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The State | THE RECALL CAMPAIGN

Issa Company Missed Paying Corporate Tax

Minimum fee of $800 was due even though the firm had no taxable income in 1997 or 1998. Congressman blames a clerical error.

August 15, 2003|Scott Glover | Times Staff Writer

VISTA, Calif. — Republican Congressman Darrell Issa, the main force behind the campaign to recall the governor, failed to pay state corporation taxes for two years on the company through which he has funneled more than a million and half dollars into the recall effort, according to records and interviews.

As a result, the company -- Greene Properties Inc. -- had its corporate status suspended for nearly three months beginning in April 2000, according to a spokesman for the Franchise Tax Board, which collects personal and corporate taxes for the state.

The company's status was restored in June 2000 after Issa filed delinquent corporate tax returns for 1997 and 1998 and paid the taxes due, plus penalties and interest, said board spokesman John Barrett.

Issa, a Republican from Vista in San Diego County, blamed his company's temporary suspension on the government.

"We did not lose corporate status. That was a clerical error by the state of California," he said in a telephone interview Thursday.

"The fees were paid in time to not be suspended. Unfortunately, the state cashed the check but somehow couldn't link" the payment to Greene Properties, Issa said.

He said the firm, which was formed in 1997, did not earn any taxable income that year or in 1998. The problem, he said, was that his former chief financial officer neglected to file "zero dollar" tax returns or to pay $800 annual "corporation fees" for those years.

"He should have done it. It wasn't his primary task. He forgot," Issa said.

Barrett, the tax board spokesman, said all corporations, even those that don't show a profit, are required to pay an $800 minimum tax each year. Citing privacy restrictions, Barrett declined to respond to Issa's contention that the tax board lost track of his payment.

He added, however: "If Darrell Issa wants to discuss this further, he can call me."

Issa was poised to run as a candidate on the recall ballot until last week, when he dropped out. But the congressman has said he plans to continue funding the recall effort, according to Dave Gilliard, campaign consultant for the main pro-recall committee, Rescue California.

While Greene Properties' corporate status was suspended, the company had no right to defend itself against lawsuits or enforce contracts it entered into, according to Barrret. Even its name was up for grabs, Barrett said; the name of any suspended company is available to any other entity seeking to incorporate.

Gordon Klein, a lawyer, accountant and lecturer at UCLA's Anderson School of Business, called Issa's lapse "a very big deal."

"It's an unusual occurrence for an enterprise with many millions of dollars of assets and a well-known, successful businessperson and elected official as shareholder," Klein said. "You just look at [the situation] and wonder why somebody who doesn't have to nickel and dime the government would do this."

Several political analysts said that because Issa is not on the Oct. 7 recall ballot, the disclosure of the suspension probably would have limited relevance in the campaign.

On the other hand, the information could be used in an attempt to discredit the recall backers, said Sherry Bebitch Jeffe, a senior scholar at USC's School of Policy, Planning and Development. "It might be a little piece of red meat that Davis and the Democrats can use to motivate the party faithful to come out and support the governor," she said.

And Issa, who was elected in 2000, remains a congressman, said Bob Stern, president of the nonprofit Center for Governmental Studies in Los Angeles. "I think financial dealings by elected officials are always fair game," Stern said. "It shows how he's running a business."

Barrett, the tax board spokesman, declined to say how much tax Greene Properties owed for 1997 and 1998. After the debt was paid, he said, the amount became confidential.

In June, Issa filed a financial disclosure statement with the U.S. House of Representatives in which he indicated that he had between $5 million and $25 million invested in Greene Properties. He described the firm as a property management company that owns industrial and office property near San Diego.

The company took in between $1 million and $5 million in rental revenue in 2002, the document stated. The congressman provided similar figures in reports filed for 2001 and 2000.

Barrett said Greene Properties is a "pass-through entity" whose corporate tax rate is only 1.5% of its taxable income, as opposed to the standard corporate tax rate of nearly 9%. Under such a structure, he said, revenue is treated as part of Issa's personal income.

According to campaign finance documents, Greene Properties has provided $1.53 million -- most of it in loans -- to Rescue California, the committee established to pay for the effort to get the recall on the ballot.

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