United States v. Holmes

$1,134,563.90 in The IRS then interest. TYMKOVICH, Before HOLLOWAY the taxes Colorado Gas. assessed HOLMES, Judges. Circuit (We significance discuss will infra assessment.) pay Gas Colorado did HOLLOWAY, Judge. Circuit and interest. assessed taxes action, In civil this the United States made a series of distribu- Colorado Gas seeking Mr. Holmes to collect sued James in the tions to Mr. Holmes now-de- a federal debt owed which totaled over transfers $3.6 entity Com- 'corporate funct Colorado Gas explained infra, As it is million. will Holmes, Ap- pression, Inc. Defendant significant Colorado Gas was this pellanWCross-Appellee in had process winding up operations its active the sole shareholder of Colorado Gas been time. prior entity’s demise. The district (10th Cir.1998). government 56(a), commenced this lawsuit Under Fed.R.Civ.P. summary judgment November 2008. in- should be entered only provisions of Colorado law in voked the district court if genuine “there is no complaint. The its four-count first two any issue as to material fact the mov- Mr. alleged counts that Holmes was liable judgment ant is entitled to a a matter of the under Colorado version of the Uniform appeal, law.” On Conveyances Fraudulent Act. The third examine [w]e the record to determine claim alleged that Mr. Holmes was liable any genuine whether issue of material under Colo.Rev.Stat. 7-90-913 as an not, in dispute; fact was if we determine of owner Colorado Gas had who received applied whether the substantive law was liquidation assets the of the company. correctly, and in doing so we examine fourth alleged liability The count under the factual record and reasonable infer- Colo.Rev.Stat. 7-108-403 because Mr. ences therefrom in the light most favor- Holmes was a director who had voted for party able to the opposing the motion. an unlawful company’s distribution of the (brackets McKnight, 149 assets. F.3d omitted). quotations government’s On the motion for sum- mary judgment, the district court ruled Ill

that Mr. Holmes was liable but that the amount for he which was liable had not appeal In his from the district proven. been In its ruling, the district judgment, court’s Mr. only Holmes raises only court addressed count three of the a single issue: whether the of claims the four alleged by government. counts the government are by barred the Colorado government later moved twice for statute of limitations.1 The district court entry judgment, its supporting motions held that Mr. Holmes was liable under with calculations Defendant’s liability. 7-90-913, Colorado Rev. Stat. granted The district court the second mo- provides that if assets have been distribut tion, entering judgment final in favor of ed to an liquidation owner in the of a States United the amount of company, creditor of the corpo dissolved $2,533,930.94. appeals Defendant Holmes ration enforce her claim against the from judgment, government that and the owner to up the “total value of assets cross-appeals district court’s cal- to distributed the owner....” by Actions culation of prejudgment award in- are, creditors under this statute Mr. terest. argues, subject Holmes general two- year statute of limitations Colo.Rev.Stat.

II § 13-80-102. government And the does grant summary “We review a judg- not dispute that its claims would be barred novo, ment de applying the same standard under the state’s statute of limitations if as the district court.” McKnight applicable: government Kim- argues, howev berly Clark Corp., er, 149 F.3d that its not subject claims are specifically, More Mr. by applicable Holmes contends that ther state statute limita- relief, government’s third claim for on by a extinguishment tions or Colorado statute. which the judgment district court’s was purposes, only gov- For our we address based, applicable barred statute of argu- ernment’s third claim and Mr. Holmes's limitations, text, as discussed in the and that ments relevant to that claim. government's other claims are barred ei- additional also extinguish- argument. One reason of limitations statute state in favor weighs following gener- of our our ment. government’s by considering al rule that claims argues government affirming argument new the district ten-year are instead limited government’s argument ap- court: of 26 U.S.C. statute peal narrower the one presented than 6502(a). position This is not In the to the district court. district In- government took in the district court. government argued it was not stead, in the district court subject any limitations whatsoever subject argued that its claim was claim, the pursuing government this limitations, or of whether state by concedes that it is bound the ten- now Consequently, we must first de- federal. year of limitation argument to- the whether consider cide 6502(a). Therefore, § we conclude that we- appeal. on for the first time raised by exercise discretion consider- should our government’s appellate argument. the is general rule that we Our judgment a basis affirm a district court on The basic facts are As undisputed. dis employed by from that the different noted, deficiency the IRS a notice issued of court, the assuming that alternate trict 1998, in to Colorado Gas see 26 U.S.C. the And consistent with record. basis is 6212(a), that the owed alleging company many in we of the cases while 1994, 1995, taxes for the and 1996. the theory followed this rule was have in the Tax and an proceedings After Court see, court, e.g., raised the district least appeal to this assessed Foster, (10th 751, v. 596 F.3d 760 Bixler “author company, it is Cir.2010), always that has not been by required” to do U.S.C. ized 26 see, case, e.g., Dept, v. U.S. Jordan 6201(a). An “assessment” is “little more Justice, 1188, (10th 668 1200 Cir. F.3d recording of a tax than the calculation 2011). persuade In his us not to effort Galletti, liability.” v. 541 United States general rule in this case—and follow our 1548, 114, 122, L.Ed.2d' 158 U.S. government’s to consider the new thus not (2004). impor But an assessment has 279 ly argument Holmes cites raised —Mr. legal consequences tant nevertheless. opinions from several our language 6502(a) a tax provides that when Section to express which seems the surface assessed, properly the statute has been to new tension with hostility arguments in ten limitations for collection the tax is rule. But there is conflict general no Thus years from the of assessment. date on which Mr. Holmes because cases ten-year period to the to claim entitlement he this lan relies and from which extracts limitations, show government must are all cases which it was guage properly that the tax assessed. was present who wished to a new appellant in the dis- showing made this judgm a district court argument to reverse Although 26 trict court. U.S.C. ent.2 initially that the assessment must states filing of opportunity an from the Mr. Holmes has had made within three argu- portions other government’s question, to the new the return respond provide Code ment, brief at oral the Internal Revenue reply both his 1993); 716, (10th Land reply 721 Cir. brief cites Hicks v. Gates Anschutz Mr. Holmes’s RR, Co., (10th F.2d 820 970 Cir. & Livestock Co. v. Union 928 F.2d Rubber Pacific (10th 1987). Tr., 1991); Lyons F.2d 344 n. 5 Cir. Bank & Jefferson Moreover, certain three-year tolled Mr. argument Holmes’s is at Here, particular, events. the IRS as- Galletti, with odds United States v. record, nothing serts —and we see in the S.Ct. 158 L.Ed.2d 279 contrary any argument nor (2004). case, In that had assessed —that three-year period when tolled delinquent taxes a partnership. deficiency IRS mails a notice of to the The government general later sued part here, taxpayer, which was done and there- ners of the firm to unpaid collect the taxes. prohibited assessing after is or col- case, partners in that like Mr. Holmes was when lecting, peti- as it Colorado Gas here, argued that the failure assess the tioned the Tax Court. See U.S.C. against.them taxes individually meant that 6503(a)(1). statute, Under government’s barred, suit was time three-year period begin did not to run assessment partnership hav until proceedings initiated the tax- ing- according argument to their — —extend case, payer to an In this had come end. ed the statute of limitations as to the the taxpayer’s challenge finally was not partnership and not as to them individual July resolved until and the IRS time- ly. Supreme unanimously Court re ly in filed assessments 2002 and 2005.3 jected that argument, observing that the however, argues,

