# Prologue — Minnesota Department of Revenue v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Prologue
- **Published:** January 1, 2000
- **Citation:** 528 U.S. 1075

## Text

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OFFICE OF THE CLERK

In The
Supreme Court of the United States

+
STATE OF MINNESOTA, DEPARTMENT OF REVENUE,

Petitioner,

UNITED STATES OF AMERICA,

Respondent.
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On Petition For Writ Of Certiorari
To The United States Court Of Appeals
For The Eighth Circuit
¢

PETITION FOR A WRIT OF CERTIORARI
¢

Mike HatcuH
Attorney General,
State of Minnesota

Barry R. GRELLER
Assistant Attorney General
(Counsel of Record)

STEPHEN F. SIMON
Assistant Attorney General
(Of Counsel)

600 North Robert Street,
Suite 4000

St. Paul, MN 55146-0600

Telephone: (651) 296-0982

Attorneys for Petitioner

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-2831

pt seins

On PAT a

QUESTION PRESENTED

This Court’s test for determining whether tax liens
are “choate” for lien priority purposes examines the point
at which the liens become summarily enforceable by the
taxing authority. Minnesota’s tax liens became summarily
enforceable under Minnesota law as of the date on which
a taxpayer filed its returns. Were Minnesota’s tax liens
“choate” as of the date on which the taxpayer filed its tax
returns, so that its liens were superior to the IRS liens?

il

TABLE OF CONTENTS

Page
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TABLE OF ALSURSCRRIEMD 6. c0sdsdbanieakesesewess iii
COPEPURLINGS UUURASOT sc vss 0sccsnanauaeeueeaeenes ee 1
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CONSTITUTIONAL AND STATUTORY
PROVING CVE. osc csnsceasunavacessaes 1
SIATEMENT OF TRGB CAGR. «<6 ccciducesestccintss 2
REASONS FOR GRANTING THE PETITION ....... 4
I. The Eighth Circuit Decision Runs Afoul Of This
Court’s Lien Priority Jurisprudence ............ 4

ll. The Eighth Circuit Decision Attributes Statutory
Absurdities To The Minnesota Legislature...... 9

A. The Court Of Appeals’ Reading Of Minn.
Stat. § 289A.35 Ignores Core Choateness
Principles, Renders Other Minnesota Tax
Statutes Superfluous, And Fails To Address
The Facts Ob File Gi dein cnccasesusevee 10

B. The Court Of Appeals Mischaracterizes The
Language Of Minnesota’s Late Payment Pen-
alty Statute, And Ignores The Other Penalty
Statutes At Issue In This Case............. 14

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TABLE OF AUTHORITIES

Page
FEDERAL CASES
‘Aquilano v. United States, 363 U.S. 509 (1960) ......... 4
Comm’r of Internal Revenue v. Brown, 380 U.S. 563

oes SOL ee ETE Ee eee Ter ere ore 10
Dep't of Revenue of Oregon v. ACF Industries, 510

EE Sen chan sae bad didnces aden babaceers 10
Escoe v. Zerbst, 295 U.S. 490 (1935).................. 11
Middlesex Savings Bank v. Johnson, 777 F. Supp.

I I osc kw nnu chewed sakedewn., 8
Minnesota, Dep't of Revenue v. United States, 184

oe BE 1
In re Priest, 712 F.2d 1326 (9th Cir. 1983), modified,

Wee wae Gre CPU Cie, TOO)... ce cece en cceacs 7
Tully v. Griffin, 429 U.S. 68 (1976)................05. 10
United States v. New Britain, 347 U.S. 81 (1954) ..5, 6, 7
United States v. Vermont, 377 U.S. 351 (1964)........ ef
United States v. Zacks, 375 US. 59 SE ere 10

STATE CASES

Carl Bolander & Sons Co. v. Minneapolis, 488
N.W.2d 804 (Minn. Ct. App. 1992), aff'd, 502

Pa.ewete 200 CIM. 1993) own. ck ccc ccc cccccccs 11
Heller v. Wolner, 269 N.W.2d 31 (Minn. 1978)........ 11
State v. Lucas, 589 N.W.2d 91 (Minn. 1999) .......... 10

State v. McKown, 475 N.W.2d 63 (Minn.), cert.
eR ss) 10

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TABLE OF AUTHORITIES - Continued

Page
FEDERAL CONSTITUTION, STATUTES AND REGULATIONS

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STATE CONSTITUTION, STATUTES AND RULEs

Minn. Stat. § 270.65 (1992).................. Ss. Oe
Minn. Stat. § 270.69, subd. 1 pa a 1, 6, 12
Minn. Stat. § 270.69, subd. 4 1 ee ee . f
Minn. Stat. § 270.69, subd. 6 SEPM Sk ckece cae ; &
Minn. Stat. § 289A.35 (1992) ...................... ‘; 22
Minn. Stat. § 289A.37, subd. eo . rnes 1, 13
Minn. Stat. § 289A.55, subd. ee) es 5, 45
Minn. Stat. § 289A.60, subd. 1 GPO iad sana asiane 1, 14
Minn. Stat. § 289A.60, subd. 2 (1991 Supp.) ....... 1, 15
Minn. Stat. § 289A.63 (1992) .........................8

Minn. Stat. § 645.17, subd. 1 Lo Beyer re henna 1, 11

PETITION FOR A WRIT OF CERTIORARI

Petitioner respectfully petitions for a writ of cer-
tiorari to review the judgment of the United States Court
of Appeals for the Eighth Circuit in this case.

¢

OPINIONS BELOW

The opinion of the court of appeals (App. 1-15, infra)
is reported at 184 F.3d 725. The opinion of the district
court (App. 16-21, infra) is not reported.

¢

JURISDICTION

The court of appeals entered its judgment on July 7,
1999 (App. 23, infra). The jurisdiction of this Court is
invoked under 28 U.S.C. § 1254(1) (1998).

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CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED

Minn. Stat. § 270.65 (1992); Minn. Stat. § 270.69, subd.
1 (1992); Minn. Stat. § 270.69, subd. 4 (1992); Minn. Stat.
§ 270.69, subd. 6 (1992); Minn. Stat. § 289A.35 (1992);
Minn. Stat. § 289A.37, subd. 1(a) (1992); Minn. Stat.
§ 289A.55, subd. 9(a) (1992); Minn. Stat. § 289A.60, subd.
1 (1992); Minn. Stat. § 289A.60, subd. 2 (1992); Minn. Stat.
§ 645.17, subd. 1 (1998).

STATEMENT OF THE CASE

Petitioner State of Minnesota (“the State”), Depart-
ment of Revenue (“the Department”), brought this action
for wrongful levy against Respondent United States in
the United States District Court for the District of Minne-
sota. The jurisdiction of the district court was invoked
under 28 U.S.C. § 1346(e), 28 U.S.C. § 6532(c), and 28
U.S.C. § 7426.

The issue in the district court was whether the State’s
tax liens were prior and superior to the liens of the
Internal Revenue Service (“IRS”). The relevant facts were
stipulated. The facts giving rise to the dispute began on
June 2, 1992, when a Minnesota-based taxpayer, Prime
Factors Communications, Inc. (“Prime Factors”) filed late
state and federal withholding tax returns for several
quarterly tax periods. Among those periods were March
1991 through March 1992, the contested periods at issue
in this case. Prime Factors did not remit payment with
those returns to either the State or the IRS. On August 20,
1992, the Department processed the tax returns by mak-
ing an initial entry into its computer system. On March 3,
1993, the Department filed a state tax lien in the home
county of Prime Factors reflecting a total outstanding
State tax liability of $35,623.73. The IRS made its assess-
ments for the contested periods on August 3, 1992 and
August 10, 1992. It then filed a federal tax lien in the
home county of Prime Factors on January 14, 1993,
reflecting the total outstanding federal tax amount of
$248,658.33.

