Petition for Writ of Certiorari — William L. Comer Family Equity Pure Trust v. Internal Revenue Service

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SP RE bette

] OCT 27 1992

No. 92- | DARMCE OF THE CLERK

In The

Supreme Court of the Anited States

October Term, 1992

WILLIAM L. COMER FAMILY EQUITY PURE TRUST;

AMERICAN WAY TRUST;

FINANCIAL FREEDOM CONSULTANTS,

OSA DEVELOPMENT COMPANY;

BURICA DEVELOPMENT COMPANY,

Petitioners,

Vv.

INTERNAL REVENUE SERVICE, and

UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

C. Richard Abbott

Abbott, Nicholson, Quilter,

Esshaki & Youngblood

19th Floor

One Woodward Avenue

Detroit, Michigan 48226

(313) 963-2500

Attorney for Petitioners

Clare’s Print Shoppe, Clare, Michigan 48617, (517) 386-7729

No. 92-

In The

Supreme Court of the Gnited States

October Term, 1992

WILLIAM L. COMER FAMILY EQUITY PURE TRUST;

AMERICAN WAY TRUST;

FINANCIAL FREEDOM CONSULTANTS,

OSA DEVELOPMENT COMPANY;

BURICA DEVELOPMENT COMPANY,

Petitioners,

INTERNAL REVENUE SERVICE, and

UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

C. Richard Abbott

Abbott, Nicholson, Quilter,

Esshaki & Youngblood

19th Floor

One Woodward Avenue

Detroit, Michigan 48226

(313) 963-2500

Attorney for Petitioners

Clare's Print Shoppe, Clare, Michigan 48617, (517) 386-7729

QUESTIONS PRESENTED FOR REVIEW

The questions presented are:

1. Whether the Court erroneously held that the IRS’s

levies and seizures did not violate the Statute of Limitations?

2. Whether the Court's findings of fact were supported

by the required substantial evidence?

3. Whether the Court’s holding that some of Petitioners

were not properly before the court was contrary to fact and law?

4. Whether the Court’s findings and conclusions that the

Petitioners should have anticipated the new issues and alle-

gations made by the IRS at or after trial constituted an abuse of

discretion, was prejudicial to Petitioners and violated their Fifth

Amendment and Constitutional Due Process rights?

5. Whether the Court erroneously held Petitioners to be

liable for taxpayers’ tax liabilities when Petitioners were never

charged with violation of any State or Federal statutes?

6. Whether the Court’s conclusion that Petitioners were

alter egos of taxpayers because family members were the

trustees and beneficiaries is contrary to State and Federal law?

7. Whether the Court’s findings and conclusions that

Petitioners were liable and alter egos based upon insolvency and

fraudulent conveyances, which were not alleged until after trial,

were contrary to State law, prior determinations of the Sixth

Circuit and the prior determinations of other Circuits?

8. Whether the Court’s erroneously held that the IRS

was not bound by the doctrines of estoppel, elections and res

judicata based upon prior Stipulated Agreements with

Petitioners?

9. Whether the Courts holding creates square conflicts:

(a) with the holdings of another federal court of appeals; (b)

with the holdings of the State of Michigan’s courts; (c) with

prior decisions of this Court; and (d) sanctions widespread

departure from such courts by the District Court, thus requiring

the exercise of this Court’s power of supervision to avoid a

miscarriage of justice?

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW .......... i

pe 8 he tay cy... ee a ear iv

OPINIONS OF THE COURTS BELOW ............. l

JURISDICTIONAL STATEMENT ............. TS

CONSTITUTIONAL AND STATUTORY PRO-

VISIONS AND REGULATIONS INVOLVED ........ 2

SUPA RUPUENTE GUE” BUN GPRS oc ccc eee 4

REASONS FOR GRANTING THE WRIT:

Se eee oe Ce eee ee ee 11

II. Consequences of a Judge-made Exception to

State law and U.S. Statute ............. 11

III. Violence Done to the Statutory Scheme ..... 12

IV. Reasons for Granting Certiorari .......... 13

V. Coes Wek Ge Aw fw ww eee 29

VI. Conflict with Prior Sixth Circuit Decisions . 29

VII. Conflicts with Other Circuits

and the Supreme Cowt ............5.. 29

VIII. Constitutional Principles ............... 29

CREROEEEN Ook Pere Seen ee che ey Su bens 30

APPENDIX

App.

Page

A - Opinion and Judgment of the United States Court of

Appeals for the Sixth Circuit, dated June 22, 1992 ... 1

B - Memorandum Opinion of the District Court, dated

oo oe re ee ee 6

C - Final Judgment of the District Court, dated

pg BO ee er ee ee 19

D - Memorandum and Order of the District Court, dated

ge er er eer a 20

E - Order of the United States Court of Appeals for the

Sixth Circuit denying Petitioners’ Motion for

Reconsideration, dated July 30, 1992 ............ 23

F - Sections 301.7701-4(a) and (b) of the Treasury

NS ee ee re ES a ee 24

TABLE OF AUTHORITIES

Cases: Page

A. A. Allen Revivals, Inc., TC Memo 1963-281 ........ 20

Alliance to End Repression v. Rochford, 75 FRD 441

a OO 5 oe o-4 ce aed eed Vere eae ee a 20

American Protein Corp. v. AB Volvo, 844 F.2d 56, 60

Se ee IES 6 os wlaic as diated ad Seca okane's 24

Anderson v. Bessemer City, 470 U.S. 564, 572 (1984) ... 11

Ash v. Ash, 280 Mich. 198 (1937) ................. 26

Baird v. C.I.R, 438 F.2d 490, 493-494 (3d Cir.) ....... 21

Bamberger, Bloom & Co. v. Schoolfield, 160 U.S. 149, 162,

ae ee GR A SOG a ak bw ken 5 ce 23

Banks v. Billups, 351 Mich 628, 634 (1958) .......... 15

Beaty v. U.S., 937 F.2d 288 (6th Cir. 1991) .......... 22

Bender v. Rocky Mountain Drilling Associates, 648 F.Supp.

