                          T.C. Memo. 1996-530



                        UNITED STATES TAX COURT



                  JEAN A. STANKO, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 25200-91.                   Filed December 2, 1996.



     Robert B. Creager and John Stevens Berry, for petitioner.

     William R. Davis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COLVIN, Judge:     Respondent determined that petitioner is

liable as a successor transferee for the 1985 income tax and

additions to tax owed by Stanko Packing Co., Inc. (Stanko

Packing), as follows:    An income tax deficiency in the amount of

$1,324,964, and additions to tax for failure to file under
                                  2

section 6651(a) in the amount of $323,806, for negligence under

section 6653(a)(1) and (2) in the amounts of $66,248 and 50

percent of the interest due on $1,295,223, and for failure to pay

corporate estimated income tax under section 6655 in the amount

of $83,203.

     After concessions, the issues for decision are:

     (1) Whether petitioner is barred by res judicata from

contesting that Stanko Packing's liability for income tax and

additions to tax for 1985 are other than as decided in Stanko v.

Commissioner, T.C. Memo. 1993-513, affd. without published

opinion 42 F.3d 1402 (9th Cir. 1994); and that her former

husband, Rudy Stanko (Stanko), is liable as a transferee of

Stanko Packing for its income tax and additions to tax for 1985.

We hold that she is.

     (2)   Whether, and if so the extent to which, petitioner is

liable under Nebraska law for the 1985 income tax and additions

to tax of Stanko Packing Co. as a successor transferee of its

assets.    We hold that she is liable for the amount of 1985 income

tax and additions to tax of Stanko Packing stipulated by the

parties.

     (3) Whether the value of the Packerland note when Stanko

transferred it to petitioner was $2,806,979 as respondent

contends; $501,240 as petitioner contends; or some other amount.

We hold that the value was $2,806,979.
                                   3

     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year at issue, and Rule

references are to the Tax Court Rules of Practice and Procedure.

                           FINDINGS OF FACT

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

A.   Petitioner

     Petitioner lived in Scottsbluff, Nebraska, when she filed

the petition.     Scottsbluff is in Scotts Bluff County.

     Petitioner has a bachelor of science degree from Oregon

State University.     She worked in Denver as a medical research

chemist for 4 years before she married Stanko.     In 1973,

petitioner and Stanko were married, and petitioner moved to

Gordon, Nebraska.     Petitioner quit working outside the home.    She

and Stanko had four children.

B.   Rudy Stanko and Stanko Packing Co.

     1.   Stanko’s Businesses

     Stanko was the president and sole shareholder of Stanko

Packing, an accrual basis meat packing corporation doing business

in Gering, Nebraska.     Stanko's cousin, Henry Stanko, had been a

coowner of Stanko Packing until Stanko bought his stock sometime

after December 1980.

     R.G. Stanko Express, a subsidiary of Stanko Packing, was a

trucking company.     The School of Gymnastics, Inc., was also a

subsidiary of Stanko Packing.     Stanko owned a meat packing plant

in Denver, Colorado, called Cattle King Packing Co.     Henry Stanko
                                 4

worked at Cattle King until Stanko closed it in 1984.    Stanko

also owned stock in Butch’s Cattle Co. and Jackson Feeders.

     Sugar Valley Export Co., Inc. (Sugar Valley), was a wholly

owned export subsidiary of Stanko Packing incorporated in 1979.

Before 1984, Sugar Valley elected to be taxed as a domestic

international sales corporation (DISC).   Stanko Packing's basis

in its Sugar Valley stock was $61,006 on the date when Stanko

Packing is deemed to have received a distribution from Sugar

Valley of its previously untaxed accumulated income.

     2.   Stanko's Indictment for Violation of Federal Meat
          Inspection Act

     In April 1984, Stanko was indicted on 15 counts of violating

the Federal Meat Inspection Act, ch. 404, 56 Stat. 351 (1942)

(current version at 21 U.S.C. sec. 661(c) (1994)).

     3.   Concepcion Giove Suit Against Stanko, et al.

     On May 30, 1984, Concepcion Giove (Giove) filed an action

against Stanko and Henry Stanko, Cattle King Packing Co., and

others in the U.S. District Court for the District of Colorado.

She alleged that the defendants had violated her rights under

title VII of the Civil Rights Act of 1964, as amended, Pub. L.

88-352, 78 Stat. 241, 253 (now at 42 U.S.C. sec. 2000e-2 (1988)).

Giove v. Cattle King, Inc., Civil No. 84-C-1096.

     4.    The Sale of Stanko Packing Assets to Packerland and the
           Packerland Note

     On June 14, 1984, Stanko Packing adopted a plan of complete

liquidation.   On July 16, 1984, Packerland Packing Co., Inc.
                                   5

(Packerland), of Green Bay, Wisconsin, agreed to buy most of the

assets of Stanko Packing for $3,900,000.

