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By W. Gardner Selby April 28, 2014

Dewhurst correct government acted on Patrick not paying taxes, but records inconclusive on his 'pocketing' employees' payroll taxes

David Dewhurst says the Republican who led him in the March 2014 primary for the party’s lieutenant governor nomination has a financially shaky background.

Dewhurst, lieutenant governor since 2003, faces challenger Dan Patrick, a Houston state senator, in a May 27, 2014, primary runoff.

In Dewhurst's video ad that came public April 16, 2014, the narrator said Patrick "got caught not paying his taxes" and "pocketed his employees’ payroll taxes." In the ad, those claims are prefaced by an excerpt from a lieutenant governor debate in which a reporter said Patrick had walked away from more than $800,000 in debts when he declared personal bankruptcy.

Patrick’s bankruptcy filing has been covered before. But did he get caught not paying taxes and also pocket employee payroll taxes?

Backup from news story, tax liens

Via the Quorum Report, a Capitol newsletter, we came to a Dewhurst web page on his ad attributing most of what he said to a Sept. 19, 2013, Dallas Morning News story on Patrick’s financial troubles.

According to the News' story, Patrick filed for bankruptcy in October 1986 under his birth name, Dannie Scott Goeb, and "walked away from about $800,000 in debts." The story said that years later, he legally changed his name to Dan Patrick.

The bankruptcy was connected to a failed business venture. According to a January 2007 Texas Monthly story, Patrick and others in the 1980s had "opened Dan and Nick’s Sportsmarket, one of the first sports bars in the U.S. Located in tony Rice Village, the combination bar and restaurant was all polished brass and fine woods, full of local jocks and celebrities, TVs tuned constantly to sporting events. (Too constantly: The NFL would sue Patrick and five other bar owners in 1987 for showing blacked-out games.) For a while the business thrived, largely on the strength of Patrick’s personality," the story said, "but he soon fell prey to the same financial lunacy that infected so many Houstonians in the early eighties. He bought another bar and restaurant, and then another, expanding, finally, to five. Then the oil bust hit, and in short order the man who had made $100,000 as a sportscaster closed four of his businesses, declared bankruptcy, and watched his annual income plummet to $10,000."

Payroll taxes unpaid

When Patrick filed for bankruptcy, the News’ story said, he listed more than $816,000 in debts and just over $104,000 in assets. "Among his debtors," the story said, "was the Internal Revenue Service, which Patrick owed $13,186 in federal income taxes withheld from his restaurant employees’ paychecks."

By email, Dewhurst campaign spokeswoman Eliza Vielma sent us information indicating that from April 1986 into November 1988, Patrick’s companies were hit with five federal tax liens totaling $18,272.26--with unpaid employee payroll taxes comprising the bulk of that total.

Vielma pointed out too that Patrick’s online response to the Dewhurst claim concedes he filed for personal bankruptcy and once owed payroll taxes. Patrick’s ad response states his bankruptcy filing doesn’t prove he collected and pocketed the taxes, adding: "This is not a defense; however, it is a technical distinction. According to Patrick, these taxes were ultimately paid and the debt to the federal government was settled."

Generally, employers collect half of each employee’s payroll taxes and pony up the other half, with the resulting money going to the federal government for Medicare and Social Security. The essence of Dewhurst’s charge appears to be that Patrick pocketed payroll taxes paid by workers in failing to forward it to the IRS.

The News’ story said Patrick "also owed smaller amounts in property taxes to two Houston-area school districts, who later sued his companies for nonpayment. And his businesses were slapped with more than two dozen tax liens by federal, state and local governments.

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"Patrick said he worked extra jobs and eventually paid off the IRS," the newspaper said, also quoting Patrick as saying he couldn’t recall details of his bankruptcy case’s closing in 1992. "More than a decade later, as he got ready for his first bid for the Senate," the story said, Patrick "cleared up all the tax liens through the secretary of state’s office."

Patrick: Taxes paid up

We asked Patrick’s campaign for relevant documentation. Logan Spence, his campaign manager, emailed us state and federal documents showing that in April 1986, an IRS administrator signed off on a lien against Patrick’s company of $15,356.68 for unpaid employee payroll taxes. Another document showed an IRS official approving a lien of $4,297.22 for unpaid federal income taxes.

