptcy judge’s judgment, order, or decree or

remand with instructions for further proceedings. 

Findings of fact, whether based on oral or

documentary evidence, shall not be set aside unless

clearly erroneous, and due regard shall be given to

the opportunity of the bankruptcy court to judge the

credibility of the witnesses.

FED. R. BANKR. P. 8013. 

6

II

Two issues have been presented for our consideration on this

appeal: first, whether the bankruptcy court erred in equating the

status of “bona fide purchaser” under the Bankruptcy Code, with

that of a “purchaser” under the Internal Revenue Code, thereby

allowing the debtors to avoid the federal tax lien of the IRS

pursuant to 11 U.S.C. § 545(2) and 26 U.S.C. § 6323(b)(1)(A); and

second, whether the bankruptcy court erred in holding that it could

not consider the alter ego status of REJ without REJ’s presence as

a party in this adversary proceeding.

III

On appeal, the bankruptcy court’s findings of fact are

reviewed for clear error and its legal determinations are reviewed

de novo. O’Neal v. Southwest Missouri Bank of Carthage (In re

Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir. 1997); Natkin

& Co. v. Myers (In re Rine & Rine Auctioneers, Inc.), 74 F.3d 848,

851 (8th Cir. 1996); see also FED. R. BANKR. P. 8013.1

The facts as determined by the bankruptcy court in this matter

are not in dispute. We turn to the legal issues which have been

presented to us.
The term “security” is defined under Internal Revenue 2

Code Section 6323(h)(4) as meaning,

any bond, debenture, note, or certificate or other

evidence of indebtedness, issued by a corporation or

a government or political subdivision thereof, with

interest coupons or in registered form, share of

stock, voting trust certificate, or any certificate

of interest or participation in, certificate of

deposit or receipt for, temporary or interim

certificate for, or warrant or right to subscribe to

7

IV

Bankruptcy Code Section 545(2) grants the bankruptcy trustee

the power to “avoid the fixing of a statutory lien on property of

the debtor to the extent that such lien . . . is not perfected or

enforceable at the time of the commencement of the case against a

bona fide purchaser that purchases such property at the time of

the commencement of the case, whether or not such a purchaser

exists . . . .” 11 U.S.C. § 545(2). Bankruptcy Code Section 1107

delineates the “rights, powers, and duties” of a debtor in

possession, and provides in relevant part that “a debtor in

possession shall have all of the rights . . . and powers, and shall

perform all the functions and duties . . . of a trustee . . . .”

11 U.S.C. § 1107(a). These sections, in tandem, allocate the

bankruptcy trustee’s avoidance powers as a hypothetical bona fide

purchaser, to a debtor in possession. 

Internal Revenue Code Section 6323(b)(1)(A) provides that,

“[e]ven though notice of a lien imposed by section 6321 has been

filed, such lien shall not be valid . . . with respect to a

security . . . as against a purchaser of such security who at the

time of purchase did not have actual notice or knowledge of the

existence of such lien . . . .” 26 U.S.C. § 6323(b)(1)(A). Thus,

a “purchaser” is empowered under Internal Revenue Code Section

6323(b)(1)(A) to avoid the fixing of a Section 6321 lien on

securities.2
or purchase, any of the foregoing; negotiable

instrument; or money.

26 U.S.C. § 6323(h)(4).

Section 6321 provides: 3

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. § 6321. 

Section 6322 provides: 4

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 unenforceable by reason of lapse of time.

26 U.S.C. § 6322.

Section 6323(a) provides that, “The lien imposed by 5

section 6321 shall not be valid as against any purchaser, holder

of security interests, mechanic’s lienor, or judgment lien

8

The IRS possesses a statutory tax lien on money and REJ stock

which the Janssens owned at the time of the filing of their

bankruptcy petition, pursuant to Internal Revenue Code Section

6321. The money and stock, which are the subjects of the Section 3

6321 lien, constitute securities within the definition of Internal

Revenue Code Section 6323(h)(4).

