# Appendix — United States v. Craft

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2001
- **Citation:** 533 U.S. 976

## Text

Supreme Court, U.S.
EITE U

00181 - 8 2001
No.

—— . ̃¶ . 8...
In the Supreme Court of the United States

UNITED STATES OF AMERICA, PETITIONERS
V.

SANDRA L. CRAFT

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

APPENDIX TO THE
PETITION FOR A WRIT OF CERTIORARI

BARBARA D. UNDERWOOD
Acting Solicitor General

CLAIRE FALLON
Acting Assistant Attorney
General

LAWRENCE G. WALLACE
Deputy Solicitor General

KENT L. JONES
Assistant to the Solicitor
General

DAVID ENGLISH CARMACK
JOAN I. OPPENHEIMER
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217

TABLE OF AUTHORITIES

Appendix A (court of appeals opinion, Nov. 22,
2000)

Appendix B (court of appeals judgment, Nov. 22,

Appendix C (court of appeals opinion, Apr. 1,

1998)
Appendix D (district court findings of fact and
conclusions of law, Mar. 30, 1999)

Appendix E (district court opinion, Oct. 26,
1995)

Appendix F (district court opinion, Sept. 12,

1994)

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APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Nos. 99-1734, 99-1737

SANDRA L. CRAFT, PLAINTIFF-APPELLEE/
CROSS-APPELLANT

V.

UNITED STATES OF AMERICA, ACTING THROUGH THE
COMMISSIONER OF INTERNAL REVENUE,
DEFENDANT-APPELLANT/CROSS-APPELLEE

Appeal from the United States District Court for the
Western District of Michigan at Grand Rapids
No. 93-00306-Gordon J. Quist, District Judge

Argued: August 10, 2000
Decided and Filed: November 22, 2000

Before: KEITH, COLE, and GILMAN, Circuit Judges

OPINION

COLE, Circuit Judge.

This case is before us for the second time. In Craft v.
United States, 140 F.3d 638 (6th Cir. 1998) (hereinafter,
“Craft I’), we held that a federal tax lien against
Plaintiff-Appellee Sandra L. Craft’s now-deceased hus-

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band, Don, did not attach to property held by the couple
in a “tenancy by the entirety” under Michigan law. On
remand, the district court found that Defendant-
Appellant the United States of America (“IRS,” or “the
government”) was nonetheless entitled to $6,693 with
which Don had fraudulently enhanced the entireties
property. Now, the IRS appeals the district court’s
judgment on the basis that the Craft J panel mis-
construed the law. Sandra responds that the IRS is
precluded from raising this argument on appeal by the
“law of the case” doctrine and other principles. Sandra
also raises a number of claims in a cross-appeal. For
the following reasons, we DISMISS the IRS's effort to
overturn Craft I as precluded by both the law of the
case doctrine and the rule that one panel of this court
may not overrule the prior decision of another panel.
We AFFIRM the decision of the district court regarding
Sandra’s claims.

I. BACKGROUND

The essential facts of the case are as follows.’ In May
1972, Sandra Craft and her husband, Don, purchased
real property (known as the “Berwyck Property,” for
the road on which it was located) in Michigan as tenants
by the entirety. Craft I, 140 F.3d at 639. Don failed
to file federal income tax returns for tax years 1979
through 1986, and, in July 1988, the IRS assessed
$482,446.73 against him in unpaid tax liabilities. Id.
Don failed to pay his tax debts, and the IRS filed a
notice of federal tax lien in March 1989 against all of
Don’s property and rights to property. Id., see also

1 Craft I contains a detailed factual and procedural back-
ground of this case. See 140 F.3d at 639-41.

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I.R.C. § 6321. Don was insolvent during the period
from April 1980 through August 1989.

On August 28, 1989, Don and Sandra transferred the
Berwyck Property to Sandra by way of a quitclaim
deed, in exchange for one dollar. Craft I, 140 F.3d at
639. In June 1992, Sandra sold the property to a third
party for $119,888.20. Jd. at 640. Pursuant to an
agreement between Sandra and the IRS, Sandra kept
half of the proceeds ($59,944.10); the other half was
placed in a non-interest-bearing escrow account, sub-
ject to the same right, title, and interest that the
federal tax lien had on the property. Id. In April 1998,
Sandra filed a complaint pursuant to 28 U.S.C.
§ 2410(a), seeking to quiet title to the proceeds in the
escrow account. Id. In its answer, the government
argued that it was entitled to half of the proceeds from
Sandra’s sale of the property because its lien attached
to Don’s interest in the Berwyck Property, even though
Don and Sandra had held the property as tenants by
the entirety. Jd. The government also claimed that
Don had fraudulently conveyed his interest in the
property to Sandra. Id.

Both parties moved for summary judgment in
September 1993. The district court denied Sandra’s
motion and granted the government’s motion in
September 1994. See id. at 640. The district court held
that at the time of the August 1989 conveyance, Don
and Sandra’s entireties estate terminated and each
spouse took an equal half interest in the estate. Id.
Accordingly, the district court held that the federal tax
lien attached to Don’s interest at that time. Jd. Upon
Sandra’s motion, the court conducted further pro-
ceedings to determine the value of Don’s interest at the
time of the termination of the tenancy by the entirety.

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See id. After a telephonic hearing, the court found in
October 1996 that the value of Don’s property to which
the IRS lien attached was $50,293.94." See id. at 641.
The court then ordered that the IRS receive that
amount from the escrowed proceeds. Id.

On cross-appeals to this court, the Craft I panel
reversed the district court’s ruling, holding that “[b]e-
cause Michigan law does not recognize one spouse’s
separate interest in an entireties estate, a federal tax
lien against one spouse cannot attach to property held
by that spouse as an entireties estate.” 140 F.3d at 643.
The panel also held that, under Michigan law, “Don did
not possess a separate future interest in the Berwyck
Property; therefore, the federal tax lien could not
attach to a future interest that did not exist under
Michigan law.“ Id. at 644. After finding that Don had
no present or future interest in the disputed property,
the court remanded the case for determination of
“whether a fraudulent conveyance occurred in this
case. Id. at 644. Judge Ryan concurred in the ma-
jority’s result, but argued that Don had a separate,
future interest in the entireties property to which the
tax lien might attach if the August 1989 transfer to
Sandra were set aside as fraudulent. See id. at 649.

On remand, the district court conducted a bench trial.
In written findings of fact and conclusions of law made
in March 1999, the district court concluded that, al-
though the transfer of the Berwyck Property to Sandra
by quitclaim deed did not constitute a typical fraudu-

2 The court reached the figure by dividing in half the differ-
ence between the fair market value of the property as of the date
of the August 1989 transfer ($120,000) and the amount of the
outstanding mortgage balance at the time ($19,412.12). See Craft I,
140 F. ad at 641.

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lent conveyance under Michigan law, the government
was entitled to relief under an exception to that law, see
McCaslin v. Schouten, 294 Mich. 180, 292 N.W. 696, 699
(1940). The court found that under the exception, a
creditor may obtain relief “where the debtor, while
insolvent, places non-exempt funds beyond the reach of
his creditors by enhancing the entireties property.” See
id. The court reasoned that from 1980 through 1985,
while he was insolvent, Don and Sandra had used Don’s
funds to enhance the property by making a total of
$6,693 in mortgage payments (excluding interest) on its
behalf. The court found that Don’s actions constituted a
type of fraudulent conveyance under Michigan law, and
that the government was entitled to recover the value
of the mortgage payments ($6,693) plus interest (from
the date of the court’s October 1995 judgment) from the
escrowed sales proceeds.* Sandra filed a motion to
amend the judgment, arguing that the court should
reverse its award of interest on the $6,693 it awarded to
the IRS. Sandra also moved the court to award her
interest, pursuant to 28 U.S.C. § 2411, on the funds that
the IRS would have to return to her.“ The court
granted Sandra’s motion in part, deleting the interest
awarded to the IRS, but denied her request for
interest.

The government filed a timely notice of appeal and
Sandra filed a timely notice of cross-appeal in June

8 The district court also rejected Sandra's theories to bar the
government’s relief. Sandra raises many of these theories on ap-
peal, and we discuss them infra.

The IRS was in possession of $50,293.94 of escrowed funds
that the district court had awarded it in October 1995. Sandra was
seeking interest on the $43,600.94 that the IRS would be returning
to her (i. e., 50,293.94 less $6,693).

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1999. In October 1999, the government petitioned this
court for en banc review of the Craft I decision. The
government argued that the Craft I decision—as well
Cole v. Cardoza, 441 F.2d 1337 (6th Cir. 1971) (holding
that federal government may not, under Michigan law,
attach lien to entireties property to satisfy individual
tax liability of one spouse), a prior decision upon which
the Craft I court relied—conflicted with established,
controlling precedent. This court rejected the petition
in December 1999.

II. THE GOVERNMENT’S APPEAL

At this juncture, this case is not really about federal
tax liens. Nor is it about state law property rights. This
case is about the extent to which a prior decision of this
court binds a subsequent panel when neither the facts,
the parties, nor the law has changed. On appeal, the
IRS reasserts its argument that a § 6321 federal tax
lien against an individual taxpayer attaches to a
tenancy by the entirety that the taxpayer shares, pur-
suant to Michigan law, with his spouse. This is, of
course, the very argument we rejected in Craft J. For
the reasons that follow, the government is precluded
from re-arguing its case at this time.

A. Law of the Case

Under the law of the case doctrine, a court ought not
reopen issues decided at an earlier point in the same
litigation. See Agostini v. Felton, 521 U.S. 203, 236, 117
S. Ct. 1997, 138 L.Ed.2d 391 (1997). “Issues decided at
an early stage of the litigation, either explicitly or by
necessary inference from the disposition, constitute
the law of the case.” Hanover Ins. Co. v. American
Eng’g Co., 105 F.3d 306, 312 (6th Cir. 1997) (citation and
quotation marks omitted). Although the doctrine of law

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of the ease is not an inexorable command,“ and courts
must use common sense“ in applying it, see id., the
power of this court to reach a result inconsistent with a
prior decision reached in the same case is “to be exer-
cised very sparingly, and only under extraordinary
conditions.” General Am. Life Ins. Co. v. Anderson,
156 F.2d 615, 619 (6th Cir. 1946) (citation and quotation
marks omitted). We have delineated three such
extraordinary conditions in which we will reconsider a
prior ruling in the same case: “(1) where substantially
different evidence is raised on subsequent trial; (2)
where a subsequent contrary view of the law is decided
by the controlling authority; or (3) where a decision is
clearly erroneous and would work a manifest injustice.”
Hanover Ins. Co., 105 F.3d at 312. For the reasons that
follow, the IRS fails to articulate the “extraordinary
conditions” necessary for us to rehear the claims we
have already rejected.

1. Clearly Erroneous and Manifest Injustice

The IRS looks first to the third exception, arguing
that this court can revisit the issues decided by the
Craft I panel because that panel’s decision was clearly
erroneous and would work a manifest injustice.’ The
government’s argument is not persuasive because Craft
I was not clearly erroneous.

The Craft I panel had before it circuit precedent that
squarely addressed the issue before the court. In Cole,

6 The IRS points to General Am. Life Ins. Co. as an example
of a case in which this court reconsidered its prior holding at a
later stage in the same case. See 156 F.2d at 618-21. We do not
dispute that we have the power to reach a result different from one
reached earlier in the litigation; the government, however, has not
met its burden in the instant case of showing the “extraordinary
conditions” that will permit us to do so. See id. at 619.

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this court held that a federal tax lien against a taxpayer
did not attach to property owned by the taxpayer and
his wife in a tenancy by the entirety. See 441 F.2d at
1343. Neither this court nor the Supreme Court has
ever expressly overruled Cole. Nonetheless, the IRS
contends that Cole has been effectively overruled by
Supreme Court decisions subsequent to it. But no
Supreme Court case has directly addressed the
question before both the Cole and Craft I courts.* It is
true that the Court has addressed the power of a
federal tax lien to attach to state law property con-
structs other than a tenancy by the entirety, but the
Court has done so only on narrow grounds. For in-
stance, in United States v. National Bank of Com-
merce, 472 U.S. 713, 105 S. Ct. 2919, 86 L.Ed.2d 565
(1985), the Court held that the IRS had a right to levy
upon a joint bank account for delinquent federal income
taxes owed by only one of the owners of the account.
See id. at 715, 724, 105 S. Ct. 2919. After discussing the
specific characteristics of the taxpayer’s rights under
state law and under his contract with the bank, see id.
at 723-24, 105 S. Ct. 2919, the Court was crystal clear
about the specificity of its holding:

We stress the narrow nature of our holding. By
finding that the right to withdraw funds from a joint
bank account is a right to property subject to ad-
ministrative levy under § 6331, we express no
opinion concerning the federal characterization of
other kinds of state-law created forms of joint

All of the cases to which the IRS cites for its contention that
Cole has been overruled were before the Craft I panel save Drye v.
United States, 528 U. S. 49, 120 S. Ct. 474, 145 L.Ed.2d 466 (1999),
which we discuss infra.

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ownership. This case concerns the right to levy only
upon joint bank accounts.

Id. at 726 n. 10, 105 S. Ct. 2919.’ Likewise, in United
States v. Rodgers, 461 U.S. 677, 103 S. Ct. 2132, 76
L.Ed.2d 236 (1983), the Court held that I.R.C. § 7403
permits a district court to order the sale of a delinquent
taxpayer’s home, despite the fact that his wife, with

whom he owned the home pursuant to a state home-

stead law, did not owe any of the indebtedness. See id.
at 680, 103 S. Ct. 2132. As the Craft I panel noted,
however, the Rodgers Court “recognized that tenancies
by the entirety posed a problem distinct from that of
homestead estates, in that neither spouse owns an
independent interest in an entireties property while
both spouses own independent interests in a homestead
estate.” 140 F.3d at 643 (citing Rodgers, 461 U.S. at
702-03 n. 31, 103 S. Ct. 2132). Thus, as the Craft J panel
was presented with no binding precedent that over-
ruled Cole, we cannot say that its decision was clearly
erroneous.

