On January 13, 2020, the Tax Court issued a Memorandum Opinion in the case of Alta V Limited Partnership v. Commissioner (T.C. Memo. 2020-8). The issue presented in Alta V was whether the petitioners were liable as transferees for their portion of the unpaid, determined, and assessed deficiency, penalties, and additions to tax with respect to the transferor’s corporate income tax.
Transferee Liability Under the Code – IRC § 6901(a)
The liability of a transferee of the property of a taxpayer who owes Federal income tax is assessed, paid, and collected in the same manner and subject to the same provisions as the underlying taxes. IRC § 6901(a). For purposes of IRC § 6901, the term “transferee” includes, inter alia, a donee, heir, legatee, devisee, distributee, and shareholder of a dissolved corporation. See IRC § 6901(h); Treas. Reg. § 301.6901-1(b). Transferee liability under IRC § 6901 includes additions to tax, penalties, and interest owed by the transferor. Kreps v. Commissioner, 42 T.C. 660, 670 (1964), aff’d, 351 F.2d 1 (2d Cir. 1965). The Tax Court has jurisdiction over transferee liability cases. See IRC § 6901(f); IRC § 6902; Tax Court Rule 13(a).
IRC § 6901 does not independently impose tax liability upon a transferee but, instead, provides a procedure through which the IRS may collect unpaid tax (owed by a transferor of assets) from the transferee who received those assets. Commissioner v. Stern, 357 U.S. 39, 42 (1958). An independent basis for liability must be available, and this basis is generally found under applicable State law or equity principles. IRC § 6901(a)(1)(A); Ginsberg v. Commissioner, 305 F.2d 664, 667 (2d Cir. 1962), aff’g 35 T.C. 1148 (1961).
Three requirements must be met for the IRS to assess transferee liability against a party under IRC § 6901: (1) the transferee party must be subject to liability under applicable State law or equity principles, (2) the party must be a transferee under IRC § 6901 pursuant to Federal law or equity principles, and (3) the transferor must be liable for the unpaid tax. Swords Tr. v. Commissioner, 142 T.C. 317, 336 (2014); see Cullifer v. Commissioner, T.C. Memo. 2014-208, at *43, aff’d, 651 F. App’x 847 (11th Cir. 2016). The IRS bears the burden of proving that a party is liable as a transferee of the taxpayer’s property but not of proving that the taxpayer is liable for the tax. See IRC § 6902(a); IRC § 7454(c); Tax Court Rule 142(d).
The Tax Court uses state law to determine whether a taxpayer is liable, as transferee, for the unpaid tax of the transferor. See Stern, 357 U.S. at 45. The principle of substance over form applies to determinations of transferee liability issues. See generally Scott v. Commissioner, T.C. Memo. 1998-426, aff’d, 236 F.3d 1239 (10th Cir. 2001).
Original opinion: (T.C. Memo. 2020-8) Alta V Limited Partnership v. CommissionerAdd to favorites