Schussel v. Werfel
758 F.3d 82
1st Cir.2014Background
- Schussel, transferee of DCI, was held liable for DCI's back taxes, penalties, and interest after DCI's fraudulent transfers to him.
- DCI diverted funds to Schussel from 1993–1997 totaling $8,923,329; transfers preceded DCI's insolvency.
- IRS sought transferee liability under 26 U.S.C. § 6901, with prejudgment interest running from the due dates of DCI's tax returns.
- Tax court calculated prejudgment interest under federal rate from those due dates, yielding about $8.7 million in interest.
- Schussel argued for Massachusetts law prejudgment interest (12%) from 2010 notice, credit for loans to DCI, and limitation to assets transferred.
- This appeal reverses in part and remands to apply Massachusetts law for certain prejudgment interest and to address procedural issues about asset-amount determinations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper prejudgment interest framework | Schussel: use Massachusetts rate from Notice date onward. | Werfel: federal rate governs transferee liability for interest with state-law limits where appropriate. | Massachusetts rate applies post-Notice; federal rate governs pre-Notice, with amount limited to transferred assets. |
| Correct measure of assets transferred to Schussel | Use the $8,923,329 identified in the Notice as the transferred amount. | Record evidence suggests about $15 million; broader transfers may apply. | Amount transferred limited to $8,923,329 for purposes of transferee liability; larger figure remanded for potential adjustment. |
| Credit for loans Schussel made to DCI | Loans should reduce transferee liability if funds were used to pay DCI debts. | Loans were not a retransfers and lacked economic substance; cannot reduce liability. | Loans were not permitted to reduce liability; no reduction for purported loans. |
Key Cases Cited
- Commissioner v. Stern, 357 U.S. 39 (1958) (state law governs transferee liability; transfer is substantive, not created by statute)
- Lowy v. Comm'r, 35 T.C. 393 (1960) (federal law determines quantum of claim against transferor; interest can be considered as part of the federal liability)
- Estate of Stein v. Comm'r, 37 T.C. 945 (1962) (when transferred assets are insufficient to discharge total liability, state law governs interest on transferee)
- Patterson v. Sims, 281 F.2d 577 (1960) (transaction structure and timing influence transferee liability under state law)
- Stanko v. Comm'r, 209 F.3d 1082 (2000) (transferee liability and interest principles in fraudulent transfer context)