owners please the court my name is eric brooks something on behalf of the appellant william car dash i today i want to focus on the practical common sense issues that are a play with primary issues in this case first the issue of value versus reasonably equivalent value now we know the lower court failed to apply the proper legal test to the issue of value the test it applied was the totality of the circumstances where is the proper test is actually broader than that the proper test is whether the transfer wore received any palpable benefit or any realizable commercial value in exchange and this is particularly true in the case of an exchange for ashes employer received some benefit for the two thousand and five to two thousand and seven train service and that's because the services that mr card asked provided in two thousand and five through two thousand and seven are the exact same any evidence that he was performing more services in those years and i don't know that there is your honor but there's no evidence that he was performing less there's no evidence that the quantity quality or nature of the services he provided or any different than what he provided in zero three and zero four in regard to years zero three zero four but he gets paid three times as much or whatever the amount was and your half and i would simply say that that goes to the question of reasonably equivalent value not the issue of value and also can you can you help me here because maybe i missed some numbers but it looked to me as though the record set in zero three including the advance payments he got three thirty nine thousand you know for he got six thirty five which is a good bit more but in five six seven he was paid in the three hundred to four hundred thousand range so it wasn't like the dividends were the only payments he got he was getting he substantial amount as regular pay now i did not see how much he got in the bonuses people said he got substantial bonuses before zero three did i miss something does the record tell us how much those earlier bonuses were i do not know what the bonuses were prior to two thousand and three in the or in the in the trial court's order it says that he retained the received in excess of hundreds of thousands of dollars per u k but the reason i'm pressing this point is that in five six and seven he was paid in regular pay hundreds of thousands he got for eleven one year three eighty eight another so that it's not as though they suddenly four correct me if i'm wrong over four you're correct zero three i thought the statement was three thirty nine which would back out to fifty in the advance payment in eighty nine and that's the only figure i saw your honor i do have those figures today rather than a florida engineer concrete products the company was experiencing unprecedented growth mr carter was instrumental to the company's success mr carter should have been suspicious if he was not compensated fairly prior to two thousand three castree have a bonus program mr card has received significant compensation under the program the bonuses depended on his performance and the zero three zero four transfers were paid out of the company's pretax profits of the tax court held th transfers and zero three and zero four were not only exchange for value but were exchanged for reasonably equiv a value well every one of those factors with the exception of unprecedented growth in regard to two thousand and seven every one of those factors also applies to the two thousand and five two thousand and seven dividend transfers and the company's two best years of revenue were in zero five and zero six so the only difference between those transfers was that the company the company's principals who were fleecing caste creed elected to to pay them as dividends and that those payments corresponded to mr card ashes percentage stock ownership i did did they because  i that's my question that when he got this million million and a half i thought the other guys grid getting like sixteen million and twenty one million which would  be he has one fifth as much stock is each of them i understood and these guys are getting about ten times as much and i wrong about that or are they getting the same per share dividend that he was you know i believe it was the same so the point on this matter is that these dividend transfers which mr carr has had no control over he's the v p of engineering he's the technical guy he's gotten paid far in addition to his salary every year it least from zero three on we know the exact numbers he doesn't care how it's paid he just wants his money these transfers just like the zero three zero four bonus advances are simply substitution for the bonus program so if we ignore for a moment whether these particular transfers were exchanged for reasonably above the value or whether dividends can ever be exchanged for reasonably equivalent alue we just have to see played the same role and i don't know how we conclude that there was no value whatsoever exchange for those transfers i don't know how we get to that with the evidence we have are you are you saying that the law is that if you get a proper corner value the transfer can't be fraudulent know you are the reason why you have to say it any value any value that's why well i and i i am implying that this is not just a negligible value there is some significant value based on the payments in a three to four but the reason why this prejudice carter cash is because of the the the offset or the benefit that he's owed as a good faith transferee under florida's uniform fraudulent transfer act mr brook i know you're not talking about this exhaustion idea but i thought that's what we were going to be