In the past, I've talked about how one of the first analyses in any asset protection plan involves the Uniform Fraudulent Transfer Act, or UFTA. [To get an overview of UFTA, click here.]
A decision was rendered in a recent case that I believe can help teach how UFTA is applied to a variety of situations. The case is US v. Spencer, 2012 WL 4577927, 2012 Google Scholar 5889825508187822081 (N.D.Ok. 2012). In Spencer, Anthony Spencer was imprisoned for various criminal tax offenses. After serving his prison sentence, the IRS came after him to collect on his tax debts. While in prison, Spencer created a trust, naming his accountant as trustee. The IRS sought to levy the assets transferred into the trust. A number of UFTA issues were raised.
UFTA as applied to joint accounts. Before being transferred into trust, the assets in question were held in a joint account. The joint account holder was the one that actually made the withdrawal from the joint account and transferred the assets into the trust. Because of this, Spencer argued that he hadn't made any "transfer" under UFTA, since he didn't make the withdrawal. The Court disposed of this point quickly, stating that a "transfer" under UFTA includes an indirect transfer, and that adding a joint account holder to make said transfer fits the definition of an indirect transfer.
Fraudulent Intent to Delay. Spencer also made the argument that he had no intent to defraud his creditors because the stated intent of the trust was to delay IRS levy of the assets in order to invest the assets to grow them sufficiently large to pay his current and future taxes. The Court disposed of this point easily as well, stating that such intent is clearly an intent to "delay" creditors, and an intent to delay is clearly prohibited by UFTA.
Transferree Liability. The Court pointed out that because the transferee in this case (the trustee of the trust) knew of Spencer's tax problems and his reasons for creating the trust, he was also liable under UFTA. It then proceeded to analyze the amount of this liability. Under UFTA, this amount is the amount transferred (valued at the time of transfer), or the amount of the debt, whichever is less. The amount transferred in this case was $595,000. The amount of the tax debt was $459,552.84, however with interest this amount had accrued to $882,991.07 over approximately 12 years. The court held that the $459,552.84 figure was irrelevant, and that the proper amount of the debt includes accruing interest. The correct amount of liability, then, was $595,000.
Hopefully this case serves to enlighten on the finer points of UFTA. Feel free to contact me with any questions.
TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.
DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter.