Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States v. Baker

United States Court of Appeals, First Circuit

March 24, 2017

UNITED STATES, Plaintiff, Appellant,
SCOTT G. BAKER, ROBYN BAKER, Defendants, Appellees, ONEWEST BANK, F.S.B., Defendant.


          Norah 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, for appellant.

          D. Sean McMahon, with whom Eric J. Rietveld and McMahon & Associates, PC were on brief, for appellee Robyn Baker.

          Before Torruella, Thompson, and Kayatta, Circuit Judges.

          TORRUELLA, Circuit Judge.

         Scott 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.[1] 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.

         This 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 to Robyn.

         The 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.

         The 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 court's ruling.

         I. Background

         A. Factual History

         In 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[2] 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.

         In June 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.

         Scott 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.

         In 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.

         In 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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.