ee Bee es Gs EOD bea ho cs wc enw eds 23

Bender v. Southland Corp., 749 F.2d 1205, 1216

PP er ere eoree ee ee eee 23

Benes v. United States, 276 F.2d 99, 103

ke | eee eo ee ee ree eee 18

Bennett v. Comm., 79 T.C. 470 (1982) .............. 26

Berry v. Chrysler, 150 F.2d 1002 (6th Cir. 1945) ....... 22

Blair v. Commissioner, 300 U.S. 5, 9-10 (1936) ....... 12

Blunt v. United States, 244 F.2d 355, 365

UU A, I ge es ee a ay 18

Bowers v. N.Y. & Albany Co., 273 U.S. 346, 350

1. rere ee ho ener 13

Brooke v. United States, 468 F.2d 1155 (9th Cir. 1972) .. 26

Campbell v. C.I.R, 868 F.2d 833 (6th Cir. 1989) ....... 27

Carter v. Kubler, 320 U.S. 243, 247 (1943),

i BG ee Ee 8 rr 20

Century Hotels v. U.S., 952 F.2d 107, 109

oo ee eee 28

Century Hotels v. United States, 952 F.2d 107

SN ee bias ke pile Ria a a yA lb-O 6.4 as 19, 28

Chamberlain v. Conley, 64-2 USTC (D CN. 1964) ..... 13

Chamberlin v. Wagar, 272 Mich. 595 (1935) ......... 23

Charles J. Gerlach Family Estate v. Comm.,

ee OES 5 in oo hoa Ot ee Dk ee 14

Charles Stewart Baker, TC Memo 1990-107 .......... 25

Chesapeake & Ohio Ry. v. Martin, 283 U.S. 209, 219

EE (<0 S's wa be kw ee 08 Ce eee 19

TABLE OF AUTHORITIES - Continued

Page

Choate v. Landis Tool Co., 486 F.Supp. 774 (1980) ..... 25

Church of Scientology of California v. Commr.,

83 T.C. 381, 524-525,

alr @ G25 F.20 isu (ome Cir. FSG?) .. ws. wee 21

Clapp v. C.1.LR, 875 F.2d 1396, 1399 (9th Cir. 1989) .... 28

Clark v. C.1.R, 266 F.2d 698, 715 (9th Cir. 1959) ...... 19

Cohen v. Young, 127 F.2d 721, 726 (6th Cir. 1942) .. 18, 19

Coleman v. Coleman, 239 Mich 139, 141 (1927) ....... 24

Commerce Trust Co. v. Woodbury, 77 F.2d 478

(Oi Cir. 1930), Clr. Gime. oO U.S. G14 ........... 26

Commissioner of Int. Rev. v. Transport Mfg. & Equip. Co.,

478 F.2d 731, 735, 736 (8th Cir. 1973) ........... 20

Commissioner v. Culbertson, 337 U.S. 733, 743 (1949) .. 26

Commissioner v. Stern, 357 U.S. 39 (1957),

aft’s 242 F.20 322 (Gth Cir. T9357)... we eee 25

Convalescent Center v. Blue Cross, 414 Mich 247, 261 (19829

Coryell v. Phipps, 128 F.2d 702 (Sth Cir. 1942),

ge Bes ee, | Se ee 25, 26

Curtis A. Herberts v. Comm., 10 T.C. 1053, 1068 (1948) . 26

Darling v. Hurst, 39 Mich 765, 768 (1878) ........... 19

Darlington’s Estate v. C.I.R., 302 F.2d 693

ee EE 6 Oe OR ie ck Ch hs 15

Dation v. Ford Motor Co., 314 Mich 152, 163-167 (1946) 30

David Krueger, 48 TC 824, 829-830 (1967) .......... 28

Dean v. Torrence, 299 Mich 24, 31-37 (1941) ...... 23, 24

Detroit Trust Co. v. Neubauer, 325 Mich 319, 335

SS Go ATs eis eg Oe ee eh ke ira bee's oo 15

Drieborg v. Comm., 225 F.2d 216, 220 (6th Cir. 1955) .. 21

Drysdale v. C.I.R., 277 F.2d 413, 417-418

ge Ae 2 ee ee 25

Duane v. Altenburg, 297 F.2d 515 (7th Cir. 1962) ...... 23

duPont v. Wyly, 61 F.R.D. 615, 630 (D DE. 1973)...... 23

Edwards Co., Inc. v. Monogram Industries, Inc.,

Fee Came Pay OPP Cee GU EPGOP ce eee 24

Eisenmenger v. Comm., 145 F.2d 103, 106

8 ae BERS eae ed are ea ee REE 15

Endicott Co. v. Encyclopedia Press., 266 U.S. 285, 288

SRE: fC eG a Wake Ob eek BAe ON 6 Pee ee Se 30

Estate of Allensworth v. Comm., 66 T.C. 33 (1976) ..... 20

TABLE OF AUTHORITIES - Continued

Page

Estate of DeNiro v. C.1.R., 795 F.2d 582, 584

ee. Te eee 19

Estate of Johnson v. Comm., 88 TC 225, 231, 233,

aff'd 838 F.2d 1202 (2nd Cir. 1987)............. 28

Estate of Joseph Giselman, TC Memo 1988-391 ....... 27

Estate of Roy D. Barlow, 55 T.C. 666 (1971) ......... 27

UL ek ee eee ae ee ee 25

F. Lyle Fogle, TC Memo 1986-74 ................. 17

F.P.P. Enterprises v. United States, 646 F.Supp. 713,

aft @ S30 F260 TiS Come Cer. 1967)... 2 eee 24

Farrell v. Paulus, 309 Mich 441 (1944) ............. 21

Federal Deposit Ins. Corp., 654 F.Supp. 794, 808

eg en a re 23

Federated Department Stores, Inc. v. Moitie,

og SO 28

Felton v. Walston and Co., Inc., 508 F.2d 577, 581

og RRR Sia ae an 23

First Nat. Bank v. Young’s Estate, 41 F.2d 8, 10

I ne oa aay i a an ld + pops 27

Flynn v. United States by and Through Eggers,

Feo Fis See, Sew COO Ge. TGGB) wn nc eens 18

Fornell v. Fornell Equip., 390 Mich. 540, 548-552

RO ESS ey a ee ee 26

Frazier v. Phinney, 5 AFTR.2d 424, 60-1 USTC

gy AE ee ee 20

Fricke v. Abbott, 368 Mich 551 556 (1962) ........... 23

Fulk v. Bagley, 88 F.R.D. 153, 164 (MD NC. 1980) .... 23

G. M. Leasing Corp. v. United States,

RP RE Pr oe ee 24

Geer v. Traders’ Bank of Canada, 132 Mich 215, 218

Co Pe re ee Be, ee 21

Geisert v. Corriveau, 140 F.Supp. 29, 32

ee Cat rare Mer eS iy alah we 6d ee 23

Gillen v. Wakefield State Bank, 246 Mich 158, 163 (1929) 24

Gledhill v. Fisher & Co., 272 Mich. 353, 364 (1935) .... 27

Gienn &. Baear, 56 TC. 717, 752 CAGTT) 6 aie ce eee. 18

Golden v. Henderson, 456 F.2d 378 (6th Cir. 1972) ..... 27

Gonzales v. United States, 348 U.S. 407, 413, 414 (1954) 21

Goodwin v. U.S., 931 F2d 1061, 1065 (9th Cir. 1991) ... 28

Gordon v. Comm., 85 T.C. 309, 326 (1985) .......... 18

ey |

Vii

TABLE OF AUTHORITIES - Continued

Page

Gottlieb v. Arrow Door Co., 364 Mich. 450 (1961) ..... 25

Graue Mill Dev. v. Colonial Bank & Trust Co.,

927 F.2d 988, 992 (7th Cir. 1991) .............. 23

Hamiel’s Estate v. Comm., 253 F.2d 787, 790-791

ge oe ee a ee wes 24, 26

Hampton v. Mow Sun Wong, 426 U.S. 88, 100 (1975) ... 30

Hatch v. Daugherty, 145 Mich. 569 ................ 24

Hawkins v. Comm., 152 F.2d 221, 222 (Sth Cir. 1945) ... 12

Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) . 22, 23

Helvering v. City Bank Co., 296 U.S. 85, 89 (1935) ..... 30

Helvering v. Helmholz, 296 U.S. 93, 98 (1935) ........ 12

Helvering v. Stuart, 317 U.S. 154, 161 (1942) ......... 12

Hemphill v. Orloff, 238 Mich. 508, 512-516,

RR ie, Aa Rr ee 26

Hendrickson v. Voss, 115 Mich 57, 59 (1897 ......... 19

Hobson v. United States, 163 F.Supp 117

ee Er Se ag ea ao vs 13, 25

Hockley v. Zent, Inc., 89 F.R.D. 26, 30

ob OE eo eo ew ois 6a Vio eels hae sas 20

Hopson v. Payne, 7 Mich 334, 340 (1859) ........... 18

Hughes v. Comm., 153 F.2d 712, 713 (Sth Cir. 1946) .... 19

Hutchinson v. Poyer, 78 Mich 337, 340 (1889) ........ 23

In re Bidlofsky, 57 B.R. 883, 898 (BR ED MI, 1985) ... . 23

In re Butterfield Estate, 418 Mich 241, 251 (1983) ..... 15

In re Long Distance Telecomm. Lit., 831 F.2d 627

IOS eee eG a 28

In re Maloney Trust, 423 Mich 632, 639 (1985) ....... 26

In re Monarch Industries, Inc., 609 F.2d 117

eee ee a sc 54 ea 80 13

In re National Specialty Co., 213 F.2d 509

a in nara a ea a 18

In re Otis & Edwards, P.C., 115 B.R. 900, 911

an eer Rae Re aah pai a a 22

In re Prestige Spring Corp., 628 F.2d 840, 842

IR hee ina aa 23

J. William Frentz, 44 T.C. 485, 490-491,

aff'd 375 F.2d 662 (6th Cir. 1967) ........... 20, 21

Jaffe v. Ackerman, 279 Mich. 304 (1937) ........... 24

John A. Parks Co. v. Discount Corp., 294 Mich 316,

Se ho hs i sy as win wee st 24, 25

Vili

TABLE OF AUTHORITIES - Continued

Page

John Ownbey Co., Inc., v. C.I.R, 645 F.2d 540, 546

et rr ima © a

Johnson v. Barton, 251 F.Supp. 474, 475-476

, 2 SS ery re re ee ree 18

Johnson v. Comm., 78 T.C. 882, 890-891,

aff’d 734 F.2d 30 (9th Cir. 1984) ............... 25

Kalamazoo Spring & Axle Co. v. Winans & Co.,

gf ee fe eee eee 24

Kennedy v. C.I.R, 671 F.2d 167, 174 (6th Cir. 1982) .... 19

Kester v. Adams, 85 F.2d 646, 649 (9th Cir. 1936),

Ss et a es a es eka a ee 22

Kline v. Kline, 104 Mich.App. 700 (1981) ........... 25

Lackawanna Pants Mfg. Co. v. Wiseman, 133 F.2d 482,

Cl re Or rer ee 23

Lenny v. Williams, 143 F.Supp. 29, 34 (ND OH. 1956) .. 28

Leoni v. Rogers, 719 F.Supp. 555, 569 (ED MI. 1989) ... 23

Lettinga v. Agristor Credit Corp., 686 F.2d 442, 446

Rw RR. RR Ray 9 ae 25

Levenson & Klein, Inc., 67 T.C. 694, 718 (1977) ....... 25

Linke v. Goodrich, 30 Mich.App. 228 (1971) ......... 22

Lloyd Corp. v. Tanner, 407 U.S. 551, 570 (1971) ...... 30

Lovell v. Denison, 171 Mich 599 (1912) ............. 23

Loving Savior Church v. United States, 556 F.Supp. 688,

690-691 (D SD 1983),

aff'd 728 F.2d 1085 (8th Cir. 1984) .........., 20, 21

Mack v. Bank of Lansing, 396 F.Supp. 935, 942

eee Ie are ree am ae

Mackinac Island Carriage Tours, Inc. v. C.1.R.,

419 F.2d 1155, on rem. 455 F.2d 98 (6th Cir. 1972) . 27

Madden v. Mac Sim Bar Paper Co., 163 F.2d 974

(6th Cir. 1939), cer. den. 308 U.S. 556 ........... 25

Madorin v. Comm., 84 T.C. 667, 669 (1985) .......... 12

Mallery v. Van Hoeven, 332 Mich 561, 563 (1952) .. 24, 26

Markosian v. Comm., 73 T.C. 1235, 1243 (1980) ...... 17

Mason v. Mason, 296 Mich 622, 296 N.W. 703, 705 (1941) 21

Matter of Daben Corp., 469 F.Supp. 135, 142-143 (1979) 27

Matter of Palmer Trading Post, 695 F.2d 1012, 1016-1019

og: Re Pee ree eee ee Pr nr 24

May v. Comm., 723 F.2d 1434 (9th Cir. 1984) ........ 26

emiciiniied

TABLE OF AUTHORITIES - Continued

Page

McDonald v. Robertson et al., 104 F.2d 945

EM a-ha tan 6 ns gin tg Ue dk Gon Grn 19, 27

McDowell v. Safeway Stores, Inc., 753 F.2d 716, 717

ER oe ea ert, Ca tari Bree 11

Michigan Trust Co. v. Adams, 109 Mich 181, 182 (1896) . 22

Michigan Trust Co. v. Herpolsheimer, 256 Mich 589

SS eather hale ci ee oars BoP eV ara 27

Miller v. Beadle, 65 Mich 643 (1887) ............... 21

Mullane v. Central Hanover Tr. Co., 339 U.S. 306,

ae ee a a an 28

Nicholson v. Scott, 50 F.Supp. 209, 212 (ED MI. 1943) 21, 23

O'Hare v. U.S., 878 F.2d 953, 955 (6th Cir. 1989) ..... 13

Oppenheimer Fund Inc. v. Sanders, 437 U.S. 340 (1978) . 20

Otte v. Landy, 143 F.Supp. 893, 897, 898 (ED MI. 1956),

aff'd 256 F.2d 112 (6th Cir. 1958) ........... 22, 24

Palmer v. Mason, 42 Mich 146, 150 (1879) ....... 18, 21

Pree v. U.S., 421 U.S. S50 CISTS) «www eee 28

Pogodzinski v. Kruger, 44 Mich 79, 80 (1880) ........ 21

Powell, Inc. v. Abney, 83 F.R.D. 482, 487

Eg ee Pe Serer rane

Preston's Estate v. Comm., 187 F.2d 531 (2d Cir. 1951),

og 8 > Pe ea ane ae 15

Provident National Bank v. United States,

325 F.Supp. 1187, 1191 (ED PA. 1971) .......... 25

Rand v. Helvering, 116 F.2d 929, 932 (8th Cir. 1941) ... 18

Reilly v. Pinkus, 338 U.S. 269, 276 (1949) ........... 21

Reinecke v. Trust Co., 278 US 339, 346 (1929) ........ 26

Reynolds v. C.1.R., 861 F.2d 469, 473-474

I I ar oe a en a a oe ce 6 wre a ai 28

Rhodes-Jennings Furniture Co. v. Comm., 9 TCM 1019,

aff'd per cur. 192 F.2d 1022 (6th Cir. 1951) ....... 21

Robert Leslie Bowlin, 31 T.C. 188, 208,

aff'd 273 F.2d 610 (6th Cir. 1960) .............. 22

Roland P. Place, 17 T.C. 199, 203,

alr G 199 ©.26 37s (ome Cee, 1952) ..... 2... wees 27

Rose v. Union Guardian Trust Co.,

300 Mich. 73, 76-78 (1942) ...............2... 26

Rossman v. Hutchinson, 289 Mich 577, 594 (1939) .. 21, 23

Rothschild v. Dickinson, 169 Mich 200, 206 (1912) ..... 26

TABLE OF AUTHORITIES - Continued

Page

Rothstein v. United States, 735 F.2d 704, 709-710

EN I ek argh wer C nnn i he aie alana: Ace a 12

Schaupeter v. Schaupeter, 317 Mich O46, 2 (CiI947) ws

Schreyer v. Scott, 134 U.S. 405, 409-412,

DS bE Dad, Dat eee CLGEP) ww cw eee 22

Simmons v. United States, 308 F.2d 938, 945

Cn MN Sas Oe ia ae Gt ya ASA ee a me 28

Simon J. Murphy Co. v. Comm., 231 F.2d 639, 644

i ne ee Se ee 25

Smith v. CLR. 926 F.2d 1470 (6th Cir. 1991) 2.2... .. 29

Smith v. CILR., 937 F.2d 1089 (6th Cir. 1991) 2.2.20... 18

Smith v. Northern Mich. Hospitals, Inc., 703 F.2d 942,

951 n. 19 (6th Cir. 1983) li ca co Seen Ge A ee oe ee

Smith v. Royal Ins. Co., 111 F.2d 667, 670 (9th Cir. 1940) 27

Soloman v. Wstrn Hills, 110 Mich.App. 257 (1981). .... 25

Sorenson v. Sorenson, 69 Mich. 351 sles Apeciete 1a Aa 24

Sparks Farm, Inc., TC Memo 1988-492 eT . 26

Speiser v. Randall, 357 U.S. 513, 529,

78 S.Ct. 1332, 1344 (1953) 29

Spiegler v. Wills, 60 F.R.D. 681, 682 (SD NY. 1973) 23

St eg Union Trust Co. v. United States,

7 F.2d 1293, 1301 (8th Cir. 1980) 13

Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986) 28

Stamp v. Steele, 209 Mich 205, 210 (1920) 26

Stanley J Wolfe, TC Memo 1984-446 26

Stonega Coke & Coal Co. v. Commissioner, 57 F.2d 1030,

1031 (3d Cir. 1932) 13

Suhr v. Comm., 126 F.2d 283, 287-288 (6th Cir. 1942) 26

Sun Properties v. United States, 220 F.2d 171, 174

(Sth Cir. 1955) 25

Sweet v. Shreve, 262 Mich 432 (1933) 22

T.V.A. v. Exxon Nuclear Co., 753 F.2d 493

(6th Cir. 1985) 27

Tel-Craft Civic Ass'n v. Detroit, 337 Mich 326, 30 (1953) 19

Thatcher v. Detroit Trust Co., 288 Mich 410, 415 (1939) . 22

Thompson v. Auditor General, 261 Mich 624, 654 (1933) . 30

Thompson v. Comm., 631 F.2d 642 (9th Cir. 1980) 19, 2]

Tyson v. Comm., 212 F.2d 16 (6th Cir. 1954) 22

U.S. v. Byrum, 408 US 125 (1972) 26

U.S. v. Carlson, 61-1 USTC (ND IL. 1961) 13

TABLE OF AUTHORITIES - Continued

Page

U.S. v. Davidson, 115 F.2d 799 (6th Cir. 1940) ....... 26

U.S. v. General Motors Corp., 929 F.2d 249, 252-253

I kw ww... 22, 25

U.S. v. Rode, 749 F.Supp. 1483, 1493 (WD MI. 1990) ... 22

OE 13

U.S. v. Walton, 909 F.2d 915 (6th Cir. 1990) ......... 29

Union Guardian Trust Co. v. Building Securities Corp.,

Ne ew eee 26

United States v. Adams Bldg. Co., Inc., 531 F.2d 343

United States v. Baker, 807 F.2d 1315 (6th Cir. 1986) ... 21

United States v. Brown, 86 F.2d 798 (6th Cir. 1936) .... 28

United States v. Cabbage, 430 F.2d 1037

De et te we ee 21

United States v. Certain Parcel of Land, 466 F.2d 1295

EE 20, 25, 28

United States v. Creel, 711 F.2d 575, 579

(Sth Cir. 1983), cer. den. 464 U.S. 1044 ...... eee:

United States v. Diamond, 142 F.Supp. 441, 443

EE 13

United States v. Gypsum Co., 333 U.S. 364, 395

Teen eee eee eee 17

United States v. Lucienne D‘Hotelle, 558 F.2d 37, 43

og errr

United States v. Mandel, 377 F.Supp. 1274, 1277

I 13

United States v. Motsinger, 123 F.2d 585, 589

et eee ecu ae

United States v. Oklahoma, 261 U.S. 252, 260-261

tt ce ee 23

United States v. Press Wireless, 187 F.2d 294, 295

EE . 22-23

United States v. Proctor & Gamble, 356 U.S. 676

De kt te 21

United States v. Ressler, 433 F.Supp. 459, 463

(SD FL. 1977), aff'd 576 F.2d 650 (Sth Cir. 1978) .. 22

United States v. Rodgers, 461 U.S. 677, 715 (1983) ..... 25

United States v. Schroeder, 242 F.Supp. 430, 434-436

I 22, 23-24

TABLE OF AUTHORITIES - Continued

Page

United States v. Schroeder, 348 F.2d 223, 225

Cs Gas SE ce cae ea ee kee

United States v. Spreckels, 50 F.Supp. 789, 791

ee Se, Se So ce Aare ae a ee oes win ake 13

United States v. Tyrell, 218 F.Supp. 733, 737

(SD IL. 1963), aff'd 329 F.2d 341 (7th Cir. 1964) ... 13

United States v. Wynshaw, 516 F.Supp. 785, 788-789,

aff'd 697 F.2d 85 (2d Cir. 1983),

OOr Gk See ae ee os ea kee eee es 28

Universal Camera Corp. v. Labor Bd., 340 U.S. 474,

yt, Se ee ny a Ok Ke ee ke eek 19

Van Zandt v. Comm., 341 F.2d 440, 444

Pr ere a 25

Vnuk v. Comm., TC Memo 1979-164, aff'd 621 F.2d 1318

be ee PS ee ee ree ree 17

W. F. Strasburger, TC Memo 1962-255, aff'd 327 F.2d 236

Re EE i heh) Sa a ey Perera 21

Wait v. Kellogg, 63 Mich 138, 144-145 (1886) ........ 23

Walsonavich v. United States, 335 F.2d 96, 101

Ce Se ee ee a ee ws x ne sk es 28

Watzel v. Beardslee, 289 Mich 522, 526 (1939) ........,22

Weeks v. Sibley, 269 F. 155 (D. TX. 1920) ........... 25

Weir v. C.I.R, 283 F.2d 675 (6th Cir. 1960) .......... 29

Weiss v. Chrysler Motors Corporation, 515 F.2d 449,

err Ge aay I so kk we a kek eee ee 20

Wentworth v. C.I.R., 510 F.2d 883, 885 (6th Cir. 1975) .. 25

Wesenberg v. Comm., 69 T.C. 1005 (1978) ........... 14

White Tool & Machine Co. v. Comm., 677 F.2d 528

I Rn ae ee ee eat ok ek ha San gs 25

Wood Corporation v. Delaware, 22 BTA 1182, 1186,

aff'd 63 F.2d 1023 (6th Cir. 1933) .............. 18

Wright v. Brown, 317 Mich 561, 571, 574 (1947) ...... 23

Zimmerman v. Feldman, 217 Mich 390, 399 (1922) ..... 23

Zubik v. Zubik, 384 F.2d 267, 270 (3rd Cir. 1967),

oe ee re ee eee 24

S8th St. Plaza Theatre, Inc. v. Comm., 16 T.C. 469,

aff'd in part 195 F.2d 724 (2d Cir. 1952) ......... 25

United States Constitution:

sk ee er ere 2, 4, 19, 30

TABLE OF AUTHORITIES - Continued

Page

Statutes:

Internal Revenue Code of 1954 (26 U.S.C.)

