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Part 8. Appeals

Chapter 7. Technical and Procedural Guidelines

Section 5. Transferee and Transferor Liabilities

8.7.5  Transferee and Transferor Liabilities

8.7.5.1  (11-06-2007)
Introduction to Working Transferee Cases in Appeals

  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. A transferor is the person or entity who created the tax liability and transferred assets to another party. The transferee is the person or entity who is additionally liable for the tax (because they received the transferred assets for less than full, fair and adequate consideration).

  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 to the date of transfer. It also includes additional 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.

8.7.5.2  (11-06-2007)
Points for APS to Remember When Establishing Transferee/Transferor Cases

  1. When establishing transferee/transferor cases on CASES, remember the following:

    1. The transferor is the key case in the work unit.

    2. The total tax (deficiency) dollars are shown by tax period on the transferor's case with no duplication shown.

    3. When there are multiple transferors in a case, each transferor and their related transferees are established as a separate work unit. This helps when researching specific cases.

    4. When showing the liability per tax period for each transferee case, remember to show the same amount in duplication.

    5. When establishing transferee/transferor cases, use Non-Master File (NMF) codes in certain data elements to distinguish the case from Master File (MF) cases with the same name that might be in the office at the same time. The codes also help when researching or updating specific cases based on work unit number, TIN, and MFT.

8.7.5.3  (11-06-2007)
How APS Establishes a Case with Transferee and Income Tax Liabilities

  1. When a transferee/transferor case is received that contains both transferee and income tax liabilities, it is established in one of two ways: (1) the transferee liability and transferor case are established as one work unit and the income tax liability as a separate work unit; or (2) if the income tax liability is related to the transferee/transferor adjustments, all are established in one work unit by using a TIN modifier (A through J) to distinguish the transferee case.

  2. Establish the transferee and income tax (related) cases first and the transferor (key case) last.

8.7.5.3.1  (11-06-2007)
Input for Cases Inventory Screen on Transferee Case

  1. Follow normal procedures for input into the fields in CASES with the exception of the following fields:

    1. TIN - Since the transferee assessment is Non-Master File (NMF), enter N after the TIN.

    2. MFT - When the type of tax is known, enter the NMF tax code. Refer to Document 6209 for a list of NMF codes for each type of tax.

    3. TYPE - Refer to Form 1296, Assessment Against Transferee or Fiduciary. In the upper right hand corner, indicate the type of tax; enter code as appropriate.

    4. FEATRCD - Enter "TF" .

    5. KEYTP, KEYTIN, and KEYPER - On related cases, enter the transferor's information.

    6. Note - Type in "transferee " .

8.7.5.3.2  (11-06-2007)
Input for Return Information Screen on Transferee Case

  1. Follow normal input procedures for input into the fields on the return information screen with the exception of the following fields:

    1. AIMS Indicator - Enter " E" since these cases are not controlled on AIMS.

    2. Tax Period - Enter each tax period for which there is a transferee liability.

    3. Proposed $ Def/-OA (Tax) - Enter the unpaid liability amount (in whole dollars) for each tax period.

    4. Duplication - Add all the unpaid liabilities together and enter this amount in duplication. As a result, the case grading dollars will be zero (-0).

8.7.5.3.3  (11-06-2007)
Input for Related Income Tax Case

  1. When establishing the related income tax case, follow the normal procedures for establishing cases with the exception of the input to the following fields:

    1. Enter the transferor's information in KEYTP, KEYTIN, and KEYPER field.

8.7.5.3.4  (11-06-2007)
Input for CASES Inventory Screen on Transferor Case

  1. Follow normal input procedures in the fields of the case inventory screen when establishing the transferor key case except for the following:

    1. TIN - Enter N after the TIN.

    2. TYPE - Enter the type code bases on the type of tax indicated on Form 1296.

    3. FEATRCD - Enter "TF."

    4. MFT - Enter the NMF tax code per Document 6209.

    5. Since the transferor is the key case, no information will be entered in the KEYTP or KEYTIN fields.

    6. Note - Type in "transferor" .

8.7.5.3.5  (11-06-2007)
Input for Return Information Screen on Transferor Case

  1. Use normal input procedures for the input on the return information screen of the transferor case except for the following:

    1. AIMS Indicator - Enter " E" or "Y" depending on if the return is controlled on AIMS or not required to be on AIMS.

    2. Tax Period - Enter each tax period for which the transferor has tax due.

    3. Proposed $ Def/-OA (Tax) - Enter the total tax (in whole dollars) for each tax period entered.

    4. Duplication - Leave blank

8.7.5.4  (11-06-2007)
Considering Transferor and Transferee Cases at the Same Time

  1. When possible, give simultaneous consideration to the transferor and all transferees. If any of the cases are pending in another Appeals office, consolidate them if possible. If consolidation is not possible, coordinate case processing.

