Peter J. Bresson v. Commissioner

111 T.C. No. 6

UNITED STATES TAX COURT

PETER J. BRESSON, TRANSFEREE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22824-96. Filed August 19, 1998.

In July 1990, J, a corporation, transferred to
petitioner, its sole shareholder, real property situated
in California (the Alhambra property) without receiving
a reasonably equivalent value in exchange therefor.
Immediately thereafter, petitioner sold the Alhambra
property for $329,000 to an unrelated third party.
Petitioner kept the proceeds from the sale. On Mar. 5,
1993, J filed a tax return for its fiscal year ended Feb.
28, 1991, reporting a capital gain of $194,705 from the
sale of the Alhambra property and a tax due of $49,683,
which was not paid. On Aug. 1, 1993, petitioner executed
a promissory note to J for repayment of a purported
obligation owed by petitioner to J.

On Aug. 2, 1996, respondent issued a notice of
transferee liability to petitioner as a transferee under
sec. 6901, I.R.C. Respondent determined, on the basis of
California's Uniform Fraudulent Transfer Act
(California's UFTA), that petitioner was liable for J's
 - 2 -

taxes resulting from the transfer of the Alhambra
property.

Petitioner asserts that the period of limitations
for filing fraudulent conveyance actions under
California's UFTA expired before the issuance of the
notice of transferee liability. Respondent maintains that
the Federal Government is not bound by State statutes of
limitations under the rule in United States v. Summerlin,
310 U.S. 414 (1940). Petitioner counters that the period
of limitations in California's UFTA is not a statute of
limitations, but rather is an element of the cause of
action, which provides for the complete extinguishment of
the fraudulent conveyance claim if the time limit is not
satisfied, relying on United States v. Vellalos, 780 F.
Supp. 705 (D. Haw. 1992), appeal dismissed 990 F.2d 1265
(9th Cir. 1993).

1. Held: Respondent has established that the
Alhambra property was fraudulently conveyed under
California law.

2. Held, further, respondent is not bound by the
limitations period in California's UFTA. United States
v. Summerlin, supra, applied.

3. Held, further, respondent issued petitioner a
notice of transferee liability within the limitations
period for assessments prescribed by sec. 6901(c), I.R.C.

Willard D. Horwich, for petitioner.

Robert H. Schorman, Jr., for respondent.

JACOBS, Judge: By means of a notice of transferee liability

dated August 2, 1996, respondent determined that petitioner is

liable under section 6901 as a transferee of property from Jaussaud

Enterprises, Inc. (hereinafter referred to as Jaussaud Enterprises

or the corporation), for unpaid Federal corporate income taxes and
 - 3 -

additions to tax due from Jaussaud Enterprises, as follows:

Additions to Tax
Year Ended Income Tax Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
2/28/91 $41,965 $9,803 $10,716 $2,487

Unless indicated otherwise, all section references are to the

Internal Revenue Code for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

The disputed transferee liability arises as a result of the

conveyance of certain real property from Jaussaud Enterprises to

petitioner during 1990. We must herein decide whether petitioner

is liable as a transferee under section 6901 as a result of that

conveyance. In resolving this issue, we must decide whether by

virtue of section 3439.09 of the California Civil Code (West 1997)

the period of limitations for assessing transferee liability

against petitioner expired before respondent's issuance of the

notice of transferee liability. Subsumed in this latter issue is

the question of whether the Commissioner is bound by a State

limitations period when relying on State law to collect unpaid

taxes.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The

stipulations of facts and the attached exhibits are incorporated

herein by this reference.

At the time the petition was filed, petitioner resided in Los

Angeles, California. Petitioner is unmarried. He filed his tax
 - 4 -

returns on a calendar year basis.

Jaussaud Enterprises

Jaussaud Enterprises is a California corporation with a fiscal

year ending February 28. At all relevant times, petitioner was the

sole shareholder and sole officer of Jaussaud Enterprises.

Jaussaud Enterprises operated an equipment leasing business,

providing trash cans and containers for the rubbish pickup

industry. The corporation's principal customer was PJB, a

corporation all the stock of which was owned by petitioner and his

mother (who died in 1988, leaving petitioner as the sole

shareholder of PJB). By 1991, Jaussaud Enterprises' business

activity was minimal.

Transfer of Real Property

Jaussaud Enterprises was the owner of improved real property

located at 905 N. Hidalgo Avenue, Alhambra, California (the

Alhambra property). Located on the Alhambra property was a house

in which petitioner resided.

Petitioner decided to sell the Alhambra property. A potential

buyer of the Alhambra property was found, and on June 11, 1990,

petitioner, on behalf of Jaussaud Enterprises, executed escrow

instructions at Atla Escrow Corp. (Atla Escrow) pursuant to which

the Alhambra property was to be sold for $329,000 to Ming Eo

Jessica Sung, an unrelated third party. The escrow instructions

were amended on June 12 and 20, 1990, to account for various
 - 5 -

details and contingencies relating to the anticipated sale. On

July 5, 1990, the escrow instructions were again amended to change

the identification of the seller to "PETER J. BRESSON, an unmarried

man".

On July 5, 1990, Jaussaud Enterprises executed a grant deed

conveying the Alhambra property to petitioner.1 On the same date

petitioner executed a grant deed conveying the Alhambra property to

Ms. Sung.

On July 25, 1990, Atla Escrow sent petitioner a closing

statement with regard to the sale of the Alhambra property,

together with a check in the amount of $266,680.44, representing

the net proceeds due the seller. Petitioner kept the $266,680.44.

The closing statement indicated that $38,900 had been

transferred by wire to "Western Pacific Escrow #16848".2 The

balance of the consideration paid by Ms. Sung was disbursed for a

realtor's commission, taxes, escrow fees, and other expenses

related to the sale of the Alhambra property.

1
The deed reported no transfer tax due, and stated:
"This conveyance changes the manner in which title is held,
grantor(s) (Corporation) and Grantee(s) remain the same and
continue to hold the same proportionate interest, R & T 11911."
Pursuant to California law, no transfer tax is due
where the consideration exchanged is $100 or less. Cal. Rev. &
Tax. Code sec. 11911 (West 1994).
2
The record is void of any explanation for the wire
transfer or the purpose of the Western Pacific escrow account.
 - 6 -

Reporting Sale of Alhambra Property

On its U.S. Corporation Income Tax Return, Form 1120, for tax

year ended February 28, 1991, filed on March 5, 1993, Jaussaud

Enterprises reported a capital gain of $194,7053 from the sale of

the Alhambra property. Jaussaud Enterprises also reported gross

receipts of $1,210, which resulted in a reported Federal income tax

liability of $49,683 for the tax year ended February 28, 1991,

which was not paid. The return was signed by petitioner, as

corporate president.

Petitioner did not report any gain from the sale of the

Alhambra property on his U.S. Individual Income Tax Return, Form

1040, for any year.

