State launches CU tax probe

Kevin Vaughan And David Milstead, Rocky Mountain News

Published December 14, 2005 at midnight

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Members of the Legislative Audit Committee voted unanimously Tuesday to seek a state investigation into a series of potential tax problems surrounding the University of Colorado's fundraising foundation and summer camps run by former football coach Gary Barnett.

The decision, reached after committee members huddled behind closed doors to discuss the issue, comes in the wake of two critical state audits, one of the CU Foundation released in November and another of Barnett's summer camps and the university's athletic department made public Monday.

"It's an issue that since it's under investigation I don't really want to get into," said one member of the committee, State Rep. Al White, R-Winter Park. "Frankly I can't determine whether or not there were any tax problems or anything was done outside the tax code. But one way or another, the state was deprived of revenue.

"Whether it was done illicitly or not remains to be seen."

The two audits found a host of problems, including lax controls, improper expenditures, violations of state fiscal rules and other troubles.

Of concern to the committee were several tax issues identified by auditors that may have improperly deprived the state of revenue:

• Donations of a Learjet, the building that houses the foundation's offices in Boulder and property in Larimer County were all questioned in the November audit. Specifically, auditors expressed concern about the way those donations were recorded on the foundation's books - each for values that appeared to be inflated.

Those three gifts, if deducted by the donors at the initial values, cost the state about $350,000 in revenue based on the state's individual income tax rate.

• Barnett's company, High Hopes, may have violated sales tax laws on two fronts in its operations of the summer football camps, which the university took over last summer after a number of problems were discovered. First, High Hopes, a private, for-profit company, used the university's tax-exempt status and did not pay sales taxes on at least $16,900 in purchases that were part of the audit's sample of transactions. That potentially deprived the state of about $1,300 in revenue. Second, camp workers did not obtain a sales tax license or charge sales tax on items sold to camp participants.

Determining how much money is involved, however, may prove difficult. According to the audit, Barnett's books were in such "disarray" that investigators struggled with the camps' income and expenses.

"If the Department of Revenue needs our input on anything in this matter, we'll be happy to cooperate," said Steve Caulk, a spokesman for the CU Foundation.

A message left Tuesday with Barnett's attorney, John Rodman, was not returned.

An Internal Revenue Service investigation of Barnett's operation of the summer football camps was launched in March. That investigation is ongoing, and it was not clear whether it could be expanded to include employees of the camps.

The audit notes instances in which assistant coaches who worked at the camps under-reported their income to the university and questioned an arrangement that saw Barnett give a number of them $1,000 gift certificates that amounted to bonuses.

The Colorado investigation would include only the issues related to state tax revenues.

The vote in the Legislative Audit Committee, which includes members of the House and Senate from both parties, was 8-0 Tuesday to send the state tax issues to the Colorado Department of Revenue for further investigation.

John Vecchiarelli, the department's senior director of taxation, said the state can pursue civil or criminal penalties for nonpayment of sales tax.

Criminal prosecutions are rare, and often involve someone who has collected sales tax from customers, then willfully failed to submit it to the state, he said.

More often, the department relies on civil remedies. If Department of Revenue investigators realize sales taxes have not been paid, department staff will visit the organization, Vecchiarelli said, and assist the taxpayer.

"If there's reluctance or unwillingness, or evidence of criminality, the investigation can take a different turn," he said.

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