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Taxation cases target Connolly
By JEFF TESTERMAN, Times Staff Writer TAMPA -- Arrested on a perjury charge last week and facing accusations that he violated his probation, land speculator Don Connolly now has new worries. Tax problems. The Florida Department of Revenue has filed four tax warrants totaling $272,661 against Connolly that may prevent him from selling property he owns in Hillsborough County. In addition, a criminal investigation is under way involving statements Connolly made regarding his federal income tax returns. Documents obtained from Connolly by the Florida Department of Corrections indicate he filed for an extension for filing his 2000 tax return, but never filed the return by that year's deadline. In addition, Connolly has misstated his income either to the IRS or to probation officials for the past two years, records show. The state and federal tax problems add to the financial and legal woes of Connolly, a 44-year-old Valrico businessman who made national news with his business of buying up cheap tax deeds and trying to sell them for big profits to adjoining property owners. His well-publicized tax deed gambit in Pinellas County involved buying a Tarpon Woods lake for $1,000, erecting a pink fence on the shoreline, then demanding $450,000 to sell it back to 15 lakefront homeowners. Connolly has also used his tax deed strategy to build an inventory of properties in Hillsborough. But profiting from their sales will be more difficult now because of the Department of Revenue's tax warrants. The warrants are liens or legal claims on any real estate Connolly owns, and would need to be considered in any sale, according to Department of Revenue spokesman Dave Bruns. "The Department of Revenue would have a claim on the proceeds of a sale," Bruns said. "The department intends to aggressively protect its interests." Bruns said three of the four tax warrants relate to a 1997 tax fraud case in which Department of Revenue investigators determined that Connolly failed to pay $512,713 in state sales taxes from his Kinjite Motors used car company. Connolly negotiated a plea deal in the case. He pleaded no contest to grand theft, was placed on 15 years of probation and ordered to pay $124,378 in restitution. The $272,661 that Connolly now must pay, according to the warrants, is in addition to the court-ordered restitution he is already required to pay at the rate of $750 a month. The warrant documents, filed June 20, reference a state law that allows the Department of Revenue to assess an additional penalty against tax evaders. Connolly might have an out. The tax warrants would attach to property in Connolly's name. Most of the tax deed properties he has bought have been under trusts, such as the Connolly Family Land Trust or the GGH Land Trust. But the state might claim its lien attaches to the land trust properties, too, Bruns said, "if it can pierce the veil of the land trust" to show the land is really Connolly's. The investigation involving Connolly's federal income tax returns stems from a recent request by probation officials to hand over copies of the past two years of his tax returns. That request was prompted by suspicions that Connolly was not being truthful about his income and employment in monthly reports to his probation officer, according to Joseph Papy, regional director for the state Department of Corrections in Tampa. Connolly missed 10 of the past 17 monthly restitution payments but bought at least 111 tax deeds in that period, shelling out $148,300 for 16 tax deeds in Pinellas in April alone. Connolly told probation officials he could not provide his tax returns because he had filed for extensions in 2000 and 2001. Instead, Connolly faxed probation officials copies of IRS form 4868 requesting the automatic four-month extension for each year. But IRS officials say a second extension must be requested after that four-month extension runs out. The second extension, which requires approval of the IRS, lasts two months, until Oct. 15. Then the tax return is due. "Typically, a taxpayer seeks an extension because records are unavailable, perhaps because of a fire or other disaster," said Gloria Sutton, a spokeswoman for the IRS in Jacksonville. "Generally you cannot extend beyond Oct. 15. That is rare." Connolly provided no records of a second extension request for 2000, and the deadline for his return in any case would have been Oct. 15. Yet he has not provided a copy of a return for that year, probation officials say. Asked about Connolly's tax returns, Papy said Thursday, "There are certain statements he has made to us that are a matter of criminal investigation and which I'm not at liberty to discuss." Papy also said he could not comment on the discrepancy in statements Connolly has made to the state and federal government regarding his income. Connolly, who could not be reached for comment Thursday, said on his requests for income tax filing extensions that he had no income for the year 2000 or 2001. But in monthly reports filed with his probation officer, Connolly said his income was $40,950 in 2000 and $58,500 in 2001. Connolly claimed all his income in the two-year period was derived from his occupation as auctioneer. Connolly's state auctioneer license expired in November 2001, prompting probation officials to this year file a violation regarding his "working diligently at a lawful occupation." A violation of probation hearing on that charge, on a charge of failing to make monthly restitution payments and the perjury charge has been set for July 19 before Circuit Judge Debra Behnke. The perjury charge, carrying a maximum five-year prison sentence, accuses Connolly of lying about his criminal record on a state application for a notary license. -- Jeff Testerman can be reached at (813) 226-3422 or by e-mail at testerman@sptimes.com.
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