No. 00-1831 

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 

Page 

Appendix A (court of appeals opinion, Nov. 22, 
2000) ................................................................................ 1a 

Appendix B (court of appeals judgment, Nov. 22, 
2000) ................................................................................ 42a 

Appendix C (court of appeals opinion, Apr. 1, 
1998) ................................................................................ 44a 

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

70a 

Appendix E (district court opinion, Oct. 26, 
1995) ................................................................................ 95a 

Appendix F (district court opinion, Sept. 12, 
1994)................................................................................. 98a 

(I) 

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- 

(1a) 

2a 

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 I 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.1 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. 

3a 

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. Id. 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 1993, 
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. Id. 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. Id. 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. 

4a 

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 $50,293.94.2 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.3d at 641. 

5a 

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.3 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.4 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 

3 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. 

4 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). 

6a 

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 I. 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 

7a 

of the case 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.5 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, 

5 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. 

8a 

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.6 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 

6 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. 

9a 

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

Id. at 726 n. 10, 105 S. Ct. 2919.7 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 I panel 
was presented with no binding precedent that over- 
ruled Cole, we cannot say that its decision was clearly 
erroneous.8 

7 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). 

8 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 Property 
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 II”), 972 F.2d 136, 138 
(6th Cir. 1992)); see also Gaster, 42 F.3d at 791 n. 3, 793 (holding 

10a 

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 I 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). 

11a 

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.9 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 
Craft I panel. For these reasons, we reject the IRS’s 
argument that the decision reached by the Craft I panel 
was “clearly erroneous.” 

10 

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 

9 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 
that decision will work a manifest injustice. 

12a 

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 I 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. 

11 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, 

11 I.R.C. § 6321 provides: 

If any person liable to pay any tax neglects or refuses to 

pay the same after demand, the amount (including 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. 

13a 

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.” Id. 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 

14a 

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, “[t]he 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) 

12. 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). 

15a 

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

13 

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. 

14 Thus, 

13 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 643 (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 
approach 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. 

14 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.” (footnote omitted)). 

b. 

The IRS also argues Craft I 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 I court was well aware of 
it. See Craft I, 140 F.3d at 643 (discussing Irvine, 511 
U.S. at 240). Indeed, the Craft I 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. 

c. 

We are not at all persuaded by the IRS’s 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 

15 120 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.”). 

16 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. 

time it ripens into a present estate.” 

17 

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 I 
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- 

15 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 Drye 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 on 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. 

18 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 I, 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. 

I.O.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. 

19 

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 I. 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 

20 from 1979 to 1985 on behalf of the 

19 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. 

20 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, 

21 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: 

[T]here 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 I 
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- 
perty 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.2d 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. 

B. 

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; 

22 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 I 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. 

22 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. 932, 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. 

D. 

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 “[§ 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—Spawn 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 
assessment, 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. 

E. 

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 

I.R.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. 

23 

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. 

23 The motion also sought dismissal of the government’s appeal. 
We DENY Sandra’s motion in its entirety. 

35a 

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 I, 
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) (“[I]t 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 
Ryan in Craft I, is “what state-defined rights, if any, 
did Don Craft have in the Berwyck property?” Craft I, 
140 F.3d 638, 645 (Ryan, J., concurring). First, Don 
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, 293 (1984) (“[E]ach 
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 “[i]n 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- 
visions of either Michigan property law or federal tax 
law. 

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 I, 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 
“[t]he disavowing heir’s creditors . . . may not reach 
property thus disclaimed.” Id. 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 I—and I 
believe that it is—that inconsistency was considered, 
and rejected, by this court in Craft I 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 decisions would yield to constant conflicts 
within the circuit.” LaShawn, 87 F.3d at 1395 (examin- 
ing the law- of-the-circuit doctrine). 

41a 

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, 136 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 

v. 

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___ 
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. 

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 
the property of Sandra’s husband for his individual 
unpaid tax liabilities attached to property held by 
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 district court’s 
grant of summary judgment in favor of the United 
States and REMAND for further proceedings in accor- 
dance with this opinion. 

I. 

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 
IRS then filed a notice of federal tax lien on March 30, 
1989 against all of Don’s property or rights in property 
with the Register of Deeds in Kent County, Michigan. 

Don and Sandra thereafter executed a quitclaim deed 
on the 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- 
ruptcy 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. 

Following a hearing on the parties’ motions on July 
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.1995). Summary 
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. 1348, 1356-57, 89 L.Ed.2d 538 (1986). 

III. 

A. 

The Internal Revenue Code provides for the creation 
of a federal tax lien on a taxpayer’s property, stating 
that: “[i]f 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. § 6321. 
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)). “ ‘[O]nce 
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 773, 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 

51a 

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 by 
husband and wife. See Leroy Lane I, 910 F.2d at 351. 

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 
assessments against the husband. See id. at 1338. We 
held that: 

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.1 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). 

1 We nonetheless voiced concern about the United States’ lack 
of opportunity to assert its entireties interest prior to the Michigan 
Circuit 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 138. 

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.2d 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 U.S. 
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, 363 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, 63 N.W.2d 841, 844 (1954) (citing Sanford, 
169 N.W. at 881). But see Leroy Lane I, 910 F.2d at 352 
(“[W]e 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 
interest upon the termination of the entireties estate.”). 
Although statements in Leroy Lane I arguably might 
be construed to indicate the existence of a future 
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 Aquilino, 363 U.S. at 513, 80 S. Ct. at 1280. 
Michigan law, as set out by the Michigan Supreme 
Court in Sanford, has never been overruled. Accord- 
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 § 566.19(1). 

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 district 
court’s grant of summary judgment in favor of the 
United States, in which the district court 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. 

59a 

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. 

I. 

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 U.S. 
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. 1473, 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 

61a 

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, 136 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 
other words, where a delinquent taxpayer cannot exclu- 
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 
encumber either of these interests, and therefore did 
not truly possess anything of value for the IRS to 
attach. Several Michigan cases state or imply that one 
spouse has no alienable or encumberable interest in 
entirety property, including future interests. See 
Budwit v. Herr, 339 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, 163 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 the 
delinquent beneficiary did have an interest in the trust 
despite its inalienability. Bank One, 80 F.3d at 176. As 
we noted: 

R]estraints 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.” Id. 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 “right[ ] to property” as defined by 
Michigan law, and attachable as provided by federal 
law. 

Michigan’s legal fictions, revered as they are—that 
husband and wife are one entity and that neither has 
any separate interest in a tenancy by the entirety— 
cannot alter this outcome. As the Supreme Court has 
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. 1473, 
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. Id. 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 property 
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. Id. 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 disclaiming 
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). 

II. 

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 
entireties property and thereby placed or at- 
tempted to place his individual property beyond the 
reach of his creditors, the transaction constituted a 
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 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 

v. 