Mr. Holmes that as taxes, assesses taxpayers. IRS not Id. at against sessments Colorado Gas did not 123, 124 S.Ct. 1548. The Court went on to extend government’s proceed time to hold that: against only against him company. but his a tax Once has properly been as- Mr. Holmes relies provisions 26 sessed, nothing in [Internal Reve- 6901, U.S.C. which authorize the IRS to Code requires IRS to duplicate nue] (and then, assess tax a efforts by separately its assessing the collect). course, take steps to to tax against same individuals or entities in response provi IRS contends that these are who not the taxpayers actual but merely provide sions it with an alternative are, by law, reason of state liable for way pursue to collection a transfer payment of taxpayer’s debt. The ee, prescribing required rather than a consequences of the assessment —in this point, method. government On is case extension of the statute limi- correct, surely as we have “[T]he held: tations collection of the debt —attach procedures collection in contained 6901 to the tax debt without reference to the are not exclusive and mandatory, are special circumstances of the secondarily cumulative and alternative to the other parties. liable methods of tax recognized collection Id. prior used to the enactment of 6901 and its statutory predecessors.” Mr. Holmes that United States contends we should (10th Russell, 605, v. facts, F.2d 461 606 Cir. confine Galletti to its that it would 1972); Leighton States, see also v. be an extension holding United of the of that case 506, 719, 289 U.S. 53 S.Ct. L.Ed. it 77 1350 to to this case in which the IRS is (1933). a pursuing of a corporation shareholder us, challenge Before Mr. Holmes government’s does not brief that recites the IRS filed assessments, the propriety of the 2002 following the 2002 assessments the first deci- preceded the ultimate of the resolution tax- sion Tax Court 2005 assess- payer’s Court; petition for review in the Tax following ments the Tax Court's decision after consequently, we have no to occasion address remand from this court. topic that We merely here. note