Promissory Note

At an undisclosed time following the sale of the Alhambra

property, petitioner sought professional advice with respect to the

tax consequences of Jaussaud Enterprises' transfer of the Alhambra

property to him and the subsequent sale of that property. On July

15, 1993, petitioner, as president of Jaussaud Enterprises, called

a special meeting of the board of directors (which consisted solely

of himself) and determined that he owed the corporation $125,000.

(The record is void of any explanation as to how the amount of

petitioner's debt to Jaussaud Enterprises was determined to be

3
The gain on the sale of the Alhambra property was
calculated as follows: $329,000 (gross proceeds) + $28,130
(depreciation previously allowed) - $162,425 (basis) = $194,705.
 - 7 -

$125,000.) To repay this debt, petitioner agreed to execute a note

providing for monthly installments of $798.32 each for 30 years,

with interest at 6.6 percent per annum.4 On August 1, 1993,

petitioner executed such a note. Beginning August 4, 1993, and

continuing through September 11, 1996, petitioner made the required

monthly payments to Jaussaud Enterprises. After September 1996,

petitioner made no further payments on the note.

Internal Revenue Service Actions

The Internal Revenue Service (IRS) sent several billing

notices to Jaussaud Enterprises. These notices mistakenly listed

the tax period involved as the year ended February 29, 1992. On

July 25, 1994, the IRS recorded in Los Angeles County a Notice of

Federal Tax Lien for Jaussaud Enterprises. The Notice of Federal

Tax Lien listed $117.73 as being owed for employment taxes for the

tax year ended December 31, 1993, and $79,207.53 as being owed for

corporation income taxes for the tax year ended February 28, 1992.5

William Ryland, an IRS revenue officer, was assigned to

4
The corporation adopted a resolution at the July 15,
1993, meeting which stated:

RESOLVED, that the corporation shall accept a
promissory note from Peter J. Bresson, payable $798.32
a month, the first payment to be made on August 1,
1993, and said note to continue for 30 years at an
interest rate of 6.6%.

5
The corporation made a payment of $1,603.76 on Aug. 24,
1993, and received a credit against its assessment.
 - 8 -

collect the taxes owed by Jaussaud Enterprises. He attempted to

locate assets of Jaussaud Enterprises, but his efforts proved

unsuccessful. At an undisclosed time, a representative of Jaussaud

Enterprises, presumably Willard D. Horwich (petitioner's counsel),

offered to satisfy the corporation's tax liability by way of a

"long-term" installment plan. Revenue Officer Ryland rejected the

proposed arrangement because the period of limitations to collect

the delinquent taxes would have expired prior to full collection

under the proposed plan. Ultimately, in a Report of Investigation

of Transferee Liability dated September 21, 1994, Revenue Officer

Ryland recommended that the IRS seek to collect the delinquent

taxes from petitioner as a transferee.

No notice of deficiency was issued to Jaussaud Enterprises for

the tax year ended February 28, 1991, but an assessment was made

against Jaussaud Enterprises for that year on February 28, 1996.

Respondent sent a notice of transferee liability to petitioner

dated August 2, 1996, determining that he was liable as a

transferee of the Alhambra property for Jaussaud Enterprises' tax

year ended February 28, 1991.

In October 1996, the collection file was assigned to Revenue

Officer Donald Dinsmore. He searched for assets which the IRS

could levy against. He checked IRS internal sources for financial

and other information concerning Jaussaud Enterprises; he also

searched Department of Motor Vehicles and real property records.
 - 9 -

He found no assets which could be used to collect the tax

liabilities from Jaussaud Enterprises.

On November 13, 1996, the IRS issued a final demand letter

which was received and signed for (but not responded to) by

Jaussaud Enterprises.

OPINION

Evidentiary Matters

Preliminarily, we address various evidentiary matters.

At trial, petitioner contended that respondent assessed taxes

against Jaussaud Enterprises for the wrong year. Respondent's

witness, Vicki McIntire, credibly testified about the error, which

occurred as a result of the filing of corporate income tax returns

for fiscal years ended February 28, 1991, and February 29, 1992, at

approximately the same time in 1993, and the subsequent correction

of the error by respondent. In that vein, petitioner objected to,

as hearsay, the admission into evidence of Exhibit AA, Summary

Record of Assessments, and Exhibit BB, Certificate of Assessments

and Payments, to prove the existence of Jaussaud Enterprises' tax

liability.

Rule 803 of the Federal Rules of Evidence provides numerous

exceptions to the hearsay rule. As pertinent herein, rule 803(8)

provides an exception for:

(8) Public records and reports.--Records, reports,
statements, or data compilations, in any form, of public
offices or agencies, setting forth (A) the activities of
the office or agency, or (B) matters observed pursuant to
 - 10 -

duty imposed by law as to which matters there was a duty
to report * * * unless the sources of information or
other circumstances indicate lack of trustworthiness.

Exhibits AA and BB are both public records or reports prepared by

respondent pursuant to a duty imposed by law.

Exhibit AA does not indicate the taxpayer's name. Thus, we

conclude that this document lacks trustworthiness. Consequently,

we sustain petitioner's objection to Exhibit AA.

Exhibit BB reflects that an audit deficiency assessment of

$43,569 was made for the year ended February 28, 1991, and a

reported tax return assessment of $49,683 was made for the year

ended February 29, 1992--which was later abated because no tax was

owing for that year. The record contains no explanation as to why

an audit deficiency assessment was made (nor the basis for it) for

the year ended February 28, 1991, or as to why a tax return

assessment (of $49,683) was not made for that same year.

Petitioner contends on brief that without the admission of Exhibits

AA and BB, there is no evidence to demonstrate an existing

liability in the form of an assessment against Jaussaud

Enterprises--and thus respondent can not establish that the

transferor owes taxes for which petitioner may be liable as a

transferee. Petitioner also asserts that even if Exhibit BB is

admitted, the audit deficiency assessment for the year ended

February 28, 1991, was improper under section 6213 because no

notice of deficiency for that year was issued to the transferor.
 - 11 -

Exhibit BB, which was certified as true and to which

respondent's witness credibly testified, shows an assessment

against Jaussaud Enterprises for the year ended February 28, 1991.

We find the information in the document accurately reflects the

existence of a tax liability owed by Jaussaud Enterprises.

Accordingly, we overrule petitioner's objection to the admission of

Exhibit BB. Further, respondent's failure to issue a notice of

deficiency against Jaussaud Enterprises is immaterial. A notice of

deficiency need not be issued in order for the Commissioner to

assess a taxpayer for a reported tax liability on a tax return.

See sec. 6201(a)(1). Moreover, the Commissioner is not required to

issue a notice of deficiency or to make an assessment against the

transferor where efforts to collect delinquent taxes from a

transferor would be futile. Gumm v. Commissioner, 93 T.C. 475, 484

(1989), affd. without published opinion 933 F.2d 1014 (9th Cir.

