Bresson v. Comm'r of Internal Revenue

• Decision Date: 19 August 1998
• Docket Number: No. 22824–96.,22824–96.
• Citation: 111 T.C. No. 6,111 T.C. 172
• Parties: Peter J. BRESSON, Transferee, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

111 T.C. 172

111 T.C. No. 6

Peter J. BRESSON, Transferee, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 22824–96.

United States Tax Court.

Aug. 19, 1998.

Willard D. Horwich, for petitioner.

Robert H. Schorman, Jr., for respondent.

JACOBS, Judge:

By means of a notice of transferee liability dated August 2, 1996, respondent determined that petitioner is liable under section 6901 as a transferee of property from Jaussaud Enterprises, Inc. (hereinafter referred to as Jaussaud Enterprises or the corporation), for unpaid Federal corporate income taxes and additions to tax due from Jaussaud Enterprises, as follows:

+--------------------+
                ¦¦¦¦Additions to Tax ¦
                +--------------------+
                

 Year Ended Income Tax Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
                 2/28/91    $41,965    $9,803          $10,716         $2,487
                

Unless indicated otherwise, all section references are to the Internal Revenue Code for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

The disputed transferee liability arises as a result of the conveyance of certain real property from Jaussaud Enterprises to petitioner during 1990. We must herein decide whether petitioner is liable as a transferee under section 6901 as a result of that conveyance. In resolving this issue, we must decide whether by virtue of section 3439.09 of the California Civil Code (West 1997) the period of limitations for assessing transferee liability against petitioner expired before respondent's issuance of the notice of transferee liability. Subsumed in this latter issue is the question of whether the Commissioner is bound by a State limitations period when relying on State law to collect unpaid taxes.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulations of facts and the attached exhibits are incorporated herein by this reference.

At the time the petition was filed, petitioner resided in Los Angeles, California. Petitioner is unmarried. He filed his tax returns on a calendar year basis.

Jaussaud Enterprises

Jaussaud Enterprises is a California corporation with a fiscal year ending February 28. At all relevant times, petitioner was the sole shareholder and sole officer of Jaussaud Enterprises.

Jaussaud Enterprises operated an equipment leasing business, providing trash cans and containers for the rubbish pickup industry. The corporation's principal customer was PJB, a corporation all the stock of which was owned by petitioner and his mother (who died in 1988, leaving petitioner as the sole shareholder of PJB). By 1991, Jaussaud Enterprises' business activity was minimal.

Transfer of Real Property

Jaussaud Enterprises was the owner of improved real property located at 905 N. Hidalgo Avenue, Alhambra, California (the Alhambra property). Located on the Alhambra property was a house in which petitioner resided.

Petitioner decided to sell the Alhambra property. A potential buyer of the Alhambra property was found, and on June 11, 1990, petitioner, on behalf of Jaussaud Enterprises, executed escrow instructions at Atla Escrow Corp. (Atla Escrow) pursuant to which the Alhambra property was to be sold for $329,000 to Ming Eo Jessica Sung, an unrelated third party. The escrow instructions were amended on June 12 and 20, 1990, to account for various details and contingencies relating to the anticipated sale. On July 5, 1990, the escrow instructions were again amended to change the identification of the seller to “PETER J. BRESSON, an unmarried man”.

On July 5, 1990, Jaussaud Enterprises executed a grant deed conveying the Alhambra property to petitioner.¹ On the same date petitioner executed a grant deed conveying the Alhambra property to Ms. Sung.

On July 25, 1990, Atla Escrow sent petitioner a closing statement with regard to the sale of the Alhambra property, together with a check in the amount of $266,680.44, representing the net proceeds due the seller. Petitioner kept the $266,680.44.

The closing statement indicated that $38,900 had been transferred by wire to “Western Pacific Escrow # 16848”.² The balance of the consideration paid by Ms. Sung was disbursed for a realtor's commission, taxes, escrow fees, and other expenses related to the sale of the Alhambra property.

Reporting Sale of Alhambra Property

On its U.S. Corporation Income Tax Return, Form 1120, for tax year ended February 28, 1991, filed on March 5, 1993, Jaussaud Enterprises reported a capital gain of $194,705 ³ from the sale of the Alhambra property. Jaussaud Enterprises also reported gross receipts of $1,210, which resulted in a reported Federal income tax liability of $49,683 for the tax year ended February 28, 1991, which was not paid. The return was signed by petitioner, as corporate president.

