43
What is all this?” Bart asked, pointing to several documents strewn across the coffee table.
Leta shut the refrigerator door. “Don’t move anything!”
Bart held up his hands. “I wasn’t. Just asking,” he said with an apologetic grin. “Seriously, though, what are you doing?” He examined some of her documents.
She tensed. Perhaps she shouldn’t have left everything out for roaming eyes to see.
Trying to buy some time to come up with a plausible answer, she filled her glass of iced tea. “Want some?”
He shook his head. “No thanks.”
Trying to sound as nonchalant as possible, she decided on the truth. “Look, this is really confidential.”
Katie plopped down next to Bart and snuggled against his arm. “What’s confidential, Miss Wearing a Red Wig and Going Around Looking All Secret-Like?”
Leta sighed and sank into an armchair. “I know you guys might think I’m nuts. Most days you’d likely be right. But I heard something at the debate the other night that got my mental antennas up.”
Katie frowned. “Uh-oh. What do you mean?”
“Well, Holiday mentioned he’d formed a 501(c)(3) to fund some philanthropic effort to ease paying for extended nursing care for those who otherwise might not be able to afford a place like Heritage House.”
“What’s that?” Katie asked.
Bart reached for another document. “May I?”
Leta nodded. “It’s a corporation set up under certain provisions of our tax code, mainly a nonprofit-type organization.”
Katie leaned back and wedged her feet up on the coffee table. “Where’d you learn that?”
She shrugged, not knowing for sure. It was just something she’d picked up somewhere. Perhaps one of her business classes.
Bart’s eyebrows furrowed. “I’ve seen this name on real estate documents at a recent closing. I swear it’s the same.”
Leta placed her glass down on the end table. “Are you sure?” She moved and joined him on the sofa. “This name?” She pointed to the articles of incorporation.
“Yup. Same one.”
Her heart pounded. This could be the link she’d hoped to find. Then again, it could be nothing.
“Do you have proof? I mean, if you have copies or something, I’d love to see them.”
Bart winked back at her. “Get me a glass of that iced tea and I’ll see what I can do.”
Once again, her gut feelings rang true. As suspected, Holiday’s nonprofit was embroiled in transactions that had no connection to any benevolent purpose. Or at least not entirely.
The nonprofit had provided funding for real estate transactions across the state, primarily purchases of long-term care facilities similar to Heritage House.
She pored over the documents Bart provided, all instruments that were recorded and in the public record. His files included numerous transactions. But a dozen or so included elements she wasn’t familiar with.
“Oh, those are 1031 exchanges,” Bart told her when she asked.
“What? I don’t know what that is.”
He patiently explained. “Section 1031 of the tax code allows for certain nontaxable exchanges of property. Broadly stated, a like-kind exchange is a swap of one business or investment asset for another. Although most swaps are taxable as sales, if you transfer property within 1031, you’ll have either no tax or limited tax due at the time of the exchange. In effect, you can change the form of your investment without cashing out or recognizing a capital gain. That allows your investment to continue to grow tax deferred.”
“That’s legal?”
“Yup. Everything I’ve just told you is spelled out in the IRS code.” He straightened. “There’s no limit on how many times or how frequently you can do a 1031. You can roll over the gain from one piece of investment real estate to another, to another and another. Although you may have a profit on each swap, you avoid tax until you actually sell for cash many years later. People delay paying taxes for years that way.”
Leta thought her head would explode. “Okay, slow down. So, what you are saying is that Holiday’s nonprofit is exchanging properties? Why? I thought a nonprofit didn’t have to pay taxes in the first place.”
“Well, not in the same manner you or I might have to—or a business formed to make a profit. But there can still be some advantages, in certain circumstances.”
“But what could possibly be advantageous for Holiday’s nonprofit, which he says was formed to benefit people who normally couldn’t afford long-term care? I mean, he made it sound like he’s being so generous, but . . .” She let her words fade. “Bart, what was Holiday exchanging for?”
He lifted a file and flipped it open. “Well, here’s an example you’ll likely be interested in.”
She took the file and pulled it closer. “He used to own Heritage House? Man, I didn’t know that. Who is this corporation on the other side of the transaction?”
Bart flipped through a couple of the documents fastened in the file. “This company,” he said, pointing. “Which is really odd, because that is a for-profit company.”
“Are you joking?” Leta flipped several more pages, scanning quickly. Her heart stopped. “Wait. Oh my goodness. You’re kidding me! Look at this.”
“What?”
She pointed to the signature line on the documents.
Brainchild Enterprises, LLC
Bernard Geisler, Managing Member