DocketNumber: Docket Nos. 6757-72, 6758-72.
Citation Numbers: 37 T.C.M. 1217, 1978 Tax Ct. Memo LEXIS 224, 1978 T.C. Memo. 289
Filed Date: 7/27/1978
Status: Non-Precedential
Modified Date: 11/21/2020
MEMORANDUM FINDINGS OF FACT AND OPINION
TANNENWALD,
Additions to tax | |||
Sec. 6651(a) | Sec. 6653(a) | ||
Year | Income tax | IRC 1954 | IRC 1954 |
1962 | $ 1,671.26 | $ 417.82 | $ 83.56 |
1963 | 2,282.39 | 570.60 | 114.12 |
1964 | 1,394.77 | 348.69 | 69.74 |
1965 | 3,248.08 | 812.02 | 162.40 |
1966 | 1,270.93 | 254.19 | 63.55 |
$ 9,867.43 | $ 2,403.32 | $ 493.37 |
Petitioners have conceded the*226 correctness of the deficiencies and additions thereto, leaving for decision whether petitioner Hartley F. Satnick is liable as a transferee and whether Lenore Satnick is liable as a transferee of a transferee 1 for the income tax deficiencies, additions to tax, and interest thereon of Hartley Jewelers, Inc.
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly. The stipulations of facts and exhibits attached thereto are incorporated herein by this reference.
Hartley F. Satnick (Hartley) and Lenore Satnick (Lenore), husband and wife, resided in Woodmere, New York, at the time of filing the petitions herein.
Hartley Jewelers, Inc. (the corporation) was a New York corporation which was organized in 1960. It has been liquidated and dissolved. Hartley was the sole shareholder, president, and a director*227 of the corporation. The other officers were Lenore and her father, David Feinberg. Lenore was also a director. From May 9, 1960, until dissolution, the shareholder, officers, and directors of the corporation remained the same.
The corporation was engaged in the retail sale and repair of costume jewelry and watches. Hartley is a certified master watchmaker, licensed by the Bureau of Standards, Washington, D.C., and performed all of the corporation's repair work. The corporation's only office was a store located at 50 Court Street in the business district of Brooklyn, New York.
In the first half of 1967, an Internal Revenue Agent contacted Hartley for the purpose of determining whether Hartley Jewelers, Inc. had filed corporate income tax returns for prior years. Hartley responded that his accountant's wife was sick, and that his books were not up-to-date and that it would not be possible to meet with his accountant for some time. Returns for the years 1962 through 1966, showing no tax due, prepared by an accountant, were later filed on June 27, 1967. The tax returns for 1962 through 1966 all showed an opening and closing inventory of $ 32,000. Subsequently, respondent determined*228 deficiencies and penalties, to which Hartley, as president of the corporation, agreed on February 18, 1971.
On December 31, 1967, the corporation decided to liquidate and dissolve. Shortly thereafter, assets of the corporation were transferred in liquidation to Hartley, consisting of the following:
Value | |
Cash | $ 3,828.72 |
Store fixtures and automobile | 1,000.00 |
Inventory | 23,000.00 |
Total | $ 27,828.72 |
The corporation filed a final corporate income tax return for 1967 showing an opening inventory of $ 32,000 and a closing inventory of $ 23,000. A certificate of dissolution was executed on February 2, 1968, and filed with the Secretary of the State of New York in March 1971.
After the corporation was dissolved, Hartley continued without interruption to operate the business at the same location, using the assets he received on liquidation. On January 9, 1968, petitioners filed a Business Certificate for Partners under the name of Hartley Jewelers Co. (the company). At about the same time, they opened a bank account for the company, instructing the bank to honor the signature of either petitioner as a partner. Lenore did not work in the store, did not participate*229 in management of the company, and never received a distribution of any kind from the company. At no time has the company filed a partnership return. In 1968, petitioners reported profits from the company on their joint individual income tax return, based on Schedule C attached in the name of Hartley alone, which showed an opening inventory of $ 23,000. 2
OPINION
Petitioners have conceded the correctness of respondent's determination of income tax deficiencies, additions to tax, and interest thereon against the corporation. Moreover, there is no dispute that (a) there was a transfer to Hartley, (b) the transfer was not made for adequate consideration, (c) at the time of the transfer, or by virtue of the transfer, the corporation was insolvent, and (d) respondent was under no duty to proceed first against the corporation. Thus, the only issues for decision are whether each of the petitioners received assets of the corporation as a transferee and the amount of transferee liability, if any.
At the outset, we deal with petitioners' contentions that Hartley*230 received the corporate assets as an agent, i.e., as a fiduciary subject to an express trust which required him to use those assets to pay off creditors and that, since this is what he did with the assets, respondent has no claim against him as a transferee. We disagree. To be sure, the corporate minutes state that the transfer of the assets was made to Hartley in an agency capacity. But we are unimpressed with such self-serving evidence, particularly in light of what actually transpired.
