Feeling nervous about your end-of-year tax bill? Already suffering from bouts of loathing towards Her Majesty’s Revenue & Customs?

If the answer to either of these questions is yes, then consolation can be found in California, where a mysterious “Taxpayer X” has just come clean about his income and handed over $200 million in unpaid taxes — almost single-handedly eliminating the revenue shortfall of the state.

The tax payment is so large that it would pay the annual budget of California’s National Guard three times over. And it will close the gap between the state’s projected and actual revenues from $250 million to $47 million. This will put the finances of Arnold Schwarzenegger, the State Governor, back on track — a New Year gift to compensate perhaps for the leg that he broke while skiing during the holidays.

Who is this astonishingly wealthy individual, who must have earned at least $2 billion to justify such a monster payment? Was it a Silicon Valley player such as Steve Jobs, of Apple Computer, or Sergey Brin, of Google; a reclusive billionaire such as David Geffen; or someone less obvious, such as Kirk Kerkorian, the corporate raider and California-based casino mogul?

A correct identification will be almost impossible. Last year, Forbes magazine’s ranking of the world’s 746 billionaires counted 91 living in California. Many others keep homes there, which could make them liable for taxation by the state Franchise Tax Board. Disclosing taxpayer records is an offence that can result in a prison sentence, so the state authorities will not answer perhaps the most intriguing question: was Taxpayer X coming clean after years of unpaid taxes, or was he (or she) simply an heir making a one-off payment on a family fortune? Gordon Getty, for example, or William Hearst III?

Some clues do exist. State financial records show that the budget department was this year expecting to receive a windfall payment of $200 million in “audit revenue”, which usually means a payment made after a tax return has been examined by the authorities and found to be inaccurate. Audits commonly find unreported income or the claiming of too many tax deductions.

The payment is almost certainly related to a law signed by Mr Schwarzenegger in 2004 offering “taxpayer amnesty”, so that the very wealthy could set their taxes straight without risking fines or jail. The deadline for applying for amnesty was April 1, 2005, so any settlements would probably have been made this year and could cover several years of earnings.

The authorities have at least confirmed that Taxpayer X is not a corporation. “This was a personal income tax matter,” Patrick Hill, a spokesman for the Franchise Tax Board, said.

The most prominent Californian accountants, who have helped many wealthy clients to take advantage of the governor’s offer of clemency, said that they had been hearing rumours for some time about a blockbuster deal with a Taxpayer X.

“It happened the very first month of the amnesty,” said Claudia Hill, owner of Tax Mam, Inc., a Silicon Valley tax firm, and editor-in-chief of the Journal of Tax Practice and Procedure. “We were all laughing when the state came out so quickly and called [the amnesty] a success, because the (rumour) was that it was all from one person.”

Without more details, Ms Hill said that it would be impossible to gauge how much income Taxpayer X may have been hiding from the state. But the settlement is almost certainly a state record. And was payment made to avoid jail?

“You can read between the lines,” Ms Hill said. “To me, this case says there was someone out there feeling incredibly guilty about something. Or someone who inherited an incredible estate and was being incredibly cautious.”

Big spenders

GlaxoSmithKline, the drug manufacturer, is to pay $3.1 billion to settle a tax dispute with the United States Government that was set to go to trial next year

Source: Times archives

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