Rubenstein v. Commissioner

SCOTT E. RUBENSTEIN, TRANSFEREE, PETITIONER v.

COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT

Docket No. 1254–06. Filed June 7, 2010.

For many years P has lived with and cared for his father

in Florida. In 2003 P’s father, who was insolvent and had

substantial unpaid income tax liabilities, transferred to P, for

little or no consideration, the condominium in which they both

resided. The IRS had previously determined, for purposes of

calculating his reasonable collection potential, that P’s father

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(266) RUBENSTEIN v. COMMISSIONER 267

had zero net equity value in the condominium. After the

transfer R determined that pursuant to sec. 6901, I.R.C., P

has transferee liability equal to the condominium’s fair

market value as of the date of the transfer. R contends that

the transfer was constructively fraudulent under Florida’s

Uniform Fraudulent Transfer Act (FUFTA), which applies to

certain transfers of ‘‘assets’’, defined in Fla. Stat. Ann. sec.

726.106(2)(b) (West 2000) to exclude property that is ‘‘gen-

erally exempt under nonbankruptcy law’’. P asserts and R

does not deny that under Florida law the condominium was

his father’s exempt homestead property. Consequently, P

argues, because the condominium was ‘‘generally exempt

under nonbankruptcy law’’, it is not an ‘‘asset’’ for purposes of

the FUFTA and its transfer to P is not avoidable under the

FUFTA. Held: As to the United States, homestead property is

not ‘‘generally exempt under nonbankruptcy law’’ within the

meaning of the FUFTA because it is reachable by the United

States through judicial process to enforce collection of unpaid

income tax liabilities; the condominium constitutes an ‘‘asset’’

for purposes of R’s claim under the FUFTA. Held, further, the

care that P provided for his father did not constitute ‘‘reason-

ably equivalent value’’ for the condominium within the

meaning of the FUFTA, and the transfer was constructively

fraudulent thereunder. Held, further, R is not equitably

estopped from asserting transferee liability under sec. 6901,

I.R.C., by virtue of having previously determined that the con-

dominium had zero net equity value as to P’s father for pur-

poses of calculating his reasonable collection potential.

Scott E. Rubenstein, pro se.

Timothy Sloane and Sergio Garcia-Pages, for respondent.

THORNTON, Judge: Respondent determined that pursuant

to section 6901 petitioner has transferee liability of $44,681,

plus interest as provided by law, arising from his father’s

transfer to him of a Florida condominium. 1 Petitioner

contends and respondent does not appear to dispute that the

condominium qualified for homestead exemption under

Florida law. The issues for decision are: (1) Whether

the transfer was constructively fraudulent pursuant to sec-

tion 726.106(1) or (2) of Florida’s Uniform Fraudulent

Transfer Act (FUFTA), codified at Fla. Stat. Ann. secs. 726.101

to 726.112 (West 2000); and (2) whether respondent is equi-

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, and all

Rule references are to the Tax Court Rules of Practice and Procedure. All figures have been

rounded to the nearest dollar.

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268 134 UNITED STATES TAX COURT REPORTS (266)

tably estopped from asserting transferee liability against

petitioner.

FINDINGS OF FACT

The parties have stipulated some facts, which we so find.

When he petitioned the Court, petitioner resided in Florida.

Petitioner’s Care for His Father

In 1989, with his mother’s health in decline, petitioner

moved from his home in New Jersey to live with his parents

in Florida. In 1993 his mother passed away. Since then, peti-

tioner has continued to live with his father, Jerry

Rubenstein, in Florida. While living with his father, peti-

tioner has provided care for him. They have had no under-

standing or agreement that petitioner would be compensated

for these services. Instead, petitioner has been motivated to

care for his father by love, honor, respect, and devotion. Peti-

tioner has never been a licensed caregiver or engaged in

business as a caregiver for profit.

The Condominium

In March 2002 Jerry Rubenstein purchased for $35,000 a

condominium in Delray Beach, Florida (the condominium).

He and petitioner have since resided there together. On Feb-

ruary 21, 2003, Jerry Rubenstein transferred the condo-

minium to petitioner by warranty deed for stated consider-

ation of $10 and ‘‘other good and valuable consideration’’.

That same day, petitioner recorded the warranty deed with

the Clerk and the Comptroller of Palm Beach County,

Florida. The fair market value of the condominium was then

$41,000, and there were no liens or other encumbrances on

the condominium (without consideration of any Federal tax

lien). On July 22, 2004, petitioner mortgaged the condo-

minium to secure a revolving credit agreement with a bank.

