Title Standard Spotlight
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Winter 2005, Volume 4, Number 1
Title Standard Spotlight
by Ward P. Graham, New England Region Counsel
In this issue of The Massachusetts Focus, we are going to focus our spotlight on certain aspects of REBA Title Standard No. 55, Massachusetts Tax Liens (Recorded). Recent case law and statutory developments require a new look at the lien period set forth in the current version of the title standard as well as the discussion in the Comment of the effect of the state tax lien on after-acquired property.
Title Standard No. 55 provides:
Land, including after-acquired land of a taxpayer, is free of the Massachusetts Tax Liens created by M.G.L. c. 62C, §50 and M.G.L. c. 151A, §16, notice of which has been filed in the Registry of Deeds in the county or district in which the property is located, when:
(1) a period of six years from the tax assessment date has elapsed, or in the case of an Employment Security Lien a period of ten years from January thirty-first, next succeeding the last day of the calendar year in which wages were paid has elapsed;
(2) in the case of an Employment Security Lien which results from a judgment obtained pursuant to M.G.L. c. 151A, §15, a period of twenty years has elapsed from the date the lien was created;
(3) there is recorded a release of the lien or a partial release of the lien affecting the subject property.
In this article, we will focus on the general state tax lien created under G.L.c. 62C, §50 in regard to the period of the lien and its application to real property acquired after a notice of the lien has been filed at the Registry of Deeds pursuant to G.L.c. 62C, §50(b) and 830 CMR 62C.50.1(3)(a).
Period of the Lien under G.L. c. 62C, §50 Increased from 6 years to 10 years.
As of the date of the last amendment to the title standard and until December 31, 2004, the period of the general state tax lien was six years. G.L.c. 62C, §50(a). The statute was amended, however, by St. 2004, c. 262, §26. The significant aspects of this amendment for purposes of this article involve the extension of the period of the lien from six (6) years to ten (10) years from the date of the assessment of the tax. This extension makes the Massachusetts tax lien period consistent with the 10-year federal statute of limitations period established under §6502 of the Internal Revenue Code.
Surprisingly, §50, as amended, does not refer to §6502 of the Code, but rather to §6322 in several places, including in the provision for the lien to continue until, inter alia, the "liability or judgment [against the taxpayer] becomes unenforceable by reason of lapse of time." G.L.c. 62C, §50(a)(3). In this regard, the provisions of §6322 of the Code are essentially the same. However, note that there is no specific reference to a particular lien or enforcement period in §6322. In order to determine where the federal 10-year lien period comes from, reference to §6502 is necessary. On the other hand, §50 specifically provides for an initial 10-year lien period in subsection (i) in the third sentence: "Notwithstanding section 65, the lien created in favor of the commonwealth for any unpaid tax shall remain in full force and effect for: (i) a period of 10 years after the date of assessment, deemed assessment or self-assessment of the tax. . . . ."
In further reference to the Internal Revenue Code, §50 as amended also provides for extension of the lien period "for such longer period of time as permitted by section 6322 of the Code, in effect and as amended from time to time, and as construed or interpreted either by the regulations or other authorities promulgated under said section 6322 of the Code by the Internal Revenue Service or by any federal court or United States Tax Court decision." G.L.c. 62C, §50(ii). Thus, it will be necessary now to keep track of amendments to §6322 of the Code as well as any new federal case law that may have an impact on the longevity of a federal tax lien and, therefore, a Massachusetts tax lien arising under c. 62C, §50.
Another significant feature of §50 as amended is the provision for refiling. Refiling has long been available to the IRS, but the Massachusetts statute had not previously provided for it, although there is a provision for refiling in the Commissioner's regulations where a release of the lien had been given "erroneously or improvidently." The new refilling provision in §50 is rather convoluted but, basically, it allows for refiling a notice of lien under the same circumstances in which the IRS could do so pursuant to §6322 and §6323(g)(3) of the Code. What this means, essentially, is that now DOR has the ability to refile Massachusetts notices of lien within eleven (11) months before and thirty (30) days after a current notice of lien would expire, i.e., 10 years after the date of assessment set forth in the notice of lien.
Application of Mass. Tax Lien under c. 62C, §50 to After-Acquired Property.