     Packerland gave Stanko Packing a $3 million promissory note

dated July 16, 1984 (the Packerland note).       The note required

Packerland to pay to Stanko Packing $3 million plus interest at

11-1/2 percent per annum, as follows:       $345,000 of interest on

July 16, 1985; and thereafter, principal and interest in equal

monthly installments of $78,270.       The unpaid principal and

interest were due on July 16, 1989.       The note was secured by a

deed of trust and by the land, improvements, and personal

property which Packerland bought from Stanko Packing.

     Stanko Packing filed a Statement of Intent to Dissolve with

the State of Nebraska on July 23, 1984.

     5.    Stanko's Criminal Convictions

     On September 14, 1984, Stanko was convicted on seven of the

counts of violating the Federal Meat Inspection Act for which he

had been indicted in April.     United States v. Cattle King Packing

Co., No. 84-CR-094 (D. Colo. 1984).       On October 11, 1984, Stanko

was sentenced to 6 years in prison and fined $70,000 for these

violations.   The U.S. Court of Appeals for the Tenth Circuit

affirmed Stanko's conviction.    United States v. Cattle King

Packing Co., 793 F.2d 232 (10th Cir. 1986).

     6.   Petitioner’s Involvement With Stanko Packing

     By August 1984, petitioner knew that Stanko Packing had sold

most (but not all) of its assets to Packerland.       From August 1984
                                  6

to June 1985, petitioner was more involved in Stanko Packing's

daily operations than she had been previously.   She controlled

Stanko Packing’s checkbook and paid Stanko Packing's expenses.

She also reviewed its bank statements and sometimes talked to

Stanko about whether to pay Stanko Packing's expenses.   She had

detailed knowledge about the operations of R.G. Stanko Express.

During this time, she communicated with accountants at Fred

Lockwood & Co. about Stanko Packing.   Fred Lockwood was Stanko

Packing's accountant until the summer of 1985.   Petitioner knew

that Stanko Packing's records had been seized, presumably by law

enforcement officials, in late 1984 or 1985.

     In March 1985, petitioner had Stanko Packing pay her $1,500

for her work on its behalf.

C.   Transfers of Stanko Packing Assets to Stanko and Petitioner
     in 1984

     1.   Stanko Packing's Transfer of Assets to Stanko in 1984

     On September 17, 1984, Stanko Packing transferred the

Packerland note, cash, and other property to Stanko, which made

Stanko Packing insolvent.   Petitioner knew that Stanko Packing

transferred the note to Stanko.

     2.   Stanko's Transfers to Petitioner in 1984

     Stanko transferred the following property to petitioner on

September 17, 1984:   (a) 250 shares of Sugar Valley stock; (b)

4,000 shares of Butch's Cattle Co. stock; (c) 500 shares of

Jackson Feeders stock; and (d) 500 shares of stock in the School
                                  7

of Gymnastics.   On that date, he also transferred to petitioner

his interest in (a) his and petitioner's home at 333 Skyline

Drive, Scottsbluff; (b) lot 2, block 5, Sunrise Hills Addition,

Scottsbluff; and (c) lots 1 and 2, block 2, Ditch North Addition,

Scottsbluff.   Petitioner owned an interest in lot 2, block 5,

Sunrise Hills Addition, and in lots 1 and 2, block 2, Ditch North

Addition, before September 17, 1984.      Stanko's interest in their

home at 333 Skyline Drive was worth from $10,000 to $12,500; his

interest in lot 2, block 5, Sunrise Hills Addition was worth

about $4,000; and his interest in lots 1 and 2, block 2, Ditch

North Addition was worth about $15,000 when Stanko transferred

them to petitioner.

      On September 19, 1984, Stanko transferred the Packerland

note to petitioner.    The transfer occurred in Nebraska.

Petitioner knew about the transfer within several days of

September 19, 1984.    Petitioner did not pay Stanko Packing or

Stanko for the note.    Petitioner paid the tax on the income from

the Packerland note.    Stanko owed no debts to petitioner when he

transferred the note to her.    Petitioner was married to Stanko at

that time.

D.   Final Activities of Stanko Packing

      1.   Income From Sugar Valley Export Co.

      Sugar Valley filed its tax returns as a DISC (Forms 1120-

DISC) for its taxable years ending September 30, 1983 and 1984.

Sugar Valley reported export receipts of $2,730,989 for its
                                  8

taxable year ending September 30, 1984.    Petitioner signed Sugar

Valley's return for its taxable year ending September 30, 1984,

as its secretary.   Carol Lockwood, an accountant with Fred A.

Lockwood & Co., prepared the DISC return for Sugar Valley's tax

year ending September 30, 1984.   Carol Lockwood was one of the

accountants who handled the Stanko Packing account.

     For its taxable year ending June 21, 1985, Stanko Packing

recognized taxable income in the following amounts from Sugar

Valley:

     Gross receipts1                  $2,457,890

     Deemed distribution2                 171,645

     Accumulated DISC income3             253,322
           1
           Stanko Packing received 90 percent, or $2,457,890, of
    Sugar Valley's export receipts for products that it sold to
    Sugar Valley from Oct. 1, 1983 to Sept. 30, 1984.
         2
           Stanko Packing is deemed to have received a
    distribution of $171,645, taxable as a dividend, from Sugar
    Valley on Sept. 30, 1984. Sec. 995(b)(1).
         3
           Stanko Packing is deemed to have received a
    distribution of $253,322 of previously untaxed accumulated
    income from Sugar Valley on Dec. 31, 1984. Sec. 995(b)(2);
    sec. 1.995-4, Income Tax Regs.

