New nursing home tax credit fraud scheme! It is the secrecy, stupid!

February 2, 2010

Re: Oklahoma Tax Commission Letter Ruling LR-09-27, dated June 3, 2009

Economic development tax credits were given to a scheme where a nursing homeowner(s) could buy a nursing home from themselves or another existing nursing home. Like Foxborough, getting tax credits for persuading Oklahoma City officials to sell them a parking garage; No new jobs, no new growth.

Note: A key element in these fraudulent schemes is how the program was set up to distribute tax credits. There are two classes of investors, referred to in this case as, "Common Investors" and "Preferred Investors." While multiple classes of investors are not uncommon, what is uncommon and problematic is how the tax credits are required to be allocated.

The "Common Investors" invest the money that goes to the investment, while the program requires the "Preferred Investors" receive the tax credits. "Preferred Investors" are those who own an interest in the Capco, the money laundering middle man. The Capco decides how the tax credits are divided between "Preferred Investors" regardless of the percentage of ownership. This is one, of the many irregularities, in these programs allowing state officials to participate as investors and reap, huge unearned, profits at the public's expense, and how Chaparral Energy bought $30 million in tax credits by investing $15 million in two Capco funds, Altus Venture ($10 million), and ($5 million) I suspect Affinity Ventures.

First, how the so-called basic investment was structured to work, this is the part, most think of as the investment, which it is, but it is what occurs later that is described in vagueness and authorized by OTC, where far more money, is handed out, in even more secrecy.

In this case, with the basic investment, the nursing homeowner(s) provides 100% of the "Common Investments" that comes right back to the nursing homeowner(s) labeled as an investment, less a 10% fee the Capco skims off. Concurrently, the Capco does some money laundering to shake 20% of the investment out in tax credits. That 10% fee will be repaid many times over.

Another give away is the nursing homeowner(s) retains 100% control or all voting rights over the nursing home. See "Statement of Facts" paragraph 7. A flagrant violation of the program requirements, OTC allowed. See 68 O.S. 2357.61 Par 1

In summary, the owner(s) simply sent some money on paper through a wash cycle to pick up some tax credits, and then paper money came right back. The owner(s) still controls the company.

There is one other fraud friendly requirement in the law that requires 51% of the investment to be spent as a business expense by the investment within 18 months. The other 49% was/is never mentioned, leaving a "loophole," "a huge loophole" for even more profits. That 49% is not factored in this discussion, but we can't disregard. OTC authorized those behind this scheme to count the money used to pay payroll and operating expenses to satisfy the 51% requirement. Expenses that would have occurred anyway, leaving that money to go right back into the pockets of the nursing homeowner(s). Now they have 140% back or 190%.

Now comes the even more sneaking stealing. In this case, the letter only guarantees $1.75 for $1, while others might guarantee $2 for $1, or this could be $4 for $1. All above 20 cents on the dollar is a fraud, for the SBC and SBV tax credits here. All above 30 cents on the dollar is a fraud, for the RSBC and RSBV tax credits.

These additional tax credits are taken for ostensibly investing up to 200% more in the form of "Direct Investments" as referred to in this OTC ruling. "Direct Investments" is code for "investing in conjunction," which is code for "Small Business Venture" (SBV) (2357.63) or Rural Small Business Venture (RSBV) (2357.73) tax credits. These are the tax credits OTC fails to reveal, on any reports, or Openbooks. The tax credits paid on the so-called investment the nursing homeowner(s) passed through the money laundering cycle were "Small Business Capital Company" (SBC) (2357.62) or "Rural Small Business Capital Company" (RSBC) (2357.72) tax credits. These are four separate and distinct tax credits that the name similarity has allowed OTC to go unnoticed in not reporting.

SBV 2357.63 and RSBV 2357.73 tax credits are the unspoken and unrecorded tax credits, going to the most protected identities.

Remember, the entire basic investment flowed from the nursing homeowner(s) through the Capco and back to the nursing homeowner(s) and picked up 20% tax credits. The Capco's always requested another ruling that allows the "Preferred Investors", (whose identity are never revealed, in flagrant violation of the Taxpayer Transparency Act) to invested twice again as much for no purpose other than to receive tax credits. The verbiage in the letters describing how the investments would be treated relates to the (SBC) or (RSBC). These SBV and RSBV are an - oh, by the way, we are going to say we invested twice as much more that will never be used, to get enough tax credits to pay off those promised profits.