Indeed, the Third Circuit has stated that, in National Bank
of Commerce the Supreme Court acknowledged that if money is
held by a husband and wife in a joint bank account as tenants by
the entireties under applicable state law ‘the Government could not
use the money in the account to satisfy the tax obligations of one
spouse.” Internal Revenue Serv. v. Gaster, 42 F.3d 787, 791 (3d
Cir. 1994) (citing National Bank of Commerce, 472 U. S. at 729 n.
11, 105 S. Ct. 2919) (internal footnote omitted; emphasis added).

Nor do Cole and Craft I stand alone. As the Craft I panel
noted, this court reiterated the rule of Cole in subsequent cases.
See 140 F.3d at 642 (citing United States v. Certain Real
Located at 2525 Leroy Lane (“Leroy Lane I”), 910 F.2d 343, 351
(6th Cir. 1990)); id. (citing United States v. Certain Real Property
Located at 2525 Leroy Lane (“Leroy Lane IT’), 972 F.2d 136, 138
(6th Cir. 1992)); see also Gaster, 42 F.3d at 791 n. 3, 793 (holding

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In finding that our decision in Craft I was not clearly
erroneous, we acknowledge that there are colorable
arguments on both sides of the question whether a
federal tax lien against a taxpayer’s “property” or
“rights to property,” see I. R. C. § 6321, attaches to a
tenancy by the entirety. Indeed, Judge Ryan’s con-
currence in Craft J illustrates this point, see 140 F.3d at
645-49 (Ryan, J., concurring) (arguing that, if transfer
of property to Sandra Craft were to be set aside,
federal tax lien would attach to Don Craft’s “future
interest” in Berwyck property), as does Judge Gilman’s
separate concurrence in the instant appeal. We further
recognize that this court has held that federal law
supersedes state property law in other circumstances.
See, e.g., Bank One Ohio Trust Co., N.A. v. United
States, 80 F.3d 173, 176 (6th Cir. 1996) (finding that
restraint on alienation created by state law does not
prevent federal lien from attaching to spendthrift trust
under § 6321); Liberty State Bank and Trust v. Gros-
slight (In re Grosslight), 757 F.2d 773, 775 (6th Cir.
1985) (finding that property held as tenancy by the
entirety is part of bankruptcy estate). But the fact that
colorable arguments exist on both sides of a particular
issue does not imply that the Craft I panel’s decision is
“clearly erroneous.” There are colorable arguments in
virtually every case we hear. To hold that their exis-
tence in the present case permits us to reopen an issue
we have already settled in this very case would destroy
the concept of finality in our courts, negate the pre-
dictability our legal system provides to people in the
conduct of their affairs, and risk the unjust results that

that IRS may not levy against bank account of delinquent taxpayer
held in tenancy by the entirety where taxpayer did not have
unilateral right to withdraw funds).

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would surely follow were litigants to “panel-shop” and
pursue, willy-nilly, two or more bites at the apple of
settled law.

The Craft I panel was bound by circuit precedent
that was directly on point in reaching the conclusion it
reached.’ It was faced with no Supreme Court pre-
cedent that directly held otherwise, and this court has
reiterated the holding relied upon by the Craft I panel
on more than one occasion. Further, other courts have
reached results consistent with that reached by the
Craſt I panel. For these reasons, we reject the IRS’s
argument that the decision reached by the Craft I panel
was “clearly erroneous.””

2. Subsequent Contrary View of the Law

The IRS also argues that the law of the case doctrine
does not apply here because the Supreme Court’s
recent decision in Drye v. United States, 528 U.S. 49,
120 S. Ct. 474, 145 L.Ed.2d 466 (1999), decided after
Craft I, states a view of the law that is contrary to that
expressed in Craft I. See Hanover Ins. Co., 105 F.3d at
312. In Drye, the Court held that a taxpayer could not

As the concurrence acknowledges, the law-of-the-circuit
doctrine prohibits a subsequent panel of this court from revisiting
an earlier panel’s decision when there has not been a change in the
substantive law or an intervening Supreme Court decision. Inas-
much as the rule of Cole v. Cardoza remained good law, the Craft I
panel was bound to follow it.

10 Because the third exception to the law of the case doctrine
requires a finding that a prior decision was both clearly erroneous
and that it would work a manifest injustice, see Hanover Ins. Co.,
105 F.3d at 312, our holding that Craft I is not clearly erroneous
makes it unnecessary for us to address the question of whether

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defeat a federal tax lien by disclaiming, pursuant to
state law, his interest in his mother’s estate. 120 S. Ct.
at 478. The IRS argues that Craft J conflicts with the
Drye Court’s statements that: 1) federal law deter-
mines whether a right or interest created under state
law constitutes “property” or “rights to property” for
purposes of the federal tax lien statute, see Drye, 120 S.
Ct. at 481; and 2) state law legal fictions do not bind the
federal government for purposes of the federal tax lien
statute, see Drye, 120 S. Ct. at 482. At oral argument,
the IRS added that Drye stands for the “new” legal rule
that a federal tax lien attaches to a taxpayer’s right to
inherit property. Upon careful review, we find that
Craft I is essentially consistent with the Drye Court’s
reasoning.

a.

In Drye, the taxpayer (Drye) was insolvent, and the
IRS had obtained valid tax liens against all of his
“property and rights to property” pursuant to I.R.C.
§ 6321." Id. at 479. Drye’s mother died, and Drye was
sole heir to her $233,000 estate. Id. at 478. Drye dis-
claimed” all his interests in his mother’s estate pur-
suant to state law; as a result, the estate passed to
Drye’s daughter. Id. at 479. Drye's daughter estab-
lished a spendthrift trust with the proceeds of her
grandmother’s estate, naming as beneficiaries herself,

1 I. R. C. § 6321 provides:

If any person liable to pay any tax neglects or refuses to
pay the same after demand, the amount (ineluding any in-
terest, additional amount, addition to tax, or assessable pen-
alty, together with any costs that may accrue in addition
thereto) shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal,
belonging to such person.

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Drye, and her mother. Id. Although applicable state
law provided that the assets of a spendthrift trust were
shielded from creditors seeking to satisfy debts of the
trust’s beneficiaries, see id., the Court held that Drye’s
disclaimer did not defeat the government’s tax liens.
Id. at 478. The Court summarized the relationship be-
tween § 6321 and state law as follows:

The Internal Revenue Code’s prescriptions are most
sensibly read to look to state law for delineation of
the taxpayer’s rights or interests, but to leave to
federal law the determination whether those rights
or interests constitute “property” or “rights to pro-
perty” within the meaning of § 6321. “[O]nce it has
been determined that state law creates sufficient
interests in the [taxpayer] to satisfy the require-
ments of [the federal tax lien provision], state law is
inoperative to prevent the attachment of liens
created by federal statutes in favor of the United
States.”

Id. at 478 (quoting United States v. Bess, 357 U.S. 51,
56-57, 78 S. Ct. 1054, 2 L.Ed.2d 1135 (1958) (brackets in
original)). Under the approach taken in Drye, “We look
initially to state law to determine what rights the tax-
payer has in the property the Government seeks to
reach, then to federal law to determine whether the
taxpayer’s state-delineated rights qualify as ‘property’
or ‘rights to property’ within the compass of federal tax
lien legislation.” Jd. at 481.

The IRS argues that the Craft I panel failed to apply
this rule and relied instead on Michigan law to deter-
mine whether a taxpayer’s involvement in a tenancy by
the entirety constitutes property for the purposes of
§ 6321. We are not persuaded. First, we note that the

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Supreme Court had stated prior to Drye the rule that a
court must look to federal law to determine whether
something constitutes “property” or “rights to pro-
perty” for purposes of § 6321. See, e.g., United States v.
Irvine, 511 U.S. 224, 238, 114 S. Ct. 1473, 128 L.Ed.2d
168 (1994) (noting the “general and longstanding rule in
federal tax cases that although state law creates legal
interests and rights in property, federal law determines
whether and to what extent those interests will be
taxed”); National Bank of Commerce, 472 U.S. at 727,
105 S. Ct. 2919 (stating that, the question whether a
state-law right constitutes ‘property’ or ‘rights to pro-
perty’ is a matter of federal law” for purposes of federal
tax collection)”. The Craft I court was aware of that

12 This precise nature of this rule appears to have wavered
over time. Compare Aquilino v. United States, 363 U. S. 509, 514,
80 S. Ct. 1277, 4 L.Ed.2d 1365 (1960) (discussing the “application of
state law in ascertaining the taxpayer’s property rights” in deter-
mining whether property is subject to federal tax lien) with
National Bank of Commerce, 472 U. S. at 727, 105 S. Ct. 2919.
Regardless of which formulation of the rule is adopted, the key
point is that the federal question—i.e., whether a state-law
right constitutes “property” or “rights to property” under the
statute—cannot be considered independently from the state-law
question— i.e., what is the nature and extent of the state-law
right. When, as in this case, state law provides that there can be
no individual interest in property held in a tenancy by the
entireties, there is nothing which can be deemed “property” or
“rights to property” under federal law. This understanding of
§ 6321 does not reflect a failure on the part of the Craft I majority
to put substance over form, as the concurrence charges, but rather
comports with the long-established principle that “federal law
creates no property rights but merely attaches consequences . . .
to rights created under state law.“ Bess, 357 U. S. at 55, 78 S. Ct.
1054 (1958).

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rule, see 140 F. 3d at 641, and, more important, applied it
properly.“

The Craft I court’s analysis is consistent with the
two-step analysis described in Drye. See 120 S. Ct. at
481. The Craft I court first looked to Michigan law and
found that: 1) Michigan law holds that an individual
spouse possesses no separate interest in entireties pro-
perty, Craft I, 140 F.3d at 643, and 2) Michigan law
holds that an individual spouse possesses no future
interest in entireties property, see id. at 644.“ Thus,

The IRS attacks the court’s statement that, “state law
governs the issue of whether any property interests exist in the
first place,” Craft I, 140 F.3d at 649 (citing Rodgers, 461 U. S. at
683, 103 S. Ct. 2132), as being inconsistent with Drye. As did the
Supreme Court in Drye, we note that, upon careful review, some of
the language we used in Craft I was not “phrased so meticulously”
as we would have liked. See Drye, 120 S. Ct. at 481. We do not,
however, read the sentence of which the IRS complains nor the
epproach taken in Craft I to be inconsistent with the analytic
approach taken by the Drye Court: that state law determines the
rights a taxpayer has in property and federal law determines
whether those rights constitute “property” or “rights to property”
pursuant to § 6321. See Drye, 120 S. Ct. at 481.

In his separate concurrence, Judge Gilman cites to Rogers v.
Rogers, 136 Mich. App. 125, 356 N.W.2d 288, 293 (1984), to support
the proposition that Don Craft possessed a contingent future
interest in the Berwyck Property. Although the Rogers court did
acknowledge that each spouse “is entitled to the enjoyment of the
entirety and to survivorship,” it emphasized that “neither the
husband nor the wife has an individual, separate interest in ent-
ireties property, and neither has an interest in such property
which may be conveyed, encumbered or alienated without the
consent of the other.” Rogers is thus consistent with Michigan
Supreme Court’s refusal to recognize a severable future interest
held by one spouse in an entireties property. See Sanford v.
Bertrau, 204 Mich. 244, 169 N.W. 880, 881 (1918). Moreover, to the
extent that Rogers can be construed as being inconsistent with

16a

under Michigan law, Don had no individual interest in
the entireties property: and, because state law deline-
ated no individual interest or right held by Don, there
was nothing for federal tax law to deem to be pro-
perty” or rights to property” for purposes of I. R. C.
§ 6321. Accordingly, Craft I is fundamentally con-
sistent with Drye. See Rodgers, 461 U.S. at 702-03 n. 31,
103 S. Ct. 2132 (stating that cases which have found
that a federal tax lien does not attach to a tenancy by
the entirety “because neither spouse possessed an
independent interest in the property ... do no more
than illustrate the proposition that, in the tax en-
forcement context, federal law governs the conse-
quences that attach to property interests, but state law
governs whether any property interests exist in the
first place.“ (citing United States v. American Nat'l
Bank of Jacksonville, 255 F.2d 504, 506 (5th Cir. 1958);
United States v. Hutcherson, 188 F.2d 326, 331 (8th Cir.
1951)); see also 14 Mertens Law of Fed. Income Tax’n
§ 54A:13 (Supp. 2000) (citing Craft I for proposition
that, although federal law determines whether a lien
will attach to property interests held by delinquent tax-
payer, “whether and to what extent a taxpayer has
‘property’ or ‘rights to property’ are [sic] determined
under the applicable state law.” (foutnote omitted)).

b.

The IRS also argues Craft J is inconsistent with the
Drye Court’s refusal to subjugate federal tax law to
state law legal fictions. See Drye, 120 S. Ct. at 482
(stating that “federal tax law ‘is not struck blind by a
disclaimer’ “ (quoting Irvine, 511 U.S. at 240, 114 S. Ct.

Sanford (which we believe it cannot), Sanford remains good law
and is thus the controlling rule of decision.

17a

1473)). But this proposition, too, had been established
prior to Craft I, and the Craft J court was well aware of
it. See Craft I, 140 F.3d at 643 (discussing Irvine, 511
U.S. at 240). Indeed, the Craft J court rejected the
IRS’s argument that it was being duped by a state law
legal fiction. See id. We again reject the IRS's argu-
ment and find that the aspect of Drye reiterating the
admonition regarding state law fictions is not a sub-

- sequent contrary view of the law. See Hanover Ins.

