                         T.C. Memo. 1999-296



                       UNITED STATES TAX COURT



          ROBERT JOHN KAYIAN, TRANSFEREE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

         NICHOLAUS M. KAYIAN, TRANSFEREE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 6431-96, 11210-96.   Filed September 3, 1999.



     Geoffrey Todd Hodges, for petitioners.

     Randall B. Pooler, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    In separate notices of transferee liability

(notices), respondent determined that petitioner Robert John

Kayian (Robert Kayian) and petitioner Nicholaus M. Kayian

(Nicholaus Kayian) are liable as transferees in amounts not ex-
                               - 2 -


ceeding $10,933 and $8,200, respectively, plus interest thereon

as provided by law, for the unpaid Federal income tax (tax)

liability of Harry K. Kayian, Sr. (Mr. Kayian, Sr.) for 1987,

1988, and 1989 in the amounts of $1,503, $18,959, and $26,442,

respectively, plus interest thereon as provided by law (Mr.

Kayian, Sr.'s 1987-1989 unpaid tax liability).1   We must decide

whether those determinations should be sustained.   We hold that

they should.

                         FINDINGS OF FACT

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

     At the time Robert Kayian filed his petition in this case,

he resided in Brandon, Florida.   At the time Nicholaus Kayian

filed his petition in this case, he resided in Tampa, Florida.

     Mr. Kayian, Sr., who died intestate on August 17, 1993,

after a long illness, was the father of petitioner Robert Kayian,

Harry Kayian, Jr. (Mr. Kayian, Jr.), Kenneth V. Kayian, Richard

H. Kayian, and Karen Kayian Aubel and the grandfather of pe-

titioner Nicholaus Kayian, Kenneth J. Kayian-Beck, and Kaitlynn

E. Kayian.   Mr. Kayian, Jr. is the father of Nicholaus Kayian.

     In September 1989, Mr. Kayian, Sr., who had been married to

Beatrice L. Kayian (Beatrice Kayian), met Nancy Livingston f/k/a


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


Nancy Kayian (Ms. Livingston), and they were married in 1990.

Mr. Kayian, Jr. did not like Ms. Livingston, who was only a few

years older than he was, and was suspicious of her intentions in

marrying his father.   After Mr. Kayian, Sr. married Ms.

Livingston, the relationship of Mr. Kayian, Jr. with his father

changed in that, inter alia, Mr. Kayian, Jr. never had the

opportunity to be alone with him.

     From sometime in 1990 until mid-March 1991, Mr. Kayian, Sr.

and Ms. Livingston lived in Aruba in housing provided by a resort

for which Mr. Kayian, Sr. was selling time-shares.   In mid-March

1991, Mr. Kayian, Sr. and Ms. Livingston moved from Aruba to Key

West, Florida (Key West), where they lived until July of that

year.   In July 1991, they moved from Key West to Tampa, Florida

(Tampa), where they purchased a residence.   Mr. Kayian, Sr. had

the title of that Tampa residence placed solely in the name of

Ms. Livingston in an attempt to preclude the Internal Revenue

Service (the Service) from using it in order to satisfy any

outstanding tax liability that he had.

     Sometime while Mr. Kayian, Sr. and Ms. Livingston were

living in Aruba, Mr. Kayian, Sr. acquired bearer bonds issued by

Natex Investments A.V.V. (Aruba bonds).   After they returned to

the United States, Mr. Kayian, Sr. and Ms. Livingston received

statements with respect to those bonds on a regular basis.

During 1992 and 1993, the balance shown on those statements,
                               - 4 -


which included accrued interest, was as high as $99,000.    Around

August 1992, Mr. Kayian, Sr. began receiving monthly payments

with respect to the Aruba bonds.

     Mr. Kayian, Sr. and Ms. Livingston did not file any tax

returns (returns) while they were living in Aruba.   As of January

1992, Mr. Kayian, Sr. had not filed returns for taxable years

1986 through 1990.   Nor had he made any estimated tax payments

during 1985 through 1990 or thereafter during 1991 and 1992.

     Because the Service's records showed that substantial

amounts of income had been reported to the Service as having been

paid to Mr. Kayian, Sr. during 1987 through 1989 and that Mr.

Kayian, Sr. should have filed returns for those years, revenue

officer John Shatraw (Mr. Shatraw) of the Service's collection

division was assigned to investigate and to issue a summons with

respect to those delinquent returns.   In early February 1992, Mr.

Shatraw served a summons (summons) on Mr. Kayian, Sr. to compel

him to produce the books and records necessary to prepare and

file his returns for 1987 through 1989.

     Mr. Kayian, Sr. had not filed his returns for 1987, 1988,

and 1989 prior to February 26, 1992, when he and Mr. Kayian, Jr.

met with Mr. Shatraw about the summons (February 26, 1992 meet-

ing).   Nor did he bring those returns to that meeting.   Mr.

Kayian, Sr. disclosed to Mr. Shatraw at the February 26, 1992

meeting that he had throat cancer and requested additional time
                                 - 5 -


within which to prepare and file his returns for 1987, 1988, and

1989.   Mr. Shatraw granted Mr. Kayian, Sr.'s request.

     Mr. Kayian, Jr. recommended to Mr. Kayian, Sr. that he

retain a return preparer to assist him in the preparation of his

delinquent returns.   Mr. Kayian, Jr. referred Mr. Kayian, Sr. to

Ashley Lanier (Mr. Lanier), a certified public accountant since

1960 who had extensive experience in the preparation of returns

and whom Mr. Kayian, Jr. was using as his return preparer.    Mr.

Kayian, Sr. retained Mr. Lanier and met with him on several

occasions as part of Mr. Lanier's efforts to obtain from Mr.

Kayian, Sr. information, including information about any interest

and other income that Mr. Kayian, Sr. received, that Mr. Lanier

needed in order to prepare Mr. Kayian, Sr.'s returns for 1987,

1988, and 1989 and joint returns of Mr. Kayian, Sr. and Ms.

Livingston for 1990 and 1991.    Mr. Kayian, Jr. was present at two

of those meetings.    Mr. Kayian, Sr. never disclosed to Mr. Lanier

that he owned the Aruba bonds or that he received interest income

from those or any other bonds.

     On March 2, 1992, March 30, 1992, and April 13, 1992,

respectively, Mr. Kayian, Sr. filed the returns for 1987, 1988,

and 1989 that Mr. Lanier had prepared for him.    Each of those

returns showed that tax was due.    Respondent assessed the tax

shown due in those returns, plus applicable additions to tax and

interest, on May 4, 1992, May 18, 1992, and June 1, 1992, re-
                                - 6 -


spectively.    On June 5, 1992, and July 7, 1992, respectively, Mr.

Kayian, Sr. and Ms. Livingston filed joint returns for 1990 and

1991 that Mr. Lanier had prepared for them.    Each of those

returns showed tax due.    (We shall sometimes refer to the tax

liabilities, including applicable additions to tax and interest,

of Mr. Kayian, Sr. (1) for the years 1987 through 1989 as 1987

through 1989 tax liability and (2) for the years 1987 through

1991 as 1987 through 1991 tax liability.)

     Mr. Kayian, Sr. did not pay his 1987 through 1991 tax

liability when he filed returns for those years.    Consequently,

Mr. Shatraw turned his attention to the collection of that tax

liability.    In order to determine the financial ability of Mr.

Kayian, Sr. to pay his 1987 through 1991 tax liability, Mr.

