- quote -

I assume that the single member would be the person with the
threatened lien/levy?

If so, the answer is, it depends. If the LLC is set up
properly and its separate legal existence is properly
respected for all non-tax purposes; i.e., all corporate
formalities are punctiliously observed, and if applicable
state LLC law provides (as most if not all do) that the
member has only a property interest in their membership
interest, not in the assets of the LLC, then as a general
rule the IRS will not be able to levy directly on the LLC's
assets because the single member is not the owner of those
assets for lien/levy purposes.

It needs to be emphasized, as the IRS itself has recognized,
that the treatment of a single member LLC for income and
payroll tax purposes, i.e., by disregarding the LLC's
separate existence, does not necessarily apply to lien/levy
issues where, as a general matter, what controls is the
existence or non-existence of property rights under
applicable state law. See, e.g., Chief Counsel Advice
200235023,(8/30/2002).

That being said, a single member LLC is vulnerable to attack
under a variety of different theories, including piercing
the corporate veil, nominee or alter ego status, or
transferee liability. With a single member LLC, the legal
fiction of separate legal existence is at its most tenuous,
and any significant failure on the part of the single member
to scrupulously respect the corporate formalities could be
grounds for convincing a court to disregard the existence of
the LLC and allow the IRS to reach the LLC's assets
directly.

Lastly, even if the IRS cannot levy on the assets
themselves, it can always levy on the single member's rights
to distributions from the LLC.

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OTOH, if the LLC is regularly distributing income to the LLC
members, there is a risk that the IRS will levy the
distributions owed by the LLC to the member with the tax
problem. Your family member really needs to get a payment
agreement with the IRS to stop the whole levy issue.

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As a practical matter, so long as there are bank accounts
and/or wages to levy, the IRS will ignore the personal
property interest of the partner in the LLC entity. The IRS
tends to follow the path of least resistance.
Theoritically, the IRS could levy on the ownership interest
in the LLC, but the resale value of such a minority interest
in a family run LLC is so low (almost zero) that there is no
economic incentive for the IRS to undertake the levy.
Levies on bank accounts and wages work MUCH better for the
IRS.

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"Shyster1040" <Shyster1040[at]nospamhotmail.com> wrote:

- quote -

Would the answer be the same were the entity a LLC with just
a single member?

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lacadutadegiga...[at]yahoo.com wrote:

- quote -

The IRS might be able to levy on the membership interest, but depending
on the state statute and the operating agreement that does not
necessarily mean that the IRS can get to the underlying property or
force any distributions.

rpinder[at]gmail.com

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The IRS has the right to levy on the member's interest in
the LLC, but at most can become a mere assignee of that
interest and not a member of the LLC.

As a result, the IRS is only entitled to the economic
benefit of that interest under the terms of the LLC
operating agreement, and has no right to exercise any of the
non-economic rights of a member, e.g., voting rights or
rights to cause a liquidation of the LLC.

Finally, unless the operating agreement provides otherwise,
state LLC laws generally provide that a membership interest
in an LLC is personal property and does not give the member
an ownership interest in any of the assets held by the LLC.

As a result, while the IRS will be entitled to receive the
affected member's share of any distributions the LLC makes
to its members, the IRS cannot force those distributions to
be made unless the operating agreement provides for
mandatory distibutions in all events. Further, the IRS will
not be able to cause the LLC to liquidate or to sell or
distribute its assets, including the house.

Essentially, the most the IRS can get is what's called a
charging order against the economic benefits that flow from
the membership interest, and can therefore merely take
possession of any cash or other property that the LLC
actually distributes out to the member in question.

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<lacadutadegiganti[at]yahoo.com> wrote:

- quote -

I'm going to assume that it's a notice of lien that's been
filed, not a levy. There's a huge difference.

The statutory lien attaches to all of the taxpayer's
property, so it attaches to his interest in the LLC. The
house itself is the property of the LLC, so the lien does
not attach to the house. The other owners are not at
financial risk.

"Levy" is the process which turns a lien interest into cash.
In theory IRS could attempt to do so with his interest in
the LLC, but I think the process would be somewhat
complicated.

I got out of the tax collection business before LLC's (there
is a God), but I would think that a foreclosure suit would
be required, and I'm not sure that even that could force a
sale of the house, with only the taxpayer's share of the
proceeds going to the government.

Any chance of the delinquent taxpayer paying up and making
all this go away?

I'll close with a caution. If there's anything to be
concerned about, it's not going to happen overnight. I'm
not suggesting you're considering it, but don't get cute at
this point of the story and try somehow to get him
uninvolved with the LLC.

--
Phil Marti
Clarksburg, MD

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<lacadutadegiganti[at]yahoo.com> wrote

- quote -

The LLC assets are not at risk. The IRS (and state if they
are owed too) can lien on the shares and may direct the LLC
to make any profit distributions (any physical checks) to
them instead of the partner. So if/when the house gets
sold, and the profits are to be distributed, his share goes
to them if the debt is still there.

My suggestion is to get this partner to get the IRS debt
settled. While not a huge problem for the other 3 members
of the LLC, it is something to be dealt with that is out of
the norm.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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Our family formed a 4-partner LLC to administer my
grandmother's house after she died. One of the partners has
had an IRS tax levy placed against him. The LLC was formed
a couple of years before the levy was placed. Does the IRS
have the ability to seize his share of the partnership (ie,
his share of the appraised value of the house)? Are the
ownership interests of the other partners at any sort of
risk?

Needless to say, we're all a little worried.
Any info much appreciated!

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