Judge Tamara Ashford has to slalom through two Circuits (11 and 4), as the real estate development and sales operations of William G. Allen, T. C. Memo. 2023-86, filed 7/11/23, span NC, FL, SC, and TX. And Mr. A has split up his operations among S Corps, LLCs, LPs, and trusts, so as to effect what old sailors called “waterpart contankments.”

“He testified that his goal was to limit liability, and he did that by creating many different legal entities which held few assets that judgment creditors could go after.” T. C. Memo. 2023-86, at p. 23. Judge Ashford cannot tell how well said unrelated creditors may have fared, but when Mr. A. claimed telephone numbers in bad debts when the cash he funneled to these multifarious outfits vaporized, their thin capitalization, interrelatedness, and inability to raise funds from any conventional lender sinks the whole bunch.

Judge Ashford compares and contrasts 4 Cir’s and 11 Cir’s debt-vs-equity approach, and chooses 11 Cir as more comprehensive (13 categories, while 4 Cir has only 11).

While Mr A wins three categories (there are notes, they had fixed maturities although some of these were subsequently amended,  the “debt” did not give rise to enhanced control over debtors as Mr. A. controlled them all to begin with, and there was some marginal priority over other creditors), there were none of the usual lender safeguards (no effort to enforce, and no real right to enforce, no interest payments and only spotty principal repayments), thin capitalization (Mr. A’s sterling reputation. and business acumen are too intangible, and every business should have those), repayment contingent upon success and not operations, no outside lender would lend on these terms, and the rest are neutral.

Mr. A. never consulted anyone before he prepared the relevant tax returns, so no good faith reliance.

Takeaway- Pretty paper doesn’t go very far.