Rangel Failed to Report $75,000 in Income

As reported in the NYTimes

September 5, 2008
Rangel Failed to Report $75,000 in Income
By DAVID KOCIENIEWSKI
Representative Charles B. Rangel has earned more than $75,000 in rental income from a villa he has owned in the Dominican Republic since 1988, but never reported it on his federal or state tax returns, according to a lawyer for the congressman and documents from the resort.

Mr. Rangel, chairman of the House Ways and Means Committee, which writes the federal tax code, bought the beachfront villa at the Punta Cana Yacht Club and has received twice-yearly payments from the resort, which rents the property for $500 or more per night.

Records from the development, now called the Punta Cana Resort and Club, indicated that Mr. Rangel’s rental profits varied from year to year, from $2,700 in 2004 to $7,600 in 1994.

A lawyer for Mr. Rangel, Lanny Davis, said on Thursday that the congressman would most likely file amendments to his tax returns for the years in question.

Mr. Davis said Mr. Rangel’s accountant believed he would most likely owe back taxes to the state and New York City.

But Mr. Rangel will probably have no federal tax liability, Mr. Davis said, because he considered the villa an investment rather than a vacation home, and was therefore entitled to deduct depreciation on the property, as well as taxes the resort management paid to the Dominican Republic.

Mr. Davis declined to release copies of the congressman’s tax returns and said he was gathering documents showing how often Mr. Rangel stayed at the home during the past two decades, a critical question because the Internal Revenue Service does not allow a property owner to deduct as much depreciation on a second home that the owner uses more than 14 days per year.

Mr. Davis said the congressman did not realize he had to declare the money as income, [doesn't he make the laws and shouldn't he know the law] and was unaware of the semiannual payments from the resort because his wife, Alma, handled the family finances and conferred with their accountant, John Viardi, on tax matters.

The money was never sent to the Rangels directly, according to Mr. Davis and resort records, but was used to defray the mortgage the company gave them when they bought the villa and $23,000 in subsequent construction costs in 2003.

The confusion was magnified, Mr. Davis said, by the fact that the statements from the resort were sent only intermittently. The congressman declined to be interviewed, but issued a brief written statement.

“I have asked my accountant to review all the data recently made available to me by the Punta Cana Hotel in the Dominican Republic concerning my investment 20 or so years ago in purchasing a unit in that hotel for occasional use over the years,” the statement said. “Once my accountant obtains and verifies the facts, I will follow his recommendations.”

Mr. Davis said that Mr. Rangel had paid scant attention to the villa’s finances until Sunday, when The New York Post reported that the congressman had failed to declare the rental income for 2006 and 2007 on his Congressional financial disclosure forms. “This is all news to him,” Mr. Davis said. A review by The New York Times of the records dating back to 1996 showed that the congressman also did not report the income in 1996 through 2000. Mr. Davis said on Thursday that Mr. Rangel would most likely file amendments to the disclosure forms as well.

The disclosure is a sworn statement, and intentionally filing a false report is a felony that carries a possible five-year prison sentence, but in most cases the House ethics committee does not punish members for errors or omissions.

New York State law classifies filing a false city or state tax return a felony punishable by up to four years in prison, but Kathleen M. Pakenham, a tax lawyer at the law firm of White & Case, said criminal prosecutions are rare and in most cases, the taxpayer is simply fined 20 percent of the back taxes owed. Under federal law it is a felony to “willfully” evade payment of taxes or file a false return, and sentences can include prison terms and fines of up to $100,000. But Daniel Goldberg, a tax law professor at the University of Maryland School of Law, said that the I.R.S. rarely pursued criminal prosecution or imposed fines in cases where no back taxes were owed.

Whatever his legal exposure, the tax problems present a political embarrassment for Mr. Rangel, a Harlem Democrat who has sat on the Ways and Means Committee since 1975. As chairman, Mr. Rangel has pushed for higher taxes on the wealthy, unveiling a $1.3 trillion proposal last year that businesses denounced as a threat to the economy. [I guess Charlie doesn't feel he should have to pay his fair share of taxes so he hides his wealth.]

His finances have been under scrutiny since July, after news reports that a major real estate developer had allowed him to lease four rent-stabilized apartments, including one he had used as a campaign office. Mr. Rangel announced he would give up the campaign office, but keep the other three, and asked the House ethics committee to investigate whether the landlord’s decision to charge him below-market rent should be restricted under the Congressional gift ban.

In his memoir, “And I Haven’t Had a Bad Day Since,” Mr. Rangel described his deep affection for the Dominican retreat.

“As I’ve spent time basking in the sun on the beach at Punta Cana in the Dominican Republic, where I have a little house facing a big ocean, and beholding the beauty of the Caribbean Sea in total relaxation, I’ve thought of telling God not to worry about me if it turns out there’s an overbooking or backlog on people waiting to get into heaven,” the congressman wrote. “I’ll be okay right here until it’s time for me to come.”

The villa, Casita 412, has three bedrooms and three bathrooms and is decorated with coral stone, heavy rattan furniture and stylish island fabrics. In July, a Times reporter visited the villa, which is nestled among palm trees with a stunning view of the ocean.

Mr. Rangel bought it for $82,750 20 years ago, according to documents from the resort. He was urged to buy the property by Theodore Kheel, a New York labor lawyer who was one of the principal investors in a plan to turn the southeast Dominican coast from a mostly deserted jungle into a tourist destination.

In 1984, Mr. Kheel and several partners opened a private airport in Punta Cana and by 1987 were soliciting buyers for properties at the resorts they were building nearby.

In a written statement on Thursday, Mr. Kheel said the congressman’s interest in the project was more recreational than financial. “The purpose of that investment was not to create cash payments to Mr. Rangel, but rather, to have a place for occasional vacations for himself and his family similar to a time share,” the statement read.

Over the past 20 years, Punta Cana Resort and Club — in which Julio Iglesias and Oscar de la Renta are among the investors — has become a premier luxury vacation spot, with a golf course, tennis courts, pristine beachfront and a 1,500-acre nature preserve just outside its gates.

Mr. Rangel’s recent financial disclosure forms listed the value of the property at more than $250,000, but Mr. Davis said its value was unclear because few of the casitas had been sold in recent years.

While units like Mr. Rangel’s rent for more than $1,100 a night in peak season, the congressman received only a fraction of that that income because of management fees, insurance and Dominican withholding taxes, which together accounted for more than half of the total rent received, according to Frank R. Ranieri, one of the founders of the resort. In a letter released by Mr. Rangel’s office on Thursday, Mr. Ranieri wrote that the remaining 47 percent of the rent collected for the villas was then pooled and then divided among the owners of all the villas.

Mr. Davis said that while Mr. Rangel’s failure to report the income from the villa was regrettable, it would be inaccurate to infer that the congressman was trying to conceal a highly lucrative investment.