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 to 
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.3d 638, 643-44 (6th Cir. 
1998). In addition, the Sixth Circuit 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 “[d]espite 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. . . .” 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 Fact1 

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 1985.2 On March 30, 1989, the IRS 

2 In her response to the Government’s post-trial brief, Sandra 
argued that the Government failed to show that Don was allowed 
to deduct all mortgage interest and property tax payments 
because the initial tax figures prepared by IRS Revenue Agent 
Rosie Wilson (“Wilson”), which substantiated only a portion of the 
property tax and mortgage interest deductions, were the same as 
the final assessment. Sandra contends that the lack of difference 
between the initial and final numbers shows that Don was not 
allowed any deductions other than those substantiated in the initial 
figures prepared by Ms. Wilson. However, the fact that a greater 
amount of property tax or mortgage interest deductions was not 
substantiated does not mean that those deductions were not taken 
into account by Ms. Wilson in preparation of the initial figures. Ms. 
Wilson testified that her work papers containing the initial figures 
were not complete because she had not completed her investi- 
gation. Furthermore, there is no indication that Ms. Wilson did not 
take into account the entire amount of all claimed deductions at the 

74a 

filed a Notice of Federal Tax Lien against Don in the 
amount of $482,446. On August 28, 1989, Don conveyed 
his interest in the Berwyck Property to Sandra by quit 
claim deed for the sum of $1.00. During the period of 
April 15, 1980 through August 28, 1989, Don was 
insolvent. 

Don filed a petition for relief under Chapter 7 of the 
Bankruptcy Code on January 30, 1992. The bankruptcy 
court entered an order of discharge on June 1, 1992, and 
the bankruptcy case was closed on June 11, 1992. In 
June 1992, the Berwyck Property was sold, yielding net 
proceeds of $119,888.20, after payment of the mortgage. 
Pursuant to an agreement between the parties, one- 
half of the net proceeds were distributed to Sandra, and 
the balance of the proceeds were deposited into an 
escrow pending a resolution of the dispute of the IRS 
lien. Don died on August 17, 1998. 

II. Conclusions of Law3 

The issue presented for determination by the Court 
is whether the conveyance from Don to Sandra on 
August 28, 1989, constituted a fraudulent conveyance 
under Michigan’s Uniform Fraudulent Conveyance Act 
(“Fraudulent Conveyance Act”), M.C.L. §§ 566.11 to 
566.23. Prior to trial, the Government also raised in its 
trial brief, for the first time, the issue of whether the 
conveyance was fraudulent to the extent that Don 

time she prepared her initial figures. Finally, Ms. Wilson testified 
that Don was allowed to deduct all mortgage and property tax 
payments and the Government demonstrated that Sandra did not 
claim any mortgage interest or property tax deductions on her 
separate returns. 

3 Any conclusion of law that is a finding of fact shall be con- 
sidered as such. 

75a 

enhanced the entireties property by paying both the 
property tax and mortgage payments from 1979 to 1985 
while he was insolvent. Apart from her arguments on 
the merits, Sandra asserts that the Government’s claim 
is not properly before the Court for various reasons. 
The Court will address these arguments first. 

A. Procedural and Limitations Issues 

The Government raised its fraudulent conveyance 
argument as an affirmative defense in its answer to 
Sandra’s complaint. Sandra contends that the Govern- 
ment cannot assert a fraudulent conveyance claim be- 
cause it has not filed a complaint or a counterclaim. In 
addition, Sandra contends that the Government cannot 
now cure this omission by moving to amend its answer 
to file a counterclaim because the Government was 
required to assert any such counterclaim in its answer. 
Sandra also contends that any counterclaim would be 
barred by the statute of limitations. 

Sandra has not cited any authority to support her 
proposition that when fraudulent conveyance is raised 
to defeat a quiet title claim it may only be asserted as a 
counterclaim and not as an affirmative defense. In fact, 
courts have allowed fraudulent conveyance to be raised 
as an affirmative defense to quiet title claims. See, e.g., 
Snyder v. United States, No. 88-CV-2136 (RR), 1995 
WL 724529, at *13 (E.D.N.Y. July 26, 1995) (denying 
the plaintiff’s motion to strike the Government’s af- 
firmative defense of fraudulent conveyance to the 
plaintiff ’s quiet title action); Buffalo Valley Golf Club 
Partnership v. United States, No. 2:93-CV-172, 1994 
WL 574119, at *2 (E.D. Tenn. July 19, 1994) (finding 
“no reason why the United States cannot move to set 
aside a fraudulent conveyance as its affirmative defense 
to this quiet title action”). Because Sandra has not 

76a 

offered any persuasive reason why the Government 
cannot assert fraudulent conveyance as an affirmative 
defense, the Court finds that the Government has 
properly pled the issue as an affirmative defense. 
Consequently, the Government asserted its claim well 
within any limitations period cited by Sandra because 
its answer was filed on July 15, 1993.4 

Even if a fraudulent conveyance argument could only 
be asserted as a counterclaim to a quiet title action, the 
Court would still find that the Government is not 
barred from asserting its claim. Rule 8(c) of the Federal 
Rules of Civil Procedure provides that “[w]hen a party 
has mistakenly designated a defense as a counterclaim 
or a counterclaim as a defense, the court on terms, if 
justice so requires, shall treat the pleading as if there 
had been a proper designation.” Fed. R. Civ. P. 8(c). 
“The purpose of Rule 8(c) is to give the opposing party 
notice of the issue and opportunity to argue his posi- 
tion.” Richmond Steel, Inc. v. Legal & Gen. Assurance 
Soc’y, Ltd., 821 F. Supp. 793, 797 (D. Puerto Rico 1993). 
In Richmond Steel, the court held that the plaintiff 

4 Because the Court has concluded that the Government’s 
fraudulent conveyance claim was timely asserted within any of the 
limitations periods at issue, it is unnecessary for the Court to 
decide the proper limitations period. Nonetheless, the Court con- 
cludes that the proper limitations period is the ten year period set 
forth in 26 U.S.C. § 6502, because “[i]t is well settled that the 
United States is not bound by state statutes of limitation . . . in 
enforcing its rights.” United States v. Summerlin, 310 U.S. 414, 
416, 60 S. Ct. 1019, 1020, 84 L.Ed. 1283 (1940); cf. United States v. 
Peoples Household Furnishings, Inc., 75 F.3d 252, 255-57 (6th Cir. 
1996) (holding that the United States was not bound by Michigan’s 
statute of limitations for collection of judgments in suit to enforce 
judgment on loan where the United States was acting in its 
sovereign capacity). 