Jerry Rubenstein’s Financial Circumstances and Tax

Liabilities

As of February 21, 2003—the day he transferred the condo-

minium to petitioner—Jerry Rubenstein was insolvent and

unable to pay his debts. Petitioner was aware of this fact.

Jerry Rubenstein’s debts included $112,420 that he owed the

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(266) RUBENSTEIN v. COMMISSIONER 269

United States for unpaid Federal income taxes, penalties,

and interest for his taxable years 1994 through 2002. 2

On May 13, 2002, Jerry Rubenstein had submitted to the

Internal Revenue Service (IRS) an offer-in-compromise of

$10,000 to settle his income tax liabilities for taxable years

1994 through 2001. By letter dated November 8, 2002, the

IRS had rejected his offer-in-compromise on the ground that

the amount offered was less than his reasonable collection

potential (RCP) of $34,475. According to an asset/equity table

attached to the rejection letter, in calculating Jerry

Rubenstein’s RCP the IRS had determined that his ‘‘Net

Realizable Equity’’ in the condominium was zero. 3

On September 29, 2004—some 18 months after Jerry

Rubenstein had transferred the condominium to petitioner—

the IRS filed, for the first time, a notice of Federal tax lien

with respect to Jerry Rubenstein’s unpaid assessments for

income taxes, penalties, and interest for the years 1994

through 2002.

Notice of Transferee Liability

By notice dated October 17, 2005, the IRS determined that

petitioner had liability of $44,681, plus interest as provided

by law, as Jerry Rubenstein’s transferee of the condominium,

with respect to Jerry Rubenstein’s unpaid income tax, pen-

alties, and interest for taxable years 1998 through 2002.

OPINION

A. Transferee Liability

Respondent contends that pursuant to section 6901(a),

petitioner, as the transferee of the condominium from his

father, is liable for $41,000 plus ‘‘statutory interest’’ for

2 In making this finding of fact, we have adhered to the parties’ stipulation as to Jerry

Rubenstein’s accrued tax debts. It might be argued that Jerry Rubenstein’s tax debt for 2002

accrued no earlier than Apr. 15, 2003, the due date of his 2002 income tax return. See Roland

v. United States, 838 F.2d 1400, 1403 (5th Cir. 1988). Petitioner, however, has made no such

argument. In any event, any such argument would not avail petitioner since Jerry Rubenstein’s

tax debts for years before 2002, as accrued on the date of the transfer, appear to exceed the

condominium’s value as of that date.

3 The table lists ‘‘Real Estate’’ with a fair market value of $41,000 and ‘‘Quick Sale Value’’

of 80 percent of this amount, i.e., $32,800, offset by $32,800 of ‘‘Encumbrances or Exemptions’’,

to arrive at net realizable equity in the real estate of zero. The parties appear to agree that

the real estate referenced in this table is Jerry Rubenstein’s condominium that he later trans-

ferred to petitioner.

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270 134 UNITED STATES TAX COURT REPORTS (266)

unpaid tax liabilities, penalties, and interest owed by his

father. 4

1. Section 6901

Section 6901(a) provides that the liability of a transferee of

a taxpayer’s property may be ‘‘assessed, paid, and collected

in the same manner and subject to the same provisions and

limitations as in the case of the taxes with respect to which

the liabilities were incurred’’. Section 6901(a) does not create

or define a substantive liability but merely provides the

Commissioner a procedure to assess and collect from the

transferee of property the transferor’s existing liability. See

Commissioner v. Stern, 357 U.S. 39, 42 (1958) (discussing

statutory predecessor of section 6901). For purposes of this

case, the existence and extent of the transferee’s liability are

determined by the law of the State in which the transfer

occurred; i.e., Florida. 5 See id. at 45; Sawyer Trust v.

Commissioner, 133 T.C. 60, 73 (2009). Respondent bears the

burden to prove that petitioner is liable as Jerry

Rubenstein’s transferee but not to show that Jerry

Rubenstein is liable for tax. See sec. 6902(a); Rule 142(d).

2. Florida Uniform Fraudulent Transfer Act

Respondent argues that petitioner is liable as a transferee

under Fla. Stat. Ann. sec. 726.106, which is identical to sec-

tion 5 of the Uniform Fraudulent Transfer Act (UFTA). When

certain conditions are met, these provisions treat a ‘‘transfer’’

by an insolvent debtor as constructively fraudulent; i.e., with-

out regard to the actual intent of the parties. 6 The FUFTA,

4 This assertion apparently reflects the parties’ stipulation that the fair market value of the

condominium on Feb. 21, 2003, was $41,000. Implicitly, then, notwithstanding that respondent’s

brief concludes by urging us to sustain his determination, respondent concedes that the notice

of transferee liability was in error insofar as it asserted petitioner’s transferee liability to exceed

$41,000 plus ‘‘statutory interest’’. Respondent has not explained whether by ‘‘statutory interest’’

he means anything other than interest at the underpayment rate of sec. 6621, accumulating on

the principal of $41,000 from the date of transferee liability. See infra note 18.

