By: Donald V. Watkins
Copyrighted and Published on July 24, 2022
On July 15, 2022, the Alabama Tax Tribunal finally issued an Order voiding $2,004,219 in final income tax assessments that were wrongfully levied against me in November 2021 for tax years 2007 through 2013. I disclosed these improper tax assessments in a March 13, 2022 article titled, "Watkins Wins $2 Million Tax Dispute."
I published the article after legal counsel for the Alabama Department of Revenue filed an Answer in my appeal of the tax assessments and agreed with my legal position that all of the assessments fell outside the applicable statute of limitations for a routine audit, or a special audit based upon allegations of fraud.
It took the Alabama Tax Tribunal four months to enter its Order, but it finally arrived in the mail on Thursday. The Order ends a long, hotly-disputed, and unwarranted tax battle between the state of Alabama and me. [Click here to read a copy of the Alabama Tax Tribunal's July 15, 2022 Order]
Alabama tax authorities claimed that I received $13.4 million in income between 2007 and 2013 that was not reported on my state income tax returns. Included in this amount was $3,150,000 in non-taxable loan proceeds. The tax bill also included $515,000 in "fraud" penalties that were assessed against an employee in the University of Alabama (at Birmingham) Hospital Food and Nutrition Services Department. I am not that employee. The Department of Revenue claimed that the $2,004,219 represented the state taxes, accrued interest, and penalties I owed on $13.4 million in alleged "unreported" income.
Federal and state income tax records in the Department's possession showed that every dollar of income received by my businesses and me during the seven-year audit period was timely reported on the appropriate state and federal tax returns of the entities that received the income. Yet, the Department commenced an audit of my taxes on March 16, 2019 based upon newspaper articles about my federal criminal trial in Birmingham.
From September 2019 to November 2021, my formal objections to the Department's audit and related tax bills were simply ignored. In December 2021, I appealed the $2 million in final tax assessments to the Alabama Tax Tribunal, which followed the applicable tax laws and voided them on July 15, 2022.
Have Tax Authorities Weaponized Tax Audits?
In 2014, the City of Birmingham tried to stick me with $146,000 in business license fees and occupational taxes that I did not owe. A special audit of my financial books and records during court litigation over this tax dispute showed that I only owed the $11,769. I had tried to pay the City this amount in a front-end administrative tax dispute resolution process, which I initiated. Unexpectedly, the City sued me while this administrative process was ongoing. The mainstream media organizations in Birmingham amplified this dispute by portraying me as a tax cheat. The City eventually resolved the litigation for the $11,769 that I offered to pay at the beginning of the tax dispute.
Shortly after the City's tax dispute was concluded, the Internal Revenue Service (IRS) commenced a separate but more limited, multi-year audit of my federal income taxes. After receiving and reviewing copies of the relevant business records, the IRS ended its audit with no additional taxes imposed upon me for the years in question.
In 2018, federal prosecutors and IRS (Criminal Division) agents in Birmingham conducted a grand jury review of my federal tax returns from 2005 to 2013. They quickly closed their tax inquiry after I discovered in the grand jury room a $1 million qualified business expense that I inadvertently failed to deduct on my 2011 tax return. As a result of this oversight, it appears that I am entitled to a $1 million credit on my future tax returns after I amend my 2011 tax return to correct for this omitted deduction.
In light of this background, it is reasonable to ask whether I was targeted by local, state, and federal taxing authorities. I think so.
History confirms that the local, state, and federal government agencies that audited and harassed me on my taxes engaged in the same shenanigans with Dr. Martin Luther King, Jr, during the height of the FBI's COINTELPRO program in the early 1960s. In an effort to discredit Dr. King, the state of Alabama actually indicted him on tax fraud charges. The charges against King were eventually dropped.
Despite the Revenue Department's mistreatment of me, I must give full credit to Mr. David E. Avery, III, the Department's legal counsel, and Mr. Jeff Patterson, the Chief Judge of the Alabama Tax Tribunal, for rising above the juvenile political games that the Department's bureaucrats played with me. Both men did their jobs in a professional manner, without fear or favor.
The lesson learned from my tax abuse story is this: Never stop fighting for what is right. In war, the adversary who is the most committed to victory always wins.
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