77a 

complied with Rule 8(c) by raising an affirmative de- 
fense to a defendant’s counterclaim in its amended 
complaint, even though the affirmative defense should 
have been asserted by the plaintiff in its answer to the 
counterclaim, because the defendant had notice of the 
defense through the amended complaint, the plaintiff ’s 
motion for summary judgment, and the proposed pre- 
trial order. See id. The Supreme Court applied Rule 
8(c) in Reiter v. Cooper, 507 U.S. 258, 113 S. Ct. 1213, 
122 L. Ed.2d 604 (1993), where, as Sandra alleges here, 
the defendants asserted counterclaims as defenses. 
Citing Rule 8(c), the Court stated, “it makes no differ- 
ence that petitioners may have mistakenly designated 
their counterclaims as defenses. . . .” Id. at 263, 113 S. 

Ct. at 1217. 

In this case, the Government’s assertion of its fraudu- 
lent conveyance claim in its answer met the require- 
ments of Rule 8(c). Sandra had ample notice of the claim 
because the Government asserted it as its first 
affirmative defense to Sandra’s complaint. In addition, 
Sandra was also on notice of the claim because it was 
raised as an issue in the parties’ motions for summary 
judgment. Therefore, Sandra’s argument must be 
rejected.5 

5 Although the Government has moved to amend its answer to 
assert its fraudulent conveyance claim as a counterclaim, the Court 
finds it unnecessary for the Government to do so because its 
answer serves the purposes of Rule 8(c). On the other hand, even 
if the Court concluded that the Government is required to amend 
its answer to assert a counterclaim, the amendment would relate 
back to its answer and not be barred by the stat[ut]e of limitations. 
See Index Fund, Inc. v. Hagopian, 91 F.R.D. 599, 604 (S.D.N.Y. 
1981). 

78a 

Sandra also argues that the Government may not 
raise the argument that Don’s enhancement of the 
entireties estate while he was insolvent constituted a 
fraudulent conveyance because the Government did not 
raise the issue until shortly before trial. The Court 
rejects this argument. Although the Government did 
not raise the specific issue in its affirmative defense, the 
circumstances under which the issue was presented fall 
squarely within Fed. R. Civ. P. 15(b), which provides in 
pertinent part: 

When issues not raised by the pleadings are tried 
by express or implied consent of the parties, they 
shall be treated in all respects as if they had been 
raised in the pleadings. Such amendment of the 
pleadings as may be necessary to cause them to 
conform to the evidence and to raise these issues 
may be made upon motion of any party at any time, 
even after judgment; but failure so to amend does 
not affect the result of the trial of these issues. . . . 

Fed. R. Civ. P. 15(b); see also Smith v. Transworld Sys., 
Inc., 953 F.2d 1025, 1030 (6th Cir. 1992); Carlyle v. 
United States, 674 F.2d 554, 556 (6th Cir. 1982) (noting 
that an issue raised and argued at trial and upon which 
evidence was offered was an issue tried by implied 
consent); Agricultural Servs. Ass’n v. Ferry-Morse 
Seed Co., 551 F.2d 1057, 1069 (6th Cir. 1977) (finding 
that failure to amend does not affect resolution of an 
issue, especially where the opposing party did not 
object at trial regarding the issue). 

Rule 15(b) does not require a formal motion to amend 
the pleadings. See Fed. R. Civ. P. 15(b). “All that is 
required is that the issue be tried by consent, and con- 
sent is generally inferred from a failure to object.” 

79a 

Lavean v. Cowels, 835 F. Supp. 375, 383 (W.D. Mich. 
1993). While Sandra objects because the Government 
did not raise the issue until trial, Sandra did not object 
to the Government raising the issue until after trial. 
The issue of whether Don was insolvent at the time he 
made payments which increased the value of the 
entireties property was set forth in the Joint Final Pre- 
trial Order. Issues 11 through 13 of the controverted 
issues set forth in paragraph 3 of the Pretrial Order 
were whether during 1979 through 1985: (i) Don made 
fraudulent conveyances into the entireties property; 
(ii) Don contributed approximately $38,000 into the 
tenancy by the entireties in property tax and mortgage 
payments; and (iii) Don was insolvent while he was 
making contributions for the benefit of the entireties. 
(See Joint Final Pretrial Order ¶ 3.) Sandra did not 
object to the inclusion of these as controverted issues 
for trial. Moreover, Sandra’s counsel did not object at 
trial to the Government’s evidence regarding the 
amounts contributed by Don to the entireties property 
from 1979 to 1985. Such evidence could have been rele- 
vant only to the Government’s contention that Don’s 
payments into the the [sic] entireties from 1979 through 
1985 while he was insolvent were fraudulent. Thus, the 
Court finds that the issue was tried by the implied 
consent of the parties. 

B. Fraudulent Conveyance 

The Government contends that Don’s August 28, 
1989, conveyance of his interest in the Berwyck Prop- 
erty by quit claim deed for one dollar was a fraudulent 
conveyance under sections 4 and 7 of the Fraudulent 
Conveyance Act, M.C.L. §§ 566.14, 566.17. Section 4, 
which applies to conveyances made by debtors without 
actual intent to defraud, provides: 

80a 

Every conveyance made and every obligation 
incurred by a person who is or will be thereby 
rendered insolvent is fraudulent as to creditors 
without regard to his actual intent if the convey- 
ance is made or the obligation is incurred without a 
fair consideration. 

M.C.L. § 566.14. Section 7, which requires proof of 
actual intent, provides: 

Every conveyance made and every obligation in- 
curred with actual intent, as distinguished from 
intent presumed in law, to hinder, delay, or defraud 
either present or future creditors, is fraudulent as 
to both present and future creditors. 

M.C.L. § 566.17. Thus, a fraudulent conveyance may be 
proved either by demonstrating that a conveyance was 
made by a transferor who was either insolvent at the 
time or rendered insolvent as a result of the conveyance 
or that the transferor acted with intent to defraud. 

The party seeking to have a conveyance set aside as 
fraudulent has the burden of producing evidence to 
support his claim. See Dean v. Torrence, 299 Mich. 24, 
35, 299 N.W. 793, 797 (1941). Even though transactions 
between a husband and wife must be closely scruti- 
nized, the party alleging that the conveyance was 
fraudulent still bears the burden of proof. See id.; 
Nicholson v. Scott, 50 F. Supp. 209, 212 (E.D. Mich. 
1943). Actual intent to defraud may be shown through 
“badges of fraud,” or “[s]urrounding circumstances 
which usually accompany an intent to hinder, delay or 
defraud creditors and from which fraud may be 
inferred. . . .” Bentley v. Caille, 289 Mich. 74, 78, 286 

N.W. 163, 164 (1939) (en banc). “Badges of fraud” 
include lack of consideration, a close relationship be- 

81a 

tween transferor and transferee, pendency or threat of 
litigation, financial difficulties of the transferor, and 
retention of possession or control by the transferor. 
Coleman-Nichols v. Tixon Corp., 203 Mich. App. 645, 
660, 513 N.W.2d 441, 449 (1994). Such circumstances 
are not conclusive evidence of fraud, “but may be 
strong or weak depending upon their nature and 
number occurring in the same case.” Id. 

