Annotations- Property Unlawfully Obtained

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6332 Annotations: Property Unlawfully Obtained- Levy

 

Penalty for Failure to Surrender Property: Property Unlawfully Obtained

 

 

[55-2 USTC ¶9600]United States of America, Plaintiff v. Joseph Anthony Pagan, John Pagan and Frank Leuci, individually and as Property Clerk of the Police Department of the City of New York, Defendants

In the United States District Court for the Southern District of New York, Civ. 70-263, 140 FSupp 711, June 10, 1955

[1939 Code Sec. 3710--similar to 1954 Code Sec. 6332]

Surrender of property subject to levy: Money seized by police: Portion lawfully possessed subject to U. S. tax lien.--On September 12, 1946, the New York police lawfully took from the defendant at the time of his arrest the sum of $3,500 and turned it over to the property clerk of the police department. On October 21, 1946, the Collector acquired a tax lien for $4,588.55 against all of the property of such defendant. It was stipulated that the defendant obtained $1,000 of the $3,500 from unlawful sources (policy collecting). The Court held that the stipulation sufficed to refute the Government's claim that the lien attached to the entire amount of $3,500, since the defendant never had any interest in or title to the $1,000. The doctrine of confusion of funds was held inapplicable.

J. Edward Lumbard, United States Attorney for the Southern District of New York, United States Court House, Foley Square, New York, N. Y. J. Donald McNamara, Assistant United States Attorney, of Counsel, for plaintiff. Peter Campbell Brown, Corporation Counsel, Municipal Building , New York , N. Y., George P. Hennessy, Nathan B. Silverstein, of Counsel, for defendants, Frank Leuci, etc.

Findings of Fact

CLANCY, District Judge:

1. On September 12, 1946, $3,500 was lawfully taken at the time of his arrest by a New York City police officer from the defendant Joseph Pagan. On September 13, 1946 the police officer turned over said monies to the custody of the Property Clerk of the Police Department of the City of New York, pursuant to the provisions of §435-4.0 of the Administrative Code of the City of New York.

2. On October 21, 1946 when the assessment list for the taxes included thereunder was received by the Collector, the plaintiff, United States of America , acquired a lien for $4,558.55 against all the property belonging to the defendant, Joseph Pagan.

3. It is stipulated and agreed by the United States Government and the Corporation Counsel of the City of New York , appearing for Thomas Rosetti, as Property Clerk of the Police Department of the City of New York , that Joseph Pagan obtained $1,000 of the $3,500 from unlawful sources, policy collecting, and the remaining $2,500 from lawful sources.

Conclusions of Law

1. There was put in evidence by the defendant Property Clerk and admitted by the Court in the expectation that it would be the subject of further evidence, an instrument acknowledged on September 19, 1946, by one Anthony Pagan, purporting to be a power of attorney of John Pagan, and including an assignment to John Pagan of the right, title and interest of Anthony Pagan in a sum of $3,500 in the custody of the Property Clerk. There is no evidence in the case of the date of the delivery of the instrument of John Pagan named as attorney in fact and as assignee nor was there any evidence that the Anthony Pagan who executed it was the defendant Joseph Anthony Pagan. It is, therefore, stricken from the evidence as irrelevant.

2. Judgment is awarded the plaintiff, United States of America , in the amount of $2,500.

[Opinion]

It is the contention of the Government that its tax lien against Joseph Pagan entitles it to all of the $3,500 taken from Joseph Pagan at the time of his arrest by a New York City policeman. Section 3670, Title 26 U. S. C. A., provides for "a lien in favor of the United States on all property or rights to property whether real or personal, belonging to such person". The Government in this case has stipulated that $1,000 of the $3,500 taken from Pagan was obtained by unlawful means. Pagan, under the law of New York State never did have and has not now any interest in or title to that thousand dollars. Hofferman v. Simmons, 290 N. Y. 449.

The Government's stipulation as to the unlawful source of the $1,000 overcomes any presumption of title from possession which would ordinarily operate with respect to currency. There is no reason on the facts of this case for this Court to determine to what extent the Government would be bound by §435-4.0(f) of the Administrative Code of the City of New York which in effect places the burden of proving lawful source on a claimant. See U. S. v. Manufacturers Trust Company, 198 Fed. (2d) 366 [52-2 USTC ¶9417]. The Government has conceded the unlawful source of the $1,000. This concludes the Government from claiming that it belongs to the taxpayer.

On the other hand the City of New York has conceded the lawful source of the $2,500 and, therefore, on the facts in this case, legal title would appear to be in the delinquent taxpayer. The Corporation Counsel's efforts to seek benefit from the doctrine of confusion of goods, is without merit. That doctrine only applies when the quantity and value of each owner cannot be determined. The stipulation of City official and Government here obviates any such question.

 

[65-1 USTC ¶9255] United States of America , Plaintiff v. Webster-Robinson Machinery and Supply Company, Inc., Defendant

U. S. District Court, West. Dist. Wash. , So. Div., No. 2866, 2/19/65

[1954 Code Secs. 6331 and 6332]

Tax lien: Property illegally repossessed.--A company which sold equipment on open account and illegally repossessed and resold the property after a federal lien for income taxes owed by the purchaser had attached to the property was liable on the lien to the extent of the fair market value of the equipment. The government was entitled to interest on the fair market value of equipment which was seized and resold after the seller had actual notice of the tax lien.

William N. Goodwin, United States Attorney, Dale L. Carlisle, Assistant United States Attorney, Tacoma, Wash., for plaintiff. James V. Ramsdell, 1221 Puget Sound Bank Bldg., Tacoma, Wash., for defendant.

