A not-uncommon taxpayer self-help collection "defense" is to title property in the names of third parties in order to avoid IRS collection against the property. The common law and state law developed legal protections for creditors to be able to get past the nominal titling of the property to third parties. These protections appear in the form of concepts such as nominee and alter ego liability and transferee liability for transfers in fraud of creditors. The IRS uses these concepts to take collection activity, including filing liens against the third party. I cover these concepts in the Federal Tax Procedure Book (footnoted at pp. 610 - 620; nonfootnoted at pp. 446 - 453).
Tax Notes Today has an article summarizing a recent webcast on alter ego liens. Amy S. Elliott, Increased IRS Use of Alter Ego Liens Causing Problems for Taxpayers, 2012 TNT 154-2 (8/9/12). The key points are:
1. The IRS is increasingly using alter ego and nominee liens which have, practitioners feel, "insufficient due process protections." Problems with the process include lack of notice to the alter ego or nominee. A practitioner noted that, since the use of the alter ego or nominee lien requires advance counsel approval, the Appeals Officer may be reluctant to override the counsel.
2. One participant suggested seeking Taxpayer Advocate Service involvement as soon as an alter ego lien is improperly asserted.
3. The participants offered anecdotal cases where the use of the alter ego lien went awry and created unnecessary hardship.
4. Although alter ego was developed as a state law concept, the IRS position is that the IRS and the courts should apply a common federal law alter ego concept, rather than having inconsistent applications among the states. CC-2012-001, reproduced at 2011 TNT 235-14. The notice indicates that there is conflicting court authority which looks to state law.
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The contents of this blog entry do not require changes to the text of the Federal Tax Procedure Book, although I am adding the article to footnote 1959, p. 613, in the footnoted version.
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