On or about June 21, 1996, Charles and Lorilee
Leininger purchased certain property belonging to Prime

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Factors. Prior to the sale, on June 10, 1996, the IRS served
a Notice of Levy on the closing agent to the sale to assure
that the federal liens would be satisfied out of the sale
proceeds. At the time of the purchase the property in
question was subject to the unsatisfied state and federal
tax liens. After deducting settlement charges and delin-
quent property taxes, $34,688.96 remained from the sale
to pay state and federal taxing authorities. Of that
amount, the Minnesota Department of Economic Security
received $16,386.40, the IRS received $14,579.22, and the
Department received $3,723.34 in satisfaction of a portion
of its lien for uncontested tax periods not at issue in this
case.

The State filed a wrongful levy action against the
United States, pursuant to 26 U.S.C. § 7426, on March 3,
1997. The State alleged that the IRS wrongfully levied
upon $14,378 of the sales proceeds from the Prime Factors
property. More specifically, the State contended that its
tax liens for the contested periods were prior to and
superior to the IRS tax liens. Both parties stipulated to all
material facts, and filed cross-motions for summary judg-
ment.

Following argument on the motions, the district court
granted summary judgment to the State. The court held
that the State’s liens were choate and summarily enforce-
able under applicable state law as of the date on which
Prime Factors filed its tax returns, June 2, 1992, and that
the IRS liens were not choate and enforceable until the
IRS made a formal assessment against Prime Factors
some two months later.

The United States Court of Appeals for the Eighth
Circuit reversed. In its opinion, the court held that the
receipt of a tax return by the State is insufficient to meet
the federal standard for choateness. Specifically, the court
held that the determination of a taxpayer’s liability under
Minnesota law mandates some sort of action by the State
subsequent to the filing of a tax return. Accordingly, the
court ruled that the federal tax liens at issue were prior to
and superior to the State’s tax liens.

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REASONS FOR GRANTING THE PETITION

The Eighth Circuit decision in this case contravenes
this Court’s precedents in two distinct ways. First, the
decision disregards paramount principles regarding pri-
ority among competing liens. Second, the decision disre-
gards this Court’s time-honored statutory construction
principles by attributing absurd intentions to the Minne-
sota Legislature. Ultimately, the Court should accept
review of this case in order to correct a serious error of
law.

I. The Eighth Circuit Decision Runs Afoul Of This
Court’s Lien Priority Jurisprudence.

This Court’s rules regarding lien priority are long-
standing and straightforward. The determination of what
property rights exist is a question of state law. Aquilano v.
United States, 363 U.S. 509, 512-13 (1960). However, fed-
eral law determines the question of priority among com-
peting liens. Id. at 513-14. The enduring principle under
federal law, with regard to lien priority disputes, is that

“a prior lien gives a prior claim, which is entitled to prior
satisfaction out of the subject it binds. ...” United States
v. New Britain, 347 U.S. 81, 85 (1954) (quoting Rankin &
Schatzell v. Scott, (12 Wheat.) 25 U.S. 177, 179 (1827)). In
its more familiar form, the cardinal rule is that “the first
in time is the first in right.” Id. at 85.

A determination of which lien is first in time depends
upon the doctrine of “choateness.” A lien is choate for
priority purposes when it is “perfected” in the sense that
“the identity of the lienor, the property subject to the lien,
and the amount of the lien are established.” New Britain,
347 U.S. at 84. The same standard for choateness applies
to both state and federal tax liens. United States v. Ver-
mont, 377 U.S. 351, 358 (1964).

The primary rationale behind the choateness require-
ment is to ensure that a lien is not subject to “contingen-
cies” which might render it unenforceable. Id. at 355
(citing United States v. Security Trust & Savings Bank, 340
U.S. 47, 50 (1950)); New Britain, 347 U.S. at 86-87. Such
“contingencies” may arise when, for example, a particu-
lar lien gives a creditor no right to actually proceed
against the attached property before obtaining a judg-
ment. Id. (citing United States v. Security Trust & Savings
Bank, 340 U.S. 47, 50 (1950)). The “contingencies” ratio-
nale is particularly well-founded in light of the facts in
the Vermont case. In Vermont, the applicable state statute
created a lien at the time of assessment. Vermont, 377 U.S.
at 352. The assessment date was the date on which the
State made a formal demand for the amount owed. Id.
This Court held that the state statute was sufficient to
create a choate lien in favor of the state because the lien
was summarily enforceable. Id. at 351. Specifically, the

Court noted that “it is as true of Vermont’s lien here as it
was of the federal lien in New Britain that ‘The assessment
is given the force of a judgment, and if the amount
assessed is not paid when due, administrative officials
may seize the debtor’s property to satisfy the debt.’ ” Id.
(citing Bull v. United States, 295 U.S. 247, 260 (1935)). In
other words, there were no contingencies which might
hinder the state’s right or power to enforce its lien. Sig-
nificantly, the Vermont statute provided for such enforce-
ment only by foreclosure. Id. at 359 n.11.

Minnesota law provides for a self-assessing tax lien
mechanism. It is undisputed that under Minnesota law a
tax lien arises from the date of “assessment.”! The appli-
cable “assessment date” is the date a return is filed or
should have been filed. The lien, being enforceable from
the time it arises, is therefore enforceable as of the date
on which a taxpayer files a return.* Moreover, under
Minnesota law tax liens are enforceable at the time tax
returns are filed not only by judgment lien foreclosure,
but also by levy.*

In the instant case, the court of appeals held that the
State liens were not choate before the IRS liens. The court
concluded that the filing of a tax return is too “imprecise”
to serve as an assessment date, and that the State’s liens
could only become choate when the State determined the
amount of the liens with absolute certainty, through some

' Minn. Stat. § 270.69, subd. 1 (1992) (App. 24).

2 Minn. Stat. § 270.65 (1992) (App. 24).

3 Minn. Stat. § 270.69, subd. 4 (1992) (App. 24-25).
4 Minn. Stat. § 270.69, subd. 6 (1992) (App. 25).

yer

sort of additional administrative action, at some later
time. As support for its reasoning, the court relied in
large part upon In re Priest, 712 F.2d 1326 (9th Cir. 1983),
modified, 725 F.2d 477 (1984), in which the Ninth Circuit
Court of Appeals held that a California state tax return
was insufficient to satisfy the “amount” prong of the New
Britain test for choateness, and that some sort of addi-
tional administrative action by the state was necessary in
order to fix the taxpayer’s liability. App. 11-12.

The court of appeals erred fundamentally by over-
looking the primacy of this Court’s rationale for the
choateness doctrine. As this Court’s Vermont decision
explains, choateness depends upon summary enforce-
ability: an absence of “contingencies” which might render
a particular lien unenforceable by a particular creditor.
Minnesota tax liens meet the summary enforceability test.
The applicable Minnesota statutes provide for a self-
assessing mechanism. Put another way, the State’s liens in
both cases were “not contingent on future events”
because they were “summarily enforceable” as of the
moment the tax returns were filed. Moreover, because
Minnesota tax liens are enforceable both by levy and by
judgment lien foreclosure, the State has two tools with
which to enforce its lien, instead of only one. In other
words, the Minnesota tax liens in the instant case are
even more readily “summarily enforceable” than the tax
lien that this Court validated in Vermont, which means
that any concerns about potential “contingencies” are
even less warranted.

