## F I L E D United States Court of Appeals Tenth Circuit 

### JAN 4 2001 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

THOMAS H. SCOTT and LYNN D. SCOTT, Transferees, Petitioners - Appellants,

v. No. 99-9018 COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee.

APPEAL FROM THE UNITED STATES TAX COURT

(T.C. No. 5245-95)

Thomas G. Hodel of Doussard Hodel & Markman, P.C., Lakewood, Colorado, for Petitioners-Appellants. Joel McElvain, Attorney (Ann B. Durney, Attorney, w ith him on the brief), Tax Division, Department of Justice, Washington, D.C., for Respondent-Appellee.

Before LUCERO , McKAY , andMURPHY , Circuit Judges.

McKAY , Circuit Judge.1 Thomas H. and Lynn D. Scott were joint petitioners, but the appeal

concerns only the liability of Thomas H. Scott. -2- The Tax Court determined that Petitioner-Appellant Thomas H. Scott, 1 who was a corporate executive of a now insolvent company, was liable as a transferee of assets for unpaid income taxes and the interest that accrued since the taxes became due. Appellant asserts that he cannot be a transferee within the meaning of 26 U.S.C. § 6901(a)(1)(A) because he did not dir ectly receive any assets from the assessed company. The Tax Court rejected that argument. This appeal followed. Appellant was a director and officer of Mountain St ates Stock Transfer Agents, Inc. (MSSTA), a corporation that conducted business as a securities transfer agent from 1980 until 1989. In 1989, Appe llant set into motion a series of meetings that paved the way for the sale of subs tantially all of MSSTA’s assets to the company’s primary competitor, American Trans fer, Inc. (AST). The tax consequences of that transaction forms the core of this dispute. There is evidence on the record that AST was willin g to pay $800,000 to acquire the assets of MSSTA. After investigating v arious ways to structure the deal and the different tax consequences, the transa ction was finalized as follows. AST purchased the assets of MSSTA for $300,000. MS STA entered a Stock Redemption Agreement with its primary stockholder, Mr. Carter, for that exact-3-

amount. Additionally, AST entered a consulting and non-compete agreement with Mr. Carter entitling him to payments totaling $525, 000 over the next four years. MSSTA retained a limited number of customer account s to cover continuing overhead obligations, including estimated tax liabi lities, and AST received an option to purchase those accounts at a set price bya specified date. Although Appellant and his wife owned 48% of the ac quired MSSTA stock, the formal agreements made no liquidating distribut ions to them, which payments from MSSTA would have been subject to a capital gai ns tax. Instead, Appellant negotiated a deal that resulted in he and his wife purchasing 21% of the stock interest in AST for the nominal price of ten cents per share, for a total expense of $1230. Their stock share increased to a 33% intere st in AST when Appellant agreed to forgo contributions to a profit-sharing p lan and agreed to guarantee a bank loan that AST required to finance the purchase

. Consequently, for the 1989 tax year MSSTA reported a sale of substantially all of its assets for $300,000, and Appellant reported no liquidating distributions from MSSTA. Appellant later redeemed the acquired AST stock and claimed a cost basis of $749,760, although the majority of th e stock had been purchased for $1230. In 1991, the IRS audited MSSTA’s 1989 tax f iling. Appellant was a party to the audit’s Closing Agreement. Appellant joinedin stipulating that MSSTA actually realized $801,820 from the sale of assets to AST, which left an unpaid-4-

tax liability of $164,981. Undercapitalized, MSSTAcould not satisfy that liability. The agreement further stipulated that aportion of the stock shares Appellant and his wife received from AST actually r epresented consideration paid by AST for the purchase of MSSTA’s assets. That am ount was valued at $199,652. Title 26 U.S.C. § 6901 authorizes the Internal Reve nue Service to collect taxes from parties to whom assets were transferred. Accordingly, the Commissioner proceeded to collect the outstanding l iability from Appellant. Although § 6901 provides a procedural mechanism whe reby the IRS can assess transferee liability, it does not define substantiv e liability. Rather, we rely on applicable state law to determine whether a person is liable as a transferee of assets. See Comm’r v. Stern , 357 U.S. 39, 42 (1958). Appellant asserts that a s a matter of law he cannot be considered a § 6901 tran sferee because he did not receive any assets directly from MSSTA. In advanci ng this argument, he relies primarily on the holding of Vendig v. Commissioner , 229 F.2d 93 (2d Cir. 1956). It is undisputed that Appellant received stock shar es directly from AST and that the transaction was structured so that he rece ived no distributions from MSSTA. In Vendig , the Second Circuit held that a similarly situated shareholder was not a transferee within the meaning of the reve nue code, holding that where “the vendee issues its stock directly to the shareh olders, then that stock never-5-

becomes a part of the vendor’s assets, for these as sets become the property of the vendee corporation when the vendor ceases to exist. ” 229 F.2d at 96. The court acknowledged that “this holding may allow the parti es, under some circumstances, to vary the tax consequences according to the manne r in which a reorganization is conducted, but this does not affect the amount of t he tax or the availability of property to satisfy it.” Id. at 96-97. In contrast, the structure of Appellant ’s transaction did affect the amount of tax owed, and analysis of that distinction leads us to a different conclusion than the one rea ched in Vendig

