                         T.C. Memo. 2001-32



                      UNITED STATES TAX COURT



          EDWARD FRIDOVICH, TRANSFEREE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4585-98.                  Filed February 12, 2001.


     Steven C. Greene, for petitioner.

     Judith C. Winkler, for respondent.



                         MEMORANDUM OPINION


     JACOBS, Judge:   This case was submitted to the Court fully

stipulated under Rule 122.   Rule references are to the Tax Court

Rules of Practice and Procedure.    Section references are to the

Internal Revenue Code.

     On December 22, 1997, respondent issued to Edward Fridovich a

notice of transferee liability with respect to assets petitioner
                                - 2 -

received from the Estate of Martin Fridovich (the estate), Deceased

(petitioner’s father’s estate), in the amount of $1,331,521.1



     1
          The Dec. 22, 1997, notice of transferee liability
listed the following assets as having been distributed to
petitioner:

            Date                                    Cash
3/5/85                                             $5,000
10/28/85                                            7,500
12/16/88 to various attorneys                      75,000
2/2/90 to various attorneys                        10,000
Cayman Islands Trust                              207,435

         Total                                    304,935

The total value of the property distributed to petitioner in the
Settlement and Distribution Agreement recorded 12/28/93 in Polk
County records OR 3326, at 1567, was also enumerated in the
notice of transferee liability:

              Property                             Value
Attorney’s fee obligations                       $225,000
Direct payment endorsed to Bogenschutz &          175,000
  Goldstein
Industrial park lot 8, 4.573 acres                143,719
Industrial park lot 9, 3.388 acres; lots          106,477
  8 and 9 sold to Mannheim Auctions as
  part of a 15.6986-acre tract for
  $493,373 ($31,427.83 per acre)
Industrial park lots 2, 3 and part of 4           376,360
Payment of maintenance fees for                        10
  industrial park lots
Forgiveness of debt due the estate and                 10
  WLLC
“Impact fee” credits                                   10

  Total                                         1,026,586

In sum, according to the notice of transferee liability the total
value of distributions made to petitioner was:

Cash                                             $304,935
Property                                        1,026,586
  Total                                         1,331,521
                                - 3 -

Petitioner concedes that he is liable as transferee of the assets

from the estate in the amount of $1,118,6212 (a portion of the



     2
          Petitioner concedes that the Estate distributed the
following assets, with a $1,118,621 value, to him:

               Date                                Cash
3/5/85                                            $5,000
10/28/85                                           7,500
12/16/88 to various attorneys                     61,367
2/2/90 to various attorneys                        6,733
Cayman Islands Trust                             157,435

  Total                                          238,035

Petitioner further concedes the following value of the
distributed assets, as enumerated in the Settlement and
Distribution Agreement recorded 12/28/93 in Polk County records
OR 3326, at 1567:

               Property                           Value
Attorney’s fee obligations                       $79,000
Direct payment endorsed to Bogenschutz &         175,000
  Goldstein
Industrial park lot 8, 4.573 acres               143,719
Industrial park lot 9, 3.388 acres; lots         106,477
  8 and 9 sold to Mannheim Auctions as
  part of a 15.6986-acre tract for
  $493,373 ($31,427.83 per acre)
Industrial park lots 2, 3 and part of 4          376,360
Payment of maintenance fees for                       10
   industrial park lots
Forgiveness of debt due the estate and                10
   WLLC
“Impact fee” credits                                  10

  Total                                          880,586

In sum, petitioner conceded that the estate distributed the
following assets to him:

Cash                                            $238,035
Property                                         880,586

  Total                                        1,118,621
                                        - 4 -

$10,925,101.10 total unpaid estate tax liability of the estate),

unless the statute of limitations or the doctrine of laches bars

the assessment of this liability.               Thus, following concessions by

both parties, the issue to be decided is whether the statute of

limitations        (or   alternatively,       the   doctrine     of    laches)     bars

respondent        from   assessment     and    collection    of       the    $1,118,621

transferee liability against petitioner.

     The     stipulation       of   facts     and   the   attached      exhibits      are

incorporated herein.           The stipulated facts are hereby found.

     At the time the petition was filed, petitioner resided in Fort

Lauderdale, Florida.

                                     Background

        On   December     4,    1981,    Martin      Fridovich        died     testate.

Petitioner served as personal representative of the estate until

June 11, 1984, when he was replaced by his brother, Anthony

Fridovich.

The Estate Tax Return

        On September 21, 1982, the estate filed a Form 706, U.S.

