Campbell v. Commissioner of Internal Revenue

In 2004, John Campbell (plaintiff) transferred $5 million to an offshore self-settled asset-protection trust (the trust). Campbell was not the trustee and did not retain any ongoing control over the trust or its assets. Campbell’s net worth was approximately $20 million after the trust transfer. After Campbell made his investment in the trust, the Internal Revenue Service (IRS) notified Campbell that his 2001 tax return was being audited. In 2007, the IRS notified Campbell that it was making a substantial upward adjustment in Campbell’s 2001 reported income. In 2009, due to unanticipated circumstances, Campbell took substantial losses against his investment portfolio, resulting in a significant depletion of his net worth. In 2010, the IRS issued its formal assessment for the audit of Campbell’s 2001 tax return and notified Campbell it intended to levy approximately $1.2 million in deficiencies and penalties. Campbell petitioned for a delay in collection to allow him time to financially recover from his recent losses. The IRS denied Campbell’s petition, holding that Campbell’s reasonable collection potential (RCP) was approximately $1.5 million. The IRS’s RCP calculation included the $5 million in trust assets. In 2014, Campbell submitted an offer in compromise (OIC) to settle for $12,000. The IRS rejected Campbell’s OIC. Campbell appealed to the United States Tax Court, arguing that the RCP calculation should not include his trust assets. Without including the trust assets, Campbell’s RCP would be less than the $1.2 million tax levy the IRS sought to impose.