Pflueger found not guilty of all charges in tax fraud case

A federal judge found retired car dealer James Henry Pflueger not guilty Wednesday morning of tax fraud and related conspiracy charges of lying about his income on his tax returns.

U.S. District Judge Leslie E. Kobayashi found Pflueger, 87, not guilty on all four charges, including failing to report as income money the Pflueger car dealerships paid for his personal expenses. He was also charged with underreporting the capital gain he realized on the 2007 sale of a commercial property in San Diego for $27.5 million. Pflueger was also faced charges involving his personal expenses and relating to the sale of the San Diego property.

Kobayashi presided over a nine-day, non-jury trial last month, and rendered her verdict this morning.

Pflueger’s Los Angeles accountant Dennis Lawrence Duban testified that he falsified Pflueger’s tax return and documents regarding the sale of the San Diego property because the retired car dealer needed money for his legal expenses related the Ka Loko dam disaster.

Pflueger faces manslaughter charges in connection with the 2006 deaths of seven people who were swept away in their homes by hundreds of millions of gallons of water that breached the Ka Loko dam on Kauai’s North Shore.

But a court hearing on Kauai is scheduled for April 18 on a proposed plea agreement.

Honolulu attorney William McCorriston, who represents Pflueger in the Ka Loko criminal case and who was in the courtroom for Kobayashi’s ruling, said he could not comment on the agreement.

“I’m just delighted that Mr. Pflueger was found innocent of all charges in this matter,” McCorriston said. “The court’s conclusion was definitely justified by the evidence in the case.”

A defense tax expert had testified that in his opinion, Duban falsified the tax return and sale documents because he had promised Pflueger a certain return on the sale and needed to make up the difference when the sales price came in lower than expected.

A defense handwriting expert testified that the signatures on Pflueger’s tax return and phoney sales agreement for the San Diego property do not match the samples he obtained from the retired car dealer.

Pflueger did not testify in his own trial.

His Beverly Hills, Calif., lawyer Steven Toscher argued that any errors or fraud that benefited Pflueger were committed by others, including Duban, without Pflueger’s knowledge. He said the tax loss from Pflueger failing to report as income his personal expenses paid by the car dealerships is no more than $30,000.

An IRS auditor testified that Pflueger failed to report income of more than $3 million in 2003-2007 and that he owes the federal government, Hawaii and California $1.8 million in taxes.

Four other people charged in 2010 with Pflueger have pleaded guilty and are awaiting sentencing.

Duban pleaded guilty to preparing the false income tax return that underreported Pflueger’s capital gain on the sale of the San Diego property and to helping Pflueger’s son, Charles Alan Pflueger, who took over running the car dealerships in 2002, prepare a false income tax return that failed to report as income personal expenses the company paid for him.

Alan Pflueger and his secretary Julie Ann Kam pleaded guilty to filing false income tax returns for failing to report as income money the car dealerships paid for their personal expenses.

Company chief financial officer Randall Ken Kurata pleaded guilty to filing a false corporate tax return that listed the personal expenses the company paid for Alan Pflueger as business deductions.

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Star-Advertiser reporter Ken Kobayashi contributed to this report.