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Fraudulently Paying Taxes on Nonexistent Assets Is Not a Good Idea in Colorado

Starting in the late 1990s, HealthSouth Corporation, which advertises itself as the nation’s largest provider of inpatient rehabilitative healthcare services, began intentionally overstating its earnings in order to meet expectations of Wall Street analysts.
Then in 2002, HealthSouth added non-existent “miscellaneous” assets to its Colorado ledgers to balance its books. It did the same in other states across the nation. By 2003 it had overstated its earnings by at least $1.4 billion. HealthSouth then began filing misleading personal property declarations with Boulder County and other state taxing authorities, to match its fraudulent accounting to avoid raising the suspicion of federal authorities. It then paid personal property taxes on these non-existent assets.
In 2004, HealthSouth filed with Boulder County petitions for refund of taxes paid in 2002. HealthCare admitted that it had inflated income with matching entries to non-existent assets in a fraudulent scheme, and had paid taxes on those bogus assets. Boulder County denied the refund under a Colorado statute it believed controlled the situation.
On appeal, the Colorado Board of Assessment Appeals (BAA) dismissed the petitions, upholding Boulder County. The Colorado Court of Appeals, in a split decision, reversed the BAA, giving a broad interpretation to “overvaluation” of assets as a ground for authorizing a refund.
The Colorado Supreme Court reversed the Colorado Court of Appeals, holding after careful analysis that none of the four conditions for refund authorized by the statute had been met nor existed. These reasons include (1) erroneous valuation for assessment; (2) irregularity in levying; (3) clerical error; and (4) overvaluation.
Intentionally paying taxes on properties it knew did not exist in order to perpetuate a fraudulent scheme does not authorize a refund of those taxes, period.
All Colorado business taxpayers should read the full opinion of the Colorado Supreme Court.