Candidate Maldonado and family business involved in tax dispute

SACRAMENTO — Former Lt. Gov. Abel Maldonado and his family’s business are embroiled in a legal dispute over more than $4 million in taxes that the IRS says they owe, according to court documents.

Maldonado, a Republican who is running for a congressional seat on the Central Coast, has co-owned a 6,000-acre Santa Maria farm that grows cauliflower, celery and strawberries. In April, he said he was severing his ties to the business, after reports of a battle in tax court over the IRS’ contention that he and his wife owed the government $470,000.

But court records reviewed by The Times show that the Maldonado family business, Agro-Jal, is also challenging an IRS finding that it underpaid its taxes by $3.6 million between 2006 and 2008. The case is now in settlement discussions.

In a statement Wednesday, Maldonado said he was looking forward to ending the matter.

“This dispute involves a lot of very complex accounting issues that other small businesses are attempting to navigate on a daily basis…. I want this resolved, and the second we get a bill that correctly defines our tax liability, it will be paid,” he said.

An IRS spokesman declined to comment.

“It is against privacy and disclosure laws for the IRS to comment about the tax matters of any taxpayer,” said spokesman Jesse Weller.

Most of the multimillion-dollar dispute stems from complex accounting methods and questions about how to deduct the cost of a cooling facility and crates and boxes used to ship produce. But the IRS also alleges that the business was used to pay for items that may have personally benefited Maldonado and his family.

Those include thousands of dollars in renovations to Maldonado’s home and a possible fundraiser for his campaign for state Senate, where he served before becoming lieutenant governor.

At the time, Maldonado listed himself as Agro-Jal’s controller/auditor on his state-required financial filings. He, his brother Frank and their father, Abel Sr., were one-third owners of the company. The firm employed an outside certified public accountant, according to Maldonado’s statement.

Taxes are a central issue for Maldonado’s campaign in the 24th Congressional District, newly drawn in an area now represented by Rep. Lois Capps (D-Santa Barbara).

“In Congress, I’ll work to close the tax loopholes while keeping the tax burden down on working people,” Maldonado says on his campaign website.

Taxes have been a vexing subject for Maldonado and his family.

In 2010, Agro-Jal agreed to pay $111,146 in back taxes after The Times reported that the federal government had put a lien on the business. Maldonado said then that he advocated paying the bill as soon as it was presented but had been outvoted by the company’s other two board members, his father and brother.

The IRS had said about a dozen pickup trucks were driven for personal use by company officers including Maldonado’s father, mother and sister.

In April, the tax issue rose up again. The Democratic Congressional Campaign Committee, a national group, noted that Maldonado and his wife, Laura, had challenged an IRS finding that they had underpaid their taxes by $470,000. The IRS contended that improper accounting by Agro-Jal reduced the amount the Maldonados believed they owed.

In a statement to The Times earlier this month, Maldonado expressed frustration at the persistence of the issue.

“The public has a right to know about my situation,” he said. “However, I am tired of seeing my wife and other family members dragged through the mud every time I run for office.”

The IRS has challenged deductions by Agro-Jal that authorities said showed no apparent benefit for the business. They included $20,000 worth of memberships at the Santa Maria golf club, work on a residence at the resort community of La Quinta, near Palm Springs, and the cost of two horses on the farm.

Susan Braunz, an IRS technical services territory manager, wrote in court documents: “I asked the taxpayer [Agro-Jal] to show me the places on the property that were not accessible by tractor and to show me what the horses were used for. The taxpayer refused. The testimony is considered to be selfserving and not supported by any documentation establishing a business purpose for the expenditures.”

She also took issue with receipts that were marked “Abel’s house” and indicated that Agro-Jal paid for renovations at the Maldonado residence. Braunz contended the company improperly deducted $4,444 it spent to re-tile a bathroom shower there, $732 for tools to re-seal the house’s deck, $10,000 for tile and $6,000 for unspecified work at the house.

“The taxpayer has demonstrated a pattern of deducting expenses … which have no business purpose whatsoever,” Braunz wrote.

She also questioned a $2,000 catering bill for an event marked as “Abel Maldonado Wednesday December 5, 2007.” Noting that Maldonado was a state senator, she wrote: “The party could have just as easily pertained to his political career” as to company business.

The Maldonado family challenged the findings in July 2010, contending that Agro-Jal’s deductions were legal and that the IRS had vastly inflated its tax bill.

nicholas.riccardi@latimes.com

patrick.mcgreevy@latimes.com