After the IRS filed a notice of federal tax lien for a plaintiff’s husband’s unpaid employment taxes on certain real property, to which plaintiff and her husband’s friend held legal title, the plaintiff brought a quiet title action against the U.S. Last month, the 10th Circuit Court of Appeals vacated and remanded the District Court’s holding (read the case here) that the lien was enforceable only as to the half-interest held by the friend. The reason for vacating the District Court’s decision and sending the case back to that Court was because: 1) a formal transfer of legal title from plaintiff’s husband to plaintiff is not required in order to enforce the lien; but 2) a remand was needed to determine whether the IRS could establish that the husband held an interest in the property under Utah law.
Donna Holman filed this quiet title action against the United States after the IRS filed a tax lien on real property in Centerville, Utah, to which she and a friend of her husband Kenneth Holman held legal title. The IRS’s lien arose out of assessments against Mr. Holman for unpaid employment taxes. Mrs. Holman asserted that she and her husband’s friend, Hyrum Smith, held the Centerville property free and clear of the tax lien. The IRS responded by filing a counterclaim alleging that both Mrs. Holman and Mr. Smith held the property as nominees for Mr. Holman and seeking to enforce the lien.
The district court ruled that (1) Mrs. Holman held an undivided half-interest in the property in her own right, not as a nominee for Mr. Holman; but (2) Mr. Smith held an undivided one-half interest in the Centerville property as a nominee of Mr. Holman. The court based the former ruling on the fact that Mr. Holman had never transferred legal title to the property to Mrs. Holman. As a result, the district court concluded, the federal tax lien was enforceable only as to the half interest held by Mr. Smith.
The IRS appealed the district court’s ruling that a transfer of legal title was required to enforce the nominee lien. Mrs. Holman filed a cross-appeal, maintaining that the district court erred in characterizing Mr. Smith’s interest in the property. According to Mrs. Holman, Mr. Smith held title to the Centerville property as her nominee, not as Mr. Holman’s nominee.
With regard to the IRS’s appeal, the 10th Circuit Court of Appeals agreed that a formal transfer of legal title from Mr. Holman to Mrs. Holman is not required in order to enforce the lien. However, the Circuit Court further concluded that the IRS must establish that Mr. Holman held an interest in the property under Utah law. Because the district court did not undertake this state-law inquiry, the Circuit Court vacated its decision and remand for further proceedings. As for Mrs. Holman’s cross-appeal, the Circuit Court also conclude that further proceedings are warranted.