DILLON TRUST COMPANY LLC v. US
Split Score
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Case Summary
Disposition
Affirmed
The 13th Circuit affirmed the Court of Federal Claims’ finding that the Dillon trusts are liable as transferees for over $79 million in unpaid taxes, penalties, and interest owed by Humboldt Shelby Holding Corporation, and upheld the denial of the trusts’ illegal-exaction claim regarding underpayment interest. Applying New York fraudulent-conveyance law and federal tax principles, the court collapsed the stock-and-asset sales, concluded the trusts had constructive knowledge of the tax-avoidance scheme, and ruled that transferee liability includes penalties and interest.
Circuit Split Identified
Legal Issue
Whether a transferee of assets under 26 U.S.C. § 6901 may be held liable for the transferor’s federal tax penalties and pre-notice interest when the value of the transferred assets exceeds the underlying tax liability.
Circuit Positions
Transferee liability encompasses underlying tax, statutory penalties, and pre-notice interest so long as the value of the transferred assets exceeds the total liability.
Transferee liability is limited to the underlying tax; penalties and pre-notice interest are not recoverable from the transferee.
Conflict Summary
The Eighth Circuit limits transferee liability to the underlying tax, excluding penalties and pre-notice interest, whereas the First, Second, Ninth, Eleventh, and now the 13th Circuit hold that a transferee may be liable for all amounts the transferor owes—including statutory penalties and interest—up to the value of the assets received.