FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS Hon. Richard G. Stearns, U.S. District Judge.
E. Bringer, Attorney, Tax Division, Department of Justice,
with whom Caroline D. Ciraolo, Principal Deputy Assistant
Attorney General, Thomas J. Clark, Attorney, Tax Division,
and Carmen M. Ortiz, United States Attorney, were on brief,
Sean McMahon, with whom Eric J. Rietveld and McMahon &
Associates, PC were on brief, for appellee Robyn Baker.
Torruella, Thompson, and Kayatta, Circuit Judges.
TORRUELLA, Circuit Judge.
G. Baker used a tax shelter to reduce his taxable income for
the years 1997-2002. In 2008, he divorced his wife Robyn
Baker in order to fraudulently transfer assets and avoid some
of his tax liability. Following an agreed judgment for over five
million dollars against Scott in 2015, the dispute narrowed
to whether and to what extent the government's tax liens
attached to certain assets. After the district court set
aside the Bakers' separation agreement as a fraudulent
transfer, it proceeded to re-divide and reallocate these
assets applying Massachusetts law. The government's tax
liens attached directly to any assets allocated to Scott. The
government also argued that its tax liens attached indirectly
to certain assets allocated to Robyn.
appeal concerns the district court's allocation of two
assets in particular (1) funds that were directly traceable
to Scott's tax shelter (the "Escrowed Funds");
and (2) a property the Bakers owned in Hingham, Massachusetts
(the "Hingham property"). The district court
divided both assets more or less evenly, reasoning that it
was applying "an equitable 50/50 division of the
couple's assets consistent with the common-law community
property system adopted by Massachusetts and recognized as
valid by the IRS." In order to effectuate this division
as to the Hingham property, the court ordered it to be sold
and half the proceeds to be paid to the government and half
government challenges the 50/50 division of the Escrowed
Funds on the ground that Massachusetts is not a community
property state. In fact, Massachusetts law requires a judge
to consider, either explicitly or by clear implication,
fourteen factors in order to arrive at an equitable division
of the parties' assets. See Bowring v.
Reid, 503 N.E.2d 966, 967-68 (Mass. 1987). Because
it is not clear to us that the district court considered
these fourteen factors, we vacate and remand the division of
the Escrowed Funds.
government does not challenge the 50/50 division of the
Hingham property. Instead, it argues that it is entitled to
Robyn's half of the proceeds from the sale on a
lien-tracing theory. The district court rejected this theory
on the ground that the government had not submitted evidence
sufficient to trace the liens with the required level of
specificity. We affirm this aspect of the district
December 2002, Scott G. Baker and his business partner sold
eight Planet Fitness gyms to Bally Fitness for approximately
$15 million, including Bally Fitness stock that he later sold
for $3.4 million. He used a Son-of-BOSS tax
shelter to reduce his taxable income on gains from
the Planet Fitness sale, claiming a negative $2.5 million in
income in his 2002 return, which he filed separately from his
wife. Scott then amended his tax returns for 1997-2001 to
carry back the loss, leading the IRS to refund
"virtually all" of the taxes the Bakers had paid in
the years 1999-2001.
of 2003, and as part of the Son-of-BOSS tax shelter, Scott
established and became the settlor of the "Scott Baker
Family Trust" (the "Family Trust") in the
Cayman Islands. He chose Royal Bank of Canada Trust Company
to be the initial trustee, and granted himself a one-third
beneficial interest, with the remaining interests divided
among Robyn and their two children. Scott had the power to
add or exclude beneficiaries and to appoint successors to the
trustee(s). The trustee(s) had discretion to disburse the
funds in the Family Trust to any of the beneficiaries, to end
the trust at any time, and to invest its capital and income.
deposited the proceeds from the sale of the Bally Fitness
stock into the Family Trust, and instructed the Trustee to
invest the corpus of the Family Trust into a hedge fund
called International Management Associates ("IMA").
Late in 2005, the Bakers learned that IMA was in fact a Ponzi
scheme and that all of the money had disappeared. IMA filed
for bankruptcy in 2006.
August of 2005, the Bakers purchased a home in Hingham,
Massachusetts, which they owned as tenants by the entirety,
for just over $1.6 million. In the same month, the IRS opened
an examination of Scott Baker's 2002 tax return. Scott
agreed to participate in the IRS's Global Settlement
Initiative, agreeing to pay $1.2 million in outstanding
taxes. However, he was removed from the program in 2007 after
the IRS determined he was unable to pay the agreed amount
through his disclosures on Form 433-A, which "collect[s]
information on a debtor's current assets when he or she
claims an inability to pay the taxes owing." Scott
contends that his inability to pay was due to the losses he
suffered in the IMA Ponzi scheme.
February 2007, the Bakers remortgaged their Hingham property
with Scott as the sole mortgagor; on the same day, they
established the S&R Realty Trust with Robyn as trustee
and transferred the title of their Hingham Property into the
trust. They also established the C&S Realty Trust on the
same day, with Robyn as sole trustee and their two children
as primary beneficiaries, and transferred into it a beach
house located in Scituate, Massachusetts. Scott did not
receive any consideration for transferring his interests in
the properties to the trusts. In November 2007, Robyn sold
the Scituate property and deposited the $433, 000 in proceeds
into a ...