Estate Tax Return, reflecting $3,883,147.43 in tax due; it paid

$12,426.07.       Pursuant to section 6166, the estate elected to defer

payment      of   the    balance    ($3,870,721.36)        for    5    years    and    to

thereafter pay the balance in 10 annual installments of $387,072.14

each.
                                        - 5 -

Estate of Fridovich v. Commissioner, Docket No. 42224-85

       On August 26, 1985, respondent mailed a notice of deficiency

to the estate, determining that the estate owed an additional

$7,122,367 in estate tax.         Thereafter, on November 21, 1985, the

estate commenced a case in this Court contesting respondent’s

determinations, which case was assigned docket No. 42224-85 (docket

No. 42224-85), Estate of Fridovich v. Commissioner.                    That case was

set to be heard on November 28, 1988.                 The case settled, and on

November     28,   1988,    the   following      documents       were    filed   and

respective actions taken:         (1) Pursuant to a joint stipulation, a

$2,778,327.92 interim assessment was authorized; (2) this Court

granted the parties’ Motion to Stay Further Proceedings, postponing

entry of decision until the final installment of tax was due or

paid    (whichever    occurred     earlier);         and   (3)   the    estate   and

respondent entered into a closing agreement (agreeing that a

certain Cayman Islands Trust created by Martin Fridovich was a sham

for income, gift, and estate tax purposes, and that the estate

would be considered the actual owner of the Trust’s assets for

income, estate, and gift tax purposes).

       The   estate   did   not   pay    any    of   the   required     estate   tax

installments (pursuant to its section 6166 election) but instead

requested extensions of time with respect to the tax installments

due for 1987, 1988, and 1989.             The requests for extensions were

granted.     In August 1990, the estate requested a further extension
                                       - 6 -

of time for payment of its estate tax liability until September

1991; on October 19, 1990, this request was denied.                         Because the

estate defaulted on its installment agreement, its section 6166

election was terminated as of October 19, 1990.

      As of June 9, 2000, the estate had paid $129,990.47 of its

estate tax liability.         (On September 21, 1982, the estate remitted

$12,426.07 with its original Form 706, and on August 14, 1992, the

estate remitted $117,564.40.)              The estate paid $2,289,770.55 in

interest.

      On April 22, 1996, respondent filed a Motion for Entry of

Decision in docket No. 42224-85; on September 6, 1996, this Court

granted respondent’s motion and entered a decision reflecting a

$3,835,638.40 unpaid estate tax liability. (The September 6, 1996,

decision was not appealed.)

      On May 28, 1993, the estate filed an offer in compromise

regarding     its    estate    tax    liabilities;       on       October    27,    1994,

respondent rejected the offer.             On April 9, 1996, the estate filed

a   second   offer     in   compromise;      on   June    27,      1996,     respondent

rejected this offer.

West Lakeland Land Co., Inc.

      The    major    asset   of     the   estate   was       a   100-percent       stock

ownership     of     West   Lakeland       Land   Co.,    Inc.      (WLLC),     a    land

development S corporation. Anthony Fridovich was president of WLLC

from 1984 until 1995, when the company was liquidated.                       On May 31,
                                       - 7 -

1995,     WLLC’s    assets    were    transferred    to    a    Florida   limited

partnership, West Lakeland Land Co., Limited Partnership (WLLC

Ltd.), in exchange for a 99-percent limited partnership interest in

WLLC Ltd.     Fridovich Holdings, Inc. (owned by Debbie Fridovich,

petitioner’s sister, and Anthony Fridovich), held a 1-percent

general partnership interest in WLLC Ltd.

     On March 19, 1996, the Internal Revenue Service filed Notices

of Federal Tax Lien against WWLC Ltd., naming the partnership as

nominee of the estate.         On June 13, 1996, WLLC Ltd. brought suit

against    the     United   States,   see   West   Lakeland      Land   Co.,   Ltd.

Partnership v. United States, case No. 96-1157-CIV-T-21 (M.D.

Fla.), to quiet title with respect to the partnership property and

for release of liens.

        On October 22, 1996, WLLC Ltd. filed for bankruptcy under

chapter 11.        See In re West Lakeland Land Co., Ltd. Partnership,

case No. 96-14434-8CI (Bankr. M.D. Fla.), appeal docketed, No. 98-

1609-CIV-T25E (M.D. Fla. Aug. 3, 1998).             On November 12, 1996, the

partnership filed an adversary complaint against the United States

in   its    bankruptcy       case,    challenging    the       validity   of   the

Government’s nominee liens.            See West Lakeland Land Co., Ltd.

Partnership v. United States, 216 Bankr. 892 (Bankr. M.D. Fla.

1998), appeal docketed, No. 98-548-CIV-T23A (M.D. Fla. Mar. 16,

1998).      On February 3, 1998, the bankruptcy court entered a

judgment and opinion, finding that the nominee liens were invalid
                                    - 8 -

and of no legal force or effect.

        From February 25, 1982, through June 9, 2000, the date the

stipulation herein was filed, the estate was under the jurisdiction

of the Polk County Circuit Court, Probate Division. On December 22,

1997,     respondent   sent   a   notice    of   transferee   liability    to

petitioner.

