United States v. Gold (In Re Avis)

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: DWIGHT E. AVIS, JR.,
Debtor.

UNITED STATES OF AMERICA,
No. 97-2683
Plaintiff-Appellant,

v.

H. JASON GOLD, Trustee,
Trustee-Appellee.

In Re: DWIGHT E. AVIS, JR.,
Debtor.

UNITED STATES OF AMERICA,
No. 97-2755
Plaintiff-Appellee,

v.

H. JASON GOLD, Trustee,
Trustee-Appellant.

Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-97-888-A, CA-97-889-A, BK-95-12007-SSM)

Argued: December 1, 1998

Decided: June 28, 1999

Before NIEMEYER and HAMILTON, Circuit Judges,
and HERLONG, United States District Judge for the
District of South Carolina, sitting by designation.
Affirmed by published opinion. Judge Niemeyer wrote the opinion for
the court in Parts I, II, and III, in which Judge Herlong joined. Judge
Hamilton wrote a dissenting opinion. Judge Herlong wrote an opinion
dissenting from Part IV.

_________________________________________________________________

COUNSEL

ARGUED: Gary Dexter Gray, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant.
William McCarron, Jr., GOLD & STANLEY, P.C., Alexandria, Vir-
ginia, for Appellee. ON BRIEF: Loretta C. Argrett, Assistant Attor-
ney General, Helen F. Fahey, United States Attorney, Sara S.
Holderness, Tax Division, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellant. H. Jason Gold, GOLD &
STANLEY, P.C., Alexandria, Virginia, for Appellee.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

This appeal requires us to determine, as an issue of first impression
in this circuit and other circuits, whether the automatic stay provision
of § 362(a)(5) of the Bankruptcy Code precludes attachment of an
IRS lien on assets acquired by the debtor during the bankruptcy pro-
ceeding even though the IRS had, before the bankruptcy petition was
filed, done all that was necessary to obtain its lien against the debtor's
after-acquired property, pursuant to §§ 6321 and 6323 of the Tax
Code.

Both the bankruptcy court and the district court on appeal con-
cluded that the stay imposed by § 362 prevented the IRS's lien on
after-acquired property from attaching to an inheritance acquired by
the debtor during bankruptcy. These courts, however, did recognize
the IRS's lien to the extent of the present value of the debtor's future
interest, determined as of the date the bankruptcy petition was filed.

For the reasons that follow, we affirm.

2
I

Dwight Avis was placed in an involuntary Chapter 7 bankruptcy
proceeding by a petition filed by his creditors on May 10, 1995. On
the schedule of personal property that Avis later filed in the bank-
ruptcy proceeding, he disclosed a contingent interest in the nature of
a potential inheritance under trusts of Davis Weir and Maureen Weir,
and he attributed to it the value, "UNKNOWN." Davis Weir had,
under his will, created a spendthrift trust for the benefit of his wife
Maureen and a number of others, including Avis. Maureen was given
a power of appointment to convey trust assets to the beneficiaries,
including Avis, but not to herself. Her own support and maintenance
were administered by trustees. In Maureen's will, she exercised the
power of appointment given to her by the Davis Weir trust by
bequeathing whatever was left of the trust's assets to the beneficia-
ries, including a three-percent interest to Avis. Because Avis' interest
was contingent on (1) how the Davis Weir trust was administered, (2)
whether Maureen Weir would exercise the discretionary power given
to her under the trust, and (3) whether any assets would remain, it was
unclear to Avis what, if anything, he would inherit from the trust.

During the bankruptcy, on September 3, 1995, Maureen Weir died,
leaving three percent of the Weir trust's assets to Avis. But because
the trustee in bankruptcy did not then know of Avis' inheritance, the
bankruptcy estate was closed on December 15, 1995, without the pay-
ment of any funds to creditors. When the trustee learned of the inheri-
tance, he timely moved to have the bankruptcy proceedings reopened
in order to bring the inheritance within the estate pursuant to 11
U.S.C. § 541(a)(5)(A), a provision of the Bankruptcy Code bringing
into a bankruptcy estate any property inherited by the debtor within
180 days after the filing of the bankruptcy petition. The bankruptcy
court granted the motion, and the trustee thereafter liquidated Avis'
inheritance for $149,669.