EE ere 1]

re ny rn ne 11

ee 3, 26

omens G7 NG77 1... ww ce can 3, 12, 26

| a re 2, 12, 13, 28

eet J... PERRO eer ee 2, 28

aa y ig me ee

State of Michigan (Michigan Compiled Laws) (“MCL”)

I MI nk Av aks be eb ke a eee 12

Section 449.28 (Uniform Partnership Act) . 3, 12, 18

Eg oe Woks bo ale ee ee ee 23

MUI ok x whan lnceta uk a Gok mow 2, 12, 22

ky ee 3, i2, 23

UE ED one ks ke ee kecuwewcna. 15

UIE ooo o's eck sc kwh od oan a ae

Treasury Regulations (U.S. Internal Revenue Code)

Section 301.6335-l(a) ...............0--.-. 28

Section 301.7701-4(a) and (b) ......... F-24, 3, 12

Federal Rules of Evidence

eet oN aa wie eee beau 17

ag Ra a nee 17

tare ee bg Cee ed are 17

I rr ry ee 17

Federal Rules of Civil Procedure

Mute (6) and (f) .. 2... cee ee 3, 23

RS re ews 20

TABLE OF AUTHORITIES - Continued

Other Authorities: Page

Bogert, The Law of Trusts and Trustees (“Bogert”)

ed ew wc ak beau w ek ca 25, 26

SE re ea re ee ee 24, 26

INS ora an na an oe ts (i 26

X1V

Scott, The Law of Trusts (“Scott”)

Vol. 1, Sect 2. aoe ves 6 eee ere 25

Vol. 1, Se Bi. a eee eee 24, 26

Vol. 1, Seg Aaa ee 5 al Pei wn ee ee 24, 26

Vol. UA, Gee Se aca nee luee eee ee ae 26

Vou. EE, SOC FP. Re ac ex ee cae es 26

Restatement of Trusts, Second (“Restatement”)

ON 2 Be 6 6 Aca eee ee ed 24, 26

OU. eck ki eae ee ee ee eer 26

soctions Dim. £82,: 090 2 oie eh ex aene week 26

3 Cavitch, Business Organizations

Re a . ee 26

Am.Jur. PROOF OF FACTS (“POF”)

Section I:270 “Presumption” pps. 708-710 ...... 18

13 POF “Delivery of Deeds”,

Section 3, p. 485, Section 21, p. 494 ....... 27

37 Am.Jur.Z2d

Section 8, “Fraudulent Conveyances”, p. 699 .... 21

62A Am.Jur.2d

Sections 50 and 73 “Pretrial Orders”

SOR. Fad, SIP ES 5h tk eee See ek 20

76 Am.Jur.2d

wocten 19... Ol «6.05 64a eee ee FN 26

Jones On Evidence, 1972, 6th Ed.

Vou. 2, Sactih 3.00, Modes cae ee eee os 18

Wigmore, Evidence in Trials at Common Law, 1981 Ed.,

Vol. 9, Sectiqns Q0ne. wee fo vi kk cee ee ee 19

Williston, A Treatise on the Law of Contracts, 3d Ed.,

Vol. 1, Section 10, OG. ZPFe cc eee et ae 14

Vol. 4, Section 620, pps. 747-750 ............ 27

Vol. 14, Section 1630, p. 15, Section 1630A .... 14

No.

In The

Supreme Court of the Gnited States

October Term, 1992

WILLIAM L. COMER FAMILY EQUITY PURE TRUST,

AMERICAN WAY TRUST,

FINANCIAL FREEDOM CONSULTANTS,

OSA DEVELOPMENT COMPANY,

BURICA DEVELOPMENT COMPANY,

Petitioners,

Vv.

INTERNAL REVENUE SERVICE, and

UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Petitioners Wiiliam L. Comer Family Equity Pure Trust,

American Way Trust, Financial Freedom Consultants, Osa

Development Company and Burica Development Company, by

their undersigned counsel, respectfully petition for a writ of

certiorari to review the opinion and judgment of the United

States Court of Appeals for the Sixth Circuit in this case.

OPINIONS OF THE COURTS BELOW

The opinion of the United States Court of Appeals for the

Sixth Circuit (App. A, 1-5) is unpublished. The Court of

Appeals’ denial (App. D) of Petitioners’ Motion for Reconsider-

ation is unreported. The opinion of the United States District

Court (App. B, 1-18) is reported at 732 F.Supp. 755. The final

judgment of the District Court (App. C) is unpublished.

NS eee SS... rm

JURISDICTIONAL STATEMENT

The judgment of the court of appeals was entered on June 22,

1992 (App. A, 1), and a timely motion for reconsideration was

denied on July 30, 1992 (App. D). The jurisdiction of this Court

is invoked under 28 U.S.C. § 1254(1) (1988).

CONSTITUTIONAL AND STATUTORY

PROVISIONS, RULES AND REGULATIONS

1. The Fifth Amendment to the United States Constitution

provides in pertinent part:

No person shall . . . be deprived of life, liberty, or pro-

perty without due process of law... ..

2. Section 6502(a) of the Internal Revenue Code provides in

pertinent part:

Where the assessment of any tax imposed by this title

has been made within the period of limitation properly

applicable thereto, such tax may be collected by levy .

. but only if the levy is made

(1) within 6 years after the assessment of the tax .. .

3. Section 6322 of the Internal Revenue Code provides in

pertinent part:

[T]he lien imposed by section 6321 shall arise at the

time the assessment is made and shall continue until the

liability for the amount so assessed . . . is satisfied or

becomes unenforceable by reason of lapse of time.

4. Section 6335(a) of the Internal Revenue Code provides in

pertinent part:

As soon as practicable after seizure of property, notice

in writing shall be given by the Secretary to the owner

of the property ...

5. Section 566.12 of the Michigan Compiled Laws provides:

A person is insolvent when the present fair salable value

of his assets is less than the amount that will be required

to pay his probable liability on his existing debts as they

become absolute and matured.

ee &

6. Section 566.17 of the Michigan Compiled Laws provides

in pertinent part:

Every conveyance made and every obligation incurred

with actual intent, as distinguished from intent presumed

in law, to . . . defraud either present or future creditors,

is fraudulent as to both present and future creditors.

7. Section 600.5813 of the Michigan Compiled Laws

provides:

All other personal actions shall be commenced within

the period of 6 years after the claims accrue and not

afterwards unless a different period is stated in the

Statues.

8. Rules 9(b) and (f), Federal Rules of Civil Procedure, pro-

vide in pertinent part:

(b) In all averments of fraud . . , the circumstances

constituting fraud . . . shall be stated with particularity.

(f) For the purpose of testing the sufficiency of a plead-

ing, averments of time and place are material and shall

be considered like all other averments of material matter.

9. Sections 301.7701-4(a) and (b) of the Treasury Regula-

tions are provided in the Appendix, at F-24, in their entirety.

10. Sections 671-677 of the Internal Revenue Code specify

when the income (or ownership) of a Trust may be attributed to

the Grantor, and, Section 671(a) provides, in pertinent part:

No items of a trust shall be included in computing the

taxable income and credits of the grantor or of any other

person solely on the grounds of his dominion and

control over the trust. . .

11. Section 449.28 of the Michigan Compiled Laws, provides

in pertinent part:

On due application to a competent court by any judg-

ment creditor of a partner, the court . . . may charge the

interest of the debtor partner with payment of the un-

satisfied amount of such judgment debt with interest

thereon; ...

STATEMENT OF THE CASE

This case presents a fundamental and recurring issue

today in the administration of the federal income tax laws -

namely, what laws and principles should be applied in determi-

ning whether third parties, such as petitioners, may be deemed

alter egos of the taxpayers. As the statutes and cases hereinafter

discussed illustrate, the context in which this issue arises affects

a multitude of taxpayers who have established family and busi-

ness trusts for estate planning and business purposes for the

benefit of their children.

It would be extremely difficult to find a case where key

overall facts were more misconstrued or basic laws more ignored

than in the instant action. The District Court’s decision was

based primarily on new allegations and theories raised by the

Internal Revenue Service in its amended post-trial brief, and, is:

(a) contrary to the weight of documented and testimonial evi-

dence submitted to the court; (b) contrary to both State and

Federal law; (c) in conflict with the holdings of other Circuits;

and (d) constituted an abuse of discretion which violated Peti-

tioners’ Due Process and Fifth Amendment rights. The decision

is already being quoted by the IRS as a new avenue of attack on

legitimate trusts utilized for estate planning purposes.

1. Material Facts. On January 17, 1975, taxpayer

William L. Comer (“W. Comer”), as the grantor, and Myra L.

Comer (“M. Comer”) and Phyllis Carrow, as trustees, estab-

lished the William L. Comer Family Equity Pure Trust (“Comer

Trust”) (D.Ex. 6),' and, on January 24, 1975 he was also

appointed a trustee. (TR. 34) W. Comer transferred to the trust

real estate, certain personal assets and his dried food business

(involving 12 sales representatives) (D.Ex’s. 7-11; TR 10-12, 49,

43) conducted under the name of Constitution Enterprises and

operated from the transferred premises (“3261 Property”). (7R

12, 151) On April 2, 1975 W. Comer executed irrevocable docu-

ments restricting his relationship to the Trust (R.3: Ex. M; TR

1 “D.Ex.” references are to Defendants’ Exhibits. “TR.” refers to the Trial

Transcript. “P.Ex.” references are to Petitioners’ Exhibits. “R.,” “R.3 Ex.” and

“R.3 Aff.” references are to Petitioners’ Exhibits and Affidavits attached to the

Complaint and/or filed with the District Court. “AB” references are to Petition-

ers/Appellants’ Bnef. “ARB” references are to Petitioners/Appellants Reply Brief. |

“ABr.” references are to Defendants’ Brief of March 10, 1992.

eer ceil

153) and, on May 17, 1976, the Comer Trust was amended to

insure that it was irrevocable. (D.Ex. 12; TR 60) The beneficia-

ries of the Comer Trust were the Comer’s four children and a

tax-exempt foundation. (TR 29, 79-82)

After the January 1975 conveyances to the Comer Trust,

W. Comer still personally owned a 1974 Ford Thunderbird, 1974

Dodge Maxi-Van, 1935 Buick antique coupe, 1957 Pontiac clas-

sic coupe, several firearms, a personal checking account, and

other personal effects. (TR 47, 44, 55, 59, 74, 126, 138)

The original Comer Trust instrument was not a con-

veyance document and the assets it received were conveyed

under separate deed, assignment of land contract and bill of sale.

(D.Ex's. 7-11; TR 10-12, 49, 43) While this instrument stated

that the trustees’ “purpose” was to receive assets including the

“exclusive use” of W. Comer’s “lifetime services,” (D.Ex. 6; TR

37) W. Comer testified that: (a) this did not “mean that in the

conventional sense” because he “didn’t work for” anyone else

and that his income came “originally from the Family Trust for

running the Constitutional Enterprises business” (TR 37-38, 14 );

(b) he had “employment contracts with everyone (he) did work

for”, including the Comer Trust (7R /4, 19, 95-96); and (c) after

the Comer Trust was “amended in *80” any such agreement was

void “because the Courts . . . ruled you can’t convey lifetime

services to a Trust, so it’s not a valid contract”. (TR 38) W.

Comer also testified that his compensation was based upon what

the trustees “figured (he) was worth for the amount of time (he)

was putting in” managing the Trusts’ business activities and was

kept on the low side so as not to “violate (his) fiduciary

responsibility”, and, that there was a “reduction in (his) compen-

sation” and “there wasn’t anybody” else who would work as

many hours for such compensation. (TR 90, 92)

On October 30, 1976, to reduce its liability exposure, the

Comer Trust created TRYE-A Trust (“TRYE”) (an irrevocable

business trust, previously operated as a d/b/a), transferring to

TRYE its sales business including marketing agreements with 90

sales representatives (D.Ex’s. 13, 14; TR 61-63, 65-67, 80; TR

17, 62), with the Comer Trust as TRYE’s sole beneficiary. The

Comer Trust’s premises were then leased to TRYE. (TR 51-52)

On December 1, 1978, the trustees for the Comer Trust

purchased real property at 9260 Colonville Rd (“9260 Property”),

subsequently constructing new facilities on such premises. (D. Ex.

