                         T.C. Memo. 2004-85



                       UNITED STATES TAX COURT



    SELF HEATING AND COOLING, INC., TRANSFEREE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3267-02.               Filed March 24, 2004.



     Barry A. Furman, for petitioner.

     Gerald A. Thorpe, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:    In a notice of transferee liability dated

September 28, 2001, respondent determined that petitioner was

liable as a transferee for the 1996 income tax liability of Self

Oil Heat, Inc., in the amount of $119,689.71, plus interest

provided by law.    The only issue presented by the parties is
                               - 2 -

whether petitioner is liable as a transferee of property pursuant

to section 6901.1

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

When the petition was filed, petitioner’s principal place of

business was in Fort Washington, Pennsylvania.

Background

     On July 1, 1971, Self Oil Heat, Inc. (Self Oil), was

organized pursuant to the laws of Pennsylvania to engage in,

inter alia, the business of selling fuel oil.    Self Oil elected

to be treated for tax purposes as an S corporation until that

election was revoked on or about April 12, 1996.   From the date

of its incorporation until the date it ceased operations, Robert

N. Self, Sr., was Self Oil’s president, sole shareholder, and

sole director.   For part of 1991 and 1992, Robert N. Self, Jr.,

was Self Oil’s secretary and treasurer.2

     During 1993, Self Oil and its officers became the subject of

a joint criminal investigation conducted by Federal and State

authorities to determine whether Self Oil, among others, had paid



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the the Tax Court Rules of Practice
and Procedure.
     2
      Mr. Self, Sr., is the father of Mr. Self, Jr., and Jonathan
Self. Mr. Self, Sr., testified that both of his sons were former
employees of Self Oil.
                               - 3 -

the correct amount of excise tax on fuel it purchased and sold.

Thereafter, a five-count criminal information was filed against

Mr. Self, Jr., charging him with, inter alia, conspiracy to

defraud the United States by impeding, impairing, obstructing,

and defeating the Internal Revenue Service in the computation,

assessment, and collection of fuel excise taxes during 1991 and

1992, wire fraud arising from a scheme to defraud the

Commonwealth of Pennsylvania of oil company franchise taxes and

the State of New Jersey of motor fuel and gross receipts taxes,

and mail fraud arising from a scheme to defraud the Commonwealth

of Pennsylvania of oil company franchise taxes.   On or about

March 24, 1993, Mr. Self, Jr., entered into a plea agreement with

the U.S. attorney and pleaded guilty.   On July 27, 1994, a

judgment of conviction was entered sentencing Mr. Self, Jr., to 5

years of probation and the payment of $15,250 in penalties.     A

judgment of conviction was also entered against Self Oil

requiring it to pay a $45,000 fine and a forfeiture penalty of

$243,900.

     Petitioner, Self Heating and Cooling, Inc., is a

Pennsylvania corporation organized on September 29, 1994, and

engaged in the business of selling fuel oil and related

activities.   On October 1, 1994, petitioner issued 100 shares of

its stock to Mr. Self, Jr., and Jeanette A. Self, his wife, and

100 shares to Jonathan Self.
                               - 4 -

     On May 2, 1995, the Department of Taxation of the State of

Ohio sent Self Oil a demand for immediate payment of motor fuel

tax of $1,745,938.84 plus a 30-percent penalty for a total amount

due of $2,269,720.49.   On May 5, 1995, the State of Pennsylvania

assessed excise tax liabilities, including interest and

penalties, against Self Oil totaling $6,599,435.56.   According to

three separate notices of reassessment, all dated April 5, 1996,

the State of Pennsylvania notified Self Oil that on the basis of

the decision and order that the Board of Finance and Revenue

entered on February 27, 1996, Self Oil owed excise tax

liabilities, including penalties and interest, totaling

$7,029,251.32.

     At some point, Mr. Self, Sr., and Mr. Self, Jr., concluded

that Self Oil could not continue in business if it remained

liable for the excise taxes asserted by Ohio and Pennsylvania.