    2.    Other Income and Deductions for 1985 Tax Year

     Stanko Packing received other income of $128,776 in its 1985

taxable year.   In 1985, Stanko Packing was entitled to deduct

$186,047 for trade or business expenses, $5,342 for property

taxes, $1,978 for interest, $51,250 for a worthless debt, and $85

for a charitable contribution.
                                    9

     Stanko Packing overpaid its income tax for the taxable year

ending August 25, 1984, by $29,741, which it applied as a credit

toward its income tax liability for the following year.

     3.    Dissolution of Stanko Packing

     Stanko Packing sold its remaining assets in the fall of

1984.     Those assets were not valuable.

     On February 8, 1985, Stanko Packing filed Form 1120, U.S.

Corporation Income Tax Return, for the 52-53 week-annual period

ending August 25, 1984.     Stanko Packing did not file an income

tax return for its last taxable year, which ended on June 21,

1985.     On June 21, 1985, Stanko Packing filed Articles of

Dissolution with the State of Nebraska, dissolving Stanko Packing

on that date.     Stanko Packing's income taxes for its tax year

ending June 21, 1985, have not been paid.

     4.     Payments on the Packerland Note

     Petitioner rejected an offer (not otherwise identified in

the record) to buy the Packerland note for $2.2 million in the

first year she held it.     She rejected an offer in 1986 from

Packerland to discount the note by $500,000 because she thought

it was worth more than that.

     Packerland paid all principal and interest on the note,

totaling $4,101,779.86, by July 31, 1989.

     5.     Stanko Farm and Ranch

     In early 1985, petitioner began to operate her own farm

business, Stanko Farm and Ranch.        She opened a checking account
                                   10

for it.    In late 1984 and early 1985 petitioner transferred

$15,000 from Stanko Packing to the Stanko Farm and Ranch account.

E.   Henry Stanko Suit

      In January 1985, Henry Stanko sued Stanko for $100,000 for

breach of contract.      He alleged that Stanko had not fully paid

the price which he had agreed to pay for Henry's interest in

Stanko Packing.    On April 18, 1986, Henry Stanko obtained a

$120,613 breach of contract judgment against Stanko.      Henry

Stanko then brought an action in which he alleged that Stanko

made fraudulent conveyances to petitioner.      A default judgment

was entered, and later satisfied for $80,000.

F.    Petitioner's Divorce From Stanko

     On July 11, 1985, Stanko filed for a divorce from petitioner

in the District Court of Scotts Bluff County.      That court issued

a divorce decree on July 3, 1986, which became final on January

3, 1987.

G.   Stanko's Insolvency Claim

      On August 18, 1985, Stanko was cited for a traffic violation

in Scotts Bluff County.      Nebraska v. Stanko, No. T51581 (Scotts

Bluff County Court).      In that case, Stanko filed and signed under

penalty of perjury an Affidavit In Support Of Motion To Proceed

In Forma Pauperis.    Stanko's affidavit states that he was

insolvent when he filed his motion on November 27, 1985, and that

he had incurred a large amount of debts in the 18 months before
                                 11

that date.    The Scotts Bluff County Court denied Stanko's Motion

To Proceed In Forma Pauperis.

H.   Transfers to Petitioner in 1985

     On September 19, 1985, Stanko transferred his interest in

lots 1 and 2, block 5, Ditch North Addition, Scottsbluff, to

petitioner.   On October 4, 1985, petitioner, as sole shareholder

of Butch's Cattle Co., deeded to herself lots 10, 11, and 12,

block 10, L.G. Gill subdivision, Jackson, Wyoming.    The total

value of these three lots was about $40,000 on October 4, 1985.

On October 7, 1985, petitioner, as sole shareholder of the School

of Gymnastics, deeded to herself lots 8, 9, and 10 of block 2,

City Addition, Scottsbluff.    The total value of these lots was

about $20,000 at that time.

I.   Trusts Created by Stanko and/or Petitioner

     On October 30, 1985, petitioner created the Western

Enterprises Trust (Western).    Petitioner bought property from the

Henry Jerger Estate and transferred it to Western in the fall of

1985.

     Petitioner and/or Stanko created the Sheridan Enterprises

Trust, Red Barn Trust, and River Enterprises Trust (the trusts)

in October and November 1985.    Petitioner was a trustee of each

of the trusts.   Petitioner transferred her interest in two or

three properties to Stanko by quitclaim deed.    He then

transferred that property to the trusts.    When petitioner and

Stanko created the trusts, she knew that Stanko Packing had a tax
                                  12

liability for its last year, that Giove had sued Stanko, and that

Henry Stanko had sued Stanko for breach of contract.

J.   Disposition of the Giove Cases

     1.   Default Judgment in Giove v. Cattle King, Inc.

     On July 9, 1986, Giove obtained a default judgment against

Stanko in Giove v. Cattle King, Inc., Civil No. 84-C-1096, in the

amount of $824,650.59.

