Court Opinion

ID: 9484566
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:57:17.401143+00
Date Added: 2024-06-11T17:50:19.048071
License: Public Domain

BEEZER, Circuit Judge,
dissenting:
Because the evidence does not support a finding that any transfer of the automobile collection from Edward Towe to the Towe Antique Ford Foundation (TAFF) was a fraudulent attempt to evade the payment of federal taxes, I would reverse the district court’s judgment. I would remand for factual findings on whether any transfer occurred and, if a transfer took place, whether the Internal Revenue Service can present sufficient evidence to show that the transfer defrauded the IRS or that TAFF was otherwise used to evade taxes.
I
The IRS began annual audits of Towe in 1960. By 1981, Towe had paid all determined liabilities for preceding tax years. At trial, uneontradicted documentary evidence prepared by TAFF’s financial expert showed that in 1981 Towe had net worth of over $1.9 million, taking into account all taxes for preceding years for which he would ultimately be held liable. TAFF relies upon this evidence on appeal, and the IRS does not challenge its accuracy.
TAFF, a tax-exempt corporation formed by Towe, alleged that by the end of 1981, Towe transferred the automobile collection to TAFF. The district court found it unnecessary to decide whether this transfer had occurred. The record shows that TAFF leased the collection to corporations not affiliated with Towe for public display in California and Montana and that these corporations employed two members of Towe’s family. Towe received no compensation or other direct financial benefit from TAFF. TAFF regularly filed returns with the IRS reporting ownership of assets worth over $2 million and transactions involving substantial sums of money. The 1983 return stated the collection was available for viewing 363 days a year and over 32,000 visitors viewed the collection in that year. The IRS does not state that it has ever disputed any aspect of these returns.
The district court found any transfer of the collection to TAFF was “done in anticipation of the occurrence of federal tax liabilities.” Disregarding TAFF’s existence and finding that any transfer defrauded the IRS, the court ruled the IRS properly seized the collection in 1989 to satisfy Towe’s tax liability.
II
Montana law determines whether TAFF is liable for Towe’s debt. Wolfe v. United States, 798 F.2d 1241, 1244 n. 3 (9th Cir.1986), amended, 806 F.2d 1410, cert. denied, 482 U.S. 927, 107 S.Ct. 3210, 96 L.Ed.2d 697 (1987). As an “equitable remedy,” Montana will disregard a corporation’s existence to “curb injustices” resulting from improper use of the corporation. Hando v. PPG Indus., 236 Mont. 493, 771 P.2d 966, 960 (1989). Notwithstanding that the IRS cites no Montana authority holding a corporation responsible for a person’s liability, I believe, in light of Hando and similar cases, Montana would so hold when necessary to achieve equity. In balancing the equities, we treat the IRS “analogous to any creditor” seeking to collect from TAFF a debt owed by Towe. Wolfe, *1396798 F.2d at 1243. Specifically, disregarding TAFF’s existence would require the IRS to show that TAFF had no identity apart from Towe, and that TAFF was used “to defeat public convenience!, i.e., evade a public duty], justify wrong, or perpetrate fraud.” Drilcon, Inc. v. Roil Energy Corp., 230 Mont. 166, 749 P.2d 1058, 1064 (1988).
Assuming the district court properly found that TAFF and Towe are “one and the same,” a dubious assumption considering that Towe derived no direct benefit from TAFF’s operations, the evidence does not support a finding that any transfer of the automobiles defeated “public convenience” through tax evasion. Drilcon, 749 P.2d at 1064. The court merely noted that at the time of the alleged transfer, Towe was under audit and his potential tax liability was uncertain. Towe, however, had been under audit for over 20 years, had paid all established tax liability and had more than ample resources to pay all the liability that was eventually determined. Nothing suggests that Towe had any unusual difficulty with the IRS or that he transferred the collection in an attempt to defeat an IRS levy that would occur eight years later.
The evidence also fails to support a finding of any “wrong” or “fraud” against the IRS. Drilcon, 749 P.2d at 1064. The district court found no direct evidence of actual fraud, but drew an inference of fraud from the following circumstances: (1) Towe received no consideration from TAFF, (2) Towe’s tax liability had not been established, (3) Towe had control of TAFF and (4) Towe and his family had benefitted from their association with TAFF. These circumstances do not show anything improper relating to the IRS, much less fraud. That Towe received no consideration is evidence of a bona fide charitable contribution. Towe’s substantial net worth, together with TAFF’s legitimate operations, negates any inference of a fraudulent contribution. No evidence demonstrates that Towe or his family otherwise used TAFF to defraud the IRS. Rather, the evidence shows TAFF was a genuine tax-exempt organization that accurately reported its financial affairs to the IRS. The IRS has not shown any wrong that justifies disregarding TAFF’s existence.