Mires v. U.S.
| Decision Date | 13 April 2005 |
| Docket Number | No. CIV-03-982-R.,CIV-03-982-R. |
| Citation | 372 F.Supp.2d 1265 |
| Parties | Arthur W. MIRES, Trustee of the Monte H. Goldman Revocable Living Trust; Julian P. Kornfeld, Executor of the Estate of Alfred D. Goldman, Deceased; Julian P. Kornfeld, Trustee of the Alfred Dreyfus Goldman Revocable Living Trust; Arthur W. Mires, Trustee of the Margaret K. Goldman Trust For Monte H. Goldman; Arthur W. Mires, Trustee of the Jack Katz Trust for Monte H. Goldman; Arthur W. Mires, Trustee of the S.N. Goldman Trust for Monte H. Goldman; Arthur W. Mires, Trustee of the S.N. Goldman Trust for the Children of Monte H. Goldman; Julian P. Kornfeld, Trustee of the Monte H. Goldman Trust for Alfred D. Goldman; Julian P. Kornfeld, Trustee of the S.N. Goldman Trust for Alfred D. Goldman; Julian P. Kornfeld, Trustee of the S.N. Goldman Trust for Alfred Dreyfus Goldman; Arthur W. Mires, Trustee of the S.N. Goldman Irrevocable Trust for Monte H. Goldman; Julian P. Kornfeld, Trustee of the S.N. Goldman Trust for the Children of Alfred D. Goldman; Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Western District of Oklahoma |
Clarke L. Randall, Marcelo M. Puiggari, Kornfeld Franklin Renegar & Randall, Oklahoma City, OK, for Plaintiffs.
Teresa Dondlinger Trissell, US Dept of Justice Tax Div., Washington, DC, for Defendant.
Before the Court are the Plaintiffs' motion for summary judgment and the Defendant's motion for summary judgment.
The motions came on for oral argument on March 22, 2005, with Mr. Clarke L. Randall of the law firm of Kornfeld Franklin Renegar & Randall appearing on behalf of the Plaintiffs, and Ms. Teresa Dondlinger Trissell of the United States Department of Justice appearing on behalf of the United States.
The Plaintiffs, the estate of Alfred D. Goldman and various trusts established for the benefit of Alfred D. Goldman and his brother Monte H. Goldman, bring this suit seeking to recover federal income tax overpayments made in the tax years 1990, 1991 and 1992. The Plaintiffs allege that the overpayments resulted from their failure to claim as deductible expenses certain amounts paid for legal and accounting fees incurred in connection with a lawsuit brought in the District Court of Oklahoma County by Monte Goldman against Alfred Goldman. The Internal Revenue Service has denied the Plaintiffs' claims for refund of the alleged overpayments.
The parties have stipulated to most of the relevant facts. (See Stipulation of Material Facts not in Dispute). Alfred and Monte Goldman were the only children of the late S.N. Goldman, a successful entrepreneur with sizeable real estate holdings and other business interests, and his wife, Margaret Goldman. During their lifetimes, S.N. and Margaret Goldman created a number of trusts for the benefit of Alfred Goldman and Monte Goldman. Over a period of years, the Alfred and Monte Goldman trusts became the owners of the majority of S.N. Goldman's lucrative business enterprises. After S.N. Goldman died in 1984, Alfred Goldman moved from Honolulu, Hawaii to Oklahoma City and, with Monte Goldman's consent, took over the active management of the various Goldman business entities. By the terms of their wills and living trusts, S.N. Goldman and Margaret Goldman left their respective estates in equal trusts for the benefit of Alfred and Monte Goldman.
At all times, Alfred and Monte Goldman, or their respective trusts, owned equal shares of the real property, partnerships and corporate stock held by their various trusts. Alfred and Monte Goldman always regarded themselves as equal owners of or partners in the various Goldman business entities, and expected to share equally in the profits and losses of the Goldman business entities.
One of the Goldman business entities is Primco Management Company ("Primco"), an Oklahoma corporation whose stock is held equally by the revocable living trusts established for Alfred Goldman and Monte Goldman. Primco was actively engaged in the business of performing the administrative functions of the other Goldman entities, including general administration, bookkeeping, preparation of federal and state tax returns, managing and leasing of the real estate held by the Goldman entities, the collection of rent for said real estate, the hiring of various professional consultants including attorneys, accountants, investment advisors, and engineers, as needed.
