United States v. Henco Holding Corp. ( 2021 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-12758
________________________
D.C. Docket No. 1:18-cv-03093-CAP
UNITED STATES OF AMERICA,
Plaintiff - Appellant,
versus
HENCO HOLDING CORP.,
ALFREDO CACERES,
LUIS ALFREDO CACERES,
LUIS ANGEL CACERES,
individually and as beneficiary of the
Luis Angel Caceres Charitable Remainder Unitrust,
LUIS ANGEL CACERES CHARITABLE REMAINDER UNITRUST,
Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(January 19, 2021)
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Before ROSENBAUM, LAGOA, and ANDERSON, Circuit Judges.
LAGOA, Circuit Judge:
This appeal requires us to determine whether the government must separately
assess a transferor’s tax liabilities against a transferee under Internal Revenue Code
(“I.R.C.”) § 6901 in order to collect those tax liabilities from the transferee. The
government appeals the district court’s order dismissing its complaint against
Alfredo Caceres, Luis Alfredo Caceres, Luis Angel Caceres, and the Luis Angel
Caceres Charitable Remainder Unitrust (collectively, the “Caceres Defendants”) on
the basis that the government had not timely assessed tax liabilities against the
Caceres Defendants as transferees of Henco Holding Corp. pursuant to § 6901.
Because we are bound by the United States Supreme Court’s decision in Leighton v.
United States, 289 U.S. 506 (1933), and for the reasons stated below, we reverse the
district court’s order dismissing the complaint as to the Caceres Defendants and
remand for further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
On June 27, 2018, the government filed suit against Henco to “reduce to
judgment [Henco’s] unpaid tax liabilities” and against the Caceres Defendants to
receive money judgments for fraudulent transfers they received from Henco. At all
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times relevant to the government’s claims, Henco was organized in Georgia as a “C”
corporation, and in 1996, the Caceres Defendants owned all of Henco’s stock. 1
As of December 1996, Henco’s sole asset was its 50.5 percent interest in a
subsidiary, Belca Foodservice Corporation. Because Belca’s stock had increased
substantially in value since the time Henco acquired it, Henco considered selling its
shares. If Henco liquidated its Belca shares and directly distributed the proceeds to
the Caceres Defendants, however, there would have been a capital gains tax on the
liquidation and an additional tax on each distribution. The Caceres Defendants were
aware of these tax consequences and sought to avoid the dual taxation. To do so,
they came up with a plan, described by the government as “a sham sale of Henco’s
stock to an intermediary, Skandia Capital Group,” which would use a “special
purpose vehicle,” referred to as UP Acquisitions, to purchase Henco’s stock.
On January 31, 1997, Henco sold its Belca stock to an unrelated third party
for approximately $37 million in cash. Henco was left with no assets other than that
cash from the sale plus cash from the concurrent repayment of debt from Belca to
Henco. The Belca stock sale triggered a capital gains tax liability of approximately
$13 million against Henco, leaving Henco worth approximately $24 million.
Following the Belca stock sale, the Caceres Defendants and Skandia entered into an
1
As alleged in the government’s complaint, Henco is currently incorporated in Wyoming
and was administratively dissolved in 2012. Because this appeal comes to us on a motion to
dismiss, our factual discussion is taken solely from the government’s allegations in its complaint.
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agreement where UP would acquire all of Henco’s stock from the Caceres
Defendants for $33,493,284. Thereafter, on or around April 4, 1997, Henco opened
a bank account at Rabobank, “a Dutch bank that has provided financing in several
intermediary transaction tax shelters.” Two of the Caceres Defendants had signature
authority over the Rabobank account. On April 9, 1997, Henco transferred
$37,187,606.30—the cash from its sale of Belca stock as well as the concurrent
repayment of debt from Belca to Henco—to the Rabobank account.
Then, on April 10, 1997, Skandia borrowed the purchase price of $33,493,284
from Rabobank via a promissory note, promising to repay that amount plus interest
by May 9, 1997, and pledging the Henco stock it was purchasing to secure the loan.
Skandia also promised to immediately declare a dividend from Henco in the amount
of the loan plus $1 million and to use the dividend to purchase a certificate of deposit
from Rabobank, ensuring Rabobank would get repaid. Skandia then used the loan
to purchase the Henco stock, and that same day, Rabobank was instructed to
distribute the proceeds (minus a negotiated holdback) to the Caceres Defendants
according to their ownership interests. The Caceres Defendants gave up their
positions as officers, employees, and directors of Henco, and, in their place, Dag
Sundby, who controlled Skandia, became Henco’s sole director, president, secretary,
and treasurer. Sundby, in a separate transaction, declared the promised dividend to
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purchase the certificate of deposit from Rabobank, which, upon its maturity, Skandia
used to repay the loan from Rabobank.
Following these transactions, the Caceres Defendants received their payouts
and gave up their interests in Henco. Thereafter, Henco, to “evade[] its
responsibility for the capital gains taxes,” engaged in additional transactions. On
May 16, 1997, Henco’s stock was sold to Squires, LLC, a limited liability company
formed under the laws of the Isle of Man, for $870,537. A series of transactions
involving European currency options with other Skandia subsidiaries acting as tax
shelters then occurred. As alleged by the government, the Caceres Defendants’ sale
of their Henco stock to Skandia was merely a disguise allowing Skandia to serve as
an “intermediary” entity for what was, in substance, a distribution of Henco’s cash
to the Caceres Defendants. As a result of these transactions, Henco became insolvent
by April 10, 1997, as its liabilities were in excess of its assets. Henco subsequently
reported an “artificial” $34,917,500 tax loss on its 1997 federal income tax return,
completely offsetting the capital gain from the sale of Belca stock.