The Section 6321 lien arose on February 10, 1986, pursuant to

Internal Revenue Code Section 6322, upon the IRS’s assessment of

4

the Janssens’ tax liability for their deficient 1980 and 1981 tax

returns. Pursuant to Internal Revenue Code Section 6323,

subsections (a) and (f)(1)(A)(i), the lien became valid as against 5
creditor until notice thereof which meets the requirements of

subsection (f) has been filed by the Secretary.” 26 U.S.C. §

6323(a). Subsection (f)(1)(A)(i), in turn, provides as to real

property that, “The notice referred to in subsection (a) shall be

filed [i]n the case of real property, in one office within the

State (or the county, or other governmental subdivision), as

designated by the laws of such State, in which the property

subject to the lien is situated. . . .” 26 U.S.C. §

6323(f)(1)(A)(i).

9

purchasers, holders of security interests, mechanic’s lienors and

judgment lien creditors upon the IRS’ filing of its Notice of

Federal Tax Lien Under Internal Revenue Law with the Register of

Deeds for Woodbury County, Iowa, on February 9, 1987. 

The Janssens, as debtors in possession, possess the status of

“hypothetical bona fide purchasers” under Bankruptcy Code Section

545(2). They contend that this status is sufficiently equivalent to

that of a “purchaser” under Internal Revenue Code Section

6323(h)(6), so as to enable them to avoid the IRS’ Section 6321

lien under 26 U.S.C. § 6323(b)(1) and 11 U.S.C. § 545(2). The

nature of their avoidance power in this respect, if indeed any

exists, turns entirely upon the scope and meaning of these two

terms. 

“Bankruptcy is a creature of statute [and] [a]pplications to

the bankruptcy code must, therefore, be consistent with long

established canons of statutory construction.” Windsor on the River

Assocs., Ltd. v. Balcor Real Estate Fin., Inc. (In re Windsor on the

River Assocs., Ltd.), 7 F.3d 127, 130 (8th Cir. 1993). The

Bankruptcy Code is silent as to the meaning of bona fide purchaser.

“Unless otherwise defined, words will be interpreted as taking their

ordinary, contemporary, common meaning.” Perrin v. United States,

444 U.S. 37, 42, S. Ct. 311, 314, 62 L.Ed.2d 199 (1979); accord

United States v. Brummels, 15 F.3d 769, 773 (8th Cir. 1994);

Groseclose v. Bowen, 809 F.2d 502, 505 (8th Cir. 1987). The
See Askanase v. United States (In re Guyana Dev. 6

Corp.), 189 B.R. 393, 397 (Bankr. S.D. Tex. 1995) (“This court .

. . finds that the trustee as a bona fide purchaser under 11

U.S.C. § 545 meets the requirements of a purchaser under section

6323.”); In re Janssen, Bankr. No. 93-51776XS, 1996 WL 604226,

at *8 (Bankr. N.D. Iowa Aug. 21, 1996) (“I conclude that a

trustee’s status as a bona fide purchaser, and thereby the

Janssens’ status as debtors-in-possession with all the powers of

10

ordinary meaning of bona fide purchaser is generally understood to

be “‘[o]ne who has purchased property for value without notice of

any defects in the title of the seller.’” United States v. Hunter

(In re Walter), 45 F.3d 1023, 1030 (6th Cir. 1995) (quoting BLACK’S

LAW DICTIONARY 177 (6th ed. 1990)); accord Internal Revenue Service

v. Diperna, 195 B.R. 358, 361 (E.D.N.C.1996); United States v.

Battley (In re Berg), 188 B.R. 615, 619 (B.A.P. 9th Cir. 1995); cf.

Carrens v. Carrens (In re Carrens), 198 B.R. 999, 1006 (Bankr.

M.D.Fla. 1996) (“It is generally established that a bona fide

purchaser for purposes of 11 U.S.C. § 545(2) is a purchaser who

takes for value without notice or knowledge of any adverse claim to

the property.”). 

The Internal Revenue Code defines the term “purchaser” for

purposes of Section 6323(b)(1)(A), under Internal Revenue Code

Section 6323(h)(6), as “a person who, for adequate and full

consideration in money or money’s worth, acquires an interest (other

than a lien or security interest) in property which is valid under

local law against subsequent purchasers without actual notice.” 26

U.S.C. § 6323(h)(6). 