19; R3: Ex’s. T-Z; TR 12-13, 20, 76-77) On January 1, 1980

TRYE terminated its lease for the 3261 Property and executed

a new lease for the 9260 Property. (D.Ex. 20; TR 78-79, 81)

On August 19, 1990, the County Probate Court Ordered

an amendment of the Comer Trust instrument. The amendment

was executed by the Trust’s grantor, its trustees and all adult

beneficiaries and provided that it: (a) did “not create a new

Trust”; (b) did “not defeat the rights of any present OR future

interests of any of the beneficiaries”; (c) was “to further provide

additional restrictions as to (W. Comer)”; (d) “supersedes and

takes full precedent over” the original trust instrument. (D. Ex.

22; TR 95, 103-104)

On July 5, 1980, William Roy Comer (“W. R. Comer”),

the Comers’ son, executed a written Acceptance as a co-trustee

of the Comer Trust. (D.Ex. 16; TR 7/) On January 2, 1982, W.

Comer resigned as a trustee. (R.3: Ex. R; TR 10, 14) On Dec. 1,

1982, the Comer’s son Scott C. Comer (“S. C. Comer”) was

appointed as co-trustee of the Comer Trust. (R.3: Ex S; TR 14)

On August 27, 1980, the Probate Court Ordered the

amendment of TRYE'’s trust instrument (which contained pro-

visions similar to the Comer Trust), said amendment being exe-

cuted by the Comer Trust as grantor, its trustees, and the Comer

Trust as TRYE’s sole beneficiary. (D.Ex. 24; TR 103-105)

On September 19, 1981, the trustees for the Comer Trust

sold part of its 3261 Property to B. Benchley (D.Ex. 25; TR

105), and, on May 14, 1982 the Comer Trust’s remaining 3261

Property was sold to C. Koehn. (D.Ex. 30; TR 19, 113-114)

For the years 1972-1974, the Comers were required to pay

little or no taxes. (R.3: Ex’s. EE, FF, GG) The purpose of the

Comer Trust was to protect its assets for their children (who reg-

ularly received distributions) (R3 Aff; R3: Ex’s HH-LL), by

avoiding probate, death taxes and joint ownership problems. (7R

1], 35) Its expenses consisted of land contract and mortgage pay-

ments, real estate taxes, and liability insurance. (TR 15, 145-147)

On January 18, 1977, W. Comer, as Grantor, with M.

and W. R. Comer, as trustees, established the American Way

Trust (“American”) (a Michigan bsiness trust) (D.Ex. 15; TR

68-69), with the Comer’s four cin. as the primary benefi-

ciaries and who regularly received distriuctions from American.

(R3 Aff; R3: Ex's. RR-VV, YY-ZZ; TR 36) On January 19,

1977, W. Comer was appointed as a co-trustee of American. (TR

72, 75; R. 37, No. 14; D.Ex’s. 18, 16, 23; TR 10; R.3: Ex. WW)

On January 19, 1977, W. Comer conveyed to American

a 1977 Buick Riviera, a 1977 Dodge Van, and a personal note

for $5,378.40 representing a lien against said vehicles. (D.Ex.

17; TR 73) On January 19, 1977, by written agreement Ameri-

can leased to TRYE these vehicles for a fair monthly fee.

Various vehicles were subsequently purchased by American, and

then leased to TRYE and Financial Freedom Consultants

(“FFC”). (D.Ex. 18; TR 74-76; R.3: Ex’s. RR-VV; TR 17, 69,

149) Family members were prohibited from driving any business

vehicles. (TR 151) W. Comer always maintained a personal

vehicle, in November 1980 leasing a 1974 Mustang from

American to replace his 1974 Thunderbird and in January 1984

leasing a 1979 Oldsmobile to replace the 1974 Mustang. (7R

135-136, 152, 124, 126-127, 138)

While W. R. Comer was an initial trustee of American,

he resigned shortly after its creation (TR 72), but, was reap-

pointed as a co-trustee on July 5, 1980. (D.Ex’'s. 16; TR 102) On

June 1, 1981, W. Comer resigned as a trustee of American

(D.Ex's 16; TR 10), and, on December 1, 1982, S. C. Comer

was appointed as a co-trustee of American. (D.Ex’s. 16)

American was created for the express purpose of esta-

blishing an auto leasing entity for the benefit of the Comers’

children and to reduce the family’s liability exposure due to W.

Comer’s extensive business travels. (TR 16, 69)

On August 27, 1980, the Clare County Probate Court

issued an Order approving the amendment of American’s trust

instrument and which contained provisions similar to the Comer

Trust, said amendment being executed by American’s grantor,

its trustees, and its adult beneficiaries. (D.Ex. 23; TR 102-104)

The 1980 amendments to the three Trusts involved a re-

statement of each entire trust instrument and did not provide that

W. Comer would become the sole beneficiary. Under Order of the

Probate Court, the trusts were amended on the basis that they

did “not defeat the rights of any present OR future interests of

any of the beneficiaries” and did “provide additional restrictions

as to” W. Comer. (D.Ex's. 22, 23, 24; R3 Aff’s; TR 103-104)

On February 1, 1982, W. Comer, as grantor, with W.

Comer and S. C. Comer as trustees, created FFC, a business

trust, (D.Ex's. 28-29; TR 108, 112-113) for the purpose of

publishing and distributing a book entitled “Avoiding the High

Costs of Dying.” (R3 Aff; TR 16-17, 80) The sole beneficiary

of FFC was the Comer Trust. (D.Ex's 28; TR 110-111)

W. Comer always executed written Employment Agree-

ments governing his compensation with each entity, whether the

Comer Trust (TR 14, 19, 95-96), TRYE (D.Ex. 21; TR 87, 89,

9], 93-94) or FFC (TR 26, 89-90, 94), for the business sales and

distribution services he, aided by others, rendered to such trusts.

Each trust: (a) obtained its own taxpayer identification

number; (b) filed its own income tax returns (D.Ex’s. 34-43;

R3: Ex’s. T, RR-VV, YY-ZZ, BBB-DDD; TR 12, 18); (c) main-

tained its own bank account and financial records (D.Ex's. 32;

R.37; TR 14, 47-48, 66, 113, 120-121); (d) conducted business

and made investments under its own name (D.Ex's. ]8-20, 27,

30-32; R.3: Ex’s. T-Z, RR-VV, BBB-DDD, GGG, JJJ, KKK; TR

105, 107, 113-114, 116, 120-121, 148); (e) obtained loans in its

own name (D.Ex’s. 31; TR 151-152); and (f) FFC maintained its

own telephone. (7R 123) Newly appointed trustees were added,

and resigning trustees deleted, from the appropriate trust ac-

counts, as applicable. (D.Ex’s. 32; R3 Aff; TR 14, 47-49) W.

and M. Comer always maintained separate personal records and

hank accounts. (TR 47-49) Lenders occasionally requested that

W. Comer, just as with corporations, serve as a co-signor on

some trust loans. (D.Ex. 3]; TR 120) All trust instruments stated

that they were irrevocable and could not be altered. W. Comer’s

sole relationship with all trusts was in a fiduciary capacity. (R.3:

Ex’s. M; D.Ex’s. 12, 22-24; TR 13-14, 23, 60, 95, 102, 104-105,

152-153) Since 1976, the Comer Trust's premises, including fur-

nishings, were always leased to TRYE (D.Ex. 20; TR 78-79, 81)

or FFC (TR 51-52, 81, 109, 152) for business purposes. The

Comer Trust did not provide its premises rent-free to the

Comer’s nor did any Trust pay his or his family’s personal or

automobile expenses. (TR 14-15, 18-19, 25, 135-136, 151-152)

Osa Development was created as a Michigan Limited

Partnership funded by 20 investors, with W. Comer and David

Bennett as trustees for Osa Explorations, a Michigan business

trust serving as General Partner. (R.3: Ex’s. EEE, FFF, GGG)

Burica Development was established as a Michigan Limited

Partnership also funded by 20 investors, with W. Comer and

David Bennett as trustees for Burica Explorations, a Michigan

business trust serving as General Partner. W. Coiner held no

financial interest in Osa or Burica. (R3: Ex’s. HHH, Ill, JJJ,

KKK) Plaintiffs’ amended Complaint stated that Osa and Burica

were “separate legal entities” and the owners of their seized

“bank accounts”. (R. 15) IRS agreed that all properties levied

upon were “titled or held in the names of . . . Plaintiffs.” (R28:

D.Ex. 32) Shortly after seizure Osa and Burica’s bank accounts,

the IRS issued notices that its 3-year audits of such limited

partnerships were completed and that their income tax returns

were being accepted as filed. (R3 Aff’s.)

For the years 1976-83, the IRS executed stipulated deci-

sions with the U.S. Tax Court that the Petitioners were not liable

for any additional taxes. (R45; TR 20-21; R.3: Ex’s AA-DD,

WW-XX; P.Ex’s. 60, 61) Taxpayer's only outstanding liabilities

at issue were for the years 1976-80, 1985. (D.Ex’'s. 56, 57)

On October 19, 1984, the Comer’s were served by the

IRS with a lien (recorded at the County Recorder’s Office) for

the years 1977-1979, and which listed the assessment dates as:

7-17-78 for 1977; 7-23-79 for 1978; and 7-28-80 for 1979.

(P.Ex. 1; TR 24)

On February 12, 1987, the Comer Trust was served with

a Levy and Notice of Seizure on its 9260 property, and, the

Farwell Bank and Great Lakes Savings & Loan were served

with Notices of Levy on Petitioners’ bank accounts. (D.Ex’s. 56,

57) The levies and seizures, Interrogatories and Joint Pretrial

Order executed by IRS listed the sole issue as being whether

Petitioners were “transferees, nominees or alter egos” of the

taxpayers. (R._ 17; D.Ex's. 56, 57; R. 28; R. 35; R. 37: Jensen at

TR #5; Clark at TR 6, 9) The IRS also declared that it was not

challenging “the validity of the formation of the trusts and

partnerships under Michigan law.” (R 35; R 37) Despite

Petitioners’ request, IRS refused to “identify the case ruling and

regulations relied upon to establish Plaintiffs as nominees,

transferees and/or alter egos” of the taxpayers. (R. 28)

2. The Decisions Below - The District Court. After trial

held on June 14, 1989, without notes or a Trial Transcript (ARB,

Ex. R) on February 16, 1990 the district court upheld IRS’ alle-

gation of alter ego status on the basis of the following summa-

rized findings of fact and conclusions of law: (a) the Comer

Trust instrument conveyed W. Comer’s “lifetime services” and

all of his “earned remuneration” to the trust; (b) under the

August 1980 Probate Court ordered amendments, W. Comer be-

came the “initial sole beneficiary of the [three] trust[s]”; (c) one

trust amendment, one building lease, one auto lease and one em-

ployment agreement were improperly signed (App. B at ]10-] 1);

.') Burica and Osa Development Companies failed to present

ev <ance of “any interest in levied-upon property” (App. B at

14), (2) conveyances to the Comer Trust were made “with actual

inten [to] . . . defraud either present or future creditors” (App.

B at 15), after which “the Comers were for all intents and pur-

poses, insolvent” (App. B at 16); (f) the Comers continued to

“use the [Comer Trust and American] property as their own”,

(g) “all transactions between the Comer-created trusts, or

between the trusts and Mr. and Mrs. Comer [were] legal nulli-

ties”; (h) the “grantors, trustees, and beneficiaries of the trusts

are .. . Comer family members”; (i) there was “no convincing

evidence . . . indicating any independent economic purpose for

the existence of any of the trusts”; (j) the trusts’ “sole function

is to manipulate the Comers’ income and assets”; (k) the “expir-

ation of the statute of limitations” argument is irrelevant; (1)

“constructive notice of . . . levy” is sufficient; (m) contention

that the IRS “is precluded from levying upon such property

under the doctrines of res judicata, estoppel, and elections . . .

for the years 1982 and 1983” is “ineffective.” (App. B at 17-18)

In response to Petitioners’ Motion to Modify the District

Court Record because its holdings were based on new allegations

and theories presented for the first time in IRS’s Amended Post-

Trial Brief, the Court issued an Order denying the Motion and

concluding “that defendants raised no new or novel theories after

trial that were not within the parties’ contemplation throughout

pretrial proceedings and throughout trial.” (App. D at 21)

3. The Court of Appeals Decision. Petitioners appealed,

and on June 22, 1992 the court of appeals affirmed, holding that:

(a) the “decision was supported by the evidence and the other

issues on appeal are without merit”; (b) “there was no new issue

raised after trial which was not contemplated”; (c) “each of the

plaintiffs received constructive notice” of seizures; (d) “under

the six-year limitations period . . . the levies were timely served”

(App. A at 3-4); (e) “the stipulation agreement pertaining to

another tax year does not have preclusive effect on this action”;

(f) “finding that the taxpayers engaged in fraudulent conveyanc-

es is not clearly erroneous”; and (g) a “finding of alter ego

erecta enmiaminel

status [is neither] clearly erroneous or contrary to law.” (App. A

at 4) On July 30, 1992, followed by its Mandate of August 10th,

the court issued its Order denying Petitioners’ Motion for

Reconsideration. (App. E at 23)

REASONS FOR GRANTING THE WRIT

I. Introduction.- The district court's decision, affirmed by the

court of appeals, is contrary to the: Rules of Evidence; State and

Federal Statutes; established laws of the State of Michigan; prior

holdings of the Sixth Circuit; and, the holdings of other Circuits

as well as those of this Court. A careful examination of the trial

record reveals that the court’s decision was little more than a

thinly disguised paraphrase of the findings and conclusions in

the IRS’s Amended Post-Trial Brief (R. 46), and, was primarily

based upon issues and theories raised for the first time after trial

to which Petitioners were afforded no rebuttal opportunity. The

court’s are “condemned [for] the ‘mechanical adoption’ of a

party’s proposed findings of fact and conclusions of law.”

