When someone who owes the IRS transfers property to someone else, the IRS may be able to pursue the person who received it. The law calls that person a transferee. Heirs, gift recipients, shareholders of a liquidated company and beneficiaries of an estate can all find themselves in that position.

Whether a transferee is actually liable depends on the facts and on the law that creates the liability. This guide covers the timing: how long the IRS has to assess a transferee, how that period is measured and what extends it.

The procedural statute

Section 6901(a) of the Internal Revenue Code provides that the liability, at law or in equity, of a transferee of property of a taxpayer for income tax, of a decedent for estate tax or of a donor for gift tax, and the liability of certain fiduciaries, shall be assessed, paid and collected in the same manner and subject to the same provisions and limitations as the taxes with respect to which the liabilities were incurred. For other taxes, it applies to transferee liability only when the liability arises on the liquidation of a partnership or corporation or on certain reorganizations.

Section 6901 is mostly about procedure. It gives the IRS a way to assess the transferee's liability using the same tools it uses against the taxpayer, including a notice similar to a notice of deficiency. Section 6901(h) defines transferee to include a donee, heir, legatee, devisee and distributee, and for estate taxes, persons personally liable under section 6324(a)(2).

The deadlines

Section 6901(c) sets the assessment periods.

  • Initial transferee. Within 1 year after the expiration of the period of limitation for assessment against the transferor.
  • Transferee of a transferee. Within 1 year after the expiration of the period for assessment against the preceding transferee, but not more than 3 years after the expiration of the period for assessment against the initial transferor. If, before the transferee's period expires, a court proceeding for collection has been begun against the initial transferor or the last preceding transferee, the period expires 1 year after the return of execution in that proceeding.
  • Fiduciary. Not later than 1 year after the liability arises or not later than the expiration of the period for collection of the tax in respect of which the liability arises, whichever is later.

The anchor for the first two is the transferor's assessment period. That means every rule that affects the transferor's period flows through. If the transferor never filed a return, the transferor's period never started under IRC 6501(c)(3), and the transferee's one extra year never begins to run either. If the transferor's return was fraudulent, the same logic applies under IRC 6501(c)(1). The guides on unfiled returns and fraud explain those periods.

Death and dissolution do not shorten the period

Section 6901(e) provides that if any person is deceased, or is a corporation that has terminated its existence, the period of limitation for assessment against that person is the period that would be in effect had death or termination not occurred.

So the transferor's period is measured as though the transferor were still alive or still in existence. Heirs cannot argue that the clock stopped or shortened because the person who owed the tax died before the IRS acted.

There is a related tool that can help in an estate. A fiduciary can request a prompt assessment under IRC 6501(d) to shorten the IRS's window on the decedent's income and gift tax returns to 18 months, subject to the exceptions in that section. Shortening the transferor's period also shortens what the transferee period is measured from. See the guide to prompt assessment requests.

Extensions and suspensions

Section 6901(d)(1) allows the transferee or fiduciary and the IRS to agree in writing, before the period expires, to extend the time for assessment, and to extend it again by later written agreements made before the earlier period expires. The same provision says such an agreement is treated as an agreement under section 6511(c) for purposes of the transferee's refund rights. Consents are covered in the guide to Form 872.

Section 6901(f) suspends the transferee period after a notice of liability is mailed to the transferee or fiduciary under the section 6212 procedures, for the period the IRS is prohibited from assessing, and if a Tax Court case is docketed, until the decision becomes final, and for 60 days after. That mirrors the rule for taxpayers in IRC 6503(a), covered in the guide on notices of deficiency.

Section 6901(g) provides that, absent notice of a fiduciary relationship, a notice of liability mailed to the person at his last known address is sufficient, even if the person is deceased, under a legal disability or a terminated corporation. The last known address rule applies here too.

Practical questions for anyone who received assets

  • What was the transferor's assessment period for each tax year involved, and has it expired? Start with the three-year rule and check every exception.
  • Were you an initial transferee or a later one? Different rules apply.
  • Has anyone signed a consent extending the transferor's or your period?
  • Has the IRS mailed a notice of transferee liability, and to what address?
  • Is there a separate basis for the IRS to reach the property, such as a lien that attached before the transfer? Lien questions follow different rules from the transferee assessment period.

Why the transferor's dates are the whole game

Because the transferee period is built on the transferor's assessment period, the first job is the same one described throughout this site: find when the transferor filed, check for omissions large enough to trigger the six-year rule, check for fraud or unfiled years and check for consents or notices of deficiency that extended or suspended the transferor's period. Only after the transferor's date is fixed can the transferee's one-year addition be counted.

That analysis often requires records the transferee does not have, such as the transferor's returns and IRS correspondence. Heirs and beneficiaries may need to obtain them through the estate's fiduciary. The effort is worth it, because a transferor period that expired years ago can end the inquiry before it starts.

Collection after a transferee assessment

Because section 6901(a) says the transferee liability is collected in the same manner and subject to the same provisions and limitations as the underlying tax, a timely transferee assessment starts its own collection period under the general rules. The guide to the ten-year collection statute explains how that period works.

The bottom line

Transferee cases also tend to arrive long after the transfer itself, when memories have faded and records have scattered. If you received significant property from someone who had tax problems, keep the paperwork that shows what you received, when and on what terms. Those facts matter to the timing analysis and to the underlying liability question.

Under IRC 6901(c), the IRS generally has one year beyond the transferor's assessment period to assess an initial transferee, with an outside limit of three years beyond that period for later transferees, and separate rules for fiduciaries. Death or dissolution does not shorten the transferor's period. Consents and notices of liability extend or suspend the transferee period the same way they do for taxpayers.

If you inherited or received property from someone with IRS problems, start by finding the transferor's dates. Your deadline is built on top of theirs. And if a notice of transferee liability arrives, treat it like a notice of deficiency: note the mailing date, calendar the petition deadline and check whether it was mailed before your period ran out.