Bona Fide Purchaser for Value Page 2

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Against this considerable body of precedent, and after an exhaustive search of caselaw, relevant and otherwise, the Court was only able to locate two cases directly supporting Defendants' position. The first case, In re Smith, involved the IRS' refusal to remit the debtor's income tax withholding, post-discharge. 35 B.R. 451 (Bankr. N.D. Ga. 1983). The court held that the IRS' claim was provided for in the debtor's Chapter 13 plan, and upon discharge, the debtor is entitled to have the IRS tax lien canceled. Id.

The second case, In re Campbell, is procedurally similar to the instant action, also arising under Chapter 13. 160 B.R. 198 (Bankr. M.D. Fla. 1993). It is worth recounting the background of Campbell as it parallels the case at bar. The government initially filed a claim for unpaid taxes composed primarily of a secured claim. An amended claim was filed changing the composition of the government's claim by reducing the amount initially asserted as secured to reflect the debtor's free assets to which a tax claim could attach. Id. at 199. The court entered an order determining the amount of the government's secured claim. Id. at 200. After the allowed secured claim was paid in full, the debtors filed a motion and sought an order to compel the government to release the tax lien on the grounds that there was no longer an underlying obligation validly secured by a lien. Id. The government failed to appear at the scheduled motion hearing, the motion was granted and the government subsequently moved to set aside the court's order. Id. In analyzing the issue, the Campbell court attempted to reconcile 11 U.S.C. §506 with 26 U.S.C. §6325(a)(1). Finding that a contradiction arises because Section 506 provides that "an allowed claim of a creditor secured by a lien on property in which the estate has an interest, . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim," whereas Section 6325(a)(1) provides that the tax lien shall remain and shall not be released until the obligation of the taxpayer is paid in full or became unenforceable. Id. Further, Section 506(d) provides, "to the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void . . ."

Chief Judge Paskay considered the government's concerns that although there was no existing property to which the lien could attach, if the Chapter 13 plan were to abort and be dismissed the debtor might encumber the estate by granting liens to parties who would then not be on notice of the federal tax liens. Id. at 201. Finding the government's fears too remote, and following the "Congressional mandate that the provisions of Chapter 13 shall be construed liberally in favor of Debtors who are making a sincere effort to repay their debts either in full, or, at least, in part," the court reaffirmed its order compelling the government to release the federal tax lien. Id. at 201-02.

The government appealed to the district court which issued a terse affirmance holding that the "lien must be voided as to the unsecured claim" pursuant to Section 506(d). Internal Revenue Service v. Campbell , 180 B.R. 686, 687 (M.D. Fla. 1995).

Although the case at bar and Campbell are facially similar, the factual discrepancies and the overwhelming body of opposing precedent dictate divergent results. In Campbell, the IRS was not asserting a claim against remaining property of the debtor, rather, its sole concern was protecting its lien in the event the reorganization plan failed. There were no other assets to potentially attach. This limitation of Campbell is further buttressed by Chief Judge Paskay's decision some three years later in Aylward. Therein, Judge Paskay granted the government's summary judgment motion dismissing debtor's claim that a discharge in bankruptcy extinguished an IRS tax lien on the debtor's property. [97-2 USTC ¶50,796], 208 B.R. at 568. Moreover, as indicated supra, the Second Circuit does not consider property fraudulently conveyed property of the estate until a judicial determination has been rendered to that effect. If the Government's fraudulent conveyance argument is upheld, the property will now be subject to the federal tax lien, notwithstanding the bankruptcy's discharge of the parents' personal liability. See Johnson, 501 U.S. at 84, 111 S. Ct. at 2154.

There is an opposing body of caselaw standing for the general proposition that a debtor is entitled to a release of a lien after paying off the secured portion of a creditor's claim pursuant to a reorganization plan. See, e.g., In re Johnson, 213 B.R. 552, 558 (Bankr. N.D. Ill. 1997) (finding that a Chapter 13 plan may require an undersecured creditor to release its lien on a debtor's personal property after full payment of its allowed secured claim); In re Nicewonger, 192 B.R. 886, 889 (Bankr. N.D. Ohio 1996) (finding that the holder of a secured claim can be required to release its lien upon receiving payment through the chapter 13 plan of the value of its interest in estate property that is not surrendered); In re Jones, 152 B.R. 155 (Bankr. E.D. Mich. 1993) (holding that a debtor cannot require an undersecured creditor to release its lien until debtors have made all payments under the chapter 13 plan); In re Murry- Hudson , 147 B.R. 960 (Bankr. N.D. Cal. 1992) (holding that debtor can require an undersecured creditor to release its lien while Chapter 13 still pending). These cases typically apply the "cram down" provisions of Section 1325(a) as a method of lien avoidance to confirm the plan. Another case, In re Butler, allowed a Chapter 13 debtor to avoid a tax lien to the extent that the tax claim exceeded the value of the debtor's property. 139 B.R. 258, 259 (Bankr. E.D. Ok. 1992). That holding was predicated upon a rejection of the application of Dewsnup to Chapter 13 cases.

However, the case at bar is not a characteristic "lien-stripping" case in which the value of the collateralized property is determined at the bankruptcy proceeding and the lien is stripped as the debtor pays the value of the collateral securing the undersecured creditor's claim and the lien is released. The property at issue was never before the bankruptcy court.

What is the effect, if any, of the Government's failure to address the parents' interest in the property during the confirmation proceeding. This issue has indirectly arisen in the context of a creditor's knowledge of the debtor's fraudulently prepared bankruptcy plan, and the courts have regularly held that the creditor cannot sit back and wait till after confirmation before attempting to revoke the confirmation order. See, e.g., In re Ritacco, 210 B.R. 595, 598 (Bankr. D. Ore. 1997) (recognizing the distinctions between Sections 1329(a) and 1328(e), notwithstanding, the court held that only when discovery of the fraud occurs after confirmation can the motion for revocation be brought by creditors); In re Kouterick, 161 B.R. 755, 760 (Bankr. D. N.J. 1993) ("Where a creditor knows of a basis for challenging confirmation and fails to object, the creditor cannot be permitted to use that basis to claim fraud under Code §1330 after confirmation."). However, the IRS is not challenging the confirmation or seeking its revocation. Cf. Young v. Internal Revenue Serv., 132 B.R. 395, 397 (S.D. Ind. 1990) (holding error in classification of priority claim was insufficient ground for reconsideration of confirmation order).