5 In some situations Federal law determines the existence and extent of transferee liability.

See, e.g., sec. 6324(a)(2), (b).

6 Fla. Stat. Ann. sec. 726.106 (West 2000) provides:

Transfers fraudulent as to present creditors

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose

claim arose before the transfer was made or the obligation was incurred if the debtor made the

transfer or incurred the obligation without receiving a reasonably equivalent value in exchange

for the transfer or obligation and the debtor was insolvent at that time or the debtor became

insolvent as a result of the transfer or obligation.

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(266) RUBENSTEIN v. COMMISSIONER 271

like the UFTA, defines a ‘‘transfer’’ as a mode of disposing of

or parting with an ‘‘asset’’. Fla. Stat. Ann. sec. 726.102(12);

UFTA sec. 1(12), 7A (Part II) U.L.A. 15 (2006). If the term

‘‘asset’’ does not apply to property that has been conveyed,

then there is no ‘‘transfer’’. Ries v. Wintz Props., Inc. (In re

Wintz Cos.), 230 Bankr. 848, 860 (Bankr. 8th Cir. 1999) (con-

struing identical language in Minnesota UFTA). A threshold

question, then, is whether the condominium constituted an

‘‘asset’’ within the meaning of the FUFTA.

a. Whether the Condominium Was an ‘‘Asset’’

The FUFTA, like the UFTA, defines ‘‘asset’’ broadly as ‘‘prop-

erty of a debtor’’ but expressly excludes ‘‘Property to the

extent it is generally exempt under nonbankruptcy law’’. 7

Fla. Stat. Ann. sec. 726.102(2)(b); UFTA sec. 1(2)(ii), 7A (Part

II) U.L.A. 14. Petitioner contends, and respondent does not

appear to dispute, that the condominium qualified as Jerry

Rubenstein’s homestead under Florida law. 8 Consequently,

(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the

transfer was made if the transfer was made to an insider for an antecedent debt, the debtor

was insolvent at that time, and the insider had reasonable cause to believe that the debtor was

insolvent.

7 The FUFTA, like the UFTA, also expressly excludes from the definition of asset ‘‘Property

to the extent it is encumbered by a valid lien’’. Fla. Stat. Ann. sec. 726.102(2)(a) (West 2000);

UFTA sec. 1(2)(i), 7A (Part II) U.L.A. 14 (2006). ‘‘Valid lien’’ is defined to mean ‘‘a lien that is

effective against the holder of a judicial lien subsequently obtained by legal or equitable process

or proceedings.’’ Fla. Stat. Ann. sec. 726.102(13); UFTA sec. 1(13), 7A (Part II) U.L.A. 15. Al-

though the IRS treated the condominium as having zero equity value, indicating that it was

burdened with ‘‘encumbrances or exemptions’’ equal to its value, as discussed in greater detail

infra this characterization apparently reflected a judgment not that the condominium was en-

cumbered but that, as Jerry Rubenstein’s principal residence and in the absence of approval by

a Federal District Court, it was exempt from levy under sec. 6334(a)(13)(B). In any event, the

parties have stipulated that there were no liens or other encumbrances on the condominium

other than the Federal tax lien. A Federal tax lien arises upon all property rights belonging

to a person liable to pay any tax who has failed to pay the liability after demand. See secs.

6321 and 6322. An unfiled Federal tax lien, however, is not valid against, among others, judg-

ment lien creditors. See sec. 6323(a). The IRS did not file its notice of Federal tax lien against

Jerry Rubenstein until Sept. 29, 2004, about 18 months after the condominium was conveyed

to petitioner and shortly after petitioner had mortgaged it to a bank. Accordingly, any Federal

tax lien that arose with respect to the condominium by virtue of Jerry Rubenstein’s unpaid tax

liabilities would not appear to be a ‘‘valid lien’’ within the meaning of the FUFTA. Consequently,

the exclusion from the definition of ‘‘asset’’ of property encumbered by a valid lien is inapplicable

to the condominium.

