Federal taxes were assessed against a company but despite demand were not paid. No notice was filed of the lien which ensued under 6321 of the Internal Revenue Code of 1954. Thereafter the company filed a petition in bankruptcy. The trustee treated the Government as an unsecured claimant whose lien was invalid as to him, basing his position on 70c of the Bankruptcy Act and 6323 of the Internal Revenue Code. Section 70c vests a trustee as of the bankruptcy date with all the rights of "a creditor then holding a lien" on a bankrupt's assets by "legal . . . proceedings"; 6323 permits a "judgment creditor" to prevail over an unrecorded federal tax lien. The trustee's position was upheld by the referee, District Court, and Court of Appeals. Held: A bankruptcy trustee has the status of a statutory "judgment creditor" and as such prevails over an unrecorded federal tax lien. Pp. 269-278.
Acting Assistant Attorney General Roberts argued the cause for the United States. On the brief were Solicitor General Cox, Assistant Attorney General Oberdorfer and I. Henry Kutz.
Robert B. Gosline argued the cause and filed a brief for respondent.
MR. JUSTICE FORTAS delivered the opinion of the Court.
This case presents the question whether a federal tax lien, unrecorded as of the time of bankruptcy, is valid as against the trustee in bankruptcy.
On June 3, 1960, a District Director of Internal Revenue assessed more than $14,000 in withholding taxes and interest against the Kurtz Roofing Company. Demand for payment was made, and the taxpayer refused to pay. This gave rise to a federal tax lien. 1 Notice of the lien was not filed either in the Office of the Recorder of Erie County, Ohio, where Kurtz had its principal place of business, or in the United States District Court, at least [382 U.S. 266, 268] not before February of 1961. 2 On June 20, 1960, Kurtz filed a petition in bankruptcy. In the ensuing proceedings the trustee took the position that the federal tax lien was invalid as to him. He relied upon 70c of the Bankruptcy Act, 11 U.S.C. 110 (c) (1964 ed.), which, he asserted, vested in him the rights of a "judgment creditor," and upon 26 U.S.C. 6323 (1964 ed.), which entitles a "judgment creditor" to prevail over an unrecorded federal tax lien. Section 70c provides in part:
The trustee's position was affirmed by the referee, the District Court, and the Court of Appeals for the Sixth Circuit. 335 F.2d 311. Certiorari was granted, 379 U.S. 958 , to resolve the conceded conflict between decisions of Courts of Appeals for the Second, Third, and Ninth Circuits 4 and the decision below. We affirm.
Despite the language of the applicable statutory provisions, 70c and 6323, most of the Courts of Appeals passing on the question have sustained the validity of an unrecorded federal tax lien as against the trustee in bankruptcy. They have arrived at this result on the authority of a statement in United States v. Gilbert Associates, Inc., 345 U.S. 361, 364 , that the phrase [382 U.S. 266, 270] "judgment creditor" in 3672, the predecessor of 6323, was used by Congress "in the usual, conventional sense of a judgment of a court of record . . . ."
It is clear, however, that this characterization was not intended to exclude a trustee in bankruptcy from the scope of the phrase "judgment creditor." The issue before the Court in Gilbert was quite different.
Gilbert involved neither a bankruptcy proceeding nor the rights of a trustee in bankruptcy. Gilbert arose out of a state insolvency proceeding. The issue was whether an unrecorded federal tax lien was valid as against a municipal tax assessment which had neither been reduced to judgment nor accorded "judgment creditor" status by any statute. The asserted superior position of the local tax claim was based upon the fact that the New Hampshire court, in the Gilbert insolvency proceeding, had, for the first time, conveniently characterized the local tax claim as "in the nature of a judgment," relying upon the procedures used by the taxing authorities. 5 Because the effect of federal tax liens should not be determined by the diverse rules of the various States, the Court held that the municipality was not a "judgment creditor" for purposes of the federal statute. The Court said:
The legislative history lends support to the conclusion drawn from the statutory language that the purpose of Congress was to invalidate an unrecorded federal tax [382 U.S. 266, 272] lien as against the trustee in bankruptcy. It was in 1910 that Congress enacted the predecessor of 70c, vesting the trustee "with all the rights, remedies, and powers of a judgment creditor." 7 Three years later, in 1913, Congress enacted the predecessor of 6323, providing that an unrecorded federal tax lien was invalid as against a "judgment creditor." 8 These two statutes, with their corresponding references to "judgment creditor," co-existed for nearly 40 years. During that period, and prior to our decision in Gilbert in 1953, the only Court of Appeals squarely to pass upon the question decided that the trustee was a "judgment creditor" for purposes of avoiding an unrecorded federal tax lien. United States v. Sands, 174 F.2d 384, 385 (C. A. 2d Cir.), rejecting contrary dictum in In re Taylorcraft Aviation Corp., 168 F.2d 808, 810 (C. A. 6th Cir.).
