Monday, October 5, 2015

Kelley Lynch Objection (Jurisdiction Issues) - Tax Court Matter - Filed 10.05.15


KELLEY ANN LYNCH                                            Filed Electronically


v.                                                                                 Docket No. 17085-15




            On July 6, 2015, Petitioner asked this Court to grant her leave to file a motion addressing fraud upon the Court in connection with an April 1, 2003 Stipulated Decision that was entered into as a result of fraud upon the court. 
As a result of this decision, Leonard Cohen was effectively permitted to argue that he, as opposed to Traditional Holdings, LLC and/or Blue Mist Touring Company, Inc. was entitled to the $1 million prepayment at issue.  That is based on Cohen’s position that the $1 million was “income” to him personally.  Cohen has maintained possession of the full $1 million and, although he understood his loans from this entity had to be repaid within three years with interest, steadfastly refuses to address this “loan” and/or the other loans (or expenditures) he presently owes Traditional Holdings, LLC totaling approximately $3.3 million.  Cohen’s Complaint (LA Superior Court Case No. BC338322) argues that his personal and business expenses are corporate expenses. 
The income was generated by assets Blue Mist Touring Company, Inc. owns.  The 2001 transaction was initially pursued using Blue Mist Touring Company, Inc.  Sony began their due diligence with this entity and all parties understood Petitioner had a 15% ownership interest.  When issues related to collapsible corporations arose, Cohen and his representatives decided to pursue the transaction using Traditional Holdings, LLC and an annuity agreement.  Lynch was not entirely clear about this structure, or her investment via promissory note, and therefore requested (from Cohen) an Indemnity Agreement.  He agreed and instructed his tax lawyer, Richard Westin, to prepare the Indemnity Agreement which was executed by Lynch and Cohen.  This matter continues to play out before LA Superior Court in Case No. BC338322 and Related Case No. BC341120 (unlawful seizure of corporate records, tax documents, etc.).  Cohen has now taken the position that he personally owns these corporate entities.  That appears to be an Alter Ego/Self-Dealing argument and does not reflect the actual understandings of the parties.  The Stipulated Decision itself permitted Leonard Cohen to take the position that he is the Alter Ego of Blue Mist Touring Company, Inc. and Traditional Holdings, LLC.  The evidence, in the form of corporate books and records, federal tax returns, and agreements proves otherwise and does not support this decision.
Petitioner attached three IRS notices to her Petition.  Those notices were part of the Traditional Holdings, LLC corporate file as the $1 million was a prepayment.  Cohen and his daughter, Lorca Cohen, removed all of Lynch’s business and corporate records from her offices.  The Los Angeles Sheriff’s Department wrongfully seized other property.  That would include, but is not limited to, corporate records belonging to Blue Mist Touring Company, Inc. and Traditional Holdings, LLC. 
The August 13, 2001 IRS notice requested information about Leonard Cohen’s 1999 returns.  IRS detected a difference in income/deduction amounts reported on Cohen’s tax returns and amounts reported to IRS by others.  The reason for this discrepancy relates to “inadvertent” Sony 1099s issued to Cohen in 2002 in the amounts of $1 million and $7 million, respectively.  A problem arose when Cohen and his representatives decided to treat the $1 million prepayment on the 2001 Traditional Holdings, LLC deal as a loan from Sony to Leonard Cohen.   The January 8, 2002 notice is a Deficiency Notice advised Cohen that he had 90 days from the date of the letter to file a Petition with Tax Court.  As of January 8, 2002, Leonard Cohen and his representatives were well aware of the fact that the 2001 Traditional Holdings, LLC had closed.  In fact, Traditional Holdings, LLC filed tax returns for the years 2001, 2002, and 2003.   The amount of proposed tax due with respect to this notice was $587,925.  The April 29, 2002 notice addressed proposed changes to Cohen’s 1999 return and indicated that $928 due. 
When Cohen received the IRS Deficiency Notice, he should have informed IRS, Chief Trial Counsel’s Office or Tax Court (in the Petition filed in Docket No. 7024-02) that the $1 million was a prepayment against the Traditional Holdings, LLC deal and provided loan documentation proving that Traditional Holdings, LLC loaned this amount to Cohen.  He also should have presented evidence that he repaid this loan with interest.  In other matters, Leonard Cohen and his representatives have repeatedly taken the position that this $1 million prepayment was a “loan” from Traditional Holdings, LLC to Cohen and not income.  It was the understanding of all parties that Cohen would repay all loans, including this $1 million prepayment, to Traditional Holdings, LLC.  Leonard Cohen and his representatives were well aware of the fact that Blue Mist Touring Company, Inc. owned the assets (which were irrevocably assigned) that generated the income related to the 2001 Traditional Holdings, LLC transaction and the $1 million specifically.  They failed to transfer any Blue Mist Touring Company, Inc. assets to Traditional Holdings, LLC.
  Cohen’s financial adviser/investor (Neal Greenberg) filed a lawsuit against Cohen in June 2005.  See Natural Wealth, et al. v. Leonard Cohen and Robert Kory, District Colorado, No. No. 05-cv-01233-LTB .  They described the facts with respect to these entities (and the $1 million prepayment) and the 2001 Traditional Holdings Transaction.  Judge Robert Hess, Los Angeles Superior Court (Case No. BC338322), has sealed a tremendous amount of evidence related to this matter.  On May 15, 2006, Cohen transferred Lynch’s ownership interest in Blue Mist Touring Company, Inc. and Traditional Holdings, LLC to himself via default judgment.  Lynch was not served the summons and complaint in that case.  The corporations were suspended at the time.  They have not been revived.  Cohen has now filed a renewal of judgment and his lawyers appear to be representing the interests of suspended corporations.  The corporations themselves were not named as parties in any Los Angeles Superior Court case.  Cohen has used the Complaint to file his 2005 tax returns, amend his 2003 and 2004 tax returns, apply for and receive fraudulent tax refunds, and defend himself against allegations that he committed criminal tax fraud.  
This Court has not ruled on Lynch’s request for leave to file a motion addressing fraud upon the court.  That would require “clear and convincing evidence.”  Los Angeles Superior Court, without jurisdiction, has taken the position – via default judgment – that these entities are Leonard Cohen’s property and Lynch is evidently not entitled to the evidence. 
The Natural Wealth Complaint confirms their understanding of the use of these entities in connection with the 2001 Sony Transaction as follows:
Cohen has made clear that he asserts rights over certain investment funds that belong to Traditional Holdings, LLC (“Traditional Holdings”), a dissolved Kentucky entity that was managed and 99.5% owned by Lynch and 0.5% owned by Cohen.