. A necessary basis for the Vendig holding was that the stock exchange was for stock shares of equal value and that the exchan ge was pursuant to an agreement that was independent of the sale of compa ny assets. See id. at 94-95. Conversely, Appellant’s stock exchange was not extr aneous but contingent on the sale of company assets. In fact, his stock exchang e constituted a portion of the total consideration paid for those assets, thus aff ecting the tax consequences. Additionally, the stocks Appellant acquired were no t purchased by reference to the stock-value of his MSSTA shares, but were inste ad purchased for a nominal price of ten cents per share. This arrangement leaves room for doubt as to whether Appellant acquired an interest of equal val ue. These facts distinguish this case from Vendig

. Reviewing a different type of transaction structure , the Vendig court was-6-

comfortable that the shareholder did not “receive, directly or indirectly, property belonging to [vendor company].” Id. at 94. Here, in light of the stipulated agreement wherein Appellant agrees that he received property a portion of which represented partial consideration paid to MSSTA, we must reach the opposite conclusion. We hold that Appellant received assets , although indirectly, from the company that was later assessed with a tax liability. Appellant persists that in this unique area of tax law, some case law suggests viab ility for the old rule of form over substance. We reject that argument by referen ce to the thorough explanation given by the tax court wherein the court distinguis hed the cases upon which Appellant relies. See Scott v. Comm’r , 76 T.C.M. (CCH) 940 (1998), 1998 WL 838366 at *12-14. The IRS’s authorization to collect taxes under § 69 01(a)(1)(A) extends to the income tax “liability, at law or in equity, of a transferee of property.” The statute expressly includes a “distributee” of asset s as a contemplated transferee. See § 6901(h). The regulations clarify that the term distributee includes “the shareholder of a dissolved corporation.” Treas. Re g. § 301.6901-1(b). Appellant’s stipulation that he, a shareholder, rec eived a portion of the consideration paid for the purchase of MSSTA assets places him squarely within the broad parameters of § 6901. We turn to the app licable state law to define his substantive liability. See Stansbury v. Comm’r , 102 F.3d 1088, 1092 (10th Cir.-7-

1996). Colorado law includes at least three possible sourc es for transferee liability: a liquidation statute, a redemption statute, and a fraudulent conveyance statute. See Appellant’s App. at 43. In our analysis we will track the decision of the tax court and analyze first Appellant’s liabili ty under the fraudulent conveyance statute. If that statue proves Appellan t liable, there is no need to analyze the additional statutes. Under Colorado law, a conveyance is fraudulent when it is “made with the intent to hinder, delay, or defraud creditors,” in this case the Internal Revenue Service. Colo. Rev. Stat . § 38-10-117(1). Fraudulent intent is question of fact. See Colo. Rev. Stat. § 38-10-120. The Tax Court concluded that the stock transfer was made “to Mr. Scott, the transferee, with the intent to hinder, delay, or defraud the Service wit hin the meaning of the Colorado fraudulent conveyance statute.” Scott , 76 T.C.M. (CCH) 940, 1998 WL 838366 at *18. Appellant asserts that he had no intent to defraud because he did not know that an additional tax liability might incur. Whil e structuring the deal, Appellant obtained multiple opinions on foreseeable tax conse quences. Having reviewed the record, we conclude that the evidence is suffic ient to support the Tax Court’s finding that, informed by those opinions and by his own corporate acumen, Appellant knowingly chose to take a calculated risk . See id. at *16-18. The Tax-8-

Court specifically found Appellant’s testimony not credible when he claimed to not know that a tax liability might incur. See id. at *17. Under Colorado law, because “[o]nly rarely will a c reditor be able to produce direct proof of a debtor’s intent,” a “trie r of fact may then draw the appropriate inference from the pattern of facts and circumstances presented.” Yetter Well Serv., Inc. v. Cimarron Oil Co. , 841 P.2d 1068, 1070 (Colo. Ct. App. 1992). Having reviewed the Tax Court’s Memorandum Findings of Fact and Opinion , we conclude that the court’s inferences and findi ngs are not clearly

erroneous. Having determined that Appellant is liable under Co lorado’s fraudulent conveyance statute, the final issue is whether Appe llant is liable to Respondent under the statutory interest provision. See Colo. Rev. Stat. § 5-12-102. In pertinent part, the provision states that a credito r shall receive interest on an outstanding debt “[w]hen money or property has beenwrongfully withheld.” § 5- 12-102(1)(a). The interest provision does not defi ne the operative term, wrongfully withheld, but Colorado courts construe that section broadly, stating that the section “is to discourage a person respons ible for payment of a claim to stall and delay payment until judgment or settlemen t.” See Mesa Sand & Gravel Co. v. Landfill, Inc. , 776 P.2d 362, 364 (Colo. 1989) (en banc). The Te nth Circuit has held that under Colorado law “a ‘wrongf ul withholding’ need not-9-

involve actual fraud, or indeed be tortious in natu re.” Stansbury , 102 F.3d at 1093. Under those broad parameters, we do not findclear error in the Tax Court’s determination that Appellant wrongfully withheld the delinquent taxes. We AFFIRM.