By Erin Sherbert
By Erin Sherbert
By Leif Haven
By Erin Sherbert
By Chris Roberts
By Kate Conger
By Brian Rinker
By Rachel Swan
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.
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)
San Francisco Runoff Election
W.L. Brown: A Public/Private Partnership
Law and Odor
Access three years of SF Weekly's Willie Brown coverage
How a Willie Brown real estate venture snagged tens of millions of dollars in government subsidies and opened the way for Democratic heavyweight Angelo Tsakopoulo to make even more money
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August 25, 1999
Mayor Willie Brown has made official decisions benefiting business entities that are partners in his own private business endeavors. Coincidence -- or conflict of interest?
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March 5, 1997
San Francisco Runoff Election
W.L. Brown: A Public/Private Partnership
Law and Odor
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 Examinerreporters 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 Weeklyreported 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'sbehest. 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."
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?
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.
Mayor Brown's press secretary, Kandace Bender, said there were no distributions from Live Oak Associates II and III to the Willie L. Brown, Jr. Profit Sharing Plan & Trust from 1992 to 1997. Bender said she did not have information on the Live Oak real estate partnerships before 1992. Bender was not able to say if tax write-offs were passed through to the trust, or if the trust filed income tax forms. She did not know the identity of the trust's trustee, or if Brown is the trust's sole owner.
It is good retirement planning for Willie Brown to devote a large portion of his long-term real estate investment assets to his trust. In addition to the Live Oak Associates partnerships, Brown's trust also has carried various stock investments, which do not seem to appear on his personal tax returns, either.
And when Brown does retire, he will, no doubt, be well fixed.
Tom Ammiano, meanwhile, did make four years' worth of his tax returns available when SF Weeklyasked for them. They show that the man who would unseat Brown has had an average adjusted gross income of only $38,000 a year during that time.