What Is an Alter Ego Levy and How to Protect Your Assets?

An alter ego levy is when the IRS seizes assets owned by your alter ego to cover your tax debt. If you’ve received notice of an alter ego lien or levy, you need to take action – this is not routine tax debt collection, and generally, the IRS only pursues this route when they believe you are hiding assets or they have the right to pierce the corporate veil due to co-mingling.

To protect your assets, reach out to a tax attorney today. At The Timothy S Hart Law Group, we have the experience you need to navigate this threat.

Key takeaways

• Alter egos – two entities with different tax ID numbers that the IRS presumes are the same, such as an individual and a single-member LLC owned by that individual.
• Alter ego doctrine – the process the IRS uses to assert that two different entities are actually one and the same.
• Alter ego levy – when the IRS seizes an entity’s assets for its alter ego’s tax debt.
• Options – appeal if you disagree or make payment arrangements with the IRS.
• How to get help – consult with an experienced tax attorney.

What is an Alter Ego?

In terms of IRS collections, an alter ego is an entity that is indistinguishable from the taxpayer. For example, say that John Doe starts an LLC called JD LLC. In theory, JD LLC is a separate entity from the person John Doe. These two entities are not responsible for each other’s debts or legal obligations. But if the IRS determines that JD LLC is actually an alter ego for John Doe, they share liability for each other’s debts.

How do alter egos affect tax collection?

Here’s an example. Imagine that JD LLC owes $50,000 in corporate income tax to the IRS. The IRS files tax liens against JD LLC, but the business is insolvent. After some investigation, the IRS decides that John Doe is an alter ego for JD LLC, and they file an alter ego tax lien against John Doe. This lays the groundwork for the agency to seize John Doe’s assets for the business’s unpaid taxes.

It can also work in reverse. Say that John Doe owes $100,000 in individual income tax. John has no assets or income that the IRS can seize – at least not in his name. After some investigation, the IRS determines that JD LLC is an alter ego for John Doe. They file an alter ego tax lien against JD LLC, and then they seize the business’s assets to cover John Doe’s tax debt. Note that in this situation, the alter ego doctrine may not be necessary – since John Doe owns the LLC, the IRS may be able to seize the LLC’s assets based on that fact alone.

Alter ego vs. nominee vs. successor liability.

The alter ego doctrine is just one of the ways that the IRS may hold one entity responsible for another entity’s tax debt. The other options are successor and nominee liability. All three concepts overlap with each other but have significant differences.

• Nominee doctrine – focuses on the taxpayers’ relationship to transferred property. For example, imagine that you transfer a vehicle to an LLC or another person, but you retain full use and control over the vehicle. The IRS can leverage the nominee doctrine to seize the vehicle from the new owner to cover your tax debt. In this situation, the IRS is effectively saying that you have just “nominated” another entity to act as the owner, but for all intents and purposes, you are still the owner.
• Successor doctrine – assigns the tax debt associated with a property to a new owner. For example, if you buy all of the assets of a business that owed payroll taxes, the IRS may decide that you owe the payroll taxes associated with the business. Or if you transfer an asset to another party after a tax lien has been filed against that asset, the IRS may leverage the successor doctrine to seize that particular asset.

The main difference between the alter ego doctrine and the nominee and successor doctrines is that the IRS can levy all of an alter ego’s assets to cover the taxpayer’s tax liability. In contrast, with the nominee doctrine, the IRS focuses on a specific asset, and with the successor liability, the specifics vary based on the debt involved and the assets transferred.

Note that these concepts aren’t unique to the IRS – they’re used for collecting all types of debts. For instance, if you default on a loan, the bank may use the alter ego, nominee, or successor doctrines to collect the unpaid loan from other entities if necessary.

Consequences of tax collections against your alter ego

If the IRS issues a tax lien or levy against your alter ego, you may face the following issues:

• Personal asset seizure for unpaid business taxes.
• Business asset seizure for unpaid personal taxes.
• Seizure of assets owned by an LLC, trust, or another entity seized for unpaid taxes due to you personally or another entity.
• Possible investigation to see if nominee or successor liability applies in your situation.

The IRS can seize nearly any assets, including bank accounts, investment accounts, retirement accounts, wages over the exempt amount, personal property, business equipment, inventory, real estate (even primary residences in rare cases), and other assets. Once they establish that the alter ego is the same as the entity that owes the tax, the agency can effectively go after all of their assets – unless they’re exempt from IRS seizure. The IRS can even padlock your business’s doors.

