9 Mass. App. Ct. 40 | Mass. App. Ct. | 1980
Louis F. Koufman and his son, the defendant Manuel M. Koufman, each owned fifty percent of the issued and outstanding stock in the defendant Koufman Development Corporation (KDC) at the time of Louis’ death in 1965. The plaintiffs are all beneficiaries of a trust established under the residuary clause of his will.
The complaint was tried before a master, who was required by an amendment to his order of reference to report the evidence. The defendants do not dispute the basic facts found by him; rather, they quarrel with his ultimate findings and conclusions, alleging that they rest largely upon erroneous inferences he drew from exhibits and uncontra-dicted testimony. They urge us to reach our own conclusions and afford the inferences of the master no weight. Seder v. Gibbs, 333 Mass. 445, 446-447 (1956). Peters v. Wallach, 366 Mass. 622, 626 (1975). However, on the basis of our independent view of the record, we reach conclusions identical to those of the master. Further, we are constrained to comment that much of that which the defendants describe as inferences flowing from the master’s “divination,” “egregious speculation” and “blithe imputation” is traceable to direct evidence. We recite the facts which the master found and which we accept.
Louis’ will established three trusts, and the defendant bank is a trustee of each. Trust B is for the benefit of Louis’ widow, the defendant Jeanne O. Koufman; the plaintiff
The facts surrounding these withdrawals are complicated. During Louis’ life he and Manuel were engaged in the real estate development and construction business. In pursuing their combined and individual interests in this field, each formed numerous corporations for varied but largely related purposes. Louis was the organizer and sole stockholder of the following businesses: the LSK Realty Corporation (LSK), the Koufman Construction Company (KCC), and the SSC Corporation (SSC). These corporations were formed in 1933, 1949, and 1959, respectively. Manuel served as an officer and director of the KCC from 1956 through 1961, and he received a weekly salary as a KCC employee; he owned no stock in this company. In 1953, 1955, and 1958, Manuel established the following businesses in which Louis had no interest or official voice: Koufman Construction of Boston, Inc. (KC of Boston), the Legion Development Corporation (Legion), and the ECD Corporation (BCD). The KDC was organized in 1956, and each of the men owned half of the issued and outstanding shares of stock; Louis was president, Manuel was treasurer, and both were directors. The master found that in “the conduct of
Louis and Manuel never signed notes for the money they withdrew,
We deal first with the defendants’ assertion that the plaintiffs are estopped from questioning the nature of the disputed transactions. They argue that Louis treated these advances as loans during his Me and that he did not include them as income on his personal tax returns. As a result, he benefited from his conduct, and the estate, which stands in the same position as Louis, cannot now assert a contrary position to the detriment of the taxing authorities. They rely upon Kurz v. United States, 156 F. Supp. 99, 106 (S.D.N.Y. 1957), as support for their claim of estoppel. The master’s findings establish that Louis neither treated nor regarded these advances as loans. The fact that he did not include them as income on his tax returns does not change the true character of his conduct in relation to the withdrawals. His failure to designate these monies on his tax returns in a true and honest fasMon is improper, but that does not give rise to a claim of estoppel by the defendants. They did nothing in reliance upon Louis’ tax returns, and they would suffer no detriment if the tax returns were to be corrected to reflect honestly the nature of the transactions. An estoppel is only available to a party who can, at the very least, demonstrate that he relied upon a position asserted and enjoyed by another who now seeks to change that position to the detriment of the first party.
“[T]he issue of whether shareholder withdrawals are bona fide loans is a question of fact which requires consideration and evaluation of the surrounding circumstances. ... In making such examination, it is of controlling significance to inquire whether the parties intended to create bona fide indebtedness which the*47 shareholder intended to repay and which the corporation intended to collect. ... In discerning the parties’ intention, the courts have relied on objective indicia, particularly when, as here, the withdrawals are made by a dominant or sole shareholder. . . . One significant objective criterion is whether the shareholder, at the time of the advance, could reasonably have expected to repay it. . . . It is also helpful to inquire whether evidences of indebtedness were executed, whether security was given for the withdrawals, and whether interest was paid. . . . The courts have also considered whether the indebtedness was due by a date certain, whether there was a fixed total limit on a shareholder’s borrowings, and the amount of repayments made. . . . However, it must be kept in mind that the presence or absence of any of these indicia is not determinative; they are just helpful guideposts for the trier of fact who must determine, based upon all of the evidence, the crucial fact of whether repayment was actually intended.”
See also Commissioner v. Makransky, 321 F.2d 598, 600-601 (3d Cir. 1963); Berthold v. Commissioner, 404 F.2d 119, 121 (6th Cir. 1968); Livernois Trust v. Commissioner, 433 F.2d 879, 882-883 (6th Cir. 1970); Alterman Foods, Inc. v. United States, 505 F.2d 873, 875-876 (5th Cir. 1974); Note, Stockholder Withdrawals — Loans or Dividends, 10 Tax.L.Rev. 569 (1954).
The defendants take particular issue with the master’s findings on two of these considerations which touch upon Louis’ intention to repay the advances. They point to a conversation between Louis and the KDC accountant during which Louis stated, “How does my account stand; what do I owe? How much does Manuel M. Koufman’s account show?” The master found that this statement was an inquiry “as to the relative amounts charged against [Louis’] account and Manuel’s account” and that it was not an ac-knowledgement by Louis that a loan existed. The defend
In light of our conclusion on this issue it is unnecessary to consider the defendants’ remaining contentions which are dependent upon the existence of a debt.
Judgment affirmed.
In addition, the plaintiffs Clinton and William are executors of the will with the defendant bank and Manuel.
Manuel testified that appropriate notes had been executed and kept in an office safe which was stolen. The KDC accountant testified that he had had access to this safe whenever he would need records or documents to substantiate his computations. He never saw any notes, not even on those occasions when he had looked through the safe. We accept the master’s finding which inherently rests upon an issue of credibility, Seder, 333 Mass, at 446-447. The factor whether notes were executed was but one of many relied upon by the master in concluding the withdrawals were not loans.
Equitable estoppel is particularly unavailable to Douglas and Lisa, who had no interest either in, or flowing from, KDC stock at the time of
The defendants rely upon cases in which the demonstrated detriment in support of the claim of estoppel was suffered by a party to the litigation.
The defendants’ claim of estoppel takes on no new force by reason of the fact that the Internal Revenue Service audited some of Louis’ income tax returns, some KDC income tax returns for years different from Louis’ audited returns, and the estate tax return. An audit does not even rise to the level of a decision on a question of Federal tax law, an issue which is not involved in our review, and we give no consideration to the fact of these audits. See Blair v. Commissioner, 300 U.S. 5,10 (1937); Babson v.
This tax court decision pertains to one of the defendants here, and it involves his personal tax returns for 1963 through 1969. Although it concerns Manuel’s treatment of withdrawals from corporations owned or controlled by him, it does not involve any of the withdrawals in issue before us.