Montijo Accused of Failing to File Federal Tax Returns

Ben Montijo, executive director of the San Diego Housing Commission, failed to file federal income tax returns for 1979 and 1980, his first two years as the agency’s top administrator, according to an IRS audit notification letter sent to his ex-wife.

In addition, other IRS documents show that the commission deducted no taxes from Montijo’s salary from 1979 to mid-1985. Montijo was paid as if he were an outside consultant, despite a contract that the commission’s attorney says plainly designates Montijo as a regular employee. The arrangement, contrary to IRS regulations, permitted Montijo to take home 100% of his salary as “non-employee compensation.”

Montijo denied Tuesday that he failed to file the returns in 1979 and 1980, and said he doesn’t know why the IRS said otherwise in its 1984 letter.

“I don’t know that the IRS is 100% perfect and they don’t misplace returns,” Montijo said. “I’m not interested in discussing my specific case. It’s private, it’s been taken care of, and that’s the end of it.”

Montijo confirmed this week that he had been a subject of an Internal Revenue Service investigation, but he maintained that he has always paid his taxes. “They were paid, certainly, at the end of the year,” he said. “But I may also have made periodic payments. I don’t recall. I have to go look at the records.”

Questions about Montijo’s taxes prompted the IRS to open an investigation in 1984 into his finances, a probe that was active for at least a year, records show.

Sarah Wreford, an IRS spokeswoman, said Tuesday she could not discuss any specific tax examination. A check of public records shows that the IRS hasn’t filed any criminal charges or tax liens against Montijo, but Wreford said IRS investigations often result in charges or fines that are not publicly disclosed.

“They (IRS) weren’t sure whether I was a consultant or an employee,” Montijo said. “I don’t recall why they weren’t sure. I just recall that was one of the issues. I gave them the information and it is cleared up.”

Montijo has been the commission’s only executive director since the agency was formed in 1979, but housing commissioners have called a special meeting for Thursday to determine whether he should be retained.

The special meeting was called after an internal investigation revealed that Montijo and his staff committed several irregularities--including the violation of federal regulations--in providing “extraordinary assistance” to developers to buy and renovate the Island Gardens Apartments under a federal program.

City Hall sources, who requested anonymity, say that the votes exist on the commission to oust Montijo by declining to renew his employment contract. Five of the seven commissioners are San Diego City Council members, including Mayor Maureen O’Connor.

Montijo, who came to the San Diego commission from the Fresno housing agency, signed a contract in April, 1979, that spells out the terms of his employment and dictates his vacation and fringe benefits. The agreement requires Montijo to devote full time to the agency and forbids him to work for any other “individual, firm, association or corporation.”

The original contract was for $41,000 in base salary, plus $200 a month in car allowance and $1,000 a year in an executive fringe-benefit package. Montijo’s base salary has subsequently been increased to $79,500.

Montijo’s taxes were investigated after IRS agents discovered that he had failed to file tax returns for at least three years--1978, 1979 and 1980, The Times has learned.

In a September, 1984, letter sent to Montijo’s former wife, who divorced him in 1981 and moved to Chicago, IRS Agent Eric W. Peters wrote that he was initiating a tax investigation because of the failure to file income tax returns. Montijo’s ex-wife, Patricia L. Bright, confirmed that she received the letter in a telephone interview this week, but she declined to comment further on the subsequent IRS investigation.

“This letter is to inform you that your federal income tax returns for the years 1978, 1979, 1980, 1981 and 1982 are under examination and that I have been assigned to complete the audit,” Peters wrote Bright.

“I have been working with records and other information that has been made available to me by your ex-husband, Benjamin Montijo,” Peters wrote. “For the years 1978, 1979 and 1980 there were no income tax returns filed by either of you. . . .”

“Due to the nature of this examination (the failure to file returns, the voluminous quantity of records here, and the California location of all the third parties) it will not be possible to transfer the audit to your location in Chicago,” Peters wrote.

Montijo’s tax troubles were not restricted to the federal level, county records show.

