2005 IRS AUDIT OF 2003 SIGNER BUICK-CADILLAC TAX RETURN

 
The timing of the Internal Revenue Service audit immediately after the grueling GM war­ranty audit created a very unsettling one-two punch.  In connecting the dots between the multiple unsuccessful early 2005 GM attempts to induce me to sell and the events that followed, it is clear in my mind that GM solicited the assistance of the IRS as one com­ponent of a coordinated multi-party harassment plan.  In the following, I will discuss the support for my belief of this deplorable conspiracy.In its fiduciary relationship with dealers, GM’s Motors Holding Division (described in Dealership History and Chronological Expanded Details beginning in 1995) has full access to its dealers’ books, GM receives monthly financial statements from all its dealers, and GMAC has further in-depth access to its dealers’ books.  GM thus has an abundance of information to use against its dealers in its self-interest if desired.  Second, it must be considered that in 2008 and 2009 GM successfully influenced Con­gress, the Presidential Task Force on the Automobile Industry, the Bush and Obama Admini­strations, and the U. S. Treasury Department, to provide $50 billion to it, as well as about $18 billion to GMAC, in taxpayer-funded bailouts.  GM also gained the support of the Obama Administration and the Presidential Task Force in its rejection of the Dealer Agreements and resulting closing of approximately 1350 GM dealerships across the United States.  When brought into perspective, any argument that GM lacks sufficient influence over the IRS to cause it to conduct an audit on a small dealer in Newark, California, loses all strength and credibility.  This observation is further supported by exposure in 2013 that the IRS had targeted for harassment a certain group of tax-exempt organizations beginning in approximately 2011.

Based on documentation presented in links within the Dealership History narrative and other documents to be referenced by links below, the parallel timing of events becomes crystal clear.  (Linked IRS audit documents have some text, such as the IRS Agent’s name, redacted.  In 2013, I am revealing the name of Revenue Agent Robert Hunt, which was redacted in linked documents.)  GM and the IRS each began preparing for its respective audit on my dealership immed­iately after the April 12 Keenehan/Williams meeting and April 13 e-mails plotting a conspired scheme to induce my exit.  The source of IRS event dates is the IRS internal Audit File I received on September 4, 2009 in response to my Freedom of Information Act request.  The IRS events shown below are shown on the two-page AMDISA” report in the Audit File, which shows the tax return being received on March 15, 2004 (“RET-RECVD-DT” on report).  AMDISA means “Audit Management Display Information System,” followed by the “A” which is a detailed type of AMDIS.  The defi­nitions listed below for the various status codes shown on the report are found on the IRS website, irs.gov.  Following is a timeline of various event dates in 2005:o       Jan-Mar 2005: Multiple unsuccessful GM attempts to induce Signer to sell
o       April 12: Williams/Keenehan meeting with Signer
o       April 13: Williams/Keenehan internal e-mails outlining Signer exit scheme
o       April 14: IRS “Opening Creation Date”
o       April 29: IRS Status 06 (“Awaiting Classification”)
o       May 4: Vieau warranty pre-audit notice letter
o       May 24: IRS Status 08 (“Selected – Not Assigned”)
o       June 1: Keenehan makes appointment for meeting with Signer
o       June 6: Keenehan meeting concerning warranty “learning audit”
o       June 27: IRS Status 10 (“Assigned – No Time Applied”)
o       June 30: Keenehan delivers warranty audit letter to Signer
o       July 11: Warranty audit team commences audit
o       July 14: IRS Agent writes audit notice letter
o       July 22 (Friday): Warranty audit concludes
o       July 25 (Monday): Warranty audit chargeback debited to Signer open account
o       July 27: IRS audit notice letter mailed to Signer (July 14 letter)
o       August 8: IRS Status 12 (“Started”)

The first date in the IRS audit process of the 2003 tax year corporate audit was the Opening Creation Date of April 14, 2005.  That was the day after GM’s April 13 internal e-mail sequence out­lining its covert scheme to induce my exit from Newark so GM could go forward with its secret Buick-Pontiac-GMC-Cadillac (“BPG/K”) plan at the Fremont Auto Mall.

