Businessman sues U.S. for alleged illegal $5.6M tax

A businessman filed a lawsuit in federal court yesterday against the United States of America for allegedly making an illegal income tax assessment against him in the amount of $5.6 million.

John K. Baldwin, through lawyer Gregory J. Koebel, asked the U.S. District Court for the NMI to adjudge as illegal and invalid the assessment against him as it relates to the partnership loss of $5,603,892.

Baldwin asked the court to permanently bar the U.S. from collecting or attempting to collect from him any tax, interest or penalties purportedly sought to be assessed as a result of the partnership loss.

He also asked that the defendant be stopped from perfecting any tax lien arising from the assessment against him as it relates to the partnership loss of $5.6 million.

Koebel stated in the complaint that in 2002, Baldwin was a 99.9999 percent shareholder of Sunset Management, LLC (Sunset), a partner of Fulham LLC.

The U.S. government made an income tax assessment against Baldwin in the amount of $5,131,076 for tax year 2002. Included in the adjustment to Baldwin’s income for 2002 was the disallowance of a loss of $5,603,892 from Sunset.

Koebel said this loss from Sunset was claimed by Baldwin as a pass-through loss originating from Fulham.

Koebel said Fulham is a partnership regulated by the Tax Equity and Fiscal Responsibility Act of 1982 and therefore its tax treatment is determined at the partnership level.

The lawyer disclosed that Fulham is currently the subject of a TEFRA investigation by the Internal Revenue Service office in Maitland, Florida.

“Defendant lacks authority to assess a deficiency against Baldwin that is attributable to Fulham until the completion of the TEFRA proceeding,” Koebel asserted.

As such, he said, the assessment against Baldwin, as it relates to the disallowance of the loss of $5.6 million originating from Fulham and passing through to Baldwin via Sunset, “was void at its inception.”

“Baldwin has attempted to resolve the matter administratively, and while defendant has admitted the assessment is premature and wholly illegal, the revenue agent assigned to the case, the collection service center and the Taxpayer Advocate all say they are either unwilling and or without power to correct the situation,” Koebel said.

Despite this, the lawyer said, the U.S. government has expressed its intention to levy on Baldwin’s property an amount of over $7 million to satisfy the illegal and void assessment, totaling with associated penalties.

“Baldwin has no adequate remedy at law and will suffer irreparable injury and will be without an adequate remedy at law unless defendant is enjoined both permanently and during the pendency of this action from collecting the illegal portion of this tax, and, pending the hearing on the preliminary injunction is temporarily restrained from collection of this tax,” he added.