Harry Reid's Land Deal = Malodorous
There is something smelly about the Las Vegas land deal Senator Harry Reid (D-NV) and Jay Brown, Reid's longtime friend and former casino lawyer, were involved in between 1998 and 2004.
The AP story by John Solomon and Kathleen Hennessey reported this week :
-The deal began in 1998 when Reid bought undeveloped residential property on Las Vegas' booming outskirts for about $400,000. Reid bought one lot outright, and a second parcel jointly with Brown. One of the sellers was a developer who was benefiting from a government land swap that Reid supported. The seller never talked to Reid.
-In 2001, Reid sold the land for the same price to a limited liability corporation created by Brown. The senator didn't disclose the sale on his annual public ethics report or tell Congress he had any stake in Brown's company. He continued to report to Congress that he personally owned the land.
-After getting local officials to rezone the property for a shopping center, Brown's company sold the land in 2004 to other developers and Reid took $1.1 million of the proceeds, nearly tripling the senator's investment. Reid reported it to Congress as a personal land sale.
The complex dealings allowed Reid to transfer ownership, legal liability and some tax consequences to Brown's company without public knowledge, but still collect a seven-figure payoff nearly three years later.
I have an LLC and understand the reasons for transferring property into an LLC. I have various partnerships, one is even with an attorney, and I understand the potential pitfalls of partnerships. Everything in the transaction seems very normal until this:
They also said they have no documents proving Reid's stake in the company because it was an informal understanding between friends.
and then this:
Reid isn't listed anywhere on Patrick Lane's corporate filings with Nevada, even though the land he sold accounted for three-quarters of the company's assets. Brown is listed as the company's manager. Reid's office said Nevada law didn't require Reid to be mentioned in the filings.
"We have been friends for over 35 years. We didn't need a written agreement between us," Brown said.
An old friend taught me a long time ago that "friends are friends, and business is business." The point being that in business, you need to take care of business. Senator Reid, who is also an attorney, had a $400,000 investment, $400,000, that he transferred to an LLC which did not have his name on it! And he is an attorney? If this guy were my attorney and he allowed this to happen he would lose his license for sheer stupidity.
Why would Harry Reid transfer $400,000 worth of land into a company without getting any documentation of his interest in the company? If Jay Brown or the Reid's had died after the transfer to the LLC who would have known that the Reid's were 75% owners of the assets of the LLC? Or if Jay Brown had filed for bankruptcy or fallen behind on his taxes, the Reid's could have lost their entire investment and would have had little or no recourse.
This begs the question: What were they hiding? And if they weren't hiding anything, you have to ask, "Is Harry Reid really that stupid?"
The AP report talks about minor differences in the amount of property taxes the various parties paid on the land, but there are potentially much larger tax ramifications involved that no one has pointed out. Solomon and Hennessey stated:
Reid and his wife, Landra, personally signed the deeds selling their full interest in the property to Brown's company, Patrick Lane LLC, for the same $400,000 they paid in 1998, records show.
But contradicting the above statement, they reported:
The senator's aides said no money changed hands in 2001 and that Reid instead got an ownership stake in Brown's company equal to the value of his land. Reid continued to pay taxes on the land and didn't disclose the deal because he considered it a "technical transfer," they said.
If, in fact, no money changed hands and the Reid's were not recorded partners in the LLC, questions must be raised about the state and federal tax consequences of a company receiving $400,000 worth of land and giving nothing in return.
In talking to a CPA I am very familiar with, it was pointed out that, if the Reid's didn't have any recorded interest in the Patrick Lane LLC and were not paid $400,000 for transferring the property in 2001, the land value ($400,000) that the Reid's transferred into the LLC became taxable income to the LLC. Did the Patrick Lane LLC pay taxes on that income? Doesn't sound like it. No mention was made in the AP report that the Reid's received, or filed, a K-1 tax form from the LLC and I am surmising that one was not issued.
Something, as they say, is rotten in Denmark.
Posted by Rick | October 14, 2006 03:22 AM