                                       ARTHUR DALTON, JR. AND BEVERLY DALTON, PETITIONERS v.
                                               COMMISSIONER OF INTERNAL REVENUE,
                                                           RESPONDENT *
                                                         Docket No. 23510–06L.              Filed September 23, 2010.

                                                   R seeks to collect certain trust fund recovery penalties from
                                                Ps. In R’s determination pursuant to sec. 6330, I.R.C., R
                                                rejected Ps’ offer-in-compromise. Ps transferred property to P
                                                husband’s father F, who in turn transferred the property to
                                                a trust 11 years before trust fund recovery penalties arose.
                                                The trust was set up to hold the property for the benefit of
                                                F’s grandsons; i.e., Ps’ children. R determined that Ps
                                                retained a beneficial interest in the trust property under a
                                                nominee ownership theory and, therefore, rejected Ps’ offer-in-
                                                compromise. Ps contend that R’s determination was an abuse
                                                of discretion because Ps did not retain a nominee interest in
                                                the trust property after the trust was created and, therefore,
                                                need not include the trust property in Ps’ assets for purposes
                                                of the offer-in-compromise. In our prior opinion, we remanded
                                                this case to R’s Appeals Office to consider State law as well
                                                as a Federal factors analysis regarding whether Ps had a
                                                nominee interest in the trust property. Held: This Court has
                                                jurisdiction to decide whether R abused his discretion in
                                                rejecting Ps’ offer-in-compromise because of Ps’ alleged
                                                nominee interest in the trust property. Held, further, Ps do
                                                not have a nominee interest in the trust property under State
                                                law. Held, further, Ps do not have a nominee interest in the
                                                trust property under a Federal factors analysis. Held, further,
                                                it was an abuse of discretion for R to reject Ps’ offer-in-com-
                                                promise on the basis that the offer-in-compromise did not
                                                include in Ps’ assets a nominee interest in the trust property.

                                            Ralph A. Dyer, for petitioners.
                                            Michael R. Fiore and Erika B. Cormier, for respondent.

                                           * This Opinion supplements Dalton v. Commissioner, T.C. Memo. 2008–165.


                                                                                                                                       393




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                                      394                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                                                     SUPPLEMENTAL OPINION

                                         WELLS, Judge: This case is before the Court on petitioners’
                                      motion for summary judgment pursuant to Rule 121. 1
                                      Respondent filed a response to petitioners’ motion for sum-
                                      mary judgment and subsequently filed a second motion for
                                      summary judgment. 2 The instant proceeding arises from a
                                      petition filed in response to Notices of Determination Con-
                                      cerning Collection Action(s) Under Section 6320 and/or 6330
                                      issued separately to each petitioner. The issues to be decided
                                      are: (1) Whether we have jurisdiction to decide the instant
                                      matter; and (2) if so, whether respondent abused his discre-
                                      tion in sustaining the levy action against petitioners.

                                                                               Background
                                         The facts set forth below are based upon examination of
                                      the pleadings, moving papers, responses, and attachments
                                      filed in the instant case. The facts are set forth in our prior
                                      opinion in the instant case, Dalton v. Commissioner, T.C.
                                      Memo. 2008–165 (prior opinion), and are incorporated by ref-
                                      erence.
                                         Petitioners Arthur Dalton, Jr. (Mr. Dalton Jr.), and Bev-
                                      erly Dalton (Mrs. Dalton Jr.) are husband and wife who
                                      resided in Maine at the time of filing the petition. The
                                      instant case centers on three parcels of real property located
                                      near Johnson Hill Road in Poland, Maine (hereinafter
                                      referred to individually as lot 3, lot 4, and lot 5, respectively,
                                      and collectively as the Poland property).
                                      Acquisition of Lots 3, 4, and 5
                                        By deed dated November 25, 1977, petitioners purchased
                                      lot 4, and the deed to lot 4 was recorded with the appropriate
                                      county registry on November 28, 1977. Similarly, by deed
                                      dated November 24, 1980, petitioners purchased lot 3, and
                                      the deed to lot 3 was recorded on December 1, 1980. In
                                      connection with the latter transaction petitioners obtained a
                                      bank loan secured by a mortgage on lot 3 which was recorded
                                      on December 1, 1980.
                                       1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as

                                      amended, and Rule references are to the Tax Court Rules of Practice and Procedure.
                                       2 On July 6, 2007, respondent filed his original motion for summary judgment. Respondent’s

                                      motion was denied on July 8, 2008.




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                                      (393)                         DALTON v. COMMISSIONER                                           395


                                         By deed dated January 13, 1983, petitioners conveyed lot
                                      3 and lot 4 to Mr. Dalton Jr.’s father, Arthur Dalton, Sr. (Mr.
                                      Dalton Sr.), for consideration of $1 and subject to the existing
                                      mortgage. 3 Petitioners and Mr. Dalton Sr. executed a nota-
                                      rized assignment and assumption agreement dated April 1,
                                      1983, reflecting the foregoing transaction and Mr. Dalton
                                      Sr.’s assumption of the existing mortgage. The underlying
                                      deed was recorded on May 2, 1983, and the assignment and
                                      assumption agreement was recorded on August 16, 1985. On
                                      February 13, 1983, petitioners filed a declaration of Maine
                                      real estate transfer tax for the transfer of lots 3 and 4 to Mr.
                                      Dalton Sr. 4
                                         Mr. Dalton Sr. acquired lot 5 by deed dated September 24,
                                      1984, and executed a mortgage in favor of the seller. The
                                      deed and mortgage were recorded on October 23, 1984.
                                      Creation of J & J Trust
                                         On April 11, 1985, Mr. Dalton Sr. created the J & J Trust
                                      (trust), naming himself as trustee and designating his two
                                      grandsons, i.e., petitioners’ sons Jonathan Dalton and
                                      Jeremy Dalton, as the beneficiaries. According to the terms
                                      of the trust, the trustee may pay to Jonathan and Jeremy
                                      Dalton a portion of the net income, and/or the principal of
                                      the trust, as the trustee deems appropriate, for their health,
                                      support, education, maintenance, and comfort. The trust
                                      terminates upon the death of the last remaining of Mr.
                                      Dalton Sr., Mr. Dalton Jr., and Mrs. Dalton Jr., with the
                                      remaining principal being divided equally between Jonathan
                                      and Jeremy Dalton, or their then-living issue.
                                         By deeds also dated April 11, 1985, Mr. Dalton Sr. trans-
                                      ferred title to lots 3, 4, and 5 to himself as trustee of the
                                      trust. The deed with respect to lot 3 stated that the premises
                                      were conveyed subject to the 1980 mortgage given by peti-
                                      tioners and assumed by Mr. Dalton Sr. pursuant to the 1983
                                      assignment and assumption agreement. No other consider-
                                        3 Although petitioners refer to this conveyance as occurring during April 1983, the copy of the

                                      notarized deed in the record is dated Jan. 13, 1983. The discrepancy is not further elucidated
                                      in the record but, in any event, has no material impact on the Court’s analysis of the instant
                                      motion.
                                        4 Petitioners claimed that the transfer was exempt from real estate transfer tax. Me. Rev.

                                      Stat. Ann. tit. 36, sec. 4641–C (1990) allows for real estate transfers between parent and child
                                      to be exempt from real estate transfer taxation if the transfer is made without actual consider-
                                      ation.




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                                      396                   135 UNITED STATES TAX COURT REPORTS                                        (393)


                                      ation was recited. The three deeds were recorded on August
                                      16, 1985. On October 2, 1985, Mr. Dalton Sr. filed a declara-
                                      tion of Maine real estate transfer tax with regard to the cre-
                                      ation of the trust claiming that the transfer was exempt as
                                      a gift to a trust.
                                      Use of Lots 3, 4, and 5
                                         Jonathan Dalton works as a Navy Seal, living in Virginia
                                      but using the address of the Poland property as his domicile.
                                      Jeremy Dalton works as an emergency medical technician in
                                      Massachusetts but makes regular use of the Poland property.
                                         On September 18, 1993, Mr. Dalton Sr., as trustee of the
                                      trust, and Mrs. Dalton Jr. executed a $50,000 mortgage in
                                      favor of Key Bank of Maine, secured by lots 3 and 4. A
                                      $50,000 home equity line of credit, i.e., loan, was thereby
                                      obtained. Both individuals signed as ‘‘mortgagor’’, and provi-
                                      sions of the mortgage recited that the mortgagor, inter alia,
                                      promised to ‘‘lawfully own the Property’’. Throughout the
                                      administrative and judicial processes pertaining to the
                                      instant case, petitioners have maintained and explained that
                                      Mrs. Dalton Jr. signed the mortgage as a concession to
                                      and at the request of the bank on account of concerns
                                      regarding Mr. Dalton Sr.’s advanced age. The funds were
                                      employed by Mr. Dalton Sr. as trustee to assist Jonathan
                                      Dalton, his grandson and a trust beneficiary, with a boat and
                                      jet-ski rental business in St. Martin, French West Indies,
                                      that was destroyed by a hurricane in the fall of 1993. Since
                                      at least 2000, Key Bank of Maine has reported the mortgage
                                      interest on the 1993 loan as being paid by Mr. Dalton Jr. 5
                                         There is a house (the residence) on the Poland property
                                      which became the retirement home of Mr. Dalton Sr. and his
                                      wife Beatrice Dalton (Mrs. Dalton Sr.). Petitioners and their
                                      sons visited Mr. and Mrs. Dalton Sr. and the Poland prop-
                                      erty. According to petitioners, the Poland property and
                                      related mortgages were maintained and supported before
                                      mid-1997 by Mr. Dalton Sr. and by contributions from family
                                      members, including petitioners, and the trust maintained a
                                      separate bank account for such funds.
                                         During 1996 petitioners’ demolition businesses, operated
                                      by one or more corporations, suffered reversals and failed to
                                           5 Mortgage   interest payments are reported on Form 1098, Mortgage Interest Statement.