A survey of recent case law addressing the interplay between

the bona fide purchaser status contemplated under the Bankruptcy

Code and the purchaser status defined under the Internal Revenue

Code, for purposes of lien avoidance under Internal Revenue Code

Section 6323 and Bankruptcy Code Section 545(2), reveals a variance

of opinion. Two courts, including the bankruptcy court in this

matter, equate the two terms so as to provide for lien avoidance.6
a trustee, is sufficient to avoid the lien on the REJ stock.”). 

See Battley v. United States (In re Berg), No. 95- 7

36205, 1997 WL 461564, at *2 (9th Cir. Aug. 14, 1997) (“The

Trustee [as bona fide purchaser] does not qualify for the

exception provided by § 6323(b)(1).”), aff’g 188 B.R. 615 (B.A.P.

9th Cir. 1995); United States v. Hunter (In re Walter), 45 F.3d

1023, 1030 (6th Cir. 1995) (“Because a bona fide purchaser is not

necessarily a purchaser for purposes of Internal Revenue Code §

6323(b)(2), it follows that a trustee standing in the shoes of a

hypothetical bona fide purchaser does not fall within the

protection of this statute.”); Internal Revenue Service v.

Diperna, 195 B.R. 358 (E.D.N.C. 1996) ( “Although the trustee

steps into the shoes of a bona fide purchaser, this is all he or

she does; the court will not assume that the trustee has

characteristics beyond that which a hypothetical bona fide

purchaser would have.”); United States v. Weissing, No. 93-1507-

CIV-T-17A, 1995 WL 579928, at *5 (M.D. Fla. July 20, 1995) (“This

Court . . . distinguishes between a purchaser . . . and a trustee

standing in the shoes of a bona fide purchaser. . . . trustees

may not use the exceptions created under 26 U.S.C. § 6323 to

escape federal tax liens.”); Straight v. First Interstate Bank

of Commerce (In re Straight), 200 B.R. 923, 929-30 (Bankr. D.

Wyo. 1996) ( “A trustee standing in the shoes of a bona fide

purchaser is not the purchaser without knowledge that § 6323 is

intended to protect.”) aff’d,, 207 B.R. 217 (B.A.P. 10th Cir.

1997); Cleary v. United States (In re Cleary), 210 B.R. 741,

744-45 (Bankr. N.D. Ill. 1997) (“[A] trustee standing in the

shoes of a hypothetical bona fide purchaser who has been deemed

to have ‘purchased’ the debtor’s estate for ‘value’ will not find

protection under § 6323 where a purchaser must have paid

‘adequate and full consideration.’”); Mitchell v. United States

(In re Mitchell), No. 95-31553-B-11, 1997 WL 265716, at *3

(Bankr. E.D. Cal. Jan.17, 1997) (“[T]he status of a trustee as a

‘bona fide purchaser’ for purposes of 11 U.S.C. § 545(2) may not

be used in connection with 26 U.S.C. § 6323(b) lien voidance

rights.”); In re Linn, No. 96-34634-BKC-SHF, 1997 WL 547844, at

*2 (Bankr. S.D. Fla. Aug. 26, 1997) (“This Court . . . interprets

Congress’ definition of ‘purchaser’ in Section 6323 as a

different entity than a bona fide purchaser as contemplated in

Section 545 of the Bankruptcy Code. Because the Trustee does not

have the characteristics of a ‘purchaser’, she cannot avoid the

IRS lien on the Debtor’s property.”); Carrens v. United States

11

The vast majority of courts, however, including the only two circuit

courts to have ruled on this issue, do not equate the meaning of the

terms, but rather, differentiate strongly between them. Our own 7
(In re Carrens), 198 B.R. 999, 1006 (Bankr. M..D. Fla. 1996)

(“[T]he Bankruptcy Code does not grant hypothetical possession or

other hypothetical characteristics to a bona fide purchaser. 

Since a purchaser must have these characteristics to satisfy the

specific requirements of 26 U.S.C. § 6323(b), the Trustee may not

avoid the lien under 11 U.S.C. § 545(2).”).

12

analysis of this issue leads us to conclude that the reasoning of

these latter courts is correct. 

Specifically, on a purely definitional basis, we find it

untenable to equate the meaning of the term “bona fide purchaser”

under the Bankruptcy Code with that of “purchaser” under the

Internal Revenue Code, for the two are not one and the same. As the

Court of Appeals for the Sixth Circuit noted in United States v.

