Tax Help: Fraudulent Transfers

The IRS can recover property transferred under a fraudulent conveyance. See United States v. Scherping, 187 F.3d 796, 804-06(8th Cir. 1999), cert. denied, 528 U.S. 1162 (2000). Whether a conveyance may be set aside as fraudulent is determined in accordance with state law.


United States of America, Plaintiff v. Alvin A. Tolbert, Roberta Sue Tolbert, A&R Equity Holdings, Defendants, U.S. District Court, West Dist. Ark., Fayetteville Div.; Civil No. 06-5146, September 13, 2007.

[ Code Sec. 6503]
DISCUSSION
Validity of Tax Assessments
IRS certificates of assessments for unpaid taxes are sufficient evidence to establish the validity of the assessments and support a summary judgment reducing those assessments to a judgment in favor of the Government. See United States v. Gerards, 999 F.2d 1255, 1256 (8 Cir. 1993), cert. denied, 510 th U.S. 1193 (1994); United States v. Meisner, 2007 W.L. 203950, *2 (D. Neb. Jan. 25, 2007). In an action to reduce federal tax assessments to judgment, certificates of assessments offered by the Government establish the Government's prima facie case and shift to the taxpayer the burden of proving that the IRS tax assessments are incorrect. See Mattingly v. United States, 924 F.2d 785, 787 (8 Cir. 1991); Kiesel v. United States, 545 F.2d th 1144, 1146 (8 Cir. 1976); Meisner, 2007 W.L. 203950, * 2. th The Government has submitted Certified Form 4340 Certificates of Assessments for Mr. Tolbert's income tax liabilities for the years 1992 through 2002. In response, Mr. Tolbert has submitted copies of IRS 1040 Forms which he completed on August 7, 2007, indicating that he had no wages for the years in question.


Statute of Limitations
The Government had ten years from the date of the assessments to bring suit. See 26 U.S.C. §6502(a)(1).The Government points out, and it is not in dispute, that Mr. Tolbert was in bankruptcy for 119 days during 1998 and 1999. The statute of limitations was tolled during this time period and for six months thereafter. See 26 U.S.C. §6503(b).

Attachment of Tax Liens to the Property and Fraudulent Transfer
If any person liable to pay any tax neglects or refuses to pay it after demand, the amount owing "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." 26 U.S.C. §6321. The lien "shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed . . . is satisfied." 26 U.S.C. §6322. Thus, on the dates of the assessments for the tax years in question, federal tax liens attached to all of Mr. Tolbert's property.

The Government may collect the tax debts of a taxpayer from property that has been fraudulently transferred to another. See United States v. Scherping, 187 F.3d 796, 804-06(8th Cir. 1999), cert. denied, 528 U.S. 1162 (2000). The Government argues that the conveyance of the subject property from the Tolberts to A & R Equity was a fraudulent conveyance and that the property is therefore subject to the tax liens.Whether a conveyance may be set aside as fraudulent is determined in accordance with state law. Id. at 804. Under Arkansas law, a transfer of property by a debtor is considered fraudulent if the debtor made the transfer with actual intent to hinder, delay, or defraud a creditor. See Ark. Code Ann. §4-59-204(a)(1). The factors to be considered in determining the intent to defraud include whether:
* the transfer was to an insider;

* the debtor retained possession or control of the property after the transfer;

* the transfer occurred shortly before or shortly after a substantial debt was incurred;

* the transfer was of substantially all the debtor's assets; and

* the value of the consideration received by the debtor was reasonably equivalent to the value of the property transferred.
See Ark. Code Ann. §4-59-204(b).


Sale of the Property

11. When "there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof," the Government may bring an action in federal court to enforce the tax liens and a district court may decree a sale of the property and order a distribution of the proceeds. 26 U.S.C. §7403(a), (c).

Having set aside the fraudulent conveyance of the property to A & R Equity, the property reverts back to being held by Mr. and Mrs. Tolbert as tenants by the entirety. Property held by spouses as tenants by the entirety may be sold to satisfy the delinquent taxes of one spouse. See United States v. Craft, 535 U.S. 274, 283-88 (2002); United States v. Ryals, 480 F.3d 1101, 1109-1110 (11 Cir. 2007); Hatchett v. United States, 330 F.3d 875, 880-84 th (6 Cir. 2003), cert. denied, 541 U.S. 1029 (2004).

As the Government recognizes, upon the sale of the property, Mrs. Tolbert would be entitled to one-half interest in the sale proceeds. While Mrs. Tolbert contends, in her response to the summary judgment motion, that she has paid the majority of the mortgage payments on the property, her interest in the property -as a co-tenant by the entirety - is worth no more than half the value of the property. Further, while in certain limited circumstances a court has equitable discretion to decline to order the sale of property subject to tax liens, such circumstances are not present here. See United States v. Bierbrauer, 936 F.2d 373, 376 (8 Cir. 1991) (court's discretion in this regard is "`limited th . . . [and] should be exercised rigorously and sparingly, keeping in mind the Government's paramount interest in prompt and certain collection of delinquent taxes' ") (quoting United States v. Rodgers, 461 U.S. 677, 711 (1983)).

CONCLUSION
12. Based on the foregoing, the Courts finds that the Government's Motion for Summary Judgment (Doc. 20) should be and hereby is GRANTED, as the Government is entitled to a judgment on the tax liens and an order of foreclosure and judicial sale of the subject property.A separate judgment and order of sale will be entered accordingly.


Alvin S. Brown, Esq.
Tax Attorney
703 425-1400
www.irstaxattorney.com

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