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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Hart grilled over bankruptcy filing

Athol legislator faces foreclosures over tax debts

In his final days as an Idaho state lawmaker, Rep. Phil Hart, of Athol, appeared before a bankruptcy trustee Friday for another round of questions on his income and assets.

And just as he did in July, Hart declined to provide many answers – mainly regarding the house he lives in – under a barrage of questions from a U.S. Justice Department lawyer.

This is Hart’s second Chapter 13 bankruptcy filing in Idaho’s U.S. District Court this year. The lame-duck Republican legislator, who lost his bid for a fifth term in the May primary, has been embroiled in a 16-year battle with the Internal Revenue Service and state of Idaho over his income taxes and is fighting to keep the government from seizing his house.

Hart stopped filing state and federal income tax returns in 1996 while he unsuccessfully pursued a federal lawsuit challenging the constitutionality of the federal income tax. He lost that suit, and the IRS is seeking to collect more than a half-million dollars in back taxes, penalties and interest, partly by foreclosing on a log home he built and lives in but which now is owned by a trust in his daughter’s name.

Federal authorities have called the transfer of the home to the trust a “fraudulent” transaction with a “sham entity.”

Hart filed for bankruptcy in May, just 48 hours before he was scheduled to be deposed in the foreclosure case, which was put on hold as the bankruptcy proceeded. But after the IRS argued that Hart doesn’t qualify for a Chapter 13 filing because his debts are too high, the bankruptcy case was dismissed in August while the foreclosure case resumed.

In October, Hart filed a second time for Chapter 13 bankruptcy protection and sought again to halt the foreclosure. A bankruptcy judge last week refused to postpone the foreclosure, finding that Hart had filed the second bankruptcy in bad faith.

On Friday, U.S. Tax Attorney Adam Strait again probed Hart’s living arrangement, including how the home came to be placed in a trust with Hart’s daughter listed as the beneficiary. Hart declined to answer about two dozen questions related to the property, saying the attorney representing the trust should be present for such questioning.

In his bankruptcy filing he said he believes the home is worth about $186,000, and he lists a $600-a-month rent or mortgage payment as part of his average monthly expenses of about $2,100.

Hart listed an average monthly income of $2,198, although that is about to be cut by more than half as his legislative pay ends next week. He said he hopes to boost his business income now that he’ll have more time to devote to his work as an engineer.

Hart estimates his personal property is worth about $28,000, including household goods and furniture, his legislative retirement account and his half ownership in White Snow LLC, a holding company that owns a 2000 Audi that Hart regularly drives.

He owes the IRS more than $564,000. He also owes the state more than $62,000 in back state income taxes, penalties and interest, and attorney fees.

In his most recent bankruptcy plan, Hart proposes paying $106 a month for three years – a total of $3,816 – to satisfy his debts, less than a third of the amount he proposed repaying in his first filing.