1235 every real a delinquent proceeding in its taxes. But the sense court which was are language of not so collect a Updike, Galletti tax.” United States v. logic cabined, we The IRS was easily 489, 494, 367, believe. 281 U.S. 74 L.Ed. separately (1930). assess taxes required not government 984 As counsel individually, and it Mr. Holmes it at put argument, oral Mr. Holmes is validly can invoke the follows that making argument here the on which as has ten-year period government Updike.5 lost done.4 Because, in Updike, govern primary argument, howev Holmes’s Mr. “in a every ment’s is real sense action here er, government proceeding that the is is tax,” proceeding collect subject state as such is here under law and “acting in ca sovereign period; state limitations under this ulti pacity rights an effort to enforce view, any provision federal limitations mately law,” grounded on federal Bresson irrelevant to this matter. Justice simply (9th Commissioner, 1173, 213 F.3d O’Connor, speaking for a unanimous Cir.2000). Therefore, the government’s said, Court, general has “Whether subject claim is to state statutes of not brought by action United state-law extinguishment. limitation or United subject to or state stat States is a federal Summerlin, States v. question.” of limitations is a difficult ute (1940). S.Ct. L.Ed. 1283 As the v. California, States United Supreme expressed the rule Court S.Ct. 123 L.Ed.2d 528 case, the United States becomes “When (1993). difficulty But we do face that claim, acting govern entitled in its to a though government the here here. Even mental and asserts its claim capacity proceeds against by invoking Mr. Holmes right, that it cannot be deemed to have law, ig a must of state we not provision governmental authority abdicated so as its suit, reality present that “the nore the subject put to to a state become statute against corporation but though not the ting upon a limit time enforcement.” subject against transferee[ its to assets ] tax, at 1019. payment hands to the of the is in U.S. 60 S.Ct. [his] government’s unsuccessfully analysis the suit "is tries to our of its that 4. The dissent rebut attempts deficiency upon on Galletti. The dissent a assessment of reliance suit declaring distinguish by that Tax a against taxpayer.... Galletti the such the time for suit, assessment, requires long the to assess the expired Code same six against at the transferee. Dissent 18. The before of this suit.” the commencement ignores Leighton, simply Russell dissent U.S. at S.Ct. 308. premise precedent contradicts this the which government the did in this case Because analysis. as noted our bring against the on the suit based assessment Moreover, permitted within the for reading of transferor and time the dissent’s United transferor, Co., against government’s & suit the v. Continental National Bank Tr. States National, being timely, 83 L.Ed. 249 suit is and Continental (1939), Contrary materially con- is flawed. to the dissent’s based on a different factual text, (which reading, support the Court in Continental National no to the dissent offers recognized clearly why a trans probably explains that suit Mr. Holmes never has case). feree would have been sustainable —based on cited or on the relied it the assessment the transferor —if government Updike, which In it was the brought permitted time had been within the argued proceedings not to col- were that The Court for suit transferor. applicable addressing lect tax. This was because the quite made that clear before Reve- presented under the Internal set of were of limitations different facts that Thus, passed. had explained at the nue Code then in force there. outset Court granted summary We hold that the district court did not judgment motion summary err in granting judgment to the in part, that holding government’s government issue of Mr. on the Holmes’s limitations, claim was not barred but for the as transferee taxes of his found the moving papers be insufficient company. for the court to determine the prejudg- ment question. interest IV regard With to the issue of prejudgment cross-appeal, In the government interest, court in that district order urges that district committed might noted that it even be the case that deciding error in the date from which pre both state law and federal would judgment interest would accrue on the part to the award of interest. The district government’s recovery. conclude, We judge government noted further however, properly that this issue was not argued primarily had that it was entitled preserved appeal, and we accordingly to interest under federal law from the date decline to consider it. transfers, United States had briefing district court on the argued alternatively also that it was enti- issues relevant the calculation pre- tled to interest from the date of the trans- confused, judgment was interest as the fers under law. The parties state had admits, govern- now agreed if applied, state law gov- ment’s initial submission to the district erning statute would Colo.Rev.Stat. court of an erroneous calculation. See § 5-12-102(a), provides for prejudg- Principal Response Brief and Brief for the ment interest to be awarded to creditors Appellee-Cross-Appellant 56-57. This money when “wrongfully has with- been more than miscalculation did confuse the held. ...” judge But the district found that question of how interest should be calculat- government, arguing while for recov- particular ed: legal princi- Because of one ery alternative, under this statute ple, the calculation was relevant provided “any analysis had not why issue of whether state or federal law ‘wrongful’ was of Defendant to retain the govern should of prejudgment the award distributions 1994-1997 when the No- interest.6 In support its initial brief in of tice of Deficiency was not issued until summary judgment, motion for gov- the II 1998.” ApltApp. 380-81. The dis- ernment argued that federal law should be trict court that it permit indicated would applied to determine the prejudgment in- government the submit to another motion terest. In a reply support brief of that for the prejudgment determination of is- motion, government alternatively the as- sues. serted that it was to entitled interest from the date of the transfers from plainly district court thus Colorado invited Gas to Mr. if state government Holmes law were the argument deter- to articulate an mined to be applicable. The district as why court to pay Defendant’s failure to the explanation 6. A principle nutshell of deficiency and the amount of interest circumstances, law, i.e., should the suffice under prescribed and by federal [26] U.S.C. provided the summary: district court such a § 6601. If the transferee receives less than liability, the appears fairly transferor’s tax state law It deter- to be well established that mines the of where the value assets calculation interest. transferred ex- 3/30/2011, Dist. Ct. liability, Aplt.App. ceeds the transferor’s total tax Order of II in- interest, (one omitted; cluding penalties statutory the internal transfer- citation cita- corrected). ee is liable for entire amount of the tion TYMKOVICH, Judge, a Circuit taxes before notice of defi- corporation’s “wrongful” ciency dissenting. was had issued statute. The in the state

term used I agree panel’s While with much -instead, so; do did not government I reasoning, company on the result part essentially that government argued required by Tax Because I con- Code. was because federal law should point moot government’s the Tax bars the clude Code prejudgment in- calculation of govern the Holmes, untimely I proceeding not- accordingly terest. The district would reverse. appeared to have government ed that the conceded that the Defendant’s “conduct

continuing company liquidate to with- I. payment of the tax liabil- providing

out

ity wrongful only receipt” would be A. deficiency. Id. at of the notice of case, In this to identify we are asked S.Ct. 1019. statute limitations for when the IRS appeal, presents the government On may bring to collect taxes from an suit present to argument that it declined unassessed No one statute in transferee. i.e., that Defendant acted district specifically the Tax answers this Code by failing pay compa- his “wrongfully” trying In to find the question. correct ny’s taxes the IRS had served before rule, majority rely IRS and This is deficiency. improper. notice providing statute III, supra, that have noted in Part we

