Fumo's Lawyers Challenge IRS, Seek U.S. Appeals Court Hearing

By Ralph Cipriano

FCI-Ashland [Kentucky]

for Bigtrial.net

While Vince Fumo continues to reside in a federal prison in Kentucky, his lawyers back home in Philadelphia are busy on two fronts.

Tax lawyer Mark E. Cedrone has filed a challenge to the IRS's recent imposition of a "jeopardy assessment" against the former state senator for $2.9 million, a penalty that Cedrone describes in his challenge as "completely frivolous" and lacking "any reasonable basis whatsoever."

Meanwhile, criminal appeals lawyer Peter Goldberger has filed a petition for a rehearing, asking all the judges on the Third Circuit of the U.S. Court of Appeals to reconsider a Feb. 4 opinion that vacated the restitution portion of a sentence previously imposed on Fumo by U.S. District Court Judge Ronald L. Buckwalter.

At issue is whether Fumo should have to pay another $783,284 in restitution to the federal government.

Fumo's lawyers maintain he's already paid back $3.8 million in restitution and fines to the feds; the prosecutors who put him away in 2009 on 137 counts of fraud, conspiracy and obstruction of justice want Fumo to pony up another $783,284.

A panel of three appeals court judges sided with the prosecutors, striking down Judge Buckwalter's previous order on restitution, and asking Buckwalter to take another crack at it.

Goldberger wants all 15 Third Circuit appeals court judges to reconsider the matter because, he argues, the panel of three judges who heard the case last December did not understand the facts of the case, in part because of a "misstatement of the facts" made by Assistant U.S. Attorney Robert Zauzmer. 

Assistant U.S. Atty. Robert Zauzmer

Back on Nov. 14, 2011, when he re-sentenced Fumo, Judge Buckwalter decided that a total of $1.57 million owed in restitution to the Citizens Alliance For Better Neighborhoods [CABN] should be split equally between Fumo and Ruth Arnao, the former executive director of Citizens Alliance, at $783,284 each.

The prosecutors in their appeal said that Buckwalter's 50-50 split on the CABN restitution amounted to an "abuse of discretion," and that Fumo should pay Arnao's share as well.

In a 20-page petition filed April 19th, Goldberger singled out Assistant U.S. Attorney Zauzmer for making during oral arguments what Goldberger characterized as a "highly inaccurate expression" that is a "misstatement of the facts."

Goldberger quotes Zauzmer as telling the appeals judges during oral arguments, "We're here to say that Mr. Fumo is the one who took all the money, received all the money ... The District Court [meaning Buckwalter] abused its discretion in letting him off from repaying to the victim half of what he personally took and put in his pocket."

"To the contrary," Goldberger argues, "most of the benefit that accrued to him [Fumo] from the items that contribute to the CABN restitution amount ... was intangible and/or indirect. Very little went into his 'pocket' even metaphorically."

Of that $1.57 million fraudulently stolen from the Citizens Alliance, Goldberger argues, the largest amount, $573,608, according to the government's own brief, went into capital improvements of an office building owned by CABN, plus the furnishing of Fumo's office.

That $573,608 "cannot be fairly characterized as a gain that was pocketed in any sense," Goldberger wrote. The $573,608 includes $100,000 for a parking lot "that certainly went into no one's pocket,"Goldberger writes.

The next largest amount of money taken from CABN was $364,825 spent on eight vehicles used by Fumo, Arnao, and other CABN staffers. Fumo may have driven one of the vehicles, Goldberger writes, but he did not pocket that money either.

The next highest amount stolen from CABN was $250,000 spent on polling for Fumo's political campaigns. But that money was not a loss to Citizens Alliance because it was reimbursed by Fumo prior to his indictment, Goldberger writes.

Goldberger argues that contrary to what Zauzmer told the panel of appeals court judges, Arnao was a bigger beneficiary of CABN than Fumo was in at least in one category. As CABN's executive director, Arnao was paid an annual salary of $150,000, Goldberger writes, while Fumo wasn't paid a salary.

When Arnao's salary was found to be part of the fraud committed by Fumo against the state senate, Goldberger writes, Arnao's salary was subsequently reimbursed to the state senate by Fumo, and not Arnao.

It was the government's decision to assess Arnao's share of the $783,284 owed in restitution at the rate of $1,000 a month, Goldberger writes. Even though Arnao may be capable of paying more.

The Appeals Court "seems to accept as true the practical fact that to the extent Mr. Fumo is finally ordered to make restitution, Ms. Arnao will not have to pay," Goldberger writes. "This is not because she cannot, but only because the government has chosen to exercise its power of collection against him and not her."

In his petition, Goldberger defends Judge Buckwalter.

"The panel should not suggest, through its opinion, that Judge Buckwalter acted in any way improperly in taking these factors into account," Goldberger writes. Judge Buckwalter had to look at "the big picture," Goldberger writes. Rather than an abuse of discretion, Goldberger says, Judge Buckwalter's decision on restitution amounted to a "painstaking exercise of discretion."