The Internal Revenue Service (“IRS”) audited Henco’s 1997 tax return, and
Henco subsequently agreed to multiple extensions of the IRS’s deadline for making
assessments against Henco, extending the deadline to November 27, 2007. On June
13, 2007, the IRS issued a statutory notice of deficiency to Henco, disallowing the
tax shelter losses used to offset Henco’s capital gain on the sale of Belca stock.
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Henco defaulted by failing to contest the notice of deficiency in a Tax Court petition,
and on October 26, 2007, the IRS assessed taxes, as well as applicable penalties and
interest, against Henco, which eventually totaled $56,356,718.77. The IRS gave
notice to Henco of this assessment, but Henco failed to pay the amount of the
assessed liabilities. Following Henco’s failure to pay, the IRS issued a notice of
intent to levy and a notice of federal tax lien, both of which informed Henco of its
right to request a collection due process hearing. On April 11, 2008, Henco
requested a collection due process hearing, and following those proceedings, the IRS
sustained the levy and lien filings in an August 6, 2008, notice of determination. On
September 5, 2008, Henco filed a Tax Court petition challenging the collection
activity and underlying tax liabilities. The Tax Court entered an order sustaining the
liabilities assessed against Henco, which, according to the government, estops
Henco from challenging any of the assessments.
Several years later, the government filed its complaint against Henco and the
Caceres Defendants in the district court. As to Henco, the government sought to
reduce the tax liabilities assessed against Henco, plus further interest and statutory
additions allowed by law, to a judgment. Henco did not answer the complaint or
otherwise appear before the district court, and on May 21, 2019, the district court
entered a default judgment against Henco for $60,777,269.36, i.e., the total amount
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of unpaid tax, penalties, and interest. The default judgment is not at issue in this
appeal.
As to the Caceres Defendants, the government brought claims against them
for fraudulent transfers in violation of Georgia’s former fraudulent transfers
statutes.2 See Ga. Code Ann. §§ 18-2-21, 18-2-22 (1997). The government alleged
that (1) it became Henco’s creditor when Henco sold its Belca stock and incurred
capital gains tax liability; (2) the Rabobank loan and Henco stock sale to Skandia
were “shams” and the stock sale was, in substance, a liquidating distribution to the
Caceres Defendants; (3) Henco was insolvent on the date of the transfers; (4) Henco
did not receive valuable consideration from the Caceres Defendants; (5) Henco made
the transfers to the Caceres Defendants with the intention to delay or defraud its
creditors; and (6) the Caceres Defendants knew the purpose of those transfers. The
government alternatively alleged that even if the Henco stock sale were not
disregarded as a sham, the Caceres Defendants were still recipients of fraudulent
transfers under Georgia law because Henco made a fraudulent transfer to Skandia,
which in turn made fraudulent transfers to the Caceres Defendants. Accordingly,
the government sought the amounts transferred to each of the Caceres Defendants
2
In 2002, Georgia amended its fraudulent transfer statutes to adopt the Uniform Fraudulent
Transfers Act.
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plus pre- and post-judgment interest. In its claims against the Caceres Defendants,
the government specifically alleged that it was proceeding under I.R.C. § 6502(a).
The Caceres Defendants moved to dismiss the government’s complaint. They
argued that the applicable statute of limitations under Georgia law was four years
and that the government’s claims therefore were time-barred. The Caceres
Defendants also argued that the government failed to state a claim against them, as
applicable Georgia law at the time provided relief at law against only transferees and
the government’s complaint made clear that Henco, which owed the taxes, did not
make a transfer to them. The Caceres Defendants asserted that the government had
failed to bring an action against the actual transferees, instead bringing its action
“against the former shareholders who sold their shares in Henco to an unrelated
third-party buyer, prior to any distributions from debtor Henco.” Additionally, they
claimed that § 6502 did not extend the time for making an assessment against them
for Henco’s tax liabilities. Although the Caceres Defendants did not dispute that
§ 6502’s ten-year limitation period for collection of an assessed tax applied to
Henco, they argued that it was inapplicable to them because they were never
assessed that tax liability by the IRS. The Caceres Defendants asserted that I.R.C.
§ 6901 exclusively governs claims against transferees and that the § 6901 limitation
period in which an assessment can be made against a transferee is one year after the
period of assessment for tax liabilities against the transferor. Because the tax
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liabilities were assessed against Henco in October 2007, the Caceres Defendants
claimed that the IRS would have normally been required to assess taxes against them
no later than the end of October 2008. However, as Henco had contested the
assessment on April 11, 2008, the Caceres Defendants conceded that the statute of
limitations was tolled until the conclusion of those proceedings on October 19, 2011,
giving the IRS until May 2012 to assess taxes against them. Because the IRS had
not done so, the Caceres Defendants asserted that the claims should be dismissed.
The government opposed the Caceres Defendants’ motion to dismiss. The
government argued that it was not bound by Georgia’s statute of limitations for
fraudulent transfers and that it could proceed against the Caceres Defendants based
on the assessment against Henco under § 6502(a) without separately assessing them
as transferees under § 6901.
