*89 Decision will be entered under Rule 50.
1. Jelwan, the taxpayer, transferred all or substantially all of his property to petitioner in fraud of creditors and in partial consideration for petitioner's promise of future support. By reason of such transfer, respondent determined that petitioner was liable as transferee of Jelwan's property for a deficiency in income tax, an addition to tax for fraud, and interest. Jelwan was a diabetic and, at the time of the transfers, was in the hospital where his remaining leg was amputated. Petitioner expended from the money received certain sums in constructing and furnishing an apartment in the basement of her home, which Jelwan occupied after leaving the hospital. Thereafter she paid his living expenses, including fees of a nurse. She also paid certain of his debts, including hospital bills, doctors' and lawyers' fees, and a prior loan and expended $ 7,500 for United States Savings bonds which were issued in Jelwan's name and given to him. After living in the apartment approximately five months, Jelwan filed suit to recover the property transferred to petitioner and moved away. The suit was settled some months later by retransfer of*90 other bonds and property to Jelwan. After an attempt at suicide, Jelwan again entered a hospital, and died some two or three months later. From and after the transfers by Jelwan to petitioner, Jelwan was at all times insolvent. Held, that respondent made a prima facie case of transferee liability against petitioner by showing the transfer of money and property to her in fraud of creditors, and that the burden of going forward with the proof shifted to petitioner. Held, further, that petitioner is not relieved of transferee liability to the extent of moneys paid in satisfaction of various bills of Jelwan or for his living expenses, in the absence of a showing that the debts and obligations paid had priority over the liability to the Government. Hutton v. Commissioner, 59 F. 2d 66, affirming 21 B. T. A. 101; Estate of L. E. McKnight, 8 T. C. 871; and Margaret Wilson Baker, 30 B. T. A. 188, followed. Held, further, that to the extent of the money and property returned to Jelwan, petitioner is not liable as transferee.
2. Where respondent's counsel, *91 at or during the trial, by stipulation and concession relieved petitioner of a portion of her burden of proof, the burden of proof as to remaining matters did not shift from petitioner to respondent.
*1160 The respondent determined a deficiency in income tax of $ 25,594.12 and a fraud penalty of $ 12,797.06 against Kay J. Jelwan for the year 1948 and that the petitioner is liable therefor as transferee of Jelwan's assets. The petitioner contests both the determination of the deficiency and penalty against Jelwan and her liability as transferee.
FINDINGS OF FACT.
Parts of the facts have been stipulated and are found as stipulated.
Petitioner is a resident of San Francisco, California. She filed no income tax*92 return for 1948.
Kay J. Jelwan was a resident of San Francisco, and filed his income tax return for 1948 with the collector of internal revenue in that city. Jelwan was also known as Najeeb J. Jelwan and N. J. Joseph. He died on March 22, 1950.
For a period of time, ending with or shortly after the death of his wife, Mattil Jelwan, on June 22, 1948, Jelwan lived at 98 Estero Avenue, San Francisco. He and his wife owned the home in which they lived, as joint tenants. In November of 1948, and at the instigation of Jelwan, a decree was entered by the Superior Court in and for the City and County of San Francisco establishing the fact of his wife's death. The decree enabled Jelwan to make a conveyance of the house and lot at 98 Estero Avenue. No Federal estate tax return was filed for Mattil Jelwan's estate and no proceedings were instituted to probate any property she may have left.
In 1941 Jelwan opened a restaurant in San Francisco known as Humpty Dumpty. Prior to the opening of this restaurant, his and his wife's assets did not exceed $ 20,000, of which $ 6,000 was used to open the restaurant named Humpty Dumpty. Humpty Dumpty was followed by another restaurant, opened under*93 the name of Snow White. After the sale or other disposition of Humpty Dumpty and Snow White, Jelwan opened another restaurant in San Francisco, which was known as Alice in Wonderland or Wonderland Hamburger Shop, sometimes referred to herein as Wonderland.
