Stanko v. Commissioner
| Decision Date | 02 December 1996 |
| Docket Number | Docket No. 25200-91. |
| Parties | Jean A. Stanko v. Commissioner. |
| Court | U.S. Tax Court |
Robert B. Creager and John Stevens Berry, Lincoln, Neb., for the petitioner. William R. Davis, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined that petitioner is liable as a successor transferee for the 1985 income tax and additions to tax owed by Stanko Packing Co., Inc. (Stanko Packing), as follows: An income tax deficiency in the amount of $1,324,964, and additions to tax for failure to file under section 6651(a) in the amount of $323,806, for negligence under section 6653(a)(1) and (2) in the amounts of $66,248 and 50 percent of the interest due on $1,295,223, and for failure to pay corporate estimated income tax under section 6655 in the amount of $83,203.
After concessions, the issues for decision are:
(1) Whether petitioner is barred by res judicata from contesting that Stanko Packing's liability for income tax and additions to tax for 1985 are other than as decided in Stanko v. Commissioner [Dec. 49,381(M)], T.C. Memo. 1993-513, affd. without published opinion 42 F.3d 1402 (9th Cir. 1994); and that her former husband, Rudy Stanko (Stanko), is liable as a transferee of Stanko Packing for its income tax and additions to tax for 1985. We hold that she is.
(2) Whether, and if so the extent to which, petitioner is liable under Nebraska law for the 1985 income tax and additions to tax of Stanko Packing Co. as a successor transferee of its assets. We hold that she is liable for the amount of 1985 income tax and additions to tax of Stanko Packing stipulated by the parties.
(3) Whether the value of the Packerland note when Stanko transferred it to petitioner was $2,806,979 as respondent contends; $501,240 as petitioner contends; or some other amount. We hold that the value was $2,806,979.
Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the year at issue, and Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found.
Petitioner lived in Scottsbluff, Nebraska, when she filed the petition. Scottsbluff is in Scotts Bluff County.
Petitioner has a bachelor of science degree from Oregon State University. She worked in Denver as a medical research chemist for 4 years before she married Stanko. In 1973, petitioner and Stanko were married, and petitioner moved to Gordon, Nebraska. Petitioner quit working outside the home. She and Stanko had four children.
Stanko was the president and sole shareholder of Stanko Packing, an accrual basis meat packing corporation doing business in Gering, Nebraska. Stanko's cousin, Henry Stanko, had been a coowner of Stanko Packing until Stanko bought his stock sometime after December 1980.
R.G. Stanko Express, a subsidiary of Stanko Packing, was a trucking company. The School of Gymnastics, Inc., was also a subsidiary of Stanko Packing. Stanko owned a meat packing plant in Denver, Colorado, called Cattle King Packing Co. Henry Stanko worked at Cattle King until Stanko closed it in 1984. Stanko also owned stock in Butch's Cattle Co. and Jackson Feeders.
Sugar Valley Export Co., Inc. (Sugar Valley), was a wholly owned export subsidiary of Stanko Packing incorporated in 1979. Before 1984, Sugar Valley elected to be taxed as a domestic international sales corporation (DISC). Stanko Packing's basis in its Sugar Valley stock was $61,006 on the date when Stanko Packing is deemed to have received a distribution from Sugar Valley of its previously untaxed accumulated income.
In April 1984, Stanko was indicted on 15 counts of violating the Federal Meat Inspection Act, ch. 404, 56 Stat. 351 (1942) ().
On May 30, 1984, Concepcion Giove (Giove) filed an action against Stanko and Henry Stanko, Cattle King Packing Co., and others in the U.S. District Court for the District of Colorado. She alleged that the defendants had violated her rights under title VII of the Civil Rights Act of 1964, as amended, Pub. L. 88-352, 78 Stat. 241, 253 (now at 42 U.S.C. sec. 2000e-2 (1988)). Giove v. Cattle King, Inc., Civil No. 84-C-1096.
On June 14, 1984, Stanko Packing adopted a plan of complete liquidation. On July 16, 1984, Packerland Packing Co., Inc. (Packerland), of Green Bay, Wisconsin, agreed to buy most of the assets of Stanko Packing for $3,900,000.
Packerland gave Stanko Packing a $3 million promissory note dated July 16, 1984 (the Packerland note). The note required Packerland to pay to Stanko Packing $3 million plus interest at 11-1/2 percent per annum, as follows: $345,000 of interest on July 16, 1985; and thereafter, principal and interest in equal monthly installments of $78,270. The unpaid principal and interest were due on July 16, 1989. The note was secured by a deed of trust and by the land, improvements, and personal property which Packerland bought from Stanko Packing.