  2. If the possibility of transferee liability first comes to light during Appeals consideration of a case, advise the Area Director and request the appropriate investigation.

  3. Additional information regarding transferee cases is found in IRM 4.11.52, Transferee Liability Cases.

8.7.5.5  (11-06-2007)
Consents and Period of Limitations on Transferee 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 4.11.52.4, 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.

8.7.5.6  (11-06-2007)
Settlement Computations in Transferee Cases

  1. This subsection covers the procedures followed by the Tax Computation Specialist (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 penalties.

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

  4. The following table is a guide to actions needed in each particular situation:

    If ... Then ...
    Transferee's liability is limited reflect transferor's total unpaid liability for each tax period which is not adjusted or reduced because of the transferor's limited liability.
    Transferee is liable for part or all of the unpaid deficiency of transferor a computation is required.
    No change to previously computed transferor liability prepare face sheet with a footnote for the amount of transferor liability to indicate "No change from prior determination" , "No change from statutory notice" , etc.
    Transferee is liable for part or all of the unpaid original assessment of the transferor only face sheet is required. No tax computation is necessary.

  5. 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 NMF transcripts when working transferee/transferor cases.

  6. 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.

  7. See IRM 8.7.5.9. This section entitled, Issuing a Notice of Liability on an Unagreed Transferee Case, has 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.

8.7.5.6.1  (11-06-2007)
How to Prepare the Face Sheet (Form 3610)

  1. Procedures for preparing the face sheet ( Form 3610) of a transferee/transferor case is the same as those followed when preparing a face sheet in any other case, except for the following.

  2. Show the name of taxpayer as follows:

    John Q. Taxpayer, Transferee of the assets of
    XYZ Corporation, Transferor

  3. Use the tax period of the transferor as the tax period of the transferee.

    1. For example, if the transferor is XYZ Corporation with a fiscal year ending 09/30/95, and the transferee is John Q. Taxpayer with a tax year ending 12/31/95, show the tax year for John Q. Taxpayer as 09/30/95.

    2. In the reverse situation, if the transferor is John Doe with a tax year ending 12/31/96 and the transferee is ZZZ Company with a fiscal year ending 08/31/96, show the tax year for ZZZ Company as 12/31/96.

  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.

    1. Show liability amounts once on Form 3610.

    2. Show name of taxpayer as discussed in paragraph (2) above.

    3. Modify Form 3610 to include a label titled "Liability of Transferee" under the deficiency and overassessment columns.

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

    1. Prepare the columns of the face sheet like the examples shown in the exhibits. See Exhibit 8.7.5-1. See Exhibit 8.7.5-2.

  6. State law sometimes governs the interest liability of the transferee. In these cases, avoid misunderstandings by adding the following to the face sheet:

    "Plus interest at _% from ______(date)"

8.7.5.6.2  (11-06-2007)
Interest Computations in Transferee Cases

  1. Tax Court has jurisdiction of interest in transferee cases and may sometimes require computations of interest.

  2. Interest on a transferee liability is computed based on the state or federal law that governs the liability. State laws that may apply, for example, are wrongful transfer or fraudulent conveyance statutes. IRC 6901 is strictly procedural as to the assertion of transferee liability. O'Sullivan v. Comr, T.C. Memo. 1994-17 summarizes some of the principles.

  3. Interest on Unlimited Liability: Transferee is liable for interest under IRC 6601 from the due date of the tax of the transferor. Lowy v. Comr., 35 T.C. 393 (1960) discusses this principle.

    1. See IRM 4.10.13.3.5, Liability of Transferee for Interest, and IRM 35.8.4.7.2.1, General Guidelines on Interest Issues, for further information.

  4. Interest on Limited Liability: Amount of the transferee's liability is limited by the value of the transferred assets, except to the extent the state law that gives rise to the transferee liability allows interest. Estate of Stein v. Comr., 37 T.C. 945 (1962) discusses this principle.

    1. The state law that governs the transferee liability also controls interest from the date of transfer of assets to the date of the notice of transferee liability, which is the date the notice of liability is issued to the transferee. (See Estate of Stein.) However after the date of the notice of transferee liability, the interest runs pursuant to IRC 6601. (Both the O'Sullivan and Estate of Stein court cases note this principle.)