The California Franchise Tax Board filed a lien against him in July, 1982, to collect $6,823.92 in back taxes, interest and penalties for 1976, 1977, 1978 and 1979.

The tax lien was eventually lifted and Montijo told The Times that he settled the claim for about $1,700--a “whole lot less” than what the state was asking. “I wasn’t about to pay something that I didn’t owe,” he said.

Montijo said that other inquiries from state tax officials on unrelated Housing Commission matters prompted him to request a legal opinion from Marshall about his employment status at the commission. Montijo said he wanted to know whether the agency considered him an employee or a consultant. The determination would have a bearing on how the commission wrote his checks.

The difference would be felt immediately in take-home pay. IRS regulations dictate that anyone classified as an employee must have federal taxes and Social Security payments deducted from his pay. In the case of the Housing Commission, employees are exempted from the Social Security payments because they are not part of the program.

IRS spokeswoman Wreford said Tuesday that the employer, whether a private company or a government agency, simply has “no option” except to make those deductions for employees. She defined employees as people who can be hired or fired, who take work assignments from the company, and who depend on it for the tools and instruments needed to perform the job.

But a person deemed to be an outside consultant doesn’t face such paycheck deductions, Wreford said. The company or agency that hires the independent contractor can simply pay him a lump sum; it is then up to the consultant to file and pay the proper taxes and Social Security assessments, Wreford said.

Whether Montijo was a consultant or an employee was the question he put to commission attorney Larry Marshall in September, 1983.

Marshall’s opinion, dated Sept. 22, 1983, informed Montijo that the “conclusion that you are an employee (is) inescapable. The agreement is clear and unambiguous and, in my opinion, will not admit of any other determination.”

Marshall told the executive director that he is referred to repeatedly in the contract as an “employee” and the commission is called the “employer.” The contract is “replete with provisions typically found in an employment agreement,” including salary, provisions for vacations, fringe benefits and restrictions on outside work.

In addition, Marshall said the commission provides Montijo with “furniture, business equipment, secretarial assistance and a monthly car allowance,” as well as office space, to perform his job. To think that Montijo was anything other than an employee is “inconceivable,” Marshall wrote.

Montijo said this week that Marshall’s opinion supported what he had been telling the IRS all along.

“He (Marshall) submitted a response that in his opinion I was an employee, which I claimed,” said Montijo. “That was the end of it.”

But in March, 1985, the IRS questioned Marshall about his opinion and his professional relationship with Montijo.

And while Montijo says he considered himself an employee of the commission, the agency’s tax reporting records show he was being paid otherwise. Documents obtained by The Times show that the agency withheld no federal tax deductions from his paychecks between 1979 and mid-1985.

During the years the IRS said Montijo failed to file income taxes returns, commission records show the agency paid Montijo $25,844.16 for nine months in 1979 and $44,540.58 for the full year in 1980, with no deductions. The income was recorded on IRS form 1099, which lists the amounts as either “non-employee compensation” or “miscellaneous income,” and not on an IRS W-2 form, which is submitted for employees.

In the same way, Montijo drew his $45,875.50 in 1981 and $65,161.13 in 1983. No records were supplied by the agency for tax year 1982.

Even after Marshall’s opinion that Montijo was clearly an employee, the commission continued to pay the executive director without deducting taxes. In 1984, it paid him $74,233.60 in wages and $10,720.40 in miscellaneous income.

It was in mid-1985 that the commission began taking taxes out of Montijo’s pay. It collected $6,131 out of half of the $88,626 he was paid. Last year, the commission deducted $13,934.70 from the $87,500 he received.

When first asked about payment arrangement by The Times, Montijo said he was unaware that the commission failed to deduct taxes from his paychecks.

“I was getting compensation in several different forms, including car allowance and other forms. I don’t recall what the amounts were,” he said.

But in a later interview, Montijo said the system of paying him as an outside consultant was started by the city auditor’s office when the commission was in its infancy. After the commission hired its own accounting staff, the practice continued.

“What I faced was making the (tax) payments directly,” said Montijo. “It didn’t seem to me that it made much difference.”