8 Fla. Const. art. X, sec. 4, provides in pertinent part:

Homesteads; exemptions

(a) There shall be exempt from forced sale under process of any court, and no judgment, de-

cree or execution shall be a lien thereon, except for the payment of taxes and assessments there-

on, obligations contracted for the purchase, improvement or repair thereof, or obligations con-

tracted for house, field or other labor performed on the realty, the following property owned by

Continued

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272 134 UNITED STATES TAX COURT REPORTS (266)

petitioner suggests, the condominium was ‘‘generally exempt

under nonbankruptcy law’’ and so does not constitute an

‘‘asset’’ within the meaning of the FUFTA.

We have found no case expressly addressing this issue

under the FUFTA or any other State’s version of the UFTA.

Petitioner’s position might appear to be bolstered by cases

holding, as a general proposition, that homesteads are ‘‘gen-

erally exempt under nonbankruptcy law’’ and are thus

excluded from the definition of ‘‘asset’’ under the UFTA. See,

e.g., O’Neil v. Jones, 403 Bankr. 228, 236 (Bankr. D. Conn.

2009) (holding that homestead property was not an ‘‘asset’’

under Connecticut UFTA to the extent of $75,000 homestead

exemption provided under Connecticut law and stating that

‘‘a Debtor’s transfer of an interest in property that is exempt

under Connecticut law cannot be a fraudulent transfer’’

under Connecticut UFTA); Fidelity Natl. Title Ins. Co. v.

Shroeder, 101 Cal. Rptr. 3d 854, 858 (Ct. App. 2009) (holding

that the definition of ‘‘asset’’ under California UFTA excludes

property subject to California’s automatic homestead exemp-

tion); McCone County Fed. Credit Union v. Gribble, 216 P.3d

206, 210–211 (Mont. 2009) (holding that Montana UFTA could

not be used to avoid a transfer of homestead property

because a homestead is not an ‘‘asset’’ under UFTA, stating

that ‘‘The existence of homestead exemption provisions in

over 45 states quite simply means that homesteads are ‘gen-

erally exempt’ from execution or forced sales.’’); Rich v. Rich,

405 S.E.2d 858, 861 (W. Va. 1991) (holding that homestead

property was not an ‘‘asset’’ under West Virginia UFTA to the

extent of $5,000 homestead exemption provided under West

Virginia law); see also Dzikowski v. Delson, 247 Bankr. 873,

875 (Bankr. S.D. Fla. 2000) (stating in dicta that a transfer

of a homestead would not be avoidable under the FUFTA

a natural person:

(1) a homestead * * * if located within a municipality, to the extent of one-half acre of contig-

uous land, upon which the exemption shall be limited to the residence of the owner or the own-

er’s family;

On supplemental brief respondent states: ‘‘The condominium may have qualified as a home-

stead under Florida law because, as of the transfer date, the transferor resided in the condo-

minium that was located within a municipality, the City of Delray Beach.’’ Respondent has

raised no issue as to the applicability of the exception in the Florida homestead exemption law

for ‘‘payment of taxes and assessments thereon’’. In any event, this exception, which the Court

of Appeals for the Eleventh Circuit has described as applying to ‘‘unpaid property taxes on the

homestead itself ’’, Havoco of Am., Ltd. v. Hill, 197 F.3d 1135, 1142 n.10 (11th Cir. 1999), ap-

pears inapplicable to Jerry Rubenstein’s unpaid income tax liability.

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(266) RUBENSTEIN v. COMMISSIONER 273

‘‘because an interest in homestead is ‘generally exempt under

nonbankruptcy law’ ’’). But see Burrows v. Burrows, 886 P.2d

984 (Okla. 1994) (holding that a father’s conveyance of home-

stead property to avoid past-due support alimony and child

support was fraudulent under Oklahoma’s version of UFTA).

None of the just-cited cases, however, involved a situation

in which the United States sought to avoid a transfer as

fraudulent to collect unpaid tax liabilities. Some courts have

allowed the United States to avoid transfers of homestead

property under the relevant State’s version of the UFTA but

have not expressly addressed whether the homestead prop-

erty should be considered to be ‘‘generally exempt under non-

bankruptcy law’’ within the meaning of those laws. See

United States v. Bigalk, 654 F. Supp. 2d 983, 991 n.7 (D.

Minn. 2009) (involving Minnesota UFTA); United States v.