     2.   Transfers to Petitioner Voided as Fraudulent
          Conveyances in Giove v. Stanko

     Petitioner was a defendant in Giove v. Stanko, No. CV89-L-

236 (D. Neb.) (the Giove case).    Respondent was not a party to

the Giove case.   In the Giove case, Giove asked that certain

conveyances of Stanko's property to the other defendants in the

case, including petitioner, be set aside as fraudulent under the

Uniform Fraudulent Conveyance Act (Neb. Rev. Stat. secs. 36-602,

36-603, 36-604, 36-607 (1973)).    Giove brought the suit in the

U.S. District Court for the District of Nebraska based on

diversity of citizenship under 28 U.S.C. section 1332.    That

Court filed its Memorandum of Decision on January 11, 1991.      In

it, the District Court found that petitioner and Stanko intended

to defraud Stanko's creditors, Giove v. Stanko, supra, slip op.

at 14, and that Stanko was insolvent and had been since September

17, 1984, id. at 9-10.   The District Court held that Stanko's

transfers of property to petitioner on and after May 9, 1985,

were fraudulent as to then-existing and future creditors and
                                13

voided the transfers.   Id. at 17.    On May 23, 1991, the Court

entered its judgment, voiding the following transfers (among

others) as fraudulent conveyances to petitioner:    (a) The

September 19, 1985, conveyance of Stanko's interest in lots 1 and

2, block 5, Ditch North Addition, Scottsbluff; (b) the October 4,

1985, conveyance by Butch's Cattle Co. of lots 10, 11, and 12,

block 10 of the L.G. Gill subdivision in Jackson, Wyoming; and

(c) the October 7, 1985, conveyance by the School of Gymnastics,

Inc., of lots 8, 9, and 10, block 2, City Addition, Scotts Bluff

County.

     Petitioner appealed the Giove case.     In Giove v. Stanko, 977

F.2d 413 (8th Cir. 1992), the U.S. Court of Appeals for the

Eighth Circuit affirmed the judgment of the U.S. District Court

for the District of Nebraska.   The judgment in Giove v. Stanko,

supra, is final.

K.   Notice of Transferee Liability

     Respondent issued a notice of transferee liability to

petitioner on August 7, 1991.   Stanko Packing had been dissolved

and no longer existed at that time.

L.   Stanko's Tax Court Case

     Stanko filed a petition in this Court on November 4, 1991.

Stanko v. Commissioner, docket No. 25257-91.     In the petition,

Stanko disputed the Commissioner's determination that he was

liable as a transferee of the assets of Stanko Packing for the

corporation's income tax liability for the taxable year that
                                 14

ended on June 21, 1985, and that there were deficiencies in his

income tax for 1984 and 1985.

     Stanko did not appear when his case was called from the

calendar for this Court's Denver, Colorado, trial session on

February 8, 1993.   The Commissioner moved to dismiss for lack of

prosecution.   We granted the motion.     Stanko v. Commissioner,

T.C. Memo. 1993-513.   We held that Stanko was liable, as the

transferee of assets of Stanko Packing, for a deficiency of

$1,324,964 and for additions to tax under sections 6651(a),

6653(a)(1) and (2), and 6655.   We also held that Stanko was

liable for deficiencies of $961,134 for 1984 and $9,611 for 1985

and for additions to tax under sections 6651(a), 6653(a)(1) and

(2), and 6654.   On January 10, 1994, we entered a decision in

that case.   Stanko appealed to the U.S. Court of Appeals for the

Ninth Circuit.   On November 1, 1994, that court affirmed our

decision.    Stanko v. Commissioner, 42 F.3d 1402 (9th Cir. 1994).

Our decision in that case is final.

     On February 18, 1994, the Commissioner assessed income tax

liability against Stanko as a transferee of Stanko Packing for

its tax year ending June 21, 1985.      No payments have been made

towards Stanko's transferee liability.     Respondent has found no

assets of Stanko and has received no response from Stanko about

his transferee liability.
                                    15

                                 OPINION

A.     Transferee Liability

       Respondent contends that petitioner is liable as a successor

transferee (i.e., a transferee of a transferee) for the 1985

income tax and additions to tax owed by Stanko Packing.

Petitioner disagrees.

       The Commissioner may collect unpaid income taxes of a

transferor of assets from a transferee or a successor transferee

of those assets.      Sec. 6901(a), (c)(2); Commissioner v. Stern,

357 U.S. 39, 42 (1958); Stansbury v. Commissioner, 104 T.C. 486,

489 (1995).    State law generally determines the extent of the

transferee's liability.       Commissioner v. Stern, supra at 45; Gumm

v. Commissioner, 93 T.C. 475, 479 (1989), affd. without published

opinion 933 F.2d 1014 (9th Cir. 1991).      Therefore, we apply

Nebraska law in deciding whether petitioner is liable as a

transferee under section 6901.

       The Commissioner bears the burden of proving that the

taxpayer is liable as a transferee under State law or in equity.