The net income or net loss and the income tax reported by Kay Jelwan and Mattil Jelwan on the income tax returns filed by them for the years 1942 to 1948, inclusive, were as follows: *1161
| 1 1942 | 2 1943 | 2 1944 | 1945 | |
| KAY JELWAN: | ||||
| Business income | $ 1,551.75 | $ 9,288.57 | $ 2,976.66 | $ 1,864.86 |
| Capital gain -- 50 per | ||||
| cent | 1,220.83 | 2,279.62 | ||
| 1946 sec. 23(s)loss | (2,303.29) | |||
| Income | $ 1,551.75 | $ 9,288.57 | $ 1,894.20 | $ 4,144.48 |
| Federal income tax | None | $ 2,387.30 | $ 276.00 | $ 831.00 |
| MATTIL JELWAN: | ||||
| Community business | ||||
| income | 9,288.57 | 2,976.66 | 1,864.86 | |
| Capital gain -- 50 per | ||||
| cent | 1,220.83 | 2,279.62 | ||
| 1946 sec. 23(s) loss | (2,303.29) | |||
| Income | $ 9,288.57 | $ 1,894.20 | $ 4,144.48 | |
| Federal income tax | $ 2,387.30 | $ 276.00 | $ 831.00 |
| 1 1946 | 1 1947 | 1 1948 | |
| KAY JELWAN: | |||
| Business income | $ (8,912.55) | $ (13,014.36) | $ (5,081.33) |
| Capital gain -- 50 per | |||
| cent | |||
| 1946 sec. 23(s) loss | |||
| Income | $ (8,912.55) | $ (13,014.36) | $ (5,081.33) |
| Federal income tax | None | None | None |
| MATTIL JELWAN: | |||
| Community business | |||
| income | |||
| Capital gain -- 50 per | |||
| cent | |||
| 1946 sec. 23(s) loss | |||
| Income | |||
| Federal income tax |
The income accounted for by Jelwan and his wife on their income tax returns for the period 1942 through 1948, after adjustment of the amounts shown on those returns for capital gains, amounted to $ 21,111.46.
Jelwan sold the property at 98 Estero Avenue, including the home furnishings, in October or November of 1948, for $ 31,000. At some time after 1941, he had bought the house and lot for $ 10,000 and had invested $ 2,000 in furniture and furnishings. His net proceeds from the sale amounted to $ 28,709.01.
In 1948 Jelwan had four bank accounts in addition to an account carried for Wonderland. They were: Savings Account No. XXXX, in the name Najeeb J. Jelwan; Savings Account No. X6730, in the name N. J. Joseph; a checking account, in the name Najeeb J. Jelwan; and another checking account, in the joint names Najeeb J. Jelwan and Alex Massad. Alex Massad was one of Jelwan's stepchildren. He died prior to the trial herein. In these four accounts Jelwan deposited, or had deposited, during 1948, from undisclosed and unexplained sources, a total of $ 47,000. In addition to the above Jelwan, at *95 some date not shown, had established a joint savings account, No. 15082, in his name and that of petitioner. Deposits were made in the higher numbered savings account No. X6730 as early as October 29, 1948.
During 1948 Jelwan expended $ 4,624.42 for medical expenses of the type deductible under the provisions of section 23 (x) of the Internal Revenue Code.
In his income tax return for 1948, Jelwan reported a net loss of $ 5,081.33. He did not report any part of the gain realized upon the sale of the property at 98 Estero Avenue, nor income from any source other than Wonderland.
In his determination of the deficiency herein, the respondent increased Jelwan's income in the amount of $ 71,203.92, with the explanation *1162 that an analysis of Jelwan's bank deposits disclosed that his taxable net income for 1948 had been understated by that amount.
The petitioner, who was 37 years of age in 1948, is also known as Fada Tooley. She was born in Syria, and came to this country when she was 9 years old. She subsequently lived in Phoenix, Arizona, where she was married to George Tooley. She met Jelwan, who was also Syrian, through her husband when on visits to San Francisco.
Petitioner*96 and Tooley were divorced in Phoenix, on October 28, 1946, at which time she received, or had acquired, 1,300 shares of Packard stock, 1,000 shares of Garwood stock, and some cash, which included the proceeds from the sale of a car. Shortly after her divorce, she went to San Francisco and assisted Jelwan in opening Wonderland. She continued working for Jelwan until sometime after the middle of 1947, when she returned to Phoenix, with the intention of being married. After she reached Phoenix, Jelwan persuaded her to give up her plans for marriage and return to assist him in the operation of Wonderland. Part of the inducement for returning to San Francisco, was a cashier's check from Jelwan in the amount of $ 2,300. She purchased a Plymouth automobile, returned to San Francisco and resumed working at Wonderland. She received no fixed salary, but drew, or was allowed, undisclosed amounts from time to time. Both Jelwan and petitioner could draw checks on the bank account carried in the name of Wonderland Hamburger Shop.
At January 1, 1948, the books of Wonderland showed $ 8,500 as a loan payable to petitioner. They also showed payment to her of $ 4,800 in January 1948, and a balance*97 of $ 3,700 due at the end of the year.
In January 1948, petitioner purchased a residence in San Francisco, at a cost of $ 21,000. She paid approximately $ 5,000 in cash, using the $ 4,800 received from Jelwan at or about that time. She gave the Home Mutual Savings Association a first deed of trust for $ 10,000, and Ed Murphy, a next-door neighbor, a second deed of trust for $ 6,000. In 1949 she paid $ 7,500 on the indebtedness on the home, which represented proceeds from the sale of United States Government bonds. The indebtedness was paid in full by July 1949.
Jelwan purchased a Cadillac automobile on July 13, 1948, at a price of $ 4,632, receiving thereon a trade-in credit of $ 92 and making payment of the $ 4,540 balance by check.
