Opinion
NO. CV-F-97-5044-LJO
September 19, 2002
FINDINSG OF FACT AND CONCLUSIONS OF LAW FOLLOWING COURT PHASE OF TRIAL
This Court issues its findings of fact and conclusions of law following the phase two, non-jury portion of trial of these consolidated actions.
BACKGROUND The Parties
Wanda Jean Crisp is the mother of Gilbert Mark Crisp. Gilbert Mark and Rhonda Crisp a married and filed joint tax returns for 1988 and 1989. In 1988-1989, Wanda Jean Crisp and Gilbert Mark Crisp operated Crisp Construction Company ("Crisp Construction") which was profitable and engaged in, among other things, installing and removing fuel tanks. In 1991, the Internal Revenue Service ("IRS") began audits of Wanda Jean Crisp and Gilbert Mark and Rhonda Crisp (collectively the "Crisps") and Crisp Construction for 1988 and 1989 and determined Crisp Construction failed to report substantial gross income, the liability of which was assessed to the Crisps in that Crisp Construction was their alter ego.
After the Crisps' audits began, Hyper-Jean Property and Equipment Limited Partnership ("Hyper-Jean Property") was formed for Wanda Jean Crisp and Sequoia Property and Equipment Limited Partnership ("Sequoia Property") was formed for Gilbert Mark and Rhonda Crisp. By a grant deed recorded October 16, 1992, Wanda Jean Crisp transferred for no consideration to Hyper-Jean Property her residence at 3850 West Cherry Avenue, Visalia, California ("3850 West Cherry"). By grant deed recorded October 20, 1992, Gilbert Mark and Rhonda Crisp transferred for no consideration to Sequoia Property their residence at 5036 West Oak, Visalia, California ("5036 West Oak"). Wanda Jean Crisp also transferred to Hyper-Jean Property 433 North Atwood, Visalia, California ("433 North Atwood") which was later transferred to her daughter. Gilbert Mark and Rhonda Crisp also transferred to Sequoia Property 1245 North Gowdy Street, Visalia, California ("1245 North Gowdy") which was later sold. The Crisps continued to use the properties after the transfers.
Wanda Jean Crisp, a general partner of Hyper-Jean Property, controlled and benefitted from Hyper-Jean Property. Although Wanda Jean Crisp declined to indicate the source of money to fund Hyper-Jean Property, records show that deposits to Flyper-Jean Property's bank account were from AGT Vault and Crisp Petroleum Environmental, Inc. (which is also known and will be referred to sometimes as "CPEI") which conducted fuel tank related work similar to Crisp Construction in 1988 and 1989 Wanda Jean Crisp paid her personal expenses through Hyper-Jean Property's bank account.
Gilbert Mark and Rhonda Crisp controlled and benefitted from Sequoia Property, which failed to keep records. Sequoia Property received monthly rents but filed no tax returns. Crisp Construction stopped filing tax returns after its audit. Hyper-Jean Property and Sequoia Property (collectively the "limited partnerships") never filed tax returns. The Crisps stopped filing a returns after the audits. The IRS filed "nominee" liens against the Crisps' 3850 West Cherry and 5036 West Oak residences, after concluding the limited partnerships did not exist separate from the Crisps.
The Consolidated Actions
In January 1997, Sequoia Property filed its action entitled Sequoia Property and Equipment Limited Partnership v. United States of America, Case No. 97-5044 OWW LJO ("Case No. 97-5044 against the United States of America ("Government") to quiet title to Gilbert Mark and Rhonda Crisp 5036 West Oak residence in favor of Sequoia Property. In January 1998, Hyper-Jean Property filed a action entitled Hyper-Jean Property and Equipment Limited Partnership v. United States of America Case No. 98-5113 OWW SMS ("Case No. 98-5113") against the Government to quiet title to Wanda Jean Crisp's 3850 West Cherry residence in favor of Hyper-Jean Property.
In October 1998, the Government filed its actions entitled United States of America v. Wanda Jean Crisp, et at, Case No. 98-6176 OWW LJO ("Case No. 98-6176") against Wanda Jean Crisp and Hyper-Jean Property and United States of America v. Gilbert Mark Crisp, et al., Case No. 98-6188 OWW LJO ("Case No. 98-6188") against Gilbert Mark and Rhonda Crisp and Sequoia Property reduce the 1988 and 1989 tax assessments to judgment and to foreclose tax liens on the Crisps' 3850 West Cherry and 5036 West Oak residences. The Government alleged the limited partnerships were the Crisps' nominees, alter egos and/or fraudulent transferees. The Crisps filed counterclaims to quiet title to miscellaneous personal property.
This Court's August 6, 1999 order consolidated Case Nos. 97-5044, 98-5113, 98-6176 and 58-6188. This Court's February 22, 2001 order bifurcated issues with an initial jury trial of the Government's tax assessment claims followed by a court trial on the equitable quiet title, tax lien foreclosure, fraudulent transfer and related claims. After a March 2001 trial, the jury returned verdict favorable to the Government.
On December 20, 2001, January 17, 2002 and June 12, 2002, this Court conducted the second (non-jury) phase of trial on enforcement of the Government's tax liens against the Crisps' 3850 West Cherry and 5036 West Oak residences. The Crisps failed to appear during the second phase, and this Court found they were unavailable.
The Government seeks a judgment for taxes against the Crisps and to enforce the judgments selling the Crisps' 3850 West Cherry and 5036 West Oak residences.
FINDINGS OF FACT Crisp Construction And CPEI
1. Crisp Construction performed fuel tank-related construction. (Deposition of Gilbert Mark Crisp, January 10, 2001, page 43, line 22 to page 44, line 4.)
2. Crisp Construction's 1988 federal tax return reported: (a) more than $2.5 million in gross receipts; (b) total assets of $959,552; (c) the Crisps and Robin Crisp (Gilbert Mark Crisp's brother) were officers; and (d) a 3850 West Cherry address. (Exhibit PX-1.)
3. Crisp Construction's 1989 tax return reported: (a) more than $1.9 million in gross receipts; (b) total assets of $887,117; and (c) depreciation of a 1988 Lincoln automobile. (Exhibit PX-3.)
4. Crisp Construction operates as CPEI which is Crisp Petroleum Environmental, Inc. (Reporter's Transcript ("RT") 5-69, 5-72, 5-90.)
5. Crisp Construction used the trade name of Crisp Tree Service. (Exhibits PX-5.)
6. John Chapa worked for Crisp Construction in the late 1980s with Gilbert Mark Crisp as his boss and installed and removed fuel tanks. (RT 5-67-5-68.)