    2. In summary, in a limited liability situation consider the state where the assets were transferred, the date the assets were transferred, and the date of the IRS notice of transferee liability. These two dates must be determined if computing interest in a limited liability situation.

    3. IF there is a state statute such as a wrongful or fraudulent transfer law on the books in the state the assets are transferred, consider the rate of that state statute and apply it to the limited liability from the date of transfer of assets to the date of the IRS notice of transferee liability. Stansbury v. Comr., 104 T.C. 486 (1995) discusses this principle. In a state where pre-judgement interest is permitted, the IRS is entitled to interest applied to the limited liability at the state rate from the date of the transfer of assets until the date of the IRS notice of transferee liability. (Merlino v. Comr., T.C. Memo 1995-208).

    4. Federal interest per IRC 6601 starts on the limited liability from the date of the IRS notice of liability to the transferee.

    5. Seek Counsel’s advice as to the State interest rate (if applicable) and the effective dates of both State and Federal rates. See IRM 4.10.13.3.5, Liability of Transferee for Interest, and IRM 5.17.14.2.3, Fraudulent Conveyances under Federal Law and State Law.

  5. Interest on Estate/Gift Tax Transferee Liability:

    1. State law has no bearing on transferee liabilities (limited or unlimited) resulting from a transferor’s estate/gift tax liability.

    2. IRC 6324(a) specifically governs the transferee’s estate/gift tax liability and together with IRC 6901 provides that interest under IRC 6601 will apply from the due date of the tax of the transferor. See IRM 8.7.4, Appeals Estate and Gift Tax Cases, for more information on estate and gift cases.

8.7.5.6.3  (11-06-2007)
Form 1296, Assessment Against Transferee or Fiduciary

  1. Form 1296, Assessment Against Transferee or Fiduciary, is used to make Non-Master File (NMF) transferee assessments. The form is generally prepared at the time the settlement computations are prepared.

    1. Form 1296 is available in an Excel spreadsheet on the Appeals Tax Computation web site or as a fillable Adobe Acrobat form on the Electronic Publishing Catalog web site.

  2. The transferee is controlled using a "dummy" TIN on NMF.

    1. The transferee’s account is set up on NMF using the transferee’s Taxpayer Identification Number (TIN) with a "-D" (dummy) and "Transferee" after the name to indicate transferee status.

    2. Using the "-D" eliminates the other dashes in the TIN. For example if our transferee is John Smith with a SSN of 123-45-6789, on NMF the TIN is reflected as 123456789-D.

    3. The creation of the "Dummy" TIN format is necessitated by the fact that our current ERCS / AIMS programs do not allow both a MF and a NMF control for the same TIN. Therefore, establish a dummy TIN with a "-D" for the transferee case.

    4. See paragraph (3) of IRM 4.11.52.6 for further information.

  3. Unlimited liability cases:

    1. In unlimited liability cases, prepare a separate Form 1296 for each taxable period and each kind of tax.

    2. Use the tax period of the transferor as the tax period of the transferee.

  4. Limited liability cases:

    1. If the value of assets received by the transferee is less than the unpaid liability of the transferor and more than one year is involved, do not allocate the transferee’s liability to the various years. Instead, show the liability as one amount on the Form 1296 of the earliest unpaid liability year of the transferor without identifying it with any particular year of the transferee.

    2. Prepare a single Form 1296. Show total transferee liability on the right-hand side of Form 1296.

    3. Annotate the interest starting date and the interest rate on Form 1296 or the attachment to Form 1296.

    4. Itemize the liability of the transferor for each taxable year on an attachment, or in the remarks section of Form 1296, or on a separate Form 1296, depending upon the preference of the processing office.

  5. An example of a completed Form 1296 and the attachment are found in the exhibits. See Exhibit 8.7.5-3. See Exhibit 8.7.5-4.

  6. See IRM 8.7.5.9.1. This section contains more detailed information on transferee assessments.

8.7.5.6.4  (11-06-2007)
Statements of Account in Transferee Cases

  1. In some instances the Appeals Officer or Counsel Attorney requires a statement of account on a transferee case. See IRM 8.17.3, Preparing a Statement of Account, for instructions for preparing a statement of account.

8.7.5.7  (11-06-2007)
Modification of Agreement Forms in Transferee Cases

  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 the usual agreements, Form 870 or Form 870-AD, in settled cases involving transferee liability.

