Brother's Tax Problem Puts Home in Jeopardy
By DAVID CAY JOHNSTON
Published: May 28, 1995
AT first glance, Maria Merlino's fight to keep her Philadelphia house seems like just another case of faulty tax and trust planning.
In a finding filed this month, Judge Edna G. Parker of Federal Tax Court recounts how the home was bought and transferred among Merlino family members, and what the flaw was in the transactions. But in truth, if Maria Merlino's brother, Joseph, had just paid taxes on his proceeds from an armored car robbery, she wouldn't be battling the Internal Revenue Service now.
And unmentioned anywhere by the Judge is that Joseph Merlino is the son of Salvatore (Chuckie) Merlino, the former underboss of the Scarfo crime family who is now in the witness protection program, according to the Philadelphia police. The younger Merlino is described by Federal prosecutors as engaged in an especially bloody war for control of rackets in Philadelphia and Atlantic City, a war they said included a wild rush-hour shooting on a freeway two years ago. The intended target, according to the Federal Bureau of Investigation, was John Stanfa, who is about to stand trial for murder and racketeering and was identified in an indictment last year as successor to Nicodemo (Little Nicky) Scarfo in the Philadelphia mob.
For all the people who think their family financial matters are messy, try following the Merlinos' tale. In 1986, Ms. Merlino and her brother agreed to buy a family home for themselves and their mother, Rita. Ms. Merlino did not qualify for a mortgage because she was unemployed and had a poor credit history, according to the judge's finding. The family paid $100,000 in cash, and arranged a $25,000 mortgage to cover the balance of the $125,000 purchase price.
The home was purchased in the name of Joseph Merlino. On the advice of a lawyer, Fred Levin, title was transferred to the mother and then to a trust with Joseph as trustee for Maria and another sister. In December 1988, Joseph Merlino gave his one-third share of the trust to his sister, Maria. The fair market value of the house was $130,000, and the title was conveyed for $1.
Here's the rub. Mr. Merlino and two associates stole $352,150 in an armored car robbery in 1987. In 1990, he was convicted, which made him liable for income tax on his share of the loot. Over the years, the amount of tax he owes has swelled because of penalties and interest to $139,964.
Judge Parker found that the title to the house was transferred fraudulently to keep the house beyond the reach of Federal authorities. Because Joseph Merlino never filed a tax return for 1987, his tax liability arose on April 15, 1988 -- before the house was transferred to his sister. And because she did not pay her brother for the house, Judge Parker concluded that the transfer was fraudulent.
In a partial victory for Ms. Merlino, however, the judge held that she was not liable for the full $139,964. Her liability is $43,000, equivalent to the value of Mr. Merlino's one-third stake in the house at the time of the transfer, plus interest.
Mark E. Cedrone, Ms. Merlino's lawyer, said he was pleased that the judge limited his client's liability but would still seek a reversal. "Her brother didn't even know he was a suspect in the armored car robbery when he transferred his interest in the house," Mr. Cedrone said, arguing that the transfer could not have been fraudulent. "And my client is no Mafia princess. She's goes to work every morning as a legal secretary at one of the most prominent law firms in Philadelphia. The finding is really unfair."
