CCA 200909036: Third-party clause did not block collection of assumed tax liability

Plain-English summary

A contract apparently both transferred tax liabilities and barred third parties from obtaining rights under the agreement. Chief Counsel advised that the provisions were inconsistent unless the assumed tax liabilities were meant to be paid as part of the purchase price. The IRS was not acting as a third party in enforcing that promise. It stood in the transferor's shoes and could sue on grounds available to the transferor, including failure to provide promised consideration.

Ruling snapshot

• Question: Did a no-third-party-rights clause prevent the IRS from collecting tax liabilities assumed in a contract?
• Outcome: Advice given: no, the IRS could stand in the transferor's shoes to enforce the assumed liability.
• Key authorities: IRC § 6901, as identified by the document's UILC classification.

Full text (IRS public release)

ID: CCA-088949-08 Number: 200909036
Release Date: 2/27/2009
Office:
UILC: 6901.00-00

From: -----------
Sent: Friday, August 08, 2008 9:49 AM
To: -------------------------
Cc: ----------------------------
Subject: ------------------------------------

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I managed to lose your email but I recall your question as being about taxpayer's position that a provision in the contract barring 3d parties from obtaining rights under the contract prevents the government from collecting on the basis of assumption of tax liability by the contract.

Assuming that both provisions exist in the contract, they are inconsistent. Either the tax liabilities have been assumed or they have not. If assumed, it must be for payment (and thereby collection by the IRS); this is an element of the purchase price for which the transferor can sue. Note that the IRS is not a 3d party in this matter; we stand in the shoes of the taxpayer (transferor) and can bring suit on whatever ground the transferor, who is a party to the contract, could have brought suit upon, including failure to provide a portion of the promised consideration.

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