USA, ET AL V. ROBERT MACKENZIE
- Case Type:
- Consumer
- Case Status:
- Reversed and Remanded
- Citation:
- 23-15825 (9th Circuit, Sep 03,2024) Published
- Tag(s):
-
- Ruling:
- Avoidance under 11 U.S.C. § 724(a) of the portion of a tax lien for penalties does not alter the priority of the amount of the tax authority's unavoided lien claim against the proceeds of the sale of encumbered property. Even though the trustee's sale of the encumbered property did not yield sufficient proceeds to pay the IRS's unavoided lien claim, the estate's lien status under 11 U.S.C. § 551 did not prime the IRS's lien status.
- Procedural context:
- After losing in the bankruptcy court, the IRS appealed to the United States District Court for the District of Arizona. The district court affirmed the bankruptcy court, and the IRS appealed to the United States Court of Appeals for the Ninth Circuit.
- Facts:
- In 2013, the IRS recorded a tax lien against Michael Leite and Andrea Carvalho's real property for unpaid taxes, interest, and penalties from 2009. Six years later, Leite and Carvalho filed a Chapter 7 bankruptcy petition. The IRS filed a proof of claim for $81,174.13, of which $26,900.19 was for past-due taxes, $19,038.80 was interest, and $32,235.14 was penalties.
The Chapter 7 trustee sold the debtors' real property and netted $38,640.80. The trustee then commenced adversary proceedings to avoid the penalty portion of the federal tax lien. The trustee moved for summary judgment and argued that the proceeds should be allocated between the IRS and the estate on a pro rata basis. The IRS conceded that the penalties were avoidable, but the net proceeds should be paid to the IRS in partial satisfaction of its tax lien.
The bankruptcy court noted the lack of precedent on this dispute and concluded that the pro rata allocation "makes the most sense." In reaching this conclusion, the bankruptcy court concluded that the IRS and the bankruptcy estate share the same priority following avoidance under 11 U.S.C. §§ 724 and 551.
- Judge(s):
- Susan P. Graber, Roopali H. Desai, and Ana de Alba, Circuit Judges
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