1991), and cases cited therein; see also O'Neal v. Commissioner,

102 T.C. 666, 675-676 (1994). In this regard, respondent presented

two witnesses, both IRS revenue officers, who credibly testified as

to their searches for assets owned by the corporation and their

inability to find any such assets or any evidence of the

corporation's capacity to pay the taxes owed. Consequently,

whether an audit deficiency (or tax return) assessment was made

against Jaussaud Enterprises is not relevant. Jaussaud

Enterprises' income tax return for the year ended February 28,
 - 12 -

1991, clearly indicates taxes owed of $49,683 (which have not been

paid except for a $1,603.76 payment made on August 24, 1993).

Thus, respondent has established the existence of a liability owing

by Jaussaud Enterprises for which petitioner may be held liable as

a transferee. See sec. 6901(b) (providing that transferee

liability may relate either to the amount shown on a tax return or

to any deficiency).

Finally, petitioner objected to the admission of Exhibit HH,

a letter from Willard D. Horwich, petitioner's counsel, to James

Canny, petitioner's accountant. Petitioner claims that the letter

is inadmissible because it falls within the attorney-client

privilege. We need not decide whether the attorney-client

privilege is applicable (and we did not consider Exhibit HH)

because the admission, or exclusion, of Exhibit HH is moot inasmuch

as we hold petitioner is liable as a transferee under section 6901

for the reasons set forth infra.

Transferee Liability

The issue for decision is whether petitioner is liable for

taxes owed by Jaussaud Enterprises as a result of the corporation's

transfer to petitioner of the Alhambra property.

Respondent suggests two bases for claiming that Jaussaud

Enterprises owes taxes as the result of the transfer of the

Alhambra property to petitioner. One is that Jaussaud Enterprises

was the seller of the Alhambra property to the unrelated third
 - 13 -

party and petitioner served merely as the straw man. The second is

that Jaussaud Enterprises made a distribution of appreciated

property to petitioner with respect to Jaussaud Enterprises stock,

in which case the corporation must recognize gain on the transfer

as if the corporation sold the property to petitioner. Sec.

311(b). We need not decide which basis applies because in either

scenario Jaussaud Enterprises would realize the same amount of

income.

Section 6901(a)(1)(A) authorizes the assessment of transferee

liability in the same manner as the taxes in respect of which the

tax liability was incurred. It does not create a new liability,

but merely provides a remedy for enforcing the existing liability

of the transferor. Coca-Cola Bottling Co. v. Commissioner, 334 F.2d

875, 877 (9th Cir. 1964), affg. 37 T.C. 1006 (1962); Mysse v.

Commissioner, 57 T.C. 680, 700-701 (1972). The Commissioner has

the burden of proving all the elements necessary to establish the

taxpayer's liability as a transferee except for proving that the

transferor was liable for the tax. Sec. 6902(a); Rule 142(d). In

the case at hand, the existence and the amount of the transferor's

tax liability have been established.

We examine State law to determine the extent of a transferee's

liability for the debts of a transferor. Commissioner v. Stern,

357 U.S. 39, 45 (1958); Hagaman v. Commissioner, 100 T.C. 180, 183-

185 (1993); Gumm v. Commissioner, supra at 479-480. Because the
 - 14 -

conveyance of the Alhambra property occurred in California, we

examine California law. See Adams v. Commissioner, 70 T.C. 373,

389 (1978), affd. in part without published opinion and dismissed

in part 688 F.2d 815 (2d Cir. 1982).

In 1986, California adopted the Uniform Fraudulent Transfer

Act (UFTA), which applies to transfers made or obligations incurred

on or after January 1, 1987. Cal. Civ. Code sec. 3439.12 (West

1997). The transfer at issue in this case--the conveyance of the

Alhambra property from Jaussaud Enterprises to petitioner--occurred

in July 1990. Thus, the UFTA applies herein.

California's UFTA contains two provisions for determining

whether a fraudulent conveyance occurred. The provision we believe

applicable in this case is section 3439.046 of the California Civil

Code (1997), which provides:

A transfer made or obligation incurred by a debtor
is fraudulent as to a creditor, whether the creditor's
claim arose before or after the transfer was made or the
obligation incurred, if the debtor made the transfer or
incurred the obligation as follows:

(a) With actual intent to hinder, delay, or defraud
any creditor of the debtor.

6
The other potentially applicable provision is Cal. Civ.
Code sec. 3439.05 (West 1997), which relates to constructive
fraud that occurs after a creditor's claim arises. Arguably,
that is not the case here because the transfer from Jaussaud
Enterprises to petitioner created respondent's claim for tax, and
that transfer occurred before respondent's claim arose. However,
we need not decide this issue because either Cal. Civ. Code sec.
3439.04(b)(1) or (2) (West 1997) provides other bases for finding
constructive fraud.
 - 15 -

(b) Without receiving a reasonably equivalent value
in exchange for the transfer or obligation, and the
debtor:

(1) Was engaged or was about to engage in a
business or a transaction for which the remaining assets
of the debtor were unreasonably small in relation to the
business or transaction; or

(2) Intended to incur, or believed or reasonably
should have believed that he or she would incur, debts
beyond his or her ability to pay as they became due.

The record is void of any evidence to support a finding that

petitioner (who entirely controlled Jaussaud Enterprises) had the

requisite intent to satisfy section 3439.04(a) of the California

Civil Code. Petitioner lacked any knowledge of taxes or the

preparation of tax returns. He relied entirely on his accountant,

James Canny, for preparing his tax returns.

In addition, it is clear that petitioner did not understand

the tax consequences of the transfer of the Alhambra property from

Jaussaud Enterprises to himself followed by the sale to the third

party. Petitioner credibly testified that he caused the transfer

of the property to himself because he was told by the title company

that the title had to be in an individual's name for the sale to be

completed. When petitioner's accountant learned of the transaction

nearly a year later, the accountant told petitioner that he might

be indebted to Jaussaud Enterprises. The accountant told

petitioner to seek further tax advice. Nearly 3 years after the

transaction, petitioner executed a promissory note in favor of

Jaussaud Enterprises, apparently to prevent the appearance of a
 - 16 -

corporate distribution or some other event that would impose tax

liability on either the corporation or petitioner.

The record, however, supports a finding that the conveyance

from Jaussaud Enterprises to petitioner satisfies the requirements

for constructive fraud under section 3439.04(b)(1) and/or (2) of

the California Civil Code. Jaussaud Enterprises did not receive

reasonably equivalent value in exchange for the transfer of the

Alhambra property to petitioner; in fact, Jaussaud Enterprises

received nothing for the property (which was sold for $329,000 in

an arm's-length transaction on the same day). Moreover, we do not

believe the note which petitioner executed in favor of Jaussaud

Enterprises represented a quid pro quo for the transfer of the

Alhambra property: (1) The promissory note was executed 3 years

after the conveyance to petitioner on the advice of a tax

professional (and the face amount of the note ($125,000) was

approximately $200,000 less than the amount realized ($329,000)

from the sale of the Alhambra property); (2) petitioner did not

understand that his receipt of the Alhambra property (or the sale

proceeds) constituted a loan from the corporation; and (3) we do

not believe the corporation ever intended to enforce the note's

terms (for example, the corporation took no legal action after

petitioner stopped making monthly payments).

