Joint Tax Refunds Exempt Entireties Assets in Bankruptcy

Federal courts have permitted the IRS to levy upon a Florida taxpayer’s entireties account to collect taxes owed by one spouse filing an individual tax return. The entireties exemption does not protect the married taxpayer from the IRS. Does it follow that a joint tax refund from the IRS is also not protected entireties property in bankruptcy?

A Florida bankruptcy court recently held that joint tax refunds are exempt in the case where one spouse files Chapter 7 bankruptcy. The court found that the joint entireties money is not exempt from the IRS only in the tax collection context. Otherwise, the treatment of joint tax returns is based on applicable state law. In Florida, all marital assets are presumed to be owned tenants by entireties. Joint income tax returns are presumed to be exempt entireties assets absent evidence that the married couple disclaimed entireties ownership. See In re Newcomb.