CCA 200935027: Personal expense payments alone do not establish an alter-ego levy

Plain-English summary

This Chief Counsel Advice considers whether the IRS may levy a corporation suspected of being a taxpayer's alter ego. It states that the corporation's payment of the taxpayer's personal expenses, with the taxpayer reporting the payments as income and the corporation deducting them, is not enough by itself. Under Florida law, piercing the corporate veil is an equitable doctrine applied sparingly, although a corporation need only be an instrumentality of a person for its separate identity not to be recognized. The Advice concludes that the available facts do not establish whether the IRS should issue a nominee levy against the corporation.

Ruling snapshot

• Question: Do payments of a taxpayer's personal expenses by a corporation justify an alter-ego or nominee levy?
• Outcome: Advice given
• Key authorities: IRC § 6321; In re Blatstein, 192 F.3d 88 (3d Cir. 1999); In re Multiponics, 622 F.2d 709 (5th Cir. 1980); Bendix Home Systems, Inc. v. Hurston Enter., Inc., 566 F.2d 1039 (5th Cir. 1978); Shearson Hayden Stone, Inc. v. Lumber Merchants, 500 F. Supp. 491, 501 (S.D. Fla. 1980); Tato, 64 AFTR 2d 5520.

Full text (IRS public release)

ID: CCA-431511-09 Number: 200935027
Release Date: 8/28/2009
Office: -------------
UILC: 6321.00-00
_________
From: --------------------------------
Sent: Friday, April 03, 2009 3:11 PM
To: -----------------------
Cc: -------------------------------------------------------
Subject: RE: Alter Ego Question

Based on my research, without more, the mere paying of a taxpayer's personal expenses, with the taxpayer reporting these payments as taxable income, and the corporation who made the payments taking deductions on its tax returns for the payments, is not enough to levy a corporation we suspect of being an alter ego. See In re Blatstein, 192 F.3d 88 (3rd Cir. 1999).

Under Florida law, "piercing the corporate veil" is an equitable doctrine which is applied sparingly. In re Multiponics, 622 F.2d 709 (5th Cir. 1980). To find that the corporation's separate legal identity should not be recognized, however, the corporation need only be an instrumentality of that person. See Bendix Home Systems, Inc. v. Hurston Enter., Inc., 566 F.2d 1039 (5th Cir. 1978); Shearson Hayden Stone, Inc. v. Lumber Merchants, 500 F. Supp. 491, 501 [*20] (S.D. Fla. 1980); Tato, 64 AFTR.2d at 5520.

Under Florida law, the corporation's separate identity will be disregarded if it is a "mere instrumentality" of another individual or another corporation created to mislead creditors or individuals or exists for fraudulent purposes. Tato, 64 AFTR.2d at 5520; Bendix Home Sys., 566 F.2d at 1041. "In any suit to disregard the corporate entity, it is of primary importance to examine the relationships between the corporations and the individuals involved." Id.

Other than the fact the alleged "alter ego" corporation has been paying the personal expenses of the taxpayer, with both the corporation and the taxpayer properly reporting such items on their respective tax returns, we are not able to say whether this is a situation where the IRS should issue a nominee levy against the "alter ego" corporation.

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