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79 Com. L.J. 303 (1974)
Subrogation to Federal Tax Liens and Claims in Insolvencies

handle is hein.journals/clla79 and id is 305 raw text is: Subrogation to Federal Tax Liens and Claims in Insolvencies Chauncey H. Levy of the New York Bar Problems Presented T HE INCREASING ACTIVITIES of the United States to en- force payment of taxes by the imposition of assess- ments and liens against the property of the officers and managers of insolvent corporations, chargeable with the responsibility of collection and payment of taxes raise many problems. Flowing therefrom are the questions of who is responsible, the extent of liability arising therefrom, and what can be done by the responsible parties to recoup their financial losses after their payment of the tax obli- gations of insolvent corporations. When and if the power to present a tax claim against an insolvent's estate is transferred by subrogation to a person, does the subrogee acquire the government's rights to prior- ity or lien status? Does a person who satisfies a debt of another to the United States become subrogated to the rights of the United States upon the debtor's insolvency? The courts are not in agreement and the purpose of this paper is to indicate possible guidelines for consideration. Statutory Provisions In many instances, statutory provisions regulate subro- gation.2 These have been held to be codifications of com- mon law rules.1 There is a conflict as to whether an ex- press statute is necessary in order to invoke subrogation. It has been held that where a statute makes no provision for 1. This paper is directed to the legal aspects of claims of the U.S. but most of the basic principles noted herein are also applicable to the claims of the states, counties, cities and other political subdivisions. 2. e.g. 31 U.S.C.A. Sees. 191-193, (Sec. 6323 (i) (2) of the Federal Tax Lien Act of 1966 provides that where, under local law, a person is subrogated to the rights of another with respect to a lien or interest, such person is subro- gated to such rights for the purpose of any lien under Sees. 6321 and 6324 of the Internal Revenue Code. 3. United States v. National Surety Co., 254 U.S. 73, 41 S.Ct. 29, 65 L.Ed. 143 (1920); United States v. Ryder, 110 U.S. 729, 4 S.Ct. 196, 28 L.Ed. 308 (1884). 4. Woodyard v. Sayre, 90 W.Va. 295, 110 S.E. 689 (1922); In re Niedersteen, 138 N.Y. Supp. 952, 154 App. Div. 238 (1912); Leach v. Commercial Savings Bank, 205 Iowa 1154, 213 N.W. 517 (1927). subrogation or contains nothing denying subrogation, the rights thereto are determined by the common law.4 It has been held that in the absence of legislation, expressly or by reasonable implication, authorizing subrogation to the governmental's claim and status, the powers specially created as an incident to the exercise of the governmen- tal right of taxation ought not to be delegated to private persons by judicial intervention.5 The Bankruptcy Act0 provides that a surety who satis- fies a claim against the bankrupt is subrogated to the rights of the creditor, whether the claim has been filed by the creditor or by him in the creditor's name, to the extent that he discharges the undertaking. In re Fiedlin7 held that Section 57(i) applies only for the benefit of the United States, a state, county, district or municipality, and allowed only the status of a general creditor to a surety who had procured a pre-bankruptcy judgment against the bankrupt based upon its payment to the state resulting from the forfeiture of a liquor license. In re Minogue8 held that under Sec. 64a of the Bankruptcy Act the benefit of priority was available only to a municipality, state, or the United States and may not be extended to any other creditor. Here after a pre-bankruptcy mortgage foreclo- sure sale the taxes were satisfied from the purchase price paid by the holder of the mortgage and purchaser. The Court also stressed the fact that the taxes had been paid before bankruptcy and that no claim could be made by 5. Sperry v. Butler, 75 Conn. 369, 53 AtI. 899 (1903); Preston v. Wright, 81 Me. 306, 17 Atl. 128 (1889); Mer- rill v. Tobin, 82 Iowa 529, 48 N.W. 1044 (1891). 6. See. 57 (i), 11 U.S.C.A. Sec. 93 (i). Rule 304 of the Bank- ruptcy Rules effective October 1, 1973, provides: 7. 21 F. Supp. 542 (N.Y. 1937). 8. 39 F. 2d 239, (D/C. N.Y. 1930). In Matter of Tampa Wholesale Electric Inc. (Middle Dist. Fla.-No. 65-168- T). On the date of adjudication, the bankrupt was in- debted to the SBA, which filed a claim and later assigned it to -the Columbus Bank. The Referee held that while the SBA is entitled to priority, the bank, as assignee, was not noting that this was not like the right of a surety for an insolvent principal on a bond to the U.S. where the stat- ute is that case grants the priority in 31 U.S.C. 193. AUGUST 1974

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