EDGAR J. FRANKUM, TRUSTEE, )
vs. ) CASE NO. 75-1696
Respondent. )
A formal hearing was held in the above-styled matter, after due notice to the parties, at Winter Park, Florida, on January 26, 1976, before the undersigned Hearing Officer.
For Petitioner: Howard R. Marsee, Esquire &
Pitts, Eubanks, Ross & Rumberger, P.A. Post Office Box 20154
For Respondent: Zollie M. Maynard, Jr., Esquire
Validity of assessment of documentary stamp tax and penalty against petitioners pursuant to Chapter 201, F.S.
At the hearing, upon stipulation of the parties, F & P Enterprises, Inc., was dismissed as a party.
The parties entered into a partial stipulation of facts which was accepted by the Hearing Officer (Petitioner's Exhibit 1).
Sometime in 1972, a number of individuals agreed by and between themselves to purchase certain real property located in Seminole County, Florida, and described as follows:
That certain piece, parcel or tract of land situate, lying and being in the County of
Seminole and State of Florida, known and described as:
All Blocks, 10, 11, 12, 22, 23, 24, 25, 26
and 27; and that part of Blocks 1, 9 and 13 lying South and East of the Railroad R/W as now constructed across blocks of the town of ISLAND LIKE, as recorded in Plat Book 2, page 32, public records of Seminole County, Florida; and
All that part of the West 1/2 of Government Lot 2, Section 12, Township 20 South, Range
29 East less the Railroad R/W as now constructed across said lot 2, Seminole County, Florida; and
That part of the Southwest Quarter of Section 7, Township 20 South, Range 30 East, lying Westerly of State Road 400 (less road
right-of-way). Petitioner's Exhibit 1).
As part of the agreement between themselves, the said individuals orally agreed that each of them would personally bear a certain fixed percentage of the expenses of the operation of the subject property. More particularly, each individual agreed to personally bear such a fixed percentage of the mortgage payments on the subject property. (Petitioner's Exhibit 1).
The individuals referred to in the preceding paragraphs and the percentages agreed to by each are as follows:
NAMES AND ADDRESSES PERCENTAGES EDGAR J. FRANKUM
RACHAEL R. FRANKUM One fifth (1/5)
2155 Blossom Lane Winter Park, Florida
ALTON G. PITTS
RODNEY G. ROSS One fifth (1/5) ERNEST H. EUBANKS
1080 Woodcock Road Orlando, Florida
RICHARD F. KNUTH
NANCY KNUTE One Fifth (1/5)
1419 Balch Drive Orlando, Florida
WILLIAM B. GRAHAM
MARY A GRAHAM One Fifth (1/5)
9805 Drouin Drive Richmond, Virginia
WILLIAM SCHAFFNER
DEANNE F. SCHAFFNER One tenth (1/10)
607 Hermitage Drive Altamonte Springs, Florida
HELEN A. BEAM
636 North Rio Grande Avenue One tenth (1/10) Orlando, Florida
The said individuals further agreed that a corporation to be named F & P Enterprises, Inc. would be formed for the sole purpose of taking and holding title to the subject property; however, notwithstanding this means of taking and holding title to the property, the said individuals agreed between themselves to bear individually their respective percentages of the mortgage payments on the property as set forth in paragraph 3 above. (Petitioner's Exhibit 1).
Pursuant to the agreement between the said individuals, F & P Enterprises, Inc. was formed as a Florida corporation (Petitioner's Exhibit 1).
The purpose of forming the corporation was to purchase the real estate in its name and thus enable the investors to avoid individual liability on the promissory note and mortgage. (Testimony of Frankum, Knuth).
On January 29, 1973, Robinsons Business Forms, Inc., a Florida Corporation, executed a warranty deed on the' subject property to F & P Enterprises, Inc., a Florida Corporation, the deed being recorded in official records book number 967, page 882, of the Public Records of Seminole County, Florida. On February 1, 1973, F & P Enterprises, Inc., executed a note and purchase money mortgage to Robinsons Business Forms, Inc. for the amount of four hundred thousand dollars ($400,000.00), the note and mortgage being recorded in the Public Records of Seminole County, Florida. F & P Enterprises, Inc. paid the documentary stamp tax on the warranty deed. A down payment of $100,000 on the purchase was made by the individuals named in paragraph 3 above directly to the seller. (Petitioner's Exhibits 2, 3, 4).
The first annual payment of $100,000 on the mortgage note, due January 31, 1974, was made by the same individuals to the seller. (Petitioner's Composite Exhibit 5, Testimony of Frankum, Pitts).
The individuals who had formed F & P Enterprises, Inc., were of the opinion that it was necessary to transfer the real property to a trustee in order that they would be eligible to deduct the interest on their mortgage payments from their individual federal income tax returns. To this, end, on Dec, ember 15, 1974, F & P Enterprises, Inc., executed a warranty deed on the subject property to Petitioner Frankum as trustee, the deed being recorded in the Official Records Book, 1040, Page 526 of the Public Records of Seminole County, Florida. The conveyance was made with nominal consideration recited in the deed, and was subject to the $400,000.00 mortgage, but the deed recited that Frankum did not assume the said mortgage; neither did he pay any documentary stamp tax on the deed. At the time of this transfer, it was understood by the individual purchasers of the land that they would continue to make pro rata payments on the mortgage note (Petitioner's Exhibit 6, Testimony of Frankum, Knuth, Pitts).