The Internal Revenue Service ("IRS") filed a timely proof of claim
against these funds in the reopened bankruptcy proceeding in the
amount of $127,306 for taxes, interest, and penalties that Avis owed
for earlier tax years. It alleged that $109,819 of its claim was secured
by a lien that it had obtained almost a year before Avis was placed

3
in bankruptcy. The IRS had duly filed notices of its tax lien in 1994
in Fairfax County and Shenandoah County, Virginia.

Addressing the IRS's claim, the bankruptcy court ruled that the
automatic stay imposed by § 362 of the Bankruptcy Code prevented
the IRS from obtaining a tax lien on property received by the bank-
ruptcy estate after the bankruptcy petition was filed, even though
notice of the lien had been filed before the bankruptcy petition was
filed. Accordingly, it denied the IRS's claim that it had a secured
position to the extent of $109,819. The bankruptcy court did, how-
ever, recognize that the IRS had a secured position to the extent of
the value of Avis' interest in the inheritance as of the date of the
bankruptcy petition. The parties stipulated that value to be $1,000
because the inheritance was subject to contingencies. Accordingly,
the bankruptcy court entered an order concluding that the IRS held a
$1,000 secured claim and that the remaining $108,819 that was
claimed to be secured was an unsecured claim against Avis' bank-
ruptcy estate. From this ruling, both the trustee and the IRS appealed
to the district court.

The district court affirmed the bankruptcy court's order, and both
parties noticed appeals to this court.

II

At the outset, we must recognize the undisputed principles that
apply to this case in order to reach the issue. All of a debtor's prop-
erty becomes part of the bankruptcy estate upon the filing of a bank-
ruptcy petition and therefore becomes subject to the substantive
provisions of the Bankruptcy Code. See 11 U.S.C. § 541(a)(1). That
property includes all legal or equitable interests of the debtor as of the
petition date, wherever located and by whomever held. See 11 U.S.C.
§ 541(a)(1); see also In re Cordova, 73 F.3d 38, 42 (4th Cir. 1996)
(describing the estate created by § 541 as"broad and all-embracing"
(citation omitted)). The date of the bankruptcy petition is generally
controlling for defining estate property, and property acquired by the
debtor after the petition is filed may be retained by the debtor, clear
of all claims ultimately discharged by the bankruptcy proceeding. See
American Bankers Ins. Co. v. Maness, 101 F.3d 358, 362 (4th Cir.
1996); In re Andrews, 80 F.3d 906, 910 (4th Cir. 1996); see also 5

4
Collier on Bankruptcy § 541.03, at 541-9 (15th ed. 1998). This gen-
eral rule, however, is subject to an exception for certain types of after-
acquired property, such as inheritances. Section 541 of the Bank-
ruptcy Code provides that a bankruptcy estate includes "[a]ny interest
in property that would have been property of the estate if such interest
had been an interest of the debtor on the date of the filing of the peti-
tion, and that the debtor acquires or becomes entitled to acquire
within 180 days after such date by bequest, devise, or inheritance." 11
U.S.C. § 541(a)(5)(A).

Property of a bankruptcy estate receives various levels of protec-
tion from the post-petition reach of creditors and third parties through
the automatic stay provisions of the Bankruptcy Code. Specifically,
§ 362 of the Bankruptcy Code provides that a bankruptcy petition
"operates as a stay" of any litigation, lien enforcement, or other efforts
by creditors or third parties to enforce or collect pre-petition claims,
except as specifically exempted. 11 U.S.C. § 362(a). This stay serves
to "protect[ ] the relative position of creditors [and] to shield the
debtor from financial pressure during the pendency of the bankruptcy
proceeding." Winters v. George Mason Bank, 94 F.3d 130, 133 (4th
Cir. 1996) (citations omitted); see also In re Holtkamp, 669 F.2d 505,
508 (7th Cir. 1982) ("The purpose of the automatic stay is to preserve
what remains of the debtor's insolvent estate and to provide a system-
atic equitable liquidation procedure for all creditors, secured as well
as unsecured, thereby preventing a chaotic and uncontrolled scramble
for the debtor's assets in a variety of uncoordinated proceedings in
different courts" (internal citations and quotation marks omitted)).
Indeed, the automatic stay represents "one of the fundamental debtor
protections provided by the bankruptcy laws." Midlantic Nat'l Bank
v. New Jersey Dep't of Envtl. Protection, 474 U.S. 494, 503 (1986)
(quoting legislative history of the Bankruptcy Code).

