IRS put liens against business, property
BOISE – Idaho state Rep. Phil Hart’s tax problems appear to be worse than previously disclosed.
When federal tax liens filed against Hart’s various businesses are combined with the liens the IRS has filed against him personally in his ongoing fight over back income taxes, the third-term Idaho lawmaker faces a total of more than $644,000 in outstanding federal tax liens. A state income tax judgment against him that he’s attempting to appeal pushes that total to almost $700,000.
Hart, who’s facing a state ethics inquiry over the use of his legislative position in his tax fight, said he doesn’t understand how the authorities could think he owes that much. “I don’t even know if I’ve made that much in that period of time,” he said, “so the tax rate must be 100 percent or something.”
The liens against Hart’s businesses, including a trust that owns his Hayden engineering company and another that owns the Athol home where he lives, include several for unpaid federal withholding taxes, which the federal government treats as a particularly serious offense because employees are given credit for having paid the taxes that their employers withhold.
Hart has $13,014 in outstanding 941 federal withholding tax liens pending against Alpine Northwest III Trust, the trust that owns his Alpine Engineering firm. Two other liens for unpaid withholding taxes were released after he paid them off in 2009.
Hart concedes that the two liens he paid off involved money he withheld from his employees’ paychecks, but said he thought the other liens might stem from his ongoing dispute with the IRS about his own personal taxes. “It’s possible that that is related to me,” he said. “That was probably money that was never withheld, but the IRS said it should have been.”
Hart’s tax woes began with his decision to stop filing federal and state income tax returns in 1996 while he pressed an unsuccessful federal lawsuit claiming the federal income tax was unconstitutional. He’s since made partial payment, but both the state of Idaho and the IRS contend he hasn’t paid in full.
A rare Idaho House Ethics Committee is investigating complaints that Hart abused legislative privilege by invoking the constitutional privilege against arrest or civil process during legislative sessions to seek repeated delays in his state and federal tax disputes, and that he had a conflict of interest in serving on the House Revenue and Taxation Committee while pressing his personal tax fight.
Hart also has paid the property taxes on his Athol home late every year since 2002, which has forced him to pay thousands in interest and penalties. He said this week that the property tax delinquencies had “no relationship” to his philosophical fight against income taxes.
“It seems to me like this is a recurrent theme … the payment of taxes that are due and owed,” said House Minority Leader John Rusche, D-Lewiston, who filed the ethics complaint against Hart. “Rep. Hart has tax issues in many spheres.”
Jennifer Gellner, a Spokane tax attorney and director of the tax law clinic at Gonzaga University, said failure to pay withholding taxes is a very serious issue. “Technically an employer is a fiduciary, basically guaranteeing that they’re going to take that money from the employee and give it to the government. It is not the employer’s money to spend,” she said. “They are supposed to pay it over to the government immediately.”
Employers report the amount they withheld from employees’ paychecks on federal tax Form 941; the outstanding tax liens against Hart’s firm show $13,014 owed for Form 941 withholding taxes for the 2004, 2008 and 2009 tax years. Hart and his firm also have outstanding IRS liens for $548 in unemployment taxes from 2004 and $4,350 in corporate income tax from 2002 and 2003.
Plus, the IRS filed a $155,323 tax lien against the trust that holds Hart’s Athol home; that trust, though in the name of Hart’s daughter, is listed as a “nominee” for Hart.
That’s on top of the nearly $300,000 in personal tax liens the federal government filed against Hart in Kootenai County in the past year, and $178,352 in liens the IRS filed against him from 2004 to 2007. All still are outstanding.
Gellner noted that when tax liens are filed, interest continues to add up. “So really the liens represent an amount that they at least owe, but they also could owe quite a bit more than what the lien says.”
Liens for unpaid withholding taxes are “definitely not common,” she said. “The majority of businesses respect the fact that it’s not their money and they have to turn it over.” If not, she said, they’ll be caught – and in many cases, the IRS will shut a business down. “They’re on borrowed time,” she said.
Gellner said she rarely sees tax cases exceeding $300,000. She added, “I don’t have a single client who’s in the $600,000 range.”
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