Kelley Lynch
419 N. Larchmont
Blvd., Suite 91
Los Angeles,
California 90004
323.935.9939
July
25, 2004
Department
of the Treasury
Internal
Revenue Service
Office
of Chief Trial Counsel
Small
Business/Self Employed Division Counsel
3018
Federal Building
300
N. Los Angeles Street
Los
Angeles, California 90012
Re: Leonard Cohen vs. Commissioner (Docket No.
7024-02)
To
Whom It May Concern:
I
am writing with respect to the above referenced Tax Court case and related
matters. I am Leonard Cohen’s personal
manager and have an ownership interest in three entities with him. Those entities are Blue Mist Touring Company,
Inc., Traditional Holdings, LLC, and Old Ideas, LLC. These three entities either own or sold
intellectual property.
For
the year 1999, Sony Music issued a 1099 to Leonard Cohen in the sum of $1
million. On January 8, 2002, IRS issued
Letter No. 3219 (SC/CG) to Leonard Cohen for the year ending December 31, 1999
showing a deficiency in connection with tax form 1040. This situation was initially handled by
Leonard Cohen’s personal tax and corporate attorney, Richard Westin, who then
referred Cohen to Hochman Rettig.
I
became particularly concerned with respect to the conduct of Leonard Cohen and
his representatives in January and February 2002. The reason for this is due to hysteria that
arose in connection with the “inadvertent” 1099s Sony issued to Leonard Cohen
personally in the amounts of $1 million and $7 million respectively. Leonard Cohen’s tax accountant wrote and
advised him that he shuddered to think of the penalties and interest due. Leonard Cohen called his tax accountant after
receiving his letter to discuss the matter.
This matter was then discussed, both telephonically and in emails, with
Leonard Cohen, Richard Westin, and Neal Greenberg (Cohen’s financial adviser
and investor). These 1099s related to a
deal that Sony pursued which closed in 2001.
What
concerns me specifically is the fact that the Sony deal was done with
Traditional Holdings, LLC and not Leonard Cohen. The $1 million non-refundable prepayment
should have either been paid to Traditional Holdings, LLC or transferred to
Traditional Holdings, LLC. To complicate
matters even further, the assets that were sold to Sony belong to Blue Mist
Touring Company, Inc. and were not assigned to Traditional Holdings, LLC. The reason for this is due to the fact that,
while Sony initially pursued this deal with Blue Mist Touring Company, Inc.
(and began their due diligence with that entity), Cohen’s accountant and tax
lawyer raised issues related to collapsible corporations. Richard Westin represents Leonard Cohen. He does not represent me or the entities
themselves. I did provide Westin with a
very limited power of attorney authorizing him to prepare and file the
Traditional Holdings, LLC formation documents with the State of Kentucky. I also agreed, after Cohen instructed him to
do so, to permit Richard Westin to prepare my Indemnity Agreement with respect
to my investment in Traditional Holdings, LLC via a promissory note. I do not understand how an individual invests
in a company via a promissory note and, at the same time, receives
distributions with which to the payments.
I am enclosing Richard Westin’s March 6, 2002 letter summarizing this
matter. I specifically requested that he
write this letter to avoid any future confusion between me and Leonard
Cohen. According to the corporate
records, I receive $20,000 and $24,000 which pays the promissory note and
taxes. I also receive $240,000 year
(from profits) to pay whatever taxes Westin advises are due with respect to
Traditional Holdings, LLC. Richard
Westin handles the Traditional Holdings, LLC tax returns and prepares the
K-1s. While I am to receive 100% of the
profit (and this was the agreed upon amount Cohen and Westin arrived at), I am
unable to obtain financial statements and/or profit and loss statements from
Neal Greenberg. And, while Richard
Westin and Neal Greenberg are supposed to handle all loan documentation
(Greenberg would have those details), most of Leonard Cohen’s loans (totaling millions)
from Traditional Holdings, LLC remain undocumented. I would also like to note that Neal
Greenberg’s financial statements are incoherent and originally co-mingled
Leonard Cohen’s personal accounts; his charitable remainder trusts; and the
Traditional Holdings, LLC accounts on one statement prepared for Leonard Cohen
personally. Greenberg also provides a
courtesy monthly email that includes the loans which he and Westin have
repeatedly confirmed are assets of Traditional Holdings, LLC. I am alarmed by the complete lack of
attention to corporate governance. I
also enclose herewith Neal Greenberg’s January and June 2004 letters to Leonard
Cohen raising “IRS warnings” and dangers.
I’ve reviewed these letters with Leonard Cohen and he advised me not to
inform Neal Greenberg of any future income.
That would include the studio album that will be delivered; his plans to
tour behind that album; and the third intellectual property deal we are
pursuing. That deal is also complicated
because Leonard Cohen is once again demanding unattractive stock deals. Leonard Cohen continually advises me that he
does not want to pay ordinary income taxes.
