Former Pennsylvania State Senator Vince Fumo has had his share of legal battles in the past few years, and it appears that those battles are far from over. His new legal battles concern his tax liabilities, but present a number of interesting procedural issues regarding transferee liability, collection of restitution awards under the 2009 change in the law, jeopardy assessment and jeopardy levy, alleged conspiracy by government authorities, and others. For a discussion of the IRS liens filed against Fumo and the use of the jeopardy assessment process, see here and here.
Fumo, a Philadelphia Democrat who served in the state Senate from 1978 to 2008, began serving a prison sentence in 2009, after he was convicted on 137 counts of fraud, tax evasion, and obstruction of justice. Along with former aide Ruth Arnao, Fumo was accused of having siphoned off $1 million in state funds and $1 million from a charity, Citizens Alliance, for personal and campaign use. See the docket for Fumo’s criminal case, Docket No. 2:06-cr-00319, here.
Having been convicted on 45 counts, Arnao received a sentence of one year and one day in prison and three years of supervised release, and was jointly and severally liable with Fumo for $792,802 in restitution owed to Citizens Alliance. Fumo was originally sentenced to 55 months in prison and was fined $411,000, and was ordered to pay $2,340,839 in restitution. Fumo and the government both appealed the district court’s decision, with the Fumo claiming jury partiality and the government arguing that the court made procedural errors in calculating the sentence. The Third Circuit affirmed the convictions, but vacated the sentences and remanded to the district court in 2011. Fumo’s prison term was ultimately extended by six months and he was ordered to pay additional restitution of $1.1 million.
Fumo was released in August 2013 after having served 4 ½ years in an Ashland, Kentucky federal prison. He returned to his Philadelphia home, where he currently resides in lieu of residing at a halfway house. Fumo holds a $10/hour job at his attorney’s law firm, although he is not allowed to give legal advice having lost his license to practice law following his conviction.
Despite having served most of his criminal sentence, Fumo’s legal troubles continue, as the IRS decided to seek additional federal taxes from him stemming from the activities leading to his conviction. See the docket for Fumo’s tax case, Docket No. 017754-13, here. The timing of the IRS action appears quite late given the date of his conviction. In addition to appearing to be slow to seek additional liabilities from Mr. Fumo, the IRS has made a jeopardy assessment against him asserting that the collection of the unpaid additional taxes it claims are due is in jeopardy because of his actions. The IRS invoked the jeopardy assessment procedure amidst concerns about Fumo’s financial activities, which included “selling” several of his properties to his son and fiancée for only $10 and transferring $2.8 million to his son after his criminal sentencing. The IRS claims that Fumo owes $2.1 million in back income taxes, $354,000 in excise taxes for abusing his relationship with a non-profit entity, and $503,000 in unpaid gift taxes. As a result of the jeopardy assessments, the IRS levied Fumo’s bank accounts and filed notices of federal tax liens in the jurisdictions where he held real property including his home in Philadelphia, property on the New Jersey shore, and a 99-acre farm near Harrisburg.
The IRS sent Fumo a Notice of Deficiency for exise tax under tax code Section 4958 and additions to the tax code under Section 6651(a)(1). These notices categorize Fumo as a “disqualified person” under 4958(1) with respect to Citizens Alliance and allege that Fumo engaged in “excess benefit transactions” with Citizens Alliance. Fumo was assessed as owing $191,000 in first tier excise taxes, $1 million in second tier excise taxes, and $48,000 in penalties. Disputing the IRS’s claims, Fumo filed petitions with the United States Tax Court on July 31 to challenge the assessments and penalties, arguing that the IRS is collaterally estopped from making the assessments.
He also filed suit against the federal government in June accusing Department of Justice officials of conspiring with the IRS to seek revenge on him through the jeopardy assessment process. See the docket for Fumo’s federal suit, Docket No. 2:13-cv-03313, here. In the suit, Fumo’s attorney, Mark Cedrone, argued that the IRS lacked any “plausible, legitimate justification supporting its decision to employ the draconian and infrequently used jeopardy assessment process” against Fumo. Citing his client’s frozen assets and inability to control his finances, Cedrone reasoned that Fumo was forced to sue in order to pay court-ordered restitution. For a discussion of Fumo’s suit against the federal government, see here.
The Tax Court and the District Court cases offer the opportunity to watch several procedural issues unfold. In coming blogs, we will examine the jeopardy assessments, the transferee issues, the alleged government improprieties and other procedural issues present in these cases. While this case is a local one for those of us writing this blog, it offers us the chance to examine the unfolding of a case with somewhat unusual procedural tax issues in real time. We welcome your comments as we follow this case.