Central California Republican congressional candidate Abel Maldonado is haggling with the Internal Revenue Service over some $470,000 in disputed taxes, court records show.
The IRS says the money is owed for errors in some complex deduction and depreciation calculations. Maldonado, in turn, is challenging the agency in U.S. Tax Court, even as he pledges to commit his own funds to a race against Rep. Lois Capps, D-Santa Barbara.
I believe we paid the correct amount of taxes and followed the rules as we under- stood them, Maldonado said Wednesday. If the IRS finds differently, I will pay the taxes due with interest.
The tax dispute concerns income from a family farming venture, Agro-Jal Farming Enterprises, as well as a rental partnership.
The dispute started off quietly, with attorneys attempting to resolve their differences without going to civil trial. In late February, attorneys formally advised a judge that they were making continued progress in their settlement efforts.
But records in the U.S. Tax Court, located off the beaten track about six blocks from the Capitol, also hint at some complications. In a filing, Maldonados current attorney, Robert W. Wood, further explained that obtaining the necessary information and documents has been delayed because Maldonados one-time accountant lagged in providing documents despite repeated requests.
After the Democratic Congressional Campaign Committee posted an online reference to the Tax Court issue as part of a broader campaign attack, Maldonado said Wednesday he was filing paperwork to dissolve his involvement in Agro-Jal Farming.
Ill miss working with my family members in the company I helped found, but they dont deserve to have their privacy invaded every time my name is on the ballot, Maldonado said.
Maldonado faces Republican Chris Mitchum, a Santa Barbara resident aligned with the Tea Party, and Matt Boutte of San Luis Obispo, a no-party-preference candidate, in the jostling to unseat Capps, the 14-year House veteran.
Part of Maldonados campaign platform is a pledge to close the tax loopholes while keeping the tax burden down on working people.
Taxpayers and employers spend too much time and money navigating the 60,000-page IRS tax code, Maldonados campaign website declares.
A former state senator and Californias former lieutenant governor, Maldonado helped build up the familys 6,000-plus-acre Agro-Jal Farming Enterprises in Santa Maria. Besides being a source of income, the farm has been central to Maldonados political life. He notes that he first ran for office in 1994 after he encountered bureaucratic impediments to efforts to build a new cooling facility.
The farm brought Maldonado political embarrassment in mid-July 2010, shortly after then-Gov. Arnold Schwarzenegger appointed him lieutenant governor. Media reports that the IRS had placed a lien on the family farming business prompted the company to pay the $111,146 then in question.
The lien covered certain Agro-Jal Farming taxes for 2006 and 2007.
Following an audit of the business for the same years, court records show, the IRS in April 2010 sent Maldonado a notice of deficiency. Maldonado then went to court to challenge the alleged deficiency.
All told, the IRS added $1.4 million to the farming and rental operations taxable income for 2006, for which a net tax of $470,343 was assessed. The item-byitem disputes are acutely technical.
One question, for instance, is whether a cooling facility should be depreciated as a building or, more quickly, as refrigeration equipment. Another big-ticket but technical question deals with the timing of taking deductions for cartons and crates.
I hope that this incident helps educate people on the need for a simpler tax code that allows employers to focus on job creation, Maldonado said.