Sandra contends that the Government cannot attack 
the August 28, 1989, conveyance from Don as a 
fraudulent conveyance for a number of reasons. The 
Court will discuss each argument separately. 

1. Can the August 28, 1989, Conveyance By Don Of 
His Interest In Entireties Property To Sandra Be 

Set Aside As A Fraudulent Conveyance? 

Sandra contends that the Government may not 
attack Don’s August 28, 1989, conveyance of his 
interest in the Berwyck Property to Sandra as fraudu- 
lent under the Fraudulent Conveyance Act because a 
conveyance of property which is exempt from claims of 
creditors cannot be a fraudulent conveyance under 
Michigan law. In support of her position, Sandra cites 
the definition of “assets” under section 1 of the 
Fraudulent Conveyance Act which provides that 
“ ‘assets’ of a debtor means property not exempt from 
liability for his debts.” M.C.L. § 566.11. Sandra con- 
tends that because exempt assets are not considered 
among a debtor’s assets under the Fraudulent Con- 
veyance Act, Don’s conveyance of his interest in the 
Berwyck Property could not be fraudulent. The 
Government responds that sections 4 and 7 of the 
Fraudulent Conveyance Act are concerned with a “con- 
veyance” by the debtor without limitation to the 
debtor’s “assets” and that the definition of “assets” 

82a 

applies solely for the purpose of determining the 
debtor’s insolvency under section 4. 

Sandra’s argument finds support in numerous cases, 
decided both before and after Michigan enacted the 
Fraudulent Conveyance Act, which have consistently 
held that creditors have no right to complain of a 
debtor’s disposition of exempt 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, 669, 59 N.W.2d 41, 43 (1953) 
(en banc) (holding that the debtor had “the absolute 
right” to transfer homestead property where the 
amount of the exemption exceeded his equity in the 
homestead); Turner v. Davidson, 227 Mich. 459, 462, 198 
N.W. 886, 887 (1924) (finding that the exchange by the 
debtor and his wife of one entireties property for 
another property in the name of the wife was of no 
concern to creditors because “[t] he uniform rule of this 
court has been that creditors are not concerned with 
the disposition which a debtor makes of his exempt 
property”), overruled in part by Glazer v. Beer, 343 
Mich. 495, 498-99, 72 N.W.2d 141, 142-43 (1955); 
Bresnahan v. Nugent, 92 Mich. 76, 81, 52 N.W. 735, 736- 
37 (1892) (observing that “[i]t has been frequently held 
that a creditor cannot complain of any disposition 
which a debtor sees fit to make of exempt property”); 
Emerson v. Bacon, 58 Mich. 526, 527, 25 N.W. 503 
(1885) (holding that creditors had no right to complain 
of the debtor’s disposition of exempt property); cf. 
Baltrusaitis v. Cook, 174 Mich. App. 180, 185, 435 
N.W.2d 417, 419 (1988) (per curiam) (indicating that dis- 
claimer by beneficiary of interest in life insurance 
proceeds which was exempt from creditors’ claims was 
not a fraudulent conveyance under the Fraudulent 

83a 

Conveyance Act). Because Don’s creditors, including 
the I.R.S., could not attach Don’s interest in the 
Berwyck Property to satisfy Don’s individual debts, see 
Craft, 140 F.3d at 642-43, Don’s conveyance of his 
interest to Sandra could not have constituted a fraud 
upon his creditors because the property was beyond 
their reach. 

Other cases, without explicitly holding that a 
spouse’s conveyance of an interest in entireties prop- 
erty to the other spouse is not a fraudulent conveyance, 
support this result. Thus, in Farrell v. Paulus, 309 
Mich. 441, 15 N.W.2d 700 (1944) (en banc), the court 
held that the remedy of setting aside a quitclaim deed 
by a husband to his wife of his interest in entireties 
property would be ineffective, because it would afford 
the creditor no relief. The court observed: 

The validity of the quitclaim deed is attacked by 
plaintiff, but if it were set aside the title would again 
be in the name of Paulus and wife as tenants by the 
entirety and plaintiff would not be aided thereby 
because neither the land nor the rents and profits 
therefrom would be subject to levy on execution for 
the sole debt of the husband. 

Id. at 445, 15 N.W.2d at 702; see also Morris v. Wolfe, 48 
Mich. App. 40, 43, 210 N.W.2d 16, 17 (1973) (stating that 
even if fraud were proven, title to the entireties 
property would revert to husband and wife and could 
not be used to satisfy a judgment rendered against only 
one spouse). Thus, a conveyance cannot be set aside 
where title would merely revert to husband and wife as 
tenants by the entireties. Under the facts of this case, 
title to the Berwyck Property would revert to Don and 
Sandra as tenants by the entireties and, because Don 

84a 

predeceased Sandra, sole title would pass to Sandra as 
the survivor. 

The Government cites Lasich v. Estate of Wickstrom 
(In re Wickstrom ), 113 B.R. 339 (Bankr. W.D. Mich. 
1990) as support for its argument that the Court should 
ignore the so-called “no harm-no foul” rule found in 
Michigan case law. However, the Court finds Wick- 
strom both factually and legally distinguishable from 
this case. Wickstrom differs on its facts from this case 
because the conveyances of entireties property in that 
case were from the debtor and his spouse to the 
debtor’s parents and the debtor’s son. See id. at 341. 
While the facts in Wickstrom do not materially distin- 
guish the case, the legal issue does. The specific 
question was whether the bankruptcy trustee could 
avoid a prepetition transfer of entireties property 
either as a preference or a fraudulent conveyance pur- 
suant to 11 U.S.C. §§ 547(b) and 548(a). See id. at 343. 
The bankruptcy court rejected the “no harm-no foul” 
analysis adopted in Cross and other Michigan cases 
because, under the Bankruptcy Code, all property 
interests of a debtor, including those in entireties 
property, are included in the bankruptcy estate, where- 
as such interests were not part of the bankruptcy 
estate under the Bankruptcy Act of 1898, which 
governed the court’s analysis in Cross. See id. at 350. 
Moreover, although the court found that creditors have 
rights in potentially exempt property, its reasoning was 
based upon the trustee’s right to sell the debtor’s 
interest in entireties property which the debtor fails to 
exempt. See id. at 347. Here, the same considerations 
do not apply because a bankruptcy trustee is not seek- 
ing to recover property under the Bankruptcy Code. 
Therefore, under Michigan law, the conveyance from 

