United States of v. Evseroff, et al
MEMORANDUM AND ORDER. For the reasons set forth in the attached Memorandum and Order, the government may proceed to collect against all assets held by the Trust established by the defendant Jacob Evseroff. The Clerk of the Court is respectfully requested to enter judgment in favor of the United States and to close the case. Ordered by Judge Kiyo A. Matsumoto on 04/30/2012. (Ravi, Sagar)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
MEMORANDUM & ORDER
- against 00-CV-06029 (KAM)
JACOB EVSEROFF, ET AL.,
Matsumoto, United States District Judge:
This case arises out of efforts by the United States (the
“government”) to collect taxes owed by Jacob Evseroff (“Evseroff”)
by accessing assets currently held by a trust that Evseroff
established in 1992 for the benefit of his two sons (the “Trust”).
The United States argues that Evseroff’s attempts to transfer various
pieces of his own property to the Trust should not frustrate the
government’s collection efforts under several legal theories.
bench trial was held before Judge David G. Trager on November 7 and
8, 2005, and a post-trial order was entered on September 27, 2006
that rejected the government’s claims, holding that the Trust
property could not be used to satisfy Evseroff’s tax debts (the
The government appealed the Post-Trial Order, and on March
21, 2008, the United States Court of Appeals for the Second Circuit
reversed and remanded.
In its remand order, the Second Circuit
directed the district court to reconsider its findings regarding
whether certain conveyances by Evseroff to the Trust were actually
fraudulent and whether the Trust was Evseroff’s alter ego or held
property as his nominee.
For the reasons discussed below, the
government may collect on all property held by the Trust.
This case has been discussed in several prior opinions.
See United States v. Evseroff, No. 00-CV-6029, 2001 WL 1571881
(E.D.N.Y. Nov. 6, 2001) (entering judgment on the judgment of the
United States Tax Court regarding Evseroff’s tax liability)
(“Evseroff I”); United States v. Evseroff, No. 00-CV-6029, 2002 WL
1973196 (E.D.N.Y. July 8, 2002) (allowing Evseroff to designate an
expert to testify as to the value of his assets and ordering that
interest on Evseroff’s tax debts continue to accrue) (“Evseroff II”);
United States v. Evseroff, No. 00-CV-6029, 2003 WL 22872522 (E.D.N.Y.
Sept. 30, 2003) (denying the government’s summary judgment motion
on its claim to access the Trust’s assets) (“Evseroff III”); Evseroff
v. United States, No. 03-CV-0317, 2004 WL 3127981 (E.D.N.Y. Sept.
22, 2004) (rejecting Evseroff’s claim under the Taxpayer Bill of
Rights) (“Evseroff IV”); United States v. Evseroff, No. 00-CV-6029,
2006 WL 2792750 (E.D.N.Y. Sept. 27, 2006) (finding, after a bench
trial, that the government could not access assets held by the Trust)
(“Evseroff V” or the Post-Trial Order).
It is assumed that the
reader has some familiarity with these decisions and, therefore, the
relevant facts and procedural history are described only as necessary
Evseroff’s tax liability arose primarily from his decision
to invest in a series of tax shelters between 1978 and 1982 that
generated deductions which were later disallowed by the Internal
Revenue Service (“IRS”).
Evseroff III, 2003 WL 22872522, at *1.1
Evseroff was first notified that he had outstanding tax liabilities
in December 1990, when he received a letter from the IRS after being
This letter indicated that he owed $227,282 in taxes and
Evseroff V, 2006 WL 2792750, at *1.
another letter from the IRS in January 1991, and the parties
stipulated that, as of December 6, 1990, Evseroff owed $647,549.40
in back taxes and accrued interest.
In January of 1992, the
IRS sent Evseroff a notice of deficiency indicating that he had
accrued more than $700,000 in tax liability.
Id. at *2.
Also in January of 1992, Evseroff met with an attorney to
set up the Trust.
It is unclear whether Evseroff first met with
the attorney about the Trust before or after receiving the January
1992 letter from the IRS.
In April 1992, Evseroff challenged
the IRS’s calculation of his tax liabilities in a petition to the
The IRS also assessed additional liabilities based on Evseroff’s
1991, 1992, and 1996 tax returns. Evseroff III, 2003 WL 22872522, at *6.
United States Tax Court.
In June 1992, the Trust was created,
with Evseroff’s sons as the named beneficiaries.
WL 22872522, at *2.
Evseroff III, 2003
Also in June 1992, Evseroff transferred
approximately $220,000 to the Trust (“the $220,000”).
October 1992, Evseroff transferred his primary residence, located
at 155 Dover Street in Brooklyn (“the Dover Street Residence”), to
In November of 1992, the Tax Court entered judgment
against Evseroff in the amount of $209,113 in taxes and penalties
and $560,000 in interest.
Evseroff V, 2006 WL 2792750, at *2.
The particulars of the transfer of the Dover Street
Residence are set forth here in detail.
Evseroff received no
consideration for the deed transferring the Dover Street residence
to the Trust.
(See Deposition of Jacob Evseroff dated February 7
and 21, 2002 (“J. Evseroff Dep.”), Ex. 12 (the “Transfer
Pursuant to the Transfer Agreement3, Evseroff was
allowed to live in the house and pay the expenses as he had before.
All deposition transcripts and exhibits referenced herein were
admitted into the trial record, subject to relevance objections. (See Transcript
of Trial held on November 7 and 8, 2005 (“Tr.”) at 86-87.)
The Transfer Agreement also appears to transfer a Florida residence
owned by Evseroff to the Trust in October 1992. (See J. Evseroff Dep., Ex. 12.)
It appears, however, that title to the Florida residence remained with Evseroff,
see Evseroff V, 2006 WL 2792750, at *3, and thus the transfer of the Florida
residence to the Trust apparently never took place. In any case, the status of
the Florida residence is not material to the outcome here. The government does
not claim that such a residence was fraudulently conveyed. Moreover, if the
Florida residence had been conveyed to the Trust, it would only further indicate
the weakness of Evseroff’s financial condition after the two conveyances at issue
here and thereby support the legal conclusions detailed below.
Evseroff did not pay the Trust any cash rent, but he was
responsible for the expenses of the Dover Street Residence, such as
the mortgage and taxes on the property.
Transfer Agreement specified no end date after which Evseroff’s right
to live in the Dover Street Residence expired.
There is no
evidence that the Trust assumed Evseroff’s mortgage obligations.
The Transfer Agreement did not give Evseroff the power to sell the
home, id., and Evseroff never attempted to do so, Evseroff V, 2006
WL 2792750, at *4.
The fair market value of the Dover Street
Residence in 1992 was $515,000.
(United States (“Gov’t”) Ex. 6 at
5; ECF No. 190, Defendant’s Post-Remand Memorandum of Law (“Evseroff
Mem.”) at A-1.)
In 1995, the payments on the mortgage were $1,044
(ECF No. 186-3, United States’ Post-Remand Supplemental
Memorandum (“Gov’t Mem.”) at 3; Evseroff Mem. at A-3.)
In 1992, the
mortgage was scheduled to be paid off in approximately five years.
