Florida Tenancy by the Entireties vs. IRS Tax Lien

Florida is one of the states where married couples can own property as tenants by the entireties. It is an old form of ownership with a powerful feature: when only one spouse owes a debt, that spouse’s creditor generally cannot touch the property. Not the house, not the jointly titled brokerage account, not the boat. Florida courts have protected it for a very long time.

I talk with Tampa couples every year who assume that protection works against the IRS too. They have heard it from a friend, a real estate agent, sometimes another lawyer. And for most creditors, they would be right. For the Internal Revenue Service, they are only partly right. The difference is a 2002 Supreme Court case, and if one of you owes federal tax, you need to understand it.

How entireties ownership works under Florida law

Under Florida law, a married couple holding property as tenants by the entireties does not own two halves. The couple owns the whole as a single marital unit. Neither spouse can sell, mortgage or give away the property without the other. When one spouse dies, the survivor owns the property outright. Divorce converts the ownership into a tenancy in common.

Because neither spouse individually owns a severable share, Florida treats entireties property as unreachable by a creditor of just one spouse. A credit card company with a judgment against the husband alone cannot levy on the couple’s entireties home or entireties bank account. Joint creditors, meaning creditors of both spouses, can.

That is why so many Tampa couples title their homes, their joint accounts and even their investment accounts as tenants by the entireties. It is good planning against ordinary risk. It just does not work the same way against federal tax debt.

What United States v. Craft decided

In United States v. Craft, 535 U.S. 274 (2002), the IRS had assessed taxes against a husband alone. The couple owned real property in Michigan as tenants by the entireties. Michigan law, like Florida law, protected that property from a creditor of one spouse. The question was whether the federal tax lien under IRC 6321 attached anyway.

The Supreme Court said yes. The lien under IRC 6321 attaches to “all property and rights to property” of the person who owes the tax. State law defines what rights a taxpayer has. Federal law decides whether those rights count as “property” for purposes of the federal lien. The Court looked at the bundle of rights the liable husband held in the entireties property: the right to use it, to exclude others, to receive a share of income, to sell or encumber it with his wife’s consent, to block a sale, and the right of survivorship. That bundle, the Court held, was enough to be property to which the federal tax lien attaches.

The state-law label did not matter. What mattered was what the taxpayer actually held. A Florida court could still say a credit card creditor cannot reach the property. The United States is not a credit card creditor.

How the IRS applies Craft

After the decision, the IRS issued Notice 2003-60 explaining how it would collect against entireties property. That guidance is now reflected in the Internal Revenue Manual at IRM 5.17.2.5.2.4. A few points from it matter most to Florida homeowners:

The lien attaches to the liable spouse’s interest. Not to the non-liable spouse’s interest, but the liable spouse’s rights in the property are encumbered.
The interest is generally valued at one-half. The IRM says that as a general rule, the value of the taxpayer’s interest in entireties property will be deemed to be one-half.
Administrative sale is disfavored. Notice 2003-60 explains that a buyer at an IRS sale of one spouse’s entireties interest would take on the risk of survivorship and uncertain rights, so the IRS determined administrative sale is not a preferable method of collection for entireties property.
Cash is different. The same notice says levying on cash and cash equivalents held as entireties property is considerably less problematic and will be used in appropriate cases. That is why joint bank accounts are the real pressure point. I cover that in a separate guide on entireties bank accounts when one spouse owes.
Foreclosure is case by case. Because of the potential harm to the non-liable spouse, the IRS says judicial lien foreclosure on entireties property is decided on a case-by-case basis.

What this means for a Tampa home

Picture a South Tampa couple who own their house as tenants by the entireties. The wife ran a consulting business for a few years and ended up owing the IRS for self-employment tax. The husband owes nothing. The IRS files a Notice of Federal Tax Lien with the Hillsborough County Clerk.

That lien now encumbers the wife’s interest in the house. If the couple sells, the title company will see the lien and will not close without dealing with it, and the IRS will expect to be paid from the wife’s share of the proceeds. If they refinance, the lender will want the lien addressed. The house is not about to be auctioned on the courthouse steps, but the debt is now attached to it.

Florida homestead adds its own layer. The homestead exemption in Article X, Section 4 of the Florida Constitution protects a Florida residence from forced sale by most creditors, but it does not bind the federal government collecting federal taxes. The Supreme Court made that clear in United States v. Rodgers, 461 U.S. 677 (1983), which involved a Texas homestead. What does protect a principal residence is federal: under IRC 6334(a)(13)(B) and 6334(e)(1), the IRS cannot administratively levy on a principal residence without the written approval of a federal district judge or magistrate judge. My guide on IRS seizure of a principal residence in Tampa walks through that process.

