CCA 201306022: IRS advice compares nominee and alter-ego theories for federal tax liens

Plain-English summary

Chief Counsel advice addressed whether a person can potentially be treated as the alter ego of a business for federal tax lien purposes even without a legal ownership interest. The advice states that courts consider the whole picture and weigh the relevant factors. It describes nominee treatment as generally less onerous because it applies to specific property, while alter-ego treatment can attribute all property owned by a person to the business. The advice recommends considering nominee theory before the more challenging alter-ego theory.

Ruling snapshot

• Question: Can a person potentially be treated as the alter ego of a business without a legal ownership interest, and how does nominee treatment compare?
• Outcome: advice
• Key authorities: IRC § 6321

Full text (IRS public release)

ID: CCA_2012103110521454 Number: 201306022
Release Date: 2/8/2013
Office: -------------
UILC: 6321.00-00

From: ---------------------------
Sent: Wednesday, October 31, 2012 10:52:18 AM
To: ------------------------
Cc:
Subject: RE: quick alter ego question

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All is pretty well here in DC after the storm. Some folks have downed trees and lingering power outages to deal with, but this area got nothing compared to the devastation in New Jersey and New York.

A person's lack of legal ownership interest (as opposed to an equitable ownership interest) alone should not preclude us from determining that he is potentially an alter ego of a business. Some alter egos have no legal interest in their alter ego businesses by design. That said, your attorney should look at the whole picture and every potential factor when determining whether alter ego would apply. From a logical perspective, it is generally tougher to claim that a real person is an alter ego of a business than the other way around, because you are actually saying that all property owned by the person is property of the business. It is not impossible, however. I just reviewed a Tax Court case being appealed to the 11th Circuit (Eckhardt) where the Tax Court determined that a husband who owned shares of a gas station was the alter ego of the gas station, whereas the wife who did not own shares but was an officer was not an alter ego. At the end of the day, courts will take a holistic approach and weigh all the factors. BTW, our two common law factors that we espouse in the CC Notice are really just a "big picture" look at the many factors that states generally look to, it is just that some states put certain emphasis on specific facts more than the common law approach does.

As a whole, nominee is generally less onerous than alter ego, because it is property specific (e.g., Bob hold title to a car, although the business officers and employees use it, therefore the business has an equitable interest to such an extent that Bob really only holds legal title to the car as a nominee of the business). I generally recommend that attorneys try to see if nominee theory applies first before moving to the arguably more-challenging argument that a person is an alter ego of a business entity.

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