Gavin Newsom’s $3.7 Million Estate Was Gifted to Him in 2019; 3 Months Later He Got a $2.7 Million Tax Free Cash-Out
- Gavin Newsom’s $3.7 million, 12,000 square foot mansion, on 8+ acres along the American River in Sacramento, was the area’s most expensive home sale in 2018
- The gated estate consists of a 6 bedroom/10 bath home, a guest house, a pool, a tennis court, and a wine cave
- An LLC registered to Newsom’s cousin, long-time business partner, and Co-President of PlumpJack, Jeremy Scherer, paid cash for the estate in December 2018
- Newsom’s spox, though, claimed in Jan 2019 that it was Newsom who’d paid cash for the home – puzzling, since Newsom still carried a $3.2 million mortgage on his prior home
- In Oct 2019 the LLC gifted the home to the Newsoms free and clear, claiming Newsom was a member of the LLC to avoid a $4,000 Transfer Tax
- In January 2020 the Newsoms received $2.7 million tax-free when they obtained a cash-out refinance
- Newsom’s financial disclosure forms don’t mention the LLC or the gifts, which far exceed the $500 limit
- In 2003, Newsom was cited for failing to disclose $11 million in real estate and business loans
One thing that’s become extraordinarily clear to Californians in 2020 is that there’s one set of rules for Gov. Gavin Newsom, and there’s another set of rules for the rest of us. He preaches that we’re all in this together and that we have to sacrifice to “meet this moment,” yet he’s not missing a paycheck.
As California businesses struggle, he sends a $1 billion contract for masks to a Chinese company. When he shut down wineries throughout 80 percent of California, he kept his open.
While the dream of owning a home is increasingly out of reach for California’s families, it appears that Newsom received a $3.7 million estate from an LLC owned by his cousin then, a few months later took out a $2.695 million (tax-free) cash-out mortgage on it — and didn’t report the gift on any of his financial disclosure forms.
(It turns out that mortgage was part of a package of “sweetheart” deals obtained by Newsom totaling a $3.8 million tax-free payday. Read Part 2 here.)
Yes, it’s clear that Gavin Newsom doesn’t live by the same rules the rest of us do. It’s good to be king.
During the eight years that Gavin Newsom served as California’s Lieutenant Governor, he and his family still lived a few hours from Sacramento, in their $4.5 million Bay Area compound. Throughout the 2018 gubernatorial campaign, he wouldn’t commit to moving his family to the capital. Days before his January 7, 2019 swearing-in ceremony, Newsom announced that the family would be moving into the Governor’s Mansion — which wasn’t true at all. Unbeknownst to the public, an LLC owned by Newsom’s cousin had already purchased an estate in Fair Oaks on December 21, 2018, for the Governor’s family to live in, for $3.7 million cash.
A few weeks later, the Sacramento Bee was apparently tipped off to the LLC’s purchase. According to a January 17, 2019 story, when the reporter contacted the Governor’s office for comment, his spokesperson confirmed that the Newsoms would be moving to the Fair Oaks property “as soon as renovations were completed” and that the estate was much more kid-friendly than the Governor’s mansion.
Newsom’s spokesperson, choosing his words carefully, confirmed that the property was purchased through an LLC “registered in the name of…Newsom’s cousin Jeremy Scherer” (emphasis added), but claimed that the Newsoms paid cash for the home. At that time, the only publicly-available corporate document was the Articles of Organization, which listed Jeremy Scherer as the registered agent, so the spokesperson was correct but left out crucial information — that Newsom was not a member of the LLC.
The First Family moved to the Fair Oaks home somewhere around the beginning of May 2019, according to a blog post from a neighbor and local Realtor, and in October 2019, the LLC transferred the deed to Gavin and Jennifer Newsom. The Deed states that the Documentary Transfer Tax ($4,070) was waived because the transaction was a “transfer out of LLC for benefit of grantor/grantee — no change in interest.”
In late January 2020, Gavin and Jennifer Newsom obtained a cash-out refinance mortgage for $2,695,000 on the Fair Oaks property. Mortgage proceeds are not taxable income.
Gavin Newsom’s spokesperson doesn’t say it outright, but the inference from his January 2019 statement is that Newsom owned the LLC that purchased the estate. While celebrities or other high-profile people sometimes purchase their homes through LLC’s or trusts for privacy reasons, there was no reason for Newsom to take that route since California law prohibits state and local agencies from publishing the address of elected officials on documents like property tax records, and financial disclosure forms don’t require him to list the address of his personal residence.
