IRS Visits Vince Fumo In Prison To Deliver A Bill for $2.9 Million

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By Ralph Cipriano

for Bigtrial.net

For Vince Fumo, the news just keeps getting worse.

The former state senator still resides in a federal prison in Kentucky where he's serving a 61-month sentence for his 2009 conviction on 137 counts of fraud, conspiracy and obstruction of justice. 

Since late January, after doctors discovered three blockages in his heart, the 69-year-old Fumo has been walking around with a zipper in his chest after undergoing triple bypass surgery and dealing with depression, which doctors have told him is a frequent side affect of the surgery.

In February, a federal appeals court sided with the prosecutors who put Fumo away, ruling that the former state senator should give back even more money. The feds, who have already extracted $3.8 million in restitution and fines from Fumo, are seeking an additional $783,264.

On March 21, Fumo got a visit in prison from an IRS agent bearing a notice from Guadalupe N. Ortiz, acting area director of the agency's Philadelphia office. The IRS was formally notifying Fumo that he was being hit with an extremely rare "notice of jeopardy assessment and levy," which, including tax, interest and penalties, amounts to a bill for a total of $2.9 million.

In an interview, Mark E. Cedrone, Fumo's tax lawyer, termed the jeopardy assessment "a draconian infrequently-used weapon of mass destruction" employed by the IRS in only a fraction of cases. And the jeopardy assessment is not just a bill.

"They IRS has served levies on various financial institutions resulting in the freezing of significant assets" belonging to his client, Cedrone said.

Cedrone said the government's case is without merit, because the IRS is in no danger of failing to collect on any debts it may be owed. Fumo is still listed as a co-owner on five of the six transferred properties that the IRS has raised questions about, Cedrone said. So the IRS remains protected.

Not that the government deserves any more of his client's money, Cedrone said. While the IRS is seeking $2.9 million, Cedrone argues that under the law the amount due the IRS is "zip." That's what he plans to argue in appeals to the IRS, and possibly in a federal lawsuit as well.

"Where I come from, they call this piling on," said Cedrone, a South Philly guy.

"Under Sections 6861 and 7429 of the Internal Revenue Code, you are notified that I have found you are, or appear to be, placing property beyond the reach of the Government, by concealing it, dissipating it, or transferring it to others, thereby tending to prejudice or render ineffectual collection of income tax for the taxable years ended Dec. 31, 2001 through Dec. 31, 2005," Ortiz wrote Fumo.

"Since Fumo's indictment to present, he has transferred one-half interests or full interests in all of the properties he owned to his son (Vincent E. Fumo II) or current girlfriend/fiancee (Carolyn Zinni)," Ortiz wrote. "All of the transfers were for less than full, fair and adequate consideration, usually for $1 or $10."

In an accompanying memo, the IRS lists eight properties that Fumo has sold or transferred between June 12, 2008 and April 6, 2012, including:

-- 1831 Passyunk Ave., Philadelphia, with a market value of $235,000, sold on June 12, 2008.

-- 1936-38-40 S. 13th St., Philadelphia, with a market value of $130,000, transferred on Dec. 16, 2008 for $1.

-- 6601 Mommouth Ave., Ventnor, N.J., valued at $525,000, transferred on Oct. 12, 2011 for $10.

-- 108 Kenyon Ave., Margate, N.J., valued at $1.1 million, transferred on Oct. 12, 2011 for $10.

-- 30 Fiesta Way, Ft. Lauderdale, Fl., no market value noted, transferred on Oct. 18, 2011 for $10.

-- 2220 Green St., Philadelphia, valued at $3 million, transferred on Feb. 2, 2012 for $10.

-- 30 Fiesta Way, Fl., valued at $2.3 million, sold on April 6, 2012.

The idea that the IRS is in jeopardy of not collecting any money it might be due is "nonsense," Cedrone said. "The IRS could still attach a lien to the properties. His [Fumo's] name continues to be on all of the properties except one."

Cedrone said the property transfers took place "at a time when there was a lot of talk about the current estate tax exclusions expiring as a matter of law. A lot of people were transferring assets from their own names to their heirs jointly at that time," Cedrone said.

In its accompanying memo, the IRS deals with Fumo's recent transfers of cash.

