In the

    United States Court of Appeals
                For the Seventh Circuit

Nos. 12-3144, 12-3145, 12-3146, 12-3147, 12-3148,
     12-3149, 12-3150 & 12-3807

RAY FELDMAN, et al.,
                                             Petitioners-Appellants,

                                 v.

COMMISSIONER OF INTERNAL REVENUE,
                                              Respondent-Appellee.


             Appeals from the United States Tax Court.
       Nos. 26737-08, 27387-08, 27388-08, 27389-08, 27390-08,
      27391-08, 27392-08 & 27393-08 — Stephen J. Swift, Judge.



 ARGUED SEPTEMBER 19, 2013 — DECIDED FEBRUARY 24, 2015



   Before MANION, KANNE, and SYKES, Circuit Judges.
   SYKES, Circuit Judge. This appeal raises a question of
transferee liability under 26 U.S.C. § 6901 for a dissolved
corporation’s unpaid federal taxes. The “transferees” are the
former shareholders of a closely held Wisconsin corporation
that for many decades owned and operated a dude ranch in
2                                            Nos. 12-3144, et al.

the northwestern part of the state. When the ranch was sold,
the shareholders planned to liquidate, but the asset sale had
produced a sizable gain and the corporation faced significant
federal and state tax liability. A tax-shelter firm swooped in
with a proposal for an intricate tax-avoidance transaction as a
more profitable alternative to a standard liquidation. This
should have called to mind the warning that “if something
seems too good to be true, then it probably is.” But alas, it did
not. The shareholders took the deal, effectively liquidating the
corporation without absorbing the financial consequences of
the tax liability. The taxes were never paid.
    The IRS sought to hold the former shareholders responsible
for the tax debt as transferees of the defunct corporation under
§ 6901 and Wisconsin law of fraudulent transfer and corporate
dissolution. The tax court sided with the IRS and found the
shareholders liable for the unpaid taxes and penalties. We
affirm.


                        I. Background
    William Feldman founded Woodside Ranch in the 1920s.
Located in the small town of Mauston in northwest Wisconsin,
the ranch was incorporated in 1952 as Woodside Ranch Resort,
Inc. (“Woodside”) and was treated as a Subchapter C corpora-
tion for federal tax purposes. Over time the ranch came to offer
a wide array of outdoor activities, including horseback riding,
boating, and snowmobiling. Until its sale in 2002, Woodside
was owned and operated by the descendants of its founder.
Nos. 12-3144, et al.                                                   3

    By the late 1990s, the ranch was facing a number of chal-
lenges to its ongoing viability. Nearby casinos and water parks
competed with the ranch for business, the next generation of
Feldmans had no interest in continuing to run the ranch, and
the shareholders and directors were approaching or had
already reached retirement age. At this point Woodside had
ten shareholders, all descendants of its founder.1 Lucille
Nichols, daughter of founder William Feldman, was the
president; grandsons Richard Feldmann and Ray Feldman
were vice-president and secretary, respectively;2 and great-
granddaughter Carrie Donahue was the treasurer. The share-
holders decided it was time to sell.
    Selling the ranch raised a number of concerns. In particular,
the shareholders anticipated that the corporation would incur
significant tax liability. Woodside’s assets had been purchased
long ago, so a sale would give rise to a large taxable capital
gain. The shareholders also worried about future personal-
injury claims against the resort. The outdoor activities at the
ranch inevitably produced some accidents and injuries every
year. Most were minor, few resulted in formal claims, and
most claims were settled in kind with free return visits and
payment of medical expenses. Sometimes personal-injury


1
 The shareholders, their relationship to the founder, and their ownership
interests are as follows: daughter Lucille Nichols (9.74%); grandsons Ray
Feldman (33.12%), Richard Feldmann (18.9%), and Robert Donahue (1.29%);
granddaughters Jan Reynolds (12.99%), Sharon Coklan (7.14%), and Rhea
Dugan (2.52%); and great-granddaughters Emma McClintock (5.84%),
Carrie Donahue (5.84%), and Jill Reynolds (2.6%).

2
    For unknown reasons, Richard spells his last name “Feldmann.”
4                                            Nos. 12-3144, et al.

