Arises when IRS assesses that taxes are owed

1. Federal priority provision relates to all claims by federal government. Debtor must be insolvent, and when debtor must manifest it in three ways [see class notes]. When those two conditions apply and any of the debtor’s property is sold, the feds get paid first except for choate creditors–complete creditors. Choate=has done everything they can do to reach the highest status as a secured creditor. Name, amount subject to lien must both be definite,which means JLC, SP with future advance/after acquired can’t be choate.
2. Federal tax lien act. Applies to debts owed feds for unpaid taxes. Arises when IRS assesses that taxes are owed, a letter is sent out demanding payment, debtor fails to pay, and a tax lien is filed. When tax lien arises, it dates back to assessment not filing. General rule is only creditors who have choate lien at time tax lien arose have priority. Exceptions: special parties when tax lien FILED (mechanic’s lien holders, JLC’s, perfected SP’s, and purchasers of the collateral). Protected parties take free of tax lien, period (bona fide purchaser of motor vehicle who does not know of tax lien, buyer in the ordinary course of business, bona fide purchaser of personal property of taxpayer of less than $250, attorney’s liens).


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