Shatraw asked Mr. Kayian, Sr. to complete and submit Form 433-A,

Collection Information Statement for Individuals.    The Service

uses Form 433-A to obtain financial information (e.g., income,

assets, and liabilities) regarding a taxpayer, on which the

investigating revenue officer can rely in making a determination

about a taxpayer's ability to pay tax due.

     On or about March 22, 1992, Mr. Kayian, Sr. submitted a

completed Form 433-A to Mr. Shatraw, which he signed under

penalties of perjury (Mr. Kayian, Sr.'s Form 433-A).    Mr. Lanier

was not actively involved in the preparation or submission of

that form.    In Mr. Kayian, Sr.'s Form 433-A, Mr. Kayian, Sr.
                               - 7 -


indicated, inter alia, (1) that he maintained an IRA with Jackson

National Insurance Company (Jackson National),2 but he did not

indicate the balance in that account; (2) that he owned two

condominium units in Key West (Key West condominiums), in which

he had equity totaling $42,775; (3) that he did not own any life

insurance policies; (4) that he owned mortgage notes receivable

worth $120,000 on certain time-share units (time-shares);

(5) that he anticipated an increase in his income; (6) that he

was involved in court proceedings regarding alimony; (7) that he

had owned another condominium unit in Key West which had been re-

possessed; and (8) that he had not made any recent transfers of

assets for less than full value.   Mr. Kayian, Sr. did not dis-

close the Aruba bonds in the Form 433-A that he completed and

submitted to Mr. Shatraw.   Nor did he disclose in that form that

he maintained with Continental Life & Accident Company (Con-

tinental) an annuity contract (Continental annuity contract) and

a separate group life insurance policy (Continental group life

insurance policy).

     In determining the potential to collect Mr. Kayian, Sr.'s

1987 through 1991 tax liability, Mr. Shatraw relied on Mr.



     2
      Although not altogether clear from the record, it appears
that the IRA with Jackson National to which Mr. Kayian, Sr. was
referring consisted of an annuity contract that he had purchased
from Jackson National on Apr. 15, 1988 (Jackson National annuity
contract).
                               - 8 -


Kayian, Sr.'s Form 433-A, although he attempted to verify the

accuracy and completeness of that form and made a few notations

on that form based principally on his discussions with Mr.

Kayian, Sr.   Since certain assets that Mr. Kayian, Sr. listed in

that form were located in the vicinity of Miami, Florida (Miami),

Mr. Shatraw contacted the Miami office of the Service's col-

lection division for assistance in verifying Mr. Kayian, Sr.'s

Form 433-A.   However, that office was unable to provide any

assistance to Mr. Shatraw because its operations were temporarily

affected due to Hurricane Andrew.

     Mr. Kayian, Sr. never disclosed to Mr. Shatraw or other

personnel of the Service that he owned the Aruba bonds, and it

would have been almost impossible for the Service to discover

such an offshore asset.   If Mr. Kayian, Sr. had informed Mr.

Shatraw about those Aruba bonds, Mr. Shatraw would have required

Mr. Kayian, Sr. to liquidate those bonds and apply the bond

proceeds toward satisfaction of his 1987 through 1989 tax li-

ability.

     Mr. Kayian, Sr. consistently represented to Mr. Shatraw that

he intended to pay in full his 1987 through 1989 tax liability.

Between April 13, 1992, and August 5, 1992, Mr. Kayian, Sr. made

payments to the Service totaling approximately $16,735 that the

Service credited to his tax liability for 1987.   Mr. Kayian, Sr.
                               - 9 -


obtained approximately $13,000 of those payments by liquidating

certain assets listed in Mr. Kayian, Sr.'s Form 433-A.

     On July 20, 1992, due to the failure of Mr. Kayian, Sr. to

pay in full his 1987 through 1989 tax liability, the Service

recorded a notice of Federal tax lien in an amount totaling

$68,243.27 in Hillsborough County, Florida.   Mr. Kayian, Sr. made

no further payments of his outstanding tax liability after August

5, 1992.

     At some time between July 20, 1992, and September 4, 1992,

the collection of Mr. Kayian, Sr.'s 1987 through 1991 tax li-

ability was transferred to revenue officer Claude A. Stephens

(Mr. Stephens).   On September 4, 1992, Mr. Stephens sent Mr.

Kayian, Sr. a final notice of intention to levy with respect to

the respective taxes that were shown due in the 1990 and 1991

joint returns that Mr. Kayian, Sr. and Ms. Livingston had sub-

mitted to the Service.

     Through at least November 9, 1992, Mr. Stephens communicated

with Mr. Lanier with respect to, inter alia, the assets and

liabilities listed in Mr. Kayian, Sr.'s Form 433-A.   The in-

formation that Mr. Lanier provided to Mr. Stephens during those

communications was based solely on information that Mr. Lanier

had obtained from Mr. Kayian, Sr.   Mr. Stephens was never made

aware of the existence of the Aruba bonds that Mr. Kayian, Sr.

owned.
                              - 10 -


     In addition to his discussions with Mr. Lanier about Mr.

Kayian, Sr.'s tax situation, Mr. Stephens performed an independ-

ent investigation to determine whether the information contained

in Mr. Kayian, Sr.'s Form 433-A was accurate and complete.    As

part of Mr. Stephens' investigation of Mr. Kayian, Sr.'s finan-

cial situation, Mr. Stephens did not locate any assets owned by

Mr. Kayian, Sr. that were not shown in Mr. Kayian, Sr.'s Form

433-A.   However, it would have been almost impossible for the

Service to discover offshore assets, such as the Aruba bonds.

     On or about November 9, 1992, Mr. Stephens made handwritten

notations on Mr. Kayian, Sr.'s Form 433-A to update it, including

one notation which corrected a notation that Mr. Shatraw had made

on that form regarding ownership of one of the Key West con-

dominiums that Mr. Kayian, Sr. listed therein.   After the updates

that Mr. Shatraw and Mr. Stephens made to Mr. Kayian, Sr.'s Form

433-A, that form indicated, inter alia, (1) that Mr. Kayian,

Sr.'s monthly expenses exceeded his monthly income by $588 and

(2) that the mortgage notes which Mr. Kayian, Sr. owned on

certain time-shares had a value of $60,000.

     At some undisclosed time after Mr. Kayian, Sr. submitted to

the Service the returns for 1987 through 1991 that Mr. Lanier had

prepared, Mr. Lanier indicated to Mr. Kayian, Sr. that, in light

of the total amount of his 1987 through 1991 tax liability and

Mr. Lanier's understanding of Mr. Kayian, Sr.'s limited re-
                              - 11 -


sources, Mr. Kayian, Sr. should consider submitting offers-in-

compromise with respect to that tax liability.   Because Mr.

Kayian, Sr. was not familiar with an offer-in-compromise, Mr.

Lanier explained to him what such an offer is.   In recommending

to Mr. Kayian, Sr. that he consider submitting an offer-in-

compromise and in preparing separate offers-in-compromise with

respect to Mr. Kayian, Sr.'s 1987 through 1989 tax liability and

Mr. Kayian, Sr. and Ms. Livingston's joint tax liability for 1990

and 1991 (joint 1990 and 1991 tax liability), Mr. Lanier relied

on the information provided to him by Mr. Kayian, Sr. about his

assets and did not independently verify that information.   At no

point did Mr. Kayian, Sr. divulge to Mr. Lanier that he owned the

Aruba bonds or any other bonds.   If Mr. Kayian, Sr. had informed

Mr. Lanier about the Aruba bonds, Mr. Lanier would have disclosed

that information to the Service, and it would have impacted Mr.

