                         T.C. Memo. 2011-61



                       UNITED STATES TAX COURT



         DOUGLAS R. GRIFFIN, TRANSFEREE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13087-08.              Filed March 15, 2011.



     James R. Monroe and Albert B. Kerkhove, for petitioner.

     Michael W. Bitner and Douglas S. Polsky, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:    Respondent determined that petitioner is

liable as a transferee of HydroTemp Manufacturing Company, Inc.

(HydroTemp) for a $2,207,171 income tax deficiency of HydroTemp

plus penalties and interest for the tax year ending June 30, 2003

(the year at issue).   We must determine whether petitioner is
                                  -2-

liable as a transferee under section 69011 for HydroTemp’s unpaid

Federal income tax liability.    We hold that he is not.

                          FINDINGS OF FACT

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

incorporate the stipulation of facts and the accompanying

exhibits by this reference.    Petitioner resided in Fort Myers,

Florida at the time he filed the petition.

     Petitioner is a lifelong entrepreneur.    He has started,

owned and operated approximately 25 businesses in his career,

some worth millions of dollars.    One of petitioner’s most

successful businesses was HydroTemp.    Petitioner and Ronald Myers

(Mr. Myers) incorporated HydroTemp in the State of Florida in

1988.    HydroTemp’s primary business was manufacturing, designing

and distributing swimming pool heat pump equipment and hot water

generators.    All operations took place in Florida.   Petitioner

and Mr. Myers each owned 50 percent of HydroTemp stock until

petitioner purchased Mr. Myers’ interest to become the sole owner

of HydroTemp in 1997.

     HydroTemp became one of the largest swimming pool heat pump

manufacturing businesses in the United States.    HydroTemp’s

success was largely based on its sales to Pentair Corporation



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

(Pentair), the largest pool heater manufacturer in the United

States.   Approximately half of HydroTemp’s sales were to Pentair.

Pentair inquired about purchasing HydroTemp’s swimming pool heat

pump business on numerous occasions.    Petitioner was not

interested in selling HydroTemp.    He began to worry, however,

that if he did not sell HydroTemp’s swimming pool heat pump

assets (heat pump assets) to Pentair, he would lose Pentair’s

business.   This scenario would put HydroTemp in dire straits.

After careful consideration, he decided to sell the heat pump

assets to Pentair in late 2002.

Sale of Heat Pump Assets

     HydroTemp and Pentair both performed extensive due diligence

in preparing for the asset sale.    HydroTemp’s advisers on the

transaction were Taso Milanos (Mr. Milanos), a corporate

attorney, and Robert Hull (Mr. Hull), petitioner’s CPA.      Pentair

and HydroTemp agreed to an $8.3 million sale price in exchange

for HydroTemp’s heat pump assets and the rights to the HydroTemp

name brand, which was a well-known trademark in the industry.

Both companies agreed that the sale would not involve any of

HydroTemp’s other assets.

     HydroTemp and Pentair closed on the sale of the heat pump

assets on January 30, 2003.   Mr. Hull determined that HydroTemp’s

combined Federal and State corporate income tax liability from

the asset sale was approximately $2.6 million.    Mr. Milanos
                                -4-

prepared Articles of Amendment to Articles of Incorporation

(Amended Articles) changing HydroTemp’s name to HTMC Corporation,

which were immediately executed following the sale of its heat

pump assets.2   Mr. Milanos inadvertently failed, however, to file

the Amended Articles with the Florida Secretary of State until

June 2003.

     After selling its heat pump assets, HydroTemp retained

manufacturing equipment, trucks, a webcam system, an automatic

dialing system,3 computers, office supplies and inventory

unrelated to the heat pump assets.    Moreover, it had

approximately $1.5 million in accounts receivable.    HydroTemp

continued to employ five to ten employees to sell hot water

generators and perform accounting work.

