DATE: Thursday, July 24, 1997               TAG: 9707240398

SECTION: LOCAL                   PAGE: B1   EDITION: FINAL 

SOURCE: BY LYNN WALTZ, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:   93 lines

``MAKE A DEAL,'' JUDGE URGES NBA REFEREE IN TAX CASE AREA MAN ACCUSED OF ABUSING AIRLINE PERKS

A federal judge on Wednesday told an NBA referee on trial for felony tax evasion to negotiate a guilty plea because a jury is not likely to be convinced by his defense.

``I suggest that . . . you make a deal,'' said Judge Robert G. Doumar. ``I strongly suggest it.''

The judge's blunt advice, in a case involving an NBA referee from Newport News, Jesse Ray Kersey, may have implications for three other, nearly identical cases involving NBA referees in Ohio and Virginia.

The cases stem from a two-year investigation by the Internal Revenue Service that has shaken up the NBA and exposed widespread abuse of airline privileges, according to court documents and federal officials.

So far, four referees have been charged with tax evasion for allegedly down-grading first-class airline tickets to cheaper fares, then pocketing the difference. The difference - amounting to hundreds of thousands of dollars - should have been reported as extra income subject to tax, according to four indictments filed earlier this year.

As many as 15 referees may eventually be charged, according to published news accounts. Every referee in the league was contacted for questioning by the IRS agents during the investigation, one defense attorney said. The NBA has sent out numerous notices informing referees that the practice was illegal, court documents indicate.

Kersey, 56, is from Williamsburg. The others are Henry Clinger Armstrong of Virginia Beach, George Toliver of Harrisonburg and Mike Mathis of Cincinnati, Ohio.

The similarities in the cases are so striking that they have spurred speculation that the particulars of the scheme circulated among refs and were well-known.

On Wednesday, defense attorneys tried to blame the NBA for Kersey's legal problems.

They argued that the NBA should have notified the IRS of the total amount of salary and expenses provided to each referee instead of deducting the value of airline tickets actually used to fly to games.

The NBA depends on the refs to provide receipts and passenger coupons as proof they have used the tickets. The NBA then deducts the value of tickets from reportable income of referees. The resulting W-2 documents reflected the adjusted amounts.

But the indictment alleges the refs sent the NBA bogus receipts to make it look like the tickets had been used. In reality, the refs had either flown free or at a reduced rate, enabling them to pocket money without paying taxes.

Judge Doumar didn't buy the argument. He told defense attorneys a jury probably wouldn't believe that Kersey didn't know he was supposed to pay taxes on the unreported earnings.

``You may be able to convince the jury that your client is of diminished mental capacity,'' Doumar said. ``Your arguments are not persuasive with me. I don't like to pay taxes any more than you do, but you have to pay them.''

While referees have the right to downgrade first-class tickets to coach-class - a major bargaining chip in salary negotiations - they are required to report the extra money as taxable income.

``Wasn't it income?'' Doumar asked. ``So what was it? A gift? You can tell the jury that the NBA just loves to give away money. But I'm suggesting you get together with (federal prosecutor) Jim Metcalfe and make a deal. I strongly suggest that.''

Kersey allegedly used a South Carolina travel agent to provide bogus airline receipts and invoices for the NBA. That caused the NBA to issue wage and tax statements that ``substantially understated his income,'' a statement from the Norfolk federal prosecutors' office said.

The referee from Cincinnati allegedly used frequent flyer miles to fly to games free, then failed to report the money he got when he turned the tickets in for cash.

Toliver, of Harrisonburg, and Armstrong, of Virginia Beach, allegedly used local travel agencies to issue first-class air tickets, cancel them, get lower-cost tickets and refund the difference. The agencies allegedly provided the men with the passenger coupon from the first-class tickets so they could be given to the NBA as proof they had flown first-class, indictments show.

The men also allegedly reported the higher-cost tickets to tax preparers and the IRS, court documents show. Federal prosecutor Jim Metcalfe said he could not say why no travel agents have been charged in the case. He declined to comment about Doumar's suggestions.

Kersey and Armstrong each allegedly failed to report about $30,000 a year over a four-year period. Toliver allegedly failed to report about $47,000 in two years and Mathis allegedly failed to report about $69,000 over four years. The men have been relieved of their duties, with full pay, pending the results of trial.

Referee salaries range between $77,000 and $224,000, depending on experience.

The four men face three years in prison and $250,000 fine on each count. Armstrong faces six counts; Kersey and Mathis face five each; Toliver faces three.

Wednesday, Doumar warned Kersey that a jury might not be sympathetic to his case. ``Thirty-thousand dollars a year is a lot of money to jurors,'' Doumar said. ``It may not be to the NBA, but a lot of jurors don't make $30,000 a year. You may want to take that into account.''

Kersey, who sat quietly in glasses and a gray suit, did not respond.

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