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Comedian Allen Having Problems with IRS

October 17, 1986

WASHINGTON (AP) _ The Internal Revenue Service wants Woody Allen, the comedian and film director, to pay $310,729 in back taxes for claiming losses on what the tax- collectors say were financial ″shams.″

The IRS wants to disallow $500,000 in writeoffs the New York comic writer took on lossess from two investment partnerships in 1977 and 1978.

Allen’s tax lawyer has denied the government’s charges and asked the U.S. Tax Court to throw out the back-tax order. The dispute is still pending, with the records open to public view at the Tax Court.

Allen, who rose to fame in the 1960s as a neurotic comedian, has starred in and directed such movies as ″Sleeper,″ ″Annie Hall″ and ″Manhattan.″ He reported making $414,803 in 1977 and $830,627 in 1978.

The IRS sent the New York actor a notice of deficiency last June 26. His lawyer, Dennis Ardi of Los Angeles, filed a petition Sept. 5 asking the Tax Court to hear the case.

Allen claimed deductions of $500,000 - $60,000 in 1977 and $440,000 in 1978 - on losses stemming from two investment partnerships known as Square Associates and Square Two Associates.

Neither Allen nor his lawyer, was available for comment. Ardi did not return two calls to his office.

The IRS documents state that the transactions ″did not occur or did not occur as claimed. The transactions lacked economic substance and were shams, and therefore cannot be recognized for tax purposes. Further, the transactions were not entered into for profit.″

According to Ardi’s response, the partnerships were bona fide investments in a bond trading group known as FSI Group, another limited partnership, that dealt in Treasury bills, Treasury bonds, Ginnie Maes and money market futures contracts.

Ardi also argued that it is too late for the IRS to seek back taxes for those two years.

Normally the IRS can collect back taxes three years after a return is filed or six years in cases involving ″substantial″ underpayments. There is no time limit in cases involving alleged civil fraud.

The IRS said Allen owes $113,067 for 1977 and $197,662 for 1978. It said it regards ″the entire underpayment of your income taxes ... (as) substantial″ and said it will levy 120 percent of the usual interest payment on the late taxes. It did not specify how much that amounts to.

Allen’s return listed other business writeoffs for both years. The IRS indicated Allen had been audited previously and agreed to a settlement of a dispute involving other writeoffs in 1975 and 1976.

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