8.4 PROPERTY TO WHICH THE FEDERAL TAX LIEN ATTACHES
The federal tax lien attaches to all property and rights to property owned by the taxpayer. It also attaches to all property owned by the taxpayer during the existence of the lien, including after-acquired property. The Supreme Court has stated that the statutory language authorizing the tax lien "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." 27 The Court has further declared that "[s]tronger language could hardly have been selected to reveal a purpose to assure collection of taxes." 28
To decide what property and rights to property belong to the taxpayer, one must look to state law. 29 Once the state law property rights are known, federal law determines whether the state-created right is property to which the federal tax lien attaches and determines the priorities among competing lienholders. 30 State pronouncements concerning the priorities of competing liens are meaningless in this context. 31
[Page 493]
Two Supreme Court cases, Drye v. United States 32 and United States v. Craft, 33 illustrate the breadth of the federal tax lien. In Drye, the IRS assessed $325,000 against the taxpayer, Mr. Drye, and tax liens were properly filed. When his mother died intestate, Drye, the sole heir, was appointed to administer her estate. Approximately six months later, Drye renounced his interest in the estate and resigned as the administrator. His daughter then succeeded to his interest and became the estate's representative. Because Arkansas law allowed Drye's renunciation to relate back to his mother's date of death, it was effective against creditors' claims according to state law requirements. The Supreme Court held that because Drye had the power to exercise control over the inheritance, in this case by channeling it to another close family member, his interest was sufficient to equate with ownership. The government was permitted to enforce a tax lien against the inheritance even though state law would not have permitted other creditors to reach it after it had been renounced. Virginia's statute 34 is similar to the Arkansas law at issue in Drye, so the same result is indicated.
The Craft case takes the law even further and strikes directly at Virginia law protecting property held by spouses. Virginia is one of several states permitting property to be held as tenants by the entirety. Both personal and real property held using this estate...
