United States v. Baker
852 F.3d 97
| 1st Cir. | 2017Background
- Scott Baker used a Son-of-BOSS tax shelter and caused large tax refunds for 1997–2002; he later incurred assessments for unpaid taxes (assessments beginning May 14, 2009).
- Scott established an offshore Family Trust and invested proceeds in IMA, a Ponzi scheme; some recovery checks ($202k, $84k, $70k) ultimately produced $599,078.77 in disputed Escrowed Funds.
- In Feb. 2007 Scott transferred real property into trusts and in Jan. 2008 Scott and Robyn executed a separation agreement (incorporated into their divorce) that allocated most assets to Robyn and debts to Scott; they continued to cohabit and present as married.
- The government sued in 2013 to collect Scott’s tax liabilities and to reach assets fraudulently transferred to Robyn; an agreed judgment for $5,026,915.43 was entered against Scott in 2015.
- The district court found the 2007 transfers and the 2008 divorce were fraudulent transfers under Massachusetts law, held the government’s tax liens attached to Scott’s interests, and then divided disputed assets — notably ordering an even (50/50) split of the Escrowed Funds and sale of the Hingham property with half the proceeds to Robyn and the other half applied to Scott’s liability.
- The United States appealed the 50/50 division of the Escrowed Funds (arguing Massachusetts law requires § 34’s multi-factor equitable inquiry), and separately argued lien tracing should reach Robyn’s share of the Hingham sale proceeds; the First Circuit vacated and remanded as to the Escrowed Funds but affirmed rejection of the government’s lien-tracing claim for the Hingham property.
Issues
| Issue | Plaintiff's Argument (United States) | Defendant's Argument (Robyn / Scott) | Held |
|---|---|---|---|
| Whether the district court properly divided the Escrowed Funds by applying a 50/50 community‑property style split | Massachusetts should be treated as mandating or allowing an equal split here; protect non‑debtor spouse | The district court’s even split was equitable in the circumstances | Vacated and remanded — Massachusetts is not a community property state; trial court must apply Mass. Gen. Laws ch. 208 § 34 and consider the 14 mandatory factors (findings must show consideration of those factors) |
| Whether the district court misapplied Massachusetts public‑policy considerations protecting a non‑debtor spouse to justify the 50/50 split | The court permissibly protected Robyn as a non‑debtor spouse | The court overstepped because § 34 enumerates required factors; public‑policy cannot substitute for § 34 analysis | Rejected government’s reliance on that public‑policy justification; court must limit itself to § 34 factors |
| Whether the government’s tax liens could be traced to Robyn’s half of Hingham sale proceeds via mortgage payments made after assessment | Government claims Scott made the majority of mortgage payments after liens arose and thus funds traceable to taxed dollars; seeks amount-based tracing to reach Robyn’s share | Robyn disputes sufficiency/accuracy of payment evidence; testimony unreliable | Affirmed — government failed its burden to trace liens with particularity; testimony was equivocal and district court found witnesses not credible |
| Standard of review for equitable remedy and factfinding on lien tracing | N/A | N/A | Legal errors reviewed de novo; equitable remedies reviewed for abuse of discretion; here remand required because of legal error in applying improper standard (treating MA like community property) |
Key Cases Cited
- Bowring v. Reid, 503 N.E.2d 966 (Mass. 1987) (§ 34 requires the judge to consider fourteen mandatory factors for equitable division)
- Redding v. Redding, 495 N.E.2d 297 (Mass. 1986) (court must make findings showing § 34 factors were fairly considered and rationale must appear in judgment)
- Williams v. Massa, 728 N.E.2d 932 (Mass. 2000) (Massachusetts mandates equitable, not necessarily equal, division of property)
- Texaco P.R., Inc. v. Dep’t of Consumer Affairs, 60 F.3d 867 (1st Cir. 1995) (standard for review of district court’s equitable remedies)
- United States v. Singer Mfg. Co., 374 U.S. 174 (U.S. 1963) (legal errors can be corrected as a matter of law)
- Alison H. v. Byard, 163 F.3d 2 (1st Cir. 1998) (a district court abuses its discretion when it makes an error of law)
- Fid. Int’l Currency Advisor A Fund, LLC v. United States, 661 F.3d 667 (1st Cir. 2011) (description of Son‑of‑BOSS tax shelter schemes)