Rubenstein v. Comm'r of Internal Revenue

• Decision Date: 07 June 2010
• Docket Number: No. 1254–06.,1254–06.
• Citation: 134 T.C. No. 13,134 T.C. 266
• Parties: Scott E. RUBENSTEIN, Transferee, Petitioner v. COMMISSIONER of INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

134 T.C. 266

134 T.C. No. 13

Scott E. RUBENSTEIN, Transferee, Petitioner

v.COMMISSIONER of INTERNAL REVENUE, Respondent.

No. 1254–06.

United States Tax Court.

June 7, 2010.

For many years P has lived with and cared for his father in Florida. In 2003 P's father, who was insolvent and had substantial unpaid income tax liabilities, transferred to P, for little or no consideration, the condominium in which they both resided. The IRS had previously determined, for purposes of calculating his reasonable collection potential, that P's father had zero net equity value in the condominium. After the transfer R determined that pursuant to sec. 6901, I.R.C., P has transferee liability equal to the condominium's fair market value as of the date of the transfer. R contends that the transfer was constructively fraudulent under Florida's Uniform Fraudulent Transfer Act (FUFTA), which applies to certain transfers of “assets”, defined in Fla. Stat. Ann. sec. 726 .106(2)(b) (West 2000) to exclude property that is “generally exempt under nonbankruptcy law”. P asserts and R does not deny that under Florida law the condominium was his father's exempt homestead property. Consequently, P argues, because the condominium was “generally exempt under nonbankruptcy law”, it is not an “ asset” for purposes of the FUFTA and its transfer to P is not avoidable under the FUFTA.

Held: As to the United States, homestead property is not “generally exempt under nonbankruptcy law” within the meaning of the FUFTA because it is reachable by the United States through judicial process to enforce collection of unpaid income tax liabilities; the condominium constitutes an “asset” for purposes of R's claim under the FUFTA. Held, further, the care that P provided for his father did not constitute “reasonably equivalent value” for the condominium within the meaning of the FUFTA, and the transfer was constructively fraudulent thereunder. Held, further, R is not equitably estopped from asserting transferee liability under sec. 6901, I.R.C., by virtue of having previously determined that the condominium had zero net equity value as to P's father for purposes of calculating his reasonable collection potential.

Scott E. Rubenstein, pro se.

Timothy Sloane, Sergio Garcia-Pages, for respondent.

THORNTON, Judge:

Respondent determined that pursuant to section 6901 petitioner has transferee liability of $44,681, plus interest as provided by law, arising from his father's transfer to him of a Florida condominium.¹ Petitioner contends and respondent does not appear to dispute that the condominium qualified for homestead exemption under Florida law. The issues for decision are: (1) Whether the transfer was constructively fraudulent pursuant to section 726.106(1) or (2) of Florida's Uniform Fraudulent Transfer Act (FUFTA), codified at Fla. Stat. Ann. secs. 726.101 to 726.112 (West 2000); and (2) whether respondent is equitably estopped from asserting transferee liability against petitioner.

FINDINGS OF FACT

The parties have stipulated some facts, which we so find. When he petitioned the Court, petitioner resided in Florida.

Petitioner's Care for His Father

In 1989, with his mother's health in decline, petitioner moved from his home in New Jersey to live with his parents in Florida. In 1993 his mother passed away. Since then, petitioner has continued to live with his father, Jerry Rubenstein, in Florida. While living with his father, petitioner has provided care for him. They have had no understanding or agreement that petitioner would be compensated for these services. Instead, petitioner has been motivated to care for his father by love, honor, respect, and devotion. Petitioner has never been a licensed caregiver or engaged in business as a caregiver for profit.

The Condominium

In March 2002 Jerry Rubenstein purchased for $35,000 a condominium in Delray Beach, Florida (the condominium). He and petitioner have since resided there together. On February 21, 2003, Jerry Rubenstein transferred the condominium to petitioner by warranty deed for stated consideration of $10 and “other good and valuable consideration”. That same day, petitioner recorded the warranty deed with the Clerk and the Comptroller of Palm Beach County, Florida. The fair market value of the condominium was then $41,000, and there were no liens or other encumbrances on the condominium (without consideration of any Federal tax lien). On July 22, 2004, petitioner mortgaged the condominium to secure a revolving credit agreement with a bank.