There are two additional flaws with the conclusion
by the court of appeals that the filing by a taxpayer of a
self-assessing tax return cannot serve as the measuring

point for choateness. First, it ignores the practical reality
that the precise amount of a tax lien constantly changes.
The accrual of statutory interest charges is the most
obvious example. The “meter,” so to speak, is always
running. Ironically, the United States itself has acknowl-
edged that truism by arguing previously (and suc-
cessfully) that the amount of a federal tax lien should
include interest that is accrued subsequent to assessment.
See Middlesex Savings Bank v. Johnson, 777 F. Supp. 1024,
1026 n.3 (D. Mass. 1991). In other words, the United
States itself has recognized the absurdity of a requirement
that a tax lien is only enforceable if and when its precise
value is knowable.

The second additional flaw with the argument is that
it negates the principle that a tax return, at both the state
and federal level, is a declaration and disclosure of lia-
bility. See, e.g., Minn. Stat. § 289A.63, subd. 2(a); 26 U.S.C.
§ 2706(1) (subjecting the untruthful taxpayer to potential
criminal penalties for making false statements on a tax
return). As discussed above, the Supreme Court's choate-
ness doctrine imposes no requirement of absolute preci-
sion at the time of assessment. It mandates only that no
contingencies might arise which would hinder enforce-
ment of the lien. Therefore, even assuming that the court
of appeals found some element of the United States’
argument compelling, it should have held that the State’s
lien as to the tax portion established by the taxpayer’s
returns was choate. When Prime Factors filed its with-
holding tax returns on June 2, 1992, it made a disclosure
and declaration as to the tax it owed, and thereby
assessed itself under Minnesota law. The state made no
changes to that tax amount. At the very least, therefore,

the State’s liens in the instant matter were unquestiona-
bly certain as to the tax amount, the identity of the lienor,
and the identity of the property subject to the lien upon
filing, and were summarily enforceable at that time. In
holding that a tax lien is inchoate per se as of the filing of
a tax return, the court of appeals in this case went far
beyond the established boundaries of this Court’s lien
priority jurisprudence. Accordingly, the decision of the
Eighth Circuit merits review.

Il. The Eighth Circuit Decision Attributes Statutory
Absurdities To The Minnesota Legislature.

The Eighth Circuit decision in this case construes
Minnesota law in a manner that neither the Minnesota
Legislature nor any reasonable legislature could have
intended. In it, the court of appeals concluded that even
if a tax lien is not inchoate per se as of the date of filing it
is inchoate under Minnesota law because Minnesota tax
statutes purportedly require certain administrative steps
which make a taxpayer's true liability as of the filing date
unknowable. Specifically, the court determined that the
language of two statutory provisions mandates that the
State must in each case make some sort of change to a
taxpayer's return. App. 9-11. That conclusion is a funda-
mental misreading of Minnesota law as to the first stat-
ute, and is wholly inapplicable to the second statute.

10

A. The Court Of Appeals’ Reading Of Minn. Stat.
§ 289A.35 Ignores Core Choateness Principles,
Renders Other Minnesota Tax Statutes Super-
fluous, And Fails To Address The Facts Of This
Case.

As this Court has acknowledged, taxation is a state
function “central to state sovereignty.” Department of Rev-
enue of Oregon v. ACF Industries, 510 U.S. 332, 345 (1994);
see also Tully v. Griffin, 429 U.S. 68, 73 (1976) (according
special deference to states’ taxing prerogatives). Con-
struction of state taxation statutes by any federai court
should account for that fact. Accordingly, the State in this
case ought to enjoy a presumption against any interpreta-
tion of federal choateness doctrine which nullifies a pro-
vision of its tax statutes.

As a general matter, statutes are to be interpreted in
part materia with one another. In other words, as this
Court has repeatedly emphasized, “When there are two
acts upon the same subject, the rule is to give effect to
both if possible.” United States v. Zacks, 375 U.S. 59, 67-68
(1963) (quoting United States v. Borden Co., 308 U.S. 188,
198 (1939)). Minnesota courts have adopted the same
cannon of construction. See, e.g., State v. Lucas, 589
N.W.2d 91, 94 (Minn. 1999); State v. McKown, 475 N.W.2d
63, 66-67 (Minn.), cert. denied, 502 U.S. 1036 (1991).

An additional principle of statutory construction is
that federal courts have “some ‘scope for adopting a
restricted rather than a literal or usual meaning of [a
statute’s] words where acceptance of that meaning would
lead to absurd results... .’” Commissioner of Internal

Revenue v. Brown, 380 U.S. 563, 571 (1965) (citing Helvering

11

v. Hammel, 311 U.S. 504, 510 (1941)). As an example, the
word “shall” is generally, but not always, mandatory. Escoe
v. Zerbst, 295 U.S. 490, 493 (1935). As to the interpretation
of state laws, Minnesota courts have held likewise. See
Heller v. Wolner, 269 N.W.2d 31, 33 (Minn. 1978) (noting,
inter alia, that “shall” is directory where statutes “are
obviously designed merely to secure order, uniformity,
system, and dispatch in public business”); Carl Bolander &
Sons Co. v. Minneapolis, 488 N.W.2d 804, 809-10 (Minn. Ct.
App. 1992), aff'd, 502 N.W.2d 203 (Minn. 1993) (holding
that the word “shall” is directory “[w]here a statute or
rule does not explicitly declare the consequence of a
failure to comply”). In fact, Minn. Stat. § 645.17, subd. 1
(1998) commands that in interpreting state statutes, the
courts should be guided by the principle that “[t]he legis-
lature does not intend a result that is absurd, impossible
of execution, or unreasonable.”

The court of appeals’ interpretation of Minnesota law
would indeed lead to absurd results. The first statute
upon which the court relied in its decision is Minn. Stat.
§ 289A.35, which provides that:

The commissioner shall make determina-
tions, corrections, and assessments with respect
to state taxes, including interest, additions to
taxes, and assessable penalties. . . . If a return
has been filed, the commissioner shall examine
the return and make any audit or investigation
that is considered necessary.

App. 25 (emphasis added). A common sense reading of
this language reveals that the provision merely sets forth
the powers of the Minnesota Commissioner of Revenue in
the first clause, and merely provides for the discretionary

12

power to change a tax return in the subsequent clause.
The court of appeals concludes that the statute requires
action for each and every taxpayer that either changes the
amount on the taxpayer’s self-assessed tax return or at
the very least rises to the level of an administrative step
sufficient to create a new “assessment” date. Such a read-
ing would ignore the statutory language limiting such
changes to those which are “considered necessary.” It
would thereby mandate the examination and correction
of literally millions of tax returns of varying tax types.
This simply is not done by either the Minnesota Depart-
ment of Revenue or the Internal Revenue Service. The
Eighth Circuit’s decision further concludes that the
quoted language makes self-assessment as of the date of
filing impossible. But that cannot be true in light of the
undisputed principles of the choateness doctrine. As pre-
viously mentioned, the enduring test for choateness is
whether a lien is “summarily enforceable” in that no
contingencies might hinder the state’s right or power to
enforce its lien. The State’s liens meet that test because
Minnesota law makes them summarily enforceable on the
date of filing.° Once a self-assessed tax return is filed, the
resulting lien may immediately be enforced both by levy
and by judgment lien foreclosure.®

The court of appeals’ interpretation of that statute is
also a general mischaracterization of Minnesota tax law.
The only occasion when the filing of a tax return is not
the applicable “assessment” date is either “in the case of

> See Minn. Stat. § 270.65, § 270.69, subd. 1 and § 270.69,
subd. 4 (1992) (App. 24-25).

