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Banned
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Did Bush evade $2.4 million income tax on his 1998 filing?
(I apologize in advance for re-hashing what some will consider "old news".
I am aware that many younger TFPers may not have followed all of this,
including the author of the "Kerry only paid 12% tax rate" thread. <br>That thread subject is a compelling catalyst for this thread subject. Some reference<br> links come from sources which will surely be labeled partisan by some. The facts contained<br> are easily verifiable elsewhere, if this info triggers any further curiosity.)
In 1998, Bush and his partners sold the Texas Rangers baseball team. Although Bush originally invested just 1.8% of the purchase price for the team, his partners "rewarded" Bush by compensating him with an additional 10.2% ownership interest. When the team was sold, Bush allegedly filed a federal tax return that stated all of the $14.9 million that he received from the sale, as a "capital gain", taxed at just a 20% rate, instead of the 39.6% rate that $12 million of his income should have been taxed at, since the IRS classified this portion of Bush's "ownership" of the team as compensation, and not as the "basis" for a capital gain:
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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.”
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Bush was also accused of using his influence as Texas governor to enhance the value of the baseball team via a complicated land purchase for the construction of a new baseball stadium for the team, and a special sales tax referendum intended to publically finance the cost of the land and the stadium. Bush rewarded the lead partner of the group who purchased the
team from Bush's group:
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R. Steven Hicks and his brother Tom both founded major radio companies that merged in ’99 into AMFM, Inc. After Clear Channel Communications devoured AMFM later that year, Tom Hicks became its vice chair. Tom Hicks made Bush a millionaire 15 times over when he bought the Texas Rangers in ’99. Just as local taxpayers enhanced the value of Bush’s Rangers by paying $135 million for their stadium, Hicks and Ross Perot, Jr. got Dallas taxpayers to spend $125 million on a stadium for their Dallas Stars and Mavericks in ’98. Tom Hicks heads the corporate raider firm Hicks Muse Tate & Furst (Bush’s No. 4 career patron). Hicks Muse long wanted to tap the $13-billion University of Texas (UT) endowment for its takeover deals. As Bush assumed office in ’95, Hicks was confirmed as a University of Texas Regent and hired lobbyists to push a bill creating the UT Investment Management Co. (UTIMCO). With Hicks as its first chair, UTIMCO began doling out contracts to private investment firms to manage portions of the endowment. A scandal blew up when the media discovered that UTIMCO awarded many of these lucrative contracts to firms tied to Hicks and Bush—including one that former President Bush reportedly owns a piece of. The UTIMCO board doling out these contracts included Clear Channel Chair L. Lowry Mays and the Pioneers Tom Loeffler, A.W. Riter, and A. R. Sanchez. Ed Bass and Pioneer Charles Wyly owned two firms that landed some of these contracts. <a href="http://www.tpj.org/pioneers/r_hicks.html">http://www.tpj.org/pioneers/r_hicks.html</a>
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Did Bush commit similar crimes to those that Illinois Governor Otto Kern was
prosecuted for commiting in 1972?
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...........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. Kerner’s public policies had a substantial effect on the appreciation of the stock................<a href="http://www.makethemaccountable.com/tax/SaleOfBaseballTeam.htm">http://www.makethemaccountable.com/tax/SaleOfBaseballTeam.htm</a>
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BUSH MAY HAVE EVADED TAXES ON SALE OF BASEBALL TEAM
By the Anonymous CPA
Published August 19, 2002
A review of George W. Bush’s 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 team’s 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 Bush’s 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, Bush’s 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 fund—to Crescent—the 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 Bush’s first term as governor.
Mr. Bush sold his interest in Crescent through his “blind trust,” the Lone Star Trust. Lone Star’s trustee was Mr. Bush’s personal CPA, Robert A. McClesky. Bush’s shares in Crescent were sold at its peak of $40/share, yielding him proceeds of $168,800. Shortly after the sale, Crescent’s 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. <a href="http://www.makethemaccountable.com/tax/SaleOfBaseballTeam.htm">http://www.makethemaccountable.com/tax/SaleOfBaseballTeam.htm</a>
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In Kerner's case, his interest in the racetrack was passive; until his election as governor of Texas, George W. Bush was the active managing partner of the Rangers.
The wealthy Kerner's holdings in the track were a small portion of his investment portfolio; after his numerous business failures (we could go into the tax shenanigans surrounding Harken Energy, but that's a whole nother story), selling the Texas Rangers to Tom Hicks made George W. Bush into a wealthy man.
No specific policies or actions by Kerner as governor demonstrably raised the value of his racetrack investment; as governor, Bush supported legislation that gave the Rangers and the city of Arlington favorable tax environments for building a stadium using taxpayer dollars.
The Kerner case, while obviously a precedent for tax treatment of the profits from Bush's sale of the Rangers, is actually a far less clear-cut situation than is Bush's. If multiple federal convictions could result from a case as equivocal and ambiguous as the one against Otto Kerner, the case against Bush would seem to be open-and-shut.
But let's assume, just for argument's sake, that the case could be made -- despite the strong Kerner precedent -- that George W. Bush's $17 million profit from selling the Rangers actually was a capital gain. My second counterargument to Dubya's treatment of his profit is that it was not a long-term gain. I can, in fact, see no conceivable way to construe a capital gain (if we believe that it's that, rather than fully taxable compensation) as anything but short-term for George W. Bush. Oh, the Rangers had been controlled by Bush and his partners for some 10 years, but Dubya didn't receive his extra 10.2% of the stock in the club until the team was sold. Thus, George W. Bush held that incentive payment for only a very short time, probably no longer than the few seconds or perhaps as much as a few minutes, between signing the legal documents transferring the additional team stock to him, and signing the legal documents selling the team's stock to Tom Hicks and his group.
<a href="http://peacetreefarm.org/comments.php?id=60_0_1_0_C">http://peacetreefarm.org/comments.php?id=60_0_1_0_C</a>
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<a href="http://www.makethemaccountable.com/tax/BushTaxes1998.pdf">Link to 1998 Bush Income Tax Return (.pdf format)</a>
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