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.

Digits is taking on QuickBooks and Xero with its AI-powered accounting platform, cyber teams may not be reporting everything they should, and eight other things that happened in technology this past month and how they’ll impact your clients and your firm. 

The Internal Revenue Service commemorated the 70th anniversary of the April 15 tax filing deadline on Tuesday, but this year the agency has also been suffering through layoffs, budget cutbacks and high-level departures, including its chief information officer.

The IRS noted on Tuesday that the tax-filing deadline moved from March 15 to April 15 in 1955 to give taxpayers and the IRS more time to prepare and process complex tax returns. However, with the budget cuts and the efforts of the Elon Musk-led Department of Government Efficiency, the IRS has also paused its technology modernization efforts.

IRS chief information officer Rajiv Uppal is reportedly the latest high-level official to announce his resignation, according to Reuters. He was overseeing the development and improvement of the agency’s computer and technology systems and is expected to depart later this month. Acting commissioner Melanie Krause also recently announced her intention to resign, following the abrupt retirement of former acting commissioner Douglas O’Donnell and the departure of the previous commissioner, Danny Werfel, in January.

Acting chief counsel William Paul was reportedly removed in March for resisting efforts to share taxpayer data with other agencies like the Department of Homeland Security and its Immigration and Customs Enforcement unit. Chief privacy officer Kathleen Walters also reportedly plans to step down by opting for the Trump administration’s deferred resignation program. 

The high-profile departures come after the approximately 7,000 IRS probationary employees were put on paid administrative leave this year, with plans to cut up to 50% of the IRS workforce after tax season. The National Treasury Employees Union has been warning of the impact of the cutbacks.

“NTEU is incredibly proud of the IRS employees who persevered despite attacks on their jobs and their agency and helped deliver a smooth filing season for millions of taxpayers and business owners,” said the NTEU’s national president, Doreen Greenwald, in a statement. “But the success feels precarious as the administration plans a forthcoming firing spree that will cripple the agency’s ability to serve the American people, before, during and after the filing season.”
 

The NTEU noted that the Trump administration has already removed about 7,000 probationary IRS workers, and the Treasury has announced plans for a broader reduction in force that could impact thousands more IRS employees across the country.

“It is not speculation to say that a gutted IRS helps fewer taxpayers file their returns, slows their refunds, and allows tax cheats to thrive, because we saw all three of those things the last time Congress eviscerated the IRS budget and shrunk the workforce,” Greenwald said. “This administration is intentionally rolling back the recent progress and returning the IRS to the days of long wait times on the phone, case backlogs and uncollected taxes. Administering the Tax Code is a labor-intensive process, and indiscriminately firing thousands of IRS employees will weaken the system that is responsible for 96% of the government’s revenue.”

The smaller the IRS workforce, the less tax revenue is collected, according to a new analysis by the nonpartisan Budget Lab at Yale University. The Treasury has not announced specific figures for the reduction in force, but if the agency were to lose 18,200 employees, the government would save $1.4 billion in salaries in 2026, but collect $8.3 billion less in taxes, for a net revenue loss of $6.8 billion. Over 10 years, if the job cuts are maintained, the net lost revenue would amount to $159 billion.

Inside the shaky state of the IRS

The Urban-Brookings Tax Policy Center held a webinar Tuesday to discuss how the large reductions in the IRS’s funding and staffing would affect taxpayers, as well as the successive buyout offers under the Deferred Resignation Program. 

“What we do know before we get into potential future layoffs is that 11,000 IRS employees out of about 100,000 had initially taken the buyout or been laid off in February, and now another 20,000 we’ve been told this morning are taking another buyout, so a total reduction so far of 30,000 employees out of 100,000,” said Tracy Gordon, vice president for tax policy, codirector and acting Robert C. Pozen Director at the Urban-Brookings Tax Policy Center, citing recent articles from Bloomberg and the Washington Post.

Barry Johnson, a former chief data and analytics officer at the IRS who is now a nonresident fellow at the tax policy center, discussed the advances that the IRS had been making in its technology efforts before the cutbacks. They included:

• Introducing interactive chatbots that used artificial intelligence to interpret taxpayer questions and link them to the appropriate content on its website;
• Expanding online account capabilities for individuals, businesses and tax professionals;
• Introducing the Direct File system for free online tax filing; and,
• Improving the IS’s enterprise case management system. 

“One of the big goals we were working on was to make our data more interoperable and accessible to support modernization, while greatly improving the security of all of our data systems,” said Johnson. “We were making progress in releasing statistics in closer to real time and to automate some of our statistical processes. And we were laying the groundwork to support evidence-based policy-making and program evaluation at all levels of government — again, while ensuring the protection of individually identifiable tax data.”

Much of the extra funding for IRS enforcement, taxpayer service and IT modernization has already been cut by Congress or is in the process of being zeroed out, but the plans are unclear.

“There are many unknowns for personnel, for funding, which according to your charts, may actually be close to zero for modernization right now,” said Pete Sepp, president of the National Taxpayers Union. “The [Inflation Reduction Act] funds may have run out by about out for modernization, and we have zero in appropriations. How in the world is anything going to press forward in that environment? Maybe it can, but we want to see the plan.”

Technology can only go so far in helping taxpayers navigate the IRS.

“What we don’t see now is what’s going to be happening going forward,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS. “How do they propose to improve taxpayer service? Are they going to use AI to eliminate calls? Everybody’s been trying to eliminate the calls since the phone system was set up, and all it does is increase. Maybe you can eliminate some of the repeat callers, the more that you do chatbots and things. But as I keep saying to people, the IRS isn’t like Amazon or your bank. It has enforcement powers that no bank has. And if you’ve ever tried to get a problem resolved with Amazon or any one of these online deliveries, good luck with that. The chat system doesn’t really work really well, and that’s what drives people to the phones. They want to hear from somebody that their issue has been resolved.”