Clintons Try to Buckle Up for Bumpy Report on Taxes : Inquiry: Signs point to underpayments, dating back 15 years. First Lady, aides play down possible problems.
As indications grow that the Clintons may have underpaid their income taxes for 15 years, the White House has begun a concerted effort to cushion the political impact of a new finding of possible financial violations.
The Clintons themselves, along with senior aides, are conceding in public and in private that tax complications and mistakes are not uncommon in complex business affairs and should not be taken as serious ethical lapses, if that proves to be one of the Whitewater investigation’s findings about the Clintons.
First Lady Hillary Rodham Clinton, in a series of preemptive acknowledgments over the last several days, has said that she and President Clinton may have claimed Whitewater-related income tax deductions to which they were not entitled.
She said that as new information about the poorly documented Whitewater real estate project is uncovered, it may reveal previously unknown tax liabilities.
A soon-to-be-published audit of the Clintons’ tax returns from 1980 through 1992 conducted by Money magazine concluded that the Clintons may have underpaid their taxes by $16,358 and that their total liability for the period, including Internal Revenue Service interest, could total $45,411. The magazine said about $8,000 of the possible underpayment stems from questionable Whitewater deductions.
White House officials hope that a strategy of early disclosure and playing down the tax issue now will help when special counsel Robert B. Fiske Jr. issues his report on Whitewater or if news organizations publish evidence of financial impropriety.
White House aides fear that new disclosures about the Clintons’ finances will feed a public perception that the Administration suffers from a pattern of ethics violations and that the Clintons themselves are untrustworthy.
Other recent presidents, including Richard Nixon, Jimmy Carter and George Bush, were criticized over problems with taxes and private investments. Former Vice President Spiro T. Agnew was driven from office after pleading no contest to a federal charge of income tax evasion.
While such revelations in themselves have not been fatal to a presidency, they tend to reinforce existing perceptions of the character of the officeholder, according to political analysts.
An inadvertent error is likely to be less damaging than a pattern of questionable deductions.
“A miscalculation or the underreporting of a few thousand is not going to be the kind of thing to take down a President. But the problem is that this President has ethical clouds hanging over his head, and another one won’t do him any good,” said Stu Rothenberg, publisher of the Political Report, a Washington newsletter.
“I think it would be a mistake to dismiss it as ‘only’ income taxes and underreporting,” he added. “That underestimates the extent to which the public considers taxes a significant factor in their lives. And if they (ordinary citizens) had to pay a few thousand, they couldn’t get away with just saying it’s an oversight.”
David E. Kendall, the Clintons’ private attorney, is reviewing all of the Clintons’ tax records and the admittedly incomplete documentation of their Whitewater investment in an effort to determine how much they really lost on the land deal and whether their tax returns were accurate.
A senior White House aide said it now appears that the Clintons may have lost less on the Whitewater project than the $68,900 they have been claiming for the last two years. The aide, who asked not to be named, said Thursday: “As more complete documentation has been assembled, we’ve had an opportunity to take a real hard look (at the Whitewater finances). If that yields different numbers, so be it. We don’t want to pretend that we have an absolute hard number.”
The Clintons’ Whitewater partner, Arkansas businessman James B. McDougal, has said the Clintons lost at most $13,000 on the deal.
The White House aide said that any underpayment of taxes or misreporting of the financial condition of Whitewater would be the result of “oversight and bookkeeping errors, not a pattern of abuse.”
The Clintons already have acknowledged taking $2,156 in unjustified tax deductions for Whitewater-related interest payments in 1984 and 1985. They voluntarily repaid the government $4,000 in back taxes and interest during the 1992 campaign.
The Money magazine study, conducted by Los Angeles tax attorney and former IRS tax audit group manager Mary L. Sprouse, found that the Clintons committed three “glaring mistakes” in the preparation of their taxes in the 1980s and early 1990s: They kept inadequate records, they overestimated the value of many of their deductions and they relied too much on their tax preparers. The magazine also reviewed Whitewater deductions for 1978 and 1979.
According to the study, the biggest errors came on poorly documented Whitewater deductions of $24,154 for interest payments on three separate loans. The study contends that the Clintons probably owe more than $8,000 in additional tax because of those questionable deductions.
The magazine also questioned the Clintons’ deductions for charitable contributions, including $15 for a pair of Bill Clinton’s used long underwear, $80 for a pair of brown shoes and $30 for three old shower curtains.
Yoly Redden, the Clintons’ Little Rock tax preparer for most of these years, declined to discuss her clients’ tax returns.
Presidential counselor David Gergen said in an interview that a thorough review of the Clintons’ finances over the last decade or more could result in a relatively small amount of back taxes due.
“Obviously, if they owe some taxes, they’re going to pay the taxes. I don’t think that’s an issue,” Gergen said. “If all of this at the end of the day--after tons of ink has been spread across this, and after lots and lots of government money is spent--if at the end of the day there are some minor adjustments on the books of Whitewater or whatever it may be to clean up some tax questions, I think a lot of us would be asking, what was all that about? Was that sound and fury signifying nothing? I think that’s a legitimate question.”
