updated 6/3/2009 7:13:32 PM ET 2009-06-03T23:13:32

Former lobbyist Jack Abramoff and the Justice Department are disputing a tax refund he recently received worth more than $500,000 and whether it should be used to pay court-ordered restitution or his family's massive debts.

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Abramoff's attorneys say his family, which once lived on Abramoff's lucrative salary, is now just above the poverty line on his wife's income of less than $38,000 and needs the money for living expenses. The lawyers say his wife was trying to dig them out of debt by paying legal and accounting fees, personal loans, credit card bills and their children's Hebrew school tuition from the $520,189 refund.

But the government argues that Abramoff is required to apply the refund to a $23 million restitution order that was handed down with his four-year prison sentence in September on public corruption charges.

The dispute was outlined in court documents and first reported Wednesday by the Washington Post.

The Justice Department filed a motion with the court on May 21 asking it to modify Abramoff's restitution order. "Yesterday, the government learned that Mr. Abramoff received a substantial refund from the Internal Revenue Service, a large portion of which he and his spouse spent before informing the government of its receipt," the motion said.

The prosecutors asked the court to order the Abramoff family to stop spending the refund and provide an accounting of the payments already made, which they did. They also wanted a requirement that Abramoff tell the court whenever his family received any more debts or assets worth more than $2,500 and get court permission whenever his family spends more than $2,500.

'In distress'
Abramoff's attorneys said in a response filed Tuesday that they were surprised at the government's reaction since the refund was negotiated with the help of Justice Department officials. "The Abramoffs proceeded under the perfectly reasonable belief that the government was aware of the tax refund that the government itself provided them," the attorneys wrote.

They said the refund was for money that Abramoff mistakenly paid to the IRS before he was sent to prison and it took years of work from lawyers and accounts to recover.

Abramoff has been out of work for five years and has incurred a large debt from two criminal trials and numerous civil and criminal tax issues, his lawyers wrote. The family has a $2,500 mortgage but can't sell the house because of the depressed market and a leaking roof that they have not been able to afford to repair.

"The Abramoffs have been in distress for some time," Abramoff's attorneys wrote. With the mortgage and taxes, "the annual cost of the home, without even considering utilities or the cost of repairs, is $52,000 per year — a cost well above Mrs. Abramoff's annual income. ... With each passing month, the family slides further and further into debt."

The attorneys also said Abramoff was never instructed to pay his creditors in any certain order.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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