Your Best Friend’s Debt: They Can Bring You Down with Them

This is another article devoted to your friends and family for this tax season. Enjoy...

A good friend... If you have a friend in debt to the IRS and the IRS is threatening to levy or seize his/her assets, your good friend may sell, transfer, or even give their assets to you hoping the IRS can't get them. Not only is your friend wrong because the IRS can still seize the assets, but you can also be made liable for the tax debt.

Always getting you into trouble... Here's how you can get into trouble: If your friend knows about the tax debt and still transfers the assets or property to you, then you can be liable, and the government can file suit against you!

You versus the IRS... The IRS can file a civil suit against you in a U.S. district court. When they do this, the IRS is imposing the tax liability on you, and you become responsible for the tax debt. You'll receive a certified letter called a Notice of Liability Transfer. If you don't file a petition, then the debt becomes yours, and IRS collection agents will come knocking on your door, ready to levy your property.

Most of the time, when the IRS takes you to civil court, they will try to transfer the assets back to your good friend, the original debtor. The IRS will first of all try to collect the assets or property and sell it.

To the rescue... If, however, the asset or property was legally signed over to you, the IRS can get you out of your problem. Better yet, they can force the debt back on your old buddy. If your friend knew about the debt and transferred the assets to you anyway, it can be considered a Fraudulent Transfer. The IRS will still pay you a visit to collect your friend's property. Any legal paperwork that verified the transfer is set aside, and the debt is reinstated as your friend's.

Beware friends bearing gifts... Of course, if you do nothing or your friend skips town, then you're up the creek, and the boat is leaking. The debt becomes yours, and the IRS will start imposing collection actions against you. So the next time a friend tells you they want to sell their stuff to you cheap, they may have a tax debt and are trying to pass it along to you.

Now you have the smoking gun... Use it!