United States v. Henco Holding Corp.

• Decision Date: 19 January 2021
• Docket Number: No. 19-12758,19-12758
• Citation: 985 F.3d 1290
• Parties: UNITED STATES of America, Plaintiff - Appellant, v. HENCO HOLDING CORP., Alfredo Caceres, Luis Alfredo Caceres, Luis Angel Caceres, individually and as beneficiary of the Luis Angel Caceres Charitable Remainder Unitrust, Luis Angel Caceres Charitable Remainder Unitrust, Defendants - Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

985 F.3d 1290

UNITED STATES of America, Plaintiff - Appellant,

v.HENCO HOLDING CORP., Alfredo Caceres, Luis Alfredo Caceres, Luis Angel Caceres, individually and as beneficiary of the Luis Angel Caceres Charitable Remainder Unitrust, Luis Angel Caceres Charitable Remainder Unitrust, Defendants - Appellees.

No. 19-12758

United States Court of Appeals, Eleventh Circuit.

January 19, 2021

Clint A. Carpenter, Arthur Thomas Catterall, U.S. Department of Justice, Chief Appellate Section Tax Division, Robert Scott Silverblatt, Thomas K. Vanaskie, U.S. Department of Justice, Tax Division, Washington, DC, U.S. Attorney Service - Northern District of Georgia, U.S. Attorney's Office, Atlanta, GA, for Plaintiff - Appellant.

Jason S. Bell, Smith Gambrell & Russell, LLP, Atlanta, GA, for Defendant-Appellee Henco Holding Corp.

Jason S. Bell, Sasha Nina Greenberg, Anthony J. Rollins, John Phillip Tyler, Smith Gambrell & Russell, LLP, Atlanta, GA, for Defendants-Appellees Alfredo Caceres and Luis Angel Caceres Charitable Remainder Unitrust.

Jason S. Bell, Sasha Nina Greenberg, Anthony J. Rollins, Smith Gambrell & Russell, LLP, Atlanta, GA, Maria A. Dominguez, Juan C. Ramos, McConnell Valdes, Miami, FL, for Defendant - Appellee Luis Alfredo Caceres.

Before ROSENBAUM, LAGOA, and ANDERSON, Circuit Judges.

LAGOA, Circuit Judge:

This appeal requires us to determine whether the government must separately assess a transferor's tax liabilities against a transferee under Internal Revenue Code ("I.R.C.") § 6901 in order to collect those tax liabilities from the transferee. The government appeals the district court's order dismissing its complaint against Alfredo Caceres, Luis Alfredo Caceres, Luis Angel Caceres, and the Luis Angel Caceres Charitable Remainder Unitrust (collectively, the "Caceres Defendants") on the basis that the government had not timely assessed tax liabilities against the Caceres Defendants as transferees of Henco Holding Corp. pursuant to § 6901. Because we are bound by the United States Supreme Court's decision in Leighton v. United States , 289 U.S. 506, 53 S.Ct. 719, 77 L.Ed. 1350 (1933), and for the reasons stated below, we reverse the district court's order dismissing the complaint as to the Caceres Defendants and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

On June 27, 2018, the government filed suit against Henco to "reduce to judgment [Henco's] unpaid tax liabilities" and against the Caceres Defendants to receive money judgments for fraudulent transfers they received from Henco. At all times relevant to the government's claims, Henco was organized in Georgia as a "C" corporation, and in 1996, the Caceres Defendants owned all of Henco's stock.¹

As of December 1996, Henco's sole asset was its 50.5 percent interest in a subsidiary, Belca Foodservice Corporation. Because Belca's stock had increased substantially in value since the time Henco acquired it, Henco considered selling its shares. If Henco liquidated its Belca shares and directly distributed the proceeds to the Caceres Defendants, however, there would have been a capital gains tax on the liquidation and an additional tax on each distribution. The Caceres Defendants were aware of these tax consequences and sought to avoid the dual taxation. To do so, they came up with a plan, described by the government as "a sham sale of Henco's stock to an intermediary, Skandia Capital Group," which would use a "special purpose vehicle," referred to as UP Acquisitions, to purchase Henco's stock.

On January 31, 1997, Henco sold its Belca stock to an unrelated third party for approximately $37 million in cash. Henco was left with no assets other than that cash from the sale plus cash from the concurrent repayment of debt from Belca to Henco. The Belca stock sale triggered a capital gains tax liability of approximately $13 million against Henco, leaving Henco worth approximately $24 million. Following the Belca stock sale, the Caceres Defendants and Skandia entered into an agreement where UP would acquire all of Henco's stock from the Caceres Defendants for $33,493,284. Thereafter, on or around April 4, 1997, Henco opened a bank account at Rabobank, "a Dutch bank that has provided financing in several intermediary transaction tax shelters." Two of the Caceres Defendants had signature authority over the Rabobank account. On April 9, 1997, Henco transferred $37,187,606.30—the cash from its sale of Belca stock as well as the concurrent repayment of debt from Belca to Henco—to the Rabobank account.

