Arthur Dalton, Jr. and Beverly Dalton v. Commissioner

ARTHUR DALTON, JR. AND BEVERLY DALTON, PETITIONERS v.
COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT *
Docket No. 23510–06L. Filed September 23, 2010.
R seeks to collect certain trust fund recovery penalties from
Ps. In R’s determination pursuant to sec. 6330, I.R.C., R
rejected Ps’ offer-in-compromise. Ps transferred property to P
husband’s father F, who in turn transferred the property to
a trust 11 years before trust fund recovery penalties arose.
The trust was set up to hold the property for the benefit of
F’s grandsons; i.e., Ps’ children. R determined that Ps
retained a beneficial interest in the trust property under a
nominee ownership theory and, therefore, rejected Ps’ offer-in-
compromise. Ps contend that R’s determination was an abuse
of discretion because Ps did not retain a nominee interest in
the trust property after the trust was created and, therefore,
need not include the trust property in Ps’ assets for purposes
of the offer-in-compromise. In our prior opinion, we remanded
this case to R’s Appeals Office to consider State law as well
as a Federal factors analysis regarding whether Ps had a
nominee interest in the trust property. Held: This Court has
jurisdiction to decide whether R abused his discretion in
rejecting Ps’ offer-in-compromise because of Ps’ alleged
nominee interest in the trust property. Held, further, Ps do
not have a nominee interest in the trust property under State
law. Held, further, Ps do not have a nominee interest in the
trust property under a Federal factors analysis. Held, further,
it was an abuse of discretion for R to reject Ps’ offer-in-com-
promise on the basis that the offer-in-compromise did not
include in Ps’ assets a nominee interest in the trust property.
Ralph A. Dyer, for petitioners.
Michael R. Fiore and Erika B. Cormier, for respondent.
* This Opinion supplements Dalton v. Commissioner, T.C. Memo. 2008–165.
393
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394 135 UNITED STATES TAX COURT REPORTS (393)
SUPPLEMENTAL OPINION
WELLS, Judge: This case is before the Court on petitioners’
motion for summary judgment pursuant to Rule 121. 1
Respondent filed a response to petitioners’ motion for sum-
mary judgment and subsequently filed a second motion for
summary judgment. 2 The instant proceeding arises from a
petition filed in response to Notices of Determination Con-
cerning Collection Action(s) Under Section 6320 and/or 6330
issued separately to each petitioner. The issues to be decided
are: (1) Whether we have jurisdiction to decide the instant
matter; and (2) if so, whether respondent abused his discre-
tion in sustaining the levy action against petitioners.
Background
The facts set forth below are based upon examination of
the pleadings, moving papers, responses, and attachments
filed in the instant case. The facts are set forth in our prior
opinion in the instant case, Dalton v. Commissioner, T.C.
Memo. 2008–165 (prior opinion), and are incorporated by ref-
erence.
Petitioners Arthur Dalton, Jr. (Mr. Dalton Jr.), and Bev-
erly Dalton (Mrs. Dalton Jr.) are husband and wife who
resided in Maine at the time of filing the petition. The
instant case centers on three parcels of real property located
near Johnson Hill Road in Poland, Maine (hereinafter
referred to individually as lot 3, lot 4, and lot 5, respectively,
and collectively as the Poland property).
Acquisition of Lots 3, 4, and 5
By deed dated November 25, 1977, petitioners purchased
lot 4, and the deed to lot 4 was recorded with the appropriate
county registry on November 28, 1977. Similarly, by deed
dated November 24, 1980, petitioners purchased lot 3, and
the deed to lot 3 was recorded on December 1, 1980. In
connection with the latter transaction petitioners obtained a
bank loan secured by a mortgage on lot 3 which was recorded
on December 1, 1980.
1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as
amended, and Rule references are to the Tax Court Rules of Practice and Procedure.
2 On July 6, 2007, respondent filed his original motion for summary judgment. Respondent’s
motion was denied on July 8, 2008.
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By deed dated January 13, 1983, petitioners conveyed lot
3 and lot 4 to Mr. Dalton Jr.’s father, Arthur Dalton, Sr. (Mr.
Dalton Sr.), for consideration of $1 and subject to the existing
mortgage. 3 Petitioners and Mr. Dalton Sr. executed a nota-
rized assignment and assumption agreement dated April 1,
1983, reflecting the foregoing transaction and Mr. Dalton
Sr.’s assumption of the existing mortgage. The underlying
deed was recorded on May 2, 1983, and the assignment and
assumption agreement was recorded on August 16, 1985. On
February 13, 1983, petitioners filed a declaration of Maine
real estate transfer tax for the transfer of lots 3 and 4 to Mr.
Dalton Sr. 4
Mr. Dalton Sr. acquired lot 5 by deed dated September 24,
1984, and executed a mortgage in favor of the seller. The
deed and mortgage were recorded on October 23, 1984.
Creation of J & J Trust
On April 11, 1985, Mr. Dalton Sr. created the J & J Trust
(trust), naming himself as trustee and designating his two
grandsons, i.e., petitioners’ sons Jonathan Dalton and
Jeremy Dalton, as the beneficiaries. According to the terms
of the trust, the trustee may pay to Jonathan and Jeremy
Dalton a portion of the net income, and/or the principal of
the trust, as the trustee deems appropriate, for their health,
support, education, maintenance, and comfort. The trust
terminates upon the death of the last remaining of Mr.
Dalton Sr., Mr. Dalton Jr., and Mrs. Dalton Jr., with the
remaining principal being divided equally between Jonathan
and Jeremy Dalton, or their then-living issue.
By deeds also dated April 11, 1985, Mr. Dalton Sr. trans-
ferred title to lots 3, 4, and 5 to himself as trustee of the
trust. The deed with respect to lot 3 stated that the premises
were conveyed subject to the 1980 mortgage given by peti-
tioners and assumed by Mr. Dalton Sr. pursuant to the 1983
assignment and assumption agreement. No other consider-
3 Although petitioners refer to this conveyance as occurring during April 1983, the copy of the
notarized deed in the record is dated Jan. 13, 1983. The discrepancy is not further elucidated
in the record but, in any event, has no material impact on the Court’s analysis of the instant
motion.
4 Petitioners claimed that the transfer was exempt from real estate transfer tax. Me. Rev.
Stat. Ann. tit. 36, sec. 4641–C (1990) allows for real estate transfers between parent and child
to be exempt from real estate transfer taxation if the transfer is made without actual consider-
ation.
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396 135 UNITED STATES TAX COURT REPORTS (393)
ation was recited. The three deeds were recorded on August
16, 1985. On October 2, 1985, Mr. Dalton Sr. filed a declara-
tion of Maine real estate transfer tax with regard to the cre-
ation of the trust claiming that the transfer was exempt as
a gift to a trust.
Use of Lots 3, 4, and 5
Jonathan Dalton works as a Navy Seal, living in Virginia
but using the address of the Poland property as his domicile.
Jeremy Dalton works as an emergency medical technician in
Massachusetts but makes regular use of the Poland property.
On September 18, 1993, Mr. Dalton Sr., as trustee of the
trust, and Mrs. Dalton Jr. executed a $50,000 mortgage in
favor of Key Bank of Maine, secured by lots 3 and 4. A
$50,000 home equity line of credit, i.e., loan, was thereby
obtained. Both individuals signed as ‘‘mortgagor’’, and provi-
sions of the mortgage recited that the mortgagor, inter alia,
promised to ‘‘lawfully own the Property’’. Throughout the
administrative and judicial processes pertaining to the
instant case, petitioners have maintained and explained that
Mrs. Dalton Jr. signed the mortgage as a concession to
and at the request of the bank on account of concerns
regarding Mr. Dalton Sr.’s advanced age. The funds were
employed by Mr. Dalton Sr. as trustee to assist Jonathan
Dalton, his grandson and a trust beneficiary, with a boat and
jet-ski rental business in St. Martin, French West Indies,
that was destroyed by a hurricane in the fall of 1993. Since
at least 2000, Key Bank of Maine has reported the mortgage
interest on the 1993 loan as being paid by Mr. Dalton Jr. 5
There is a house (the residence) on the Poland property
which became the retirement home of Mr. Dalton Sr. and his
wife Beatrice Dalton (Mrs. Dalton Sr.). Petitioners and their
sons visited Mr. and Mrs. Dalton Sr. and the Poland prop-
erty. According to petitioners, the Poland property and
related mortgages were maintained and supported before
mid-1997 by Mr. Dalton Sr. and by contributions from family
members, including petitioners, and the trust maintained a
separate bank account for such funds.
During 1996 petitioners’ demolition businesses, operated
by one or more corporations, suffered reversals and failed to
5 Mortgage interest payments are reported on Form 1098, Mortgage Interest Statement.
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(393) DALTON v. COMMISSIONER 397
pay withholding taxes while awaiting payment from a devel-
oper/customer. The developer/customer, however, filed for
bankruptcy, and petitioners’ corporations were unable to con-
tinue business or to pay obligations. Petitioners ‘‘lost almost
everything’’ in the collapse when a third-party lender made
a claim on a guaranty by petitioners. The claim was settled
through the sale of petitioners’ home in Massachusetts, all
net proceeds of which were paid to creditors.