Co., 105 F.3d at 312; Craft I, 140 F. 3d at 643.
e.

we are not at all persuaded by the IRSꝰs last-minute
characterization of Drye as standing for the proposition
that a right to inherit property is subject to a federal
tax lien. Because Don Craft had a conditional right to
take the Berwyck property by survivorship pursuant to
Michigan law (i.e., should Susan predecease him), the
argument goes, see Craft I, 140 F.3d at 642 (citing
Leroy Lane I, 910 F.2d at 347), he comes under this pur-
portedly “new” rule. This rendering of Drye is patently
overbroad. If the Supreme Court intended to hold that
every conceivable interest in property, no matter how
remote, is subject to a federal tax lien, we have little
doubt that it would have said so outright. We do not
think it so held. Indeed, the Drye Court specifically
stated (demonstrating that “analogy is somewhat
hazardous in this area,” see Rodgers, 461 U.S. at 685-86,
103 S. Ct. 2132) that a mere expectancy is not sufficient
to constitute “property” or “rights to property” pur-
suant to § 6321: “Nor do we mean to suggest that an
expectancy that has pecuniary value and is transferable
under state law would fall within § 6321 prior to the

18a

time it ripens into a present estate.” 120 S. Ct. at 482-
83 n. 7; see also United States v. Murray, 217 F.3d 59,
63 (1st Cir. 2000) (stating that, pursuant to Drye, § 6321
is to be construed broadly, “but there are limits that
reflect both common usage and policy. For example,
the lien would likely not attach to land owned by a still-
living relative of [the taxpayer], or to [his] expected
inheritance of it, even if the relative had provided in his
will that the land would go to [the taxpayer] on the
relative’s death.“). Thus, we reject the government’s
argument that Drye stands for the proposition that a
federal tax lien attaches to any right to inherit pro-
perty, no matter how remote.

d.

In sum, Drye has not so fundamentally changed the
legal landscape as to overrule Craft I. See Blachy v.
Butcher, 221 F.3d 896, 907 (6th Cir. 2000) (Gilman, J.)
(post-Drye decision distinguishing holding of Craft J
from question of how to treat entireties property in
bankruptcy case); United States v. Green, 201 F.3d 251,
253 (3d Cir. 2000) (citing Drye, 120 S. Ct. at 478, and
indicating that federal tax lien does not attach to pro-
perty held as tenancy by entirety pursuant to Penn-

1 In the instant case, Don Craft’s expectancy of inheritance
never ripened into a present estate. Indeed, Don predeceased
Sandra.

16 This is significant because the only interest which any mem-
ber of the Craft I panel concluded might be subject to a federal tax
lien was a future interest. Compare 140 F. 3d at 644 with id. at 646
(Ryan, J., concurring).

17 The concurrence criticizes the court for “going too far” in
characterizing the IRS’s argument in these terms. However, IRS
counsel expressly endorsed this reading of the Drys decision dur-
ing oral argument.

19a

sylvania law); see also Edward Kessel and Steven R.
Klammer, Supreme Court Finds Disclaimer Ineffective
to Avoid Federal Tax Lien, 92 J. Tax’n 118, 122 (2000)
(discussing impact of Drye and suggesting that, even
after decision, federal tax lien law may not apply to
dower, curtesy, or elective share rights). Accordingly,
the IRS’s argument cn appeal is precluded by the law
of the case doctrine.

B. Law of the Circuit

Our decisions in Craft I and in Cole are also law of
the circuit. As we recently stated, “One panel of this
court may not overturn the decision of another panel of
this court—that may only be accomplished through an
en banc consideration of the argument.” Pollard v. E. I.
DuPont de Nemours Co., 213 F.3d 933, 945 (6th Cir.
2000). As discussed, supra, Craft I is not clearly erro-
neous, and it has not been called into doubt by any deci-
sion of the Supreme Court.” Because this panel may
not conduct a plenary review of the result reached by a

18 In his concurrence, Judge Gilman twice “recommend{s] that
this case be revisited en banc.” There is a clearly delineated pro-
cedure under the Federal Rules for a party to seek review of a
matter en banc. See Fed. R. App. P. 35(b). The government is
obviously aware of this procedure in that it previously filed a
petition for en banc review of Craft J, although its petition did not
garner a single vote. Moreover, this court’s published Internal
Operating Procedures provide that any active judge of this court
may request, sua sponte, a request for a poll for rehearing on [sic]
banc, even in the absence of a petition from a party. See 6 Cir.
IO. P. 35(c). We think it appropriate to reserve any discussion of
whether this case should be reheard en banc as a part of the
process contemplated by the aforementioned rules.

20a

prior panel, the decision reached by the Craft I must
stand.”

III. SANDRA’S CROSS-APPEAL

In her cross-appeal, Sandra first argues that the IRS
was precluded from arguing on remand the fraudulent
enhancement theory upon which it ultimately won
relief. Next, Sandra argues that the governing statute
of limitations barred the IRS’s recovery under its
fraudulent enhancement theory. Third, she claims that
the IRS’s remedy became moot upon Don’s death.
Finally, Sandra asserts that the IRS owes her interest
on the funds to which she became entitled pursuant to
our opinion in Craft J. Sandra has also submitted to
this court a motion for costs under both Fed. R. App. P.
38 and the Equal Access to Justice Act, 28 U.S.C.
§ 2412. For the reasons that follow, we AFFIRM the
judgment of the district court and DENY Sandra’s
motion for costs.

A.

Upon remand, the IRS argued two theories of re-
covery before the district court: first, that the August
1989 transfer from Don and Sandra to Sandra was a
fraudulent conveyance pursuant to Michigan law, see
Mich. Comp. Laws §§ 566.11-.23; and second, in the
alternative, that Don’s payment of mortgage and prop-
erty tax obligations” from 1979 to 1985 on behalf of the

18 All of the IRS’s arguments on appeal require us to reject the
holding of Craft I. Since we are unable to do that for the reasons
discussed above, we DISMISS the government’s appeal.

2 On appeal, the government argues only that the mortgage
payments—and not the property tax payments—constituted a
fraudulent enhancement of the property.

21a

entireties property constituted a voidable, fraudulent
enhancement of the property. Sandra objected to the
fraudulent enhancement theory (she contends that she
did do early and often, see infra) on the grounds that
the IRS had not raised the theory until immediately
prior to trial, and that the theory went beyond the
scope of this court’s remand. The district court rejected
Sandra’s objection, and found that although the IRS

had not raised specifically the fraudulent enhancement

issue in its answer to Sandra's complaint,“ the issue
was tried by the implied consent of the parties, pur-
suant to Fed. R. Civ. P. 15(b).

In her cross-appeal, Sandra argues that the district
court erred by permitting the IRS to argue on remand
its new theory of fraudulent enhancement. First,
Sandra asserts that the fraudulent enhancement issue
went beyond the scope of this court’s remand. Second,
Sandra claims that she did not consent to trial of the
new theory, but rather “objected repeatedly, vehe-
mently and at every possible opportunity to the IRS
raising a new issue for the first time on remand.”
Appellee’s Br. at 16. For the reasons that follow,
Sandra’s arguments fail.

1. Scope of Remand

Sandra contends that the only issue before the
district court on remand was whether she and Don
fraudulently transferred the property to Sandra when
they executed the August 28, 1989 quitclaim deed. See
Craft I, 140 F.3d at 644. The IRS claims that this court
left open the broader question of whether any fraudu-

21 The IRS had raised the fraudulent conveyance argument as
a defense in its answer to Sandra’s complaint.

22a

lent conveyance occurred with regard to the Berwyck
Property. The Craft I court stated as follows:

[Tjhere remains an issue of whether a fraudulent
conveyance occurred in this case, an issue that the
district court did not address. Under Michigan law,
one spouse cannot use the doctrine of tenancy by the
entirety to defeat the rights of a judgment creditor.
Such a fraudulent transfer can be set aside
The issue of whether a fraudulent conveyance oc-
curred in this case is a matter that should be
determined by the district court. If the conveyance
was fraudulent and therefore set aside, the IRS
could be entitled to half the proceeds of the June
1992 sale, or $59,944.10. Accordingly, upon remand,
the district court should consider whether the
Berwyck Property was transferred for fraudulent

purposes.

Id. (citations omitted).

The district court did not exceed the scope of our
remand by considering the issue of whether Don’s
mortgage payments constituted a fraudulent transfer
under Michigan law. The last sentence of the above-
quoted section of Craft I, which directed the district
court to “consider whether the Berwyck Property was
transferred for fraudulent purposes,” does not raise
exclusively the question of whether the August 1989
transfer itself was fraudulent; rather, it permitted the
district court to consider also whether Don and Sandra
transferred the property for other fraudulent purposes
as well. See id. This conclusion is consistent with the
opening sentence of the Craft I court’s fraudulent con-
veyance discussion, which states in broad terms that
“there remains an issue of whether a fraudulent con-

23a

veyance occurred in this case.” See id. It is also con-
sistent with this court’s broad statement that, “(t]he
issue of whether a fraudulent conveyance occurred in
this case is a matter that should be determined by the
district court.” See id. As we read this language, Craft
I directed the district court to investigate whether the
facts of this case constituted a fraudulent conveyance
under Michigan law. This is exactly what the district
court did. It found that under Michigan law, the
August 1989 transfer could not be fraudulent, because
Michigan courts have “consistently held that creditors
have no right to complain of a debtor’s disposition of
exempt i. e., entireties] property because such property
could not be reached to satisfy debts had it remained in
the debtor’s hands.” See, e.g., Cross v. Commons, 336
Mich. 665, 59 N.W.2d 41, 43 (1953) (en banc). The court
went on, however, to find that Don’s mortgage pay-
ments were fraudulent under an exception to that rule.
See McCaslin, 292 N.W. at 699. The court’s considera-
tion and application of Michigan fraudulent conveyance
law was in harmony with the scope of the Craft J
court’s remand, and we reject Sandra’s contention
otherwise.

2. Implied Consent

Sandra also argues that the district court erred in
permitting the IRS to argue its fraudulent enhance-
ment theory upon remand because she did not consent
to trial of the issue. The district court found that
Sandra had impliedly consented to trial of the fraudu-
lent enhancement theory by failing to object to the
IRS's claim until after the trial; by consenting to the
Joint Final Pretrial Order, which indicated that the
enhancement claim was a controverted issue for trial;
and by failing to object at trial to the government’s

24a

evidence that Don made payments on behalf of the
entireties property from 1979 to 1985, which “could
have been relevant only to the Government’s con-
tention that Don’s payments into the entireties pro-
| erty from 1979 through 1985 while he was insolvent
were fraudulent.” Sandra asserts that she objected to
the fraudulent enhancement theory at the final pretrial
conference, “an event for which there is unfortunately
no recorded transcript,” Appellee’s Br. at 18, and in her
post-trial brief. Sandra also alleges that the fact that
the Joint Final Pretrial Order lists among the “Con-
troverted and Unresolved Issues for Trial” the issue of
whether Don made fraudulent conveyances into the
tenancy by the entirety at a time when he was insol-
vent actually shows that she objected to the issue prior
to trial. Sandra further argues that she did not object
to the enhancement theory at trial because the judge
had indicated that the trial would be “relaxed,” and that
he had ordered the parties to submit their legal argu-
ments as part of their post-trial briefs rather than
present them at trial. Lastly, Sandra argues that the
evidence that the government put on at trial did not
necessarily go to the enhancement issue; thus, her
failure to object to it did not imply her consent to try
the issue.

“Fed. R. Civ. Pro. [sic] 15(b) states that issues tried
by the express or implied consent of the parties shall be
treated in all respects as if they had been raised in the
pleadings.” Carlyle v. United States, 674 F.2d 554, 556
(6th Cir. 1982); see also Fed. R. Civ. P. 15(b). Although
the parties agree that this court reviews for clear error
the district court’s finding that the IRS was not pre-
cluded from raising the fraudulent enhancement issue,
we think the better view is that we review for abuse of

25a

discretion the district court’s decision regarding
whether an issue not raised in the pleadings has been
tried by the implied consent of the parties. See
Moncrief v. Williston Basin Interstate Pipeline Co., 174
F.3d 1150, 1160 (10th Cir. 1999); 6A Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice and Procedure § 1493, at 41 (2d ed. 1990).

The district court did not abuse its discretion in
finding that Sandra impliedly consented to trial of the
fraudulent enhancement theory. First, because the
theory of fraudulent enhancement constitutes a well-
established exception to Michigan fraudulent convey-
ance law, see supra, Sandra was on notice from the time
of the government’s answer to her complaint that
fraudulent enhancement could be at issue in the case.
Further, as the government points out, although
Sandra agreed that whether the government should
prevail on the enhancement theory was a controverted
issue for trial, she did not move to include the question
of whether the government could argue the theory as a
controverted issue in the Joint Final Pretrial Order.
Finally, although the trial on remand was, in the words
of the court, “more casual than a trial sometimes
looks”—the trial took place with the parties, witnesses,
and the judge sitting around a table in the courtroom—
the court admonished the parties that “it’s still a federal
court, and all the rules apply.“ See Carlyle, 674 F. ad at
556 (finding that where defendant raised defense for
first time at trial, and then offered evidence of the
defense, defense was argued by implied consent of the
plaintiff for purposes of Rule 15(b)). Cf. Yellow Freight
Sys., Inc. v. Martin, 954 F.2d 353, 358 (6th Cir. 1992).

Regardless of whether Sandra objected in a timely
fashion to the government’s theory, her argument fails

26a

because she cannot show that she has been prejudiced
by the district court’s decision to permit the IRS to
argue the enhancement theory. Under Rule 15(b), “a
district court may consider claims outside of those
raised in the pleadings so long as doing so does not
cause prejudice.” Cruz v. Coach Stores, Inc., 202 F.3d
560, 569 (2d Cir. 2000); see also 6A Wright et al., § 1493,
at 36-40 (“Prejudice in this context means a lack of
opportunity to prepare to meet the unpleaded issue.”).
Sandra cannot show that she suffered prejudice simply
because the IRS changed its legal theory. See Cruz,
202 F.3d at 569. “Instead, a party’s failure to plead an
issue it later presented must have disadvantaged its
opponent in presenting its case.” Id. (quotation marks
and citation omitted). Sandra knew of the govern-
ment’s theory prior to trial because the government
had argued it in its pre-trial brief. Further, she argued
the issue in her post-trial brief, which the district court
considered. She was not prohibited from cross-examin-
ing the government’s witnesses on the issue if she so
chose, and she does not argue that she needed to dis-
cover additional evidence to defend against the fraudu-
lent enhancement theory. Thus, the government’s
argument did not prejudice Sandra, and the issue was
tried by her implied consent.

