by suit against its transferees." Id. at 494. The Court then determined that if "the period of limitation had run in favor of the corporation, it had run in favor of the transferees." Id. The Court reasoned that where an assessment "has in fact been made, a proceeding to collect must be begun within six years thereafter . . . ." Id.
Unlike Updike, in the present case the United States assessed the original taxpayers' transferee, filed suit against the transferee, and obtained a judgment against the transferee. Compl. PP 10-11. The United States seeks now only to enforce the judgment; it does not seek to collect a tax (that was done in the previous action against J. Brickman). This distinction is critical. Having gained a timely judgment against J. Brickman, the statute of limitations stops running, and the United States can enforce the judgment at any time. Ettelson, 159 F.2d at 196. Absent such a judgment, we agree with the Brickman Family that the United States would be time-barred from suing the Brickman Family as "transferees of a transferee" to collect the unpaid taxes. See 26 U.S.C. 6901(c)(2). But we must acknowledge the judgment against J. Brickman. As such, the tax liens against J. Brickman's property are valid and enforceable.
The Brickman Family puts much weight on the fact that J. Brickman was not the original taxpayer. See Defs.' Reply at 2-3. For instance, the Brickman Family attempts to distinguishe United States v. Ettelson, 159 F.2d at 193, and United States v. Colamatteo, No. 83 C 7439, 86-2 U.S. Tax Cas., on the ground that neither case involved a "transferee of a transferee," but rather both cases involved the assessment of an original taxpayer followed by a timely court proceeding against the original taxpayer. See Defs.' Reply at 2-3. This distinction, however, is of no consequence.
The IRC does not require the United States to assess and sue the original taxpayer prior to assessing a transferee. To the contrary, the IRC allows the United States to assess and sue either a transferee or a "transferee of a transferee" so long as the relevant time limitations are followed. Compare 26 U.S.C. § 6901(a)(1)(A) (discussing the liabilities of a transferee)
with 26 U.S.C. § 6901(c)(2) (discussing the liabilities of a transferee of a transferee). In the present case, J. Brickman, a transferee of the original taxpayer, was timely assessed followed by a timely court proceeding resulting in a judgment for the United States. The United States is not time-barred from bringing the present action to enforce assessment liens precisely because the United States previously obtained a judgment against J. Brickman as the transferee of the original taxpayer. The United States can enforce that judgment at any time. Ettelson, 159 F.2d 193 at 196. The fact that J. Brickman was a transferee of the original taxpayer and not the original taxpayer does nothing to undermine this determination which is well supported by precedent. See, e.g., Moyer v. Mathas, 458 F.2d 431, 434 (5th Cir. 1972) (allowing foreclosure suit brought twenty years after timely lien); United States v. Overman, 424 F.2d 1142, 1147 (9th Cir. 1970) (holding that foreclosure suit brought six years after judgment in timely suit was not time-barred because tax liens are enforceable at any time); Hodes, 355 F.2d at 748-49 (finding that the institution of a suit to enforce tax liability extends the life of an assessment lien beyond the six-year period); Hector v. United States, 255 F.2d 84, 85 (5th Cir. 1958) (holding that suit filed within six years of assessment tolls the limitation period indefinitely); Ettelson, 159 F.2d at 196 (holding claim filed in probate court within six years of assessment tolls the limitation period so that judgment could be enforced at anytime thereafter); Investment & Secs. Co., 140 F.2d at 896 (finding that no federal statutory limitation on enforcing a judgment won in a timely suit exists allowing a tax to be collected at any time); United States v. Mandel, 377 F. Supp. 1274, 1276-77 (S.D. Fla. 1974) (following Moyer); United States v. American Cas. Co., 238 F. Supp. 36, 38-39 (W.D. Ky. 1964 (following Ettelson); United States v. Caldwell, 74 F. Supp. 114, 117 (M.D. Tenn. 1947) (finding no time limit on enforcing a lien acquired in timely suit).
b. The Fraudulent Conveyance Theory
Section 6501 is also inapplicable to the United States' fraudulent conveyance theory. In this case, the original taxpayers were the unnamed corporations. Compl. P 10. J. Brickman was a transferee of the unnamed corporations.
Id. The Brickman Family is, therefore, a "transferee of a transferee." Section 6901 governs assessments against and collection from transferees of a transferee. 26 U.S.C. § 6901(c)(2). However, Section 6901 "does not apply to actions to set aside fraudulent conveyances, actions brought ancillary to collection actions against assessed taxpayers." United States v. Colamatteo, No. 83 C 7439, 86-2 U.S. Tax Cas. (CCH) at P 9720; see also, Hall v. United States, 403 F.2d 344, 345 (5th Cir. 1968), cert. denied, 394 U.S. 958, 89 S. Ct. 1306, 22 L. Ed. 2d 560 (1969).