7. Maria Vela (formerly Maria Molina) worked under Gilbert Mark Crisp at Crisp Construction and CPEI and her duties did not change. (RT 5-72, 6-6, 6-12-6-13.)
8. CPEI's office was located at 1718 North Shirk Road, Visalia, California ("1718 North Shirk") where Wanda Jean Crisp was seen. (RT 5-73, 5-77.)
9. Citing the Fifth Amendment, Gilbert Mark Crisp failed to describe the property at 1718 North Shirk. (Deposition of Gilbert Mark Crisp, April 28, 1999, page 70, lines 23-25.)
10. Gilbert Mark Crisp declined to state whether he was doing construction business out of 1718 North Shirk. (Deposition of Gilbert Mark Crisp, January 10, 2001, page 85, lines 2-14.)
11. In 1988 and 1989, the Crisps operated Crisp Construction as a sham or alter ego to justify the IRS's disregarding the corporate form and taxing unreported corporate income to the Crisps. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question Nos. 1 and 2 (Doc. 299); Special Verdict Regarding Wanda Jean Crisp Question Nos. 1 and 2 (Doc. 300).)
12. In 1988 and 1989, the Crisps operated Crisp Construction as a partnership. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question Nos. 3 and 4 (Doc. 299); Special Verdict Regarding Wanda Jean Crisp, Question Nos. 3 and 4 (Doc. 300).)
13. Prior to late 1991, IRS Revenue Agent Janet Appleton ("Agent Appleton") commenced an audit regarding Crisp Construction for 1988 and 1989. (RT 5-91.)
14. The Crisps were aware of the Crisp Construction audit from its initiation. (RT 5-92.)
15. IRS Revenue Dennis Officer Stiffler's ("Officer Stiffler's") investigation beginning in the mid-1990s revealed Crisp Construction did not currently file tax returns. (RT 6-57-6-59.)
16. Officer Stiffler's search of DMV records located no Crisp Construction assets which had been previously reported. (RT 6-59.) Wanda Jean Crisp's Tax Assessments
17. On or about May 15, 1989, Wanda Jean Crisp filed a federal individual income tax return, IRS Form 1040, for the tax year ending December 31, 1988. (Exhibits PX-57:1152 and PX-75.)
18. On or about August 6, 1990, Wanda Jean Crisp filed a federal individual income tax return, IRS Form 1040, for the tax year ending December 31, 1989. (Exhibits PX-57 and PX-76.)
19. Wanda Jean Crisp failed to report taxable income of $1,398,000 for 1988. (Special Verdict Regarding Wanda Jean Crisp, Question No. 10 (Doc. 300).)
20. Wanda Jean Crisp failed to report taxable income of $1,167,000 for 1989. (Special Verdict Regarding Wanda Jean Crisp, Question No. 12 (Doc. 300).)
21. Wanda Jean Crisp's 1988 and 1989 tax returns failed to report the income as determined by the Special Verdict Regarding Wanda Jean Crisp. (Doc. 300.)
22. In late 1991 after initiation of the Crisp Construction audit, Agent Appleton commeneced an audit of Wanda Jean Crisp for 1988 and 1989. (RT 5-91-5-93.)
23. On or about August 28, 1995, a delegate of the Secretary of Treasury made the following assessments against Wanda Jean Crisp for unpaid individual federal income taxes:
Tax Period Type of Tax Tax Penalties Costs 1988 1040 $401,954.00 100,489.00 40.00 1989 1040 $335,793.00 117,549.00 00.00
The 1989 unreported income as determined by the jury was reduced by this Court's June 18, 2001 decision
(Exhibit PX-57.)
24. The IRS made notice and demand on Wanda Jean Crisp for payment of the assessment (Exhibit PX-57.)
25. Citing the Fifth Amendment, Wanda Jean Crisp failed to state whether she had filed paid income taxes after the 1988 and 1989 taxes were assessed. (Deposition of Wanda Jean Crisp, January 23, 2001, page 54, lines 17-23.)
26. On January 16, 1996, the IRS filed with the Tulare County Recorder a Notice of Federal Tax Lien against Wanda Jean Crisp for the assessments described above. (Undisputed Fact No. 12, Pretrial Order, p. 5, lines 18-19 (Doc. 278).)
27. In 1996 when assigned to collect tax from Wanda Jean Crisp, Officer Stiffler could not locate Wanda Jean Crisp's current tax returns after he searched IRS records. (RT 6-55.)
Gilbert Mark And Rhonda Crisp's Tax Assessments
28. In 1988 and 1989, Crisp Construction deducted payments to Gilbert Mark Crisp for per diem, travel or entertainment expenses. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question Nos. 5 and 9 (Doc. 299).)
29. Gilbert Mark Crisp received per diem, travel or entertainment expenses of $15,600 1988 and $15,600 in 1989 for which he did not provide adequate records to establish the expenses as legitimate business expenses. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question Nos. 7 and 10 (Doc. 299).)
30. On or about April 15, 1989, Gilbert Mark and Rhonda Crisp filed a federal individual tax return, IRS Form 1040A, for the taxable year ending December 31, 1988. (Undisputed Fact No. 1, Pretrial Order, p. 4, lines 9-10 (Doc. 278); Exhibit PX-9.)
31. On or about April 15, 1990, Gilbert Mark and Rhonda Crisp filed a federal individual tax return, Form 1040A, for the taxable year ending December 31, 1989. (Undisputed Fact No. 2, Pretrial Order, p. 4, lines 11-12 (Doc. 278); Exhibit PX-10.)
32. Gilbert Mark and Rhonda Crisp failed to report taxable income of $1,361,600 for 19888. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question No. 72 (Doc. 299).)
33. Gilbert Mark and Rhonda Crisp failed to report taxable income in the amount of $1,093,600 for 1989. (Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp, Question No. 14 (Doc. 299).)
34. Gilbert Mark and Rhonda Crisp's 1988 and 1989 tax returns failed to report income as determined by the Special Verdict Regarding Gilbert Mark Crisp and Rhonda J. Crisp. (Doc. 299.)
35. On or about April 6, 1995, the IRS mailed a statutory notice of deficiency for 1988 and 1989 to Gilbert Mark and Rhonda Crisp. (Undisputed Fact No. 3, Pretrial Order, page 4, lines 13-14 (Doc. 278); Exhibit PX-14.)
36. On or about August 28, 1995, a delegate of the Secretary of Treasury made the following assessments against Gilbert Mark and Rhonda Crisp for unpaid individual federal income taxes:
Tax Period Type of Tax Tax Penalties Interest 1988 1040 $381,574.00 95,394.00 378,803.00 1989 1040 $307,029.00 61,406.00 221,040.00
(Exhibits PX-72, PX-15 (calculation).)
