IRS Tax Lien Applied Only to Taxpayer's Half Interest in Former Marital Home

(Parker Tax Publishing April 2018)

A district court held that an IRS tax lien encumbered only half of an interest in real property that the taxpayer previously held as a joint tenant with his now-deceased wife because the couple's divorce agreement provided that the property was to be sold with the proceeds divided equally and that agreement thus severed the joint tenancy that previously existed. The district court certified the question of the divorce agreement's effect on the joint tenancy under Georgia law to the Georgia Supreme Court, which found that the agreement, as a whole, evidenced the parties' intent to sever the joint tenancy. Estate of Cahill v. U.S., 2018 PTC 66 (N.D. Ga. 2018).

Robert Hall and Cathleen Mary Cahill were married in 1999. At the time, Hall owned a house on Old Course Drive in Roswell, Georgia. In 2005, he quitclaimed the property to himself and Cahill as joint tenants with a right of survivorship. The couple occupied the house as their marital home until they separated.

Cahill and Hall divorced in 2008. Under a settlement agreement, Cahill was given the exclusive use and possession of the Old Course Drive property, but both parties were to remain on the title until the property was sold and both agreed that the settlement resolved all issues as to equitable division of property. The property was to be placed on the market when Cahill reached age 66 and the net proceeds from the sale would be divided equally. Cahill lived in the house until her death in April 2015, two months after her 66th birthday. The property was never listed for sale or transferred after the April 2005 quitclaim deed that created the joint tenancy.

After the divorce, Hall failed to fully pay his income taxes. In 2013, the IRS filed a notice of tax lien against all property and rights to property belonging to Hall, including the Old Course Drive property. Cahill's estate sued the IRS in a district court, arguing that the divorce severed the joint tenancy and that Hall had only a half interest in the Old Course Drive property. Thus, only half of that property could be encumbered by the lien. The IRS countered that that Hall acquired a full interest in the property on Cahill's death.

The district court certified to the Georgia Supreme Court the question of what effect the divorce agreement, which purported to resolve all issues as to equitable division of property but made no express reference to severance or retention of the joint tenancy, had on the joint tenancy and right of survivorship under Georgia law. The Georgia Supreme Court held that the provision of the divorce agreement addressing the Old Course Drive property, when read in conjunction with the agreement as a whole, evidenced the parties' intent to sever the joint tenancy. The district court therefore concluded that the tax lien against Hall encumbered only half of the Old Course drive property.

For a discussion of IRS tax liens, see Parker Tax ¶260,530.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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