Mother-and-son joint ownership hits real-estate snag

In 1996, Linda and her son took title to a rental condominium in their names as “joint tenants with right of survivorship.” The Internal Revenue Service had recorded tax liens against the son for 1993, 1994, 1995, 1996 and 1997.

In 2000, the condominium was sold, but the IRS attached one half of the sales proceeds to partially pay the son’s income taxes.

Purchase Bob Bruss reports online.

Linda sued for a refund, arguing she put her son on the title only for estate planning purposes. She explained that she handled the condominium rental, reporting all the rent income and applicable tax deductions on her personal income tax returns.

But the IRS attorney argued that because the son held a 50 percent ownership interest in the condominium, his interest can be attached by the properly recorded tax liens. When the condo is sold, he continued, the IRS is entitled to seize half of the sales proceeds to partially pay the son’s income tax obligations.

If you were the judge would you rule 50 percent of the condominium’s sales proceeds can be seized for unpaid income taxes?

The judge said yes!

Although Linda may have held title in joint tenancy with right of survivorship for estate planning purposes, the fact is she and her son each owned a 50 percent interest in the rental condominium, the judge explained.

Because the son held a property interest, the judge continued, it is subject to levy by the IRS under its recorded tax lien for unpaid income taxes.

“To establish a joint tenancy relationship, there must exist four basic requirements: (1) all tenants must acquire their interests from the same sources; (2) all must have identical shares; (3) all must take title at the same time, and (4) the possession of each part is the possession of all,” the judge emphasized.

Linda’s intention to hold title in joint tenancy with right of survivorship to avoid probate, although the evidence shows the son did not contribute to the condominium’s purchase price, he still held legal title to a 50 percent interest, which is subject to seizure by the IRS for unpaid income taxes, the judge ruled.

Based on the 2003 U.S. District Court decision in Nikirk v. U.S., 2003-2 USTC 50701.