Stalker, 86 AFTR 2d 2000–5515, 2000–2 USTC par. 50,632

(M.D. Fla. 2000) (involving FUFTA). Other courts, including

this Court, have held a transfer of a residence to be fraudu-

lent as to the United States under the relevant State’s

version of the UFTA without expressly discussing either the

subject ‘‘generally exempt’’ language or qualification of the

residence for homestead exemption. See Suchar v. Commis-

sioner, T.C. Memo. 2005–23 (involving Maine UFTA); Estate of

Johnson v. Commissioner, T.C. Memo. 2001–182 (involving

FUFTA); United States v. Tolbert, 100 AFTR 2d 2007–5982,

2007–2 USTC par. 50,717 (W.D. Ark. 2007) (involving

Arkansas UFTA), affd. 326 Fed. Appx. 412 (8th Cir. 2009);

Sequoia Prop. & Equip. Ltd. Pship. v. United States, 90 AFTR

2d 2002–6728, 2002–2 USTC par. 50,773 (E.D. Cal. 2002)

(involving California UFTA). Consequently, these cases pro-

vide little guidance in construing the FUFTA language in

question or the UFTA language which it mirrors.

According to the official comments to the UFTA, its purpose

is to ‘‘protect a debtor’s estate from being depleted to the

prejudice of the debtor’s unsecured creditors.’’ 9 UFTA sec. 3,

9 Courts have looked to the official comments to the UFTA as an aid in construing the UFTA

as enacted, in one version or another, by almost all the States. See, e.g., Garrison City Broad.,

Inc. v. York Obstetrics & Gynecology, P.A., 985 A.2d 465, 468 n.5 (Me. 2009); Glimcher

Supermall Venture, LLC v. Coleman Co., 739 N.W.2d 815, 820–826 (S.D. 2007); Thompson v.

Hanson, 219 P.3d 659, 664 (Wash. 2009). Consulting these comments and caselaw of other juris-

dictions interpreting the UFTA appears especially appropriate in the light of Fla. Stat. Ann. sec.

726.112, which provides, substantially identically to UFTA sec. 11, 7A (Part II) U.L.A. 203, that

the FUFTA ‘‘shall be applied and construed to effectuate its general purpose to make uniform

Continued

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274 134 UNITED STATES TAX COURT REPORTS (266)

cmt. (2), 7A (Part II) U.L.A. 48. In excluding from the defini-

tion of ‘‘asset’’ property that is ‘‘generally exempt under non-

bankruptcy law’’, the UFTA recognizes that exemption stat-

utes are ‘‘limitations on the rights and remedies of unsecured

creditors, and it is therefore appropriate to exclude property

interests that are beyond the reach of unsecured creditors’’.

Id. sec. 1, cmt. (2), 7A (Part II) U.L.A. 15. The comments

indicate that for this purpose the question is whether the

creditor could reach the property under either State or Fed-

eral law:

Nonbankruptcy law is the law of a state or federal law that is not part

of the Bankruptcy Code, Title 11 of the United States Code. The definition

of an ‘‘asset’’ thus does not include property that would be subject to

administration for the benefit of creditors under the Bankruptcy Code

unless it is subject under other applicable law, state or federal, to process

for the collection of a creditor’s claim against a single debtor. [Id., 7A (Part

II) U.L.A. 16; emphasis added.]

The foregoing comments strongly suggest that property is

not ‘‘generally exempt’’ as to a particular creditor, and thus

falls within the UFTA definition of ‘‘asset’’, if that creditor

could reach the asset by judicial process. Other comments,

however, suggest a different reading of the UFTA, at least for

purposes of determining whether a debtor is insolvent:

The reference to ‘‘generally exempt’’ property in § 1(2)(ii) [of the UFTA]

recognizes that all exemptions are subject to exceptions. Creditors having

special rights against generally exempt property typically include claim-

ants for alimony, taxes, wages, the purchase price of the property, and

labor or materials that improve the property. See Uniform Exemptions Act

§ 10 and the accompanying Comment. The fact that a particular creditor

may reach generally exempt property by resorting to judicial process does

not warrant its inclusion as an asset in determining whether the debtor is

insolvent. [Id.; emphasis added.]

Respondent urges us to construe these last-quoted com-

ments narrowly, stating on supplemental brief: ‘‘This pro-

creditor interpretation of the provision, narrowly tailored to

determining whether a debtor is insolvent, increases the

chances that liabilities exceed assets and, therefore, that the

transferor will be deemed insolvent.’’ It might be questioned

whether ‘‘asset’’ should be defined differently for different

purposes under the UFTA. Cf. UFTA sec. 1, 7A (Part II) U.L.A.

the law with respect to the subject of the law among states enacting it.’’

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(266) RUBENSTEIN v. COMMISSIONER 275

13 (stating that the definitions contained in this definitional

section are for terms ‘‘As used in this [Act]’’). Ultimately,

however, we conclude that the official comments, which are

simply too ambiguous to solve the interpretational problem

presented, do not compel the conclusion that a creditor who

is able to reach an insolvent debtor’s asset through judicial

process is foreclosed from avoiding the debtor’s transfer of

that asset under the UFTA merely because the asset is gen-

erally exempt as to other creditors. Such a conclusion would

contravene the policy of the UFTA to provide ‘‘remedies for

unsecured creditors against transfers that impede them in

the collection of their claims.’’ Id. cmt. (2), 7A (Part II) U.L.A.

