535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002)
In 1988, the Internal Revenue Service assessed $482,446 in unpaid income tax liabilities against Don Craft for his failure to file federal income tax returns for the years 1979 through 1986.1 At that time, Don Craft and his wife, respondent Sandra L. Craft, owned a piece of real property in Grand Rapids, Michigan, as tenants by the entirety.2 After notice of the federal tax lien was filed, the Crafts jointly executed a quitclaim deed purporting to transfer Don Craft's interest in the property to Sandra Craft for one dollar.3
When Sandra Craft later attempted to sell the property, a title search revealed the lien.4 The IRS agreed to release the lien to allow the sale on the condition that half of the net proceeds be held in escrow pending determination of the Government's interest.5 Sandra Craft then brought an action in the United States District Court for the Western District of Michigan to quiet title to the escrowed proceeds.6
The District Court granted summary judgment to the Government.7 On appeal, the United States Court of Appeals for the Sixth Circuit held that the tax lien did not attach to the property under Michigan law and remanded for consideration of the Government's fraudulent conveyance claim.8 On remand, the District Court found that the conveyance itself was not fraudulent but that the use of nonexempt funds to pay the mortgage constituted a fraudulent act, and it awarded the IRS a share of the proceeds.9
The Sixth Circuit affirmed that determination on the lien issue as law of the case.10 The Supreme Court granted certiorari to consider whether Don Craft had a separate interest in the entireties property to which the federal tax lien attached.11
Whether a federal tax lien can attach to property held by a delinquent taxpayer and his or her spouse as tenants by the entirety when only one spouse is the debtor?12
The Internal Revenue Code authorizes the imposition of a lien in favor of the United States on all property and rights to property belonging to a person liable for federal taxes.13 Because the statute does not define property or rights to property, the Court looks to state law to determine what interests the taxpayer has in the property, then to federal law to determine whether those interests qualify as property or rights to property within the compass of the federal tax lien legislation.14
Yes. In 1988 the Internal Revenue Service assessed unpaid income tax liabilities against Don Craft while he and his wife Sandra Craft owned real property in Grand Rapids Michigan as tenants by the entirety.15 Michigan law grants each tenant by the entirety the right to use the property, to exclude others, to receive income, the right of survivorship, and the right to become a tenant in common upon divorce.16 These rights give the taxpayer a substantial interest in the property under state law.17
Federal law then determines that such interests qualify as property or rights to property under section 6321 because the statutory language is broad and reaches every interest a taxpayer might have.18 The fact that Michigan law does not permit the property to be seized to satisfy the debt of one spouse does not prevent attachment of the federal lien. The proper question is whether the taxpayer has a property interest to which a tax lien can attach rather than whether the property can be seized under state law.19
The federal tax lien attaches to the entireties property.20
Related opinions on this issue
Justice Scalia dissents from the Court's holding.21 He contends that the husband's interest in the entireties property is not property or a right to property within the meaning of the statute because under Michigan law it cannot be reached by his creditors.22 Scalia believes the majority's reliance on prior cases is misplaced.23
Those cases involved interests that were subject to forced sale under state law.24 By contrast, the husband's interest here cannot be reached by his creditors under Michigan law.25 The distinction is critical to the analysis.26
Scalia would affirm the judgment of the Court of Appeals.27
Joined by Chief Justice Rehnquist
Justice Thomas dissents, joined by the Chief Justice.28 He argues that under Michigan law the tenancy by the entirety belongs to the marital unit rather than to the individual spouses.29 Therefore the property does not belong to the taxpayer individually.30
Thomas contends that the majority improperly creates a federal common law of property by disregarding state law definitions of property interests.31 The limited individual rights recognized in a tenancy by the entirety are not the sort to which a lien may attach.32 Thomas would affirm the decision of the Court of Appeals.33
He emphasizes that the federal tax lien cannot extend beyond the property interests held by the delinquent taxpayer under state law.34