© See Minn. Stat. § 270.69, subd. 6 (1992) (App. 25).

ewe...

13

taxes determined by the commissioner” (in which case
the assessment date is “the date of the order assessing
taxes”) or “in the case of an amended return” (in which
case the assessment date is “the date the [amended]
return was filed with the commissioner”).” Otherwise, as
in this case, the “assessment” date is always the date of
filing a return.® If, as the court of appeals contends, the
State must make an independent determination of the
accuracy of the tax amount on each and every tax return,
then the portion of § 270.65 defining the “assessment” as
the date of filing would be utterly superfluous — because
all returns would supposedly be subject to some addi-
tional administrative step. By the terms of the statute, no
return date could ever be an “assessment.” The Minne-
sota legislature could not have intended such a result.
And such a construction by the court of appeals fails to
read Minnesota tax statutes in pari materia. In other
words, the court of appeals has used one Minnesota tax
statute to render part of another Minnesota tax statute
meaningless, rather than to clarify its meaning.

Additionally, the Eighth Circuit’s holding is not
responsive to the facts of this case. If the State had made
changes to the tax amount on Prime Factors’ returns, or

7 See Minn. Stat. § 270.65 (1992) (App. 24); see also Minn.
Stat. § 289A.37, subd. 1(a) (1992) (App. 25), which commands
that:

When a return has been filed and the commissioner
determines that the tax disclosed by the return is
different than the tax determined by the examination,
the commissioner shall send an order of assessment to
the taxpayer. .

8 Id.

14

had issued a discretionary penalty of some sort, it would
have sent out an order assessing the new amount of tax
liability. Under Minnesota law, the date of that order
would then have been the new assessment date.? But the
State never made any adjustments to the self-assessed tax
amount on the Prime Factors’ returns. The only changes
were the automatic additions of penalties for late filing
and late payment. See II.B, infra. Accordingly, the assess-
ment date was the date on which the taxpayer filed its
return.

B. The Court Of Appeals Mischaracterizes The
Language Of Minnesota’s Late Payment Pen-
alty Statute, And Ignores The Other Penalty
Statutes At Issue In This Case.

The second statute that the court of appeals cites is
Minnesota’s penalty provision for the late payment of a
withholding tax. That statute, along with the separate
statutory provision governing the late filing of a with-
holding tax return, are the two primary penalty provi-
sions at issue in this case. The late payment statute
provides that “If a withholding or sales or use tax is not
paid within the time specified for payment, a penalty
must be added to the amount required to be shown as tax.”
Minn. Stat. § 289A.60, subd. 1 (1992) (Emphasis added).
This provision directly contradicts the Eighth Circuit’s
conclusion that some further administrative action is
required before a lien is choate as to the penalties at issue
in this case. The quoted language reveals that the penalty

* i.

15

for late filing of a tax “must be added.” The law vests no
discretion in the Department of Revenue. The penalty is
simply automatic. No administrative step is therefore
required to apply the penalty amount to the self-assessed
tax amount which a taxpayer discloses on a tax return.

Tellingly, the court of appeals does not quote any
language whatsoever from the second of the two penalty
provisions at issue in this case, which is Minnesota’s late
filing penalty. The language in effect during 1992 is even
more direct than the language in the aforementioned late
payment penalty provision. The statute provides that “If a
taxpayer fails to make and file a return other than an
income tax return of an individual, within the time pre-
scribed or an extension, a penalty is added to the tax.”
Minn. Stat. § 289A.60, subd. 2 (1991 Supp.). A penalty
that “is added” to a tax can not require any sort of
administrative step. Like the late payment penalty, the
late filing penalty is simply automatic. It is difficult to
conceive of language that would be more direct.

Other provisions of Minnesota tax law recognize that
automatic penalties, such as the late filing and late pay-
ment penalties at issue in the instant case, arise automat-
ically upon the filing of a tax return. The language of
Minn. Stat. § 289A.55, subd. 9(a) (1990), for example,
provides that a penalty for either late filing or late pay-
ment “bears interest from the date the return or payment
was required to be filed or paid, including any extensions, to
the date of payment of the penalty.” (Emphasis added).
The court of appeals’ decision holds that automatic penal-
ties, with automatic interest charges dating from the date
of a tax return, frustrate the choateness of a tax lien

16

because they somehow require additional administrative
steps. That holding is untenable.

Ultimately, no Minnesota statute interferes with the
summary enforceability of the State’s tax liens in this
case. Prime Factors filed its returns on June 2, 1992.
Certain penalties accrued automatically, as did the statu-
tory interest charges. The unchanged self-assessed tax
amount together with the automatic penalties were there-
fore enforceable as of the filing date. Accordingly, the
court of appeals should have held that the State tax liens
were choate as of June 2, 1992, and were prior and
superior to the IRS liens.

CONCLUSION

For all the foregoing reasons, the State respectfully
requests that the Court grant this petition.

Dated: October 5, 1999

Respectfully submitted,

Barry R. GRELLER
Assistant Attorney General
(Counsel of Record)

STEPHEN F. SIMON
Assistant Attorney General
(Of Counsel)

600 North Robert Street,
Suite 4000

St. Paul, MN 55146-0600

Telephone: (651) 296-0982

Attorneys for Petitioner

App. 1

APPENDIX

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

No. 98-1927

State of Minnesota,
Department of Revenue,

* *

*

ppm, * Appeal from the United
V. * States District Court for the
United States of America, ‘ District of Minnesota
Appellant. *

Submitted: February 8, 1999
Filed: July 7, 1999

Before McMILLIAN, LAY and MURPHY, Circuit Judges.

McMILLIAN, Circuit Judge.

The United States appeals from a final order entered
in the District Court for the District of Minnesota grant-
ing summary judgment in favor of the State of Minnesota
and denying summary judgment to the United States,
holding that the state tax liens were choate, as of the time
of filing of the state tax returns and not when processed.
For reversal, the United States argues that the state tax
liens were not established at the time the state tax returns
were filed because, under state law, the state must take

App. 2

administrative action to acknowledge taxpayer liability
before its liens can be perfected, and thus “choate,” under
federal law for purposes of determining relative priority.
For the reasons discussed below, we reverse the judgment
of the district court and remand the case to the district
court with directions to enter summary judgment in favor
of the United States.

JURISDICTION

The district court had subject matter jurisdiction over
this wrongful levy suit brought pursuant to 26 U.S.C.
§ 7426 under 28 U.S.C. § 1346(e). The United States filed a
timely notice of appeal. See 28 U.S.C. § 2107(b) (notice of
appeal in a civil case must be filed within 60 days of
judgment when the United States is a party); Fed. R. App.
P. 4(a)(1)(B). This court has jurisdiction over this appeal
under 28 U.S.C. § 1291.!

1 The district court’s judgment provides that the state’s
motion for summary judgment is granted. In an action for
money, specification of the amount of monetary award
generally is an essential element of the judgment. See United
States v. F. & M. Schaefer Brewing Co., 356 U.S. 227, 233-35 (1958).
It is sufficient, however, if the judgment specifies the means of
determining the amount due. See id. at 234. Here, the summary
judgment is, in effect, a judgment that the state is entitled to
recover the amount ($14,378) that it sought in its complaint. Cf.
Goodwin v. United States, 67 F.3d 149, 151 (8th Cir. 1995) (“a
judgment may be final if only ministerial tasks in determining
damages remain”) (citation and internal quotations omitted).

