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Bank of Oklahoma subsidiary focus of Tax Commission audit

Oklahoma taxpayers may be out up to $160 million because a company is claiming it should have gotten tax credits on an $800 million investment made four years ago.
NewsOK May 27, 2012
Megan Rolland and Randy Ellis

Oklahoma taxpayers may be out up to $160 million because a company is claiming it should have gotten tax credits on an $800 million investment made four years ago.

The company - a subsidiary of Bank of Oklahoma - filed an amended 2008 tax return in an effort to qualify for the tax credits. The Oklahoma Tax Commission is conducting an audit.

Skeptical of the whole thing is state Rep. Mike Reynolds, R-Oklahoma City, who learned of the amended tax return from a request for records he made to state tax officials.

"Somehow a publicly traded company can accidentally forget to report an $800 million so-called investment that could lead to a $160 million tax credit for one company," Reynolds said. "The abuse of taxpayers by legislators who pass those kinds of programs is just beyond comprehension."

The investment Reynolds is complaining about consisted of transferring $800 million from one Bank of Oklahoma subsidiary (CVV Partnership) to another subsidiary (Cottonwood Valley Ventures Inc.), according to redacted Tax Commission records.

The amendment wasn't filed until 2010 - a year after Cottonwood Valley Ventures filed its initial tax return, an internal Tax Commission email reveals.

The amendment - if allowed - could make Tulsa-based Bank of Oklahoma subsidiary Cottonwood Valley Ventures Inc. eligible for the tax credits long after the Legislature forced the expiration of this particular tax credit program at the end of 2008.

Tax credits, unlike tax deductions, represent a dollar for dollar break on tax liability. Once a company obtains them, if transferable, they can be sold at a discount to individuals who can use them to avoid paying a like amount in taxes.

Lawmakers unsuccessfully attempted this year to do away with some of the most costly and heavily abused tax credits that had been targeted for elimination by a special panel. Transferable tax credits were particularly targeted.

Sheila Curley, senior vice president and director of corporate communications for BOK Financial, said the company is limited in what it can say while the matter is pending before the Tax Commission.

"Many years ago the Oklahoma legislature created a tax credit program to encourage business expansion and diversify the Oklahoma economy," she said. "As the state's largest bank, BOK embraces those legislative goals and engaged in the Oklahoma tax credit program. Although we cannot comment specifically on the inquiries about the Oklahoma Tax Commission or disclose the parties involved in private transactions, we can say that BOK followed the letter and spirit of the law."

Transaction challenged

A certified public accountant at the Tax Commission said in an internal email acquired by Reynolds that he found it "hard to understand" how a public company could go more than a year before realizing an $800 million error had been made because public companies are required to file audited financial statements each year with footnotes that disclose related-party transactions.

State law "seems to clearly indicate that no credits can be generated in taxable years beginning after 12/31/2008," accountant Charlie Robertson wrote in the redacted email. "Obviously, they are interpreting the same statute differently and I don't understand or agree with their interpretation."

Before Cottonwood Valley Ventures can actually claim the tax credits, it must reinvest the money in qualified Oklahoma business ventures. State law gives investment firms five years to actually invest the money.

Kaiser benefits

The venture Capital tax credits are transferable, and in a disclosure on BOK Financial's annual statement it said Cottonwood Valley Ventures must sell the majority of the tax credits to realize the "economic incentives."

BOK Financial chairman and majority shareholder George Kaiser has been a major beneficiary of these tax credits.

It cannot be determined from public documents whether Kaiser and others associated with him used all of their tax credits or if those credits were left to expire.

BOK Financial is a $26 billion financial institution that owns Bank of Oklahoma - the largest bank in the state - as well as banks in several other states.

Cottonwood Valley Ventures was incorporated in 1991 to take advantage of a state law designed to give tax breaks to certain companies that invest in new or expanding companies. Bank of Oklahoma acquired Cottonwood Valley Ventures at the end of 1997.

Documents show Cottonwood Valley Ventures claimed on its initial 2008 tax return that it had received $40 million in venture Capital investments that year, which would have meant it could have received up to $8 million in tax credits.

But the 2010 amendment to its 2008 tax return claimed the company had an additional $800 million in investments, which would make it potentially eligible for up to $160 million more in tax credits.

Audit disclosed

BOK Financial disclosed in its 2011 annual report that Cottonwood Valley Ventures was being audited by the Oklahoma Tax Commission for tax years 2007 through 2009.

"In the event the (Tax Commission) disallows any such credits, CVV, Inc. would be required to indemnify purchasers for the tax credits disallowed," the filing states. "Management does not anticipate that this audit will have a material adverse impact to the consolidated financial statements."

Tax Commission officials said privacy restrictions prevent them from commenting on the situation. They declined to say whether the tax credits claimed in the amendment have been awarded or if they were being disputed.

Reynolds said he believes the lawmakers who pushed the tax credit programs were fully aware of their ramifications and "refused to clean it up."

"If they didn't know what was going on, they didn't belong in the Legislature," he said.

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