Onyeani v. United States of America (Internal Revenue Service)
Filing
43
MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, Plaintiff Onyeani's petition for review is denied: the assessment and levy are reasonable, and the amount assessed is appropriate. A separate AO-450 judgment shall be entered. Civil case terminated. Emailed notice(slb, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UGORJI ONYEANI,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.
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No. 15 C 05917
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
Ugorji Onyeani brings this action to review a May 2015 determination by the
Internal Revenue Service that he owes $289,043.08 in individual income tax for the
2015 tax year.1 The IRS assessed this tax—called a termination assessment—
before the tax was even due, under a statute authorizing it to act when it believes
that a taxpayer is obstructing the agency’s ability to collect taxes for the current (or
prior) tax year. The IRS believed that Onyeani was attempting to conceal his
income; he had attempted to transfer hundreds of thousands of dollars abroad, and
despite having over $800,000 in his bank accounts, Onyeani had reported no income
for the last several years. For his part, Onyeani argues that the money in his
accounts came from his legitimate crude-oil business. In June 2015, Onyeani filed
an administrative appeal, which was still pending when he filed this district court
action on July 6, 2015. The Court then scheduled an evidentiary hearing, which was
delayed until March 2016 so that Onyeani could recover from a serious medical
1The
Court has subject matter jurisdiction over this case based on 28 U.S.C. § 1331
and 26 U.S.C. § 7429(b).
condition. Now, after considering the parties’ briefs and evidence submitted at the
hearing, the Court upholds the IRS’s determination, finding that the tax
assessment was reasonable and that the amount assessed was appropriate.
I. Background
Ugorji Timothy Wilson Onyeani was born in Nigeria and became a citizen of
the United Kingdom, where he practiced medicine for five years. Pl.’s Exh. 2,
Passport.2 In 2008 and 2009, Onyeani began visiting the United States for holidays
and to see friends and family. He moved to the United States in 2010, becoming a
permanent resident in May 2012. Pl.’s Exh. 3, Permanent Resident Card at 1.
Onyeani hoped to take licensing exams in the United States to continue his career
in medicine, but he also hoped to pursue graduate studies in business. Shortly after
moving to the United States, Onyeani enrolled in an MBA program at DeVry
University. Pl.’s Exh. 4, DeVry Tr. After graduating from DeVry in 2015, id.,
Onyeani was accepted into a doctorate business program at Argosy University, Pl.’s
Exh. 5, Argosy Ltr. During this time, Onyeani lived in Illinois (although possibly in
other states as well), and most recently at 2211 Crabtree Lane in Algonquin, Illinois
(this home address will be relevant to the crude-oil business, as noted later). E.g.,
DeVry Tr.; Argosy Ltr.; Def.’s Exh. 40, BMO Harris Records (Onyeani) at 1.
2Citations
to the record are noted as “R.” followed by the docket number and the
page or paragraph number. The exhibits (“Pl.’s Exh.” and “Def.’s Exh.”) refer to exhibits
that were introduced at the evidentiary hearing on March 17-18, 2016.
Some of the cited facts also come from testimony presented at the evidentiary
hearing; because neither party has ordered or submitted a transcript, however, the Court
does not cite to the specific transcript.
2
While Onyeani was a student, he and his wife, Rosa Paulino, filed individual
federal income tax returns for tax years 2011, 2012, and 2013. Def.’s Exh. 7, 2011
Tax Return; Def.’s Exh. 9, 2012 Tax Return; Def.’s Exh. 12, 2013 Tax Return. In
those years, Onyeani and Paulino reported income of $24,187, $32,242, and $31,864.
Id. All of this income was from Paulino’s job at Aramark Food Services and none of
the income was attributable to Onyeani. Id. But in March 2013, Onyeani submitted
an application to Wells Fargo to finance the purchase of a Mercedes; he listed on the
application that he had an annual salary of $150,000 from “American Hope Istitute
[sic],” of which he was the president. Def.’s Exh. 45, Wells Fargo Loan at 6. He also
submitted what appeared to be paystubs from a corporation called Calgary, Inc.
(more on this later), showing total monthly net pay of $12,705.78. Id. at 15.
The parties dispute whether Onyeani filed a tax return for the 2014 tax year.
The IRS contends that it has no tax records for him for that year, Def.’s Exh. 13,
2014 Lack of Record Certification, although Paulino did file a married-filingseparately return without Onyeani, Def.’s Exh. 51, 2014 Tax Return (Paulino).
Onyeani testified that he did file a 2014 tax return even though he had no income,
but he never offered into evidence a copy of the purported return.
A. Onyeani’s Business Ventures
Onyeani testified that business school opened up a new world to him and
inspired him to get involved in business. According to Onyeani, his first business
was called Calgary, Inc. This company had a number of DBAs (“doing business as”
names, which are different from the officially registered name), including “Omega
3
Health Care Technical School.” Onyeani later changed the company’s name to
American Hope Institute. Calgary, Inc./Omega/American Hope Institute was a
nursing school that failed due to problems with state regulations.
At some point, Onyeani also began reaching out to contacts in the Nigerian
crude-oil business. Onyeani testified that after traveling to Nigeria to learn more
about the oil business, he decided to start his own ventures in the United States. In
2015, he registered two Illinois businesses: American Hope Petroleum and Energy
Corporation (AHPE Corp.) and American Hope Commodity Exchange Corporation
(AHCE Corp.). The Illinois Secretary of State website shows that AHPE Corp. was
incorporated in January 2015, with Ugorji Onyeani as the registered agent at the
residential address of 2211 Crabtree Lane in Algonquin, Illinois. Def.’s Exh. 39,
BMO Harris Records (AHPE Corp.) at 4. And AHCE Corp. was incorporated in
February 2015, with Wilson Onyeani as the registered agent at the same Algonquin
address. Def.’s Exh. 41, BMO Harris Records (AHCE Corp.) at 8. Internal IRS
records (which the agency calls “transcripts”) from IRS databases similarly list
Onyeani’s Algonquin address as the business address for these two corporations,
and also show that the two businesses registered employer identification numbers
(EINs) with the IRS. (The IRS uses EINs to identify a business entity.) Def.’s Exh.