claimants sought monetary damages, but apparently not often
enough to justify purchasing expensive liability insurance;
premium estimates were in the $200,000 to $400,000 range, so
Woodside opted not to carry liability coverage.
    In the fall of 2001, the shareholders opened negotiations to
sell the ranch to Damon Zumwalt. They proposed a stock sale,
but Zumwalt rejected it out of hand and insisted on an asset
sale. The shareholders accepted Zumwalt’s terms, and the
transaction closed on May 17, 2002. Zumwalt formed
Woodside Ranch LLC and purchased Woodside’s assets for the
sum of $2.6 million and certain noncompete and consulting
agreements. The parties expected that Zumwalt would
continue to operate the ranch.
   After the asset sale, Woodside—the Feldman family’s
corporation, not the ranch—ceased carrying on any active
business. It was, in the words of shareholder and secretary Ray
Feldman, an “empty shell” consisting of cash on hand along
with a few notes and receivables.
    The asset sale had netted about $2.3 million, resulting in a
taxable capital gain of $1.8 million (on a basis of approximately
$510,000). This triggered combined federal and state tax
liabilities of about $750,000. While the asset sale to Zumwalt
was still pending, Fred Farris, Woodside’s accountant and
financial advisor, introduced the shareholders to representa-
tives of MidCoast Credit Corp. and Midcoast Acquisition Corp.
(collectively “Midcoast”). Owned by Michael Bernstein and
Honora Shapiro, Midcoast specialized in structured transac-
tions designed to avoid or minimize tax liabilities. As relevant
here, Midcoast offered to purchase the stock of C corporations
Nos. 12-3144, et al.                                           5

like Woodside that had recently experienced a taxable asset
sale, promising to pay more for the shares than they were
worth in a liquidation. Then, using bad debts and losses
purchased from credit-card companies, Midcoast would offset
(i.e., eliminate) the unpaid tax liabilities of the acquired
corporation by way of a net-operating-loss carryback.
    Billed as a “no-cost liquidation,” Midcoast proposed this
strategy to Woodside’s shareholders as an attractive tax-
avoidance alternative to liquidating the corporation. As part of
the pitch, Midcoast sent promotional materials outlining the
structure of the transaction and explaining that selling their
stock to Midcoast would yield a higher return for the share-
holders than a standard liquidation by reducing the tax
consequences of Woodside’s asset sale.
    Woodside’s finance committee (Richard Feldmann, Ray
Feldman, and Carrie Donahue) initially recommended liquida-
tion, but Woodside’s board of directors opted to pursue
Midcoast’s tax-avoidance strategy and entered into negotia-
tions for a stock sale to Midcoast. On June 17, 2002, the finance
committee held a conference call with Midcoast representatives
to discuss the specifics of the transaction. On June 18 Midcoast
sent a letter of intent offering to buy 100% of Woodside’s stock
for a price equal to the cash in the company as of the closing
date reduced by 70% of the tax liability. Stated differently, the
purchase price represented Woodside’s liquidation value
(about $1.4 million) plus a “premium” of about $225,000. Ray
Feldman transmitted the proposal to the shareholders by letter
the next day, noting that:
6                                            Nos. 12-3144, et al.

       MidCoast promises … to pay Woodside’s taxes
       because the corporation would not be liquidated
       but instead be kept alive as a going concern as a
       part of the MidCoast organization. This deal is
       profitable for MidCoast because MidCoast
       purchases large amounts of defaulted and delin-
       quent credit card accounts from the major credit
       card companies … and carries forward such
       losses to offset against the purchase of “profit-
       able” corporation[s] such as Woodside.
Although this letter mentions a “promise” by Midcoast to pay
Woodside’s taxes, all shareholders understood that Midcoast
intended to claim a loss to offset the capital gain from the sale
of the ranch.
    The shareholders met to discuss Midcoast’s proposal and
ultimately approved it. As the deal moved forward, the
shareholders conducted some basic research on Midcoast. For
example, they obtained a Dunn & Bradstreet report on the firm
and called a few of Midcoast’s references.
    The transaction closed on July 18, 2002. The parties signed
a share purchase agreement with a purchase price equal to
Woodside’s cash on hand less $492,139.20 (about 70% of
Woodside’s tax liability). The agreement stated that Woodside
had no liabilities other than federal and state taxes. Midcoast
was prohibited from liquidating or dissolving Woodside
within four years of the stock sale. (Farris suggested adding
this term based on concerns about the shareholders’ liability if
Midcoast did not pay Woodside’s taxes.) The agreement also
capped the shareholders’ liability for any future personal-
Nos. 12-3144, et al.                                          7

injury claims at an amount equal to the “premium.” This was
a point of contention during negotiations, but Midcoast
ultimately agreed to the liability cap.
    The closing involved a number of steps in quick succession
on July 18. First, Woodside redeemed 20% of its stock directly
from the shareholders. The proceeds of this transaction were
transferred to Woodsedge LLC, an entity specially created by
the shareholders to receive the proceeds of the stock sale. The
precise purpose of the redemption is not entirely clear from the
record, but afterward Woodside’s only asset was cash in the
amount of about $1.83 million; the corporation had no liabili-
ties other than federal and state taxes—again, approximately
$750,000—and unknown future personal-injury claims.
    The parties then executed the share purchase agreement
and two escrow agreements to facilitate the transaction. The
shareholders and Midcoast were parties to the first escrow
agreement; Midcoast and Honora Shapiro—50% owner of
Midcoast—were parties to the second. The law firm of Foley &
Lardner was the escrow agent under both agreements, and
funds were wired into and out of its trust account as follows.
First, at 12:09 p.m. on July 18, Woodside’s cash reserves of
$1.83 million were transferred into the trust account. Then, at
1:34 p.m. Shapiro transferred $1.4 million into the trust
account, purportedly as a loan to Midcoast to fund the transac-
tion, although there is no promissory note or other writing
evidencing a loan, and (as we will see) the money was immedi-
ately returned to Shapiro. At 3:35 p.m. $1,344,451 was wired to
Woodsedge LLC as payment to the shareholders. A minute
8                                          Nos. 12-3144, et al.

