Feds seek the maximum term for developer Jeffrey Wirth

  • Article by: DAN BROWNING , Star Tribune
  • Updated: September 15, 2012 - 6:44 AM

The developer's attorneys say he warrants a light sentence.

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Jeffrey Wirth

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Federal prosecutors want commercial real estate developer Jeffrey Wirth locked up for as long as the law allows when he comes up for sentencing Wednesday for what they describe as "a massive, long-term and sophisticated tax fraud conspiracy, one of the largest ever prosecuted in this state."

Wirth's attorneys argue the 53-year-old Plymouth resident should be sentenced well below the federal sentencing guidelines because he's been a blessing to his family and a generous patron to his employees, charities and young entrepreneurs he's mentored through the University of Minnesota.

Prosecutors say Wirth should be ordered to pay $6.45 million in restitution for underpaying his taxes from 2003 through 2005.

Wirth's attorneys say he owes nothing.

It's up to U.S. District Judge Ann Montgomery to sort it all out. She presided over a daylong hearing Friday in Minneapolis as a federal revenue agent explained how the government calculated Wirth's tax bill, and a former IRS agent testified that the agent was flat wrong.

Assistant U.S. Attorney William Otteson argued in court filings this week that Wirth deserves five years in prison, which is at the top of the sentencing guidelines range and is the statutory maximum. Wirth attorney Christopher Madel said he deserves no more than 24 months, with as much time as possible to be served in a halfway house.

The one thing everyone agreed on was that Wirth, the owner of the Wirth Companies in Brooklyn Center and about 30 other business entities, kept lousy books.

Wirth, of Plymouth, is best known as the developer of the Grand Lodge Hotel Waterpark in Bloomington and the Grand Rios Hotel and Water Park in Brooklyn Park. He also spent about $54 million turning the old Minneapolis Athletic Club into the luxury Grand Hotel Minneapolis.

Yet from 2003 through 2006, Wirth and his now ex-wife, Holly Damiani, paid just $7,567 in federal income taxes, said Nona Bosshart, a revenue agent assigned to the IRS special enforcement group. Bosshart explained that the IRS didn't go back further because the law won't allow it.

Wirth, Damiani -- who was the Wirth Companies' former CFO -- and outside accountant Michael Murray all have pleaded guilty in the case. Prosecutors said Wirth and Damiani helped themselves to company funds and defrauded the government by failing to pay enough taxes.

Bosshart went through an analysis of $446,943 in personal credit card expenses that were paid with company funds, including $397,036 spent on travel and $6,360 on entertainment. Wirth and his family tapped the business accounts for $630,120 in cash withdrawals, she said.

Spas, boat and personal dock

An analysis of their checking accounts traced about $185,000 in company money, Bosshart said. Wirth and Damiani spent $37,145 at Life Time Fitness for dues, meals, spa treatments and personal training sessions. They spent $48,112 on their boat, much of which was for a personal dock.

Company money also went to pay for an 18,000-square-foot custom home and 15-car garage that they built on an island in St. Albans Bay on Lake Minnetonka, Bosshart said. They dubbed it the "Isle of Windemere." Bosshart said the company ledger shows $4.5 million going into the home, and the IRS traced another $2.3 million of company funds to it that were not recorded.

Asked how that could be, Bosshart said the Wirth Companies didn't balance their bank accounts.

The company revenue that flowed to Wirth and Damiani -- about $9.7 million from 2003 to 2006 -- should have been reported as distributions, she said. By failing to report the cash flows properly, they could avoid paying capital gains.

Wirth and Damiani each reported just $12,000 a year in income from the companies. The IRS analysis concluded they should have been reporting a combined total of $400,000 to $499,000 for those years.

Rodney Oakes, a retired IRS agent, disputed Bosshart's analysis. "I did not come up with any tax owing. Zero," he said.

Dan Browning • 612-673-4493

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