A tax favor for backer of conservative causes

William H. Bowen is one of the quiet Texas rich who has attracted little publicity over his 71 years.

In a way, that is befitting a man who controlled a company, Bizcap Inc., that received a special tax break from Congress.

Thanks to the intervention of a friendly lawmaker - whose identity has been kept secret courtesy of a long-standing Capitol Hill tradition - Bizcap has been excused from paying $5.9 million in back taxes and penalties.

The exemption came in the form of a private tax law inserted in the Tax Reform Act of 1986, and was worded, as most all are, in arcane, undecipherable language. In essence, the law excuses a Bowen company with headquarters in the U.S. Virgin Islands from paying taxes that tax authorities say the company owes. Bowen's firm is one of only two companies to secure such a concession.

Court documents and records of state and federal agencies show that at the time the Bizcap provision was written into the tax law, Bowen owned or voted as trustee "in excess of 50 percent of the issued and outstanding common stock of Bizcap. "

Bowen operates in comparative anonymity from Room 900, the penthouse suite in the Meadows Building, an office complex alongside the Central Expressway several miles north of downtown Dallas.

Suite 900 has served as the office of a number of Bowen-related enterprises. But only two names appear on the office door.

One is Garvon Inc., an industrial real estate firm that was a subsidiary of Bizcap.

A LINK TO STAR WARS

The other is High Frontier Inc., a tax-exempt organization that fathered Star Wars, the Strategic Defense Initiative that envisions hundreds of killer satellites - each armed with dozens of intercept devices - orbiting the earth at an altitude of about 300 miles.

To be deployed at a cost of tens of billions of dollars, the Star Wars satellites whirling through space would, the system's advocates say, detect the launching of Soviet missiles, compute intercept points and shoot down the missiles before they could reach their intended targets in the United States or anywhere else in the world.

A companion organization, Americans for the High Frontier Inc., was created to lobby for Star Wars. One of the lobbying committee's consultants, Colleen Parro, also worked out of Bowen's office.

Parro, who described herself as "a conservative political activist," said in an interview that Bowen donated space in his offices for use by High Frontier.

"He contributes to a lot of organizations," said Parro, who no longer is a consultant for High Frontier. "He's a big supporter of conservative think tanks," she added.

Bizcap executives in Dallas, and officials of the congressional tax-writing committees in Washington, declined to discuss the federal tax exemption bestowed on the company.

A spokesman for the Senate Finance Committee, which distributed a partial list of the special-interest deals - a list that made no mention of Bizcap - refused to answer any questions.

NO RESPONSE FROM BOWEN

Repeated attempts by Inquirer reporters to reach Bowen were unsuccessful. A representative of Bizcap, which is now known as Caribbean Marine Inc., referred all questions to Shirley J. Watkins, who was identified by the representative as "corporate counsel. " But Watkins also was unavailable to answer any questions.

Other Bizcap officials whom The Inquirer sought to interview either failed to return telephone calls or said they were unfamiliar with the circumstances surrounding the tax-exemption provision.

One of the latter was W. Robert Wigley Jr., vice chairman emeritus of E.F. Hutton & Co. Inc., the brokerage; former member of the board of governors of the New York Stock Exchange, and a Bizcap stockholder and director.

Asked how the tax break came about, Wigley replied:

"I can give you the telephone number of Caribbean Marine and the name of one of the other directors here who is much closer to this than I am. Whether he would care to comment is up to him. "

And who might that be?

"His name," Wigley said, "is William Bowen. . . . He is the only one that I know is thoroughly familiar with the situation because he is an attorney as well as a director, and he would be the one you would need to talk to. It's quite intricate, to be honest about it. "

Bizcap was one of dozens of companies in the U.S. Virgin Islands that took advantage of an obscure - and disputed - loophole in the tax law that the companies said allowed them to avoid payment of taxes on their U.S. income.

When tax authorities in the Virgin Islands began to crack down on the companies in the mid-1980s, Bizcap was among those cited for back taxes. Virgin Islands tax authorities said that Bowen's company owed $5.1 million in unpaid income taxes for 1983 and 1984, and a negligence penalty of $767,664.

Then in 1986, Congress sought to close the loophole once and for all in the Tax Reform Act. But Bizcap and another corporation, La Isla Virgen, owned by an equally low-profile millionaire who lives in California, were the only two exempted from prior years through a special provision.

