MN Developer Jeff Wirth Pleads Guilty to Tax Fraud

The Wirth Companies owner Jeffrey Wirth admittedly conspired with his ex-wife and their tax preparer to evade federal taxes, funnel money out of the company, and use the funds for personal expenses, including the building of a mansion on Lake Minnetonka.

Local real estate developer Jeffrey Wirth on Friday admitted to conspiring to evade millions of dollars in federal taxes, according to the U.S. Attorney's Office in Minnesota.

Wirth, who is the owner and CEO of Brooklyn Center-based The Wirth Companies, pleaded guilty to one count of conspiracy to defraud the United States. He faces up to five years in prison and will be sentenced at a later date.

Wirth admitted in his plea agreement that the scheme resulted in a loss of between $2.5 million and $7 million to the federal government, according to the Attorney's Office.

The Wirth Companies has developed local hotels, including the Grand Hotel in downtown Minneapolis, the Grand Rios Indoor Waterpark Hotel in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington.

In his plea agreement, Wirth said that between 2003 and 2006, he conspired with his then-wife Holly Damiani to defraud the Internal Revenue Service (IRS) by failing to pay the taxes they owed, according to the Attorney's Office. The scheme also involved their tax return preparer, Michael Murry, who allegedly helped the couple file false tax returns.

Wirth admitted that he and Damiani-who he divorced in 2008-often recorded personal expenses as business expenses in an effort to understate the company's income for tax purposes. Wirth also admittedly understated his own income, claiming an annual salary of just $12,000 on his W-2 forms from 2002 through 2005, although his true income was significantly higher. Wirth and Damiani, with the help of Murry, also allegedly claimed bogus “management fees” on the company's tax filings in order to reduce its taxable income to nearly zero.

In addition, Wirth allegedly failed to report on his company's tax returns “substantial amounts of income” related to the development of the Grand Rios and the Grand Lodge Hotel. This caused his adjusted gross income, taxable income, and total tax to be “grossly understated” on the tax returns that he and Damiani filed, the U.S. Attorney's Office said.

Wirth admittedly used the money from the scheme to support a lavish lifestyle. He spent $2 million to purchase an island in St. Alban's Bay in Lake Minnetonka, at least $3 million to design and construct a mansion on the 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 his children, the Attorney's Office said.

Wirth, Damiani, and Murry were indicted in August, and all three pleaded not guilty in September. But in early May and about a week before Wirth entered his guilty plea, Damiani pleaded guilty to one count of filing a false federal individual income tax return. Murry, meanwhile, on Monday pleaded guilty to one count of preparing a false corporate tax return.