Dear Kelley - Evidence Sent To The IRS ...

1970

Letter from The CT Trust to Richard Udell/Machat & Kronfeld dated May 15, 1970

Re:  Leonard Cohen Productions, Ltd.

Assorted Music, Inc.

Enclosed herewith are revised copies of Articles of Incorporation for each of the above corporations as forwarded to Nevada for filing.  These were revised in accordance with your corrections.  

Articles of Incorporation - Leonard Cohen Productions, Ltd.

Principal office - 1 E. First Street, Reno, Nevada  89501

Business purpose:  To engage in and conduct a publishing business, to originate, composer, purchase, acquire, edit, print, reproduce, sell, assign, mortgage, pledge, dispose of and otherwise deal in and with, sheet music, books, periodicals, advertising material, pictures, sound reproductions, films, publications and printed material of all kinds.  

1988

Leonard Cohen Productions, Inc. (created after Marty Machat’s death; becomes Blue Mist Touring Company, Inc. - See Leonard Cohen Productions, Ltd. 1970 details above)

By-Laws

June 1988

Certificate of Incorporation of Leonard Cohen Productions, Inc. - June 23, 1988

Principal office - 1209 Orange Street

Wilmington, Delaware

July 1988

Action of Sole Director of Leonard Cohen Productions, Inc. July 26, 1988

Leonard Cohen is elected President, Treasurer, and Secretary.

The corporation authorizes 500 shares of common stock to Cohen at a price of $1 per share, and upon payment of said sum to the corporation by Cohen, the officers of the corporation be, and they hereby are, authorized  to issue to Cohen a certificate or certificates for said 500 shares of stock.  

Signed by Leonard Cohen

Action of Sole Director of Leonard Cohen Productions, Inc. January 13, 1992

Kelley Lynch is elected as Assistant Secretary.

Signed by Leonard COhen

1993

Action of Sole Director of Leonard Cohen Productions, Inc. March 11, 1993

The Certificate of Incorporation is amended Changing Article 1 - The name of the corporation is Blue Mist Touring Company, Inc.

Signed by Leonard Cohen

NOTE:  Cohen is now going to use this corporation for his Future tour - 1993.

Action of Sole Stockholder of Leonard Cohen Productions, Inc. dated March 11, 1993

Certificate of Amendment re. name change to Blue Mist Touring Company, Inc.

Signed by Leonard Cohen

State of California Certificate of Qualification dated March 18, ,1993

Blue Mist Touring Company, Inc. (organized under the laws of Delaware) complied with the requirements of California law in effect … to transact business in the State of California.

1996

November 1996

Fax Letter from Ed Dean [helped structure the Cohen Family and Sabbath Day Remainder Trusts for the LCSMI Sale to Sony]

Re:  Approval of Proposed Contract, with Suggested Addition

The revised contract makes it clear that the new album is essentially a completed work, thereby eliminating the issue of whether a portion of the sales price is compensation for Leonard’s ongoing services.  

Since the contingent payments related to the new album will reduce Leonard’s royalties if they are not made, as opposed to the trusts’ portion of sales proceeds, I am confident that the IRS could not successfully argue that the charitable trusts are receiving compensation income or unrelated business taxable income that would disqualify them for tax-exempt status.  

Also, since none of Leonard’s new album obligations affect the amount of sales proceeds payable to the trusts I do not believe we face a potential self-dealing issue either, especially since I am signing all agreements as an independent trustee.

Two things that need to be added, however, are directions in paragraph 3(d) to make payments to Leonard, as trustee of the two trusts.  (Proceeds need not be paid directly to me as Independent Special Trustee because cash proceeds have a readily ascertainable fair market value.)  The payment directions in 3(d) should segregate the payment obligations to each charitable trust from teh payment obligations for non-trust shares.  

Secondly, I should sign the letter of intent as Independent Special Trustee of the two trusts.  Please use my office address and the trusts’ tax ID numbers on the signature page.  

