Were taxes paid on Kaine, Cuccinelli and McDonnell’s “gifts”?

irsDo look a gift horse in the mouth.  As I read more and more about the tendency of Virginia’s elected officials to line their pockets with other people’s money I began wondering about the tax implications of such “perks of political office.” Even to a layman like me the IRS rules on gifts seem pretty straightforward.  The only slight debate on gift taxes relates to who should pay the tax. Per the IRS website: “The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.”

For the love of loopholes.  One big loophole in gift taxes is the exclusion amount.  The IRS code allows a tax-free giving of gifts up to a certain amount each year.  In its benevolence to the wealthy Congress has been rapidly escalating this exclusion level in recent years.  The annual exclusion applies to each donee and is $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013.

Virginia’s hall of shame.  Virginia politicians love their “gifts.”  They can take pretty much anything in any quantity from anybody.  The only requirement is that they disclose the gifts (a requirement apparently too onerous for Ken Cuccinelli).  So, let’s take a trip down memory lane and look at some of the “gifts” received by the former governor, the current governor and the would be governor.

Tim Kaine.  Kaine wasted no time in reaping the benefits of elected office.  In 2005 Kaine accepted a five star Caribbean vacation from Albermarle County investor James B. Murray, Jr.  Kaine reported the value of the gift at $18,000.  In 2005 the exclusion limit was $11,000.  So, we have a $7,000 overage.  Assuming this overage was taxable – did anybody pay the taxes on that $7,000?

Bob McDonnell.  The McDonnell clan loves gifts.  In fact, they love gifts so much it can be hard to sort it all out.  Fortunately, Progressiveva has sorted it out for us.  Just from Star Scientific to Bob McDonnell we see $2,268 in lodging and entertainment in 2011 and $7,382 in free air fare in 2012.  Of course there is also that pesky $15,000 gift to McDonnell’s daughter in 2011 as well.  McDonnell falls below the exclusion allowance in 2011 and 2012 but his daughter does not.  The $15,000 gift should have generated a taxable $2,000 in 2011.  Did anybody  pay the taxes on that?

Ken Cuccinelli.  It is said that elephants never forget.  However, members of the elephant clan are not so lucky.  Ken “what day is it?” Cuccinelli seems hard pressed to remember all the gifts he has received from Star Scientific over the years.  So far, Cuccinelli has managed to recollect $12,965 in gifts from Star Scientific in 2011 and $3,000 in 2012.  Lucky Kenny comes in $35 below the $13,000 exclusionary limit in 2011.  Let’s hope our Attorney General doesn’t have any more flashes of lucidity in remembering any additional gifts from Star Scientific in 2011.

To be clear.  The donors or recipients may have very well paid the required taxes on the value of the gifts exceeding the exclusion level.  But given the sensitivity of these gifts and the fact that all three gentlemen are presently elected officials, shouldn’t Kaine and McDonnell publicly verify that all the required taxes were paid?  A simple public statement saying that all required federal and state taxes were paid would be enough for me.

- D.J. Rippert

19 Responses to Were taxes paid on Kaine, Cuccinelli and McDonnell’s “gifts”?

  1. good post – but the rules are pretty simple:

    http://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-

    if someone gives you something – it’s to be reported via a 1099 to the IRS and if you are the recipient and do not show that 1099 in your return then you are guilty of a failure to report income.

    if the entity that gave it to you did not report it to the IRS – then they will not know that you failed to report it.

    since 1099s are reported separately on line 21 of the 1040 – if Kaine and others provided that 1040, you should be able to check.

    • Larry -

      You are a normal, honest person. So, when Ken “the straight shooter” Cuccinelli claims that he released his tax returns you asume that means he released his tax returns. Au contraire. Cuccinelli let a select group of credentialed journalists “paw through” the returns. He then took his returns and went home. To the best of my knowledge, his actual tax returns are not available to the public.