(Tr. at 91-93; Evseroff Mem. at A-3.)
With respect to the management of the Trust, a series of
Evseroff family friends and business associates served as trustees.
Evseroff III, 2003 WL 22872522, at *9.
There is little evidence that
they were actively involved in managing the Trust or its assets.
Indeed, one trustee appears to have believed that he had no
responsibilities until Evseroff’s death.
(Transcript of Deposition
of Barry Schneider dated January 3, 2002 (“Schneider Dep. Tr.”) at
The accounting work for the Trust was performed by Frederick
Blumer, an accountant who also performed accounting work for Evseroff
and Evseroff’s law firm.
Evseroff III, 2003 WL 22872522, at *3.
accountant was not paid for his work on behalf of the Trust, which
he did as a professional courtesy to Evseroff.
The Trust’s tax
returns took Blumer between one-half hour and an hour to prepare.
(Transcript of Deposition of Frederick Blumer dated February 21, 2002
(“02/21/02 Blumer Dep. Tr.”) at 39.)
The Trust’s tax statements were
apparently never even sent to the trustees, and instead were sent
directly to Evseroff.
Evseroff III, 2003 WL 22872522, at *3, *11.
Between 1992 and 1998, the Trust did not record Evseroff’s
payment of expenses for the Dover Street Residence as income.4
(02/21/02 Blumer Dep., Exs. 1-7.)
The Trust also did not claim the
mortgage interest deduction for the Dover Street Residence between
those years, though it did claim the deduction for real estate taxes
between 1994 and 1998.
Indeed, the Trust never assumed the
mortgage for the Dover Street Residence.
Mem. at A-2, A-3.)
(Gov’t Mem. at 3; Evseroff
Evseroff also remained the named beneficiary of
the flood and fire insurance policies on the Dover Street Residence.
(J. Evseroff Dep., Exs. 32-33; Evseroff Mem. at A-7.)
The record does not contain information on this point for years after
Several other facts bear generally on Evseroff’s financial
For one, Evseroff had a wife from whom he had been separated
for eleven years at the time he created the Trust.
2003 WL 22872522, at *2 n.3.
Evseroff would later state that one
of his reasons for setting up the Trust was to ensure that his two
sons, rather than his estranged wife, received the benefit of his
Id. at *2.
Additionally, he purchased a home in Florida
in September of 1991.
Evseroff V, 2006 WL 2792750, at *2-3.
apparently believed that the Florida home could not be seized by the
Id. at *2.
Starting in 1997, Evseroff moved his funds around from
place to place and, at one time, had his sons hold money for him rather
than establishing a bank account.
22872522, at *5-6.
Id. at *3; Evseroff III, 2003 WL
Further, Evseroff admitted that he kept personal
funds in his law firm checking account and wrote checks on the account
to pay for some personal expenses because he was concerned that the
IRS would seize funds from his personal checking account.
72-73, 82-85; see also J. Evseroff Dep., Ex. 28.)
Evseroff’s financial situation at the time of his transfer
of the Dover Street Residence and the $220,000 to the Trust is
difficult to discern with precision.
Two points, however, are
(1) Evseroff was technically solvent after these transfers
despite his tax debts, and (2) Evseroff’s readily accessible assets5
were insufficient to satisfy his tax debt.
First, with regard to Evseroff’s solvency, the court found
in its Post-Trial Order that on October 18th, 1992 - just ten days
after Evseroff transferred the Dover Street Residence to the Trust
- Evseroff’s tax liabilities totaled $770,530.64.
WL 2792750, at *2-3.
Evseroff V, 2006
Evseroff’s total assets, after and excluding
the two transfers involving the Dover Street Residence and the
$220,000, could be reasonably estimated at anywhere between $847,3426
See id. at *3-5.
Thus, as of October 18, 1992, he
had assets valued somewhere between $76,811 and $652,115 over and
above his tax liabilities.
Regardless of where within that
range the value of Evseroff’s assets actually fell, the results of
the fraudulent transfer, nominee, and alter ego analyses would be
For the reasons described below, Evseroff’s pension fund and tax
assets may not be readily accessible to the United States.
This figure includes $230,000 for Evseroff’s Florida residence,
$75,575 for his law practice, and $541,767 for a Citibank account, which may be
a pension account. See Evseroff V, 2006 WL 2792750, at *3-4.
This figure includes $230,000 for Evseroff’s Florida residence,
$75,575 for his law practice, $308,304 for a Citibank pension account, $47,000
for a Republic Bank Keogh account, an estimated $220,000 in savings accounts or
money market accounts, and $541,767 for a different Citibank account, which may
have been a pension account. See Evseroff V, 2006 WL 2792750, at *3-4. This
figure does not include the $577,000 cash amount that Evseroff listed in response
to the government’s first interrogatories (see Gov’t Ex. 6, at 5), which may be
duplicative of the accounts listed above, see Evseroff V, 2006 WL 2792750, at *3,
Second, with regard to Evseroff’s readily accessible
assets, those assets were insufficient to satisfy Evseroff’s tax
In the Post-Trial Order, the court identified two
readily accessible assets in Evseroff’s possession:
Florida residence and his $75,575 law practice.
See id. at *3-4.
The court did not find Evseroff’s retirement accounts to be readily
accessible because the government could be delayed in its efforts
to collect future distributions from the $355,304 in Evseroff’s
Id. at *5 n.7.
In addition, the court heard
evidence that Evseroff moved his cash assets from one account to
another and hid them in his law practice checking account, with his
sons, and in his sons’ businesses in an effort to prevent the United
States from collecting his cash assets.
Evseroff V, 2006 WL 2792750,
at *3; (see Tr. at 72-73, 82-85; J. Evseroff Dep., Ex. 28; 02/21/02
Blumer Dep., Ex. 19).
Thus, considering only Evseroff’s readily
accessible assets, the law practice and the Florida residence, those
assets would be worth considerably less than Evseroff’s tax debt.
The value of Evseroff’s law practice and Florida Residence totaled
As of the beginning of 1992, Evseroff’s retirement accounts
consisted of a Citibank pension account valued at $308,304 and a Republic Bank
Keogh account valued at $47,000. See Evseroff V, 2006 WL 2792750, at *3. Neither
party has established whether the Citibank account containing $541,767 was a
retirement account or another type of account, and thus whether it was readily
accessible. Id. at *6.
a mere $305,575, which was almost $465,000 less than his tax debt.
See Evseroff V, 2006 WL 2792750, at *3.
At the bench trial held before The Honorable David G.
Trager on November 7 and 8, 2005, the government pressed three
theories for recovering assets from the Trust:
(1) that Evseroff
transferred assets to the Trust through constructively fraudulent
conveyances; (2) that Evseroff transferred assets to the Trust
through actually fraudulent conveyances; and (3) that the Trust was
Evseroff’s alter ego/nominee.
Id. at *4-7.
Evseroff claimed that his motivation in setting up the
Trust was estate planning.
Id. at *2.
At the time that Evseroff
started the process of setting up the Trust, he was 68 years old and
had a wife from whom he had been separated.