Thank you by the way, for including the Independent Special Trustee disclaim in provision 9 (c).  

cc:  Mr Neal Greenberg

      Greenberg & Associates

Exclusive Songwriter Agreement - Sony/ATV Music Publishing -w- Leonard Cohen dated November 18, 1996

1997

January 1997

Fax from Kelley Lynch to Burt Goldstein (Leonard Cohen accountant) dated January 8, 1997 Re:  Stock Sale

Dear Burt:

Enclosed please find four faxes to me from Richard Westin with respect to the stock sale which I may not have included in my previous package to you.

The first relates with the debt owed by Blue Mist Touring in the amount of $42,000.00 to Stranger Music (Jeff Newman came up with this number).  THrough a corporate resolution LCSM forgave this debt and Richard Westin is advising that in order for Blue Mist not to be taxed on cancellation of debt income, the appropriate IRS form that ties to section 108 of the Internal Revenue Code must be filed.  

The second relates with the need for a qualified appraisal by the filing date for LC’s 1996 federal income tax return.  As no stock will change hands until 1997, at which time I imagine the actual formal sale will take place, perhaps the date will now move to the following year.  Please speak to Peter Shukat on this point.

The third relates with the need to file a return on behalf of the charitable contributions.

And, the fourth relates with the loss of LCSM’s “S” corporation status.

All the best,

Kelley

Handwritten note by KL;  cc:  Ken Cleveland

Fax from Richard Westin

A tickler:

In order for Blue Mist not to be taxed on cancellation of debt income, make sure to tell the tax return preparer about the transaction and advise the preparer to file the appropriate IRS form that ties to Section 108 of the Internal Revenue Code.

Best regards,

KL handwritten note - canc. of $42,000 debt (clearly I spoke to Westin and took notes in order to prepare the above letter to Burt Goldstein).  

February 1997

Confidential Fax from Richard Westin and Kelley Lynch dated February 26, 1997.

Westin’s comments on the new form of stock purchase agreement re. Sony/ATV stock deal - Stranger Music, Inc.  

Memo to the files - Westin thought there were no stock transfer taxes in New York state.  In the past stock transactions used to close in New Jersey to avoid this problem.  What is going on here?

Stock Purchase Agreement among Leonard Cohen, the Cohen Family Charitable Trust, the Sabbath Day Family Trust, The Mt. Baldy Zen Center, and Sony/ATV Music Publishing Acquisition, Inc. dated June 27, 1997 (Stranger Music deal)

Assorted documents related to this sale including as they relate to Marty Machat, Machat & Machat, Cohen’s first managers, etc.  

1998

Confidential & Privileged Letter from Westin to Kelley Lynch dated June 1, 1998

By Mail or Courier

Re:  Blue Mist Touring, Inc. Sale

Enclosed:  1)  A Waiver of Notice of the meeting; 2) Minutes of a Special meeting, at which the corporation agrees to the transfer; 3) The Assignment & Consent as to the Writer’s share (Sony/ATV contracts attached as a group with a cover sheet); 4) This assignment and consent to the Performer’s Share (to come); 5) The assignment and consent as to the copyright; 6) Stock Purchase Agreement.  Once all of this is done, I expect that you will want to return the Notice and Minutes and copies of everything else to Jonas for custody as was the case before.  I do not know if Jonas would prefer his firm to do he copyright assignments.  If so, that is fine with me.  My concern is that the copyrights may not really be LC’s transfer in the sense that he may have assigned them already for the term of some of the book contracts, so all he is doing is transferring whatever he has left after any such assignment.  In my experience, when book sales dry up, publishers are extremely laconic about assigning back copyrights even though the book contract may demand they do so once sales end.  In order to cover that situation, I added a clause in the Assignment demanding that he take all further steps to assure that the copyright transfers to Blue Mist are preferred.  Book publishing was being included for lyrics; to permit the purchase to create new songs.  

