UNITED STATES OF AMERICA v. KIMBALL et al
Filing
46
DECISION AND ORDER granting in part (as to Count 1) and denying in part (as to Count 2) 40 Motion for Summary Judgment By JUDGE D. BROCK HORNBY. (jwr)
UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
UNITED STATES OF AMERICA,
PLAINTIFF
V.
JOHN H. KIMBALL, JR., AND
KIMBALL FAMILY REALTY TRUST,
DEFENDANTS
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CIVIL NO. 2:14-CV-521-DBH
DECISION AND ORDER ON PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT
In this federal tax lawsuit, the United States seeks two forms of relief:
(1) To reduce to judgment unpaid taxes, penalties and interest that it says the
individual taxpayer defendant John H. Kimball, Jr. owes the Internal Revenue
Service (Count One); (2) To enforce federal tax liens for those amounts against a
trust of which the defendant Kimball previously was trustee (Count Two).
I
GRANT the United States’s motion for summary judgment on Count One and
DENY it on Count Two.1
COUNT ONE: THE INDIVIDUAL’S TAX LIABILITIES
On Count One, the United States has presented “Certificates of
Assessments, Payments and Other Specified Matters” for each of the tax years
I accept all of the undisputed facts. Where facts are properly disputed, I take the version most
favorable to the nonmoving party. If a statement of facts is supported by record citations and not
properly controverted (here the United States did not respond to the Kimball Family Realty
Trust’s Statement of Additional Facts), I take the statement as undisputed. See Local Rule 56(c),
(f).
1
in question, for Kimball’s personal income taxes (2001-2004, 2007-2010) and for
employment taxes related to his law practice (2008-2011) for a total tax liability
in the amount of $1,090,700.05. (ECF No. 41). Kimball has not contested the
amounts due, saying only that he “is unaware of whether or when tax
assessments were made and unaware of the correct amount of tax liability owed,”
and that he is “aware that [he] has received some notices of assessments but is
unaware of whether the Plaintiff’s notices so describe[d] in its Statement of Facts
are accurate, complete, or the assessments which [he] has received.” Opp’n at
6-7 (ECF No. 42). That is insufficient to resist the United States’s motion for
summary judgment on Count One. The First Circuit cases are clear that these
Certificates “are ‘presumptive proof of a valid assessment.’ This presumption
places the burden of proof on [the defendant] to show that the IRS’s
determination is invalid.” Stuart v. United States, 337 F.3d 31, 35 (1st Cir. 2003)
(quoting Geiselman v. United States, 961 F.2d 1, 6 (1st Cir. 1992); Lefebvre v.
Commissioner of Internal Revenue, 830 F.2d 417, 419 n.3 (1st Cir. 1987) (“It has
long been the law, in this circuit and elsewhere, that the Commissioner’s
deficiency determination is presumed correct, and, in seeking a redetermination,
the taxpayer bears the burden of proof and persuasion to show otherwise.”).
In the absence of any affirmative showing by Kimball that the IRS
determination is invalid, the United States’s motion for summary judgment is
GRANTED on Count One. The United States is entitled to judgment as a matter
2
of law for unpaid taxes and penalties in the amount of $1,090,700.05, interest,
and other statutory additions accruing from and after March 11, 2016.2
COUNT TWO: TAX LIENS AGAINST THE TRUST
In 1989, Kimball, a Massachusetts resident, established under the laws of
Maine the Kimball Family Realty Trust. Kimball Family Realty Trust (Family
Trust) at ¶ 12 (ECF No. 42, Ex. 3). He named himself as Trustee and his five
children as beneficiaries. Id. at ¶ 12; Schedule of Beneficiaries (ECF No. 42, Ex.
4); Son’s Dep. at 20 (ECF No. 44, Ex. 7).3 The purpose of establishing the Family
Trust was to buy a ski condominium for his children: “I wanted to try to get
something for the kids that they would enjoy a continued benefit for. So, I bought
it full with the intention of me not owning it.” Kimball Dep. at 22 (ECF No. 44,
Ex. 1). As the original Trustee, Kimball had the power to alter or amend the
trust. Family Trust at ¶ 7.4 But if he actually revoked it in whole or in part, the
Family Trust document provided that the portion to which the revocation was
applicable must go to the beneficiaries, not to Kimball. Id.5 Kimball then funded
That is the date of the last IRS calculations. Statement of Material Facts (SOMF) at ¶ 1 (ECF
No. 41) (As noted above, the defendant qualifies this fact by stating that he is “unaware” of when
the tax assessments were made or the correct amount. Def. Kimball’s Opposing SOMF at ¶ 1
(ECF No. 44)); Bishop Decl. at ¶ 2 (ECF No. 41, Ex. 1).
