image

Case 2:13-cv-03313-RB Document H3-3 Filed /lCD/13 Page 4 of 221


EXHIB IT ''F''

image

image

image


image

image

Case 2:13-cv-03313-RB Document 10-3 Filed 1?/lffi/13 Page 21 ot-2%-


FfRM a11d AFFILIATE OFFICES



THOMAS W. OSTRANDER

EJIRJlCT DIAL: +121597-9 1-!!02

·P.ERSONAL FAX: +1 21 5 689 3639

E-MAIL: ostrander@duanemorris.com


w11•w.d11anemorrls. com


June- 26, ·2013_


Vincent J. Furno

-c/o Mark E. Cedrone

Law Offices of Mark E. Cedrone,

P..:C.

! 123-s. Broad St., Suite 810

Philadelphia, PA 19109

NEW YORK LONDON SINOAPORE PHILADE[;PHIA CHICAGO

\Vi\SHJNO.'WN, DC SAN'FRANCISGO PALO ALTO

SAN DIEGO BOSTON HOUSTON

LOS ANGELES HANOI

HO CHI MINH CITY.

ATLANTA BALTIMORE . . ,, WILMINGTON

MIAMI PITTSBURGH' NEWARK

LAS VEOAS CHERRY HlLL BOCAJ\ATON LAKE TAHOE


MEXICO CITY ALLIANCE WITH

MIRANDA & ESTAVILLO


Background

I am a partner in the law firm of Duane Morris LLP. The focus of my practice for more than 30 years has been the representation of individuals and entities in civil and criminal tax controveries. Iam an attorney licensed to ·practice law in the Commonwealth of Pennsylvania since 1978. Iam a graduate of Temple University School of Law (J.D.) and New York University School of Law (LL. M. Taxation). My curriculU'm vitae is ·· attached as Exhibit A. I am a member in good standing of the bars of the

Supreme Court of the Commonwealth of Pennsyvlania, the Supreme Curt of the United States, the United States Court of Appeals for the Third Circuit, the United States District Court for the Eastern District of Pennsylvania,

the United States Court of Claims and the United States Tax Court.

Ihave been asked by your counsel to render my opinion concerning the following:



DUANE MORRIS LLP

30 SOUTH !?TH STR EET PHILADELPHIA, PA 19103-4 196 DM3\2587693.l


PHONE: +1 215 979 tooo' FAX: +1 215 979 1020


Exhibit "F"


image

image

Case 2:13-cv-03313 RB Document H3-3 Filed 1l/1EB/13 Pae 8. . f .:m b·r:Y.< ' ;,··.:<,··'" .



image

Vincent J. Furno June 26, 2013

Page 2

Duane Morris


image

  1. Issue

    Whether the alleged transfers. of real estate and cash by Vincent Furno to­ his-sen and fi.ancee, respectively, prejudice o-r render ]neffectual collection

    ·of tax alleged to be due the Internal Revenue Service E"the- I-RS"J?-

  2. Fa.cts

    'The following facts·have been-derived from the Complaint and accompanying exhibits filed in Vincent J. Furno v. United States, No. 13- 6-313 United States District Court, Eastern.District of P.enns:v-lvania.

    In March 2009, Vincent J. Furno ("Furno") was convicted of numerous violations of certain federal statutes. -Complaint at paragraph (''Compl. Para.") 7 and at Exhibit 1(Notice of Jeopardy Assessment, Narrative page 1). In July 2009, the distdct court sentenced Furno to a term of imprisonment and ordered him to pay restitution, a fine and a special assessment. The foregoing financial sanctions totaled approxima,tely $2.7

    million. Compl. Para. 12 - 14 The prosecution appealed the sentence and in November 2011on remand from the court of appeals, the district court increased the term of imprisonment and increased the ainount of

    restitution by approximately $1.1million. The prosecution appealed a portion of the restitution order and Furno is awaiting resentencing on that issue. Compl. Para. 20 - 22. Between funds collected by the government

    -from·-Fumo and amo11nts- paid into court by Furno, he has paid ·more than

    $4 toward the court-ordered financial sanction. Compl. Para. 23 and Exhibit 1, Narrative fn 1.

    In October 2012, the IRS issued proposed income tax adjustments to Furno's 2001 through 2005 federal income tax returns. Cornpl. Para 25. No administrative examination preceded this adjustment. Id . In December 2012, Furno objected to the proposed adjustment by filing a protest with the IRS Office of Appeals. Compl. Para.29 - 30.

