Florida’s limited liability company statute has a feature that business owners love: charging order protection. If you personally owe someone money, Florida generally limits that creditor to a charging order against your LLC interest. The creditor gets your distributions, if and when the LLC makes them. It does not get to take over the business or sell its assets.

Tampa business owners who owe the IRS personally sometimes assume this protects their LLC from the IRS. I would not bet the business on it. Here is the Florida rule, how federal tax collection approaches LLC interests, and where the risks are.

Florida’s charging order statute

The rule is in Fla. Stat. 605.0503. Its main parts:

  • Subsection (1). On application by a judgment creditor of a member, a court may enter a charging order against the member’s transferable interest. The order is a lien on that interest and requires the LLC to pay the creditor any distribution that would otherwise be paid to the member.
  • Subsection (3). Except as provided for single-member LLCs, a charging order is the sole and exclusive remedy by which a judgment creditor can satisfy a judgment from the member’s LLC interest.
  • Subsections (4) and (5). For an LLC with only one member, if the creditor shows that distributions under a charging order will not satisfy the judgment within a reasonable time, the court may order a foreclosure sale of the member’s interest. The buyer becomes the member.
  • Subsection (6). For a multi-member LLC, foreclosure on the member’s interest is not available.
  • Subsection (7). The statute does not limit fraudulent transfer law or the equitable principles of alter ego, equitable lien or constructive trust.

The single-member rule has a history. In Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010), the Florida Supreme Court held that the then-existing LLC statute allowed a judgment creditor to reach a single-member LLC owner’s entire interest, not just a charging order. The legislature responded by writing the current framework, which protects multi-member LLCs and gives single-member LLCs only conditional protection.

How the federal tax lien treats your LLC interest

The federal tax lien under IRC 6321 attaches to all property and rights to property of the taxpayer. Your membership interest in a Florida LLC is property. So is your right to distributions, your right to information, and, depending on the operating agreement, your management rights.

The Supreme Court’s framework is that state law defines what rights you have, and federal law decides whether they are property subject to the lien. In Drye v. United States, 528 U.S. 49 (1999), the Court held that a taxpayer’s state-law right to accept or disclaim an inheritance was property for federal tax lien purposes, even though state law treated a disclaimer as if the taxpayer never had the property. The lesson for LLC owners: state-law labels and limits do not necessarily control what the federal lien reaches.

The charging order statute is written for someone else

Read 605.0503 closely. It speaks of a “judgment creditor” applying to a “court of competent jurisdiction.” That describes a private creditor who sued you and won.

The IRS usually is not that creditor. It collects through an administrative lien and administrative levy. It does not need a judgment to levy, and when it serves a levy on an LLC for distributions payable to you, the LLC must honor it under IRC 6332. For levy purposes, IRC 6334(c) limits exemptions to the federal list, and Treas. Reg. 301.6334-1(c) says state law cannot exempt property from federal tax levy.

When the government does go to court, it sues under IRC 7403 to foreclose the federal lien on property in which the taxpayer has an interest. Whether a federal court in that kind of case must honor Florida’s charging order limits is a question practitioners debate, and I am not going to tell you it has one clean answer. What I will tell you is that structuring your affairs on the assumption that the IRS is limited to a charging order is a gamble.

What the IRS can do in practice

Here is how federal collection typically reaches a taxpayer’s LLC interest:

  1. Lien on the interest. The Notice of Federal Tax Lien against you, filed where you live under Fla. Stat. 713.901, covers your LLC interest as personal property.
  2. Levy on distributions. The IRS can serve the LLC with a levy for distributions, guaranteed payments, management fees or loan repayments owed to you. The LLC must pay the IRS instead of you.
  3. Levy on wages. If the LLC pays you wages, a continuous wage levy reaches them like any other employer.
  4. Alter ego and nominee liens. If the LLC is really just you, the IRS can treat its assets as yours. IRM 5.17.2.5.7.1 covers alter ego liens and lists factors such as commingling of company and personal finances and undercapitalization. Area Counsel approval is required. My guide on Sunbiz records, nominee and alter ego liens explains how the IRS builds those cases.
  5. Lawsuits. The government can sue under IRC 7402 and 7403 to reduce the debt to judgment and foreclose its lien, and it can pursue fraudulent transfer claims under 28 U.S.C. 3304.

When the LLC itself owes

Everything above is about a member who personally owes. If the LLC owes the tax, for example employment taxes, the IRS collects from the LLC’s assets directly, with no charging order question at all. Depending on how the LLC is classified and what tax is involved, members and responsible persons may face personal liability too. That is a separate subject, covered in my guide on Tampa small business IRS problems.

Single-member LLCs are the weakest link

Most small businesses in Hillsborough County are single-member LLCs, often disregarded for income tax purposes. Those owners face three problems at once:

  • Florida’s own statute gives single-member LLCs only conditional charging order protection, even against private creditors.
  • A single-member LLC run out of the owner’s personal checking account is a ready-made alter ego argument.
  • Distributions from a one-owner company are whatever the owner says they are, which makes a levy on distributions easy to target.

Questions to ask about your operating agreement

If you own an interest in a Florida LLC and owe the IRS personally, pull out the operating agreement and look for these answers:

  • Who decides when distributions are made, and are they mandatory or discretionary?
  • Do you receive guaranteed payments, management fees or wages from the company? Each is a separate stream the IRS can target.
  • Does the company owe you money on a loan? A receivable from your own LLC is property the IRS can levy.
  • Are there restrictions on transfer of your interest? They may matter to a buyer at a foreclosure, but they do not stop the federal lien from attaching.

The answers shape what a Revenue Officer will see, and what you will need to disclose on Form 433-A.

What actually protects a Tampa LLC owner

If you owe the IRS personally and own an LLC, the practical protections are boring and effective:

  • Run the LLC as a real company: its own bank account, its own books, a written operating agreement, and compensation that is documented.
  • Do not move personal assets into the LLC after the tax debt arises. It invites nominee liens and fraudulent transfer claims. See why moving assets after a tax debt backfires.
  • Disclose the LLC interest on any collection information statement. Form 433-A asks about business interests.
  • Resolve the personal debt. A payment plan or offer stops levies on distributions. A charging order theory does not.

GetIRSHelp.com has a guide for small business owners facing IRS problems.

Florida built the charging order for creditors with a judgment and a lawyer. The IRS has a lien, a levy and Congress. Plan accordingly.