Tax Lien Against Shareholder Prevails Against Creditor of His Single Member LLC (1/17/13)

In Berkshire Bank v. Town of Ludlow, MA, 708 F. 3d 249 (1st Cir. 2013), here, the First Circuit affirmed the district court's grant of priority to the IRS for its tax lien.  The facts may be summarized as follows.

An individual was a real estate developer.  He got a bank loan commitment for himself or "nominee," but requiring him to guarantee the loan if to a nominee.  I think this was simply to permit him to operate through an LLC which he then formed.  The LLC was a single member LLC with the individual as "owner, resident agent, and manager," and with the business address as his home address.  The resulting loan was to the LLC, with the individual guaranteeing the loan.

The individual thereafter incurred tax liabilities which he did not pay.  The development ran into financial difficulties, whereupon the loan became delinquent.  The IRS filed notice of federal tax lien against the individual (but not the LLC) in March 2009.

In August 2010, the bank foreclosed and sold the LLC's assets for an amount sufficient to pay the outstanding loan, leaving $92,703.94 surplus proceeds.  Apparently, since the loan was to the LLC and the foreclosed property was titled to the LLC, the bank held the surplus proceeds for the LLC.

The bank then interpled the surplus proceeds, naming the IRS, the Town of Ludlow (a judgment creditor who had obtained its judgment against the LLC in June 2010), another judgment creditor (who dropped out of the contest when the case was removed to federal court), and the LLC which disclaimed an interest.  So, as it was finally tried, the contestants were (i) the U.S. which had a tax lien against the individual and a notice of tax lien filed on the individual in March 2009 and (ii) the Town of Ludlow which had a judgment lien against the LLC dated June 2010 against the LLC.