Financial Disclosure Report Errors Can Have Consequences
Last week I read that the Senate Ethics Committee might investigate Sen. Lisa Murkowski (R-Alaska) for failing to include a land deal on her 2006 annual financial disclosure report. I work for a Senator, so I know that generally Senators must disclose all real estate transactions on their reports. However, I heard that Murkowski’s office has said the rules do not require disclosure of her particular transaction. Are there exceptions to the disclosure rules that might apply to deals like Murkowski’s?
[IMGCAP(1)]A: There are indeed exceptions to the rules governing disclosure of real estate transactions, but before turning to those, let’s consider the broader context of your question. On July 24, the National Legal and Policy Center requested that the Ethics Committee investigate Murkowski for what it called a “sweetheart land deal.” The NLPC claimed that in November 2006 Murkowski purchased a parcel of land from a friend for a price that was well below the fair market value of the home and that the discount constituted a gift from her friend.
Your question concerns not the NLPC’s allegation that the land deal violated the gift rule, but rather its allegations regarding Murkowski’s treatment of the deal in her disclosure report. According to the NLPC, there are four errors in Murkowski’s report. First, the NLPC alleges that the report failed to disclose the deal at all. Murkowski’s office does not dispute this. Rather, Murkowski’s office has stated that the rules did not require her to disclose the deal in question.
The relevant section of the disclosure reports is Part IV, where filers must disclose all “Transactions” for the year. The instructions state: “Report any purchase, sale, or exchange by you, your spouse, or dependent child during the reporting period of any real property, stocks, bonds, commodity futures, and other securities when the amount of the transaction exceeded $1,000.” This would appear to cover Murkowski’s purchase. However, the instructions go on to state: “Do not report a transaction involving property solely used as your personal residence.”
These instructions are based on the Ethics in Government Act of 1978. Section 102 of that act requires disclosure of any transaction exceeding $1,000 in “real property other than property used solely as a personal residence of the reporting individual or his spouse.” Murkowski has said that she intended to use the land as her personal residence. If this is right, then the rules did not require her to disclose the purchase.
The three other errors that the NLPC alleged to exist in Murkowski’s report appear in Part VII “Liabilities” and concern the mortgage that Murkowski used to purchase the land. First, the report stated that the date of the mortgage was “11/0,” an obvious typographical error. Second, the report did not disclose the amount of the loan. And third, while the NLPC cites published reports indicating that the term of the mortgage was 39 years, Murkowski’s report stated that it was 15 years.
Murkowski since has filed an amended report correcting the typo regarding the date of the mortgage and disclosing the amount. In her cover letter to the Ethics Committee, she explained that she had “inadvertently left out the amounts of value for Part VII Liabilities.” The amended report still lists the term of the loan as 15 years, presumably signaling that Murkowski’s office disputes reports that the term of the mortgage is actually 39 years.
Yet if the land was to be used for a personal residence, it is unclear why Murkowski disclosed the mortgage information at all. This is because, just as a “personal residence” exception exempts filers from disclosing transactions of property used for a personal residence, a similar exception exempts disclosure of mortgages secured by personal residences.
Why then did Murkowski disclose one but not the other? One possible reason is that the text of each personal residence exception is not exactly the same. The Ethics in Government Act states that the transaction exception applies to “property used solely as a personal residence,” while the liability exception applies to “any mortgage secured by real property which is a personal residence.”
Murkowski may have concluded that the transaction exception applied because she intended for the property eventually to be used as a personal residence. However, she may have been unsure whether the liability exception applied because the mortgage was not secured by property that already is a personal residence. After all, the mortgage was secured not by a house, but by an empty plot of land. Perhaps she disclosed the mortgage out of an abundance of caution.
Whatever the explanation may be, the fact remains that errors existed in Murkowski’s original disclosure report, errors that led to the NLPC’s ethics complaint and a possible investigation. If the land deal did violate the gift rule, this would appear to be a case where the Senate’s financial disclosure requirements identified a potential ethical violation. On the other hand, Murkowski has said that she paid a fair price for the land and has now sold it back to her friend for the original price only because she wished to avoid the distractions the deal was causing. If this is right, and if Murkowski’s deal turns out to have been perfectly compliant, Murkowski’s story still is a useful reminder of the care needed when filling out financial disclosure reports. Even innocent errors can lead to needless headaches.
C. Simon Davidson is an attorney in the Washington, D.C., office of McGuireWoods LLP. Click here to submit questions. Readers should not treat his column as legal advice. Questions are not confidential and do not create any attorney-client relationship.