In amending the Bankruptcy Act in 1950, Congress deleted from 70c the phrase "judgment creditor," providing instead that whether or not the bankrupt's property was in possession or control of the court, the trustee was to have "all the rights, remedies, and powers" of a creditor holding a judicial lien. 9 Elsewhere in the same [382 U.S. 266, 273] legislation it was recognized that the category of those holding judicial liens includes judgment creditors, 10 and a judicial lien holder generally has "greater rights than a judgment creditor." 11 It is clear, therefore, that, with respect to the present problem, it was not the purpose of the 1950 amendments to reduce the powers of the trustee. As the House report accompanying the legislation noted, the revision of 70c "has been placed in the bill for the protection of trustees in bankruptcy . . . also to simplify, and to some extent expand, the general expression of the rights of trustees in bankruptcy." 12
In 1954 Congress dealt explicitly with the question whether the trustee ought to prevail against unrecorded federal tax liens. An unsuccessful effort was made, reflected in the House version of the proposed 6323, expressly to exclude "artificial" judgment creditors like the trustee in bankruptcy. 13 At conference, the House [382 U.S. 266, 274] conferees acceded to the views of the Senate, which deemed it "advisable to continue to rely upon judicial interpretation of existing law instead of attempting to prescribe specific statutory rules." 14 The Government suggests that the "existing law" sought to be preserved was this Court's decision in Gilbert. But as of the date of the 1954 amendments, Gilbert had not yet been applied by any court to displace the rights of the trustee in bankruptcy as against an unrecorded federal tax lien. So far as that issue is concerned, it is more likely that reference to "existing law" was to the specific and then unchallenged rule announced by the Second Circuit in United States v. Sands, supra, and by other courts in other cases holding the trustee to have the rights of a judgment creditor. 15 As we have already noted, Gilbert is not inconsistent with the rule announced in Sands.
In recent years, and since the view began to spread that Gilbert compelled exclusion of the trustee from the benefits of 6323, legislation has been introduced expressly to reiterate the trustee's power to upset unrecorded federal tax liens. 16 Such legislation was proposed [382 U.S. 266, 275] not to alter the statutory scheme, but to remove what was thought to be an erroneous gloss placed upon it by the courts. Thus, both Senate and House committee reports accompanying a recent bill, H. R. 394, 88th Cong., reflect the belief that those decisions upon which the Government now relies "would appear to be contrary to the legislative purpose which gave the trustee all the rights of an ideal judicial lien creditor." 17
In light of these legislative materials - the adoption of the phrase "judgment creditor" in both statutes, the legislative broadening of 70c in 1950, and the expressions of congressional discontent with recent decisions excluding the trustee from 6323 - we are persuaded that, read together, 6323 and 70c entitle the trustee to prevail over unrecorded federal tax liens.
The Government seeks to ward off this result with the argument that so to read the statutes is to confer upon certain classes of creditors "windfalls" unwarranted by the equities of their situation. The question may, however, be stated less invidiously than the argument indicates: it is whether the Government, unlike other creditors, and contrary to the general policy against secret liens, should be given advantage of a lien which it has not recorded as of the date of bankruptcy. 18 It is true that the consequence of depriving the United States of claimed priority for its secret lien is to improve the relative position of creditors - if there are any not already protected by 6323 - whose security was obtained subsequent to the Government's lien and who, once the federal lien is invalidated, have a prior claim to [382 U.S. 266, 276] the secured assets. And our decision will enhance the possibility that there will be something in the bankrupt's estate for those claimants whose priorities are higher than that afforded unsecured tax claims, 19 as well as for state and local tax claims which share with the Federal Government the priority in 64a (4), 11 U.S.C. 104 (a) (4). Whether this result is inadvisable need not detain us, 20 for the question is one of policy which in our view has been decided by Congress in favor of the trustee. In any event, it is possible for the Government in cases which it deems appropriate, to avoid a result which it regards with unhappiness by promptly filing notice of its lien. 21 Should experience indicate that inclusion [382 U.S. 266, 277] of the trustee within 6323 is inadvisable, the fact will not be lost upon Congress.
The Government advances one last and quite novel 22 argument predicated upon 67b of the Bankruptcy Act, 11 U.S.C. 107 (b) (1964 ed.), which provides:
26 U.S.C. 6322 (1964 ed.) provides: "Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time."
[ Footnote 2 ] In its brief in the Court of Appeals the Government for the first time stated that notice of the lien was in fact filed with the Recorder on February 9, 1961. The statement in the referee's certificate that notice of the lien was never filed was not controverted in the District Court and, as respondent contends, there is no proof of the February filing in the record.
