the property subject to the lien is situated.117 A lien for taxes is not similar to the lien of an ordinary incumbrance. It is not displaced by a sale under a pre-existing judgment or decree, unless otherwise directed by statute. It attaches to the res without regard to individual ownership, and when it is enforced by sale pursuant to the statute prescribing the mode of assessing and collecting taxes, the purchaser takes a valid and unimpeachable title.118 The lien may be enforced against any transferee of real or personal property of the taxpayer (except a mortgagee, purchaser or judgment creditor) with respect to property transferred after the lien attaches, that is, after the filing of the list with the collector, although the transferee had no notice of the lien.119 To create a lien demand must be made for a specific amount; all steps required by law must be pursued strictly. The lien requires an assessment, a notice of the tax due, and a specific demand upon the in

117 Act of March 4, 1913, amending R. S., § 3186. This amendment seems to have been made in response to suggestions of the American Bar Association (Part 1, Proceedings American Bar Ass'n, 106, p. 598) and of the court in U. S. v. Curry, 201 Fed. 371, in which the harshness of enforcing the lien against innocent purchasers without knowledge or notice of the lien was emphasized. (See also U. S. v. Pacific R. R., 1 Fed. 97.) The suggestion was made by Judge Rose in the Curry case in the following language: "It would seem that by a comparatively slight change of the statute law the rights of the United States could be sufficiently protected without endangering the interests of other persons. The collector of internal revenue at the time he makes a demand upon the taxpayer might be required to transmit a copy of the demand to some officer in which judgments and other recognized liens upon real estate are recorded and the records of which are consequently carefully examined by conveyancers." The lien was held to be superior to that of any one acquiring any interest in the property after the date of demand and unaffected by the fact that a subsequent purchaser became such without knowledge of the lien or claim of the government in the following cases: U. S. v. Pacific R. R., 1 Fed. 97; U. S. v. Turner, 28 Fed. Cas. No. 16,548; U. S. v. Snyder, 149 U. S. 210; U. S. v. Blacklock, 208 U. S. 75.

118 Osterberg v. Union Trust Co., 93 U. S. 424.

119 U. S. v. Curry, 201 Fed. 371 (and cases cited) is modified by the amendment of R. S., § 3186.

dividual taxpayer for payment.120 The government is not compelled to resort to distraint and sale of chattels and personal effects of a taxpayer, before instituting proceedings to enforce a lien on the taxpayer's real estate and leaseholds.121

TIME WHEN LIEN ATTACHES. The statute expressly provides that a lien for unpaid taxes in favor of the United States shall attach from the time when the assessmentlist was received by the collector, except when otherwise provided.122 No other provision seems to be applicable to the income tax law. The Revenue Act of 1918 provides that "all administrative special or stamp provisions of law including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act." But under the method of collection prescribed by that law it is uncertain when the assessment list is intended to reach the collector.123 In the case of a corporation which has distributed its assets prior to the time when a lien would attach thereto, the government may proceed to collect the tax as a general creditor.124

Taxes Collectible by Distraint. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy collector to collect the taxes, with the 5% penalty, and interest at the rate of 1% per month, by distraint and sale of the goods, chattels or effects, including stocks, securities, and evidences of debt, of the person delinquent.125 This section of the statute exempts certain property from distraint in the case of the head of a family.126 Extensive provision is made in the

120 U. S. v. Pacific R. R., 1 Fed. 97; U. S. v. Allen, 14 Fed. 263. 121 U. S. v. Curry, 201 Fed. 371; Mansfield v. Excelsior Refining Co., 135 U. S. 326; U. S. v. Blacklock, 208 U. S. 75.

122 R. S., § 3186.

123 Revenue Act of 1918, § 250.

124 See Chapter 12 on Corporations.

125 R. S., § 3187.

126 Only heads of families are entitled to this exemption. (T. D.

statute for the mode of levying distraint and proceedings on distraint.127 Collectors are enjoined against unnecessary delays in making sales and postponing sales beyond statutory periods; they are also required to make reports promptly. 128 Surplus moneys must be deposited as internal revenue collections and cannot be returned to the legal owner of the property sold.129 In any case in which in order to enforce payment of a tax it is necessary for a collector to cause a warrant of distraint to be served, the sum of $5 is added as part of the tax.130

Procedure in Case of Taxpayers Contemplating Removal or Concealment of Property to Defeat Collection of Tax. If the Commissioner finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the tax for the taxable year 131 then last past or the taxable year then current unless such proceedings be brought without delay, the Commissioner may declare the taxable period for such taxpayer terminated at the end of the calendar month then last past and cause notice of such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of said tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such

1499.) The state exemption laws are inapplicable to debts due the United States-U. S. v. Howell, 9 Fed. 674.

130 Revenue Act of 1918, § 250 (f).

131 The term "taxable year" means the calendar year or the fiscal year ending during such calendar year upon the basis of which the taxpayer's net income is computed. The first taxable year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year ending during the calendar year 1918.

taxes shall thereupon become immediately due and payable. In any action or suit brought to enforce payment of taxes made due and payable by virtue of the provisions of this subdivision the finding of the Commissioner, whether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of the taxpayer's design. A taxpayer who is not in default in making any return or paying income, war profits, or excess profits tax may furnish to the United States, under regulations to be prescribed by the Commissioner with the approval of the Secretary, security approved by the Commissioner that he will duly make the return next thereafter required to be filed and pay the tax next thereafter required to be paid. The Commissioner may approve and accept in like manner security for return and payment of taxes made due and payable by virtue of the above finding and declaration, provided the taxpayer has paid in full all other income, war profits, or excess-profits taxes due from him. If security is approved and accepted and such further or other security with respect to the tax or taxes covered thereby is given as the Commissioner shall from time to time find necessary and require, payment of such taxes shall not be enforced by any of the above proceedings prior to the expiration of the time otherwise allowed for paying such respective taxes. 132 Under this provision it seems to be within the power of the Commissioner to declare the taxable period of a corporation terminated at the end of the calendar month preceding the month in which it is dissolved and to demand immediate payment of the tax for such taxable period and the tax for the preceding year or to require security for the payment thereof.

132 Revenue Act of 1918, § 250 (g).

CHAPTER 36

PENALTIES AND COMPROMISES

Several penalties are contained in the law for failure to comply with its provisions and for making false and fraudulent returns. The penalties take two forms: (a) specific penalties of fines with maximum limits and imprisonment, and (b) penalties of either 5%, 25% or 50% based upon the tax. In the case of individuals specific penalties are held to attach to the person and are unenforceable after the death of such person. Ad valorem penalties (those based upon the tax) are enforceable regardless of the death of the owner of the income by which the penalty is measured.1

Suit to Enjoin Collection of Penalties. While the prohibition of suits to enjoin the collection of internal revenue taxes, does not specifically include "penalties" as such, yet where penalties are authorized by the statute to be added to the tax and collected as a part of the tax, the courts will hold that the penalty is a part of the tax, and its collection cannot be enjoined.3

Failure to File Return. If an individual, corporation or partnership fails to file a return, the specific penalty, where the failure is not wilful, is not more than $1,000.* In the case of such failure to file a return or list within the time prescribed by law, or by the Commissioner or collector,

1 Reg. 33 Rev., Art. 51. See U. S. v. Theurer, 213 Fed. 960; U. S. v. Pomeroy, 152 Fed. 279, reversed on different ground, 164 Fed. 324.

2 R. S., § 3224.

3 Kohlhamer v. Smietanka, 239 Fed. 408.

4 Revenue Act of 1918, § 253.