Id. at *2-3.
testified that he set up the Trust so that (1) his sons would get
the benefit of his estate, (2) his estranged wife would not receive
a portion of his assets, and (3) he could avoid the estate tax.
The government, by contrast, argued that his motive in
setting up the Trust was to avoid his outstanding tax debts.
In the Post-Trial Order, Judge Trager noted that
Evseroff’s motives were mixed, specifically that:
At trial, it became apparent that Evseroff had
mixed motives in establishing the Trust: he
was concerned about his separated wife taking
a share of his estate, he wished to provide for
his two unmarried sons who were living with him
and he was concerned about the government’s
potential collection efforts.
All of these
motives were present.
If the issue were
decided today, based on all that happened in the
interim, it is clear that his tax problems would
be the predominate concern.
these events occurred, the separation from his
wife and need for estate planning based on this
separation was much more at the forefront of his
Id. at *3.
With respect to the government’s legal arguments, the
Post-Trial Order found that the property transfers to the Trust were
neither constructively nor actually fraudulent, based primarily on
the fact that Evseroff was still solvent, despite his tax debts, after
transferring both the Dover Street Residence and the $220,000 to the
Id. at *5-6.
The Post-Trial Order also rejected the
government’s claim that the Trust was either Evseroff’s alter ego
or that it held property as his nominee.
Id. at *6-7.
to the latter two findings, the Post-Trial Order reasoned that
Evseroff’s creation of the Trust was not primarily motivated by his
desire to avoid the government’s collection efforts.
Id. at *7.
The Post-Trial Order also noted that there was no evidence that
Evseroff had used or controlled any of the money in the Trust, id.,
and that he was solvent at the time of the transfers, id. at *6.
Finally, the Post-Trial Order discussed the fact that Evseroff
provided valuable consideration to the Trust in exchange for the use
of the Dover Street Residence in that he paid the mortgage and other
expenses related to the property. Id. at *7.
The government appealed and the Second Circuit reversed
and remanded by summary order.
United States v. Evseroff, 270 F.
App’x 75 (2d Cir. 2008) (summary order).9
Regarding the actual fraud
finding, the Second Circuit held that a finding that the transfers
did not leave Evseroff insolvent did not preclude a finding that the
transfers constituted actually fraudulent conveyances.
Id. at 77.
On remand, the Second Circuit directed the district court to consider
both whether Evseroff intended to defraud the government and also
whether he intended to hinder or delay its collection efforts.
In analyzing the alter ego and nominee issues, the Second
Circuit instructed that “the critical issue in resolving a nominee
or alter ego claim is not motive, but control.”
Circuit further noted that, if Evseroff controlled the trust, this
court should then determine “whether Evseroff used this control to
commit fraud or other wrongful conduct, such as whether he ever used
the trust for his benefit rather than the benefit of his two sons.”
Id. at 78.
In order to determine whether Evseroff used control of
the Trust to commit wrongful conduct, the Second Circuit suggested
The government appealed only the actual fraud and nominee/alter ego
findings; it did not appeal the constructive fraud finding. Evseroff, 270 F. App’x
that this court consider factors such as (1) how the payments made
by Evseroff for the Dover Street Residence’s expenses compared to
the value of the house, and (2) how the payments were treated by the
relevant entities for accounting and tax purposes.
On remand, the government argues that Evseroff’s transfers
of the Dover Street Residence and the $220,000 to the Trust represent
fraudulent conveyances under a theory of actual fraud.
York law, “[e]very conveyance made and every obligation incurred with
actual intent, as distinguished from intent presumed in law, to
hinder, delay, or defraud either present or future creditors, is
fraudulent as to both present and future creditors.”
Cred. Law § 276.
N.Y. Debt. &
As this section indicates, a conveyance may be
fraudulent whether a debtor intends to actually “defraud” a creditor
or merely intends to “hinder or delay” their collection efforts.
“The requisite intent required by this section need not
be proven by direct evidence, but may be inferred from the
circumstances surrounding the allegedly fraudulent transfer.”
Steinberg v. Levine, 774 N.Y.S.2d 810, 810 (N.Y. App. Div. 2d Dep’t
2004) (citation omitted); see also Capital Distributions Servs.,
Ltd. v. Ducor Exp. Airlines, Inc., 440 F. Supp. 2d 195, 204 (E.D.N.Y.
2006) (citing Steinberg).
Whether a conveyance is fraudulent “is
ordinarily a question of fact,” Grumman Aerospace Corp. v. Rice, 605
N.Y.S.2d 305, 307 (N.Y. App. Div. 2d Dep’t 1993), and a creditor must
prove his case by “clear and convincing evidence.”
Lippe v. Bairnco
Corp., 249 F. Supp. 2d 357, 374 (S.D.N.Y. 2003) (quoting HBE Leasing
Corp. v. Frank, 48 F.3d 623, 639 (2d Cir. 1995)).
In determining whether Evseroff had the requisite
fraudulent intent, it is necessary to examine a series of factors
that are generally referred to as “badges of fraud.”
Distributions Servs., 440 F. Supp. 2d at 205 (quoting Steinberg, 774
N.Y.S.2d at 810).
These badges of fraud include lack or
inadequacy of consideration, family,
friendship, or close associate relationship
between transferor and transferee, the debtor’s
retention of possession, benefit, or use of the
property in question, the existence of a pattern
or series of transactions or course of conduct
after the incurring of debt, and the
transferor’s knowledge of the creditor’s claim
and the inability to pay it . . . .
Steinberg, 774 N.Y.S.2d at 810 (citations omitted).
A court may also
consider “the financial condition of the party sought to be charged
both before and after the transaction in question . . . . [and the]
shifting of assets by the debtor to a corporation wholly controlled
by him . . . .”
In re Kaiser, 722 F.2d 1574, 1582-83 (2d Cir. 1983)
Based on the clear and convincing evidence in the record,
factual findings in the Post-Trial Order establish that both
conveyances at issue were actually fraudulent.
As noted above, the
Post-Trial Order found that Evseroff’s motives for creating the Trust
he was concerned with estate planning and with avoiding
collection by the IRS and a claim by his estranged wife.
V, 2006 WL 2792750, at *3.
The Post-Trial Order also found that
Evseroff did not receive consideration for the transfer of $220,000
of personal funds to the trust.
Evseroff V, 2006 WL 2792750, at *2,
Nor did he receive consideration for the transfer of the Dover
Street Residence other than a rental agreement with the Trust
allowing him to reside in the home in exchange for his payment of
operating and maintenance expenses in lieu of rent.
Id. at *4.
Further, the court found that Evseroff was solvent after the
Id. at *6.
Nothing has been presented that contradicts
Nevertheless, neither the fact that Evseroff had mixed
motives in establishing the Trust nor the fact that he was solvent
after he made the transfers absolves him of liability.
issue is his intent - not his actual financial status.
See N.Y. Debt.
& Cred. Law § 276; see also Grumman Aerospace Corp., 605 N.Y.S.2d
at 307 (finding that a cause of action predicated upon § 276 “may
lie even where fair consideration was paid and where the debtor
Although there must be some actual financial
harm to a creditor to support a fraudulent conveyance finding, a
debtor need merely “deplete or otherwise diminish the value of the
assets of the debtor’s estate remaining available to creditors” to
Lippe, 249 F. Supp. 2d at 375 (citations omitted).
