Salt Lake Mayor Deedee Corradini appears to have transferred $350,000 in assets from an offshore company to her Utah corporation in early 1992, then hastily reversed the transaction when she realized she would have to pay more than $100,000 in taxes on the assets.
The media recently have focused on the mysterious flurry of 1992 transactions between Sallah, an offshore company, and Rossadini, a corporation Corradini and her husband, Yan Ross, created at the end of 1991.Reporters keep focusing on the transfers because no explanation given to date has completely explained them.
A tax attorney and certified public accountant hired by the Deseret News say the baffling transactions make sense if Corradini, who transferred the mortgage notes from Sallah International to Rossadini in January 1992, realized a few months later that she would be required to pay hefty federal taxes on the transfer and reversed it by midsummer 1992.
Attorney Richard W. Evans and accountant James B. Wightman reviewed the records for the Deseret News. Corradini released the records to the media earlier this month, inviting reporters' scrutiny. "It's all here for you to look at," she said when she released the returns.
If the IRS can prove that the transaction did occur and was later reversed, Corradini could still owe hefty taxes on the 1992 transfer.
But the transaction didn't occur, said Corradini campaign spokesman Ken Connaughton. "The mortgages were not transferred. That is my understanding," he said.
Shortly after Corradini was elected mayor in November 1991, Bonneville Pacific collapsed into bankruptcy. The bankruptcy meant most transactions associated with Bonneville Pacific would eventually become public. Corradini and Ross decided to severe their ties with Sallah, a Panamanian corporation Corradini and Bonneville Pacific insiders used to shelter income from taxes, according to court records.
Corradini and the insiders got $4.5 million in 1986 by selling a Colorado energy project to Bonneville Pacific shortly after Bonneville Pacific became a public company.
If Corradini and the insiders had taken the money as direct profit, they would have to pay approximately one-third of the proceeds as taxes under federal tax law.
So, they put the money in Sallah and took the assets owed them out as "loans" or business-related travel expenses, Bonneville Pacific trustee Roger Segal said in court records.
By taking the proceeds out as loans and reimbursement for travel, Corradini and Ross didn't have to pay taxes on the money. The couple made interest-only payments on the "loans" at 10 percent a year. They deducted those interest payments from their taxes, according to their returns.
When Corradini and Ross decided to cut ties with Sallah, they created Rossadini, a Utah corporation, on Dec. 27, 1991.
They then instructed Sallah to transfer the mortgages on their Salt Lake home and Park City condo to Rossadini, Corradini has said. By doing that, the couple would owe the "mortgages" to themselves.
Several things suggest the mortgages were actually transferred, Evans said.
- The couple creates Rossadini on Dec. 27, 1991.
- On Dec. 30, 1991, Ross and Corradini, following normal practice, sent their $38,185 interest payment to Sallah. The payment was interest on the couple's loans, and it was shown as a deduction on the couple's 1991 tax return.
- Four days later, on Jan 3, 1992, John T. Dunlop and L. Wynn Johnson, officers of Sallah, sent a letter to Kidder, Peabody & Co. instructing it to send $38,185 from Sallah to Rossadini.
- Corradini's 1992 return says that immediately after the Jan. 6, 1992, exchange Yan M. Ross received $35,000 as compensation for services from Rossadini. Their Dec. 30, 1991, interest payment to Sallah had come back full circle a week later, Evans said. That payment may also suggest the $350,000 was also transferred at the same time, he said.
Connaughton characterized the payment slightly differently. Sallah wasn't so much returning the interest as making a capital contribution to Rossadini, in addition to the $350,000 mortgage notes.
Why was the amount identical to the interest payments? "Sallah probably used the interest check to capitalize Rossadini," he said.
- Corradini reported on a Jan. 30, 1992, application for a bank loan that Rossadini had $350,000 in assets. If the transfer occurred, that report was correct.
- The couple's February 1992 financial statement also suggests the transfer occurred. It shows that Ross has a 40 percent interest in Rossadini, worth $175,000, and Corradini has an equal 40 percent interest, also worth $175,000, totaling $350,000. Again, if the transaction had occurred, the financial statement was accurate.
- On March 10, 1992, an Arthur Andersen accountant wrote an internal memo saying that "per conversation with Yan Ross on 3/9/92" Sallah had contributed $500,000 of notes to Rossadini. Those contributions "were made during 1992," the memo says.
Two months later, the Bonneville Pacific scandal broke. The public learned of Corradini's role in Bonneville Pacific and her involvement with Sallah. That's when evidence surfaces that the transaction didn't occur after all.
- Six weeks after the scandal broke, Corradini's accountant, Dallas Bradford, jotted a note on the same internal memo that says, "On July 21, 1992, you notified me that notes had not yet been transferred - according to the attorney."
Apparently, Ross and Corradini told their accountants prior to the scandal breaking that the notes had been transferred. After the public learned of Sallah, they apparently told accountants the notes hadn't been transferred.
If Ross and Corradini didn't understand their tax liability until after the transaction had taken place, it would be relatively easy for the couple to reverse the transaction because no public records at the time documented it. In a deposition in the Bonneville Pacific case, Ross said the couple had no documents showing Sallah was supposed to make the $350,000 transfer. The mortgage Sallah held on the couple's Salt Lake home was also not recorded with the Salt Lake County recorder, making the transfer of the mortgage difficult to document.