    On March, 212013, the IRS issued notices of jeopardy assessment

    and right of appeal ("NJA") against Furno for income tax for the years 001 through 2005, for excise tax for the years 2002 through 2004 and for gift tax for the year 2009. Complaint exhibits 1,2 and 3. On the same day, the


    image

    DM3\2587693, 1

    image

    image

    ·"f

    Case 2:13-cv-033 13 RB Doeument 10-3 Filed 1?/Hll/13 Pti@ e ii ¢8..... .. <·· ·,

    -. '::· ·:• :.-,,:··_·. ·, .: . · . .



    Vincent J. Furno

    June 26, 2013

    Page 3

    Duane Morris


    IRS issued -notices of jeor:>ardy levy and right -of appeal with regaret-to the foregoing jeopardy assessments and -serv€d-the notice on"a variety of financi-a1 institutfons at whieh Furno apparently had accoun"ts,_ . The-notices

    -nflevy·stated a total tax 1iability due 0f approximai:ely-$3·-million,-compl.

    -Para 36 anEl Exhibits 4,5 and 6. Each·of tli.e NJAs .stated in part:

    Under secticnr 68·61, and 7429 Gf the·Internal Revenue Code, you are notified that I have found that you are, or appear to be, placing property seyond the--reach of the-Government, by concealing it, dissipating it, or:transferr-ing it to others, thereby tending to prejudice or render ineffectual collection of ... tax ...

    Complaint, Exhibit 1page 1


    Among the facts asserted in the NJAs as supporting the jeop rdy assessment was that Furno had "...encumbered title to [his] property ,by transferring it for nominal consideration to individuals with whom [he] share[d] a close or fa1nilial relationship ..." Complaint Exhibit 1page 2.

    The Narrative attached to each NJA recited that Furno had transferred real property and cash. Complaint Exhibit 1, Narrative.

    Address ·

    Owner

    Market Value

    Transfer/ Consideration

    1831Passyunk Ave. Philade!Q_hia, PA

    Gary & Susan Tavella

    $235,000.00

    Property sold on

    6b2J_2008

    As to the real property, the Narrative recited that since his indictment, Furno had transferred one-half interests or full interests in a11 the properties he owned to his son (Vincent E. Furno II) or his girlfriend/fiancee (Carolyn Zinni) and that all of the transfers were for less than full, fair and adequate consideration. Further, the Narrative alleged that Furno had encumbered property located on Green St. in Philadelphia in the amount of $1-4 million in January 2010. The Narrative included the following chart reflecting property transfers:


    DM3\2587693.1


    . ,,


    image



    image

    Vincent J. Furno June 26, 2013

    image

    image

    Page 4

    image

    DuaneMorris


    1936-38-40 South 13th

    St., -Philadelphia,-PA

    TP and.Son

    (J'I\.v/ROS)

    $130,000.00.

    .

    Property transferred

    -on 12/16./2008 for

    _li.oo

    6601Monmouth Ave.,.

    -Units A/D/E,-Ventnot,

    NJ

    TP and:Son

    :(JTw/ROS)

    ·$525,0DO.UG

    Property transferred on 10/ 12f zo11 for

    $10.00

    108 Kenyon Ave. Margi:tte, NJ

    ·Tp and Fiancee (JTwf ROS)

    $1,100,000,00

    Property transferred ·

    -On 1.0i2/2011 for.

    $10.00· ..

    3n Fiesta w·ay Ft. Lauderdale, FL

    'fP and-Fiancee-

    (J'I\.v/ROS)

    .Prope1'ly transferred on 10/18/2011 for

    $10.00

    670 River Road

    -Halifax, PA

    Fiancee

    $33z,552.oo

    Property transferr.ed on 10/18/2011 for

    $1.00

    2220 Green Street Philadelphia, PA

    TP and Son

    (J'I\.v/ROS)

    $3,000,000.00

    Property-transferred on 2/21/12 for

    $10.00

    30 Fiesta Way

    Ft. Lauderdale, FL

    Michael & Susan

    Lewis

    $2,325,000.00

    Property sold on ·

    AL6l12 ·

    image

    image

    image

    ,.

    . .

    On the same date as the NJAs were issued, the IRS filed two notices .

    of federal tax lien. Complaint Exhibit 10. The notices of federal tax lien state that the "Name of Taxpayer" is "Carolyn Zinni as nominee of Vincent J. Furno for the property located at 108 Kenyon Ave Margate NJ" and (in a separate notice) "for the property -at 670 River Rd, Halifax, PA." The

    image

    notices of federal tax lien were filed with the Office of the County Clerk, Atlantic, Mays Landing NJ 08330 and the Prothonotary of Dauphin Counfy, Harrisburg, PA 17108.

