Property I, Pages 359–365

United States v. Craft

Supreme Court of the United States, 2002

Facts:

The IRS assessed $482,446 in unpaid income tax liabilities against Don Craft, the husband of Sandra Craft, the plaintiff, for not filing income tax returns for seven years. When he failed to pay, a federal tax lien attached to "all property and rights to property . . . belonging to" him.

At the time, the Crafts owned a piece of real property as tenants by the entirety. After notice was filed, they purportedly transferred Husband's interest in the property to Wife for one dollar. When Wife attempted to sell the property, a title search revealed the lien, which the IRS agreed to release for half the proceeds. Wife then brought this action to quiet title to the escrowed proceeds.

Procedural History:

  • District court granted the government's motion for summary judgment, holding that the federal tax lien attached at the moment of the transfer to plaintiff, which terminated the tenancy by the entirety and entitle the government to half the value.

  • Both appealed and the Sixth Circuit held that the tax lien did not attach to the property because in Michigan the Husband had no separate interest in property held as a tenant by the entirety.

  • On remand, the district court concluded that where law makes property exempt from the claims of creditors, no fraud can occur. However, because plaintiff used nonexempt funds to pay the mortgage, which was fraud, the court awarded the IRS a share of the proceeds equal to that amount.

  • Both appealed again and the Court of Appeals affirmed.

Issue:

Does a tenant by the entirety possess either "property" or "rights to property" to which a federal tax lien may attach?

Reasoning:

Federal tax liens may attach to property that cannot be unilaterally alienated. Each spouse has an independent interest in the property. Excluding property from a federal tax lien because the taxpayer does not have the power to unilaterally alienate it would exempt a large amount of property. Plaintiff's husband had a right of survivorship too.

Rule/Holding:

Each tenant possesses individual rights in the estate sufficient to constitute "property" or "rights to property" for the purposes of the lien.

Judgment:

Reversed.

Dissenting Opinions:

  • Scalia: The form of property ownership destroyed was of great benefit to the stay-at-home spouse and shouldn't have just been destroyed..

  • Thomas: This contradicts the Dyre decision they said they were following as it defines property by federal law. That is what the states' consensus was following. Many similar legal fictions are allowed, so this should too.

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