In a recent Tax Court case, the sole owner of a corporation took a dividend in excess of $3 million dollars. The corporation’s tax return was audited and additional tax liability was assessed. Unfortunately, the corporation could not pay the additional tax liability, in large part because of the substantial dividend taken by the owner.
The United States Tax Court held that the IRS could collect corporate tax liability from the sole owner under a theory of transferee liability. If the sole owner had not taken the dividend in excess of $3 million dollars, the corporation would have been able to partially or fully pay its liability due to the IRS.