While the law generally recognizes the creation of liens in after-
acquired property, see, e.g., U.C.C.§ 9-204, the applicability of the
Bankruptcy Code's automatic stay to the attachment of such liens to
assets acquired during the bankruptcy proceedings is not uniform. For
instance, when a lien is created in after-acquired property by a con-
sensual security agreement entered into before the filing of the bank-
ruptcy petition, the Bankruptcy Code will not generally recognize
attachment of the lien to property acquired post-petition. See 11

5
U.S.C. § 552(a). But § 552(b) provides specific exceptions. In addi-
tion, when state and local governments have liens for ad valorem
property taxes that come due post-petition, the Bankruptcy Code rec-
ognizes those liens and exempts them from the automatic stay. See 11
U.S.C. § 362(b)(18). The Code does not, however, address whether
the automatic stay provision precludes attachment of other statutory
or non-consensual liens in after-acquired property when the property
comes into the estate after the bankruptcy petition is filed. More par-
ticularly, it does not address whether a tax lien created by 26 U.S.C.
§ 6321 is permitted to attach to property acquired by the estate post-
petition.

The lien created by § 6321 of the Internal Revenue Code for taxes,
interest, and penalties owed, applies in favor of the United States
"upon all property and rights to property, whether real or personal,
belonging to [the taxpayer]." 26 U.S.C.§ 6321. Liens created by
§ 6321 become "valid" as against third parties upon the IRS's filing
notice of the lien in any recording office within the state in which the
property is located. See 26 U.S.C. § 6323(a), (f). Moreover, liens cre-
ated by § 6321 apply not only to property in which the taxpayer
already has an interest, but also to property acquired by the taxpayer
after the government files notice of its lien. See United States v.
McDermott, 507 U.S. 447, 448 (1993) (citing Glass City Bank v.
United States, 326 U.S. 265 (1945)).

Accepting these principles, the IRS contends that the district court
erred in not recognizing that its claim for $109,819 was entitled to
secured status on the ground that the IRS took all steps necessary to
perfect its lien before the bankruptcy petition was filed. Accordingly,
it contends that its tax lien attached to Avis' inheritance before the
bankruptcy and that therefore the automatic stay imposed by 11
U.S.C. § 362 had no effect on the property already encumbered by the
lien when it entered the bankruptcy estate. Alternatively, the IRS con-
tends that § 362(a)(5), by its terms, only stays affirmative post-
petition "act[s]" to secure pre-petition claims, and that the stay would
not apply to liens that attach to debtor's property"by operation of
law," such as those arising under § 6321 of the Internal Revenue
Code.

Likewise accepting the stated principles, the trustee in bankruptcy
maintains that no lien of the IRS could attach to Avis' inheritance

6
before the petition date because the property was not then in exis-
tence. He argues that the inheritance automatically passed into the
bankruptcy estate post-petition by reason of 11 U.S.C. § 541(a)(5)(A)
"without ever becoming property of the Debtor under that section."
Accordingly, it could not be subject to the IRS's lien against the
debtor. Alternatively, the trustee argues that attachment to post-
petition property is an "act" stayed by § 362(a)(5) of the Bankruptcy
Code. To construe the stay otherwise, he argues, would allow the IRS
to improve its position post-petition at the expense of unsecured cred-
itors.

III

The public policy favoring enforcement of statutorily created tax
liens is important to the national tax collection effort. Similarly, the
public policy underlying the § 362 stay of enforcement efforts during
bankruptcy proceedings is essential to the equitable order necessary
for administering fairly the assets of a debtor in bankruptcy. This ten-
sion between the IRS's lien in after-acquired property created by
§ 6321 of the Tax Code and the bankruptcy policy of protecting estate
property from creditors' efforts to improve their positions can be
resolved only by a closer examination of the nature of the IRS's lien
and the reach of a § 362 stay.

