The filing of a federal tax lien by the Internal Revenue Service creates many issues and questions when property is held jointly. Related issues can arise when the Internal Revenue Service files a tax lien against a party, and the party holds an interest in property but the other owners of the property have no such tax lien. The issues can be further compounded by state law matters such as community property and joint tenancy, tenancy in common and tenancy by the entirety. Joint tenancy will be discussed below.
A joint tenancy is created when two or more people become the owners of property and the ownership is equal and undivided, and when the interest of each tenant is created through the same conveyance at the same time and the interests are equal. You may have seen a right of survivorship stated within a joint tenancy or the JTWROS, which means joint tenancy with right of survivorship. Generally, a joint tenancy will have a right of survivorship and under this right of survivorship, when one tenant passes away, the surviving joint tenant or joint tenants will automatically own a greater portion of the property. For example, if A & B own Blackacre Properties as joint tenants with right of survivorship. If A passes away, B is now the sole owner of Blackacre Properties. It is important to note that certain states have removed the survivorship issues from joint tenancy, and thus check the applicable laws within the applicable state.
So how does an IRS tax lien impact property held in joint tenancy? Typically, if only one of the joint tenants owes taxes and thus the tax lien has been filed against only one of the joint tenants, the lien attaches to the taxpayer’s interest and thus the entire property, which can be sold pursuant to collection action such as a judicial sale under Section 7403 of the Internal Revenue Code. However, the non-liable joint tenants, those tenants who have not had the tax lien filed against them, are required to receive compensation from the sale of the property. What if the joint tenant were to pass away? Under most states, if the person whom the tax lien has been filed passes away before the other joint tenants, the tax lien will cease to attach to the property held in joint tenancy. What if such individual is the last to die? If the individual with the tax lien survives all other joint tenants, the tax lien would attach to the entire property. Of course, there are exceptions to this rule and you must check the applicable state law.
If you have questions related to the impact of a federal tax lien on your individual or business property, you can speak with a tax attorney and business attorney by contacting The McGuire Law Firm. The McGuire Law Firm provides a free consultation with an attorney to discuss your tax and business matters.