8.7.5. Transferee and Transferor Liabilities

(1) Purpose: This IRM section describes the technical and procedural guidelines for transferee and transferor liabilities. Specifically, IRM 8.7.5:

1. Describes the steps that the IRS Independent Office of Appeals (Appeals) will take to assess a transferee liability against a recipient (transferee) of property from the transferor, for the tax liability of the transferor.

2. Establishes how Tax Computation Specialist (TCS) completes the settlement computations and Notice of Transferee or Fiduciary Liability.

3. Provides details on the authority for asserting transferee liability.

4. Recommends IRM resources, including decision tools, websites, and other IRM sections.

5. Explains how to issue consents (statute extensions) on transferee cases, and closing agreed and unagreed transferee cases.

(2) Audience: The primary users of this IRM section are Appeals Technical Employees (ATEs) and TCS.

(3) Policy Owner: Director, Case and Operations Support (COS).

(4) Program Owner: Director, Policy, Planning, Quality and Analysis (PPQ&A).

(5) Contact Information: Appeals employees should follow established procedures on How to Contact an Analyst. Other employees should contact the Product Content Owner shown on the Product Catalog Information page for this IRM.

(1) IRC 6901 provides a transferee liability against a recipient (transferee) of property from the transferor, for the tax liability of the transferor and is a tool used to collect a taxpayer’s tax liability.

(2) The government can assess another taxpayer’s (transferor’s) liability against a transferee to collect this tax liability based on some other provision of state or federal law. The liabilities include taxes, penalties and interest. Taxes and penalties are computed through the date of the transfer, while interest may not be limited to the date of the transfer. It also includes liabilities resulting from an examination.

(3) Appeals considers and processes transferee cases in much the same manner as other cases. The administrative file of a transferee case must contain the tax returns of the transferor with a revenue agent’s report.

(4) Use current transcripts to confirm the liability was assessed against either the transferor or one or more transferees.

(5) Refer to IRM 8.2.1.7.2, Verification of New Material or Request for Further Development - ATE, for procedures regarding the verification of new information or evidence received during the Appeals process.

(1) Upon receipt of the case, the ATE will:

1. Verify that the case has been carded-in properly as per IRM 8.20.5.37, Transferee/Transferor Case Carding.

2. Verify the statute of limitations on all new case receipts and follow the guidelines contained in IRM 8.21, Appeals Statute Responsibility, with respect to protecting the statute. Appeals will not accept non-docketed cases if less than 365 days (or less than 180 days for a case being returned from Compliance after their consideration of a new issue or new information) remain on the statute of limitations for assessment. Refer to IRM 8.20.5.3.1.3, Cases Not Accepted by Appeals, for additional information on statute of limitations requirements for new case receipts in Appeals.

3. Follow the procedures in IRM 8.6.1.2, New Receipts and Initial Case Actions, for time frames to conduct statute verification and to issue initial contact letter. For liability cases, the statute must be verified and the initial contact letter issued within 45 days of case assignment.

4. Issue initial contact Letter 5157, Non-docketed Acknowledgement & Conference, for non-docketed cases. For docketed cases, issue initial contact Letter 3808, Docketed Acknowledgement and Conference (To Petitioner), or Letter 3808-A, Docketed Acknowledgement and Conference (To Counsel of Record).

5. See Exhibit 8.6.1-1, Pre-Selected Enclosures for Initial Contact Letters Based on Category and Case Type, for enclosures to include with the initial contact letter based on category and case type.
   a. For non-docketed income tax liability cases, includeNotice 1016, How to Stop Interest on Your Account, Pub 4167, Introduction to Alternative Dispute Resolution, and Pub 4227, Overview of the Appeals Process Brochure, as enclosures to Letter 5157.
   b. For docketed income tax liability cases, include Notice 1016, How to Stop Interest on Your Account, and Pub 4227, Overview of the Appeals Process Brochure, as enclosures to Letter 3808, or Letter 3808-A.

6. When possible, give simultaneous consideration to the transferor and all transferees. Consolidate all pending Appeals cases, including those from other Appeals offices, if possible. If consolidation is not possible, coordinate case processing.

