People are often surprised by the long reach of Internal Revenue Service (“Service” or “IRS”) liens.¹ Plains Capital Corporation (“Plains”) recently learned this lesson. Plains lost a fight with the Service in a case before the United States District Court for the Eastern District of Texas. It appealed to Fifth Circuit Court of Appeals. Losing again, Plains proceeded with an appeal to the United States Supreme Court. Unfortunately, on June 24, 2013, the highest court in the nation refused to hear Plain’s appeal.² The saga is over for Plains, but the case should be a loud warning to others.
In 2002 and 2003, the Service assessed taxpayer Gregory Rand (“Rand”) for tax liabilities arising from 2000 and 2002. It eventually filed notices of federal tax liens totaling over $3 million (“Tax Liens”).
In 2005, Rand obtained a $200,000 line of credit from Plains. Plains was aware of the Tax Liens. To secure its credit extension, however, it took possession of the title to Rand’s 2005 Ferrari. Plains thought taking possession of the vehicle title would put it in front of the IRS. Wrong!
In 2007, Rand agreed with the IRS that he would deliver the Ferrari to Boardwalk Motor Sports, Ltd (“Boardwalk”). Boardwalk agreed to sell the vehicle on consignment.
The Service and Plains could not agree upon the priority of their respective liens. So, the IRS served a notice of levy on Boardwalk and instructed Boardwalk to deliver the sale proceeds to it. Later, an IRS agent instructed Boardwalk not to release the sale proceeds until the IRS and Plains reached agreement on lien priorities. If it was unsure whether an agreement was reached, Boardwalk was instructed to go to the local court and file an interpleader action.
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
