Wife Had Transferee Liability; Government Properly Entitled to Judgment (Patras, CA-3)
A widow who acquired property subject to a federal tax lien through a transfer that was fraudulent under state (New Jersey) law was personally liable for her deceased husband’s tax liability. A friend of the widow’s husband purchased the property from the husband’s bankruptcy estate and rented the property to the couple. Then a second friend purchased the property with the husband’s financial help and the couple continued to live in the property paying rent that covered all of the expenses, including mortgage, taxes, insurance and utilities. Four years later, the property was “sold” to the wife for an amount that covered only the mortgage, down payment and capital gains taxes, but provided no profit.
The second buyer was the husband’s nominee under state law because he was the husband’s friend, he failed to pay adequate consideration for the property, the tax debtor’s retained possession of the property and he continued to enjoy the benefits of ownership. Moreover, there was no evidence that the couple rented the property with an option to purchase. Therefore, the district court’s conclusion that the tax debtor was the beneficial owner of the property was amply supported.
Contrary to the widow’s argument, the fraudulent transfer law was not limited to transfers made by the tax debtor. Rather, the focus is on transfers of property that would otherwise be available to creditors. Further, the transfer was made to hinder or avoid collection of the husband’s tax liability. The widow was an insider who obtained the property for less than reasonably equivalent value and the tax debtor husband, who was insolvent, retained possession and control of the property after the transfer.
Finally, the government was also entitled to a personal judgment against the widow equal to the difference between the value of the property at the time of the transfer and the amount she paid for the property. The widow’s claim that the district court incorrectly reduced her equity by the amount paid by the seller to her husband from the sale proceeds was rejected.
Unpublished opinion affirming a DC N.J. decision, 2013-1 ustc ¶50,114.
R. Patras, CA-3, 2013-2 ustc ¶50,597
Other References:
Code Sec. 6321
CCH Reference – 2013FED ¶38,136.56
Code Sec. 7403
CCH Reference – 2013FED ¶41,653.43
Tax Research Consultant
CCH Reference – TRC IRS: 45,160
CCH Reference – TRC IRS: 48,106
CCH Reference – TRC LITIG: 9,256
The second buyer was the husband’s nominee under state law because he was the husband’s friend, he failed to pay adequate consideration for the property, the tax debtor’s retained possession of the property and he continued to enjoy the benefits of ownership. Moreover, there was no evidence that the couple rented the property with an option to purchase. Therefore, the district court’s conclusion that the tax debtor was the beneficial owner of the property was amply supported.
Contrary to the widow’s argument, the fraudulent transfer law was not limited to transfers made by the tax debtor. Rather, the focus is on transfers of property that would otherwise be available to creditors. Further, the transfer was made to hinder or avoid collection of the husband’s tax liability. The widow was an insider who obtained the property for less than reasonably equivalent value and the tax debtor husband, who was insolvent, retained possession and control of the property after the transfer.
Finally, the government was also entitled to a personal judgment against the widow equal to the difference between the value of the property at the time of the transfer and the amount she paid for the property. The widow’s claim that the district court incorrectly reduced her equity by the amount paid by the seller to her husband from the sale proceeds was rejected.
Unpublished opinion affirming a DC N.J. decision, 2013-1 ustc ¶50,114.
R. Patras, CA-3, 2013-2 ustc ¶50,597
Other References:
Code Sec. 6321
CCH Reference – 2013FED ¶38,136.56
Code Sec. 7403
CCH Reference – 2013FED ¶41,653.43
Tax Research Consultant
CCH Reference – TRC IRS: 45,160
CCH Reference – TRC IRS: 48,106
CCH Reference – TRC LITIG: 9,256
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