Bush to be impeached for tax fraud?
Matthew X
profrv at nex.net.au
Wed May 12 05:05:17 PDT 1999
http://sf.indymedia.org/news/2002/08/141905.php
BUSH MAY HAVE EVADED TAXES ON SALE OF BASEBALL TEAM
By the Anonymous CPA
Published August 19, 2002
A review of George W. Bushs 1998 tax return reveals that he reported the
sale of his share of the Texas Rangers baseball team as a long term capital
gain. As a result, he paid a tax on the more than $15 million proceeds at a
tax rate of 20%, as opposed to the 39.6% rate on ordinary income. According
to a press release dated June 18, 1998 from the Dallas Morning News, Bush
paid $606,000 for about 1.8% of the team and became the managing general
partner of B/R Rangers Associates, Ltd., a limited partnership that owned
the team. Under the terms of the agreement, Mr. Bush was given an
additional 10.2% of the proceeds as additional compensation if the team was
sold. The incentive compensation became effective if the other partners
received their entire investment back plus a 2% return per year.
The team was purchased for $86 million in 1989 and sold in 1998 for $250
million to Tom Hicks, a person with whom Bush had prior official business
while governor. As reported by Tom Kruger in his July 16, 2002 article, Tom
Hicks had a relationship with Mr. Bush that afforded Hicks the opportunity
to use $9 billion of the University of Texas endowment fund without any
accountability. The management fee to Hicks for investing the $9 billion
could have exceeded the $250 million he paid for the Texas Rangers. In
effect, Bush handed Hicks the money to buy the team as part of his official
duties as governor.
In addition, the team received funding for the new stadium built by the
City of Arlington. More than $150 million was funded by the City of
Arlington with a new sales tax imposed on its citizens. The team leased the
stadium from a development corporation that was exempt from any school
district tax. The tax exemption directly reduced the lease cost to the team
by a substantial amount. In addition, as governor, Mr. Bush supported
legislation that would have reduced the teams school tax by $920,000 if
the team exercised its option to purchase the stadium. Furthermore, this
proposed tax reduction would have benefited Bush in another entity in which
he had an equity interest with some of the partners of the Texas Rangers.
As reported in the Houston Chronicle on April 22, 1997, The tax reform
bill supported by Gov. George W. Bush would have saved at least $2.5
million in school property tax for a company founded by Bushs billionaire
business partner and top campaign contributor, Richard Rainwater of Fort
Worth. Mr. Rainwater headed a public company that was a real estate
investment trust traded on the New York Stock Exchange. Bush himself had
4,222 shares of this stock when he proposed the tax reduction that would
have benefited this company, Crescent Real Estate Equities, by more than
$2.5 million. This same company owned psychiatric hospitals throughout the
country that were closed down because of scandalous and fraudulent
activities as reported by 60 Minutes and various publications, all before
the presidential election of 2000.
As if that was not enough, Bushs policies as governor further benefited
Crescent by:
1. Allowing it to receive an extra $10 million stadium tax for a sports
stadium used by the Dallas Mavericks
2. The State of Texas sold three office blocks belonging to the teachers
retirement fundto Crescentthe sale of one block costing the pension fund
system $44 million.
3. The trust fund for the Texas University Public School invested $20
million in Crescent during Bushs first term as governor.
Mr. Bush sold his interest in Crescent through his blind trust, the Lone
Star Trust. Lone Stars trustee was Mr. Bushs personal CPA, Robert A.
McClesky. Bushs shares in Crescent were sold at its peak of $40/share,
yielding him proceeds of $168,800. Shortly after the sale, Crescents stock
plunged to $21/share.
Besides the Harken transaction previously reported, Bush has had an
excellent record in investing in rapidly appreciating assets. Prior to
Harken, he had a rather miserable record of success. However, it is clear
that his success was based upon more than normal market appreciation. His
political influence before and after he became governor substantially
contributed to his personal wealth. The question now rises as to whether
this political influence reaches the level of public corruption.
Returning to the sale of the Texas Rangers, it is clear that Mr. Bush
earned his additional 10% of the team by adding considerable value to the
team because of his political influence. Incentive clauses such as the one
granted to Bush are common for managing partners adding value to their
partnerships; however, such incentive clauses exercised on behalf of a
sitting governor, even if he was not governor when the agreement was
written, raises some serious tax questions in addition to the question of
public policy conflicts of interest.
According to IRS Revenue Procedure 93-27,
The receipt of a partnership
capital interest for services provided to or for the benefit of the
partnership is taxable as compensation. As most people know, compensation
is taxed as ordinary income, subject to the highest tax rates; in this case
39.6%. Mr. Bush treated the incentive portion of his proceeds as long term
capital gain, and accordingly reduced his tax liability by at least $2.4
million. Mr. Bush may defend this aggressive tax position by pointing to
aggressive planning by his accountants and lawyers. This by itself may be
subject to dispute, and even though it is likely that the IRS would treat
this incentive payment as ordinary income, Bush could possibly look to his
accountants and lawyers as a defense. However, there is a further problem.
It involves Otto Kerner, governor of Illinois from 1961 to 1968.
In 1972, Gov. Kerner was convicted of income tax fraud for influencing
public policy that benefited his holdings in a race track corporation. On
the advice of his accountants, Gov. Kerner treated the proceeds ($180,000)
of his race track stock as long term capital gain subject to the reduced
tax. The U.S. Attorney, James Thompson, prosecuted Gov. Kerner for falsely
treating these proceeds as a capital gain because Gov. Kerners public
policies had a substantial effect on the appreciation of the stock. Gov.
Kerner was a Democrat, and Mr. Thompson was appointed U.S. Attorney by
President Nixon. Thompson later became governor of Illinois.
According to an IRS agent who worked on the Kerner case, the governments
theory was based on the idea that a true capital gain is based on the
assumption that natural market forces enhance the value of the property
sold. Natural market forces can include the legitimate contributions of
managing partners. However, the government concluded, and the jury
affirmed, the fact that people in official policy positions who enhance the
value of their own property in whole or in part are guilty of a corrupt
practice, and accordingly the gain is not capital gain. This is consistent
with the theory behind giving tax incentives only for legitimate capital
appreciation.
It is clear that former Gov. Bush had a clear incentive to affect public
policy for his own benefit. In the Kerner case, Gov. Kerner was already a
wealthy man, and the proceeds he received were not significant in relation
to his net worth. In the case of former Gov. Bush, the at least $12 million
incentive he received was the bulk of his liquid assets.
Many of the citizens of Illinois who supported Gov. Kerner were upset about
this decision, according to the IRS agent involved. Gov. Kerner was not an
active businessman, and many people have doubts that he would have directly
affected public policy because of a relatively small holding he had in the
race track company. Nevertheless, the jury held him to a higher standard
because he was in a powerful public position. According to the IRS agent,
if Gov. Kerner was convicted of tax fraud for his behavior relative to a
passive holding of stock, Mr. Bush, as an active managing partner of the
Texas Rangers, should at least be held to the same standard.
The question is, when will people say enough is enough. All these business
and tax practices cannot be based on innocent coincidences.
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