The Internal Revenue Service launched a criminal investigation into Marion Barry's tax history after urging him for at least three years to file his tax returns, according to two officials familiar with the probe.
The IRS sent delinquency notices to Barry, a D.C. Council member and former mayor, as early as 2002 and eventually assigned fraud investigators to the case, the officials said. The agency was focused on Barry's failure to file federal income tax returns since 1998 and decided early this year to refer the matter to the U.S. attorney's office, the officials said.
During the past few weeks, prosecutors have been presenting information about Barry's income, bank accounts and tax history to a grand jury empaneled in U.S. District Court, according to another source who has been briefed on the case. This source, like the two officials, spoke on condition of anonymity because of the sensitive stage of the probe.
Barry (D), a four-term mayor who now represents Ward 8, has declined to comment. No charges have been filed.
The U.S. attorney's office and Barry have been in plea negotiations, according to the two officials. The discussions call for Barry agreeing to plead guilty to the misdemeanor charge of failure to file his returns, the sources have said, and on prosecutors agreeing to recommend that Barry serve no jail time.
A spokesman for the U.S. attorney's office and a spokeswoman for the IRS declined to comment on the case yesterday.
Barry's attorney, Frederick D. Cooke Jr., said it would be "inappropriate" to comment at this time.
Any deal between Barry and prosecutors would have to be approved by the Justice Department before it was signed, because it involves a criminal prosecution of a tax matter. If the parties all agreed, the plea agreement would go before a federal judge for final approval. Barry, 69, could be in court within the next several days, according to the sources.
The investigation is delving into income Barry received after leaving the mayor's office in January 1999. Until he joined the D.C. Council this year, he was a consultant to various companies.
It remains unclear how much tax debt or IRS penalties Barry might owe. Also unanswered is how much evidence the IRS and prosecutors have developed in their lengthy audit and subsequent criminal investigation of Barry's tax situation.
Taxpayers who fail to file returns are typically notified of their delinquency by an IRS auditor, according to an IRS official who described the agency's general procedure. IRS agents decide to convert civil auditing cases into criminal matters only when taxpayers fail to file for three or more years in a row and audits suggest that sizable taxes are owed, the official said.
The IRS investigates most criminal cases on its own but sometimes turns to federal prosecutors when there is a suggestion of fraud or the taxpayers refuse to respond and subpoena powers are required.
After leaving the mayor's office, Barry did not have a steady, single source of income but instead was a consultant to several companies. The businesses included KSI Services Inc., a Vienna-based developer; M.R. Beal & Co., a New York investment banking firm; and National Corrections and Rehabilitation Corp., a company that operated group homes. The companies sought out Barry for his help in getting city government business and locating their businesses in the District.
Yesterday, KSI Services President Richard W. Hausler declined to respond to written questions about the amount his company paid Barry or whether he was contacted by investigators about Barry's income. Bernard B. Beal and Stanley E. Grayson, the founder and president, respectively, of M.R. Beal, did not return phone calls seeking information on whether they had been contacted by the authorities.
From 1999 to 2004, records show, Barry received $250,000 in consulting fees, commissions and expenses from M.R. Beal. According to Barry's financial disclosure statement to the D.C. Office of Campaign Finance, M.R. Beal paid him $30,000 in 2004 but stopped paying him after he was elected to the council.
Officials at National Corrections and Rehabilitation could not be located for comment.
The tax case could bring Barry back to the courthouse where he was sentenced to a six-month prison term in 1991 on a misdemeanor drug charge.
D.C. Mayor Anthony A. Williams (D) said yesterday that he knew none of the facts about Barry's legal troubles but added that "everyone should pay their taxes. It's a civic responsibility."
At the same time, Williams said, he thinks Barry's troubles "can get resolved. He can continue to serve the people of Ward 8 and make the contributions he's making. And he can continue to be someone I look to for advice on important issues."
Staff writers Allan Lengel and Lori Montgomery contributed to this report.