994 F.2d 1542 (11th Cir. 1993), 92-6509, Blohm v. C.I.R.
|Citation:||994 F.2d 1542|
|Party Name:||Nelson M. BLOHM and JoAnn M. Blohm, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.|
|Case Date:||July 09, 1993|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
[Copyrighted Material Omitted]
Thomas Troy Zieman, Jr., Miller, Hamilton, Snider & Odom, Mobile, AL, for petitioners-appellants.
Abraham N.M. Shashy, Jr., Chief Counsel, I.R.S., Washington, DC, Robert W. West, Dist. Counsel, I.R.S., Birmingham, AL, Charles S. Casazza, Clerk of U.S. Tax Court, S. Robert Lyons, Gary R. Allen, Brian C. Griffin, Charles E. Brookhart, Tax Div., U.S. Dept. of Justice, Washington, DC, for respondent-appellee.
Appeal from a Decision of the United States Tax Court.
Before DUBINA, Circuit Judge, CLARK and ESCHBACH [*], Senior Circuit Judges.
DUBINA, Circuit Judge:
Appellants Nelson M. Blohm ("Blohm") and JoAnn M. Blohm 1 appeal a judgment from the United States Tax Court upholding an Internal Revenue Service ("IRS" or the "Commissioner") deficiency notice alleging that the appellants owed taxes on unreported income. We affirm.
This tax deficiency case revolves around the nefarious business activities of Blohm and his business associates, Merlin C. Stickelber ("Stickelber") and Charles Ritchey ("Ritchey"). The facts are largely based upon the Tax Court's detailed findings.
Blohm was president and chief operating officer of Marion Corporation ("Marion"), a large oil exploration firm located in Mobile, Alabama. Stickelber was Marion's chairman of the board of directors and chief executive officer. Ritchey was vice-president of Marion's Oil and Gas Division. This case emanates from two business schemes whereby portions of certain monies used by Marion to purchase oil leases were "kicked back" to Blohm, Stickelber and Ritchey, who subsequently failed to report that income on their federal tax returns. The kickback schemes are discussed in turn.
A. The Cayman Islands Transaction
In 1981 several independent oil and gas operators and landsmen 2 from Texas (the "Texas Group") approached Ritchey and proposed that Marion buy a group of oil leases known as the Jourdanton Prospect. As part of the deal at least one-half of the purchase price was to be paid in the Cayman Islands through Marion Coal, Marion's Cayman Islands subsidiary. The Texas Group promised to "kick back" a portion of this money to representatives of Marion. Ritchey discussed the proposed scheme with Stickelber, who agreed to it. That same day, Stickelber alerted Blohm who also agreed to the proposal.
The purchase price for the Jourdanton Prospect was $2,578,825. A member of the Texas Group executed a contract to sell one-half of his interest in the Jourdanton Prospect to Marion Coal for $1,289,412.50. 3 Marion Coal's president signed the contract of sale. Stickelber co-signed the check paying for the purchase. At the time of these events, Marion was a Fortune 500 company. Marion's purchase of the Jourdanton Prospect was the largest single purchase in its history.
On February 17, 1981, Stickelber, Ritchey and the Texas Group flew to the Cayman Islands. There they met with attorneys retained to set up several shell corporations to shield the kickback proceeds. Stickelber had arranged to have the $1,289,412.50 purchase price wire transferred to the Cayman Islands that day. The funds, however, did not arrive. Stickelber made several phone calls to ensure the money's arrival by the next day, February 18th. On the 18th, Stickelber, Ritchey and the Texas Group met again the attorneys who then established three shell corporations: San Pedro Finance Company ("San Pedro"), St. Lucy Investment Co., Ltd. ("St. Lucy") and Linfield Investment, Ltd. ("Linfield"). San Pedro was owned by the Texas Group, Stickelber, Ritchey and Blohm. St. Lucy was owned one-third each by Stickelber, Ritchey and Blohm. Linfield was owned by the Texas Group. Stock certificates were issued for each owner, including Blohm who held one share of San Pedro class "B" stock and one ordinary share of St. Lucy stock.
The same day a wire transfer from Marion was received by The Bank of Nova Scotia, Cayman Islands, for the account of Marion Coal in the amount of $1,289,412.50. The next day, that money was transferred from
the Marion Coal account to the San Pedro account. The following amounts were then transferred from the San Pedro account to the St. Lucy and Linfield accounts:
San Pedro to St. Lucy: $ 429,374.36 2. San Pedro to Linfield: 860,038.14 ------------- TOTAL: $1,289,412.50 The $429,374.36 transferred to the St. Lucy account owned by Stickelber, Ritchey and Blohm is referred to as the "Cayman Islands kickback." Blohm did not travel to the Cayman Islands in 1981.
