Thursday, June 13, 2013

Vince Fumo Sues Feds, Alleging Collusion Between U.S. Attorney's Office And IRS

By Ralph Cipriano

Former state Senator Vincent J. Fumo sued the federal government today, alleging that the U.S. Attorney's office colluded with the IRS to seek revenge on him.

In the lawsuit, filed in the U.S. District Court's Eastern District of Pennsylvania, Fumo's lawyer, Mark E. Cedrone, charged that the IRS had no "plausible, legitimate justification supporting its decision to employ the draconian and infrequently used jeopardy assessment process" against his client, Vince Fumo.

On March 21, the IRS formally notifying Fumo in prison that he was being hit with the extremely rare "notice of jeopardy assessment and levy," which, including tax, interest and penalties, amounted to a bill for a total of $2.9 million.

Cedrone has previously termed the jeopardy assessment "a draconian infrequently-used weapon of mass destruction" employed by the IRS in only a fraction of cases. The jeopardy assessment is not just a bill. The IRS also levied fines on various financial institutions, freezing $2.7 million in assets belonging to Fumo, according to the suit.

In an interview, Cedrone said Fumo had no choice but to sue.

"All his assets are frozen," Cedrone said. At a time when the feds are seeking to extract from Fumo another $800,000 in restitution. "Assuming he is ordered to pay more restitution, he won't be able to do it," Cedrone said.

"What the jeopardy assessment does is allow the IRS to act as though he already owes money to it, when it hasn't been determined yet that he owes any," Cedrone said. "It allows the IRS to collect money from him before the normal process of determining whether someone owes money has been exhausted."

The feds say Fumo owes them nearly $3 million; Cedrone says Fumo owes the IRS zip.

That issue hasn't be adjudicated, but the IRS is proceeding as though Fumo has already been found guilty, Cedrone said. That's why he's suing.

"All his assets are frozen," Cedrone said. "He can't sell a piece of property. He's lost significant control over his finances."

Fumo, according to the suit, "believes [the U.S. government] has singled him out in retaliation for exercising his constitutional right to proceed to trial."

Fumo was convicted on March 26, 2009 of 137 counts of fraud, conspiracy and obstruction of justice. He is currently serving a 61-month sentence at the federal prison in Ashland, Kentucky, where he was served with the IRS jeopardy assessment. 

According to the lawsuit filed by Cedrone, Fumo believes that the feds are "dissatisfied with the term of imprisonment imposed by the district court in the criminal case," because prosecutors sought to put Fumo away for 20 years.

Despite the feds' request for a longer sentence, on Nov. 10, 2011, U.S. District Court Judge Ronald L. Buckwalter re-sentenced Fumo to 61 months in prison. Ironically, the lawsuit filed by Cedrone was assigned to Judge Buckwalter. The same Judge Buckwalter who will have to decide whether Fumo should pay the feds another $800,000 in restitution, after previously shelling out $3.8 million in fines and restitution.

"Specifically, [Fumo] believes the Department of Justice officials who prosecuted [Fumo] may have inappropriately influenced, or at least attempted to influence, the IRS," the lawsuit says. Fumo is "aware that IRS and DOJ [Department of Justice] officials have communicated by e-mail in relation to the IRS's decision to invoke the jeopardy assessment process," the lawsuit alleges.

Fumo is "in possession of some, but not all, e-mails between IRS and DOJ officials," the lawsuit says. Fumo "belief that the IRS has been inappropriately influenced is also supported by the absence of any legitimate factual basis underlying the jeopardy assessments."

The lawsuit does not quote any of the alleged e-mails between the Department of Justice, and the IRS. Fumo has long engaged in an acrimonious relationship with the prosecutors who put him away, Assistant U.S. Attorney Robert Zauzmer, and Assistant U.S. Attorney John Pease.

It would be quite a reversal if Fumo is successful in his attempt to use federal e-mails as evidence of collusion between the prosecutors and the IRS. Fumo's e-mails were famously used against him in his fraud case. The feds also spied on Fumo in prison, using his angry e-mails as evidence against him when they sought a longer jail sentence.

Before he filed the lawsuit in federal court today, Fumo exhausted his appeals to the IRS over the jeopardy assessment. Fumo is scheduled to be released this August.

According to the lawsuit, the IRS issued notices of levy on six financial institutions, freezing $2.7 million of Fumo's assets, including a $2.5 million tax-deferred retirement account held at United Savings Bank in Philadelphia.

After the IRS froze his assets, Fumo sought a "collection due process hearing," but was turned down by the IRS.

