The suit was brought by the SEC (rather than by or on behalf of the IRS) under securities statutes authorizing disgorgement. I post first a very brief summary of the Conclusions and then a cut and paste of the Conclusions.
JAT SUMMARY OF KEY POINTS:
1. Ordering disgorgement does not violate the IRC's command that the Secretary assess and collect tax.
2. This action for disgorgement, although measured by unpaid tax, is not an action to collect the tax; it is an action for disgorgement, "a discretionary and equitable remedy aimed at preventing unjust enrichment."
3. The disgorgement equitably should be applied against any tax liabilities the IRS asserts. Here a key quotes:
While it would be equitable to credit the amount disgorged in this SEC enforcement action towards any tax liability assessed in the future arising out of the same conduct, treating such amount as an offset does not transform the disgorged amount into a tax.
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As I mentioned earlier, any amounts disgorged in this case should be credited towards any subsequent tax liability determined in an IRS civil proceeding as a matter of equity. n2054. The tax issues are not too difficult to resolve in a disgorgement case.
n205 In the event there is a judicial determination that contravenes the legal conclusions of this Opinion and Order — that is, if another court determines that the IOM Trusts are in fact, tax-exempt non-grantor trusts, defendants may pursue all available remedies in this Court, including a motion to vacate the final judgment under Rule 60(b) of the Federal Rules of Civil Procedure. But no such motion will be considered if the IRS, in exercising its discretion, chooses not to proceed with an administrative or civil action against the Wylys."
5. The Court then determines the tax issues. They are far too difficult to summarize here, but the details are included in the lengthy quote below. But essentially the offshore structures were treated as grantor trusts with the tax consequences being visited contemporaneously on the Wylys.