talking about this morning you know the idea that before you can collect taxes from stuff from the transfer e you have to exhaust the collection or efforts against the person who transfer the money my law clerk found a united states supreme court case healy versus commissioner of the internal revenue service that's as transferring a liability is secondary to primary liability of the transfer or to sustain transferee liability the commissioner must prove that he is unable to collect that efficiency against the transfer or i mean is there any reason why you didn't cite that case you are not familiar with that case what year was that it's all to it's older than i am it's a one hundred fifty three but did find a case that had a similar holding which was coffee pot coffee pot holdings i believe from one nine hundred forty that said that the commissioner had no obligation to first pursue collection efforts against the transfer but that case was cited repeatedly in later years by courts to follow the gum factors and stated in a reasonable non futile collection efforts were required absolutely let me ask you about this because i guess maybe i have a certain sympathy in going after the transfer or first if you're likely if there's any likelihood that you're going to be able to be made whole now in this case let's suppose we were to rule in your favor in some way it goes back they can make all the efforts in the world he can stephy p c and they're never going to get anywhere near the hundred twenty million would you have a procedural bar then would they be out of luck because  statute of limitations or something or would it just be a few tile round trip in which they could go back they could close efi p c seize every shirt button and they're not going to get the hundred twenty five million and then we'd be right back here if you thought that through or do you have a procedural defense that if we reverse now they'd be out of luck and they couldn't come after you your honor standing for you today i cannot say ok maybe  what that means is that the commissioner no longer has any obligation in any circumstance to first pursue collection efforts against the transfer or i don't i mean we don't have to write an opinion that says that i mean i kind of agree examining the statue that there are a lot that you're relying on that says they have to exhaust as you that the i r s has to make quote all reasonable collection of words or something like that against the transfer or and where the tax liability is hundreds let's just say one hundred million dollars and that the they can pay seventy thousand dollars a year says that ari that is that is accurate and that's the issue here is that no uniform fraudulent transfer act or fragile conveyance act requires reasonable collection efforts is not an element so following the commissioner's argument it's simply never must at hunter see many people do thank you very much and it please the court randall hunter for the commissioner i definitely wanted to talk about both the dividend issue and the exhaustion of collection why don't i briefly touch on the dividend issue i think you might have more questions about the exhaustion of collection but you're in charge of that first of all i wanted to say with regard to the dividends that the objective unco evidence in the record supports the tax court's ruling that they were devotees of dividends and that the no value was given in return for them if the c p reported these payments to the i r s as dividends not as compensation all of them mr carter reported these payments all of them as dividends to the i r s and paid less tax on them as a result and at the trial mr carter testified that he correctly characterized the payments as dividends on his tax return so there's really very little way to get around their characterization of dividends what the taxpayer is oregon what the transferee mr card issuers are going it is that yes their dividends but they're also should well of course from a tax reporting point of view that's impossible because they can't be taxes as both they have to be taxed as one of the other is side is the tax treatment really important you may be able to get it for tax fraud but you're right roger and transfer is did did they get reasonably equivalent value correct this is not his tax case therefore but still it also flies in the face of the traditional definition of  the evidence your accounting really is your your argument is that that supports that finding we that we can say is clear of course and they point to no evidence in the record that shows that these payments were compensation the there's discussion about the evolution of even if they did have evidence it would matter if there's evidence on both sides that tax court to cheat absolutely correct i think the tax  findings on this are not clearly erroneous but also they had mr stanton on the stand in the trial and they had a chance to ask him were these compensation and they didn't ask mr stanton didn't testify that these were paid to him as compensation the issue of these dividends that characterization was avoided completely a trial that's that speaks volumes i think that he could not bribes they knew that he could not just for stanton's one of the people that siphoned tens of millions he wrote the checks absolutely and he wrote a much bigger ones to himself about these checks yes indeed he did and you agree that the dividend payments were were at the same rate for all of the folks i do believe that is correct but at the same time it's clear that mr stanton and mr hughes were just committing fraud so they could have siphoned off a lot more that was not dividends and still characterize these as dividends and it's