Facts of the Case

When Don Craft failed to pay federal income tax liabilities for the failure to file federal income tax returns for the years 1979 through 1986, a federal tax lien attached to "all [of his] property and rights to property," pursuant to 26 USC section 6321. After the notice of the lien was filed, Dan and his wife Sandra L. Craft jointly executed a quitclaim deed purporting to transfer to her his interest in a piece of real property in Michigan that they owned as tenants by the entirety. Subsequently, the Internal Revenue Service (IRS) agreed to release the lien and allow the Crafts to sell the property with half the net proceeds to be held in escrow pending determination of the Government's interest in the property. After Sandra brought an action to quiet title to the escrowed proceeds, the Government claimed that its lien had attached to the husband's interest in the tenancy by the entirety. The District Court granted the Government summary judgment. The Court of Appeals, however, held that no lien attached because the husband had no separate interest in the entireties property under Michigan law.

Question

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

Conclusion

Yes. In a 6-3 opinion delivered by Justice Sandra Day O'Connor, the Court held that each tenant possesses individual rights in the estate sufficient to constitute "property" or "rights to property" for the purposes of the lien. By determining that Michigan law granted the husband the right to use the property, the right to receive income produced by it, the right to exclude others from it, the non-unilateral right to alienate the property, and the right of survivorship, Justice O'Connor reasoned that the rights Michigan law granted to the husband as a tenant by the entirety qualified as "property" or "rights to property" under section 6321 and, therefore, the federal tax lien could attach to the husband's property. Justice Antonin Scalia filed a dissenting opinion, in which Justice Clarence Thomas joined. Justice Thomas also filed a dissenting opinion, in which Justices Scalia and John Paul Stevens joined.