Morris v. Commissioner

T.C. Memo. 2000-381

UNITED STATES TAX COURT

JIMMY D. MORRIS, TRANSFEREE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4897-98. Filed December 18, 2000.

Graydon W. Florence, Jr., for petitioner.

Mark S. Mesler and Pamela L. Mable, for respondent.

MEMORANDUM OPINION

THORNTON, Judge: Respondent has determined that petitioner

has liability as a transferee of Association Cable TV, Inc.

(ACT), of $199,400, plus interest as provided by law.1

Respondent determined that for taxable year 1988, ACT has unpaid

1
The notice of transferee liability, issued to petitioner
on Dec. 9, 1997, determined a liability of $113,767. In an
amended answer, respondent increased the amount of transferee
liability asserted against petitioner to $199,400.
 - 2 -

liability for Federal income taxes of $136,903, and additions to

tax pursuant to sections 6653(b)(1) and 6661 of $102,677 and

$34,226, respectively.

The issue for decision is whether petitioner is liable as

the transferee of assets of ACT under section 6901 and, if so,

the amount of his liability.

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.

Background

The parties submitted this case fully stipulated without

trial.2 The stipulation of facts is incorporated herein by this

reference. When he petitioned the Court, petitioner resided in

Panama City, Florida.

In 1985, petitioner, Franklin W. Briggs (Briggs), John L.

Daniell (Daniell), and Michael Roy Gay (Gay) incorporated ACT, a

Florida corporation that they owned equally. They organized ACT

to provide cable television services to a beach resort in Panama

City Beach, Florida, where ACT acquired cable television

franchise rights. Petitioner was a shareholder, director, and

officer of ACT.

2
By joint stipulation, the parties agreed to be bound by
the testimony and documentary evidence offered at the trial of
Briggs v. Commissioner, T.C. Memo. 2000-380, also decided today.
 - 3 -

In October 1988, ACT sold its assets, including cable

franchise rights, to Jones Spacelink, Ltd. (JSL). The purchase

and sale agreement, executed October 27, 1988 (the purchase

agreement), states that it was made by and among JSL, as the

buyer, and ACT, Towers Development Co. of Panama City, Inc.

(Towers Development), Towers Construction Co. of Panama City,

Inc.,3 Briggs, Daniell, Gay, petitioner, and Sandra Morris, as

sellers (identified collectively in the purchase agreement and

hereinafter as the seller group). The purchase agreement states

that the assets to be conveyed to JSL “include all tangible and

intangible assets of the Seller Group”. The stated purchase

price of $1,522,080 was payable “to the Seller Group”. Of this

amount, $510,560 was payable to the seller group in cash at the

closing, $500,000 was payable to the seller group in accordance

with the terms of a covenant not to compete, and the balance of

$511,520 was payable to the seller group in accordance with the

terms of an agreement regarding additional cable subscribers.

The covenant not to compete, also executed October 27, 1988,

states that it was made and entered into by and between JSL, as

3
As discussed in Briggs v. Commissioner, supra, the nominal
shareholders of both Towers Development Co. of Panama City, Inc.
(Towers Development), and Towers Construction Co. of Panama City,
Inc., were Franklin W. Briggs (Briggs) and petitioner’s wife,
Sandra Morris, petitioner having placed his ownership interests
in his wife’s name to avoid creditors. In the instant
proceeding, the parties have stipulated that petitioner and
Briggs were the sole shareholders of Towers Development and that
they owned it equally.
 - 4 -

buyer, and the “Sellers”, comprising the same entities and

individuals as the seller group. Under the covenant not to

compete, “Each Seller” agreed not to compete with JSL for 5

years. The covenant not to compete states that JSL shall pay the

$500,000 consideration for the covenant not to compete “to

Sellers, c/o Franklin W. Briggs”, with $333,400 payable on

October 27, 1988, and the balance payable in four annual

installments of $42,400 each, commencing October 27, 1989.

