Wednesday, May 27, 2020
Stop In The Name of Lien: The IRS Loses Against Partnership of Motown Songwriter Edmond Holland, Jr.
Edmond Holland Jr., is a songwriter whose Motown hits included "Stop In The Name of Love" and "Baby Love." Holland sold the rights to his songs to two music companies in exchange for royalty payments. In the 1970s, Holland "fudged" his tax returns and got caught by the IRS and by 1990 the IRS had taken almost 1.5 million in Holland's assets.
Holland created a partnership in 1997, where he transferred his royalty rights (around $23.3 million at the time). Then the partnership borrowed money from third-party lenders, against the royalty rights. Around this same time the IRS was investigating him, but had not recorded an assessment yet.
The transaction was completed in 1998, with Bankers Trust paying $8.4 million directly to Holland. Holland was assessed again in 2003 and his royalties were taken as collateral in 2005. By February 2012, the IRS recorded a $20 million lien against partnership, treating the partnerships assets as if they were Holland's assets. The U.S. District Court ordered the partnership's royalty assets to be liquidated and named the Royal Bank of Scotland (RBS) as a party.
The District Court ultimately agreed with RBS and the IRS appealed. In essence, Holland and RBS were the same person throughout the suit. Since Holland had paid of the IRS, there was no reason to believe he tried to cheat the IRS out of its rights.
The Sixth Circuit affirmed the district court's judgment finding that the Holland's sloppiness in failing formalities in dealing with his partnership and had the IRS acted more quickly it could have satisfied the liability.
Holland and RBS defeated the IRS!
See Jay Adkisson, Stop In The Name of Lien: The IRS Loses Against Partnership of Motown Songwriter Edmond Holland, Jr., Forbes, May 24, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.