Felcyn v. US
| Decision Date | 02 June 1988 |
| Docket Number | No. CV 82-2674 RG (Bx).,CV 82-2674 RG (Bx). |
| Citation | 691 F. Supp. 205 |
| Court | U.S. District Court — Central District of California |
| Parties | Gloria FELCYN, Plaintiff, v. UNITED STATES of America, Defendant. |
Robert C. Bonner, U.S. Atty., Charles H. Magnuson, Asst. U.S. Atty., Chief, Tax Div., Edward M. Robbins, Jr., Asst. U.S. Atty., Los Angeles, Cal., for U.S.
Christine M. Frahm, Christine M. Frahm, A Professional Corp., Goebel, Shensa & Beale, San Diego, Cal., for plaintiff Gloria Felcyn.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
For purposes of and in support of the Order of Judgment, the court makes the following Findings of Fact and Conclusions of law:
FINDINGS OF FACT
1. On her tax return for 1977, plaintiff Gloria Felcyn ("Felcyn") claimed an investment interest expense deduction of $5,504.00. This deduction was identified as her share of the investment interest expense claimed on the 1977 tax return of Duncan Properties Partnership ("Duncan") and as a carryover of investment interest expenses claimed by Duncan for 1976. The Internal Revenue Service disallowed this deduction and based on such disallowance assessed a tax deficiency against Felcyn, which was paid. By the present action Felcyn seeks a refund of such deficiency paid.
2. Plaintiff's expenses in this litigation are paid by Harry Margolis. The $1,600 deficiency in this case was paid from an account in the name of Harry Margolis.
3. The signatures of Felcyn, along with the signatures of William Berman, David H. Bruce, Mark D. Schiavenza, Robert S. Muehlenbeck, Philip M. Bardack, Ondrej Kojnok, R.H. Adolphson and G. Louis Graziadio III, appear on an undated document stated to be the "Duncan Properties Partnership Agreement." Messrs. Berman, Bruce, Bardack, and Graziadio were clients of Margolis. Felcyn and Messrs. Schiavenza, Muehlenbeck, Kojnok and Adolphson were employees of Margolis. The statements in this document are to the effect that Duncan is organized as a general partnership consisting of the individuals where signatures appear on the document. The document identifies the following amounts received as contributions from the partners indicated:
William Berman ........... $ 10,000
David H. Bruce ............. 10,000
Mark D. Schiavenza ......... 10,000
Robert S. Muehlenbeck ...... 15,000
Philip M. Bardack .......... 10,000
Ondrej Kojnok .............. 20,000
G.H. Felcyn ................ 25,000
R.H. Adolphson ............. 10,000
G. Louis Graziadio III ..... 90,000
________
$200,000
The document states that its term will commence on November 1, 1976.
4. The bank records and other records of Duncan and of Antigua Banking Limited ("ABL") an Antigua company directed and managed by Margolis, show that on October 20, 1976, $200,000 was transferred from ABL's account at Barclays Bank of California ("Bar Cal") to Duncan's account at that bank. The records of ABL maintained at the Margolis office identify this transfer as a loan from ABL to Duncan. On this same day, October 20, 1976, the bank records and other records of Duncan show that $200,000 was transferred from Duncan's account at Bar Cal to an account in the name of Hexagram at Barclays Bank International Limited (Tortola) ("BBIL (Tortola)"). The records of Duncan identify this $200,000 transfer as a payment of interest to Hexagram on a $14,000,000 loan.
5. The $200,000 transfers from the account of ABL, to the account of Duncan, to the account of Hexagram, were components of a "cash flow" or "money movement" arranged by the Margolis office. The October 20, 1976, cash flow involved seventeen checking accounts at Bar Cal in the names of clients of the Margolis office or in the names of entities such as ABL directly managed by the Margolis office. The October 20, 1976, cash flow also involved checking accounts at BBIL (Tortola) in the names of Hexagram, a Netherlands Antillies corporation; World Entertainers, a Bahamian corporation; Interlit, a British Virgin Islands corporation; the Parallax Corporation, a Panamanian corporation; Wickhams Cay Trust Company, a British Virgin Islands company; Management and Trust Company International ("Matrucoin"), a Netherlands corporation; the Aruba Bonaire Curacao ("ABC") Trust Company, a Bahamian company, and Presentaciones Musicales, SA ("PMSA"), a Panamanian corporation.
