No. 00-1831 

In the Supreme Court of the United States 

UNITED STATES OF AMERICA, PETITIONER 

v. 

SANDRA L. CRAFT 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT 

REPLY BRIEF FOR PETITIONER 

THEODORE B. OLSON 
Solicitor General 

Counsel of Record 
Department of Justice 
Washington, D.C. 20530-0001 
(202) 514-2217 

TABLE OF AUTHORITIES 

Cases: Page 

American Constr. Co. v. Jacksonville, T. & K.R. 

2 

Co., 148 U.S. 372 (1893) ....................................................... 

Columbia Union Coll. v. Clarke, 527 U.S. 1013 

(1999) ........................................................................................ 2 

Dow v. State, 396 Mich. 192, 240 N.W.2d 450 

(1976) ........................................................................................ 7 

Drye v. United States, 528 U.S. 49 (1999) ....................... 

5, 6, 7 

Eadus v. Hunter, 249 Mich. 190, 228 N.W. 782 

(1930) ........................................................................................ 6 

Estelle v. Gamble, 429 U.S. 97 (1976) ................................. 

2 

FTC v. Colgate-Palmolive Co., 380 U.S. 374 

(1965) ........................................................................................ 2 

FTC v. Minneapolis-Honeywell Regulator Co., 

344 U.S. 206 (1952) ................................................................ 

2 

Farmers’ & Merchants’ Nat’l Bank & Trust Co. v. 

Globe Indem. Co., 264 Mich. 395, 249 N.W. 882 

(1933) ........................................................................................ 6 

Hatchett v. IRS, 126 F. Supp. 2d 1038 (E.D. Mich. 

2000), appeal docketed, No. 00-1645 (6th Cir. June 

13, 2000) ................................................................................... 

8-9 

Jackson, In re, 92 B.R. 211 (W.D. Mich. 1988) ................... 

4 

Jones In re, 31 B.R. 372 (Bankr. W.D. Mich. 1983) ........... 

4 

Mercer v. Theriot, 377 U.S. 152 (1964) ............................... 

2 

Muskegon Lumber & Fuel Co. v. Johnson, 338 

Mich. 655, 62 N.W.2d 619 (1954) ......................................... 

4 

Randolph Cen. Sch. Dist. v. Aldrich, 506 U.S. 965 

(1992) ........................................................................................ 2 

Rogers v. Rogers, 136 Mich. App. 125, 356 N.W.2d 

288 (1984) ................................................................................. 

4, 6 

Toledo Scale Co. v. Computing Scale Co., 261 U.S. 

399 (1923) ................................................................................. 

2 

Tyler v. United States, 281 U.S. 497 (1930) ...................... 

7 

United States v. Bess, 357 U.S. 51 (1958) .......................... 5 

(I) 

II 

Cases—Continued: Page 

United States v. National Bank of Commerce, 

472 U.S. 713 (1985) ................................................................ 

4 

United States v. Rodgers, 461 U.S. 677 (1983) ................. 

5 

Wickstrom, In re, 113 B.R. 339 (Bankr. W.D. Mich. 

1990) ......................................................................................... 4 

Constitution and statutes: 

U.S. Const. Amend. V (Due Process Clause) ...................... 
7 

Bankruptcy Code, 11 U.S.C. 101 et seq.: 

11 U.S.C. 522(b)(2)(B) ........................................................... 

7 

11 U.S.C. 522(c)(2)(B) ........................................................... 

8 

Internal Revenue Code, 26 U.S.C. 6321 ............................... 

4 

Mich. Comp. Laws Ann. (West): 

§ 554.872(g) (Supp. 1997) ...................................................... 

6 

§ 554.872(i) (Supp. 1997) ....................................................... 

6 

§ 557.71 (West 1988) .......................................................... 

4, 6, 7 

§ 700.2901(g) (Supp. 2001) .................................................... 

6 

§ 700.2901(i) (Supp. 2001) ..................................................... 