Lanier's preparation of offers-in-compromise for Mr. Kayian, Sr.

     On December 7, 1992, Mr. Kayian, Sr. signed, under penalties

of perjury, an amended offer-in-compromise that Mr. Lanier had

prepared, in which he offered to satisfy for $23,121.40 his 1987

through 1989 tax liability (1987 through 1989 amended offer),

which totaled $72,807.59.   On the same date, Mr. Kayian, Sr. and

Ms. Livingston signed, under penalties of perjury, an amended

offer-in-compromise that Mr. Lanier had prepared, in which they

offered to satisfy for the same $23,121.40 their joint 1990 and
                               - 12 -


1991 tax liability (1990-1991 amended offer), which totaled

$18,854.93.   A document entitled collateral agreement was at-

tached to each of those amended offers-in-compromise.    Each such

document stated in pertinent part:

     I, Harry K. Kayian Sr, submitted an amended offer dated
     12/07/92 in the amount of $23121.40 to compromise an
     unpaid Federal Income tax liability, plus statutory
     additions, for the period ended December 31, 1987,
     December 31, 1988, and December 31, 1989.

     We, Harry K. Kayian Sr & Nancy L. Kayian, submitted an
     amended offer dated 12/07/92 in the amount of $23121.40
     to compromise an unpaid joint Federal Income tax li-
     ability, plus statutory additions, for the period ended
     December 31, 1990, and December 31, 1991.

     The purpose of this letter is to amend those offers by
     adding the following provision:

            One payment of $23121.40 shall satisfy all offer
            payment requirements as to the total sum paid in
            full with respect to all offers described herein.
            This agreement is contingent upon the acceptance
            of the above referenced offers. [Reproduced lit-
            erally.]

The 1987 through 1989 amended offer and the 1990-1991 amended

offer gave the following response to a question which requested

the taxpayer to state the reasons why each such offer should be

accepted:   "I cannot pay these taxes."

     Mr. Lanier sent Mr. Stephens the 1987 through 1989 amended

offer and the 1990-1991 amended offer under a transmittal letter

dated December 8, 1992.   That transmittal letter stated in

pertinent part:   "The new Offers are for a total of $23,121.40 in

settlement of all income taxes, interest, and penalties for 1987,
                                - 13 -


1988, 1989, 1990, and 1991."    Mr. Stephens reviewed the foregoing

amended offers-in-compromise.    Based on the value of all of the

assets disclosed in Mr. Kayian, Sr.'s Form 433-A, discussions

with Mr. Kayian, Sr. and Mr. Lanier, and Mr. Stephens' independ-

ent investigation of Mr. Kayian, Sr.'s financial situation, Mr.

Stephens prepared what the Service refers to as a reasonable

collection potential computation.    Such a computation is used to

ascertain the reasonable collection potential of a taxpayer who

has submitted an offer-in-compromise to the Service.    In pre-

paring that reasonable collection potential computation with

respect to Mr. Kayian, Sr., Mr. Stephens did not include the

value of the Aruba bonds or any other assets or interests which

Mr. Kayian, Sr. owned but which were not disclosed in Mr. Kayian,

Sr.'s Form 433-A or in discussions with Mr. Kayian, Sr. and Mr.

Lanier.

     Based on the information provided by Mr. Kayian, Sr. and Mr.

Lanier, Mr. Stephens concluded that there existed a doubt as to

the collectability of Mr. Kayian, Sr.'s 1987 through 1989 tax

liability and Mr. Kayian, Sr. and Ms. Livingston's joint 1990 and

1991 tax liability and that an acceptable offer-in-compromise of

Mr. Kayian, Sr.'s 1987 through 1991 tax liability was $23,121.40.

On December 11, 1992, Mr. Stephens recommended to his supervisor

that the Service accept the 1987 through 1989 amended offer and

the 1990-1991 amended offer.    If Mr. Stephens had known of the
                              - 14 -


existence of the Aruba bonds, he would not have made that rec-

ommendation.   Instead, he would have requested that Mr. Kayian,

Sr. liquidate those bonds and use the bond proceeds toward

satisfaction of his outstanding tax liability.     Mr. Stephens'

supervisor rejected Mr. Stephens' recommendation that the Service

accept the 1987 through 1989 amended offer and the 1990-1991

amended offer.

     In a letter dated December 21, 1992, Mr. Lanier wrote to Mr.

Stephens concerning a proposed examination of Mr. Kayian, Sr.'s

returns for 1988 and 1989.   That letter stated:    "It just seems

pointless to go through with the examination because there are no

more assets available to pay any additional taxes."     On June 8,

1993, Mr. Kayian, Sr. withdrew the 1987 through 1989 amended

offer and the 1990-1991 amended offer.

     Mr. Kayian, Sr. executed under oath a financial affidavit

dated March 18, 1993 (financial affidavit), with respect to a

lawsuit that his former spouse Beatrice Kayian (Beatrice Kayian

lawsuit) commenced against him in the family law division of the

Circuit Court of the 13th Judicial Circuit in and for Hills-

borough County, Florida (13th Circuit Court).    In that affidavit,

Mr. Kayian, Sr. represented, inter alia, (1) that he had monthly

expenses of $2,680 which exceeded his monthly income of $2,200,

(2) that the aggregate value of the mortgage notes that he owned
                               - 15 -


on certain time-shares was $65,000, (3) that the aggregate value

of the Key West condominiums that he owned was $120,000, and

(4) that the liabilities on those two properties totaled $82,000.

Mr. Kayian, Sr. did not disclose the Aruba bonds or his 1987

through 1991 tax liability in the financial affidavit.

       On or about April 29, 1993, Mr. Kayian, Sr. executed and

filed in the Beatrice Kayian lawsuit a notice that he had served

answers to interrogatories which Beatrice Kayian had served on

him on January 20, 1993.    In those answers, Mr. Kayian, Sr. did

not disclose the existence of the Aruba bonds, but did disclose,

inter alia, (1) that he owned the two Key West condominiums,

(2) that he owned the mortgage notes on certain time-shares,

(3) that he had one insurance policy with Continental, (4) that

he had one bank account with a balance of $300 from which Ms.

Livingston was authorized to withdraw funds, (5) that he had an

aggregate tax liability for 1987 through 1991 in the amount of

$86,636.66, and (6) that he was making monthly payments to four

creditors as follows:    $1,000 per month to the Service and $250

per month to each of three banks which had issued credit cards to

him.

       On or about August 6, 1993, Ms. Livingston checked Mr.

Kayian, Sr. into a hospital because he was having trouble breath-

ing.    Ms. Livingston called Mr. Kayian, Jr. on the following day

and informed him that she was leaving Tampa, although she had not
                               - 16 -


told Mr. Kayian, Sr. of her plans to leave.    About two or three

days later, Mr. Kayian, Jr. told his father that Ms. Livingston

had left Tampa.

       On a date not disclosed by the record between around August

7, 1993, and around August 14, 1993, the hospital released Mr.

Kayian, Sr. for a couple of days.    Mr. Kayian, Jr. accompanied

his father to his father's residence and retrieved the mail for

him.    That mail included a Social Security check in the amount of

$12,000 (Social Security check) and a check from Aruba with

respect to the Aruba bonds.    The Social Security check was in

such a large amount because Mr. Kayian, Sr. had applied late for

his Social Security benefits and past due benefits were included

in that check.

       After a few days at home, Mr. Kayian, Sr. was readmitted to

the hospital.    On August 16, 1993, the day before he died, Mr.