    In addition, on May 21, 2013, the IRS filed notices of federal tax lien against Furno and against his son, as Fumo's nominee, for the jeopardy · assessments for income, excise and gift tax. The notices were filed with the Prothonotary of Philadelphia County, Philadelphia, PA 19130.

    As to' cash transfers, the Narrative recited:

    image

    The Service received information indicating that within a little over one month after sentencing, on or about the end of August 2009 through the end of January 2010, Furno made a series oflarge dollar


    DM3\2587693 .l


    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 1?/lffi/13 Page S·of .25 ....



    Vincent J. Fume fone-26,. 2013

    Page 5

    Duane Morris


$2,793-,500.-In addifron, the·son subsequently transferred:some -of this m0ne-y{a:pproxirnate1y $1,427,500) to aRother bank, S;Blely in the

son's name. · · "

Complaint, Exhibit 1Narrative page 2.

The Narrative ·eontain.ed ne schedule of the alleged- transf.ers revealing the amount and date of each transfer, the bank from which the transfers were made, the bank to which the transfer were made, the source of the information the IRS received regarding the transfers or why the transfers were characterized as "suspicious."

The Narrative asserted that the jeopardy assessment for incm;ne taxes was based upon "the evidence established du:dng the three month"criminal trial" and on "...[Fumo's] fraudulent failure to report the benefits he ' received from defrauding the Senate of the Commonwealth of Pennsylvania and Citizens Alliance for Better Neighborhoods" The Narrative contained no description of the items (presumable the value of the "benefits") that made up the adjustment to Puma's returns but did state the amount of additional tax, penalty and interest that was assessed.

As to the jeopardy assessment for excise tax, the Narrative asserted that based on Fumo's conviction, the Service had determined that he received "excess benefits" from Citizens Alliance for Better Neighborhoods for the years 2002 through 2004. No schedule of the "excess benefits" is contained in the Narrative. The excise tax and related penalty was imposed under Internal Revenue Code ("IRC" or "the Code") sections 4958 and 6651.



image

that

As to the jeopardy assessment for gift taxes , the Narrative _asserts


...almost immediately after his conviction in 2009, information was provided to the Service that established that Furno transferred a total


DM3\2S87693, I

image


image



Vincent J. Fumo

]line.26, 2013

Page 6

image

DuaneMorris


of $92.000:0-from a bank account he held joint y with his·son to an. account held sotely in his son's name. Bas.eel upon (:tJthe inequaHcy in their known -tneome and wea:lth;-(2) the use of tbejoint acceunt to

pay Fumo's criminal defense-·atto.rney fees; (3) tke-lrnown deposits to th-e account being solely attrlbutableto Fumo, the. $.ervice concluded that the $g20,000 cash tr&Tisfer to- h.is son!s account was a taxable gift. "


Narrafive at page 4.

Furno requested ·an administrative·re.view of the NJAs -a.nd associa-ted levies whicwas denied in June 2013. Complaint Exhibit 9.

  1. Law

    IRS Assessment and Tax Collection Procedures

    Generally, the IRS starts the assess1nent process wit th,, ' examination of the taxpayer's federal income tax. An "assessment" isthe term used to describe the recording a taxpayer's name, address and tax liability on the IRS's books of account.!RC sections 6202 and 6203. The fact of an assessment is important for a number of reasons, most prominently that except in the rarest of circumstances, the IRS may not adminiStratively collect a tax liability--without-fi.r-st assess-ing atax. IRC sections 6320 et seq. and 6330 et seq.

    Once the examining agent has completed the examination and determined the proposed adjustments to the return, the taxpayer, if dissatisfied with the adjustments, may have a conference with the examiner's supervisor. Alternative dispute resolution procedures are available to resolve examination issues. See e.g . Rev. Proc. 2003-41, 2003- 25 I.R.B. 1047 (regarding Fast Track Mediation)

    Ifthe examination process does not result in a final resolution, the taxpayer may "protest" the adjustments to the IRS Appeals Office ("Appeals"). There an experienced IRS appeals officer independently reviews the matter. The taxpayer µiay present argument disputing the adjustments and may be represented by counsel (as is also the case in an


    DM3\2587693 .1

    image


    DuaneMorris


    . Appeals also provides for alterrrativ.e.dispute resolution

    to eorrclude the matter. Se.e- e.g:, Rev. Proc. 2·009 - 44, 2009

    462 _(regaraing Appealsmediation}:Most matters referred to ApJ'eals resolved through- settlemen.

