Source: http://ky.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180328_0000309.EKY.htm/qx
Timestamp: 2019-04-22 13:59:49+00:00

Document:
JOHN K. STEELE, KIMBERLY A. FLAKE, DUTTON & SALYERS, PLLC, KENTUCKY DEPARTMENT OF REVENUE, and SHELBY ENERGY COOPERATIVE, INC. Defendants.
Defendant John K. Steele considers himself a “sovereign citizen, ” and this matter arises from Mr. Steele's failure to pay federal income tax to the Government of the United States of America. In their complaint, Plaintiff United States seeks two forms of relief: (1) a judgment of Mr. Steele's indebtedness to the United States of America, and (2) a tax lien and foreclosure on Mr. Steele's property located in Bagdad, Kentucky. [R. 1 at 4-5.] In regards to the tax lien, the United States included as defendants in their complaint any entity they believed might have an interest in the real property located in Bagdad, Kentucky, including Defendant Kimberly A. Flake, formerly Kimberly A. Steele. Id. at 2. Today, the United States has moved for Partial Summary Judgment against Ms. Flake, seeking judgment in its favor as to the priority of the federal tax liens encumbering the real property located at 1058 Jacksonville Road, Bagdad, Kentucky. [R. 57.] For the following reasons, the United States' motion is DENIED.
When evaluating a motion for summary judgment pursuant to Federal Rule of Civil Procedure, the Court must review the facts and draw all reasonable inferences in favor of the non-moving party. Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).
Ms. Flake married Defendant John K. Steele on August 2, 1975. [R. 62 at ¶2.] In what appears to be February of 1997, Ms. Flake (as Mrs. Steele) and Mr. Steele signed a “Contract for Deed” with James and Nora Rogers to convey the Jacksonville Road Property in exchange for $80, 000, to be paid in eight yearly installments of $10, 000 beginning February 12, 1997. [R. 65-1.] This contract allowed Mr. and Mrs. Rodgers to continue use of certain portions of the property, “[u]ntil such time as the completion of deed.” Id.
The United States recorded notices of a Federal Tax Lien on “all property and rights belonging to” Mr. Steele with the Shelby County Clerk's Office in Shelbyville, Kentucky on July 20, 2007. [R. 57-1 at ¶ 5.] Ms. Flake also acknowledges this recording. [R. 62 at ¶ 12.] The United States did not file tax liens against Ms. Flake.
Plaintiff United States seeks a tax lien pursuant to 26 U.S.C. § 6321, which allows in certain circumstances the United States to acquire a lien “upon all property and rights to property, whether real or personal, belonging to such person.” The United States seeks partial summary judgment to show that this tax lien has priority over Ms. Flake's interest in the property. The question of “whether and to what extent the taxpayer had ‘property' or ‘rights to property' to which the tax lien could attach” is governed by state law. Aquilino v. United States, 363 U.S. 509, 512-13 (1960); United States v. Brosnan, 363 U.S. 237, 240 (1960). However, once a tax lien attaches to the taxpayer's state-created interest, federal law determines the priority of any competing liens asserted against the taxpayer's “property” or “rights to property.” Aquilino, 363 U.S. at 513-14 (citations omitted).
Since the United States requested a determination of priority of their lien, this Court first turns to the federal law. Priority for a tax lien is governed by the common-law principle “first in time, first in right.” United States by and through IRS v. McDermott, 507 U.S. 447, 449 (1993) (citations omitted). Tax liens are not automatically awarded priority over all other liens. Id. To have priority over other liens, the tax lien must be perfected prior to the other liens. Id. at 450. A tax lien under § 6321 is not valid against a subsequent purchaser or holder of security interest unless perfected in accordance with 26 U.S.C. § 6323(a). Perfection of tax liens against real property is completed in accordance with state law. 26 U.S.C. § 6323(f). For property in Kentucky, “a notice of the federal tax lien must be recorded in the office of the clerk of the county within which the property subject to the lien is located.” In re Dave Thomas Co., 51 B.R. 66, 70 (Bankr.W.D.Ky. 1985); 26 U.S.C. § 6323(f)(1)(A)(ii); KRS 382.480(1). Additionally, federal tax liens to property owned at the time of assessment, as well as after-acquired property. Glass City Bank of Jeanette, Pa. v. United States, 326 U.S. 265, 267-68 (1945).

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