Summary
denying the government's summary judgment motion on its claim to access the Trust's assets
Summary of this case from United States v. EvseroffOpinion
Civil Action No. 00-CV-6029 (DGT)
September 30, 2003
MEMORANDUM AND ORDER
On October 5, 2000, the United States commenced this tax collection action against defendant Jacob R. Evseroff ("Evseroff') seeking to: (1) reduce to judgment federal tax assessments against Evseroff made by the United States Tax Court and the Internal Revenue Service (the "IRS"); (2) establish the validity of liens on Evseroff's property; (3) foreclose on those liens; and (4) determine the interests of various parties in some of that property. This court previously granted the government's motion to reduce the federal tax assessments to judgment, See United States v. Evseroff, 2001 WL 1571881, 88 A.F.T.R.2d 2001-6926 (E.D.N.Y. Nov. 6, 2001). Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, final judgment was entered with respect to that ruling, see id. at *9-*10, and Evseroff's appellate rights have now been exhausted.
Presently before the court is the government's motion for summary judgment on two of the claims in its complaint. First, the government seeks a ruling that an irrevocable trust to which Evseroff transferred real property and cash, after being notified that the IRS was claiming a deficiency in his federal income taxes, holds that property as a nominee or alter ego of the Evseroff — i.e., that, despite the purported transfer, Evseroff in fact retains beneficial ownership of the property, and, therefore, the property may be reached by his creditors. Second, the government contends that the transfers arc avoidable as intentional fraudulent conveyances pursuant to New York Debtor Creditor Law [hereinafter "D.C.L."] § 276. The government further requests a judgment foreclosing the federal tax liens on the property transferred to the trust and an order of sale of the real property with the proceeds remaining after the payment of the costs of the sale and any outstanding real estate taxes to be applied to Evseroff's federal income tax liability.
Evseroff argues that the government is estopped from pursuing this action, which, he claims, was commenced in violation of IRS regulations. Even if the action itself is proper, Evseroff asserts that genuine issues of material fact preclude summary judgment in favor of the government on the nominee/alter ego and fraudulent conveyance claims.
Background
Evseroff is a lawyer and a former Assistant District Attorney in Kings County, New York. His tax difficulties arose from a series of tax shelter investments he purchased between 1978 and 1982. Evseroff claims that when he purchased the tax shelters he believed them to be legal and approved by the IRS. In December 1990, after an audit, the IRS sent Evseroff a notice indicating a deficiency in his income taxes for the years 1978-1982. In the Autumn of 1991, Evseroff, then 66 years old, purchased a semi-detached home with a swimming pool in Florida — purportedly in anticipation of retiring.
There is some dispute about the exact content of the December 1990 notice. The copy of the document presently in the record consists of two pages and indicates a deficiency of approximately $200,000 in taxes and penalties. Moreover, there is no explanation of the specific basis for the claimed deficiencies. At his deposition, however, Evseroff testified that, as far as he recalled, when he received the notice it was "not [a] two-page document, but rather it was multipaged, with other items in it, other figures, breakdowns, what have you," Evseroff Dep. at 61-62. He also testified that the letter asserted that he owed approximately $900,000 in taxes, penalties and interest. See id. at 24. At the very least, it is undisputed that, in December 1990, the IRS notified Evseroff of a tax deficiency of at least $200,000 for the years 1978-1982.
(1) The Trust
Creation of the Trust
In January of 1992, Evseroff received a notice of deficiency, also called a 90-day letter, from the IRS, regarding his income taxes for the years 1978-1982. The letter informed Evseroff of his statutory right to challenge the asserted deficiencies by filing a petition in the United States Tax Court. That same month Evseroff contacted an attorney, Alfred Polizzotto, Sr., to inquire about creating a trust. Two months later, Evseroff completed a questionnaire that Alfred Polizzotto III (the son of Alfred Polizzotto, Sr.) used to draft a trust for Evseroff Evseroff did not inform either of the Polizzottos about the income tax deficiencies that the IRS had asserted against him. Evseroff points out, however, that the questionnaire had no questions relating to contingent liabilities, and that there is no evidence in the record that any of the attorneys working on the trust ever inquired about such matters.
It is not entirely clear whether Evseroff first approached Pollizzotto, Sr. before or after receiving the 90-day letter, See Evseroff Dep. at 93.
In April 1992, Evseroff filed a petition in the United States Tax Court, challenging the deficiencies asserted in the 90-day letter. He did not inform Alfred Polizzotto III (who was then drafting the trust papers) about the Tax Court petition. In June 1992, Evseroff executed a trust agreement, creating an irrevocable trust — i.e., a trust that Evseroff could not terminate. The trust agreement named as beneficiaries Evseroff's adult sons, Kenneth James Evseroff and Paul Lawrence Evseroff. Evseroff testified at his deposition that the trust was intended as an estate planning device, pointing out that he was 68 years old when the trust was created, a time of life at which estate planning becomes a significant consideration, and that he "had a girlfriend who was my lady friend for many years[,] [a]nd she wanted me to retire," Evseroff Dep. at 93-94. Specifically, Evseroff claims that he "wanted to set up something for my boys, whereby they wouldn't have an estate problem were I to pass away." Id. at 94, Furthermore, at the time the trust was created Evseroff had been separated, but was not divorced from, his wife, Lorraine. Evseroff claims that in establishing the trust, he "wanted to makes sure that if I were to drop dead, my separated wife . . . would not be the beneficiary of what I wanted to give to my kids." Id.
