On Nov. 15, 2000, Robert J. Ambrose conveyed his house to International Advisory Services Inc. (IAS). On Aug. 11, 2003, the Internal Revenue Service made jeopardy tax assessments for unpaid taxes of $170,890 against IAS.
The IRS recorded its income tax lien against IAS on Aug. 14, 2003.
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IAS then assigned the proceeds of the home sale to the Evelyn J. Fisher Revocable Trust. On Aug. 29, 2003, more than two weeks after the IRS recorded its tax lien, IAS sold the property for $202,000.
Homestead Title Co. handled the closing at its office where it received an affidavit by Ronald C. Keeling, vice president of IAS, which stated that the property was not subject to any IRS tax lien.
At the closing, Homestead issued its check for the $107,728 net proceeds, payable to the estate of Evelyn J. Fisher. However, upon discovering the IRS tax lien, Homestead stopped payment on the check.
Homestead then filed this interpleader court action to determine whether the IRS or the Fisher trust is entitled to the $107,728 home sale net proceeds.
The IRS argued it was entitled to the money because its tax lien was filed on Aug. 14, 2003, well before the property sale. But the Trust replied it was entitled to the sales proceeds.
If you were the interpleader judge, would you rule the $107,728 goes to the IRS or the Trust?
The judge ruled the money goes to the IRS.
“The general rule is first in time, first in right,” the judge began. “The Trust does not contest the validity of the tax lien against IAS or any of these documents. There is no evidence that IAS disputes the jeopardy assessment or the lien,” he continued.
Because the IRS tax lien attached to the house on Aug. 14, 2003, well before its sale on Aug. 29, 2003, that lien has priority, the judge emphasized.
The facts are a bit confusing, he commented. But the IRS tax lien takes priority and attached to the property as well as to the $107,728 sales proceeds because it was recorded before IAS made its assignment to the Trust, the judge ruled.
Based on the 2005 U.S. District Court decision in Homestead Title v. U.S., 2005-2 USTC 50451.
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