The IRS's lien is created by statute on amounts owed the IRS for
taxes, interest, and penalties. See 26 U.S.C. § 6321. It becomes valid
against third persons upon the IRS's filing of notice of the lien in the
manner prescribed by statute. See 26 U.S.C.§ 6323(a), (f). In deter-
mining when a lien created by § 6321 in after-acquired property
becomes "perfected," the Supreme Court analogized the tax lien to
security agreement liens regulated by Article 9 of the Uniform Com-
mercial Code, concluding that a tax lien in after-acquired property
does not attach to such property until the debtor actually acquires the
property and therefore is not "perfected" until that time. See
McDermott, 507 U.S. at 451-53. Until the lien attaches to the prop-
erty, it is "inchoate." Id. at 452 n.5. Moreover, the Court rejected the
notion that a lien in after-acquired property became perfected when
there was nothing more to be done by the creditor to obtain a lien. Id.
at 451 & n.4.

7
In this case, therefore, the IRS had a lien in all of Avis' property
in existence at the time the bankruptcy petition was filed and an
inchoate lien in property that he might thereafter acquire, such as his
inheritance from the Weir trust. But the IRS's inchoate lien in the
inheritance could not be perfected until Avis actually received the
inheritance. Thus, only when Maureen Weir died in September 1995,
conveying an inheritance to Avis, could the IRS lien become per-
fected; the lien could not attach to the inheritance until it came to
Avis. But at the same time it came to Avis, it also became property
of the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(5)(A) and
thus became subject to the provisions of the § 362 automatic stay.
Accordingly, we must determine whether § 362 stays the perfection
of the IRS's lien at the time the estate received the inheritance even
though the lien would otherwise have become "perfected" as a matter
of law.

The applicable section of the automatic stay provision provides that
the bankruptcy petition stays "any act to create, perfect, or enforce
against property of the debtor any lien to the extent that such lien
secures a claim that arose before the commencement of the case under
this title." 11 U.S.C. § 362(a)(5) (emphasis added). The IRS argues
that because its lien became perfected by operation of law and not by
any act by it or on its behalf, § 362(a)(5) does not apply because the
provision explicitly stays only "act[s]." We believe that this argument
reads the term "act" too narrowly for the demands of its context.
While "act" is defined as "the doing of a thing," or a "deed," it is also
defined to mean "a state of real existence rather than possibility."
Merriam Webster's Collegiate Dictionary 11 (10th ed. 1994). By
advancing a narrow definition of "act," the IRS would have its pre-
petition claim secured at the expense of unsecured creditors. We
believe that this argument overlooks a chief aim of§ 362(a)(5), which
is to prevent the post-petition perfection of interests in a debtor's
bankruptcy estate.

Our conclusion that the stay of § 362 was intended to bar the per-
fection of federal tax liens is bolstered by Congress' recent addition
of § 362(b)(18) to the Bankruptcy Code. In 1994, Congress enacted
§ 362(b)(18) to exempt from the stay provision the perfection of liens
resulting from state or local property taxes. It provides that § 362(a)
does not operate as a stay against "the creation or perfection of a stat-

8
utory lien for an ad valorem property tax imposed by the District of
Columbia, or a political subdivision of a State, if such tax comes due
after the filing of the petition." See 11 U.S.C. § 362(b)(18). If the per-
fection of statutory liens resulting by operation of law were generally
excluded from the automatic stay of § 362(a), Congress would not
have found it necessary to add § 362(b)(18) exempting the perfection
of liens created by state or local law. Because that section applies
only to state and local tax liens, it must be inferred that Congress did
not intend to exempt the perfection of federal tax liens. See 3 Collier
on Bankruptcy § 362.05[17], at 362-74. This conclusion finds further
support in § 362(b)(18)'s legislative history. See H. Rep. No. 103-
835, at 58-59 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3367-68
(stating that Congress added § 362(b)(18) to"allow local
governments to utilize their statutory property tax liens in order to
secure the payment of property taxes" without violating the automatic
stay (emphasis added)).

