Former Wife Of Local Real Estate Developer Pleads Guilty To Filing A False Income Tax Return
MINNEAPOLIS—Earlier today in federal court, Holly Claire Damiani, the former wife of local real estate developer Jeffrey John Wirth, pleaded guilty to one count of filing a false federal individual income tax return. Damiani, who, on August 17, 2011, was indicted along with two co-defendants, including her ex-husband, entered her plea before United States District Court Judge Ann D. Montgomery.
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 Internal Revenue Service (“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 be recorded 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, likewise, 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 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’ person 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 2003 through 2006, she and Wirth signed federal income tax returns that she knew to be false.
For her crime, Damiani faces a potential maximum penalty of three years in federal prison. Judge Montgomery will determine her sentence at a future hearing, not yet scheduled.
Wirth and Murry each face one count of conspiracy to defraud the U.S. In addition, Wirth was charged with two counts of filing a false individual tax return and two counts of filing a false corporate tax return. Murry was also charged with two counts of preparing a false corporate tax return and two counts of preparing a false individual tax return. Wirth and Murry have entered pleas of not guilty, and a jury trial has been scheduled for May 29, 2012.
If convicted, Wirth and Murry face a potential maximum penalty of five years in federal prison on the conspiracy charge and three years on each tax count.
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 and Christian S. Wilton.
Per U.S. Department of Justice policy, the U.S. Attorney’s Office is not allowed to provide the age and city of residence for defendants charged in criminal tax cases.