Opinion ID: 497965
Heading Depth: 3
Heading Rank: 2

Heading: Proper filing of tax lien

Text: 41 Notices of tax liens on personal property, whether tangible or intangible, must be filed at the residence of the taxpayer at the time the notice of lien is filed. 26 U.S.C.A. Sec. 6323(f)(2)(B) (Supp.1987). For purposes of that provision, the residence of a corporation or partnership shall be deemed to be the place at which the principal executive office of the business is located. Id. Sec. 6323(f)(2). 42 The general rule in determining the priority of liens is that the first in time is the first in right. United States v. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954). However, for a tax lien to have priority over a perfected security interest, notice of the tax lien must be properly filed under Sec. 6323(f) before the competing security interest is perfected. 26 U.S.C.A. Sec. 6323(a) (Supp.1987). Here, the government tax lien notices were filed in Pennsylvania before Brooks perfected his security interest in the anticipated proceeds of the West Virginia mechanic's lien action. Therefore, the government lien takes priority if Antone's principal executive office was in Pennsylvania, as the district court held it was. 43 The test in Sec. 6323 for corporate residence is different from the residency test used for evaluating diversity jurisdiction. Dimmitt & Owens Financial, Inc. v. United States, 787 F.2d 1186, 1191 (7th Cir.1986). In enacting Sec. 6323, the Congress explicitly rejected the proposal (made by the Internal Revenue Service) that corporate residence be determined by the taxpayer's domicile. S.Rep. No. 1708, 89th Cong., 2d Sess. (1966), reprinted in 1966 U.S.Code Cong. & Admin.News 3722, 3732. The objective of the residency test in Sec. 6323 is to make the identification of the place for filing and searching for liens as simple and certain as possible. Dimmitt & Owens, 787 F.2d at 1191. Thus, a corporation's residence for purposes of Sec. 6323 is not necessarily one of its registered offices or its place of incorporation. Dimmitt & Owens, 787 F.2d at 1190; S. D'Antoni, Inc. v. Great Atlantic & Pacific Tea Co., 496 F.2d 1378, 1382-83 (5th Cir.1974). This court has not pronounced directly on the point. The only Fourth Circuit cases cited by Appellant involve diversity jurisdiction, where the residence inquiry is explored for a different reason: to protect out-of-state litigants from possible unfair adjudication by local fact-finders. 44 The Seventh Circuit has adopted a nerve center test for establishing a corporation's principal place of business. Dimmitt & Owens, 787 F.2d at 1191; Kanzelberger v. Kanzelberger, 782 F.2d 774, 777 (7th Cir.1986); Sabo v. Standard Oil Co., 295 F.2d 893 (7th Cir.1961). The Fifth Circuit has held that the principal executive office is the headquarters of the business--the office at which the major executive decisions affecting the business are made. S. D'Antoni, Inc., 496 F.2d at 1383. The Seventh Circuit reached the same conclusion in Dimmitt & Owens, holding that although the corporation had its major asset (a manufacturing plant) in California, the headquarters in Illinois constituted the principal executive office because the officers of the company, most corporate financial records, and other typical headquarters activities were located in Illinois. 787 F.2d at 1191-92. The test adopted by the Fifth and Seventh Circuits is consistent with the language of Sec. 6323 and its legislative history. If Congress had intended to establish corporate residence at its place of incorporation or its registered office, it could easily have done so. See S. D'Antoni, Inc., 496 F.2d at 1383. 45 Applying that test to the facts of the present case, it is clear that the district court's finding is not clearly erroneous and should stand. Despite the transient presence of field offices at construction sites in the several states where Antone operated, the executive decisions were consistently made by Anthony Frank in Pennsylvania. Indeed, at the time the tax lien notices were filed, the South Carolina job site office and the South Carolina office in Frederick Frank's basement were closed. The only remaining office in South Carolina was the incorporating attorney's law office, which served only as a mail drop; no corporate business was transacted there. Except for incorporating in South Carolina, there is little if any evidence in the record that Anthony Frank attempted to establish or maintain South Carolina residency for Antone Construction. The filing of a consolidated federal tax return denoting Antone as a subsidiary of Brimar and giving a Sharon, Pennsylvania address for Antone certainly indicate that Anthony Frank considered the corporation to be effectively based in Pennsylvania. 46 Brooks argues that applying this kind of test for corporate residence introduces uncertainty into the process of searching for tax liens, and protests that the Pennsylvania residence was not recorded in public records. The courts cited above did not make a distinction between public and private records. Rather, they looked at various indications of corporate residence to establish which office is the most readily identifiable as the principal office. Dimmitt & Owens, 787 F.2d at 1191. Here, all factors point to Pennsylvania except for the incorporation papers. Some public records also point to Pennsylvania; for example, a Pennsylvania address was given in Antone's South Carolina annual report for the location of Antone's corporate books. 47 In addition, it is unreasonable for Brooks to protest that he was unfairly surprised by the finding that Antone resided in Pennsylvania. Brooks made loans over a period of several months to Frank, Brimar, and Antone, and secured guarantees by each for the various loans. When the assignment involved here was made, Brooks' lawyer went to Pennsylvania to secure the proper signatures, including a signature to bind Antone. Brooks obviously knew where Antone's nerve center, or principal corporate executives, were located. In addition, the prudent creditor can require production of tax returns and other relevant financial materials before extending loans; in this case, the tax return would have disclosed Antone's consolidated filing with Brimar and the listing of a Pennsylvania address. 48