5
of a divorce, then the federal tax lien generally will have priority with respect to a one-half interest in the
property over the bank's subsequent security interest.
Q7. Will the Service administratively seize and sell the taxpayer’s interest in entireties property?
A7. The Service can administratively seize and sell a taxpayer’s interest in real and personal
property held in a tenancy by the entirety. Because of the nature of entireties property, it would be very
difficult to gauge what market there would be for the taxpayer’s interest in the property. The amount of
any bid would in all likelihood be depressed to the extent that the prospective purchaser, given the rights
of survivorship, would take the risk that the taxpayer may not outlive his or her spouse. In addition, a
prospective purchaser would not know with any certainty if, how, and the extent to which the rights
acquired in an administrative sale could be enforced. For example, rights acquired would include the
right to use the property and the right to exclude others from the property. It is not clear how the rights of
a prospective purchaser ultimately would be balanced with the co-existing rights of the spouse of the
taxpayer. Therefore, the Service has determined that an administrative sale is not a preferable method of
collection with respect to entireties property.
Levying on cash and cash equivalents held as entireties property does not present the same
impediments as seizing and selling entireties property. For example, where the Service levies on a bank
account that a taxpayer holds as entireties property and has the right to withdraw the funds in the
account, the bank is obligated to turn over the funds in response to the levy. While the taxpayer’s
spouse, as the other account holder, may have an administrative or judicial claim under sections 6343(b)
or 7426, respectively,
see
United States v. National Bank of Commerce, 472 U.S. 713 (1985), the amount
realizable by the Service is not, at the outset, depressed as it is in the case of administrative sales.
Q8. Will the Service foreclose the federal tax lien against entireties property?
A8. The Service will foreclose the federal tax lien against entireties property in appropriate cases.
While in an administrative sale the Service can sell only the taxpayer’s interest in entireties property (
i.e.
,
not the entire property itself), in a foreclosure action, pursuant to section 7403, the district court has
discretion to order the sale of the entire property, even where a non-liable spouse has a protected interest
in the property.
See United States v. Rodgers, 461 U.S. 677 (1983) (principle applied with respect to the
sale of homestead property). If the court orders the sale of the property, then the non-liable spouse must
be compensated for his or her interest: section 7403 requires “a distribution of the proceeds of such sale
according to the findings of the court in respect to the interests of the parties and the United States.”
Section 7403(c).
Q9. How is the Government’s federal tax lien interest in entireties property valued for the
purposes of discharge and subordination under section 6325? After private foreclosure on entireties
property, what is the value of the Government’s interest in proceeds left after the satisfaction of senior
liens? How is entireties property valued for bankruptcy purposes? How is entireties property valued in
offers in compromise?
A9. Discharge and Subordination
. Under section 6325(b)(2)(A), the Service may issue a
certificate of discharge of property subject to a federal tax lien upon payment of an amount not less than
the value of the Government’s interest in that property to be discharged. If a taxpayer applies for a
certificate of discharge when entireties property is to be sold by the taxpayer and the taxpayer’s spouse,
then the taxpayer generally must pay the Service one-half the proceeds of the sale in partial satisfaction
of the liability secured by the federal tax lien.
Foreclosing mortgagees with interests that are senior to the federal tax lien often seek a
certificate of discharge, rather than joining the United States in a judicial proceeding. By obtaining a
discharge of the mortgaged property, the mortgagee eliminates the Service’s right under section 2410(c)
of Title 28 to redeem the property from the purchaser after the foreclosure sale. As in the case of a
taxpayer who seeks a certificate of discharge of the entireties property, the Service generally will
determine the value of the Government’s interest to be one-half the value of the property, which is