McDowell v. Safeway Stores, Inc., 753 F.2d 716, 717 (8th Cir.

1985); Anderson v. Bessemer City, 470 U.S. 564, 572 (1984).

Despite the court’s acceptance of IRS’s “new and novel theor-

ies” raised after trial, which were nof “contemplated” by Peti-

tioners, the decision was based upon the barest scintilla of evi-

dence (much of it misrepresented) covering a 15-year time period

and far from sufficient to uphold the seizures of Petitioners’

properties. Many of the court’s conclusions merely reflected its

personal opinion and were not supported by substantial evi-

dence. The court offered no findings whatsoever as to how

“manipulation” of “income and assets” (App. B at 17) was more

beneficial to the Comers than had corporate or partnership enti-

ties been used. In truth, the only benefit obtained from the trusts

was their distributions of income to the Comers’ children (claimed

as taxable income by them) as provided under JRC §§ 641, 643.

II. Consequences of a Judge-made Exception to State Law

and U.S. Statutes.- Based upon evidence that the decision is

now being used by the IRS as a new avenue of attack on valid

irrevocable trusts, the holding raises the distinct probability that

such actions will become the norm in cases involving trusts

controlled by family members. If left standing, the decision will

create a precedent and will materially conflict with established

trust, contract and property laws in existence for the past fifty

years. Furthermore, it will make a mockery of the Rules of Evi-

dence, Due Process rights to be fully informed of all allegations

to be used against a party at trial, and Statutes of Limitation.

III. Violence Done to the Statutory Scheme.- Treasury Regu-

lations §§ 301.7701-4(a) and (b) provide for recognition of

trusts even though the trustees and beneficiaries are related

parties, and even when they are created for business purposes.

IL.RC. $$ 671-677 provide the sole statutory means whereby a

trust may be attributed to its grantor for income taxation

purposes, as also provided under Michigan law.’ To legally

confer alter ego status upon Petitioners, specific statutory

violations must be alleged and proven, yet none were cited by

the courts. 1 RC. § 6502 limits the IRS’s right to levy and seize

properties to exactly six years. 1 RC. § 6322 provides that IRS

liens are unenforceable by reason of lapse of time (i.e., expira-

tion of the six year period), yet for the years of 1976-1979 the

courts permitted the IRS’s levies and seizures to stand although

obviously executed long after the six year period had expired.

MCL § 566.12 governs the manner in which a person may be

held insolvent. MCL § 566.17 requires that “actual intent” to

defraud present or future creditors must be proven before a

fraudulent conveyance can be found. The courts’ claim of find-

ing sufficient evidence to support both holdings is clearly

erroneous, particularly in light of the fact that IRS made no such

allegations until after trial. MCL § 449.28 provides that a valid

creditor may obtain a “charging order” against a liable partner’s

interest, but may not seize the assets of the partnership itself.

However, the court permitted the IRS to flagrantly violate such

statute even though the IRS had completed audits of the limited

partnerships and accepted their tax returns as filed.

IV. Reasons for Granting Certiorari.-

(a) The Courts holding that the IRS’s levies and

seizures were timely served is contrary to fact and law.- The

courts found that the Feb. 12, 1987 levies and seizures were

2 Michigan Compiled Laws (“MCL”) § 141.628. The “statute makes no other

exceptions. Courts may not invent them.” Hawkins v. Comm., 152 F.2d 221, 222

(Sth Cir. 1945); Rothstein v. United States, 735 F.2d 704, 709-710 (2d Cir. 1984);

Madorin v. Comm., 84 T.C. 667, 669 (1985). State law determines the interests in

trusts, and whether the assets may revest in the grantor. Blair v. Commissioner,

300 U.S. 5, 9-10 (1936); Helvering v. Stuart, 317 U.S. 154, 161 (1942). Any other

method of attributing assets to the grantor “would violate the Fifth Amendment.”

Helvering v. Helmholz, 296 U.S. 93, 98 (1935)

made for “tax years ending 1976 through 1980, and 1985,” hold-

ing that because the assessments could not “be challenged” the

“levies were timely served” under the “six-year limitations

period” provided by 26 U.S.C. § 6502 (App. B at 17; App. A at

3-4), contrary to fact and law. However, the transfers to the

Comer Trust and American were made long before IRS became

a creditor. A tax lien cannot attach to property which the tax-

payer had previously tranferred and which no longer belongs to

him. St. Louis Union Trust Co. v. United States, 617 F.2d 1293,

1301 (8th Cir. 1980); U.S. v. Carlson, 61-1 USTC (ND IL. 1961);

Chamberlain v. Conley, 64-2 USTC (D CN. 1964). A copy of

the IRS’s recorded lien was submitted at trial, without objection,

declaring the official assessment dates for 1977, 1978 and 1979

as July 1978, July 1979 and July 1980, respectively. Once the

assessments are recorded, the liens are perfected. Jn re Monarch

Industries, Inc., 609 F.2d 117 (Sth Cir. 1979). See Hobson, 163

F.Supp. 117, 118 (ED MI, 1958). 1976's assessment was obvi-

ously prior to these dates. See infra, p. 9. In reading IRC §

6322 with IRC § 6502, the years of 1976-1979 automaticaly

lapsed on July 29, 1986, or earlier. The only years for which the

statue of limitations had not run were 1980 and 1985, mandating

removal of the liens and levy and seizure amounts for the 1976-

1979 years.’ Because over six years had elapsed for the years

1976-1979, the decision contravenes the plain language of JRC

§ 6502 and conflicts with all other court of appeals’ interpreta-

tion of this Statute. (U.S. v. Updike, 281 U.S. 489: United States

v. Tyrell, 218 F.Supp. 733, 737 (SD IL. 1963), aff'd 329 F.2d

341 (7th Cir. 1964)), as statute of limitations “are to be intrepre-

ted liberally in favor of the taxpayers.” Bowers v. N.Y. & Albany

Co., 273 U.S. 346, 350 (1926). See, United States v. Motsinger,

123 F.2d 585, 589 (4th Cir. 1941); Stonega Coke & Coal Co. v.

Commissioner, 57 F.2d 1030, 1031 (3d Cir. 1932).

The District Court refused to consider the Petitioners’

challenge to the timeliness of the levies on the grounds that they

were not the “taxpayers” and thus could not challenge the

assessments. The conclusion is inconsistent with the Court’s

3 United States v. Mandel, 377 F.Supp. 1274, 1277 (SD FL. 1974). See,

United States v. Spreckels, 50 F.Supp. 789, 791 (ND CA. 1943). Levy and seizure

actions “must be begun within six years of the assessment.” United States v.

Diamond, 142 F.Supp. 441, 443 (SD NY. 1956). See, O'Hare v. U.S., 878 F.2d

953, 955 (6th Cir. 1989).

overall conclusion that the Petitioners were “alter egos” of the

Comers. The “alter ego” doctrine disregards the separateness of

the parties. The court applied the “alter ego” doctrine in finding

that Petitioners had received “constructive notice” when the levies

were served on Mrs. Comer. This selective recognition of the

separate nature of the Petitioners for purposes of standing to raise

the statute of limitations effectively “whipsaws” the Petitioners.

(b) The courts’ findings were not supported by

substantial evidence.- In their appeal, Petitioners documented

over 20 erroneous findings (App. B at 8-17) that were key to the

court’s adverse decision (AB, items 1-23), including: (1) W.

Comer’s alleged conveyance of lifetime services as “illustrative”

of alter ego. However, this could not have occurred because the

trust instrument clearly was not a conveyance document (See

infra, p. 5) and thus he did not “ignore” a non-existing agree-

ment. Indication that the finding was based on personal opinion

and unsupported allegations was the court’s gross misquote from

IRS’s Amended Post-Trial Brief (R46, p. 2, item 4) rather than

from W. Comer’s true testimony contained in the Trial Tran-

script. (See infra, p. 5) Finding alter ego status because W.

Comer “ignored” a non-existing conveyance, and which prior

courts had long held invalid and unenforceable (Charles J.

Gerlach Family Estate v. Comm., TC Memo 1981-71; Wesen-

berg v. Comm., 69 T.C. 1005 (1978)), is contrary to law as

“illegal agreements . . . may be classed as unenforceable.”

Williston, A Treatise on the Law of Contracts, 3d Ed., Vol. 1 §

16, pps. 29-30; Vol. 14, § 1630, p. 15; § 1630A. (2) Transfer of

all W. Comer’s assets to the Comer Trust rendered him insol-

vent and constituted a fraudulent conveyance. Transfer of house-

hold contents, etc., is not proof that all assets were transferred.

W. Comer’s unrebutted testimony proved that he had retained

several valuable assets in his own name after creation of the

Comer Trust and American, and, was not insolvent nor indebted

to the IRS. See infra, p. 5. His retention of two new, expensive,

motor vehicles was what allowed him to conduct the dried foods

and investment businesses. If he had been rendered insolvent,

W. Comer would have had neither the vehicles, nor funds, with

which he established American in 1977. See infra, p. 7. (3) W. |

Comer’s becoming the sole beneficiary of the trusts at the |

August 1980 amendments. Such findings were contrary to W. |

Comer’s cross-exam testimony and the Probate Court Orders

approving the trust amendments on the basis that they merely

. | iia |

replaced the original instruments and did “not defeat the rights

of any present OR future interests of any of the beneficiaries”.

See infra, pps. 6-8. Michigan Probate Courts have “exclusive

jurisdiction” over trusts. (MCL § 600.5021; In re Butterfield

Estate, 418 Mich 241, 251 (1983); Detroit Trust Co. v. Neu-

bauer, 325 Mich 319, 335 (1949). “Probate court orders are final

orders . . . and are res judicata of the matters disposed of

therein.” Banks v. Billups, 351 Mich 628, 634 (1958). Orders

involving reformation of trusts and trust property interests are

binding on the IRS and Federal Courts. Eisenmenger v. Comm.,

145 F.2d 103, 106 (8th Cir. 1944); Preston’s Estate v. Comm.,

187 F.2d 531 (2d Cir. 1951), aff’g 14 T.C. 139; Darlington’s

Estate v. C.I.R., 302 F.2d 693 (3d Cir. 1962). (4) Inference that

W. Comer was the only signer of the June 1, 1980 TRYE

Employment Agreement. (App. B at 10) However, the Agreement

was signed by both trustees, plus W. Comer as the contractor.

See infra, pps. 5, 8; D.Ex. 21. (5S) W. Comer improperly signed

a vehicle lease agreement as trustee of American. (App. B at 17)

In fact, he was appointed immediately after executing the trust

just as was the case with the Comer Trust and was a co-trustee

when he executed the Vehicle Lease and functioned actively as

such until his resignation in 1981. See infra, p. 7. (6) In 1977,

American leased 1977, 1978 and 1979 vehicles to TRYE. (App.

B at 11) While the original lease was executed on January 19,

1977, under cross-exam W. Comer explained that the later

vehicles were merely added as “written Addenda to the lease”

(D.Ex. 18) with each addition specifying the “lease” date, the

amount of the “monthly” lease fee for each vehicle and the date

that vehicle’s lease was “released” (i.e., terminated). For the

court to use an isolated portion, rather than the document as a

whole, contrary to unrebutted cross-exam testimony, is a gross

abuse of discretion. The record is clear that this lease agrement

was honored by all parties throughout its existence. See infra, p.

7. (7) W. R. Comer’s participation in executing the January 1980

lease agreement between the Comer Trust and TRYE “when he

possessed no such capacity.” (App. B at 17) While he did not

execute his written Acceptance as a co-trustee until July 5, 1980,

W. R. Comer had verbally agreed to serve as such and joined

with the other parties at the first of the year. Even, arguendo, if

his signature was improper, it did not invalidate the building

lease which was honored by all parties until it was terminated.

See infra, p. 6. (8) W. R. Comer’s early resignation as a trustee

of American and subsequent reappointment several years later,

and, S. C. Comer’s appointment as a co-trustee of American on

January 23, 1984. (App. B at 11-12) W. R. Comer’s resignation

was noted in the trust records and the court made no findings

that he improperly functioned as a trustee during that 3-year

period. If the courts’ intended to infer that S. C. Comer func-

tioned improperly as a co-trustee of American prior to January

23, 1984, the record is clear that he was appointed as a trustee

on December 1, 1982 - 14 months prior to the date stated by

the court. See infra, p. 7. (9) Osa and Burica’s failure to

introduce evidence depicting their ownership of property. (App.

B at 14) In actuality, Petitioners did submit Affidavits, copies of

Limited Partnership Agreements and income tax returns to the

court, and, in the Joint Pretrial Order the IRS had conceded that

all properties levied upon were “titled or held in the names of

the . . . plaintiffs.” See infra, p. 9. (10) Conveyances to the

Comer Trust were made with “actual intent” to defraud creditors.

(App. B at 15) How this finding was derived is beyond Petition-

ers’ comprehension. The Comer’s income was such that they

paid little or no taxes for the three years preceding the establish-

ment of the Trust in January, 1975. (R3: Ex’s. EE, FF, GG)

The IRS did not become a creditor for the 1976 year, the first

year at issue (D.Ex.’s. 56, 57), until April 15, 1977 - 28 months

after the Comer Trust was established. (P.Ex. ]) Furthermore,

the specific non-income tax purposes for the establishment of

each entity was presented in detail to the court. See infra, pps.

5-9. It is impossible to “intend” to defraud the government of

taxes which were neither owed nor contemplated in 1975-1976.