App. 3

BACKGROUND

The relevant facts were stipulated. On June 2, 1992,
the taxpayer, Prime Factors Communications, Inc., filed
federal and state employment tax returns for several
quarters, including all four quarters of 1991 and the first
quarter of 1992, the periods at issue in this appeal. The
taxpayer did not pay the taxes that it reported as due on
its federal and state returns. The IRS assessed the unpaid
federal taxes for the quarters at issue on August 3 and
August 10, 1992. By law, federal tax liens upon the tax-
payer’s property for those liabilities arose on that date.
See 26 U.S.C. §§ 6321, 6322. The IRS filed a notice of
federal tax lien on January 14, 1993, reflecting a total
federal tax liability due from the taxpayer of $248,658.33.

The state processed the taxpayer’s state employment
tax returns for the period at issue by entering the tax-
payer’s liability into its computer records, on August 20,
1992, after the date the IRS assessed the taxpayer’s fed-
eral tax liabilities at issue. The taxpayer’s state tax lia-
bility for the period at issue totaled $14,378.32.

On June 21, 1996, Charles and Lorilee Leininger pur-
chased certain property belonging to the taxpayer. Prior
to the sale, the IRS served on the closing agent for the
sale a notice of levy with respect to the taxpayer’s unpaid
federal employment taxes, including the taxes due for the
quarters at issue. Pursuant to the levy, the IRS received
$14,579.22 of the sale proceeds.

2 The IRS was paid after deductions were made for
settlement charges, delinquent property taxes, and payments to
other creditors. The Minnesota Department of Economic

App. 4

The state filed its complaint in this action on March 3,
1997, and an amended complaint on September 23, 1997.
The state alleged that the IRS had wrongfully levied upon
$14,378.32 of the sales proceeds, because the state’s tax
liens were entitled to priority over the federal tax liens.
The United States and the state filed cross-motions for
summary judgment. The state contended that, under
Minn. Stat. § 270.69(1), a lien for state taxes arises on the
date of the assessment of the tax, and that under Minn.
Stat. § 270.65, the date of the assessment is the later of the
date the return is filed or the date on which the return is
due. The state thus argued that its tax liens became
choate, on June 2, 1992, the date the returns were filed,
and were therefore entitled to priority over the federal
tax liens which arose on August 3 and 10, 1992, the dates
the federal taxes were assessed. In support of its argu-
ment, the state relied on Cannon Valley Woodwork, Inc. v.
Malton Construction Co., 866 F.Supp. 1248 (D. Minn. 1994)
(Cannon Valley), a case in which the district court held
that Minnesota tax liens had priority over those of the
United States.

The United States argued that the state’s tax liens did
not become choate, until the returns were actually pro-
cessed by the state on August 20, 1992, a date after the
federal tax liability had been assessed, and that the fed-
eral tax liens were thus entitled to priority over the state
tax liens. The United States relied on In re Priest, 712 F.2d
1326, 1329 (9th Cir. 1983), modified, 725 F.2d 477 (1984), in

Security received $16,386.40 and the Minnesota Department of
Revenue received $3,723.34 for other tax liabilities. These other
payments from the proceeds are not in dispute.

App. 5

which the Ninth Circuit, interpreting a California statute
similar to Minn. Stat. §§ 270.65, .69(1), held that the “mere
receipt” of a state tax return was insufficient “to establish
a lien that is capable of taking priority over a federal
lien.”

Following arguments on the motions, the district
court ruled from the bench and granted summary judg-
ment in favor of the state and denied the motion of the
United States. The district court found that the state’s tax
liens became choate upon the filing of the taxpayer’s
returns, adopting the rationale of Cannon Valley and
rejecting the Ninth Circuit’s reasoning in In re Priest. The
district court ruled that the state’s tax liens were “estab-
lished” and “summarily enforceable” as of the date the
taxpayer filed its returns and “not contingent on future
events.” Accordingly, the district court ruled that the
state’s tax liens were prior to those of the United States
and that the state was entitled to recover. This appeal
followed.

DISCUSSION

The district court’s grant of summary judgment is
reviewed de novo. See Bremen Bank & Trust Co. v. United
States, 131 F.3d 1259, 1264 (8th Cir. 1997) (Bremen Bank);
see also McDermott v. Zions First Nat'l Bank, 945 F.2d 1475,
1478 (10th Cir. 1991) (district court’s finding that a federal
tax lien has priority over a state tax lien is reviewed de
novo), rev'd on other grounds sub nom. United States v.
McDermott, 507 U.S. 447 (1993) (McDermott). Summary
judgment is appropriate if “the pleadings, depositions,
answers to interrogatories, and admissions on file,

App. 6

together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Fed. R.
Civ. P. 56(c). This case was tried on the basis of stipulated
facts and the sole issue is a question of law, that is,
whether the state tax liens were sufficiently choate as a
matter of federal law so as to be entitled to priority over
the federal tax liens.

The lien provisions of the Internal Revenue Code are
intended to insure prompt and certain enforcement of the
tax laws. See United States v. National Bank of Commerce,
472 U.S. 713, 721 (1985); United States v. Rodgers, 461 U.S.
677, 683 (1983). When a person liable to pay a federal tax
fails to do so after a demand for payment is made, the
amount of the tax, together with interest, additions, pen-
alties, and costs, becomes a lien in favor of the United
States upon all real and personal property and all rights
to property belonging to the delinquent taxpayer. See 26
U.S.C. § 6321; Bremen Bank, 131 F.3d at 1262-63. The lien
arises automatically when the assessment is made and
continues until the taxpayer’s liability is either satisfied
or becomes unenforceable due to the lapse of time. See 26
U.S.C. § 6322. An assessment is “a bookkeeping notation

. . made when the Secretary [of the Treasury] or his [or
her] delegate establishes an account against the taxpayer
on the tax rolls.” Laing v. United States, 423 U.S. 161, 170
n.13 (1976); see 26 U.S.C. § 6203.

State law determines the nature and the extent of a
taxpayer's interest in “property.” See Aquilino v. United
States, 363 U.S. 509, 513 (1960); United States v. Bess, 357
U.S. 51, 55 (1958); Little v. United States, 704 F.2d 1100,
1105 (9th Cir. 1983). Federal law, however, governs the

App. 7

relative priority accorded to the competing liens asserted
against the property of the delinquent taxpayer. See Aqui-
lino v. United States, 363 U.S. at 513-14. “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.’ ” McDermott,
507 U.S. at 449 (citations omitted); see United States v.
Equitable Life Assurance Soc’y, 384 U.S. 323, 327-30 (1966);
United States v. City of New Britain, 347 U.S. 81, 87 (1954)
(New Britain); cf. Bremen Bank, 131 F.3d at 1263 (discussing
modification of common law rules by Federal Tax Lien
Act of 1966). “Under federal law, the priority of a lien
depends on the time the lien attached to the property in
question and became choate.” Cannon Valley, 866 F. Supp.
at 1250, citing New Britain, 347 U.S. at 84. A state-created
lien is “choate” for “first in time” purposes only when it
has been “perfected” in the sense that there is nothing
more to be done, i.e., when “the identity of the lienor, the
property subject to the lien, and the amount of the lien
are established.” New Britain, 347 U.S. at 84; accord United
States v. Vermont, 377 U.S. 351, 354-55 (1965); see also
McDermott, 507 U.S. at 449. The test for choateness or
perfection also requires that the creditor have the right to
summarily enforce its lien. See United States v. Vermont,
377 U.S. at 359 (holding state’s assessment choate where
the “assessment is given the force of a judgment, and if
the amount assessed is not paid when due, administrative
officials may seize the debtor’s property to satisfy the
debt”) (quoting Bull v. United States, 295 U.S. 247, 260
(1935)); Monica Fuel, Inc. v. IRS, 56 F.3d 508, 513 (3d Cir.
1995); In re Terwilliger’s Catering Plus, Inc., 911 F.2d 1168,

App. 8

1176 (6th Cir. 1990) (holding a “state lien holder must
show that he [or she] had the right to enforce the lien at
some time prior to the attachment of the federal lien”),
cert. denied, 501 U.S. 1212 (1991).