  3. In the case of a transferee (other than one liable under section 31 U.S.C. section 3713) insert the following on the appropriate 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 appropriate 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. In case the liability is of a fiduciary under 31 U.S.C. section 3713 and enforceable under IRC 6901 insert the following on the appropriate agreement form: "This represents the undersigned's personal liability under section 3713 of Title 31 of the United States Tax Code, for (kind of tax) tax due from ______."

  4. If the transferor's total liability exceeds the assets transferred insert the following on the appropriate 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 extend 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)."

  5. For information concerning closing agreements in transferee cases, see IRM 8.13.1, Closing Agreements.

8.7.5.8  (11-06-2007)
Closing an Agreed Transferee Case

  1. Treat the transferor case as the "principal" or "key" case when preparing Form 5402 and Form 5403 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, Conference and Settlement Practices, Appeals Case Memo Procedures.

  2. If there is concurrent settlement of the transferor and transferee cases, 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, include it in the required payment and assess it.

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

  5. To avoid misunderstandings, Appeals Officers 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 and demand.

8.7.5.9  (11-06-2007)
Issuing a Notice of Liability on an Unagreed Transferee Case

  1. Tax Computation Specialists (TCS) are generally responsible for the preparation of Notices of 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 U.S.C. section 3713(b); and in respect of taxes arising on a liquidation of a partnership or corporation, or on a reorganization within the meaning of IRC 368(a), liability in respect of any tax imposed by the Internal Revenue Code.

  3. 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.

  4. 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. Title 31 of the U.S. Code in section 3713(b) provides a fiduciary is personally liable for tax where he or she has paid debts or distributed assets without first having satisfied the tax due to the United States, in violation of federal priority found in section 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.

  5. IRB 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.

  6. There are many different aspects of the law to consider when determining whether the transferee's liability is limited or full. The Appeals Officer or Counsel Attorney is responsible for making the determination and providing the information to the TCS when requesting work.

    1. See IRM 5.17.14.3.1 for discussion of liability under IRC 6901.

    2. The TCS should consult the Appeals Officer or Counsel Attorney if the case involves a successor-in-interest who might be treated either as a taxpayer or as a transferee under IRC 6901.

  7. 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.

  8. Usually transferee cases in which Notices of 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 8.7.5-5.

    2. Transferee liability for limited liability for the unpaid deficiency of the transferor. See Exhibit 8.7.5-6.. (The Form 5278 and explanations use the same format as those shown in Exhibit 8.7.5-5.

    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.

  9. There are four parts to the Notice of Liability:

    • Letter 3424(cg)

    • Statement Face Sheet

    • Explanations of Adjustments and Computation of Tax

    • Waiver

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

8.7.5.9.1  (11-06-2007)
Identification of Tax Years in Transferee Notice

  1. Transferor assessments are made on Master File (MF) for the appropriate tax year.

  2. Transferee liability assessments are made on Non-Master File (NMF) using the transferor's tax year.

    1. For example, if the transferor is XYZ Corporation with a fiscal year ending 09/30/95, and the transferee is Joe Smith with a tax year ending 12/31/95, the assessment against Joe Smith would be made Non-Master File using a taxable period of 09/30/95. Therefore, the transferee notice of liability would show the tax year for Joe Smith as 09/30/95.

    2. In the reverse situation, if the transferor is John Doe for a tax year ending 12/31/96 and the transferee is ZZZ Company with a fiscal year ending 08/31/96, the transferee notice of liability for ZZZ Company would show the tax year as 12/31/96.

  3. Although the tax year shown in the notice for the transferee is that of the transferor, use the transferee's taxpayer identification number on the notice letter, Form 4089, and waiver.

  4. If the value of assets received is less than the unpaid liability or deficiency of the transferor and more than one year is involved, the transferee liability is not allocated to various years but is stated as one figure in the notice. See Exhibit 8.7.5-6. This exhibit contains an example of language to use in the first paragraph of the notice letter, in the Form 870 and in the Notice of Deficiency statement.

8.7.5.9.2  (11-06-2007)
Letter 3424(cg) - Notice of Liability

  1. Letter 3424(cg) - only address to the transferee but identify the transferor in the opening paragraph.

  2. Use this letter instead of Letter 901(cg). A copy of this letter is shown in See Exhibit 8.7.5-5..

  3. A special opening paragraph is used depending on the type of transferee liability involved. Use the opening paragraphs shown below. When using APGolf, select the appropriate paragraph when generating the letter. The opening paragraphs in APGolf also give the option to select full or limited liability.