1999

Sony Music Entertainment 1099 to Leonard Cohen using Stranger Music, Inc. taxpayer ID 13-2608966.  $1 million re. 1999 downpayment on TH deal.  Ken Cleveland note states:  Leonard Cohen Stranger Music, Inc.  since it is now closed the IRS assigned the income to Leonard Cohen personally.  This became the subject of an IRS audit.  This 1099 was re-issued by Sony as $0 1099.  

Westin Fax To Neal Greenberg and KL dated April 29, 1999 re. LC Transaction

Neal faxed me a copy of the Pullman Group’s engagement letter.  My only comment is very early to make, but one we need to keep an eye on because of the risks of doing it wrong.  If one transfers property to a corporation and the debts associated with the property exceeds its basis (very low in the case of LC’s properties) the result is a deemed sale of the encumbered assets, with a resulting large taxable gain.  The formula for computing the gain (which arises under IRC section 357) is:  1) Amount realized (either the full amount of non-recourse debt, or debt with personal liability that the transferee corporation assumes) MINUS 2) basis of transferred property.  3)  Taxable gain.  Non-recourse debt (where no party has personal liability) is very rare.  An assumption of debt requires that the debt be negotiated so that the new party (the corporation) steps into the shoes of the old debtor (such as LC in personal capacity).  So, this is just a caution to make sure that there is no misunderstanding with Pullman in the early stage about how the transaction will be structured.  NOTE:  I have no idea what he is talking about or why.  

Fax from Westin to KL dated May 3, 1999.

Westin got the fedex package.  CT Corporation Systems has done a good job of baby sitting the corporation.  I will be back late Tuesday and will get back to this on Wednesday.  Some high points (1) the S election should precede the asset transfer; (2) we need to be careful not to contribute encumbered assets.  NOTE:  What is he talking about?  How are these assets encumbered?  Why does the S election precede the asset transfer and why should I care about any of this?  I just keep thinking - tax fraud.  

Letter from Westin to Kelley Lynch dated May 5, 1999

Dear Kelley:

Thank you for the letter, which I read with interest.  I have some suggestions.

1.  I recommend you ask the accountants to call the IRS and ask them to talk to the IRS and ask the IRS to pull up the transcripts of the corporations. From that it should be possible to get the needed information about when the S election was dropped.  All the need is the taxpayer ID number (which I recommend you get from them anyway unless you have it in hand; I would like to have it for my needs).  NOTE:  Call yourself.

2.  If they cannot get an answer, I recommend you start a California corporation.  We can do it fast with CT Corporation Systems.  I can print out by-laws and file the S election.  That will only cost a bit more than having me reconstruct the documents here; they are messy and time consuming to clean up.  My advice is to do this unless the old corporation’s S election issue is cleaned up by a date you fix in your mind.  NOTE:  How can I fix something in mmy mind when I have no idea what you are talking about.

3.  The new corporation would be “bomb proof”in bankruptcy, in the sense tat it would be properly formed and therefore would be able to get good title to LC’s work.  I was not exactly sure what you were referring to in your May 4 letter, but I assume that is the idea.  If you meant would the transfer tbe a voidable transfer in bankruptcy, the usual rule is that a transfer that operated as a fraud on creditors may be reversed if it took place within a year of bankruptcy.  Whether it is to Blue Mist, or to you, or to a new corporation makes no difference.  There are also state anti-fraud conveyance laws which normally overlap the bankruptcy rules.  NOTE:  I meant Charles Koppelman will only do a bond deal with a “bomb proof”company - whatever that means.  Why are we already involved with tax fraud at this point?