      Never forget that Ken Cuccinelli is a veteran of the Virginia General Assembly and a Richmond-insider. In other words, he is a practiced liar.

      http://www.the-richmonder.com/2013/04/lets-be-clear-ken-cuccinelli-has-not.html

  2. Agree, good post. Amazing that some of us see no “scandal” or “quid pro quo.”

  3. I think Don’s suggestion is perfectly reasonable — all Congressmen and statewide elected officials, and candidates for those offices, should issue statements confirming that they have paid taxes on all gifts over the IRS-allowed limit.

  4. why not just say you have to release your actual 1040 is you are an elected official?

  5. as a side issue affecting the normal honest person – if you had debt forgiven by a credit card company or a mortgage company for your “underwater” mortgage, guess what?

    that debt forgiveness is treated as Income and you have to pay taxes on it!

    imagine the poor schmuck who can’t keep up payments on a car or home – getting some sort of “forgiveness” from the debtor – but the IRS cuts you no similar slack and it comes as a rude surprise to the unsuspecting!

  6. There won’t be many gifts that reach those exclusion dollar limits, and donors and recipients at that level are not naïve – they know these rules or should.

    The General Assembly’s offices during session are awash with promotional items with corporate logos, food items, cookies and invitations to breakfasts and receptions, etc. But usually the dollar levels are modest and the goals of brand identification and good will are benign. You get face time with a legislator at the reception, hard to get during session.

    The dollar levels on the restaurant dinners and drinks can be substantial. And what we’ve seen here of course are truly valuable travel, vacation and entertainment costs. There are many legislators who refuse to accept anything that approaches the $50 reporting limit, food or gift, because they don’t like the hassle and some don’t like the appearance it creates. And there are games lobbyists play to split costs among clients so no one client provides the whole $100 for dinner — and presto, the legislator need not report! (THAT needs to change.)

    I think the $50 limit makes sense. Setting it lower will just create bureaucracy without improving honesty, and will have people turning down ball point pens and note pads and cupcakes or a breakfast hosted by the alma mater. But with that $50 level, I think a failure to report, especially a pattern of a failure to report, needs at least a nominal fine — just as there is a potential and embarrassing fine for failing to meet campaign disclosure rules.

    • Agree that most gifts won’t reach the exclusion threshold. However, the gifts to Kaine and McDonnell’s daughter exceeded the threshold. There is also the odd matter of $80,000 in free airfare given to McDonnell by Jonnie Williams after McDonnel was elected governor. ProgressVA describes $28,500 donated by Star Scientific in free airfare in 2009 to the McDonnell campaign. VPAP has a record of a $28,584 donation by Star Scientific to the McDonnell campaign in 2009. So far, so good. Then ProgressVA claims that “after McDonnell takes office Star donates nearly $80,000 more in flights”. VPAP has no record of Star Scientific making those donations:

      http://www.vpap.org/donors/profile/index/144582?end_year=2011&start_year=1999

      How were those flights accounted for?

      • Note: I also checked Star Scientific for personal gifts and could not find the $80,000. I checked Jonnie Williams under both contributions and gifts and could not find the $80,000.

        My assumption is that VPAP’s record keeping is off but, with the Richmond-insider crowd, who knows?

        • The $80,000 in flights I believe were donated to Opportunity PAC, not to a person or members of anybody’s family. One would assume political travel as opposed to personal.

          • look here: http://www.vpap.org/donors/profile/index/144582

            20K in flights and nothing else reported. Of course the obvious question is what is the enforcement in Va if the money was never reported?

            it sounds like Star did not report it to the state nor to the Feds.

            at some point – this is going to come out…. and I suspect collateral damage to those who are not entirely innocent …either…

          • Breckinridge

            The $80K covered both 2010 and 2011 –

  7. Let’s back up the truck. The Internal Revenue Code imposes a gift tax on the giver, not the receiver, unless there is a written agreement by the parties that specifies the receiving party will pay.

    I’m on board for more disclosure from elected officials and candidates, but I don’t think that includes states re-writing the IRC.

    A big issue is the money laundering that occurs with gifts/campaign contributions at the local level. There are a lot of administrative assistants and mail room clerks making campaign donations to the same candidates and in the same amounts as their bosses.

