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Montana, Blixseth to face off in $57M tax dispute

Matthew Brown, Associated Press

BILLINGS, Mont. (AP) -- Montana tax authorities and former billionaire Tim Blixseth will meet in federal court as the luxury real estate mogul tries to fend off an attempt by the state to recover what it calls $57 million in back taxes.

U.S. Bankruptcy Judge Bruce Markell in Las Vegas will decide if the Montana Department of Revenue can push forward with its effort to force Blixseth into bankruptcy. Two days of hearings are scheduled to begin on Thursday.

The state maintains Blixseth, a resident of Washington state, owes the hefty tax bill on a 2005 loan he diverted from the Yellowstone Club, a luxury ski and golf resort he founded near Yellowstone National Park in southwest Montana.

Blixseth has said the state's action against him is politically motivated and legally flawed. He wants the case thrown out.

Markell already dismissed the case once, in 2011, after Blixseth asserted it was filed in the wrong venue because he does not live or have a business in Nevada.

That ruling was overturned on appeal because most of Blixseth's assets are believed to be held in a Nevada-based trust.

If state revenue authorities prevail, a bankruptcy trustee could be appointed to liquidate Blixseth's assets and satisfy Montana's claim.

On Wednesday, Blixseth declined to comment ahead of the hearing, saying he would wait until a decision is rendered.

Mary Ann Dunwell, a spokeswoman for the Montana Department of Revenue, said the state believes the case should proceed "to protect the state's ability to collect taxes for the benefit for all Montana citizens."

In the courtroom, aiding the state, will be attorneys for Yellowstone Liquidating Trust, which represents creditors owed $41 million from Blixseth under an order from a federal judge in Montana.

The creditors have long sought to break up the Nevada trust so they can get at Blixseth's assets.

Their attorneys wrote in court documents filed last week that Blixseth had abused judicial process in his attempts to evade the Montana judgment. Forcing him into bankruptcy is necessary to make him finally pay, they wrote.

"He will stop at nothing as he seeks to avoid bankruptcy-court supervision so he can continue his unceasing, scorched-earth attempt to evade the legitimate claims of his creditors," the attorneys wrote. "The time has come for this debtor (Blixseth) to open up his books and records, testify under oath, and account for property he repeatedly and fraudulently transferred to the detriment of his creditors."

Blixseth once was worth an estimated $1.3 billion but in recent years that figure has declined to roughly $230 million, according to court documents.

Beginning in 2005, Blixseth diverted most of a $375 million loan made to the Yellowstone Club to himself and then-wife Edra Blixseth. They used the money to buy luxury estates around the world, a pair of jets, cars, furniture, art and jewelry.

He said at the time he wanted to create an international version of the ultra-exclusive Yellowstone Club. But that never happened, and when the Montana resort started to founder, Tim Blixseth turned it over to Edra Blixseth during their 2008 divorce and took most of their remaining assets.

The Yellowstone Club went bankrupt months later. It is now under new ownership.