Documente Academic
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Documente Cultură
No. 13-1717
GEORGE SCHUSSEL, Transferee,
Petitioner, Appellant,
v.
DANIEL I. WERFEL, Acting Commissioner of the
Internal Revenue Service,
Respondent, Appellee.
Before
Thompson, Stahl, and Kayatta,
Circuit Judges.
July 8, 2014
KAYATTA,
Circuit
Judge.
George
Schussel
appeals
decision of the United States Tax Court holding him liable, as the
recipient of a fraudulent transfer from his former company, for the
company's back taxes (including penalties) of over $4.9 million,
plus interest of at least $8.7 million.
those transfers.
applying the federal tax interest statute, and that he should only
have to pay the likely much lower amount of prejudgment interest
that would be due under Massachusetts law.
the tax court should have accepted his corrected tax returns as
establishing the amount of the assets he misappropriated.
Third,
Background
-2-
in
the
early
1980s,
Schussel
operated
During the
Schussel set up
and
eventually,
the
IRS
issued
notice
of
deficiency
DCI neither
On
Schussel testified that he owned 90% and his wife 5%, but
that he controlled all 95%.
-3-
those three years "as shown in the attached statement," and that
"[t]his portion of total assessed income tax deficiencies, plus
interest
as
provided
transferee . . . ."
by
law,
constitute
your
liability
as
1994
1995
$622,455.00
$889,445.00
$1,321,449.00
Fraud Penalty
$466,841.25
$667,083.75
$991,086.75
Interest
$2,249,268.11
$2,752,369.18
$5,467,439.663
DCI Funds
Diverted to
Schussel
$2,044,106.00
$2,522,944.00
$4,356,279.004
Gross
Receipts
Legal
Consulting
Loans
2001
$26,773,417
$34,152
$513,440
$500,000
2003
2004
$12,325,807
$4,615,479
$21,288
$1,034,291
$522,000
$0
$200,000
($75,000)
2005
$0
$477,709
$0
$549,194
2006
$0
$409,391
$0
$187,900
2007
$0
$543,790
$0
$77,132
2008
$0
$35,866
$0
$585,747
2009
$0
$22,835
$0
$37,167
2010
$0
$2,834
$0
$4,646
However, its
were
due
for
1993,
1994,
and
1995.7
So
calculated,
against his liability for the amount he loaned back to DCI from
2001 to 2010, or to limit his liability to the amount of assets he
received (no matter how that figure was calculated).
time.
-6-
liability
should
have
been
limited
to
$7,358,394,
the
undeclared income figure the IRS used to correct his individual tax
returns, or at most to the $8.9 million of DCI assets that the
IRS's Notice and Statement claimed he received.
contends
that
any
prejudgment
interest
on
the
Second, he
fraudulently
We address
Standard of Review
-7-
III.
A.
Analysis
The Tax Court Applied the Wrong Framework to Assess How Much
Schussel Owes.
1.
(1995).
after
The
few
made
October
1996
fall
under
the
Id. 1
et seq. (2014).
Schussel did not appeal the tax court's finding that the
transfers in this case were made with the actual intent to defraud
DCI's creditors--specifically, the IRS.
See
252, 256 (1950); Mass. Gen. Laws ch. 109A, 8(a)(1), 9(b), (c)
(2014) (allowing avoidance "to the extent necessary to satisfy the
creditor's claim," but limiting the judgment to the lesser of a)
the amount of the claim, and b) the value of the assets "adjusted"
"as the equities may require"); 48A Jordan L. Shapiro et al.,
Massachusetts Practice: Collection Law 14:57 (3d ed. 2000)
(describing remedies under the MUFCA).
9,
allowing
"any
other
relief
the
circumstances
may
-10-
2.
Interest
to
distinguish
between
interest
accrued
on
the
tax
26 U.S.C.
against
interest).
upon
which
the
transferor
as
including
the
accumulated
in
interest
accrues,
11
and
the
taxpayer
then
for a judgment that he pay over to the IRS the entire $101
transferred to him.
transferred the $101 (so that on the day of transfer, the taxpayer
owed more to the IRS than he gave away to the transferee), the IRS
concedes that state fraudulent transfer law would apply to limit
the IRS to recovering from the transferee the $101 he received,
plus such prejudgment interest as might be available under that
state law.
