Judges: COLVIN
Attorneys: B. Gray Gibbs , for petitioners. Michael A. Pesavento , for respondent.
Filed: Mar. 24, 1997
Latest Update: Dec. 05, 2020
Summary: T.C. Memo. 1997-150 UNITED STATES TAX COURT HARVEY M. PERT, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent KATHLEEN M. PERT, F.K.A. KATHLEEN M. RIFFE, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13783-94, 13784-94. Filed March 24, 1997. B. Gray Gibbs, for petitioners. Michael A. Pesavento, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION COLVIN, Judge: Kathleen M. Pert (Mrs. Pert), formerly known as Kathleen M. Riffe, was marr
Summary: T.C. Memo. 1997-150 UNITED STATES TAX COURT HARVEY M. PERT, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent KATHLEEN M. PERT, F.K.A. KATHLEEN M. RIFFE, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13783-94, 13784-94. Filed March 24, 1997. B. Gray Gibbs, for petitioners. Michael A. Pesavento, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION COLVIN, Judge: Kathleen M. Pert (Mrs. Pert), formerly known as Kathleen M. Riffe, was marri..
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T.C. Memo. 1997-150
UNITED STATES TAX COURT
HARVEY M. PERT, TRANSFEREE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
KATHLEEN M. PERT, F.K.A. KATHLEEN M. RIFFE, TRANSFEREE,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 13783-94, 13784-94. Filed March 24, 1997.
B. Gray Gibbs, for petitioners.
Michael A. Pesavento, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Kathleen M. Pert (Mrs. Pert), formerly known
as Kathleen M. Riffe, was married to Timothy C. Riffe (Mr. Riffe)
until he died, and later married to Harvey M. Pert (Mr. Pert).
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Mr. Riffe and Mrs. Pert filed joint income tax returns from 1986
to 1989.
Respondent determined that Mrs. Pert is liable as a
transferee of the assets of Mr. Riffe for his and Mrs. Pert's
unpaid income tax and interest and Mr. Riffe's additions to tax
from 1986 to 1989. Respondent also determined that Mr. Pert is
liable for Mr. Riffe's and Mrs. Pert's income tax and Mr. Riffe's
additions to tax as a successor transferee of the assets of Mr.
Riffe, or as a transferee of the assets of Mrs. Pert.
Mr. Riffe's and Mrs. Pert's
Unpaid Joint Federal Income Tax Liabilities
Fees and
Tax Period Collection Assessed Payments Unpaid
Ending Tax Costs Interest Made Balance
1986 $37,342 $ 12 $25,158 $43,976 $18,5241
1987 19,991 12 12,885 0 32,888
1988 14,684 0 6,574 5,000 16,260
Total Unpaid Income Tax Liability $67,672
1
Respondent determined these amounts without explaining apparent
math discrepancy.
Mr. Riffe's Unpaid Additions to Tax
Tax Substantial
Period Fraud Understatement Negligence Accuracy Total
1986 $42,869 $9,335 $ 0 $ 0 $52,204
1987 0 4,998 7,443 0 12,441
1988 0 3,205 734 0 3,939
1989 0 0 0 3,819 3,819
Total $42,869 $17,538 $8,177 $3,819 $72,403
Mr. Riffe's unpaid income tax from 1986 to 1989 is $140,075.
Mr. Riffe's liability is larger than Mrs. Pert's liability
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because it includes additions to tax and penalties pursuant to a
stipulated decision for 1987 and closing agreements for 1986,
1988, and 1989.
In Pert v. Commissioner, 105 T.C. 370, 377, 380 (1995), we
held that petitioners could not dispute the tax liabilities of
Mr. Riffe and Mrs. Pert because she signed closing agreements for
1986, 1988, and 1989 and agreed to a stipulated decision for
1987. We also held that the statute of limitations does not bar
respondent from assessing transferee liability against
petitioners for 1986.
Id. at 379.
We must decide the following issues:
1. Whether Mrs. Pert is liable as a transferee of Mr.
Riffe's assets for his unpaid income tax and additions to tax for
1986, 1987, 1988, and 1989. We hold that she is.1
2. Whether respondent failed to prove the value of the
property transferred from Mr. Riffe's estate to Mrs. Pert, as
petitioners contend; the value of assets transferred is $399,535,
as respondent contends; or the value is some other amount. We
hold that the value of assets transferred is $399,535.
1
In light of our holding, we need not decide respondent's
contentions that Mrs. Pert is liable as a fiduciary of Mr.
Riffe's estate for Mr. Riffe's unpaid income tax and additions to
tax for 1986, 1987, 1988, and 1989, and that Mrs. Pert is liable
for Mr. Riffe's unpaid income tax and additions to tax for 1986,
1987, 1988, and 1989, because she signed a statement filed with
the probate court in which she said that she would pay respondent
the taxes which may become due from Mr. Riffe's estate.
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3. Whether Mr. Pert is liable as a successor transferee of
Mr. Riffe's assets for Mr. Riffe's unpaid income tax and
additions to tax for 1986, 1987, 1988, and 1989. We hold that he
is.
4. Whether Mr. Pert is liable as a transferee of Mrs.
Pert's assets for Mrs. Pert's unpaid income tax for 1986, 1987,
1988, and 1989. We hold that he is.
5. Whether respondent failed to prove the value of the
assets that Mrs. Pert transferred to Mr. Pert from Mr. Riffe's
estate, as petitioners contend; the value is $222,206, as
respondent contends; or the value is some other amount. We hold
that the value of assets transferred to Mr. Pert is $126,112.
6. Whether respondent properly credited tax payments that
Mrs. Pert made on June 27 and December 11, 1991. We hold that
respondent did.
7. Whether we should enter decision in Mrs. Pert's favor
because the U.S. Bankruptcy Court for the Middle District of
Florida discharged Mrs. Pert's liability as a transferee in a
previously filed bankruptcy. We hold that we should not.
Unless otherwise noted, section references are to the
Internal Revenue Code of 1986 as in effect during the years in
issue. Rule references are to the Tax Court Rules of Practice
and Procedure.
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FINDINGS OF FACT
A. Petitioners
Mr. and Mrs. Pert lived in Palm Harbor, Florida, when they
filed their petitions.
B. Transferor Timothy C. Riffe
Mr. Riffe died on February 11, 1991. Decedent and Mrs. Pert
had timely filed joint Federal individual income tax returns for
1986, 1987, 1988, and 1989.
1. Mr. Riffe's Businesses
During 1986, 1987, 1988, and 1989, Mr. Riffe owned
businesses known as West Coast Pest Control and West Coast
Florida Pressure Cleaning. West Coast Pest Control sprayed
pesticides on lawns. West Coast Florida Pressure Cleaning used a
pressure cleaning process to wash cars for car dealers. Mr.
Riffe owned the car wash business before he married Mrs. Pert.
Mrs. Pert worked long hours in both businesses and ran the car
wash business. Mr. Riffe was the sole owner of occupational
licenses for both of these businesses. He had sole signature
authority over the bank accounts for the businesses.
Mr. Riffe's and Mrs. Pert's joint income tax returns for
1986, 1987, 1988, and 1989, include Schedules C for the car wash
business in Mr. Riffe's name. They reported on their 1988 return
that the business paid Mrs. Pert $13,800 in wages. Their 1989
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return also included a Schedule C for Mr. Riffe's lawn spraying
business.
2. Mr. Riffe's Safe Deposit Boxes
On October 23, 1987, Mr. Riffe leased safe deposit box 276
solely in his name from Barnett Bank of Pinellas County (Barnett
Bank). He was the only person listed on the signature card and
the only person authorized to open safe deposit box 276. He
opened safe deposit box 276 more than 300 times from 1987 to
1991.
On January 14, 1991, Mr. Riffe leased safe deposit box 204
from First Gulf Bank (safe deposit box 204). He was the only
person listed on the signature card and the only person
authorized to open safe deposit box 204. He opened it three
times before he died.