20, IRS Transcript (AHPE Corp.); Def.’s Exh. 21, IRS Transcript (AHCE Corp.). The
transcripts also confirm that AHPE Corp. was formed in January 2015 and that
AHCE Corp. was formed in February 2015. Id.
4
The IRS records also link Onyeani to a third entity: Calgary Healthcare
Group (Calgary Healthcare), a partnership that was formed in December 2013.
Def.’s Exh. 15, IRS Transcript (Calgary/AHPE). That partnership had a second
associated name: American Hope Petroleum and Energy (AHPE Partnership). Id.
The transcript lists “Ugorji Onyeani MD MBR” and an address of 2483 2nd Street E
in Eagle Pass, Texas. Id. But Onyeani disputes any connection to Calgary
Healthcare. According to him, Calgary Healthcare was a business that his friend
and former business partner, Remigius Okea, wanted to start together. But
Onyeani testified that after he and Okea had a falling out, he was no longer
involved in the business.
Sometime while establishing these businesses, Onyeani opened a checking
account at PNC Bank. Onyeani testified that PNC did not do business with oil and
gas companies, so he moved his accounts to Bank of America. It is unclear when he
opened a Bank of America account, but between January and March 2015, he
received several large deposits totaling over $700,000 in that account. Onyeani
argues that he was conducting legitimate crude-oil deals, and that these deposits
were from investors and buyers. For example, in January 2015, an individual
named Avis LaVelle wrote a check for $42,000 to “Professor U.T. W. Onyeani” with
the memo “on behalf of strategic oil procurement and development.” Def.’s Exh. 43,
LaVelle Check; Pl.’s Exh. 16, Lavelle Aff. ¶ 3. LaVelle and Onyeani signed a
January 15, 2015 promissory note where Onyeani promised to repay LaVelle
“within the 2015 calendar year or as soon as the first transaction AHPE concludes,
5
whichever occurs first.” Def.’s Exh. 44, LaVelle Promissory Note. In addition, a
corporation called LaSalle International wired money to Onyeani’s Bank of America
account for investments and/or crude-oil purchases, including $20,000 on February
3, 2015 and $520,000 on March 3, 2015. Pl.’s Exh. 11, BOA Records at 1, 3. LaSalle
also wrote Onyeani a February 4, 2015 check for $5,000. Def.’s Exh. 37, Kaplan Ltr.
at 4; BOA Records at 1 (showing a $5,000 “counter credit” on February 4, 2015).
Onyeani also testified that on March 5, 2015, a Chinese corporation called Tianjin
Commodity Exchange wired $199,985 to buy crude oil. BOA Records at 1; Pl.’s Exh.
15, Lu Aff. ¶¶ 3-4.
As part of the oil deal, Pierre Yenokian, the president of LaSalle, testified
that Onyeani instructed him to send $200,000 to a company called Trevo. On March
10, 2015, the user “wonyeani16@gmail.com” sent Yenokian an email with the
subject “WELLS FARGO LOGISTICS ACCOUNT.” Kaplan Ltr. at 12. The body of
the email included bank account information for Trevo LLC, listing an address in
Oklahoma City. Id. Yenokian testified that after speaking with Onyeani on the
phone, Yenokian was led to believe that Trevo was a logistical handling company for
the Nigerian State Oil Company. Based on Onyeani’s representations, LaSalle
wrote Trevo a $200,000 check on March 10, adding “NNPC Logistics” to the memo
line. Id. at 12-14. The check was deposited on the same day into a Wells Fargo
checking account, but the depositor’s identity is unknown because the deposit slip is
unsigned. Id. As it turns out, Trevo’s website, which also lists an Oklahoma City
location, shows that the company has nothing to do with oil; it is actually a
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distributor of nutritional products that customers can purchase at wholesale. Def.’s
Exh. 38, Trevo Website at 2, 7. Onyeani, for his part, denies that he ever told
Yenokian to send money to Trevo.
Onyeani admits that sometime in March 2015, he attempted to wire $300,000
to a bank account in London; this transaction was also supposedly part of the crudeoil deal. Onyeani testified that the money was going to a company called Supply
Source, which tests the quality of crude oil. But Bank of America stopped this
transaction and told Onyeani that it was freezing his funds and investigating his
accounts. On March 30, 2015, Onyeani went to a bank branch, where he was
interviewed by law enforcement. He was ultimately allowed to close his Bank of
America account and withdraw all of his funds, which totaled over $700,000, in
cashier’s checks. BOA Records at 1 (showing 3/30/15 withdrawal of $721,385).
That same day, Onyeani opened three bank accounts at BMO Harris Bank: a
personal account in the name of Ugorji Timothy Wilson Onyeani, a business account
for AHPE Corp., and a second business account for AHCE Corp. BMO Harris
Records (Onyeani); BMO Harris Records (AHPE Corp.); BMO Harris Records
(AHCE Corp.). Onyeani alone had signature authority over all three accounts. Id.
Onyeani deposited $743,760.71 into the AHPE Corp. account, consisting of three
Bank of America cashier’s checks of $721,385.00, $22,056.21, and $319.50. BMO
Harris Records (AHPE Corp.) at 22-24. He also deposited $11 into his AHCE Corp.
business account, BMO Harris Records (AHCE Corp.) at 32, and $63,002.05 in his
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personal account, BMO Harris Records (Onyeani) at 15-16, both in cashier’s checks
from Bank of America.