7. If the possibility of transferee liability first comes to light during Appeals consideration of a case, this would constitute a new issue if the taxpayer disputes it per IRM 8.6.1.7.1, Defining a New Issue. Accordingly, for non-docketed cases, release jurisdiction and return the case to the originating function (See IRM 8.6.1.7.7, Jurisdiction Released). For docketed cases, follow the guidance in IRM 8.4.1.9.3, New Issues in Docketed Cases.

(1) Immediately obtain a current transcript on the transferor since the transferee's statute of limitations is based upon the transferor's statute of limitations.

1. The statute of limitations for the initial transferee is one year after the expiration of the period of limitation for assessment against the transferor.

2. The statute of limitations for a transferee of a transferee is one year after the expiration of the period of limitations against the preceding transferee, but no more than three years after the expiration of the limitations period against the original transferor.

3. See IRM 4.11.52.3, Assessment Statute of Limitations (SOL), and IRM 4.10.13.3.3, Statutory Period and Consents, for additional information.

(2) Extend the period of limitations for assessment against the transferee by using Form 977, Consent To Extend the Time To Assess Liability at Law or in Equity for Income, Gift and Estate Tax Against a Transferee or Fiduciary. This will not extend the period for assessment against a transferee of a transferee.

(3) Separate extensions are necessary for each transferee.

(4) In the case of a statutory merger, consolidation or a mere change in identity, form, place or organization, the new or surviving corporation is held to be the same as the old and is primarily liable for the debts of the old. Take action against the new or surviving corporation within the statutory period of limitation for assessment against the transferor.

(5) See IRM 8.21, Appeals Statute Responsibility, for additional information on consents and statutes for Appeals cases.

(1) This subsection covers the procedures followed by the TCS or other Appeals employee who prepares settlement computations on transferee cases.

(2) Generally, the settlement computation in transferee cases shows a recomputation of the transferor’s unpaid liability, including assessed tax and any assessed penalties.

(3) When preparing the recomputation of tax (on Form 5278, Form 4549, etc.) show the transferor’s name, TIN, and tax period on all schedules since the recomputed tax is actually the transferor's.

(4) Unlimited liability cases: Value of the assets the transferee receives from the transferor exceeds the transferor's unpaid tax liability, or deficiency. The liability of the transferee is the full amount of the unpaid tax or deficiency of the transferor.

(5) Limited liability case: Value of the assets transferred to the transferee is less than the transferor's unpaid tax liability, or deficiency.

(6) The following table is a guide to actions needed in each particular situation:

(7) Carefully check a current transcript to see if the transferor’s liability was assessed either against the transferor or against other transferees, or if there are payments on the liability. There may be a need to secure Non-Master File (NMF) transcripts when working transferee/transferor cases.

(8) If the transferor made payments to reduce the liability, the payments are netted against the tax, penalties and interest for the earliest tax periods first.

1. The payments are allocated to the tax, penalties and interest previously assessed against the transferor on the basis of the ratio of the separate amounts of tax, penalties and interest to the aggregate amount assessed in each specific tax period so as to reduce or eliminate the earliest tax periods’ total liability first.

2. The net remaining unpaid liability is reflected on the settlement computation.

(9) See IRM 8.7.5.8, Issuing a Notice of Transferee or Fiduciary Liability on an Unagreed Transferee Case, for additional information about transferee cases, including a discussion of limited and unlimited liability. See also IRM 4.11.52, Transferee Liability Cases, for more information.

(1) Form 2045, Transferee Agreement, is an admission of status as a transferee and waives any requirement for issuance of a statutory notice to the transferor. It is not, however, a substitute for a waiver of restrictions against the assessment of tax against the transferee.

(2) Secure agreement Form 870-T in settled cases involving transferee liability.

(3) For an agreed estate and gift tax transferee case, secure agreement Form 890-T.

(4) For an agreed employment tax transferee case, secure agreement Form 2504 or Form 2504–T, whichever is appropriate.

(5) For an agreed excise tax transferee case, secure agreement Form 2504-E.