    Ifthe matter i& notresolved at Appeals, the IRS issues a-notice of deficiency, setting for.th the proposed adjustments and ihe · ,. tax-liability and penalties, if asserted. At this point the taxpayer

    challenge the .proposed adjustments in court. Typically the court of is the United States Tax Court since there is no need to pay the tax

    challenging it. Some-=taxpayers choosei:o pay the tax, file a claim for and if that is not successful, file suit for-refund in feder-al district

    ,.., ,,w.- or the Court-of Federal Claims.

    Up to this point in the process, no assessment Qf the proposed tax be made and no collection of the proposed tax is authorized.

    In the tax refund context, an assessment is made when the tax ip paid and is contemporaneously recorded as satisfied on the books of the IRS. Under these circumstances there is generally no need for the IRS to engage in any collection activity.

    Where the taxpayer disputes the case in Tax Court, no assessment may be madeuntil-the .decision of the Tax=Gourt-is.final. IRC section 6213

    Once an assessment is made\ the IRS may collect the tax liability but only after notice and demand for payment and an opportunity to pay the tax is given to the taxpayer. IRC section 6303. Even after the notice and

    demand for payment is provided and the taxpayer does not pay the liability, the IRS still may not unilaterally collect the tax (for instance through levy of


    1 In almost all cases, the IRS first assesses a tax liability before attempting to co11ect"it. However, section 6501(a) authorizes a suit to collect the general liability for taxes without first assessing the tax liability. "[N]o proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period (3 years after the return was filed)." United States v. M atzner, 79 AFT R 2d 97-2351(8.D. Fl. 1997),


    DM3\2587693. l

    image


    image



    Vincent J, Furno June 26, 2013

    Pag© 8

    image

    image

    DuaneMorris


    the taxpayer's assets such as a-bank account or wages). The IRS. must first send a.series of notices- culminating_ in a: final nGt1ce of intent te levy and

    :advising the-taxpayer ofthe right to what is referred to as a "Collection Due Prucess Hearing" t''CDP Hearing''). IRC:section 63,30

    Ifthe taxpayer timely :r;equests a CDP Hearing the IRS may not take

    c.o-lleetion acti0n until the-hearing i&-ee>nducte:d and if a satisfactory result is . ,, not reached, until an appeals officer has m-ade a final-determination. That final determination may be appealed to the United States Tax Court and

    until the decision of the Tax Court is final, no collection action may be taken. IRC-section 63-3o(e). Frequently, the CDft Hearing process results in the taxpayer and the -IRSreaching an agreement to pay the tax liability

    th-rough an installment agreement or an offer in compromise. Ifthe CDP Hearing ·process does not end ±n agreement and the Tax Court affirms the IRS's decision not to enter into an agreement to pay the liability, the IRS

    may collect the tax liability.

    The IRS has available a large arsenal of options to collect an , outstanding tax liability directly from the taxpayer and from certain third parties.

    Collection of the Tax Liability Directly From the Taxpayer

    After- assess-ment-of the tax, the.lRS may file a notice of federal tax lien. The scope of the federal-tax.lien is extremely broad and encumbers all "property and rights to property, whether real or personal, belonging ..."to the taxpayer. IRC section 6321. The IRS may levy (seize) the taxpayer's assets or interests in assets. These are all administrative remedies that do not need court authorization.

    There is a 10-year statute ofliinitations for collection of tax from the date of assessment. IRC section 6502. Ifthe 10 year statute is soon to .. expire, the IRS may institute a suit to reduce the tax assessment to judgment to obtain an_extension on the time for collection of the tax liability. Code sec. 7402. The judgment extends the federal tax lien and the related administrative enforcement remedies. The statute of limitations


    DM3\2587693.l

    image

    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page 18 of 221



    VinGent J: .Furno

    June 26, 2013

    Page 9

    Duane Morris


      1. q.uires onlyihat -the suitbe instituted within the 10-year perio-d. In a-daitiGn, -the 10-year p·eriod itself is subJect to -extension.

        A lien foreclosure suit to enJcme a federal tax lien is authorized by "8ode sections 7401 and 7403. The 1ien-foreclosme suit under s.ection 7403 establisheB the IRS's interest-in the p.roperty before =the sale of-tht inter.est. Lien foreclosure suitsai:e common in situations involving joint tenant interests-. The district court -has the.right under section 7403{e}to adjudkate all matters and claims associated with the property ancl to determine the merits and priorities of all interests in and liens against the property. Ifthe tax claim has been reduced to judgment in a previous judicial 1roceeding, the IRS's suit to foreclose on any particular interest in the taxpayer's. pr.<;lperty may be brought at any time during which the judgment remains in effect.

