Indecent Disclosure

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

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."

Over the years, Brown has reported the capital gains and losses from only Live Oak Associates I on the individual tax returns of himself and Blanche V. Brown, his wife of 40 years. So why do Live Oak Associates II and III not appear on Brown's personal tax returns?



Willie Brown's 1994-95 Statement of Economic Interests
Live Oak II and Live Oak III investments

Willie Brown's 1994 1040 Schedule B
Interest and Dividend Income (includes Live Oak I investment)


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Brown's annual economic disclosure statements reveal that partnership interests in Live Oak Associates II and III have been owned, not by Brown as an individual taxpayer, but by the Willie L. Brown, Jr. Profit Sharing Plan & Trust.

Because Brown has legally separated his personal income stream from payments going to the trust, the sum of Brown's recent annual earnings could only be known by looking at both his 1040 forms and the trust's separately filed income tax returns. P.J. Johnston, a Brown campaign spokesman, declined SF Weekly'srequest to see all of Brown's tax returns, including those from the trust, and would not confirm whether the trust files separate returns.

It is possible that a large portion of Brown's earnings and wealth resides in the trust. According to the IRS, what are called "complex" trusts can accumulate assets year to year and limit tax liabilities. If the trust is purely a retirement vehicle -- as it may have become in 1997 when it became the Willie L. Brown, Jr. IRA -- it pays no taxes at all, and there may not be separate IRS filings after that date. It makes perfect financial sense for Willie Brown to put solid assets into his trust. It is, however, disingenuous for Brown to claim he released his tax returns, when he, seemingly, only released a portion of the tax returns documenting the amount of his actual yearly earnings.

There are several logical reasons to presume that Brown's trust annually files separate returns -- not the least being that it would be tax evasion if he failed to file a return for income that is not accounted for on his personal 1040s.

According to the IRS and tax experts, every limited partner in a real estate partnership -- such as Live Oak Associates I, II, or III -- must annually file a tax return showing profits or losses from the partnership. Even if there is no activity by the partnership, "K1" tax forms are sent to each partner. Since Brown's personal returns include no K1s from Live Oak Associates II and III, it seems logical to assume that the K1s were sent to the trustee of Brown's trust, who would then handle whatever tax filings are necessary.

And it is likely that the value of Brown's trust regularly increases.

Public records show that since Brown's election as mayor in 1995, Live Oak Associates III has invested in a moneymaking Placer County land deal, developing a tony golf course community on cheap pasture land. But since the income -- or losses -- from Live Oak Associates III is owned by Brown's trust, it would likely be reflected on the trust's tax returns. The same holds true for Live Oak Associates II, which is also owned by the trust and has been doing land office business in the Laguna Creek area of Sacramento since the early 1990s.

According to the Fair Political Practices Commission, Brown would not be obligated to list the income from these sales on his annual disclosure statements if the income was under $10,000. Indeed, the disclosures list no income from Live Oak Associates II and III, only a range of asset values. On the other hand, if Brown has transferred part of the ownership of his trust to another person, such as a relative, friend, or business partner, he might not have to report income over $10,000 either, according to the commission.

The bottom line is that it is very probable that Brown's trust regularly files a separate tax return because if the trust did not, then Brown would be obligated to report the income and/or losses from Live Oak Associates II and III on his federal tax return.

Brown's 1990 through 1994 tax returns, which he released in 1995, show no relationship to Live Oak Associates II or III during a time that public records indicate a lot of sales and development activity by both partnerships. Likewise with his returns for 1995 through 1998.

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