Rahm Emanuel: Another Obama Appointee with Ethical Lapses?
 

If anyone caught the op-ed piece in the NY Post penned by Dick Morris (I know, I know) and Eileen McGann, it raises some issues about Emanuel which on their face appear a lot more troubling than the sorts of things which have already caused other Obama cabinet potentials to withdraw their names from consideration.

The issues raised are these:

1) Emanuel lived rent-free in the home of Rep. Rosa De Lauro for several years and didn't report the fact that he received that home rent-free to the IRS as income (anyone who has had tax law knows the Duberstein case which basically says this is income, and it would appear that the gift wasn't completely gratuitous because Emanuel had used his influence with Freddie Mac to send some money the De Lauros' way). Accoridng to the op-ed, 'experts' think the rent could add up to $100K of taxable income.

2) Emanuel served on the board of Freddie Mac when the company lied about its earnings which led to a $50 million fine from the SEC. Freddie Mac has since been very kind to Emanuel, donating $25K to his campaign fund.

At any rate, item 1 is huge. Item 2... typical Washington.

Link if you care:
http://www.nypost.com/seven/02172009...ice_155536.htm

I just saw this on Digg.

I wish I had rent free for five years, then got White House Chief of Staff.

As long as I didn't have to live in DC.

I wonder if they signed a lease or anything? If not, then maybe it can be construed as hospitality because they didn't sign a formal agreement.

If there's quid pro quo, and according to the op-ed, there was, then it's not a gift, it's a taxable transaction.

Very interesting (and I love the Duberstein reference, by the way; my tax prof would be very proud of you). I'll agree that I don't see #2 as such a big deal, but #1 is interesting. If nothing else it's terrible PR for the new administration.

Then again I'm not exactly a huge Rosa Delauro fan, so take my point of view for what's it's worth.

Yep. They say it was "hospitality," but 5 years of hospitality? The DNCC giving several six-figure contracts to De Lauro's husband during the time Emanuel was chairman (also during the occupancy of the home?).

It sure looks like a gift meant to induce future business to me!

In the end it may not end up mattering what the actual arrangement was; the only thing that really will matter is whether it appears to be a lapse in judgment.

I think that, as a politician, you have to be extremely careful that what you're doing doesn't raise any questions of impropriety. Emanuel's a smart guy; I just wonder why he would have gotten himself wrapped up into something like this.

So, let me get this straight. If I move in with a man and don't pay him rent, I have to claim that as income??? What if you're an adult child living with your parents? Or a parent living with your child? I've never known anybody who lived with someone without paying rent to claim that as income. Turbo tax never even asks about that.

The more I read about all this stuff we're supposed to claim as income, the more I freak out that I think every single person in the US has screwed up one of these things.

Asking for tax law advice on Greekchat.

Is this a Greekchat first? :)

Yeah, that doesn't even sound right. In fact, that's a way to get around gift tax. In 2009, we can give up to $13,000 to an individual without any taxes applying. But, you can buy them things, pay their school tuition, pay their rent, etc. and it is NOT included as a gift.

You've misled us, friend.

(Ok, granted Wikipedia is not a professional reporting agency...)

So, the issue was NOT THE GIFT. It was the fact that the gifting company reported the gift as a business expense while the recipient did not. If the gifting company hadn't reported it, it would be considered a gift and would, therefore, not be taxable income.

I'll give Obama a free pass on this guy simply because its his Chief of Staff- this is one position that Obama needs to be on the same page as. I don't like/trust Emanuel but I don't think he should lose his position either.

All politicians receive money and gifts- the trick is to funnel it through at least three foundations/companies owned and operated by lobbyists. As I've been told by lobbyists- the IRS stops looking after the second company.

This is what, the fourth or the fifth individual in BO's admin that participated in actions that raise questions of their ethics?

Hmmm...quite sub pare for the man that ran on Change and a better more honest tomorrow.

Wikipedia is wrong. Here's a link to the opinion: http://supreme.justia.com/us/363/278/case.html .

Essentially, Kevin's correct, in that the case dealt with the definition of what is a "gift" under the tax laws. The Commissioner wanted the Court to give a specific definition of what would count as a "gift," and the Court declined to do so, instead directing that lower courts should look at a variety of factors (including facts that may show the donor's intent, etc.). Applying Duberstein to this situation, one would look at Delauro's intention, i.e. whether it was done out of some generosity.

Granted, the case wasn't only about whether or not item was a gift...but the case stands as perhaps the most important decision in examining whether something qualifies as a gift or taxable income.

But...as I'm not a tax professional by any stretch of the imagination, if you want to have an in-depth discussion of the implications of the Duberstein decision, I can put you in contact with my tax professor. :p

ETA: I suppose this is why they tell us at law school not to rely on Wikipedia case briefs.

Okay, you made me go reread the case to verify I have not misled you. The cite is C.I.R. v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190 U.S. (1960), btw.