I find these comments alarming in light of some of the other activity.
I
have no expertise in IRS or tax matters and find a great deal of the
discussions about tax matters thoroughly confusing if not downright
deranged. Some of the information I
receive is incoherent. I do not handle
IRS, tax, accounting, financial, investing, legal or inadvertent 1099
matters. I also do not handle financial
statements, financial reports, loan documents, or promissory notes. Leonard Cohen has a team of professional
representatives handling those matters.
I am enclosing an email dated February 12, 2002 between me, Leonard
Cohen, and Richard Westin that is self-explanatory and addresses some of my
concerns.
On
January 17, 2003, Hochman Rettig wrote David R. Jojola of the Los Angeles
Office of the Chief Trial Counsel. This
matter was handled by Steve Blanq at Hochman Rettig. I had concerns about Traditional Holdings,
LLC and the private annuity agreement. I
am enclosing many of the corporate records for these entities; the Annuity
Agreement; and my Indemnity Agreement. I
am also enclosing the stock certificates, non-revocable assignments, and other
documentation related to my ownership interest in Blue Mist Touring Company,
Inc., Traditional Holdings, LLC, and Old Ideas, LLC which was formed in June
2004 in Delaware (by Richard Westin) and owns the intellectual property
associated with Cohen’s forthcoming studio album.
After
I addressed my concerns with Steve Blanq, I sent him some of the Traditional
Holdings, LLC documents and the Annuity Agreement. I then mentioned to Richard Westin that I
spoke to Steve Blanq about these matters.
I received a phone call from Steve Blanq advising me that he spoke to
Richard Westin who informed him that I do not have attorney/client privilege
and therefore Steve Blanq may not discuss these matters with me. Given the fact that I have an ownership
interest in Traditional Holdings, LLC, I find that statement alarming. Leonard Cohen personally wrote Richard Westin
and Neal Greenberg wrapping them in attorney/client privilege and excluding
me.
Hochman
Rettig’s letter addressed the factual and legal analysis of the Cohen v.
Commisioner matter (Docket No. 7024-02) as follows: “Leonard Cohen, through his representatives,
began negotiations in 1999 with Sony Music International ("SMI") for
a buyout of his SMI master recordings catalog. In an effort to secure that SMI
was serious about the buyout and to secure future performance, Mr. Cohen
demanded a deposit of $1,000,000. Ultimately, SMI agreed to this request and on
November 5, 1999, wired Mr. Cohen $1,000,000.
Accompanying the wire transfer was a Ietter dated November 5, 1999 which
is attached hereto as Exhibit A. The letter from Paul Gilbert of SMI
provides: ‘This amount is deemed a
partial prepayment against the proposed $8 million buy-out of Leonard's future
royalty interests in his master recordings and compositions under all of his
agreements with Sony Music and Sony/ATV.’
The factual basis for treatment as a deposit is further supported by Mr.
Gilbert's letter dated April 1, 2002 (attached hereto as Exhibit B) which
provides: ‘. . . this letter is to confirm that the $ 1,000,000 paid to you by
Sony Music Entertainment, Inc. (“SMEI") in November of 1999 was a deposit
towards a possible royalty buyout …’”
This
is not my understanding with respect to the $1 million prepayment. I would like to keep this letter confidential
because I am convinced that I would lose my job if Leonard Cohen, or his
representatives, were to find out that I contacted IRS. There has been so much paranoia and hysteria
on the part of Leonard Cohen and his representatives over this matter that I
can conclude nothing other than some type of egregious tax fraud has
occurred.
The
history of this deal, and specifically the $1 million non-refundable
prepayment, actually began when Leonard Cohen actively began pursuing intellectual
property deals. He closed the first
deal, with Stranger Music, Inc., in 1996.
He then actively began pursuing other intellectual property which
included a possible bond securitization deal.
As of November 1999, Leonard Cohen planned to close a bond
securitization deal with CAK. In order
to pursue that deal, Cohen formed LC Investments, LLC. CAK demanded a bankruptcy proof entity. However, SOCAN (the Canadian performing
rights society) refused to pay writer share of royalties to a company not owned
100% by the writer, Leonard Cohen.
Therefore, it was decided and agreed (by Cohen and his representatives)
that LC Investments, LLC would collect the SOCAN royalties. These assets are owned by Blue Mist Touring
Company, Inc. which is true for all intellectual property excluding the
forthcoming the intellectual property related to the forthcoming studio album
that will be delivered to Sony in the near future. I am enclosing Leonard Cohen’s declaration in
the CAK litigation that ensued and IRS can review the CAK litigation documents
that were filed in the Southern District of New York (Docket No. 1:00-cv-01068-CBM).
What
concerns me about the letter Hochman Rettig wrote is this paragraph: The legal authority is derived from the Supreme
Court decision in Commissioner v. Indianapolis Power & Light Co., 493 U-S.