4.  The trust issue is new to me.  What you described does not seem to work.  Here is the issue.  It is fine to transfer the properties to the trust, although doing so will likely attract gift taxes, which could be substantial.  Basically, once a taxpayer gives away $625,0o00 or so of property the rest is subject to a 35% tax (which rises as further gifts are made and counts against the estate tax exclusion of the same amount).  It is hard to evaluate the amount of the gift.  This is a matter that should be considered seriously.  NOTE:  I meant Cohen is working with Reeve Chudd on estate planning and there is or will be a revocable trust to bypass probate so call Chudd.  

In addition the trust would be the payee of the income from the royalties.  Sony would not buy a corporation whose assets produced the royalties payable to a trust unless the papers were reversed, dropping the trust as payee.  NOTE:  See note about Reeve Chudd and the trust for probate above.

If you want to get the income and gain to the trust and have the trust taxed, it will pay top income tax rates … On a sale of the assets by the trust, the gain would lbe ordinary.  That is unfortunate … I cannot tell if the Family Trust would or would not qualify.  The easiest way to qualify is for the trust to be a “grantor trust” whose income is taxable to the grantor … NOTE:  See note about Reeve Chudd and the trust for probate above.  Call Chudd.

5.  It would be helpful if I knew the plans behind the trust.  I am in the dark now.  NOTE:  Call Reeve Chudd.  

6.  Something insane NG and RW discussed - LC purchases a deferred variable life insurance contract issued by a foreign life insurance company …

I am sorry this is getting so complicated for you.  It would be helpful to have some more information about the overall plans so I can fit my ideas into the bigger picture.  NOTE: : Speak to Reeve Chud, Cohen’s lawyers, NG, the accountant, but leave me out of this.

In the meantime, we need to get the S issue resolved.  Again, my advice is to get the accountants to talk to the IRS, unless they already have.  I am not encouraged by their delay.  I think you need to put a short fuse on their actions and then form a new corporation.  NOTE:  Call the accountants yourself - I’m not your secretary and don’t speak to people like this.  I don’t form corporations and have no idea what you are talking about.

I have attached two forms that I would like to have as back-up.  Get LC to sign the line after his name - form 2553.  Could you please sign the 2848 above the line with your name?  NOTE:  Sure.  

Form 2553:  Election by a Small Business.  To Be An S Corporation.  Blue Mist Touring, Inc.  

Jeffrey Newman/Goldstein (Cohen’s accountants) Letter to Kelley Lynch dated July 15, 1999.  Re:  Leonard Cohen 1996 IRS Audit

Dear Kelley:

As a follow up to our telephone conversation of July 14, 1999, the report of income tax examination changes dated July 12, 1999 from the Internal Revenue Service relates directly to the audit of Leonard’s 1996 return.

The report states that items were under audit as no one contacted the Internal Revenue Service or a scheduled appointment was not kept.  You have assured me that the accountants you retained in California have been in touch with the Internal Revenue Service.  

If we can be of any further assistance in this matter, please do not hesitate to contact me.

Very truly yours,

Jeffrey Newman

Fax from Kelley Lynch to Leonard Cohen’s accountant (who represented him when Marty Machat was alive so this can prove further perjury on Cohen’s part at my trial) dated July 19, 1999.  Re:  Leonard Cohen 1996 IRS Audit.

This audit arose from the first Sony sale that involved LC Stranger Music, Inc.  It related to the charitable gift of stock to Mt. Baldy’s Abbot fund.

Dear Jeff,  

Thank you for your note of July 15, 1999 with respect to the IRS audit of Leonard Cohen’s 1996 tax return.

I would like to confirm to you that Ken Cleveland [referred by Cohen’s record producer, Steve Lindsey, to handle this audit - Cohen liked the results and hired him], the accountant in Los Angeles who will be handling this audit,  has been in contact with the Internal Revenue Service and has scheduled an appointment to meet with them on Leonard’s behalf August 17, 1999 at 8:00 a.m.

I have asked Ken to speak with you directly regarding the charitable contributions which are being audited on this return and hopefully he has done so by now or will in the very near future.  As Leonard also obtained tax advice from Richard Westin, Ken will be speaking with him as well.  