Prior to 1948, Jelwan, because of a diabetic condition, suffered the loss of his left leg. He was in the hospital in August of 1948 for a prostate operation. He returned to the hospital in November 1948 for an operation on his right leg, which was amputated in December of that year. On December 10, and while he was still in the hospital, Jelwan, by bill of sale and for a recited consideration of $ 10, which $ 10 was not paid, transferred Wonderland*98 to petitioner. *1163 Also while in the hospital, Jelwan directed the manager of the Anglo California National Bank Branch at Jones and Market Streets to transfer the balance of $ 44,000 in his savings account, Account No. X6730, standing in the name of N. J. Joseph, into joint savings account, Account No. X5082, in his name and that of petitioner. The transfer was made on December 18, 1948. He also transferred to petitioner a commercial account in the same bank in the amount of $ 1,078.09. At or about the same time, Jelwan transferred title to his Cadillac automobile to the petitioner.
After the above transfers to petitioner, and as of December 18, 1948, Jelwan's "Najeeb J. Jelwan" savings account, "N. J. Joseph" savings account, "Najeeb J. Jelwan" commercial account and "Jelwan-Massad" commercial account were reduced to zero.
On December 31, 1948, the bank credited interest in the amount of $ 540 to the joint savings account No. X5082, making the balance in the account as of that date $ 44,540. Petitioner thereafter made the following withdrawals from the account: December 31, 1948, $ 12,500; January 3, 1949, $ 10,000; January 3, 1949, $ 21,545, which closed the account. *99 3 The January 3 withdrawals were paid in cashier's checks which petitioner held for two or three weeks before depositing or cashing them. The withdrawals were made by petitioner at Jelwan's instigation because he had bills he did not wish to pay. $ 7,500 of the December 31 withdrawal was placed in United States Government Series G bonds, which bonds were made payable to Jelwan or petitioner. Petitioner cashed these bonds prior to July 1949 and applied the $ 7,500 received therefor on her home, as above set forth.
Petitioner had an account with the Anglo California National Bank Branch at Jones and Market Streets, and about the middle of January 1949, deposited therein $ 10,000 of the money drawn from the joint savings account which had been established by Jelwan, as described above. *100 She also purchased additional Series G bonds, part of which were made payable to her and part to her brother, John Gobins. Jelwan was not obligated to John Gobins. Petitioner also had an account at the Bank of America, No. 1 Powell Street.
In anticipation of Jelwan's dismissal from the hospital, the petitioner converted a basement garage in her home into an apartment, where Jelwan could live and be taken care of. Her home was located in a one-family restricted zone and she had difficulty getting permission to build the apartment. After signing a covenant with the city of San Francisco, to the effect that she would never use the premises commercially, she was granted a permit in the latter part of January 1949, and proceeded with the construction of the apartment. The *1164 apartment consisted of a bedroom and bath, a small kitchen and a fair-sized living or "rumpus" room. The doors were made wide for the easy passage of a wheel chair. A ramp was built so that Jelwan could be wheeled to and from the outside more easily. Bars were built into the ceiling of the bedroom in order that Jelwan could lift himself while in bed. A special bed and two wheel chairs were obtained*101 for his use. Tables suitable for poker and other games were put into the living room. A shower bath for the use of a cripple in a wheel chair was installed. In the construction and furnishing of the apartment, petitioner expended $ 5,500 from the funds she had received from Jelwan. Of that amount, $ 1,500 was expended for furniture and furnishings. The apartment did not enhance the value of the petitioner's property to the extent of the cost of construction. The construction of the apartment increased the value of petitioner's property in the amount of $ 1,500.
Jelwan was moved from the hospital to the apartment in the latter part of February 1949. A nurse was employed to take care of him. His diversion was the game of poker, which he and friends often played in the evenings, for small stakes. Twice he returned to a hospital while living in the apartment, once in April and again in May 1949.
On some undisclosed date, but prior to August 3, 1949, and possibly in the month of July, petitioner expended $ 7,500 for United States Savings bonds. The bonds were purchased in Jelwan's name and after purchase were delivered to him.
Wonderland was sold on July 28, 1949, to Peter Leonis*102 and associates for $ 13,000. Of the price received, $ 3,000 was paid direct to A. B. C. Cigar Company for back rent. The balance of $ 10,000 was paid to the Horst Realty Company, through which the sale had been made, and was placed in escrow to pay any outstanding liabilities of Wonderland. In April 1949, the petitioner had given the City Title Company a trust deed securing the performance of the lease covering Wonderland by the A. B. C. Cigar Company, as lessor, and Jelwan, as lessee. The sale of Wonderland and the payment of rent in arrears released petitioner from this obligation.
On the books of Wonderland Kay Jelwan was shown as the owner of the business in 1948, and petitioner as the owner in 1949. The book value of the business at December 31, 1948, was $ 13,931.98.