85a 

Don to Sandra did not, by itself, constitute a fraudulent 
conveyance.6 

Even though the conveyance from Don to Sandra 
was not fraudulent, the Government may still be 
entitled to relief. An exception to the “no harm-no foul 
rule” exists where the debtor, while insolvent, places 
non-exempt funds beyond the reach of his creditors by 
enhancing the entireties property. Michigan courts 
have “consistently held that during insolvency entire- 
ties estates cannot be created or enhanced at the 
expense of creditors and that relief may be granted 
without reference to any actual fraudulent intent.” 
Glazer v. Beer, 343 Mich. 495, 498, 72 N.W.2d 141, 142 
(1955) (en banc); see also La Bour v. Bergin, 334 Mich. 
437, 439, 54 N.W.2d 710, 711 (1952); Morris, 48 Mich. 
App. at 43, 210 N.W.2d at 17. In McCaslin v. 
Schouten, 294 Mich. 180, 292 N.W. 696 (1940) (en banc), 
the court held that payments made by the debtor while 
he was insolvent which reduced the balance of his 
mortgage were fraudulent regardless of actual intent. 
The court stated: 

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 
entireties property and thereby placed or at- 
tempted to place his individual property beyond the 
reach of his creditors, the transaction constituted a 

6 Ash v. Ash, 280 Mich. 198, 273 N.W. 446 (1937) (en banc), cited 
by the Government, only dealt with the question of whether a 
conveyance of an interest in entireties property by one spouse to 
the other was procured through fraud. That case does not provide 
a basis for a creditor of one spouse to attack a conveyance of an 
entireties interest from one spouse to the other on the basis of 
fraud. 

86a 

fraud in law. Such payment cannot be held proper 
on the theory that Mr. Schouten was indebted to 
the mortgagee and had a right to pay that creditor 
in preference to others. Instead the payment on the 
mortgage debt was tantamount to an investment of 
Mr. Schouten’s funds in property which he and his 
wife would hold as tenants by the entireties; and 
thus he would hinder and possibly prevent 
his creditors from reaching the funds invested by 
him. . . . 

Id. at 185, 292 N.W. at 699. 

The parties have stipulated that Don was insolvent 
during the period from April 15, 1980 through August 
28, 1989, when he was indebted to the I.R.S. for delin- 
quent taxes. In addition, the Government has pre- 
sented evidence that during this period, Don made 
property tax and mortgage payments on the Berwyck 
Property which reduced the principal balance of the 
mortgage and thereby enhanced the value of the en- 
tireties property. Thus, unless otherwise precluded, 
the Government is entitled to a lien on Don’s share of 
the proceeds of the sale of the Berwyck Property equal 
to the amount by which the value of the entireties 
property was enhanced by payments made by Don 
during the period of insolvency. See La Bour, 334 Mich. 
at 440, 54 N.W.2d at 712. 

2. Does Don’s Discharge In Bankruptcy Foreclose 

The Government From Seeking Relief ? 

Sandra contends that the Government is precluded 
from asserting a fraudulent conveyance claim because 
Don’s debt was discharged, as was the I.R.S. lien, which 
the Sixth Circuit has held did not attach to the 
Berwyck Property. The Government relies on the case 

87a 

of Morris v. Wolfe, 48 Mich. App. 40, 210 N.W.2d 16 
(1973), as support for its right to pursue its claim, even 
after the debt has been discharged in bankruptcy. As 
Sandra points out, however, Morris differs from this 
case in certain respects. In that case, the plaintiff 
received a worker’s compensation award on January 28, 
1963, and a partial summary judgment was entered 
against the defendant husband in February 1967. An 
execution on the judgment was issued on December 31, 
1969, and notice of levy was recorded on March 4, 1970, 
against property originally held by the defendants as 
tenants by the entireties, but which was transferred to 
the wife when the husband conveyed his interest by 
quit claim deed on September 23, 1966. The husband 
then filed a petition in bankruptcy and received a 
discharge on August 17, 1971. The court held that be- 
cause the plaintiff was a judgment creditor whose lien 
had not been affected by the defendant’s bankruptcy 
discharge7, the plaintiff was not precluded from pur- 
suing fraudulently conveyed property in state court. 

It is fundamental that a discharge in bankruptcy is 
personal in nature and releases only the bankrupt’s 
personal liability. This discharge affects the under- 
lying debts of secured and unsecured creditors alike 
but does not dispose of a valid lien not avoided by 
the bankruptcy act. [F]or this reason, we conclude 
that a lien creditor may pursue the attached collat- 
eral in a state court subsequent to the debtor’s dis- 
charge in bankruptcy. 

7 It is unclear from the court’s opinion whether the judgment 
was only against the husband. If that was the case, it seems to this 
Court that the Morris court’s conclusion that the lien attached to 
the entireties property was wrong in light of the Sixth Circuit’s 
holding in this case. 

88a 

Id. at 45-46, 210 N.W.2d at 18. 

Sandra points out that Morris does not apply in this 
case because the Government is not a judgment credi- 
tor and its lien did not attach to the Berwyck Property 
and was therefore discharged. It is true that the Morris 
court drew a distinction between secured and unse- 
cured creditors. See id. at 44-45, 210 N.W.2d 16. 
However, much of the court’s discussion was dicta and 
was also based upon the Bankruptcy Act of 1898, under 
which fraudulently conveyed property was automati- 
cally included in the bankruptcy estate. Although as 
far as this Court can tell, no Michigan court has ad- 
dressed the issue, the court in Dixon v. Bennett, 72 Md. 
App. 620, 531 A.2d 1318 (1987), held that a debtor’s dis- 
charge in bankruptcy did not prevent an unsecured 
creditor from bringing a subsequent action under the 
Uniform Fraudulent Conveyance Act. See id. at 637-38, 
531 A.2d at 1326-27. The court’s reasoning explains 
why Morris, to the extent it can be read to preclude 
claims by unsecured creditors, is incorrect: 

The discharge provision of the Bankruptcy Code, 
11 U.S.C. § 524, consistent with fundamental bank- 
ruptcy policy, provides the debtor with a fresh start 
free from the burdens of preexisting liabilities. 
Under § 524, the discharge only (i) extinguishes 
personal liability of the debtor; and (ii) prevents 
creditors whose claims arose pre-bankruptcy from 
any actions to impose personal liability on the 
debtor. 11 U.S.C. § 524 (1978). Section 524(e) ex- 
pressly provides that the “discharge of a debt of the 
debtor does not affect the liability of any other 
entity on, or the property of any other entity for, 
such debt.” § 524(e). 

89a 

Under § 16 of the Bankruptcy Act of 1898, Ch. 
541, 30 Stat. 544, 550 (1898), the limitation of dis- 
charge provision restricted actions to those against 
co-debtors, guarantors, or other sureties. The 
language of § 524(e) of the 1978 Bankruptcy Code 
reveals a congressional intent to broaden the rights 
of creditors, by preserving their actions against 
third parties and their property, and to restrict the 
effect of a discharge solely to a release of the per- 
sonal liability of the debtor. 

