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How Harlan Crow Slashed His Tax Bill by Taking Clarence Thomas on Superyacht Cruises

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This story was originally published by ProPublica.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

 

Series: Friends of the Court

SCOTUS Justices’ Beneficial Relationships With Billionaire Donors

 

For months, Harlan Crow and members of Congress have been engaged in a fight over whether the billionaire needs to divulge details about his gifts to Supreme Court Justice Clarence Thomas, including globe-trotting trips aboard his 162-foot yacht, the Michaela Rose.

Crow’s lawyer argues that Congress has no authority to probe the GOP donor’s generosity and that doing so violates a constitutional separation of powers between Congress and the Supreme Court.

Members of Congress say there are federal tax laws underlying their interest and a known propensity by the ultrarich to use their yachts to skirt those laws.

Tax data obtained by ProPublica provides a glimpse of what congressional investigators would find if Crow were to open his books to them. Crow’s voyages with Thomas, the data shows, contributed to a nice side benefit: They helped reduce Crow’s tax bill.

The rich, as we’ve reported, often deduct millions of dollars from their taxes related to buying and operating their jets and yachts. Crow followed that formula through a company that purported to charter his superyacht. But a closer examination of how Crow used the yacht raises questions about his compliance with the tax code, experts said. Despite Crow’s representations to the IRS, ProPublica reporters could find no evidence that his yacht company was actually a profit-seeking business, as the law requires.

“Based on what information is available, this has the look of a textbook billionaire tax scam,” said Senate Finance Committee chair Ron Wyden, D-Ore. “These new details only raise more questions about Mr. Crow’s tax practices, which could begin to explain why he’s been stonewalling the Finance Committee’s investigation for months.”

Crow, through a spokesperson, declined to respond to ProPublica’s questions.

As ProPublica reported in April, Crow lavished gifts on Thomas for over 20 years, often in the form of luxury trips on Crow’s jet and yacht. One focus of the investigations is whether Crow disclosed his generosity toward Thomas to the IRS, since large gifts are subject to the gift tax. Another is whether Crow treated his trips with Thomas as deductible business expenses. (While the data sheds light on how Crow might have accounted for Thomas’ trips, there are no clear implications for Thomas’ own taxes, experts said.)

Crow’s entry into the world of superyacht owners came nearly 40 years ago. By 1984, his father, Trammell Crow, had forged his real estate fortune, and Harlan, then in his 30s, was taking an increasing role in the family business. That year, father and son worked together to erect the 50-story Trammell Crow Center in downtown Dallas. They also formed a company, Rochelle Charter Inc., with the purpose of leasing out their new yacht, the Michaela Rose.

ProPublica’s trove of IRS data, which contains tax information for thousands of wealthy individuals, includes both Harlan Crow and his parents, who filed jointly. The data shows his parents with a majority share in Rochelle Charter. After they both died, Harlan Crow took full control in 2014.

ProPublica’s data for the company runs from 2003 to 2015. Rochelle Charter reported losing money in 10 of those 13 years. Overall, the net losses totaled nearly $8 million, with about half flowing to Harlan Crow. By using those deductions to offset income from other sources, the Crows saved on taxes. (The wealthy often find ways to deduct the expense of a private jet; the records don’t make it clear whether Crow is doing so.)

For Crow, the tax breaks from his yacht were just one way he was able to achieve a lighter tax burden. The tax code is particularly friendly to commercial real estate titans, and Crow generally enjoyed low taxes during that same period: He paid an average income tax rate of 15%, according to the IRS data. It’s a rate typical of the very wealthiest Americans but lower than the personal federal tax rates of even many middle-income workers.

Crow’s biggest deduction from the Michaela Rose came in 2014, when, after the death of his mother, Crow decided to renovate the yacht. The interior needed updating to fit more contemporary notions of glamour (for one, less gold plating). The work was expensive: Crow’s tax information shows a $1.8 million loss from Rochelle Charter that year.