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                                      (393)                         DALTON v. COMMISSIONER                                           397


                                      pay withholding taxes while awaiting payment from a devel-
                                      oper/customer. The developer/customer, however, filed for
                                      bankruptcy, and petitioners’ corporations were unable to con-
                                      tinue business or to pay obligations. Petitioners ‘‘lost almost
                                      everything’’ in the collapse when a third-party lender made
                                      a claim on a guaranty by petitioners. The claim was settled
                                      through the sale of petitioners’ home in Massachusetts, all
                                      net proceeds of which were paid to creditors.
                                         After losing their home in Massachusetts, petitioners
                                      began living in the residence, sharing occupancy with Mr.
                                      and Mrs. Dalton Sr. The joint living arrangement was an
                                      oral agreement requiring petitioners to manage and maintain
                                      the Poland property, pay rent to cover overhead expenses
                                      such as mortgage debt service and property taxes, and pay
                                      directly their costs of occupancy.
                                         On August 11 and September 29, 1997, the Internal Rev-
                                      enue Service (IRS) recorded assessments against petitioners
                                      for trust fund recovery penalties pursuant to section 6672
                                      with respect to employment taxes of petitioners’ corporations
                                      for the June 30 and September 30, 1996, tax periods, respec-
                                      tively. Those assessments totaled $262,163.42.
                                         On September 13, 1999, Mr. Dalton Sr. died. Petitioners
                                      continued to live in the residence with Mrs. Dalton Sr. and
                                      to care for Mrs. Dalton Sr., who suffered from advanced
                                      dementia and Alzheimer’s disease, until she entered an
                                      assisted living facility during 2004. By a document dated
                                      June 8, 2000, Mr. Dalton Jr. appointed Mrs. Dalton Jr.’s
                                      brother Robert Pray (Mr. Pray), who resides in Texas, as suc-
                                      cessor trustee of the trust, and Mr. Pray formally accepted
                                      that appointment. Mr. Pray continued the oral living
                                      arrangement that petitioners had with the trust for the
                                      Poland property. Since his appointment as trustee, Mr. Pray
                                      has held meetings with petitioners three to four times a year
                                      setting rent and planning maintenance, has ensured the
                                      timely filing of tax returns, and has annually visited the
                                      property to ensure that the assets are being protected.
                                      Administrative Proceedings
                                        On or about December 9, 1999, petitioners submitted to
                                      the IRS an offer-in-compromise of $5,000 with respect to the
                                      trust fund recovery penalties referenced above. That offer




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                                      398                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      was under consideration until rejected by letter dated August
                                      30, 2001, on the principal ground that an acceptable offer
                                      would need to include an ‘‘alter ego’’ interest in the property
                                      of the trust, for a total offer of at least $240,576. 6 Through-
                                      out the process, petitioners sought to supply information and
                                      documentation regarding their income, expenses, serious
                                      health conditions, and lack of employability, and they dis-
                                      puted IRS conclusions with regard to the trust.
                                         By early to mid-2001, Mr. Dalton Jr. and Mr. Pray had
                                      become aware that, since its formation, the trust had not
                                      filed Federal income tax returns. At that time, they met with
                                      petitioners’ certified public accountant (C.P.A.) who prepared
                                      Forms 1041, U.S. Income Tax Return for Estates and Trusts,
                                      for the trust for tax years 1997 through 2000, a practice that
                                      has continued for succeeding years.
                                         By letter dated October 1, 2001, petitioners submitted a
                                      formal protest of the August 30, 2001, denial of their offer-
                                      in-compromise, requesting reconsideration by the IRS Office
                                      of Appeals. The requested review was rejected in a letter
                                      dated March 6, 2003, that explained that review of adminis-
                                      trative files had revealed that petitioners’ protest requesting
                                      an Appeals hearing had not been filed timely. The matter
                                      was effectively dismissed, thereby allowing further collection
                                      activity, as appropriate.
                                         On July 2 and 6, 2004, the IRS issued separately to each
                                      petitioner a Final Notice of Intent To Levy and Notice of
                                      Your Right to a Hearing pertaining to the previously
                                      assessed trust fund recovery penalties and accrued interest
                                      which exceeded $400,000 at that time. In response, peti-
                                      tioners submitted a Form 12153, Request for a Collection
                                      Due Process Hearing, expressing their disagreement. An
                                      extensive attachment chronicled the history of petitioners’
                                      personal circumstances and tax matters, summarizing their
                                      present situation as follows:
                                      Since 1996, the taxpayers have been in contact with the IRS regarding the
                                      satisfaction of this obligation. Mr. Dalton [Jr.] is in his mid 60’s. He is
                                      totally disabled as a result of workplace injuries suffered over time and
                                      resulting arthritis. Mr. Dalton [Jr.] has suffered cardiac problems and has

                                        6 In the Aug. 30, 2001, letter, respondent’s revenue officer referred to petitioners’ interest in

                                      the Poland property as an ‘‘alter ego’’ interest. However, in his motions for summary judgment,
                                      respondent refers to petitioners’ interest as a nominee interest. Accordingly, we need not ad-
                                      dress whether petitioners’ have an ‘‘alter ego’’ interest in the Poland property.




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                                      (393)                         DALTON v. COMMISSIONER                                           399


                                      undergone open chest by-pass surgery. Mr. Dalton [Jr.] has limited
                                      employment options and has been unable to work since 2000. Mrs. Dalton
                                      [Jr.] is in her mid-60’s. Until recently, Mrs. Dalton [Jr.] has been the care-
                                      taker for Mr. Daltons [sic] [Jr.’s] elderly mother who suffers from senile
                                      dementia and other health problems. Mrs. Dalton [Jr.] has been and
                                      remains unemployable. The Daltons have not made enough money in any
                                      year since 1999 to require the filing of federal tax returns. There is no
                                      possibility that they will ever be able to pay the accumulated tax obliga-
                                      tion.

                                         The IRS Office of Appeals collection process was conducted
                                      through an ongoing exchange of correspondence and tele-
                                      phone calls extending until late September 2006. Petitioners’
                                      objective throughout the process was to establish their
                                      entitlement to an offer-in-compromise premised on their cir-
                                      cumstances of financial hardship. The proceeding centered on
                                      whether the Poland property should be attributed to peti-
                                      tioners under a ‘‘nominee’’ theory. During the process, an
                                      advisory opinion was sought and obtained from the IRS Office
                                      of Chief Counsel on the applicability of alter ego or nominee
                                      principles to petitioners’ situation. That opinion considered
                                      various factors derived from Federal caselaw and concluded
                                      that a nominee relationship did exist between petitioners and
                                      the trust. The document also included a paragraph opining
                                      that a reachable interest in trust real estate could be
                                      asserted against petitioners under a ‘‘lien tracing theory,’’ on
                                      the basis of their use of funds for mortgage payments, taxes,
                                      and other property expenses. 7
                                         On October 24, 2006, the IRS Office of Appeals issued to
                                      each petitioner a separate Notice of Determination Con-
                                      cerning Collection Action(s) Under Section 6320 and/or 6330
                                      underlying the instant proceeding. In those notices, the IRS
                                      sustained the levy action on the ground that no acceptable
                                      collection alternatives had been submitted. Attachments to
                                      the notices focused on and explained the determinations in
                                      terms of the need for any collection alternative to incorporate
                                      equity in real estate held by a trust with respect to which
                                      petitioners stood in a nominee relationship.
                                         On November 16, 2006, petitioners filed a petition in this
                                      Court seeking judicial review of the proposed levy action.
                                        7 Although the lien tracing theory appeared in subsequent correspondence before the filing of

                                      the instant case, respondent no longer pursues such a theory.




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                                      400                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                         On April 10, 2007, respondent mailed the trust a Notice of
                                      Federal Tax Lien Filing—Nominee or Alter-Ego. The notice
                                      stated that the trust was identified as the nominee of Mr.
                                      Dalton Jr. 8
                                         On July 6, 2007, respondent filed a motion for summary
                                      judgment on all issues stating that the Appeals Office did not
                                      abuse its discretion in determining that a nominee relation-
                                      ship existed between petitioners and the trust and sustaining
                                      the levy action. On August 29, 2007, petitioners filed an
                                      objection to respondent’s motion for summary judgment.
                                         On July 7, 2008, we issued our prior opinion denying
                                      respondent’s motion for summary judgment and remanding
                                      the case to respondent’s Office of Appeals to consider
                                      whether respondent’s assertion of a nominee interest in the
                                      Poland property is proper, taking into account both a State
                                      law and a Federal factors analysis.
                                         Ms. Russo, the settlement officer who conducted peti-
                                      tioners’ original collection due process hearing, held a supple-
                                      mental hearing with petitioners. Petitioners provided Ms.
                                      Russo with additional information regarding their interest in
                                      the Poland property. Ms. Russo offered petitioners an oppor-
                                      tunity to submit a new offer-in-compromise, and petitioners
                                      declined that offer. Ms. Russo then referred the case to
                                      respondent’s District Counsel’s office for analysis on whether
                                      petitioners have an interest in the Poland property under
                                      Maine law.
                                         The District Counsel’s office performed an analysis of the
                                      issues presented and determined that Maine does not have
                                      developed law regarding nominee ownership. The District
                                      Counsel’s office then concluded that, under Federal nominee
                                      factors, the trust is petitioners’ nominee. 9
                                         On December 1, 2008, Ms. Russo mailed each petitioner a
                                      separate Supplemental Notice of Determination Concerning
                                      Collection Action(s) under Section 6320 and/or 6330 (supple-
                                      mental notice of determination). In the supplemental notice
                                      of determination, Ms. Russo concluded that Maine law was
                                        8 The trust is not a party to the instant case. It is unclear from the record why the trust’s

                                      Notice of Federal Tax Lien Filing—Nominee or Alter-Ego did not include Mrs. Dalton Jr.
                                        9 The District Counsel’s office also concluded that petitioners had an interest in the Poland

                                      property under a lien tracing theory, and, at the very least, a transferee lien exists against the
                                      Poland property based upon the enrichment of the property to the extent of mortgage payments
                                      and other expenses paid by petitioners.




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                                      (393)                           DALTON v. COMMISSIONER                                           401


                                      silent on the nominee issue and she reaffirmed the conclu-
                                      sion that the trust was petitioners’ nominee.

