Bren Urges State to Rescind $126,830 in Tax Penalties

Billionaire Donald L. Bren, the Irvine Co. chairman considered to be among the world’s wealthiest men, is requesting that he be “forgiven” penalties for failing to pay taxes on $20 million in artwork that he purchased out of state.

But the State Board of Equalization found itself deadlocked Thursday over the request, with Democrats demanding strict enforcement of tax laws and Republicans suggesting leniency. Bren did not make a personal appearance before the board but asked through legal documents for the dismissal of $126,830 in tax penalties assessed against him.

The documents said Bren had not realized when he purchased paintings in New York in the mid-1980s that he would have to pay a state sales tax when he brought the artwork into California.

Board Chairman Brad Sherman said Bren’s tax liability was discovered when state auditors saw a newspaper article about Bren’s art collection. He said the auditors then asked Bren to disclose any out-of-state art purchases that he might have made.

When Bren outlined $20 million in purchases, Sherman said the state board served him with a tax bill. It demanded that he pay $1.2 million in back taxes, $671,872 in interest and $126,830 in penalties. At the time, interest on back taxes was running at 13% and penalties were being assessed at another 10%.

Sherman said Bren paid the tax and interest but challenged the penalties.

Larry Thomas, a spokesman for Bren, said the Irvine Co. executive sought the waiver of the penalties because he understood that it was a “common practice” of the board to dismiss penalties when taxpayers did not knowingly violate the tax laws. The board’s staff recommended such an action.

“When he was approached on the matter he made all of the records of purchases available (to the state) and subsequently agreed to the tax as well as to the interest,” Thomas said.

However, after squabbling over whether the rich should be held to stricter tax standards than the poor, the board deadlocked 2 to 2. A representative for the fifth member, Controller Gray Davis, abstained from voting.

Bren’s request will be reconsidered at a future meeting.

Sherman, a Democrat, urged the board to reject Bren’s plea, suggesting that anyone who could afford $20 million in artwork should be expected to seek tax advice.

“My view is not based upon the wealth of the taxpayer, although I guess you have to be reasonably wealthy to invest $20 million in anything,” Sherman said. “It is based upon the fact that I expect prudent business people to be reasonably prudent when they invest $20 million. I expect them to find out what the law is.”

“You mean if Mr. Bren had only bought a $10,000 piece of art you wouldn’t be as concerned?” asked Ernest Dronenburg, a Republican.

“Exactly,” Sherman replied.

Expounding on his argument, Sherman said he would not expect “somebody who invests in buying a clay figurine at a Guatemalan bazaar” to seek the same kind of advice.

“Mr. Bren didn’t buy a little figurine in Guatemala; for what he paid he could have bought Guatemala,” Sherman said.

But Dronenburg, who moved to accept a staff recommendation that the penalties be dismissed, accused Sherman of trying to apply different standards to different taxpayers. He said the board, which has been vigorously enforcing the tax on overseas purchases for nearly a year, had not assessed penalties against most travelers who were unaware of the tax.

By the same token, he said that in a case preceding Bren’s it had not charged penalties against Sears, Roebuck & Co., which had been late in submitting sales tax receipts last December.

Sherman argued, however, that Sears had only been four days late, while Bren’s taxes had been delinquent for four years.

“Mr. Bren didn’t come forward to pay the tax,” he said. “We were only lucky that we happened to see a newspaper article, otherwise Mr. Bren would have escaped not only the penalty that we’re assessing against him but the tax itself.”

The two other board members took positions along party lines, with Republican Matthew Fong siding with Dronenburg and Democrat William Bennett supporting Sherman. Bennett then asked that the case be postponed to give the board’s staff time to provide written explanation of its recommendation.

Thomas said Bren would abide by whatever decision the board finally makes. He said he was encouraged that the staff had recommended dismissal of the penalties.

Thomas said the recommendation showed that it was the staff’s “concurrence and belief that Mr. Bren was telling the truth about his knowledge of the law at the time and that he didn’t act with any intent to violate the law.”

Only recently, he noted, has the board begun to seriously enforce the tax on out-of-state purchases and to advise all travelers of its existence. In the mid-1980s, Thomas said, the tax was only enforced selectively against those who made big purchases. And even then, he said, travelers did not receive tax bills unless the purchases happened to come to the attention of the tax agency.

Thomas said the artwork was purchased at auction in New York City over an eight- or nine-year period in the 1980s. He said most of it was American, and particularly Californian, art created mainly in the 1950s and 1960s.

He said the art was housed out of state for some time until it was finally brought into California.