Businessman’s Challenge Airs IRS’s $25-Million Tax Claim Against Him

County businessman Kent Rogers has been handed a $25-million income tax bill, most of it for money he is accused of embezzling in a fraud on the Bank of America, according to the Internal Revenue Service.

The allegations, revealed in a lawsuit filed by Rogers, represent the first time a federal agency has formally claimed that Rogers was involved in the 1984 swindle that tarnished Bank of America’s reputation and cost it $95 million.

The 1983 tax bill for $25,032,490 came in the form of a jeopardy tax assessment issued by IRS District Director Michael J. Quinn on April 8. The normally secret assessment, used only when the IRS believes assets are being hidden or may be moved out of the country, was revealed when Rogers challenged it as unreasonable in a lawsuit in U.S. District Court in Los Angeles.

Rogers called the tax agency’s action, which does not require advance judicial approval but can tie up his assets, an abuse of authority.

“They take these broad, wide, sweeping approaches to everything,” he said in an interview. “You’ve really got an agency with total, unbridled power.”

Embattled on several fronts in court, Rogers revealed that the IRS has also moved to collect $12 million in back taxes from West Pac Corp., a corporation controlled by Rogers. The IRS notified him in early June that West Pac has 90 days to pay the bill or fight, he said.

In response to the Rogers court challenge, the government filed a defense of its actions. The filing provides a fascinating look at what U.S. Treasury agents believe were typical of Rogers’ business practices and life style since the fraud began to unravel in 1984.

The IRS portrays Rogers as a man whomtax agents could not find for years, who used West Pac as his “incorporated pocketbook” and who has meticulously avoided accumulating assets in his own name in what tax officials allege is a bid to defeat creditors and evade federal tax collectors.

In fact, agents stated in court papers that Rogers’ only available asset of value is his 63-foot yacht Sundance, which was seized April 8 from a repair yard in Marina del Rey.

Rogers protested the seizure, arguing a week later that the vessel was an “unseaworthy, broken boat of nebulous value.”

But agents said they seized Sundance less than 24 hours before it was to sail for Mexico.

In the court file, IRS agent Patricia Banas reported that Arturo Cruz-Oliva, the repair yard’s foreman, “stated that had we arrived a day later, the vessel would have been gone. Repairs on the vessel had been completed, with a final alignment of the engines to be completed that afternoon or evening. . . . Cruz-Oliva was not aware of any further repairs that were necessary to make the vessel seaworthy.”

Rogers, however, insisted that the boat was many months away from being seaworthy. He denied any plans to try to sail it to Mexico. “Somebody’s got a wild imagination,” he said.

Rogers, 49, of Huntington Harbour, is a well-known real estate entrepreneur who had interests in several firms despite a 1982 criminal conviction for bankruptcy fraud in Los Angeles.

West Pac, which a federal judge in 1986 found to be controlled by Rogers, received $18 million in loans through bonded mortgage pools marketed to a group of banks for which Bank of America served as escrow agent, according to IRS documents.

Those loans, on three properties in Texas and four in California--including a 36-unit apartment complex in Santa Ana, ultimately defaulted. Because of irregularities in escrow transactions, Bank of America reimbursed $95 million in investor losses.

“The funds received by West Pac were in reality embezzlement proceeds obtained by Rogers for having furnished highly inflated appraisals of the underlying properties in the Bank of America escrow,” according to a statement that IRS agent Frederick R. McBrien filed in the case.

Rogers used several of his firms, including West Pac, to hold funds and assets that were in fact his own, the IRS alleged.

Sundance was transferred among several of his firms, a family trust and an employee, according to an informant, McBrien stated.

Rogers realized $95,000 from the sale of a Rolls-Royce in 1984, informants told McBrien. The money was directed to a firm Rogers wholly owned.

His Huntington Harbour home, bought in 1983 for $350,000, was transferred by Rogers as West Pac president in 1984 to himself and a companion, according to documents in the lawsuit. West Pac was involved in real estate development.

