Tax Notes logo

Power of Federal Tax Lien

Posted on July 6, 2022

Before discussing today’s case, I want to provide some information on a fellowship opportunity that Tax Analysts (the publisher of Tax Notes) is generously sponsoring in partnership with the ABA Tax Section.  This new two-year Fellowship will fund an attorney to work at a non-profit agency. Unlike other fellowships, this one is geared towards seasoned attorneys including those seeking to move into the public interest sector. In future years, the Fellow will select the public interest sponsoring organization. For this inaugural year, Tax Analysts selected the organization, The La Posada Tax Clinic in Twin Falls, Idaho. Run by Bob Wunderle, the clinic – and Bob — do amazing tax controversy work with the farm worker community in that area. Bob is a national leader in this practice.  You can learn more about Bob’s cutting edge work by listening to the podcast which is part of the Tax Notes Talk series. This is a unique opportunity in a beautiful part of the country. Application materials are available here.  Keith

The recent case of United States v. Sadig, Dk. No. ___ (N.D. Ill. 2022) demonstrates the power of the tax lien and tells a sad tale regarding a home that once was. The district court provides a thorough explanation of the lien interest of the IRS in reaching the conclusion that the property to which the lien attaches may be sold.

Before moving to a discussion of the lien interest, I want to mention the local rule regarding summary judgment that exists in the Northern District of Illinois. The IRS moved for summary judgement here. Because Mr. Sadig was pro se, the local rule required the IRS to explain to him what he must do to respond to the motion:

Local Rule 56.1 governs the procedures for filing a motion for summary judgment. The moving party must file a “statement of material facts that complies with LR 56.1(d) and that attaches the cited evidentiary material.” See L.R. 56.1(a)(2). “Each asserted fact must be supported by citation to the specific evidentiary material, including the specific page number, that supports it.” See L.R. 56.1(d)(2).

Local Rule 56.1 also explains how to respond to a motion for summary judgment. The non-moving party must file a “response to the LR 56.1(a)(2) statement of material facts that complies with LR 56.1(e).” See L.R. 56.1(b)(2). That response “must consist of numbered paragraphs corresponding to the numbered paragraphs” of the movant’s statement of facts. See L.R. 56.1(e)(1). So, by way of illustration, imagine if the movant filed a statement of material facts with 15 paragraphs. The non-movant must file a response that addresses each of those 15 paragraphs, and must do so paragraph by paragraph, one at a time.

To help pro se litigants, the Local Rules require parties to serve a notice that explains the procedure, so that they are not lost at sea. See L.R. 56.2. That way, unrepresented parties will receive clear instructions about what they need to file, and how they need to do it.

Mr. Sadig did not properly respond to the motion for summary judgment despite the government’s compliance with the local rule providing him with clear instructions on what to do. I doubt that it mattered in this case whether he responded appropriately given the facts, but the local rule does provide a model that other courts might adopt in summary judgment settings to give pro se litigants a better chance to provide the court with appropriate information. Of course not every pro se litigant will follow the instructions but having the moving party give them instructions directly tailored to the response they need to provide seems like a great idea.

Mr. Sadig’s problems begin sometime before the years at issue in this case because the court makes passing reference to the expiration of the collection statute of limitations on a 2004 liability of over $90,000. The years in this case begin with his failure to file returns for 2005 and 2006. Although not directly stated in the opinion, I suspect that the IRS made assessments against him based on the substitute for return procedures. The assessments occurred in 2010 and totaled about $40,000. He then had problems with paying taxes again in 2012 and 2013. By the time of the case he owed about $100,000.

Mr. Sadig and his wife bought a home in a Chicago suburb in 2002 for almost $300,000. He made substantial renovations to the home; however, the renovations failed spectacularly creating not only structural problems with the house but, I suspect, severe structural problems with the marriage:

Sadig’s renovations failed, catastrophically. His project compromised the structural integrity of the house. In December 2013, the City of Park Ridge sent him a notice that the residence was “not in compliance with the health and safety code due to structural issues.” The letter explained that, given its current state, the property may need to be demolished.

In fact the house was demolished in June, 2014 and divorce ensued in October, 2016. In the meantime, Mr. Sadig transferred his interest to his wife in May, 2014 for no consideration. At that time, the assessments for 2005, 2006 and 2012 existed and the IRS had filed a notice of federal tax lien in February 2014. In September, 2018, his ex-wife transferred the property to a trust for no consideration.

The foreclosure case is a slam dunk for the years assessed before the transfer to his wife. Even without the filing of the notice of federal tax lien, the lien continued to attach to property transferred for no consideration. Because of the existence of the notice, the government’s case was lock tight. The discussion of the lien issue for those years took the court little effort.

The assessment for 2013 occurred shortly after the transfer. The court walked through the Illinois Uniform Fraudulent Transfer Act to show that the transfer of the property met the definition of constructive fraud with respect to the 2013 liability, which existed at the time of the transfer. The existence of the unassessed liability coupled with the transfer for no consideration and his insolvency at the time of transfer met the statutory requirements.

The court then turned to the effect of the ex-wife’s transfer of the property to the trust. It finds the trust serves as her nominee after walking through the nominee provisions. She maintained the sole power to possess, manage and physically control the property.

Finally, the court examined the factors set out in United States v. Rodgers, 461 U.S. 677, 703-05 (1983) which it must do whenever the IRS seeks to foreclose property of one owner of property in a forced sale that will impact non-liable owners. Because the property is now a vacant lot, it is very hard for her to stop the sale in the application of these factors:

In accounting for innocent third-party interests during forced property sales, courts look to four non-exhaustive factors: “(1) the prejudice to the government’s interest as the result of a partial, rather than a total, sale; (2) whether the third party with a non-liable separate interest in the property would, in the normal course of events have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors; (3) the prejudice to the third party as the result of a total sale; and (4) the relative character and value of the non-liable and liable interests held in the property.”


The case does not present new law. The existence of the local rule seeking to protect pro se litigants facing a motion for summary judgment is interesting and instructive. While I do not believe that a different outcome would have resulted had Mr. Sadig properly responded, such a rule does provide pro se litigants with a better chance of making a winning argument than having to do so without good instructions on how to respond.

Subject Areas / Tax Topics
Copy RID