(11) The Comer Trust’s sale of its “original realty” to Benchley

and Koehn in 1981 and 1982 was “indicia of improper property

transfers”. (App. B at 10, 16; See infra, p. 6) The basis of this

finding also escapes the Petitioners. The sales were at full value

to unrelated third parties years after the Trust purchased the

9260 property and long before the IRS filed a lien in 1984

(P.Ex. 1) and levied upon Petitioners in 1987. (12) Comers’

continued use of the trusts’ properties as their own. (App. B. at

16) The district court was fully aware (See infra, pps. 5-8, 10)

that rent had always been paid for the use of both Comer Trust

properties, and for the use of American’s vehicles, and, that the

Comers never received anything free-of-charge from either

Trust. Courts previously held that the failure to “make the trust

properties productive”, by using such properties “rent free”, was

grounds for disallowance of such trusts. Markosian v. Comm., 73

T.C. 1235, 1243 (1980); Vnuk v. Comm., TC Memo 1979-164,

aff'd 621 F.2d 1318 (8th Cir. 1980); F. Lyle Fogle, TC Memo

1986-74. However, with no supportive evidence, the court arbi-

trarily held that because they involved related parties the leases

were not at arms-length and would be disregarded. (App. B at

16) The court’s rental position is inconsistent with all prior

relevant court decisions, places Petitioners in a no-win situation,

and is contrary to law. (13) Failure to prove an independent

economic purpose for such trusts. (App. B at 17) While the law

does not require that any independent economic purpose be

proven for trusts, their unrebutted purposes were well document-

ed before the court. (See infra, pps. 5-8)

When the entire record reveals that the vast majority of

the courts’ findings of fact forming the basis of its decision are

clearly erroneous and based on personal opinion, then the deci-

sion must be reversed as clearly erroneous and an abuse of

discretion. United States v. Gypsum Co., 333 U.S. 364, 395

(1947) Contrary to the instant action, the Federal Rules of

Evidence mandate that such “rules shall be construed to secure

fairness in administration [so] . . . that the truth may be ascer-

tained and proceedings justly determined.” Rule 102. Rules 302

and 501 provide that, where applicable, “the rule of decision is

determined in accordance with State law.” The Trial Transcript

reveals that W. Comer’s testimony was forthright, uncontra-

dicted, and his reputation never brought into question. Petitioners

testified that they had always attempted to maintain the proper

“fiduciary responsibility” and relationships and to not do

“anything that would violate the law.” (TR 13-14, 60, 92, 152-

153) In accord with the provisions of Rule 608, such testimony

can not be arbitrarily ignored and discarded.*

4 In truth, 36 of the court's 43 Findings of Fact, No’s. 1-2, 4-9, 11-14, 16-21,

23-24, 26, 28, 30-43 (App. B at 8-13), fully supported Petitioners, finding that: (a)

assets were transferred to each trust; (b) transfers to the Comer Trust were

recorded; (c) trusts were publicly recorded; (d) trust amendments were made under

Probate Court Order; (e) building and auto lease agreements were executed

between parties; (f) employment agreements were executed between parties; (g)

the trusts purchased and sold assets in their respective names; (h) the Comer

children and Mt. Zion, a tax-exempt foundation, were beneficiaries of the Comer

Trust; (i) each entity maintained separate bank accounts, obtained its own

employer I.D. number and filed separate tax returns. In addition, the court did not

The holding that Osa and Burica had introduced no evi-

dence, and their dismissal “due to lack of standing”, is contrary

to fact and law. See infra, p. 9. IRS submitted no evidence that

seizure of Osa and Burica’s bank accounts were proper and it

may not assert liens against valid partnership assets since they

belong to the entity. Jn re National Specialty Co., 213 F.2d 509

(6th Cir. 1954); MCL §§ 449.28, 449.1703). See, Smith v. C.LR.,

937 F.2d 1089 (6th Cir. 1991).

The court’s decision contravenes established law and

conflicts with its prior decisions, the laws of Michigan, and the

decisions of other courts of appeal and this Court. The Rules of

Evidence do not afford the trial court discretion to ignore, or

find contrary to, unrebutted evidence, and, “does not permit the

court to disregard the substantive principles of law established

for the protection of such litigants.” Cohen v. Young, 127 F.2d

721, 726 (6th Cir. 1942). Courts must presume that: (a) all

things have been done regularly; (b) all transactions were

conducted honestly and in good faith; (c) business records are

evidence of facts in favor of Petitioners; (d) contracts are in

accord with principles of law; (e) every man is solvent; and (f)

possession of property creates a presumption of ownership.”

find that Petitioners: (a) failed to honor employment agreements; (b) co-mingled

funds; (c) paid the Comer's personal expenses; (d) failed to maintain their separate

identities; (e) failed to distribute trust proceeds to the proper beneficianes of the

respective trusts, or (f) failed to honor the building and auto lease agreements, nor

did the court find that the leased buildings and automobiles were not necessary to

or used in the trusts’ fulltime business operations. Similar concessions were made

by the IRS in their Brief to the court of appeals. (ABr. at 2-10).

5 Hopson v. Payne, 7 Mich 334, 340 (1859); Palmer v. Mason, 42 Mich 146,

150 (1879); Am. Jur. PROOF OF FACTS, “Presumptions” § 1:270, pps. 708-710,

Jones on Evidence, 1972, 6th Ed., Vol. 1, § 3.10, p. 148; Johnson v. Barton, 251

F.Supp. 474, 475-476 (WD VA, 1966). Courts are not to presume that a grantor-

trustee will violate his trust (Rand v. Helvering, 116 F.2d 929, 932 (8th Cir. 1941);

Glenn E. Edgar, 56 T.C. 717, 752 (1971)), or that related party “trustee[s]} will act

in accordance with the settlor’s wishes.” Gordon v. Comm., 85 T.C. 309, 326

(1985). Courts may “not either distort (evidence) or add to it” (Benes v. United

States, 276 F.2d 99, 103 (6th Cir. 1960)), and “deductions and theories not

warranted by the evidence should be studiously avoided.” Blunt v. United States,

244 F.2d 355, 365 (DC Cir. 1957); Wood Corporation v. Delaware, 22 BTA 1182,

1186, aff'd 63 F.2d 1023 (6th Cir. 1933) Courts “may not view the facts and law

in the light most favorable to the service” (Flynn v. United States by and Through

Eggers, 786 F.2d 586, 589 (3d Cir. 1986)), nor “completely ignore the fact that

IRS’s evidence “consist{ed] of Vague, uncertain, irrelevant

matter, not carrying the quality of proof,” contrary to the

requirments of McDonald v. Robertson et al., 104 F.2d 945 (6th

Cir. 1939). In enumerable documents spanning 15 years, the true

facts supporting the courts’ holding are miniscule. “[S]ubstantial

evidence is more than a mere scintilla . . . [I]t must do more

than create a suspicion of the existence of the fact to be

established.” Universal Camera Corp. v. Labor Bd., 340 U.S.

474, 477, 497 (1950). See, Wigmore, Evidence in Trials at

Common Law, 1981 Ed., Vol. 9, §§ 2495, 2498. Findings of fact

upon which a judgment is based may be disturbed on appeal

when clearly erroneous, even when there is some evidence to

support such findings. Kennedy v. C.I.R., 671 F.2d 167, 174 (6th

Cir. 1982) Reliance on Thompson v. Comm., 631 F.2d 642 (9th

Cir. 1980) (involving sham, not alter ego), and Century Hotels

v. United States, 952 F.2d 107 (1st Cir. 1992) is contrary to this

circuit’s holdings in Cohen, Kennedy, DeNiro and McDonald.

Furthermore, “‘alter ego’ and ‘sham’ are not synonymous, as the

case law illustrates.” United States v. Creel, 711 F.2d 575, 579

(Sth Cir. 1983), cer. den. 464 U.S. 1044.

contemplated the IRS’s new issues and allegations made

after trial was prejudicial, constituted an abuse of discretion

and violated their Fifth Amendment rights to Due Process.-

Contrary to fact and law, the court found meritless Plaintiffs’

argument that the IRS raised new issues after trial, holding that

they should have been contemplated under the alter ego issue.

(App. A at 3) Plaintiff's were prejudiced because IRS raised new

issues of insolvency, fraudulent conveyances, lack of standing

for Osa and Burica, sham, lack of economic substance, and lack

of arms-length transactions, after trial without prior notice, and,

the records” supported Plaintiffs. Clark v. C.1L.R, 266 F.2d 698, 715 (9th Cir.

1959); Hughes v. Comm., 153 F.2d 712, 713 (Sth Cir. 1946) The “whole of the

testimony must be considered,” not just that which favors the IRS. Hendrickson

v. Voss, 115 Mich 57, 59 (1897: Darling v. Hurst, 39 Mich 765, 768 (1878) The

IRS is “bound by (W. Comer's cross-exam) testimony.” Tel-Craft Civic Ass'n v.

Detroit, 337 Mich 326, 30 (1953); Schaupeter v. Schaupeter, 317 Mich 84, 90

(1947) When Plaintiffs’ “testimony is unimpeached, competent and relevant it

‘may not be arbitrarily discredited and disregarded’” as was done herein. Estate

of DeNiro v. C.LR., 795 F.2d 582, 584 (6th Cir. 1986); Chesapeake & Ohio Ry.

v. Martin, 283 U.S. 209, 219 (1930).

after it consistently maintained there were no other issues,

refused to “identify the case rulings and regulations relied upon

to establish Plaintiffs” as such and maintained that it was not

challenging such entities under state law. See infra, p. 9. The

purpose of the rules of discovery under Rule 26(b), Federal

Rules of Civil Procedure, is to allow a party to discover the

facts, legal theories and the statutes and regulations relied upon

by an opposing party. Alliance to End Repression v. Rochford,

75 FRD 441 (ND IL. 1977); Frazier v. Phinney, 5 AFTR.2d

424, 60-1 USTC (SD TX. 1959); Oppen-heimer Fund Inc. v.

Sanders, 437 U.S. 340 (1978); Estate of Allen-sworth v. Comm.,

66 T.C. 33 (1976). Plaintiffs are “not required to offer evidence

in anticipation of” the IRS’s new and novel theories and alle-

gations (A. A. Allen Revivals, Inc., TC Memo 1963-281), nor “to

read between the lines of the pleadings, trial statements, or

evidence to ascertain that any theory based on [new issues and

theories] was intended by the Commissioner . . . J. William

Frentz, 44 T.C. 485, 490-491, aff'd 375 F.2d 662 (6th Cir.

1967).” Commissioner of Int. Rev. v. Transport Mfg. & Equip.

Co., 478 F.2d 731, 735, 736 (8th Cir. 1973). Contrary to the

courts’ finding, insolvency and fraudulent conveyances were

new issues and are regarded as a separate “framework for

analyzing the issue of property ownership.” Loving Savior

Church v. United States, 556 F.Supp. 688, 690-691 (D SD

1983), aff'd 728 F.2d 1085 (8th Cir. 1984). Cf United States v.

Certain Parcel of Land, 466 F.2d 1295 (6th Cir. 1972). The pur-

pose of Pretrial Orders is to limit the trial to the stated “contest-

ed issues” . . . [and] issues specified at pretrial conference . . .

constitute the issues on which the case is to be tried. An issue

omitted from the pretrial order may be considered waived.” 62A

Am.Jur.2d 50 and 73, “Pretrial Orders”, pps. 563, 579-580.

IRS’s “failure to disclose the [legal and factual] theories”

requires reversal of the courts’ holdings. Weiss v. Chrysler

Motors Corporation, 515 F.2d 449, 454-457 (2d Cir. 1975),

cited in Hockley v. Zent, Inc., 89 F.R.D. 26, 30 (MD PA. 1980).

The finding is contrary to that of Carter v. Kubler, 320

U.S. 243, 247 (1943), aff’g 131 F.2d 222 (6th Cir.), that Plain-

tiffs are entitled to a “full and fair hearing,” including the right

to rebut allegations. One “of the most fundamental requirements

of due process is that an individual must receive adequate notice

of the charges or claims being asserted against him’, and its

“patently unfair to decide this case on (theories) of which [Plain-

tiffs] were unaware and thus did not have an opportunity to meet

at the evidentiary stage.” Baird v. C.I.R., 438 F.2d 490, 493-494

(3d Cir.).

(d) The Courts’ holding that Petitioners were insol-

vent and engaged in fraudulent conveyances, and, that stich

issues were important factors in determining alter ego status,

are contrary to fact and law.- The holding that the issue of

fraudulent conveyances is part of the basis of proving alter ego

relationships is contrary to law. Loving Savior, supra at 690-691

(transfers made after liabilities incurred); Certain Parcels, supra.

The court’s reliance on Thompson, supra (where the individual

grossly inflated property values to generate income tax deduc-

tions), (App. A at 4) is misplaced, and, findings of insolvency

and fraudulent conveyances are contrary to all evidence. See

infra, pps. 4-7. In Farrell v. Paulus, 309 Mich 441 (1944),

demands and litigation commenced for unpaid liabilities before

the grantor transferred his assets and thereby became insolvent.

A “fraudulent intent will not be presumed where an honest intent

can as readily be inferred from the evidence.”

Based upon the Comer’s very modest income for the

years 1972-1974 (see infra, p. 6), it was impossible for them to

6 United States v. Baker, 807 F.2d 1315 (6th Cir. 1986). Also, United States

v. Cabbage, 430 F.2d 1037 (6th Cir. 1970); Gonzales v. United States, 348 U.S.

407, 413, 414 (1954). Civil tnals must involve a “fair contest with the basic issues

and facts disclosed to the fullest practicable extent” (United States v. Proctor &

Gamble, 356 U.S. 676 (1957)), tral courts should “not consider issues” not plead

(J. William Frentz, supra; W. F. Strasburger, TC Memo 1962-255, aff'd 327 F.2d

236 (6th Cir. 1964)), and may not consider IRS’s new theories raised for the first

time in its brief. Rhodes-Jennings Furniture Co. v. Comm., 9 TCM 1019, aff'd per

cur. 192 F.2d 1022 (6th Cir. 1951); Church of Scientology of California v.

Commr., 83 T.C. 381, 524-525, aff'd 823 F.2d 1301 (9th Cir. 1987).