Craft does not erase Florida law entirely

Here is the part most people miss. Craft gave the IRS a lien on the liable spouse’s rights. It did not convert the property into a tenancy in common, and it did not give the IRS more than the taxpayer had. Florida law still controls what those rights are, and Florida law still protects the non-liable spouse.

That shows up in several ways:

Survivorship still matters. If the liable spouse dies first, IRS guidance says the taxpayer’s interest is extinguished and the surviving non-liable spouse takes the property free of the lien. If the non-liable spouse dies first, the liable spouse owns everything and the lien attaches to the whole. I explain this in what happens to the lien when a spouse dies.
The non-liable spouse’s interest is not the IRS’s money. In a sale or foreclosure, the non-liable spouse is entitled to be compensated for his or her interest.
Other creditors are still blocked. Craft is about the federal tax lien. It does not open entireties property to every other creditor of one spouse.

Joint tax debt is a different problem

Everything above assumes only one spouse owes. If you filed joint returns and both of you are liable, entireties ownership gives you no protection against the IRS at all. The tax is a joint debt, both spouses are taxpayers, and the lien attaches to the property as a whole. Florida would let a joint creditor reach that property too.

That is why the first question I ask a married couple is simple: whose name is on the assessment? The answer is on the IRS account transcripts. Many couples are surprised to learn that a debt they thought belonged to one spouse is actually joint because they filed jointly that year.

Planning around the problem the right way

Once a tax debt exists, the instinct is to move property around. Deed the house to the spouse who does not owe. Pull the money out of the joint account. That instinct is usually wrong. Under Notice 2003-60, when entireties property encumbered by the lien is transferred without a discharge, the lien follows a one-half interest into the hands of the transferee, whether that transferee is the other spouse or a stranger. A transfer can also be attacked as fraudulent. My guide on retitling property to a spouse after a tax debt covers the risks.

The better approaches are the ordinary ones, applied with Florida property law in mind:

Get the liable spouse into a resolution the IRS will honor, such as an installment agreement or an offer in compromise, so the lien is a paper problem instead of a collection problem.
In an offer, understand how the IRS values the liable spouse’s share. IRM 5.8.5.13 starts at 50 percent of net realizable equity but recognizes that a lower figure may be appropriate when the property was not moved into the tenancy to avoid collection. The guide on offers and Florida homestead equity goes deeper.
If you are selling, plan for the lien before you list the house, not at the closing table.

The bottom line for Hillsborough County couples

Tenancy by the entireties is still one of the best things Florida law offers a married couple. It still keeps most of one spouse’s creditors away from the family home. But the IRS is not most creditors. Since Craft, a federal tax lien reaches the liable spouse’s interest, the IRS generally values that interest at half, and cash held as entireties property is fair game for levy in appropriate cases.

If one of you owes the IRS and you own property together, get the facts straight before you sign anything or move anything. The law here rewards people who understand it and punishes people who improvise. More on federal tax liens is available at GetIRSHelp.com.

Florida built a strong wall. Craft put a door in it. You want to know exactly where that door is.

Questions Tampa taxpayers ask

Does tenancy by the entireties stop the IRS in Florida?

Not completely. Florida law still blocks most creditors of only one spouse from reaching entireties property. But in United States v. Craft (2002), the Supreme Court held that the federal tax lien attaches to a liable spouse’s rights in entireties property. The IRS treats that as a real, collectible interest, generally valued at one-half.

If only my husband owes the IRS, can the IRS take our Tampa house?

The lien attaches to his interest, which clouds title and follows a sale. A forced sale is a different matter. IRS guidance says administrative sale of entireties property is not a preferred method and that judicial foreclosure is decided case by case. When the home is a principal residence, levy also requires a federal judge’s written approval.

How does the IRS value one spouse’s share of entireties property?

Notice 2003-60 and IRM 5.17.2.5.2.4 say that, as a general rule, the liable spouse’s interest is deemed to be one-half of the property’s value. In an offer in compromise, IRM 5.8.5.13 likewise starts at 50 percent of net realizable equity and allows a lower figure in some circumstances.

Can we fix this by deeding the house to the spouse who does not owe?

Usually not. A transfer ends the tenancy, and under Notice 2003-60 the lien then encumbers a one-half interest in the hands of whoever receives it, including the other spouse. A transfer made to get around a tax debt can also invite nominee liens and fraudulent transfer claims.

Tampa and Hillsborough County

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Every case turns on its own facts: the notices, the property, the dates. The first consultation is free.

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General information, not legal advice. Reading this page does not create an attorney-client relationship. Laws and IRS procedures change; dollar figures are for the year stated.