U.S. v. Evans, Civil Action No. SA-05-CV-099-XR.
| Decision Date | 22 March 2007 |
| Docket Number | Civil Action No. SA-05-CV-099-XR. |
| Citation | 513 F.Supp.2d 825 |
| Parties | UNITED STATES of America, Plaintiff, v. Linda EVANS, et al., Defendants. |
| Court | U.S. District Court — Western District of Texas |
David B. Coffin, Department Of Justice, Tax Division, Dallas, TX, for Plaintiff.
David P. O'Neil, Habern, O'Neil & Buckley, LLP, Robert D. Neuwirth, III, Law Office of Robert D. Neuwirth, III, Huntsville, TX, for Defendants.
On this date, the Court considered Plaintiffs motion for summary judgment (Docket No. 30) and Defendants' sealed motion for partial summary judgment (Docket No. 32). For the reasons discussed below, Plaintiff's motion for summary judgment is GRANTED IN PART AND DENIED IN PART and Defendant's sealed motion for partial summary judgment is GRANTED IN PART AND DENIED IN PART. The Court will set aside Linda Evans' property transfers to South Texas Royalty Co., Ltd. ("South Texas") because they were fraudulent transfers under section 24.006(a) of the Texas Uniform Fraudulent Transfers Act ("TUFTA"). The Court expresses no opinion on the Government's section 24.005(a)(1) TUFTA claim. The Court finds that the TUFTA's four-year extinguishment provision does not apply to Plaintiff. The Court expresses no opinion on Plaintiff's nominee or alter ego theory of liability. The Court will enter judgment against Linda Evans for her joint income tax liability in the amount of $519,124.23 for 1989, 1990, and 1993. Post-judgment interest will accrue at a rate of 4.93% pursuant to 28 U.S.C. § 1961. The Court will not impose fiduciary liability on Linda Evans for the Estate's income tax liability for 1989, 1990, and 1991 because the 2001 agreed Tax Court judgment was res judicata of that claim.
All remaining deadlines contained in the Court's Scheduling Order are VACATED. The Court will enter judgment on a separate document pursuant to Rule 58 of the Federal Rules of Civil Procedure. Plaintiff is ORDERED to file a proposed judgment within two weeks from the date that this Order is signed. If Defendants reach a settlement with the IRS before Judgment is entered, they might be able to avoid a Court ordered sale of the transferred assets held by South Texas.
The United States has filed a motion for summary judgment against all Defendants. The Government seeks to (1) reduce several years of tax assessments against the Estate of Robert C. Evans, Jr., deceased, and Linda Evans to judgment; (2) hold Linda Evans personally liable for the separate income tax liabilities of the Estate; (3) set aside allegedly fraudulent transfers of property interests from Linda Evans to a limited partnership; and (4) obtain an order of sale on the property interests and an order allowing seizure of personal property to satisfy the delinquent tax liabilities.
Robert C. Evans, Jr. is the late husband of Linda Evans. He died on October 3, 1993, and Linda Evans was appointed as the independent executrix of his estate ("Estate"). Linda Evans filed an inventory with the probate court of Dimmit County, Texas, listing the total value of the Estate at $593,723. The terms of Robert Evans' will generally provided that Linda Evans would receive half of Mr. Evans' property upon his death, and the remainder would be held in trust for the benefit of his three children.
Prior to his death, the IRS had sent Mr. Evans a letter on June 23, 1992 indicating that his income tax returns for 1986 and 1987 had been selected for examination. After his death, the IRS examination was expanded to include the Evanses' returns for 1989 through 1992, resulting in a letter dated April 20, 1994 requesting the Evanses' 1992 and 1993 income tax returns and summarizing the IRS' findings for the years 1986 through 1991. On July 31, 1995, the IRS. sent Robert Evans, deceased, and Linda Evans a letter indicating that the IRS proposed assessing taxes against Linda Evans and the Estate for the 1989, 1990, and 1991, in the amounts of $56,318, $47,498, and $22,243, respectively. Penalties of $23,106, $17,524, and $10,010 were also proposed and listed for each year.