In 1992, Evseroff had been separated from Lorraine for eleven years. See id. at 130, Evseroff contends that he did not formally divorce her because he wanted to avoid "the necessity of legal fees, legal confrontations and the like," and because he "had no one else [he] wanted to marry." id. Apparently, Evseroff and Lorraine were officially divorced in 1999. See id.
In June 1992, Evseroff transferred approximately $220,000 from a bank account that he owned to a bank account set up in the name of the trust. Evseroff received no consideration in exchange for the transfer of his funds to the trust. The following fall, Evseroff discussed with his attorney a potential settlement with the IRS concerning the Tax Court litigation. On October 8, 1992 Evseroff transferred his borne, located at 155 Dover Street in Brooklyn, New York to the trust. No consideration was paid in exchange for the transfer of the property to the trust The deed was recorded on November 4, 1992. The next day, the Tax Court entered a decision against Evseroff, on consent, for $209,113 in taxes and penalties.
Following the transfer of the Dover Street residence to the trust, Evseroff continued to reside there — together with his sons, the trust beneficiaries — pursuant to a written agreement with the trustee, executed on October 8, 1992. See Evseroff Dep., Ex. 12, The agreement provided that in exchange for the right to continuing to reside at the house, and in lieu of "any and all [rental payments] that might otherwise be due and payable," Evseroff would "pay any and all expenses required to operate and maintain the [residence] including, but not limited to, taxes, water, sewer charges, utilities, fuel, insurance premiums, repairs, mortgage, etc." Id. At his deposition, when asked to list the expenses relating to the Dover Street residence that he paid since it was transferred to the trust, Evseroff testified:
Initially, Evseroff divided the year between his Florida and Brooklyn residences. However, since 2000 he has spent most of the time at the Dover Street house. During 2002, he lived at all times in the Brooklyn residence, except when he was in a New York hospital.
I paid the mortgage, 1 paid the taxes, I paid the water bill, I paid the gardener. I paid the electric, I paid the food bills — what else I paid the cleaning bills in the house — what else — I paid all the expenses.
Evseroff Dep. at 138. In sum, he acknowledged that the expenses he paid after setting up the trust were identical to those he paid before the trust was established. See id.
In 1995, Evseroff paid some of his personal expenses relating to the Dover Street residence from the funds in the checking account for his solo law practice. See United States' 56.1 Statement ["U.S. Stmt."] Q, Evseroff contends, however, that this was permissible because his firm was a "pass-though" entity and, therefore, any income derived from the firm belonged to him. Moreover, Evseroff maintains that he did not deduct any such personal expenditures on the firm's tax returns. See Evseroff Dep. at 165.
Trust Administration
In the original June 1992 trust agreement, Evseroff named Stuart Kamin, a family friend, as trustee and Florence Hessen, a lawyer and a friend of Evseroff s, as successor trustee. See Evseroff Dep., Ex. 8. On January 7, 1993, pursuant to an agreement modifying the terms of the trust agreement, Lynn R. Terrelonge replaced Florence Hessen as successor trustee. Id. Although there is no document naming Terrelonge as trustee, Evseroff asserts that Kamin died in 1993, and Terrelonge took over as trustee, thereafter. An agreement executed on February 1, 1993, named Barry A. Schneider as successor trustee, See id. In early 2002, Terrelonge passed away. When it was determined that Schneider would be unable to perform the duties of trustee due to an illness, Robert McCulley, a corporate executive, described by Evseroff as "a very good friend," was appointed trustee. Evseroff Dep. at 128,
The trust agreement empowers the trustees to hold the trust assets and to make distributions as they see fit. To date, there have been no distributions from the trust to the beneficiaries. None of the trustees have received any compensation for administering the trust, Indeed, other than the payment of taxes on trust assets, there have been no payments by the trust.
The trust's fiduciary tax returns (known as "Forms 1041") have been prepared by Fred Blumer, an accountant who has known Evseroff for approximately 20 years and has performed accounting work for Evseroff personally and for Evseroff's law practice. He has also prepared personal tax returns for Kenneth and Paul Evseroff, the beneficiaries of the trust. To retrieve the bank statements necessary to prepare the trust tax returns, he sometimes met with Evseroff. When he completed the returns for the trust he mailed or hand delivered them to Evseroff's law office. He never delivered the completed returns to Terrelonge or Schneider, the former trustees, Blumer was not directly compensated for the work he did on behalf of the trust; instead, he performed the work as a courtesy to Evseroff, his longstanding client.
Evseroff selected the attorney to represent his sons in the present suit, and he advised Schneider that his attorneys' fees associated with this litigation would be paid for by the trust. Some of the trust's mail from taxing authorities and banks was addressed to Evseroff at the Dover Street residence. Some of this correspondence mistakenly referred to Evseroff as a trustee, See U.S. Stmt. S.
Despite the foregoing, Evseroff claims that he was not involved in the day-to-day operation of the trust. Thus, he testified at his deposition that while he believes that no distributions were made, he does not know this for a fact. He further indicated that he did not know with precision what kinds of records were kept with respect to the trust, as those records would be in the custody of the trustee. See Evseroff Dep. at 127.
(2)
Following the Tax Court's entry of a consent judgment, and the creation of the trust, Evseroff submitted numerous offers to the IRS under the agency's "Offers in Compromise" program, In an effort to reduce his tax liability. IRS records indicate that Evseroff submitted an offer-in-compromise to the IRS, dated June 1, 1993, offering $75,000 in satisfaction of his tax liability; a superceding offer, also dated June 1, 1993 was submitted in the amount of $200,000. The IRS received another offer, dated February 18, 1994, in the amount of $120,000, which was rejected. Evseroff testified at his deposition that the signature that appears on this offer was not his, and that he did not authorize his accountant, James Graves, to submit the offer on his behalf, IRS records also Indicate that other offers-in-compromise were submitted by or on behalf of Evseroff, which lacked sufficient required information and, therefore, could not be processed.
