Fraudulent Transfer Case

An individual's transfer of property to his wife in exchange for her marital interest in a limited liability company constituted constructive fraud because the exchange was not for reasonably equivalent value. The value of the wife's interest in the company was considerably less than the value of the property that she received in return; therefore, she wrongfully received the property, to which federal tax liens had attached. Moreover, to the extent that the equity in the transferred property was insufficient to satisfy the husband's tax debts, a constructive trust was imposed on property she purchased with funds obtained by mortgaging the transferred property. Four elements must be satisfied in order that the transfer be considered one that is fraudulent under the law. It must be shown that "1) the debtor made a voluntary transfer; 2) at the time of the transfer, the debtor had incurred obligations elsewhere; 3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and 4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness." Gen. Elec. Capital Corp., 128 F.3d at 1079.




United States of America, Plaintiff v. Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William F. Schaudt, as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, Defendants.

U.S. District Court, No. Dist. Ill., East. Div.; 07 C 0895, January 21, 2009, Altering and amending 2008-2 USTC ¶50,609.






MEMORANDUM OPINION AND ORDER


KEYS, United States District Court: Pursuant to Federal Rule of Civil Procedure 59(e), Plaintiff United States of America timely moves this Court to alter and amend its Memorandum Opinion and Order of October 8, 2008. Also before the Court is the United States' Motion to Compel Production of Documents Regarding the Zeus Trust and Defendants' Objections and Motion to Strike Plaintiff's Proposed Order Regarding Motion to Compel. For the reasons set forth below, Plaintiff's motion to alter and amend is granted. Plaintiff's motion to compel and Defendants' motion to strike are therefore denied as moot.


Background


The facts of this case are presented in the Court's October 8, 2008 Memorandum Opinion and Order. See United States v. Schaudt, No. 07 C 0895, 2008 U.S. Dist. LEXIS 8056 (N.D. Ill. Oct. 8, 2008). Consequently, they will not be outlined in great detail here.

In its Order, the Court addressed, inter alia, whether there was sufficient evidence to hold that Robert Schaudt (Robert) fraudulently transferred the Northbrook property to Joann Schaudt (Joann). Specifically, the Court analyzed the transfer under the Illinois Uniform Fraudulent Transfer Act (UFTA) and considered whether there were adequate, undisputed facts indicating that either the transfer was made with the actual intent to defraud or the transfer was one which the law deems fraudulent. The Court opined that there remained a number of key, disputed facts crucial to a finding of actual fraud (i.e., whether the transfer of the Northbrook property to Joann in exchange for her marital interest in Zeus Concepts, LLC (Zeus) was for reasonably equivalent value, whether Robert retained possession or control of the Northbrook property even after the transfer to Joann); therefore, it declined to make such a determination. Similarly, the Court evaluated the Government's right to recovery under a fraud in law theory and found that it could not grant summary judgment on this claim, as the actual value of Zeus Concepts was in dispute, as well as whether Robert received reasonably equivalent value for the transfer. Having found neither actual nor constructive fraud, the Court declined to impose a constructive trust upon Joann's Antioch property.


Standard of Review


Federal Rule of Civil Procedure 59(e) allows a party, within ten days of the entry of judgment, to file a motion to alter or amend the judgment. To be successful, the moving party must either present newly discovered evidence or establish a manifest error of law or fact. Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996). A Rule 59(e) motion is not the appropriate vehicle by which to rectify procedural errors or present new arguments or evidence "that could and should have been presented to the district court prior to the judgment." Id.


Discussion


Plaintiff asks the Court to reconsider: 1) whether, in light of the value of Joann's marital interest in Zeus, Robert fraudulently transferred the property located in Northbrook, Illinois, to her, and 2) whether a constructive trust should be placed upon Joann's property located in Antioch, Illinois.



I. Fraudulent Transfer

Plaintiff argues that this Court committed error in its Memorandum Opinion and Order dated October 8, 2008, by failing to grant summary judgment on the issue of whether Robert fraudulently transferred the Northbrook property to Joann. Specifically, the Government contends that Joann's alleged marital interest was no more than one percent of a company worth - by Defendants' own admission - $4,231,000. As such, Joann's interest was worth a mere $42,310 at the time of transfer. This amount, the Government argues, is "dwarfed" by what Joann received in return - a house valued at $539,000. The Court agrees.

The Illinois UFTA protects against two types of fraudulent transfers, those involving actual fraud and those which the law considers fraudulent (i.e., constructive fraud or fraud in law). 740 ILL. COMP. STAT. 160/5; Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997). As the Court opined on October 8, 2008, a determination that Robert possessed the actual intent to defraud the Government would require the Court to "consider material facts that are currently in dispute, and then ... make certain factual determinations." Schaudt, 2008 U.S. Dist. LEXIS 8056, at *13. At this juncture in the proceedings, this is not permissible. Consequently, the Court declines to alter or amend its decision with respect to Robert's actual intent to defraud. Upon further consideration, however, the Court finds that the transfer of the Northbrook property is one deemed fraudulent under the law.

Four elements must be satisfied in order that the transfer be considered one that is fraudulent under the law. It must be shown that "1) the debtor made a voluntary transfer; 2) at the time of the transfer, the debtor had incurred obligations elsewhere; 3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and 4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness." Gen. Elec. Capital Corp., 128 F.3d at 1079. In the case at bar, however, only the presence of one element is in dispute. Specifically, the parties challenge whether the transfer of the Northbrook property to Joann in exchange for her marital interest in Zeus was an exchange for reasonably equivalent value. The Court finds that it was not.

At Defendants' request, Coleman Joseph Blitstein & Stuart LLC (Coleman), an accounting and consulting firm, prepared limited scope estimates of the value of a 100% interest in the equity of Zeus under three scenarios. (Def.'s Prop. Stat. Facts Supp. Def.'s Mot. Summ. J. Purs. Local Rule 56.1, Ex.12 at 67). These estimates, effective as of December 31, 2005, ranged from a minimum of $492,000 to a maximum value of $4,231,000. Id. Defendants alleged that it was in exchange for Joann's interest in this company that she was transferred the Northbrook property by Robert. But while Defendants submitted Coleman's report to the Court in an effort, presumably, to bolster their claims, they subsequently asserted that "the Defendant's [sic] appraisal cannot be used by the Government to prove its case in chief." However, Defendants' argument is misplaced. Indeed, the Court can consider Defendants' expert report. To be sure, in ruling on a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party. See Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th Cir. 1999). As Defendants were the non-moving parties, the standard requires the Court to accept the highest value placed on Zeus - an estimate provided by Defendants' own expert. Consequently, the value of Zeus is not truly in dispute. The Court's prior finding that it is, was made in error.

Defendants' expert determined the maximum value of Zeus to be $4,231,000 - a value that the Court hereby adopts. However, as stated earlier, this presumes a 100% interest. But by Defendants' own admission, Joann did not have a 100% interest in Zeus. To be sure, Robert admitted that the Zeus Trust owned 98% of Zeus. (Pl.'s Resp. Def.'s Prop. Stat. Facts Supp. Def.'s Mot. Summ. J. Purs. Local Rule 56.1, Ex. 2. Pt. 2 at 67.) Consequently, Joann's interest in Zeus was at most 2% - worth a mere $84,620. 1 This amount is considerably less than the $539,000 house that Joann received in return. So much so that the Court finds that the exchange was not for reasonably equivalent value.

Defendants raise the possibility that Joann may have had an interest in the Zeus Trust. However, as this would not be considered a marital interest, the Court is strained to understand its relevance. Similarly, the presence of potential minority discounts fails to persuade the Court, as Defendants owned at most, 2% of Zeus, while a single entity, the Zeus Trust, possessed the remaining 98%.



II. Constructive Trust

The Government asserts that, to its detriment, Joann mortgaged the Northbrook property and used the proceeds to make a down payment on the Antioch property. Consequently, it urges the Court to impose a constructive trust on the Antioch Property to prevent Joann's unjust enrichment.

"A constructive trust is an equitable remedy imposed by a court to prevent ... unjust enrichment." In re Liquidation of Sec. Cas. Co., 537 N.E.2d 775, 782 (Ill. 1989) (citations omitted). Generally, courts impose constructive trusts in instances of "actual fraud or breach of a fiduciary duty." Id. However, wrongdoing is not always required. Smithberg v. Ill. Mun. Ret. Fund, 735 N.E.2d 560, 565 (Ill. 2000) (citations omitted). Except in situations involving a bona fide purchaser for value, "a constructive trust may be imposed even though the person wrongfully receiving the benefit is innocent of collusion [citation]. By accepting the property, he adopts the means by which it was procured." Id. at 566.

