MR. JUSTICE BRENNAN delivered the opinion of the Court.The United States filed this civil action in the District Court for the District of New Jersey to recover, in equity, from the beneficiary of life insurance policies the amount of federal income taxes owed by the insured at the time of his death.Herman Bess died a resident of Monmouth County, New Jersey, on June 29, 1950.  His wife, Molly G. Bess, was the beneficiary of eight insurance policies on his life from which she received $63,576.95 in proceeds.  The cash surrender value of these policies at his death was $3,362.53.  Seven of the policies were issued to Mr. Bess from 1934 to 1937, and the eighth, a group policy, in 1950.  He retained the right until death to change the beneficiary, to draw down or borrow against the cash surrender value, and to assign the policies, except that, under the group insurance policy, he retained only the right to change the beneficiary.  Mr. Bess paid all premiums, and it is conceded that none was paid in fraud of his creditors.The federal income taxes were owing for the several years from 1945 to 1949.  The assets of Mr. Bess' estate were applied to payment of the amounts owing for 1948 and 1949, but a total of $8,874.57 remained owing for 1945, 1946, and 1947 when the estate was adjudged insolvent Page 357 U. S. 53 by the Monmouth County Court in 1952.  The amounts owing were $4,159.31 for 1945, $3,789.32 for 1946, and $925.94 for 1947.The District Court held Mrs. Bess liable for the total taxes owing of $8,874.57.  134 F. Supp. 467.  The Court of Appeals for the Third Circuit reduced the judgment to the amount of the total cash surrender value of the policies of $3,362.53.  243 F.2d 675.  We granted certiorari on the Government's petition and Mrs. Bess' cross-petition, 355 U.S. 861, and set the case for argument with Commissioner v. Stern, ante, p.  357 U. S. 39.  The Government seeks in No. 395 the reinstatement of the District Court's judgment in the full amount of the taxes owing.  Mrs. Bess seeks in No. 410 the reversal of the Court of Appeals judgment in the amount of the cash surrender value.IAs in Commissioner v. Stern, the Government argues that Mrs. Bess, as beneficiary of her husband's life insurance policies, is liable for his unpaid federal income taxes. [Footnote 1]  We held today in the Stern case that recovery of unpaid federal income taxes from a beneficiary of insurance, in the absence of a lien, can be sustained only to the extent that state law imposes such liability in favor of other creditors of the insured.  Under New Jersey law, the beneficiary of a policy of life insurance is entitled to its proceeds against all creditors except to the extent of the amount of any premiums for the insurance paid in fraud of creditors.  N.J.Stat.Ann., 1939, § 17:34-29; Page 357 U. S. 54 Slurszberg v. Prudential Ins. Co., 15 N.J.Misc. 423, 192 A. 451; Middlesex County Welfare Board v. Motolinsky, 134 N.J.Eq. 323, 35 A.2d 463.  If, in the instant case, no lien were involved, our holding in Commissioner v. Stern would require an affirmance in No. 395 and a reversal in No. 410, since it is conceded that Mr. Bess did not pay any premiums in fraud of his creditors.IIHowever, the Government contends that it is also seeking in this action to enforce, as to the 1945 and 1946 deficiencies, liens perfected under § 3670 of the Internal Revenue Code of 1939 against the property of Mr. Bess in his lifetime.  Section 3670 provides that,"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."53 Stat. 448.  On July 30, 1948, and again on August 9, 1948, before Mr. Bess died, notice and demand were made upon him for payment of the deficiencies formally consented to by him as owing for 1945 and 1946.  He made periodic payments on the amount owing for 1945, reducing that amount from $11,514 to $4,713.59 before his death.  This balance was further reduced to $4,159.31 by a payment of $554.28 from his estate pursuant to an order of the Monmouth County Court.  However, no payment on account of the $3,789.32 owing for 1946 was made either in his lifetime or after his death.First.  As to the tax lien theory, Mrs. Bess contends that the Government did not assert this basis for recovery before the District Court, and therefore should not be heard to assert that theory in this Court.  But the essential facts pertinent to a decision on the merits of the tax lien theory were stipulated in the District Court.  Moreover, the issue was fully briefed and argued both in the Page 357 U. S. 55 Court of Appeals and in this Court.  We therefore see no basis for any inference of prejudice in the circumstances, and accordingly proceed to a determination of the question.Second.  Mrs. Bess argues that, in any event, no lien attached to any property of Mr. Bess, since a lien does not attach under § 3670 unless and until the delinquent taxpayer "neglects or refuses to pay the same after demand."  She urges that the facts stipulated as to the payments on account of 1945 taxes made by Mr. Bess in his lifetime prove that he did not neglect or refuse to pay taxes after demand.  