Taxpayers may think that as long as the IRS has valid tax liens, the government can reach any property the taxpayer once owned, regardless of when it was transferred or how much time has passed.
This assumption is not always true. While federal tax liens remain valid for their statutory collection period, the government’s ability to pierce a third party’s property title depends entirely on state law remedies that come with their own, often much shorter, time limitations. The IRS can and does miss these shorter deadlines.
The recent case of United States v. Hatch, No. 22-cv-349 (D.R.I. Jun. 5, 2025), provides an example and opportunity to consider this issue.
Facts & Procedural History
Richard Hatch achieved fame and fortune in 2000 by winning the inaugural season of “Survivor.” He earned the $1 million dollar prize and the various opportunities that came along with his celebrety.
Hatch acquired real estate during this time, including two Newport, Rhode Island properties. He purchased these two properties jointly with his sister in 2002.
By April 2005, Hatch had financial troubles and transferred both Newport properties to his sister because he could no longer afford to maintain them. Also, Hatch had failed to pay the full income taxes due on his Survivor winnings for tax years 2000 and 2001.
The IRS began investigating Hatch in 2005. This led to his criminal conviction for tax evasion in January 2006. Hatch received a fifty-one-month prison sentence and court orders to file amended returns and pay his taxes. In April 2010, the IRS formally assessed Hatch with over $1 million in outstanding taxes and penalties for the 2000 and 2001 tax years.
The IRS moved to protect its collection interests by filing federal tax liens. On April 9, 2010, it filed a Notice of Federal Tax Lien against all property belonging to Hatch, and separately issued a lien notice to his sister as his alleged “nominee” for the Newport properties.
Despite these collection efforts and a 2012 agreement on the amount owed, Hatch never paid his tax debt. When the government finally filed this tax collection lawsuit in September 2022, Hatch’s unpaid tax debts had grown to over $3.2 million.
The lawsuit sought to reduce Hatch’s tax liabilities to a civil judgment and enforce the IRS tax liens by forcing the sale of both Newport properties. However, since Kristin Hatch held sole record title to both properties, the government faced the challenge of proving that her brother retained sufficient interest in them to support lien attachment.
Federal Tax Liens Under Sec. 6321
Section 6321 of the tax code provides the general rule for tax collections. It says that when any person is liable for taxes and “neglects or refuses to pay the same after demand,” the unpaid amount automatically becomes “a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”
This is the IRS’s general unsecured lien that it gets in the taxpayer’s property. The lien arises automatically when the IRS makes a formal assessment, i.e., when it records the balance due on its books, and continues until the liability is satisfied or becomes unenforceable through the passage of time.
IRS tax liens generally remain valid for ten years from the date of assessment. The taxpayer and/or IRS can extend the collection period through installment agreements, offers in compromise, collection due process proceedings, or other specified actions. These federal timing rules govern how long the government’s lien remains valid as a matter of federal law.
This brings us to the the phrase “belonging to such person.” This phrase creates a fundamental limitation on IRS tax collection cases as it means that IRS tax liens can only attach to property in which the delinquent taxpayer actually possesses some legal or equitable interest. When property has been transferred to third parties, the government has to prove that the taxpayer retained sufficient interest to support lien attachment.
Why State Law Governs Property Interest Determinations
The question of whether property “belongs” to a taxpayer for purposes of federal tax lien attachment is fundamentally a question of state law. Federal courts consistently hold that state law determines what property rights exist, while federal law determines the consequences of those rights for tax collection purposes.
This principle creates a two-step analysis in property transfer cases. First, courts must determine under applicable state law whether the taxpayer retained any interest in the transferred property. Only if state law recognizes such an interest can federal tax liens attach to it.
The state law dependency becomes particularly important when the IRS seeks to challenge property transfers that occurred years or decades earlier. While IRS tax liens may remain valid under federal timing rules, the IRS’s ability to establish that the taxpayer retained property interests depends entirely on state law remedies and their associated time limitations.
Legal Theories to Pierce Third-Party Title
When taxpayers transfer property to family members or other third parties, the courts have developed several legal theories that the transfers should not defeat tax collection efforts. Each theory involves showing that despite the apparent transfer, the taxpayer retained sufficient interest in the property to support federal tax lien attachment.
