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JAMES E. GRIFFIN AND KATRINA F. GRIFFIN, TRANSFEREES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentGriffin v. CommissionerDocket No. 18009-94
United States Tax Court T.C. Memo 1997-394; 1997 Tax Ct. Memo LEXIS 469; 74 T.C.M. (CCH) 433;August 26, 1997, Filed*469 Decision will be entered under Rule 155.
Thomas J. Brown andHubert R. Brown , for petitioners.Michael A. Pesavento , for respondent.RUWE, JudgeRUWEMEMORANDUM FINDINGS OF FACT AND OPINION
RUWE,
Judge : Respondent asserts that petitioners, as transferees of assets of Rodger L. Fisher, are liable for unpaid Federal income taxes of Mr. Fisher for the taxable years 1991 and 1992, in the amount of $ 87,516, plus interest as provided by law. *471 Respondent determined, and petitioners concede, for the purposes of this proceeding, that Mr. Fisher's unpaid 1991 and 1992 deficiencies and additions to tax are: *470Addition to Tax Year Deficiency Sec. 6663 1991 $ 52,165 $ 40,865 1992 30,771 23,078 The issue for decision is whether petitioners are liable as the transferees of assets of Mr. Fisher under
section 6901 , Mr. Fisher's Tax LiabilityMr. Fisher was employed by the Department of General Services for the State of Florida from 1985 through April 1992. Mr. Fisher's duties in this capacity included overseeing the contracts between the State of Florida and telephone carriers such as AT&T and Southern Bell, whereby these carriers would pay commissions to the State measured by the use of their services at pay telephones located on State property.
Sometime prior to June 1991, Mr. Fisher identified certain pay telephones that were not then covered under any State agency contract with the carriers. In order to receive the commissions generated by *472 these telephones, Mr. Fisher created three fictitious entities and gave them names that sounded like legitimate State agencies, such as "Florida Transportation-Maintenance", "Florida Maintenance and Repair", and "Florida Rehabilitative Service". When the agency contracts with the carriers were negotiated in July 1991, Mr. Fisher caused separate contracts to be entered into between the fictitious entities and the carriers with respect to these telephones.
During the 8-month period beginning in August 1991, and continuing through March 1992, Mr. Fisher diverted approximately $ 300,000 in commissions that should have been paid to the State of Florida. The diverted commissions were paid to the three fictitious entities and deposited into five different bank accounts.
Mr. Fisher began contemplating his scheme well before the first diversion. Mr. Fisher began taking action on his plan as early as April 17, 1991, when he leased P.O. Box 3794 in Leon County, Florida. This post office box was listed as the mailing address for several of his fictitious entities and was the address to which many of the diverted commissions were mailed.
On March 17, 1993, Mr. Fisher was found guilty by a jury*473 in Leon County, Florida, of grand theft and official misconduct in connection with the diversion of the telephone commissions. Mr. Fisher was sentenced to imprisonment for a term of 4 years and ordered to pay restitution in the amount of $ 288,312. *474 the diverted proceeds on his Federal income tax returns for 1991 and 1992. Using a bank deposit analysis, respondent determined that Mr. Fisher failed to report income from his illegal activities of $ 174,789 and $ 118,401 for 1991 and 1992, respectively. As previously indicated, petitioners do not contest respondent's determination of deficiencies and additions to tax against Mr. Fisher.