        Section 7403(d) provides that the United States may bring suit to establish a receivership for the taxpayer's assets. A receiver is frequently appointed where there is either a substantial liability or a threat that the taxpayer's assets will be dissipated. The IRS inay also request that the court appoint a receiver as a way to bring hard-to-reach assets within the jurisdiction of the court.

        The district court has authority to issue a writ of ne exeat republica to stop a taxpayer from leaving the United States . The writ may be issued if: (1)-thff taxpayer is planning to leave the United States; (2) the taxpayer has conveyed property; or (3) the taxpayer has concealed property in order to remove it from the United States.

        Collection of the Tax Liability Directly From Third Parties Occasionally a taxpayer may try to defeat the IRS's efforts to collect a

        image

        tax liability by transferring assets to third parties. This is rarely effective. Various remedies are available to the IRS to reach these transferred assets including the following: ·


        DM3\2587693,l

        image

        image

        Case 2:13-cv-033 '.b;:J 'f\'fiocument 10-3 Filed 12/lffi/13 Page :'''crfT,?S:···,-·• ··



        Vincent J. Fumo

        rune 26, 2013

        Page LO

        Duane Morris


        1. "transferee" lfabiiityJ occurs where the-t:axpayer at one- Hme held title to-property·out has attempted to -mo:ve the property beyond the reach of the 1RS by .means of an actual-transfer;

          (z) 'nominee" liability arises i:n the sitHation where the taxpayer attemp.ts to .defeat collection by placing legal ti-tle to the property Jn a corpo-ra.tiG n, .:entity or individual who- is essentially the tmgmyer'-s.9-gent;

          There is no-substantive federal law concerning tra-nsferee- liability.

          State law is relied upon to determine whether a transferee situation exists. The·laws of-each -state vary as to the applicable :fraudulent-transfer

          provisions. However, most state laws are based on the-:U:

          niform-Fraudulent

          Transfer Act (UFTA). The UFTA provides three theories for asserting transferee liability or for setting aside fraudulent transfers: (1) actual fraud;

        2. constructive fraud; and (3) transfers in contemplation of insolvency.


    Under the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA"), "[o]nce [a] creditor establishes the existence of'a fraudulent transfer or obligation, the creditor may, inter alia, avoid the transfer or obligation, attach the transferred assets or other property of the transferee, obtain an injunction barring fµrther transfers, or seek the appointment of a receiver over the transferred asset." K-B Bldg . Co. v Sheesley Constr., Inc., B33 A.2d 1132, 113s-36, 2003 PA Super 372) and United States v. Rocky Mt. Holding s, Inc., 782 F. Supp. 2d 106, 125 (E.D. Pa. 2011), A transferor's creditor may avoid a fraudulent transfer "to the extent necessary to satisfy the creditor's claim." 12 Pa. Cons. Stat. § 5107(a)(1).

    PUFTA's only apparent limitation on such claims is that they be restricted "to the value of the asset transferred, subject to adjustment as the equities may require." Id. § 5108(c); see also De West Realty Corp. v. IRS, 418 F.Supp. 1274, 1279 [38 AFTR 2d 76-5685] (S.D.N.Y.1976) (interpretng

    image

    image

    identical fraudulent transfer statute as limiting "judgment against any transferee to whom [a] debtor has transferred the property up to the value of the property, but not exceeding the amount of the creditor's claim"); LeBeau v . Comm'r, 63 T.C.M. (CCH) 3177 ("The amount of the transferee's liability is limited to the lesser amount of the transferor's liabilities or the


    DMJ\2587693, 1

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 1 11m113 Page 121 of 221


    Duane Morris



    :')'··._....::·f>·.·:

    \l


    l·.·...

    I

    -I

    t

    !

    I


    (

    !

    '


    !

    I

    t

    I

    I

    l


    transferred to the transferee, plus any allowable interest.") (citil\g:

    v-. Commissione:r, 39 T.C. -i701 18-5, 1962 WL 1366 (1962); aff d-a-3r 485 [13 AF-f R 2d 1403] (2d -Cir.1964)).

    Where the transferor's -credito:r is the IRS, -caleu-lation of in1:erest-on. tax liability will .depend _on whether the value-.of the-transferred .asset(s)

    the tax liability. 'TWjhere ... . . the value-of the asset excees th@-totaL ,. sought," it is "well-settled that·federal law -not state law -

    J.J..UJLHA.J statutory additions and pre-judgment interest on unpaid

    tax liabilities." United States v. Roclcy Mt. Holding s, Inc., 782 F. 2d 106, 125 (E.D. Pa. 201r).

