LOS ANGELES -- The FBI is investigating whether Rep. Gary G. Miller, a California Republican, improperly used an unusual tax provision to avoid paying capital gains taxes on profits from land sales to California cities, law enforcement and government officials said.
Last summer, Citizens for Responsibility and Ethics in Washington, a watchdog group, filed a complaint with the Internal Revenue Service saying that Miller had not paid capital gains tax on the 2002 sale of 165 acres in Monrovia, Calif.
The complaint said Miller invoked a rarely used provision that allows tax deferment if the land that is sold is facing an eminent domain threat and the protected proceeds are reinvested within two years.
Miller, who would have faced about a 30 percent tax on the property under a normal sale, used the roughly $10 million in profits from the Monrovia sale to buy property in Fontana, Calif., from Lewis Operating Corp., one of his major campaign contributors, and then resold some of that land to the City of Fontana in 2005 and later in 2006.
Miller requested and was provided letters from each city citing its power to invoke eminent domain, said his spokesman, Scott Toussaint.
On Thursday, Toussaint said Miller used the same tax deferment on the Fontana land sales but on Friday said he had not, and that Miller had paid back taxes to Monrovia.
Toussaint declined to provide documentation of those payments.
Toussaint added that Miller had no knowledge of an FBI investigation and that the congressman, whose district snakes along a narrow swath of Los Angeles, Orange and San Bernardino counties, had requested that the House Ethics Committee review the deals.
The committee has declined to comment on whether it has conducted an investigation. Its spokesman did not return a phone call for comment Friday.
In recent weeks, the FBI has interviewed current and former officials from Monrovia, said the city's spokesman, Dick Singer, and requested a videotape of a 2000 City Council meeting in which Miller appears, asking the council to buy his land.
Singer said in an interview that the city was interested in buying the land from Miller to avoid development on the site, which was later turned into a wildlife preserve.
The city passed a ballot measure to raise tax money from residents to match state funds to help buy the land, as well as parcels owned by other potential developers, but eminent domain was never invoked.
Singer said Miller did request, and was given, a letter suggesting that the land could be condemned.
"We use eminent domain very, very, rarely," Singer said, saying its use was almost exclusively limited to commercial-use properties in areas where the city wants to develop housing.
"In 30 years we have done as much redevelopment as anyone in the country, and we have used it maybe a half dozen times."
A former mayor of Monrovia, Lara Larramendi, has told reporters that she was contacted by investigators and that eminent domain was never mentioned in letters to Miller.
Reached Friday, Larramendi said she had been advised to not answer further press questions.
Multiple calls and an e-mail message to Kenneth Hunt, Fontana's city manager, were not returned, but in published reports, Hunt is quoted as saying that the city did not have eminent domain authority in the areas where Miller bought the land.
"You get a sense from the whole transaction that there is an unseemly underbelly of contacts and connections that, if not illegal, is deeply troubling," said Shaun P. Martin, a law professor at the University of San Diego. "Things are happening in this case that do not happen to regular people."
Last week, Miller threatened to sue the city of Monrovia if it did not "retract or correct any misstatements made to the media or any governmental agencies" about the sale of the land.
"It was our feeling based on those letters that Miller had committed fraud," said Melanie Sloan, the executive director of the watchdog group that filed the complaint with the IRS. "There was no eminent domain and therefore he had no business claiming it."
In Washington, Miller sits on the Financial Services Committee and is the ranking Republican member of the subcommittee on oversight and investigations.