DJB Holding Corp. v. Commissioner

Daren Barone and Gregory Watkins drew upon their experience in asbestos removal to establish a successful environmental remediation company, Watkins Contracting, Inc. (“WCI”). With success came risk — in particular, the danger that Barone and Watkins would be held personally liable for the cost of completing any projects that WCI was unable to finish. To shield themselves from this risk, the two men restructured WCI so that several corporate entities stood between them and the company. Barone and Watkins each formed a holding corporation, and the two corporations entered a partnership, Appellant WB Partners. Barone and Watkins also formed a third holding company, Appellant WB Acquisition, Inc., and transferred their interest in WCI to this company. Finally, WB Partners purchased all shares of WB Acquisition. As a result, WCI was owned by WB Acquisition, which was owned by WB Partners, which in turn was owned by Barone’s and Watkins’s holding corporations. This elaborate corporate structure provided Barone and Watkins with multiple levels of protection from personal liability. See Appendix.

An opportunity arose to do environmental remediation work for a massive…