The biggest case of individual tax evasion escalates

0

Bermuda and Cayman liquidators of an investment company for a family trust, involved in the largest tax evasion case in the United States against an individual taxpayer, have sought recognition of the Chapter 15 liquidation of Bermuda in the USA.

The filing attempts to prevent the US Internal Revenue Service from enforcing an alleged US$1.4 billion tax liability.

The IRS charged Texan billionaire Robert T. Brockman in October 2020 with an offshore tax evasion scheme that hid about $2 billion in revenue from the tax office.

The IRS alleges that Brockman, the retired CEO of a company that developed specialized software for car dealerships, used offshore entities in Bermuda and Nevis to hide his investment earnings from private equity funds. investment based in the Cayman Islands.

Brockman allegedly directed untaxed capital gains from the fund’s investments to secret bank accounts in Bermuda and Switzerland.

Brockman, 80, has pleaded not guilty and his lawyers say he cannot stand trial because he has dementia. Prosecutors dispute that, but a judge has yet to rule on Brockman’s jurisdiction.

On March 29, 2022, the liquidators of the Bermuda company Point Investments Ltd filed a case in a Delaware court seeking a stay of execution against the company’s assets and an interim measure preventing the IRS and other parties to seize property belonging to the company.

Liquidators – Matthew Clingerman, KRyS Global (Bermuda); and Andrew Childe and Richard Lewis, FFP (Cayman) – said in their filing that the IRS was seeking to immediately seize $1.42 billion on the grounds that Point Investments Ltd is the “alleged or alter ego” of Brockman.

However, they said, no court has ever made such a finding or found Brockman liable for any taxes. “Instead, the IRS invoked a federal tax procedure known as a ‘risk assessment’ to avoid having to prove its case before taking any assets,” the filing, released by Alert at seanoted.

Because the IRS failed to notify the alleged levies, the liquidators said they had no choice but to file Chapter 15 proceedings “to satisfy their fiduciary obligations to preserve the debtor’s assets for the benefit of its stakeholders, to prevent piecemeal administration of the debtor’s worldwide estate and to ensure the orderly liquidation of the debtor”.

Complex ownership structure

The Supreme Court of Bermuda ordered the liquidation of Point Investments Ltd in February 2022. The ownership structure of the company is complex.

Point Investment’s economic interest, in the form of ordinary shares, is wholly owned by Spanish Step Holdings, based in the British Virgin Islands, which is part of the Eugene Brockman Charitable Trust.

According to a 2021 Bermuda Supreme Court ruling, Point Investments Ltd is the trust’s corporate investment vehicle and holds approximately $1.8 billion in assets, most of which is invested in island funds. Caymans.

However, the sole management share and voting control of the company is held by Nevis-based Point Investment LLC.

As of April 2021, the Bermuda-based Brockman Family Trust is controlled by BCT Limited, a Cayman Islands subsidiary of Maples FS, as trustee.

The previous administrator of the Brockman Trust, St Johns Trust Company Limited, was removed from office by the Bermuda court, finding he had never been properly appointed.

Between 2010 and 2018 Evatt Tamine, an Australian lawyer, controlled both St Johns Trust Company and, through another trust company, Point Investments LLC and therefore the management of Point Investment Ltd, documents show. judicial.

This left Spanish Step Holdings and the new trustee of the Brockman trust without management control of the trust’s investment vehicle, Point Investment Ltd, and became the main argument for winding up the company.

BTC is also suing Tamine for allegedly embezzling $28 million from the trust.

Trust allegedly a sham

The IRS’ key allegation against Brockman is that the family trust is a sham and that Brockman retained control of the assets, while his lawyers say Brockman had no role in running the trust.

Tamine is a witness cooperating with the US Department of Justice in its prosecution of Brockman, according to court documents.

Prosecutors allege that in addition to the family trust, Brockman used dozens of offshore entities, including other trusts, corporations and LLCs.

They say the ownership structure of offshore trusts and holding companies was intentionally convoluted to both conceal Brockman’s ownership and underreport his taxable income.

“Although Brockman apparently does not own any of these entities, he controls them all. This is accomplished through its use of hand-picked administrators and trusted ‘protectors’ that it controls,” the Justice Department said in a US court filing in February this year.