Kindest regards.

Sincerely,

Kelley Lynch

Sent Via Facsimile No. 212.582.8273

Bogus Unsigned Promissory Note prepared by Richard Westin.  Not dated or signed.  Sony advanced LC $1 million in December 1999.  A portion of that loan remains outstanding on the date that the Holder (TH) sold certain assets to Sony at a closing on April 20, 2001.  Then net amount being the balance set forth below.  Desire to refinance remaining balance - agree to refinance such debt in the amount of $355,000.  Interest 4.63%.  Payments shall begin on January 2011.  BREACH OF INSANE BOGUS CONTRACT.  Full payment with interest is due 120 months from January 1, 2011.  Payment shall be made to Holder, TH.  Default - if it continues more than 90 calendar days after the monthly due date, the Holder may declare the entire unpaid balance of both the principal and accrued interest immediately due and payable within 10 days of notice of default and intention to accelerate and then proceed to exercise rights.  This should be repaid at $1 million.  The holder can transfer and assign rights.  The note may not be assumed without the written consent of the Holder.  The note shall be governed and construed under the laws of the State of California and the U.S.  

Reeve Chudd Faxed Certificate of Formation of LC Investments, LLC on October 19, 1999.  

Delaware LLC created for the CAK bond deal - “to execute and deliver, and perform under a loan agreement …

Reeve Chudd faxed Action by Written Consent of the Organizer of LC Investments, LLC, a Delaware LLC.

LCI formed.  

Appointment of Member/Manager, sole member of this LLC.  Resolved, that Leonard Cohen, as Trustee of the Leonard Cohen Family Trust established under Trust dated October 2, 1998 is hereby appointed as the sole member and the sole manager of this limited liability company.  Dated:  October 20, 1999.

Paul Gilbert/Sony Music Int’l letter to Kelley Lynch dated November 5, 1999.  cc: : S. Bondell, S. Francis (Sony), G. McBowman, P. Lopez, Esquire (Cohen’s attorney at the time).  Dear Kelley, This is to inform you that we have transferred $1 million to Leonard’s account pursuant to the instructions received from you.  This amount is deemed a partial prepayment against the proposed $8 million buyout of Leonard’s future royalty interests in his master recordings and compositions under all of his agreements with Sony Music and Sony/ATV.  If this buyout is not concluded, this amount represents a general advance recoupable from any and all monies payable to Leonard under those agreements.  

Peter Lopez letter to Stu Bondell/VP Business Affairs/Sony dated November 10, 1999.  cc:  Leonard Cohen, Paul Gilbert, Kelley Lynch, Gregory McBowman

Dear Stu:  Following up on a letter sent earlier today by Gregory McBowman to Paul GIlbert, I am writing you at the request of our client, Leonard Cohen, to let you know that he is still awaiting clarification regarding the details of a proposed buyout by Sony of his publishing and record royalty income stream.  As you know, at Leonard’s direction we have recently concluded a lengthy process of finalizing a loan arrangement which provides for him to immediately receive a substantial amount of non-taxable loan proceeds.  [NOTE:  This refers to the CAK bond deal - Cohen didn’t pay Peter, who has since died, the $90,000 he owed him].  It remains Leonard’s intention to continue in good faith to actively pursue in good faith to actively pursue a buyout by Sony of his future royalty income from his publishing and recordings.  However, knowing that such a negotiation will take some time, Leonard intends to close the loan transaction this Friday.  [NOTE:  This is pure Leonard Cohen - blackmailing Sony, knowing that Peter is very very close with Bob Bowlin]  We have been able to negotiate the terms of this loan agreement to allow Leonard Cohen to repay the loan without a prepayment penalty for a significant period of time [NOTE:  Peter was also a close friend of Charles Koppleman who was livid - Charles owned CAK/Universal and slammed Cohen with a lawsuit; Cohen then demanded that Peter use his influence to persuade Charles to drop the lawsuit and request for payment of the terms & conditions fees - which were ultimately, in part - paid by TH] during which we will continue to negotiate with sony the details of a mutually agreeable buyout deal.  In this regard, we would appreciate receiving from Sony in writing the specifics of the proposed offer for the buyout deal as soon as possible.  