Sec. 6902(a); Rule 142(d); Gumm v. Commissioner, supra at 479-

480.    Petitioner bears the burden of proving that the transferor

is not liable for the tax and additions to tax.      Sec. 6902(a).

B.     Res Judicata

       We first decide whether petitioner is precluded by res

judicata from contesting that Stanko Packing’s income tax
                                 16

deficiency and additions to tax are other than as decided in

Stanko v. Commissioner, T.C. Memo. 1993-513; and that Stanko is

liable as a transferee of Stanko Packing for its income tax

deficiency and additions to tax for its tax year ending June 21,

1985.

     The doctrine of res judicata prevents parties from

relitigating the same claims or issues.   Baptiste v.

Commissioner, 29 F.3d 433, 435-437 (8th Cir. 1994), revg. 100

T.C. 252 (1993), affg. in part and revg. in part T.C. Memo. 1992-

199; Hemmings v. Commissioner, 104 T.C. 221, 230 (1995).    Res

judicata applies to tax cases.   United States v. International

Bldg. Co., 345 U.S. 502, 506 (1953); Commissioner v. Sunnen, 333

U.S. 591, 598 (1948).   Res judicata applies if:   (1) The issue

contested in both proceedings is identical; (2) the parties to

the later proceeding are the same as, or are in privity with, the

parties to the earlier proceeding; and (3) the earlier proceeding

resulted in a final judgment on the merits.   Nevada v. United

States, 463 U.S. 110, 129-130 (1983); Baptiste v. Commissioner,

supra.

     1.   The Issues Contested in Stanko v. Commissioner and in
          This Case Are Identical

     For res judicata to apply, an issue contested in Stanko v.

Commissioner, supra, and the instant case must be identical.       The

issue in the earlier Tax Court case was whether Stanko was liable

as a transferee of assets of Stanko Packing for the 1985 income
                                 17

tax and additions to tax of Stanko Packing; and, if so, the

amount of that liability.    Petitioner does not dispute that

Stanko was a transferee of Stanko Packing.

     Respondent contends that res judicata establishes that

Stanko was a transferee of Stanko Packing and the amount of

Stanko Packing’s liability for income tax, additions to tax, and

interest.    Issues contested and decided in Stanko v.

Commissioner, supra, are identical to issues in this case.       This

meets the first requirement for res judicata to apply.

     2.     The Parties in the Instant Case Are the Same as, or in
            Privity With, the Parties in Stanko v. Commissioner

     For res judicata to apply, the parties to the later

proceeding must be the same as, or in privity with, the parties

to the earlier proceeding.    Commissioner v. Sunnen, supra at 597.

Respondent was a party in Stanko v. Commissioner, supra, and in

the instant case.    Petitioner does not dispute that she is in

privity with Stanko.    This meets the second requirement for res

judicata to apply.

     3.     The Decision in Stanko v. Commissioner, T.C. Memo.
            1993-513, Was a Final Judgment on the Merits

     For res judicata to apply, the earlier proceeding in Stanko

v. Commissioner, supra, must have resulted in a final judgment on

the merits.    This Court entered a default judgment against Stanko

in that case.    Petitioner does not dispute that Stanko's Tax

Court case is final.    However, petitioner argues that res
                                 18

judicata does not apply since Stanko v. Commissioner, supra, was

decided by default.    We disagree.

     A default judgment is a judgment on the merits for purposes

of res judicata.   Morris v. Jones, 329 U.S. 545, 550-551 (1947)

(“A judgment of a court having jurisdiction of the parties and of

the subject matter operates as res judicata, in the absence of

fraud or collusion, even if obtained upon a default”); Kapp v.

Naturelle, Inc., 611 F.2d 703, 707 (8th Cir. 1979); Moyer v.

Mathas, 458 F.2d 431, 434 (5th Cir. 1972); Shaheen v.

Commissioner, 62 T.C. 359, 364 (1974).   Res judicata applies to

Tax Court cases resolved through default judgments.     Shaheen v.

Commissioner, supra.

     This meets the third requirement for res judicata to apply.

Thus, we hold that res judicata bars petitioner from disputing

that Stanko is liable as a transferee of assets of Stanko Packing

for its income tax deficiency and additions to tax as decided in

Stanko v. Commissioner, supra.

     The parties have stipulated adjustments to Stanko Packing's

income and deductions for its tax year that ended on June 21,

1985.   We believe that, for purposes of determining petitioner's

liability as a transferee in this case, Stanko Packing's
                                19

iability for tax and additions to tax should be computed based on

that stipulation.1

C.   Whether Petitioner Is Liable as a Successor Transferee of
     Stanko Packing

     1.    Fraudulent Conveyances Under Nebraska Law

     Respondent claims that the transfer of the Packerland note

to petitioner is void as to respondent, an existing creditor,

under sections 36-604 and 36-607 of the Revised Statutes of

Nebraska   (Neb. Rev. Stat. secs. 36-604, 36-607 (reissue 1988))

(as in effect at the time of the transfer).   Respondent argues

that petitioner is a successor transferee because she received

property from Rudy Stanko without consideration, who received

property from Stanko Packing without consideration, and Stanko

Packing was left without assets to pay its 1985 income tax

liability.   Sec. 6901(h).2




     1
       At the end of the trial, petitioner requested an
opportunity to submit additional evidence at a later date. The
Court granted petitioner's request. The parties later agreed
that no further trial was necessary.
     2
      Sec. 6901(h) provides:

          SEC. 6901(h). Definition of Transferee.--As used
     in this section, the term "transferee" includes donee,
     heir, legatee, devisee, and distributee, and with
     respect to estate taxes, also includes any person who,
     under section 6324(a)(2), is personally liable for any
     part of such tax.
                                20

     Petitioner disputes that Stanko transferred the note to her

for less than fair consideration or with the intent to hinder,

delay, or defraud creditors.

