In re Steffen

Decision Date04 February 2004
Docket NumberNo. 01-09988-8P1.,01-09988-8P1.
Citation305 B.R. 369
PartiesIn re Terri L. STEFFEN, Debtor.
CourtU.S. Bankruptcy Court — Middle District of Florida

Harley E. Riedel, II, Stichter, Riedel, Blain & Prosser, Tampa, FL, for Debtor.

Theresa M. Boatner, Office of the United States Trustee, Tampa, FL, for U.S. Trustee.

ORDER ON MOTION FOR RECONSIDERATION OF FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION DATED APRIL 18, 2003

ALEXANDER PASKAY, Bankruptcy Judge.

The matter under consideration in this yet-to-be confirmed Chapter 11 case of Terri Steffen (Debtor) is "Motion for Reconsideration of Findings of Fact, Conclusions of Law and Memorandum Opinion dated April 18, 2003," filed by the Debtor on October 6, 2003. This Court entered its Findings and Conclusions on April 18, 2003, in this contested matter, which involves the Debtor's objection to the amended proof of claim, Claim No. 6, of the United States of America, Internal Revenue Service (IRS).

A brief summary of the relevant procedural as well as factual history is as follows. Claim No. 6 was filed by the IRS in the amount of $5,856,721.11 and is based on a deficiency determined by the IRS after an examination of the joint tax returns of the Debtor and her non-Debtor spouse, Paul A. Bilzerian (Bilzerian) for the tax years of 1985, 1986, 1991, 1992, and 1993.

In the Objection, the Debtor contended that she was not indebted to the IRS, or at least not in the amount claimed by the IRS. In challenging the claim, the Debtor outlined several basis: First, she contended that the disallowance of the deduction of the loss of value of the Debtor's interest in the common stock of Bicoastal Corporation, Inc. (Bicoastal), which was owned jointly by the Debtor and Bilzerian was in error. Second, she contended that the determination by the IRS that she understated her capital gain attributable to the disposition of South Bay Fashion Center (South Bay) during 1992 was in error. Lastly, the Debtor specified eleven additional objections to the claim.

Prior to the commencement of the trial, the parties agreed that the issues would be bifurcated and the following issues were initially tried:

1. What tax year did the Bicoastal stock become worthless;

2. What was the Debtor's adjusted basis in the Bicoastal stock; and 3. What was the Debtor's capital gain from the 1992 foreclosure of the Southbay Fashion Center.

Inasmuch as the Debtor only seeks reconsideration of the first two issues, this Court will not visit, summarize or mention its conclusions as to the last issue. In its Findings and Conclusions, this Court concluded that based on the facts established at the trial and the applicable legal principles, the Debtor failed to establish, by the requisite degree of proof, the two-prong test sufficient to warrant the finding that the value of the Bicoastal stock was a total loss and was incurred during the tax year of 1989 as claimed by the Debtor and instead held that the applicable year was 1993. Considering the appropriate basis for the cost of acquisition of the Bicoastal common stock by the Debtor and Bilzerian, this Court determined that the initial cost basis was in the amount of $23,366,705, which was further adjusted downwards by $18.6 million for the following deductions: $7.4 million from Forgason and his related entities and Roth; $9.5 million from Oxley; and $1.6 million from Bicoastal Holding Company. After recalculating the adjusted basis, this Court concluded that the Debtor's adjusted basis for the acquisition of the Bicoastal common stock was $4,766,705.

First Issue: What year did the Bicoastal stock become worthless?

Considering initially this Court's determination that the Debtor's interest in the common stock of Bicoastal did not become worthless in the year 1989 but became worthless in the year 1993, it is the contention of the Debtor that this Court erred because the Court: (1) improperly relied on the presumption of correctness of the claim of the IRS; (2) failed to determine that the common stock in Bicoastal had any value in '89, '90, '91, and '92; (3) improperly relied on the "Semi-Tech lawsuit," which was commenced in 1990 as opposed to 1989 and improperly based its findings on this lawsuit; and (4) failed to give the proper deference to the Debtor's determination of the worthlessness of the stock.

In support of the first contention, that is the presumption of correctness, the Debtor cites several cases for the proposition that although the commissioner's assessment of a deficiency is "presumptively correct," the commissioner's assessment is not substantive evidence in a case. Gillette's Estate v. Commissioner, 182 F.2d 1010 (9th Cir.1950); Woodward v. United States, 106 F.Supp. 14 (N.D.Iowa 1952), aff'd, 208 F.2d 893 (8th Cir.1953). In Woodward, the court held that: "[i]f and when the taxpayer introduces any evidence that the Commissioner's determination is in error, this presumption is no longer of probative force and effect, and the issue then will be decided upon the preponderance of the evidence adduced at the trial of the cause." Woodward, 106 F.Supp. at 31. In its written response, the IRS concedes that the Debtor "correctly points out that the presumption is not evidence and that it disappears when the taxpayer adduces contrary evidence." Opposition by United States (Doc. No. 217).

