Mexico Condo Buyer Stuck With Tax Bill on Gain

what they're saying is if the transaction amount is more than 10 for the foregoing reasons, we reverse the district court's grant of we review a district court's grant of summary judgment de novo, applying pay its franchise taxes and filing fees and to file its annual reports, villa rayos's for the fifth circuit summary judgment and render judgment for carnrite. no. 07-20740 exchange of a nonresident limited-liability company's shares did not generate tax villa rayos for $2,125,000. the agreement included a warranty by carnrite no. 07-20740 sol, a nevada limited liability company, and the term is never given a more that the effect of carnrite's failure to pay mexican taxes at the time of the sale membership interest in villa rayos from the gales, the gales were not liable for no. 07-20740 mexican law, whether the llc was obligated to pay taxes on the 2000 and "disbursement instructions for funds held in escrow," which list to the gales was that "[i]t passe[d] on a liability to the llc, to the gales." pikoff illumination of difficult . . . questions.'" texas v. united states, 497 f.3d 491, substantial capital gains taxes as one of the fees to be paid as a part of the gale- suffered some actual or threatened injury that can fairly be traced to the mexican constitution under which a mexican bank trust obtains legal title to a piece of real the condominium's developer in 1991 for $715,000, and subsequently transferred the beneficial on this issue. mitchell creekmore, an expert for the gales regarding capital of villa rayos's claims, the gales have standing to pursue this action. carnrite and the gales agree that any tax liability initially fell on josephine vaudagna trust, but the vaudagnas were not willing to purchase the appeal the district court's grant of summary judgment in favor of randolph d. present any argument or authority on this issue. as such, carnrite has waived this issue. in the case of acquisitions by nonresidents of shares or sharpens the presentation of issues upon which the court so largely depends for the gales respond by asserting that after the lawsuit was filed, on rise to mexican tax liability, and denying its post-trial motions. the gales4 potential breach. relying on fifth circuit caselaw, the court concluded that ii. discussion rayos's sole members. company's only remaining members. 2 expansive definition. thus, although carnrite and the gales were the tax liability for villa rayos within the language of the agreement? the tax liability then passed to villa rayos, which ultimately had to pay the mexican bank trust arrangement known as a fideicomiso. villa rayos's sole2 of this type of assignment. however, it argues that because nevada revoked challenged action and is redressable by the courts." doe v. tangipahoa parish taxes as a part of its 2005 sale to vaudagna. carnrite responds, however, that q. well ­ and that's my next question. would villa rayos del obligation if the purchase price of the stock is more than 10% below the true as the parties inevitably injured by the alleged breach, and the assignees a. standing co., 529 f.3d 642, 645 (5th cir. 2008). summary judgment is proper when the sch. bd., 494 f.3d 494, 496 (5th cir. 2007). "`the gist of the question of standing not itself have any liabilities. if the act of transferring created liabilities or gales all of the claims presented in this lawsuit. the assignment stated it was transaction: villa rayos was formed in 1996. its original members and owners were the3 "villa rayos had a liability because it had an interest in an asset that had gains tax then, you believe, would be owed by carnrite real estate (h) as of the date of these instructions, and at the date of the v. charles r. fulbruge iii we find nothing absurd or otherwise deficient in the plain language of the even if it was a taxable event, any resulting tax liability would fall solely upon be increased by said total difference. contention that proof of justifiable reliance is required to recover for breach of an express percentage, 10 percent higher than that was agreed. and it is a the 2000 sale was not a taxable event under then-applicable mexican tax law. iii. conclusion agreement when it failed to report to the mexican authorities and pay taxes on signatories, the agreement warranted only that villa rayos itself would have no outcome of the controversy as to assure that concrete adverseness which 12 mexican real property, as through a fideicomiso. the provision was amended in in december 1999, the gales, as buyer, and carnrite, as seller, executed version of the statute. no. 07-20740 "pleadings, the discovery and disclosure materials on file, and any affidavits 6 gains tax liability for foreign buyers of mexican residential property, testified as through which the gales have asserted that carnrite's failure to pay taxes in argues that because vaudagna directly purchased the beneficial interest in the gales"), on the gales' breach of contract claim. the gales cross-appeal the vaudagna transaction in 2005, the seller of the beneficial interest in the nature by or against it and of enabling it gradually to settle and united states court of appeals documents from the united states and mexico for the time periods relevant to this suit. other 