Shortly thereafter, George Quiroga, an investigator and vice president at
BMO Harris, received a phone call from Detective Finnegan of the Chicago Police
Department’s financial crimes unit. Finnegan told Quiroga that the Secret Service
and Chicago police department were investigating Onyeani, and that they found
BMO Harris receipts for large deposits during a search of Onyeani’s home.
Finnegan also told Quiroga that Bank of America had closed Onyeani’s account due
to concerns about the source of Onyeani’s funds. After speaking with Finnegan,
BMO Harris froze Onyeani’s accounts so that it could conduct its own investigation.
In April 2015, BMO Harris received a “fraud finder alert” from a third-party
provider, confirming that Bank of America had closed Onyeani’s accounts for
suspected fraud. Sometime during the investigation, Quiroga also received a phone
call from Okea, who said that he was an executive of Onyeani’s companies and
asked for information about Onyeani’s bank accounts. Quiroga could not give out
any information because Okea was not a customer.
Eventually, in April or May 2015, Quiroga met with Onyeani at the BMO
Harris branch in Algonquin. According to Quiroga, Onyeani said that he was in the
energy business and that his company purchased oil and gas for buyers. Onyeani
also explained that he had previously attempted to send money overseas because
his business was going global and soon expanding to London. According to Quiroga,
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Onyeani said that he had left Bank of America because he was dissatisfied with the
service there. Onyeani denies giving this version of events to Quiroga.
C. IRS Investigation
Around May 2015, the IRS tasked Matt Kron, a revenue agent, to evaluate a
potential tax assessment on Onyeani. Both the Secret Service and the IRS Criminal
Investigation Division told Kron that Onyeani had previously tried to send $300,000
overseas to a London bank account, but that this transfer was unsuccessful. Kron
then called Quiroga, who confirmed this information. Quiroga also informed Kron
that Onyeani was planning to expand his company overseas, but that Onyeani’s
Bank of America accounts had been flagged for fraud. Examining bank records and
past returns, Kron learned that Onyeani had over $800,000 in his BMO Harris
bank accounts but that Onyeani had not reported any income to the IRS since
arriving in the United States. In addition, while examining IRS transcripts, Kron
discovered
that
Onyeani
was
associated
with
Calgary
Healthcare/AHPE
Partnership, which had not filed any partnership tax returns since it was
established in December 2013. IRS Transcript (Calgary/AHPE). Onyeani was also
connected to two additional companies: AHPE Corp. and AHCE Corp. IRS
Transcript (AHPE Corp.); IRS Transcript (AHCE Corp.). Finally, Kron searched
through public records, where he found a website for American Hope Petroleum and
Energy (located at http://hopepetroleum.com/) describing the entity as “an
independent crude oil purchasing and selling broker.” Def.’s Exh. 33, AHPE Website
at 3. Kron noticed that while the website initially looked complete, many of the
9
pages were actually empty, stating “more to come.” Id. at 7-16, 33-56. The website
also stated that American Hope Petroleum and Energy was located in Eagle Pass,
Texas, id. at 19, which was the same location listed on the IRS transcripts for
Calgary Healthcare/AHPE Partnership that was registered in Onyeani’s name, IRS
Transcript (Calgary/AHPE). In his public records search, Kron also found books
authored by Onyeani entitled A Practical Guide to Buying and Selling Nigerian
Crude Oil: Sellers and Buyers Handbook, and various medical books describing him
as affiliated with “American Hope Institute” and “Calgary Healthcare Group.” Def.’s
Exh. 28, Amazon Records; Def.’s Exh. 29, Book Covers.
Based on the above information, Kron determined that the funds in
Onyeani’s accounts were taxable income and notified Onyeani of a $288,546
termination assessment on May 14, 2015. Def.’s Exh. 1, Notice of Assessment. The
IRS determined this amount by adding up the balances in Onyeani’s three BMO
Harris accounts totaling $802,083.00 at the time, taking a standard deduction of
$6,200, and applying the married-filing-separate tax rates. Id. at 3. On May 13,
2015, the IRS also issued a notice of levy to Onyeani and sent the notice to BMO
Harris. Def.’s Exh. 2, Notice of Levy. The levy also included $497.08 in interest, for
a total amount due of $289,043.08. Id. at 2. To comply with the levy, BMO Harris
withdrew the requested amount from Onyeani’s accounts and held the funds in a
separate account, where they continue to sit. BMO Harris then decided to close
Onyeani’s accounts and returned the remaining funds (around $500,000) to
Onyeani.
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On July 9, 2015, Jerry Kaplan, counsel for LaSalle International, sent the
IRS a letter, explaining that it was investigating whether Onyeani had fraudulently
induced LaSalle to pay $2,045,000 for oil that was never delivered. Kaplan Ltr. at 12. Kaplan asserted that LaSalle was entitled to $545,000 of the funds in Onyeani’s
frozen accounts, but LaSalle did not actually make a wrongful levy claim, which is a
claim of ownership to money by someone other than the taxpayer. 26 U.S.C.
§ 6343(b). Instead, LaSalle simply “request[ed] that the IRS not release its hold on
any of the moneys … unless and until we have intervened in the case … to prevent
Mr. Olyeani [sic] from immediately absconding with his ill gotten gains.” Id. at 2.
Yenokian testified that LaSalle ultimately reached a private settlement with
Onyeani about the disputed funds.
On June 11, 2015, Onyeani sought administrative review of the termination
assessment. Def.’s Exh. 35, Assessment Appeal. But before the IRS ever made a
final determination, Onyeani filed this action for judicial review on July 6, 2015.3 R.
3The
IRS does not argue that Onyeani failed to exhaust his administrative remedies.
