Taxes - better get right with it...

From O.J. to Dick Morris: Taxes Go Unpaid
The Country's Biggest Tax Delinquents Seem Rich Even Though They Owe Big

By DENNIS CAUCHON
USA TODAY
April 15, 2008 —

Real estate developer Jack Blumenfeld went bankrupt in 1991, leaving millions of dollars in unpaid taxes and loans.

Today, New Jersey lists him as the state's sixth-biggest tax delinquent, owing $1.1 million. An Internal Revenue Service tax lien says Blumenfeld owes more than $1.6 million in federal taxes.

Where is Blumenfeld today?

The 81-year-old developer lives in the same oceanfront home near Atlantic City where he's lived since his glory days. He has asked local authorities for permission to build a two-story addition and swimming pool to the 5,400-square-foot home, now valued at $1.8 million, according to local tax records.

Blumenfeld says he's broke; the house is owned by a management company run by his son. Every month, he says, the IRS takes $200 out of his Social Security check.

The IRS estimates that 21% of federal individual income taxes go unpaid each year  about $300 billion last year. States lost about $60 billion in such taxes, $6.5 billion in California alone.

As Tuesday's tax deadline approaches, Americans are settling accounts on $1.5 trillion in federal and state income taxes for 2007.

But what about those who don't pay? Who are they? Do they get away with it?

USA TODAY examined the cases of several hundred major tax delinquents  those who owe $100,000 or more  to analyze who they are, why they haven't paid and whether the money is collectible. Among them are celebrities, investment bankers, lawyers, doctors, embezzlers, car dealers and many seemingly successful business people who continue to operate publicly as if all is well.

The IRS declined to provide a list of the federal government's largest tax delinquents, citing privacy rules. However, the names and the amounts owed are scattered across the nation in 4,100 courthouses and town halls, where tax liens are filed. The IRS files more than 600,000 tax liens every year.

USA TODAY examined the federal tax liens filed in several wealthy ZIP codes, including those for Beverly Hills and Malibu, Calif., and Greenwich, Conn.

Hundreds of seemingly wealthy people  company presidents, former soap opera stars, top-selling real estate agents  live in multimillion-dollar homes yet have huge tax problems.

"What amazes me is how many people put themselves forward as pillars of the community and great philanthropists, yet they don't pay their taxes," Georgia Revenue Commissioner Bart Graham says.

How It Gets Started

For some, the trouble starts with divorce or gambling or a business mistake. For others, it's a love of money and hatred of taxes.

Graham was an Atlanta banker before becoming Georgia's chief tax collector.

He knows some tax debtors personally and is familiar with their lifestyles, homes, second homes and other assets. "People will do almost anything to make sure friends don't see a change in lifestyle, and that 'anything' includes not paying taxes," he says.

Why don't rich people pay?

"They realize they owe taxes," says Dennis Brager, a Los Angeles tax lawyer. "It's just that from their perspective, they have more pressing obligations."

Tax delinquents often blame the government for part or all of their problems. Penalties and interest on unpaid taxes are so punitive, they say, that it's almost impossible to dig out of a hole.

William Livingston, an immigration attorney who specializes in mail-order brides, says a $20,000 tax problem from 20 years ago has swelled to nearly $300,000 owed to California today.

"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.

Since then, Warwick has hosted a popular infomercial for the $3.99-per-minute Psychic Friends Network from 1993 through 1998. She maintains a busy recording and concert schedule, including tours this year in Europe and South America. In January, she was robbed of jewelry worth more than $100,000 in a hotel room in Rome. She performed Saturday near Dallas, her website says.

Why is the government unable to collect all taxes due from a five-time Grammy winner generating significant cash flow?

The IRS and the state of California declined to comment, citing privacy rules. Her manager, Henry Carr, said: "I can't talk about it. Very sorry." Warwick did not respond to a letter requesting comment.

Other well-known delinquents:

Dick Morris: The former political adviser to Bill Clinton is a Fox News analyst. The IRS filed a $1.5 million tax lien against him in 2003. The state of Connecticut reports Morris owes $452,367 in back taxes and penalties.

Morris says he's reached an agreement with Connecticut and his name will be removed from the next delinquency list. He says he is committed to paying his taxes: "Following a difficult period in my life, I fell into arrears. But since then, I have paid almost $3 million in state and federal taxes."

Sinbad: The comedian and actor  whose full name is Sinbad Adkins  owes $2.1 million to the state of California, according to the California Franchise Tax Board. The IRS filed a $416,870 tax lien against him in 2006. Other tax liens against him date to 1994, when he starred in The Sinbad Show on the Fox Network. His recent gigs include performing at last year's Wal-Mart shareholders meeting and Saturday at the Hilton Casino in Atlantic City. Sinbad declined to comment.

