IRS demands $2.9M from Fumo, files five liens

Just as he starts his final year in prison, former State Sen. Vincent J. Fumo is facing a new problem: an IRS demand that he pay almost $3 million in back taxes and fines.

In an unusually tough move, the federal tax agency late last month filed liens against five properties to protect its claim on the money.

The IRS placed liens against Fumo's 33-room Victorian mansion in Philadelphia's Spring Garden section, three adjoining properties he owns in South Philadelphia, and, significantly, a 99-acre farm near Harrisburg that Fumo sold for $10 to his fiancee two years ago.

In a letter to Fumo, the agency said he appeared to be trying to hide his assets. Among a wave of property transfers in recent years, all for $10 or less, Fumo added his grown son to the deed of the Philadelphia mansion and the three South Philadelphia properties and sold the farm outright to fiancee Carolyn Zinni.

The IRS took a tough line in filing the lien against the farm, doing so even though Zinni is not yet married to Fumo and is the property's sole owner.

The IRS has also frozen Fumo's access to bank accounts, as part of a "jeopardy assessment and levy," according to comments by his tax lawyer on a law firm's blog.

Fumo, who will turn 70 next month, is in a Kentucky prison recovering from triple heart bypass surgery in January.

He has endured a series of financial blows since his conviction in 2009. He has already disgorged almost $3.5 million in restitution to his victims, and in February, a federal appeals court recommended he be ordered to pay almost $800,000 more.

Once the most powerful Philadelphia Democrat in the state legislature, Fumo was convicted of defrauding the state Senate and two nonprofit organizations, and of then trying to orchestrate a cover-up.

A federal jury found that Fumo ripped off the Senate by using taxpayer-paid staff as servants and campaign operatives. It said he spent public money to hire a private investigator and a political adviser and to give no-work jobs to cronies.

It found that Fumo had similarly abused a South Philadelphia neighborhood improvement organization, using its money for political polls, for equipment for his farm, and to buy tens of thousands of dollars' worth of personal items.

It also said he extracted free luxury vacation cruises from the other nonprofit organization, the Independence Seaport Museum.

With time off for good behavior, Fumo will complete his 61-month sentence next February, though he may be released under supervision earlier.

In liens filed in Philadelphia Common Pleas Court and in Dauphin County, where the farm is situated, the IRS contended that Fumo owes $2.1 million in back income taxes, $354,000 in penalties for abusing nonprofits, and $503,000 in unpaid tax on gifts he gave to others in 2009.

Even though Fumo has made heavy restitution payments, the agency now wants him to pay income taxes and penalties based on the value of the services he received from the Senate and South Philadelphia civic group, formerly known as Citizens' Alliance for Better Neighborhoods.

The lien does not say who received the gifts. In 2009, the gift-tax rate was 45 percent. This would mean that Fumo gave gifts that year worth $1.1 million.

Fumo's tax lawyer, Mark E. Cedrone, did not return telephone calls. In an interview given to a blog hosted by the Beasley Firm in Philadelphia, Cedrone called the jeopardy assessment a "draconian, infrequently used weapon of mass destruction."

The blog posting was written by Ralph Cipriano, a former Inquirer reporter working on a book about Fumo. Cedrone told Cipriano that the IRS's complaint was groundless and that Fumo owed "zip."

According to the blog, in March an IRS agent hand-delivered to Fumo a letter saying the former senator appeared to be "placing property beyond the reach of the government, by concealing it, dissipating it, or transferring it to others."

The IRS also said it had learned that in the months after his sentencing, Fumo transferred $2.8 million to his son, Vincent F. Fumo 2d, "for no known purpose."

The letter said father and son had reportedly engaged "in a suspicious movement of funds between banks in order to hide their original source."

Cedrone dismissed the suspicions about the money transfers as "malarkey." Most of the transferred money, he said, was paid as restitution.

He said that since Fumo was prison-bound after his conviction he needed to transfer money so his son could manage his affairs.

The younger Fumo declined comment Friday, deferring to Cedrone.

In a flurry of transactions in late 2011 and early 2012, Fumo shifted the ownership status of much of his real estate in three states.

For $10, he made his son co-owner of his Spring Garden home and of his multiunit condo in Ventnor.

Also for $10, he made Zinni a co-owner of his beach-block house in Margate and sole owner of his farmland north of Harrisburg.

(The IRS limited its liens to properties in Pennsylvania and did not place liens against Fumo's homes in Margate and Ventnor.)

In one other deal, again for $10, Fumo made Zinni co-owner of his villa in Fort Lauderdale, Fla. When the property sold six months later, the government took $1.1 million at settlement for restitution, and Zinni received $1 million.

Fumo's lawyers have insisted that Fumo had not made the deals to shelter assets. They say he had pushed to make the transfers because at the time, lawmakers in Washington were debating falling over the fiscal cliff, raising the prospect of higher estate taxes.

Local IRS officials declined to comment on the filings. But T. Keith Fogg, a Villanova University law professor who worked in the IRS Office of Chief Counsel for more than 30 years, said "jeopardy assessments" were rare.

"That's unusual - and particularly unusual when someone is in prison," Fogg said. "The IRS only uses it if they think the person is going to put assets beyond their reach."

The jeopardy assessment allows the IRS to put the liens in place more quickly, he said.

The agency also has the power to pursue tax debtors by forcing sales of their properties, even if they are co-owned or the debtor's name is not even on the deed. In some cases, he said, the agency may have to argue that the deed transfer was fraudulent.

"It's more difficult," Fogg said. "It's not necessarily impossible."