Woman stole $2.3 million from a local business; now the state wants a cut of the victims’ stolen money

IDAHO FALLS — Val and Dyle Erickson just want their money back. They’ve already been the victims of theft and now they say the State of Idaho wants to take a large portion of the money they are owed in restitution.

Charlotte Pottorff embezzled millions from the brothers for over a decade. She was sentenced to prison for her crimes. When she declared bankruptcy the Ericksons started trying to get back some of their money. But they’ve run into a problem — the State of Idaho has chosen to lay claim to 35 percent of Pottorff’s assets because she didn’t claim the stolen money on her taxes.

“It’s not fair for the taxing authorities to reap a windfall on the back of the victim of a crime,” Jed Manwaring, the Ericksons’s attorney, told EastIdahoNews.com.

The background

Pottorff worked for the Erickson brothers at Dura-Bilt Transmissions as a bookkeeper for 20 years. She retired and the brothers hired a new bookkeeper who noticed there was something wrong with their financial records. A forensic audit revealed Pottorff embezzled $2.3 million between 2006 and 2017.

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In November 2017, Pottorff was sentenced to up to 30 years in prison and she was ordered to pay $1.16 million in restitution. The day of her sentencing, she filed for bankruptcy.

Fast forward a little less than two years. The final bankruptcy trustee’s report was filed on Aug. 12, 2019.

As part of the bankruptcy process, the people and entities Pottorff owes money to are able to make a claim on her assets. She ended up owing a total of $2.5 million between all of her creditors.

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The Ericksons, through their business Linan Inc., filed a claim for $2,325,504.89 — the total amount Pottorff stole from them and 91 percent of her total debt.

Pottorff also owed money to banks and credit card companies totaling $43,513.77 — 1.7 percent of her debt.

Stolen or otherwise – it’s all taxable

Under the United States tax code, it doesn’t matter where income comes from, stolen or otherwise. It’s all taxable.

That’s how infamous mobster Al Capone was finally arrested and criminally charged. He didn’t include the “protection money” he stole on his taxes, which constitutes tax fraud.

When Pottorff filed for bankruptcy, the Idaho Tax Commission and IRS were notified. The IRS chose not to file a claim for what she owed the federal government. However, the Idaho Tax Commission did and took priority status.

Bankruptcy law allows for certain things to take priority in a claim. When all the money is divided up between people or organizations that are owed, the one with priority claim gets first dibs.

Money owed for child support takes priority and taxing authorities, like the State of Idaho, can also make priority claims. The person whose money was stolen does not.

“The only reason (the state) has a claim, at all, is because the money was stolen from us,” Val told EastIdahoNews.com. “If they had any sense of decency, they would recognize that and not take that priority position.”

The State of Idaho made a priority claim of $47,112.08 and a non-priority claim of $127,166.22. That’s just under seven percent of the $2.5 million Pottorff owes.

Pottorff’s finances

The state’s claims wouldn’t seem so bad if Pottorff still had the $2.3 million she stole from the Ericksons, but she does not.

Pottorff’s bankruptcy estate only came out to $132,168.40 and that is to be divided between the Ericksons, banks, credit cards and the Idaho Tax Commission.

With only a small pool of money available to pay off Pottorff’s debts, the proposed distribution would bring the non-priority claim to a little more than $4,000. The banks and credit card companies claims would be reduced to $1,482.

However, the state will keep its priority claim of more than $47,000.

“The Tax Commission was also negatively impacted by Charlott Pottorff’s conduct and is entitled to the priority status afforded by the Bankruptcy Code,” Deputy Attorney General Amber Kauffman said in a letter to Jed Manwaring, the Erickson’s attorney.

Kauffman represents the Idaho Tax Commission. EastIdahoNews.com reached out to Kauffman for further comment, but she declined to give a statement as this is an ongoing case.

The state’s priority claim was only two percent of the $2.5 million Pottorff owed. Now, that $47,000 is more than 35 percent of all the money that’s available, leaving the Ericksons with $79,000.

“That little pool of money right there, that $132,000, is the only money that we will ever collect on,” Val said. “Whatever we collect here is going to go into our retirement fund. Where that fund ought to be $2 million more than we have, we’ll have to settle for whatever we can get out of this.”

The state’s position

Val Erickson said he has been working since May to get something worked out with the state so he and his brother can collect as much of the money that’s owed to them as possible.

“The state will always pursue bankruptcy cases that are filed with the state. Once (a) case is opened, the state references the Federal Bankruptcy Code which dictates order of priority,” Senior Advisor on Intergovernmental Affairs for Gov. Brad Little Andrew Mitzel told Val in an email.

Manwaring said it is legal for the state to do what they are doing, but he argues that the law does not require the state to make a priority claim or even make a claim at all.

“Val Erickson’s position is this is just totally inequitable. The state is not required to and does not have to assert their claim. But they’re just reaping a windfall on the stolen money to the prejudice of the victim of a crime,” Manwaring said.

In response to Erickson’s request for the state to drop their 35 percent priority claim, Mitzel told him he’d spoken to Gov. Little about the situation.

“(Little) is in agreement with the Tax Commission,” Mitzel said in the email. “The state long before us has always taken the primary position on bankruptcy cases and to change that now, midstream on one case, would be detrimental to other ongoing cases and future cases.”

Manwaring said the State’s position is making an exception for the Ericksons would set a bad precedent for similar cases. But Erickson said he doesn’t believe situations like his happen very often.

“And if it does, and this exact situation comes up again, then it ought to set a precedent,” Erickson said. “They should recognize the victim of a crime and try to do what they can to bring about justice.”

Hoping for a solution

Erickson said, at the very least, he and his brother would like the state to drop their priority claim and change it so their claim is based on the total debt.

If the state did that, their claim would roughly come out to $9,000 — 6.9 percent of $132,000. That would leave the Ericksons with around $120,000.

“I’m hoping that maybe, in the light of day, they see that I’m not the only one that’s going to know about this. Maybe that will help them to make a decision to do something,” Erickson said.