After losing their home in Massachusetts, petitioners
began living in the residence, sharing occupancy with Mr.
and Mrs. Dalton Sr. The joint living arrangement was an
oral agreement requiring petitioners to manage and maintain
the Poland property, pay rent to cover overhead expenses
such as mortgage debt service and property taxes, and pay
directly their costs of occupancy.
On August 11 and September 29, 1997, the Internal Rev-
enue Service (IRS) recorded assessments against petitioners
for trust fund recovery penalties pursuant to section 6672
with respect to employment taxes of petitioners’ corporations
for the June 30 and September 30, 1996, tax periods, respec-
tively. Those assessments totaled $262,163.42.
On September 13, 1999, Mr. Dalton Sr. died. Petitioners
continued to live in the residence with Mrs. Dalton Sr. and
to care for Mrs. Dalton Sr., who suffered from advanced
dementia and Alzheimer’s disease, until she entered an
assisted living facility during 2004. By a document dated
June 8, 2000, Mr. Dalton Jr. appointed Mrs. Dalton Jr.’s
brother Robert Pray (Mr. Pray), who resides in Texas, as suc-
cessor trustee of the trust, and Mr. Pray formally accepted
that appointment. Mr. Pray continued the oral living
arrangement that petitioners had with the trust for the
Poland property. Since his appointment as trustee, Mr. Pray
has held meetings with petitioners three to four times a year
setting rent and planning maintenance, has ensured the
timely filing of tax returns, and has annually visited the
property to ensure that the assets are being protected.
Administrative Proceedings
On or about December 9, 1999, petitioners submitted to
the IRS an offer-in-compromise of $5,000 with respect to the
trust fund recovery penalties referenced above. That offer
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398 135 UNITED STATES TAX COURT REPORTS (393)
was under consideration until rejected by letter dated August
30, 2001, on the principal ground that an acceptable offer
would need to include an ‘‘alter ego’’ interest in the property
of the trust, for a total offer of at least $240,576. 6 Through-
out the process, petitioners sought to supply information and
documentation regarding their income, expenses, serious
health conditions, and lack of employability, and they dis-
puted IRS conclusions with regard to the trust.
By early to mid-2001, Mr. Dalton Jr. and Mr. Pray had
become aware that, since its formation, the trust had not
filed Federal income tax returns. At that time, they met with
petitioners’ certified public accountant (C.P.A.) who prepared
Forms 1041, U.S. Income Tax Return for Estates and Trusts,
for the trust for tax years 1997 through 2000, a practice that
has continued for succeeding years.
By letter dated October 1, 2001, petitioners submitted a
formal protest of the August 30, 2001, denial of their offer-
in-compromise, requesting reconsideration by the IRS Office
of Appeals. The requested review was rejected in a letter
dated March 6, 2003, that explained that review of adminis-
trative files had revealed that petitioners’ protest requesting
an Appeals hearing had not been filed timely. The matter
was effectively dismissed, thereby allowing further collection
activity, as appropriate.
On July 2 and 6, 2004, the IRS issued separately to each
petitioner a Final Notice of Intent To Levy and Notice of
Your Right to a Hearing pertaining to the previously
assessed trust fund recovery penalties and accrued interest
which exceeded $400,000 at that time. In response, peti-
tioners submitted a Form 12153, Request for a Collection
Due Process Hearing, expressing their disagreement. An
extensive attachment chronicled the history of petitioners’
personal circumstances and tax matters, summarizing their
present situation as follows:
Since 1996, the taxpayers have been in contact with the IRS regarding the
satisfaction of this obligation. Mr. Dalton [Jr.] is in his mid 60’s. He is
totally disabled as a result of workplace injuries suffered over time and
resulting arthritis. Mr. Dalton [Jr.] has suffered cardiac problems and has
6 In the Aug. 30, 2001, letter, respondent’s revenue officer referred to petitioners’ interest in
the Poland property as an ‘‘alter ego’’ interest. However, in his motions for summary judgment,
respondent refers to petitioners’ interest as a nominee interest. Accordingly, we need not ad-
dress whether petitioners’ have an ‘‘alter ego’’ interest in the Poland property.
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undergone open chest by-pass surgery. Mr. Dalton [Jr.] has limited
employment options and has been unable to work since 2000. Mrs. Dalton
[Jr.] is in her mid-60’s. Until recently, Mrs. Dalton [Jr.] has been the care-
taker for Mr. Daltons [sic] [Jr.’s] elderly mother who suffers from senile
dementia and other health problems. Mrs. Dalton [Jr.] has been and
remains unemployable. The Daltons have not made enough money in any
year since 1999 to require the filing of federal tax returns. There is no
possibility that they will ever be able to pay the accumulated tax obliga-
tion.
The IRS Office of Appeals collection process was conducted
through an ongoing exchange of correspondence and tele-
phone calls extending until late September 2006. Petitioners’
objective throughout the process was to establish their
entitlement to an offer-in-compromise premised on their cir-
cumstances of financial hardship. The proceeding centered on
whether the Poland property should be attributed to peti-
tioners under a ‘‘nominee’’ theory. During the process, an
advisory opinion was sought and obtained from the IRS Office
of Chief Counsel on the applicability of alter ego or nominee
principles to petitioners’ situation. That opinion considered
various factors derived from Federal caselaw and concluded
that a nominee relationship did exist between petitioners and
the trust. The document also included a paragraph opining
that a reachable interest in trust real estate could be
asserted against petitioners under a ‘‘lien tracing theory,’’ on
the basis of their use of funds for mortgage payments, taxes,
and other property expenses. 7
On October 24, 2006, the IRS Office of Appeals issued to
each petitioner a separate Notice of Determination Con-
cerning Collection Action(s) Under Section 6320 and/or 6330
underlying the instant proceeding. In those notices, the IRS
sustained the levy action on the ground that no acceptable
collection alternatives had been submitted. Attachments to
the notices focused on and explained the determinations in
terms of the need for any collection alternative to incorporate
equity in real estate held by a trust with respect to which
petitioners stood in a nominee relationship.
On November 16, 2006, petitioners filed a petition in this
Court seeking judicial review of the proposed levy action.
7 Although the lien tracing theory appeared in subsequent correspondence before the filing of
the instant case, respondent no longer pursues such a theory.
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400 135 UNITED STATES TAX COURT REPORTS (393)
On April 10, 2007, respondent mailed the trust a Notice of
Federal Tax Lien Filing—Nominee or Alter-Ego. The notice
stated that the trust was identified as the nominee of Mr.
Dalton Jr. 8
On July 6, 2007, respondent filed a motion for summary
judgment on all issues stating that the Appeals Office did not
abuse its discretion in determining that a nominee relation-
ship existed between petitioners and the trust and sustaining
the levy action. On August 29, 2007, petitioners filed an
objection to respondent’s motion for summary judgment.
On July 7, 2008, we issued our prior opinion denying
respondent’s motion for summary judgment and remanding
the case to respondent’s Office of Appeals to consider
whether respondent’s assertion of a nominee interest in the
Poland property is proper, taking into account both a State
law and a Federal factors analysis.
Ms. Russo, the settlement officer who conducted peti-
tioners’ original collection due process hearing, held a supple-
mental hearing with petitioners. Petitioners provided Ms.
Russo with additional information regarding their interest in
the Poland property. Ms. Russo offered petitioners an oppor-
tunity to submit a new offer-in-compromise, and petitioners
declined that offer. Ms. Russo then referred the case to
respondent’s District Counsel’s office for analysis on whether
petitioners have an interest in the Poland property under
Maine law.
The District Counsel’s office performed an analysis of the
issues presented and determined that Maine does not have
developed law regarding nominee ownership. The District
Counsel’s office then concluded that, under Federal nominee
factors, the trust is petitioners’ nominee. 9
On December 1, 2008, Ms. Russo mailed each petitioner a
separate Supplemental Notice of Determination Concerning
Collection Action(s) under Section 6320 and/or 6330 (supple-
mental notice of determination). In the supplemental notice
of determination, Ms. Russo concluded that Maine law was
8 The trust is not a party to the instant case. It is unclear from the record why the trust’s
Notice of Federal Tax Lien Filing—Nominee or Alter-Ego did not include Mrs. Dalton Jr.
9 The District Counsel’s office also concluded that petitioners had an interest in the Poland
property under a lien tracing theory, and, at the very least, a transferee lien exists against the
Poland property based upon the enrichment of the property to the extent of mortgage payments
and other expenses paid by petitioners.
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silent on the nominee issue and she reaffirmed the conclu-
sion that the trust was petitioners’ nominee.
Discussion
As a threshold matter to our analysis, we note that peti-
tioners contest our jurisdiction. Petitioners contend that we
cannot enter a decision which would affect the ownership
interests of the trust because neither the trust nor the
trustee is a party to the current suit.
This Court is a court of limited jurisdiction, and we may
exercise judgment only to the extent authorized by Congress.
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In order to
invoke judicial review of a section 6330 determination, a tax-
payer must be the person liable for the tax under section
6331 and must have received from the IRS a valid notice of
determination based on a section 6330 hearing. See Offiler v.
Commissioner, 114 T.C. 492, 498 (2000); see also Rule 330(b).
