The Utah Tax Commission knew Spring-ville grocery store owner Deon Dove had a problem paying his taxes in 1982, when it audited him and found he owed the state nearly $3 million, the Deseret News has learned.
Dove, who operated the Dove's Happy Service Markets chain of 10 grocery stores, repaid that amount by late 1984. But he was able to run up $7 million more in unpaid sales taxes, interest and penalties before filing for bankruptcy last November.It is questionable whether the state will ever recover a cent of that.
Did the Tax Commission fail to follow up on Dove for the past five years?
"Based on the information that was available to the Tax Commission throughout this case, the Tax Commission felt that we had acted appropriately under the guidelines at the time," commission spokesman Lee Shaw said.
He said he's constrained from talking in detail because of taxpayer confidentiality and a criminal investigation pending in Utah County. It would be unfair, though, he stressed, for people to judge the state's performance based on the partial information that can be released now.
Shaw said the state only learned of the additional $7 million that Dove had failed to pay "at the time of the bankruptcy, like everyone else."
In that case, filed last November, Dove initially submitted tax returns showing all sales taxes as having been paid. But he subsequently submitted amended returns showing he owed about $5 million in taxes for 1983-88.
The Tax Commission then submitted a claim for the taxes plus interest and penalties, for a total of nearly $7 million.
Bankruptcy trustee R. Kimball Mosier declined to comment on whether the commission had dropped the ball with Dove.
He did say, "Based on the information I have, there's no way I'm going to be able to pay the Tax Commission $5 million, and there's some question that I'm going to be able to pay them anything."
Mosier said the commission's claim is unsecured and, although the state is seeking a priority position among the unsecured creditors, early on it became "very apparent that the secured creditors were owed more than the amount of the assets."
If the state had done a follow-up audit after its 1982 audit, it might have discovered the later unpaid taxes and placed a lien on Dove's property to secure a claim. But virtually all the property already had liens on it anyway, so the state might still have ended up unsecured, Mosier said.
Still, earlier would have been better.
"If they had known about it earlier, the debt might have only been a million (dollars)," he said.
Asked why the commission didn't audit Dove again when its 1982 audit had turned up a $3 million problem, Shaw said, "We worked with him as we work with a lot of taxpayers." Because of the number of taxpayers and the commission's limited resources, "we have to take an assumption of honesty. . . . We can't audit everyone every single year."
"In looking back, we can say, yes, maybe we should have had a follow-up at this time," but Dove was repaying the debt discovered in the audit, and the commission assumed he was keeping current on his subsequent taxes.
"That assumption on our part proved to be not correct, but we tried to deal with him like we deal with so many taxpayers," he said.
Shaw said other things were happening at the time that he cannot discuss because they have to do with the criminal investigation.
The commission has completed its tax investigation of Dove and turned over information to the Utah County attorney.
"Until he finishes his work in Utah County, it places us in a rather awkward position," Shaw said, because the commission cannot say much.