                              T.C. Memo. 2015-197



                        UNITED STATES TAX COURT



 WILLIAM J. KARDASH, SR., TRANSFEREE, Petitioner v. COMMISSIONER
               OF INTERNAL REVENUE, Respondent*

   CHARLES K. ROBB, TRANSFEREE, Petitioner v. COMMISSIONER OF
                INTERNAL REVENUE, Respondent



      Docket Nos. 12681-10, 12703-10.             Filed October 6, 2015.



      Erica G. Pless and Michael P. Tyson, for petitioner in docket No. 12681-10.

      Mitchell I. Horowitz and Qian Wang, for petitioner in docket No. 12703-10.

      Sergio Garcia-Pages, Michael S. Kramarz, Timothy L. Smith, and Andrew

Michael Tiktin, for respondent.




      *
     This opinion supplements our prior opinion Kardash v. Commissioner, T.C.
Memo. 2015-51.
                                         -2-

[*2]          SUPPLEMENTAL MEMORANDUM FINDINGS OF
                         FACT AND OPINION


       GOEKE, Judge: This matter is before the Court on petitioners’ motions for

reconsideration (motions) under Rule 1611 of our opinion in Kardash v.

Commissioner, T.C. Memo. 2015-51. In Kardash we held, among other things,

that respondent established that transfers to petitioners in 2005, 2006, and 2007

were fraudulent under Florida law. Accordingly, we held that petitioners were

liable as transferees for the years 2005, 2006, and 2007 under section 6901(a). Id.

at *41-*42.

       In motions pursuant to Rule 161, petitioners request the Court to reconsider

our prior opinion. Specifically, petitioners raise two issues: (1) whether our

conclusion that Florida Engineered Construction Products Corp. (FECP) was

insolvent at the beginning of 2005 was a substantial error, and (2) whether

payments in 2005, 2006, and 2007 were part of a deferred compensation plan. Mr.

Kardash alleges in his motion that we failed to credit against his transferee liability

the Federal income tax liabilities paid on the transfers. Lastly, Mr. Robb alleges

that he was never a shareholder of FECP and therefore the transfers could not have

       1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                            -3-

[*3] been dividends. Respondent has filed separate objections to petitioners’

motions, together with supporting memorandum of law. We will grant the

motions in part but will not alter the result of our prior opinion as described

herein.

                               FINDINGS OF FACT

      We incorporate our findings in Kardash and set forth additional facts for

purposes of this opinion.

      These cases involve respondent’s efforts to collect tax, additions to tax,

penalties, and interest assessed against FECP. FECP owes more than $120 million

but cannot pay its full liability. Petitioners, along with Messrs. Stanton and

Hughes, owned all of the stock of FECP and received transfers from the company.

Respondent now seeks to recoup over $5 million of the tax, additions to tax,

penalties, and interest from petitioners.

      FECP assumed the operations of another Florida corporation known as

Cast-Crete Corp. of Florida (Cast-Crete) at the time of FECP’s incorporation.

      Cast-Crete had in place a document titled “Cast-Crete Compensation Plan”

which did not mention deferred compensation. Pursuant to this document, the

excess of any bonus over $25,000 was to be paid to petitioners annually in stock.
                                    -4-

[*4] FECP made the following dividend payments to Mr. Kardash during 2005,

2006, and 2007.

       Date             Amount               Date             Amount
     1/18/2005          $57,500           12/28/2005         $478,745
      4/1/2005           75,000           1/27/2006            115,000
      5/2/2005          115,000            2/22/2006           115,000
     5/27/2005           57,500            3/27/2006           115,000
     6/24/2005           57,500            4/24/2006           115,000
     7/22/2005           57,500            5/22/2006           575,000
     8/24/2005           57,500            6/28/2006           287,500
     9/30/2005           57,500            9/25/2006           345,000
    10/26/2005           57,500           12/18/2006           287,500
    11/17/2005          478,745            3/23/2007            57,500

     FECP made the following dividend payments to Mr. Robb during 2005,

2006, and 2007.