Transfers of Real Property and Mortgage Payments Mr. Fisher started planning the diversion of the telephone commissions prior to June 1991. On June 6, 1991, Mr. Fisher transferred to petitioners, by warranty deed, his interest in three contiguous parcels of land located at 6913 Apalachee Parkway, Tallahassee, Florida. These parcels consisted of a 2-acre parcel (parcel 1), a 0.92-acre parcel (parcel 2), and a 0.25-acre parcel (parcel 3). On the date of these transfers, there was only one improvement built on these parcels, which consisted of a house constructed in 1989 on parcel 1. Mr. Fisher applied for the construction permit for this house, and upon its completion he moved into the house and continued to reside therein until his imprisonment in 1993. The fair market value of the three parcels*475 transferred on June 6, 1991, including the house built in 1989, was $ 69,000 as of that date. *476 On June 10, 1988, Mr. Fisher executed a real estate mortgage on parcel 1 to secure his indebtedness of $ 10,937.46 to C & S Family Credit, Inc. On September 14, 1988, Mr. Fisher executed a mortgage on parcel 1 to secure his indebtedness of $ 21,875.03 to C & S Family Credit, Inc. On February 10, 1989, Mr. Fisher executed a mortgage on parcel 1 to secure an initial advance of $ 35,000 from Government Employees Credit Union of Florida.
Mr. Fisher obtained title to parcel 2 on January 25, 1990. The record is not clear regarding when Mr. Fisher obtained title to parcel 3. On February 19, 1990, Mr. Fisher executed a mortgage on parcels 1 and 3 to Real Estate Financing, Inc. (REFI), to secure a loan in the original amount of $ 53,877. The REFI mortgage was the only encumbrance against the three parcels as of June 6, 1991. The amount of unpaid principal on the REFI loan as of June 6, 1991, the date the three parcels were transferred to petitioners, was $ 51,871.
Subsequent to the transfer to petitioners on June 6, 1991, Mr. Fisher continued to reside in the house on parcel 1 and continued to make payments on the REFI loan. During the 6-month period following the transfer, Mr. Fisher paid*477 off the outstanding balance on the REFI loan in its entirety. The following amounts were paid to REFI by Mr. Fisher:
Date Amount 06/17/91 $ 600.00 07/16/91 600.00 07/23/91 202.10 08/13/91 600.00 09/10/91 600.00 09/18/91 109.22 10/11/91 20,582.27 10/29/91 678.74 10/29/91 27,903.53 11/19/91 433.83 12/05/91 3,619.88 Total $ 55,929.57 Petitioners did not pay any consideration for the real property that Mr. Fisher transferred to them on June 6, 1991, or for any of the subsequent loan payments made by Mr. Fisher to REFI.
Transfers of Cash Between December 3, 1991, and March 14, 1992, Mr. Fisher sent six checks to petitioners, which totaled $ 81,917.67. *478 to him and to his designees. The total amount ($ 40,016.22) returned by petitioners between December 23, 1991, and March 13, 1992, was:
Date Payee Money Order No. Amount 12/23/91 Rodger Fisher T1908127 $ 15,000.00 02/03/92 Elizabeth Bollema T1908442 500.00 02/03/92 Lucious Little T1908443 7,500.00 02/03/92 Sandra Clary T1908444 7,500.00 03/13/92 Rodger Fisher T1908860 9,516.22 Total $ 40,016.22 Respondent contends that petitioners retained $ 14,457.97 ($ 54,474.19 less $ 40,016.22) from the checks received from Mr. Fisher.
Subsequent Transfers by Petitioners Petitioners made the following payments by check or cashier's checks during 1992:
Date Payee Check No. Amount 08/05/92 Roosevelt Randolph 3517 $ 3,500 08/05/92 Thomas Brown 3518 3,500 08/11/92 Rodger Fisher 3521 2,500 08/11/92 Ameritrust Co. 570 4,500 National Association 10/14/92 Thomas Brown 3622 3,500 10/14/92 Roosevelt Randolph 3623 3,500 Total $ 21,000 OPINION
Section 6901(a) provides a procedure whereby taxes owed by a transferor may be collected from a transferee.Commissioner v. Stern , 357 U.S. 39">357 U.S. 39Hagaman v. Commissioner , 100 T.C. 180">100 T.C. 180Section 6901 does not create or define a transferee's liability.Commissioner v. Stern, supra at 42-43Hagaman v. Commissioner, supra .Commissioner v. Stern, supra at 44-45Hagaman v. Commissioner, supra at 183-185section 6901 provides the remedy or procedure to be employed by the Commissioner as the means of enforcing that liability.Ginsberg v. Commissioner , 305 F.2d 664">305 F.2d 66435 T.C. 1148">35 T.C. 1148 (1961). Respondent bears the burden of proving petitioners' liability as transferees.Sec. 6902(a) ; Rule 142(d).Respondent calculated the extent of petitioners' transferee liability by adding the individual values of the property Mr. Fisher conveyed to petitioners as follows:
Value as determined Property by respondent Real property located at $ 17,129 6913 Apalachee Parkway less outstanding mortgage Mortgage payments made by 55,930 Mr. Fisher, subsequent to 6/6/91, including interest Checks 14,457 Total $ 87,516 A.