Section 7429 provides that the taxpayer may seek judicial review in the district court “after
the earlier of – (A) the day the Secretary notifies the taxpayer of the Secretary’s
determination described in subsection (a)(3), or (B) the 16th day after the request described
in subsection (a)(2) was made.” 26 U.S.C. § 7429(b)(1). Subsection (a)(3) refers to the IRS
Secretary’s final determination, which was never completed in this case. And subsection
(a)(2) governs the request for administrative review, which Onyeani made on June 11,
2015. Assessment Appeal.
Because exhaustion of administrative remedies is generally an affirmative defense
and not a jurisdictional prerequisite, the IRS waived this argument and the Court may
review Onyeani’s case. See Volovsek v. Wisconsin Dep’t of Agr., Trade & Consumer Prot.,
344 F.3d 680, 687 (7th Cir. 2003) (“[T]he requirement that a plaintiff exhaust her
administrative remedies … is merely a condition precedent to suit, not a jurisdictional
requirement … . Therefore, the timing and scope requirements of an [agency] filing are
subject to various equitable doctrines—most significantly in the present case, waiver.”
(citations omitted)). Although the Seventh Circuit has not ruled on the jurisdictional
quality of § 7429, the Sixth Circuit has concluded that “[Section] 7429’s exhaustion
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1, Compl. The Court originally set an evidentiary hearing date for August 2015, but
Onyeani suffered an unexpected medical emergency that delayed the hearing. R. 27.
The hearing was ultimately held on March 17-18, 2016. R. 39.
II. Legal Standard
26 U.S.C. § 6851 allows the IRS to issue a termination assessment when it
“finds that a taxpayer designs quickly to depart from the United States or to remove
his property therefrom, or to conceal himself or his property therein, or to do any
other act … tending to prejudice” collection of income taxes. 26 U.S.C. § 6851(a)(1).
The IRS “shall immediately make a determination of tax for the current taxable
year or for the preceding taxable year … and … such tax shall become immediately
due and payable.” Id.; see also Comm’r of Internal Revenue v. Hendrickson, 873 F.2d
1018, 1020 (7th Cir. 1989) (When the IRS “believes that a taxpayer intends to …
thwart efforts to collect taxes due from him, it can make an immediate
determination of his tax liability—that is, without waiting until the end of the
taxpayer’s tax year—and demand immediate payment of the taxes due.”). A
termination assessment is similar to a “jeopardy assessment,” which expedites
payments of past due taxes. Id. Put another way, “[t]he difference between the two
types of assessment is merely that [a termination assessment] comes into play
requirement lacks jurisdictional pedigree” because it includes no “clear statement” of
jurisdiction. Abraitis v. United States, 709 F.3d 641, 644-45 (6th Cir. 2013); see also Galvez
v. I.R.S., 448 F. App’x 880, 888 (11th Cir. 2011) (“[T]he language of § 7429(b) is not
explicitly jurisdictional,” and “Congress must ‘clearly state[] that a threshold limitation on
a statute’s scope shall count as jurisdictional.’” (quoting Arbaugh v. Y & H Corp., 546 U.S.
500, 515 (2006))). But see Wapnick v. United States, 112 F.3d 74 (2d Cir. 1997) (plaintiff,
who did not request administrative review of his tax assessment, “failed to meet the
jurisdictional requirements of 26 U.S.C. § 7429(b)”).
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before the taxpayer’s tax return is due, and [a jeopardy assessment] after.” Id. at
1020-21.
After the IRS makes a termination assessment, the taxpayer can seek
administrative review within thirty days of receiving written notice. 26 U.S.C.
§ 7429(a)(2) (“Within 30 days after the day on which the taxpayer is furnished the
written statement [of the assessment] … the taxpayer may request the Secretary to
review the action taken.”). And if that review is unfavorable, she can petition the
district court for expedited review to determine the reasonableness of the IRS’s
action. 26 U.S.C. § 7429(b)(1) (“[T]he taxpayer may bring a civil action against the
United States for a determination under this subsection … .”). Judicial review
generally should be completed within twenty days, 26 U.S.C. § 7429(b)(3), but the
deadline is “only a strong admonition for the judiciary to act expeditiously” and not
“a limitation on the lower courts’ jurisdiction.” Hiley v. United States, 807 F.2d 623,
627 n.7 (7th Cir. 1986) (citing Meadows v. United States, 665 F.2d 1009 (11th Cir.
1982); United States v. Doyle, 660 F.2d 277 (7th Cir. 1981)).
Section 7429 spells out the two questions that the reviewing court must
answer: (1) whether the assessment was reasonable under the circumstances; and
(2) whether the amount assessed is appropriate under the circumstances. 26 U.S.C.
§ 7429(b)(3)(A); e.g., Hiley, 807 F.2d at 627; Wellek v. United States, 324 F. Supp. 2d
905, 911 (N.D. Ill. 2004). The government bears the burden of proving that the
assessment was reasonable, and the taxpayer bears the burden of proving that the
amount assessed was inappropriate. 26 U.S.C. § 7429(g). Review is de novo, without
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deferring to the IRS’s determination of reasonableness. Wellek, 324 F. Supp. 2d at
911. And the determination is “unrelated, substantively and procedurally, to any
subsequent proceeding to determine the correct tax liability.” Id. (citation and
quotations omitted). That means “the district court should not review the
assessment and levy as a trial on the ultimate merits of the tax liabilities.” Id.
(citation omitted).
The other limitation on judicial review is that a Section 7429 hearing is a
summary proceeding, which means that the district court’s determination “shall be
final and conclusive and shall not be reviewed by any other court.” 26 U.S.C. §
7429(f). Although the appellate court may not review the merits of the decision, it
may review “whether the district court acted within the scope of its statutory
authority.” Hiley, 807 F.2d at 627 (reviewing whether the district court properly
dismissed a Section 7429 action on procedural grounds); see also Thompson v.
