DEBTOR CASE NO. 91000617





This matter is before the Court on the Trustee's Objection to Claim, filed herein on April 27, 1992. The claim is claim number 5 of the United States Internal Revenue Service ("IRS"). The trustee maintains that it should not be considered a priority claim, but a general unsecured claim. The trustee's objection is based on the fact that the debt to the IRS is for income taxes dating back to 1986, while the funds to which the IRS lays claim pursuant to its lien filed in 1990 are proceeds of a tax refund from 1990.

The record in this case shows that the debtor's Chapter 7 petition was filed in this Court on April 17, 1991. The IRS has filed a secured claim for 1986 tax liabilities totalling $3.062.42, assessed on December 18, 1989. The IRS filed its notice of federal tax lien on April 16, 1990. Apparently, the payment of the tax refund was made after the filing of the debtor's petition.

The IRS argues that when the refund became part of the bankruptcy estate and was paid over to the trustee, the federal tax lien remained attached to the funds although the debtor no longer had an interest in the funds. The IRS cites United States v. Bank of Celina, 721 F.2d 163, 169 (6th Cir. 1983), in support of its position. Therein the court held "...that once a federal tax lien has attached to a taxpayer's property, that property remains subject to the lien when transferred from the taxpayer to a third party". The trustee has argued that the IRS "lost" the lien upon the filing of the bankruptcy. Clearly, this is not the case.

The trustee also takes the position that by paying the tax refund after the filing of the bankruptcy petition and not timely excercising its right of set-off pursuant to 11 U.S.C. '553, the IRS "waived" its lien, thereby relinquishing its position as a priority claimant. The trustee offers neither case nor statutory law in support of this position. The IRS responds that once its lien attaches, it follows the property and rights to property of the delinquent taxpayer from the date of assessment to the extinguishment of the liability. See 26 U.S.C. ''6321 and 6322. The IRS further points out that there is nothing in the Internal Revenue Code or the Bankruptcy Code that would prevent the lien from attaching to a tax refund that was not offset. The trustee offers nothing to counter this argument.

Absent any support for the trustee's position, and in consideration of all of the foregoing, it is the opinion of this Court that the trustee's Objection to Claim should be overruled. An order in conformity with this opinion will be entered separately.


By the Court -






Copies to:

Michael L. Baker, Esq., Trustee

David E. Middleton, Esq.

Stuart M. Fischbein, Esq.

Margaret K. Drees, Esq.

U.S. Trustee