                                                                                  Discussion
                                         As a threshold matter to our analysis, we note that peti-
                                      tioners contest our jurisdiction. Petitioners contend that we
                                      cannot enter a decision which would affect the ownership
                                      interests of the trust because neither the trust nor the
                                      trustee is a party to the current suit.
                                         This Court is a court of limited jurisdiction, and we may
                                      exercise judgment only to the extent authorized by Congress.
                                      Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In order to
                                      invoke judicial review of a section 6330 determination, a tax-
                                      payer must be the person liable for the tax under section
                                      6331 and must have received from the IRS a valid notice of
                                      determination based on a section 6330 hearing. See Offiler v.
                                      Commissioner, 114 T.C. 492, 498 (2000); see also Rule 330(b).
                                         Regulations promulgated under section 6330 state that
                                      known nominees or persons holding property of the taxpayer
                                      are not entitled to a collection due process or equivalent
                                      hearing. Sec. 301.6330–1(b)(2), Q&A–B5, Proced. & Admin.
                                      Regs. Individuals not entitled to a section 6330 review are
                                      entitled to other forms of review, including reconsideration
                                      by the IRS office collecting the tax, assistance from the
                                      National Taxpayer Advocate, or an administrative hearing
                                      before the Appeals Office under the Collection Appeals Pro-
                                      gram. Id. Any determination resulting from such reviews,
                                      however, is not subject to judicial review. Id. The taxpayer
                                      for whom a nominee, transferee, or alter ego is holding prop-
                                      erty is entitled to a hearing under section 6330. Sec.
                                      301.6330–1(b)(3), Example, Proced. & Admin. Regs. Failure
                                      to provide a taxpayer with notice of the filing of a levy will
                                      serve as a basis for dismissal. See sec. 6330(a)(1); Kennedy
                                      v. Commissioner, 116 T.C. 255, 261 (2001); see also S & M
                                      Trust No. 1 v. Commissioner, T.C. Memo. 2008–72; Buffano
                                      v. Commissioner, T.C. Memo. 2007–32.
                                         Petitioners are correct that we cannot enter a decision
                                      affecting the trust because the trust is not a party to this
                                      proceeding. 10 See sec. 301.6330–1(b)(3), Example, Proced. &
                                           10 We   note that, on Apr. 7, 2007, respondent filed a Notice of Federal Tax Lien Filing—Nomi-
                                                                                                        Continued




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                                      402                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      Admin. Regs. However, that is not what we are called upon
                                      to decide. We must decide whether respondent abused his
                                      discretion in the supplemental notice of determination by
                                      rejecting petitioners’ offer-in-compromise on the basis that
                                      the offer did not include petitioners’ alleged nominee interest
                                      in the Poland property. In doing so, we must decide whether
                                      petitioners have such a nominee interest. Petitioners received
                                      notices sustaining levies against them and timely filed a peti-
                                      tion with this Court. Accordingly, we hold that we have juris-
                                      diction to decide the nominee interest issue as it pertains to
                                      respondent’s rejection of petitioners’ offer-in-compromise on
                                      the basis that the offer did not include petitioners’ alleged
                                      nominee interest in the Poland property.
                                         We next consider whether respondent abused his discretion
                                      in the supplemental notice of determination by rejecting peti-
                                      tioners’ offer-in-compromise on the basis that it did not
                                      include a nominee interest in the Poland property. To do so,
                                      we must decide the following issues: (1) Whether petitioners
                                      have an interest in the Poland property under Maine law;
                                      and (2) whether petitioners have an interest in the Poland
                                      property under a Federal nominee factors analysis.
                                         Rule 121(a) allows a party to move ‘‘for a summary adju-
                                      dication in the moving party’s favor upon all or any part of
                                      the legal issues in controversy.’’ Rule 121(b) directs that a
                                      decision on such a motion shall be rendered ‘‘if the pleadings,
                                      answers to interrogatories, depositions, admissions, and any
                                      other acceptable materials, together with the affidavits, if
                                      any, show that there is no genuine issue as to any material
                                      fact and that a decision may be rendered as a matter of law.’’
                                         The moving party bears the burden of demonstrating that
                                      no genuine issue of material fact exists and that the moving
                                      party is entitled to judgment as a matter of law. Sundstrand
                                      Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d
                                      965 (7th Cir. 1994). Facts are viewed in the light most favor-
                                      able to the nonmoving party. Id. However, where a motion
                                      for summary judgment has been properly made and sup-
                                      ported, the opposing party may not rest upon mere allega-
                                      tions or denials in that party’s pleadings but must by affida-

                                      nee or Alter-Ego, against the trust, but that notice was not filed until after the petition in this
                                      case was filed. That lien is not before the Court in this proceeding.




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                                      (393)                         DALTON v. COMMISSIONER                                           403


                                      vits or otherwise set forth specific facts showing that there
                                      is a genuine issue for trial. Rule 121(d).
                                         The parties appear to agree that all of the evidence that
                                      the parties wish the Court to consider is in the record and
                                      that no material facts are in dispute. 11 Accordingly, we con-
                                      clude that the instant case is ripe for summary judgment and
                                      that a trial is not necessary.
                                         As a general rule, section 6331(a) authorizes the Commis-
                                      sioner to levy upon all property and rights to property of a
                                      person where there exists a failure on the part of such person
                                      to pay any tax liability within 10 days after notice and
                                      demand for payment. Sections 6331(d) and 6330 set forth
                                      procedures generally applicable to afford protections for per-
                                      sons in such levy situations. Section 6331(d) establishes the
                                      requirement that the person be provided with at least 30
                                      days’ prior written notice of the Commissioner’s intent to
                                      levy before collection may proceed. Section 6330(a) forbids
                                      collection by levy until the person has received notice of the
                                      opportunity for administrative review of the matter in the
                                      form of a hearing before the IRS Office of Appeals. Section
                                      6330(b) grants a person who makes such a request the right
                                      to a fair hearing before an impartial Appeals officer.
                                         Section 6330(c) addresses the matters to be considered at
                                      the hearing:
                                        SEC. 6330(c). MATTERS CONSIDERED AT HEARING.—In the case of any
                                      hearing conducted under this section—
                                          (1) REQUIREMENT OF INVESTIGATION.—The appeals officer shall at the
                                        hearing obtain verification from the Secretary that the requirements of
                                        any applicable law or administrative procedure have been met.
                                          (2) ISSUES AT HEARING.—
                                            (A) IN GENERAL.—The person may raise at the hearing any relevant
                                          issue relating to the unpaid tax or the proposed levy, including—
                                               (i) appropriate spousal defenses;
                                               (ii) challenges to the appropriateness of collection actions; and
                                               (iii) offers of collection alternatives, which may include the posting
                                            of a bond, the substitution of other assets, an installment agree-
                                            ment, or an offer-in-compromise.

                                         11 The U.S. Court of Appeals for the First Circuit, the court to which an appeal of the instant

                                      case would lie, has held that judicial review of nonliability issues under sec. 6330(d) is limited
                                      to the administrative record. See Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006), affg.
                                      125 T.C. 301 (2005). The Tax Court follows the law of the circuit in which an appeal would lie
                                      if that law is on point. Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th
                                      Cir. 1971).




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                                      404                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                               (B) UNDERLYING LIABILITY.—The person may also raise at the
                                            hearing challenges to the existence or amount of the underlying tax
                                            liability for any tax period if the person did not receive any statutory
                                            notice of deficiency for such tax liability or did not otherwise have an
                                            opportunity to dispute such tax liability.

                                        Once the Appeals officer has issued a determination
                                      regarding the disputed collection action, section 6330(d)
                                      allows the person to seek review in the Tax Court. 12 In con-
                                      sidering any relief from the Commissioner’s determination to
                                      which the person may be entitled, this Court has established
                                      the following standard of review:
                                      where the validity of the underlying tax liability is properly at issue, the
                                      Court will review the matter on a de novo basis. However, where the
                                      validity of the underlying tax liability is not properly at issue, the Court
                                      will review the Commissioner’s administrative determination for abuse of
                                      discretion. [Sego v. Commissioner, 114 T.C. 604, 610 (2000).]

                                         Petitioners have not contested respondent’s determination
                                      of their underlying liability. Accordingly, we deem that issue
                                      conceded.
                                         As noted above, section 6331(a) generally authorizes collec-
                                      tion of tax by levy against ‘‘all property and rights to prop-
                                      erty’’ belonging to a person liable for the tax or on which
                                      there is a lien for the payment of such tax. It is well settled
                                      that the foregoing provision ‘‘ ‘is broad and reveals on its face
                                      that Congress meant to reach every interest in property that
                                      a taxpayer might have.’ ’’ Drye v. United States, 528 U.S. 49,
                                      56 (1999) (quoting United States v. Natl. Bank of Commerce,
                                      472 U.S. 713, 719–720 (1985)). Such a lien or levy reaches,
                                      inter alia, to property held by a third party if that third
                                      party is holding the property as a nominee or alter ego of the
                                      delinquent person. G.M. Leasing Corp. v. United States, 429
                                      U.S. 338, 350–351 (1977); Holman v. United States, 505 F.3d
                                      1060, 1065 (10th Cir. 2007); Spotts v. United States, 429 F.3d
                                      248, 251 (6th Cir. 2005). A nominee theory focuses on
                                      whether the taxpayer is the true beneficial owner of the
                                      property on the basis of how the taxpayer treats the prop-
                                      erty. Oxford Capital Corp. v. United States, 211 F.3d 280,
                                      284 (5th Cir. 2000).
                                        12 The Pension Protection Act of 2006, Pub. L. 109–280, sec. 855, 120 Stat. 1019, amended

                                      sec. 6330(d)(1) to provide that for determinations made after Oct. 16, 2006, the Tax Court has
                                      jurisdiction to review the Commissioner’s collection activity regardless of the type of underlying
                                      tax involved.