United States, 445 F. App’x 878, 880 (7th Cir. 2011) (“limit[ing] [the] review to
considering only whether the district court exceeded its authority by ruling on [the
plaintiff’s] complaint more than 20 days after he filed it”). And because the
proceeding is summary, evidence need not conform to the Federal Rules of
Evidence. See Wellek, 324 F. Supp. 2d at 911 (citing Magluta v. United States, 952
F. Supp. 798, 801 (S.D. Fla. 1996)); Evans v. United States, 672 F. Supp. 1118, 1123
(S.D. Ind. 1987) (“Hearsay evidence is admissible because of the summary nature of
the proceedings which makes the rules of evidence inapplicable.”); Strauser v.
United States, 535 F. Supp. 957, 958-59 (N.D. Ill. 1982) (The IRS “can rely upon
14
‘information’ that need not comport with the strict rules of evidence,” and “[b]y the
same token Section 7429(b)(2) requires the Court to review the [same]
‘information[.]’”
(citations
omitted)).
Finally,
in
determining
whether
the
assessment was reasonable, the Court may consider facts known at the time the
IRS made the assessment as well as information discovered after. Wellek, 324 F.
Supp. 2d at 911 (citing Loretto v. United States, 440 F. Supp. 1168, 1173 (E.D. Pa.
1977)).
III. Analysis
A. Reasonableness of the Assessment
The government bears the burden on the first question—whether the
assessment was reasonable under the circumstances. 26 U.S.C. § 7429(g)(1); Hiley,
807 F.2d at 627. The evidentiary standard required to meet this burden is both low
and broad—that is, “something more than ‘not arbitrary and capricious’ and
something less than ‘supported by substantial evidence.’” Evans, 672 F. Supp. at
1123 (quoting Loretto, 440 F. Supp. at 1172). The IRS “only needs to prove that the
circumstances appear to jeopardize collection,” and not that the taxpayer is actually
jeopardizing collection. Wellek, 324 F. Supp. 2d at 912 (emphasis in original)
(citations omitted).
The factors used to evaluate reasonableness come from the text of 26 U.S.C.
§ 6851. Courts look to whether
(1) the taxpayer is or appears to be planning to quickly depart from the
United States to conceal himself; (2) the taxpayer is or appears to be
designing to place his property beyond the reach of the government
either by removing it from the United States or by concealing it, by
15
transferring it to other persons, or by dissipating it; or (3) the
taxpayer’s financial solvency appears to be imperiled.
Thompson v. United States, 2010 WL 3893806, at *5 (N.D. Ill. Sept. 29, 2010) aff’d,
445 F. App’x 878 (7th Cir. 2011) (citing Wellek, 324 F. Supp. 2d at 912); Caparaso v.
United States, 1990 WL 87123, at *1 (N.D. Ind. May 17, 1990) (same); 26 U.S.C.
§ 6851(a). In addition to the factors derived from the statutory text, “courts may and
should consider any other appropriate factors.” Wellek, 324 F. Supp. at 912 (citation
omitted). For example, a taxpayer’s involvement in criminal activity is relevant and
may suggest that the taxpayer “had and would continue to conceal his assets.”
Thompson, 2010 WL 3893806, at *5 (citations and quotations omitted). Other
appropriate factors include a taxpayer’s “erratic fiscal behavior,” such as prior tax
returns indicating little or no income despite possessing large amounts of cash,
dissipation of assets, or other behavior making it difficult to locate the taxpayer or
her assets. Wellek, 324 F. Supp. at 912 (citation omitted).
In this case, the Court concludes that the IRS’s determination was reasonable
because Onyeani appeared to be perpetuating a fraud by collecting money for a
crude-oil brokering business that did not really exist. The IRS could reasonably
have believed that rather than using investor and customer funds for legitimate
business purposes, Onyeani was planning to conceal the money, remove it from the
United States, transfer it to others, spend it, or otherwise dissipate it.4 Supporting
4The
IRS may assess taxes on income that was obtained by fraud or other illegal
behavior. The Internal Revenue Code broadly defines income as “all income from whatever
source derived.” 28 U.S.C. § 61(a) (emphasis added); see also United States v. Sullivan, 274
U.S. 259, 263 (1927) (“We see no reason … why the fact that a business is unlawful should
exempt it from paying the taxes that if lawful it would have to pay.”); United States v. Ytem,
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this conclusion are the suspicious circumstances surrounding Onyeani’s businesses.
Although Onyeani asserts that he deals crude oil, the evidence reveals few legal,
regulatory, contractual, or other business-related documents that an international
business—especially one preparing to deal millions of barrels of oil per month—
must surely maintain. The documents that do exist raise even more questions. For
example, at the beginning of 2015, Onyeani allegedly began pursuing his first major
oil deal. A “sales purchase agreement/commercial invoice” stated that the buyer,
LaSalle, would purchase 2 million barrels of oil a month at $56/barrel. Assessment
Appeal at 20 ¶¶ 1-3. If successful, the contract would be extended for a year, for a
total deal worth over one billion dollars. Id. ¶ 8. But the “sales purchase agreement”
is not even signed by the buyer, and the document is itself full of inconsistencies. Id.
One page of the contract lists a discount of $5 per barrel, id. at 17, while another
page lists a $4 per barrel discount, id. at 20 ¶ 12. It is hard to imagine that an oil
trading company could afford to make an error costing $2 million a month, or $24
million a year. Onyeani also points to several documents, written in Chinese, that
purport to be an oil contract with Tianjin. Id. at 37-39. But Onyeani never had these
documents translated (or, at least, he did not introduce any translation), nor was
there evidence that Onyeani spoke Chinese, so the Court has no solid idea of what
these documents really are. If anything, they raise questions as to how Onyeani
could make a deal based on documents that he could not read.
