BOISE – Federal authorities may be laying the groundwork for criminal charges against tax-protesting former Idaho state Rep. Phil Hart.
In bankruptcy court documents, federal officials are charging that Hart lied under oath, concealed or destroyed records and attempted to “hinder, delay or defraud his creditors, including the Internal Revenue Service.”
The filings by the U.S. Bankruptcy Trustee and the U.S. Department of Justice are aimed at preventing Hart from being relieved of any of his tax debts through his latest bankruptcy case, but the implications could go well beyond that.
By law, federal bankruptcy trustees are required to refer suspected crimes to U.S. attorneys for prosecution. In 2012, they referred 2,120 cases, with false statements and concealment of assets among the top five crimes charged. The most-charged crime was bankruptcy fraud.
“We don’t comment on cases beyond what’s in the public record,” said Shannon May, spokeswoman for the U.S. Trustee Program in Washington, D.C. She provided copies of the program’s annual report, including the legal requirements and figures about criminal enforcement.
The federal bankruptcy court filings – which have the effect of creating a lawsuit within Hart’s Chapter 7 bankruptcy case, turning it into an “adversary proceeding” – say Hart “retained a secret interest” in his log home in Athol for years after transferring it to a sham trust set up in his daughter’s name. He then denied owning any real estate in his bankruptcy filing, including statements under oath. And that’s just one of the many allegations in the filings.
The Justice Department’s filing says Hart claimed to have paid $600 a month in rent to the trust in exchange for living in the home. But he said he “makes the purported rent payments to the Sarah Elizabeth Hart Trust by placing $600 in cash in a desk drawer in his home.” Then, the filing said, he spends the money, including for utility bills on the house.
Hart also told the bankruptcy court that he has no records detailing the rent payments.
The IRS is currently in the process of attempting to foreclose on the home for more than $500,000 in unpaid federal income taxes, penalties and interest. A federal judge recently cleared the way for the foreclosure to move forward, but federal prosecutors are asking that the judge reconsider and expand the ruling to cover more years of Hart’s federal tax debt.
Hart illegally cut down trees from state school endowment land in 1996 to complete his log home; he maintained he had a right to take the logs for free as a citizen, but he lost in repeated court appeals and never fully satisfied a $22,827 court judgment over the timber theft.
In the bankruptcy court filings, the Justice Department says Hart also failed to disclose other assets, hid payments from his work as a civil engineer and failed to disclose that income in the bankruptcy.
“Hart made the false statements with the intent to conceal the cash from his creditors, including the United States,” Justice Department attorney Adam Strait wrote in court documents.
Acting U.S. Trustee David Newman wrote in his filing: “Defendant has concealed, destroyed, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which his financial condition or business transactions might be ascertained, particularly as they relate to formation of the Sarah Elizabeth Hart Trust and the putative rent payments.”
He added: “Defendant knowingly and fraudulently made materially false statements or accounts. … The false statements or accounts were verified under penalty of perjury … and constitute false oaths.”
The latest bankruptcy court filings note that before Hart stopped filing state and federal income tax returns in 1996 while unsuccessfully pressing a lawsuit claiming the federal income tax is unconstitutional, he filed returns for 1994 and 1995 “asserting that he did not owe any federal income tax on the grounds that his income was not taxable.”
Hart’s Spokane attorney, Brant Stevens, met with Hart on Friday afternoon. “He doesn’t want to comment about it right now, so I respect that,” Stevens said afterward. The attorney said he’ll be filing a response to the government’s allegations within the coming weeks.
Hart served four terms in the Idaho House of Representatives while his state and federal income tax cases were pending; the state says he owes more than $53,000 in back state income taxes, penalties and interest.
He was removed from the House tax committee, which writes tax laws, after an ethics complaint in 2010. Hart strenuously objected to the move and maintained he had no conflict of interest; his attorney at the time, Starr Kelso, of Coeur d’Alene, compared him to Rosa Parks and Nelson Mandela for his stand on taxes.
He was defeated in the GOP primary in May 2012 in his bid for a fifth term.