"The Service received information that within a little over one month after sentencing, on or about the end of August 2009 through the end of January 2010, Fumo made a series of large dollar transfers into his son, Vincent E. Fumo II's bank account for no known purpose. It was reported that Fumo and son were engaging in a suspicious movement of funds between banks in order to hide their original source in a manner that is indicative of layering. The total amount involved was $2,793,500. In addition, the son subsequently transferred some of this money (approximately $1,427,500) to another bank, solely in the son's name."

"That's just malarkey," Cedrone responded. While Fumo was in prison, Cedrone said, his son was acting as his conduit, to see that his father's bills were paid. Of the money originally transferred through Fumo's son, Cedrone said, nearly $2 million was to paid to the government, to satisfy fines and restitution. 

Fumo was going to prison when he transferred the money, Cedrone said. He had no way to manage his affairs. So he had to put his money in joint bank accounts, so that his son could manage his affairs for him.

"This is the most heavy handed that the IRS could ever be," Cedrone said of the jeopardy assessment. "This has substantially interfered with his [Fumo's] ability to conduct his life."

Cedrone believes that the IRS decided to impose the jeopardy assessment after a story was published about Fumo's transfers in The Philadelphia Inquirer.

On Oct. 21, 2012, the Inquirer published a story under the byline of Craig R. McCoy and Miriam Hill, headlined, "Fumo Shifts Property Ownership, Keeps Quarreling."

If the first few words in the first paragraph were any indication, the rest of the story may not have exactly been on the money:

"From his spare prison cell in Kentucky, former State Sen. Vincent J. Fumo is fighting one last high-stakes battle with federal prosecutors, and quarreling once more with former allies-turned enemies." 

Oops. At the Federal Correctional Institute in Ashland, Kentucky, where Fumo is a prisoner, inmates are housed in "units" designed for two men; they do not live apart in a "spare prison cell."

"I firmly believe that they [the IRS] decided that he [Fumo] was transferring assets based in large part, I believe, on that article," Cedrone said. "As a consequence they took the position that because he was transferring assets he was placing in jeopardy the IRS's ability to collects the taxes in the future."

Cedrone said negotiations with the IRS were underway when the Inquirer story hit. On Oct. 3, 2012, the IRS sent Fumo a notice on "proposed adjustments to Vince's tax returns," Cedrone said. The IRS was asking for $2 million. Cedrone said he was in the process of responding when the Inky ran its story.

On Dec. 4, 2012, Cedrone sent the IRS his response. "Our position is, he [Fumo] owes zero," Cedrone said. Cedrone said he notified the IRS that his client was in prison and back in December, was dealing with three heart blockages, one of which was at 90 percent.

Cedrone does not understand the government's rush to collect from his client. In "99.999 percent of tax cases," a final determination of tax owed, if any, occurs before the IRS can engage in collection efforts," Cedrone said.

"Generally, it takes no less than two years and can take as much as five years" to resolve a dispute, Cedrone said. In 25 years, Cedrone said, he has represented hundreds of clients before the IRS, and "this is only the third jeopardy assessment I've been involved in."

In its jeopardy assessment, the IRS noted that Fumo owes money based on the the fraud he was convicted of.

"Fumo's conviction did not involve specific income tax crimes," the IRS wrote. "However, based on the evidence established during the three-month criminal trial, the Service determined the following deficiencies, penalties and and interest are due and owing by Fumo based on his fraudulent failure to report the benefits he received from defrauding the Senate of the Commonwealth of Pennsylvania and the Citizens Alliance for Better Neighborhoods."

"The Service determined that Fumo is liable for the fraud penalty ... for taxable years 2001 through 2005," the IRS wrote. "The Service's determination is supported by the following findings:"

 -- "Fumo repeatedly failed to report the taxable income and benefits received from" the Senate and CABN.

 -- "Fumo failed to maintain adequate records regarding the taxable income and benefits he received" from the Senate and CABN.

 -- "Fumo had dealings in cash to conceal his illegal activities and to avoid reporting the taxable income and benefits he received" from the Senate and CABN.

-- "Fumo concealed assets from the IRS."

-- "Fumo failed to cooperate with the IRS."

-- "Fumo's conduct demonstrated a pattern of misleading and concealing the receipt of income and illicit benefits from" the Senate and CABN.

