1991 Tax Ct. Memo LEXIS 245 | Tax Ct. | 1991
1991 Tax Ct. Memo LEXIS 245">*245
MEMORANDUM OPINION
This case was heard pursuant to the provisions of
In a notice of transferee liability dated August 16, 1988, and addressed to Page Family Preservation Trust B, Transferee, 10787 S. Township Road, Canby, Oregon 97013, respondent determined that "the income tax liability of Alan D. Page, 10787 S. Township Road, Canby, Oregon 97013, for tax year ended December 31, 1980, discloses a deficiency in the amount of $ 6,956.52 and Delinquency, Addition to tax penalty of $ 1,739.13, Negligence, Addition to tax penalty of $ 575.32 and Failure to Make Estimated1991 Tax Ct. Memo LEXIS 245">*246 Tax Payments, Addition to tax penalty of $ 370.74. The amount of the deficiency and penalties, plus interest as provided by law, constitutes your liability as transferee of the assets of Alan D. Page, and will be assessed against you." (Reproduced literally). Respondent further alleged that "the records of this office show that during 1981 Alan D. Page (transferred) property to you for little or no consideration."
The issues for decision are: (1) Whether petitioner Page Family Preservation Trust B, Transferee, Glenda Page, Trustee, is liable for the above amounts as a transferee under
BACKGROUND
The petition was timely filed by Page Family Preservation Trust B, Glenda Page, Trustee. At the time the petition was filed, Glenda Page resided with her husband, Allan Page, at 10787 South Township Road, Canby, Oregon (hereinafter referred to as the property or Canby property). The property1991 Tax Ct. Memo LEXIS 245">*247 was purchased by Glenda and Allan Page in 1972 and consists of a house located on approximately 1.9 acres of land. Allan Page was employed as a steamfitter and worked out of a union local in Portland, Oregon.
On June 15, 1981, Glenda Page conveyed her interest in the property by quitclaim deed to Allan Page for $ 10. On the same day, Allan Page created the Page Family Preservation Trust B naming Glenda Page as trustee. Mr. Page conveyed the property to the Page Family Trust by warranty deed for $ 10. The property had a taxable value in 1981 of $ 77,700 with a mortgage of approximately $ 18,000. The declaration of trust and deeds were recorded on June 16, 1981. Glenda and Allan Page have continued to reside on the property.
In July 1981, petitioner applied for and received a taxpayer identification number. Petitioner has never filed any Federal income tax returns.
Allan Page failed to file a Federal income tax return for taxable year 1980 (1979 was the last year Mr. Page voluntarily filed a Federal income tax return). Respondent prepared a substitute income tax return for that year. Respondent then determined the deficiency in income tax and additions to the tax and sent1991 Tax Ct. Memo LEXIS 245">*248 Allan Page a notice of deficiency. Allan Page failed to answer the notice of deficiency and respondent assessed the tax deficiency for 1980.
Respondent began its collection efforts and, after requests for payment had not been complied with, attempted to levy on Allan Page's wages at his employment at J. H. Kelly in Longview, Washington. This proved unsuccessful as Allan Page had submitted to J. H. Kelly a signed W-4 Employee's Withholding Allowance Certificate with an inactive social security number.
Respondent continued his collection efforts by checking local land records and other sources of assets. These efforts revealed no assets in Allan Page's name. Respondent located the Canby property, listed under the Page Family Trust, and filed a lien in the name of the Page Family Trust as the nominee of Allan Page. Respondent also sent Allan Page a letter informing him about the lien and requesting evidence showing that the conveyance was supported by adequate consideration. Neither Glenda or Allan Page responded.
After failing to collect the amounts due from Allan Page, respondent sent the Page Family Trust the deficiency notice above mentioned dated August 16, 1988. In the1991 Tax Ct. Memo LEXIS 245">*249 5-page protester-type petition, petitioner made various protester-type allegations concerning Due Process rights and denied that the trust is the transferee of Allan Page. Petitioner claimed that no valid assessment was made against Allan Page, that no determination was made that Allan Page was insolvent, and that respondent has not exhausted his available statutory remedies against Allan Page. Further, petitioner asserted that the statute of limitations has expired as against Allan Page, thus barring this action.