In light of the overwhelming precedent permitting a federal tax lien to survive a discharge in bankruptcy, the Court is obliged to grant Plaintiff's motion for summary judgment based on the lien theory of recovery.

IV. FRAUDULENT CONVEYANCE CLAIM

Plaintiff also avers a claim based on the premise that an intervening bankruptcy cannot perfect a fraudulent conveyance. Plaintiff moves to set aside the conveyance of the property pursuant to Sections 273 and 276 of the New York State Debtors and Creditors Law. Plaintiff turns to state law because the validity of the conveyance is governed by New York law. See United States v. McCombs [94-2 USTC ¶50,363], 30 F.3d 310, 323 (2d Cir. 1994) (citing Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 512-13, 80 S. Ct. 1277, 1279, 4 L. Ed. 2d 1365 (1960) ("federal . . . courts must look to state law" to ascertain whether a taxpayer has a property interest in property subjected to a federal tax lien)); see also Rodgers [83-1 USTC ¶9374], 461 U.S. at 683, 103 S. Ct. at 2137 ("It has long been an axiom of our tax collection scheme that, although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter of federal law.").

In determining the merits of Plaintiff's motion, it must be determined whether the parents' conveyance to the Defendants was fraudulent. This is so because "the lien imposed by section 6321 shall not be valid as against any purchaser . . . until notice . . . has been filed by the Secretary," 26 U.S.C. §6323(a), and it is undisputed that the IRS did not file a lien before the parents conveyed the property to the Defendants as the tax lien arose in or about September and October of 1986, and the property was conveyed on or about October 17, 1983. Therefore, the Government must prove either that the Defendants are not "purchasers" within the meaning of the code or that the conveyance was fraudulent and must be set aside, or else, the IRS is without a claim against the property. See McCombs [94-2 USTC ¶50,363], 30 F.3d at 322 (finding absent a set aside of the pre-assessment conveyance under state law, the taxpayer did not have a legal interest in the property at the time the tax lien attached).

1. Fraudulent Conveyance Pursuant to Section 273

Section 273 states, in relevant part:

Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regards to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.

N.Y. Debt.&Cred. Law §273. This section has been interpreted to cover constructive fraud. See e.g., Elgin Sweeper Co. v. Melson Inc., 884 F. Supp. 641, 649 (N.D.N.Y 1995) (holding that under New York law, plaintiff can recover for fraudulent conveyance without directly proving intent, by establishing "constructive fraud," which can be proven merely by showing that the transfer was made without fair consideration, thus it constitutes a fraudulent conveyance regardless of transferor's intent).

Therefore, to establish a fraudulent conveyance under this section, the Government must prove that: (1) the property was conveyed from Nicholas J. Alfano and Rita Alfano to Nicholas A. Alfano and Lisa Marie Alfano; (2) Nicholas and Rita were or would become insolvent at the time of the conveyance, and (3) the conveyance was made without fair consideration. There is no dispute that the property was so conveyed and the first element is established.

Insolvency, the second element, is defined in Section 271, and a person is deemed insolvent when:

The present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.

N.Y. Debt.&Cred. Law §271. The parents as much as admit their insolvency at the time of the conveyance. During Nicholas J. Alfano's deposition testimony the following pertinent examination occurred:

Q. Back in 1983, what assets did you own? A. I didn't have any assets. You mean before I transferred the home? Q. At the time of the transfer. We know about the house, that it was in yours and your wife's name before and your children's name after the transfer. Correct? A. You mean did I have any stocks, bonds, things like that? Q. Anything. A. No.

Q. Did you own any other property? A. No. Q. Did you have any cars? A. I have cars, yes. Q. Did you have cars in 1983? A. Yes. Q. Were those cars in your name or your children's? A. My name. Q. At some point did you transfer the title to one of the cars to Lisa? A. No. Q. Do you have a guess as to how much the cars would have been worth at the time? A. Couple thousand. Q. Total? A. Probably. Q. More than five or less than five thousand dollars? A. Probably less than five. Q. Is it likely that you had savings at that time? A. I don't know. I don't recall having a savings account. Q. Any other types of bank accounts, checking account or anything like that, savings and loan or savings bank? A. No. No. Q. Money market, mutual fund, anything like that? A. No, I never had any of that. Q. No other real property anywhere? A. No. Q. No vacation homes? A. No. Q. Do you understand now that you owed the IRS taxes back then? A. Oh, I understand it now, yes. Q. Did you have more in assets then than you owed to the IRS in taxes? A. Then? Q. Right. A. No.

(N.J. Alfano's Dep. at 46-49.) Rita Alfano's deposition testimony is consistent with Nicholas J. Alfano's, she recollects having less than $ 1,000.00 in the bank, and furnishings and jewelry worth less than an additional $ 1,000.00 each. At the time of the transfer, the parents owed approximately $ 22,181.00 in income taxes for 1980 and 1981.

Moreover, the element of insolvency is presumed when a conveyance is made without fair consideration, and the burden of overcoming such presumption is on the transferee. See Snyder v. United States, 1995 U.S. Dist. LEXIS 13283, *30, No. 88-CV-2136, 1995 WL 724529, at *10 (E.D.N.Y. 1995). As discussed below, fair consideration was not provided in exchange for the property. Accordingly, for all the aforementioned reasons, the element of insolvency has been established.

With respect to the element of fair consideration, the Debtor and Creditor law definition is found in Section 272, which provides:

Fair consideration is given for the property, or obligation, (a) When in exchange for such property, or obligation, as a fair equivalent thereof, and in good faith, property is conveyed or an antecedent debt is satisfied, or (b) When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

N.Y. Debt.&Cred. Law §272.

Courts view intrafamily transfers made without any signs of tangible consideration as presumptively fraudulent. Thus, in McCombs, the court found that "shifting the burden of persuasion to an intrafamily transferee is triggered under New York law by the presence of one of two factors in the conveyance: (1) the absence of any tangible consideration, or (2) a clandestine transfer of property designed to conceal the nature and value of the consideration." [94-2 USTC ¶50,363], 30 F.3d at 325. In the case at bar there is no allegation that the transfer was effectuated in a clandestine manner. Rather, the conveyance was recorded in accordance with the laws of the State of New York . However, the deposition testimony of the parents and the deed recording the transfer support the conclusion that there was no tangible consideration given. The following deposition testimony of Nicholas J. Alfano is telling:

Q. First, what did your children pay for the house, if anything? A. I don't believe there was any payment.

(N.J. Alfano's Dep. at 29.) Nor was the transfer payment for an antecedent debt.