Regulations promulgated under section 6330 state that
known nominees or persons holding property of the taxpayer
are not entitled to a collection due process or equivalent
hearing. Sec. 301.6330–1(b)(2), Q&A–B5, Proced. & Admin.
Regs. Individuals not entitled to a section 6330 review are
entitled to other forms of review, including reconsideration
by the IRS office collecting the tax, assistance from the
National Taxpayer Advocate, or an administrative hearing
before the Appeals Office under the Collection Appeals Pro-
gram. Id. Any determination resulting from such reviews,
however, is not subject to judicial review. Id. The taxpayer
for whom a nominee, transferee, or alter ego is holding prop-
erty is entitled to a hearing under section 6330. Sec.
301.6330–1(b)(3), Example, Proced. & Admin. Regs. Failure
to provide a taxpayer with notice of the filing of a levy will
serve as a basis for dismissal. See sec. 6330(a)(1); Kennedy
v. Commissioner, 116 T.C. 255, 261 (2001); see also S & M
Trust No. 1 v. Commissioner, T.C. Memo. 2008–72; Buffano
v. Commissioner, T.C. Memo. 2007–32.
Petitioners are correct that we cannot enter a decision
affecting the trust because the trust is not a party to this
proceeding. 10 See sec. 301.6330–1(b)(3), Example, Proced. &
10 We note that, on Apr. 7, 2007, respondent filed a Notice of Federal Tax Lien Filing—Nomi-
Continued
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402 135 UNITED STATES TAX COURT REPORTS (393)
Admin. Regs. However, that is not what we are called upon
to decide. We must decide whether respondent abused his
discretion in the supplemental notice of determination by
rejecting petitioners’ offer-in-compromise on the basis that
the offer did not include petitioners’ alleged nominee interest
in the Poland property. In doing so, we must decide whether
petitioners have such a nominee interest. Petitioners received
notices sustaining levies against them and timely filed a peti-
tion with this Court. Accordingly, we hold that we have juris-
diction to decide the nominee interest issue as it pertains to
respondent’s rejection of petitioners’ offer-in-compromise on
the basis that the offer did not include petitioners’ alleged
nominee interest in the Poland property.
We next consider whether respondent abused his discretion
in the supplemental notice of determination by rejecting peti-
tioners’ offer-in-compromise on the basis that it did not
include a nominee interest in the Poland property. To do so,
we must decide the following issues: (1) Whether petitioners
have an interest in the Poland property under Maine law;
and (2) whether petitioners have an interest in the Poland
property under a Federal nominee factors analysis.
Rule 121(a) allows a party to move ‘‘for a summary adju-
dication in the moving party’s favor upon all or any part of
the legal issues in controversy.’’ Rule 121(b) directs that a
decision on such a motion shall be rendered ‘‘if the pleadings,
answers to interrogatories, depositions, admissions, and any
other acceptable materials, together with the affidavits, if
any, show that there is no genuine issue as to any material
fact and that a decision may be rendered as a matter of law.’’
The moving party bears the burden of demonstrating that
no genuine issue of material fact exists and that the moving
party is entitled to judgment as a matter of law. Sundstrand
Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d
965 (7th Cir. 1994). Facts are viewed in the light most favor-
able to the nonmoving party. Id. However, where a motion
for summary judgment has been properly made and sup-
ported, the opposing party may not rest upon mere allega-
tions or denials in that party’s pleadings but must by affida-
nee or Alter-Ego, against the trust, but that notice was not filed until after the petition in this
case was filed. That lien is not before the Court in this proceeding.
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(393) DALTON v. COMMISSIONER 403
vits or otherwise set forth specific facts showing that there
is a genuine issue for trial. Rule 121(d).
The parties appear to agree that all of the evidence that
the parties wish the Court to consider is in the record and
that no material facts are in dispute. 11 Accordingly, we con-
clude that the instant case is ripe for summary judgment and
that a trial is not necessary.
As a general rule, section 6331(a) authorizes the Commis-
sioner to levy upon all property and rights to property of a
person where there exists a failure on the part of such person
to pay any tax liability within 10 days after notice and
demand for payment. Sections 6331(d) and 6330 set forth
procedures generally applicable to afford protections for per-
sons in such levy situations. Section 6331(d) establishes the
requirement that the person be provided with at least 30
days’ prior written notice of the Commissioner’s intent to
levy before collection may proceed. Section 6330(a) forbids
collection by levy until the person has received notice of the
opportunity for administrative review of the matter in the
form of a hearing before the IRS Office of Appeals. Section
6330(b) grants a person who makes such a request the right
to a fair hearing before an impartial Appeals officer.
Section 6330(c) addresses the matters to be considered at
the hearing:
SEC. 6330(c). MATTERS CONSIDERED AT HEARING.—In the case of any
hearing conducted under this section—
(1) REQUIREMENT OF INVESTIGATION.—The appeals officer shall at the
hearing obtain verification from the Secretary that the requirements of
any applicable law or administrative procedure have been met.
(2) ISSUES AT HEARING.—
(A) IN GENERAL.—The person may raise at the hearing any relevant
issue relating to the unpaid tax or the proposed levy, including—
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting
of a bond, the substitution of other assets, an installment agree-
ment, or an offer-in-compromise.
11 The U.S. Court of Appeals for the First Circuit, the court to which an appeal of the instant
case would lie, has held that judicial review of nonliability issues under sec. 6330(d) is limited
to the administrative record. See Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006), affg.
125 T.C. 301 (2005). The Tax Court follows the law of the circuit in which an appeal would lie
if that law is on point. Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th
Cir. 1971).
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404 135 UNITED STATES TAX COURT REPORTS (393)
(B) UNDERLYING LIABILITY.—The person may also raise at the
hearing challenges to the existence or amount of the underlying tax
liability for any tax period if the person did not receive any statutory
notice of deficiency for such tax liability or did not otherwise have an
opportunity to dispute such tax liability.
Once the Appeals officer has issued a determination
regarding the disputed collection action, section 6330(d)
allows the person to seek review in the Tax Court. 12 In con-
sidering any relief from the Commissioner’s determination to
which the person may be entitled, this Court has established
the following standard of review:
where the validity of the underlying tax liability is properly at issue, the
Court will review the matter on a de novo basis. However, where the
validity of the underlying tax liability is not properly at issue, the Court
will review the Commissioner’s administrative determination for abuse of
discretion. [Sego v. Commissioner, 114 T.C. 604, 610 (2000).]
Petitioners have not contested respondent’s determination
of their underlying liability. Accordingly, we deem that issue
conceded.
As noted above, section 6331(a) generally authorizes collec-
tion of tax by levy against ‘‘all property and rights to prop-
erty’’ belonging to a person liable for the tax or on which
there is a lien for the payment of such tax. It is well settled
that the foregoing provision ‘‘ ‘is broad and reveals on its face
that Congress meant to reach every interest in property that
a taxpayer might have.’ ’’ Drye v. United States, 528 U.S. 49,
56 (1999) (quoting United States v. Natl. Bank of Commerce,
472 U.S. 713, 719–720 (1985)). Such a lien or levy reaches,
inter alia, to property held by a third party if that third
party is holding the property as a nominee or alter ego of the
delinquent person. G.M. Leasing Corp. v. United States, 429
U.S. 338, 350–351 (1977); Holman v. United States, 505 F.3d
1060, 1065 (10th Cir. 2007); Spotts v. United States, 429 F.3d
248, 251 (6th Cir. 2005). A nominee theory focuses on
whether the taxpayer is the true beneficial owner of the
property on the basis of how the taxpayer treats the prop-
erty. Oxford Capital Corp. v. United States, 211 F.3d 280,
284 (5th Cir. 2000).
12 The Pension Protection Act of 2006, Pub. L. 109–280, sec. 855, 120 Stat. 1019, amended
sec. 6330(d)(1) to provide that for determinations made after Oct. 16, 2006, the Tax Court has
jurisdiction to review the Commissioner’s collection activity regardless of the type of underlying
tax involved.
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However, because the Federal levy statute ‘‘ ‘creates no
property rights but merely attaches consequences, Federally
defined, to rights created under state law’ ’’, applicability of
nominee principles to support a levy turns on a two-part
inquiry. United States v. Natl. Bank of Commerce, supra at
722 (quoting United States v. Bess, 357 U.S. 51, 55 (1958));
see also Drye v. United States, supra at 58 (‘‘We look initially
to state law to determine what rights the * * * [person] has
in the property the Government seeks to reach, then to fed-
eral law to determine whether the taxpayer’s state-delin-
eated rights qualify as ‘property’ or ‘rights to property’ within
the compass of the federal tax lien legislation.’’); Holman v.
United States, supra at 1067; Spotts v. United States, supra
at 251.
The first question is whether, under State law, the person
held an interest or rights in the property sought to be
reached. Holman v. United States, supra at 1067–1068;
Spotts v. United States, supra at 251; May v. A Parcel of
Land, 458 F. Supp. 2d 1324, 1334–1335 (S.D. Ala. 2006),
affd. without published opinion sub nom. May v. United
States, 100 AFTR 2d 2007–6602, 2007–2 USTC par. 50,799
(11th Cir. 2007); United States v. Krause, 386 Bankr. 785,
831 (Bankr. D. Kan. 2008). Upon an affirmative answer, the
evaluation proceeds to the second question of whether the IRS
may reach the interest under Federal law. Holman v. United
States, supra at 1067–1068; Spotts v. United States, supra at
251; May v. A Parcel of Land, supra at 1334–1335; United
States v. Krause, supra at 831.