On May 14, 2019, the district court issued an order dismissing the
government’s complaint. The district court first determined that the government was
not bound by Georgia’s statute of limitations. Turning to the Caceres Defendants’
argument that the government was required to separately assess them as transferees
under § 6901, the district court interpreted § 6901(a), which provides that a
transferee’s tax liability “shall . . . be assessed, paid, and collected in the same
manner and subject to the same provisions and limitations as in the case of the taxes
with respect to which the liabilities were incurred,” to mean that the transferee’s
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liability is assessed and collected under the same rules that apply to the ordinary,
pre-transfer tax liability of the transferor. While noting that § 6901 contained
exceptions, the district court explained that the only relevant exception in
§ 6901(c)(1), which extends the limitations period for assessment of transferee tax
liability by one year after the expiration of the period against the transferor, was
inapplicable, as the government acknowledged “that the time for making a § 6901
assessment . . . ha[d] passed.”
Turning to I.R.C. § 6501(a), which provides limitations on assessment and
collection, the district court rejected the government’s position that it could “collect
unassessed taxes from the [Caceres Defendants] at any point within the time where
it may collect the assessed taxes against Henco” under § 6501(a) because the
government never assessed the Caceres Defendants as transferees and the period for
when the tax liability “shall be assessed” had passed. As such, the district court
found that the plain language of § 6501(a) did not permit the government to now
collect the taxes from the Caceres Defendants. The district court also explained that
its interpretation was supported by the legislative histories of the Revenue Act of
1926 and the Revenue Act of 1928. Reviewing the legislative histories, the district
court determined that “Congress did not intend for an assessment against a taxpayer
to extend an unassessed transferee’s possible liability for ten years or more” and that
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“[a]n assessment against the transferee must be made, so that ‘the transferee may
know that he is no longer liable to be proceeded against.’”
The district court also rejected the government’s argument that, under Hall v.
United States, 403 F.2d 344 (5th Cir. 1968), and United States v. Galletti, 541 U.S.
114 (2004), once the government assessed Henco, it was not required “to duplicate
its efforts and reassess the same tax against” the Caceres Defendants. The district
court distinguished Hall as an in rem action to set aside fraudulent transfers of
property “ancillary to collecting a judgment against taxpayer-transferors.” Unlike
Hall, the district court explained that in this case the government was seeking to hold
the Caceres Defendants personally liable under a transferee theory and was not
proceeding in rem against specific property. As to the government’s reliance on
Galletti, the district court noted that in Galletti the entity was a general partnership,
and that the Supreme Court held § 6501 does not require the IRS to make a separate
assessment against persons secondarily liable for the tax debt. Unlike in Galletti,
the district court noted that the tax code had a specific requirement for transferees to
be separately assessed and that the Caceres Defendants were not “secondarily liable”
for Henco’s debts. Instead, the district court found the Supreme Court’s decision in
United States v. Continental National Bank & Trust Co., 305 U.S. 398 (1939), to be
persuasive. The district court read Continental as concluding that when the period
of limitations for assessing transferees expires, a “suit in absence of assessment of
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transferee liability” is barred. Although Continental involved an unassessed
transferee of an initial transferee, the district court found that principle similarly
applied to an unassessed initial transferee. The district court granted the Caceres
Defendants’ motion to dismiss. This timely appeal ensued.
II. STANDARD OF REVIEW
We review de novo a district court’s grant of a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6) for failure to state a claim, accepting the
complaint’s factual allegations as true and construing them in the light most
favorable to the plaintiff. Mills v. Foremost Ins. Co., 511 F.3d 1300, 1303 (11th Cir.
2008). Additionally, a Rule 12(b)(6) dismissal based on a statute of limitations is
appropriate only where it is “‘apparent from the face of the complaint’ that the claim
is time-barred.” Brotherhood of Locomotive Eng’rs & Trainmen Gen. Comm. of
Adjustment CSX Transp. N. Lines v. CSX Transp., Inc., 522 F.3d 1190, 1194 (11th
Cir. 2008) (quoting Tello v. Dean Witter Reynolds, Inc., 410 F.3d 1275, 1288 (11th
Cir. 2005)).
III. ANALYSIS
On appeal, the government argues that the district court erred in dismissing
its complaint against the Caceres Defendants. The government asserts that it timely
assessed tax liabilities against Henco under § 6502(a) and that it was not required to
separately assess the Caceres Defendants as transferees under § 6901. The Caceres
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Defendants disagree, and alternatively argue that Georgia’s statute of limitations for
claims of fraudulent transfers should apply to bar the government’s action against
them. We first briefly address the Caceres Defendants’ state statute of limitations
argument before turning to whether § 6901 requires separate transferee assessment
of a transferor’s tax liabilities.
A. Whether the government is bound by the state statute of limitations
The Caceres Defendants argue that the government is bound by Georgia’s
statute of limitations for claims brought under Georgia’s fraudulent transfer statutes,
which they assert is a four-year limitations period.3 This argument is without merit.