Q. Did your son or your--did you or your wife owe your son or daughter money at the time of the transfer? A. No. Q. Was there anything that they gave you of any value in exchange for this transfer; that is, the transfer of the house to your kids? A. I don't remember. I don't remember. Q. Would you look at Exhibit 1? At the top left is says "zero consideration." Do you see that? A. Yes. Q. And a little bit lower, in the middle it says "witnesseth that the party for the first part, in consideration of $ 10 and other valuable consideration," and goes on from there. Do you see that? A. Yes. Q. Do you have anything that would lead you to believe that anything more than zero or $ 10 was paid for that house by your children? A. I guess not. Q. Let me be clear with you. There may be a trial in this case, When we go to trial and I ask you what has been paid for the house, are you going to say "zero" or is there going to be something else? A. We just transferred the house to the children for the reasons I gave. Q. It wasn't a business deal of any sort? A. No. Q. And it wasn't a sale? A. No. Q. It was a gift? A. I guess so.

(N.J. Alfano's Dep. at 31-33.) Although the parents provided an explanation for the conveyance which does not suggest a motivation to evade tax liability, a showing of actual fraudulent intent is specifically not required by the statutory language of Section 273.

Q. Whose idea was it to transfer the property? A. Both me and my wife. Q. Why? A. We were having marriage problems and we were talking about divorce. Q. And so? A. We decided to give the house to the children so that they would have a roof over their heads. We didn't want to--we didn't want it to go to court, and that is what we did.

(N.J. Alfano's Dep. at 12.) However, although the conveyance satisfied the formal legal requisites, the parents still treated the property as their own for tax purposes.

Q. Did you make the payments for real estate taxes and mortgage? A. I don't remember. Q. Did your wife? A. I don't know. Q. What about for 1985? Were you living in the house? A. I don't remember--was I living in the house? Q. Right. A. I think I had come back sometime in '85. I don't remember when. Q. Were you making--were you paying the real estate taxes for the house that year, 1985? A. I don't know. I don't remember. I believe my son was, but I don't know. Q. What about the mortgage payments? A. I don't know if there were any. Q. I would like to show you what has been marked Exhibit Number 5. At the top of the form it says "1040 U.S. Individual Tax Return, 1984," and has the names Nicholas and Rita Alfano. Do you see that? A. Yes. Q. Is this your 1984 tax return? A. Yes. Q. Did you own any real estate in 1984? A. No. Q. Do you see where it says "real estate taxes"? A. Yes. Q. It says that $ 1,442 were paid in real estate taxes in 1984. Do you see that? A. Yes. Q. Is that the amount of real estate tax that you paid for that year? A. I don't remember. Q. Could you look at line 11. . . . It says $ 672 in home mortgage interest was paid that year. Do you see that? A. Yes. Q. Did you pay that amount for home mortgage? A. I don't know. I don't remember. Q. Was there any other home mortgage that you might have been paying in 1984 other than the house on Alden Lane ? A. No. Q. Was there any other property you would be paying real estate taxes on in 1984 other than the house on Alden Lane ? A. No. Q. So when you filed this tax return, you honestly thought that you paid a home mortgage interest of $ 672 and real estate taxes of $ 1,442?

A. I don't know. I guess so. I don't know.

(N.J. Alfano's Dep. at 36-40.) A similar inquiry pertaining to his 1985 tax return took place, culminating in the following inquiry: you see where it says that you paid $ 1,542 in real estate taxes? A. Yes. Q. Do you know what property that was on? A. 11 Alden Lane , I guess. Q. The house that you transferred to your children? A. Yes. to financial institutions, it says $ 657. Do you see that? A. Yes. Q. For which home was that interest paid? A. On the 11 Alden Lane .

(N.J. Alfano's Dep. at 41.) The parents testified that they paid rent to the transferees, Defendants herein, who paid all of the bills including the underlying mortgage and real estate taxes, however, this was done in an informal manner.

Q. Did your son formally take on the mortgage of the house after the transfer? A. What do you mean formally? Q. Did you sign any papers so that you were off the mortgage and he was on it? A. No. Q. Other than fill out a deed, which we showed you earlier as Exhibit 1, were there any other documents created in connection with the transfer of the house to your children? A. No. Q. So there is nothing that would show that your children took on the mortgage on 11 Alden Lane . A. No. Q. Did your children assume the mortgage? A. You mean legally? Q. Yes. A. No.

(N.J. Alfano's Dep. at 44-45.) Assumption of mortgage debt may constitute fair consideration, where, for example, the debt assumed nearly approaches the relative value of the property, See McCombs [94-2 USTC ¶50,363], 30 F.3d at 326, or where the conveyance satisfied an antecedent debt. See In re Fair, 142 B.R. 628, 631 (Bankr. E.D.N.Y. 1992) (although the deed indicated that the property was conveyed for "no consideration," the prior divorce decree indicated that the wife agreed to make no claim for maintenance in consideration of her husband signing over his interest in the property to their daughter, and this amounted to fair consideration). However, where the property was taken subject to the mortgage, or where transferors received nothing for their equity, fair consideration was not given. See, e.g., McCombs [94-2 USTC ¶50,363], 30 F.3d at 327 (vacating district court's decision, in part, because purchasers did assume mortgage and did not just take property subject to the mortgage); In re Davis, 169 B.R. 285, 300 (E.D.N.Y. 1994) (finding a fraudulent conveyance because debtors received nothing for their equity in the house and therefore did not receive fair consideration, notwithstanding fact that mortgage and mortgage arrears were paid off).

In the instant action, the evidence supports a singular conclusion; the property was not transferred for fair consideration. A conservative estimate of the value of the property at the time of the conveyance was approximately $ 50,000.00. The IRS and Nicholas J. Alfano so estimated. (Pl.'s 56. 1 P 15.) The Defendants made application for a loan approximately two years later and valued the property at $ 140,000.00. (Pl.'s 56. 1 P 15.) The pre-existing mortgage had a face value of $ 15,000.00, and an outstanding balance of $ 9,100.00 at the time of the aforementioned loan application, and the Defendants did not assume the mortgage. (Pl.'s 56. 1 P 15.)