As pointed out in the second paragraph of the Comment to Title Standard No. 55, G.L.c. 62C, §50 previously did not contain an express relationship to property acquired after the lien arose and, in particular as to real property, after a notice of lien was filed in the Registry. That hasn't changed in the amendment to §50. Nor is there or has there been any explicit reference to after-acquired property in §6322 of the Code, to which reference is made for guidance several times in the amendment to §50. Thus, we must look to regulations and case law to address the issue of the Massachusetts tax lien under §50 to after-acquired property. The Comment to Title Standard No 55, however, provides a handy synopsis of the status of the law involving the application of state and federal tax liens to after-acquired property as of the last revision to the standard (1996). The Comment states:
Massachusetts Department of Revenue regulations specifically provide that the liens established by M.G.L. c. 62C, §50 apply to after-acquired property. See 830 CMR. § 62 C.50. [sic] M.G.L. c. 62C, §50 itself does not include language which clearly applies it to after-acquired property, but the United States Supreme Court in Glass City Bank v. United States, 326 U.S. 265 (1945) interpreted almost identical language from the Internal Revenue Code as applying to after-acquired property. However, in the only Massachusetts Appellate Court case to discuss the issue, the Massachusetts Appellate Court said in dicta: "[w]hether a recorded tax lien under Chapter 62C, § 50, applies to after-acquired property of record appears to be a matter about which doubt exists." Durkin v. Ferreira, 21 Mass. App. 771, 772 n.3, 490 N.E.2d 498, 499 n.3 (1986).
It is to the expression of doubt in Durkin v. Ferreira about the application of the Massachusetts state lien to after-acquired property that we will turn our attention. That doubt was finally resolved in the case of Luchini v. Commissioner of Revenue, 436 Mass. 403, 764 N.E.2d 870 (2002). In this case, DOR had filed in Worcester County in April 1993, a notice of lien against the Luchinis (husband and wife) for certain unpaid income taxes. About a year later, Mr. Luchini's mother deeded some property in Milford to Mr. Luchini and his three siblings, at which moment, the court states, "the lien then attached to that property." Id. at 436 Mass. 404. Referring to this case as being "a question of first impression in the Commonwealth," the court found that the Massachusetts tax lien statute (G.L. c. 62C, §50, prior to the current amendment) contained "parallel language [to] the Federal tax lien statutes, 26 U.S.C. §§6321, 6322 (1994)," Id. at 406, and that those statutes had "long been construed to apply to after-acquired property." Id., citing Glass City Bank, supra, Markham, supra, n.7, and Plymouth Savings Bank, supra, n. 7. Finding the federal precedent persuasive, the court concludes that the language of c. 62C, §50(a) "indicates that 'the lien applies to property owned by the delinquent [taxpayer] at any time during the life of the lien.'" Luchini, supra, at 406, quoting from Glass City Bank, supra, at 326 U.S. 268, 66 S.Ct. 108. The court, therefore, holds that Massachusetts state tax "liens may attach to after-acquired property." Luchini, supra, at 406. The relevant language of c. 62C, §50 discussed in Luchini was not changed by the recent amendment discussed above. Indeed, the language was actually supplemented by including in the amendment specific reference to the parallel provisions of §6322 of the Code. Therefore, it may be safely assumed that Massachusetts state tax liens under §50 will continue to attach to after-acquired property.
Effective date of the Amendment to G.L.c. 62C, §50.
The amendment to c. 62C, §50 is already effective. By virtue of St. 2004, c. 262, §70, the amendments to §50 became effective on January 1, 2005. However, there is a huge trap for the unwary contained in §70. The first paragraph of that section of the Act provides as follows:
Sections 26 and 29 shall take effect on January 1, 2005, and shall be applicable to any tax liability, inclusive of penalties, interest, costs, forfeitures, or additions to tax, which remains due and unpaid as of January 1, 2005, or which is assessed on or after January 1, 2005. Any notice of tax lien in favor of the commonwealth recorded on a date making it less than 6 years old as of January 1, 2005 shall, if not sooner discharged as a result of payment of the tax, continue in full force and effect for a period of 10 years from the date of assessment of the tax without the need for any notice of lien re-filing by the commissioner. Thereafter, any further extension of the lien and any lien re-filing requirements shall be governed by section 50 of chapter 62C as amended by this act. [Emphasis added.]
Thus, the amending Act essentially extends any prior 6-year lien and converts it to a 10-year lien if it did not expire in 2004 or before and no further refiling is required. Accordingly, as it is now clear that §50 liens attach to after-acquired property, if title examiners are not already running buyers for possible notices of Massachusetts tax liens, they must do so from now on and keep in mind the lien extension effects of §70 of the amending act of any notices of lien filed within six (6) years of December 31, 2004.