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                                      (393)                         DALTON v. COMMISSIONER                                           405


                                         However, because the Federal levy statute ‘‘ ‘creates no
                                      property rights but merely attaches consequences, Federally
                                      defined, to rights created under state law’ ’’, applicability of
                                      nominee principles to support a levy turns on a two-part
                                      inquiry. United States v. Natl. Bank of Commerce, supra at
                                      722 (quoting United States v. Bess, 357 U.S. 51, 55 (1958));
                                      see also Drye v. United States, supra at 58 (‘‘We look initially
                                      to state law to determine what rights the * * * [person] has
                                      in the property the Government seeks to reach, then to fed-
                                      eral law to determine whether the taxpayer’s state-delin-
                                      eated rights qualify as ‘property’ or ‘rights to property’ within
                                      the compass of the federal tax lien legislation.’’); Holman v.
                                      United States, supra at 1067; Spotts v. United States, supra
                                      at 251.
                                         The first question is whether, under State law, the person
                                      held an interest or rights in the property sought to be
                                      reached. Holman v. United States, supra at 1067–1068;
                                      Spotts v. United States, supra at 251; May v. A Parcel of
                                      Land, 458 F. Supp. 2d 1324, 1334–1335 (S.D. Ala. 2006),
                                      affd. without published opinion sub nom. May v. United
                                      States, 100 AFTR 2d 2007–6602, 2007–2 USTC par. 50,799
                                      (11th Cir. 2007); United States v. Krause, 386 Bankr. 785,
                                      831 (Bankr. D. Kan. 2008). Upon an affirmative answer, the
                                      evaluation proceeds to the second question of whether the IRS
                                      may reach the interest under Federal law. Holman v. United
                                      States, supra at 1067–1068; Spotts v. United States, supra at
                                      251; May v. A Parcel of Land, supra at 1334–1335; United
                                      States v. Krause, supra at 831.
                                         With respect to the State law question, recent cases have
                                      clarified the centrality of finding a State law interest as a
                                      condition precedent. Holman v. United States, supra at 1067,
                                      1070 (vacating and remanding a case seeking to enforce a
                                      nominee tax lien for the IRS first to establish that the person
                                      held a beneficial interest in the property under State law);
                                      Spotts v. United States, supra at 251, 253–254 (vacating and
                                      remanding a grant of summary judgment for the IRS in a
                                      case seeking removal of a nominee lien because the lower
                                      court did not first consider whether the person had a bene-
                                      ficial interest under State law); May v. A Parcel of Land,
                                      supra at 1334–1335; United States v. Krause, supra at 831.
                                      In that connection, various theories have been used to sup-
                                      port the existence of an interest under State law, depending




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                                      406                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      upon the jurisdiction and particular facts involved. Examples
                                      include resulting trust doctrines, constructive trust prin-
                                      ciples, fraudulent conveyance standards, and concepts drawn
                                      from State jurisprudence on piercing the corporate veil. See,
                                      e.g., Holman v. United States, supra at 1068 (and cases cited
                                      thereat); Spotts v. United States, supra at 252–253; Criner v.
                                      Commissioner, T.C. Memo. 2003–328; United States v.
                                      Evseroff, 92 AFTR 2d 2003–6987 (E.D.N.Y. 2003) (and cases
                                      cited therein); United States v. Krause, supra at 831 (and
                                      cases cited thereat).
                                         Where State law is undeveloped as to the issue of nominee
                                      ownership, Federal courts have relied on a relatively well-
                                      defined body of Federal common law. Caselaw jurisprudence
                                      has established a series of factors to consider in determining
                                      whether a taxpayer has an existing beneficial interest in
                                      property that is reachable for purposes of satisfying Federal
                                      tax liabilities under the theory that the property is held by
                                      a nominee of the delinquent taxpayer. Commonly cited cri-
                                      teria include: (1) Whether the nominee paid no consideration
                                      or inadequate consideration for the property and/or whether
                                      the taxpayer expended personal funds for the nominee’s
                                      acquisition; (2) whether property was placed in the nominee’s
                                      name in anticipation of a suit or the occurrence of liabilities;
                                      (3) whether a close personal or family relationship existed
                                      between the taxpayer and the nominee; (4) whether the
                                      conveyance of the property was recorded; (5) whether the
                                      taxpayer retained possession of, continued to enjoy the bene-
                                      fits of, and/or otherwise treated as his or her own the trans-
                                      ferred property; (6) whether the taxpayer after the transfer
                                      paid costs related to maintenance of the property (such as
                                      insurance, tax, or mortgage payments); (7) whether, in the
                                      case of a trust, there were sufficient internal controls in place
                                      with respect to the management of the trust; and (8)
                                      whether, in the case of a trust, trust assets were used to pay
                                      the taxpayer’s personal expenses. E.g., Holman v. United
                                      States, supra at 1065 n.1; Spotts v. United States, supra at
                                      253 n.2; Loving Saviour Church v. United States, 728 F.2d
                                      1085, 1086 (8th Cir. 1984); May v. A Parcel of Land, supra
                                      at 1338; United States v. Dawes, 344 F. Supp. 2d 715, 721
                                      (D. Kan. 2004), affd. 161 Fed. Appx. 742 (10th Cir. 2005);
                                      United States v. Krause, supra at 831.




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                                      (393)                         DALTON v. COMMISSIONER                                           407


                                         For purposes of the second inquiry, Federal law determines
                                      whether the State-created interests are property or rights to
                                      property under section 6331. Drye v. United States, 528 U.S.
                                      at 52. Even though certain interests may not be reached by
                                      creditors under State law, the language in section 6331 is
                                      broad and is meant to reach every interest in property that
                                      a taxpayer might have. See, e.g., Drye v. United States, supra
                                      (holding that a right to disclaim an inheritance represents a
                                      interest subject to Federal tax lien); United States v. Natl.
                                      Bank of Commerce, 472 U.S. at 730 (holding that a tax-
                                      payer’s right to withdraw the entire proceeds from a joint
                                      bank account constitutes ‘‘property’’ or ‘‘rights to property’’
                                      subject to Federal income tax levy even though it could not
                                      be reached by creditors under State law); 21 W. Lancaster
                                      Corp. v. Main Line Rest., Inc., 790 F.2d 354, 357–358 (3d Cir.
                                      1986) (although a liquor license did not constitute under
                                      State law ‘‘property’’ subject to execution by a judgment
                                      holder or subject to a security interest under the Uniform
                                      Commercial Code, it was nevertheless ‘‘property’’ subject to
                                      Federal tax lien).
                                         As stated above, pursuant to our prior opinion, we
                                      remanded the instant case to respondent’s Appeals Office to
                                      consider Maine law as well as a Federal factors analysis.
                                         We next consider Maine law. As stated above, a taxpayer
                                      must have an interest in property under State law in order
                                      for the IRS to properly levy on the property pursuant to sec-
                                      tion 6331. Respondent contends that Maine law is silent with
                                      regard to the nominee doctrine. 13 However, as we noted
                                      supra pp. 405–406, several courts have considered State law
                                      variants of the nominee doctrine even though that law is not
                                      specifically called ‘‘nominee law’’ in deciding whether a levy
                                      is valid under section 6331. See Spotts v. United States,
                                      supra at 253 (opining that ‘‘Kentucky does have law that pro-
                                      vides guidance on nominee theory, though it discusses the
                                      theory using the term ‘constructive trust’ ’’); Scoville v.
                                        13 Keefer v. Keefer, No. Civ.A. RE–03–001, 2004 WL 1598713, at *6 (Me. Super. Ct. June 28,

                                      2004) (quoting Black’s Law Dictionary (5th ed. 1979)), defines a nominee as someone who is
                                      ‘‘designated to act for another as his representative in a rather limited sense. It is used some-
                                      times to signify an agent or trustee. It has no connotation, however, other than that of acting
                                      for another, in representation of another, or as the grantee of another.’’
                                      However, in that case, the court was discussing nominee principles pursuant to California law.
                                      See Keefer v. Keefer, supra at *6.




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                                      408                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      United States, 250 F.3d 1198, 1202 (8th Cir. 2001) (looking
                                      to Missouri law of fraudulent conveyance for purposes of
                                      evaluating State standards for nominee liability); May v. A
                                      Parcel of Land; 458 F. Supp. 2d at 1337 n.22 (‘‘the under-
                                      signed will accord no talismanic significance to the magic
                                      words ‘nominee doctrine,’ nor will it infer from their absence
                                      that Alabama authorities fail to recognize a theory akin to
                                      that which federal courts have labeled ‘nominee doctrine’ ’’);
                                      United States v. Stinson, 386 F. Supp. 2d 1207, 1218 (W.D.
                                      Okla. 2005) (looking at Oklahoma fraudulent conveyance
                                      principles in evaluating nominee argument). Accordingly, we
                                      will consider Maine law, as we interpret it, to decide whether
                                      the trust is a nominee of petitioners and whether petitioners,
                                      following their transfers of lots 3 and 4 to Mr. Dalton Sr.,
                                      and his transfers of those lots, together with lot 5, to the
                                      trust, retained an interest in the Poland property that may
                                      be reached by respondent’s levy.
                                         In Maine the existence of a contract is a question of fact
                                      to be determined by the finder of fact. Sullivan v. Porter, 861
                                      A.2d 625, 631 (Me. 2004).
                                      A contract exists if the parties mutually assent to be bound by all its mate-
                                      rial terms, the assent is either expressly or impliedly manifested in the
                                      contract, and the contract is sufficiently definite to enable the court to
                                      ascertain its exact meaning and fix exactly the legal liabilities * * *

                                      The essential terms for a contract to sell land include the
                                      identification of the property, the parties to the sale, the pur-
                                      chase price, the amount of downpayment, and the financing.
                                      Id. The Maine statute of frauds requires a contract for the
                                      sale of land to be in writing, signed by the party to be
                                      charged. Me. Rev. Stat. Ann. tit. 33, sec. 51(4) (1999). In a
                                      contract for the sale of land, the consideration does not need
                                      to be expressed in the contract. Id. Additionally, the transfer
                                      of title requires a manual transfer of a deed and an intent
                                      to pass title between a grantor and a grantee. Estate of
                                      Deschenes, 818 A.2d 1026, 1029 (Me. 2003). When there is a
                                      physical transfer of possession of the deed from one party to
                                      another, a presumption arises that both parties intended the
                                      transfer of title in accordance with the terms of the deed. Id.
                                      at 1029–1030. ‘‘A grantee’s failure to record a deed does not
                                      rebut the presumption of delivery.’’ Id. at 1030.




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                                      (393)                         DALTON v. COMMISSIONER                                           409


                                         On January 13, 1983, petitioners agreed to sell lots 3 and
                                      4 to Mr. Dalton Sr. for $1 subject to an existing mortgage.
                                      According to the deed and the assignment and assumption
                                      agreement, petitioners transferred their entire interest in
                                      lots 3 and 4. As stated above, Maine law does not require the
                                      consideration in a land sale contract to be expressed in the
                                      contract. Me. Rev. Stat. Ann. tit. 33, sec. 51(4). Mr. Dalton
                                      Sr.’s consideration was the assumption of the mortgage on lot
                                      3 of the Poland property. That consideration was memorial-
                                      ized in an agreement dated April 1, 1983. Additionally, the
                                      contract identified the parties to the sale, the land, and the
                                      purchase price; i.e., the assumption of an existing mortgage.
                                      Both parties signed the deed that transferred lots 3 and 4.
                                      Accordingly, petitioners and Mr. Dalton Sr. mutually
                                      assented to the 1983 contract, their assent was expressly
                                      manifested, and the 1983 contract was sufficiently definite to
                                      enable a court to ascertain its exact meaning and fix exactly
                                      the legal liabilities. See Sullivan v. Porter, supra at 631.
                                      Moreover, while recordation occurred on May 2, 1983, the
                                      delivery of the deed and the contract are evidence of a phys-
                                      ical transfer of title and an intent to transfer title from peti-
                                      tioners to Mr. Dalton Sr. Therefore, the transfer extinguished
                                      petitioners’ legal title in lots 3 and 4 as of the date of
                                      transfer.
                                         In arguing that petitioners retained a nominee ownership
                                      interest in lots 3 and 4 under Federal common law,
                                      respondent contends that petitioners retained an interest
                                      because, among other things, they paid the purchase money.
                                      As stated above, petitioners originally purchased lots 3 and
                                      4. Lot 3 was secured by a mortgage. There is no mention of
                                      a mortgage or other encumbrance on lot 4. Accordingly, we
                                      will assume that petitioners purchased lot 4 without a loan,
                                      or other debt obligation. Following the contribution of the
                                      Poland property to the trust, the mortgages on lot 3 and lot
                                      5 were maintained by Mr. Dalton Sr., with contributions
                                      from Mr. Dalton Jr. and other family members. During 1997
                                      petitioners moved into the residence on the Poland property
                                      and subsequently paid rent that covered overhead expenses,
                                      including mortgage expenses, property taxes, and utilities,
                                      and their costs of occupancy.