By making the transfers of the Dover Street Residence and
the $220,000 to the Trust, Evseroff unambiguously caused the
requisite actual harm to his creditors by reducing the assets he had
available to satisfy his tax debt and reducing the value of his
readily accessible assets well below the amount of his tax debt.
noted above, at the time of the conveyances, Evseroff’s tax
liabilities totaled $770,530.64.
See Evseroff V, 2006 WL 2792750,
As discussed previously, Evseroff’s total assets after and
excluding the two transfers could reasonably be estimated at anywhere
from $847,342 to $1,422,646 - leaving him somewhere between $76,811
and $652,115 over and above his tax debts if all of his assets are
As such, the IRS would have had to collect somewhere
between half and ninety percent of Evseroff’s total assets in order
to satisfy his tax debts.
This would be a difficult task -
particularly given evidence in the record that Evseroff was not
inclined to cooperate with collection efforts.10
And if one includes
only Evseroff’s readily accessible assets, the transfers reduced the
value of Evseroff’s remaining assets to $305,575 - well below the
amount of his tax liability.
At the very least, the transfers made
collection efforts much more difficult.
Moreover, Evseroff’s financial picture was even less
favorable than the snapshot of the amount he owed the IRS in 1992
That federal tax debt was not the only potential
demand on his assets.
Evseroff was sixty-eight at the time he
created the Trust, and, as he testified at trial, he was getting ready
The government argues that Evseroff’s pension funds should be
excluded from the calculation of his assets because they were, at the very least,
more difficult to collect. It is true that pension funds receive substantial
protection from creditors under state law. Cf. Pauk v. Pauk, 648 N.Y.S.2d 134,
135 (N.Y. App. Div. 2d Dep’t 1996); 31 Am. Jur. 2d Exemptions § 198 (2009). There
is little impediment, however, to the immediate collection of pension funds by
the IRS. The IRS has broad powers to access a taxpayer’s assets notwithstanding
protections available for pension funds under state law. See 26 U.S.C.
§ 6334(a),(c) (1992) (noting that “[n]otwithstanding any other law of the United
States . . . no property or rights to property shall be exempt from levy other
than the property specifically made exempt by subsection (a),” which does not
exempt retirement accounts like Evseroff’s). Moreover, “[s]tate law define[s]
the nature of the taxpayer’s interest in the property, but the state-law
consequences of that definition are of no concern to the operation of the federal
tax law.” United States v. Nat’l Bank of Commerce, 472 U.S. 713, 723 (1985)
(holding that state laws governing creditors’ rights did not impair the IRS’s levy
power); see also Jacobs v. IRS (In re Jacobs), 147 B.R. 106, 108-09 (Bankr. W.D.
Pa. 1992) (holding that the IRS could levy on a pension fund protected from
creditors under state law). Indeed, the IRS can levy upon and force the immediate
liquidation of an IRA where the taxpayer can withdraw his funds. Kane v. Capital
Guardian Trust Co., 145 F.3d 1218, 1221-24 (10th Cir. 1998) (noting that the IRS
stands in the shoes of the taxpayer for levy purposes (citations omitted)). As
Evseroff apparently had the ability to withdraw and use his pension funds (see
Tr. at 96-97), the government likely could have accessed the funds as well.
Accordingly, the pension funds should not be categorically excluded from
consideration in Evseroff’s asset total. Furthermore, even if the IRS were unable
to collect from Evseroff’s pension funds, it would not affect the result reached
(Tr. at 38-39, 187-88.)
Although Evseroff’s assets
exceeded his tax liability, his assets were not so substantial as
to guarantee that he would not outlive them.
IRS debt would continue to accrue interest to the extent that he did
not pay it down.
Evseroff was also aware that he might need to make
payments to his estranged wife should they divorce, and he wished
to provide as substantial an inheritance as possible to his two sons.
These probable demands on his assets, combined with his tax debt,
exceeded the assets he had available after the transfers.
Evseroff was well aware of his financial difficulties,
including his tax liabilities, when he transferred the assets to the
In December 1990 - more than a year before he first met with
his attorney to set up the Trust - Evseroff received an IRS estimate
that he owed $227,282, not including interest.
2792750, at *1.
Evseroff V, 2006 WL
Just a few weeks later, in January 1991, he received
another letter from the IRS reflecting a total liability that he
inaccurately estimated at $800,000.
In January 1992, he
received an IRS letter indicating that he had a liability of more
Id. at *2.
Although it is not clear whether Evseroff
had received the January 1992 letter at the time that he first met
with an attorney to establish the Trust, he had received the January
Moreover, Evseroff certainly had received the January
1992 letter at the time that he actually conveyed the $220,000 in
cash and the Dover Street Residence to the Trust in June and October
of 1992 respectively.
The other demands on his assets - such as his
family obligations - were also undoubtedly apparent to him at that
It is therefore reasonable to conclude that Evseroff knew that
he was jeopardizing his ability to pay his taxes when he conveyed
the Dover Street Residence and the $220,000 to the Trust.11
Evseroff argues in his post-remand submission that he was acting
in good faith because he believed that the IRS had accepted his offer to settle
his tax liabilities for approximately $110,000 in 1993 (the “initial offer in
compromise”). See Evseroff IV, 2004 WL 3127981, at *1; (Evseroff Mem. at 5,
21-22.) The evidence of this purported settlement, however, was not admitted at
trial and will not be considered except as discussed here.
Prior to trial, the government indicated that it could prove that
this alleged settlement was fraudulent and, indeed, had done so in another action.
See Evseroff IV, 2004 WL 3127981, at * 1; see also Evseroff III, 2003 WL 22872522,
at *4. The government also represented that it had evidence of a series of other
offers in compromise that Evseroff submitted. (See Tr. at 24-26.) The government
argued that these other offers were in bad faith and designed to delay collection
efforts. (See id.) Evidence of these other offers in compromise would, however,
have been extremely time-consuming to present.
In a pre-trial evidentiary ruling, the court held that Evseroff could
not introduce evidence of the initial offer in compromise unless the government
introduced evidence of the other offers in compromise. (See Tr. at 23-26, 193-94.)
As the government never sought to introduce evidence regarding the other offers
in compromise, the door was not opened to Evseroff to present evidence regarding
the initial offer in compromise.
In addition to the evidence of Evseroff’s financial
situation, evidence of Evseroff’s conduct at the time he made the
transfers further supports a finding that he intended to hinder or
delay collection of his assets, particularly his tax debt.
he engaged in a “pattern or series of transactions or course of
conduct after the incurring of debt” that establish his intent to
impair, handle, or delay the IRS’s ability to collect his tax debts
when he made the relevant conveyances.
Steinberg, 774 N.Y.S.2d at
Around the time that Evseroff established the Trust in 1992,
he purchased a Florida home that he appears to have thought could
not be seized by the IRS.
Evseroff V, 2006 WL 2792750, at *2.
years thereafter, in 1997, Evseroff also moved his funds from place
to place and, on one occasion, had his son hold money for him rather
than establishing a bank account.