[ Footnote 3 ] See 64a (1)-(3), 11 U.S.C. 104 (a) (1)-(3) (1964 ed.). Secured creditors, including those whose security was obtained subsequent to creation of the Government's lien, would have recourse to their security before any of the Bankruptcy Act priorities come into play. Goggin v. California Labor Div., 336 U.S. 118 ; City of Richmond v. Bird, 249 U.S. 174 . Administrative expenses and wage claims precede all other statutory liens on personal property not accompanied by possession if not enforced by sale prior to bankruptcy. 67c, 11 U.S.C. 107 (c) (1964 ed.); Goggin, supra, 126-130.
[ Footnote 4 ] See Brust v. Sturr, 237 F.2d 135 (C. A. 2d Cir.); In re Fidelity Tube Corp., 278 F.2d 776 (C. A. 3d Cir.) (Kalodner and Hastie, JJ., dissenting), cert. denied sub nom. Borough of East Newark v. United States, 364 U.S. 828 ; Simonson v. Granquist, 287 F.2d 489 (C. A. 9th Cir.) (Hamley, J., expressing contrary views), rev'd on other grounds, 369 U.S. 38 . See also United States v. England, 226 F.2d 205 (C. A. 9th Cir.); In re Taylorcraft Aviation Corp., 168 F.2d 808, 810 (C. A. 6th Cir.) (dictum).
[ Footnote 6 ] The Government's brief also emphasized this concern for uniformity in administration of the federal tax laws. See brief for petitioner in Gilbert, No. 440, 1952 Term, pp. 22-24, where the Government argued: "Congress did not intend to subordinate federal tax liens to local tax liens merely because by state statute or state court decisions the local tax assessments are for local purposes denominated `judgments' . . . . Moreover, in holding that under our `decisions' and in `this jurisdiction' the Town's tax assessments are `judgments,' the court below failed to give sufficient heed to the repeated declarations of this Court that the federal revenue laws should be interpreted `so as to give a uniform application to a nationwide scheme of taxation,' and hence their provisions are not to be deemed subject to state law unless the language of the section involved, expressly or by necessary implication, so requires."
[ Footnote 7 ] The Act of June 25, 1910, c. 412, 36 Stat. 840, 8, provided in part: "such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied."
[ Footnote 8 ] Act of March 4, 1913, c. 166, 37 Stat. 1016.
[ Footnote 9 ] Act of March 18, 1950, c. 70, 2, 64 Stat. 26, now 11 U.S.C. 110 (c) (1964 ed.). Prior to the amendment, 70c characterized the trustee as a lien holder as to property in the court's possession or control and as a "judgment creditor" as to property not so reduced to possession. See n. 7, supra; Lewis v. Manufacturers National Bank, 364 U.S. 603, 605 -606.
[ Footnote 10 ] Act of March 18, 1950, c. 70, 1, 64 Stat. 25, now 11 U.S.C. 96 (a) (4) (1964 ed.). See 4 Collier, Bankruptcy § 70.49, n. 3, at 1415 (1964 ed.).
[ Footnote 11 ] See, e. g., H. R. Rep. No. 745, 86th Cong., 1st Sess., to accompany H. R. 7242, p. 10: "As a matter of general law the holder of a lien by legal proceedings has greater rights than a judgment creditor . . . . It would seem anomalous to allow judgment creditors to prevail over secret tax liens and to deny that right to a judicial lien holder."
[ Footnote 12 ] H. R. Rep. No. 1293, 81st Cong., 1st Sess., to accompany S. 88, p. 7. That this was the tenor of the amendment is generally conceded. See, e. g., In re Fidelity Tube Corp., 278 F.2d 776, 781, 786-787 (both majority and dissenting opinions); 4 Collier, op. cit. supra, at 1415; Seligson, Creditors' Rights, 32 N. Y. U. L. Rev. 708, 710 (1957).
[ Footnote 13 ] The proposed legislation was to make clear that "such protection is not extended to a judgment creditor who does not have a valid judgment obtained in a court of record and of competent jurisdiction" and that "particular persons shall not be treated as judgment creditors because State or Federal law artificially provides or concedes such persons rights or privileges of judgment creditors, or even designates them as such, when they have not actually obtained [382 U.S. 266, 274] a judgment in the conventional sense." H. R. Rep. No. 1337, 83d Cong., 2d Sess., to accompany H. R. 8300, p. A407. See Treas. Reg. on Procedure and Administration (1954 Code) 301.6323-1 (26 CFR 301.6323-1), incorporating the material rejected by the Eighty-third Congress.
[ Footnote 14 ] S. Rep. No. 1622, 83d Cong., 2d Sess., to accompany H. R. 8300, p. 575; H. R. Conf. Rep. No. 2543, 83d Cong., 2d Sess., to accompany H. R. 8300, p. 78.
