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Indecent Disclosure 

Willie Brown plays hide-and-seek with his tax returns

Wednesday, Nov 17 1999
Ever since Willie L. Brown Jr. was elected speaker of the California State Assembly in 1980, rumors of financial improprieties and allegations of conflicts of interest -- rightly or wrongly -- have swirled around him. The financial questions continued to dog Brown when he successfully ran for mayor in 1995, and since then he has done little to dispel them. In part, the mysteries of Brown's finances spring from the vague nature of legally required public disclosure forms, which report an official's income and holdings only in broad ranges.

But Brown has contributed to his reputation for financial secrecy by playing hide-and-seek with the press, and public, with the only documents that could presumably answer many of the questions about the source of his wealth and assets -- his federal income tax returns.

While no public official is required to release his or her tax returns, many do, finding it an expedient way to allay fears and nurture an image of openness. In his re-election bid, however, Brown seems to want it both ways. He has tried to make it appear as if he has released detailed financial information while not actually doing so.

In late September, before Board of Supervisors President Tom Ammiano jumped into the race and forced a runoff, Brown made a show of opening up his tax returns for scrutiny, and played two reporters from the San Francisco Examiner for chumps in the process.

The Examiner reporters were offered one hour to look over four years' worth of Brown's personal income tax returns; they were allowed to take notes but make no copies. The newspaper accepted this unorthodox arrangement, and wound up publishing a bare-bones story reporting that Brown had earned about $780,000 in income during his first mayoral term.

Though sketchy, the story allowed Brown to brag that he had "released" four years' worth of his tax returns, and lambaste then-challenger Clint Reilly for not doing the same. Reilly, a millionaire former political consultant, had released only one year's worth of his returns.

The Examiner's gullibility aside, it appears likely that the tax returns Brown briefly made available -- and, in fact, the tax returns he made more widely available during his first mayoral bid -- do not reflect a potentially significant component of the mayor's annual earnings and, hence, his wealth.

The limited access Brown has allowed the press so far has included only his personal tax returns, the 1040 forms he signs and files each year as Willie L. Brown Jr., an individual. Apparently missing from the equation are separate returns that might be filed on behalf of a trust Brown holds.

Brown owns a stake in three limited partnerships involved in real estate developments around Sacramento, as SF Weekly reported in two cover stories earlier this year ("W.L. Brown: A Public/Private Partnership," May 12, and "Political Economy," Aug. 25).

According to tax experts, and agents of the Internal Revenue Service, it is likely that Brown annually files a second federal tax return -- either Form 1041 or Form 5500 -- for the separate trust that actually owns most of the real estate partnership shares. This trust, the Willie L. Brown, Jr. Profit Sharing Plan & Trust (now called the Willie L. Brown, Jr. IRA), has been listed on the economic disclosure documents that Brown files annually with the state of California's Fair Political Practices Commission every year since 1985.

According to local tax experts, including attorney Alan Seher of Weiss & Weissman Inc. and agent Bob Meyer of the IRS, it is a common practice for individuals to file a 1040 tax return for their personal income, and a separate tax return for the income going to their trusts. Trusts can be set up in any number of inventive ways and are useful retirement savings vehicles. Trusts are convenient shelters for deferring tax payments on income for years. Typically, taxes on capital gains would be paid at a lower rate in a trust than if the gains were considered as personal income.

For a politician, trusts, in all their multifarious forms, are particularly useful because financial assets can be sequestered inside a trust. There, the assets -- such as a share of a real estate partnership -- can grow large, untroubled by public scrutiny, since it is possible to exempt the trust from reporting its income on economic disclosure statements

Because the Examiner's review of Brown's tax returns was hurried, it is unclear whether any trust returns were included in the stack of paperwork plunked down in front of the Examiner reporters. But the resulting story was based on Brown's "personal income" and made no mention of income from two of the three real estate partnerships in which Brown is known to have a stake.

And during Brown's mayoral campaign in 1995, San Francisco tax attorney Robert Sommers reviewed Brown's tax returns for the years 1990 to 1994 at the Examiner's behest. Sommers now says these returns were only Brown's personal 1040s; he did not review any trust or retirement account statements.

The key to understanding the true range of Brown's income and assets is to compare the four years of tax returns he released when he ran for mayor in 1995 -- and what is known about the returns he allowed the Examiner to briefly glimpse -- to his annual financial disclosure forms.

Over the past 15 years, Brown has listed investments in three real estate partnerships on his economic disclosure statements. The limited partnerships -- Live Oak Associates I, Live Oak Associates II, and Live Oak Associates III -- are residential developers that buy raw land on the edges of the fast-growing Sacramento sprawl and, then, develop new suburbs. Brown's limited partnership interest in each of the three different entities, run by general partners William A. Falik and Jonathan A. Cohen, appears to fall somewhere between one-half of a percent and 4 percent.

Over the years, at least one of the partnerships has returned both profits and tax write-offs directly to Brown. And only one of the Live Oak partnerships appears on Brown's personal tax returns. This partnership, Live Oak Associates I, is valued by Brown at "between $10,000 and $100,000." According to Brown's statements of economic interest, Live Oak Associates I has returned, at least, $32,000 to Brown since 1984. This figure could easily be more substantial than that, but state law only requires officeholders to disclose a range of income values, such as "over $10,000."

About The Author

Peter Byrne


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