Senda v. C.I.R., 05-1118.

• Decision Date: 06 January 2006
• Docket Number: No. 05-1118.,05-1118.
• Citation: 433 F.3d 1044
• Parties: Mark W. SENDA and Michele Senda, Appellants, v. COMMISSIONER OF INTERNAL REVENUE Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1044

433 F.3d 1044

Mark W. SENDA and Michele Senda, Appellants, v. COMMISSIONER OF INTERNAL REVENUE Appellee.

No. 05-1118.

United States Court of Appeals, Eighth Circuit.

Submitted: September 12, 2005.

Filed: January 6, 2006.

Daniel V. Conlisk, argued, St. Louis, MO (James R. Dankenbring and James R. Loranger, on the brief), for petitioners.

Bethany B. Hauser, argued, U.S. Dept. of Justice, Tax Division, Washington, DC (Jonathan S. Cohen, U.S. Dept. of Justice, Tax Div., on the brief), for respondent.

Before MELLOY, BEAM, and BENTON, Circuit Judges.

BENTON, Circuit Judge.

Mark W. Senda and his wife, Michele Senda, received a notice from the Commissioner of Internal Revenue for deficiencies in gift tax. Reviewing their petition, the tax court¹ found deficiencies of $185,572 for 1998 and $276,321 for 1999. See Senda v. Comm'r, 2004 WL 1551275 (T.C. Memo.2004-160) (U.S.Tax Ct.,2004). The Sendas appeal under Section 7482 of the Internal Revenue Code. This court affirms.

I.

In the spring of 1998, the Sendas created the Mark W. Senda Family Limited Partnership. Mark Senda — as trustee of his revocable living trust — was the general partner with a 10 percent interest, as well as a limited partner with a 89.8397 percent interest. Michele Senda owned a limited interest of 0.1303 percent. According to the partnership agreement, each of their three children had a limited interest of 0.01 percent — held in (an oral) trust with Mark Senda as trustee. The children reported partnership income/losses on their individual tax returns.

On December 28, 1998, in exchange for their interests, the Sendas transferred 28,500 shares of MCI WorldCom stock, then worth about $2 million, to the partnership. The children's trusts, according to Mark Senda, contributed oral accounts receivable (reported at $200) in exchange for their interests — which were unpaid at the time of trial. On their gift-tax return for 1998, the Sendas reported that on December 28, they gave all their limited interests equally to their three minor children.

By December 17, 1999, the Sendas formed a second partnership, Senda & Associates, L.P. Mark Senda's revocable trust was the general partner with a 1.0 percent interest, as well as a limited partner with a 97.97 percent interest. Michele Senda owned a 1.0 percent limited interest. Irrevocable (written) trusts for each child held limited interests of 0.01 percent each.

On December 20, 1999, in exchange for their interests, the Sendas transferred 18,477 shares of MCI WorldCom stock, then worth about $1.5 million, to this partnership. The children's trusts, according to Mark Senda, gave oral accounts receivable (reported at $148) in exchange for their interests — which were unpaid at the time of trial. On their gift-tax return for 1999, the Sendas reported that on December 20, they gave a total of 53.7 percent limited interest in Senda & Associates, L.P., equally to the trusts for the three children.

The Sendas' essential claim is that they made gifts of partnership interests. The Commissioner says they made indirect gifts of stock. At stake is the value of the gifts. The Sendas value the partnership interests by multiplying the value of the stock by the percentage of interests transferred, and then discounting by (stipulated) lack-of-marketability and minority-status factors. The Commissioner values the gifts at the full undiscounted value of the stock.

II.

The Internal Revenue Code taxes the transfer of property by gift, whether "direct or indirect." 26 U.S.C. §§ 2501(a)(1), 2511(a). The Code "is clear and admits of but one reasonable interpretation: transfers of property by gift, by whatever means effected, are subject to the federal gift tax." Dickman v. Comm'r, 465 U.S. 330, 334, 104 S.Ct. 1086, 79 L.Ed.2d 343 (1984). "Thus, any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax." Treas. Reg. (26 C.F.R.) § 25.2511-1(c)(1).

A.

According to the Sendas, the tax court should have shifted the burden of proof to the Commissioner on the indirect-gift issue, under Tax Court Rule 142(a)(1). The Commissioner concedes he did not raise this issue in the notice of deficiency, but claims it is not a "new matter." This court reviews de novo whether an issue is a new matter in the tax court. See Blodgett v. Comm'r, 394 F.3d 1030, 1040 (8th Cir.2005).

