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IRS told to wait for claim on money

Lonnie Joe filed Chapter 7 bankruptcy. While the bankruptcy was pending, Lonnie Joe sold 20 acres of his unimproved land without the court's permission. The IRS sent a Notice of Federal Tax Due to the closing agent and was paid $33,748.44 out of the property sale for unpaid employee withholding taxes and penalties. Upon learning of the property sale, the bankruptcy trustee sued the IRS for return of the money, but the IRS resisted. However, the U.S. Bankruptcy Court ordered the IRS to return the money. The court explained that there is no inequity to requiring the IRS to return the money to Lonnie Joe's bankruptcy estate since the IRS can file a claim on the property sales proceeds (in Re William, 104 B.R. 296).

Tax lien

Louis deeded his property to Maria. After she recorded her deed, the IRS assessed Maria for $535,604.91 in unpaid taxes. Maria then reconveyed the property to Louis, apparently not for any consideration.

Several months later, Louis sold the property to Floralba. The IRS asserted its tax lien against Floralba, who argued that the tax lien should not apply because Louis had no notice of the tax lien.

The U.S. District Court ruled that Louis was not a bona fide purchaser since he did not pay consideration so he was subject to the tax lien. Therefore, his transfer to Floralba was also subject to the tax lien, which could readily be determined from the public records (Burbano v. U.S., 723 Fed. Supp. 193).

Sale expenses vs. tax

John owned a cooperative apartment, but he failed to pay his monthly assessments, and the cooperative corporation sold his apartment for $901,030. Four years earlier, the IRS had filed tax liens against John for $2,396,264 in unpaid income taxes.

The IRS claimed the entire $901,030 sale proceeds, but the cooperative corporation that held the sale argued that the IRS must pay the expenses of the sale and the unpaid assessments before receiving the remaining sale proceeds.

The U.S. Court of Appeals ruled that the expenses of the apartment sale should first be paid before the remaining proceeds are paid to the IRS. There is no doubt the apartment corporation was the acting party that created the sale so its expenses of the sale should first be paid, the court concluded (U.S. vs. 110-118 Riverside Tenants Corp., 886 Fed.2d 514).