In addition to the amounts expended by petitioner in the construction and furnishing of the apartment and the $ 7,500 paid for bonds taken in Jelwan's name and delivered to him, petitioner expended in Jelwan's behalf and from the moneys transferred from him to her, the following: *1165
| Hospital and ambulance fees | $ 1,216.00 |
| Doctors' fees | 785.00 |
| Attorneys' fees | 398.80 |
| Repayment of a loan | 500.00 |
| Taxes | 61.08 |
| Miscellaneous, including nurse's fees, food for nurse and Jelwan, | |
| spending money for Jelwan, and other incidentals | 1,400.00 |
| Total | $ 4,360.88 |
*103 Also from the funds received from Jelwan, petitioner made two deposits in the Wonderland Hamburger Shop bank account, one for $ 500, on February 24, 1949, and one for $ 2,000, on May 17, 1949. Except for some part of the amount listed under Miscellaneous expended in June and July, all of the expenditures listed above were made not later than May of 1949.
In the early part of August 1949, while still living at the apartment, Jelwan filed suit against the petitioner, her father, mother and brother, and others, in which he undertook to recover everything he had transferred to petitioner. About a week after petitioner was served with notice of the action, Jelwan moved from the apartment.
Jelwan was again in the hospital in the early fall of 1949, where he was visited on October 19 by two revenue agents, who discussed his income tax matters with him. Jelwan appeared to them to be depressed, and stated that he was sick, had nothing and that petitioner had gotten everything.
On October 21, 1949, Jelwan registered at the Hotel Oxford, in San Francisco. On the next day, October 22, 1949, he and the petitioner settled their litigation. Under the settlement, petitioner executed an instrument*104 whereby she assigned and transferred to Jelwan the business known as Alice in Wonderland and the proceeds of the sale thereof, the Cadillac sedan which Jelwan had formerly transferred to her, United States bonds of a then value of approximately $ 7,500, and the furniture and furnishings of the basement apartment in petitioner's home.
On October 25, 1949, E. Grainger, as assignee of Dr. Miley V. Wesson, filed suit against Jelwan in the amount of $ 6,000, for services rendered by Dr. Wesson to Jelwan during the two preceding years. This matter was heard by the court on January 19, 1950, and a judgment for $ 5,000 and costs was given the plaintiff on February 8, 1950.
On November 9, 1949, the Commissioner of Internal Revenue assessed a deficiency in income tax for the year 1948 against Jelwan in the amount of $ 25,594.12, interest thereon in the amount of $ 1,000.97 and a fraud penalty of $ 12,797.06. No portion of the assessment has been paid.
*1166 Jelwan stayed at the Hotel Oxford until January 1, 1950. During part of that period he was chauffeured and taken care of by one William Drain, who had rendered services to Jelwan for a short period in 1948. He spent some of his *105 evenings playing poker at a gambling establishment in Oakland.
Jelwan owned a diamond ring worth several hundred dollars, which was regularly worn by him. On December 30, 1949, he pawned the ring for $ 350. On or about December 31, 1949, he attempted suicide by taking an overdose of sleeping tablets. On January 1, 1950, he was taken to the San Francisco County Hospital. On entering the hospital, he reported his only assets as $ 80 and stated that he owed some doctor's bills. He called on his stepdaughter, Edna Salem, for assistance. On January 19, 1950, she redeemed the ring from the pawn shop by the payment of $ 365 and some cents. At the date of the hearing, she had the ring in a safety deposit box. The diamond, according to her claim, had belonged to her mother.
On January 26, 1950, two revenue agents called on Jelwan at the San Francisco County Hospital. Present at the time were Jelwan's attorney and his accountant, who had kept Wonderland's books. One of the agents exhibited to Jelwan a statement of the deposits which had been made during 1948 in Jelwan's various bank accounts, showing the transfers of funds between the various accounts and listing the deposits which*106 had been made in the various accounts from unknown sources. Jelwan was asked by his attorney if he knew anything about the deposits, but made no response. He was also asked if he wished to have another accountant check the figures, but gave no reply. Jelwan's accountant then stated that the agent's figures checked with his own figures, except that the agent's statement showed less deposits with sources unknown than the accountant's figures.
On January 27, 1950, Jelwan was moved from the San Francisco County Hospital to the Laguna Honda Home, in San Francisco, where he died on March 22, 1950. His funeral expenses were paid by his stepchildren. Although he was not checked out of the Oxford Hotel until January 6, 1950, Jelwan remained in the San Francisco County Hospital and the Laguna Honda Home from January 1, 1950, until his death, on March 22.
Subsequent to Jelwan's death, his will was delivered to the clerk of the Superior Court in and for the City and County of San Francisco. No proceedings were instituted for the probate of the will and the records of the court do not show that he had any assets at the time of his death.
Jelwan transferred his assets to petitioner for the*107 purpose of avoiding payment of debts owed by him, and such purpose was known and understood by petitioner. The transfers were made with the understanding *1167 that petitioner would thereafter pay Jelwan's personal and living expenses from the funds transferred to her. As a result of the transfers by Jelwan to petitioner, Jelwan was insolvent at all times from and after January 3, 1949.
