IRS Seizes Wheeler Hot Springs, Puts It Up for Sale

The historic Wheeler Hot Springs resort was put on the auction block for a modest $40,000 Friday after being seized by the Internal Revenue Service for failing to pay nearly $300,000 in employee payroll taxes, IRS officials said.

The public auction was postponed, however, when few bidders showed up at the IRS office in Oxnard, a spokesman said. The resort is now tentatively scheduled to be sold to the highest bidder Sept. 27. The new owner would also face millions of dollars in liens on the property stemming from unpaid debts.

In the meantime, IRS officials said they are exploring other avenues of getting the overdue tax payments.

“We are considering our options right now as to what to do,” revenue officer Alex Bautista said. “Anything is possible.”

Reached at his Ojai restaurant Friday evening, Thomas L. Marshall, president of the corporation that owns the resort, declined to comment on the pending sale.

“I don’t know the results of today and cannot comment,” said Marshall, who also manages the 103-year-old facility.

The planned auction of Wheeler Hot Springs is the latest in a string of tumultuous events that have plagued the resort in recent years.

Nestled in the mountains about six miles northwest of Ojai, the spa known for its haute cuisine and hot mineral baths has been ravaged by fire, flood, health department closures and financial misfortune.

Most recently, property records show that Wheeler Springs Resorts Inc. defaulted on a $500,000 loan in July. The resort has half a dozen liens placed on it by various parties for nonpayment as well, records show.

Notices of liens on the land were provided at the morning auction Friday. They indicate more than $3.1 million in encumbrances from the former owners, the IRS and the Ventura County tax collector.

Wheeler has had its share of nonfinancial troubles in recent years as well, troubles that bubbled up again this week.

The resort’s restaurant was shut down Tuesday by the Ventura County Environmental Health Division for having contaminated drinking water.

A retest of the water conducted Friday failed and the restaurant is now expected to be closed through the weekend. The hot tubs remain open, however, because they operate on a separate water system, county officials said.

“There was a presence of bacteria in their drinking water, which is a violation,” said Robert Gallagher, community services manager for the county’s environmental health division. “We’ve had no reported illnesses.”

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The restaurant must provide two consecutive clean water samples to the county before it will be allowed to reopen, he said.

Wheeler’s hot tubs were briefly closed to the public two years ago because of high bacteria levels in the water. Suspicions that a rodent crawled into the water system were never substantiated and county officials say old pipes may have been the culprit.

Disgruntled employees who work for Wheeler Springs Resorts Inc. say the problems are indicative of a general decline in the management and maintenance of the resort.

But the biggest management headache they say they have encountered has been bounced paychecks.

“It’s the luck of the draw when you go to the bank,” said a spa worker who asked not to be identified. “Money has been a constant problem.”

Last month, the resort’s 65 employees held a meeting to discuss bounced paychecks and wrote a letter of complaint to manager Marshall.

“We haven’t received a response,” the employee said.

Some resort workers have filed complaints with the state Labor Board after repeatedly being told by an Ojai bank that Wheeler’s account has insufficient funds, they said.

Officials at the labor agency’s office in Santa Barbara confirmed Friday that they have an open case on Wheeler Springs Resorts Inc. and have three complaints on file.

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Chips Maurer, a spokesman for the IRS office in San Jose, said the employees have probably lost whatever money they thought was being withheld from their paychecks for taxes.

“They might be real unhappy,” he said.

With the seizure of the historic resort, situated on 85 acres of rustic mountain land in Los Padres National Forest, the IRS becomes its most recent proprietor.

Wheeler’s first paying guests soaked in 104-degree mineral baths in 1893 after a road was built to the hot spring. The first established spa, built by founder Wheeler Blumberg, featured a dance hall, hotel, cabins and a restaurant.

Years later, Wheeler Hot Springs became a popular training camp for boxers, including Jack Dempsey, reputed to have had his own brass soaking tub.

But the resort first faced calamity in 1917 when fire raged down the gorge, consuming most of Wheeler’s buildings and killing five people. Fires in 1932 and 1948, and a flood in 1938 took their toll.

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In the years that followed, new ventures by proprietors to expand the resort failed. One operator saw the property fall into receivership. Another committed suicide in one of Wheeler’s cabins.

Evelyn and Frank Landucci owned and operated Wheeler for 23 years before selling it to Thomas L. Marshall and other investors in 1993 for $3 million.

Marshall’s ambitious expansion plans for the property included creating a cluster of small guest cabins, new hot tubs and massage rooms, and an expanded restaurant.

With the IRS tentatively planning its auction later this month, employees at Wheeler said they are hopeful a new owner may be able to turn the resort around.

“I have a lot of fondness for Wheeler,” one longtime employee said. “It is painful for me and others to see the neglect.”

Times correspondent Scott Steepleton contributed to this story.