## Facts

- Komron M. Allahyari owned residential real property on Mercer Island, Washington and accumulated millions in unpaid federal income taxes, penalties, and interest after years of delinquent filing.
- In 2003, Komron refinanced the property with a $400,000 Boeing Employees’ Credit Union (BECU) loan secured by a deed of trust; Shaun Allahyari (Komron’s father) later paid off and took assignment of that loan and security to avoid foreclosure.
- On July 26, 2005, Komron executed and recorded a deed of trust in favor of Shaun (the “2005 Deed of Trust”), purporting to secure about $471,322 at 12% interest based on alleged prior advances; no new funds were advanced at execution.
- On October 4, 2005, the IRS recorded its first notice of federal tax lien against Komron.
- The United States sued under 26 U.S.C. § 7403 to enforce federal tax liens and foreclose on the property; Shaun and Komron contended Shaun’s interests were senior.
- After a bench trial, the district court ruled the 2005 Deed of Trust lacked priority and did not qualify as a protected “security interest” under 26 U.S.C. § 6323(a), and also found the deed fraudulent under Washington’s Fraudulent Transfer Act (WFTA).
- Shaun appealed. The United States cross-appealed, arguing it should be allowed to assert a state statute-of-limitations defense to reduce any amount due on Shaun’s senior lien.

## Issues

1. Whether the 2005 Deed of Trust, recorded before the federal lien notices, had priority under Washington property and recording law.
2. Whether the 2005 Deed of Trust qualified as a “security interest” protected against federal tax liens under 26 U.S.C. § 6323(a), including whether “money or money’s worth” can be satisfied by past consideration.
3. Whether the district court applied the correct standard of proof to its finding of “actual intent” fraud under the WFTA.
4. Whether, in a § 7403 foreclosure action, the United States may assert state-law affirmative defenses available to the taxpayer (including a statute-of-limitations defense) to reduce the amount payable on a senior lien.

## Decision

- The Ninth Circuit reversed and remanded.
- The court held the district court erred in concluding the recorded 2005 Deed of Trust lacked priority under Washington law as against later-recorded federal tax lien notices.
- The court held the district court erred by failing to consider whether past consideration can support a security interest under Washington law for purposes of § 6323’s “money or money’s worth” requirement.
- The court held the district court applied an incorrect standard of proof in finding the 2005 Deed of Trust fraudulent under the WFTA.
- The court held that, in a § 7403 action, the United States may assert affirmative defenses available to the delinquent taxpayer, including a state statute-of-limitations defense that may reduce amounts due on senior liens.
- The case was remanded to (i) reconsider whether Shaun parted with “money or money’s worth,” (ii) apply the correct WFTA proof standard, and (iii) recalculate any senior lien amount while allowing statute-of-limitations defenses under Washington law.

## Legal Principles

- Priority between a federal tax lien and competing interests generally depends on state-defined property rights and state priority rules, subject to federal tax lien statutes governing notice and protected interests.
- Under 26 U.S.C. § 6323(a), a federal tax lien is not valid against certain holders of “security interests” until notice is filed; whether a claimed security interest is valid can turn on state law and whether the holder parted with “money or money’s worth,” which may include past consideration where recognized by state law.
- A transfer alleged to be made with “actual intent to hinder, delay, or defraud” creditors under Washington’s WFTA must be evaluated using the standard of proof required by Washington law.
- In a foreclosure action under 26 U.S.C. § 7403, the United States may invoke affirmative defenses that would have been available to the delinquent taxpayer against other claimants, including state statute-of-limitations defenses that reduce the enforceable amount of a senior lien.

## Conclusion

The Ninth Circuit required renewed consideration of whether a pre-notice, recorded deed of trust secured by past advances constitutes a protected security interest under § 6323 and Washington law, directed application of the correct WFTA evidentiary standard, and held that § 7403 permits the United States to assert the taxpayer’s state-law defenses (including limitations) to reduce amounts payable to senior lienholders before satisfying federal tax liens.


United States v. Allahyari, 980 F.3d 684 (9th Cir. 2020)