       Date             Amount               Date             Amount
     1/18/2005           $7,500           12/28/2005          $62,445
      4/1/2005            7,500            1/27/2006           15,000
      5/2/2005           15,000            2/22/2006           15,000
     5/27/2005            7,500            3/27/2006           15,000
     6/24/2005            7,500            4/24/2006           15,000
     7/22/2005            7,500            5/22/2006           75,000
                                          -5-

 [*5] 8/24/2005                7,500              6/28/2006               37,500
     9/30/2005                 7,500              9/25/2006               45,000
    10/26/2005                 7,500             12/18/2006               37,500
    11/17/2005               62,445               3/23/2007                 7,500

      Respondent’s expert, Arlene Aslanian, prepared a report in which she

computed the balances due from FECP as a result of its settlement with respondent

in a prior consolidated case in our Court. Ms. Aslanian estimated FECP’s Federal

income tax liabilities, additions to tax, penalties, and interest owed to respondent

on the transfer dates in the instant cases. She estimated that FECP owed

$34,233,591 on December 28, 2005, and $50,796,640 on January 27, 2006.

      Using the market approach, respondent’s expert, Dr. Shaked, found that the

fair market value of FECP’s assets was less than the value of its Federal income

tax liabilities, additions to tax, penalties, and interest as of January 27, 2006,

resulting in insolvency. Dr. Shaked concluded that FECP remained insolvent

through March 23, 2007, as evidenced in the table below:2




      2
     Dr. Shaked used Ms. Aslanian’s Federal tax estimates with the addition of
FECP’s State tax liability estimates.
                                          -6-

[*6]                     Concluded
                           business
  Valuation date       enterprise value         Total liabilities    Equity value
    12/28/2005            $48,780,526            $41,938,074        $6,842,453
       1/27/2006           48,914,636             61,223,151        (12,308,515)
       2/22/2006           58,237,469             61,395,247         (3,157,777)
       3/27/2006           60,828,488             61,649,533          (821,044)
       4/24/2006           56,800,441             64,763,979         (7,963,538)
       5/22/2006           53,664,558             65,292,704        (11,628,146)
       6/28/2006           51,727,219             65,910,449        (14,183,230)
       9/25/2006           51,243,857             75,703,818        (24,459,962)
    12/18/2006             54,686,810             76,843,140        (22,156,330)
       3/23/2007           46,877,634             99,669,194        (52,791,560)

       Below are the amounts of total dividends that FECP transferred to Messers.

Robb, Kardash, Stanton, and Hughes during 2005, 2006, and 2007.

       Shareholder               2005                   2006             2007
Charles K. Robb                $199,890               $255,000          $7,500
William J. Kardash, Sr.       1,549,990              1,955,000          57,500
John Stanton                  7,999,500            10,200,000          300,000
Ralph Hughes                  7,999,500            10,200,000          300,000
  Total                      17,748,880            22,610,000          665,000

       Petitioners timely filed their Rule 161 motions asking us to reconsider and

modify our opinion in Kardash v. Commissioner, T.C. Memo. 2015-51.
                                          -7-

[*7]                                  OPINION

       Reconsideration under Rule 161 serves the limited purpose of correcting

substantial errors of fact or law and allows the introduction of newly discovered

evidence that the moving party could not have introduced, by the exercise of due

diligence, in the prior proceeding. Estate of Quick v. Commissioner, 110 T.C.

440, 441 (1998). We usually do not grant motions for reconsideration absent a

showing of unusual circumstances or substantial error. CWT Farms, Inc. v.

Commissioner, 79 T.C. 1054, 1057 (1982), aff’d, 755 F.2d 790 (11th Cir. 1985).

Petitioners have raised valid concerns as to the valuations of FECP and the Federal

income tax liabilities for the years at issue, specifically 2005.