    By contrast, "where the transferred assets are insufficient to pay the transferor's total liability, interest is not assessed against the deficiencies because the transferee's liability for such deficiencies is limited to the amount actually transferred to him. Consequently, in the case of insufficient assets, interest may be charged against the transferee only for the use of the transferred assets, and since this involves the extent of transferee liability, it is determined by State law." Id. See also United States v. Holmes, 2011 U.S. Dist. LEXIS 34346 (D. Colo. 2011) ("If the transferee receivs less than the transferor's tax liability, state law determines the calculation of interest.")

    Charging .the transferee for use of the property (it would technically not be "interest on the tax liability") would be at the statutory rate of interest. The statutory rate of interest in Pennsylvania is six percent per annum. 41 P.S. § 202. Indeed, in Tiab Communs. Corp. v. Keymarket of Nepa) Inc., 263 F. Supp. 2d 925 (M.D. Pa. 2003), the court awarded the plaintiff prejudgment interest in the amount of six percent per annum against a transferee who had received a preferential transfer. The court reasoned that the transferee had been unjustly enriched and that "prejudgment interest would compensate [the plaintiff] for the time-value of money."

    Nominee liability arises where property to which one person holds legal title may be subjected to collection of the taxpayer's liabilities without the IRS having to resort to fraudulent conveyance remedies. When the


    OMJ\2587693. 1


    image


    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page 18 eL2iL



    Vincent J. Furno June 26, 2013

    -P.age 12

    Duane Morris


    taxpayer -transfers title·te property to a third pa-rty o-r t-he thi:rd party acquires title to prope1ty in circumstances that indicate-that t1ie title holder

    -may be considered to be the taxpayer's agent, the IRS may treat the-title liolder as .a "nominee." n these nornl-nee situations,-the federa-1 tax!ien against the-taxpayer is treated as ifit attaches-to the property held by the

    nami-nee (to the.-exten:t ·of the taxpayer's·interest, and a notice of.tax-lien . ,. maibe filed identifying the legal title holder -as a nominee :Of the-taxpayer.

    The nominee lien may be-enforced administratively by levy on,the-p:roperty

    or by a lien enforcement action. Courts have considered various factors in determining whether a_party is the nominee of a taxpayer including:

    .. Whether the party has paid adequate consideration for the property;

    Finally, apropos to the instant situation, where property is allegedly transferred by gift the taxpayer/donor is primarily responsible for the gift tax liability associated with the transfer. However, if the gift tax is unpaid the donee is secondarily personally liable for the tax, thereby exposing the donee's personal assets to the IRS.

    As can be seen from the above, the IRS has a formidable arsenal of weapons to collect a tax liability before assessment and after assessment', against the taxpayer directly or against third parties.

    Jeopardy Assessment and Levy

    image

    Other than the highly unusual circumstance of a suit to collect a tax liability before assessment under Code section 6501(a), a jeopardy


    DM3\2587693.1

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page - -of --2.Br-'" ' ,-



    Vincent J. Furno June 26, 2"013

    Page 13

    image

    DuaneMorris.


    assessment/tevyis the only other vehide for completely disregarding all the procedural -safeguards Congress has in 17lace·-to protect taxpayers from improper assessment and collection. Under tl=u limited circumstances apf)licanie to j-eopa-ray assessments1 the IRS may assess·a tax liability without an examination, with0ut any consideration .by the IRS Appeals

    _office and withoutrecourse tn a- c0ttrt . Once-that assessment1s -iD: -place, the jeapardy -levy -procedures_ µermft the IRS_to Side-ste_p- tlie -collection procedural-safeguards legislated :Sy the: IRS Restructuring and Reform Act of 1998 and may collect the tax by administrative levy.

    Jeopardy assessments are permitted only where the IRS obtains informatien to show: (ij the taxpayer is or ap13ears to be designing quickly to depart from the United States; (ii) the taxpayer is or appears to ee designing quickly to place his or her or its property beyond the reach of the IRS either by removing it from the United States, by dissipating it, or by transferring it to other persons; (iii) the taxpayer's financial solvency is or appears to be imperiled (other than by virtue of the accrual. of t}J.e pfoposed assessment); or (iv) the taxpayer is found in possession of cash or its , equivalent in excess of $10,000 and claims such cash is not his or hers and that it belongs to another taxpayer that the IRS cannot identify. IRS Policy Statement P-4-88 at IRM 1. 2.13.1.27 (1-6-99), and IRS Policy Statement P- 4-89 at IRM 1.2.13.i.28 (1-6-99).Reg. Sec. 301.6861-1(a) and 301.6851-

    1(a)(1)(i),(ii) and (iii).