Findings of Fact and Conclusions of Law

BOLDT, District Judge:

The above entitled action came on for trial on December 17 and 18, 1964, before the undersigned Judge of the United States District Court for the Western District of Washington, Southern Division. The plaintiff appeared and was represented by and through its counsel, William N. Goodwin, United States Attorney for the Western District of Washington, and Dale L. Carlisle, Assistant United States Attorney for said District. The defendant appeared and was represented by and through its counsel, James V. Ramsdell, 1221 Puget Sound Bank Building , Tacoma , Washington . Having considered the pleadings, testimony, exhibits, stipulations, arguments and briefs, and being fully advised in the premises, and having rendered its memorandum opinion in open Court on December 18, 1964, which opinion is incorporated by reference herein, the Court hereby makes the following additional Findings of Fact and Conclusions of Law.

Findings of Fact

1. This is a civil action for damages from the defendant for conversion of the plaintiff's lien interest in certain items of woodworking equipment and to recover a penalty and interest from the defendant for failure to honor a levy made by the plaintiff pursuant to Title 26, U. S. C. Sections 6331 and 6332.

2. The defendant Webster-Robinson Machinery and Supply Company, Inc., is a corporation organized under the laws of the State of Washington and doing business at 1535 Bay Street , Tacoma , Washington . The defendant Corporation is engaged in the sale of industrial machinery and was so engaged in 1959.

3. In 1959, the taxpayer Kanama, Inc., was a Corporation organized under the laws of the State of Washington and doing business at Sumner , Washington . On August 14, 1959, the District Director of Internal Revenue at Seattle , Washington , made an assessment in the amount of $2,442.25 against the taxpayer, Kanama, Inc., for unpaid federal withholding and FICA taxes due for the second quarter of the calendar year of 1959. This assessment was based upon a return filed without a remittance by the taxpayer and accepted by the District Director. Notice of this assessment and demand for payment thereof were duly served on said taxpayer by mail on said date by the District Director but the taxpayer has neglected and refused to pay the assessment. Some payments have been received and property sales conducted and the balance presently due upon this assessment is $2,197.16 plus interest to December 17, 1964, in the amount of $715.62.

4. On or about April 6, 1959, the taxpayer Kanama, Inc., through its authorized officers, ordered from the defendant Webster-Robinson Machinery & Supply Company, Inc., certain items of industrial woodworking machinery and subsequently received them on the dates and for the prices set forth in particular in the following schedule:

                   

Sale

 Price

                  (Excl. State              Date               Terms on

Item                Sales Tax)           Delivered             Invoices

                                                               1/2 cash

(1) One DW-1 Belt Sander  $ 627.50     5/8/59              bal. 60 days

                                                               1/2 cash

(2) One 16-SD 16" Sander    319.75     4/22/59             bal. 60 days

(3) One Comet "Davis-Wells" Single Spindle Boring              1/2 cash

Machine ...                 249.50     4/14/59             bal. 60 days

(4) One Comet "Clipper" Model CLC Radial Arm Saw               1/2 cash

# VD-4857-C11583 ......     677.95     4/22/59             bal. 60 days

(5) One Comet "Senior" Radial Arm Saw # TI-3384-F

9573 .............          965.00     4/14/59           Net 10th prox.

TOTAL ..........           $2,839.70

[No Conditional Sales Contract]

5. The sale of this equipment was on open account and that document or memoranda of sale identified as Pretrial Exhibit "A" at trial purporting to be a conditional sales contract and purportedly executed April 14, 1959 is not valid as a conditional sales contract. Furthermore, since the document which does exist was not filed and recorded under the provisions of the Washington State recording statutes at Revised Code of Washington 63.12.010 and 63.12.020, it is not effective as against the Federal Tax Lien held by a third party, the United States Government. The taxpayer had paid to the defendant a total of $2400 toward the purchase price of this woodworking equipment prior to August 21, 1959. The balance due the defendant from the taxpayer Kanama, Inc., on August 21, 1959, was a balance due on open account, which account included various debits for purchases other than those described in Paragraph 4 above.

[Illegal Repossession]

6. On August 14, 1959, the date of the assessment described in Paragraph 3 above, the items of woodworking machinery described in paragraph 4 above were on the premises of the taxpayer, Kanama, Inc., and in the possession of Kanama, Inc. On August 21, 1964, representatives of the defendant entered the premises of Kanama, Inc. and removed these items of woodworking equipment. This removal was neither agreed to nor authorized by Kanama, Inc. The defendant had no authority or permission on August 21, 1959, to remove and take possession of this equipment under claim of repossession or for any other reason.

7. On November 6, 1959, plaintiff's Notice of Federal Tax Lien upon all property and rights to property of the taxpayer was filed with the Auditor of Pierce County, Washington. On November 20, 1959, a representative of the District Director of Internal Revenue served upon the defendant at its place of business in Pierce County , Washington , a Notice of Levy accompanied by a letter explaining the third-party levy and a copy of the lien. This notified defendant that all property, sums of money, or other obligations in the possession of the defendant and belonging or owing to the taxpayer Kanama, Inc., were levied upon and seized for satisfaction of the assessed tax liabilities of the taxpayer and demanding surrender of such property or payment of such amounts as the defendant may have in its possession belonging or owing to said taxpayer. Between August 21, 1959 and November 6, 1959, the defendant had resold all of the items of woodworking equipment taken from Kanama, Inc., with the exception of item No. "2", a "Max 16 SD 16" Disc Sander." (See paragraph 4 above). This disc sander was still in the possession of the defendant until sometime subsequent to May of 1960 when it was also resold by the defendant. The defendant has refused and continues to refuse to pay to the District Director the amount of the assessment or surrender any item of machinery under the aforementioned assessment and levy.