Mr. Riffe also leased a safe deposit box solely in his name
from North Carolina National Bank (NCNB).
3. Mr. Riffe's Solely Owned Property
On February 27, 1989, Mr. Riffe's grandparents gave him Lot
30, College Hill, Florida. Mr. Riffe was the sole owner of Lot
30, College Hill, until he died. He was the sole owner of Lot 3,
Block 95, Town of Sutherland, Florida, from November 20, 1989,
until he died.
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On January 16, 1991, Mr. Riffe deposited $350,000 at the
Barnett Bank. Several days later, he withdrew $325,000 and
bought five cashier's checks for $65,000, which he deposited in
accounts at Citizens and Southern Bank (C&S), NCNB, Sun Bank of
Tampa Bay, Florida Bank of Commerce, and First Gulf Bank.
4. Mr. Riffe's Death
Mr. Riffe died in a boating accident in a 22-foot Aqua Sport
boat near his home on February 11, 1991. He was the sole owner
of the boat. When he died, Mr. Riffe and Mrs. Pert lived in a
residence at Lot 28, College Hill. The total balance in his six
bank accounts (see par. B-3, above) was $115,358 when he died.
C. Opening the Safe Deposit Boxes
Detective John Barna (Barna), an experienced narcotics
investigator with the Pinellas County, Florida, Sheriff's office,
began to investigate Mr. Riffe's financial activities shortly
after Mr. Riffe died. On February 15, 1991, 4 days after Mr.
Riffe died, Barna obtained a search warrant for safe deposit box
204. In it were two sealed bags with $132,000 in cash primarily
in denominations of $50s and $100s bundled by paper straps. The
Pinellas County Sheriff's office searched only safe deposit box
204.
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D. Mr. Riffe's Estate
1. Administration of Mr. Riffe's Estate
Mr. Riffe died testate. Mrs. Pert was the personal
representative and sole beneficiary of Mr. Riffe's estate.
Donald F. Kaltenbach (Kaltenbach) represented Mrs. Pert in her
capacity as personal representative of Mr. Riffe's estate. He
had previously represented hundreds of personal representatives
of estates and was familiar with documents filed in probate
proceedings.
Early in the probate proceedings, Mrs. Pert and Kaltenbach
knew that respondent was investigating the tax liabilities of Mr.
Riffe and Mrs. Pert. On February 28, 1991, Revenue Agent Joe
Elliott (Elliott) questioned Mrs. Pert about her assets, the
business operations of West Coast Pest Control and West Coast
Florida Pressure Cleaning, how she derived income from the
businesses, and her cash on hand. Mrs. Pert denied that she or
Mr. Riffe had a cash hoard or any large sums of cash on hand.
Mrs. Pert told Elliott that she had to borrow money from friends
and family because she had no funds and she had no signature
authority over any of the business bank accounts. Kaltenbach was
present when Elliott interviewed Mrs. Pert on February 28, 1991.
On March 1, 1991, Elliott went to Mrs. Pert's residence to get
books and records to start an income tax audit.
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On March 20, 1991, Kaltenbach and Mrs. Pert deposited
$115,358 at Peoples State Bank (acct. No. 105209804) for Mr.
Riffe's estate to pay estate bills. The $115,358 came from Mr.
Riffe's six bank accounts.
On April 16, 1991, the Pinellas County Sheriff's office gave
Mrs. Pert the $132,000 that Barna had seized from safe deposit
box 204. Before giving her the money, the Sheriff's office
required her to present letters of administration.
2. Inventory of Decedent's Assets
In a Florida probate proceeding a decedent's estate must
file an inventory which lists in reasonable detail each asset
owned by the decedent and the estimated fair market value of each
asset when the decedent died. Fla. Stat. Ann. sec. 733.604(1)
(West 1988). Kaltenbach prepared an inventory based on
information from Mrs. Pert and a friend of hers whom Kaltenbach
knew and trusted. He intended to include only property that was
owned solely by Mr. Riffe and not to include jointly owned
property. He listed the following property in the inventory:
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Estimated Fair
Assets Market Value
Real Property
1. Lot 28, College Hill (homestead) Not included in
valuation
2. Lot 30, College Hill $15,000
3. Lot 3, Block 95 30,000
Personal Property
4. Peoples State Acct. # 105209804 $115,358
Under C&S Acct. # 836150
5. Certificates of Deposit 100,000
6. Government Obligation Taxable 100,000
7. C&S Tax-Free Income Bond 45,000
8. Cash Equivalent Tax-Free Fund 5,000
9. C&S Money Market # FV0081203284 18,000
10. 22' Aqua Sport Boat 5,000
11. West Coast Pest Control 35,000
12. West Coast Florida Pressure Cleaning 4,000
13. 1987 GMC Van ID # 1GTFR24H9HF725519 5,000
14. 1988 GMC Pick-up ID # 2GCFC24H771306969 10,000
15. 1987 GMC ID # 1GTFR24H6F720973 4,000
16. 1987 GMC Astro Van ID # 1G8DM15ZOGB198509 5,000
Total Property - Wherever Located $496,358
The value of the boat was the estimated value after the accident
in which Mr. Riffe died.
Mrs. Pert signed the inventory under penalty of perjury on
May 13, 1991. Kaltenbach filed it with the probate court.
Kaltenbach did not believe that he needed to have appraisals
because the total value of the estate was more than $60,000 (the
threshold for formal administration) but less than $600,000 (the
threshold for filing a Federal estate tax return), and because
Mrs. Pert was the sole beneficiary of the estate.
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3. Property Passing Outside of Probate
Mrs. Pert was required to report the value of property
passing outside of probate, including jointly owned property, to
the Florida Department of Revenue (Preliminary Notice and
Report). On May 13, 1991, Mrs. Pert reported that Lot 28,
College Hill, which she valued at about $41,000, passed outside
of probate, and that the total value of all property in which Mr.
Riffe had an interest was $537,358.
On June 5, 1991, Elliott met with Mrs. Pert's tax attorney
to discuss adjustments Elliot had made to Mr. Riffe's and Mrs.
Pert's income for 1986, 1987, 1988, and 1989, and to give Mrs.
Pert's tax attorney a copy of Elliott's report detailing the
adjustments based on unreported income and including the addition
to tax for fraud.
Mrs. Pert married Mr. Pert on September 7, 1991, while she
was administering Mr. Riffe's estate. Mr. Pert had known Mr.
Riffe for many years.
Mrs. Pert, as representative of Mr. Riffe's estate, signed
documents under penalty of perjury on March 23, 1992 (petition to
extend time for filing final accounting and petition for
discharge), June 19, 1992 (petition to extend time for filing
final accounting and petition for discharge), and October 8, 1992
(statement regarding creditors with attachment showing debt owed
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to Internal Revenue Service (IRS)), in which she stated that
respondent had tax claims against Mr. Riffe's estate.
On October 6, 1992, Mrs. Pert wrote a check to herself for
$3,294 to close out the Peoples State Bank account.
Mr. Riffe's estate asked the probate court to close the
estate. To allow the case to close, Kaltenbach prepared the
following document, which Mrs. Pert signed on October 8, 1992:
Dated: October 8, 1992
Re: Estate of Timothy Christopher Riffe, aka
Timothy C. Riffe, aka Tim Riffe
File Number 91-676-E3
The undersigned, KATHLEEN M. PERT, formerly known
as KATHLEEN M. RIFFE, as Personal Representative of the
above-captioned Estate, will attend to the preparation
of Timothy C. Riffe's Final 1040 Individual Return as
well as the Final 1041 Estate Income Tax Return.
In addition, KATHLEEN M. PERT, individually and as
Personal Representative of the above-captioned Estate,
shall be responsible for any and all obligations which
may become due to the Internal Revenue Service and
shall hold the law firm of Donald F. Kaltenbach, P.A.
harmless from any and all liability therefor.