     Petitioner deposited $8.3 million from the sale of the heat

pump assets into HydroTemp’s non-interest-bearing checking

account at SunTrust Bank (SunTrust account).    HydroTemp used



     2
      We refer to both HydroTemp and HTMC Corporation as
HydroTemp in this opinion.
     3
      An automatic dialing system is an electronic device that
can automatically dial a long list of phone numbers. Typically,
the automatic dialer will dial a random phone number from the
list and then transfer the call to a human operator if it detects
that a live person has answered the phone. The device can also
be programmed to play a recorded message, leave a message on an
answering machine or provide a menu of options to the person who
answers. Automatic dialing systems are most commonly associated
with telemarketers, but they are also used by other businesses
and entities including schools, to send alerts to parents, and
doctors, to remind patients of appointments.
                                 - 5 -

approximately $2 million from the sale proceeds to repay loans

and award bonuses to employees.    HydroTemp had approximately $6.4

million of the sale proceeds remaining in the SunTrust account.

Petitioner wanted to transfer funds from the SunTrust account to

an interest-bearing account so HydroTemp could earn interest on

the money.   He was unable, however, to open an account in

HydroTemp’s name because the name change documentation had yet to

be certified by the Secretary of State.   Petitioner determined

that HydroTemp could earn interest on its funds if he had the

corporation lend him $5 million to place in a Smith Barney

interest-bearing account (Smith Barney account) in his name.    The

loan was evidenced by a $5 million promissory note from

petitioner to HydroTemp with four percent annual interest payable

on demand (petitioner’s note).    Petitioner intended only to hold

the cash in the Smith Barney account until an interest-bearing

account could be opened in HydroTemp’s name.   Petitioner

therefore pledged to pay petitioner’s note by the earlier of the

date the Florida Secretary of State certified the name change or

by the end of HydroTemp’s tax year, which was June 30, 2003.

This pledge ensured that the money would be repaid to HydroTemp

within six months.

     HydroTemp also transferred to petitioner an additional

$300,000, which petitioner treated as an interest-free loan to
                                - 6 -

compensate him for past services.    HydroTemp kept approximately

$500,000 in cash in the SunTrust account.

MidCoast Stock Redemption Transaction

     After the Pentair sale, petitioner received several calls

from different individuals and businesses interested in helping

HydroTemp invest the sale proceeds.     Petitioner thought most of

the offers were from fly-by-night operations and rejected them

immediately.    He also received inquiries from stock brokers,

estate planners and others offering aggressive wealth-planning

strategies, which he also rebuffed.     One call petitioner received

was from Don Stevenson (Mr. Stevenson), Executive Vice President

for Acquisitions at MidCoast Investments, Inc. (MidCoast

Investments).    Mr. Stevenson informed petitioner that MidCoast

Credit Corporation (MidCoast), the parent corporation of MidCoast

Investments and other affiliates, was interested in acquiring

HydroTemp.    Mr. Stevenson told petitioner that MidCoast

specialized in the asset recovery business and that MidCoast

wanted to integrate HydroTemp into its business.    Petitioner was

initially a bit wary.    This was unfamiliar territory for

petitioner.    He had no experience in selling corporate stock and

no knowledge of the asset recovery business, and he was not

acquainted with Mr. Stevenson or MidCoast.

     Petitioner performed extensive due diligence.    He spent a

great deal of time learning about the asset recovery business and
                                - 7 -

MidCoast.   He learned from Mr. Stevenson that MidCoast had

acquired over 200 companies in its nearly 50-year existence.

MidCoast’s asset recovery business primarily consisted of buying

formerly robust companies with delinquent accounts receivable,

including credit card debt, and collecting and managing the debt.

Mr. Stevenson told petitioner that MidCoast was specifically

interested in purchasing all of HydroTemp’s stock because of

HydroTemp’s cash, accounts receivable and residual assets, which,

coupled with petitioner’s note, totaled approximately $6.4

million.    MidCoast made clear to petitioner that it wanted full

control of HydroTemp and planned to use the residual assets, such

as the automatic dialer, computers and webcam, to convert

HydroTemp into an asset recovery business.

