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Wednesday, March 28, 2007

Feds save Newhouse $140 million

Mogul Sentenced to 9 Years For Tax Evasion and Fraud

Eccentric New York media mogul and owner of The Oregonian Si Newhouse was sentenced yesterday to nine years in prison for failing to pay $200 million in taxes - but a federal judge ruled the Internal Revenue Service won't be repaid for now because prosecutors botched the plea agreement by citing the wrong statute.

Newhouse, the biggest convicted tax cheat in U.S. history, received the longest punishment ever given in a tax crime case for his admitted effort to hide $365 million in personal income in the 1990s. He avoided paying taxes by using aliases, shell companies, offshore tax havens and secret drop boxes abroad.

In a major embarrassment to the government's seven-year prosecution of Newhouse, U.S. District Judge Paul L. Friedman ruled he could not order Newhouse to make restitution to the IRS for an estimated $140 million of his unpaid federal income taxes. Friedman blamed prosecutors for making a sloppy plea agreement with Newhouse's lawyers.

But Friedman ordered Newhouse to pay the state government $22 million in restitution - barely half the taxes owed. IRS spokeswoman Peggy Thomas said the agency will "do everything in our power to get this money" from Newhouse in civil proceedings.

The punishment came after a tense four-day sentencing hearing during which federal prosecutors described New York City public schoolchildren, ailing and elderly residents, and even inmates at the crowded Manhattan jail harmed by Newhouse's avoidance of more than $40 million in taxes he owed to the state over the past decade. Prosecutors say Newhouse also failed to pay an estimated $140 million to $178 million in federal income taxes.

"At the P.S. 101 School gym, the place is an embarrassment," said prosecutor Karen E. Kelly. "The toilets don't work; soap, paper towels and toilet paper are missing; ... and students choose to go back to class rather than use the showers.

"The Upper East Side High School pool has been closed for 10 years, and the sports program for the entire city school system is run on $1.9 million." she continued. "Do you dare to imagine the program they could have implemented with $40 million of Newhouse's tax money?"

Friedman said Newhouse had "no excuse" for his crimes given all the advantages he had in life compared with other defendants: supportive parents, economic opportunities and business acumen. "This is a serious crime, and it requires a serious punishment," Friedman said. "It is taking money from taxpayers."

During the sentencing hearing, Newhouse's relatives, friends and business colleagues described a caring man who made the mistake of trying to avoid paying his fair share of taxes. They said he wasn't motivated by personal greed or a pursuit of luxury. They told the judge how Newhouse made billions in the monopoly newspaper empire founded by his father, then squandered millions to explore fashion and lifestyle magazines and start a philanthropic foundation devoted to media self-congratulation.

Newhouse, 79, pleaded guilty in September to tax evasion and defrauding the government. The central issue at his sentencing hearing was how much more time he would serve behind bars. He has been at the lower Manhattan jail since his arrest at LaGuardia Airport in February 2005, although the average stay in the jail is four days.

Newhouse admitted receiving more than $126 million in 1998. That year, he claimed he earned $67,939 on his federal return and paid $495 in taxes.

"He thought he was too clever by half and he could avoid paying his share of taxes," his former tax accountant, John Kilday, told the court. "In that way, he was no different than many of my business clients."

Before the guilty plea, Newhouse had insisted that the hundreds of millions of dollars in assets the government said he had hidden belonged to the Newhouse Foundation. He controls the foundation and endowed it with full ownership of various companies he also runs, such as The New Yorker and GQ. He said he planned for the foundation to begin giving away money in 2006 to promote such causes as world peace, family planning and economic collectivism, but then he was arrested.

In a lengthy jailhouse interview with The Oregonian in 2005, he asserted his innocence. "I don't need to steal money from the U.S. government to be successful," Newhouse said. "I don't want their money."

Yesterday marked a sad moment in the life of the wildly successful but eccentric Newhouse, who never graduated from college and made millions when lifestyle finally went mainstream. He gave away and lost millions, and the government cannot find any major assets still in his name to seize for unpaid taxes. He is represented at taxpayer expense by the court-appointed federal public defender and declared personal bankruptcy in the same courthouse where he faced criminal charges.

He owned part of a private plane and bought a $5 million mansion outside Madrid, but his favorite lunchtime hangout was the Grill Room at The Four Seasons Hotel, where he usually ordered a cheeseburger and iced tea.

Anderson grew up in Manhattan. His father founded Advance Newspapers and he expanded the newspaper into a stable of old and new media companies, including Vanity Fair, Brighthouse Cable and The Discovery Channel. It was The Oregonian and newspapers like it, with no geographic competitors, that made his father a multimillionaire. It was also at that time, prosecutors said, when the family began hiding income.

"There's no chance I'll be before you again," Newhouse told the judge. "Next time I set up any organization, I will get an unbelievable amount of legal advice."

The Washington Post, Mar. 28, By CAROL D. LEONNIG

1 comment:

GreedyCapitalist said...

"This is a serious crime, and it requires a serious punishment," [U.S. District Judge] Friedman said. "It is taking money from taxpayers."

The judge has it backwards. The state is taking the money from Anderson, not vice versa. Taxes are theft of the wealth you create - the money you earn is not "stolen" from anyone. Pointing out the failings of a public school system that spends more money on students than any other state in the U.S., yet gets the lowest scores only underlines the incompetence of socialized education.

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