On Schedule L, Balance Sheets, of the income tax return

belatedly filed by Jaussaud Enterprises for the tax year ended
 - 17 -

February 28, 1991, there were only two items listed as assets

existing as of the end of the tax year: $264 in cash and $192,3087

as "other current assets" which was identified as "note receivable-

-P. Bresson". When asked about this receivable, petitioner

testified: "I really don't know what that is." In petitioner's

initial brief, petitioner treats the purported receivable as

"consideration from Bresson back to the corporation for whatever

Bresson received, whether it be the property or whether it be the

proceeds of sale."

Schedule L also reflects that Jaussaud Enterprises had current

liabilities as of February 28, 1991, in the amount of $67,450

($49,683 as Federal tax payable and $17,767 as State tax payable)

and retained earnings of $125,122.

We believe the purported $192,308 receivable was merely

bookkeeping legerdemain. The purported receivable was created by

Mr. Canny, petitioner's accountant, long after the transfer of the

Alhambra property and without petitioner's knowledge of its

existence or import. Accordingly, we find the purported $192,308

receivable was not an asset of the corporation. Thus, the only

asset remaining after the transfer of the Alhambra property ($264

in cash) was insufficient for the corporation to pay its debts.

Consequently, we hold that respondent has established that the

7
Apparently, the $125,000 note executed on Aug. 1, 1993,
was intended to replace this $192,308 purported receivable.
 - 18 -

transfer to petitioner was in constructive fraud of creditors under

section 3439.04(b)(1) and/or (2) of the California Civil Code.

Although this holding would appear to resolve this case,

petitioner raises an issue that at first glance "seems overly

ambitious". See Bankers Life & Cas. Co. v. United States, 142 F.3d

973, 974 (7th Cir. 1998). We shall now address this issue.

Period of Limitations

Petitioner argues that even if a fraudulent conveyance is

deemed to have occurred under the UFTA, the period of limitations

for filing actions under the UFTA expired before respondent's

issuance of a notice of transferee liability. This, according to

petitioner, would preclude respondent from using section 6901 as a

remedy to collect the delinquent taxes of Jaussaud Enterprises. On

the other hand, respondent maintains that State limitations periods

may not cut short the time the Federal Government has to assess and

collect the tax liability of petitioner as a transferee under

section 6901. For the reasons set forth below, we agree with

respondent.

Section 6901(c) provides that the Commissioner may assess a

transferee for taxes owed by a transferor within 1 year after the

expiration of the period of limitations for assessment against the

transferor. In the case at bar, Jaussaud Enterprises filed its

Federal corporation income tax return for the tax year ended

February 28, 1991, on March 5, 1993. (Generally, under section
 - 19 -

6501, the period of limitations for assessments against a taxpayer

is 3 years from the filing of the tax return.) Therefore, the

period of limitations for making an assessment against Jaussaud

Enterprises expired on March 5, 1996, and the Commissioner could

assess petitioner's transferee liability at any time up to March 5,

1997. The notice of transferee liability to petitioner from

respondent was dated August 2, 1996. Thus, pursuant to section

6901(c), respondent's notice of transferee liability to petitioner

was timely.

Section 3439.09 of the California Civil Code provides:

A cause of action with respect to a fraudulent
transfer or obligation under this chapter is extinguished
* * *:

(a) Under subdivision (a) of Section 3439.04,
within four years after the transfer was made or the
obligation was incurred or, if later, within one year
after the transfer or obligation was or could reasonably
have been discovered by the claimant.

(b) Under subdivision (b) of Section 3439.04 or
Section 3439.05, within four years after the transfer was
made or the obligation was incurred.

Petitioner asserts that the UFTA limitations period applies,

rather than the limitations period under section 6901(c), and

therefore the period of limitations for assessment against

petitioner expired prior to respondent's issuance of the notice of

transferee liability to petitioner. Petitioner further claims that

even if respondent did not originally know of the transfer,

respondent obtained such knowledge by September 1994, the date of
 - 20 -

Revenue Officer Ryland's transferee liability report discussing the

conveyance. (This assumes, of course, that section 3439.04(a) of

the California Civil Code is applicable, which we have found supra

it was not.) Thus, 1 year from the date of respondent's knowledge

of the transfer would have been no later than September 1995, still

nearly 1 year short of the date of the notice of transferee

liability against petitioner. Accordingly, we are required to

determine which period of limitations, Federal or State, controls

the time for assessing transferee liability.

The Supreme Court has stated that the United States is not

bound by State statutes of limitations in enforcing its rights,

whether the action is brought in Federal or State court. United

States v. Summerlin, 310 U.S. 414, 416 (1940), and cases cited

thereat. Petitioner contends, however, that section 3439.09 of the

California Civil Code is not a statute of limitations, but rather

is an element of the cause of action which provides for the

complete extinguishment of the fraudulent conveyance claim (and

thus the transferee liability) where the time limit is not

satisfied.

Petitioner relies on United States v. Vellalos, 780 F. Supp.

705 (D. Haw. 1992), appeal dismissed 990 F.2d 1265 (9th Cir. 1993),

in arguing that California's UFTA limitations period requires an

outcome different than that in United States v. Summerlin, supra.

In Vellalos, the United States District Court for Hawaii examined
 - 21 -

Hawaii's UFTA statute, which is identical to the relevant

California statute now before us. Therein, nearly 1 year after the

limitations period expired under the Hawaii UFTA, the Federal

Government sought to foreclose on property conveyed to the

defendant. (The United States proceeded directly under the UFTA to

obtain its remedy because the limitations period under section

6901(c) for transferee liability had expired.) The United States

argued that it was not bound by the Hawaii UFTA limitations period

because of the rule in United States v. Summerlin, supra.

The court interpreted the UFTA's limitations period not as a

statute of limitations with respect to Federal transferee

liability, but rather as an element of the cause of action for

fraudulent conveyance which would be entirely extinguished if not

timely filed. In applying the UFTA's limitations period, the court

rejected the Government's argument, stating that "There is an

important distinction between cases involving the government's

common law right to collect on a debt and cases involving a

carefully delimited state statutory right." United States v.