In order to claim these sorts of deductions, taxpayers must be engaged in a real business, one that’s actually trying to make a profit. If expenses dwarf revenues year after year, the IRS might conclude the activity is more of a hobby. That could lead to the deductions being disallowed, plus penalties. Nevertheless, the ultrawealthy often pass off their costly pastimes, like horse racing, as profit-seeking businesses. In doing so, they essentially dare the IRS to prove otherwise in an audit.

For a yacht owner to meet the legal standard of operating a for-profit business, said Michael Kosnitzky, co-chair of the private client and family office group at the law firm Pillsbury Winthrop, “You have to be regularly chartering the yacht to third parties at fair market value,” typically through an independent charter broker.

ProPublica interviewed around a dozen former crew members of the Michaela Rose, some of whom spent years aboard the ship, and none said they were aware of the boat ever being chartered. ProPublica also reviewed cruising schedules for three different years. According to the former staff and the schedules, use of the vessel appears to have been limited to Crow’s family, friends and executives of Crow’s company, along with their guests.

Moreover, in an attempt to trademark the name of his yacht, Crow struggled to provide evidence that he chartered his ship. In 2019, an attorney representing Rochelle Charter filed an application with the U.S. Patent and Trademark Office for the request. This required demonstrating commercial use of the name Michaela Rose. The attorney, of the law firm Locke Lord, wrote that the name was used for “yacht charter services for entertainment purposes” and as evidence attached a brochure.

“This magnificent yacht has cruised the oceans of the world with a graceful and gentle motion found only on the most superior seagoing vessels,” the pamphlet said, and it went on to extoll the vessel’s “fine, seakindly hull” and “mahogany paneled formal dining room” that seats 16. But it said nothing about chartering.

“Registration is refused because the specimen does not show the applied-for mark in use in commerce,” the USPTO’s attorney responded.

Crow’s attorney asked the USPTO to reconsider. The brochure was “provided by Applicant directly to its customers and potential customers,” he wrote. Wasn’t that enough?

When USPTO again refused, the attorney provided new evidence: screenshots of the websites superyachts.com and liveyachting.com. These show “links and references to yacht ‘Charter’ services offered in connection with Applicant’s MICHAELA ROSE mark,” the attorney wrote.

At this point, the USPTO agreed to approve the trademark, but the evidence was dubious. Hundreds of ships have profiles on superyachts.com whether they are available to charter or not. The LiveYachting page merely encouraged readers to contact a broker “for finding out if she could be offered for yacht charters.”

“Reviewing the file, it’s not clear to me that the yacht was actually offered for use in commerce in a way that would justify a trademark,” said Neel Sukhatme, a professor at Georgetown Law and visiting scholar with USPTO.

Since April, when the Senate Finance Committee first sent Crow a long list of questions about Thomas’ trips on his jet and yacht, Crow has refused to provide extensive answers. But last month, his attorney, Michael Bopp of the law firm Gibson Dunn, did shed some light on how his chartering business worked: Crow leased from himself. (Gibson Dunn is representing ProPublica pro bono in a case against the U.S. Navy.)

For Crow’s personal use of the Michaela Rose, including trips when the Thomases were guests, “charter rates … were paid to the Crow family entities” that owned the yacht, Bopp wrote in a letter to Wyden. The letter did not specify who, if anyone, paid when Crow’s friends, family or employees used the vessel or how he determined the charter rate. Crow’s spokesperson declined to clarify these details.

According to Bopp, then, whenever Crow used his yacht, Crow (or one of his businesses) would pay his own company, Rochelle Charter, and Rochelle Charter would put that down as revenue. On the other side of the ledger would go the considerable expenses of operating the yacht: maintenance, crew, fuel and other costs. If, at the end of the year, Rochelle Charter’s revenue from chartering exceeded those expenses, Crow would pay tax on that income.

But the taxes of the ultrawealthy often have an up-is-down quality. The clear incentive is to welcome losses, not profits. If, as happened most years for which ProPublica has data, Rochelle Charter’s expenses far exceeded revenue, Crow would save on taxes.

These sorts of arrangements “should be aggressively audited,” said Brian Galle, a professor at Georgetown Law and former federal prosecutor of tax crimes.

