Final restitution amount set in Gates’ felony tax case

Former Republican legislator Mickey Gates owes the state revenue agency more than $80,000 in restitution, money he’ll have to pay to satisfy the terms of the no-contest plea he entered in 2019 to failing to file a state income tax return or pay taxes for the 2012 tax year.

According to the agreed order of final restitution Benton County Circuit Judge Brad Karren entered last month, Gates owed the state a minimum of $48,813 in taxes, penalties and interest for the 2015, 2016 and 2017 tax years as of Aug. 23. The amount is part of the $129,095 in total restitution the former three-term lawmaker from Garland County agreed to pay for the 2012-17 tax years.

As of Aug. 23, Gates had paid $46,000 on the $74,789 in taxes, penalties and interest the July 2019 plea agreement said he owed for the 2012-14 tax years, according to last month’s restitution agreement, leaving an unpaid balance of $83,095.

The affidavit the Arkansas State Police filed in support of Gates’ 2018 arrest said he owed $259,841 in taxes, penalties and interest as of June 2018. The sworn statement said the Department of Finance and Administration found no tax returns for Gates in its computer system, which the statement said contains records dating back to 2003. The state tax code’s six-year statute of limitations for prosecuting tax offenses limited Gates’ jeopardy to the 2012-2017 tax years.

Special Prosecutor Jack Mcquary charged Gates in 2018 with six felony counts of failing to pay or file a state income tax return, with each count punishable by up to six years in prison and a $10,000 fine. He withdrew five of the charges as part of the plea agreement, which required Gates to make restitution on all six counts he was arrested on.

Gates has said the deferred-adjudication plea he entered under the state’s first-time offender statute was

not a guilty conviction. It allows him to avoid a finding of guilt if he complies with the terms of the six-year probation Karren sentenced him to. The Arkansas Supreme Court appointed Karren after Garland County’s four circuit judges recused from the case.

The plea agreement set the amount Gates owes for the 201214 tax years and required him to file returns for the 2015-17 tax years. Last month’s restitution agreement set the amount Gates owes for those years. Mcquary said Karren warned Gates during a hearing held via teleconference last month that he has to pay what he agreed he owes for the 2015-17 tax years.

The plea agreement requires Gates to pay $2,000 a month.

“The court wanted a hearing to remind the defendant that if you fail at any of this stuff while you’re on probation, you are facing prison time,” Mcquary said. “I think the court wanted to reiterate that now you have this additional amount that’s owed, and you’re going to keep paying your $2,000 a month. And if you fail, you’re facing prison time.”

The 2015-17 liability was based solely on what Gates said he owes for those years, according to the restitution agreement. Gates filed a civil action in February challenging DFA on business deductions it disallowed for those years. Jeff Rosenzweig, the attorney representing Gates in his criminal case, said the civil action has no bearing on the criminal case.

“There were a number of issues that were in dispute,” he said. “We had a hearing on those several months ago. It turned out the Department of Finance and Administration couldn’t articulate why they had denied a number of deductions. For instance insurance on the company car, things like that. The judge put off the hearing and ordered them to hand over a number of documents that had not been handed over before.

“We were able to work out an understanding that the 20152017 indebtedness would be figured on what Mr. Gates submitted. If the department wants more, they’re free to seek more through the civil process, but it will not affect the so-called criminal liability. It was agreed that if the department decided to disallow Mr. Gates’ deductions, they would not try to do so in the criminal case. They would just deal with that in a civil proceeding.”

Gates was elected in 2014 to represent north Garland and west Saline counties in the state House. He was reelected in 2016 and 2018 and planned to run for a fourth term in 2020 despite his no-contest plea to the criminal tax charge and state Republican leaders calling for his resignation.

The House voted 88-4 to expel Gates in October 2019, making him the first House member to be expelled from the chamber since 1837.

Gates’ criminal case is related to personal income taxes, but his tax issues proceed from his promotional products business. It was set up as an S corporation, which avoids corporate income taxes by passing profits and losses directly to its shareholders, which in Gates’ business are him and his wife.

Gates has said his tax problems partly stem from former employees who misappropriated proprietary information to secretly solicit customers for a business competitor. He won a judgment against them in federal court, according to court records.