6 

Miscellaneous: 

R. Stern, W. Gressman et al., Supreme Court Prac- 
tice (7th ed. 1993) ................................................................... 

2 
S. Johnson, Fog, Fairness, and the Federal Fisc: 

Tenancy-by-the-Entireties Interests and the Federal 

Tax Lien, 60 Mo. L. Rev. 839 (1995) .................................. 

9 

W. Plumb, Federal Tax Liens (3d ed. 1972) ........................ 6 

In the Supreme Court of the United States 

No. 00-1831 

UNITED STATES OF AMERICA, PETITIONER 

v. 

SANDRA L. CRAFT 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE SIXTH CIRCUIT 

REPLY BRIEF FOR PETITIONER 

1. Respondent errs in asserting (Br. in Opp. 1-2) that 
the United States may not obtain review of the final 
judgment entered in this case because that judgment 
rests, in part, on the interlocutory order entered by the 
court of appeals on the first appeal in this case. 
Respondent claims that “[t]he fact that [on the first 
appeal] the Sixth Circuit remanded the case back to the 
District Court for consideration of an entirely different 
issue, does not alter the finality of the Sixth Circuit’s 
reversal of the earlier District Court’s decision on the 
issue raised by the Petitioner’s petition.” Id. at 1. 

In making that contention, respondent ignores the 
settled rule that “the Court on certiorari to review a 
final decree can reach back and correct errors in the 
interlocutory proceedings below, even though no 
attempt was made to secure review of the interlocutory 

(1) 

2 

decree or even though such an attempt was made 
without success.” R. Stern, E. Gressman et al., Su- 
preme Court Practice 40 (7th ed. 1993), citing, e.g., 
Mercer v. Theriot, 377 U.S. 152, 153-154 (1964); Toledo 
Scale Co. v. Computing Scale Co., 261 U.S. 399, 418 
(1923). Indeed, it is the Court’s “normal practice” to 
deny “interlocutory review.” Estelle v. Gamble, 429 
U.S. 97, 114 (1976) (Stevens, J., dissenting).1 Review by 
writ of certiorari is ordinarily from the final order that 
disposes of all issues in the case rather than “from an 
interlocutory order.” American Construction Co. v. 
Jacksonville, T. & K.R. Co., 148 U.S. 372, 384 (1893).2 

On the first appeal in the present case, the Sixth 
Circuit did not address or resolve the question whether 
the Crafts had fraudulently conveyed the property to 
respondent. Instead, the court of appeals remanded the 
case for consideration of this issue by the district court. 
Pet. App. 3a, 58a. On remand, the district court held 
that the property had not been fraudulently conveyed 

1 See also Columbia Union College v. Clarke, 527 U.S. 1013, 
1015 (1999) (Thomas, J., dissenting from the denial of certiorari) 
(“the Court declines to grant certiorari today—perhaps because 
this case comes to us in an interlocutory posture”); Randolph 
Central School Dist. v. Aldrich, 506 U.S. 965 (1992) (White, J., 
dissenting from the denial of certiorari). 

2 The cases on which respondent seeks to rely (Br. in Opp. 2) 
are inapposite. For example, FTC v. Minneapolis-Honeywell 
Regulator Co., 344 U.S. 206, 211-213 (1952), addresses whether the 
90-day period for the filing of a petition for a writ of certiorari may 
be renewed when, without the filing of a petition for rehearing, the 
court of appeals issues a second opinion on a single appeal. That 
question is not presented here. Similarly, this case does not 
present the question addressed in FTC v. Colgate-Palmolive Co., 
380 U.S. 374, 378 (1965), concerning the circumstances in which a 
final order in prior litigation may be reviewed in connection with a 
separate but related later suit. 

