In arguing whether Double-D Ranch actually owed the tax liability respondent determined for its short tax year ended July 2, 1999, petitioners rely on the form of the transaction being respected. They maintain that Double-D Ranch sold the assets on July 6, 1999, and, therefore, the sale could not have occurred during the short taxable year ended July 2, 1999.

Petitioners bear the burden of proof on this matter and offer no arguments additional to the ones discussed infra as to Double-D Ranch's tax liability. See*165 sec. 6902(a); Rule 142(d). Petitioners point to nothing in the record that shows that respondent incorrectly determined or improperly assessed Double-D Ranch's tax liability for 1999. The stock purchase agreement was slated to close on July 1, 1999, and Morgan Stanley was to buy Double-D's securities on the same day. The closing date was delayed a day and Morgan Stanley agreed to amend its settlement date until the next business day, July 6, 1999. "On July 2, 1999, both parties to the stock sale of Double D took steps to carry out the transaction." Diebold Found., Inc. v. Commissioner, 736 F.3d 172">736 F.3d at 180.

The series of transactions started on July 2, 1999, and substantial steps were taken to complete the transaction2016 Tax Ct. Memo LEXIS 152">*164 on that day. Since the Court of Appeals collapsed the transaction and treated it as a de facto liquidation to shareholders, we conclude that Double-D Ranch was liable for the unpaid tax for its short tax year ended July 2, 1999.

Under the general rule set forth in section 6501(a), the IRS must assess tax or send a notice of deficiency within three years after a return is filed. The limitations period extends to six years under section 6501(e)(1) "[i]f the taxpayer omits from gross income an amount properly includible therein and * * * such amount is in excess of 25% of the amount of gross income stated in the return." *166 Respondent issued the notice of deficiency to Double-D Ranch on March 10, 2006, more than three years but less than six years after Double-D Ranch filed its return for the short taxable year ended on July 2, 1999.⁷ Thus, the notice is timely with respect to that return only if the six-year limitations period applies.

Petitioners argue that Double-D Ranch could not have underreported its income for the short taxable year ending July 2, 1999, because2016 Tax Ct. Memo LEXIS 152">*165 Double-D Ranch did not sell its assets during the short taxable year. However, the Courts of Appeals for the Second and the Ninth Circuits concluding that the shareholders had constructive knowledge of the transaction, collapsed the transaction, resulting in a liquidating distribution to the shareholders from Double-D Ranch. Petitioners reported gross income of $74,925 for the short tax year ended July 2, 1999. As a result of the Courts of Appeals' holding, petitioners omitted gross income of $231,837,944, an amount more than 25% of their gross income. Therefore, the six-year period of limitations of section 6501(e) applies.

Under section 6901(c)(1), the Commissioner generally must assess transferee liability within one year after expiration of the period of limitations on the transferor. Section 6901(c)(2) provides that, "[i]n the case of the liability of a *167 transferee of a transferee, within 1 year after the expiration of the period of limitation for assessment against the preceding transferee, but not more than 3 years after the expiration of the period of limitation for assessment against the initial transferor".

There is some debate among the parties regarding the date of expiration of the period of limitations. Respondent contends2016 Tax Ct. Memo LEXIS 152">*166 that the date of expiration for Double-D Ranch is August 17, 2006. Petitioners say the date of expiration is no later than September 15, 2006. Therefore, the date of expiration of the period of limitations for Diebold New York is no later than September 15, 2007. The expiration of the period of limitations for petitioners is no later than September 15, 2008. Accordingly, respondent timely issued the notice of deficiency on March 10, 2006, to Double-D Ranch pursuant to section 6501(e)(1), and subsequent notices of liability to petitioners on July 11, 2008, were also timely pursuant to section 6901(c)(2).

For purposes of section 6901, the term "transferee" includes, inter alia, donee, heir, legatee, devisee, distributee, and shareholder of a dissolved corporation. Seesec. 6901(h); sec. 301.6901-1(b), Proced. & Admin. Regs. The inquiry regarding transferee liability under section 6901 has two separate and *168 independent prongs. See Salus Mundi II, 776 F.3d 1010">776 F.3d at 1018-1019; Diebold Found., Inc. v. Commissioner, 736 F.3d 172">736 F.3d at 184. After the Court of Appeals found Diebold New York liable as a fraudulent transferee of Double-D Ranch under State law, we must now determine whether it is liable as a transferee under Federal law.