Since, in the view we take of this case, the liability of Mrs. Bess is limited to the cash surrender value of $3,362.53, it suffices that whatever may be the case as to the 1945 taxes, the requisite neglect or refusal was plainly established as to the 1946 delinquency of $3,789.32, for it is admitted that Mr. Bess neither paid nor attempted to pay anything on account of those taxes.Third.  We must now decide whether Mr. Bess possessed in his lifetime, within the meaning of § 3670, any "property" or "rights to property" in the insurance policies to which the perfected lien for the 1946 taxes might attach.  Since § 3670 creates no property rights, but merely attaches consequences, federally defined, to rights created under state law, Fidelity & Deposit Co. v. New York City Housing Authority, 241 F.2d 142, 144, we must look first to Mr. Bess' right in the policies as defined by state law.(a) It is not questioned that the rights of the insured are measured by the policy contract as enforced by New Jersey law.  Manifestly, the insured could not enjoy the possession of the proceeds in his lifetime.  His right to change the beneficiary, even to designate his estate to receive the proceeds, gives him no right to receive the proceeds while he lives.  Cf. Rowen v. Commissioner, 215 F.2d 641, 644.  It would be anomalous to view a Page 357 U. S. 56 "property" subject to lien proceeds never within the insured's reach to enjoy, and which are reducible to possession by another only upon the insured's death when his right to change the beneficiary comes to an end.  We therefore do not believe that Mr. Bess had "property" or "rights to property" in the proceeds, within the meaning of § 3670, to which the federal tax lien might attach.  Cannon v. Nicholas, 80 F.2d 934; see United States v. Burgo, 175 F.2d 196.  This conclusion is in harmony with the decision in Everett v. Judson, 228 U. S. 474, that the cash surrender value of a policy on the life of a bankrupt is the extent of the property which is vested in the trustee under § 70a of the Bankruptcy Act.(b) The cash surrender value of the policy, however, stands on a different footing.  The insured has the right under the policy contract to compel the insurer to pay him this sum upon surrender of the policy.  This right may be borrowed against, assigned, or pledged.  Slurszberg v. Prudential Ins. Co., supra.  Thus, Mr. Bess"possessed just prior to his death, a chose in action in the amount stated (i.e., the cash surrender value) which he could have collected from the insurance companies in accordance with the terms of the policies."243 F.2d 675, 678.  It is therefore clear that Mr. Bess had "property" or "rights to property," within the meaning of § 3670, in the cash surrender value.  United States v. Hoper, 242 F.2d 468; Knox v. Great West Life Assurance Co., 6 Cir., 212 F.2d 784; United States v. Royce Shoe Co., 137 F. Supp. 786; Smith v. Donnelly, 65 F. Supp. 415; United States v. Aetna Life Ins. Co., 46 F. Supp. 30.But it is contended that, under state law, the insured's property right represented by the cash surrender value is not subject to creditors' liens, whether asserted by a private creditor, Slurszberg v. Prudential Ins. Co., supra, or by a state agency, Middlesex County Welfare Board v. Motolinsky, supra.  However, once it has been determined Page 357 U. S. 57 that state law creates sufficient interests in the insured to satisfy the requirements of § 3670, state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States.  Such state laws "are not laws for the United States . . . unless they have been made such by Congress itself."  Fink v. O'Neil, 106 U. S. 272,  106 U. S. 276; cf. Commissioner v. Tower, 327 U. S. 280. [Footnote 2]  The provisions of the Internal Revenue Act creating liens upon taxpayer's property for unpaid income taxes, unlike § 6 of the Bankruptcy Act, 30 Stat. 548, as amended, 11 U.S.C. § 24, do not specifically provide for recognition of such state laws.  The fact that, in § 3691, Congress provided specific exemptions from distraint is evidence that Congress did not intend to recognize further exemptions which would prevent attachment of liens under § 3670.  Knox v. Great West Life Assurance Co., supra; United States v. Heffron, 158 F.2d 657; Shambaugh v. Scofield, 132 F.2d 345; Smith v. Donnelly, supra.Fourth.  The transfer of property subsequent to the attachment of the lien does not affect the lien, for "it is of the very nature and essence of a lien that, no matter into whose hands the property goes, it passes cum onere. . . ."  Burton v. Smith, 13 Pet. 464,  38 U. S. 483; see Michigan v. United States, 317 U. S. 338,  317 U. S. 340.  The question therefore is whether the cash surrender values with the lien attached were transferred to Mrs. Bess as beneficiary when Mr. Bess died. Page 357 U. S. 58It is argued that the right to receive the cash surrender value expires with the death of the insured, and that, thus, no property of his passes to the beneficiary.  