As a result of the July 14 IRS letter I received on July 28, an appointment was set for an August 29, 2005 meeting at the dealership.  On August 29, the Revenue Agent Robert Hunt arrived at the dealership along with a second person.  He introduced himself and the second IRS employee, Elaine Yacorzynski, whom he said was there to observe how he does audits, and thus causing me to believe she was a trainee.  Interestingly, the ”trainee” was middle-aged, and drove a late model BMW convertible, while Mr. Hunt drove an older Toyota pickup.  The Agent opened the meeting by stating, “Nobody turned you in,” which I thought to be a strange statement.  He then interviewed me with a few general questions, including about if the corporation did business with any other corpo­rations I owned.  I replied with an expla­nation of a consult­ing agreement between the current operating corporation, Don Signer Buick-Cadillac, Inc., and my original corpor­ation, Don Signer Buick, Inc., which continued to exist.  The Agent’s questioning and actions that followed zeroed in on the consulting agreement.  Following the interview, he conducted a tour of the facility, and then the initial audit of requested documents I had gathered for him.

As mentioned in the Dealership History, when GM created its Newark project, it would only finance the new facility for me using its Motors Holding Division (MHD), which would form a new operating corporation for the venture.  Under the standard MHD arrangement, both MHD and I would own stock, and I would buy out MHD’s stock over time through dealer­ship profits.  As GM’s MHD plan would eliminate my existing corporation formed in 1980 as the operating corporation, my corporation would forfeit certain tax benefits, be unable to repay loans I had personally loaned to it, and forfeit a very low workers compensation experience modification factor.  As such, I had requested a simple mortgage for the new facility rather than a business partner in a new corporation.  GM would not accommodate my request, and instead insisted on the MHD arrangement, thus leaving me no choice if I wished to retain the business I had built from scratch.  The new corporation became the operating cor­poration at the time of relocation to Newark in July 1995.  A management consulting agree­­ment between the new corporation and the original corporation was formed with MHD’s knowledge and consent.  The new corporation then paid consulting fees then paid and expensed consulting fees to the old corporation over the years until the IRS questioned the agreement in 2005.  I had bought out MHD’s stock in November 2000.

After the Agent’s August 29, 2005, initial review of requested documents, he gave me a second Information Document Request Form in which he asked for additional documents including six tax returns: 2003 personal, 2002 and 2004 Newark corporation, and 2002, 2003, and 2004 original corporation.  He returned on September 15, 2005, to examine the requested documents, and inter­view me with total focus on the consulting agreement.

On October 24, the Agent returned to the dealership and verbally reviewed his findings with me.  He explained that he would disallow the deductions taken for the consulting agreement in the 2003 and 2004 tax years, thus resulting in the new corporation having to pay income tax on the con­sulting fees paid.  In response, I stated that based on the disallowance, the original cor­por­­ation would then refund the disallowed consulting fees to the new corpor­ation, thus leaving the original corporation with virtually no income to repay the personal loan (of after-tax dollars) I had made to it in the late 1980′s.  As a result, I would be left with a deductible personal bad debt from the original corporation.  The Agent replied that he could not give tax advice, but that a bad debt could be recognized in the year it occurred or in the year of a triggering event.  In this case it was both, as the audit was the triggering event and thus caused the bad debt to occur in 2005 as a result of the discontinuance of the corporation’s source of income and debt repayment.

The Agent subsequently wrote his conclusion and provided it to me on November 4.  The audit conclusion included only one change to the tax liability for the audited period; the disallowance of the deduct­ibility of the consulting agreement due to the government’s position that the consulting services were between related corporations I owned.  Included was a statement of the Agent’s calculation of $47,203 plus interest in taxes due for the corporate tax years 2003 and 2004.  No penalties were assessed.  The IRS Agent indicated to me that he would give me time to have my CPA review the ruling, and then get back to me about his response.

My CPA subsequently reviewed the IRS conclusion and then responded that, while we had the option to appeal the decision, doing so would be counterproductive.  It was inadvisable to spend time and money doing so it since I would be able to take the personal bad debt deduction in the 2005 tax year; a deduction would result in a tax savings that would more than offset the taxes paid as a result of the audit.  Accord­ingly, I decided that I would pay the assessed corporate taxes and then take the personal deduction on my 2005 tax return.  It should be noted that I would have taken the deduction even if I hadn’t dis­cussed it with the Agent.

