Frank Sawyer Trust of May 1992 v. Comm’r of Internal Revenue

Four corporations acknowledged they owed the federal government more than $24 million in taxes and penalties, but before the IRS could collect its dues, the corporations transferred all of their assets to other entities. At issue was whether the previous owner of the four corporations, a trust (Trust), was liable to the IRS for the corporations' unpaid taxes and penalties. The tax court looked to state substantive law to determine the Trust's liability and concluded that the Trust could not be held liable because the IRS (1) failed to prove the Trust had knowledge of the new shareholders' asset-stripping scheme, and (2) did not show that any of the corporation's assets were transferred directly to the Trust. The First Circuit Court of Appeals reversed, holding (1) the tax court correctly looked to Massachusetts law to determine whether the Trust could be held liable for the corporations' taxes and penalties; but (2) the tax court misconstrued Massachusetts fraudulent transfer law in making its decision. Remanded for a determination of whether the conditions for liability were met in this case. View "Frank Sawyer Trust of May 1992 v. Comm'r of Internal Revenue" on Justia Law