Although some courts have considered the issue of fair consideration inappropriate for summary adjudication, see United States v. Sitka [94-1 USTC ¶50,283], 1994 U.S. Dist. LEXIS 7690, No. 2:90CV00268, 1994 WL 389473, at *6, 7 (D. Conn. 1994), it is an available remedy, readily employed. See, e.g., Snyder, 1995 WL 724529, at *12 (granting summary judgment on government's fraudulent conveyance claim); U.S. v. Bushlow [93-2 USTC ¶50,556], 832 F. Supp. 574, 581-82, (E.D.N.Y. 1993) (holding that sufficient evidence established that taxpayers' transfer of their house to their son was fraudulent under New York law, and could be set aside in an action by the United States to collect income taxes owed, where the language of the instrument of transfer indicated that the consideration was "ten dollars and other valuable consideration," and the taxpayers' joint liability exceeded $ 200,000 at the time of the transfer); United Sates v. Nirelli [97-2 USTC ¶50,751], 1997 U.S. Dist. LEXIS 15451, No. 92-CV-563C, 1997 WL 718443, at *5 (W.D.N.Y. 1997) (finding no record of release of antecedent support payments serving as consideration for transfer of residence from husband to wife and granting government's motion to set aside the conveyance).

In the instant action, Defendants' have failed to challenge the Government's fraudulent conveyance claim. As indicated above, and according to the deed, the parents conveyed the property to the Defendants for ten dollars, and although the Defendants agreed to make the monthly payments, they did not assume the existing mortgage. Additionally, the facts show that the parents were rendered insolvent by this transfer.

Accordingly, the Court holds that Defendants have presented no credible evidence to meet their burden of proving that the property was conveyed for "fair consideration" as defined under prevailing New York State law. Summary adjudication is appropriate "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Therefore, the Court finds that the transfer from Nicholas J. Alfano and Rita Alfano to Nicholas A. Alfano and Lisa Alfano of the property located at 11 Alden Lane , Centereach , New York , was a fraudulent conveyance as defined by Section 273 of the Debtor and Creditor Law of New York.

2. Fraudulent Conveyance Pursuant to Section 276

The Government also moves to set aside the transfer pursuant to Section 276 of the New York State Debtors and Creditors Law. Section 276 provides: Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder delay or defraud either present or future creditors, is fraudulent as to both present and future creditors.

N.Y. Debt.&Cred. Law §276. As explained by the Second Circuit, "unlike section 273 which creates constructive fraud by virtue of the lack of fair consideration, section 276 focuses on the "actual intent" of the transacting parties. Indeed, where actual intent to defraud creditors is proven, the conveyance will be set aside regardless of the adequacy of the consideration given." McCombs [94-2 USTC ¶50,363], 30 F.3d at 327-28. However, intent can be inferentially proven. See In re Montclair Homes, 200 B.R. 84, 97 (Bankr. E.D.N.Y. 1996) (finding that intent does not need to be shown by direct evidence, and is normally inferred from the circumstances surrounding the transfer). Still, actual intent to defraud must be proven by the party seeking to set aside the conveyance by clear and convincing evidence. McCombs [94-2 USTC ¶50,363], 30 F.3d at 328 (citing Marine Midland Bank v. Murkoff, 120 A.D.2d 122, 126, 508 N.Y.S.2d 17, 20 (2d Dep't 1986 ) & ACLI Gov't Sec. v. Rhoades, 653 F. Supp. 1388, 1394 (S.D.N.Y. 1987)).

Factors utilized by courts to circumstantially infer actual intent--which have been termed "badges of fraud"--include: (1) whether the consideration received was adequate or existent at all; (2) whether the transferee was a relative; (3) whether the debtor retained possession; and (4) whether the debtor's financial condition change after the transfer. In re Kaiser, 722 F.2d 1574, 1582-83 (2d Cir. 1983). More recently the Second Circuit noted that the " 'fraudulent nature of a conveyance may be inferred from the relationship among the parties to the transaction and the secrecy of the sale, or from inadequacy of consideration and hasty, unusual transactions.' " McCombs [94-2 USTC ¶50,363], 30 F.3d at 328 (quoting In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1041 (2d Cir. 1984)). Although a strong argument could be made to support the conclusion that these factors have been established herein, because the parents proffered a plausible non-fraudulent explanation for the conveyance--namely, to ensure that their children, the Defendants, would have a home impervious to the vagaries of divorce proceedings--their intent becomes a factual issue unsuited for summary adjudication. See United States v. Digiulio [97-2 USTC ¶50,987], 1997 U.S. Dist. LEXIS 19062, No. 95-CV-219S, 1997 WL 834820, at *11 (W.D.N.Y. 1997) (denying fraudulent conveyance claim because evidence did not convince the court that the transfer qualified as an "exception to the well-established rule that summary judgment is normally inappropriate when deciding questions of intent").

Accordingly, because Plaintiff has establish a fraudulent conveyance claim pursuant to Section 273, the Court need not decide at trial whether Plaintiff can establish a fraudulent conveyance claim pursuant to Section 276.

3. Defendants Are Not Purchasers Excepted From the Lien

Although not raised by the Government, if the Defendants are not bona fide purchasers of the subject property, they are not entitled to protection from the lien. The IRS code specifically provides that a federal tax lien "shall not be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor[s]" unless notice of that lien has been properly filed. See 26 U.S.C. §6323(a). A purchaser is defined therein as "a person who, for adequate and full consideration in money or money's worth, acquires an interest in property. . . ." See 26 U.S.C. §6323(h)(6). As described above, the evidence shows that the Defendants did not give adequate and full consideration for the property, and are therefore not entitled to statutory protection as purchasers. See United States v. O'Day [97-1 USTC ¶50,250], 1996 U.S. Dist. LEXIS 19633, No. 95-86-CIV-ORL-18, 1996 WL 814496, at *5 (M.D. Fla. 1996). In O'Day, as in the instant action, the government sought to foreclose on federal tax liens and to set aside a conveyance of real property. The taxpayer conveyed his property to his sons for no consideration and later voluntarily filed for Chapter 7 bankruptcy protection. Id. at *3. The court granted the government's summary judgment motion, holding that the federal tax liens survived bankruptcy and the sons were not purchasers under §6323(a). Id. at *5. The court also concluded that property was fraudulently conveyed. Id.

Defense counsel's failure to address the Government's tax lien and fraudulent conveyance analyses reflects either an acknowledgment of the perceived futility of Defendants' position, or abject inept advocacy, nonetheless, for all the aforementioned reasons, Plaintiff's motion for summary judgment is granted with respect to its claim pursuant to the lien theory and with respect to the fraudulent conveyance theory pursuant to Section 273.

