The LATimes is reporting that U. S. Rep Gary Miller has avoided paying millions on real estate profits by lying to the IRS. Apparently, he sold 165 acres of land to the city of Monrovia and told the IRS that Monrovia had forced him to sell the property under threat of eminent domain. This would allow him to shelter the profits from capital gains for more than two years before reinvesting the money.
There is just one small problem: Monrovia officials deny threatening to force the sale and say that he sold the land willingly! Uh-oh! Those IRS guys can be a nasty lot.
Here is the link: http://www.latimes.com/...
Lots more below the fold:
Miller also claimed the same exemption in 2 subsequent Fontana, CA property transactions. This allowed him to continue to shelter his profits from the Monrovia sale. And . . . what a coincidence!!! the purchasers say that eminent domain was neither used nor threatened.
For those of you unfamiliar with the Honorable Mr Miller, he is a multimillionaire land developer in the Inland Empire area of California. This area includeds: Riverside, San Bernardino, Redlands, Moreno Valley, Fontana and a lot of smaller little towns. The area is quite red. And, Miller has been considered quite safe in his district. He is a senior member of the House Transportation and Infrastructure Committee. His repeated use of the forced-sale exemption has enabled him to defer capital gains taxes through 2009. Another graduate of the Denny Hastert School of Enriching oneself through shady real estate deals.
In an earlier interview, Miller described being threatened by Monrovia during the bargaining process and said the city gave him no choice but to sell. He said that he prided himself on transparency and noted that he fully disclosed all of his property transactions.
"The base of the deal was either you sell to us or we'll have to condemn it," Miller said.
But records and interviews in Monrovia show that the sale of Miller's land was voluntary.
Glen Owens, a member of Monrovia's Planning Commission, said the city could not have used eminent domain to purchase Miller's property, because it was acquiring the undeveloped hillside land for a wilderness preserve using state funding that specifically prohibited forced sales.
"The state doesn't go along with eminent domain," he said. "You have to have a willing seller."
A letter from then-City Manager Don Hopper at the time of the sale confirms that use of state funds blocked the city from considering eminent domain.
"Under the guidelines of the Challenge Grant Program, all property owners must be willing sellers," Hopper wrote in May 2002.
A videotape of a February 2000 City Council meeting, packed with people pushing the city to protect the hillside, shows Miller pleading with city officials four times to buy his land.
"Why don't you buy my property? I've asked you repeatedly," Miller said.
Miller's press secretary, Kevin McKee, wrote in an e-mail to The Times, "Mr. Miller and the city of Monrovia agreed upon the purchase price and a friendly condemnation."
Although early drafts of Monrovia's sales contract with Miller included the phrase "friendly condemnation," it was stricken when the final deal was made. Miller and his wife signed an amendment to the escrow instructions on Aug. 1, 2002, saying, "condemnation deleted."
Scott Ochoa, the assistant city manager at the time and now the city manager, said the city always discusses the possibility of so-called "friendly condemnation" when it is negotiating a purchase in case a seller wants to claim the forced-sale exemption. In this case, though, the state funds took that option off the table, he said.
Miller said that two years after the Monrovia sale, he raced to beat his extended deadline of Dec. 31, 2004, for reinvesting the profits. On Dec. 28, he reinvested some of the profits by purchasing 10 lots for about $5 million near the expanded 210 Freeway in Fontana, a building in Fontana for $1.3 million and five acres in Rancho Cucamonga worth about $2 million. He bought the properties from Lewis Operating Corp., a major Inland Empire developer and one of Miller's largest campaign contributors.
Miller took an exemption again when he sold the 10 lots to the city of Fontana in 2005 and again when he sold the building to Fontana this year, claiming both were compulsory sales. Those moves gave him at least another two years after each sale to reinvest the funds without paying capital gains taxes.
But records and interviews in Fontana show that those sales were not compulsory.
"From my perspective, if we were ever asked, I would say we were not threatening eminent domain," said Clark Alsop, the lead lawyer representing Fontana.
Does the "Martha Stewart Rule" apply here about lying to a federal official? Just asking. It now gets REALLY interesting:
In fact, Miller bought the properties knowing that Fontana would be purchasing them.
"The market kept going through the roof, as you know, and I was running out of options," Miller said. "Lewis had bought some property at the request of Fontana. I thought, 'That's safe. I'll buy it. They'll buy it a year from now, and that's no big deal.' "
Such a sale could have meant that Miller would finally be liable for the capital gains taxes he had deferred by purchasing the Fontana property
But when Miller sold the 10 lots, most of them with homes, to the Fontana redevelopment agency in April and June 2005 for about $5 million, he filed a tax withholding form for the sale and claimed an exemption by checking a box that said that the sale was "being compulsorily or involuntarily converted" and that he intended to acquire a similar property with the money "to qualify for nonrecognition of gain."
Miller then asked for a "letter that talked about eminent domain" to bolster his case. He received the letter but it does not threaten to take Miller's land.
Another property owner, Jesse Bojorquez , bouth land the city wanted and then sold it to the Fontana redevelopment agency. He asked for the same kind of letter. Unlike Miller's letter, Bojorquez's letter contained a paragraph that stated explicitly that it was not to be used as a "representation or warranty as to the applicability of the Internal Revenue Code Section 1033.
The article goes on to quote Doug Kmiec, a constitutional law professor at Pepperdine Law School (aka Ken Starr Right Wing Law School). If Doug Kmiec is calling this shady then it must really smell to high heaven.
Experts in eminent domain law said the arrangement between Fontana and Miller is pushing the legal envelope.
"Public use condemnation is meant to be a rarity because it's such an extraordinary power," said Doug Kmiec, a constitutional law professor at Pepperdine University. "And a taxpayer who has manipulated the process to provide evidence of a threat where none exists is not much different than a taxpayer who claims deductions on his tax return based on things he made up in his basement."
Tax experts said Miller would have a tough time proving to an IRS auditor that he was forced to sell property three times in a row.
"You really shouldn't be just happening into all these 1033 transactions unless you're very unlucky," said Washington, D.C., tax lawyer Brian Lynn, who has written about the tax exemption. "Multiple 1033 transactions might look fishy to an auditor. You have sort of the pattern-of-evidence problem."
There are links in the article to the documents involved. William Heisel at the LATimes has done an excellent job with this investigation. It reminds me of the work that the San Diego papers did with Duke Cunningham. The nice thing about this article is that it is on the front page of the LATimes not the North County News. It took a long time for the Cunningham articles to get noticed in the North County News. I doubt that the LATimes can be ignored. The article is long with multiple links to the supporting documents, but well worth the read.
Methinks there's a storm brewing in the Inland Empire.