1 The second and third sentences of subsection (a) specifically stated, "The lien shall arise at the time the assessment is made or deemed to be made and shall continue until the liability for the amount assessed or deemed to be assessed is satisfied. Said lien shall in any event terminate not later than six years from the date it was created."
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2 Section 26 effectively struck out the second and third sentences of c. 62C, §50(a) and substituted the following:
The lien shall arise at the time the assessment is made or deemed to be made and shall continue until: (1) the liability for the amount assessed or deemed to be assessed is satisfied; (2) a judgment against the taxpayer arising out of such liability is satisfied; or (3) any such liability or judgment becomes unenforceable by reason of the lapse of time within the meaning of section 6322 of the Code. Notwithstanding Section 65, the lien created in favor of the commonwealth for any unpaid tax shall remain in full force and effect for: (i) a period of 10 years after the date of assessment, deemed assessment or self-assessment of the tax; or (ii) for such longer period of time as permitted by section 6322 of the Code, in effect and as amended from time to time, and as construed or interpreted either by the regulations or other authorities promulgated under said section 6322 of the Code by the Internal Revenue Service or by any federal court or United States Tax Court decision. If, by operation of said section 6322 of the Code, a tax lien in favor of the commonwealth would extend beyond its initial or any subsequent 10-year period, the commissioner shall be authorized to refile his notice of lien. If any such refiled lien is filed within the "required refiling period," as that term is defined in section 6323(g)(3) of the Code, the lien in favor of the commonwealth shall relate back to the date of the first such lien filing. Otherwise, any such refiled lien shall be effective from the date of its filing. The commissioner of revenue shall promulgate such rulings and regulations as may be necessary for the implementation of this subsection.
3 26 USC §6502. The 10-year federal lien period derives from the 10-year statute of limitations for enforcement provided for in this section of the Code. [Back to Text]
4 The full text of 26 USC §6322 is as follows: "Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time." [Back to Text]
5 G.L.c. 62C, §65, which was amended by St. 2004, c. 262, §29, is the tax collection or enforcement statute that corresponds somewhat to §6502 of the Code. However, strangely enough, despite the overall intent of the legislation amending §50 and §65 to extend the lien enforcement period in Massachusetts to 10 years, the amendment appears to retain the existing 6-year enforcement period, although it does have several provisions for extension of the period under certain circumstances. Significant to the subject of this article, one such circumstance is for liens for which a notice is filed pursuant to c. 62C, §50, but only if the notice is filed within six (6) years after assessment of the tax, not simply within ten (10) years of the assessment as one would have expected. See, G.L.c. 62C, §65(ii). [Back to Text]
6 See, 830 CMR 62C.50.1(5). [Back to Text]
7 26 USC §6323(g)(3) establishes the refiling period for federal liens as follows:
In the case of any notice of lien, the term ''required refilling period'' means -
(A) the one-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax, and
(B) the one-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.
8 Note that the assessment date should always be specified in the notice of lien in accordance with the form provided for in the regulations. See 830 CMR 62C.50.1(3)(c)3. Note also that there are certain tax liens that may extend beyond the 10-year period now provided for in c. 62C, §50, but they are beyond the scope of this article, although most, if not all, of them are discussed in the Title Standard No. 55. [Back to Text]
9 As indicated in the Comment to Title Standard No. 55, there has been no doubt about the application of federal liens to after-acquired property since the Glass City Bank case in 1945. Numerous cases since have affirmed the proposition. Much of the federal case law since seems to be focused on the relative priorities of liens in after-acquired property (see, e.g., U.S. v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964)(previously recorded state tax lien determined to be choate and given priority), U.S. v. McDermott, 507 U.S. 447, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993)(previously recorded judgment lien determined not choate and not given priority), U.S. v. Shearer, 243 F.Supp. 433 (D.Mass. 1965)(attorneys lien arising before IRS lien on proceeds of sale of liquor license inchoate and not given priority), Plymouth Savings Bank v. U.S., 187 F.3d 203 (1st Cir. 1999)(bank's prior security interest in payments due to borrower under personal service contract given priority)), whether the competing lien was choate or not (Vermont, supra; McDermott, supra; Shearer, supra), the nature of the after-acquired property interest (Shearer, supra (liquor license or proceeds from sale thereof); Markham v. Fay, 74 F.3d 1347(1st Cir. 1996)(beneficial interest in revocable grantor trust), Plymouth Savings Bank, supra (personal services contract right to payment upon performance)) or the time of perfection of a competing lien vis a vis an IRS lien on that interest (Vermont, supra; McDermott, supra; Shearer; supra; Markham, supra). [Back to Text]