     Mr. Stevenson’s offer intrigued petitioner.    Petitioner

first contacted persons on MidCoast’s reference list.    He then

visited MidCoast’s office in Lake Worth, Florida to investigate

the building, employees and overall ambience of the office.

Petitioner was impressed that MidCoast occupied the penthouse

suite of a newer office building and that the employees displayed

a positive attitude.   Petitioner and his advisers also pored

through MidCoast’s records, all of which supported Mr.

Stevenson’s assertions about MidCoast.   Petitioner’s extensive

due diligence on MidCoast all came back positive.    MidCoast

presented petitioner with a Letter of Intent that stated the
                                 - 8 -

purchase price for HydroTemp’s stock would equal HydroTemp’s

cash, less 52 percent of HydroTemp’s tax liability, plus $25,000

for reimbursement of expenses.    After consulting with his

advisers, petitioner decided to sign the Letter of Intent to sell

his HydroTemp stock to MidCoast.

     Petitioner began having second thoughts, however, almost as

soon as he signed the Letter of Intent.    Petitioner became

annoyed with MidCoast’s attorney, Olga Parra (Ms. Parra).      Ms.

Parra often showed up late for meetings and missed several major

deadlines regarding the transaction’s closing.    MidCoast then

exacerbated the situation by changing the payment from all cash

to some cash and a promissory note in the final Stock Purchase

Agreement and Stock Redemption Agreement in June 2003

(collectively, MidCoast stock redemption transaction).    Under the

MidCoast stock redemption transaction, HydroTemp would redeem

1,050 shares of petitioner’s HydroTemp stock by extinguishing

$3.8 million of the loan made by HydroTemp to petitioner, and

petitioner would transfer all his remaining HydroTemp shares to

MidCoast.   Petitioner would still owe HydroTemp $1,407,710 to

satisfy petitioner’s note.   In return, MidCoast would issue

petitioner a $1,407,710 note (MidCoast note), which petitioner

would then assign to HydroTemp to satisfy his outstanding

balance.    MidCoast would also pay petitioner $37,215 in cash and
                               - 9 -

satisfy any and all tax liabilities incurred by HydroTemp before

MidCoast’s stock purchase.

     Petitioner’s first reaction to the new terms was to revoke

the Letter of Intent because of what he perceived to be

unprofessional and unscrupulous behavior by MidCoast.   Moreover,

he thought MidCoast undervalued HydroTemp’s stock by $100,000.

He expressed his displeasure to a MidCoast executive, who

threatened to sue petitioner if he did not complete the

transaction.   Petitioner’s anxiety grew because he had no

experience in these types of transactions.   He immediately

consulted with HydroTemp’s attorney, John Coleman, and Mr. Hull

on how best to move forward.   Both advised petitioner to go

forward with the MidCoast stock redemption transaction.

     Petitioner relied on the recommendation of his trusted

advisers and executed the MidCoast stock redemption transaction

on June 13, 2003.   MidCoast received 75 percent of the HydroTemp

stock and MidCoast’s related company, MidCoast Acquisitions,

received the remaining 25 percent.

     Petitioner repaid HydroTemp $200,000 of the compensation

loan he had received from HydroTemp and treated the remaining

$100,000 as income.   HydroTemp’s balance sheet showed assets of

$2,635,3994 and Federal and State tax liabilities totaling




     4
      All monetary amounts are rounded to the nearest dollar.
                              - 10 -

$2,406,973, for an approximate $225,000 net equity following the

MidCoast stock redemption transaction.

     Petitioner and his wife reported $5,192,000 of capital gains

from the HydroTemp stock sale and paid $777,216 in income tax

with their joint Federal income tax return for 2003.    Petitioner

held no ownership interest in or authority over HydroTemp after

the MidCoast stock redemption transaction.

HydroTemp’s Tax Return for the Year at Issue

     HydroTemp timely filed a return for the year at issue.