In or about 1999, Cohen put more of his IP up for auction. In 1999, Sony and Cohen … negotiated for a second sale of IP to Sony for about $8 million (the "Second Sony Sale").  The artist royalties to be sold were represented by Cohen as being held by another … entity, Blue Mist Touring Co., Inc. ("Blue Mist").  Cohen was the Chairman, President, and majority shareholder of Blue Mist, owning 425 shares, while Lynch was the Assistant Secretary and minority shareholder of Blue Mist, owning 75 shares, or 15% of the company.

Westin’s proposed plan had the following basic components: a limited liability company – which eventually became Traditional Holdings – would be created. Blue Mist would transfer certain IP assets to Traditional Holdings in exchange for a deferred annuity, to be paid to Cohen beginning in about 10 years. Traditional Holdings would then sell the assets it received from Blue Mist to Sony. The tax plan prevented Cohen, the annuitant, from owning more than a de minimis interest in Traditional Holdings.  Therefore, Cohen would own less than 1%, and another person – who ultimately was Lynch – would own the remaining LLC interest (more than 99 percent).

In December 2000, Westin created Traditional Holdings as a Kentucky limited liability company. Lynch was named as the initial manager in the Articles of Organization, and both Cohen and Lynch were appointed as managers in the Operating Agreement. Id. Also in December 2000, Cohen signed a Private Annuity Agreement with Traditional Holdings which document sets forth Traditional Holdings’ annuity obligations to Cohen. See, Private Annuity Agreement (Dec. 7, 2000) (Exh. 4 attached). Lynch signed the Private Annuity Agreement on Traditional Holdings’ behalf. Westin maintained, and continues to maintain, that the company and its annuity contract with Cohen are legitimate under prevailing interpretations of the federal tax code.

To purchase her ownership interest in Traditional Holdings, Lynch was required to submit to Traditional Holdings a promissory note for $240,000. It was agreed that Lynch would receive a salary and/or distributions from Traditional Holdings sufficient to pay down the $240,000 promissory note and to cover tax liabilities. See, Exhs. 2 and 3.

As set forth in the Operating Agreement, Traditional Holdings was authorized to issue loans to its members, Cohen and Lynch, as long as the loans were paid back before the annuity obligations commenced. See, Exh. 3.

In April 2001, the Second Sony Sale was completed. The gross proceeds of the Second Sony Sale were approximately $8 million, less certain identified costs, expenses, and holdbacks for undelivered work.