  4. In limited liability cases the opening paragraph of the letter is modified to reflect the limited liability of the transferee.

8.7.5.9.2.1  (11-06-2007)
Opening Paragraphs for Letter 3424(cg)

  1. Letter 3424(cg) must include special opening paragraphs, depending on the type of transferee liability. These paragraphs are shown at (2) below. Select the appropriate paragraphs when generating the letter using APGolf.

    1. In limited liability cases the APGolf opening paragraphs give the option to select full or limited liability. If limited liability is selected, then the opening paragraph generated using ACDS for the Letter 3424(cg) is modified appropriately.

    2. See example of a modified opening paragraph at (2)(a) below.

  2. 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 and gift tax cases.

    1. Full liability:
      "The determination of the (type of tax) tax liability of (Transferor), (Address), discloses a deficiency, as shown above. The amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee of assets of (Transferor), and will be assessed against you. The enclosed statement shows how we figured the transferor’s deficiency."

    2. Limited liability: 
      "The determination of the (type of tax) tax liability of (Transferor), (Address), discloses a deficiency, as shown above. $______ of the amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee of assets of (Transferor), and will be assessed against you. The enclosed statement shows how we figured the transferor’s deficiency."
      Note to Tax Computation Specialist - Modify the other paragraphs shown below in a similar fashion if there is limited liability of the transferee. This can be done in most cases by selecting the limited liability option in ACDS, so the opening paragraph generated by ACDS for the Letter 3424(cg) is modified appropriately.

  3. Opening paragraphs for letters addressed to transferees or fiduciaries in the following unique situations are shown below:

    1. Transferees with respect to their liabilities when there is an unpaid deficiency of the transferor for one year in excess of an overpayment by the transferor for another year:

      "The determination of the income tax liability of (Transferor), (Address), for the tax years ended ___and ___, discloses a deficiency in the amount of $___ for the tax year ended ___, and an overassessment of $___ for the tax year ended ___, as shown in the attached statement. The amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee of assets of (Transferor), and will be assessed against you. The overassessment, to the extent that it represents an overpayment of tax, will be refunded or credited as the law provides."

    2. Transferees with respect to their liabilities for an unpaid original tax of the transferor:

      "We will assess against you, for unpaid income tax, the amount of $___, plus interest as the law provides. This constitutes your liability as transferee of assets of (Transferor), (Address), for unpaid income taxes in the above amounts, plus interest as the law provides, due from (Transferor), for the tax year ended ___, as shown in the attached statement."

    3. Decedents’ estate when it is proposed to hold an estate liable for the payment of a deficiency due from a corporation of which the decedent was a transferee during his/her lifetime:

      "During his/her lifetime, (Taxpayer), Deceased, (Address), incurred an income tax liability in the amount of $___, as transferee of assets of (Transferor), (Address), for the tax year ended ___, as shown in the attached statement. This amount, plus interest as the law provides, will be assessed against the estate of the decedent."

    4. Transferee of a transferee with respect to their liabilities for an unpaid deficiency of the transferor:

      "The determination of the income tax liability of (Transferor), (Address), discloses a deficiency, as shown above. The amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee of assets of (First Transferee), transferee of assets of (Transferor), and will be assessed against you. The enclosed statement shows how we figured the deficiency."

    5. Personal liability under 31 U.S.C. section 3713(b) if the fiduciary has paid debts and/or distributed assets of the estate without first having satisfied the tax due to the United States from such estate, in violation of federal priority. Insert the type of tax, i.e. income, estate or gift, in the first sentence. This can be done by selecting the appropriate opening paragraph when using ACDS to generate the Letter 3424(cg):

      "The determination of the (type of tax) tax liability of (Transferor), (Address), discloses a deficiency, as shown above. $___ is the amount of your personal liability under 31 U.S.C. section 3713(b), as amended, as fiduciary of (Taxpayer), based on the amounts paid and/or distributed in violation of the federal priority afforded in 31 U.S.C. section 3713(a), plus interest as the law provides, which will be assessed against you. The enclosed statement shows how we figured the liability."

      Note:

      There is no need to have different paragraphs for full liability and limited liability if personal liability under 31 U.S.C. section 3713(b) is involved. Always use the paragraph format above and enter the appropriate amount of personal liability in the space provided.

    6. Transferee, trustee and/or insurance beneficiary of estate tax:

      "The determination of the estate tax liability of (Transferor), (Address), discloses a deficiency, as shown above. The amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee, trustee, and beneficiary of assets of (Transferor), and will be assessed against you. The enclosed statement shows how we figured the deficiency."

