Jul 28, 2014
Partly Cloudy

Sen. Liu Denies Tax Shelter Claims

Sen. Carol Liu and her husband reportedly used a Cayman Islands tax shelter to avoid paying taxes on a $10 million windfall, but Liu calls her opponent’s tax evasion claims ‘baseless.’

Sen. Liu Denies Tax Shelter Claims Sen. Liu Denies Tax Shelter Claims Sen. Liu Denies Tax Shelter Claims

Senator Carol Liu (D-La Canada Flintridge) is calling her campaign opponent’s claims she owned a Caribbean tax shelter to avoid paying millions of dollars in taxes bogus.

As Liu and Republican candidate Gil Gonzales spoke during Thursday’s Candidate Forum featuring the two candidates for the 25th Senatorial District, Gonzales pressed Liu about reports she and her husband used a tax shelter to avoid paying taxes on a $10 million windfall.

In a prepared statement to Patch, Liu said:

“For the record: Neither I nor my husband has an account of any kind in the Cayman Islands, nor in any other "tax haven" -- not now, not ever.   I suppose I should be used to baseless accusations in campaign season. However, when I first heard my opponent spouting this bizarre fantasy, I simply could not believe he was talking about me.  Perhaps he has me confused with his own party's presidential nominee.”

But in the late nineties, Liu’s husband Michael Peevey sold his company Applied Energy Systems and gained $10 million. Under the advice of his accountants, he used a questionable tax scheme to avoid paying more than $3 million in taxes, according to a 2005 Los Angeles Times article.

Operating under a loophole, Peevey and Liu (then serving in the state Assembly before serving as senator for the 21st District) set up a charitable, tax-free trust in Georgia, run by a company in the Cayman Islands. Putting the money into the trust, the couple would receive the money in smaller increments from the company, allowing them to pocket the money tax-free, according to The Times.

But according to IRS documents, Liu and her husband were notified their scheme was illegal and were ordered to stop.

Peevey claimed he was duped into a flawed tax scheme and sued his accounting firm Arthur Andersen.

Gonzales said he finds Liu’s support of raising taxes – including Gov. Jerry Brown’s Proposition 30 – hypocritical.

“If there was several million dollars placed in a tax shelter, and by all indications there was, and Sen. Liu and her husband were found to be wrong by the IRS in doing so, then it’s wrong for Sen. Liu to vote to raise taxes on us the taxpayers while not looking to pay her fair share,” said Gonzales.

Gonzales also said he wants Liu to confirm if she disclosed this income on her public disclosure documents as all candidates are asked to do.

“All I want is for the voters to have an opportunity to get to know their candidates,” said Gonzales. “I’m an open book and I think Sen. Liu should be as well.”

Don’t miss updates from Patch!