Thursday, August 23, 2012

Is Jay Inslee a Tax Cheat?

Jay Inslee released his tax returns... and by released, I mean he let accredited reporters see some documents, not the voting public.

What the reporters have permitted us to learn was that Jay Inslee does not appear to be much of a manager of his own money. While reporting a household income of $237,000 in 2011, putting him in the top 2% of households in the country, he had to borrow from an IRA to replace his roof. Anyone who has an IRA knows that withdrawing money early from an IRA incurs a penalty. So Mr. Inlsee withdrew $45,000 and paid a penalty of $10,000 as a result. Seems like someone who is 60+, an attorney, has been bringing in a significant amount of income for a number of years should have other ways to come up with the money. Especially when it was used to replace a roof, an expense that is almost always anticipated many years in advance. But poor money management by someone who wants to run for Governor of the state of Washington is not the point of this post. Also included in the Seattle Times article is a mention of a loss incurred on a membership in a country club.

They also reported a loss on a membership in the Wing Point Golf and Country Club on Bainbridge Island. The tax returns show the couple acquired the membership in 1988 and sold it in 2009, reporting a $5,500 loss.

Now I am not a tax attorney but I am curious why exactly would a loss on a country club membership need to be included on a tax return? Did they take a deduction from the loss? If so, the question is under what circumstances would a loss from a sale of a country club membership qualify as a legitimate write off? If it was for personal use, I can't imagine that it would be allowed. I called the Inslee office but nobody has got back to me. I emailed the Seattle Times reporter but no answer. Its impossible for me to know the answers to my question since the tax records that were "released" are not available to the voting public.

Update: The Seattle Times reporter replied that he had to go to get a copy of the return and did not know of any restrictions on what he could do with the copy. He had not scanned what he has as of yet. Has not had the time to look into anything regarding the country club loss.

Update2: I called the country club and asked about membership and they only have equity memberships. To join you buy an existing share and pay an initiation fee. I was told there are a number of current members selling shares at no cost. Initiation fee is $5500, which of course is the same amount listed as the loss on the tax form. Which makes you wonder if the amount listed as the loss was on the stock, which just happens to match the initiation fee, or if it was in fact the initiation fee. If they are claiming a loss on an initiation fee, then that would raise even more questions as it should have been clear that was not an amount they would ever receive back and would in no way be seen as a capital loss. As I have said, I am not a tax attorney, I don't know the answers to these questions. I do think they are legitimate questions that should be answered.

Update3: Dori Monson covers the story. Thanks to Orbusmax for letting me know and for the link. Mr. Inslee's spokesperson seems to be confused between the concept of a country club membership and what Mr. Inslee has, an equity membership. Some country clubs are equity clubs. When you buy a membership, you are buying ownership, stock, in the club. Some clubs are non equity, your membership does not include any ownership. Some clubs have both membership options. Mr. Inslee's club is an equity club. As I stated previously, those current members who are selling their stock are doing so today for $0. As I also mentioned, for this club, to buy stock, you also need to pay an initiation fee to the club which is currently $5500. The amount of the loss Mr. Inslee stated on his tax return... wait for it... $5500. Sure, it could be a coincidence but it seems like there is a reasonable chance that Mr. Inslee deducted his initiation fee from his taxes and not a loss in his equity ownership stock. So once again, I am not a tax attorney but my best guess regarding the probability of legitimately deducting an initiation fee from your taxes is somewhere between 0 and 0. Now if the loss really was from an equity ownership, the probability in my opinion of that being a legit deduction on personal taxes would be approximately 0.

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