Feds say mansion housed tax scam

  • Article by: JENNIFER BJORHUS , Star Tribune
  • Updated: August 18, 2011 - 10:50 PM

Prosecutors say Jeffrey Wirth's Lake Minnetonka home was at the heart of a scam that cost the IRS millions.

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Tax dodge island? Prosecutors say Wirth and his former wife kept their Lake Minnetonka project afloat by taking money from Wirth’s business without paying taxes on it.

Twin Cities developer Jeffrey Wirth, known for creating large hotel water parks and for turning the old Minneapolis Athletic Club into a luxury hotel, had at least one project he never finished: his mega-mansion, a tile-roofed villa that has become a weedy eyesore on Lake Minnetonka.

Now, federal prosecutors say the unfinished albatross was the focus of a deliberate effort to siphon millions from Wirth's companies in a multi-year scheme to dodge taxes.

Wirth, his former wife, Holly C. Damiani, and their tax preparer, Michael J. Murry, were indicted Thursday, charged with tax-evasion conspiracy. Wirth and Damiani were also charged with filing false tax returns, and Murry was charged with procuring false tax returns.

The tax scheme ran from around early 2003 to early 2010, costing the Internal Revenue Service "millions of dollars," according to the indictment.

Wirth heads the Wirth Cos., a real estate company in Brooklyn Center. He developed the Waterpark of America near the Mall of America and the Grand Rios Hotel and Waterpark in Brooklyn Park, which have since been sold, and owns and manages other buildings, including offices, apartments and hotels.

Reached on his cellphone, Wirth said, "I just don't have any comment."

Lawyers for both Damiani and Murry said their clients deny the charges and intend to fight them. Wirth's lawyer, Chris Madel at Robins Kaplan Miller & Ciresi, could not immediately be reached for comment.

In recent years, Wirth has seen several properties go back to lenders or be put on the market. Last year the luxury Grand Hotel Minneapolis in downtown Minneapolis, which Wirth spent tens of millions of dollars renovating, went back to the lender in a deed in lieu of foreclosure. It was later sold.

The house the Wirths were building on Lake Minnetonka has been on the market since June 2010, the price slashed from $5.9 million to $3.95 million.

According to the indictment, Wirth and the others funneled more than $2 million from Wirth's companies to buy the land and build the mansion, and didn't report the money as income on either personal or business tax returns.

The abandoned villa, with its tile roof and arching doorways, sits on a private island connected to the mainland by a bridge in St. Albans Bay.

A Coldwell Banker listing describes the house at 5560 Maple Heights Road in Greenwood as nearly 19,000 square feet with six bathrooms and seven fireplaces. Work on the house stopped around 2006, and it became a local eyesore. The city has gotten a lot of phone calls complaining about the situation, said City Clerk Gus Karpas.

Karpas said Greenwood passed an ordinance in January requiring the exterior finishes of buildings to be completed within six months of a permit being issued, and Wirth was given until July 19 to finish the exterior.

"They did put some siding on it. They didn't do the stucco. That was a point of discussion," Karpas said.

Damiani and Wirth divorced in 2008. Damiani was a vice president at the Wirth Cos. from 1988 to 2006 and was the company's chief financial officer from 2003 to 2006.

Prosecutors said the two understated their wages for some of those years, each claiming incomes from the Wirth Cos. of $12,000 a year or less.

They also allegedly failed to report millions of dollars in fee income during development of the water parks and fraudulently eliminated income that should have been taxed by creating false management fee entries.

The couple also allegedly used at least $100,000 of company money on personal expenses such as a trips to Hawaii and Canada, dry cleaning and private school fees for one of their children, recording them as business expenses.

Murry's lawyer Bill Mauzy said Murry properly prepared the tax returns "based on information supplied by the clients" and didn't intend to violate tax laws.

"Mike Murry is an accountant who has honestly and properly prepared thousands of tax returns on behalf of hundreds of clients in the past 38 years," Mauzy said.

An initial plea hearing for the trio is set for 2 p.m. Monday in St. Paul before Magistrate Judge Steven Rau.

Jennifer Bjorhus • 612-673-4683

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