Moving Assets After the IRS Calls: Fraudulent Transfers Under Texas and Federal Law

Every week someone asks me some version of this question: "If I put the house in my daughter's name, can the IRS still get it?" The answer is usually yes, and now your daughter is involved.

The law has dealt with debtors moving assets away from creditors for centuries. The IRS has more tools to undo those transfers than any private creditor, and it does not have to use the state's time limits. This guide explains how it works so you do not find out the hard way.

The Texas statute: TUFTA

Texas adopted the Uniform Fraudulent Transfer Act, codified in Business and Commerce Code chapter 24. As general information, it recognizes two main kinds of fraudulent transfers. A transfer made with actual intent to hinder, delay, or defraud a creditor can be set aside under section 24.005(a)(1). A transfer made without receiving reasonably equivalent value can be set aside if the debtor was insolvent or became insolvent because of it, or was left with unreasonably small assets, under sections 24.005(a)(2) and 24.006.

Because intent is rarely admitted, the statute lists badges of fraud courts may consider, including whether the transfer was to an insider, whether the debtor kept possession or control, whether it was concealed, whether the debtor had been sued or threatened with suit, whether it was substantially all the debtor's assets, whether the value received was reasonably equivalent, whether the debtor was insolvent, and whether it happened shortly before or after a substantial debt was incurred.

Read that list with an IRS notice in mind. A transfer to a family member, for little or nothing, after the IRS started collection, of property the taxpayer still uses, checks most of the boxes. These are Texas law standards, and anyone facing a claim under them should have a Texas attorney who practices in that area review the specifics.

The federal statute: the FDCPA

The IRS is not limited to Texas law. IRM 5.17.14.3.3.2.1 explains that the Federal Debt Collection Procedures Act, at 28 U.S.C. 3301 and following, gives the United States a uniform federal procedure for setting aside fraudulent transfers to collect federal debts, including taxes. It is modeled on the Uniform Fraudulent Transfer Act, so the standards look familiar: constructive fraud under 28 U.S.C. 3304(a) and actual fraud under 3304(b).

The manual also notes that the United States can proceed under state law or federal law, whichever fits the case.

The deadlines favor the IRS

Here is the part most people miss. Texas's statute has its own time limits in section 24.010, generally four years after the transfer, with a discovery-based extension for actual-intent claims. Many people assume that if they wait four years, the transfer is safe.

Not against the IRS. According to IRM 5.17.14.5.6.1, the majority of courts hold the United States is not bound by state statutes of limitation. When the government sues under IRC 7402 to set aside a transfer, the IRS position is that the ten-year collection period in IRC 6502, measured from the assessment against the taxpayer, controls. The FDCPA has its own six-year period in 28 U.S.C. 3306(b), but it also says it does not limit the government's other rights to collect taxes.

The result: a transfer that would be safe from a private creditor can remain exposed to the IRS for as long as the tax can be collected.

How the IRS uses these tools

The IRS has several ways to reach transferred property, and it picks the one that fits the facts:

• A suit to set aside the transfer under IRC 7402, with foreclosure of the federal tax lien under IRC 7403. The court can order the property sold and the proceeds applied to the tax.
• Transferee liability assessed under IRC 6901, which makes the recipient personally liable, generally up to the value received. See my guide on transferee liability.
• Nominee or alter ego liens when the taxpayer still effectively owns the property. See nominee and alter ego liens.
• Lien tracing. If the federal tax lien already attached before the transfer, it generally follows the property into the hands of anyone other than a protected purchaser.

Texas courts and the Fifth Circuit have dealt with these issues repeatedly. The IRS manual cites United States v. Loftis, 607 F.3d 173 (5th Cir. 2010), where an attempt to partition community property to avoid a levy was treated as a fraudulent conveyance. Married Texans who think a post-debt partition agreement will protect the non-liable spouse should read my guide on community property and IRS collection first.

The other costs of moving assets

A fraudulent transfer does not only fail. It costs you. It ends any chance the IRS will treat you as a cooperative taxpayer. Dissipated assets can be added back into your reasonable collection potential in an offer in compromise. A transfer can bar a bankruptcy discharge in some cases. And the most serious transfers can raise questions under the criminal statute for evading payment, IRC 7201, which the IRS's criminal investigators take seriously.

It also drags family members into federal litigation. The child who "just holds title" ends up as a defendant.

What to do instead

Keep your assets where they are and deal with the debt. A Collection Due Process hearing can pause enforcement and put a resolution on the table. An installment agreement stops levies. An offer in compromise, if you qualify, settles for what you can actually pay. Hardship status stops collection when you cannot pay. Every one of those options requires an honest financial statement, and every one of them works better when there are no transfers to explain.

If you already moved something, talk to a lawyer before the IRS finds it. Sometimes the best answer is to undo the transfer voluntarily, disclose it accurately, and move on to a real resolution. My guide to IRS relief options for Texans lays out the menu.

Hiding assets from the IRS is a lot like hiding cattle in an open pasture. Everyone can see them, and now they are standing in the wrong field. Let's talk about a better plan: 813-229-7100.