By Gary Bluestein

5.12.1.2.11 Nominee and Alter Ego Situations (12-01-2006)

Persons identified as nominees or alter egos are not entitled to a Collection Due Process Hearing.

If a nominee or alter ego is sent Letter 3177, Notice of Federal Tax Lien Filing – Nominee and Alter Ego… there is no requirement to send this notice certified mail.

The person identified as a nominee or alter ego may use the appeal process under the Collection Appeals Program (CAP).

The taxpayer is entitled to CDP rights under IRC §6320.

5.12.2.6.5 Preparing Nominee Liens (02-01-2007)

A nominee is someone who is designated to act for another. As used in the federal tax lien context, a nominee is generally a third person who holds legal title to property of the taxpayer while the taxpayer enjoys full use and benefit of the property. The FTL extends to property actually owned by the taxpayer even though a third party owns legal title. The third person can be any person listed in IRC §7701(a)(1).

The nominee situation normally involves a fraudulent conveyance or transfer of a taxpayer’s property to avoid legal obligations. To establish a nominee lien situation, it must be shown that while a third party may have legal title to the property, it is the taxpayer that owns the property and who enjoys the full use and benefits.

Request area counsel advice before filing a nominee lien. Consider the following circumstances when developing your case:

• The taxpayer is paying maintenance expenses.
• The taxpayer is using the property as collateral for a loan.
• The taxpayer is paying state and local taxes on the property.
• Other use or benefit from the property.
• Other relevant facts.

You may not file a nominee lien without the written approval of area counsel…

In determining what additional enforcement action should be taken, consideration must be given to the confusion in the chain of title and redemption rights of the taxpayer. These conditions may depress the sale of the property.

A judicial lien, foreclosure or seizure followed by suit to foreclose the NFTL will generally bring a greater sale price, particularly for real property.

The administrative seizure and sale process may be used if prompt action is needed to protect the government’s interest. If there is any doubt, request an opinion from area counsel.

5.12.2.6.6. Determining When a Nominee Lien is Required (02-01-2007)

Under certain circumstances, a statutory lien continues to attach to transferred property, even though a NFTL was not filed at the time of transfer. For example,

The taxpayer (transferrer)(sic) transfers property to a party (transferee) and does not receive adequate and full consideration in money or moneys worth. The transferee is not considered a purchaser. See §6323(h)(6)…

If NFTL is filed in the name of the taxpayer before the transferee encumbers or sells the property to a valid purchaser, the government’s lien interest is fully protected.

In these circumstances, the lien can be enforced by the seizure of the property from the transfer or subsequent valid purchaser, or by a suit to foreclose the lien.

A nominee lien or a “specific property” lien filed in the name of the taxpayer and specifically describing the transferred property is not required to protect the government’s interest when these conditions are met. Such liens should not be recorded.

The taxpayer may record fraudulent transfer documents that make it appear as if the transfer of their property was to a valid person prior to the filing of the NFTL. For example, the taxpayer may record a warranty deed showing the transferee paid fair market value for the property instead of a quick claim deed for a love and affection. In these circumstances, consider filing:

A nominee lien (if the transfer was in name only), or

A transferee lien (if the taxpayer gave title and use and control of the property to the transferee, although no consideration was received.

5.12.2.6.7 Alter Ego Liens (02-01-2007)

The “alter ego” (second self) doctrine has been summarized as follows: the obligation of a corporation will be recognized as those of another person and vice versa, where it appears that the corporation is not only influenced and governed by that person, but there is such a unity of interest and ownership that the individual reality or separateness of the person and the corporation has ceased. Also the facts are such that adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction of fraud or promote injustice.”

There are two elements to the alter ego doctrine:

• Unity of ownership and interests,
• Fraud or inequity would result in the failure to disregard corporate entity.

Some factors pertinent to a determination to disregard the corporate entity are whether the individual:

• Is in a position of control of authority over the entity.
• Controls the entity to shield himself from personal liability.
• Uses the business entity for his or her own financial benefit.
• Uses the business entity to assume personal debts, or debts of another.
• Uses personal funds to pay the business entity’s debts.
• Some facts established from the factors in (3) above are:
• Commingling of funds and other assets
• Failure to segregate funds of the separate entities
• An unauthorized diversion of corporate funds or assets to other than corporate uses.
• Treatment by an individual of the assets of the corporation as his or her own.
• Failure to obtain authority to issue stock or to subscribe to or issue the same
• Holding out by an individual that he or she is personally liable for the debts of the corporation
• Failure to maintain minutes or adequate corporate records, and confusion of records of separate entities
• The identical equitable ownership in two entities
• Failure to adequately capitalize a corporation, the total absence of corporate assets, and undercapitalization…
• Do not file a NFTL in the name of an alter ego without legal review, advice and written direction from area counsel…

5.12.2.6.8 Transferee Liens (03-01-2004)

There are two methods the government can use to collect an unpaid tax liability where a taxpayer has transferred property to a third party prior to or after the assessment of the tax. Collection of the tax is based on finding that the transfer was a fraudulent conveyance…

The first method, a suit to set aside a fraudulent conveyance, the government collects the transferrer’s tax from the transferred property. This is done by filing a civil action in U.S. Court. See IRM 5.17.14.1.

The second method is administratively imposing transfer liability, which results in the imposition of personal liability for the tax on a third party. The liability is then collected from the third party’s property. To do this, the Commissioner may issue the notice of transferred liability to the transferee. If a Tax Court petition is not filed or the liability is sustained by the Tax Court, The Commissioner may assess the tax against the transferee under the authority of IRC §6901.

Once the assessment is made, a Notice of Demand and Payment is issued and if the transferee does not pay, a NFPL may be issued…

Contact local counsel for authorization before issuing a transferee lien.