      Note:

      "Trustee" is to be used pursuant to IRC 6324 and IRC 6901, Internal Revenue Code, if the property is included in the gross estate under sections 2035, 2036, 2037, 2038, 2040, 2041, or 2042, Internal Revenue Code. "Trustee" and/or "beneficiary" should be omitted if inapplicable. Such notice should be issued within the 3-year period under section 6501, Internal Revenue Code.

8.7.5.9.2.2  (11-06-2007)
Modify Opening Paragraph for Jeopardy Assessment Against Transferee

  1. If a jeopardy assessment has been made under IRC 6861 and IRC 6862 against a transferee with respect to an unpaid liability, modify the opening paragraphs as discussed below: ( See IRM 8.7.5.9.2.1.)

    1. Delete the reference at the end of the second sentence that reads: "and will be assessed against you" .

    2. Add the following at the end of the paragraph: "We have assessed the liability under the Internal Revenue laws that apply to jeopardy assessments."

    3. These changes may be accomplished by generating Letter 3424(cg) using APGolf. Select one of the six paragraphs listed in the APGolf Letter 3424 input screen under "Jeopardy Assessments" and the changes to the opening paragraph will be made when the letter is generated.

    Example:

    The full liability opening paragraph would read as follows: "The determination of the (type of tax) tax liability of (Transferor), (Address), discloses a deficiency, as shown above. The amount of the deficiency, plus interest as the law provides, constitutes your liability as transferee of assets of (Transferor). The enclosed statement shows how we figured the deficiency. We have assessed the liability under the Internal Revenue laws that apply to jeopardy assessments."

8.7.5.9.3  (11-06-2007)
Statement Face Sheet in Notice of Liability

  1. The Statement Face Sheet (hereinafter referred to as "statement" ) summarizes the liability of the transferee with specific explanatory paragraphs. See IRM 8.7.5.9.3.1. Explanatory paragraphs to use on the statements are discussed below. See IRM 8.7.5.9.3.2.

  2. It is recommended Form 4089-A be used for the statement so all the necessary information is included on the form. However, Form 4089 and an attachment can also be used.

  3. In limited liability cases, it may become difficult to include all the information in the recommended format on Form 4089 or Form 4089-A. In these instances, provide the information on a separate schedule used in place of Form 4089 or Form 4089-A and label the schedule "Notice of Liability Statement." ( See Exhibit 8.7.5-6.)

  4. See IRM 8.7.5.9.3.1. This is a discussion on the set-up of the statement for a transferee of a transferee, trustee, fiduciary, beneficiary, or for other kinds of taxes or for personal liability.

8.7.5.9.3.1  (11-06-2007)
Set Up of Statement Attached to Transferee Notice

  1. A transferee notice contains a statement that is attached to the letter. The statement is a Form 4089 and attachment, Form 4089-A, or a separate schedule labeled "Notice of Liability Statement" . See IRM 8.7.5.9.3.

  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."

  3. Examples of statements for transferee Notices of Liability most commonly issued by Appeals are shown below:

    1. Statement - Full Liability for unpaid deficiency of transferor:
      Prepare the statement for transferee cases involving full liability for an unpaid deficiency as shown below. See IRM 8.7.5.9.3.2. This shows the appropriate paragraphs to include on the face sheet after the summary of liability of the transferee.

      (Name), Transferor
      (Address of Transferor)
      TIN: _____
      Tax liability for the tax years ended 12/31/XXXX and 12/31/XXXX
      (Name), Transferee
      (Address of Transferee)
      TIN:_____

      Income Tax
      Tax Year Ended Deficiency
       12/31/XXXX $ 8,000.00 
       12/31/XXXX 5,000.00 
       Total $ 13,000.00 
      _______
         
      (Insert appropriate paragraphs from 8.7.5.9.3.2 here.)

    2. Statement - Limited Liability for unpaid deficiency
      Prepare a statement as shown below when the value of the assets received by the transferee are of a value less than the unpaid deficiency of the transferor. Since more than one year is involved in this example, show the transferee liability as one figure and do not allocate it to the various years. Select an appropriate paragraph to include on the face sheet after the summary of liability of the transferee. In addition, add a paragraph to mention the limited liability of the transferee and the amount, as shown below:

      (Name), Transferor
      (Address of Transferor)
      TIN: _____
      Tax liability for the tax years ended 12/31/XXXX and 12/31/XXXX