## Facts

- The IRS assessed unpaid federal taxes against MAKO, Inc. and filed a notice of federal tax lien against MAKO.
- MAKO later entered bankruptcy.
- In MAKO’s bankruptcy, Retail Marketing Company (RMC), a non-debtor third party, acquired MAKO’s estate assets under a confirmed plan and assumed MAKO’s secured liabilities, including the IRS tax lien.
- The IRS consented to the plan and transfer but did not file a new or amended federal tax lien notice naming RMC.
- RMC, LMS Holding Company, and Petroleum Marketing Company later filed their own bankruptcy cases.
- In the later bankruptcy, RMC (as debtor in possession) sought to avoid the IRS lien on the transferred assets, arguing the recorded notice naming MAKO was ineffective against hypothetical purchasers and lien creditors because it did not name RMC.
- The bankruptcy court granted summary judgment for the debtors, concluding the IRS had to refile the notice in RMC’s name to preserve priority; the district court affirmed.

## Issues

1. Whether a properly filed notice of federal tax lien against an original taxpayer remains effective against purchasers and judgment lien creditors after the encumbered assets are transferred to a successor that assumes the tax liability, without refiling in the successor’s name under I.R.C. § 6323 and applicable state filing rules.
2. Whether a debtor in possession may avoid the IRS lien under 11 U.S.C. § 544(a)(1) on the theory that the lien was unperfected as of the petition date because the notice did not name the current owner.

## Decision

- The Tenth Circuit reversed the district court and bankruptcy court.
- The court held the IRS was not required to file a new or amended notice naming RMC to keep the lien perfected and prior as to the transferred property.
- Because the lien remained perfected under I.R.C. § 6323 and state recording requirements, the debtor in possession could not avoid it under 11 U.S.C. § 544(a)(1).
- Summary judgment for the debtors was vacated, and the IRS lien priority was upheld.

## Legal Principles

- A federal tax lien that has attached to a taxpayer’s property and has been properly noticed generally continues to encumber the property after transfer, absent a statutory basis to treat the lien as ineffective.
- Under I.R.C. § 6323, lien validity against purchasers and judgment lien creditors turns on filing notice in the state-designated office and compliance with state recording requirements governing constructive notice.
- I.R.C. § 6323 does not impose an automatic duty on the IRS to refile lien notice each time encumbered property changes hands or a successor assumes the liability, if the original filing satisfied statutory and state-law notice requirements.
- A trustee or debtor in possession’s strong-arm power under 11 U.S.C. § 544(a)(1) defeats unperfected liens, but it does not displace a properly perfected federal tax lien merely because the notice names a predecessor in the chain of title.

## Conclusion

The court held that the IRS’s properly filed tax lien notice against MAKO remained effective after MAKO’s assets were transferred to RMC and that, because the lien was perfected under I.R.C. § 6323 and state recording law, the debtor in possession could not avoid it under 11 U.S.C. § 544(a)(1).


In re LMS Holding Co., 50 F.3d 1526 (10th Cir. 1995)