Opinion
Docket No. 53613.
1956-03-15
MEYER FRIED OR FANNY FRIED, TRUSTEES FOR ELLIOTT FRIED, TRANSFEREE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
John C. Kappel, Jr., Esq., for the petitioners. William H. Welch, Esq., for the respondent.
Jeopardy notice demands in the total amount of $357,586.23 were served on Meyer and Fanny Fried on March 27, 1952, for income tax, interest, and penalties for the years 1942 to 1949, inclusive. Such liability had not been wholly satisfied at the date of the hearing herein on October 5, 1955. Between February 3, 1953, and January 4, 1954, Meyer Fried deposited a total of $14,000 in a savings account for his minor son, Elliott; he and his wife were trustees of such account. The respondent determined the transferee liability here in issue on April 12, 1954. On demand of the director of internal revenue, such sum was paid over to him by the depository on July 20, 1955. The respondent made a prima facie showing that the transfer in question was without consideration and to one standing in a confidential relationship to the transferor, and, hence, presumptively void as being in fraud of creditors under Missouri law. Held, petitioners failed to overcome such prima facie showing and respondent's determination is, therefore, correct. John C. Kappel, Jr., Esq., for the petitioners. William H. Welch, Esq., for the respondent.
Respondent determined that Elliott Fried, the minor son of Meyer and Fanny Fried, was liable to the extent of $14,000 as the transferee of cash in that amount from the said Meyer and Fanny Fried. The parties have stipulated the outstanding income tax liability of Meyer and Fanny Fried for the years indicated as follows:
+-----------------------------------------------+ ¦Year ¦Tax ¦Sec. 293 (b) addition to tax ¦ +------+---------+------------------------------¦ ¦1942 ¦$2,331.48¦$1,165.74 ¦ +------+---------+------------------------------¦ ¦1943 ¦7,546.78 ¦3,762.63 ¦ +------+---------+------------------------------¦ ¦1944 ¦20,128.77¦10,105.29 ¦ +------+---------+------------------------------¦ ¦1945 ¦23,878.69¦12,018.35 ¦ +------+---------+------------------------------¦ ¦1946 ¦28,331.36¦14,165.68 ¦ +------+---------+------------------------------¦ ¦1947 ¦41,240.71¦20,620.36 ¦ +------+---------+------------------------------¦ ¦1948 ¦38,263.08¦19,131.54 ¦ +------+---------+------------------------------¦ ¦1949 ¦38,016.96¦19,008.48 ¦ +-----------------------------------------------+
The only issue is whether Elliott Fried is liable as a transferee of his parents' assets in the amount of $14,000.
Some of the facts were stipulated.
FINDINGS OF FACT.
The stipulated facts are so found and are incorporated herein by this reference.
Meyer Fried and his wife, Fanny Fried, were residents of St. Louis County, Missouri, from 1942 through 1951, and filed their returns for such years with the collector of internal revenue for the first district of Missouri.
On March 27, 1952, jeopardy notice demands in the total amount of $357,586.23 were served on Meyer and Fanny Fried for income taxes, interest, and penalties for the years 1942 to 1949, inclusive. Subsequent to the serving of jeopardy notice demands, the respondent caused to be impounded certain securities of Meyer Fried. The respondent also caused to be served 388 levies upon property and property rights allegedly belonging to Meyer and Fanny Fried.
On April 17, 1952, Meyer Fried and the collector of internal revenue at St. Louis entered into an agreement whereby certain first, second, third, and fourth trust notes together with other securities were turned over to Samuel Mandel, who was to collect on such notes and securities and pay the proceeds over to the collector. The face value of the securities which were turned over to Mandel was approximately $400,000. The fair market value of such securities on April 17, 1952, was less than $175,000. Meyer and Fanny Fried's tax liability had not been wholly satisfied at the date of the hearing herein on October 5, 1955.
From February 3, 1953, to January 4, 1954, Meyer Fried deposited $14,000 in a savings account with the Prudential Savings and Loan Company, Clayton, Missouri. Such account bore the caption ‘Meyer Fried or Fanny Fried, Trustees for Elliott Fried.’ On demand of the director of internal revenue, the Prudential Savings and Loan Company, on July 20, 1955, paid the $14,000 to the director and such sum was applied to Meyer Fried's tax liability for the year 1945. The deficiency notice, which is the basis of this proceeding, was mailed on April 12, 1954.
OPINION.
RICE, Judge:
The respondent must affirmatively establish the transferee liability which he determined in his deficiency notice.
Such transferee liability may be established at law or in equity.
SEC. 1119. PROVISIONS OF SPECIAL APPLICATION TO TRANSFEREES.(a) Burden of Proof.— In proceedings before the Board the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax.
The respondent argues that Meyer and Fanny Fried transferred $14,000 to their minor son, Elliott, with intent to hinder, delay, and defraud the United States, a creditor, and that such transfers are, therefore, void under Missouri law.
SEC. 311. TRANSFERRED ASSETS.(a) Method of Collection.— The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this chapter (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):(1) Transferees.— The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this chapter.