1998) ("we have held that the failure to provide any legal or factual analysis of an issue on the mexican statute was at some point codified as article 151 and then was officially5 action for breach of contract. the gales alleged that carnrite breached their not be able to purchase the condominium directly. instead, they would be carnrite's failure to pay resulted in a tax liability for the gales (the buyer), not rule 44.1 hearing that 3 carnrite, but its ownership was the subject of the transfer. fideicomiso itself for $2,400,000. a substantial mexican capital gains tax attached hereto. tax liabilities at the time of the transfer. accordingly, we must determine, under agreement. though the warranty provision mentions an exhibit c, there was apparently no standing to pursue their claim. questions of jurisdiction, like standing, are show that there is no genuine issue as to any material fact and that the movant judgment, finding as a matter of law that the carnrite-gale transaction gave closing the llc has and will have no liabilities of any nature, b. breach of the agreement is revoked, "the property and assets of the defaulting company must be held in 10 mexico. the condominium was owned by villa rayos del sol, llc, a nevada of facts existing prior thereto, except as set out on exhibit "c" the capital gains taxes about which they are complaining. instead, the entity transaction was a taxable event under the then-existing mexican tax law, and did not answer this particular question. instead, the court focused on a different trust a condominium unit located in san jose del cabo, baja california sur, report or pay taxes on the transfer created a tax liability for villa rayos. representation and warranty: jonathan pikoff, another expert for the gales, also testified regarding this passed on a pre-existing liability of the seller, that risk was not covered by the article 3. warranties of seller no. 07-20740 one nevada statute provides that after the charter of a limited-liability company fideicomiso from villa rayos rather than purchasing the outstanding . . . . 2. did carnrite's failure to pay taxes on the 2000 transaction create a buyers and each of them, and this agreement is made in reliance on carnrite nor anyone else reported the transaction to the mexican government; security instruments representing the ownership of property to and pay taxes on the transfer. the parties offered conflicting expert testimony internal quotation marks and citation omitted). appraisal exceeds the contractual consideration for the alienation by code applicable at the time of the transaction. carnrite maintains that the the applicability of the article 190 language quoted above to the present asset was the beneficial interest in the condominium. its only purpose was to defendants - appellants the gales used the condominium for a number of years before deciding to under the federal tax code." even assuming pikoff is correct in his explanation of the provision and its january 17, 2007, villa rayos executed a written agreement assigning to the an agreement, entitled "joint escrow instructions of seller and buyer, and breached in this case, carnrite argues that villa rayos incurred the injury as just quoted, what has been warranted is that the "llc" will not have pikoff's explanation of the quoted provision and whether it applied to the district court in nevada. in december 2005, the gales filed suit in the united case is unclear. under the provision, the buyer in a sale of stock may incur a tax liabilities. section 1.01 of the agreement defines the "llc" as villa rayos del very clear what it states. just in the case the tax authorities make ruling, it held, as a matter of law, that the sale of the shares in a fideicomiso is regardless of these technical issues, it is clear that the payment of such is whether the party seeking relief has alleged such a personal stake in the carnrite, not upon villa rayos or the gales. creekmore's testimony does not if so, (2) whether carnrite's failure to pay such taxes created a tax liability for restrictions on non-mexican ownership of real property in the area, they would1 mexican tax, customs and foreign investment laws ¶4430 (cch, inc. 2006) randolph d gale; debra e gale, co-trustees of the gale 2000 trust moreover, the gales were permitted to transfer those assets to themselves as the as being potentially liable for the taxes. creekmore then explicitly stated that the purpose of continuing the business for which it was established. presumably, carnrite could have avoided liability under this theory by including a6 to the carnrites." actually, villa rayos never sold or transferred anything to 8 such date, or arising out of transactions entered into, or any state no. 07-20740 breach, the gales' claim should fail because the gales' damages were caused by assured by the contract that villa rayos had no liability `of any nature,' that correct, and some of the seeming inconsistencies between the language of the did not audit the 2000 transaction between the gales and carnrite. finally, a taxable event, we must determine whether carnrite's failure to report or pay if the seller doesn't pay the tax, then the buyer becomes liable for the following, each of which is deemed to be a separate covenant, 5 transaction. the 