c a l l c then sold its television stations but held five radio stations from may through september of two thousand and one as ca l l c was the federal communications commission licensee and s e a l l c was responsible for maintaining control over the programming on those stations if the d j had used vulgar language on the air during the summer of two thousand and one the f c c would have imposed fines or other penalties against s still owned the stations the f c c would've been laughed out of court with the i r s is doing here is no different in both cases the event that triggered a liability happened after the former shareholders sold their stock although the hypothetical f c c case against the former shareholders wouldn't survive a motion to dismiss the commissioner has gotten traction here by asserting his right to use the substance over form doctrine to determine  consequences of a transaction well the tax court relied on the seventh circuit decision and then one versus the commissioner to interpret the substance over form doctrine the supreme court's decision in commissioner versus stern because the supreme court in commissioner versus stern specifically pointed out that the fallacy in the government's argument that this is actually a tax case is that congress didn't impose a tax liability on the shockley's or on the other former shareholders of the transferees so this isn't a tax case and you don't use the federal tax substance over form doctrines to decide it this is the supreme court in commissioner versus stern was very clear that any rights afforded the commissioner in this case must be equally available to any other creditor under state law and what the court in feldman did was use substance over form principles from federal tax cases impute those to the state court by relying on a few state tax court cases and in the process of doing so up and also it's a state law property rights respect for corporate form and other doctrines that are very important part of state law if the federal courts want to shreya into that thicket of whether or not you can use substance over form to find each and every element of the uniform fraudulent transfers act i would respectfully suggest that one of those courts should actually certify the question to a state supreme court which hasn't happened yet in feldman you can either read the case narrowly to apply to the facts in that case where actually substance over form wasn't required because there was an indirect transfer of the corporation's assets to the shareholders via the attorneys trust account so you can find a transfer without having to call in any of the substance for form doctrines and you can find the claim because the claim happened when the ship when the company sold its assets and triggered a tax liability to sing it for the shareholders sold their stock it's both of these transactions took place over a three hour period they sold the stock they integrated capital and then integrated capital so the assets and all this took place and they were out of i understand it selling the stock that the bank provided the money to pay to the shockley's right and and and the entity that paid paid the loan off to the bank before before the government could get its hands on the money when the shot at least i tried to buy the kind of the government woke up the money was gone and there was nothing there to pay the taxes with argument is not that there isn't anyone here x let's say x is a corporation x buys the stock and it borrows for say a hundred thousand dollars it borrows the money from the bank and then and then proceeds of the sale and now there's nothing left though no money to pay taxes to the government for the asset sale right when the bank made the loan i don't know whether the banker knows that what the loan is paid on full sam's going to be left holding the bag or not shockley still would not have to pay because shockley sold stock in a company that had all of its operating as a human and have even have a bit of it with a shockley knew that this would be the result it doesn't matter that's a more complex or just had the result let's put it that way that's a more complicated question that the tax court didn't decide because the tax part specifically decided they didn't matter if shockley was acting in good faith and had no knowledge that there would be an unpaid tax liability one of the things that a lot of courts are missing in these cases is that if the company who had purchased the shares actually had tax attributes that eliminated the gains and that wasn't a tax liability no one would personally stand at the these series of transactions the shockley's did not have constructive knowledge that that would be the result they knew that the assets were going to be sold but they didn't know that the tax liabilities would not be paid welding because they didn't know that the tax liabilities would be the same for an l l c with whatever tax attributes the purchaser had as they were shocked the communications the c corporation there is no evidence at all that the shockley's knew that there would turn to buy the stock purchase or in the process of purchasing and reselling the assets they sell the assets for more than they paid for the stock will they get a profit my understanding of the substance of form doctrine that's been a jockeys don't have to know that the that the assets are going to be so when they sold the stock all the court needs to look at is the substance of the transaction over the form and  what whether they knew that's my understand is is my interpretation of our president incorrect yes it is what cased it says the court has to factor in the fact that they knew this the massachusetts uniform fraudulent transfers act in the north carolina uniform fraudulent transfers act because you have to remember what we're doing here is interpret ing the state uniform fraudulent transfers act we're not deciding the federal tax consequences of a transaction which is where you substance over form in the economic substance doctrine and whatever other doctrines that the federal courts have come up with to evaluate the tax consequences of a transaction to a taxpayer here as the supreme court explained in commissioner versus stern the shop please don't owe any tax liability of their own if they've paid their tax liability this is why they're going to hold them liable for someone else's time i got to believe that the buyer paid more sold the assets for more than it paid shockley for the stock far more the and then didn't it but it if it it had more money than they needed to pay the bank they did over thirty million dollars my money more than a paid the bank then why wasn't that money that that extra money subject to levy by the government well it certainly was and that's why we've argued that the tax courts insolvency argument really turns every understanding of the balance sheet test upside down and on its head because there was money sitting only on the ready to pay there was money in the entity that sold the assets yeah i will say yes ok there was please the court