Hartley did not systematically dispose of the corporate assets and pay off its liabilities with the proceeds therefrom. Rather, he used the corporate assets to continue operating the same business at the same place for his personal benefit. See
In passing, we note that, had Hartley been found to be an agent of the corporation, his liability in this capacity would be determined under
*232 We now turn our attention to the questions involving petitioners' liabilities as transferees. 4
*233 Under New York law, a conveyance made without fair consideration is fraudulent as to creditors if made by a person who is or is thereby rendered insolvent.
*234 Petitioners argue that New York law "limits the extent of the liability to the actual value of the assets transferred and also circumscribes the extent of transferee liability by limiting collection to the assets actually transferred or funds derived from the sale of such assets." We reject this argument to the extent that it purports to assert that New York law limits respondant's
The basic thrust of petitioners' argument is that Hartley is entitled to credit against any transferee liability to the extent that the assets he received were used to pay creditors of the corporation. He asserts that under New York law a transferee, even though privy to the fraud, is entitled to a credit for amounts paid to a transferor's creditor, provided such creditor is not a party to the fraudulent scheme, relying especially*236 on
Finally, we emphasize that there is no evidence that Hartley made any payments to himself as a creditor -- which conceivably might have produced a different situation. See, e.g.,
Our conclusion that Hartley is not entitled to credit against his transferee liability effectuates a proper synthesis of the provisions of
*241 Respondent has the burden of proof with respect to the value of assets received by Hartley.
We now turn to respondent's assertion that the company is a partnership of which Lenore is a partner and that Lenore is, therefore, liable as a transferee of a transferee for the tax deficiencies of the corporation.
We need not dwell upon the question whether the existence of a partnership interest*243 in Lenore should be determined under Federal or state law, although we are inclined to the view that, where ownership via a "partnership" interest in property, as distinguished from who should be held taxable on the income of the "partnership," is at issue (which is the case herein), state law should be applied under the rationale of
There is no evidence of any partnership agreement between Hartley and Lenore. While the filing of a certificate of partnership raises a presumption that a partnership existed, the presumption may be overcome by evidence to the contrary. See
Respondent also contends that Lenore is a partner by estoppel. See
*246 Finally, respondent contends that Lenore is liable as a transferee because, as an officer and director, she participated in the dissolution of the corporation and violated her duties under
In sum, we hold that Hartley is liable as a transferee of the corporation up to, but not exceeding, the amount of $ 27,828.72.
1. The statutory notice of deficiency was addressed to Lenore Satnick as transferee. At trial and on brief, however, respondent took the position that she is a transferee of a transferee. She has not objected to respondent's change in theory, and, in any event, it makes no difference for the purposes of this case. See footnote 3,
2. The actual amount shown was $ 32,000, but the parties agree that this was a transposition and should be $ 23,000.↩
3. All section references, unless otherwise indicated, are to the Internal Revenue Code of 1954, as amended and in effect during the taxable years in question.↩
4.
5.
Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration. ↩
6.
1. Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser.
a. Have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim, or
b. Disregard the conveyance and attach or levy execution upon the property conveyed.
2. A purchaser who without actual fraudulent intent has given less than a fair consideration for the conveyance or obligation, may retain the property or obligation as security for repayment.↩
7. There is evidence that some small amounts of New York State and New York City taxes of the corporation were paid by Hartley, but petitioners have made no argument that they should be accorded any special consideration, assuming without deciding that state law could elevate the priority of local tax claims to such status for the purposes of this case. See, e.g.,
8.
9. It is interesting to note that Schedule C attached to petitioners' 1968 return showed a closing inventory of $ 23,750.↩
10.
1. When a person, by words, spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made.
(a) When a partnership liability results, he is liable as though he were an actual member of the partnership.
(b) When no partnership liability results, he is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.
2. When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. Where all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.↩
united-states-v-mrs-sybil-mae-floersch-formerly-mrs-sybil-m-benton , 276 F.2d 714 ( 1960 )
Sidney Kreps v. Commissioner of Internal Revenue , 351 F.2d 1 ( 1965 )
Robert Ginsberg v. Commissioner of Internal Revenue , 305 F.2d 664 ( 1962 )
Haag v. Commissioner of Internal Revenue , 59 F.2d 514 ( 1932 )
Empire Lighting Fixture Co. v. Practical Lighting Fixture ... , 20 F.2d 295 ( 1927 )
Bos Lines, Inc., Transferee v. Commissioner of Internal ... , 354 F.2d 830 ( 1965 )
In re Wille , 25 N.Y.2d 619 ( 1969 )
United States v. Oklahoma , 43 S. Ct. 295 ( 1923 )
In re the Estate of Palega , 208 Misc. 966 ( 1955 )
Commissioner v. Stern , 78 S. Ct. 1047 ( 1958 )
UNITED STATES v. MOORE Et Al. , 96 S. Ct. 310 ( 1975 )
United States v. 58th Street Plaza Theatre, Inc. , 287 F. Supp. 475 ( 1968 )
De West Realty Corp. v. Internal Revenue Service , 418 F. Supp. 1274 ( 1976 )
United States v. Plastic Electro-Finishing Corporation , 313 F. Supp. 330 ( 1970 )