Our conclusion also finds support in § 362(b)(9). As amended, that
section permits governmental units to conduct audits, issue notices of
tax deficiencies, make demands for tax returns, and assess taxes with
notices of demands for payment. See 11 U.S.C. § 362(b)(9). Signifi-
cantly, however, any tax lien that arises as a result of an assessment
cannot take effect with respect to property in the bankruptcy estate
unless the tax is nondischargeable and the property to which the
assessment will attach is transferred out of the estate or will otherwise
revest in the debtor. Id. The plain inference flowing from the exis-
tence of the § 362(b)(9) exception is that all other efforts to assess or
collect taxes remain stayed under § 362(a), unless otherwise
exempted under the Bankruptcy Code, such as in § 362(b)(18) (relat-
ing to local property taxes). In short, the inclusion of sections such as
§ 362(b)(18) and § 362(b)(9) as exceptions to the automatic stay sug-
gests that Congress did not intend to exclude the perfection of a fed-
eral tax lien from the automatic stay of § 362(a). See 3 Collier on
Bankruptcy § 362.05[9], at 362-67.

The IRS argues for a negative inference arising from§ 552(a) of
the Bankruptcy Code which precludes perfection of liens in after-
acquired property when the property is acquired by the estate after the
petition for bankruptcy is filed. The IRS maintains that because
§ 552(a) applies to consensual "security agreements" and not to statu-

9
torily created liens, by implication, statutorily created liens can apply
to after-acquired property coming to the estate. We conclude, how-
ever, that this implication from § 552(a) cannot be read to vitiate the
stronger implication drawn from Congress' specific addition of
§ 362(b)(18) to the stay provisions. Because§ 362(b)(18) explicitly
addresses the perfection of statutory liens -- exempting from stay
only state and local property tax liens and not federal income tax liens
-- the conclusion to be drawn is that the perfection of federal tax
liens was left to be stayed by § 362(a).

Accordingly, we hold that the attachment of a federal tax lien cre-
ated under 26 U.S.C. § 6321 to property acquired during the bank-
ruptcy proceedings is an "act" that is stayed by operation of
§ 362(a)(5).

IV

We must also address the trustee's cross appeal, challenging the
district court's recognition of the IRS's secured claim to the extent of
$1,000. That amount represented the stipulated value of Avis' interest
in the Weir trust as of the bankruptcy petition date.

As a general proposition, the district court was applying the princi-
ple that all of Avis' property which existed at the time of the petition
in bankruptcy was subject to the IRS's lien. Since Avis' interest in the
Weir trust was valued as of that time at $1,000 by stipulation, we can
find no basis to reverse the ruling. Even if the bankruptcy court made
the valuation as a finding of fact, we would not conclude that the find-
ing constituted clear error.

As a named beneficiary, Avis was only entitled to a distribution
from the Davis Weir trust if the trustee did not distribute all of the
trust's income to Maureen Weir and if Maureen Weir exercised her
power of appointment in Avis' favor. While the interest was a real
one in that Davis Weir had died in 1975 and his will was therefore
fixed, it was contingent on the existence of trust assets and Maureen
Weir's power of appointment. See Brown v. Saake , 190 So.2d 56, 58
(Fla. Dist. Ct. App. 1966) ("An estate is contingent if, in order for it
to become a present or vested estate, the fulfillment of some condition
precedent other than the determination of the preceding freehold

10
estate is necessary" (citation omitted)) (The parties have stipulated
that Florida law governs the interpretation of the Weir trust). Even
though contingent, Avis' interest possessed some value, however
small. Because the record contains nothing suggesting that any find-
ing attributing a $1,000 value to this interest was unreasonable or oth-
erwise in error, we affirm the district court's order recognizing the
IRS's secured claim to the extent of $1,000.

For the foregoing reasons, we affirm the district court's judgment
holding that the IRS's claim against Avis' bankruptcy estate is
secured to the extent of $1,000 and unsecured for the remainder.

AFFIRMED

HAMILTON, Circuit Judge, dissenting:

I agree with the majority's conclusion that the IRS had an inchoate
lien on Avis' potential inheritance from the Weir trust at the time the
bankruptcy petition was filed. I also agree with the majority's conclu-
sion that "only when Maureen Weir died in September 1995, convey-
ing an inheritance to Avis, could the IRS lien become perfected; the
lien could not attach to the inheritance until it came to Avis." Ante at
8. For several reasons, however, I do not agree with the majority's
subsequent conclusion that § 362(a)(5) operated to prevent the IRS's
tax lien from attaching to the inheritance. On this point, I respectfully
dissent.

