Billionaire Robert Brockman May Fight IRS for Years, Even With Dementia

(Bloomberg) -- The biggest tax evasion case against an individual in U.S. history has been unspooling in a Texas court around the tortuous question of whether 80-year-old Robert Brockman is faking dementia. And while the prosecution may be in trouble -- Brockman stares vacantly and multiple experts say he’s incompetent -- a parallel but little-publicized effort could bring in a fortune in back taxes even if he dies.

The second effort, brought by the Internal Revenue Service, is civil rather than criminal, so has a lower burden of proof. And it’s aiming at $1.4 billion in taxes, penalties and interest dating back some two decades.

“The IRS goes after people even after they’re dead, so competency or being alive doesn’t matter,” said Megan Brackney, a New York tax attorney not involved in the case. Even so, it will not be easy to collect on the claim, she said. 

Brockman, a computer whiz, amassed his fortune building Reynolds & Reynolds, a software vendor for car dealerships, into an industry giant, and investing in private equity firm Vista Equity Partners. Prosecutors allege Brockman evaded taxes on $2 billion, mostly on Vista income, while hiding it in entities that include a Bermudian trust and Swiss bank accounts. Brockman has pleaded not guilty.

Robert Smith, Vista’s billionaire founder, admitted to tax crimes in a related scheme but avoided prosecution in part by agreeing to cooperate in the case against Brockman. 

In September, the IRS slapped at least 10 liens on Brockman, his relatives or entities the agency linked to him that own properties in Texas and Colorado. The properties include a stately, 17,000 square-foot home on four acres with a swimming pool and tennis court in Houston. 

Liens also cover properties in Aspen, Colorado. The U.S. is separately trying to seize a $15 million fishing lodge on the nearby Frying Pan River, a trout playground for fly fishing enthusiasts like Brockman, and a $77.9 million Swiss bank account. 

Collecting on Claims

While the civil case poses less of a challenge to the authorities than the criminal one, it’s unclear whether the IRS will collect the $1.4 billion the government says Brockman owes. 

That’s because a well-funded defendant has numerous options to fight back, according to tax attorney Bruce Zagaris, who isn’t involved in the litigation. Brockman’s legal team can contest the IRS claims in U.S. Tax Court, District Court or the Court of Federal Claims. Each has its own pros and cons, Zagaris said. 

Brockman and his family already filed five lawsuits in Tax Court against the agency in 1997 and 1998. Those outcomes aren’t public, but the former manager of his Bermudian trust testified at the Houston competency hearing that the dispute intensified Brockman’s penchant for secrecy and distrust of the IRS, which he dubbed “The House.”

Zagaris said the rules of procedure and evidence in Tax Court are more truncated than in District Court, and a larger portion of cases there tend to end with settlements. In District Court and the Court of Federal Claims, taxpayers must pay the tax ahead of time and seek a refund. Zagaris said the Court of Federal Claims is often considered more favorable to taxpayers.

Any of these paths could takes years to litigate. The IRS will have to show that Brockman, and not a trustee, is the real owner of assets held through a web of companies and trusts in offshore tax havens. In an affidavit filed in a Bermuda court last December, his wife Dorothy valued holdings in a family trust at more than $7 billion. A majority stake in Dayton, Ohio-based Reynolds & Reynolds represented the largest holding.

Foreign Assets

However, the U.S. doesn’t have agreements to collect assets in most offshore tax havens, including Bermuda and Switzerland.

The IRS has wide latitude to try to seize and sell Brockman’s assets in the U.S., but the real estate known to be targeted with liens so far represents just a fraction of the agency’s claims. One potential avenue for the IRS would be to go after any remaining Brockman holdings at Vista, where an entity linked to him, Bermuda-based Point Investments, was the company’s original investor and eventually provided at least $1 billion in capital, prosecutors said.

Vista proved lucrative for Point, which moved a large portion of its private equity profits offshore, according to prosecutors. In 2010, Vista transferred $799 million to accounts at Swiss bank Mirabaud & Cie. opened in the name of Point, which Brockman controlled, prosecutors have stated in court filings.

Mirabaud has said it was unaware until Brockman’s indictment that he was linked to the account, and the bank claims it has complied with all U.S. treaty requests for information and the Foreign Account Tax Compliance Act. 

Spokespeople for the IRS and Vista declined to comment, as did lawyers for Brockman. 

Brockman, who as a chief executive aggressively bought companies and litigated disputes, spent decades building a business valued at more than $4 billion, according to court filings. 

Brackney, the tax lawyer, said that the Brockman proceedings are emblematic of the difficulties that the IRS has in collecting taxes from the wealthy.

“It’s a huge amount of money,” Brackney said. “It’s almost like the higher net worth and the more complex the case, the harder it is to collect. It’s probably going to take years to figure out.”

©2021 Bloomberg L.P.