Onyeani v. Comm'r
| Decision Date | 16 January 2020 |
| Docket Number | Docket No. 15303-16.,T.C. Memo. 2020-15 |
| Parties | UGORJI TIMOTHY WILSON ONYEANI, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
Ugorji Timothy Wilson Onyeani, pro se.
Sarah E. Sexton Martinez, Eugene A. Kornel, and Megan E. Heinz, for respondent.
LAUBER, Judge: During the first quarter of 2015 petitioner received about $750,000 from entities allegedly seeking to purchase Nigerian crude oil. Shortly thereafter he attempted to wire $300,000 to a foreign bank. The U.S. Secret Service flagged the transaction and alerted the Internal Revenue Service (IRS or re- spondent). Believing that petitioner intended "quickly to depart from the United States or to remove his property therefrom," the IRS made a termination assessment under section 6851(a).1 Performing a bank deposits analysis, the IRS determined that petitioner had received taxable income of $802,083 as of May 13, 2015. It terminated his taxable year as of that date, assessed tax of $288,546, and collected that sum by levy on his bank account following his unsuccessful challenge to the termination assessment in Federal District Court. See Onyeani v. United States, No. 15-C-05917, 2016 WL 3149729 (N.D. Ill. June 3, 2016).
Petitioner filed a timely Federal income tax return for 2015, reporting none of the income that was subject to the termination assessment. As required by section 6851(b), the IRS sent him a notice of deficiency. It determined unreported income of $802,083, a deficiency of $273,407, a civil fraud penalty, and an accuracy-related penalty as an alternative.
Acknowledging considerable mystery about the underlying transactions, we decide this case primarily on the basis of burdens of proof. Respondent has established that petitioner received unreported income, and we sustain his deficiency determination except to the extent that petitioner substantiated deductions or off-sets therefrom. But respondent has not met his burden of showing an underpayment of tax, within the meaning of section 6664(a)(1), that could give rise to any penalty.
We find the following facts on the basis of the evidence adduced at trial and the facts deemed established by the Court's September 21, 2018, order making absolute a prior order to show cause.2 Petitioner resided in Illinois when he petitioned this Court.
Petitioner was born in Nigeria and subsequently moved to the United Kingdom (U.K.), where he obtained citizenship and began practicing medicine. In 2009 he was accused of misconduct, including the falsification of medical records, that ultimately led to the revocation of his U.K. medical license. He moved to the United States and became a permanent resident in 2012. He obtained an MBA degree from DeVry University in 2015. As of that time he had no background, training, or experience in the oil and gas business.
Petitioner incorporated American Hope Petroleum & Energy Corp. (AHPE) on January 23, 2015, before completing his MBA program. He was AHPE's registered agent and sole shareholder, listing his residence as its address. AHPE had no officers or employees, no board of directors, and no formal capital structure. It paid no wages, maintained no business formation records, had no financial or accounting records of any kind, and never filed any Federal or State tax returns. It held no annual (or other) meetings of officers, directors, or shareholders and perforce had no minutes of such meetings. It had no business address or phone number distinct from petitioner's. It obtained no permits or business licenses and maintained no insurance policies of any kind.
But AHPE did have a partially-completed website, which petitioner created soon after incorporating it. The website described AHPE as an "independent crude oil purchasing and selling broker" headquartered in Chicago. AHPE assertedly had "a team of experts," including "fund managers, partners, and advisors," who were "securely invested in crude purchasing" and about to expand by acquiring an offshore oil block in Nigeria. Supposedly overseeing this activity was a "board of directors" and an "Advisory Board," ensuring that AHPE operated in accordance with "best practice[s]" and "corporate governance standards."
Petitioner substantiated none of these representations, and all appear to have been false. AHPE had no discernible business activity. As of February 2015 it consisted of little more than a name on three Bank of America (BoA) bank accounts that petitioner opened in its name in late January 2015.
Petitioner testified that AHPE was in the business of brokering the sale of crude oil owned by the Nigerian National Petroleum Corporation (NNPC). He produced three documents, supposedly issued by NNPC in February and March 2015, purporting to authorize AHPE to sell 5 million barrels of Nigerian light crude--worth over $250 million--then on board vessels off the Nigerian coast. None of these documents was authenticated by any representative of NNPC. At various times NNPC has issued "scam alerts" warning about "advance fee schemes" peddled by "unsavory characters purporting to be * * * contractors to NNPC."