“Assuming that the uses of the yacht are mostly personal, Crow should not be able to take a deduction,” he said, calling “absurd” the idea that “the more personal use you get from the yacht, the more deduction you get to claim.”

Crow treated personal trips on his jet in a similar fashion, according to his attorney. Wealthy business owners often derive tax savings from their jets, since business-related flights are fully deductible, and the rich can often find ways to blend business and pleasure, as ProPublica has reported. The company that owns Crow’s jet is not in ProPublica’s data set, so it’s unclear if it reported net losses.

Bopp’s letter describes the standard way that jet owners account for nonbusiness guests: “Reimbursements at rates prescribed by law,” he wrote, were paid to the Crow business that owned his jet. The IRS has a “Standard Industry Fare Level” that jet owners use to calculate the value of a seat aboard a jet for any trip. The amount is roughly equivalent to the cost of a first-class commercial ticket, far below what it would actually cost to charter a jet.

The Senate investigation has also focused on an entirely different tax question: Given that Thomas’ trips on Crow’s jets and yachts could easily be valued in the hundreds of thousands of dollars, did Crow report them to the IRS as taxable gifts?

For each year that Crow gave gifts to someone that exceeded a certain threshold ($17,000 in 2023), he was required to file a gift tax return. That might or might not have resulted in a tax bill for Crow, depending on how much he’d already given to others over the course of his life. (The lifetime limit for total gifts is $12.9 million in 2023.)

But, according to Bopp’s letter, Crow didn’t consider the trips reportable. The gift tax, Bopp wrote, was created to prevent people from avoiding the estate tax by simply giving away assets before death. But Crow still owned his jet and yacht after hosting Thomas. “Value [was] not transferred out of the hosts’ taxable estates,” he argued. Therefore, no gift tax.

Tax experts told ProPublica, on the contrary, that these sorts of luxury trips should be analyzed as gifts.

Beth Kaufman, a partner with Lowenstein Sandler who specializes in estate planning and a veteran of the Treasury Department’s Office of Tax Policy, said she’d counseled clients on the issue. After one couple took their extended family on an exotic vacation, she said, she helped them calculate the reportable costs and file a gift tax return.

However, taxpayers rarely report these sorts of trips, experts said. One important factor is that the IRS has no way of knowing about gifts like these unless they happen to be uncovered in an audit. The agency has also signaled no interest in scrutinizing these kinds of interactions. In fact, experts weren’t aware of any audits related to gifts of this kind.

The result is a situation where, counterintuitively, the gift tax can be easier to avoid the richer the host is.

As explained in a recent paper by two law professors and a private practitioner, everyone agrees that giving $500,000 to a friend would necessitate filing a gift tax return for that amount. Using that $500,000 to buy an all-expense-paid yacht cruise for friends would be treated no differently. But if someone owns a luxury yacht and takes their friends on a cruise, the situation gets muddy. Crow’s attorney even argues there was no gift at all.

That “doesn’t square with fundamental notions of fairness,” said Bridget Crawford, one of the paper’s authors and a professor at Pace Law School.

How to apportion the costs for Crow and his guests is debatable, Crawford said. Crow might argue he would have gone on the cruise without his friends anyway, but at the very least, she said, some portion of the costs of the trip (e.g., the crew and food) should be allocated to his guests.

She and her co-authors urged Congress and the IRS to make it clear these sorts of gifts should be disclosed and provide guidelines for valuing them.

“A lot of these tax rules were developed in an era where there were a few millionaires and the tiniest number of billionaires,” Crawford said, “and now there are many. This is becoming a more visible problem.”

 

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Trump’s Scheme for Absolute Immunity From State Prosecutions Forever: Report

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Having successfully obtained delays in his federal trials and his state trial in Georgia, possibly until after the November election, Donald Trump is now seeking an “insurance policy” to protect him from any future state prosecutions if he again becomes president.

The indicted ex-president who turns 78 next month “seems convinced that if he wins another four years in the White House, state prosecutors will still be waiting for him on the other side of his term — ready to put him on trial, or even in prison, just as they are now,” Rolling Stone reports.

