Tax lien attached to property transferred in divorce.

• Author: Beavers, James A.

The IRS Office of Chief Counsel advised a member of the National Taxpayer Advocate Office that a tax lien attached to property that a husband transferred to his wife in a divorce settlement where the quitclaim deed conveying the property was not registered prior to the filing of a Notice of Federal Tax Lien.

Background

Husband and Wife, who owned real property, divorced in Tennessee. The divorce decree awarded Wife the real property and ordered Husband to execute a quitclaim deed for it. Husband incurred post-divorce tax liabilities, based on which the IRS made an assessment and subsequently filed a Notice of Federal Tax Lien. After that notice was filed, the divorce decree and the quitclaim deed were filed with the appropriate register's office. The Taxpayer Advocate Service requested advice from the Office of Chief Counsel (OCC) on whether the federal tax lien attached to the real property that Husband transferred to Wife by the quitclaim deed.

OCC's Advice

The OCC stated that the question at issue was whether Husband owned the real property transferred or had any other rights to the property to which the tax lien could attach. It further advised that the nature and the extent of Husband's interest in the property must be determined under state law--in this case, Tennessee law. Under Tennessee law, certain unregistered instruments "shall be null and void as to existing or subsequent creditors of, or bona fide purchasers from, the makers without notice" (TN Code Ann. [section]66-26-103). Quitclaim deeds and divorce decrees are both types of instruments that may require registration in Tennessee (TN Code Ann. [section]66-24-101). Because the Sixth Circuit, in which Tennessee lies, had not ruled on this issue, the OCC looked to the case law of other circuits to determine how the Sixth Circuit would interpret Tennessee law for this purpose.

The OCC noted that while there was precedent in the Fifth Circuit that a federal tax lien would attach to property if a quitclaim deed conveying the property was not registered before the lien was filed, there was conflicting precedent from the First, Eighth, and Tenth Circuits stating that a lien would not attach in such a situation. Despite the more numerous contrary opinions, the OCC advised that the opinion in the Fifth Circuit case, Creamer Indus., Inc., 349 F.2d 625 (5th Cir. 1965), should be followed.

In Creamer, Texas was the state involved. The Fifth Circuit observed generally that the...