When taxpayers move assets to other people or entities, the IRS may try to collect the underlying tax from the recipient rather than only from the original taxpayer. One of the main tools for doing that is 26 U.S.C. (“IRC”) § 6901, which allows the government to assess and collect certain liabilities administratively against a “transferee.” This often comes up when a corporation distributes assets and leaves unpaid taxes behind, or when property is transferred for less than full value while a tax debt is outstanding. IRC § 6901 authorizes the IRS to assess and collect certain transferee liabilities in the same general manner as the underlying tax. A Baltimore, MD IRS tax lawyer can help taxpayers and alleged transferees understand their potential exposure under IRC § 6901, evaluate available defenses, and develop strategies for responding to IRS assessments and collection actions.
A critical point is that IRC § 6901 is generally procedural, not substantive. In other words, the statute gives the IRS a mechanism to assess and collect from a third party, but it does not by itself create the third party’s liability. The government still needs an independent legal basis to say the transferee is liable “at law or in equity.” In practice, that often means state fraudulent transfer law, trust fund principles, corporate liquidation rules, or another body of law that makes the recipient responsible for the transferor’s unpaid tax. The IRS explains in its transferee liability guidance that the IRS uses IRC § 6901 to collect from a person or entity that received assets for less than full, fair, and adequate consideration or is otherwise legally responsible for the transferor’s tax liability.
The IRS also must satisfy important procedural requirements. It generally needs to identify a transfer of assets, determine the amount of the transferor’s unpaid liability, and establish that the targeted third party is in fact a transferee within the meaning of the statute. If the IRS proceeds administratively, it typically issues a notice of transferee liability, which can give the recipient the right to petition the Tax Court before payment, much like a deficiency case. Treas. Reg. § 301.6901-1 provides that transferee liability is assessed and collected using many of the same procedures that apply to tax deficiencies, including notice and Tax Court petition rights in applicable cases.
Timing is especially important in IRC § 6901 cases. The statute has its own limitation periods, and they are tied to the transferor’s assessment period. For an initial transferee, the IRS generally has one additional year after the transferor’s assessment period expires. For a transferee of a transferee, the rules are more complex, but there are still specific outer limits. Those timing rules can be outcome-determinative, especially in older cases involving dissolved entities or multi-step transfers. IRC § 6901 sets out separate limitation periods for initial transferees and subsequent transferees, and the IRS addresses the handling of transferee cases in Appeals as well.
For taxpayers and third parties, the key takeaway is that a transferee case should never be treated as automatic simply because money or property changed hands. The IRS must prove both the procedural elements under IRC § 6901 and the underlying legal theory that makes the transferee liable. In many cases, defenses may exist as to valuation, solvency, fair consideration, the character of the transfer, or the statute of limitations. Because these cases often involve overlapping tax and state-law issues, early analysis is critical for anyone who receives a notice asserting liability for someone else’s tax debt.
Crepeau Mourges has experience representing individuals facing potential third-party liability, including under IRC § 6901, 31 U.S.C. § 3713, the trust fund recover penalty (IRC § 6672), and various state law third-party liability theories. These are significant issues that require competent counsel. Call us today to see how we can assist in your case.
