United States v. Krause
2011 U.S. App. LEXIS 6749
| 10th Cir. | 2011Background
- Krause disputes with the IRS over tax deductions and a settlement leaving $3.5 million in taxes owed for multiple years.
- In 2005 Krause filed Chapter 7 bankruptcy and IRS sought to declare his tax debts non-dischargeable and to attach liens to assets held by related entities.
- Bankruptcy court found Drake Enterprises and PHR, LLC to be Krause nominees/alter egos, with assets subject to IRS lien after Krause destroyed records of these entities.
- Bankruptcy court also held Krause fraudulently conveyed assets to trusts for his children, making those assets subject to the IRS lien.
- District court affirmed; Drake and Rick Krause appeal challenging the lien and sanctions order, arguing lack of reliance on reverse veil piercing and standing issues.
- Court analyzes whether Krause’s state-law fraudulent transfers and nominee relationships render assets subject to § 6321, and whether Krause retains rights to those assets under Kansas law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the IRS lien attaches to assets Krause fraudulently conveyed to the trusts | Krause's assets were transferred to trusts but remained his property; liens attach under §6321 as property/rights to property. | Transfers created independent trusts; assets not Krause’s property and not subject to lien as to the trusts. | Yes; assets subject to lien as Krause’s property. |
| Whether Krause’s rights in the transferred assets qualify as property under §6321 | Under Drye and related authority, rights to property broadened beyond formal title to include state-law interests with exchangeable value. | Assets may be nominally held in trusts; Sind the rights are not property under federal lien unless clearly vested. | Yes; Krause’s state-law rights to the transferred assets are property/rights to property under §6321. |
| Whether the trusts were Krause’s nominees/alter egos for §6321 purposes | Kansas law shows the trusts held assets as Krause’s nominees; this supports attachment to the assets. | Reverse veil piercing not established as alter ego; however, the court resolves on nominee theory alone. | Nominee theory supported; assets attached to Krause’s liens. |
| Whether Drake and Rick Krause have standing to challenge the sanctions regarding Drake Enterprises and PHR | Appellants have standing to appeal where their interests are directly affected, particularly via PHR. | Drake and Rick lack prudential standing; their interests do not directly and adversely affect them for Drake Enterprises; PHR standing is assumed for purposes of this appeal. | Drake and Rick lack standing to challenge Drake Enterprises; PHR standing assumed; court affirms sanctions. |
Key Cases Cited
- Drye v. United States, 528 U.S. 49 (Supreme Court, 1999) (property and rights to property reach every exchangeable interest under federal law)
- Morgan v. Commissioner, 309 U.S. 78 (Supreme Court, 1940) (federal designation of taxed interests follows state-created rights)
- Koch Eng'g Co. v. Faulconer, 239 Kan. 101, 716 P.2d 180 (Kan. 1986) (badges of fraud in fraudulent transfer analysis)
- United States v. Craft, 535 U.S. 274 (Supreme Court, 2002) (federal lien reaches interests not formally defined by state law)
- Holman v. United States, 505 F.3d 1060 (10th Cir. 2007) (nominee/alter ego inquiry in federal tax liens; common factors referenced)
- Spotts v. United States, 429 F.3d 248 (6th Cir. 2005) (nominee/fraudulent conveyance analysis guidance)
- Oxford Capital Corp. v. United States, 211 F.3d 280 (5th Cir. 2000) (alter ego doctrine allows piercing for tax liens)
- Bollore S.A. v. Import Warehouse, Inc., 448 F.3d 317 (5th Cir. 2006) (alter ego/veil piercing concepts in federal context)