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Former State Sen. Vincent Fumo faces new trial over IRS demand he pay $3 million in back taxes

The once-powerful politician is fighting an IRS demand that he pay taxes on benefits tied to his 2009 corruption conviction.

Former State Sen. Vincent J.  Fumo in a 2019 photo.
Former State Sen. Vincent J. Fumo in a 2019 photo.Read moreStu Bykofsky / File Photograph

Thirteen years after former State Sen. Vincent J. Fumo was convicted on federal charges of defrauding the state Senate and two nonprofit organizations, he is about to face off against the feds in another, long-delayed trial.

In a civil trial set to start Monday before a U.S. Tax Court judge, Fumo, 79, is challenging an IRS demand brought against him a decade ago while he was in prison. The agency has dunned him for about $3 million in back taxes and penalties in connection with allegedly unreported benefits that flowed to him through his corruption.

The IRS demand is based upon Fumo’s sweeping 237-count criminal conviction in 2009. The agency says he reaped financial benefits by overpaying his Senate staffers while using them as personal servants and campaign foot soldiers, and by hiring a taxpayer-paid private eye to investigate political enemies, an ex-girlfriend, two strippers, and even his own son, among other abuses.

The IRS also wants to fine Fumo for exploiting the South Philadephia nonprofit he created, the former Citizens Alliance for Better Neighborhoods, tapping its money to pay for political polls, a stealth lawsuit against a legislative enemy, a campaign to protect the ocean view at his Shore home, for tools and consumer goods, and more.

The IRS case reprises the evidence put on during the marathon criminal trial, ranging from Fumo’s taste for pricey Oreck vacuum cleaners to the audacious squeeze he put on Peco Energy to obtain a secret $17 million donation to the nonprofit.

The IRS filed its demands in 2012 while Fumo was still serving his four-year prison stint. Fumo challenged the agency’s tax bill and the case has inched forward ever since, with some years passing with no legal activity whatsoever even before COVID-19 froze the suit for the last two years.

Finally, Tax Court Judge Albert G. Lauber, who will preside over what could be a three-week trial and issue the verdict, decreed it is to start at 10 a.m. Monday in a courtroom in the U.S. Customs House, at Second and Chestnut Streets in Philadelphia

Nor is this the only tax case facing Fumo. Separately, he is fighting another IRS demand that he pay at least an additional $328,000 in unpaid gift taxes on a $920,000 transfer to his son made shortly after Fumo went to prison. Fumo says the IRS misunderstands the transfer and no tax is due. No trial date has been set.

The IRS won’t comment on the case, but in a recent pretrial memo, its battery of lawyers said that Fumo had “omitted a substantial amount of income on his income tax returns over several years.” The memo listed 80 witnesses the agency might call during the trial, including Fumo — and the former girlfriend he had tailed by the private detective at Senate expense. This was the woman, Dorothy Sterling, who testified during the trial that Fumo’s motto was OPM — spending “other people’s money.”

The agency noted that 10 of the witnesses it might want to call have died since Fumo’s criminal trial. It wants to cite their trial transcripts instead.

Asked for comment on the IRS case, Fumo replied by email: “have you no shame!!!”

In an interview, Fumo’s longtime civil lawyer, Mark Cedrone, said the suit was fundamentally flawed because the money in question went to people other than Fumo. For example, Cedrone said, the $256,000 paid pollsters went to them, not Fumo. Similarly, he said, the generous pay to members of Fumo’s staff went to them, not the senator.

“The vast majority of what happened here, Vince got no benefit,” Cedrone said. “Yeah, he got some tools. The vast majority of stuff he didn’t.”

Cedrone said the IRS is seeking about $3 million from Fumo in connection with the state Senate and Citizens Alliance allegations. The levy, should he have to pay it, would be another big financial blow to Fumo.

While under FBI investigation, he gave up his $900,000-a-year post as a rainmaker bringing clients to the Dilworth Paxson law firm. After his conviction, he lost his $100,000 annual state pension and his law license. He also had to pay about $4.5 million in restitution to his victims. At the time he began his prison sentence, Fumo’s net worth, once as much as $11 million, had fallen to $3 million, according to court records.

Since his release from prison, Fumo has kept a low profile, occasionally drawing attention for his Facebook postings, such as one challenging Mayor Jim Kenney to a back-alley fight. Earlier in September, Fumo put up for sale his 29-room Victorian mansion in the city’s Spring Garden section, asking nearly $4 million.

Fumo served in the Senate from 1978 until 2008 and was widely considered the most powerful Philadelphia Democrat in the legislature.

Cedrone said the former senator was weary of the seemingly never-ending court struggles.

“He’s tired of being a punching bag,” Cedrone said. “He would like to move on with his life.”