    • I thought I was very clear in my article about the donor generally being the party responsible for paying the taxes. However, LarryG made a good point about the filing of 1099s and the reporting of gifts received on the recipient’s tax return. Did this happen?

      TMT – this is a simple matter than can be easily addressed. The candidates who took large gifts need only say that the appropriate taxes were paid on those gifts. If you are an elected official taking large gifts I think you have an obligation to ensure that the taxes are handled properly. After all, in the case of McDonnell, he pushed to increase taxes. If he wants to ask us to pay increased taxes then he should be completely buttoned up with regard to his own tax situation – and that includes ensuring that taxes are paid on the “gifts” that he and his family receive.

  8. What confused me is the discussion of Form 1099. I’m no tax lawyer, but it’s my understanding that a different form is filed by the giver (Form 709???). To my way of thinking, a 1099 implies a quid pro quo. You perform some services for me, and I give you cash and a 1099. Also, I believe that, when a bona fide gift is made, the recipient does not report the gift on his/her income tax return. Before my Dad died in 2011, I received several checks from him (as did my brothers) over several years. We did not report the money as taxable income. As the amounts were below the gift tax trigger, he didn’t report the gifts to the IRS. He also sold his house and reported the gain for income tax purposes. After he died, we received some more cash from his estate, but, again, did not report the amount as income. It wasn’t income.

    There is also a privacy issue. As I understand the law, the taxpayer’s return (here the giver of a gift does not send a Form 709(???) to the recipient) is confidential and not subject to mandatory disclosure. In other words, the giver has a right to refuse to make his/her gift tax information public. And the recipient, even if an elected official, has no right to access that information. I’m not debating whether that make sense.

    I think we are talking about three distinct subjects here: 1) gifts under the Estate and Gift Tax Law; 2) campaign contributions; and 3) income for federal IRC purposes, but are not being precise enough.

  9. TMT is more correct than I was. the point I was trying to make is that often (depending on the circumstances) the “giver” of something to someone else as to report it via the appropriate form to the IRS and if they do – then the their records are going to show the recipient in receipt of the gift and a requirement to reflect it in his reporting. You often know this because you will receive a simlar form from the company that they supplied to the IRS.

    I thhnk there is an exception for family giving.

    from the 709 instruction:

    ” Who Must File
    In general. If you are a citizen or resident
    of the United States, you must file a gift tax
    return (whether or not any tax is ultimately
    due) in the following situations.
    If you gave gifts to someone in 2012
    totalling more than $13,000 (other than to
    your spouse), you probably must file Form
    709. But see Transfers Not Subject to Gift
    Tax and Gifts to Spouse, later, for more
    information on specific gifts that are not
    taxable.”

    now having said that – TMT reference to not being a tax lawyer (much less a Philadephia version) – I offer my mea culpa also.

    this is why many company’s keep a ample supply of lawyers on retainer – and I suspect ask two of them the same question separately to see if they get the same answer.

    • Larry, I’m still confused about your comments about the recipient’s reporting obligation. Are you talking about tax reporting, political donation reporting or something else?

  10. TMT – for the IRS – I’m saying that if the donor generates an IRS tax document that when the recipient files – he likely will receive a copy from the recipient indicating that they DID report than “income” to the IRS and if the recipient does not also report it on their filing, it may cause the IRS to look closer at their return.

    but if the donor filed no such document with the IRS, the IRS would not know that the transaction took place.

    same deal with Va and VPAP – if the donor did not file the contribution, who would know?

  11. I can see part of why TMT can’t understand – I can’t write….

    ” I’m saying that if the donor generates an IRS tax document that when the recipient files – he likely will receive a copy from the DONOR indicating that they DID report THAT “income” to the IRS and if the recipient does not also INCLUDE it on their filing, it may cause the IRS to look closer at their return.”

    bottom line – if the donor reports the transaction – the recipient has to also or be at risk for an IRS “problem”.

    but if the donor does not report the transaction – the IRS has no way to ascertain that the recipient actually did receive anything.

    compare/contrast to winning a poker game vs winning a McDonalds or Lottery scratcher…

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