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DALLAS (Reuters) - Texas tycoon Sam Wyly engaged in "lies, deception and fraud" in a years-long scheme to dodge taxes on $1.1 billion held in offshore trusts, a lawyer for the Internal Revenue Service said on Wednesday.
The IRS made those claims at the start of a trial in federal bankruptcy court in Dallas in which the agency is seeking $3.22 billion in back taxes, penalties and interest from Wyly and the widow of his late brother Charles, Caroline Wyly.
Cynthia Messersmith, a U.S. Justice Department lawyer representing the IRS, said the Wylys had since 1992 used offshore trusts to avoid paying taxes on $1.1 billion in proceeds while exercising stock options and warrants of four companies on whose boards the brothers sat.
"This is a case of lies, deception and fraud," she said. "This is not about tax avoidance but rather tax evasion."
Don Lan, the Wylys' lawyer, countered that the family "left the details to their advisers," relying on lawyers who vetted the offshore system and advised them on their taxes.
Regarding Sam Wyly, Lan said: "He's a brilliant man, but he's not a tax guy."
Both Wylys briefly testified on Tuesday. Sam Wyly, whose testimony has been limited to 2-1/2 hours a day due to medical conditions, told the court about growing up on a farm in Louisiana with a family that never had tax problems.
"I've never complained about paying taxes to anybody," the 81-year-old said.
The trial before U.S. Bankruptcy Judge Barbara Houser comes nearly a year after Sam Wyly and Charles' estate were ordered to pay the U.S. Securities and Exchange Commission $299.4 million for engaging in a securities fraud through those same trusts.
In that case, a Manhattan jury in 2014 found the Wylys liable for scheming to hide $550 million in trading profits in the stocks of Sterling Software Inc, Michaels Stores Inc[MSII.UL], Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now called Scottish Re Group Ltd (SKRUF.PK).
Following the verdict, Sam Wyly, who last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion, and Caroline Wyly filed for bankruptcy in October 2014. Charles Wyly died in a car crash in 2011.
In April, the IRS filed claims asking the Wylys for a total of $3.22 billion in back taxes, penalties and interest, $2.03 billion of which is being sought from Sam Wyly.
The case is In re Samuel Evans Wyly, U.S. Bankruptcy Court, Northern District of Texas, No. 14-35043.
Reporting by Lisa Maria Garza in Dallas; Writing by Nate Raymond in New York; Editing by Tom Brown