Hunter (In re Walter), 45 F.3d 1023 (6th Cir. 1995):

‘[V]alue’ is a much lower standard than ‘adequate and

full consideration in money or money’s worth.’ 

Because a bona fide purchaser is not necessarily a

purchaser for purposes of Internal Revenue Code §

6323(b)(2), it follows that a trustee standing in the

shoes of a hypothetical bona fide purchaser does not

fall within the protection of this statute.

Id. at 1030 (footnotes omitted). 

Moreover, equating the terms becomes even less palatable when

considered in light of the substantial policy implications inherent

to the Internal Revenue Code, generally, and thus, to the codal

provisions at issue on this appeal. As the Ninth Circuit stated in

Battley v. United States (In re Berg), 121 F.3d 535 (9th Cir.

1997):

‘[T]axes are the lifeblood of government.’ Bull

v. United States, 295 U.S. 247, 259, 55 S. Ct. 695,

699, 79 L.Ed. 1421 (1935). A court will not lightly

assume that Congress intended to subordinate the

efficacy of the federal tax laws to other

considerations. Here § 6321 is general and

peremptory. The exceptions permitted under § 6323 are
The Eighth Circuit addressed a related issue in its 8

decision in Drewes v. Carter (In re Woods Farmers Coop. Elevator

Co.), 946 F.2d 1411 (8th Cir. 1991). In Woods Farmers, the court

addressed the question of whether the status of a trustee as a

hypothetical bona fide purchaser under Bankruptcy Code Section

13

carefully crafted and narrowly limited. There is no

reference whatsoever to a particular exception for a

trustee in bankruptcy.

Giving §§ 6321 and 6323 the dominant position

they deserve, we hold that the powers conferred by

Bankruptcy Code § 545(2) on the Trustee as a

hypothetical [bona fide purchaser] are not sufficient

to satisfy the conditions of [Internal Revenue Code]

§ 6323. As the Sixth Circuit has held, a good faith

purchaser is not necessarily a purchaser ‘for adequate

and full consideration.’ In re Walter, 45 F.3d at

1030. The Trustee does not qualify for the exception

provided by §6323(b)(1).”

Id. at 537. Each of these considerations, in isolation, leads us

to conclude that the debtors must not prevail upon this issue.

However, our determination is additionally supported by

reasons quite apart from the definitional and policy considerations

which factor into our independent analysis of this issue. The

United States Bankruptcy Appellate Panel of the Ninth Circuit

presaged our instant concerns in United States v. Battley (In re

Berg), 188 B.R. 615 (B.A.P. 9th Cir. 1995), when it stated that,

Unlike the bankruptcy judge, we find the

interpretation of Internal Revenue Code section

6323(b) by the Sixth Circuit to be both reasonable and

authoritative. Consistent application of federal law

is an important goal, and a lower federal court should

only deviate under compelling circumstances from the

interpretation placed on a federal statute by the only

Circuit to have spoken [thereon]. . . . 

Id. at 620. 

This issue is one of first impression for us, and one upon

which the Court of Appeals for the Eighth Circuit has not yet

spoken. Absent precedential directive from the Eighth Circuit, 8
545(2), and as further defined under North Dakota law, was

coterminous with that of a buyer in the ordinary course of

business, as defined under North Dakota law, for the purposes of

statutory lien avoidance under N.D. CENT. CODE § 60-02-25.1

(1985), which provided that:

The lien created under this section shall be preferred to

any lien or security interest in favor of any creditor of

the warehouseman regardless of the time when the

creditor’s lien or security interest attached to the

grain. The lien created by this section is discharged as

to grain sold by the warehouseman to a buyer in the

ordinary course of business.

Id. Noting that the status of a buyer in the ordinary course of

business required “something more than [that required of] a bona

fide purchaser,” the court disallowed the trustee, as a

hypothetical bona fide purchaser, to avoid the statutory liens

there in question under Bankruptcy Code Section 545(2). 946 F.2d

at 1414.

14

and very mindful of the purpose and placement of the Bankruptcy

Appellate Panels within the framework of the United States Courts,

we are not therefore indifferent to the only decisions rendered on

this issue by other Circuit Courts of Appeals. Indeed, in light of

their unity of approach in addressing this matter, we afford them

significant precedential weight. 