In connection with his opposition to the government's motion for summary judgment on the issue of his underlying tax liability, Evseroff argued that, prior to the initiation of this collection action, the IRS had manifested its acceptance of an offer-in-compromise in the amount of $110,000, Although he did not produce the offer itself in conjunction with this argument, Evseroff submitted three letters from the IRS — dated December 13, 1993, July 6, 1994, and August 2, 1994 — which supposedly demonstrated that the agency had accepted his offer. The December 31 letter instructed Evseroff to pay the IRS $1,600 per month for 48 months. Between January and September 1994, Evseroff made nine such payments. Each check indicated that it was for a tax settlement. The IRS accepted the checks, deposited them, and stamped on the back "FOR CREDIT TO THE U.S. TREASURY." IRS documents reveal that the payments were applied to Evseroff's tax liability for 1978.
In response, the government produced significant proof indicating mat the acceptance letters were counterfeit — including an admission by Evseroff's accountant, Graves, to an IRS investigator that he had he counterfeited at least two of the letters. Because Evseroff offered no evidence to rebut the government's proof, this court previously concluded that there was no evidentiary basis for Evseroff's argument that the IRS had accepted any settlement offer from him. See Evseroff, 2001 WL 1571881, at *5.
In opposition to the government's present motion, Evseroff has submitted, for the first time, a document which he claims is the $110,000 offer-in-compromise that he previously argued had been accepted by the IRS. See Def.'s Statement of Add, Undisputed Material Facts ("Def.'s Stmt"), Ex. A. The document is dated September 28, 1993. Although he offers no direct proof of the IRS's receipt of the September 28 document, Evseroff asserts that it was received by the IRS in or around October 1993. The government counters, consistent with its previous position, that the IRS has no record of having received any offer from Evseroff in the amount of $110,000. In response, Evseroff presents circumstantial evidence, which, he claims, supports his argument that the IRS was in receipt of his offer-in-compromise. First, Evseroff submits a recording and transcript of a purported November 4, 1994 telephone conversation with a Ms. Martin, an employee in the IRS office in Deerfield Beach, Florida. See Evseroff Decl., Ex. F. During that conversation, Martin reportedly stated: "We have not been able to verify that your offer has been accepted." Id. Evseroff reasons that the "text and tone" of the conversation indicates mat Martin was referring to an offer then pending before the IRS. See Evseroff Decl. ¶ 16. He posits that the pending offer must have been the September 28, 1993 offer because his June 1, 1993 offer had been withdrawn, and the February 18, 1994 offer had already been rejected. The government points out that Evseroff submitted two offers in June 1993, and that Martin could well have been referring to the second of these offers, which was pending at the time of the alleged phone conversation. See U.S. Sur-Reply at 6-7. In addition, Evseroff offers a copy of letter he claims to have sent to the IRS on November S, 1994 memorializing the alleged conversation with Martin. See Evseroff Decl., Ex. G. Lastly, Evseroff submits a copy of a fax allegedly sent to him by Joseph Tawquina of the IRS's Taxpayer Assistance Office, See id., Ex. H. Evseroff asserts that at that time he was "attempting to enlist the assistance of the . . . Taxpayer's Assistance Office in clarifying the status of my September 28, 1993 offer in compromise." Id. ¶ 19. Among other things, the fax requested that Evseroff send "a copy of your copy of the original acceptance letter re: your offer in compromise of $110,000," Id. Ex. H. Evseroff concludes that because Tawquina did not request a copy of the offer itself, it can be reasonably inferred that the IRS already had such a copy. See id. ¶ 19.
(3)
In March 1997, Evseroff filed a Chapter 7 bankruptcy petition in the Bankruptcy Court for Eastern District of New York, See Evseroff Dep., Ex. 50. The trustee moved to dismiss the bankruptcy on the grounds that Evseroff had only one creditor (the IRS) and that the bankruptcy court was, therefore, not a proper forum: if Evseroff were successful in challenging the validity of the tax deficiencies, he would have no debt; if the IRS prevailed, it could collect whatever taxes were owed in any event. See id. Exs. 58, 59. Evseroff did not oppose the motion, and the case was, accordingly, dismissed without prejudice. See id., Ex. 57.
(4)
In April 1997, Evseroff commenced a damages action against the IRS in this court, alleging that the IRS had improperly attempted to collect taxes from him. The action was subsequently dismissed. See Evseroff v. Internal Revenue Service, 2000 WL 1728112, 86 A.F.T.R.2d 2000-6711 (E.D.N.Y. 2000), aff'd, 2001 WL 668528 (2d Cir. June 12, 2001). In that case, Evseroff relied in part on the purported letters from the IRS indicating acceptance of Evseroff's offer-in-compromise. The district court stated that Graves had forged them, See id. at *1. Evseroff was represented in the damages action by B. Marc Mogil, The government asserts that Evseroff's choice of counsel was calculated to cause delays — Mogil was a removed state court judge and disbarred attorney. As a result, "some judges of this Court had to recuse themselves and a determination had to be made whether [Mogil] could represent Evseroff . . . in light of his disbarment." U.S. Stmt. P. Evseroff apparently represented Mogil in 1995, in proceedings before the Stern Commission relating to his removal as a county court judge. He asserts, however, that he was unaware of any disbarment proceedings at the time he retained Mogil as his counsel. Def's Opp'n to Pl.'s Statement of Undisputed Facts ["Def.'s Opp'n Stmt."] P.