later, at 3:36 p.m., $1.4 million was returned to Shapiro,
repaying the undocumented “loan.”
   The next day $452,728.84 was transferred from the trust
account to a newly created Woodside account at SunTrust
Bank controlled by Midcoast, Woodside’s new owner. The
remaining funds in the escrow—approximately $38,000—were
disbursed to Foley & Lardner and another law firm as profes-
sional fees.
   After the stock sale, Woodside had $452,729 cash on hand
and state and federal income-tax liability of approximately
$750,000. Although the corporation had no income, no employ-
ees, no tangible assets, and no operating activities, Midcoast
charged Woodside a “professional service fee” of $250,000 and
a “management fee”of $30,000 per month. By July 22—four
days after the closing—Midcoast had withdrawn $442,000 from
Woodside’s account at SunTrust Bank, leaving only about
$10,000. Woodside thereafter posted a $1.2 million loan
receivable due from Midcoast. This accounting entry was
meant to reflect a Midcoast “debt” to Woodside for the money
that was returned to Shapiro—as if Woodside had “repaid” the
Shapiro “loan” on Midcoast’s behalf.
    On July 22 Woodsedge LLC, which was holding the
proceeds of the redemption and stock sale, disbursed approxi-
mately $1.2 million to the shareholders. Sometime later, the
shareholders—through Woodsedge LLC—paid $50,000 to
settle a personal-injury claim brought against Woodside
stemming from an event preceding the asset sale. Woodside
incurred no further personal-injury liability.
Nos. 12-3144, et al.                                          9

    In December 2003 Midcoast sold the Woodside stock to
Wilder Capital Holdings, LLC. No money changed hands in
this transaction, but Wilder assumed Midcoast’s $1.2 million
“debt” to Woodside. A month after this “sale,” the $1.2 loan
receivable listed on Woodside’s books was marked “paid,”
though Woodside in fact received no payment.
   Woodside never paid federal taxes on the capital gain from
the asset sale. Its 2002 federal tax return, filed in September
2003, showed a tax due of $454,292 (based on the gain from the
Zumwalt asset sale). No amount was paid with this filing.
Woodside’s 2003 tax return, filed in February 2005, claimed a
net operating loss carried back to 2002, reducing Woodside’s
2002 federal tax liability to zero.
    In September 2006 the IRS issued a notice of deficiency to
Woodside for the 2002 tax year. The Commissioner of Internal
Revenue had determined that the net operating loss was based
on sham loans and was part of an illegal distressed asset/debt
tax shelter. See generally INTERNAL REVENUE SERVICE, COORDI-
NATED ISSUE PAPER – DISTRESSED ASSET/DEBT TAX SHELTERS
(Apr. 18, 2007), available at http://www.lb7.uscourts.gov/
documents/12-33671.pdf. Woodside did not respond to the
deficiency notice.
   In September 2008 the IRS sent notices to the former
shareholders assessing transferee liability for Woodside’s
unpaid taxes and penalties under § 6901. (For ease of reference,
we’ll drop the reference to former shareholders and just call
them “shareholders” for the balance of this opinion.) The
amount of the individual assessments varied according to each
shareholder’s ownership interest from a low of $21,275 to a
10                                                   Nos. 12-3144, et al.

high of $524,514. The shareholders petitioned the tax court
seeking to overturn the Commissioner’s determination.3 In the
meantime, on August 13, 2009, Woodside was administratively
dissolved.
    At trial before the tax court, the shareholders stipulated that
the tax shelter was illegal but contested transferee liability. In
a comprehensive opinion, the tax court ruled in the Commis-
sioner’s favor, holding that the stock sale was in substance a
liquidation with no purpose other than tax avoidance, making
the shareholders transferees of Woodside under § 6901 and
Wisconsin law governing fraudulent transfers and corporate
dissolutions. The court entered decision upholding the
Commissioner’s assessment of transferee liability for the
dissolved corporation’s unpaid taxes and penalties. After an
unsuccessful motion for reconsideration, the shareholders
appealed.4 We consolidated the appeals for argument and
decision.