“It is well settled that the United States is not bound by state statutes of
limitation . . . in enforcing its rights.” United States v. Summerlin, 310 U.S. 414,
416 (1940). Indeed, “[w]hen the United States becomes entitled to a claim, acting
in its governmental capacity and asserts its claim in that right, it cannot be deemed
to have abdicated its governmental authority so as to become subject to a state statute
putting a time limit upon enforcement.” Id. at 417. For example, in United States
3
The Caceres Defendants further argue that the government’s claims against them are now
extinguished under Georgia’s version of the Uniform Fraudulent Transfers Act (“UFTA”). See
Ga. Code Ann. § 18-2-79. To the extent that the Caceres Defendants argue that the government
cannot proceed against them because UFTA repealed Georgia’s former fraudulent transfer statutes,
this argument is without merit. This Court has held that “as a matter of Georgia law . . . the UFTA
did not retroactively repeal Ga. Code Ann. § 18-2-22, nor otherwise affect any claims based upon
that statutory provision, where the underlying events occurred before the July 1, 2002[,] effective
date of the UFTA.” Chepstow Ltd. v. Hunt, 381 F.3d 1077, 1087 (11th Cir. 2004).
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v. Fernon, 640 F.2d 609, 612 (5th Cir. Unit B Mar. 1981), 4 the Unit B panel of the
former Fifth Circuit found that the government was not bound by Florida’s statute
of limitations where the government sought “to recover the value of the fraudulently
transferred property in partial satisfaction of the outstanding tax deficiencies.”
Similarly here, the government is not bound by Georgia’s statute of
limitations in pursuing its claims under Georgia law against the Caceres Defendants.
We therefore affirm as to this issue.
B. Whether the government was required to separately assess Henco’s
tax liabilities against the Caceres Defendants as transferees
Turning to the main issue in this case, the government argues that its claims
against the Caceres Defendants are timely based on the government’s timely
assessment against Henco under § 6502. The government contends that it was not
required to separately assess Henco’s tax liabilities against the Caceres Defendants
under § 6901 as transferees and that the district court erred in determining otherwise.
When construing statutory language, we begin “where all such inquiries must
begin: with the language of the statute itself,” giving “effect to the plain terms of the
statute.” In re Valone, 784 F.3d 1398, 1402 (11th Cir. 2015) (quoting United States
v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)). Preliminarily, we note that the
government has a “formidable arsenal of collection tools . . . to ensure the prompt
4
Decisions issued by Unit B of the former Fifth Circuit are binding precedent in the
Eleventh Circuit. Stein v. Reynolds Secs., Inc., 667 F.2d 33, 34 (11th Cir. 1982).
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and certain enforcement of the tax laws.” United States v. Rodgers, 461 U.S. 677,
683 (1983).
Three sections of the Internal Revenue Code are relevant here—§§ 6501,
6502, and 6901. Section 6501—titled “Limitations on assessment and collection”—
provides that, as a general rule, “the amount of any tax imposed by this title shall be
assessed within 3 years after the return was filed . . . , and no proceeding in court
without assessment for the collection of such tax shall be begun after the expiration
of such period.” I.R.C. § 6501(a). Section 6502—titled “Collection after
assessment”—provides that where an assessment of tax was properly made within
the applicable limitation period, the tax may be collected by a court proceeding if
that proceeding begins “within 10 years after the assessment of the tax.” I.R.C.
§ 6502(a)(1). And § 6901—titled “Transferred assets”—provides that liabilities for
income taxes for a transferee “shall, except as hereinafter in this section provided,
be assessed, paid, and collected in the same manner and subject to the same
provisions and limitations as in the case of the taxes with respect to which the
liabilities were incurred.” I.R.C. § 6901(a). Section 6901(c)(1) further provides
that, “[i]n the case of the liability of an initial transferee,” the period of limitations
is “within 1 year after the expiration of the period of limitation for assessment against
the transferor.”
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The Caceres Defendants assert that the plain language of § 6901, when read
together with § 6501, required the government to separately assess Henco’s tax
liabilities against them as transferees. Specifically, they point to the term “shall” in
§ 6901, which they assert directs mandatory action. See Jennings v. Rodriguez, 138
S. Ct. 830, 844 (2018) (“Unlike the word ‘may,’ which implies discretion, the word
‘shall’ usually connotes a requirement.” (quoting Kingdomware Techs., Inc. v.
United States, 136 S. Ct. 1969, 1977 (2016))); United States v. Peters, 783 F.3d
1361, 1364 (11th Cir. 2015) (explaining that the term “shall” used in a statute
indicates a command and “creates an obligation not subject to judicial discretion”);
see also Shall, Black’s Law Dictionary (11th ed. 2019) (defining shall as “[h]as a
duty to; more broadly is required to”). They also claim that the IRS’s own
regulations and Internal Revenue Manual require transferee assessment under §
6901, which the IRS routinely follows. Because the time period for transferee
assessment under § 6901—i.e., within a year after the expiration of the time period
for assessing Henco, the transferor—has passed, the Caceres Defendants argue that
the government’s action against them cannot proceed.
The Caceres Defendants’ and the district court’s interpretation of the
relevant code provisions, however, is foreclosed by the Supreme Court’s decision in
Leighton v. United States, 289 U.S. 506 (1933). In Leighton, a California
corporation sold all its assets and distributed the sale proceeds to its shareholders,
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leaving nothing to satisfy its outstanding tax liabilities. Id. at 506–07. The IRS
assessed taxes against the corporation, which neither contested nor paid the
assessment. Id. at 507. The IRS then proceeded in equity against the shareholders
“to account for corporate property in order that it may be applied toward payment of
taxes due by the company,” although the IRS had not separately assessed those
shareholders for the corporation’s tax liability. Id. The district court determined
that “the distributed assets constituted a trust fund” and that each shareholder should
account for the amount received from the corporation. Id. The Ninth Circuit
affirmed. Id.In analyzing the case, the Supreme Court began by noting that prior to the
enactment of the Revenue Act of 1926, the government, in an equity proceeding,
could “recover from distributees of corporate assets, without assessment against
them, the value of what they received in order to discharge taxes assessed against
the corporation.” Id. at 507–08. The Court explained that “this right remained unless
taken away by the specific words or clear intendment of the 1926 enactment.” Id. at
508. The Leighton shareholders argued that Congress had, in fact, done so, as
section 280 of the Revenue Act of 1926—the predecessor statute to § 6901, see
Revenue Act of 1926, ch. 27, § 280, 44 Stat. 9, 61—“read in connection with”
sections 274(a) and 278 of that Act showed that Congress intended to require the
government to separately assess them as transferees before it could sue them for
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restitution. See Leighton, 289 U.S. at 508–09. The shareholders further argued that
section 280 was the “sole remedy available” to the government. Id. at 509.