(6) In the case of a transferee (other than one liable under 31 USC 3713) insert the following on the agreement form: "This represents the undersigned's liability as a transferee of the assets of (name and address of transferor) for (type of tax), penalties, and interest thereon as provided by law due from said transferor."

1. In the case of a transferee of a transferee, insert the following on the agreement form: "This represents the undersigned's liability as a transferee of assets of (first transferee), (address), transferee of assets of (transferor), (address), for (type of tax) tax due from (transferor)." IRM 4.10.13.3.4.2, Transferee Waivers.

2. If a fiduciary liability exists under 31 USC 3713 for income, excise, employment, estate or gift taxes insert the following on the agreement form: "This represents the undersigned's personal liability under section 3713 of Title 31 of the United States Code, for (kind of tax) tax due from ______."

(7) If the transferor's total liability exceeds the assets transferred insert the following on the agreement form - "This, plus interest thereon, represents the undersigned's liability as a transferee of the assets of (name and address of the transferor) for (type of tax), penalties and interest thereon, to the extent of the net value of the assets received from the transferor, plus interest thereon as provided by law. It has been determined that the net value of the assets received is (value of the assets received)."

(8) For information concerning closing agreements in transferee cases, see IRM 8.13, Closing Agreements.

(1) Treat the transferor case as the "principal" or "key" case when preparing Form 5402, Appeals Transmittal and Case Memo, and Instructions for Form 5403, Appeals Closing Record, and case memos. This applies even when the amount of the unpaid liability against the transferor was assessed. For case memos in related cases, see IRM 8.6.2, Appeals Case Memo Procedures.

(2) If there is concurrent settlement of the transferor and transferee cases, instruct Account and Processing Support (APS) to abate any excess assessment against the transferor. Then, waive the liability against the transferee(s) if the agreed liability is paid immediately by or for the transferor.

(3) If the liability, or any part of it, was not assessed against the transferor, instruct APS to include it in the required payment and assess it.

(4) If the liability of the transferor was assessed against the transferee(s), instruct APS to abate the transferee assessment(s).

(5) To avoid misunderstandings, ATEs must advise taxpayers or representatives of the rate of transferee interest and the date from which it is computed. For example, under varying state law in limited liability cases, it might be computed at the legal rate from one of the following:

• Due date of transferor's return;

• Date of transfer of assets;

• Date of Notice of Transferee and Fiduciary Liability.

(6) In situations where there are multiple transferees and not all agree, close the key transferor case with the agreed transferees and create a new key case for the transferor along with related cases for the remaining unagreed transferees.

(1) A TCS is generally responsible for the preparation of Notices of Transferee or Fiduciary Liability in transferee/transferor cases.

(2) Notices are issued to a transferee (at law or in equity) liable for income, estate, and gift taxes; including liability of a fiduciary under 31 USC 3713(b) for income, estate and gift taxes; and in respect to taxes arising on a liquidation of a partnership or corporation, or on a reorganization within the meaning of IRC 368(a).

(3) Notices of Transferee or Fiduciary Liability are issued for employment taxes only to the extent that a notice of determination of worker classification would have been issued to the transferor. IRC 6901, Transferred Assets, provides "the liability will be assessed, paid and collected in the same manner as in the case of the taxes with respect to which the liabilities were incurred." Therefore, the only time a Notice of Transferee or Fiduciary Liability is issued for employment taxes is when the transferor's employment tax liability was based upon worker classification issues under IRC 7436. Fiduciary liability would not be applicable to worker classification issues.

(4) Certain excise taxes are subject to the deficiency procedures under IRC 6211, Definition of a Deficiency. Specifically, Notices of Deficiency are issued by Appeals in Chapter 41, 42, 43 and 44 excise tax cases when a mutually satisfactory basis of settlement cannot be reached. A Notice of Deficiency is not issued on other unagreed excise tax cases. Those cases cannot be litigated in the U.S. Tax Court. Excise taxes are not covered by IRC 6901(a)(2), unless such liability arises as the result of a liquidation of a corporation, partnership, or reorganization within the meaning of IRC 368(a), Reorganization. In these instances, a Notice of Transferee or Fiduciary Liability would be issued to a transferee regarding an excise tax that is subject to deficiency procedures.