Stanko Packing filed a Statement of Intent to Dissolve with the State of Nebraska on July 23, 1984.
On September 14, 1984, Stanko was convicted on seven of the counts of violating the Federal Meat Inspection Act for which he had been indicted in April. United States v. Cattle King Packing Co., No. 84-CR-094 (D. Colo. 1984). On October 11, 1984, Stanko was sentenced to 6 years in prison and fined $70,000 for these violations. The U.S. Court of Appeals for the Tenth Circuit affirmed Stanko's conviction. United States v. Cattle King Packing Co., 793 F.2d 232 (10th Cir. 1986).
By August 1984, petitioner knew that Stanko Packing had sold most (but not all) of its assets to Packerland. From August 1984 to June 1985, petitioner was more involved in Stanko Packing's daily operations than she had been previously. She controlled Stanko Packing's checkbook and paid Stanko Packing's expenses. She also reviewed its bank statements and sometimes talked to Stanko about whether to pay Stanko Packing's expenses. She had detailed knowledge about the operations of R.G. Stanko Express. During this time, she communicated with accountants at Fred Lockwood & Co. about Stanko Packing. Fred Lockwood was Stanko Packing's accountant until the summer of 1985. Petitioner knew that Stanko Packing's records had been seized, presumably by law enforcement officials, in late 1984 or 1985.
In March 1985, petitioner had Stanko Packing pay her $1,500 for her work on its behalf.
On September 17, 1984, Stanko Packing transferred the Packerland note, cash, and other property to Stanko, which made Stanko Packing insolvent. Petitioner knew that Stanko Packing transferred the note to Stanko.
Stanko transferred the following property to petitioner on September 17, 1984: (a) 250 shares of Sugar Valley stock; (b) 4,000 shares of Butch's Cattle Co. stock; (c) 500 shares of Jackson Feeders stock; and (d) 500 shares of stock in the School of Gymnastics. On that date, he also transferred to petitioner his interest in (a) his and petitioner's home at 333 Skyline Drive, Scottsbluff; (b) lot 2, block 5, Sunrise Hills Addition, Scottsbluff; and (c) lots 1 and 2, block 2, Ditch North Addition, Scottsbluff. Petitioner owned an interest in lot 2, block 5, Sunrise Hills Addition, and in lots 1 and 2, block 2, Ditch North Addition, before September 17, 1984. Stanko's interest in their home at 333 Skyline Drive was worth from $10,000 to $12,500; his interest in lot 2, block 5, Sunrise Hills Addition was worth about $4,000; and his interest in lots 1 and 2, block 2, Ditch North Addition was worth about $15,000 when Stanko transferred them to petitioner.
On September 19, 1984, Stanko transferred the Packerland note to petitioner. The transfer occurred in Nebraska. Petitioner knew about the transfer within several days of September 19, 1984. Petitioner did not pay Stanko Packing or Stanko for the note. Petitioner paid the tax on the income from the Packerland note. Stanko owed no debts to petitioner when he transferred the note to her. Petitioner was married to Stanko at that time.
1. Income From Sugar Valley Export Co.
Sugar Valley filed its tax returns as a DISC (Forms 1120-DISC) for its taxable years ending September 30, 1983 and 1984. Sugar Valley reported export receipts of $2,730,989 for its taxable year ending September 30, 1984. Petitioner signed Sugar Valley's return for its taxable year ending September 30, 1984, as its secretary. Carol Lockwood, an accountant with Fred A. Lockwood & Co., prepared the DISC return for Sugar Valley's tax year ending September 30, 1984. Carol Lockwood was one of the accountants who handled the Stanko Packing account.
For its taxable year ending June 21, 1985, Stanko Packing recognized taxable income in the following amounts from Sugar Valley:
Gross receipts1 .................. $2,457,890
Deemed distribution2 ............. 171,645
Accumulated DISC income3 ......... 253,322
1 Stanko Packing received 90 percent, or $2,457,890, of
Sugar Valley's export receipts for products that it sold to
Sugar Valley from Oct. 1, 1983 to Sept. 30, 1984
2 Stanko Packing is deemed to have received a distribution
of $171,645, taxable as a dividend, from Sugar Valley on
Sept. 30, 19984. Sec. 995(b)(1)
3 Stanko Packing is deemed to have received a distribution
of $253,322 of previously untaxed accumulated income from
Sugar
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