15.

Consistent with this policy, the comments in question are

best read, we believe, as clarifying that if a creditor cannot

reach property that is ‘‘generally exempt’’ (e.g., by virtue of

a homestead exemption that applies to most but not all credi-

tors), then the property is not an ‘‘asset’’ for any purpose

under the UFTA as to that creditor. Consequently, that cred-

itor could not avoid a transfer of the property under the

UFTA, notwithstanding that some other creditor, who was

able to reach the property through some exception to the

exemption, might be able to avoid a transfer.

Because the FUFTA is substantially identical to the UFTA,

we believe that the same considerations pertain in the

instant case. Consequently, insofar as the condominium was

subject to judicial process for collection by the United States

of Jerry Rubenstein’s Federal income tax liabilities, it is

properly considered to be an ‘‘asset’’ for purposes of the

FUFTA.

Clearly the condominium was subject to judicial process by

the United States to collect Jerry Rubenstein’s taxes, not-

withstanding any homestead exemption. The Code provides

‘‘two principal tools’’ to enforce the collection of unpaid taxes:

lien-foreclosure suits in Federal District Court under section

7403(a) and administrative levy under section 6331(a).

United States v. Natl. Bank of Commerce, 472 U.S. 713, 720

(1985). Pursuant to section 7403, as of the date of the

transfer the United States could have enforced its lien on

Jerry Rubenstein’s condominium by filing suit in Federal

District Court, which would have been empowered to order

the condominium’s sale, notwithstanding any homestead

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276 134 UNITED STATES TAX COURT REPORTS (266)

protections. See United States v. Rodgers, 461 U.S. 677, 701

(1983). Alternatively, the IRS could have sought authorization

of the Federal District Court to levy on the condominium. 10

See sec. 6334(a)(13)(B), (e)(1)(A); United States v. Estes, 450

F.2d 62, 65 (5th Cir. 1971) (stating that a ‘‘homestead exemp-

tion does not erect a barrier around a taxpayer’s home sturdy

enough to keep out the Commissioner of Internal Rev-

enue’’). 11

We conclude that, as to the United States, the condo-

minium was not ‘‘generally exempt under nonbankruptcy

law’’ within the meaning of the FUFTA. Consequently, we con-

clude that the condominium was an ‘‘asset’’ within the

meaning of the FUFTA. We next consider whether the transfer

of this asset was constructively fraudulent pursuant to the

FUFTA.

b. Whether the Transfer Was Constructively Fraudulent

Respondent contends that Jerry Rubenstein’s transfer of

the condominium to petitioner was constructively fraudulent

under Fla. Stat. Ann. sec. 726.106(1). 12 This section

(reproduced supra note 6) provides in pertinent part that a

transfer by a debtor is fraudulent as to a creditor if: (1) The

creditor’s claim arose before the transfer was made; (2) the

debtor did not receive a ‘‘reasonably equivalent value’’ in

exchange for the transfer; and (3) the debtor was insolvent

at the time of the transfer or became insolvent as a result

of the transfer.

The parties have stipulated that as of February 21, 2003,

Jerry Rubenstein owed the United States $112,420 for

unpaid Federal income taxes, penalties, and interest for his

taxable years 1994 through 2002. Therefore, respondent’s

claim arose before the transfer was made. The parties have

10 These conclusions are not altered by the fact that in calculating Jerry Rubenstein’s reason-

able collection potential before the transfer, the IRS assigned zero net realizable equity to the

condominium, apparently treating it as exempt for this purpose.

11 Moreover, the Florida homestead exemption does not spare a residence from a Federal for-

feiture. United States v. Lot 5, Fox Grove, 23 F.3d 359 (11th Cir. 1994).

12 Alternatively, respondent argues that if we were to find that the condominium’s transfer

was for an antecedent debt that Jerry Rubenstein owed petitioner, the transfer was construc-

tively fraudulent under Fla. Stat. Ann. sec. 726.106(2), which deals with transfers by an insol-

vent debtor to an ‘‘insider’’ (defined under Fla. Stat. Ann. sec. 726.102(7)(a)(1) to include a ‘‘rel-

ative of the debtor’’) for an ‘‘antecedent debt’’. Because we conclude that there was no antecedent

debt and that the transfer was constructively fraudulent under Fla. Stat. Ann. sec. 726.106(1),

we need not and do not address respondent’s alternative argument.

