Section of Taxation Publications
  VOL. 56
NO. 4
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Section 6321 Tax Liens on Tenancies by the Entirety After United States v. Craft
Kirstin O’Leary


In United States v. Craft, the United States Supreme Court addressed the application of section 6321 tax liens to properties held in tenancy by the entirety. The Court reversed the decision of the United States Court of Appeals for the Sixth Circuit by holding that tax liens could attach to one spouse’s interest in such properties. Section 6321 authorizes the Service to attach a lien on all property and property rights belonging to a person who does not pay taxes for which he is liable. The Court stated that an individual spouse’s ability to control entireties property determines whether that spouse’s interest constitutes property or property rights under section 6321. The Court held that the rights of use, exclusion, and property income Michigan law grants to each tenant by the entirety are sufficient to give each spouse substantial control over the property for federal tax purposes. The Court’s decision contradicted an existing consensus on the issue, including several federal appellate court decisions and accepted Service practice. Dissenting justices questioned whether this result was appropriate, given the history of exempting property held by the entirety from tax lien attachment. Justice Scalia’s dissenting opinion also questioned whether applying this statute to property held by the entirety was a sound policy, as it would affect a nonliable spouse’s interest in the property. Conversely, the majority opinion was concerned with whether a finding that these properties were exempt from tax lien attachment would facilitate tax evasion.

Part I of this Note looks at the background of the Craft decision, including the history of the case and the applicable law. Part II examines the majority’s opinion in Craft and the dissents’ objections to the majority opinion. Part III of the Note first evaluates the majority’s decision to diverge from prior law, exploring the arguments for and against doing so and concluding that the Court should not have dismissed the prior law lightly. Part III also considers the effect this decision will have on the property interest of a nondebtor spouse to whose property a lien has attached. Finally, Part III investigates the possibility of tax evasion under prior law and whether this should have been a motivating concern in the decision. The Note’s conclusion, Part IV, examines the likely effects of the decision, including how it will shape federal tax policy and tax planning. This Note argues that Craft has left in its wake an unsettled body of law and provided fertile ground for future litigation.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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