George Kaiser and tax avoidance

Last week the Sunlight Foundation Reporting Group published a detailed history of George Kaiser's fortune, a fortune built with care to avoid paying taxes, according to the story's author, Bill Allison.

Allison co-authored The Cheating of America, a 2001 book on "wealthy individuals and powerful corporations avoid taxes." The article quotes figures from that book on Kaiser's success at avoiding federal taxes:

In 1997, the Internal Revenue Service sent Kaiser and his companies tax bills for more than $72 million in back taxes, interest and penalties, covering individual and corporate returns filed from 1986 to 1992. Kaiser filed returns showing his personal income averaging negative $860,000 between 1986 and 1991; his holding company, GBK Corp., and its subsidiaries reported an aggregate loss from 1989 to 1992 of $507,000--some years it made money and paid taxes, others it claimed losses and paid none.

The article tells the story of Kaiser's acquisition of Bank of Oklahoma, which started with a bad acquisition by BOK, followed by a federal bailout:

Bank of Oklahoma had largely avoided making rash loans during the state's oil boom economy that led so many other savings institutions--including savings and loans, 162 of which shut down during the crisis--from going broke. But in 1984, Bank of Oklahoma bought Fidelity Bank N.A., an Oklahoma City-based bank whose books were loaded with bad loans. Kaiser, who was a shareholder and served on Bank of Oklahoma's board of directors at the time, favored the deal, which didn't work out so well. Fidelity's bad loans were a drag on Bank of Oklahoma, which, after declaring a quarterly loss of $51 million in 1986, turned to the Federal Deposit Insurance Corporation for a bailout. The FDIC deemed it essential to the state's economy, and rather than shut it down bailed it out the bank for $130 million. Five years later, after returning the bank to profitability, the FDIC sold it to Kaiser--for $61 million.

The deal was a profitable one--by 1998, his shares in the company were worth some $917 million; on April 26, 2011, when the bank issued its last proxy statement, Kaiser's shares were worth more than $2.1 billion, while his foundation held another $251 million of its stock.

According to Allison, the money to buy BOK came as a loan from Kaiser's GBK Corp., which the IRS called a dividend. The IRS's tax bill of more than $48,000,000 was settled for less than $12,000.

Allison links to a 2007 Forbes article in which Kaiser supports Warren Buffett's call for higher marginal income tax rates. But surely higher marginal rates only provide incentive for the sort of tax avoidance that Allison has documented in this article.

I have to take issue with the headline on Allison's article: "Barack Obama's other billionaire: How George Kaiser turned Oklahoma into his personal tax haven." Allison's focus is on Kaiser's avoidance of federal taxes and doesn't mention Oklahoma taxes. However, as long as we're on that subject:

OCPA's AccountAbilityOK online database of Oklahoma spending, revenues, payrolls, pensions, and tax credits shows that George Kaiser claimed over $29.5 million in state income tax credits for fiscal years ending 2009 and 2010, nearly all of it for venture capital investments. BOK Financial Corp and Subsidiaries claimed $10.5 million in Oklahoma tax credits for FY 2010; the bulk of it, $8.3 million, was the Space Transportation Vehicle Provider tax credit.