Dudley pushed another envelope on taxes
Nigel Jaquiss over at WW has raked in some choice muck: Gubernatorial candidate Chris Dudley took a large tax deduction in 2004 for allowing the Lake Oswego fire department to burn down a house on his property that he didn't want, so that he could build his new McMansion on the site.
It's not a completely preposterous deduction -- the U.S. Tax Court (the nation's main tax court) has allowed it in at least one case -- but certainly there are lots of questions. To give just one example, the value Dudley reportedly placed on the unwanted house, $350,000, could be challenged. The key is whether that's the fair market value of the building -- what a hypothetical buyer would pay for it. The issue is not its value to Dudley (which was zero, obviously) and not its value to the fire department (which was probably less than $350,000), but what a reasonably informed buyer would pay a reasonably informed seller for the building. Dudley got an appraisal of the house, but as we've all learned in recent years, sometimes appraisals are inflated.
You have to wonder what kind of shape Dudley left the place in before he handed it over to the firefighters to burn. One would think that it would have been stripped of anything nice -- anything expensive -- which would in turn have reduced its fair market value. But who knows? Maybe the big guy let them torch some valuable fixtures.
Another issue is whether the deduction is really "a loss sustained on account of... demolition" of the structure, in which case the tax code expressly disallows it, and has done so since 1976. (The old favorable Tax Court case discussed earlier pre-dated that provision of the tax law.) Perhaps Dudley could argue that it wasn't a loss on demolition, but instead a loss on the transfer to the firefighters.
There's also a question of how one can give away a house without transferring the underlying land, but that's been known to happen. People own their houses on leased land in many locales -- it's not that unusual. And so the basic concept doesn't seem all that outrageous. But was there a deed for the building? Was it recorded? WW doesn't say.
If the IRS wanted to challenge the deduction, it would probably have to have done so before now. Barring unusual circumstances, the statute of limitations in a case such as this is three years from filing the return, which would mean that unless the former Blazer center has extended the limitations period, it expired a couple of years ago.
But when you add this new story to the tale of his apparent move to Camas, Washington, to avoid Oregon income taxes (although still living part time in a Portland home), Dudley emerges as a guy who plays multiple games with the tax laws. And we'd probably bet you a nickel that there is more tax shelter activity where these two moves came from. The guy seems smart with money -- but maybe too smart for politics.
Should it matter? Does this aspect of his character affect his ability to govern? Hard to say. But it doesn't help his chances in the election.
UPDATE, 11:28 a.m.: We just discovered that nice guy Brian Grant did the same thing as Dudley with another Lake Oswego house.