Douglasses agree to pay back taxes

Harlan Douglass and his wife, Maxine, have agreed to pay just over $1 million in back taxes and interest dating from a disputed tax return going back to 1994. Attorneys for the Spokane-area developer and property owner said the settlement was entered last week.

In 2003, the IRS issued a “notice of deficiency,” asserting that the couple had underpaid their taxes by roughly $931,000, based on a number of irregularities and errors.

Specifically, the IRS said accountants had incorrectly calculated depreciation deductions related to the dozens of buildings Douglass owns and leases around the area. The alleged underpayment was also related to how deductions from the 1993 tax return were carried forward, according to court documents.

Attorneys representing the Douglasses said the taxes paid in 1994 and 1993 were calculated correctly.

In the view of many, the 67-year-old Douglass is one of the area’s largest individual landowners. He and other family members own numerous Spokane-area commercial properties and have developed many multi-family housing projects.

The IRS payment is not a penalty and amounts simply to a recalculation of 1994’s tax return, said Seattle attorney John Colvin, who represented the Douglasses in the case.

In 2000, three years before the formal notice, Harlan Douglass provided the IRS a $2 million cash bond to cover the maximum possible deficiency from the 2004 return.

Over the next four years the two sides resolved all the disputed issues except whether the Douglasses could unilaterally change the type of “asset classification” they used in 1994 to compute depreciation expenses.

A federal trial was set to begin in January. The two sides settled the matter after the IRS agreed that the Douglasses were right to have changed the asset type for their depreciation, Colvin said.

But the IRS also established that accountants for the Douglasses had incorrectly used a 10-year period to amortize the investment, and should have used a somewhat less favorable 15 years, Colvin said.

After the IRS processes the settlement and recalculates the remaining charges, the Douglasses should receive a check for just under $1 million as the refund from their original $2 million bond, Colvin said.

Douglass, in a phone interview Monday, said he has not seen the tentative settlement arrived at by his attorneys and the IRS. “I haven’t seen anything and I haven’t signed anything yet,” he added.

Colvin, however, said that all that remains is paperwork. “It’s a done deal,” he concluded.