3 

to respondent but concluded that the government could 
recover the amounts by which Don Craft had enhanced 
the value of the property during his insolvency by 
making mortgage payments. Id. at 79a-86a. On the 
government’s appeal from the judgment entered on 
remand, the court of appeals declined to reconsider its 
rulings on the first appeal and affirmed the district 
court’s ruling on the fraudulent enhancement issue. Id. 
at 6a-20a. The petition for a writ of certiorari is timely 
because it was filed by the United States within 90 days 
of the judgment entered by the court of appeals follow- 
ing the proceedings on remand. See Pet. 1. 

2. Respondent errs in asserting (Br. in Opp. 8-9) that 
this case became moot upon the death of Don Craft in 
1998. Respondent contends that, upon her husband’s 
death, respondent obtained fee simple title to the 
property by right of survivorship and is therefore enti- 
tled to the sale proceeds that have been held in escrow 
pending the conclusion of this case. Respondent argues 
that this conclusion is required both by general princi- 
ples of succession and by “[t]he original escrow stipula- 
tion signed between the parties” (id. at 9). 
(i) The escrow agreement to which respondent refers 
was formed at the time of the sale of the subject 
property, and it specifies that one-half of the proceeds 
were to be released to respondent (representing “her 
share” of the proceeds) and that “[t]he remaining one- 
half, or $59,944.10 will be placed in an interest bearing 
account at [respondent’s counsel’s law firm] until such 
time as a resolution of the tax lien dispute is reached 
and an agreement is signed by both the Internal 
Revenue Service and representatives of Don Craft or 
until ordered to release those funds by an appropriate 
court order.” C.A. App. 147. Nothing in that escrow 

4 

agreement addresses or resolves the proper disposition 
of these funds upon the death of Don Craft. 
(ii) The correct disposition of these escrowed funds 
can be determined only upon resolution of the question 
presented in this case. If, as the government submits, 
the federal tax lien attached to the interest of Don 
Craft in the tenancy-by-entirety property, that lien 
attached to his interest in the proceeds of that property 
upon its sale—a sale that occurred six years prior to his 
death. Pet. App. 3a. That sale terminated the tenancy- 
by-entirety and, upon its termination, each of the 
tenants became individually entitled to receive one-half 
of the proceeds. Mich. Comp. Laws Ann. § 557.71 (West 
1988); see Rogers v. Rogers, 136 Mich. App. 125, 135, 
356 N.W.2d 288, 293 (1984). See also Pet. 12.3 The 
valuable and legally protected right of each member of 
a tenancy by the entirety to share as individuals in the 
proceeds of the sale is one of the “rights to property” to 
which the federal tax lien attaches by operation of law 
under 26 U.S.C. 6321. United States v. National Bank 
of Commerce, 472 U.S. 713, 725 (1985) (the “right to 
receive property is itself a property right” to which the 
federal tax lien attaches). See Pet. 11-15. 

As Judge Ryan explained in his separate opinion 
below, before the property was sold, the federal lien 
had attached to Don Craft’s “future right to half of the 
proceeds.” Pet. App. 69a. And, when the property was 
thereafter sold, the taxpayer’s “future right to half of 

3 Even under state law, the proceeds of entirety property that 
are available for meeting personal expenses may be attached for 
the debts of one spouse. See Muskegon Lumber & Fuel Co. v. 
Johnson, 338 Mich. 655, 62 N.W.2d 619 (1954); In re Wickstrom, 
113 B.R. 339, 349 (Bankr. W.D. Mich. 1990); In re Jackson, 92 B.R. 
211, 214 (W.D. Mich. 1988); In re Jones, 31 B.R. 372, 375 n.4 
(Bankr. E.D. Mich. 1983). 