Wigley, the E.F. Hutton executive and Bizcap director, sought to distance Bizcap from other island corporations that have no business interests there.

"Some of them just have an office," he said, "and make a presence by name on the door. To me, that's not exactly the way it ought to be. Caribbean Marine has not been that way. We have a substantial investment down there.

"We own a marina on St. Croix, a marina on St. Thomas and Island Marine Supply. It's probably the biggest supply company in the islands. So it's a multimillion-dollar investment as opposed to these firms that have just got names on the door down there.

"So we felt we were a little bit different than most of them which were going to the Virgin Islands for the tax laws. "

While the company does, in fact, own operating businesses in the islands unlike many similar companies - called 28 (a) corporations after the section of the U.S. statute governing the Virgin Islands - its tax-avoidance strategy has been like that of all the others.

In an affidavit filed in U.S. District Court in St. Thomas disputing the Virgin Islands' tax claim, William Bowen said that Bizcap's island businesses employed 66 people, had sales of $4 million and included St. Croix Marine Corp., Antilles Yachting Service and Island Marine Supply.

Neither Bowen's affidavit nor other court records indicate the amount of revenue generated in 1983 - the year covered by a $4.5 million tax claim.

Whatever the revenue from the Virgin Islands businesses, court records do show that Bizcap reported a loss and paid no income tax to the islands that year.

Those same court records also show that Bizcap generated a taxable income of $15.1 million on its investments outside the Virgin Islands, most or all

from business activities in the United States.

The company paid no income tax on the $15.1 million in earnings to either the U.S. Internal Revenue Service or the Virgin Islands Bureau of Internal Revenue.

In 1984, Bizcap reported a taxable income of $19,000 from its island businesses. After allowing for an investment tax credit, according to annual reports filed with the U.S. Securities and Exchange Commission (SEC), the company paid $157 in income taxes to the Virgin Islands.

During that same year, court records show, Bizcap's taxable income from operations outside the islands, most or all from interests in the United States, amounted to $1.4 million.

Once again, the company paid no income tax on its U.S. earnings to the U.S. Treasury. As Bizcap explained in a report to the SEC:

"No provision for income taxes have been provided for non-Virgin Island source income. "

In legal papers filed in connection with its bid to overturn the Virgin Islands tax claim, Bizcap recited a laundry list of benefits the islands derived from the company's presence.

"Travel, food, lodging and entertainment income," the company said, "has been generated for the Virgin Islands by shareholder and investor meetings on the islands incident to the conduct of corporate business. " The company also cited maintenance of bank accounts and hiring of office services "which supplement the Virgin Islands revenue base. "

No mention was made of the benefits of the unique tax arrangement that flowed to Bowen and other investors in Bizcap, which paid $157 in income taxes on profits of $16.5 million in 1983 and 1984.

For Bizcap, that worked out to a tax rate of less than 1/1000 of 1 percent for the two years.

In 1984, individuals and families with incomes of $15,000 to $16,000 paid an average of $1,353 in income taxes - eight times more than Bizcap.

Viewed from a more personal perspective, if Bizcap's rate was applied to a family with a taxable income of $30,000 this year, the family would pay 30 cents in federal income taxes.

While Bizcap acknowledged that Congress had closed the loophole in the 1986 Tax Reform Act, it questioned a section of the law that would require 28 (a) companies to pay taxes on all their income, from whatever source, for taxable years still open.

Since all years could be considered open, the company's attorneys said, the retroactive application of the tax would "result in endless litigation. "

In the end, all but two of the 28 (a) companies could be held liable for payment of hundreds of millions of dollars in back taxes.

The two exceptions, of course, would be spared because they had secured immunity from provisions of the new tax law that everyone else would be obliged to abide by.

Bizcap had arranged its tax concession during secret negotiations of a joint conference committee of House and Senate tax writers in the summer of 1986.

Under the direction of Rep. Dan Rostenkowski (D., Ill.), chairman of the House Ways and Means Committee, and Sen. Bob Packwood (R., Ore.), then chairman of the Senate Finance Committee, the conference committee pieced together the conflicting versions of tax reform passed individually by the House and Senate.

The two lawmakers picked up nearly all the private tax breaks that had been included in both the House and Senate bills, and added scores of fresh ones. None of the principals will say how the Bizcap exemption found its way into the tax law.

