In Uncategorized on 07/28/2016 at 08:42

And 264 Pages of Opinion

I’m floored; flabbergasted.

That’s the state in which your long-suffering blogger was left after a couple piña coladas (hi, Judge Holmes) and Thomas L. Weintraut, Transferee, et al, 2016 T. C. Memo. 142, filed 7/27/16.

Moreover, I am stupefied by Judge Chiechi’s labor in dealing with a deficiency amounting to around $750K, chops included. Multi millions have involved much less ink and toner.

I’m not even going to try to depth-blog the opinion. It’s an old MidCoast Midco roundy-round with the transferees (a family that owned a C Corp fan business; no, not the kind that cools your office or car, the kind that dries out grain before ensiloing same, lest in the throes of spontaneous combustion it blows up the census tract) and their advisors doing no due diligence, ignoring the smell test, while the MidCoasties use the old “secret formula” T-bill mix-and-match dodge.

It starts out as a stock sale, of course, mutates into an asset sale as the outside buyer wants no part of the C Corp, and when the tax bill (steep and double) is computed, their lawyer (no tax background) finds MidCoast, and their accountant doesn’t look too closely either.

MidCoast dresses up the scam with an opinion letter requiring reps of business purposes, which of course there aren’t. And all the players knew that the kicker MidCoast was paying for the C Corp stock was based upon not paying any income taxes.

So of course they are transferees. We reach this conclusion at page 154 after an exhaustive analysis of sham transaction, business purpose and economic substance.

But as a certain descendant of mine was wont to remark after reading Genesis 1:1, “Now, settle down. We have a long way to go.”

Comes now the Indiana version of the Uniform Fraudulent Transfers Act. Judge Chiechi writes a law review article on that subject alone (and if any son or daughter of Indiana wants a shot at law review, take that as thy text, and go read and write).

Subjective knowledge and good faith are entirely irrelevant. If the creditors were defrauded, it matters not that the transferees were not the fraudsters.

So what price Alterman? See my blogpost “It’s Not Fraud,” 12/1/15. Due diligence and getting good reps and warranties don’t count?

Roger that, says Judge Chiechi. “We conclude that the Indiana Supreme Court will not impose, and that the Court of Appeals for the Seventh Circuit will hold that the Indiana Supreme Court will not impose, the knowledge requirement before using Indiana substance over form principles in order to determine whether [C Corp] made a distribution or transfer under the Indiana UFTA of its property to each of Mr. F, Mr. Weintraut, and Ms. F in the [phony] sale transaction….” 2016 T. C. Memo. 142, at p. 197. (Citations and names omitted).

Maybe it’s a question of what IRS could prove on the trial, says I, and Judge Chiechi agrees. Even if knowledge did apply, says she, Weintraut and friends did nothing, looked at nothing, and didn’t want to know nothing, despite the usual malodorous emanations from the MidCoasties. Willful blindness.

And you have to treat the payouts to Weintraut and the et als as a single transfer.

But, at the end of the day, IRS hasn’t shown that what Weintraut and the et als got was equal to the deficiency, the chops, and the pre-notice interest.

So let’s have a Rule 155 beancount and numbercrunch.

Whew! I’m beat.




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