Bartmer Automatic Self Service Laundry, Inc. v. Commissioner

Bartmer Automatic Self Service Laundry, Inc., et al., 1 Petitioners, v. Commissioner of Internal Revenue, Respondent Bartmer Automatic Self Service Laundry, Inc. v. Commissioner Docket Nos. 64464, 64465, 65229 United States Tax Court 35 T.C. 317; 1960 U.S. Tax Ct. LEXIS 18; November 23, 1960, Filed *18 Decisions will be entered under Rule 50. 1. Respondent made a jeopardy assessment against transferor on June 6, 1951, and was entitled to 6 years thereafter within which to take action against the transferee. Held, a deficiency notice asserting transferee liability sent to petitioner in September 1956 was timely. 2. The transferor transferred the assets after a jeopardy assessment, jeopardy notice, and demand, after the liens were filed, levies served, and after engaging in conduct aimed at concealing assets. Since the transfer took place under circumstances exhibiting the "badges of fraud" under Missouri law, held the transfer under such facts was a voluntary conveyance, conceived and made with the intent of hindering, delaying, and defrauding the Government in its efforts to collect the taxes and additions to tax owed by the transferor and as such was void under Missouri law, thereby relieving respondent of the necessity of showing that transferor was insolvent at the time the transfer was made. 3. Respondent succeeded in showing that a transfer was made and that it was made without consideration (this being admitted by petitioner), that the transfer was fraudulent*19 as to existing creditors, that the assets transferred had value, and that he made a reasonable effort to collect the amounts due from transferor. Held, respondent established a prima facie case of transferee liability. 4. The evidence indicated a transfer of either cash and equipment or the stock of the corporation which acquired these assets. Held, the respondent did not show that the value of these assets exceeded $ 5,500 on the date of transfer. William J. Becker, Esq., for the petitioners. Robert A. Roberts, Esq., for the respondent. Van Fossan, *21 Judge. VAN FOSSAN *318 The respondent has determined that petitioners, Bartmer Automatic Self Service Laundry, Inc., Helen Comb Smith Thornton, and Marlene J. Smith Clukies, are liable as transferees of Arthur A. Smith to the extent of assets alleged to have been transferred to them, plus interest, for the following deficiencies and additions to tax of transferor: Additions to Year Deficiency tax, sec. 293(b), I.R.C. 1939 [1946] $ 3,017.95 $ 1,508.98 [1947] 11,093.79 5,546.90 [1948] 10,204.99 5,102.50 Each of the deficiency notices contained the following paragraph: Inasmuch as the value of the assets received by you amounted to $ 13,159.53, your liability as transferee is limited to that amount plus interest thereon as provided by law. Such is your liability as transferee of the assets of said Arthur A. Smith for the deficiencies above set forth. Respondent concedes that Marlene J. Smith Clukies is not liable as a transferee. The issue is whether the petitioners, or either of them, are liable, to the extent specified above, as transferees of Arthur A. Smith. FINDINGS OF FACT. Some of the facts are stipulated and are incorporated herein by this reference. *22 Helen Comb Smith Thornton (hereinafter sometimes referred to as petitioner), 2 resides in Afton, Missouri. The Bartmer Automatic Self Service Laundry, Inc. (hereinafter sometimes referred to as the corporation), is a Missouri corporation having its principal office in St. Louis, Missouri. Petitioner returned from California to her Missouri home on June 29, 1951, and on July 14, 1951, she married Arthur A. Smith (hereinafter sometimes referred to as transferor), who died intestate on September 9, 1952. Marlene J. Smith Clukies (hereinafter sometimes referred to as Marlene), petitioner in Docket No. 65229, is the daughter of the transferor. Transferor filed separate Federal income tax returns for each of the taxable years 1946, 1947, and 1948 with the collector of internal *319 revenue for the first district of Missouri, St. Louis, Missouri. On June 6, *23 1951, a jeopardy assessment was made against transferor for deficiencies in income tax, additions to tax, and interest for the taxable years and in the amounts as follows: Year Tax Interest Additions Total to tax [1946] $ 3,054.05 $ 774.56 $ 1,527.03 $ 5,355.64 [1947] 14,574.36 2,821.84 7,287.18 24,683.38 [1948] 11,137.63 1,488.17 5,568.82 18,194.62 On June 8, 1951, a jeopardy notice and demand was served upon transferor for payment of the aforesaid amounts. At this time transferor advised the collector that he was unable to and could not pay the tax assessment. Two levies were served upon the secretary of the Judge Realty Company on the same date, giving notice of taxes due from the transferor and Virginia Smith (transferor's former wife). A levy was prepared on June 8, 1951, for the First