                             II. Discussion
     Tax-court decisions are reviewed “in the same manner and
to the same extent as decisions of the district courts in civil
actions tried without a jury.” 26 U.S.C. § 7482(a)(1). Accord-
ingly, we review the tax court’s factual findings for clear error,
its legal conclusions de novo, and its application of the law to


3
 All except Lucille Nichols, who had died. Her estate did not participate in
the proceedings.

4
    Sharon Coklan later withdrew her appeal.
Nos. 12-3144, et al.                                                        11

the facts for clear error. Kikalos v. Comm’r, 

, 981–82
(7th Cir. 2006); Yosha v. Comm’r, 

, 499 (7th Cir.
1988) (“The question whether a particular transaction has
economic substance, like other questions concerning the
application of a legal standard to transactions or events, is
governed by the clearly erroneous standard.”).
    Section 6901 of the Internal Revenue Code authorizes the
IRS to proceed against the transferees of delinquent taxpayers
to collect unpaid tax debts.5 But the statute provides only a
procedural device for proceeding against a taxpayer’s trans-
feree. See Comm’r v. Stern, 

, 42–43 (1958) (holding
that the predecessor to § 6901 “is purely a procedural statute”).
Substantive liability is governed by state law. 

(explain-
ing that “the existence and extent of [transferee] liability
should be determined by state law”).



5
    In relevant part, the statute provides as follows:
                (a) Method of collection.—The amounts of the
           following liabilities shall … be assessed, paid, and col-
           lected in the same manner and subject to the same provi-
           sions and limitations as in the case of the taxes with respect
           to which the liabilities were incurred:
                   (1) Income, estate, and gift taxes.—
                       (A) Transferees.—The liability, at law or in
                   equity, of a transferee of property—
                            (i) of a taxpayer in the case of a tax im-
                        posed by subtitle A (relating to income
                        taxes)[.]
26 U.S.C. § 6901(a)(1)(A)(i).
12                                            Nos. 12-3144, et al.

    Accordingly, transferee-liability cases under § 6901 proceed
in two steps. First, the Commissioner must establish that the
target is a “transferee” of the taxpayer within the meaning of
§ 6901. Second, the Commissioner must establish that the
transferee is liable for the transferor’s debts under some
provision of state law. 

A. Transferee Status Under § 6901
    The term “transferee” in § 6901 is defined broadly to
include any “donee, heir, legatee, devisee, and distributee.”
I.R.C. § 6901(h). The tax court found that the stock sale was
structured to avoid the tax consequences of Woodside’s asset
sale, which the shareholders would have had to absorb had
they pursued a standard liquidation. Formally, the sharehold-
ers sold their Woodside stock to Midcoast, which purported to
fund the transaction via a loan from Honora Shapiro. But the
tax court looked past these formalities to the substance of the
transaction, recasting it as a liquidation. In other words, the
court found that Midcoast did not actually pay the sharehold-
ers for their stock; instead, each shareholder received a pro rata
distribution of Woodside’s cash on hand— the proceeds of the
asset sale—making them “transferees” as that term is broadly
defined in § 6901(h).
    This mode of analysis implicates several related, overlap-
ping doctrines used in tax cases and in other areas of the law
for the protection of creditors. Known by different names—
e.g., the “substance over form” doctrine, the “business
purpose” doctrine, the “economic substance” doctrine—the
animating principle of each is that the law looks beyond the
Nos. 12-3144, et al.                                                         13

form of a transaction to discern its substance.6 See generally
1 BORIS I. BITTKER & LAWRENCE LOKKEN, FEDERAL TAXATION OF
INCOME, ESTATES AND GIFTS ¶ 4.3 (3d ed. 1999 & 2012 Cum.
Supp. No. 3).
    For example, it has long been established that taxing
authorities and courts may look past the form of a transaction
to its substance to determine how the transaction should be
treated for tax purposes. See, e.g., Frank Lyon Co. v. United
States, 

, 573 (1978) (“‘In the field of taxation,
administrators of the laws and the courts are concerned with
substance and realities, and formal written documents are not
rigidly binding.’” (quoting Helvering v. F. &. R. Lazarus & Co.,



6
  The distinctions between these doctrines are subtle, if they exist at all. See
Rogers v. United States, 

, 1115 (10th Cir. 2002) (“It is evident
that the distinctions among the judicial standards which may be used in ex
post facto challenges to particular tax results—such as the substance over
form, substantive sham/economic substance, and business purpose
doctrines—are not vast.”); see also Joseph Bankman, The Economic Substance
Doctrine, 74 S. CAL. L. REV. 5, 12 (2000) (“[T]he differences between the
doctrines are apt to be smaller than first imagined.”). The Commissioner
takes the position that the substance-over-form and economic-substance
doctrines are similar but not identical, and thus can be applied independ-
ently. See 

(“The Treasury Department … envisions
the appropriateness of applying the substance over form doctrine in a case
like the present one while reserving the economic substance analysis for
situations where the economic realities of a transaction are insignificant in
relation to the tax benefits of the transaction.” (citing U.S. DEP’T OF THE
TREASURY, THE PROBLEM OF CORPORATE TAX SHELTERS 46–58 (1999), available
at http://www.treasury.gov/resource-center/tax-policy/Documents/ctswhite.
pdf.)). The Commissioner relies primarily on the substance-over-form
doctrine in this case.
14                                            Nos. 12-3144, et al.