The above-mentioned assurances are being made by
the Personal Representative in order to close out the
Estate of Timothy Christopher Riffe.
/s/ Kathleen M. Pert
Mrs. Pert signed this document to show the probate court
that she would pay any claims by the IRS from the estate that
might become due, to allow her to be released from her fiduciary
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duties to the estate, and to allow Mr. Riffe's estate to be
distributed to her.
On October 8, 1992, Mr. Riffe's estate reported that it had
distributed all of its assets to Mrs. Pert according to the plan
stated in the petition for discharge. Mr. Riffe's estate used
$96,823 of the $115,358 deposited in Peoples State Bank to pay
estate expenses, including $57,963 for income tax for Mr. Riffe
for tax years 1986 to 1990. The remaining $18,535 was
distributed to Mrs. Pert or paid on her behalf while she
administered the estate.
Mr. Riffe's estate was closed on October 17, 1992.
E. Mr. Pert's Financial Resources
1. Mr. Pert's Businesses
Mr. Pert started a lawn maintenance business in the late
1980's called Perticular Lawn Service.
After he married Mrs. Pert, Mr. Pert helped her run West
Coast Pest Control. Mr. and Mrs. Pert combined their landscaping
and lawn spraying businesses to form Perticular Lawn, Inc.
Mrs. Pert transferred the car washing business and a
Chevrolet truck with a pressure washing machine to her father.
Mr. Pert incorporated Perticular Lawn, Inc. in 1992 and sold it
in 1992 or 1993.
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2. Mr. Pert's Finances
Mr. Pert had a drug habit (not further described in the
record) in the early 1980's, and he had financial troubles from
1985 to 1989. Ford Motor Credit Co. obtained a judgment against
him in 1987 for $3,098 plus costs and interest.
On December 21, 1990, Mr. Pert's father gave Mr. Pert
$40,000, which he deposited in C&S. He withdrew the $40,000 on
January 7, 1991.
Around July 1991, Mr. Pert's father gave Mr. Pert real
property worth $46,000. Mr. Pert sold the property shortly after
he received it.
On October 15, 1991, Mr. Pert bought a certificate of
deposit in the amount of $30,952.
In 1988, 1989, and 1990, Mr. Pert made less than $11,000 per
year. He reported that he had gross income as follows: $8,108
for 1988, $8,589 for 1989, and $10,680 for 1990. Mr. and Mrs.
Pert reported that they had taxable income of $34,906 for 1991,
$16,098 for 1992, and $42,395 for 1993.
3. Mr. Pert's Homes
Mr. Pert owned a home at 1332 Hawaii Avenue that he bought
in the mid 1980's. Mr. and Mrs. Pert lived there about a year
after they were married. Thereafter, they moved to a house that
Mrs. Pert built on Lot 30, College Hill. They lived there for
about 8 months. They then moved to a motel for about 30 days,
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and then to 610 Sandy Hook Road. Mr. and Mrs. Pert had a young
son and they were expecting another child when they stayed at the
motel. Mr. and Mrs. Pert lived modestly.
4. Mr. Pert's Boat
Mr. Pert bought a boat for $11,000 shortly after he married
Mrs. Pert in 1991. He traded in that boat in 1995 for a $24,000
22-foot Hydrasport fishing boat. He financed the purchase of the
second boat and owed $11,000 as of the date of trial.
F. The Cash Transactions
On March 20, 1991, Kaltenbach and Mrs. Pert opened the
Peoples State Bank account for Mr. Riffe's estate and deposited
$115,358, as described above at par. D-3. On that day, Mrs. Pert
wrote a $5,000 check to herself. On April 9, 1991, she wrote a
$5,000 check to herself for a downpayment on a car.
On April 16, 1991, Mrs. Pert deposited $268,000 (items 5-9
on the inventory) in cash in C&S account No. 87051982. On April
18, 1991, she closed that account, deposited $250,000 in C&S
trust account No. 836150 and deposited $18,091 in C&S ultima
account No. 81203284. Mrs. Pert opened the C&S accounts in her
name. On May 6, 1991, Mrs. Pert used part of the $250,000 from
account No. 836150 to buy a $100,000 certificate of deposit, and
$97,256 to buy a $100,000 U.S. Treasury bill. On June 5, 1991,
Mrs. Pert used part of the $250,000 to pay $45,020 to buy shares
of the C&S tax-exempt bond fund.
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On June 27, 1991, Mrs. Pert paid $50,000 to the IRS for Mr.
Riffe's taxes. On July 2, 1991, respondent applied $28,976 of
the $50,000 payment to 1986 and $21,024 to 1989 ($50,000 total).
On November 5, 1991, Mrs. Pert transferred $50,000 from C&S
trust account No. 836150 to C&S ultima account No. 81203284.
On November 7, 1991, Mrs. Pert withdrew $199,628 from C&S
trust account No. 836150. On November 8, 1991, at the Florida
Bank of Commerce, Mrs. Pert used the $100,000 from C&S trust
account No. 836150 to buy a $100,000 certificate of deposit (CD
1766), and Mr. Pert bought certificate of deposit No. 2775 for
$43,072 (CD 2775). The same employee at Florida Bank of Commerce
opened both certificate of deposit accounts for Mr. and Mrs. Pert
on November 8, 1991.
On December 11, 1991, Mrs. Pert paid $20,000 to the IRS for
Mr. Riffe's taxes. On December 20, 1991, respondent applied
$15,000 of the $20,000 payment to 1986 and $5,000 to 1988.
When CD 1766 matured around May 12, 1992, Mrs. Pert used
$50,000 of the proceeds to open joint checking account No.
0302052577 at Citizens Bank of Clearwater. She used the other
$50,000 to buy joint certificate of deposit No. 0300033611 with
Mr. Pert at Citizens Bank of Clearwater.
On June 16, 1992, Mr. Pert withdrew $6,000 in cash from
joint checking account No. 0302052577. On June 17, petitioners
prematurely redeemed certificate of deposit No. 0300033611 in the
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amount of $49,716, and paid a $469 penalty. On June 17, 1992,
the bank distributed the $49,716 to petitioners in three cashiers
checks as follows: cashier's check No. 18580 for $20,000 to Mr.
Pert, cashier's check No. 18581 for $20,000 to Mr. Pert, and
cashier's check No. 18582 for $9,716 to Mrs. Pert. On June 18,
1992, Mr. Pert withdrew $5,000 in cash from joint checking
account No. 0302052577. Mr. Pert withdrew a total of $11,000
from Citizen's Bank.
On June 18, 1992, Mr. Pert used cashier's check No. 18580 to
open account No. 2623699909 with $20,000 at Sun Bank of Tampa Bay
in his name. On June 29, 1992, Mr. Pert added Mrs. Pert to the
Sun Bank account. On June 30, 1992, he deposited $20,000. Mr.
Pert withdrew the following amounts from the Sun Bank account:
June 18, 1992 $5,000
June 26, 1992 5,000
June 30, 1992 3,000
July 20, 1992 3,000
July 22, 1992 4,000
July 31, 1992 3,000
Feb. 28, 1993 7,000
Total $30,000
On June 18, 1992, Mr. Pert used cashier's check No. 18581 to
open a joint account at Barnett Bank of Pinellas County. Mr.
Pert withdrew the following amounts from Barnett Bank:
June 19, 1992 $5,000
June 26, 1992 5,000
June 29, 1992 5,000
July 2, 1992 5,000
July 20, 1992 3,000
July 21, 1992 3,000
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July 22, 1992 4,000
July 31, 1992 3,000
Total $33,000
From June 16, 1992, to February 28, 1993, Mr. Pert withdrew
a total of $74,000 from Citizens Bank, Sun Bank, and Barnett
Bank.
On November 23, 1992, respondent issued the notice of
deficiency to Mr. Riffe's estate, including the determination for
the addition to tax for fraud.
