Regnante, Theodore C

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Boston College Law ReviewVolume 1 | Issue 2 Article 444-1-1960Taxation—Attachment Lien Not Entitled toPriority Over Subsequent Federal TaxLien.—Manchester Federal Savings and LoanAssociation v. Emery Waterhouse Co.Theodore C. RegnanteFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Tax Law CommonsThis Casenotes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been acceptedfor inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For more information,please contact nick.szydlowski@bc.edu.Recommended CitationTheodore C. Regnante, Taxation—Attachment Lien Not Entitled to Priority Over Subsequent FederalTax Lien.—Manchester Federal Savings and Loan Association v. Emery Waterhouse Co., 1 B.C.L. Rev.315 (1960), http://lawdigitalcommons.bc.edu/bclr/vol1/iss2/44CASE NOTESTaxation—Attachment Lien Not Entitled to Priority Over SubsequentFederal Tax Lien.—Manchester Federal Savings and Loan Associationv. Emery Waterhouse Co.1—Following a foreclosure sale of a parcel ofproperty subject to a real estate mortgage, a bill of interpleader was filed todetermine the rights of a number of claimants to the proceeds of the sale inexcess of the amount paid to the mortgagee. Following the execution of thefirst mortgage certain creditors made attachments, a second mortgage wasexecuted, and a federal tax lien was imposed. The proceedings involved anapplication of the Mt. Rev. Code of 1954 § 6323 which provides that thelien of the United States for taxes "shall not be valid as against any mort-gagee, pledgee, purchaser, or judgment creditor whose liens . . . " antedatethe tax lien.2 On record questions the Supreme Court of New Hampshireheld, inter alia, that the federal tax lien did not have priority over thesecond mortgage but did have priority over the attachments of the creditorswho had not taken judgment and subsequently had not perfected theirinchoate attachment Iiens. 3The question frequently arises as to whether liens which have attachedprior to the filings of a federal tax lien are entitled to priority over it. TheSupreme Court of the United States has taken the position that only liensthat are perfected and choate are entitled to priority. 4 For a lien to meetthese requirements: (1) the property subject to the lien must be definite,(2) the identity of the lienor must be established, (3) the amount of thelien must be in an exact amount and be fixed and determined with finality. 3Congress, however, has specifically given protection to prior liens ofmortgagees, pledgees, purchasers, and judgment creditors' As the court inthe instant case points out, an attachment lien is neither a perfected lienbecause it is contingent upon the creditor getting judgment, nor does it fallwithin the class of judgment creditors specifically protected by the Int.Rev. Code of 1954.7 The creditors in this case in order to protect theirrights would have had to get judgment before the federal tax lien was filed.Moreover, if this were a case involving personal property, it would seemthat the mere entry of judgment would not be sufficient for the creditors topreserve their rights. Security would only be obtained by the creditors re-ducing the property to their ,constructive possession by delivery of a writ ofexecution to the sheriff prior to the time that the federal tax lien was filed. 81 153 A.2d 918 (N.H. Sup. Ct. 1959).2 Int. Rev. Code of 1959, § 6323.3 Two creditors received judgment but had failed to levy execution within thirtydays of judgment as required by N.H. Rev. Stat. ch. 511-55 and therefore had losttheir security rights; Murphy v. Hill, 68 N.H. 544, 44 Atl. 703 (1896). Other creditorshad attached the property, but the actions had been continued for judgment at thetime the federal tax lien was filed. Therefore, they were not judgment creditors; UnitedStates v. Security Trust & Savings Bank, 340 U.S. 47 (1950).4 United States v. Security Trust & Savings Bank, supra note 3.5 Illinois ex rel. Gordon v. Campbell, 329 U.S. 362 (1946).6 Int. Rev. Code of 1954, § 6323.7 United States v. Security Trust & Savings Bank, supra note 3.8 United States v. Levin, 128 F. Supp. 465 (D. Md. 1955). See Mosner, FederalTax Liens, 17 Md. L. Rev. 1, 10 (1957).315BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWWhether a lien fulfills the requirements of specificity stated above is amatter of federal law. 9 A state court's characterization of a lien as specificand choate, while entitled to consideration, is not binding on the federalcourts.'9 On the other hand, if the state court decides that the lien isinchoate, as was done in the instant case, this classification is practicallyconclusive,"The doctrine of the inchoate lien has been the subject of severe criti-cism.'2 One critic has pointed out that the concept of the inchoate lien ascreated by the Supreme Court has subsequently been enlarged to includepractically every lien to be found in American law.' 3 The most validcriticism seems to be that it does not apply to federal tax liens. The federaltax lien is not regarded as an inchoate general lien, but a specific and per-fected lien which without the aid of any subsequent court action attaches tothe property of the tax debtor."The problem of the inchoate lien probably would not have arisen hadthe Supreme Court adhered to a holding that the priority of liens be basedupon a "first in time, first in right theory" which they seemed to follow in anearlier case.' However, since the Court did not subsequently follow therule it has become, in this regard, purely academic." It is felt that Congresscould ameliorate the situation presented in the instant case by providing thatwhen an attachment lien is followed by judgment, the judgment should re-late back to the date of the attachment and thereby the priority of the lienbe preserved. There seems to be no indication, however, of any Congres-sional action in this respect within the immediate future."THEODORE C. REGNANTETaxation—Federal Income—Statutory Interpretation—Useful Life-Salvage Value.—Hertz Corporation v. United States.'—The corporatetaxpayer was engaged in the business of renting automobiles and trucks,the former of which had a useful life to it of less than three years but aphysical life of four. In preparing the federal income tax returns for theyears 1954, 1955, and 1956, the taxpayer claimed depreciation on the auto-mobiles on the basis of the four year physical life using the decliningbalance method at a rate of fifty per cent per year on the undepreciated9 United States v. Gilbert Associates, 345 U.S. 361 (1953).10 United States v. Waddell, Holland & Flinn, Inc., 323 U.S. 353 (1945).31 Illinois ex rel. Gordon v. Campbell, supra note 5, at 371.12 MacLachlan, Improving the Laws of Federal Liens and Priority, 1 B. C. Ind.& Corn. L. Rev. 73 (1959).15 Kennedy, The Pernicious Career of the Inchoate and General Liens, 63 YaleL.J. 905 (1954).14 Note, 22 Geo. Wash. L. Rev. 583, 588 (1954).15 United States v. City of New Britian, 347 U.S. 81 (1954).16 Comment, 54 Mich. L. Rev. 829 (1956).17 MacLachlan, supra note 12, at 82.1 268 F.2d 604 (3d Cir. 1959).316

Taxation—Attachment Lien Not Entitled to Priority Over Subsequent Federal Tax Lien.—Manchester Federal Savings and Loan Association v. Emery Waterhouse Co.

Taxation—Attachment Lien Not Entitled to Priority Over Subsequent Federal Tax Lien.—Manchester Federal Savings and Loan Association v. Emery Waterhouse Co.

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