only the characterization with regard to mr carter cash that matters so even if those weren't somehow per share from mr stanley mr hughes they still could be dividends from m because the a tenth as the as the tax who had found the intent with which those other payments were going out of the company doesn't mean you have any better answer than your colleague or what i found in the record about how big the bonuses were in the three period i could not find any evidence in the record about exactly how much those were but of course the point that you brought out that these several of you both of you point out that these dividends were greatly in excess of what  had gotten in the past with regard to the my my hypothetical about if we were to remain and and send it back would would you have any procedural barrier to just saying ok will seize everything will throw all the people out of work and then we'll come after you for the remaining hundred million well now you're crossing into the back into the reasonable collect i'm sorry your i v and if i'm messing up that's ok well let me just let me i'll get right to it let me just finish that i don't think there's any objective evidence supporting  card ish position with regard to the dividends and i think the tax courts position on that is clearly correct and with regard to the exhaustion of the collection efforts number one the first thing i want to say is that the tax court had to look at it as basically did examine those methods and well if i sit there so much case all that appears to say that they have to do that and then there's appears to be some good there's not that doesn't what are we to make of that i think i think you are to make of the fact that that this law has been developing for several years for decades and part of it has to do with the fact that there used to be two different procedures that the government had to proceed creditors had to proceed in state court under law to get and an amount determined and then separately under equity to get the liability absolutely established and in case in bits and pieces it has come across in the in the tax court they looked at some legislative history that said well the legislative history there's a senate finance report that says you know in some cases the government can't get everything from the dead or therefore we're going to  bta case from i think the thirty's or twenty's i forget exactly so the federal government set up a procedure a new procedure with federal procedure under sixty nine zero one is what it's called now and  this is sixty nine zero one a want to yes and i can't one of the problems is the tax court has of course several different judges they don't sit on bach they don't sit alone i mean together all the time and the different judges came to different conclusions regarding going to hint from your adversary that at least a lot of the cases on your side are coming from judge jackie that well two or three did but definitely  four others did not going to but i know it is still a lot from one i remember i remember one from judge swift can't remember the names but definitely there have been other judges doing this and and of course  to try to finish my answer on your procedural issue if the court goes back now it should look at how things stood then it should look at whether things had been reasonably undertaken collection efforts against the debtor at that time against  not not the way they are now you write this because it appears to me that you're arguing that we do in fact need to make a determination from the record about whether the service made an evaluation of reasonable collection act and i thought your argument had been that there is no such obligation that is our argument absolutely if i confused you i certainly apologize that is argument because that's what the tax records at the tax court said mr carter cash i don't have to reach that issue because that's not in the statute and commissioner versus durned the supreme court case from  says we look to state law for substantive liability therefore that's not part of the rule anymore it used to be perhaps but it's not part of the rule anymore so that is our argument the only way you're referring to it is a federal procedure implementing federal procedure you don't look to state law and it seems like the procedure for collecting this these back taxes would be governed by federal law not state law and that right and the government does look to the taxpayer to collect the debt first but we did here and the evidence shows that we did hear well but what the tax court did was said we looked to florida law florida law doesn't require us to exhaust against the debtor correct correct well the only other source of that kind of law would be federal common law and that is middle that is that the way you brief i got the impression that it was just remembering or am i wrong i believe that's right but at the same time i would certainly like to point out that congress has to be presumed to know about this law that's been developing  tax court before it acted to the statute in one thousand nine hundred fifty four and yet it is not included in sixty nine zero one they specifically wrote the statute and they did not include that provision so they seem to be happy with know the difference in the text i cannot say that look but that was the impression i got from this i think i cannot say that but at the same time reenacted in one nine hundred fifty four this body of law was out there at that time and they did not any any decisions regarding what the government had to do with regard to collection activity against that going both ways i mean as judge pryor correctly said we've got six tax cases on each