Rogers drew large sums of cash from West Pac, agents concluded from a study of available bank records. He collected $67,000 in cash from the company from June, 1983, to September, 1984, often for spending money before weekends, the IRS alleged.

West Pac paid Rogers’ credit card charges and those of a woman whom the IRS identified as his companion. During eight months in 1984, those charges totaled $10,500 for Rogers and $52,862 for the friend, according to the IRS, which also alleged that $35,000 in medical bills for Rogers’ mother was also paid by West Pac.

The IRS reconstruction of Rogers’ finances shows a clear pattern of a bid to evade taxes, Assistant U.S. Atty. Charles H. Magnuson stated in court documents.

The IRS inquiry “also disclosed an absence of records held in (Rogers’) name, the absence of personal banking accounts, and (Rogers’) practice of not placing assets in his name or having assets identified as being personally held by him,” Magnuson wrote.

The investigation revealed “automobiles, a yacht and other water craft, bank accounts, assets or cash nominally claimed to be in the name of entities controlled by Rogers, were at his whim, available to him for his personal use and disposal.”

Failed to Report Income

Magnuson concluded that Rogers failed to report income from the Bank of America loan proceeds, which he called “an exceptionally profitable enterprise.”

Rogers said in court documents that he hasn’t lied about his finances, has cooperated completely with the government and is an established county resident with no intention of fleeing or “disposing of assets in a manner that will make them unavailable to the Internal Revenue Service.”

His inability to document expenses, which would lower any tax assessment, is in part because FBI agents seized personal and corporate records in 1984 and 1985 in the investigation of the Bank of America case, Rogers alleged.

While the lawsuit, filed by Newport Beach lawyer Alan W. Curtis, states that the FBI has refused to grant Rogers access to the records, IRS agent McBrien stated that Rogers may copy any of the records in FBI possession but hasn’t.

Rogers alleged that the tax assessment is inaccurate and based on hearsay; he asked for a court order blocking the seizure of the Sundance.

Rogers has not been charged with any crime in the case. In a civil lawsuit, Bank of America has alleged that Rogers was a central figure in the swindle. Rogers has countered that he was not a wrongdoer but a victim.

The bank has alleged that Rogers and others used inflated appraisals, insider dealing and worthless guarantees to induce more than 20 Eastern banks to invest $133 million in California real estate. The loans were packaged in pools, and the investors bought interests and expected to receive a fixed return.

97% of Loans Defaulted

According to papers in the civil lawsuit, pending in U.S. District Court in Los Angeles, 1,509 loans were packaged and sold in the scheme by National Mortgage Equities Corp. in 1982-84. More than 97% had defaulted by December, 1984. Just three of the loans, representing 0.3% of the total, were current on their payments last year.

A Bank of America study prepared to support its claims concludes that $10.3 million went to Rogers-related entities.

A key inducement in the scheme was the issuance of financial-guarantee bonds on the loans, in effect promising repayment of the mortgages in the event of default. Most of the bonds turned out to be worthless, the study said.

A firm that a judge found to have been controlled by Rogers, defunct Pacific American Insurance Co., provided $30.1 million in financial-guarantee bonds. Two years ago, a federal judge in Los Angeles concluded in a civil case that Rogers had taken more than $2.7 million in cash, property and notes from Pacific American while it was insolvent.

In seeking the assessment against Rogers, IRS District Director Quinn said agents had concluded that Rogers conducts his “business and personal financial affairs in a pattern of affirmative acts of fraud.”

Rogers has consistently denied any wrongdoing in the Bank of America case, as he did in the interview. He was strident in his denunciations of what he called IRS harassment.

‘Can Do It to Anybody’

“When you’ve got an agency like this . . . you’ve really got a problem,” he said. “They can do it to anybody.”

Rogers said he spends most of his time following developments in various court cases. He insisted he will beat the IRS. Asked whether he could pay if he lost, Rogers said:

“Could I pay it? If I had to pay it? Oh, I could probably scrape up a couple million dollars.”