Defendants argue that fraud is a required element for the imposition of a constructive trust. Indeed, the Court has determined that the transfer at issue was one which the law considers fraudulent. As such, the imposition of a constructive trust is an appropriate remedy. However, Defendants' argument that fraud is a required element, is misplaced. And in adopting said reasoning in its October 8, 2008, opinion, the Court committed error. To be sure, even had the Court not found the transfer to be constructively fraudulent, imposing a constructive trust would still be the proper course of action, as Joann wrongfully received the Northbrook property. Robert transferred the Northbrook property to Joann, who subsequently executed a mortgage, the proceeds of which she used to purchase the property in Antioch. All the while, federal tax liens resulting from Robert's tax debts had attached to the property. Allowing Joann to keep the Antioch property is certainly not a result that "equity and good conscience" dictates. Joann would be unjustly enriched to the detriment of the Government, to whom the debt is owed. Were the Court not to impose a constructive trust on the Antioch property, surely others seeking to evade tax responsibilities would be encouraged to follow the same course of conduct. Consequently, the Court, having determined that fraud is not a requisite, imposes a constructive trust on the Antioch property to the extent that the equity in the Northbrook property is not sufficient to satisfy Robert's tax debts that are the subject of this litigation, and in so doing, both alters and amends its Opinion of October 8, 2008.


Conclusion


For the reasons and to the extent set forth above, the Court grants the United States' Motion to Alter and Amend This Court's Order on Motion for Summary Judgment. Plaintiff's motion to compel and Defendants' motion to strike are denied as moot. A status hearing is set on this matter for February 6, 2009 at 9:00 a.m.

1 The Court makes no determination as to whether Joann's interest in Zeus was separate or marital property. Instead, the Court based its calculation on a best-case scenario - one in which the property was separate rather than marital, and thus, Joann owned the entire 2% interest. It will be of no consequence, therefore, should the interest subsequently be found to be marital property, in which Joann's interest would be 1% or $42,310.

United States of America, Plaintiff v. Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William F. Schaudt, as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, Defendants.

U.S. District Court, No. Dist. Ill., East Div.; 07 C 0895, October 8, 2008.

[ Code Sec. 6321]

Tax liens: Foreclosure: Real property: Property interests. --
The government was entitled to foreclose federal tax liens against a trustee's property interests in two parcels of real property in order to recoup taxes owed by him. The trustee's transfer of his rights in the property to his wife pursuant to their divorce did not affect the government's right to foreclose because the wife took the property subject to the taxes assessed against her husband, prior to the date of that transfer. Under the terms of the trust, the individual held an equitable right to the property as a beneficiary, and thereafter, held legal title to the property as a trustee. Under state (Illinois) law, the individual, as a beneficiary, could alienate, assign or transfer his interest and could also sell or mortgage it. Hence, his equitable interest qualified as "property" under federal law. Any liens the government had pertaining to the taxes assessed, attached to the property on the day the assessments were made, and not upon the filing of the notices of federal tax liens. Back reference: ¶38,136.66.



[ Code Sec. 6323]

Tax liens: Foreclosure: Real property: Property interests: Transfer: Priority: Notice not required. --
The government was entitled to foreclose federal tax liens against a trustee's property interests in two parcels of real property in order to recoup taxes owed by him. The trustee's transfer of his rights in the property to his wife pursuant to their divorce did not affect the government's right to foreclose because the wife took the property subject to the taxes assessed against her husband, prior to the date of that transfer. The federal tax liens took priority over the wife's interest in the transferred property regardless of whether she had notice. The government was not required to file notices of the liens because the wife's interest in the property was not that of a purchaser, holder of a security interest, mechanic lienor, or a judgment lien creditor. Rather, she gained rights to the property pursuant to a marital settlement agreement arising out of a divorce proceeding. She also had notice of her husband's tax problems. Back reference: ¶38,160.24.




MEMORANDUM OPINION AND ORDER


KEYS, District Court: This action was instituted by the United States of America, against Defendants for unpaid taxes. Currently before the Court are both Defendants' Motion For Summary Judgment and Plaintiff's Cross-Motion For Summary Judgment, filed pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Defendants' motion is denied, except as to William E. Schaudt, and Plaintiff's cross-motion is granted in part and denied in part.


FACTUAL & PROCEDURAL BACKGROUND


On or about December 26, 1986, the parents of Robert F. Schaudt, William G. and Evelyn M. Schaudt, formed The William G. and Evelyn M. Schaudt Family Trust (the "Schaudt Family Trust") and appointed themselves as co-trustees. Under the terms of the trust, real property located at 2283 Brentwood Road, Northbrook, Illinois, was to be held in trust, and upon the death of the last surviving trustee, William G. Schaudt or Evelyn M. Schaudt, the Northbrook property would be distributed to their son, Robert F. Schaudt ("Robert") 1 . (Def.'s Ex. 6, p. 16). In addition, the Trust instrument also provided that, upon the death of the last surviving trustee, Robert and his brother, William E. Schaudt 2 , would be appointed co-trustees of the Schaudt Family Trust. Id. Robert and his wife Joann Schaudt ("Joann"), resided in the Northbrook property from at least 1979 and continued to live there after the passing of both his parents (William G. Schaudt died on May 8, 1994, and Evelyn M. Schaudt died on May 1, 1996). In addition, while Robert and Joann resided at the Northbrook property, Robert's brother, William E. Schaudt, resigned as co-trustee on approximately July 10, 1996. However, after residing in the property together for many years, Joann Schaudt filed for divorce, and less than three weeks later, on December 5, 2005, a Judgment for Dissolution of Marriage was entered in Cook County.

The Judgment for Dissolution of Marriage incorporated a "Marital Settlement Agreement," under which Robert was to pay Joann Schaudt, monthly maintenance payments of $8,000, and Robert was to quitclaim the Northbrook Property to Joann Schaudt. 3 Pl.'s Ex. 1, Part. 2, p. 6, 8. Among various other items, the agreement also named "Zeus Concepts LLC" ("Zeus Concepts"), giving Robert all right, title and interest to the company, and absolved Joann of liability for all debts and liabilities associated with that business. 4 Id. at 9. After gaining title to the Northbrook Property, on May 31, 2006, Joann purchased another property located in Antioch, Illinois, by executing a mortgage against the Northbrook Property, in which she currently resides.

It appears, however, that during their marriage and after, Robert had failed to pay numerous tax assessments made against him. From 1996 to 2006, the IRS made several assessments against Robert for unpaid federal taxes, both personally and as the owner of Zeus Concepts. 5

The United States of America (hereinafter the "government" or the "IRS"), by its attorney, Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, filed a complaint on February 15, 2007 against Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William E. Schaudt as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, (collectively the "defendants"), seeking to recover unpaid federal taxes in the amount of $585,267.04. The complaint alleged that, between 1997 and 2006, several Notices of Federal Tax Liens were recorded with the Cook County Recorder of Deeds, pertaining to Robert's tax liabilities in the name of Robert F. Schaudt and the William G. and Evelyn M. Schaudt Family Trust, as nominee of Robert F. Schaudt.

The government seeks the following forms of relief: (1) to reduce to judgment assessments made against Robert F. Schaudt, for unpaid income taxes, employment taxes, unemployment taxes, a civil penalty, and a trust fund recovery penalty; (2) to foreclose federal tax liens against interests held by Robert F. Schaudt or his nominee Joann Schaudt in two parcels of real property, with one located in Northbrook, Illinois (the "Northbrook property") and the other in Antioch, Illinois (the "Antioch property"); (3) to deem Robert F. Schaudt's conveyance of the Northbrook property to Joann Schaudt as fraudulent and consequently set it aside; (4) to obtain a money judgment against Joan Schaudt, as transferee, for the value of the Northbrook property; and finally (5) to establish that Joann Schaudt was unjustly enriched to the detriment of the United States, via the "fraudulent" transfer by Robert F. Schaudt and to impose a constructive trust in favor of the United States.


STANDARD OF REVIEW


Summary judgment will be granted where the pleadings and supporting documents show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. FED.R.CIV.P 56(c); Lewis v. City of Chicago et al, 496 F.3d 645, 650 (7th Cir. 2007). Whether a fact is material to the dispute is established by the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue as to one of these material facts exists if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id.