Sandra next argues that the district court erred by
failing to find that the government’s fraudulent en-
hancement claim was not barred by the statute of
limitations contained in I.R.C. § 6502. Sandra asserts
no case law in her favor, and her claim has no merit.

We review de novo a district court’s determination
that a complaint was filed outside the relevant statute
of limitations. See Tolbert v. State of Ohio Dep’t of

27a

Transp., 172 F.3d 934, 938 (6th Cir. 1999). The parties
agree that the IRS assessed Don’s federal tax liabilities
in July 1988. At that time, § 6502 contained a six-year
limitations period within which the IRS could begin
collection proceedings on a tax assessment. See I.R.C.
§ 6502(a)(1) (1989). The statute provided that the
limitations period begins to run on the date of the
assessment of the tax. See id. Thus, under the statute
in effect at the time, the IRS had until July 1994 to
begin collection proceedings against Don. However,
Congress amended the statute in 1990 to increase the
§ 6502 limitations period to ten years. See I. R. C. § 6502
(Historical and Statutory Notes). The amendment
applied the new ten-year period to taxes already as-
sessed for which the six-year limitations period had not
expired. See id. Because Don’s tax debts had already
been assessed and the six-year limitations period had
not run on the IRS’s claim, the ten-year limitations
period applied to Don’s tax debts. Accordingly, the IRS
had until July 1998 to begin collection proceedings
against Don.

The government filed its answer to Sandra’s com-
plaint in July 1993. Because the government’s fraudu-
lent enhancement claim was tried by implied consent,
see supra, its claim must be “treated in all respects as if
[it] had been raised in the pleadings.” See Fed. R. Civ.
P. 15(b). The claim is thus deemed filed on the date that
the IRS filed its answer in July 1993, well within the
ten-year limitations period that began running in July
1988. See id.; Fed. R. Civ. P. 15(c).

C.

Sandra argues that Don's death in August 1998
makes moot the IRS’s remedy in this case. She claims
that the government stipulated at an early point in the

28a

case that its lien attached to proceeds of the sale of the
Berwyck Property to the same extent that the lien
attached to the property itself once this court found
that the tax lien did not attach to the property, see
Craft I, 140 F.3d at 643-44, the lien attached to nothing
and the IRS had nothing to enforce. In the alternative,
Sandra asserts that the Craft J holding requires that
the government’s lien against the property was unen-
forceable until either Don and Sandra died, or until the
couple divorced. See Leroy Lane II, 972 F.2d at 138.
Under Sandra’s theory, the proceeds of the sale of the
entireties property revert to Sandra upon Don’s death,
and the IRS cannot reach them. These theories fail.

We review questions of mootness de novo. See
Comer v. Cisneros, 37 F.3d 775, 787 (2d Cir. 1994). By
operation of law, the IRS’s lien attached to all of Don’s
property and rights to property. See I. R. C. § 6321.
Although this court found that Don had no individual
interest—present or future—in the entireties property,
see Craft I, 140 F.3d at 643-44, the IRS did not gain
recovery upon a theory that Don had an individual
interest in the entireties property. Rather, the district
court found that the IRS could recover the value of
mortgage payments Don made on behalf of the entire-
ties property under a fraudulent enhancement theory.
In other words, Don essentially hid funds to which the
IRS was entitled (by virtue of its lien) by investing
them in a property to which the lien could not attach.
See McCaslin, 292 N.W. at 699; accord Hoerner v.

2 The government disputes the stipulation to which Sandra
refers, arguing that it agreed to release of the proceeds upon
“resolution of the tax lien dispute.” The exact nature of the stipu-
lation is not clear from the record, but that does not impede our
resolution of the issue. See infra.

29a

Elkins (In re Elkins), 94 B.R. 982, 934-35 (Bankr. W.D.
Mich. 1988). Thus, Sandra’s arguments, which presume
that the district court awarded the IRS proceeds of the
sale of the property on the basis that Don had some
kind of individual interest in the Berwyck Property, are
misplaced. Rather, the court awarded the IRS's
remedy on the basis that Don used his own funds to
enhance the property in order to avoid paying his tax
debts.

On October 26, 1995, the district court ordered that
the government receive $50,293.94 of the escrowed
proceeds from the sale of the Berwyck Property. Sub-
sequent to this court’s remand, the district court
determined that the government was entitled to only
$6,693 from the escrowed sales proceeds. Sandra
argues that, pursuant to 28 U.S.C. § 2411, she is en-
titled to interest on the $43,600.94 (i.e., $50,293.94 less
$6,693) that the government has possessed since
October 1995.

Section 2411 provides as follows:

In any judgment of any court rendered (whether
against the United States, a collector or deputy col-
lector of internal revenue, a former collector or
deputy collector, or the personal representative in
case of death) for any overpayment in respect of any
internal-revenue tax, interest shall be allowed at the
overpayment rate established under section 6621 of
the Internal Revenue Code of 1986 upon the amount
of the overpayment, from the date of the payment or
collection thereof to a date preceding the date of the
refund check by not more than thirty days, such

30a

date to be determined by the Commissioner of
Internal Revenue.

28 U.S.C. § 2411. Citing Spawn v. Western Bank-
Westheimer, 989 F.2d 830, 834 (5th Cir. 1993), the
district court denied Sandra’s motion for an award of
interest on the basis that Is 2411] applies only to tax
refund cases.” The court reasoned that the statute’s
use of the terms “overpayment” and “payment” indi-
cates that it was intended to apply only in cases where
the taxpayer has paid a disputed tax liability and then
seeks a refund. Because Sandra brought the instant
case as an action to quiet title rather than as a tax
refund case, and because the government obtained
Sandra’s funds pursuant to a court judgment rather
than by virtue of an overpayment or payment of tax
obligations, the court rejected Sandra’s request for
interest payments. We review de novo the district
court’s interpretation of § 2411. See State of Mich. v.
United States, 141 F.3d 662, 664 (6th Cir. 1998).

Sandra asserts that § 2411 applies to her case
because the funds she will recover constitute an over-
payment, and because she will recover them pursuant
to a court judgment. The IRS responds that a plaintiff
may not collect interest against the federal government
unless it has specifically waived its sovereign immunity,
and § 2411 contains no such waiver for suits to quiet
title. In addition, the IRS argues that the funds Sandra
will receive are not an “overpayment” of taxes. See 28
U.S. C. § 2411.

A plaintiff may not recover interest from the federal
government in the absence of an express waiver of its
sovereign immunity from suit. See Library of Congress
v. Shaw, 478 U.S. 310, 314, 106 S. Ct. 2957, 92 L. Ed. 2d

31a

250 (1986). In determining whether Congress has ex-
pressly waived the government’s immunity, a court
must “construe waivers strictly in favor of the sover-
eign, and not enlarge the waiver beyond what the
language requires.” Id. at 318, 106 S. Ct. 2957 (citations
and quotation marks omitted). As the Shaw Court
noted, Congress has expressly authorized interest
claims against the government in the circumstances
described by § 2411. See id. at 318-19 n.6, 106 S. Ct.
2957. Because § 2411 authorizes payment of interest
based upon “any judgment of any court rendered
for any overpayment in respect of any internal-revenue
tax,” the question in this case becomes whether the
escrowed $43,600.94 held by the IRS constitutes an
“overpayment” with respect to an internal-revenue tax.
See 28 U.S.C. § 2411.

As did the district court, the government relies on
Spawn to suggest that an “overpayment” refers only to
tax refunds. See 989 F.2d 830. The Spawn court stated
that § 2411 “expressly authorizes awards of prejudg-
ment and postjudgment interest against the United
States in tax refund cases.” Id. at 834. But the court
made this statement only in passing—Cpawn was not a
tax case—and lifted it directly from the Supreme
Court’s description of § 2411 in Shaw. See id. (citing
Shaw, 478 U.S. at 318-19 n. 6, 106 S. Ct. 2957). In
Shaw, the Supreme Court simply cited § 2411 as one
of several examples of Congress expressly waiving
the government’s immunity with respect to interest
awards, describing § 2411 in a parenthetical as “ex-
pressly authorizing prejudgment and postjudgment
interest payable by the United States in tax-refund
cases.” Shaw, 478 U.S. at 318-19 n.6, 106 S. Ct. 2957.
This parenthetical description of a statute, contained in

32a

a footnote within dicta, is not dispositive of the meaning
of § 2411.

The language of § 2411 is broad. Cf. Jones v. Liberty
Glass Co., 332 U.S. 524, 531, 68 S. Ct. 229, 92 L.Ed. 142
(1948). Sandra, however, has not met her burden of
proof on the interest claim. The only case she cites in
support of her theory is Steiner v. Nelson, 199 F.Supp.
441 (E. D. Wis. 1961), aff d, 309 F.2d 19 (7th Cir. 1962).
In Steiner, the court held that even where the IRS
obtains funds from a taxpayer based on an illegal tax
assessinent, the taxpayer is not entitled to interest
under § 2411. See 199 F. Supp. at 441-42. Thus, as the
government notes, Steiner actually lends support to its
position. Although we are not bound by the reasoning
or result of the Steiner court, we hold that, on the facts
of this case, Sandra has failed to carry her burden of
proving her case pursuant to § 2411.

In June of this year, Sandra filed a motion with this
court to recover litigation costs pursuant to either the
Equal Access to Justice Act, 28 U.S.C. § 2412, or under
Fed. R. App. P. 38. The panel deferred ruling on the
motion until oral argument. In the motion, Sandra
argues that the government’s appeal simply asserts the
same issue, arguments, and case law rejected by the
Craft I panel. Because the government is bound by the
law of the case doctrine, Sandra claims its appeal is
brought in bad faith. The government responds that
Sandra should be denied costs because it was
substantially justified in bringing its appeal, see I.R.C.
§ 7430, and because its appeal is not frivolous, as re-
quired by Rule 38.

33a

Fed. R. App. P. 38. That rule provides:

If a court of appeals determines that an appeal is
frivolous, it may after a separately filed motion or
notice from the court and reasonable opportunity to
respond, award just damages and single or double
costs to the appellee.

In Martin v. CIR, this court warned litigants of our
“ample authority” to assess double costs and “just dam-
ages” against an appellant in a frivolous appeal: “In
future such cases this court will not hesitate to award
damages when the appeal is frivolous, or taken merely
for purposes of delay, involving an issue or issues
already clearly resolved.” 756 F.2d 38, 41 (6th Cir.
1985) (quotation marks omitted); accord Sisemore v.
United States, 797 F.2d 268, 271 (6th Cir. 1986); Wilton
Corp. v. Ashland Castings Corp., 188 F.3d 670, 676 (6th
Cir. 1999). Recently, this court concluded that even
though an appeal is not made in “bad faith,” an appellee
may garner costs if an appeal is “wholly without merit.”
Wilton Corp., 188 F.3d at 677. Although the IRS’s
appeal is precluded by both the law of the case and law
of the circuit doctrines, we have acknowledged that the
government raised colorable—if not persuasive—
arguments in its appeal, see supra. Accordingly, we
deny Sandra’s motion for costs pursuant to Rule 38.

We also deny Sandra’s motion for costs pursuant to
§ 2412. Sandra has failed to articulate why she merits
costs pursuant to that statute. Rather, she simply
reasserts her argument that the government’s appeal is
precluded at this time. Further, certain monetary
awards in tax cases may be awarded only pursuant to
LR. C. § 7430. See 28 U.S.C. § 2412(e); see also Sise-
more, 797 F 2d at 271. The provisions of § 7430 are “not

34a

automatic,” and “are limited by a whole host of con-
ditions and requirements.” Beaty v. United States, 937
F.2d 288, 292 (6th Cir. 1991). Sandra has articulated
none of these conditions or requirements, and, indeed,
has failed even to discuss whether § 7430 applies to her
case. Accordingly, we reject her motion for costs.”

IV. CONCLUSION

For the reasons discussed above, we DISMISS the
government’s appeal as precluded by both the law of
the case and law of the circuit doctrines. We further
AFFIRM the district court’s judgment, and DENY
Sandra’s motion for litigation costs brought pursuant to
Rule 38 and 28 U.S.C. § 2412.

2 The motion also sought dismissal of the government’s appeal.

We DENY Sandra’s motion in its entirety.

CONCURRENCE

RONALD LEE GILMAN, Circuit Judge, concurring in
the judgment. Because I agree that we are bound by
Craft I for the reasons that are well stated in the
court’s opinion, I concur in the judgment. I also fully
concur in the court’s disposition of Sandra Craft’s cross-
appeal. Nevertheless, I believe that the result reached
in Craft I, and that this court endorses today, is incon-
sistent with Supreme Court precedent and should be
reversed. I therefore write separately to identify the
bases for my disagreement with Craft I and to re-
commend that this case be revisited en banc.