Then, on April 10, 1997, Skandia borrowed the purchase price of $33,493,284 from Rabobank via a promissory note, promising to repay that amount plus interest by May 9, 1997, and pledging the Henco stock it was purchasing to secure the loan. Skandia also promised to immediately declare a dividend from Henco in the amount of the loan plus $1 million and to use the dividend to purchase a certificate of deposit from Rabobank, ensuring Rabobank would get repaid. Skandia then used the loan to purchase the Henco stock, and that same day, Rabobank was instructed to distribute the proceeds (minus a negotiated holdback) to the Caceres Defendants according to their ownership interests. The Caceres Defendants gave up their positions as officers, employees, and directors of Henco, and, in their place, Dag Sundby, who controlled Skandia, became Henco's sole director, president, secretary, and treasurer. Sundby, in a separate transaction, declared the promised dividend to purchase the certificate of deposit from Rabobank, which, upon its maturity, Skandia used to repay the loan from Rabobank.

Following these transactions, the Caceres Defendants received their payouts and gave up their interests in Henco. Thereafter, Henco, to "evade[ ] its responsibility for the capital gains taxes," engaged in additional transactions. On May 16, 1997, Henco's stock was sold to Squires, LLC, a limited liability company formed under the laws of the Isle of Man, for $870,537. A series of transactions involving European currency options with other Skandia subsidiaries acting as tax shelters then occurred. As alleged by the government, the Caceres Defendants’ sale of their Henco stock to Skandia was merely a disguise allowing Skandia to serve as an "intermediary" entity for what was, in substance, a distribution of Henco's cash to the Caceres Defendants. As a result of these transactions, Henco became insolvent by April 10, 1997, as its liabilities were in excess of its assets. Henco subsequently reported an "artificial" $34,917,500 tax loss on its 1997 federal income tax return, completely offsetting the capital gain from the sale of Belca stock.

The Internal Revenue Service ("IRS") audited Henco's 1997 tax return, and Henco subsequently agreed to multiple extensions of the IRS's deadline for making assessments against Henco, extending the deadline to November 27, 2007. On June 13, 2007, the IRS issued a statutory notice of deficiency to Henco, disallowing the tax shelter losses used to offset Henco's capital gain on the sale of Belca stock. Henco defaulted by failing to contest the notice of deficiency in a Tax Court petition, and on October 26, 2007, the IRS assessed taxes, as well as applicable penalties and interest, against Henco, which eventually totaled $56,356,718.77. The IRS gave notice to Henco of this assessment, but Henco failed to pay the amount of the assessed liabilities. Following Henco's failure to pay, the IRS issued a notice of intent to levy and a notice of federal tax lien, both of which informed Henco of its right to request a collection due process hearing. On April 11, 2008, Henco requested a collection due process hearing, and following those proceedings, the IRS sustained the levy and lien filings in an August 6, 2008, notice of determination. On September 5, 2008, Henco filed a Tax Court petition challenging the collection activity and underlying tax liabilities. The Tax Court entered an order sustaining the liabilities assessed against Henco, which, according to the government, estops Henco from challenging any of the assessments.

Several years later, the government filed its complaint against Henco and the Caceres Defendants in the district court.

As to Henco, the government sought to reduce the tax liabilities assessed against Henco, plus further interest and statutory additions allowed by law, to a judgment. Henco did not answer the complaint or otherwise appear before the district court, and on May 21, 2019, the district court entered a default judgment against Henco for $60,777,269.36, i.e., the total amount of unpaid tax, penalties, and interest. The default judgment is not at issue in this appeal.

As to the Caceres Defendants, the government brought claims against them for fraudulent transfers in violation of Georgia's former fraudulent transfers statutes.² See Ga. Code Ann. §§ 18-2-21, 18-2-22 (1997). The government alleged that (1) it became Henco's creditor when Henco sold its Belca stock and incurred capital gains tax liability; (2) the Rabobank loan and Henco stock sale to Skandia were "shams" and the stock sale was, in substance, a liquidating distribution to the Caceres Defendants; (3) Henco was insolvent on the date of the transfers; (4) Henco did not receive valuable consideration from the Caceres Defendants; (5) Henco made the transfers to the Caceres Defendants with the intention to delay or defraud its creditors; and (6) the Caceres Defendants knew the purpose of those transfers. The government alternatively alleged that even if the Henco stock sale were not disregarded as a sham, the Caceres Defendants were still recipients of fraudulent transfers under Georgia law because Henco made a fraudulent transfer to Skandia, which in turn made fraudulent transfers to the Caceres Defendants. Accordingly, the government sought the amounts transferred to each of the Caceres Defendants plus pre- and post-judgment interest. In its claims against the Caceres Defendan...