2000 transaction altered the ownership of the membership8 effective as of september 9, 2005. carnrite does not dispute the usual propriety sonenshine family trust and sheila prell sonenshine, trustee uwo milton prell. the testimony from expert witnesses for both sides. the court later ruled that the 14 1. was the 2000 transaction a taxable event under then-existing to the difference between the gales' purchase price and the original adjusted we do not resolve this issue. as we will discuss, even if the transaction in whether accrued, absolute, contingent, or otherwise, and whether under article 27 of the constitution of mexico, only mexicans by birth or1 regardless of the manner in which they structured the transaction. the gales and carnrite completed the purchase in january 2000. neither allege, carnrite is entitled to judgment on the breach of contract claim.9 in the united states court of appeals carnrites. so that would be the entity. that's the actual 2000 created a tax liability for villa rayos. outstanding membership interest in villa rayos to james s. vaudagna and the february 12, 2009 moreover, carnrite's argument that villa rayos's assignment was reason why i fully disagree with [pikoff's] testimony. carnrite; their disagreement centers on the effect of carnrite's failure to report render judgment for carnrite and his company and deny the cross-appeal. construction of this provision in reference to this case. he testified during the there is not that statement and that hypothesis under the income tax law nor was the beneficial owner of a leasehold interest in the condominium under a id. § 86.505. a final relevant provision is that after dissolution, the assets may although the gales were clearly a party to the agreement allegedly of contract claim fails under either interpretation of the mexican tax law. appeal waives that issue." (citations omitted)). may perform an appraisal of the transaction in question, and if such membership interest in villa rayos. the court explained that in its rule 44.1 alan g. carnrite and carnrite real estate holdings, llc ("carnrite") q. okay. now, let's talk about the capital gains tax. the capital years after the date of the dissolution. a dissolved company that as of the date of closing, "the llc has and will have no liabilities of any accordingly, when villa rayos's right to transact business was forfeited the district court then granted summary judgment to the gales. the before jones, chief judge, and owen and southwick, circuit judges. confusing at best. creekmore made at most a passing reference to villa rayos at the default of others. reviewed de novo. bonds v. tandy, 457 f.3d 409, 411 (5th cir. 2006). carnrite ruling on attorneys' fees. for reasons we explain below, we reverse and failed to pay capital gains taxes in 2000, any liability would fall solely upon maintains that the gales have not suffered an injury in fact, and therefore do provision and the facts of this case can be explained as the result of a "tough a taxable event; thus, the gales would have been subjected to mexican taxes pikoff explained, the llc, villa rayos. villa rayos was neither the buyer nor the seller in the interest of villa rayos, but there is no factual or legal basis shown by this record discusses the 2005 tax liability in somewhat ambiguous terms, stating "we, fideicomiso is listed as "villa rayos del sol, llc represented by randolph d. carnrite, the initial obligor, fails to pay. second, creekmore's statements are "at the time of closing, villa rayos had a built-in capital gains tax liability equal in light of this ruling, carnrite's remaining arguments are moot, including its9 which the suit is based. place it back on the market. in 2005, the gales attempted to sell the alan g carnrite; carnrite real estate holdings llc fideicomiso to vaudagna. villa rayos was the seller, which was the basis for our earlier 4 of the agreement. we find our issues thus to be (1) whether the 2000 of and convey its property, and to distribute its assets, but not for beneficial interest in the property, including all the usual rights of ownership. as a threshold matter, we must determine whether the gales have beneficial interest in the fideicomiso being transferred. the gales were villa the same standard as the district court. noble energy, inc. v. bituminous cas. "agreement"). the gales agreed to purchase all of the membership interest in limited-liability company to dispose of its property and wind up its affairs: no. 07-20740 mexican authorities performed an appraisal of the transfer. perhaps pikoff is attorneys' fees is also moot. capital gains tax liability." the court thus held that "[b]ecause the gales were 2000 was a taxable event, the gales have not shown that carnrite's failure to rules of civil procedure, the district court concluded that the carnrite-gale contention that a breach occurred when carnrite failed to pay taxes on the 2000 serve as the beneficiary of the fideicomiso.3 plaintiffs - appellees gale and debra gale." additionally, in his affidavit testimony, randolph gale respect of or measured by the llc's income for any period up to tax liability for the company itself, and that the gales' claim was barred by the applicable more than 10%, the total difference shall be considered income to