Of these proceeds, Cohen had already requested and received $1 million as an advance in November 1999. Cohen was well aware of this $1 million advance because it became the subject of a tax dispute with the Internal Revenue Service in 2002.

            Leonard Cohen’s December 2007 Affidavit, submitted to the Federal District Court (Natural Wealth case) confirms his understanding that Traditional Holdings, LLC is a separate entity established “to hold the proceeds of the sale of my [Leonard Cohen] artist royalties.”  The artist royalties are the property of Blue Mist Touring Company, Inc.  Cohen and his representatives failed to legally transfer those assets to Traditional Holdings, LLC.  Cohen also conceded that he understood there were concerns about an arm’s length transaction and self-dealing:
I also understood from Greenberg that Lynch’s participation in THLLC was entirely for my benefit in that THLLC was established as a legal tax and estate planning device to hold the proceeds of the sale of my artist royalties. In that regard, Greenberg wrote: In summary, Kelley’s [Lynch] participation in Traditional Holdings le-gitimizes the structure. She invests in the entity (through the promissory note) and as she is not related to you, this also strengthens the legitimacy of Traditional Holdings.

            Cohen’s Complaint (LA Superior Court Case No. BC338322), essentially a fabricated narrative, confirms that Westin explained Lynch’s involvement in the Traditional Holdings, LLC transaction in a March 6, 2002 letter to Cohen as follows: 
Kelley had to be brought in and agreed to do so in order to help you, because you needed a third party’s involvement so that IRS does not view this transaction as your selling something to yourself.  This third party should not be a relative of yours therefore Kelley was selected.

            Lynch’s Petition requested leave to file a motion to vacate Tax Court’s Stipulated Decision.  The disposition of a motion for leave to file a motion to vacate or revise a decision lies within the sound discretion of the Court. See Heim v. Commissioner, 872 F.2d 245, 246 (8th Cir. 1989), affg. T.C. Memo. 1987-1; see also Toscano v. Commissioner, 441 F.2d 930, 938 (9th Cir. 1991) (Byrne, J., dissenting), vacating 52 T.C. 295 (1969); Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th Cir. 1962).   As a general rule, the Court lacks jurisdiction to vacate a decision once it becomes final. Abatti v. Commissioner, 859 F.2d 115, 117-118 (9th Cir. 1988), affg. 86 T.C. 1319 (1986); Cinema '84 v. Commissioner, 122 T.C. 264, 270 (2004). An exception to this general rule applies where a decision was obtained by fraud on the Court. Drobny v. Commissioner, 113 F.3d 670, 677 (7th Cir. 1997), affg. T.C. Memo. 1995-209; Abatti v. Commissioner, supra at 118. The Court of Appeals for the Ninth Circuit defines fraud on the Court as “an unconscionable plan or scheme which is designed to improperly influence the court in its decision.”  Abatti v. Commissioner, supra at 118 (quoting Toscano v. Commissioner, 441 F.2d 930, 934 (9th Cir. 1971), vacating 52 T.C. 295 (1969))
            On July 23, 2015, Responded moved to have the case dismissed for lack of jurisdiction upon the ground that no statutory notice of deficiency, as authorized by I.R.C. § 6212 and required by I.R.C. § 6213(a) to form the basis for a petition to this Court, has been sent to petitioner with respect to taxable year 1999, nor has respondent made any other determination with respect to petitioner's taxable year 1999 that would confer jurisdiction on this Court.  And therein lies the problem.  Petitioner did not actually seek redetermination of an alleged deficiency for the taxable year 1999.  Petitioner addressed fraud upon the IRS and Tax Court with respect to an alleged deficiency for the taxable year 1999. 