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(266) RUBENSTEIN v. COMMISSIONER 277

further stipulated that Jerry Rubenstein was insolvent at the

time of the transfer. The issue, then, is whether Jerry

Rubenstein received reasonably equivalent value from peti-

tioner in exchange for the transfer.

Petitioner contends that the care he has provided to his

father constitutes fair consideration for the condominium.

Although petitioner’s care of his father is commendable,

unfortunately for petitioner it does not, under the relevant

legal standard, constitute ‘‘reasonably equivalent value’’ for

the transfer of the condominium. Under the FUFTA, ‘‘Value’’

is given for a transfer if ‘‘property is transferred or an ante-

cedent debt is secured or satisfied’’. Fla. Stat. Ann. sec.

726.104(1). Under these provisions, ‘‘value’’ does not include

‘‘an unperformed promise made otherwise than in the ordi-

nary course of the promisor’s business to furnish support to

the debtor or another person.’’ Id. Consistent with the UFTA’s

purpose ‘‘to protect a debtor’s estate from being depleted to

the prejudice of the debtor’s unsecured creditors’’, these

provisions reflect that ‘‘Consideration having no utility from

a creditor’s viewpoint does not satisfy the statutory defini-

tion.’’ UFTA sec. 3, cmt. (2), 7A (Part II) U.L.A. 48.

Petitioner transferred no property, or only minimal prop-

erty, in exchange for the condominium. 13 Petitioner appears

to concede that the care he provided his father gave rise to

no debt on his father’s part. Petitioner testified: ‘‘The things

I did, I did out of love. I never felt this was a debt.’’ Indeed,

Florida law presumes that a parent is not obligated to pay

a child, though of full age, for services the child might per-

form while living with the parent at home as one of the

family. See Mills v. Joiner, 20 Fla. 479, 492–493 (1884);

Della Ratta v. Della Ratta, 927 So. 2d 1055, 1058–1059 (Fla.

Dist. Ct. App. 2006). The presumption can be overcome by

proof of a special contract or by an express or implied

promise. Mills v. Joiner, supra at 492–493; Della Ratta v.

Della Ratta, supra at 1059. Such proof is absent here.

Petitioner suggests that his father had a moral obligation

to compensate him for his caregiving. The satisfaction of a

13 Although the warranty deed recites that petitioner paid $10 for the condominium, petitioner

testified that he did not recall whether he had actually paid his father the $10. We are not per-

suaded that petitioner paid the $10. In any event, even if petitioner had paid the $10, it would

not constitute ‘‘reasonably equivalent value’’ for the condominium, which had a fair market

value of $41,000 on the date of the transfer.

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278 134 UNITED STATES TAX COURT REPORTS (266)

moral obligation, however, does not constitute ‘‘value’’ within

the meaning of the FUFTA. Cf. Henkel v. Green, 268 Bankr.

628, 651 (Bankr. M.D. Fla. 2001) (finding that any moral or

family obligation to pay for a daughter’s wedding or to give

her a wedding gift was not reasonably equivalent value for

purposes of Bankruptcy Code section 548). 14

Petitioner argues that, in transferring the condominium,

neither he nor his father intended to hinder the collection of

taxes. Because respondent has shown that the elements of

Fla. Stat. Ann. sec. 726.106(1) have been met, however, the

transfer is treated as constructively fraudulent; no showing

of actual fraudulent intent is required. See Gen. Trading Inc.

v. Yale Materials Handling Corp., 119 F.3d 1485, 1499 (11th

Cir. 1997).

B. Equitable Estoppel

In 2002 respondent rejected Jerry Rubenstein’s offer-in-

compromise, determining that he had offered less than his

reasonable collection potential. A table attached to the deter-

mination notice showed Jerry Rubenstein’s ‘‘net realizable

equity’’ in the condominium to be zero, apparently treating it

as ‘‘exempt’’. As a result, petitioner argues, respondent

should be equitably estopped from now asserting transferee

liability against him. We disagree.

As a general matter, ‘‘the doctrine of equitable estoppel is

applied against * * * [the Commissioner] ‘with the utmost

caution and restraint.’ ’’ Boulez v. Commissioner, 76 T.C. 209,

214–215 (1981) (quoting Estate of Emerson v. Commissioner,

67 T.C. 612, 617–618 (1977)), affd. 810 F.2d 209 (D.C. Cir.

1987). The Court of Appeals for the Eleventh Circuit, to

which any appeal of this case would lie, has questioned

whether equitable estoppel can ever be applied against the

Government. See Savoury v. U.S. Atty. Gen., 449 F.3d 1307,

1318 (11th Cir. 2006) (‘‘it is far from clear that the doctrine

of equitable estoppel may even be applied against a govern-

ment agency. The Supreme Court has never held that it may

be.’’). The Court of Appeals has also held that insofar as a

party may be permitted, as a matter of law, to invoke the

estoppel doctrine against the Government, that party must

14 Fla. Stat. Ann. sec. 726.104(1), defining ‘‘value’’ for purposes of the FUFTA, is identical to

UFTA sec. 3(a). Sec. 3(a) of the UFTA, in turn, is adapted from Bankruptcy Code sec.

