## Facts

- Sandra and David Craft owned Michigan real property as tenants by the entirety.
- David Craft incurred federal income tax liabilities; under 26 U.S.C. § 6321, a federal tax lien arose on “all property and rights to property” belonging to him, and the IRS filed notice.
- After notice, the Crafts executed a quitclaim deed purporting to transfer David’s interest to Sandra for $1.
- The IRS agreed to release the lien to permit a sale if one-half of the net proceeds were placed in escrow pending resolution of the Government’s interest.
- Sandra Craft filed a quiet title action seeking the escrowed funds, asserting that the lien never attached to David’s interest in entireties property.

## Issues

1. Whether a delinquent spouse’s interests in Michigan tenancy-by-the-entirety property constitute “property” or “rights to property” to which a federal tax lien attaches under 26 U.S.C. § 6321.
2. Whether state-law creditor protections for entireties property prevent attachment of a federal tax lien.
3. Whether the lien, if valid, reached one-half of the sale proceeds despite the subsequent quitclaim deed.

## Decision

- The Supreme Court reversed the Sixth Circuit and held that David Craft’s interests in the entireties property were “property” or “rights to property” under § 6321.
- Applying a two-step approach, the Court looked to Michigan law to identify the taxpayer’s rights and to federal law to determine whether those rights fall within § 6321.
- The Court identified multiple valuable rights held by the delinquent spouse under Michigan entireties law, including rights of use, exclusion, survivorship, participation in proceeds upon consensual sale, a divorce-triggered conversion to tenancy in common, and the ability to block unilateral disposition by the other spouse.
- The Court rejected the argument that Michigan’s insulation of entireties property from most creditors of one spouse controls federal tax lien attachment.
- Because the lien attached before the quitclaim deed, the Government was entitled to one-half of the net sale proceeds held in escrow.

## Legal Principles

- Section 6321 reaches broadly and attaches to any state-created rights that have pecuniary value and are properly treated as “property” or “rights to property” under federal law.
- State law defines the incidents of ownership the taxpayer possesses; federal law determines whether those incidents are sufficient for federal tax lien attachment.
- A taxpayer need not have unilateral power to alienate the underlying asset for a federal tax lien to attach; aggregated rights of use, control, and expected economic benefit may suffice.
- State exemptions or creditor-protection rules do not limit the federal tax collector’s authority once the taxpayer has cognizable property rights under state law.

## Conclusion

The Court held that a delinquent spouse’s substantial rights in Michigan tenancy-by-the-entirety property are “property” or “rights to property” under § 6321, permitting a federal tax lien to attach and reach the spouse’s share of sale proceeds notwithstanding state-law protections against individual creditors.


United States v. Craft, 535 U.S. 274 (2002)