V. PLAINTIFF'S MOTION FOR ATTORNEYS' FEES

Plaintiff also moves for attorneys fees pursuant to New York Debtor and Creditor Law §276-a, which provides in relevant part:

In an action or special proceeding brought by a creditor . . . to set aside a conveyance by a debtor, where such conveyance is found to have been made by the debtor and received by the transferee with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, in which action or special proceeding the creditor . . . shall recover judgment, the justice . . . presiding at the trial shall fix the reasonable attorney's fees of the creditor . . . in such action. N.Y. Debt.&Cred. Law §276-a. However, because the Court has found genuine issues of material fact respecting the parents intent, actual fraud cannot be established by summary adjudication, and accordingly, Plaintiff's motion for costs is hereby denied.

VI. ENFORCEMENT OF THIS ORDER

Having determined that the parents' tax liability, although personally discharged in bankruptcy, remains as a valid tax lien against the property at issue, which was fraudulently conveyed to the Defendants, the Court must determine the proper resolution of this action. Clearly, pursuant to 26 U.S.C. §7403, the Court may decree a sale of such property and distribute the proceeds in respect to the interests of the parties and the United States, however, because "financial compensation may not always be a completely adequate substitute for a roof over one's head," Rodgers [83-1 USTC ¶9374], 461 U.S. at 703, 103 S. Ct. at 2148, it would be preferable if the parties could reach an agreement resolving this action without requiring the forced sale of the property. Although Rodgers has provided guidelines for a court to consider when weighing the interests of third parties before authorizing a forced sale, id. at 709-11, [83-1 USTC ¶9374], 103 S. Ct. at 2151-52, analysis thereof is not presently necessary. Accordingly, a settlement conference will be scheduled by the Court.

CONCLUSION

Accordingly, for all the aforementioned reasons, Defendants' motion for summary judgment is denied in its entirety and Plaintiff's motion for summary judgment is granted to the extent provided in this Memorandum and Order. Plaintiff's motion for attorneys' fees is denied.

Plaintiff's enforcement of this Memorandum and Order is stayed until further instructions of the Court.

SO ORDERED.

¹ The only documents pertaining to the 1991 Chapter 13 proceeding provided to the Court were copies of the United States' Response to Debtors' Motion to Reclassify Claims of IRS and the Order Discharging Debtor After Completion of Chapter 13 Plan. (Exs. D&F of Defs.' Aff. in Support of Summ. J.)

 

 

[97-2 USTC ¶50,822] United States of America , Plaintiff v. Gerald J. Landsberger, et al., Defendants

U.S. District Court, Dist. Ariz. , CIV 94-0883-PHX-SMM, 9/30/97

[Code Sec. 6321 ]

Property subject to lien: Trusts: Nominee or alter ego: Economic realty: Sham transactions.--The IRS was entitled to foreclose on residential property that was held in a married couple's nominee or alter ego trust. The nominee or alter ego theory applied because the creation of the trust did not coincide with economic realty and the trust was, in effect, a sham. The husband admitted that the trust was set up as a shell for the purpose of keeping his property at arm's length from potential creditors, including the IRS, and the undisputed facts established that he maintained active and substantial control over the trust. Since the trust was the nominee or alter ego of the couple, the timing of its creation was irrelevant.

[Code Sec. 6323 ]

Validity of lien: Priority over third-party interests: Bona fide purchaser.--Pursuant to both federal and state ( Arizona ) law, federal tax liens on residential property took priority over any interest held by alleged bona fide purchasers who took title with full knowledge of the tax liens.

ORDER

I. INTRODUCTION

MCNAMEE, District Judge:

On September 29, 1995 , this Court entered an Order holding that the United States ' tax assessments against Defendants Gerald and Betty Landsberger for the years of 1979, 1980, 1981 and 1982 could be reduced to judgment. Additionally, the Court held that the United States could foreclose its tax liens on the Landsberger's residential property related to the assessments made against them for the years of 1979 and 1980. However, subsequent to the entry of judgment, the United States moved to enter default judgment against Defendants Nancy Fieldman and Jeffrey Fadden as trustees of the trust that held the residential property. The Court denied the motion for default judgment and order and decree of foreclosure with respect to the property, and set discovery deadlines for this action to proceed forward on the issue of foreclosure of the property.

Currently pending before this Court is Plaintiff's Renewed Motion for Summary Judgment on a different theory again seeking an Order that would allow the United States to foreclose on the tax liens arising from the 1979 and 1980 income tax assessments. ¹

II. RELEVANT FACTS

The following facts are undisputed. In October of 1961, Defendants Gerald and Betty Landsberger took title to property at 1677 West County Road F in St. Paul , Minnesota ("St. Paul Property"), and lived in the property until March of 1982. In January of 1981, the Landsbergers transferred the St. Paul property to the G. J. Landsberger Family Trust 2-372 ("Trust #2-372") for "$1.00 and other good and valuable consideration"). See Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of Gerald J. Landsberger ("Depo. G. Landsberger"), at p. 19 at ll. 2-4, p. 23 at ll. 6-23, and Exh. 2. The St. Paul property was worth in excess of $100,000 at the time of the transfer. See id. at p. 25, ll. 4-7. Gerald Landsberger was the trustee of Trust #2-372 and directed the activities of the trust. See id. at p. 24, ll. 2-4, and p. 3, ll. 6-20.

Mr. Landsberger has maintained and espoused tax protester-type beliefs since the late 1970's. See id. at p. 20, ll. 1-15, p. 21, ll. 7-21, p. 22, ll. 8-17, p. 52, ll. 1-7, p. 53, ll. 7-23, and Exhs. 13-15; see also United States v. Gerald Landsberger [82-1 USTC ¶9171], 534 F.Supp. 142 (D. Minn. 1981). Mr. Landsberger had many trusts set up in 1977, the purpose of which was to keep himself an "arms length" from any transaction related to the subjects of the trust, in order to protect the properties from potential creditors including the IRS. See Depo. of G. Landsberger, at p. 49, l. 9-p. 51, l. 25. Mr. Landsberger did not at that time have any tax deficiency assessments against him. See id. at p. 51, ll. 1-2.