The contention is that the beneficiary receives the proceeds of the policies as performance by the insurance company of a separate promise to pay upon the death of the insured.  It is said to follow that"there is no logical escape from holding that the 'surrender value' comes to an end on the insured's death, if we dispose of the controversy in accordance with the ordinary rules governing contracts."United States v. Behrens, 230 F.2d 504, 506-507.  This is to say that the cash surrender value is no part of the proceeds, but represents merely the right of the insured to cancel the policy, and thereupon receive back from the insurer the amount accumulated from premiums paid in the past and held to cover the risk to be incurred in the future. [Footnote 3]  Therefore it is said that the property represented by the cash surrender value disappears on the Page 357 U. S. 59 insured's death, and no lien can survive in any part of the proceeds.But the courts have long recognized that the surplus of the paid premiums accumulated to make up the cash surrender value should be treated for some purposes as though in fact a "fund" held by the insurer for the benefit of the insured.  Judge Addison Brown stated in In re McKinney, 15 F. 535, 537:"Though this excess of premiums paid is legally the sole property of the company, still, in practical effect, though not in law, it is moneys of the assured deposited with the company in advance to make up the deficiency in later premiums. . . .  So long as the policy remains in force, the company has not, practically, any beneficial interest in it except as its custodian, with the obligation to maintain it unimpaired and suitably invested for the benefit of the insured.  This is the practical, though not the legal, relation of the company to this fund."This view was approved in Hiscock v. Mertens, 205 U. S. 202,  205 U. S. 211, and Burlingham v. Crouse, 228 U. S. 459,  228 U. S. 469.  See also United States v. Behrens, supra, 230 F.2d  at 507.  Thus, in economic reality, the insurer pays the beneficiary the insured's "fund," plus another amount sufficient to perform the insurer's promise to pay the proceeds on the insured's death.  Rowen v. Commissioner, supra, 215 F.2d  at 647.  Therefore we hold that, for purposes of § 3670, there was a transfer of property from the insured to Mrs. Bess, and that the lien attached to the property before his death followed the property into her hands.Affirmed
U.S. Supreme CourtUnited States v. Bess, 357 U.S. 51 (1958)United States v. BessNo. 395Argued April 7, 1958Decided June 9, 1958*357 U.S. 51SyllabusThis is a civil action brought by the Government to recover, in equity, from the beneficiary of life insurance policies the amount of federal income taxes owed by the insured at the time of his death and for some of which liens had attached to all his property under § 3670 of the Internal Revenue Code of 1939 before his death.  The insured, a resident of New Jersey, had retained the right to change the beneficiaries of the policies and, except as to one policy, the right to draw down or borrow against the cash surrender values and to assign the policies.  He had paid all the premiums, and none was paid in fraud of his creditors.  Some of his federal income tax liabilities were paid out of the assets of his estate, but others remained unpaid when his estate was adjudged insolvent.Held:  because of the tax liens which had attached to all of the insured's property before his death, the beneficiary is liable to the extent of the cash surrender values of his policies.  Pp.  357 U. S. 52-59.1. Had there been no lien, the beneficiary would not be liable, because, under New Jersey law, the beneficiary of a life insurance policy is entitled to its benefits against all creditors except to the extent of the amount of any premiums paid in fraud of creditors. Commissioner v. Stern, ante, p.  357 U. S. 39.  Pp.  357 U. S. 53-542. Because, prior to the death of the insured, liens had attached under § 3670 to all of his assets, including the cash surrender values of his life insurance policies, the beneficiary is liable to the extent of such cash surrender values.  Pp.  357 U. S. 54-59.(a) Under New Jersey law, the insured did not possess, prior to his death, "property" or "rights to property," within the meaning of §3670, in the proceeds of his life insurance policies; but he did possess such "property" or "rights to property" in their cash surrender values; and the federal tax lien attached under § 3670 even if, under state law, his property right represented by the cash surrender values was not subject to creditors' liens.  Pp.  357 U. S. 55-57. Page 357 U. S. 52(b) For the purposes of § 3670, there was a transfer of property from the insured to the beneficiary, and the lien which had attached to the cash surrender values before his death followed that property into the hands of the beneficiary.  Pp.  357 U. S. 57-59.243 F.2d 675 affirmed.