During 1991, 1992, 1993, and 1994, petitioners opened more
than 20 bank accounts, most of which were closed within 6 months.
Some of those accounts were opened only for 2 days.
G. Petitioners' Purchase of 610 Sandy Hook Road
On March 23, 1992, Mrs. Pert distributed Lot 30, College
Hill, to herself as sole beneficiary of Mr. Riffe's estate. She
had a new house built on that property in 1992. On April 19,
1993, Mrs. Pert sold the house and land for $60,000. After
deducting selling expenses, Mrs. Pert received $56,942 from the
sale. On April 20, 1993, Mrs. Pert bought a cashier's check
payable to Secure Title in the amount of $53,018. She withdrew
$3,925 from the original proceeds.
On February 16, 1993, Mr. Pert's parents wired $59,866 to
his money market account.
On March 4, 1993, Mr. Pert paid the Ford Motor Credit Co.
judgment (see par. E-2, above) in full.
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On April 20, 1993, Mrs. Pert transferred $53,018 in cash to
Mr. Pert. Mr. Pert used the $53,018 and other funds, including
the $59,866 gift from his parents, to buy a house at 610 Sandy
Hook Road for $128,000. He took title to the Sandy Hook property
in his name. He quitclaimed the Sandy Hook property to himself
and Mrs. Pert about a month later.
H. Vehicles
1. 1992 Ford Explorer
In April 1991, Mrs. Pert used $5,000 from Peoples State Bank
account No. 105209804 (the account she had used to pay
administrative expenses of Mr. Riffe's estate) as a downpayment
for a Volkswagen. Mrs. Pert made the monthly payments on the
loan to buy the Volkswagen from May to December 1991 from C&S
ultima account No. 81203284. She paid the $17,005 balance that
she owed for the Volkswagen from C&S ultima account No. 81203284.
On June 15, 1992, Mr. Pert bought a 1992 Ford Explorer for
$22,112. He traded Mrs. Pert's Volkswagen, for which he was
given credit of $12,778, and paid the remaining $9,335 with a
check drawn from Citizens Bank of Clearwater account No.
0302052577. Mr. Pert titled the Ford Explorer in the name of
Perticular Lawn, Inc.
2. 1987 GMC Truck
Mr. Pert used a 1987 GMC Truck that had been used by West
Coast Pest Control.
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I. Mrs. Pert's Bankruptcy
On December 22, 1993, Mrs. Pert filed a voluntary petition
for relief from creditors under chapter 7 of the U.S. Bankruptcy
Code, listing respondent as the primary creditor. In her
petition, Mrs. Pert listed as assets a joint interest in Sandy
Hook Road worth $130,000, $12 cash on hand, $57 in a joint
checking account, household goods and furnishings worth $3,108,
and other items including clothes, jewelry, and firearms worth
$530.
J. Closing Agreements and Notices of Transferee Liability
On April 23, 1993, Mrs. Pert signed closing agreements for
1986, 1988, and 1989 for herself and as personal representative
of Mr. Riffe's estate. See Pert v. Commissioner, 105 T.C. 370,
373 (1995). On June 4, 1993, this Court entered a stipulated
settlement agreement in Riffe v. Commissioner, docket No. 15214-
91, for 1987.
Id.
On May 27, 1994, respondent issued notices of transferee
liability to Mr. and Mrs. Pert determining that each petitioner
was liable as a transferee of Mr. Riffe's assets.
OPINION
We must decide whether, and if so to what extent, Mrs. Pert
is liable as a transferee of Mr. Riffe's assets, and whether, and
if so to what extent, Mr. Pert is liable as a transferee of Mr.
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Riffe's assets or as a successor transferee of Mrs. Pert's
assets.
A. Background
1. Transferee Liability
The Commissioner may collect unpaid income 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, 42 (1958); Stansbury v. Commissioner,
104 T.C. 486,
489 (1995), affd.
102 F.3d 1088 (10th Cir. 1996). Petitioners
bear the burden of proving that the transferor is not liable for
tax and additions to tax. Sec. 6902(a). In accordance with our
holding in Pert v.
Commissioner, supra, Mr. Riffe and Mrs. Pert
are liable for the tax and additions to tax in the amounts set
forth in the stipulated decision in docket No. 15214-91 and in
the closing agreements with respondent.
The Commissioner bears the burden of proving that a taxpayer
is liable as a transferee. Sec. 6902(a); Rule 142(d); Gumm v.
Commissioner, 93 T.C. 475, 479-480 (1989), affd. without
published opinion
933 F.2d 1014 (9th Cir. 1991). State law
generally determines the extent of a transferee's liability.
Commissioner v. Stern, supra at 45; Gumm v.
Commissioner, supra
at 479. We apply Florida law in deciding whether petitioners are
liable as transferees under section 6901 because all of the
- 22 -
transfers occurred there. Commissioner v. Stern, supra; Fibel v.
Commissioner, 44 T.C. 647, 657 (1965).
2. Transferee Liability Under Florida Law
Under Florida law, a transferee may be held liable for the
debts of a transferor if the transferor conveys assets to the
transferee fraudulently or in a manner that is "per se"
fraudulent. Fla. Stat. Ann. secs. 726.105, 726.106 (West 1988);
Hagaman v. Commissioner, 100 T.C. 180, 184 (1993) (transferee
liability established by applying Florida fraudulent conveyance
law); Schad v. Commissioner,
87 T.C. 609, 614 (1986), affd.
without published opinion
827 F.2d 774 (11th Cir. 1987).
One way that a creditor may show that a conveyance is
fraudulent is by showing that the transferor actually intended to
defraud or hinder creditors. Fla. Stat. Ann. sec. 726.105(1)(a)
(West 1988)2; Florida Fruit Canners, Inc. v. Walker, 90 F.2d 753,
2
Fla. Stat. Ann. sec. 726.105 (West 1988) provides:
726.105. Transfers fraudulent as to present and future
creditors.
(1) A transfer made or obligation incurred by a debtor
is fraudulent as to a creditor, whether the
creditor's claim arose before or after the
transfer was made or the obligation was incurred,
if the debtor made the transfer or incurred the
obligation:
(a) With actual intent to hinder, delay, or
defraud any creditor of the debtor; or
(b) Without receiving a reasonably equivalent
(continued...)
- 23 -
757 (5th Cir. 1937). A creditor may show that a transferor
2
(...continued)
value in exchange for the transfer or
obligation, and the debtor:
1. Was engaged or was about to engage in a
business or a transaction for which the
remaining assets of the debtor were
unreasonably small in relation to the
business or transaction; or
2. Intended to incur, or believed or
reasonably should have believed that he
would incur, debts beyond his ability to
pay as they became due.
(2) In determining actual intent under paragraph
(1)(a), consideration may be given, among other
factors, to whether:
(a) The transfer or obligation was to an insider.
(b) The debtor retained possession or control of
the property transferred after the transfer.
(c) The transfer or obligation was disclosed or
concealed.
(d) Before the transfer was made or obligation
was incurred, the debtor had been sued or
threatened with suit.
(e) The transfer was of substantially all the
debtor's assets.
(f) The debtor absconded.
(g) The debtor removed or concealed assets.
(h) The value of the consideration received by
the debtor was reasonably equivalent to the
value of the asset transferred or the amount
of the obligation incurred.
(I) The debtor was insolvent or became insolvent
shortly after the transfer was made or the
obligation was incurred.
(j) The transfer occurred shortly before or
shortly after a substantial debt was
incurred.
(k) The debtor transferred the essential assets
of the business to a lienor who transferred
the assets to an insider of the debtor.
- 24 -
intended to defraud or hinder creditors under Fla. Stat. Ann.
section 726.105 (West 1988), either by direct proof or by using a
nonexclusive list of factors (badges of fraud) listed in the
statute. Fla. Stat. Ann. sec. 726.105(1) and (2) (West 1988).
