United States v. Allahyari

Since the 1990s, Komron Allahyari (defendant) had owned property on Mercer Island, Washington. After years of failing to file federal income tax returns, Komron filed several delinquent returns in 2005. The Internal Revenue Service (IRS) (plaintiff) determined that Komron owed millions of dollars in unpaid taxes, penalties, and interest. When Komron told his father, Shaun Allahyari (defendant), about his tax liability, Shaun became concerned that the IRS would record its tax liens against the Mercer Island property and force its sale to satisfy the debt. To address this risk, Shaun and Komron executed a deed of trust on the property, purporting to secure a $471,322 debt at 12 percent interest. Shaun claimed this amount reflected preexisting debts Komron owed him. No new funds were loaned at the time. The deed of trust was recorded on July 26, 2005. The IRS filed its first notice of federal tax lien against Komron on October 4, 2005. In 2017, the IRS brought an action against Komron and Shaun to enforce its tax liens and foreclose on the Mercer Island property. The Allahyaris responded that Shaun’s deed of trust had priority over the government’s liens. The district court disagreed, holding that Shaun’s deed of trust did not take priority because Shaun knew about the IRS’s tax liens before recordation, and that because no money or money’s worth was exchanged, the deed of trust did not qualify as a security interest under 26 U.S.C. § 6323(a). The Allahyaris appealed.