A recent Sixth Circuit case illustrates the importance of selecting the right route in attacking an alter-ego tax lien, which arises when the IRS contends that someone holding property is actually the alter-ego or nominee of someone who has unpaid tax liabilities. Morris v. United States, 2013 U.S. App. LEXIS 17707 (6th Cir. Aug. 23, 2013).
The case started when Mrs. Morris received a Notice of Federal Tax Lien indicating that the IRS was asserting a lien against property that she held on the theory that she was acting as the alter-ego or nominee of her husband. She then filed a complaint, alleging that the filing of the lien without a prior hearing violated her due process rights and requested declaratory relief. Morris v. United States, 2013 U.S. App. LEXIS 17707, slip op. at *2-*3 (6th Cir. Aug. 23, 2013).
Mrs. Morris lost in the district court because the availability of an action to quiet title provided her with an adequate remedy. Id. at *3-*4. On appeal, matters got worse as the government raised subject matter jurisdiction, asserting that the action was barred by the Tax Anti-Injunction Act, I.R.C. § 7421. The Court of Appeals, noting that the act barred both an action to enjoin an assessment and an effort to enjoin collection, held that Mrs. Morris could not prevail in light of the Anti-Injunction Act and sovereign immunity. 2013 U.S. App. LEXIS 17707, slip op. at *12-*18.
In closing, the court noted that she retained a variety of remedies, including an action to quiet title under 28 U.S.C. § 2410. Id. at *18.
This is plainly the correct outcome, which could have been avoided if Mrs. Morris had simply selected the right approach to the problem.
Jim Malone is a tax lawyer in Philadelphia. © 2013, Malone LLC.