As the time approached for the second annual payment of $100,000.00 on the note, some members of the group found that they would not be able to pay
their pro rata share. The mortgagee, Lewis Business Forms, Inc., which had succeeded Robinsons Business Forms, Inc., agreed to renegotiate the terms of repayment, provided that Frankum would agree to assume the existing mortgage indebtedness and that his wife, Rachel R. Frankum was joined in an agreement to accomplish this purpose. Petitioner agreed to do so with oral assurance from the other individuals that they would continue to make payments on the mortgage, and also indemnify him for his undertaking. Accordingly, on January 31, 1975, the mortgagee and Petitioner entered into an Agreement Modifying Mortgage Note and Mortgage which provided for assumption thereof by Petitioner and his wife, postponed the installment due January 31, 1975 until April 1, 1975, at which time a payment of $30,000,00, plus interest, would be due and payable and with annual payments of $100,000.00, plus interest to be thereafter due on April 1, 1976 and April 1, 1977, and $70,000.00, with interest due on April 1, 1978. The agreement also changed the interest rate from 7 1/2 percent to 9 percent per annum. The payment due on April 1, 1975 was made by the individuals to the mortgagee, as agreed. At no time did F & P Enterprises, Inc., ever make any payments on the indebtedness (Petitioner's Exhibits 7, 8; Testimony of Frankum, Knuth, Pitts).
On August 22, 1975, the Respondent, State of Florida Department of Revenue, assessed against Edgar J. Frankum, as Trustee, a tax in the amount of One Thousand One Hundred Ninety-Nine and 70/100 Dollars ($1,199.70), plus a penalty in an equal amount, under Chapter 201, Florida Statutes, said tax being based upon the amount of the mortgage on the subject property. (Petitioner's Exhibit 1).
Following an informal conference held on September 12, 1975, the Respondent, State of Florida Department of Revenue, notified the Petitioner, Edgar J. Frankum, as Trustee, of its finding that the tax and penalty were due as assessed. (Petitioner's Exhibit 1).
The Petitioners, Edgar J. Frankum, as Trustee, and F & P Enterprises, Inc., disagree, with both the original assessment of the Respondent, State of Florida Department of Revenue, and the finding made by the Respondent following the informal conference. (Petitioner's Exhibit 1).
At the hearing the parties stipulated that the proposed assessment of documentary stamp tax in the amount of $1,199.70 and a penalty in, the same amount, for a total of $2,399.40, is correct and the proper amount due and payable in the event the tax and penalty are determined to be validly assessed.
CONCLUSIONS OF LAW
Petitioner seeks relief from payment of documentary stamp tax and penalty assessed under Section 201.02, and 201.17, F.S. on the warranty deed to him by F & P Enterprises, Inc. These sections read in pertinent part, as follow:
201.02 Tax on deeds and other instruments relating to lands, etc. -
(1) On deeds, instruments, or writings whereby any lands, tenements, or other realty, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, on each one hundred dollars of the consideration there for the tax shall be thirty cents.
When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of thirty cents for each one hundred dollars or fractional part thereof of the consideration therefor.
* * *
(3) The tax imposed by subsection (2) shall be paid by the purchaser, and the document recorded in the office of the clerk of the circuit court as evidence of ownership.
201.17 Penalties for failure to pay tax required. -
Any document, instrument, or paper upon which the tax under this chapter is imposed and which, upon audit or at time of recordation, does not bear the proper value of stamps shall subject the person or persons liable for the tax upon the document, instrument or paper to:
Purchase of the stamps not affixed; and
Payment of penalty to the department
of revenue equal to the purchase price of the stamps not affixed. This penalty is to be in addition to and not in lieu of any other penalty imposed by law."
The documentary stamp tax pursuant to Section 201.02 is thus one that must be paid by the purchaser of real property based upon the full amount of the consideration for the conveyance whether or not such consideration is shown on the face of the deed or other instrument involved in the transaction. Although Chapter 201 does not define the term "consideration", Rule 12A-4.12(2), F.A.C. provides as follows:
"12A-4.12 Rate, Consideration.
* * *
Consideration - Documentary Stamps: The term "consideration" under Section 201.02, F.S., includes:
Cash
Purchase money mortgage
Corporation stock
Conveyance subject to vendor's lien
Conveyance subject to mortgage debt, lien or encumbrance
Conveyance where outstanding mortgage debt, lien or encumbrance is cancelled, satisfied or otherwise rendered unenforceable by the conveyance
Value of any real or personal property given in exchange for realty
Any other monetary consideration or consideration which has a reasonably determinable pecuniary value."
