From O.J. to Dick Morris: Taxes Go Unpaid

"There's no reasoning with these people," the San Dimas, Calif., resident says of state tax collectors.

His business — bringing brides here from Russia and Ukraine — is struggling. His own mail-order marriage didn't work out, so he's a single parent living in a small apartment with a son, he says.

"Most of my stuff is out of the country, anyway, where (tax collectors) can't touch it," Livingston says. "I can retire abroad, and California can put me on any (tax delinquent) list they want."

'Doing All We Can'

Tax prosecutions are rare: 1,423 federal indictments last year; 235 million tax returns were filed, the IRS reports. Tax collectors rely mostly on automation: garnishing wages, seizing bank accounts and filing tax liens on property.

"We're doing all we can," says Kathy Petronchak, IRS commissioner for small business collections. She says the IRS is collecting more money with fewer employees than a decade ago.

The IRS collected $32 billion in back taxes and penalties in 2007, up from $21 billion in 1998. "We use our resources as efficiently as possible," Petronchak says.

Today, houses are seldom seized. The IRS sold country singer Willie Nelson's home and possessions in 1991 to help settle a $16.7 million tax bill. But a 1998 law, designed to curb abuses, made it harder for the IRS to seize property.

Property ownership can be hard to prove, too. People in tax trouble often transfer assets to relatives and trusts.

Even if the transfers can be challenged, the process is expensive and time-consuming.

Jack Blumenfeld's beachfront house is now owned by EB Realty Management Corp., run by his son Eric. In sworn testimony before the local planning board last year, Jack Blumenfeld testified he had lived in the house since 1964.

In an interview, Blumenfeld says he gave the house to his children many years ago, long before he filed for bankruptcy. His son pays the taxes, he says.

The developer says he went broke when a plan to build a hotel and casino in Atlantic City fell apart.

"I lost everything," he says. "The bankruptcy judge absolved me of all debts, except taxes."

Blumenfeld blames the bankruptcy trustee for not paying the tax bill. "He had enough dollars to pay the taxes, but he chose not to do so," Blumenfeld says. "The bottom line is, I honestly think I don't owe them."

He says the government mean-spiritedly pursues him because it believes that he's hiding assets. "They've examined me upside, inside out and never found anything. They think I did something underhanded, which I did not."

Attorney Michael Zindler, who represented the trustee, says the developer had many assets in sons' names. "They fought us every step of the way," Zindler recalls.

The trustee recovered most assets — but not the beachfront home, next to the boardwalk in Ventnor City, N.J., Zindler says. "We tried to get the house, but the judge wouldn't give it to us."

Some High Profiles

Many tax delinquents live openly and prosperously for years, even decades, while owing millions of dollars in taxes.

Singer Dionne Warwick owes $2.7 million in state taxes, according to the California Franchise Tax Board, which collects the state's income tax. The IRS has placed more than $1 million in tax liens against her for unpaid federal taxes. Public records show that her tax troubles started in 1990 or earlier.

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