Former billionaire entrepreneur Samuel Wyly told a federal judge that he filed for bankruptcy to avoid burdening his children with a $2 billion claim by the Internal Revenue Service.
Wyly, 81, said the agency’s demand for back taxes and penalties was too much to bear on top of a demand for hundreds of millions of dollars by the U.S. Securities and Exchange Commission, which won a fraud trial against him and his late brother Charles Wyly.
Wyly, who helped build the arts and crafts retailer Michaels Stores Inc., is challenging the validity of the IRS claim, having asked a Dallas bankruptcy court to throw it out. He was joined by Charles’s estate, which the IRS has targeted for another $1 billion claim. The dispute hinges on the brothers’ decades-long use of offshore trusts.
“I wanted to make the Internal Revenue Service put up or shut up,” Wyly said Friday during his third day of testimony.
Knew Little
Wyly said he relied on lawyers and accountants to set up offshore trusts at the center of the IRS’s claims, and that he knew little about the details of how they operated.
“People knew a lot more about accounting and tax than I do,” he said, describing how he set up trusts in the Isle of Man beginning in 1992.
A federal jury in Manhattan found in 2014 that Wyly and Charles hid stock offshore and made illegal trades for 13 years, taking in $550 million in illegal profit. Charles Wyly died in a 2011 car crash.
The Manhattan case triggered demands for years worth of IRS back taxes and penalties and forced Wyly and his brother’s widow, Caroline “Dee” Wyly, into bankruptcy. The IRS claims the Wylys dodged taxes by funneling their money to the trusts, and then directing the trusts to buy property and luxury items for use by the family in the U.S.
After the trial, a judge will determine the size of the agency’s claims in the Chapter 11 cases.