The Court of Appeals for the Ninth Circuit recently held that a court must consider whether to disregard2016 Tax Ct. Memo LEXIS 152">*167 the form of a transaction by which the transfer occurred when determining transferee status for Federal law purposes. See Slone v. Commissioner, 810 F.3d 599">810 F.3d 599, 810 F.3d 599">605-606 (9th Cir. 2015), vacating and remandingT.C. Memo. 2012-57. In performing the inquiry, the court must focus "holistically on whether the transaction had any practical economic effects other than the creation of income tax losses." 810 F.3d 599">Id. at 606 (quoting Reddam v. Commissioner, 755 F.3d 1051">755 F.3d 1051, 755 F.3d 1051">1060 (9th Cir. 2014), aff'gT.C. Memo. 2012-106).

The Courts of Appeals for both the Second and Ninth Circuits have found Diebold New York was a transferee in a transaction that was fraudulent under the NYUFCA. Further, the transaction had no economic purpose other than the creation of income loss for Double-D Ranch. On that basis, we find Diebold New York is liable under section 6901 as a transferee of Double-D Ranch.

Transferee liability may be asserted against a transferee of a transferee. Berliant v. Commissioner, 729 F.2d 496">729 F.2d 496 (7th Cir. 1984), aff'g Magill v. Commissioner, T.C. Memo. 1982-148. The Commissioner may collect unpaid taxes of a transferor of assets from a transferee or a successor transferee of those assets. Sec. 6901(a), (c)(2); Commissioner v. Stern, 357 U.S. 39">357 U.S. 39, 357 U.S. 39">42, 78 S. Ct. 1047">78 S. Ct. 1047, 2 L. Ed. 2d 1126">2 L. Ed. 2d 1126, 1958-2 C.B. 937 (1958); Stansbury v. Commissioner, 104 T.C. 486">104 T.C. 486, 104 T.C. 486">489 (1995), aff'd, 102 F.3d 1088">102 F.3d 1088 (10th Cir. 1996). We apply New York law in determining whether petitioners are liable as subsequent transferees, and respondent bears the burden of proof. Seesecs. 6901(a), 6902; Rule 142.

Under2016 Tax Ct. Memo LEXIS 152">*168 N.Y. Debt. & Cred. Law sec. 273 (McKinney 2012) respondent must prove: (1) a conveyance was made; (2) without fair consideration; (3) by a person who was or will be rendered insolvent by the conveyance. McCombs, 30 F.3d 310">30 F.3d at 323. Moreover, a person is insolvent when the "present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured." N.Y. Debt. & Cred. Law sec. 271 (McKinney 2012).

*170 Diebold New York transferred all of its assets to petitioners pursuant to its plan of dissolution approved by the Supreme Court of the State of New York, leaving itself with no assets. We previously found Diebold New York liable as a transferee of the assets of Double-D Ranch and now find petitioners liable as transferees of a transferee. Therefore, we hold that petitioners are liable under section 6901 as transferees of a transferee.

Under the NYUFCA, a "'conveyance' includes every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or encumbrance." Id.sec. 270. During the taxable year ended October 31, 2001, petitioners received transfers of approximately $33 million each in cash and marketable2016 Tax Ct. Memo LEXIS 152">*169 securities directly from Diebold New York. In 2004 additional transfers totaling $623,827 to each petitioner were made from the escrow account, constructively through Diebold New York. These payments are a conveyance for purposes of N.Y. Debt. & Cred. Law sec. 273.

Under New York law, "fair consideration" is defined as:

*171 a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or

b. When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

The parties have stipulated that the conveyances from Diebold New York to petitioners were not made in exchange for any property or in satisfaction of an antecedent debt. Thus, the transfers were not made in exchange for property as a fair equivalent. Thus, the transfers were not made for "fair consideration".

A person is considered insolvent under the NYUFCA when "the present fair salable value2016 Tax Ct. Memo LEXIS 152">*170 of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured." N.Y. Debt. & Cred. Law sec. 271. Under New York law, insolvency of the transferor is presumed when a conveyance is made without fair consideration. United States v. Alfano, 34 F. Supp. 2d 827">34 F. Supp. 2d 827, 34 F. Supp. 2d 827">844-845 (E.D.N.Y. 1999). The transferee then has the burden to come forward and show that the transferor had *172 sufficient assets remaining to pay the debt which existed at the time of conveyance. Sutain v. Commissioner, T.C. Memo. 1979-428; Brown v. Commissioner, T.C. Memo. 1975-120. The parties have stipulated that, after the conveyance of its assets to petitioners and Ceres Foundation, Diebold New York had no assets. Combined with Diebold New York's liability as an initial transferee of Double-D Ranch, the conveyances to petitioners and Ceres Foundation rendered Diebold New York insolvent.

