When U.S. Rep. Gary Miller (R-Diamond Bar) sold 165 acres to the city of Monrovia in 2002, he made a profit of more than $10 million, according to a financial disclosure form he filed in Congress. Ordinarily, he would have had to pay state and federal taxes of up to 31% on that profit.

Instead, Miller told the Internal Revenue Service and the state that Monrovia had forced him to sell the property under threat of eminent domain. That allowed him to shelter the profits from capital gains taxes for more than two years before he had to reinvest the money.

But there is a problem with Miller's claim: Monrovia officials say that Miller sold the land willingly and that they didn't threaten to force him to sell.

Miller, whose 42nd Congressional District includes chunks of Los Angeles, Orange and San Bernardino counties, claimed the same exemption in two subsequent Fontana property transactions, allowing him to continue sheltering his profits from the Monrovia sale. And in each of those cases, the purchasers say eminent domain, which allows a government agency to force a sale if it's in the public interest, was neither used nor threatened.

Internal Revenue Code Section 1033 was designed to protect people whose land is condemned by government agencies or destroyed in natural disasters. Other investors wishing to postpone capital gains taxes would have to follow complicated rules that include reinvesting the entire amount in other property within 180 days. For Miller, a millionaire land developer in the Inland Empire and a senior member of the House Transportation and Infrastructure Committee, repeated use of the forced-sale exemption has enabled deferment of capital gains taxes through at least 2009.

Miller declined to comment on the sales after officials in Monrovia disputed his eminent domain contention. Officials with the IRS and the state Franchise Tax Board said it's not their policy to comment on individual cases.

In an earlier interview, Miller described being threatened by Monrovia during the bargaining process and said the city gave him no choice but to sell. He said that he prided himself on transparency and noted that he fully disclosed all of his property transactions.

"The base of the deal was either you sell to us or we'll have to condemn it," Miller said.

But records and interviews in Monrovia show that the sale of Miller's land was voluntary.

Glen Owens, a member of Monrovia's Planning Commission, said the city could not have used eminent domain to purchase Miller's property, because it was acquiring the undeveloped hillside land for a wilderness preserve using state funding that specifically prohibited forced sales.

"The state doesn't go along with eminent domain," he said. "You have to have a willing seller."

A letter from then-City Manager Don Hopper at the time of the sale confirms that use of state funds blocked the city from considering eminent domain.

"Under the guidelines of the Challenge Grant Program, all property owners must be willing sellers," Hopper wrote in May 2002.

A videotape of a February 2000 City Council meeting, packed with people pushing the city to protect the hillside, shows Miller pleading with city officials four times to buy his land.

"Why don't you buy my property? I've asked you repeatedly," Miller said.

Miller's press secretary, Kevin McKee, wrote in an e-mail to The Times, "Mr. Miller and the city of Monrovia agreed upon the purchase price and a friendly condemnation."

Although early drafts of Monrovia's sales contract with Miller included the phrase "friendly condemnation," it was stricken when the final deal was made. Miller and his wife signed an amendment to the escrow instructions on Aug. 1, 2002, saying, "condemnation deleted."

Scott Ochoa, the assistant city manager at the time and now the city manager, said the city always discusses the possibility of so-called "friendly condemnation" when it is negotiating a purchase in case a seller wants to claim the forced-sale exemption. In this case, though, the state funds took that option off the table, he said.

Miller said that two years after the Monrovia sale, he raced to beat his extended deadline of Dec. 31, 2004, for reinvesting the profits. On Dec. 28, he reinvested some of the profits by purchasing 10 lots for about $5 million near the expanded 210 Freeway in Fontana, a building in Fontana for $1.3 million and five acres in Rancho Cucamonga worth about $2 million. He bought the properties from Lewis Operating Corp., a major Inland Empire developer and one of Miller's largest campaign contributors.