111 T.C. 172 (T.C. 1998), 22824-96, Bresson v. Commissioner of Internal Revenue
|Docket Nº:||Tax Ct. Dkt. 22824-96|
|Citation:||111 T.C. 172, 111 T.C. No. 6|
|Opinion Judge:||JACOBS, JUDGE:|
|Party Name:||PETER J. BRESSON, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||Robert H. Schorman, Jr., for respondent. Willard D. Horwich, for petitioner.|
|Judge Panel:||COHEN, CHABOT, SWIFT, GERBER, PARR, WELLS, RUWE, COLVIN, CHIECHI, LARO, GALE, JACOBS and MARVEL, JJ. COHEN, CHABOT, SWIFT, GERBER, PARR, WELLS, RUWE, COLVIN, CHIECHI, LARO, GALE, and MARVEL, JJ., agree with this majority opinion. HALPERN HALPERN, J., dissenting: WHALEN, BEGHE, and THORNTON, JJ.,|
|Case Date:||August 19, 1998|
|Court:||United States Tax Court|
Decision will be entered for respondent.
In July 1990, J, a corporation, transferred to petitioner, its sole shareholder, real property situated in California (the Alhambra property) without receiving a reasonably equivalent value in exchange therefor. Immediately thereafter, petitioner sold the Alhambra property for $ 329,000 to an unrelated third party. Petitioner kept the proceeds from the sale. On Mar. 5, 1993, J filed a tax return for its fiscal year ended Feb. 28, 1991, reporting a capital gain of $ 194,705 from the sale of the Alhambra property and a tax due of $ 49,683, which was not paid. On Aug. 1, 1993, petitioner executed a promissory note to J for repayment of a purported obligation owed by petitioner to J.
On Aug. 2, 1996, respondent issued a notice of transferee liability to petitioner as a transferee under sec. 6901, I.R.C. Respondent determined, on the basis of California's Uniform Fraudulent Transfer Act (California's UFTA), that petitioner was liable for J's taxes resulting from the transfer of the Alhambra property.
Petitioner asserts that the period of limitations for filing fraudulent conveyance actions under California's UFTA expired before the issuance of the notice of transferee liability. Respondent maintains that the Federal Government is not bound by State statutes of limitations under the rule in United States v. Summerlin, 310 U.S. 414, 84 L.Ed. 1283, 60 S.Ct. 1019 (1940). Petitioner counters that the period of limitations in California's UFTA is not a statute of limitations, but rather is an element of the cause of action, which provides for the complete extinguishment of the fraudulent conveyance claim if the time limit is not satisfied, relying on United States v. Vellalos, 780 F.Supp. 705 (D. Haw. 1992), appeal dismissed 990 F.2d 1265 (9th Cir. 1993).
1. HELD: Respondent has established that the Alhambra property was fraudulently conveyed under California law.
2. HELD, FURTHER, respondent is not bound by the limitations period in California's UFTA. United States v. Summerlin, supra, applied.
3. HELD, FURTHER, respondent issued petitioner a notice of transferee liability within the limitations period for assessments prescribed by sec. 6901(c), I.R.C.
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:
Year Income Ended 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. Page 174 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.  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" .  The Page 175 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  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.  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. Page 176 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.  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...
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