The IRS, Fraudulent Transfers, And Transferee Liability

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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