Statute of Limitations Does Not Save Gary George From Old State Tax Assessments

Originally Published on forbes.com on November 19th,2011

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Gary R. George has had quite thecareer.  Last fall he was on the upswing, but he recently suffered a set back in the Wisconsin Tax Appeals Commission.  The taxesinvolved cover several years going back as far as 1989.  I’m beginning to think that there is some sort of relationship between how old the taxes being litigated are and how colorful the litigant is. Gary George appears to be about half as colorful as the late Harry Stonehill. (There was a recent ninth circuit decision about an assessment on Stonehill going back to 1958).  Half as colorful as Harry Stonehill, who counted Stan Lee of Marvel Comics as a friend, is quite colorful. 

Gary George was a Wisconsin state senator from 1981 to 2003.  He took a shot at running for governor in 2002 getting his campaign off to a great start by having billboards go up that referred to him as George Gary.  In 2003 he became the second Wisconsin state senator to be recalled.  The issues in the recall were corruption charges, his vote against the Potawatomi Bingo Casino and accusations that he did not actually live in his district.  Then in 2004, he went to federal prison on corruption charges. In perhaps the most colorful interlude in his story, freshly out of prison in 2007, he was implicated in a plot to overthrow the government of Laos.  Nothing seems to have come of that.  Last September the Wisconsin Supreme Court restored his right to practice law.  Things were looking up.

Compared to a recall, a run for governor, doing federal time and a government overthrow plot a state tax deficiency hardly seems that interesting but I’m a tax geek and that’s what I write about.  More or less in tandem with the federal investigations, the Wisconsin Department of Revenue was investigating Senator George in the nineties.  In 1999, the supervisor of the investigator forwarded a recommendation for assessments to her supervisor.  Nothing happened. Then in 2005 the Department assessed over $90,000 in tax, interest and penalties (more interest than tax).

What changed between 1999 and 2005 ?  Nobody seems to know. In 1999, he was an influential state senator, who would soon be running for governor.  In 2005, he was a federal inmate.  That is just coincidental though unless you are on the cynical side.  Assuming it was his juice that kept the Revenue Department off him, his argument to get out of the assessment is ironic.  He was pleading the statute of limitations.  It’s not quite like the kid who murdered his parents and then asked for mercy because he was an orphan, but that is one of my favorite jokes and I’ll fit it in with the slightest opening.

The Department’s answer is that there is no statute of limitations when there is fraud.  This led to an entertaining argument about the precise wording of the statute:

if any person has filed an incorrect income tax or franchise tax return for any year with intent to defeat or evade the income tax or franchise tax assessment provided by law, or has failed to file any income tax or franchise tax return for any of such years, income of any such year may be assessed when discovered

 The Court went with the Department’s reading of the statute:

This case requires us to choose between two readings of the meaning of Wis. Stat. § 71.77(3) . The Petitioner’s reading of that section would require the Department to issue an assessment in a case involving fraud at the time “when discovered.” On the other hand, the Department’s reading essentially is that when fraud is discovered, the Department may issue an assessment at any time thereafter. For the reasons stated below, we believe the Department’s reading is correct. First, the Department has the better statutory construction argument. Second, while the Petitioner argues that the “when discovered” language in the statute is a limitation, the Petitioner cannot say exactly what that limit is, although the Petitioner argues that the alleged limit was violated here. Third, the Petitioner’s construction would lead to results that would be anomalous, if not absurd. Finally, our review of the context and history of this provision leads us to the conclusion that the legislature meant what it said.

The case is not over yet.  This was just a motion to dismiss. I go through the states in alphabetical order when federal cases are slow or I have time on my hands.  I’m on California right now, so maybe there will be a final decision the next time I visit Wisconsin.  If you want to keep up to the minute on it, though, here is a blogger who follows Wisconsin politics.