Transfers of Real *481Property and Mortgage Payments Florida law is applicable to the transfers of the three parcels of land located in Tallahassee, Florida. Under Florida's Uniform Fraudulent Transfer Act (FUFTA), a transfer is fraudulent as to present and future creditors if the debtor made the transfer "With actual intent to hinder, delay, or defraud any creditor of the debtor".
Fla. Stat. Ann. sec. 726.105(1)(a) (West 1988).Fla. Stat. Ann. sec. 726.105(2) (West 1988), provides:(2) In determining actual intent under paragraph (1)(a), consideration may be given, among other factors, to whether:
(a) The transfer or obligation was to an insider.
(b) The debtor retained possession or control of the property transferred after the transfer.
(c) The transfer or obligation was disclosed or concealed.
(d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
(e) The transfer was of substantially all the debtor's assets.
(f) The debtor absconded.
(g) The debtor removed or concealed assets.
(h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. *482
(i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
(j) The transfer occurred shortly before or shortly after a substantial debt was incurred.
(k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Several of these listed factors are present here.
Mr. Fisher transferred his interests in the disputed parcels of land by warranty deeds on June 6, 1991, to his sister and brother-in-law, who are "insiders" for the purposes of FUFTA.
Fla. Stat. Ann. sec. 726.102(7) (West 1988). Mr. Fisher retained possession and control of the house that was built in 1989 on one of the parcels. He continued to live there until his imprisonment in 1993 and continued to make payments on the loan which encumbered the property.*483Nau v. Commissioner , 27 T.C. 999">27 T.C. 999, 1000-1001 (1957)261 F.2d 362">261 F.2d 362 (6th Cir. 1958). Petitioners contend that the three parcels were originally purchased by Mr. Fisher with petitioners' money and that they were always the equitable owners of the three parcels. In essence, petitioners are arguing for a resulting trust.Powell v. Race , 10 So. 2d 142">10 So. 2d 142 (Fla. 1942)The burden of establishing the existence of a resulting trust is a heavy*485 one. In
Foster v. Thornton , 179 So. 882">179 So. 882"Evidence to establish a resulting trust must be so clear, strong, and unequivocal as to remove from the mind of the Chancellor every reasonable doubt as to the existence of the trust." [
Id. (quotingGeter v. Simmons , 49 So. 131">49 So. 131"When a resulting trust is sought to be established by parol evidence, the burden rests upon the person asserting the existence of the trust to remove every reasonable doubt as to its existence by clear, strong, and unequivocal evidence." [
Id. (quotingBrown v. Brown , 143 So. 737">143 So. 737It is undisputed that legal title to the real property was held by Mr. Fisher at all times prior to the transfer to petitioners on June 6, 1991. *486 payments on a $ 10,000 loan that Mr. and Mrs. Fisher made in their own names, and also to have contributed an undisclosed amount of capital via credit card purchases of supplies and other materials used in the construction of the house built on parcel 1 during 1988. These contentions are not supported by any documentation in the record. Petitioners failed to produce any canceled checks, money orders, credit card receipts, bank statements, or any other documentation which would corroborate their argument.