The issue to be decided in this case is whether, under
federal law, the state tax liens were sufficiently choate
upon the taxpayer’s filing of its tax returns to prime the
federal tax liens. The United States argues that, regardless
of state law, the mere receipt by the state of a tax return is
insufficient to meet the federal standard for choateness,
because such receipt does not establish the amount of the
taxpayer's liability or of the liens themselves. Under Min-
nesota law, the United States contends, additional steps
are required to establish the amount of the state tax liens
and to permit the state to enforce the liens, and federal
law regarding choateness requires a state to take some
action to acknowledge a liability before a lien can be
perfected. As a result, the United States argues that the
state tax liens were not perfected and were not entitled to
priority over the federal liens.

The state tax liens at issue arose by virtue of Minne-
sota law, which provides, in relevant part:

The tax imposed by any chapter administered
by the commissioner of revenue, and interest
and penalties imposed with respect thereto,
including any recording fees, sheriff fees, or
court costs that may accrue, shall become a lien
upon all the property within this state, both real
and personal, of the person liable for the pay-
ment or collection of the tax .. . from and after

the date of assessment of the tax.

App. 9

Minn. Stat. § 270.69(1). “For purposes of taxes adminis-
tered by the commissioner [i.e., taxes due as shown on a
return], the term ‘date of assessment’ means the date a
return was filed or the date a return should have been
filed, whichever is later... .” Id. § 270.65. Thus, under
state law, the state tax liens at issue arose when the
taxpayer filed its returns on June 2, 1992, two months
before the federal taxes at issue were assessed.

State law, however, and a state’s own characteriza-
tion of its liens for purposes of determining priority do
not control this issue. See William T. Plumb, Jr., Federal
Tax Liens 180 (3d ed. 1972) (“Local statutory provisions
that fix a tax lien date prior [to the time the lien becomes
choate] must be ignored for the purpose of resolving the
federal-state priority question.”). “Otherwise, a State
could affect the standing of federal liens, contrary to the
established doctrine, simply by causing an inchoate lien
to attach at some arbitrary time even before the amount
of the tax, assessment, etc., is determined.” New Britain,
347 U.S. at 86 (footnote omitted). Accordingly, state tax
liens are not necessarily perfected on the date a taxpayer
files a return simply because state law provides that the
“date of assessment” with regard to taxes shown due ona
return is the date the return is filed. Rather, we must still
determine if the state tax liens are sufficiently perfected
as of that date under federal law.

In our view, the state tax liens at issue were not
choate as of the date the taxpayer filed its returns and the
state tax liens therefore are not entitled to priority.
Despite the fact that state law provides that tax liens arise
on the date on which the taxpayer filed its returns, state
law also provides that “[t]he commissioner shall make

App. 10

determinations, corrections, and assessments with respect
to state taxes, including interest, additions to taxes, and
assessable penalties.” Minn. Stat. § 289A.35 (emphasis
added). In addition, when a taxpayer has filed a return,
“the commissioner shall examine the return and make
any audit or investigation that is considered necessary.”
Id. Therefore, even after a return is filed, the commis-
sioner is required to examine the return and to make a
determination of the taxpayer’s liability. Beyond doubt, it
is this determination that formally establishes the amount
of the taxpayer’s liability.

Further, Minnesota law also provides that “[i]f a
withholding or sales or use tax is not paid within the time
specified for payment, a penalty must be added to
amount required to be shown as tax.” Minn. Stat.
§ 289A.60(1). Therefore, in a case such as this where
withholding taxes were not timely paid, state law
required the commissioner to add a penalty to the tax
liability. This penalty is not computed until a tax return is
processed. Cannon Valley, 866 F. Supp. at 1252. Also upon
processing, interest due on the liability is computed.

As a result of these state law provisions, we hold that
the amounts of the state tax liens at issue here were not
established on the date the returns were filed and that
state tax liens were therefore not perfected and choate on
that date. The returns filed by the taxpayer had not been
examined, the taxes owed had not been determined by
the commissioner, and the delinquency penalties and
interest had not been computed and added to the amount
of the tax, all of which is required under state law. Thus,
pursuant to state law, the state has done that which is

App. 11

expressly prohibited, that is, it has “affect[ed] the stand-
ing of federal liens . . . simply by causing an inchoate lien
to attach at some arbitrary time even before the amount
of the tax is determined.” New Britain, 347 U.S. at 86.

Moreover, we also note that because of these addi-
tional statutory provisions, the state tax liens were not
summarily enforceable. While a lien is considered sum-
marily enforceable even though ministerial acts which do
not affect the viability of the lien remain to be done, the
acts described above as required by state law cannot be
characterized as ministerial. After the taxpayer filed its
returns, it remained the statutory duty of the commis-
sioner to examine the returns and determine its liabilities,
and to calculate and add to the unpaid tax the required
penalty for non-payment and the interest that was due.
Only then could notice and demand for payment of the
amount due be sent. See Minn. Stat. § 270.70(2)(a). Notice
and demand for payment must be sent before a levy can
be made. See id. Thus, substantial contingencies remain
before the state tax liens could be enforced.

We note that, in addition to the requirements of state
law, federal law regarding choateness also requires that a
state take some administrative action to acknowledge
formally a liability before the amount of the lien can be
deemed “established” and the lien perfected. See New
Britain, 347 U.S. at 86. For example in In re Priest, a
California statute provided that a perfected and enforce-
able state tax lien for an unpaid tax liability shown as due
on a return arose at the time the tax return was filed.
California characterized the effect of the filing of the
delinquent state return as “self assessment” and argued
that this admission of liability by the taxpayer satisfied

App. 12

the New Britain test for choateness. The Ninth Circuit
disagreed and held that the statute cannot be deemed to
create liens that are sufficiently choate under New Britain.
See 712 F.2d at 1329. The court held that “a lien cannot
arise prior to the taking of any administrative steps to
establish the lien” because “[t]he mere receipt of a delin-
quent State tax return [under California law] is too vague
and indefinite.” Id., 725 F.2d at 478. The court observed
that

[slignificant delays might well occur before
there was even any acknowledgment of the
director’s receipt of the delinquent return, or
any administrative act by which the State
acknowledged in its own accounts that the tax-
payer is liable for unpaid taxes, or the precise
amount of that delinquency, and the amount of
penalty, interest and fees.

Id., 712 F.2d at 1329.

In re Priest has been followed by other courts. In
Baybank Middlesex v. Electronic Fabricators, Inc., 751 F.
Supp. 304, 310 (D. Mass. 1990) (citations omitted), the
district court held that “in order for the amount of the
state lien to be established, there must be ‘some activity
by the State to fix the taxpayer’s liability.’” The state
liens at issue had priority over the federal liens because
the state had acknowledged in its own accounts that the
taxpayer was liable for unpaid taxes. See id. The district
court also noted approvingly that the state had calculated
the interest due on the liability and included that amount
in the notice of lien. See id. Because these steps had been
taken before the federal lien arose, the state lien was
choate since there was nothing more to be done. See id.