On November 4, 1988, pursuant to an agreement with ACT, JSL

made a wire transfer to ACT's attorney, Glenn L. Hess (Hess), of

$840,960. Hess deposited these funds into a client trust fund

account. Of this amount, $510,560 was the cash payable at the

closing, and $330,400 was the initial payment for the covenant

not to compete. On November 7, 1988, pursuant to ACT’s

instructions, Hess issued four checks from the client trust fund

account as follows:

Payee Amount
ACT $309,666.66
Daniell 132,823.33
Gay 132,823.33
Towers Development 265,646.68
Total 840,960.00

The $265,646.68 check to Towers Development represented

distributions to petitioner and Briggs of $132,823.34 each.4

4
Instead of receiving their shares of the proceeds
directly, petitioner and Briggs had directed that their checks be
made payable to Towers Development.
 - 5 -

Also on November 7, 1988, ACT issued separate checks of

$66,666.67 to each of its four shareholders, including

petitioner.5 Therefore, petitioner received from ACT gross

distributions aggregating $199,490.01 ($66,666.67 plus

$132,823.34). All these distributions occurred in the State of

Florida.

After the initial distribution of the sale proceeds on

November 7, 1988, the remaining payments under the purchase

agreement were distributed to ACT’s shareholders directly.6

For taxable year 1988, ACT issued petitioner a Form

1099-DIV, Statement for Recipients of Dividends and

Distributions, showing cash liquidating distributions of $80,890.

The sale of ACT’s assets to JSL on October 28, 1988,

resulted in a complete dissolution or liquidation of ACT’s

assets, and the subsequent transfers to ACT’s shareholders on

November 7, 1988, of the cash proceeds that ACT received from the

sale of its assets to JSL rendered ACT insolvent. After selling

5
Thus, Association Cable TV, Inc. (ACT), issued checks to
its four shareholders totaling $266,666.68. From worksheets in
evidence, ostensibly prepared by ACT’s accountants, it appears
that ACT allocated $13,034.93 to pay Hess’ legal expenses and
$30,000 to pay a commission. The sum of these total payments and
allocated expenses–-$309,701.61–-is slightly greater than the
$309,666.66 payment that Hess made to ACT on Nov. 7, 1988. The
seeming discrepancy is unexplained in the record.
6
The record does not indicate the exact dates or amounts of
these payments.
 - 6 -

its assets to JSL, ACT transacted no other business, other than

in February 1990 filing its 1988 Federal income tax return.

On its 1988 Federal income tax return, ACT took the position

that the $405,776 gain it realized on the sale of its assets to

JSL was nontaxable pursuant to section 337 because ACT had

adopted a plan of complete liquidation on or before the sale date

of the assets. In a notice of deficiency issued to ACT for

taxable year 1988, respondent determined that ACT had not timely

adopted a plan of liquidation and that the gain was taxable,

resulting in an income tax liability for ACT of $136,903.

Respondent also determined that ACT was liable for additions to

tax of $102,677 under section 6653(b)(1) for fraud and $34,226

under section 6661 for substantial understatement of tax. ACT

petitioned the Tax Court.

In Association Cable TV, Inc. v. Commissioner, T.C. Memo.

1995-596, this Court held that ACT was liable for the tax on the

gain from the sale of its assets to JSL because no plan of

liquidation existed on or before the sale date. The Court also

sustained the additions to tax for fraud and for substantial

understatement. With respect to the addition to tax for fraud,

the Court found that ACT, through the actions of Briggs and

petitioner, had falsified documents to corroborate its 1988

Federal income tax return position that the asset sale

constituted a nontaxable liquidation pursuant to section 337.
 - 7 -

Having determined that the November 1988 distributions to

its shareholders left ACT with insufficient funds to pay its 1988

corporate Federal income tax liability, respondent has sought to

collect the liability from ACT’s shareholders, including

petitioner.

Discussion

Petitioner’s Transferee Liability

Pursuant to section 6901, the Commissioner may proceed

against a transferee of property to assess and collect Federal

income taxes owed by the transferor. For this purpose, a

transferee includes a shareholder of a dissolved corporation.

See sec. 301.6901-1(b), Proced. & Admin. Regs. Section 6901 does

not impose liability on the transferee but merely gives the

Commissioner a procedure or remedy to enforce the transferor’s

existing liability. See Commissioner v. Stern, 357 U.S. 39, 42

(1958). Respondent bears the burden of proving petitioner’s

liability as a transferee but not of proving ACT’s liability for

the tax. See sec. 6902(a); Rule 142(d).

