No, not his 2002 return. We looked at that a few days ago. This time we’re talking about 1998.
That’s the year in which Dubya and his ownership group sold the Texas Rangers baseball team to a group headed by his friend and heavy contributor Tom Hicks of Clear Channel Communications. I discussed some of the details of that transaction in one of my first postings back in January.
The gap between 20% and 39.6% of that amount? The number of dollars that George W. Bush might reasonably be deemed to have failed to pay in 1998 federal income tax? Oh, just a measly little $3,331,938, before adding penalties and interest.
As discussed in some detail by The Anonymous CPA, incentive packages designed to reward partnership management for raising the value of the partnership upon liquidation are specifically covered under IRS Revenue Procedure 93-27, which clearly defines such incentives as compensation rather than an increase in the individual’s capital.
Bush could conceivably argue that, despite the seemingly clear language of Rev. Proc. 93-27 (hey, I can follow it), some complicated arrangements devised by his lawyers and accountants result in treatment of his Rangers profit as capital gains. However, at least two counterarguments can be raised.
The first counterargument derives from legal precedent. In 1972, former Illinois governor Otto Kerner, then sitting as a federal appellate judge on the 7th Circuit, was convicted of tax evasion. While serving as governor, Kerner (who had gained national recognition while chairing the National Advisory Commission on Civil Disorders, whose report was America’s first official acknowledgment of the problem and damages of racism) had been a passive partner in a racetrack. Federal prosecutor Big Jim Thompson, himself a later governor of Illinois, aggressively prosecuted (and convicted) Kerner on bribery and perjury charges for undertaking policies that could have increased the value of his investment, and also convicted Kerner for tax fraud based on his, and his accountants’, claim that when he sold his interest in the track, his profit was to be considered a capital gain. In deciding that the profit was not a capital gain, the jury in the case held the governor to a higher standard than ordinary citizens, due to his potential opportunity to influence the value of his holdings.
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.
I ran that hypothetical scenario past The Anonymous CPA, but he wouldn’t comment on it. In his mind, there is no question that Bush’s Rangers profit should be treated as compensation. No ifs, ands, or buts, and no hypotheticals about long-term versus short-term capital gains. For federal tax calculations, short-term capital gains are treated just like compensation, so if either of these counterarguments holds water, the result would be the same.
So has any IRS inspector taken a look at George W. Bush’s 1998 tax return for potential study? Has the huge AGI in that year, way out of line from any years before or since, drawn the attention of the IRS? Has any journalist, in any medium, investigated Dubya’s tax returns for this year or for any other year?
Sad to say, I’m not holding my breath in anticipation.
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