WASHINGTON – The Supreme Court declined Monday to hear an appeal from a Potomac man who was involved in the largest income tax-evasion case in the state.
Dominick LaRosa said the Internal Revenue Service wrongly continued to charge interest on past-due taxes after it seized $12 million of his assets. The IRS compounded its mistake by granting him a refund of $1.5 million, then returning almost two years later to take the money back, he said.
An attorney for LaRosa declined comment on the high court’s decision Monday. But a spokesman for Rep. Connie Morella, R- Bethesda, who has been involved in the case on behalf of LaRosa, said her office will continue to pursue it.
“We have a 6-inch-thick file at our Rockville office with three to four people working on this,” said Bill Miller, Morella’s spokesman. “As the IRS is headed to be more compassionate, cases like Dominick LaRosa’s should be looked at more carefully.”
Monday’s ruling culminates what LaRosa described in court papers as a “knock-down, drag-out battle with heavy casualties” spanning nearly 15 years.
It began in the mid-1980s, when brothers Dominick and Joseph LaRosa were convicted in Anne Arundel Circuit Court on state charges that they failed to pay income taxes from 1980 to 1985 on the fortune they amassed in a coal business.
The LaRosas were pardoned on the state charges in 1992 by then-Gov. William Donald Schaefer, but by that time the federal government was involved.
On Dec. 3, 1985, one day after the state conviction, the IRS seized about $12 million in assets from the LaRosas and their Prince George’s County-based business, LaRosa International Fuel Co., according to court records.
The assets were not immediately used to pay off the LaRosas’ back taxes but were put into an escrow account that let the brothers draw on the assets, with IRS approval, to keep their business operating.
Dominick LaRosa claimed later in court papers that the escrow agreement was coerced. “Otherwise, the IRS was threatening to seize and close the business,” said his attorney, Robert Nath.
The assets remained in escrow until 1991, when the IRS ruled that the brothers had underpaid their taxes by about $9.7 million from 1981 to 1983 and overpaid by about $6.1 million from 1984 to 1985. The LaRosas paid the government the difference of $3.6 million.
Dominick LaRosa immediately filed with the IRS for a refund, arguing that the agency should not have continued charging interest on the back taxes after the assets were put into escrow.
The IRS denied his requests until 1994, when Morella wrote to the agency calling for a review of the refund.
After Morella’s letter, the IRS sent Dominick LaRosa a refund of about $1.5 million and the IRS’ district director wrote to Morella apologizing “for any inconvenience this may have caused” LaRosa.
But one year and 11 months later — just one month before a deadline to act — the IRS said it had made “an erroneous refund” and sued LaRosa to recover the $1.5 million refund with interest.
LaRosa countersued. Besides claiming that he should not have been charged interest, he said the IRS was barred by “equitable estoppel” from trying to recover the refund. He also said that federal circuit courts have rendered divergent opinions on equitable estoppel, and that the Supreme Court should step in and establish a uniform policy.
“The issue concerns an important question of federal law and is of great administrative importance because millions of refunds are granted each year,” LaRosa said in his petition to the Supreme Court.
“No taxpayer … should have to wait two years until the erroneous refund statute of limitations expires before spending the refund to which the taxpayer assuredly believes he is entitled,” he said.
But the U.S. District Court ruled in favor of the IRS in 1997. The 4th U.S. Circuit Court of Appeals upheld the lower court’s decision in July 1998.
The Supreme Court made its ruling Monday without comment. The Justice Department also declined comment on the high court’s decision.