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AMERICAN FEDERAL TAX REPORTS

4 P.H.As.

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THE UNITED STATES. v. THE PACIFIO RAILROAD and others.

(Circuit Court, E. D. Missouri. March 13, 1880.)

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INCOME Tax-DEMAND-LIEN_TIME IT ATTACHES-PROPERTY IT AT-
TACHES. -The lien of the income tax (Act July 13, 1866, 14 St. at Large,
107; Rev. St. $ 3186) relates back, upon demand, to the time when the
tax was due, but only attaches to the property belonging to the per-
son from whom the tax was due at the time when the demand for the
payment of the tax was made.
SAME-LIEN, How CREATED.—The assessment of such tax by the assessor,
in the mode prescribed by law, is essential to the creation of such lien.
In equity. Demurrer to bill.

MOCRARY, J. This is a bill in equity, filed by the United States, to enforce a lien upon property, formerly owned by the Pacific Railroad, for taxes amounting in the aggregage, including penalties, to something over $135,000. The tax claimed as delinquent accrued during periods of time extending from July 1, 1864, to February 28, 1871, and is the income tax, or the tax upon the receipts and profits of said company during those periods. When the tax accrued the Pacific Railroad was the owner of the property against which the lien is sought to be enforced, but since that time several large mortgages have been executed upon the same, and under a foreclosure of one of these the property, was, on the sixth of September, 1876, sold to one James Baker, who, on the twenty-first day of October, 1876, conveyed the same to the Missouri Pacific Railroad Company, the present owner. The last-named com. pany mortgaged the property November 1, 1876, to secure. bonds to the amount of $4,500,000. The present owner, as well as the several · lien holders, are made parties, and the prayer of the bill is for decree declaring the taxes aforesaid to be a lien on said property prior and paramount to any claim on their part, and for a foreclosure and sale. It is conceded that the tax was never assessed by any officer of the government, but it is insisted that this was not necessary, because there was an assessment by operation of law which was equally effective. The bill avers that demands were made for 4 P.H.CAS.–1

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the payment of the taxes claimed on the second of November, 1877, and on the sixteenth of July, 1879; both dates being subsequent to the execution of the several mortgages aforesaid, and also to the purchase of the property by the present owner.

The defendants demur to the bill upon the ground that the same constitutes no cause of action, for the following, among other reasons:

"That even if the complainant has a lien it only took effect at the time the demand is averred to have beem made, and so is subject to the title of the mortgagees and purchaser represented by the defendants."

In considering the demurrer we are called upon to construe the statute under which the lien is claimed. This statute is found in the act of July 13, 1866, (14 Stat. 107,) and is also embodied in section 3186 of the Revised Statutes, and is as follows:

"And if any person, bank, association, company or corporation, liable to pay any tax, shall neglect or refuse to pay the same after demand, the amount shall be a lien in favor of the United States, from the time it was due until paid, with the interest, penalties and costs that may accrue in addition thereto, upon all proporty and rights to property belonging to such person, bank, association, company or corporation.”

The question is as to the meaning of the words “upon all property and rights of property belonging to such person, bank, association, company or corporation.” Does the language apply to the property belonging to the Pacific railroad when the taxes accrued, or only to that belonging to that company when the demand by which the lien was created was made ?

It was said by Mr. Justice Miller, in United States v. Pacific Railroad, 4 Dillon, 71, that “in construing this section it is proper to consider the extraordinary nature of this lien. It is,” he said, “not only a lien upon the land, but is a lien upon the personal property; it is not only a lien upon property in possession, but upon all rights to property depending upon contracts, and upon anexecuted contracts; it not only creates a present lien, but it relates back.” He further observes

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