The story is becoming sadly familiar. On January 2, 2009 Tom Daschle rushed to file amended tax returns for 2005, 2006, and 2007, and pay $128,203 in unpaid taxes plus $11,964 in interest. There was no mention of penalties.
Why the rush? The 61-year-old former U.S. Senator from South Dakota was nominated to fill a post in the Obama cabinet, as the head of Health and Human Services as well as a newly created post, the head of the White House Office on Health Reform. Close scrutiny of Daschle's personal finances by Obama's vetting committee turned up serious tax problems which Daschle had not disclosed. That discovery prompted him to quickly pay up.
In spite of Daschle's failure to pay the tax, failure to disclose, and free pass on paying penalties, he was initially given hearty support by Obama and other prominent Democrats -- including Senator Dick Durbin and Senate Majority Leader Harry Reid -- who predicted Daschle would be confirmed over the protests of taxpayers and Republican lawmakers. Obama may have underestimated the public outrage, especially just days after the confirmation of his choice for Treasury Secretary, Tim Geithner, who also failed to pay taxes until nominated.
On February 3rd news reports said that Daschle withdrew his nomination, and Obama admitted in an NBC news interview that he'd been wrong in trying to "exempt some candidates for positions in his administration from strict ethics standards..."
"Did I screw up in this situation?" Obama asked rhetorically before answering his own question. "Absolutely. I'm willing to take my lumps." He added that there are "not two sets of rules," one for prominent people and the other for ordinary people. Chances are this comment was in response to a public outcry that started when Tim Geithner was made Treasury Secretary and head of the IRS even though he himself had significant tax problems.
Here's a summary of Daschle's tax woes.
- In 2005, 2006, and 2007, Daschle was given the free use of a car and driver by Leo Hindery, Jr., former chairman of YES, the New York Yankees regional sports network, and founder of InterMedia Advisors. Daschle was chairman of InterMedia's Advisory board. The car service was provided to him as part of his relationship with that board. According to the Associated Press report, the benefit was valued at about $250,000 over three years. Until the vetting committee uncovered the problem, Daschle neither disclosed receiving the benefit, nor paid taxes on it.
- Daschle was a paid consultant for InterMedia Advisors, of New York, Hindery's private equity firm. He was paid a total of $2 million in consulting fees for 2006 and 2007, which is equal to a monthly fee of $88,333. The Associated Press reports that Daschle underreported his income by $88,333, or one monthly payment. Daschle's spokesperson, Jenny Backus, said the omission was due to an error on the part of InterMedia, made while a clerk was on maternity leave.
- Daschle's amended returns also included a reduction of the amounts he claimed as charitable deductions, after it was discovered he deducted $15,000 in contributions made to nonqualifying organizations. His amended return reduced the deductions by $14,963.
- Two issues remain unresolved:
1)The taxability of travel and entertainment services provided to Daschle by various companies, including EduCap, Inc., a student loan company, Catherine B. Reynolds Foundation, the Academy of Achievement, and Loan to Learn.
2)Daschle also deducted charitable contributions over $250 to various organizations. To prove the contributions, Daschle provided copies of checks, but he did not supply the timely acknowledgements from the recipient organizations, as required by law.
Pending resolution, Daschle has not amended his tax returns for these issues.
News reports state that Daschle's defense is he incorrectly assumed the car and driver benefits were not taxable. Backus told Fox News that Daschle knew about the error since June of 2008 but didn't know it was such a "jaw-dropping" figure and he "thought it was being taken care of" by his accountants. He filed a Confidential Draft with the nominating committee, which confirmed those statements.
None of the available press reports address the question that many Americans will be asking as they pay their own taxes in the coming weeks... that is, once the tax failures were discovered, why was Daschle not required to also pay the penalties that non-privileged taxpayers would be charged in the same situation? The same question is being asked about Obama's new Treasury Secretary, Tim Geithner, as well as House Ways and Means Chairman, Charles Rangel (Democrat, New York) who is the chief tax writer for Congress.
In an unrelated but still significant issue, after the revelation of his tax shortfalls, Daschle disclosed that he has also taken $220,000 in speaking fees from the health care groups he will work with after he is confirmed as health chief.
Strike three as yet another nominee fails the tax test
Getting much less attention from the media was the fact that, earlier on the same day that Daschle withdrew his name from nomination, another Obama nominee did the same. Nancy Killefer is the woman Obama had tapped to fill a newly created post intended to root out government waste --Chief Performing Officer. After the revelation that Killefer failed to pay taxes for household help and that a $946 tax lien was placed on her home in 2005, Killefer withdrew from consideration.
Penalties for the Rest of Us
Visit the IRS Web site to see a list of the penalties ordinary Americans may be charged when they pay their taxes late, substantially understate income, fail to exercise ordinary and reasonable care in reporting income, and other tax missteps similar to those made by Daschle and Geithner.