Tax Legal Services · Primary-source case analysis
Craft: Tenancy-by-the-Entirety Rights Can Support a Federal Tax Lien
Decision: United States v. Craft, 535 U.S. 274 (2002).
United States v. Craft explains how a federal tax lien can attach to a taxpayer spouse’s state-created rights even when state law prevents unilateral transfer of the entire property.
The spouses held Michigan entireties property
Don and Sandra Craft owned real estate as tenants by the entirety while federal tax liens arose against Don. They later transferred the property to Sandra, and the dispute concerned whether the liens had attached to Don’s interest before the transfer.
The Court examined the complete bundle of rights
Michigan law gave each spouse rights to use the property, exclude others, receive income, and survive to full ownership. Neither spouse could unilaterally alienate the whole estate, but together they could sell it. Those rights had significant economic value.
Federal law characterized the state-created interests
State law defined Don’s incidents of ownership; federal law determined whether they were property or rights to property under section 6321. The Court held that the bundle was sufficient for the federal lien to attach despite Michigan’s protection from separate creditors.
The case returned for valuation and consequences
The Court reversed and remanded without fixing the value of the taxpayer spouse’s interest. Half of the net sale proceeds had been held in escrow by agreement; that arrangement was not a Supreme Court valuation rule awarding the IRS half in every case. The Court also did not decide whether survivorship alone was enough, because the husband had presently existing rights. Craft, 535 U.S. at 277, 285, 289. Attachment, valuation, priority, and enforcement remain analytically distinct steps.
Key takeaways
- Inventory each spouse’s state-law rights in the property.
- Apply federal law to determine whether the bundle is lienable.
- Separate lien attachment from valuation and enforcement.
- Review the lien dates before any transfer or refinancing.
Evaluate federal tax lien attachment to spousal property
Mishra X Trial Lawyers reviews federal tax lien encumbrances on spousal and joint property interests under Section 6321. Bring your deeds, IRS lien filings, tax assessments, and title documents. Call (949) 343-9735 or email office@mishrax.com.