(5)
The government claims that Evseroff has undertaken various actions with respect to his pension fund in an effort to frustrate the collection of his tax liability. First, immediately prior to filing for bankruptcy, in March 1997, Evseroff withdrew $35,000 from his pension funds, giving the money to his son to hold for him. See Evseroff Dep. at 227, 282-85. Evseroff testified that, because of his age and regulations related to the fund, he was required to withdraw the funds at that time. See id. He did not have a checking account into which he could deposit the pension funds because the thought that the IRS would seize any money that he placed in an account under his name. See id.
Evseroff testifed at his deposition that, over the course of an eight year period, he spent all his pension funds and that no balance remains.See id. 6-7. He claims that the funds were used to pay overhead expenses for his law practice, attorneys fees, and other personal expenses. See id. 7-8. The government asserts that Evseroff's accounts of how his pension funds were depleted are inconsistent, "do not add up," and are, thus, "reflective of his continuing efforts to hide his funds from collection for his taxes." U.S. Stmt. U.
In early 1997, Evseroff took all the money in his pension fund and invested it in a film production company, See Evseroff Dep. at 225-28. The company, which was not doing business at the time, invested the funds in an Oppenheimer account, which resulted in a loss of $32,000, See id. At one point, Evseroff testified that he withdrew $35,000 a year from his pension fund in 1997, 1998, 1999 and 2000. See id. at 229 His pension fund was valued at $786,550 in his bankruptcy filings in March 1997. See id., Ex. 50. Therefore, the government contends, the fund should have contained at least $646,550 by the end of 2000. See US. Stmt. U. However, Evseroff later testified that by the end of 2000, the value of his pension fund was in the $400,000 range. See Evseroff Dep. at 230. Finally, he indicated that in the beginning of 2001, he withdrew all remaining pension funds, which totaled about $300,000. See id. at 230-31. Evseroff claims that he does not remember where his pension funds were at the time, only that "someone was holding them for me." Id. at 232.
In addition to his pension funds, Evseroff also had a Keogh account, beginning in the 1970s, In 1999 or 2000, he withdrew the funds from the Keogh account, which totaled $53,000,
(6)
From 1992 to 1997, the IRS assessed additional tax liabilities against Evseroff based on his 1991, 1992, and 1996 tax returns. These assessments were not part of the Tax Court consent decree entered in November 1993, and Evseroff's offers-in-compromise did not relate to these assessments. On October 5, 2000, the United States commenced this action. As noted above, on November 6, 2001, the government's motion to reduce to judgment federal tax assessments against Evseroff for the tax years 1978-82, 1991-92 and 1996 was granted, At that time, a final judgment was entered under Rule 54(b). In July, 2002, an amended judgment was issued against Evseroff in the amount of $1,546,682.08 plus statutory interest from May 31, 2000.
On July 8, 2002, an order granting the government's request for an injunction was entered, requiring Evseroff to provide financial information, authorizing entry of an amended judgment, and authorizing a hearing or request for installment payments and a writ of garnishment. The order required Evseroff to provide, inter alia, copies of the books and records of his law practice for the last three years, a description of each person, place, and insitution that has held his pension funds, including the present whereabouts of them, and a list of the accounts receivable of his law practice,
Evseroff responded to the order on August 8, 2002 in a one-page letter. Evseroff claimed that he does not maintain books and financial records for his law practice. As for his pension funds, the letter indicated that
[n]o person holds the proceeds from my pension or retirement funds, as said funds have been terminated. My pension fund was located in City Bank from 1991 to 1995, it was then invested in P K Corporation. In 1998 the funds were loaned to E-Z Card, Inc. . . . [T]he amount was approximately ($500,000) and said pension terminated in 2001.
Evseroff Ltr., attached to US, Stmt. Evseroff has refused to make payment toward the judgment. Thus, the government seeks to foreclose liens on the trust property in order to satisfy Evseroff's tax liability.
Discussion
Summary judgment is granted under Rule 56 of the Federal Rules of Civil Procedure when the court determines that no genuine issues of material feet exist and the moving party is, therefore, entitled to judgment as a matter of law. In making this determination, the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-moving party. See Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 317, 322, 106 S.Ct. 2548 (1986). The court's task is not to "resolve disputed issues of fact but to assess whether there are factual issues to be tried." Knight v. United States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986) Therefore, "[s]ummary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party." United States v. Letscher, 83 F. Supp.2d 367, 369 (S.D.N.Y. 1999)) (citing Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994)).(1) Estoppel
Evseroff argues that the government is estopped from pursuing this collection action because it commenced this suit in violation of IRS regulations, Evseroff's estoppel argument rests on his assertion that the IRS received, but did not accept or reject, his September 28, 1993 offer-in-compromise, In 1999, the IRS instituted temporary regulations regarding the processing of offers-in-compromise. Evseroff notes that the preamble to the temporary regulations clearly stated that among the changes effectuated by the new regulations was a provision preventing the IRS from referring a case to the United States Department of Justice (the "DOJ") for commencement of a collection action while an offer-in-compromise from the taxpayer was pending. See 64 F.R. 39020 (July 21, 1999). As a result of a negligent error in draftsmanship, however, the actual provision preventing the IRS from referring a case to the DOJ during the pendency of an offer-in-compromise was omitted from the actual text of temporary regulations. In the final regulations, implemented on July 23, 2003, the IRS corrected this error and included a provision stating that
Evseroff has filed a separate action against the IRS raising substantially the same claim. See Evseroff v. Internal Revenue Service, 03-CV-00317 (DGT).