HydroTemp reported a $7,524,153 long-term capital gain from the

asset sale to Pentair and a $7 million short-term capital loss

from the sale of binary options.5   Rather than reporting the

approximate $2.6 million tax liability from the Pentair sale,

HydroTemp reported a total $508,322 loss with no Federal income

tax due because of the short-term capital loss from the binary

options.   The return listed petitioner as the 100-percent

stockholder of HydroTemp even though petitioner had no interest

in or involvement with HydroTemp after June 13, 2003.   Petitioner

was in no way involved in preparing the return.

Respondent’s Audit and Assessment of HydroTemp’s Tax Liability

     Respondent began an audit of HydroTemp’s return for the year

at issue in 2006.   Respondent disallowed HydroTemp’s losses from


     5
      A binary option is a type of option in which the payoff is
structured to be either a fixed amount of compensation if the
option expires in the money or nothing at all if the option
expires out of the money.
                                - 11 -

its claimed binary options sale and determined a deficiency in

HydroTemp’s income tax and a 40-percent accuracy-related penalty

under section 6662(a) for failure to substantiate the losses.

Respondent purports to have sent duplicate deficiency notices to

HydroTemp at its last two known addresses provided by a MidCoast

affiliate, one in New York and one in Bermuda, on February 7,

2007.     HydroTemp did not respond to any deficiency notice.

Respondent assessed HydroTemp’s deficiency and penalty plus

interest for a total of $3,878,294.

     Revenue Officer Ted Hanson (Mr. Hanson) was assigned to

collect on HydroTemp’s assessment.       Mr. Hanson could not find any

HydroTemp assets to satisfy the tax liability and determined that

HydroTemp could not pay the assessed amount.      Mr. Hanson

subsequently issued a Notice of Transferee Liability (transferee

notice) to petitioner for the full tax liability in March 2008.

The transferee notice stated that HydroTemp had transferred

substantially all of its assets to petitioner following the asset

sale to Pentair.

MidCoast’s Liability for HydroTemp’s Unpaid Taxes

        Petitioner first discovered that HydroTemp failed to satisfy

its tax liability for the year at issue when he received the

transferee notice.     Petitioner had no connection with HydroTemp

after selling his entire share interest to MidCoast.      He learned

that MidCoast and MidCoast Acquisitions sold all of their
                               - 12 -

HydroTemp stock to Her Majesty’s Cat, LLC (HMC) less than two

weeks after the MidCoast stock redemption transaction.      MidCoast

continued to operate HydroTemp for HMC as an asset recovery

business for approximately one year, but the State of Florida

administratively dissolved HydroTemp in October 2004 for failing

to file its annual report with the State.

       Petitioner contacted MidCoast immediately after receiving

the transferee notice and demanded that MidCoast honor its

agreement to pay HydroTemp’s tax liability.    MidCoast refused to

pay.    Petitioner thereafter sought a declaratory judgment in

Florida Circuit Court that MidCoast was liable to pay HydroTemp’s

taxes for the year at issue.    The Florida Circuit Court agreed

with petitioner that MidCoast was liable for HydroTemp’s taxes

and entered a decision against MidCoast.    The Florida Circuit

Court of Appeals affirmed the lower court’s ruling when MidCoast

appealed.    Petitioner spent over $125,000 in attorney’s fees to

obtain the judgment against MidCoast.    Despite these legal fees

and judgments, MidCoast has not paid the taxes.    Respondent seeks

to collect HydroTemp’s taxes from petitioner as a transferee.

       Petitioner timely filed a petition with this Court

contesting the transferee notice.    At trial, respondent did not

present a copy of either deficiency notice issued to HydroTemp

for the year at issue but produced a certified mailing list as

evidence that a deficiency notice had been issued.
                              - 13 -

                              OPINION

     We must determine whether petitioner is liable as a

transferee for HydroTemp’s unpaid taxes for the year at issue.