7 37 Am.Jur.2d 699, “Fraudulent Conveyances”, § 8; Geer v. Traders’ Bank

of Canada, 132 Mich 215, 218 (1903); Rossman v. Hutchinson, 289 Mich 577, 594

(1939); Nicholson v. Scott, 50 F.Supp. 209, 212 (ED MI. 1943); Reilly v. Pinkus,

338 U.S. 269, 276 (1949). Suspicion of fraud is “not sufficient”. Pogodzinski v.

Kruger, 44 Mich 79, 80 (1880); Miller v. Beadle, 65 Mich 643 (1887); Driebore

v. Comm., 225 F.2d 216, 220 (6th Cir. 1955). The “burden” to disprove fraud is

“never imposed upon” the Petitioners (Mason v. Mason, 296 Mich 622, 296 N.W.

703, 705 (1941)), and “every reasonable intendment will be indulged against a

construction implying fraudulent design”. Palmer v. Mason, supra at 150.

have foreseen subsequent tax liabilities. See infra, pps. 4-7.

Under MCL § 600.5813, IRS’s levies and seizures were limited

to six years after the transfers in 1975-1977 and were null and

void, particularly when its assessments for the years 1976-1979

were issued prior to 1981. Berry v. Chrysler, 150 F.2d 1002 (6th

Cir. 1945); Sweet v. Shreve, 262 Mich 432 (1933); Thatcher v.

Detroit Trust Co., 288 Mich 410, 415 (1939). IRS did not

become a creditor for the 1976 year until April 15, 1977, 28

months after the Comer Trust was established. See infra, p. 16.°

“For the court to hold that a fraudulent conveyance was made .

. . [it] must find insolvency based upon the value of the assets

and the liabilities as they existed prior to or as a result of the

challenged transfer.” Jn re Otis & Edwards, P.C., 115 B.R. 900,

911 (ED MI. 1990). Insolvency “cannot be assumed”. John

Ownbey Co., Inc. v. C.I.R, 645 F.2d 540, 546 (6th Cir. 1981);

United States v. Schroeder, 242 F.Supp. 430, 434 (SD IA.

1964), aff'd 348 F.2d 223, 225 (8th Cir. 1965). Because the

1975-1977 transfers did not render the Comers insolvent, and

IRS was not a creditor, they “must stand, whether with or

without consideration”. Watzel v. Beardslee, 289 Mich 522, 526

(1939). See, Kester v. Adams, 85 F.2d 646, 649 (9th Cir. 1936),

cer. den. 299 U.S. 608; Schreyer v. Scott, 134 U.S. 405, 409-

412, 33 L.Ed 955, 957-958 (1889) IRS failed to present the

required evidence that taxpayers’ were insolvent at the time of

the conveyances to the Comer Trust or American.” If assets

exceed liabilities, conveyances will not be set aside. Michigan

Trust Co. v. Adams, 109 Mich 181, 182 (1896); United States v.

8 United States v. Adams Bldg. Co., Inc., 531 F.2d 343 (6th Cir. 1976); United

States v. Ressler, 433 F.Supp. 459, 463 (SD FL. 1977), aff'd 576 F.2d 650 (Sth

Cir. 1978). Under MCL § 566./2, IRS “must establish that the conveyance was

fraudulent under state law.” U.S. v. Rode, 749 F.Supp. 1483, 1493 (WD MI.

1990); Orte v. Landy, 143 F.Supp. 893, 897 (ED MI. 1956), aff'd 256 F.2d 112

(6th Cir. 1958); Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985). Tax liens can

not attach to property transferred to trusts prior to the time the IRS became a

creditor. U.S. v. General Motors Corp., 929 F.2d 249, 252-253 (6th Cir. 1991); Beary

v. U.S., 937 F.2d 288 (6th Cir. 1991). IRS must also establish that the Comers

were insolvent under state law. Robert Leslie Bowlin, 31 T.C. 188, 208, aff'd 273

F.2d 610 (6th Cir. 1960); Ownbey, supra at 546; Schroeder, 348 F.2d at 225.

9 Mack v. Bank of Lansing, 396 F.Supp. 935 (WD MI, 1975); Tyson v.

Comm., 212 F.2d 16 (6th Cir. 1954); Ownbey, supra at 546; Warzel v. Beardslee,

supra; Linke v. Goodrich, 30 Mich.App. 228 (1971).

Press Wireless, 187 F.2d 294, 295 (2d Cir. 1951); United States

v. Oklahoma, 261 U.S. 252, 260-261 (1922). Any insolvency

years later is irrelevant to the date of the transfers. Mack, supra

at 942; Chamberlin v. Wagar, 272 Mich. 595 (1935). The deci-

sion contravenes state law, and, directly conflicts with prior

decisions of this circuit and those of other courts of appeals.

The issue of fraudulent conveyances “must not only be

proved but must be particularly alleged.” Geisert v. Corriveau,

140 F.Supp. 29, 32 (ED MI, (1956). See, Bender v. Southland

Corp., 749 F.2d 1205, 1216 (6th Cir. 1984); Duane v. Altenburg,

297 F.2d 515 (7th Cir. 1962). No such allegation was made until

after trial, and petitioners “were totally unaware that the case

would be decided” on the basis of frauduleni conveyances. '

There “must be proof of an actual intent to defraud” a subse-

quent creditor (Lovell v. Denison, 171 Mich 599 (1912)), and

conveyances made long before the debt was incurred is insuffi-

cient. See infra, pps. 5-8, 11.'' Whether “intent to defraud cred-

itors [occurred] depends under the circumstances . . . upon the

date of such transfer.” Wright v. Brown, supra at 571. See, Sch-

10 In re Prestige Spring Corp., 628 F.2d 840, 842 (4th Cir. 1980). Rule 9(b),

Federal Rules of Civil Procedure, “bars a [party] from ‘alleging fraud by hind-

sight’.” Bender v. Rocky Mountain Drilling Associates, 648 F.Supp. 330, 336 (DC

DC. 1986). See, Hayduk v. Lanna, supra at 443; Spiegler v. Wills, 60 F.R.D. 681,

682 (SD NY. 1973). Allegations which are “merely conclusionary” are “not

enough” to satisfy Rule 9(b). Graue Mill Dev. v. Colonial Bank & Trust Co., 927

F.2d 988, 992 (7th Cir. 1991); Felton v. Walston and Co., Inc., 508 F.2d 577, 581

(2d Cir. 1974). See, Lackawanna Pants Mfg. Co. v. Wiseman, 133 F.2d 482, 486

(6th Cir. 1943); Zimmerman v. Feldman, 217 Mich 390, 399 (1922); Dean v.

Torrence, 299 Mich 24, 35 (1941). See, Fricke v. Abbott, 368 Mich 551 556

(1962). Contrary to the facts herein, the IRS must make its “allegation good by

independent evidence”. Hutchinson v. Poyer, 78 Mich 337, 340 (1889). A “delin-

eation of the underlying acts and transactions which are asserted to constitute the

fraud” are required. duPont v. Wyly, 61 F.R.D. 615, 630 (D DE. 1973); Powell,

Inc. v. Abney, 83 F.R.D. 482, 487 (SD TX. 1979); Fulk v. Bagley, 88 F.R.D. 153,

164 (MD NC. 1980). “The burden of proof to show fraud and notice of fraud was

on the party alleging fraud”. Bamberger, Bloom & Co. v. Schoolfield, 160 U.S.

149, 162, 40 L.Ed 374 (1895); Wright v. Brown, 317 Mich 561, 571, 574 (1947);

Federal Deposit Ins. Corp., 654 F.Supp. 794, 808 (ND GA. 1986) Failure to

allege fraud, and the facts relied upon, mandate reversal. Wait v. Kellogg, 63 Mich

138, 144-145 (1886); Leoni v. Rogers, 719 F.Supp. 555, 569 (ED MI. 1989).

11 MCL §$§ 566.11, 566.17; Ownbey, supra; Lackawanna, supra; Nicholson v.

Scott, supra at 212; Jn Re Bidlofsky, 57 B.R. 883, 898 (BR ED MI, 1985); Dean

v. Torrence, supra at 31-37; Rossman v. Hutchinson, supra at 594.

roeder, 242 F.Supp. at 435; Otte v. Landy, supra at 898. Subse-

quent grantor involvement is insufficient to set aside convey-

ances as fraudulent. Jaffe v. Ackerman, 279 Mich. 304 (1937)

Under Michigan law, only existing creditors have a right to

challenge conveyances as fraudulent.”

(e) The Courts’ holding that Petitioners were alter

egos of the taxpayers is not supported by substantial evi-

dence and was contrary to fact and law.- Plaintiffs were not

alter egos. (App. A at 2-4) Reliance on G. M. Leasing Corp. v.

United States, 429 U.S. 338 (1976), and F.P.P. Enterprises v.

United States, 646 F.Supp. 713, aff'd 830 F.2d 114 (8th Cir.

1987) is misplaced. In G.M. Leasing, the taxpayer failed to file

tax returns, was a fugitive from justice, the vintage vehicles

seized were not leased, although that was their claimed purpose,

and were titled to a corporation owned by the taxpayer. In F. P-

.P. Enterprises, third parties were falsely listed as grantors, the

true grantors continued using the property free of charge and to

receive its income, personally paid insurance, taxes and mort-

gage payments, deducting such taxes, interest, and depreciation

on their personal tax returns. The trusts were found invalid

under state law. None of these facts, or anything similar, were

found to be present herein. To disregard a trust, “the burden

rests on the party seeking to pierce the veil” and the “burden is

a significant one.”'’

The Courts’ findings are contrary to its holding in Ham-

iel’s Estate v. Commissioner, 253 F.2d 787, 790-91 (6th Cir.

12 Sorenson v. Sorenson, 69 Mich. 351; Hatch v. Daugherty, 145 Mich. 569;

Gillen v. Wakefield State Bank, 246 Mich 158, 163 (1929) “No inference of fraud

. Ils permissible from lack of monetary consideration alone.” Mailery v. Van

Hoeven, 332 Mich 561, 563 (1952); Coleman v. Coleman, 239 Mich 139, 141

(1927). See, Scott, The Law of Trusts ("Scott"), Vol. 1, §§ 17.1, 28, 29; Bogert,

The Law of Trusts and Trustees (“Bogert”), § 202; Restatement of Trusts, Second

(“Restatement”) §§ 28, 29. A grantor can make a gift to family members, as long

as the gift does not render him insolvent, and fraud is not to be presumed. Kala

mazoo Spring & Axle Co. v. Winans & Co., 102 Mich 193, 198 (1895); Dean v.

Torrence, supra at 35-36; Schroeder, 242 F.Supp. at 436.

13 Edwards Co., Inc. v. Monogram Industries, Inc., 700 F.2d 994, 999 (Sth Cir.

1983). See, John A. Parks Co. v. Discount Corp., 294 Mich 316, 331-332 (1940);

Zubik v. Zubik, 384 F.2d 267, 270 (3rd Cir. 1967), cer. den. 390 U.S. 988; Matter

of Palmer Trading Post, 695 F.2d 1012, 1016-1019 (7th Cir. 1983); American

Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2nd Cir. 1988).

1958). Mere relationships between the parties does not constitute

alter ego, an entity is not to be lightly disregarded, and, each

case must be decided on its own facts, not those of some unre-

lated case.'* “A trust can only operate through its Trustees just

aS a corporation can act only through its agents”. Johnson v.

Comm., 78 T.C. 882, 890-891, aff'd 734 F.2d 30 (9th Cir. 1984).

See, Bogert, § 121; Scott, Vol. I, §§ 2.3, 2.6. Despite interlock-

ing relationships, efforts to maintain separate identities must be

respected.'* A transaction “must not be disregarded simply be-

cause it was not at arm’s length .. . And we think it would be

judicial legislation of the most inexcusable kind for a court to

create such a rule.”'°

State law is conclusive as to the ownership of property

(U.S. v. General Motors Corp., 929 F.2d 249 (6th Cir. 1991):

Commissioner v. Stern, 357 U.S. 39 (1957), aff’g 242 F.2d 322

(6th Cir. 1957)), and IRS's rights to property are “never better

than those which the taxpayer had.” Hobson, supra; United

States v. Rodgers, 461 U.S. 677, 715 (1983); Wentworth vy.

C.1.R, 510 F.2d 883, 885 (6th Cir. 1975). The trial court failed

to find any typical instances of alter ego situations (See infra,

pps. 17-18), and “technical infractions of duties as trustee by a

settlor-trustee, or actions taken by him under a misconception of

14 Lettinga v. Agristor Cred’ Corp., 686 F.2d 442, 446 (6th Cir. 1982); United

States v. Certain Parcel of Land, supra; Madden v. Mac Sim Bar Paper Co., 163

F.2d 974 (6th Cir. 1939), cer den. 308 U.S. 556; Drysdale v. CLR, 277 F.2d

413, 417-418 (6th Cir. 1960); Senon J. Murphy Co. v. Comm., 231 F.2d 639, 644

(6th Cir. 1956); Van Zandt v. Comm., 341 F.2d 440, 444 (Sth Cir. 1965).

15 Choate v. Landis Tool Co., 486 F.Supp. 774 (1980); Coryell v. Phipps, 317

U.S. 406 (1942); Gottlieb v. Arrow Door Co., 364 Mich. 450 (1961): John A

Parks Co. v. Disc. Corp., 294 Mich. 316 (1940); Soloman v. Wstrn Hills, 110

Mich.App. 257 (1981).

16 Sun Properties v. United States, 220 F.2d 171, 174 (Sth Cir. 1955). See,

58th St. Plaza Theatre, Inc. v. Comm., 16 T.C. 469, aff'd in part 195 F.2d 724 (2d

Cir. 1952); White Tool & Machine Co. v. Comm., 677 F.2d 528 (6th Cir. 1982).