Letter from Paul Gilbert/Sony Music International dated November 17, 1999

Re:  Leonard Cohen Buy-Out

(Ties to the 1999 $1 million downpayment)

Dear Kelley,

Summarized below is a general outline of the deal, subject to contract:

Financial Terms:

For $8 million, Sony will “buy out” (effective immediately) all of Leonard Cohen’s future royalty earnings payable under all of his recording and publishing agreements.  The $8 million will be paid as follows:

$7.1 million upon closing; $800,000 upon delivery and acceptance of the next studio album.  No other contractual advances will be paid upon delivery of this album.  FN:  One additional album remains under the current recording agreement and the proposed transaction does not affect this album.

Sony will pay through as an additional payment Leonard COhen’s share of master use fees payable under the “I’m Your Man” - Brut/Faberge agreement.  Based upon affiliate information to date, we estimate this amount to be approximately $65,000.  {synch/master use fee]

Sony shall pay through as an additional payment royalties currently being held (if any) under the Songwriter Agreement until the remaining 6 new Leonard Cohen songs are Released in accordance with the agreement.  Greg McBowman estimates such royalties at $440,000.   [They are withholding this amount from the purchase price - 75% of $625,000]

Please note that the Term of the Agreement shall continue (i.e, Cohen’s obligation to deliver to Sony/ATV the remaining 6 Released songs) notwithstanding that Sony/ATV shall have no remaining obligations to Cohen.

Sony shall pay through as an additional payment mechanical royalties for the song “When I Need You”collected by Sony/ATV which would have been reported and paid to Cohen for all of the periods through the semi-annual accounting period ending 6/30/99.  Greg McBowman estimates such amount at $260M.  [I think this means $260K.  Steven Machat should have received 25% of this amount and I am a witness to the fact that Leonard Cohen’s agreement with Machat & Machat re. this song was 25%.]

As part of this transaction Sony will require:

Reaffirmation of Sony’s existing provision under Leonard’s recording agreement that no artist or other third party consent is required under any of those agreements for Sony to compile, couple, reuse, license out or in any way exploit any of his master records.  [Phil Spector immediately comes to mind re. Death Of A Ladies’ Man]

Leonard shall waive all of his approval rights under the Songwriter Agreement.

Other Issues

As previously discussed, this transaction will also include a waiver of his audit rights under his recording agreements all open periods through June 1999, and all future periods.  As well as any and all audit rights under his publishing agreements.

Sony/ATV requests that Leonard Cohen shall use his best efforts to ensure that performing rights societies throughout the world pay 100% of the so-called writer’s share” of performance income to Sony/ATV.  Leonard shall cooperate with Sony/ATV in respect of the foregoing and if he collects any performance or mechanical income directly, he shall promptly turn over to Sony/ATV such income in its entirety.

Sincerely,

Paul Gilbert

Vice President

Business Administration

cc:  S. Bondell, S. Francis, P. Lopez, Esq., G. McBowman

[Bondell & Francis - Sony; Lopez - Cohen’s transactional attorney; Greg McBowman - Cohen’s royalty consultant; handled audits, etc.]  

Fax from KL to Arthur Indursky dated December 1, 1999.  

Enclosed please find the following agreements between Leonard and Sony/ATV Music Publishing.  Lists 16 separte agreements.

