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Bob Parrish C PA. P.C.
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LLC
Single Member & Federal Tax Levies
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IRS
CANNOT LEVY ASSETS OF LLC TO SATISFY LIABILITY OF SOLE MEMBER
The
IRS cannot levy on the assets of a single-member LLC to satisfy the tax liability of
the LLC owner but, depending on the facts, alternative means of
collection may be pursued. CCM 199930013.
An
individual (X) is the sole member of a single-member limited liability
company (LLC) formed under the laws of West Virginia. In an effort to
collect taxes owed by X, the IRS issued a notice of levy on a business
for which X was performing services. The IRS was told that, pursuant to
X's instructions, payments were being made to LLC rather than X. The CCM
addresses the issue of whether the IRS can file a lien against LLC on
the ground that the LLC entity is disregarded for federal tax purposes
because it has a single owner. The
Chief Counsel's Office advised that, assuming LLC is a valid entity
under state law, the IRS cannot serve a levy on a third party to seize a
debt owed to LLC to collect the tax liability of X since the property of
LLC does not belong to X. State law controls, the Chief Counsel's Office
observed,
in determining the nature of a person's interest in property for
purposes of determining whether a tax lien or levy attaches. According
to the Chief Counsel's office, it is not inconsistent to disregard an
LLC entity for purposes of determining federal tax liability, but to
recognize the LLC as a valid entity for determining whether the taxpayer
has an ownership interest in property under state law. However, the Chief Counsel's Office did note that there are still collection options available to the IRS. First, because X has a transferable distributional interest in LLC under state law, this distributional interest is property of X that can be reached by a tax lien and levy. Second, depending on the facts of the case, the IRS could file alter ego liens against LLC in reliance on state law principles permitting a creditor to disregard a business entity. Grounds for "piercing the LLC veil," the Chief Counsel's Office suggested, would include the taxpayer's use of the LLC form to shield assets from the IRS, such as where income earned by the taxpayer is being paid directly to the LLC. Disclaimer and Warning - From Bob Parrish CPA, P.C.
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