We collecting taxpayer. from an assessed arguments discretion to consider raised But See 26 U.S.C. 6502.1 James Holmes appeal argu- first when time on those fact, And, in was never assessed. affirming ments the district court. support majority’s misses some reading arguments on permit But we new do statutory relevant context. Marx v. Cf. arguments are appeal when those directed — -, Corp., Gen. Revenue court. the district Conse- reversing 1166, 1175-78, 185 L.Ed.2d S.Ct. govern- to consider quently, we decline (2013) rule (finding applicable ana- express argument opinion ment’s no context). view, In lyzing statutory my on the state law correct resolution requires that context us consider two question that the raises. providing one that the different statutes: Conclusion must from transferees in the collect way from a taxpayer, same as it collects of the district is judgment court 6901(a),2 pro- § and see 26 another AFFIRMED. U.S.C. 65.02(a) following portion § 26 U.S.C. The amounts of liabilities 1. The relevant of shall, added) in this except as hereinafter section provides: assessed, paid, and provided, collected any imposed tax Where the assessment of subject and to the same in the same manner peri- by this been made within the title has provisions and limitations case thereto, properly applicable od of limitation respect which the the taxes liabili- with may by levy by a such be collected tax were ties incurred: levy if proceeding proceeding begun— made or the (A) liability, at law or Transferees. —The within 10 assessment after (1) property— equity, of a transferee the tax.... (i) taxpayer in the case a tax of a 6901(a) (relating to portion imposed by § A income 2. The relevant subtitle taxes),.... provides: viding that the cannot collect in corporation IRS such as the that made the cash taxpayer from an unassessed after the pe- distribution to the shareholder. See 26 6901(a).4 passed, § riod for assessment has U.S.C. principle see id. This applies 6501(a).3 § to all question stages in this case three of tax collection: assess- 6501(a) ment,5 payment, § whether rule col- and collection. See id. —the lecting from one whom the IRS has not sure, To be collect taxes in period assessed after the assessment has court instead of through the assessment passed applies to an unassessed —also process. See Goldston v. United States like Holmes. In light of (In Goldston), (10th re 104 F.3d 6901(a)’s directive that transferees are Cir.1997); Leighton see also v. United treated, to be treated as a taxpayer is I States, 289 U.S. 53 S.Ct. 77 L.Ed. think so. (1933) (holding the same is true with transferees). But the Tax Code bars the

It go saying should without that “[t]he bringing IRS from such suit unless the Tax Code is never a walk in park,” IRS does so for assess- Holder, Seven-Sky 661 F.3d before 6501(a). ment expires. See 26 (D.C.Cir.2011) U.S.C. J., (Kavanaugh, dissenting), And the Tax Code does not alter that rule exception. and this case is no So to facili respect Therefore, with to transferees. my Code, tate discussion of the Tax I transferee, unless the IRS assesses a briefly summarize how transferee tax lia cannot bring suit to collect the transferee bility works and how the Tax Code re tax assessing solves this case. Then I recite the facts passed. transferee has See United procedural history before turning to a Co., States v. Cont’l Nat’l Bank & Trust analysis detailed question this case’s 398, 404-05, arguments. the IRS’s (1939). L.Ed. 249 B. case, In transferee, Holmes, this was permits The Tax Code the IRS to collect not assessed for his liability, transferee tax a taxpayer’s tax liability from other indi- and the did not bring suit him viduals or entities who receive asset trans- until for assessing him as after fers from the taxpayer. The Code directs transferee had expired. Accordingly, the IRS to collect tax liability untimely. the suit was “transferee ”—such as a shareholder who C. receives a cash according to distribution —

the same rules under which it collects from I now turn to the factual background original taxpayer, the “transferor”— procedural history my relevant portion The relevant (2013 of 26 U.S.C. of Fed. update) Income Tax’n 53:24 provides: ("[The] transferee ... is liable to the extent of any imposed [T]he amount of tax imposed assets received!] title shall be assessed within 3 [transferor]."). upon the (whether the return was filed or not such return filed pre- was on or after the date ‘assessment,’ essentially 5."The bookkeep- a ..., scribed) proceeding and no in court notation, Secretary is made when the without assessment for the collection of delegate his establishes an account begun such tax expiration shall be taxpayer Laing on the tax rolls.” v. United period. of such States, 161, 13, 473, 171 n. 96 S.Ct. (1976) (citing 4. 46 The transferee’s share L.Ed.2d 416 26 of the transferor’s tax U.S.C. liability 6203) added). property determined the value of Mertens, transferred to him. See 14A J. Law

