If the IRS files a tax link against your property, the link will remain attached to the property when you transfer it to a third party. This makes it possible for the IRS to take back the transferred property from the person to whom it was transferred. However, if you transfer the property after the tax liability has increased, but before the IRS files a lien, it may be too late for the IRS to repossess the property from the transferee.
Who can be liable as transferee?
Under state law, the IRS has the ability to collect a delinquent tax liability from a taxpayer through a transfer of property from the taxpayer. If you transfer the property to a third party, the IRS has the ability to collect your tax liability by taking the property you transferred. This means that the actually transferred will be responsible for the taxpayer’s taxes to the extent of the value of the transferred property.
In some cases, an assignee will be liable for the taxpayer’s fraudulent actions to transfer property out of the hands of the IRS. When a taxpayer knows that the IRS will eventually repossess the property and the taxpayer transfers the property to a third party in an attempt to avoid this, the transferee actually becomes liable for this fraudulent transaction.
Once the IRS determines that the transferee is liable for the property that was transferred, the IRS will begin collection attempts in the same manner as it would in any other case. If you are the transferee of a linked property, the IRS will begin the collection process against you as soon as possible.
Definition of transferee
According to the IRS, an assignee is “someone who takes the property of another without full, fair and proper consideration to the detriment of creditors.” Essentially, this means that if you pay full, fair, and adequate consideration for the property, the IRS will not consider you an assignee, and therefore you will not be liable for the tax liability of the person who transferred the property to you.
Some situations in which you would be a transferee would be if you inherited property from someone in your family. Whether or not you knew about the tax liability is irrelevant, the IRS will try to collect from you for the property.
Another situation that would make you liable as a transferee would be if you were a joint tenant with a right of survivorship. This usually happens when someone dies and the remaining interest in a specific property is transferred to the surviving partner.
If you received property as a gift and that property was gifted in an attempt to avoid a tax bond, the IRS will attempt to collect from you for the property. It does not matter whether or not you were aware of the situation affecting the person who gifted you the property, you will remain liable as the transferee.
How to protect yourself from the assignee’s liability
Here are some of the things you, as a taxpayer, should do if you ever find yourself in the situation of acquiring property from a third party.
1. Write a contract if it is a business transaction or a significant personal transaction. You want everything in writing in case the IRS needs to know all the details of what happened between you and the person who transferred ownership to you.
2. All counties in the United States have up-to-date fiscal links. Be sure to check with your county court clerk to find out if there are tax ties against the property you are about to receive or are considering buying.
3. Ask the person from whom you will receive the property an option to return the property if a transferred responsibility is found to exist. This must be in writing and signed by both parties to the transaction. Always get everything in writing.
4. Ask for guarantees in the contract that there are no tax obligations that could potentially make you liable as a transferee. Again, always have the guarantee in writing in case you ever need to go to court.
5. Always be wary of offers that sound too good to be true, in most situations they are. Better to walk away if something doesn’t seem right than to be subject to the assignee’s liability by the IRS.