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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Hart’s finances under fire

Tax-protesting ex-legislator faces federal scrutiny

Hart
John Miller Associated Press

BOISE – A bankruptcy judge has ordered a tax-protesting former Idaho state representative to submit to intense new scrutiny of his finances, something federal lawyers say is necessary to prevent him from hiding assets from creditors including the U.S. government.

Phil Hart now must appear at a hearing May 20 in U.S. Bankruptcy Court in Coeur d’Alene, according to Chief U.S. Bankruptcy Judge Terry Myers’ order.

Hart, a Republican from Athol who lost his bid for re-election last year, has been ordered by courts to pay the federal and state governments more than $600,000 in delinquent income taxes, interest and penalties. He filed for Chapter 7 bankruptcy protection in January after the U.S. government moved in 2011 to seize his log home in North Idaho to satisfy debts.

This latest examination of Hart’s accounts will cover, among other things, corporations he owns called AEG LLC and Snow White LLC, as well as the Sarah Elizabeth Hart Trust, a trust named after his daughter where the U.S. Department of Justice says he “fraudulently” transferred his home.

Government lawyers contend Hart’s past bankruptcy disclosures have been incomplete and they suspect he’s using these entities to hang on to property including a tractor, an Audi sedan and potentially undisclosed funds. They contend he’s spent thousands on lawyers and others since his bankruptcy in January, though at the time he listed less than $350 in liquid assets.

“On at least one recent occasion, Hart has paid a personal expense … directly from AEG’s checking account,” U.S. Department of Justice tax attorneys wrote in recent documents demanding the May 20 hearing. “These facts … raise the possibility that Hart has stowed money or property in AEG against the day of his bankruptcy discharge, or that he has understated his income by omitting personal expenses paid by the business.”

Reached Monday, Hart was confident the May 20 hearing ordered by Myers will show he’s not shielding assets inappropriately.

“My understanding is this is a normal process for a person going through bankruptcy,” Hart said, adding that he still believes he’s being unfairly treated by the IRS. “The bigger issue in this whole process is, what were my legitimate business expenses, all of which were denied through a process that audited eight years of my personal tax returns.”

With his order, Myers is forcing Hart to submit to what’s called a “Rule 2004 Examination,” a provision of bankruptcy law meant to untangle a debtor’s murky finances.

Among other things, Hart must provide statements from every account he’s controlled since 2011.

Hart, who lost his bid for a fifth term in the Idaho House last year, stopped filing federal income tax returns in 1996 while unsuccessfully pursuing a federal lawsuit challenging the federal income tax’s constitutionality.

He now owes $53,000 to Idaho and more than $550,000 to the IRS.

A settlement conference is set for June 19 in the government’s separate U.S. District Court lawsuit to seize Hart’s home.