Petitioner contends that HydroTemp’s transfers to him were not

fraudulent under State law and therefore no transferee liability

exists.   Petitioner argues, alternatively, that respondent failed

to issue HydroTemp a deficiency notice.

I. Transferee Liability

     We begin with the rules governing transferee liability.      The

Commissioner has a procedure to enforce and collect a

transferor’s unpaid taxes from a transferee.   Sec. 6901.   The

Code does not, however, create or define substantive transferee

liability.   Instead, we must look to the law of the State in

which the transfer occurred to determine the existence and extent

of transferee liability.   See Commissioner v. Stern, 357 U.S. 39,

45 (1958).   The parties agree that Florida law governs because

the transfers at issue were most closely connected with Florida.

Respondent bears the burden of proving that petitioner is liable

under Florida law as a transferee but not of proving HydroTemp’s

liability for the assessment of its tax.   See sec. 6902(a); Rule

142(d).

     A transferee may be liable under the Florida Uniform

Fraudulent Transfer Act (UFTA) for the debts of a transferor who

fraudulently conveys assets to the transferee.   See Hagaman v.
                                  - 14 -

Commissioner, 100 T.C. 180, 188 (1993); Schad v. Commissioner, 87

T.C. 609, 614 (1986), affd. without published opinion 827 F.2d

774 (11th Cir. 1987); Wiltzius v. Commissioner, T.C. Memo. 1997-

117.       In pertinent part, “transfer” means every disposition of or

parting with an asset or an interest in an asset and includes

payment of money, release, lease and creation of a lien or other

encumbrance.       Fla. Stat. Ann. sec. 726.102(12) (West 2000).

Accordingly, respondent must prove that there was a disposition

of property from HydroTemp to petitioner and that the disposition

was fraudulent.

       A. Transfers to Petitioner

       Here, we have two transfers to petitioner.     The first

transfer occurred when HydroTemp lent petitioner $5 million from

the sale proceeds of heat pump assets to Pentair in exchange for

petitioner’s note (Pentair transaction).       The second transfer

occurred in the MidCoast stock redemption transaction when

HydroTemp canceled petitioner’s note in exchange for a portion of

petitioner’s HydroTemp shares and the MidCoast note.

       Respondent asserts that the Pentair transaction followed by

the MidCoast stock redemption transaction were part of an

integrated plan known as an “intermediary transaction” entered

into by petitioner solely to lower his tax liability.6      See


       6
      A transaction determined to be an intermediary transaction
will be treated as a listed transaction and thus require the tax
                                                   (continued...)
                                  - 15 -

Notice 2001-16, 2001-1 C.B. 730.       Respondent urges the Court to

collapse the two transactions.       Respondent argues that the one

transaction consisted of HydroTemp’s asset sale to Pentair

followed by a liquidating distribution of the sale proceeds to

petitioner.

       Respondent asks that we use the substance over form judicial

doctrine to collapse the two transfers.       Courts use substance

over form and its related judicial doctrines to give true meaning

to a transaction disguised by formalisms that exist solely to

alter tax liabilities.       See United States v. R.F. Ball Constr.

Co., 355 U.S. 587 (1958); Commissioner v. Court Holding Co., 324

U.S. 331 (1945); Volvo Cars of N. Am., LLC v. United States, 571

F.3d 373 (4th Cir. 2009); Rose v. Commissioner, T.C. Memo. 1973-

207.       In such instances, the substance of a transaction, rather

than its form, will be given effect.       We generally respect the

form of a transaction, however, and will apply the substance over

form principles only when warranted.       See Gregory v. Helvering,

293 U.S. 465 (1935); Blueberry Land Co. v. Commissioner, 361 F.2d

93, 100-101 (5th Cir. 1966), affg. 42 T.C. 1137 (1964).

