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MEMO: Abel Maldonado’s False Equivalency On Tax Delinquency

To: Interested Parties
From: Ty Matsdorf, American Bridge 21st Century
RE: Abel Maldonado’s False Equivalency On Taxes
Date: 8-7-2012

Over the last couple of days, Abel Maldonado’s rampant abuse of the tax system and his IRS delinquencies have resurfaced in the media. While his abuses have been so longstanding that they may seem to be “old news,” it is worth remembering just how egregious they are.

But first, as the issue of taxes has become a flash point in his Congressional race, it is important to dispel an emerging narrative: that both candidates in the race “have tax troubles.”

Saying this is like saying Gabby Douglas and I are both gymnasts because I did a half-somersault while falling out of bed this morning. According to media reports, Congresswoman Capps had a clerical error that was immediately corrected upon discovery. Lt. Gov. Maldonado on the other hand abused the tax code over the course of several years, and still to this day hasn’t paid the more than $4 million he and his company owe in taxes.

As you continue to cover the race, and specifically the issues of taxes in the race, below is a quick refresher on the Maldonado record:

Agro Jal Named in Nine Federal, State and Local Tax Liens Totaling $245,732.97 (1992-2010)

Between 1996 and 2010, Agro-Jal was named in nine federal, state and local tax liens totaling $245,732.97. Of these nine liens, the three largest were filed by the IRS in 1994, 1995 and 2010 for $41,407.73, $81,129.11 and $111,146.49 respectively. The lien documents stated that the federal tax liens were for non-payment or underpayment of federal unemployment taxes and taxes for agricultural employees. In 1997, The California Employment Development Department also filed a $3,709.46 lien against Agro Jal for non-payment of State Unemployment Insurance taxes. All nine liens have since been paid and released. [Santa Barbara County Clerk Grantor-Grantee Index, Accessed 3/9/2012]

Agro-Jal And Maldonado Underpaid Taxes

$3.6 Million Unpaid Agro-Jal Taxes
IRS Alleged Agro-Jal Underpaid Taxes by $3.6 Million Between 2006 and 2008. According to Los Angeles Times, “Maldonado, a Republican who is running for a congressional seat on the Central Coast, has co-owned a 6,000-acre Santa Maria farm that grows cauliflower, celery and strawberries. In April, he said he was severing his ties to the business, after reports of a battle in tax court over the IRS’ contention that he and his wife owed the government $470,000. But court records reviewed by The Times show that the Maldonado family business, Agro-Jal, is also challenging an IRS finding that it underpaid its taxes by $3.6 million between 2006 and 2008. The case is now in settlement discussions.” [Los Angeles Times, 5/31/12]

Maldonado Said the Dispute was Complex and He was Attempting to Resolve It. According to Los Angeles Times, “In a statement Wednesday, Maldonado said he was looking forward to ending the matter. ‘This dispute involves a lot of very complex accounting issues that other small businesses are attempting to navigate on a daily basis…. I want this resolved, and the second we get a bill that correctly defines our tax liability, it will be paid,’ he said.” [Los Angeles Times, 5/31/12]

IRS Investigator: Agro-Jal “Has Demonstrated a Pattern of Deducting Expenses … Which Have No Business Purpose Whatsoever.” According to Los Angeles Times, “Susan Braunz, an IRS technical services territory manager, wrote in court documents: ‘I asked the taxpayer [Agro-Jal] to show me the places on the property that were not accessible by tractor and to show me what the horses were used for. The taxpayer refused. The testimony is considered to be selfserving and not supported by any documentation establishing a business purpose for the expenditures.’ She also took issue with receipts that were marked ‘Abel’s house’ and indicated that Agro-Jal paid for renovations at the Maldonado residence. Braunz contended the company improperly deducted $4,444 it spent to re-tile a bathroom shower there, $732 for tools to re-seal the house’s deck, $10,000 for tile and $6,000 for unspecified work at the house. ‘The taxpayer has demonstrated a pattern of deducting expenses … which have no business purpose whatsoever,’ Braunz wrote.” [Los Angeles Times, 5/31/12]

Agro-Jal Deducted Golf Course Membership as a Business Expense. According to Los Angeles Times, “The IRS has challenged deductions by Agro-Jal that authorities said showed no apparent benefit for the business. They included $20,000 worth of memberships at the Santa Maria golf club, work on a residence at the resort community of La Quinta, near Palm Springs, and the cost of two horses on the farm.” [Los Angeles Times, 5/31/12]