[T]he IRS will not refer a case to the [DOJ] for the commencement of a proceeding in court, against a person named in a pending offer to compromise, if levy to collect the liability is prohibited by paragraph (g)(1) of this section.26 C.F.R. § 301.7122-1(g)(6). Subsection (g)(1), in turn, prevents the IRS from levying against a taxpayer's property during the period that an offer-in-compromise is pending.
Evseroff contends that, in this case, at the time the collection litigation was commenced, the IRS, pursuant to the temporary regulations, lacked the authority to commence a collection action because Evseroff's September 28, 1993 offer-in-compromise was then pending. According to Evseroff, the IRS's ultra vires referral of Evseroff's case to the DOJ constitutes an act of misconduct sufficient to give rise to an estoppel claim against the government. The government's response to Evseroff's estoppel argument focuses primarily on undercutting the factual basis for the claim — i.e., that there in fact was an offer-in-compromise submitted to the IRS by or on behalf of Evseroff in September 1993. Indeed, Evseroff offers no direct evidence that he ever sent the $110,000 offer in compromise to the IRS — still less that it was received. In fact, the IRS has no record of having ever received an offer in compromise from Evseroff, dated September 28, 1993. in the amount of $110,000. See Decl. of Tonni Gillis; Decl. of Jeff Powers; Decl. of Mark Newman.
The court need not resolve these issues, however. Evseroff failed to raise his present estoppel argument in opposition to the government's previous motion for summary judgment, which resulted in the entry of final judgment on the issue of Evseroff's tax liability. It is, therefore, too late for him to raise this argument now. "[T]he doctrine of res judicata provides that when a final judgment has been entered on the merits of a case, [i]t is a finality as to the claim or demand in controversy . . . not only as to any matter which was offered and received to sustain or defeat the claim . . . but as to any other admissible matter which might have been offered for that purpose," Securities and Exch. Comm'n v. First Jersey Sees., Inc., 101 F.3d 1450, 1463 (2d Cir. 1996). In this case, a final judgment has been entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure on the issue of Evseroff's tax liability, and his appellate rights with respect to that judgment have been exhausted. At no point prior to the entry of that judgment did he raise the argument that the IRS was estopped from pursuing this action on the grounds that an offer-in-compromise was pending at the time of the IRS's referral of the collection action the DOJ. Pursuant to the principle of res judicata, the final judgment that has been entered on the question of Evseroff's tax liability bars Evseroff from raising his present estoppel defense, which could have been — but was not — raised prior to the final judgment on the merits.
As noted supra, Evseroff did raise a different estoppel argument prior to the entry of judgment: in opposition to the government's previous motion to reduce the IRS and Tax Court assessments to judgment, he argued — relying principally on what appear to have been forged documents — that, in 1994, the IRS indicated its acceptance of an offer-in-compromise in the amount of $110,000. The argument was rejected because, among other things, Evseroff failed to provide any evidence to rebut the government's proof that the letters purporting to accept his offers-in-compromise were counterfeit. Significantly, although the government argued at that time that it had never received an offer-in-compromise from Evseroff in the amount of $110,000, Evseroff did not submit a copy of the offer document.
Evseroff argues that he could not have raised his present estoppel argument at an earlier stage of these proceedings because the final regulations clarifying the rule prohibiting the IRS from referring tax deficiency claims to the Justice Department while an offer-in-compromise from the taxpayer is pending were not enacted until July 2002 — seven months after this court granted the government's first motion for summary judgment. This argument fails. Evseroff concedes that the preamble to the temporary regulations clearly stated that among the changes being implement to the temporary regulations was the anti-referral provision. This was sufficient to put him on notice of his potential claim. Indeed, Evseroff's argument that the IRS engaged bad faith misconduct depends on the premise that the rule allegedly prohibiting the referral of Evseroff's case to the DOJ was in effect in 2000 — i.e., prior to the enactment of the final clarifying regulations — when the United States filed the complaint that initiated this action. He cannot have it both ways: if the temporary regulations were sufficient to bar the referral of a tax collection case during the pendency of an offer-in-compromise, they were sufficient to put Evseroff on notice of a potential claim that the IRS had violated the regulations in this manner.
The government has moved for an award of sanctions in the amount of $5,000 against Evseroff's counsel on the grounds that the estoppel argument was raised in bad faith. This motion is denied.