i'm arthur catterall of the justice department on behalf of the commissioner the tax court correctly upheld the i r s as transferee liability claims against the taxpayers in this case under substance over form principles now in their opening brief the taxpayers argued that substance over form principles have no application in determining transferee status under the wisconsin you have today and in response we pointed out among other things that the seventh circuit has held otherwise  feldman versus commissioner so the taxpayers take a slightly different tack in their reply brief this time they're arguing that substance over form principles have no abacus and that i have a misunderstanding of the facts i thought that it the entity in effect that bought the shares from shockley it borrowed the money from the bank and sold the assets paid off the bank and then they have enough money to pay uncle sam a tax due on the sale of the assets correct did not it might off the bank and they didn't have enough money to pay all that she said there was plenty of money we  disagree and we've explained this in our brief and i thought that the that was the whole thing was edited that sold the as it after paying the bank there was nothing left exactly because now not only are they paying rob a bank that substance over form principles have no application in determining transferee status under federal tax law for purposes of determining if somebody is a transferee under section sixty nine zero one and in particular they know that none of the three substance over form cases that we cited on page sixty one of our brief involved transfer reliability and that's true but we didn't focus on this threshold issue of whether substance over form principles applied to the federal transfer e determinations because the taxpayer did not seem to to question that proposition in their opening brief so i would just add here that the seventh circuit in feldman certainly applied sub so perform principles in upholding the federal transfer determination it is a little different in one respect in that film and the assets were so or yes absolutely and that make a difference well i would say this those types of cases where the assets are sold first and then then you just have a corporation with basically cash and a tax liability and code company swoops in and buys the cash i would yes those are more egregious cases and they're i mean they're easier so have we ever seen a case where there's been a regular transaction  was there but what has the wisconsin supreme court said about this in this badger case and the ultimate authority on the state law so so what do they tell us in that case to do you know i mean obviously they have not addressed this specific issue whether you can apply i mean i don't i don't know that a wisconsin court has ever applied substance over for this specific context in order to find a fraudulent transfer just does it does it suggest that the  inquiry that intent and knowledge are not relevant to the inquiry yes certainly so how would dad fold into this particular case when we we we don't argue that we need to show intent or is that not the case that you draw the and share the knowledge share of the facts and i think it's raining outside and i have and i walk out with a number of law i know it's writing sounds like evidence one o one well i mean i know i  yes i think the court talked about inferring from what happened you know you draw an inference from what happened as to what was intended so i would agree that you know if think so but i mean that would be i think would be dicta because we don't need to show me to the extent we had to show intent we would we would certainly argue yes you can draw an inference from what happened but we're saying and what felt and we're following feldman which have addressed this issue on there the particular state laws have found that there was a need to shill actual knowledge or constructive knowledge isn't that isn't the right well you've got feldman and now you've got  this case in this case and you've got another tax court case called wind trout which is really helpful because i mean it's judge key eki who wrote what i'm talking about the courts of appeals they were they were trying to decide if the the siphoning out of the cash three weeks later from the corporation should be should be did you know collapsed with the original transaction i mean it they didn't apply the collapsing transaction to in a manner that would require to rise the transaction into a sale of assets followed by a liquidation  and then in in frank sawyer the court did adopt this this knowledge requirement but they cited a they put forth a very questionable interpretation of a one nine hundred fifty one massachusetts case that intimated that you have to have actual fraudulent intent to collapse transactions so and then i guess the and the ninth circuit was applying new york law so in the south money case so i really think the only one that directly holds that you have a knowledge requirement is is the second circuit  right well that was that that was a piercing of the corporate veil type case and there was no you know in order to pierce the corporate veil you know you've got to show that there were they didn't observe the corporate formalities that you know that they were using the corporation as a as a check book or something like that so i think the fact that the court didn't you know didn't apply that type of analysis does not mean that's that's not a wholesale  wisconsin supreme court what do you think of that i think what makes it interesting is the fact that we've got a seven circuit opinion out there that has decided this issue i don't know what the wisconsin supreme court i mean how they would view these circumstances you know in the fact the fact that they are not writing on a clean slate you've got a seventh circuit opinion only persuasive their concern well seven circuit that in anticipating the supreme court of wisconsin which is what they were doing made a mistake that's that's basically what you al i mean that's a fact of it all i see these cases not but evident three circumstantial evidence cases you take the economic reality of what it's kind of like out of trust law you take the economic reality of what are people are doing and the proximity of time in which they're doing it and all those facts and circumstances and the consequences of the tax consequences of what they're doing all of which they know and then you draw the it will draw the inference as whether or not they intended to do that at all and you have economic self interest and involved in the whole thing all those are all those are circumstances are if you because if you didn't take that into account than what you have a just black letter law which means it doesn't matter you could be it as it is as all get out and you're still liable and that won't work right right so yes no i i agree with what you're saying if i may get to another point in the reply  brief the taxpayers claim that in the in the reply brief that their case is like the one