, 255 (1939))); Grojean v. Comm’r, 

, 574
(7th Cir. 2001) (“[I]n federal taxation substance prevails over
form.”).
    Similarly, the “business purpose” doctrine requires that a
transaction have a bona fide nontax business purpose in order
to be respected for tax purposes. See Gregory v. Helvering,

, 469 (1935); Comm’r v. Transp. Trading & Terminal
Corp., 

, 572 (2d Cir. 1949) (Hand, C.J.) (“The
doctrine of Gregory v. Helvering … means that in construing
words of a tax statute which describe commercial or industrial
transactions we are to understand them to refer to transactions
entered upon for commercial or industrial purposes and not to
include transactions entered upon for no other motive but to
escape taxation.”).
    The so-called “economic substance” doctrine borrows
heavily from both the business-purpose and substance-over-
form doctrines. See 1 BITTKER & LOKKEN, supra, ¶ 4.3.4A (“The
substance over form and business purpose concepts are closely
related and have effectively coalesced in some cases, develop-
ing an economic substance doctrine … .”). Formulations of this
doctrine vary, but the general idea is that a transaction has
economic substance (and thus will be respected for tax pur-
poses) if it “changes in a meaningful way … the taxpayer’s
economic position” and the taxpayer has a valid nontax
business purpose for entering into it. I.R.C. § 7701(o) (statutory
Nos. 12-3144, et al.                                                  15

clarification of the economic-substance doctrine); see also

.7
    Here, the tax court drew on both the substance-over-form
principle and the economic-substance doctrine to conclude that
the stock sale should be recast as a liquidation. The court noted
that from the beginning, Midcoast had characterized the
transaction as a “no-cost liquidation.” Woodside had no active
business at the time of the transaction. It was a shell corpora-
tion consisting only of cash from the asset sale, so the stock did
not represent equity in a company, and all the cash on hand
was transferred to the Foley & Lardner trust account at closing.
    The tax court found as well that the $1.4 million “loan”
from Shapiro was a sham. First, the loan was entirely undocu-
mented; there was no promissory note or other writing setting
forth the terms of the loan. It had no interest rate and was
“repaid” immediately, with the money cycling into and out of
the trust account on the same afternoon. Finally, the loan
receivable posted on Woodside’s books was (to use the tax
court’s words) “a mere accounting device, devoid of sub-
stance.” Neither Midcoast nor Shapiro owed Woodside
anything, and the loan receivable was later marked “paid”
without a cent changing hands. Looking past the form of the
transaction to its substance, the court found that the stock sale
was in reality a liquidation: The funds received by the




7
 For the different formulations of the doctrine, see generally 1 BORIS I.
BITTKER & LAWRENCE LOKKEN, FEDERAL TAXATION OF INCOME, ESTATES AND
GIFTS ¶ 4.3.4A (3d Ed. 1999 & 2012 Cum. Supp. No. 3).
16                                          Nos. 12-3144, et al.

shareholders came not from Midcoast but from Woodside’s
cash reserves.
     Turning to the economic-substance analysis, the tax court
noted that the transaction was “all about creating tax avoid-
ance” and thus lacked any valid nontax business purpose. The
shareholders had argued that the liability cap for future
personal-injury claims represented a valid, nontax business
purpose sufficient to stave off recharacterization. The court
rejected this argument, holding that the risk of future losses
from injury claims was not great, so the shareholders “had
little basis for being concerned for their potential personal
liability on unknown claims and lawsuits.” The court also
noted that no liability claims were imminent, and the ranch’s
experience over many decades showed that personal-injury
claims were infrequent and usually settled for small in-kind
payments. Finally, the court noted that the shareholders did
not consider the risk of loss from accident claims significant
enough to justify carrying liability insurance, so capping
liability was not a plausible nontax business purpose for the
transaction.
    The shareholders attack these findings in several respects.
First, they argue that the transaction had economic substance
because the passing of title to Woodside’s stock changed the
legal relationship between the parties. But a sham transaction
will always change the legal relationship between parties in
some way. Although the stock changed hands, the transaction
lacked independent, nontax economic substance because
Woodside had divested itself of all tangible assets and was not
Nos. 12-3144, et al.                                               17

a going concern. Its shares represented nothing more than the
right to withdraw cash and the duty to pay taxes.
    Second, the shareholders continue to insist that the
personal-injury liability cap demonstrates that the transaction
had valid, nontax economic substance. But the tax court’s
contrary conclusion easily survives clear-error review. The
undisputed evidence established that over many decades of
operation, Woodside had experienced relatively few personal-
injury claims, and most were settled in kind and did not
require large monetary payment. There were no known injury
claims pending or imminent, and no evidence suggested that
the shareholders were exposed to significant risk of loss from
unknown future claims dating from Woodside’s activities
before the asset sale. The shareholders argue that the tax court
overemphasized Woodside’s practice of not carrying liability
insurance. They have a point; considering the high cost of
coverage, this fact may not deserve much weight. But the tax
court’s finding that the stock sale lacked bona fide nontax
economic substance is otherwise well supported by the record.
     Moreover, even when a transaction has some degree of
nontax economic substance, the substance-over-form principle
may provide an independent justification for recharacterizing
it. See Altria Grp., Inc. v. United States, 