There is a deficiency in the income tax of Kay J. Jelwan for the year 1948 in the amount of $ 15,194.36, which deficiency was due to fraud with intent to evade tax.
OPINION.
Pursuant to the provisions of section 311 of the Internal Revenue Code, 4 the respondent has determined that petitioner was transferee of property of Kay Jelwan and, as such transferee, is liable in an amount equal to the deficiency in income tax determined against Jelwan for 1948, the addition thereto for fraud, and interest. The petitioner in this proceeding contests both the determination of the deficiency and fraud penalty against Jelwan and the determination of transferee liability therefor against her. Under section 1119 of the Internal Revenue Code, the burden of proof in such proceeding is upon the respondent *108 "to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax."
In his income tax return for 1948, Jelwan reported a net loss of $ 5,081.33. He did not *109 report any of the gain realized from the sale of the house and furnishings at 98 Estero Avenue, nor income from any source other than the operation of Wonderland. In his determination of deficiency, the respondent increased Jelwan's income by $ 71,203.92, as representing bank deposits from undisclosed and unexplained sources made by or for Jelwan in his various bank accounts in 1948. The record discloses total deposits in that year of $ 171,715.70. Of that amount, $ 90,293.06 represented transfers between bank accounts, leaving $ 81,422.01 to be accounted for. Of this latter amount, $ 5,713 represented proceeds from Series E war bonds belonging to Jelwan in a prior year, and $ 28,709.01 represented the proceeds from the sale of the Estero Avenue property, leaving bank deposits still unexplained in the amount of $ 47,000. Of the deposits covering the proceeds from the sale of the Estero Avenue property, $ 8,354.50 represents the amount of taxable capital gain realized on the transaction. While *1168 the petitioner did testify that according to her knowledge Jelwan had no business operations or sources of income other than Wonderland, it is not disputed that he did have in*110 1948 bank deposits from unexplained and undisclosed sources in the amount of $ 47,000. There is some suggestion or argument that $ 20,000 of the amount having been deposited by Alex Massad in the Jelwan-Massad joint account, the $ 20,000 so deposited did, or may have, belonged to Massad. The proof shows that 15 days later $ 20,650 was transfered from the Jelwan-Massad account, $ 2,650 to the Najeeb J. Jelwan checking account and $ 18,000 to the Najeeb J. Jelwan Savings Account No. XXXX. The proof further shows that Jelwan was given an opportunity to explain or disclose the source of the deposits in question, but made no effort to do so. It also appears that in Jelwan's presence his accountant stated that, except for the fact that his records indicated unexplained bank deposits in a greater amount, his data was in accord with that of the revenue agent.
The respondent's determination is presumed to be correct, and bank deposits from unexplained and undisclosed sources supply an adequate basis for such determination. Goe v. Commissioner (C. A. 3), 198 F. 2d 851. See also Halle v. Commissioner, 175 F. 2d 500, affirming*111 7 T. C. 245; Hague v. Commissioner, 132 F. 2d 775, affirming 45 B. T. A. 104; Hoefle v. Commissioner, 114 F. 2d 713; and Leonard B. Willits, 36 B. T. A. 294.
The reduction of unexplained bank deposits from $ 71,203.92, added to income in determining the deficiency, to $ 47,000, now shown of record, came about by concessions made by counsel for the respondent at the time and in the course of the trial herein. In preparing for trial, counsel caused a revenue agent to be assigned to further check and verify the evidence at hand and to obtain any other pertinent information that might be had. In the course of his investigation, the agent succeeded in further identifying Jelwan's 1948 deposits, thereby reducing the unexplained deposits to $ 47,000, as above set forth. Part of the deposits were identified as proceeds of the sale of the Estero Avenue property, of which $ 8,354.50 represented the amount of taxable capital gain realized by Jelwan on the sale. He also discovered that during 1948 Jelwan had expended $ 4,624.42 for medical*112 expenses of the type deductible under the provisions of section 23 (x) of the Internal Revenue Code, for the deduction of which no claim had been made.
It is the contention of counsel for the petitioner that, by reason of these concessions at or in the course of the trial, the burden of proof as to the correctness of the deficiency has shifted from the petitioner to the respondent. The contention is wholly devoid of merit. The concessions made by counsel were not only in the interest of orderly procedure, *1169 but they relieved petitioner of a substantial portion of her burden of proof and this court of what could have been an even longer and more burdensome trial. His action was in keeping with his duty as a lawyer and officer of the Court. To rule with petitioner, would be to say that counsel, whether for respondent or petitioner, who, by concession or stipulation of pertinant facts, relieves opposing counsel of a portion of his burden of proof and the Court of needless labor, does so at the jeopardy of having the burden of the opposing party as to remaining matters shift to himself. Justice and common sense would countenance no such rule.