Vellalos, supra at 707. The court distinguished the Florida

statute in Summerlin from Hawaii's UFTA on the basis that the

latter contained an extinguishment provision for a State-created

cause of action whereas the former imposed a limitations period on

an action arising out of a Federal statute (the Act of June 27,

1934, 48 Stat. 1246). The court noted the explicit intent of the
 - 22 -

drafters of the UFTA in their commentary to avoid the rule of

Summerlin through the creation of the claim extinguishment

provision:

"This section is new. Its purpose is to make clear that
lapse of the statutory periods prescribed by the section
bars the right and not merely the remedy.... The section
rejects the rule applied in the United States v.
Gleneagles Inv. Co., 565 F. Supp. 556, 583 (M.D. Pa.
1983) (state statute of limitations held not to apply to
action by United States based on Uniform Fraudulent
Conveyance Act)."

United States v. Vellalos, supra at 707 (quoting Uniform Fraudulent

Transfer Act sec. 9 (Commentary), 7A U.L.A. 665-666 (1984)). (The

same language appears in the Legislative Committee Comment of the

California Assembly in its 1986 adoption of the UFTA. Cal. Civ.

Code sec. 3439.09 (Legislative Committee Comment--Assembly).) The

court went on to find that the State had the authority to

extinguish the cause of action, referring to the 10th Amendment to

the United States Constitution. The court stated that the Federal

Government was seeking to extend Summerlin beyond its holding to

cover all State laws which could be affected by the common law

right of the Government to collect its debts. The court suggested

the Government create its own Federal fraudulent conveyance statute

with an unlimited limitations period to remedy the problem.8

8
We are mindful that as part of the Crime Control Act of
1990, Pub. L. 101-647, sec. 3611, 104 Stat. 4959, Congress
created provisions for voiding fraudulent transfers as to debts
to the United States, and established applicable limitations
periods. The effective date of the fraudulent transfer
(continued...)
 - 23 -

The decision in United States v. Vellalos, supra, has been the

subject of much discussion and has been generally rejected by other

District Courts in tax collection cases where the Government has

sought to foreclose on property transferred to third parties. See,

e.g., United States v. Cody, 961 F. Supp. 220 (S.D. Ind. 1997);

United States v. Kattar, 97-1 USTC par. 50,132 (D.N.H. 1996);

United States v. Smith, 950 F. Supp. 1394 (N.D. Ind. 1996); United

States v. Zuhone, 78 AFTR 2d 96-5106, 96-2 USTC par. 50,366 (C.D.

Ill. 1996); United States v. Hatfield, 77 AFTR 2d 96-1969, 96-2

USTC par. 50,342 (N.D. Ill. 1996); Flake v. United States, 76 AFTR

2d 95-6957, 95-2 USTC par. 50,588 (D. Ariz. 1995); Stoecklin v.

United States, 858 F. Supp. 167 (M.D. Fla. 1994). The District

Court for the Eastern District of California, however, approved the

reasoning of Vellalos in examining California's UFTA provisions,

but held for the Government on other grounds. United States v.

Wright, 76 AFTR 2d 95-7526, 96-1 USTC par. 50,005 (E.D. Cal. 1995),

affd. without published opinion 87 F.3d 1325 (9th Cir. 1996).

The Court of Appeals for the Ninth Circuit, the court to which

an appeal in this case lies, recognized the issue raised in

Vellalos, but found it did not have the occasion to address it

(although the court did conclude that the UFTA contained a claim

extinguishment provision). United States v. Bacon, 82 F.3d 822

8
(...continued)
provisions therein is subsequent to the date of the transfer
involved in the instant case.
 - 24 -

(9th Cir. 1996) (considering the UFTA as adopted by the State of

Washington). Other Courts of Appeals, however, have addressed this

issue (albeit without great elaboration) and have applied the rule

in Summerlin to actions under the UFTA or other statutory

provisions, as well as actions under common law. See United States

v. Wurdemann, 663 F.2d 50 (8th Cir. 1981); United States v. Fernon,

640 F.2d 609 (5th Cir. 1981); see also United States v. Moore, 968

F.2d 1099 (11th Cir. 1992). (The District Court in United States

v. Vellalos, supra at 708 n.3, criticized the decisions in Fernon

and Wurdemann as "an overly mechanical application of the dicta in

Summerlin without serious consideration of the significant

implications such a rule has for state sovereignty".)

The situation in Vellalos is factually distinguishable from

the situation herein. In Vellalos, the Government was unable to

invoke section 6901 because it missed the limitations period

prescribed by subsection (c). Therefore, it relied on State

foreclosure proceedings as a means for collection.9 (It is

unclear whether the District Court in Vellalos would have reached

its same conclusion had the Government proceeded timely under

section 6901.) Here, however, respondent has proceeded timely

9
In United States v. California, 507 U.S. 746, 758
(1993), the Supreme Court recognized that it is "a difficult
question" whether a State law action brought by the United States
is subject to Federal or State limitations periods. See Santiago
v. United States, 884 F. Supp. 45 (D.P.R. 1995); United States v.
Perrina, 877 F. Supp. 215, 218 n.5 (D.N.J. 1994).
 - 25 -

under section 6901 and is using that section rather than State law

to assert a claim against petitioner as transferee. (In this

regard, we disagree with the dissent's assertion that respondent's

claim against petitioner is not created under Federal law, but

rather under California's UFTA. See Dissenting op. p. 33.)

Therefore, petitioner's reliance on Vellalos is misplaced.10

Further, the Court of Appeals for the Ninth Circuit has not

affirmatively approved of the District Court's exception in

Vellalos to the general rule of United States v. Summerlin, 310

U.S. 414 (1940), with respect to limitations periods in transferee

liability cases.11 United States v. Bacon, supra. Accordingly, we

are not bound to follow any such exception. See Golsen v.

Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.

10
The dissent's reliance on Custer v. McCutcheon, 283
U.S. 514 (1931), is similarly misplaced. Dissenting op. p. 34.
Like the situation in United States v. Vellalos, 780 F. Supp. 705
(D. Haw. 1992), in Custer the United States pursued its remedies
under State law rather than under Federal law. Therefore, the
situation in Custer is distinguishable from the situation herein.
Moreover, it should be noted that Custer was decided several
years before United States v. Summerlin, 310 U.S. 414 (1940).
11
The Court of Appeals for the Ninth Circuit has created
an exception to the general rule of United States v. Summerlin,
supra, "[such] that a state statute which provides a time
limitation as an element of a cause of action or as a condition
precedent to liability applies to suits by the United States even
if there is an otherwise applicable federal statute of
limitations." United States v. California, 655 F.2d 914, 918
(9th Cir. 1980) (citing United States v. Hartford Accident &
Indem. Co., 460 F.2d 17, 19 (9th Cir. 1972)). The Court of
Appeals for the Ninth Circuit, however, has never applied this
exception in transferee liability cases.
 - 26 -

1971). Consequently, the situation before us is one of first

impression, and we are free to adopt our own interpretation of the

rule in United States v. Summerlin, supra.