, 291 (2d Cir.
2011) (“The substance over form doctrine and the economic
substance doctrine are independent bases to deny a claimed tax
deduction.”); BB&T Corp. v. United States, 

, 477 (4th
Cir. 2008) (“Accordingly, although we decline to resolve
whether the transaction as a whole lacks economic sub-
stance … , we conclude that the Government was entitled to
18                                            Nos. 12-3144, et al.

recognize that [transaction] for what it was, not what [the
taxpayer] professed it to be.”); TIFD III-E, Inc. v. United States,

, 231 (2d Cir. 2006) (“The IRS, however, is entitled
in rejecting a taxpayer’s characterization of an interest to rely
on a test less favorable to the taxpayer, even when the interest
has economic substance.”).
    And the tax court correctly concluded that this transaction
has the hallmarks of a de facto liquidation. Woodside carried
on no business activity, its only asset was cash from the asset
sale, and the shareholders had planned to liquidate. The
$1.4 million loan from Shapiro was “a ruse, a recycling, a
sham,” as the tax court quite reasonably found. Remove the
Shapiro loan from this transaction and nothing of consequence
changes—the shareholders get paid the same amount, from the
same trust account, on the same day. What remains after
disregarding the sham loan is a transfer of cash from Woodside
to the trust account and then to an LLC owned by the share-
holders established for the sole purpose of receiving the
proceeds of the transaction. In reality, the only money that
changed hands was Woodside’s cash reserves. At the end of
the day (literally!) Woodside’s shareholders received the lion’s
share of the proceeds of the asset sale.
   On these facts it was entirely reasonable for the tax court to
conclude that this was a liquidation “cloak[ed] … in the
trappings of a stock sale.” Having received Woodside’s cash in
a de facto liquidation, the shareholders are transferees under
§ 6901. See Owens v. Comm’r, 

, 1239–40 (6th Cir.
1977) (holding that a stock sale with similar characteristics was
Nos. 12-3144, et al.                                            19

merely an exchange of cash that could be disregarded for
income-tax purposes).


B. Transferee Liability Under Wisconsin Law
   Establishing transferee status under § 6901 is only the first
step in the analysis. The Commissioner also must establish
substantive liability under state law. 

. Here,
the tax court found the shareholders liable under two
constructive-fraud provisions of the Uniform Fraudulent
Transfer Act (“UFTA”), codified in Wisconsin at WIS. STAT.
§§ 242.04(1)(b), 242.05(1), and also under a provision in
Wisconsin’s law of corporate dissolution, 

   When substantive liability is grounded in the law of
fraudulent transfer, the issue of transferee status arises at this
second step in the analysis as well. The Commissioner takes the
position that transferee status need only be determined once.
In other words, if the court recharacterizes or collapses a
transaction to determine transferee status under § 6901, then
substantive liability is determined by applying state law to the
transaction as recast under federal law. The shareholders argue
that the two inquiries—transferee status under § 6901 and
substantive liability—are independent.
   The Commissioner’s position is hard to square with the
Supreme Court’s decision in Stern. As we’ve explained, Stern
held that § 6901 is “purely a procedural 

,
and “neither creates nor defines a substantive liability but
provides merely a new procedure by which the Government
may collect taxes,” 

Accordingly, when the
20                                            Nos. 12-3144, et al.

Commissioner invokes § 6901 to collect an unpaid tax debt
from a transferee, the federal government’s substantive rights
as a creditor “are precisely those which other creditors would
have under [state] law.” 