The existence and extent of transferee liability is

determined by the law of the State in which the transfer

occurred–-in this case, Florida. See Commissioner v. Stern,

supra at 45; Gumm v. Commissioner, 93 T.C. 475, 479-480 (1989),

affd. without published opinion 933 F.2d 1014 (9th Cir. 1991);

Fibel v. Commissioner, 44 T.C. 647, 657 (1965).
 - 8 -

Respondent argues that under Florida law, petitioner is

liable as a transferee both at law and in equity.7 On brief,

respondent bases his arguments regarding petitioner’s liability

at law on Florida statutes that were not in effect at the time of

the transfers in question.8 We need not linger long over this

complication, however, for as discussed below, we conclude that

respondent has made a prima facie case of transferee liability in

equity.

Under Florida law, a transferee may be liable in equity for

the debts of the transferor who fraudulently conveys assets to

7
The difference between transferee liability at law and in
equity has been described as follows:

Transferee liability at law is based either
on the transferee’s express assumption of the
transferor’s liability (the “assumption by
contract” theory) or on state or federal law
imposing liability on the transferee. The
difference between liability at law and liability
in equity is not that one is based on statutory
law while the other is not. Rather, the
difference is that liability in equity derives
from the law of fraudulent conveyances developed
by courts of equity that required an application
for equitable relief where a conveyance was to be
set aside. Much of the law of fraudulent
conveyances is now a matter of statute such as the
Uniform Fraudulent Conveyance Act. [Saltzman, IRS
Practice and Procedure, par. 17.03 (2d ed. 1991)].

8
On brief, respondent relies on Fla. Stat. Ann. secs.
607.1405(1), 607.1406(10), and 607.1406(12) (West 1993). These
provisions were effective as of July 1, 1990. The subject matter
of the predecessor statutes is similar but not identical to that
of the statutes cited by respondent.
 - 9 -

the transferee. See Hagaman v. Commissioner, 100 T.C. 180, 188

(1993); Schad v. Commissioner, 87 T.C. 609, 614 (1986), affd.

without published opinion 827 F.2d 774 (11th Cir. 1987); Wiltzius

v. Commissioner, T.C. Memo. 1997-117. Under Florida’s Uniform

Fraudulent Transfer Act (UFTA), effective January 1, 1988, a

transfer is fraudulent as to present and future creditors if the

debtor made the transfer “With actual intent to hinder, delay, or

defraud any creditor of the debtor”. Fla. Stat. sec.

726.105(1)(a) (1988). The UFTA defines “creditor” as “a person

who has a claim”, and “debtor” as “a person who is liable on a

claim.” Fla. Stat. sec. 726.102(4), (6) (1988).

Petitioner concedes that he is precluded from challenging

the tax liability of ACT as determined in Association Cable TV,

Inc. v. Commissioner, supra. See Krueger v. Commissioner, 48

T.C. 824 (1967) (decisions entered by the Tax Court determining

deficiencies against taxpayers are res judicata as to the

taxpayers’ liabilities in a later action involving transferee

liability). Petitioner does not dispute that respondent has

failed to collect the liability from ACT. Petitioner does not

dispute that he was an initial transferee of ACT and that as a

result of the distributions of November 7, 1988, he received

gross proceeds of $199,490. The critical question is whether ACT

made the transfers to petitioner with fraudulent intent.
 - 10 -

The UFTA specifies a number of factors that may be

considered in determining whether the debtor made transfers, or

incurred obligations, with intent to hinder, delay, or defraud a

creditor.9 Among these factors are: (1) Whether the transfer

9
Fla. Stat. sec. 726.105(2) (1988) provides:

In determining actual intent under paragraph
(1)(a), consideration may be given, among other
factors, to whether:

(a) The transfer or obligation was to an insider.

(b) The debtor retained possession or control of
the property transferred after the transfer.

(c) The transfer or obligation was disclosed or
concealed.

(d) Before the transfer was made or obligation was
incurred, the debtor had been sued or threatened with
suit.

(e) The transfer was of substantially all the
debtor’s assets.

