Records back IRS decision on Maldonado

WASHINGTON – California Republican congressional candidate Abel Maldonado Jr. raised $35,500 for a state re-election race on the same day as a party in his honor that his family's business later claimed as a business expense on its federal income tax return, state election finance records show.

The records appear to bolster an Internal Revenue Service decision to bar the company, Agro-Jal Farming Enterprises Inc., from writing off the $3,686.03 catering fee because the party may have been a political fundraiser that didn't qualify as a business expense.

In an email, Maldonado, who served as the state's lieutenant governor from April 27, 2010, to Jan. 10, 2011, did not comment on whether the party was a campaign event. But he said he is working with the IRS to clear up tax problems that have dogged him in his campaign to unseat Rep. Lois Capps, a Democrat who has long represented her Central Coast district.

The 24th District campaign is one of the nation's most hotly contested races. With taxes a key issue, both candidates have sought to gain political advantage by attacking the other over personal tax problems.

Maldonado has criticized Capps for failing for five years to report a total of $41,480 she received from one of her campaign and congressional staffers for rent on a room in her home in Santa Barbara. Capps has acknowledged the problem, filed amended returns and paid $8,819 in extra taxes. Capps, meanwhile, has gone after Maldonado over IRS findings that he and his wife underpaid their taxes by about $470,000, a dispute over which they are now in settlement negotiations.

In addition, Agro-Jal, a firm that Maldonado co-owned with his father and brother, is fighting in U.S. Tax Court an IRS assessment that the firm underpaid its taxes by $3.6 million between 2006 and 2008, in part by claiming numerous personal expenditures as business expenses. The party expense was listed in an IRS Notice of Deficiency dated April 6, 2010.

Maldonado reportedly sold his one-third share in the company, which runs a 6,000-acre farm in Santa Maria that grows strawberries, cauliflower and other produce, after news reports about his tax woes appeared earlier this year.

Agro-Jal's disallowed write-offs include thousands of dollars in home improvements for family members, including a bathroom upgrade for Maldonado's house, club memberships, upkeep for a vacation condominium, and Maldonado's costs for maintaining two horses. The IRS also rejected a write-off of some $26,000 for a giant aquarium in the seaside home of his father, Frank Maldonado, in Shell Beach.

Frank Maldonado hosted the party for his son on Dec. 5, 2007. At the time, Abel Maldonado was running for re-election to the state Senate from the 15th Senate District.

According to U.S. Tax Court documents, 115 guests attended the event, which was catered by Clemmons Catering at a cost of $3,686.03, which the company sought to write off as a business expense.

In the documents, Susan Braunz, an IRS technical services territory manager, wrote that she asked Agro-Jal to identify the invitees, their business relationship with Agro-Jal and "the nature of the business that was conducted." "The taxpayer provided me with a list of initials representing the name of the guest and their occupation," Braunz said, adding that the list didn't satisfy IRS regulations.

Braunz denied the write-off, saying that Abel Maldonado "was and is a California senator. The party could just as easily (have) pertained to his political career rather than any business of the taxpayer. It has been well established that the corporation had deducted expenditures on a number of occasions in 2006 and 2007 that had nothing to do with the corporation's business."

A review of Maldonado's election finance records maintained by the California secretary of state's office show that on the same day as the party, his state Senate re-election campaign collected 27 donations from individuals and companies totaling $35,500.

McClatchy attempted to contact the individuals and firms that made donations that day. Some of the listed telephone numbers were disconnected or not answered. Messages left at others were not returned.

Maldonado did not directly address the issue of the party in an email statement, saying that it is "no secret that my family's farming business is in the middle of a dispute" with the IRS.

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