5 

the proceeds became a present interest” to which the 
federal lien continued to attach. Ibid. Because the 
death of Don Craft occurred many years after the tax 
lien had attached to his separate interest in the 
proceeds, and because these proceeds were not them- 
selves entirety-property, his death does not make the 
government’s claim for enforcement of its lien moot. 
See, e.g., United States v. Rodgers, 461 U.S. 677, 691 

n.16 (1983) (the federal tax lien “cannot be extinguished 

* * * simply by a transfer or conveyance of the 
interest”).4 

3. a. Respondent principally contends on the merits 
(Br. in Opp. 9) that the federal tax lien can attach only 
to interests that the State has itself characterized as 
“property.” It is well established, however, that 
whether or not the State characterizes the interest as 
“property” is not controlling. Instead, courts are to 
look to “federal law to determine whether the tax- 
payer’s state-delineated rights qualify as ‘property’ or 
‘rights to property’ within the compass of the federal 
tax lien legislation.” Drye v. United States, 528 U.S. 49, 
58 (1999). Because the governing question of statutory 

4 Indeed, in the district court, respondent took the position that 
the tenancy by the entirety had been terminated even prior to the 
sale, when the property was quitclaimed by Don Craft to respon- 
dent in 1989. Pet. App. 3a. Respondent maintained in the district 
court that “[t]he tenancy by the entireties in the case before the 
Court was destroyed by operation of law when the tenancy was 
terminated in accordance with the provisions of MCLA § 557.101 
as shown on Government Exhibit 3.” C.A. App. 204-205. Of 
course, the conveyance of property to which the federal tax lien 
has attached does not destroy the lien, for the lien passes with the 
property and also attaches to any proceeds. See, e.g., Drye v. 
United States, 528 U.S. 49, 53-54 (1999); United States v. Rodgers, 
461 U.S. at 691 n.16; United States v. Bess, 357 U.S. 51, 57 (1958) 
(property subject to a federal lien can only be passed “cum onere”). 

6 

interpretation is controlled by federal law, “it is not 
material that the economic benefit to which the [tax- 
payer’s] right pertains is not characterized as ‘property’ 
by local law.” Id. at 58 n.5 (quoting W. Plumb, Federal 
Tax Liens 27 (3d ed. 1972)). 

As demonstrated in the petition (Pet. 12-13), the 
spouse’s interest in a tenancy by the entirety in Michi- 
gan is a valuable, legally protected “species of right or 
interest” to which the federal tax lien attaches. Drye v. 
United States, 528 U.S. at 56. Under Michigan law, 
each spouse has the right to reside on the property, to 
exclude third parties from the property, to join or 
refuse to join in the mortgage, lease or sale of the 
property, and to share individually in the proceeds of a 
sale. See Farmers’ & Merchants’ Nat’l Bank & Trust 
Co. v. Globe Indemnity Co., 264 Mich. 395, 399, 249 
N.W. 882, 883 (1933); Eadus v. Hunter, 249 Mich. 190, 
193-196, 228 N.W. 782, 783-784 (1930); Mich. Comp. 
Laws. Ann. § 557.71 (West 1988). Each spouse also has 
the right of survivorship, which is the right to receive 
the property in fee simple absolute upon the death of 
the other spouse. See Rogers v. Rogers, 136 Mich. App. 
at 135 n.14, 356 N.W.2d at 293 n.14; Mich. Comp. Laws. 
Ann. § 554.872(g) (West Supp. 1997), recodified at Mich. 
Comp. Laws Ann. § 700.2901(g) (West Supp. 2001).5 

5 The Michigan legislature has specified that a tenancy by the 
entirety “consist[s] of a present interest and a future interest” and 
has itself characterized each of these interests as “property.” 
Mich. Comp. Laws. Ann. § 554.872(g), (i) (West. Supp. 1997), 
recodified at id. § 700.2901(g), (i) (West. Supp. 2001). The Michigan 
Supreme Court has accordingly held that each spouse holding en- 
tirety property has “a significant interest in property” protected 

7 

These state-created rights, which are protected by law 
and have undeniable value, constitute “property or 
rights to property” within the broad scope of the 
federal tax lien. See Drye v. United States, 528 U.S. at 
56; Pet. 11-13. 

b. Respondent is wrong in suggesting that a State 
may avoid the consequences of federal tax law simply 
by adopting a “state law fiction [as] part of the defini- 
tion of property rights” (Br. in Opp. 11). It is well 
established that federal tax law—and the operation of 
the federal tax lien in particular—is not governed by 
state legal fictions concerning property ownership. 
Drye v. United States, 528 U.S. at 59. Federal tax law 
looks to “the actual results” rather than “the artificial 
rules” of state law in determining the nature and 
taxability of rights possessed by tenants by the en- 
tirety. Tyler v. United States, 281 U.S. 497, 503 (1930). 
See Pet. 17-20. 

c. Respondent also errs in suggesting (Br. in Opp. 