Mr. Self, Sr., and Mr. Self, Jr., had discussions with their

attorneys, Maury B. Reiter and William Stewart, concerning a

method by which the business of Self Oil could be sold to

petitioner.   Mr. Reiter wrote a memorandum dated January 6, 1996,

to his file concerning the “Pennsylvania State Motor Fuel Oil Tax

Appeal”, which states in whole:

     On or about September 29, 1994, WKS [Mr. Stewart] and MBR
     [Mr. Reiter] met with Robert Self Sr. (“Bob”) and Robert
     Self Jr. (“Rob”) regarding an assessment for fuel oil tax
     arising out of the circumstances which lead to a criminal
     indictment and settlement. Specifically, the State claimed
     a [sic] that Self Oil had engaged in a “daisy chain” for the
                         - 5 -

purpose of evading the motor fuel oil excise tax. The
assessments were for approximately $6 million including
penalty and interest. Obviously, if successful, the State
would put Self Oil out of business.

A plan was devised by WKS and myself to form a new
corporation (“Newco”). Since Self Oil is entirely owned by
Bob, and Bob was winding down his involvement in the
business, Newco was to be owned by Rob and his brother
Jonathan. The idea was to renew all new customers and
existing customers in to Newco as well as all new HVAC
installations and servicing, while renting the trucks,
facilities and utilizing the personnel of Self Oil. The
thought was that we can justify creating Newco since Bob
wanted to retire but the sons would be unwilling to step in
to Self Oil given all of its liability exposure and
therefore they would agree to “acquire” the business by
paying Bob’s company an administrative fee for the right to
take over the customers and use Self Oil’s infrastructure,
with the intent eventually of taking over the personnel, the
facilities and buying the equipment and vehicles. By doing
this, it was our goal to leave Self Oil with no real value
so that an eventual judgement by the State would not impair
the ability of continuing the business, albeit through
Newco.

In order to allow us to transition the business to Newco, it
was agreed that we would appeal the assessments as long as
we could to buy time. I therefore started the
administrative appeal process with the State, again keeping
in mind that the principal goal was delay with the remote
possibility of convincing the State it was wrong. Everyone
acknowledged that it was very unlikely that we would have
any success in the administrative appeal process. We never
really evaluated the liklihood [sic] of success in court it
being understood that when that time came, we would look at
where we were in the transition of the business and
determine whether pursuing the case any further was
justified. I believe everyone felt the liklihood [sic] of
success was not great and that was the reason for
accelerating the transition, which in fact occurred. This
point was driven home even further when Self Oil later got
an assessment from the State of Ohio for approximately $2
million. I believe the general feeling was to drag it out
as long as possible and then just walk away and defend any
action for transferee liability which the States may
attempt.
[Emphasis added.]
                                   - 6 -

       On March 25, 1996, Mr. Reiter drafted two letters which gave

notice to the State of Pennsylvania that a sale by and between

Self Oil and petitioner was scheduled for April 5, 1996.       On or

about April 15, 1996, Self Oil conveyed substantially all its

assets to petitioner pursuant to an asset purchase agreement

(agreement).3      The purchase price was listed in the agreement as

$680,000.       According to schedule A attached to the agreement, the

purchase price was allocated to the assets being purchased as

follows:

                      Item                  Allocation

                    Vehicles:
                      Vans                   $45,200
                      Trucks                  21,800
                    Inventory                220,620
                    Customer list            374,564
                    Office equipment          15,000
                    Goodwill                   2,816

According to the agreement, the consideration for the conveyance

took the form of petitioner’s assumption of various debts of Self

Oil:       (1) Outstanding loans to Mr. Self, Sr., and his wife

totaling $445,419;4 (2) Self Oil’s forfeiture and fine



       3
      However, according to the agreement, the closing was to
take place on Apr. 8, 1996.
       4
      During the years preceding the conveyance, Mr. Self, Sr.,
and his wife had advanced their personal funds to Self Oil so
that it could meet its financial needs, the amounts of which were
recorded on the corporate books and records as “loans from
stockholder”; i.e., unsecured long-term liabilities. When Self
Oil conveyed its assets to petitioner, the outstanding balance
owed to Mr. Self, Sr., and his wife was $445,419.
                               - 7 -

obligations to the U.S. Government in the aggregate amount of

$163,014; and (3) $71,567 as the balance owed to Harleysville

National Bank.5

     On or about April 15, 1996, Self Oil and petitioner entered

into an assignment and assumption agreement (assignment

agreement).   According to the assignment agreement, petitioner

assumed the following Self Oil obligations:   (1) $445,419 in

loans outstanding to Mr. Self, Sr., and his wife; (2) $56,567 in

loans outstanding to Harleysville National Bank;6   and (3)