“To avoid such risks, the former and perhaps future president of the United States wants Congress to create a very specific insurance policy that would help keep him out of prison forever, two sources familiar with the matter tell Rolling Stone. Trump vaguely alluded to this idea last week outside his New York criminal hush money trial, when he said he has urged Republican lawmakers to pass ‘laws to stop things like this.'”

Trump “has pressured” Republican lawmakers on Capitol Hill to do so, describing it as imperative that he signs such a bill into law, if he again ascends to the Oval Office.”

READ MORE: Pence Defense of Alito’s Insurrectionist Flag Highlights Its Ties to Violent Government Overthrow

Rolling Stone also notes, “Trump appears fixated on the idea of passing a law to give former American presidents the option of moving state or local prosecutions into a federal court instead, the two sources add.”

Trump “has hinted at a legislative push to limit his exposure to such criminal charges. In an improvised press conference outside the Manhattan courthouse on Tuesday, Trump said he’s been telling the Republican lawmakers who want to attend his trial and show solidarity to focus on legislation instead.”

“We have a lot of ’em. They want to come. I say, ‘Just stay back and pass lots of laws to stop things like this.’”

In 1973, while still President but under the cloud of the Watergate scandal, Richard Nixon said, “People have got to know whether or not their President is a crook.”

If Trump is elected in November, he can have his Attorney General drop any federal prosecutions he is currently facing. That may call into question, for some legal experts, the actions of the far-right justices on the U.S. Supreme Court who have delayed ruling on his immunity claim, and U.S. District Judge Aileen Cannon.

On May 7, Judge Cannon indefinitely suspended the Espionage Act case, also known as the classified documents case, against Donald Trump.

READ MORE: ‘You Just Don’t Do It’: Federal Judge Denounces Alito’s Flags as ‘Stop the Steal’ Stickers

Foreign policy, national security, and political affairs analyst and commentator David Rothkopf this week blasted the judge:

“Judge Cannon is not, as commentators and cartoonists would have it, just working on behalf of Trump. She is actively working on behalf of the enemies of the US who have and would benefit from the national security breaches she is effectively defending and making more likely.”

U.S. Rep. Adam Schiff (D-CA) earlier this month declared, “The courts are deliberately delaying justice — and effectively denying it.”

This coming week Americans may get a verdict in the New York criminal case against the ex-president. If it comes, it may be “guilty” or “not guilty,” but it could also be a hung jury, forcing another trial which also would not likely come before the election.

If Trump is elected in November, and can get his “insurance policy” legislation passed, he could possibly avoid all criminal trials for the rest of his life.

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‘Will You Accept the Results?’: Cruz’s Election Denialism Shut Down in ‘Brutal’ Interview

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U.S. Senator Ted Cruz (R-TX) promoted Donald Trump’s false election denialism and was challenged by a CNN anchor in an interview being praised by several media watchers.

During the Wednesday interview Cruz suggested to host Kaitlan Collins that Democrats or Hillary Clinton criticizing election results was equivalent to Donald Trump’s “Big Lie” campaign, which included over 60 legal challenges and countless false allegations of massive fraud. He also insisted there was a “peaceful transfer of power” after the 2020 presidential election despite the violent and deadly January 6 insurrection for which more than 1200 people have been criminally charged and for which the ex-president is facing several indictments. In the end, Collins appeared to cut the interview short.

“Will you certify the election results?” in the November election, Collins asked the Texas Republican on Wednesday, noting he was the first in the Senate to say he would not certify the 2020 election results. “Do you plan to object or will you accept the results regardless of who wins the election?”

“So Kaitlan,” Cruz replied, “I gotta say, I think that’s actually a ridiculous question.”

“It’s a yes or no question,” Collins replied.

“No it’s not that let me explain why it’s a ridiculous question,” Cruz alleged combatively. “It’s not a question – have you ever asked Democrat that?”

READ MORE: ‘Investigate Now’: As Alito Scandal Grows Pressure Mounts on ‘MIA’ and ‘AWOL’ Judiciary Chair

“Of course,” Collins replied.

“What Democrat?” Cruz demanded to know.