       Here, we find that substance over form and its related

doctrines are not warranted.       The Pentair transaction and the

MidCoast stock redemption transaction were not arranged in


       6
      (...continued)
shelter rules and penalties to apply.       See, e.g., secs. 6111,
6707A, 6662A.
                                - 16 -

conjunction with each other.    They each had independent legal

significance.   Petitioner had no knowledge of MidCoast at the

time HydroTemp sold its heat pump assets to Pentair, its major

customer.   Moreover, petitioner had no preconceived plan to sell

his HydroTemp stock to anyone, much less MidCoast, when

petitioner signed the note to HydroTemp in exchange for the

Pentair sale proceeds.    We also consider that HydroTemp had

assets other than the heat pump assets.    In fact, petitioner

continued to operate HydroTemp following the Pentair transaction

for approximately six months.    It had employees, manufacturing

equipment, trucks, a webcam system, an automatic dialing system,

computers, office supplies and inventory unrelated to the heat

pump assets.    In addition, HydroTemp continued as a going concern

for more than a year following the MidCoast stock redemption

transaction.

     Petitioner also took actions to ensure that the corporate

taxes would be paid as part of the MidCoast stock redemption

transaction.    Specifically, petitioner negotiated and obtained a

tax agreement and indemnity clause from MidCoast.    He later

litigated to have the tax agreement and indemnity clause enforced

in Florida State court.   We reject the application of any

judicial doctrine in this case, and instead find that two

separate and distinct transfers occurred.    We now focus on
                                - 17 -

whether either of the two separate transactions was a fraudulent

conveyance under Florida law.

     B. Fraudulent Transfer

     Respondent contends that, even if the transactions are

considered separately, petitioner should be liable as transferee

of HydroTemp because both transactions were fraudulent.

Respondent can establish fraudulent transfer under Florida’s UFTA

by showing that the transfer was either actually or

constructively fraudulent.     See Fla. Stat. Ann. secs. 726.105 and

726.106 (West 2000).   Respondent argues that petitioner is liable

under both actual and constructive fraud provisions.      We will

consider both transfers under each fraudulent transfer provision.

          1. Actual Fraudulent Transfer

     A transfer is fraudulent as to a creditor under Florida law

if the debtor made the transfer with the actual intent to hinder,

delay or defraud the creditor.     Id. sec. 726.105(1).   Courts

generally require several badges of fraud to be present to find a

transfer fraudulent under State law.     See, e.g. Veigle v. United

States, 873 F. Supp. 623, 626-627 (M.D. Fla. 1994) affd. without

published opinion sub nom. Ariko v. United States, 92 F.3d 1199

(11th Cir. 1996).   Respondent ignores many of the badges that

overtly favor petitioner.     Instead, respondent contends that

petitioner, an insider, transferred substantially all of

HydroTemp’s assets to himself, which caused HydroTemp to become
                              - 18 -

insolvent after HydroTemp incurred a substantial debt.    See Fla.

Stat. Ann. sec. 726.105(2).   We shall consider this argument

against both transactions.

     We first look at the Pentair transaction.    Petitioner

concedes he was an insider of HydroTemp.   This factor is not

fatal, however, as the remaining badges favor petitioner, not

respondent.   We disagree with respondent’s assertion that

petitioner had possession of substantially all of HydroTemp’s

assets following the cash transfer.    Respondent ignores the fact

that HydroTemp received petitioner’s note in exchange for the

cash.   Moreover, HydroTemp controlled the cash because

petitioner’s note was payable on demand.   See Litton Bus. Sys.,

Inc. v. Commissioner, 61 T.C. 367, 378 (1973).    In addition,

respondent has not shown that petitioner had insufficient assets

to cover petitioner’s note.   In fact, petitioner could have

repaid the loan if HydroTemp had demanded repayment.    The funds

were readily available in the Smith Barney account.    HydroTemp

also had assets other than petitioner’s note.    HydroTemp

maintained business assets, employees and over $500,000 of cash

in its SunTrust account after the Pentair transaction.    The non-

heat-pump assets were viable, and HydroTemp continued as a going

concern for approximately a year and a half after the $5 million

transfer to petitioner.
                                - 19 -

     We also disagree with respondent that HydroTemp was

insolvent following the transfer.    A debtor is insolvent under

Florida law if either the debtor’s debts exceed the fair market

value of the debtor’s assets or the debtor fails to pay his or

her debts as they become due.    Fla. Stat. Ann. sec. 726.103(2)