Bowen has been a major Republican campaign contributor, to both individual candidates and to the party.

From 1982 to 1984, according to records of the Federal Election Commission (FEC), Bowen or his wife, Bebe, contributed nearly $10,000 to the National Republican Congressional and Senatorial Committees, and the campaigns of Rep. Steve Bartlett and Sen. Phil Gramm, both Texas Republicans.

He contributed $1,000 to the Fund for a Conservative Majority, a political action committee that backs conservative candidates for Congress, and $500 to Salute to a Stronger America, a Texas GOP fund-raising dinner that honored James A. Baker 3d, then White House chief of staff and now secretary of the Treasury.

And he gave $7,000 to other GOP candidates in Texas and elsewhere. Among the latter were New York Rep. Jack F. Kemp, who in March bowed out of the race for the GOP presidential nomination, and Colorado Sen. William L. Armstrong.

On June 3, 1986, according to FEC records, Bowen contributed $2,000 to the Campaign America Committee of Sen. Bob Dole (R., Kan.), a key player in the tax-writing process. That was about three weeks before the Senate approved the tax reform bill.

Then on July 31, 1986, when Dole, then Senate majority leader, and other House-Senate conferees were locked in behind-the-scenes bargaining on the tax bill, Bowen contributed $5,000 to Dole's Campaign America, with a proviso that the money be channeled to Texas candidates.

Associates of Bowen also have been politically active, most notably an office mate in the Meadows Building in Dallas who has enjoyed close relations with two Republican administrations.

He is Thomas W. Pauken, who, according to records in Dallas County District Court, has been an officer of Garvon Inc., the Bizcap subsidiary.

A 44-year-old lawyer, Pauken was a military intelligence analyst in Vietnam and, during President Richard M. Nixon's first term, a White House staff assistant and associate director of the President's Commission on White House Fellows.

A conservative Republican, he ran unsuccessfully for the congressional seat

from Texas' Fifth District in 1978 and 1980. The district covers affluent downtown Dallas and adjoining poor black neighborhoods.

During the second campaign, in which Pauken called for a separate congressional district for blacks, Bowen served as chairman of the Tom Pauken for Congress Finance Committee.

FEC records show the committee was housed in Bowen's office, then located in Room 303 of the Meadows Building. Bowen's businesses provided secretarial and other services to the campaign staff.

Although he failed to make it to Congress, Pauken did get to Washington when he became one of the few so-called New Right activists to be tapped for a high-level job by President Reagan.

In February 1981, the President nominated him to be director of ACTION, the umbrella agency that coordinates and administers the federal government's domestic volunteer service programs.

The cornerstone of the agency was VISTA (Volunteers in Service to America), a remnant of President Lyndon B. Johnson's anti-poverty programs in which volunteers worked in urban neighborhoods and rural communities to encourage self-help projects in health care, employment, economic development, social services, housing and education.

During Pauken's stormy four-year tenure, some members of Congress claimed that he was trying to dismantle VISTA and replace career employees with conservative activists.

Early in 1982, Congress investigated Pauken's elimination of volunteer projects. One witness, who was a participant in a conference early in Pauken's administration, testified that Pauken distributed a list of organizations that he identified as "leftist groups funded by VISTA. "

All the groups labeled "leftist" were operated for the benefit of low- income people, the congressional witness said. Pauken urged those present to "scout out the bad" organizations, the witness said, and send their names to Washington and Pauken would see that they were audited.

Pauken left Washington in April 1985, bought a radio station in Waco and later sold it and moved into Bowen's office in the Meadows Building.

Last year, President Reagan nominated Pauken to the board of directors of the Inter-American Foundation, a quasi-government agency established to aid poor people in Latin America and the Caribbean.

It is unknown whether Pauken played any role in securing the congressional tax exemption for Bizcap. As was the case with Bowen and others associated with Bizcap, repeated attempts by Inquirer reporters to interview Pauken were unsuccessful.

However Bizcap secured its exemption, the company has taken note of its good fortune in documents filed in the federal courthouse on St. Thomas.

Pointing to the custom-designed provision inserted in the Tax Reform Act of 1986, which will absolve the company of its back taxes and spare it from endless litigation over the retroactive application of the law, the company said:

"Fortunately, (Bizcap) will not have to participate in such questions of the validity of a retroactive amendment . . ."