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                                      410                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                           Under Maine law:
                                         A resulting trust arises by implication of law when the purchase money
                                      is paid by one person out of his own money, and the land is conveyed to
                                      another. * * * It may be paid for him by the trustee. * * * The trust
                                      arises from the circumstance that the money of the real purchaser, and not
                                      of the grantee in the deed, formed the consideration of the purchase. * * *

                                      Murphy v. United States, 83 AFTR 2d 99–1167, at 99–1170 (D.
                                      Me. 1999); Wood v. Le Goff, 121 A.2d 468, 469–470 (Me.
                                      1956); Herlihy v. Coney, 59 A. 952, 952–953 (Me. 1905). In
                                      those situations, the grantee holds the property in trust for
                                      the benefit of the person who paid the purchase price. See
                                      Wood v. LeGoff, supra; Herlihy v. Coney, supra; see also 1
                                      Restatement, Trusts 3d, sec. 9 (2003). However, where the
                                      transferee is a spouse, descendant, or other natural object of
                                      the bounty of the person who paid the purchase price, a gift
                                      is presumed. Greenberg v. Greenberg, 43 A.2d 841, 842 (Me.
                                      1945); 1 Restatement, supra sec. 9(2). 14 Additionally, evi-
                                      dence to establish a resulting trust under Maine law must be
                                      ‘‘ ‘the most satisfactory and convincing evidence’ ’’ because the
                                      creation of a resulting trust is ‘‘ ‘in defiance of the statute of
                                      frauds [and] subversive of paper title.’ ’’ Murphy v. United
                                      States, supra at 99–1170 (quoting Anderson v. Gile, 78 A.
                                      370, 371 (Me. 1910)).
                                           The funds for the purchase of lot 3 were furnished by peti-
                                      tioners, and we conclude that the transfer of lot 3 was
                                      intended as a gift to Mr. Dalton Sr. The mortgage payments
                                      on lot 4 were paid by petitioners, and we conclude that the
                                      payments were a gift to Mr. Dalton Sr. each time petitioners
                                      paid the mortgage. As Mr. Dalton Sr. is Mr. Dalton Jr.’s
                                      father, their familial relationship makes it probable that
                                      petitioners would make a gift of the property to Mr. Dalton
                                      Sr., as opposed to a resulting trust in Mr. Dalton Jr.’s favor
                                      for lots 3 and 4. We conclude from the record that the trans-
                                      fers were gifts to Mr. Dalton Sr. See Wood v. LeGoff, supra
                                      at 470 (‘‘It does not matter in this case whether a consider-
                                      ation passed for the deed given * * *. If no consideration
                                      [passed,] the conveyance was a gift’’). Our conclusion is in
                                        14 Maine courts have held that, where the transfer is to a spouse or from a parent to a child,

                                      a gift is presumed. See Greenberg v. Greenberg, 43 A.2d 841, 842 (Me. 1945); Danforth v. Briggs,
                                      36 A. 452 (Me. 1896); Wentworth v. Shibles, 36 A. 108, 109 (Me. 1896); Long v. McKay, 24 A.
                                      815 (Me. 1892). Maine courts have not addressed whether the presumption of a gift extends to
                                      other relatives of the person who paid the purchase price.




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                                      (393)                         DALTON v. COMMISSIONER                                           411


                                      accord with petitioners’ statement attached to Form 12153,
                                      that lots 3 and 4 were ‘‘acquired originally for the benefit of
                                      Mr. Daltons’ [sic] [Jr.] father and mother.’’
                                         Respondent cites Cody v. United States, 348 F. Supp. 2d
                                      682 (E.D. Va. 2004), for the proposition that the doctrine of
                                      resulting trust does not properly reach the nominee issue in
                                      this case. In Cody, the court noted that Virginia law recog-
                                      nized the doctrine of resulting trust; however, the court
                                      declined to apply the resulting trust doctrine because the
                                      plaintiffs argued ‘‘only for the existence of an express trust.’’
                                      Id. at 692. The court also noted that a resulting trust would
                                      not arise because Cody involved a parent paying for the prop-
                                      erty of a child, which would result in the presumption of a
                                      gift. Id. at 692 n.10. Accordingly, our conclusion that the
                                      transfer of lots 3 and 4 is a gift is consistent with Cody.
                                         Maine law could also, under certain circumstances, set
                                      aside the transfer of lots 3 and 4 under the law of fraudulent
                                      conveyances. See Me. Rev. Stat. Ann. tit. 14, secs. 3571–3582
                                      (2003); see also Scoville v. United States, 250 F.3d at 1202
                                      (looking to Missouri law of fraudulent conveyance for pur-
                                      poses of evaluating State standards for nominee liability).
                                      Because respondent was not a creditor in 1983 at the time
                                      of the transfer from petitioners to Mr. Dalton Sr., we will
                                      analyze respondent’s position as a future creditor under
                                      Maine law. 15 A transfer is fraudulent as to a creditor,
                                      whether the creditor’s claim arose before or after the transfer
                                      was made, if the debtor made the transfer:
                                      A. With actual intent to hinder, delay or defraud any creditor of the
                                      debtor; or
                                      B. Without receiving a reasonably equivalent value in exchange for the
                                      transfer or obligations and the debtor:
                                      (1) Was engaged or was about to engage in a business or a transaction for
                                      which the remaining assets of the debtor were unreasonably small in rela-
                                      tion to the business or transaction; or
                                      (2) Intended to incur, or believed or reasonably should have believed that
                                      he would incur, debts beyond his ability to pay as the debts became due.
                                        [Me. Rev. Stat. Ann. tit. 14, sec. 3575(1).16]
                                        15 Maine law allows both present and future creditors to set aside fraudulent conveyances. Me.

                                      Rev. Stat. Ann. tit. 14, secs. 3571–3582 (2003).
                                        Respondent does not contend that the transfers in 1983 were fraudulent as to other creditors.
                                        16 Me. Rev. Stat. Ann. tit. 14, sec. 3575(1) applies not only to transfers made but also to obli-

                                      gations incurred by a debtor.
                                                                                                     Continued




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                                      412                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      When determining actual intent, consideration is given,
                                      among other factors, to whether:
                                      A. The transfer or obligation was to an insider;
                                      B. The debtor retained possession or control of the property transferred
                                      after the transfer;
                                      C. The transfer or obligation was disclosed or concealed;
                                      D. Before the transfer was made or obligation was incurred, the debtor
                                      sued or was threatened with suit;
                                      E. The transfer was of substantially all of the debtor’s assets;
                                      F. The debtor absconded;
                                      G. The debtor removed or concealed assets;
                                      H. The value of the consideration received by the debtor was reasonably
                                      equivalent to the value of the asset transferred or the amount of the
                                      obligation incurred;
                                      I. The debtor was insolvent or became insolvent shortly after the transfer
                                      was made or the obligation was incurred;
                                      J. The transfer occurred shortly before or shortly after a substantial debt
                                      was incurred; and
                                      K. The debtor transferred the essential assets of the business to a lienor
                                      who had transferred the assets to an insider of the debtor.
                                        [Id. sec. 3575(2).]

                                      Subsection (1)(B)(1) allows future creditors to recover when
                                      a transfer for inadequate value leaves the debtor’s business
                                      inadequately capitalized. Id. sec. 3575, Me. cmt. 2. Sub-
                                      section (1)(B)(2) does not require proof of fraudulent intent,
                                      but it does require proof that the debtor intended to incur
                                      debts beyond his ability to pay or reasonably should have
                                      believed that he would incur such debts. Id. Me. cmt. 3.
                                        We concluded above that the transfer of lots 3 and 4 was
                                      a gift to Mr. Dalton Sr. The deeds showing the transfer of
                                      lots 3 and 4 were recorded within 4 months after the
                                      transfer. At that time, petitioners had not been sued or
                                      threatened with suit, and there is no evidence that the
                                        Me. Rev. Stat. Ann. tit. 14, sec. 3576 applies only to present creditors of the debtor. According
                                      to Me. Rev. Stat. Ann. tit. 14, sec. 3576(2):
                                      A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer
                                      was made if the transfer was made to an insider for an antecedent debt, the debtor was insol-
                                      vent at that time and the insider had reasonable cause to believe that the debtor was insolvent.
                                      However, we do not evaluate the transfers in the instant case as transfers to an insider pursu-
                                      ant to Me. Rev. Stat. Ann. tit. 14, sec. 3576(2), because respondent was a future creditor at the
                                      time of the transfer.