     The Nebraska Uniform Fraudulent Conveyance Act (as in effect

during all times relevant here)3 (Neb. Rev. Stat. secs. 36-602,

36-603, 36-604, 36-607 (reissue 1988))4 allows a court to void a


     3
       This statute has since been replaced. The statute
governing substantive matters in effect at the time of the
transfer governs, not statutes enacted later. Schall v.
Anderson's Implement, Inc., 484 N.W.2d 86, 89-90 (Neb. 1992).
     4
       Secs. 36-602, 36-603, 36-604, and 36-607 of the Revised
Statutes of Nebraska (Neb. Rev. Stat. secs. 36-602, 36-603, 36-
604, and 36-607 (reissue 1988)) (as in effect at the time of the
transfer) provide:

     Sec. 36-602   Insolvency; how determined.

          (1) A person is insolvent when the present fair
     salable value of his or her assets is less than the
     amount that will be required to pay his or her probable
     liability on his or her existing debts as they become
     absolute and matured.

     Sec. 36-603   Fair consideration; when given.

          Fair consideration is given for property, or
     obligation,

          (a) When in exchange for such property, or
     obligation, as a fair equivalent therefor, and in good
     faith, property is conveyed or an antecedent debt is
     satisfied, or

          (b) When such property, or obligation is received
     in good faith to secure a present advance or antecedent
     debt in amount not disproportionately small as compared
     with the value of the property, or obligation obtained.

     Sec. 36-604   Conveyance by insolvent; fraudulent.
                                                    (continued...)
                                21

debtor's transfer of property if the transfer was made without

fair consideration and left the debtor insolvent (i.e., without

enough property to pay his or her debts), or it was actually

intended (as distinguished from intent presumed in law) to

hinder, delay, or defraud any creditor.   We need not decide

whether Stanko's transfer of the Packerland note to petitioner

left Stanko insolvent because respondent has proven that Stanko

actually intended to hinder, delay, or defraud creditors, and

thus made a fraudulent conveyance under section 36-607 of the

Revised Statutes of Nebraska.

     2.   Was the Transfer Made for Fair Consideration?

     For purposes of section 36-607 of the Revised Statutes of

Nebraska, transfers between spouses are presumed to be fraudulent

as to existing creditors.   Brown v. Borland, 432 N.W.2d 13, 16-17

(Neb. 1988) (decided under Neb. Rev. Stat. sec. 36-607 (reissue


     4
      (...continued)
          Every conveyance made and every obligation
     incurred by a person who is or who will be thereby
     rendered insolvent is fraudulent as to creditors
     without regard to his or her actual intent if the
     conveyance is made or the obligation is incurred
     without a fair consideration.



     Sec. 36-607   Conveyances made with intent to defraud.

          Every conveyance made and every obligation
     incurred with actual intent, as distinguished from
     intent presumed in law, to hinder, delay, or defraud
     either present or future creditors, is fraudulent as to
     both present and future creditors.
                                22

1984)); Gifford-Hill & Co. v. Stoller, 380 N.W.2d 625, 630 (Neb.

1986) (decided under Neb. Rev. Stat. sec. 36-401 (reissue 1978)

(since repealed and replaced by the Uniform Fraudulent

Conveyances Act, Neb. Rev. Stat. secs. 36-602, 36-603, 36-604,

36-607 (reissue 1988))).5   The party defending the transfer bears

the burden of proving that an interspousal transfer was made for

fair consideration.   Brown v. Borland, supra at 16.    To rebut

this presumption, petitioner must show that she paid fair

consideration for the Packerland note or that Stanko's intent in

making the transfer was not fraudulent.   See United States v.

Thomassen, 610 F. Supp. 386, 392-393 (D. Neb. 1985) (decided

under Neb. Rev. Stat. sec. 36-401 (reissue 1978)); Gifford-Hill &

Co. v. Stoller, supra.   As discussed next and at par. C-3,

petitioner has shown neither.

     Petitioner argues that she gave consideration for the note

because:   (a) She was entitled to a one-half marital interest in

Stanko Packing's assets; (b) she accepted the note in

satisfaction of her right to a division of the other marital




     5
      Under Nebraska's predecessor fraudulent conveyances statute
(Neb. Rev. Stat. sec. 36-401), a conveyance made with intent to
defraud creditors was void. Badges of fraud and presumptions
were developed through case law. Sec. 36-607 of the Revised
Statutes of Nebraska (Neb. Rev. Stat. sec. 36-607 (reissue 1988))
preserved the distinction between "intent presumed at law" and
"intent to defraud". Thus, the rules on badges of fraud and
their presumptions are still in effect under the uniform act.
Brown v. Borland, 432 N.W.2d 13, 16 (Neb. 1988).
                                  23

assets, alimony, and child support; and (c) she agreed to assume

Stanko's tax liability on the income from the note.