$163,014 in obligations to the U.S. Government with respect to

Self Oil’s guilty plea agreement.   Subsequently, Self Oil and

petitioner orally agreed that the consideration that petitioner

provided would comprise the following:   (1) Petitioner’s

assumption of a portion of the debt Self Oil owed to Mr. Self,

Sr., and his wife totaling $262,986; (2) petitioner’s assumption

of fines and forfeitures Self Oil owed to the United States

totaling $163,014;7 and (3) petitioner’s assumption of a portion




     5
      The payments to Harleysville National Bank and to Mr. Self,
Sr., set forth in the agreements were based on projected
collections of Self Oil’s accounts receivable being sufficient to
pay off Harleysville National Bank’s obligations in full and
repay Mr. Self, Sr.’s loan.
     6
      See supra note 5.
     7
      When Self Oil transferred its assets to petitioner, it owed
the United States $163,014 in fines and penalties that Mr. Self,
Sr., had guaranteed and petitioner paid.
                                  - 8 -

of the debt Self Oil owed to Harleysville National Bank totaling

$254,000.8

     On April 15, 1996, the fair market value of the assets

transferred to petitioner was $680,000.      Self Oil was insolvent

when it conveyed its assets to petitioner or was rendered

insolvent by virtue of the transfer.      After transferring its

assets to petitioner, Self Oil ceased its business operations.

Petitioner continued the fuel oil business from the business

premises that Self Oil had previously occupied.      Mr. Self, Sr.,

owned and leased the business premises.

     For each of the months of May through December of 1996,

petitioner paid Mr. Self, Sr., $5,000, for a total of $35,000.

During 1997, petitioner paid Mr. Self, Sr., the following amounts

on the dates listed:

                         Date               Amount

                       1/14/97              $5,000
                       2/10/97               5,000
                       4/--/971              5,000
                       5/12/97               5,000
                       5/27/97               2,000
                       6/9/97                5,000
                       7/14/97               5,000
                       8/11/97               5,000
                       9/26/97               5,000
                       10/13/97              5,000
                       11/11/97              5,000


     8
      When Self Oil conveyed its assets to petitioner, the unpaid
balance owed to Harleysville National Bank was $410,000 on a term
note and $195,000 on a revolving line of credit. Mr. Self, Sr.,
guaranteed these debts. On June 12, 1996, petitioner paid the
outstanding balance on the revolving line of credit obligation.
                                  - 9 -

                       12/8/97             5,000
                         Total            57,000

               1
                 The record does not disclose on what
          date this payment was made.

During 1998, petitioner paid Mr. Self, Sr., the following amounts

on the dates listed:

                         Date             Amount

                       1/12/98            $5,000
                       2/16/98             5,000
                       3/16/98             5,000
                       4/6/98              5,000
                       5/11/98             5,000
                       6/9/98              5,000
                       7/14/98             5,000
                       8/10/98             5,000
                       9/15/98             5,000
                       10/8/98             2,000
                       10/13/98            5,000
                       11/10/98            7,000
                       12/15/98            5,000
                         Total            64,000

During 1999, petitioner paid Mr. Self, Sr., $5,000 per month.

During 2000, petitioner paid Mr. Self, Sr., the following amounts

on the dates listed:

                         Date             Amount

                       1/18/00            $5,000
                       2/14/00             5,000
                       3/13/00             5,000
                       4/17/00             5,000
                       5/15/00             5,000
                       6/21/00             5,000
                       7/11/00             5,000
                       8/15/00             3,000
                       8/--/001            5,000
                       9/6/00              2,000
                       10/24/00            2,986
                         Total            47,986
                                - 10 -

               1
                 The record does not disclose on what date
          this payment was made.

     On or about April 15, 1997, Self Oil filed Form 1120-S, U.S.