With respect to the State law question, recent cases have
clarified the centrality of finding a State law interest as a
condition precedent. Holman v. United States, supra at 1067,
1070 (vacating and remanding a case seeking to enforce a
nominee tax lien for the IRS first to establish that the person
held a beneficial interest in the property under State law);
Spotts v. United States, supra at 251, 253–254 (vacating and
remanding a grant of summary judgment for the IRS in a
case seeking removal of a nominee lien because the lower
court did not first consider whether the person had a bene-
ficial interest under State law); May v. A Parcel of Land,
supra at 1334–1335; United States v. Krause, supra at 831.
In that connection, various theories have been used to sup-
port the existence of an interest under State law, depending
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406 135 UNITED STATES TAX COURT REPORTS (393)
upon the jurisdiction and particular facts involved. Examples
include resulting trust doctrines, constructive trust prin-
ciples, fraudulent conveyance standards, and concepts drawn
from State jurisprudence on piercing the corporate veil. See,
e.g., Holman v. United States, supra at 1068 (and cases cited
thereat); Spotts v. United States, supra at 252–253; Criner v.
Commissioner, T.C. Memo. 2003–328; United States v.
Evseroff, 92 AFTR 2d 2003–6987 (E.D.N.Y. 2003) (and cases
cited therein); United States v. Krause, supra at 831 (and
cases cited thereat).
Where State law is undeveloped as to the issue of nominee
ownership, Federal courts have relied on a relatively well-
defined body of Federal common law. Caselaw jurisprudence
has established a series of factors to consider in determining
whether a taxpayer has an existing beneficial interest in
property that is reachable for purposes of satisfying Federal
tax liabilities under the theory that the property is held by
a nominee of the delinquent taxpayer. Commonly cited cri-
teria include: (1) Whether the nominee paid no consideration
or inadequate consideration for the property and/or whether
the taxpayer expended personal funds for the nominee’s
acquisition; (2) whether property was placed in the nominee’s
name in anticipation of a suit or the occurrence of liabilities;
(3) whether a close personal or family relationship existed
between the taxpayer and the nominee; (4) whether the
conveyance of the property was recorded; (5) whether the
taxpayer retained possession of, continued to enjoy the bene-
fits of, and/or otherwise treated as his or her own the trans-
ferred property; (6) whether the taxpayer after the transfer
paid costs related to maintenance of the property (such as
insurance, tax, or mortgage payments); (7) whether, in the
case of a trust, there were sufficient internal controls in place
with respect to the management of the trust; and (8)
whether, in the case of a trust, trust assets were used to pay
the taxpayer’s personal expenses. E.g., Holman v. United
States, supra at 1065 n.1; Spotts v. United States, supra at
253 n.2; Loving Saviour Church v. United States, 728 F.2d
1085, 1086 (8th Cir. 1984); May v. A Parcel of Land, supra
at 1338; United States v. Dawes, 344 F. Supp. 2d 715, 721
(D. Kan. 2004), affd. 161 Fed. Appx. 742 (10th Cir. 2005);
United States v. Krause, supra at 831.
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(393) DALTON v. COMMISSIONER 407
For purposes of the second inquiry, Federal law determines
whether the State-created interests are property or rights to
property under section 6331. Drye v. United States, 528 U.S.
at 52. Even though certain interests may not be reached by
creditors under State law, the language in section 6331 is
broad and is meant to reach every interest in property that
a taxpayer might have. See, e.g., Drye v. United States, supra
(holding that a right to disclaim an inheritance represents a
interest subject to Federal tax lien); United States v. Natl.
Bank of Commerce, 472 U.S. at 730 (holding that a tax-
payer’s right to withdraw the entire proceeds from a joint
bank account constitutes ‘‘property’’ or ‘‘rights to property’’
subject to Federal income tax levy even though it could not
be reached by creditors under State law); 21 W. Lancaster
Corp. v. Main Line Rest., Inc., 790 F.2d 354, 357–358 (3d Cir.
1986) (although a liquor license did not constitute under
State law ‘‘property’’ subject to execution by a judgment
holder or subject to a security interest under the Uniform
Commercial Code, it was nevertheless ‘‘property’’ subject to
Federal tax lien).
As stated above, pursuant to our prior opinion, we
remanded the instant case to respondent’s Appeals Office to
consider Maine law as well as a Federal factors analysis.
We next consider Maine law. As stated above, a taxpayer
must have an interest in property under State law in order
for the IRS to properly levy on the property pursuant to sec-
tion 6331. Respondent contends that Maine law is silent with
regard to the nominee doctrine. 13 However, as we noted
supra pp. 405–406, several courts have considered State law
variants of the nominee doctrine even though that law is not
specifically called ‘‘nominee law’’ in deciding whether a levy
is valid under section 6331. See Spotts v. United States,
supra at 253 (opining that ‘‘Kentucky does have law that pro-
vides guidance on nominee theory, though it discusses the
theory using the term ‘constructive trust’ ’’); Scoville v.
13 Keefer v. Keefer, No. Civ.A. RE–03–001, 2004 WL 1598713, at *6 (Me. Super. Ct. June 28,
2004) (quoting Black’s Law Dictionary (5th ed. 1979)), defines a nominee as someone who is
‘‘designated to act for another as his representative in a rather limited sense. It is used some-
times to signify an agent or trustee. It has no connotation, however, other than that of acting
for another, in representation of another, or as the grantee of another.’’
However, in that case, the court was discussing nominee principles pursuant to California law.
See Keefer v. Keefer, supra at *6.
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408 135 UNITED STATES TAX COURT REPORTS (393)
United States, 250 F.3d 1198, 1202 (8th Cir. 2001) (looking
to Missouri law of fraudulent conveyance for purposes of
evaluating State standards for nominee liability); May v. A
Parcel of Land; 458 F. Supp. 2d at 1337 n.22 (‘‘the under-
signed will accord no talismanic significance to the magic
words ‘nominee doctrine,’ nor will it infer from their absence
that Alabama authorities fail to recognize a theory akin to
that which federal courts have labeled ‘nominee doctrine’ ’’);
United States v. Stinson, 386 F. Supp. 2d 1207, 1218 (W.D.
Okla. 2005) (looking at Oklahoma fraudulent conveyance
principles in evaluating nominee argument). Accordingly, we
will consider Maine law, as we interpret it, to decide whether
the trust is a nominee of petitioners and whether petitioners,
following their transfers of lots 3 and 4 to Mr. Dalton Sr.,
and his transfers of those lots, together with lot 5, to the
trust, retained an interest in the Poland property that may
be reached by respondent’s levy.
In Maine the existence of a contract is a question of fact
to be determined by the finder of fact. Sullivan v. Porter, 861
A.2d 625, 631 (Me. 2004).
A contract exists if the parties mutually assent to be bound by all its mate-
rial terms, the assent is either expressly or impliedly manifested in the
contract, and the contract is sufficiently definite to enable the court to
ascertain its exact meaning and fix exactly the legal liabilities * * *
The essential terms for a contract to sell land include the
identification of the property, the parties to the sale, the pur-
chase price, the amount of downpayment, and the financing.
Id. The Maine statute of frauds requires a contract for the
sale of land to be in writing, signed by the party to be
charged. Me. Rev. Stat. Ann. tit. 33, sec. 51(4) (1999). In a
contract for the sale of land, the consideration does not need
to be expressed in the contract. Id. Additionally, the transfer
of title requires a manual transfer of a deed and an intent
to pass title between a grantor and a grantee. Estate of
Deschenes, 818 A.2d 1026, 1029 (Me. 2003). When there is a
physical transfer of possession of the deed from one party to
another, a presumption arises that both parties intended the
transfer of title in accordance with the terms of the deed. Id.at 1029–1030. ‘‘A grantee’s failure to record a deed does not
rebut the presumption of delivery.’’ Id. at 1030.
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(393) DALTON v. COMMISSIONER 409
On January 13, 1983, petitioners agreed to sell lots 3 and
4 to Mr. Dalton Sr. for $1 subject to an existing mortgage.
According to the deed and the assignment and assumption
agreement, petitioners transferred their entire interest in
lots 3 and 4. As stated above, Maine law does not require the
consideration in a land sale contract to be expressed in the
contract. Me. Rev. Stat. Ann. tit. 33, sec. 51(4). Mr. Dalton
Sr.’s consideration was the assumption of the mortgage on lot
3 of the Poland property. That consideration was memorial-
ized in an agreement dated April 1, 1983. Additionally, the
contract identified the parties to the sale, the land, and the
purchase price; i.e., the assumption of an existing mortgage.
Both parties signed the deed that transferred lots 3 and 4.
Accordingly, petitioners and Mr. Dalton Sr. mutually
assented to the 1983 contract, their assent was expressly
manifested, and the 1983 contract was sufficiently definite to
enable a court to ascertain its exact meaning and fix exactly
the legal liabilities. See Sullivan v. Porter, supra at 631.