Levenson & Klein, Inc., 67 T.C. 694, 718 (1977). Even if entities are “organized

primarily for tax ...purposes [it] does not warrant disregarding” them under state law

Smith v. Northern Mich. Hospitals, Inc., 703 F.2d 942, 951 n. 19 (6th Cir. 1983):

Kline v. Kline, 104 Mich.App. 700 (1981); Weeks v. Sibley, 269 F. 155 (D. TX.

1920). “The general rule of Subchapter J is that trust income is taxed only once,

either to the trust or to the beneficiaries”. Charles Stewart Baker, TC Memo 1990-

107; Provident Nat. Bank vy. United States, 325 F.Supp. 1187, 1191 (ED PA. 1971)

law, can not, of themselves, warrant a disregard for tax purposes

of the trusts.” Curtis A. Herberts v. Comm., 10 T.C. 1053, 1068

(1948); Bennett v. Comm., 79 T.C. 470 (1982).

The record is clear the trial court’s erroneous holding of

alter ego was based solely on the fact that (a) Comer family

members were involved with such rusts, and (b) the Comer’s

incurred a tax liability after the Comer Trust and American were

created. If alter ego was the only issue, and there was no chal-

lenge to the Petitioners’ validity under state law, then any find-

ing of insolvency and fraudulent conveyances is erroneous. See

infra, pps. 21-24. The cases cited by the court involved 20 fact-

ual situations far removed from the facts in this case. (App. B at

14-16) Contrary to the courts’ presumptions, the law requires

that irrevocable trusts must be “most strongly construed against”

the grantor. Rothschild v. Dickinson, 169 Mich 200, 206 (1912);

In re Maloney Trust, 423 Mich 632, 639 (1985). Taxpayers

intent in creating trusts for his children must govern. Union

Guardian Trust Co. v. Building Securities Corp., 280 Mich 144;

Commissioner v. Culbertson, 337 U.S. 733, 743 (1949). Individ-

uals have a legal right to create trusts for any lawful purpose,

including business, probate (Bogert, § 231; Scott, Vol. 1A, § 59;

Restatement, § 59) and estate planning for the benefit of the

grantor’s family (Bogert, §§ 202, 231; 76 Am.Jur.2d. § 19, p.

267; Commerce Trust Co. v. Woodbury, 77 F.2d 478 (8th Cir.

1935), cer. den. 296 U.S. 614; Coryell v. Phipps, 128 F.2d 702

(Sth Cir. 1942), aff'd 317 U.S. 406 (1942); Sparks Farm, Inc.,

TC Memo 1988-492), and, the grantor may serve as trustee,

even when leasing transferred properties.'’

17 May v. Comm., 723 F.2d 1434 (9th Cir. 1984); Brooke v. United States, 468

F.2d 1155 (9th Cir. 1972); Evans v. U.S., 83-2 USTC; Stanley J. Wolfe, TC Memo

1984-446; Bogert, §§ 121, 231; Scott, Vol. 1, § 17.1, Vol. Il, §§ 99.1, 100; Re-

statement, §§ 28, 99, 100, 115, 119. As Trustee, “dominion and control” of such

trusts is permissible. JRC §§ 671(a), 673-677; Hamiel’s Estate v. Comm., 253 F.2d

787, 790-791 (6th Cir. 1958); Suhr v. Comm., 126 F.2d 283, 287-288 (6th Cir. 1942);

Reinecke v. Trust Co., 278 US 339, 346 (1929); U.S. v. Byrum, 408 US 125 (1972)

(trusteeship does not constitute substantial ownership); Rose v. Union Guardian Trust

Co., 300 Mich. 73, 76-78 (1942); Fornell v. Fornell Equip., 390 Mich. 540, 548-52

(1973). Business trusts are valid in Michigan. Hemphill v. Orloff, 238 Mich. 508,

512-525 (1927); U.S. v. Davidson, 115 F.2d 799 (6th Cir. 1940); 3 Cavitch, Busi-

ness Organizations, §§ 43.01[2], 43.05. No consideration is required to establish

a trust. Ash v. Ash, 280 Mich. 198 (1937); Mallery v. Van Hoeven, 332 Mich. 561

(1952); Scott, Vol. 1, §§ 17.1, 28, 29; Bogert, § 202; Restatement, §§ 28, 29.

A “deed or other written instrument is to be construed so

as to render it valid and effectual, rather than void.” Stamp v.

Steele, 209 Mich 205, 210 (1920). See, Roland P. Place, 17 T.C.

199, 203, aff'd 199 F.2d 373 (6th Cir, 1952). Leases between

related parties, as herein, are binding. Campbell v. C.1.R, 868

F.2d 833 (6th Cir. 1989); Mackinac Island Carriage Tours, Inc.

v. CLR, 419 F.2d 1155, on rem. 455 F.2d 98 (6th Cir. 1972);

Michigan Trust Co. v. Herpolsheimer, 256 Mich 589 (1932).

The language of contracts (as here), must be adherred to. Golden

v. Henderson, 456 F.2d 378 (6th Cir. 1972); T.V.A. v. Exxon

Nuclear Co., 753 F.2d 493 (6th Cir. 1985). The leases were

“entered into in good faith between the parties . . . [were] per-

fectly reasonable and valid . . . [and] there was nothing fraudu-

lent” in any circumstances. First Nat. Bank v. Young's Estate, 41

F.2d 8, 10 (6th Cir. 1930). See, Am.Jur. Proof of Facts, 13 POF

“Delivery of Deeds”, § 3, p. 485, § 21, p. 494; Williston, A

Treatise on the Law of Contracts, 3d Ed., Vol. 4, § 620, pps.

747-750. The subject leases gave “exclusive possession of the

premises against all the world, including the” Comer Trust,

American and the Comers. Smith v. Royal Ins. Co., 111 F.2d

667, 670 (9th Cir. 1940). See, Matter of Daben Corp., 469

F.Supp. 135, 142-143 (1979); Estate of Joseph Giselman, TC

Memo 1988-391. Even when the transferor becomes a tenant

and subsequently is unable to continue the lease payments, the

transfer will not be disregarded. Estate of Roy D. Barlow, 55

T.C. 666 (1971); Estate of Joseph W. Giselman, supra.

Petitioners cannot be held guilty for complying with the

law and exercising the powers and rights which the Constitution

and State say they may exercise. Gledhill v. Fisher & Co., 272

Mich. 353, 364 (1935) The rules of evidence mandate that “the

presumption is in favor of good faith, honesty and fair dealing.”

McDonald v. Robertson, supra at 947. Such was not present in

this case, and a finding of alter ego contravenes the abundance

of law of this State, and, this and other courts of appeal.

(f) The Courts’ holding that the IRS was not bound

by the doctrines of res judicata, elections and estoppel is con-

trary to fact and law.- The holding that, because there was no

judgment on the merits, the stipulation agreements involving

other tax years do not have preclusive effect (App. A at 4) is

contrary to the trial court’s holding. (App. B at 17-18). Plaintiffs

argued that the prior Stipulated Decisions were for the years

1976-1983, not just 1981. See infra, p. 9. Reliance on Jn re

Long Distance Telecomm. Lit., 831 F.2d 627 (6th Cir. 1987) is

misplaced and contrary to the law of the Tax Court and this cir-

cuit.'* Stipulations “must be resolved against the Commissioner

as the party who prepared” them. Clapp v. C.I.R, 875 F.2d 1396,

1399 (9th Cir. 1989). See, Stamos v. Commissioner, 87 T.C. 1451,

1455 (1986). The “doctrine of equitable estoppel . . . may be

invoked against the United States”. Simmons v. United States,

308 F.2d 938, 945 (Sth Cir. 1962). See, Walsonavich v. United

States, 335 F.2d 96, 101 (3rd Cir. 1964); United States v. Luci-

enne D’'Hotelle, 558 F.2d 37, 43 (ist Cir. 1977). There is “no

principle of law or equity which sanctions the rejection by a fed-

eral court of the salutary principle of res judicata.” Federated

Department Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1980).

(g) The Courts’ holding that constructive notice was

sufficient, and that the burden of proof was on Petitioners,

is contrary to fact and law.- The courts’ finding of “construc-

tive notice” through notice of seizure served on M. Comer (App.

A at 3) has no legal support. She was never part of Osa or

Burica and, thus, even “constructive receipt” did not occur. The

only notice served on M. Comer involved real estate owned by

the Comer Trust. No notice of any kind was ever served on Peti-

tioners concerning seizure of their bank accounts (AB at 35;

ARB at 22) as mandated by law. IRC §$§ 6332, 6335(a); Reg. §

301.6335-1(a); Goodwin v. U.S., 935 F.2d 1061, 1065 (9th Cir.

1991); Phelps v. U.S., 421 U.S. 330 (1975); Mullane v. Central

Hanover Tr. Co., 339 U.S. 306, 313-314, 320 (1949).

The Court’s finding that Century Hotels v. U.S., 952

F.2d 107, 109 (Sth Cir. 1992) requires shifting the burden of

proof to Plaintiffs (App. A at 4) is misplaced, and contravenes

the law of this circuit and this Court. In Century, the court held

that to shift the burden IRS must show by “substantial evidence”

that it was entitled to maintain its levy. This substantial burden

was not met in this case. Certain Parcel of Land, supra at 1298.

18 Reynolds v. C..R, 861 F.2d 469, 473-474 (6th Cir. 1988). See David

Krueger, 48 TC 824, 829-830 (1967). (Stipulated Decision is binding). See, United

States v. Wynshaw, 516 F.Supp. 785, 788-789, aff'd 697 F.2d 85 (2d Cir. 1983),

cer. den. 464 U.S. 822; Lenny v. Williams, 143 F.Supp. 29, 34 (ND OH. 1956);

United States v. Brown, 86 F.2d 798 (6th Cir. 1936); Estate of Johnson v. Comm.,

88 TC 225, 231, 233, aff'd 838 F.2d 1202 (2nd Cir. 1987).

Speiser v. Randall, 357 U.S. 513, 529 (1953); Smith v. CLR,

926 F.2d 1470 (6th Cir. 1991); U.S. v. Walton, 909 F.2d 915

(6th Cir. 1990); Weir v. C.1.R, 283 F.2d 675 (6th Cir. 1960)

(All holding that Plaintiffs’ denial of the correctness of IRS’s

actions is sufficient to maintain the burden on IRS.)

V. Conflict with State Law.

The decision is in direct conflict with Michigan statutes

and related State judicial holdings, as well as related decisions

of the Second, Third, Fifth, Eighth, Ninth and District of Co-

lumbia Circuits and this Court, concerning: (a) requirements of

substantial evidence (Infra, pps. 4-9, 14-19, 22); (b) burden of

proof (Infra, pps. 7-9, 17-19, 22); (c) binding reformation of

trusts (Infra, pps. 6, 8, 15); (d) fraudulent conveyances and

insolvency (Infra, pps. 4-7, 14-16, 19-24); and alter ego status

(Infra, pps. 8-9, 11-13, 24-27).

VI. Conflict with Prior Sixth Circuit Decisions.

The decision conflicts with State and Federal statutes and

is contrary to prior holdings of this Circuit concerning: (a) rules

of substantial evidence and burden of proof (Infra, pps. 14-19,

24-25, 29); (b) post trial new theories and allegations (Jnfra, p.

20-21); (c) fraudulent conveyances and insolvency (Jnfra, pps.

16, 20-24); (d) alter ego status (Infra, pps. 20, 24-27); (e) stat-

utes of limitation (Infra, p. 13); (f) res judicata and estoppel

(Infra, p. 28); (g) proper notice (/nfra, pps. 28-29); and part-

nership law (Infra, p. 18).

VII. Conflic*s with Other Circuits and the Supreme Court.

The decision conflicts with related decisions of the First,

Second, Third, Fourth, Fifth, Seventh, Eighth, and Ninth Circuits

and of this Court concerning: (a) rules of substantial evidence

and burden of proof (Infra, pps. 14-19, 25, 29); (b) post trial

new allegations and theories (Jnfra, pps. 19-21); (c) fraudulent

conveyances and insolvency (Infra, pps. 15, 19-23); (d) alter ego

status (Infra, pps. 21, 24-27); (e) statutes of limitation (Jnfra, p.

4-7, 9, 13-14); (f) res judicata and estoppel (Jn/ra, p. 9, 28); and

proper notice (Infra, p. 9, 28-29).

VIII. Constitutional Principles.

Based upon the foregoing, the decision clearly contra-

venes established State and Federal law, constitutes a taking of

Petitioners’ properties in violation of their Fifth Amendment

SSS

rights, and involves an absence of due process which requires

the presence of the “rudiments of fair play” and an absence of

a “one-sided determination of facts decisive of rights.” Dation

v. Ford Motor Co., 314 Mich 152, 163-167 (1946); Convales-

cent Center v. Blue Cross, 414 Mich 247, 261 (1982). Due

process of law requires the protection and enforcement of private

rights.” Endicott Co. v. Encyclopedia Press., 266 U.S. 285, 288

(1924). “The federal sovereign . . . must govern impartially.”

Hampton v. Mow Sun Wong, 426 U.S. 88, 100 (1975). A deci-

sion contrary to state law violates Petitioners due process rights

and, thereby, the Constitution of the United States (Thompson v.

Auditor General, 261 Mich. 624, 654 (1933)), and “is arbitrary

and deprives the [Petitioners] of property without due process.”

Helvering v. City Bank Co., 296 U.S. 85, 89 (1935). Without

question, the Fifth Amendment “rights of private property own-

ers . . . must be respected and protected.” Lloyd Corp. v. Tan-

ner, 407 U.S. 551, 570 (1971). Certiorari should be granted to

resolve the contravention of State and Federal statutes and the

conflict in the Circuits created by the Court of Appeals and to

provide uniform guidance to taxpayers, and third parties like

Petitioners, on these important property rights issues.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

C. Richard Abbott

Abbott, Nicholson, Quilter,

Eshaki & Youngblood

19th Floor

One Woodward Avenue

Detroit, Michigan 48226

(313) 963-2500

Counsel for Petitioners

October 28, 1992

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.