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                                      (393)                         DALTON v. COMMISSIONER                                           413


                                      transfer was made to hide assets from creditors; the deeds
                                      were publicly recorded. The record does not show that peti-
                                      tioners concealed assets, were insolvent at the time of the
                                      transfer, or became insolvent as a result of the transfer. We
                                      conclude from the record that the transfer of lots 3 and 4 to
                                      Mr. Dalton Sr. was not made with fraudulent intent.
                                         Additionally, we conclude on the basis of the record that,
                                      at the time of the transfer, petitioners did not intend to incur
                                      debts beyond their ability to pay. Indeed, the Federal income
                                      tax liability in question accrued 13 years after the transfer
                                      of lots 3 and 4. On the basis of the record, we hold that peti-
                                      tioners did not fraudulently convey lots 3 and 4.
                                         Following the acquisition of lots 3 and 4, Mr. Dalton Sr.
                                      acquired lot 5 on September 24, 1984, from an unrelated
                                      third party. The deed to lot 5 and a mortgage in favor of the
                                      seller were recorded on October 23, 1984. Petitioners did not
                                      control lot 5 before it was transferred to the trust. Moreover,
                                      lot 5 was not included in the 1993 mortgage agreement in
                                      which Mrs. Dalton Jr. indicated that she was a joint owner
                                      with Mr. Dalton Sr. of lots 3 and 4. We assume, for purposes
                                      of the instant motion, that petitioners paid for lot 5 and, as
                                      with lots 3 and 4, that petitioners made a gift to Mr. Dalton
                                      Sr. of lot 5 when it was transferred to him. See Greenberg
                                      v. Greenberg, 43 A.2d at 842; 1 Restatement, supra sec. 9(2).
                                      Moreover, even if the transfer of lot 5 was a gift, petitioners
                                      retained no interest in lot 5 immediately following the
                                      transfer by Mr. Dalton Sr. to the trust. 17 See Cody v. United
                                      States, 348 F. Supp. at 692 n.10.
                                         Mr. Dalton Sr. contributed the Poland property to the trust
                                      on April 11, 1985. 18 As stated above, the trust was set up
                                      to hold the property for the benefit of Mr. Dalton Sr.’s
                                      grandsons; i.e., petitioners’ children, Jonathan and Jeremy
                                      Dalton. We will next analyze whether Mr. Dalton Sr. created
                                      a beneficial ownership interest for petitioners in the Trust to
                                      which the levy under section 6331 could attach.
                                         17 Petitioners’ gift of funds for lot 5 to Mr. Dalton Sr. is subject to a fraudulent conveyance

                                      analysis similar to that of the transfers of lots 3 and 4. The record does not show that as a
                                      result of the gift of lot 5 petitioners concealed assets, were insolvent, or intended to incur debts
                                      beyond their ability to pay. Similarly, we conclude that petitioners’ gift of funds for the purchase
                                      of lot 5 was not a fraudulent conveyance.
                                         18 Analysis under the law of fraudulent conveyances is not applicable to Mr. Dalton Sr.’s con-

                                      tribution of the Poland property to the trust. See Me. Rev. Stat. Ann. tit. 14, sec. 3575 (‘‘if the
                                      debtor made the transfer’’).




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                                      414                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                         A trust may be created by a transfer of property, declara-
                                      tion, or exercise of a power of appointment in favor of a
                                      trustee. Me. Rev. Stat. Ann. tit. 18–B, sec. 401 (Supp.
                                      2009). 19 According to the Maine Uniform Trust Code, a trust
                                      is created only if:
                                      A. The settlor has capacity to create a trust
                                      B. the settlor indicates an intention to create the trust
                                      C. the trust has a definite beneficiary * * *

                                                              *    *    *   *   *   *    *
                                      D. the trustee has duties to perform; and
                                      E. the same person is not the sole trustee and sole beneficiary.

                                      Id. sec. 402; Estate of Fournier, 902 A.2d at 853. Maine also
                                      requires the intention to create a trust. Me. Rev. Stat. Ann.
                                      tit. 18–B, sec. 402, Me. cmt. (citing Gower v. Keene, 93 A.
                                      546, 547 (Me. 1915) (‘‘to create a trust the acts or words
                                      relied upon must be unequivocal, implying that the person
                                      holds the property as trustee for another’’)).
                                         The three deeds effecting the transfer of lots 3, 4, and 5
                                      to the trust were transferred on April 11, 1985, and recorded
                                      on August 16, 1985. Mr. Dalton Sr. unequivocally indicated
                                      his intention to create a trust by a deed conveying the land
                                      to himself as trustee for the benefit of his grandsons, and by
                                      memorializing his intent in the trust agreement. Mr. Dalton
                                      Sr.’s duties as trustee included maintaining the trust corpus
                                      for the benefit of his grandsons. Additionally, Mr. Dalton Sr.
                                      is not a beneficiary of the trust. Accordingly, we conclude
                                      that Mr. Dalton Sr. created a valid express trust pursuant to
                                      the Maine Uniform Trust Code.
                                         Under the trust agreement, petitioners do not have any
                                      right to any of the corpus of the validly created trust; they
                                      are not express or implied beneficiaries of the trust. Mr.
                                      Dalton Jr. became the trustee of the trust before the appoint-
                                      ment of Mr. Pray as trustee. 20 As trustee, Mr. Dalton Jr.
                                        19 Maine adopted the Uniform Trust Code in 2003 with an effective date of July 1, 2005. Me.

                                      Rev. Stat. Ann. tit. 18–B, sec. 1103 (Supp. 2009). The Maine Uniform Trust Code applies to all
                                      trusts created on, after, or before July 1, 2005, and all judicial proceedings concerning trusts
                                      commenced after July 1, 2005. Me. Rev. Stat. Ann. tit. 18–B, sec. 1104 (Supp. 2009). Pursuant
                                      to the Trust Agreement, Maine law is the governing law. As the instant proceeding is one com-
                                      menced after July 1, 2005, regarding a Maine express trust, the Maine Uniform Trust Code ap-
                                      plies.
                                        20 Per the trust agreement, Mr. Dalton Jr. became trustee upon Mr. Dalton Sr.’s death. Re-

                                      spondent contends that Mr. Pray was appointed trustee during 2001, while petitioners contend
                                      that Mr. Pray was appointed trustee during 1999. According to Mr. Pray’s affidavit, he was ap-




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                                      (393)                         DALTON v. COMMISSIONER                                           415


                                      would have only legal title, not beneficial title. A nominee
                                      interest is essentially equivalent to a beneficial interest. See
                                      Oxford Capital Corp. v. United States, 211 F.3d at 284 (‘‘ ‘A
                                      nominee theory involves the determination of the true bene-
                                      ficial ownership of property.’ ’’ (quoting Elliot, Federal Tax
                                      Collections, Liens, and Levies, par. 9.10[2] (2d ed. 2000))).
                                      Jonathan Dalton and Jeremy Dalton are the named bene-
                                      ficial interest holders in the Poland property; i.e., they are
                                      the express beneficiaries of the Trust. Petitioners’ oral
                                      arrangement to live in the residence, which began in 1997,
                                      subjects them to rental payments to the owners of the bene-
                                      ficial interest. However, the oral agreement does not create
                                      in petitioners an express or implied beneficial interest in the
                                      Trust. Whether or not the act of living on the trust property
                                      may appear to create a form of beneficial interest, we con-
                                      clude that it did not create such an interest since petitioners
                                      paid rent in the form of payments for mortgage debt service,
                                      property taxes, maintenance, and costs of occupancy and also
                                      cared for Mr. and Mrs. Dalton Sr. Additionally, the appoint-
                                      ment of Mr. Dalton Jr. as trustee does not create property or
                                      a right to property to which the section 6331 levy could
                                      attach. On the basis of the record, we conclude that peti-
                                      tioners do not have a beneficial interest in the Poland prop-
                                      erty held in the trust.
                                         We now consider the Federal factors in our analysis. As we
                                      stated in our prior opinion, when State law is undeveloped 21
                                      on the nominee theory, Courts have turned to a series of fac-
                                      tors to determine whether a taxpayer has an interest in
                                      property or rights to property that may be attached by a
                                      creditor of the taxpayer. See Dalton v. Commissioner, T.C.
                                      Memo. 2008–165. As stated above, those criteria include: (1)
                                      Whether no consideration or inadequate consideration was
                                      paid for the property by the property title holder (nominee)
                                      pointed trustee during 2000 and this was formalized in writing on June 8, 2000. We conclude
                                      on the basis of Mr. Pray’s affidavit that he was appointed trustee during early 2000.
                                        Mr. Pray’s affidavit was attached to petitioners’ objection to respondent’s original motion for
                                      summary judgment. In our prior opinion, we declined to rule on that motion and, instead, re-
                                      manded the instant case to respondent’s Office of Appeals to consider Maine law and a Federal
                                      factors analysis. At that point, the affidavit became part of the administrative record and is
                                      properly before us now.
                                        21 We do not believe that Maine law is undeveloped on the nominee theory. Indeed, our anal-

                                      ysis above is based upon the analysis we believe Maine courts would undertake to determine
                                      whether petitioners held a nominee interest. However, as this issue is less than clear, we will
                                      also consider the Federal factors analysis in reaching our conclusion.




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                                      416                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      and/or whether the taxpayer expended personal funds for the
                                      nominee’s acquisition; (2) whether property was placed in the
                                      nominee’s name in anticipation of a suit or the occurrence of
                                      liabilities; (3) whether a close personal or family relationship
                                      existed between the taxpayer and the nominee; (4) whether
                                      the conveyance of the property was recorded; (5) whether the
                                      taxpayer retained possession of, continued to enjoy the bene-
                                      fits of, and/or otherwise treated as his or her own the trans-
                                      ferred property; (6) whether the taxpayer after the transfer
                                      paid costs related to maintenance of the property (such as
                                      insurance, tax, or mortgage payments); (7) whether, in the
                                      case of a trust, there were sufficient internal controls in place
                                      with respect to the management of the trust; and (8)
                                      whether, in the case of a trust, trust assets were used to pay
                                      the taxpayer’s personal expenses. E.g., Holman v. United
                                      States, 505 F.3d at 1065 n.1; Spotts v. United States, 429
                                      F.3d at 253 n.2; Loving Saviour Church v. United States, 728
                                      F.2d at 1086; May v. A Parcel of Land, 458 F. Supp. 2d at
                                      1338; United States v. Dawes, 344 F. Supp. 2d at 721; United
                                      States v. Krause, 386 Bankr. at 831.
                                         In examining the above-stated factors, the overarching
                                      issue is whether and to what degree the person generally
                                      exercises control over the nominee and assets held thereby.
                                      E.g., May v. A Parcel of Land, supra at 1338 (and cases cited
                                      thereat). As phrased in one recent case: ‘‘The ultimate
                                      inquiry is whether the * * * [person] has engaged in a legal
                                      fiction by placing legal title to property in the hands of a
                                      third party while actually retaining some or all of the bene-
                                      fits of true ownership.’’ Holman v. United States, supra at
                                      1065. No one factor is decisive in the cases involving the
                                      nominee theory. Turk v. IRS, 127 F. Supp. 2d 1165, 1168 (D.
                                      Mont. 2000). The ultimate inquiry requires consideration of
                                      all of the facts and circumstances to determine the true
                                      beneficial owner of the property. Spotts v. United States,
                                      supra at 253 n.2.
                                         Courts also must be cognizant of letting a close relation-
                                      ship take precedence over all of the other factors. However,
                                      a close relationship between grantor and grantee does not
                                      necessarily make the grantee the grantor’s nominee. Turk v.
                                      IRS, supra at 1168. Courts also must be aware of taxpayers’
                                      legitimate decisions regarding title to the property. Spotts v.
                                      United States, supra at 253 n.2.




