The Internal Revenue Service says Don Marsh owes $518,892 in federal taxes stemming from his final years as CEO of Marsh Supermarkets Inc., his lawyer revealed Thursday.

The disclosure came during the fourth day of Marsh’s civil trial. The locally based supermarket chain accuses the former CEO of using company funds to pay more than $3 million in personal expenses. Marsh, 75, spent 38 years leading the company before it was sold to Florida-based Sun Capital Partners in 2006.

Don Marsh's tax debt stems from an IRS audit that found "disallowed deductions" for personal expenses he wracked up from April 2004 to September 2006. Marsh Supermarkets ended up paying a negligence penalty in connection with the findings.

After the audit, the company sent 1099 tax forms to Don Marsh for those years listing $2 million more in compensation than it had originally reported. Marsh said he has yet to pay the $518,892 in back taxes and is unsure how the company calculated the $2 million figure.

“They dumped everything in there,” Marsh said.

The IRS says the debt stems from a tax-law change that required Marsh to count his wife’s expenses on trips they took together as additional income. Marsh testified that his wife frequently flew with him on the company jet to destinations worldwide for what he considered business travel.

Marsh’s testimony on cross-examination Thursday revealed that part of his lawyers’ strategy is to persuade jurors that the frequent trips he took on the company jet were for business and not pleasure.

In earlier testimony, Marsh admitted he took dozens of trips over the years, including several to see mistresses.

Sun Capital Partners terminated Marsh’s contract “without cause” after it took over. It stopped paying his $4.2 million severance in early 2008, after it claims it discovered widespread personal expenses charged to the company.   
 
Marsh is countersuing Sun Capital, claiming the company still owes him about half his severance.

Both sides are expected to call dozens of witnesses during the trial, which began Monday and is expected to last two weeks. Marsh testified for three consecutive days. Only one other witness has appeared on the stand.

The plodding pace of the trial prompted federal Judge Sarah Evans Barker to urge lawyers several times to pick up the pace.

“Let’s push on through this,” the judge told Marsh’s lawyer, Andrew McNeil. “I would like to finish Mr. Marsh and get another witness on the stand today.”

To which McNeil responded: “This is my last [exhibit] in this category.”

“In this category—that’s what worries me,” she shot back.

At times, Marsh’s testimony has been tense. In response to grilling by company attorney David Herzog about his expenses, Marsh at one point said, “Do you want to know something?”

That prompted Barker to warn Marsh that “you better not go there.”

Ann Diebolt, one of Don Marsh’s personal secretaries, followed Marsh on the witness stand. She explained to jurors how she logged Marsh’s personal and business expenses.

Another witness, Terry Landry-Fisher, who was director of Marsh’s floral department, had her depositions summarized in court by lawyers on both sides. Landry-Fisher now lives in California.

Marsh began as CEO in 1968. The company was founded in 1931 in Muncie and went public in 1953. Marsh has testified that his many trips helped him build the company into a billion-dollar corporation.

The trial resumes Friday morning.