1-Year Prison Term in Tax-Shelter Case

A San Diego businessman on Monday was sentenced to one year in federal prison for failing to maintain federal income tax records connected to the sale of allegedly abusive solar energy tax shelters to 400 local investors.

Darrell Wade Hurst had expected to be sentenced to 90 days in a halfway house and three years of supervised probation--the same sentence meted out to two of his colleagues in the last month.

But U.S. District Judge Earl B. Gilliam, who as a San Diego Superior Court judge in 1978 had reduced Hurst’s felony conviction to a misdemeanor, ignored a federal probation report recommending a nine-month prison sentence and ordered Hurst, 43, taken into custody immediately.

“The first time was your mistake; the second (would be) mine,” Gilliam said.

In 1978, Gilliam placed Hurst on three years’ probation after his felony conviction for conspiring to violate provisions of the state insurance code through an insurance-financing scheme had been reduced to a misdemeanor. Hurst served 90 days in custody for the offense.

While he was on probation, Hurst and two others began selling solar energy tax shelters that authorities claim resulted in investors improperly claiming as much as $18 million in tax credits and deductions between 1978 and 1981.

Their firms--Diversified Solar Systems, National Solar Rentals and Associated Teachers Tax Center--pleaded guilty in February to conspiring to cheat the federal government out of taxes by selling the solar tax shelters, a felony.

The typical investor, according to government prosecutors, bought a solar energy tax package for $27,500, paying $6,000 down and signing a promissory note for the remaining $21,500. The note plus interest totaled $30,100. The investor then was told he could claim a total investment of $36,100 and thus was entitled to tax credits and deductions exceeding the $6,000 cash investment.

Collectively, the investors paid about $3 million in cash and signed about $15 million in notes for more than 9,000 solar panels.

Only a few of the panels were completed or installed, prosecutors said. Many of the solar panels are still sitting idle and unprotected in a field in Lakeside, according to an Internal Revenue Service agent.

Hurst was also president of Turbowind Inc., a San Diego firm that made and installed wind turbines and sold them as tax shelters to individuals and partnerships. Turbowind filed for protection under the U.S. Bankruptcy Code in April.

Most recently, Hurst was employed with American Oil and Minerals in San Marcos.