The Agent contacted me in March 2006 to ask my decision, which I then gave him.  Out of my concern for the Agent’s erroneous implication that I had created the consulting agreement without Motors Holding’s approval, I offered to provide proof of its knowledge, but the Agent declined and indicated that he would take my word for it.  I confirmed that con­versation in a memo to the Agent.  I would like to reiterate the memo’s last sentence concerning the Agent’s courtesy and professionalism, an opinion I continue to have today in spite of the task he was assigned, and even after he performed another examination in 2008 as will be described later.

Analysis of IRS audit

In my strong opinion, GM’s motive of inducing my exit prompted it to contact the IRS and report the consulting agreement in an effort to weaken me through financial and emotional damage.  In the following, I will discuss factors that lead me to that conclusion.

The first April 13 e-mail (the lower one of the two on the e-mail sequence) was written by Western Regional Sales Manager Maurice Williams to Western Regional Network Plan­ning Director Ann Blakney and Northern California GM Zone Manager Susan Keenehan.  The second e-mail was written by Ms. Keenehan to Northern California Network Plan Manager Herman Caruthers.  Ms. Blakney had previously been with Motors Holding Division, was on my corporation’s Board of Directors in 2000 until I finalized the buyout in November, and was aware of the management consulting agree­ment.  In fact, in the Motors Holding file was a tax indemnification letter regarding the consulting agreement that I had written at Motors Holding’s request.  Motors Holding normally forms corpor­ations with new dealer operators, and rarely takes over an existing business as it did with me in order to finance the new facility.  As there is normally not a predecessor corporation involved and Motors Holding had nothing to do with my original corporation, Motors Holding decided it wanted this indem­nification letter on file.  As the vote-control­ling stockholder in the new corporation and thus a parti­cipant in the agree­ment, Motors Holding would seemingly not have approved of it if it had any serious concerns.

It is noteworthy that in his extensive examination of the corporate books in the audit, the IRS Revenue Agent found nothing wrong.  The only item addressed in the audit con­clusion was the consulting agreement.  Mysteriously, the Agent’s con­clusion nar­rative dated October 24, 2005 mentions “Motors Holding” 17 times, and strongly suggests (erroneously) that the GM Division was unaware of the consulting agree­ment, thus seemingly attempting to distance GM from the audit.  The narrative states, “There is no mention of the contract in any of the minutes of the annual meetings of the Board of Directors.”  While it is correct that there was no mention in the annual meetings, the statement disre­gards November 12, 1999 Min­utes that clearly prove Motors Holding’s knowledge and approval of the consulting agreement.  The Agent had reviewed the Corporate Minutes file and included copies of many of the pages in the Audit File, but not the November 12 Minutes.  The Agent’s conclusion narrative may be viewed here.  On this copy, I have underlined the mentions of Motors Holding, and boxed in two sentences on page 2 that implied that Motors Holding was unaware of the agreement.  After my March 2006 memo to the Agent mentioned above, the Agent removed the two sentences from the final version that appeared in the permanent Audit File.

Another clue of the IRS attempting to distance GM from the audit was in the IRS Agent’s initial interview on August 29, 2005 was his opening statement, “Nobody turned you in.”  That struck me as quite odd at the time, and in retrospect is consistent with the attempt to distance the GM from the audit.  Neither of my CPA’s recalls any Revenue Agent ever making that statement in past audits in which they have represented clients.

At a later date I learned that the person accompanying the Agent in the initial visit was not a trainee, but rather a Revenue Agent on the same level as the one conducting the examination.  The second person did not return to the dealership after the first day.  The question is thus raised why the second Agent was there on the first day since she was not learning as a trainee, nor was she a supervisor evaluating the Agent’s performance.  It thus appears that she might have been asked to attend to serve as a witness to my answers in the interview, notably the question about if the corporation did business with any other corporation I owned.  It is my belief that the Agent was aware of the consulting agreement, which was the secret target of the examination he had been assigned.

Conclusion

As a result of many factors, there is no doubt in my mind that GM instigated the IRS audit.  It appears that the Agent went to great lengths to make it appear that Motors Holding had no knowledge of the consulting agreement.  If there had been no knowledge, then it would follow that GM couldn’t have reported that particular item to the IRS, a fact also supported by, “Nobody turned you in.”  Further­more, the “no know­ledge” theory would disassociate GM from the contract that the IRS determined was not allowable.  The reality is that Motors Holding knew, and as a stockholder it participated.