In his answer filed January 6, 1989, respondent denied petitioner's allegations and alleged that Allan Page has an income tax liability for the taxable year 1980 as determined in the statutory notice of deficiency. He also alleged that petitioner became a transferee of the assets of Allan Page within the meaning of
On January 26, 1989, petitioner filed a motion for default judgment on the ground that respondent's answer was untimely filed. 1991 Tax Ct. Memo LEXIS 245">*250 We denied this motion on January 30, 1989, since respondent's answer was timely under the rules of this Court. On February 9, 1989, petitioner moved for an extension to file a reply to respondent's answer. We granted the motion on February 16, 1989. Petitioner filed a reply on April 6, 1989, containing nine pages of similar repetitious protester-type arguments contained in the petition.
On July 20, 1989, the Clerk of the Court mailed the parties a Notice Setting Case For Trial, in which petitioner and respondent were advised that the case was calendared for trial on October 3, 1989, at Portland, Oregon. The parties were advised in the Clerk's notice that they should meet and cooperate in preparing the case for trial and that the failure of a party to cooperate could result in a dismissal of the case and entry of an adverse decision.
On August 11, 1989, the Court received a document captioned Motion for Acceptance of Change of Caption, in which petitioner moved that this Court "accept substitution of trustee and order a caption change from Glenda Page to Jerry Page." No reason was given for this motion nor was Jerry Page identified. This document was filed as petitioner's motion1991 Tax Ct. Memo LEXIS 245">*251 to substitute party and change caption. Respondent objected to the motion, claiming that petitioner's position in this case was groundless, that petitioner had refused to discuss the case and that granting of the motion would further impede efforts to prepare this case for trial. Petitioner's motion to substitute party and change caption was denied.
On August 24, 1989, respondent submitted a request for admissions. On September 12, 1989, petitioner filed a motion to compel production of documents and submitted a request for admissions. We ordered the parties to file their responses to the motions for admissions and production of documents by September 25, 1989.
This case was called from the trial calendar on October 3, 1989. The parties appeared. Glenda Page, Trustee, orally moved for Judgment Without Trial for petitioner. We denied the motion. Respondent filed his trial memorandum. Respondent's counsel advised us that Glenda Page had refused to cooperate in preparing petitioner's case for trial and had refused to execute a stipulation of facts. Mrs. Page claimed that she had an attorney whom respondent's counsel refused to talk to. Respondent's counsel denied the allegation. 1991 Tax Ct. Memo LEXIS 245">*252 No attorney has entered an appearance for petitioner. The case was set for trial by the Court on October 4, 1989 at 1:00 p.m. Mrs. Page stated "It's obvious that I need a lawyer." We advised Mrs. Page that this case would be tried as scheduled and would not be continued on the ground that petitioner desired a lawyer at this late date.
The case was called for trial at 1:15 p.m. on October 4, 1989. Glenda Page failed to appear at trial. Respondent's counsel appeared and stated that she had contacted Mrs. Page several times without success concerning preparing and executing a stipulation of facts for submission at trial pursuant to Court rules. Respondent's counsel stated that Mrs. Page was evasive as to whether or not she intended to appear at trial to represent petitioner. Prior to trial, on October 4, 1989, a process server served various documents on respondent at petitioner's direction. The process server also attempted to serve the same documents on the Court. Although service was refused, the process server insisted on leaving the documents with the Court. As trial commenced, the documents left by the process server were reviewed by the Court. Petitioner's motion for1991 Tax Ct. Memo LEXIS 245">*253 judgment without trial and petitioner's Motion for Continuance were ordered filed by the Court on October 4, 1989, and then denied. Petitioner's Trial Memorandum and Notice of Objection, which contained a total of 13 pages of protester-type allegations and arguments were ordered filed as petitioner's supplemental trial memorandum with exhibits.
Trial commenced and the Court received evidence consisting of oral testimony and exhibits on the issue of transferee liability, as to which respondent bears the burden of proof. After presenting her case, respondent's counsel orally moved, pursuant to
The Court ordered that respondent file a brief in support of his position, which brief was filed on December 11, 1989. On December 27, 1989, petitioner filed a Motion for Leave to File Answering Brief "to correct, for the record, inaccuracies, omissions and errors in the respondent's Brief and to ensure that justice is achieved." On July 24, 1990, we allowed petitioner the opportunity to file a brief in reply to respondent's1991 Tax Ct. Memo LEXIS 245">*254 brief no later than August 31, 1990. Petitioner's 10-page answering brief was filed on August 30, 1990. It contained only protester arguments and unsupported allegations of fraudulent conduct by respondent's attorneys.
The deficiency in tax, and additions to tax, assessed against Allan Page have never been paid or collected and remain outstanding.
1.
