Paul L. Caron

Saturday, January 31, 2009

Daschle's Nomination for HHS Secretary Threatened by Failure to Pay $140k Taxes on Free Use of Limo and Chauffeur

Secretary of Health and Human Services nominee Tom Daschle has an even bigger tax problem than Treasury Secretary Timothy Geithner:  Daschle paid more than $140,000 in taxes and interest on January 2, 2009 for three tax mistakes he made on his 2005-2007 tax returns comprising over $350,000 of omitted income and overstated deductions that were uncovered in the vetting process:

  • Failing to report over $255,000 of income from the free use of a car and chauffer provided to him in 2005-2007 by InterMedia Partners, a private equity fund and its managing partner, Leo Hindery, Jr., a prominent Democratic fund-raiser.
  • Failing to report over $80,000 of consulting income from the same source in 2007.
  • Failing to properly substantiate $15,000 of charitable deductions in 2005-2007.

The Senate Finance Committee staff also notes that there are two unresolved tax issues:

  • Free travel and entertainment services provided to the Daschles by EduCap, Inc., Catherine B. Reynolds Foundation, Academy Achievement, and Loan to Learn.
  • Additional unsubstantiated charitable contributions for 2005-2007.

Documents and media and blogosphere coverage:

Update #1:  Several commenters have questioned why Mr. Daschle did not have to pay any penalties for his tax transgression.  Perhaps he used the Steve Martin defense or he merely anticipated enactment of the Rangel Rule.

Update #2Scrappleface (via InstaPundit) notes that this is part of President Obama's strategy to close the tax gap:

In office less than two weeks, President Barack Obama has already increased tax receipts at the U.S. Treasury with an innovative plan to get tax-dodgers to pay up, in full, immediately.

“The president’s plan is simple but ingenious,” said White House spokesman Robert Gibbs, “He targets wealthy individuals who filed inaccurate tax forms, cheating the government out of tens of thousands of dollars. Then he just nominates them for cabinet positions. They suddenly see the error of their ways, and they cut checks for the full amount owed, plus interest.”

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HELLO ANYONE! I am not a tax expert or a lawyer. But can I sue the federal government for preferential treatment of these tax cheats (Daschle and Giethner)? I owed back taxes as well, and diligently reported them although I couldn't pay it. I accrued about 75% interest/penalties during the 2 years that I couldn't pay on a small balance of approximately $3200. As a single mother trying to pay the IRS, I certainly did my best and finally ended up borrowing the money from a family member to get out from under the interest. These dispicable individuals, if they had any honor at all, would resign. They should be treated just as I was, since I "pay" them. How heartbreaking.

Posted by: ArianaM | Feb 3, 2009 11:13:33 AM

On a more general topic-- suppose I'm right, and I tell the IRS my suspicion, and Daschle pays $25000 more in taxes. Am I eligible for an informant's reward of $2,500?

In general, if someone uses publicly available info about a celebrity to point out unpaid tax, is he eligible for an informant's reward?

(I understand that any responses from anyone are not legal advice, just chit-chat on a blog.)

Posted by: Eric Rasmusen | Feb 2, 2009 6:17:44 AM

Senator Daschle has said that 20% of the value of the car and driver was for business use, and thus not taxable income.

That's fine, if true. Does he need to provide documentation? I wonder whether maybe the true figure was closer to 0%, in which case he owes about $25,000 more in income tax (plus some more medicare tax!).

Would the following documentation be sufficient?-- a record of days he did any work at all as a consultant for this employer, showing that they constitute 20% of the days the chauffeur was paid. If so, his failure to provide the record now would be pretty incriminating.

Posted by: Eric Rasmusen | Feb 2, 2009 6:15:09 AM

Saw one report this morning that returns may have to be re-amended.

Did Daschle really forget his MEDICARE tax? Wow the irony.

Posted by: save_the_rustbelt | Feb 1, 2009 6:28:18 AM

Damon, You got bad information (or misunderstood what you were told) from the IRS. Penalties can most certainly be waived, at least most of them, if the failure to comply was for "reasonable cause and not due to willful neglect." E.g., Code sec 6651(a) (late filing/payment). The IRS is supposed to consider "all the facts and circumstances" of the individual case. If you were told otherwise, and you think you should have gotten a waiver, yet paid penalties within the last 3 years, you may be able to apply for a refund. Talk to a lawyer that handles tax controversies, or at least to a decent accountant. Not knowing the facts of your situation, you cannot consider this comment to be legal advice that you actually have a claim.

Posted by: Peter G | Jan 31, 2009 5:26:39 PM

I would ask why Interactive Media Partners did not put the value of the car and driver services on his 1099-MISC form.

While it is Daschle's responsibility to pay the tax, it is also IMP's responsibility to submit an accurate 1099-MISC.

Posted by: Whitey51 | Jan 31, 2009 3:17:55 PM

I would hope Senator Daschle's omissions will subject him to serious grilling, and he faces much more trouble than Sec. Geithner.
Mr. Daschle knew he was receiving a fat and very even $1 million. When the 1099 didn't match that fat and even number, his accountant asked Daschle why, and Daschle misled him, providing his accountant with a misstatement of fact:
[He] told the accountant that the January, 2007 check was received in December of 2006, and that was why the 2007 Form 1099 reported only 11 monthly payments." He lacked any grounds for making this statement, since the company never paid a month early.