Income Tax Return for an S Corporation, for the period January 1

through April 12, 1996, reporting ordinary income of $26,634.

On or about August 18, 1997, Self Oil filed Form 1120, U.S.

Corporation Income Tax Return, for the period April 13 through

December 31, 1996, reporting a tax liability of $123,060.    On

September 28, 2001, respondent issued a notice of liability to

petitioner asserting that it was liable as a transferee of Self

Oil’s assets for Self Oil’s unpaid income tax liability for the

taxable year ended December 31, 1996, for $119,689.71.

                                OPINION

     Section 6901 provides a procedural mechanism for collecting

unpaid tax from transferees of property in certain circumstances.

Hagaman v. Commissioner, 100 T.C. 180 (1993); see Phillips v.

Commissioner, 283 U.S. 589 (1931) (relating to the predecessor of

section 6901).    Section 6901 provides in pertinent part:

     SEC. 6901.    TRANSFERRED ASSETS.

          (a) Method of Collection.–-The amounts of the following
     liabilities shall, except as hereinafter in this section
     provided, be assessed, paid, and collected in the same
     manner and subject to the same provisions and limitations as
     in the case of the taxes with respect to which the
     liabilities were incurred:

                  (1) Income, estate, and gift taxes.--
                                  - 11 -

                       (A) Transferees.–-The liability, at
                       law or in equity, of a transferee
                       of property--

                              (i) of a taxpayer in the case
                              of a tax imposed by subtitle A
                              (relating to income taxes),

          *       *       *          *        *       *        *

          (b) Liability.–-Any liability referred to in
     subsection (a) may be either as to the amount of tax
     shown on a return or as to any deficiency or
     underpayment of any tax.

     At the outset, it should be noted that “In proceedings

before the Tax Court the burden of proof shall be upon the

Secretary to show that a petitioner is liable as a transferee of

property of a taxpayer, but not to show that the taxpayer was

liable for the tax.”    Sec. 6902(a); see Rule 142(d).

     Whether and the extent to which a transferee is liable is

generally determined under State substantive law.         Commissioner

v. Stern, 357 U.S. 39, 45 (1958).        “The applicable State law is

determined by where the transfer occurred”.        Adams v.

Commissioner, 70 T.C. 373, 390 (1978), supplemented by 70 T.C.

446 (1978), affd. without published opinion 688 F.2d 815 (2d Cir.

1982).   Since it is undisputed that the conveyance occurred in

Pennsylvania, we shall apply that State’s substantive law.

     “‘As a general rule,’ under Pennsylvania common law, ‘when

one company sells or transfers all its assets to another, the

successor company does not embrace the liabilities of the

predecessor simply because it succeeded to the predecessor’s
                              - 12 -

assets.’”   Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d

303, 308 (3d Cir. 1985) (quoting McClinton v. Rockford Punch

Press & Manufacturing Co., 549 F. Supp. 835, 837 (E.D. Pa.

1982)).   However, where “the transaction is fraudulently entered

into to escape liability, a successor corporation may be held

responsible for the debts and liabilities of its predecessor.”

Id. at 308-309 (citing Shane v. Hobam, Inc., 332 F. Supp. 526

(E.D. Pa. 1971); Granthum v. Textile Mach. Works, 326 A.2d 449

(Pa. Super. Ct. 1974)).