The most common approach involves challenging transfers as fraudulent under state fraudulent conveyance laws. Under this theory, the IRS argues that taxpayers made transfers with intent to hinder, delay, or defraud creditors, or that they made transfers for inadequate consideration while insolvent or facing insolvency.
Alternatively, the IRS may argue that transferees are merely “nominees” who hold bare legal title while taxpayers continue to enjoy beneficial ownership. This theory focuses on whether taxpayers retained possession, control, or use of the property despite the formal transfer.
In cases involving jointly-purchased property, the IRS sometimes seeks to impose resulting trusts based on who actually provided purchase funds. Under this theory, even if property is titled in another person’s name, the person who paid for it retains beneficial ownership.
Each of these theories requires the IRS to establish its case under state law, since federal tax liens can only attach to interests that exist under state property law principles.
Rhode Island’s Fraudulent Transfer Law
This case involved Rhode Islands state law. Rhode Island has adopted the Uniform Voidable Transactions Act (“UVTA”), which provides the primary mechanism for creditors to challenge fraudulent property transfers. According to the court opinion, the UVTA offers two distinct paths for voiding transfers that harm creditor interests.
Under the actual fraud provision, creditors may void transfers made “with actual intent to hinder, delay, or defraud any creditor of the debtor.” The statute provides multiple factors for courts to consider, including whether the transfer was made to an insider, whether the debtor retained possession or control, whether the transfer occurred near the time of substantial debt incurrence, and whether the debtor received reasonably equivalent value.
The constructive fraud provision allows creditors to void transfers made “without receiving a reasonably equivalent value in exchange” when the debtor “intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.” This theory doesn’t require proof of actual fraudulent intent but focuses on whether the transfer left the debtor unable to meet obligations.
Regardless of which theory applies, Rhode Island law places the burden of proving fraudulent transfer elements on the creditor by a preponderance of the evidence (i.e., more than 51 percent). This burden becomes particularly challenging when significant time has passed since the transfer occurred, as witnesses may be unavailable and documents may be lost or destroyed.
What Time Limits Apply to Fraudulent Transfer Claims?
The UVTA’s most significant limitation comes from its statute of limitations provisions. Rhode Island law generally requires fraudulent transfer actions to be brought within four years of when the transfer was made. This relatively short limitations period reflects the policy goal of providing finality to property transactions and protecting transferees from stale claims.
There is a narrow exception for actual fraud claims, which allows an additional period of up to “one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” However, Rhode Island courts interpret this discovery rule strictly, placing the burden on creditors to conduct reasonable due diligence.
As noted in this court case, the Rhode Island Supreme Court addressed this discovery standard in Duffy v. Dwyer, holding that a creditor “reasonably could have discovered the [fraudulent] transfer as soon as the original quitclaim deed was recorded” in public records. This interpretation requires creditors to conduct title searches and other reasonable investigations rather than waiting for actual notice of transfers.
The Duffy court emphasized that these time limitations serve important policy purposes regardless of the underlying merits. Even when “it [was] likely that [the debtor] transferred the property” with intent to defraud creditors, the court found itself “bound by the statute of limitations that serves to protect parties regardless of their calumny.”
For the fraudulent transfer claims, the four-year UVTA statute of limitations had expired long before the 2022 lawsuit. The discovery exception provided no relief since the transfers were publicly recorded and the IRS was clearly aware of them by 2010 when it issued lien notices specifically identifying the properties.
As such, the court held that this time-based defense applied regardless of the underlying merits of the IRS’s substantive claims. Even if the original transfers were actually fraudulent or if Hatch retained beneficial ownership, the passage of nearly two decades provided a complete defense under Rhode Island law.
The Takeaway
This case shows that timing can override substance in tax collection matters involving real estate transfers. While the IRS maintained valid tax liens throughout the collection period, its ability to reach properties titled in the taxpayer’s sister’s name depended entirely on state law theories that came with their own, much shorter time limitations. The government’s seventeen-to-nineteen-year delay in challenging the property transfers allowed state law time bars to defeat its collection efforts.