As a general rule, the finality of a Tax Court decision is absolute. See Abatti v. Commissioner, 86 T.C. at 1323. There are very few exceptions. Cinema ‘84 v. Commissioner, 122 T.C. 264 (2004), aff ’d, 412 F.3d 366 (2d Cir. 2005). One exception is where there was a fraud on the court. See Toscano v. Commissioner, 441 F.2d 930 (9th Cir. 1971), vacating 52 T.C. 295 (1969); Kenner v. Commissioner, 387 F.2d 689 (7th Cir. 1968); Cinema ‘84 v. Commissioner, 122 T.C. at 270, 271; Taub v. Commissioner, 64 T.C. 741, 751 (1975), aff ’d without published opinion, 538 F.2d 314 (2d Cir. 1976); see also Senate Realty Corp. v. Commissioner, 511 F.2d 929 (2d Cir. 1975). An otherwise final decision was vacated where the Court had never acquired jurisdiction to make a decision. See Abeles v. Commissioner, 90 T.C. 103 (1988); accord Seven W. Enters., Inc. & Subs. v. Commissioner, 723 F.3d 857 (7th Cir. 2013), vacating and remanding 136 T.C. 539 (2011); Billingsley v. Commissioner, 868 F.2d 1081, 1084–1085 (9th Cir. 1989); Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1002 (1978).
One of the key issues in the present matter – an invalid deficiency notice - relates to the fact that 1) the IRS Determination Letter was based on inadvertent information contained in the $1 million Sony 1099; 2) Cohen and his representatives failed to inform IRS Chief Trial Counsel’s Office or Tax Court of the actual facts related to the 2001 Sony transaction; and, 3) Tax Court approved a Stipulated Decision that essentially confirms that Leonard Cohen is the Alter Ego of Traditional Holdings, LLC.
The presumed correctness of the Commissioner's deficiency notice disappears if the deficiency is arbitrary or capricious, since the burden of proof then shifts to the Commissioner. Helvering v. Taylor293 U.S. 507, 513-16, 55 S.Ct. 287, 290-91, 79 L.Ed. 623 (1935); Weimerskirch v. Commissioner596 F.2d 358, 362 & n. 8 (9th Cir.1979); Jackson v. Commissioner, 73 T.C. 394, 401 (1979). See also Rule 142(a).  In this case, the Commissioner’s deficiency notice was not necessarily arbitrary or capricious but rather unreasonable.  See Helvering v. Taylor, 293 U.S. 507 (1935); Harold E. Harbin, 40 T.C. 373, 376 (1963).
The reason the Commissioner’s deficiency notice was unreasonable is it did not give proper notice to Traditional Holdings, LLC.  Leonard Cohen and his representatives failed to properly address this with IRS Chief Trial Counsel’s Office and/or Tax Court.  The determination letter is essentially invalid as notice was not provided to the appropriate legal party.  The ability to respond to a deficiency notice, without first paying the tax, was granted to the taxpayers by Congress.  In tax matters, the Congress can condition the taxpayer's right to contest the validity of a tax assessment pretty much as it sees fit. See Cheatham v. United States, 1875, 92 U.S. 85, 88-9, 23 L.Ed. 561; Graham v. Du Pont, 1923, 262 U.S. 234, 254-5, 43 S.Ct. 567, 67 L.Ed. 965; Phillips v. Commissioner of Internal Revenue, 1931, 283 U.S. 589, 595, 51 S.Ct. 608, 75 L.Ed. 1289. See also Helvering v. Taylor, 1935, 293 U.S. 507, 515, 55 S.Ct. 287, 79 L.Ed. 623; Lucas v. Structural Steel Co., 1930, 281 U.S. 264, 271, 50 S.Ct. 263, 74 L.Ed. 848.
There are jurisdictional defects as the notice of deficiency is invalid.  The $1 million was not “income” to Leonard Cohen.  It was income to Traditional Holdings, LLC in the form of a prepayment against the 2001 Sony deal.  There is an absence of a valid statutory notice.  This issue did not arise based on any wrongdoing on the part of IRS or Petitioner.  The notice of deficiency alerts the taxpayer to an alleged deficiency (underpayment of tax).  Traditional Holdings, LLC should have been provided with that notice.  There is no argument with respect to the deficiency notice being mailed or received.  It was mailed to Leonard Cohen and received by him and his legal representatives.  The notice of deficiency is central to tax controversies. The notice of deficiency also provides the taxpayer with a “ticket to the Tax Court.”  Tax Court subject-matter jurisdiction over tax deficiency cases requires both a notice of deficiency and a timely responsive petition (generally one that is filed within ninety days of the date the notice of deficiency was mailed). The IRS is required to file an answer. Those documents form the pleadings in Tax Court litigation; additional pleadings may be made in the form of amendments and a reply when required.  The wrong party, due to fraud upon the court, is before Tax Court in Leonard Cohen v. Commissioner (Docket No. 7024-02).  The Alter Ego was provided notice of deficiency and the $1 million is evidence of embezzlement and/or theft on the part of Leonard Cohen.