Agro-Jal Deducted Renovations to Maldonado’s Home as Business Expenses. According to Los Angeles Times, “The IRS has challenged deductions by Agro-Jal that authorities said showed no apparent benefit for the business. They included $20,000 worth of memberships at the Santa Maria golf club, work on a residence at the resort community of La Quinta, near Palm Springs, and the cost of two horses on the farm. […] [IRS Technical Services Territory Manager Susan Branz] also took issue with receipts that were marked ‘Abel’s house’ and indicated that Agro-Jal paid for renovations at the Maldonado residence. Braunz contended the company improperly deducted $4,444 it spent to re-tile a bathroom shower there, $732 for tools to re-seal the house’s deck, $10,000 for tile and $6,000 for unspecified work at the house.” [Los Angeles Times, 5/31/12]

Agro-Jal Deducted Cost of Two Horses as Business Expenses. According to Los Angeles Times, “The IRS has challenged deductions by Agro-Jal that authorities said showed no apparent benefit for the business. They included $20,000 worth of memberships at the Santa Maria golf club, work on a residence at the resort community of La Quinta, near Palm Springs, and the cost of two horses on the farm. Susan Braunz, an IRS technical services territory manager, wrote in court documents: ‘I asked the taxpayer [Agro-Jal] to show me the places on the property that were not accessible by tractor and to show me what the horses were used for. The taxpayer refused. The testimony is considered to be selfserving and not supported by any documentation establishing a business purpose for the expenditures.’” [Los Angeles Times, 5/31/12]

Agro-Jal Deducted $2,000 Catering Bill for an Event that an IRS Investigator Questioned as Possibly Political as a Business Expense. According to Los Angeles Times, “[IRS Technical Services Territory Manager Susan Braunz] also questioned a $2,000 catering bill for an event marked as ‘Abel Maldonado Wednesday December 5, 2007.’ Noting that Maldonado was a state senator, she wrote: ‘The party could have just as easily pertained to his political career’ as to company business.” [Los Angeles Times, 5/31/12]

2006 – 2008: $600,000 Unpaid Personal Taxes

IRS Alleged Laura and Abel Maldonado Under-Reported their Income Between 2006 and 2008 by $1.8 Million. For tax years 2006, 2007, and 2008 the IRS alleged Laura and Abel Maldonado under-reported their total taxable income by a net total of $1,809,38.  The IRS alleged the Maldonados under-reported their total taxable income by $1,422,276 for the tax year ending December 31, 2006, over-reported total taxable income by $207,837 for the tax year ending December 31, 2007, and under-reported total taxable income by $594,942 for the tax year ending December 31, 2008. [Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 15102-10, Petition, Exhibit A, Form 4549-A, Income Tax Discrepancy Adjustments, Line 2, filed 7/2/10; Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 3926-11, Petition, Exhibit A, Form 4549-A, Line 2, filed 2/15/11]

Between 2006-2008, the IRS Alleged Laura and Abel Maldonado Owed Nearly $600,000 In Additional Taxes. The IRS sent Laura and Abel Maldonado two notices of deficiency in their tax payments: one for tax years 2006 and 2007, and one for tax year 2008. According to the delinquency notices, Laura and Abel Maldonado faced a tax deficiency of $598,064. For the tax year ending December 31, 2006, the IRS alleged the Maldonados under-assessed their tax liability by $470,343, for the tax year ending December 31, 2007, the IRS alleged the Maldonados over-assessed the their tax liability by $3,000, and for the tax year ending December 31, 2008, the IRS alleged the Maldonados under-assessed their tax liability by $130,721. [Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 15102-10, Petition, Exhibit A, filed 7/2/10; Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 3926-11, Petition, Exhibit A, filed 2/15/11]

Laura and Abel Maldonado Contested the IRS Assessment and Petitioned the U.S. Tax Court. Laura and Abel Maldonado contested the IRS’s allegation that they had tax deficiencies for tax years 2006 through 2008. The Maldonados petitioned the U.S. Tax Court, denying all tax deficiencies. [Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 15102-10, Petition, filed 7/2/10; Maldonado and Maldonado v. Commissioner of Internal Revenue, Docket No. 3926-11, Petition, filed 2/15/11]