Federal District Court Concludes Trust Held Property as Nominee

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

It may not surprise you that the IRS has a host of collection tools at its disposal to collect outstanding tax debts.  One common method is assertion of nominee theory.  In these instances, a taxpayer transfers property to a third party but generally retains some or all of the benefits of the asset.  A recent decision in the federal district court of Colorado illustrates the IRS’ use of nominee theory, and is the subject of this Insight.

Nominee Theory

According to the Internal Revenue Manual:

The nominee theory is based on the premise that the taxpayer ultimately retains the benefit, use, or control over the property that was allegedly transferred to a third party.  Thus, the nominee theory focuses on the relationship between the taxpayer and the transferred property.  A transfer of legal title may or may not have occurred, but the government does not believe a substantive transfer of control over the property in fact occurred.

IRM pt. (Jan. 24, 2012).  Generally, where the IRS asserts nominee theory, the court will look to a litany of factors to determine whether the property is held in the name of a nominee.  These include:  (1) whether adequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a lawsuit or other liability while the transferor remains in control of the property; (3) whether there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retained possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property.  See, e.g., U.S. v. Martens, No. 14-cv-01199-WYD-KMT, 2016 WL 1212704, at *4 (D. Col. Feb. 23, 2016).

United States v. Cantliffe

The recent decision in Cantliffe provides a good illustration of the IRS’ successful use of nominee theory.  See U.S. v. Cantliffe, No. 19-cv-00951-PAB-KLM (D. Colo. Sept. 21, 2020).  In that case, the taxpayer owned real property, which he transferred to his grantor trust.  He named himself and his wife as beneficiaries with his father-in-law as the trustee.  The Trust agreement provided the beneficiaries with the right to “participate in the management and control of the Trust property,” to direct the trustee “to convey or otherwise deal with the title to the Trust Property,” and the right to receive proceeds if the property was sold, rented, or mortgaged.  In addition, the taxpayer continued to live in the property while it was held in Trust.

After the Trust was established, the taxpayer filed individual income tax returns for the 2005, 2006, 2007, 2008, and 2010 tax years.  However, he did not pay the amounts of tax that he owed.  As a result, he owed approximately $265,000 in taxes.  Predictably, the IRS assessed the taxes against him and filed notices of federal tax lien with the appropriate county office.  In addition, the IRS issued notices of federal tax lien to the Trust as the taxpayer’s nominee.

Having still not received payment of the taxes due, the Government filed a lawsuit against the taxpayer, seeking judgment against him for his unpaid income tax debts and a judgment determining that the taxpayer was the true owner of the property held in Trust.

On these facts, the federal district court held in favor of the Government.  The court noted that the taxpayer’s property and rights to property may include “not only property and rights to property owned by the taxpayer but also property held by a third party if it is determined that the third party is holding the property as a nominee . . . of the delinquent taxpayer.”  Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007).  In analyzing the Martens factors above, the court concluded the Trust held the property as a nominee of the taxpayer because:

  1. The Trust paid only ten dollars for the property;
  2. The conveyance was not publicly recorded;
  3. The taxpayer resided in the property and made the property’s mortgage payments and property taxes (as well as its HOA dues);
  4. The taxpayer enjoyed benefits from the property because he claimed mortgage interest deductions related to the property;
  5. The taxpayer had a close relationship with the Trust because he created it and named himself a beneficiary.

Accordingly, the court held that the federal tax liens against the taxpayer also attached to the property held in Trust.  The result:  the IRS may seize and sell the property to help pay down the taxpayer’s tax debts.


The Cantliffe decision shows that the IRS can, in certain instances, pierce through corporate or other formalities – including corporations, partnerships, or trusts – to attach to and seize the property of another party.  For taxpayers with significant tax debts, Cantliffe offers a cautionary tale to be careful in making transfers of property to third parties while still maintaining some or all of the benefits of the transferred property.


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