IRS: Blue Mountain Mall developers failed to report millions

Winston and Jason Bontrager, who bought and tore down the Blue Mountain Mall, are believed to have concealed about $25 million.

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The real estate developers who purchased the Blue Mountain Mall, tore it down and left the project amid financial trouble are suspected by the Internal Revenue Service of failing to report nearly $25 million in income from other major development projects on the west side of the state.

No charges have been filed against Bellevue developer Winston Bontrager or his son, 2004 Republican state Senate candidate Jason Bontrager. Nor have they been filed against the elder Bontrager's girlfriend, Pauline Anderson, who was part of the IRS investigation but is not known locally to have ties to the mall project. However, agents raided their homes and offices this month as part of an investigation into their income since 2000 from three shopping center projects in Vancouver, according to an Associated Press report.

Joseph Lopez, an agent with the IRS Criminal Investigation Division, wrote in a search-warrant application filed in U.S. District Court that the three conspired to conceal their income by overstating business expenses, underreporting income and moving money among dozens of bank accounts in the U.S. and Australia, the AP said.

Though none of the accusations are related to the defunct Blue Mountain Mall property, the probe and findings aren't likely to help speed up the process, Walla Walla City Attorney Tim Donaldson said Wednesday.

A sale of the property -- rescheduled twice this summer -- was slated for Friday. Donaldson said that's not likely to happen.

To what extent the Bontragers are involved in the project is not exactly clear, he said. A number of names have been linked to the redevelopment of the Blue Mountain Mall in the last three years, making it exceedingly complicated to track down who's responsible for the unpaid bills for everything from construction services to payments on a Local Improvement District that helped pave the way for the original mall with improvements on Poplar Street more than 20 years ago.

Donaldson said Winston Bontrager was known by the city to have bought the mall property from Meyer Properties three years ago. Most recently Jason Bontrager has been the contact for the city. He also signed the bankruptcy papers that initiated the automatic stay in July.

The commercial property was headed for auction on the courthouse steps July 2 after the lender for the $10.5 million acquisition foreclosed for failure to pay. But the bankruptcy filing postponed that process.

Jason Bontrager had also previously said the mall project stopped because of challenges in the economy to secure financing on the project in the wake of the recession. He said he remained committed to redevelopment of what was to be known as "Walla Walla Town Center," an open-air shopping concept that was said to be the future site of numerous national retail chains.

The Bontragers and Anderson could not be reached for comment. The three "are living lavish lifestyles residing in million-dollar homes in Washington, driving luxury automobiles, and vacationing in million-dollar winter homes in Southern California," Lopez wrote.

Meanwhile, they were paying little to no federal income taxes, he alleged. Nor was Winston Bontrager, 61, paying $680,000 in restitution he still owes from a 1994 fraud conviction.

The shopping-center deals brought the three at least $47 million, and they failed to report $24.7 million, Lopez wrote.

One of the deals involved Seattle real-estate magnate Michael R. Mastro, who was also linked to the Blue Mountain Mall property and last year was forced into one of the biggest bankruptcies in state history. A Mastro-owned company bought the one of the Vancouver properties from a Winston Bontrager-run entity in 2005 for $14.3 million. In addition, millions were transferred between Mastro and Bontrager and Anderson in 2004, 2007 and 2008, according to Lopez's filing.

James Frush, one of Mastro's lawyers, said Mastro had no involvement in the tax affairs of the Bontragers or Anderson, and simply moved money to accounts they specified. Frush said Bontrager was involved with Mastro in the Blue Mountain Mall project, but was "not a primary business associate," Frush said.

James Rigby, the court-appointed trustee charged with finding and liquidating Mastro's assets and distributing the proceeds to his creditors, said Bontrager approached him earlier this year seeking to retake title to the Eastgate property, where development has stalled.

Bontrager's bid was rebuffed, Rigby said.

Mastro owes Bontrager's Vancouver Eastgate entity $1.2 million, according to bankruptcy-court records. Anderson, who apparently invested money with Mastro, has filed a claim against him for $3 million.

Seattle Times business reporter Eric Pryne contributed to this report. Vicki Hillhouse can be reached at vickihillhouse@wwub.com or 526-8321.

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