As I had bought out Motors Holding in 2000, despite its dominance in the narrative, the GM division had no relevance in the 2003 tax year other than the fact that GM and Motors Holding were the very cause of the creation of the second corporation that even provided the mechanism for a consulting agreement.

It is quite apparent to me that in 2005 GM felt it was critical to have me gone with an accom­panying release of liability before I learned of its secret “BPG/K” Fremont Auto Mall plan identical to the one it denied me.  It thus appears that GM’s clear motive to quickly get rid of me prompted the series of harassment acts.  After GM’s early 2005 efforts to induce my exit failed, and Mr. Williams and Ms. Keenehan’s April 12 visit did nothing to convince me to sell, it is quite obvious that GM decided it needed to create additional methods of “per­suasion” upon me, which was clearly the motive behind the scheme outlined in the secret April 13 e-mail sequence.  As Ms. Blakney was known to be aware of the consulting agreement, and Jim Gentry most likely was also aware of the file documents possibly since late 2004, it is reasonable to assume that the plan to report it to the IRS was held in reserve as a “nuclear weapon” to be used in the event that all efforts to coerce me into selling failed.

It is quite obvious to me that the plot described in the e-mail sequence prompted a series of events, two of which I believe were intended as harassment tools solely to financially and emotionally weaken me into conceding to GM’s desire for me to sell.  Although it is my opinion only, my belief is supported by overwhelming evidence.  Following are events involving e-mail recipients that I believe were prompted by the April 13 e-mail:

  • Herman Caruthers’ call to me referring me to Sonoma Chevrolet.  (Around the time of the e-mail, Mr. Caruthers contacted me with a suggestion that I look into Sonoma Chevrolet if I wanted to be in a less diverse market.)
  • Susan Keenehan’s initiation of the malicious warranty audit.
  • GM’s reporting of the consulting agreement’s existence to the IRS.  (While I know that Ann Blakney was a recipient of the exit-inducement e-mail and was aware of the consulting agreement, [1] there may have been others on the exit-inducement team, which consisted of GM employees beyond the four named in the e-mails, who were aware of it also, possibly through Ms. Blakney.)

My observation of GM/IRS collusion is further supported by the low probability of an IRS audit on an S Corporation, which mine is.  Based on Treasury Department data I obtained at a later date, in 2005 the IRS only audited 0.30% of S Corporation returns filed, or 1 in every 338.  Based on that low percentage, most S Corporations never get audited.  Not only did that extremely unlikely event  occur in the same year as GM’s April 13 documented scheme to induce my exit, the audit process was initiated the next day.  With 252 business days in 2005, there is only a 1 in 252 chance that it would happen on that day without GM influence.  So, the chance of it commencing in the same year, and on that very day of the year, would be 1 in (338 x 252), or 1 in 85,176.  This alone, irrespective of the many other strong clues, should remove virtually all doubt in the mind of any reasonable person that GM and the IRS conspired in the audit.  Had GM and the IRS known in 2005 that years later I would obtain documents from both entities that would piece this apparent collusion together, they may not have recklessly gone forward with the scheme.  Both GM and the IRS have denied that there was collusion.  A discussion of multitude of other clues to conspiracy will appear later in another Expanded Details section.

In summary, not only did GM leave me virtually no choice other than to accept its Motors Holding terms after 15 years as an independent businessman, but also all indications are that GM used its resulting knowledge of the consulting agreement as a weapon to lead to my harassment.  GM and Motors Holding were the very cause of the creation of the second corporation that even provided the mechanism for a consulting agreement.  Had GM provided a simple real estate mortgage to my existing corporation in 1995 as I had requested for years, there would have been no consulting agree­ment, I would have retained the tax benefits I was entitled to, the loans to me would have been repaid in the normal course of business, and presumably there would not have been an audit.  But, that was not the way GM wanted it.


[1]In addition to knowledge based on her earlier status as a Director of my corporation, when I presented my settlement proposal to Ms. Blakney on October 4, 2006, I asked her if she was aware of the consulting agreement, to which she responded in the affirmative.  At that point, she was unaware of my connecting it with the IRS audit.