A government prosecutor disclosed in court yesterday that Mary Treadwell, executive director of Youth Pride Inc., failed to file income tax returns for 1976 through 1979, and filed delinquent returns only after she became a target of a grand jury investigation.
In the first open proceedings in a wide-ranging and increasingly public investigation, the prosecutors persuaded a federal judge to allow them to question the New York accountant who prepared the returns, despite strong objections from the accountant's lawyers.
Government lawyers contended that information used to prepare the returns is crucial to their investigation into allegations that Treadwell and two other officials of a real estate spinon or Youth Pride diverted, misappropriated and stole $600,000 from the federal government and low-income tenants at the Clifton Terrace Apartments in Northwest Washington between 1974 and 1978.
The returns were prepared by accountant Jerome I. Silverman at the request of lawyer Seymour Glanzer, who at one time represented Treadwell. Glanzer had refused to turn over the information on grounds that it was protected by the confidential nature of attorney-client relationships.
But Assistant U.S. Attorney William D. Pease argued that the information being sought was not covered by the attorney-client privilege because the accountant used it for preparing tax returns.
U.S. District Court Chief Judge William B. Bryant yesterday denied Glazer's request to quash a subpoena ordering Silverman to appear before a grand jury investigating the Pride case.
Treadwell made one of her first appearances at the federal courthouse here in connection with the 16-month investigation yesterday, sitting alone in the rear of the courtroom during those parts of the lengthy hearing that were open to the public. She declined to answer reporters' questions.
After more than an hour of legal arguments, Bryant closed the proceeding to the public so that he could hear specific testimony from Silverman about the information the government wants to present to the grand jury.
Treadwell and others were required to leave the courtroom during that time and wait in the corridor, where she occassionally curled up neatly on the hallway floor smoking cigarettes and reading a book. Standing nearby was a small group of IRS and FBI agents who have been investigating the Pride case.
Yesterday's court battle occurred only one week after government prosecutors accused Treadwell of a "concerted effort to delay and frustrate" the investigation by refusing to make a largely routine appearance before the grand jury to certify that she is the custodian of Pride-related business records and provide a sample of her handwriting.
On that occasion, the prosecutors asked Bryant in writing to hold Treadwell in contempt of court if she does not cooperate immediately. Bryant has yet to act on the request.
Last week's efforts by the prosecutors to begin completing one phase of the grand jury's work and yesterday's court session were two indications that the 16-month investigation is moving into its final stages, despite several delays.
One of those delays involved moving the investigation from one grand jury to a second and eventually a third, after prosecutors learned that a grand juror on the original panel had leaked information about some of its highly secret proceedings.
The investigation began after reports in The Washington Post in October 1979 citing Treadwell and two other officials of P.I. Properties Inc., a real estate spinoff of Pride.
Treadwell had denied any wrongdoing. Robert E. Lee Jr., the firm's former general manager, has declined to discuss specifics. Joan M. Booth, Treadwell's sister who acted as project manager at Clifton Terrace, has refused to be interviewed.
During the hearing yesterday, Glanzer accused the government of an attempt to invade "the defense camp" by seeking the information behind the tax returns themselves, which the prosecutors have already obtained.
"There should be no intrusion in the lawyer's office by the government. They have no business being there," Glanzer told Bryant.
Assistant U.S. Attorney Pease, who has been supervising the Pride investigation, told Bryant that the government was seeking access only to work papers and data used by Silverman to compute the returns.
Pease told Bryant that "in reviewing Treadwell's finances and having learned that she had not filed" returns for the four tax years from 1976 to 1979, it was clear that "a decision was made by Treadwell alone to file tax returns on a delinquent basis."
As a result of that filing, Pease told Bryant, Treadwell was in the position of "every other taxpayer" whose records in preparation of tax returns would be subject to grand jury subpeona. Pease said the subpoena for Silverman's records was issued last December.
Treadwell was married to Mayor Marion Barry until mid-1977. Barry declined yesterday to discuss his own tax returns with a reporter. But the mayor said through a spokesman that he had and Treadwell always filed separate tax returns and that all of his had been filed on time.
During his 1978 campaign, Barry voluntarily gave The Washington Post copies of his federal returns for the five tax years preceding the election, 1973-1977, although they were unsigned and undated. He was the only candidate to make his returns public.
The civil penalty for a late tax return under the IRS code is a fine of 5 percent of the tax due for each month that the filing is overdue, but not to exceed 25 percent of the tax due. The penalty for a willful failure to file tax returns is a fine of up to $10,000, a jail term of one year or both.
It could not be determined yesterday whether Treadwell had owed or paid any taxes in connection with her late filings.