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Income tax – Personal liability

By: WISCONSIN LAW JOURNAL STAFF//February 25, 2015//

Income tax – Personal liability

By: WISCONSIN LAW JOURNAL STAFF//February 25, 2015//

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U.S. Court of Appeals For the Seventh Circuit

Civil

Income tax – Personal liability

Where a transaction had no economic purpose, and provided no source for the payment of income taxes, the tax court properly held the individual stockholders personally liable.

“The tax court found the shareholders liable for Woodside’s tax debt under both provisions. As a threshold matter, the asset sale—the triggering event for the tax liability—occurred before the transfer of Woodside’s cash to the shareholders, so both constructive-fraud provisions are in play. The tax court found that the cash from Woodside’s asset sale was transferred to the shareholders ‘without receiving a reasonably equivalent value,’ a requirement common to both constructive-fraud provisions. Indeed, the court found that Woodside received nothing. The court also found that the transaction left Woodside insolvent, a requirement for liability under section 242.05(1). Woodside’s tax liability exceeded $750,000, and it had just under $453,000 cash remaining after the shareholders were paid.11 See id. § 242.02(2) (‘A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation.’).”

Affirmed.

12-3144, 12-3145, 12-3146, 12-3147, 12-3148, 12-3149, 12-3150 & 12-3807 Feldman v. CIR

Appeals from the United States Tax Court, Sykes, J.

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