Opinion ID: 545523
Heading Depth: 2
Heading Rank: 1

Heading: The Net Worth Determination for 1976

Text: 20 In determining Walton's net worth for the year 1976, the IRS found that at the opening of the 1976 tax period, Walton had no money invested in BIRA, while by the end of the year he had an investment of $132,674. Walton asserts that he invested only $8,000 in BIRA during 1976, and that this fact is demonstrated by the government's own exhibits. As we are without the benefit of the district court's findings on this issue, we proceed to a direct consideration of the evidence on record. 21 The government introduced three documents upon which the parties rely. The first is an undated bill of sale stating that Walton has sold and hereby conveys to BIRA assets listed in an attached schedule with a total value of $132,674. The bill of sale also provides that the above stated conveyance and sale is subject to Belle Isle Riding Academy Inc., expressly agreeing to pay liabilities set forth in the accompanying schedule. 22 The second document, government exhibit 19, is a letter from Walton to BIRA's board of directors reading as follows: Re: Offer By Proprietor to Corporation Gentlemen: 23 I, the sole proprietor of a horse riding business operating under the name of Belle Isle Riding Academy Inc. [sic] 24 Attached hereto is a[n] instrument showing the assets and net worth of my sole proprietorship as of November 30, 1976. 25 I hereby offer to transfer to your corporation all such assets, subject to all liabilities, on the following conditions.... 26 Finally, government exhibit 20 is the minutes of the annual meeting of the Academy's shareholders held December 1, 1976. The minutes list Walton as the sole shareholder of the corporation. They refer to the bill of sale and state that Walton declined to sign over all the necessary documents to effectuate such transfer of assets and items aforesaid. According to the minutes, Walton only transferred $8,000, and therefore received only 4,000 shares of stock. 27 These three documents appear to tell the following story. On November 30, 1976, Walton personally owned the assets in the schedule attached to the bill of sale with a total value of $132,674. He was, at that time, engaged in changing the legal status of the Academy from a sole proprietorship to a corporation. After filing BIRA's Articles of Incorporation with the Michigan Secretary of State on October 18, 1976, he contracted, as the sole proprietor of the Academy, to sell the assets of his business to the corporation he had established, with himself as sole director, in exchange for stock in the corporation. The assets were, for whatever reason, never legally transferred, and the stock was never issued. 28 Walton claims that because the government exhibits show that the sale of assets never took place, the assets were improperly included in his net worth calculation. The conclusion does not follow from the premise. The only relevance of the sale of assets to the computation of net worth is that it is reasonable to presume that if Walton transferred $132,674 in assets to BIRA in November of 1976, he owned $132,674 in assets to transfer. The government did not need to show that the transfer of assets from Walton to the corporation ever took place, so long as they showed that Walton owned $132,674 in assets in November of 1976 that he did not own in 1975. 3 Walton's ownership of the assets is revealed by government exhibit 19 in which he claims that the schedule listing total assets of $132,674 represents the assets and net worth of my sole proprietorship as of November, 1976. Having found that Walton owned $132,674 in assets in November of 1976 that he did not own at the beginning of that year, the IRS appropriately included these assets in its net worth calculation. Walton was free to come forward with evidence that he owned the listed assets before 1976, or that he did not own them at all. He did not do so. Accordingly, the district court's determination that Walton had not met his burden of proof on the issue was not clearly erroneous.