Can you be held liable for a tax liability owed by another taxpayer?
Yes, under certain circumstances. The IRS uses fraudulent transfer law and “transferee” liability tools to collect unpaid taxes where a taxpayer has transferred property to a third party. 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. This article provides a comprehensive overview of IRS third-party liability.
Third-Party Liability
Under federal tax law, a third party can be held liable for the tax liability of another person. The IRS often uses the following legal theories to hold a third party liable for taxes that are owed by another person:
- Transferee Liability
- Fiduciary Liability
- Successor-in-Interest Liability
- Nominee Liability
- Alter Ego Liability
When invoking these legal theories, the IRS often alleges fraud. Thus, taxpayers and third parties in this context typically face a higher risk of civil fraud penalties or criminal prosecution.
Levies and Seizures
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