     The question of whether a transfer transaction was entered

into fraudulently must be answered in the context of

Pennsylvania’s Uniform Fraudulent Transfer Act (PUFTA).    As

applicable here, PUFTA provides in pertinent part:

     Sec. 5104.   Transfers fraudulent as to present and
                  future creditors

          (a) General rule.--A transfer made or obligation
     incurred by a debtor is fraudulent as to a creditor,
     whether the creditor's claim arose before or after the
     transfer was made or the obligation was incurred, if
     the debtor made the transfer or incurred the
     obligation:

          (1) with actual intent to hinder, delay or defraud
     any creditor of the debtor * * * [12 Pa. Cons. Stat.
     Ann. sec. 5104(a)(1) (West 1999).9]



     9
      “If the debtor intended to hinder or delay a creditor, ‘he
had the intent penalized by the statute notwithstanding any other
motivation he may have had for the transfer.’” Tiab
Communications Corp. v. Keymarket of NEPA, Inc., 263 F. Supp. 2d
925, 935-936 (M.D. Pa. 2003) (quoting 718 Arch St. Associates v.
Blatstein, 192 F.3d 88, 97 (3d Cir. 1999)).
                               - 13 -

“[T]he existence of actual intent is a question of fact”.    United

States v. Tabor Court Realty Corp., 803 F.2d 1288, 1304 (3d Cir.

1986).

     Respondent concedes that Self Oil’s asset transfer did not

hinder, delay, or defraud his assessment and collection of income

tax liabilities.    As respondent aptly explains, the income tax

liability at issue is attributable to the sale of Self Oil’s

assets; the income tax liability could not have existed at the

time of the transfer.    Indeed, respondent contends that Self

Oil’s desire to frustrate the collection of other creditors,

namely, the States of Ohio and Pennsylvania, is a sufficient

justification to deem the transfer fraudulent under PUFTA.    We

agree.    The Court of Appeals for the Third Circuit has recently

stated:    “PUFTA does not require proof to set aside a transfer

that the debtor intended to defraud the specific creditor

bringing the fraudulent transfer claim.    PUFTA deems a transfer

fraudulent if the debtor had the ‘actual intent to hinder, delay

or defraud any creditor’”.    718 Arch St. Associates v. Blatstein,

192 F.3d 88, 97 (3d Cir. 1999); see Walsh v. Gutshall (In re

Walter), 261 Bankr. 139, 142-143 (Bankr. W.D. Pa. 2001) (“It is

not necessary that debtor have intended to hinder all of his

creditors for § 5104(a)(1) to apply; it is sufficient that he

intended to hinder, delay or defraud ‘any creditor’.”).
                              - 14 -

     In this case, there is direct evidence of Self Oil’s “actual

intent”.   That intent is clearly shown from the file memorandum

written by the lawyer who suggested and consummated the transfer

transaction.   As Mr. Reiter therein explained:

     it was our goal to leave Self Oil with no real value so that
     an eventual judgement by the State would not impair the
     ability of continuing the business, albeit through Newco.[10]

          * * * I believe the general feeling was to drag it out
     as long as possible and then just walk away and defend any
     action for transferee liability which the States may
     attempt.

At trial, Mr. Reiter did not disavow his memorandum, and although

he testified that it was not written contemporaneously with the

various meetings, telephone calls, and conversations he had with

the Self family, he indicated that it was, nonetheless, accurate.

Mr. Reiter was asked and answered as follows:

     Q:   So you wanted to transfer the assets before those
     liabilities, those excise tax liabilities became liens on
     the property; isn’t that correct?

     A:    We wanted to sell them, yes.

     We may also infer “actual intent” from all the facts and

circumstances surrounding the conveyance.   See Voest-Alpine

Trading USA Corp. v. Vantage Steel Corp., 919 F.2d 206, 213 (3d

Cir. 1990); Moody v. Sec. Pac. Bus. Credit, Inc., 127 Bankr. 958,

990 (W.D. Pa. 1991), affd. 971 F.2d 1056 (3d Cir. 1992).   PUFTA




     10
      Mr. Self, Jr., indicated at trial that “Newco” was the
name used in place of petitioner.
                             - 15 -

assists in ascertaining the required intent by listing some

indicative factors:

          (b) Certain factors.--In determining actual intent
     under subsection (a)(1), consideration may be given, among
     other factors, to whether:

               (1) the transfer or obligation was to an
          insider;

               (2) the debtor retained possession or control
          of the property transferred after the transfer;

               (3) the transfer or obligation was disclosed
          or concealed;

               (4) before the transfer was made or
          obligation was incurred, the debtor had been sued
          or threatened with suit;