(5) Issue the notice to the transferee within the applicable statutory period (usually one year beyond the transferor's limitation date) whether or not a Notice of Deficiency was issued to or assessed against the transferor.

(6) The term "transferee" includes transferee of a transferee, heir, legatee, devisee, distributee of an estate, shareholder of a dissolved corporation, assignee or donee of an insolvent person, successor of a corporation, party to a reorganization defined in IRC 368, and all other classes of distributees. It also includes in gift tax cases, the donee, without regard to the solvency of the donor, and any person who, under IRC 6324(a)(2), is personally liable for any part of the estate tax.

1. 31 USC 3713(b) provides a fiduciary is personally liable for tax where they have paid debts or distributed assets without first having satisfied the claim of the United States, in violation of federal priority found in 31 USC 3713(a).

2. Issue the notice the later of the following periods: (1) One year after the liability arises or (2) the collection period of the tax in respect of which such liability arises.

(7) IRC 6901 provides for assessment and collection against a transferee of property for tax liability of the transferor, and describes the types of tax liabilities to which this provision applies.

(8) There are many different aspects of the law to consider when determining whether the transferee's liability is limited or full. The ATE or Counsel Attorney is responsible for making the determination and providing the information to the TCS when requesting work. The ATE or Counsel Attorney must also provide the approximate date that the assets were transferred to the transferee. If liability is limited, they must provide the amount of the limited liability.

1. See IRM 5.17.14.3, Transferee Accountability in General, for a discussion of liability under IRC 6901. The burden of proof is on the IRS to prove that a transferee or fiduciary is liable for the tax of another. See IRC 6902(a).

2. Counsel must review the notice before issuance because the burden of proof is on the IRS. See IRM 8.17.4.31(1) f.

(9) The following provides a simple overview of limited and full liability:

1. Limited Liability - Generally, the liability of the transferee is limited to the excess of the value of the assets received from the transferor over the consideration paid by the transferee for the assets, if that excess is less than the unpaid liability of the transferor. If more than one year is involved in a limited liability situation, state the transferee liability as one figure in the notice and do not allocate the transferee liability to various years.

2. Full Liability - Generally, where the excess of the value of the assets received from the transferor over the consideration paid by the transferee for the assets is more than the unpaid liability or deficiency of the transferor, the transferee is liable for the full amount of the unpaid liability or deficiency of the transferor. If more than one year is involved in a full liability situation, assert the transferee liability for the same years as that of the transferor.

(10) Usually transferee cases in which Notices of Transferee or Fiduciary Liability are issued by Appeals, cover the following situations:

1. Transferee liability for the full liability for the unpaid deficiency of the transferor. See Exhibit 8.7.5-7.

2. Transferee liability for limited liability for the unpaid deficiency of the transferor. See Exhibit 8.7.5-8. (The Form 5278 and explanations use the same format as those shown in Exhibit 8.7.5-7.)

3. Transferee liability for the full liability for the unpaid original assessment of the transferor.

4. Transferee liability for limited liability for the unpaid original assessment of the transferor.

(11) There are three parts to the Notice of Transferee or Fiduciary Liability:

• Letter to the transferee (Letter 3424);

• Statement that summarizes the liability of the transferee; and

• Waiver (usually Form 870–T, Waiver of Restrictions on Assessment and Collection of Transferee or Fiduciary Liability and Acceptance of Overassessment, or Form 890–T, Waiver of Restrictions on Assessment and Collection and Acceptance of Overassessment as to Transferee or Fiduciary Liability for Estate, Gift, and Generation-Skipping Transfer Tax.)

Note: Schedules to show the computation or tax and explanations of adjustment may be attached if necessary.

(12) For transferee cases involving types of tax other than income tax, alter the letter and statements to fit the type of tax.

(1) Tax Court has jurisdiction to redetermine the deficiency determined by the IRS. In a case commenced in the Court by a transferee or fiduciary, jurisdiction depends upon the issuance by the Commissioner of a notice of liability to the transferee or fiduciary.

