IRS issues new Notice regarding “alter ego status”

Jan 09, 2012   

On December 2, 2011, the IRS issued Notice CC-2012-002, available here, setting forth the IRSs position “that a federal common law analysis to prove alter ego status is legally correct and consistent with the important principle of uniformity of federal tax enforcement.”  The Notice is in response to recent U.S. Circuit Court of Appeals cases, Old West Annuity and Life Insurance Co. v. Apollo Group, 605 F.3d 856 (11th Cir. 2010), United States v. Scherping, 187 F.3d 796 (8th Cir. 1999) and Floyd v. IRS, 151 F.3d 1295 (10th Cir. 1998) holding that federal courts must look to state property law before determining if a federal tax lien attaches to the property or rights to the property. 

The IRS takes this new position based on a strained reading of the U.S. Supreme Courts holding in G.M. Leasing Corp. v. United States, 429 U.S. 338, 351 (1977), to conclude that “if an entity is a taxpayers alter ego, then it is appropriate to Ëœregard all of the entitys assets as the taxpayers property for federal collection purposes.”

The significance of the Notice is that taxpayers now must be ready to counter IRS efforts to apply “federal common law” instead of more favorable state law.  The result will be, at least in the short term, that the IRS will seek to challenge state law and will seek to aggressively enforce tax liens against taxpayers who own business entities.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating against the IRS and the U.S. Department of Justice in tax lien and collection matters.  You can reach an attorney by emailing us at  contact@fidjlaw.com.