255 F.3d 394, 397 (7th Cir. 2001) (“Furthermore, the fact that illegal income is taxable is
widely known, even among lay people.”); Thompson, 2010 WL 3893806, at *6 (counting over
$300,000 seized by the FBI as income in a jeopardy assessment, even when the money was
likely from drugs sales).
17
In addition, Onyeani testified that as part of his crude oil deal, he tried to
transfer around $300,000 from his Bank of America account to Supply Source, a
London company that tests the quality of crude oil. R. 24, Pl.’s Resp. at 4. Onyeani
explained that this testing was necessary to make sure that the oil adhered to
international standards. Supply Source had a London address tied to a London
Barclays bank account. Kaplan Ltr. at 10. But curiously, there is not a single
contract with Supply Source for this service. Nor are there any emails, phone logs,
or other evidence of communications with Supply Source about this transaction. The
Supply Source transfer is even more suspicious given that in June and July 2010,
Onyeani received wire transfers of more than $200,000 from a Barclays bank
account in London. Def.’s Exh. 49, Chase Records (3905) at 74 (showing a $112,214
wire on June 29 and a $104,335 wire on July 2). To be sure, this may be no more
than a coincidence, as it does not conclusively show that Onyeani was somehow tied
to Supply Source. But the transfers, along with the absence of documentation about
the purported $300,000 transaction, raise suspicion as to the legitimacy of this deal.
The crude-oil deal with LaSalle also involved other suspicious parties.
Yenokian (remember, he was the president of LaSalle) testified that he was
instructed to send money to a company called Trevo as part of the oil transaction.
On March 10, 2015, a person with the address “wonyeani16@gmail.com” emailed
Yenokian about the “WELLS FARGO LOGISTICS ACCOUNT.” Kaplan Ltr. at 12.
The body of the email included bank account information for Trevo LLC, listing an
address in Oklahoma City. Id. Yenokian testified that after speaking to Onyeani on
18
the phone, Yenokian was led to believe that Trevo was a logistics company for the
Nigerian State Oil Company. So on this belief, Yenokian wrote a $200,000 check to
Trevo on March 10, 2015. Id. But Trevo’s website, which also lists an Oklahoma
City location, shows that it is completely unrelated to the oil and gas industry; it is
actually a distributor of nutritional products that customers can purchase for
wholesale. Trevo Website at 2, 7. A purchaser of Trevo products can earn bonuses
and commissions by selling the products to others; the website promises up to 40%
in commissions and 25-40% retail profit. Id. at 7-8, 10. Trevo seems like a get-richquick scheme—the website dedicates most of its real estate to convincing customers
that its “single-line matrix” compensation scheme provides “an unprecedented
opportunity to be a part of and profit from a billion dollar brand,” yet very little
space describing its nutritional products. Id. at 5-6. But even if the company is
legitimate, it still has nothing to do with the crude-oil industry. For his part,
Onyeani disputes having any connection to Trevo. It is also curious that Yenokian,
as the president of an international energy company, did not do his due diligence
before sending an unknown company a $200,000 check. A simple web search would
have quickly revealed that Trevo is a (possibly sham) nutritional products company.
In addition, at the evidentiary hearing, Onyeani also argued that the email he
allegedly sent to Yenokian is a forgery, pointing to the font difference between the
email header and the body. Kaplan Ltr. at 12. Looking at this email, it also seems
odd (but not impossible) that Yenokian received it at 2:01 p.m. on March 10 and
then immediately wrote Trevo a check that was cashed—in person—an hour later
19
at 3:06 p.m. Kaplan Ltr. at 12-14. Perhaps there is more to this story and Yenokian
was an accomplice, and not a victim of Onyeani’s business dealings. But the Court
is not called on to make factual determinations on Yenokian’s role or whether the
email is genuine. The Court’s only duty is to determine whether the evidence—
meeting a low evidentiary burden—shows that Onyeani appeared to be jeopardizing
tax collection. And the evidence at this stage shows that it was reasonable for the
IRS to believe that Onyeani seemed to be directing investor money into a possibly
sham business that was entirely unrelated to crude oil.
What’s more, the IRS rightly points out that the entities affiliated with
Onyeani do not show signs of normal business operations. It is true that AHPE
Corp. and AHCE Corp. were created in early 2015, so they had only existed for five
months at the time the IRS made the assessment. Yet the bank accounts show little
evidence of corporate activity and reveal no expenses that a fully operational
company—one that is on the cusp of a billion dollar deal—would be expected to
have. Instead, the accounts only contain a handful of transactions, many of which
were the initial deposits from Bank of America cashier’s checks. BMO Harris
Records (AHPE Corp.); BMO Harris Records (AHCE Corp.). In addition, Calgary
Healthcare, also known as AHPE Partnership, had been relatively inactive since its
formation in December 2013. Its website, which appears to be legitimate at first
glance, is largely empty, with many blank pages labeled “more to come.” See AHPE
Website at 7-16, 33-56. And the seemingly complete pages actually just repeat the
20
same few paragraphs. Id. at 5, 19, 21 23, 25, 27, 29, 31. The unfin
a
1,
nished web
bsite
adds doubt to whether the business wa truly ope
as
erational.