This appeal involves what is known in bankruptcy parlance as the
"claw-back" provision of the Bankruptcy Code. In relevant part, the
claw-back provision brings into the bankruptcy estate, inter alia,
"[a]ny interest in property that would have been property of the estate
if such interest had been an interest of the debtor on the date of the
filing of the petition, and that the debtor acquires or becomes entitled
to acquire within 180 days after such date--(A) by bequest, devise,
or inheritance . . . ." 11 U.S.C. § 541(a)(5)(A). In essence, the claw-
back provision extends the petition date six months for the purpose
of capturing for the bankruptcy estate property that the debtor
acquires within six months after the initial petition date. Thus, the
claw-back provision treats such after acquired property of the debtor
as though the debtor had acquired it prior to the initial petition date.

11
Congress enacted the claw-back provision in order to prevent debtors
from manipulating the bankruptcy petition date so as to deprive credi-
tors of certain assets. See In re Woodson, 839 F.2d 610, 619-20 (9th
Cir. 1988).

In this case, Avis inherited approximately $150,000 from Maureen
Weir within 180 days of May 10, 1995, the date Avis' creditors filed
the Chapter 7 petition. By virtue of the claw-back provision, Avis'
inheritance should be treated as though it was acquired prior to the
date the petition was filed. Treating the inheritance as such, the IRS's
lien was perfected by operation of law. Indeed, all parties agree that
if Avis had already inherited the approximately $150,000 pre-petition,
it would have entered the bankruptcy estate encumbered by the IRS's
tax lien. Notably, treating the inheritance as entering the bankruptcy
estate encumbered by the IRS's tax lien fully coincides with the pur-
pose of the claw-back provision to prevent debtors from manipulating
the bankruptcy petition date so as to deprive creditors of certain
assets. See In re Woodson, 839 F.2d at 619-20.

The majority holds that the inheritance entered the bankruptcy
estate unencumbered by the IRS's tax lien. In reaching this holding,
the majority necessarily holds that property subject to the claw-back
provision is also subject to § 362(a)(5). However, this holding ignores
the plain language of the claw-back provision, which expressly con-
templates the bankruptcy estate receiving only the actual interest in
the inheritance that the debtor hypothetically would have possessed
had he acquired it or been entitled to acquire it on the original petition
date.

Succinctly put, § 362(a)(5) is irrelevant to this case. Sec-
tion 362(a)(5) essentially prevents a creditor from encumbering a
debtor's property post-petition. In contrast, the claw-back provision
instructs courts to treat property acquired within 180 days of the peti-
tion date as if the debtor owned the property pre-petition. In this case,
that means recognizing the inheritance as entering the bankruptcy
estate encumbered by the IRS's tax lien. To hold as the majority does
improves the position of Avis' unsecured creditors at the expense of
one of his secured creditors, which is an anomalous result obviously
not contemplated by the plain language of the claw-back provision.

12
For these reasons, I would hold that the IRS has a secured claim
against the bankruptcy estate in the amount of $109,819 for federal
income taxes, penalties, and interest owed by Avis for certain previ-
ous tax years. Accordingly, I would reverse the district court's affir-
mance of the bankruptcy court and remand the case to the district
court with instructions to remand the case for further proceedings
consistent with this holding.*

HERLONG, District Judge, concurring in part and dissenting in part:

I concur with Parts I, II, and III of Judge Niemeyer's opinion and
agree that the automatic stay provision of the Bankruptcy Code oper-
ated to prevent the IRS's tax lien from attaching to the inheritance.
Yet I disagree with the conclusion that the IRS had a secured claim
to the extent of $1000. Accordingly, I respectfully dissent to Part IV
of Judge Niemeyer's opinion.

As correctly stated in Part IV of Judge Niemeyer's opinion, the
$1000 "represented the stipulated value of Avis' interest in the Weir
trust as of the bankruptcy petition date." Ante at 10. Part I of Judge
Niemeyer's opinion, however, states that the $1000 stipulation repre-
sented "the value of Avis' interest in the inheritance as of the date of
the bankruptcy petition." Ante at 4 (emphasis added). This latter
description is inaccurate because Avis' interest in the Davis Weir trust
is distinct from his interest in the inheritance.

