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BERLIN v. UNITED STATES

March 31, 1982

Milton BERLIN, Plaintiff,
v.
UNITED STATES of America, Defendant



The opinion of the court was delivered by: PRATT

MEMORANDUM AND ORDER

By motion submitted for decision March 3, 1982, the government moves to dismiss the complaint, which seeks to enjoin it from enforcing a tax lien. The government contends that even if all of the facts are construed in plaintiff's favor, the tax lien at issue was not and could not have been extinguished in the manner relied upon by plaintiff.

 FACTS

 For purposes of the instant motion, the court accepts all of the allegations in plaintiff's complaint as true. On December 2, 1975, IRS filed a notice of federal tax lien in the office of the Clerk of Suffolk County in the amount of $ 5,688.68 against the interest of Bernard Early in a home he owned with Ann Early located in East Northport, New York. On June 30, 1976, Guardian Loan Company, Inc. obtained a judgment against Bernard and Ann Early in the amount of $ 1,268.93, which was docketed in the office of the Clerk of Suffolk County on July 14, 1976. Thus, Guardian's judgment lien was second in time to IRS' senior federal tax lien.

 In April, 1977, Guardian delivered to the sheriff of Suffolk County an execution for the purpose of selling the East Northport property to satisfy the judgment. All of the notice of sale requirements imposed by law were complied with.

 After several adjournments, the sheriff's execution sale took place on August 1, 1977. Plaintiff, the highest bidder, received a deed from the sheriff on August 3, 1977 which was recorded in the office of the Clerk of Suffolk County on August 29, 1977. In 1980, plaintiff conveyed title to his nominee corporation, Grid Realty Corp., which, in turn, conveyed title on September 12, 1980 to Anathasia Spencer, who is now the owner of record.

 At the closing of title between Grid Realty Corp. and Spencer, on September 12, 1980, Spencer's title insurance company demanded that plaintiff deposit $ 6,000 as security against the Early federal tax lien. Although plaintiff disputed the validity of the federal tax lien, he deposited the $ 6,000 security.

 On November 24, 1980, IRS served a notice of levy upon the title company's agent, seeking the unpaid balance of the Early tax assessment in the amount of $ 1,844.26. Plaintiff then commenced this action seeking to enjoin IRS from enforcing the levy. Jurisdiction is provided by 26 U.S.C. § 7426.

 VALIDITY OF FEDERAL TAX LIEN

 The issue before the court is whether the sheriff's execution sale, pursuant to a junior judgment lien, extinguished the senior tax lien. Plaintiff argues that it did. The government contends that even if plaintiff complied with all federal and state notice requirements, the execution sale could not and did not extinguish the senior IRS lien. The government relies upon both federal regulation and state law in support of its contention.

 The parties agree that discharge of a federal tax lien is governed by federal law, except to the extent that federal law makes state law controlling. The parties also agree that a sheriff's execution sale is a non-judicial sale within the meaning of 26 U.S.C. § 7425, and thus governed by 26 U.S.C. § 7425(b), entitled "Other Sales", which provides as follows:

 
(b) Notwithstanding (the provisions relating to judicial sales) a sale of property on which the United States has or claims a lien * * * pursuant to a nonjudicial sale under a statutory lien on such property-
 
(1) shall, except as otherwise provided, be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded in the place provided by law for such filing or recording more than 30 days before such sale and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1); or
 
(2) shall have the same effect with respect to the discharge or divestment of such lien or such title of the United States, as may be provided with respect to such matters by the local law of ...

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