F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JAN 4 2001
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
FOR THE TENTH CIRCUIT
THOMAS H. SCOTT and LYNN D.
SCOTT, Transferees,
Petitioners - Appellants,
v. No. 99-9018
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
APPEAL FROM THE UNITED STATES TAX COURT
(T.C. No. 5245-95)
Thomas G. Hodel of Doussard Hodel & Markman, P.C., Lakewood, Colorado, for
Petitioners-Appellants.
Joel McElvain, Attorney (Ann B. Durney, Attorney, with him on the brief), Tax
Division, Department of Justice, Washington, D.C., for Respondent-Appellee.
Before LUCERO, McKAY, and MURPHY, Circuit Judges.
McKAY, Circuit Judge.
The Tax Court determined that Petitioner-Appellant Thomas H. Scott, 1 who
was a corporate executive of a now insolvent company, was liable as a transferee
of assets for unpaid income taxes and the interest that accrued since the taxes
became due. Appellant asserts that he cannot be a transferee within the meaning
of 26 U.S.C. § 6901(a)(1)(A) because he did not directly receive any assets from
the assessed company. The Tax Court rejected that argument. This appeal
followed.
Appellant was a director and officer of Mountain States Stock Transfer
Agents, Inc. (MSSTA), a corporation that conducted business as a securities
transfer agent from 1980 until 1989. In 1989, Appellant set into motion a series
of meetings that paved the way for the sale of substantially all of MSSTA’s assets
to the company’s primary competitor, American Transfer, Inc. (AST). The tax
consequences of that transaction forms the core of this dispute.
There is evidence on the record that AST was willing to pay $800,000 to
acquire the assets of MSSTA. After investigating various ways to structure the
deal and the different tax consequences, the transaction was finalized as follows.
AST purchased the assets of MSSTA for $300,000. MSSTA entered a Stock
Redemption Agreement with its primary stockholder, Mr. Carter, for that exact
Thomas H. and Lynn D. Scott were joint petitioners, but the appeal
1
concerns only the liability of Thomas H. Scott.
-2-
amount. Additionally, AST entered a consulting and non-compete agreement with
Mr. Carter entitling him to payments totaling $525,000 over the next four years.
MSSTA retained a limited number of customer accounts to cover continuing
overhead obligations, including estimated tax liabilities, and AST received an
option to purchase those accounts at a set price by a specified date.
Although Appellant and his wife owned 48% of the acquired MSSTA stock,
the formal agreements made no liquidating distributions to them, which payments
from MSSTA would have been subject to a capital gains tax. Instead, Appellant
negotiated a deal that resulted in he and his wife purchasing 21% of the stock
interest in AST for the nominal price of ten cents per share, for a total expense of
$1230. Their stock share increased to a 33% interest in AST when Appellant
agreed to forgo contributions to a profit-sharing plan and agreed to guarantee a
bank loan that AST required to finance the purchase.
Consequently, for the 1989 tax year MSSTA reported a sale of substantially
all of its assets for $300,000, and Appellant reported no liquidating distributions
from MSSTA. Appellant later redeemed the acquired AST stock and claimed a
cost basis of $749,760, although the majority of the stock had been purchased for
$1230. In 1991, the IRS audited MSSTA’s 1989 tax filing. Appellant was a party
to the audit’s Closing Agreement. Appellant joined in stipulating that MSSTA
actually realized $801,820 from the sale of assets to AST, which left an unpaid
-3-
tax liability of $164,981. Undercapitalized, MSSTA could not satisfy that
liability. The agreement further stipulated that a portion of the stock shares
Appellant and his wife received from AST actually represented consideration paid
by AST for the purchase of MSSTA’s assets. That amount was valued at
$199,652.
Title 26 U.S.C. § 6901 authorizes the Internal Revenue Service to collect
taxes from parties to whom assets were transferred. Accordingly, the
Commissioner proceeded to collect the outstanding liability from Appellant.
Although § 6901 provides a procedural mechanism whereby the IRS can assess
transferee liability, it does not define substantive liability. Rather, we rely on
applicable state law to determine whether a person is liable as a transferee of
assets. See Comm’r v. Stern, 357 U.S. 39, 42 (1958). Appellant asserts that as a
matter of law he cannot be considered a § 6901 transferee because he did not
receive any assets directly from MSSTA. In advancing this argument, he relies
primarily on the holding of Vendig v. Commissioner, 229 F.2d 93 (2d Cir. 1956).
It is undisputed that Appellant received stock shares directly from AST and
that the transaction was structured so that he received no distributions from
MSSTA. In Vendig, the Second Circuit held that a similarly situated shareholder
was not a transferee within the meaning of the revenue code, holding that where
“the vendee issues its stock directly to the shareholders, then that stock never
-4-
becomes a part of the vendor’s assets, for these assets become the property of the
vendee corporation when the vendor ceases to exist.” 229 F.2d at 96. The court
acknowledged that “this holding may allow the parties, under some circumstances,
to vary the tax consequences according to the manner in which a reorganization is
conducted, but this does not affect the amount of the tax or the availability of
property to satisfy it.” Id. at 96-97. In contrast, the structure of Appellant’s
transaction did affect the amount of tax owed, and analysis of that distinction
leads us to a different conclusion than the one reached in Vendig.