Moreover, while recordation occurred on May 2, 1983, the
delivery of the deed and the contract are evidence of a phys-
ical transfer of title and an intent to transfer title from peti-
tioners to Mr. Dalton Sr. Therefore, the transfer extinguished
petitioners’ legal title in lots 3 and 4 as of the date of
transfer.
In arguing that petitioners retained a nominee ownership
interest in lots 3 and 4 under Federal common law,
respondent contends that petitioners retained an interest
because, among other things, they paid the purchase money.
As stated above, petitioners originally purchased lots 3 and
4. Lot 3 was secured by a mortgage. There is no mention of
a mortgage or other encumbrance on lot 4. Accordingly, we
will assume that petitioners purchased lot 4 without a loan,
or other debt obligation. Following the contribution of the
Poland property to the trust, the mortgages on lot 3 and lot
5 were maintained by Mr. Dalton Sr., with contributions
from Mr. Dalton Jr. and other family members. During 1997
petitioners moved into the residence on the Poland property
and subsequently paid rent that covered overhead expenses,
including mortgage expenses, property taxes, and utilities,
and their costs of occupancy.
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410 135 UNITED STATES TAX COURT REPORTS (393)
Under Maine law:
A resulting trust arises by implication of law when the purchase money
is paid by one person out of his own money, and the land is conveyed to
another. * * * It may be paid for him by the trustee. * * * The trust
arises from the circumstance that the money of the real purchaser, and not
of the grantee in the deed, formed the consideration of the purchase. * * *
Murphy v. United States, 83 AFTR 2d 99–1167, at 99–1170 (D.
Me. 1999); Wood v. Le Goff, 121 A.2d 468, 469–470 (Me.
1956); Herlihy v. Coney, 59 A. 952, 952–953 (Me. 1905). In
those situations, the grantee holds the property in trust for
the benefit of the person who paid the purchase price. See
Wood v. LeGoff, supra; Herlihy v. Coney, supra; see also 1
Restatement, Trusts 3d, sec. 9 (2003). However, where the
transferee is a spouse, descendant, or other natural object of
the bounty of the person who paid the purchase price, a gift
is presumed. Greenberg v. Greenberg, 43 A.2d 841, 842 (Me.
1945); 1 Restatement, supra sec. 9(2). 14 Additionally, evi-
dence to establish a resulting trust under Maine law must be
‘‘ ‘the most satisfactory and convincing evidence’ ’’ because the
creation of a resulting trust is ‘‘ ‘in defiance of the statute of
frauds [and] subversive of paper title.’ ’’ Murphy v. United
States, supra at 99–1170 (quoting Anderson v. Gile, 78 A.
370, 371 (Me. 1910)).
The funds for the purchase of lot 3 were furnished by peti-
tioners, and we conclude that the transfer of lot 3 was
intended as a gift to Mr. Dalton Sr. The mortgage payments
on lot 4 were paid by petitioners, and we conclude that the
payments were a gift to Mr. Dalton Sr. each time petitioners
paid the mortgage. As Mr. Dalton Sr. is Mr. Dalton Jr.’s
father, their familial relationship makes it probable that
petitioners would make a gift of the property to Mr. Dalton
Sr., as opposed to a resulting trust in Mr. Dalton Jr.’s favor
for lots 3 and 4. We conclude from the record that the trans-
fers were gifts to Mr. Dalton Sr. See Wood v. LeGoff, supra
at 470 (‘‘It does not matter in this case whether a consider-
ation passed for the deed given * * *. If no consideration
[passed,] the conveyance was a gift’’). Our conclusion is in
14 Maine courts have held that, where the transfer is to a spouse or from a parent to a child,
a gift is presumed. See Greenberg v. Greenberg, 43 A.2d 841, 842 (Me. 1945); Danforth v. Briggs,
36 A. 452 (Me. 1896); Wentworth v. Shibles, 36 A. 108, 109 (Me. 1896); Long v. McKay, 24 A.
815 (Me. 1892). Maine courts have not addressed whether the presumption of a gift extends to
other relatives of the person who paid the purchase price.
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(393) DALTON v. COMMISSIONER 411
accord with petitioners’ statement attached to Form 12153,
that lots 3 and 4 were ‘‘acquired originally for the benefit of
Mr. Daltons’ [sic] [Jr.] father and mother.’’
Respondent cites Cody v. United States, 348 F. Supp. 2d
682 (E.D. Va. 2004), for the proposition that the doctrine of
resulting trust does not properly reach the nominee issue in
this case. In Cody, the court noted that Virginia law recog-
nized the doctrine of resulting trust; however, the court
declined to apply the resulting trust doctrine because the
plaintiffs argued ‘‘only for the existence of an express trust.’’
Id. at 692. The court also noted that a resulting trust would
not arise because Cody involved a parent paying for the prop-
erty of a child, which would result in the presumption of a
gift. Id. at 692 n.10. Accordingly, our conclusion that the
transfer of lots 3 and 4 is a gift is consistent with Cody.
Maine law could also, under certain circumstances, set
aside the transfer of lots 3 and 4 under the law of fraudulent
conveyances. See Me. Rev. Stat. Ann. tit. 14, secs. 3571–3582
(2003); see also Scoville v. United States, 250 F.3d at 1202(looking to Missouri law of fraudulent conveyance for pur-
poses of evaluating State standards for nominee liability).
Because respondent was not a creditor in 1983 at the time
of the transfer from petitioners to Mr. Dalton Sr., we will
analyze respondent’s position as a future creditor under
Maine law. 15 A transfer is fraudulent as to a creditor,
whether the creditor’s claim arose before or after the transfer
was made, if the debtor made the transfer:
A. With actual intent to hinder, delay or defraud any creditor of the
debtor; or
B. Without receiving a reasonably equivalent value in exchange for the
transfer or obligations and the debtor:
(1) Was engaged or was about to engage in a business or a transaction for
which the remaining assets of the debtor were unreasonably small in rela-
tion to the business or transaction; or
(2) Intended to incur, or believed or reasonably should have believed that
he would incur, debts beyond his ability to pay as the debts became due.
[Me. Rev. Stat. Ann. tit. 14, sec. 3575(1).16]
15 Maine law allows both present and future creditors to set aside fraudulent conveyances. Me.
Rev. Stat. Ann. tit. 14, secs. 3571–3582 (2003).
Respondent does not contend that the transfers in 1983 were fraudulent as to other creditors.
16 Me. Rev. Stat. Ann. tit. 14, sec. 3575(1) applies not only to transfers made but also to obli-
gations incurred by a debtor.
Continued
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412 135 UNITED STATES TAX COURT REPORTS (393)
When determining actual intent, consideration is 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
sued or was threatened with suit;
E. The transfer was of substantially all of 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;
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; and
K. The debtor transferred the essential assets of the business to a lienor
who had transferred the assets to an insider of the debtor.
[Id. sec. 3575(2).]
Subsection (1)(B)(1) allows future creditors to recover when
a transfer for inadequate value leaves the debtor’s business
inadequately capitalized. Id. sec. 3575, Me. cmt. 2. Sub-
section (1)(B)(2) does not require proof of fraudulent intent,
but it does require proof that the debtor intended to incur
debts beyond his ability to pay or reasonably should have
believed that he would incur such debts. Id. Me. cmt. 3.
We concluded above that the transfer of lots 3 and 4 was
a gift to Mr. Dalton Sr. The deeds showing the transfer of
lots 3 and 4 were recorded within 4 months after the
transfer. At that time, petitioners had not been sued or
threatened with suit, and there is no evidence that the
Me. Rev. Stat. Ann. tit. 14, sec. 3576 applies only to present creditors of the debtor. According
to Me. Rev. Stat. Ann. tit. 14, sec. 3576(2):
A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer
was made if the transfer was made to an insider for an antecedent debt, the debtor was insol-
vent at that time and the insider had reasonable cause to believe that the debtor was insolvent.
However, we do not evaluate the transfers in the instant case as transfers to an insider pursu-
ant to Me. Rev. Stat. Ann. tit. 14, sec. 3576(2), because respondent was a future creditor at the
time of the transfer.
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(393) DALTON v. COMMISSIONER 413
transfer was made to hide assets from creditors; the deeds
were publicly recorded. The record does not show that peti-
tioners concealed assets, were insolvent at the time of the
transfer, or became insolvent as a result of the transfer. We
conclude from the record that the transfer of lots 3 and 4 to
Mr. Dalton Sr. was not made with fraudulent intent.
Additionally, we conclude on the basis of the record that,
at the time of the transfer, petitioners did not intend to incur
debts beyond their ability to pay. Indeed, the Federal income
tax liability in question accrued 13 years after the transfer
of lots 3 and 4. On the basis of the record, we hold that peti-
tioners did not fraudulently convey lots 3 and 4.
Following the acquisition of lots 3 and 4, Mr. Dalton Sr.
acquired lot 5 on September 24, 1984, from an unrelated
third party. The deed to lot 5 and a mortgage in favor of the
seller were recorded on October 23, 1984. Petitioners did not
control lot 5 before it was transferred to the trust. Moreover,
lot 5 was not included in the 1993 mortgage agreement in
which Mrs. Dalton Jr. indicated that she was a joint owner
with Mr. Dalton Sr. of lots 3 and 4. We assume, for purposes
of the instant motion, that petitioners paid for lot 5 and, as
with lots 3 and 4, that petitioners made a gift to Mr. Dalton
Sr. of lot 5 when it was transferred to him. See Greenberg
v. Greenberg, 43 A.2d at 842; 1 Restatement, supra sec. 9(2).
