Accounting
IRS forces sale of LLC on innocent co-owner
One of the attractive features of doing business through a limited liability company is the protection it gives from personal liability — but that is not always the case, as a New Jersey dentist recently discovered when the Internal Revenue Service sought to foreclose on a dental practice he co-owned with another dentist.
Dr. William Vockroth co-owned his practice with another dentist, Dr. Thomas Driscoll, via an LLC, and co-owned the physical property as tenants in common. The government sought a forced sale of both the entire practice and the physical office suite to satisfy Driscoll’s tax debt. While Vockroth owed no tax, the district court consented to the forced sale of the interests of both parties.
Under Code Section 7403, the government has the authority to foreclose on the entire property, and not merely on the delinquent taxpayer’s own interest, according to tax attorney Barbara Weltman, author of “Small Business Taxes 2025.” Nevertheless, she was surprised at the decision.
“One of the mantras regarding corporate LLCs is that they give you personal liability protection,” she said. “The government didn’t just go after the delinquent taxpayer’s interest in the LLC; they went after the entire business.”
In arriving at its decision, the court considered Vockroth’s contention that a “charging order” is the only appropriate remedy. The court said that “although New Jersey law allows a charging order as the sole remedy of a judgment creditor, the government is not bound by the state laws of an ordinary creditor when it forecloses pursuant to Section 7403.”
Next, the court analyzed the case according to a four-factor balancing test in the Supreme Court decision in Rodgers:
- The extent to which the government’s financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes;
- Whether the third party with a non-liable separate interest in the property would, in the normal course of events, have a legally recognized expectation that a separate property would not be subject to a forced sale by the delinquent taxpayer or their creditors;
- The likely prejudice to the third party, both in personal dislocation costs and in practical undercompensation; and,
- The relative character and value of the non-liable and liable interests held in the property.
The court noted that unlike joint tenants or tenants by the entirety, tenants in common do not need to specify their preferred ownership type during an acquisition or transfer of property: “Each tenant in common may transfer his interest without the consent of the remaining cotenant.”
“Under New Jersey law, either tenant in common may ask the court to grant a partition. When it would not be possible for a court to partition the property in such a way that gives each party the requisite amount of ownership stake without great prejudice to the owners, a court may direct the sale thereof,” it noted.
Of the four factors, the court found the second one to be the only one that favored Vockroth, while the others were either neutral or favored the government.
“As to the LLC, the second factor weighs in favor of Dr. Vockroth,” the court said. “In the case of the LLC the government and defendant disagree as to the extent of state law applicability.”
It said that the government was correct in arguing that New Jersey law will not preclude the court from ordering a forced sale, but the property interests provided under state law were still relevant to the court’s inquiry under the second factor.
The court then found that New Jersey law, which adopts the Revised Uniform Limited Liability Company Act, requires the consent of all members in an LLC to sell, lease, exchange or otherwise dispose of all or substantially all of the company’s property. Since Vockroth did not consent to a sale, the court found that this factor — the practice being held by the LLC — weighed against the forced sale and in favor of Vockroth. In weighing all the factors together, the court decided in favor of the government’s motion for summary judgment.
“The lesson here is you have to look very closely at whom you’re going into business with,” said Weltman.
Bloomberg via Getty Images
Amid the agency’s turmoil this year, the Internal Revenue Service has some good news from 2024 regarding service and collections.
The agency helped taxpayers on 62.2 million occasions in FY24, up 3.2% over the prior fiscal year, and took in a new high in revenue, according to its latest annual
IRS toll-free customer service lines provided live telephone assistance to almost 20 million callers during the fiscal year, up some 11% from 2023. At Taxpayer Assistance Centers, the agency helped more than 2 million taxpayers in person, an increase of almost 26% over FY2023.
For the first time, revenue collected exceeded $5 trillion ($5.1 trillion), an increase of almost 9% compared to the prior fiscal year total.
The Data Book gives a fiscal year overview of the agency’s operations, including returns received, revenue collected, taxpayer services provided, tax returns examined (audits), efforts to collect unpaid taxes and other details. Among other FY24 highlights, the IRS:
- Launched more digital tools than it had during the previous 20 years. Online offerings saw more than 2 billion electronic taxpayer assistance transactions, 47% more than in FY23. The most popular features were requests for transcripts and Where’s My Refund? Overall, IRS.gov registered nearly 690 million individual visits with 1.7 billion page views.
- Processed more than 266 million returns and other forms from individuals, businesses and tax-exempt organizations; received almost 4.6 billion information returns; and issued close to $553 billion in refunds.
- Closed 505,514 tax return audits, resulting in $29 billion in recommended additional tax.
The net collections — federal taxes that have been reported or assessed but not paid and returns that have not been filed — totaled almost $77.6 billion, an increase of 13.6% compared to FY23. The agency collected more than $16 billion through installment agreements, an increase of more than 12% compared to the prior fiscal year.
The Data Book also covers statistics on Direct File, taxpayer attitude surveys about satisfaction with the IRS and “acceptable” levels of cheating on taxes, and applications for tax-exempt status, among other topics.
Total postsecondary spring enrollment grew 3.2% year-over-year, according to a report.
The National Student Clearinghouse Research Center published the latest edition of its
The report found that undergraduate enrollment grew 3.5% and reached 15.3 million students, but remains below pre-pandemic levels (378,000 less students). Graduate enrollment also increased to 7.2%, higher than in 2020 (209,000 more students).
(Read more:
Community colleges saw the largest growth in enrollment (5.4%), and enrollment increased for all undergraduate credential types. Bachelor’s and associate programs grew 2.1% and 6.3%, respectively, but remain below pre-pandemic levels.
Most ethnoracial groups saw increases in enrollment this spring, with Black and multiracial undergraduate students seeing the largest growth (10.3% and 8.5%, respectively). The number of undergraduate students in their twenties also increased. Enrollment of students between the ages of 21 and 24 grew 3.2%, and enrollment for students between 25 and 29 grew 5.9%.
For the third consecutive year, high vocational public two-years had substantial growth in enrollment, increasing 11.7% from 2023 to 2024. Enrollment at these trade-focused institutions have increased nearly 20% since pre-pandemic levels.
Jordan Vonderhaar/Photographer: Jordan Vonderhaar/
The Internal Revenue Service has released
The Inflation Reduction Act of 2022 amended Sec. 55 to impose the CAMT based on the “adjusted financial statement income” of an “applicable corporation” for taxable years beginning in 2023.
Among other details, proposed regs provide that “applicable corporation” means any corporation (other than an S corp, a regulated investment company or a REIT) that meets either of two average annual AFSI tests depending on financial statement net operating losses for three taxable years and whether the corporation is a member of a foreign-parented multinational group.
Prior to the publication of any final regulations relating to the CAMT, the Treasury and the IRS will issue a notice of proposed rulemaking. Notice 2025-27 will be in IRB: 2025-26, dated June 23.
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