In Kathy B. Enterprises, Inc. v. United States, 
779 F.2d 1413 (9th Cir. 1986), a debtor fraudulently 
transferred assets to a third party. The debtor was 
eventually discharged. Subsequently, the Internal 
Revenue Service attempted to collect delinquent 
taxes owed by the debtor by seizing the proceeds 
the third party was receiving from the sale of the 
debtor’s assets. The I.R.S. claimed that it could 
collect the taxes in this way because under Illinois 
law the transfers had been fraudulent. The third 
party argued that the debtor’s discharge barred the 

I.R.S.’s cause of action. The Court, relying on the 
change in the statutory language, held that under 
§ 524(e) the I.R.S. could bring a cause of action 
against a fraudulent transferee despite the debtor/ 
taxpayer’s discharge. Kathy B., 779 F.2d at 1415. 
We agree with the 9th Circuit. In the case sub 
judice, appellant did not seek to impose personal 
liability on the debtor but brought her cause of 
action against the fraudulent transferee. We be- 
lieve appellant’s claim is precisely the type contem- 
plated by the expanded scope of § 524(e). 

90a 

Id. The holding in Dixon has been followed by courts in 
other states in addressing the same question under 
those states’ versions of the Uniform Fraudulent Con- 
veyance Act. See Citizens Bank of Mass. v. Callahan, 
38 Mass. App. Ct. 702, 705-06, 653 N.E.2d 600, 602-03; 
J.P. Castagna, Inc. v. Castagna, No. CV 92 0523960, 
1995 WL 225473, at *2-3 (Conn. Super. Ct. Apr. 7, 1995) 
(mem. op.). This Court finds the Dixon court’s rea- 
soning persuasive and therefore concludes that the 
Government is not barred from pursuing its claim. 

3. Is The Government’s Right To Relief Affected By 

Don’s Death? 

Sandra argues that Don’s death precludes the 
Government from recovering any of the proceeds of the 
sale of the Berwyck Property because even if the 
August 28, 1989, conveyance was set aside, title to the 
property would revert back to Don and Sandra as 
tenants by the entireties and, as a result of Don’s death, 
would then go to Sandra as the survivor. While this 
argument would be applicable if the Court found that 
the conveyance itself was fraudulent, it does not 
prevent the Government from recovering the amounts 
which Don paid to enhance the entireties property 
while he was insolvent. 

4. How Much Is The I.R.S. Entitled To Recover? 

The Government asserts that it is entitled to recover 
all mortgage and property tax payments which Don 
made from April 15, 1980 through 1985, which enhanced 
the value of the entireties estate, as well as accretions 
in Don’s share of the net equity, based either upon 
payments which reduced the mortgage balance or 
market forces which increased the value of the pro- 
perty. The Government is not seeking to recover 

91a 

mortgage or property tax payments made after 1985 
because those payments were made with Sandra’s 
funds. 

The cases cited by the Government do not support its 
position. The creditors in those cases were allowed to 
recover only the amount by which value of the equity 
was increased as a result of payments that somehow 
put money into the hands of the debtors, either directly 
or indirectly, and beyond the reach of creditors. For 
example, in Dunn v. Minnema, 323 Mich. 687, 36 
N.W.2d 182 (1949) (en banc), the court held that the 
creditor was entitled to a lien in the amount of $3,305, 
which represented the total amount of payments on the 
principal balance of the land contract by the debtor 
after the date he became insolvent. See id. at 696, 36 
N.W.2d at 185. In Glazer, the court imposed a lien on 
the entireties property equal to the value of improve- 
ments which the debtor used to remodel a barn on the 
property for use in his business. See Glazer, 343 Mich. 
at 496-97, 72 N.W.2d at 141-42. In La Bour, the court 
awarded the trustee of the defendant’s bankruptcy 
estate a lien in the amount of $2,300, representing 
payments which the defendant had made to reduce the 
balance of the mortgage. See La Bour, 334 Mich. at 438, 
54 N.W.2d at 711. Similarly, in McCaslin, the court 
awarded the creditor a lien in the amount of $5,404, the 
amount of the defendants’ equity in their entireties 
property. See McCaslin, 294 Mich. at 180, 292 N.W. at 
700. 

To this Court’s knowledge, no Michigan court has 
ever held that the interest component of mortgage 
payments or property tax payments enhance entireties 
property to the detriment of creditors. The reason is 
obvious: such payments do not increase a debtor’s 

92a 

equity or constitute a fraud on creditors. Rather, 
payments of interest and property taxes are no more 
than payments made by the debtor to certain creditors 
in preference over other creditors, which the law allows 
debtors to do. As anyone who has ever had a thirty- 
year mortgage can attest, substantial payments in the 
first several years covering interest, principal, property 
taxes, and insurance, contribute only slightly in re- 
ducing the amount of the debt. Thus, in Pearce v. 
Micka, 62 Md. App. 265, 489 A.2d 48 (1985), the court 
held “that payment of interest, taxes and insurance 
premiums did not constitute fraudulent conveyances 
under the Uniform [Fraudulent Conveyance Act].” Id. 
at 275, 489 A.2d 48. The court in Pearce distinguished 
McCaslin on the basis that the payments in “McCaslin 
did not involve monthly mortgage payments which 
included interest and funds to be escrowed for payment 
of taxes and insurance premiums.”8 Id. at 274, 489 A.2d 
at 53. 

The evidence presented by the Government shows 
that from 1980 through 1985, Don and Sandra made a 
total of $19,692 in mortgage payments, which included 
$12,999 in interest and $6,693 in principal. Thus, during 
the period in question, payments made using Don’s 
funds reduced the outstanding balance of the mortgage 
and constituted a fraudulent conveyance in the amount 
of $6,693. Accordingly, the Government is entitled to 
$6,693 of the escrowed sales proceeds from the 
Berwyck Property. 

8 Likewise, there is no arguable basis for awarding the Govern- 
ment any increase in equity due to the general increase in property 
values. The value of value of [sic] the Berwyck Property would 
have increased regardless of whether payments were made to 
reduce the principal balance of the mortgage. 

93a 

Conclusion 

For the foregoing reasons, the Court concludes that 
the August 28, 1989, conveyance by Don to Sandra of 
his interest in the Berwyck Property was not a fraudu- 
lent conveyance, but that payments made by Don from 
April 15, 1980 through December 31, 1985, which re- 
duced the principal balance of the mortgage in the 
amount of $6,693 did constitute a fraudulent con- 
veyance. Therefore, the Government is entitled to re- 
cover that amount from the escrowed funds from the 
sale of the Berwyck Property. 

A judgment consistent with these Findings of Fact 
and Conclusions of Law will be entered. 

94a 

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

Case No. 1:93-CV-306 

SANDRA L. CRAFT, PLAINTIFF 

v. 

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

[Filed: Mar. 30, 1999] 

JUDGMENT 

Before: QUIST, District Judge. 

In accordance with the Findings of Fact and Con- 
clusions of Law issued this date, 

IT IS HEREBY ORDERED that the United States is 
awarded $6,693 of the escrowed sales proceeds from the 
Berwyck Property, plus interest on that amount from 
October 26, 1995. 

