Commercial Division Blog

Posted: July 23, 2016 / Categories Commercial, Fraudulent Conveyance

Tax Estoppel Prevents Claim That Payment Was Earnings After Reporting it as a Gift

On July 7, 2016, Justice Singh of the New York County Commercial Division issued an opinion in Gliklad v. Kessler, 2016 NY Slip Op. 31301(U), holding that the doctrine of tax estoppel barred an argument that a payment was not a gift, explaining:

The Court of Appeals explained the concept of tax estoppel, which is akin to issue preclusion or collateral estoppel, in Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415 [2009]. The Court wrote:

A party to litigation may not take a position contrary to a position taken in an income tax return. Here, husband does not dispute that, in accordance with his settlement agreement, he reported the $1,800,000 in settlement proceeds as business income on his federal income tax return, in which he swore that the representations contained within it were true. We cannot, as a matter of policy, permit parties to assert positions in legal proceedings that are contrary to declarations made under penalty of perjury on income tax returns.

(Mahoney-Buntzman, 12 N.Y.3d at 422 (internal citations omitted)).

The doctrine of tax estoppel has been applied consistently in the commercial litigation arena. . . .

The holdings set forth in these cases are dispositive, and compel estoppel against defendant in the present action. Kessler is estopped from claiming to this Court that the conveyance from Cherney to defendant was compensation when defendant, under penalty of perjury, asserted to the IRS that the conveyance was something entirely different. Although defendant contends that the gift was really compensation, he proffers no W2 forms, 1099 forms, bank statements, or evidence that he has amended his 2014 tax returns to reflect such fact.

Accordingly, Kessler is estopped from recasting the gift from Cherney as compensation to defendant, and defendant has failed to show the existence of a genuine issue of material fact rebutting plaintiff's prima facie case.

(Internal quotations and citations omitted).