3 The IRS took the depositions of both the individual defendant Kimball and his eldest son, John
H. Kimball, III. To avoid confusion, I will refer to the individual defendant’s deposition as “Kimball
Dep.” and the deposition of his son as “Son’s Dep.” In response to a Rule 30(b)(6) request, the
son testified on behalf of the Family Trust as a beneficiary because the trustee (his aunt) had
serious health issues. Son’s Dep. at 6 (ECF No. 44, Ex. 9). The son testified that his father
created the Family Trust “to give [the children] the property. And he felt as though a trust was
the best mechanism, vehicle to do so.” Id. at 14. The parties have not addressed whether the
latter is competent testimony within the scope of a Rule 30(b)(6) designation, but it is consistent
with what the father Kimball testified.
4 “The original TRUSTEE, while TRUSTEE, shall have the power to and may, at any time and
from time to time, alter, amend or revoke in whole or in part the terms and provisions of this
Trust . . . .” Family Trust at ¶ 7 (ECF No. 42, Ex. 3).
5 “In the event that the Trust is revoked, the TRUSTEE shall transfer and pay over the trust
property or the portion thereof to which said revocation is applicable to the Beneficiaries . . . .”
Id.
2
3
the Family Trust and, with the money he provided, the Family Trust purchased
a ski condominium at Mt. Abram, Maine, all in 1989. Son’s Dep. at 15-16. At
the time, Kimball did not have any tax liability.6 Kimball and his wife separated
in approximately 1991. Id. at 13. In August of 1993,7 Kimball resigned as
Trustee in favor of his sister, a lawyer who has done a lot of trust work. Id. at
12-13. The Family Trust by its terms thereupon became irrevocable.8 Over the
years, Kimball personally paid the condominium expenses, (utilities, taxes,
insurance, condo fees), which were modest. Son’s Dep. at 15, 25.9 The Family
Trust did not have a bank account. Id. at 19. While the children were young
and without driver’s licenses, Kimball drove them to the ski condominium for
The United States, on the one hand, “disputes that Kimball did not incur a tax liability at the
time the Property was purchased,” Reply at 7, n.4 (ECF No. 45), (I am not sure what “incur a tax
liability” means in this context) but adds: “Nevertheless, for the purpose of this motion, the
United States will assume that Kimball did not have a tax liability at that time.” Id. Thus, I
proceed on that assumption and do not credit the earlier assertion in its motion that:
[F]rom at least 1988 to at least 1995, Kimball did not timely file his federal income
tax return and he had a substantial federal tax liability. . . . Accordingly, the
Kimball Family Realty Trust, which was created shortly after Kimball began his
practice of not filing federal income tax returns was likely created as a result of
Kimball’s federal tax liabilities.
Mot. at 14 (ECF No. 40). The United States offers no support for the final inference of the reason
for creating the Trust. I also observe that the United States has not claimed a fraudulent transfer.
7 The record does not establish whether he had creditors at the time. Son’s Dep. at 51. The
United States says that Kimball failed to timely file income tax returns for years 1992, 1993,
1994, and 1995. Mary Bishop Decl. at ¶ 5. The failure to timely file for 1992 would have
happened after April 15, 1993. The United States says that in 1995 a revenue officer was
assigned to contact Kimball about the failure to file. SOMF at ¶ 10. (The defendant qualified part
of the facts proffered by the United States in ¶ 10 but did not dispute this discrete fact. Def.
Kimball’s Opposing SOMF at ¶ 10 (ECF No. 44).) The returns were submitted in 1996. Bishop
Decl. at ¶ 5. Kimball’s Additional Facts (not disputed) say that Kimball “did not have any tax
liability, tax assessments or levies resulting therefrom.” Def. Kimball’s Add’l Statement of Facts
at ¶ 10.
8 The trust provided for revocation only by the original trustee. Family Trust at ¶ 7. Even then,
unlike the typical inter vivos revocable trust, it provided that upon revocation the trust property
would be paid to the beneficiaries, i.e., not to the settlor. Id.
9 When they were not at the ski condo (which was most of the time), the temperature was set at
about 50 degrees, and the water was shut off. Son’s Dep. at 25. Def. Family Trust’s Add’l
Statement of Facts at ¶ 14 (“nominal covering basic maintenance and expenses only”) (ECF No.
42).
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family vacation time. Id. at 19, 32.10 Kimball did not use (or very rarely used)
the ski condominium in the absence of his children, and he never rented it to
others to generate income.
Id. at 17.11
Kimball has not visited the ski
condominium since 2000-2001. Id. at 18.
In 2010, the United States filed notices of federal tax liens against the
Family Trust’s ski condo in the Oxford County Registry of Deeds. Statement of
Material Facts at ¶ 6 (ECF No. 41).12 Those liens arose only upon the dates of
the IRS assessments. Id. at ¶ 7.13 The earliest such assessment is December
26, 2006. Id. at ¶ 1.14 Kimball and his wife divorced in 2012, and according to
the eldest son she died that year. Son’s Dep. at 13, 18. The children, now all
adults, have their own keys to the condo. Id. at 18.15 Kimball “does not use the
Property as a vacation home, never resided there, does not control it, and has
The oldest son testified that he got his driver’s license in 1993, but the father continued to
drive the children to the condo for a time. Son’s Dep. at 21.