As Judge Ryan pointed out in his dissent in Craft J,
the legal landscape has changed considerably since
1971, when this court held in Cole v. Cardoza, 441 F.2d
1337, 1343 (6th Cir. 1971), that a federal tax lien against
an individual taxpayer cannot attach to property held
by that taxpayer as a tenant by the entirety. In the
interim, the Supreme Court has made clear that the
IRS’s power under 26 U.S.C. § 6321 to attach the
individual property rights of a delinquent taxpayer is
extensive, if not plenary. See United States v. National
Bank of Commerce, 472 U.S. 713, 719-20, 105 S. Ct.
2919, 86 L.Ed.2d 565 (1985) (holding that § 6321 “is
broad and reveals on its face that Congress meant to
reach every interest in property that a taxpayer might
have”); Jewett v. Commissioner of Internal Revenue,
455 U. S. 305, 309, 102 S. Ct. 1082, 71 L.Ed.2d 170 (1982)
(concluding that Congress intended federal tax liens to

attach to “every species of right or interest protected
by law and having an exchangeable value” (citation and

36a

internal quotation marks omitted)). Although state
property law determines what rights to property a
person enjoys, federal law dictates whether a tax lien
may attach to those rights. See National Bank of
Commerce, 472 U.S. at 722, 727, 105 S. Ct. 2919.

In the years since Cole, the Supreme Court has held
that state law “legal fictions” will be ignored insofar as
the federal tax laws are concerned. See United States v.
Irvine, 511 U.S. 224, 240, 114 S. Ct. 1473, 128 L.Ed.2d
168 (1994). The Irvine Court considered whether the
federal gift tax applied to a transfer that occurred when
a mother disclaimed her interest in a trust, thereby
allowing that interest to pass to her children. Upon the
termination of a trust established by her grandfather,
Sally Irvine became entitled to a share of the trust
principal. She disclaimed part of her share, effectively
transferring that part to her children. Under Minne-
sota law, “an effective disclaimer of a testamentary gift
is generally treated as relating back to the moment of
the original transfer of the interest being disclaimed,
having the effect of canceling the transfer to the
disclaimant ab initio and substituting a single transfer
from the original donor to the beneficiary of the
disclaimer.” Id. at 239, 114 S. Ct. 1473. Thus, the share
that Irvine’s children received was considered by
Minnesota law as if it had never been possessed by
Irvine, but rather as if it had been transferred directly
from the trust to Irvine’s children.

Nevertheless, the Supreme Court held that Irvine’s
disclaimer in favor of her children was taxable, declar-
ing that “the federal gift tax is not struck blind by a
disclaimer.” Id. at 240, 114 S. Ct. 1473. In other words,
for federal tax purposes, the key inquiry is what rights
an individual actually possesses under state law, not

37a

how the state characterizes those rights. See id., see
also Drye v. United States, 528 U.S. 49, 120 S. Ct. 474,
482 n.5, 145 L.Ed.2d 466 (1999) (IIlt is not material
that the economic benefit to which the [taxpayer’s local
law property] right pertains is not characterized as
‘property’ by local law.” (quoting W. Plumb, Federal
Tax Liens 27 (3d ed. 1972) (alterations in original))).

The appropriate inquiry, then, as stated by Judge
rot in ate * is ae state-defined rights, if any,
n ve in the Berwyck property?” Craft I,
140 F.3d 638, 645 (Ryan, J., concurring). Pana, Des
Craft had the right to enter and enjoy the property to
the exclusion of all others, except for Sandra Craft. See
Mich. Comp. Laws § 557.71. If the Crafts had decided
to rent or sell the property, Don Craft would have
received half of the proceeds. See id. He further
possessed a contingent future interest, because he
would have taken the entire estate in fee simple if
Sandra had predeceased him. See Rogers v. Rogers,
136 Mich. App. 125, 356 N.W.2d 288, 298 (1984) (IElach
spouse is considered to own the whole and, therefore, is
entitled to the enjoyment of the entirety and to sur-
vivorship.”). Finally, if the Crafts had divorced, they
would have become tenants in common, and Don Craft
would have had the right to bring an action for partition
and sale. See Mich. Comp. Laws § 552.102.

The fact that Don Craft could not have independently
sold his share in the tenancy by the entirety does not
alter the fact that his rights to the property had value.
“Under the great weight of federal authority, .. .
such restraints on alienation are not effective to
prevent a federal tax lien from attaching under 26
U.S.C. § 6321.“ Bank One Ohio Trust Co. v. United
States, 80 F.3d 173, 176 (6th Cir. 1996).

38a

The majority in Craft I was aware of these rights,
and acknowledged that “a federal tax lien can attach to
a future or contingent interest in property.“ Craft I,
140 F.3d at 644. Craft I rejected the IRS’s claim, how-
ever, on the ground that “state law determines the
nature of the legal interest which a taxpayer has in a
property,” and “(ijn Michigan, it is well established that
one spouse does not possess a separate interest in an
entireties property.” Craft I, 140 F.3d at 643-44.

I believe that the Craft I majority committed a subtle
but critical error in accepting at face value Michigan’s
description of the property interests held by a tenant
by the entirety, rather than looking past that descrip-
tion to the actual substance of those interests under
Michigan law. In Irvine, the Supreme Court acknowl-
edged that, under Minnesota law, a disclaimant is con-
sidered as if she never held any interest in the property
whatsoever. Irvine, 511 U.S. at 239. Nevertheless, the
Court looked past Minnesota’s characterization of
Irvine’s property interest and held that the gift tax
could attach because, in actuality, Irvine exercised con-
trol over the disposition of the property—a right that
had unquestionable value. Id. at 240.

In contravention of Irvine, the majority in Craft I
failed to look past Michigan’s characterization of an
individual’s interest in entireties property and ignored
the substantial rights actually held by Don Craft, which
similarly had undeniable value. In other words, I
believe that the majority in Craft I was “struck blind”
by Michigan’s “legal fictions.”

To my mind, then, Craft I reached the wrong result,
and the IRS ought to have had the right to attach Don
Craft’s valuable interest in the tenancy by the entirety.
Nevertheless, two related doctrines require that I

39a

concur with the result reached by the court. The first is
the law-of-the-case doctrine, which provides that “{a]n
earlier appellate court’s decision [in the same case] as to
a particular issue may not be revisited unless ‘sub-
stantially new evidence has been introduced, . . .
there has been an intervening change of law, or
the first decision was clearly erroneous and enforce-
ment of its command would work substantial injustice.’

“United States v. Corrado, 227 F.3d 528, 533 (6th Cir.

2000) (citation omitted). Second, the law-of-the-circuit
doctrine provides that, absent an intervening change in
the law, “a panel of this court may not overrule a pre-
vious panel’s decision.” Meeks v. Illinois Cent. Gulf
R. R., 738 F.2d 748, 751 (6th Cir. 1984).

Craft I is both the law of this case and the law of the
circuit. Without delving into the precise differences
between the two, suffice it to say that the law-of-the-
circuit is the stronger of the two doctrines, and there-
fore provides the relevant test for whether Craft I can
be revisited by this panel. See LaShawn v. Barry, 87
F.3d 1389, 1395 (D.C. Cir. 1996) (“While the law-of-the-
case doctrine offers several exceptions . . . the law-of-
the-circuit doctrine is much more exacting.”). Under
the law-of-the-circuit doctrine, a subsequent panel can
only revisit an earlier panel’s decision if there has been
“a change in the substantive law or an intervening
Supreme Court decision.” Smith v. U.S. Postal Service,
766 F.2d 205, 207 (6th Cir. 1985). There has been no
substantive change since Craft I to the relevant pro-
— of either Michigan property law or federal tax

W.

The IRS argues, however, that the case of Drye v.
United States, 528 U.S. 49, 120 S. Ct. 474, 145 L. Ed. 2d
466 (1999), decided after Craft J, is a contrary, inter-

40a

vening Supreme Court decision. In that case, a delin-
quent taxpayer who was subject to a federal tax lien
disclaimed any interest in his mother’s estate after
her death, causing the estate to pass to his daughter.
Under the relevant state law, “such a disclaimer
creates the legal fiction that the disclaimant pre-
deceased the decedent,” with the consequence that
“(the disavowing heir’s creditors . . . may not reach
property thus disclaimed.” Jd. at 476. Nevertheless,
the Supreme Court relied on Irvine and disregarded
the legal fiction, holding that the taxpayer’s interest in
his mother’s estate was a “right to property” subject to
the federal tax lien.

Sandra Craft responds that Drye does not represent
a change in the law, but is simply a reaffirmation and
application of prior cases in this area. I agree. To the
extent that Drye is inconsistent with Craft J—and I
believe that it is—that inconsistency was considered,
and rejected, by this court in Craft J in its discussion of
Irvine and National Bank of Commerce. Although the
IRS is technically correct that Drye is a “subsequent,
contrary view of the law by a controlling authority,”
this formulation is incomplete. The purpose of the
intervening-controlling-authority exception is to allow a
subsequent panel of this court to respond to a new
precedent, unavailable to the prior panel, not just a new
decision. Otherwise, a loophole would exist under
which a subsequent panel could freely revisit a decided
issue simply by referencing a later Supreme Court
decision that does nothing more than restate the exist-
ing precedent. “Were matters otherwise, the finality of
our appellate decisic.is would yield to constant conflicts
within the circuit.” LaShawn, 87 F.3d at 1395 (examin-
ing the law- of-the-circuit doctrine).

4la

I disagree, however, with the court’s conclusion in
Part II.A.2. that Craft I is essentially consistent with
the Drye Court’s reasoning.” Op. at 366. The court also
asserts that “under Michigan law, Don had no individ-
ual interest in the entireties property.” Op. at 367. I do
not believe that this statement squares with either
reality or with Michigan law. As discussed above, Don
Craft in fact possessed at the very least a contingent
future interest under Michigan law and would have
taken the entire estate in fee simple had he survived
Sandra. See Rogers v. Rogers, 186 Mich. App. 125, 356
N.W.2d 288, 293 (1984).

Furthermore, the court goes too far when it suggests
that the IRS is arguing that “Drye stands for the
proposition that a federal tax lien attaches to any right
to inherit property, no matter how remote.” Op. at
368-69. A key distinction between a tenancy by the en-
tirety and a contingent expectancy is the latter’s
revocability. Although a hoped-for inheritance could be
subject to the whims of an ailing, fickle relative, the
rights associated with an entireties property are clearly
irrevocable. Such was the case with the Berwyck
property.

In sum, I believe that we are bound by the holding of
Craft I, and I therefore concur in the result reached by
the court. But I also believe that Craft I contravenes
recent Supreme Court decisions and would therefore
recommend that this case be revisited en banc.

42a

APPENDIX B

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Nos. 99-1734; 99-1737

SANDRA L. CRAFT,
PLAINTIFF -APPELLEE/CROSS-APPELLANT

U.

UNITED STATES OF AMERICA,
ACTING THROUGH THE COMMISSIONER
OF INTERNAL REVENUE,
DEFENDANT -APPELLANT/CROSS-APPELLEE

Before: KEITH, COLE, and GILMAN, Circuit Judges.
JUDGMENT

On Appeal from the United States District Court for
the Western District of Michigan at Grand Rapids.

THIS CAUSE was heard on the record from the
district court and was argued by counsel.

IN CONSIDERATION WHEREOF, it is ORDERED
that the government’s appeal is DISMISSED as pre-
cluded by both the law of the case and law of the circuit
doctrines. IT IS FURTHER ORDERED that the judg-
ment of the district court regarding plaintiff Sandra
Craft’s claims is AFFIRMED.

ENTERED BY ORDER OF THE COURT
LEONARD GREEN _

LEONARD GREEN, CLERK

43a

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Nos. 99-1734/1737

SANDRA L. CRAFT,
PLAINTIFF -APPELLEE/CROSS-APPELLANT

V.

UNITED STATES OF AMERICA,
DEFENDANT-APPELLANT/CROSS-APPELLEE

Before: KEITH, COLE, and GILMAN, Circuit Judges.

The court having received a petition for rehearing en
banc, and the petition having been circulated not only
to the original panel members but also to all other
active judges of this court, and less than a majority of
the judges having favored the suggestion, the petition
for rehearing has been referred to the original panel.

The panel has further reviewed the petition for
rehearing and concludes that the issues raised in the
petition were fully considered upon the original
submission and decision of the cases. Accordingly, the

petition is denied.
ENTERED BY ORDER OF THE COURT

LEONARD GREEN, CLERK

44a

APPENDIX C

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Nos. 96-1038, 96-1039

SANDRA L. CRAFT,
PLAINTIFF -APPELLANT/CROSS-APPELLEE

V.

UNITED STATES OF AMERICA,
ACTING THROUGH THE COMMISSIONER
OF INTERNAL REVENUE,
DEFENDANT -APPELLEE/CROSS-APPELLANT

Argued September 16, 1997
Decided and Filed: April 1, 1998

Before: RYAN, SUHRHEINRICH, and COLE, Circuit
Judges.

COLE, J., delivered the opinion of the court, in which
SUHRHEINRICH, J., joined. RYAN, J. (pp. 645-649),
delivered a separate concurring opinion.

COLE, Circuit Judge

R. GUY COLE, Jr., Circuit Judge. Sandra Craft ap-
peals the district court’s order granting summary

45a

judgment in favor of the United States, in which the
district court found that a federal tax lien filed against
rr
unpai ilities at to pro held b
Sandra and her husband, first as tenants by the en.
tirety and then jointly conveyed to Sandra. The United
States, in turn, cross-appeals the district court’s deter-
minations of when the lien attached and the value of
Sandra's husband's interest in the property. For the
following reasons, we REVERSE the distriet eourt's
grant of summary judgment in favor of the United
States and REMAND for further proceedings in accor-
dance with this opinion.

L

Sandra Craft and her husband, Don, purchased real
property located at 2656 Berwyck Road in Grand
Rapids, Michigan (hereinafter the “Berwyck Property”)
as tenants by the entirety on May 26, 1972 for $48,000,
encumbered by a $37,000 mortgage. Don failed to file
income tax returns for the taxable years 1979 through
1986. The Internal Revenue Service accordingly pre-
pared substitute income tax returns for these years as
permitted by the provisions of 26 U.S.C. § 6020(b) and
assessed $482,446.73 in unpaid tax liabilities against
him. The IRS advised Don of these liabilities in 1988;
Don nonetheless failed to pay these assessments. The
— nition of Sees tax Ban on Have 90,

against s property or rights in property
with the Register of Deeds in Kent County, Michigan.
tan and Sendra thereatter executed — deed
on Berwyck Property, transferring the property to
Sandra in exchange for one dollar on August 28, 1989.
On January 30, 1992, Don filed a petition for relief

46a

under Chapter 7 of the Bankruptcy Code. The bank-
ruptey court entered a discharge order on June 1, 1992
and closed the case on June 11, 1992.