National Bank of Wellston, Wellston, Missouri, but was not served because transferor had no account. Notices of Federal tax liens covering the deficiencies were recorded on June 8 and 18, 1951, in the offices of the recorders of deeds, St. Louis, Missouri, and St. Louis County, Missouri. On or about June 18, 1951, respondent requested but was refused a copy of the*24 transferor's balance sheet. Between June 18, 1951, and December 31, 1951, respondent checked three banks but was unsuccessful in locating any assets. No levies were executed or served in this period. On or about July 2, 1951, Tom G. Smith, Marlene, and petitioner signed articles of incorporation of the Bartmer Automatic Self Service Laundry, Inc., under "the General and Business Corporation Act of Missouri." A certificate of incorporation was issued to the corporation on September 15, 1951. The articles specified that the minimum amount of paid-in capital was $ 1,500. The books and records of the corporation disclose that the stock was issued to petitioner, Marlene, and Tom G. Smith. However, the latter two individuals were not the legal or the beneficial owners of the stock. It was stipulated that ownership of all the stock rested in petitioner during the period July 1951 through December 1959. The stock certificates were dated September 21, 1951. Petitioner was the president of the corporation, and actively managed its operations between October 19, 1951, and August 1956. With the assistance of Marlene, she maintained the corporation's books and records. *320 On July *25 16, 1951, the respondent mailed a notice of deficiency to transferor with respect to the jeopardy assessment, and from the notice an appeal was taken to this Court (Docket No. 37193). On September 17, 1952, the Probate Court of the city of St. Louis (hereinafter referred to as the Probate Court) appointed petitioner administratrix of the estate of the transferor. She filed with the Probate Court on November 12, 1952, a "Report in Lieu of Inventory" in which she declared: that although she [petitioner] has made due and diligent search and is continuing to investigate and discover assets, she is at the present time unable to identify, describe or itemize any real or personal property, belonging to said deceased [transferor] at the time of his death. Respondent filed a claim for the amounts due with the Probate Court. On or about December 3, 1953, a stipulation was entered into between the parties in Docket No. 37193 (then entitled "Estate of Arthur A. Smith, Deceased, Helen Smith, Administratrix, Petitioner v. Commissioner of Internal Revenue, Respondent"), whereby it was agreed that there were deficiencies in tax and additions to tax due from transferor for the years and in*26 the amounts as follows: Year Tax Additions to tax [1946] $ 3,017.95 $ 1,508.98 [1947] 11,093.79 5,546.90 [1948] 10,204.99 5,102.50 Pursuant to and in accordance with the stipulation, this Court, on December 8, 1953, entered its decision for the tax and additions to tax set forth above. Respondent resumed collection efforts in 1954. On May 6, 1954, levies were prepared and served on the following individuals or companies: E. Linton Joaquin (transferor's accountant); William J. Becker (counsel herein); Arthur A. Smith, Jr.; Gloria Miller, petitioner; Marlene; Smithold Realty & Investment Company; and the corporation. Petitioner was requested in 1954, and repeatedly thereafter, to file an inventory of assets of the transferor's estate. Petitioner filed on October 24, 1956, a document entitled "Inventory" with the Probate Court in which she declared that transferor owned undefined interests in four corporations which were worthless and an automobile with the value of $ 100. The automobile, in fact, belonged to Marlene. Except for amounts realized through the sale of some assets belonging to the various businesses conducted by transferor, payments from rental property, *27 and collection on a bond posted by transferor, respondent was unsuccessful in locating any assets belonging to the *321 transferor with which to satisfy the claims. The "Certificate of Assessments and Payments" indicates that in excess of $ 40,000 in taxes, additions to tax, and interest remain due and payable by transferor. Transferor, at one time or another, owned all, or part of, the Bartmer Truck Service, Electric Supply Company, Inc., Electric Fixture Company, and Smithold Realty & Investment Company. Record title to the stock of these companies was held in the names of parties other than transferor. Similarly, petitioner owned, at one time or another, a bank account and an interest in an apartment building held in the names of straw parties. Petitioner received $ 1,500 from transferor in July 1951 either as a cash gift or as part of the assets (paid-in capital) of the corporation. In 1951 the transferor purchased equipment subsequently used by the corporation. Petitioner received this equipment in