37. The IRS made notice and demand for payment on Gilbert Mark and Rhonda Crisp for payment of the assessments. (Exhibits PX-72.)
38. On or about June 17, 1996 the IRS filed with the Tulare County Recorder a Notice of Federal Tax Lien against Gilbert Mark and Rhonda Crisp for the assessments. (Undisputed Fact No. 4, Pretrial Order, p. 4, lines 15-16 (Doc. 278).)
39. Gilbert Mark Crisp submitted a letter to the IRS in 1995 to suggest that citizens did not have to file individual income tax returns. (Exhibit PX-16 (1588); RT 4-26-4-27.)
40. In 1996 when assigned to collect tax from Gilbert Mark and Rhonda Crisp, Officer Stiffler could not locate Gilbert Mark and Rhonda Crisp's current tax returns after he searched IRS records. (RT 6-55.)
41. Citing the Fifth Amendment, Gilbert Mark Crisp failed to state whether he ceased filing personal individual federal income tax returns after the 1988 and 1989 audit. (Deposition of Gilbert Mark Crisp, April 28, 1999, page 68, lines 2-21.) Transfers of Wanda Jean Crisp's 3850 West Cherry Residence
42. Wanda Jean Crisp's 3850 West Cherry residence is more particularly described as: Lot 10 of Sunset West Subdivision, in the City of Visalia County of Tulare, State California, according to the map thereof recorded in Book 26, Page 3 of Maps, Tulare County Records.
APN 119-173-10.
(Undisputed Fact No. 8, Pretrial Order, page 5, lines 1-5 (Doc. 278).)
43. 3850 West Cherry was purchased by Jack R. and Wanda Jean Crisp as community property on or about August 6, 1979, and as of February 2001, was occupied by Wanda Jean Crisp as her personal residence. (Exhibit PX-79; Undisputed Fact No. 9, Pretrial Order, page 5, lines 6-8 (Doc. 278).)
44. Wanda Jean Crisp lived at 3850 West Cherry on and off for 20 years. (RT 4-53.)
45. Union Planters Bank is the successor in interest to Leader Federal Bank for Savings, the assignee of the beneficial interest in a deed of trust recorded July 27, 1979 on 3850 West Cherry by assignment recorded January 18, 1996 as file number 96-003 662 with tulare Tulare County Recorder. The deed of trust has priority over the federal tax lien (Undisputed Fact No. 10, Pretrial Order, page 5, lines 9-13 (Doc. 278).)
46. Mid Valley Lenders, Inc. is the beneficiary of a deed of trust on 3850 West Cherry and recorded September 6, 1996 as file number 96064379 with the Tulare County Recorder The obligation secured by the deed of trust recorded September 6, 1996 has been paid. and Mid Valley Lenders, Inc. has filed a disclaimer in this action. (Undisputed Fact No. 11, Pretrial Order, page 5, lines 14-17 (Doc. 278).)
47. On April 14, 1981, Jack R. Crisp quit-claimed his interest in 3850 West Cherry to Wanda Jean Crisp. (Exhibit PX-79.)
48. By a grant deed recorded October 16, 1992, Wanda Jean Crisp transferred 3850 West Cherry to Hyper-Jean Property. (Exhibit PX-79.)
49. The grant deed recorded October 16, 1992 specifies that the documentary transfer tax $0 and that the transfer was for "no consideration — family." (Exhibit PX-79.)
50. Wanda Jean Crisp received nothing in exchange for the transfer of 3850 West Cherry Hyper-Jean Property. (Deposition of Wanda Jean Crisp, January 23, 2001, page 56, lines 1-8.)
51. As of February 12, 2001, the current claim for a homeowner's tax exemption listed Wanda Jean Crisp as the owner and occupant of 3850 West Cherry. (Exhibit PX-78; RT 6-96).
Use of 3850 West Cherry
52. After 3850 West Cherry was transferred to Hyper-Jean Property, Wanda Jean Crisp did not know whether she was a tenant and called Gilbert Mark Crisp if repairs were needed. (Deposition of Wanda Jean Crisp, January 23, 2001, page 65, line 17 to page 67, line 7.)
53. Intending to make an investment, Wanda Jean Crisp borrowed $50,000 secured by 3850 West Cherry after its transfer to Hyper-Jean Property. (Deposition of Wanda Jean Crisp. January 23, 2001, page 120, line 18 to page 122, line 11.) Hyper-Jean Property's Operation
54. Wanda Jean Crisp was a general partner of Hyper-Jean Property and had no limit on her authority to sign checks. (Deposition of Wanda Jean Crisp, January 23, 2001, page 59, lines 2-4.)
55. Citing the Fifth Amendment, Wanda Jean Crisp failed to identify the source of money deposited into Hyper-Jean Property's account. (Deposition of Wanda Jean Crisp, January 23, 2001, page 60, line 17 to page 61. line 25.)
56. Citing the Fifth Amendment, Wanda Jean Crisp failed to indicate whether Hyper-Jean Property filed tax returns. (Deposition of Wanda Jean Crisp, January 23, 2001, page 63, lines 1-25.)
57. Wanda Jean Crisp failed to inform the IRS that Hyper-Jean Property received rent but obtained an IRS letter stating that Hyper-Jean Property did not need to file tax returns. (Deposition of Wanda Jean Crisp, January 23, 2001, page 61, line 24 to page 63, line 2.)
Hyper-Jean Property's Bank Account
58. A bank account was opened for Hyper-Jean Property on October 23, 1992 with an initial address of 3850 West Cherry, later changed to 1718 North Shirk. (Exhibit PX-113.)
59. The address on the account's signature card for Wanda Jean Crisp was 1718 North Shirk (Exhibit PX-98.)
60. Checks from CPEI, located at 1718 North Shirk, and signed by Wanda Jean Crisp and Rhonda Crisp were deposited into Hyper-Jean Property's account. (Exhibits PX-103, 105, 106, 108, and 110.)
61. Checks from AGT Vault, located at 1718 Shirk Road, and signed by Wanda Jean Crisp were deposited into Hyper-Jean Property's account. (Exhibits PX-1 11, 112.)
62. Wanda Jean Crisp paid from Hyper-Jean Property's account personal expenses, including:
a. A tithe to the Church of God 7th Day (Exhibit PX-101);
b. Leader Federal Bank mortgage (Exhibit PX-101);
c. Union Planters Bank mortgage (Exhibits PX-102, 105-107, 109, 110. 112);
d. Utilities, such as electric, telephone, and cable bills (Exhibits PX-102 — 110, 112);
e. Reader's Digest subscription (Exhibit PX-111);
f. Department store shopping such as Mervyns and Gottschalks (Exhibits PX-103, 109, 111);
g. Medical expenses (Exhibits PX-109, 111. 112); and
h. Credit card payments (Exhibit PX-110).
