Section 6901 of the Internal Revenue Code provides the government with a procedural tool to assist it in collecting taxes from third parties who hold property that was transferred to them by a taxpayer. It permits the IRS to issue a transferee assessment if two conditions are met: where the target of the assessment is a transferee, which is decided under federal law; and where the transferee is liable under applicable state law, such as fraudulent conveyance law.
The government has been pressing an approach to transferee liability under Section 6901 that first asks a court to recast a transaction or series of transactions using federal tax law doctrines such as substance over form and then apply state law to the transaction as recast under federal law.… Read More
The PICPA Journal recently published a piece that I did covering IRS third party collection cases, which can be rough on the targets. http://www.picpa.org/Content/46838.aspx… Read More
When a taxpayer cannot pay its liabilities, Section 6901 of the Internal Revenue Code authorizes the IRS to issue assessments of those tax liabilities against direct and indirect transferees of the taxpayer’s property. The provision is procedural: it doesn’t define who is liable, it merely provides for the use of the assessment procedure in cases against transferees.
Courts have construed Section 6901 to require an examination of two issues:
- Whether a party is a transferee, which is decided under federal law;
- Whether that party is liable as a transferee, which is decided under applicable state law governing fraudulent transfers.
The Second Circuit recently considered the application of Section 6901 in a Midco transaction.… Read More
This segment of my discussion of Starnes v. Commissioner, 2012 U.S. App. LEXIS 10948 (4th Cir. May 31, 2012), will examine the dissenting opinion, which argues that the Tax Court should have been overturned and the taxpayers tagged for transferee liability.
The dissent starts by looking at the substance of the transaction: after the sale of the warehouse, Tarcon had $3,091,955 in the bank and total tax liabilities of $881,628, and the four former shareholders were then free to distribute the net cash, which would result in a distribution to each of them of $552,582. Starnes, 2012 U.S. App. LEXIS 10948 at *64-*65 (Wynn, J.… Read More
This will continue my discussion of Starnes v. Commissioner, 2012 U.S. App. LEXIS 10948 (4th Cir. May 31, 2012), in which a divided Fourth Circuit panel addressed transferee liability for federal taxes. Before addressing the case in more detail, a little background is in order.
In Notice 2001-16, 2001-1 C.B. 730 (Feb. 26, 2011), the IRS announced that it would be scrutinizing transactions that involved the sale of a corporation’s stock to one corporation and its assets to another in what are known as “intermediary transaction tax shelters.” The central feature of these transactions were separate sales of the assets and stock of a corporation, which due to the presence of an intermediary (the purchaser of the stock) resulted in no payment of tax on the gain on the sale of the assets.… Read More
State law generally provides a creditor with a remedy when someone who owes a debt engages in a fraudulent conveyance in an effort to put money or property out of reach. Since law suits can be cumbersome, Congress gave the IRS special powers to collect from transferees, enacting Section 6901(a) of the Code, which provides that transferees of property are subject to liabilities for income, estate or gift taxes. Specifically, liabilities of a transferee are to be “assessed, paid, and collected in the same manner and subject to the same provisions as in the case of the taxes with respect to which the liabilities were incurred.” Id.… Read More