Holly Claire Damiani, the former wife of local real estate developer Jeffrey John Wirth, was sentenced late last week in federal court for filing a false federal individual income tax return. United States District Judge Ann D. Montgomery sentenced Damiani to three months in prison and one year of supervised release on one count of filing a false federal individual income tax return.
Damiani, who was indicted along with her ex-husband and their tax return preparer on August 17, 2011, pleaded guilty on May 3, 2012.
“This sentence is a direct result of our collaborative partnership with the U.S. Attorney’s Office in combating violations of federal tax law," Kelly R. Jackson, Special Agent in Charge of Internal Revenue Service (IRS) Criminal Investigation for the St. Paul Field Office, said following Friday’s sentencing. "It should serve as a message to those who conspire with others to defraud law abiding tax payers that IRS-Criminal Investigation will continue their aggressive pursuit of such crimes.”
In her plea agreement, Damiani stated that from at least 2003 through October of 2006, she conspired with Wirth and their tax return preparer, Michael James Murry, to defraud the IRS by failing to pay their true tax obligations. Wirth is the sole owner and chief executive officer of The Wirth Companies (TWC), a commercial real estate development and management business. Until recently, he also owned the Grand Hotel in downtown Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park and the Grand Lodge Hotel & Waterpark of America in Bloomington, as well as nearly 30 other businesses.
In entering her guilty plea, Damiani, who was married to Wirth from 1980 until their divorce in 2008, stated that she and Wirth used TWC and the other related businesses to fund their lavish lifestyle, including the $2 million purchase of an island in St. Alban’s Bay in Lake Minnetonka, at least $3 million to design and construct a mansion on that island, more than $600,000 to buy a home near Cedar Lake in South Minneapolis, and tens of thousands of dollars for world travel and to benefit their children.
According to Damiani, who was a vice president at TWC from 1988 to 2006 and the company’s chief financial officer from at least 2003 to 2006, she and Wirth often recorded personal expenses as business expenses in an effort to understate the company’s income for tax purposes. She also stated in court that the two of them caused other personal expenses to berecorded in TWC books under a special category.
She further contended that although she, Wirth and Murry knew those special-category amounts should have been noted on their tax returns as distributions by the company to its shareholder, the three of them intentionally failed to do so. As a result, the personal taxable income for Damiani and Wirth, both of whom hold accounting degrees, was underreported to the IRS.
Moreover, Damiani stated in court that from 2002 through 2005, while she and Wirth were actively engaged in the management of the businesses and were receiving substantial distributions from TWC, they each claimed only $12,000 a year as wages on their Form W-2s, although they fully understood that the fair market value of their labor exceeded those amounts. Consequently, the employment taxes paid by TWC, Wirth and Damiani were far less than what should have been paid.
Damiani also admitted that she was aware of false “management fee” entries made in TWC books for the sole purpose of further reducing the company’s taxable income. In addition, she indicated that she, Wirth and Murry caused TWC to make car payments for some employees’ personal vehicles, refraining from reporting those payments as employee compensation, so as to underreport employees’ taxable wages and understate TWC’s employment tax obligations.
Finally, Damiani stated that for calendar years 2002 through 2006, she and Wirth signed federal income tax returns that she knew to be false.
On May 11, 2012, Wirth pleaded guilty to one count of conspiracy to defraud the United States. On September 19, 2012, Judge Montgomery sentenced him to 54 months in prison and ordered him to pay a total of $6,457,500 in restitution to the IRS for underpaying his taxes from 2003 to 2005.
Murry pleaded guilty to one count of preparing a false corporate tax return on May 14, 2012. He is awaiting sentencing.
This case is the result of an investigation by the IRS-Criminal Investigation Division. It is being prosecuted by Assistant U.S. Attorneys William J. Otteson.