Kayian, Sr. executed a durable power of attorney authorizing Mr.

Kayian, Jr. to act on his behalf.    By letter dated August 16,

1993, which he did not sign, Mr. Kayian, Sr. requested Continen-

tal to change the beneficiary of his Continental group life

insurance policy to Mr. Kayian, Jr. for "FINAL EXPENSES".    Mr.

Kayian, Sr.'s Continental group life insurance policy had a death

benefit of $10,000 and was to pay interest from date of death.

By separate letter dated August 16, 1993, which he did not sign,

Mr. Kayian, Sr. requested Continental to change the beneficiary
                              - 17 -


of his Continental annuity contract to his grandsons Nicholaus

Kayian and Kenneth John Kayian-Beck and his granddaughter

Kaitlynn Elizabeth Kayian.   Mr. Kayian, Sr.'s Continental annuity

contract had a cash surrender value of at least $14,000 and was

to pay interest from date of death.    By letter dated August 16,

1993, which he did not sign, Mr. Kayian, Sr. requested Jackson

National to change the beneficiary of his Jackson National

annuity contract to his grandsons Nicholaus Kayian and Kenneth

John Kayian-Beck and his granddaughter, Kaitlynn Elizabeth

Kayian.   Mr. Kayian, Sr.'s Jackson National annuity contract had

an accumulation value and death benefit of $59,262.39.   Mr.

Kayian, Jr. and Robert Kayian signed each of the foregoing

letters as witnesses.

     Also on or about August 16, 1993, Mr. Kayian, Sr. trans-

ferred to Mr. Kayian, Jr. (initial transfer) the Aruba bonds

valued at $70,000 and the Social Security check for $12,000

(collectively, transferred properties) and directed him to

distribute the transferred properties to Mr. Kayian, Sr.'s

children and grandchildren (Mr. Kayian, Sr.'s directions).     Mr.

Kayian, Sr. made the initial transfer for no consideration and

without an exchange of reasonably equivalent value.   When Mr.

Kayian, Sr. made the initial transfer, he was well aware, and Mr.

Kayian, Jr. was aware generally, of Mr. Kayian, Sr.'s 1987

through 1991 tax liability, and Mr. Kayian, Sr. was bound to know
                              - 18 -


that the Service would levy on his property in order to collect

that liability.   At the time Mr. Kayian, Sr. made the initial

transfer, he was bound to know that he had incurred substantial

medical expenses since he entered the hospital on August 6, 1993.

     After Mr. Kayian, Sr. made the initial transfer, Mr. Kayian,

Jr., pursuant to Mr. Kayian, Sr.'s directions, (1) distributed

for no consideration and without an exchange of reasonably

equivalent value a portion of the transferred properties valued

at $10,933.33 to (a) each of Mr. Kayian, Sr.'s remaining sons

(viz., petitioner Robert Kayian, Kenneth V. Kayian, and Richard

H. Kayian), (b) his daughter (viz., Karen Kayian Aubel), and

(c) two of his three grandchildren (viz., Kenneth J. Kayian-Beck

and Kaitlynn Elizabeth Kayian); (2) retained a portion of the

transferred properties valued at $16,400 and divided that portion

equally; and (3) distributed for no consideration and without an

exchange of reasonably equivalent value one-half of that retained

portion valued at $8,200 to Mr. Kayian, Sr.'s grandson (viz., Mr.

Kayian, Jr.'s son, petitioner Nicholaus Kayian).

     Although Ms. Livingston returned to Tampa on the day of Mr.

Kayian, Sr.'s funeral, she did not attend that funeral.   On that

day, Ms. Livingston withdrew all of the funds from the joint bank

accounts that she had with Mr. Kayian, Sr.   She previously had

taken Mr. Kayian, Sr.'s Rolex wristwatch with her when she left
                              - 19 -


Tampa after he had been hospitalized.   Ms. Livingston subse-

quently sold that watch.

     At a time not disclosed by the record after the initial

transfer by Mr. Kayian, Sr. to Mr. Kayian, Jr., Mr. Kayian, Jr.

contacted the issuer of the Aruba bonds about liquidating them.

However, that issuer declined to do so at that time.   Instead, it

made monthly payments to Mr. Kayian, Jr. with respect to the

Aruba bonds over approximately five to seven months until those

bonds were paid in full.

     On October 21, 1993, Jackson National and Continental filed

an interpleader action (interpleader action) in the U.S. District

Court for the Middle District of Florida, Tampa Division (U.S.

District Court), to determine the person or persons entitled to

the proceeds of the Jackson National annuity contract, the

Continental annuity contract, and the Continental group life

insurance policy.   In September 1995, in a joint stipulation for

entry of judgment and dismissal with respect to the interpleader

action (settlement stipulation), Ms. Livingston, individually and

as personal representative of Mr. Kayian, Sr.'s estate, withdrew

all claims against Mr. Kayian, Jr. and Mr. Kayian, Sr.'s three

grandchildren regarding those contracts.   In an order dated

September 13, 1995, the U.S. District Court directed release of

the interpled funds and ratified the settlement stipulation.
                              - 20 -


     Although Ms. Livingston had agreed to have Mr. Lanier serve

as personal representative of Mr. Kayian, Sr.'s estate in the

probate proceeding involving that estate, he was not appointed as

such because Mr. Kayian, Sr.'s family was unable to agree on how

to handle that estate.   On December 10, 1993, Ms. Livingston was

appointed personal representative of Mr. Kayian, Sr.'s estate.

In January 1994, probate of the intestate estate of Mr. Kayian,

Sr. began (probate proceeding) in the probate division of the

13th Circuit Court (Probate Court).    David M. Carr (Mr. Carr), an

attorney, represented Ms. Livingston both in her capacity as

personal representative of that estate and in her individual

capacity.

     At some undisclosed time prior to January 4, 1994, the two

Key West condominiums that Mr. Kayian, Sr. had owned were at risk

of foreclosure because the mortgage loans thereon were in de-

fault.   A final judgment of foreclosure dated November 21, 1994,

was entered by the Circuit Court of the 16th Judicial Circuit in

and for Monroe County, Florida, with respect to one of those

condominiums, and a supplemental summary judgment of foreclosure

dated January 8, 1996, was entered by that court with respect to

the remaining condominium.

     By letter dated February 1, 1994, to John P. Holsonback, an

attorney representing Mr. Kayian, Jr. in the probate proceeding,

Mr. Carr, inter alia, made a formal demand that Mr. Kayian, Jr.
                              - 21 -


return the Aruba bonds, the $12,000 of Social Security benefits

for which Mr. Kayian, Sr. received a check before he died, and

any other assets of Mr. Kayian, Sr.'s estate in the possession of

Mr. Kayian, Jr.   At a time not disclosed by the record, Mr. Carr

filed on behalf of Mr. Kayian, Sr.'s estate a complaint in the

Probate Court commencing an action against Mr. Kayian, Jr. to

recover certain property of Mr. Kayian, Sr. in the possession of

Mr. Kayian, Jr., including the Aruba bonds, any cash representing

proceeds from the sale of such bonds, bank accounts, and other

property.