On the facts as they appear *113 of record, the deficiency in Jelwan's income tax for 1948 is $ 15,194.36, and has been so found in our findings of fact. With respect to the fraud issue, we have concluded, and found as a fact, that the deficiency was due to fraud with intent to evade tax, and, in that connection, there is no need to again discuss the matter covered above in connection with the determination of the deficiency, which facts, along with other evidence of record, amply sustain the respondent's determination that the deficiency was due to fraud with intent to evade tax. See Goe v. Commissioner, supra. The addition to tax determined by the respondent, pursuant to the provisions of section 293 (b) of the Code, to the extent of 50 per cent of the above deficiency, is accordingly sustained.
On the transferee issue, the evidence of record discloses that the transfers by Jelwan to petitioner were made in fraud of creditors and in partial consideration for petitioner's executory promise to pay his future living expenses, and, by reason of the transfers so made, Jelwan was rendered insolvent. That petitioner thus became liable "at law or in equity" as transferee of Jelwan's*114 property, does not in our opinion require discussion or amplification. For a case where the consideration for the transfers was the promise of future support, and the determination of transferee liability was sustained, see Margaret Wilson Baker, 30 B. T. A. 188. Having shown that petitioner did become so liable, the respondent has made a prima facie case of transferee liability and the burden of going forward shifted to petitioner, and unless the prima facie case so made is answered or rebutted by petitioner, the respondent must be regarded as having borne his burden of proof. Hutton v. Commissioner, 59 F. 2d 66, affirming 21 B. T. A. 101. To the same effect, see Robinette v. Commissioner, 139 F. 2d 285; Commissioner v. Renyx, 66 F. 2d 260; Estate of L. E. McKnight, 8 T. C. 871; Margaret Wilson Baker, supra;H. W. Trout, 27 B. T. A. 1210; and Edward H. Garcin, 22 B. T. A. 1027.
For refutation of the *115 case so made by the respondent, petitioner relies on her own testimony, certain canceled checks, various bills, invoices and other writings and, to a more limited extent, on the testimony *1170 of other witnesses, as showing that the transfers were, in part, payment of money owing by Jelwan to her; that the transfers were also made in consideration of her promise of future support and that she actually did expend $ 13,362.71 therefor, and to that extent the consideration was adequate and relieved her of any transferee liability which may have arisen with respect thereto; that she also paid for Jelwan's benefit from the money received $ 5,609.88, to cover taxes, attorneys' fees and payments to Wonderland; and that she thereafter paid, turned over or retransferred to Jelwan United States bonds, the Cadillac sedan, the furniture and furnishings from the basement apartment in her home, proceeds from the sale of Wonderland, and cash, amounting in the aggregate to $ 31,100, all to the end that she received and retained no property from Jelwan which would supply a basis, at law or in equity, for transferee liability on her part in respect of any income tax, fraud penalty, and interest*116 found to be due and owing by Jelwan.
In addition to the testimony given by petitioner at the trial herein, there are of record copies of her answer to the complaint in the Jelwan litigation, her cross complaint, both subscribed and sworn to by her, and her deposition given on August 17, 1949, in preparation for trial of the said suit. The allegations in these pleadings and the testimony so given by deposition vary greatly from much of her testimony here, and in numerous instances are in direct contradiction. In fact, her testimony at the trial herein was that much of the matter stated under oath in connection with the Jelwan litigation was not true. Her explanation of such admitted disregard of her oath was that the litigation there was between herself and another individual and she was fighting back, while in this proceeding where the United States is a party the situation is wholly different and, for that reason, her testimony here should be accepted as true. Even in that statement there is contradiction of record, it being noted that the copies of the above pleadings, together with a new covering affidavit to the effect that the allegations were true of her own knowledge, were*117 submitted to the Bureau of Internal Revenue under date of December 6, 1949, in denial of the transferee liability asserted by the respondent and now here for determination. For reasons thus appearing, and on the basis of impressions made by her while testifying at the trial herein, we are unable to give credence to her testimony except when corroborated by other evidence or where it was in the nature of admissions against interest.