In a summary judgment proceeding, the Court will disregard all facts not properly supported by the record. Brasic v. Heinemann's, Inc., 121 F.3d 281, 284 (7th Cir. 1997). Additionally, at this juncture, it is not the role of the Court to make "credibility determinations nor choose between competing inferences." Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1041 (7th Cir. 1993); See also Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659, 664 (7th Cir. 2006). However, in determining whether a genuine issue of material fact exists, the Court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in the non-moving party's favor. Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th Cir. 1999). In addition, the moving party initially bears the burden of showing that no genuine issue of material fact exists in the record. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1985). On the other hand, if the moving party meets it's burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial, and the non-moving party "may not rest upon the mere allegations or denials of the adverse party's pleading ... ." Anderson, 477 U.S. at 257.

In addition to adhering to Rule 56 of the Federal Rules of Civil Procedure, parties must be in strict compliance with Northern District of Illinois Local Rule 56.1. Under Local Rule 56.1, the party moving for summary judgment must submit a statement of material facts, written in short numbered paragraphs, along with citations to admissible evidence. Loc. R. 56.1(a); Smith v. Lamz, 321 F.3d 680, 682 (7th Cir. 2003). The opposing party must respond to each paragraph by either admitting or denying the allegations, and specifically citing to supporting materials showing the existence of a genuine factual dispute. Loc. R. 56.1(b)(3)(A). The parties must support all disputed facts with "specific references to ... parts of the record." Courts need not "scour the record in an attempt to locate the relevant information supporting the Rule 56.1 claims. Waldridge v. American Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994). The Seventh Circuit has repeatedly "sustained the entry of summary judgment when the nonmovant has failed to submit a factual statement in the form called for by the pertinent rule and thereby conceded the movant's version of the facts." Id.; see also Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 871 (7th Cir. 2000) (All relevant facts denied without supporting documentation must be accepted as true provided the facts are "properly supported by references to the record or other evidentiary materials.") If the party opposing summary judgment fails to identify supporting material in the record, the moving party's statements will be deemed admitted, assuming these statements are properly supported in the record. Loc. R. 56.1(b)(3(B); Garrison v. Burke, 165 F.3d 565, 567 (7th Cir. 1999).


DISCUSSION


The government claims that Robert's transfer of the Northbrook Property to Joann amounted to fraud under Illinois state law, and therefore, should be set aside, allowing the government to foreclose on the property and recoup unpaid taxes owed by Robert. The government also argues that, irrespective of whether the transfer of the Northbrook Property to Joann was fraudulent, the federal taxes assessed against Robert attached to the Northbrook Property at the time they were assessed, and not when the notices of the liens were filed; hence, those liens assessed prior to the transfer to Joann take priority over any interest Joann may have. The defendants naturally argue the opposite - that the transfer of the property to Joann did not amount to fraud under Illinois law and that any taxes assessed by the government, but not filed in accordance with Illinois state law before the transfer to Joann, are inferior to Joann's claim to the Northbrook Property. The Court will consider these arguments in turn, but will first address the issue of William E. Schaudt, named as a defendant in this case.



1. Claim against William E. Schaudt

In it's original filing of the complaint, the government named William E. Schaudt, as co-trustee of the Schaudt Family Trust, a defendant in this case. However, it appears that the government now concedes that William E. Schaudt resigned as co-trustee of the above trust prior to the events that have given rise to this motion for summary judgment. ( See Pl.'s Resp. at 12). Therefore, summary judgment is granted in favor of William E. Schaudt, dismissing him as a party to this case. The request for an award of costs to William E. Schaudt is denied.



2. Fraudulent Transfer Theory Under Illinois Law

The government seeks to set aside the transfer of the Northbrook Property to Joann as fraudulent pursuant to two theories under the Illinois Uniform Fraudulent Transfer Act ("UFTA"). The UFTA "protects against two kinds of fraudulent transfers: transfers with an actual intent to defraud and transfers which the law considers fraudulent (i.e., constructive fraud or fraud in law)." General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997). In this case, in order to prove actual intent to defraud under the UFTA, the government must show that the transfer was made with the intent to hinder, delay, or defraud the IRS, or that Robert failed to receive reasonably equivalent value in exchange for the transfer to Joann. In determining actual intent, the fact-finder may consider, among other things, whether, (1) the transfer or obligation was disclosed or concealed; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer was substantially all the debtor's assets; (4) 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; and (5) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. 740 ILL.COMP.STAT. 160/5(a)(1).

In order to make a determination under this theory, the Court would need to consider material facts that are currently in dispute, and would then need to make certain factual determinations. For example, it is hotly contested whether the value of the consideration received by Robert was reasonably equivalent to the value of the asset transferred under the marital settlement agreement and whether Robert retained possession or control of the Northbrook Property after it was transferred to Joann. These sort of fact-based inquiries should be left for the finder-of-fact and the Court declines to make those determinations here.

The government also seeks recovery under a fraud in law theory, in which it must prove four elements: (1) the debtor made a voluntary transfer; (2) at the time of the transfer, the debtor incurred obligations elsewhere; (3) the debtor received less than a reasonably equivalent value for the transafer; and (4) after the transfer, the debtor did not retain sufficient property to pay for his indebtedness. General Elec. Capital Corp., 128 F.3d at 1079. Central to this claim is whether Robert received reasonably equivalent value for the transfer of the Northbrook Property. As explained above, the parties take opposite positions; the government, of course, argues that Robert failed to receive reasonably equivalent value and the defendants argue that he did. Additionally, the actual value of Zeus Concepts itself remains in dispute. The Court finds this to be a factual determination that cannot be properly handled through summary judgment. 6



3. Property Rights Under Federal Tax Statute

The Schaudts claim that Robert did not hold title to the Northbrook Property when the tax lions against Robert were assessed, an argument they claim is furthered by the fact that no title to the property was recorded with the Recorder of Deeds under Illinois law, which would evidence Robert's right to title. They claim, therefore, that the government's liens could not attach to the Northbrook Property prior to the transfer to Joann on December 20, 2005. The defendants also argue that, because the government failed to file notice of the assessed liens against Robert, they could not attach to the property, and therefore, they are not superior to Joann's interest. The government, on the other hand, argues that the federal tax liens assessed against Robert Schaudt existed upon their date of assessment, and not upon the filing of Notices of Federal Tax Liens. Further, the government argues that the reason the IRS files Notices of Federal Tax Liens is so that the underlying tax liens listed in such notices can take priority over purchasers, holders of security interests, mechanics lienors, and judgment lien creditors who might otherwise claim an interest in the property to which the federal tax liens have been assessed against. Otherwise, the government argues, federal tax liens take priority over all other interested parties who might claim an interest in the property regardless of whether such parties had notice. The Court agrees with the government on the issue.

Under Section 6321 of the Internal Revenue Code (the "IRC"), "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." (Emphasis added). In other words, if a taxpayer has a right to property and fails to pay any tax as assessed against him or her, a lien may be placed on that property right in favor of the United States. However, the Court must look to state law in order to determine whether one has a right to property. See Aquilino v. United States [ 60-2 USTC ¶9538], 363 U.S. 509, 513 (1960) (quoting Morgan v. Commissioner [ 40-1 USTC ¶9210], 309 U.S. 78, 82 (1940)).

Under Illinois state law, a trustee holds "legal title" to items under a trust, while a beneficiary under a trust holds "equitable Litle". In re Estate of Mendelson, 298 Ill.App.3d 1, 3, 697 N.E.2d 1210, 232 Ill.Dec. 280 (1998) ("In a conventional trust, the trustee holds the legal title and the beneficiary holds the equitable title.") (citing Parkway Bank & Trust Co. v. Northern Trust Co., 213 Ill.App.3d 444, 448, 157 Ill.Dec. 591, 572 N.E.2d 1055 (1991)). In the present case, the Schaudt Family Trust, created on December 29, 1986, called for the distribution of the Northbrook Property to Robert upon the death of the survivor of his parents. The trust also named him and his brother as trustee, upon the death of his last surviving parent. Hence, under the terms of the trust, before the death of his mother on May 1, 1996 (his last surviving parent), Robert held an equitable right to the Northbrook Property as a beneficiary under the trust, and thereafter, held legal title to the property as trustee (both as co-trustee with his brother, and as sole trustee after his brother's resignation on July 10, 1996). 7

While the initial inquiry of what rights a taxpayer has in specific property is one of state law, after that determination is made, "state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States." Drye, Jr., et al v. United States [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. 49, 52 (1999); see also United States v. National Bank of Commerce, 472 U.S. 713, 727 (1985) (citing United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 56-57 (1958)). Rather, it is federal law that determines whether a state-law right to property, constitutes "property" or "rights to property" that can be levied upon to recoup unpaid taxes.