July 1951 either as a gift in kind or as part of the assets of the corporation. Petitioner was the actual or beneficial owner of all the corporation's stock, or the actual*28 owner of the business. The value of the equipment when transferred to petitioner was not greater than $ 4,000. Both of the above transfers were without consideration. The books and records of the corporation indicate that petitioner advanced her personal funds to the corporation from time to time. The amount of $ 600 entered as a loan on the books was an advance of petitioner's personal funds. A book entry in the amount of $ 1,250 did not represent anything of value received by the petitioner from the transferor. Respondent determined that petitioner, or, in the alternative, the corporation, is liable as transferee to the extent of $ 9,914.51, plus interest thereon as provided by law. The value of the assets received by petitioner from transferor in July 1951 did not exceed $ 5,500. Subsequent to the jeopardy assessment, respondent has received from petitioner, the corporation, and Marlene, as transferees, the following payments: Docket No. Amount $ 103.64 64464 1,000.00 545.95 64465 912.92 65229 196.47 OPINION. The issue is whether Helen Comb Smith Thornton, or, in the alternative, Bartmer Automatic Self Service Laundry, Inc., is liable as transferee to *29 the extent of the assets (cash and equipment) transferred to either party by Arthur A. Smith, for *322 the unpaid income tax deficiencies and additions to tax of the transferor. Respondent concedes that Marlene (petitioner in Docket No. 65229) is not liable as a transferee of Arthur A. Smith, and that there is an overpayment by Marlene in the amount of $ 196.47, which amount was involuntarily paid by her on October 24, 1956. This concession will be given effect under Rule 50. Respondent has the burden of proving liability as a transferee, i.e., he must establish all facts necessary to indicate liability, at law or in equity, on the part of the transferee. Sec. 1119, I.R.C. 1939; Arlington F. Brown, 24 T.C. 256. A prima facie case of transferee liability is established if the respondent succeeds in proving, by competent evidence (1) that assets were transferred to the alleged transferee without consideration or for inadequate consideration; (2) that the transferor was insolvent or the transfer left the transferor insolvent or the transfer was a "purely voluntary conveyance conceived and made with the intent of hindering, delaying, and defrauding" *30 the Government; (3) that the assets transferred had value, and what that value was on the date of transfer; and (4) he has made every reasonable effort to collect the sums due. Petitioner first takes the position that the assessment of liability against her is barred by the statute of limitations. The parties placed certain stipulated facts in evidence. Some of these facts concerned a stipulation entered into in 1953 that there were deficiencies in tax and additions to tax by reason of fraud due from the transferor for the years 1946, 1947, and 1948 in the amount of $ 36,475.11 (this figure does not include interest). This Court adopted that stipulation by a decision entered on December 8, 1953. That stipulation and its subsequent adoption by this Court constituted a confirmation of the transferor's fraud. The Code provides under such circumstances that an assessment may be made at any time against the delinquent taxpayer, i.e., no statute of limitations bars assessment. See secs. 276(a) and 293(b), 1939 Code, and sec. 6501(c), 1954 Code. By the same token, where no statute of limitations bars assessment against the transferor, none bars assessment against the transferee. *31 Sec. 311(b), 1939 Code; sec. 6901, 1954 Code; Smith v. Commissioner, 249 F. 2d 218 (C.A. 5), affirming a Memorandum Opinion of this Court; Ruth Halle Rowen, 18 T.C. 874, reversed on other grounds 215 F. 2d 641 (C.A. 2). The respondent chose to make a jeopardy assessment against the transferor on June 6, 1951. This action allowed the respondent 6 years to proceed against the transferee, or until June 6, 1957, to take action with respect to petitioner. Sec. 276(c), 1939 Code; sec. *323 6502, 1954 Code. George F. Krug, 30 B.T.A. 1376, affd. 78 F. 2d 57 (C.A. 9); United States v. Updike, 281 U.S. 489. This period was further extended, however, by reason of the fact that transferor filed a petition in this Court sometime between July 16 and December 10, 1951. Sec. 277 of the 1939 Code; sec. 6503 of the 1954 Code. The decision of this Court was entered on December 8, 1953. Hence, the running of the statute was suspended for approximately 2 years plus the 60 days provided under the section. The*32 total period of limitations was thus extended well into 1959. The notice of transferee liability asserted against petitioner was dated September 18, 1956, and the assessment was made in August 1956. We hold that the actions taken with respect