A creditor may also establish transferee liability by
showing that a conveyance is per se fraudulent. Fla. Stat. Ann.
sec. 726.106 (West 1988).3 There are two ways that a creditor
can prove that a conveyance is per se fraudulent. First, a
conveyance is per se fraudulent if: (a) The transferor
transferred assets to the transferee; (b) the transferor had a
preexisting liability at the time of the transfer; (c) the
transferee paid inadequate consideration for the transfer; and
(d) the transferor was insolvent at the time of or due to the
3
Fla. Stat. Ann. sec. 726.106 (West 1988) provides:
726.106. Transfers fraudulent as to present creditors
(1) A transfer made or obligation incurred by a
debtor is fraudulent as to a creditor whose claim arose
before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred
the obligation without receiving a reasonably
equivalent value in exchange for the transfer or
obligation and the debtor was insolvent at that time or
the debtor become insolvent as a result of the transfer
or obligation.
(2) A transfer made by a debtor is fraudulent as
to a creditor whose claim arose before the transfer was
made if the transfer was made to an insider for an
antecedent debt, the debtor was insolvent at that time,
and the insider had reasonable cause to believe that
the debtor was insolvent.
- 25 -
transfer. Fla. Stat. Ann. sec. 726.106(1) (West 1988). Second,
a conveyance is also per se fraudulent if: (a) The creditor's
claim arose before the transfer was made; (b) the transfer was
made to an insider for an antecedent debt; (c) the debtor was
insolvent at that time; and (d) the insider had reasonable cause
to believe that the debtor was insolvent. Fla. Stat. Ann. sec.
726.106(2) (West 1988).
B. Whether Mrs. Pert Is Liable as a Transferee of Mr. Riffe's
Assets
1. Contentions of the Parties
Respondent contends that Mrs. Pert is liable as a transferee
for Mr. Riffe's unpaid tax and additions to tax for 1986, 1987,
1988, and 1989, and contends that the transfer of Mr. Riffe's
assets to Mrs. Pert was both actually and per se fraudulent.
As discussed next, we conclude that respondent has
established that the conveyances from Mr. Riffe's estate to Mrs.
Pert were per se fraudulent under Florida law.
2. Per Se Fraudulent Conveyances Under Florida Law
a. Transfer of Assets of Mr. Riffe's Estate to Mrs.
Pert
Petitioners contend that respondent has not shown that the
assets which respondent contends were transferred from Mr.
Riffe's estate to Mrs. Pert belonged solely to Mr. Riffe. We
disagree.
- 26 -
Mrs. Pert signed the inventory which showed that Mr. Riffe's
estate included assets with a total estimated fair market value
of $469,358. All of that property less an amount for
administrative costs was transferred to Mrs. Pert ($469,358 -
$96,823 = $372,535).
A personal representative must file an inventory of property
of the estate. Fla. Stat. Ann. sec. 733.604(1) (West 1988).4
The personal representative of an estate is required to list only
assets belonging to the deceased in his or her individual
capacity that pass through probate; jointly held properties such
as assets held by the entireties should not be listed. Florida
Bar v. McKenzie, 581 So. 2d. 53, 54 (Fla. 1991); Hill v. Morris,
85 So. 2d 847, 851 (Fla. 1956). Kaltenbach had represented
several hundred estates. His normal practice was to identify the
property in which the decedent had sole ownership and to estimate
the fair market value of the property. He believed that the
4
Fla. Stat. Ann. sec. 733.604(1) (West 1988) provides:
(1) Within 60 days after issuance of letters, a
personal representative who is not a curator or a
successor to another personal representative who has
previously discharged the duty shall file an inventory
of property of the estate, listing it with reasonable
detail and including for each listed item its estimated
fair market value at the date of the decedent's death.
Unless otherwise ordered by the court for good cause
shown, any such inventory or amended or supplementary
inventory is subject to inspection only by the clerk of
the court or his representative, the personal
representative and his attorney, and other interested
persons.
- 27 -
items listed in the inventory, except for the homestead, belonged
solely to Mr. Riffe.
Petitioners contend that respondent did not prove that the
$268,000 in cash from the safe deposit boxes which was deposited
in the C&S bank account did not belong jointly to Mrs. Pert and
Mr. Riffe. Petitioners contend that the Pinellas County
Sheriff's office returned the $132,000 cash seized from safe
deposit box 204 to Mrs. Pert, individually, and not to Mr.
Riffe's estate. We disagree. The Sheriff's office required Mrs.
Pert to present letters of administration before releasing the
cash. The receipt which Mrs. Pert signed states that the
authority to release the cash was the probate of Mr. Riffe's
estate as shown by letters of administration. We conclude that
the seized cash was released to Mrs. Pert in her capacity as
personal representative of Mr. Riffe's estate.
Petitioners contend that respondent offered no evidence
showing that the other $136,000 included in the $268,000 was
solely Mr. Riffe's property or that it was Mr. Riffe's and not
Mrs. Pert's property. We disagree. Mrs. Pert did not know about
any of the cash in Mr. Riffe’s safe deposit boxes. Mrs. Pert
told respondent's revenue agent on February 28, 1991, that she
did not know that Mr. Riffe had any cash on hand. She also told
him that she had no money or sources of funds and that she had to
borrow money from friends and family because she had no signature
- 28 -
authority over the business bank accounts. Mr. Riffe was the
sole lessee of safe deposit box 204 at First Gulf Bank and safe
deposit box 276 at Barnett Bank. He was the only person whose
name was on the signature cards, and the only person authorized
to have access to those boxes.
The lease or signature card for Mr. Riffe's safe deposit box
of NCNB is not in the record. However, Kaltenbach testified that
it was solely in the name of Mr. Riffe and that Mrs. Pert could
not gain access to it without authority from the probate court.
Mrs. Pert did not list the $268,000 as a jointly owned asset
passing outside of probate on the Preliminary Notice and Report.
We conclude that the cash from all three safe deposit boxes
belonged solely to Mr. Riffe.
Petitioners contend that respondent failed to prove that the
money did not belong to both Mr. Riffe and Mrs. Pert because she
worked hard in the two businesses. We disagree. We are
convinced that she worked hard in the businesses, but we think it
is implausible that Mrs. Pert's earnings would be part of a cash
hoard kept by her husband without her knowledge.
Petitioners point out that Mrs. Pert opened accounts on
April 16, 1991, at C&S in her own name and not in the estate's
name, and contend that this shows that the cash in the C&S
accounts was not solely Mr. Riffe's property. We disagree.
Kaltenbach testified that he allowed Mrs. Pert to do that because
- 29 -
she was the only beneficiary and personal representative of the
estate and she needed funds. He believed that the claims against
the estate, not including those made by respondent, could be paid
from the Peoples State Bank account. His testimony and that of
the revenue agent show that the funds initially deposited in the
accounts at C&S were from Mr. Riffe's estate.
Petitioners suggest that Mrs. Pert owned the contents of the
safe deposit boxes (and the other items in the inventory) with
Mr. Riffe as tenants by the entireties. We disagree. There is
no tenancy by the entireties between spouses if a surviving
spouse has no control over a safe deposit box, even if the
surviving spouse had access to it. Bechtel v. Estate of Bechtel,
330 So. 2d 217 (Fla. Dist. Ct. App. 1976). Mrs. Pert had neither
access to nor control of the safe deposit boxes. Also, Mrs. Pert
did not claim that she owned the cash or other property with Mr.
Riffe as tenants by the entireties in the Preliminary Notice and
Report filed with the Florida Department of Revenue.
b. Whether Respondent's Claim Arose Before Mr. Riffe's
Estate Transferred Assets to Mrs. Pert
To establish liability under Fla. Stat. Ann. section
726.106(1) (West 1988), respondent must prove that respondent's
claim arose before Mr. Riffe's estate transferred assets to Mrs.
Pert.