22872522, at *5-6.
Id. at *3; Evseroff III, 2003 WL
Although these suspicious movements of funds did
not occur until 1997 - about five years after Evseroff transferred
Evseroff claims that the door was opened to the evidence of the
initial offer in compromise because the government relied on evidence regarding
Evseroff’s actions after the transfers to the Trust. The evidentiary ruling,
however, did not specify that this sort of evidence would open the door to evidence
regarding the offer in compromise. Moreover, post-transfer evidence is commonly
and properly offered as evidence of intent in fraudulent conveyance cases. Cf.
Steinberg, 774 N.Y.S.2d at 810 (noting that a debtor’s retention of control after
the legal transfer of the property supports a finding of an actually fraudulent
conveyance). Even apart from the evidentiary ruling, the government’s
post-transfer evidence would not open the door to the offer in compromise evidence
Evseroff wishes to present and it will not be considered. By contrast, the court
will consider the government’s evidence of Evseroff’s post-transfer actions to
the extent it is relevant to Evseroff’s intent.
the Dover Street Residence and the $220,000 to the Trust - they
nonetheless shed light on Evseroff’s general intent in conveying
assets to the Trust because they show additional attempts to avoid
paying a known tax debt.
These monetary transactions in 1997 are particularly
significant because the IRS could only collect his assets to the
extent that it could find them.
consisted of cash.
Much of Evseroff’s net worth
If the IRS could only reliably collect on
Evseroff’s readily accessible assets, it would only have access to
$305,575 - almost $465,000 less than his tax debt in 1992.
Evseroff=s movement of cash assets to avoid collection in combination
with his earlier conveyances of the $220,000 and the Dover Street
Residence made collection efforts much more difficult.
Finally, Evseroff’s intent to shield his assets from the
IRS’s collection is demonstrated by the fact that he retained the
benefits of ownership of the Dover Street Residence after he
transferred it to the Trust for no consideration.
As noted above,
Evseroff continued to live in the residence after the transfer.
Evseroff argues that he was, in fact, renting the residence from the
Trust, as evidenced by the Transfer Agreement that obligated him to
pay certain expenses in lieu of rent, (Evseroff Mem. at 4; J. Evseroff
Dep., Ex. 12), and that his ability to live in the house was limited
by the fact that the trustees had the power to sell the house at any
time, (Evseroff Mem. at A-2).
But neither of these arguments is
As discussed infra Part II, Evseroff’s post-transfer
payment of the mortgage and other expenses related to the property
in lieu of rent were the type of payments that an owner of property
would make, not those that a renter would make.
although the trustees nominally had the power to remove Evseroff from
the Dover Street Residence, there was no evidence that they would
actually utilize that power because, as discussed more fully infra
Part III, Evseroff dominated the Trust to such a degree that it was
not a bona fide entity, but merely an extension of Evseroff.
other things, the trustees were his friends and business associates,
and at least one trustee was unaware of any duties he had as a trustee.
(Schneider Dep. Tr. at 19-20.)
Although the Trust could have
removed Evseroff from the Dover Street Residence, as a practical
matter, Evseroff=s enjoyment of the residence was secure, allowing
him to enjoy use and occupancy of the Dover Street Residence as an
owner would, given the lack of evidence that either Evseroff or the
Trust ever tried to rent or sell the property.
WL 2792750, at *4.
See Evseroff V, 2006
Evseroff’s de facto ownership of the Dover Street
Residence is further demonstrated by the fact that Evseroff received
no consideration for transferring the Dover Street Residence to the
(J. Evseroff Dep., Ex. 12.)
The lack of consideration to
Evseroff indicates that Evseroff was not relinquishing any rights
to the property in exchange for which he would be paid.
his sons were the beneficiaries of the Trust, the transfer allowed
Evseroff to ensure that they would receive the Dover Street Residence
upon his passing, as they would have had he remained the owner of
Evseroff responds that his true intention was not to avoid
paying his taxes to the United States, but rather to engage in estate
planning - primarily by ensuring that his assets passed to his two
sons rather than to his estranged wife on his passing.
Post-Trial Order found that Evseroff’s estate planning motive was
but one of his motives in addition to protecting the assets from the
IRS and his estranged wife at the time that he created the Trust,
Evseroff V, 2006 WL 2792750, at *3, and there is no reason to question
Nonetheless, even if Evseroff was motivated to create
the Trust, in part, by his desire to provide an inheritance for his
Although Evseroff’s transfer of the Dover Street Residence does not
bear directly on the $220,000 transfer, the fact that the two transfers were made
at around the same time indicates that Evseroff’s intent regarding the $220,000
transfer was the same as that regarding the Dover Street Residence.
sons and shield his assets from his wife, his intent to evade the
IRS’s collection effort was substantial and sufficient on its own.
Evidence in the record, as discussed above, demonstrates Evseroff’s
intent to shield his assets specifically from the government’s
Moreover, the IRS was seeking to collect much
more than Evseroff’s wife was likely to obtain in a divorce settlement
as she did not seek a settlement during the years of their separation.
Thus, Evseroff’s intent to evade, hinder, delay, and frustrate the
IRS’s collection efforts was sufficient to cause him to transfer the
assets to the Trust, regardless of any additional motive that he might
Accordingly, Evseroff’s transfer of the Dover Street
Residence and the $220,000 to the Trust was fraudulent as provided
by New York Debtor and Creditor Law § 276.
See Capital Distributions
Servs., 440 F. Supp. 2d at 204 (noting that the remedy for a fraudulent
conveyance is that the creditor may collect upon the fraudulently
The government also argues that it should also be able to
collect upon the Dover Street Residence and the $220,000 because
Evseroff is the real owner of both.
Though both assets are legally
If these assets have been damaged or disbursed, a money judgment
may also be available. Capital Distributions Servs., 440 F. Supp. 2d at 204
(citations omitted). Additionally, the creditor is generally entitled to recover
reasonable attorney’s fees. Id. (citing N.Y. Debt. & Cred. Law. § 276-a).
held by the Trust, the government argues that the Trust merely holds
them as Evseroff’s nominee.14
“Under the nominee doctrine, an owner
of property may be considered a mere ‘nominee’ and thus may be
considered to hold only bare legal title to the property.”
States v. Snyder, 233 F. Supp. 2d 293, 296 (D. Conn. 2002).
The nominee theory focuses
on the relationship between the taxpayer and the
property . . . to discern whether a taxpayer has
engaged in a sort of legal fiction, for federal
tax purposes, by placing legal title to property
in the hands of another while, in actuality,
retaining all or some of the benefits of being
the true owner.
Richards v. United States (In re Richards), 231 B.R. 571, 578 (E.D.
As distinct from the government’s claim that Evseroff’s
conveyances were actually fraudulent, a nominee finding can be made
even where there was no intent to defraud creditors or hinder
In re Richards, 231 B.R. at 579-80 (finding that
a trust held assets as a taxpayer’s nominee even when the conveyance
of the property to the trust was not fraudulent).
intent, the nominee theory focuses on control.