11 In deposing the defendant’s eldest son, the United States tried to establish that Kimball could
use the property on his own, but the son insisted that was only “Theoretically, because he had
the key. But, in actuality, no.” Son’s Dep. at 21, 22, 33, 41-42 (in the last page reference, the
government lawyer, despite the earlier denials, posed the question: “Whenever Mr. Kimball, Jr.
used the property without his children, did he pay to use that property?” and the son answered:
“It was a rarity, I think, if that ever occurred. If that did occur, what he would do was continue
to contribute to the trust.”). The settlor/original trustee, himself, testified similarly: “If I have
used it with the kids or a couple of times on my own, I can pay for it by paying for the taxes and
the common charges and stuff, sort of like a rent.” Kimball Dep. at 19.
12 The defendant Family Trust qualified some of the facts stated in ¶ 6 but acknowledges that
the United States filed the notices against the ski condo. Opp’n Facts at ¶ 6.
13 The defendant Family Trust claims to be unaware of either when the assessments were made
or the correct amount of tax liability. Id. at ¶ 7.
14 The defendant Family Trust claims to be unaware of when the assessment occurred. Id. at
¶ 1.
15 When the children were younger, Kimball had the key. Son’s Dep. at 21. The record does not
reveal whether Kimball still has a key. When asked if his father still retained a key, the son
testified, “My father hasn’t been up there in probably since the early 00s. He had a motorcycle
accident. When we were younger, he would take us up there. But, I think, the last time he was
probably up there might have been 2000, 2001.” Id. at 18.
10
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not been to the Property in nearly 16 years.” Def. Family Trust’s Add’l Statement
of Facts at ¶ 11 (ECF No. 42).16
The United States’s argument for relief on Count Two is straightforward.
The United States argues that when unpaid taxes are assessed, a federal tax lien
“attaches to all property and rights to property the taxpayer then holds or
subsequently acquires. To satisfy a taxpayer’s tax liability, the IRS may collect
from assets held in the name of a nominee of the taxpayer.” Mot. at 10-11 (ECF
No. 40).
The United States argues that the Family Trust is holding the ski
condominium as Kimball’s nominee and that the IRS should be able to enforce
its tax liens on the condominium for Kimball’s personal tax liabilities. Id. at 11.
It has not argued that the creation or funding of the Family Trust was a
fraudulent transfer.
But while the United States’s argument is straightforward, the proper
analysis of who or what is a nominee for federal tax lien purposes is complex.
The term “nominee” does not originate in the Internal Revenue Code, but (like
“alter ego”) in various court decisions.17 The usual reference is to G.M. Leasing
Because the United States did not respond to the Additional Statement of Facts, I take this as
undisputed.
17 “There is no direct statutory authority for nominee liens. Sections 6321 and 6322 are the
statutes that support the creation of federal tax liens; they do not, however, refer to nominee
liens . . . . The Supreme Court in GM Leasing and other decisions ha[s] sanctioned the use of
nominee liens.” William D. Elliott, Federal Tax Collections, Liens, & Levies at ¶ 9.10[1] (2016).
See generally Stephanie Hoffer et al., To Pay or Delay: The Nominee’s Dilemma under Collection
Due Process, 82 Tulane L. Rev. 781, 806-21 (2008). The Internal Revenue Manual states the
following about nominees:
(1) A “nominee” is someone designated to act for another. As used in the federal
tax lien context, a nominee is generally a third-party individual who holds
legal title to property of a taxpayer while the taxpayer enjoys full use and
benefit of that property. In other words, the federal tax lien extends to property
“actually” owned by the taxpayer even though a third party holds “legal” title
to the property as nominee. Generally speaking, the third party in a nominee
situation will be either another individual or a trust.
16
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Corp. v. United States, 429 U.S. 338 (1977). There, the Supreme Court observed
that under 26 U.S.C. § 6321, the assessments against a taxpayer “were a lien in
favor of the United States upon all property belonging to [the taxpayer].
If
petitioner was [the taxpayer’s] alter ego, . . . [i]t would then follow that the
Service could properly regard petitioner’s assets as [the taxpayer’s] property
subject to the lien under § 6321 . . .” Id. at 350-51. But in G.M. Leasing, the
Court explicitly avoided deciding whether the petitioner in that case was the
taxpayer’s alter ego, observing that its grant of certiorari did not include that
question and that it accepted for purposes of the decision that the petitioner was
the taxpayer’s alter ego without deciding the issue. Id. at 351.
