In Uncategorized on 12/01/2015 at 17:07

If You Can’t Prove It

We have another replay of the fraudulent conveyance-transferee liability-Section 6901 drama in John M. Alterman Trust u/a/d May 9, 2000, Ronald Gordon and Donald Gavid, Trustees, Transferee, et al., 2015 T. C. Memo. 231, filed 12/1/15. IRS here has the burden of proof, and they can’t carry the weight.

This is yet another of MidCoast’s skulldugging. I’ve blogged these by the carload, so no citations. Judge Buch has all the cases in his opinion, anyway.

Here, MidCoast buys up the Alterman family trucking business, claiming they’ll reengineer the company into a bottom-fishing debt collector and lay off the built-in gain in the Alterman’s C Corp with bad debts.

Of course, they do nothing of the kind. Lying even to their own personnel, the MidCoast capos get short-term loans to fund the buyout, offshore the cash they get from the assets of the purchased Alterman C Corp, and do the phony currency option shellgame, buying major and selling minor, recognizing one but not the other. Then they collapse the vehicle they used.

Judge Buch is a-weary of this stuff.

“Courts, including this court, have been plagued by Midco cases. Rarely do these cases present themselves for a determination of the underlying liabilities. Instead, these cases are postured so that the courts are asked to determine whether someone other than the taxpayer should be on the hook for the taxpayer’s liability. They are transferee liability cases, and so are these cases.

“The fact patterns of these cases are similar. Someone sells an interest in a corporation for a good price; the corporation doesn’t pay its taxes; and the Internal Revenue Service (IRS) goes after the former shareholder for the taxes.

“The outcomes of these cases vary. Many taxpayers have prevailed at the trial court, but many of those taxpayers have seen their victories turned to defeat on appeal. The IRS has likewise prevailed at the trial court, and its victories have uniformly survived appeal. Rarest of all is the taxpayer victory that survives appeal.” 2015 T. C. Memo. 231, at pp. 2-3.

But this case is a taxpayer win. The Altermans had good attorneys and CPAs. They sussed out the deal, got reps and warranties in the contract of sale.

Read it, practitioner.

“The final share purchase agreement included the following promises by MidCoast:

– MidCoast would not allow AC to be dissolved or liquidated for at least four years and had no intention of allowing that after four years either.

MidCoast would reengineer AC into an asset recovery business.

– MidCoast would ensure that AC invested at least $1,450,000 into delinquent receivables and would reinvest the proceeds into more delinquent receivables for the next 10 years.

– MidCoast would ensure that AC maintained a net worth of at least $1.5 million for at least four years.

– MidCoast would ‘cause * * * [AC] to pay the Deferred Tax Liability to the extent that the Deferred Tax Liability is due given the Company’s post-closing business activities and shall file all federal and state income tax returns on a timely basis related thereto.’

– MidCoast would indemnify the former shareholders against any and all claims, including any damages, losses, deficiencies, liabilities, costs, and expenses resulting from and relating to any ‘misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of any Purchaser under this Agreement’.

– MidCoast would represent that the ‘combined net worth of Purchasers exceeds $10,000,000 as of the date hereof and as of the Closing Date.’” 2015 T. C. Memo. 231, at pp. 37-38.

Of course, MidCoast did nothing of the kind.

IRS says there should have been a postclosing audit by the Altermans. Nonsense. No buyer lets the outgoing seller romp through her records. And, in my experience, most sellers never want to see the buyer again.

IRS ransacks the FUFTA (Florida Uniform Fraudulent Transfers Act), but the Altermans and Judge Buch show that MidCoast’s vehicle wasn’t insolvent as the time of transfer, and IRS can’t prove that the offshore to which cash was funneled was out of the control of MidCoast’s vehicle.

It’s a complicated web, as a weary Judge Buch agrees (see p. 86).

But the Altermans are innocent. And I bet this one stands up on appeal.


In Uncategorized on 11/30/2015 at 17:45

No, I’m not turning this blog into a chess discussion platform, rather I’m discussing a bushelbasketful of designated hitters from The Great Dissenter, a/k./a The Judge Who Writes Like a Human Being, s/a/k/a the Indomitable, Indefatigable, Illustrious, Implacable, Irrefutable and Indisputable Foe of the Partitive Genitive (although maybe he’s reformed a little lately), and Old China Hand, Judge Mark V. Holmes.

Now some of my readers, those “cool, clear-eyed seekers of wisdom and truth,” as Abe Burrows put it, might be wondering why I didn’t blog an opinion today, as there were four of them. Giving due heed to “the proper opinion of mankind,” I point out that one is the fact-specific tale of a would-be sandbagger, Ambawalage S. Silva, 2015 T. C. Memo. 229, filed 11/30/15, whom Judge Lauber excoriates in the following terms: “He appears to have intentionally filed imperfect petitions, in the form of letters dated December 15, 2006, and March 29, 2012, in order to lay the predicate for a subsequent motion to enjoin IRS collection activity as violative of an ongoing Tax Court proceeding. And his briefing tactics reveal a deliberate effort to sandbag respondent. Construing petitioner’s claims so liberally as to include a challenge to the timeliness of the notice of deficiency would reward these tactics and would not accomplish substantial justice.” 2015 T. C. Memo. 229, at p. 17, footnote 5. In short, Amba has concocted a rogue’s pot au feu. Practitioner, don’t do it.