Sometime later, Sandra entered into a contract to sell
the property, but a title search revealed the IRS's lien
and prevented the sale. Upon Sandra’s request, the
IRS refused to release the lien. Don then filed a motion
to reopen the bankruptcy case on August 14, 1992, and
also filed an adversary complaint against the IRS that
sought to determine the dischargeability of the federal
tax lien. Although the bankruptcy court reopened the
case, it determined on January 27, 1993 that it did
not have jurisdiction to determine the validity of the
government’s lien on the Berwyck Property because
the property never had become a part of Don’s bank-
ruptcy estate. The bankruptcy court thus closed the
case for a second time.

The IRS subsequently agreed to release its lien on
the property to enable Sandra to sell it. The IRS con-
ditioned its release on the establishment of a non-
interest-bearing escrow account containing fifty per-
cent of the proceeds of the sale and subject to the same
right, title, and interest that the federal tax lien had on
the property. Sandra finally sold the property in June
1992 and received half the proceeds, amounting to
$59,944.10.

On April 23, 1993, Sandra filed a complaint pursuant
to 28 U.S.C. § 2410(a) in the United States District
Court for the Western District of Michigan against the
United States, seeking to quiet title to the proceeds in
the escrow account. The government asserted in
response that the federal tax lien attached to Don’s
interest in the property, even though Don and Sandra
had held the property as tenants by the entirety, and

47a

that it was entitled to half the proceeds from the sale of
the property. The government further asserted that
Don’s conveyance to his wife was fraudulent.

Sandra filed a motion for summary judgment on
September 10, 1993, arguing that the completion of the
bankruptcy proceedings estopped the government’s
ability to bring an action for fraudulent conveyance. On
September 13, 1993, the government also filed a motion
for summary judgment, contending that the federal tax
lien had attached to Don’s interest in the property.

21, 1994, the district court issued an opinion and order
on September 12, 1994, denying Sandra’s motion for
summary judgment and granting the government’s
motion. The district court found that the federal tax
lien attached to the property at the time Don and
Sandra conveyed the property to Sandra, stating, in
essence, that this conveyance effectively: (1) termi
nated the tenancy by the entirety; (2) after which, each
spouse owned an equal one-half interest; and (3) was
followed by the conveyance of the property to Sandra.
The federal tax lien thus attached at the moment in
time that Don possessed a separate one-half interest in
the property.

On September 22, 1994, Sandra filed four motions:
the first sought either to amend the judgment to
include the conclusions of law supporting denial of her
motion for judgment against the government’s action
for fraudulent conveyance, or, in the alternative, a new
trial; the second sought to amend the judgment to
include a determination of the value of Don’s interest in
the property on the date when Don and Sandra termi-
nated the tenancy by the entirety; the third sought to
refer the case to the bankruptcy court for it to make

48a

this determination; and, the fourth sought to stay exe-
cution of the judgment pending resolution of the other
motions.

The district court entered another opinion and order
on November 17, 1994, denying Sandra’s first motion
and stating that, having resolved the matter on other
grounds, it did not need to decide whether a fraudulent
conveyance had occurred. However, the court granted
Sandra’s second motion, concluding that further pro-
ceedings were necessary to determine the value of
Don’s interest at the time of the termination of his joint
tenancy. Still, the court found that it, and not the
bankruptcy court, was the proper forum to make this
determination and thus denied Sandra’s third motion.
Finally, the court granted Sandra’s fourth motion and
stayed execution of the judgment.

Following a telephonic hearing on September 11,
1995, the district court issued an opinion on October 26,
1995, finding that the government held a valid lien on
the interest Don held in the property on August 28,
1989—the date of the termination of the entireties
estate and the subsequent conveyance to Sandra. The
parties stipulated that the property had a fair market
value of $120,000 and an outstanding mortgage balance
of $19,412.12 on August 28, 1989. The district court
thus determined that Don’s interest in the property at
the time of the conveyance was $50,293.94 and entered
a final judgment awarding the government this amount.

Sandra timely filed her appeal on December 22, 1995.
The government timely filed its notice of cross-appeal
on December 26, 1995.

49a

II.

We review de novo a district court’s grant of
summary judgment. Harrow Prods., Inc. v. Liberty
Mutual Ins. Co., 64 F.3d 1015 (6th Cir.1995); Copeland
v. Machulis, 57 F.3d 476, 479 (6th Cir. 1996).
judgment is appropriate if the record shows “that the
moving party is entitled to a judgment as a matter of
law.” Fed.R.Civ.P. 56(c). We assess the record in the
light most favorable to the non-movant, drawing all
reasonable inferences in its favor. See Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
587-88, 106 S. Ct. 1848, 1856-57, 89 L.Ed.2d 588 (1986).

III.
A.

The Internal Revenue Code provides for the creation

of a federal tax lien on a taxpayer’s property, stating
that: lil any person liable to pay any tax neglects or
refuses to pay the same after demand, the amount
shall be a lien in favor of the United States upon all
property and rights to property, whether real or
personal, belonging to such person.” 26 U.S.C. § 6821.
Under the succeeding section, the Code further pro-
vides that the lien generally arises when the assess-
ment is made, and it continues until the taxpayer’s
liability “is satisfied or becomes unenforceable by
reason of lapse of time.” 26 U.S.C. § 6322.

Federal tax law “creates no property rights but
merely attaches consequences, federally defined, to
rights created under state law.” United States v. Bess,
357 U.S. 51, 55, 78 S. Ct. 1054, 1057, 2 L.Ed.2d 1135
(1958). Thus, in order to determine whether property is
subject to a federal tax lien, “‘state law controls in

50a

determining the nature of the legal interest which the
taxpayer had in the property.’ “Aquilino v. United
States, 363 U.S. 509, 513, 80 S. Ct. 1277, 1280, 4 L.Ed.2d
1365 (1960) (quoting Morgan v. Commissioner, 309 U.S.
78, 82, 60 S. Ct. 424, 426, 84 L.Ed. 585 (1940). JOlnce
it has been determined that state law creates sufficient
interest in the [taxpayer] to satisfy the requirements of
[the statute], state law is inoperative,’ and the tax con-
sequences thenceforth are dictated by federal law.”
United States v. National Bank of Commerce, 472 U.S.
713, 722, 105 S. Ct. 2919, 2925, 86 L.Ed.2d 565 (1985)
(quoting Bess, 357 U.S. at 56-57, 78 S. Ct. at 1057- 58).
Under federal tax law, the government’s tax liens
attach to every interest in property a taxpayer might
have, regardless of whether that interest is less than
full ownership or is only one among several claims
of ownership. United States v. Safeco Ins. Co. of
America, Inc., 870 F.2d 338, 341 (6th Cir.1989) (citing
National Bank of Commerce, 472 U.S. at 725, 730, 105
S. Ct. at 2926-27, 2929).

B.

In the present case, Sandra and her husband held the
Berwyck Property as tenants by the entirety. Under
Michigan law, a tenancy by the entirety can be held
only by a husband and wife, who possess an interest
in the property under single title with a right of sur-
vivorship. See Sanford v. Bertrau, 204 Mich. 244, 169
N. W. 880 (1918); Matter of Grosslight, 757 F.2d 778, 775
(6th Cir.1985). In Michigan, a tenancy by the entirety
can be created only by a written instrument of con-
veyance, which produces unity of persons, time, title,
interest, and possession. See Rogers v. Rogers, 136
Mich. App.125, 356 N.W.2d 288, 292-93 (1984). Neither

5la

husband nor wife acting alone can alienate any interest
in the property, nor can creditors of one spouse levy
upon the property. See Grosslight, 757 F.2d at 773.
Further, creditors of one spouse cannot reach that
spouse’s share of proceeds from a foreclosure sale of an
entireties property. See Muskegon Lumber & Fuel Co.
v. Johnson, 338 Mich. 655, 62 N.W.2d 619, 623 (1954). If
a marriage terminates in divorce, however, Michigan
law converts an entireties estate into a tenancy in com-
mon by operation of statute. See M.C.L.A. § 552.102;
United States v. Certain Real Property Located at 2525
Leroy Lane, 910 F.2d 343, 351 (6th Cir.1990) ( “Leroy
Lane I”). Husband and wife can also terminate an
entireties estate by joint conveyance of the property b

husband and wife. See Leroy Lane I, 910 Fade at 351. d

Although the government may levy entireties pro-
perty for nonpayment of real estate taxes on the real
property itself under Michigan law, see, e.g., Robbins v.
Barron, 32 Mich. 36 (1875), we have held that the
federal government may not, under Michigan law,
attach a lien to the entireties property to satisfy the
personal tax liability of a single spouse. See Cole v.
Cardoza, 441 F.2d 1337, 1343 (6th Cir. 1971). In Cole,
the IRS filed a lien against property held by a husband
and wife as tenants by the entirety for unpaid tax
a against the husband. See id. at 1338. We

the federal tax lien does not attach to the subject
property owned by [a husband] and [wife] by the
entirety, because the Government’s tax lien is
against [the husband] only. If the lien constitutes a
cloud on the title to the property, [husband and
wife] are therefore entitled to have the lien declared
a nullity as to the property.

52a

Id. at 1343. In Cole, we concluded that “the lien is with-
out legal effect as it pertains to [the husband’s and
wife's] house.” Id. at 1344.

After Cole, we had occasion to consider again the
entireties estate under Michigan law in Leroy Lane I.
See 910 F.2d at 343. In that case, the United States
seized entireties property under a criminal forfeiture
statute; however, the district court awarded all the
proceeds from the forced sale of the property to the
innocent spouse. See id. at 344. On appeal, we found
that the government’s position with respect to the
forfeiture was most analogous to the position of a judg-
ment creditor of one spouse. See id. at 351. In
discussing the entireties estate, we reiterated that
“entireties property may not be attached to satisfy the
personal tax liability of a single spouse,” id. at 350
(citing Cole, 441 F.2d at 1343), and noted that the
innocent spouse had “not only an indivisible interest in
the entireties property, but also a survivorship interest
which would entitle her to sole ownership of the pro-
perty upon her husband’s death.” Id. at 347.

Upon remand, the district court, having discovered
that the couple divorced, again awarded all the pro-
ceeds to the innocent spouse based on the division of
property as set out in the divorce decree. See United
States v. Certain Real Property Located at 2525 Leroy
Lane, 972 F.2d 136, 137 (6th Cir.1992) (“Leroy Lane
II”). In Leroy Lane II, we again reiterated that, under
Michigan law, a judgment creditor cannot levy against
the entireties estate to satisfy one spouse’s debt and
further noted that the government’s interest does not
come into being until the entireties estate is destroyed.
See 972 F.2d at 138. We thus held that the government
was entitled only to whatever interest the debtor-

53a

spouse held after the entireties estate was destroyed; in
Leroy Lane II, that was a zero amount because the
debtor- spouse received no interest in the property pur-
suant to the divorce decree.’ See id.

C.

Turning to the present case, Sandra argues on appeal
that Cole remains controlling authority and that be-
cause Michigan substantive real property law has not
changed, the IRS’s tax lien could not attach to Don’s
interest in the Berwyck Property. It was error, Sandra
continues, for the district court to find that the lien
attached because it was a nullity as to the entireties
property. Thus, Sandra disputes the district court’s
finding that upon the joint conveyance of the Berwyck
Property to Sandra, the tenancy by the entirety was
terminated and Don—for a moment in time—owned a
one-half interest in the property to which the lien could
attach.

The United States, on the other hand, goes a step
further than the district court, contending that the lien
attached to the Berwyck Property at the time the lien
arose. In so arguing, the United States relies on two
Supreme Court decisions in which the federal govern-
ment’s interests have trumped state law. See United
States v. Irvine, 511 U.S. 224, 114 S. Ct. 1473, 128
L.Ed.2d 168 (1994); United States v. Rodgers, 461 U.S.
677, 103 S. Ct. 2132, 76 L.Ed.2d 236 (1983).

We nonetheless voiced concern about the United States’ lack
of opportunity to assert its entireties interest prior to the Michigan

Cireuit Court’s grant of the divorce and remanded the case for

such evidence as was necessary to insure total disclosure to the
Michigan Circuit Court. See Leroy Lane II, 972 F. 2d at 188.

54a

The United States cites Irvine for the proposition
that federal laws cannot be avoided or “struck blind” by
state-law legal fictions. 511 U.S. at 240, 114 S. Ct. at
1482. Irvine addressed the issue of whether a tax-
payer’s disclaimer of her remainder interest in a
trust—which caused her interest to be distributed to
her children—resulted in a taxable gift. See id. The
taxpayer argued that under Minnesota law, an effective
disclaimer was valid ab initio, as if the disclaiming party
never owned the property; thus, there was no taxable
transfer. See id. at 227-28, 114 S. Ct. at 1475-76. The
Supreme Court disagreed. In citing Irvine, the govern-
ment thus contends that Michigan’s recognition of the
entireties estate—like Minnesota’s disclaimer—is in-
valid because it is a legal fiction that facilitates the
circumvention of federal tax laws.