Moreover, even if the transfer of lot 5 was a gift, petitioners
retained no interest in lot 5 immediately following the
transfer by Mr. Dalton Sr. to the trust. 17 See Cody v. United
States, 348 F. Supp. at 692 n.10.
Mr. Dalton Sr. contributed the Poland property to the trust
on April 11, 1985. 18 As stated above, the trust was set up
to hold the property for the benefit of Mr. Dalton Sr.’s
grandsons; i.e., petitioners’ children, Jonathan and Jeremy
Dalton. We will next analyze whether Mr. Dalton Sr. created
a beneficial ownership interest for petitioners in the Trust to
which the levy under section 6331 could attach.
17 Petitioners’ gift of funds for lot 5 to Mr. Dalton Sr. is subject to a fraudulent conveyance
analysis similar to that of the transfers of lots 3 and 4. The record does not show that as a
result of the gift of lot 5 petitioners concealed assets, were insolvent, or intended to incur debts
beyond their ability to pay. Similarly, we conclude that petitioners’ gift of funds for the purchase
of lot 5 was not a fraudulent conveyance.
18 Analysis under the law of fraudulent conveyances is not applicable to Mr. Dalton Sr.’s con-
tribution of the Poland property to the trust. See Me. Rev. Stat. Ann. tit. 14, sec. 3575 (‘‘if the
debtor made the transfer’’).
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414 135 UNITED STATES TAX COURT REPORTS (393)
A trust may be created by a transfer of property, declara-
tion, or exercise of a power of appointment in favor of a
trustee. Me. Rev. Stat. Ann. tit. 18–B, sec. 401 (Supp.
2009). 19 According to the Maine Uniform Trust Code, a trust
is created only if:
A. The settlor has capacity to create a trust
B. the settlor indicates an intention to create the trust
C. the trust has a definite beneficiary * * *
* * * * * * *
D. the trustee has duties to perform; and
E. the same person is not the sole trustee and sole beneficiary.
Id. sec. 402; Estate of Fournier, 902 A.2d at 853. Maine also
requires the intention to create a trust. Me. Rev. Stat. Ann.
tit. 18–B, sec. 402, Me. cmt. (citing Gower v. Keene, 93 A.
546, 547 (Me. 1915) (‘‘to create a trust the acts or words
relied upon must be unequivocal, implying that the person
holds the property as trustee for another’’)).
The three deeds effecting the transfer of lots 3, 4, and 5
to the trust were transferred on April 11, 1985, and recorded
on August 16, 1985. Mr. Dalton Sr. unequivocally indicated
his intention to create a trust by a deed conveying the land
to himself as trustee for the benefit of his grandsons, and by
memorializing his intent in the trust agreement. Mr. Dalton
Sr.’s duties as trustee included maintaining the trust corpus
for the benefit of his grandsons. Additionally, Mr. Dalton Sr.
is not a beneficiary of the trust. Accordingly, we conclude
that Mr. Dalton Sr. created a valid express trust pursuant to
the Maine Uniform Trust Code.
Under the trust agreement, petitioners do not have any
right to any of the corpus of the validly created trust; they
are not express or implied beneficiaries of the trust. Mr.
Dalton Jr. became the trustee of the trust before the appoint-
ment of Mr. Pray as trustee. 20 As trustee, Mr. Dalton Jr.
19 Maine adopted the Uniform Trust Code in 2003 with an effective date of July 1, 2005. Me.
Rev. Stat. Ann. tit. 18–B, sec. 1103 (Supp. 2009). The Maine Uniform Trust Code applies to all
trusts created on, after, or before July 1, 2005, and all judicial proceedings concerning trusts
commenced after July 1, 2005. Me. Rev. Stat. Ann. tit. 18–B, sec. 1104 (Supp. 2009). Pursuant
to the Trust Agreement, Maine law is the governing law. As the instant proceeding is one com-
menced after July 1, 2005, regarding a Maine express trust, the Maine Uniform Trust Code ap-
plies.
20 Per the trust agreement, Mr. Dalton Jr. became trustee upon Mr. Dalton Sr.’s death. Re-
spondent contends that Mr. Pray was appointed trustee during 2001, while petitioners contend
that Mr. Pray was appointed trustee during 1999. According to Mr. Pray’s affidavit, he was ap-
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(393) DALTON v. COMMISSIONER 415
would have only legal title, not beneficial title. A nominee
interest is essentially equivalent to a beneficial interest. See
Oxford Capital Corp. v. United States, 211 F.3d at 284 (‘‘ ‘A
nominee theory involves the determination of the true bene-
ficial ownership of property.’ ’’ (quoting Elliot, Federal Tax
Collections, Liens, and Levies, par. 9.10[2] (2d ed. 2000))).
Jonathan Dalton and Jeremy Dalton are the named bene-
ficial interest holders in the Poland property; i.e., they are
the express beneficiaries of the Trust. Petitioners’ oral
arrangement to live in the residence, which began in 1997,
subjects them to rental payments to the owners of the bene-
ficial interest. However, the oral agreement does not create
in petitioners an express or implied beneficial interest in the
Trust. Whether or not the act of living on the trust property
may appear to create a form of beneficial interest, we con-
clude that it did not create such an interest since petitioners
paid rent in the form of payments for mortgage debt service,
property taxes, maintenance, and costs of occupancy and also
cared for Mr. and Mrs. Dalton Sr. Additionally, the appoint-
ment of Mr. Dalton Jr. as trustee does not create property or
a right to property to which the section 6331 levy could
attach. On the basis of the record, we conclude that peti-
tioners do not have a beneficial interest in the Poland prop-
erty held in the trust.
We now consider the Federal factors in our analysis. As we
stated in our prior opinion, when State law is undeveloped 21
on the nominee theory, Courts have turned to a series of fac-
tors to determine whether a taxpayer has an interest in
property or rights to property that may be attached by a
creditor of the taxpayer. See Dalton v. Commissioner, T.C.
Memo. 2008–165. As stated above, those criteria include: (1)
Whether no consideration or inadequate consideration was
paid for the property by the property title holder (nominee)
pointed trustee during 2000 and this was formalized in writing on June 8, 2000. We conclude
on the basis of Mr. Pray’s affidavit that he was appointed trustee during early 2000.
Mr. Pray’s affidavit was attached to petitioners’ objection to respondent’s original motion for
summary judgment. In our prior opinion, we declined to rule on that motion and, instead, re-
manded the instant case to respondent’s Office of Appeals to consider Maine law and a Federal
factors analysis. At that point, the affidavit became part of the administrative record and is
properly before us now.
21 We do not believe that Maine law is undeveloped on the nominee theory. Indeed, our anal-
ysis above is based upon the analysis we believe Maine courts would undertake to determine
whether petitioners held a nominee interest. However, as this issue is less than clear, we will
also consider the Federal factors analysis in reaching our conclusion.
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416 135 UNITED STATES TAX COURT REPORTS (393)
and/or whether the taxpayer expended personal funds for the
nominee’s acquisition; (2) whether property was placed in the
nominee’s name in anticipation of a suit or the occurrence of
liabilities; (3) whether a close personal or family relationship
existed between the taxpayer and the nominee; (4) whether
the conveyance of the property was recorded; (5) whether the
taxpayer retained possession of, continued to enjoy the bene-
fits of, and/or otherwise treated as his or her own the trans-
ferred property; (6) whether the taxpayer after the transfer
paid costs related to maintenance of the property (such as
insurance, tax, or mortgage payments); (7) whether, in the
case of a trust, there were sufficient internal controls in place
with respect to the management of the trust; and (8)
whether, in the case of a trust, trust assets were used to pay
the taxpayer’s personal expenses. E.g., Holman v. United
States, 505 F.3d at 1065 n.1; Spotts v. United States, 429
F.3d at 253 n.2; Loving Saviour Church v. United States, 728
F.2d at 1086; May v. A Parcel of Land, 458 F. Supp. 2d at
1338; United States v. Dawes, 344 F. Supp. 2d at 721; United
States v. Krause, 386 Bankr. at 831.
In examining the above-stated factors, the overarching
issue is whether and to what degree the person generally
exercises control over the nominee and assets held thereby.
E.g., May v. A Parcel of Land, supra at 1338 (and cases cited
thereat). As phrased in one recent case: ‘‘The ultimate
inquiry is whether the * * * [person] has engaged in a legal
fiction by placing legal title to property in the hands of a
third party while actually retaining some or all of the bene-
fits of true ownership.’’ Holman v. United States, supra at
1065. No one factor is decisive in the cases involving the
nominee theory. Turk v. IRS, 127 F. Supp. 2d 1165, 1168 (D.
Mont. 2000). The ultimate inquiry requires consideration of
all of the facts and circumstances to determine the true
beneficial owner of the property. Spotts v. United States,
supra at 253 n.2.
Courts also must be cognizant of letting a close relation-
ship take precedence over all of the other factors. However,
a close relationship between grantor and grantee does not
necessarily make the grantee the grantor’s nominee. Turk v.
IRS, supra at 1168. Courts also must be aware of taxpayers’
legitimate decisions regarding title to the property. Spotts v.