This suggests that transferee
status under § 6901 and substantive liability under state law
are separate and independent inquiries.
    Every circuit that has addressed this question has rejected
the Commissioner’s position and instead required independent
determinations of transferee status under federal law and
substantive liability under state law. See Salus Mundi Found. v.
Comm’r, No. 12–72527, 

, at *1 (9th Cir. Dec. 22,
2014) (“We conclude that the two requirements of 26 U.S.C.
§ 6901—transferee status under federal law and substantive
liability under state law—are separate and independent
inquiries.”); Diebold Found., Inc. v. Comm’r, 

, 185
(2d Cir. 2013) (“This symmetry of rights contemplated under
the statute must lead to the conclusion that the requirements
of § 6901 are indeed independent.”); Frank Sawyer Trust of May
1992 v. Comm’r, 

, 605 (1st Cir. 2013) (“While it is
true that the IRS can only use the § 6901 procedural mechanism
to collect taxes from a ‘transferee’ as that term is defined by
federal law, see 26 U.S.C. § 6901(h), it is also true that the IRS
can only rely on the Massachusetts Uniform Fraudulent
Transfer Act to collect from a ‘transferee’ as that term is
construed for the purposes of state law.”); Starnes v. Comm’r,

, 429 (4th Cir. 2012) (“In short, we conclude Stern
forecloses the Commissioner’s efforts to recast transactions
under federal law before applying state law to a particular set
of transactions. An alleged transferee’s substantive liability for
another taxpayer’s unpaid taxes is purely a question of state
Nos. 12-3144, et al.                                           21

law, without an antecedent federal-law recasting of the
disputed transactions.”).
    This conclusion flows from Stern’s twin holdings that
(1) § 6901 is a procedural statute only; and (2) state law defines
both the existence and the extent of substantive liability,
placing the federal government in no better position than any
other creditor. Allowing federal tax doctrines to dictate
substantive outcomes under state law could give the federal
government an advantage over other creditors. See Salus Mundi
Found., 

, at *7–8; 

; Frank
Sawyer 

–05; 

–30.
The decisions of our sister circuits rest on a sound reading of
Stern. We see no reason to disagree.
    But the independent state-law inquiry will make a differ-
ence in the outcome only when there is a conflict between the
applicable federal tax doctrine and the state law that deter-
mines substantive liability. See, e.g., 

(noting that recasting a transaction under state law “may
require, as it does in this case, a different showing” than doing
so under federal law). We have no such conflict here. Wiscon-
sin’s version of the UFTA, like § 6901, defines the term
“transfer” very broadly: “‘Transfer’ means every mode, direct
or indirect, absolute or conditional, voluntary or involuntary,
of disposing of or parting with an asset or an interest in an
asset, and includes payment of money, release, lease and
creation of a lien or other encumbrance.” WIS. STAT.
22                                                      Nos. 12-3144, et al.

§ 242.01(12).8 Nothing suggests this definition is narrower than
the definition in § 6901.
    Moreover, state fraudulent-transfer law is itself flexible and
looks to equitable principles like “substance over form,” just
like the federal tax doctrines we have explained above. See
Boyer v. Crown Stock Distrib., Inc., 

, 793 (7th Cir.
2009) (applying Indiana law and citing DOUGLAS G. BAIRD,
ELEMENTS OF BANKRUPTCY 153–54 (4th ed. 2006)). More to the
point here, Wisconsin’s codification of the UFTA expressly
incorporates equitable principles, WIS. STAT. § 242.10 (“Unless
displaced by this chapter, the principles of law and equity …
supplement this chapter.”), and Wisconsin has long followed
the general rule that “[e]quity looks to substance and not to
form,” Cunneen v. Kalscheuer, 

, 918 (Wis. 1926).
    Wisconsin courts use the “substance over form” principle
in a variety of contexts, most notably including tax cases. See,
e.g., Wis. Dep’t of Revenue v. River City Refuse Removal, Inc.,

, 363 n.19 (Wis. Ct. App. 2006) (explaining that
the substance-over-form principle governs the treatment of a



8
 The definition of “transfer” in the UFTA is largely based on the definition
of “transfer” found in the Bankruptcy Code, UNIF. FRAUDULENT TRANSFER
ACT § 1 cmt. 12, 7A(II) U.L.A. 17 (2006), which we have called “expansive,”
Warsco v. Preferred Technical Grp., 

, 564 (7th Cir. 2001); see also
In re Bajgar, 

, 498 (1st Cir. 1997) (“The Bankruptcy Code,
moreover, defines the term ‘transfer’ broadly … . [T]he legislative history
of Section 101(54), which defines ‘transfer,’ explains that ‘[t]he definition of
transfer is as broad as possible.’” (quoting S. REP. NO. 989, 95th Cong. 27
(1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5813; H.R. REP. NO. 595, 95th
Cong. 314 (1977))).”
Nos. 12-3144, et al.                                                    23

taxpayer’s activities and transactions for tax purposes); G & G
Trucking, Inc. v. Wis. Dep’t of Revenue, 

, 85–86
(Wis. Ct. App. 2003) (same); see also Gebhardt v. City of West
Allis, 

, 467 (Wis. 1979) (same); In re Mader’s Store
for Men, Inc., 

, 184–85 (Wis. 1977) (characteriz-
ing a loan in receivership proceedings); State v. J. C. Penney Co.,

