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Fraudulent Conveyances: Actual Fraud And Constructive Fraud

Section 548 of the Bankruptcy Code provides a bankruptcy trustee (or the debtor-in-possession) the power to set aside or “avoid” certain transfers of the debtor’s assets out of the bankruptcy estate that may otherwise place assets beyond creditors’ reach. Such a transfer of the debtor’s assets to a third party, with the intent to prevent creditors from reaching the assets to satisfy their claims, is known as a “fraudulent conveyance” or a “fraudulent transfer.”

Elements:

There are two types of fraudulent conveyances. The first, actual fraud, involves the intent to defraud creditors. The second, constructive fraud, involves a transfer that is made in exchange for grossly inadequate consideration. Both types of fraudulent transfers involve a two-year “look back period” and a two-year statute of limitations. Thus, to be considered a fraudulent conveyance, a transfer must occur within two years immediately before a bankruptcy filing. However, a trustee may be able to set aside certain transactions under state laws, which may provide for longer look-back periods. A transfer cannot be set aside if it occurs after a bankruptcy filing.

Actual Fraud:

Actual fraud is committed when a transfer is made with the intent to hinder or defraud a creditor. The intent of the transferee is irrelevant—the only relevant inquiry is the intent of the debtor. Actual fraud requires proof of intent from the individual challenging the transfer. Courts have set forth circumstances, the existence of which indicate the intent to defraud. Some examples of these circumstances are:

  • actual or threatened litigation against the debtor,
  • a retention of possession or control of the property,
  • transfer of substantially all the debtor’s assets,
  • transfer to a newly created corporation, and
  • a special relationship with the person to whom the property is transferred.

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Attorneys Discuss Key Insights On IRS Voluntary Disclosure: Listen To The Freeman Law Project Podcast

In this episode of the Freeman Law Project, host Jason B. Freeman is joined by Matthew Roberts and Ryan Dean as they delve into the concept of an IRS voluntary disclosure. The discussion covers the history of the voluntary disclosure practice, its evolution, and key insights and observations from years of practice representing taxpayers with IRS fraud and tax-related criminal exposure.

Listen To Podcast At This Link

Presented By Jason Freeman, Matthew Roberts and Ryan Dean.

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