               (5) the transfer was of substantially all the
          debtor’s assets;

               (6) the debtor absconded;

               (7) the debtor removed or concealed assets;

               (8) 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;

               (9) the debtor was insolvent or became
          insolvent shortly after the transfer was made or
          the obligation was incurred;

               (10) the transfer occurred shortly
          before or shortly after a substantial debt
          was incurred; and

               (11) the debtor transferred the essential
          assets of the business to a lienor who transferred
          the assets to an insider of the debtor. [12 Pa.
          Cons. Stat. Ann. sec. 5104(b).]
                               - 16 -

The enumerated factors are not exhaustive or exclusive,11 and

there is no magic number needed to determine the required

intent.12   Tiab Communications Corp. v. Keymarket of NEPA, Inc.,

263 F. Supp. 2d 925, 935 (M.D. Pa. 2003).   Even conduct

subsequent to the transfer may demonstrate the intent that

existed at the time of the transfer.    Iscovitz v. Filderman, 6

A.2d 270, 272 (Pa. 1939).

     Many of the enumerated indicia are present in this case:

(1) Self Oil was already insolvent or made insolvent by virtue of

the transfer; (2) the transfer was to a corporation owned by

family members who were former employees of the transferor and



     11
      We note that the statute specifically provides:
“consideration may be given, among other factors”. See 12 Pa.
Cons. Stat. Ann. sec. 5104(b) (West 1999) (emphasis added).
     12
      The committee comment to 12 Pa. Cons. Stat. Ann. sec. 5104
 states in pertinent part:

     (5) Subsection (b) below is a nonexclusive catalogue of
     factors appropriate for consideration by the court in
     determining whether the debtor had an actual intent to
     hinder, delay or defraud one or more creditors. Proof
     of the existence of any one or more of the factors
     enumerated in subsection (b) may be relevant evidence
     as to the debtor’s actual intent but does not create a
     presumption that the debtor has made a fraudulent
     transfer or incurred a fraudulent obligation. * * * The
     fact that a transfer has been made to a relative or to
     an affiliated corporation has not been regarded as a
     badge of fraud sufficient to warrant avoidance when
     unaccompanied by any other evidence of fraud. The
     courts have uniformly recognized, however, that a
     transfer to a closely related person warrants close
     scrutiny of the other circumstances, including the
     nature and extent of the consideration exchanged. * * *
                              - 17 -

one was a former officer; (3) Self Oil transferred all its assets

to petitioner; and (4) the transfer occurred shortly after excise

tax assessments were made and while Self Oil was disputing its

liability for millions of dollars in excise fuel taxes and

penalties.   We also find telling that one of the creditors who

directly benefited from the transaction was the transferor’s sole

owner, Mr. Self, Sr.   Clearly, the Self family preferred to repay

Self Oil’s unsecured debt obligations to Mr. Self, Sr., to the

disadvantage of Ohio’s and Pennsylvania’s coffers.   During trial,

Mr. Reiter testified as follows:

     Q:   Did it give you any concern that Robert Sr. was being
     repaid in part for his loans?

     A:   Yeah, it gave me some concern. You know, under the
     preference provisions of the corporate statutes there are–-
     you know, there are issues there regarding the payment of
     shareholders when there is other creditors. But he was a
     creditor.

          They had told me that–-they had indicated all
     throughout that all the general creditors were going to
     be paid. He was another creditor. So you know, I
     think I talked about it. I’m not sure how strongly I
     talked about it or how much, but I do have a
     recollection that we did have a conversation with the
     accountant as well.

Additionally, petitioner continued in the same line of business

from the same business premises (which were owned by and leased

from Mr. Self, Sr.) as the transferor, Self Oil.   Accordingly,

respondent has persuaded us, given the facts and circumstances

when taken together, that Self Oil had actual intent to “hinder,
                              - 18 -

delay or defraud” the State taxing authorities of Pennsylvania

and Ohio.

