Case Shows Death May Be More Inevitable Than Taxes

If Jacob Freidus can avoid death as he has taxes, he will probably live forever.

For the past 42 years, Freidus has been fighting to avoid paying a federal income-tax bill that now is $17 million - $9 million in back taxes and the remainder in interest and penalties - and growing.

Government lawyers and tax experts, including three former Internal Revenue Service commissioners, say they believe Freidus' bill - which dates back to 1949 - is the longest-running tax case in U.S. history.

It has spanned nine presidential administrations, five popes, and three American wars. Men have walked on the moon. The Berlin Wall has gone up and come down. But the lawsuit called USA vs. Jacob Freidus marches on.

"This has got to win the prize," says former IRS Commissioner Donald Alexander, who served in the mid-1970s. "I don't know of any case that goes further back than this. It's unbelievable."

Federal court records reveal the remarkable tax history of Freidus - once heralded by the press as the "boy wonder" of New York real estate, who owned the city's largest manufacturing building and now lives in a $2 million waterfront mansion.

During the past four decades, Freidus' tax case and its lengthy appeals have inched glacier-like through the federal-court system, outlasting more than 20 government attorneys and 11 judges. To the government, Freidus is a previously convicted tax cheat, still out to beat the system.

Authorities say Freidus failed to report millions of dollars as part of an elaborate scheme to avoid paying taxes from 1949 to 1961. The plan was carried out while Freidus was in federal prison for evading taxes in the early 1940s. Rather than pay a whopping tax bill once his scheme was discovered, Freidus dragged his case through interminable delays and appeals.

His unsuccessful appeal to the U.S. Tax Court, for example, lasted nearly 20 years. Other federal courts, including a Manhattan judge who signed a tax judgment against him in 1988, have reviewed Freidus' case and ordered him to pay up. But the government has yet to collect.

Freidus declined to be interviewed. "I have nothing to say about it," he said. But the picture he has painted in court papers is of a long-suffering "Everyman," abused and broken by a revenue-hungry bureaucracy. In his unsuccessful court appeals, Freidus claimed he lost his fortune long ago.

"This constant harassment by the United States Attorney's Office is absolutely unnecessary and uncalled for, especially in light of the fact that they know as much or more about me than I can remember," Freidus wrote to the court in 1989.

According to Freidus, everything is in his second wife's name. Last year, he even got a court-appointed Legal Aid attorney to help in his tax battle.

When his tax troubles began, Freidus was a young man who, by age 30, had amassed a $15 million fortune as a real-estate and machinery tycoon during World War II. Now 76, Freidus lives with his second wife in a mansion on a wooded 18-acre estate, and they travel frequently across the globe.

Unconvinced by Freidus' claim that he's a pauper, authorities are seeking access to the financial records of Freidus' second wife in a search for what he may still own. "We're trying to come up with what assets he has that we can still collect from," says Assistant U.S. Attorney Steven Bennett, the latest in a legion of government attorneys assigned to the case. "But I don't know why the case has taken this long."

When Freidus first ran afoul of the IRS, he was a young college graduate, living in Brooklyn with his wife and three children, who had hit it big in machinery and real estate. Suddenly, the press discovered this "spectacularly modest new millionaire," as The New York Herald Tribune called him, and profiled Freidus as if he were a character right out of a Horatio Alger novel. The publicity caught the attention of the IRS, which reviewed Freidus' tax returns and discovered he had been evading taxes.

Once discovered, his tax troubles quickly mounted. In 1949, federal authorities charged Freidus with evading more than $200,000 in income taxes for the years 1942 and 1943. Eventually, Freidus was convicted and given a four-year prison sentence and $10,000 fine. He spent about three years in federal prison on that charge.

While Freidus was in prison, the government placed liens on his property and set up court-approved escrow accounts to receive the profits from his businesses until his unpaid tax bills were satisfied.

But Freidus devised "an elaborate scheme" which, according to government court papers, funneled millions of dollars from his real estate and other businesses to another corporation he controlled.

This diverted money was not reported as income on Freidus' tax returns, according to the government, and instead was used to pay personal expenses, including life-insurance premiums, and the costs of running a horse-breeding farm. This scheme was carried out for the next 13 years, according to federal officials, including the three years that Freidus spent in federal prison.

In August 1989, Freidus gave a sworn deposition that contained mostly vague recollections or outright claims of forgetfulness. In 97 pages of testimony, Freidus said he "can't recall" 73 times to the government's questions, and claimed "I don't know" another 34 times.

Freidus did say he works as an adviser to his second wife, Ella, but that she handles all of their finances. According to court records, Ella Freidus is an investor in land, art and horses.

"To a great extent, she supports me," Freidus testified. "I live in her house. I don't recall, maybe she paid me."

In the past two years, the government has been involved in a protracted effort to review Ella Freidus' records. Her attorney has provided some boxes of records, but not the crucial ones that federal officials want to see. "They're still holding on to 50 to 100 additional documents that they claim are privileged," says federal attorney Steve Bennett.