Petitioners contend that respondent's claim had not arisen
when the transfers were made because respondent had not yet
- 30 -
determined a deficiency in tax or additions to tax, or otherwise
assessed tax. Respondent issued the notice of deficiency to Mr.
Riffe's estate, including the addition to tax for fraud on
November 23, 1992. Petitioners contend that the fraud penalty
did not arise before the transfers occurred from March 19, 1991
to October 17, 1992, when the estate closed, because respondent
bears the burden of proving fraud and because respondent had not
yet determined, much less proven, that fraud applies. We
disagree.
Mr. Pert's and Mrs. Riffe's filing of incorrect returns in
which they did not report income is the act upon which respondent
based the underlying determination. The claim arose when they
filed their returns, or at the latest, when the returns for those
years were due. We have held that the Commissioner becomes a
creditor of a taxpayer for transferee liability purposes at the
close of the taxable period in which the tax arose. Hagaman v.
Commissioner, 100 T.C. 185 (included additions to tax for
fraud); O'Sullivan v. Commissioner, T.C. Memo. 1994-17. Other
courts have held that the Commissioner becomes a creditor of a
taxpayer when the return on which the tax should be reported is
due to be filed. United States v. Ressler,
433 F. Supp. 459, 463
(S.D. Fla. 1977), affd.
576 F.2d 650 (5th Cir. 1978). The tax
years at issue are 1986, 1987, 1988, and 1989. The tax return
for 1989 was due on April 15, 1990. Mr. Riffe's estate
- 31 -
transferred all of its assets to Mrs. Pert after April 15, 1990,
the latest date that the claim arose. We conclude that
respondent’s claim arose before any of the transfers occurred.5
We conclude that respondent has proven that the claim arose
before Mr. Riffe's estate transferred its assets to Mrs. Pert.
c. Consideration for Transfers From Mr. Riffe's
Estate to Mrs. Pert
To establish liability under Fla. Stat. Ann. section
726.106(1) (West 1988), respondent must show that Mr. Riffe's
estate did not receive property of a reasonably equivalent value
in exchange for the transfers.
Mrs. Pert did not pay any consideration to Mr. Riffe's
estate for the $399,535 in property that Mr. Riffe's estate
transferred to her. Petitioners do not contend that she did. We
conclude that respondent has proven that Mr. Riffe's estate did
not receive any consideration for the assets it transferred to
Mrs. Pert.
d. Insolvency or Substantial Indebtedness of Mr.
Riffe's Estate
Petitioners contend that the estate was solvent when Mrs.
Pert deposited the $132,000 in April 1991.
A debtor is insolvent under Florida law when the value of
his or her debts exceeds the value of his or her assets. Fla.
5
Petitioners erroneously interpret the Florida statute to
require that the claim had been “made” rather than "arose" before
the transfer.
- 32 -
Stat. Ann. sec. 726.103(1) (West 1988). Insolvency can be
measured at the time of or immediately after the transfer. Fla.
Stat. Ann. sec. 726.106(1) (West 1988). Each distribution by an
estate is one of a series toward the distribution of the entire
estate. O'Sullivan v. Commissioner, T.C. Memo. 1994-17 (heirs to
decedent who died owing income taxes received distributions from
estate as transferees under the Cal. Civ. Code sec. 3439.05 (West
1993 Supp.), which is identical to Fla. Stat. Ann. section
726.106(1) (West 1988)); Ginsberg v. Commissioner, T.C. Memo.
1965-36. The liabilities of an estate include unpaid Federal
taxes, penalties, and interest on the date of the transfer in
computing whether an estate is solvent. Leach v. Commissioner,
21 T.C. 70, 75 (1953); LeFay v. Commissioner, T.C. Memo. 1982-
420.
When Mr. Riffe's estate transferred its assets to Mrs. Pert,
it became insolvent because it had no assets and had a debt to
respondent.
e. Petitioners' Other Contentions
Petitioners contend that respondent must prove that the
transferor had fraudulent intent. We disagree. A creditor need
not prove that the transferor had fraudulent intent to establish
that a conveyance is per se fraudulent under Fla. Stat. Ann.
section 726.106(1) (West 1988). Snellgrove v. Fogazzi, 616 So.
- 33 -
2d 527, 529 (Fla. Dist. Ct. App. 1993); In re Smith, 110 Bankr.
597, 599 (M.D. Fla. 1990).
Petitioners contend that the transfer of assets from Mr.
Riffe's estate to Mrs. Pert is not a fraudulent conveyance under
Florida law because Mr. Riffe and Mrs. Pert were liable for the
same debt. Petitioners contend that a transfer of assets between
co-debtors does not hinder collection efforts by a creditor. We
disagree. Co-debtors should not have the right to decide from
which of them their creditors must seek to collect. Petitioners
cite no Florida law to support their position. In a case decided
under New Mexico law, a spouse who filed a joint return with her
husband who later died was held liable as a transferee for the
tax liability of her deceased husband. United States v.
Floersch, 276 F.2d 714 (10th Cir. 1960). We agree with that
result. Also, we note that Mr. Riffe and Mrs. Pert are co-
debtors only to the extent of the unpaid balance of their joint
tax liabilities of $67,672 plus interest.
Petitioners contend that West Coast Pest Control and West
Coast Florida Pressure Cleaning ceased doing business when Mr.
Riffe died and that its assets were not distributed by Mr.
Riffe's estate. We disagree. Mrs. Pert transferred the car
washing business to her father. Mr. and Mrs. Pert tried to
continue to operate West Coast Pest Control after they were
- 34 -
married, and later combined their businesses to form Perticular
Lawn, Inc.
3. Conclusion
We conclude that respondent has shown that the transfers of
the assets in the inventory were per se fraudulent under Fla.
Stat. Ann. section 726.106(1) (West 1988).
4. Value of the Property Transferred
Respondent contends that Mr. Riffe's estate included
$113,600 of property other than cash. Petitioners contend that
respondent has not established the fair market value of the non-
cash property listed in the inventory that Mrs. Pert filed with
the probate court, and contend that the values given in the
inventory are not evidence of fair market value. We agree with
respondent.
Under Florida law, the personal representative of an estate
must file an inventory of the property of the estate, including
the estimated fair market value of each asset when decedent died.
Fla. Stat. Ann. sec. 733.604(1) (West 1988). Kaltenbach
testified that the values used in the inventory were based on the
best information available at the time without the expense of
appraisals. We do not believe that the absence of appraisals or
the fact that Mr. Riffe’s estate was larger than $60,000 and
smaller than $600,000 makes the estimate in the inventory
unreliable.
- 35 -
Mr. Riffe's estate included $383,358 in cash.
We conclude that respondent has established that the value
of assets transferred from Mr. Riffe's estate to Mrs. Pert was
$399,535.
5. Conclusion
We conclude that respondent has established that Mrs. Pert
is liable up to $399,535 as a transferee of Mr. Riffe's assets.
C. Whether Mr. Pert Is Liable as a Transferee of Mrs. Pert's
Assets or as a Successor Transferee of Assets From Mr.
Riffe's Estate
1. Contentions of the Parties
Respondent contends that Mr. Pert is liable as a transferee
of the assets of Mrs. Pert, and as a successor transferee of the
assets of Mr. Riffe's estate, under Fla. Stat. Ann. secs.
726.101(a) (transfer defined) and 726.106 (West 1988) (per se
fraudulent conveyance) and Fla. Stat. Ann. sec. 726.105(1)(a)
(West 1988) (actual or constructive fraud). Respondent contends
that Mrs. Pert transferred assets which had a total value of
$222,206 from Mr. Riffe's estate to Mr. Pert when Mr. Riffe's tax
debt, additions to tax, and interest were unpaid and before Mrs.
Pert filed a voluntary bankruptcy petition under chapter 7 of the
U.S. Bankruptcy Code.
Petitioners contend that respondent failed to prove that Mr.
Pert is liable as a transferee or successor transferee.
