Transferee Liability: Another Vote for Substance Over Form Under State Law

midcoThe IRS uses transferee liability to make Peter pay Paul’s taxes.

To accomplish this, the government relies upon both federal and state law:

  • Section 6901 of the Internal Revenue Code authorizes the IRS to collect taxes from transferees who are liable “at law or in equity” and to do so “in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred.” I.R.C. § 6901(a). This permits the IRS to issue a tax assessment against a transferee who received a taxpayer’s property.
  • Section 6901 of the Code is simply a procedural device; it does not create liability.
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