The opinion of the court was delivered by: CHESNEY
On December 22, 1995, the court heard the petition of plaintiffs Golden ADA, Inc. and its subsidiaries
("Golden ADA") for a determination of the reasonableness of a jeopardy assessment levied against it by the Internal Revenue Service ("IRS") on November 7, 1995. The IRS based its jeopardy assessment on information it gathered as a result of an ongoing investigation into plaintiffs' import/export of rough and polished diamonds as well as gold and other precious gemstones from the former Soviet Republic. The IRS relied in large part on pleadings filed with this court in a related action, The Committee of the Russian Federation of Precious Metals and Gems v. Golden ADA, Inc., et al., No. C-95-3449 MMC. Golden ADA contended that the jeopardy assessment was not reasonable because (1) it had stipulated to refrain from transferring, encumbering, or otherwise disposing of its assets until such time as the Honorable Maxine M. Chesney had ruled on the plaintiff's request for a preliminary injunction in No. C-95-3449 MMC, and (2) the IRS was aware of the stipulation and order thereon. Golden ADA further argued that the amount of the jeopardy assessment was not appropriate because the IRS had improperly disallowed its deduction for the cost of goods sold. In short, Golden ADA maintained that it had a cost basis for the gold, diamonds, and jewelry it received from the Committee while the IRS contended that Golden ADA had no cost basis for the goods because they were obtained fraudulently.
On December 29, 1995, the court issued an order notifying the parties that the court had determined that the jeopardy tax assessment and levy made by the IRS was reasonable under the circumstances and that the amount of the assessment was appropriate. The order stated that a complete explanation of the court's decision would be forthcoming.
Golden ADA was formed by Andrei Kozlenok, Ashrot Shagirian, and David Shagirian in October 1992 with the express purpose of processing rough diamonds. Kozlenok was the majority shareholder with 60% of the outstanding shares. The Shagirians transferred their ownership interest to Kozlenok on August 31, 1994.
He transferred his interest to Rajiv Gosain on or about September 3, 1995.
According to declarations filed in The Committee of the Russian Federation of Precious Metals and Gems v. Golden ADA, Inc., No. C95-3449 MMC, Golden ADA received more than $ 90 million in gold, polished diamonds, and jewelry from the Committee of the Russian Federation of Precious Metals and Gems ("the Committee") to secure a line of credit on behalf of the Russian Federation in May and June 1993. These goods were not to be sold or transferred. In February and April 1994 Golden ADA received two additional shipments from the Committee consisting of rough diamonds valued at $ 88 million. These shipments were made pursuant to an agreement between Golden ADA and the Committee that Golden ADA through its various subsidiaries would process the rough diamonds and return them to the Committee. The Committee alleges that Golden ADA neither returned the diamonds nor paid for them despite its repeated demands.
The Committee filed a civil RICO action in this court on September 28, 1995 alleging that Golden ADA had converted the gold, diamonds, and jewelry for its own purposes -- in particular, for the purchase of luxury automobiles and yachts as well as residential and commercial real property.
Although the Committee sought to enjoin Golden ADA and its subsidiaries from transferring, encumbering, or otherwise disposing of its corporate assets, Judge Chesney did not reach the merits of the issues raised because the parties stipulated to a standstill agreement. The agreement provided, among other things, for the sale of a Gulfstream IV aircraft valued at $ 17 million subject to certain conditions regarding the use of the sale proceeds. In particular, Judge Chesney permitted Golden ADA to use no more than $ 1,000,000 of the sale proceeds for the ordinary business expenses of Golden ADA. Judge Chesney directed Golden ADA to provide the Court and the Committee with a full accounting in the event the airplane was sold prior to the hearing on the Committee's request for a preliminary injunction.
Judge Chesney entered her order on November 3, 1995.
The filing of the civil RICO action by the Committee prompted the IRS investigation which in turn resulted in the issuance of a jeopardy assessment in the amount of $ 63,092,111
levied against the corporate assets of Golden ADA on November 7, 1995.
Based on information provided to it by the Committee, the Federal Bureau of Investigation (FBI) began conducting its own investigation into the activities of Golden ADA in January 1995. It discovered that Golden ADA had arranged for the transport of a shipment of gold, polished diamonds, and jewelry from its San Francisco offices to Geneva, Switzerland via Antwerp, Belgium on October 5, 1995. The shipping company (Malca-Amit) produced invoices indicating that the value of the October 5, 1995 shipment exceeded $ 17 million.
On October 25, 1995 the FBI entered the New York offices of Malca-Amit and seized a subsequent shipment of goods from the San Francisco offices of Golden ADA en route to Antwerp, Belgium. The shipment consisted of two cardboard boxes of rough diamonds valued at approximately $ 400,000.
(1) the taxpayer is or appears to be designing quickly to depart from the United ...