Wednesday, March 19, 2014

Judge Buckwalter Hears Oral Arguments In Fumo V. USA

By Ralph Cipriano
for Bigtrial.net

On the 14th floor of the federal courthouse on Tuesday, Judge Ronald L. Buckwalter was refereeing another fight between the U.S. government and former Pennsylvania state Senator Vincent J. Fumo.

Buckwalter was the judge who presided over the United States of America v. Vincent J. Fumo. The five-month trial  ended on March 16, 2009 with the former state senator being convicted on 137 counts of fraud, conspiracy, obstruction of justice and filing a false tax return.

Yesterday, Buckwalter was hearing oral arguments in the case of Vincent J. Fumo v. United States of America. In the sequel, Fumo is challenging the IRS over the propriety of the agency hitting him with an extremely rare "jeopardy assessment." Fumo also alleges that the U.S. Attorney's office colluded with the IRS to seek revenge on him.

On March 21, 2013, the IRS formally notified Fumo while he was still in a federal prison in Ashland, Kentucky that the IRS was imposing a "notice of jeopardy assessment and levy." The jeopardy assessment, including tax, interest and penalties, amounted to a bill for $2.9 million. In addition, the IRS froze $2.7 million in Fumo's bank accounts.

Judge Buckwalter opened the hearing by saying he wanted to put something on the record that had previously been discussed behind closed doors in the judge's chambers. The judge wanted everyone to know that he had offered to recuse himself from the tax case, and that both sides had declined his offer.

Lawyers on behalf of Fumo and the government had responded to the judge's offer to recuse himself by saying, "That's fine, you may stay on board," the judge announced from the bench.


Fumo's attorney, Mark E. Cedrone agreed with the judge's characterization of the back room chat,  as did Melissa L. Dickey, a trial attorney in the tax division of the U.S. Department of Justice who was representing the IRS.

Cedrone has previously described the jeopardy assessment as "a draconian infrequently-used weapon of mass destruction" employed by the IRS in only a fraction of cases.

Yesterday's oral arguments concerned cross motions for summary judgement. 

Fumo's lawyer was seeking to have the jeopardy assessment thrown out. The government was seeking to have the jeopardy assessment approved without having the judge require testimony at an evidentiary hearing.

In her oral argument, Dickey said the IRS imposed the jeopardy assessment because the agency was concerned that Fumo was placing assets "beyond the reach of the government," by selling off or transferring ownership of eight properties between 2008 and 2012. In several of those property transfers, Fumo named his son, Vincent E. Fumo II, and his fiancee, Carolyn Zinni as co-owners.

Dickey noted that Fumo had been convicted of 137 felony counts, and may be up to further no good. "He appears to be transferring and dissipating" his holdings, Dickey told Judge Buckwalter. Those transfers included Fumo's mansion on the 2200 block of Green St. The 30-room mansion valued at $3 million, was transferred on Feb. 2, 2012, to Fumo's son as a co-owner, for $10.

The judge asked about the jeopardy assessment, and whether it was typically used against people who were about to flee the country. The judge also asked about the mechanics of freezing of Fumo's bank accounts. Did that mean that Fumo didn't have access to his own money, so he couldn't pay his bills?

"If he can't pay his bills," Dickey said, he can "contact us and we would work it out."

Dickey also sought a motion to strike an expert report submitted on behalf of Fumo by Thomas W. Ostrander, a Philadelphia lawyer who is an expert in tax procedures.

But Buckwalter refused. Regarding expert testimony in a tax law case, "some help is welcome," the judge said. In his report, Ostrander said the IRS was not placed in jeopardy by Fumo's transfers of real estate, because the IRS can now collect not only from Fumo, but also from Fumo's son, as well as his fiancee.

Buckwalter brought up Fumo's letter from prison to his ex-wife, Jane Saccetti, where he talked about how he sought to make himself judgment-proof by owning nothing while controlling everything.

That brought a howl of protest from Fumo's lawyer.

"The government is seeking to place a tremendous amount of weight" on fragments of two letters sent to Fumo's ex-wife, Cedrone said. You had to understand the context, Cedrone said, which is fully laid out in the letters. Fumo was in jail at the time, and had to come up with $2.3 million in fines and restitution, Cedrone said.

When Judge Buckwalter increased that amount of fines and restitution by $1.1 million, Fumo "immediately paid that," Cedrone said.

And when Fumo wrote those letters in 2010 and 2011, Cedrone said, people were in a panic over the impending expiration of the Bush tax credits.

After he was convicted, Fumo needed to borrow money to pay off the fines and restitution he had to pay to the government, Cedrone said. Fumo decided to borrow the money from a $2.5 million trust fund he had set up in 2006 to benefit his son and his daughter. But that set off a family fight that wound up in Philadelphia Orphans Court.

"He's at war with his own children," Cedrone told the judge. But even if Fumo had written to his ex-wife that "I don't want to pay another cent in my life to the IRS," Cedrone said, it wouldn't mean a thing. Because by transferring some of his properties to joint ownership with his son and his fiancee, Cedrone said, Fumo was expanding the list of people that the IRS could go after if Fumo defaulted on any tax obligations.

Cedrone said the $2.9 million sought by the IRS was over the top. "The amounts assessed are not reasonable," Cedrone said.

In her oral argument, Dickey asserted that Fumo had received a tangible benefit by approving raises for his own employees. Those employees were "controlled by Senator Fumo," Dickey said. "He had the ability to direct" those employees.

"He paid all of that money back," Judge Buckwalter countered. "That's not income to Senator Fumo."

About the jeopardy assessment, the judge said, "It ought to be fairly clear that they're entitled to the tax." The judge seemed to be questioning whether the amount sought by the IRS was reasonable. And whether the imposition of the jeopardy assessment was justified.

"Isn't it unusual he paid back all that money?" Buckwalter said about the raises that had been given to Fumo's former employees.

Cedrone argued that Fumo's property transfers "have not affected the goverments's ability to collect any taxes."

Nothing is "beyond the reach of the government," Cedrone said of the eight properties that Fumo sold off or transferred ownership of. The IRS can file what is known as a nominee lien against Fumo's son and fiancee that would require them to pay any taxes owed.

"In effect," Cedrone said, Fumo has "created additional pockets" for the government to pick.

In all past cases of jeopardy assessments cited by both sides in the current legal battle, Cedrone noted, not one case involved transfers of real estate. The cases involving the levying of jeopardy assessments typically involved cash income received for illegal activates, Cedrone said.

But, Dickey reminded the judge, the plaintiff is a felon who "previously tried to defraud the state as well as a charity."

At the end of the hour-long arguments, Buckwalter thanked the two lawyers for submitting to his questions. The lawyers' answers allowed the judge to "get some clarification of things that were bothering me," Judge Buckwalter said.

Your arguments have been "very helpful," the judge said. He concluded the session by promising both lawyers a quick decision.

Ralph Cipriano is writing a book about Vince Fumo. He can be reached at ralph@bigtrial.net.

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