12
the IRS accrued after the transfer (so that on the day of transfer,
the taxpayer gave away more than he owed at that time), the IRS
claims that the transferee would owe the entire $30 in interest
accrued under federal law.
transferee
liability,
the
ratio
of
IRS
debt
to
assets
26 U.S.C. 6901(a).
interest
6601(e)(1).
imposed
by
this
section
on
such
tax."
Id.
that section 6601 is simply one of the same tax "provisions and
limitations"
to
which
transferee
-13-
liability
is
subject
under
section 6901. See Robinette v. Comm'r, 139 F.2d 285, 288 (6th Cir.
1943) (so holding, before the Supreme Court ruled in Comm'r v.
Stern, 357 U.S. 39 (1958), that state law governs the substance of
fraudulent transferee liability under section 6901); cf. Nicholas
v. United States, 384 U.S. 678, 690-91 (1966) (interpreting the
similarly-worded 26 U.S.C. 7501 to mean that where a Chapter 11
bankruptcy trustee was not liable for interest on the debtor's
taxes after a certain point, a trust fund collectable in the same
manner as those taxes would not garner interest); Baptiste v.
Comm'r, 29 F.3d 1533, 1541-42 (11th Cir. 1994) (where a federal
statute created the transferee liability, concluding that "subject
to the same provisions and limitations" in section 6901 means that
the IRS can charge interest on transferee liability "as if it were
a tax liability").13
Statutory history can also be read as providing some
support for the (more limited) idea that interest accrues at the
federal rate from the date of the transfer.
13
asserted that section 280 did not alter the extent of transferee
liability, but went on to add that no interest accrued on the
transferee's assumed liability after the transfer, except interest
"for failure to pay upon notice and demand . . . and interest at
6 per cent a year for reimbursing the Government at the usual rate
for the loss of the use of the money due it."
federal interest rate to apply, and did not view that choice as
much altering existing transferee liability law.
But as a number
See Patterson v. Sims, 281 F.2d 577, 580 n.4 (5th Cir.
1960) (noting that the legislative history "seems to indicate that
the United States is entitled to interest accruing after the
-15-
In
controlled
liability."
"the
existence
Id. at 45.
and
extent
of
[transferee]
controls, and requires that state law dictate the existence and
extent of Schussel's transferee liability.
In turn, both Massachusetts and federal courts treat
prejudgment interest as a substantive part of a state-law remedy.
See, e.g., Tobin v. Liberty Mut. Ins. Co., 553 F.3d 121, 146 (1st
Cir. 2009) (in a discrimination case, noting that "[i]t is well
established that prejudgment interest is a substantive remedy
governed by state law when state-law claims are brought in federal
court"); Militello v. Ann & Grace, Inc., 411 Mass. 22, 26 & n.4
(1991) ("[A]n award of prejudgment interest is a substantive
remedy.").
the debt well beyond what the transferee received (and regardless
of when the transferee learned about the debt). And even those few
cases
it
identifies
offer
little
informative
analysis.
See
plus
interest,
concluding
that
interest
ran
under
interest,
describing
the
interest
charged
as
upon
the
This precedent
includes two of the cases upon which the IRS itself relies, Estate
of
Stein
v.
Commissioner,
37
T.C.
945
(1962),
and
Lowy
v.
-18-
statutory interest.
See id. at
Stein, where the tax court explained that because the transferred
assets were "insufficient to pay the transferor's total liability,
interest is not assessed against the deficiencies because the
transferee's liability for such deficiencies is limited to the
amount actually transferred to him.
-19-
exceeded
the
transferee's
net
benefit,
concluding
that
the
That rule is
simple: The IRS may recover from Schussel all amounts DCI owes to
the IRS (including section 6601 interest accruing on DCI's tax
debt), up to the limit of the amount transferred to Schussel, with
any recovery of prejudgment interest above the amount transferred
to be determined in accord with Massachusetts law.17
This rule, in
not predicated on) the fact that the IRS itself appears to have
17
Thus, the IRS will recover from Schussel the penalties and
interest owed to the IRS by DCI to the extent the funds
fraudulently transferred to Schussel exceeded DCI's unpaid taxes.
