Statute in question: A federal tax lien attaches to “all property and rights to property,
whether real or personal, belonging to” a delinquent taxpayer.
Federal law wins over state law. In looking at state law, we must be careful to consider
the substance of the rights state law provides, not merely the labels the State gives these
rights or conclusions it draws from them. Such state law labels are irrelevant to the
federal question of which bundles of rights constitute property that may be attached by a
federal tax lien.
Thus, federal law applies, but state law defines what “property” is. Here, as this was a
tenancy in entirety
Don’s right to the property:
– right to survivorship
– right to block transfer and encumbrance
– right to use
– right to income
– upon divorce, right to tenancy in common
– right to exclude 3rd party interference
Sandra had no more interest in the property than her husband; if neither of them had a
property interest in the entireties property, the true owner was therefore the marital entity.
The court did not find this argument compelling. The majority argues that each member
of the marriage has certain individual rights to the property, and therefore the tax lien
should be attachable. Allowing the lien to not attach would allow married couples to take
advantage of the federal income system. Also, Drye determined that when state law
creates a legal fiction does not control a federal question and looks instead to the realities
of the heir’s interest.