1239 Holmes, shareholder, its totaling sole corporations can elect conclusion. Certain purposes, 2002, taxed, tax ei- 1998 to to be for federal about million. Then from $3 (ie., Cor- pass-through ther as entities “S deficiency its notice of tax receiving taxed separately entities porations”) 1998, or as in made another CGCI series of (ie., in- Between its Corporations”).6 “C $670,000. totaling transfers Holmes in and its dissolution corporation in 1977 from Based these transfers 1995 to 2005, Compression, Inc. Gas Colorado 2002, the in a IRS 2008 asserted Colorado (CGCI) filing as lawfully switched between cause of action for transferee as a Corporation filing Corpo- and an S C Holmes, demanding over mil- $4.9 history. at in its In points ration various liability. in lion tax That transferee 1994, 1996, 1995, an S and CGCI—then original amount interest from the included it Corporation appreciated assets 1996, 1995, 1997, —sold tax due in dates acquired when a C had was respectively. its Corporation. Based on advice of argued At the Holmes district paid taxes on those attorney, tax CGCI untimely both under IRS’s suit was Colo- time of according to its status sales rado law and the Tax Code’s under ie., Corporation. anas S tax — liability, out- limitations for however, thought, that CGCI IRS 6901(c). The lined in 26 district U.S.C. taxes on asset sales paid should have It rejected arguments. found both time according at the of asset to its status inapplicable the state of limitations statute Corporation. a Be- acquisition ie., as C — Supreme virtue of Court’s decision meant cause the difference CGCI that. Summerlin, United States v. taxes, sent a back the IRS CGCI owed (1940), L.Ed. 1283 deficiency notice of in 1998. CGCI disput- statutes of limita- which held that state parties the two liti- deficiency, ed tions, govern- not to the federal do Tax Final- gated the matter in the Court. right ment when a derived from it asserts IRS’s ly, the court decided sovereign capacity. law in And federal judgment against CGCI favor entered Tax statute of the court found the Code’s $805,557 taxes owed. in back The IRS because the IRS inapplicable that amount. then assessed CGCI for 6901 as cause of asserting was decision, Tax CGCI Court’s appealed the court entered Consequently, action. and we and remanded for a new reversed just judgment against Holmes for over liability. Colo. calculation of Gas Com million. $2.5 Comm’r, 366 pression, Inc. v. F.3d 863 (10th Cir.2004). remand, Tax On II. liability to be Court re-calculated CGCI’s $923,049. The IRS then assessed CGCI A. difference, was CGCI any payment. unable to make is, When question raised here an corporation’s the IRS collect In filed suit like Holmes? On unassessed transferee he re- Holmes because of had transfers time for the first cites appeal, ceived From from CGCI. relevant to U.S.C. 6502 as the statute CGCI annual distributions made instance, So, Corporations” are taxed subchapter "S designations refer to These Subchapter according S Chapter to the rules found Subtitle A of Tax Code 1 of Code. governs corporation taxed. of the how a is 6502 of the Tax majority limitations. Section Code sessed. The agrees, but I think they provides general wrong. statute of limitations are liabilities, tax collecting limiting My reading of the Tax Code does not years IRS to collections “within 10 after support the IRS’s conclusion. Section the assessment of the tax.” 26 U.S.C. 6901(a) tells that us a transferee’s tax lia 6502(a). Thus, § the statute requires a bility assessed, ... “shall be paid, and “assessment,” “tax” followed an with an collected in subject the same manner and outer limit of “10 years” after the assess- provisions to the same and limitations as in ment in which to commence collection pro- the case of the respect taxes with to which ceedings against taxpayer. the liabilities were incurred.” 26 U.S.C. 6901(a). § interpret I general rule to argues The IRS that the Tax Code au mean liability that transferee is to be as thorizes it to collect from an unassessed sessed, paid, and collected under the same transferee like Holmes at point during apply rules that assessing, paying, ten-year period following its assess collecting ordinary, pre-transfer tax transferor, CGCI, ment of the which oc Stern, liability. See Commit v. 357 U.S. 23, January curred on 2002.7 For this 39, 43, (1958) 1047, 78 S.Ct. 2 L.Ed.2d 1126 argument, the Supreme IRS relies on the (noting 311, 6901, § § now “was de Court’s decision in Up United States v. signed ‘to provide for the enforcement of dike, 281 U.S. 50 S.Ct. 74 L.Ed. liability [transferee] ... procedure (1930). In Updike, provided in the [Tax Code] for the enforce argued that a suit transferees to ” ment (quoting S.Rep. deficiencies’ collect the transferor’s tax liability was not 69-52, (1926))); No. at 30 see also Hulbutd proceeding collect a tax. Id. at Comm’r, 300, 306, rejected S.Ct. 367. The Court (1935) (“If L.Ed. some one [sic] else (now 6901) argument light § § of 280 of was to charged, there would be need of Code, the Tax which directed that ” a new § assessment.... (citing now rules for assessment and applica collection 6901) added)). § ble to the transferor also to transfer only exceptions general to this rule 492-93, ees. See id. 50 S.Ct. 367. are those provid- “hereinafter [§ 6901] Thus, the Court found the IRS time- 6901(a). ed.” 26 U.S.C. And the bringing barred from suit exception relevant here found in transferees where the period collection § 6901(c)(1),which “period extends the original taxpayer-transferor had long limitations for assessment of’ transferee expired. 494-95, Id. at 50 S.Ct. 367. year to “within 1 expira- Updike, Based on the IRS now claims it tion of limitation for assess- years has ten from the date assessing ment against Otherwise, the transferor.”8 bring Holmes, CGCI to suit against even 6901 contains no unique period of limita- though Holmes was separately never as- tions for collecting court from an unas- dispute 7. Holmes does not the timeliness of assess a transferee like Holmes. That the assessments CGCI. however, longer, be even because various provisions clock, suspend of the Tax Code 8. The assessing of limitations see, 6503(a)(1), e.g., although CGCI, here, taxpayer like the transferor tolling provisions none of those are relevant three taxpayer files its return. ' in this case. 6501(a). Thus, See 26 U.S.C. the IRS has one, 6901(c) plus four per § —three —to 404-05, 308; transferee, that see also United so to determine sessed Floersch, (10th 714, 276 F.2d provi- must look to the “same States period, we Cir.1960) (“It that gov- of the Tax Code is well settled that the and limitations” sions collecting may rule for an in general proceed against property the ernment supply ..., liability the time for providing tax after the hands of a transferee it unassessed 6901(a). § expired. proceeds year speci- has See id. within the additional assessment 6901].”). § fied in now [§ applicable provision, sure, To be the statute of limita- 6501(a), direction of opposite § leads before assessing expired, tions for taxes has analysis. for col- majority’s The rule may IRS collect unassessed tax liabilities “[T]he without assessment is: lection but that is no different than in the by title any imposed tax this amount Goldston, ..., any taxpayer. case of other See proceeding assessed and no shall be (“While at 1201 an 104 F.3d the absence of the collec- in court without assessment for prevents assessment the IRS from admin- begun tion such tax shall after ” tax, istratively collecting it still expiration period. such Id. ”). Therefore, added). file a civil action.... it is no Here, the IRS has not assessed that Holmes, surprise Supreme Leigh- Court “period” and the the transferee ton ruled for the IRS where the IRS col- liability transferee tax for when Holmes’s Thus, corporation’s lected a defunct taxes from passed. “shall be assessed” has 6501(a) Leighton, unassessed transferees. See to com- permit does not 53 S.Ct. 719. proceedings. mence collection Leighton But the Court did not address straightforward application This happens brings what when the IRS suit not Tax Code’s text novel. Su- against an unassessed transferee conclusion preme Court reached the same period assessing the transferee has case, in Continental. In that the IRS had above, I passed. question As showed that taxpayer and the initial trans- assessed the Supreme was answered Court feree, the subse- had assessed (not text of Continental to mention at quent transferees. See 305 U.S. 6501(a) 6901(a)). according §§ And argued 59 S.Ct. 308. The IRS Continental, period once the assessment to collect from the assessed period cannot collect in expired, has IRS initial transferee —a dictated just court from an unassessed 6502(a), precursor to the statute IRS transferee — in court from other as it cannot collect upon relies also here —should taxpayer. unassessed Because subsequent But unassessed transferees. at least four to assess Holmes— had explained