IT IS FURTHER ORDERED that the remainder of the 
escrowed sales proceeds plus interest shall be delivered 
to the plaintiff. 

95a 

APPENDIX E 

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

Case No. 1:93-CV-306 

SANDRA L. CRAFT, PLAINTIFF 

v. 

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

[Filed: Oct. 26, 1995] 

OPINION 

Before: QUIST, District Judge. 

Plaintiff filed this action in an attempt to quiet title to 
the proceeds from the sale of certain real property. In a 
prior opinion, this Court held that when Mr. and Mrs. 
Craft jointly conveyed the property on August 28, 1989, 
the entireties estate terminated and each spouse took 
an equal half interest in the estate. The Court must 
now determine the value of Mr. Craft’s interest in the 
property as of August 28, 1989. The Court held a 
hearing on September 11, 1995, 1 and subsequently each 
party submitted a supplemental brief. 

1 The September 11, 1995, hearing was conducted by telephone. 

96a 

The parties have stipulated that on August 28, 1989, 
the Berwyck property had a fair market value of 
$120,000.00. The parties also agree that on that date 
the property had an outstanding mortgage balance of 
$19,412.12. The parties do not, however, agree upon 
the value of Mr. Craft’s interest in the property. 

Plaintiff contends that even though the property was 
not sold in 1989, she should be entitled to deduct the 
hypothetical transaction costs such as those which were 
incurred when the property was sold in June of 1992. 
Plaintiff asserts that Mr. Craft’s interest in the prop- 
erty as of August 28, 1989, was $45,682.44.2 In support 
of her position, she cites 11 U.S.C. § 506(a) and In re 
Claeys, 81 B.R. 985, 990-91 (Bankr. D.N.D. 1987). 

The United States insists that it is entitled to 50% of 
the net sales proceeds resulting from the June 1992 sale 
of the property. It argues in the alternative, that if the 
lien interest is limited to 50% of the value of the prop- 
erty as of August 28, 1989, the United States would be 
entitled to statutory interest as with a failure to honor 
levy action under 26 U.S.C. § 6332(d) of the Internal 
Revenue Code. The United States has attached an ex- 
hibit which indicates that the lien interest computed 

2 Plaintiff ’ s calculation is as follows: 

Fair Market Value of real property 
$120,000.00 

(-) Mortgage balance 

19,412.12 

(-) Realtor’s commission 
8,400.00 

(-) Survey, termite inspection 
215.00 

(-) Title insurance 

476.00 

(-) Transfer tax 

___132.00 

$ 91,364.88 

97a 

through June 1, 1992, the month of sale, would total 
$67,006.85. This amount exceeds the balance of the 
escrowed fund. Thus, the United States contends that 
the entire escrowed fund should be awarded to the 
United States. 

This Court is unwilling to accept plaintiff’s argument 
that she be permitted to subtract hypothetical closing 
costs. Nor is this Court convinced that 26 U.S.C. 
§ 6332(d) is analogous to this fact situation. 

Therefore, the Court will determine Mr. Craft’s 
interest in the property as of August 28, 1989, by 
subtracting the outstanding mortgage from the fair 
market value of the property and dividing that number 
by two. This calculation results in the figure 
$50,293.94.3 An Order will be entered awarding the 
United States $50,293.94 of the escrowed sales 
proceeds. The remainder of the escrowed fund will be 
released to plaintiff. 

FINAL JUDGMENT 

In accordance with the Opinion issued on this date, 

IT IS HEREBY ORDERED that the United States is 
awarded $50,293.94 of the escrowed sales proceeds from 
the Berwyck property. 

IT IS FURTHER ORDERED that the remainder of the 
escrowed fund will be released to the plaintiff. 

3 Fair Market Value 

$120,000.00 

Outstanding Mortgage 
- 19,412.12 

$100,587.88 ÷ 2 = $50,293.94 

98a 

APPENDIX F 

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

Case No. 1:93-CV-306 

SANDRA L. CRAFT, PLAINTIFF 

v. 

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

[Filed: Sept. 12, 1994] 

OPINION 

Before: QUIST, District Judge. 

In this action plaintiff, Sandra L. Craft, seeks to quiet 
title to proceeds from the sale of certain real property 
located in Grand Rapids, Michigan. She objects to a lien 
placed on the property by defendant, the Internal 
Revenue Service (IRS). This matter is presently be- 
fore the Court on cross motions for summary judgment. 

Background Facts 

In May of 1972, plaintiff and her husband, Don R. 
Craft, purchased the property at issue in this case as 
tenants by the entireties. Mr. Craft failed to timely file 
federal income tax returns for taxable years 1979-1987 
and as a result, he was assessed $482,446.73 in unpaid 
tax liabilities. On March 30, 1989, the IRS filed a Notice 

99a 

of Federal Tax Lien against the property. On August 
28, 1989, Don and Sandra Craft quitclaimed their 
interest in the property to Sandra Craft. Mr. Craft 
filed a petition for relief under Chapter 7 of the Bank- 
ruptcy Code on January 30 1992 and on June 1, 1992, 
the Bankruptcy Court entered an order of discharge. 
The bankruptcy case was closed on June 11, 1992. 

This lawsuit arose when plaintiff attempted to sell 
the property and the IRS refused to release its lien. 
The property was eventually sold and the Crafts 
entered into an agreement with the IRS whereby one 
half of the net proceeds of that sale were released to 
Sandra L. Craft. The balance of the proceeds, amount- 
ing to $59,944.10, was retained in escrow pending the 
outcome of the federal tax lien dispute. The IRS 
contends that it is entitled to one half of the net pro- 
ceeds because its lien attached prior to the sale of the 
property.1 

DISCUSSION 

Summary Judgment Standard 

Summary judgment is appropriate if there is no 
genuine issue as to any material fact and the moving 
party is entitled to a judgment as a matter of law. Fed. 

1 Because the IRS refused to release the tax lien against the 
property, Sandra Craft moved to reopen the bankruptcy case of 
Don Craft and file an adversary proceeding against the IRS to 
force it to release the lien. Although the bankruptcy case was 
reopened on October 13, 1991, it was subsequently determined that 
the bankruptcy court did not have jurisdiction to determine the 
validity of the lien since the property had never been included in 
Mr. Craft’s bankruptcy estate. A Consent Judgment was entered 
by the bankruptcy court and the bankruptcy case was closed for 
the second time on June 1, 1993. 

100a 

R. Civ. P. 56. The rule requires that the disputed facts 
be material. Material facts are facts which are defined 
by substantive law and are necessary to apply the law. 
A dispute over trivial facts which are not necessary in 
order to apply the substantive law does not prevent the 
granting of a motion for summary judgment. Anderson 

v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 
2510 (1986). The rule also requires the dispute to be 
genuine. A dispute is genuine if a reasonable jury could 
return judgment for the nonmoving party. Id. This 
standard requires the non-moving party to present 
more than a scintilla of evidence to defeat the motion. 
The summary judgment standard mirrors the standard 
for a directed verdict. The only difference between the 
two is procedural. Summary judgment is made based on 
documentary evidence before trial, and directed verdict 
is made based on evidence submitted at trial. 477 U.S. 
at 250-51, 106 S. Ct. at 2511. 

