United States of America
, Plaintiff v. Jake E. Wilson, et al., Defendants
S. District Court, No. Dist.
Div., Civil Action No. CA-5-78-23, 500 FSupp 831, 11/10/80
[Code Secs. 6323 and 6502]
Lien for taxes: Foreclosure: Fraudulent conveyance: Statute of
limitations.--A conveyance of real property by the taxpayers to
their children was void as a fraudulent conveyance because the
consideration paid by the children for the property was for less than
its fair market value, and the lien of the United States on the property
was foreclosed. The action to foreclose the lien was not barred because
it was filed within six years of the assessment of the tax. The
statute of limitations for fraudulent conveyances was inapplicable
, acting in its sovereign capacity, was not bound by a state statute of
limitations. The taxpayers were in possession of the property at all
pertinent times and the property was a homestead and was not abandoned
by the taxpayer's purported sale to their children.
The above case
came on to be tried on the 3rd day of November, 1980, with all parties
still subject to suit appearing in person or by and through counsel.
After hearing and considering the evidence, pleadings, and argument and
briefs of counsel, the court files this memorandum which shall
constitute the court's findings of fact and conclusions of law.
In addition to
the findings herein stated, those findings of fact and conclusions of
law attached hereto are made a part hereof and the stipulations of the
parties are included as a part of the court's findings of fact.
Government seeks to foreclose its tax lien on property purchased in 1961
by Jake Wilson and wife, Betty Wilson. The
have resided on this property from the date of its purchase until the
present time and this property constitutes their homestead under the
laws of the State of
On October 6,
1971, Mr. and Mrs. Wilson conveyed the property in question to their
four children reserving a life estate unto themselves. The only
consideration paid for the transfer was the assumption by the taxpayers'
children of a $5,000.00 purchase money mortgage and the ad valorem
taxes. Prior to the conveyance, the Government and the Wilsons
informally agreed upon a settlement of tax claims pending against the
Wilsons and the tax liabilities were then properly assessed on February
28, 1972 and May 2, 1974. A notice of federal tax liens was recorded on
June 28, 1972 and June 12, 1974. On January 18, 1973 the Government
learned of the property transfer from Mr. and Mrs. Wilson to their
children and subsequently filed this suit on February 27, 1978 to set
aside the conveyance as fraudulent and to foreclose on their tax liens.
Texas law, a transfer of real property is void with respect to a
creditor if it was intended to delay or hinder a creditor from obtaining
that to which he is, or may become entitled or to defraud a creditor of
that to which he is, or may become entitled. TEX. BUS. & COM. CODE
§24.02(a). The stipulated facts indicate that before the conveyance in
question, the Wilsons and the Government had informally agreed to settle
pending tax claims. The
then knew about their pending liability prior to making the conveyance
to their children and their actions were an attempt to defraud the
of property to which it was entitled. Texas Sand Co. v. Shield,
381 S. W. 2d 48 (
1964). Although the stipulated Tax Court decisions as well as the formal
assessments were not rendered until after the property transfer, the
liability was already well-established. Viles v. Commissioner
[56-1 USTC ¶9539], 233 F. 2d 376 (6th Cir. 1956).
transfer by a debtor is also considered void if it is not made for fair
consideration, unless, in addition to the property transferred, the
debtor has at the time of transfer enough property to pay all of his
debts. TEX. BUS. & COM. CODE §24.03(a). The consideration in this
case was the assumption of a $5,000.00 mortgage and the ad valorem taxes
amounting to $5,867.77. The estimated fair market value of the property
at the time of transfer was stipulated as $45,000.00. Because of the
large disparity in consideration amount and the fair market value, the
transfer must be deemed void especially in light of the taxpayers' tax
settlement which led to a Tax Court decision against them for
admitted their inability to provide a listing of assets owned on the
date of the transfer, indicating an insufficiency of assets with which
to pay debts.
therefore finds and concludes that the conveyance by Mr. and Mrs. Wilson
to their children of this land was a fraudulent conveyance in an effort
to defraud creditors including the
United States of America
on its income tax claims. Since a fraudulent conveyance of real property
is null and void as to a creditor, the conveyance of October 1971 was
void as to the
and its liens properly attached to the property in 1972 and 1974.