The elements that must be established by respondent are the following: (1) That the alleged transferee received property of the transferor; (2) that the transfer was made without consideration or for less than adequate consideration; (3) that the transfer was made during or after the period1991 Tax Ct. Memo LEXIS 245">*255 for which the tax liability of the transferor accrued; (4) that the transferor was insolvent prior to or because of the transfer of property or that the transfer of property was one of a series of distributions of property that resulted in the insolvency of the transferor; (5) that all reasonable efforts to collect from the transferor were made and that further collection efforts would be futile; and (6) the value of the transferred property.
Petitioner received the Canby property as a result of a transfer made after Allan Page's 1980 Federal income tax liability accrued. Petitioner paid $ 10 for the property which was less than adequate consideration. The value of the property transferred to petitioner exceeds the amount of the Federal income tax liability of Allan Page. We conclude that respondent has established the first, second, third, and sixth of the above-enumerated elements.
We turn to the fourth element, i.e., insolvency of the transferor at the time of or as a result of the transfer. In determining whether Allan Page was insolvent or was made insolvent by the transfer, his liability for Federal income1991 Tax Ct. Memo LEXIS 245">*256 taxes, plus additions, even if unknown at the time of the transfer, must be taken into account.
Based on this record, we find that Allan Page was insolvent immediately after the transfer of his residence. Allan Page was obviously left insolvent by the transfer because in the absence of the transfer, he would have been solvent under either the equity test of insolvency (the inability to meet obligations as they accrue) or the bankruptcy test for insolvency (having liabilities in excess of assets).
With respect to the fifth element, the reasonableness of respondent's collection efforts depends upon the facts of the individual case. See
We next determine, under State law the existence and extent of liability of petitioner as a transferee. In Oregon, transferee liability is determined under the State's fraudulent conveyance statutes. Every conveyance or assignment in writing or otherwise of any estate or interest in lands, goods or things in action, or of any rents or profits issuing therefrom, and every charge upon lands, goods or things in action, or upon the rents or profits thereof, made with the intent to hinder, delay or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suit commenced, decree or judgment suffered with the like intent, as1991 Tax Ct. Memo LEXIS 245">*258 against the person so hindered, delayed or defrauded is void. 2
In an action charging a fraudulent conveyance, the creditor normally has the burden of proving by a preponderance of the evidence that a transfer was made with the intent to hinder, delay or defraud a creditor.
In
Based on the record and our previous conclusions, we find these badges of fraud present in the instant case. Thus, the burden of proof is on petitioner to show that the transfer was not made to defraud creditors, that it was supported by fair and adequate consideration, and that no benefit was secured or reserved to the grantor. This petitioner has failed to do. We are of the opinion that the transfer made by Allan Page to petitioner was made with the intent to defraud an existing creditor, the United States, of its debt owing from him in the form of income taxes and additions thereto for 1991 Tax Ct. Memo LEXIS 245">*260 the taxable year 1980. Accordingly, we conclude that petitioner is the transferee of a fraudulent conveyance under Oregon law and is liable as a transferee under
2.
3.
Respondent's determinations, as embodied in respondent's notices of deficiency, are presumed correct. Petitioner has the burden of1991 Tax Ct. Memo LEXIS 245">*261 proving that respondent's determinations in the notice of deficiency are wrong.
With respect to respondent's motion to dismiss,
Dismissal of a case is a sanction resting in the discretion of the trial court.
4.
We now consider, on our own motion, whether to impose sanctions against petitioner Page Family Trust under
Whenever it appears to the Court that a taxpayer's position in a proceeding is frivolous, groundless, or instituted primarily for delay, we may require the taxpayer to pay to the United States a penalty in an amount not in excess of $ 25,000.
This Court has repeatedly required a penalty under
In this case, petitioner refused to reply to respondent's attempts to consult and prepare this case for trial, made continuous groundless attempts to postpone or continue the trial, disregarded the Court's order concerning trial preparation and refused to appear at *264 trial, after the Court made it clear at the calendar call of this case that the continuous attempts to postpone the trial had failed. These actions show that petitioner through its representative intended to abuse Tax Court Rules for the sole purpose of delaying the final disposition of the case in this Court and postpone the day it would be billed for income taxes and additions due as a transferee of assets. Accordingly, we hold that petitioner Page Family Trust is required to pay to the United States a penalty in the amount of $ 5,000. See
Footnotes
1. All section references are to the Internal Revenue Code of 1954 as amended, and in effect for the year in issue, unless otherwise indicated. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Superseded, in 1985, by the enactment of the Uniform Fraudulent Transfer Act, codified at
Or. Rev. Stat. sections 95.200-95.310↩ (1989).