Petitioner did not report any gain from the sale of the Alhambra property on his U.S. Individual Income Tax Return, Form 1040, for any year.

Promissory Note

At an undisclosed time following the sale of the Alhambra property, petitioner sought professional advice with respect to the tax consequences of Jaussaud Enterprises' transfer of the Alhambra property to him and the subsequent sale of that property. On July 15, 1993, petitioner, as president of Jaussaud Enterprises, called a special meeting of the board of directors (which consisted solely of himself) and determined that he owed the corporation $125,000. (The record is void of any explanation as to how the amount of petitioner's debt to Jaussaud Enterprises was determined to be $125,000.) To repay this debt, petitioner agreed to execute a note providing for monthly installments of $798.32 each for 30 years, with interest at 6.6 percent per annum.⁴ On August 1, 1993, petitioner executed such a note. Beginning August 4, 1993, and continuing through September 11, 1996, petitioner made the required monthly payments to Jaussaud Enterprises. After September 1996, petitioner made no further payments on the note.

Internal Revenue Service Actions

The Internal Revenue Service (IRS) sent several billing notices to Jaussaud Enterprises. These notices mistakenly listed the tax period involved as the year ended February 29, 1992. On July 25, 1994, the IRS recorded in Los Angeles County a Notice of Federal Tax Lien for Jaussaud Enterprises. The Notice of Federal Tax Lien listed $117.73 as being owed for employment taxes for the tax year ended December 31, 1993, and $79,207.53 as being owed for corporation income taxes for the tax year ended February 28, 1992.⁵

William Ryland, an IRS revenue officer, was assigned to collect the taxes owed by Jaussaud Enterprises. He attempted to locate assets of Jaussaud Enterprises, but his efforts proved unsuccessful. At an undisclosed time, a representative of Jaussaud Enterprises, presumably Willard D. Horwich (petitioner's counsel), offered to satisfy the corporation's tax liability by way of a “long-term” installment plan. Revenue Officer Ryland rejected the proposed arrangement because the period of limitations to collect the delinquent taxes would have expired prior to full collection under the proposed plan. Ultimately, in a Report of Investigation of Transferee Liability dated September 21, 1994, Revenue Officer Ryland recommended that the IRS seek to collect the delinquent taxes from petitioner as a transferee.

No notice of deficiency was issued to Jaussaud Enterprises for the tax year ended February 28, 1991, but an assessment was made against Jaussaud Enterprises for that year on February 28, 1996.

Respondent sent a notice of transferee liability to petitioner dated August 2, 1996, determining that he was liable as a transferee of the Alhambra property for Jaussaud Enterprises' tax year ended February 28, 1991.

In October 1996, the collection file was assigned to Revenue Officer Donald Dinsmore. He searched for assets which the IRS could levy against. He checked IRS internal sources for financial and other information concerning Jaussaud Enterprises; he also searched Department of Motor Vehicles and real property records. He found no assets which could be used to collect the tax liabilities from Jaussaud Enterprises.

On November 13, 1996, the IRS issued a final demand letter which was received and signed for (but not responded to) by Jaussaud Enterprises.

OPINION

Evidentiary Matters

Preliminarily, we address various evidentiary matters. At trial, petitioner contended that respondent assessed taxes against Jaussaud Enterprises for the wrong year. Respondent's witness, Vicki McIntire, credibly testified about the error, which occurred as a result of the filing of corporate income tax returns for fiscal years ended February 28, 1991, and February 29, 1992, at approximately the same time in 1993, and the subsequent correction of the error by respondent. In that vein, petitioner objected to, as hearsay, the admission into evidence of Exhibit AA, Summary Record of Assessments, and Exhibit BB, Certificate of Assessments and Payments, to prove the existence of Jaussaud Enterprises' tax liability.

Rule 803 of the Federal Rules of Evidence provides numerous exceptions to the hearsay rule. As pertinent herein, rule 803(8) provides an exception for:

(8) Public records and reports.—Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report * * * unless the sources of information or other circumstances indicate lack of trustworthiness.

Exhibits AA and BB are both public records or reports prepared by respondent pursuant to a duty imposed by law.

Exhibit AA does not indicate the taxpayer's name. Thus, we conclude that this document lacks trustworthiness. Consequently, we sustain petitioner's objection to Exhibit AA.

Exhibit BB reflects that an audit deficiency assessment of $43,569 was made for the year ended February 28, 1991, and a reported tax...