(f) The debtor absconded.

(g) The debtor removed or concealed assets.

(h) The value of the consideration received by the
debtor was reasonably equivalent to the value of the
asset transferred or the amount of the obligation
incurred.

(i) The debtor was insolvent or became insolvent
shortly after the transfer was made or the obligation
was incurred.

(j) The transfer occurred shortly before or
shortly after a substantial debt was incurred.

(k) The debtor transferred the essential assets of
the business to a lienor who transferred the assets to
an insider of the debtor.
 - 11 -

was to an insider; (2) whether the transfer was of “substantially

all” the debtor’s assets; (3) whether the debtor was insolvent or

became insolvent shortly after the transfer was made; and (4)

whether the transfer was made shortly before or after a

substantial debt was incurred. Fla. Stat. sec. 726.105(2)(a),

(e), (i), (j) (1988). As discussed below, all these factors

indicate fraudulent intent in the instant case.

1. Whether the Transfer Was to an Insider

In the case of a corporation, an “insider” includes a

director or an officer of the corporation. Fla. Stat. sec.

726.102(7)(b) (1988). The parties have stipulated that

petitioner was a shareholder, director, and officer of ACT.

“In Florida, existing creditors have the benefit of a presumption

of fraudulent intent where the conveyance is voluntary and there

is a close relationship between the transferor and the

transferee.” Hagaman v. Commissioner, supra at 188; see Scott v.

Dansby, 334 So. 2d 331, 333 (Fla. Dist. Ct. App. 1976).10

10
Hagaman v. Commissioner, 100 T.C. 180 (1993), was decided
under Fla. Stat. sec. 726.01, which was repealed and replaced by
provisions of the UFTA, effective Jan. 1, 1988. Scott v. Dansby,
334 So. 2d 331 (Fla. Dist. Ct. App. 1976), was decided under
Florida law governing fraudulent conveyances, which was codified
in Fla. Stat. sec. 726.01 (1988). Unless displaced by the
express provisions of the new act, the principles, law, and
equity under Fla. Stat. 726.01 remain intact and supplement the
provisions of the UFTA. See Fla. Stat. sec. 726.111 (1988);
Advest, Inc. v. Rader, 743 F. Supp. 851, 854 n.9 (S.D. Fla.
1990).
 - 12 -

2. Whether the Transfer Was of “Substantially All” the
Debtor’s Assets

Under the terms of the purchase agreement, ACT was to sell

all its tangible and intangible assets to JSL. The sale resulted

in a complete dissolution or liquidation of ACT’s assets. After

the sale, ACT conducted no other business, except for filing its

1988 Federal income tax return. On November 7, 1988, ACT

distributed the cash proceeds from the sale to the shareholders.

We conclude that on November 7, 1988, ACT transferred

“substantially all” its assets to its shareholders. See General

Trading, Inc. v. Yale Materials Handling Corp., 119 F.3d 1485,

1500 (11th Cir. 1997).11

3. Whether the Debtor Was Insolvent or Became Insolvent
Shortly After the Transfer Was Made

The parties have stipulated that ACT was rendered insolvent

by ACT’s sale of its assets to JSL on October 28, 1988, and ACT’s

subsequent transfer to its shareholders on November 7, 1988.

11
In Association Cable TV, Inc. v. Commissioner, T.C. Memo.
1995-596, this Court stated that “the sale of ACT’s assets to JSL
did not constitute a sale of ACT’s sole asset because ACT still
had outstanding contracts.” The relevant consideration under
Fla. Stat. sec. 726.105(2)(e) (1988), however, is not whether ACT
sold all its assets to JSL, but whether ACT transferred
“substantially all” its assets to its shareholders. See General
Trading, Inc. v. Yale Materials Handling Corp., 119 F.3d 1485,
1500 (11th Cir. 1997). As discussed above, the facts in the
record of the instant proceeding indicate that ACT transferred
substantially all its assets to its shareholders, including
petitioner. Petitioner has adduced no evidence to the contrary.
 - 13 -

4. Whether the Transfer Was Made Shortly Before or Shortly
After a Substantial Debt Was Incurred

ACT transferred assets to petitioner shortly after it sold

its assets to JSL and shortly before it incurred the related tax

liabilities. See Hagaman v. Commissioner, 100 T.C. at 188

(regardless of when Federal taxes are actually assessed, taxes

are due and owing, and constitute a liability, no later than the

date the tax return for the particular period is required to be

filed); Yagoda v. Commissioner, 39 T.C. 170, 185 (1962)

(transferee is liable for all existing debts of the transferor,

“whether or not such debts had been determined, or were even

known at that time”), affd. 331 F.2d 485 (2d Cir. 1964).