Stickelber, Ritchey, Blohm and each member of the Texas Group signed an indemnity agreement in favor of Cayhaven Corporate Services Ltd. ("Cayhaven") as agent for San Pedro. Stickelber, Ritchey and Blohm, as beneficial owners of St. Lucy, each signed a second indemnity agreement in favor of Cayhaven as agent for St. Lucy. Cayhaven invested the St. Lucy funds in a series of short-term certificates of deposit, where they remained for about one year. Several disbursements and loans were made to Stickelber and Ritchey. No disbursements are known to have been made to Blohm.
In November 1982 Blohm and Stickelber signed affidavits to dissolve St. Lucy. The affidavits were notarized by Blohm's secretary. The one-page affidavits contained no corporate titles under the signatures. The Blohms did not report any portion of the Cayman Islands kickback on their 1981 joint tax return.
The Promissory Notes
Stickelber took Blohm's share of the money in the St. Lucy account ($143,268) to satisfy a $282,750 debt Blohm owed to a trust settled by Stickelber's father of which Stickelber was co-trustee (the "Stickelber Trust"). In 1982 or 1983, Stickelber canceled Blohm's entire debt to the Stickelber Trust. On their joint amended federal income tax return for 1983, which was filed in 1985, the Blohms reported income totalling $282,750 from the discharge of the indebtedness to the trust.
B. Kitchen Table Transaction
A second scheme surfaced in 1981. This time the Texas Group approached Ritchey about purchasing another group of leases known as the Stuart City Prospect. This plan also involved a kickback of a portion of the purchase price to Marion representatives. Ritchey explained the proposal to Stickelber and Blohm, who both agreed to it.
Ritchey flew to Seguin, Texas and returned to Alabama with a box filled with cash. 4 He took it to Blohm's home and there divided the money equally with Stickelber and Blohm. The payment is referred throughout as the "Kitchen Table kickback." The Blohms did not report any portion of the Kitchen Table kickback on their 1981 joint tax return.
II. PROCEDURAL HISTORY
In 1986 the government granted immunity from prosecution to Ritchey in exchange for evidence of tax fraud committed by Blohm and others. In 1988 a grand jury indicted Blohm for tax evasion in violation of 26 U.S.C. § 7201. 5 JoAnn M. Blohm was not indicted. Blohm pled guilty, but denied guilt pursuant to North Carolina v. Alford, 400 U.S. 25, 91 S.Ct. 160, 27 L.Ed.2d 162 (1970). 6
The district court entered judgment against him. Blohm moved to vacate his sentence, quash the indictment or grant a new trial. He alleged prosecutorial misconduct causing a violation of his constitutional rights in two respects: (1) that the indictment was based solely on Ritchey's affidavit, which, Blohm claimed, the government knew to be false, and (2) that his guilty plea was coerced by the government's making a false offer of proof at his plea hearing.
After conducting a hearing, the district court denied the motion to vacate, concluding that Blohm's claims were procedurally barred because he failed to raise them on direct appeal from his conviction and sentence. Alternatively, the district court determined that there were no violations of Blohm's constitutional rights, that Blohm's guilty plea was voluntary and that the discrepancies between Ritchey's affidavit and other records were "minor" and "immaterial." The district court denied Blohm's motion for reconsideration and Blohm appealed. In an unpublished opinion, we affirmed the district court's alternative holding. Blohm v. United States, 964 F.2d 1147 (11th Cir.1992) (per curiam).
A. The Notice of Deficiency
Shortly after Blohm pled guilty in 1988, the Commissioner issued the Blohms a notice of deficiency for $269,035 of unreported income from the Cayman Islands kickback ($143,268) and the Kitchen Table kickback ($125,767). As to the former, the Commissioner alleged that Blohm applied his one-third share of the proceeds to cancel the debt he owed to the Stickelber Trust. The claimed tax deficiency totalled $133,749. The Commissioner further determined an addition to tax of $119,725 under 26 U.S.C. § 6653(b) 7. The determination was based upon Blohm's guilty plea, an affidavit of Ritchey and a letter from Stickelber to an IRS agent in which he linked Blohm to both the Cayman Island and Kitchen Table kickbacks. The Blohms petitioned for a redetermination before the Tax Court.
B. Proceedings Before The Tax Court
Prior to trial the Blohms moved to strike Ritchey's testimony and to supplement the record. The government moved for relief from the binding effect of the parties' stipulation of facts. The Tax Court denied the Blohms' motion to strike Ritchey's testimony but granted their motion to supplement the record. The Tax Court denied as premature the government's motion for...
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