Webb v. IRS, 1st Cir. (1994)
Webb v. IRS, 1st Cir. (1994)
Webb v. IRS, 1st Cir. (1994)
____________________
CYR,
CYR,
Circuit Judge.
Circuit Judge.
_____________
taxable in the
and
Sharon
Pomella
established River
Realty
Massachusetts.
Frederick L.
marina
had sustained
As sole trust-
storm disaster
February 1978.
in Scituate,
loan, representing
serious
damage
during
to
the
AdministraSBA that
blizzard
the
of
have owned (or contracted to buy) the property before the property
damage
occurred.
Appellant
Webb
therefore
backdated the
the Trust
executed a
loan
agreement and promissory note which provided that the Trust would
($178,000).
and to amortize
Webb signed
two out-
the note
as
"trustee."1
_______
As
a condition of
was required to
Instead,
SBA loan
on a lot adjacent to the marina, and to acquire land for the Webb
Cranberry Company,
his personal
business.
The diverted
funds
was indicted
by a
federal grand
jury on
three
United
counts
of obstructing justice,
1503,
18 U.S.C.
1510 (1993).
$64,730 to his
personal use.
Ultimately,
the
1978, based in
income.
brought the
After the
IRS rejected
the refund
a refund.
See
___
claim, Webb
26 U.S.C.
____________________
1The loan
McNamara.
was personally
guaranteed by
Webb and
one John
7422(a).
The
213 (1961),
embezzled SBA
in reliance on James v.
_____
that evidence
of Webb's
repay the
immaterial as a matter
judgment to IRS.
of law.
We affirm.
II.
II.
We
review the
employing the
same standards
"Summary judgment is
tions,
together
answers
to
with the
genuine issue
is entitled to
grant
of
summary
incumbent on
appropriate where
interrogatories,
affidavits, if
judgment as a
de
__
the district
'the pleadings,
and
any,
judgment
admissions
show that
novo,
____
court.
deposion
file,
there is
no
matter of law.'"
Gaskell v.
The
_______
Harvard Coop. Soc'y, 3
____________________
Fed. R. Civ.
Co., 989 F.2d
___
(1st Cir.
___
1993) (quoting
section 7422(a),
the taxpayer
1993).
In
must bear
a refund action
the burden
under
of proving
Lewis v.
_____
992 F.2d
391,
393 (1st
Cir. 1993)
(if
present
principal protest is
court mistakenly
SBA loan.
III.
III.
The
issue presented is
centered at the
On
confluence of
bona fide loan proceeds are not gross income to the borrower, see
____ ____
___
Commissioner v.
____________
207-08
because
(1990),
realized upon
the
contemporaneous
economic
on whether
intention
Crowley v.
_______
that the
monies
advanced
the
same time,
monies
a line
of
reported as income
indicia of
were to
1077, 1079
See McSpadden
___ _________
turns
benefit
tion
203,
be
the parties'
repaid.
(1st Cir.
1992);
Supreme Court
cases indicates
acquired by misappropriation
in the year of
See
___
their receipt.
See
___
At
that
must be
James v.
_____
proceeds).
The
lot of
the
embezzler was
not
always so
bleak.
of a bona fide
claim of
and obligation
to repay
right" and
"under an
unqualified duty
. . . ."
Id. at 408.
___
context,
ings.
Later,
closely analogous
however, in a
taxable earn-
taxpayer's
extortion earnings]
from embezzlement
added).
contention
. . . ."
that
are taxable
James,
_____
"all
except
______
366 U.S.
unlawful
those resulting
at 219
gains
(emphasis
Since James,
_____
in
fiduciary capacity
does
not
foreclose
their
refund action
under section
7422(a), therefore,
James presumably requires that the taxpayer prove either (i) that
_____
______
he did not "acquire" earnings or (ii) that any such earnings were
__
"acquired" in one
of two ways:
under
a "consensual recognition
of an
obligation to repay"
disposition.
meaning
Since
or subject to restrictions
the James
_____
Court did
not elaborate
on their
on the
some
ropriates
monies, yet
suggests that
casts the
a taxpayer
transaction in
who misapp-
the form
____
of a
to repay.
(reviewing factual
findings of
intent
See,
___
cert.
_____
words
1978 as follows:
to tax year
although
the Trust was the named borrower on the SBA note, Webb was the de
__
SBA.2
Therefore, he
obligation to
____________________
suggested that Webb may have embezzled the SBA loan funds at the
time he submitted the false loan application and the backdated
purchase agreement to SBA, since the SBA would not have approved
the loan to the Trust "but for" those misrepresentations.
In
other words, Webb was not qualified for the loan, hence he never
acquired lawful access to the loan proceeds.
7
$64,730)
under a
"consensual recognition
Moreover,
October 1978
funds in
an obligation
to
no taxable
because either
of
event occurred in
(1) he did
September-
not "acquire"
any loan
previously acquired
__________
agreement),3
to a use
or (2)
September-October
if he
1978, either
from the
the loan
Trust or
SBA loan
funds in
the SBA,
he
Contrary to
the record
as
the
separate juridical
entity
which
Commissioner, 319
____________
U.S. 436,
"acquired" the
(in tax
tax consequences
to individual
shareholder);
the Internal
existence
. . . .").4
In
Revenue Code,
distinctions between
of
at
least
formally
. . . because
based explicitly on
independent corporations
his fidu-
____________________
discrete taxable
it to
fiduciary duty as
trust"
States, 80
______
alone,
_____
produce
acts
under
F. Supp.
a fiduciary
would be inadequate,
trialworthy
Trust.
issue respecting
$64,730, or
relevant
obligation
to repay
Mass. 1948)
his alleged
the
as
distinguished
v. United
______
(same), standing
________
of law, to
intent
Trust formally
generate a
to repay
"consensually
the funds to
from
loaned
taxable
the
to
him the
under the
recogni[zed]"
the Trust.
Loring
______
evidence that
James
_____
Massachusetts "busi-
duty);
as a matter
642 F.
Webb's
"loan" to sharehold-
"constructive
dividend,"
SBA is
___
immaterial
to the
1978 "acquisitions."5
of
James
_____
failed
"consensual
to demonstrate
use
October
the
taxability
of the
Regardless of the
recognition"
genuine issue
September-
precise reach
test, therefore,
of
material fact
Webb
with
Affirmed.
Affirmed.
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