After a short back-and-forth, Collins said, “I know, I know, I’ve been on this road many, many times, but no Democrat – you can not compare the two situations. We have talked about that, we’ve seen the audio of that when they protested,” Collins said,  appearing to refer to Hillary Clinton having called the 2016 presidential election “stolen,” which she did three years after the election, in 2019.

“Have you ever had a sitting president who refused to facilitate the peaceful transition of power refused to acknowledge that his successor won the presidency?” Collins asked Cruz.

“So, A, we did have a peaceful transfer of power. I was there on January 20. I was there on the swearing in,” Cruz insisted, ignoring the January 6 insurrection.

“Barely,” Collins replied..

Cruz continued to refer to individual “objections” Democrats have made about results of elections – not formal, legal objections (except Al Gore in 2000) but comments or remarks, or individual objections to one state elections – not organized campaigns.

So you’re asking, ‘Will you promise no matter what to agree an election is illegitimate regardless of what happens?’ and that would be an absurd thing to claim,” Cruz said.

Again, after some back-and forth, Collins said, “This isn’t a game. There was no widespread voter fraud.”

“It is a game,” Cruz responded. “You only ask Republicans that.”

It November of 2022, the right-wing Cato Institute published an opinion piece titled, “Yes, Democrats Have Called Some Elections Illegitimate. GOP Election Denialism Is Far Worse,” and added: “It’s not even close.”

READ MORE: ‘Contemptuous’: Justice Alito’s Actions ‘Close to Treason’ Suggests Constitutional Scholar

Collins later pointed out that it is only Republicans who have “tried to block the transition of power. You have to acknowledge that.”

“So my question for you again: free and fair election. Will you accept the results regardless of who wins?” Collins again asked.

“Look, if the Democrats win, I will accept the result, but I’m not going to ignore fraud regardless of what happens.”

“Was there fraud in 202o?” Collins pressed.

“Of course there was fraud,” Cruz insisted.

“No, that wasn’t and you still objected,” Collins pointed out.

“Oh, you know, for a fact there was zero voter fraud really? What’s your basis for that? Show me your evidence,” Cruz demanded, inserting “zero” when Collins meant fraud “that would have changed the outcome,” as she noted later.

Commenting on the interview, writer Charlotte Clymer, a former press secretary for the Human Rights Campaign said, “This is brilliant.”

“I seriously cannot remember the last time any journalist on cable news confronted the bad faith of a MAGA politician this insistently,” Clymer remarked. “For five minutes (!), Kaitlin Collins pressed Ted Cruz and demanded a good faith answer.”

Democratic strategist and former DNC official Adam Parkhomenko commented, “this is just brutal.” He added Cruz was “being humiliated.”

Calling it, “Well done,” journalist Ahmed Baba wrote: “Kaitlan Collins interjecting with fact-checks multiple times and ending the interview after Ted Cruz refused to engage in the facts and continued to spread his propaganda.”

Watch below or at this link.

READ MORE: Trump Adviser Scanned and Saved Contents of Box That Had Classified Docs: Report

 

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‘Investigate Now’: As Alito Scandal Grows Pressure Mounts on ‘MIA’ and ‘AWOL’ Judiciary Chair

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Revelations over the past week that U.S. Supreme Court Justice Samuel Alito flew flags associated with the January 6 insurrection and the far-right Christian nationalist movement at not one but two of his homes have drawn tremendous outrage, and heightened demands that Senate Judiciary Chairman Dick Durbin (D-IL) hold hearings on the jurist, and pass legislation to reform the Court.

Chairman Durbin, first elected to Congress in 1982, has focused his attention on ensuring President Joe Biden’s judicial nominees are confirmed. Wednesday morning he celebrated confirming 200 judges nominated by President Biden to the federal bench.

But critics, including legal experts, say the Chairman has done little to reform the Supreme Court or hold the judicial branch to account.

READ MORE: Trump Adviser Scanned and Saved Contents of Box That Had Classified Docs: Report

Durbin did not hold any hearings over Justice Clarence Thomas’s numerous alleged ethical violations. Some legal experts say he has not only violated the people’s trust and judicial ethics rules, but federal law.

