Taxation & Estate Planning

FRAUDULENT HOMESTEAD CONVEYANCE AND INCOME TAXES

By Charles Rubin

Florida?s Uniform Fraudulent Transfer Act will allow a creditor to reach an asset transferred from a debtor to a third party if the transfer is found to constitute a fraudulent transfer. However, Fla.Stats. §726.102(2)(b) will exempt transfers of assets that are generally exempt from creditors under nonbankruptcy law from the fraudulent conveyance rules.

In Scott E. Rubenstein et al. v. Comm., an insolvent father transferred his exempt homestead to his son. The IRS sought to set aside the homestead transfer as a fraudulent conveyance so as to assist in collecting the father?s income tax liabilities. The son argued that under the above Florida statute, the homestead was an exempt asset and thus the fraudulent conveyance rules could not apply to it.

That may be true for other creditors, but not the U.S. The IRS is not bound by the exempt status under Florida law as to homestead property in collection matters, and thus as to the U.S. the homestead was NOT generally exempt from creditors under nonbankruptcy law. As such, it was likewise not exempt from the application of the Fraudulent Transfer Act.

Scott E. Rubenstein et al. v. Comm., 134 TC No. 13 (6/7/10)

Full post as published by Rubin on Tax on October 13, 2010 (boomark / email).