App. 13

As noted above, the district court relied upon Cannon
Valley, 866 F. Supp. 1248, and declined to follow In re
Priest. Cannon Valley involved the same statutes at issue
in this case, i.e., Minn. Stat. §§ 270.65, .69. The district
court concluded that a lien arising under the statutes was
choate under federal law at the time of assessment, the
date a tax return was filed. See 866 F. Supp. at 1252. The
district court rejected the argument of the United States
that a state assessment was only choate if it was similar to
the federal assessment, see id. at 1250-51, as well as its
contention that, as in In re Priest, preciseness in the
amount of tax owed is necessary for the lien to be choate.
See id. at 1251. Instead, the district court interpreted the
doctrine of choateness to require that “a lien be enforce-
able and not contingent on future events before it could
defeat a federal tax lien.” Id. at 1251. The district court
found that under state law Minnesota tax liens were not
contingent on future events and were summarily enforce-
able and therefore choate. See id.

We believe the analysis in Cannon Valley improperly
discounted the importance of preciseness in the amount
of tax owed in the New Britain test for choateness. In our
view, the plain language of New Britain requires the
amount of the lien to be established, that is, determined,
before a state-created lien can be considered choate. See
347 U.S. at 84. Certainly, more had to be done in the
present case, and if the Supreme Court had intended to
require only that the lien, i.e., the taxpayer’s liability in
general, had to be established, it could have said so.
Instead, it stated that the amount of the lien had to [sic]
established. Moreover, in both New Britain and Vermont,
the Court refers to the requirement that the amount of the

App. 14

lien be “certain.” See id. at 86; see also Vermont, 377 U.S. at
357. The Ninth Circuit was therefore correct in emphasiz-
ing this requirement in In re Priest and the district court
in Cannon Valley was wrong to discount it.

In addition, we disagree with the finding in Cannon
Valley that the Minnesota tax liens were free from contin-
gencies upon the taxpayer’s filing of its return and sum-
marily enforceable. See supra at 7-8. In our view, state law
requires additional administrative action to establish the
liens. The taxpayer’s liabilities could not be collected
until notice of the liabilities and demand for payment had
been sent out, and notice and demand could not be sent
until the returns had been processed and the tax, penal-
ties, and interest determined by the commissioner. Thus,
the state tax liens are not summarily enforceable on the
date of assessment, the date the return is filed or should
have been filed.

Finally, we note that there is a critical factual distinc-
tion between Cannon Valley and the present case. In Can-
non Valley, unlike the present case, the state had in fact
“processed” the taxpayer’s return before the IRS assessed
the federal taxes. See 866 F. Supp. at 1249 n.1, 1252. The
district court in Cannon Valley held, in the alternative,
that at the very least, the state tax liens were choate at the
time the returns were processed, noting that “[b]y pro-
cessing the forms, Minnesota took administrative action
that established that the taxpayer was liable to the State
of Minnesota for unpaid taxes, including the amount of
the unpaid taxes and the amount of any penalty and
interest.” Id. at 1252. Thus, for purposes of the New
Britain test for choateness, “the lienor was known... , all
of the property of the taxpayer was attached, and the

EEE |

App. 15

amount including principal, penalties and interest was
known.” Id. (noting only variable that continued to
change was applicable interest, which changed daily).
Accordingly, while the primary rationale for the Cannon
Valley analysis is at odds with that in In re Priest, the
result (and the alternative holding) in Cannon Valley is in
harmony with In re Priest. In the present case, on the
other hand, the state did not process the taxpayer’s
returns until August 20, 1992, a date after the IRS
assessed the federal taxes on August 3 and August 10,
1992.

Accordingly, the judgment of the district court is
reversed and the case is remanded with instructions to
the district court to enter summary judgment in favor of
the United States.

A true copy.
Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH
CIRCUIT.

App. 16

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION

—~aw e ~emwe

Department of Revenue,

Civil 97-482
State of Minnesota, TRANSCRIPT OF
Plaintiff, PROCEEDINGS

VS.
United States of America,

Defendant.

The above-entitled matter came duly on for hearing
before the Honorable James M. Rosenbaum on the 23rd
day of January, 1998, at the US. Courthouse, 300 South
Fourth Street, City of Minneapolis, State of Minnesota.

APPEARANCES:

For the Plaintiff:

STEPHEN F. SIMON, AAG
Tax Litigation Division

10 River Park Plaza

Mail Station 0600

St. Paul, Minnesota 55146-0600

For the Defendant:

NANCI S. BRAMSON, ESQ.
U.S. Department of Justice
555 Fourth Street, Northwest
Room 8921

Washington, DC 20001

App. 17

Court Reporter:

Michelle K. Skoog, Pro Tem
Shaddix & Associates

9100 W. Bloomington Frwy., #122
Bloomington, Minnesota 55431

Proceedings recorded by mechanical stenography;
transcript produced by computer-aided transcription.

[p. 2] (The following proceedings were duly had:)

THE COURT: This matter lies before the court
on cross-motions for summary judgment pursuant to
Rule 56 of the Federal Rules of Civil Procedure. The
plaintiff’s motion is granted. The defendant’s motion is
necessarily denied. The plaintiff, the State of Minnesota,
Department of Revenue has brought a wrongful levy
action against the defendant, the United States of Amer-
ica, and specifically, its agency the Internal Revenue Ser-
vice. The court seldom has the pleasure of a direct
conflict between sovereigns. Now, the parties here have,
and have commendably and kindly to the court I might
point out, stipulated to the material facts in the case. And
they are not in dispute. The state contends that its lien is
sufficiently choate on the filing of a tax return, and the
IRS responds that the lien becomes choate on the date at
which the return is actually processed by the state. The
issue before the court is whether the state’s lien became
sufficiently choate on June 2, 1992, at the time of the
filing. Thus, making it superior to the federal tax lien
which was undoubtedly and an [p. 3] agreement was in
place prior to this date on August 20, 1992, to the state
filing in 1992. The fed put its in on the third — the third or

App. 18

tenth of 1992. Each party has moved for summary judg-
ment and the question is clearly a matter of law.

Summary judgment is appropriate when there’s no
genuine issue as to material fact and the moving party is
otherwise entitled to judgment as a matter of law. Citing
Rule 56C and Celotex versus Catrett and Anderson
versus Liberty Lobby. Both recorded in 477 U.S. The first
is 317, and the second is 242 with the companion cases
decided in 1986. There being no issues of fact and the
question being a matter of law, the matter is ripened for
summary judgment.

It is clear and weil established that federal law deter-
mines the question of priority among liens. Citing Aqui-
lano versus United States at 363 U.S. 509, 513 to 14 (1960).
Under federal law, quoting, a prior lien gives a prior
claim, which is entitled to prior satisfaction out of the
subject it binds close quote. Citing the United States
versus New Britain at 347 U.S. 81 and at 85 (1954). Ren-
dering the entirely unsurprising - or [p. 4] quoting that
first in time is first in right close quote. That’s at 85. A
lien has priority over another if it is perfected. Or in other
words, quote the identity of the lienor, the property sub-
ject to the lien, and the amount of the lien are established.
Reference New Britain at 84. Where state tax liens are
involved, however, the enforceability requirement is met
if quote the states’ assessment is given the force of a
judgment, i.e. if the amount assessed is not paid when
due, administrative officials may seize the property to
satisfy the debt close quote. The United States versus
Vermont at 377, 351, at 359 (1950). It is thus implied that
to determine enforceability the court must look to the

ee ne ee

App. 19

. state’s law, and the parties here disagree only as to the
| time which the state’s lien was established.