Onyeani, however, te
estified tha he was no longer affiliated with Cal
at
d
lgary
Healthc
care/AHP
Partnersh after he had a falling out with Ok
hip
h
kea, his for
rmer
business partner. But the IR could have reaso nably conc uded other
RS
rwise. For one,
the logo on the Calgary Heal
lthcare/AH
HPE Partne
ership web
bsite is very similar to the
y
o
logo used on Onyeani’s oil deal docum
ments, in luding a February 2 2015 le
22,
etter
from “Professor Wilson U Timothy-On
T
nyeani” t
the Nigerian Natio
onal Petrol
leum
Corporation purpo
orting to co
onfirm tha Onyeani was “wil ing & abel [sic] to re
at
i
l
emit,
$5,000,000.00” for the crude oil deal. Kaplan Ltr. at 70. The logo on bo the web
K
oth
bsite
and letter is a picture of a flame and a gear next to the words “AHPE” and
a
r
s
“American Hope Petroleum & Energy.” Id. True, the fonts are slightly different, and
”
y
,
the letterhead lo o adds the words “G
e
Global Res ources,” bu on the w
ut
whole, they are
y
very similar:
AHPE Website; Kaplan Ltr at 70. In additio , the IRS s internal transcript for
r.
n
l
Calgary Healthcare/AHPE Partnership lists “U orji Onyea MD MB along with
P
p
ani
BR”
exas, IRS Transcript (Calgary/AHPE), whi is the s
T
ich
same
an Eag e Pass address in Te
21
address located on the AHPE website, AHPE Website at 19. On top of the logo,
name, and address similarities, in June 2014, Onyeani and Okea jointly opened a
Wells Fargo business account for Calgary Healthcare Group, LLC/American Hope
Petroleum and Energy. Def.’s Exh. 46, Wells Fargo Records at 99, 137. This account
had an address of 2483 2nd Street E in Eagle Pass, Texas—the same address on the
website and on the IRS transcripts—and was still open as of October 2015. Id. at
198. And finally, Quiroga testified that Okea had called BMO Harris sometime
during the bank’s investigation, identifying himself as an executive of Onyeani’s
business. Again, the Court is not definitively concluding that Onyeani was actively
involved in Calgary Healthcare/AHPE Partnership, nor is the Court saying that
Onyeani and Okea’s relationship did not sour. But this evidence does allow the IRS
to reasonably conclude that Onyeani had some affiliation with the partnership,
whose incomplete website and lack of normal business activity was another sign of
the dubious nature of Onyeani’s crude-oil business.
Finally, Onyeani’s “erratic fiscal behavior,” in which he possessed large
amounts of cash yet reported no income since his 2010 arrival to the United States,
also supports the IRS’s determination. Onyeani testified that he had never made
any money from his crude-oil business. For his day-to-day expenses, he relied on
money he saved in the UK and gifts from family and friends in Nigeria. Indeed,
Onyeani’s bank records do show large international wire transfers from the UK and
from Nigeria. Chase Records (3905) at 74 (6/29/10 and 7/2/10 deposits of $112,214
and $104,335 from Barclays in the UK); 173 (5/31/12 and 6/5/12 deposits of $8,975
22
and $9,000 from Citibank in Nigeria); 231 (9/23/13 deposit of $9,000 from Deutsche
Bank in Nigeria). But in March 2013, Onyeani submitted an application to Wells
Fargo to finance the purchase of a Mercedes, listing an annual salary of $150,000
from “American Hope Istitute [sic],” of which he was the president. Wells Fargo
Loan at 6. He also submitted what appeared to be paystubs from Calgary, Inc.,
showing total monthly gross pay of $20,833.33 and monthly net pay of $12,705.78 in
early 2013. Id. at 15. Yet Onyeani had never reported any of this income to the IRS.
At the hearing, Onyeani explained that this was projected income and not actual
income; but not only is there no reference to “projected” income on the application,
he submitted purported past paystubs for January 2013. During closing arguments,
his attorney offered another explanation when he admitted that Onyeani did not
tell the truth on Wells Fargo’s loan application. But Onyeani is between a rock and
a hard place, because neither version of the events helps him. If the Wells Fargo
loan documents were accurate, then Onyeani had income that he never reported to
the IRS, supporting the IRS’s conclusion that Onyeani would conceal future income.
And if it was true that Onyeani lied on the loan application (which is likely if
Calgary, Inc. never got off the ground due to regulatory problems), then the
admission undercuts his credibility. Not only did he misrepresent his $150,000
salary, he also forged past paychecks on his loan application. The false documents
would also support a broader plan to perpetuate an illegitimate business, again
giving the IRS reason to believe that Onyeani was concealing fraudulent proceeds in
a sham business deal. Either way, the Wells Fargo documents hurt Onyeani.
23
In sum, it was reasonable for the IRS to conclude that Onyeani appeared to
be conducting a non-bona fide oil business, that he had fraudulently obtained
investor and buyer money, and that he was attempting to transfer money outside of
the United States or otherwise conceal it. To be clear, the Court is not concluding
that Onyeani actually did any of these things. Perhaps a factfinder will ultimately
agree with Onyeani that the evidence merely shows that he was an inexperienced
entrepreneur who made innocent mistakes. But at this stage, there is enough
evidence to show that there was the appearance of unlawful activity, based on the
suspect corporate documents, irregular banking activity, and attempted overseas
transfer of $300,000 for which there are no documents to substantiate. This
evidence satisfies the low evidentiary standard for reasonableness.
Onyeani makes three main arguments that the IRS’s determination was
unreasonable: (1) the IRS should not have taxed the entire $800,000, because some
of the funds (in particular, the $300,000 owed to Supply Source) were business
expenses and not income; (2) the IRS should have assessed corporate taxes rather
than individual income taxes; and (3) the levy was unreasonable because it was
captioned incorrectly. None of these arguments carry the day.
The first two arguments are rejected because the objective evidence shows
that Onyeani’s crude-oil business did not appear to be bona fide, as discussed in
detail above. As a result, it was reasonable for the IRS to tax the entire $800,000
rather than only $500,000, because it did not appear that the $300,000 attempted
transfer to Supply Source was really a legitimate business expense. As explained
24
above, there was no contract with Supply Source, no communications about this
transaction, nor any other evidence to corroborate Onyeani’s version of this
transfer. Under these facts, it was reasonable for the IRS to believe that Onyeani
was not transferring the $300,000 for any legitimate transaction, but rather to send
it abroad, use it personally, conceal it, or otherwise dispose of it. In other words, it
appeared that Onyeani was treating the entire $800,000 as personal income
available to him.
