The managed investment account held in the name of Golden ADA at Bank of California had a market value of $ 1.2 million as of January 1, 1995. Its market value as of November 16, 1995 is $ 2,930.39 The account summary reflects significant sums of money deposited to and then transferred from the account. King Decl., Ex. C.
Golden ADA argues that the liquidation of its corporate assets occurred prior to Gosain's purchase of Golden ADA from Kozlenok on September 3, 1995 and that Gosain is attempting to preserve the integrity of its corporate assets. Yet since the filing of the civil RICO action by the Committee on September 28, 1995, Golden ADA has engaged in a number of transactions that give rise to the inference that Golden ADA intended to place its assets beyond the reach of the IRS.
First, on October 5, 1995 Golden ADA arranged for the transport of $ 17 million in polished diamonds, gold, and jewelry to Geneva, Switzerland -- 80% of its remaining inventory.
King Decl., P 5. On October 25, 1995 the FBI Intercepted a second shipment of diamonds also with an intended destination of Geneva, Switzerland. Affidavit of Special Agent Daniel Haser, Rex Decl., Ex. 9.
Second, on October 3, 1995 Shako Real Estate Management received a check in the amount of $ 754,958.45 for the sale of real property located at 365 Broadway in Millbrae, CA. King Decl., P 14. On October 8, 1995 Golden ADA transferred $ 600,000 of the sale proceeds to a bank account in Antwerp, Belgium.
King Decl., P 15.
Third, two Aston-Martin automobiles registered in the name of Golden ADA cannot be located.
Until November 8, 1995 the automobiles were parked in spaces reserved for Gosain in the residential building where he owns a condominium. Koenig Decl., P 16.
Fourth, on October 16, 1995 Golden ADA removed furnishings, antiques, and certain artwork from two homes in Lafayette, CA and transported them to a storage facility in San Francisco, CA. Koenig Decl., P 13. The same goods were later moved to another storage facility in San Francisco, CA.
Koenig Decl., P 13.
Fifth, on November 9, 1995 Golden ADA directed that the cash receipts from the two gas stations owned by Shako Energy be delivered to its San Francisco offices. Koenig Decl., P 15.
These facts support the conclusion that Golden ADA was capable of and willing to avoid the payment of taxes by any method. Whether Golden ADA in fact intended to liquidate its assets and place them beyond the reach of the IRS thereby avoiding payment of its taxes is irrelevant. It is the appearance of such things that is relevant and controlling. See Revis v. United States, 558 F. Supp. at 1077. Thus, the government has sustained its burden of proving that its issuance of the jeopardy assessment in question was reasonable under the circumstances by showing that (1) a substantial amount is owed; (2) the taxpayer was made aware that it was the subject of a criminal investigation as well as a civil RICO action after which it continued to liquidate its assets; (3) it was told by its accountant that a substantial tax would be owed for the 1994 tax year; (4) it sold properties but offered to pay no part of the proceeds to either the government or the Committee; and (5) the form and whereabouts of other assets, including sale proceeds, is either currently unknown or beyond the reach of the IRS.
2. Financial Insolvency
The IRS has also presented sufficient evidence to establish that Golden ADA's financial condition is precarious at best. First, an unaudited balance sheet dated September 30, 1995 and offered in support of its position that Golden ADA is financially viable fails to reflect the sale of real and personal Property noted above. Complaint, Ex. E. Furthermore, the inventory and cash reserves listed are no longer in the United States.
Second, in a letter dated June 15, 1995 James Cegelski of the accounting firm Arthur Andersen informed the Chief Executive Officer of Golden ADA that
based on Golden ADA's cash projections, cash balances have fallen from $ 11.3 million as of April 1 to $ 4.5 million as of May 31, 1995. At this rate, cash resources are expected to be exhausted within the next three months. . . Without immediate action towards implementing these recommendations, we feel that Golden ADA is not a viable entity.
Rex Decl., Ex. 5, p. 5-6, 5-7 (emphasis in original).
Third, the IRS obtained copies of a letter dated October 20, 1995 from Jay Howell
to Gosain recommending that Golden ADA file for bankruptcy protection under Chapter 11. Rex Supp. Decl., Ex. 10. An unsigned letter dated November 17, 1995 from Gosain to the Committee indicates that Golden ADA was prepared to file such a petition no later than November 22, 1995 if it was unable to reach a compromise with the Committee regarding its debt. Rex Supp. Decl., Ex. 11. Golden ADA maintains that its willingness to seek bankruptcy protection lends credibility to its professed intention to continue its operations subject to a reorganization plan approved by its creditors. While it is true that a number of corporations emerge from bankruptcy intact, the prospective filing of a bankruptcy petition is not a leading indicator of financial solvency. Fourth, the IRS recovered more than $ 100,000 in cashier's checks when its agents entered the San Francisco offices of Golden ADA on November 7, 1995. The cashier's checks were intended to meet Golden ADA's payroll obligations. Koenig Decl., P 7. Bank records reveal that Golden ADA purchased a large number of cashier's checks to pay such incidental office expenses as janitorial services. Koenig Decl., P 8.
These facts support the conclusion that the financial solvency of Golden ADA appeared to be imperiled. Thus, the government has sustained its burden of proving that the issuance of the jeopardy assessment was reasonable under the circumstances.
C. Reasonableness of the Amount Assessed
The second issue the court must determine is whether the amount assessed was reasonable under the circumstances. As noted above, the taxpayer has the burden of proving that the amount assessed under Section 6861 is not "appropriate under the circumstances." 26 U.S.C. § 7429(g)(2). The amount assessed is presumed to be reasonable. Revis, 558 F. Supp. at 1078. The mere existence of a factual dispute does not invalidate the assessment. Hecht v. United States, 609 F. Supp. 264, 266 (S.D.N.Y. 1985). Such challenges are matters more properly resolved before the Tax Court, or, upon payment of the tax, in a refund action brought in United States District Court. Vanerio v. Internal Revenue Service, 629 F. Supp. 1141, 1145 (E.D.N.Y. 1986).
Here, the IRS calculated the amount of the jeopardy assessment by disallowing the deduction taken by Golden ADA for the cost of goods sold in each tax year, resulting in taxable income of $ 29,968,716 for the tax year ending September 30, 1993 and $ 111,485,984 for the tax year ending September 30, 1994. The government determined that if the Committee's allegations were true, Golden ADA did not have a cost basis for the diamonds sold. The court cannot find that the amount of the assessment is inappropriate because Golden ADA has presented no evidence to rebut the presumption of reasonableness.
For the foregoing reasons, the jeopardy assessment is found to be reasonable under the circumstances and is sustained.
IT IS SO ORDERED.
for Maxine M. Chesney
United States District Judge