Betty Loren-Maltese was the well-known president of a Chicago suburb before being convicted of attempting to defraud the town out of $10,000,000 in an insurance scheme, which is apparently frowned upon.
Maltese is a free woman now, having paid her debt to society in a federal corrections facility. But that doesn’t mean the IRS is done with her; to the contrary, after Maltese was released from prison, the Service accused her of underreporting her 1994 taxable income by nearly half a million dollars in misappropriated campaign funds,assessing tax, penalties and interest on the alleged deficiency.
Typically, the IRS would be barred from assessing a deficiency after the expiration of the statute of limitations: normally three years from the due date of the return pursuant to Section 6511. The statute can be extended indefinitely, however, when any portion of the underpayment is the result of fraud. Thus, under Section 6501, if the IRS could establish that Maltese “intentionally evaded a tax that she believed was due,” it would stop the clock on the statute and allow for a collection of taxes nearly twenty years after the return was filed.
While serving as town president, Maltese was also the town’s Republican committeeman, a role that granted her access to certain campaign funds. During 1994, Maltese used the campaign funds to purchase a Cadillac and invest in a luxury golf course, with both assets held in her individual name. It is well established that once Maltese converted the campaign funds for her personal use, they became taxable income to her… but did her actions rise to the level of fraud?
When grilled about the expenditures during trial, Maltese repeatedly sought the shelter of the Fifth Amendment, refusing to testify. Below is a courtroom sketch of the proceedings:
Faced with her silence, the Tax Court was forced to look to the facts and circumstances, keeping a careful eye out for the following “badges of fraud:”
- inadequate records,
- implausible or inconsistent explanations of behavior,
- concealing assets,
- engaging in illegal activities, and
- attempting to conceal activities.
The Tax Court quickly determined that enough of the necessary facts were present to conclude that Maltese had fraudulently evaded her 1994 income tax.
- She used the campaign funds to hide her expenditures.
- She falsified campaign disclosures.
- She tried to hide the Cadillac once she found out she was the subject of a grand jury investigation, and
- She offered less than credible testimony with regards to the golf course investment.
As a result, Maltese is now on the hook for over $100,000 in tax, a 75% fraud penalty, and twenty years worth of interest.