Federal District Court Concludes Trust Held Property As Nominee

It may not surprise you that the IRS has a host of collection tools at its disposal to collect outstanding tax debts.  One common method is assertion of nominee theory.  In these instances, a taxpayer transfers property to a third party but generally retains some or all of the benefits of the asset.  A recent decision in the federal district court of Colorado illustrates the IRS’ use of nominee theory, and is the subject of this Insight.

Nominee Theory

According to the Internal Revenue Manual:

The nominee theory is based on the premise that the taxpayer ultimately retains the benefit, use, or control over the property that was allegedly transferred to a third party.  Thus, the nominee theory focuses on the relationship between the taxpayer and the transferred property.  A transfer of legal title may or may not have occurred, but the government does not believe a substantive transfer of control over the property in fact occurred.

Read More