Although a single factor considered in isolation may not

establish the requisite fraud to set aside a conveyance, several

of them considered together may afford a basis to infer fraud.

See Johnson v. Dowell, 592 So. 2d 1194, 1197 (Fla. Dist. Ct. App.

1992). On the basis of the several factors discussed above, and

after considering all the evidence in the record, we conclude

that respondent has established a prima facie case that ACT made

the transfers in question with fraudulent intent. Petitioner

bears the burden of rebutting the presumption. See Hagaman v.

Commissioner, supra at 189; Nau v. Commissioner, 27 T.C. 999,

1000-1001 (1957), affd. in part and revd. in part on another

ground 261 F.2d 362 (6th Cir. 1958); Gobins v. Commissioner, 18

T.C. 1159, 1169 (1952), affd. per curiam 217 F.2d 952 (9th Cir.
 - 14 -

1954); Advest, Inc. v. Rader, 743 F. Supp. 851, 854 (S.D. Fla.

1990).

On reply brief, petitioner states that he does not contest

the receipt of $199,490 but argues that no more than $103,017 of

this amount represents a transfer from ACT, because: (1)

Petitioner had $13,873 of expenses associated with the sale of

ACT’s assets to JSL, and (2) $82,600 was paid to petitioner for

his entering into a covenant not to compete with JSL.12

12
On opening brief, petitioner argues that ACT should be
treated as having transferred to him no more than $67,017, an
amount arrived at by subtracting from $199,490 not only his
$13,873 of alleged sales expenses incurred and the $82,600
associated with the covenant not to compete, but also $36,000
that he alleges represented repayment of a loan by ACT.
Petitioner provides no explanation for the discrepancy in his
positions on opening and reply brief. We consider petitioner to
have abandoned his argument regarding ACT’s alleged repayment of
a loan to petitioner. This conclusion is consistent with
petitioner’s concession in Briggs v. Commissioner, T.C. Memo.
2000-380, that the full $199,490 is includable in his gross
income.

In any event, the evidence does not establish the existence
of any loan from petitioner to ACT or that petitioner received
the transferred assets in any capacity other than as a
shareholder of ACT. The only documentary evidence offered by
petitioner to establish the existence of loans to ACT was a
handwritten worksheet, apparently prepared by ACT’s accountants,
which indicates that $36,000 of the $199,490 transferred to each
of ACT’s four shareholders, including petitioner and John L.
Daniell (Daniell), represented “Loan Reductions”. Petitioner
offered no evidence to corroborate either the worksheet or ACT’s
alleged indebtedness to him. To the contrary, Daniell testified
that he could not recall whether he or the other shareholders had
ever made any loans to ACT. Also, ACT’s 1988 Federal income tax
return reflects no loans from shareholders. Petitioner has
failed to overcome the prima facie showing by respondent that
ACT’s transfers to petitioner included the $36,000 in question.
(continued...)
 - 15 -

1. Claimed Selling Expenses

Petitioner argues that $13,873 of claimed selling expenses

should be netted from the gross amounts transferred to him by

ACT. The record is largely silent about these claimed selling

expenses, who incurred them, when, or why. Petitioner’s position

here is inconsistent with his concession in Briggs v.

Commissioner, T.C. Memo. 2000-380, that the full $199,490 is

includable in his gross income. In Briggs, petitioner did not

claim any deduction or offset for the $13,873 of claimed selling

expenses. As previously noted, petitioner has agreed to be bound

by the record compiled in Briggs. Petitioner has failed to

establish his entitlement to any offset for selling expenses

here.