       The burden of proof as to transferee liability is on the Commissioner. Sec.

6902(a); Rule 142(d). We find that respondent proved the transfers in 2005 were

fraudulent.

       Petitioners contend that the Court erred in valuing FECP’s solvency by

relying on petitioners’ expert’s high estimates of FECP’s tax liabilities instead of

the Federal income tax liabilities as stipulated by the parties. Although petitioners

did not initially agree to and stipulate the liabilities that respondent’s expert

determined, we agree with petitioners that respondent’s estimates should have

been used. Moreover, petitioners point out that the Court erred when stating Dr.
                                          -8-

[*8] Shaked’s business enterprise value for the valuation date December 28, 2005.

The stated estimate was $57,311,606, but the actual estimate was $58,311,606,

undervaluing Dr. Shaked’s estimate.

      Petitioners contend that with this correction, FECP would be solvent for the

2005 tax year. We agree, but for the sake of clarity, we deem it necessary to

discuss our valuation in greater detail than we did previously.

      “‘Valuation is * * * necessarily an approximation.’ It is an inexact science

at best, capable of resolution only by ‘Solomon-like’ pronouncements.” Stanley

Works & Subs. v. Commissioner, 87 T.C. 389, 408 (1986) (alteration in original)

(quoting Silverman v. Commissioner, 538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C.

Memo. 1974-285). “[F]inding market value is, after all, something for judgment,

experience; and reason on the pa[r]t of the trier, and does not lend itself to

dissection and separate evaluation.” Id. (quoting Colonial Fabrics v.

Commissioner, 202 F.2d 105, 107 (2d Cir. 1953)). “[W]e are not bound by the

opinion of any expert witness and will accept or reject expert testimony in the

exercise of sound judgment.” Estate of Newhouse v. Commissioner, 94 T.C. 193,

217 (1990).

      We rely largely on Dr. Shaked’s market multiple valuation to determine the

solvency of FECP. Although Dr. Shaked recommends the use of the asset
                                         -9-

[*9] accumulation value, we disagree. The asset accumulation value does not take

FECP’s intangibles into account. We believe that FECP had some intangible

assets with value and therefore rely on the market multiple valuation that values

FECP as a going concern. From Dr. Shaked’s market multiple valuation it is clear

that FECP had a negative equity value of $12,308,515 on the transfer date, January

27, 2006, and it remained insolvent through March 23, 2007. Thus, we modify our

initial finding that FECP became insolvent in 2005 and instead find that FECP

became insolvent starting January 27, 2006, and remained insolvent for 2006 and

2007.

        Petitioners argue that we should reconsider our opinion to find them not

liable for the 2005 transfers because FECP was solvent at the time of the transfers.

Under Florida’s Uniform Fraudulent Transfer Act (FUFTA), a transfer is

fraudulent if the debtor did not receive reasonably equivalent value and the debtor

was insolvent at the time of the transfer or became insolvent as a result of the

transfer. Fla. Stat. Ann. sec. 726.106(1) (West 2012). “Although the language of

the UFTA [Uniform Fraudulent Transfer Act] speaks in terms of a single transfer

of property, a series of transfers may also be found to be fraudulent.” Berland v.
                                          -10-

[*10] Mussa (In re Mussa), 215 B.R. 158, 169 (Bankr. N.D. Ill. 1997).3 Further, we

have held that insolvency may be measured after a series of related transfers which

in total leave the transferor insolvent. See Botz v. Helvering, 134 F.2d 538, 543

(8th Cir. 1943), aff’g 45 B.T.A. 970 (1941); see also Hagaman v. Commissioner,

100 T.C. 180 (1993); Gumm v. Commissioner, 93 T.C. 475, 480 (1989), aff’d

without published opinion, 933 F.2d 1014 (9th Cir. 1991); Leach v.

Commissioner, 21 T.C. 70, 75 (1953).