Don Friedman/Grubman letter to Leonard Cohen dated December 6, 1999

You have asked that we act as your attorneys in connection with the possible sale by you to Sony Music International and Sony/ATV, Inc. of a certain of your royalty and income interests.  Advises Cohen that they represent certain affiliates of Sony as well as certain employees of Sony.  In this transaction, they are only represent Cohen and not Sony parties.  As a matter of professional ethics, however, a conflict of interest may arise when we represent a client in a matter involving another client, although the other client is represented by separate counsel in that transaction.  It is our policy not to undertake representation of you without your consenting to our continuing legal representation of the sony Parties in connection with matters other than the Transactions, and your waiver of any potential conflicts of interest with respect to our representation of you … Signed by Don Friedman and Leonard Cohen

Memorandum from Don Friedman/Grubman to Greg McBowman cc:  A. Indursky, S. Fried dated December 6, 1999

Enclosed for your review are draft copies of my proposed letter to Richard Westin and my proposed internal memo regarding the valuation.  Please let me have your thoughts.  Privileged and Attorney-Client communication sent to Westin.  

Fax from Don Friedman/Grubman to Greg McBowman dated December 6, 1999

Excerpt of memo valuation.

Letter from Don Friedman/Grubman to Kelley Lynch dated December 13, 1999 cc:  Greg McBowman, Arthur Indursky, Stuart Fried  Re. Leonard Cohen

Dear Kelley:  Enclosed is a copy of a December 10 letter from Charles Koppelman to Artie with the attached documents.  I note that, pursuant to letters dated November 19, 1999 and November 23, 1999 which are enclosed with Charles’ letter to Artie.  CAK’s outside counsel, Paul Baumgarten, has demanded that Mr. Cohen pay to CAK both an origination fee of $290,000 and CAK’s expenses.  Do you know whether Peter Lopez has taken a position regarding this demand?  Let’s discuss at your convenience.  

2000

January 2000

Privileged and Confidential letter from Professor Richard Westin to Kelley Lynch & Leonard Cohen dated January 10, 2000 (by fax and courier).

Opinion re. federal income tax implications of the transfer of the following properties to BMT, a Del. company (which is Cal. admitted) in which Kelley holds 15% of the stock and Leonard owns 85%.  LC plans to transfer the following properties to BMT as a contribution under IRC Section 118.  

Properties:  Record royalties - agreements between LC and Sony - April 26, 1967 and as of September 1, 1972, the recording agreements; Sound recording copyrights in unreleased recordings; Writer royalties - LC entered into Songwriter’s Contract dated March 16, 1967 with LCSM - sold LCSM to Sony, entered into songwriter agreement with Sony/ATV dated November 18, 1996, LC and Sony/ATV agreed that the royalty provisions of the 1996 Songwriter Agreement would government Cohen’s entitlement to royalties re. compositions subject to 1967 songwriter’s contract owned by LCSMI - LC’s entitlement to royalties re. compositions written by him under the 1967 agreement and the 1996 songwriter’s agreement is governed by the 1996 songwriter agreement - the 1967 contract has not been terminated but modified; ; SOCAN Agreement - On February 19, 1991 LCSMI and SOCAN entered into an agreement - LC retains the writer’s share of performances.  Leonard’s remaining rights under the SOCAN agreement were transferred to BMT.

Whether the properties are property for purposes of IRC Section 118.  The transfers may be disregarded as not having occurred in substance or as a mere unsuccessful attempt to assign income from personal services.  A related issue is whether you have retained excessive controls after the transfer to BMT to invalidate the transfer for federal income tax purposes.  See Commissioner v. Sunnen, 333 U.S. 591 (1948) - anticipatory assignment because husband inventor-patentee retained substantial power over contracts and payment of royalties he assigned to his wife.  

The IRS might argue that the transfer of the right to be paid for subsequent record sales is really a payment for your services, rendered in the past, and that you should continue to be taxed on such income on the theory that you engaged in failed attempt to assign away income from personal services.  See Lucas v. Earl, 281 U.S. 111 (1930) husband could not shift income to his wife by contracting that all property acquired uring their marriage would be held as joint tenants with right of survivorship.  