63. Wanda Jean Crisp paid Department of Motor Vehicles fees for a dump truck from Hyper- Jean Property's account. (Exhibit PX-105.) Transfer of 433 North Atwood To Hyper-Jean Property
64. By quitclaim deed recorded April 14, 1981, Jack R. Crisp transferred to Wanda Jean Crisp property located at 433 North Atwood, Visalia, California ("433 North Atwood") (Exhibit PX-81.)
65. There were Crisp Construction activities at 433 North Atwood which was sometimes used as Crisp Construction's mailing address. (RT 5-43.)
66. Crisp Construction and Crisp family members used 433 North Atwood. (Deposition of Wanda Jean Crisp, January 23, 2001, page 112, lines 6-20.) 67. By a grant deed recorded October 16, 1992, Wanda Jean Crisp transferred 433 North Atwood to Hyper-Jean Property for no consideration. (Exhibit PX-81.)
68. By a grant deed recorded February 21, 1996, Hyper-Jean Property, by Wanda Jean Crisp transferred 433 North Atwood to Diana J. Sullivan, Wanda Jean Crisp's daughter (Exhibit PX-81.)
Transfers of Gilbert Mark And Rhonda Crisp's 5036 West Oak Residence
69. Gilbert Mark and Rhonda Crisp's 5036 West Oak residence is more particularily described as:
Lot 45 of Tract No. 59, in the City of Visalia, County of Tulare, State of California, as per Map Recorded in Book 19, Page 204 of Maps in the Office of the County Recorder of said County.
APN 085-018-0-03.
(Undisputed Fact No. 5, Pretrial Order, p. 4, lines 17-22 (Doc 278).)
70. Gilbert Mark and Rhonda Crisp occupied 5036 West Oak as their personal residence during 1992-2001. (Undisputed Fact No. 6, Pretrial Order, page 4, lines 23-24 (Doc. 278).)
71. Washington Mutual Bank, as the successor in interest to Great Western Bank, holds the beneficial interest in a deed of trust on 5036 West Oak and recorded March 4, 1992 with the Tulare County Recorder. The deed of trust has priority over the federal tax liens. (Undisputed Fact No. 7, Pretrial Order, page 4, lines 25-28 (Doc. 278).)
72. By a grant deed recorded March 4, 1992, Nora Gong, Rhonda Crisp's mother, transferred 5036 West Oak to Gilbert Mark and Rhonda Crisp. (Exhibit PX-80.)
73. By a grant deed recorded July 29, 1992, Gilbert Mark and Rhonda Crisp transferred 5036 West Oak to Nora Gong. (Exhibit PX-80.)
74. By a grant deed recorded October 16, 1992, Nora Gong again transferred 5036 West Oak to Gilbert Mark and Rhonda Crisp. (Exhibit PX-80.)
75. By a grant deed recorded October 20, 1992, Gilbert Mark and Rhonda Crisp transferred 5036 West Oak to the Sequoia Property. (Exhibit PX-80.)
76. The grant deed recorded October 20, 1992 specifies that the documentary transfer tax was $0 and that the transfer was for "no consideration — family." (Exhibit PX-80.)
77. The IRS commenced its audit of Gilbert Mark and Rhonda Crisp prior to the transfer of 5036 West Oak to Sequoia Property. (RT 5-94.)
Transfer of 1245 North Gowdy To Sequoia Property
78. By a grant deed recorded January 30, 1991, David and Donna Lee transferred 1245 North Gowdy Street, Visalia, California ("1245 North Gowdy") to Gilbert Mark and Rhonda Crisp. (Exhibit PX-82.)
79. The documentary transfer tax of the grant deed recorded January 30, 1991 indicates the purchase price was reported as $48,000. (RT 6-92-6-95.) 80. By a grant deed recorded October 16, 1992, Gilbert Mark and Rhonda Crisp transferred 1245 North Gowdy to Sequoia Property. (Exhibit PX-82.)
81. The grant deed recorded October 16, 1992 specifies that the documentary transfer tax was $0 and that the transfer was for "no consideration — family." (Exhibit PX-82.)
82. By a partnership grant deed recorded March 10, 1994, Sequoia Property transferred 1245 North Gowdy to Richard and Maria Molina. (Exhibit PX-82.)
83. Richard and Maria Molina purchased 1245 North Gowdy from Sequoia Property for $68,000-$69,000. (RT 6-7.)
84. The documentary transfer tax of the partnership grant deed recorded March 10, 1994 indicates the purchase price was reported as $70,000. (RT 6-92 — 6-95.)
85. Richard and Maria Molina owed $7,000 to Sequoia Property secured by a deed of trust on 1245 North Gowdy. (Exhibit PX-82.)
86. Gilbert Mark Crisp, acting for Sequoia Property, excused the repayment of the loan. (RT 6-17.)
Sequoia Property's Operation
87. The partners of Sequoia Property were all members of Gilbert Mark Crisp's family. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 31, lines 10-21.)
88. Gilbert Mark Crisp is the principal person who manages and controls Sequoia Property and he does not inform family members of Sequoia Property's received income (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 31, lines 10-21; page 32, lines 2-5.)
89. Sequoia Property's purpose is to distribute assets of Gilbert Mark and Rhonda Crisp to their children. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 41, lines 25.)
90. Gilbert Mark Crisp was aware of the audit of Jack R. Crisp and Crisp Construction at the time Gilbert Mark Crisp formed Sequoia Property. (Deposition of Person Mcos Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 57, lines 3-15.)
91. Sequoia Property does not file tax returns as Gilbert Mark Crisp received a letter from the the IRS stating that Sequoia Property was not required to file tax returns. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnersh Gilbert Mark Crisp, January 13, 2000, page 12, lines 8-10; page 26, lines 7-21.)
92. Sequoia Property received monthly rents but Gilbert Mark Crisp did not tell the IRS that Sequoia Property would receive rents when asking the IRS whether filing was required. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 12, lines 15-19; page 13, lines 16-23; page 26, lines 7-21.)
93. Gilbert Mark Crisp does not believe that rent is reportable income. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership. Gilbert Mark Crisp, January 10, 2001, page 166, lines 1-25).
94. Sequoia Property has failed to furnish tax returns to its partners as required by its partnership agreement. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 42, lines 1-9.)
95. Sequoia Property failed to keep records of its capital accounts and ceased using a bank account. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 43, lines 13-25.)
