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Roseau County official investigated for tax fraud

The Minnesota Department of Revenue is scrutinizing the financial records of a Roseau County Commissioner and his wife suspected of embezzling and laundering money as well as under-reporting their income.

With permission to search "records and documents associated with their incomes and expenditures, both personal and business," investigators last week seized bank and credit card statements, a computer hard drive and various files from the rural Warroad home of Alan and Nadene Johnston, court documents state.

According to the search warrant application:

The investigation began in November 2006 after a resident of Lakewood Park & Sales Inc., a mobile home park in Warroad, told an investigator that Johnston, 61, and his 59-year-old wife "had embezzled hundreds of thousands of dollars from the business."

Johnston managed the park for at least five years until 2003 and was a part owner, while Nadene helped keep the books. He currently owns 30 percent of the park, but another woman runs it and owns the rest.

The park was owned previously by Johnston's parents who gave shares of it to their three children. It became the subject of a legal battle between Alan and his brother.

"The infighting of the Johnston family is of little interest to MNDOR. However, the various documents and information exposed during the family squabbles revealed a host of serious tax violations," reads the application signed by special agent Michael Morehead.

Morehead goes on to say that hundreds of hours of research and investigating over many months led his department "to conclude that the violations are blatant and serious enough to justify criminal investigation and prosecution."

According to the search warrant application, allegations made by a tax specialist with the department include:

- The couple's income was under-reported by more than $60,000 in 2002 and by more than $25,000 for the first nine months of 2003.

- Checks from Lakewood Park & Sales were used to pay for improvements to the Johnston's property and make loan payments on a 1996 Corvette owned by the couple's son.

- Money owed to Johnston was laundered through his son's name to hide reportable income.

Johnston and his attorney, Jon Jensen, declined to comment Monday.

No charges have been filed against the Johnstons, but Revenue Department spokeswoman Kit Borgman said any charges would be filed in Roseau County court. She would not provide further details because the investigation is ongoing.

Neither the local Roseau County Sheriff's Office nor local district judges were involved in the search because of conflicts of interest, court documents state.

It was not clear if County Attorney Lisa Hanson would be involved in the case and if her involvement also would constitute a conflict of interest. A message left for Hanson was not returned Monday.

Johnston, who has served as a commissioner since 1998, is a lifelong resident of Roseau County, a former commercial fisherman and current Coast Guard employee, according to the county's Web site.

Herald staff writers Steve Lee and Lisa Gibson contributed to this report.