Also known as: tax liens
Written by attorneys — see sources below.
A statutory lien imposed on property for unpaid taxes. Priority and enforcement are governed by statute. The lien affects marketability and priority of title to the encumbered property.
Tiffany Torres owes federal taxes. The IRS records a tax lien against her. Torres later purchases a parcel from a seller. The lien attaches automatically upon acquisition. A subsequent buyer refuses to close because the lien clouds title and reduces marketability.
Tobias Thomas and his spouse hold real property as tenants by the entirety under state law. The IRS assesses unpaid taxes against Thomas alone and files a notice of federal tax lien. The lien attaches to Thomas's rights in the property despite the state-law form of ownership. The government may enforce the lien against the entire parcel.
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. 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. 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. When Sandra Craft later attempted to sell the property, a title search revealed the lien. 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. 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. The District Court granted summary judgment to the Government. 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. 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. The Sixth Circuit affirmed that determination on the lien issue as law of the case. 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.
View caseA tax lien's priority is determined by statute rather than common-law recording rules. Federal tax liens often enjoy superpriority in specified contexts and may override state-law doctrines such as estoppel by deed.
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Yes. Once a tax lien arises, it reaches all property the taxpayer later acquires, including interests obtained after the lien is recorded.
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No. Federal tax liens attach to any property or rights to property the taxpayer holds under state law, even when state law would otherwise shield the asset, such as entireties property.
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…with whom The Chief Justice joins, dissenting. I respectfully dissent. The Court’s decision expands the reach of federal tax liens beyond what the statute will bear. Under Michigan law, a tenancy by the entirety is a unique form of concurrent ownership in which neither spouse has an individual interest that can be…