96. Gilbert Mark Crisp keeps his personal money and Sequoia Property money separate "in his head." (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 9, 2001, page 114, lines 1-23.)
97. Citing the Fifth Amendment, Gilbert Mark Crisp failed to explain his personal monies separate from Sequoia Property's monies. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 10, 2001, page 130, lines 7-24.)
98. Gilbert Mark Crisp discarded Sequoia Property bank records. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 9, 2001, page 54, lines 8-24.)
99. Sequoia Property invested in 1245 North Gowdy and did not report the gain on its investment on federal or state tax returns. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 47, lines 7-25 and page 50, lines 1-25.)
100. Gilbert Mark and Rhonda Crisp's minor children (who are Sequoia Property partners have not filed tax returns. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 53, lines 6-20.)
101. Gilbert Mark and Rhonda Crisp's son Matthew Crisp worked on 5036 West Oak because of his filial duty. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 9, 2001, page 106, lines 2-25; page 107, lines l7-23.)
102. Matthew Crisp's Toyota Land Cruiser was property of Sequoia Property. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 9, 2001, page 108, line 23 to page 109, line 24.)
103. Rhonda Crisp's car is in Sequoia Property's name. (Deposition of Gilbert Mark Crisp, January 10, 2001, page 110, lines 14-20.)
Sequoia Property's Dodge Stealth
104. Crisp Construction reimbursed Gilbert Mark Crisp for the purchase of a Dodge Stealth with a license plate of "DUGEE," Gilbert Mark Crisp's nickname. (Deposition of Gilbert Mark Crisp, January 10, 2001, page 12, lines 5-18.)
105. The Dodge Stealth's title was in Crisp Construction and Gilbert Mark Crisp's names in 1994. (Exhibit PX-89.)
106. The Dodge Stealth was transferred to Gilbert Mark Crisp in 1994 with a mailing address of 433 North Atwood and later transferred to Sequoia Property. (Exhibit PX-91.)
107. Gilbert Mark Crisp was seen in the Dodge Stealth with the "DUGEE" license plate. (RT 5-78 — 5-79.)
AGT Vault
108. Sequoia Property owns 40 percent of AGT Vault. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 63, line 23 to page 66, line 25.)
109. Hyper-Jean Property and Jack Crisp Limited Partnership also own portions of AGT Vault. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 63, line 23 to page 66, line 25.)
110. AGT Vault is entirely controlled by Gilbert Mark Crisp's family. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 71, lines 5-22.)
111. "AGT" refers to "above-ground tank," a fuel tank which Jack R. Crisp and Gilbert Mark Crisp invented and which Gilbert Mark Crisp tried to promote and sell. (RT 5-34, 5-36.)
112. AGT Vault manufactured a fuel tank to sell. (RT 6-20.)
113. AGT Vault makes payments to Gilbert Mark Crisp for the use of his patent and Gilbert Mark Crisp pays himself for use of the patent. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 72, lines 1-25; Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 1 2001, page 136, lines 2-20; page 137, lines 4-25.)
114. CPEI sold AGT Vault tanks. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 10, 2000, page 166, line 24 to page 167, line 8.)
115. AGT Vault does not file tax returns. (Deposition of Person Most Knowledgeable Sequoia Property and Equipment Limited Partnership, Gilbert Mark Crisp, January 13, 2000, page 73, lines 8-9.)
116. Citing the Fifth Amendment, Gilbert Mark Crisp declined to answer whether AGT Vault filed tax returns. (Deposition of Gilbert Mark Crisp, January 10, 2001, page 79, lines 5-25.)
CONCLUSIONS OF LAW Jurisdiction And Venue
117. This Court has jurisdiction over Case Nos. 98-6176 and 98-6188 pursuant to 28 U.S.C. § 1340 and 1345 and 26 U.S.C. § 7402 and 7403. This Court has jurisdiction over Case Nos. 97-5044 and 98-5113 pursuant to 28 U.S.C. § 2410 (quiet title).
119. Venue is proper in the Eastern District of California because the Crisps resided and the subject real property is located within this judicial district in Tulare County, California, 28 U.S.C. § 1391 and 1396.
Tax Collection Burden of Proof
120. In an action to collect taxes, the Government bears the initial burden of proof. Palmer v. Internal Revenue Service, 116 F.3d 1309, 1312 (9th Cir. 1997); United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983), cert. denied, 465 U.S. 1079, 104 S.Ct. 1440 (1984). The IRS deficiency determinations and assessments for unpaid taxes are normally entitled to a presumption of correctness if they are supported by a minimal factual foundation. Palmer, 116 F.3d at 1312; Stonehill, 702 F.2d at 1293. The presumption shifts the burden of proof to the taxpayer to show that the determination is incorrect. Palmer, 116 F.3d at 1312; Stonehill, 702 F.2d at 1293; Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985). Once the IRS has introduced some evidence that a taxpayer received unreported income, the burden shifts to the taxpayer to prove by a preponderance of evidence that the deficiency determination is arbitrary or excessive. Helvering v. Taylor, 293 U.S. 507, 515, 55 S.Ct. 287, 290 (1935); Edelson v. Commissioner of Internal Revenue Service, 829 F.2d 828, 831 (9th Cir. 1987).
Statute of Limitations
121. The Government relied on the six-year limitations period of 26 U.S.C. § 6501(e)(1) which provides in pertinent part:
If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.
Comparing the income reported on the Crisps' tax returns and the unreported income found by the jury in their special verdicts, the Crisps omitted more than 25 percent of their gross income on their 1988 and 1989 tax returns. The six-year limitations period applies.
122. On April 6, 1995, the IRS mailed statutory notices of deficiency to the Crisps regarding tax year 1988. On August 28, 1995, the IRS assessed large tax liabilities against the Crisps, primarily relating to Crisp Construction. The assessments for 1988 were more than six years from the Crisps' filing of their 1988 tax returns. However, under 26 U.S.C. § 6503(a), the limitations period is suspended for the time an assessment is prohibited "and for 60 days thereafter." A restriction is placed on assessment under 26 U.S.C. § 6213 which provides within 90 days after the notice of deficiency is mailed, a taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Pursuant to 26 U.S.C. § 6213, "no assessment of a deficiency in respect of any tax imposed . . . shall be made, begun or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day period . . ." Based on 26 U.S.C. § 6213 and 6503(a), the limitations period was suspended for 150 days from April 6, 1995 (when the notice of deficiency was mailed) to render the August 28, 1995 assessment within the extended period up to September 3, 1995.
