United States v. Craft
The Supreme Court ruled that a husband's interest in a house he owned jointly with his wife as "tenants by the entirety" counted as property the IRS could reach with a federal tax lien for his unpaid taxes, even though Michigan law says neither spouse individually owns a separate share.
The decision means married couples in states with this kind of joint ownership can no longer assume that form of ownership will shield one spouse's share of the couple's property from that spouse's individual creditors, including the federal government.
“State law determines only which sticks are in a person's bundle.”
Explaining that state law defines rights but federal law decides which rights count as taxable property.
How it got here: A federal district court sided with the IRS, but the Sixth Circuit ruled the tax lien could not attach to entireties property; the Government sought Supreme Court review.
The Case in Depth
What happened
Don Craft owed the IRS over $480,000 in unpaid income taxes. He and his wife Sandra owned a house in Grand Rapids, Michigan, as tenants by the entirety, a form of joint marital ownership. After a federal tax lien attached to Don's property, the couple transferred his interest to Sandra for one dollar. When Sandra later tried to sell the house, the lien surfaced and the parties disputed whether the IRS could claim a share of the sale proceeds.
The question before the Court
If a husband owes back taxes, can the IRS reach his share of a house he and his wife own together as a married couple under Michigan's "tenancy by the entirety" rules?
The Court's answer
Yes — the Court ruled that a husband's interest in a house held with his wife as tenants by the entirety counted as "property" or "rights to property" that a federal tax lien could reach, even though Michigan law says neither spouse individually owns a separate share. The Court looked past that state-law label and examined the actual rights he held: using the property, excluding others, sharing its income, inheriting it automatically, and selling or encumbering it with his wife's consent.
Those rights, taken together, gave him substantial control over the property, which the Court said was enough to qualify as property under the broadly worded federal tax lien statute — even though he could not sell his share alone. The Court did not decide exactly how much his interest was worth, leaving that valuation question for the lower courts on remand.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Married couples who hold property as tenants by the entirety in states like Michigan can no longer assume that ownership form fully protects the property from one spouse's individual debts to the IRS. The ruling gives the federal government more leverage to collect unpaid taxes from jointly held marital property, and it may prompt couples and lawyers to rethink how such property is titled.
What changes now
The case was sent back to the Sixth Circuit to determine how much the husband's interest in the property was actually worth for purposes of paying off the tax debt. The Court did not decide the precise valuation method, leaving that question, along with related fraudulent-conveyance issues, for the lower courts to work out on remand.
What this does not decide
The Court did not decide whether the right of survivorship alone (without the other rights present here) would count as taxable property, nor did it set a valuation method for the husband's interest. It also left unresolved how this ruling affects fraudulent-conveyance analysis in future cases.
Concurrences and dissents
Dissent — Justice Scalia
Justice Scalia joined Thomas's dissent and added that the ruling eliminates a form of property protection that particularly benefited stay-at-home spouses, who are more likely to survive and less likely to be the source of individual debt, calling the loss of this traditional protection regrettable.
Dissent — Justice Thomas
“I would affirm the Court of Appeals and hold that Mr. Craft did not have "property" or "rights to property" to which the federal tax lien could attach.”Stating the core disagreement with the majority's conclusion.
Justice Thomas argued that under Michigan law the property belonged to neither spouse individually but to the marital unit as a whole, so it never "belonged to" the husband as required by the tax lien statute. He contended the majority's "bundle of sticks" approach improperly created a new federal common law of property, ignored the statute's distinction between "property" and "rights to property," and conflicted with decades of consistent lower-court and IRS practice recognizing that such property is shielded from one spouse's individual tax debts.
How the Court got there
The legal reasoning, step by step
- The Court explained that whether the husband's interest qualifies as "property" or "rights to property" under the federal tax lien statute is a federal question, but courts first look to state law to see what rights the person actually holds in the property.
- Using the "bundle of sticks" idea — that property is really a collection of separate rights rather than one single thing — the Court looked past Michigan's label that neither spouse owns a separate interest, and instead examined the actual rights each spouse had.
- The Court found the husband held several real rights: to use the property, exclude others, receive income from it, inherit it automatically if his wife died first, and to sell or encumber it with his wife's consent. It concluded these rights amounted to a real, substantial degree of control over the property.
- The Court rejected the idea that lacking the power to sell the property alone (unilateral alienation) meant he had no property interest, noting that federal tax liens have attached to similarly restricted interests before, such as homestead property and some community property.
- The Court reasoned that if the husband's rights did not count as property, then nobody would own the property for federal tax purposes, an outcome it viewed as illogical and as inviting tax avoidance through this form of ownership.
- Weighing the statute's broad wording — covering "all property and rights to property" — against ambiguous legislative history and an unsettled common-law backdrop, the Court concluded that the husband's collection of individual rights was substantial enough to constitute property or rights to property that the federal tax lien could attach to.
Doctrinal impact
Cases affected by this decision
Reaffirms Drye v. United States (528 U.S. 49)
The Court relied on Drye's rule that state law fictions don't control whether something counts as taxable federal property.
Reaffirms United States v. Rodgers (461 U.S. 677)
The Court used Rodgers to show tax liens can attach to property that can't be sold by one spouse alone.