In United States v. Summerlin, supra, the Supreme Court

addressed a claim of the United States against an estate in

Florida. (A county judge in Florida denied the Government's

petition to allow the claim, which arose under a Federal statute,

determining that the claim was "void" because it was not filed

within 8 months from the time of the first publication of the

notice to creditors as required by Florida law.) The Supreme

Court, in holding that the United States was not bound by State

statutes of limitations (or subject to the defense of laches) in

enforcing its rights, stated that "When the United States becomes

entitled to a claim, acting in its governmental capacity and

asserts its claim in that right, it cannot be deemed to have

abdicated its governmental authority so as to become subject to a

state statute putting a time limit upon enforcement." Id. at 417.

The Court then recognized that the Florida statute was not even

considered a statute of limitations, but was referred to as a

statute of "non-claim".12 Regardless, the Court rejected the notion

12
The Court concluded that this interpretation was drawn
from language in the statute which provided that a claim not
filed within the specified period "'shall be void even though the
personal representative has recognized such claim or demand by
paying a portion thereof or interest thereon or otherwise.'"
United States v. Summerlin, supra at 417.
 - 27 -

that claims of the United States could be invalidated because they

were not filed within the prescribed period of time. The Court

reasoned:

If this were a statute merely determining the limits
of the jurisdiction of a probate court and thus providing
that the County Judge should have no jurisdiction to
receive or pass upon claims not filed within the eight
months, while leaving an opportunity to the United States
otherwise to enforce its claim, the authority of the
State to impose such a limitation upon its probate court
might be conceded. But if the statute, as sustained by
the state court, undertakes to invalidate the claim of
the United States, so that it cannot be enforced at all,
because not filed within eight months, we think the
statute in that sense transgressed the limits of state
power.

Id.

We do not read Summerlin as requiring a distinction between a

statute of limitations and a limitations period that is an element

of a cause of action, and we hold that no such distinction is

relevant in this case. The Supreme Court in Summerlin did not

recognize the Florida limitations period as a statute of

limitations, and there is no language in that case limiting its

holding to such statutes. See FSLIC v. Landry, 701 F. Supp. 570,

573 (E.D. La. 1988). The persuasive case law supports our holding.

See United States v. Cody, 961 F. Supp. at 221.

Moreover, the public policy for exempting the Federal

Government from the application of State statutes of limitations is

not furthered by carving out exceptions where the State integrates

the limitations period as an element of the cause of action which
 - 28 -

could then be barred if untimely. See Guaranty Trust Co. v. United

States, 304 U.S. 126, 136 (1938). The preservation and protection

of public rights, revenues, and property from the negligence of

public officers deteriorates when exceptions are made for time

limitations that have the same purpose as statutes of limitations

but in a different form. And the extinguishment provision of the

UFTA was created precisely to circumvent the rule in United States

v. Summerlin, supra, a provision that the Court of Appeals for the

Ninth Circuit described as a "dressed-up statute of limitations".

United States v. Bacon, 82 F.3d at 824 n.2; see Dillman v.

Commissioner, 64 T.C. 797, 806 (1975) ("If the State statute

attempts to abrogate or void the existing claim of the United

States by use of a different timetable it will be attempting to

reach beyond its powers. By whatever name such a statute might be

called it would be in effect a statute of limitations not binding

on the United States."). While a State may limit the jurisdiction

of its own courts for private claimants, time limitations imposed

on the United States' efforts to collect its taxes would

"transgress the limits of state power." United States v.

Summerlin, supra at 417.

Federal revenue law requires national application that is not

displaced by variations in State law. Tax assessment and

collection against a transferee in transferee liability cases is a

difficult task; to complete such a task within arbitrary time
 - 29 -

constraints of State law would be an even greater burden,

particularly where, as in the case herein, the transferor is

delinquent in filing its tax return.

Additionally, the Supreme Court has consistently held that,

although State law is controlling as to the nature and extent of

the property rights in applying a Federal revenue act, Federal law

determines the consequences of those rights. United States v.

National Bank of Commerce, 472 U.S. 713, 722-723 (1985); Aquilino

v. United States, 363 U.S. 509, 513 (1960). "'[O]nce it has been

determined that state law creates sufficient interests in the * *

* [taxpayer] to satisfy the requirements of * * * [the statute],

state law is inoperative,' and the tax consequences thenceforth are

dictated by federal law." United States v. National Bank of

Commerce, supra at 722 (quoting United States v. Bess, 357 U.S. 51,

56-57 (1958)).

In the situation before us we are concerned only with whether

the Alhambra property was fraudulently conveyed to petitioner under

California's UFTA; we are not concerned with whether the UFTA would

permit the Federal Government to assess petitioner for transferee

liability as a result of the fraudulent conveyance. The latter

issue, including the time within which to assess, is resolved by

Federal revenue law, not State property law. See sec. 6901.

Thus, we hold that respondent is not bound by the limitations

period in California's UFTA in seeking to assert or assess
 - 30 -

transferee liability against petitioner under section 6901.

Conclusion

In conclusion, we hold that section 6901(c) is the applicable

limitations period to which respondent is bound in asserting

transferee liability against petitioner for the unpaid taxes of

Jaussaud Enterprises. For purposes of petitioner's transferee

liability under section 6901, California's limitations period does

not control. As a result, we hold that respondent timely issued

the notice of transferee liability and has established petitioner's

liability as a transferee.

To reflect the foregoing,

Decision will be entered

for respondent.

Reviewed by the Court.

COHEN, CHABOT, SWIFT, GERBER, PARR, WELLS, RUWE, COLVIN,
CHIECHI, LARO, GALE, and MARVEL, JJ., agree with this majority
opinion.
 - 31 -

HALPERN, J., dissenting:

I. Introduction

The majority’s conclusion that respondent has a right under

the California Uniform Fraudulent Transfer Act to enforce a

liability against petitioner fails to recognize and apply the

distinction between statutes of limitations, which set maximum time

periods during which certain actions can be brought or rights

enforced, and temporal rights created by State statutes.

Therefore, I dissent.

II. Section 6901

To use the courts to enforce a liability, the Government, like

any other creditor, must establish a basis in law for that

liability. Section 6901 does not provide any such basis.1 See

Commissioner v. Stern, 357 U.S. 39, 42 (1958) (interpreting section

311, I.R.C. 1939, the predecessor of section 6901). Section

6901(a) merely establishes the deficiency procedure as a mechanism

for collecting certain existing, enumerated liabilities. One of

the enumerated liabilities is the liability of a transferee of

property of a taxpayer in the case of the income tax. Sec.

6901(a)(1)(A)(i). Section 6901(c) imposes a period of limitations

for the assessment of the enumerated liabilities. Granting that

1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
 - 32 -

petitioner is the transferee of property of a taxpayer, the first

question we must address is whether there is any basis in law for

respondent’s claim that petitioner has some liability to respondent

on account thereof.

