Wyly fortunes hinge on $3 billion ‘difference of opinion’
Former Dallas billionaire Samuel Wyly’s “difference of opinion” with the Internal Revenue Service could turn an offshore fortune into an onshore fraud, if the agency gets its way.
Wyly, 81, and the estate of his late brother Charles Wyly joined forces for a trial Wednesday against the IRS in Dallas, seeking to wipe out the agency’s $3 billion claim for back taxes in their Chapter 11 bankruptcy cases.
The Wyly brothers, who developed companies including the arts and crafts retailer Michaels Stores, hid stock offshore and made illegal trades for 13 years, taking in $550 million in illegal profit, a federal jury in Manhattan found in 2014. That case, a victory for the Securities and Exchange Commission, triggered demands for years’ worth of back taxes and penalties by the IRS and forced Wyly and his brother’s widow, Caroline “Dee” Wyly, into bankruptcy.
The dispute in the latest trial hinges on the validity of trusts set up on the Isle of Man by the Wylys starting in 1992. Lawyers for Sam Wyly and his sister-in-law claim the trusts were legitimate, while the IRS argues they were used to avoid taxes and finance lavish lifestyles for Wyly family members from Texas to Colorado.
“It’s not fraud,” the Wylys’ lawyer, Donald Lan, said in an opening statement at the trial. “We think there’s an honest difference of opinion over the law.” By contrast, IRS lawyer Cynthia Messersmith said the case was about lies and “deception” surrounding one of the biggest tax frauds in U.S. history.
The offshore structure was specifically designed to evade taxes, Messersmith said in her opening statement. The profits were repatriated to the U.S. through a variety of schemes, she said, including the trusts’ purchasing of jewelry, art, furnishings and other luxury items for use by the Wylys. The trusts also financed loans to Wyly family members and gifts to the Wyly brothers’ children worth of millions of dollars, Messersmith said.
Lawyers for Caroline Wyly, who is also in her early 80s, have said the IRS lacks evidence that she systematically deceived the agency for 22 years. Caroline Wyly, who was married to Charles Wyly for 56 years before his death in a 2011 car crash, has said she regularly signed tax documents without reviewing them because she trusted her husband and their advisers.
Caroline Wyly has said she was left insolvent after husband’s Porsche was struck by another vehicle in western Colorado, killing him at the age of 77.
This story was originally published January 6, 2016 at 3:44 PM with the headline "Wyly fortunes hinge on $3 billion ‘difference of opinion’."