The law is clear; "in determining whether a federal taxpayer's state-law rights constitute 'property' or 'rights to property,' '[t]he important consideration is the breadth of the control the [taxpayer] could exercise over the property." Drye v. United States [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. 49, 61 (1999) (citing Morgan v. Commissioner [ 40-1 USTC ¶9210], 309 U.S. 78, 83 (1940)). Under Illinois law, Robert, as beneficiary under the trust, could alienate, assign or transfer his interest and could even sell or mortgage it. See 35 Ill. Law and Prac. Trust § 65. Hence, it is clear that Robert's right as beneficiary is "property" under federal law. Additionally, if Robert's right to the Northbrook Property vested immediately upon the death of his last surviving parent, this clearly would be considered property under federal law.

Section 6331(a) of the IRC provides that, "[i]f any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." However, that lien attaches to the property on the date the unpaid taxes are assessed, as the Code provides that "[u]nless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed ... is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C. §6322. The Supreme Court has held the language in sections 6321 and 6331(a) to be broad as it "reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." Drye [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. at 56 (citing United States v. National Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 719-720 (1985)); see also Glass City Bank v. United States [ 45-2 USTC ¶9449], 326 U.S. 265, 267 (1945) ("Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.") The Supreme Court has further expressed that Congress' broad use of the term "property" reveals the Legislature's aim to reach "'every species of right or interest protected by the law and having an exchangeable value'." Drye [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. at 56.

It is clear that Robert's equitable interest in the Northbrook Property qualifies as "property" under federal law, as the Supreme Court has unequivocally held that, without question, the federal tax lien statute reaches equitable interests owned for the benefit of the taxpayer. United States v. Towne [ 2006-1 USTC ¶50,189], 406 F.Supp.2d 928, 937 (N.D. Ill. 2005). While the parties disagree as to whether, under the terms of the trust, the Northbrook Property transferred immediately to Robert upon his mother's death on May 1, 2006 or whether more action was required by Robert as beneficiary and as trustee in order for his right to the property to vest, the Court finds it unnecessary to consider this inquiry. Whether Robert acquired title to the Northbrook Property on the date of the death of his last surviving parent or whether he continued to be a beneficiary under the trust (as the defendants appear to be arguing), under both scenarios, Robert had a property interest which the government could levy upon, and any lien the government had pertaining to the taxes assessed against Robert Schaudt, attached to the Northbrook Property on the day the assessments were made.

Section 6334(a) further supports Congress' intent to reach all property interests as it lists property exempt from levy. The list includes 13 categories of exemptions, including, necessary "wearing apparel" and school books and books and tools necessary for trade, business, or profession. There is no doubt, however, that the enumeration contained in Section 6334(a) is exclusive, as subsection (c) of section 6334 states that, "[notwithstanding any other law of the United States, no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." However, the IRS must be mindful that a lien imposed by section 6321 will not be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice of the lien (meeting the requirements of the Code) has been filed by the Secretary. 26 U.S.C. §6323(a).

In this case, the Northbrook property was transferred to a third party, however, that person happens to be Robert's wife, Joann, who gained rights to the property pursuant to the terms of a marital settlement agreement, arising out of divorce proceedings between the two. Hence, she is not a purchaser, holder of a security interest, mechanic lienor, nor a judgment lien creditor that would be protected against any tax lien imposed by the assessment of unpaid taxes, that has not been filed by the Secretary. In other words, the government was not required to file a notice of the assessments made against Robert in order for them to stand up against a subsequent taker of the property, who did not acquire the property through any of the four ways listed above.

Although it is not of much consequence to the finding of this Court thus far, Joann does admit to having had notice of Robert's tax problems as of at least February 24, 2000, as she received a notice from the IRS, finding her to be an innocent spouse relative to the income and federal employment tax liabilities of her then husband, Robert Schaudt, for the Lax periods ending prior to 1998. (Aff. of Def. Joann Schaudt, Def.'s Ex. 1, 3:5); see Application of County Collector, 48 Ill.App.3d 572, 6 Ill.Dec. 415, 362 N.E.2d 1335 (1977) (One having knowledge of facts which would put a reasonable man on inquiry is chargeable with knowledge of other facts which would have been discovered on diligent inquiry); see also Villapiano v. Better Brands of Illinois, Inc., 26 Ill.App.3d 512, 325 N.E.2d 722 (1975) ("If it appears a party having knowledge or information of facts sufficient to put a prudent man upon inquiry wholly neglects to make any inquiry, the inference of actual notice is necessary and absolute.") The law certainly cannot be interpreted to protect someone who had actual notice of Robert's tax problems, especially not a law that has been written with such painstaking specificity as this one has; clearly denoting who shall be protected from the government's unrecorded tax lien.

Therefore, when Robert transferred title of the property to Joann on December 20, 2005, she took the property subject to the taxes that were assessed against Robert, prior to the date of that transfer. See Lapp v. United States [ 70-2 USTC ¶9685], 316 F.Supp. 386, 388 (S.D. Fla. 1970) ("This federal tax lien attaches not only to property interests of the taxpayer at the time the lien arises, but attaches instander to all property rights acquired by the taxpayer during the life of the lien.") (citing Seaboard Surety Co. v. United States [ 62-2 USTC ¶9653], 306 F.2d 855 (9th Cir. 1962)); see also Harris v. United States [ 84-2 USTC ¶9594], 588 F.Supp. 835, 838 (N.D. Texas 1984), aff'd [ 85-2 USTC ¶9511] 764 F.3d 1126 (5th Cir. 1985) ("[S]ince the federal tax lien attached to the residence prior to the Judgment of Divorce, it takes priority over Plaintiff's interest."); Lapp [ 70-2 USTC ¶9685], 316 F.Supp. at 388 ("Once the lien attaches to property of the taxpayer, it follows that property into the hands of any transferee.") (citing United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 78 (1958)). Under these facts, the government is entitled to foreclose on the Northbrook Property in order to recoup the taxes owed by Robert ( See United States v. Denlinger [ 93-1 USTC ¶50,040], 982 F.2d 233, 235 (7th Cir. 1992)). But, any taxes assessed against Robert after the transfer of the Northbrook property to Joann (assuming the transfer of the property was not fraudulent), cannot attach as Robert would have ceased to have any property interest.

The government is, therefore, entitled to recoup any taxes assessed against Robert F. Schaudt prior to December 20, 2005 (the date he conveyed the Northbrook Property to Joann Schaudt) through foreclosure proceedings of the Northbrook Property. 8


CONCLUSION


For the reasons set forth above, IT IS HEREBY ORDERED that summary judgment be, and the same hereby is, granted in favor of William E. Schaudt. IT IS FURTHER ORDERED that the government's cross-motion for summary judgment is granted in part and denied in part. The motion is granted as to all liens assessed against Robert F. Schaudt before December 20, 2005, to be satisfied through the foreclosure sale of the Northbrook Property. The motion is denied as to any taxes assessed after December 20, 2005. If the government wishes to proceed against the Defendants for taxes assessed after December 20, 2005, pursuant to the UFTA, it may do so, but those claims cannot be resolved on summary judgment. IT IS ALSO ORDERED that Robert F. Schaudt and Joann Schaudt's motion for summary judgment be, and the same hereby is, denied.

1 Because there are several parties with the sur name "Schaudt", in order to avoid confusion, the Court will refer to the parties in this case by their given names.

2 The Court notes that there appears to be some confusion regarding the middle initial of William Schaudt, the brother of Robert F. Schaudt; therefore, although in some of the defendants' pleadings they have represented his middle initial to be "F", the Court will refer to him as "William E. Schaudt", as written in the initial pleadings of the parties (the complaint and answer), and as in other reliable documents, such as, "The William G. And Evelyn M. Schaudt Family Trust".

3 Under section 4.3 of the Marital Settlement Agreement, entitled "Marital Residence", it states that Mr. Schaudt represented that his brother had conveyed to him all right, title and interest in the Northbrook Property in trust; hence, Mr. Schaudt agreed to record the quit claim deed provided to him by his brother and provide a fully executed quit claim conveying all right, title and interest in Northbrook to Joann Schaudt. Pl.'s Ex. 1, Part. 2, p. 9. Subsequently, on December 20, 2006, Mr. Schaudt, individually, and as Co-trustee of the Schaudt Family Trust, quit claimed the Northbrook Property to Joann Schaudt.

4 It appears that, for some period of time (which is in dispute) after his divorce from Joann, Robert continued to reside at the Northbrook Property.