According to the lawsuit, a jeopardy assessment is only to be used if the IRS feels that the taxpayer is planning "quickly to depart from the United States or to conceal himself or herself." A jeopardy assessment may also be used if the taxpayer is attempting to place property "beyond the reach of the Government" by removing it from the U.S., concealing it, or dissipating it, or transferring it to other persons, the lawsuit says. The only other condition for levying a jeopardy assessment according to U.S. Treasury regulations is when the taxpayer's "solvency is or appears to be imperiled," the suit states.

"None of the three conditions precedent to a jeopardy assessment or jeopardy levy is present here," the suit says. Fumo remains in prison, and has no plans to leave the country. In the lawsuit, Cedrone describes the jeopardy assessments as "illegal and invalid."

In addition, the suit attaches as an exhibit an affidavit from Michael F. Rogers, a Blue Bell tax lawyer who represented Fumo in recent property transfers that attracted the attention of the feds. In the affidavit, "Mr. Rogers confirms that [Fumo] transferred the real estate to 'take advantage of the expiring approximately $5 million exemption' " for existing estate tax credits.

"Clearly, [Fumo] did not transfer any real estate as a part of any plan to design to place property beyond the reach of the government," the lawsuit says.

In its jeopardy assessment, the IRS listed eight properties that Fumo had sold or transferred between June 12, 2008 and April 6, 2012, including:

-- 1831 Passyunk Ave., Philadelphia, with a market value of $235,000, sold on June 12, 2008.

-- 1936-38-40 S. 13th St., Philadelphia, with a market value of $130,000, transferred on Dec. 16, 2008 for $1.

-- 6601 Mommouth Ave., Ventnor, N.J., valued at $525,000, transferred on Oct. 12, 2011 for $10.

-- 108 Kenyon Ave., Margate, N.J., valued at $1.1 million, transferred on Oct. 12, 2011 for $10.

-- 30 Fiesta Way, Ft. Lauderdale, Fl., no market value noted, transferred on Oct. 18, 2011 for $10.

-- 2220 Green St., Fumo's mansion in the Art Museum section of Philadelphia, valued at $3 million, transferred on Feb. 2, 2012 for $10.

-- 30 Fiesta Way, Fl., valued at $2.3 million, sold on April 6, 2012.

The idea that the IRS is in jeopardy of not collecting any money it might be due is "nonsense," Cedrone said at the time of the assessment. "The IRS could still attach a lien to the properties. His [Fumo's] name continues to be on all of the properties except one."

The property transfers took place "at a time when there was a lot of talk about the current estate tax exclusions expiring as a matter of law. A lot of people were transferring assets from their own names to their heirs jointly at that time," Cedrone said.

In the jeopardy assessment, the IRS also dealt with Fumo's recent transfers of cash.

"The Service received information that within a little over one month after sentencing, on or about the end of August 2009 through the end of January 2010, Fumo made a series of large dollar transfers into his son, Vincent E. Fumo II's bank account for no known purpose," the IRS wrote. "It was reported that Fumo and son were engaging in a suspicious movement of funds between banks in order to hide their original source in a manner that is indicative of layering. The total amount involved was $2,793,500. In addition, the son subsequently transferred some of this money (approximately $1,427,500) to another bank, solely in the son's name."

"That's just malarkey," Cedrone told in an interview in April. While Fumo was in prison, Cedrone said, his son was acting as his conduit, to see that his father's bills were paid. Of the money originally transferred through Fumo's son, Cedrone said, nearly $2 million was paid to the government, to satisfy fines and restitution.

In an interview on Friday morning, Cedrone had even more to say about that topic.

"The senator did the government a favor by transferring real estate because he has broadened the universe of people that the IRS can collect from" if Fumo loses in federal tax court, Cedrone said.

"To the extent that the government relies on purported transfers of cash to Senator Fumo's son in support of the jeopardy assessments," Cedrone said, "doing so is preposterous in light of the sworn testimony of Senator Fumo's son, who makes it clear that he received no gifts from his father. Instead, he simply paid his father's bills."

"At its core, the government case suggests that Senator Fumo placed assets beyond its reach by paying the government $2 million," Cedrone argued.

A spokesperson for the U.S. Attorney's Office did not respond to a request for comment on the Fumo lawsuit. Perhaps they were on the phone with Craig McCoy, their favorite reporter.

             *                           *                           *

Meanwhile, for the amusement of our readers, here's the Inquirer's version of the story about the Fumo lawsuit, which ran a day late and a few dollars short:

The Inquirer had access to the same court documents I did. Note there is no mention in the Inky story about any of Fumo's allegations involving the U.S. Attorney's Office.

As far as the city's paper of record is concerned, you can't bite the hand that feeds you. Even if that means censoring the news.

Vince Fumo is claiming government emails show that the prosecutors who put him away are colluding with the IRS to get him; that's news of the man-bites-dog variety.

Whether it's true or not is for the courts to decide. But when the allegation is made publicly and printed in a libel-proof court document, there's no legitimate reason for not reporting it.

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