Shortly after the transfer of the St. Paul property to Trust #2-372, the trust sold the property to an unrelated third party for a cash down payment of approximately $37,000, plus monthly payments and assumption of the mortgage. See id. at p. 29, ll. 23-25, p.30, ll. 1-20, and Exh. 3. After the sale of the property, the proceeds and all future payments for the property were transferred to Gerald Landsberger Investments, a Trust under Trust #2-988 (Trust #2-988), with the beneficiary being Constitutional Trust #1-988. Second Declaration of Gerald J. Landsberger ("Sec. Decl. G. Landsberger"), at ¶4; see also, Depo. G. Landsberger, at p. 30, ll.21-25, p. 31, ll. 1-25, p. 32 ll. 1-25, and p. 34, ll. 6-18. Mr. Landsberger was also the trustee of Trust #2-988, and directed the trust's activities. See id. at p. 32, ll. 12-14, p. 33, ll. 21-25, p. 34, ll. 1-2 and 19-25, and p. 35, ll. 1-4.

Sometime in 1981 or 1982, Trust #2-988 used the proceeds of the sale of the St. Paul property to purchase the residential real property at 4502 Cortez in Phoenix Arizona , also referred to as Lot No. 127, Village Fairways ("Cortez property"). See id. at p. 34, ll. 6-18, and Exh. 4. The Landsbergers resided at the Cortez property. See id. at p. 6, ll. 10-21; Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of Nancy (Landsberger) Fieldman ("Depo. N. Fieldman"), at p. 6, ll. 11-24.

On or around November 21, 1984 , Mr. Landsberger received a Notice of Deficiency from the IRS pertaining to the tax years of 1979 and 1980. See Depo. G. Landsberger, at p. 16, ll. 13-25, p. 17, ll. 1-17, and Exhs. 14 & 15. On January 4, 1985 , Trust #2-988 transferred the Cortez property to Esther, a Trust under Trust #2-1703 (the "Esther trust"). See id. at p. 37, ll. 1-10, and Exh. 17; Sec. Decl. of G. Landsberger, at ¶5.

Nancy Fieldman, the Landsberger's daughter, and Jeffrey Fadden were co-trustees of the Esther trust. Depo. G. Landsberger, at p. 38, ll. 5-7. Fieldman never had a communication with Fadden, and knew of him only by her father's mention of him. See Depo. N. Fieldman, at p. 12, ll. 1-10. Fieldman became a co-trustee of the Esther trust at the behest of her father. See id. at p. 10, ll. 10-25.

In July of 1985, Fieldman signed a "Joint Tenancy Deed" as trustee of the Esther trust conveying the Cortez property to an unrelated third party. In June of 1986, the Esther trust used the proceeds of the Cortez property sale to purchase the residential real property located at 11815 North 91st Place , Scottsdale , Arizona (" 91st Place "). Sec. Decl. G. Landsberger, at ¶6; see also, Depo. N. Fieldman, at p. 17, ll. 23-25, p. 18, ll. 1-11, and Exh. 5. The Landsbergers then moved into the 91st Place property where they continue to reside today. See Sec. Decl. G. Landsberger, at ¶5; Depo. G. Landsberger, at p. 5, ll. 18-25, p. 6, ll. 1-2.

The Landsbergers do not pay rent to live on the 91st Place property. See Depo. G. Landsberger, at p. 56, ll. 21-23; Depo. J. Wilde, at p. 55, ll. 2-25, and p. 56, ll. 18-24. The Landsbergers pay all the utilities and maintenance costs of the property as they did with the Cortez property. See Depo. G. Landsberger, at p. 56, ll. 24-25, and p. 57, ll. 1-10; Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of John Wilde ("Depo. J. Wilde"), at p. 56, ll. 1-20.

On June 16, 1988 , Nancy Fieldman signed her resignation as trustee of the Esther trust. See Depo. N. Fieldman, at p. 29, ll. 2-10, and Exh. 27. She was replaced by Jimmy C. Chisum. Sec. Decl. G. Landsberger, at ¶9.

On September 29, 1988 , the Arizona Tax Court upheld the deficiency determination for the tax years of 1979 and 1980, and found Betty and Gerald Landsberger liable for deficiencies of $13,554.00 for the taxable year of 1979 and $55,631.00 for the taxable year of 1980, with a fraud addition of $34,593.00. See Court's Order of Sept. 29, 1995 , at p. 3. On February 13, 1989 , the IRS assessed Gerald and Betty Landsberger's deficiency for 1979 and 1980, plus interest, and sent a demand for payment to the Landsbergers. Id.

In November of 1995, the title to the 91st Place property was transferred to John Wilde and Eileen Lipari for "ten dollars and other valuable considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. John Wilde is a "very good friend" of Mr. Landsberger who also assists Mr. Landsberger in this litigation although he is not a lawyer. See Depo. J. Wilde, at p. 13, ll. 17-25, and p. 14, ll. 1-13. Mr. Wilde decided that the property should be transferred to him, and his friend Eileen Lipari, as a litigation tactic to so that they could join in this action as defendants and proceed pro se as the owners of the property. See id. at p. 59, l. 9-p. 60, l. 18. At the time of the transfer the property was worth in excess of $100,000. See id. J. Wilde, at p. 65, ll. 12-18.

Around October of 1995, the Arizona Tax Court ordered Mr. Landsberger incarcerated for failure to comply with the court's order compelling him to comply with a subpoena for tax records. Declaration of James A. Susa ("Susa Decl."), at ¶3. In an attempt to comply with the subpoena and to have him released from jail, in December of 1995, Mr. Landsberger's attorney submitted a document to James M. Susa, an Assistant Attorney General for the State of Arizona . Id. at ¶4. The document, signed under penalty of perjury on, lists the 91st Place property under Real Estate assets of Mr. Landsberger, and states that he is the one half owner of the property. See id., Exh. A. ²

III. STANDARD OF REVIEW

A court must construe a pro se litigant's pleadings and papers liberally. McGuckin v. Smith, 974 F.2d 1050, 1055 (9th Cir. 1992). Nevertheless, a pro se litigant is held to the same legal standard in determining whether summary judgment should be granted. See King v. Atiyeh, 814 F.2d 565, 567 (9th Cir. 1987). Where a motion to dismiss contains matters outside the pleadings, a court must construe the motion as a motion for summary judgment and give the parties "reasonable opportunity" to present all material pertinent to a motion for summary judgment. Fed. R. Civ. P. 12(b) (1995).

A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) (1995); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see also Jesinger, 24 F.3d at 1130. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.; see also Jesinger, 24 F.3d at 1130.

A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not disprove matters on which the opponent has the burden of proof at trial. Celotex, 477 U.S. at 317. The party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995).