8. The woodworking equipment described above was resold by the defendant to others as set forth below:

Description                          Date of Resale       Resale Price

(1) Comet "Davis-Wells" Belt Sander    Sept. 15, 1959       $ 425.00

                                        Sometime after

(2) Max 16 SD 16" Disc Sander .....    May, 1960              Unknown

(3) Comet "

Davis

 Wells" Single Spindle Boring Machine Aug. 25, 1959           150.00

(4) Comet "Senior" Model Radial Arm Saw  Sept. 9, 1959         525.95

(5) Comet "Clipper" Model Radial Arm Saw Oct. 16, 1959         915.00

TOTAL Selling Price on Resale (Excluding Item No. 2)        $2,015.95

[Fair Market Value Determined]

9. In determining the fair market value of these items of woodworking equipment on August 21, 1959, the date they were unlawfully taken from the taxpayer's premises by the defendant, the evidence of fair market value to be considered includes: (1) the original selling price; (2) the use and condition of the equipment; and, (3) the price for which the equipment was subsequently resold in the presumptively "open market." The purportedly expert testimony of the interested defense witnesses Terry Webster and Stewart Webster on fair market value has been considered; however, expert testimony is not necessary nor is it controlling in these circumstances where there is substantial other evidence of fair market value. In general the testimony of the plaintiff's witnesses Meyer, Sodergren and Floyd is more credible than that of the defendant's witnesses.

The equipment herein was sold new, taken back, and resold all within a short period of time. The resale price of this woodworking equipment is its fair market value. A deduction from the resale price should be allowed for the reasonable cost of reconditioning the equipment in preparation for resale. The items of equipment numbered 1, 3, 4 and 5 in paragraph 4 and 8 above were resold for $2,015.95. The evidence presented by the defendant of the cost of reconditioning this equipment is unsatisfactory and unconvincing and the precise cost cannot be determined. Allowing a reasonable cost for reconditioning, I find the fair market value of the items numbered 1, 3, 4 and 5 in paragraphs 4 and 8 above on August 21, 1959 was $1,750.00.

Considering the evidence of the condition of the Disc Sander and of the fair market value of those items of equipment for which the resale price is available, I find the fair market value of the Disc Sander, Item No. 2 in Paragraphs 4 and 8 above, was $250.00 on August 21, 1959.

10. Any Finding of Fact contained herein which is properly a conclusion of law shall be deemed a conclusion of law.

From the foregoing Findings of Fact, the Court makes the following

 

 

[91-2 USTC ¶50,442] United States of America , Plaintiff v. Walter G. Rusyniak, Syracuse Aircraft Sales and Service, Inc., and New York State Tax Commission, Defendants

U.S. District Court, No. Dist. N.Y. , 84-CV-995, 8/28/91

[Code Secs. 6332 and 6901 ]

Fraudulently diverting assets: Tax levy: Penalty.--An owner and shareholder of a corporation fraudulently diverted corporate assets for personal use; thus, the United States was entitled to a judgment on the tax levy on the assets, and penalties were duly assessed. The funds, which were wired to the taxpayer's bank account, were not compensation for the taxpayer's past and future services on a project in which he engaged, but, rather, were in satisfaction of promissory notes issued by the purchase of corporate assets. Therefore, since the funds were the property of the selling corporation, the taxpayer wrongfully diverted said funds without consideration and in fraud of creditors.

Frederick J. Scullin, Jr., United States Attorney, Paula Ryan Conan, Assistant United States Attorney, Syracuse , N.Y. 13260 , Eugene Rossi, Department of Justice, Washington , D.C. 20044 , for plaintiff. Charles J. Engel, Jr., 650 James St. , Syracuse , N.Y. 13203 , for W.G. Rusyniak. Robert Abrams, Attorney General, Alan Hageman, Assistant Attorney General, Albany, N.Y. 12224, for New York State Tax Commission.

MEMORANDUM DECISION AND ORDER

I. Introduction

MCCURN, Chief Judge:

This is an action by the United States against Walter G. Rusyniak, and a corporation, Syracuse Aircraft Sales and Service, Inc. ("SAS"), seeking to recover unpaid taxes. The complaint alleges that Mr. Rusyniak was a transferee of certain of SAS's assets without consideration or in fraud of creditors. Specifically, the government alleges that Mr. Rusyniak, who was president and the sole shareholder of SAS, received the sum of $250,000 for the purchase of the assets of SAS pursuant to a purchase agreement. The government contends that Mr. Rusyniak diverted $100,000 of this sum for his personal use, in derogation of the rights of SAS's creditors, including the United States . Mr. Rusyniak contends, on the other hand, that the $100,000 was paid as part of a separate agreement under which he was to develop a resort project in Panama .

The United States seeks judgment (1) against Mr. Rusyniak for failure to honor a tax levy; (2) against Mr. Rusyniak for a 50 percent penalty for his willful failure to honor the tax levy; (3) to the extent liability is not satisfied by collection on the levy, that Mr. Rusyniak be declared a fraudulent transferee of SAS's property; (4) in the alternative, for an order directing Mr. Rusyniak to account for and holding him liable for funds Mr. Rusyniak received in his fiduciary capacity as president and sole shareholder of SAS; and (5) in the alternative, holding Mr. Rusyniak liable for tortious conversion of the tax lien for those funds transferred to Mr. Rusyniak's use prior to the date of the tax levy. This matter was tried to the court without a jury on October 5, 1990, and post-trial briefs were submitted. Pursuant to Fed.R.Civ.P. 52, the court makes the following findings of fact and conclusions of law. ¹

II. Background

Mr. Rusyniak was the owner and sole shareholder of SAS and another corporation, Baldwinsville Building Supply Company ("BBS"). The two corporations operated a hangar and fixed-base commercial aviation business at Hancock Field outside of Syracuse , New York . BBS held a lease from the City of Syracuse to the hangar, fuel "farm," and the real property. SAS was involved in airplane sales, leasing, fuel sales, and service. In or about 1976, Mr. Rusyniak became acquainted with Dr. Goffredo Gensini, who sought assistance from Mr. Rusyniak in purchasing an airplane.

In or around 1978, Mr. Rusyniak and Dr. Gensini began to discuss plans for a resort complex in Panama . The two subsequently made a number of trips to Panama to make preparations for the resort project. Two corporations were formed in Panama for development of the project. Mr. Rusyniak, Dr. Gensini, and two business associates of Dr. Gensini, Enrico Martellini and Fulvio Pacini, were among the shareholders in the corporations.

