Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner of Internal Revenue

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After Hawk died, his wife, Nancy, decided to sell the family business, Holiday Bowl and made a deal with MidCoast, which claimed an interest in acquiring companies with corporate tax liabilities that it could set off against its net-operating losses. Holiday first sold its bowling alleys to Bowl New England, receiving $4.2 million in cash and generating about $1 million in federal taxes. Nancy and Billy’s estate then sold Holiday Bowl to MidCoast for about $3.4 million,"in essence exchanging one pile of cash for another minus the tax debt MidCoast agreed to pay." MidCoast never paid the taxes. The United States filed a transferee-liability action against Nancy and Hawk’s estate. The Tax Court ruled for the government. The Sixth Circuit affirmed, reasoning that the Hawks were transferees of a delinquent taxpayer under 26 U.S.C. 6901, and that Tennessee has adopted the Uniform Fraudulent Transfer Act, which provides remedies to creditors (like the United States) when insolvent debtors fraudulently transfer assets to third parties. Holiday Bowl owed taxes. “Congress, with assistance from the courts, has constructed a formidable defense against taxpayer efforts to traffic in net operating losses and other corporate tax benefits.” View "Billy F. Hawk, Jr., GST Non-Exempt Marital Trust v. Commissioner of Internal Revenue" on Justia Law