IRS Nominee Tax Lien

This article will discuss a tool that the IRS has to collect taxes from a Delinquent Taxpayer. The IRS’ nominee tax lien is a tactic used by the IRS to protect its interest in a property owned by a person who owes taxes to the government. If you have questions about a nominee tax lien or are in a dispute with the IRS, get in touch with the McGuire Law Firm to speak with a Denver tax attorney who can help you.

What is an IRS Nominee Tax Lien?

A nominee tax lien filed by the Internal Revenue Service is a collection tool or tactic used by the Internal Revenue Service to protect the government’s right or interest in an asset or property whereby the title to the asset may be held by a third-party that does not owe taxes to the IRS, but the asset in reality is owned by or controlled by a taxpayer that does owe taxes (the “Delinquent Taxpayer”).  The IRS can apply the nominee tax lien to prevent a Delinquent Taxpayer from hindering IRS collection efforts and, in essence, applied the substance over form doctrine.  The form or legal fiction is the asset or property is owned or titled by a third-party but in substance or reality the asset or property is owned or controlled by the Delinquent Taxpayer who the IRS is attempting to collect the tax debt from.

What is the Purpose of a Nominee Tax Lien?

The primary purpose is that of a collection attempt by the IRS to satisfy a tax debt.  By filing a nominee lien the government is securing their interest in the asset or property to help secure payment of the underling tax debt. By filing the nominee lien the government may be able collect on the equity in the asset that may have been fraudulently conveyed or titled to another individual or business in an attempt to avoid paying the tax debt.

What Assets or Property Can a Nominee Lien Attach To?

Generally, a nominee lien will attach to a specific asset such a piece of real estate and is not a broad and blanket lien such as when a notice of federal tax lien is actually filed naming a Delinquent Taxpayer.  For example, if Joe was a delinquent taxpayer and had his brother Mike purchase a home that Joe lived in and paid the mortgage, property taxes insurance and other costs of operating and living in the home, the IRS could file a nominee lien naming Mike as nominee and the lien would attach to the real estate that Mike owns but rather Joe is living in and maintaining the property. Thus, the lien is very specific to the piece of real estate and would only attach to the real estate.

Can the Nominee Request a Collection Due Process Hearing (CDP)?

No. Unlike the filing of a Notice of Federal Tax Lien, the nominee does not have the right to request a CDP.  The nominee would need to litigate in court that they are the true and rightful owner of the asset or property the nominee lien is attaching to.

What Elements or Facts Does the IRS Look for When Filing a Nominee Tax Lien?

There are generally a number of facts or elements that may allow the IRS to file the nominee lien, which would include the following:

• Often there is a close relationship between the owner of the property or asset and the Delinquent Taxpayer.
• The nominee or party who owns or holds title to the asset may have paid very little or no money for the asset.  Many times, the Delinquent Taxpayer will have paid for the asset but titled it to the nominee.  
• The Delinquent Taxpayer will generally own or control the asset in daily life and pay expenses associated with the asset such as with Joe in the example above.
• The Delinquent Taxpayer may have owned the asset and later transferred and conveyed the asset to the nominee for little or no consideration.

What Allows The IRS to File a Nominee Tax Lien?

The IRS has the authority to file a nominee lien under Section 6321 of the Internal Revenue Code.  Section 6321 states that a lien attaches to all property and rights to property actually owned by a taxpayer.  Thus, if the government feels the Delinquent Taxpayer “actually” owns the property, they are likely to feel they have the right to file the nominee tax lien.

If you are a taxpayer owing taxes to the IRS or you have an asset whereby the IRS has deemed you a nominee and filed a lien attaching to the asset, it may be wise to speak with a tax attorney.  You can contact The McGuire Law Firm to speak with a Denver tax attorney regarding any of your tax issues.