The Government's Nominee Claims
123. Property held by a nominee is subject to a tax lien attaching to property of the true owner. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 351, 97 S.Ct. 619, 50 L.Ed.2d 530 (1977); Baldassari v. United States, 79 Cal.App.3d 267, 270-272, 144 Cal.Rptr. 741, 742-744 (1978). Federal tax liens against a taxpayer may be foreclosed against property. held by a nominee or alter ego so long as the taxpayer is the equitable owner of the property. United States v. Marsh, 114 F. Supp.2d 1036, 1043 (D. Hi. 2000). In such cases, courts have ignored that the property is in a third party's name and have upheld the Government's right to enforce its tax liens. See G.M Leasing Corp., 429 U.S. at 350-351, 97 S.Ct. 619; LiButti v. United States, 107 F.3d 110, 119 (2ndCir. 1997); Wolfe v. United States, 798 F.2d 1241, 1245 (9th Cir. 1986), cert. denied, 482 U.S. 927, 107 S.Ct. 3210 (1987); Towe Antique Ford Foundation v. I.R.S., 999 F.2d 1387, 1390 (9th Cir. 1993); Horton Dairy, Inc. v. United States, 986 F.2d 286, 290-291 (8th Cir. 1993), Shades Ridge Holding Co., Inc. v. United States, 888 F.2d 725, 728-729 (11th Cir. 1989), cert. denied, 494 U.S. 1027, 110 S.Ct. 1472 (1990) ("Property of the nominee or after ego of a taxpayer is subject to the collection of the taxpayer's tax liability."); Loving Saviour Church v. United States, 728 F.2d 1085 (8th Cir. 1984). A taxpayer cannot, by the device of taking title in the name of a straw party, prevent tax liens from attaching to property. See Towe Antique Ford, 999 F.2d at 1393; United States v. Code Prod. Corp., 216 F. Supp. 281, 284 (E.D. Pa. 1963). "[A] person cannot place his property or the income thereof beyond the reach of his creditors so long as he himself retains the right to receive and use it . . ." In re Camm's Estate, 76 Cal.App.2d 104, 172 P.2d 547. 551 (1946).
124. The Government has the burden to prove by a preponderance of the evidence its nominee/alter ego claims. United States v. Reed, 168 F. Supp.2d 1266, 1268 (D. Ut. 2001); Marsh, 114 F. Supp.2d at 1045. "Nominee status is determined by the degree to which a party exercises control over an entity and its assets." Shades Ridge, 888 F.2d at 729; LiButti, 107 F.3d at 119. Factors relevant to determination of nominee status are:
a. No consideration or inadequate consideration paid by the nominee;
b. Property placed in the nominee's name in anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the property;
c. Close relationship between transferor and nominee;
d. Failure to record conveyance;
e. Retention of possession by the transferor; and
f. Continued enjoyment of the transferor of benefits of the transferred property.
Towe Antique Ford Foundation v. I.R.S., 791 F. Supp. 1450, 1454 (D. Mont. 1992), aff'd, 999 F.2d 1387 (9th Cir. 1993) (citing United States v. Miller Bros. Constr Co., 505 F.2d 1031 (10th Cir. 1974)); United States v. Bell, 27 F. Supp.2d 1191, 1195 (ED. Cal. 1998); United States v. Williams, 581 F. Supp. 756, 759 (N.D. Ga. 1982); United States v. Code Prod. Corp., 216 F. Supp. 281 (E.D. Pa. 1963).
125. Applying the nominee factors, this Court finds that Hyper-Jean Property is a nominee of Wanda Jean Crisp and holds 3850 West Cherry residence for her benefit. Wanda Jean Crisp failed to report more than $2.5 million of taxable income for 1988 and 1989. After audit commencement, Wanda Jean Crisp transferred her 3850 West Cherry residence without consideration to Hyper-Jean Property, which she created and controlled. Such transfer was motivated to avoid tax collection. Wanda Jean Crisp retained control of her 3850 West Cherry residence after the transfer and continued to use the residence. She used 3850 West Cherry as security for an investment loan. The Hyper-Jean Property bank account expenditures were personal, including subscriptions, charitable contributions, monthly bills, medical bills, and a mortgage. Deposits to the Hyper-Jean Property bank account were from AGT Vault and CPEI but Wanda Jean Crisp would not explain the source of the funds. The evolution of Crisp Construction to Crisp Petroleum Environmental, Inc. to CPEI and AGT Vault suggests that the Crisps, without proper tax reporting, continued to operate Crisp Construction, the source of funds for the limited partnerships. Wanda Jean Crisp transferred for no consideration 433 North Atwood to Hyper-Jean Property which transferred the property to Wanda Jean Crisp's daughter to demonstrate property in Hyper-Jean Property was subject to Wanda Jean Crisp's personal control.
126. Further applying the nominee factors, this Court finds that Sequoia Property is a nominee of Gilbert Mark and Rhonda Crisp and that Sequoia Property holds 5036 West Oak for their benefit. Gilbert Mark and Rhonda Crisp failed to report more than $2.4 million of taxable income for 1988 and 1989. After audit commencement, Gilbert Mark and Rhonda Crisp transferred their 5036 West Oak residence without consideration to Sequoia Property, which they created and controlled. Such transfer was motivated to avoid tax collection. Gilbert Mark and Rhonda Crisp retained control of their 5036 West Oak residence after the transfer and continued to live there through 2001. Sequoia Property's purported purpose was to preserve Gilbert Mark and Rhonda Crisp's property for their children. Since their children were minors at the time of transfer, Gilbert Mark and Rhonda Crisp continued to retain control. Gilbert Mark and Rhonda Crisp failed to maintain a separate Sequoia Property entity with its own bank account and records. Gilbert Mark Crisp transferred his Dodge Stealth and 1245 North Gowdy to Sequoia Property without receiving consideration. of particular concern, Sequoia Property incurred a gain on the 1245 North Gowdy sale but did not report the gain on tax returns as required by law. IRS letters which excused Sequoia Property from filing tax returns were obtained under false pretenses in that Gilbert Mark Crisp did not tell the IRS about partnership income.
127. The evidence shows transfers of assets for inadequate consideration to the Crisps' closely related limited partnerships. As such, the Crisps are held to a fuller, stricter proof of consideration and fairness of the transactions. See Kirkland v. Risso, 98 Cal.App.3d 971. 978-979, 159 Cal.Rptr. 798, 802 (1979); Wood v. Kaplan, 178 Cal.App.2d 227, 230-231, 2 Cal.Rptr. 917 (1960)
128. Stan Livesay testified for the limited partnerships regarding his estate planning and trusts advice he had given to the Crisps. Presumably such testimony was intended to show the Crisps were motivated by estate planning to transfer their assets. However, the Crisps formed limited partnerships, not trusts. Since the Crisps did not follow Stan Livesay's advice, his testimony is unavailing to determine the Crisps' motivation.
