United States v. Craft
Headline: Federal tax lien can reach a spouse’s individual rights in a marital home held as tenancy by the entirety, reversing the appeals court and letting the IRS claim part of sale proceeds.
Holding:
- Allows IRS to attach a spouse's rights in marital property to collect unpaid taxes.
- Can complicate home sales, title searches, and escrow arrangements for married couples.
- May reduce protection for stay‑at‑home spouses in certain states.
Summary
Background
In 1988 the IRS assessed $482,446 in unpaid income taxes against Don Craft for failing to file returns from 1979 through 1986. At that time he and his wife owned a Grand Rapids house as tenants by the entirety. After the lien was filed, they executed a quitclaim deed purporting to transfer the husband's interest to his wife for one dollar. When the wife later tried to sell the house, the IRS lien appeared, and the sale proceeded only after half the sale proceeds were put in escrow pending resolution. The Government sued to claim an interest in the escrowed proceeds.
Reasoning
The central legal question was whether state-law rights that a spouse has in entireties property qualify as "property" or "rights to property" under 26 U.S.C. §6321. The Court looked to Michigan law to identify specific individual rights and then to federal law to decide whether those rights fall within the lien statute. Michigan law gave the husband rights to use and exclude, a share of income, survivorship, and the ability to sell or encumber only with his wife's consent. The Court held these rights are meaningful "sticks" in the property bundle and that the statute's broad language allows the IRS to reach them. The Court reversed the Sixth Circuit.
Real world impact
The decision means that in states with similar marital property rules the IRS can pursue a delinquent spouse's individual rights in entireties property to collect unpaid taxes. That can complicate sales and title transactions, force escrow or releases, and require courts to value those individual interests. The Court left valuation and fraud questions to lower courts on remand, so further proceedings will determine how much the Government may collect in this case.
Dissents or concurrances
Two Justices dissented. Justice Scalia warned the ruling removes protection for stay‑at‑home spouses. Justice Thomas (joined by Justices Stevens and Scalia) argued state law should define ownership and noted long-standing lower‑court and IRS practice to that effect.
Opinions in this case:
Ask about this case
Ask questions about the entire case, including all opinions (majority, concurrences, dissents).
What was the Court's main decision and reasoning?
How did the dissenting opinions differ from the majority?
What are the practical implications of this ruling?