Clinton Aide Is Penalized in Tax Dispute : White House: Associate Counsel William H. Kennedy III is relieved of some duties. He had failed to pay Social Security levies for a nanny.

White House Associate Counsel William H. Kennedy III was stripped of two areas of responsibility Wednesday because of disclosures that he failed to pay Social Security taxes for a nanny despite warnings from his superiors, officials said Wednesday.

White House Chief of Staff Thomas (Mack) McLarty and incoming Special Counsel Lloyd N. Cutler decided to relieve Kennedy of the duties rather than fire him. They did so in part because he is going through a difficult divorce and they did not want to add to his personal problems or to the Administration’s embarrassment over the recent departure of a number of top aides, a senior White House official said Wednesday night.

Kennedy will no longer be in charge of reviewing tax-compliance matters or security clearances for White House officials because both duties involve background checks of government personnel. Such checks include whether employees paid taxes for household workers.

Also Wednesday, the White House indicated that President Clinton is likely to revise downward his estimate of losses that he and First Lady Hillary Rodham Clinton suffered in the failed Whitewater Development Corp. land deal in Arkansas.

A senior White House aide said there is “a good possibility” that Clinton would acknowledge at a news conference today that a review of the investment in the real estate deal has found that the First Family lost considerably less money than previously claimed.

The Clintons, relying on a partial audit of the Whitewater project conducted in early 1992 by Denver attorney James Lyons, have said they lost $68,900 on the vacation property deal.

But the Clintons’ current personal lawyer, David Kendall, has concluded after his own review that the Clintons lost less than that.

“It’s still a measurable loss,” the White House aide said, but not as much as previously thought. He said it is not yet known whether the Clintons owe additional taxes because they over-deducted for Whitewater interest costs.

The aide also said Clinton is prepared to release in the near future his tax returns for 1978 and 1979, which have never been made public.

They are of interest because they would reflect the size of the Clintons’ initial investment in the Whitewater project, which the Clintons’ owned with Arkansas businessman James B. McDougal during those two years.

McDougal has estimated the Clintons’ losses in Whitewater at $13,000.

The timing of today’s press conference was prompted in part by the Clintons’ plans to leave Washington on Friday for a six-day Easter vacation in Texas and California. The President did not want to leave town with the appearance that he was ducking questions about the Whitewater deal, aides said.

Whitewater special counsel Robert B. Fiske Jr. is looking into allegations that the Clintons may have benefited improperly from their association with McDougal, who owned the failed Madison Guaranty Savings & Loan.

Although the special counsel’s inquiry centers on the Whitewater controversy, Fiske is also investigating the apparent suicide of Deputy White House Counsel Vincent Foster last July and the role played by Hillary Clinton and the Rose Law Firm, where she was a partner, in representing Whitewater Development and Madison Guaranty.

The President has answered questions on the Whitewater case at two extended press conferences during the last two weeks, but new issues, some with only tangential relationships to the scandal, seem to arise every day.

Kennedy’s problems are a case in point.

Among his other duties, Kennedy was responsible for ensuring the compliance of Administration officials with tax laws relating to household help.

Kennedy was a partner of Hillary Clinton at the Rose Law Firm. Two other lawyers of the firm have also served in the Administration, Foster, who was Kennedy’s boss, and Webster Hubbell who resigned earlier this month from the No. 3 job at the Justice Department in order to deal with a billing dispute with his former partners.

White House officials said Tuesday that Kennedy paid $1,352.52 in back taxes and penalties before starting work in February, 1993. The money was for Social Security taxes owed for the employment of a nanny for his children in 1992.

The payment was made under his wife’s former married name, but Kennedy denied that he did so to conceal the late payment from the IRS or the FBI, which was conducting a background check on him in connection with his new White House job.

On Wednesday, officials conceded that Kennedy did not pay his 1991 taxes for the nanny until this month. Kennedy told associates that he feared the non-payment would become public in the record of his divorce proceedings.

“He owed about $800 in back taxes (for 1991),” said White House Press Secretary Dee Dee Myers. “He should have paid them. He has now paid them.”

According to his financial disclosure form, Kennedy was paid $587,000 in 1992 by the Rose Law Firm, where he was managing partner.

Myers said Kennedy had been told last year by Foster and Foster’s boss, departing White House Counsel Bernard Nussbaum, as well as by Myers herself, that he should make good on any back taxes owed for household help.

Times staff writer James Risen contributed to this story.