In my opinion, three tests must be met in in order for the transfers to BMT to qualify so as to cause BMT and not LC to be taxed on subsequent income from the contributed assets.  1) If asset issued for stock is IP it must be legally protected in Cali or fed court even if BMT does not formally apply for such protection.  2) The interests transferred must be “property” for fed income tax standards - the transferor must not retain interests in the alleged property and the property must be transferable and have value.  

While LC remains the dominant shareholder, this is not enough to cause the transfers to fail for fed income tax purposes - because all rights under the contracts have been transferred.  Per RW - the transfer is effective to shift the contract rights with respect to the record royalties (and the subsequent income therefrom) to BMT and that transfer will be effective for purposes of IRC Section 118.  As long as the transfer assets to BMT occurs before you commit to the sale of BMT stock, you will be taxable only on the sale of BMT stock and not on the transfer of the assets.  So, is RW saying that you are taxed on the transfer of assets into the corporation - as though it were ordinary income?  Then what is the point of this insanity?

May 2000

Privileged Memorandum for Leonard Cohen & Kelley Lynch

from Professor Richard A. Westin

Re:  Collapsible Corporation - Steps to Take

May 23, 2000

NOTE:  Cleveland & Westin discussed collapsible corporation issues.  

Background:  IRC Section 341 contains a weapon designed to prevent the manipulation of “collapsible corporations.” The Congressional fear behind the provision is that aggressive taxpayers will convert ordinary income into capital gains by hiding the ordinary income in a corporation … Arguably, BMT falls into the collapsible corporation (definition appears in 341(b)) category.  I think it more likely than not that it does not, but the statute is not well drafted and it is open to an opposite conclusion (which Mr. Cleveland adheres to).  So, to finesse the issue, he and i agree that we should have Blue Mist make a so-called Section 341(f) election.  

If the corporation makes the election properly, then for the next six months, sales of stock are unaffected by 341 and can therefore attract cap gains treatment.  Section 341(f) relief is available only with respect to ???? and the onerous tax consequences to the consenting corporations are triggered only by “sales” of stock.  A “sale” can only occur after a “consent” has been filed with the IRS; the mere filing of a consent, however, if not followed by a “sale” within six months, is a nullity … So the whole thing is American law at its worst.  

Westin’s Facsimile Message to KL dated May 23, 2000 - 9 PM

Kelley’s Shorthand Notes from the back of the Facsimile cover

Richard’s note on the cover says this:  

Dear Kelley

Please fax me the taxpayer ID No. of Blue Mist.

It is it Blue Mist Touring, is it not?  If not, what is it?

Let’s talk about the record Leonard plans to deliver to Sony.

Under this in my handwriting it says:  Options - 2 live albums.

These are my notes of what Richard Westin had to say to me.

Collapsible corporation - no language needed.
Taxpayer ID.

Here is the way I see the basic deal - Leonard is going to get a nice deal - long term cap gain.  Any property that we can put in before the deal closes should qualify as part of the asset pool.  ____________________ in everything that is loose now.  

Ex:  some kind of master - we wanted back into the archive.

‘79 live album material

‘88/’93 live album material

I’m not a copyright expert - it’s very easy to assign anything in this general IP area by an assignment.

I would do an assignment by WHOMEVER and deed in one document so that we capture everything and get that into Blue Mist.  I would have a partner meeting - have a meeting tomorrow and transfer that in.

They are saying that we owe some fees on the bond deal - that’s bogus:  the secret is to sue them first; get in some newspaper.  

Look up deed and assignment

SOCAN performing rights - fax it today.

Blue Mist - found its way into Blue Mist - then you have a problem.

report that as a return - anything that comes back out - no cap in the company - that will come back as a cap gain - assign the value of x - you have a gain ______________ to your share of x.  

We discuss the assignments that are non-revocable.  Westin tells me:  If I saw it, I Richard Westin would rip up the papers.  That is what I would do.”