2. Amounts Attributable to Covenant Not To Compete

Petitioner argues that $82,600 of the transfers in question,

representing one-fourth of the $330,400 initial payment from JSL

with respect to the $500,000 agreed-upon consideration for the

covenant not to compete, represents his own income rather than a

transfer from ACT. We disagree.

The UFTA defines “Transfer”, in relevant part, as “every

mode, direct or indirect, * * * of disposing of or parting with

12
(...continued)
See Powers Photo Engraving Co. v. Commissioner, 17 T.C. 393
(1951), remanded on other grounds 197 F.2d 704 (2d Cir. 1952);
Griffiths v. Commissioner, T.C. Memo. 1994-637.
 - 16 -

an asset or an interest in an asset”. Fla. Stat. sec.

726.102(12) (1988) (emphasis added). As a party to the covenant

not to compete, ACT clearly had an interest in the proceeds

therefrom, which the parties have stipulated were part of the

total purchase price paid for ACT’s assets. Petitioner has not

established that ACT had no interest in the entire $330,400

partial payment it received from JSL, or that its transfer to

petitioner of a one-fourth share of these proceeds did not

constitute a transfer from ACT within the meaning of the UFTA.

Whether the Full Amount of ACT’s Deficiency Has Been Paid

On brief, petitioner argues for the first time that he

should not be liable for ACT’s deficiency because it has already

been discharged by other transferees. Generally, we will not

consider positions raised for the first time on brief if to do so

would prejudice the opposing party. See Leahy v. Commissioner,

87 T.C. 56, 64-65 (1986). In the instant circumstances, however,

we believe it is appropriate to address petitioner’s argument.

As a general principle, the Commissioner can collect the

transferor’s tax liability only once; where it is shown that the

full amount of the deficiency has been paid, the liability of the

transferee is extinguished. See Holmes v. Commissioner, 47 T.C.

622, 627 (1967); Quirk v. Commissioner, 15 T.C. 709 (1950), affd.

per curiam 196 F.2d 1022 (5th Cir. 1952). Once the Commissioner

has met his burden of proof under section 6902(a) and established
 - 17 -

a prima facie case for transferee liability, the burden of going

forward devolves upon the transferee to establish defenses

thereto, such as payment of the transferor’s liability by or on

behalf of the transferor. See Estate of McKnight v.

Commissioner, 8 T.C. 871, 873 (1947); Newsome v. Commissioner,

T.C. Memo. 1976-75.

On brief, petitioner states without elaboration that he “has

* * * learned that the Estate of Gay has also paid its liability

emanating from the Associated [sic] Cable TV, Inc. distribution.”

The record is devoid of evidence, however, of any such payment by

the Estate of Gay, or when, how, or for what purpose it might

have been made.

Daniell testified that he has paid approximately $113,000 in

satisfaction of a transferee liability claim asserted against him

by the Internal Revenue Service (IRS). Assuming arguendo that

Daniell made this payment, it is insufficient to satisfy the full

amount of ACT’s liability.13 Moreover, so long as the

possibility exists that Daniell could file for a refund,

petitioner cannot be exonerated from transferee liability. See

Holmes v. Commissioner, supra; Peterson v. Commissioner, T.C.

13
This Court has determined that ACT owed a tax liability
of $136,903, an addition to tax for fraud of $102,677, and a
substantial understatement penalty of $34,226, for a total of
$273,806. See Association Cable TV, Inc. v. Commissioner, T.C.
Memo. 1995-596. This amount does not take into account any
interest on ACT’s taxable year 1988 liability. See secs. 6602,
6622.
 - 18 -

Memo. 1972-65. Barring refund claims by Daniell or other

transferees who may have made payments against ACT’s tax

liability, however, we expect respondent to take any such

payments into account in computing petitioner’s ultimate

liability. See Peterson v. Commissioner, supra.

