Cir

OVERVIEW

The IRS appeals the United States Tax Court’s decision that the Salus Mundi Foundation was not liable under 26 U.S.C. § 6901 for the unpaid tax liability arising from the sale of appreciated assets held by Double-D Ranch, Inc.

We conclude that the two requirements of 26 U.S.C. § 6901 — transferee status under federal law and substantive liability under state law — are separate and independent inquiries. Therefore, the IRS cannot rely on federal law to recharacterize the series of transactions for purposes of the state law inquiry.

The Second Circuit addressed the same factual and legal issues in Diebold Foundation, Inc. v. Comm’r, 736 F.3d 172 (2d Cir.2013). We adopt the reasoning of that opinion on the state law inquiry and conclude that the Double-D shareholders had constructive knowledge of the fraudulent tax avoidance scheme at issue. Accordingly, we collapse the series of transactions and conclude that the shareholders made a fraudulent conveyance under the New York Uniform Fraudulent Conveyance Act and that the state law liability prong of 26 U.S.C. § 6901 was therefore satisfied.

We remand to the Tax Court to determine in the first instance: (1) Salus…