Tenancy by the Entirety Bank Accounts and the IRS: Does Florida Protection Hold?

Florida is one of the states that recognize tenancy by the entirety, a form of ownership available only to married couples. For ordinary creditors, it is a powerful shield: property held by the entireties generally cannot be reached to pay the debts of just one spouse.

So I get this question a lot from married clients in the Tampa Bay area: "Only my husband owes the IRS. Our account is in both names. Isn't it protected?"

Against the IRS, the answer is much less comforting. Here is why, and what the non-liable spouse can still do.

How Florida treats joint accounts of married couples

In Beal Bank, SSB v. Almand & Associates, 780 So. 2d 45 (Fla. 2001), the Florida Supreme Court addressed whether bank accounts titled in both spouses' names were held as tenancies by the entireties and therefore not subject to garnishment by a creditor of only one spouse. The court held that, as between the debtor and a third-party creditor (other than the bank), if the signature card does not expressly disclaim the entireties form of ownership, a presumption arises that an account titled in both spouses' names is held by the entireties, as long as it was established by husband and wife with the required unities and right of survivorship. The presumption shifts the burden to the creditor to prove otherwise.

That case was about state-law creditors. The federal tax lien is a different animal.

United States v. Craft: the federal tax lien gets in

In United States v. Craft, 535 U.S. 274 (2002), the IRS had assessed income tax liabilities against a husband for years he failed to file. He and his wife owned Michigan real estate as tenants by the entirety, and Michigan law, like Florida's, insulated entireties property from the creditors of only one spouse.

The question was whether the husband had "property" or "rights to property" to which the federal tax lien under IRC § 6321 could attach. The Court said yes. Despite the state-law fiction that neither spouse owns a separate interest, each tenant possesses individual rights in the estate sufficient to constitute property or rights to property for purposes of the federal tax lien. The Court reversed the Sixth Circuit.

The IRS reads Craft broadly. IRM 5.17.3.9.1.2 says "state law on attachment of liens against entireties property is not effective against the federal tax lien."

What that means for a bank account

Joint tax liability

If both spouses owe, for example from a joint income tax return, entireties protection does not help at all. IRM 5.17.3.9.1.2: where there is a joint tax liability, "the real or personal property is subject to levy to enforce collection." Liability on a joint return is joint and several under IRC § 6013(d)(3).

One spouse's liability

This is the harder case. After Craft, the lien attaches to the liable spouse's interest in entireties property. A bank levy, meanwhile, attaches to accounts where the taxpayer has an unrestricted right to withdraw (IRM 5.11.4.3), and the Supreme Court approved provisional levies on joint accounts in United States v. National Bank of Commerce, 472 U.S. 713 (1985).

How much of an entireties account the IRS can ultimately keep for one spouse's tax, and how the non-liable spouse's interest is valued and protected, are fact-heavy questions. The safe assumption is that the account can be frozen. The non-liable spouse's job is to assert their interest quickly.

Death changes the picture

IRM 5.17.3.9.1.2 states that if a tax liability is outstanding against one tenant, upon the death of the liable tenant's spouse, the federal tax lien attaches to the entire property, which may then be levied on and sold.

What the non-liable spouse should do

1. Act inside the 21-day hold. Under IRC § 6332(c), the bank waits 21 days before paying. The IRM describes the hold as existing to settle ownership disputes before money is remitted (IRM 5.11.4.1). See the 21-day hold.
2. Call the number on the levy and assert your interest in writing. Ask the IRS to treat it as a potential wrongful levy, extend the hold if needed, and give you a deadline for proof (IRM 5.11.4.3).
3. Document the account. Signature card and account agreement (does it say "tenants by the entireties," or disclaim it?), deposit history, and whose income funds it.
4. Use CAP before the money is turned over. Third parties claiming wrongful levy are entitled to CAP before proceeds are sent (IRM 5.1.9.4). See CAP.
5. If the money is sent, file an administrative claim under § 6343(b) or sue under § 7426, generally within two years. See wrongful levy claims.

What the liable spouse should do

• Do not use the entireties account as a hiding place. Craft noted that the district court in that case had awarded the government an amount tied to the husband's use of nonexempt funds to pay the entireties mortgage, and the Supreme Court remarked that in future cases the fraudulent conveyance question "will no doubt be answered differently." Translation: moving money into entireties property to dodge the IRS is a bad idea.
• Get a levy-restricting status in place. A pending installment agreement or offer bars new levies under § 6331(k). See payment plans.
• Consider whether the non-liable spouse's money should live in a separate account while the problem is being resolved, with honest, documented sources of funds.

Divorce and separation

Entireties ownership depends on marriage. The IRM notes that in some states divorce severs the tenancy by the entirety and the spouses become tenants in common (IRM 5.17.3.9.1.2). If you are separating while one spouse has an IRS problem, how joint accounts are divided and retitled can affect what the IRS can reach later. Coordinate the family law and the tax side rather than handling them in separate silos.

Liens versus levies

Craft is a lien case. A lien is a claim that attaches to property. A levy is the act of taking it. The difference matters for planning and for how entireties property can be reached, and it shows up most in real estate. For the general difference, see bank levy vs. tax lien.

Florida's entireties shield is strong against ordinary creditors. Against the federal tax lien, it is a speed bump, not a wall.

If you are dealing with a lien on Florida property, the firm's page on IRS tax liens is a useful companion. And for the joint account basics that apply in every state, see joint bank accounts and IRS levies.