(2) A nominee situation generally involves a fraudulent conveyance or transfer of
a taxpayer’s property to avoid legal obligations. To establish a nominee lien
situation, it must be shown that while a third party may have legal title to the
property, it is really the taxpayer that owns the property and who enjoys its
full use and benefit. If state law is undeveloped or underdeveloped as to the
issue of nominee ownership, contact Area Counsel for assistance.
(3) No one factor determines whether a nominee situation is present, but a
number of factors taken together may. The following list is neither exhaustive
nor exclusive, but nominee situations typically involve one or more of the
following:
(a.) The taxpayer previously owned the property.
(b.) The nominee paid little or no consideration for the property.
(c.) The taxpayer retains possession or control of the property.
(d.) The taxpayer continues to use and enjoy the property conveyed just as the
taxpayer had before such conveyance.
(e.) The taxpayer pays all or most of the expenses of the property.
(f.) The conveyance was for tax avoidance purposes.
Internal Revenue Manual § 5.17.2.5.7.2 (2016). “The Internal Revenue Manual . . . is a
compilation of instructions promulgated by the Internal Revenue Service for the guidance of its
employees when administering the tax laws.” Archie W. Parnell, Jr., The Internal Revenue
Manual: Its Utility and Legal Effect, 32 Tax Lawyer 687 (1978). “[T]he Manual should not be
considered to be binding on the courts or the Service but merely a guide for the interpretation
and execution of the Code.” Id. at 696-97.
[P]rocedural rules [in the Manual] are “directory” instructions to IRS employees
designed to promote efficient administration; and this means that taxpayers
derive no legal rights from an IRS employee's breach of instructions and cannot
compel compliance. If, however, a particular rule is intended to confer procedural
rights on taxpayers (a “mandatory” rule) or if the failure to comply is arbitrary, the
courts sometimes undertake to compel IRS compliance.
Martin J. McMahon & Lawrence A. Zelenak, Federal Income Taxation of Individuals ¶ 46.01[3]
(2016).
7
In United States v. Craft, 535 U.S. 274 (2002),18 the Supreme Court
described how to decide whether property, or rights to property, belong(s) to a
taxpayer for purposes of the federal tax lien statute, 26 U.S.C. § 6321:
[It] is ultimately a question of federal law. The answer to this
federal question, however, largely depends upon state law.
The federal tax lien statute itself “creates no property rights
but merely attaches consequences, federally defined, to
rights created under state law.” Accordingly, “[w]e look
initially to state law to determine what rights the taxpayer has
in the property the Government seeks to reach, then to federal
law to determine whether the taxpayer’s state-delineated
rights qualify as ‘property’ or ‘rights to property’ within the
compass of the federal tax lien legislation.”
Id. at 278 (emphasis added) (internal citations omitted); accord Drye v. United
States, 528 U.S. 49, 58 (1999). In assessing “nominee” status in a trust case,
the First Circuit likewise starts with state law, see Dalton v. Commissioner, 682
F.3d 149, 157 (1st Cir. 2012).
In Dalton, the First Circuit stated that “[i]n
connection with real property, Maine recognizes the nominee doctrine.
This
doctrine allows for the possibility that the true owner of a parcel of land may be
someone other than the record owner.” Id. The First Circuit referred to a single
Maine Law Court decision, Atkins v. Atkins, 376 A.2d 856 (Me. 1977), as
invoking a three-factor test, and said that “Maine case law does not fully
delineate the contours of the nominee doctrine.” 682 F.3d at 157. But in Dalton,
the First Circuit explicitly did not “determine whether the IRS applied the correct
rule of law” in that Maine-law case, id., because the only issue was whether the
IRS acted reasonably in its rejection of a minimal settlement proposed in a
Collection Due Process appeal by the taxpayers. Id. at 157-59; See generally
In Craft the issue was whether a tenant by the entirety possessed property or rights to property
to which a federal tax lien could attach. The Court concluded that the answer was yes.
18
8
Adam M. Cole, Note, A Preference for Deference: The Benefits of the First Circuit’s
Customized Standard of Review for Collection Due Process Appeals in Dalton v.
Commissioner, 58 Vill. L. Rev. 239 (2013). In evaluating IRS reasonableness in
Dalton, the First Circuit also described what courts other than Maine’s do in
determining a nominee relationship, describing them as “balancing a series of
factors.” Id. at 158.19
Unlike Dalton, I must actually decide the Maine law issue here. In doing
so, I look at Atkins, a more recent Maine decision, MERS v. Saunders, 2010 ME
79, 2 A.3d 289, and other Maine law sources in deciding what rights Kimball has
in the ski condominium.
First, I consider Maine trust law. When Kimball created this Family Trust,
when he resigned as trustee, and when he last visited the ski condo, Maine had
not yet adopted the Uniform Trust Code. During all this time, Maine trust law
was governed by the “modest” provisions of the Maine Uniform Probate Code’s
Article VII “Trust Administration”20 and the decisions of the Maine Law Court.