In support of her testimony as to the amounts expended in constructing and furnishing the apartment for Jelwan, the petitioner has placed in evidence canceled checks, amounting in the aggregate to $ 7,580.78, and sales slips and invoices, in a total amount of $ 647.93. While some of the amounts covered by the checks, sales slips, and *1171 invoices were undoubtedly used for the purposes stated, and, to some extent, do corroborate the petitioner's oral testimony as to use of part of the money received from Jelwan, it is apparent that all of the amounts covered thereby were not so expended. For one thing, there were duplications between the canceled checks and the sales slips and invoices. In addition, one of the checks appears to have been in payment*118 of the premium on an insurance policy, presumably on petitioner's home. Furthermore, there is no way of connecting various checks and sales slips with the apartment and its furnishings, except by petitioner's oral testimony. Being convinced that some fairly substantial amount was so expended by petitioner, we have arrived at $ 5,500 as being in our best judgment the amount shown by the evidence to have been expended. Cohan v. Commissioner, 39 F. 2d 540. Of that amount, we have concluded that $ 1,500 covered furniture and furnishings. One of the difficulties in fixing the amount expended for furniture and furnishings was that it was not possible to determine with respect to some expenditures what amounts were attributable to movables and what amounts were for items which were attached to and became a part of the premises. Furthermore, despite petitioner's denials, we are not convinced that all of the expenditures were for Jelwan and none for petitioner's own account. To the contrary, we have concluded, and found as a fact, that the conversion of the garage in the basement of her home into an apartment, consisting of a living or "rumpus" room, *119 bedroom, bath and kitchen, enhanced the value of her home in the amount of $ 1,500. Similarly, following the rule in the Cohan case, we have concluded, and found, that petitioner also expended in Jelwan's behalf $ 1,400 to cover nursing fees, food for the nurse and Jelwan, spending money for Jelwan, and other incidentals. As to hospital and ambulance fees, doctors' fees, attorneys' fees, repayment of a loan to a third party, and taxes paid for Jelwan, we have accepted the canceled checks as proof of the amounts so expended.
As in case of the expenditures made in Jelwan's behalf covered in the preceding paragraph, the retransfers found by us to have been made by petitioner to him also fall substantially short of the amount claimed. We have satisfied ourselves and found from evidence of record that on some date prior to August 3, 1949, possibly in July, petitioner delivered to Jelwan United States Savings bonds which had cost $ 7,500 and had been issued in his name. By the instrument executed under date of October 22, 1949, in settlement of the suit instituted by Jelwan against her, petitioner assigned and transferred the Cadillac sedan, additional United States Savings bonds*120 which likewise had cost $ 7,500, the furniture and furnishings from the basement apartment and the proceeds from the sale of Wonderland, and we have so found. *1172 We do not know, however, that Jelwan at any time actually received any part of the Wonderland sale proceeds. The sale was made in July 1949 for $ 13,000, of which $ 3,000 was applied immediately in payment of back rent, while the remaining $ 10,000 was placed in escrow for the payment of Wonderland's debts. What amount, if any, remained after the debts were paid is not shown.
We have been unable to find that the petitioner returned any amount to Jelwan in cash, or that any part of the money received from him was received in payment of a $ 3,700 balance of a prior loan to him or for salary owing for services rendered to Wonderland. Her claim that, in addition to the bonds and other property set forth above, she also returned $ 3,000 in cash to Jelwan in settlement of their litigation is wholly uncorroborated and, for reasons already stated, has been rejected. As to her claim that Jelwan was indebted to her, it is true that the books of Wonderland did show that the business was indebted to her in 1948 and that *121 the balance thereof per books at December 31, 1948, was $ 3,700. It is further shown of record, however, that even before the transfer of the business to her on December 10, 1948, petitioner had substantial control thereof. She had equal power with Jelwan to draw checks on its bank account, had been in charge during Jelwan's sojourns in the hospital and, from and after the transfer, and until its sale, she operated the business as her own. It does appear that between February 17, 1949, and May 17, 1949, petitioner did draw checks on her own bank account payable to Wonderland, aggregating $ 3,150, of which two checks, totaling $ 2,500, were deposited in Wonderland's bank account. Except, however, for some uncorroborated general statements made by petitioner in the course of her testimony, there is nothing of record as to the operations of Wonderland in 1949 and prior to its sale in July of that year. Beyond the above deposits of $ 2,500, we do not know what came into Wonderland nor what went out, whether to petitioner or to others. Such being the state of the record, the claims and contentions of petitioner with respect to Wonderland must be rejected.
Our conclusions and findings*122 as to the use and disposition of the cash transferred to petitioner by Jelwan may be summarized as follows:
| Cash received | $ 45,618.09 | |
| Returned to Jelwan: | ||
| U. S. Savings Bonds, at cost (delivered prior | ||
| to August 31, 1949) | $ 7,500.00 | |
| U. S. Savings Bonds, at cost (transferred in | ||
| October 1949, in settlement of suit) | 7,500.00 | |
| Furniture and Furnishings, at cost | 1,500.00 | |
| 16,500.00 | ||
| $ 29,118.09 | ||
| Expended in Jelwan's behalf: | ||
| Cost of construction of apartment, less | ||
| $ 1,500, the amount by which the value of | ||
| petitioner's property was increased | $ 2,500.00 | |
| Hospital, ambulance, doctors' and attorneys' | ||
| fees, repayment of loan and taxes | 2,960.88 | |
| Miscellaneous, including nursing fees, food | ||
| for nurse and Jelwan, spending money for | ||
| Jelwan and other incidentals | 1,400.00 | |
| $ 6,860.88 | ||
| Received and retained by petitioner | $ 22,257.21 |
*1173 One of the arguments advanced by petitioner is that by and through the retransfers made by her Jelwan's solvency was restored and, by reason thereof, she was relieved of any liability she may have had theretofore as transferee of his property; and further, that it was incumbent*123 on the respondent to show that Jelwan was insolvent on January 5, 1950, when the notice of transferee liability was mailed to her. The short answer is that petitioner has not shown that Jelwan's solvency was so restored. To the contrary, the evidence, in our opinion, shows that by reason of the transfers made to petitioner Jelwan was insolvent at all times from and after January 3, 1949, and we have so found.