Around July of 1995, Linda Evans' CPA and her attorney suggested that she create a limited partnership with a corporate general partner and transfer all her and her late husband's assets to that limited partnership. On August 2, 1995, Linda Evans, as president of the named general partner, Laredo Royalty Corp. ("Laredo Royalty"), signed the Articles of Limited Partnership and Certificate of Limited Partnership of South Texas Royalty Co., Ltd. ("South Texas"). Paragraph 6 of the Articles listed the partners of South Texas, along with their corresponding capital contributions and initial ownership percentages:
General Partner: Laredo Royalty Corp. 1%
Limited Partner: Linda Evans 69%
Limited Partner: Kimberly Evans Dockery 10%
Limited Partner: Jason Mellinger 10%
Limited Partner: Kimberly Evans Dockery, Custodian of Robert Kendall Evans 10%
Laredo Royalty was formed on July 19, 1995 (according to its tax returns) for the purpose of serving as the general partner of South Texas. Laredo Royalty is paid a "management fee" from South Texas and does not perform work for other entities. On September 23, 1995, via six deeds, Linda Evans transferred all interest owned individually, and as independent executrix of the Estate, in her homestead residing on the 53.15 acres in Dimmit County, Texas, and in all mineral interests owned within and outside of Texas, to South Texas. Per the Inventory, these items totaled $360,850. In addition to the transfers of these properties, sometime in 1995, Linda Evans transferred life insurance proceeds totaling $740,000 to South Texas.1
On South Texas' Forms 1065 for the 1995 tax year, the Schedule K1 listed the partners with their corresponding capital contributions and ownership interests at the end of the year:
Cap. Contr. Capital Year End Ownership %
Linda P. Evans Cap. $737,161 $706,653 70.80%
Kimberly Evans Dockery $97,832 $103,223 9.40%
Jason Mellinger $97,832 $103,223 9.40%
Kimberly Evans Dockery, $97,832 $103,223 9.40%
Custodian for Robert Kendall Evans
Laredo Royalty Corp. $10,550 $11,124 1.00%
On South Texas' Form 1065 for the 1996 tax year, the Schedule K-1 listed the partners with their corresponding capital contributions and revised ownership interests at the end of the year:
No capital or ownership percentage was reported for Linda Evans on the 1996 return, indicating that she disposed of her ownership interest in South gift or disposition of her partnership interest to the children was not reported to the IRS on any of her income tax returns, and she did not file any related gift tax return. The respective ownership percentages in South Texas have not changed since 1996.
Linda Evans receives royalty checks on a monthly basis, in amounts ranging between $5,000 to $8,000, for the mineral interests owned by South Texas. She deposits these checks in South Texas' bank account. Linda Evans still lives in the home owned by South Texas. Linda Evans current and sole source of income is derived from her position as manager for Laredo Royalty. Linda Evans pays the bills, maintenance, upkeep, and electricity on the residence out of the Laredo Royalty bank account.
The Government seeks to reduce tax, penalty, and interest assessments totaling $824,051.53 to judgment. The Government claims that Linda Evans was the sole independent executrix and one of the beneficiaries of her deceased husband's estate and that she is personally liable as a fiduciary for the Estate's income tax liability under 31 U.S.C. § 3713. The Government claims that transfers of property by Linda Evans, individually, and on behalf of the Estate to South Texas after the death of her husband constituted fraudulent transfers that should be set aside by the Court. The Government seeks to set aside these allegedly fraudulent transfers by relying on TUFTA. The Government claims that TUFTA's four-year extinguishment provision does not apply to the federal government. The Government claims that it can rely on TUFTA to set aside the allegedly fraudulent transfers and that it is bound by the ten year statute of limitations founds in 26 U.S.C. § 6502(a)(1), not the four-year extinguishment provision found in TUFTA. Alternatively, the Government seeks to set aside the transfers by alleging that the limited partnership is holding the assets as a nominee or alter ego of Linda Evans.
On. January 12, 1998, the United States Tax Court determined that Linda Evans and her husband, jointly (they filed joint 1040 income tax returns), owed the following income tax deficiencies, additions, and penalties for 1989, 1990, and 1991:
1998 Tax Court Judgment
Joint Liability
Year Deficiency Addition Penalty
1989 $63,105 $15,776 $9,203
1990 $52,402 $13,101 $5,650
1991 $26,264 $6,566 $5,156
The Tax Court held that Linda Evans was not entitled to innocent spouse relief. Evans v. C.I.R., T.C. Memo 1998-11 (Jan. 12, 1998). The Fifth...
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