      As discussed in Kardash v. Commissioner, at *28-*31, we held that the

2003 and 2004 transfers were for reasonably equivalent value and were different

in nature from the transfers in 2005, 2006, and 2007. Although we now find that

FECP was solvent during 2005, the transfers were still constructively fraudulent

because they were part of a series of transactions that led to the insolvency of

FECP. Therefore, we find that the transfers beginning in 2005 were fraudulent

because the transfers were not for reasonably equivalent value and FECP became

insolvent as a result of the series of transfers.


      3
       Although the current cases are subject to Florida law, the Illinois case is
instructive in interpreting the Florida statute. Illinois, as well as Florida, has
adopted the Uniform Fraudulent Transfer Act (UFTA). 740 ILCS 160/1 to 160/12
(West 2010). The general purpose of UFTA and FUFTA is to make the law
uniform among the States enacting it. Fla. Stat. Ann. sec. 726.112 (West 2012);
UFTA sec. 11, 7A (Part II), U.L.A. 203 (2006).
                                        -11-

[*11] Petitioners argue that the Court erred by not finding that the payments in

2005, 2006, and 2007 were part of a deferred compensation plan. The document

that petitioners rely on makes no reference to a “Deferred Compensation Plan”.

Moreover, the document petitioners refer to states that petitioners would be

entitled to cash compensation “not to exceed $25,000 per month” and “paid

annually in stock” to the extent petitioners’ compensation exceeds the $25,000 per

month. The payments exceeding $25,000 were, however, made in cash, not stock,

and therefore could not have been pursuant to the purported deferred

compensation plan. Moreover, FECP reported the payments as dividends on

Forms 1099-DIV, Dividends and Distributions, and petitioners reported the

payments as dividends on their individual tax returns.

      Mr. Kardash alleges that he is entitled to credits against his transferee

liability for taxes paid on transfers as reported dividends. Mr. Kardash argues that

the Government would receive an inequitable windfall if we refused to credit him

with the amounts of tax he paid on the transferred amounts in 2005, 2006, and

2007. Reconsideration under Rule 161 is not the proper avenue; section 1341 is

the appropriate remedy for Mr. Kardash in this situation. See Delpit v.

Commissioner, T.C. Memo. 1992-297 (citing Maynard Hosp., Inc. v.

Commissioner, 54 T.C. 1675 (1970)).
                                        -12-

[*12] Mr. Robb argues that the transfers could not have been dividends because

he was never a stockholder of FECP but instead received shares of Cast-Crete

stock on December 30, 2004. He also argues that these shares were worthless

because we found FECP insolvent as of 2005. Under either Florida’s “De Facto

Merger” doctrine, see 300 Pine Island Assocs. v. Steven L. Cohen & Assocs., 547

So. 2d 255, 256 (Fla. Dist. Ct. App. 1989) (citing Arnold Graphics Indus., Inc. v.

Indep. Agent Ctr., Inc., 775 F.2d 38 (2d Cir. 1985)) or its “Continuation of

Business” doctrine, see Amjad Munim, M.D., P.A. v. Azar, 648 So. 2d 145, 154

(Fla. Dist. Ct. App. 1994) (citing Bud Antle, Inc. v. E. Foods, Inc., 758 F.2d 1451,

1458 (11th Cir. 1985)), the acts committed, transactions entered into, and records

kept by Cast-Crete would be treated as acts, transactions, and records of FECP.

The shares issued in Cast-Crete’s name will be treated as issued under FECP’s

name.

        Petitioners’ further arguments are merely a rehash of legal arguments from

their briefs, and a motion for reconsideration is not the appropriate forum for

arguments this Court has previously rejected. See Estate of Quick v.

Commissioner, 110 T.C. at 441-442.
                                       -13-

[*13] In reaching our holdings herein, we have considered all arguments made,

and, to the extent not mentioned above, we conclude they are moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                    An appropriate order will be

                                              issued, and decisions will be entered

                                              under Rule 155.
