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Simon Won't Disclose Tax Shelter Savings

Politics: Shelter is under IRS scrutiny. Candidate is expected to reshuffle staff again after White House prodding.


SANTA BARBARA — Republican gubernatorial nominee Bill Simon Jr. on Monday declined to say how much he saved in state and federal income taxes by using a tax shelter under legal challenge by the Internal Revenue Service.

Simon, a wealthy Pacific Palisades businessman, described the tax shelter as an "investment transaction" proposed by his accountants at KPMG, but would not say how it worked.

"We rely on our advisors in terms of the type of investment transactions that they put forward, and that's the bottom line," Simon said at an oceanfront campaign stop.

The questions about Simon's tax history came as his campaign again faced pressure from the White House to retool its staff to more assertively tackle incumbent Democrat Gray Davis. As a result, Simon was expected to name a new day-to-day campaign manager--his fourth in as many months--possibly as early as today.

Rob Lapsley, the chief strategist for Secretary of State Bill Jones' unsuccessful primary bid against Simon, was expected to take over daily operations from John Peschong, who was installed at the behest of the White House a month ago. Peschong, a veteran state Republican Party operative, would remain a part-time advisor to the Simon campaign, but also would be freed up to consult on other campaigns, according to sources familiar with the plan.

Since winning the primary in an upset in March, Simon has struggled to raise money and stumbled through a series of missteps. Privately, White House political operatives have expressed concerns about Simon's prospects, echoing doubts among some of the party's biggest donors. A contingent from the Republican National Committee, which functions as the political arm of the White House, met in Sacramento last week with officials from the Simon campaign. GOP insiders said the national party agreed to raise $15 million for Simon's campaign, but only if he downgraded the role of some members of his primary campaign team. Members of that group--known inside the campaign as "the 4 percenters" because they started when Simon was a mere blip in the polls--have been feuding behind the scenes with a more aggressive group led by Lapsley and others who joined Simon afterward.

"They clearly view it as a very winnable race, but feel the campaign needs to be streamlined and more aggressive in attacking Davis and reaching out beyond the core Republican base," said one Republican operative familiar with last week's discussion. Simon did not mention the pending changes earlier in the day, when he once again rejected Davis' demand that he release his income tax returns. Candidates are not required by law to release their returns, but Davis and his two Republican predecessors, Pete Wilson and George Deukmejian, did so voluntarily.

"We have provided more than the necessary information for Californians to know all about Bill Simon's financial interests," he said.

Simon has filed a report that lists his assets and income sources, but it does not reveal how much he paid in taxes, and it lists the amount of his earnings only in broad ranges.

For months, Davis has questioned whether Simon has paid his "fair share" of taxes and, as well, whether Simon has paid California taxes every year since he moved to the state in 1990.

At his campaign stop Monday morning, Simon declined several times to say whether he had paid California income taxes every year since 1990. But he called The Times an hour later, and stated: "I have paid California income taxes every single year since I've been here."

The subject of Simon's tax returns moved to the top of the campaign agenda last week when the IRS filed court papers that name him and others as beneficiaries of a tax shelter that the government says could be illegal.

Simon was not accused of wrongdoing. He describes the matter as a dispute between the IRS and KPMG. The IRS has demanded documents from KPMG and another accounting firm, BDO Seidman, for an investigation of what federal officials call abusive tax shelters.

On Monday, Simon tried to deflect questions about his tax shelter by shifting the focus to Davis: "I think that this purely and simply is a distraction that's designed by Gov. Davis to try to distract attention from his failed track record."

Davis campaign spokesman Roger Salazar ridiculed the idea that the governor played any role in getting "the Bush administration's IRS" to name Simon publicly in the tax shelter case. On Monday, the tax issue diverted attention from the focus of Simon's campaign event at the Four Seasons Biltmore Hotel in Santa Barbara. With the ocean as his backdrop, Simon warned that offshore oil platforms were vulnerable to terrorist attack, but offered no specific proposal to protect oil rigs.

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