IRS Probing Raider ‘Loans’ : Football: Team allegedly failed to pay federal taxes in time on $10 million from Irwindale. Davis to lodge appeal at hearing.

Raider owner Al Davis is scheduled to appear at a U.S. Tax Court hearing in San Francisco on July 10 to appeal a deficiency notice claiming that the Raiders failed to pay at the proper time federal income taxes on $10 million the team received in 1987 from Irwindale. The money was a deposit on promises to build a stadium there.

Spokespersons for the IRS and the Tax Court confirmed the proceeding Thursday, as did the Raiders’ attorney, Barrie Engel of Oakland.

“There’s a number of matters at issue,” Engel said. “But it’s essentially a timing question. . . . We don’t anticipate any major problem with it.”

Engel said the government is contending that what was characterized by Irwindale and the Raiders as a “loan” to the team of $10 million should have been reported as taxable income on the next corporate return, but that the team was two years late in reporting it as income and paying taxes on it.

When Irwindale, a San Gabriel Valley community, failed to build the stadium, the loan was forfeited to the Raiders.

The Raider attorney said he had no idea what amount in penalties and interest the government has billed the team, and government representatives would not specify the figure.

But IRS spokeswomen said in Los Angeles that annual interest ranging from 9%-11% a year would apply, plus penalties ranging as high as 100% of the tax bill if negligence and fraud were adjudged. They did not say that they had been in this case.

The government’s attorney, David Sorenson of the chief counsel’s office for the IRS, said Thursday from Las Vegas that “all of the outstanding issues” have not yet been publicly identified, although he would not say what the others were.

Donovan Main, an attorney for the Los Angeles Coliseum Commission, said that the IRS has subpoenaed commission records of the $6.7-million “loan,” never repaid and later officially forgiven, that the commission gave the Raiders when they moved here in 1982.

Besides the the $6.7-million Coliseum “loan” and the $10-million “loan” from Irwindale, the Raiders received $10 million from the Spectacor private partnership in a failed promise to renovate the Coliseum, and, just last week, were promised a $31.9-million “loan” from Oakland for moving the team back there.

In the case to be heard before U.S. Tax Court Judge Mary Ann Cohen on July 10, a onetime consultant for the city of Irwindale, Fred Lyte, has been subpoenaed to testify as to the nature of that city’s $10-million payment to the Raiders. Lyte was a principal negotiator for Irwindale and was instrumental in selling the deal to the Irwindale City Council.

Lyte said that it was his understanding, from talking to IRS officials, that the government believes the Raiders might not have paid taxes on the $10 million for as many as four years after they were due.

Lyte said that it had been agreed that the $10 million would be characterized as a loan that ultimately would be put into construction of the stadium, but that when Irwindale couldn’t build the stadium, the amount was forfeited.

Xavier Hermosillo, another Irwindale negotiator of the 1987 agreement with the Raiders, said, “The issue is very clear. It was either a payment, a gift or a loan. Davis reported it as a loan. Was it ever paid back? The answer is no. It is income.”

Raider attorney Engel said there is no dispute about that and that income tax had been paid on the $10 million in “later years.” He said the issue is when they were paid.

In the case of the $6.7-million “loan” from the Coliseum Commission to Davis, Coliseum negotiator Bill Robertson once observed that it was always meant to be a gift, but had been characterized as a loan for tax purposes.

The clerk of the U.S. Tax Court, Charles Casazza, said in Washington that the files in the case are a matter of public record, but are being shipped from Washington to San Francisco for the hearing.

* Mark Sachs of The Times staff contributed to this story.