129. The Crisps' failure to appear and testify at the trial's second phase substantiates an adverse inference that if they had testified, their testimony would not have been credible. Moreover, Gilbert Mark Crisp and Wanda Jean Crisp's deposition testimony was evasive and their assertion of the Fifth Amendment justifies an adverse inference. The "Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them: the Amendment `does not preclude the inference where the privilege is claimed by a party to a civil cause."' Baxter v. Palmigiano, 425 U.S. 308, 318, 96 S.Ct. 1551 (1976) (quoting 8). Wigmore, Evidence 439 (McNaughton rev. 1961); emphasis in original.) This rule applies even if "the government is a party to the action and would benefit from the drawing of the inference." Libutti, 107 F.3d at 121; see United States v. Ianniello, 824 F.2d 203, 208 (2nd Cir. 1987) (holding an adverse inference may be drawn from assertion of Fifth Amendment privilege in civil RICO actions by the government). "Silence is often evidence of the most persuasive character." United States ex rel. Bilokumsky v. Tod, 263 U.S. 149, 153-154, 44 S.Ct. 54, 56 (1923). The Crisps' failure to explain the source of the limited partnerships' funds shows a lack of candor.
The Government's Alter Ego Claims
130. The alter ego doctrine is a judicially created theory to avoid injustice or fraud which would occur in situations where maintaining a separate fiction would defraud creditors. The alter ego doctrine's purpose is to thwart inequity and fraud. See RRX Industries, Inc., v. Lab-Con, Inc., 772 F.2d 543, 546 (9th Cir. 1985); Automotriz Del Golfo De California v. Resnick, 47 Cal.2d 792, 797, 306 P.2d 1 (1957); 9 Witkin, Summary of Cal. Law (9th ed. 1989) Corporations. § 12, p. 524.
131. Under California law, the alter ego doctrine applies where (1) such a unity of interest and ownership exists that the personalities of the corporation (entity) and individual are no longer separate, and (2) an inequitable result will follow if the acts are treated as those of the corporation alone. RRX Industries, 772 F.2d at 545; Automotriz, 47 Cal.2d at 796, 306 P.2d at 3. A finding of bad faith is not a prerequisite to application of the alter ego doctrine under California law. RRX Industries, 772 F.2d at 546; see, e.g., Automotriz 47 Cal.2d at 797, 306 P.2d at 4.
132. Courts have ignored the fiction of separateness and approved piercing a corporate veil when the corporate device frustrates clear intendment of the law. Valley Finance, Inc. v. United States, 629 F.2d 162, 171-172 (D.C. Cir. 1980), cert. denied, 451 U.S. 1018, 101 S.Ct. 3007 (1981); Quinn v. Butz, 510 F.2d 743, 757 (D.C. Cir. 1975). "The Government's inability otherwise to satisfy legitimate tax debts clearly may form a sound basis for such disregard of corporate form." Valley Finance, 629 F.2d at 171-172; see, e.g., Avco Delta Corp. Canada Ltd. v. United States, 540 F.2d 258, 264 (7th Cir.) cert. denied, 429 U.S. 1040, 97 S.Ct. 739 (1976). "Property held in the name of an entity which is the alter ego of a taxpayer may be levied on to satisfy the tax liabilities of the taxpayer." F.P.P. Enterprises and D S Trust v. United States, 830 F.2d 114, 118 (8th Cir. 1987).
133. As noted above, Wanda Jean Crisp exercised extensive control of Hyper-Jean Property to reflect a unity of interest and ownership to render meaningless any distinction between her and Hyper-Jean Property. Wanda Jean Crisp had unlimited access and control over Hyper-Jean Property's monies and assets and used her 3850 West Cherry residential address for Hyper-Jean Property's address. Wanda Jean Crisp used Hyper-Jean Property's bank account and, in turn, its assets to pay personal expenses. After transferring to Hyper-Jean Property her 3850 West Cherry residence and 433 North Atwood, Wanda Jean Crisp treated the properties as her own.
134. As further noted above, Gilbert Mark and Rhoda Crisp exercised extensive control of Sequoia Property to reflect a unity of interest and ownership to render meaningless any distinction between them and Sequoia Property. Gilbert Mark Crisp managed and controlled Sequoia Property's operation and assets and failed to provide mandatory tax returns to its partners. There is no demonstrable distinction between Gilbert Mark Crisp and Sequoia Property's monies as he discarded Sequoia Property bank records. After transferring to Sequoia Property their 5036 West Oak residence and 1245 North Gowdy, Gilbert Mark and Rhonda Crisp treated the properties as their own and failed to report income attributable to them. Vehicles transferred to Sequoia Property were treated and used as personal vehicles of Gilbert Mark and Rhoda Crisp.
135. A preponderance of the evidence establishes that Hyper-Jean Property is Wanda Jean Crisp's alter ego, and Sequoia Property is Gilbert Mark and Rhonda Crisp's alter ego.
The Government's Fraudulent Transfer Claims
136. "A tax deficiency exists from the date a return is due to be filed; that deficiency arises by operation of law under [26 U.S.C.] section 6151(a) [pay tax with return] and 6072(a) [time to file return]." United States v. Voorhies, 658 F.2d 710, 714 (9th Cir. 1981); see United States v. Northwestern Mutual Insurance Co., 315 F.2d 723, 725-726 (9th Cir. 1963). Thus, Crisp Construction tax, for which the Crisps were obliged to pay, was due in April 1989 and 1990, long before the transfers of their 3850 West Cherry and 5036 West Oak residences.
137. The standard of proof in fraud cases is the preponderance of evidence standard. Liodas v. Sahadi, 19 Cal.3d 278, 287, 137 Cal.Rptr. 635, 641 (1977).
138. A debtor's transfer is fraudulent to a creditor, whether the creditor's claim arose before of after the transfer was made, if the debtor made the transfer with actual intent to hinders delay or defraud the creditor. Cal. Civ. Code, § 3439.04; see Reddy v. Gonzalez, 8 Cal.App.4th 118, 122, 10 Cal.Rptr.2d 55 (1992); Severance v. Knight-Counthan Co., 29 Cal.2d 561, 567, 177 P.2d 4 (1947). The real intent of the parties and the facts of a fraudulent transaction are peculiarly within the knowledge of those sought to be charged with fraud. Menick v. Goldy, 131 Cal.App.2d 542, 547, 280 P.2d 844 (1955). Direct proof of a transfer and of a fraudulent intent is often an impossibility. Menick, 131 Cal.App.2d at 547, 280 P.2d 844. Hence proof indicative of a transfer and of fraud may come by inference from circumstances surrounding the transaction and the relationship and interest of the parties. Menick, 131 Cal.App.2d at 547, 159 P.2d at 548; Taylor Osborne-Fitzpatrick Fin. Co., 57 Cal.App.2d 656, 66l, 135 P.2d 598 (1943); Burns v. Radoicich, 77 Cal.App.2d 697, 702, 176 P.2d 77 (1947).