(2) Standing
In its reply papers, the United States raises for the first time the argument that Evseroff lacks standing to oppose the government's motion. The government seeks a determination that the cash and real property Evseroff transferred to the trust is held by that entity solely as the nominee or alter ego of Evseroff, or that the transfers constituted intentional fraudulent conveyances under New York. Because the trust holds title to the property that is the subject of this motion — albeit, according to the government, as a mere nominee of Evseroff — the government contends that Evseroff has no standing oppose the motion. The government points out that neither the trustee, who does not appear, at present, to be represented by counsel, nor the beneficiaries, Evseroff's sons, submitted any opposition, despite being served with the motion papers.The government moves to strike Evseroff's opposition papers. It is curious that the government would wait until its reply papers to argue that a party with whom it had been engaged in extensive negotiations concerning the briefing schedule for this summary judgment motion in fact lacks standing to raise an opposition in the first place. The court need not resolve this standing question, however. Even if the government is correct, it still must demonstrate the absence of a genuine issue of material fact to prevail in its summary judgment motion. Especially in light of the apparent pro se status of the trustee, the court must consider the entire record to determine whether any triable issues exist,
(3) Nominee/ Alter Ego Claim
Pursuant to 26 U.S.C. § 6321, "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest., additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) 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." The Supreme Court has concluded that the broad language of the statute in referring to "all property and rights to property" evinces Congress's intent "to reach every interest in property that a taxpayer might have," United States v. National Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919 (1985), Accordingly, courts in this jurisdiction (and other jurisdictions) have consistently held that the government may collect a taxpayer's debt from assets belonging to the taxpayer's nominee, instrumentality, or alter ego. See GM Leasing Corp. v. United States, 429 U.S. 338, 350-51, 97 S.Ct. 619 (1977); Letscher,83 F. Supp.2d at 374-75 (S.D.N.Y. 1909); Giardino v. United States, 1997 WL 1038197, at *2 (W.D.N.Y. Oct 29, 1997), In determining whether a third-party holds properly as a nominee or alter ego of a taxpayer, courts have considered,inter alia, the following non-exclusive factors:
(1) whether adequate consideration was paid by the transferee; (2) whether there was a close family relationship between the transferor and transferee; (3) whether the transferor continued to enjoy the property after the transfer; (4) whether the transferor retained possession after the transfer; (5) whether the transfer was accomplished in anticipation of a suit against the transferor; and (6) whether the transfer was recorded.See, e.g., First Corporate Sedans, Inc. v. United States, 1996 WL 145958, at *4 (S.D.N.Y. Apr. 1, 1999); Giardano, 1997 WL 1038197.
With respect to the formation and funding of the trust, the government points out that Evseroff's transfer of his cash and the Dover Street residence to the trust were entirely gratuitous, that the beneficiaries of the trust (Evseroff's sons) were close relatives, and that the trustees were all friends or business associates of Evseroff. These facts could certainly be interpreted as indicia of the nominee status of the trust. However, considering the procedural posture of the case —i.e., that the plaintiff is the party seeking summary judgment — this court cannot grant the government's motion if the facts also support reasonable inferences in Evseroff's favor. See Hunt v. Cromartie, 526 U.S. 541, 553, 119 S.Ct. 1545, 1552 (1999) ("Summary judgment in favor of the party with the burden of persuasion . . . is inappropriate when the evidence is susceptible of different interpretations or inferences by the trier of fact."). In light of Evseroff's assertion that the trust was intended as an estate planning device, the evidence concerning the lack of consideration and Evseroff's close relationships with the beneficiaries and the various trustees is not necessarily indicative of the sham nature of the transaction and Evseroff's post-transfer retention of beneficial ownership.
In United States v. Kattar, 81 F. Supp.2d at 262, 274 (D. N.H. 1999), a taypayer created several trusts for the benefit of his children shortly after being informed by IRS officials that he was under investigation for alleged tax fraud. Only nominal consideration was supplied in exchange for the transfers. See, e.g., id. at 265 (12-room residence with a recreation building, a boat house, boat slips, and garage transferred to trust for less than $100). Notwithstanding these facts, the court denied the government's motion for summary judgment on its nominee and alter ego claims. Noting the necessity of drawing all reasonable inferences in favor of the non-movants at the summary judgment stage, the court concluded that "[s]ome indicia, such as the consideration given in exchange for the assets and the close relations between the beneficiaries, the trustees, and the transferors, may be interpreted in a light favorable to the [taxpayer] given evidence that the Trust was intended as an estate planning device." Id. at 274.
Admittedly, the timing of Evseroff's transfers to the trust is open to suspicion. It is undisputed that by 1992 Evseroff had received at least two notices from the IRS asserting substantial tax liabilities. Furthermore, the transfer of the Dover Street residence occurred very shortly before Evseroff consented to the entry of a judgment against him in the Tax Court, However, the court must also consider this evidence in light of the as yet uncontroverted evidence that Evseroff was not insolvent at the time of the transfers to the trust in 1992, and, in fact, may have retained sufficient assets to satisfy the asserted tax liability — factors which weigh in Evseroff's favor.
The United States argues that fraudulent intent is not a necessary element of its nominee/alter ego claim. Therefore., even if the trust were originally created for legitimate estate planning purposes, the government can still prevail if it can establish, as a matter of law, that Evseroff "dominated" and "controlled" the trust, effectively treating its assets as his own, while using the form of the trust to shield the assets from the IRS. Cf. Goya, 233 F.3d at 44 ("[E]ven If [a coporation's] origin is not tainted with fraud, New York still permits veil piercing when the corporate vehicle is being used to inflict "wrong or inequitable consequences.") (citing TNS Holdings, Inc. v. MKI Sec. Corp. 92 N.Y.2d 335, 680 N.Y.S.2d 891, 703 N.E.2d 749, 751 (1998)); LiButti v. United States, 107 F.3d 110, 119 (2d Cir. 1997) ("The factors employed under alter ego analysis are essentially designed to attack the corporate structure, such as the intermingling of corporate and personal funds, . . . failure to observe corporate formalities such as the maintenance of separate books and records, . . . [and] siphoning off of funds by the dominant Shareholder. . . .") (citation omitted). In the end, however, the evidence the government marshals to establish Evseroff's control over the trust — though not insubstantial — is insufficiently conclusive to merit summary judgment in its favor.
