The IRS says the money is owed for errors in some complex deduction and depreciation calculations. Maldonado, in turn, is challenging the agency in U.S. Tax Court, even as he pledges to commit his own funds into a race against Rep. Lois Capps, D-Santa Barbara.
"I believe we paid the correct amount of taxes and followed the rules as we understood them," Maldonado, a Santa Maria Republican, said. "If the IRS finds differently, I will pay the taxes due with interest."
The tax dispute concerns income from a family farming venture, Agro-Jal Farming Enterprises, as well as a rental partnership. After the Democratic Congressional Campaign Committee posted an online reference to the Tax Court issue as part of a broader campaign attack, Maldonado said this week that he was filing paperwork to dissolve his involvement in Agro-Jal Farming.
"I'll miss working with my family members in the company I help found, but they don't deserve to have their privacy invaded every time my name is on the ballot," Maldonado said.
Maldonado faces Republican Chris Mitchum, a Santa Barbara resident aligned with the tea party, in the jostling to unseat the 14-year year House veteran Capps. Part of Maldonado's campaign platform is a pledge to "close the tax loopholes while keeping the tax burden down on working people."
A former state senator as well as lieutenant governor, Maldonado helped build up the family's 6,000-plus acre Agro-Jal Farming Enterprises in Santa Maria. Besides being a source of income, the farm has been central to Maldonado's political life. He notes that he first ran for office in 1994 after he encountered bureaucratic impediments to efforts to build a new cooling facility.
The farm brought Maldonado prior political embarrassment in mid-July 2010, shortly after then-Gov. Arnold Schwarzenegger appointed him lieutenant governor. Media reports that the IRS had placed a lien on the family farming business prompted the company to pay the $111,146 then in question. The lien covered certain Agro-Jal Farming taxes for 2006 and 2007.
Following an audit of the business for the same years, court records show, the IRS in April 2010 sent Maldonado a "notice of deficiency." Maldonado then went to court to challenge the alleged deficiency. All told, the IRS added $1.4 million to the farming and rental operation's taxable income for 2006, for which a net tax of $470,343 was assessed. The item-by-item disputes are acutely technical. One question, for instance, is whether a cooling facility should be depreciated as a building or, more quickly, as refrigeration equipment.
"I hope that this incident helps educate people on the need for a simpler tax code that allows employers to focus on job creation," Maldonado said.
PHOTO CREDIT: Abel Maldonado at his inauguration as lieutenant governor in 2010. Hector Amezcua/The Sacramento Bee