Q: My wife and I own a house as tenants in the entirety. I individually owe Oregon Dept of Revenue for income taxes.

A: Technically your assets and your wife's assets are treated separately for purposes of any creditor owed money. Only the assets of the debtor are subject to the debts of the debtor. So, provided that your wife did not sign a joint return, your wife should be able to argue that her share of the proceeds is her's only. This however changes if your wife signed a joint return. All the taxes owed based on the joint return are owed by both tax payers. There is what is called an "innocent spouse" exception. Your wife would need to contact a tax specialist such as a CPA and find out what paperwork needs to be filed to remove her from being liable from debts on a joint return she signed.

The title company that handles the escrow is not going to be able to separate out the funds and the tax lien. They are probably going to require some type of paperwork from the IRS releasing the lien before the sale can close. How one accomplishes this is beyond my current scope of knowledge. I would consult with a tax attorney. This is an attorney with advanced training in taxation post law school. (The degree is called an LLM in taxation.) There are some excellent tax attorneys in the Portland area..

Your goal obviously is to get the IRS to recognize that only 1/2 of the sale proceeds are your property and subject to the tax lien. I think that is doable but the logistics of working with the IRS to get a release that will allow the title company to close on this basis may be tricky.

Maybe the more practical solution is to get your wife to agree to allow all the proceeds of the house sale to go to pay off the taxes owed and you pay her back in some other way. The sooner you get out of owing taxes, the sooner you can dedicate your income to other things that benefit your wife.