Harlan Crow is under the microscope again.
This time, he is accused of receiving huge tax breaks for the loss of business on his mega yacht, the Mikaela Rose. But whether the ship is a for-profit business is debatable.
The investigation began with Crowe’s generous gifts to Supreme Court Justice Clarence Thomas, including a trip on the Mikaela Rose, which Thomas did not disclose. Senate Democrats are hunting down Crowe, seeking documents for the gift. Crowe’s lawyers filed a boycott, and the billionaire testified that he had committed no wrongdoing.
But Crow may have violated yacht-related tax laws, ProPublica report.
Crowe allegedly implemented a scheme common among the ultra-rich to blur the line between business and pleasure as a way to lower their tax bills. Crow and his father Trammell Crow founded a company called Rochelle Charter in 1984, which allegedly chartered the Michaela Rose. However, there is no evidence that the company operates as a for-profit entity as required by law.
“Based on the information available, this looks like a textbook billionaire tax scam,” Senate Finance Committee Chairman Ron Wyden told the media. “These new details will only add to Mr. Crow’s tax behavior that raises more questions, which may begin to explain why he has been thwarting the Finance Committee’s investigation for months.”
In 10 of the 12 years from 2003 to 2015, Rochelle Charter posted net losses totaling nearly $8 million, about half of which went to Crow, according to data collected by the IRS over those years. According to the outlet, the Crowe family saved tax by using the deductions to offset other sources of income.
After taking full control of the company in 2014, Crowe refurbished the yacht. That year, he lost $1.8 million from Rochelle Charter, the largest deduction he’s ever recorded.
In order to claim this type of deduction, the taxpayer must be engaged in a legitimate, for-profit business. If expenses greatly exceed income year after year, the IRS may suspect that the so-called business is more of a hobby.
Michael Kosnitzky, co-chairman of law firm Pillsbury Winthrop, told the media that for a yachting business to meet the criteria of a for-profit business, “it must regularly lease its yachts to third parties at fair market rates.”
Former Mikaela Ross crew members said they had no idea the yacht had ever been chartered. The boat also appears to be reserved for Crowe’s family, friends, company executives and their guests.
read more
Crow also struggled to prove that Michaela Rose was being used for commercial purposes after the USPTO requested evidence in 2019. The Trademark Office deemed Rochelle Charter not a legitimate business and refused to register, but Crow’s attorneys continued to fight the company. claim, and eventually the trademark was approved.
More leisure-focused businesses like Rochelle Charter “should be subject to aggressive audits,” Brian Galle, a professor at Georgetown Law School and a former federal prosecutor for tax crimes, told the outlet.
— Quinn Donoghue