     We disagree.    First, petitioner did not own any Stanko

Packing stock and has not proven that she was entitled to a one-

half marital interest in its assets.     Petitioner's reliance on

Thiltges v. Thiltges, 527 N.W.2d 853 (Neb. 1995), for the

proposition that she was entitled to a one-half marital interest

in the Stanko Packing assets upon dissolution of her marriage is

misplaced.   In Thiltges, the Supreme Court of Nebraska stated

that the division of property is not subject to a precise

mathematical formula, that the general rule is to award a spouse

one-third to one-half of the marital estate, and that the

ultimate test in making a division of marital property is

fairness and reasonableness as established by the facts of each

case.   Id. at 857-858.    Thus, petitioner has not shown that she

was entitled to a one-half marital interest in the Stanko Packing

assets.   Second, petitioner testified that Stanko transferred the

note to her because he thought it was fair to give her something

because she was his wife and she had supported him during his

criminal trial.     We think a more likely explanation for the

transfer 3 days after his criminal conviction is that Stanko

wanted to keep the property in petitioner's hands and away from

his creditors.    Third, petitioner's payment of tax liabilities

arising from the income from the note is not consideration for
                                24

the note; any tax liability on the income from the note was

petitioner's since she received the income from the note.

     Finally, petitioner testified that she did not ask for

alimony or temporary support because she had the Packerland note,

and claims that she waived future alimony, maintenance, or child

support when she received the note from Stanko.   Even if she did,

a waiver would not have been consideration for the Packerland

note.   See Brown v. Borland, supra at 17.   Petitioner and

Stanko's divorce proceeding had not yet begun when Stanko

transferred the note to petitioner.   Stanko filed for divorce in

July 1985, nearly a year after he transferred the note to her.

Petitioner has not shown that she would have been awarded alimony

or maintenance in her divorce from Stanko.   Repayment of an

antecedent debt (that is, a debt existing at the time of the

transfer) can be fair consideration for transferred property for

purposes of sections 36-603 and 36-607 of the Revised Statutes of

Nebraska.   See Schall v. Anderson's Implement, Inc., 484 N.W.2d

86, 90 (Neb. 1992).   However, liability for alimony or child

support that may arise in the future is not an antecedent debt

for purposes of sections 36-603 and 36-607 of the Revised

Statutes of Nebraska (Neb. Rev. Stat. secs. 36-603, 36-607

(reissue 1988)).   See Brown v. Borland, supra at 17.   We hold

that petitioner did not give fair consideration for the note.
                                 25

     3.   Was the Transfer Made with Actual Intent to Hinder,
          Delay, or Defraud Creditors

     Under Nebraska law, a transfer is fraudulent if the

transferor had actual intent, as distinguished from intent

presumed in law, to defraud creditors.    Neb. Rev. Stat. sec. 36-

607 (reissue 1988).    Thus, respondent must prove: (a) That the

transferee received property of the transferor; and (b) that the

transferor made the transfer with actual intent, as distinguished

from intent presumed in law, to hinder, delay, or defraud present

or future creditors.    Neb. Rev. Stat. sec. 36-607.

     Petitioner contends that Stanko did not transfer the

Packerland note to her with the intent to defraud his creditors.

We disagree.

     Nebraska law generally recognizes the following badges of

fraud for purposes of establishing a fraudulent conveyance:    The

transfer was for less than fair consideration, the transfer was

of the transferor's entire estate, the transfer was made to the

transferor's spouse or other family member, the transfer was made

while there was pending or threatened litigation against the

transferor, the transfer was made secretly or hurriedly, the

transfer was made while the transferor was insolvent or greatly

in debt, the transfer was a departure from the transferor's usual

method of doing business, and the transferor retained possession

of and/or benefits in the transferred property.    Gifford-Hill &

Co. v. Stoller, 380 N.W.2d 625, 630 (Neb. 1986); First Natl. Bank
                                26

v. First Cadco Corp., 203 N.W.2d 770, 778-779 (Neb. 1973)

(decided under Neb. Rev. Stat. sec. 36-401 (reissue 1943));

Farmers State Bank v. Dierks, 289 N.W. 860, 866 (Neb. 1940)

(decided under Neb. Rev. Stat. sec. 36-401 (reissue 1929)).

     Many of those badges of fraud are present here.   Stanko had

a significant amount of tax liabilities and pending claims

against him when he transferred the note to petitioner.6    Three

days after Stanko's criminal conviction, Stanko Packing

distributed substantially all of its remaining assets to Stanko,

leaving it insolvent.   Two days later, Stanko transferred the

Packerland note to petitioner for no consideration.    The transfer

was between husband and wife, and was made without consideration

and as part of a series of transfers that greatly reduced

Stanko's estate.   The transfer was made just before the District

Court for Colorado imposed criminal penalties and while the Giove

lawsuit was pending against Stanko.