     Ms. Livingston, in her capacity as personal representative

of Mr. Kayian, Sr.'s estate, filed in the probate proceeding an

inventory of the assets of that estate, dated March 24, 1994

(inventory).   That inventory listed, inter alia, the following

properties of Mr. Kayian, Sr.'s estate that were in the pos-

session, control, or knowledge of Ms. Livingston and the fol-

lowing estimated fair market values of such properties:   (1) the

two Key West condominiums valued at $64,000; (2) the mortgage

notes on certain time-shares valued at $53,244.45; (3) proceeds

held by Mr. Lanier in the amount of $9,415.08; (4) the Aruba

bonds valued at $70,000, with a notation that Ms. Livingston was

currently investigating the value of those bonds and that the

value might be reduced to $60,000; (5) the Jackson National

annuity contract and the Continental annuity contract valued at
                             - 22 -


$59,262.39 and $14,000, respectively; and (6) the Continental

group life insurance policy valued at $10,000.    Ms. Livingston

included the following statement regarding the two Key West

condominiums that were listed in the inventory:

     The beneficiaries have advised the Personal Representa-
     tive that a judgment has been entered against the
     decedent that would act as a lien against these proper-
     ties and reduce the equity to zero. Additionally, the
     IRS may have a lien against the equities of these
     properties.

     Ms. Livingston filed in the probate proceeding a statement

regarding creditors that she executed on March 24, 1994.     To that

statement was attached a schedule of creditors which showed

     the names and, if known, the addresses of all persons
     ascertained to have claims or demands against the
     estate and who have not filed a timely claim, or who
     have not had their claim included in a Personal Rep-
     resentative's Proof of Claim filed in this proceeding
     * * *.

The schedule of creditors listed the following creditors:

(1) Emergency Physicians - Brandon, (2) Brandon Hospital,

(3) Smith Kline Beecham Clinical Lab., (4) Ruffolo, Hooper &

Assoc., M.D., P.A., (4) Lewis E. Auerbach, M.D., (5) Drs. Sheer,

Ahean & Associates, (6) World Omni Financial Corporation,

(7) NationsBank, (8) Barnett Mortgage Company, (9) Citicorp

Credit Services, (10) Pulmonary Associates of Brandon,

(11) Brandon Diagnostic Center, (12) Bank of New York, (13) First

Union Bankcard, and (14) Internal Revenue Service.
                               - 23 -


     On July 1, 1994, the Service filed a proof of claim in the

probate proceeding for unpaid, assessed taxes owed by Mr. Kayian,

Sr. in the total amount of $79,282.33.   The Service's claim was

not paid in the probate proceeding.

     On February 20, 1995, Mr. Carr filed a petition for at-

torney's fees in the probate proceeding.   On March 17, 1995, the

Probate Court issued an order with respect to that petition,

which "awarded a partial attorney's fee" of $19,287.40 for the

work that Mr. Carr had performed on behalf of Mr. Kayian, Sr.'s

estate and reasonable costs of $1,473.64, both of which the

Probate Court directed be paid from the assets of Mr. Kayian,

Sr.'s estate.   That order further stated that "this award of

attorney's fees does not include any statutory percentage to

which" Mr. Carr is entitled.

     On March 22, 1995, the Probate Court issued an order in the

probate proceeding approving, adopting, and ratifying the stip-

ulation and settlement agreement that had been entered into among

Ms. Livingston, individually and as personal representative of

Mr. Kayian, Sr.'s estate, and Robert Kayian, Kenneth V. Kayian,

Richard H. Kayian, and Karen Kayian Aubel.   That stipulation and

settlement agreement, inter alia, provided that Ms. Livingston

and Mr. Kayian, Sr.'s estate agreed to withdraw claims against

the interests of Robert Kayian, Kenneth V. Kayian, Richard H.

Kayian, and Karen Kayian Aubel with respect to the transferred
                              - 24 -


properties but not with respect to the interests of Mr. Kayian,

Jr. and his son Nicholaus Kayian with respect to those prop-

erties.

     On November 2, 1995, Mr. Carr filed a notice of final

accounting and petition for discharge in the probate proceeding.

That notice showed that most of the distributions and disburse-

ments of Mr. Kayian, Sr.'s estate were made to pay Ms. Livingston

a family allowance as well as fees as personal representative of

Mr. Kayian, Sr.'s estate, attorney's fees, accounting fees, and

other costs and expenses.   On December 5, 1995, the Probate Court

issued an order in the probate proceeding discharging Ms.

Livingston as the personal representative of Mr. Kayian, Sr.'s

estate.

     Respondent issued separate notices of transferee liability

to petitioner Robert Kayian and petitioner Nicholaus Kayian,

respectively, in which respondent determined that they are liable

as transferees in amounts not exceeding $10,933 and $8,200,

respectively, plus interest thereon as provided by law, for Mr.

Kayian, Sr.'s 1987-1989 unpaid tax liability.

                              OPINION

     We shall first address certain evidentiary matters.    At

trial, we admitted into evidence conditionally, subject to our

ruling on admissibility, certain evidence to which respondent

objected.
                               - 25 -


     Respondent objects to the admission into evidence of para-

graph 72 (stipulation 72) and the exhibit referenced therein and

paragraph 73 (stipulation 73) and the exhibit referenced therein

of the supplemental stipulation of facts that the parties filed

in these cases.   The ground for respondent's objections is that

those matters are inadmissible under rule 408 of the Federal

Rules of Evidence (FRE 408).   Petitioner concedes on brief, and

we find, that stipulation 73 and the exhibit referenced therein

are inadmissible under FRE 408.   Consequently, that stipulation

and that exhibit shall be deemed stricken from the record in

these cases.

     Stipulation 72 describes the exhibit attached thereto.    That

exhibit is a stipulation prepared by the United States (bank-

ruptcy stipulation) in a bankruptcy proceeding that Mr. Kayian,

Jr. had commenced (Mr. Kayian, Jr.'s bankruptcy proceeding).    In

that bankruptcy stipulation, the United States agreed to withdraw

a claim of transferee liability against Mr. Kayian, Jr. with

respect to Mr. Kayian, Sr.'s 1987-1989 unpaid tax liability.

     FRE 408 provides:

          Evidence of (1) furnishing or offering or prom-
     ising to furnish, or (2) accepting or offering or
     promising to accept, a valuable consideration in com-
     promising or attempting to compromise a claim which was
     disputed as to either validity or amount, is not ad-
     missible to prove liability for or invalidity of the
     claim or its amount. Evidence of conduct or statements
     made in compromise negotiations is likewise not ad-
     missible. This rule does not require the exclusion of
                               - 26 -


     any evidence otherwise discoverable merely because it
     is presented in the course of compromise negotiations.
     This rule also does not require exclusion when the
     evidence is offered for another purpose, such as prov-
     ing bias or prejudice of a witness, negativing a con-
     tention of undue delay, or proving an effort to ob-
     struct a criminal investigation or prosecution.

     Respondent argues that the bankruptcy stipulation is ev-

idence of a compromise by the United States in Mr. Kayian, Jr.'s

bankruptcy proceeding, which petitioners in the instant cases

want to use to establish that respondent's determinations against

them are not valid.   Consequently, according to respondent, that

evidence is inadmissible under FRE 408.

     Petitioners argue that FRE 408 "does not apply to final

judgments in judicial proceedings" and that "because stipulations

entered in prior court proceedings have the preclusive effect of

final judgments, they are admissible in subsequent proceedings to

prove liability for, or invalidity of, the claim that is the

subject of the stipulation."   In support of their position,

petitioners rely on In re Cluck, 165 Bankr. 1005 (W.D. Tex.

1993), affd. without published opinion 20 F.3d 1170 (5th Cir.

1994), and In re Camp, 170 Bankr. 610 (Bankr. N.D. Ohio 1994).

