United States v. Spoor

• Decision Date: 04 October 2016
• Docket Number: No. 15-12877,15-12877
• Citation: 838 F.3d 1197
• Parties: United States of America, Plaintiff–Appellant, v. F. Gordon Spoor, as the Personal Representative of the Estate of Louise P. Gallagher, as the Trustee of the Louise Paxton Gallagher Revocable Trust, Defendant–Appellee, Paxton Media Group, LLC, Intervenor–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

838 F.3d 1197

United States of America, Plaintiff–Appellant,

v. F. Gordon Spoor, as the Personal Representative of the Estate of Louise P. Gallagher, as the Trustee of the Louise Paxton Gallagher Revocable Trust, Defendant–Appellee,Paxton Media Group, LLC, Intervenor–Appellee.

No. 15-12877

United States Court of Appeals, Eleventh Circuit.

Date Filed: October 4, 2016

Rachel Ida Wollitzer, U.S. Department of Justice, Chief Appellate Section Tax Division, Washington, DC, Caroline D. Ciraolo, Chief Counsel—IRS, Washington, DC, Gregory L. Jones, U.S. Department of Justice, Tax Division, Washington, DC, Teresa E. McLaughlin, U.S. Department of Justice, Chief Appellate Section Tax Division, Washington, DC, for Plaintiff–Appellant.

Hala A. Sandridge, Darren Farfante, Buchanan Ingersoll & Rooney, PC, Tampa, FL, for Intervenor–Appellee.

William G. Lazenby, Law Office of Ellison & Lazenby, PLLC, St. Petersburg, FL, Steven L. Brannock, Brannock & Humphries, PA, Tampa, FL, Ceci Berman, Brannock & Humphries, PA, Tampa, FL, for Defendant–Appellee.

Before MARCUS and WILLIAM PRYOR, Circuit Judges, and LAWSON,^* District Judge.

MARCUS

, Circuit Judge:

In this tax case, the United States appeals the district court's determination that commissions claimed by Defendant F. Gordon Spoor as personal representative of the Louise P. Gallagher Estate and as trustee of the Louise Paxton Gallagher Revocable Trust have priority over a special deferred estate tax lien on property designated by agreement under I.R.C. § 6324A

. Our review, aided by oral argument, of the text and structure of § 6324A leads us to the opposite conclusion. We agree with the United States that special estate tax liens on property designated by § 6324A, unlike estate tax liens on the gross estate pursuant to § 6324, are not subject to an executor's claims for administrative expenses. We also hold that Spoor's administrative expenses do not take priority over income tax liens imposed pursuant to § 6321.

I.

The basic facts are not in dispute. On October 17, 1989, Louise Paxton Gallagher created the Louise P. Gallagher Revocable Trust (“Trust”). When Gallagher died on July 5, 2004, the Trust contained 3,970 membership units (later redenominated as 39,700 units) in Paxton Media Group, LLC (“Paxton”), a privately held and family-owned newspaper publishing company. Defendant F. Gordon Spoor is the personal representative of Gallagher's estate as well as the trustee of the Trust.

On September 30, 2005, Spoor filed a Form 706 federal estate tax return on behalf of the Estate. The tax return valued the Estate at $36,624,546, of which $34,936,000 reflected the Paxton membership units held in the Trust. The return reported a federal estate tax liability of $15,524,223. Spoor claimed a $1,086,265 deduction for his personal representative fee for administering the Estate. The IRS challenged the valuation of the Paxton units, and the Estate filed a petition in Tax Court to contest the deficiency determination. The Tax Court valued the Paxton units at $35,761,760, and assessed an additional estate tax liability and failure to pay penalties totaling $401,743.89.

On its estate tax return the Estate elected to defer and pay its estate tax liability in ten equal installments, pursuant to I.R.C. § 6166

.¹ The Estate made tax payments totaling $3,007,364.83 in 2005, and a payment of $687.70 in March 2006. The Estate made additional payments of between $1.7 million and $1.8 million each in April of 2006, 2007, and 2008. In August 2010, the Estate agreed to the creation of a special deferred estate tax lien on the Paxton units pursuant to § 6324A. The IRS recorded notice of the lien in the public records of McCracken County, Kentucky, on September 3, 2010. By 2012 the value of the Paxton units had become less than the unpaid portion of the deferred tax and interest, and the IRS demanded additional collateral from the Estate. When the Estate was unable to provide additional collateral within 90 days, the IRS accelerated the remaining deferred tax obligations. As of September 10, 2013, the remaining estate tax, penalties, and interest totaled $10,483,006.47. Because the Estate also failed to pay its reported income taxes, as of September 2013 the Estate owed an additional $551,106.39 in income tax, penalties, and interest. Pursuant to § 6321, the failure to pay income tax liabilities resulted in federal tax liens attaching to the Estate beginning on September 20, 2010.

