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Rogue Regency owners dispute IRS demands

WASHINGTON -- Motel owner Scott M. McCollum says the Rogue Regency Inn's expansion would proceed this year despite $446,000 in federal tax demands against him and his sister.

Separate petitions were filed by McCollum and his wife, Janice, who live in Medford, and his sister, Julie McCollum of Crofton, Md., asking the U.S. Tax Court in Washington D.C. to overturn the Internal Revenue Service rulings against them.

The petitions for Scott McCollum, who is challenging IRS demands for $226,000 in additional taxes and penalties for 1993-95, and his sister, who faces almost $220,000 in tax assessments for the same period, say the IRS rulings are riddled with errors.

Frankly, about 70 percent of the case is based on mathematical errors, said D. Ben Henzel, a Portland tax attorney for the two. Some of the (other) transactions are very complex. Some of her (IRS auditor's) theories don't exist.

He expressed confidence that the dispute that centers on a joint venture formed by the brother and sister to own the Rogue Regency would be settled in negotiations with the IRS appellate office without having to go to trial.

We're just trying to take this to a forum where we can get this resolved, Henzel said. I think it will be resolved at that (IRS appeals) level without going to court. ... The bulk of the problem rests with the joint venture. They're trying to recharacterize the investment.

The IRS contends that the McCollums did not have as much invested in the joint venture as they had reported, and that they had higher income from the joint venture.

In making adjustments to the joint venture, the McCollums' petitions argued, the IRS agent made numerous mathematical errors.

The petitions claimed that the IRS also erred when it determined the amount of investment the brother and sister had in stock they received for property they turned over to the Rogue Regency Inn corporation.

In addition, the petitions claimed that the IRS erroneously disallowed expense deductions in connection with their business dealings.

According to the petitions, the brother and sister acquired the Rogue Regency property from the Seattle-First National Bank on April 1, 1993 with each owning 24 percent and their father, Melvin McCollum, owning 52 percent.

The petitions said that the brother and sister made the interest payments on a loan from the bank to acquire the Rogue Regency property and buildings, and that the father never made any of the interest payments.

The 123-room Rogue Regency opened as a Quality Inn in 1990 and became the Rogue Regency Inn three years later.

Scott McCollum said that construction of a 60-room addition and the expansion of a 180-person meeting room into a 400-person capacity convention center would probably begin in early to mid-summer.

We're still trudging away, trying to dot all the i's and cross all the t's, he added. It's a long process getting plans made and getting approvals, and we're going through that right now.

The IRS notices of deficiency were issued Oct. 17 and the agency has 60 days to respond to the Jan. 20 petitions. If the IRS and the McCollums fail to negotiate a settlement, the cases could go to trial before a tax court judge.