     We find In re Cluck, supra, and In re Camp, supra, on which

petitioners rely to be distinguishable from the instant cases and

their reliance on them to be misplaced.   Moreover, in each of

those cases, 11 U.S.C. sec. 505(a)(2)(A) (1994), prevented the

Bankruptcy Court from relitigating the debtor's tax liability for
                              - 27 -


a particular taxable year after this Court had made a determina-

tion with respect to that debtor's tax liability.

     We agree with respondent that stipulation 72 and the exhibit

referred to therein are inadmissible under FRE 408.   The Advisory

Committee's Note to FRE 408 states in pertinent part:   "While the

rule is ordinarily phrased in terms of offers of compromise, it

is apparent that a similar attitude must be taken with respect to

completed compromises when offered against a party thereto."     56

F.R.D. 183, 226 (1973).   Stipulation 72 and the exhibit ref-

erenced therein are evidence of a completed compromise.   Each

petitioner claims that his liability as a transferee "depends on

Harry Kayian, Jr.'s status as a transferee, and because the

government is now barred from asserting transferee liability

against him, Petitioners can have no liability."    Thus, petition-

ers are attempting to use stipulation 72 and the exhibit refer-

enced therein to establish the invalidity of respondent's deter-

minations that petitioners are liable as transferees.   We con-

clude that that evidence is inadmissible under FRE 408.   Conse-

quently, stipulation 72 and the exhibit referenced in that

stipulation shall be deemed stricken from the record in these

cases.3


     3
      On brief, respondent makes no argument about the admissi-
bility of the testimony of Philip Doyle (Mr. Doyle), the attorney
who represented the United States in Mr. Kayian, Jr.'s bankruptcy
                                                   (continued...)
                              - 28 -


     We shall now address the transferee liability issues pre-

sented in these cases.   Respondent bears the burden of showing

that each petitioner is liable as a transferee of property of Mr.

Kayian, Sr., but not that Mr. Kayian, Sr. was liable for Mr.

Kayian, Sr.'s 1987-1989 unpaid tax liability.   See sec. 6902(a);

Rule 142(d).

     Section 6901 provides in pertinent part:

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

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


     3
      (...continued)
proceeding and who was responsible for preparation of the bank-
ruptcy stipulation. We admitted Mr. Doyle's testimony into
evidence conditionally, subject to our ruling on the admissibil-
ity of stipulation 72 and stipulation 73 and the exhibits refer-
enced therein. On brief, petitioners concede that Mr. Doyle's
testimony is inadmissible. We conclude that Mr. Doyle's testi-
mony, like stipulation 72 and stipulation 73 as well as the
respective exhibits referenced therein, is inadmissible under FRE
408. Accordingly, Mr. Doyle's testimony shall be deemed stricken
from the record in these cases.
     Assuming arguendo that stipulation 72 and stipulation 73 and
the exhibits referenced in those stipulations were admissible,
Mr. Doyle's testimony also would be admissible. That testimony,
if admitted into the instant record, would establish that the
United States was willing to enter into the bankruptcy stip-
ulation because it concluded that it had not timely filed in the
bankruptcy proceeding its claim against Mr. Kayian, Jr. that he
is liable as a transferee of Mr. Kayian, Sr.'s outstanding tax
liability. Even if we had ruled differently on the evidentiary
matters addressed herein, such a ruling would not have affected
our conclusions with respect to the transferee liability issues
in these cases.
                                - 29 -


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

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

             *     *      *     *     *      *     *

            (h) Definition of Transferee.--As used in this
       section, the term "transferee" includes donee, heir,
       legatee, devisee, and distributee * * *.

       The courts have recognized that section 6901 does not create

or define a substantive liability, but merely provides a pro-

cedure by which the Government may collect from a transferee of

property unpaid taxes owed by the transferor of the property.

Commissioner v. Stern, 357 U.S. 39, 42 (1958); Hagaman v. Com-

missioner, 100 T.C. 180, 183 (1993).      The existence and extent of

a transferee's liability is determined under applicable State

law.    See Commissioner v. Stern, supra at 42-45; Hagaman v.

Commissioner, supra at 183-185.     The parties agree that the

applicable State law in these cases is the law of the State of

Florida.    Petitioners argue, however, that under applicable

Florida law respondent must establish by clear and convincing

evidence, and not merely by a preponderance of the evidence, that

petitioners are liable as transferees.     Respondent counters that

under applicable Florida law the standard of proof is a pre-

ponderance of the evidence.    We agree with respondent.    See
                              - 30 -


Watson Realty Corp. v. Quinn, 452 So. 2d 568 (Fla. 1984) (per

curiam).

     Petitioners maintain that Mr. Kayian, Jr. is the initial

transferee of certain assets of Mr. Kayian, Sr. and that they

received certain of those assets from Mr. Kayian, Jr.   Petition-

ers further maintain that "if Petitioners are liable for any

portion of * * * [Mr. Kayian, Sr.'s 1987-1989] unpaid income tax

liabilities, it is as transferees of a transferee [Mr. Kayian,

Jr.]."   According to petitioners,

     It is the initial transfer, from Transferor [Mr.
     Kayian, Sr.] to Harry Kayian, Jr., that must be ex-
     amined to determine whether Harry Kayian, Jr. was a
     transferee "at law or in equity". If he was a trans-
     feree at law or in equity, then Petitioners may be held
     liable, as transferees of a transferee, to the extent
     of the assets of * * * [Mr. Kayian, Sr.] that they
     received.

     Respondent argues that whether petitioners received the

transferred properties as transferees of a transferor (Mr.

Kayian, Sr.) or as transferees of a transferee (Mr. Kayian, Jr.)

is irrelevant for purposes of determining their respective

liabilities in these cases.   Respondent further contends

     that the record in this case [sic] supports a finding
     that Harry Kayian, Jr., while himself a transferee, was
     a conduit complying with his father's direct instruc-
     tions that he was transferring his property to his
     children and grandchildren via his son present at the
     time, Harry Kayian, Jr., who was also the eldest child.
     * * * Accordingly, the record supports a finding that
     each recipient of the transferred property was a direct
     transferee of the transferor Harry Kayian, Sr., rather
     than a transferee of a transferee, Harry Kayian, Jr.
                               - 31 -


On the record before us, we agree with respondent and find that

petitioners are the direct transferees from Mr. Kayian, Sr. of

the respective portions of the transferred properties that they

received.    Nevertheless, we shall examine only the initial

transfer from Mr. Kayian, Sr. to Mr. Kayian, Jr., as petitioners

request, since our examination of that transfer resolves the

transferee liability issues in these cases.

     The parties agree that, in determining whether Mr. Kayian,

Jr. is a transferee at law or in equity, and therefore whether

petitioners are liable as transferees for Mr. Kayian, Sr.'s 1987-

1989 unpaid tax liability, we must consider the application of

the fraudulent conveyance law of Florida set forth in (1) Fla.

Stat. Ann. sec. 726.105 (West 1988) (Fla. Stat. Ann. sec. 726.105

or Florida fraudulent transfer statute) and (2) Fla. Stat. Ann.

sec. 726.106 (West 1988) relating to constructively fraudulent

transfers.   We shall address only the applicability of the

Florida fraudulent transfer statute to the initial transfer

because our consideration of that statute disposes of the trans-

feree liability questions presented.

