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The “Name Game” Continues for Locating Notices of Federal Tax Liens

Name of Debtor Under UCC Article 9

Under Article 9 of Uniform Commercial Code, security interests in most personal property securing business debt are perfected by filing a UCC financing statement in the appropriate office that provides the “name of the debtor,” among other information. UCC §9-502(a). What is the “name of the debtor” has been the subject of two major revisions to UCC Article 9. The 2001 revisions adopted an “only if” answer to this question for registered organizations (corporations, limited partnerships, limited liability companies and certain registered business trusts). Under that revision, the only correct name for a UCC filing against a registered organization is “… the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization….” UCC §9-503(a)(1).

Under a second amendment to the UCC Article 9 effective in 2013, most states adopted the “only if” method of designating the name of an individual debtor on a filed financing statement, which under most instances would be the exact name of the individual on his or her unexpired driver’s license issued by the debtor’s state of residence.

A UCC filing failing to meet the “name” rules is ineffective unless a search of the records of the applicable UCC filing office under the debtor’s “only if” name, using that filing office’s standard search logic, would disclose the financing statement that failed to provide the exact “only if” name. Otherwise, a financing statement failing to meet the “only if” rule would be seriously misleading and therefore ineffective to perfect the intended security interest. UCC §9-506.

“Name” of Taxpayer in Notices of Federal Tax Liens

Unfortunately for the secured lender, the IRS is not required to honor the UCC rules when it states the name of a taxpayer on a filed notice of federal tax lien. The validity and priority of a federal tax lien are questions of federal law, not state law. The United States v. City of New Britain, Conn., 347 U.S. 81 (1954). Federal regulations do not give any guidance about what is the correct name against which to file or search for federal tax liens. Regulation 26 C.F.R. §301.6323(f)-1(d)(2) provides only that the notice “must identify the taxpayer” when it comes to naming the taxpayer in the notice.

Confusing Court Holdings on “Name” Issue

How to properly identify a taxpayer for purposes of searching for a notice of federal tax lien has been left to case law. The judicial analysis usually starts with citing a federal statute that states that, if a reasonable inspection of the applicable federal tax lien index would not reveal the existence of the notice against the search typed in for taxpayer, the related IRS tax lien would not be enforceable against a third party not having actual knowledge of the existence of the lien. 26 U.S.C. §6323(f)(4). What is a “reasonable inspection” has also been held to be affected in some instances by whether the applicable filing office has an adequate system for searching for notices of tax liens. Kivel v. United States, 878 F.2d 301 (9th Cir. 1989). Reported cases also indicate that index search systems and search logic vary from office to office.

Reported opinions are inconsistent and confusing. A few examples:

  • A federal tax lien filed under the name “Spearing Tool & Mfg. Company Inc.” instead of that entity’s precise legal name (reflected on its certificate of incorporation filed with the Michigan Secretary of State of “Spearing Tool and Manufacturing Co.” was held to be effective against third parties, rejecting the argument that it was unreasonable to require multiple searches (the party challenging the notice offered an example of a name it claimed could be abbreviated 288 different ways, but that did not sway the court). In re Spearing Tool and Manufacturing Co., Inc., 412 F.3d 653 (2005).
  • A Nevada federal bankruptcy court held that a notice filed by the IRS naming the taxpayer as “Crystal Cascades, LLC, a corporation” was not effective because, in the court’s opinion, a reasonable search by a non-professional searcher of the relevant records would not have revealed the two notices filed by the IRS. The exact legal name of the taxpayer was “Crystal Cascades Civil, LLC.”  The court gave weight to the fact that the searcher started with the exact legal name and also expert testimony that a non-professional searcher would have done so and having done so would not have located the IRS filing.  398 B.R. 23 (Bankr. Ct. D. Nev. 2008).
  • IRS filings against “Green Pastures Christian Ministries, Inc.” misspelling “Christian” as “Christain” were held to be effective to give notice to third parties. The Georgia bankruptcy court seemed to rely on its view that the searcher should have used “root words” such as searching under “Green Pastures”.  In re Green Pastures Christian Ministries, 437 B.R. 465 (Bankr. Ct. N.D. Ga. 2010).
  • Notice of a federal tax lien filed against an individual that misspelled the taxpayer’s first name as “Isreal” instead of “Israel” was held to be valid against the taxpayer because the lien was indexed in a system that permitted searching by last name, by last and partial first name, by partial last name and partial first name, or with a “sounds like” feature and therefore the court held that a reasonably diligent searcher would have discovered the notice by utilizing multiple searches allowed by the search logic of the filing office in which the notice was filed. United States v. Montesinos, No. 09 CV 6054 (VB), 2012 WL 4054132 (S.D. N.Y. Aug. 31, 2012).

The Green Pastures opinion lists numerous reported cases dealing with this issue. The opinions reinforce how confusing and uncertain case law is in trying to determine the proper name in which an IRS lien should be filed and the name or names which searchers seeking to find those notices of lien should utilize in their search. Included were the following; in each case the incorrectly named filing was held to be effective:

Name(s) on IRS Notices Correct Legal Names
PD Hill Development, Inc., a corporation d/b/a Phoenix Pipe & Dirt P.D.H. Development, Inc.
Hudgins Masonry, Inc. Michael Steve Hudgins
Bobbie Morgan Bobbie Morgan Lance
Roy Bruce Polk Bruce Polk
Davis’s Restaurant and Daviss Restaurant Davis Family Restaurant
Freidlander (last name) Friedlander
Joint Effort, Inc. Joint Effort Productions, Inc.
Lamant Marie Service Number 2, Inc. Lamart Marine Service No. 2, Inc.


What To Do?

Unfortunately, the “name game” that has been eliminated in most instances under recent revisions to UCC Article 9 regarding filing of UCC financing statements does not assist a lender searching for notices of federal tax liens against a proposed borrower. The cases indicate that searchers may need, among other things, to: search root words; change abbreviations such as “Co.” or “Inc.” to their full names, and vice versa; and even think about spellings that sound like the name of the proposed borrower.

The Crystal Cascades opinion included testimony that the IRS master name files are generated by the taxpayer’s initial application for an employer identification number and that the IRS does not change the name thereafter, although a revenue agent may add additional names to the notice. If that is accurate, lenders may consider requiring from a proposed borrower a copy of its E.I.N. application, as well as at least the cover page of federal tax returns for several prior years. Even such precautions, however, will not assure that a prospective lender has won the name game when searching for federal tax lien notices.

Searching for federal tax lien notices appears to be a task for those that do so on a day-to-day basis, including professional lien search firms or title companies. Unfortunately, however, absent a revision to applicable federal statutes or regulations regarding filing federal tax lien notices that would require the IRS to follow the “only if” name rules of UCC Article 9, even using such resources will not absolutely assure that there are no effective federal tax lien notices filed against a lender’s proposed borrower.