IRS writes up $70-million tax bill for Conrad Black

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Conrad Black has been hit with a $70-million (U.S.) tax bill from the U.S. Internal Revenue Service, which claims he failed to pay taxes on more than $116-million in income.

In a series of notices filed in the United States Tax Court, the IRS alleges that Lord Black did not pay taxes on a variety of payments he received between 1998 and 2003 while running Chicago-based Hollinger International Inc.

The payments cited by the IRS include management fees, dividends, non-competition fees and an assortment of taxable benefits such as use of the Hollinger jet, use of a company-owned apartment in New York and Hollinger's purchase of historical papers related to Franklin D. Roosevelt, which Lord Black used to write a book on the former president. The IRS is also going after money paid to Lord Black's wife, Barbara Amiel-Black. The tax agency is seeking $47-million in unpaid taxes and more than $22-million in penalties.

Lord Black has challenged the assessment in court, arguing that he was "neither a citizen nor a resident of the United States" and was not obliged to pay taxes in the U.S. The lawsuit was first reported Thursday by Forbes.com.

In his suit, Lord Black alleges that the IRS based its case on a 2004 report by a special committee of Hollinger directors. That 500-page report became the basis for a number of allegations against Lord Black and other former Hollinger executives. It also underpinned the bulk of the criminal case against Lord Black and four others. Lord Black was ultimately convicted in 2007 of three counts of fraud and one count of obstruction of justice, but most of the criminal charges based on the committee's report were either dropped by prosecutors or dismissed by the jury.

Lord Black is serving a six-and-a-half-year sentence in a Florida jail but the U.S. Supreme Court recently ordered a lower court to reconsider fraud convictions in the case (four others were also convicted of fraud).

"These allegations [in the committee's report]were hopelessly biased, ignored critical facts, and were the product of sloppy and careless investigative work by the special committee," Lord Black says in his tax challenge. "Unfortunately, they form the predicate for many of the 'tax deficiencies' now asserted by the [IRS]"

Bryan Skarlatos, a New York lawyer representing Lord Black, accused the IRS of "piling on." In an interview Thursday, Mr. Skarlatos said: "They are rehashing many transactions for which he has been acquitted." He added that he is confident Lord Black will win the case.

This isn't the first tax problem for Lord Black. He settled a dispute with the Canada Revenue Agency three years ago. It's not clear what that case involved but the CRA had put a $14-million (Canadian) lien on his mansion in Palm Beach, Fla. The lien has been removed.

It was Canadian tax authorities, not the IRS, who figured prominently in Lord Black's criminal case. Many of the allegations against Lord Black and the others centred around their re-characterization of payments as non-competition fees in order to avoid paying taxes in Canada. At one point, the CRA was even named as a victim in the case, although prosecutors later dropped the reference.

Lord Black's ties to the U.S. have been limited over the years. While Hollinger International was based in Chicago, he controlled the company through Ravelston Corp. Ltd., a privately held Canadian company. He was forced to give up his Canadian citizenship in 2001 in order to sit in the House of Lords as a British citizen.

Former Hollinger executives David Rader and Peter Atkinson, also convicted of fraud, have filed similar challenges to IRS notices that they also failed to pay taxes. Both are Canadian and live in Vancouver and Toronto, respectively.