At our inquiry, the Morning News emailed us excerpts from Patrick’s bankruptcy case file.

The provided 10 pages show Patrick’s bankruptcy filing was initiated Oct. 27, 1986 and was closed Oct. 22, 1992. Also, a document indicates, Patrick (whose legal name was then Goeb) was "released from all dischargeable debts" on May 4, 1987. But 941 taxes incurred by Watchbear, Inc., in 1985 and 1986 were still owed to the federal government, another document indicates, totaling $13,186.29--a figure that matches what the News story described as taxes withheld from restaurant employees’ pay checks.

By phone, Spence noted the $13,186 figure on the bankruptcy filing was accompanied by the words "less recent payment," which Spence described as referring to Patrick already paying some unpaid taxes. Saying all of Patrick’s debts associated with the bankruptcy of his restaurants "have been settled," Spence also emailed a photo of a Nov. 5, 1990, letter from an IRS official to Patrick, whose legal last name remained Goeb, stating that $13,186.29 had been paid in full on Nov. 6, 1989.

Spence also emailed documents indicating that in January and February 2006, then-State Comptroller Carole Keeton Strayhorn cleared Patrick of liens for sales taxes previously unpaid to the City of Houston and Metropolitan Transit Authority of Harris County totaling $11,717.73. At the time, Patrick was making his first run for the Senate.

Experts say records inconclusive about 'pocketing'

By email and telephone, a couple tax and accounting experts who looked over the News-provided documents at our request said they indicate Patrick’s company failed to submit payroll taxes to the government, though both said the documents did not demonstrate Patrick pocketed the employee shares of payroll taxes--or otherwise.

Arthur Agulnek, who teaches accounting at the University of Texas at Dallas, said the 941 liens show Patrick failed to pay the payroll taxes to the IRS; "he didn’t pay it where it was supposed to go." Michael Harris, a professor of accounting at St. Edward’s University, speculated: "The money was very likely spent on other bills."

Our ruling

Dewhurst said Patrick got caught not paying taxes and pocketed employees’ payroll taxes.

The first part of this claim is backed up by records showing the IRS filed liens because Patrick’s company didn’t submit payroll taxes in parts of 1985 and 1986. Patrick also had liens filed against him for unpaid state and local sales taxes. Documents indicate Patrick caught up on his federal tax tab in 1989 and met his sales tax obligations in 2006, the year he ran for the Senate.

We see no confirmation, though, that Patrick "pocketed" employees’ payroll taxes, though such taxes did go unpaid to the government at times.

On balance, we rate Dewhurst’s statement as Half True.

HALF TRUE – The statement is partially accurate but leaves out important details or takes things out of context.

Click here for more on the six PolitiFact ratings and how we select facts to check.

Our Sources

News story, "Lieutenant governor candidate Dan Patrick knows struggles of going broke," Dallas Morning News, Sept. 19, 2013

Emails, Eliza Vielma, director, Social & Digital Strategy, David Dewhurst campaign, April 17 and 24, 2014

Response document, "Dewhurst 'Mother of All Debt'  Fact Check," Dan Patrick campaign, posted online April 16, 2014

Feature story, "Here Comes Trouble," Texas Monthly, January 2007 (accessed April 17, 2014)

Excerpts from Dan Patrick’s bankruptcy case, received from Dallas Morning News, April 17, 2014 (edited to remove Patrick’s Social Security number)

Email and telephone interview, Logan Spence, campaign manager, Dan Patrick campaign, Austin, April 17 and 25, 2014

Photo of letter to Dan Goeb from Deane Chakalis, special procedures advisor, Internal Revenue Service, Nov. 5, 1990 (received by email from Logan Spence, campaign manager, Dan Patrick campaign, April 18, 2014)

Telephone interview, Michael Harris, professor of accounting, School of Management and Business, St. Edward’s University, Austin, April 23, 2014

Telephone interview, Arthur Agulnek, CPA, senior lecturer, accounting, Naveen Jindal School of Management, University of Texas-Dallas, April 23, 2014

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Dewhurst correct government acted on Patrick not paying taxes, but records inconclusive on his 'pocketing' employees' payroll taxes

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