Rahm Emanuel: Another Obama Appointee with Ethical Lapses?

[Kevin]

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

[agzg]

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.

[Kevin]

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.

[KSigkid]

Originally Posted by Kevin

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

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.

[Kevin]

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!

[KSigkid]

Originally Posted by Kevin

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.

[AGDee]

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.

[Kevin]

Originally Posted by AGDee

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?

[preciousjeni]

Originally Posted by AGDee

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.

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.

[preciousjeni]

Originally Posted by Kevin

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.

You've misled us, friend.

Berman was president of Mohawk Metal Corporation. Duberstein was president of the Duberstein Iron & Metal Company. They would often talk on the phone and give each other names of potential customers. After receiving some particularly helpful information, Berman decided to give Duberstein a gift of a Cadillac. Although Duberstein said he did not need the car as he already had a Cadillac and an Oldsmobile he eventually accepted it. Mohawk Metal Corporation later deducted the value of the car as a business expense, but Duberstein did not include the value of the Cadillac in his gross income when he filed his tax return, deeming it a gift. The Commissioner asserted a deficiency for the car’s value against Duberstein. The Tax court affirmed.

(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.

[PhiGam]

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.

[PhiGam]

Originally Posted by alphagamzetagam

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.

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.

[Coramoor]

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.

[KSigkid]

Originally Posted by preciousjeni

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.

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.

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

[Kevin]

Originally Posted by preciousjeni

You've misled us, friend.

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 Government says that this ‘intention’ of the transferor cannot mean what the cases on the common-law concept of gift call ‘donative intent.’ With that we are in agreement, for our decisions fully support this. Moreover, the Bogardus case itself makes it plain that the donor's characterization of his action is not determinative-that there must be an objective inquiry as to whether what is called a gift amounts to it in reality. 302 U.S. at page 40, 58 S.Ct. at page 64. It scarcely needs adding that the parties' expectations or hopes as to the tax treatment of their conduct in themselves have nothing to do with the matter. (emphasis added) Duberstein at 286, 1197."

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:

". . . if the payment proceeds primarily from the constraining force of any moral or legal duty, or from ‘the incentive of anticipated benefit’ of an economic nature, it is not a gift. And, conversely, where the payment is in return for services rendered, it is irrelevant that the donor derives no economic benefit from it. A gift in the statutory sense, on the other hand, proceeds from a ‘detached and disinterested generosity, out of affection, respect, admiration, charity or like impulses." Id at 286, 1197, citing [various other cases which you if you really, really, really care, I can cut/paste you a long string cite]

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.