In Rodgers, a case also cited by the government, the
Court held that homestead rights under Texas law did
not protect property—or a nondelinquent spouse—from
in rem proceedings under 26 U.S.C. § 7403. See 461
U.S. at 692-700, 103 S. Ct. at 2142-46. The Court based
its ruling on a broad interpretation of the tax laws,
which permitted the government to “subject any pro-
perty, of whatever nature, of the delinquent, or in
which he has any right, title, or interest, to the payment
of such tax or liability.” Id. at 692, 103 S. Ct. at 2142.
The Court did, however, formulate a mechanism where-
by the nondelinquent spouse would be compensated.
See id. at 710-11, 103 S. Ct. at 2151-52. Moreover, the
Court recognized that tenancies by the entirety posed a
problem distinct from that of homestead estates, in that
neither spouse owns an independent interest in an
entireties property while both spouses own independ-

55a

ent interests in a homestead estate. See id. at 702 n. 31,
103 S. Ct. at 2147 n. 31.

We are not persuaded that the Supreme Court de-
cisions cited by the United States have any effect
whatsoever on the government’s ability to attach a lien
to an entireties estate, because these cases do not alter
the basic tenet that state law governs the issue of
whether any property interests exist in the first place.
See id. at 683, 103 S. Ct. at 2137. Irvine and Rodgers
stand for the proposition that once a property interest
exists under state law, state law cannot interfere with
attachment of a lien to that property interest—a matter
that is governed by federal law. See id. Irvine and
Rodgers do not support the proposition that federal law
can be used to trump a state’s definition of a property
interest.

In Michigan, it is well established that one spouse
does not possess a separate interest in an entireties
property. See, e.g., Rogers, 356 N. W. ad at 292-93. This
principle of Michigan law has not been overruled by
Michigan courts, nor trumped by federal law, despite
the United States’ arguments to the contrary. Because
Michigan law does not recognize one spouse’s separate
interest in an entireties estate, a federal tax lien against
one spouse cannot attach to property held by that
spouse as an entireties estate.

D.

In the alternative, the government argues—and the
district court held—that upon the conveyance of the
Berwyck Property to Sandra, the entireties estate
terminated and Don, for a transitory moment, had an
undivided one-half interest in the property, to which
the lien could attach.

56a

Although the entireties estate was terminated upon
conveyance of the Berwyck Property to Sandra, Don’s
interest in the property terminated at the same time.
We are unaware of any precedent indicating that an
entireties estate is automatically transformed into a
tenancy in common as an intermediary step in the
conveyance of the property. To the contrary, it is clear
that at the time the entireties estate terminated,
Sandra was vested “with full and complete title.”
Hearns, 53 N.W.2d at 320. Thus, Don never held an

interest in the Berwyck Property to which the United

States’ lien could attach.
E.

Despite our conclusion that the IRS lien could not
attach to the entireties property per se, an issue re-
mains regarding whether the lien attached to any
inchoate interest that Don possessed in the entireties
property. It is axiomatic that a federal tax lien can
attach to “rights to property” as well as to the property
itself. See, e.g., National Bank of Commerce, 472 US.
at 730, 105 S. Ct. at 2929. It follows that a federal tax
lien can attach to a future or contingent interest in
property. See, e.g., Safeco Ins. Co., 870 F.2d at 341.
Although federal law controls whether an interest
constitutes such a “right to property,” see National
Bank of Commerce, 472 U.S. at 727, 105 S. Ct. at 2933
(citation omitted), state law determines the nature of
the legal interest which a taxpayer has in a property.
See Aquilino, 368 U.S. at 513, 80 S. Ct. at 1280. Under
federal law, then, any separate future interest that Don
had in the Berwyck Property would be subject to
attachment; however, the nature of that interest must
be determined by Michigan law.

57a

Michigan law does not recognize a severable future
interest held by one spouse in an entireties property.
See Sanford v. Bertrau, 204 Mich. 244, 169 N.W. 880,
881 (1918) (“We think the better doctrine is that the
right of survivorship is merely an incident of an estate
by entirety, and does not constitute a remainder, either
vested or contingent.”); see also Budwit v. Herr, 339
Mich. 265, 68 N.W.2d 841, 844 (1954) (citing Sanford,
169 N. W. at 881). But see Leroy Lane I, 910 F. 2d at 352
(Wae have found no cases which would preclude the
attachment of a creditor’s lien on one spouse’s interest
which could be satisfied to the extent of that spouse’s
—— — —ů

statements in Leroy Lane I t
be construed to indicate the pervs yr pgp om
interest subject to attachment in an entireties estate,
see Fischre v. United States, 852 F. Supp. 628, 630
(W.D. Mich. 1994), we are bound to define Don’s future
interests in the Berwyck Property under Michigan law.
See gree 863 U.S. at 513, 80 S. Ct. at 1280.
Michigan law, as set out by the Michigan Supreme
— 1 —— Sout
ingly, under Michigan law, Don did not possess a
separate future interest in the Berwyck Property;
therefore, the federal tax lien could not attach to a
future interest that did not exist under Michigan law.

IV.

Despite the fact that the tax lien did not attach to the
Berwyck Property, there remains an issue of whether a
fraudulent conveyance occurred in this case, an issue
that the district court did not address. Under Michigan
law, one spouse cannot use the doctrine of tenancy by
the entirety to defeat the rights of a judgment creditor.

,

58a

See McCaslin v. Schouten, 294 Mich. 180, 292 N. W. 696,
698 (1940); Morris v. Wolfe, 48 Mich. App. 40, 210
N. W. 2d 16, 17 (1973). Such a fraudulent transfer can be
set aside. See Mich. Comp. Laws § 566.1901).

The issue of whether a fraudulent conveyance oc-
curred in this case is a matter that should be deter-
mined by the district court. If the conveyance was
fraudulent and therefore set aside, the IRS could be
entitled to half the proceeds of the June 1992 sale, or
$59,944.10. Accordingly, upon remand, the district
court should consider whether the Berwyck Property
was transferred for fraudulent purposes.

V.

For the foregoing reasons, we REVERSE the distriet
court’s grant of summary judgment in favor of the
United States, in which the distriet eourt determined
that the United States’ tax lien attached to entireties
property at the time that Sandra and Don Craft con-
veyed the property to Sandra, and REMAND to the
district court for further proceedings in accordance
with this opinion.

RYAN, Circuit Judge, concurring.

In my judgment, there can be no doubt that Don
Craft had valuable property interests in the 2656
Berwyck Road home and that he ceded those interests
for little or no consideration, most likely intending to
defeat the IRS lien at issue here. Binding authority,
sound reasoning, and equitable principles require that
the IRS be awarded some portion of the proceeds of the
sale of the 2656 Berwyck home if Don Craft paid for
entirety property instead of paying his taxes, and then
transferred his interest in the property to his wife to
avoid the consequences of his tax delinquency. I agree
with the majority that summary judgment should not
have been granted and that this case should be
remanded for further proceedings; however, the
remand should be for the sole purpose of determining
whether Don Craft’s conduct was fraudulent.

L

The majority relies on Cole v. Cardoza, 441 F.2d 1337
(6th Cir. 1971), in holding that “a federal tax lien cannot
attach to property held as a tenancy by the entirety,”
and thus that the IRS could have no interest in the
Berwyck home. However, binding cases decided since
1971 clearly state a different doctrine: (1) state pro-
perty law determines which rights, in the bundle of
rights we call “property,” a person may exercise; (2) an
IRS lien attaches to all those rights; (3) and state-law
“fictions” cannot serve to defeat a valid lien. In this
case, Don Craft had a contingent remainder. He had a
right to the entire Berwyck property if his wife pre-
deceased him, and he had a right to half the proceeds of
the sale or lease of the home if the property were ever
sold or leased. Although Don Craft did not have the

60a

whole bundle of property rights, it cannot be denied
that he had some of them. And, most assuredly, the IRS
could attach these rights.

Pursuant to the Internal Revenue Code, the IRS
must attach a tax lien to all property or rights to
property, real or personal, of any person who neglects
or refuses to pay his income tax after demand. See 26
U.S.C. § 6321. As the Supreme Court has noted, Con-
gress intended by this provision “to reach every
interest in property that a taxpayer might have.”
United States v. National Bank of Commerce, 472 US.
713, 720, 105 S. Ct. 2919, 2924, 86 L.Ed.2d 565 (1985). In
fact, “‘[s)tronger language could hardly have been
selected to reveal a purpose to assure the collection of
taxes.’” Id. at 720, 105 S. Ct. at 2924 (citation omitted).
Although state law must be relied on in determining
what constitutes “property or rights to property”
attachable by the IRS, this is hardly surprising con-
sidering the fact that there is no federal law of pro-
perty. See United States v. Certain Real Property
Located at 2525 Leroy Lane, 910 F. 2d 343, 347, 351 (6th
Cir. 1990) (Leroy I). It also should be no surprise that
state-law doctrines that would prevent ordinary credi-
tors from reaching state-defined interests cannot
prevent a federal tax lien from attaching. See United
States v. Irvine, 511 U.S. 224, 240, 114 S. Ct. 1478, 1482,
128 L.Ed.2d 168 (1994); National Bank of Commerce,
472 U.S. at 727, 105 S. Ct. at 2927-28; United States v.
Mitchell, 403 U.S. 190, 205, 91 S. Ct. 1763, 1771-72, 29
L.Ed.2d 406 (1971).

Thus, the first question in this case should be: what
state-defined rights, if any, did Don Craft have in the

Berwyck property? Under Michigan law, he had the
rights to use and enjoy the property in tandem with

6la

Sandra Craft, to exclude all others from the property
save Sandra Craft, to share equally in the proceeds of
any lease or sale of the home, and to receive the entire
estate upon the death of Sandra Craft. See Mich. Comp.
Laws § 557.71; Rogers v. Rogers, 186 Mich. App. 125,
356 N.W.2d 288, 293 (1984). The majority implicitly
acknowledges that Don Craft had individual rights
when it states that “a husband can convey his interest
to his wife.” (Emphasis added.)

However, it does appear that a federal tax lien only
attaches to exclusive rights in property held by a

delinquent taxpayer. See (Leroy I), 910 F.2d at 351. In

sively exercise any of the incidents of property owner-
ship, he has nothing to attach. The only rights ex-
clusively held by Don Craft were future interests—the
right to share in future proceeds and right of sur-
vivorship.

Arguably, Don Craft did not have the right to sell or

entirety property, including future interests. See
Budwit v. Herr, 389 Mich. 265, 63 N.W.2d 841, 844

(1954); Zeigen v. Roiser, 200 Mich. 328, 166 N.W. 886,
890 (1918); Bauer v. Long, 147 Mich. 351, 110 N. W. 1059,
1060 (1907); Tamplin v. Tamplin, 168 Mich. App. 1, 413
N.W.2d 713, 715 (1987). However, the proposition that
a spouse’s future interest is inalienable does not appear
to have ever been the rule of decision in any case de-
cided by Michigan courts. For instance, in all four cases
cited above, the interest at issue was the present right
to title in the property, not a future interest, and thus

62a

insofar as the language could be read broadly to pre-
clude separate future contingent interests, it is dicta.
Additionally, even if Michigan law forbids the alienation
or encumbrance of one spouse’s contingent interest,
this merely lessens the value of that interest, it does
not necessarily make the interest worthless. That is,
even an inalienable contingent interest is likely to have
some value. Thus, I am not confident that a spouse’s
future interest in a tenancy by the entirety is truly
unencumberable, and even if it is, this still does not
mean that the spouse has no valuable interest that may
be attached under federal tax law.

This conclusion is required, I think, by Bank One
Ohio Trust Co. v. United States, 80 F.3d 173 (6th Cir.
1996), which indicates that inalienability is immaterial
in determining whether a federal tax lien can attach to
property rights. There, despite the fact that the Ohio
Supreme Court had declared that a trust beneficiary
“does not have any interest in [a spendthrift trust such
as the one in Bank One] because the settlor did not
give the beneficiary an interest,” Domo v. McCarthy, 66
Ohio St. 3d 312, 612 N.E.2d 706, 709 (1993) (emphasis
added), and despite the fact that the trust was neither
alienable or encumberable, this court held that the IRS
could attach the income from the trust because ti.
delinquent beneficiary did have an interest in the trust
despite its inalienability. Bank One, 80 F.3d at 176. As
we noted:

Restraints on alienation are not effective to
prevent a federal tax lien from attaching. . . .

. . . Thus when Congress says, as it has done in
§ 6321, that an unpaid tax “shall” constitute a lien

upon “all” of a delinquent taxpayer’s property or

63a

rights to property, it follows that the tax is a lien
both on property that is alienable under state law
and on property that is not.

Id.

Similarly, in Leroy Lane I, 910 F.2d 343, this court
held that, although the federal government could not
attach an entirety estate, the government would be
entitled to the property if the innocent spouse pre-
deceased the debtor spouse or if the marital estate was
otherwise “terminated by dissolution of the marriage or
joint conveyance.” Jd. at 351. In effect, then, the
government in Leroy Lane I had a lien on the debtor
spouse’s contingent remainder. Thus, regardless
whether Don Craft could alienate his contingent re-
mainder pursuant to Michigan law, under federal tax
law the IRS lien attached to it in 1989. This future
interest was a rightl ] to property” as defined by
— law, and attachable as provided by federal

W.

made clear, such state-law fictions, while they are
perhaps valid defenses against state-law creditors, have
no effect on an IRS lien. For example, in National
Bank of Commerce, the fact that no Arkansas creditor
could reach funds of a taxpayer-debtor that were held
in a joint account with other nondebtor individuals did
not prevent the IRS from attaching the entire account.
See 472 U.S. at 726, 105 S. Ct. at 2927. The Court deter-
mined that the taxpayer’s unconditional and unilateral
right to withdraw money from the joint bank account

64a

was “property” or a “right[ ] to property” for purposes
of section 6331(a) of the I. R. C. (a section analogous to
6321). Id. at 725-26, 105 S. Ct. at 2926-27. Thus, since
the taxpayer could at any time withdraw all the money
from the account without permission from the joint
account holders, the IRS could likewise levy the entire
account. Again, state law determines the practical
incidents of certain types of ownership, but the state-
law consequences of those determinations vis—vis
creditors are of no concern in the application of federal
tax law. See id. at 723, 105 S. Ct. at 2925-26.

