Congressman Rangel's Tax Woes

September 23, 2008

On Friday, 19-term Rep. Charles Rangel (D-NY) wrote $10,800 worth of checks to the Internal Revenue Service. The powerful chairman and three-decade member of the House Ways and Means Committee, which writes the tax laws, had encountered a series of tax-related allegations over the past several weeks.

The Apartments. Scandal one emerged on July 10, when the New York Times reported that Rangel simultaneously rented four rent-controlled apartments in Harlem. The going rate for the apartments was $8,125 per month, but Rangel paid only $3,894; he uses three of the apartments as his home and the fourth as a campaign office. (The latter violates city and state rent-control rules.) Because the market rate is much higher than what Rangel pays, and because one of the owners of the building is a campaign contributor, ethics experts told the Times that the difference could be a gift in excess of the amount allowed by congressional rules. In July, Rangel gave up one of the apartments.

The Villa. Then in early September, the Times again broke the story (along with the New York Post, which included an amusing photo) that Rangel had only sporadically reported rental income earned from a villa he owns in the Dominican Republic since 1988 that rents for $500 to $1000 a night. All told, that's some $75,000 in income he allegedly never paid taxes on (until now). The Times correctly estimated that Rangel would probably not owe federal taxes on the income, since he also never took permissible investment property depreciation allowances. But state and New York City taxes are a different matter entirely. He pledged to pay the taxes and said that cultural and language barriers made it difficult to understand the tax consequences of his investment and the development's finances. ("Every time I thought I was getting somewhere, they'd start speaking Spanish," said the congressman.) Rangel also says that he was unaware that he reportedly received an interest-free loan on the property.

The Painting. In the meantime, Rangel (through his lawyer) requested permission from the Federal Election Commission to transfer $64,500 from his campaign funds to commission a painting of himself to be hung in the Ways & Means Committee room, which he would donate to the House of Representatives. (Anyone familiar with the halls of Congress knows that such self-important paintings of politicians past and present are ubiquitous.) Rangel's attorney argued that using campaign funds instead of raising money separately "lessens the concern that lobbyists or others seeking influence may make unregulated contributions that may benefit a member of Congress" (as if lobbyists aren't a source of campaign funds), and dubiously argues that painting will be donated "for exclusively public purposes." That this "act of charity" is more about expensive personal aggrandizement just another example of why the benefits of the charitable tax deduction may be vastly overstated.

The Car. Last week, the New York Post uncovered (again, with an amusing photo) that Rangel's 1972 silver Mercedes-Benz has been sitting under a tarp in a House parking garage since 2004, without license plates or valid registration. This is probably in violation of House rules that prohibit using the garage for long-term storage of more than 45 days. (I wonder how many times a junior patrolman started giving it a ticket, only to be stopped by a superior afraid of the wrath of a powerful member of Congress?). More problematically, it also means that Rangel has been using a $290 a month space for private benefit for free. Under IRS regulations, $100 a month of that benefit must be reported as income-$5,000 that Rangel probably has not declared. The next day, the car was towed off, and the House Ways & Means committee voted (mostly by party lines) not to fire Rangel as committee chairman. Rangel has also "hired a forensic accountant" to revise two decades of tax returns.

"I want to be kind and gentle; please let me be," Rangel told reporters seeking a comment. If only we ordinary people received such gentle treatment from the IRS if we do such things.

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