Son Liable for Father's Unpaid Taxes

BY KAREN M. COOLEY, CPA, MBA AND DARLENE PULLIAM, CPA, PH.D.

The Tax Court affirmed an IRS determination that a son is liable for his father’s unpaid taxes as the transferee of his father’s Florida condominium. Florida’s Uniform Fraudulent Transfer Act (FUFTA) did not protect the son from the liability.

 

When his mother’s health declined in 1989, Scott Rubenstein moved from New Jersey to Florida to live with his parents. After his mother’s death, Rubenstein remained in Florida to care for his father, Jerry Rubenstein. In March 2002, Jerry Rubenstein purchased a condo in which they lived and nine months later transferred the condo to Scott Rubenstein for $10 and “other good and valuable consideration.” The fair market value of the condo was $41,000 at the date of transfer.

 

At that time, Scott Rubenstein knew that his father was insolvent and unable to pay his debts, which included $112,420 owed to the IRS for unpaid taxes, penalties and interest related to tax years 1994–2002. Eighteen months later, the IRS filed a notice of federal tax lien against the condo related to those unpaid taxes.

 

IRC § 6901(a) provides that the liability of a transferee of a taxpayer’s property may be “assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred.” The IRS argued that Scott Rubenstein was liable as a transferee under the FUFTA, which parallels the Uniform Fraudulent Transfer Act that has been adopted by most states.

 

Scott Rubenstein contended that the condo was “generally exempt under nonbankrupcty law” and as a result should not be considered an asset for purposes of the FUFTA.

 

The Tax Court sided with the IRS. The court held that the condo was properly considered an asset for purposes of the FUFTA, since the IRS could have reached it to collect Jerry Rubenstein’s taxes either by an administrative levy or by bringing a lien-foreclosure suit in federal court, regardless of any homestead exemption.

 

Further, the Tax Court held that Scott Rubenstein cared for his father out of love, and since there was no agreement to compensate him for that care, the care did not constitute the “other good and valuable consideration” given in the transfer of the condo to him. Consequently, the transfer was found to be constructively fraudulent under the FUFTA.

 

Pursuant to section 6901(a), Scott Rubenstein had transferee liability of $41,000 plus interest for unpaid tax liabilities, penalties and interest owed by his father.

 

  Scott E. Rubenstein v. Commissioner , 134 TC no. 13

 

By Karen M. Cooley, CPA, MBA, instructor of accounting, and Darlene Pulliam, CPA, Ph.D., McCray Professor of Business and professor of accounting, both of the College of Business, West Texas A&M University, Canyon, Texas.

 

More from the JofA:

 

 Find us on Facebook      Follow us on Twitter

 

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

QUIZ

News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.