Tax Issues Affecting Receiverships


14.01 Qualified Settlement Fund

In addition to the receiver’s responsibility to take custody and control of property, the receiver is responsible for complying with any reporting obligations to the federal, state, and local taxing authorities. If the property within the custody and control of the receiver meets the statutory definition of a qualified settlement fund pursuant to Treasury Regulation §1.468B-1(c),40 then the receiver is required to file tax return(s) for the qualified settlement fund and, if necessary, pay taxes. The regulations generally provide that a fund is a qualified settlement fund if it is set up by court order, is created as a result of a violation or claimed violation of the law and is held in a segregated account.

The regulations provide that a qualified settlement fund is subject to tax on its modified gross income, which is defined as gross income computed with certain modifications.41One modification excludes amounts transferred to the qualified settlement fund by, or on behalf of, the transferor. The other modifications are deductions for administrative costs and other incidental expenses incurred in connection with the operation of the fund; losses sustained by the fund in connection with the sale, exchange, or worthlessness of property; and specially defined net operating losses.

The regulations provide that a qualified settlement fund account for income and expenses on a calendar year basis and use the accrual method of accounting.42 A qualified settlement fund is treated as a corporation and tax is imposed at the highest Trust tax rate.43 Finally, when it is time to close the estate, the regulations provide a qualified settlement fund is eligible to request the prompt assessment of tax under section 6501(d).44 Under 6501(d), a qualified settlement fund is treated as dissolving on the date the fund no longer has any assets (other than a reasonable reserve for potential tax liabilities and related professional fees) and will not receive any more transfers.45

The qualified settlement fund’s state and local filing requirements will depend upon the particular state or local government where the fund is located.

14.02 Tax Filing Obligations

Section 6012(b)(3) of the Internal Revenue Code and Treasury Regulation Section 1.6012-3(b)(4) provide that a receiver is required to file a tax return for a corporation for which he is the receiver or for which he is in control of substantially all of the assets.46The returns must be filed whether or not the receiver is operating the business and the returns must be filed for the entire taxable year. The IRS takes the same position with respect to partnerships.47

When a receiver “stands in the place” of an individual, the receiver will be required to file the tax return for that individual. Treasury Regulation §1.6012-3(b)(5). In Field Service Advice 1992-0622-3 the IRS stated that Treasury Regulation §1.6012-3(b)(5) “clearly contemplates that when a receiver is in possession of all of the individual’s property the individual will generally be legally unable to make a return and the receiver will stand in its place.” Even if the taxpayer for whose assets the receiver has been appointed files his or her own tax return, it is the IRS’s position that receiver is still responsible to sign and file the tax return.48

14.03 Receiver Liability for Taxes

Under 31 USC §3713, any claims of the United States Government, including taxes, must be paid first, before a person who is insolvent pays debts to others.49 A representative (including a receiver) who pays debts to others before paying debts to the Government is liable to the Government to the extent of those payments. Insolvency is determined using the balance sheet method as opposed to income method and consent to the appointment of a receiver is considered a “voluntary assignment of property.”50 Typically, administrative expenses such as attorney fees, court costs and expenses to operate a business have priority over debts to the Government.51 Also, generally, the representative must have known, or should have known with the exercise of diligence, of the Government debt in order to be personally liable under 31 USC §3713(b).52

14.04 I.R.S. Notice Requirements

The treasury regulations provide that a fiduciary who takes control of a debtor’s assets must provide the IRS with notice of the assignment within ten days of their appointment. Treasury Regulation 301.6036-1(a)(3). The notice should be made in writing to the district director of the district in which the debtor is located. The notice must contain those items set forth in Treasury Regulation 301.6036-1(a)(4)(ii). If this notice is not given, the statute of limitations for the debtor’s taxes will be suspended for up to two years after the appointment, however, if the notice is given, the statute of limitations will begin to run 30 days after the notice is given. I.R.C. § 6872.

Persons acting as a fiduciary (defined to include receiver) of another person are required to file a notice with the district director on Form 56, “Notice Concerning Fiduciary Relationship.” Treasury Regulation 301.6903-1. If a notice is given pursuant to Treasury Regulation 301.6036, it need not be also given on Form 56.

14.05 Tax Effect on Investors

The tax effects of a Ponzi scheme on investors are complicated and should be reviewed carefully by the investor’s tax advisor. Rev. Rul. 2009-09 and Rev. Proc. 2009-20 provide guidance in this area.


40 Treasury Regulation §1.468B-1(c)

(c) Requirements. A fund, account, or trust satisfies the requirements of this paragraph (c) if—

  1. It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
  2. It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability—

    (i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 U.S.C. 9601 et seq.; or
    (ii) Arising out of a tort, breach of contract, or violation of law; or
    (iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and

  3. The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).


41 Treasury Regulation §1.468B-2(b)(1)-(4).


42 Treasury Regulation §1.468B-2(j).


43 Treasury Regulation §1.468B-2(k).


44 Treasury Regulation §1.468B-2(m).


45 Treasury Regulation §1.468B-2(m).


46 IRC Section 6012(b)(3) provides:

(b) Returns made by fiduciaries and receivers–

(3) Receivers, trustees and assignees for corporations.–In a case where a receiver, trustee in bankruptcy, or assignee, by order of a court of competent jurisdiction, by operation of law or otherwise, has possession of or holds title to all or substantially all the property or business of a corporation, whether or not such property or business is being operated, such receiver, trustee, or assignee shall make the return of income for such corporation in the same manner and form as corporations are required to make such returns.


47 GCM 36811 and Technical Advice Memorandum 8210029.


48 Field Service Advice 1992-0622-3.


49 31 USC §3713 “Priority of Government Claims” provides:

(a)(1) A claim of the United States Government shall be paid first when—

(A) a person indebted to the Government is insolvent and—(i) the debtor without enough property to pay all debts makes a voluntary assignment of property; (ii) property of the debtor, if absent, is attached; or (iii) an act of bankruptcy is committed; or (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.

(2) This subsection does not apply to a case under title 11.

(b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.


50 United States v. Butterworth-Judson Corp., 269 U.S. 504 (1926).


51 United States v. State of Oklahoma, 261 U.S. 253 (1923); Southern Rwy. Co. v. United States 306 F.2d 119 (5th Cir. 1962).


52 Want v. CIR, 280 F.2d 777 (2d Cir. 1960); Little v. CCIR, 113 T.C. 474 (1999); United States v. Renda, 709 F.3d 480 (5th Cir. 2013).