Opinion ID: 1862285
Heading Depth: 1
Heading Rank: 6

Heading: priority of federal tax liens

Text: Pursuant to the Internal Revenue Code, I.R.C. § 6321 (1994), a federal tax lien arises upon the property of a person who neglects or refuses to pay a federal tax liability. See, also, United States v. McDermott, 507 U.S. 447, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993). The lien normally arises at the time the assessment of unpaid tax liability is made and continues until the tax is paid. I.R.C. § 6322 (1994). See, also, McDermott, supra . Lien priority for purposes of federal law is governed by the common-law principle that `the first in time is the first in right.' 507 U.S. at 449, 113 S.Ct. at 1528. A federal tax lien imposed by § 6321, however, is not valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice of the federal tax lien has been filed. I.R.C. § 6323(a) (1994). See, also, McDermott, supra . When § 6323 is applicable to a competing state lien, the federal tax lien is deemed to commence no sooner than the filing of the notice. McDermott, supra . For purposes of the first in time rule, a competing state lien is in existence only when it has been perfected in the sense that the identity of the lienor, the property subject to the lien, and the amount of the lien are established. United States v. New Britain, 347 U.S. 81, 84, 74 S.Ct. 367, 98 L.Ed. 520 (1954). See, also, McDermott, supra . It is a matter of federal law as to whether a lien created under state law has acquired sufficient substance and has become so perfected as to defeat a subsequently filed federal tax lien. U.S. v. Pioneer American Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963). A lien is considered perfected for federal purposes when there is nothing more to be done to have an enforceable lien. New Britain, 347 U.S. at 84, 74 S.Ct. 367. The notices of federal tax liens in the present case were filed on July 16, September 24 and 25, and October 10, 1996. The Committee filed the financing statement for its security interest on July 31, 1995, prior to the filing of any of the federal tax lien notices. Thus, if the Committee is a holder of a perfected security interest, its interest would have priority over the federal tax liens. For purposes of the Internal Revenue Code, the term security interest is defined as any interest in property acquired by contract for the purpose of securing payment ... of an obligation. I.R.C. § 6323(h)(1). A security interest exists when the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation. I.R.C. § 6323(h)(1)(A). See, also, 26 C.F.R. 301.6323(h)-1(a)(1)(i) (1996). A security interest is deemed protected against a subsequent judgment lien on the date on which all actions required under local law to establish the priority of a security interest have been taken. 26 C.F.R. 301.6323(h)-1(a)(2)(i)(A). I.R.C. § 6323(h)(1)(A) explicitly provides that the standard of security perfection is dependent on `local law.' Donald v. Madison Industries, Inc., 483 F.2d 837, 841 (10th Cir.1973). If the security interest is sufficiently perfected under state law to be perfected against an unsecured creditor's judgment lien, then it is also perfected for purposes of determining federal tax lien priority. Id. If a state court determines that a lien created under state law is unperfected, this classification is `practically conclusive' that the lien is unperfected under the federal standard as well. U.S. v. Security Tr. & Sav. Bk., 340 U.S. 47, 50, 71 S.Ct. 111, 95 L.Ed. 53 (1950). See, also, Walker v. Paramount Engineering Company, 353 F.2d 445 (6th Cir.1965). Thus, we must look to the law of Nebraska providing for perfection of security interests to determine whether the Committee was a holder of a security interest which has priority over the subsequently filed federal tax liens. The IRS contends that its federal tax liens have priority over the Committee's interest with respect to the interpleader fund because the Committee did not properly perfect its security interest under Nebraska law. The trial court found that the Committee had priority over the federal tax liens because it had a perfected security interest in Midplains' fixtures due to its Holt County filing of July 31, 1995. The Committee's Holt County filing did not perfect a security interest in property other than fixtures because other types of security interests must be filed with the Secretary of State in order to be perfected. See Neb. U.C.C. § 9-401(1)(c) (Reissue 1992). The Committee made no filings with the Secretary of State. Thus, if the Committee did not have a valid fixture lien with respect to the Holt County filing, it could not be a holder of a security interest under I.R.C. § 6323(a) because its interest would not be protected under local law against a subsequent judgment lien arising out of an unsecured obligation. In order to perfect a security interest in fixtures, a financing statement must be filed in the office where a mortgage on the real estate would be filed or recorded which, in this case, is the Holt County register of deeds. See Neb. U.C.C. §§ 9-302 (Cum.Supp.1998) and 9-401. A financing statement filed as a fixture filing must show that it covers this type of collateral, must recite that it is to be filed for record in the real estate records, and the financing statement must contain a description of the real estate sufficient if it were contained in a mortgage of real estate to give constructive notice of the mortgage under the law of this state. Neb. U.C.C. § 9-402(5) (Cum.Supp.1996). Furthermore, if the debtor does not have an interest of record in the real estate, the financing statement must show the name of a record owner. Id. The Committee's financing statement contained none of the information required under § 9-402 for a proper fixture filing. The financing statement described the collateral as equipment, machinery and accounts receivable of Midplains Waste Management L.L.C., but did not describe the collateral as fixtures. The financing statement did not recite that it was to be filed in the real estate records, did not contain a description of the real estate, and did not show the name of a record owner of the real estate. The Committee's financing statement was deficient because it did not include any of the required information. The Committee claims that it had substantially complied with the requirements of a fixture filing, pursuant to § 9-402(8), which provides, A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading. However, this case does not merely involve a financing statement which contained minor errors. This financing statement does not contain any of the additional information required for a financing statement to constitute a valid fixture filing. To find that the Committee's financing statement substantially complied with the filing requirements would be to effectively write the fixture filing requirements out of the statute. See Southwest Bank of Omaha v. Moritz, 203 Neb. 45, 277 N.W.2d 430 (1979). The Committee claims that the IRS was not misled by the Committee's filing and that the IRS' interest was not harmed by the Committee's filing. However, the test of substantial compliance is not whether a particular party was actually misled to its detriment by the irregularities in a financing statement, but `whether or not a `reasonably diligent researcher' would be misled by the irregularity.' Brams Ltd. v. Elf Enters., 253 Neb. 932, 937, 573 N.W.2d 139, 142 (1998). See, also, Lindsay v. First National Bank, 211 Neb. 285, 318 N.W.2d 275 (1982); Mid-Amer. Dairymen, Inc. v. Newman Grove Co-op. Creamery Co., Inc., 191 Neb. 74, 214 N.W.2d 18 (1974). The Committee's financing statement does not provide the information required to put a reasonably diligent researcher on notice of a security interest in fixtures with respect to this real estate. The financing statement did not indicate that it was to be filed with the real estate records. The Committee's financing statement does not substantially comply with the filing requirements for a fixture filing. Based on our de novo review, we find that the Committee did not have a perfected security interest in fixtures that would take priority over the subsequently filed federal tax liens. Even though the Committee's interest arose before the notices of federal tax liens were filed, the Committee's interest does not have priority over the federal tax liens. The Committee does not have an interest protected under local law against a subsequent judgment lien arising out of an unsecured obligation because it failed to file an effective fixture filing. The trial court erred in finding that the Committee's interest had priority over the federal tax liens.