"A new position taken by the Commissioner is not necessarily a `new matter' if it merely clarifies or develops the Commissioner's original determination without requiring the presentation of different evidence, being inconsistent with the Commissioner's original determination, or increasing the amount of the deficiency." Id. Here, indirect-gift analysis did not require new evidence, did not increase the 1998 and 1999 deficiencies, and was consistent with the value determinations in the deficiency. Thus, the indirect-gift issue was not a new matter, and the burden of proof was on the Sendas. See Clajon Gas Co. v. Comm'r, 354 F.3d 786, 789 (8th Cir.2004).

B.

The tax court found that the Sendas "presented no reliable evidence that they contributed the stock to the partnerships before they transferred the partnership interests to the children." This sequence is critical, because a contribution of stock after the transfer of partnership interests is an indirect gift to the partners (to the extent of their proportionate interest in the partnership). See Shepherd v. Comm'r, 283 F.3d 1258, 1261 (11th Cir.2002), affirming Shepherd v. Comm'r, 115 T.C. 376, 388, 2000 WL 1595698 (2000); cf. Treas. Reg. (26 C.F.R.) § 25.2511-1(h)(1) (rule for corporations).

The Sendas attack the factual and credibility findings of the tax court. This court reviews tax court decisions in the same manner and to the same extent as decisions of the district court in civil actions tried without a jury. 26 U.S.C. § 7482(a)(1). Factual determinations are reviewed for clear error. See Estate of Schuler v. Comm'r, 282 F.3d 575, 578 (8th Cir.2002). This court upholds factual findings unless "left with a definite and firm conviction" that the tax court committed a mistake. Estate of Ford v. Comm'r, 53 F.3d 924, 926-27 (8th Cir.1995)(quoting Estate of Palmer v. Comm'r, 839 F.2d 420, 423 (8th Cir.1988)). Findings of credibility are nearly unreviewable. See Blodgett, 394 F.3d at 1035.

The tax court's key findings are:

It is apparent from petitioner's evasive testimony and from the total record that petitioners were more concerned with ensuring that the beneficial ownership of the stock was transferred to the children in tax-advantaged form than they were with the formalities of FLPs. Indeed, petitioner, as general partner, did not maintain any books or records for the partnerships other than brokerage account statements and partnership tax returns. Those tax returns were prepared months after the transfers of the partnership interests. Thus, they are unreliable in deciding whether petitioners transferred the partnership interest to the children before or after they contributed the stock to the partnerships. The same is true of the certificates of ownership reflecting the transfers of the partnership interests, which were not prepared until at least several weeks after the transfers. The informality is not surprising, inasmuch as petitioners alone, individually, or on behalf of their minor children were united in purpose and acted without restraint by any adverse interest. As a result, however, petitioners have presented no reliable evidence that they contributed the stock to the partnerships before they transferred the partnership interests to the children. At best, the transactions were integrated (as asserted by respondent) and, in effect, simultaneous.

Senda v. Comm'r, 2004 WL 1551275, T.C. Memo.2004-160, p. 15.

The Sendas object to these findings, pointing to evidence that they contributed the stock before transferring the partnership interests. First, they rely on their gift-tax returns, the partnership's income-tax returns, and the partnership certificates of ownership. The tax court did not clearly err in ruling these after-the-fact documents unreliable. Second, the Sendas emphasize two letters faxed to tax advisors, one about each partnership, asking what percents of partnership interests should be gifted in order to obtain the best tax treatment. These letters are not conclusive. The first letter is dated the same day as the transfer of stock to the first partnership, and thus does not indicate any specific order of events. The second letter is dated two days after the second stock transfer, although the Sendas' return says they transferred the partnership interests two days earlier, the same day as the stock transfer. Significantly, the testimony of Mark Senda — that his business practice is to execute documents and transactions "as of" a certain date — undercuts the reliability of the dates on the letters. On this record, the tax court did not clearly err in its factual and credibility findings.

C.

In an alternative tack, the Sendas argue that it is "irrelevant" whether the stock transfer was before or after the gift of partnership interests. They say:

If the Sendas had made their capital contributions after they made the transfers of their limited partnership interest, the contributions would still have been allocable to the capital accounts associated with the partnership interests retained by the Sendas. Therefore, it was impossible under the terms of the partnership agreements for the Sendas to transfer their capital accounts without transferring the corresponding partnership interests.

The Sendas believe this also distinguishes the Shepherd case — which the tax court follows — where the partnership agreement allocated additional contributions pro rata among the partners' accounts. See Shepherd, 115 T.C. at 380, 389, 283 F.3d at 1261.

The Sendas...