By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
What is government doing to protect the public from unscrupulous corporations or religious institutions?
The federal government is unlikely to do anything to protect the public from shady religious institutions or guarantee that such organizations deserve the tax-exempt status they enjoy. "No one wants to be anti-church," says a spokesman for one tax-reform group.
The State of Arizona is going the wrong direction when it comes to corporate disclosure: It no longer requires businesses to file annual financial reports, which can be useful in determining the stability of a corporation.
Maricopa County, on the other hand, plans to expand its oversight of real estate transactions in an attempt to assure that everyone who should pay taxes does pay taxes.
The Affidavit Scam
When BFA insider Jalma Hunsinger conducted land flips to decrease the value of four parcels of land by $2.3 million on a single day--September 22, 1992--he was engaging in a storied Arizona real estate practice that often violates or skirts the law.
Nobody questioned the land flips because no regulators routinely check the veracity of buyers' and sellers' claims of sales figures. That's about to change in Maricopa County, where officials are establishing a special unit to monitor the accuracy of property values.
To assure that properties are taxed at a fair rate, the Arizona Department of Revenue and the Maricopa County Assessor's Office require the seller and buyer in most property transactions to file an "affidavit of value" at the Maricopa County Recorder's Office. Sellers and buyers are asked to fill out the same document. It includes a legal description of the land, terms of the sale and the total sale price.
The language on the affidavit is unambiguous: "The undersigned, being duly sworn on oath, says that the foregoing information is a true and correct statement of the facts pertaining to the transfer of the above described property."
The whole point of the affidavits is to give the county and the state an idea of the accurate values of property; this helps determine accurate taxes in their computer models.
Both the seller and the buyer must affix their notarized signatures to the affidavit, swearing that what they say is true. To lie on affidavits violates Arizona law, and carries penalties ranging from misdemeanors to more serious felony charges in cases where a lie or lies are part of a larger fraudulent scheme. For example, buyers and sellers might lie on an affidavit to gain a fake tax advantage, to deceive investors or lenders, or to enable bogus appraisals. And since the buyer and seller fill out the same affidavit, both have to lie to make the scam work.
"It's a very sophisticated way of limiting your tax liability by moving resources between corporate entities," says Fred Kelly, chief deputy assessor for the Maricopa County Assessor's Office. "Unfortunately, tax reporting depends on people being honest. When people use loopholes, the rest of us have to pick up the bill. If someone doesn't pay their share, people who are honest make up the difference."
Maricopa County currently has no system for making sure affidavits are accurate and true--other than to dispatch appraisers to check out suspicious land values on affidavits. But this system has problems--not every fraudulent affidavit is caught, and county appraisers are taken away from their routine but busy tax assessment duties.
The affidavit scam has taken on such proportions that the Assessor's Office is setting up a team this fall just to make sure affidavits are reliable. Kelly says the team will consist of five to seven employees whose salaries will cost county taxpayers up to $250,000 each year. The team will be able to take the workload off of county appraisers.
Currently the only way for a member of the public to determine if someone lies on an affidavit is through the laborious process of cross-checking the questionable affidavit with other public records.
The Maricopa County team will try to make sure the affidavits available to the public are honest in the first place.
Springer's Law and Limited Liability
Arizona corporations no longer have to file telltale financial records.
In the past decade, Arizona Legislators have passed laws that have had the effect of protecting corporations--and white-collar criminals--while sealing up records that allow citizens to get information to protect themselves.
The biggest blow to the public's right to know was a bill sponsored by Republican state Senator Carol Springer of Prescott. The law, which went into effect January 1, 1998, relieves Arizona for-profit corporations from filing annual financial statements with the Arizona Corporation Commission.
"We fought it for three years in a row. . . . It's a horrible piece of legislation for consumers, for newspapers trying to cover things for the public, as well as businesses who want to know basic assets and liabilities for business," says state Senator Chris Cummiskey, a member of the Senate finance, commerce and banking and insurance committees.
Cummiskey, a Phoenix Democrat, described the old disclosure requirements as "the easiest way for the public to get a snapshot of how businesses were working."
"You can't get a sense of how corporate webs are constructed without baseline information," he says.