The judge considered Arnao's salary, and Fumo's repayment of that salary, Goldberger writes.

Furthermore, Goldberger writes, the appeals court chose to consider Fumo's net worth of $11 million back in 2009, "without acknowledging that his 'economic situation ... has materially deteriorated' since then." 

On Nov. 14, 2011, when he re-sentenced Fumo, Judge Buckwalter increased the former state senator's jail term from 55 to 61 months. He also increased the restitution and fines levied against Fumo by $1.1 million, to $3.8 million.

Striking down Judge Buckwalter's decision on restitution may be unconstitutional, Goldberger argues, because it would result in "a kind of increase in the maximum sentence that can only be based on a jury verdict."

Regarding Fumo's problems with the IRS, the trouble started on March 21, when 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, amounted to a bill for a total of $2.9 million.

In addition to the assessment, the IRS also served levies on several financial institutions, freezing Fumo's assets.

Mark E. Cedrone

In his 21-page challenge to the IRS delivered on April 17th to Ortiz, the acting area IRS director in Philadelphia, Cedrone refers to the jeopardy assessment as part of the IRS's "recent and  unjustified draconian actions taken against Senator Fumo."

The IRS, according to Cedrone, "lacks any justification for the jeopardy assessment which, under the [IRS's] own policies, is to be employed sparingly and only in cases where the [IRS] possesses credible evidence suggesting that the taxpayer is 'designing' to place assets beyond the reach of the government."

To justify the jeopardy assessment, the IRS relied upon a series of "alleged" cash transfers made by Fumo to his son, Vincent E. Fumo, II. The IRS "incorrectly states that Senator Fumo transferred $2.7 million to his son, a substantial portion of which represented cash gifts," Cedrone wrote. "This is simply not true. Although cash may have been transferred to joint accounts in which his son had an interest, or even possibly into an account titled only to his son, Senator Fumo never manifested donor intent."

Instead, Fumo was going off to prison, so he gave his son power of attorney to manage his affairs. Of the money transferred from Fumo to his son, $1.7 million was paid to the federal government for fines and restitution levied against Fumo, Cedrone wrote.

A jeopardy assessment is only supposed to be imposed when the taxpayer is planning "quickly to depart" from the U.S., or is "designing quickly to place his or her property beyond the reach of the government by removing it from the United States, by concealing it, by dissipating it, or by transferring it to other persons," Cedrone wrote.

"None of the above conditions exist in this case," Cedrone writes. Fumo is in jail. He hasn't even been assessed yet at by the IRS as owing the government any additional monies. And Cedrone has argued in an interview that in his view, Fumo owes the IRS nothing.

In Cedrone's view, the IRS shouldn't be going after Fumo before it's settled whether he owed the government anything or not.

"This places the proverbial 'cart before the horse,'" Cedrone writes. "If a claim of prospective tax deficiency can justify invocation of a jeopardy assessment, the jeopardy process could then be employed in every case."

Of eight properties owned by Fumo that were cited by the IRS as being sold or transferred between 2008 and 2012, on five of the properties Fumo is still listed among "joint tenants" along with either his son or his fiancee, along "with the right of survivorship."

So if the IRS determines that Fumo owes them money, the agency can still go after the properties. "Senator Fumo did not put any asset beyond the reach of the Internal Revenue Service," Cedrone wrote. 

When Fumo was hit with the jeopardy assessment, he was also handed a memo from the IRS that was supposed to be a "narrative" about Fumo's alleged evasive maneuvers involving the disposal of his properties and the supposed moves of substantial amounts of cash. 

"The narrative suggests that Senator Fumo made the transfers," Cedrone writes. "This is an impossibility. Senator Fumo was incarcerated and did not have access to his bank accounts." 

Cedrone said the IRS narrative relied on faulty information.

"It is somewhat curious that the IRS would rely on information received from an unidentified and clearly incorrect source concerning the transfer of assets," Cedrone wrote. At the time, Fumo had plenty of reason to be moving assets because he was involved in paying the federal government $3.4 million in restitution.

"In light of the above, it is not only unreasonable for the [IRS] to rely on the alleged transfers of cash detailed in the narrative in support of the jeopardy assessment, it is shameful," Cedrone wrote.

 In their narrative, the IRS said that Fumo transferred $920,000 in cash to his son's account, which the IRS said amounted to a taxable gift.

But it wasn't a gift, Cedrone wrote, because, "What makes a transaction a gift is the intent of the donor."

The transaction wasn't even made by Fumo. It was made by his son, Cedrone wrote, with the intention of paying his father's bills.

In his challenge to the IRS, Cedrone includes a declaration from Fumo's son, which says:

"To the extent that my father's funds made their way into an account in my name only, I would have received those funds only as his conduit and ultimately disbursed them on his behalf."

"To the best of my knowledge and recollection, at no time during 2009 did I receive a gift from my father."