the Court the time for peri- time from tolled not to mention extra bringing suit an trans- unassessed 6503(a)(1) ods, see, e.g., 26 U.S.C. allowed for feree was the number —and did not assess or commence the IRS still essentially assessing the recit- transferee — time, bring suing him in the IRS cannot 6501(a), quoted the rule from action to collect CGCI’s out- present above, italicized that bars a suit to collect standing tax from Holmes. assessing debts passed. those debts has See id. at B. of limitations S.Ct. 308. When 6501(a) Still, §§ rule from assessing expires, transferees reasoned Court, has not been fol- of assessment and Continental “suit absence Indeed, courts consistently. some liability” of transferee is barred. Id. lowed transferee’, applying as to of a except have construed Continental ‘transferee with limitation”). only, leaving Thus, transferees ini- subsequent regard period to the of governed by to be the rule tial transferees holding the fact that Continental’s con- apply that the IRS to here. For wants a subsequent cerned transferee and not an instance, Signal Oil & Gas Co. v. United not, more, initial transferee does without (9th States, Cir.1942), 125 F.2d 476 6501(a) explain why § apply should to sub- explained, Ninth Circuit sequent transferees but not initial trans- transferee, appellant, a second is Since ferees. property not a “transferee of of tax- Such a distinction all is the more untena- [ie., transferee], payer” an initial light of ble the blanket declaration in six-year ten-year] period of section [now 6901(a) § liability that all transferee “shall 278(d) 6502(a) § to sue the first [now ] assessed, ... be paid, just and collected” taxpayer of after assess- transferee .the (unless liability like the transferor’s tax ment of the does not taxpayer otherwise). § says the rest of appellant. applicable provision ... The. regulation collecting IRS’s transferred 277(a)(2) 6501(a)], § pro- is section [now explicit: liability assets even more “The assessment, that in the viding absence of ... of a property any transferee of of transferee, here of taxpayer either person in respect any liable of other tax liability begun suits for such tax shall be ... against shall be assessed such trans- within four after the return was paid and collected the same feree filed. subject manner and provisions to the same (internal omitted) (cit-

