Brockman Jeopardy Assessment of $1.4+ Billion Sustained (10/2/22)

On 9/30/22, the district court sustained the IRS’s $1.4+ Billion jeopardy assessment for taxes, fraud penalties, and interest.  United States v. Brockman (S.D. TX No. 4:22-CV-202 Dkt. # 71 Memo Opinion and Order 9/30/22), here (as retrieved from PACER); see also CL Dkt entries here (the pdf does not yet show up on the CL docket entries but should shortly).  The IRS asserted that the assessment “represents the largest jeopardy assessment/levy case in the history of the United States and features tax fraud on an unprecedented” scale.” (internal quotation marks omitted).

I won’t get into the details since the opinion is short (13 pages) and easily readable (with some nice graphics).  The opinion plows no new ground in jeopardy assessment law.  It is noteworthy (if at all) only because of the size of the assessments and the facts leading to the assessments.

I note that FBAR assessments (which certainly have been made or will be made, depending upon the statute of limitations) are not included.  There is no jeopardy assessment authority for FBARs, but the IRS does not need jeopardy assessment authority for FBARs because it can assess the FBAR penalties without predicate requirements for income tax assessments.  Of course, with FBAR assessments, the IRS will not have the substantial collection tools available for tax assessments and will have to proceed by suit to reduce the FBAR assessments to judgment.

I don’t know what type of estate Brockman had at death and the assets the IRS can get through various third-party liability remedies (such as transferee and similar state law remedies, alter ego, etc.), but I speculate that, with the probable size of the FBAR assessments and third-party liabilities, the IRS will be able ultimately to substantially wipe out his net worth (with third-party liabilities).  Of course, he lived large during his lifetime. And his death permitted him to escape criminal responsibility and liability.

This blog entry is cross-posted to my Federal Tax Crimes Blog.  Until this blog entry, I have not posted on the Brockman trajectory on the Federal Tax Procedure Blog.  For other postings on Brockman on the Federal Tax Crimes Blog, see here.

Court Sustains Almost $350 Million Jeopardy Assessment Arising from Sham / Bullshit Tax Shelter (9/18/21)

In Kalkhoven v. United States, 2021 U.S. Dist. LEXIS 175844 (E.D. Cal. 9/15/21), CL here, the Court sustained the IRS’s jeopardy assessment against Kevin Kalkhoven, a venture capitalist (Wikipedia, here).   Section 6861 allows the IRS to assess tax, such as income tax, which is otherwise subject to the prohibition on assessment in § 6213(a).  Students will recall that § 6213(a), the central feature of the deficiency notice preassessment litigation system, prohibits assessment before the issuance of a notice of deficiency and, if the taxpayer petitions the Tax Court for redetermination, until the Tax Court decision becomes final.  The delay in assessment, particularly if a Tax Court petition is filed, can be substantial.  And, when the tax liability relates to a TEFRA partnership, as here, further delays are encountered if the partnership litigates as it did here.

Section 6861 allows a jeopardy assessment to permit immediate assessment where the IRS determines that the collection of the as yet unassessed tax is in jeopardy.  The IRS determined that collection of tax was in jeopardy because of the large amount of tax to be assessed in the future because of Kalkhoven’s investment in the Son-of-Boss sham (aka, in my words, bullshit) tax shelter in BCP Trading and Investments, LLC v. Commissioner, 991 F.3d 1253 (D.C. Cir. 2021).  He had also invested in another such shelter, Woodside Partners v. Commissioner, docket no. 5685-16 (expected to generate a $25 million tax for Kalkhoven).

As a result of expected tax liabilities from these “investments,” the IRS made jeopardy assessments, under § 6861, totaling almost $350 million  (Gov’t response, Dkt # 22, p. 1.)  The IRS followed the procedure in § 7429 for appropriate approvals.  Kalkhoven invoked his right for expedited internal review in Appeals and then, upon obtaining no relief, for expedited judicial review in the district court.  The Court rejected his claim to relief, thereby sustaining the IRS’s jeopardy assessment.  The opinion is short (12 pages), so I recommend it, particularly for tax procedure students.  

Sustaining the jeopardy assessment is not a determination that the taxpayer actually owes tax in the amount assessed; it is just a determination that, on the facts known to the IRS, it is reasonable to believe that tax is due and collection is in jeopardy.  For more on the jeopardy assessment process, see the discussion on my 2021 Federal Tax Procedure Book (Practitioner Edition), here.

For further background, readers might want to review the docket entries in the case (CourtListener here, which permits some of the key documents to be viewed or downloaded).