Although the majority disagrees, I am satisfied that
United States v. Irvine, 511 U.S. 224, 114 S. Ct. 1478,
128 L.Ed.2d 168 (1994), also undermines Sandra Craft’s
position. In Irvine, the Court reiterated that legal
fictions—although valid protection from creditors
under state law—could not be used to avoid federal tax
liabilities. There, the taxpayer was the beneficiary of a
trust established by her grandfather in 1917. Jd. at 226,
114 S. Ct. at 1475. The income from the trust was to go
to the taxpayer’s grandmother and her aunts and
uncles (the settlor’s wife and children). Upon the death
of the last of these primary beneficiaries, the trust was
to terminate and the funds were to be divided among
the surviving grandchildren, including the taxpayer,
Sally Irvine. Id. at 227, 114 S. Ct. at 1475-76. After the
trust terminated, but before its assets were distributed,
Irvine disclaimed her interest in favor of her children.
Such disclaimers were valid under state law, and had
the effect of removing the disclaiming party from the
transaction altogether, id. at 239-40, 114 S. Ct. at 1481-
82; thus, state law deemed the transfer to be directly
from Irvine’s grandfather to her children. Id.

65a

The I. R. C. section in question taxed “all gratuitous
transfers, by whatever means, of property and

rights of significant value.” Id. at 233, 114 S. Ct. at 1478
(emphasis added). An exception existed for disclaimed
interests in property if the disclaimer was effective
under local law and made within a reasonable time after
knowledge of the existence of the transfer. Jd. The
IRS claimed that the transfer from Irvine to her
children was subject to the gift tax because it was not
made within a reasonable time after her knowledge of
her interest in the estate. Id. at 229, 114 S. Ct. at 1476.
The Court held that the 47-year delay in disclaimi
her interest was not reasonable, and thus upheld the
denial of Irvine’s request for a refund. Id. at 235-36,
114 S. Ct. at 1479-80.

Significantly, the Court rejected Irvine’s argument
that her disclaimer related back to the moment of the
original transfer of the interest to her as provided by
state law. Id. at 239, 114 S. Ct. at 1481-82. This “legal
fiction” implemented the state’s policy to defeat the
claims of the disclaimer’s creditors. Id. at 240, 114
S. Ct. at 1482. However, the state-law rationale for this
legal fiction provided no justification vis—vis the
federal gift tax, which was meant to curb estate-tax
abuse. Id. “Since the reasons for defeating a dis-
claimant’s creditors would furnish no reasons for
defeating the gift tax as well, . . . Congress [must not
have intended] to incorporate state law fictions as
touchstones of taxability when it enacted the Act.” Id.

Nothing in the majority opinion distinguishes Irvine
or National Bank of Commerce. Nor does the majority
address cases previously decided by this court, such as
Bavely v. United States (In re Terwilliger’s Catering
Plus, Inc.), 911 F.2d 1168, 1171 (6th Cir. 1990) and

66a

United States v. Safeco Insurance Co., 870 F.2d 338,
341 (6th Cir. 1989), which support the above analysis.
Michigan’s tenancy by the entirety doctrine serves to
protect the marital home from being compromised to
satisfy the debts of one spouse. This rationale does not
furnish any reason to defeat the federal tax code when
the operation of the I.R.C. will not terminate the en-
tirety estate. Although the majority argues that an
IRS lien on one spouse’s future interest will place a
cloud on the title to the marital home, even this would
not interfere with the couple’s use and enjoyment of
their property. And, even if the possible detrimental
effect of the IRS lien on the couple’s ability to sell their
home were an appropriate consideration here, I believe
that a properly filed lien, identifying only the delin-
quent taxpayer’s interest and giving no indication of
joint liability for the debt, sufficiently mitigates this
possibility. Moreover, the adverse effect of allowing a
lien on one spouse’s future interest is further lessened
by the fact that, in Michigan, it appears that creditors
may not reach the proceeds of the sale of entirety
property if the married couple immediately reinvests
the proceeds in new entirety property. See Muskegon
Lumber & Fuel Co. v. Johnson, 338 Mich. 655, 62
N.W.2d 619, 622 (1954).

Thus, on March 30, 1989, when the IRS filed its lien
on all of Don Craft’s property and rights to property, it
acquired a lien on his future interest in the Berwyck
home. More importantly, the August 28, 1989, transfer
of the property to Sandra Craft did not extinguish the
IRS’s lien on this contingent remainder. Under
Michigan law, one spouse cannot use the doctrine of

67a

tenancy by the entirety to defeat the rights of a judg-
ment creditor. For instance, in McCaslin v. Schouten,
294 Mich. 180, 292 N.W. 696, 698 (1940), Mr. Schouten
had been adjudged liable to a bank for $10,000. Evi-
dence indicated that he had used $8104 of this money to
pay the mortgage on the marital estate. The bank
sought a lien on the tenancy by the entirety, because
Mr. Schouten was insolvent, and no other means of
recovery could be effected. The Michigan Supreme
Court granted the lien, reasoning:

Being insolvent at the time and indebted to the
bank, in so far as Mr. Schouten invested or used his
individual funds to pay the mortgaged debt on the
— — — thereby placed or at-

p is individual Hy I d the
reach of his creditors, the transaction 2
fraud in law

. . The debtor might be satisfied to give his
assets to a stranger or to exchange them for some
worthless chattel. But the law will not permit him

to do so if he thereby renders himself uncollectible
to the detriment of his creditors.

Id., 292 N.W. at 699.

The court rejected Mrs. Schouten’s contention that
her entirety estate should not be disturbed by a forced
sale in light of the fact that she was innocent of any
fraud, finding that “to so hold would enable her to
benefit by Mr. Schouten’s wrongful use of his individual
funds.” Id., 292 N. W. at 700. Thus, the bank was
awarded $5504—the amount by which the Schoutens’

68a

equity in the tenancy increased as the result of Mr.
Schouten’s wrongful use of funds he owed the bank. Id.

Similarly, the Michigan Court of Appeals has re-
cently reiterated this holding on essentially the same
facts. See Miller v. Irwin, 190 Mich.App. 610, 476
N.W.2d 632 (1991). As in Schouten, Mr. Irwin failed to
satisfy a judgment against him, and the creditor
attempted to attach the marital estate of Mr. and Mrs.
Irwin. Michigan Compiled Laws § 566.19(1) provides
that a creditor may set aside any fraudulent conveyance
to the extent necessary to satisfy his claim. The Miller
court relied on this provision in ruling that mortgage
payments on the entirety estate made after the judg-
ment of indebtedness, to the extent that they increased
the Irwins’ equity in the property, would entitle the
creditors—the Millers—to a lien on the property. Id.,
476 N.W.2d at 635.

III.

These cases make clear, at least to me, that if the
transfer to Sandra Craft was made with the intent to
place Don Craft’s monies beyond the reach of the IRS,
the federal government is entitled to set aside the
conveyance and execute its lien. See Mich. Comp. Laws
§ 566.19(1); McCaslin, 292 N.W. at 700. However, the
critical factual point has not been settled—the district
court rested on alternative reasoning and did not need
to discuss fraud. However, the facts that Don Craft
conveyed his interest shortly after the IRS recorded its
lien, that he received only one dollar in consideration
for the transfer, and that the grantee was Sandra Craft
instead of some disinterested party, are certainly suffi-
cient to raise the inference that the transaction was

69a

fraudulent. See Farrell v. Paulus, 309 Mich. 441, 15
N.W.2d 700, 704 (1944).

If the transfer is set aside, then the IRS maintains its
lien on Don Craft’s future interest. Of course, the pro-
perty was sold and his future right to half of the
proceeds became a present interest in June 1992. I
agree with the majority that, if the transfer is set aside,
the IRS would be entitled to half of the proceeds of the
June 1992 sale, or $59,944.10, plus interest. The fact
that the IRS agreed that its interest in the escrowed
funds would extend no further than its interest in the
home itself is irrelevant. If the transfer to Sandra
Craft was fraudulent, McCaslin v. Schouten authorizes

a a forced sale of the marital property. See 292 N. W. at

700. If the IRS could force a sale in order to enforce its
lien, surely it must be able to take an equal amount
when the sale has been consummated without

compulsion.
IV.

For the foregoing reasons, I concur in the result
reached by the majority only because the summary
judgment entered in favor of the IRS must be reversed.
The majority opinion, erroneously I believe, denies that
Don Craft had a separate, attachable, future interest in
the tenancy by the entirety. This holding not only
contravenes established precedent, but provides an
avenue for easy avoidance of federal income-tax laws.
Respectfully, we are bound to reject this result.

70a

APPENDIX D

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Case No. 1:93-CV-306

SANDRA L. CRAFT, PLAINTIFF
U.

THE UNITED STATES OF AMERICA, ACTING THROUGH
THE INTERNAL REVENUE SERVICE, DEFENDANT

Filed: Mar. 30, 1999]

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Before: QUIST, District Judge.
Background

Plaintiff, Sandra L. Craft (“Sandra”), filed this action
seeking to quiet title to the proceeds of the sale of
certain real property located at 2656 Berwyck Road in
Grand Rapids, Michigan (the “Berwyck Property”),
which Plaintiff had owned with her husband, Don Craft
(“Don”) as tenants by the entireties. Specifically,
Plaintiff alleged that a tax lien filed by the Internal
Revenue Service (“IRS” or Government“) for taxes
owed by Don did not attach to the Berwyck Property
while Sandra and Don owned it as tenants by the
entireties or when Don terminated the entireties estate
by delivering a quitclaim deed to Sandra on August 28,
1989. Sandra filed a motion for summary judgment on
September 10, 1993, in which she argued that the

71a

Government was precluded from maintaining a fraudu-
lent conveyance action on the grounds that Don had
been discharged from his debts in bankruptcy. The
Government also moved for summary judgment on
Sandra’s claim, contending that its lien did attach to
Don’s interest in the Berwyck Property. On September
12, 1994, this Court issued an Opinion and Order deny-
ing Sandra’s motion for summary judgment and
granting the Government’s motion for summary judg-
ment on the basis that the IRS’s lien attached in the
interval of time between Don’s termination of the
entireties and his conveyance of his interest to Sandra.

On November 17, 1994, the Court issued another
Opinion and Order which granted two and denied two
of four motions filed by Sandra on September 22, 1994.
In particular, the Court granted Sandra’s motion to
determine the value of Don’s interest at the time of the
termination of the joint tenancy and her motion for stay
of execution of the judgment, and denied her motions
amend the judgment to include its findings supporting
denial of her motion on the Government’s fraudulent
conveyance claim and to refer the case to the bank-
ruptcy court for determination of the value of Don’s
interest. On October 26, 1995, the Court issued an
Opinion and Final Judgment in which it found that the
value of Don’s interest in the property at the time of
the conveyance was $50,293.94.

Sandra appealed the September 12, 1994, Order
granting summary judgment in favor of the Govern-
ment. The Sixth Circuit reversed the Order on the
grounds that the lien could not have attached to the
entireties interest under Michigan law and that the
entireties estate was not “transformed into a tenancy in
common as an intermediary step in the conveyance of

72a

the property” to which the lien could have attached. See
Craft v. United States, 140 F.2¢ 638, 643-44 (6th Cir.
1998). In addition, the Sixth (irc it held that Don did
not possess a separate future interest in the Berwyck
Property to which the lien could have attached. See id.
at 644. Thus, the Sixth Circuit effectively held that
Sandra prevailed on her complaint to quiet title.
However, the court found that “[dJespite the fact that
the tax lien did not attach to the Berwyck Property,
there remains an issue of whether a fraudulent
conveyance occurred in this ease. Id. Accord-
ingly, the court remanded the case for determination of
the fraudulent conveyance issue. On December 1, 1998,
the Court conducted a bench trial on the fraudulent
conveyance issue. The Court’s findings of fact and con-
clusions of law pursuant to Fed. R. Civ. P. 52(a) are set
forth below.
I. Findings of Fact’

Sandra and Don purchased the Berwyck Property on
May 26, 1972, as tenants by the entireties for $48,000.
In connection with the purchase, Don and Sandra
obtained a mortgage in the amount of $37,000. Don, a
practicing attorney, failed to timely file federal income
tax returns for his taxable years 1979 through 1987. As
a result, the IRS filed substitute income tax returns for
Don pursuant to 26 U.S.C. § 6020(b). In 1988, the IRS
assessed Don’s tax liabilities in the amount of
$482,446.73. On March 30, 1989, the IRS filed a Notice
of Federal Tax Lien against all of Don’s property with
the Register of Deeds for Kent County, Michigan.

1 Any finding of fact that is a conclusion of law shall be
considered as such.

73a

As of April 15, 1980, the date on which the Govern-
ment’s claim for unpaid taxes first accrued, the fair
market value of the Berwyck Property was $62,000
and the outstanding balance on the mortgage was
$31,628.95, leaving Don and Sandra with net equity in
the property of about $31,000. From 1979 to 1985, Don
and Sandra made timely payments on their mortgage in
the total amount of $19,692, which consisted of $12,999
in interest and $6,693 in principal. As a result, the
mortgage balance was reduced to $25,301.05 by January
1, 1986. During the same period, Don and Sandra paid
approximately $17,000 in real property taxes. After
January 1, 1986, Sandra paid all of the mortgage and
tax payments with her own money.

On July 28, 1988, the IRS assessed Don tax for the
years 1979 through 1985 in the amount of $168,264.90.
The final tax included deductions for all mortgage
interest and property tax payments made by Don and
Sandra from 1979 to 1985. On March 30, 1989, the IRS

2 In her response to the Government’s post-trial brief, Sandra
— — ———

deduet mortgage interest and property tax payments
because the taittel tam — ty IRD Revenue Agent
Rosie Wilson (“Wilson”), which substantiated only a portion of the
property tax

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0471%3A03. Public record. Not legal advice.