(West 2000).   Respondent has not shown the Court that HydroTemp’s

debts exceeded the fair market value of HydroTemp’s assets,

including petitioner’s note, nor has respondent proven that

HydroTemp failed to pay its debts when they became due.

Accordingly, we cannot find that HydroTemp was insolvent

following the Pentair transaction.

     We next consider the second transfer, the MidCoast stock

redemption transaction.   Petitioner again concedes he was an

insider but argues the remaining badges of fraud are not present.

HydroTemp’s equipment, accounts receivable, outstanding debt

receivables and cash totaled approximately $6.4 million before

the MidCoast stock redemption transaction.    Following the

MidCoast stock redemption transaction, HydroTemp had

approximately $1.2 million in cash, the MidCoast note for

$1,407,410 and the indemnity agreement whereby MidCoast agreed to

satisfy HydroTemp’s substantial tax liability.    Respondent failed

to present evidence assigning a different value to these assets.

Thus, HydroTemp retained approximately 40 percent of its total

asset value plus the benefits of the MidCoast tax agreement
                               - 20 -

following the transaction.    Accordingly, we find that HydroTemp

did not transfer substantially all of its assets to petitioner in

connection with the MidCoast stock redemption transaction.

     HydroTemp’s only significant liability after the MidCoast

stock redemption transaction was its $2,406,973 of Federal and

State tax liabilities.    MidCoast was legally and contractually

liable to satisfy these tax liabilities.    Furthermore, even if we

were to discount the indemnity, respondent has not presented

evidence demonstrating that HydroTemp’s tax debts exceeded

HydroTemp’s cash, its business assets and the MidCoast note.

Accordingly, we find that HydroTemp was not insolvent following

the transfer.

     We have considered the badges of fraud raised by respondent

against the Pentair transaction and the MidCoast stock redemption

transaction.    We find that neither transfer was actually

fraudulent.

          2. Constructive Fraudulent Transfer

     Respondent may also establish transferee liability by

showing that a conveyance is constructively fraudulent.      See Fla.

Stat. Ann. sec. 726.106.    As pertinent here, a transfer is

constructively fraudulent if the debtor does not receive

reasonably equivalent value and the debtor was insolvent or

became insolvent as a result of the transfer.    Id. sec.

726.106(1).
                              - 21 -

     We find that neither the Pentair transaction nor the

MidCoast stock redemption transaction was constructively

fraudulent.   As to the Pentair transaction, HydroTemp was not

insolvent before or after the transfer of cash to petitioner in

exchange for petitioner’s note.   Respondent has failed to prove

that petitioner’s note was not of reasonably equivalent value to

the sale proceeds transferred to the Smith Barney account.    Nor

has respondent shown that petitioner’s assets were insufficient

to pay petitioner’s note if he was called upon.

     Likewise, respondent failed to show that HydroTemp was

insolvent before or after it canceled petitioner’s note in

exchange for the HydroTemp stock and the MidCoast note.

Respondent also has failed to prove that the MidCoast note and

the HydroTemp stock were not of reasonably equivalent value to

petitioner’s note.   We find that neither transfer was

constructively fraudulent.

     Accordingly we find that petitioner is not liable as a

transferee for HydroTemp’s unpaid taxes.

II. Limitations Period

     Petitioner also challenges whether respondent timely issued

a deficiency notice to HydroTemp.   We need not decide this issue

as we have already determined that petitioner is not liable as a

transferee.
                             - 22 -

     We have considered all arguments made in reaching our

decision, and, to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                          Decision will be entered

                                      for petitioner.