The bankruptcy court allowed the IRS to have a lien"in the post-
petition distribution of principal from the trust under the will of David
Weir only to the extent of the present value of Avis' interest in the
trust as of the filing dated of the chapter 7 petition." (J.A. at 90.) The
parties then stipulated that "the present value of the debtor's interest
in the trust as of the filing date" was $1000. (J.A. at 92.) Thus, the
description employed by Judge Niemeyer's opinion in Part IV is the
correct characterization of the $1000 stipulation--it represents Avis'
_________________________________________________________________
*Because, in my view, the IRS's tax lien was fully secured via Avis'
post-petition inheritance, I would reverse the district court's affirmance
of the bankruptcy court's determination that the IRS is only entitled to
a secured lien of $1,000, the stipulated value of Avis' interest in the Weir
trust as of the bankruptcy petition date.

13
interest at the time of the filing in the trust , not the inheritance. If the
"debtor's interest in the trust as of the filing date" is closely exam-
ined, however, it becomes clear that there are three"interests" that
Avis had in the trust at that time. None of these interests can provide
a basis for giving the IRS a secured lien. Accordingly, the district
court erred in allowing the IRS to have a secured claim to the extent
of $1000.

The first of Avis' three interests in the trust at the time of the filing
date was Avis' interest in receiving income from the trust ("income
interest"). This income interest was a valid property interest that
clearly had some value at the time of the filing of the petition. Thus,
it may appear that the IRS's lien should have attached to it. Avis'
income interest, however, was effectively listed on his bankruptcy
petition as exempted from the bankruptcy estate. When reopening the
case, the bankruptcy court specifically stated that"exempted was
[Avis'] right to the income from the trust." (J.A. at 24.) Therefore, the
income interest may not serve as a basis for a secured lien by the IRS.

The second of Avis' three interests in the trust at the time of the
filing was a contingent remainder interest in the trust ("contingent
remainder interest"). This interest was contingent upon (1) Maureen
Weir not exercising her power of appointment over the assets of the
trust, and (2) Avis living twenty-five years after the death of Maureen
Weir. See (J.A. at 86.) If these two events occurred, then Avis would
receive a distribution of three percent of the remaining corpus of the
trust. There is nothing unusual about this interest--Avis was simply
one of several potential remaindermen under the trust.

Avis' contingent remainder interest was a valid property interest
that clearly had some value at the time of the filing of the petition.
Thus, it may appear that the IRS's lien should have attached to it.
This interest, however, was effectively listed on the petition as
exempted from the bankruptcy estate. When reopening the case, the
bankruptcy court specifically stated that "exempted was . . . any con-
tingent remainder interest not maturing within the 180-day period
after the commencement of the case." (J.A. at 24.) Avis' contingent
remainder interest did not mature within the 180-day period after the
commencement of the case. Indeed, it could not mature in such a
period because it could not mature until twenty-five years after the

14
death of Maureen Weir, and she was still alive at the commencement
of the case. Consequently, the contingent remainder interest was
exempted and therefore may not serve as a basis for a secured lien by
the IRS.

The third of Avis' three interests in the trust at the time of filing
was the possibility that Avis might inherit a portion of the corpus of
the trust via Maureen Weir's exercise of her testamentary power of
appointment in his favor, thereby terminating the trust early and dis-
tributing a portion to Avis. This "expectancy interest," as I will call
it, was not a property interest at all--even though it materialized into
a very real $150,000 inheritance--because under Florida law "[a] pro-
posed devise contained in a will conveys no interest to the devisee so
long as the testatrix is alive." Bowman v. Yelvington, 280 So. 2d 497,
499 (Fla. Dist. Ct. App. 1973). Because Maureen Weir was alive at
the time of the filing, no interest was conveyed via her will. The
bankruptcy court itself stated that the possibility of inheriting under
the power of appointment was a "mere expectancy" that did not rise
to the level of a property interest at the time Avis filed the bankruptcy
petition. (J.A. at 85.) Specifically, the court stated: "Since Maureen
Weir remained free to change her will at any time prior to her death,
the language in the will exercising her power of appointment in favor
of Avis could have no legal effect, and conveyed no interest in the
principal of the trust, until she died." (J.A. at 86-87 (emphasis
added).)