The Maine Uniform Probate Code provided limited rules regarding registration of
Berkshire Bank v. Town of Ludlow, 708 F.3d 249 (1st Cir. 2013), is another First Circuit case
dealing with nominee status in the context of a federal tax lien. But for the most part it provides
no precedential value here because, as the First Circuit explicitly noted, the parties never argued
the state law component of determining what rights a nominee had. The First Circuit
therefore assume[d], without deciding, that [the taxpayer] had an adequate
interest in the . . . property under Massachusetts law, because [the competing
creditor] has waived any claim to the contrary. We will also assume, again
because [the competing creditor] has not argued otherwise, that it was appropriate
for the district court to apply the federal nominee test.
Id. at 252. (Berkshire Bank was a case where the documents clearly denominated the other
entity as “nominee.” Id. at 250.) Nevertheless, one statement does seem to create nominee law
for this Circuit: “The ultimate inquiry in a nominee case ‘is whether the taxpayer has engaged in
a legal fiction by placing legal title to property in the hands of a third party while actually
retaining some or all of the benefits of true ownership.’” Id. at 254. (quoting Holman v. United
States, 505 F.3d 1060, 1065 (10th Cir. 2007). I address that test at the end of this Order.
20 See 18-B M.R.S.A. (2015) Uniform Gen. Cmt. Prefatory Note: “Article VII, although titled ‘Trust
Administration,’ is a modest statute, addressing only a limited number of topics.”
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trusts (18-A M.R.S.A. §§ 7-101 – 7-105), the jurisdiction of courts concerning
trusts (18-A M.R.S.A. §§ 7-201 – 7-206), the duties and liabilities of trustees (18A M.R.S.A. §§ 7-301 – 7-307), and the powers of trustees (18-A M.R.S.A. §§ 7401 – 7-408). However, the Maine Uniform Probate Code was silent regarding
the rules on drafting trusts or even what types of trusts could be created.
But there is no question that the Maine Law Court recognized the type of
inter vivos trust that Kimball created in 1989. The law on “gifts by declaration
in trust” was already “well established in this state.” Rose v. Osborne, 180 A.
315, 317 (Me. 1935). “It is not essential . . . that the donor should part with the
possession in the cases where he . . . declares a trust.” Bath Savings Inst’n v.
Fogg, 63 A. 731, 733 (Me. 1906) (quoting approvingly Pomeroy’s Equitable
Jurisprudence). “The mere fact that the settlor appoints himself trustee and
retains powers to revoke the trust and to use the trust corpus for his own benefit
during his lifetime is not in itself a sufficient basis for regarding an inter vivos
trust as incomplete . . .” Staples v. King, 433 A.2d 407, 410 (Me. 1981) (citing
Restatement (Second) of Trusts § 26, cmt. h) (Am Law Inst.). “[R]eservation of
the power of amendment or revocation” does not “alter our conclusion that the
children’s interests vested.” First Nat. Bank of Bar Harbor v. Anthony, 557 A.2d
957, 959 (Me. 1989). Moreover, in the case of trust bank accounts, neither
additional deposits nor withdrawals of earned interest by the trustee
extinguished the trust. Cazallis v. Ingraham, 110 A. 359, 362 (Me. 1920).
Before Maine enacted the Uniform Trust Code, the presumption in Maine
was that a trust was irrevocable unless it stated otherwise. See Rose, 180 A. at
318 (“Where the word ‘trustee’ appears on a bank book, indicating that it is a
10
trust fund, there is raised the presumption that an irrevocable trust was
intended and is sufficient proof of it in the absence of other controlling proof.”).
In this case, the Family Trust document states clearly that the trust is revocable,
but with two important caveats: first, only the Original Trustee can revoke the
trust and, second, if he does so, the portion of the trust property to which the
revocation is applicable goes to the beneficiaries outright.21 Under no condition
does the property revert to Kimball, the Settlor. Thus, this Family Trust is unlike
the typical revocable trust (and trusts created under Maine’s later adoption of
the Uniform Trust Code) where a settlor retains the unrestricted right to revoke
for his own benefit and, as a result, creditors can execute against the trust
assets. 18-B M.R.S.A. §§ 602(1), 505(1)(A).22 There is no suggestion on the
summary judgment record that Kimball failed to establish a valid trust under
Maine law or that his resignation and the appointment of a successor trustee
were invalid. As a result, under this trust instrument, after Kimball’s resignation
in 1993, the Family Trust could not be revoked, even for the benefit of the
beneficiaries.23 “If a[n irrevocable] trust be created, no later act of the donor,
whether impulse by good or by bad, can destroy it.” Cazallis, 110 A. at 361.
See notes 4 and 5, supra.