nine hundred fifty supreme court case called u s versus cumberland public service company now both that case and a one nine hundred forty five supreme court case called commissione court holding company involved a liquidating distribution of appreciated assets by a corporation to its shareholders immediately followed by a sale of the distributed assets by the shareholders to a third  party and under the law at that time that that little two step maneuver resulted in one layer been come tax instead of two now the trial court in court holding had disregarded the form of the transaction because prior to the distribution the sale had been fully negotiated by the corporation as a sale by the corporation the trial court in the cumberland case respected the form of the transaction because although a sale by the corporation had been considered it had not been fully negotiated and all the supreme court in this is justice black writing in each opinion for unanimous court and and all they did was upheld the trial court's decision in each case on the ground that it was a permissible factual finding in light of the record and therefore couldn't be disturbed on appeal so the cumberland court certainly did not announce you know a rule of law regarding the substance vs form determination that could help the taxpayers in this case and just one other point in any event that the two strip to step transactions and issue in those earlier supreme court cases differ from transactions in one important respect and that is although the shareholders in court holding and cumberland may have held the distributed assets only moment briefly before selling them they had always had a beneficial interest in those assets by virtue of their status as share holders and you don't have that and medco transactions you your honor i'd like to start with badger state bank because there have been some questions about that and a better state bank is not directly on point we all acknowledge that it's the only wisconsin supreme court case that actually interprets the uniform fraudulent transfer act and what they do in that case is they say there are these separate corporate entities and we're going to respect those entities and look at the transaction that the alleged transferee had with the d r while respecting those corporate forms so that helps us that helps our side of the case it also has some language about knowledge and intent doesn't matter and you know this is a creditor rights protection statute the government argues that that helps their case the bottom line is that the wisconsin supreme court has not decided how it would address this kind of issue where there is a conflict between normal state law concepts like property rights and whether you can actually create a transfer of property rights that didn't exist by using a substance over form doctrine because the wisconsin uniform fraudulent transfers act unlike the new york statute that was interpreted in the case that was consonant statute actually contains a very specific provision saying that a transfer is not made until the debtor has acquired rights to the asset transferred that's right in the wisconsin  here if s c c is being treated as the debtor and s e c never received the rights to what the shockley's received there cannot be a transfer as a matter of wisconsin statutory interpretation and before you decide to throw out wisconsin property law rights and decide that c c somehow did acquire rights in that cash that the shockley's received before the assets were ever sold i think that should really be an issue that gets decided by that wisconsin supreme court similarly counsel mentioned that this is not a piercing the corporate veil case well it is in essence a piercing the corporate veil case where state law has developed doctrines over decades about when you can and cannot pierce the corporate veil and hear your disregarding the corporate existence of s c a l l c entirely if you find the shockley's liable for these taxes because you're saying se a l l c who actually sold the assets didn't because they didn't exist and so a c c actually sold those assets as c a didn't have the tax liability as c a didn't actually own and operate those radio stations for four months we're going to ignore everything about that existence in order to treat a c c as if it sold its assets and triggered a tax liability but we're not going to apply state law related to piercing the corporate veil or the much more exacting standards that apply to peers in the corporate veil under state law we're just going to throw that out with the substance over form doctrine i would suggest that if you're unwilling to decide this case in favor of the shockley's and one of the many arguments that doesn't force you to dive into the thicket of state law uniform trundling transfer his act that you should at a minimum certify these questions to the wisconsin supreme court the commissioner agrees that no wisconsin court has addressed substance over form in the there is no case on point from any state court interpreting of the federal courts that have tried to apply it are divided you've got feldman on the one hand and the other circuits on the other hand where feldman is saying you don't need any sort of knowledge and tend the other circuits say you do but it's a little unclear if you need to know that there would be an unpaid tax liability or if you have to have an intent to hinder or delay or to fraud you've got federal courts of appeals trying to make up what the standard is under state nobody asking any state court these are novel issues of state law laden with important policy choices there's an impact on business transactions the economy  shareholders of a corporation that owns all of its operating assets can't sell their shares without being at risk of being pulled back in and liable for things that the purchaser does after they have sold their shares you're turning business transactions on their head without ever asking a state court about how they feel about that moreover this state law issue will certainly repeat itself the other former shareholders of shockey communications corporation are backed up right behind us  tax court their cases are stayed waiting for you to decide this case and one of those former transferees is the state of wisconsin investment board you've got an actual state agency who's being assessed as a transfer review for this tax owed by c c and there's no way to distinguish their position from the position of the shockley's in this case so the question is is this is the state of wisconsin going to interpret their own law in a way that makes the state agency that invests the retirement assets for all of its state employees liable for all of this tax that some bank or other organization didn't pay when they should have these issues are also unlikely to reach the state courts without certification from this court because the sixty nine zero one procedures allow the i r s to do what they did here which is issue a notice of liability and pursue this as a tax instead of going to state court and suing in