a. okay. states district court for the southern district of texas, asserting a cause of limited-liability company. carnrite owned all of the outstanding membership clerk section 3.01. seller hereby warrants, represents and covenants to villa rayos's right to transact business effective may 1, 2004, for its failure to after conducting a hearing on this issue under rule 44.1 of the federal naturalization or mexican companies may "acquire direct ownership of lands or waters within which the first paragraph of this article refers, the tax authorities issue. during the rule 44.1 hearing before the district court, pikoff maintained liable. there is no way the tax authorities can claim that it is jointly liable. no. 07-20740 not properly agreed on an arm's length basis, in other words, that liability resulted, determined by using the basis of the fideicomiso from 1991. sustained. the gales expressly abandoned the district court's low-cost basis transfer. because of its abandonment by the parties, we do not review the carnrite and not upon villia rayos, as required for liability under the language limitation tax liabilities due or to become due, and incurred in motions for summary judgment, granting the gales' motion for summary villa rayos, which is not a party to this suit, was accountable for the taxes upon making an offer, the gales were informed that due to legal because carnrite's failure to pay taxes in 2000 is the only breach the gales 11 representation regarding villa rayos's cost basis in the fideicomiso as exhibit c to the limited-liability company whose right to transact business has been revoked. caused by such breach. in documents entitled "seller's settlement statement" ineffective is foreclosed by nevada law regarding permissible conduct by a remedy or cause of action available to or against it or its managers ­ make a note to the transaction and find out that the operation was f i l e d liability under the version of article 190 in effect at the time of the 2000 membership interest in villa rayos. accordingly, in september 2005, villa theory at oral argument, explaining that they were relying solely on their be pursued. nev. rev. stat. § 86.274. another statute allows a dissolved nature[,] . . . including without limitation tax liabilities due or to become due." the court conducted a bench trial pursuant to federal rule of civil sol, llc, also owe the capital gains tax? application to this case, the gales have not shown that carnrite's failure to the carnrite-gale transaction in january 2000. the argument continues that a. no. villa rayos is the one that sold or transferred to the ­ this is a tough translation here in this version you gave me ­ but a fideicomiso is a property-ownership arrangement complying with article 27 of the2 sonenshine entities had previously purchased the beneficial interest in the fideicomiso from warranty did not provide such comprehensive protection. that villa rayos itself became liable for anything or that it would become liable order denying its motion to compel production of the gales' tax returns and proof of payment value of the stock. the parties have not pointed to any evidence that the gales carnrite's notice of appeal also stated that the appeal was from the district court's4 had standing to bring this suit because they were parties to the agreement upon the dissolution of a limited-liability company does not impair any mexican tax law? beneficiary of the trust[,] right? interest in villa rayos. take carnrite where it would like to go. first, creekmore's testimony concerns summary judgment, both of which the district court denied. holdings, llc? villa rayos. the warranty provision covered only the tax or other liabilities of assets or income from which to pay the taxes. villa rayos's sole asset was the to understand what is argued, we examine section 3.01(h) of the for the southern district of texas paragraph that can be applied just by the tax authority. that's the agreement for sale of membership interest in villa rayos del sol, llc" (the appeals from the united states district court villa rayos would not owe any taxes, as it was "the one that sold or transferred carnrite now appeals, arguing that the district court erred in denying its the gales maintain that carnrite breached the warranty provision of the 7 of the outstanding membership interest in villa rayos for $1,725,000. a. yes, or villa rayos. be distributed to its members. id. § 86.521. leslie h. southwick, circuit judge: no. 07-20740 assets unimpaired by the dissolution was any cause of action against carnrite. agreement, which contains the warranty provision at issue: property within a prohibited zone, and a foreigner, as the beneficiary of the trust, enjoys the the alienee, in which case the acquisition cost of the property shall due or to become due, known or unknown, including without as noted above, article 190 (or article 151) is the mexican tax provision through7 continues as a company for the purpose of prosecuting and no mexican income or capital gains taxes were paid on the transfer. the fair market value of the stock was higher, and they give a defending suits, actions, proceedings and claims of any kind or declared, so it's 100 percent ­ if the seller does not declare his taxes no. 07-20740 follows in his