The nominee and alter ego issues have generally been discussed
together in the prior opinions and filings in this case. As discussed later in
this decision, however, there are relevant analytical differences between the two
The nominee theory also differs from the alter ego theory
in that the nominee theory focuses on the taxpayer’s control over
and benefit from the property while the alter ego theory emphasizes
the taxpayer’s control over the entity that holds the property.15
Compare In re Richards, 231 B.R. at 579 (discussing the nominee theory
and noting that “the critical consideration is whether the taxpayer
exercised active or substantial control over the property”), and
United States v. Stonier, No. 88 N 993, 1994 WL 395644, at *4 (D.
Colo. Feb. 28, 1994) (listing five factors for making a nominee
determination, three of which relate to the transferor’s control over
or benefit from the property), with Babitt v. Vebeliunas (In re
Vebeliunas), 332 F.3d 85, 91-92 (2d Cir. 2003) (discussing the alter
ego theory and noting that an individual must control the corporation
for alter ego liability to attach); and Dean v. United States, 987
F. Supp. 1160, 1166 (W.D. Mo. 1997) (collecting cases and stating
that “the common thrust . . . is that the alter ego doctrine will
apply when the delinquent taxpayer is really in control of the
corporation or trust and so dominates it that the corporate or trust
form exists, but there is no substance to it”).
Although some authority discerns little practical difference
between the nominee and alter ego theories, see United States v. Engels, No.
C98-2096, 2001 WL 1346652, at *6 (N.D. Iowa. Sept. 24, 2001), for reasons discussed
below, the differences between the nominee and alter ego theories are relevant
in this case.
Where a nominee relationship is found, the government may
access only the property held on the taxpayer’s behalf by the nominee,
not all property of the nominee.
See In re Richards, 231 B.R. at
580; see also Giardino v. United States, No. 96-CV-6348T, 1997 WL
1038197, at *2 (W.D.N.Y. Oct. 29, 1997) (“[T]he government has the
authority to seize or levy on the property of the taxpayer held by
the nominee in order to collect the tax liabilities of the taxpayer.”
(emphasis added) (citations omitted)).
In determining whether a taxpayer’s property is held by
a nominee, courts examine:
(1) whether inadequate or no consideration was
paid by the nominee; (2) whether the property
was placed in the nominee’s name in anticipation
of a lawsuit or other liability while the
transferor remains in control of the property;
(3) whether there is a close relationship
between the nominee and the transferor; (4)
whether they failed to record the conveyance;
(5) whether the transferor retains possession;
and (6) whether the transferor continues to
enjoy the benefits of the transferred property.
Giardino, 19libu97 WL 1038197, at *2 (citation omitted); LiButti v.
United States, 968 F. Supp. 71, 76 (N.D.N.Y 1997); see also In re
Richards, 231 B.R. at 579 (considering these factors as well as
whether the transferor spent personal funds maintaining the
As noted above, “the critical consideration is whether
the taxpayer exercised active or substantial control over the
In re Richards, 231 B.R. at 579 (citation omitted).
government bears the burden of proving that the taxpayer’s property
is held by a nominee.16
In the instant case, the Trust held the Dover Street
Residence, but not the $220,000, as Evseroff’s nominee.
first to the Dover Street Residence, an examination of the factors
listed above demonstrates that the Trust was Evseroff’s nominee.
Considering the first factor, the Trust paid no consideration to
Evseroff for the property.
(J. Evseroff Dep., Ex. 12.)
in the record indicates that the second factor is satisfied in that
the Trust was created and the property was transferred in
anticipation of Evseroff’s liability to the IRS and possibly his
estranged wife, and Evseroff remained in possession and control of
the Dover Street Residence.
The third factor is also satisfied in
that Evseroff had a close relationship with the trustees, having
selected close friends and associates to manage the Trust.
III, 2003 WL 22872522, at *9.
The parties dispute whether the government must prove that the Trust
is held by Evseroff’s nominee by a preponderance of the evidence or clear and
convincing evidence. Because I find that the government’s proof satisfies either
standard with regard to the Dover Street residence and fails to satisfy either
standard with regard to the $220,000, I need not resolve this dispute.
As for the fifth and sixth factors, there is substantial
evidence in the record that Evseroff retained and enjoyed possession
and control of the Dover Street Residence, even after title was
legally transferred to the Trust.
Despite the transfer, Evseroff
retained possession of the Dover Street Residence and benefitted from
it as though he were an owner:
he continued to live in the Dover
Street Residence without paying rent although he continued to pay
the mortgage and other expenses necessary to operate and maintain
the property, including taxes, water, sewer charges, utilities,
fuel, and insurance (J. Evseroff Dep., Ex. 12); he remained the named
beneficiary of the flood and fire insurance policies (J. Evseroff
Dep., Exs. 32-33; Evseroff Mem. at A-7); and there is no evidence
that the Trust ever officially assumed the mortgage for the Dover
Street Residence nor did the Trust claim the mortgage interest
deduction between 1992 and 1998 (see 02/21/02 Blumer Dep., Exs. 1-7;
Evseroff Mem. at A-2, A-3).
Furthermore, there is no evidence that
the Trust ever took any action that would have interfered with
Evseroff’s enjoyment of the property:
his rental agreement had no
set end date (J. Evseroff Dep., Ex. 12) and there is no evidence that
the Trust ever contemplated selling or renting the property to anyone
other than Evseroff.
These facts all indicate that Evseroff
retained possession and benefitted from his use and occupancy of the
Dover Street Residence much as he had when he held legal title to
Cf. In re Richards, 231 B.R. at 580.
In response, Evseroff argues that the Trust was not his
nominee with regard to the Dover Street Residence because:
status was that of a renter rather than that of an owner, as
demonstrated by the fact that he paid the mortgage and upkeep costs
on the property in lieu of rent;(2) he only had a license to the
property, and therefore could have been evicted at any time; and (3)
he did not act like an owner in that he never tried to sell the
None of these arguments is persuasive.
With regard to Evseroff’s first argument, the mere fact
that Evseroff made some payments relating to the property does not
rebut the inference that he was the de facto owner of the property.
See City View Trust v. Hutton, No. 98-CV-1001-B, 1998 WL 1031525,
at *10 (D. Wyo. Nov. 02, 1998).
The payments Evseroff made in
exchange for his occupancy of the property - taxes, insurance, water
and the mortgage - were precisely those that an owner of the property
The Trust did not claim Evseroff’s payments between 1992
and 1998 as income, the Trust’s tax returns were prepared by
Evseroff’s accountant and sent to Evseroff rather than the Trust,
and the Trust did not claim mortgage interest deductions but did claim
real estate tax deductions between 1994 and 1998.
Evseroff III, 2003
WL 22872522, at *3, *11; (see 02/21/02 Blumer Dep. Tr. at 39, Exs.
Indeed, payment of upkeep costs for a property has been
specifically identified as a factor favoring a nominee finding.
re Richards, 231 B.R. at 579.
Thus, the inference that the Trust
was merely his nominee is a strong one.
Moreover, the payments that a renter would have made on
the Dover Street Residence would have differed greatly from those
that Evseroff made.
Although Evseroff made mortgage payments for
about five years after the inception of the purported lease, after
that he was only responsible for the property’s upkeep and expenses.