The Frieds argue that the respondent has not shown Meyer's insolvency at the time the transfers in question were made, and, hence, transferee liability has not been established.
The Revised Statutes of Missouri provide that every conveyance or assignment ‘made or contrived with the intent to hinder, delay or defraud creditors of their lawful actions, * * * shall be * * * clearly and utterly void.'
In interpreting that and similar previous statutes, the Missouri courts have said that recognized ‘badges of fraud’ include, among other things, the confidential relation of the parties and transfers without consideration. Conrad v. Diehl, 344 Mo. 811, 129 S.W.2d 870 (1939). The Supreme Court of Missouri in Godchaux Sugars v. Quinn, 95 S.W.2d 82, 83 (1936), said:
Rev. Stat. Mo., 1949:Sec. 428.020. Conveyances to defraud creditors, void.— Every conveyance or assignment in writing, or otherwise, of any estate or interest in lands, or in goods and chattels, or in things in action, or upon the rents and profits thereof, and every bond, suit, judgment, decree or execution, made or contrived with the intent to hinder, delay or defraud creditors of their lawful actions, damages, forfeitures, debts or demands, or to defraud or deceive those who shall purchase the same lands, tenements or hereditaments, or any rent, profit or commodity issuing out of them, shall be from henceforth deemed and taken, as against said creditors and purchasers, prior and subsequent, to be clearly and utterly void.
It is settled law that a voluntary conveyance of property is presumptively fraudulent and void as to existing creditors. When such facts are shown, the burden rests on the grantee or donee to establish facts showing such conveyance to be valid. * * *
To the same effect is Hale v. Hummel, 64 F.2d 210, 213 (C.A. 8, 1933), where the Court of Appeals said:
There appears to be no hard and fast rule as to just what elements are necessary to make out a prima facie case, but if the conveyance is shown to be voluntary, the burden rests upon the party accepting the same to establish circumstances which repel the presumption of a fraudulent intent. (Citations.)
Here, no evidence was offered to rebut the prima facie case which the respondent made— that the transfers to a bank account controlled by Meyer Fried and his wife, as trustees for their minor son, were anything other than a purely voluntary conveyance conceived and made with the intent of hindering, delaying, and defrauding the United States in its effort to collect taxes and penalties owed by them, and were therefore void under Missouri law. That being so, the respondent need not show that Meyer Fried was insolvent at the time the transfers in question were made. Louise Noell, 22 T.C. 1035 (1954), also 24 T.C. 329 (1955), on appeal C.A. 8, Nov. 29, 1955; William Wiener, 12 T.C. 701 (1949). We, therefore, conclude that the respondent has established the transferee liability at law, which is here in issue.
On brief, the Frieds argue that the respondent proceeded against the wrong party since the trust in question ‘is a passive or naked one, and therefore, entitled to the fund is the beneficiary namely Elliott Fried who is not a party to the transferee levy or these proceedings.’ They say that no provisions of the trust are in evidence but that it is apparent that it was created for the benefit of the beneficiary and is therefore a passive trust which makes Elliott Freid the absolute owner of the funds. That argument is without merit. In the first place, the Frieds are attempting to shift to the respondent the burden of proof on an issue which they raised. That they cannot do. The provisions of the trust are not in evidence, but it was the petitioners' responsibility, not the respondent's, to place the trust agreement before us. But more important, even if Elliott Fried was the absolute owner of the funds, it would appear that his parents, under Missouri law, were his natural guardians
and would, therefore, be the proper parties to represent him in any legal proceeding.
Rev. Stat. Mo., 1949:Sec. 457.020. Natural guardians of minors.— In all cases not otherwise provided for by law, the father and mother, with equal powers, rights and duties, while living, and in case of the death of either parent, the survivor, or when there shall be no lawful father, then the mother, if living, shall be the natural guardian and curator of their children, and have the custody and care of their persons, education and estates; and when such estate is not derived from the parents acting as guardian and curator, such parents shall give security and account as other guardians and curators, and if such parents shall refuse or neglect to give such bond the probate court, or judge in vacation, shall appoint some competent person as curator to take charge of and manage such property. The parents of such minor child or children acting as such natural guardian and curator shall be entitled to receive and collect the earnings of such minors, until they reach their majority, and be liable for their support to the extent of such earnings; provided, that this law shall not be so construed as to exempt the father of such minors from liability for the support of his children.
In any event, this proceeding is against Elliott Fried, as a transferee, and we think it matters not whether his parents represents him here as the trustees of his bank account or as his guardians.
Rev. Stat. Mo. 1949:Sec. 457.420. To represent ward in all legal proceedings.— It shall be the duty of all guardians and curators to represent their wards in all legal proceedings, to sue for, demand and receive all their dues, give discharges therefor, and compound the same upon such terms as may be authorized by the probate court; and all matters committed to their care, they shall prosecute and defend for their wards without further admittance, in the several courts of the state.
Reviewed by the Court.
Decision will be entered for the respondent.