Conveyances were made to petitioners without fair consideration by Diebold New York, which was rendered insolvent by the conveyances. Accordingly, petitioners are liable as transferees of a transferee under New York law.

As stated supra, under section 6901 the term "transferee" includes, inter alia, donee, heir, legatee, devisee, distributee, and shareholder of a dissolved corporation. Seesec. 6901(h); sec. 301.6901-1(b), Proced. & Admin. Regs. The inquiry2016 Tax Ct. Memo LEXIS 152">*171 has two separate and independent prongs. See Salus Mundi II, 776 F.3d 1010">776 F.3d at 1018-1019; Diebold Found., Inc. v. Commissioner, 736 F.3d 172">736 F.3d at 184. After finding that the transfers to petitioners were fraudulent under State law, we must now determine whether petitioners are liable under Federal law.

*173 We found petitioners to be transferees of a transferee under NYUFCA. On that basis, we find petitioners are also liable under section 6901 as transferees of a transferee.

Interest in transferee liability cases is calculated in accordance with two separate periods--prenotice and postnotice--and, under some circumstances, two separate rates. See generally Estate of Stein v. Commissioner, 37 T.C. 945">37 T.C. 945 (1962). If the transferee received assets worth less than the creditor's claim against the transferor, then the prenotice period is "measured from a point of time that would not be earlier than the date of transfer" up to (but not including) the notice of liability issue date. Lowy v. Commissioner, 35 T.C. 393">35 T.C. 393, 35 T.C. 393">395 (1960). In this instance interest, including its applicable rate, is determined under State law. See id.

Because petitioners, as transferees, received assets worth less than Double-D Ranch's tax liability, New York law must determine the extent to which petitioners are liable for prenotice interest. Under New York law petitioners are liable for prenotice interest only where actual2016 Tax Ct. Memo LEXIS 152">*172 fraud exists. Estate of Stein v. Commissioner, 37 T.C. 945">37 T.C. 962.

*174 Respondent contends that actual fraud "may include transfers which are denoted as 'constructively fraudulent' and which fall, for example, within § 273." Ruderman v. United States, 355 F.2d 995">355 F.2d 995, 355 F.2d 995">998 (2d Cir. 1966). Actual fraud has been defined as "the intentional and successful employment of any cunning, deception, or artifice, used to circumvent, cheat, or deceive another." Nasaba Corp. v. Harfred Realty Corp., 287 N.Y. 290">287 N.Y. 290, 39 N.E.2d 243">39 N.E.2d 243, 39 N.E.2d 243">245 (N.Y. 1942) (quoting Bouvier Law Dictionary 1304). However, we did not find actual fraud in Salus Mundi I, T.C. Memo 2012-61, slip op. at 34, and we decline to do so here. Accordingly, we do not find actual fraud here, and petitioners are not liable for prenotice interest.

We must look to New York law to determine whether the Commissioner has an obligation to pursue all reasonable collection efforts against a transferor before proceeding against a transferee. See Hagaman v. Commissioner, 100 T.C. 180">100 T.C. 180, 100 T.C. 180">183-184 (1993); Jeffries v. Commissioner, T.C. Memo 2010-172; Upchurch v. Commissioner, T.C. Memo 2010-169. Where "the transferor is hopelessly insolvent, the creditor is not required to take useless steps to collect from the transferor." Zadorkin v. Commissioner, T.C. Memo. 1985-137, 49 T.C.M. 1022">49 T.C.M. 1022, 1028 (1985).

*175 We think respondent did pursue all reasonably necessary collection efforts, and petitioners have not shown that respondent's efforts to collect against Double-D Ranch were not reasonably exhausted. If for the sake of argument we presume that respondent did not take reasonable steps,2016 Tax Ct. Memo LEXIS 152">*173 the NYUFCA does not require a creditor to pursue all reasonable collection efforts against the transferor. SeeN.Y. Debt. & Cred. Law secs. 270-281. Therefore, respondent was not required to exhaust collection efforts against Double-D Ranch, and petitioners may be held liable.

We conclude that Double-D Ranch was liable for unpaid tax for the short tax year ending July 1999, the notices of liability were timely issued, Diebold New York is a transferee of Double-D Ranch, petitioners are liable as transferees of a transferee of Double-D Ranch, and petitioners are not liable for prenotice interest.

In reaching our holding herein, we have considered all arguments of the parties, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decisions will be entered under Rule 155.