A necessary basis for the Vendig holding was that the stock exchange was
for stock shares of equal value and that the exchange was pursuant to an
agreement that was independent of the sale of company assets. See id. at 94-95.
Conversely, Appellant’s stock exchange was not extraneous but contingent on the
sale of company assets. In fact, his stock exchange constituted a portion of the
total consideration paid for those assets, thus affecting the tax consequences.
Additionally, the stocks Appellant acquired were not purchased by reference to
the stock-value of his MSSTA shares, but were instead purchased for a nominal
price of ten cents per share. This arrangement leaves room for doubt as to
whether Appellant acquired an interest of equal value. These facts distinguish
this case from Vendig.
Reviewing a different type of transaction structure, the Vendig court was
-5-
comfortable that the shareholder did not “receive, directly or indirectly, property
belonging to [vendor company].” Id. at 94. Here, in light of the stipulated
agreement wherein Appellant agrees that he received property a portion of which
represented partial consideration paid to MSSTA, we must reach the opposite
conclusion. We hold that Appellant received assets, although indirectly, from the
company that was later assessed with a tax liability. Appellant persists that in this
unique area of tax law, some case law suggests viability for the old rule of form
over substance. We reject that argument by reference to the thorough explanation
given by the tax court wherein the court distinguished the cases upon which
Appellant relies. See Scott v. Comm’r, 76 T.C.M. (CCH) 940 (1998), 1998 WL
838366 at *12-14.
The IRS’s authorization to collect taxes under § 6901(a)(1)(A) extends to
the income tax “liability, at law or in equity, of a transferee of property.” The
statute expressly includes a “distributee” of assets as a contemplated transferee.
See § 6901(h). The regulations clarify that the term distributee includes “the
shareholder of a dissolved corporation.” Treas. Reg. § 301.6901-1(b).
Appellant’s stipulation that he, a shareholder, received a portion of the
consideration paid for the purchase of MSSTA assets places him squarely within
the broad parameters of § 6901. We turn to the applicable state law to define his
substantive liability. See Stansbury v. Comm’r, 102 F.3d 1088, 1092 (10th Cir.
-6-
1996).
Colorado law includes at least three possible sources for transferee
liability: a liquidation statute, a redemption statute, and a fraudulent conveyance
statute. See Appellant’s App. at 43. In our analysis we will track the decision of
the tax court and analyze first Appellant’s liability under the fraudulent
conveyance statute. If that statue proves Appellant liable, there is no need to
analyze the additional statutes. Under Colorado law, a conveyance is fraudulent
when it is “made with the intent to hinder, delay, or defraud creditors,” in this
case the Internal Revenue Service. Colo. Rev. Stat. § 38-10-117(1). Fraudulent
intent is question of fact. See Colo. Rev. Stat. § 38-10-120. The Tax Court
concluded that the stock transfer was made “to Mr. Scott, the transferee, with the
intent to hinder, delay, or defraud the Service within the meaning of the Colorado
fraudulent conveyance statute.” Scott, 76 T.C.M. (CCH) 940, 1998 WL 838366 at
*18.
Appellant asserts that he had no intent to defraud because he did not know
that an additional tax liability might incur. While structuring the deal, Appellant
obtained multiple opinions on foreseeable tax consequences. Having reviewed
the record, we conclude that the evidence is sufficient to support the Tax Court’s
finding that, informed by those opinions and by his own corporate acumen,
Appellant knowingly chose to take a calculated risk. See id. at *16-18. The Tax
-7-
Court specifically found Appellant’s testimony not credible when he claimed to
not know that a tax liability might incur. See id. at *17.
Under Colorado law, because “[o]nly rarely will a creditor be able to
produce direct proof of a debtor’s intent,” a “trier of fact may then draw the
appropriate inference from the pattern of facts and circumstances presented.”
Yetter Well Serv., Inc. v. Cimarron Oil Co., 841 P.2d 1068, 1070 (Colo. Ct. App.
1992). Having reviewed the Tax Court’s Memorandum Findings of Fact and
Opinion, we conclude that the court’s inferences and findings are not clearly
erroneous.
Having determined that Appellant is liable under Colorado’s fraudulent
conveyance statute, the final issue is whether Appellant is liable to Respondent
under the statutory interest provision. See Colo. Rev. Stat. § 5-12-102. In
pertinent part, the provision states that a creditor shall receive interest on an
outstanding debt “[w]hen money or property has been wrongfully withheld.” § 5-
12-102(1)(a). The interest provision does not define the operative term,
wrongfully withheld, but Colorado courts construe that section broadly, stating
that the section “is to discourage a person responsible for payment of a claim to
stall and delay payment until judgment or settlement.” See Mesa Sand & Gravel
Co. v. Landfill, Inc., 776 P.2d 362, 364 (Colo. 1989) (en banc). The Tenth
Circuit has held that under Colorado law “a ‘wrongful withholding’ need not
-8-
involve actual fraud, or indeed be tortious in nature.” Stansbury, 102 F.3d at
1093. Under those broad parameters, we do not find clear error in the Tax
Court’s determination that Appellant wrongfully withheld the delinquent taxes.
We AFFIRM.
-9-