The notice of deficiency is the first official, required notice to the taxpayer of the IRS’s assertion of a tax underpayment.  The notice of deficiency provides official notice of the deficiency amount and the IRS’s reason for the adjustment. Mailing of a notice of deficiency has multiple, important consequences. First, the notice of deficiency provides notice to the taxpayer of the asserted deficiency and of the IRS’s intent to assess if the taxpayer does not respond by filing a timely Tax Court petition (a notification function).  Second, the notice provides the taxpayer with the jurisdictional “ticket to the Tax Court.”  Third, assessment of tax is prohibited during the ninety-day period within which the taxpayer may petition the Tax Court, and if a Tax Court petition is filed, until the Tax Court decision is final. Fourth, as a corollary, the notice tolls the statute of limitations on assessment for the length of the prohibited period plus sixty days, providing the IRS with time to assess tax should the taxpayer lose the Tax Court case or fail to petition the Tax Court. Fifth, if the taxpayer does petition the Tax Court, the notice of deficiency becomes part of the pleadings, in effect forming the first statement of a Petitioner’s case, analogous to a complaint. Finally, in Tax Court, the notice of deficiency plays an important role in allocating the burden of proof.  Traditional Holdings, LLC was excluded from participating in the Tax Court matter.  Lynch was Traditional Holdings, LLC’ s Tax Matters Partner for the years 2001, 2002, and 2003.  The notice of deficiency is defective and invalid in that it played none of these functions with respect to the “actual” taxpayer.  This information was concealed from the IRS Chief Trial Counsel’s Office and Tax Court by Leonard Cohen.  The deficiency notice serves a jurisdictional function with Tax Court.  It permits Tax Court to take jurisdiction over the case.
A “presumption of correctness” is afforded the notice of deficiency.  There are two main rationales for the presumption of correctness. First, it is the taxpayer who has the evidence supporting the entries on his tax return.  Second, in the usual case, the IRS follows a businesslike routine that will be effective in the vast majority of cases. In fact, many audits end at the administrative level before a notice of deficiency is ever prepared. If the IRS has concluded its administrative process through issuance of the notice, the presumption of administrative regularity justifies placing the initial burden in litigation on the taxpayer.  There are two important exceptions to the usual case in which the notice of deficiency provides a basis for placing the burden of going forward on the taxpayer, one of which, “arbitrary and erroneous” notices.  In Janis v. United States, 428, U.S. 433 (1976), the United States Supreme Court termed an arbitrary assessment a “naked assessment without any foundation whatsoever.”  The line of cases addressing arbitrary and erroneous notices reflects the understanding that, in cases involving unreported income, the rationale that the taxpayer possesses the evidence breaks down.  As many courts have noted, it is difficult, if not impossible, to prove a negative (that is, non-receipt of income). Thus, in unreported income cases, if a taxpayer alleges that the notice was arbitrary and erroneous, the burden of going forward shifts back to the IRS to support the notice.  In Ryan v. Commissioner, the Tax Court stated it this way:
As we review each of [the IRS’s] assertions concerning each respective search [by the police officer petitioners], we consider whether respondent has presented predicate evidence linking the specific petitioner to the tax-generating activity from which respondent asserts income has arisen for such petitioner. Where there is no such predicate evidence, we attribute no income to that petitioner.

