RG COPE, JR., INC., ALLEGED TRANSFEREE v. Commissioner
| Decision Date | 10 September 1984 |
| Docket Number | Docket No. 1261-80. |
| Citation | 48 TCM (CCH) 1053,1984 TC Memo 476 |
| Parties | R.G. Cope, Jr., Inc., Alleged Transferee v. Commissioner. |
| Court | U.S. Tax Court |
L. Bruce Ables, 315 Franklin St., S.E., Huntsville, Ala., for the petitioner. Shuford A. Tucker, Jr., for the respondent.
Memorandum Findings of Fact and Opinion
By statutory notice dated December 4, 1979, respondent determined that petitioner, as transferee of the assets of Robert G. Cope and Allene D. Cope, is liable for deficiencies in Federal income taxes and additions thereto in the following amounts:
Additions to Tax
Sec. Sec
Year Deficiency 6653(a)1 6651(a)(1)
1972 ..... $ 639.71 $ 31.99 $ -0-
1973 ..... 2,143.91 107.20 -0-
1974 ..... 1,985.67 99.28 496.42
1975 ..... 32,512.09 1,625.60 8,128.02
The sole issue for decision is whether petitioner is liable as a transferee for the unpaid taxes and additions to taxes of Robert G. Cope and Allene D. Cope.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner R.G. Cope, Jr., Inc. (hereinafter referred to as petitioner) is an Alabama corporation with a principal place of business in Huntsville, Alabama at the time its petition was filed with this Court. Petitioner is in the business of residential building.2 The president and principal shareholder of petitioner is R.G. Cope, Jr. (hereinafter referred to as R.G.).
The parents of R.G. are Robert G. Cope (hereinafter referred to as Robert) and Allene, D. Cope (hereinafter referred to as Allene), husband and wife, whose residence at the time of the stipulation in this case was 1116 Harrison Street, Huntsville, Alabama. During the taxable years 1972 through 1975, Robert owned and operated a real estate rental and sales business and a used car retail sales business.
Robert and Allene filed their 1972 and 1973 joint income tax returns with the Director, Atlanta Service Center. Their 1972 tax return was filed on March 5, 1975 and their 1973 return was filed on June 18, 1974. Robert and Allene did not file income tax returns for the taxable years 1974 and 1975.
By letter dated June 16, 1975, the District Director of Internal Revenue for the Birmingham, Alabama district informed Robert and Allene that their 1973 Federal income tax return was under examination. During 1975 and 1976, respondent conducted an examination concerning the tax liability of Robert and Allene for the taxable years 1972 through 1975.
As a result of respondent's examination of the income tax liability of Robert and Allene for the taxable years 1972 through 1975, income tax audit changes were determined and on December 19, 1976, Robert and Allene executed a Form 4549, indicating their consent to immediate assessment and collection of the following taxes and additions to taxes:
Additions to Tax
Sec. Sec
Year Deficiency 6653(a) 6651
1972 .... $ 639.71 $ 31.99 $ -0-
1973 .... 2,143.91 107.20 -0-
1974 .... 1,985.67 99.28 496.42
1975 .... 32,512.09 1,625.60 8,128.02
The taxes and additions to taxes agreed to by Robert and Allene for the taxable years 1972 and 1973 were assessed on February 2, 1977. The taxes and additions to taxes agreed to by Robert and Allene for the taxable years 1974 and 1975 were assessed on March 21, 1977.
On May 19, 1977, the Internal Revenue Service filed a Federal tax lien on all real property of Robert and Allene located in Madison County, Alabama. This lien concerned the assessed income taxes, including interest and penalties thereon of Robert and Allene for the taxable years 1972 through 1975 in an amount totaling $50,292.09. The respondent attempted to collect the taxes set forth in the Form 4549 from Robert and Allene, but after November 30, 1976, no assets or other avenues of collection with regard to Robert and Allene were available to respondent. None of the taxes and penalties reflected on the Form 4549 or any interest on these amounts has been paid.
In 1969, Robert's financial difficulties began. On November 12, 1974, a $105,445.66 judgment against Robert in favor of the First National Bank of Huntsville was filed with the Probate Court in Madison County, Alabama. On May 5, 1975, a $48,851.23 judgment against Robert in favor of the Bank of Huntsville was filed with the Probate Court in Madison County, Alabama.
In 1975, R.G., aware of the financial difficulties of his parents, began discussions with third parties concerning the transfer-sale-foreclosure of his parents' property. The following letter from Morris Anderson of First Federal Savings and Loan Association of Huntsville to R.G. was submitted as evidence in this case:
November 19, 1975 Mr. Robert G. Cope, Jr 106 Central Avenue, SE Huntsville, Alabama 35801 Re: Loan #9513 and #9515 Dear Glen:
No sales agreement, new mortgage, or documentation of a $67,014.25 purchased release on any loan was provided for our consideration. The Monterrey property was released from inclusion on a mortgage containing several other parcels of property on January 5, 1976. The release agreement contained only the standard clause that the consideration paid for the release was:
the sum of TEN AND NO/100 ($10.00) DOLLARS and other good and valuable considerations, cash in hand paid to the undersigned by Allene D. Cope * * *.
Between them, Robert and Allene owned several parcels of real property, one of which was owned by Allene and located at 1205 Monterrey, Huntsville, Alabama (hereinafter referred to as the Monterrey property). On January 5, 1976, Robert and Allene executed a deed conveying the Monterrey property to the petitioner. The deed provided, in part, that Allene and Robert:
* * * in consideration of the sum of TEN AND NO/100 ($10.00) DOLLARS * * *, and other good and valuable considerations * * * have this day given, granted, bargained, sold and conveyed and do by these presents hereby give, grant, bargain, sell and convey unto the petitioner the following described real estate * * *. SUBJECT, HOWEVER, to a mortgage in favor of First Federal Savings and Loan Association. * * *
The fair market value of the Monterrey property on January 5, 1976, was $98,000 and its basis was $85,000. As of January 5, 1976, the Monterrey property was encumbered by a mortgage with a loan balance of $49,116.64. This mortgage, executed on May 6, 1971, made both Robert and Allene personally liable for mortgage payments and provided that the transfer of ownership of the property would not affect their liability under the mortgage.
On January 6, 1976, petitioner assumed the mortgage on the Monterrey property. On the same day, Allene and R.G., in his capacity as president of R.G. Cope, Jr., Inc. executed an agreement with regard to the transfer of the Monterrey property to petitioner. Under the agreement, Allene agreed to deed the Monterrey property to the petitioner. Petitioner's receipt of the property and its assumption of the mortgage gave it an equity of $48,883.36 in the property. The agreement provided for petitioner's assumption and payment of all mortgage payments, and petitioner agreed to catch up on back payments, including back taxes. No evidence was submitted to show that such back payments actually were made by the petitioner on or before January 6, 1976. The agreement provided further that:
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