The Brickman Family has not been sued personally as "transferees of a transferee." Rather, the Brickman Family has been sued because the United States seeks to set aside allegedly fraudulent conveyances of property to them and to satisfy J. Brickman's tax liability from that property. Compl. PP A-E. Section 6901 does not bar the present action against the Brickman Family, which is ancillary to the collection action previously brought against J. Brickman, the assessed taxpayer. Thus, we deny the Brickman Family's motion to dismiss the United States' complaint on the ground that the complaint is time-barred.
Property Transferred Pre-Assessment
Having determined that the United States' complaint is not time-barred, we turn now to the Brickman Family's alternative ground for dismissal. The Brickman Family argues that the United States should not be allowed to proceed on the portion of the complaint that seeks to recover conveyances that occurred prior to the assessments against J. Brickman. Defs.' Mem. at 9-10.
Federal tax liens under Section 6321 do not arise until unpaid taxes are assessed. 26 U.S.C. § 6321; United States v. Speers, 382 U.S. 266, 267 n.1, 15 L. Ed. 2d 314, 86 S. Ct. 411 (1965); United States v. General Motors Corp., 929 F.2d 249, 253 (6th Cir. 1991); Zeddies v. United States, 357 F.2d 897, 899 (7th Cir. 1966). As a result, "a tax lien cannot attach to property which has been previously assigned or transferred by the taxpayer at the time the assessment is made. Assignments made prior to a tax assessment preclude lien attachment." General Motors, 929 F.2d at 253. Therefore, in the present case, the United States can only recover the property transferred prior to assessment on a theory of fraudulent conveyance. See Zeddies, 357 F.2d at 899 (noting that where transfer are made prior to assessment, the United States can only recover on a theory that the conveyance was fraudulent).
To set aside transfers as fraudulent conveyances, the United States must establish that its rights as a "creditor" were impaired at the time the conveyances were made. Thus, the limited question that this Court must decide today is whether the United States was a "creditor" whose rights were impaired at the time J. Brickman transferred his property to the Brickman Family. If so, then the United States may be able to invalidate the conveyances as being fraudulent, rendering the property subject to the United States' tax lien (provided that the United States can successfully establish all the elements of fraudulent conveyance, an issue which is not presently before the Court). United States v. Kitsos, 770 F. Supp. 1230, 1236 (N.D. Ill. 1991), aff'd without op., 968 F.2d 1219 (7th Cir. 1992).
Courts facing this issue in this district have found that for fraudulent conveyance purposes, the United States is a creditor as to any unpaid tax liabilities prior to the issuance of an assessment. United States v. Brown, 820 F. Supp. 374, 383 (N.D. Ill. 1993); United States v. Kitsos, 770 F. Supp. at 1234-35; Indiana Nat'l Bank v. Gamble, 612 F. Supp. 1272, 1276-77 (N.D. Ill. 1984). The courts reason that such liabilities become due and owing on the date the tax returns are required to be filed, not on the date of assessment. Brown, 820 F. Supp. at 383; Gamble, 612 F. Supp. at 1276. We find these cases to be persuasive and hold that the United States in the instant case is a creditor as to all the unpaid tax liabilities belonging to the unnamed corporations and assessed against J. Brickman.
The Brickman Family attempts to distinguish these cases on the ground that the assessments in the above cited cases were against a taxpayer for deficiencies arising from the taxpayers' own return while the present case involves an assessment against a transferee of a taxpayer's property. Def.'s Mem. at 10. We find this distinction to be without merit.
In the present case, the United States became a creditor of the unnamed corporations on the date the corporate tax returns were required to be filed. See Brown, 820 F. Supp. at 383. Subsequently, the corporations dissolved with all the corporate assets going to J. Brickman. As a result, the United States' claims against J. Brickman as transferee of the corporate property arose as soon as J. Brickman obtained the corporate property. Indeed, the United States alleges that as early as November 28, 1960, J. Brickman was "aware that his taxes were under audit by the Internal Revenue Service and that he had substantial pending federal tax liabilities. . . ." Compl. P 13.
Taking all well-pleaded facts as true, as we are required to do in deciding a motion to dismiss, J. Brickman was aware of contemplated or existing indebtedness prior to the assessments. This awareness is sufficient to allow the United States to proceed on a fraudulent conveyance theory. See Gamble, 612 F. Supp. at 1276-77. Even though the United States' claim against J. Brickman was not reduced to assessments and judgment until after J. Brickman conveyed some of his property to the Brickman Family, "for purposes of a fraudulent conveyance action a 'creditor' becomes such when its claim arises, even if its claim is contingent and regardless of the fact that the claim has not matured or been reduced to judgment until after the conveyance." Brown, 820 F. Supp. at 383. Thus, we hold that the United States may proceed on a fraudulent conveyance theory pertaining to all of the allegedly fraudulent transfers. The Brickman Family's motion to dismiss is denied.
The Brickman Family's motion to dismiss is denied in all respects.
United States District Judge
November 2, 1995