Id. at 480 citations and limitations as in the case of the [un- ConCl, 308). at 305'U.S. S.Ct. ” derlying liability].... 26 C.F.R. Code, according But to the Tax 301.6901-l(a)(2) (West 2013) difference between an initial transferee added).9 subsequent and a transferee is the Moreover, regulation explicitly the IRS’s assessment, of limitations for to the applies transfer at issue here— applies to one but not the other. namely, where a shareholder received dis- liability “In the of a transferee case corporation. tributions from his See id. ie., of a subsequent trans- transferee” — (“in any liability case where the of the grants feree—-the Tax Code one IRS transferee arises on the liquidation of a year subsequent extra each assess Thus, if, transferee, corporation”). even as the IRS up to “but not more than 3 claims, Updike permitted now once expiration suits any limitation for assessment unassessed transferees the initial transferor____” 6901(c)(2); point during collection for an Lines, Comm’r, transferor, see regulations also Bos Inc. v. 354 assessed the IRS’s (8th Cir.1965) clarify F.2d 834-35 (concluding the Tax Code does not treat the Tax “does not recognize any liability arising Code corporate distinction between a ‘transferee’ and a differently any distributions more. portion 9. The paid relevant of 26 C.F.R. assessed such transferee and 301.6901-l(a)(2) provides: and collected in the same manner and sub- liability, equity, ject provisions at law or in of a trans- same property any feree person liable in respect as in the case of the tax with tax, any respect other case where incurred, liability except which such of the transferee arises provided. hereinafter ..., liquidation corporation of a shall 6502(a): (cid:127)§ conceivably, in 26 So if Besides, decision U.S.C. Supreme Court’s during did not collect than its deci- first few is more recent Continental years of taxpayer’s period, collection light Continen- Updike, sion ingenious taxpayer an could then transfer any theory Updike extending logic, tal’s period his assets as soon as the for collecting limitations for assess- period ing suing a passed, transferee was transferee has court from an unassessed thereby insulating the assets from the effectively abrogated by Continental’s Continental, ten-year held IRS’s collection before the collec- holding. In the Court period expired. tions has against subsequent that the suit a IRS’s was time-barred because the transferee argument applies Yet this equal with subsequent transferee was never assessed transferees, force to subsequent and there assessing time for that transferee and the is no that subsequent doubt transferees at expired. had See 305 U.S. period cannot be sued for .assess- above, noted difference 308. As See, Cont’l, passed. e.g., them has how the Tax Code treats an initial between 404-05, 59 S.Ct. 308. So even if subsequent a transferee is transferee and right the IRS were as to initial transfer- has to assess the amount of time the IRS ees, ingenious taxpayer still would be bring since the IRS cannot two. So just away one more again transfer from subsequent an unassessed against suit insulating his assets from tax collection. assessing after the for period Moreover, already the Tax Court has (per passed that transferee has Continen- rejected argument a version of this in a 6501(a)), no principled tal and there is against subsequent case about a shit trans basis under which the IRS could nonethe- Indus., ferees. See Columbia Pictures against in court an unas- proceed less Comm’r, (1971). Inc. v. 55 T.C. transferee after his assess- sessed initial Pictures, In Columbia the Tax Court has period passed.10 ment pointed proce out that the IRS had other consequences “protect against” dures available to a tax Admittedly, practical insulating limiting against payer unassessed trans- itself suit through multiple transfers. Id. For in assessing ferees to the them stance, noted the the IRS could cutting could result off the transferee’s give original taxpay rise to “obtain waivers from the liability before the acts which er,” thereby pushing §§ back the place. According it take 6901(a), assessing limitations for the transferor years (excluding the IRS has four and, result, taxpayer assessing as a the transfer periods) tolled from when (since ees, too their of limitations is taxpay- files its return to assess or sue the taxpayer’s period on when the er’s transferee. But the IRS has ten based expires). Additionally, Id. now years taxpayer- from when it assesses the also the Federal Debt Collec- taxpayer. transferor to collect from that has instance, corporate required regarding separate Tax treatises concur. For 4 Ca- up- sey, (May Fed. Tax 12:10 taxpayer Prac. entities and the initial trans- date) (footnotes omitted) added) ex- hence, feree; timely a assessment plains: transferee would not authorize the initial ability re- While the second transferee's against the within the suit second transferee liability generally sist transferee rises no timely ten-year period; assess- collection a any preceding higher transfer- than would ment the second transferee ee, separate entity respected must indispensable be an condition to such suit. just procedural purposes, and limitation it file an Procedures Act of which offers could suit unassessed tion any way to avoid transfer de- any during transferee like Holmes at point defraud, and that Act has a signed to the ten 6502 affords to collect of six statute of limitations liability. tax But CGCI’s Galletti does not (or years after the transfer transfer two apply to this case. discovered). reasonably have been could In a partner- IRS assessed Galletti § 3306. See 28 U.S.C. ship opposed corporation like —as event, Congress fully In seemed CGCI—for various liabilities. When tension, yet aware of this drafted debt, partnership satisfy failed to transferee-liability statute this fash attempted gen- to collect from the glaring evidence of anyway. ion The most partners separately assessing eral without Congress’s Congress intent is the fact that. partners argued they them. The had to this tension with re actually eliminated separately assessed within three liability, spect fiduciary to even while de partnership’s tax return filings, and clining respect to do so to with lapsed, since the time for assessment had 6901(c)(3) liability. of the Tax Section longer liability could no collect the IRS says of limitations for Code from them. liability assessing fiduciary is “not later ” year liability than 1 arises.... Supreme disagreed. The It Court con- added). 6901(c)(3) (emphasis 6501(a) cluded that does not require the Thus, ingenious taxpayer our could not “separate IRS to make assessments of a by insulate his assets IRS collection single against persons tax debt or entities using fiduciary, a since the can collect IRS debt”; secondarily liable for that the stat- anytime fiduciary year from a within a permitted ute the IRS to collect from i.e., “after the arises” — secondarily just those who were as it liable fiduciary into the picture. comes There permitted the to IRS collect from those fore, Congress knew how to a period draft liable, primarily who were long so as the that prevents this sort of did ten-year post-assess- IRS so within the gamesmanship. Congress That chose period provided by § ment collection 6502. to draft such a of limitations with 121-22, 541 124 S.Ct. Galletti

respect not appear to does ac transferees Court reached this conclusion cidental, we Congress’s must honor 6501(a) §§ because both and 6502 focus Reding choice. Touche Ross & Co. v. Cf the “tax ... opposed assessed” as to the ton, 560, 571-72, 442 U.S. 99 S.Ct. taxpayer assessed. Id. at (1979) (concluding Congress L.Ed.2d 82 And, (emphásis original). rea- private right did not intend to create a Court, soned the action with section of a statute because one Congress explicitly private right created a assessed, a tax properly [o]nee has been another). of action with nothing in the requires Code [Tax] duplicate IRS to separately efforts