And now, critics say, Chairman Durbin is not responding sufficiently to the Justice Alito scandal.

The Chairman did release a statement on Wednesday after the New York Times bombshell of a second Alito flag, calling for the Justice to “recuse himself immediately from cases related to the 2020 election and the January 6th insurrection.”

Critics say that’s not enough, recusal is also not enough, and a statement from Durbin doesn’t rise to the level of Alito’s actions.

Professor of law, election law expert, and Director, Safeguarding Democracy Project Rick Hasen Wednesday did not hold back.

“WTF Justice Alito?” he wrote. “I was uncertain if revelation of first flag merited J Alito’s recusal in the first case, but I now believe he must recuse in the Trump immunity and related cases. His impartiality could be reasonably questioned;no blaming it on spouse.”

Historian and professor Heather Cox Richardson, responding to Hasen, wrote: “Recuse? He needs to resign.”

Justice Alito’s flags indicate support for the January 6, 2021 insurrection, suggests University Professor Emeritus at Harvard University, Laurence Tribe, a professor of law and top constitutional scholar who wrote a major textbook on the U.S. Constitution.

In an interview Wednesday he also suggested Justice Alito’s actions come close to treason.

READ MORE: ‘Going for the Jugular’: Legal Scholar Warns ‘Trumpers’ Want to End Major Civil Right

Professor Tribe alleged Justice Alito may have committed impeachable offenses, including “giving aid and comfort to an insurrection against the Constitution of the United States, which is close to treason,” he said in his Wednesday interview on the MeidasTouch Network. He also called for a “serious investigation” by the U.S. Senate into Alito, who “has been contemptuous for quite a while.”

But Tribe also aimed his criticism at the Judiciary Chairman.

“This isn’t just about the insurrection-abetting Sam Alito, it’s about the AWOL Senator Durbin. He has no excuse for not holding hearings about Alito now.”

On Tuesday, even before the second Alito flag was discovered, Tribe demanded action.

I’m sorry, Senator Durbin, you’re MIA on this. You have a solemn responsibility to conduct oversight here. This is deadly serious! Key Senate Democrat doesn’t plan to probe Justice Alito over upside-down flag. Excuse me, why the heck not??”

Earlier, on Saturday, Professor Tribe had already been pushing for Durbin to act.

Talk is cheap. Chairman Dick Durbin needs to do more than call on Alito to recuse himself from the insurrection cases. Durbin needs to step up and use the subpoena power to demand Alito’s appearance and explanation before the Senate Judiciary Committee!”

On Monday, NBC News’ Sahil Kapur had reported, “Durbin has NO plans to hold a hearing on Justice Alito. ‘I don’t think there’s much to be gained with a hearing at this point… He should recuse himself from cases involving Trump and his admin.’ And if Alito won’t? Durbin says no recourse but impeachment—and they aren’t there.”

READ MORE: Trump Adviser Scanned and Saved Contents of Box That Had Classified Docs: Report

Attorney Dan Coffin, who writes about constitutional issues, disagreeing with Durbin’s claim, says there must be an investigation.

“An impeachment hearing should be preceded by an investigative hearing to establish the facts regarding the flag incident, as well as other matters currently known or as developed in an investigative hearing. The public needs to know the facts. Alito likely would refuse to appear, even with a subpoena, and the public needs to know that,” he said. “There should also be an investigative hearing regarding Thomas & his wife.”

Progressive talk show host Thom Hartmann also blasted Durbin.

“Dick Durbin needs to haul Alito and Thomas before the Senate Judiciary Committee to get to the bottom of their collision with Trump’s attempt to overthrow American democracy. Will he find the courage?”

Adam Cohen, Lawyers for Good Government Vice Chair, Board of Directors on Thursday also took aim at Durbin.

“Dick Durbin is the Senate Judiciary Committee Chair,” he began. “He needs to investigate Supreme Court Justices Alito and Thomas-NOW.”

“Chief Justice Roberts must testify about the MAGA takeover of the Court-and what he’ll do to stop it,” Cohen insisted, warning: “Americans are losing their rights … This CANNOT continue.”

See the social media posts above or at this link.

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