A few years ago, a couple owned a piece of real property in Michigan, as “tenants by the entirety.” When Don failed to pay the IRS taxes he alone owed, the IRS filed a federal tax lien against the property.
After receiving notice of the lien, the husband transferred his interest in the property to the wife for one dollar. A few years later, she wanted to sell the land and a title search revealed the tax lien. The IRS agreed to release the lien and allow the sale but stipulated that half of the sale proceeds be held in escrow pending determination of the government’s interest in the property.
In a recent decision (No. 00-1831), the U.S. Supreme Court held that the IRS tax lien was enforceable against the proceeds from the ultimate sale of the property. This decision will have far-reaching, immediate implications. Now, a federal tax lien against one spouse attaches to the property itself: the tax lien must be paid off as part of the closing. Alternatively, a release or discharge of the federal tax lien must be obtained and filed prior to the closing.
If you currently own property as a tenant by the entirety, check with an attorney to see if a title change is indicated.
