Former Sen. Tom Daschle, tapped by President Obama to lead his healthcare reform campaign, failed to pay more than $128,000 in taxes in the three years before Obama nominated him in December to head the Department of Health and Human Services.
The disclosure -- involving unreported income and the use of a car and driver provided to Daschle -- comes 2 1/2 weeks after Obama's choice to head the Treasury Department, Timothy Geithner, admitted that he had not paid about $43,000 in taxes.
Geithner was ultimately confirmed by the Senate, but the revelations about Daschle's taxes cast a shadow over the man that many hoped would be able to build political consensus behind an ambitious effort to reshape the nation's healthcare system.
Daschle did not comment publicly Friday on his tax problems, which are being investigated by the Senate Finance Committee ahead of his confirmation hearing before the panel.
But a spokeswoman for the former Senate majority leader and close Obama ally stressed Friday evening that the tax errors were the result of simple mistakes that Daschle had worked in good faith to correct.
"Sen. Daschle is embarrassed and disappointed by these errors," spokeswoman Jenny Backus said.
The bulk of the unpaid taxes -- first reported Friday by ABC News -- stems from a lucrative business relationship that Daschle began with a wealthy investor shortly after Daschle left the Senate in 2005.
That year Daschle was paid $83,333 a month -- or $1 million a year -- to advise a private equity fund, according to a confidential draft report prepared by Republican staffers on the Senate Finance Committee.
The South Dakota Democrat was hired by Leo J. Hindery Jr., a longtime friend of Daschle's, to consult for InterMedia Advisors. The private equity fund invests in media companies, including the Christian publishing house Thomas Nelson, the Gospel Music Channel, and Cine Latino, a leading Spanish-language movie channel.
Hindery, a Democratic donor who made a fortune in cable television, also provided Daschle with a car and driver beginning in April 2005.
Daschle estimated that 80% of his use of the car was for personal reasons. But he did not pay any taxes on the service until Jan. 2, 2009, when he filed amended returns for 2005, 2006 and 2007.
Daschle this month paid more than $100,000 in taxes and interest for the car service, according to Backus.
He paid an additional $32,491 to cover taxes and interest for a monthly payment that was not reported in 2007.
According to the committee report, InterMedia officials told committee staffers that unreported payment was the result of an employee being out on maternity leave when the May 2007 payment was processed. InterMedia had also not generated the proper tax form for Daschle at the time.
Finally, Daschle paid nearly $6,000 in taxes and interest on donations that he had improperly classified as tax-exempt charitable donations.
Backus said Daschle and his wife had believed their donations to a wounded Iraq war veteran were tax-deductible. While Obama's vetting team reviewed Daschle's tax records, however, they discovered the payment had not gone through a qualifying charity.
Daschle has thus far paid a total of $140,167 in back taxes and interest, according to the draft committee report.
After news of the tax issues leaked Friday evening, White House Press Secretary Robert Gibbs issued a statement supporting the Obama nominee.
"The president has confidence that Sen. Daschle is the right person to lead the fight for healthcare reform," Gibbs said.
A month ago, Obama's pick for Commerce secretary, New Mexico Gov. Bill Richardson, withdrew his name from consideration because of an investigation of a campaign donor who had obtained state contracts. Whether Daschle will face greater difficulties with members of the Senate remains unclear.
Republican committee staff members are continuing to look into Daschle's travel on a corporate jet owned by education loan provider EduCap Inc., according to one staffer who was not authorized to speak publicly about the issue.
And Iowa Sen. Charles E. Grassley, the ranking Republican on the Senate Finance Committee who is leading the inquiry, has been careful in recent days to avoid discussing Daschle's prospects.
Friday, his spokeswoman Jill Gerber issued a statement pledging an open process.
"Sen. Grassley's position for this nomination is the same as it has been for every other nomination processed by the Finance Committee since 2001, that all relevant information about a nominee must be made public in order for the confirmation process to go forward in the committee," she said.
The committee, which will meet privately with Daschle on Monday, has yet to schedule a confirmation hearing.