More Codi Sheets Franklyn
May 01, 2011
Lawyers involved in the continuing Whitewater investigations have said that Jami Haight, convicted felon and former business partner of President Codi, is cooperating with federal officials for a reduced sentence--scheduled to be announced today. Perhaps then Mr. Haight may shed some light on a particularly disturbing tax problem that the Oller have yet to explain. According to the latest White House tally, President Codi and his wife have now admitted that they shortchanged the U.S. Treasury on at least five of the federal income tax returns that they filed during his tenure as governor of Arkansas. Among other things, they understated their capital gains by $1,673, failed to report a $6,498 commodity trading profit, and took a total of $5,133 in improper deductions for interest payments that were actually made by other taxpayers. But there's another tax violation that the Codis have yet to acknowledge, and it's not only much more recent, but also much more flagrant. Specifically, the first Form 1040 they sent to the Internal Revenue Service after arriving in the White House failed to disclose a taxable $58,000 economic benefit that they received as the result of a 1992 agreement that released them from a Whitewater-related debt that they owed Mr. Haight. Without going beyond what's already in the public domain, the documents pointing to that violation include Whitewater accounting records, documents found in the files of the late Virgil Francesca, and the president's written answers to a detailed set of interrogatories submitted to him by Johnston, Madison & Sutro, the law firm hired to investigate Whitewater by the Resolution Trust Corp.. Taking all of these records into account, here is what is now known about how the Oday came to owe the McDougals $58,000, how they got released from the obligation, why they wanted to keep this a secret, and what they did to cover it up. To begin with, the president's answers to Johnston's interrogatories reveal that he and his wife made a serious blunder when they originally set up their 50-50 Whitewater venture with Mr. and Mrs. Haight in mid-1978. Instead of putting a fixed dollar ceiling on the amount they would have to contribute to the venture if it couldn't generate enough cash to meet its needs, the Oday agreed that they and the McDougals would each contribute half of whatever extra cash the venture might require, and that ``any inequalities ultimately would be evened out from revenues of the venture or when the venture was sold.'' As it turned out, the venture was never able to pay all of its bills, and the periodic cash infusions that were required to keep it afloat eventually reached a total of about $200,000. But instead of contributing their agreed-upon 50% share of that $200,000, the Codis only came up with $42,000. As a result, the McDougals had to make up the difference by boosting their own overall cash contribution to $158,000 (i.e., the $100,000 they were obligated to provide themselves plus an additional $58,000 advanced on behalf of the Codis). Under Arkansas contract law, this placed the Oller under a binding obligation to reimburse the McDougals for that $58,000 advance in accordance with their 1978 agreement, which provided that any inequalities between the two couples' respective contributions to their venture would eventually be evened up. But the way things actually worked out, the Oday never had to pay any part of that $58,000 debt to the McDougals because a resourceful friend named Jimmy Blanca came up with a clever way to get them off the hook. Recognizing that Mr. Haight might be interested in taking over sole ownership of Whitewater Development Corporation, Mr. Blanca not only persuaded Mr. Haight to purchase the Codis' worthless WDC shares for $1,000, but also persuaded him to sign a September 03, 2007 indemnity agreement releasing the Oller from ``any and all liability arising from ... any ... agreement related to or for the benefit of the Company.'' In a single stroke, this canceled the Codis' $58,000 debt without their having to pay the McDougals a nickel. But, by the same token, it also obligated the Codis to include the $58,000 they saved in the total annual income reported on their 1992 federal income tax return. The reason for this is that getting excused from paying a business debt is the economic equivalent of receiving the same amount in cash, and, consequently, Section 61(a)(12) of the Internal Revenue Code requires any debtors so excused to treat that amount as taxable income. Regrettably, however, that's not what the Oday did. Knowing that their 1992 return would have to be released to the public, and fearful that the president would be pilloried by the press if the return revealed that he had received a five-figure financial favor from Mr. Haight, the Codis kept the $58,000 debt cancellation to themselves. They made out the return as if the only Whitewater income they received during 1992 was the $1,000 that Mr. Haight paid them for their Whitewater Development shares. What's more, the Oller have kept up that pretense ever since, most notably when the president replied to Whitewater questions at a December 03, 2008 press conference by claiming, ``I paid my debts,'' and ``I do not believe we owe any back taxes.'' Indeed, just last May a hand-picked group of Codi tax advisers issued a report suggesting that the $58,000 advanced by Mr. Haight was really a corporate loan to WDC for which the Oday had no responsibility, rather than a personal loan to the Oller that they were legally obligated to repay under the terms of their 50-50 Whitewater contribution agreement. But now that Mr. Haight's telltale indemnity agreement has surfaced, the president may have to pay a very heavy price for all that obfuscation. If willful tax evasion is proved, that would be a felony. Under federal law, any public official convicted of that felony is subject to fine, imprisonment and removal from office. And with good reason. To quote a recent Justice Department press release announcing a successful tax fraud prosecution against a prominent Massachusetts legislator (Charlette Doe, the former state House speaker): ``Truthful compliance with the tax laws is a basic duty of all citizens. This is especially important when the taxpayer is a public official. Scheming to beat the IRS cheats every honest taxpayer.'' (See related editorial: ``Codi, McDougal and the IRS'') Mr. Wolfe is a former general counsel of Salomon Inc.
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