[ Footnote 15 ] E. g., Sampsell v. Straub, 194 F.2d 228, 231 (C. A. 9th Cir.), cert. denied, 343 U.S. 927 ; McKay v. Trusco Finance Co., 198 F.2d 431, 433 (C. A. 5th Cir.); In re Lustron Corp., 184 F.2d 789 (C. A. 7th Cir.), cert denied sub nom. Reconstruction Finance Corp. v. Lustron Corp., 340 U.S. 946 .
[ Footnote 16 ] On two occasions the proposed legislation was approved by the appropriate House and Senate committees, and one bill received the assent of both Houses. See H. R. 7242, 86th Cong., 6, vetoed by President on September 8, 1960, 106 Cong. Rec. 19168; H. R. 394, 88th Cong., 6; H. R. 136, 89th Cong., 6.
[ Footnote 17 ] H. R. Rep. No. 454, 88th Cong., 1st Sess., p. 10; S. Rep. No. 1133, 88th Cong., 2d Sess., p. 11.
[ Footnote 18 ] In enacting the predecessor of 6323 in 1913, Congress seems generally to have answered this question in the negative - and against secret liens. See H. R. Rep. No. 1018, 62d Cong., 2d Sess., pp. 1-2.
[ Footnote 19 ] See 64a (1)-(3), 11 U.S.C. 104 (a) (1)-(3), giving priority to claims for administrative expenses, wages, and certain creditors' expenses. The claims of general creditors are, of course, in no way affected by our decision. And in some circumstances administrative expense and wage claimants would in any case prevail over the Government's lien. See n. 3, supra.
[ Footnote 20 ] We note that failure of the Government to record its lien may work a hardship upon persons subsequently extending credit in ignorance of the unrecorded lien, and that nondisclosure may induce others to incur administrative or other expenses which they would not incur if there were no hope of repayment. Moreover, state and local governments might reduce their claims to judgment if they knew of the existence of a federal lien. See Memorandum of Chairman, Drafting Committee of National Bankruptcy Conference, contained in S. Rep. No. 1133, 88th Cong., 2d Sess., to accompany H. R. 394, pp. 24-25.
[ Footnote 21 ] In its letter to Senator Eastland opposing H. R. 394, dated September 8, 1961, the Treasury asserted that "The Service has, as a matter of administrative practice, exercised forbearance as a creditor in cases when there exists a reasonable possibility that the business can regain financial stability. Enactment of the proposed amendments . . . could well force the service to change this practice, which it is believed has been proved by experience to be highly desirable." S. Rep. No. 1133, 88th Cong., 2d Sess., p. 18. This same argument was made to an earlier Congress and rejected. See letter from Treasury, dated Aug. 9, 1960, in opposition to H. R. 7242, contained in S. Rep. No. 1871, 86th Cong., 2d Sess., p. 36.
[ Footnote 22 ] In the Court of Appeals the Government advanced, as an alternative basis for disposition of the case, the contention that pursuant to 67b the alleged filing of notice in February of 1961 retroactively validated the lien as against the trustee. The court declined to reach the merits of this claim, noting that it had not been presented either to the referee or to the District Court and that there was no proof of record with respect to the alleged February filing. 335 F.2d, at 314.
The 67b argument raised in this Court differs from that rejected below, for that subsection is now cited to us as an aid in construing the relationship between 70c and 6323. Insofar as it is relevant to the particular problem of statutory construction presented by this case, we regard the 67b argument as properly before us, for "Where the mind labours to discover the design of the legislature, it seizes every thing from which aid can be derived." United States v. Fisher, 2 Cranch 358, 386 (Marshall, C. J.). See also United States v. Hutcheson, 312 U.S. 219 ; Estate of Sanford v. Commissioner, 308 U.S. 39, 42 -44; United States v. Aluminum Co. of America, 148 F.2d 416, 429 (C. A. 2d Cir.) (L. Hand, J.).
[ Footnote 24 ] 4 Collier, op. cit. supra, § 67.26, at 283-286, and § 70.48, at 1407.
[ Footnote 25 ] See legislative materials cited at notes 11, 16, and 17, supra.
MR. JUSTICE BLACK, dissenting.
Section 6323 of the 1954 Internal Revenue Code provides that an unfiled tax lien is not "valid as against any mortgagee, pledgee, purchaser, or judgment creditor [382 U.S. 266, 279] . . . ." The Court here holds that a bankruptcy trustee must be treated as if he were a "judgment creditor" thereby reducing government tax claims to the level of unsecured creditors. I am unable to agree. A bankruptcy trustee cannot be treated as a judgment creditor except by giving that term an entirely artificial, fictional meaning. The Court justifies this extraordinary twist of meaning by reference to 70c of the Bankruptcy Act, 11 U.S.C. 110 (c) (1964 ed.). That section, so far as here pertinent, provides:
I would reverse this judgment. [382 U.S. 266, 281]