And the story of Baudelio Lopez Ibarra, 2015 T. C. Sum. Op. 70, filed 11/30/15, would melt a heart of stone. The poor man has a friend in The Judge with a Heart, STJ Armen, who lets Baudelio off for everything but a $116 Section 6654(a) failure to pay estimateds chop, because there is no reasonable cause defense for that. Baudelio’s wife of more than 40 years, Cheryl, dies of pancreatic cancer, Baudelio lost his job, his health insurance is inadequate (I’ll make no political comments about this; I’ve made plenty elsewhere, and just spent a good chunk of my morning trying to get my wife properly enrolled. But this is nothing compared to Baudelio’s suffering), and in the midst of these he fails to pay $4100 in tax. IRS wanted to nail him for more, but admit he did have deductible mortgage interest; big of them.

Reinaldo Vargas, 2015 T. C. Sum. Op. 69, filed 11/30/15, is an example of the “gotcha” that is AMT. IRS agrees with Reinaldo’s T&E (mirabile dictu!), but the deduction is worthless for AMT, as are the personal exemptions for himself and his son. Reinaldo didn‘t have any Section 57 preference items, but that’s half the story. He filed MFS (why not explained; but this is a trap) so his reported income after the T&E and pers exempts go out put him in AMT. We’ve been yelling for years that the numbers from 1969, with the annual tweaks from Congress (when they remember to tweak), are a joke. Reinaldo is an airplane pilot who spends half the year living out of his Travelpro, but that doesn’t help. Be careful with MFS, practitioner; it’s a real boobytrap.

At last, Judge Holmes. And once again, it’s Caylor Land & Development, Inc., et al., Docket No. 17204-13, filed 11/30/15, the blogger’s pal. I won’t cite to the other posts this case has given me, but I hope for many more.

IRS claims three (count ‘em, three) pages out of the millions and thousands of e-discovered documents handed over by Artex Risk Solutions, Inc., are unprivileged, because they were prepared during, and therefore not in anticipation of, litigation. Wrong, says Judge Holmes. During means in anticipation of continuing litigation.

IRS next claims the dude at Artex who prepared the pages in question wasn’t an attorney getting ready for trial. So what, says Judge Holmes. “The plain language of Rule 70 and Federal Rule of Civil Procedure 26 — with their reference to “consultants” and “agents” who produce work product) refutes this.” Order, at p. 2.

Finally, IRS exasperates even the long-suffering Judge Holmes. Although there’s an exception for must-have documents without which the party seeking same can’t prepare without undue hardship (see Rule 70(c)(3)(A)(ii)), IRS doesn’t show anything close.

Worse, IRS claims because Artex turned the stuff over, they’ve waived privilege.

Judge Holmes: “These arguments are completely misguided after the promulgation of Federal Rule of Evidence 502 in 2007. The changes to that Rule eliminated the subject-matter waiver in most cases and created specific rules for inadvertent disclosure. Federal Rule of Evidence 502(b) now states that production is not a waiver if the disclosure is inadvertent; the holder of the privilege took reasonable steps to prevent disclosure; and the holder of the privilege took reasonable steps to rectify the error.

“And this is just what Artex has shown. Remember that Artex produced two of the documents in a massive production of millions of documents; the third was one page of thousands. That inadvertence, and not design, was the cause is confirmed by the inclusion of descriptions of two of the documents in a 1,400 page privilege log of documents that Artex stated it wasn’t producing.” Order, at p. 3.

Artex wants a FRE 502(d) general preclusion of waiver order, and gets it. “Such an order can reduce the costs of litigation by forestalling courts and litigants from scrambling into motions practice every time there is an inadvertent disclosure. That would seem to describe this case, in which not an enormous deficiency is at stake and yet one in which the Court has already described the parties as having ‘acted in ways that sometimes seem a parody of civil discovery.’ Caylor Land & Development, Inc., et al. v. Commissioner, T.C. Dkt. Nos. 17205-13 et al. (Aug. 13, 2014) (order denying petitioners’ motions for judgment on the pleadings, et al.). Order, at p. 5.

Here’s another example of How Not To Do It. IRS gets another Taishoff “Oh Please, First Class.”




In Uncategorized on 11/26/2015 at 16:05

I quote the translated words of Adrianus Valerius (1575 – 1620) from so long ago.

Of course, I bring y’all no case discussion today, and there will be none tomorrow as well, because Tax Court has announced that it will be closed Friday, November 27, 2015.

I hope the Judges and their law clerks will not be spending tonight in front of the big-boxes in the malls, trying to fight their way into the Black Friday sales.

It’s good that the hard-laboring intake clerks and the flailing date-stampers at 400 Second Street, NW, will be able to re-enact the celebrated words of Rudy the K: “Call a truce, then, to our labors/Let us feast with friends and neighbors/And be merry, as the custom of our caste.”

I hope all my readers are able to do likewise.

We all have so much to be thankful for.


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