     The Florida fraudulent transfer statute provides in per-

tinent part:

          (1) A transfer made or obligation incurred by a
     debtor is fraudulent as to a creditor, whether the
     creditor's claim arose before or after the transfer was
     made or the obligation was incurred, if the debtor made
     the transfer or incurred the obligation:
                        - 32 -


          (a) With actual intent to hinder, delay,
     or defraud any creditor of the debtor; * * *

          *    *    *    *    *       *   *

     (2) In determining actual intent under paragraph
(1)(a), consideration may be given, among other fac-
tors, to whether:

          (a) The transfer or obligation was to an
     insider.

          (b) The debtor retained possession or
     control of the property transferred after the
     transfer.

          (c) The transfer or obligation was dis-
     closed or concealed.

          (d) Before the transfer was made or
     obligation was incurred, the debtor had been
     sued or threatened with suit.

          (e) The transfer was of substantially
     all the debtor's assets.

          (f) The debtor absconded.

          (g) The debtor removed or concealed
     assets.

          (h) The value of the consideration re-
     ceived by the debtor was reasonably equiv-
     alent to the value of the asset transferred
     or the amount of the obligation incurred.

          (i) The debtor was insolvent or became
     insolvent shortly after the transfer was made
     or the obligation was incurred.

          (j) The transfer occurred shortly before
     or shortly after a substantial debt was in-
     curred.

          (k) The debtor transferred the essential
     assets of the business to a lienor who trans-
     ferred the assets to an insider of the
                               - 33 -


          debtor.    [Fla. Stat. Ann. sec. 726.105(1) and
          (2).]

     The language of the Florida fraudulent transfer statute

makes it clear that, in determining whether a transfer is made

with the actual intent to hinder, delay, or defraud any creditor

of the debtor (fraudulent intent), we may consider factors

(badges of fraud) other than those set forth in Fla. Stat. Ann.

sec. 726.105(2)(a) through (k).     See Fla. Stat. Ann. sec.

726.105(2); see also General Trading Inc. v. Yale Materials

Handling Corp., 119 F.3d 1485, 1498 (11th Cir. 1997).       Moreover,

in determining whether a transfer is made with a fraudulent

intent, we must "take into account 'the particular facts sur-

rounding the conveyance,' and avoid determining in a vacuum the

presence or absence of a debtor's actual intent to hinder or

delay a creditor."    Id. at 1498-1499 (quoting Kirk v. Edinger,

380 So. 2d 1336, 1337 (Fla. Dist. Ct. App. 1980)).     Furthermore,

although a "single badge of fraud may only create a suspicious

circumstance and may not constitute the requisite fraud to set

aside a conveyance, * * * several of them when considered to-

gether may afford a basis to infer fraud."     Id. at 1498 (quoting

Johnson v. Dowell, 592 So. 2d 1194, 1197 (Fla. Dist. Ct. App.

1992)).   We have recognized that

          In Florida, existing creditors have the benefit of
     a presumption of fraudulent intent where the conveyance
     is voluntary [i.e., for no consideration] and there is
                             - 34 -


     a close relationship between the transferor and the
     transferee.

Hagaman v. Commissioner, 100 T.C. at 188-189; see Advest, Inc. v.

Rader, 743 F. Supp. 851, 854 (S.D. Fla. 1990).

     Petitioners concede (1) that there was a close relationship

(father/son) between Mr. Kayian, Sr. and Mr. Kayian, Jr., see

Fla. Stat. Ann. sec. 726.105(2)(a); (2) that the initial transfer

was for no consideration, Fla. Stat. Ann. sec. 726.105(2)(h);

(3) that "Florida law permits courts to indulge in a presumption

that the presence of these two particular badges of fraud, i.e.,

a transfer of assets to a family member for no consideration, are

evidence of actual intent to hinder, delay or defraud creditors",

see Hagaman v. Commissioner, supra at 188-189; Advest, Inc. v.

Rader, supra at 854; and (4) that petitioners bear the burden of

rebutting any such presumption, see Hagaman v. Commissioner,

supra; Advest, Inc. v. Rader, supra.   We find on the record in

these cases that a presumption exists under the Florida fraud-

ulent transfer statute that Mr. Kayian, Sr. made the initial

transfer with a fraudulent intent.

     Petitioners contend that if we were to find under the

Florida fraudulent transfer statute that a presumption exists

that Mr. Kayian, Sr. made the initial transfer with a fraudulent

intent, they have rebutted such a presumption.   According to

petitioners,
                             - 35 -


          Harry Kayian, Sr. was a victim of lung cancer. On
     or about August 6, 1993, his wife, Nancy Livingston,
     took Transferor [Mr. Kayian, Sr.] to the hospital
     because he was having trouble breathing. Instead of
     staying with Transferor for his final days, she went
     home, packed her things, called his son, Harry Kayian,
     Jr., to tell him she was leaving town, and she de-
     parted. When Harry Kayian, Jr. told his father, the
     Transferor, that his wife was gone, it broke his fa-
     ther's heart. A few days later, the Transferor, know-
     ing he had no will and knowing he was near death, had a
     long discussion with his sons, Harry, Jr. and Robert
     about his wife's departure. During that conversation,
     Transferor told his sons that he wanted to leave a
     small legacy for each of his chilren [sic] and grand-
     children. He told them that he was giving his Aruba
     retirement bond, in bearer form, and a social security
     check that he recently received, to Harry, Jr. to
     divide among Transferor's children and grandchildren.
     He stated that he did not want his wife to receive
     those assets because she deserted him in his final days
     * * *. Transferor's sole intention was to leave his
     children and grandchildren a small legacy that his
     estranged wife could not reach. The following day, the
     Transferor died.

          At the time of the transfer to Harry Kayian, Jr.,
     more than two years had elapsed since the Transferor
     incurred his tax obligations. Approximately one year
     had elapsed since he contracted lung cancer. Yet he
     had transferred no assets to his children or grand-
     children during that period. It was only when his wife
     left him to die, alone, that he made this transfer.

          * * * Surely, these facts, surrounding this par-
     ticular transfer, show the Transferor's intent in
     making the transfer and negate any possible inference
     or presumption that this transfer was made to hinder,
     delay or defraud creditors. The Transferor made this
     transfer for the sole purpose of insuring that each of
     his children and grandchildren would receive a small
     legacy that his estranged wife could not get.

Respondent counters that

     the actual intent of Harry Kayian, Sr. is best deter-
     mined based on the entire record in this case [sic]
                             - 36 -


     which evidences Harry Kayian, Sr.'s consistent intent
     to evade payment of taxes over a period of years con-
     cluding with the [initial] transfer on August 16, 1992
     [sic]. As early as 1986, years prior to the transfer,
     Harry Kayian, Sr. had decided not to pay his income
     taxes and to take any affirmative steps necessary to
     evade such payment, including hiding assets, lying to
     his return-preparer and to the government and preparing
     and executing false financial statements under oath,
     for submission to the government and to the courts.
     * * * The [initial] transfer on August 16, 1992 [sic],
     was one more step in furtherance of and consistent with
     Harry Kayian, Sr.'s intent to evade payment of his
     taxes. Petitioners have not shown that Harry Kayian,
     Sr.'s "sole intention" in effecting the subject trans-
     fers was to provide a legacy for his heirs. Even if
     Harry Kayian, Sr. had made the transfers with a desire
     to provide a legacy for his heirs, such an intention is
     consistent with the proof in this case [sic] of his
     actual intent to hinder, delay, or defraud the gov-
     ernment's attempts to collect the transferred property
     to satisfy his tax liabilities and, [sic] does not
     negate the proof of such intent to hinder, delay, or
     defraud. Cf. United States v. Southland Corp., 760
     F.2d 1366, 1373 (2d Cir.), cert. denied, 474 U.S. 825
     (1985) (citation omitted) (in the context of criminal
     intent to defraud the government, one cannot escape
     liability by showing that the intent to defraud "was
     merely incidental to some other action which consti-
     tuted the primary motivation").

