The doctrine by which a court of law holds individual shareholders liable for a corporation’s debts if the corporation is deemed to be nothing more than an “alter ego” of the corporation’s owners.
“In a nutshell, the nominee and alter ego theory holds that when a taxpayer retains the benefit, use, or control of transferred assets, the IRS may seize those assets – and quite literally, put the financial boots to you!” says David Selig of Selig and Associates.
At Selig and Associates, all tax representation is provided by a Federal Tax Practitioner and Licensed Attorney. To schedule a FREE face-to-face consultation, contact Selig & Associates directly at (212) 974-3435. Offices at: 147 West 35th Street, Suite 1602, New York, NY 10001.
FYI Fraud is not a necessary element for the application of the alter ego doctrine. Ragan v. Ragan v. Tri-County Excavating, Inc., 62 F.3d at 508 (Under Pennsylvania law, “no finding of fraud or illegality is required before the corporate veil may be pierced, but rather the corporate entity may be disregarded ‘whenever it is necessary to avoid injustice.’”) DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 684 (4th Cir. 1976) (non-tax case) (“[P]roof of plain fraud is not a necessary element in a finding to disregard the corporate entity.”) (citing, among other cases, Anderson v. Abbott, 321 U.S. 349, 362 (1944); National Marine Service, Inc. v. C.J. Thibodeaux & Co., 501 F.2d 940, 942 (5th Cir. 1974)). The Eighth Circuit in Scherping, supra, also noted that “proof of strict common law fraud was not required” to apply the reverse piercing branch of the alter ego doctrine, and affirmed the district court’s holding that the trusts were “sham entities created on behalf of and used by the taxpayers to evade payment of their federal income tax liabilities.” 187 F.3d at 802 (citations omitted).
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