United States Ex Rel. Internal Revenue Service v. McDermott

Background

The dispute involved the IRS (on behalf of the United States), Zions First National Bank, and Mr. and Mrs. McDermott, who owed federal taxes. The IRS assessed the McDermotts on December 9, 1986, and filed notice of a tax lien in Salt Lake County on September 9, 1987. The bank had docketed its state-court judgment on July 6, 1987. The McDermotts acquired real property on September 23, 1987, and put the property into escrow for sale, leading to a fight over who gets the sale proceeds.

Reasoning

The Court addressed whether the bank’s judgment lien was sufficiently “perfected” before the IRS filed notice and whether priority depends on filing or actual attachment to the specific property. The majority held that for purposes of 26 U.S.C. §6323(a) the IRS lien is dated from the filing of notice and is therefore “first in time” against competing interests, even when the tax lien and the judgment lien attach to after-acquired property at the same moment. The Supreme Court reversed the lower courts and awarded priority to the federal tax lien.

Real world impact

The ruling means an earlier-filed IRS notice can beat a previously docketed state judgment that has not yet attached to the particular property. People handling sale proceeds, buyers, and creditors must look to filing and attachment timing. The decision is not a merits ruling on other defenses and applies to priority questions governed by the tax-lien statute.

Dissents or concurrances

Justice Thomas (joined by Justices Stevens and O’Connor) dissented, arguing a validly docketed Utah judgment lien was already certain and enforceable and should have retained priority over the IRS when no further action was needed to make the lien choate.