(2) Appeals may ask Counsel to prepare the settlement documents on cases involving transferee or fiduciary liability.

(3) If a transferee petitions the Tax Court, a "dummy" docket number is added to the transferor (key case). Update the AIMS to status 82 (if on AIMS). The transferee(s) carries the actual docket number, revised statute date, and Notice of Deficiency information. When appropriate, use closing code 43 to move the work unit to Part 3.

(1) Information needed to complete Form 5403 can be found on Form 1296 , Assessment Against Transferee or Fiduciary, which should be prepared by the same employee that prepares the computation. See the following for additional information:

• IRM 8.7.5.7, Closing an Agreed Transferee Case

• IRM 8.7.5.8, Issuing a Notice of Transferee or Fiduciary Liaiblity on an Unagreed Transferee Case

• IRM 20.2.11.8, Transferee Interest and Assessments, and the related subsections

(1) The following table shows how to prepare the Name of Taxpayer section on Form 3610 for a transferee with limited liability for one year.

(2) For Kind of Tax, enter the type of tax for the transferor’s liability.

(3) The following table shows how to continue completing Form 3610 for a transferee with limited liability for one year for the Tax Period section.

(4) The following shows a statement to be included at the bottom of Form 3610 for a transferee with limited liability for one year.

• * Transferee liability limited to $7,500.00, plus interest as provided for by law.

(1) The following table shows how to prepare the Name of Taxpayer section on Form 3610 for a transferee with limited liability for multiple years.

(2) For Kind of Tax, enter the type of tax for the transferor’s liability.

(3) The following table shows how to continue completing Form 3610 for a transferee with limited liability for multiple years for the Tax Period section.

(4) The following shows a statement to be included at the bottom of Form 3610 for a transferee with limited liability for multiple years.

• *Transferee liability limited to $16,000.00, plus interest as provided for by law.

1. The following opening paragraphs are generally used in letters addressed to transferees with respect to their liabilities for an unpaid deficiency of the transferor in income, estate, gift, excise and employment tax cases.

   1. Selectable Paragraph 1 - Transferee of assets of transferor (select either income, estate, gift, excise taxes as a result of a liquidation of a corporation, partnership, or reorganization within the meaning of IRC 368(a) , or employment taxes when transferor’s employment tax liability was based on worker classification issues under IRC 7436 ), full or limited liability:
      "We determined that you are liable for $X.XX, plus interest as the law provides. This is your liability as transferee of assets of (transferor), (address), for unpaid (select either income, estate, gift, excise, employment) taxes due from (transferor), for the tax year ended December 31, (YYYY) as shown in the enclosed statement."

   2. Selectable Paragraph 2 - Transferee of assets of first transferee (who received transfer of assets from transferor) (select either income, estate, gift, excise taxes as a result of a liquidation of a corporation, partnership, or reorganization within the meaning of IRC 368(a), or employment taxes when transferor’s employment tax liability was based on worker classification issues under IRC 7436), full or limited liability: 
      "We determined that you are liable for $X.XX, plus interest as the law provides. This is your liability as transferee of assets of (first transferee),(address), for the unpaid (select either income, estate, gift, excise, employment) taxes due from (transferor) for the tax year ended December 31, (YYYY), as shown in the enclosed statement."

   3. Selectable Paragraph 3 - Tax liability under 31 USC 3713(b), as fiduciary of (taxpayer) (select either income, estate, gift, excise taxes as a result of a liquidation of a corporation, partnership, or reorganization within the meaning of IRC 368(a), or employment taxes when transferor’s employment tax liability was based on worker classification issues under IRC 7436):
      We determined that you are liable for $X.XX, plus interest as the law provides. This is your personal liability under 31 USC 3713(b), as fiduciary of (select either name of taxpayer of income, gift, excise, employment tax, or name of estate), as shown in the enclosed statement.

(1) Examples of statements for transferee Notices of Liability most commonly used by Appeals are shown below.

(2) If the value of the assets received by a transferee is less than the unpaid tax liability of the transferor, modify the paragraphs to include the following language:

"Since the value of the assets you received amounted to $____, your liability as transferee is limited to that amount."