to asserting transferee liability were timely. Payne v. United States, 247 F. 2d 481 (C.A. 8); Will T. Caswell, 36 B.T.A. 816. Petitioner also argues, with specific and enumerated objections, that respondent has failed to prove a prima facie case of transferee liability. Our discussion above makes it obvious that the transferor was and is liable for the tax and additions to tax which here form the basis for the assertion of transferee liability. It is equally clear from the record that there are still due and payable from transferor amounts far in excess of the liability sought to be assessed against the transferee in this case. See Margaret Wilson Baker, 30 B.T.A. 188, affd. 81 F. 2d 741 (C.A. 3). Petitioner has conceded on brief and the record establishes that the transfer was, in fact, made and made without consideration. *33 We have found as a fact that when demand for payment of the tax and additions to tax was made, transferor stated that he was unable to pay the assessment. Levies were issued and liens filed on the date of the demand or shortly thereafter. No assets were located. In our view these facts would be sufficient to establish a prima facie case that the transferor was insolvent in July 1951 when he made the transfer to petitioner. Petitioner has offered no evidence to the contrary and we think it rested upon petitioner to go forward with the proof on this point. However, we need not rest our decision on this foundation alone. The facts of this case fall within the doctrine promulgated in Meyer Fried, 25 T.C. 1241; Louise Noell, 22 T.C. 1035; and William Wiener, 12 T.C. 701. Transferor made the transfer of assets after the jeopardy assessment, after notice and demand and after liens were filed and levies served. He made the transfer after he had stated that he was unable to pay the assessment. He was aware that he had filed false and fraudulent returns and even suggested to his wife that he *34 might go to prison as a result. The various businesses he *324 owned at one time or another were apparently conducted through straw parties, and the stock, which in fact was his, was concealed by placing record title in the names of others. Respondent requested a financial statement and was refused. We cannot overlook the confidential relationship of the parties and the fact that the transfer was made without consideration, i.e., the "badges of fraud" under Missouri law were present. Meyer Fried, supra. There was no offer of evidence to rebut the prima facie case made by respondent in this respect. Without entering into an analysis of what we consider a settled point, or into a discussion of Missouri law, we hold that the transfer of the cash and equipment or of the stock of the corporation by transferor to petitioner, under the circumstances described, was a purely voluntary conveyance conceived and made with the intent of hindering, delaying, and defrauding the Government in its efforts to collect the taxes and additions to tax owed by the transferor, and was, therefore, void under Missouri law. Mo. Ann. Stat. sec. 428.020 (Vernon). See, *35 also, Conrad v. Diehl, 344 Mo. 811, 129 S.W. 2d 870; Oetting v. Green, 350 Mo. 457, 166 S.W. 2d 548; Godchaux Sugars v. Quinn, 95 S.W. 2d 82. That being so, the respondent need not affirmatively show that the transferor was insolvent at the time the transfer was made. Meyer Fried, supra;Louise Noell, supra;William Wiener, supra;Leon Papineau, 28 T.C. 54. We have set forth at length in our Findings of Fact the search made for transferor's assets, the levies served, and the liens filed. Respondent requested petitioner to render an inventory statement of transferor's estate in her capacity as administratrix, but she failed to do so until 1956. The inventory filed in the Probate Court in that year indicated that no assets were owned by transferor at his death. If these probate proceedings are still pending, respondent is not required to await the outcome since the estate has no assets. Petitioner offered no evidence indicating what assets*36 respondent overlooked or tending to establish how respondent lacked diligence in his efforts. In view of the absence of evidence on the part of petitioner, the devious path taken by the transferor to cloak what assets he possessed, and the lack of cooperation exhibited by both transferor and petitioner, we think that the activities undertaken by respondent are sufficient to establish prima facie that he made every reasonable effort to collect the sums due. Respondent alleges that $ 9,914.51 was transferred to petitioner in the form of either cash or equipment. While it is not clear whether assets or stock were transferred, neither party offered proof demonstrating that the value of such stock, if that was what was transferred, was greater or lesser than the value of the underlying assets. We *325 find, therefore, that if stock was in fact transferred, its value equaled the aggregate value set by us for the individual assets transferred. 