Petitioner's liability as transferee of Jelwan's property up to $ 22,257.21 follows from our conclusions and findings of fact to the effect that she received and retained that amount for her own benefit, and as to her liability in that amount, no further discussion is required.
The question remaining is whether she is relieved of liability as to the amounts expended in Jelwan's behalf and the amounts returned to him. By section 3439.04 of the California Civil Code, it is provided that "Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation incurred without a fair consideration." Section 3439.07 of the code is to*124 the effect that "Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Petitioner argues, however, that the return of money and property to Jelwan purged the transaction of fraud to the extent of the property so returned, and further, that a transaction in consideration of future support is valid as against creditors to the extent of the support actually furnished pursuant thereto.
In support of the latter proposition above, the petitioner quotes from 37 Corpus Juris, Secundum, 971, and cites and relies on First National Bank v. Smith, 217 Cal. 394">217 Cal. 394, 396; Potts v. Mehrmann, 50 Cal. App. 622">50 Cal. App. 622, 626; Baxter v. Baxter, 19 Cal. App. 238">19 Cal. App. 238, 239; and Taylor v.*1174 Collins and Taylor, 299 S. W. (Ky.) 1097. At no place, however, has the petitioner offered any proof or made any argument to show that the debts and fees paid in Jelwan's behalf or that the expenditures for*125 his subsequent support had priority over the indebtedness to the Government herein. Transferee liability having been prima facie established, it is incumbent on petitioner to make such a showing. Hutton v. Commissioner, supra;Estate of L. E. McKnight, supra; and Margaret Wilson Baker, supra.As to priority of claims of the United States, see also Commonwealth of Massachusetts v. United States, 333 U.S. 611">333 U.S. 611; Price v. United States, 269 U.S. 492">269 U.S. 492; and Powers Photo Engraving Co., 17 T.C. 393">17 T.C. 393, remanded on another point (C. A. 2), 197 F.2d 704">197 F. 2d 704. Petitioner's claim that she is relieved of liability by reason of the expenditures made by her in Jelwan's behalf is accordingly rejected.
For the proposition that the return of property to Jelwan purged the fraud from the prior transfer thereof to her, to the end that she is no longer liable to the extent of the property so returned, the petitioner quotes from 37 Corpus Juris, Secundum, 1101, 24 American Jurisprudence 263, Wait*126 on Fraudulent Conveyances, section 398, and Bigelow on Fraudulent Conveyances (rev. ed.) 482, and cites and relies on Roseman v. DeHart, 80 Cal. App. 2d 737">80 Cal. App. 2d 737; Taylor v. Collins and Taylor, supra;Hughes v. Hughes, 221 S. W. 970, 972; Martin v. Martin, 150 S. W. 696, 700; Fulton v. McCullough, 7 N. W. 2d 910; Cramer v. Blood, 48 N. Y. 684; Matthews v. Buck, 43 Me. 265">43 Me. 265, 268; and McCann v. Commissioner, 87 F. 2d 275, reversing 30 B. T. A. 102. The cases and authorities cited by petitioner appear to support the proposition for which petitioner contends. The respondent makes no argument except to contend that the petitioner's claim as to the money and property returned to Jelwan is likewise defeated by the priority rights of the United States Government as against Jelwan's general creditors. As to the money and property returned to Jelwan, it is our conclusion that petitioner should prevail, *127 and we so hold. As to the retransfers, there was no preferring of any of Jelwan's creditors. Jelwan was not a general creditor, but the original owner of the property in question. The return of the property to him, to the extent of the property so returned, would, in logic at least, leave his creditors, including the United States, in the same position they were in prior to the transfer by him to petitioner. It is, of course, possible that such a retransfer might be the result of collusion between the parties and made in such manner that it also would be in fraud of creditors. Such, however, was not the case in this instance. The retransfers were made in settlement of a suit which was of public record in the California court. We accordingly sustain the petitioner as to the property returned.
Decision will be entered under Rule 50.
Footnotes
1. Joint returns filed.↩
2. Delinquent returns secured by Agent Carr 6/22/48.↩
3. The facts as to the amounts withdrawn were orally stipulated in the course of the trial. The discrepancy of $ 495 between the amount shown as being in the account and the withdrawals which "closed the account" is not explained.↩
4. SEC. 311. TRANSFERRED ASSETS.
(a) Method of Collection. -- The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this chapter (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):
(1) Transferees. -- The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this chapter.↩