Therefore, after careful consideration of the claims between

the parties in the instant matter, the law upon which they rely to

support their respective arguments, and the case law concerning

this relatively novel issue, we will follow the well-reasoned

decisions of the only other circuit courts to have ruled on this

issue. We conclude, in accordance with the decisions rendered by

the Courts of Appeals for the Sixth and Ninth Circuits,

respectively, in Walter and Battley, as discussed herein, that the

Janssens’ status as hypothetical bona fide purchasers under the

Bankruptcy Code does not rise to the level of that of a purchaser,

as defined under Internal Revenue Code Section 6323(h)(6), so as to
We note that, by reason of our prior holding concerning 9

the validity of the IRS lien, this issue has less significance. 

As the IRS lien on the REJ stock cannot be superseded, the IRS

will be able to recover REJ assets by enforcing its lien.

The Eighth Circuit examined the alter ego doctrine in 10

the context of bankruptcy in Constellation Dev. Corp. v. Dowden

(In re B.J. McAdams, Inc.), 66 F.3d 931(8th Cir. 1995), cert.

denied, --- U.S. ----, 116 S. Ct. 2546, 135 L.Ed.2d 1067 (1996). 

The Eighth Circuit’s discussion on this matter provides

background context to the claims of the parties before us:

‘[A] bankruptcy court has full power to inquire into

the validity of any claim asserted against the

estate and to disallow it if it is ascertained to be

without lawful existence. Pepper v. Litton, 308

U.S. 295, 305, 60 S. Ct. 238, 244, 84 L.Ed. 281

(1939). . . . 

Under the alter ego doctrine, the legal fiction

of the separate corporate entity may be rejected in

15

permit them to avoid the statutory tax lien of the IRS under 11

U.S.C. § 545(2) and 26 U.S.C. § 6323(b)(1)(A).

V

The IRS next urges us to overturn the bankruptcy court’s

ruling below which dismissed the “affirmative defense” of the IRS,

thereby preventing the IRS lien from reaching the assets the

Janssens had transferred to REJ. The bankruptcy court’s reasoning

was twofold. First, the court held that as a matter of law, the

alter ego claim was not an affirmative defense, but rather a direct

claim against the corporation. Second, the court reasoned that the

IRS could not obtain a judgment against REJ in this adversary

proceeding because REJ was not made a party to the adversary

proceeding. On both counts, the bankruptcy court was correct.9

First, the claim that REJ is the alter ego of the Janssens10
the case of a corporation that (1) is controlled by

another to the extent that it has independent

existence in form only, and (2) is used as a

subterfuge to defeat public convenience, to justify

wrong, or to perpetrate a fraud. Lakota Girl Scout

Council, Inc. v. Havey Fund-Raising Management,

Inc., 519 F.2d 634, 638 (8th Cir. 1975). ‘The

essence of the [alter ego] test is whether, under

all the circumstances, the transaction carries the

earmarks of an arm’s length bargain. If it does

not, equity will set it aside.’ Pepper, 308 U.S. at

307, 60 S. Ct. at 245. 

Id. at 936-37.

The IRS cites In re Velis, 133 B.R. 497 (D.N.J. 1991) 11

and United States v. Charnock (In re Charnock), 97 B.R. 619 (M.D.

Fla. 1989) for the proposition that Section 541 renders property

of a corporation wholly owned by a debtor property of the debtor

and does not require a separate adjudication on an alter ego

claim. Neither case stands for this proposition. Indeed, both

support the notion that a separate action which includes the

corporation is a necessary prerequisite to piercing the corporate

veil.

16

so as to allow creditors of the Janssens to reach corporate assets

to satisfy their claims was not an affirmative defense. An

affirmative defense is a “matter asserted by a defendant which,

assuming the complaint to be true, constitutes a defense to it.”

BLACK’S LAW DICTIONARY 60 (6th ed. 1990). In this case, the Janssens’

complaint objected to the amount and validity of the IRS’s claim

and sought to avoid any tax lien the IRS might have against the

Janssens’ stock and the money. Regardless of whether REJ is the

alter ego of the Janssens, we fail to see how such a determination

would constitute a defense to either of the Janssens’ claims.

