In 2000, the IRS assigned a taxpayer identification number (EIN) to Crystal Cascades, LLC. (Crystal Cascades). A year later, the company changed its name to Crystal Cascades Civil, LLC, but continued to use the EIN issued to Crystal Cascades. In 2004, Crystal Civil purchased Nevada property. When Crystal Civil did not fully pay its employment taxes, the IRS filed notices of federal tax liens against the Nevada property of Crystal Cascade. In 2005, Road and Highway Builders (RHB), a private heavy highway construction firm, recorded additional deeds of trust against the Nevada property as security for loans it made to Crystal Civil. When Crystal Civil later filed for Chapter 11 protection, RHB filed an adversary proceeding against the IRS arguing seniority over the tax liens. The IRS and RBH then negotiated a settlement agreement whereby RHB paid the IRS $100 thousand in exchange for the IRS executing a "release of right of redemption" in favor of RHB.
RHB sued to recover the $100 thousand when the bankruptcy court, and later the Bankruptcy Appellate Panel, concluded that the IRS's notices of federal tax liens did not impart constructive notice to third parties because they were improperly recorded in the name of "Crystal Cascades, LLC" and not "Crystal Cascades Civil, LLC." The Court of Federal Claims held for the IRS and RHB appealed.
Government officials are presumed to act in good faith, and that presumption stands unless there is clear and convincing evidence to the contrary. The IRS's conduct did not give rise to an inference of bad faith because the IRS agents neither had a reason or responsibility to search for other names used by Crystal Cascades, nor negotiated the release agreement in bad faith.
The judgment of the Court of Federal Claims for the IRS affirmed. Road and Highway Builders, LLC. V U.S.
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