## Facts

- The IRS assessed Bruce and Mrs. McDermott for unpaid federal income taxes for 1977–1981, creating a federal tax lien on all their property, including after-acquired property.
- A bank obtained a state-court judgment against the McDermotts and docketed it in Salt Lake County, which under Utah law purported to lien the McDermotts’ existing and later-acquired real property in the county.
- The United States filed its notice of federal tax lien in Salt Lake County before the McDermotts acquired the parcel at issue.
- After the notice filing, the McDermotts acquired title to a parcel of real property in Salt Lake County.
- The United States and the bank agreed to release claims to the parcel to permit sale, while reserving claims to the sale proceeds based on lien priority as of the acquisition date.
- The McDermotts filed an interpleader action to determine priority in the proceeds; the case was removed to federal court.
- The district court and the Tenth Circuit held the bank’s judgment lien had priority over the federal tax lien as to the after-acquired property.

## Issues

1. Whether a federal tax lien notice filed before a delinquent taxpayer acquires real property has priority in that after-acquired property over a private creditor’s earlier-docketed judgment lien that had not attached to the specific property before acquisition.

## Decision

- The Supreme Court reversed and remanded.
- Applying the federal priority rule that “first in time is first in right,” the Court held the bank’s judgment lien was not “first in time” as to the parcel because it was not perfected in that specific property until the taxpayer acquired it.
- The Court held the federal tax lien, for priority purposes against interests described in 26 U.S.C. § 6323(a), is ordinarily dated from the filing of notice; because notice was filed before the taxpayers acquired the parcel, the federal lien had priority in the proceeds.

## Legal Principles

- Federal law governs priority between a federal tax lien and competing liens; the general rule is “first in time is first in right.”
- A competing state lien is “first in time” only when perfected, including identification of the specific property subject to the lien.
- A state judgment lien purporting to reach after-acquired property is not perfected as to a particular parcel until the debtor acquires rights in that parcel.
- For priority disputes covered by 26 U.S.C. § 6323(a), a federal tax lien is generally treated as having priority dated from the filing of notice, even though the lien’s attachment to a specific after-acquired asset occurs when the taxpayer acquires it.

## Conclusion

The Court held that when the United States files notice of a federal tax lien before a taxpayer acquires real property, the federal lien has priority in that after-acquired property over an earlier-docketed state judgment lien that did not attach to the specific property until acquisition.


United States v. McDermott, 507 U.S. 447 (1993)