Maine’s adoption of the Uniform Trust Code reversed the presumption of irrevocability. The
Maine Uniform Trust Code states: “Unless the terms of a trust expressly provide that the trust
is irrevocable, the settlor may revoke or amend the trust. This subsection does not apply to a
trust created under an instrument executed before July 1, 2005.” 18-B M.R.S.A. § 602 (2015);
Uniform Cmt. (“Subsection (a), which provides that a settlor may revoke or modify a trust unless
the terms of the trust expressly state that the trust is irrevocable, changes the common law.”).
18-B M.R.S.A. § 505(1)(A) states: “During the lifetime of the settlor, the property of a revocable
trust is subject to claims of the settlor’s creditors.”
23 By its terms, it now expires twenty years after Kimball dies. Family Trust at ¶ 10.
21
22
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I turn next to Maine law on nominees. Atkins was not a trust case, but a
case where a divorced spouse was seeking her spousal share of a piece of real
estate that had been paid for by her husband and titled in the name of her son.
376 A.2d at 858. Atkins did not use the term “nominee,” but dealt with whether
the husband was the equitable owner, such that the wife was entitled to a
spousal share of the property. Id. at 859. In reversing the trial court’s summary
judgment ruling against her, the Maine Law Court pointed to the facts that the
husband had furnished the down payment, taken depreciation for the property
on his own income tax return, and paid the taxes and insurance on the property
through a company that he owned: “Whether these facts are sufficient to warrant
a finding that [the husband] was, in fact, the beneficial owner was a question for
the jury.” Id.24
Does the summary judgment record viewed in the light most favorable to
the Family Trust, the nonmoving party, demonstrate that as a matter of law
Kimball was the “beneficial owner” of the ski condo under Atkins? I conclude
that it does not. First, it is “standard common-law doctrine” that a trustee holds
a “nonbeneficial” ownership and that it is the beneficiaries of the trust who hold
beneficial interests or equitable title while the trustee ordinarily “holds ‘bare’
legal title.” Restatement (Third) of Trusts § 42 and cmts. a, c. (Am. Law Inst.)25
Apparently that is the source of what the Dalton court called the three-part test.
The Maine Law Court has consistently cited the Restatement of Trusts as persuasive authority
in deciding matters of trust law. See, e.g., Estate of Wilde, 1998 ME 55 ¶ 8, 708 A.2d 273, 278
(“[W]e conclude that the Restatement of Trusts best articulates the proper measure of damages
for a trustee’s breach of fiduciary duty.”); Newick v. Mason, 581 A.2d 1269, 1272 (Me. 1990)
(citing the Restatement of Trusts as persuasive authority for trust construction); Louisa T. York
Orphan Asylum v. Erwin, 281 A.2d 453 (Me. 1971) (citing an official comment in the Restatement
of Trusts for a “universally accepted rule”); Swasey v. Chapman, 156 A.2d 395, 417 (Me. 1959).
When a trust is irrevocable, creditors can only reach trust property of the settlor “that can be
24
25
12
Such labels of course are not determinative in assessing Kimball’s rights in the
Family Trust property.
But second, under the terms of this Family Trust,
Kimball was not a beneficiary and, although he had power to revoke the trust
before he resigned in 1993, such a revocation could not benefit him. It could
only transfer title immediately to the beneficiaries.
It is true that Kimball
furnished the money to buy the ski condominium (like Atkins), and paid the real
estate taxes and insurance (like Atkins), but there is no evidence that he treated
the property as his own on his federal income tax return (unlike Atkins).26
Moreover, by the time the earliest assessment in question was made (December
2006), the trust was irrevocable, Kimball was no longer trustee, he had not
visited the Family Trust property in five years, and the beneficiaries were
adults.27 At best, then, whether Kimball “was, in fact, the beneficial owner [is] a
question for the jury.” Atkins, 376 A.2d at 859.
distributed for the settlor’s benefit.” 18-B M.S.R.A. § 505(1)(B); Restatement (Third) of Trusts
§ 42 cmt. C (Am. Law Inst.). That may explain why earlier bankruptcy and divorce proceedings
against Kimball did not reach the Trust or the ski condo (according to the Family Trust’s
Additional Statement of Facts at ¶¶ 16, 18, which were not disputed). But the Additional
Statement says only that “it was determined” during the proceedings, not differentiating whether
the court determined or whether one or more parties simply decided to proceed on that basis. I
have not been able to verify that assertion independently because the reported bankruptcy
decisions do not mention it. In re Kimball, No. 99-13592-WCH, 2001 WL 260078 (Bankr. D
Mass. Jan. 18, 2001), aff’d, No. 99-13592-WCH, 2002 WL 441986 (D. Mass. Feb. 27 2002). (The
Trust has not referred to a specific document or transcript of the bankruptcy proceedings to
support the assertion). I also do not have access to the Massachusetts divorce proceedings. The
United States says that the IRS was a creditor in Kimball’s chapter 11 proceedings, but does not
tell me whether it obtained any assets or whether it attempted then to reach the trust property.
Bishop Decl. at ¶ 5.
