Tax woes not stopping candidate from second run at City Council

Lynn City Council candidate Stephen Duffy faces tax problems that stem, in part, from business troubles. Lynn City Council candidate Stephen Duffy faces tax problems that stem, in part, from business troubles. (John Blanding/Globe Staff)
By Kathy McCabe
Globe Staff / October 18, 2009

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Stephen J. Duffy, a candidate for councilor at large, is facing foreclosure on a home he owns on Newton Avenue for nonpayment of federal income and business taxes totaling $127,864 owed over an 11-year period, according to a complaint filed in US District Court in Boston.

The unpaid taxes are owed from 1995 to 2006, during which Duffy served as a 10-year member of the Lynn School Committee and in one term on the City Council. He now is one of six candidates vying for four councilor-at-large seats in the Nov. 3 general election. If elected, Duffy said his tax problems would not hamper his work on the City Council, whose financial duties include approving the city budget, floating bonds, and setting the tax rate.

“I had these tax issues when I served before,’’ Duffy said in an interview in the office of his electrical contracting business. “In no way did they interfere with me doing my job, on the School Committee or the council.’’

But Duffy said he is also not minimizing his tax issues.

“I am absolutely responsible for this.’’ said Duffy, 50, a lifelong Lynn resident. “I want to pay my debt. . . . I am trying to work out a compromise.’’

The US Department of the Treasury, which oversees the Internal Revenue Service, filed the complaint in May. Also named as a defendant is Duffy’s former wife. The couple, who divorced in 2000, continue to jointly own a house at 43 Newton Ave., the complaint states.

Five federal tax liens were placed on the property from 1995 to 2006, according to court papers. They were for personal income tax liabilities totaling $56,697, and for $69,167 in unpaid employment taxes by DJS Corp., the legal name of Duffy’s electrical contracting business, according to tax liens.

Others named defendants are St. Jean’s Credit Union of Lynn, which holds a first mortgage of $77,600 on the property, and the Lynn Economic Development Industrial Corp., a public agency that has a $75,000 second mortgage on the house, according to the lawsuit and public property records.

The Massachusetts Department of Revenue, which has five separate liens on the property, is also named as a defendant. The liens were placed for back taxes totaling $86,206 owed by Duffy and DJS Corp., according to filings at the Southern Essex Registry of Deeds in Salem. The state liens are separate from the federal liens that prompted the lawsuit.

Neither Webb Primason, a Lynn lawyer representing St. Jean’s Credit Union, nor Derek W. Ward, a Lynn lawyer representing the Lynn EDIC, returned phone calls seeking comment.

A spokesman for the state Department of Revenue said the agency is named in the lawsuit because of liens it put on the home.

“We’re listed there simply because we already have put down a claim,’’ said Bob Bliss, the agency spokesman. “It’s the legal way the IRS is letting us know they’re diving in too.’’

A meeting to determine the trial schedule is scheduled for Nov. 13, court papers show.

Duffy does not live in the home. He said he hopes to settle the lawsuit, and has asked the IRS to temporarily remove the lien from the property. The process, technically known as subordination, is sometimes granted to property owners who are trying to refinance or restructure a mortgage to pay off delinquent taxes, according to IRS officials in Boston.

Duffy said the lien relief would clear the title to the property so that his former wife and her husband could apply for a mortgage to buy out his interest in the Newton Avenue property.

“Once we get Newton Avenue squared away, I will be able to pay these particular liens off,’’ he said.

He said his tax liabilities can be traced to cash flow and other financial problems at his electrical contracting business. He filed income tax returns, he said, but was unable to make full tax payments. He set up payment plans with state and federal revenue officials.

“I always, always filed my taxes,’’ Duffy said. “I tried to pay what I could.’’

He said a major setback came 10 years ago when a supplier to whom he owed $30,000 received a court judgment against him. All his trucks, tools, and equipment for his business were repossessed and sold at auction to pay off the debt, Duffy said.

At the same time, he said, at least 10 of his own clients filed for bankruptcy, so he was unable to collect money from them.

“I had no money, no trucks. Nothing,’’ Duffy said. “I was debating folding.’’

Instead, Duffy said he borrowed trucks from friends and started over. But the economy of the early 2000s was hard on his business, which specializes in residential electrical wiring.

Duffy said he never considered filing for bankruptcy.

“My word and my integrity means more to me than bankruptcy,’’ said Duffy. ’’ I’m going to stick it out. I owe money. I’m going to pay it.’’

He said he twice submitted offers to settle outstanding taxes but they were rejected, largely because of what he called paperwork mistakes. At one point he hired a Worcester-based debt-settlement business. But the company did not resolve the issue fast enough, and he could not afford $7,500 to keep them on retainer, he said.

“It was one of those guru-magic ‘we’ll-settle-your debts’ firms,’’ Duffy said. “But it was all a sales pitch.’’

Duffy now is trying to make his own pitch to Lynn voters. He finished fourth among six candidates in the Sept. 15 primary. He served on the School Committee from 1991 to 2001, when he was elected to the council. His tenure on the School Committee came as the city received millions of dollars in education money. He also voted to build a new Classical High School and renovate English High School, he said.

He served one term on the City Council, narrowly losing his reelection bid in 2003. But during those two years, Duffy said, he helped persuade General Electric Co. to reopen a public street that ran through its sprawling complex in West Lynn.

“I must have met with GE 18 times over the course of my term,’’ Duffy said. “I’m tenacious. . . . I can do this job.’’

Kathy McCabe can be reached at