The Supreme Court, however, rejected those arguments. While noting that
“[t]he meaning of the statute is not free from uncertainty,” the Court explained that
the shareholders’ argument had been presented to courts “several times” and that, in
those cases, “the right of the United States to proceed against transferees by suit
since the act of 1926 ha[d] been definitely recognized.” See id. As such, based on
“the established rule of strict construction, the views expressed in the cases cited,
[and] the possible conflict with other statutory provisions,” the Court held that the
suit was properly brought against the shareholders without a separate assessment
against them as transferees. Id. Leighton has never been overruled, and section 280
of the 1926 Act contains language nearly identical to the language of § 6901. See
Revenue Act of 1926 § 280 (“The amounts of the following liabilities shall, except
as hereinafter in this section provided, be assessed, collected, and paid in the same
manner and subject to the same provisions and limitations as in the case of a
deficiency in a tax imposed by this title . . . . The period of limitation for assessment
of any such liability of a transferee . . . shall be . . . [w]ithin one year after the
expiration of the period of limitation for assessment against the taxpayer . . . .”); see
also United States v. Geniviva, 16 F.3d 522, 524 n.2 (3d Cir. 1994) (examining
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section 280 and § 6901 and concluding that there were “no differences in language
that would undermine the holding in Leighton”).
The government contends that the Supreme Court in Leighton determined that
separate assessment of transferees under § 6901 is not required in order to collect
tax liabilities assessed against a transferor-taxpayer, pointing to subsequent
decisions interpreting Leighton. For example, in United States v. Russell, 461 F.2d
605, 605–06 (10th Cir.), cert. denied, 409 U.S. 1012 (1972), a district court
dismissed the government’s action against a transferee for unpaid federal estate taxes
that were previously assessed against the estate because the transferee was not
assessed within the time period under § 6901. The Tenth Circuit reversed, holding
that “the collection procedures contained in § 6901 are not exclusive and mandatory,
but are cumulative and alternative to the other methods of tax collection recognized
and used prior to the enactment of § 6901 and its statutory predecessors,” based on
“the teaching of Leighton.” Id. at 606 (emphasis added). While recognizing
Leighton did not have “extended comment” on the issue, the Tenth Circuit found
that the government was able to “maintain an action in law against a fiduciary
without following the collection procedures provided in § 6901.” Id. at 607. The
court determined that the fact that Leighton involved a suit in equity while Russell
involved a suit in law was not a significant distinction. See id. at 608. The court
also rejected the argument that the Supreme Court was not “fully apprised . . . as to
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the legislative history of § 6901,” as “[s]uch argument should be made to the
Supreme Court.” Id.
The Tenth Circuit has continued to apply Leighton and Russell. See United
States v. Johnson, 920 F.3d 639, 646 (10th Cir. 2019) (applying Russell in the estate
tax context); United States v. Holmes, 727 F.3d 1230, 1231–34 (10th Cir. 2013)
(applying Leighton and Russell where the government sought unpaid taxes assessed
against a defunct corporate entity under § 6502(a) from its sole shareholder who was
not separately assessed under § 6901). Additionally, several other circuits have
reached a similar conclusion as the Tenth Circuit. See, e.g., Geniviva, 16 F.3d at
524 (applying the principle articulated by Leighton and Russell that “a failure by the
[g]overnment to personally assess the shareholders of a defunct corporation did not
bar an action to impose transferee liability against them”); Culligan Water
Conditioning of Tri-Cities, Inc. v. United States, 567 F.2d 867, 870 (9th Cir. 1978)
(“Section 6901 provides the [IRS] the power to use against a transferee the same
summary collection procedures it may use against a transferor or any other
delinquent taxpayer. But that section is not mandatory, as appellants suggest; rather,
it adds to other methods available for collection.”); Payne v. United States, 247 F.2d
481, 484–85 (8th Cir. 1957) (determining that a predecessor to § 6901 did not
“preclude the bringing . . . of a plenary suit against [an unassessed] transferee to
subject property received by him from a taxpayer, to the payment of income taxes
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owned by the latter, under the trust fund doctrine”); United States v. Motsinger, 123
F.2d 585, 588 (4th Cir. 1941) (describing section 280 of the 1926 Act as “an
alternative summary method of collection by notice to the . . . transferee” that “did
not create a new obligation, but merely provided a new remedy for enforcing an
existing obligation”).