(Tr. at 91-93; J. Evseroff Ex. 12.)
Therefore, after the mortgage
was paid off, the Trust received no net return on the Dover Street
Were the Trust truly the owner, it would have sought to
receive market rental rates, which would likely have exceeded the
mere cost of maintaining the property.
Furthermore, even for the
term where Evseroff was paying for both the mortgage and the upkeep
of the property, those combined payments were still low in comparison
to the property’s fair market value in 1992 of $515,000.
Evseroff’s argument that he was merely a licensee who could
have been evicted from the property at any time fares no better.
According to Evseroff, because the agreement allowing him to live
in the Dover Street Residence did not contain an end date, it did
not constitute a lease under New York law.
(Evseroff Mem. at 9.)
Instead, Evseroff contends that the agreement was a mere license,
revocable at any time.
Even assuming that Evseroff is correct regarding the legal
status of the agreement, it would provide little support for his
argument that he did not exercise active control over the property.
Given Evseroff’s control over the Trust, see infra Part III, there
was no realistic prospect that his possession and enjoyment of the
Dover Street Residence would be challenged.
A merely theoretical
possibility that the transferor could be evicted does nothing to
rebut a nominee finding.
See City View Trust, 1998 WL 1031525, at
Finally, Evseroff’s argument that he did not act like an
owner in that he never tried to sell the property and never attempted
to use it as collateral for a loan is not enough to avoid a nominee
finding given the evidence discussed above.
See Evseroff, 270 F.
App’x at 78 (citing LiButti v. United States, 107 F.3d 110, 119 (2d
Many property owners neither use their property as
collateral (apart from their mortgage) nor attempt to sell their
Thus, the fact that Evseroff has not attempted to sell
the Dover Street Residence and has not pledged it as collateral does
little to refute that he was acting as the de facto owner of the
Accordingly, the Trust plainly holds the Dover Street
Residence as Evseroff’s nominee and the United States may therefore
recover against the Dover Street Residence under a nominee theory.
The government, however, has not shown that the Trust
holds the $220,000 as Evseroff’s nominee.
Indeed, only a few
thousand dollars have ever been distributed by the Trust, and that
money went towards paying taxes owed by the Trust, namely, income
taxes on interest earned by the Trust and real estate taxes in
specific years for the Dover Street Residence.
(See Tr. at 61; J.
Evseroff Dep. Tr. at 126-27; 02/21/02 Blumer Dep., Exs. 1-7.)
is no evidence that those funds were distributed at Evseroff’s
And even if they were, the distribution benefitted the
Trust significantly more than it benefitted Evseroff.17
The government argues that the distribution to pay the real estate
taxes for the Dover Street Residence benefitted Evseroff because he had a
contractual duty to the Trust to pay those taxes. The government, however, ignores
the fact that the distribution also benefitted the Trust. The Trust, as owner
of the property, had an independent duty to pay taxes on the residence. N.Y. Real
Prop. Tax Law § 926(1) (“The owner of real property . . . shall be personally liable
for the taxes levied thereon.”); id. § 304(2) (Although a renter may have an
interest in the real property that makes the renter subject to personal tax
liability, “[n]othing in this subdivision shall relieve the owner of real property
from the obligation for paying all taxes due on the real property under his
ownership or vitiate the sale of said real property for unpaid taxes or special
ad valorem levies.”). Therefore, the fact that the Trust distributed Trust funds
to pay taxes for the Dover Street Residence does not provide sufficient evidence
to prove that the funds were being used to benefit Evseroff, and not the Trust.
The overall objective of the nominee analysis is to
determine whether the debtor retained the practical benefits of
ownership while transferring legal title.
B.R. at 578.
See In re Richards, 231
The most important factors in the nominee analysis
center on the transferor retaining possession of the property and
deriving benefits from it.
See id. at 579.
Given that the money
held by the Trust has remained substantially unused by Evseroff, he
has neither retained possession nor derived benefit from the funds.
The government responds by emphasizing Evseroff’s control
over the funds.
According to the government, the fact that the
Trust’s cash has remained undistributed demonstrates Evseroff’s
control of the funds because Evseroff did not want the funds to be
(Gov’t Mem. at 4 (citing Tr. at 61; J. Evseroff Dep.
Tr. at 126-27).)
The fact that the Trust’s retention of the funds
was consistent with Evseroff’s wishes, however, is of minimal
evidentiary value without some evidence that Evseroff controlled the
funds by actions intended to ensure that the Trust funds would not
In that regard, there is no evidence that Evseroff
intervened to prevent any disbursements that would have been made
if the Trust really were the owner of the $220,000.
evidence that Evseroff actively tried to control the Trust funds,
the government has failed to prove by a preponderance of the evidence
that Evseroff was a nominee of the funds.
Finally, the government argues that it should be able to
reach the assets held in the Trust because the Trust is Evseroff’s
The alter ego doctrine arose from the law of corporations
and allows a creditor to disregard the corporate form (also known
as “piercing the corporate veil”) either by using an owner’s assets
to satisfy a corporation’s debt or by using the corporation’s assets
to satisfy the individual’s debt.
See State v. Easton, 647 N.Y.S.2d
904, 908-09 (N.Y. Sup. Ct. Albany Cnty. 1995).
The essence of the
alter ego theory is that the entity in question really has no separate
existence - it is merely a tool of someone or something else.
Bridgestone/Firestone v. Recovery Credit Servs., 98 F.3d 13, 17-18
(2d Cir. 1996).18
As with the nominee issue, the parties dispute whether the
government must prove that the Trust was Evseroff’s alter ego by a preponderance
of the evidence or clear and convincing evidence. Because I find that the
government’s proof satisfies either standard, I need not resolve this dispute.
Although the New York Court of Appeals has never held that
the alter ego theory may be applied to reach assets held in a trust,
In re Vebeliunas, 332 F.3d at 90-91; Winchester Global Trust Co. v.
Donovan, 880 N.Y.S.2d 877 (Table), 2009 WL 294685, at *9-10 (N.Y.
Sup. Ct. Nassau Cnty. Feb. 4, 2009) (noting the lack of precedent
but finding that veil piercing applies to trusts), there is no policy
reason why veil piercing would apply only to corporations but not
The policy behind corporate veil piercing is to prevent
a debtor from using the corporate legal form to unjustly avoid
See Wm. Passalacqua Builders, Inc. v. Resnick Developers
S. Inc., 933 F.2d 131, 138 (2d Cir. 1991).
equally to trusts.
That policy applies
Cf. Winchester Global Trust, 2009 WL 294685, at
Moreover, there is some precedent indicating that the alter
ego doctrine also applies to trusts.
See Evseroff, 270 F. Appx. at
77-78; see also Dean, 987 F. Supp. at 1165; Katz v. Alpert, 919
N.Y.S.2d 148, 148 (N.Y. App. Div. 1st Dep’t 2011); Winchester Global
Trust, 2009 WL 294685, at *9-10.
Accordingly, for the reasons below,
the alter ego theory will be applied to the Trust.
