Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 79-55

1979-1 C.B. 400

Section 6321

IRS Headnote

Liens; time sharing condominium. A lien may attach under section 6321 of the Code to a delinquent taxpayer's interest in a time sharing condominium unit and related common areas but not to the interests of any other owners in that condominium unit or to the unit itself.

Full Text

Rev. Rul. 79-55

ISSUE

If an owner of an interest in a time sharing condominium unit is delinquent in paying federal taxes, does a lien attach under section 6321 of the Internal Revenue Code, and can it be enforced against:

(a) the interests of the delinquent taxpayer in that condominium unit,

(b) the interests of any other owner in that condominium unit,

(c) the condominium unit itself.

FACTS

The owner of a time sharing interest in a condominium owns fee title by grant deed to an undivided 1/25th interest as a tenant in common in an undivided 1/64th interest in the common area (i.e., swimming pool, parking lot, etc.) and an undivided interest as a tenant in common in a time sharing condominium unit and its common furnishings. The use of the condominium unit, the furnishings, and the common area is governed by a declaration of covenants, conditions and restrictions for time sharing ownership. During an owner's use period and such excess time as is used by such owner, the owner has an exclusive right to use and occupy a time sharing condominium unit, a right to use and enjoy the common area, and recreational facilities, and a right to use and enjoy certain specified rights and easements. These interests, including the restrictions on use, are recognized under state law as property rights of the owner. By virtue of the covenants, conditions and restrictions for time sharing ownership, the owner's interest under state law may be alienated without affecting in any manner the other owners' interests in the condominium unit or the unit itself.

LAW AND ANALYSIS

Section 6321 of the Code provides that if any person liable to pay any tax neglects or refuses to pay the tax after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property belonging to such person. In Aquilino v. United States, 363 U.S. 509 (1960), Ct. D. 1856, 1960-2 C.B. 477, the Supreme Court stated that in determining whether and to what extent the taxpayer had property, or rights to property to which a federal tax lien could attach, the courts must look to state law.

By its terms, the federal tax lien is limited to the property or property rights of a delinquent taxpayer. The federal tax lien, therefore, does not attach to the property or property rights of a person who is not a delinquent taxpayer. In some cases, however, a federal tax lien may indirectly affect the property owned by persons who are not delinquent taxpayers.

In some cases, property in which a delinquent taxpayer enjoys only a partial undivided interest may be ordered sold by a court to enforce the federal tax lien notwithstanding that the other part owners are not delinquent taxpayers. In these cases the property is not capable of being divided among the co-owners. See United States v. Overman, 424 F. 2d 1142 (9th Cir. 1970); United States v. Trilling, 328 F. 2d 699 (7th Cir. 1964). The proceeds of the sale are then allocated among the co-owners.

HOLDING

Since, in the present case, the time sharing condominium interest is recognized under state law as a property right, a lien attaches under section 6321 of the Code to the delinquent taxpayer's interest in the condominium unit and common area. The federal tax lien does not attach to the other owner's interests in the unit or common area.

The federal tax lien may be enforced against the delinquent taxpayer's interest but not against the condominium unit itself. The taxpayer's time sharing condominium interest is separate and distinct from the other owners' interest in that unit, and, therefore, is capable of being sold without selling the unit itself.