The government further asserts that its position is supported by Hall v. United
States, 403 F.2d 344 (5th Cir. 1968),5 and United States v. Galletti, 541 U.S. 114(2004). In Hall, the government assessed unpaid income taxes against a married
couple. 403 F.2d at 345. Following the husband’s death, the government instituted
an action to reduce the tax liabilities to a judgment and eventually amended its
complaint “to allege certain fraudulent conveyances of the [couple’s] property to
appellant-transferees” that had not been separately assessed against the transferees
by the government. Id. On appeal, the former Fifth Circuit addressed “whether the
government may proceed, in an effort to collect its judgment against taxpayers, to
set aside conveyances by taxpayers allegedly made to transferees to defraud
creditors where no assessment was made against the transferees” within the time
period of § 6502. Id. at 345. The court ultimately held that the § 6502 limitations
period was inapplicable to the case, as the transferees were not being pursued under
5
This Court adopted as binding precedent all Fifth Circuit decisions issued prior to October
1, 1981. Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
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the transferee statute nor under an implied or resulting trust theory as shareholders
or successors. Id. at 346. Rather, the court described the case as an “ancillary
proceeding to collect a judgment against others,” i.e., an “in rem action to set aside
fraudulent conveyances ancillary to collecting a judgment against taxpayer-
transferors.” See id. at 345–46. In reaching its holding, however, the former Fifth
Circuit analyzed the Supreme Court’s decision in United States v. Updike, 281 U.S.
489 (1930), noting that, in Updike, the government was barred from pursuing an
action against unassessed shareholders for a corporation’s unpaid, assessed tax
liability based on the expiration of the limitations period in § 6502, not the
limitations period in § 6901. See Hall, 403 F.2d at 346. The former Fifth Circuit
explained that, in the cases applying the Updike principle, the rationale was “that the
suit was a proceeding against a transferee on a trust fund theory within the
contemplation of § 6502 . . . to collect taxes due” and it did not matter “whether the
suit be under the transferee statutes . . . or alternatively, as a direct suit without
assessment.” Id. at 347.
In Galletti, the Supreme Court held that the government was not required to
“make separate assessments of a single tax debt against persons or entities
secondarily liable” for that debt, i.e., “liability that is derived from the original or
primary liability,” in order for § 6502’s statute of limitations to apply to those
persons or entities. 541 U.S. at 121–22 & n.4. The taxpayer in Galletti was a
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partnership formed under California law, with the partners “only secondarily liable
for the tax debts of the partnership.” Id. at 116. The Court determined that it was
“clear that the term ‘assessment’ refers to little more than the calculation or recording
of a tax liability” based on its numerous uses throughout the Code. Id. at 122. The
Court explained that, in most cases, the IRS accepts taxpayers’ self-assessments, but
where the IRS rejects that self-assessment, it can calculate and record the proper
amount of liability. Id. While the assessment of a tax triggered certain
consequences—for example, permitting the government to employ administrative
enforcement methods to collect that tax and extending the time period for
collection—“the fact that the act of assessment has consequences does not change
the function of the assessment: to calculate and record a tax liability.” Id. at 122–
23. As such, the Court determined that it was clear that “it is the tax that is assessed,
not the taxpayer.” Id. at 123 (emphasis in original). The Court also addressed
Updike, noting that it held the limitations period resulting from a proper assessment
in a predecessor to § 6502 “governs ‘the extent of time for the enforcement of the
tax liability,’” i.e., that “the statute of limitations attached to the debt as a whole.”
Id. (quoting Updike, 281 U.S. at 495). The Court further noted that the Updike Court
“held that the same limitations period applied in a suit to collect the tax from the
corporation as in a suit to collect the tax from the derivatively liable transferee.” Id.Thus, “[o]nce a tax has been properly assessed, nothing in the Code requires the IRS
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to duplicate its efforts by separately assessing the same tax against individuals or
entities who are not the actual taxpayers but are, by reason of state law, liable for
payment of the taxpayer’s debt.” Id.We are bound by the principles articulated in Leighton, Hall, and Galletti.
The Caceres Defendants, however, make several arguments as to why Leighton and
its progeny, as well as Hall and Galletti, should not apply here. We find none of
these arguments availing.
First, the Caceres Defendants contend that the legislative history of § 6901
and its predecessors in the Revenue Act of 1926 and the Revenue Act of 1928
support its interpretation that separate transferee assessment is required, claiming
that Congress rejected an attempt to make section 280 cumulative, rather than
“exclusive,” during the drafting of the 1928 Act. They note that Leighton was
decided under the 1926 Act, which was subsequently amended. There are several
problems with the Caceres Defendants’ argument. First, even if they are correct that
the legislative history of § 6901 and its predecessors conflicts with Leighton, under
our system of vertical precedent, we are bound to apply Leighton until it is overruled,
receded from, or in some other way altered by the Supreme Court. See Gonzalez v.
Sec’y, Fla. Dep’t of Corr., 629 F.3d 1219, 1223 (11th Cir. 2011) (“[W]e are bound
by decisions of the Supreme Court.”); United States v. Thomas, 242 F.3d 1028, 1035
(11th Cir. 2001) (explaining that this Court is bound to follow Supreme Court
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precedent “unless and until the Supreme Court itself overrules that decision”); see
also Russell, 461 F.2d at 608 (“We are not at liberty to go behind the Leighton
rule.”). Second, even if we were not so bound, fundamental principles of statutory
analysis undercut the Caceres Defendants’ argument. The law is the statutory text
that has passed the constitutional requirements of enactment and presentment. As
discussed above, the language of § 6901 and its predecessors has remained nearly
identical throughout several revisions to the Internal Revenue Code since the 1926
Act, including the provision’s use of the term “shall.” And “Congress is presumed
to be aware of an administrative or judicial interpretation of a statute and to adopt
that interpretation when it re-enacts a statute without change.” Forest Grove Sch.