6. The affairs of the identified foreign entities were dominated, manipulated and controlled by the Margolis office. With few exceptions, no person at the Margolis office ever served as an officer or director or bank signatory for any of these foreign entities. Nevertheless, the Margolis office effectively controlled the affairs of these foreign entities.
7. The Margolis office initiated the idea of the creation of these foreign entities, as well as the idea of the anticipated activities of the entities. The Margolis office made available funds for the capitalization and operation of these foreign entities. The Margolis office hired foreign-based management companies to act as shareholders, officers and directors of these foreign entities. The Margolis office hired foreign management companies to open and close bank accounts in the names of these foreign entities and act as signatories on such bank accounts. The Margolis office hired foreign management companies to maintain records in the names of these foreign entities based on information supplied by the Margolis office. From time to time the Margolis office would send its employees to work at these foreign management companies.
8. Acting on instructions from the Margolis office, these foreign management companies would create or liquidate foreign entities as required by the Margolis office. As directed by the Margolis office, foreign management companies would execute checks and authorization letters on the accounts in the names of the foreign entities. As directed by the Margolis office, these foreign management companies would sign documents in the names of foreign entities drafted by the Margolis office.
9. The Margolis office would advise its foreign managers of a contemplated "cash flow" by means of telexes. The telexes set forth the domestic to foreign, foreign to domestic, and foreign to foreign transfers that were to occur and listed the sequence and amount of each transfer. The Margolis office prepared cash receipt and check request forms for transfers to or from accounts in the names of foreign entities used in the cash flow. These forms set out the dates and amounts of the transfer and contained the manner in which the transfer was to be treated for purposes of preparing accounting records in the names of the foreign entities.
10. The October 20, 1976, cash flow included at least ninety-one (91) bank transfers between and among the domestic accounts at Bar Cal and the foreign accounts at BBIL (Tortola). The Margolis office took a collected fund equal to the largest single transfer on that date ($1,000,000) and circulated the fund, in whole or in part, through the various bank accounts until debits and credits in amounts determined by the Margolis office were posted to the banks accounts. The checks drawn on the accounts in the names of the foreign entities at BBIL (Tortola) were in the form of transfer authorization letters all bearing the signature of Noel Barton. Noel Barton's office in Tortola was one of the foreign management companies hired by the Margolis office to maintain the flow of paperwork in the names of the various foreign entities. At the end of the October 20, 1976, cash flow, credits in the minimum amount of $18,771,159 had been posted to the accounts at BBIL (Tortola) in the names of the various foreign entities and also posted were corresponding debits in the minimum amount of $16,908,022.
11. For federal tax purposes, Duncan treated the $200,000 transfer as an interest pre-payment on a $14,000,000 loan from Hexagram. Duncan claimed $194,445 of the $200,000 as an interest expense deduction on its 1976 income tax return, which amount was passed down pro rata to the individuals identified as partners in Duncan, including Felcyn. Felcyn claimed part of her pro rata share as an interest deduction on her 1976 income tax return and carried the balance forward to her 1977 income tax return. Duncan claimed the remaining amount of the $200,000 transfer ($5,555) as an interest expense deduction on its 1977 income tax return, which amount was passed down pro rata to the individuals identified as partners in Duncan, including Felcyn who claimed her pro rata share on her 1977 income tax return.
12. The bank records and other records of Duncan and ABL, show that on October 24, 1976, $10,000 was transferred from ABL's account at Bar Cal to David Bruce's account at that bank and from there to Duncan's account at that bank, $10,000 was transferred from ABL's account at Bar Cal to Mark Schiavenza's account at that bank and from there to Duncan's account at that bank, $10,000 was transferred from ABL's account at Bar Cal to William Berman's account at that bank and from there to Duncan's account at that bank, $20,000 was transferred from ABL's account at Bar Cal to Ondrej Kojnok's account at that bank and from there to Duncan's account at that bank, and $15,000 was transferred from ABL's account at Bar Cal to Robert S. Muehlenbeck's account at that bank and from there to Duncan's account at that bank, for total transfers of $65,000 from ABL to the identified partners of Duncan to Duncan. Two days later, on October 26, 1976, $65,000 was transferred from Duncan's account at Bar Cal to ABL's account at that same bank. On November 8, 1976, $25,000 was transferred from ABL's account at Bar Cal to Felcyn's account at that bank and from there to Duncan's account at that bank and from there to ABL's account at that bank (i.e., ABL to Felcyn to Duncan to ABL, $25,000). On that same day $10,000...
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