Because Avis' expectancy interest under the power of appointment
was not a property interest at the time of the filing of the petition,
there was nothing to which the IRS's lien could attach. Neither could
Avis' expectancy be considered one of the contingencies under his
vested contingent remainder interest. The expectancy interest did
come to fruition in the form of a $150,000 inheritance, but this inheri-
tance did not exist until Maureen Weir's death, which came after the
filing of the petition. At that point, the automatic stay provision pro-
hibited the IRS's lien from perfecting. At the time of filing, however,
the possibility of an inheritance within 180 days was a "mere expec-
tancy" and not a property interest. Therefore, it may not serve as a
basis for a secured lien by the IRS.

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When the bankruptcy court examined this issue, it recognized that
the expectancy interest had no value. It then allowed the IRS to have
a secured lien on the value of Avis' income interest and vested contin-
gent remainder interest in the trust. This value was later stipulated to
be $1000.* However, the court erred in allowing the lien to be
secured because these two interests, as explained above, had been
properly exempted. It is peculiar that the bankruptcy court declared
these interests to be exempt when it reopened the case and then
allowed a secured claim against their value in a later order. It appears
that the bankruptcy court simply forgot that these interests had been
held to be properly exempted. Regardless of the reasons for the incon-
sistency, the law of the case was that the interests were exempted, and
the district court erred in allowing the secured claim on the basis of
exempted interests.

Furthermore, the fact that the distribution of the inheritance itself
was not exempted does not alter the above analysis. The bankruptcy
court stated that "the right to the distribution was not effectively
claimed exempt and has not passed out of the bankruptcy estate."
(J.A. at 25.) This statement is correct. It is important to remember that
the inheritance did not exist at the time of the filing and that Avis'
possibility of receiving the inheritance was not a valid property inter-
est. This expectancy is entirely distinguishable from Avis' interest in
the trust at the time of the filing (i.e. his income interest and contin-
gent remainder interest), which was exempted. The reason that the
distribution of the inheritance was not exempted was because Avis'
description of his interest in the Davis Weir trust on the schedule of
exemptions "did not fairly place the trustee and creditors on notice of
the debtor's immediate right to a 3% lump sum distribution of princi-
pal arising from Maureen Weir's exercise of her power of appoint-
ment." (J.A. at 25.) Avis' description of his interest in the Davis Weir
trust on the schedule of exemptions did, however, place the trustee
and creditors on notice of his income interest in the trust and of his
_________________________________________________________________
*To the extent the $1000 represented Avis' expectancy interest in the
inheritance, the lower court erred because Avis' expectancy interest did
not rise to the level of a property interest and thus could not be assigned
a value. Because the bankruptcy court had just made this determination,
it does appear that it included the value of Avis' expectancy interest in
the amount of the secured lien.

16
contingent remainder interest in the trust. Thus, these interests were
exempted, whereas the inheritance was not.

In fact, the bankruptcy court, in finding that the inheritance was not
exempted, distinguished Avis' eventual right to a three-percent lump
sum distribution of principal (arising from Maureen Weir not exercis-
ing her power of appointment and from Avis living twenty-five years
past the death of Maureen Weir)--i.e. Avis' contingent remainder
interest--from Avis' immediate right to a three-percent lump sum
distribution of principal (arising from Maureen Weir's exercise of her
power of appointment)--i.e. the inheritance. It held that the former
was exempted and that the latter was not. See (J.A. at 24-25). I am
in full agreement.

In sum, there was no interest in the trust or in the inheritance at the
time of the filing of the petition to which the IRS's lien could attach.
The income and contingent remainder interests were properly
exempted, and the expectancy interest in the inheritance was not a
property interest. Thus, whether the $1000 represented the exempted
income interest, the exempted contingent remainder interest, or the
non-existent expectancy interest--or some combination of the three--
it was error for the bankruptcy court to hold that the IRS had a
secured lien in that amount.

I also would like to point out an alternative resolution of the case
based upon the above discussion. If Maureen Weir's death and result-
ing exercise of her power of appointment terminated the trust--
thereby terminating Avis' income and contingent remainder interests
--the property to which the IRS's lien attached no longer existed
when the IRS instituted proceedings to use this property as a basis for
its secured claim. Thus, even if this property were not properly
exempted, it ceased to exist and consequently could not form the basis
of a secured claim.

In conclusion, the IRS has no secured claim to the extent of $1000.
Accordingly, I would reverse the district court's affirmance of the
bankruptcy court on this issue.

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