Accordingly, the IRS’ alter ego claim was properly characterized by

the bankruptcy court as being a separate claim against REJ.11
17

Second, the bankruptcy court correctly held that no such

separate claim could be made against, or be binding upon, REJ in

its absence as a party to this action. For this, we begin with an

examination of Zenith Radio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 89 S. Ct. 1562, 23 L.Ed.2d 129 (1969), which the

bankruptcy court cited in support of its ruling that it lacked

jurisdiction over REJ. In this decision, the Supreme Court

addressed circumstances in which Zenith Radio Corporation

(“Zenith”) had won, in part, a judgment for treble damages in the

amount of $35,000,000.00 against its former patent licensor

Hazeltine Research, Inc., (HRI), as well as against HRI’s wholly

owned subsidiary Hazeltine Corporation (Hazeltine), despite the

fact that “Hazeltine was not named as a party, was never served and

did not formally appear at the trial.” Id., 395 U.S. at 110, 89 S.

Ct. at 1570. Addressing this failure to name Hazeltine as a party

and to serve it with process, the Court made the following

determinations:

The Court of Appeals was quite right in vacating the

judgments against Hazeltine. It is elementary that

one is not bound by a judgment in personam resulting

from litigation in which he is not designated as a

party or to which he has not been made a party by

service of process. The consistent constitutional

rule has been that a court has no power to adjudicate

a personal claim or obligation unless it has

jurisdiction over the person of the defendant.

Id., 395 U.S. at 110, 89 S. Ct. at 1569; cf. Class Plaintiffs v.

City of Seattle, 955 F.2d 1268, 1277 (9th Cir.) (citing Insurance
18

Corp. of Ireland v. Campagnie des Bauxites de Guinee, 456 U.S. 694,

702, 102 S. Ct. 2099, 2104, 72 L.Ed.2d 492 (1982), and Hansberry v.

Lee, 311 U.S. 32, 41, 61 S. Ct. 115, 117, 85 L.Ed.2d 22 (1940))

(“This general rule of constitutional fair play represents a

restriction on judicial power that flows from the due process

guarantees of the fifth and fourteenth amendments.”), cert. denied

sub nom. Hoffer v. City of Seattle, 506 U.S. 953, 113 S. Ct. 408,

121 L.Ed.2d 333 (1992), Id. at 1277. Pertinent to this appeal,

the Zenith Court went on to address the impact of the potential

alter ego status of the unnamed and unserved party upon the

jurisdictional question before it, as follows:

Perhaps Zenith could have proved and the trial

court could have found that HRI and Hazeltine were

alter egos; but absent jurisdiction over Hazeltine,

that determination would bind only HRI. If the alter

ego issue had been litigated, and if the trial court

had decided that HRI and Hazeltine were one and the

same entity and that jurisdiction over HRI gave the

court jurisdiction over Hazeltine, perhaps Hazeltine’s

appearance before judgment with full opportunity to

contest jurisdiction would warrant entry of judgment

against it. But that is not what occurred here.

Id., 395 U.S. at 110, 89 S. Ct. at 1569-70. 

Under the facts at hand, REJ has not been named a party, has

not been served with process, and has not made an appearance before

the bankruptcy court or this Panel. Under Zenith and its progeny,

even had the bankruptcy court found REJ to be the Janssens alter

ego, that finding alone, absent the court’s jurisdiction over REJ,

would be binding only upon the Janssens, and not upon REJ. Id.; 
19

Panther Pumps & Equip. Co. v. Hydrocraft, Inc., 566 F.2d 8, 23 (7th

Cir. 1977), cert. denied sub nom. Beck v. Morrison Pump Co., Inc.,

435 U.S. 1013, 98 S. Ct. 1887, 56 L.Ed.2d 395 (1978). Thus, we

conclude that the IRS may not, as it claims, reach the assets

titled in REJ in order to satisfy the individual tax liabilities of

the Janssens, for the simple reason that REJ has not been named as

a party in these proceedings.

VI

ACCORDINGLY, the judgment in favor of the Janssens, permitting

them to avoid the IRS lien on their money and REJ stock, is

REVERSED. In all other respects the judgement is AFFIRMED.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE

EIGHTH CIRCUIT