Petitioners, instead, rely on their own testimony and that of Mr. Fisher and his former wife, Alice. However, this testimony is contradicted by other evidence. For example, the amount of monthly mortgage payments that petitioners claim to have made to Mr. Fisher do not correspond to the original loan from North Florida National Bank in 1984. Petitioners claim to have made monthly payments of $ 350 for approximately 1-1/2 years, whereas *487 the North Florida National Bank loan required monthly payments of $ 244.38 for 5 years. Additionally, Mr. Fisher executed several loans secured by mortgages on the property. In each instance, Mr. Fisher purported to be the true owner. Mr. Fisher also applied for the construction permit which authorized the construction of the house on parcel 1 during 1988. Finally, during Mr. and Mrs. Fisher's divorce proceedings, parcel 1 was treated as marital property and awarded to Mr. Fisher.
Mr. Fisher's actions were consistent with true ownership. Petitioners failed to present documentation corroborating their payment for the property. Petitioners have not presented clear, strong, and unequivocal evidence of a resulting trust. Indeed, the preponderance of the evidence supports a finding that Mr. Fisher was the owner of the property prior to June 6, 1991.
The fair market value of the property transferred on the date of transfer must be determined to find the extent of transferee liability.
Gumm v. Commissioner , 93 T.C. 475">93 T.C. 475933 F.2d 1014">933 F.2d 1014 (9th Cir. 1991);Stokes v. Commissioner , 22 T.C. 415">22 T.C. 415Stokes v. Commissioner, supra .During the 6-month period following June 6, 1991, Mr. Fisher completely paid off the REFI loan secured by the mortgage. The total amount Mr. Fisher paid during this period was $ 55,929.57.
Fla. Stat. Ann. sec. 726.102(12) (West 1988). Each payment made by Mr. Fisher*490 on the loan satisfies the broad definition of a "transfer" under Florida law. Petitioners did not pay any consideration for the release of this encumbrance. Based upon our reasoning regarding the transfer of the real property itself, we find that these transfers were made with the same fraudulent intent. Seesupra pp. 11-12. Therefore, we find that petitioners received transfers with a total value of $ 55,929.57, by way of Mr. Fisher's payment of the REFI loan.B.
Transfers of Cash In addition to the fraudulent transfer of real property and the payments Mr. Fisher made on the loan, respondent contends that the $ 14,457.97 retained by petitioners in the circular movement of money for Mr. Fisher also was a fraudulent*491 transfer. Petitioners failed to provide any substantive argument as to why this transfer was not fraudulent. However, in their answering brief, petitioners, for the first time, contend that respondent's focus on Florida law regarding their liability for these transfers may be misplaced.
Petitioners suggest that Arizona law might apply because they resided in the State of Arizona when the transfers of cash took place. Arizona, like Florida, adopted the Uniform Fraudulent Transfer Act, which was effective during the years in issue. See
Ariz. Rev. Stat. Ann. secs. 44-1001 to 44-1010 (West 1994). Petitioners have not demonstrated any difference between Arizona's version of the Uniform Fraudulent Transfer Act and Florida's version of the same act. Further, our review of these two statutes reveals no significant differences in their language as applicable to the facts of this case. Therefore, our determination of petitioners' transferee liability regarding the receipt of cash would be the same under either State's law.As with the transfers of the real property and the payment of the loan, there are several factors present in the transfer of cash which demonstrate fraud for purposes of*492 FUFTA. During the period from December 3, 1991, through March 14, 1992, Mr. Fisher transferred $ 14,457.97 to petitioners for which they paid no consideration.
Fla. Stat. Ann. sec. 726.105(2)(h) (West 1988). Petitioners are insiders for purposes of FUFTA.Fla. Stat. Ann. sec. 726.105(2)(a) (West 1988). In addition, Mr. Fisher created several fictitious entities in order to carry out and later conceal the telephone commissions that he diverted from the State of Florida. Mr. Fisher transferred some of the telephone commissions to petitioners by checks drawn on the accounts opened in the names of these fictitious entities. Petitioners transferred some of these funds back to Mr. Fisher through the use of money orders payable to Mr. Fisher and to others that he designated. These actions are indicative of Mr. Fisher's intent to conceal these assets.Fla. Stat. Ann. sec. 726.105(2)(g) (West 1988). Finally, the transfers of cash occurred shortly before Mr. Fisher incurred a substantial tax liability.Fla. Stat. Ann. sec. 726.105(2)(j) (West 1988). Together, these factors demonstrate Mr. Fisher's intent to hinder, delay, or defraud his creditors.Fla. Stat. Ann. sec. 726.105(1)(a) (West 1988).*493 C.