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                                      (393)                         DALTON v. COMMISSIONER                                           417


                                          The Poland property was not placed in Mr. Dalton Sr.’s
                                      name in anticipation of a specific suit or the occurrence of
                                      certain liabilities. As we concluded above, the transfer of the
                                      Poland property was a gift. The record does not show that
                                      petitioners’ motive in transferring the Poland property was to
                                      evade creditors. Petitioners gave the Poland property
                                      to Mr. Dalton Sr. nearly 11 years before the tax liability to
                                      respondent arose. We conclude that petitioners’ transfers to
                                      Mr. Dalton Sr. were not made in anticipation of a specific
                                      suit or certain liabilities in the future and, therefore, were
                                      not made in anticipation of the liabilities in issue.
                                          A close relationship did exist between petitioners and Mr.
                                      Dalton Sr.; Mr. Dalton Sr. was the father of Mr. Dalton Jr.
                                      Mr. Dalton Jr. served as the contractor for the expansion of
                                      the home on the Poland property and paid some of the bills.
                                      Several courts have warned against allowing the close-rela-
                                      tionship factor to overinfluence the Federal factors analysis.
                                      See United States v. Swan, 467 F.3d 655, 658 (7th Cir 2006)
                                      (‘‘transactions among friends or even relatives are not
                                      presumptively fishy—they minimize information and broker-
                                      age costs’’); Spotts v. United States, 429 F.3d at 253 n.2 (cau-
                                      tioning that rigid adherence to the Federal factors may not
                                      be appropriate in every case); Turk v. IRS, supra at 1168
                                      (warning against allowing the close-relationship factor to pre-
                                      empt each of the other categories); see also Hoffer et al., ‘‘To
                                      Pay or Delay: The Nominee’s Dilemma Under Collection Due
                                      Process’’, 82 Tul. L. Rev. 781, 810 (2008) (noting that the
                                      Federal factors analysis is difficult to apply when the delin-
                                      quent taxpayer and the accused nominee are members of the
                                      same family). Moreover, at the time of the transfer, there
                                      was little reason to infer that petitioners made the transfers
                                      to Mr. Dalton Sr. for the purpose of defeating respondent’s
                                      claims. We have considered the close relationship factor, but
                                      conclude that the other factors outweigh the relationship.
                                          The transfers of the Poland property to Mr. Dalton Sr. and
                                      then to the trust were properly recorded. Lots 3 and 4 were
                                      transferred by deed to Mr. Dalton Sr. on January 13, 1983,
                                      and the deed was recorded May 2, 1983. The deed by which
                                      Mr. Dalton Sr. acquired lot 5 was dated September 24, 1984,
                                      and recorded on October 23, 1984. The assignment and
                                      assumption agreement was signed on April 1, 1983, and was
                                      recorded on August 16, 1985. Respondent points to the delay




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                                      418                  135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      in the recording of the assignment and assumption agree-
                                      ment as evidence of improper intent. However, we conclude
                                      that the delay in recording of the assignment and assump-
                                      tion agreement is not material as the deed to lots 3 and 4
                                      recorded on May 2, 1983, would have provided notice to
                                      respondent of the original transfer from petitioners to Mr.
                                      Dalton Sr. Additionally, long before petitioners’ tax debt to
                                      respondent arose, the assignment and assumption agreement
                                      had been recorded. We also note that the deeds placing the
                                      Poland property in trust were recorded in 1985, nearly 11
                                      years before the liability in the instant case arose. Under
                                      Maine law, the failure to record a deed does not render a
                                      transfer void; the delivery of the deed is still sufficient to
                                      transfer the property. Estate of Deschenes, 818 A.2d at 1030.
                                      As noted above, the deeds for all transfers were both deliv-
                                      ered and recorded. 22 We also note that petitioners and Mr.
                                      Dalton Sr. filed declarations of Maine real estate transfer
                                      taxation with regard to each questioned transaction. Accord-
                                      ingly, we conclude that the deeds conveying the Poland prop-
                                      erty were recorded within a reasonable time after the convey-
                                      ances were accomplished and well before the liability to
                                      respondent arose.
                                         Petitioners’ treatment of the Poland property raises con-
                                      cerns that they have treated it as their own. Petitioners live
                                      at the residence, pay for maintenance of the residence, and
                                      have no written lease regarding their living arrangement.
                                      The Forms 1098 issued by Key Bank regarding the mortgage
                                      on lots 3 and 4 list petitioners as the owners. Mrs. Dalton
                                      Jr. listed herself as an owner of lots 3 and 4 when she co-
                                      signed the 1993 loan from Key Bank for Mr. Dalton Sr. Mr.
                                      Dalton Jr. served as trustee of the trust and listed himself
                                      as owner of the Poland property for building permits
                                      obtained in 1989, 1990, and 2003. Additionally, respondent
                                      contends that petitioners unsuccessfully attempted to claim a
                                      homestead exemption for the Poland property. 23
                                         Notwithstanding the foregoing concerns, we note that, as
                                      to petitioners’ residing at the residence, they did not move
                                      there until 1997, a year after the trust fund tax liability
                                           22 We
                                              note that respondent does not contest that the deeds were delivered and recorded.
                                           23 According
                                                     to respondent, Mrs. Dalton Jr. requested a homestead exemption for the Poland
                                      property because petitioners have paid the real estate taxes. According to Ms. Russo, the asses-
                                      sor denied Mrs. Dalton Jr.’s request because the Poland property was the property of the trust.




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                                      (393)                         DALTON v. COMMISSIONER                                           419


                                      arose and after they experienced financial difficulty. Peti-
                                      tioners did not live at the residence from the time they trans-
                                      ferred lots 3 and 4 to Mr. Dalton Sr. until 1997. From 1997
                                      to 1999 petitioners lived in the residence with the trustee,
                                      subject to an oral lease. The oral agreement required peti-
                                      tioners to pay the costs of mortgage debt service, property
                                      taxes, maintenance, and their costs of occupancy. In addition
                                      to cash payments of rent to the trust, petitioners cared for
                                      Mr. and Mrs. Dalton Sr. 24 The current trustee continues the
                                      oral agreement for petitioners to live in the residence.
                                      Respondent disputes whether the rent payments are market
                                      rate and whether possible benefits may be accruing to the
                                      trustee instead of the trust. However, we note that, while
                                      below-market rents and improper personal benefits to the
                                      trustee potentially may be issues between the trustee and
                                      the beneficiaries as a breach of fiduciary duty, Me. Rev. Stat.
                                      Ann. tit. 18–A, sec. 7–703 (Supp. 2009); id. tit. 18–B, sec.
                                      1001; see also In re Estate of Stowell, 595 A.2d 1022, 1025
                                      (Me. 1991), they do not necessarily require a finding of a
                                      nominee interest.
                                         As to the 1993 loan and the associated Form 1098 state-
                                      ments from Key Bank of Maine, Mrs. Dalton Jr.’s affidavit
                                      states that she signed the mortgage at the request of the
                                      lender who knew that the Poland property was owned by the
                                      trust but was concerned about the trustee’s age. The mort-
                                      gage was recorded in 1993, approximately 3 years before the
                                      tax liability in issue arose. Moreover, the proceeds of the
                                      mortgage were used to assist Jonathan Dalton, a trust bene-
                                      ficiary, with his Caribbean rental business. 25 On their 2005
                                      Federal income tax return submitted to respondent’s Office of
                                      Appeals, petitioners did not claim the mortgage interest as
                                      an itemized deduction. 26 Additionally, while petitioners may
                                      have attempted to claim a homestead exemption, they were
                                      not allowed the exemption by the local tax authority because
                                      the trust was the owner of the property.
                                         24 We note that Mr. Dalton Sr. died on Sept. 13, 1999. Mrs. Dalton Sr. suffered from advanced

                                      dementia and Alzheimer’s disease and was moved from the residence to an assisted living facil-
                                      ity in 2004.
                                         25 Art. II of the trust agreement allows Mr. Dalton Sr. to use portions of the net income and/

                                      or principal of the trust for the health, support, education, maintenance, and comfort of the
                                      beneficiaries.
                                         26 In their attachment to Form 12153, filed during 2004, petitioners claimed not to have made

                                      enough money since 1999 to require the filing of a Federal income tax return.




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                                      420                    135 UNITED STATES TAX COURT REPORTS                                        (393)


                                         Accordingly, we conclude, weighing both positive and nega-
                                      tive aspects, that petitioners’ treatment of the Poland prop-
                                      erty is neutral as a factor in considering whether the trust
                                      is petitioners’ nominee.
                                         The record on internal controls of the trust is similarly
                                      unclear. Mr. Dalton Jr. became trustee upon the death of Mr.
                                      Dalton Sr. Mr. Dalton Jr. also had the power to appoint the
                                      successor trustee upon the death of Mr. Dalton Sr. Mrs.
                                      Dalton Jr.’s brother, Mr. Pray, became trustee in early
                                      2000. 27 The trust did not file any tax returns until 2001,
                                      when Mr. Pray raised the issue with petitioners’ C.P.A.
                                      Respondent also notes that, while petitioners contend that
                                      they write a check each month to the trust to cover rent, the
                                      record lacks evidence of such payments. Mrs. Dalton Jr. also
                                      has access to the trust’s bank account and has issued checks
                                      on behalf of the trust.
                                         Several factors suggest a respect for internal controls. The
                                      appointment of Mr. Pray shows a respect for trust formali-
                                      ties. Indeed, the trust had a trustee other than petitioners
                                      during most of its existence. Mr. Dalton Jr.’s time as trustee
                                      does not create a nominee interest merely because a trustee
                                      holds legal title, as opposed to a beneficial interest. See, e.g.,
                                      Drye v. United States, 528 U.S. at 59 n.6 (‘‘ ‘a taxpayer must
                                      have a beneficial interest in any property subject to the lien’ ’’
                                      (quoting ‘‘Note, Property Subject to the Federal Tax Lien’’, 77
                                      Harv. L. Rev. 1485, 1491 (1964))). Mr. Pray’s sworn affidavit
                                      states that he communicates with petitioners three to four
                                      times a year regarding budgeting and planning and visits the
                                      property at least once a year. The existence of a trust bank
                                      account and the filing of trust tax returns, while belated, also
                                      suggest a respect for trust formalities and internal controls.
                                         As to breaches of fiduciary duty by the trustee, failure to
                                      abide by the terms of a trust by a trustee does not render
                                      the trust invalid. Instead, the trustee potentially could be in
                                      breach of his fiduciary duty and liable for damages caused by
                                      the breach. See Me. Stat. Ann. tit. 18–B, sec. 1001; see also
                                      United States v. Greer, 383 F. Supp. 2d 861, 869 (W.D.N.C.
                                      2005) (failure to file a tax return as required under the terms
                                      of the trust agreement would be a breach of fiduciary duty,
                                      but would not cause the trust to fail), affd. 182 Fed. Appx.
                                           27 This   appointment as trustee was formalized in writing in June 2000.




