IRS Collection on Interesting Assets: Future Interests, Contingent Interests, and Executory Contracts

• Published in: Journal of Tax Practice & Procedure Vol. 24; no. 4; pp. 9 - 59
• Main Author: Elliott, William D
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Riverwoods CCH, Inc 22.12.2022; CCH INCORPORATED
• Subjects: Bankruptcy; Contingent interest; Delinquency; Installment payments; Liability; Personal property; Property rights; Remainder interests; Right of property; State court decisions; State laws; Tax collection; Tax collections; Tax liens; Wages & salaries
• ISSN: 1529-9279

[...]this column contains only a brief discussion of the basic rules of tax collection. Federal tax liens attach to all property and rights to property, whether real or personal property, belonging to the taxpayer.1 The tax lien attaches to all property and rights to property at any time during the period of the tax lien, including after-acquired property.2 Federal tax levies are statutorily authorized against any property and rights to property belonging to the taxpayer or on which there is a tax lien attached to taxpayer's property or rights to property.3 In contrast to federal tax liens, tax levies do not reach after-acquired property, except for continuous levies against salary and wages and a few enumerated specified payments.4 The authorizing statute provides the singular effect of a tax levy: a levy shall extend only to property possessed and obligations existing at the time thereof.5 A tax levy against fixed and determinable property or rights to property is a concept requiring attention to subtleties, but suffice it to say that a tax levy served on a fixed and determinable property right of the taxpayer has a continuous effect even though the levy is a single levy.6 The Treasury Regulations use the phrase "fixed and determinable" but with a limited definition. The Court in Drye approved of the idea that the reach of the tax lien (as per Code Sec. 6321) should be construed expansively.10 The Drye opinion also listed factors or india, indicating property, but this list was drawn from prior cases to illustrate, not authoritatively define, what property is:11 * "every species of right or interest protected by law and having an exchangeable value,"12 * a right to gain possession of an item, even if such possession does not amount to ownership,13 * items available to the taxpayer, "within [her] reach to enjoy,"14 * "any beneficial interest, as opposed to 'bare legal title,' in the [asset] at issue,"15 * "a valuable, transferable, legally protected right to the property at issue,"16 * "rights or interests that have pecuniary value and are transferable,"17 and * more than a mere expectancy, even if valuable and transferable.18 III. [...]death, the property subject to the power of appointment does not exist, it is mere expectancy, and thus the tax lien would not attach nor could a tax levy reach the future interests.20 Interestingly, the Federal Debt Collection Procedure Act21 (FDCPA) allows the United States to collect a judgment by attaching the debtor's "nonexempt" property and that the "the FDCPAs definition of 'property' is broad" and includes future property.22 IV.