It was just a year ago that Michael Surian, an Indiana surgeon, flew to the Texas Panhandle to look over the 1,500 acres of wheat that he had paid to have grown for him.
Trailed by clouds of dust as he tramped through the bone-dry fields with Texas farmer Paul Hays and Orange County investment adviser George L. Schrieber, Surian had more than just wheat on his mind. He wanted to know more about the tax breaks that he soon would be harvesting.
Back then, Surian was merely trying to shelter some of his considerable income from the tax man. And it was all perfectly legal; or so he thought.
But today, faced with an admission by the farmer that he never grew crops for Surian, the surgeon is frantic.
With good reason: He may lose a hefty chunk of his net worth if an ongoing criminal investigation of Amcor Capital Corp. of Irvine by the Internal Revenue Service shows that the big tax deductions he took were based on fraudulent investment deals.
Until the IRS probe was disclosed last month, Amcor had an unblemished public image as a successful tax shelter promoter.
But a Times investigation shows that the firm did not disclose in its sales circulars or filings with government agencies a history of negative incidents in the background of Amcor's founder, Frederick H. Behrens of Newport Beach. It includes business failures, bankruptcies and allegations of fraud by irate investors, partners, clients and creditors.
Since 1981, an estimated 4,000 people have pumped $200 million into tax shelter investments designed and managed by Amcor or its predecessor firm, American Agri-Corp. Although there is no indication that the IRS investigation is aimed at any of Amcor's investors, federal law holds taxpayers responsible for any taxes that they avoided by means of fraud even if they had no knowledge of it.
$1 Billion in Deductions
And that means that many of the 4,000 investors stand to be hit by massive bills for back taxes, interest and perhaps penalties if the allegations against Amcor are proven.
As many as 100 of the 137 agricultural partnerships that Amcor put together had suspect investments, according to a court statement by IRS special agent Wilbur J. Goolkasian. In all, Amcor investors have claimed nearly $1 billion in tax deductions, Goolkasian said in a search warrant affidavit filed in U.S. District Court in Los Angeles.
Schrieber, a Villa Park resident who quit his job as president of Amcor in May, could not be reached for comment. Current Amcor officers, including Behrens, declined comment on the advice of attorneys, according to Marlene Adams Tapie, an Amcor vice president and corporate secretary.
But in an interview last month, the company's new president, Robert A. Wright, denied any wrongdoing by the company in its Texas farming operations. He also said that Behrens' past legal and financial troubles were "too old" to be concerned about.
Wright said the company believes that the IRS is investigating bogus charges from a group of Texas farmers who went to the government to muddy the waters in hopes of avoiding repayment of a debt that they owed Amcor.
In all, eight farmers have obtained immunity from the Justice Department in return for their testimony about the purported fraud, according to Goolkasian's affidavit.
Their attorney, Wendell Davies of Amarillo, Tex., denied Wright's contention. He said he knows of other Texas farmers who participated in fraudulent investment schemes with Amcor.
According to Panhandle farmer Hays, whose testimony to investigators was outlined in the IRS affidavit and confirmed by Davies, the various contracts that he signed to grow crops for Amcor investors were merely devices designed to fool investors and the IRS.
Amcor, according to Goolkasian's affidavit, gave investors false financial statements that they relied on when preparing their income tax returns.
According to Davies, the farmers took payments from Amcor to pretend that they were entering into farming leases with investors but actually ignored the agreements and continued financing, growing and selling crops for their own benefit.
Davies said the farmers never received lease payments from Amcor and instead were paid a lump sum to agree to tell the investors that they were farming for them.
Goolkasian, in his affidavit, said the IRS secretly tape-recorded Amcor attorney Ted Frame admitting to the scheme in several meetings with Davies. The affidavit says Frame told Davies that if Amcor and the farmers admitted that the farming agreements were a sham, they all would be prosecuted for tax fraud and conspiracy.
Frame, whose office is in Coalinga, Calif., has declined comment on advice of his personal lawyer.
The deals Amcor marketed from its inception through mid-1986, when the Tax Reform Act changed the rules, were sold mainly to wealthy investors seeking to shelter large sums of money from tax rates that hit 50% in some cases.