Petitioner produced two documents, each captioned "Sales Purchase Agreement/Commercial Invoice," on AHPE's letterhead. Each document lists AHPE as the seller and AHPE Global Resources, Ltd., allegedly a Nigerian entity, as the "co-seller." Each document is signed by petitioner on behalf of the seller and purports to cover the sale of 2 million barrels of Nigerian light crude.
One document lists Tianjin Commodity Exchange Co., Ltd. (Tianjin), a Chinese entity, as the buyer. This document has signatures and stamps purportedly affixed by an agent of Tianjin. The other document lists LaSalle International Inc. (LaSalle), a U.S. company, as the buyer, and Fengying International Co., Ltd. (Fengying), a Chinese entity, as the "co-buyer." This document has a signature and stamp purportedly affixed by an agent of Fengying. The document lists Pierre Yenokian as the president of LaSalle, but it does not bear his signature or that of any other LaSalle representative. Both documents call for discharge of the crude oil at Yangshan Port, a harbor for container ships south of Shanghai, China.
Each document specified a per-barrel sales price equal to the "average of Brent's three daily crude price averages," less a discount. The Tianjin agreement specified a provisional price of $56 per barrel minus a $4-per-barrel discount. The LaSalle/Fengying agreement specified the same provisional price but inconsistently specified $4-per-barrel and $5-per-barrel discounts in different sections of the agreement.
Each agreement required the buyer to pay advance fees. Under the LaSalle-Fengying agreement the buyer was to pay "$2.0 million Dollars in logistics fees as part payment for cargo and final payments after QnQ." ("QnQ" seems to stand for "quality and quantity" testing of the crude.) The corresponding section of the Tianjin agreement specified no logistics fee. However, an amendment to that agreement stated that "[b]uyer prepays US$200,000 to NNPC designated Seller's account with Bank of America."
On March 3, 2015, Tianjin wired $199,985 to AHPE's BoA checking account ending in 9724 (BoA 9724 account). During February and March 2015 LaSalle made three wire transfers totaling $545,000 to that same account. All of LaSalle's wire transfers show them as being authorized by Pierre Yenokian as LaSalle's president. Tianjin and LaSalle thus paid a total of $744,985 in advance fees to AHPE.
As of March 2015 the BoA accounts nominally held by AHPE had received deposits of at least $806,985. Of this total $744,985 came from Tianjin and LaSalle. A fifth deposit was a check for $62,000 written on petitioner's personal account at PNC Bank. This check bore the notation "pay self" in the memo line.
On or about March 3, 2015, petitioner attempted to wire $300,000 from the BoA 9724 account to a bank account in London, England. This account was held in the name of Supply Source Ltd. (SSL account). Petitioner produced a letter dated March 2, 2015, stating that NNPC had "nominate[d] the [SSL account] to receive the logistics of $800,000.00." This document was not authenticated by any representative of NNPC. Petitioner testified that the $300,000 wire transfer was intended as part payment of the logistics fees that Tianjin and LaSalle had agreed to pay.
BoA's fraud department flagged this transaction, froze AHPE's accounts, and informed petitioner that it was investigating him for money laundering or other illegal activity. He immediately opened accounts at two other banks. On March 12, 2015, he went to BMO Harris Bank N.A. (Harris) and opened one account in his name (8133 account) and another in AHPE's name (8095 account). On the same day he went to TCF National Bank (TCF) and opened one account in his name (0756 account) and another in AHPE's name (6137 account).
At all times petitioner had control and sole signatory authority over these accounts. During March and April 2015 he used funds in AHPE's TCF account (6137 account) to pay for such personal expenses as airline tickets, stays at the Ritz-Carlton Hotel, merchandise from Sea World and Victoria's Secret, new flooring for his home, and visits to aquariums, Magic Kingdom, and Hollywood movie studios.
After concluding its fraud investigation BoA decided that petitioner's transactions exposed it to excessive risk. It accordingly "force closed" all of AHPE's accounts. It gave petitioner cashier's checks, payable to AHPE, in the amounts of the outstanding account balances.
Petitioner deposited most of these cashier's checks into the new Harris accounts. He had opened AHPE's Harris account (8095 account) on March 12, 2015, with a cash deposit of $300. On March 31, 2015, he deposited into that account three BoA cashier's checks totaling $743,761, bringing its...
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