Inasmuch as only nominal consideration was paid for the deed in question, the only applicable form of consideration indicated above would be a "conveyance subject to mortgage debt, lien or encumbrance." Although the warranty deed was made subject to the mortgage from F & P Enterprises, Inc., to Robinsons Business Forms, Inc., it provided expressly that Frankum did not assume the mortgage. Rule 12A-4.13(19), F.A.C. provides that "A gift transaction whereby a conveyance is made subject to a mortgage, and mortgage payment is to be made by grantee is taxable;" however, Petitioner did not assume the mortgage and the evidence shows that the mortgage payments were not to be made by him in his role as trustee. The evidence further establishes that the mortgage payments were actually made by the individuals who purchased the property.
Petitioner's contention is that the transaction falls under Rule 12A- 4.14(2) which exempts from tax a conveyance of realty without consideration under a deed to or by a trustee not pursuant to a sale. Respondent, on the other hand, maintains that Petitioner was not a true trustee under Section 689.07, F.S., because the deed did not name the trust beneficiaries nor was there any showing that a declaration of trust had been recorded. Both parties cite the case of Arundel Debenture Corporation v. Le Blond, 139 Fla. 668, 190 So. 765 (Fla. 1939) as authority for their positions. Petitioner claims that the aforesaid statute protects only purchases from a trustee and does not affect the existence of the trust relationship between the trustee and the beneficiaries. He further contends that under Arundel, a valid resulting trust was created under an oral trust agreement.
In view of the foregoing, the legal question for determination is whether or not Petitioner held the property, in fact, as trustee "not pursuant to a sale" as contemplated by Rule 12A-4.14(2) and under a resulting trust.
Such a trust arises in favor of one who pays for a conveyance to another not springing from contract but arising by implication of law, and is founded on the presumed intention that the party furnishing the money is to have beneficial interest while the other is to hold title for convenience or for a collateral purpose. Frank v. Eeles, 13 So.2d 216 (1943). A resulting trust in realty may be proved by parol testimony, but proof must be full and clear and the burden rests upon the person asserting existence of the trust to remove every reasonable doubt as to its existence by clear, strong, and unequivocal evidence. Fisher v. Grady, 131 Fla. 1, 178 So. 852 (1938).
By stipulation of the parties, it has been established that the individuals desiring to purchase the real property in question formed F & P Enterprises, Inc., for the sole purpose of taking and holding title to the subject property, but that these individuals agreed among themselves to bear individually their respective percentages of the mortgage payments on the property. The evidence further established that they, in fact, provided the funds for the down payment on the property and made the first annual payment on the mortgage in 1974. When pressed for funds when the second annual payment approached, they agreed to transfer the property to Petitioner as trustee in order to achieve a favorable federal income tax posture. Further, these individuals made the partial payment in April, 1975, under the agreement which modified the mortgage note. At no time were corporate funds used in payment of the property nor did Petitioner pay any monies other than his pro rata share as one of the individuals in question and not as trustee. Therefore, the Arundel case controls in determining that there may be a resulting trust created as a result of an oral agreement even though no declaration of trust is recorded. In determining the existence of such a trust, a court looks to the substance rather than the mere form of the transaction, including the dealings of the parties and
the surrounding circumstances, to determine if they intended to create a trust situation. River Park Joint Venture v. Dickinson 303 So.2d 654 (1 DCA Fla.
1974). It therefore is determined that a resulting trust was created in the instant situation, regardless of the failure to file a declaration of trust prior to the time the deed to Petitioner was recorded. The purpose of Section 689.07, F.S., is to protect innocent third parties who may rely upon the record in purchasing the property from the grantee, but does not affect the existence of the trust relationship as provided in subsection (4) of the statute which states in part:
"nor shall this section be construed as preventing any beneficiary under an unrecorded declaration of trust from enforcing the terms thereof against the trustee; ..."
It is of no consequence that by later modification of the mortgage note and mortgage in 1975, Petitioner, joined by his wife assumed the existing mortgage indebtedness. This assumption of the debt was with the understanding of the other individuals that they would continue to make payments on such indebtedness and indemnify Petitioner for his undertaking. The tax falls, if at all, on the 1974 warranty deed from F & P Enterprises, Inc. to Petitioner based on the situation existing at the time of that conveyance.
It is therefore concluded that as to the conveyance to Petitioner, only nominal consideration was paid therefor and it was not subject to the mortgage debt, lien, or encumbrance. This being so, the transaction falls under Rule 12A-4.14(2), F.A.C., and is exempt from tax as a conveyance of realty without consideration under a deed to a trustee not pursuant to a sale.
That Petitioner Edgar J. Frankum be relieved from any liability for documentary stamp tax or penalty under Chapter 201, F.S.
DONE and ENTERED this 4th day of March, 1976, in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
Zollie M. Maynard, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol
Howard R. Marsee, Esquire & Yates Rumbley, Esquire
of Pitts, Eubanks, Ross & Rumberger, P.A.
P.O. Box 20154