A moving party who does not have the burden of 
proof at trial may properly support a motion for sum- 
mary judgment by showing the court that there is no 
evidence to support the non-moving party’s case. 
Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S. Ct. 
2548, 2553-54 (1986). If the motion is so supported, the 
party opposing the motion must then demonstrate with 
“concrete evidence” that there is a genuine issue of 
material fact for trial. Id.; Frank v. D’Ambrosi, 4 F.3d 
1378, 1384 (6th Cir. 1993). The court must draw all 
inferences in a light most favorable to the non-moving 
party, but the court may grant summary judgment 
when “the record taken as a whole could not lead a 
rational trier of fact to find for the non-moving party.” 
Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 
236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. 

101a 

Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. 
Ct. 1348, 1356 (1986)). 

Validity of IRS Lien 

In Cole v. Cardoza, 441 F.2d 1337 (6th Cir. 1971), the 
Sixth Circuit held that, under Michigan law, tenants by 
the entirety hold under a single title and that a federal 
tax lien could not attach to property held by a husband 
and a wife as tenants by the entirety because the 
government’s tax lien was only against the husband. 
Id. at 1343. In this motion, the IRS challenges the con- 
tinued validity of the ruling in Cole v. Cardoza. The 
IRS contends that subsequent statutory changes and 
developing case law have made the holding in Cole v. 
Cardoza obsolete. According to the IRS, each spouse 
now has a separate property interest in a tenancy by 
the entirety to which a federal lien may attach. 

It is well-established that state law governs the 
question of whether a taxpayer has an interest in 
property. However, once it has been determined that 
state law creates a property interest, federal law con- 
trols the attachment of a federal tax lien to that prop- 
erty. United States v. National Bank of Commerce, 
472 U.S. 713, 722, 105 S. Ct. 2919, 2925 (1985); United 
States v. Rodgers, 461 U.S. 677, 103 S. Ct. 2132 (1983); 
Aquilino v. United States, 363 U.S. 509, 513-14, 80 S. 
Ct. 1277, 1280 (1960); United States v. Bess, 357 U.S. 51, 
55, 78 S. Ct. 1054, 1057 (1958). 

In 1975 the Michigan legislature enacted Public Act 
No. 288. The legislation was an attempt to equalize 
women’s rights in property held as tenants by the en- 
tirety. The Act provides that “[a] husband and wife 
shall be equally entitled to the rents, products, income, 
or profits, and to the control and management of real or 

102a 

personal property held by them as tenants by the en- 
tirety.” M.C.L.A. 557.71; M.S.A. 26.210(1). The statute 
became effective December 10, 1975. 

Subsequent to this legislation, the Sixth Circuit de- 
cided United States v. Certain Real Property at 2525 
Leroy Lane, 910 F.2d 343 (6th Cir. 1990) cert. denied 
sub. nom. Marks v. U.S., 499 U.S. 947, 111 S. Ct. 1414 
(1991) (Leroy Lane I), which concerned the rights of 
tenants by the entirety in real property the govern- 
ment seized and sold under drug forfeiture proceedings. 
The Sixth Circuit held that the interest acquired by the 
government was most analogous to the position of a 
judgment creditor of one spouse under Michigan law. 
The court observed as follows: 

The exact nature of the parties’ rights would be 
more readily determinable if the real property here 
had not been sold. Mrs. Marks would be entitled to 
live in the house during the duration of the tenancy, 
and the Government would have a lien on the 
property to the extent of the value of Mr. Mark’s 
interest which would prevent Mrs. Marks from 
obtaining the entire proceeds upon the sale of the 
property. 

* * * 

[A]lthough Michigan law precludes a forced sale 
of property to enforce a judgment lien, we 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 
interest upon the termination of the entireties 
estate. 

Id. at 351-352 (emphasis added). 

103a 

Two years later, in United States v. Certain Real 
Property Located at 2525 Leroy Lane, 972 F.2d 136 (6th 
Cir. 1992) (Leroy Lane II), the Sixth Circuit restated its 
Leroy Lane I holding as follows: “the government was 
precluded from obtaining the husband’s interest in the 
property unless [the wife] predeceased her husband or 
unless the entireties estate was otherwise terminated 
by divorce or joint conveyance in accordance with 
Michigan law.” Leroy Lane II, 972 F.2d at 137 
(emphasis added). 

In Fischre v. United States, 852 F. Supp. 628 (W.D. 
Mich. 1994), the District Court for the Western District 
of Michigan held that judgment lien based upon the sole 
obligation of one spouse may attach to that spouse’s 
individual survivorship interest in entireties property. 
In Fischre, the plaintiffs, who owned real property as 
tenants by the entirety, sought to remove a cloud on 
their title caused by an abstract of a judgment that 
the United States had obtained against Dr. Fischre 
individually. Plaintiffs argued that the United States’ 
lien could not attach to Fischre’s interest in the prop- 
erty without illegitimately encumbering the property 
interest of his wife. The court held that the abstract of 
judgment was void as it pertained to the plaintiffs’ 
present title as tenants by the entirety. However, the 
abstract of judgment did attach to Dr. Fischre’s 
individual survivorship interest in the property and 
was subject to enforcement upon termination of the 
entireties estate, whether that occurred by the prior 
death of Mrs. Fischre, divorce, or joint conveyance. As 
the Fischre court explained, this conclusion does not 
require a rejection of Cole v. Cardoza, but rather a 
focus on each spouse’s potential survivorship interest. 

104a 

[E]ven though each spouse has an indivisible 
interest in the entireties property and owns it as a 
whole, each also holds an individual interest . . . . 

This individual interest is not realized and remains 
inchoate until the entireties estate is terminated by 
the death of one spouse, divorce or joint conveyance 

. . . . As long as the entireties estate is intact, the 

property is not subject to levy and execution by the 
creditors of one spouse. Yet, each spouse’s sur- 
vivorship interest is distinct, cognizable, and 
sufficient to support attachment of a creditor’s lien. 

Id. at 630 (citing Leroy Lane I). 

In the instant case, plaintiff and Mr. Craft originally 
held the real property at issue as tenants in the 
entireties and then made a joint conveyance of the 
property to Mrs. Craft. At the time that the joint con- 
veyance was made, the entireties estate terminated. At 
that point, each spouse took an equal half interest in the 
estate and the government’s lien attached to Mr. 
Craft’s interest. 

CONCLUSION 

For the reasons set forth above, plaintiff’s motion for 
summary judgment is DENIED and defendant’s motion 
for summary judgment is GRANTED. An Order consis- 
tent with this Opinion will be entered.