United States, supra at 253 n.2.
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(393) DALTON v. COMMISSIONER 417
The Poland property was not placed in Mr. Dalton Sr.’s
name in anticipation of a specific suit or the occurrence of
certain liabilities. As we concluded above, the transfer of the
Poland property was a gift. The record does not show that
petitioners’ motive in transferring the Poland property was to
evade creditors. Petitioners gave the Poland property
to Mr. Dalton Sr. nearly 11 years before the tax liability to
respondent arose. We conclude that petitioners’ transfers to
Mr. Dalton Sr. were not made in anticipation of a specific
suit or certain liabilities in the future and, therefore, were
not made in anticipation of the liabilities in issue.
A close relationship did exist between petitioners and Mr.
Dalton Sr.; Mr. Dalton Sr. was the father of Mr. Dalton Jr.
Mr. Dalton Jr. served as the contractor for the expansion of
the home on the Poland property and paid some of the bills.
Several courts have warned against allowing the close-rela-
tionship factor to overinfluence the Federal factors analysis.
See United States v. Swan, 467 F.3d 655, 658 (7th Cir 2006)
(‘‘transactions among friends or even relatives are not
presumptively fishy—they minimize information and broker-
age costs’’); Spotts v. United States, 429 F.3d at 253 n.2 (cau-
tioning that rigid adherence to the Federal factors may not
be appropriate in every case); Turk v. IRS, supra at 1168
(warning against allowing the close-relationship factor to pre-
empt each of the other categories); see also Hoffer et al., ‘‘To
Pay or Delay: The Nominee’s Dilemma Under Collection Due
Process’’, 82 Tul. L. Rev. 781, 810 (2008) (noting that the
Federal factors analysis is difficult to apply when the delin-
quent taxpayer and the accused nominee are members of the
same family). Moreover, at the time of the transfer, there
was little reason to infer that petitioners made the transfers
to Mr. Dalton Sr. for the purpose of defeating respondent’s
claims. We have considered the close relationship factor, but
conclude that the other factors outweigh the relationship.
The transfers of the Poland property to Mr. Dalton Sr. and
then to the trust were properly recorded. Lots 3 and 4 were
transferred by deed to Mr. Dalton Sr. on January 13, 1983,
and the deed was recorded May 2, 1983. The deed by which
Mr. Dalton Sr. acquired lot 5 was dated September 24, 1984,
and recorded on October 23, 1984. The assignment and
assumption agreement was signed on April 1, 1983, and was
recorded on August 16, 1985. Respondent points to the delay
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418 135 UNITED STATES TAX COURT REPORTS (393)
in the recording of the assignment and assumption agree-
ment as evidence of improper intent. However, we conclude
that the delay in recording of the assignment and assump-
tion agreement is not material as the deed to lots 3 and 4
recorded on May 2, 1983, would have provided notice to
respondent of the original transfer from petitioners to Mr.
Dalton Sr. Additionally, long before petitioners’ tax debt to
respondent arose, the assignment and assumption agreement
had been recorded. We also note that the deeds placing the
Poland property in trust were recorded in 1985, nearly 11
years before the liability in the instant case arose. Under
Maine law, the failure to record a deed does not render a
transfer void; the delivery of the deed is still sufficient to
transfer the property. Estate of Deschenes, 818 A.2d at 1030.
As noted above, the deeds for all transfers were both deliv-
ered and recorded. 22 We also note that petitioners and Mr.
Dalton Sr. filed declarations of Maine real estate transfer
taxation with regard to each questioned transaction. Accord-
ingly, we conclude that the deeds conveying the Poland prop-
erty were recorded within a reasonable time after the convey-
ances were accomplished and well before the liability to
respondent arose.
Petitioners’ treatment of the Poland property raises con-
cerns that they have treated it as their own. Petitioners live
at the residence, pay for maintenance of the residence, and
have no written lease regarding their living arrangement.
The Forms 1098 issued by Key Bank regarding the mortgage
on lots 3 and 4 list petitioners as the owners. Mrs. Dalton
Jr. listed herself as an owner of lots 3 and 4 when she co-
signed the 1993 loan from Key Bank for Mr. Dalton Sr. Mr.
Dalton Jr. served as trustee of the trust and listed himself
as owner of the Poland property for building permits
obtained in 1989, 1990, and 2003. Additionally, respondent
contends that petitioners unsuccessfully attempted to claim a
homestead exemption for the Poland property. 23
Notwithstanding the foregoing concerns, we note that, as
to petitioners’ residing at the residence, they did not move
there until 1997, a year after the trust fund tax liability
22 We
note that respondent does not contest that the deeds were delivered and recorded.
23 According
to respondent, Mrs. Dalton Jr. requested a homestead exemption for the Poland
property because petitioners have paid the real estate taxes. According to Ms. Russo, the asses-
sor denied Mrs. Dalton Jr.’s request because the Poland property was the property of the trust.
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(393) DALTON v. COMMISSIONER 419
arose and after they experienced financial difficulty. Peti-
tioners did not live at the residence from the time they trans-
ferred lots 3 and 4 to Mr. Dalton Sr. until 1997. From 1997
to 1999 petitioners lived in the residence with the trustee,
subject to an oral lease. The oral agreement required peti-
tioners to pay the costs of mortgage debt service, property
taxes, maintenance, and their costs of occupancy. In addition
to cash payments of rent to the trust, petitioners cared for
Mr. and Mrs. Dalton Sr. 24 The current trustee continues the
oral agreement for petitioners to live in the residence.
Respondent disputes whether the rent payments are market
rate and whether possible benefits may be accruing to the
trustee instead of the trust. However, we note that, while
below-market rents and improper personal benefits to the
trustee potentially may be issues between the trustee and
the beneficiaries as a breach of fiduciary duty, Me. Rev. Stat.
Ann. tit. 18–A, sec. 7–703 (Supp. 2009); id. tit. 18–B, sec.
1001; see also In re Estate of Stowell, 595 A.2d 1022, 1025
(Me. 1991), they do not necessarily require a finding of a
nominee interest.
As to the 1993 loan and the associated Form 1098 state-
ments from Key Bank of Maine, Mrs. Dalton Jr.’s affidavit
states that she signed the mortgage at the request of the
lender who knew that the Poland property was owned by the
trust but was concerned about the trustee’s age. The mort-
gage was recorded in 1993, approximately 3 years before the
tax liability in issue arose. Moreover, the proceeds of the
mortgage were used to assist Jonathan Dalton, a trust bene-
ficiary, with his Caribbean rental business. 25 On their 2005
Federal income tax return submitted to respondent’s Office of
Appeals, petitioners did not claim the mortgage interest as
an itemized deduction. 26 Additionally, while petitioners may
have attempted to claim a homestead exemption, they were
not allowed the exemption by the local tax authority because
the trust was the owner of the property.
24 We note that Mr. Dalton Sr. died on Sept. 13, 1999. Mrs. Dalton Sr. suffered from advanced
dementia and Alzheimer’s disease and was moved from the residence to an assisted living facil-
ity in 2004.
25 Art. II of the trust agreement allows Mr. Dalton Sr. to use portions of the net income and/
or principal of the trust for the health, support, education, maintenance, and comfort of the
beneficiaries.
26 In their attachment to Form 12153, filed during 2004, petitioners claimed not to have made
enough money since 1999 to require the filing of a Federal income tax return.
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420 135 UNITED STATES TAX COURT REPORTS (393)
Accordingly, we conclude, weighing both positive and nega-
tive aspects, that petitioners’ treatment of the Poland prop-
erty is neutral as a factor in considering whether the trust
is petitioners’ nominee.
The record on internal controls of the trust is similarly
unclear. Mr. Dalton Jr. became trustee upon the death of Mr.
Dalton Sr. Mr. Dalton Jr. also had the power to appoint the
successor trustee upon the death of Mr. Dalton Sr. Mrs.
Dalton Jr.’s brother, Mr. Pray, became trustee in early
2000. 27 The trust did not file any tax returns until 2001,
when Mr. Pray raised the issue with petitioners’ C.P.A.
Respondent also notes that, while petitioners contend that
they write a check each month to the trust to cover rent, the
record lacks evidence of such payments. Mrs. Dalton Jr. also
has access to the trust’s bank account and has issued checks
on behalf of the trust.
Several factors suggest a respect for internal controls. The
appointment of Mr. Pray shows a respect for trust formali-
ties. Indeed, the trust had a trustee other than petitioners
during most of its existence. Mr. Dalton Jr.’s time as trustee
does not create a nominee interest merely because a trustee
holds legal title, as opposed to a beneficial interest. See, e.g.,
Drye v. United States, 528 U.S. at 59 n.6 (‘‘ ‘a taxpayer must
have a beneficial interest in any property subject to the lien’ ’’
(quoting ‘‘Note, Property Subject to the Federal Tax Lien’’, 77
Harv. L. Rev. 1485, 1491 (1964))). Mr. Pray’s sworn affidavit
states that he communicates with petitioners three to four
times a year regarding budgeting and planning and visits the
property at least once a year. The existence of a trust bank
account and the filing of trust tax returns, while belated, also
suggest a respect for trust formalities and internal controls.