Dist. v. T.A., 557 U.S. 230, 239–40 (2009) (quoting Lorillard v. Pons, 434 U.S. 575,
580 (1978)); accord Phillip C. ex rel. A.C. v. Jefferson Cnty. Bd. of Educ., 701 F.3d
691, 696–97 (11th Cir. 2012). Since adopting the statutory language in the 1926
Act, Congress has not modified § 6901 (or its predecessors) to clearly indicate that
the provision is the sole mechanism for assessing a transferor’s tax liabilities against
transferees, nor has Congress otherwise demonstrated any intent to abrogate
Leighton and its progeny. And, as the government notes, the Leighton shareholders
themselves brought the legislative history of the 1926 Act to the Supreme Court’s
attention. See Brief for the United States, Leighton, 289 U.S. 506, No. 735, 1933
WL 31562 (May 9, 1933).
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Next, the Caceres Defendants argue that we should limit the application of
Leighton and Galletti to individuals or entities that are primarily or secondarily liable
for the transferor’s debts and liabilities. They assert that, under California law in
effect at the time Leighton was decided, shareholders of a California corporation
were “individually and personally liable for such proportion of all [the corporation’s]
debts and liabilities . . . during the time he was a stockholder.” See Cal. Const. of
1897, art. XII, § 3 (repealed Nov. 4, 1930). Similarly, the Caceres Defendants note
that the partners in Galletti were secondarily liable for the California partnership’s
debts. See Galletti, 541 U.S. at 116. Because shareholders of a Georgia corporation,
such as Henco, are generally not liable under Georgia law for that corporation’s
liabilities, see Ga. Code Ann. § 14-2-622, the Caceres Defendants contend that
Leighton and Galletti should not apply. As the Caceres Defendants concede,
however, nowhere in Leighton did the Supreme Court hold that either the
transferor’s corporate form or state law governing shareholder liability was relevant
to its analysis. Indeed, the two cases relied on by the Supreme Court in Leighton for
its recognition that, prior to the Revenue Act of 1926, the government could proceed
in equity against distributees of corporate assets, without assessment against them,
did not involve a California corporation. See Phillips v. Comm’r of Internal
Revenue, 283 U.S. 589 (1931) (involving a Pennsylvania corporation); Updike, 281
U.S. 489 (involving a Nebraska corporation); see also Leighton, 289 U.S. at 507–
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08. We thus decline to read Leighton’s holding in the manner urged by the Caceres
Defendants. And, in Galletti, the Supreme Court described its definition of
secondary liability in this context as “liability that is derived from the original or
primary liability.” 541 U.S. at 122 n.4. Based on the allegations of the government’s
complaint, see Mills, 511 F.3d at 1303, it appears that the Caceres Defendants would
be secondarily liable for Henco’s tax liabilities based on fraudulent transfers they
received from Henco. Moreover, as the Court explained in Galletti, “it is the tax
that is assessed, not the taxpayer,” 541 U.S. at 123, and it is undisputed that the
government timely assessed the tax liabilities against Henco.
The Caceres Defendants also contend that United States v. Continental
National Bank & Trust Co., 305 U.S. 398 (1939), which the district court relied upon
in dismissing the government’s claims, supports their position. In Continental, a
testator was the principal shareholder of an Illinois corporation that was dissolved,
with its assets being converted to cash and securities and transferred to the testator.
Id. at 399–400. The government later assessed a tax deficiency against the
corporation and informed the testator that there was a proposed assessment against
him for that deficiency as transferee of the corporation’s assets. Id. at 400. The
testator filed a petition for redetermination, but subsequently died several years later.
Id. The testator’s will was admitted to probate, and the government made a
“jeopardy assessment” against the testator and submitted a claim with the estate’s
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administrator. Id. The administrator, however, did not pay the claim and, instead,
transferred most of the estate to a trustee. See id. at 400–01. The government then
sought to collect the tax liabilities assessed against the testator from the trustee and
the will’s beneficiaries. Id. at 401.
The Supreme Court first explained that the government’s action could not be
based upon the assessment of the taxpayer, i.e., the dissolved corporation, as “[t]he
time for such a suit . . . expired long before the commencement of [the] suit.” See
id. at 403. Rather, the Court determined that the suit was “against transferees under
the will of a transferee of the property of the taxpayer[,] . . . based on the jeopardy
assessment made against testator.” Id. The Court rejected the government’s
argument that it had six years after the jeopardy assessment of the testator—the
original transferee—to bring a suit against the trustee and beneficiaries—the
subsequent transferees. Id. The Court noted that no assessment was made against
any of the subsequent transferees, who were not “transferees[s] of the property of
the taxpayer [corporation]” but instead were “testamentary transferees of the estate
of testator.” Id. at 404. Determining that sections 278(d) and 280—predecessors to
§§ 6502(a) and 6901, respectively—were “not broad enough to impose on
defendants any liability on account of the assessment against the testator,” the Court
found that “suit on assessment against the taxpayer, or suit in absence of assessment
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of transferee liability, was by the applicable statutes of limitations barred long before
this suit was brought.” Id. at 404–05.
