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Sunday, May 26, 2024 | Back issues
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Aging Mogul Fights $2.2 Billion Tax Bill

DALLAS (CN) - Former Texas billionaire Sam Wyly said he filed for bankruptcy to force the Internal Revenue Service to "put up or shut up" about its claims for $2.2 billion in taxes and penalties on his offshore trusts.

On Friday, Wyly, 81, accused the IRS of auditing his income tax returns for a decade and failing to tell him if he owed additional taxes during that time. He testified for 90 minutes during the third day of his Chapter 11 bankruptcy trial, telling U.S. Bankruptcy Judge Barbara J. Houser he did not want to leave the uncertainty for his children to worry about.

"I filed to make the Internal Revenue Service put up or shut up," he said.

Wyly emphatically stated several times that his object in using the offshore trusts was to defer taxes, not avoid paying them.

Describing himself as no expert at any one thing, Wyly echoed earlier statements by his attorneys and testimony by his son, Evan Wyly: that he relied on the family's accountants and lawyers to evaluate the offshore accounts and tax strategy.

Wyly made his fortune co-founding Sterling Software in 1981 and buying an interest in arts-and-crafts retailer Michaels in 1982. Sterling was sold for $4 billion in 2000 and Michaels Stores for $6 billion in 2006.

Wyly's legal troubles began when a Manhattan federal jury ruled in favor of the Securities and Exchange Commission in 2014 that Wyly and his deceased brother, Charles, made $550 million from more than 700 hidden transactions in 40 companies operated by Isle of Man trusts that shuffled money between the Cayman Islands and Dallas.

Wyly and his brother's widow, Carolyn Wyly, filed for bankruptcy protection in Dallas several months later to stave off collection on the judgment. The IRS intervened in the bankruptcy in April 2015, seeking an additional $3.2 billion in back taxes and penalties. The agency later reduced its demand to $2.2 billion.

IRS attorneys say the offshore trusts were used to hide income that funded the expensive lifestyle of Wyly and his family.

Wyly's lawyers disagree, characterizing the dispute as an honest difference of opinion on tax law.

On Thursday, Wyly testified that he set up the offshore trusts after losing faith in "fragile" U.S. banks after the savings and loan crisis of the 1980s.

Wyly testified that a domestic bank had pulled Michaels' line of credit during the crisis, leaving him to "scramble" to find other sources of financing for his stores.

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