Mr. and Mrs. Gershon Tannenbaum owned their home in Brooklyn, N.Y.
IRS was granted power to sell the home to try to recover the taxes he owed. She was entitled to receive an appropriate portion of the sales proceeds since she did not owe any taxes and the other rules were met.
Mr. Tannenbaum owed IRS for many years of income taxes. Only he owed IRS taxes. After several years of no payments or agreements, IRS got a default judgment against only him for about $1,900,000.
A district court followed the U.S. Supreme Court decision of 1983 in U.S. v. Rogers:
The government financial interests would not be prejudiced (hurt) by a forced sale
The innocent third-party (Mrs. Tannenbaum) had expectation her separate interest would not be subject to a forced sale by him or his creditors
She would not be injured by incurring relocation costs or be under compensated
His interest and her interests were owned in a way that did not prevent the sale
The district court granted IRS power to foreclose on the home and sell it. Half of the sales proceeds were distributed to Mrs. Tannenbaum and the other half of the proceeds were distributed to his lienholders (folks he owed that had legal liens on the property-but IRS got paid first).
She argued that a New York court could not, over her objection, order a forced sale of a property owned by tenancy by the entirety. The court found the cases she cited all had to do with divorces and did not apply. IRS was authorized to foreclose, sell and distribute half of the proceeds to her.
There was also a condo that was sold for $350,000 that she owned. The home sold for $1,200,000 with $600,000 being paid to her. The court felt she had adequate resources to buy a replacement home ($950,000). The court felt her expenses and inconvenience of relocating were similar to what she would have experienced in a foreclosure.
There was a lien on the home by an attorney, but the court found IRS could ignore that because IRS filed its lien before he filed his and his lien was against the couple, not on their behalf or benefit.
Mrs. Tannenbaum suffered the hassle of finding a new home and moving. It is too bad he didn’t work with IRS and do an Installment Payment Agreement years ago.
Did you hear? “The income tax division of our government should be mighty glad the taxpayers have what it takes,” by Anonymous.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.