DATELINE: February 2, 2009, Chicago
We’ve been following former Senate Majority Leader Senator Daschle’s tax problems closely. We don’t want to be too pious, but we are sick and tired of the lax compliance effort undertaken by our public official wannabes. First there was Timothy Geitner and the employment taxes. Now it is Daschle, who is President Obama's nominee to head up the Department of Health and Human Services. Daschle failed to report $225,256 in income attributable to the use of a car and driver provided by a private-equity firm that Daschle apparently provided services to. What has been less publicized is Daschle's failure to report $83,333 in consulting services income. That one is...
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Senator Kent Conrad told the Wall Street Journal that:
A lot of people would be surprised that if someone loans you a car, even over an extended period of time, that becomes a taxable event.
Jonathan Weisman and Melanie Trottman, Daschle Faces Questions on Trips: On Top of Tax Issues, Senators Also Weigh Propriety of Travel with Charity (Feb. 2, 2009). Conrad should step down immediately from the Senate Finance Committee. Businesses, the self-employed, and employees have been struggling for years with the the administrative burden imposed by Congress when there is mixed use of a car for business and personal purposes. Given Conrad’s mindset, he might want to eliminate the IRS’s budget for writing and printing tax publications. Conrad apparently believes taxpayers shouldn’t waste their time reading these publications. Had Senator Daschle read IRS Publication 15-B he would have known that there was a tax issue with his use of the car. The publication is readily available on the Web. Daschle didn’t need to ask his driver to take him to the Post Office to pick up a copy. A Google search would have turned up the publication in the first two or three search results.
This issue also has come up for charities and their directors, officers, and key employees. Under Section 4958—the intermediate sanctions--personal use of a car owned by a charity results in an automatic excess benefit, with a 25% penalty imposed on the insider, unless accounted for properly. The IRS has invoked the sanctions in the case of car usage by charity officials.
Bottom line: There is absolutely no excuse for Daschle’s conduct. Senator Grassley, as the former Chairman of the Senate Finance Committee, should not tolerate this reckless behavior, nor should anyone else.
But Senator Grassley should not limit his investigation to Daschle's personal tax transgressions. Daschle also may have been instrumental in the abuse of a charity. EduCap, a Section 501(c)(3) organization, makes student loans. Its board chair, CEO, and mastermind is Catherine Reynolds. She received over $1 million in compensation from the charity for its fiscal year ending September 30, 2007, according to its 2007 Form 990. EduCap made its largest grant for that tax year— $8,041,955—to the Academy of Achievement, another Section 501(c)(3) organization.
Catherine Reynolds is married to Wayne Reynolds, who is the chairman and CEO of Academy of Achievement. Interestingly, nobody at the Academy of Achievement receives compensation as an employee, but this Section 501(c)(3) organization paid ASC Management $612,193 in support services fees for the fiscal year ending September 20, 2007 according to Academy of Achivement's 2007 Form 990. Wayne Reynolds is the sole shareholder of ASC Management according the Academy's Form 990. Also of note are payments to one Margaret C. Daley as site consultant of $90,000 in the same year. We are unable to confirm, but believe that this is Chicago Mayor Richard M. Daley’s spouse. She is shown in at least one picture attending the Academy’s 2008 summit in Hawaii, where her husband also was present.
Senator Daschle traveled aboard EduCap’s corporate jet to vacation locations in order to speak with members of the board of directors of Academy of Achievement. One trip was to the Bahamas and the other one was to the Middle East. We are a bit troubled by a U.S. charity holding meetings outside the United States at desirable vacation locations. The claim is that Daschle was helping them with site selection—at least in the case of the second trip. We thought Margaret Daley was doing that. Travel on corporate jets and similar perks are perceived by the IRS to pose potential for abuse of charitable assets, thereby warranting special questions in Part I of Schedule J of the redesigned Form 990. Last year, Senator Grassley investigated evangelical groups for what might be described as similar transgressions--the investigation highlighted the use of corporate airplanes. Can he ignore this conduct now that one of his former Senate colleagues is apparently feeding at the trough?
It also is worth noting EduCap received a subpoena from New York State Attorney General Andrew Cuomo following an investigation into student loan marketing practices. The New York Times reported that a student group filed a complaint against EduCap with the Federal Trade Commission for using deceptive marketing practices. The FTC claimed it lacked jurisdiction because EduCap was a nonprofit--that same lack of jurisdiction is why the general public continues to receive telemarketing calls from charities despite being on the FTC's Do-Not-Call list. EduCap denied engaging in such practices. Jonathan D. Glater, Offering Perks, Lenders Court College Favors (Oct. 24, 2007). According to the same article, EduCap sponsored a conference at a Four Seasons resort in the Caribbean for university officials. The conference was all-expense paid, including spousal expenses.
What is particularly troubling about EduCap is the potential for private benefit. According to an in-depth article dating to 2007, the Washington Post reported that EdcCap is a $17 billion company, founded two decades ago by Catherine Reynolds. Amit R. Paley and Valerie Strauss, Student Loan Nonprofit a Boon for CEO: Watchdogs Question Spending, Company Touts Benefits to Consumers (July 16, 2007). The article discusses the purchase of a for-profit affiliate of EduCap for $150 million in 2000 by Wells Fargo. The Post does not indicate who owned the affiliate or benefited from the sale. One expert told the Post that Reynolds "has acted in the nonprofit space very much as a for-profit company." The Post article refers to a six-member board meetings that took place in the Bahamas in 2007 and Barbados in 2004.
Shouldn’t Senator Grassley be questioning EduCap’s tax-exempt status given the fact that there is some evidence of potential private benefit? He sure was all over the credit counseling industry on those grounds. As we have noted time and time again, we believe this is the job of the IRS, not Senator Grassley. However, Senator Grassley has interjected himself in the business of many charities through investigations. It strikes us as odd that now that Senator Daschle, a former colleague of Senator Grassley, is tied to the charity there is no apparent investigation.
We also are disturbed that today’s meeting of the Senate Finance Committee regarding Senator Daschle’s nomination is a closed-door session. Senator Grassley’s investigations of the Smithsonian, American University, the Nature Conservancy, and other charities were very public ones. What happened to the transparency that Senator Grassley demands of others?
What is particularly troubling is the Obama Administration's and other's continued insistence that Daschle and Geitner are the only ones in the United States who can do the jobs in question. This assertion is insulting to the American people. Our bench is not that thin. This notion that there is only one person who can save us must come to an end.
By the way, disregard what some members of the news media have to say about the Daschle matter. They have fed at the Academy of Achievement's trough, too. Pictured here are Sam Donaldson and Nicholas Kristoff. Here is a picture of Mr. Hardball, Chris Matthews, and Mike Wallace at 2002 Academy's International Summit in Dublin, Ireland. These pictures are evidence of the all too comfortable confluence between charities, the media, and politicians. Sort of undercuts objective reporting.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
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