                                  Discussion

        As stated supra, petitioner has conceded that he is liable as

transferee of the assets of the estate in the amount of $1,118,621,

unless the statute of limitations (or alternatively, the doctrine

of laches) bars respondent from assessment and collection of the

$1,118,621 transferee liability against petitioner.              Respondent

maintains that neither the statute of limitations nor the doctrine

of laches precludes assessment and collection of petitioner’s

transferee liability. Petitioner disagrees.

        We first address the statute of limitations issue.        Pursuant

to section 6501(a), the Commissioner has 3 years after an estate

files its return in which to assess the tax or commence a court

proceeding without assessment for the collection of the tax.              With

respect to the case before us, the period of limitations for

assessment would have expired on September 21, 1985, 3 years after

September 21, 1982, the date the estate return was filed. However,

on August 26, 1985, respondent mailed a notice of deficiency to the

estate; on November 21, 1985, the estate timely filed a petition
                                 - 9 -

(docket No. 42224-85).

      Pursuant to section 6503(a)(1) and section 301.6503(a)-1,

Proced. & Admin. Regs., the period of limitations on assessment and

collection of a deficiency is suspended for 90 days after a notice

of   deficiency   is   mailed.   Once    a   proceeding   regarding   the

deficiency is placed on the Tax Court docket, the period of

limitations is further suspended until the Tax Court decision

becomes final, and for an additional 60 days thereafter.

      The August 26, 1985, notice of deficiency mailed to the estate

immediately suspended the period of limitations for assessment,

leaving 26 days on the statute.     Docket No. 42224-85 remained on

the Tax Court docket until September 6, 1996, when this Court

entered its decision in the case.        The decision became final 90

days thereafter; namely, December 6, 1996; it was not appealed.

See secs. 7481, 7483.       As a consequence of these actions, the

period of limitations in docket No. 42224-85 was suspended from

August 26, 1985 (the date the notice of deficiency was mailed to

the estate), until December 6, 1996 (the date the decision became

final), plus an additional 60 days thereafter, or February 4, 1997.

See secs. 7481, 7483.       Thus, the 26 days that remained on the

period of limitations for assessment after the notice was mailed is

tacked on to the suspension period with respect to the filing of a

petition in this Court (February 4, 1997), resulting in March 2,

1997, being the expiration date of the period of limitations for
                                - 10 -

assessment in docket No. 42224-85.       See secs. 6501, 6503.

     Pursuant to section 6901(c)(1), the period of limitations for

assessment of a liability against an initial transferee is 1 year

after the expiration of the period of limitations for assessment

against the transferor.    See, e.g., Bresson v. Commissioner, 111

T.C. 172 (1998), affd. 213 F.3d 1173 (9th Cir. 2000).              Here, as

noted, the period of limitations for assessment of the liability

did not expire with respect to the estate until March 2, 1997, and

with respect to petitioner before March 2, 1998, which was 70 days

after the   date   (December   22,   1997)   the   notice    of   transferee

liability was sent to petitioner.         Consequently, the notice of

transferee liability to petitioner was timely, and the statute of

limitations did not bar respondent from assessment and collection

of the $1,118,621 estate tax liability against petitioner.

     We now turn to petitioner’s alternative argument that the

doctrine of laches operates to preclude respondent’s assessment and

collection of the liability owed by petitioner.             The doctrine of

laches bars a claim when the following three elements are present:

(1) There was a delay in asserting a right or a claim; (2) the

delay was inexcusable; and (3) there is undue prejudice to the

party against whom the claim is asserted. See, e.g., Kason Indus.,

Inc. v. Component Hardware Group, Inc., 120 F.3d 1199, 1203 (11th

Cir. 1997); Albertson v. T.J. Stevenson & Co., 749 F.2d 223, 233

(5th Cir. 1984).   The doctrine of laches can be raised only by one
                                 - 11 -

who comes into equity with clean hands.       See, e.g., United States

v. Weintraub, 613 F.2d 612, 619 (6th Cir. 1979).

     The   timeliness   of   Government   claims    is   governed      by   the

statutes of limitations enacted by Congress.         See United States v.

Summerlin, 310 U.S. 414, 416 (1940).         There was no inexcusable

delay by respondent in asserting the claim of transferee liability

against petitioner. Nor does petitioner come before the Court with

clean hands. During the period when respondent was prevented from

taking action to assess and collect the estate tax liability from

the estate, all of the estate’s assets were distributed from a sham

Cayman Islands Trust created by Martin Fridovich to the trust

beneficiaries and thereafter transferred by them to WLLC. Although

the estate owed tax and interest in 1985 in an amount greater than

its assets,   it   continued   to   distribute     assets   to   the   estate

beneficiaries in lieu of paying the estate tax.          Petitioner was a

beneficiary of the estate receiving distributions, as well as the

original personal representative of the estate.             He was aware of

the estate’s tax liability when he received the distributions from

the estate.

     To conclude, we hold that the doctrine of laches does not bar

respondent from assessment and collection of the $1,118,621 estate

tax liability against petitioner.
                        - 12 -

To reflect the foregoing,



                                  Decision will be entered

                             under Rule 155.