III. California Uniform Fraudulent Transfer Act

A. Introduction

As the majority acknowledges, with the exception of proving

that the taxpayer (Jaussaud) was liable for the tax, respondent has

the burden of proving all of the elements necessary to establish

petitioner’s liability as the transferee of property of the

taxpayer. Sec. 6902(a); Rule 142(d). The majority is also correct

in stating that we must examine the law of California to determine

petitioner’s liability, if any. Majority op. p. 13. Respondent

argues, and petitioner and the majority agree, that the applicable

law of California is the California Uniform Fraudulent Transfer

Act, Cal. Civ. Code sec. 3439 through 3439.12 (West 1997)

(hereafter, CUFTA and section 3439.xx, respectively). The CUFTA

provides remedies to creditors with respect to fraudulent transfers

made by debtors. Section 3439.04 defines a fraudulent transfer,

and section 3439.07 provides remedies to creditors. Those remedies

delimit both the right of the creditor to demand something from a

transferee and the offsetting duty (liability) of the transferee to

comply (that duty hereafter being referred to as transferee

liability). Section 3439.09 sets forth certain time limits within
 - 33 -

which an action must be brought and provides for the extinguishment

of the cause of action created by the CUFTA if those time limits

are exceeded. In the case of a fraudulent transfer within the

meaning of section 3439.04(b), the cause of action is extinguished

unless an action is brought or a levy is made pursuant to section

3439.07 within 4 years after the fraudulent transfer is made.

B. Section 3439.09

Section 3439.09 is part of the CUFTA and, like the section

3439.07 remedies, it delimits the right (and offsetting transferee

liability) created by the CUFTA. It delimits that right, however,

not in terms of specifying the available remedies, as does section

3439.07 but, rather, in terms of specifying the temporal dimension

of the right. Section 3439.09 is not a statute of limitations. It

does not operate by making the judicial mechanism unavailable to

enforce the right. Rather, it delimits the existence of the State-

created right; thus, the question of enforcement is moot. The

distinction between a statute of limitations and a temporally

delimited right is widely recognized. See, e.g., Crandall v.

Irwin, 39 N.E.2d 608, 610 (Ohio 1942), in which the Supreme Court

of Ohio held:

A wide distinction exists between pure statutes of
limitation and special statutory limitations qualifying
a given right. In the latter instance time is made an
essence of the right created, and the limitation is an
inherent part of the statute or agreement out of which
the right in question arises, so that there is no right
of action whatever independent of the limitation. A
lapse of the statutory period operates, therefore, to
 - 34 -

extinguish the right altogether.

C. Respondent’s Failure To Carry the Burden of Proof

The Government did not demonstrate that the transfer occurred

within 4 years of the date of the notice of transferee liability

against petitioner. Majority op. p. 18. Therefore, I conclude

that the Government has not sustained its burden of proving that

petitioner was liable as a transferee under California law.

IV. The Summerlin Issue

A. Quod Nullum Tempus Occurrit Regi

The majority rests its holding on the ancient rule of quod

nullum tempus occurrit regi--"that the sovereign is exempt from the

consequences of its laches, and from the operation of statutes of

limitations". See Guaranty Trust Co. v. United States, 304 U.S.

126, 132 (1938). The majority explains that the Supreme Court has

already addressed the distinction between statutes of limitations

and "non-claim" statutes in United States v. Summerlin, 310 U.S.

414 (1940). The majority applies Summerlin here to dispose of the

case on the theory that section 3439.09 amounts to a nonclaim

statute, and that is the equivalent of a statute of limitations.

The Supreme Court in Summerlin held that "if the statute * * *

undertakes to invalidate the claim of the United States, so that it

cannot be enforced at all, because not filed within * * * [the

statutory period], we think the statute in that sense transgressed

the limits of state power." Id. at 417.
 - 35 -

The distinction between "pure" statutes of limitations and

"non-claim" statutes relates to how the statute achieves the

limitation.2 The Supreme Court held that such a distinction is

irrelevant if the result is that the sovereign's claim is

invalidated. Id. That is not, however, a relevant distinction

here.

The issue here is not how the statute limits a right (i.e., by

denying the means of enforcing the right or by extinguishing the

right), but rather upon what right the limitation acts. The United

States’ claim in Summerlin arose when the Federal Housing

Administrator became the assignee of a claim against a decedent’s

estate. The Government had an existing right that would have been

invalidated by the provisions of a State statute had the State

statute been held applicable. To the contrary, respondent's CUFTA

claim against petitioner, as a transferee, is not created by

Federal or common law. Respondent makes no claim except under the

CUFTA, and, therefore, the issue is whether respondent has any

rights as a creditor under the CUFTA. The issue here does not

involve an extension or modification of the Summerlin doctrine,

2
A "pure" statute of limitations merely limits or
restricts the time within which a right, otherwise unlimited, may
be enforced. Vaughn v. United States, 43 F. Supp. 306, 308 (E.D.
Ark. 1942). A "non-claim" statute operates by extinguishing the
underlying substantive right. See United States v. Summerlin,
310 U.S. 414 (1940). Both "pure" statutes of limitations and
"non-claim" statutes are, however, statutes of limitations in
that they are statutes that limit causes of action. Beach v.
Mizner, 3 N.E.2d 417, 419 (Ohio 1936).
 - 36 -

where the Supreme Court refused to apply a State statute of

limitations to cut off the Government’s existing cause of action.

Rather, the Summerlin doctrine is inapposite to these

circumstances.

B. The Supreme Court

The Supreme Court has held that temporal limitations contained

in State statutory rights are not statutes of limitations that are

subject to the rule of quod nullum tempus occurrit regi. See

Custer v. McCutcheon, 283 U.S. 514 (1931). In Custer, the Supreme

Court reversed the decision of the Court of Appeals for the Ninth

Circuit (Ninth Circuit) affirming a judgment of the District Court

for Idaho in favor of a U.S. marshal. The marshal had levied an

execution against Custer upon a judgment entered in favor of the

United States 9 years earlier. The Idaho statute governing the

execution process, which applied to proceedings in the District

Court as if Congress had enacted the statute, provided that "[t]he

party in whose favor judgment is given, may, at any time within

five years after the entry thereof, have a writ of execution issued

for its enforcement." Id. at 515. The Supreme Court, recognizing

that absent specific provisions to the contrary, statutes of

limitations do not bind the sovereign, held that the statute was

not a statute of limitations. Rather, the Court held that it was

a statute granting a right of execution, and the time element is an
 - 37 -

integral part of the statutory right conferred. Id. at 516-517.

Although the marshal argued that, on grounds of public policy, the

sovereign ought not be subject to restrictions binding on private

suitors, the Supreme Court saw no valid reason for making such an

exception:

The time limit for issuing executions is, strictly
speaking, not a statute of limitations. On the contrary,
the privilege of issuing an execution is merely to be
exercised within a specified time, as are other
procedural steps in the course of a litigation after it
is instituted. * * *

Id. at 519.