While realistically, the IRS (then CIR) probably would never have known the transaction happened if Mohawk hadn't reported the gift as a business expense, that's not what the case turns on.

The Court was quite explicit on that point:

The case, rather than turning on the donor's characterization of his action, turned on the donor's intent. The Court clearly describes this 'intent' test:

At any rate, no, I did not mislead. While I haven't looked at the Wikipedia article, if that's its conclusion, then I don't agree with it. The question here is was the 'hospitality' of the De Lauros something offered charitably and disinterestedly, or rather, was it a manner of payment or done with the intent of encouraging future services. Since services were in fact rendered by Emanuel to benefit the De Lauros, you do the math.

There are skeletons in EVERYBODY'S closets... ESPECIALLY IF YOU ARE A POLITICIAN!

IMHO, the ethics issue is one of action. While you actively serve, are you ethical? Simple past indiscretions are one thing, gross breakdown of systems are another... I will leave it at that...

He was actively serving during this time period, though - part of the potential issue is that he didn't go through the mandatory ethical reporting.

IMHO, this is not an adequate excuse for anything. The question is whether the particular skeleton speaks to the character and motivation of the individual in question. Here, we have Emanuel in a pretty clear financial quid pro quo relationship with the husband of an elected official. I have a big problem with that situation. If he's inclined to repay favors like this, now that he's in a position of power, we have to wonder who he owes favors and how, at the expense of the American people, he intends to repay those favors?

I don't understand what "mandatory ethical reporting" is... Enlighten me, please?

No excuse, an explanation... No, he should have not done it... But he did... Did he just lapse in better judgment? What were the organizational development and root causes for his active choice to not make the best decision?

Or, are all politicians crooked and they cannot be ethical?

I know it's probably tough to be ethical when in a powerful office, but it can be done and has been done. I'm sure you can name several politicians you've known to be highly ethical and moral individuals.

I don't know the exact language, but essentially members of Congress have to report gifts they receive; if the use of the house was indeed a gift, and Emanuel didn't report it, there's a problem.

It can definitely be done - I know of a number of politicians who I know of to be highly ethical individuals.

I am cynical these days... I have lost my faith in a politician's ethics and morals. I just do not believe it exists, often...

While there was a NPR discussion about it can be done, I just do not see it at this time.

And while it doesn't matter what I think or believe in the "grand scheme of things", while I would like to believe in the betterment of humanity, I am sorry, my faith has been shaken these days.

Maybe it wasn't a gift... Maybe an intern was speaking out of turn... Maybe there is just more to this story...

Or maybe he failed to report it, as simple as that? IDK? Speculation again...

Which is why I said it was a "potential issue;" maybe it was something, maybe it was nothing. Also, as I said before, it could turn out that the most serious problem coming out of this is the appearance of a lapse of judgment.

I have never liked Emanuel....this doesn't surprise me....

"The record is significantly barren of evidence revealing any intention on the part of the payor to make a gift. . . . The only justifiable inference is that the automobile was intended by the payor to be remuneration for services rendered to it by Duberstein."

And how did they come to that conclusion?

"In No. 376, Duberstein, an individual taxpayer, gave to a business corporation, upon request, the names of potential customers. The information proved valuable, and the corporation reciprocated by giving Duberstein a Cadillac automobile, charging the cost thereof as a business expense on its own corporate income tax return. The Tax Court concluded that the car was not a "gift" excludable from income under § 22(b)(3) of the Internal Revenue Code of 1939."

That was my point.

In the Emanuel case,

My issue with the bolded statement is that it wasn't a "gift" at all if it was an exchange for some sort of arrangement they had.

I still think you're interpreting the case incorrectly, but I'm just a law student, not a lawyer (and certainly not a tax lawyer), so take my interpretation for what you will.

PJ: Basically you're just saying that the court reached its conclusion by saying that the donative intent was not implied by the conduct of the parties. It was very specific, see the language I quoted in stating that the characterization of the donee was not relevant, but rather, the court's interpretation of the intent was controlling.

Yes, in Duberstein, the characterization of the gift was something which was considered, but that it was considered is not the point -- it was just one aspect of the totality of all that was going on here.

What I'm saying here, is if this goes to tax court, and it probably won't, the conduct of the parties rather than how the transaction is characterized is controlling. If it looks like some quid pro quo happened, then that goes to the donative intent.

I'd quote you the West keynotes if doing so wasn't a violation of the TOS. You're right in that this is a case which could go either way. You're wrong if you think the characterization of the "gift" by the donor and donee is a controlling factor.

Ok

Thank you, this is what I was trying to get across.

PJ, I think my posts above probably came off as a little snide, my fault on that. I think my brain's a bit too fried.

My brain might be fried too because I didn't notice any snideness.

He's such a polite kid that his "snideness" is what we tip 20% for. True story.

Is GC like one of those restaurants that you go to for the sole purpose of being treated poorly by the waitstaff?

Haha, thanks buddy, I appreciate it.