As to breaches of fiduciary duty by the trustee, failure to
abide by the terms of a trust by a trustee does not render
the trust invalid. Instead, the trustee potentially could be in
breach of his fiduciary duty and liable for damages caused by
the breach. See Me. Stat. Ann. tit. 18–B, sec. 1001; see also
United States v. Greer, 383 F. Supp. 2d 861, 869 (W.D.N.C.
2005) (failure to file a tax return as required under the terms
of the trust agreement would be a breach of fiduciary duty,
but would not cause the trust to fail), affd. 182 Fed. Appx.
27 This appointment as trustee was formalized in writing in June 2000.
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(393) DALTON v. COMMISSIONER 421
198 (4th Cir. 2006). Finally, we note that petitioners, even
though Mrs. Dalton Jr. had access to the trust bank account,
did not use trust assets to pay personal expenses.
Considering all of the facts and circumstances surrounding
the Poland property, we conclude that petitioners’ treatment
of the trust property is insufficient to create a nominee
interest. The trust was validly created, pursuant to Maine
law. All of the transfers of the Poland property occurred and
were recorded at least 10 years before the liability in ques-
tion arose. It was not until after the liability arose that peti-
tioners moved to the Poland property, and during part of
that time the trustee, Mr. Dalton Sr., lived at the Poland
property. Mr. Dalton Sr., acting as trustee, could oversee the
Poland property and act to protect it. Any failure by the
trustee in his fiduciary duties potentially could create a
liability between the trustee and the beneficiaries. However,
the trust would still be in effect. See 2 Restatement, Trusts
3d, sec. 64 (2003). Moreover, since Mr. Dalton Sr.’s death,
Mr. Pray has served as trustee. During this time Mr. Pray
has held meetings with petitioners three to four times a year
setting rent and planning maintenance, has ensured the
timely filing of tax returns, and has annually visited the
property to ensure that the assets are being protected.
Finally, petitioners have paid rent to the trust. On the basis
of our consideration of the Federal factors analysis, we con-
clude that petitioners do not have a nominee interest in the
Poland property.
The cases that respondent cites in his response to peti-
tioners’ motion for summary judgment and in his supple-
mental motion for summary judgment for an application of
a Federal factors analysis involve either an antecedent tax
debt, impending tax troubles, or fraudulent conveyances. See
Shades Ridge Holding Co. v. United States, 888 F.2d 725,
727 (11th Cir. 1989) (taxpayer used a holding company to
hold assets to escape personal tax liability from gambling
operation that had been accruing since 1957); F.P.P. Enters.
v. United States, 830 F.2d 114, 116 (8th Cir. 1987) (taxpayer
created sham trusts to shelter assets from creditors and
fraudulently conveyed assets to those trusts); Loving Saviour
Church v. United States, 728 F.2d at 1086 (taxpayer used
sham transfers of assets to church in attempt to escape tax-
ation); United States v. Dornbrock, 101 AFTR 2d 2008–906, at
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422 135 UNITED STATES TAX COURT REPORTS (393)
2008–908, 2009–1 USTC par. 50,219, at 87,474 (S.D. Fla.
2008) (IRS examining returns at time of purchase of condo),
affd. 309 Fed. Appx. 359 (11th Cir. 2009); Battle v. United
States, 99 AFTR 2d 2007–2007, at 2007–2009 (E.D. Tex. 2007)
(taxpayer used sham trusts to hide assets from Commis-
sioner); Cody v. United States, 348 F. Supp. 2d at 684 (tax-
payer’s relatives put a house in trust for taxpayers to avoid
seizure due to prior tax bill); United States v. Kattar, 81 F.
Supp. 2d 262, 263–265 (D.N.H. 1999) (taxpayer transferred
substantially all of his assets to trusts upon notice of inves-
tigation for tax evasion); Towe Antique Ford Found. v. IRS,
791 F. Supp. 1450, 1457 (D. Mont. 1992) (taxpayer fraudu-
lently conveyed assets to charitable foundation in anticipa-
tion of the occurrence of Federal tax liabilities), affd. 999
F.2d 1387 (9th Cir. 1993). 28 The instant case is materially
distinguishable from the above-cited cases. As stated above,
the transfers to Mr. Dalton Sr. and to the trust occurred well
before the tax liability became an issue. Accordingly, we do
not conclude that the transfers were an attempt to conceal
assets from respondent.
Respondent also cites Hill v. United States, 844 F. Supp.
263 (W.D.N.C. 1993), for the application of a Federal factors
analysis. In Hill, the taxpayer’s daughter purchased land
with gift funds transferred to her by her grandfather, with
the intention of providing a home for herself and the tax-
payer. Id. at 269. The taxpayer built the home on the prop-
erty and lived there following the construction. Id. The court
concluded that the taxpayer’s payment of all real estate
taxes, utilities, and insurance on the land amounted to rent,
and that the taxpayer had no interest in the land in ques-
tion. Id. at 271. The court also concluded that the taxpayer’s
28 Respondent also cites United States v. Engels, 89 AFTR 2d 2002–898, 2002–1 USTC par.
50,306 (N.D. Iowa 2001) (Engels II), and Dean v. United States, 987 F. Supp. 1160, 1164 (W.D.
Mo. 1997), in support of a Federal factors analysis. In Engels II, the District Court reaffirmed
the grant of the United States’ motion for summary judgment and amended its decision regard-
ing the United States’ motion to reduce tax assessments to judgments from a denial with preju-
dice to a denial without prejudice. Respondent most likely meant to cite United States v. Engels,
88 AFTR 2d 2001–6429, 2001–2 USTC par. 50,723 (N.D. Iowa 2001) (Engels I), where the tax-
payer tried to use trusts to escape personal tax liability. In Engels I, the court applied State
law, which it concluded was consistent with a Federal factors analysis, to determine whether
the trusts were nominees of the taxpayer. Id. at 2001–6436, 2001–2 USTC par. 50.723 at 90,008
(‘‘determining trust validity under Iowa law requires an examination of the relationship among
the parties creating, administering and benefitting from the trust’’).
In Dean v. United States, supra at 1164, the court also applied State law, which it determined
was consistent with a Federal factors analysis.
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(393) DALTON v. COMMISSIONER 423
daughter was not the nominee of the taxpayer and that the
taxpayer had no interest in the property. Id. at 271, 274.
Additionally, the Court declined to impose a resulting trust
or a constructive trust because of the conclusion that the
funds and labor were gifts by the taxpayer to the taxpayer’s
daughter. Id. at 273.
The undisputed facts of the instant case are similar to the
facts in Hill. Petitioners’ payment of their costs of occupancy,
maintenance, mortgage debt service, and property taxes are
rental payments to the trust in exchange for living in the
residence. Additionally, petitioners’ labor provided for the
additions to the residence provided low-cost construction for
the trust as in Hill, and similarly may be viewed as gifts to
the trust. Finally, as we concluded above, it would be
improper to impose a resulting trust on the Poland property,
as the transfer of lots 3 and 4, and the purchase price of lot
5, were gifts to Mr. Dalton Sr. Therefore, we find our conclu-
sions in the instant case consistent with Hill.
On the basis of the foregoing, we hold that the trust is not
petitioners’ nominee under the Federal factors analysis. 29
We conclude that petitioners do not have an interest in the
Poland property that constitutes property or rights to prop-
erty to which the Federal tax levy could attach under Maine
law or a Federal factors analysis. See sec. 6331.
Consequently, we hold that respondent’s determination to
proceed with the levy was an abuse of discretion because
respondent rejected petitioners’ offer-in-compromise on the
basis that it did not include a nominee interest in the Poland
property. 30 See Vinatieri v. Commissioner, 133 T.C. 392, 402
29 In Richards v. United States, 231 Bankr. 571 (E.D. Penn. 1999), the court held that where
a valid trust is not respected by the parties, for Federal tax purposes a nominee relationship
may exist. However, in Richards the bankrupt served as the trustee of the property, represented
to third parties that the property was his own instead of belonging to the trust, and did not
respect trust formalities. In the instant case, we conclude that the trust was validly formed be-
fore the tax liability arose, petitioners respected the trust, and a third-party trustee has over-
seen trust assets for most of the time the trust has been in existence. Ultimately, we conclude
that a nominee relationship did not exist. Therefore, we find Richards distinguishable.
30 Because we hold respondent’s determination to proceed with the levy on the Poland prop-
erty was an abuse of discretion, we need not consider petitioners’ argument that respondent dis-
regarded our order to create a proper record and instead conducted a de novo review of the
grounds for asserting a nominee ownership while taking into account both Maine law and a Fed-
eral factors analysis. We also decline to address petitioners’ argument that pursuant to Me. Rev.
Stat. Ann. tit. 14, sec. 752 (2003), respondent is barred by the 6-year period of limitations on
civil actions to question the legitimacy of the transfers from petitioners to Mr. Dalton Sr. and
the trust.
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424 135 UNITED STATES TAX COURT REPORTS (393)
(2009); Woodrall v. Commissioner, 112 T.C. 19, 23 (1999).
Petitioners are entitled to summary judgment.
We have considered all of the issues raised by the parties,
and, to the extent they are not discussed herein, we conclude
that they are without merit, unnecessary to reach, or moot.
To reflect the foregoing,
An appropriate order and decision will be
entered for petitioners.
f
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