You Think You’ve Got Tax Problems?

DALLAS (CN) – Former Texas billionaire Sam Wyly and his deceased brother owe $3.2 billion in back taxes and penalties for hiding money in foreign trust funds, the Internal Revenue Service says.
     The IRS told a federal bankruptcy judge this week that Wyly owes $2 billion for unpaid taxes from 1992 to 2010, more than $9 million since 2012 and that the estate of Charles Wyly owes $1 billion.
     It’s believed to be the largest tax levy the IRS has ever demanded from individuals.
     Wyly, 77, of Dallas, a philanthropist and contributor to Republican causes, 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.
     A Manhattan federal jury in May 2014 found Wyly and his brother’s estate guilty of making illegal trades.
     In March this year, U.S. District Judge Shira Scheindlin ordered them to pay more than $198 million in disgorgement and interest in an SEC case .
     The SEC sued the Wylys in 2010, accusing them of playing a “global game of hopscotch” by hiding assets in their four companies – Sterling, Michaels, Sterling Commerce, and Scottish Annuity & Life Holdings Ltd. – from 1992 to 2004.
     At trial, the SEC accused the brothers of making $550 million from more than 700 undisclosed transactions in 40 companies operated by Isle of Man trusts that shuffled money between the Cayman Islands and Dallas.
     Sam Wyly filed for bankruptcy protection in October 2014. He said Wednesday that he “respectfully disagrees” with the IRS demand.
     “Filings were made with the SEC and IRS by knowledgeable and honest CPAs and lawyers who had to deal with legalese sometimes defined in different ways in different parts of the regulations written by the same agency or the other agencies,” Wyly said in a statement.
     The Wylys’ attorney, Stewart H. Thomas with Hallett Perrin in Dallas, called the IRS demands “unfair and absurd.”
     Twenty-three percent of the demand is for taxes owed, the rest for penalties and interest since 1992, Thomas said.
     “The Wylys have always filed income tax returns and have reported every bit of income they have earned every year,” Thomas told the Dallas Business Journal. “They have paid hundreds of millions of dollars in income taxes to the IRS during this period of time.”
     The IRS knew about the transactions for 23 years but never told the Wylys that “they owe a penny of additional tax,” Thomas said.
     “Now they seek billions of dollars in interest back to 1992,” Thomas said. “This is unjust.”

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