-20-
18
We
accept
of
(without
deciding)
that
uncontested
description
19
anywhere else, that date "in no event shall be later than the date
notice and demand for the tax is made by the Secretary."
26 U.S.C.
This language
See also
6B;
26
U.S.C.
6601(a),
6621;
Rev.
Rul.
2014-11.
-23-
we
agree
with
the
tax
court
that
the
constructive
diverted
controlled.
And
from
on
1993
to
appeal,
1997
Schussel
into
accounts
offers
no
that
he
sufficient
-24-
that
there
is
record
evidence
demonstrating
that,
in
IRS's
argument
for
using
this
increased
figure
20
the IRS never (it seems) sought to amend its Notice of Liability or
other pleadings to clearly warn Schussel that it would seek to use
the $15 million figure.
or
before
hearing
or
rehearing);
U.S.
Tax
Ct.
R.
41
When
Schussel filed his petition with the tax court challenging the
liability imposed on him by the Notice, the IRS filed an answer,
largely affirming the position taken in the Notice, but referring
(without specific dollar amounts) to transfers dating back to 1988.
Apparently deciding (but not announcing) that it had
erred in its more limited initial approach, the IRS's pretrial
memorandum did indeed add allegations of additional transfers and
diversions (with dollar figures) dating back to 1985.
At trial,
need
not
seek,
an
increased
deficiency
(because
DCI's
-26-
that
equaled
the
taxpayer-transferor's
entire
tax
liability.
On appeal, the IRS again pays scant attention to the
procedural niceties.
T.C.M. (CCH) 2443 (1997) (explaining that the tax court cannot
generally determine a greater deficiency than that listed in the
Notice where the IRS has not pleaded such an increase); U.S. Tax
Ct. R. 41.
fraudulent
transferee
can
reduce
or
See Eyler v. Comm'r, 760 F.2d 1129, 1134 (11th Cir. 1985); Ginsberg
v. Comm'r, 35 T.C. 1148, 1155-56 (1961), aff'd, 305 F.2d 664 (2d
Cir. 1962); 14A Mertens Law of Federal Income Taxation 53:11
(Thompson Reuters/West 2014).21
Even if there is no actual retransfer, a transferee might
reduce his liability by showing that he used the property to pay
the transferor's debts (at least if those debts had priority over
the transferor's tax liability).
T.C.M. (CCH) 308 (1987) and cases cited therein; 14A Mertens Law of
Federal Income Taxation 53:11 ("While a transferee who pays the
debts of the transferor will not be relieved of liability to the
extent of payment unless the debts paid held priority over the tax
claimed by the Government, a transferee . . . [who] retransfers the
property to the transferor can avoid liability as a fraudulent
transferee.").
With these principles in mind, we turn to Schussel's
claim that the tax court erred in denying him credit for just over
21
Most
not retransfers, and that the only point of the loans was to let
Schussel count personal expenses as DCI expenses and maximize his
tax deductions.
omitted).
The tax court, siding with the IRS, evidently found that
the "loan" transactions lacked economic substance.
It found that
DCI was out of business when the loans were made, "had nothing to
gain or lose by defending or not defending the charges," and never
contested the tax deficiency. Schussel v. Comm'r, 105 T.C.M. (CCH)
1223, at *7-8 (2013).
Id.
22
transfer
liabilities
in
issue;"
it
noted,
however,
that
bound
by
the
contemporaneous
transactions as loans.
Id. at *8.
characterization
of
these
objects
Id.
to
the
tax
court's
findings
and
Not so,
upon
the
While true,
equities
of
the
-30-
case--not
as
holding
that
This
Regardless
as
whole,
however,
we
think
it
justifiably
F.3d
667,
670
(1st
Cir.
2011)
("Tax
considerations
are
-31-
personally, or that DCI was out of business and had nothing to gain
by defending the charges, before concluding that the loans were
"not available" to pay DCI's debts?
Conclusion
No
23