Defenses to a Finding of Fraudulent Transfer

     Despite a finding that a conveyance is fraudulent under

PUFTA, relief is denied as against a transferee who can show that

the transfer was made in “good faith” and for “reasonably

equivalent value”.   The exception provides in pertinent part:

     Sec. 5108.   Defenses, liability and protection of
                  transferee

          (a) Certain transfers or obligations not
     fraudulent.--A transfer or obligation is not fraudulent
     under section 5104(a)(1) (relating to transfers
     fraudulent as to present and future creditors) against
     a person who took in good faith and for a reasonably
     equivalent value or against any subsequent transferee
     or obligee. [12 Pa. Cons. Stat. Ann. sec. 5108(a)
     (West 1999).]

“The person who invokes this defense carries the burden of

establishing good faith and the reasonable equivalence of the

consideration exchanged.”   12 Pa. Cons. Stat. Ann. sec. 5108,

cmt. 1 (West 1999) (citing Chorost v. Grand Rapids Factory

Showrooms, Inc., 77 F. Supp. 276, 280 (D.N.J. 1948), affd. 172

F.2d 327, 329 (3d Cir. 1949)).

     The committee comment to PUFTA section 5108 aids in defining

the term “good faith”:

          (6) As used in this section, “good faith” means
     that the transferee or obligee acted without actual
     fraudulent intent and that the transferee or obligee
     did not collude with the debtor or otherwise actively
     participate in the fraudulent scheme of the debtor. A
     transferee’s or obligee’s knowledge of a transferor’s
                               - 19 -

     insolvency, in and of itself, is insufficient to
     support a finding that the transferee or obligee lacked
     “good faith” as that term is used in this section. The
     transferee’s or obligee’s knowledge of the transferor’s
     insolvency may, however, in combination with the
     transferee’s or obligee’s knowledge concerning other
     facts, be relied upon as evidencing a lack of “good
     faith” on the part of the transferee or obligee. [12
     Pa. Cons. Stat. Ann. sec. 5108, cmt. 6.]

See also Tiab Communications Corp. v. Keymarket of NEPA, Inc.,

supra at 941.

     Given the record, we do not believe that petitioner has

acted in good faith with respect to the conveyance at issue.       It

is clear that Mr. Self, Jr., petitioner’s agent and 50-percent

owner, knew all the operative facts and circumstances underlying

the transfer of Self Oil’s assets.      He was a former employee and

officer of Self Oil and pleaded guilty to criminal charges that

were based on factors that gave rise to the fuel excise tax

assessments.    He testified that he knew about the assessments,

that Self Oil had appealed the assessments, that the criminal

investigations caused Self Oil’s line of credit to be frozen, and

that the outlook for the future of Self Oil was “bleak”.     Mr.

Self, Jr., testified that before the sale, he sought advice on

how to acquire the business, he was in attendance at numerous

meetings and participated in telephone conferences with his

father and Self Oil’s attorneys concerning appealing the

assessments, and he “felt that the company was pretty much

doomed.”   Nonetheless, the parties consummated a sale in which
                              - 20 -

the debt owed to the sole shareholder was preferred over the

liabilities owed to the States of Pennsylvania and Ohio and

respondent.

     It is clear that petitioner through its agent, Mr. Self,

Jr., had knowledge of all the operative facts and circumstances

concerning Self Oil’s dire situation and its scheme to transfer

its assets before the commencement of collection activities.

Accordingly, we hold that 12 Pa. Cons. Stat. Ann. section 5108

does not provide petitioner relief from liability as a

transferee.13

     We disagree with petitioner’s self-serving argument that the

sale as consummated “was a far better result than what would have

occurred in a liquidation.”   Self Oil and petitioner did not have

the right to pick and choose which creditors got paid.   Among

those creditors paid was Mr. Self, Sr., who received hundreds of

thousands of dollars from petitioner.   We agree with respondent

that Self Oil and petitioner structured the transaction in such a

way as to provide Mr. Self, Sr., with a preferential repayment

status.   Clearly, “Transactions between a debtor-corporation and



     13
      Since 12 Pa. Cons. Stat. Ann. sec. 5108(a) (West 1999) is
a conjunctive test, in light of our holding, we need not analyze
or determine whether petitioner paid a “reasonably equivalent
value” for the assets transferred. In Hagaman v. Commissioner,
100 T.C. 180, 184 (1993), we explained that inquiries into the
adequacy of consideration “often are unnecessary because
respondent will be permitted to prove a fraudulent transfer
[under State law] by demonstrating actual intent to defraud.”
                                - 21 -