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                                      (393)                         DALTON v. COMMISSIONER                                           421


                                      198 (4th Cir. 2006). Finally, we note that petitioners, even
                                      though Mrs. Dalton Jr. had access to the trust bank account,
                                      did not use trust assets to pay personal expenses.
                                         Considering all of the facts and circumstances surrounding
                                      the Poland property, we conclude that petitioners’ treatment
                                      of the trust property is insufficient to create a nominee
                                      interest. The trust was validly created, pursuant to Maine
                                      law. All of the transfers of the Poland property occurred and
                                      were recorded at least 10 years before the liability in ques-
                                      tion arose. It was not until after the liability arose that peti-
                                      tioners moved to the Poland property, and during part of
                                      that time the trustee, Mr. Dalton Sr., lived at the Poland
                                      property. Mr. Dalton Sr., acting as trustee, could oversee the
                                      Poland property and act to protect it. Any failure by the
                                      trustee in his fiduciary duties potentially could create a
                                      liability between the trustee and the beneficiaries. However,
                                      the trust would still be in effect. See 2 Restatement, Trusts
                                      3d, sec. 64 (2003). Moreover, since Mr. Dalton Sr.’s death,
                                      Mr. Pray has served as trustee. During this time Mr. Pray
                                      has held meetings with petitioners three to four times a year
                                      setting rent and planning maintenance, has ensured the
                                      timely filing of tax returns, and has annually visited the
                                      property to ensure that the assets are being protected.
                                      Finally, petitioners have paid rent to the trust. On the basis
                                      of our consideration of the Federal factors analysis, we con-
                                      clude that petitioners do not have a nominee interest in the
                                      Poland property.
                                         The cases that respondent cites in his response to peti-
                                      tioners’ motion for summary judgment and in his supple-
                                      mental motion for summary judgment for an application of
                                      a Federal factors analysis involve either an antecedent tax
                                      debt, impending tax troubles, or fraudulent conveyances. See
                                      Shades Ridge Holding Co. v. United States, 888 F.2d 725,
                                      727 (11th Cir. 1989) (taxpayer used a holding company to
                                      hold assets to escape personal tax liability from gambling
                                      operation that had been accruing since 1957); F.P.P. Enters.
                                      v. United States, 830 F.2d 114, 116 (8th Cir. 1987) (taxpayer
                                      created sham trusts to shelter assets from creditors and
                                      fraudulently conveyed assets to those trusts); Loving Saviour
                                      Church v. United States, 728 F.2d at 1086 (taxpayer used
                                      sham transfers of assets to church in attempt to escape tax-
                                      ation); United States v. Dornbrock, 101 AFTR 2d 2008–906, at




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                                      2008–908, 2009–1 USTC par. 50,219, at 87,474 (S.D. Fla.
                                      2008) (IRS examining returns at time of purchase of condo),
                                      affd. 309 Fed. Appx. 359 (11th Cir. 2009); Battle v. United
                                      States, 99 AFTR 2d 2007–2007, at 2007–2009 (E.D. Tex. 2007)
                                      (taxpayer used sham trusts to hide assets from Commis-
                                      sioner); Cody v. United States, 348 F. Supp. 2d at 684 (tax-
                                      payer’s relatives put a house in trust for taxpayers to avoid
                                      seizure due to prior tax bill); United States v. Kattar, 81 F.
                                      Supp. 2d 262, 263–265 (D.N.H. 1999) (taxpayer transferred
                                      substantially all of his assets to trusts upon notice of inves-
                                      tigation for tax evasion); Towe Antique Ford Found. v. IRS,
                                      791 F. Supp. 1450, 1457 (D. Mont. 1992) (taxpayer fraudu-
                                      lently conveyed assets to charitable foundation in anticipa-
                                      tion of the occurrence of Federal tax liabilities), affd. 999
                                      F.2d 1387 (9th Cir. 1993). 28 The instant case is materially
                                      distinguishable from the above-cited cases. As stated above,
                                      the transfers to Mr. Dalton Sr. and to the trust occurred well
                                      before the tax liability became an issue. Accordingly, we do
                                      not conclude that the transfers were an attempt to conceal
                                      assets from respondent.
                                         Respondent also cites Hill v. United States, 844 F. Supp.
                                      263 (W.D.N.C. 1993), for the application of a Federal factors
                                      analysis. In Hill, the taxpayer’s daughter purchased land
                                      with gift funds transferred to her by her grandfather, with
                                      the intention of providing a home for herself and the tax-
                                      payer. Id. at 269. The taxpayer built the home on the prop-
                                      erty and lived there following the construction. Id. The court
                                      concluded that the taxpayer’s payment of all real estate
                                      taxes, utilities, and insurance on the land amounted to rent,
                                      and that the taxpayer had no interest in the land in ques-
                                      tion. Id. at 271. The court also concluded that the taxpayer’s
                                         28 Respondent also cites United States v. Engels, 89 AFTR 2d 2002–898, 2002–1 USTC par.

                                      50,306 (N.D. Iowa 2001) (Engels II), and Dean v. United States, 987 F. Supp. 1160, 1164 (W.D.
                                      Mo. 1997), in support of a Federal factors analysis. In Engels II, the District Court reaffirmed
                                      the grant of the United States’ motion for summary judgment and amended its decision regard-
                                      ing the United States’ motion to reduce tax assessments to judgments from a denial with preju-
                                      dice to a denial without prejudice. Respondent most likely meant to cite United States v. Engels,
                                      88 AFTR 2d 2001–6429, 2001–2 USTC par. 50,723 (N.D. Iowa 2001) (Engels I), where the tax-
                                      payer tried to use trusts to escape personal tax liability. In Engels I, the court applied State
                                      law, which it concluded was consistent with a Federal factors analysis, to determine whether
                                      the trusts were nominees of the taxpayer. Id. at 2001–6436, 2001–2 USTC par. 50.723 at 90,008
                                      (‘‘determining trust validity under Iowa law requires an examination of the relationship among
                                      the parties creating, administering and benefitting from the trust’’).
                                         In Dean v. United States, supra at 1164, the court also applied State law, which it determined
                                      was consistent with a Federal factors analysis.




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                                      (393)                         DALTON v. COMMISSIONER                                           423


                                      daughter was not the nominee of the taxpayer and that the
                                      taxpayer had no interest in the property. Id. at 271, 274.
                                      Additionally, the Court declined to impose a resulting trust
                                      or a constructive trust because of the conclusion that the
                                      funds and labor were gifts by the taxpayer to the taxpayer’s
                                      daughter. Id. at 273.
                                        The undisputed facts of the instant case are similar to the
                                      facts in Hill. Petitioners’ payment of their costs of occupancy,
                                      maintenance, mortgage debt service, and property taxes are
                                      rental payments to the trust in exchange for living in the
                                      residence. Additionally, petitioners’ labor provided for the
                                      additions to the residence provided low-cost construction for
                                      the trust as in Hill, and similarly may be viewed as gifts to
                                      the trust. Finally, as we concluded above, it would be
                                      improper to impose a resulting trust on the Poland property,
                                      as the transfer of lots 3 and 4, and the purchase price of lot
                                      5, were gifts to Mr. Dalton Sr. Therefore, we find our conclu-
                                      sions in the instant case consistent with Hill.
                                        On the basis of the foregoing, we hold that the trust is not
                                      petitioners’ nominee under the Federal factors analysis. 29
                                      We conclude that petitioners do not have an interest in the
                                      Poland property that constitutes property or rights to prop-
                                      erty to which the Federal tax levy could attach under Maine
                                      law or a Federal factors analysis. See sec. 6331.
                                        Consequently, we hold that respondent’s determination to
                                      proceed with the levy was an abuse of discretion because
                                      respondent rejected petitioners’ offer-in-compromise on the
                                      basis that it did not include a nominee interest in the Poland
                                      property. 30 See Vinatieri v. Commissioner, 133 T.C. 392, 402
                                        29 In Richards v. United States, 231 Bankr. 571 (E.D. Penn. 1999), the court held that where

                                      a valid trust is not respected by the parties, for Federal tax purposes a nominee relationship
                                      may exist. However, in Richards the bankrupt served as the trustee of the property, represented
                                      to third parties that the property was his own instead of belonging to the trust, and did not
                                      respect trust formalities. In the instant case, we conclude that the trust was validly formed be-
                                      fore the tax liability arose, petitioners respected the trust, and a third-party trustee has over-
                                      seen trust assets for most of the time the trust has been in existence. Ultimately, we conclude
                                      that a nominee relationship did not exist. Therefore, we find Richards distinguishable.
                                        30 Because we hold respondent’s determination to proceed with the levy on the Poland prop-

                                      erty was an abuse of discretion, we need not consider petitioners’ argument that respondent dis-
                                      regarded our order to create a proper record and instead conducted a de novo review of the
                                      grounds for asserting a nominee ownership while taking into account both Maine law and a Fed-
                                      eral factors analysis. We also decline to address petitioners’ argument that pursuant to Me. Rev.
                                      Stat. Ann. tit. 14, sec. 752 (2003), respondent is barred by the 6-year period of limitations on
                                      civil actions to question the legitimacy of the transfers from petitioners to Mr. Dalton Sr. and
                                      the trust.




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                                      424                135 UNITED STATES TAX COURT REPORTS                                         (393)


                                      (2009); Woodrall v. Commissioner, 112 T.C. 19, 23 (1999).
                                      Petitioners are entitled to summary judgment.
                                        We have considered all of the issues raised by the parties,
                                      and, to the extent they are not discussed herein, we conclude
                                      that they are without merit, unnecessary to reach, or moot.
                                        To reflect the foregoing,
                                                                     An appropriate order and decision will be
                                                                   entered for petitioners.

                                                                               f




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