203, I 10 S. Ct. 589 (1990). The Court created a distinction between the
taxation of advance payments and the taxation of refundable deposits, although
the Court confirmed that advance payments are generally taxable and defined
"advance payment" as a non-refundable payment. The Court, however, held that deposits are
not taxable. The Court defined "deposits" as refundable payments that
are made to secure the payor's performance of its legal obligations under the contract.
Please note that the Court also found that a deposit is not taxable even if the
payor elects to apply the deposit against amounts owed to the payee. Thus, if
the payor fulfills its obligations under the contract, the deposit is refunded.
That is the exact scenario presented in this matter. This analysis is also consistent with the
United States Tax Court's longstanding treatment of real estate lease deposits
where the Court has distinguished between a sum designated as a prepayment of
rent (taxable upon receipt) and a sum deposited to secure the tenant's performance
of a lease agreement. J & E Enterprises, Inc, v. Commissioner.”
The
reason this paragraph concerns me is that Sony personally contacted me about
pursuing the 2001 intellectual property deal with Leonard Cohen. Stuart Bondell, Sony Music Business Affairs,
explained to me that Sony did not want Leonard Cohen pursuing a bond
securitization deal. Evidently they had
concerns about establishing artist precedent for these types of deal and were
specifically concerned about not having the ability to pay artist record
advances. As Stuart Bondell explained,
advances are the currency of the music industry and permit Sony (and others) to
encourage artists to submit their contractually obligated albums. I phoned Leonard Cohen and explained that
Sony wanted to pursue the intellectual property deal with him. Cohen was somewhat worried that Sony was
making an offer and could later change their minds. Therefore, he advised me that he would be
willing to forfeit the CAK bond securitization deal if Sony paid him a
substantial non-refundable prepayment against the $8 million deal price. The contractual details had to be resolved
and negotiated. I phoned Stuart Bondell
back and passed along Cohen’s message and Sony agreed to pay the $1 million
non-refundable prepayment Cohen requested.
Therefore, from my perspective, Cohen received $1 million in income from
Sony in 1999. However, the assets were
owned by Blue Mist Touring Company, Inc. at the time. As of 2001, Richard Westin had formed
Traditional Holdings, LLC who ultimately pursued the stock deal Leonard Cohen
personally demanded.
Your
October 8, 2002 letter to Richard Westin requests all documents related to the
$1 million payment including correspondence, contracts, agreements, royalty
obligations, loan documents, emails, letters, and checks. While I am enclosing a substantial amount of
evidence, IRS would literally have to make arrangements to come into my
management offices and go through the files.
They are voluminous and include the corporate files and corporate books
and records. While I am not involved
with this IRS and/or Tax Court matter at all, I do believe that information is
being concealed from the IRS and that makes me extremely uncomfortable.
It
was my understanding that Richard Westin and Ken Cleveland, Cohen’s accountant,
decided to handle the $1 million as a loan on Cohen’s personal tax return. I was not involved in that discussion but was
on a conference call when they two of them confirmed this and asked me to call
Leonard Cohen to see if he agreed. I
then phoned Leonard Cohen personally; he confirmed that he wanted the $1
million handled as a loan; and I called Westin and Cleveland back and confirmed
this with them.
This
essentially sums up my concerns about the $1 million prepayment; $7 million
inadvertent 1099s; and the fact that the assets are owned by Blue Mist Touring
Company, Inc. Initially, after the
non-revocable assignments were executed by Cohen and me, Richard Westin advised
us to begin depositing all royalty income to Blue Mist Touring Company,
Inc. At a later date, he advised me (and
some of this is in writing) that those deposits should be explained as inadvertent. This situation also causes me concern because
the income was deposited to Blue Mist Touring Company, Inc. and Westin
determined that Leonard Cohen personally should issue the 1099s. Richard Westin also advised me to rip up the
SOCAN and writer share assignments with respect to Blue Mist Touring Company,
Inc. I took copies home and enclose
copies herewith.
Another
ongoing issue relates to where the offices for these entities are. There are no offices. I have continuously advised Richard Westin
that my personal management offices are not the corporate entities’
offices. These entities use my P.O. Box
for their corporate office addresses.
Traditional Holdings, LLC’s corporate office is listed as Richard
Westin’s home address in Kentucky. Most
of these entities are Delaware entities.
I do not know why Leonard Cohen and his representatives decided to form
Traditional Holdings, LLC in Kentucky. I
am enclosing letters Richard Westin prepared for Leonard Cohen and me with
respect to the initial proposals with respect to the use of an annuity. Leonard Cohen rejected the first proposal and
did not want his adult children involved in any entity he has an ownership
interest in.
Please
see evidence enclosed.
Thank
you for your attention to this matter and, if I uncover additional information,
I will submit that to Internal Revenue Service as well.
Very
truly yours,
Kelley
Lynch