The IRS sends a balance due notice. A few weeks later, a deed is recorded at the Hillsborough County Clerk moving the house from both spouses to the wife alone. The joint brokerage account becomes her account. The boat title changes names. Everyone feels better.
The IRS does not. And now the problem has two people in it instead of one.
I understand the instinct. You are scared, you love your family, and you want to protect what you built. But once a tax debt exists, moving property to the spouse who does not owe is one of the most predictable mistakes I see in Tampa. Here is why.
The lien was there before the deed
Under IRC 6321, the federal tax lien arises automatically when the IRS assesses the tax, sends notice and demand, and the tax goes unpaid. Under IRC 6322, the lien dates from the assessment. You do not need to see anything recorded for the lien to exist.
What the IRS records, the Notice of Federal Tax Lien, matters for priority against certain third parties under IRC 6323(a): purchasers, holders of security interests, mechanic’s lienors and judgment lien creditors. A spouse who receives property as a gift is not a purchaser for value. Even before any notice is filed, the IRS takes the position that a donee takes the property subject to the lien.
If the notice has been filed with the Clerk under Florida’s Uniform Federal Lien Registration Act, Fla. Stat. 713.901, everyone is on notice. A deed recorded afterward transfers the property with the lien still attached. My guide on where federal tax liens are filed in Florida covers the filing rules.
Entireties property: the transfer can make things worse
Many Tampa couples own their home as tenants by the entireties. Since United States v. Craft, 535 U.S. 274 (2002), the federal tax lien attaches to the liable spouse’s interest in that property. But entireties ownership still has a valuable feature: survivorship. IRS guidance in Notice 2003-60 says that if the liable spouse dies first while the tenancy is intact, the survivor takes the property free of that spouse’s separate tax lien.
Deeding the house to the non-liable spouse ends the tenancy. Notice 2003-60 says that after a transfer of entireties property that does not provide for discharge of the lien, whether to the non-liable spouse or a third party, the lien thereafter encumbers a one-half interest in the property held by the transferee. The survivorship possibility is gone. The lien is now sitting on half the property in the non-liable spouse’s name, and it no longer goes away if the liable spouse dies first.
In other words, the “protective” deed can trade a contingent problem for a permanent one. I explain the survivorship rules in entireties property when a spouse dies.
Nominee liens
When property is titled in someone else’s name but the taxpayer still treats it as his own, the IRS can file a nominee lien. IRM 5.17.2.5.7.2 defines a nominee as a third party who holds legal title while the taxpayer enjoys full use and benefit of the property. The factors include whether the taxpayer retains possession or control and whether the conveyance was for tax avoidance purposes.
Think about how a typical retitling looks. The husband still lives in the house. He still pays the mortgage from his earnings. The “wife’s” brokerage account is still traded by him. That is a nominee fact pattern.
The IRM requires Area Counsel approval before a nominee lien is filed, and the notice usually identifies the specific property. Once filed, it puts the world on notice that the IRS claims the property as the taxpayer’s, regardless of whose name is on the title.
Transferee liability and fraudulent transfer claims
Beyond liens, the IRS has ways to come after the person who received the property.
- Transferee liability under IRC 6901. This provision lets the IRS assess and collect the transferor’s tax from a transferee, using the same procedures as for the original tax, when state law or equity would make the transferee liable. In Florida, that usually means the fraudulent transfer rules.
- Florida’s Uniform Fraudulent Transfer Act. Chapter 726 of the Florida Statutes allows a creditor to avoid a transfer made with actual intent to hinder, delay or defraud a creditor, or a transfer made without reasonably equivalent value while the debtor was insolvent or became insolvent as a result. A gift of a house to a spouse while owing the IRS more than you can pay checks those boxes.
- The Federal Debt Collection Procedures Act. 28 U.S.C. 3304 gives the United States its own fraudulent transfer remedy in federal court for debts owed to it, including taxes.
- Suits in federal court. The government can file suit under IRC 7402 and 7403 to reduce the assessment to judgment, set aside the transfer and foreclose the lien. In Tampa, that happens in the Middle District of Florida. My guide on IRS foreclosure suits in Tampa federal court covers that path.
Florida’s own exemption statutes also refuse to protect property that got there through a fraudulent transfer. Fla. Stat. 222.29 says an exemption under Chapter 222 is not effective if it results from a fraudulent transfer as provided in Chapter 726. Fla. Stat. 222.30 separately addresses fraudulent asset conversions.
The offer in compromise problem
Even if the IRS never sues anyone, a recent transfer will follow you into any resolution. When the IRS evaluates an offer in compromise, it computes reasonable collection potential. IRM 5.8.5.18 tells employees to consider dissipated assets, generally using a three-year look-back, and to include transfers older than that in some situations, such as when they happened around the time of assessment or during an examination.
So the house you deeded to your spouse may be counted as if you still owned it. You end up offering more to settle, not less. And for entireties property specifically, IRM 5.8.5.13 lets the IRS reduce the taxpayer’s share below 50 percent of equity only when the property does not appear to have been transferred into the tenancy to avoid tax collection. Moving property around after the debt arises undercuts that argument. The guide on offers and Florida homestead equity goes further.
What legitimate separation looks like
None of this means spouses must share everything. Married people can keep their own money. What the law cares about is substance and timing.
- A non-liable spouse who deposits his or her own paychecks into a separate account is doing something ordinary.
- Property the non-liable spouse bought with his or her own funds belongs to that spouse.
- Estate planning done years before any tax problem, for reasons unrelated to the IRS, is evaluated on its own facts.
- Selling property to anyone, including a spouse, for full fair value is not a gift, though the proceeds are still the taxpayer’s and the lien may follow them.
What gets people in trouble is the transfer that happens after the notice arrives, for nothing in return, while the taxpayer keeps living like the owner.
Better moves when one spouse owes
If one spouse owes the IRS and you want to protect the family, these steps usually help more than a deed:
- Pull the IRS account transcripts and confirm which liabilities are separate and which are joint.
- Keep entireties property titled as entireties property unless there is a reason grounded in more than the tax debt.
- Separate the non-liable spouse’s earnings going forward, honestly and with records.
- Get the liable spouse into a resolution the IRS will honor so the lien never becomes a collection event.
- If a transfer already happened, talk to a lawyer before the IRS asks about it. Explaining it voluntarily is a much better conversation than having a Revenue Officer find it on the Hillsborough County Property Appraiser’s website.
That last point is not hypothetical. Revenue Officers check property records as a matter of routine, and my guide on how Revenue Officers find assets in Hillsborough County explains what they look at. GetIRSHelp.com has a practical guide on what to do when you owe the IRS.
The deed takes ten minutes to record. Unwinding it can take years. Talk first, sign later.