, 647 (Wis. 1970) (“In cases of alleged usury,
this court will look through the form of the agreement to the
substance.”). In light of the broad definition of “transfer” in
Wisconsin fraudulent-transfer law and the general applicability
of substance-over-form analysis, the shareholders are properly
deemed to be transferees under state law as well as federal.
    The shareholders insist that the stock sale cannot be
“recast” or “recharacterized” under Wisconsin fraudulent-
transfer law unless the Commissioner proves that they knew
Midcoast’s scheme was an illegal tax shelter or was otherwise
fraudulent.9 They cite no authority for this proposition, and
indeed, Wisconsin law is to the contrary. The Wisconsin
Supreme Court has explained that subjective intent and good
faith play no role in the application of the constructive-fraud
provisions of Wisconsin’s UFTA. See Badger State Bank v. Taylor,

, 447–49 (Wis. 2004) (“The focus in ‘constructive


9
 At trial the parties stipulated that although the shareholders “knew or
should have known that Midcoast intended to claim a loss to offset the gain
on the asset sale, they did not know and had no reason to know that
respondent [IRS] would characterize it as an abusive tax shelter and/or
disallow the loss.” As we explain in the text, under the constructive-fraud
provisions of the Wisconsin UFTA, whether the shareholders knew the
scheme was illegal or fraudulent is irrelevant.
24                                                    Nos. 12-3144, et al.

fraud’ [cases] shifts from a subjective intent to an objective
result.”). So the shareholders’ extensive emphasis on their due
diligence and lack of knowledge of illegality is simply beside
the point.
    Moving now to the tax court’s application of the
constructive-fraud provisions of the Wisconsin UFTA, we find
no error. Under section 242.04(1)(b), a transferee is liable to a
creditor whose claim arose before or after the transfer if the
debtor made the transfer “[w]ithout receiving a reasonably
equivalent value in exchange for the transfer or obligation,”
and “[i]ntended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the debtor’s
ability to pay as they became due.” WIS. STAT. § 242.04(1)(b)(2)
(emphasis added). Under section 242.05(1), a transferee is liable
to a creditor whose claim arose before the transfer if the debtor
made the transfer “without receiving a reasonably equivalent
value” and “the debtor was insolvent at that time or the debtor
became insolvent as a result of the transfer or obligation.” 

    The tax court found the shareholders liable for Woodside’s
tax debt under both provisions. As a threshold matter, the asset
sale—the triggering event for the tax liability—occurred before
the transfer of Woodside’s cash to the shareholders, so both
constructive-fraud provisions are in play.10 The tax court found

10
   In their reply brief, the shareholders argue for the first time that the
Commissioner failed to prove several elements of UFTA liability, including
whether the IRS was a creditor at the relevant time; they also assert a good-
faith defense under section 242.08 of the Wisconsin Statutes. These
                                                               (continued...)
Nos. 12-3144, et al.                                                      25

that the cash from Woodside’s asset sale was transferred to the
shareholders “without receiving a reasonably equivalent
value,” a requirement common to both constructive-fraud
provisions. Indeed, the court found that Woodside received
nothing. The court also found that the transaction left
Woodside insolvent, a requirement for liability under
section 242.05(1). Woodside’s tax liability exceeded $750,000,
and it had just under $453,000 cash remaining after the
shareholders were paid.11 See 

(“A debtor is
insolvent if the sum of the debtor’s debts is greater than all of
the debtor’s assets at a fair valuation.”).
    The shareholders’ only challenge to these findings is an
unsupported and implausible claim that the $1.2 million loan
receivable had real value. As we’ve explained, however, the
tax court found that the Shapiro loan and the receivable were
mere accounting tricks devoid of actual substance or value: a
sham loan begat a sham receivable. The record amply supports
this finding.
   Finally, the tax court found that the shareholders knew or
should have known that Woodside’s federal tax liability could
not and would not be paid. This finding is also well supported
by the record. What was left in Woodside’s new bank account


10
  (...continued)
arguments come far too late. See Griffin v. Bell, 

, 822 (7th Cir.
2012) (“[A]rguments raised for the first time in a reply brief are deemed
waived.”).

11
  Moreover, Midcoast drained most of the remaining cash from the
corporation within four days of the closing.
26                                            Nos. 12-3144, et al.

after the transaction was insufficient to cover the tax liability.
And the entire transaction was premised on the assumption
that Midcoast would offset the tax liability by a net-operating-
loss carryback; in other words, the transaction was premised
on the assumption that the taxes would not be paid. Or as the
tax court put it, the “record is replete with notice to [the
shareholders] that [Midcoast] never intended to pay Woodside
Ranch’s [f]ederal income tax liability.”
    Accordingly, we conclude that the tax court did not clearly
err in finding the shareholders liable for Woodside’s tax debt
under sections 242.04(1)(b) and 242.05(1). This conclusion is
sufficient to sustain transferee liability under § 6901; we do not
need to address the tax court’s alternative findings under
section 180.1408, the corporate dissolution statute.
                                                      AFFIRMED.