A “nominee” is someone who holds property “in name only” for the benefit of another. An “alter ego” is the use of another name for one’s self, and does not involve another individual. The IRS will sometimes assert that property is held by a nominee when someone other than the taxpayer against whom the IRS is seeking to assess or collect has legal title but the taxpayer, in substance, enjoys the benefits of ownership of the property. A tax lien can attach to property that really belongs to a taxpayer even if the taxpayer’s name is not on the title.

In some cases, the IRS may go the extra step of filing a “nominee” tax lien in the chain of title for the person whose name the property is under. A “nominee” lien requires IRS attorney approval under their internal manual, but a dedicated “nominee” lien generally is filed to protect the IRS’s priority of interest over subsequent buyers or lien holders and is not really necessary to allow them to foreclose or seize a specific piece of property held by a nominee.

The IRS and the federal courts look to state law to determine ownership of property. However, California has not set forth any specific requirements for determining when property is held by a nominee. As a result, law in this area is still developing and, in the interim, federal courts in California have looked to federal common law for factors weighed in this determination. Those factors include:

(a) No consideration or inadequate consideration paid by the nominee;

(b) Property placed in the name of the nominee (1) in anticipation of a suit or occurrence of liabilities while (2) the transferor continues to exercise control over the property;

(c) Close relationship between transferor and the nominee;

(d) Failure to record conveyance;

(e) Retention of possession by the transferor; and

(f) Continued enjoyment by the transferor of benefits of the transferred property.

This is a fact intensive analysis and the IRS has incorrectly filed nominee liens in the past. If you need help dealing with IRS liens and nominee/alter ego liens, the Wilson Tax Law Group has a great deal of experience in this area and can be contacted at (949) 397-2292.

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