-- "Fumo engaged in and attempted to conceal illegal activities."

In response, Cedrone said that the government's burden in this case is to prove the civil equivalent of a tax crime by proving fraud occurred with "clear and convincing evidence, which they don't have," he said.

"Fumo never dealt in cash, he never concealed assets, and he never failed to cooperate," Cedrone said. He said tax law also says that "money at issue in causing a loss to a victim," such as the Senate or CABN, "does not necessarily mean he [Fumo] received a benefit or a gain."

"We still say he owes nothing," Cedrone said.

If the government would have gone through with the usual process, Cedrone said, at the end of the day, if the tax court decided Fumo owed the government money, "Vince Fumo would have paid it."

"Vince Fumo's pattern of addressing obligations to the government is consistent; he pays it," Cedrone said.

Fumo's lawyer in the criminal case, Dennis Cogan, said he found the IRS's recent actions part of a disturbing pattern.

"I think that it's more than just piling on," he said. "It seems like the government is out to destroy this human being."

That goes ditto for the Inquirer, Cogan said.

Cogan talked about the "toxic atmosphere" created by the Inquirer. The newspaper crusaded for five years against Fumo before the trial began. Then they buried him during and after the trial.

Cogan talked about the appeals judges who have sat in judgment since the trial, and their law clerks who just don't seem to understand what really happened in the Fumo case.

"To suggest he [Fumo] lined his pockets on the backs of Citizens Alliance makes no sense," Cogan said. "He didn't line his pockets."

Cogan sat in on a U.S. Court of Appeals hearing on Dec. 14th, 2012, when the feds were seeking to extract from Fumo another $783,264 in restitution. He said the prosecutor in his arguments to the appeals court should have stated the facts in the case accurately, and not gone beyond those facts.

"Mr. Fumo is the one who took all the money," argued Assistant U.S. Attorney Robert A. Zauzmer to a panel of three appellate judges for the Third Circuit. "This is someone who has all this money."

A pre-sentence report said that Fumo was worth $11 million, Zauzmer said. In contrast, Zauzmer told the judges that  Fumo's co-defendant, Ruth Arnao, had a net worth of less than $100,000.

As part of her sentence, Arnao was ordered to pay $783,264 in restitution at the rate of $1,000 a month. At that rate, it would take her 60 years to pay the money back. Why should the Citizens Alliance have to wait for their money when Fumo has plenty, Zauzmer told the appeals judges. His argument was, why not stick Fumo with Arnao's tab of $783,264.

"Mr. Fumo ran this scheme ... he put it all in his pocket," Zauzmer told the appellate judges. 

That's not what happened, Cogan said. Out a total of $4 million that was stolen in the Fumo case [from Citizens Alliance and two other victims of fraud, the state Senate and the Independence Seaport Museum] most of that money didn't wind up in Fumo's pocket. It wound up in the pockets of Fumo's employees, consultants, state senate contractors, and political allies, such as Bob Casey's campaign for governor.

The largest portion of the $1.5 million in restitution for Citizens Alliance was hundreds of thousands of dollars spent on the purchase and renovation of a building on Tasker Street, Cogan said. The building was owned by Citizens Alliance and rented to the state Senate, for an amount of rent that prosecutors said was a bargain. As Dennis Cogan will tell you, how do you stuff a building into your pocket?

"They're forgetting so many positive things he did for so many," Cogan said about his client. Cogan recently was dining at a restaurant on Passyunk Avenue, when he noticed another patron who happened to be a Third Circuit Appeals Judge.

That judge was "taking advantage of the wonderful restaurant renaissance down there," Cogan said. None of it would have happened without Vince Fumo. He's the guy who got the money for the renovations, and the singing fountains. He got the money for Citizens Alliance, so it could do many positive things for the community, like picking up 100,000 tons of trash.

"He didn't line his pockets," Cogan lamented. "He donated thousands of hours of uncompensated time. If he had put that down in the proper box when he filed those 501C3 returns with the government, there would be no issue in this matter."

But don't expect to read about in the Inquirer. As Cogan says, the newspaper, like the government, appears hell-bent on the destruction of one man. While the rest of us have to watch.

Ralph Cipriano is writing a book about Vince Fumo.