          The evidence in this case will not link Leonard Cohen to the “tax-generating activity.”  Blue Mist Touring Company, Inc. owns the assets that generated the royalty income.  Traditional Holdings, LLC entered into contractual agreements and sold the assets to Sony.  Leonard Cohen has merely taken the position that he is the Alter Ego of these entities and evidently feels entitled to engage in self-dealing and money laundering.  He and his lawyers are presently attempting to conceal evidence related to these issues in Los Angeles Superior Court Case No BC338322.  Blue Mist Touring Company, Inc. and Traditional Holdings, LLC are both suspended corporations.  Blue Mist Touring Company, Inc. was suspended in August and December 2005 in the State of California.  Traditional Holdings, LLC was administratively dissolved in November 2004 in the State of Kentucky.  This matter appears to involve sham corporate entities and a step transaction. 
          Petitioner is not asking this Court to look behind a deficiency notice to examine the administrative policy or procedure involved in making certain determinations.  Petitioner is aware of what led to the determination letter.  The notice is erroneous and Lynch’s Petition sought a proper remedy for an inaccurate notice of deficiency and Cohen’s attempts to conceal the actual facts.  Cohen invoked the Tax Court’s jurisdiction by filing a petition.  The notice of deficiency did not meet minimum jurisdictional standards.  It did not contain Traditional Holdings, LLC’s corporate name, address, the correct tax year, proper deficiency amount, and a statement explaining how the deficiency was calculated.  A valid notice of deficiency is a jurisdictional prerequisite to a taxpayer’s suit seeking the Tax Court’s redetermination of [the IRS’s] determination of the tax liability.  The errors in this notice should have been corrected by Leonard Cohen when he filed the Petition with Tax Court and/or entered into the Stipulated Decision.  This case involves an erroneous notice of deficiency.  The Ninth Circuit decision in Scar v. Commissioner invalided a notice and did not require “looking behind” to evidence regarding the IRS’s administrative process.  Lynch has not requesting a specific resolution with respect to the determination letter.  She has no idea if the deficiency notice should be formally invalidated or the burden should shift to IRS with respect to the notice itself. 
          The Stipulated Decision in this case was entered into based upon fraud.  IRS defines fraud as “deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it. Simply stated, it is obtaining something of value from someone else through deceit.”  In this case, the “something of value” would be the Tax Court’s decision that the $1 million prepayment was income to Leonard Cohen when in fact it was income to Traditional Holdings, LLC.  That does not resolve the problem with respect to the fact that Blue Mist Touring Company, Inc. owns the assets that generated the income. 
          The proper procedure for correcting misinformation on a valid determination letter is to provide IRS with a detailed explanation of the error in the original determination letter.  In the alternative, Cohen chose to argue that he is the Alter Ego who views corporate assets as his personal property.  The IRS Chief Trial Counsel’s office requested the following information from Cohen and/or his representatives in preparation for litigation before Tax Court:  “All documents related to $1 million payment from Sony, including correspondence, contracts, agreements, royalty obligations, loan documents, emails, letters, checks; All documents related to all arrangements between Petition and Sony; … Identify all facts and documents supporting your allegation that the $1 million payment from Sony is not taxable income in the year 1999.”  Had these facts been brought to the attention of IRS Chief Trial Counsel’s Office and Tax Court, Leonard Cohen personally would not have entered into the Stipulated Decision because the $1 million was income to Traditional Holdings, LLC in the form of a prepayment against the 2001 Sony sale.  Lynch attempted to intervene at the time, raised concerns about the $1 million and Traditional Holdings, LLC and was advised by Steve Blanq, Hochman, Rettig, that he was not permitted to discuss these issues with her because Richard Westin called to inform him that Lynch did not have attorney/client privilege.

