Internal Revenue Service
Revenue Ruling
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smRev. Rul. 56-41
1956-1 C.B. 562
Sec. 6323
IRS Headnote
An advance of money by a mortgagee under an `open-end mortgage' providing for subsequent loans to a mortgagor secured by the original mortgage does not have priority over an intervening recorded Federal tax lien.
Full Text
Rev. Rul. 56-41
Advice has been requested whether an advance of money by a mortgagee under an `open-end mortgage' subsequent to the original loan has priority over an intervening recorded Federal tax lien.
The `open-end mortgage' originated by certain loan companies is stated to be a mortgage with a future advance clause proviidng for increasing an existing mortgage debt. Any loan or advance made subsequent to the original loan is secured by the same mortgage.
Section 6321 and 6322 of the Internal Revenue Code of 1954 provide that personal and real property of a delinquent taxpayer is subject to a lien in favor of the United States and that such lien arises at the time the assessment is made. Section 6323 of the Code provides that with respect to a mortgagee, pledgee, purchaser or judgment creditor, the tax lien to be effective must be recorded by the Secretary or his delegate. The only exception to this provision is contained in subsection (c) relating to securities.
It is well established that the power of the United States to collect taxes cannot be restricted or in any way regulated by state laws unless specifically provided for by Congress. Thus, a state law exempting certain property from attachment or execution has no application to a Federal tax lien which under the paramount Federal law is binding from the date of its recordation without actual notice of it, except in the case of securities.
In United States v. Security Trust & Savings Bank of San Diego, Executor etc., et al. , 340 U.S. 47, Ct.D. 1736, C.B. 1950-2, 151, it was held that a tax lien of the United States is prior in right to an attachment lien where the Federal tax lien was recorded subsequent to the date of the attachment lien but prior to the date the attaching creditor obtained judgment. In arriving at its decision, the Court concluded that the attachment lien was merely inchoate prior to a judgment, notwithstanding the fact that under California law the attachment created a lien from the date of the levy of the attachment. The Court pointed out that the effect of a lien in relation to a provision of Federal law for the collection of debts owing the United States is always a Federal question. Hence, although a state court's classification of a lien as specific and perfected is entitled to weight, it is subject to reexamination by the courts. The doctrine of relation back, which by process of judicial reasoning merges the attachment lien in the judgment and relates the judgment lien back to the date of attachment, does not operate to destroy the realities of the situation. Thus, an attachment lien not having been reduced to a judgment constitutes a mere `caveat of a more perfect lien to come' and would not have precedence over a recorded Federal tax lien.
A similar conclusion was reached by the Court in United States v. Waddill Holland & Flinn Inc. et al. , 323 U.S. 353, Ct. D. 1624, C.B. 1945, 459, where it was held that a Federal claim had priority over a landlord's contingent lien for rent notwithstanding the fact that under Virginia law the landlord was given a fixed and specific lien which related back to the beginning of the tenancy.
In the case of an `open-end mortgage' which covers future advances, it is possible that no future advance may ever be made. Therefore, until such an advance is actually made, there can be no fixed and specific or perfected lien under Federal law as distinguished from a mere contingent lien or `caveat of a more perfect lien to come.' Consequently, an intervening recorded Federal tax lien has priority over advances made subsequent to the date of such recording.