Mr. Rusyniak was expected by Dr. Gensini to be responsible generally for construction of the project. Mr. Rusyniak, in addition to being an experienced pilot, had a background in building construction and land development. Mr. Rusyniak traveled to Panama a number of times from 1978 to 1981 in furtherance of the project, and was not reimbursed by Dr. Gensini or the corporations for his efforts. At a board meeting on January 10, 1981, Mr. Rusyniak was hired as general manager for the Panama project, at an annual salary of $80,000, for a six-month trial period. See Exhibit 16.

On March 12, 1981, Mr. Rusyniak and Dr. Gensini entered into a sale agreement for the sale of the assets of SAS and BBS in Syracuse to two corporations organized by Dr. Gensini, Genav, Inc. ("Genav") and Airex Sales and Service, Inc. ("Airex"). See Exhibit 3 (hereinafter referred to as the "Sale Agreement"). Messrs. Martellini and Pacini, the associates of Dr. Gensini involved in the Panama project, were also shareholders in Genav and Airex. Of importance here is the provision in the Sale Agreement for the issuance of three promissory notes by the Gensini corporations in the amounts of $43,300, $48,000, and $52,000. Payment of 50 percent of the $43,300 note was personally guaranteed by Dr. Gensini; payment of the $48,000 and $52,000 notes was not. In addition, while a written promissory note was presented for $43,300, no notes were ever drafted for the $48,000 and $52,000 obligations. A scheduled March 16, 1981, closing never occurred, but a bill of sale was signed on June 2, 1981.

At issue in this case is a payment of $100,000 that was wired by Pacini to a joint bank account held by Mr. Rusyniak and his wife in Panama on February 25, 1981. It is the government's position that the $100,000 was in satisfaction of the $48,000 and $52,000 promissory notes, and was thus a corporate asset of SAS. The plaintiff contends that the $100,000 was a payment for his past and future services on the Panama project, and that it was unrelated to the sale of SAS.

III. Trial

The parties agree that the sole issue presented to the court is whether the $100,000 was a proceed from the sale of SAS, and therefore a corporate asset of SAS, or a payment for personal services to Mr. Rusyniak. The parties stipulated to the following:

1. Mr. Rusyniak was served with a notice of tax levy on February 1, 1982. (The tax levy is Government's Exhibit 18).

2. On February 25, 1981, Mr. Rusyniak and his wife Antoinette received an international wire transfer of $100,000 from Pacini to their account in a Panama bank. The funds were shortly thereafter placed in a time deposit account at that bank in the name of Mr. Rusyniak and his wife. The time deposit account was closed on December 17, 1982, by Mr. Rusyniak and his wife.

3. During the period the time deposit account was in existence, Mr. Rusyniak and his wife expended funds from the account for their personal use and investments.

4. On February 1, 1982, when the tax levy was served on Mr. Rusyniak, the time deposit account at the Panama bank had a balance of $26,433.

5. Mr. Rusyniak and his wife filed joint federal income tax returns for the years 1981 through 1985. They did not list as income either the principal or the interest from the time deposit account.

6. The 1986 federal income tax return of Mr. Rusyniak and his wife listed $57,000 of the $100,000 in dispute as "monies on default of contract." The return was signed and filed on or about October 14, 1988.

7. Mr. Rusyniak has not reported the remaining $43,000 of the $100,000 on his federal income tax returns, nor has he reported the interest that accrued on those funds while they were in the time deposit account in Panama .

8. The two promissory notes of $48,000 and $52,000, respectively, referred to in the Sale Agreement were neither drafted, signed, nor the subject of litigation between Mr. Rusyniak and Dr. Gensini.

9. BBS sued Dr. Gensini on his personal guarantee for payment of one-half of the $43,300 promissory note that was signed by Dr. Gensini as president of Genav, and personally as partial guarantor, which note was partial consideration for the Sale Agreement.

The parties also stipulated to the admission of two depositions taken of Dr. Gensini, who died in 1986, and agreed to the admission of numerous documents into evidence.

Barry R. Hill, an attorney who represented Dr. Gensini in the purchase of the assets of SAS and BBS, testified for the government. Mr. Hill testified that he was present at the signing of the Sale Agreement, and that no promissory notes for the $48,000 and $52,000 obligations were produced. Mr. Hill also stated that he was present at a meeting at the airport on February 25, 1981, that was also attended by Dr. Gensini, Mr. Rusyniak, Mr. Rusyniak's attorney, Mr. Engel, and Mr. Rusyniak's accountant, Robert Fagliarone. Mr. Hill stated that he was under the impression at that meeting that the money to be represented by the two promissory notes, a total of $100,000, "had already been paid." (T 37) ² Mr. Hill did not represent Dr. Gensini in his dealings with Mr. Rusyniak on the Panama project.

Mr. Hill testified on cross-examination that he did not prepare promissory notes on the $48,000 and $52,000 obligations and bring them to the signing of the Sale Agreement because he understood that the $100,000 on the notes had already been paid. Mr. Hill stated that, although the issuance of the notes by the Gensini corporations remained a provision in the Sale Agreement, he did not bother to change the contract because the money had been paid and no notes existed. Upon questioning by Mr. Engel, Mr. Hill stated:

Q: I think you already told us you did not make any change on the March 12 contract indicating that either the $48,000 or $52,000 had already been paid?

A: I didn't have to. We knew the money was in a Panama bank so there was no reason to be concerned about it.

(T 55).

Mr. Hill also testified that Victor Chini, an attorney representing Dr. Gensini, received a letter from the Internal Revenue Service, dated May 24, 1982, inquiring about the satisfaction of the payments provided for in the Sale Agreement. Defendant's Exhibit J. Mr. Chini then contacted Dr. Gensini to inquire about the payments. Mr. Hill prepared an affidavit for Dr. Gensini in reply, in which Dr. Gensini avers that the $100,000 representing the payments on the $48,000 and $52,000 promissory notes "had previously been paid to Mr. Rusyniak in February 1981 by the transfer of $100,000 from a Swiss bank...to Mr. Rusyniak's bank in Panama and to my knowledge Mr. Rusyniak went to Panama in February or March of 1981 to verify the transfer and receive the funds." Government's Exhibit 14, ¶4.