     Stanko filed an affidavit in November 1985 stating that he

was insolvent.   We agree with petitioner that Stanko's affidavit

does not necessarily show that he was insolvent; however, it does




     6
       Stanko had the following claims pending against him when
he transferred the note to petitioner: Fines relating to his
criminal conviction by the District Court for Colorado (later
adjudged to be $70,000); claims made in the Giove lawsuit (later
adjudged to be $824,650); Stanko Packing's 1984 tax liability
(later adjudged to be $1,324,964); and Stanko's 1984 and 1985 tax
liability (later adjudged to be $961,134).
                                 27

show that he may have been hiding assets in an attempt to hinder

or delay his creditors.

     The District Court for Nebraska found that later transfers

from Stanko to petitioner were fraudulent.    Giove v. Stanko, No.

CV89-L-236 (D. Neb., Jan. 11, 1991), affd. 977 F.2d 413 (8th Cir.

1992).   This indicates that Stanko's transfer of the Packerland

note to petitioner was part of a pattern of transferring assets

and depleting his estate in an attempt to hinder, delay, or

defraud his creditors.    Evidence of prior or subsequent acts is

relevant to prove intent or state of mind where they appear to be

part of a pattern.   United States v. King, 768 F.2d 586, 587-588

(4th Cir. 1985); United States v. Hadaway, 681 F.2d 214, 217 (4th

Cir. 1982).

     We conclude that Stanko transferred the Packerland note to

petitioner with the actual intent to delay, defraud, or hinder

his creditors.   Accordingly, we hold that Stanko's transfer of

the Packerland note to petitioner was a fraudulent conveyance

under section 36-607 of the Revised Statutes of Nebraska (Neb.

Rev. Stat. sec. 36-607 (reissue 1988)).7


     7
      Respondent also contends that petitioner is collaterally
estopped by Giove v. Stanko, No. CV89-L-236 (D. Neb., Jan. 11,
1991), affd. 977 F.2d 413 (8th Cir. 1992), from denying that
Stanko's transfer of the Packerland note to petitioner was
fraudulent as to his then-existing and future creditors. Based
on our holding that Stanko's transfer of the note to petitioner
was a fraudulent conveyance under Nebraska law, we need not reach
this issue.
                                28

D.   The Value of the Packerland Note

     Respondent must prove the value of the assets transferred.8

Tilton v. Commissioner, 88 T.C. 590, 600 (1987); Ashton v.

Commissioner, 28 B.T.A. 582, 584-585 (1933).   The face value of

the Packerland note was $3 million.   Respondent's expert, Kerry

Packard, estimated that the fair market value of the Packerland

note, using the willing buyer/willing seller test, was $2,806,979

on September 19, 1984, the date Stanko transferred it to

petitioner.9   In making this estimate, he considered the risk of

nonpayment, the fact that the note was secured by real estate and

equipment Packerland bought from Stanko Packing, and the fact

that Packerland could easily pay its short-term obligations and

had good creditworthiness on September 19, 1984.

     Petitioner offered no expert testimony concerning the value

of the Packerland note.

     Petitioner points out that, on September 15, 1985 (the due

date for Stanko Packing's return for its tax year ending on June

21, 1985), she had received only $501,240 ($345,000 on July 15,

     8
       The parties dispute whether, and to what extent,
petitioner is liable for interest if Stanko Packing's tax,
additions to tax, and interest exceed the value of the Packerland
note. We need not decide this issue unless the Rule 155
computations show that the deficiency, additions to tax, and
interest exceed the value of the Packerland note.
     9
       Although the District Court found that Stanko transferred
the Packerland note to petitioner on Sept. 17, 1984, the record
shows that Stanko actually transferred the note to petitioner on
Sept. 19, 1984. The difference is in any event immaterial.
                                  29

1985, and two payments of $78,270 in August and September 1985).

She contends that the value of the note did not exceed that

amount.    Petitioner argues that a promissory note represents only

the right to receive future payments and thus the note itself has

no value.    She contends that the value of the note equaled the

amount of payments she had received.

     We disagree.    Packard reasonably concluded that the value of

the note exceeded the amount of payments petitioner had received

in 1985.    Packard conservatively evaluated Packerland's debt

rating, which he used to discount the payments on the note to

present value.    He viewed the risk of nonpayment on the note as

slight because the note was secured by real property and

equipment worth more than $3 million.    Thus, we accept his

conclusion that the note was worth $2,806,979 on September 19,

1984.

     Subsequent events corroborate Packard’s estimate.

Petitioner received full payment on the note ($4,101,779.86) in

1989.   Packerland offered to discount the note by $500,000 in

1986, but petitioner declined.    Subsequent events may be used to

corroborate an appraisal that is based on facts known on the

valuation date.     See Estate of Kaplin v. Commissioner, 748 F.2d

1109, 1111 (6th Cir. 1984), revg. T.C. Memo. 1982-440.

     To reflect the foregoing,
30

          Decision will be entered

     under Rule 155.
