UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

This matter concerns the trustee's attempt to avoid a federal tax lien filed in the Anchorage Recording District, which encumbers a promissory note in escrow in a local bank in which the debtors had a beneficial interest at the time they filed bankruptcy. The IRS filed a motion to dismiss and the trustee filed a motion for summary judgment. I hold for the trustee that the lien may be avoided.

The federal tax lien was authorized under 26 USC § 6321 et seq. The IRS argues that 11 USC § 545(2) cannot be used to avoid the statutory tax lien in this case. § 545(2) provides that a bankruptcy trustee can avoid the fixing of a statutory lien on property of the debtor if the lien

is not perfected or enforceable at the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists.

The IRS argues that a mere bona fide purchaser for value would not be entitled to defeat a tax lien in which the trustee is a hypothetical purchaser.

The trustee is seeking to avoid the lien by virtue of § 545(2)       4 ABR 90  of the Bankruptcy Code and IRC 6323(b)(1). IRC 6323(b)(1) provides that even if a tax lien is perfected against a "security" (which includes, by definition, a promissory note), it shall not be valid

as against a purchaser of such security who at the time of purchase did not have actual knowledge or notice of such lien.

The trustee argues that his status as a BFP brings him within the ambit of IRC 6323(b)(1). The rub is, according to the IRS, that a "purchaser" as defined by IRC 6323(h)(6) means,

a person, who for full and adequate consideration in money or monies worth, acquires an interest (other than a lien or security interest) in property, which is valid under local law against subsequent purchasers without actual notice.

This definition, according to the IRS, requires that the trustee be more than a BFP to prevail. It contains an additional condition regarding the adequacy of consideration. Recently, the Sixth Circuit endorsed this position in Walter v. Hunter, 45 F3d 1023, 1029-31 (6th Cir 1995). See, also, In re McNitt, 139 BR 21 (Bankr D Idaho 1992).

The trustee, seeking to avoid the IRS lien on the promissory note beneficially held by the Bergs at the time of the bankruptcy, argues that a hypothetical bona fide purchaser is, by definition, one who has met the standards of a purchaser under IRC 6323(h)(6). To rule otherwise would exclude, by definition, a good number of the liens given superpriority, including IRC 6323(b)(1), (2), (3), and (4).

Cases tending to support the trustee's position are Christison v. United States, 960 F2d 613, 615 (7th Cir 1992), In re Znider, 150 BR 239, 243-44 (Bankr CD Cal 1953, vacated, 167 BR 603 Bankr CD Cal 1994), In re Robinson, 166 BR 812 (Bankr D Vt 1994), and United States v. Branch, 170 BR 577 (ED NC 1994). While Znider was vacated by the District Court, its reasoning is still cogent.

I recognize the IRS's contention that the precise argument it is making in the case at bar was not made in the cases that the trustee cites, nonetheless, these courts have interpreted IRC 6323 vis-a-vis § 545(2) in the manner that the trustee supports.

A number of cases have indicated that, unfortunately, the legislative history is confusing. Walter v. Hunter, 45 F3d at 1027. There is no definition for "bona fide purchaser value" in the bankruptcy code.       4 ABR 91  There is no Ninth Circuit authority binding me regarding the interpretation of § 545(2) of the Bankruptcy Code with respect to a federal tax lien under IRC 6321 et seq.

Walter v Hunter, at 1027, states that who is a "bona fide purchaser" in the case of a federal tax lien should be decided by federal law. The Sixth Circuit concludes, at page 1030 of the opinion, that the definition of "purchaser" in IRC 6323(h)(6) adds a requirement, distinct from that of being only a BFP. This argument begs the question. A more reasonable interpretation is that the definition of "purchaser" under IRC 6323(h)(6) merely establishes what a BFP is for tax purposes, and that a trustee under § 545(2) is, by definition, hypothetically such a BFP who presumably complies with IRC 6323(h)(6).

The legislative history is blurred, but there are legitimate bankruptcy policies to be served by § 545(2), including that of equitable distribution among the creditors of the debtor. Cf., In re Loretto Winery Limited, 898 F2d 715, 718 (9th Cir 1990).

DATED: March 24, 1995

HERBERT A. ROSS
U.S. Bankruptcy Judge