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September 26, 1967


The opinion of the court was delivered by: Robson, District Judge.


The priority of right between the Federal Government, pursuant to a lien and notice of levy for income taxes, and the taxpayer's divorced wife-grantee under a divorce settlement, to a residence held under an Illinois land trust, is raised by the cross motions for summary judgment.

The interpretation to be given the Illinois Supreme Court decision of Chicago Federal Savings and Loan Association v. Cacciatore, 25 Ill.2d 535, 185 N.E.2d 670 (1962), is critical to a determination of the rights of the parties.

There is no serious dispute as to the facts, which are as follows: The title to the residence property located at 4313 Prairie Avenue, Chicago, Illinois, was conveyed October 18, 1951, to the La Salle National Bank as trustee under Trust No. 7092, with Howard Lewis (the husband) as beneficiary. On December 23, 1954, the United States assessed income taxes for 1950 against Howard and Betty Lewis for $10,353.74 taxes, $2,401.53 penalties, and $2,316.97 interest. The balance due, after credits, was $10,256.08, and interest. In 1960, Betty and Howard Lewis executed a waiver extending the statute of limitations for 1950 income tax deficiency in the amount of $12,072.24 until December 31, 1965. On November 7, 1955, notice of tax liens were filed by the United States with the Cook County Recorder of Deeds.

On June 26, 1962, the Government filed a notice of levy for $14,364.64 on the La Salle National Bank upon the beneficial interest of Howard Lewis. On September 4, 1962, a divorce decree in cause 62 C 14885 in Cook County awarded the residence to Olivia Lewis, and directed Howard Lewis to convey the premises to her. On October 15, 1962, there was recorded a quitclaim deed from Howard Lewis to Olivia, and on October 23, 1963, he assigned his beneficial interests in the trust to Olivia. Howard and Betty Lewis have not answered the complaint and are in default.

By its complaint, the Government seeks a determination of tax liability of Howard and Betty Lewis for $10,256.08, and interest, and that it has a lien upon their real and personal property and that the lien on the residence is a first one, superior to the claims of all the defendants. Further, it prays a foreclosure of its lien. Its motion for summary judgment seeks a finding that its lien is superior to the interest of Olivia Lewis in the real estate. Olivia Lewis' crossmotion for summary judgment prays a determination that the lien of the United States is not superior to her interests.

While the nature of the property interests of the taxpayer is determined by state law, the Federal law prescribes the mode of procedure for the effectuation of the lien (United States v. Clinton, 260 F. Supp. 84 (S.D.N.Y. 1966); United States v. Goldberg, 3 Cir., 362 F.2d 575 (1966); Division of Labor Law Enforcement, Department of Industrial Relations, State of California v. United States, 9 Cir., 301 F.2d 82 (1962). See also United States v. Equitable Life Assurance Society of the United States, 384 U.S. 323, 86 S.Ct. 1561, 16 L.Ed.2d 593 (1966)).

The Federal Tax Regulations 1959, p. 1636, § 301.6331-1(a), provides:

    "If any person liable to pay any tax neglects or
  refuses to pay such tax within 10 days after notice
  and demand, the district director * * * may proceed
  to collect the tax by levy upon any property, or
  rights to property, whether real or personal,
  tangible or intangible, belonging to such person or
  on which there is a lien provided by [the
  statute] * * * for the payment of such tax. * * *
  Levy may be made by serving a notice of levy on any
  person in possession of, or obligated with respect
  to, property or rights to property subject to
  levy. * * *" (Emphasis added.)

See also United States v. Manufacturers National Bank, 198 F. Supp. 157 (N.D.N.Y. 1961); Rosenblum v. United States, 300 F.2d 843 (1st Cir. 1962).

In the Cacciatore case, there was a notice of lien by the Government but no levy. In that case, the court stated, at 540, 541 of 25 Ill.2d, at 672 of 185 N.E.2d:

    "* * * [T]he Federal lien against the trust
  beneficiary did not attach to the real estate to
  which the beneficiary had no title under the law of
  this State as is hereinafter more clearly set forth."
    "* * * The threshold question in this case, as in
  all cases where the Federal Government asserts its
  tax lien, is whether and to what extent the taxpayer
  had "property" or "rights to property" to which the
  tax lien could attach. In answering that question,
  both federal and state courts must look to state law,
  for it has long been the rule that "in the
  application of a federal revenue act, state law
  controls in determining the nature of the legal
  interest which the taxpayer had in the property * * *
  sought to be reached by the statute." * * *'
    "Only when the Federal tax lien has attached to the
  taxpayer's State-created interests, does the Federal
  law determine the priority of competing liens against
  the ...

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