## Facts

- The City of Henderson entered water and sewer refunding agreements under which a developer could be repaid installation costs from later-collected connection fees.
- In 1969, the City, Bentonite, Inc., and Stage Construction Company executed a water refunding agreement; Bentonite pledged and assigned the agreement proceeds to Nevada National Bank as collateral for a loan.
- The pledge/assignment was not filed with the Nevada Secretary of State, and Nevada National Bank later assigned its interest to Valley Bank of Nevada.
- In 1972, Harry Polk executed an agreement assigning Valley Bank rights in refunding arrangements being negotiated; the related water and sewer refunding agreements were executed with the City in January 1973.
- Notice of the later assignments likewise was not filed with the Nevada Secretary of State.
- The IRS made federal tax assessments against Bentonite in October 1974, creating federal tax liens on Bentonite’s property and rights to property; the IRS filed a notice of federal tax lien with the Nevada Secretary of State in March 1975.
- Valley Bank brought an interpleader-type action concerning refunding proceeds owed by the City; the United States asserted priority based on its tax liens and later served a notice of levy on the City in July 1980.
- The court added and tried an issue of law on whether the October 1974 federal tax lien had priority over Valley Bank’s and/or the City’s claims to the fund.

## Issues

1. Whether Bentonite had “property” or “rights to property” in the refunding agreements and proceeds to which federal tax liens could attach.
2. Whether Valley Bank held a perfected “security interest” (or other choate interest) with priority over the federal tax liens under IRC § 6323.
3. Whether the United States’ liens or collection rights lapsed due to limitations on levy/collection.

## Decision

- The court held the United States’ federal tax liens had priority over the claims of Valley Bank and the City to the disputed refunding proceeds.
- The court found Bentonite retained sufficient rights in the refunding agreements/proceeds for the federal tax liens to attach.
- The court ruled Valley Bank’s interests were not perfected under applicable filing requirements and thus did not qualify for priority over the federal tax liens.
- The court rejected the argument that the federal tax liens had lapsed, concluding the United States’ collection actions were timely.
- The court directed distribution of the interpleaded funds to satisfy the federal tax liens before any payment to other claimants.

## Legal Principles

- Under IRC § 6321, a federal tax lien arises upon assessment and attaches to all of a taxpayer’s “property” and “rights to property,” including contractual rights to payment.
- State law determines the existence and nature of a taxpayer’s interest; federal law determines whether that interest constitutes “property” or “rights to property” subject to a federal tax lien.
- Under IRC § 6323, a competing creditor defeats a federal tax lien only if its security interest is perfected (choate) under applicable state law; an unfiled, unperfected interest is subordinate.
- Federal lien priority follows “first in time, first in right,” measured by when competing interests become choate and enforceable against third parties.
- A federal tax lien remains enforceable when the United States takes timely collection steps within the statutory limitations period.

## Conclusion

The court awarded priority in municipal refunding proceeds to the United States because Bentonite’s refund rights constituted attachable property interests and Valley Bank’s collateral assignments were unperfected, leaving them subordinate to properly asserted and timely enforced federal tax liens.


Valley Bank of Nev. v. City of Henderson, 528 F. Supp. 907 (D. Nev. 1981)