548(d)(2)(A). See UFTA sec. 3, cmt. (2), 7A (Part II) U.L.A. 48.

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(266) RUBENSTEIN v. COMMISSIONER 279

prove four elements: ‘‘(1) words, conduct, or acquiescence that

induces reliance; (2) willfulness or negligence with regard to

the acts, conduct, or acquiescence; (3) detrimental reliance;

and (4) affirmative misconduct by the Government.’’ United

States v. McCorkle, 321 F.3d 1292, 1297 (11th Cir. 2003).

Petitioner has proven none of these elements. In the first

instance, we do not see how the complained-of communica-

tion from the IRS to Jerry Rubenstein induced petitioner to

do anything. Nor are we persuaded that petitioner relied

upon the communication to his detriment. After all, it was

Jerry Rubenstein, not petitioner, who transferred the condo-

minium. 15 Cf. Boulez v. Commissioner, supra at 215 (holding

that to establish equitable estoppel against the Government,

there must be detrimental reliance by the party claiming the

benefit of the doctrine). We also do not believe that there was

any willfulness or negligence involved in the complained-of

communication. 16 Nor has petitioner shown affirmative mis-

conduct by the Government. ‘‘Affirmative misconduct

requires more than governmental negligence or inaction’’.

United States v. McCorkle, supra at 1297. Rather, affirmative

misconduct requires ongoing active misrepresentations or a

pervasive pattern of false promises, as opposed to an isolated

act of providing misinformation. Watkins v. U.S. Army, 875

F.2d 699, 708 (9th Cir. 1989). The IRS communication of

which petitioner complains falls far short of affirmative mis-

conduct. 17

15 Petitioner argues that he has suffered detriment in that, in addition to any transferee liabil-

ity he may have, he is obligated to repay money that he allegedly borrowed through his revolv-

ing line of credit, which is secured by a mortgage on the condominium. Imposition of transferee

liability, however, would leave petitioner no worse off than if he had never received the condo-

minium, since he has gained ownership of the condominium as well as any cash borrowed

through his revolving line of credit.

16 Respondent did not misrepresent that the condominium was exempt from levy. A taxpayer’s

principal residence is exempt from levy until a Federal District Court approves the levy. Sec.

6334(a)(13)(B), (e)(1)(A). Petitioner argues that the Internal Revenue Manual (IRM) nevertheless

required that respondent include the equity in the condominium in his father’s reasonable col-

lection potential. The IRM as in effect at relevant times stated that ‘‘Equity in real estate is

included in calculating the taxpayer’s reasonable collection potential and in an acceptable offer

amount.’’ IRM pt. 5.8.5.3.11(1) (Nov. 1, 2000). Respondent has acknowledged that the IRS

‘‘sometimes exercises the discretion to accept offers for less than RCP [reasonable collection po-

tential] by subtracting the value of a taxpayer’s residence from [reasonable collection potential]’’,

which it did in this case. By excluding the value of the condominium from Jerry Rubenstein’s

RCP, the IRS did not engage in a ‘‘false representation or wrongful, misleading silence’’, which

this Court has held to be a requisite element of a claim for equitable estoppel against the Gov-

ernment. See Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), affd. 140 F.3d 240 (4th

Cir. 1998).

17 Petitioner also complains on brief that respondent has been unresponsive to his discovery

Continued

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280 134 UNITED STATES TAX COURT REPORTS (266)

C. Conclusion

Pursuant to section 6901(a), petitioner has transferee

liability of $41,000 plus interest for unpaid tax liabilities,

penalties, and interest owed by Jerry Rubenstein for his tax-

able years 1998 through 2002. 18 We have considered all

contentions that petitioner has raised for a contrary result.

Contentions not expressly addressed herein we find to be

without merit or unnecessary to reach.

To reflect the foregoing and respondent’s concession,

Decision will be entered under Rule 155.

f

requests in this litigation. These untimely raised complaints provide no basis for invoking equi-

table estoppel against respondent’s determination of transferee liability.

18 The parties have not addressed the manner in which interest is to be computed. We expect

this matter to be resolved in the Rule 155 computation.

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