Subsequent Transfers by Petitioners Petitioners contend that, even if they are held liable as transferees, the amount of their liability should be reduced by their payment of credit card bills and attorney's fees and by the value of the two smaller unimproved parcels which they transferred to the United States in accordance with Mr. Fisher's plea agreement.
A transferee may avoid liability for a tax deficiency under a fraudulent transfer statute by reconveying the property to the transferor under certain conditions.
Mendelson v. Commissioner , 52 T.C. 727">52 T.C. 727Eyler v. Commissioner , 760 F.2d 1129">760 F.2d 1129T.C. Memo 1983-397">T.C. Memo. 1983-397 . A transferee may avoid liability as a fraudulent transferee by reconveying or retransferring the property to the transferor prior to the Commissioner's taking action to collect from the transferee.Eyler v. Commissioner, supra at 1134Ginsberg v. Commissioner , 35 T.C. 1148">35 T.C. 1148305 F.2d 664">305 F.2d 664 (2d Cir. 1962).1.
Transfers Directly to Mr. Fisher Except for the $ 40,016.22 previously allowed by respondent, the only retransfer of property that petitioners made directly to Mr. Fisher was the $ 2,500 check dated August 11, 1992. Respondent acted to collect from petitioners when the notice of transferee liability was issued on July 7, 1994. Because the $ *495 2,500 payment occurred before July 7, 1994, we find that the amount of transferee liability asserted by respondent should be reduced to the extent of $ 2,500. Transfers to Mr. Fisher's Creditors
Petitioners contend that the remaining transfers of cash to Ameritrust Co. National Association, Mr. Randolph, and Mr. Brown, *496 in Mr. Fisher's behalf. However, petitioners do not offer any proof or make any argument to show that the debts and fees paid on Mr. Fisher's behalf or that the transfer of the two parcels of land in accordance with Mr. Fisher's plea agreement had priority over his indebtedness to respondent. Transferee liability having been established, it is incumbent upon petitioners to make such a showing.
Gobins v. Commissioner , 18 T.C. 1159">18 T.C. 1159217 F.2d 952">217 F.2d 952 (9th Cir. 1954). Accordingly, petitioners' claim that they are relieved of liability by reason of the expenditures made by them on Mr. Fisher's behalf is rejected.*497 To the extent petitioners have raised other issues or arguments, we have fully examined them and find them to be without merit. Summarizing our conclusions, then, we hold that petitioners are liable as transferees for Mr. Fisher's income tax deficiencies and additions to tax for 1991 and 1992 to the extent of $ 85,016 ($ 87,516, as determined by respondent, less the $ 2,500 retransferred to Mr. Fisher), plus interest on such amount as provided below.
D.
Liability for Interest Where the amount transferred to a transferee is less than the amount of taxes owed by the transferor, State law determines the extent to which a transferee is liable for interest accrued prior to the Commissioner's demand for payment.