To pierce the veil in New York, a plaintiff must show that
“(1) the owner exercised such control that the corporation has become
a mere instrumentality of the owner, who is the real actor; (2) the
owner used this control to commit a fraud or ‘other wrong’; and (3)
the fraud or wrong results in an unjust loss or injury to the
In re Vebeliunas, 332 F.3d at 91-92 (citations
omitted); see also Wm. Passalacqua Builders, 933 F.2d at 138 (noting
that the alter ego theory and the three factor test discussed above
“are indistinguishable . . . and should be treated as
interchangeable” (citation omitted)).
With regard to the question of Evseroff’s control over the
Trust, the relevant factors can be drawn by analogy from the corporate
In analyzing the alter ego question as it relates to a
corporation, courts consider factors such as “the absence of . . .
formalities . . . , the amount of business discretion displayed by
the allegedly dominated corporation . . . , whether the related
corporations deal with the dominated corporation at arms length .
. . [and] whether the corporation in question had property that was
used by other of the corporations as if it were its own.”
Vebeliunas, 332 F.3d at 91 n.3 (citation omitted).
factors require adaptation as applied to a trust, they nonetheless
provide some guidance in determining the issue of control.
particular, they indicate that it is necessary to examine whether
the Trust’s formalities were observed, whether the Trust exercised
its own discretion and made its own decisions as an entity, and
whether it dealt with Evseroff at arms length or whether Evseroff
effectively controlled the Trust’s property.
These factors all indicate that Evseroff dominated the
Trust formalities were so poorly observed as to give rise
to an inference that the Trust was not a bona fide entity.
sure, a trust instrument was prepared, tax returns were filed on
behalf of the Trust, and trustees were appointed.
however, did not book the payments Evseroff made in lieu of rent as
income between 1992 and 1998 on its tax returns.
Blumer Dep., Exs. 1-7.)
The Trust never officially assumed the
mortgage for the Dover Street Residence.
Evseroff Mem. at A-2, A-3.)
(See Gov’t Mem. at 3;
Thus, the Trust did not claim the
mortgage interest deduction for the Dover Street Residence between
1992 and 1998 - although it did claim the deduction for real estate
taxes between 1994 and 1998.
(See 02/21/02 Blumer Dep., Exs. 1-7.)
Instead, Evseroff paid the mortgage interest and, for some years,
paid real estate taxes and claimed the deductions.
see Gov’t Mem. at 3, 5.)
(Tr. at 50-51;
Evseroff remained the named beneficiary
of the flood and fire insurance policies on the Dover Street
(J. Evseroff Dep., Exs. 32-33; Evseroff Mem. at A-7.)
Finally, Evseroff’s accountant prepared the Trust’s tax returns as
a professional courtesy to Evseroff, spent only half an hour to
prepare them, and sent the Trust returns to Evseroff rather than the
Evseroff III, 2003 WL 22872522, at *3, *11; (02/21/02
Blumer Dep. Tr. at 36-39).
All of the above evidence demonstrates
both that there was little substance to the Trust and that it was
merely an extension of Evseroff.
The manner in which the Trust was managed also demonstrates
that it was merely an extension of Evseroff.
Though trustees were
appointed, there is little evidence that they played an active role
in making decisions for the Trust.
One apparently believed that he
had no Trust responsibilities until Evseroff’s death.
Dep. Tr. at 20.)
Having trustees play an active role in managing the trust
is an important factor in deciding whether to respect the form of
See Dean, 987 F. Supp. at 1165.
involvement of trustees of the sort that would support the separate
existence of a trust looks very different than the minimal
involvement present here.
Accordingly, the trustees’
lack of substantial control over the Trust is an important point in
favor of the government.
Similarly, Evseroff also evinced his domination of the
Trust by controlling its property to a high degree.
supra Part II, Evseroff acted as the owner of the Dover Street
He made the same payments that an owner would make and
had a similar degree of practical control over and enjoyment of the
property as an owner would have.
Although Evseroff’s domination of
the $220,000 in the Trust appears to have been more limited, see supra
Part II, that fact does not undermine the significant countervailing
evidence that Evseroff dominated the Trust.
In 1992, when Evseroff
transferred the assets into the Trust, the Dover Street Residence
was worth approximately $515,000, making it by far the Trust’s most
The Dean court respected the legal form of a trust as established
by two parents for the benefit of their children against IRS collection efforts
when, among other things:
[O]ther than a brief period . . . , the trustees executed
all documents requiring signatures by the owner of the
trust property. Tax returns were executed by the
trustee. Checks were signed by the trustees. The
trustees decided how to spend trust assets, when to make
repairs on the rental property, and the rent to be paid
by tenants. The trustees borrowed and repaid money in
the name of the trust. In other words, the legal control
of the trust assets has consistently been exercised by
the trustee, not the taxpayer.
Dean, 987 F. Supp at 1165.
Evseroff’s control over the Dover Street Residence
establishes a high degree of dominance over Trust property, further
evincing his dominance over the Trust.
Thus, it is clear that
Evseroff had the requisite degree of control over the Trust to support
an alter ego finding.
Because Evseroff controlled the Trust, it is necessary to
determine whether he used that control to commit a fraud or wrong
against the government, and whether that wrong resulted in an unjust
In re Vebeliunas, 332 F.3d at 91-92.
here, these elements are plainly satisfied.
On the facts presented
As noted above,
Evseroff essentially used the Trust to shield his assets from attack
by those with potential claims upon them, including the government.
Moreover, given the potential claims on Evseroff’s assets, and his
demonstrated ability to shield his liquid assets from collection
through a series of transfers, see Evseroff V, 2006 WL 2792750, at
*3, Evseroff’s use of the Trust undoubtedly caused damage to the
government by hindering its collection of taxes.
government’s continuing difficulties collecting Evseroff’s taxes
are evidence of the damage caused.
As a result, the government may collect against all assets
held by the Trust.
The essence of the alter ego theory is that the
existence of the Trust as a separate entity is a fiction - in fact
the Trust is Evseroff.
See Claudio v. United States, 907 F. Supp.
581, 587-88 (E.D.N.Y. 1995) (“‘The courts will look beyond the
fiction of corporate entity and hold two corporations to constitute
a single unit in legal contemplation, where one is so related to,
or organized, or controlled by, the other as to be its mere agent,
instrumentality, or alter ego.’” (citation omitted)); see also
Austin Powder Co. v. McCullough, 628 N.Y.S.2d 855, 857 (N.Y. App.
Div. 3d Dep’t 1995) (noting that where an “alter ego” finding is made
“the corporate form may be disregarded to achieve an equitable
Based on the court’s determination that the Trust is but
an alter ego of Evseroff, its assets should be subject to collection
just as if they were held by Evseroff.
Moreover, there appears to
be no reason why it would be inequitable for the government to collect
on all assets held by the Trust on the facts of this case.
Accordingly, all of the Trust’s assets are subject to collection.
For the foregoing reasons, the government may proceed to
collect against all assets held by the Trust established by Evseroff.
The Clerk of the Court is respectfully requested to enter judgment
in favor of the United States and to close the case.
Brooklyn, New York
April 30, 2012
Kiyo A. Matsumoto
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?