On September 17, 2013, the United States filed a complaint in the United States District Court for the Middle District of Florida against the Estate and Trust to foreclose the designated property lien under § 6324A

and the income tax liens.² Spoor did not dispute the validity or amount of the IRS liens, and on September 26, 2014, the district court granted summary judgment in favor of the United States on its right to foreclose its tax liens on the Paxton units. Spoor filed a cross-motion for summary judgment, asserting that his claim to administrative expenses took priority over the government's liens. At the time of summary judgment, Spoor had paid himself $600,000 of his $1,086,265 claim, leaving $486,265 yet to be paid. According to Spoor, the value of Paxton units owned by the Estate had fallen to approximately $2 million. Because the estate taxes take priority over the unpaid income taxes, and the Estate's assets are insufficient to cover both the estate taxes and Spoor's commissions, the key question is whether estate taxes take priority over Spoor's commissions.

The district court entered summary judgment in favor of Spoor. The court held that § 6324A

is “silent as to the priority of claims which arise prior to a federal tax lien.” To resolve the question, the court relied on the common-law principle that “the first in time is the first in right.” Because Spoor's administrative expense claim, as filed with the Form 706 tax return in 2005, arose prior to the tax liens that were recorded and assessed in September 2010, the court concluded that Spoor's claim had priority. The court further held that this result was supported by public policy considerations, because estates might not be administered if personal representatives were not confident that they would be compensated for their efforts. The United States timely appealed this adverse portion of the court's order.

II.

We review a district court's grant of summary judgment de novo. See Boim v. Fulton Cty. Sch. Dist., 494 F.3d 978, 982 (11th Cir. 2007)

. “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) ; Clemons v. Dougherty Cty., 684 F.2d 1365, 1368 (11th Cir. 1982).

The priority of federal tax liens against competing claims is governed by federal law. Aquilino v. United States, 363 U.S. 509, 513–14, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960)

; Equity Inv. Partners, LP v. Lenz, 594 F.3d 1338, 1344 (11th Cir. 2010). “Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, priority for purposes of federal law is governed by the common-law principle that ‘the first in time is the first in right.’ ” United States v. McDermott, 507 U.S. 447, 449, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993) (quoting United States v. New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 98 L.Ed. 520 (1954) ).

III.

A.

We begin with an overview of the relevant tax lien statutes. Generally, when a taxpayer fails to pay a tax, that amount, plus interest and penalties, becomes a lien in favor of the United States upon all property belonging to the taxpayer. § 6321. The lien arises at the time the tax assessment is made. § 6322. Until the lien is recorded, it does not have priority against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor. § 6323(a). Once the lien is recorded, it may still be primed by various other claims enumerated in § 6323(b), such as by certain purchasers who do not have actual notice or knowledge of the lien. § 6323(b)(1)(A).

Liens for estate taxes operate slightly differently. Under § 6324, the estate tax lien arises automatically from the date of death, and attaches to the gross estate, “except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration ... shall be divested of such lien.” § 6324(a)(1). The estate tax lien is not valid against a mechanic's lienor or any of the interests that prime general tax liens listed in § 6323(b). § 6324(c)(1).

An alternative to this gross estate tax lien is available if more than 35 percent of the value of the adjusted gross estate is attributable to an interest in a closely held business. § 6166(a)(1)

. Then, the executor may elect to pay the tax in up to ten equal installments, with the first payment due up to five years from the payment due date that would otherwise apply. Id.; § 6166(a)(3). The deferred amount of estate tax, plus any interest, penalties, and costs, becomes a lien in favor of the United States. § 6324A(a). As collateral, the executor may identify “section 6166 lien property” in lieu of the § 6324 gross estate lien after receiving written consent from each person having an interest in the designated property. § 6324A(a), (c), (d)(4). The maximum value of the property which the United States may require as § 6166 lien property shall not be greater than the deferred amount and required interest, taking into account any encumbrance on the property such as a lien on farm property. § 6324A(b)(2)

. Until the special lien is recorded, it is not valid against any purchaser, holder of a security interest, mechanic's lien, or judgment lien creditor. § 6324A(d)(1). Even after the special lien is recorded, it is not valid against certain other interests including real property tax and special assessment liens. § 6324A(d)(3).

If the value of the property...