IV. DISCUSSION

Plaintiffs are attempting to foreclose on the tax lien on the 91st Place property for the tax assessments made on Defendants for the tax years of 1979 and 1980 reduced to judgment on February 13, 1989 . Section 6321 of Title 26 of the United States Code reads:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real of personal, belonging to such person.

26 U.S.C. §6321. Defendants in this action allege that the 91st Place property belonged to another since before the time of the assessment through today, and that accordingly, the government cannot foreclose on the lien on the property.

The United States seeks to foreclose on the tax lien on the 91st Place property under three alternative theories. The government first argues that the Esther Trust was the nominee of the Landsbergers who held equitable title to the property on the date that the tax assessments were made. Accordingly, under 26 U.S.C. §6321, the government may foreclose on the property. Alternatively, Plaintiff argues that the transfer of the Cortez property from Trust #2-998 was fraudulent, and should be set aside under the Arizona Uniform Fraudulent Transfer Act, A.R.S. §44-1001, et seq. Finally, Plaintiff argues that any interest held in the property by John Wilde and Eileen Lipari is inferior to the Federal tax liens under 26 U.S.C. §6323(a) and Arizona property law.

Defendant makes three counter arguments. First, Defendant argues that Plaintiff impermissibly amends its Complaint in this action without leave of Court by including its claim under the Arizona Fraudulent Transfer Act. Secondly, Plaintiff argues that under Arizona law the "nominee/alter ego theory" can only arise against a corporation. In any event, the theory is not available where the transfer took place before the tax assessment. Finally, Plaintiff argues that assuming arguendo that either the nominee/alter ego theory or the fraudulent transfer theory can be raised, genuine issues of material fact exist precluding summary judgment.

A. Nominee/Alter Ego Theory

The "nominee/alter" ego theory is clearly viable in this instance even though the assets are held by a trust, and not a corporation. See e.g., F.P.P. Enterprises and D & S Trust v. United States [87-2 USTC ¶9536], 830 F.2d 114 (8th Cir. 1987); Neely v. United States [85-2 USTC ¶9791], 775 F.2d 1092 (9th Cir. 1985). The underlying principle is the "sham" nature of the arrangement. See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117 ("A transaction will not be given effect according to its form if that form does not coincide with the economic reality and is, in effect, a sham."); Neely [85-2 USTC ¶9791], 775 F.2d at 1094 (sham transaction will not be recognized for tax purposes).

In addition, there is no requisite that the nominee/alter ego arrangement come into existence after the assessment of the tax liability. If the Court finds that the Esther trust was the alter ego of the Defendant existing at the time of the assessment simply to avoid creditors, then the timing of its creation has no import. See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627 (1977) (under §6321 assets of alter ego are properly levied as assets to satisfy tax liability of tax payer) (F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 118 (property held by alter ego trusts not held by "separate persons" apart from taxpayer, and therefore, my be levied). The timing of the trust arrangement, may however, be a factor for the Court to consider in determining whether the trust is actually a nominee or alter ego.

"Property held in the name of an entity which is the alter ego of the taxpayer may be levied on to satisfy the tax liabilities of the taxpayer." F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.3d at 118; See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627-28 (1977); Shades Ridge Holding Co, Inc. v. United States [89-2 USTC ¶9472], 888 F.2d 725, 728 (11th Cir. 1989). The Court may find that an entity is the alter ego of the taxpayer where:

(1) the taxpayer treats the property as it belongs to him, See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116, Shades Ridge Holding Co., Inc. [89-2 USTC ¶9472], 888 F.2d at 729;

(2) minimal or no consideration is paid by the entity in consideration for the property, see e.g., F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116;

(3) the taxpayer has expressed the intent to shelter the asset via the trust mechanisms, see, F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116,

(4) the taxpayer maintains "active" or "substantial" control over the operations and decisions of the property, see Valley Finance, Inc. v. United States [80-2 USTC ¶9554], 629 F.2d 162, 172 (1980), Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 728 (11th Cir. 1989);

(5) a family or close relationship exists between the taxpayer and the holding entity, see Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 729.

There is substantial evidence in this action that the Esther trust, as well as the many other Landsberger trusts, existed as the alter ego or nominee of Mr. Landsberger. He specifically states that the trusts were set up as "shells" for the purpose of keeping his property at an "arms length" to shelter them from potential creditors including the IRS. Nor has he attempted to argue any other reason for the existence of his trusts. Under these facts alone it is difficult to see how any court could find a question of fact with respect to the alter ego/nominee status of the Landsbergers' trusts.

Further, the Landsbergers continued to treat the property as their own at all times. See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117. Despite living in the 91st Place property for over 10 years, they never paid rent, and they paid all the utilities, upkeep, and maintenance costs of the property. See Depo. G. Landsberger, at p. 56.

The main issue Defendants raise as a genuine issue of material fact is in relation to the contradicting testimony of Mr. Landsberger and his daughter, Nancy Fieldman, regarding her role as a trustee. Fieldman testifies that she became trustee at the request of her father, that she felt obligated to do so because she was living in their home, that she believed he chose her because she was family which allowed him to maintain control over the trust. Mr. Landsberger does not dispute any of these facts.

However, in addition, Fieldman testified that she performed no duties as trustee other than signing her name as trustee wherever and whenever her father requested, that she never had control over the trust or made any decisions regarding the transactions of the trust, that her father made all decisions regarding the trust including the decision to sell the Cortez property and purchase the 91st Place property. See Depo. Fieldman, at p. 12, ll. 11-18, pp. 13-15, pp. 17-25. She testifies that she never had any checks for the Trust account, and that she never saw nor had control over the $100,000 used by the trust as a downpayment on the 91st Place property. Id. at 23-25. Additionally, she testifies that Mr. Landsberger signed her signature on at least two documents conducting trust business without her knowledge or permission. See Depo. p. 27, ll. 23-25; p. 28, ll. 11-17; Exhs. 24 & 25.

Mr. Landsberger admits that he signed his daughter's signature on several occasions, but testifies that he did so to help her out and with her permission. He testifies that because she was inexperienced in her knowledge and duties as trustee, that she relied heavily on his advise and guidance as she carried out her duties. He also testifies that he drafted the majority of the trust documents in the record. Ultimately, however, Mr. Landsberger states that his daughter had control over the trust and could do whatever she wanted. Depo. G. Landsberger, at p. 43.