5 The jurisdiction of this Court is not an issue in the case as the defendants argue, because the taxes owed relating to Zeus Concepts was assessed against Robert himself as the sole proprietor of the company (who had the duty to see to it that the funds were remitted to the government) and not against the company itself. 26 U.S.C. §6672 provides that, "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." The term "person" under section 6672 includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. 26 U.S.C. §6671(b); see also Monday v. United States, 421 F.2d 1210, 1218 (7th Cir. 1970) ( "personal liability imposed upon the individual taxpayer by Section 6672 is separate and distinct from that imposed upon the [company] under Section 3403 of the Code", which holds an employer liable for the payment of the tax required to be deducted and withheld.)

6 The Court notes that although the government failed, and is now precluded, to offer expert testimony to rebut those of the defendants' who has put forth an estimated worth of Zeus Concepts (which is what Robert received by way of the marital settlement agreement), that does not preclude the government from offering other evidence to counter those claims, as the defendants suggest. Hence, there remains a genuine dispute as to whether Robert received reasonably equivalent value in exchange for his transfer of the Northbrook Property to Joann.

7 Although the parties disagree as to whether, under the terms of the trust, Robert's interest in the Northbrook property vested on May 1, 1996, or whether further action needed to be taken in order for Robert to hold title to the property, the Court does not find this contention material. It is clear that, if the property vested automatically on May 1, 1996, Robert thereafter had property. Likewise, if further action was required in order for Robert to take title to the property under the trust, then he remained a beneficiary until such action was taken, and hence, had a right to property under the law. Therefore, under both scenarios, Robert had rights to the Northbrook Property under Illinois state law.

8 The Court notes that the government remains free to pursue any assessed tax amounts that were assessed prior to the transfer of the Northbrook Property and any liens that were not perfected prior to the subsequent mortgagor's perfected interest, under UFTA, but they cannot be decided through summary judgment, as already discussed above.

Fraudulent conveyances. --Tax Liens: Property Subject to Tax Liens: Fraudulent conveyances

Property was fraudulently conveyed to a third party in an attempt to defeat the U.S.'s interest as a creditor.

Canadian American Co., Inc., CA-2, 53-1 USTC ¶9286, 202 F2d 751.

W.C. Graham, CA-9, 57-1 USTC ¶9645, 243 F2d 919.

Hyde Properties, CA-6, 75-1 USTC ¶9470, 507 F2d 301.

F.D. Duncan, CA-5, 79-2 USTC ¶9431, 597 F2d 51.

R.C. Fernon, Jr., CA-5, 81-1 USTC ¶9287, 640 F2d 609.

M.A. Wurdemann, CA-8, 81-2 USTC ¶9757, 663 F2d 50.

Carr Enterprises, Inc., CA-8, 83-1 USTC ¶9202, 698 F2d 952.

D.M. Pilla, CA-8, 83-2 USTC ¶9455, 711 F2d 94.

B.J. Chapman, CA-5, 85-1 USTC ¶9337, 756 F2d 1237.

Commonwealth Commercial State Bank, DC Mich., 39-1 USTC ¶9385, 27 FSupp 787.

W.M. Leach, DC Fla., 40-1 USTC ¶9399.

C.L. Hunter, DC Fla., 40-1 USTC ¶9400.

E.F. Shoemaker, DC Ark., 53-1 USTC ¶9209, 110 FSupp 898.

H. Kaplan, DC N.Y., 54-2 USTC ¶9532.

J.A. Schofield, 3rd, DC Pa., 60-2 USTC ¶9729.

H. Milloff, DC D of C, 62-2 USTC ¶9538, 306 F2d 783.

H. Schroeder, DC Iowa, 63-2 USTC ¶9608.

I. Prather, DC Ga., 66-2 USTC ¶9769.

R.N. Ream, DC Pa., 67-2 USTC ¶9703.

J.A. Wiltse, DC Calif., 68-1 USTC ¶9415.

J.D. Dobbelmann, DC Minn., 69-2 USTC ¶9591.

G. Barnes, DC Okla., 71-2 USTC ¶9638.

M.E. St. Mary, DC Pa., 72-1 USTC ¶9319, 334 FSupp 799.

W.F. Biddle, DC Fla., 73-1 USTC ¶9354.

L.F. Livingstone, DC Mass., 75-1 USTC ¶9242, 381 FSupp 607.

A.J. Werner, DC Wis., 75-2 USTC ¶9672.

T.J. Piscopo, DC Mass., 75-2 USTC ¶9691.

W.C. Briggs, DC Va., 76-2 USTC ¶9543.

H.B. Ressler, DC Fla., 77-1 USTC ¶9459, 433 FSupp 459. Aff'd on another issue, CA-5, 78-2 USTC ¶9571, 576 F2d 650.

H.G. Steiner, DC Wis., 77-2 USTC ¶9716, 441 FSupp 1069.

S.A. Dryden, DC Ga., 78-1 USTC ¶9108.

P.A. Gant, DC Ga., 78-2 USTC ¶9789.

W. Cox, DC S.C., 79-2 USTC ¶9434.

E. Bretz, DC Mont., 80-2 USTC ¶9675.

J.E. Wilson, DC Tex., 80-2 USTC ¶9824, 500 FSupp 831.

G.C. Stophel, DC Tenn, 81-2 USTC ¶9669, aff'd CA-6, in unpublished opinion, 5/17/82.

M.F. Kennedy, DC N.H., 82-1 USTC ¶9239.

L.C. Brown, DC Iowa, 81-2 USTC ¶9649.

M.F. Estes, DC Tenn., 82-1 USTC ¶9388.

B.H. Grice, DC Ala., 83-1 USTC ¶9399, 567 FSupp 113.

J.E. Morgan, DC Colo., 83-2 USTC ¶9535.

G.L. Turner, DC Fla., 83-2 USTC ¶9703.

S.L. Ambrose, DC Ohio, 84-2 USTC ¶9858.

Indiana National Bank, DC Ill., 84-2 USTC ¶9884.

E.L. May, DC Calif., 84-2 USTC ¶9970.

R.H. Schock, DC Calif., 85-1 USTC ¶9330.

B.G. Braswell, DC Ala., 85-2 USTC ¶9685.

L. Wodtke, DC Iowa, 86-2 USTC ¶9669.

I.R. Hoffman, DC Wis., 86-2 USTC ¶9733, 634 FSupp 346.

W.D. Gascock, DC Ala., 86-2 USTC ¶9794, 631 FSupp 383.

R. Jones, Sr., DC Mo., 86-2 USTC ¶9832.

W.E. Drexler, Sr., DC Okla., 87-2 USTC ¶9493.

J.A. Course, DC Ill., 87-2 USTC ¶9553.

W.E. Drexler, Jr., DC Okla., 87-2 USTC ¶9575.

Dardanelle Co. Trust, DC Minn., 88-1 USTC ¶9260 and 9261.

D. Morton, DC Mo., 88-1 USTC ¶9334, 682 FSupp 999.

M. Jack, DC Va., 88-1 USTC ¶9274.

D.W. Freeman, DC W.Va., 89-1 USTC ¶9127. Aff'd, CA-4 (unpublished opinion 1/11/90).

J.R. Montgomery, DC Tex., 89-1 USTC ¶9212. Aff'd, CA-5 (unpublished opinion 12/21/89).

J.W. Hart, DC Ill., 89-1 USTC ¶9255.

L. Simpson, DC Fla., 89-1 USTC ¶9285.

L.W. Berman, CA-6, 89-2 USTC ¶9524, 884 F2d 916.

Harris Bank/Glencoe-Northbrook, N.A., DC Ill., 89-2 USTC ¶9567.

J. Rode, DC Mich., 90-2 USTC ¶50,383, 749 FSupp 1483. Aff'd, CA-6 (unpublished opinion 8/30/91).

E.L. Denlinger, CA-7, 93-1 USTC ¶50,040, 982 F2d 233.

G.D. Sellner, DC Mont., 90-2 USTC ¶50,452.

E.D. Christensen, DC Utah, 90-2 USTC ¶50,543, 751 FSupp 1532. Dism'd, CA-10 (unpublished opinion 4/8/92).

M.E. Parks, DC Utah, 91-1 USTC ¶50,263.

E.K. Troyer, DC Ind., 91-2 USTC ¶50,401. Aff'd, CA-7 (unpublished opinion 12/16/92).

C. Murphy, Jr., DC Miss., 92-1 USTC ¶50,165.

Red Stripe, Inc., DC N.Y., 92-1 USTC ¶50,277, 792 FSupp 1338.

L. Scherping, DC Minn., 92-2 USTC ¶50,345.

W.B. Freeman, DC N.J., 93-1 USTC ¶50,296. Aff'd, CA-3 (unpublished opinion 12/28/93).

