Transferee Liability (Portfolio 628)

Tax Management Portfolio, Transferee Liability, No. 628-4th, analyzes the rules of § 6901 and related judicial interpretations. To view this Portfolio, visit Bloomberg Tax for a free trial.

Bloomberg Tax

This Portfolio is available with a subscription to Bloomberg Tax™, a comprehensive research solution including over 500 Tax Management Portfolios, practice tools, primary sources and timely news.


Tax Management Portfolio, Transferee Liability, No. 628-4th, analyzes the rules of §6901 and related judicial interpretations. Beginning with a general discussion of transferee liability and its development from the so-called trust fund doctrine, the Portfolio distinguishes between transferee liability in equity and liability at law. The liability of a transferee at law or equity for the tax of the transferor is governed by state law and in some cases by federal statutes. The liability of the transferor is determined under the Internal Revenue Code. Section 6901 does not create a separate liability for the transferee; instead, it provides a regime to facilitate collection by the IRS from a third party of the tax due from the transferor and to permit the third party/transferee to contest the IRS determination in the U.S. Tax Court. The Portfolio also discusses the liability of a fiduciary under 31 U.S.C. §3713(b) and the application of §6901 to this type of liability.


Ellen S. Brody

Ellen S. Brody, partner, Roberts & Holland LLP (1994–present); B.S. in Economics, magna cum laude, University of Pennsylvania (1991); J.D., cum laude, New York University School of Law (1994); L.L.M. (in Taxation), New York University School of Law (1996); member, New York, U.S. Tax Court, Court of Federal Claims, and U.S. Court of Appeals (Federal Circuit); Certified Public Accountant, South Dakota (1991) and New York (2011); editor, New York University Law Review (1992–1994); member, The Association of the Bar of the City of New York, New York State and American Bar Associations (Sections on Taxation; Litigation), New York State Society of Certified Public Accountants; contributor, Journal of Taxation and other tax periodicals; co-author, 630 T.M., Tax Court Litigation.

Vivek Chandrasekhar

Vivek Chandrasekhar, Associate, Roberts & Holland LLP (2011, 2013–present); B.A. in English Literature, Mathematics, and Physics, with highest distinction, Indiana University (2006); J.D., magna cum laude, New York University School of Law (2011), with membership in the Order of the Coif; law clerk to the Honorable Rosemary S. Pooler, United States Court of Appeals for the Second Circuit (2012–2013); member, New York, U.S. Tax Court, Southern District of New York, Court of Appeals for the Second Circuit, Court of Appeals for the Third Circuit; editor, New York University Law Review (2009–2011); member, New York State and American Bar Associations (Sections on Taxation).

Table of Contents

Portfolio Description
Detailed Analysis
I. Introduction — Secondary and Derivative Liability for Taxes
A. The Origin of the Internal Revenue Code Provisions on Transferee Liability
B. Transferee Liability for Federal Taxes Without Reference to §6901
1. Fraudulent or Voidable Transfers
a. State Law
b. Federal Law — FDCPA
2. Trust Fund Doctrine
3. The Concept of Nominee or Alter Ego
4. Corporate Successors
5. Employment Taxes
a. Liability of Responsible Persons
b. Third-Party Liability
6. Fiduciary Liability
7. Other State Statutes
II. Transferee Liability in General
A. General Considerations
B. Requirement of a Transfer of Property
C. Liability of the Transferor
D. Retransfers
III. Transferee Liability in Equity
A. In General
B. Elements of Transferee Liability in Equity Based on a Fraudulent Transfer
1. Insolvency of the Transferor
a. In General
b. Insolvency Through a Series of Transfers
c. Determination of Insolvency
(1) Tests for Determining Insolvency
(2) Measuring Assets and Liabilities
2. Exhaustion of Remedies Against the Transferor
3. Lack of Adequate Consideration
IV. Transferee Liability at Law
A. Contractual Liability
1. In General
2. Contractual Assumption of Tax Liability
B. Statutory Liability
C. Estate and Gift Taxes
V. Classes of Transferees
A. Transferee Defined
B. Beneficial User of Transferred Property
C. Sale and Purchase of Corporate Stock or Assets
1. Stockholder-Distributees
a. In General
b. Constructive Transfers
c. Liquidating Distributions
d. Acquisition of Stock
2. Sale of Stock
3. Purchase of Stock or Assets
4. Corporate Successors
D. Creditors and Borrowers
E. Fiduciaries
F. Heirs, Legatees and Devisees
G. Surviving Joint Tenants and Tenants by the Entirety
H. Life Insurance Beneficiaries
I. Pension Benefits
J. Partners and Partnerships
K. Transferee of Transferee
VI. The Extent of Transferee Liability
A. In General
B. Extent of Transferee Liability in Equity
C. Extent of Transferee Liability at Law
D. Liability for Penalties and Interest Earned on Transferred Assets
1. Liability for Interest Where Value of Assets Transferred Exceeds Deficiency of Transferor
2. Liability for Interest Where Value of Assets Transferred Is Less than Deficiency of Transferor
3. Interest that Accrues After Sending of Notice of Transferee Liability to Transferee
VII. Defenses Against Transferee Liability
VIII. Procedures for Enforcing Transferee Liability
A. Section 6901 Assessment Procedure
1. In General
2. Address for Notice of Liability
3. Statute of Limitations
a. In General
b. Statute of Limitations for Transferees
(1) Initial Transferee
(2) Transferee of Transferee
(3) Limitations Period Where Court Proceeding Began Against Last Preceding Transferee
(4) Extension of Limitations Period by Agreement
(5) Death or Dissolution of Transferor
(6) Extension or Suspension of Limitations Period
c. Effect of Request for Prompt Assessment
B. Suits Bought by Transferees
1. Tax Court Review
2. Refund Suits
3. Injunctions Against Collection of Transferee Liability
C. Suits by the IRS
1. Statute of Limitations
2. Burden of Proof
IX. Effect of a Discharge in Bankruptcy
A. Discharge of the Transferor/Taxpayer
B. Discharge of the Transferee

Working Papers

Table of Worksheets
Worksheet 1 Federal Debt Collection Act of 1990 [Title XXXVI of the Crime Control Act of 1990 (P.L. 101-647)]
Worksheet 2 Uniform Voidable Transfer Act
Worksheet 3 Revenue Act of 1926 (P.L. 20) — S. Rep. No. 52, 69th Cong., 1st Sess. 28–30
Worksheet 4 Revenue Act of 1926 (P.L. No. 20) — H.R. Rep. No. 356 (Conf.) 69th Cong., 1st Sess. 42–45
Worksheet 5 Crime Control Act of 1990 (P.L. 101-647) — H.R. Rep. No. 736, 101st Cong., 2d Sess. 1 [To Accompany H.R. 5640, the Federal Debt Collection Procedures Act of 1990]