Federal District Court Concludes Trust Held Property as Nominee

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Matthew L. Roberts

Matthew L. Roberts



Mr. Roberts is a Principal of the firm. He devotes a substantial portion of his legal practice to helping his clients successfully navigate and resolve their federal tax disputes, either administratively, or, if necessary, through litigation. As a trusted advisor he has provided legal advice and counsel to hundreds of clients, including individuals and entrepreneurs, non-profits, trusts and estates, partnerships, and corporations.

Having served nearly three years as an attorney-advisor to the Chief Judge of the United States Tax Court in Washington, D.C., Mr. Roberts leverages his unique insight into government processes to offer his clients creative, innovative, and cost-effective solutions to their tax problems. In private practice, he has successfully represented clients in all phases of a federal tax dispute, including IRS audits, appeals, litigation, and collection matters. He also has significant experience representing clients in employment tax audits, voluntary disclosures, FBAR penalties and litigation, trust fund penalties, penalty abatement and waiver requests, and criminal tax matters.

Often times, Mr. Roberts has been engaged to utilize his extensive knowledge of tax controversy matters to assist clients in their transactional matters. For example, he has provided tax advice to businesses on complex tax matters related to domestic and international transactions, formations, acquisitions, dispositions, mergers, spin-offs, liquidations, and partnership divisions.

In addition to federal tax disputes, Mr. Roberts has represented clients in matters relating to white-collar crimes, estate and probate disputes, fiduciary disputes, complex contractual and settlement disputes, business disparagement and defamation claims, and other complex civil litigation matters.

Federal District Court Concludes Trust Held Property as Nominee

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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