First, the government argues that, in substance, Evseroff's use and enjoyment of his Brooklyn residence did not change after the transfer to the trust in that (1) he continued to reside there, and (2) he paid the same expenses associated with the house before and after the transfer. The record reflects, however, that Evseroff remained at the Dover Street house pursuant to a formal written agreement under the terms of which Evseroff agreed to pay all expenses associated with the house in lieu of rent. Despite the government's assertion that the agreement does not reflect an "arms-length" transaction, and is merely "camouflage for a sham," U.S. Reply Mem. at 12, it is clear that Evseroff provided valuable consideration in exchange for the right to remain in the house, in that the expenses he paid under the agreement would otherwise have been borne by the trust itself Moreover, Evseroff's sons — the trust beneficiaries — lived at the house with Evseroff, and thus were not denied the benefits of the transferred property. Interpreting these facts in the light most favorable to Evseroff, gives rise to a reasonable inference that, despite continuing to reside in the Dover Street house, Evseroff respected the separation of personal and trust assets.
As for the cash held by the trust, it is undisputed that Evseroff has not spent or otherwise "used" the money since transferring it in 1992. The government contends that Evseroff has nevertheless effectively controlled the administration of the trust assets by directing the activities of the trustees as well as the accountant and attorneys who serve the trust and its beneficiaries. For instance, the record reflects that the trust's accounting work was performed by Evseroff's accountant as a professional courtesy, and that the accountant worked primarily with Evseroff, receiving certain trust documents from Evseroff, and ultimately returning the completed tax returns to Evseroff, rather than the trustees. However, despite any role Evseroff may have played in assisting with the administration of the trust, none of the deviations from the trust arrangement to which the government point involve allegations that Evseroff appropriated funds belonging to the trust for his personal use. In this respect, the cases cited by the government in which courts have granted summary judgment to the plaintiff on nominee/alter ego claims are clearly distinguishable. See Hinson v. United States, 994 F.2d 843 (8th Cir. 1993) (Table) ("[T]he [taxpayers] consistently used corporate checking accounts for personal expenses, utilities, and vacations,");United States v. Engels, 2001 WL 1346652, at *10 (N.D. Iowa Sept. 24, 2001) (finding that taxpayers "made no practical distinction between Trust property and their personal property," routinely paying personal expenses from Trust bank accounts); Letscher, S3 F. Supp.2d 367, 374-75 (noting that after supposedly transferring funds to a trust account taxpayer "retained signing authority over the . . . account and exercised that authority to write checks . . . for his personal expenses"); United States v. Schaeffer, 245 B.R. 407, 415 (D. Colo. 1999) (finding that wife held property as husband's nominee where after transfer husband "continued to enjoy unrestricted use of the Properly.") (emphasis added).
Finally, the government asserts that Evseroff's effective control over the trust is evidenced by the fact that he is the only party actively contesting the government's motion, even though the trustee and beneficiaries were served with the motion papers. For one thing, the fact that Evseroff wishes to prevent the IRS foreclosing a lien on property that he transferred to his children does not necessarily demonstrate that he continues to control — and thus maintains beneficial ownership of — the property. Moreover, with respect to the failure of the beneficiaries or the trustee to oppose the motion, it should be noted that, as a result of the court's error, the order establishing a briefing schedule did not contemplate the submission of reply papers by the trustee or the beneficiaries, and a copy of the order was not sent to them. See Order dated November 20, 2002 (docket #115).
In sum, the government has not made a sufficiently conclusive showing of Evseroff's continued use of and control over the trust assets to warrant a grant of summary judgment on the nominee/alter ego claim.
(4) Intentional Fraudulent Conveyance
The United States further argues that the transfers of cash and real property Evseroff made to the trust should be set aside as intentional fraudulent conveyances pursuant to D.C.L. § 276. The statute provides that:
Every conveyance made . . . with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either future or present creditors, is fraudulent as to both present and future creditors
A party asserting an intentional fraudulent conveyance claim must prove the transferor's intent to 11 hinder, delay or defraud" by "clear and convincing evidence." See United States v. McCombs, 30 F.3d 310, 328 (2d Cir. 1994). "Only an actual intent to hinder and delay need be established, not an actual intent to defraud, and the lack of fair consideration gives rise to a rebuttable presumption of fraudulent intent." United States v. Carlin, 948 F. Supp.2d 271, 277-78 (S.D.N.Y. 1996).
Moreover, because an individual's state of mind can rarely be proven directly, the courts have identified various "badges of fraud," which serve as circumstantial evidence of actual intent. Among the factors that the courts have considered are:
(1) lack or inadequacy of consideration;
(2) family, friendship or close associate relationship between the parties;
(3) retention of possession, benefit or use of the property in question by the debtor;
(4) the financial condition of the party sought to be charged both before and after the transaction in question;
(5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and
(6) the general chronology of the events and transactions under inquiry,See Solomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582-83 (2d Cir. 1983).
Again, the present procedural posture of the case plays a significant role in the resolution of the government's motion. "[C]ourts have consistently recognized that questions of intent, generally and under § 276, are inappropriate for resolution on summary judgment." United States v. Digiulio, 1997 WL 834820, at *10 (W.D.N.Y. Nov. 5, 1997) (collecting cases); see also Golden Budha Corp. v. Canadian Land Co. of Am., N.V., 931 F.3d 196, 201-02 (2d Cir. 1991) ("Ordinarily, the issue of fraudulent intent cannot be resolved on a motion for summary judgment, being a factual question involving the parties' states of mind,") (citing Citzens Bank of Clearwater v. Hunt, 927 F.2d 707, 711 (2d Cir. 1991)). Manufacturer's and Trader's Trust v. Lauer's Furniture Acquisition, Inc., 641 N.Y.S.2d 947, 226 A.D.2d 1056 (1st Dep't 1996) ("The determination of fraudulent intent is ordinarily a question of fact which cannot be resolved on a motion for summary judgment,") (internal quotation marks and citation omitted).