  2. Analysis

    For purposes of analysis, I do not opine whether : (1) the tax liability is correct and is properly assessable and (2) these transfers actually occurred.

    Under·the facts set forth above, how, if at all, do the alleged transfers of real estate and cash by Furno to his son and fiancee, respectively, prejudice or render ineffectual collection of tax alleged to be due the Internal Revenue Service? Or, as suggested by the regulations, have these transfers placed Fumo's property "beyond the reach of the Government"?


    DMJ\2587693.1

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page 18 of 22



    Vincent J. Furno June 26, 2013

    Page 14

    DuaneMorris


    Without question, the jeopa-rdy assessment/levy process permits the IRS to accelerate the as-ses-sment and collection preicess. Beyond that, this expedited procedure provides little additional benefit te.dhe IRS-.

    In the ordinar.y Gou:rse,. once an assessment is .made-and the taxpayer is.afforded-his/her--.Elue process rfghts, a notice of fe.dgralta:x-1ien is-filed effectively tying up thetaxpayecs ability to dis.pose ofthe properly. Most pers-ons acquiring. ro.perty o'wne-ciby a.delinquent taxpayer against whom a notice of federal tax lien has been filed, acquire the property subject toi:he lien, thereby continuing to make the property available to satisfy the tax debt. In the limited cfrcumstances where the lien does not attach (IRC section 6323), the taxpayer has typically received adequate consideratfon

    for the property and that consideration would be encumber by the lien making it available to the IRS te satisfy the tax liability.

    In the normal course of the collection process, property titled in the taxpayer's name (financial accounts, automobiles, real estate, etc.) pan be administratively seized without the need to secure an order from a court.

    If Furno had undergone a "normal" IRS examination resulting in a "normal" assess1nent and .failed to pay his tax liability, the IRS would file a lien, tie up all his assets and seize any asset in Fumo's name. Thejeopardy assessment and levy_permit the IRS to accelerate this process and side step the Congressionally mandated examination, appeal, judfoial :·and collection

    due process proceedings. In the end however, the assessment, be it a­

    "normal" or a "jeopardy" assessment, and the associated lien attaches to the same property.

    If Furno, before or during the assessment/ collection due process proceedings, transferred property in an effort to defeat the collection of the tax liability (as the IRS suggests he is doing here) numerous remedies are available to the IRS to collect the tax. Ifthe IRS is able to meet the standards for applying the transferee or nominee theories for reaching taxpayer's property in the hands of third parties, there would be no prejudice to collecting the tax. The real estate transferred by Fumo2 would


    image

    2 The Narrative refers to a mortgage Furno placed on his Green St. property in

    ! Philadelphia as a real property transfer, As stated in the Complaint, almost all the

    f

    !r DMJ\2587693.l

    1

    (


    ·

    f'"

    l

    f

    f

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page

    l

    l Vincent J. Fumo June 26, 2013

    Page 15

    DuaneMorris


    j

    be as available ta.satisfy the tax liability as it wouTd be if it continued to he title.d in ·hiS =name. As to the cash transfers, the recipient of the cash, in chis case Fumo's s0n, is-knG:wll to the·government-and back records create a

    _paper trail of the .transfer of funds from Furno's a-ceo_urrts_to those ·of his

    t

    r son. Thos.e very same bank records should show-bow the -funds in the

    I

    ! account are.dispensed,-forinstanee,-to third parties to pay ·bills. .If after a ''normaI' examination, Furno did not-pay the assessed tax 1iabilitjr, the IRS · ,. er:.nild-.use any of the foregoin_g thi-rd party liability theories to seize property

    l

    ! held in the son's hands.

    I Paradoxically, these theories actually -expand the universe of assets

    l available-to =the IRS to collect the tax liability.

    r

    !

    I

    1 For instance, ·here the IRS alleges that Furno transferred to his-girlfriend

    I

    (Ms. Zinni) an interest in certain real property. The property had apparently been owned solely by Furno but is now titled in his and his girlfriend's names as joint tenants with right of survivorship. ,.

    I

    1 Under the PUFTA, the IRS, if able to prove that the transfer was fraudulent, can among other things, avoid the transfer or attach the

    '

    t transferred assets or other property of the transferee. United States v.