With respect to the Cortez property, Mr. Landsberger testifies that he had nothing to do with the transfer of the property, and that Mr. Fadden and his daughter, as co-trustees handled the transfer. The deed transferring the Cortez property to the third party, however, bears only the signature of Nancy Landsberger (Fieldman). Mrs. Fieldman testifies that she never had a conversation with Mr. Fadden. Plaintiff provides no evidence to support Mr. Fadden's involvement or otherwise controvert Mrs. Fieldman's statements that she never spoke with Mr. Fadden. From the evidence, the Court must conclude the no reasonable jury could find that Mr. Fadden was involved in the transaction where the relevant trust transaction documents bear only the signature of Nancy Landsberger as co-trustee, and avers that she never had a conversation with Mr. Fadden.

Nonetheless, accepting as true Mr. Landsberger's testimony, the remaining undisputed facts show that he maintained active and substantial control over the trust through his involvement. Moreover, the degree of control Mr. Landsberger maintained is not dispositive. There are a multitude of undisputed facts in this litigation supporting the conclusion that the Esther trust, and others, were alter egos of Mr. Landsberger. Mr. Landsberger's own admission as to his purpose and intent for creating and operating the trust is the most probative of all. Nowhere does Mr. Landsberger provide controverting evidence establishing any legitimate purpose for the trust. Accordingly, Plaintiff is entitled to summary judgment in its favor on the theory that the Esther trust was a mere nominee/alter ego of the Landsbergers at the time the tax was assessed in February of 1989.

B. John Wilde and Eileen Lipari's Interest

The Internal Revenue Code provides that a federal tax lien takes priority over an interest held by an alleged bonafide purchaser when the purchaser acquired the property with notice of the lien. 26 U.S.C. §6323(a). Arizona law on judgments is consistent with this principle. See Warren v. Whithall Income Fund, 823 P.2d 689 (Ariz. App. 1991); Hatch Companies contracting Inc. v. Arizona Bank, 826 P.2d 1179 (Ariz. App. 1991).

The property was conveyed to Wilde and Lipari for "ten dollars and other valuable considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. It is undisputed that Mr. Wilde and Ms. Lipari took title to the 91st Place property with full knowledge that the property was subject to the federal tax liens. See Depo. J. Wilde, at p. 59, l. 9-p. 60, l. 18. Accordingly, any interest these third parties may have in the property is clearly subordinate.

V. CONCLUSION

There is no genuine issue of material fact in dispute that precludes summary judgment in Plaintiff's favor on the issue of the trust functioning as the alter ego or nominee of Gerald Landsberger. In addition, there is no dispute that any interest in the 91st Place property the current title holders may have is subordinate to the federal tax liens. ³ Accordingly, Plaintiff is entitled summary judgment as a matter of law, and may foreclose on the 91st Place property accordingly. For the foregoing reasons,

IT IS THEREFORE ORDERED Defendant's Renewed Motion for Summary Judgment filed on September 3, 1996 is GRANTED. [doc. #106].

IT IS FURTHER ORDERED the United States shall lodge and serve a copy upon all Defendants, a Proposed Order and Decree of Foreclosure pursuant to 28 U.S.C. §2001 no later than October 31, 1997.

IT IS FURTHER ORDERED the Clerk of the Court shall MAIL copies of the Order to each Defendant and to all counsel of record.

¹ This motion was stayed pending resolution of a series of motions that may ultimately have affected its resolution. See Order of August 19, 1997 . The previous issues now resolved, the Court lifts the stay as to Defendant's renewed motion for summary judgment.

² Mr. Landsberger disputes the accuracy of this document on the grounds that the information was provided by his wife, and that she does not understand how the Trusts operate. See Depo. G. Landsberger, at pp. 85-88.

³ Because it is unnecessary to the resolution of this action, the Court declines to determine the remaining issues raised by the parties pleadings.

 

 

[97-2 USTC ¶50,885] Internal Revenue Service, Plaintiff v. Jack B. Larsen, Defendant. Jack B. Larsen and Adele E. Larsen, Petitioners

U.S. District Court, West. Dist. Pa. , 95-326 ERIE , 10/20/97

[Code Sec. 6323 ]

Wrongful levy action: Bona fide purchaser for value: Adequate and full consideration.--Since an individual received only nominal consideration for the transfer of real property to his wife, she did not qualify as a bona fide purchaser for value. Therefore, the IRS levy against the property to satisfy the husband's outstanding tax liability was not wrongful. Her claim that forgiveness of loans to her husband constituted adequate and full consideration was not credible as the funds were used to purchase a family vehicle, no documentation of the loans existed, and no repayment was ever made.

MEMORANDUM AND ORDER

PROCEDURAL HISTORY

MCLAUGHLIN, District Court Judge:

This is a civil action for wrongful levy on real property located at 334 West Eighth Street . Erie , Pennsylvania (hereinafter the Eighth Street property). On May 24, 1993 the Internal Revenue Service (IRS) assessed Jack B. Larsen ("Mr. Larsen") a delinquency for unpaid Federal Income taxes for the years 1987-1991. As a result of this failure, a lien arose in failure of the United States against all of his property. 26 U.S.C. §6321. The lien related back to the date of assessment. 26 U.S.C. §6322. The lien was perfected on April 29, 1994 by filing in the prothonotary's office of Erie County , Pennsylvania . On January 28, 1994 , Mr. Larsen, by quit claim deed, transferred the Eighth Street property to himself and his wife, Adele E. Larsen (Mrs. Larsen) as tenants by the entireties. Although the deed recited consideration of $1.00, the Larsens' claim that the consideration actually given was forgiveness of a debt in the amount of $15,225.00 that Mr. Larsen owed Mrs. Larsen.

When the IRS served a levy for the property on October 18, 1995 , the Larsens erroneously filed a "Petition for Rule to Show Cause Why the Court Should Not Stay Execution" in the Court of Common Pleas for Erie County . ¹ On December 7, 1997 , the United States removed the matter to this Court. Thereafter, the United States moved for summary judgment contending that Mrs. Larsen had not produced sufficient evidence to demonstrate that she paid "adequate and full consideration" for the property. By Memorandum Order dated January 17, 1997, this Court denied the Motion for Summary Judgment finding that there were material issues of fact as to whether the actual consideration for the property was forgiveness of loans totalling $15.225.00 as alleged by the Larsens.

A non-jury trial was held before this Court on March 12, 1997 . The following are the Court's Findings of Fact and Conclusions of Law.

FINDINGS OF FA