In Fourth Investments LP v. United States, ___ F.3d ___, 2013 U.S. App. LEXIS 11905 (9th Cir. 2013), here, the Ninth Circuit provides some helpful general discussion of the law regarding nominee liability, including a key holding that some Federal common law does not apply to the determination. The issue arises in many contexts, but (as noted in a footnote), this is a variation of the typical context in which it arises (citing Teresa Dondlinger Trissel, A Uniform Standard for Alter Ego and Nominee Tax Litigation, 58 Fed. Law. 38, 38 (2011).):
Typical nominee . . . scenarios start with people falling behind on their taxes. Facing the loss of their homes or businesses to the federal government [for the taxes owed] some taxpayers take steps to try to separate themselves from their valuable assets. The taxpayer's house may be deeded to a friend, although the taxpayer continues to reside there. Or perhaps all the taxpayer's cash disappears, yet the taxpayer's personal bills are being paid by a closely-held and controlled corporation. The factual scenarios are as creative and varied as are taxpayers themselves. However, the tax collector's reaction is usually consistent: upon discovering that a third party is being used to thwart the IRS's collection efforts, the government will file a notice of a federal tax lien identifying the third-party target as the taxpayer's nominee or alter ego and will attempt to satisfy the tax liability from assets held by the third party.Here are some key excerpts that I think are helpful students in understanding the nominee or alter ego concept: These are quotes from the case, but I strip out the case citations except for the Supreme Court decision in Drye] and most of the quotation marks in order to provide a more readable narrative version:
A nominee is one who holds bare legal title to property for the benefit of another. Although the Supreme Court has clearly indicated that the IRS may impose nominee tax liens, it has provided only limited guidance concerning how such nominee determinations are to be made. However, the Court has explained that application of the federal tax lien statutes involves questions of both state and federal law. The federal tax lien statute itself creates no property rights but merely attaches consequences, federally defined, to rights created under state law. Consequently, in making nominee determinations in a tax lien context, we must look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach. After determining that the taxpayer has a property interest under state law, we then look to federal law to determine whether the taxpayer's state-delineated rights qualify as property or rights to property within the compass of the federal tax lien legislation.
The Government contends that nominee doctrine should be governed by federal common law rather than state law. We reject this position, just as it has been uniformly rejected by our sister circuits and by nearly every federal court that has examined the issue. [The cases are assembled and discussed in footnote 4 which I omit but which can be viewed at the link.]
