The issue in MacKenzie, a Chapter 7 bankruptcy, was how to allocate the proceeds from the sale of the debtor’s real estate between the Internal Revenue Service (IRS), which had filed a valid lien against the real estate for taxes, interest, and penalties, and the Bankruptcy Estate. The sale proceeds were sufficient to satisfy the taxes, a portion of the interest, but none of the penalties. The bankruptcy court allocated the proceeds on a pro rata basis between the IRS and the Bankruptcy Estate. The District Court affirmed, but the Ninth Circuit reversed and remanded, finding that pro rata allocation of the sales proceeds is inconsistent with the Code.