Note that the accountant knew there was a problem, because when filling out the financial disclosure form, he made further inquiry with the employer: "In December, 2008, the senator’s accountant contacted InterMedia while compiling information for Senator Daschle’s financial disclosure reports." Only now do we have to report this income?
The circumstances surrounding the reporting of the car use income are odd. "Senator Daschle told staff that in June, 2008, something made him think that the car service might be taxable and he disclosed the arrangement to his accountant," and filed an amended return on January 2, 2009, after his nomination. If he thought it was a problem, when was he going to amend it, if he was not nominated? The most likely answer is he never would have amended it, given the six month delay. There's an implied rap on the accountant - Daschle advised her or him, after all. But once you advise your accountant, let's say in a 3 in the morning answering machine message, shouldn't you get the accountant's opinion on the consequence of this new piece of information? You might be able to fairly rely on an accountant's advice, but you can't rely on blurting something out, and figuring if it was important, the accountant would tell you.

The improper charitable deduction looks piddly, and should be treated as such. Part of the pot of very generous donations was given to unqualified charitable organizations. Unless the charity was his Aunt Mable, give him a pass on this one.

Posted by: weffiewonj | Jan 31, 2009 2:11:58 PM

What impresses me most is the wide variety of people who read and comment on this blog. I would not have thought, offhand, that many "peasants" read TaxProf. But apparently they do, and you have to give the head of the blog some credit there, don't you?

Posted by: mike livingston | Jan 31, 2009 12:08:28 PM

I like that Mr. Obama has now painted himself into a corner of absurdity.

If he does the honorable thing and has Daschle withdraw, that would be absurd considering he supported Geithner, who was up for the TAXES job in the Cabinet. If cheating on your taxes doesn't nix the Treas. Sec., why should it nix the HHS guy?

If he continues to support Daschle, then he's affirmatively stating he is fine with two acknowledged tax cheats in his Cabinet, another absurd result, one which is unique in American history.

If President Obama is the "Change" he claims he is, he will immediately (a) withdraw Sen. Daschle's nomination, and (b) immediately ask for Mr. Geithner's resignation. At that moment President Obama could then have a somewhat legitimate claim to the "change" mantle he and his supports currently assert.

Posted by: anon | Jan 31, 2009 10:34:46 AM

What's the difference between a Democrat and a Republican?

A Democrat collects taxes. A Republican actually pays them.

Posted by: anon | Jan 31, 2009 10:29:53 AM

Why was this income not reported on Form 1099MISC? Perhaps IRS should audit the source of this income for compliance. If the companies didn't report the income properly to Daschle, they probably didn't report properly to others.

Posted by: Susan Winchester | Jan 31, 2009 10:01:06 AM

Hmmm so many questions so little time-
Someone stiffs me $83k and I or my accountant don't bother to reconcile it and they think I'm qualified to oversee 16% of the national GDP.

Is the IRS going after his employer for failing to give him a 1099? Did they provide this perk to the other former congress critters too? Did they pay their taxes on this?

Finally- the statement from the senate finance committee is interesting. It appears they are still looking at the Dachele's T&E income/expenses. Jeez these folks make millions per year and still can't pay for their own vacations or supper. What parasites.

is that

Posted by: Unkle Jac | Jan 31, 2009 8:44:06 AM

One law for our lords, another for us peasants. "A republic if you can keep it" - but we blew it.

Posted by: Orman | Jan 31, 2009 8:06:16 AM

Don Doughten:
I'm relieved to find out that Daschle's tax evasion had something to do with George Bush! I knew there had to be a rational explanation.

(And I think we're going to hear a lot more about this Bush fellow over the next four years... yes, I am psychic.)

Posted by: Mike | Jan 31, 2009 7:57:31 AM

I'm really angry about the flack that Mr. Obama is getting from these out of touch politicians. Every country in the world has a protection plan except us. Big business is against it but believe me the american people won't be. LEVEL the damn playing field and put term limits on congress to get rid of these antiques in our government, we need people that are in touch with reality. I am not a republician or democrat but the republicans that were against the union should be put on a boat without citizenship and let them go form a government in Mexico or some other 3rd world country. I was to retire soon but honestly I'll probably never be able to with what the WORST PRESIDENT in this country's history did to this country. Bush should be deported.

Posted by: Don Doughten | Jan 31, 2009 6:23:50 AM

I'm guessing that if I owed that much to the IRS the phrase would be taxes, interest and PENALTIES. I can't help but feel that justice isn't blind - she's just looking the other way.

Posted by: Stephen Macklin | Jan 31, 2009 4:26:03 AM

I don't understand why everyone thinks this is a problem. The Democrats are doing the Lord's work. They don't have time to mess around with accountants like the hair goats. They just keep clipping us because they have to get the last shearing before we all freeze to death in the coming hail storm. Democrats, welfare recipients, AFDC looters...none of them have to deal with all those fussy IRS Form 1099's with the money they beg because when you don't work for it you don't have to work reporting it.

Posted by: SenatorMark4 | Jan 31, 2009 2:10:16 AM

Someone is not paying his fair share.

Posted by: ic | Jan 30, 2009 11:24:42 PM

Paul, if Ted Kennedy could get away with manslaughter, why can't Daschle et al get away with tax evasion?

Posted by: sunshine484848 | Jan 30, 2009 11:19:37 PM

Why don't these swells ever get charged the penalties along with the interest? I owed the IRS some money and the penalty amounts were considerable. I asked if they could be waived if I covered the amount right away. I was told penalties can never be waived.

Unless you are connected!

Posted by: Damon | Jan 30, 2009 9:12:12 PM

I'm more concerned with him thinking it was okay to accept a free car and driver for three years than I am about his not being smart, or honest, enough to pay the taxes on the gift/income. What a dishonest idiot.

Posted by: Ronald Truman | Jan 30, 2009 8:34:57 PM

It's a good thing that all these tax cheats are being found out by Team Obama. Imagine if Team Bush had tried to appoint this many crooks...

It's easy to understand -WHY- Democrats think there is a lot of uncollected tax money out in the populace... They look at themselves and extrapolate...

Posted by: AndyJ | Jan 30, 2009 8:28:28 PM