26 The defendant Family Trust claims the contrary, that Kimball “never listed the parcel as
depreciable property on his income tax return.” Opp’n. at 16 (ECF No. 42). But it provides no
record support for the assertion. Moreover, one might wonder why Kimball would list it as
depreciable if it was not income-producing property. More pertinent would be whether Kimball
took a deduction on his personal return for the ski condo real estate taxes he paid, but that is
not revealed on this record.
27 The son testified that his youngest sibling, Luke, was five years old in 1993, Son’s Dep. at 21,
which would make him at least 18 years old by December of 2006.
13
MERS also was not a trust case, but a mortgage case where the mortgage
documents explicitly denominated Mortgage Electronic Registration Systems
“solely as the ‘nominee’ to the lender.” 2010 ME 79 at ¶ 9. The Maine Law Court
stated: “A nominee is a ‘person designated to act in place of another, usu[ally] in
a very limited way,’ or a ‘party who holds bare legal title for the benefit of others
or who receives and distributes funds for the benefit of others.’” Id. at ¶ 10.
Kimball, no longer the trustee, does not fit the definition of a “person designated
to act in place of another.” Kimball’s sister as trustee does hold “bare legal title
for the benefit of others,” but here the “others” are not Kimball the trust settlor
and taxpayer but are instead the trust beneficiaries, Kimball’s adult children.
Like Atkins, the MERS definition of nominee does not entitle the United States
to summary judgment that Kimball currently has a property interest under
Maine law in the Trust assets.
So what is the basis for ignoring the Family Trust here as an entity
separate from Kimball? The United States presents the following grounds for
finding nominee status:
1.
Kimball, as donor/settlor/trustee of the Kimball
Trust, provided the funds for the purchase of the
Property, as in Dalton and Berkshire Bank. See
Kimball III (30(b)(6) Deponent for the Trust), Depo. p.
20:14-22; p. 48:3-6 (hereinafter, “Kimball III Depo.”),
attached hereto as Exhibit 1.
2.
Even though Kimball had served as the trustee of the
Kimball Trust, until being replaced by his sister,
neither Kimball’s sister nor the Kimball Trust paid
Kimball any consideration for the Property, as in
Dalton. Kimball III Depo. p. 48:7-24.
3.
Kimball makes all payments for the Property’s
upkeep, including condominium fees, utilities, and
14
real estate taxes, as in Dalton. Kimball III Depo. p.
19:7-20.
4.
Kimball uses or has used the Property as a family
vacation home, indicating that he treated it as his
own, as in Dalton and Berkshire Bank. Kimball III
Depo. p. 48:7-24.
5.
The beneficiaries of the Kimball Trust are the [sic]
Kimball’s children, as in Dalton.
6.
No one, other than Kimball, would take the children,
i.e., the beneficiaries of the Property, which
establishes that Kimball was in control of the
Property, as in Dalton and Berkshire Bank.
7.
The Kimball Trust itself habitually has operated with
minimal attention to records or other indicia of
independent existence, as in Dalton and Berkshire
Bank.
8.
Kimball hand-picked the present trustee, who is a [sic]
Kimball’s sibling, as in Dalton.
9.
Other than the trust agreement itself, Kimball and the
Kimball Trust have no written lease or other
documentation of their asserted relationship, as in
Dalton.
10.
The Kimball Trust does not have a separate bank
account apart from Kimball himself, as in Berkshire
Bank.
11.
The relationship between the Kimball Trust and
Kimball, himself, could not be closer; no one other
than Kimball’s sister (or children) had any interest in
the Property, made decisions for the Kimball Trust or
benefited from the Kimball Trust, as in Berkshire
Bank.
12.
Although Kimball claims that he did not have a tax
liability when the Kimball Trust was initially formed –
which, coincidentally, was formed one day prior to the
purchase of the Property – Kimball later incurred a
significant tax liability, as in Berkshire Bank.
13.
The defendants admit that if the trust agreement did
not exist, the Property itself would simply be Kimball’s
family vacation home. This factor plainly indicates
that the Kimball Trust is nothing more than a proxy
for Kimball, as in Dalton and Berkshire Bank.
15
Reply at 8-9 (ECF No. 45) (footnote omitted).28
Some of these assertions are typical of any inter vivos trust (funds donated;
no consideration; children as beneficiaries; trustee designating a successor).
They must be weighed cautiously in assessing nominee status. Creation of inter
vivos trusts is a longstanding and widespread estate planning technique,
Restatement (Third) of Trusts § 25 cmt. A (Am. Law Inst.), used often when
beneficiaries are young. It is not uncommon for settlors to act as their own
trustees initially. Id.29 Since the IRS is not charging Kimball with fraudulent
The classic listing of factors is Towe Antique Ford Foundation v. IRS, 791 F. Supp. 1450, 1454
(D. Mont. 1992) (“(a) No consideration or inadequate consideration paid by the nominee;
(b) Property placed in the name of the nominee in anticipation of a suit or occurrence of liabilities
while the transferor continues to exercise control over the property; (c) Close relationship
between transferor and the nominee; (d) Failure to record conveyance; (e) Retention of possession
by the transferor; and (f) Continued enjoyment by the transferor of benefits of the transferred
property.”), quoted in Oxford Capital Corp. v. United States, 211 F.3d 280, 284 n.1 (5th Cir.
