Feldman v. Comm'r
2011 T.C. Memo. 297
Tax Ct.2011Background
- consolidated cases involve transferee liability for Woodside Ranch Resort, Inc.'s unpaid 2002 federal income tax of about $593,979 plus penalties and interest
- assets of Woodside Ranch were sold to WRLLC for $2.6 million in cash in 2002; shareholders considered an asset/liability shift for tax purposes
- MidCoast proposed a no-cost liquidation scheme involving a stock sale to avoid paying taxes, funded by off-setting losses; Woodside Ranch shareholders would receive a premium
- on July 18, 2002, Woodside Ranch redeemed shares and transferred $1.3 million to shareholders via Woodsedge, while cash from the Zumwalt asset sale left Woodside Ranch insolvent
- the court treats the purported July 18, 2002 stock sale as a sham liquidation designed to siphon assets to shareholders and avoid tax liabilities
- respondent seeks transferee liability under Wisconsin UFTA and section 6901; petitioners contest allocation and lack of value received by Woodside Ranch
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the July 18, 2002 stock sale was a sham for tax purposes | Feldman | Commissioner | Yes, it was a sham |
| Whether petitioners are transferees under Wisconsin UFTA sections 242.04/242.05 | Respondent | Petitioners | Yes, they are transferees |
| Whether petitioners are transferees under Wis. 180.1407 and §6901 | Respondent | Petitioners | Yes, transferee liability established |
| Whether common-law fiduciary-trust doctrine applies to impose transferee liability | Respondent | Petitioners | Court declines broader common-law liability, relies on Wisconsin UFTA/§6901 |
Key Cases Cited
- Frank Lyon Co. v. United States, 435 U.S. 561 (U.S. 1978) (economic substance and tax avoidance analysis under Subchapter S and substance-over-form doctrine)
- Commissioner v. Court Holding Co., 324 U.S. 331 (U.S. 1945) (economic substance over form control of tax consequences)
- Gregory v. Helvering, 293 U.S. 465 (U.S. 1935) (two-prong analysis: business purpose and economic substance)
- Muhich v. Commissioner, 238 F.3d 860 (7th Cir. 2001) (Seventh Circuit on economic substance and sham transactions)
- United Parcel Service of Am., Inc. v. Commissioner, 254 F.3d 1014 (11th Cir. 2001) (economic substance and business purpose in sham transaction analysis)
- Kirchman v. Commissioner, 862 F.2d 1486 (11th Cir. 1989) (economic substance and business purpose framework)
- Beloit Liquidating Trust v. Grade, 270 Wis. 2d 356 (Wis. 2004) (Wisconsin fraudulent transfer doctrine and fiduciary liability)