United States v. Reese

• Decision Date: 23 November 1942
• Docket Number: No. 8035.,8035.
• Citation: 131 F.2d 466
• Parties: UNITED STATES v. REESE et al. PEOPLE OF STATE OF ILLINOIS v. UNITED STATES et al.
• Court: U.S. Court of Appeals — Seventh Circuit

131 F.2d 466 (1942)

UNITED STATES v. REESE et al. PEOPLE OF STATE OF ILLINOIS v. UNITED STATES et al.

No. 8035.

Circuit Court of Appeals, Seventh Circuit.

November 23, 1942.

Jacob Shamberg, Thos. J. Courtney, State's Attys., Marshall V. Kearney, and Francis S. Clamitz, Asst. State's Attys., all of Chicago, Ill., for appellant.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, J. Louis Monarch and Arthur Manella, Sp. Assts. to the Atty. Gen., J. Albert Woll, U. S. Atty., and Clarence W. Beatty, Jr., Sp. Asst. to the U. S. Atty., both of Chicago, Ill., for appellee.

Before EVANS, KERNER, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

This appeal presents an issue as to the respective priorities of liens for taxes of the United States and of the state of Illinois upon the property of Nelson K. Reese, bankrupt July 3, 1936, his estate being thereafter administered in the District Court. Each sovereignty sought to foreclose its lien and the causes were consolidated for hearing. The District Court assigned priority to the government's claim for income taxes over the state's for real estate taxes and from this adjudication the latter appeals.

The state tax is that upon the bankrupt's real estate for the years 1930 and 1931; that of the government is upon his income for various years merged in an assessment filed by the Collector of Internal Revenue on December 7, 1931. Thenceforth the government had a lien upon the bankrupt's property by virtue of the Internal Revenue Act. 26 U.S.C.A. Int.Rev. Code, §§ 3670, 3671, 3672.

The claim of the state arises by virtue of section 238, c. 120, Smith-Hurd Rev.Stats.1935, Section 238, Chapter 120 of the Illinois Revised Statutes, as follows: "The taxes upon real property * * * shall be a prior and first lien on such real property, superior to all other liens and incumbrances, from and including the first day of April in the year in which the taxes are levied until the same are paid. * * *" Thus the taxes became a "first and prior" lien upon the real estate on April 1 of the respective years. The amount to be paid and secured by the lien, however, was not determined as to 1930 until December 28, 1931, and as to 1931, until February 5, 1933.

The District Court found the lien of the government, which attached in a specific amount in December, 1931, entitled to priority over the liens of the state which had attached in April, 1930 and 1931, in view of the fact that the taxes due the state were uncertain as to amount at all times prior to the date of accrual of the government's lien in December, 1931. The state now insists that its lien attached on April 1 preceding that of the government, and was specific, in that it covered the real estate of the landowner taxed and that, while inchoate, all the world was bound to have notice of it and to know that it would be fixed in amount by later assessment by the proper officials.

The nature of the state lien is a state question. Spokane County, Washington v. U. S., 279 U.S. 80, 49 S.Ct. 321, 73 L.Ed. 621. Under provisions of the Illinois statute, taxes upon real property are prior and first liens, superior to all other incumbrances after "the first day of April in the year in which the taxes are levied until the same are paid." Under pertinent Illinois decisions it is determined that this statute creates a prior and first lien although the amount of taxes is not fixed till later, dating from April 1. The amount determined later is secured by the lien thus brought into existence prior to assessment. People ex rel. McCullough v. Deutsche Gemeinde, 249 Ill. 132, 138, 94 N.E. 162; Almy v. Hunt, 48 Ill. 45; Morrison v. Moir Hotel Co., 204 Ill.App. 433. And the Supreme Court has recognized the finality of this ruling in Osterberg v. Union Trust Co., 93 U.S. 424, where it said at 428, 23 L.Ed. 964, "The taxes for 1875 were, at the date of the decree, a subsisting lien upon the mortgaged property. * * * A lien for taxes * * * attaches to the res without regard to individual ownership, and when it is enforced by sale, pursuant to the statute prescribing the mode of assessing and collecting them, the purchaser takes a valid and unimpeachable title."

Construing a similar statute in U. S. v. State of Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327, the court held that when the government purchases property subject to a state lien for unliquidated and undetermined taxes, it takes the property subject to a state lien for the taxes to be fixed later, using this language at page 280 of 313 U.S., on page 1013 of 61 S.Ct., 85 L.Ed. 1327: "The State thus undertakes to create an inchoate lien upon the land as of the tax day, a lien which is to be effective for the amount of the taxes for the ensuing year as these are fixed by the defined statutory method. This lien by the state law is made effective not only as against the owners on the tax day but also as against subsequent mortgagees and purchasers. * * * We find nothing in the Federal Constitution which invalidates such a statutory scheme. Subsequent lienors and purchasers have due notice of the tax liability imposed as of the tax day and of the process of assessment, and that liability, when its amount is definitely ascertained, relates back to the day specified. * * * The lien in such a case, though inchoate on the day specified, and maturing when the extent of liability is ascertained by the statutory process, is similar in that respect, * * * to the lien of a transfer tax or duty upon the estate of a decedent which is effective although the amount is ascertained after death." And it is urged by the state that the same rule should apply where the government, though not a purchaser as in the case cited, is asserting a lien which has come into existence subsequently to attachment of the state's lien.

Ordinarily it would seem obvious that if a subsequent purchaser does not take free of an inchoate unliquidated tax statutory lien it would follow that a subsequent acquirer of a lien could not take free thereof. But this postulate obviously omits all consideration of the nature of the government's lien, of its constitutional power to levy and collect taxes and, finally, of the legislation which Congress has enacted pursuant to such power which has been declared valid by the Supreme Court. The Constitution, Article I, Section 8, provides that Congress shall have power to lay and collect taxes and to make all laws which shall be necessary and proper to carry its powers into execution. Early in our national history, Section 3466 (31 U.S.C.A. § 191) of the Revised Statutes was enacted, providing in part that "whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor * * * is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied." The constitutionality of this provision for priority of claims of the United States against insolvent debtors was established in an early day in United States v. Fisher, 1805, 2 Cranch, 358, 2 L.Ed. 304, and elaborated upon later in Lane County v. State of Oregon, 7 Wall. 71, 19 L.Ed. 101; U. S. v. Snyder, 149 U.S. 210, 13 S.Ct. 846, 37 L.Ed. 705; U. S. v. San Juan County, Wash., D.C., 280 F. 120 and Stover v. Scotch Hills Coal Co., D.C., 4 F.2d 748.

We can only conclude from these and other decisions that in case of contemporaneous dates of liens on the same subject matter by both government and the state, the United States must have...