Should the state send new W-2's to the Bourbongate crooks?

I see that the New York Times has picked up on the Bourbongate scandal at the Oregon liquor board. The paper of record reports today that all the miscreant bureaucrats who hogged the state's collector bourbon deny reselling any of it. Supposedly, to a man, they drank it all or gave it away as gifts. 

Huh. I'd like to hear that under oath, and supported by witnesses, before I start to believe it. And if they gave it away to their brother-in-law, who promptly sold it, and the next month he fixed their car for them for free, then what?

But even if they're all telling the truth, they may have themselves a dandy tax problem. You see, when you purchase something from your employer for less than fair market value, the difference between that value and what you pay is income that has to be reported on your tax return, no matter what you do with the thing you bought. It's good old Section 83 of the Internal Revenue Code. You could look it up. (There's an exception for company-wide employee discounts, but this was the opposite of that.) And although the OLCC creeps paid the state's usual list price – say $120 a fifth – there's an active market for the high-end booze in which the stuff goes for $1,000 a fifth, $2,000 a fifth, or even higher.

Which is the fair market value, the state price or the black market price? The case law on this is pretty clear, and it's the price in the illegal market. As the IRS said in a 1991 technical advice memo, "the relevant illicit market is determined by the particular illicit market in which such property is generally sold."

And so if the Bourbongate crooks didn't report anything on their taxes, they may have a problem. But so does their employer, the state. Employers, including state governments, are required to withhold tax against all wages they pay to employees, and the term "wages" includes any taxable discounts on bargain sales to employees. The state obviously didn't withhold here, but now that it knows the facts, it should certainly amend the employees' W-2 wage statements and withhold on the discounts.

Now, I know what some of you are going to say. I can't be right, because the customers who were lucky enough to win the lottery and buy the bourbon for a mere $120 a fifth – they can't possibly have income. You're right, they don't. When you get a good deal from a merchant, that's not income. But when you get a good deal from a merchant you work for, that's a completely different matter. Whether the employer knew about it or not.

One way to get justice here is through the tax system. It worked with Al Capone. It would work with Bourbongate. Yoo hoo, IRS!

UPDATE, 4:35 p.m.: In a classic Friday news dump, the state DOJ is going to look into this as a criminal matter. Darn straight! 

ORS 162.415 (class A misdemeanor): "A public servant commits the crime of official misconduct in the first degree if:

(a) With intent to obtain a benefit or to harm another:...

(B) The public servant knowingly performs an act constituting an unauthorized exercise in official duties."

People are also talking about this one:

ORS 162.425 (class B misdemeanor): "A public servant commits the crime of misuse of confidential information if in contemplation of official action by the public servant or by a governmental unit with which the public servant is associated, or in reliance on information to which the public servant has access in an official capacity and which has not been made public, the public servant acquires or aids another in acquiring a pecuniary interest in any property, transaction or enterprise which may be affected by such information or official action."

And with that, Steve Houze's cell phone goes off. He pulls the Jag over to take the call. Ha! Ha! Good.


  1. What do you know about tax law?

  2. Speaking of Capone, the original rationale for giving the state government a liquor monopoly was to keep organized crime (Capone types) out of it. Most states license private sector liquor distribution without mafia worries nowadays. Only 17 control states are left from the post-Prohibition Era, ironic that the organized crime now involves control state government employees.

  3. Yeah, the best way to resolve this is to let the Metro tax collectors know about it.

    1. Came here to say the same thing. However, I think their resolve to fleece poor taxpayers who didn't know about the homeless/preschool tax is probably greater than their willingness to dig in and go after these guys because it would actually take some legal acumen.

  4. For the last decade or so, I’ve felt that the New York Times was imbedded in the news culture of Portland.


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