Under the Internal Revenue Code, a tax lien arises at the time of assessment, 26 U.S.C.S. § 6322, on all property and rights of property, whether real or personal, belonging to a delinquent taxpayer. 26 U.S.C.S. § 6321. The Federal Tax Lien Act, 26 U.S.C.S. § 6323, provides, however, that the tax lien shall not be valid as against any holder of a security interest until notice thereof which meets the requirements of 26 U.S.C.S. § 6323(f) has been filed. 26 U.S.C.S. § 6323(a). Therefore, any security interest which arises prior to the proper filing of a federal tax lien takes priority over the tax lien.
Highlander International Corporation (Highlander), the real party in interest, entered into a security agreement with Litton Industrial Automation Systems, Inc. (Litton), which granted Highlander a security interest in a money judgment owed to Litton. Litton initiated an interpleader action to determine which party was entitled to the funds. The district court granted summary judgment to the government, and held that a federal tax lien was entitled to priority over Highlander's security interest. Highlander sought review.
Did the district court err in its determination that the security interest held by appellant creditor, the real party in interest, was subordinate to a federal tax lien?
The Court affirmed and held that under the hypothetical judgment lien creditor test, Highlander was not protected under Florida law against a judgment lien. The Court reasoned that the government's judgment lien was equivalent to the interest of a Uniform Commercial Code (UCC) lien creditor. As such, because Highlander's interest in the funds was unperfected under Florida law on the date that the notice of federal tax lien was filed, appellant's interest was subordinate to that of a UCC lien creditor. Thus, Highlander's interest was not protected against a judgment lien that arose on the same date and it was not a security interestwithin the meaning of the law.