3 *37 The corporate books show on the capital stock ledger sheet a $ 1,500 credit entry on October 12, 1951. This was the amount of the minimum paid-in capital necessary for the corporation to begin operations. The corporation, in fact, undertook to engage in business. Petitioner admits receipt of the laundry business from transferor. Respondent's agent testified that petitioner admitted being given this amount. Although the transfer took place in July 1951, cash is cash, and therefore it had the same value on October 12, 1951, as in July of that year. Petitioner offered no real explanation for the $ 1,500 entry inconsistent with respondent's interpretation. Accordingly, we find that respondent has established prima facie that petitioner received $ 1,500 from transferor in July 1951 either as a cash gift or as part of the assets (paid-in capital) of the corporation which petitioner owned. The books further show on the same sheet a credit entry of $ 6,564.51 as of December 31, 1951. There is also an entry as of December 31, 1951, for "equipment" on the equipment ledger sheet in the same amount. Respondent argues that these entries indicate the value of the equipment when transferred*38 in July 1951. Petitioner produced evidence tending to show that the laundry was started in February 1951. It would be a fair inference that the equipment was in use before July 1951. Equipment generally declines in value with the passage of time, depending, of course, on the state of its repair and economic conditions. In July the equipment may have been damaged, out of repair, or otherwise valueless. We do not consider book entries, dated almost 6 months after the transfer in a context of possible fluctuating values, as sufficient evidence to fix the value of this equipment on the date of transfer. On the other hand, petitioner admittedly received the equipment (or stock) from the transferor without consideration. She testified that its value was somewhere in the neighborhood of $ 3,500 to $ 4,000 when she received it. Exercising our best judgment, and bearing heavily against the respondent, on whom the burden of proof of such value rests, we have determined that the value of the equipment on the transfer date was $ 4,000. The sum of $ 600 was entered upon the books as a loan from petitioner to the corporation. In denying that she received the money from transferor, petitioner*39 testified that this amount came from her personal funds earned as a waitress. The sum is not so great that reasonably she could not have earned and saved this amount. Nor is is unreasonable that she should advance money to a corporation which *326 she owned and managed. Accordingly, we have found that the $ 600 represented petitioner's personal funds and that she was not in receipt of this amount from transferor. The capital stock ledger sheet shows an entry of $ 1,250 on December 31, 1951, the reference column containing the word "contra." Respondent alleges that this amount represented assets received by petitioner. No explanation of this book entry or what it represented was given by respondent. We hold that respondent has failed to show that the entry represented anything of value received by the petitioner from the transferor. See Arlington F. Brown, supra. A point was raised in the course of the testimony that the laundry equipment had been sold subsequent to the transfer in July 1951, apparently at a lesser value than here asserted by respondent. The fact that the transferee sold the assets is immaterial to our considerations. The*40 price at which she may have sold the equipment is not the measure of liability. Liability is measured by the value of the property that was transferred to her. See Estate of Geroge L. Cury, 23 T.C. 305, 339. In view of the foregoing discussion and petitioner's admission, it is apparent that the corporation is not liable as a transferee, as contended in the alternative by respondent. We find that the Bartmer Automatic Self Service Laundry, Inc. (petitioner in Docket No. 64464), made an overpayment in the amount of $ 1,103.64. We hold that petitioner is liable, as transferee of Arthur A. Smith, to the extent of $ 5,500 ($ 4,000 plus $ 1,500), plus interest thereon as provided by law, 4 this being the value of the assets transferred to her in July 1951 without consideration. Decisions will be entered under Rule 50. Footnotes 1. Proceedings of the following petitioners are consolidated herewith: Helen Comb Smith Thornton, Docket No. 64465, and Marlene J. Smith Clukies, Docket No. 65229.↩ 2. As it will appear infra↩, Helen Comb Smith Thornton was the transferee of Arthur A. Smith and is referred to in these proceedings as the sole petitioner. 3. It appears more likely that assets rather than stock were transferred in July 1952, in view of the September date on the stock certificates.↩ 4. See Voss v. Wiseman, 234 F. 2d 237↩ (C.A. 10).