Detroit Bank v. United States

Background

The federal government sued to enforce an estate tax lien after a man died owning real estate with his wife as tenants by the entirety. After his death the land passed to the wife by survivorship and was not included in the decedent’s tax return. Before the tax was assessed or paid, some family members and the widow mortgaged the property to a lender who acquired the mortgages in good faith and later bought the property at foreclosure. The Government assessed an estate-tax deficiency and sought to foreclose a lien under the estate tax statute; lower courts held the Government’s lien superior, and the case reached the Court because of its importance to tax administration.

Reasoning

The Court addressed three questions: whether the estate-tax lien covers interests held as tenants by the entirety, whether the lien must be recorded under an older recording statute to be effective against later mortgagees, and whether applying the lien this way violates the Fifth Amendment. The Court found the estate-tax lien arises at the decedent’s death because the tax is computed from the gross estate, which expressly includes entirety interests. It concluded that the estate-tax statute creates its own lien that attaches at death and lasts ten years, and that Congress did not require it to be recorded under the older recording law. The Court also rejected the Fifth Amendment claim, explaining Congress may treat property passing at death differently from gifts made during life.

Real world impact

The decision means federal estate-tax claims can reach property that passes by survivorship even if no recorded notice exists before later mortgages. Lenders and buyers who take interests after death may be subject to superior federal tax liens. The statute still protects bona fide purchasers of property transferred during the decedent’s life.