At the close of the government's proof, Mr. Rossi for the United States referred the court to specific passages in the Dr. Gensini depositions that were admitted into evidence. ³ Dr. Gensini testified at his December 16, 1982 deposition, after describing his efforts to have Mr. Rusyniak purchase a tractor in Miami, Florida, to be used in the Panama project, that:

The time was going by and Mr. Rusyniak told me that unless he settled his business in Syracuse, unless this contract that we had been discussing was perfected, unless all the money had been paid, he could not in good [conscience] go to Florida and then on to Panama. So this put a lot of pressure on me to go ahead and close this deal.

Government's Exhibit 27, p. 163.

Dr. Gensini testified at his June 28, 1985 deposition that, although the $48,000 and $52,000 notes were included in the Sale Agreement, they were not issued because Mr. Rusyniak told Dr. Gensini that he had received the money. Exhibit 26, p. 35-41. Dr. Gensini testified:

Q: You began telling us something about why [the notes] weren't issued. I want to ask this. Did Mr. Rusyniak before March 12, 1981 ever acknowledge to you that he did or did not receive any part of that hundred thousand dollars?

A: Yes, he acknowledged to me that he had received all of it.

Q: He had?

A: That, as you can see, those two notes form, when put together, $100,000.

Exhibit 26, p. 37-38.

Dr. Gensini further testified that at the meeting on March 12, 1981, when the Sale Agreement was signed, there was a discussion regarding the two notes. Dr. Gensini stated:

Q: . . . Now was there any discussion at that meeting concerning the two notes that we spoke of as to whether or not it would be necessary to execute these notes or whether it would not be necessary to execute these notes?

A: Right, a discussion was made that it would not be necessary to issue these notes because the obligation had been satisfied prior to the signature of this.

Q: Did Mr. Rusyniak at that meeting acknowledge that he had received that money?

A: Yeah.

Exhibit 26, p. 64-65.

With respect to Dr. Gensini's affidavit prepared in response to the IRS inquiry, Dr. Gensini testified:

Q: And I would assume that [Mr. Chini and Mr. Hill] asked you whether or not those two notes had been paid?

A: Two notes?

Q: The $48,000 and $52,000 note.

A: Yes, yes, yes.

* * *

Q: Now what did you tell them about those two notes?

A: That they had been paid.

Q: And how did you know that?

A: Because Mr. Rusyniak had told me they bad been paid and because Mr. Martellini had assured me that the money representing those two notes had already been arranged for transfer to Mr. Rusyniak.

Exhibit 26, p. 104.

Mr. Rusyniak testified on his own behalf. He described his association with Dr. Gensini, and his responsibilities with respect to the Panama project. He and Dr. Gensini conceived a number of ideas for the project, including a fishing lodge, a hotel or motel operation, expansion of the existing airport, golf courses, and even medical and agricultural facilities. Mr. Rusyniak flew to Panama with two different architects to draw up plans for the project to be presented to the Panamanian government, and participated in discussions with the government in trying to gain approval of the project. He took part in land acquisition. Mr. Rusyniak also referred in his testimony to the minutes of a January 25, 1981, meeting of the shareholders of the Panamanian corporations (Government's Exhibit 23) in which some of Mr. Rusyniak's responsibilities are listed as clearing land around an airport runway, testing water supplies and developing a plan for insect control. A contract for the project was eventually approved by the Panamanian government.

Mr. Rusyniak stated that he met with the board of directors of the Panamanian corporations on January 10, 1981, and an agreement was reached that he would be paid an annual salary of $80,000 plus expenses. Mr. Rusyniak testified that he also had separate discussions with Dr. Gensini, and Messrs. Martellini and Pacini, during which he requested that $100,000 be sent to Panama for his use so he could move his family there and have money for expenses. Mr. Rusyniak testified:

Q: Now, what was their response to your demand for that sum of money?

A: They said they would do it.

Q: And did there come a time when you found out that $100,000 had been transferred?

A: Yes.

Q: To Panama ?

A: Yes.

(T 109).

Mr. Rusyniak further testified that:

the [$]100,000 that was sent down there was strictly for the use of my family and security that I would have money available for my family and possibly for the project. If there was a time that payroll money didn't arrive, I didn't want my people to walk off because they didn't have money. If I had to borrow money in that account and put in the Baya Esmerelda account to pay payroll, I wanted that money available, even though it was short term.

(T 140-41).

Mr. Rusyniak also testified about his lawsuit against Dr. Gensini and Genav. He stated that he sought to recover on the $43,300 note, and not on the $48,000 and $52,000 notes, because Dr. Gensini had personally guaranteed half of the $43,300 note, and not the others. Mr. Rusyniak did not believe the money on the other notes was recoverable, he said, because the airport business under the Gensini corporations was faltering. Mr. Rusyniak testified:

Q: And why didn't you bring a lawsuit on the... payments that were never turned into notes?

A: Because it was gone. The business, they had ruined the business. There was nothing left at Airex. Gensini and his group completely devastated the business. Why sue something where I couldn't possibly collect? Lawyer's fees are very, very expensive and I didn't want to go through that on something that I couldn't collect on. But the $43,000 note was there, was half guaranteed by the doctor and I knew the doctor had money.

(T 142-43).

Mr. Rusyniak testified on cross-examination that he transferred $95,000 from the Panama bank account to which the $100,000 had been wired to a higher-interest-bearing time deposit account on March 16, 1981, the same day as the closing scheduled by the Sale Agreement. ⁴ Mr. Rusyniak also acknowledged that the position of general manager of the Panama project was terminated by vote of the board of directors of the Panama corporations on June 10, 1981. The minutes of that meeting state that:

The position of General Manager for construction in Punta Coco in practice cease[s] to exist. Nevertheless Mr. Walter Rusyniak who held this position performed different duties and services and it was unanimously agreed by the board that Baya Esmeralda would pay to Mr. Rusyniak $10,000 (ten thousand dollars) in lieu of all claims related to the position of General Manager of Baya Esmeralda, and/or Del Rey.