side before nine hundred fifty four definitely were cases before this before nine hundred fifty four that indicated that the government should look to the taxpayer first and of course the government would agree with that and we do and it's in the internal revenue manual and we always look to the taxpayer first and there's evidence here that we tried we saw the company was completely insolvent we reached a settlement agreement with a collection agreement with f e c and they were to pay a certain amount almost a million between looking to the taxpayer f r undertaking all reasonable collection effort well you're now you get into it i'm confused by your arguments i i i greatly apologize i think that what the tax court would have to do was is exercise its discretion to determine whether the government's collection actions had been reasonable because that's the way the tax court cases it where this law evolved that's what the says the test is not whether the government made collection efforts against the debtor or the taxpayer but whether they were reasonable now in this text this tax court did not do that in this case that's correct disk this i need to look at it this court said that law doesn't apply since stern this is where i was pressing you on the hypothetical i'm not sure i got an answer which was let's assume hypothetically if we say they're right you need to make all reasonable collection efforts we send it back you go into the tax court and say ok we're going to make reasonable collection efforts we're going to seize everything is there any procedural reason if all of that happened that then you couldn't come right back  after mr card dash and do the same thing because even unreasonable collection efforts are not going to exhaust the liability that's my question is and he will barrier statute of limitations latches equity whatever i don't believe so because mr carter has filed a tax court partition that would have suspended the statute eleven limitations with regard to collection against him therefore if this proceeding continued then it will be i think it would still be open in that regard now where it could change is if you change the dividends to compensation we'd be out of luck because that statue of limitations has run i'd also like to to emphasize that allowing the proceeding allowing the analysis of whether the commissioner has done reasonable collection actions against the taxpayer allows the whole proceeding to be sidetracked and also it's not within the tax court's authority under sixty nine zero one to judge whether these collection actions any collection action the commissioner took against the taxpayer were reasonable i think you can see in this case how that kind of a already would allow the tax court to oversee those collection actions and if the tax court needs to do that again other cases that have said you have to make such efforts haven't they i would like to stress that no courts of appeals have done so and courts of appeals have followed stern in stating the test under sixty nine no one we cited two of those cases in our brief feldman in sallust monday they have stated the case under stern and they have not included this in this part of the test other i believe two other the first in the fourth i believe have also done so those so it is not federal appellate law that includes this in the test for sixty nine no one  or for any procedure with regard to transfer reliability i thank you thank you very much aaron brooks you've got three minutes took part of my concern about this so about reasonable collection efforts so let's say there's tax court cases that go both ways about that but when we're in bed here the types who are said there's no such obligation what is there in federal law that binds us that tells us that's an air i don't know what there is that binds this court i do know in the cold for a case which was recently before the eleventh circuit this court recognized the general rule as it was the element from the gun case that was it just a very quick comment about the dividends were comments compensation we don't deny that the payments were dividends we're knowledge that our briefs we just the question is was the tax court in tied to define that the company received no value for them and it's isn't that right i mean that that was their finding and we have to look at whether the records behind it that's correct we believe that there is he cited a lot of reasons to believe that you know your character your client's characterization of this has dividends and of itself supports that determination and that's correct your honor but if i quote a case quotation from the tax court's opinion the dividends which are not compensation for services cannot be exchange or are not exchange for reasonably equiv about you but then goes on the whole because they were dividends they can't be compensated well what i mean what what he says is that you didn't put forth any evidence that the dividends were compensation is is he wrong about that i mean what evidence did you put into the record that the dividends were compensation i believe the testimony of the trial was that the services that mr card ash provided were no different in nature want to hear quality in the years in question than they were in the years where the transfers were deemed that's your evidence and anything else i do not have a specific vision of the record i mean are you saying there's something else you just don't remember his service is worn in a different this year than in the other years that's correct and i don't know conflicting but the problem is he also testified that they would have it he treated those dividends because his employer and then he considered th