Opinion ID: 782142
Heading Depth: 3
Heading Rank: 3

Heading: Retroactive Application of United States v. Craft

Text: 20 The Hatchetts argue that even if Craft is applicable, it should not be applied retroactively. As support for this argument, the Hatchetts offer Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), which announced that a three-prong balancing test should be used in deciding whether a new principle of law should be applied retroactively. The Hatchetts argue that under the Chevron Oil balancing test, retroactive application of Craft would have far-reaching untoward effects upon many, including tax professionals and the title industry. Additionally, citing to one of the dissents in Craft, the Hatchetts argue that there has been a general reliance in this country, including within the IRS, on the fact that the Government is unable to levy against property held as a tenancy by the entirety. These arguments are based on an incorrect understanding of current Supreme Court precedent. 21 In Harper v. Virginia Department of Taxation, 509 U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993), the Supreme Court held that its decision in Davis v. Michigan Department of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), applied retroactively to retired federal employees seeking refunds for taxes imposed on their federal retirement benefits by the state of Virginia. 509 U.S. at 89-90, 113 S.Ct. 2510. The Court abandoned the balancing test articulated in Chevron Oil, developing a new standard for determining retroactivity in civil cases: 22 [O]ur decision today makes it clear that the Chevron Oil test cannot determine the choice of law by relying on the equities of the particular case and that the federal law applicable to a particular case does not turn on whether [litigants] actually relied on [an] old rule [or] how they would suffer from retroactive application of a new one. 23 Id. at 95 n. 9, 113 S.Ct. 2510 (quoting James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 543, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991) (Souter, J.)); see also In re Federated Dep't Stores, Inc., 44 F.3d 1310, 1317 (6th Cir.1995) (recognizing that Chevron Oil has been overruled by Harper ). The Court in Harper held: 24 When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule. 25 509 U.S. at 97, 113 S.Ct. 2510; see also United States v. Real Prop. Located at 1184 Drycreek Rd., Granville, Oh. 43023, 174 F.3d 720, 727 (6th Cir.1999) (noting that Harper mandates the application of a new Supreme Court case decided while the present case was on direct appeal). Moreover, the Court in Harper invoked the Supremacy Clause and rejected Virginia's argument that states have the ability to limit the retroactive operation of federal law. 509 U.S. at 100, 113 S.Ct. 2510 (Whatever freedom state courts may enjoy to limit the retroactive operation of their own interpretations of state law[,]... cannot extend to their interpretations of federal law.) (citations omitted); see also Drye v. United States, 528 U.S. 49, 57, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999) ([F]ederal, not state [law] control[s] the ultimate issue whether a taxpayer has a beneficial interest in any property subject to levy for unpaid federal taxes.); United States v. Rodgers, 461 U.S. 677, 678-79, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983) (holding that the Supremacy Clause allows the Government to sweep aside state-created exemptions to the collection of federal taxes and apply federal law). 26 The Supreme Court detailed the process for consideration of retroactivity in Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 115 S.Ct. 1745, 131 L.Ed.2d 820 (1995), stating that: 27 [W]hen (1) the Court decides a case and applies the (new) legal rule of that case to the parties before it, then (2) it and other courts must treat that same (new) legal rule as retroactive, applying it, for example, to all pending cases, whether or not those cases involve predecision events. 28 514 U.S. at 752, 115 S.Ct. 1745. 29 Applying Reynoldsville Casket, we find that first, Craft announces a new rule of federal law. Several federal and state courts, including our Court, as well as the IRS, had assumed that entireties property was excluded from the definition of all property and rights to property as defined by the tax code. See, e.g., Craft, 122 S.Ct. at 1431-32 (Thomas, J., dissenting) (listing cases). Therefore, the result in Craft is that a new rule of federal law was announced. Also, the Court applied the rule in Craft to the parties before it. In holding that the Government was authorized to attach liens to entireties property, the Court remanded the decision in Craft to this Court to determine the exact valuation of the taxpayer's interest in the entireties property and the amount owing to the Government. Id. at 1426. Second, the present case was pending on direct review when the Supreme Court's decision in Craft was rendered. Indeed, the Government's primary argument to this Court on appeal depended on the outcome of Craft II, which was pending review in our Court at the time the Government's appeal was filed, and any subsequent review by the Supreme Court. Accordingly, Craft applies retroactively to this case. 30