139. A debtor's transfer is fraudulent as to a creditor whose claim arose before the transfer was made if the debtor (1) did not receive reasonably equivalent value in exchange, and (2) was insolvent at that time or became insolvent as a result of the transfer. Cal. Civ. Code, § 3439.05. A debtor who is generally not paying his/her debts as they become due is presumed to be insolvent. Cal. Civ. Code, § 3439.02(c).
140. Badges of fraud include:
a. Whether the transfer was to an insider;
b. Whether the debtor retained possession or control of the property transferred after the transfer;
c. Whether the transfer was disclosed or concealed;
d. Whether the debtor was sued or threatened with suit before the transfer was made;
e. Whether the transfer was of substantially all the debtor's assets;
f. Whether the debtor has absconded;
g. Whether the debtor had removed or concealed assets;
h. Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred;
i. Whether the debtor was insolvent or became insolvent shortly after the transfer was made;
j. Whether the transfer had occurred shortly before or shortly after a substantial debt was incurred; and
k. Whether the debtor had transferred the essential assets of the business to a lien or who had transferred the assets to an insider of the debtor.
Wyzard v. Goller, 23 Cal.App.4th 1183, 1191, 28 Cal.Rptr.2d 608, 612 (1994).
141. The inferences drawn from the evidence are the Crisps fraudulently transferred their 3850 West Cherry and 5036 West Oak residences with actual intent to hinder, delay and defraud the IRS and its collection efforts. As a reminder, the Crisps operated Crisp Construction as a sham or alter ego. Wanda Jean Crisp failed to report more than $2.5 million of taxable income for 1998 and 1989. Gilbert Mark and Rhonda Crisp failed to report more than $2.4 million of taxable income for 1988 and 1989. Prior to late 1991. Agent Appleton commenced a Crisp Construction audit of which the Crisps were awaare, In late 1991 after initiation of the Crisp Construction audit, Agent Appleton commenced an audit of Wanda Jean Crisp.
142. Wanda Jean Crisp transferred for no consideration her 3850 West Cherry residence to Hyper-Jean Property on October 16, 1992, after she failed to report substantial income and was aware of IRS audits. In 1992, Gilbert Mark and Rhonda Crisp transferred their 5036 West Oak residence to Rhonda Crisp's mother who less than three months later transferred the residence back to Gilbert Mark and Rhonda Crisp on October 16, 1992. Four days later (October 20, 1992), Gilbert Mark and Rhonda Crisp transferred their 5036 West Oak residence to Sequoia Property for no consideration and after initiation of an IRS audit of Gilbert Mark and Rhonda Crisp. Gilbert Mark Crisp was aware of audits of his father and Crisp Construction when he formed Sequoia Property. The Crisps continued to control and reside in the residences after the transfers to the limited partnerships.
143. There is no evidence the Crisps received reasonably equivalent value for their 3850 West Cherry and 5036 West Oak residences. At the time of the transfers, the Crisps' tax debts were substantial. The evidence indicates the Crisps' tax liabilities far exceeded the assets.
144. Although a partnership is not a taxable entity, each partnership must file an annual information return showing items of gross income and allowable deductions and such other information as the IRS may require to carry out the provisions of the law relating to the taxation of incomes from partnerships. 26 U.S.C. § 6031(a). The partnership information return must include the names and addresses of individuals entitled to shares in the taxable income if distributed and the amount of the distributive share of each individual. 26 U.S.C. § 6031(a). A penalty is imposed for failing to file a partnership return. 26 U.S.C. § 6698. The failure to so file is evidence that a partnership is not operated for a legitimate purpose and supports this Court's nominee, alter ego and fraudulent transfer findings.
145. Pursuant to 26 U.S.C. § 6321 and 6322, tax liens arise in favor of the Government upon all property and rights to property, whether real or personal, belonging to taxpayers as of the dates of the assessments, after notice and demand and failure to pay. Where a tax liability exists, and a lien has attached to a taxpayer's property, that property may be sold to satisfy the debt. United States v. Rodgers, 461 U.S. 677, 683, 103 S.Ct. 2132 (1983); 26 U.S.C. § 7403. Property held by a nominee or alter ego is subject to a tax lien attaching to the property of the true owner. See G.M Leasing Corp., 429 U.S. at 351, 97 S.Ct. 619 (1977); Baldassari, 79 Cal.App.3d at 270-272, 144 Cal.Rptr. at 742-744 (1978). A preponderance of the evidence demonstrates transfers of the Crisps' 3850 West Cherry and 5036 West Oak residences to the limited partnerships were fraudulent to warrant to set them aside and available remedies under California Civil Code section 3439.07.
Quiet Title Claims
146. Since the Crisps failed to appear for the second phase of trial and to prosecute their quiet title claims, they have abandoned their affirmative claims against the Government to quiet title in their interests in the limited partnerships or other property. Judgment shall be entered in favor of the Government and against the Crisps on their quiet title claim asserted in these consolidated actions.
147. Because the Government prevails on its nominee, alter ego and fraudulent transfor claims, judgment shall be entered in favor of the Government on the limited partnerships' claims to quiet title in their favor to the 3850 West Cherry and 5036 West Oak residences.
Judgment Against Wanda Jean Crisp
149. Wanda Jean Crisp died February 20, 2002, prior to the conclusion of the trial's second phase. To the best of this Court's knowledge, no probate case has been opened for Wanda Jean Crisp and no personal representative has been appointed for her estate. The Court's June 3, 2002 order denied without prejudice the Government's motion to substitute Gilbert Mark Crisp for Wanda Jean Crisp pending his appointment as personal representative or evidence he is a distributee of her estate. Until a personal representative or distributee of Wanda Jean Crisp's estate is identified, judgment shall be entered against Wanda Jean Crisp. As soon as a personal representative or distributee is identified, the Government shall seek to substitute the representative or distributee as the judgment debtor. See, e.g., Coffee v. Cutter Biological, 809 F.2d 191, 193, n. 1 (2nd Cir. 1987); Henkel v. Stratton, 612 F. Supp. 190, 191, n. 1 (N.D. Ohio 1985).