     To support their position about Mr. Kayian, Sr.'s intent in

making the initial transfer, petitioners rely on the testimony of

Ms. Livingston and Mr. Kayian, Jr.    Based on the record in these

cases and our observation of those witnesses, we believe that

there are ill feelings and an adversarial relationship between

Ms. Livingston and Mr. Kayian, Jr.    We have serious reservations

about the reliability of material aspects of the testimony of Ms.

Livingston and the testimony of Mr. Kayian, Jr., and we shall not
                             - 37 -


rely on the testimony of either witness to establish, inter alia,

Mr. Kayian, Sr.'s intent in making the initial transfer.4   On the

record before us, we find that petitioners have failed to es-

tablish that Mr. Kayian, Sr.'s "sole intention was to leave his

children and grandchildren a small legacy that his estranged wife

could not reach."

     Assuming arguendo that petitioners had established that a

motive of Mr. Kayian, Sr. in giving the transferred properties to

Mr. Kayian, Jr. was to ensure that Mr. Kayian, Sr.'s children and

grandchildren, and not Ms. Livingston, received those properties,

we nonetheless find on the instant record that petitioners have

failed to rebut the presumption which we have found exists under

the Florida fraudulent transfer statute that Mr. Kayian, Sr. made

that transfer with a fraudulent intent.   In so finding, we have

given consideration not only to the badges of fraud (viz., the

initial transfer was made to an insider, see Fla. Stat. Ann. sec.

726.105(2)(a), and for no consideration, see Fla. Stat. Ann. sec.

726.105(2)(h)) which give rise to that presumption, but also to

other badges of fraud established by the record in these cases,




     4
      We note that although petitioners claim that Mr. Kayian,
Sr. "had a long discussion with his sons, Harry, Jr. and Robert
[one of the petitioners herein] about his wife's departure", they
did not call petitioner Robert Kayian as a witness at the trial
in these cases.
                              - 38 -


including the following:5   (1) On July 20, 1992, due to the

failure of Mr. Kayian, Sr. to pay in full his 1987-1989 tax

liability, the Service recorded a notice of Federal tax lien in

an amount totaling $68,243.27 in Hillsborough County, Florida.

On September 4, 1992, Mr. Stephens sent Mr. Kayian, Sr. a final

notice of intention to levy with respect to the respective taxes

that were shown due in the 1990 and 1991 joint returns that Mr.

Kayian, Sr. and Ms. Livingston had submitted to the Service.     On

June 8, 1993, Mr. Kayian, Sr. withdrew his 1987 through 1989

amended offer-in-compromise and his and Ms. Livingston's 1990-

1991 amended offer-in-compromise.   At the time of the initial

transfer, Mr. Kayian, Sr. was well aware (and Mr. Kayian, Jr. was

aware generally) of Mr. Kayian, Sr.'s 1987 through 1991 tax

liability, and Mr. Kayian, Sr. was bound to know that the Service

would levy on his property in order to collect that liability.

See Fla. Stat. Ann. sec. 726.105(2)(d).   (2) Mr. Kayian, Sr. did

not disclose in Mr. Kayian, Sr.'s Form 433-A or in discussions

with the Service that he owned the Aruba bonds.   Nor did he

disclose in that form or those discussions that he was receiving

payments with respect to those bonds, which started around August



     5
      It is noteworthy that a number of the badges of fraud
identified in the Florida fraudulent transfer statute could have
no application here because Mr. Kayian, Sr. died the day after he
made the initial transfer of the transferred properties to Mr.
Kayian, Jr.
                              - 39 -


1992 when the Service was attempting to collect Mr. Kayian, Sr.'s

1987-1989 unpaid tax liability as well as Mr. Kayian, Sr. and Ms.

Livingston's joint 1990 and 1991 tax liability.6    Mr. Kayian, Sr.

thus concealed assets from the Service.7    See Fla. Stat. Ann.

sec. 726.105(2)(g).   (3) Although Mr. Kayian, Sr.'s liability for

tax due for each of the years 1987 through 1989 arose on the date

on which his return for each such year was required to be filed,

Mr. Kayian, Sr.'s tax liability for each of those years was not

quantified until after the Service summoned him in early February

1992 with respect to his taxable years 1987 through 1989 and he

prepared and submitted to the Service returns for those years on

March 2, 1992, March 30, 1992, and April 13, 1992, respectively.

Those returns showed taxes due, and respondent assessed those

taxes, plus applicable additions to tax and interest, on May 4,

1992, May 18, 1992, and June 1, 1992, respectively.    In addition,

on June 5, 1992, and July 7, 1992, respectively, Mr. Kayian, Sr.

and Ms. Livingston submitted to the Service joint returns for

1990 and 1991, which showed taxes due.     When Mr. Kayian, Sr. gave

the transferred properties to Mr. Kayian, Jr., he was well aware


     6
      On the record before us, we reject petitioner's contention
that Mr. Kayian, Sr. did not disclose the Aruba bonds to the
Service because he thought those bonds were worthless.
     7
      It is also noteworthy that in answers to interrogatories
and in a financial affidavit, both of which he prepared with
respect to the Beatrice Kayian lawsuit, Mr. Kayian, Sr. did not
disclose that he owned the Aruba bonds.
                               - 40 -


of his 1987 through 1991 tax liability, and he was bound to know

that the Service would levy on his property in order to collect

that liability.    Moreover, at the time of the initial transfer,

Mr. Kayian, Sr. was bound to know that he had incurred substan-

tial medical expenses since he entered the hospital on August 6,

1993.    Indeed, in a statement regarding creditors that Ms.

Livingston filed in the probate proceeding around the end of

March 1994, many of the creditors that she listed were physicians

and medical facilities.    See Fla. Stat. Ann. sec. 726.105(2)(j).

(4) The effect of Mr. Kayian, Sr.'s having made the initial

transfer was, at a minimum, to hinder and delay and, at a max-

imum, to avoid the collection by the Service of Mr. Kayian, Sr.'s

1987-1989 unpaid tax liability.    See General Trading Inc. v. Yale

Materials Handling Corp., 119 F.3d at 1498-1499 (The courts must

"avoid determining in a vacuum the presence or absence of a

debtor's actual intent to hinder or delay a creditor.")

     Based on our examination of the entire record in these

cases, we find that respondent has established a presumption

under the Florida fraudulent transfer statute that Mr. Kayian,

Sr. made the initial transfer with a fraudulent intent within the

meaning of that statute and that petitioners have failed to rebut

that presumption.8   We hold that Robert Kayian and Nicholaus


     8
        Even without regard to the presumption established on the
                                                     (continued...)
                             - 41 -


Kayian are liable as transferees in amounts not exceeding $10,933

and $8,200, respectively, plus interest therein as provided by

law, for Mr. Kayian, Sr.'s 1987-1989 unpaid tax liability.

     To reflect the foregoing,

                                        Decisions will be entered

                                   for respondent.




     8
      (...continued)
instant record by the Florida fraudulent transfer statute, we
find on that record that Mr. Kayian, Sr. made the initial trans-
fer with a fraudulent intent within the meaning of the Florida
fraudulent transfer statute. In making our various findings
under the Florida fraudulent transfer statute, we have considered
all of the arguments and contentions of petitioners with respect
to that statute that are not addressed herein, and we find them
to be without merit.