deposition regarding the tax liability resulting from the 2000 taxes on the transfer created a tax liability for villa rayos. the district court i. factual and procedural background carnrite-gale transaction gave rise to a tax liability under mexican law. the tax. he further stated that to the best of his knowledge, the mexican tax authorities revised february 18, 2009 translation" of the spanish text. even so, we have some doubts regarding transaction and the effect of any taxes not being paid. assessed as a part of the gale-vaudagna transaction. consequently, carnrite gale and his wife, debra e. gale, as co-trustees of the gale 2000 trust ("the the gales first filed and then dismissed a suit against carnrite in the u.s. no. 07-20740 (english translation). when asked to describe this provision in layman's terms, no. 07-20740 percent off from what was declared ­ in this case nothing was this paragraph is applicable just by the tax authorities, then it is contractual warranty by failing to report to the mexican authorities and pay carnrite argues that creekmore's testimony is an admission that if carnrite no. 07-20740 rodolfo sanchez-arellano, carnrite's expert, however, disagreed with pikoff's by contrast, in the 2005 transfer, villa rayos itself sold the beneficial interest in the8 villa rayos within the language of the agreement. transaction in 2000 was a taxable event under article 190 of the mexican tax5 trust by the managers," and dissolution proceedings under other statutes should sanchez-arellano opined that villa rayos could not be liable for the taxes on the rayos, through the gales, sold the vaudagnas the beneficial interest in the basis." the court further rejected carnrite's argument that even if there was a appreciated significantly over the original, adjusted basis for which it faced their decision to sell the beneficial interest in the fideicomiso rather than the fifth circuit court's interpretation of mexican law is incorrect. according to carnrite, the instead, both under pikoff's analysis and the language of the provision itself, nature from any source would be a valuable one. we conclude, though, that this than mentioning this motion and its denial in the facts section of its brief, carnrite does not 13 q. correct. transaction if the value of the shares derived from an indirect interest in or members arising before its dissolution and commenced within 2 2004 to create tax liability in such situations. contract was breached." we see some difficulties with the district court's6 of the country." required to purchase the outstanding membership interest in villa rayos, which statute of limitations. similarly, the gales' cross-appeal of the district court's order on purchased the membership interest in villa rayos at a deflated price or that the explained that his conclusion flowed from this language in article 190 itself:7 interest to villa rayos upon its formation in 1996. in february 1999, carnrite purchased all renumbered as article 190. our reference to article 190 will include, as appropriate, the prior jason d.w. ex rel. douglas w. v. houston indep. sch. dist., 158 f.3d 205, 210 n.4 (5th cir. no. 07-20740 which the gales assert that the 2000 transaction was a taxable event. not have standing to pursue their claim. 9 because we have assumed in our analysis that the 2000 transaction was through the llc, became liable for additional capital gains taxes . . . ," and "we procedure 44.1 to determine the applicable mexican law. the court heard is entitled to judgment as a matter of law." fed. r. civ. p. 56(c). 2000 transaction: "it's just the entity issuing the stock. it cannot be jointly court held that carnrite breached the agreement's warranty provision because a zone of one hundred kilometers along the frontiers and of fifty kilometers along the shores warranty. a warranty that the buyer was not getting any liabilities of any pay such taxes resulted in a liability for villa rayos. as such, the gales' breach article iii standing requires, at a minimum, that "the plaintiff personally close its business, to collect and discharge its obligations, to dispose warranty. the seller provided a warranty that the asset being transferred did approach. no party argues that the court's specific reasoning should be purported assignment was ineffective. the district court ruled that the gales taxes on the carnrite-gale transaction. carnrite filed two separate motions for resolution of the issue of standing. the warranty, though, applied only to the 2000 sale. taxes inevitably fell on the gales. it is uncontested that villa rayos had no in may of 2004, the gales held its property and assets in trust. among the warranty, that the low-cost basis of a limited-liability company's sole asset does not create a in 1999, the gales expressed interest in purchasing for the gale 2000 cross-appeal the district court's order on their motion for attorneys' fees. district court's legal analysis. were required to pay mexican capital gains taxes . . . ." such exhibit attached to the agreement in its final form. 496 (5th cir. 2007) (quoting flast v. cohen, 392 u.s. 83, 99 (1986)) (additional only the party obligated for the tax in the first instance, not what happens if carnrite-gale transaction. nonetheless, this provision is the only vehicle