Tax scofflaw's $200 million has buoyed state's cash flow
By AARON C. DAVIS, Associated Press Writer
Thursday, December 28, 2006
(12-28) 17:54 PST SACRAMENTO, (AP) --
We may never know if Taxpayer X is a Silicon Valley billionaire, Hollywood celebrity, or some other fabulously rich Californian.
But what's clear is that Taxpayer X did what few can fathom: settle up with the state this year for a whopping $200 million or so in unpaid taxes, almost single-handedly keeping the state's cash flow on track.
State officials can be penalized with jail time in California for disclosing taxpayer records. So the state has declined to share any details about whether one of its wealthiest residents was a scofflaw illegally sheltering money, or an heir paying up on an old family fortune.
Yet state officials also haven't been able to entirely keep Taxpayer X's existence a secret.
"This was a personal income tax matter, so this is an individual," said Patrick Hill, spokesman for the state's Franchise Tax Board, when asked to explain a spike in state personal income tax revenue of about $200 million last August. "We have taxpayer confidentiality ... I'm just forbidden from disclosing or characterizing this."
There are, however, clues about Taxpayer X.
State financial reports released this fall show budget officials expected an influx of $200 million in audit revenue last year after Gov. Arnold Schwarzenegger offered individual taxpayers amnesty to get right with the taxman.
Leading tax preparers in the state who helped clients navigate the clemency offer said they had heard about a "monster" deal with an unnamed taxpayer.
"It happened the very first month of the amnesty," said Claudia Hill, owner of a highly respected Silicon Valley tax firm, Tax Mam, Inc., and editor in chief of the Journal of Tax Practices and Procedures. "We were all laughing when the state came out so quickly and called (the amnesty) a success because the scuttlebutt was that it was all from one person."
Without more details about Taxpayer X, Hill and others said it would be impossible to gauge how much income he or she may have been hiding from the state, but the settlement could be a record in the state for an individual, several tax experts said.
Based on the state's top tax bracket, simple math says Taxpayer X paid on income in the neighborhood of $2 billion.
But was Taxpayer X a scofflaw?
"You can read between the lines," Hill said, elaborating broadly about the state's tax audit and amnesty programs, "These are the big nets for the big fish, and so I think it would be accurate to say these are high earners who are settling up with the state."
Exactly how much Taxpayer X paid California is unclear. In a recent report, the state's nonpartisan Legislative Analyst's Office listed $200 million in revenue this year from "an audit payment that had been expected in 2005-06." Other state reports have been more vague, saying audit receipts were far above forecast the month the payment came in.
Taxpayer X's payment alone could cover the cost of several state programs this year. For example, it's at least three times the state's annual budget for the California National Guard.
As sales tax receipts and other state income has fallen in recent months with a slowdown in California's construction and real estate sectors, Taxpayer X's payment has gone a long way toward maintaining the state's cash flow. For the fiscal year that began in July, the state is $47 million below revenue projections. Without the tax payment, the revenue gap would be five times as large.
"The name would be fascinating," said Assembly Budget Chair John Laird, D-Santa Cruz, when told about the case.
Identifying Taxpayer X wouldn't be easy. Forbes magazine lists more than 300 billionaires in the United States, scores of whom keep homes in California. Laird said lawmakers were not privy to details of the settlement.
Hill said there's certainly much more the public will never know.
"To me, this case says there was someone out there feeling incredibly guilty about something. Or someone who inherited an incredible estate and was being incredibly cautious."