Petitioners contend that Mrs. Pert spent any money she received
- 36 -
from Mr. Riffe's estate, that Mr. Pert's increased financial
resources came from gifts from his parents, and that Mr. Pert
received no financial benefits from Mrs. Pert.
2. Background
The principles used to decide if a transferee is liable are
also used in deciding if a successor transferee (i.e., transferee
of a transferee) is liable. Bos Lines, Inc. v. Commissioner, 354
F.2d 830, 834-835 (8th Cir. 1965), affg. T.C. Memo. 1965-71; Pert
v. Commissioner,
105 T.C. 377. Thus, to show that Mr. Pert is
liable as a successor transferee, respondent must establish that
Mrs. Pert fraudulently conveyed assets from Mr. Riffe's estate to
Mr. Pert under Fla. Stat. Ann. sections 726.105(1)(a) or (b)
(West 1988), or that there was per se fraud under Fla. Stat. Ann.
sec. 726.106 (1) or (2) (West 1988). As discussed next, we
conclude that respondent has established that there were
conveyances from Mr. Riffe's estate through Mrs. Pert to Mr.
Pert, and that those conveyances were fraudulent under Fla. Stat.
Ann. section 726.105(1)(a) and (2) (West 1988).
3. Mrs. Pert's Transfer of Assets From Mr. Riffe's Estate
to Mr. Pert
Respondent contends that Mrs. Pert transferred the following
assets from Mr. Riffe's estate to Mr. Pert: (a) $100,000 in
cash; (b) a $43,072 certificate of deposit; (c) $53,018, which
Mr. Pert used to buy the 610 Sandy Hook Road property; (d) a 1992
- 37 -
Ford Explorer worth $22,112; and (e) the 1987 GMC truck worth
$4,000.
a. $100,000 in Cash
On April 16, 1991, Mrs. Pert deposited $268,000 that she
had received from Mr. Riffe's safe deposit boxes in a C&S
account. Two days later, she closed that account and opened
ultima and trust accounts. She deposited $18,000 in the ultima
account and $250,000 in the trust account. On November 7, 1991,
Mrs. Pert withdrew $199,628 in cash from the trust account and
bought CD 1766 for $100,000 at the Florida Bank of Commerce the
next day. When CD 1766 matured, Mrs. Pert deposited the $100,000
in two joint accounts with Mr. Pert. The transfer of funds from
an individual account to a joint account is fraudulent if the
transfer is a fraudulent conveyance. Advest, Inc. v. Rader, 743
F. Supp. 851, 854 (S.D. Fla. 1990). Mrs. Pert conveyed $100,000
to Mr. Pert when she deposited the $100,000 into joint accounts.
Thus, Mrs. Pert fraudulently conveyed the entire $100,000 when
she deposited it.
Id.
b. $43,072 Certificate of Deposit
Respondent contends that Mr. Pert bought a $43,072
certificate of deposit (CD 2775) on November 8, 1991, using funds
from Mrs. Pert. We disagree.
Mr. Pert testified that he used gifts from his parents to
buy CD 2775. Mr. Pert could not have used the $59,836 gift that
- 38 -
he received from his parents in 1993. However, he could have
used the $40,000 they gave him in December 1990 or the gift of
real estate worth $46,000 that he sold in July 1991.
Respondent contends that we should disregard Mr. Pert's
testimony as self-serving and infer that Mrs. Pert gave Mr. Pert
the funds to buy CD 2775. Mrs. Pert withdrew $199,628 from the
C&S Trust account No. 836150 on November 7, 1991. She bought a
$100,000 certificate of deposit on November 8, 1991, and Mr. Pert
bought CD 2775 at the same branch of Florida Bank of Commerce
from the same person on the same day. Thus, it was possible that
Mrs. Pert gave Mr. Pert the funds to buy CD 2775.
The record shows that there were two possible sources of
funds for CD 2775. The source of funds alleged by respondent is
closer in time and place, a circumstance on which respondent
relies. However, Mr. Pert’s testimony on this point was
plausible and unrebutted. Respondent bears the burden of proof
and failed to carry it here.
We conclude that respondent has not proven that Mr. Pert
used funds from Mr. Riffe's estate to buy the $43,072 certificate
of deposit on November 8, 1991.
c. Cash To Buy the 610 Sandy Hook Road Property
Mrs. Pert gave Mr. Pert $53,018 which he used to buy the 610
Sandy Hook Road property. Respondent contends that 610 Sandy
Hook Road was solely Mr. Pert’s property. We disagree.
- 39 -
Lot 30, College Hill, belonged to Mr. Riffe when he died.
Mrs. Pert received title to it after the probate of Mr. Riffe's
estate. Mrs. Pert sold Lot 30, College Hill and received
$56,942. The following day, on April 20, 1993, Mrs. Pert used
the proceeds from the sale of Lot 30, College Hill, to buy a
$53,018 cashier's check payable to Secure Title.
On April 20, 1993, Mr. Pert used the $53,018 as part of the
$128,000 that he paid to buy the house at 610 Sandy Hook Road.
He initially mistakenly took title in his name, but corrected it
within 30 days to be jointly owned by Mr. and Mrs. Pert. Thus,
the $53,018 was used to buy Mrs. Pert's half interest in the
property.
d. The 1992 Ford Explorer
Mrs. Pert paid $5,000 from the Peoples State Bank account as
a down payment to buy a Volkswagen. She made the monthly
payments from the C&S ultima account. Mr. Pert bought a 1992
Ford Explorer for $22,112. He received a $12,777 credit because
he traded in Mrs. Pert's Volkswagen. He also used $9,335 in cash
from the joint account at Citizens Bank of Clearwater, the funds
of which came from Mr. Riffe's estate. The 1992 Ford Explorer
was titled in the name of Perticular Lawn, Inc., Mr. Pert's
business.
- 40 -
e. The 1987 GMC Truck
The 1987 GMC truck was transferred from Mr. Riffe's estate
to Perticular Lawn.6 In the inventory, Mrs. Pert said the
estimated fair market value of the 1987 GMC Truck was $4,000.
f. Conclusion
We conclude that respondent has traced $126,112 of assets
($100,000 cash, $22,112 for the 1992 Ford Explorer, and $4,000
for the 1987 GMC truck) from Mr. Riffe's estate to Mr. Pert.
4. Statutory Badges of Fraud Under Fla. Stat. Ann. Section
726.105(2) (West 1988)
To establish that a transfer is fraudulent under Fla. Stat.
Ann. section 726.105(1)(a) (West 1988), respondent must prove
that the transferor intended to defraud or delay creditors.
Respondent prevails if respondent shows that several of the
following nonexclusive badges of fraud listed in Fla. Stat. Ann.
section 726.105(2) (West 1988) are present in this case.
Georgetown Manor, Inc. v. Ethan Allen, Inc., 991 F.2d 1533, 1539
(11th Cir. 1993); United States v. Romano,
757 F. Supp. 1331,
1335 (M.D. Fla. 1989), affd. without published opinion
918 F.2d
182 (11th Cir. 1990); Munim v. Azar,
648 So. 2d 145, 152 (Fla.
Dist. Ct. App. 1994). Those badges are: (a) The transfer was to
an insider; (b) the debtor kept possession or control of the
property transferred after the transfer; (c) the transfer was
6
Petitioners concede that the 1987 GMC truck was transferred
from Mr. Riffe's estate to Mrs. Pert or Perticular Lawn, Inc.
- 41 -
disclosed or concealed; (d) the debtor had been threatened with a
suit before the transfer; (e) the transfer was of substantially
all of the debtor's assets; (f) the debtor absconded; (g) the
debtor removed or concealed assets; (h) the value of the
consideration received by the debtor was reasonably equivalent to
the value of the asset transferred; (i) the debtor was or became
insolvent shortly after the transfer; (j) the transfer occurred
shortly before or after a substantial debt was incurred; and (k)
the debtor transferred the essential assets of the business to a
lienor who transferred the assets to an insider of the debtor.
a. Whether There Was a Transfer to an Insider
A spouse of a debtor is an insider. Fla. Stat. Ann. sec.
