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IRS Auditor Testifies In Attorney’s $3 Million Tax Trial

October 4, 1988

SAN FRANCISCO (AP) _ Attorney Melvin Belli’s accountant did not know about a transaction that led to a $3 million tax claim, an Internal Revenue Service auditor testified Monday.

Belli, 81, maintains that he does not owe back gift taxes and penalties on an office building he transferred to his son, Caesar. The IRS contends the sale of the building was a sham, in which no money changed hands because the $9,000 a month his son was to have paid was offset by Belli being charged the same amount in rent.

Large gifts are taxed against the giver at a higher rate than the capital gains tax on a real estate sale.

U.S. Tax Court Judge Julian Jacobs said he wants the trial, which resumed Monday, to conclude this week.

IRS auditor David Stohlberg testified he met four times over 10 weeks in 1984 with Belli accountant John Jones before he received a grant deed and promissory note documenting the building transfer.

He said Jones told him Belli had been ″difficult″ and that he, Jones, was considering not keeping Belli as a client. Stohlberg said Jones told him that until the tax examination began, he was unaware of the transaction.

Although the deed showed it was signed in January 1981, it wasn’t recorded until September 1984, the auditor said. The discrepancy ″raised all sorts of questions in my mind,″ he said.

Belli has testified that he made out a deed for the building to his son on Christmas in 1978, but didn’t deliver it until 1981, telling his son to work out the purchase price. He said he wanted to keep the building in the family, but was advised by Jones that a gift would be taxed prohibitively.

He said that he asked Caesar several times during the next three years to get the building appraised and to take care of the related legal paperwork, but nothing happened until 1984.

A deed to the building was recorded with the city in 1984, listing the date of purchase as 1981 and the price at $1.4 million. The IRS said the building was worth $2.4 million in 1981 and $4.2 million in 1984.

The IRS wants gift taxes and fraud penalties from Belli for either $1.2 million, $1.4 million or $3 million, depending on whether the transfer took place in 1978, 1981 or 1984.

In a related case, the IRS is seeking more than $300,000 in back taxes and penalties from Belli and his estranged wife, Lia, who has filed for divorce.

Belli sat in the front row of the courtroom with his son, Caesar, Monday. During a break he peeked at an artist’s sketch and when he was asked how he looked, Belli replied, ″Tired.″

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