Joint ownership is where the federal tax lien gets personal. A parent and adult child on a deed. Business partners holding a building. Siblings who inherited a house together. Spouses, where only one of them owes. In each case the question is the same: what exactly does the lien reach, and what happens to the person who does not owe anything?
The two-step framework
The Supreme Court laid out the approach in Drye v. United States, 528 U.S. 49: courts look first to state law to determine what rights the taxpayer has in the property, and then to federal law to determine whether those rights qualify as "property" or "rights to property" under section 6321. IRM 5.17.2.5.1 quotes that framework and adds the practical point: state law determines the taxpayer's rights, but state law does not decide whether something is property for federal lien purposes.
So you start with the deed and your state's property law. Then you ask what federal law does with the interest that state law gives the taxpayer.
Joint tenancy
IRM 5.17.2.5.2.2 describes joint tenancy as equal, undivided ownership created at the same time in the same conveyance, usually with a right of survivorship.
- When only one joint tenant owes, the lien attaches to that taxpayer's interest.
- The IRM says the entire property may be sold in a judicial sale under section 7403, but the non-liable joint tenant must be compensated from the sale proceeds.
- If the IRS sells only the taxpayer's interest, the buyer acquires that partial interest, and most states then treat the joint tenancy as converted to a tenancy in common.
- Survivorship matters. In most states, if the taxpayer dies first, the lien ceases to attach to the property; if the taxpayer is the last survivor, the lien attaches to the entire property. The IRM notes exceptions, including Wisconsin and Connecticut, and says state law should always be consulted.
Tenancy in common
A tenancy in common is also undivided ownership, but without survivorship, and each owner's share can be transferred. IRM 5.17.2.5.2.3 says the IRS may levy and sell a taxpayer's interest, or ask a court to foreclose the lien and sell the whole property with the non-liable owner compensated from the proceeds. Because there is no survivorship, a lien on one tenant's interest survives that tenant's death and continues to encumber the property in the hands of heirs or legatees.
Tenancy by the entirety
This is the form that produced the most litigation. Many states allow spouses to hold property as tenants by the entirety, and some state laws treat neither spouse as having a separate interest that a creditor of only one spouse can reach.
The Supreme Court resolved the federal question in United States v. Craft, 535 U.S. 274 (2002). The IRS had assessed income tax against the husband alone. The couple owned Michigan real estate as tenants by the entirety. The Sixth Circuit had held the property exempt from the lien based on the state-law fiction that neither spouse has a separate interest. The Supreme Court reversed, concluding that "despite the fiction, each tenant possesses individual rights in the estate sufficient to constitute 'property' or 'rights to property' for the purposes of the lien." The Court said the interpretation of section 6321 is a federal question and quoted Drye: "exempt status under state law does not bind the federal collector."
The Court expressly declined to decide how to value the liable spouse's interest. IRM 5.17.2.5.2.4 says that as a general rule the IRS deems the taxpayer's interest in entireties property to be one-half, while noting that at least one circuit has used actuarial tables instead.
The IRM also summarizes IRS policy after Craft:
- Administrative seizure and sale of entireties property presents practical problems; levying on cash and cash equivalents held as entireties property is "considerably less problematic."
- Because of potential harm to the non-liable spouse, lien foreclosure on entireties property is decided case by case.
- Where entireties property subject to the lien is sold or transferred without a discharge of the lien, the lien thereafter encumbers a one-half interest held by the transferee.
State-specific rules about homestead and entireties property can add layers, and you should get advice for your state. The federal baseline is Craft.
Community property
IRM 5.17.2.5.2.1 lists the community property states as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, plus Puerto Rico, with an elective system in Alaska. The IRM says community property law presents "special problems" for the federal tax lien and directs employees to consult Area Counsel and state law guides. If you live in one of these states and only one spouse owes, the answer depends heavily on state law and the type of debt. Do not assume either way.
Bank accounts held jointly
Joint bank accounts are personal property, but the same principle applies. In Drye, the Court described its earlier holding that a taxpayer's right under state law to withdraw the whole of the proceeds from a joint bank account is property subject to levy for unpaid federal taxes, even though state law would not let ordinary creditors deplete the account that way. The non-liable co-owner's remedies when funds are taken are a levy topic. For lien purposes, the point is that the taxpayer's withdrawal rights are property.
Selling or refinancing co-owned property
The lien shows up most often when co-owned property is sold or refinanced. Title will reflect the recorded notice against the owner who owes, and the closing will need to account for the government's interest in that owner's share. That share is what matters, not the whole property. Co-owners can agree to a payoff from the liable owner's portion of the proceeds, which gives the IRS what its lien reaches and leaves the other owner's share intact.
Under IRM 5.17.2.5.2.4, if entireties property subject to the lien is sold or transferred without providing for discharge of the lien, the lien thereafter encumbers a one-half interest held by the transferee. That is a good reason not to try to close around the lien.
If you are the co-owner who does not owe
- Your own interest is not the taxpayer's property. The lien attaches to the taxpayer's interest, not yours. In a forced sale, the IRM recognizes that a non-liable co-owner must be compensated from proceeds.
- Clarify the record if needed. If a title company or lender believes the lien reaches property that the taxpayer never owned an interest in, a certificate of nonattachment may help. IRM 5.12.10.13 gives the example of a former spouse's separately inherited parcel.
- Be careful with transfers. If the taxpayer deeds an interest to you for little or nothing, or keeps using and paying for the property after the transfer, the IRS may treat you as a nominee. See nominee and alter ego liens.
If you are the co-owner who owes
- Expect the lien to attach to your share of every jointly owned asset, including assets you acquire later. See after-acquired property.
- A sale or refinance will require dealing with the lien on your share. Plan the payoff, or explore the lien certificates available for a specific transaction, before the closing date.
- Do not move your share to the co-owner to "protect" it. The lien attaches at assessment, and a transfer for less than full value generally does not shake it off.
State law tells you what you own. Federal law tells you what the lien reaches. In joint ownership, you need both answers.