Government's Exhibit 15. Mr. Rusyniak maintained, however, that although the general manager position was terminated, he still had other duties to perform on the project.

Robert Fagliarone, the accountant for Mr. Rusyniak, SAS and BBS, testified about Mr. Rusyniak's federal income tax returns from 1981 to 1986. Mr. Fagliarone stated that the $100,000 received by Mr. Rusyniak was not included as income on Mr. Rusyniak's tax returns for the years 1981 through 1985. $57,000 of that amount was reported on Mr. Rusyniak's 1986 tax return, and the remaining $43,000 was offset against the $43,300 note owed by Genav to BBS. Mr. Fagliarone said the $100,000 was not declared as income when it was received since it must only be reported as income when it is "earned," determined by when the recipient performs the services for which the money is paid. Mr. Fagliarone said he was under the impression from his discussions with Mr. Rusyniak that the $100,000 was for future services and was in an escrow account in Panama . ⁵

Mr. Fagliarone said he had discussions with IRS officer Chuck Miller, who inquired about the disposition of the $100,000. Mr. Fagliarone said he was aware of the clause in the March 12, 1981 sale agreement providing for the promissory notes, and told Miller that two notes receivable were the only assets of SAS. Mr. Fagliarone acknowledged that the two notes were not included as assets of SAS on the income tax information sheet, Form 433, that was prepared by Mr. Rusyniak.

In defendant's post-trial brief, counsel refers the court to several portions of the Dr. Gensini depositions to support defendant's arguments that (1) Dr. Gensini's own tax problems, as evidenced by the IRS's inquiry to attorney Chini, provided him with a motive to claim that the $100,000 was paid as part of the consideration for the purchase of SAS and BBS, and (2) that the money was actually a payment to Mr. Rusyniak for personal services on the Panama project. Dr. Gensini testified extensively during the 1982 deposition (Government's Exhibit 27) about the development project in Panama , and Mr. Rusyniak's role. As general manager, Mr. Rusyniak was to be responsible for construction, repair, and installation of the buildings, lodges, motels and villas that were proposed for the project. The work was to be done in phases, and the first phase, clearing and otherwise preparing the land for construction, was to take six months. Mr. Rusyniak was to obtain final construction plans. Defendant contends these facts indicate Dr. Gensini intended Mr. Rusyniak to work beyond the six-month preparation phase. Dr. Gensini also testified that Mr. Rusyniak was uniquely suited to the responsibilities required for the project, because he was a pilot, was familiar with the area and people involved in the project, and was experienced in building construction and land development.

Dr. Gensini testified that there was a dispute between him and Mr. Rusyniak involving the payment of bills immediately after the Sale Agreement was signed on March 12, 1981. Defendant contends this is the reason the March 16 closing never took place, at which time defendant presumes the $48,000 and $52,000 notes would have been issued.

Dr. Gensini testified in the 1982 deposition that he had a dispute with Mr. Rusyniak in February 1981 about Mr. Rusyniak making a trip to Panama without informing Dr. Gensini of his whereabouts, leaving Dr. Gensini "in a quandary not only with the business in Panama but also his business here in Syracuse." Dr. Gensini testified:

Q: Well, that was your emotional reaction, but did you determine he was doing anything relative to the project at the island of Punta Coco ?

A: No, he did not, and that was a surprise because insofar as he had been hired as the general manager and he was the general manager at the time, going to Panama and not inquiring or doing anything about the project would have been strange, and when I confronted him with that fact, he says he had to get out of town because he needed the rest.

Q: Okay.

A: But the point was that it appears that, you know, one of the reasons why he had gone to Panama was to find out whether or not a certain amount of money had been deposited in his account.

Q: So he had a business purpose in going to Panama ?

A: Right.

Q: Now, prior to March 12, 1981, did you have any other conversations with Mr. Rusyniak relative to his managing the development of the Panamanian property?

A: I think I have said it all, in essence.

(Exhibit 27, p. 175-76). The defendant notes that this deposition was conducted after Dr. Gensini had prepared his affidavit for the IRS stating that the $100,000 had been sent to Panama as payment of sale proceeds in the SAS transaction. Defendant asserts that if the $100,000 was consideration for the sale of SAS, as Dr. Gensini stated in his affidavit, he would have mentioned it in his deposition.

In Dr. Gensini's 1985 deposition, Dr. Gensini describes a conversation with Mr. Rusyniak about the $100,000 payment. The defendant claims Dr. Gensini equivocates on the question whether the money was received as sale proceeds or payment for services, and that Dr. Gensini, even though prodded by the government's attorney, never clearly stated that the money was sale proceeds. Dr. Gensini testified:

Q: When you say he received what he wanted, did he receive the cash that those notes represented, the $48,000 and the $52,000?

A: I have no way of knowing other than Mr. Rusyniak's assuring me that he was completely satisfied with the thing as it stood and that he had been paid.

Q: Well, that is what I'm getting at. Did he actually tell you that he had already received the sums of $48,000 and $52,000 before this agreement was signed?

A: Okay, let us say that, you know, this contract was not supposed to be signed and had on March 12. This contract really was supposed to be signed and sealed on March 1st. Okay?

Q: All right.

A: You follow me? And at or about that time I was told by Mr. Rusyniak that he was not going to--he was not going to be ready to sign this contract on March 1st and that he had to ascertain certain things before he went ahead with it.

Q: Did he tell you what those things were that he had to ascertain?

A: Well, I believed that it was whether or not the additional hundred thousand dollars had been paid.

Q: Well, did he say that in so many words, that he wanted to be sure that he got the hundred thousand dollars? Did he say it in words of that fashion?

A: Yeah, I think he did say that he wanted to make sure that he had been paid all that was coming to him.

(Exhibit 26, p. 35-36).