According to the Debtor, the only disputed issue with respect to the Debtor's deduction was the year of worthlessness and that the Debtor only had to prove that a prudent businessman would have concluded that at the end of 1989, the Bicoastal common stock did not have value, citing Steadman v. Commissioner, 50 T.C. 369, 1968 WL 1558 (1968), aff'd, 424 F.2d 1 (6th Cir.), cert. denied, 400 U.S. 869, 91 S.Ct. 103, 27 L.Ed.2d 109 (1970); Ainsley Corp. v. Commissioner, 332 F.2d 555 (9th Cir.1964). For the reasons set forth below, this Court is satisfied that whether or not the presumption lost its probative force, the Debtor nevertheless failed to establish by the preponderance of the evidence that the deduction in 1989 was proper.

The second and third contentions by the Debtor that this Court erred in its determination that the Bicoastal stock became worthless in the year 1993 is based upon her assertion that the IRS failed to prove that Bicoastal had value for each year prior to 1993 and that this Court relied upon the Semi-Tech lawsuit initiated in the year 1990 to determine value for the year 1989. This Court will consider both of these contentions together inasmuch as the facts and analysis are intertwined.

Upon reconsideration, this Court is satisfied that additional findings of value for the Bicoastal stock for each preceding year or that the Debtor failed to prove that the stock was worthless for the years preceding 1993, are necessary and are as follows. The Debtor incorrectly asserts in its Motion for Reconsideration that this Court solely relied upon the Semi-Tech litigation to determine that the Bicoastal stock had no value in the year 1989. This Court is satisfied that this statement is without merit inasmuch as this Court determined that the "identifiable events" listed by the Debtor for the year 1989 did not render the Bicoastal stock totally without potential value. This Court affirms its holding that the "identifiable events" were not "closed and complete transactions." Treas. Reg. § 1.165-1(b).

It is without dispute that Bicoastal entered into a royalty agreement with Semi-Tech in early 1989 and the lawsuit against Semi-Tech was not filed until late 1990. Bicoastal, in its Notes to Consolidated Financial Statements (Notes) filed with the SEC for Bicoastal and its subsidiaries, discussed the royalty agreement with Semi-Tech and described the same as follows:

In May 1989, Singer and Semi-Tech entered into an agreement in which Singer sold all of its rights throughout the world in the trademarks, service marks and trade names "SINGER" to Semi-Tech in exchange for certain contingent payments based on future sales of certain products by Semi-Tech and its affiliates.

(Db. Ex. 20, pg. 8 of Notes). It should be noted that this audit report, done by KPMG Peat Marwick (KPMG), was dated April 12, 1990 in a cover letter, which enclosed the Notes. The Debtor states that this is the only reference to the Semi-Tech agreement in which a "potential shareholder" could have relied on to find that there was value in the stock in the year 1989. However, a further reading of these Notes reveals the following passage:

The Company is not able to predict how and when the Chapter 11 proceeding will be concluded nor the expense associated therewith, which could be substantial. Management's objectives in the Chapter 11 proceedings are to effectuate a reorganization which will result in the highest possible recoveries for all creditors and shareholders consistent with the Company's ability to pay and continuation of its business.

(Emphasis supplied). (Db. Ex. 20, pg. 21 of Notes). This Court is satisfied that the Debtor failed to prove with the requisite degree of proof that a prudent business man would have rendered the Bicoastal stock worthless in the year 1989 regardless of the Semi-Tech litigation.

Affirming its decision that the stock did not become worthless in the year 1989, this Court now turns to the year 1990 for the Debtor's request for reconsideration that the Bicoastal stock became worthless in any of the other years prior to 1993. In 1990, it is without dispute that the Semi-Tech lawsuit was filed, therefore, until it was resolved, which was in 1993, this Court is satisfied that that event was the identifiable event which rendered the potential value of the Bicoastal stock as worthless.

Notwithstanding, the Debtor asserts that the common stock of Bicoastal was cancelled in the year 1992 and thus, this event rendered the stock worthless. Although at first blush this assertion appears to have merit, this Court is satisfied that the...

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1 cases
  • Bilzerian v. Commissioner, T.C. Memo. 2012-264
    • United States
    • U.S. Tax Court
    • September 12, 2012
    ...decision in this matter." Upon reconsideration, the bankruptcy court affirmed its opinion entered on April 18, 2003. In re Steffen, 305 B.R. 369 (Bankr. M.D. Fla. 2004). Ms. Steffen appealed the bankruptcy court's opinions to the U.S. District Court for the Middle District of Florida, and, ......
1 books & journal articles
  • DETERMINING PATENT WORTHLESSENESS FOR TAX PURPOSES.
    • United States
    • Marquette Intellectual Property Law Review Vol. 24 No. 1, January 2020
    • January 1, 2020
    ...Pine & Timber, Inc. v. C.I.R., T.C. Summ. Op. 2003-19, *4 (2003) (applying obsolescence to covenants not to compete); In re Steffen, 305 B.R. 369, 373 (Bkrtcy. M.D. Fla. 2004) (applying obsolescence to (66.) Echols, 935 F.2d at 704. (67.) Id. at 707. (68.) Id. (69.) Id. (70.) Id. (71.) ......

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