I didn’t think we had much reason to write about all of the Harlan Crow / Clarence Thomas stuff that I’m sure you’ve read elsewhere. But the latest (in a now increasingly long series) of mind-blowing revelations from ProPublica regarding the relationship between the billionaire and the Supreme Court Justice… actually has a somewhat bizarre trademark angle.
The story is about how Crow was able to cut his tax bill thanks to getting Clarence Thomas to take free rides on his superyacht. The real issue here is less about the Crow / Thomas relationship, and much more about the tax loopholes for the ultrawealthy. Specifically, the report notes that the ultrawealthy can deduct from their taxes by claiming that their yachts and private jets are actually used commercially, generally for chartering.
In order to claim these sorts of deductions, taxpayers must be engaged in a real business, one that’s actually trying to make a profit. If expenses dwarf revenues year after year, the IRS might conclude the activity is more of a hobby. That could lead to the deductions being disallowed, plus penalties. Nevertheless, the ultrawealthy often pass off their costly pastimes, like horse racing, as profit-seeking businesses. In doing so, they essentially dare the IRS to prove otherwise in an audit.
For a yacht owner to meet the legal standard of operating a for-profit business, said Michael Kosnitzky, co-chair of the private client and family office group at the law firm Pillsbury Winthrop, “You have to be regularly chartering the yacht to third parties at fair market value,” typically through an independent charter broker.
However, the ProPublica reporters interviewed “around a dozen former crew members” of Crow’s superyacht, and none of them remember the boat ever being chartered.
And here’s where the trademark issue showed up. Crow tried to trademark the name of the yacht (the Michaela Rose), but, of course, for there to be a trademark, it needs to be used in commerce. This seems like a weird game of tax loophole chicken, where in order to get the IRS to believe the boat was being chartered, he (or his tax attorneys) tried to get the boat trademarked, to claim it was used in commerce. Basically, he had to convince either the IRS or the Trademark Office to believe him so that he could then convince the other one.
So the lawyers made up a pretty simplistic brochure to pretend that the ship was available for charter and submitted it with the trademark application.
But, that brochure says absolutely nothing about actually chartering the boat. It’s more just a bragsheet for Crow’s boat, rather than anything about actually chartering it.
The USPTO noticed this and rejected the mark (twice) before finally approving it when Crow’s lawyer showed them full screen screenshots (someone teach that lawyer how to do proper screenshots) of the boat listed on two yacht websites: superyachts.com and liveyachting.com, even though having a listing on those sites does not mean the boats are available for charter.
Apparently, though, it was enough to get the trademark approved:
“Registration is refused because the specimen does not show the applied-for mark in use in commerce,” the USPTO’s attorney responded.
Crow’s attorney asked the USPTO to reconsider. The brochure was “provided by Applicant directly to its customers and potential customers,” he wrote. Wasn’t that enough?
When USPTO again refused, the attorney provided new evidence: screenshots of the websites superyachts.com and liveyachting.com. These show “links and references to yacht ‘Charter’ services offered in connection with Applicant’s MICHAELA ROSE mark,” the attorney wrote.
At this point, the USPTO agreed to approve the trademark, but the evidence was dubious. Hundreds of ships have profiles on superyachts.com whether they are available to charter or not. The LiveYachting page merely encouraged readers to contact a broker “for finding out if she could be offered for yacht charters.”
And, boom, once he has a trademark, he can claim that the USPTO believed it was used in commerce, and therefore he can try to convince the IRS it is as well, even if that doesn’t appear to actually be happening.
When questioned about this by the Senate Finance Committee (specifically, Senator Ron Wyden who chairs the committee), Crow tried to claim that whenever he took personal trips on the boat (including with Thomas) he… paid himself prevailing charter rates, and thus it’s used in commerce.
That’s a neat trick! If every time I drive my car, I transfer money from one bank account to another, can I tell the IRS that I used it for business? I’m somehow guessing I wouldn’t get away with that. But, then again, I’m no billionaire.
Anyway, again, this story is more about tax loopholes for the ultrawealthy than anything specifically about Thomas (the other stories are much more damning on that front), but I was surprised to come across that trademark tidbit in the process.
