|
The Supreme
Court eliminated a form of protection for certain married
couples that had barred the Internal Revenue Service from
putting liens on their property.
The 6-3 decision is a big victory for
the IRS, and could put at risk husbands or wives whose spouses
are delinquent taxpayers. The ruling doesn’t apply however, to other creditors
such as private companies.
The high court ruled that a form of
joint ownership, which is derived from English common law and
known as “tenancy by the entirety,” doesn’t offer
protection against IRS liens. Under tenancy by the entirety, a married couple that
jointly owns property is considered one person under a number
of state laws. Such
joint property owners could argue that the IRS couldn’t put
a lien on half the property to satisfy a debt owed by only one
of them because the property couldn’t be divided.
This form of ownership “was impeding
IRS collections in about 16 states and the District of
Columbia, which have this law,” and in at least a half-dozen
other states with similar statutes, said Daniel Hogans, a
Washington tax attorney.
The case involves a lawsuit filed by
Sandra Craft, whose husband, Don, owed the IRS $482,446 in
unpaid federal taxes for the years 1979 through 1986. The couple’s lawyer, Jeffrey Moyer, said Mrs. Craft
had filed individually and paid federal taxes during that
period. If both
spouses had failed to pay federal taxes, “this case never
happens,” Mr. Moyer noted. |
The IRS put a
lien on property in Grand Rapids, Mich., which the couple
owned as tenants by the entirety. Mrs. Craft sued the IRS, saying the government
couldn’t attach a lien to half the property because she and
her husband didn’t have separate property rights in it.
A U.S. District Court in Michigan backed
up the IRS, but the U.S. Appeals Court for the Sixth Circuit,
in Cincinnati, disagreed. The judges said that under Michigan law, Mr. Craft had
no separate interest in the property.
Writing for the majority, Justice Sandra
Day O’Connor said,” each tenant possesses individual
rights in the estate sufficient to constitute ‘property’
or ‘rights to property’ for the purposes of the lien.” Justice O’Connor said that each party did have
certain property rights, including the right of use, to
receive income produced by the land and exclude others from
it. Such rights, she said, “may be sufficient to subject the
husband’s interest” to the federal tax lien.
She also said that Mr. Craft’s
property rights were further underscored by the fact that
“if the conclusion were otherwise, the entireties property
would belong to no one” for purposes of a federal tax lien. “This result not only seems absurd,” Justice
O’Connor continued, “but would also allow spouses to
shield their property from federal taxation by classifying it
as entireties property.”
Three
justices – Antonin Scalia, Clarence Thomas and John Paul
Stevens – dissented from the majority |