28) that the general exemption from creditors for 
entireties property under the Bankruptcy Code (11 
U.S.C. 522(b)(2)(B)) reflects an intention of Congress 
that the federal tax lien should not be understood to 

by the Due Process Clause. Dow v. State, 396 Mich. 192, 204, 240 
N.W.2d 450, 456 (1976). 

Recent Michigan legislation makes it even more apparent that 
each spouse’s interest in entirety property constitutes an interest 
in “property” or a “right to property” that is subject to the federal 
tax lien. Prior to 1975, the husband had exclusive control of the 
property and enjoyment of its income and profits. In 1975, how- 
ever, the legislature amended state law to specify that the two 
spouses are equally entitled to the control and management of 
entirety property and to its rents, income, and profits. Mich. 
Comp. Laws. Ann. § 557.71 (West 1988). See Dow v. State, 396 
Mich. at 198 n.10, 240 N.W.2d at 453 n.10. 

8 

reach such property. In fact, this provision clearly 
reflects precisely the opposite conclusion. The statute 
describes the interest of each spouse in a tenancy by 
the entirety as a “property” right and specifies that, 
notwithstanding any discharge in bankruptcy, such 
property remains subject to any “tax lien, notice of 
which is properly filed.” 11 U.S.C. 522(c)(2)(B). 
Respondent’s contention that the federal tax lien does 
not attach to entirety property is plainly inconsistent 
with, and would simply nullify, this carefully crafted 
statutory provision. 

4. As Judge Ryan emphasized in dissent, the major- 
ity opinion in this case “not only contravenes estab- 
lished precedent, but provides an avenue for easy 
avoidance of federal income-tax laws.” Pet. App. 69a. 
Under the reasoning of the decision below, one or both 
spouses may earn income, fail to file returns or file only 
separate returns, and immunize unlimited amounts of 
entirety property from tax collection. Indeed, a promi- 
nent Michigan lawyer has pursued precisely such a path 
in accruing federal tax debts in excess of $8,000,000 
while “sheltering” his assets in several tenancies by the 
entirety.6 See Hatchett v. IRS, 126 F. Supp. 2d 1038, 
1047, 1050-1051 (E.D. Mich. 2000), appeal docketed, No. 

6 There is no basis for respondent’s suggestion (Br. in Opp. 4) 
that the “fraudulent enhancement” theory (see Pet. App. 85a-86a) 
will enable the government to collect the tax liabilities of other 
taxpayers who have employed tenancies by the entirety to avoid 
payment of taxes. The fraudulent enhancement theory allows 
recovery only of nonexempt funds that an insolvent debtor has 
used to enhance the value of exempt property during the period 
after the lien arose. Ibid. In this case, recovery under this theory 
was limited to the funds ($6,693) that Don Craft had used to reduce 
mortgage principal. Id. at 92a. The outstanding tax liability, with 
interest, however, exceeds $482,446. Id. at 45a. 

9 

00-1645 (6th Cir. June 13, 2000). Review of the impor- 
tant and recurring question presented in this case is 
needed to close the “ready pathway for tax avoidance” 
sanctioned by the decision below. S. Johnson, Fog, 
Fairness, and the Federal Fisc: Tenancy-by-the-En- 
tireties Interests and the Federal Tax Lien, 60 Mo. L. 
Rev. 839, 888 (1995). 

For the reasons stated above and in the petition, it is 
respectfully submitted that the petition for a writ of 
certiorari should be granted. 

THEODORE B. OLSON 
Solicitor General 

AUGUST 2001