We find the Caceres Defendants’ and the district court’s interpretation of
Continental flawed for several reasons. As an initial matter, we note that
Continental did not address Leighton nor is there any indication in Continental that
the Supreme Court intended to overrule Leighton. Moreover, in Continental, the
Supreme Court found that the government’s action was outside both the limitations
period of collecting an assessment against the transferor taxpayer (the dissolved
corporation) under section 278(d) and the limitation period for separately assessing
the transferees of the taxpayer’s transferee (the testator) under section 280. See id.
at 403. As the Tenth Circuit explained in Holmes when rejecting a similar reading
of Continental, the Court “clearly recognized that a suit against a transferee would
have been sustainable—based on the assessment against the transferor—if it had
been brought within the time permitted for suit against the transferor.” 727 F.3d at
1235 n.4. Here, by contrast, the government has sued the Caceres Defendants within
the ten-year period permitted for suit against Henco.
The Caceres Defendants also argue that our decision in L.V. Castle Investment
Group, Inc. v. C.I.R., 465 F.3d 1243 (11th Cir. 2006), supports their position. In
L.V. Castle, the IRS sent a dissolved Illinois corporation a notice of deficiency
disallowing certain deductions for a taxable year. See id. at 1244. The dissolved
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corporation and its sole shareholder filed a petition in the Tax Court to redetermine
the corporation’s deficiency, although the petition was filed after the expiration of
the statutory time period for the corporation to wind up its business. See id. at 1244.
This Court held that the dissolved corporation lacked the capacity to contest its tax
liability, despite its inability to defend itself, and that the shareholder’s attempt to
litigate on behalf of the corporation was premature because “the Tax Court’s
jurisdiction is limited to petitions filed by the party named in the notice of
deficiency.” Id. at 1247–48. This Court explained that “Congress has provided a
transferee of a defunct corporation with the ability to petition the Tax Court to
challenge the Commissioner's determination that it is liable as a transferee for an
income tax deficiency of the defunct corporation” under § 6901, but that the
transferee “must wait until the Commissioner has made a determination of transferee
liability and issued a notice to it.” Id. at 1248. This Court also noted that the IRS
had “yet to file a notice of transferee liability, which it must do before it can move
against the corporation’s assets if they have already been transferred from the
dissolved corporation.” Id. at 1247.
However, this Court in L.V. Castle was not asked to decide the issue on appeal
in the instant case, i.e., whether the government was required to separately assess a
transferee under § 6901 or, rather, could proceed against the transferee based on the
assessment against the transferor under § 6502. Rather, this Court addressed the
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question of which party could file a petition in the Tax Court challenging the
government’s determination of tax deficiencies. See L.V. Castle, 465 F.3d at 1245–
48. Because the government had not put the defunct corporation’s shareholders on
notice that it intended to treat the shareholder as a liable transferee, the shareholder’s
petition in the Tax Court was premature. Furthermore, L.V. Castle does not address
Leighton, which is binding precedent upon us. Thus, to the extent that L.V. Castle
could be construed as this Court stating that the government is required to separately
assess a transferor’s tax liabilities against a transferee under § 6901, it is dicta
contrary to the Supreme Court’s decision in Leighton. See CSX Transp., Inc. v. Gen.
Mills, Inc., 846 F.3d 1333, 1338 (11th Cir. 2017) (“The holding of an appellate court
constitutes the precedent, as a point necessarily decided. Dicta do not: they are
merely remarks made in the course of a decision but not essential to the reasoning
behind that decision.” (quoting Bryan A. Garner et al., The Law of Judicial
Precedent 44 (2016))).
Here, accepting the facts in the government’s complaint as true, as we must at
this stage of the proceedings, see Mills, 511 F.3d at 1303, the government timely
assessed tax liabilities against Henco on October 26, 2007, beginning the ten-year
time period for collection of those assessed taxes under § 6502. Because Henco
contested the assessment in a collection due process proceeding, the statute of
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limitations was tolled until the conclusion of that proceeding on October 19, 2011.
Thus, the government’s action, which was filed on June 27, 2018, was well within
§ 6502’s ten-year limitations period. Additionally, as alleged by the government,
the Caceres Defendants are liable for Henco’s tax liabilities based on fraudulent
transfers they received from Henco in violation of Georgia’s former fraudulent
transfer statutes in order to avoid the capital gains taxes incurred by Henco in its sale
of the Belca stock. Under Leighton, once the government timely assessed the tax
liabilities against Henco, it was not required to separately assess the Caceres
Defendants as transferees under § 6901, as that provision is simply an additional tool
for the government to assess and collect from a transferee the tax liabilities owed by
a transferor. Thus, the government can proceed against the Caceres Defendants as
transferees under § 6502.
While we hold that the government was not required to separately assess the
Caceres Defendants for Henco’s assessed tax liabilities under § 6901, we take no
position on the veracity of the government’s factual allegations in its complaint or
the merits of its claims against the Caceres Defendants. On remand, as the
government concedes in its reply brief, the Caceres Defendants can challenge their
own liability under Georgia law and the government’s allegation that they are
estopped from challenging Henco’s tax liabilities. We also take no position on
whether the assessment of tax liabilities against Henco is sufficient to trigger liability
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against the Caceres Defendants, as former shareholders of Henco, for interest and
penalties without separate notice and demand to them. Cf. Galletti, 541 U.S. at 119
n.1.
IV. CONCLUSION
For the reasons stated herein, we reverse the district court’s order dismissing
the government’s claims against the Caceres Defendants on the basis that the
government was required to separately assess them as transferees under § 6901, and
we remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
33