Source: http://federaltaxprocedure.blogspot.com/2013/01/tax-lien-against-shareholder-prevails.html
Timestamp: 2019-04-25 11:04:44+00:00

Document:
The Town of Ludlow took the position that its judgment lien was against the LLC which was a separate entity that had no federal tax lien, so that the federal tax lien against the individual could not prime the Town's lien. The U.S. took the position that its federal tax lien and notice of federal tax lien applied to the assets of the LLC because the LLC, as operated by the individual, was the individual's nominee. Note that the U.S. never filed a notice of federal tax lien against the nominee.
The district court found that the LLC was the nominee of the individual and, as a result, the U.S. lien trumped the Town's lien.
I think this is a questionable case. The only notice of federal tax lien filed was against the individual, not the LLC. Hence, when the Town went to sue on its claim, it properly sued the LLC -- the only legal person it had a claim against. But there was no notice of federal tax lien against the nominee, and the Town apparently had no reason to think that the LLC was not valid as a separate entity.
As between the IRS and the individual, I can see why the nominee rules would apply, where applicable, to protect the IRS tax lien against the individual. But this was not a fight between the U.S. and the LLC and/or the individual. The opponent was the Town of Ludlow whose judgment lien was prior to any filed lien of which it had notice against the LLC. Note that the Government can file nominee liens against persons it deems to be nominees of a taxpayer, but it did not do so in this case.
We do not wish to suggest, as Ludlow [the Town] fears, that a single-member, single-purpose LLC can never escape nominee status for purposes of a federal tax lien. But under the circumstances presented here, there was simply too much intermingling of funds and too close of a relationship between Livermore [the individual] and WAL [the LLC] for us to conclude that WAL [the LLC] was anything other than "a legal fiction." Holman, 505 F.3d at 1065.
Like the district court, we take "very little pleasure in this ruling, which leaves Ludlow [the Town] with an unfinished subdivision." Berkshire Bank, 2012 U.S. Dist. LEXIS 44000, 2012 WL 1085568, at *3. However, the statutory language creating the federal tax lien "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. Nat'l Bank of Commerce, 472 U.S. 713, 719-20, 105 S. Ct. 2919, 86 L. Ed. 2d 565 (1985) (citation omitted). Accordingly, we affirm.
Creditors should take note of this risk and protect themselves accordingly.
n2030 G.M. Leasing Corp. v. United States, 429 U.S. 338 (1977); see also Oxford Capital Corp. v. United States, 211 F.3d 280 (5th Cir. 2001) (discussing differences between nominee and alter ego theories); Al- Kim, Inc. v. United States, 610 F.2d 576 (9th Cir. 1980); and United States v. Krause, 637 F.3d 1160, 1165-66 (10th Cir. 2011) (good summary of the differences).
n2032 IRM 5.17.2.5.7.2(1) (12-14-2007)(defining a nominee lien as a lien on property owned by the taxpayer as to which legal title is in another). See United States v. Krause, 637 F.3d 1160, 1165-66 (10th Cir. 2011). A nominee lien was used against a trust in Drye v. United States, 528 U.S. 49, 52 (1999).
The nominee lien is not specifically authorized by the Code but is authorized administratively and recognized by the courts. n2033 The nominee lien names the third party who the IRS has determined is acting as nominee for the taxpayer and is filed to preserve the IRS’s interest in the property allegedly so held. The effect of the nominee lien is to put the public on notice that the IRS believes the property may be property of someone other than the nominal title owner, thereby clouding title of the third party (the putative nominee) and effectively preventing that third party from dealing with the property. n2034 Obviously, this could be a major problem to a third party who really owns the property and is not in fact acting as nominee.
n2033 See G.M. Leasing, supra.
n2034 See IRS Program Manager Technical Assistance on Nominee Lien, 2009 TNT 67-36 (citing Elliot, William D., Federal Tax Collection, Liens & Levies § 9.10).

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