Cole v. Commissioner, Docket No. 69586.
| Decision Date | 30 December 1960 |
| Docket Number | Docket No. 69586. |
| Citation | 1960 TC Memo 278,19 TCM (CCH) 1537 |
| Parties | Frances M. Cole v. Commissioner. |
| Court | U.S. Tax Court |
James A. Poynor, Esq., 508½ Joplin St., Joplin, Mo., for the petitioner. Claude R. Sanders, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
Respondent has determined that petitioner is liable for $12,000 of taxes as transferee of that amount from her husband who, at the time of the transfer, owed income taxes and additions to the tax totaling $46,049.94. The sole issue for our determination is whether petitioner is liable as transferee in the amount of $12,000.
Some of the facts have been stipulated, are so found, and are incorporated herein by this reference.
Frances Cole (petitioner) and Charles N. Cole are husband and wife, residing in Joplin, Missouri. Charles filed no Federal income tax returns for the years 1951, 1952 and 1953 and thus pursuant to stipulation of the parties in Docket No. 65084 we entered a decision that the deficiencies in income tax and additions to the tax of Charles for the years indicated were as follows:1
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Section Section Sec. 294 Section
Year Income Tax 291(a) 293(b) (d)(1)(A) 294(d)(2)
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1951........... $ 1,432.82 $ 358.21 $ 716.41 $ 125.31 $ 83.54
1952........... 3.488.97 822.24 1,744.19 310.36 206.91
1953........... 19,350.92 4,837.73 9,675.46 1,737.94 1,158.63
___________ __________ ___________ __________ __________
$24,272.71 $6,018.18 $12,136.06 $2,173.61 $1,449.08
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The amount of $46,049.64 remains unpaid.
During the years for which the tax was owing Charles operated a filling station and liquor store on the real estate where he and petitioner resided. The property had been deeded to petitioner in her name alone on February 8, 1950, by a third party at an indicated price of $1,500.
Carthage Loan and Investment Company, Carthage, Missouri, advanced the following sums, the second and third advances each being applied so far as necessary to discharge the balance due on the preceding advance:
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Principal Proceeds of Next
Note No. Date Advanced Repaid Advance Applied
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1777.......... 7/21/50 $ 8,000 $ 749.80 $ 7,251.20*
1888.......... 7/20/51 12,000 1,550.00 10,450.00*
2037.......... 4/15/53 15,000 3,000.00** 0.00
* When the proceeds of the succeeding loan were used to pay off each of these loans, notes
1777 and 1888 and the corresponding deeds of trust were canceled
** Prior to August 18, 1955
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For each advance petitioner and Charles signed a joint promissory note secured by deed of trust on the above mentioned property (including buildings and certain service station equipment thereon). The deeds of trust were recorded. On August 18, 1955, when $12,000 was due on the last mentioned note, Charles gave Carthage $12,000 in cash to discharge the balance owing. The final note was then marked paid and canceled and the deed of trust was discharged and its cancellation noted at the local recorder's office.
On August 18, 1955, Charles owed $16,323.64 to trade creditors in addition to the above mentioned Federal income tax liability and the balance in his and petitioner's joint checking account (the only bank account disclosed by the record) was $1,153.04. Charles was insolvent on that date.
Respondent's agents have made continued and extensive efforts to collect the income tax and additions to the tax owed by Charles for the taxable years 1951, 1952 and 1953 but the agents have been unsuccessful.
The payment by Charles of $12,000 on August 18, 1955, to discharge an encumbrance upon his wife's real estate was a transfer in fraud of his creditors.
OpinionRespondent seeks to collect Charles' tax debt from petitioner under section 311(a) of the 1939 Code.2 Section 119(a) of that Code places the burden of proof on the issue of transferee liability upon the Commissioner of Internal Revenue.
It is well settled that section 311 and its predecessors have created no new substantive liability but have simply provided an effective, summary means for enforcing the already existing liabilities of transferees in the same fashion that taxes could be collected from their transferors. Phillips v. Commissioner, 283 U. S. 589 2 USTC ¶ 743. The existence and extent of such liability is, as always, to be determined by applicable state law. Commissioner v. Stern, 357 U. S. 39 58-2 USTC ¶ 9594. The parties agree that this makes the statutes and decisions of Missouri controlling here.