T.C. Brown, DC Ill., 93-2 USTC ¶50,375, 820 FSupp 374.

R. Mantarro, DC Ohio, 94-1 USTC ¶50,229.

W.J. McCullough, DC Ill., 94-1 USTC ¶50,280.

J.P. Veigle, DC Fla., 94-2 USTC ¶50,589, 873 FSupp 623.

A.M. Mayfield, DC Ind., 95-1 USTC ¶50,066.

A. Alden, DC Calif., 94-2 USTC ¶50,610. Aff'd, CA-9 (unpublished opinion), 97-2 USTC ¶50,604.

F.A. Wright, DC Calif., 96-1 USTC ¶50,005. Aff'd, CA-9 (unpublished opinion), 96-2 USTC ¶50,377, 90 F3d 473. Cert. denied, 4/21/97.

R.E. Hatfield, DC Ill., 96-2 USTC ¶50,342.

W.H. Zuhone, Jr., DC Ill., 96-2 USTC ¶50,366.

R.A. Sherlock, DC La., 96-2 USTC ¶50,462. Aff'd, per curiam, CA-5 (unpublished opinion), 98-1 USTC ¶50,139.

T.E. O'Day, DC Fla., 97-1 USTC ¶50,250.

R.M. Odd, CA-9 (unpublished opinion), 96-2 USTC ¶50,497.

W.E. Smith, DC Ind., 96-2 USTC ¶50,668.

D.D. Fitzgerald, DC Fla., 97-1 USTC ¶50,238.

R.L. Bodwell, DC Calif., 96-2 USTC ¶50,592. Aff'd, CA-9 (unpublished opinion), 98-1 USTC ¶50,172.

L.K. Hudnall, DC Fla., 96-2 USTC ¶50,609.

M. Carlin, DC N.Y., 97-1 USTC ¶50,302.

F.A. Brickman, DC Ill., 97-1 USTC ¶50,350.

R.P. Upton, DC Conn., 97-1 USTC ¶50,366.

E.S. Dubey, DC Calif., 97-1 USTC ¶50,392.

P. Marguglio, DC N.J. (unpublished opinion), 97-2 USTC ¶50,662.

T.P. Sheridan, CA-7 (unpublished opinion), 97-2 USTC ¶50,677, aff'g an unreported District Court case.

N. Nirelli, DC N.Y., 97-2 USTC ¶50,751.

G.J. Landsberger, DC Ariz., 97-2 USTC ¶50,822. Aff'd, CA-9 (unpublished opinion), 99-1 USTC ¶50,318.

H.E. Wilfley, DC Ore., 97-2 USTC ¶50,825.

R.S. Waltman, DC Ind., 97-2 USTC ¶50,760.

C.A. Cody, DC Ind., 98-1 USTC ¶50,205.

S.G. Hansel, DC N.Y., 98-1 USTC ¶50,293.

S.G. Hansel, DC N.Y., 99-1 USTC ¶50,432.

H.I. Green, CA-3, 2000-1 USTC ¶50,151, 201 F3d 251.

J.A. Kudasik, DC Pa., 98-2 USTC ¶50,535.

R. Dahmer, DC Mo., 99-1 USTC ¶50,482. Aff'd, per curiam, CA-8 (unpublished opinion), 2000-2 USTC ¶50,680.

E.L. LaBine, DC Ohio, 99-1 USTC ¶50,448.

U. Freudenberg, DC Tenn., 99-2 USTC ¶50,623.

L. Scherping, CA-8, 99-2 USTC ¶50,758, 187 F3d 796. Cert. denied, 2/22/2000.

Stretch-O-Rama, DC Tex., 99-2 USTC ¶50,847.

M.W. Simmons, CA-9 (unpublished opinion), 99-2 USTC ¶50,894, aff'g DC Calif., 98-1 USTC ¶50,418.

M.J. Stalker, DC Fla., 2000-2 USTC ¶50,632.

S.J. Tracy, DC Mo., 2000-2 USTC ¶50,708.

J.W. Marsh, DC Hawaii, 2000-2 USTC ¶50,726, 114 FSupp2d 1036.

M.K. Turner, DC Hawaii, 2000-2 USTC ¶50,815.

P. LaMontagne, DC N.Y., 2000-2 USTC ¶50,821.

A.C. Reid, DC Wash., 2001-1 USTC ¶50,250. Aff'd on other issues, CA-9 (unpublished opinion), 2002-1 USTC ¶50,333.

C.D. Schaut, DC Ill., 2002-1 USTC ¶50,184.

L.D. Wight, DC Calif., 2002-1 USTC ¶50,287.

D. Parkinson, DC Ida., 2001-2 USTC ¶50,462.

A. Patej, DC Mich., 2002-2 USTC ¶50,792. Motion for reconsideration denied, DC Mich., 2003-1 USTC ¶50,250.

P. Labato, DC Fla., 2002-2 USTC ¶50,541.

Audio Investments, DC S.C., 2002-2 USTC ¶50,757, 203 FSupp2d 555. Aff'd, per curiam, CA-4 (unpublished opinion), 2003-1 USTC ¶50,531

Sequoia Property and Equipment Ltd., DC Calif., 2002-2 USTC ¶50,773.

S.B. Doyle, DC Pa., 2003-2 USTC ¶50,619.

H. Engh, CA-7, 2003-1 USTC ¶50,500.

M. Dieter, DC Minn., 2003-1 USTC ¶50,439

T.L. Nipper, DC Okla., 2003-1 USTC ¶50,408.

T.D. Davenport, DC Okla., 2006-1 USTC ¶50,167.

Cal Fruit International, Inc., DC Calif., 2006-2 USTC ¶50,600.

The IRS was denied summary judgment on its motion to set aside certain transfers of property as fraudulent conveyances. The IRS had not established that, as a matter of law, actual fraud or constructive fraud had taken place because the taxpayer had introduced issues of fact that could only have been resolved at trial.

G.S. Sitka, DC Conn., 94-1 USTC ¶50,283.

The testimony in a taxpayer's deposition was insufficient to reopen a case in which it was decided that the IRS failed to establish that the taxpayer fraudulently conveyed property. Although the taxpayer testified that he was aware of his failure to file taxes for the years at issue, he was unaware at the time he transferred the property of his tax liability. Accordingly, the taxpayer did not have the intent to avoid a tax liability. Additionally, the taxpayer's testimony did not establish that the transfer of the property rendered the taxpayer insolvent.

R.A. Ward, DC Vt., 93-2 USTC ¶50,553.

The imposition of liens and wage garnishment on a married couple could not be challenged on the basis of the failure of the IRS to promulgate regulations. The Internal Revenue Code constitutes enforceable law even without specific regulations. Moreover, regulations exist governing the authority of the IRS to impose levies. These regulations detail the means of enforcement to be used to create and release liens. Therefore, the taxpayers' arguments were without merit, and the liens and wage garnishment were not released.

R. Reid, DC Colo., 94-1 USTC ¶50,088.

A real estate conveyance between an individual taxpayer (against whom the IRS assessed tax deficiencies) and his wife after the deficiencies arose was not valid under state (Pennsylvania) law. The taxpayer did not show that he was solvent at the time of the transfer or that the transfer was made for fair consideration. As such, the transfer was set aside as fraudulent even without an intent to defraud. Alternatively, the court held that the transfer was also fraudulent with an actual intent to defraud.

T.W. Purcell, DC Pa., 93-2 USTC ¶50,648.

Individuals who received real property by deed of gift from their tax-delinquent parents failed to show that the IRS could not establish its claim that a lien could attach to the property because the parents had fraudulently conveyed it under state (North Carolina) law to the individuals or that the lien attached prior to the transfer.

M.D. Ross, DC N.C., 94-2 USTC ¶50,372.

A husband's fraudulent conveyance to his wife of a principal residence held with his wife as tenants by the entirety was set aside. However, the IRS could not force a sale of the property. Instead, the wife was required to make monthly payments in satisfaction of her husband's outstanding tax liability. Each payment was equal to one-half of the monthly rental value of the property.

H.C. Jones, DC N.J., 95-1 USTC ¶50,190, 877 FSupp 907. Aff'd, CA-3, 96-1 USTC ¶50,056.

