United States v. Estes, 71-1977 Summary Calendar.
| Decision Date | 13 October 1971 |
| Docket Number | No. 71-1977 Summary Calendar.,71-1977 Summary Calendar. |
| Citation | 450 F.2d 62 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. John L. ESTES, Jr., et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Allen Glenn, Abilene, Tex., for defendants-appellants.
Seagal V. Wheatley, U. S. Atty., El Paso, Tex., Johnnie M. Walters, Asst. Atty. Gen., Morris B. Silverstein, Dept. of Justice, Tax Div., Washington, D. C., for plaintiff-appellee.
Before WISDOM, COLEMAN and SIMPSON, Circuit Judges.
This appeal arises from the Government's efforts to recoup a small portion of the millions of dollars in taxes owed and never paid by Billie Sol Estes and his wife, Patsy D. Estes ("the taxpayers"). The taxpayers filed joint returns for each of the calendar years 1959, 1960, and 1961. The Tax Court determined that Patsy D. Estes was liable for tax deficiencies for those years of more than 9 million dollars. Patsy D. Estes v. C. I. R., No. 245-64 (); Patsy D. Estes v. C. I. R., No. 138-64 (1961); $6,668,848.41). In a bankruptcy proceeding in federal district court, Billie Sol Estes was held liable to the United States for the tax years 1959, 1960, and 1961 for more than 12 million dollars. In the matter of Billie Sol Estes, Bankruptcy Nos. 299 and 308 (U.S.D.C., W.D.Tex., Pecos Division).
As a result of the bankruptcy proceedings Billie Sol Estes paid the Government about $750,000 of the amount he owed. In addition, a stipulation and order was entered in the bankruptcy court which, inter alia, delivered to Patsy Estes as her separate property all the stock of Pecos Transit Mix, Inc. ("PTM"), a Texas corporation. The stipulation and order recited that the stock was delivered to Patsy Estes clear of the claims of any creditors of the bankrupt estates of Billie Sol Estes, Estes Brothers (a partnership consisting of Billie Sol Estes and his brother Bobby Frank Estes), and Bobby Frank Estes. The Government was a party to the bankruptcy proceedings, but not to the stipulation which delivered the PTM stock to Patsy Estes. Certain real estate was also delivered to Billie Sol and Patsy Estes because it comprised their homestead, exempt from general creditors under Texas law.
Soon after the bankruptcy proceedings had been completed, the taxpayers transferred to a trust created by them the homestead real estate and the PTM stock; the taxpayers' children are its beneficiaries. The appellants herein are the trustees of that trust. The taxpayers received no consideration for the transfer into trust. Nor did the taxpayers have other property in Texas sufficient to satisfy the tax liabilities owed by them to the Government. On August 1, 1963, the Government filed formal notices of deficiency and tax liens—after the transfers into trust had been completed, but long after the indebtedness to the Government had arisen.
The Government brought these consolidated actions to foreclose federal tax liens against the Estes homestead and the PTM stock. See Int.Rev.Code §§ 7401-7403. The Government also sought a deficiency judgment against the trustees for any difference between the fair market value of the trust property at the time it was placed in trust and any proceeds which might be realized from the property upon foreclosure. These suits were based on transferee assessments against appellants here, as transferees without consideration of property belonging to the taxpayer. The district court entered judgment against the appellants for $215,335, the value of the properties in question when transferred to the trust; ordered foreclosure of the Government's tax liens against those properties; and granted the Government's request for a deficiency judgment against appellants for the difference between the judgment and the foreclosure proceeds. Appellants' motion for amended findings and for a new trial was denied, and they took this appeal from the judgment below.
The appellants raise three questions on this appeal. They question, first, the propriety of allowing the Government to proceed against the Estes homestead when transferee liability is governed by state law and the homestead is exempt from creditors' claims under state law. Second, the appellants contend that Patsy D. Estes was given possession of the PTM stock as her separate property free and clear of creditors' claims and that the stock should therefore be beyond the Government's reach in the hands of transferees as it allegedly would be beyond the Government's reach in Mrs. Estes's own possession. Finally, the appellants argue that they should not be liable for any difference between the fair market value of the property when transferred to them and the proceeds which the property brings upon foreclosure sale.
We affirm the district court's holding that the Government had the right to follow the homestead and the PTM stock into the appellants' hands. The PTM stock was given to Patsy Estes as her separate property in connection with her husband's bankruptcy proceedings, but Patsy Estes is individually liable to the government for unpaid taxes. Thus the terms of the stipulation by no means preclude satisfaction of the Government's claims from Patsy Estes's separate property. United States v. Mitchell, 403 U.S. 190, 91 S.Ct. 1763, 29 L.Ed.2d 406 (June 7, 1971). Moreover, the stipulation delivered the stock to Patsy Estes free of the claims of creditors of the bankrupt estates. Patsy Estes's own estate, and the claims of her creditors, were not among those before the court in the bankruptcy proceedings. Since the terms of the stipulation do not bar the Government from proceeding against Patsy Estes as owner of the PTM stock, we need not decide whether the Government was bound by the stipulation. The Government could proceed against the stock had it remained in the hands of Mrs. Estes and is now entitled to proceed against the stock in the possession of the appellants. The appellants gave no consideration for the transfer by Mrs. Estes at a time when she owed the Government a huge amount of money and had no other assets which might satisfy her indebtedness.
The Government's right to follow the Estes homestead is only slightly less apparent. The parties agree that the precise nature and extent of a transferee's liability are...
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