CCA 201016065: Transferee interest generally starts at notice of liability, with state law applying before then

Plain-English summary

Chief Counsel Advice addresses when interest applies to a transferee's tax liability. Under the cited Tax Court rule, section 6601 interest begins when the Commissioner issues a notice of transferee liability. In limited liability situations, state law determines the liability for interest and the applicable rate from the date of transfer through the notice date. If the Service does not issue a notice because of a settlement or similar reason, the transferee is not liable for section 6601 interest until notice of assessment and demand for payment, while state law determines interest for the earlier period.

Ruling snapshot

• Question: When does interest begin on a transferee liability, including when no notice of transferee liability is issued because of a settlement?
• Outcome: Advice given
• Key authorities: IRC § 6601; Estate of Stein v. Commissioner; Patterson v. Sims

Full text (IRS public release)

ID: CCA_2010031812222947 Number: 201016065
Release Date: 4/23/2010
Office: --------------
UILC: 6601.00-00

From: ---------------
Sent: Thursday, March 18, 2010 12:22:30 PM
To: --------------------
Cc: -----------------------------------
Subject: RE: Transferee interest; ----------------------

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We apologize for the delay in our response.

In Estate of Stein v. Commissioner, 37 T. C. 945, the Tax Court held that section 6601 interest applied from the date the Commissioner issued a notice of transferee liability, but that state law determined the liability for and applicable rate of interest from the date of transfer to the date of the notice in limited liability situations. In so holding, the Tax Court followed Patterson v. Sims, 281 F.2d 577. In Patterson, the Service had argued that the transferee was liable for interest from the date of the transfer, while the transferee argued that he was not liable for post-transfer interest. The court held that the transferee was liable for interest from the date of the issuance of the notice of transferee liability. The Service follows the rule stated in Estate of Stein and in Patterson. See IRM 8.7.5.6.2(4)a &d; 4.10.13.3.5.1(2)

If the Service does not issue a notice a transferee liability because of a settlement or like reason, we agree that the transferee would not be liable for interest under section 6601 until notice of assessment and notice of demand for payment. Interest prior to that time would be determined by state law.

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