It was Sallah's responsibility to record the mortgage, Connaughton said. "Deedee and Yan believed it had been recorded." Failure to record it "has no bearing on the validity of the mortgage," he said.
When Corradini and Ross found out that Sallah hadn't transferred the notes or recorded the mortgage, why didn't the couple ask the corporation to follow through on those transactions?
"By the time it was discovered that the assets had not been transferred from Sallah to Rossadini, the bankruptcy court was already looking at laying claim to them," Connaughton explained. "When there is a legal question as to who has valid claim to an asset or assets, any transfer is put on hold until the matter is resolved. That's what happened here," Connaughton said.
But Corradini attempted a major transaction with Sallah about the time the bankruptcy court began looking into the matter. In December 1992, Corradini and Ross attempted to transfer $250,000 to Sallah's Swiss bank account to pay off their Sallah account, court records show.
Bonneville Pacific trustee Roger Segal learned of that planned transaction through a tip and seized the assets before Corradini and Dunlop could complete the transaction.
Corradini and Ross later agreed to let Segal keep the assets and paid him additional monies totaling more than $800,000 to settle any claims he may have against them.
If Ross and Corradini briefly transferred the mortgages from Sallah to Rossadini in early 1991, the IRS can tax that transaction under two scenarios, Evans and Wightman said.
Either the transfer is taxable as ordinary income, at a rate of 31 percent for that much income in 1992, or taxable as long-term capital gain, at 28 percent, Evans said.
Recently, Connaughton said Corradini was selling her 6.25 percent interest in Sallah back to Sallah in exchange for the mortgage notes.
Under that scenario, Corradini would likely have had to pay a 28 percent tax, Evans said.
If Corradini wasn't trying to sell back her interest in Sallah, but just wanted the assets transferred to Rossadini to move them out of Sallah's control, such a transaction constitutes debt forgiveness, Evans said.
Under federal tax law, Cor-ra-dini's $350,000 mortgage debt to Sallah would have been forgiven because the mortgage was not under her control.
She would be required to pay ordinary income tax of 33 percent on the assets.
Corradini's tax records also reveal inconsistencies in the way Corradini and Ross reported income derived from Bonneville Pacific stock during the late 1980s.
Connaughton says some of the inconsistencies happened because two different accountants prepared the couple's returns in the 1980s.
Federal tax law requires someone who receives stock as compensation for his work in a company to report that stock transaction as income on a tax return. The amount of "income"' assigned to the stock is based on the fair value at the time the stock is issued.
When the stock is later sold, the seller must notify the IRS of what the fair value was at the time the stock was received. That value is called a "basis."
But Corradini's returns are inconsistent. For example, in 1982 Corradini reported her annual income as $6,344. But she received more than 100,000 shares of Bonneville Pacific stock that year.
When she sold 83,333 shares of the stock in 1986, she reported the basis of the stock as 59 cents a share. (Presumably, the value of the stock in 1982.)
On a 1986 tax return, she reported that she received the stock as "compensation" for work she put into Bonneville Pacific.
If that is correct, at 59 cents a share, Corradini should have reported her 1982 income as at least $49,166 - the value of the 83,333 shares at 59 cents a share, Wightman said.
Asked about the discrepancy, Connaughton said Corradini and Ross "do not have any documents at this time to authoritatively answer the question" about what the value of the shares were when they were given to Corradini in 1982, Connaughton said.
But to the best of their memories, Corradini and Ross believe that the basis of the stock was reported differently on the 1986 return than on the 1987 return because they had to pay someone $49,166 to sell the stock in 1986 and not in 1987, Connaughton said.
Coincidentally, the cost of the stock in 1986 was 59 cents a share, the exact amount placed on the stock in 1982, Corradini's records shows.
But the explanation begs the issue, Wightman and Evans said. "Because the value of the stock was 59 cents a share in 1982, it should have been reported as income in 1982 and wasn't," Wight-man said.
The failure to properly report the income may have happened because Corradini and the other Bonneville Pacific founders may have erred that year when they didn't have the company issue them W-2s or 1099s that reported the basis of the stock, Wightman said.
Without the W-2s or 1099 statements, it would be difficult to properly report the stock on Corradini's tax return at its proper value.
But Ross and Corradini also inconsistently reported how they got the stock. When Corradini donated 20,000 shares of the 1982 stock to charity in 1986, she reported the stock as "compensation" for her work in Bonneville Pacific.
But in 1988, when she donated 4,700 shares to charity, shares also acquired in 1982, she reported that the stock was purchased.
Corradini's accountant, Dallas Bradford, appears to have fixed part of the problem. In 1987, Corradini sold 20,000 shares of her Bonneville Pacific stock. Again, she reported the basis as 59 cents a share. Bradford apparently realized she didn't report that 59-cents-a-share compensation on her 1982 return, so he amended the 1987 return to show that the stock had no value at all in 1982 when it was issued.
By amending the 1987 return, Bradford rescues Corradini from a tax problem on her 1982 return.
But the 1986 return was not amended. As it stands now, the value of the Bonneville Pacific stock in 1982 is listed as 59 cents a share on the 1986 return and zero value on the 1987 return.
By listing the stock as zero value on her 1987 amendment, she creates a confusing scenario in describing it as a purchase because one can't "purchase" stock for nothing.