    I

    Rocky Mt. Holdings, Inc., 782 F. Supp. 2d 106, 125 (E.D. Pa. 2011). Ms.

    I

    Zinni's interest in the property could be voided thereby making Furno the sole owner of record which in turn would-·make the-entire property subject to the IRS' claim. Alternatively, the IRS could attach Ms. Zinni1s personal assets (other than the real property Furno transferred) to satisfy its tax claim. Consequently, if the PUFTA applies to the real estate transferred to


    image

    1

    f proceeds of that mortgage were used to return to a retirement account within the time

    Ir frame necessary to avoid adverse tax consequences, funds that were withdrawn from the retirement account and used to pay Fumo's court-ordered financial obligations.

    I

    Complaint Exhibit 7, page 11. Consequently, this encumbrance did not place the asset beyond the reach of the Government, since almost all the proceeds of the loan were used to repay a withdraw from a retirement fund. That very same retirement fund and the

    I Green 'St property are not exempt from the reach of the IRS levy power. IRC section

    I 6334

    I

    I

    image

    [


    DM3\2587693.1

    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page 10 of 221



    Vincent J. Furno

    June 26, 2013

    P.age 16_

    DuaneMorris


    Zinni, not only is the tram;fer of the property vofdable, the IRS·could instead chose to attach both t1re transferred property or Zinni's other property to satis:fY the-tax liability.

    Theoretically, Zinni couldl>e financially responsible for more that the value of tlle:-prop"erty transferred to her. -If the value of the_preperty trar.rsferred-tG Zinni was less than the tax liability, her=obligation t·o the IRS would -pe lirnited_tg that value _except that a ·court could award the IRS damages for-her use ofthe property measured-by the statutory rate of interest of six percent. That could amount to more than the value of the property transferred. Ifthe-value_ ofthe property was more than-:.the tax liability, Zinni would be at risk 'for the tax liability and accruing interest.

    Ifthe transfer were voided but the value .of the property had declined during her use, Ms. Zinni would arguably be liable for that diminution in value. Miller v. Kaiser, 164 Colo. 206 (1967) (interpreting an analogous · fraudulent transfer statute).

    As to the alleged gift of $920,000 to Fumo's son, he runs the same risks as Zinni. Finally, although not capturing all the transferred cash, the son would be personally liable for the gift tax liability, if Furno did not pay the gift tax.


    i

    i

    I

    I

    f DM312587693. l

    !

    l

    l.


    image

    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed l/lCD/13 Page '!& of"'2Zl - , ,



    Vincent J. Furno June 26,.20-13 -

    Page 17

    DuaneMorris


    image

  3. Conclusion

Based::,on the foregoing, it ismy-012inion-that although the -r-RS

-c·ollection process is indeed accelerated- by way 6f .thgJeopardy assessment/levy procedure, the "norma1''"" collection .remedies-availa-b-le to the IRS.-beth pr.e and post assessment, provicle the IRS in this case with sufficiently powerful collection tools s-uch-that the referenced-transfers o·f

  1. eal estate and cash do not substan-t:ia-lly J?Ye]udice or render ineffectual the collection of any tax owed by-Furno. Given the reac1i of these collection devices, the transferred property is not "beyond the reach of the Government".


    . ,.



    TWO:cpw

    image

    Thomas W. Ostrander


    image

    image

    image

    Case 2:13-cv-03313-RB Document 10-3 Filed 11/lffi/13 Page 19 of 221

    image

    image

    Morris LLP - Thomas W. Ostrander, Partner - Profile


    image



    THOMAS W. OSTRANDER

    Partner

    'Ouane-Morris ·lLP. 30Saath t7th eet

    Philadel phia, P'"A 19103-4196

    blSA



1 Of 4

image

Case 2:13-cv-03313-RB Document 10-3

:orris LLP - Thomas W. Ostrander, Partner - Profile

image

Filed 1i11m113 Page 28 of 221



image

  1. of 4

  2. Of 4

    image



    image

  3. of 4

image

image

Case 2:13-cv-03313-RB Document 10-3 Filed 1l/1CD/13 Pag'et2s::qf\'. S:

LLP - Thomas W. Ostrander, Partner - Profile image

Com promise," Pennsylvania Bar Institute program, Philadelphia, Pennsylvania, Ap'ril 30, 2007

·Issues, Pennsylvania Bar Associat1orr family Law Section; January 22, l.:000

image

. "

image

image

image

Ou;1ne MorffS LLP Ct AHll!ales, o t998·2012"0uane Morrls...llP, t>uano Morrf5 Is teglstered service mari<.ofOuane J.\an1s LL.P,