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Wednesday, August 15, 2012 - Page updated at 09:00 p.m.
Feds: Idaho lawmaker's bankruptcy plan 'not feasible'
By The Spokesman-Review
SPOKANE — Federal prosecutors are calling for Idaho state Rep. Phil Hart's proposed bankruptcy plan to be dismissed, saying it's improper, it wouldn't appropriately satisfy his half-million-dollar federal income-tax debt, and it relies on an income source that will disappear at the end of this year: his legislative salary.
Hart, a tax protester and fourth-term lawmaker, was defeated in the May GOP primary, so his legislative salary will end in December.
"Hart's plan is not feasible," wrote U.S. Department of Justice attorney Adam Strait in court documents. Hart had proposed paying $200 a month for five years — a total of $12,000 — to get his entire debt of more than $600,000 discharged. Most of that debt is to the IRS; it also includes more than $50,000 in back state income taxes, penalties and interest, and $22,000 in credit-card debt.
The plan, Strait wrote, "fails to make adequate provision for paying the United States' priority income tax debts."
Prosecutors also noted Hart's refusal to answer numerous questions about his assets during a bankruptcy proceeding last month, from the home where he lives to the car he drives — neither of which he acknowledges owning.
Hart's Athol, Idaho home, which the federal government is seeking to foreclose on in a separate federal lawsuit to pay his IRS debt, is owned by a trust in his daughter's name. But he still lives there. Federal authorities called the transfer of the home to the trust a "fraudulent" transaction with a "sham entity."
That foreclosure lawsuit was placed on hold by Hart's bankruptcy filing.
During a bankruptcy hearing last month, Hart refused to answer questions about who owns the house; how long he's lived there; and who built it. But court records show that Hart was ordered to pay more than $22,000 for illegally cutting trees from state school-endowment land in 1996 and using them in the construction of the log home, for which he had a building permit. He maintained he had the right as a citizen to take the logs for free, but he lost repeated court appeals. He never fully satisfied the judgment.
Strait wrote in the bankruptcy-court documents, "It is particularly appropriate to permit further inquiry into these assets given that Hart admitted to using a holding company for an Audi."
Hart claimed in his bankruptcy filing that the only vehicle he owns is a 1990 Toyota pickup with 310,000 miles on it that "needs work." But he is a 50-50 partner in a firm called "White Snow LLC" that owns the 2000 Audi he drives regularly and keeps at his Athol home. White Snow LLC "has never done any business or filed any tax returns," Strait wrote.
At last month's hearing, Hart said of the LLC, "Its purpose is if there's a business opportunity that presents itself and there's a need for an entity to pursue that business, it's available."
Idaho House records show that during this year's legislative session, Hart was reimbursed more than $3,600 for mileage on a personal vehicle, for driving between Athol and Boise, an 888-mile round trip he made nine times between January and April.
Hart has now acknowledged in court documents that his debts were too high to file for a Chapter 13 bankruptcy. He agreed in a stipulation to either convert the filing into a Chapter 7 or Chapter 11 bankruptcy filing, starting the process over, or move to dismiss it. The lawmaker has until this week to make that move.
Chapter 13 bankruptcy is the most common form of bankruptcy; it allows a person with regular income to reorganize debts by setting up a plan to pay a certain percentage of them back over 46 to 60 months. Chapter 7 liquidates a debtor's assets and wipes clean his debts; Chapter 11 is another form of reorganization.
Hart reported in his bankruptcy filings that his engineering business earns him about $600 a month, but said he thought that would rise once his legislative salary ends in December and he has more time. Strait argued there's no evidence showing the business income would more than triple, so there's no evidence Hart could make even the small payments he proposed over five years.
Hart stopped filing both federal and state income-tax returns in 1996 while he pressed an unsuccessful lawsuit claiming the federal income tax is unconstitutional; he also charges that the state income tax is unconstitutional. After his lawsuit failed he began filing again, but authorities maintain he never fully paid up.
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