2000). Towe “was the first decision to amalgamate factors used in other courts’ decisions.”
Stephanie Hoffer et al., To Pay or Delay: The Nominee’s Dilemma Under Collection Due Process,
82 Tul. L. Rev. at 809. Reaching beyond Maine law, the First Circuit identified these factors in
Dalton:
Almost universally, courts weigh the existence of a nominee relationship by
balancing a series of factors, including but not limited to whether the
consideration paid by the putative nominee was adequate, whether the property
was transferred in anticipation of liability, whether a close relationship exists
between the transferor and putative nominee, whether the transferor retains
possession and/or use of the property notwithstanding the transfer, and whether
the transferor continues to enjoy the benefits of the property. Courts also have
viewed as relevant whether the transferor furnishes the funds used to purchase
the property, whether the transferor is providing the wherewithal needed to
maintain the property post-transfer, and whether the transferor continues to treat
the property as his own. Virtually without exception, courts focus on the totality
of the circumstances without regarding any single factor as the sine qua non of a
nominee relationship.
Dalton v. Commissioner, 682 F.3d 149, 158 (1st Cir. 2012) (citations omitted). I note that even
if the contours of Maine’s nominee doctrine are so inconclusive that it is necessary to apply the
general common law factors summarized by the First Circuit in Dalton, the United States still
would not be entitled to summary judgment on this record.
29 It is true that as long as an inter vivos trust is revocable, it is customary to treat the trust
property “as if it were property of the settlor and not of the beneficiaries,” Restatement (Third) of
Trusts § 25 cmt. a (Am. Law Inst.), because the settlor retains complete control over the property
until the trust is revoked or the settlor dies. Id. Therefore it is subject to the claims of creditors
of the settlor. Id. cmt. c. The Maine Uniform Trust Code applies this rule at 18-B M.R.S.A.
§ 505(1)(A). But the Family Trust became irrevocable when Kimball resigned in favor of his sister
28
16
transfers, nothing prevented him in 1989 from making an outright gift to others
or, in this case, a gift in trust for the benefit of his children so that the ski condo
could ultimately pass to them without going through probate. See id. Under the
terms of the Family Trust, Kimball could not revoke it for his own benefit. Upon
his resignation in 1993 it became altogether irrevocable,30 and Kimball has not
been present at the ski condominium since 2001.
But other assertions in the list above—for example, the lack of a trust bank
account, Kimball’s payment of expenses from his personal account, Kimball’s
manner of using the ski condo, his contested tax status at the time he created
the trust (although I do not consider his tax status on the summary judgment
record, the United States might be able to prove at trial that Kimball was in tax
jeopardy)—might persuade a factfinder that the Family Trust was and remains
a fiction and that Kimball treated the ski condo as his own.
According to
Berkshire Bank v. Town of Ludlow, “[t]he ultimate inquiry in a nominee case ‘is
whether the taxpayer has engaged in a legal fiction by placing legal title to
property in the hands of a third party while actually retaining some or all of the
benefits of true ownership.’” 708 F.3d 249, 254 (1st Cir. 2013) (quoting Holman
v. United States, 505 F.3d 1060, 1067-68 (10th Cir. 2007)). The nominee issue
is fact-intensive and, according to Dalton, involves the “totality” of the
circumstances. 682 F.3d at 158.
as trustee, and even while it was revocable, only the beneficiaries (not Kimball) could obtain
property resulting from revocation.
30 The United States has not argued that in 1993 Kimball made a fraudulent transfer by making
it irrevocable.
17
Returning to the Craft standard, then, on this summary judgment record,
I cannot say as a matter of law that after Kimball resigned as Trustee in 1993 he
personally had “state-delineated rights” in the Family Trust property that would
“qualify as ‘property’ or ‘rights to property’ within the compass of the federal tax
lien legislation.” 535 U.S. at 278. A factfinder could find that, before any tax
lien arose with respect to the property, the combination of Kimball’s resignation
as trustee, the trust becoming irrevocable, the adulthood of the beneficiaries,
and Kimball’s having no further presence at the ski condo, resulted in his having
no state-delineated rights to the property.
Accordingly, the United States’s motion for summary judgment on Count
Two is DENIED.
SO ORDERED.
DATED THIS 24TH DAY OF JUNE, 2016
/S/D. BROCK HORNBY
D. BROCK HORNBY
UNITED STATES DISTRICT JUDGE
18
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