Court Opinion

ID: 6989679
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:22:39.291599+00
Date Added: 2024-06-11T16:09:33.763636
License: Public Domain

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 inconsistent with Supreme Court precedent and should be reversed. I therefore write separately to identify the bases for my disagreement with Craft I and to recommend 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, 106 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 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 Minnesota 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, declaring 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 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-*377defined 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 survivorship.”). 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).
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, however, 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 description to the actual substance of those interests under Michigan law. In Irvine, the Supreme Court acknowledged that, under Minnesota law, a disclaimant is considered as if she never held any interest in the property whatsoever. Irvine,, 511 U.S. at 239, 114 S.Ct. 1473, 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 control over the disposition of the property — a right that had unquestionable value. Id. at 240,114 S.Ct. 1473.
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 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 ‘substantially new evidence has been introduced, ... there has been an intervening change of law, or ... the first decision was clearly erroneous and enforcement 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 previous 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 *378into the precise differences between the two, suffice it to say that the law-of-the-circuit is the stronger of the two doctrines, and therefore 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 provisions 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, intervening Supreme Court decision. In that case, a delinquent 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 predeceased 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 existing precedent. “Were matters otherwise, the finality of our appellate decisions would yield to constant conflicts within the circuit.” LaShawn, 87 F.3d at 1395 (examining the law-of-the-circuit doctrine).
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 individual 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 entirety 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 en-tireties 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. *379But I also believe that Craft I contravenes recent Supreme Court decisions and would therefore recommend that this case be revisited en banc.