11 Pages Posted: 17 Feb 2014
Date Written: February 12, 2014
The Second Circuit Court of Appeals, in Diebold v. Commissioner, describes the requirements for finding transferee liability under Section 6901 of the Internal Revenue Code of 1986, as amended, here specifically under New York law, as state law predominates the determination of whether a person will be liable for federal taxes as a transferee. This case involved a so-called “Midco” transaction, whereby the goal was to avoid the corporate level taxes on the disposition of the assets of a C corporation.
A sale by the shareholders of their C corporation stock and a sale by the C corporation of its assets were recharacterized as a sale by the C corporation of its assets and then a liquidating distribution of the sale proceeds to the shareholders of the C corporation. This recharacterization allowed the Second Circuit to hold that the C corporation's shareholders had transferee liability under New York law with respect to the tax liability recognized by the C corporation on the sale of its assets. A remand to the Tax Court concerns whether such recharacterization satisfies federal law.
Keywords: fraudulent transfer, transferee liability, Fraudulent Conveyance Act, C corporation, liquidation, Midco transaction, series of transactions, double tax, goodwill amortization
JEL Classification: H2
Suggested Citation: Suggested Citation
Mark, Dana L. and Galant, Jeffrey A., DIEBOLD and the Not so Beautiful: Transferee Liability Trumps Tax Shelter (February 12, 2014). Available at SSRN: https://ssrn.com/abstract=2396972 or http://dx.doi.org/10.2139/ssrn.2396972