## Facts

- Eventide Homes, Inc. (Eventide) operated as a certified nursing-care facility and was entitled to reimbursement from the Illinois Department of Public Services (the department) for services provided to Illinois public-aid recipients.
- J.D. Court, Inc. (Court) held a perfected security interest in Eventide’s accounts receivable, including amounts owed by the department.
- Before December 1, 1979, Eventide provided $907.38 worth of services to public-aid recipients, creating an entitlement to reimbursement from the department.
- From December 1, 1979, through February 14, 1980, Eventide provided roughly $32,000 more in reimbursable services, generating additional receivables owed by the department.
- Eventide failed to pay federal income taxes, and the Internal Revenue Service (IRS) imposed a federal tax lien on Eventide’s property.
- The IRS filed a notice of federal tax lien on September 17, 1979.
- After filing notice, the IRS levied on the amounts the department owed to Eventide, seeking to collect the delinquent taxes from those receivables.
- Court sued the United States to prevent the levy, claiming its earlier security interest in Eventide’s accounts receivable had priority over the federal tax lien.
- The district court analyzed priority under the Tax Lien Act of 1966 and applied the federal “choateness” analysis used to determine when a competing nonfederal lien or security interest is sufficiently established to defeat a federal tax lien.
- Applying 26 U.S.C. § 6323(c), the district court concluded Court’s security interest had priority only as to receivables that came into existence by December 1, 1979 (within 45 days after the IRS filed notice), i.e., the $907.38 amount.
- The district court held the IRS had priority over the later-arising roughly $32,000 in receivables that came into existence more than 45 days after the filing of the notice of tax lien.
- Court appealed, arguing that the Tax Lien Act of 1966 displaced the choateness approach and that its security interest should take priority over all the department payments.

## Issues

1. Whether, under the Tax Lien Act of 1966 and 26 U.S.C. § 6323(c), a secured creditor’s interest in a taxpayer’s accounts receivable takes priority over a federal tax lien for receivables that arise more than 45 days after the IRS files notice of the lien.

## Decision

- The court held that Court’s security interest had priority only as to the receivable amount that came into existence within the 45-day period following the IRS’s filing of the notice of tax lien.
- The court rejected Court’s argument that the Tax Lien Act of 1966 eliminated the need to determine when the receivables came into existence for purposes of § 6323(c).
- The court affirmed the district court’s determination that the IRS’s tax lien was prior in right to the roughly $32,000 in receivables generated more than 45 days after the notice filing, and that Court was prior only as to the $907.38.

## Legal Principles

- A federal tax lien generally has priority over competing interests unless a statute provides an exception. Priority disputes are governed by federal law, even when the competing interest arises under state law.
- Under 26 U.S.C. § 6323(c), certain “commercial transactions financing” security interests can take priority over a filed federal tax lien only for a limited period and limited property, including property (such as accounts receivable) acquired by the taxpayer within 45 days after the IRS files notice of the tax lien (and subject to other statutory conditions).
- For receivables and similar rights to payment, the timing question matters: a security interest does not obtain statutory priority under § 6323(c) for receivables that did not yet exist (or were not yet acquired by the taxpayer) beyond the statute’s protected window.
- The federal “choateness” concept is used to decide when a competing nonfederal interest is sufficiently established against the taxpayer’s property to defeat a federal tax lien; § 6323(c)’s 45-day rule functions as a defined boundary for how far a prior financing interest can reach into after-acquired property as against the government.
- When a taxpayer generates accounts receivable over time by providing services, receivables attributable to services performed after the protected period are treated as later-arising property for federal tax lien priority purposes.

## Conclusion

The court concluded that the Tax Lien Act of 1966 did not give Court priority over all reimbursements owed to Eventide; instead, § 6323(c) limited Court’s priority to receivables that came into existence within 45 days after the IRS filed its notice of tax lien, leaving the IRS with priority to the later-generated reimbursement receivables.


J.D. Court, Inc. v. United States, 712 F.2d 258 (1983)