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Originally published Thursday, May 19, 2011 at 3:14 PM

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Ex-billionaire takes on Montana tax authorities

After beating Montana authorities in a $57 million tax dispute, former billionaire Tim Blixseth is going on the offensive against officials and business adversaries he says conspired to force him into bankruptcy.

Associated Press

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After beating Montana authorities in a $57 million tax dispute, former billionaire Tim Blixseth is going on the offensive against officials and business adversaries he says conspired to force him into bankruptcy.

The founder of the ultra-posh Yellowstone Club on Thursday said his attorneys intend to depose Montana Gov. Brian Schweitzer, the club's new owners and others in pursuit of sanctions in the case.

A federal judge Wednesday threw out Montana's forced bankruptcy petition against Blixseth. A September trial is scheduled for sanctions sought against the state and its attorneys.

Montana Department of Revenue attorney Lynn Butler says an appeal of Wednesday's ruling is being considered.

A spokeswoman for Schweitzer says he had no involvement in the bankruptcy petition because of tax confidentiality laws.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

Former billionaire Tim Blixseth said he will pursue court sanctions against the Montana Department of Revenue after a federal judge tossed a bankruptcy petition the state filed against him seeking $57 million in alleged unpaid taxes.

The petition could have forced the founder of Montana's ultra-exclusive Yellowstone Club to liquidate his assets if it had been successful. But it was dismissed when U.S. Bankruptcy Judge Bruce Markell in Las Vegas ruled Wednesday that Blixseth does not have any tangible assets in the state, making Nevada an improper venue.

On Thursday, Montana's lead attorney on the petition characterized the ruling as a narrow one that did not directly address the state's legitimate tax claims.

"Those issues are still alive, and once we see the order entered, we probably have an idea of what we're going to do next," said Lynn Butler, a bankruptcy attorney based in Austin, Tex.

He added that the state would fight any sanctions "tooth and nail."

Under federal bankruptcy law, sanctions against the state could include a monetary award. Blixseth attorney Mike Flynn said those could total hundreds of thousands of dollars and entail damages from the wide publicity the case has received case.

A Sept. 1 hearing date was scheduled on the motion for sanctions. Flynn said he intends to depose Gov. Brian Schweitzer and other state officials who Blixseth said have conspired against him since before the Yellowstone Club's 2008 bankruptcy.

"We are going to depose everyone in the food chain that filed this," Blixseth said. "They took a shot at me and it was a bad-faith bankruptcy filing."

Blixseth said that the petition was nothing more than a "desperate move" to derail pending litigation related to the Yellowstone Club's 2008 bankruptcy and a separate lawsuit Blixseth is pursuing against Credit Suisse. The latter case involves a $375 million loan the banking industry giant made to the club in 2005.

The 60-year-old is a resident of Washington state. Last month, he paid $1.9 million in back taxes to California and Idaho to get them to withdraw as co-plaintiffs with Montana in the forced bankruptcy petition.

As a condition of those settlements, Blixseth agreed not to seek sanctions against authorities in the two states.

Montana authorities led the petition against Blixseth, going after him in Nevada because he put most of his assets into a family trust registered in that state several years ago.

Forbes once pegged Tim Blixseth's net worth at $1.3 billion. Court documents recently put the figure at roughly $230 million.

He still faces a $40 million civil judgment handed down last year by federal bankruptcy judge in Montana over claims related to the Yellowstone Club's 2008 bankruptcy. That order is on appeal.

There's also an outstanding case against Blixseth before the Montana State Tax Appeals Board. That litigation was put on hold after the federal case was filed.

Authorities and creditors claimed he drained hundreds of millions of dollars from the Yellowstone Club, leading to its bankruptcy. The club has since emerged from bankruptcy under new owners.

Most of the money that Blixseth took out of the private ski and golf resort near Big Sky came through the 2005 Credit Suisse loan. The money bankrolled a lavish lifestyle for Blixseth and his ex-wife, Edra Blixseth, that included a fleet of cars, two luxury jets, millions of dollars in jewelry and furniture and estates in France, Mexico, California, Scotland and elsewhere.

Montana authorities contended the money should have been counted as income on which Tim Blixseth owed taxes. The states' claims spanned a five-year period, 2002 to 2006, and included more than $36 million in taxes and almost $21 million in penalties and interest.

Tim Blixseth has said the Internal Revenue Service ruled years ago that the Credit Suisse money was a legitimate loan to the club. And he contended that any liabilities against the club were the responsibility of Edra Blixseth, who took control of the resort after the couple's 2008 divorce.

After the bankruptcy petition was filed on April 4, Tim Blixseth alleged it had been engineered by state authorities, including Schweitzer, in collusion with Credit Suisse and the club's new owners, CrossHarbor Capital Partners, of Boston.

"No American should have to go through what I just went through, but if somebody had to I'm glad it was me," Tim Blixseth said. "Most people wouldn't have the fortitude or the resources to fight."

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