Federal tax liens.

• Author: Laffie, Lesli S.

The Supreme Court held in Sandra L. Craft, 4/17/02, that a husband's interest in a tenancy by the entirety was "property" or "rights to property" to which a Federal tax lien could attach, despite the fact that state (Michigan) law exempted such property from creditors. According to the Court, Sec. 6321's interpretation is a Federal question; exempt status under state law is not binding.

When a husband failed to pay a tax assessment, the IRS issued a tax lien that attached to all his real and personal property and rights. After the notice of lien was filed, the husband and his wife jointly executed a quitclaim deed allegedly transferring his interest in the property to her for $1. A title search revealed the lien when the wife attempted to sell the property. The IRS released the lien, allowing the sale to proceed; half of the proceeds would be held in escrow pending a determination of the government's interest in the realty. The wife subsequently brought a quiet-title action seeking to recover the escrowed funds.

The Court examined the individual rights created by Michigan law to determine whether the husband possessed property or rights to property. He had the right:

* To use the property.

* To exclude third parties from the property.

* To a share of the income the property produced.

* Of survivorship.

* To become a tenant in common with equal shares on divorce.

* To sell the property with his wife's consent and receive half of the sales proceeds.

* To encumber the property (with his wife's consent).

* To block his wife from unilaterally selling or...