Michael Tricarichi v. Cir
908 F.3d 588
9th Cir.2018Background
- Michael A. Tricarichi was sole shareholder of West Side Cellular, which received a $65 million settlement in 2003 and incurred large federal tax liabilities for 2003.
- Tricarichi received approximately $35.2 million from West Side through a transaction; West Side failed to pay its 2003 corporate taxes and the IRS could not collect from the corporation.
- In June 2012 the IRS issued a notice of transferee liability to Tricarichi seeking to collect West Side’s unpaid taxes (including penalties and interest).
- The Tax Court found Tricarichi liable as a transferee for West Side’s full 2003 deficiency, penalties, and interest (total ≈ $35.1 million), and ordered payment of pre-notice interest of nearly $13.9 million.
- On appeal the Ninth Circuit addressed whether pre-notice interest is governed by federal law (26 U.S.C. § 6601) or by state law (Ohio law), given that transferred assets exceeded the transferor’s total federal tax liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether pre-notice interest on transferor’s tax liability is governed by state law (Ohio) or federal law (§ 6601) when a transferee received assets | Tricarichi: state law governs pre-notice interest; Ohio law would result in $0 pre-notice interest liability | IRS: federal law § 6601 governs pre-notice interest; Tricarichi owes ≈ $13.9M | Where transferred assets exceed the transferor’s total federal tax liability, federal law (§ 6601) governs pre-notice interest; affirming ≈ $13.9M liability |
Key Cases Cited
- Commissioner v. Stern, 357 U.S. 39 (1958) (establishes that existence and extent of transferee liability is determined by state law)
- Schussel v. Werfel, 758 F.3d 82 (1st Cir. 2014) (federal interest on tax debt is part of the transferor’s claim and is collectible from transferees up to the amount transferred)
- Edelson v. Commissioner, 829 F.2d 828 (9th Cir. 1987) (where transferred assets are insufficient, transferee’s interest liability is determined by state law)
- Hongsermeier v. Commissioner, 621 F.3d 890 (9th Cir. 2010) (standard of review: de novo for purely legal questions)