its controlling officers must be scrutinized.”    In re Tri-State

Paving, Inc., 32 Bankr. 2, 4 (Bankr. W.D. Pa. 1982) (citing

Edward Hines W. Pine Co. v. First Natl. Bank, 61 F.2d 503 (7th

Cir. 1932)).   A shareholder/creditor may not use his special

relationship with a corporation to the detriment of the

corporation’s other creditors.    As the court explained in Tri-

State Paving, Inc.:

     The Corporation owed money to the defendants, as it
     owed money to many other creditors. * * * Paying
     themselves in full by taking unfair advantage of their
     special positions and knowledge to save themselves from
     being prejudiced and simultaneously leaving their other
     creditors with nothing constituted an actual intent to
     defraud * * * [Id.]

In Robar Dev. Corp. v. Minutello, 408 A.2d 851, 853-854 (Pa.

Super. Ct. 1979), the court stated:

     where officers of insolvent corporations satisfied the
     corporate obligations held by themselves prior to other
     creditors, equity has erected a presumption that such
     officers have taken unfair advantage of their special
     position and knowledge to save themselves from being
     prejudiced. The burden lies on the officers to show
     the circumstances which made it proper that they should
     be paid prior to the other creditors. [Citations
     omitted.]

See also Bernstein v. Donaldson (In re Insulfoams, Inc.), 184

Bankr. 694, 703-704 (Bankr. W.D. Pa. 1995) (“Directors of an

insolvent corporation hold their powers ‘in trust’ for all

creditors of the corporation.    They may not use their powers for

their own benefit and to the detriment of creditors.”), affd. 104

F.3d 547 (3d Cir. 1997).
                              - 22 -

     Petitioner argues that there was no such preference because

“Every creditor with non-contingent claims were [sic] paid in

full.”   Petitioner’s argument fails because PUFTA makes no

distinction between contingent and noncontingent liabilities.

Specifically, PUFTA defines “claim” as “A right to payment,

whether or not the right is reduced to judgment, liquidated,

unliquidated, fixed, contingent, matured, unmatured, disputed,

undisputed, legal, equitable, secured or unsecured.”   12 Pa.

Cons. Stat. Ann. sec. 5101 (West 1999) (emphasis added); see id.

sec. 5104, cmt. (6)(d); United States v. St. Mary, 334 F. Supp.

799, 803 (E.D. Pa. 1971) (“for the purpose of the law of

fraudulent conveyances, a contingent liability has the same

status as one which is fixed”); People’s Sav. & Dime Bank & Trust

Co. v. Scott, 154 A. 489 (Pa. 1931); Lafayette Manor, Inc. v.

Carroll, 12 Pa. D.&C.3d 139, 145 (1979).

     Petitioner further argues:   “To successfully attack a

transfer as fraudulent under the Act it is necessary that the

creditors be prejudiced by the transfer, even where there is

actual fraudulent intent.”   Petitioner cites no authority which

interprets Pennsylvania’s fraudulent conveyance law or PUFTA.    In

any event, the record does demonstrate that an unpaid creditor

was harmed or prejudiced by the transfer.   The record shows that

Self Oil preferred the unsecured obligations owed to Mr. Self,

Sr., rather than those owed to the contingent creditors.   Mr.
                             - 23 -

Self, Sr., was repaid hundreds of thousands of dollars to the

injury and prejudice of Pennsylvania, Ohio, and respondent.14

Conclusion

     Respondent has borne his burden of proving that Self Oil

fraudulently transferred its property in violation of PUFTA.

Accordingly, we sustain respondent’s determination.



                                   Decision will be entered for

                              respondent.




     14
      There is no evidence that Pennsylvania’s and Ohio’s claims
for fuel excise tax that Self Oil owed are superior to
respondent’s claim for unpaid income tax.