Jerry Rubenstein's Financial Circumstances and Tax Liabilities

As of February 21, 2003—the day he transferred the condominium to petitioner—Jerry Rubenstein was insolvent and unable to pay his debts. Petitioner was aware of this fact. Jerry Rubenstein's debts included $112,420 that he owed the United States for unpaid Federal income taxes, penalties, and interest for his taxable years 1994 through 2002.²

On May 13, 2002, Jerry Rubenstein had submitted to the Internal Revenue Service (IRS) an offer-in-compromise of $10,000 to settle his income tax liabilities for taxable years 1994 through 2001. By letter dated November 8, 2002, the IRS had rejected his offer-in-compromise on the ground that the amount offered was less than his reasonable collection potential (RCP) of $34,475. According to an asset/equity table attached to the rejection letter, in calculating Jerry Rubenstein's RCP the IRS had determined that his “Net Realizable Equity” in the condominium was zero.³

On September 29, 2004—some 18 months after Jerry Rubenstein had transferred the condominium to petitioner—the IRS filed, for the first time, a notice of Federal tax lien with respect to Jerry Rubenstein's unpaid assessments for income taxes, penalties, and interest for the years 1994 through 2002.

Notice of Transferee Liability

By notice dated October 17, 2005, the IRS determined that petitioner had liability of $44,681, plus interest as provided by law, as Jerry Rubenstein's transferee of the condominium, with respect to Jerry Rubenstein's unpaid income tax, penalties, and interest for taxable years 1998 through 2002.

OPINION

A. Transferee Liability

Respondent contends that pursuant to section 6901(a), petitioner, as the transferee of the condominium from his father, is liable for $41,000 plus “statutory interest” for unpaid tax liabilities, penalties, and interest owed by his father.⁴

1. Section 6901

Section 6901(a) provides that the liability of a transferee of a taxpayer's property may be “assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred”. Section 6901(a) does not create or define a substantive liability but merely provides the Commissioner a procedure to assess and collect from the transferee of property the transferor's existing liability. See Commissioner v. Stern, 357 U.S. 39, 42, 78 S.Ct. 1047, 2 L.Ed.2d 1126 (1958) (discussing statutory predecessor of section 6901). For purposes of this case, the existence and extent of the transferee's liability are determined by the law of the State in which the transfer occurred; i.e., Florida.⁵ See id. at 45; Sawyer Trust v. Commissioner, 133 T.C. ––––, ––––, (2009) (slip op. at 20). Respondent bears the burden to prove that petitioner is liable as Jerry Rubenstein's transferee but not to show that Jerry Rubenstein is liable for tax. See sec. 6902(a); Rule 142(d).

2. Florida Uniform Fraudulent Transfer Act

Respondent argues that petitioner is liable as a transferee under Fla. Stat. Ann. sec. 726.106, which is identical to section 5 of the Uniform Fraudulent Transfer Act (UFTA). When certain conditions are met, these provisions treat a “transfer” by an insolvent debtor as constructively fraudulent; i.e., without regard to the actual intent of the parties.⁶ The FUFTA, like the UFTA, defines a “transfer” as a mode of disposing of or parting with an “asset”. Fla. Stat. Ann. sec. 726.102(12); UFTA sec. 1(12), 7A (Part II) U.L .A. 15 (2006). If the term “asset” does not apply to property that has been conveyed, then there is no “transfer”. Ries v. Wintz Props., Inc. ( In re Wintz Cos.), 230 Bankr.848, 860 (Bankr. 8th Cir.1999) (construing identical language in Minnesota UFTA). A threshold question, then, is whether the condominium constituted an “asset” within the meaning of the FUFTA.

a. Whether the Condominium Was an “Asset ”

The FUFTA, like the UFTA, defines “asset” broadly as “property of a debtor” but expressly excludes “Property to the extent it is generally exempt under nonbankruptcy law”.⁷ Fla. Stat. Ann. sec. 726.102(2)(b); UFTA sec. 1(2)(ii), 7A (Part II) U.L.A. 14. Petitioner contends, and respondent does not appear to dispute, that the condominium qualified as Jerry Rubenstein's homestead under Florida law.⁸ Consequently, petitioner suggests, the condominium was “generally exempt under nonbankruptcy law” and so does not constitute an “asset” within the meaning of the FUFTA.

We have found no case expressly addressing this issue under the FUFTA or any other State's version of the UFTA. Petitioner's position might appear to be bolstered by cases holding, as a general proposition, that homesteads are “generally exempt under nonbankruptcy law” and are thus excluded from the definition of “asset” under the UFTA. See, e.g., O'Neil v. Jones, 403 Bankr.228, 236 (Bankr.D.Conn.2009) (holding that homestead property was not an “asset” under Connecticut UFTA to the extent of $75,000 homestead exemption provided under Connecticut law and stating that “a Debtor's transfer of an interest in property that is exempt under Connecticut law cannot be a fraudulent transfer” under Connecticut UFTA); Fidelity Natl. Title Ins. Co. v. Shroeder, 179 Cal.App.4th 834, 101 Cal.Rptr.3d 854, 858 (Ct.App.2009) (holding that the definition of “asset” under California UFTA excludes property subject to California's automatic homestead exemption); ...