The facts in this case are similar to those which
occurred in my brother Judge Doty’s court when he was
confronted with the case of Cannon Valley Woodwork
versus Malton Construction at 866 Fed Supp 1248, Dis-
trict of Minnesota in 1994. Although a binding of a co-
district court is not binding within the district, this court
elects to adopt its analysis and its holding. In [p. 5] that
case, the court found that the amount of the lien was
established and its amount assessed when the state tax
return was filed rather than when it was processed. I cite
the case at 1250. The Internal Revenue Service’s under-
lined that Cannon Valley was wrongfully decided
because the amount of the lien could be assessed only
upon actual processing of the return. They argued that
only after that return was processed that the total amount
of the tax liability established rather than when it was
filed, and certainly there was a failure to determine the
interest. However, that upholds under any circumstances.
This court, however, cannot agree. The rationale behind
the choatness doctrine, which requires that the amount of
the lien be established, is to ensure the lien is not subject
to contingencies which might render it otherwise unen-
forceable. I cite the United States versus Vermont at 355.
Also, in Cannon Valley, Judge Doty recognized that the
state’s liens are not contingent on future events when
filed because they are summarily enforceably under Min-
nesota Statute at filing. Furthermore, under Minnesota
law when a return is filed, it contains the taxpayers’
disclosure of its tax liabilities. [p. 6] I reference page 1251.
And as a result, the state lien dating - this state lien

App. 20

dating from the time of filing is assessed, perfected, and
thus senior to the federal tax lien. This is in accord with
the policy of a self-assessed tax.

While the court has considered what would happen
with either a minor determination or a minor deviation
and a large tax assessment or a stripped blank tax return
being filed, that is not the factual nexus which represents
itself. So it’s a varied filed return, and Minnesota has
elected a statutory framework which declares that its lien
is established on the filing.

Counsel for the government has appropriately noted
that the United States has a number of prerogatives and
that Congress has selected its own. But having made that
selection and the state - another co-sovereign having
elected its, there is no principled basis why the State of
Minnesota cannot enforce its statute, and the statute
appears to be reasonable.

This court, like Cannon Valley, then declines to adopt
the Ninth Circuit reasoning set forth in In re Priest at 712
Fed 2nd at 1326, at 1328. Subsequently modified at 725
Fed 2nd 477. [p. 7] That was in — that holding — that quote
a mere receipt of a delinquent tax return is too vague and
indefinite a standard by which to establish a lien that is
capable of taking priority over a federal tax lien close
quote. The Ninth Circuit’s determination was based on
the language of New Britain, that a lien is not choate
unless the amount is established. This court finds that
since Minnesota’s tax liens were not contingent on future
events according to Minnesota law and by operation of
the state statute which were summarily enforceable, they
were established, they were choate, and thus satisfying

———— <<

App. 21

New Britain’s test. And therefore, the government's — the
federal government’s motion for summary judgment was
denied. They denied that case and remanded it.

I will be frank to tell you that I have enjoyed the
argument of both counsel. Each appeared to be well
familiar with their law and quite flexible with their rea-
soning. That does not mean that they were not staunch in
their defense, but it told me they considered the alterna-
tive. It’s an interesting question, and there is — on these
facts and then considering [p. 8] the Minnesota Statute
and the statutory structures set forth by the Minnesota
State Legislature, the determination is made and to indi-
cated and that will be the order of the court. I thank you,
counsel.

(The proceedings were concluded.)

App. 22

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
97-CV-482

State of Minnesota,

Department of Revenue ORDER

V.

— ~~

United States of America

This matter is before the Court on the parties’ cross-
motions for summary judgment, pursuant to Rule 56 of
the Federal Rules of Civil Procedure. The Court heard
oral argument on January 23, 1998. Based on the files,
records, and proceedings herein, IT IS ORDERED that:

1. Plaintiff’s motion for summary judgment is
granted.

2. Defendant’s motion for summary judgment is
denied.

Dated: January 28th, 1998

/s/ James M. Rosenbaum
JAMES M. ROSENBAUM
United States District Judge

App. 23

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
State of Minnesota,
Department of Revenue Case No. Civil 97-482JMR/FLN
v. JUDGMENT IN A

United States of America CIVIL CASE

( ) Jury Verdict. This action came before the Court for
a trial by jury. The issues have been tried and the
jury has rendered its verdict.

(X) Decision by Court. This action came to trial or
hearing before the Court. The issues have been
tried or heard and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that plaintiff's
motion for summary judgment is granted and defen-
dant’s motion for summary judgment is denied.

DATE: January 29, 1998
FRANCIS E. DOSAL, CLERK

/s/ Denise LaFond, Deputy Clerk

App. 24

Minn. Stat. § 270.65 (1992):

For purposes of taxes administered by the
commissioner, the term “date of assessment”
means the date a return was filed or the date a
return should have been filed, whichever is
later; or, in the case of taxes determined by the
commissioner, “date of assessment” means the
date of the order assessing taxes; or in the case
of an amended return filed by the taxpayer, the
assessment date is the date the return was filed
with the commissioner.

Minn. Stat. § 270.69, subd. 1 (1992):

The tax imposed by any chapter adminis-
tered by the commissioner of revenue, and inter-
est and penalties imposed with respect thereto,
including any recording fees, sheriff fees, or
court costs that may accrue, shall become a lien
upon all the property within this state, both real
and personal, of the person liable for the pay-
ment or collection of the tax, except property
exempt under subdivision 3, from and after the
date of assessment of the tax.

Minn. Stat. § 270.69, subd. 4 (1992):

The lien imposed by this section shall, not-
withstanding any other provision of law to the
contrary, be enforceable from the time the lien
arises and for ten years from the date of filing
the notice of lien, which must be filed by the

App. 25

commissioner within five years after the date of
the assessment of the tax... .

Minn. Stat. § 270.69, subd. 6 (1992):

The lien imposed by this section shall be
enforceable by levy as authorized in section
270.70, or by judgment lien foreclosure as autho-
rized in chapter 550.

Minn. Stat. § 289A.35 (1992):

The commissioner shall make determina-
tions, corrections, and assessments with respect
to state taxes, including interest, additions to
taxes, and assessable penalties. . . . If a return
has been filed, the commissioner shall examine
the return and make any audit or investigation
that is considered necessary.

Minn. Stat. § 289A.37, subd. 1(a) (1992):

When a return has been filed and the com-
missioner determines that the tax disclosed by
the return is different than the tax determined
by the examination, the commissioner shall send
an order of assessment to the taxpayer. . .

App. 26

Minn. Stat. § 289A.55, subd. 9(a) (1992):

[Blears interest from the date the return or
payment was required to be filed or paid,
including any extensions, to the date of payment
of the penalty.

ne

Minn. Stat. 289A.60, subd. 1 (1992):

If a withholding or sales or use tax is not
paid within the time specified for payment, a
penalty must be added to the amount required
to be shown as tax.

a

Minn. Stat. § 289A.60, subd. 2 (1992):

If a taxpayer fails to make and file a return
other than an income tax return of an individ-
ual, within the time prescribed or an extension,
a penalty is added to the tax.

Minn. Stat. § 645.17, subd. 1 (1998):

[t]he legislature does not intend a result that
is absurd, impossible of execution, or unreason-
able.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0172%3A0. Public record. Not legal advice.