Catalina Vásquez Villalpando: The former treasurer of the United States  her signature appears on paper currency printed during the administration of the first President Bush  owes $168,000 in taxes to Washington, D.C., the city reports. She was convicted of tax evasion in 1994 for hiding income while in office and served four months in prison. She did not respond to a request for comment.

O.J. Simpson: The ex-football star, who lives in Florida, owes $1.5 million in California taxes, the state says. Yale Galanter, an attorney for Simpson, says he hasn't been notified of the debt. "Nobody has ever contacted me from the state of California," his attorney, Yale Galanter told The Associated Press. He says Simpson owns no property or assets there.

Tax collection agencies are not permitted to discuss individual cases. They say they are doing the best they can to collect taxes.

"Our collectors are out there every day trying to get this money," says John Barrett, spokesman for the California Franchise Tax Board. He says the state can't seize income earned outside the state. "If someone performs in Lake Tahoe (Nev.), we can't garnish the money," he says. "If they perform in San Francisco, we would be there waiting."

Dionne Warwick moved from Beverly Hills in the 1990s, and in recent years reported living in her mother's home in Orange, N.J. That home was sold in 2006 after her mother's death. Warwick's current residence couldn't be determined.

California tax liens report Sinbad's mailing address as an office building in the Chicago suburb of Oak Park Ill. IRS tax liens list his residence as a multimillion-dollar home in Hidden Hills, Calif., owned by his brother, Michael Adkins.

On April 7, California reclassified more than 100 large tax debts as uncollectible and removed the delinquents from its published list. Those taken off the new list: Warwick, Sinbad and Livingston, the immigration attorney.

Trying New Tactics

In an effort to shame tax delinquents into paying, 15 states  California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Virginia, Washington and Wisconsin  and the District of Columbia have started publishing the names of people the governments say owe large amounts of taxes. The inexpensive tactic has worked.

Wisconsin collected more than $8 million after sending letters warning delinquents that their names would be posted on the Internet. In Connecticut, 70% of the state's top 100 tax delinquents reached payment agreements after getting such a letter.

Individuals and companies that prize respectability respond swiftly.

JPMorgan Chase sent a $115,000 check to Wisconsin the day after USA TODAY called about an unpaid tax bill. The banking giant had a defunct partnership that Wisconsin said owed $5 million.

"We owe some taxes and penalties but not $5 million," bank spokeswoman Christine Holevas says. "This tax issue fell through the cracks, but we will work promptly to settle it." The partnership was removed from the state's list after the $115,000 check arrived.

Real estate developer Kent Hoggan of Stockton, Calif., says he amended his tax return Jan. 15 after appearing on California's list as owing $5.8 million in back taxes. "I've had losses that would eliminate this tax liability," he says.

Some tax delinquents say they have no way to pay what they owe.

Disbarred attorney Michael Bledsoe of Elk Grove Village, Ill., is his state's fifth-largest tax delinquent, owing $224,260.

He served time in prison for mishandling clients' money and tax evasion.

Now, he's trying to rebuild his life. After prison, he lived with his father and at a friend's house. He's trying to start a career in sales.

"I lost everything," he says. "How do I pay this?"

Sometimes They Are Just Wrong

The size of tax debts on the published lists can be overstated  or plain wrong. Dinah White of Fort Atkinson, Wis., says she owes $300,000, not the $1.3 million the state claims. "Where they got that number, who knows?" she says.

Even innocent people have a hard time getting off the list:

Al Copeland, founder of the Popeyes fried chicken chain, was listed as Georgia's second-largest tax delinquent, owing $5.5 million. The giant accounting firm KPMG tried for more than a year to get Copeland off the delinquent list.

Copeland, a flamboyant New Orleans icon, died of cancer March 23. Georgia mistakenly thought the life-long Louisiana resident lived in Georgia during the 1990s, says Grant Coleman, his tax attorney.

After an inquiry from USA TODAY, the state reviewed the case, removed Copeland's name and canceled his tax liens.

Bruce McNall is the former owner of the Los Angeles Kings hockey team and a movie producer (Weekend at Bernie's). He pleaded guilty in 1994 to defrauding $236 million from banks.

The California Board of Equalization says he owes $7.3 million for unpaid sales tax on horses.

"That's an old debt that I thought was released in bankruptcy," McNall says. Bankruptcy trustee Todd Neilson says McNall is right  and the state is wrong. The trustee says the state was awarded $250,000 after a trial to settle the tax debt, and that amount has been paid.

Molly Wotring, a part-time elementary school worker in Hodges, S.C., typed her name in Google for fun last month. She was surprised to learn she was the fifth-biggest tax delinquent in South Carolina.

The state claimed she owed $225,253 in income taxes for the years 2000 to 2004, when she lived in Ohio. She says she got a cold reception when she called the taxpayer assistance hotline.

"I tried to tell the lady on the phone. She wasn't very nice," Wotring says.

On April 4, she went unannounced to the local tax collection office, armed with her old Ohio tax returns. An auditor apologized, she says. She is now off the list.

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