Background
Sidney Crookston owned a construction company that failed to pay federal taxes. The IRS placed liens on properties where the company had an interest. Sidney signed a contract to buy two parcels in Utah, but funds from the company’s account were used for the earnest money and initial payments. The legal title was later transferred to RC Smithfield, LLC, a new entity formed by Sidney’s son and a partner. The IRS recorded tax liens against the LLC as a nominee of the defunct company. The LLC sued to quiet title, arguing the liens were invalid.
The court’s reasoning
The court applied a two-step framework to determine if the IRS could reach the property. First, under Utah law, the court found a resulting trust existed because the defunct construction company paid for half the purchase price while the LLC held legal title. The evidence showed the company maintained control and beneficial use of the property. Second, under federal tax law, these state-delineated rights qualified as property subject to liens. The court rejected the LLC’s argument that its corporate status shielded the property, noting the IRS was attaching a lien to the company’s beneficial interest, not piercing the corporate veil. The court also found the LLC waived its argument regarding the language of the filed liens by failing to adequately brief the issue.
Where a transfer of properties is made to one person and the purchase price is paid by another, a resulting trust arises in favor of the person by whom the purchase price is paid.
In re Hock’s Est., 655 P.2d 1111, 1115 (Utah 1982)
What it means going forward
This decision reinforces that federal tax liens can reach beneficial ownership interests in real estate held by third parties, including limited liability companies, when the underlying taxpayer funded the acquisition and retained control.