The IRS properly filed notices of federal tax liens on a farm that was owned by an individual who was assessed with deficiencies, penalties and interest even though he transferred his interest in the farm to his son. Under the Uniform Fraudulent Conveyance Act, which was adopted by the state (Wyoming) where the property is located, the transfer was set aside as fraudulent. The taxpayer received no consideration for the transfer and he continued to live on and farm the property after the transfer. His son had no input or control over the farm's operations. Since the transferee was the taxpayer's son, the taxpayer had a close relationship with him. The taxpayer admitted that he transferred the property to his son after he learned that a creditor planned to sue him. Moreover, the transfer rendered him insolvent. The taxpayer's son was also his nominee.

D.L. Jessen, DC Wyo., 96-2 USTC ¶50,449.

Although the IRS's cause of action under state (California) law for fraudulent conveyance had been extinguished by expiration of the statute of limitations, it was not precluded from asserting that a partnership was the alter ego and/or the nominee of its partners. The fraudulent conveyance, nominee and alter ego theories were discrete, despite the similar factual basis necessary to establish each theory. The partnership had transferred real property, which was subject to a federal nominee tax lien, to its general partners.

Sequoia Property & Equipment Ltd. Partnership, DC Calif., 98-1 USTC ¶50,460.

A corporation's transfer of assets to its officers without consideration, and the officers' subsequent contribution of those assets to a partnership that continued the corporation's business, was void as a fraudulent conveyance under state (Tennessee) law. Although no deficiencies had been assessed at the time of the transfer, the government qualified as the corporation's creditor because the tax liabilities had accrued, the corporation was under examination, and its officers expected significant assessments. The transfer liquidated and dissolved the corporation and, thus, rendered it insolvent and incapable of paying its assessments, despite the partnership's purported assumption of its liabilities. The evidence also indicated that the transfer was intended to hinder, delay or defraud the government.

L.A. Westley, DC Tenn., 98-2 USTC ¶50,545. Aff'd, CA-6 (unpublished opinion), 2001-1 USTC ¶50,340.

Genuine issues of material fact remained regarding whether the conveyance of a residence from an individual to his former wife was fraudulent; therefore, the IRS's motion for summary judgment was denied. Affidavits by the husband and wife stated that the conveyance was made in recognition of the husband's obligation to support his wife and minor children, which qualified as fair consideration under state (New York) law. Moreover, the burden of proving fair consideration did not shift to the husband since there was no showing that the transaction was clandestine or designed to conceal the nature and value of the consideration. Finally, despite the existence of an intrafamily transfer, there was no determination as a matter of law that the couple acted with actual intent to hinder, delay or defraud creditors since they did not have notice of the tax claims at the time of the conveyance.

D. Laronga, DC N.Y., 98-1 USTC ¶50,154.

The issue of whether the taxpayer was insolvent when he conveyed the property to his former wife was a question of material fact that precluded summary judgment that the conveyance was fraudulent. The taxpayer testified that, at the time he made the conveyance, the value of his assets exceeded his tax obligations; and, under state (Illinois) law, a property owner is competent to render an opinion as to the value of his property.

J.C. Dunkel, DC Ill., 98-2 USTC ¶50,610.

The IRS was denied summary judgment on the issue of whether a delinquent taxpayer fraudulently conveyed his interest in real estate to a church. It failed to establish that the transfer of the property rendered him insolvent or that he intended to defraud his creditors.

J.W. Noble, DC Mich., 98-2 USTC ¶50,642. Appeal dism'd, CA-6 (unpublished opinion), 99-1 USTC ¶50,173.

In a case related to J.W. Noble, above, proceeds from the sale of levied real property, after expenses, were to be divided equally between the government and a church to whom the taxpayer had conveyed his interest. Because the government sought to collect unpaid federal income taxes from the taxpayer's interest in the property, the government and the church were equally entitled to the proceeds from the sale of the property, as the third party still held title to the property subject to the rights of the government, as the taxpayer's creditor.

J.W. Noble, CA-6 (unpublished opinion), 2001-1 USTC ¶50,226, aff'g an unreported District Court decision.

Conveyances of real property by married taxpayers to trusts that qualified, under state (California) law, as alter ego and nominee trusts were set aside as fraudulent. As a result, the properties were subject to federal tax liens. The trusts paid no consideration for the transfers, and the taxpayers maintained possession and control of the properties after the conveyances. Moreover, a trustee of three of the four trusts at issue was a sibling of one taxpayer, and another trustee admitted to having no trust duties.

E.S. Dubey, DC Calif., 98-2 USTC ¶50,851.

Married taxpayers, through their failure to respond to the IRS's requests for admissions, were deemed to have fraudulently conveyed under state (Washington) law real property to their alter ego for the purpose of preventing the IRS from seizing and selling the property. Accordingly, the mortgage on the property was set aside as a fraudulent conveyance.

E. Butts, DC Wash., 98-2 USTC ¶50,896.

The existence of material issues of fact precluded entry of summary judgment for an individual in the government's action to set aside a fraudulent conveyance and foreclose on federal tax liens. Although the individual's previously executed prenuptial agreement required him to promptly convey the property at issue to his new wife, he did not make the conveyance until years later, after his net worth declined and his tax liabilities skyrocketed. Thus, a genuine issue of fact existed as to whether, at the time of the transfer, he knew or should have known that he was about to incur debts beyond his ability to pay. The four-year state (Florida) statute of limitations on fraudulent transfer actions did not bar the government's suit because, absent a congressional enactment, a government action is not subject to any time limitation.

S.J. Dellaquila, DC Fla., 99-1 USTC ¶50,196.

The government was not entitled to summary judgment that federal tax liens attached to property transferred by married taxpayers to a family trust. Genuine issues of material fact existed as to whether the taxpayers' transfers were fraudulent under state (New Hampshire) law.

G.T. Kattar, DC N.H., 99-2 USTC ¶50,834.

The primary transferee of real property rebutted the presumption of fraud with her allegation that the transfers were made in consideration of the dissolution of her common-law marriage to the taxpayer and pursuant to a related decree.

J.E. Kaiser, DC Ohio, 99-2 USTC ¶50,861.

The government was entitled to foreclose a tax lien on real property that a corporate officer fraudulently conveyed to his corporation. Under state (Illinois) law, the transfer was a sham because the taxpayer resided at the property before and after the conveyance, the corporation paid obviously inadequate consideration, and the transfer occurred shortly after the Tax Court ruled that the taxpayer owed a substantial tax liability.

P. Stout, DC Ill., 2000-1 USTC ¶50,294.

The existence of genuine issues of material fact precluded summary judgment regarding whether tax liens attached to real property and funds that were transferred by a delinquent taxpayer to his wife before the liens arose. Although the taxpayer conveyed the assets to his wife without fair consideration, it was not clear that he was insolvent at the time.

M. Mazzeo, DC N.Y., 99-2 USTC ¶50,901.

Tax liens attached to a taxpayer's interest in funds and property that he fraudulently transferred to a trust that qualified as his alter ego under state (New York) law. He used the trust to pay his personal expenses, he continued to act as the owner of real property that he purportedly transferred to the trust, and there was no documentation that the transfers were loans, as he alleged.

J. Letscher, DC N.Y., 99-2 USTC ¶50,947.

A valid IRS tax lien attached to two parcels of property that a debtor fraudulently conveyed to family members prior to filing for bankruptcy protection. The lien arose at the time of assessment, which preceded both the recording of the deed for the first parcel and the fraudulent transfer and recording of the deed for the second parcel. Following the bankruptcy trustee's recovery of the two properties and his sale of one of the parcels, the tax lien transferred to the debtor's interest in the sale proceeds.

J. McGhee, BC-DC Ky., 2000-1 USTC ¶50,275.

An individual's property conveyances and transfers to various family members were found to be fraudulent under state (Georgia) law and were consequently set aside. However, the transfers of the taxpayer's interest in his home to his former wife and children, even though fraudulent, involved factors that prevented the transfers from being set aside.

C.A. Reid, Jr., DC Ga., 2000-2 USTC ¶50,748, 127 FSupp2d 1361.

A father-son relationship, alone, was insufficient to support foreclosure on a nominee theory. The son testified credibly that his father no longer paid the property taxes, and that he and his mother, who is no longer married to his father, exercised exclusive control over the property. Further, there was insufficient evidence to determine whether the father actually intended to defraud the IRS or merely wanted to reward or make a gift to his son.

R.L. Turk, DC Mont., 2000-2 USTC ¶50,834, 127 FSupp2d 1165.

Conveyances by married taxpayers of three parcels of real property first to a sham church that they had created for tax-evasion purposes and then to their son were properly set aside as fraudulent under state (New Mexico) law. The state limitations period did not apply to an action brought by the federal government to vindicate public rights or interests.

