474 B.R. 799
Bankr. E.D. Va.2012Background
- Kenrob Information Technology Solutions, Inc. is a chapter S corporation; taxes pass through to shareholders Kenneth and Sylvia Robinson and Mark Schuler.
- Shareholders are reimbursed by the corporation for the additional personal taxes attributable to the pass-through liability.
- In April 2007 and April 2008 the corporation paid the shareholders’ personal taxes directly to the IRS; payments applied to the shareholders’ personal returns.
- The trustee contends these payments were fraudulent conveyance due to lack of consideration by the corporation.
- The case involves cross-motions for summary judgment on the trustee’s fraudulent conveyance theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was there a shareholder–corporation reimbursement agreement? | Robinson/Schuler contend an agreement existed obligating reimbursement. | IRS asserts the agreement existed; parties acted pursuant to it; signed final document not produced but agreement proven by conduct. | Existence of an agreement not genuinely disputed; evidence shows an agreement and performance. |
| Is there genuine dispute over consideration for the transfer? | Trustee argues no valid consideration under the transfer. | Consideration may be indirect; the pass-through taxes provided benefit to the corporation and thus constitute consideration. | There was valid consideration, including ongoing benefits from the S election and tax reimbursements. |
| Does the transaction constitute a fraudulent conveyance under the standard? | Payments to the IRS on behalf of shareholders could be a conveyance without legitimate consideration. | Balance of benefits to debtor and estate shows no conveyance fraud; payments were equivalent to pass-through liability. | No constructively fraudulent transfer; payments were reasonably equivalent value. |
Key Cases Cited
- Harman v. First American Bank of Maryland (In re Jeffrey Bigelow Design Group, Inc.), 956 F.2d 479 (4th Cir. 1992) (consideration can be indirect and benefit to debtor suffices)
- Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635 (3rd Cir. 1991) (indirect benefits may satisfy the consideration requirement)
- Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2nd Cir.1981) (benefit to debtor need not be direct and may come through third parties)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. Supreme Court 1986) (summary judgment standard requires no genuine dispute of material fact)