Tim and Edra Blixseth owe the state $57 million in taxes on the money they drained from the Yellowstone Club and spent on luxury jets, cars and yachts that they wrote off as business expenses, Montana tax officials say.
With Edra Blixseth bankrupt, state officials have filed a warrant to go after Tim Blixseth's assets to cover the debt.
Payment would go a long way toward easing Montana's budget woes, with state lawmakers next year due to address a projected budget shortfall of more than $300 million. But state officials may have to fight other creditors that are seeking $286 million from Tim Blixseth.
Blixseth said Wednesday he planned to resist efforts to make him pay in an upcoming hearing before the Montana Department of Revenue.
The bulk of the Blixseths' unpaid taxes date to 2005. That's when Tim Blixseth arranged for the club to take out a $375 million loan through Credit Suisse but then diverted almost all that money for his and Edra Blixseth's personal use.
The state contends in court documents that the money was not a loan but a taxable distribution by the time it got to Tim Blixseth. Blixseth, however, said the Internal Revenue Service conducted a two-year audit into that allegation and ultimately ruled in his favor.
"It's completely a bogus claim by the Department of Revenue and Montana," he said.
U.S. Bankruptcy Judge Ralph Kirscher recently came down on the same side the state has argued. In an August ruling, Kirscher said the Credit Suisse money was "beyond any doubt" a distribution despite Blixseth's attempts to "disguise" it as a loan.
Tim Blixseth's lawyers have said his ex-wife assumed the outstanding tax liabilities as part of their 2008 divorce settlement. The club's creditors want a federal bankruptcy judge to set aside the settlement because they say Edra Blixseth was misled into signing it.
Montana Department of Revenue attorney Joel Silverman said Wednesday that he could not comment directly on the case and that the state does not get involved in disputes between former spouses.
"We just know if there's a tax debt we try and collect the money," he said.