CAPE MAN BATTLES IRS OVER TAXES; COUPLE OWES NEARLY $2.5 MILLION IN TAX PENALTIES

WASHINGTON -- Like the magnets he manufactures, Roger A. Mainor found himself drawn toward establishing various trusts touted by promoters.

Now the Cape Girardeau businessman and his wife, Nadine, and their five trusts find themselves facing Internal Revenue Service demands for almost $2.5 million in additional taxes and penalties for 1996.

But Donald P. MacPherson, their Phoenix tax attorney, claims the agency is trying to "victimize" the Mainors for a second time. The couple and their trusts have filed petitions asking the U.S. Tax Court to overturn the IRS rulings.

"Since they have been defrauded by the promoters, the fees they paid them should be deductible as a fraud loss," MacPherson said in a telephone interview. "Typically, they charge $10,000 and up to set up a trust."

As part of the agency's crackdown against trusts, MacPherson added, "the IRS has taken a more aggressive approach, taxing the same income two, three, four, five times. They have a national program targeting these trusts. Most of these cases are settled."

However, MacPherson said while vacationing in San Diego, attempts by the Mainors to reach a compromise with the IRS have failed.

"Negotiations just broke down," he said. "They just denied all expenses. You're the victim."

MacPherson conceded that trusts are usually established to legally avoid taxes as well as to preserve assets or for estate planning.

In these legal tax avoidance schemes, "they paint a rosy picture," he said. "They don't give both sides of the story. The way the promoters sell them, you have one trust for your business, one for your home, one for your cars. The promoter comes up with the names."

He said creation of trusts is particularly virulent in western states, especially Arizona, California and Utah.

It was these trust hucksters, he added, who victimized the Mainors.

An IRS spokesman said the agency does not comment on pending tax cases.

Roger Mainor, president of Magnetic Collectables Ltd., filed a petition challenging an IRS demand for more than $1.16 million in additional taxes: the couple, $465,119; Queen's Row Trust, $431,747; August Nights Marketing Trust, $341,540; Gold Pyramid Trust, $71,639; King Leo Trust, $13,703; and Magnetic Magic Trust, $308.

The petitions generally echoed the same complaints. They argued that the IRS made numerous errors in reaching its rulings in the seven cases.

A company spokeswoman said the company has about 100 employees who produce refrigerator, souvenir and novelty magnets.

Mainor's petition complained that he was not allowed deductions for more than $2 million for materials used in manufacturing and more than $798,000 in other business expenses.

"The commissioner has egregiously attempted, without explanation, to tax more than once the same item," his petition claimed. "The commissioner's intentional attempts to tax more than once the same income are for the purpose of harassing these petitioners in an attempt to fatigue them into submission to the commissioner's spurious deficiency claim."

The petition called the IRS audit "a sham" which "denied the petitioners their rights to due process of law as guaranteed by the Fifth Amendment."

The IRS notices of deficiency charged that Mainor, the couple and the trusts "did not furnish sufficient information" to support the deductions being claimed.

The notices were issued May 6, and the agency has 60 days to respond to the Aug. 6 petitions. If the agency and Mainors fail to negotiate a settlement, the cases could go to trial before a tax court judge.

Mainor declined comment on the matter except through his attorney.