726.102(7)(a)(1), (11) (West 1988). Mr. Pert is an insider for
purposes of Fla. Stat. Ann. sec. 726.105 (West 1988).
b. Debtor Kept Possession or Control of Property
Mrs. Pert kept possession of the property that became
jointly owned and the cash that was deposited in her joint
accounts with Mr. Pert.
c. Whether the Transferor Concealed the Transfers
There were numerous transfers which made it difficult to
trace the funds. The bank transactions were not concealed, but
the extensive use of cash hampered efforts to reconstruct the
flow of Mr. Riffe's funds.
- 42 -
Petitioners contend that they moved their money from place
to place with no fraudulent intent. Petitioners contend that, if
they had wanted to conceal the transfers, they would have had
Mrs. Pert withdraw the cash and give it to Mr. Pert. We disagree
that the existence of another way to conceal transfers means that
a party did not try to conceal transfers.
Petitioners point out that respondent did not analyze Mr.
Pert’s net worth to show that he benefited from the cash
withdrawals. The statute requires respondent to prove that
transfers occurred, but it does not require the creditor to
perform a net worth analysis of the transferee. Fla. Stat. Ann.
secs. 726.102(12), 726.105(1)(a) and (2) (West 1988).
d. Anticipated Lawsuit
A transfer in anticipation of a lawsuit is a badge of fraud.
See sec. 4, par. 6(d), Comment to Uniform Fraudulent Conveyance
Act, p. 655 (West 1985). Respondent's revenue agent interviewed
Mrs. Pert soon after Mr. Riffe died. Kaltenbach referred Mrs.
Pert to a tax attorney. At a conference on June 5, 1991, the
revenue agent gave Mrs. Pert's tax attorney a copy of a detailed
report with his recommended adjustments to tax and additions to
tax for 1986, 1987, 1988, and 1989. Mrs. Pert did not agree with
the recommendations. We conclude that Mrs. Pert anticipated that
the IRS would determine that she and Mr. Riffe owed taxes when
she began transferring assets to Mr. Pert.
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e. Transfer of Substantially All Assets
Mrs. Pert filed a bankruptcy petition in December 1993.
Petitioners concede that she had no assets at that time. There
is no persuasive evidence in the record that she did anything
with the assets other than give them to Mr. Pert. Mr. Pert said
that Mrs. Pert spent the funds, but he also said that he did not
know what she did with them. We conclude that both Mr. Riffe's
estate and Mrs. Pert transferred substantially all of their
assets.
f. Whether the Debtor Absconded
There is no evidence that Mr. Riffe's estate or Mrs. Pert
absconded. This badge does not help respondent.
g. Concealed Assets
There is no record of what Mr. and Mrs. Pert did with the
cash they withdrew from banks. This badge does not help
respondent.
h. Consideration
Mr. Pert paid no consideration for the assets he received
from Mrs. Pert.
i. Insolvency
Mr. Riffe's estate was insolvent when it distributed all of
its assets to Mrs. Pert. Mrs. Pert was insolvent in December
1993 when she filed her petition in bankruptcy. Elliott
testified that Mrs. Pert's tax attorney told him in September
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1993 that, if respondent was successful with the proposed
assessments of tax and additions to tax, Mrs. Pert would never
have to pay them because she would file for bankruptcy
protection. We conclude that the transfers left Mr. Riffe's
estate and Mrs. Pert insolvent.
j. Whether Mr. Riffe's Estate or Mrs. Pert
Transferred Property Shortly Before or After
Incurring Substantial Debt
Mrs. Pert incurred a substantial tax debt to respondent when
she signed the joint returns at issue here, the last of which was
due April 15, 1990. Elliott interviewed her on February 28,
1991. She began transferring assets on March 19, 1991, when she
wrote a $5,000 check to herself from Peoples State Bank account.
We conclude that she knew that she and Mr. Riffe’s estate owed
tax and that she transferred the property shortly thereafter.
k. Transfer to a Lienor
There is no evidence that Mrs. Pert transferred assets to a
lienor who transferred them to an insider. This badge does not
help respondent.
l. Conclusion
We conclude that respondent has shown that Mrs. Pert had
actual intent to hinder, delay, or defraud respondent.
5. Value of the Property Transferred to Mr. Pert
We conclude that Mrs. Pert transferred to Mr. Pert $100,000
in cash, a 1992 Ford Explorer and the 1987 GMC truck. The total
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value of the property that Mrs. Pert transferred to Mr. Pert is
$126,112.
D. Whether Mr. Pert is Liable as a Transferee of Mrs. Pert's
Assets
Respondent contends that Mr. Pert is liable as a transferee
of Mrs. Pert's assets for her income tax deficiencies for 1986,
1987, 1988, and 1989, totaling $67,672 plus interest.
Petitioners contend that respondent failed to show that Mr.
Pert is liable as a transferee of the assets of Mrs. Pert for the
same reasons discussed above at par. C. In addition to the
arguments in par. C, above, petitioners contend that respondent
failed to show that collection efforts against Mrs. Pert would be
fruitless. We disagree. Fla. Stat. Ann. section 726.105 (West
1988) does not require the creditor to prove that collection
efforts would be fruitless. In any event, we conclude that
collection efforts against Mrs. Pert would have been fruitless
because she had no assets and filed for protection in bankruptcy.
We conclude that Mr. Pert is liable as a transferee of Mrs.
Pert's assets for her income tax deficiencies for 1986, 1987,
1988, and 1989, and that she transferred assets to Mr. Pert worth
$126,112. Mrs. Pert's income tax liability for those years is
$67,672 plus interest.
E. Whether Respondent Properly Credited Mrs. Pert's Payments
Petitioners contend that the amounts of unpaid tax stated in
the notices of transferee liability are incorrect because
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respondent did not properly credit Mrs. Pert's payments of
$50,000 that she made on June 27, 1991, and $20,000 that she made
on December 11, 1991. We disagree. On July 2, 1991, respondent
credited Mrs. Pert's $50,000 payment by applying $28,976 to 1986
and $21,024 to 1989 ($50,000 total). On December 20, 1991,
respondent credited Mrs. Pert's $20,000 payment by applying
$15,000 to 1986 and $5,000 to 1988.
F. Mrs. Pert's Motion To Enter Decision Based on U.S.
Bankruptcy Court Order
Mrs. Pert filed a motion to enter decision in her favor
based on the order of the U.S. Bankruptcy Court for the Middle
District of Florida, Tampa Division, that transferee liability is
not a tax, but is a general unsecured claim that is not excepted
from discharge under 11 U.S.C. sections 507 or 523 (1994) of the
Bankruptcy Code. In re Pert, No. 93-13179-8B7 (M.D. Fla. Sept.
27, 1996) (order granting debtor's motion for summary judgment).
The U.S. Bankruptcy Court concluded that Mrs. Pert's previous
discharge applied to her transferee liability. Respondent
objected to Mrs. Pert's motion.
Our conclusion here does not conflict with the U.S.
Bankruptcy Court's Order. We are not deciding whether Mrs. Pert
was discharged of transferee liability under the bankruptcy laws;
we are deciding whether Mrs. Pert is liable as a transferee and
whether Mr. Pert is liable as a successor transferee under the
Internal Revenue Code. Neither party has informed us that there
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is a stay in effect. Our opinion here does not interfere with
the exercise of the jurisdiction of the bankruptcy court.
We need not and should not act to implement the bankruptcy
court's order. We have no jurisdiction to decide whether Mrs.
Pert's liability as a taxpayer or transferee has been discharged
in bankruptcy. See Neilson v. Commissioner, 94 T.C. 1, 8-9
(1990).
To reflect concessions and the foregoing,
An appropriate
Order will be issued and
decisions will be
entered under Rule 155.