In the years following the deaths of their parents, the relationship between Monte and Alfred Goldman deteriorated. Alfred Goldman came to believe that he was entitled to a larger share of the assets because he had managed the jointly owned investment properties, and because Monte Goldman had taken larger withdrawals over the years. In August 1986, Alfred Goldman unilaterally placed Monte Goldman on a monthly "allowance" of $8,000.00, at a time when the Goldman entities drew an aggregate, annual income of approximately $4,000,000.00.
On March 16, 1990, Monte Goldman demanded that Alfred Goldman render an accounting to him of the funds held by the Goldman entities, distribute to him fifty percent of all income and profits generated by the Goldman entities, and make the books and records of the Goldman entities available to him and/or his attorneys and accountants. After this demand, Alfred Goldman appropriated to his own use virtually all of the cash from the various Goldman entities, amounting to approximately $23 million,1 by executing loans from the various Goldman entities to five separate trusts of which he was the beneficiary. Alfred Goldman transferred approximately $22.6 million2 of this $23 million to foreign bank accounts in the Isle of Man, and then to a bank account in Switzerland. Alfred Goldman also caused 29 parcels of real estate owned by various Goldman entities to be conveyed to the Alfred D. Goldman Revocable Living Trust by quitclaim deed.
It is undisputed that Alfred Goldman took the foregoing actions willfully and intentionally, believing that he was entitled to compensation for his operation of the Goldman entities without assistance from Monte Goldman, and entitled to compensation for an "imbalance" between the amounts of money he and Monte Goldman had withdrawn from the Goldman entities in the preceding years. (See Stipulation of Material Facts Not in Dispute, par. 33). On April 3, 1990, Monte Goldman brought suit in the District Court of Oklahoma County against Alfred Goldman and several employees of Primco Management Company. (Stipulation of Material Facts Not in Dispute, pars. 34, 35).
The state court promptly issued temporary restraining orders, restraining the Primco employees and Alfred Goldman from various acts, and directing them to return various items of property to Monte Goldman. (Stipulation of Material Facts Not in Dispute, pars. 36, 37). On April 11, 1990, the state court entered an order appointing a receiver over the various Goldman entities, and continuing in effect the temporary restraining order, prohibiting Alfred Goldman and the Primco employees from further transferring the approximately $22.6 million.
Alfred Goldman filed a counterclaim in the state court proceedings, asserting a claim for an accounting and "balancing" of the jointly owned accounts, a claim declaring himself to be the owner of certain real properties, and a claim for compensation for his services as manager of the jointly owned properties. The parties litigated their dispute in Oklahoma County District Court "with great zeal," including a two-phase trial and numerous hearings, from 1990 through 1992. (Stipulation of Material Facts Not in Dispute, par. 44). The state court denied Alfred Goldman's counterclaim for compensation for his management services, finding that he had no written or oral contract for compensation, no reasonable expectation of compensation, and further finding that Alfred Goldman had conducted the business of the Goldman entities of his own volition.
The parties reached a settlement in the state court suit, and executed a Release and Settlement Agreement on July 11, 1994. The settlement agreement provides that the historic "imbalance" between the amounts received by the parties during the accounting period, as determined by the court, was to be paid from property dispositions. The settlement agreement noted that Alfred Goldman's trusts had received payments toward the imbalance aggregating $2,077,000.00, and that the remaining amount of the imbalance was $7,000,000.00.3 The parties incurred attorney's fees in connection with the state court litigation aggregating $2,554,437.00, and accounting fees of $352,500.00, all of which were paid by Primco Management Co. Primco, as a sub-chapter S corporation deducted the legal and accounting fees on its income tax returns for the years 1990, 1991 and 1992. The Internal Revenue Service disallowed Primco's deductions for accounting fees, and allowed Primco to deduct only that portion of the attorney's fees which Primco had paid to defend the Primco employees named as defendants in the state court lawsuit.
Primco Management Co. filed a petition in the United States Tax Court, challenging the disallowance of its deductions. Primco and the Internal Revenue Service settled the Primco Tax Court litigation, with Primco conceding that the deductions were not allowed to Primco. When the Primco deductions were disallowed, the corresponding distributable net losses which Alfred Goldman had claimed on his 1990, 1991 and 1992 income taxes as a Primco stockholder were reduced accordingly.4 (Stipulation of Material Facts Not in Dispute, par. 56). The reduction of distributable net losses had the effect of increasing Alfred Goldman's federal income tax liability for the years in question by the following amounts:
1990: $165,089.00
1991: $160,207.00
1992: $ 63,575.00
These amounts were assessed against Alfred...
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