The Supreme Court has also recognized that the right of the

Government to be free from statutes of limitations does not mean

the Government can pursue a cause of action where none exists

under State law or otherwise. See United States v. California,

507 U.S. 746 (1993); Guaranty Trust Co. v. United States, supra.

C. The Court of Appeals for the Ninth Circuit

The Ninth Circuit has similarly recognized that the Summerlin

doctrine is inapplicable to State statutes that provide a time

limitation as an element of a cause of action. See United States

v. California, 655 F.2d 914 (9th Cir. 1980). In California, the

Ninth Circuit held that the claim filing requirements of

California Government Code section 911.2, which required that all

claims for money or damages for which the State is liable be

presented within 1 year of the date that the claim arose, was

applicable to the Federal Government. The Government was pursuing
 - 38 -

a claim against the State of California pursuant to California

Health and Safety Code section 13009 for the Government’s expense

of fighting a fire negligently set to a national forest. The

majority conveniently dismisses such relevant precedent,

relegating its mention to a footnote, and noting that the Ninth

Circuit has never applied this exception in transferee liability

cases. The majority does not, however,

provide any reasoning as to why there is a relevant distinction

between substantive claims provided for by California State law

that regard transferee liability versus liability in connection

with the expenses incurred for fighting negligently set fires.

Another relevant Ninth Circuit case is United States v.

Hartford Accident & Indem. Co., 460 F.2d 17, 18 (9th Cir. 1972).

There, the Ninth Circuit held that the United States "was barred

from recovery because of its failure to comply with the California

Insurance Code" requiring suit to be brought within 1 year. Id.

The Ninth Circuit recognized that United States v. Summerlin, 310

U.S. 414 (1940), provided "clear authority for the proposition

that an action vested in the United States cannot be defeated by

a state statute of limitations". United States v. Hartford

Accident & Idem. Co., supra at 19. However, the Ninth Circuit

determined that neither Summerlin nor its progeny "hold that

considerations of federal supremacy can create a cause of action

where none exists under state law or otherwise." Id. (citing
 - 39 -

United States v. Summerlin, supra at 417). Therefore, the Ninth

Circuit distinguished pure statutes of limitations from State-

created temporal rights.

D. Distinguishing a Temporal Right From a Temporal
Limitation

The cases cited from the Courts of Appeals by the majority in

order to further its approach do not address the issue of whether

a State can provide a limited temporal right, as opposed to

temporally limiting the sovereign from exercising a right that is

not otherwise so limited. See United States v. Moore, 968 F.2d

1099 (11th Cir. 1992) (holding without citation to the Georgia

statute in issue that the statute is a State statute of

limitations); United States v. Wurdemann, 663 F.2d 50 (8th Cir.

1981) (holding without any analysis that State "statutes of

limitation" do not apply to the sovereign); United States v.

Fernon, 640 F.2d 609 (5th Cir. 1981) (interpreting Florida statute

section 95.11(6) to be a statute of limitations, and not an

element of a State-created right). I agree with the criticisms

made in United States v. Vellalos, 780 F. Supp. 705, 708 n.3 (D.

Haw. 1992), appeal dismissed 990 F.2d 1265 (9th Cir. 1993), that

these cases are "an overly mechanical application of the dicta in

Summerlin without serious consideration of the significant

implications such a rule has for state sovereignty."3

3
There are numerous cases that deal with the question of
(continued...)
 - 40 -

It is true that we are not bound to follow United States v.

Vellalos, supra. The majority, however, attempts to distinguish

it by noting that, in Vellalos, the Government was "unable to

invoke section 6901 because it missed the limitations period

prescribed by subsection (c). Therefore, it relied on State

foreclosure proceedings as a means for collection." Majority op.

p. 24. The majority explains that it is not clear whether the

District Court in Vellalos would have reached its same conclusion

had the Government proceeded timely under section 6901, which is

the case here. I disagree. The District Court in Vellalos was

explicit in holding that

The Tenth Amendment to the United States
Constitution provides:

3
(...continued)
whether, in substance, a temporal limitation should be treated as
a temporally limited right. See, e.g., Fairbanks-Morse & Co. v.
Alaska Palladium Co., 32 F.2d 233, 234 (9th Cir. 1929) (quoting
Partee v. St. Louis & S.F.R. Co., 204 F. 970, 972 (8th Cir.
1913)):

A statute which in itself creates a new liability,
gives an action to enforce it unknown to the common
law, and fixes the time within which that action may be
commenced, is not a statute of limitations. It is a
statute of creation, and the commencement of the action
within the time it fixes is an indispensable condition
of the liability and of the action which it permits.
Such a statute is an offer of an action on condition
that it be commenced within the specified time. If the
offer is not accepted in the only way in which it can
be accepted, by the commencement of the action within
the specified time, the action and the right of action
no longer exist, and the defendant is exempt from
liability.
 - 41 -

The powers not delegated to the United States by the
Constitution, nor prohibited by it to the States, are
reserved to the States respectively, or to the people.
U.S. Const. amend. X. The law of real property has
traditionally been within the province of the states.
The government has cited no federal statute that would
restrict the states' rights to legislate in the area of
fraudulent real estate transfers.
Here, the government is seeking to take advantage of
a right that is entirely within the domain of the state.
This right was created by a state statute and
specifically limited by the text of that statute. This
is not a straightforward question of debt collection
under the common law as was addressed by the Supreme
Court in Summerlin. * * *

United States v. Vellalos, supra at 707-708.

Further, the majority's review of United States v. Bacon, 82

F.3d 822 (9th Cir. 1996), ignores a significant holding. The

issue in Bacon was whether Washington State's Uniform Fraudulent

Transfer Act (WSUFTA) may be applied retroactively. The Ninth

Circuit concluded that it is precisely because the WSUFTA contains

an extinguishment provision, rather than a remedial or procedural

limitation, that it does not apply retroactively absent an express

provision to the contrary.

V. Conclusion

For the foregoing reasons, I believe that the time period

contained in CUFTA section 3439.09 is not a statute of

limitations, but rather is an inherent element of the right

created. Although the effect of the provision is one of "non-

claim" (i.e., it extinguishes the underlying substantive right),

rather than a mere bar to enforcement, this difference is not
 - 42 -

controlling. What is dispositive is that the right that the

Government claims to possess against petitioner as a transferee is

nonexistent but for the provisions of California State law, and

California has decided to provide only a temporal right against

transferees in these instances. Respondent and the majority may

regret that California did not provide a different rule than it

did, but it is not our province to legislate on behalf of the

States. In limited circumstances, as illustrated by the Summerlin

doctrine, we may ignore State statutes of limitations, but that is

the extent of our authority. To hold otherwise is an encroachment

on State sovereignty and raises problematic constitutional issues.

WHALEN, BEGHE, and THORNTON, JJ., agree with this dissenting

opinion.