He added that Tamine explained, in an affidavit filed with the Supreme Court of Bermuda in 2020, that Brockman controlled the Eugene Brockman Charitable Trust and related offshore entities.

In the affidavit, Tamine stated that “Brockman gave very detailed instructions directing the administration of the [trust] and all other entities associated with it”. He added that “Brockman was intimately involved in all aspects of the administration of the Brockman Trust, and it was administered exclusively under his direction.”

Using this structure, US authorities allege that Brockman failed to report approximately $2.7 billion in income on his tax returns between 2004 and 2018, consisting of unreported income and investment gains. These came primarily from private equity funds formed by Brockman with his former business associate, Robert Smith of Vista Equity Partners.

In October 2020, Smith reached a non-prosecution agreement with the United States, admitting to deliberately evading U.S. tax and filing false returns from 2000 to 2015. He also pledged to cooperate with the U.S. government against Brockman, who had invested $1 billion in Smith’s funds. and helped launch his career in private equity.

Smith admitted to engaging in an illegal scheme to conceal income and evade tax using an offshore trust structure with related foreign companies and offshore bank accounts.

Prosecutors said Smith’s offshore structure was similar to Brockman’s because he recommended the arrangement to Smith.

IRS risk assessment

In September 2021, the IRS released a personal income tax risk assessment of Brockman for the years 2004 through 2007, 2010, and 2012 through 2018.

Using the appraisal, the IRS seized funds from Brockman and his wife’s bank accounts and placed liens on their properties and his retirement pay.

The IRS uses risk assessments when the agency is concerned that the taxpayer may leave the country, place assets beyond the reach of US authorities, or otherwise pay the tax bill.

Brockman filed a lawsuit against the IRS in January 2022 to have the danger assessment lifted, his attorneys arguing it was unreasonable and improperly imposed because none of the conditions apply.

They denied the tax evasion allegations and noted that there were enough assets in the United States to satisfy any potential tax liability. In a separate lawsuit in Tax Court, Brockman disputes the risk assessment amount.

The Justice Department responded that a review process could take years and claimed that Brockman was still using foreign trusts and corporations to hide billions of dollars from the IRS and continued to move family assets between offshore tax havens.

The department said in a court filing that Brockman appeared to be moving “quickly to place his property beyond the reach of the government by keeping his property offshore, moving it from one tax haven to another, hiding it, dissipating it or transferring it to other people, including family members”.

It alleges that in 2020, Brockman created two new foreign trusts with foreign bank accounts in the Cayman Islands and transferred funds to them from US sources.

He cited the Bermuda litigation between Spanish Step and Point Investments, saying Brockman’s wife brought a lawsuit that resulted in the dismissal of St John’s Trust Company and the appointment of Caymanian trust company BCT.

“Brockman did not domesticate [family trust] or its control in the United States. Instead, through Mrs Brockman, he offered [trust] and its control to another tax haven (Cayman Islands), subject to the laws of another tax haven (Bermuda) where a US tax judgment may be unenforceable.

Trustee offers to transfer $1.45 billion to the United States

In a March 2022 court filing, lawyers for BCT Limited, the trustee of the Brockman Trust, offered to place $1.45 billion in US bank accounts, on the condition that the IRS lift the assessment. risk and resulting liens on Brockman properties and assets.

The BCT said it was willing to transfer the funds from Switzerland to the United States, where the funds would be available for any liability determined to be owed by Brockman after a settlement or final appeal of the court case. tax.

Brockman’s lawyers argued that the proposal proves there is no danger because the tax liability could be recovered.

Lawyers for the US government replied that this proves nothing and that the proposal was only a “highly conditional invitation to further discussions”.

In addition, several of the conditions were far beyond the control of the United States, as court approval would be required from the Supreme Court of Bermuda, “which in the past has been hostile to the Department of Justice”, they said. they wrote.

The proposal also appears to require the release of funds frozen in Swiss accounts by Swiss authorities, who may have their own right to the funds, they added.

Swiss prosecutors froze around $950 million related to Brockman after he was indicted in October 2020.

Support local journalism. Subscribe to the all-access pass for the Cayman Compass.

Subscribe now


Source link

Share.

Comments are closed.