What Happens To IRS Lien on Entireties Asset After Death?

Tenants by entireties assets are not protected from either spouse’s IRS debts. If the IRS acquires an income tax lien on one spouse who had filed separately the IRS lien attaches to the delinquent spouse’s interest in tenants by entireties property. The U.S. Supreme Court held that tenants by entireties property may not be immune from IRS liens regardless of state property law. The IRS may, but seldom does, force the liquidation of entireties assets in which event, the non-delinquent spouse gets half of the liquidation proceeds. If the IRS choose not to force the sale of an entireties assets the lien attaches to the entireties asset, and any sale or title transfer of the debtor’s entireties assets would be subject to the x lien during the taxpayer’s life.  The tax debtor  may not transfer good title  to an entireties asset to a third party without paying off the IRS.

What happens to the tax lien when the tax debtor spouse dies?  Upon the first death all entireties property becomes property in the name of the surviving spouse by operation of law. No transfer documents, such as a deed or assignment, are required. Does the tax debtor’s interest in entireties property extinguish when his interest is inherited by the surviving spouse by operation of law, or does the IRS lien still attach to the entireties asset when the asset becomes automatically owned by the spouse?

The IRS tax collection guidelines state that when the IRS has a lien against property owned tenants by entireties, or any other form of joint tenancy with rights of survivorship, the tax lien ceases to attach to the joint property after the death of tax debtor if the tax debtor is survived by the non-delinquent co-owner. If a non-delinquent spouse dies first any tax lien on entireties property will attach to the tax debtor and his estate after death (provided the lien does not first expire after 10 years).

Last updated on May 22, 2020