Under IRC 6901(h), a transferee includes a donee, heir, legatee, devisee, and distributee, and with respect to estate taxes, includes any person who, under IRC section 6324(a)(2), is personally liable for any part of such tax and the liability is income, estate, or gift tax. IRC 6901.Legal title to property has been transferred and no statutory federal tax lien attached prior to the transfer.This theory is unavailable for a transferee qualifying as a bona fide purchaser. There is no requirement that the taxpayer retain use of or a beneficial interest in the property. Lien Tracing. A statutory federal tax lien attaches to property and the property has been transferred by the taxpayer through a gift, bequest, devise, or inheritance before an NFTL was filed.It may employ a transferee theory under various circumstances: Often, the IRS begins efforts to collect against a third party where it believes a fraudulent transfer occurred. Transferee liability may arise under (i) a contract, (ii) federal statutes, or (iii) state law. This route is generally undertaken in conjunction with a lien foreclosure. Suit to set aside a fraudulent conveyance where IRC 6901 is unavailable and the property value increased after transfer.Suit to establish a transferee liability where IRC 6901 is unavailable and the property value decreased after the transfer.Suit to foreclose the taxpayer’s federal tax lien secured by a regular or Special Condition NFTL filing.For example, DOJ may assert the following common legal actions: The Department of Justice may seek judicial action against a taxpayer or third party in this context as well. A section 6901 assessment against the transferee.Special Condition NFTL filing other than the Transferee NFTL, where the third party is in possession of a taxpayer’s assets.Special Condition Transferee NFTL filing, where the statutory lien arose before the transfer.Notice of Federal Tax Lien (NFTL) filing before the transfer to the third party.The IRS may employ an administrative levy or seizure action against third parties where one or more of the following events have occurred: Thus, taxpayers and third parties in this context typically face a higher risk of civil fraud penalties or criminal prosecution. When invoking these legal theories, the IRS often alleges fraud. The IRS often uses the following legal theories to hold a third party liable for taxes that are owed by another person: Under federal tax law, a third party can be held liable for the tax liability of another person. This article provides a comprehensive overview of IRS third-party liability. The third party, known as a “transferee” or “nominee,” may be liable to the IRS based on several legal theories, such as transferee liability, nominee liability, alter ego liability and other mechanisms. The IRS uses fraudulent transfer law and “transferee” liability tools to collect unpaid taxes where a taxpayer has transferred property to a third party. Can you be held liable for a tax liability owed by another taxpayer? Yes, under certain circumstances.
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