Transferee Liability for Addition to Tax for Fraud

On brief, petitioner argues that because respondent has

failed to prove petitioner’s fraud with clear and convincing

evidence, petitioner has no transferee liability for ACT’s

addition to tax for fraud. Petitioner’s argument betrays a

fundamental misunderstanding of transferee liability. Section

6901 provides the Commissioner a mechanism for collecting a

transferor’s tax liability, which may be either as to the amount

of tax shown on the transferor’s return or as to any deficiency

or underpayment of tax by the transferor. See sec. 6901(b). The

additions to tax, such as the section 6653(b) addition to tax for

fraud, are assessed and collected in the same manner as taxes,

and the term “tax” as used in the Internal Revenue Code

specifically includes, among other things, the section 6653(b)

addition to tax for fraud. Sec. 6662(a).

Accordingly, petitioner’s liability as a transferee of ACT

extends to ACT’s liability for the addition to tax for fraud as

determined in Association Cable TV, Inc. v. Commissioner, T.C.
 - 19 -

Memo. 1995-596. See Bowlin v. Commissioner, 31 T.C. 188 (1958),

affd. per curiam 273 F.2d 610 (6th Cir. 1960).

Statute of Limitations

Petitioner argues that respondent is time barred from

asserting liability against petitioner as a transferee.

A transferee’s liability, at law or in equity, for Federal

income tax generally must be assessed and collected in the same

manner as the transferor’s liability. See sec. 6901(a)(1)(A)(i).

In the case of the liability of an initial transferee, however,

the statute of limitations extends 1 year after the limitations

period for assessing tax against the transferor. See sec.

6901(c). Petitioner concedes that he is an initial transferee of

ACT.

As a general rule, the limitations period for assessing

taxes against the transferor is 3 years from the date the return

is filed. See sec. 6501(a). In the case of a false or

fraudulent return with the intent to evade tax, however, the

general rule is inapplicable, and the IRS may assess or collect

the tax anytime. See sec. 6501(c)(1); DiLeo v. Commissioner, 96

T.C. 858, 880 (1991), affd. 959 F.2d 16 (2d Cir. 1992).

This Court previously has determined that ACT is liable for

the addition to tax for fraud with respect to taxable year 1988.

See Association Cable TV, Inc. v. Commissioner, supra. This

holding is conclusive that at least part of the deficiency was
 - 20 -

attributable to fraud; consequently, ACT’s 1988 Federal income

tax return was false and fraudulent. See Forehand v.

Commissioner, T.C. Memo. 1993-618. On brief, petitioner concedes

that he is collaterally estopped from challenging the decision in

Association Cable TV, Inc. Accordingly, because no statute of

limitations bars assessment against ACT, none bars assessment

against petitioner. See Pert v. Commissioner, 105 T.C. 370, 378

(1995); Bartmer Automatic Self Serv. Laundry v. Commissioner, 35

T.C. 317, 322 (1960).

Petitioner argues that the Florida limitations period is

applicable and bars respondent from proceeding against

petitioner. Petitioner’s argument is without merit. “It is well

settled that the United States is not bound by state statutes of

limitation * * * in enforcing its rights.” United States v.

Summerlin, 310 U.S. 414, 416 (1940); see United States v. Fernon,

640 F.2d 609, 612 (5th Cir. 1981) (Florida statute of limitations

did not apply); United States v. West Tex. State Bank, 357 F.2d

198, 201 (5th Cir. 1966); Bresson v. Commissioner, 111 T.C. 172,

184 (1998), affd. 213 F.3d 1173 (9th Cir. 2000). Although State

law determines the nature and extent of property rights in

applying a Federal revenue act, Federal law determines the

consequences of those rights. See United States v. National Bank

of Commerce, 472 U.S. 713, 722-723 (1985); Bresson v.

Commissioner, supra at 189.
 - 21 -

Accordingly, we hold that respondent is not time barred from

assessing transferee liability against petitioner.

Conclusion

Petitioner is liable as a transferee for ACT’s income tax

deficiencies and additions to tax up to, but not exceeding,

$199,490, plus interest, for the tax liabilities due and

uncollected from ACT for the 1988 taxable year.14

To reflect the foregoing,

Decision will be entered

under Rule 155.

14
The parties have not addressed the manner in which
interest is to be computed. We expect this matter to be resolved
in the Rule 155 computation. For an analysis of the computation
of interest under Florida law where the amount transferred to a
transferee is less than the amount of taxes owed by the
transferor, see Griffin v. Commissioner, T.C. Memo. 1997-394.