Generally, the proper method to raise and resolve an allegation that a fraud upon the court
occurred in a tax deficiency case would be to file a motion to vacate the decision entered in the specific tax deficiency case in which the fraud allegedly occurred.  Rule 162.  Under Rule 162, unless the Court shall otherwise permit, a motion to vacate must be filed within 30 days after a decision has been entered, and sections 7481(a)(1) and 7483 provide that a Tax Court decision becomes final 90 days after entry if no party files a notice of appeal.
To prove fraud on the Court, an individual has the burden of establishing by clear and
convincing evidence that “an intentional plan of deception designed to improperly influence
the Court in its decision has had such an effect on the Court.”  Abatti v. Commissioner, 86 T.C. at 1325. See Drobny v. Commissioner, supra at 677-678; Pulitzer v. Commissioner, T.C. Memo. 1987-408. The burden of proof cannot be met by broad assertions, and the moving party must come forward with “specific facts which will pretty plainly impugn the official record.”  Drobny v. Commissioner, supra at 677 (quoting Kenner v. Commissioner, 387 F.2d 689, 691 (7th Cir. 1968)).  Fraud upon the court consists of a pattern of deceit and dishonesty directed at the court, so as to interfere with its ability to impartially adjudicate a dispute. Kenner v. Commissioner, 387 F.2d 689, 691 (7th Cir. 1968). It occurs where it can be clearly and convincingly demonstrated that a party has set in motion an unconscionable scheme calculated to interfere with the judicial system's ability to impartially adjudicate a matter. Aoude v. Mobile Oil Corp., 892 F.2d 1115, 1118 (1st Cir. 1989). It is a special species of fraud regarded not only as harmful to adverse parties, but to the judicial process itself. Kenner, 387 F.2d at 691. The leading case on fraud upon the court is Hazel-Atlas v. Hartford-Empire, in which the U.S. Supreme Court held that a judgment based on fraud upon the court can, and should, be vacated, regardless of its age. Hazel-Atlas Glass Co. v. Hartford-Empire, 322 U.S. 238, 250 (1944). The facts of Hazel-Atlas revealed an extensive fraudulent scheme directed not only against the adverse party, but also against both the trial and appellate courts. This is very similar to the situation at hand.  The U.S. Supreme Court referred to this particular species of fraud as not only “an injury to a single litigant. It is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistent with the good order of society.”  After a decision has been entered by the Tax Court, either in a tried or settled case, it should not be disturbed after the decision becomes final, unless it is shown that such decision was produced by fraud upon the court. Fraud upon the court has been defined as embracing only that species of fraud which does, or attempts to, defile the court itself or is a fraud perpetuated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases. See 7 J. Moore & J. Lucas, Moore's Federal Practice, P. 60.33 at 60-360 (2d ed. 1990).  Kenner vs. C.I.R. concluded that a decision obtained by fraud on the Tax Court can be set aside by it at any time because it is not a decision at all - a view strongly supported, as applied to the Court of Appeals, by the Supreme Court in Hazel-Atlas Glass Co. v. Hartford Empire Co., 1944, 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250.
To establish fraud on the court, a party must demonstrate by clear and convincing evidence the existence of an “unconscionable plan or scheme . . . designed to improperly influence the court in its decision.” England v. Doyle, 281 F.2d 304, 309 (9th Cir. 1960).   Petitioner has a colorable claim of fraud upon the court.
The Ninth Circuit has analyzed fraud on the court claims and concluded that it is difficult to define:  Courts have inherent equity power to vacate judgments obtained by fraud. Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991); In re Levander, 180 F.3d 1114, 1118-19 (9th Cir. 1999).  Rule 60(b), which governs relief from a judgment or order, provides no time limit on courts’ power to set aside judgments based on a finding of fraud on the court. 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2870 (2d ed. 1987).   We exercise the power to vacate judgments for fraud on the court “with restraint and discretion,” Chambers, 501 U.S. at 44, and only when the fraud is established “by clear and convincing evidence,” England v. Doyle, 281 F.2d 304, 310 (9th Cir. 1960). Out of deference to the deep-rooted policy in favor of the repose of judgments entered during past terms, courts of equity have been cautious in exercising their power over such judgments. United States v. Throckmorton, 98 U.S. 61. But where the occasion has demanded, where enforcement of the judgment is “manifestly unconscionable,” Pickford v. Talbott, 225 U.S. 651, 657[ (1917)], they have wielded the power without hesitation. Hazel-Atlas Glass Co., 322 U.S. at 244-45.  We have struggled to define the conduct that constitutes fraud on the court. Because the power to vacate for fraud on the court “is so great, and so free from procedural limitations,” 11 Wright & Miller § 2870, we have held that “not all fraud is fraud on the court,” Levander, 180 F.3d at 1119. The line between mere fraud and fraud on the court has been difficult to draw. “[M]ost attempts to state it seem to us to be merely compilations of words that do not clarify.” Toscano v. Comm’r, 441 F.2d 930, 933 (9th Cir. 1971). “Perhaps the principal contribution of all [the] attempts to define ‘fraud on the court’ and to distinguish it from mere ‘fraud’ is as a reminder that there is a distinction.” 11 Wright & Miller § 2870. In determining whether fraud constitutes fraud on the court, the relevant inquiry is not whether fraudulent conduct “prejudiced the opposing party,” but whether it “ ‘harm[ed]’ the integrity of the judicial process.” Alexander v. Robertson, 882 F.2d 421, 424 (9th Cir. 1989). Fraud on the court involves “far more than an injury to a single litigant.” Hazel-Atlas, 322 U.S. at 246. [T]he inquiry as to whether a judgment should be set aside for fraud upon the court under Rule 60(b) focuses not so much in terms of whether the alleged fraud prejudiced the opposing party but more in terms of whether the alleged fraud harms the integrity of the judicial process . . . . In re Intermagnetics America, Inc., 926 F.2d 912, 917 (9th Cir. 1991).  A fraud “connected with the presentation of a case to a court” is not necessarily a fraud on the court. 