IV. Discussion

The government makes the following assertions based on the evidence:

1. Of the four individuals intimately involved with the Sale Agreement--Mr. Rusyniak, his attorney Mr. Engel, Dr. Gensini, and his attorney Mr. Hill--two of them, Dr. Gensini and Mr. Hill, testified that the $100,000 was intended to be part of the contract consideration. On the other hand, Mr. Rusyniak, although maintaining the money was income for personal services, failed to treat the money as personal service income when filing his tax returns.

2. Despite his protestations that he was to continue working on the Panama project, the minutes of the June 10, 1981, board meeting clearly indicate Mr. Rusyniak's job as general manager was terminated and he was to receive $10,000 in settlement of all claims.

3. Mr. Rusyniak was aware that the funds received by SAS from the Sale Agreement would be subject to the superior interests of banks, and possibly the Internal Revenue Service, and yet he converted the funds to his own use.

4. The minutes of the January 27, 1981, meeting of the board of directors of Airex indicate that Messrs. Martellini and Pacini were obligated to pay $100,000 as final payment for the shares of SAS and BBS. (Government's Exhibit 4).

5. The fact that Mr. Rusyniak transferred $95,000 from his Panamanian bank account to a time deposit account on March 16, 1981, the same day as the scheduled closing, indicates that Mr. Rusyniak believed that on that date, he would have the legal right to exert control over the SAS proceeds.

6. Mr. Rusyniak never asked his attorney to draft the $48,000 and $52,000 notes, nor did he insist that Dr. Gensini personally obligate himself on those notes, as he did on the $43,300 note.

7. Mr. Rusyniak signed the June 2, 1981, bill of sale without ever having received the two notes, indicating that he had already been paid in lieu of the two notes.

The defendant contends that the following support his position that the $100,000 was paid for salary and expenses in development of the Panama project:

1. The SAS notes were not deleted from the Sale Agreement, even though the government maintains their prior payment was discussed on the date of signing.

2. Prior payments made in relation to the Syracuse operations were deposited into an SAS account, and no reason is given by the government why the same was not done with the $100,000 payment.

3. The scheduled March 16, 1981 closing never took place at which the notes would have been presented, and the notes were never prepared because of disputes between Mr. Rusyniak and Dr. Gensini.

4. The $100,000 wired to Panama was made payable to Walter Rusyniak and his wife.

5. Mr. Rusyniak believed that the $100,000 was security for his future salary.

6. Mr. Rusyniak had a variety of skills and qualifications which gave him bargaining power to demand advance payment of salary to be earned.

7. Dr. Gensini did not mention the purpose of the $100,000 payment in his 1982 deposition, even though he had signed an affidavit for the IRS stating the payment was for the two SAS notes prior to the deposition.

8. Dr. Gensini's testimony in the 1985 deposition was equivocal, and he did not state emphatically that the $100,000 was for payment of the two notes despite "leading questions and a huddle with his attorney." Defendant's Post-Trial Memorandum, p. 30.

9. Dr. Gensini stated in his affidavit that the notes were paid by the payment to Mr. Rusyniak, but he does not state the source of his information.

10. Dr. Gensini had a substantial financial interest in claiming that his corporations had already paid the notes.

There is no question, and the government does not attempt to disavow, that Mr. Rusyniak performed services for Dr. Gensini and the Panamanian corporations in Panama. There is also some evidence supporting Mr. Rusyniak's position that the $100,000 was a payment for his personal services. Most notable is the fact that the Sale Agreement as signed still included the clause requiring presentation of the promissory notes, even though Dr. Gensini and his attorney maintained they had been paid.

However, the evidence taken as a whole unquestionably points to the conclusion that the $100,000 wired to Mr. Rusyniak in Panama was consideration for the sale of the assets of SAS. Both Dr. Gensini and his attorney, Mr. Hill, testified that the obligations to be represented by the $48,000 and $52,000 notes were satisfied by the $100,000 payment wired to Mr. Rusyniak. In Dr. Gensini's affidavit for the IRS, he made the same statement. Mr. Rusyniak's job as general manager of the Panamanian project was terminated by the board of directors, and he was paid $10,000 "for different duties and services . . . in lieu of all claims related to the position of General Manager. . . ." The minutes of the January 27, 1981, meeting of Airex's board of directors indicate that $100,000 is to be remitted as final payment for the shares purchased by the Gensini corporations. The transfer by Mr. Rusyniak of $95,000 to a time deposit account on March 16, 1981, the scheduled day for closing the sale, supports an inference that Mr. Rusyniak believed that on that day, he obtained a legal right to control of the funds. Mr. Rusyniak did not testify that he or his attorney ever requested the two promissory notes, and in fact Mr. Rusyniak signed the June 2, 1981, bill of sale, without ever having received the notes. It seems unlikely that Mr. Rusyniak would have concluded the sale without an assurance that he was to receive all of the sale proceeds. In addition, Dr. Gensini gave a personal guarantee for repayment of the $43,300 note, but not for the $48,000 and $52,000 notes. Mr. Rusyniak never commenced an action to recover on the $48,000 and $52,000 notes, although he did sue Dr. Gensini and Genav on the $43,300 note. In the Form 433 information statement Mr. Rusyniak prepared for the IRS, he did not list as assets of SAS the two notes as accounts receivable.

Mr. Rusyniak's stated belief that the money was for personal services is not necessarily inconsistent with the conclusion that the money was, in fact, consideration for the sale of SAS. Moreover, the court has serious reservations about accepting defendant's assertion that Dr. Gensini's statements made under oath regarding the disposition of the money were false. Dr. Gensini's statements are amply supported by the other evidence in the record. By reason of all of the foregoing, the court concludes that the $100,000 wired to Mr. Rusyniak in Panama was a proceed of the sale of SAS, and was thus SAS property.