In United States v. Alfano, 34 F. Supp.2d 827, 849 (E.D.N.Y. 1999), a taxpayer received a notice of deficiency from the IRS. The following year, while the taxpayer's petition for a redetermination of the deficiency was pending in the United States Tax Court, the taxpayer conveyed his house to his children, receiving no consideration for the transfer. Subsequent to the transfer, he and his wife continued to live at the house, and they continued to deduct the home mortgage interest and real estate taxes on their joint federal income tax returns. There was testimony that "the payment by the parents of the mortgage and taxes was effectively in lieu of a direct rent payment for occupying the property,"Id. at 831. Although the court ultimately determined that the transfer constituted a constructive fraudulent conveyance under New York law — a claim not raised in the government's motion in this case — the court declined to grant summary judgment on the intentional fraudulent conveyance count. The court acknowledged that "a strong argument could be made to support the conclusion that [the badges of fraud] have been established," but concluded that "because the parents proffered a plausible non-fraudulent explanation for the conveyance — namely, to ensure that their children . . . would have a home impervious to the vagaries of divorce proceedings — their intent becomes a factual issue unsuited for summary adjudication." Id. at 849.
A constructive fraudulent conveyance claim, requires a showing that the transfers were made for less than fair consideration, and that the transferor was insolvent before (or as a result of) the transfer in question. See D.C.L. § 273.
Here, notwithstanding the government's proof with respect to certain of the badges of fraud, Evseroff, like the taxpayer in Alfano, has raised a plausible claim that the trust was a legitimate estate planning device and was not intended to delay, hinder or defraud the IRS. Again, it is significant that in this case, the beneficiaries of the trust — Evseroff's sons — have not been deprived of the benefits of the transferred assets. The record reflects that they reside at the Dover Street residence, and although there is no evidence that any distributions have been made of the cash Evseroff transferred to the trust, it is similarly undisputed that Evseroff has not misappropriated these assets, and that the trust continues to hold them for the benefit of his sons. Thus, Federal Deposit Ins. Corp. v. Anchor Properties, 13 F.3d 27 (1st Cir. 1994) — cited by the government as an example of a decision granting summary judgment to a plaintiff on an intentional fraudulent conveyance claim — is inapposite. There, not only did the defendant transfer "his sole unencumbered asset to a trust," but there was no evidence that the putative transferee (the defendant's father) was even aware of — let alone benefitted from — the transfer. In fact, after the purported transfer, the defendant "immediately mortgaged [the] asset for his personal benefit, thus depriving his father of any benefit from it," Id. at 32.
The government cites United States v. Bryant, 15 F.3d 756 (8th Cir. 1994) — a case decided under an Arkansas statute analogous to D.C.L. § 276 — for the proposition that "estate planning is not a legal defense to a fraudulent conveyance [claim]," Letter Brief Relating to United States' Mot. for Summ. J. on Nominee and Fraudulent Conveyance Grounds ["U.S. Ltr. Brief] at 4. In contrast to the present case, however, the transfer at issue in Bryant involved "substantially all" of the defendants' "real and personal property." Bryant, 15 F.3d at 757, 758, The court found that under those circumstances, defendants' asserted motivation of estate planning did not create a genuine issue of material fact.
At trial, the government may well be able to establish Evseroff's fraudulent intent by clear and convincing evidence. However, on the present record, the court cannot make this determination as a matter of law. See Hassett v. Goetzmann, 217 B.R. 9, 21 (N.D.N.Y. 1998) (denying plaintiffs motion for summary judgment on intentional fraudulent conveyance claim, and noting that "while much evidence in the record indicates mat the conveyances at issue were made with the requisite fraudulent intent, the affidavit submitted by the Judgment Debtor proffering alternative explanations for the conveyances suffices to raise a genuine issue of material fact."); see also RCA Corp v. Tucker, 696 F. Supp. 845, 852 (E.D.N.Y. 1988) (concluding, under Florida fraudulent conveyance statute, that "while much evidence in the record indicates that the assignment was made with actual fraudulent intent, the deposition testimony of [the defendant] proffering an alterative reason,"viz, "to ensure his wife's financial security in the event that he became disabled," raised a genuine issue of fact as to whether transfer to wife was an intentional fraudulent conveyance).
The government argues that, taken as a whole, the record shows a pattern of behavior of behavior on Evseroff's part that demonstrates his fraudulent intent, See Solomon, 722 F.2d at 582-83 (including among the "badges of fraud" from which fraudulent intent can be inferred, "the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors"). Although there is significant (and troubling) evidence of obstructionist behavior on Evseroff's part, drawing all inferences and resolving all ambiguities in his favor, Evseroff's intent to delay, hinder or defraud the IRS when he transferred his property to the trust has not been established as a matter of law, See Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 148 (2d Cir. 1990) ("Where reasonable minds could differ as to inferences to be drawn regarding intent, material questions of fact are presented precluding summary judgment."): accord Gerber v. Computer Associates Int'l, Inc., 2000 WL 307379, at *6 (E.D.N.Y. Mar. 14, 2000).
Conclusion
For the foregoing reasons, the government's motion for summary judgment is denied.