How to stop an alter ego lien or levy

If the IRS contacts you about a lien or levy against your alter ego, there are a few different ways to stop the levy. Consider the following:

• Appeal – you can appeal through a Collection Due Process (CDP) hearing for up to 30 days after you receive a Final Intent to Levy. You also have rights under the Collection Appeals Program (CAP).
• Prove procedural error – the IRS must stop the levy if you establish that they didn’t send the correct notices or follow other collection procedures. But you must appeal to establish this fact.
• Argue against the alter ego assertion – in alter ego cases, you can argue that you and the alter ego are not the same when you appeal.
• Apply for payments or a settlement – if you agree with the alter ego doctrine but you want to avoid a levy, you should request an installment agreement or apply for an offer in compromise on your tax debt.

Talk with an experienced tax attorney about additional options. They will look over your situation and help you decide on the best path forward. But don’t wait – most appeal options have very strict deadlines, and if you miss them, you may lose your chance to appeal.

Why you need help from a tax attorney

If you’re facing an alter ego lien or levy, you need professional assistance. Here are just some of the reasons you should consider reaching out to a tax attorney:

• To minimize the threat of aggressive collection actions, once the IRS starts the involuntary collection process, it can quickly escalate and put critical assets at risk.
• To argue against the alter ego doctrine, it takes very specific legal knowledge to argue against the application of this doctrine.
• To ensure you’re ready for other IRS claims – if the agency thinks your alter ego owns some of your assets, they may assume that you’re hiding assets to evade taxes and may start investigating property transfers to other entities.
• To help you negotiate with the IRS – dealing with the IRS is never easy, but it’s even harder when facing this type of claim.
• To help you find relief options, a tax pro can identify the most effective tax relief option for your unique situation, whether that’s an installment agreement, a settlement, currently not collectible, or another option.
• To meet deadlines – deadlines are critical if you’re dealing with appeals, and missing a date by a day can ruin your chances to appeal or push you into a situation where you have to pay the taxes and then ask for a refund.

Tax professionals solve complex tax problems every day. They leverage their experience to get the best results possible for you. But at the same time, they know every situation is unique. So, they listen to your particular concerns and customize a relief plan for you.

Suggested FAQs

Do you still have more questions? Then, keep reading for a look at answers to some of taxpayers’ top questions.

How do I know if the IRS filed an alter ego lien against me?

The alter ego and the taxpayer should both receive a notice. The IRS must send notices of federal tax liens within five days of filing the Notice of Federal Tax Lien (NFTL).

Can the IRS seize assets that aren’t in my name?

Possibly. If the agency establishes that you and another entity are one and the same, they may use the alter ego doctrine to seize assets in the alter ego’s name. Similarly, if the agency determines that you have transferred an asset (or multiple assets) to another person, they may use the nominee doctrine to seize that asset (or assets) from the other person.

What’s the difference between an alter ego and a nominee lien?

Alter ego liens attach to all of the assets in the alter ego’s name. Nominee liens attach to one or more assets owned by a nominee – typically because they were recently transferred from the taxpayer.

Will bankruptcy remove an alter ego lien?

No, but it depends. Only some tax debts are dischargeable in bankruptcy. If all of the tax debt related to the alter ego lien is dischargeable, the lien may be released. If the debt isn’t dischargeable, the lien will continue to exist.

How long does it take to resolve an alter ego levy?

It can take a few weeks to several months. The timing depends on the route you take, the relief option you choose, and IRS processing times. A tax attorney can give you a good idea of how long it’s likely to take in your situation.

Can I stop an alter ego levy through the Collection Due Process (CDP) hearing?

Possibly. If you receive a Final Intent to Levy notice, you can request a CDP hearing. During the hearing, you can argue that you and the alter ego are not the same entity. If you’re successful, the IRS will stop the alter ego levy. If not, you have additional appeal rights after the CDP hearing.

Do I need a tax attorney, or can an enrolled agent help?

Both tax attorneys and enrolled agents can represent you in front of the IRS and through appeals. However, generally only attorneys can represent you if you need to take your case to Tax Court. Ultimately, it’s critical to find a tax professional who has experience with alter ego liens and levies.

Get help today – we can help you protect your assets

Even if you take a DIY approach on most tax issues, you should get help with alter ego tax liens and levies. Don’t let the IRS take assets without reaching out to a professional for guidance first. At the Timothy S. Hart Law Group, we know what you need to protect yourself, and we look forward to working with you.

Based on your situation, we may be able to establish that you and the alter ego are not the same. In cases where that’s not possible, we’ll help you explore relief options and protect your assets from seizure. Contact us for a personalized tax relief plan today.

Source:

https://www.irs.gov/irm/part5/irm_05-017-014#idm139921008282176