Estate of Stein v. Commissioner , 37 T.C. 945">37 T.C. 945LeBeau v. Commissioner , T.C. Memo 1992-359">T.C. Memo. 1992-359Town of Longboat Key v. Carl E. Widell & Son , 362 So. 2d 719">362 So. 2d 719Fla. Stat. Ann. sec. 55.03 (West 1988) from April 15, 1992.Decision will be entered under Rule 155 .Footnotes
1. The notice of transferee liability, issued to petitioners on July 7, 1994, determined a liability of $ 84,467. In an amended answer, respondent increased the amount of transferee liability asserted against petitioners to $ 87,516.↩
2. Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
3. The Florida Department of Law Enforcement was able to recover only $ 30,000 out of the approximately $ 300,000 diverted by Mr. Fisher.↩
4. The 2-acre improved parcel with the house had a fair market value of $ 59,000, and the remaining two parcels had a fair market value of $ 10,000 together.↩
5. Mr. and Mrs. Fisher had approximately $ 30,000 in equity in this property at the time of their divorce.↩
6. During this time, petitioners were living in the State of Arizona.↩
7. Petitioners contend that payments to Mr. Fisher, and to others on his behalf, should be considered in determining their liability as transferees. In their brief, petitioners contend that the total amount retransferred to Mr. Fisher and his designees was $ 17,500 and refer to the exhibit reflecting the six checks totaling $ 21,000.↩
8. There are some situations where the existence and extent of transferee liability is a matter of Federal law. See, e.g., sec. 6324(a) (2) and (b).↩
9. The close relationship of the transferee to the transferor tends to establish a prima facie case of a fraudulent conveyance which must be then met by the taxpayer.
Money v. Powell↩ , 139 So. 2d 702 (Fla. Dist. Ct. App. 1962)10. Retention of possession of the property after the transfer creates a prima facie presumption of fraud.
Jones v. Wear , 149 So. 345">149 So. 345↩11. Regardless of when Federal taxes are actually assessed, taxes are considered as due and owing, and constitute a liability, no later than the date the tax return for the particular period is required to be filed.
Hagaman v. Commissioner , 100 T.C. 180">100 T.C. 18012. A resulting trust arises as a matter of law where property is acquired in the name of one person or entity with consideration provided by others. Under Florida law, once a party proves that he paid the purchase price for a piece of property, a presumption arises that it was the parties' intention that the individual holding legal title was to hold the property in trust for the payor.
Maliski v. Maliski , 664 So. 2d 341">664 So. 2d 34113. Mrs. Fisher's name was on the title of parcel 1 for a short period of time.↩
14. Petitioners argue that Mr. Smith valued a house built in 1992, rather than the house that existed at the time of the transfer. We do not find this argument persuasive. In valuing the real property, Mr. Smith relied on the property appraiser records for Leon County, Florida, which reflect information regarding the house built in 1989.↩
15. Petitioners did not present any evidence regarding the fair market value of the real property in question.↩
16. The difference between the balance of the unpaid principal of the loan as of June 6, 1991, in the amount of $ 51,871, and the total amount paid by Mr. Fisher over the 6-month period following the transfer on June 6, 1991, of $ 55,929.57, was due to interest and other charges accruing on the loan.↩
17. We note that whether a reconveyance to the transferor relieves the transferee of liability is a matter of State law.
McLellan v. Commissioner , T.C. Memo. 1975-15↩18. Respondent contends that petitioners and Mr. Fisher conspired to defraud Mr. Fisher's creditors. In
Gobins v. Commissioner , 18 T.C. 1159">18 T.C. 1159217 F.2d 952">217 F.2d 952↩ (9th Cir. 1954), we noted that in certain cases it is possible that retransfers "might be the result of collusion between the parties and made in such manner that it also would be in fraud of creditors." Despite the fact that Mr. Fisher and petitioners were closely related, there is no evidence of collusion on the part of petitioners with regard to the retransfer of $ 2,500 on Aug. 11, 1992.19. Petitioners do not identify the respective relationships of these payees to Mr. Fisher or the purposes of these payments. However, respondent identified the payees, Mr. Randolph and Mr. Brown, as Mr. Fisher's attorneys. Respondent also identified the payee, Ameritrust Co. National Association, as a creditor of Mr. Fisher; however, there is nothing in the record that would indicate whether this creditor (or any other creditor) had priority over respondent.↩
Document Info
Docket Number： Docket No. 18009-94
Citation Numbers： 74 T.C.M. 433, 1997 Tax Ct. Memo LEXIS 469, 1997 T.C. Memo. 394
Judges： RUWE
Filed Date： 8/26/1997
Precedential Status： Non-Precedential
Modified Date： 4/18/2021