For the same reason—that is, that Onyeani’s crude-oil business did not
appear genuine—it was reasonable for the IRS to treat all of the money as
individual income, rather than as corporate income. Onyeani’s mere adherence to
corporate formalities—such as registering his businesses in the state, filing an EIN
with the IRS, and opening up business bank accounts—does not mean that these
business entities were actually legitimate, when weighed against of all the evidence
to the contrary. Thus, it was reasonable for the IRS to conclude that the income
really belonged to Onyeani, who seemed to be using his company as fronts for his
own activities.
As to Onyeani’s final argument about the termination levy, the IRS has also
met its burden to show that the levy—as distinct from the termination
assessment—was reasonable. Under § 6331, the IRS is permitted to issue a levy on
the taxpayer’s property to satisfy an assessment. 26 U.S.C. § 6331(a). The IRS bears
the burden of demonstrating that the levy was reasonable, and the standards are
the same as those for a termination assessment. Wellek, 324 F. Supp. 2d at 912; 26
25
U.S.C. § 7249(b)(3)(B) (“[T]he court shall determine … whether or not the levy … is
reasonable under the circumstances.”). Because the Court has already determined
that the tax assessment was reasonable, see supra, the levy—which simply allows
the IRS to enforce the assessment—is also reasonable. Onyeani’s main
disagreement is that the levy incorrectly referred to “Ugorji Onyeani as the alter
ego of American Hope Petroleum and Energy.” Notice of Levy at 2. According to
Onyeani, if the IRS’s theory is that Onyeani’s business entities were actually fronts
for his individually fraudulent activities, then the caption should have been the
reverse: American Hope Petroleum and Energy as the alter ego of Ugorji Onyeani.
But even if the levy was titled incorrectly, it targets the right funds—money from
Onyeani’s personal and business bank accounts—because the IRS reasonably
believed his personal and entity assets were one and the same. Regardless of how it
is titled, the levy accomplishes the correct result and is reasonable.
B. Appropriateness of the Amount Assessed
The taxpayer bears the burden on the second question: whether the amount
assessed was appropriate under the circumstances. 26 U.S.C. § 7249(g)(2); Hiley,
807 F.2d at 627. The taxpayer must “show that the method of calculating the
assessment amount is fatally defective, irrational, arbitrary, or unsupported.
Wellek, 324 F. Supp. 2d at 914 (citations omitted). For this question, the focus is on
the method used to determine the tax liability. Thompson, 2010 WL 3893806, at *6.
“This review just determines if the assessment was done properly, and has no
26
bearing on the ultimate tax liability.” Id. (citing United States v. Doyle, 482 F. Supp.
1227, 1230 (E.D. Wisc. 1980)).
In Onyeani’s case, the total tax assessment is $288,546 with $497.08 in
interest,5 for a total of $289,043.08. Notice of Levy at 2. The IRS determined this
amount by adding up the amounts in Onyeani’s three BMO Harris accounts,
totaling $802,083, taking a standard deduction of $6,200, and applying the marriedfiling-separately tax rates. Notice of Assessment at 3. This calculation was
reasonable because it uses the standard method of calculating personal income tax.
Applying a standard deduction (instead of itemized deductions) was appropriate
because Onyeani and Paulino had never itemized on their prior returns. 2011 Tax
Return; 2012 Tax Return; 2013 Tax Return. And applying the married-filingseparately (as opposed to married-filing-jointly) deduction and tax rates was also
appropriate because Paulino filed a separate return for 2014, the most recent tax
year. 2014 Tax Return (Paulino). And it was reasonable to assess the entire
$802,083 as 2015 income, because Onyeani acquired all the funds in that year.
Although Onyeani takes issue with the IRS’s failure to include a personal
exemption, which would have deducted $4,000 from the total taxable income,6 Kron
testified that the exemption is not automatic—a taxpayer would have to claim it.
True, Onyeani is probably entitled to this exemption because it is unlikely that
5Onyeani
does not challenge the IRS’s interest assessment of $497.08. It is possible
that adding interest was a mistake, because the 2015 tax was assessed before the end of the
tax year, and thus before interest on late payments could accrue. But Onyeani has forfeited
this argument because it was his burden to challenge the amount of the assessment, which
he did not do.
6See
IRS Publication, Personal Exemptions and Dependents, available at
https://www.irs.gov/publications/p17/ch03.html#en_US_2015_publink1000170847.
27
someone else would claim him as a dependent; he also claimed the exemption on his
prior tax returns. 2011 Tax Return; 2012 Tax Return; 2013 Tax Return. But the
failure to include this exemption did not make the determination “fatally defective,
irrational, arbitrary, or unsupported.” Wellek, 324 F. Supp. 2d at 914 (citations
omitted). At most, applying the exemption would have reduced the tax liability by
about $1,600,7 constituting a tiny fraction of the total assessment of $289,043.08.
Because the IRS’s calculation method was appropriate, Onyeani must challenge the
specifics of his ultimate tax liability in a different proceeding.
IV. Conclusion
For the reasons described above, the IRS’s termination assessment and levy
against Onyeani were reasonable and the amount assessed was appropriate.
Onyeani’s petition for review [R. 1] is denied.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: June 3, 2016
7For
2015, the married filing separately tax rate was 39.6% for any amount over
$232,425; 39.6% of $4,000 is $1,584. See IRS Publication, Additional Material, available at
https://www.irs.gov/publications/p17/ar02.html.
28
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