C. assessing the same tax individu- als or entities who are not the actual unavailing. IRS’s rebuttal is It re- are, taxpayers reasons of state lies on Supreme Court’s decision in law, payment taxpayer’s liable for of the United States v. Galletti (2004), consequences S.Ct. debt. The say 158 L.Ed.2d 279 to assess- that, CGCI, once it assessed the transferor ment ... attach to the tax debt without require letti did not a second assessment special circumstances reference they already because were liable for what- secondarily parties. liable including part- ever debts—the added). debts— Id. contrast, nership pay. By could not case, unlike in some- But in this Galletti already like Holmes is not shareholder require Tax Code does thing in the corporation’s liable for his debts. He is by separately its efforts “duplicate to IRS only because the corpo- liable this case requires assessing the same tax”— ration transferred assets to him—and transferees.11 separately assess to the extent of the value of those assets noted, And, rightly Court Galletti (unlike general partner, transferred who requirement created a similar no statute . satisfied). until the is liable debt assessing general part- separately good reason. General ners —and with Finally, turned on the fact that Galletti like those in are “sec- partners, Galletti §§ applied and 6502’s text debt, partnership’s for a ondarily liable” “tax” opposed assessed as one “tax- transferees are not. As shareholder while assessed, payer” but that distinction does Floersch, in explained United States we portion not here. The of the Tax secondary There is no relation between Code relevant to a transferee like Holmes understood, ordinarily liability, as period expir- describes the of limitation as liability. Secondary liability transferee year period within one after “the attaches personal liability limitation for assessment the remedy against pri- the one when the (em- 6901(c)(1) § transferor.” It is a marily liable has been exhausted. Hulburd, added); phasis 296 U.S. at cf. may liability which be satisfied personal (“[The 307, 197 had time ... IRS] assets of the one secondari- from all the assessment, which to announce a new liability, on the ly liable. Transferee brought up question the would have hand, liabili- imposes personal no other resting the once on the whether ty. subjects only property It upon executors had devolved another.” hands to the debts added)). transferee statutory lan- (emphasis That the transferor. language guage, quoted unlike Gal- focuses on n whois added). 276 F.2d at 717 being assessed letti being assessed. Gal- opposed to what is likewise noted it was The Galletti Court point. not on letti is liability” only using phrase “secondary from the “liability to mean that is derived liability,” at

original primary 1548, brought claim here is any liability 124 not While the IRS’s 122 n. S.Ct. collecting ten-year period taxpayer’s transfer of as- within arising from CGCI, brought claim is not Besides, the IRS’s part- as a matter of basic sets. law, compliance specific with the instructions general partners Gal- nership course, period expires, the IRS can no required for assessment 11. even where the IRS is Of assess, bring suit, bring it still suit before longer either. See 26 U.S.C. expired. supra See for assessment has 6501(a). recognize an I do assessment (citing Leighton, 53 at necessary proceed is not if the IRS wishes Goldston, 719; 1201). The 104 F.3d at S.Ct. supra but I also see means that IRS's failure assess recognize the Tax Code disallows suits administrative remedies to collect cannot use the unassessed after But, explained, IRS's tax. as I have expires. assessment that, also means once the failure to assess Industry col- and Financial provided” Securities [§ 6901] “hereinafter Association, liability. Markets Amicus lecting Holmes’s suing or commence IRS did assess Curiae. year expiration

Holmes “within 12-3295, Nos. 12-3298. limitation for assessment Appeals, United States Court of transferor.” U.S.C. 6501(a) 6901(c)(1). And Tenth Circuit. disallows to collect taxes “after proceedings Aug. limita- expiration period [of of [the] 6501(a). assessment].” tions for Id.

Thus, pres- §§ under Holmes is barred. proceeding against

ent

I reverse district would therefore grounds.

court on these

NATIONAL CREDIT UNION ADMIN BOARD, liquidating

ISTRATION

agent of U.S. Central Federal Credit Corporate

Union of Western Fed Union, Plaintiff-Appellee,

eral Credit EQUITY LOAN,

NOMURA HOME

INC.; Capital Markets, Wachovia

LLC, Fargo Securities, Wells n/k/a

LLC; Mortgage Wachovia Loan and

Trust, LLC; Mortgage NovaStar

Funding Corp.; Financial Asset Secu Corp.; Acceptance, Inc.,

rities RBS Capital Acceptance, Greenwich

f/k/a

Inc.; Securities, Inc., RBS f/k/a Markets, Capital Inc.,

Greenwich De

fendants-Appellants, Mortgage Corp.;

Fremont In Securities

dymac MBS, Inc.; Lares Asset Securi

tization, Inc.; Funding Residential II,

Mortgage Inc., Securities Defen

dants.

Case Details

Case Name: United States v. Holmes

Court Name: Court of Appeals for the Tenth Circuit

Date Published: Aug 23, 2013

Citation: 727 F.3d 1230

Docket Number: 12-1164, 12-1220

Court Abbreviation: 10th Cir.