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2870 (2d ed. 1987). “Fraud on the court” should, we believe, embrace only that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication. In re Intermagnetics America, Inc., 926 F.2d 912, 916 (9th Cir. 1991) (quoting 7 J. Moore & J. Lucas, Moore’s Federal Practice ¶ 60.33, at 515 (2d ed. 1978)). [2] Mere nondisclosure of evidence is typically not enough to constitute fraud on the court, and “perjury by a party or witness, by itself, is not normally fraud on the court.” Levander, 180 F.3d at 1119. Some courts and commentators have suggested that perjury should not usually constitute fraud on the court unless “an attorney or other officer of the court was a party to it.” 11 Wright & Miller § 2870. Most fraud on the court cases involve a scheme by one party to hide a key fact from the court and the opposing party. For example, in Levander a corporate officer testified in a deposition that the corporation had not sold its assets, and a bankruptcy court subsequently entered a judgment against only the corporation. Levander, 180 F.3d at 1116-17. It turned out that the corporation had in fact transferred all of its assets to a related partnership. Id. We held that the false testimony constituted fraud on the court, and the bankruptcy court was allowed to amend its order to include the partnership as an additional party to the judgment. Id. at 1122-23.  See United States v. Stonehall, 83 F.3d 1 156 (9th Cir. 1996).
Section 6212(a) “authorizes” the sending of a deficiency notice “if the Secretary determines that there is a deficiency.”  As the $1 million was not income to Leonard Cohen, there was no tax deficiency related to Cohen personally.  Congress did not grant unlimited and unfettered authority to issue notices of deficiency.   Scar v. C.I.R., 81 T.C. at 872 (Goffe, J., dissenting).  In Appeal of Terminal Wine Co., 1 B.T.A. 697, 701 (1925), the Board of Tax Appeals construed the meaning of the term "determine" as applied to deficiency determinations: "By its very definition and etymology the word 'determination' irresistibly connotes consideration, resolution, conclusion, and judgment.
The term “deficiency” is defined in section 6211(a) as the amount by which tax due exceeds “the amount shown as the tax by the taxpayer upon his return” (provided that a return showing an amount has been filed), plus previously assessed deficiencies over rebates made. A literal reading of relevant code sections, and the absence of evidence of contrary legislative intent, leads us to conclude that the Commissioner must consider information that relates to a particular taxpayer before it can be said that the Commissioner has "determined" a "deficiency" in respect to that taxpayer.8 To hold otherwise would entail ignoring or judicially rewriting the plain language of the Internal Revenue Code.  Scar v. C.I.R.  The determination letter was not an examination or general review of returns.  It was a response to an inadvertent $1 million 1099.  Petitioner has no idea how IRS resolved the issues related to the issuance of the inadvertent $7 million 1099.  The determination letter did not provide fair notice to the actual taxpayer, Traditional Holdings, LLC and/or Blue Mist Touring Company, Inc.  A proper remedy here could be to eliminate the presumption of correction that normally attaches to deficiency determinations, not necessarily to dismiss for lack of jurisdiction.  The Commissioner should assume the burden of proof with respect to the actual determination that a deficiency in fact existed.
This case involves a scheme by Leonard Cohen to hide key facts from the Tax Court and IRS Chief Trial Counsel’s office.  It also involves misrepresentations and false statements which substantially undermined the judicial process by preventing Tax Court from properly analyzing the case and the facts that led to the Stipulated Decision.  This case also involves what appears to be egregious tax fraud:  the actual intentional wrongdoing, and the intent required … to evade a tax believed to be owing.  Fraud implies bad faith, intentional wrongdoing, and a sinister motive.  The 2001 Sony Transaction involved gross income in the amount of $8 million.  That income, according to Leonard Cohen’s lawyer, was not reported on the 2001 Traditional Holdings, LLC federal tax returns.  There is proof of fraud on the court and Lynch is requesting this Court to grant her leave to file a motion addressing that fraud.
          On October 1, 2015, the Court has ordered Petitioner to address any potential whistle blower claims (form 211) she may have submitted to Internal Revenue Service’s Whistleblower’s Office before filing the Petition in this case.  No such claims exist.  On or about April 15, 2005, Petitioner brought some of the issues related to Leonard Cohen’s alleged tax fraud to the attention of IRS Agent Bill Betzer.  At first Agent Betzer advised Petitioner to bring this information into the IRS with a lawyer.  He later instructed her to contact the IRS fraud unit.  Lynch also reported these allegations to Internal Revenue Service, Washington, DC.  She met with Agent Kelly Sopko and her partner, U.S. Treasury, and was advised to bring the allegations (which Lynch was told are criminal in nature) to the attention of Agent Luis Tejeda, head of an IRS fraud group in Los Angeles, California which she has done.  Lynch has been retaliated against over this situation.  In fact, Leonard Cohen’s Complaint (Los Angeles Superior Court Case No. BC338322) is nothing other than retaliation and a defense to those allegations.  Cohen failed to serve Lynch the summons and complaint.  Since 2005, Lynch has documented a great deal of the retaliation, and what has unfolded, in emails to the IRS, FBI, DOJ, Treasury, and others.  The City Attorney of Los Angeles also retaliated against Lynch and informed her jurors that the tax controversy is a ruse and she is in receipt of IRS required tax and corporate information that she is not.  Leonard Cohen steadfastly refuses to provide her with that information.  Lynch has no intention of ever filing a whistle blower claim with respect to any of these matters.
            Petitioner objects to Respondent’s Motion to Dismiss for Lack of Jurisdiction and requests this Court to grant her leave to file a Motion addressing fraud upon the court.
Dated:  05 October 2015
                                                            Kelley Ann Lynch