Chapter 428, Revised Statutes of Missouri (1949), provides:
Missouri courts, in line with American courts generally, recognize that a conveyance is fraudulent in law, irrespective of the debtor's actual intent, if (1) it is without adequate consideration, and (2) it is made while the debtor is insolvent or it renders him insolvent. Friedel v. Bailey, 44 S. W. 2d 9 (Mo. Sup.); Bostian v. Bono, 322 S. W. 2d 813 (Mo. Sup.); and cf. Bartmer Automatic Self Service Laundry, Inc., 35 T. C. — (November 23, 1960) Dec. 24,464.
The Federal Government became a creditor of Charles by March 15, 1952, 1953 and 1954 for the tax years 1951, 1952 and 1953, respectively, Hartman v. Lauchli, 238 F. 2d 881 (C. A. 8) 57-1 USTC ¶ 9571, and may thus be treated as an existing creditor on August 18, 1955.
It is settled in Missouri that such a creditor establishes a prima facie case that there has been a fraudulent conveyance simply by showing that a gratuitous transfer has occurred. Hoffman v. Nolte, 29 S. W. 1006 (Mo. Sup.); Godchaux Sugars v. Quinn, 95 S. W. 2d 82 (Mo. Sup); Oetting v. Green, 166 S. W. 2d 548 (Mo. Sup.); Hartman v. Lauchli, supra. See also our decisions in Louise Noell, 22 T. C. 1035 Dec. 20,498, and Meyer Fried, 25 T. C. 1241 Dec. 21,625, both applying Missouri law. (There are some suggestions to the contrary in our decisions in Ruth Halle Rowen, 18 T. C. 874 Dec. 19,151, revd. on another issue 215 F. 2d 641 (C. A. 2) 54-2 USTC ¶ 9581, and W. Cleve Stokes, 22 T. C. 415 Dec. 20,362, but these were decided without reference to state law and were prior to the Stern decision.)
Petitioner maintains that the evidence fails to establish that the $12,000 was paid from Charles' funds rather than petitioner's, but the only record evidence on this point shows that Charles actually paid the $12,000 to the mortgagee on August 18, 1955, by handing $12,000 in cash to John C. Bunch, the head note teller for the Carthage Loan and Investment Company, on that date and thereby satisfying the note and deed of trust. This evidence amply satisfies respondent's burden of proof on this score and petitioner has not materially weakened such proof by showing that she was with Charles when this payment was made.
Neither petitioner nor Charles testified. If this payment had in fact been made with petitioner's funds she and her husband were the persons best qualified to make proof. Respondent satisfied his burden by showing the physical circumstances of the payment and it would be unthinkable for us to require respondent to prove ever more negatives as petitioner suggests sequences of rather remote presumptions. We refuse to so presume. Petitioner had ample opportunity to show her ownership of the $12,000 cash if that were the fact. She has not done so, and further, the record discloses no source of income nor any independent means of petitioner.
Petitioner next argues that the payment, even if from Charles' funds, was made in discharge of a bona fide pre-existing debt and was hence valid under Missouri law, even if the transferor was insolvent. See Allison v. Mildred, 307 S. W. 2d 447 (Mo. Sup.), the most recent among numerous decisions on point. Petitioner urges (but offered no proof) that she merely acted as surety for Charles in securing the advances from Carthage.
We have concluded that the record proves otherwise. The revenue stamps on the February 8, 1950, deed to petitioner indicate that $1,500 was paid for the land. The fact that this land was acceptable security for a $15,000 loan in April 1953 strongly suggests interim improvement and supports the statement of petitioner's counsel at the trial of this case that the money was borrowed to build a filling station, other buildings and a residence for Charles' family on the land owned by petitioner. These may well have been "purposes of Charles" as petitioner urges, but they were also necessarily enhancing the value of land held in petitioner's sole name.
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