defendants' main contention is that because this is a suit to set aside
a fraudulent conveyance, the
four-year statute of limitations. TEX. REV. CIV. STAT. ANN. §5529,
precludes the action, and that the Government should be barred because
it did not file suit within four years after it first learned of the
transfer. On the other hand, the Government argues that the Federal
Statute 26 U. S. C. §6502 (1967) applies in this case allowing suit to
be filed within six years of the assessment.
law may be controlling in the determination of a taxpayer's interest in
is acting within its sovereign capacity in enforcing its lien and is not
bound by a state statute of limitations. United States v. Summerlin
[40-2 USTC ¶9633], 310
414 (1940); United States v. West Texas State Bank [66-1 USTC ¶9285],
357 F. 2d 198 (5th Cir. 1966). Additionally, liens for Federal taxes and
the manner of their enforcement are controlled by Federal law. Folsom
v. United States [62-2 USTC ¶9648], 306 F. 2d 361 (5th Cir. 1962), S.
D'Antoni, Inc. v. Great Atlantic and Pacific Tea Co., Inc. [74-2
USTC ¶9552], 496 F. 2d 1378 (5th Cir. 1974). Section 6321 of the
Internal Revenue Code allows a lien to arise in favor of the
on the taxpayers' property when the tax has not been paid. In the case
of income taxes, the lien arises at the time the tax assessment is made
and continues until the liability is satisfied or becomes unenforceable
by reason of lapse of time. 26 U. S. C. §6322 (1967). The statute
giving substance to the phrase "lapse of time" is 26 U. S. C.
§6502(a) which permits a period of six years after the assessment of
the tax in which to collect by levy or by a proceeding in court. Moyer
v. Mathas [72-1 USTC ¶9342], 458 F. 2d 431 (5th Cir. 1972).
case has been filed within the six-year time frame and is thus not
precluded under the Federal statute of limitations.
of the present suit is considered ancillary since it is brought against
third persons in aid of collecting a judgment against a taxpayer, namely
to set aside a fraudulent conveyance. Hall v. United States [68-2
USTC ¶9665], 403 F. 2d 344 (5th Cir. 1969). The Fifth Circuit has held
that a suit of this nature may even be filed after the six-year period
contemplated by 26
C. §6502. Hall, supra. Again, the Government's suit against the
taxpayers and the third parties was filed within six years of the
assessments and could not be considered time-barred under the Hall
Based upon the
' possession of the property from the date it was acquired until the
present time, the court holds that the property in question was a
homestead at all pertinent times and was not abandoned by the purported
sale to the
' children. See Floyd v. Rice, 444 S. W. 2d 834 (Tex. Civ.
App.--Beaumont 1969, writ refd. n. r. e.); Franklin v. Woods, 598
S. W. 2d 946 (Tex. Civ. App.--Corpus Christi 1980) (abandonment requires
both cessation of use as homestead and intent to permanently
abandon). Thus, the lien sought by Simons & Company has never
attached to the property due to the
homestead exemption and all relief prayed for by this defendant is
denied. The homestead defense is likewise available against other
judgment lien creditors of the
and these creditors are not in a position to claim any part of the
proceeds on the foreclosure sale.
based upon the above and the attached findings of fact and conclusions
of law which are here adopted and incorporated herein for all purposes,
as well as the stipulations in this case, judgment will be entered in
favor of the Government against Jake Wilson and wife, Betty Wilson, in
the amount of $264,221.83 plus interest from September 9, 1977 at the
rate of $29.56 per day to the date of entry of judgment plus interest at
the legal judgment rate thereafter. The court will enter an order of
foreclosure ordering the property to be sold to satisfy the judgment.
, the City of Plainview, Texas, and the
will recover out of the first moneys from the foreclosure sale amounts
sufficient to pay any and all taxes and penalties owing upon the
property. This payment of property taxes will be prior to the claims of
the Government on its income tax assessments and liens. As the children
of Mr. and Mrs. Wilson are the transferees under a null and void
conveyance, they are not entitled to recover any amounts of money they
may have paid to third parties in satisfaction of the purchase money
mortgage originally placed against the property.
will hereby prepare a judgment setting forth the proper description of
the property to be entered in accordance with this memorandum.
All costs will
be taxed against the defendants, Jake E. Wilson and wife, Betty Wilson.