Rob Lowe Denied New Tax Appeal in California

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Laura Mahoney

Sept. 27 — California’s elected state tax board rejected an appeal from Rob Lowe and his wife, Sheryl Berkoff, about the taxable basis in the home they sold for $25 million, ending a case that included allegations of anti-Semitism and biased statements from board member Jerome Horton (D).

In a 5-0 vote without discussion Sept. 27, the board rejected the Lowes’ petition for rehearing seven months after they voted 3-2 to give them $12.1 million of the $13.5 million basis they claimed.

Mark Bernsley, an attorney in Los Angeles representing the Lowes, told Bloomberg BNA Sept. 27 that he is discussing options with his clients. He declined to comment further.

The board’s ruling ends the Lowes’ administrative appeal, giving them the option to take their case to state trial court.

Question of Interest

Lowe and Berkoff asked the board to rehear the case in March after Horton publicly questioned whether the board’s February action was legal, and after Lowe disclosed that Horton made anti-Semitic remarks to him and his wife during a meeting about their case in 2015. Berkoff is Jewish (61 DTR H-1, 3/30/16).

They asked the board to rehear the case to clarify whether construction or capitalized mortgage loan interest was included in their claimed basis. The board subtracted those items from the total basis it granted to the Lowes, but they argued in their petition for rehearing that they never included those items in their claimed basis and little to no evidence was presented to the board to show that it was.

Convoluted Claims

The board’s Sept. 27 vote followed a recommendation from the SBOE legal staff to reject the petition for rehearing, and the Franchise Tax Board’s arguments in its briefing on the matter.

The FTB argued that the board had sufficient evidence to justify its decision. Further, the FTB argued that the Lowes were asking the board to believe their accountant didn’t include the interest items in their claimed basis on their original return—for which original documentation had been lost in a computer crash—but asked them to ignore his documentation supporting this point during the appeal.

“It is a convoluted attempt by appellants to choose selectively the evidence that suits them and ignore the rest,” the FTB said. If the “calculations during the protest proceeding were nothing more than concocted figures, why should this board believe that his original estimation of basis of approximately $13.5 million was anything more than the same?”

Board member Diane Harkey (R) made the motion to deny the petition for rehearing, and Deputy Controller for Taxation Yvette Stowers, representing State Controller Betty Yee (D), seconded the motion. It was adopted without objection.

No Recusal

Although Horton didn’t speak during the brief time the matter was before the board Sept. 27, he also didn’t recuse himself from participating as the Lowes had asked in their petition for rehearing.

They asked that Horton not participate in any further proceedings involving them because of his “demonstrated antipathy to the taxpayers.”

Horton said in an unusual Feb. 24 newsletter and Feb. 25 news release that the board violated its own rules and gave the couple a “gift of public funds” without sufficient evidence to support their claims.

Lowe also said in a Feb. 24 e-mail to a member of the SBOE staff that Horton asked Berkoff and Lowe during a closed-door meeting at Horton’s office in August 2015 if Berkoff “Jewed down” the contractors who built their home. Horton was chair of the SBOE at the time.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at lmahoney@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.