But Newsom isn’t, and never has been, a member of the LLC, according to documents filed with the California Secretary of State. Jeremy Scherer formed the LLC on November 28, 2018, and since the name of the LLC is the street address of the Fair Oaks property it’s a fair assumption that the LLC’s only purpose was to purchase that property. As mentioned above, the Articles of Organization don’t list the member(s) of the “One Manager” LLC, but a required filing, a Statement of Information dated June 29, 2019, lists Scherer as the only member/manager.
Had Newsom been a member, he was required to be listed as such. The form instructions state:
“If the limited liability company has more than one manager or member, enter name(s) and addresses of the additional managers or members on the Attachment to Statement of Information (Form LLC-12A).”
And, if Newsom later became a member/manager, the LLC was required to file an updated Statement of Information immediately. No update has been filed to date — more than a year later — so Newsom is not a member of the LLC and had no legal interest in the Fair Oaks property.
With that knowledge, the Grant Deed giving the Newsoms title to the Fair Oaks property is evaluated in an entirely different light – it’s now a gift, according to corporate law attorneys RedState spoke to about the transaction. It’s not illegal for an LLC to gift property to a person who’s not a member, but the attorneys said they’ve never taken part in such a transaction nor would they ever allow a client to. Such a transaction raises major red flags for tax and regulatory agencies, they said, since it may indicate attempted tax fraud, money laundering, or a payoff/bribe.
Gavin Newsom has been an elected official in California for 23 years, so he’s been obligated to file annual financial disclosure reports under California’s Political Reform Act for 23 years, and is well aware of his legal obligations to report companies he owns a stake in and allowable/reportable gifts.
He can’t claim ignorance or confusion about this obligation, especially since he was called on the carpet in 2003 after failing to report $11 million in real estate and business loans over a four-year period. In that case, he blamed his failure to report on “bad advice” from the San Francisco City Attorney — who said Newsom was lying. Newsom vowed to correct his filings.
Still, in the current instance, Newsom didn’t report the value of six months’ worth of rent or the total value of the home the LLC gifted to him in 2019. Gifts from certain family members, such as first cousins, aren’t reportable, but these gifts were from the LLC and not from Scherer personally. The penalties for failing to report are steep:
Failure to comply with the laws related to gifts, honoraria, loans, and travel payments may, depending on the violation, result in criminal prosecution and substantial fines, or in administrative or civil monetary penalties for as much as $5,000 per violation or three times the amount illegally obtained. (See Sections 83116, 89520, 89521, 91000, 91004 and 91005.5.
The value of the rent alone ($17,463 a month, according to Zillow) is far in excess of the $500 a year gift limit, making the LLC’s gifts to Newsom illegal.
Perhaps that’s why they were left off of his 2019 Form 700.
If by some miracle an unrecorded/lost/my-dog-ate-them corporate document appeared showing that Newsom did own the LLC that purchased the home from the start or became a member in 2019, he would have been required to list the LLC and the LLC’s asset (the home) on Form 700’s. Neither his 2019 or 2018 Form 700 claim that Newsom owned even a portion of the LLC.
Since it was falsely represented to Sacramento County officials that the Grant Deed from the LLC to the Newsoms was a transfer from an LLC to a member, Newsom unjustifiably got out of paying the $4,087 Documentary Transfer Tax.
More importantly, the value of the home itself, $3.7 million, is considered income by the IRS, and a tax expert consulted by RedState said that the six months of free rent would also need to be reported to the IRS as income.
Based on publicly-available information, it’s not clear where the $3.7 million to purchase the Fair Oaks home in December 2018 originated. Given their reported average annual income of $1.2 million in the years leading up to the 2018 campaign and the fact that their Marin County home was mortgaged for $3,225,000, it’s unlikely that Gavin & Jennifer Newsom had $3.7 million sitting around to invest in an LLC that their names weren’t even on.
If the $3.7 million used to purchase the home came from another source — donors, friends, or whomever — then Gavin and Jennifer Newsom were “gifted” the home, received $2,695,000 cash tax-free, and retain title to the home, that looks a lot like money laundering and/or concealing donations or improper gifts. Since it’s on record that he failed to report two “loans” Gordon Getty gave him, totaling $2.1 million, to purchase luxury real estate in the early 2000s, it’s not exactly against type for him to take money from benefactors then “mistakenly” omit that funding from financial disclosure records.
The more one examines all of the circumstances around Newsom’s Fair Oaks estate, the more questions arise. Gavin Newsom needs to provide real answers, not the kind he’s given in the past.
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