The court turns now to the various theories of recovery asserted by the United States. As previously mentioned, the government seeks judgment against Mr. Rusyniak (1) for failure to honor a tax levy served upon him on February 1, 1982; (2) for a 50 percent penalty for Mr. Rusyniak's willful failure to honor the tax levy; (3) to the extent liability is not satisfied by collection on the levy, that Mr. Rusyniak be declared a fraudulent transferee of SAS's property; (4) in the alternative, directing Mr. Rusyniak to account for and holding him liable for funds he received in his fiduciary capacity as president and sole shareholder of SAS; and (5) in the alternative, holding Mr. Rusyniak liable for tortious conversion of the tax lien against SAS. ⁶

The solitary defense offered by the defendant is that the $100,000 transferred to Mr. Rusyniak was for personal services, and was not property of SAS. The defendant otherwise raises no objection to the various theories of recovery advanced by the government. The government first seeks judgment against Mr. Rusyniak for failure to honor the tax levy served upon him on February 1, 1982. ⁷ A person served with a tax levy has only two defenses for failure to comply with the demand, which are that the person is not in possession of the taxpayer's property, or that the property is subject to a prior judicial attachment or execution. United States v. Sterling Nat'l Bank & Trust Co. [74-1 USTC ¶9336 ], 494 F.2d 919, 921 (2d Cir. 1974). Here, the court has determined that the $100,000 was the property of SAS, and there is no evidence that the property was subject to attachment or execution. The United States is therefore entitled to judgment on the tax levy. ⁸ The government also seeks a penalty of an additional 50 percent of the amount of the taxpayer's property defendant had when the levy was served which may be assessed against an individual who fails to honor a tax levy without "reasonable cause." ⁹ The defendant does not argue that his stated belief that the money was a payment to him for personal services was "reasonable cause" to disregard the tax levy. Judgment is granted to the government on the 50 percent penalty under section 6332(d)(2) .

The government also seeks judgment against Mr. Rusyniak for fraudulent conveyance of SAS's property to his personal use, pursuant to New York Debtor and Creditor law §§273 and 276 . Section 273 is a "constructive fraud" statute, providing that a conveyance is fraudulent as to both present and future creditors when made without fair consideration and when the debtor is insolvent at the time of the transfer or is rendered insolvent by the transfer. Section 276 is an "actual fraud" statute, which makes fraudulent "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors. . . ." If a conveyance is fraudulent under these sections, a creditor may obtain judgment against the transferee to whom the debtor has transferred the property up to the value of the property, but not exceeding the amount of the creditor's claim. DeWest Realty Corp. v. Internal Revenue Service [76-2 USTC ¶9588 ], 418 F.Supp. 1274, 1279 (S.D.N.Y. 1976). The only defense offered by the defendant to these claims is, again, that the funds did not belong to SAS, but to the defendant. Judgment is granted on these claims up to the value of the property conveyed, and not exceeding the amount of the United States' claim. Consequently, it is unnecessary to consider the United States' alternative theories of recovery.

Conclusion

Judgment is granted to the United States for the amount of SAS proceeds in Mr. Rusyniak's possession on February 1, 1982, the date of the tax levy, and for a 50 percent penalty on that amount pursuant to 26 U.S.C. §6332(d) , i.e., $26,433 plus $13,217. Judgment is also granted to the United States for Mr. Rusyniak's fraudulent transfer of the $100,000 SAS proceeds, in an amount of $73,569, i.e., the balance of said proceeds. Total judgment of $113,217 against the defendant is accordingly granted to the plaintiff.

¹ SAS was not represented at trial, and the court entered a default judgment against SAS on October 5, 1990, in the amount of $154,394.50, for unpaid fuel taxes. The New York State Tax Commission, named as a defendant, has indicated it has no interest in this action. Thus, the only defendant of concern to the court in this decision is Rusyniak.

² "T" will hereinafter indicate the transcript of the trial, and the numbers following the letter "T" will indicate the page or pages of the transcript on which the cited testimony appears.

³ Dr. Gensini's December 16, 1982 deposition is Government's Exhibit 27. Dr. Gensini's June 28, 1985 deposition is Government's Exhibit 26. Mr. Rossi referred the court to Exhibit 27, p. 148-51, 159-64, and 172-74; and Exhibit 26, p. 35-41, 47-51, 64-65, and 103-05.

⁴ As mentioned previously, no closing took place on March 16, 1981.

⁵ After Fagliarone's testimony, the government requested, and was granted, permission to file a report from its own expert on accounting principles. The government accordingly submitted a signed statement by Internal Revenue Agent Michael R. Fox, C.P.A. Mr. Fox states that, in his opinion, given the circumstances under which Rusyniak received and used the $100,000, it was personal income to him in the year received, 1981.

⁶ At the beginning of the trial, the court expressed its concern about whether the complaint contained all the theories of recovery enumerated in the government's trial memorandum. The government moved after trial to amend its complaint to conform to the evidence presented at trial pursuant to Fed.R.Civ.P. 15(b), in the event the court determined the complaint did not give sufficient notice to the defendant of the issues to be presented. The court finds that the complaint did provide sufficient notice of the causes of action asserted. In addition, the defendant was aware, from the government's trial memorandum, of the government's theories, and did not respond to the government's motion. Further, the defendant is not prejudiced by allowing the government to pursue its additional theories, since there is little difference in the proof necessary to support them or to defend against them. See generally Wright, Miller and Kane, Federal Practice and Procedure, §1493 (1990).

⁷ The Internal Revenue Code imposes personal liability on "[a]ny person who fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary," in an amount equal to the value of the property or rights not surrendered, but not to exceed the amount of taxes for which the levy has been made. 26 U.S.C. §6332(d)(1) .

⁸ As stipulated to by the parties, the time deposit account in Panama had a balance of $26,433 when the tax levy was served.

⁹ Title 26 U.S.C. §6332(d)(2) provides, in part, that:

In addition to the personal liability imposed by [26 U.S.C. §6332(d)(1) ], if any person required to surrender property or rights to property fails or refuses to surrender such property or rights without reasonable cause, such person shall be liable for a penalty equal to 50 percent of the amount recoverable under paragraph (1).