R.N. Spence, CA-10 (unpublished opinion), 2000-2 USTC ¶50,849, 242 F3d 392, aff'g an unreported District Court decision. Cert. denied, 5/14/2001.

The government was entitled to foreclose a tax lien on a debtor and his wife's real property in connection with the unpaid employment taxes of two corporations. Under the state (Illinois) fraudulent transfer statute, it was undisputed that the couple voluntarily conveyed the property for inadequate consideration while aware of the tax debt and retained insufficient property to satisfy the debt.

N. Paradise, DC Ill., 2001-1 USTC ¶50,113, 127 FSupp2d 951.

Similarly.

A. Langrehr, DC Neb., 2001-1 USTC ¶50,253.

State (Ohio) law's recognition of the alter ego doctrine and the doctrine of equitable ownership was essentially a recognition of the nominee doctrine, in which the domination and control over an entity is so complete that the entity has no separate mind, will, or existence of its own, rendering it subject to the equitable ownership of another. Thus, the government could assert tax liens on various parcels of property that were, in name, owned by different businesses

Nantucket Village Development Co., DC Ohio, 2001-1 USTC ¶50,202.

The government failed to present evidence that an individual received no consideration for a transfer of real property to a trust, or that he was insolvent at the time of, or as a result of, such transfer. It also failed to present sufficient evidence of the five alleged badges of fraud with respect to the transfer. Accordingly, the government's motion for summary judgment on its fraudulent conveyance claim was denied.

D. Billheimer, DC Ohio, 2002-1 USTC ¶50,424, 197 FSupp2d 1051.

The government failed to present evidence that a taxpayer received insufficient consideration for the transfer of real property to his parents, or that he was insolvent at the time of, or as a result of, such transfer. As such, issues of material fact remained as to whether sufficient badges of fraud existed to support a finding that the conveyance was fraudulent. Additionally, a finding of constructive fraud was denied as question of fact existed as to the value of the property at the time of the transfer and whether any payments changed hands.

R. Smith, DC Ohio, 2002-2 USTC ¶50,657.

Summary judgment to recover a taxpayer's house to satisfy trust fund recovery penalties assessed against her parents was denied. There was no proof that the conveyance of funds from the parents to the taxpayer for purchase of the house was fraudulent. A discrepancy between the taxpayer's reported income and income reported on a mortgage application failed to establish fraudulent intent. Also, there was no proof that the conveyance left the parents unable to satisfy the tax penalties. The application of the nominee theory was rejected.

S. Snyder, DC Conn., 2002-2 USTC ¶50,660, 233 FSupp2d 293.

Conveyance of real property by an individual taxpayer to his father prior to the assessment of tax liability against the taxpayer was not a fraudulent attempt to evade tax liability. There was no evidence that the conveyance was intended to defraud the IRS. Rather, the conveyance was given in consideration of the father's significant financial contribution to the purchase price of the property and in forgiveness of a loan, and neither the taxpayer nor his father had contributed to the ten-year delay in the filing of the action by the IRS.

F.O. McGuire, DC S.C., 2004-1 USTC ¶50,267.

The statute of limitations period set forth in the Federal Debt Collections Procedures Act of 1990 (FDCPA) did not bar the government's fraudulent conveyance claims against limited partnerships that were deemed nominees and alter egos of the taxpayers. The government based its claim on Code Secs. 7401 --7403, which was permissible under the FDCPA. The district court relied on state law only to set aside the fraudulent transfer of residences to the partnerships.

Sequoia Property and Equipment, Limited Partnership, DC Calif., 2002-2 USTC ¶50,773. Aff'd, CA-9 (unpublished opinion), 2005-1 USTC ¶50,182.

The government was entitled to summary judgment against an individual where he owed back taxes and fraudulently conveyed his interests in several real properties to third parties. The taxpayer failed to respond to the government's motion and, therefore, failed to demonstrate the arbitrariness or inaccuracy of the assessments against him. His wholly conclusory and facially frivolous "vow of poverty/ministerial expenses" position was insufficient to meet his burden of proof and did not create an issue of fact concerning his tax liability. In addition, the government established that it would suffer prejudice if the individual was permitted to withdraw his admissions. The court held that the case presented unusual circumstances warranting departure from the general rule proscribing "re-serving" the complaint in the form of a request for admissions.

K. Persaud, DC Fla., 2006-1 USTC ¶50,104.

Property fraudulently conveyed to an individual was subject to a tax lien for payroll taxes unpaid by her former husband. At the time of the transfer, the husband had willfully failed to collect, truthfully account for, and pay employment taxes. The transfer was fraudulent conveyance under the state's (New York) debtor and creditor law because it was made without fair consideration. In the absence of evidence that, following the couple's divorce, the individual would forego maintenance and/or child support as consideration for the transferred property, the transfer did not satisfy the husband's antecedent debt to support his wife and children.

E. Hirko, DC N.Y., 2006-1 USTC ¶50,278.

The government could not seize assets of an irrevocable trust created by an individual in order to help satisfy the individual's tax liability. Although the individual had mixed motives when establishing and funding the trust, the government did not establish that he was insolvent at the time. Thus, it failed to meet its burden of proving actual or constructive fraud under state (New York) law. Moreover, the trust was not the individual's alter ego. It was set up primarily to aid the individual in his estate planning; the individual apparently had sufficient funds at the time to satisfy the amount owed; and, ever since, he respected the rental agreement with the trust and left the trust money untouched. Although the individual may have been partially motivated by concerns about tax collection, that, alone, was not a sufficient reason to pierce the trust to satisfy the individual's tax debts.

J. Evseroff, DC N.Y., 2007-1 USTC ¶50,222. Vac'd and rem'd, CA-2 (unpublished opinion), 2008-1 USTC ¶50,240.

The government was entitled to summary judgment reducing a married couple's tax liability to judgment and foreclosing on federal tax liens. Although the government failed to prove that the couple's transfer of their residence to their son was fraudulent under state (California) law, the evidence indicated that the son was their nominee. The government's nominee theory was supported by the fact that the son paid no consideration for the property, the parties had a close relationship and the couple retained possession of the property and continued to enjoy its benefits even after the transfer.

A.B. Secapure, DC Calif., 2008-1 USTC ¶50,277.

An individual's bankruptcy discharge of debt was revoked; consequently, federal tax liens filed against his property were valid, and the government was entitled to foreclose on the properties subject to the liens. The discharge of debt was revoked because the individual fraudulently failed to disclose the full extent of his assets, intentionally made numerous false statements and attempted to transfer and/or conceal assets by means of several nominees. The properties were ordered sold, subject to his wife's valid homestead interest in one of those properties.

A.R. Harrison, DC Texas, 2008-1 USTC ¶50,274. Aff'd, per curiam, CA-5 (unpublished opinion), 2008-1 USTC ¶50,279.

Federal tax liens attached to properties an individual had transferred because the transfers were made with the intent to defraud the government and to evade his tax liability. Under state (Arkansas) law, his conveyances were fraudulent because inadequate consideration was paid for the transfers, he continued to control the property after the transfers, subsequent transfers were made to entities that were under his control and all transfers were made after he became aware of his tax liabilities. Even if the transfers were not fraudulent, the government could levy against the properties held by the entities because they were his alter egos.

L. Muncy, DC Ark., 2008-1 USTC ¶50,341.

See also, ¶38,136.65 and ¶38,136.71.

The existence of triable issues of material fact precluded summary judgment on the issue of whether an individual had fraudulently conveyed a joint tenancy ownership interest in certain real property to his daughter and whether the daughter held the property as his nominee. Disputed facts existed regarding whether the individual made the transfer with the intent to defraud the IRS under state (California) law. While the daughter did not pay any consideration for the property, the individual retained the keys to the property and returned to the property to recuperate from an accident, the extent to which the individual lived on the property after the transfer and paid its expenses, the degree to which he retained possession of the property and continued to enjoy its benefits after the transfer, as well as the amount of his total assets at that time, were disputed.

W.C. Beretta, DC Calif., 2008-2 USTC ¶50,674.

An individual's transfer of real property to his parents was set aside as fraudulent. The government's evidence supported a finding of fraud under state (Ohio) law. The individual routinely sought to conceal his assets and transferred property with the intent to hinder collection of, or altogether avoid paying, federal income taxes. The individual also failed to refute the government's evidence or demonstrate that the transaction was not fraudulent. Since the individual was the beneficial or equitable owner of the property,and the government's tax liens attached to that property, the government was entitled to judgment, requiring that the property be sold and one hundred percent of the sale proceeds be applied against the individual's income tax liability.

R. Smith, DC Ohio, 2008-2 USTC ¶50,682.