COEUR d'ALENE - Former State Representative Phil Hart filed additional papers in his bankruptcy case on Monday in a further attempt to prove he was in no way trying to hide assets from the courts.
He also filed separate documents asking the judge to allow him to file for a homestead exemption on his home, which would allow him to protect up to $100,000 in equity.
Late last month the U.S Department of Justice, on behalf of the Internal Revenue Service, and the Acting U.S. Bankruptcy Trustee filed separate complaints alleging Hart knowingly made false and fraudulent claims in an attempt to hide income assets and the ownership of his home from the bankruptcy courts.
They also claimed that he failed to maintain or concealed records concerning tax deductions he tried to claim on amended returns he filed after losing his bid to challenge the legality of the federal income tax.
In a form of protest, he purposely did not file his federal taxes from 2006 through 2011. During that time, Hart carried his protest through the courts until the U.S. Supreme Court refused to hear his case. At that point he filed his back tax returns.
Since then, the IRS has come after Hart for $564,000 in back taxes - an amount which Hart contends is grossly exaggerated.
The IRS won a significant ruling from U.S. District Court Judge Edward Lodge when it filed suit asking the court for the ability to foreclose on Hart's home.
During those proceedings, Lodge ruled that a trust created by Hart to take ownership of his home was not legal, and that the legal owner of the home was, in fact, Hart.
But he stopped short of allowing the IRS to foreclose on it, at least until Hart's tax liability is sorted out in the courts.
Lodge also ruled that Hart's recent tax deduction claims were not adequately proven, and denied him the opportunity to amend them for his current bankruptcy case.
That ruling is what prompted the DOJ and trustee suits late last month asking the courts to deny the discharge of Hart's back taxes in his bankruptcy proceedings, and the DOJ has since filed to consolidate those complaints.
Hart did attempt to address the complaints earlier this month, while objecting to a DOJ request for more time to investigate Hart's finances.
The DOJ fired back last week, saying that Hart did not adequately address the allegations stated in its complaint, and that further discovery time was needed to investigate new information Hart provided in his response.
While the court has yet to rule on that request, Hart and the creator of his trust have filed papers explaining the formation of the trust, and also addressed the other allegations in more detail.
"In August of 1997, and again in October of 1997, after hearing of the high expense of probate and learning of the benefits for estate planning purposes of having a trust, I set out to create an irrevocable trust for the benefit of my only child, Sarah Hart," he wrote the court. "In pursuit of this objective, it was my intention to hire and thought at first that I had hired a professional in estate planning and forming trusts."
He created White Peak Ventures Trust with the help of original trustee Tim Ortega, he wrote. He then lost confidence in Ortega and sought the help of Gordon Ormesher who helped create the Sarah Elizabeth Hart Trust.
He told the court that he could not explain the August 1997 date on the transfer of his house to that trust because he hadn't even thought about establishing the second trust at that time.
Hart said beginning in 2005 and through 2007 he was audited by the IRS for his back taxes from 1997 through 2004. He claims as a result, he was denied 100 percent of his business deductions on all eight returns.
At that point he hired a forensic accountant to audit his returns and she determined his liability to be 1 percent more than what he had originally filed. The IRS claimed he owed $100,000 more than what either himself or his accountant came up with.
According to Hart, his accountant has filed an affidavit stating that in her opinion the amount of the IRS claim was arbitrary.
Hart now believes the IRS has overstated his tax liability by $284,000, he told the court.
Based on that, Hart told the court on Monday that he believed that he was within the statutory limits of tax liability on both of his Chapter 13 bankruptcy filings last year. Both of those filings were dismissed.
He explained that his lawyer at the time signed the motion to dismiss the bankruptcy over his objections, because at the time he was unaware that his debts were over the statutory limits.
He was hoping to establish what he felt was the correct amount of tax liability in both of those bankruptcy filings.
"There was no attempt at subterfuge, but rather my good faith attempt to put this entire matter behind me," he wrote.
As for not mentioning his trust during the first Chapter 13, Hart said he was following his attorney's advice, but he added that his attorney did mention the trust in his second Chapter 13 attempt.
He said once there was a judicial decision concluding the trust was ineffective, he amended his current Chapter 7 filing to include his home.
Hart also filed for a request for the court to allow him to file a homestead exemption in his bankruptcy filing to prevent IRS from foreclosing.
"The IRS trustee tries to argue that it was in bad faith that on the part of Mr. Hart to transfer the Sarah Loop property in an Irrevocable Trust," his attorney wrote. "However, the transfer was made almost 16 years ago. There is no nexus between that transfer and this bankruptcy.
"How could that transfer possibly be bad faith in relation to this bankruptcy, almost 16 years later?"