By Ceci Connolly, Paul Kane and Joe Stephens <http://projects.washingtonpost.com/staff/email/ceci+connolly,+paul+kane+and +joe+stephens/>

Washington Post Staff Writers, January 31, 2009; Page A01

Thomas A. Daschle, nominated to be secretary of the Department of Health and Human Services, did not pay more than $128,000 in taxes over three years, a revelation that poses a potential obstacle to his Senate confirmation.

 The back taxes, along with $12,000 in interest and penalties, involved unreported consulting fees, questionable charitable contributions, and a car and driver provided by a private equity firm run by entrepreneur and longtime Democratic Party donor Leo J. Hindery Jr., according to a confidential draft report prepared by Senate Finance Committee staff.

A spokeswoman for Daschle confirmed last night that he recently paid back taxes in excess of $100,000. She said that Daschle, a former Senate majority leader, and his accountant discovered the error regarding the luxury car service and reported it to the committee after his vetting was completed.

Daschle paid the back taxes six days before his first Senate confirmation hearing with the Senate Health, Education, Labor and Pensions Committee. The Finance Committee, however, has jurisdiction over his nomination.

Daschle, one of President Obama's earliest and most steadfast campaign supporters, is the second Cabinet nominee to acknowledge tax errors. On Jan. 13, Timothy F. Geithner, who was chosen to run the Treasury Department, disclosed that he had not paid some taxes and subsequently paid $43,000 in taxes and penalties. He was sworn in on Jan. 26.
 
Because of an apparent clerical error by the equity firm, Daschle did not report more than $83,000 in consulting fees in 2007 and has not provided sufficient documentation relating to $15,000 in charitable contributions over three years, according to the panel's report. He and his wife, Linda, gave $276,000 in charitable contributions during the three-year period being studied by the panel, according to a Daschle aide.

His spokeswoman, Jenny Backus, said the presidential transition team "concluded that some of his charitable donations were not properly documented and may have been deducted in error," and the couple paid $5,693 in back taxes.

Daschle has been called to appear before the full committee Monday in a closed-door session.

He is considering amending his tax returns a second time because he did not pay Medicare taxes on the additional taxable income he incurred related to his use of the Cadillac. Finance panel staff members found that lapse.

In addition to earning $2.1 million from the law firm Alston & Bird, the former three-term senator has also been on the payroll of Hindery's private equity firm, InterMedia Advisors, since he left the Senate in 2005, earning $1 million per year, according to documents filed with the Office of Government Ethics.

Daschle's failure to inform the Internal Revenue Service about the car service was first reported by ABC News last night.

 A White House aide, speaking on the condition of anonymity, said Daschle's tax problems were "discovered during the vetting process, and the Obama team became aware of it as Senator Daschle prepared to submit his nomination papers."

In a statement last night, White House press secretary Robert Gibbs said: "Senator Daschle brought these issues to the Finance Committee's attention when he submitted his nomination forms, and we are confident the committee is going to schedule a hearing for him very soon and he will be confirmed."

He declined to provide information on when and how the president learned of the situation.

Daschle, 61, is one of Obama's last Cabinet nominees still unconfirmed. Obama has yet to name a second choice for commerce secretary after New Mexico Gov. Bill Richardson (D) withdrew his nomination, citing an ongoing "pay-to-play" investigation into one of his political donors. The Senate is expected to vote Monday on the nomination of Eric H. Holder Jr. for attorney general.

Backus, Daschle's spokeswoman, said Daschle "naively" believed the car service was "nothing more than a generous offer from a friend.

Last June, Daschle "mentioned the use of the car" to his accountant and asked whether the service could be construed as a reportable gift or payment, Backus said.

The accountant intended to correct the error in Daschle's 2008 tax filing, she said.

Daschle's "failure to recognize this as an issue and to discuss it with his accountant earlier is something he regrets and for which he takes full responsibility," she said. According to the Senate committee, Daschle used the car 80 percent of the time for personal purposes. That service was worth more than $255,000 in unreported income, according to the committee report.

Under tax law, not reporting income -- including free services such as air travel or a car service -- can be a crime. But such lapses must be "willful and intentional" to be prosecuted, according to a tax expert.

Top Senate aides and a handful of lawmakers expressed reluctance to publicly speculate on how damaging the revelations might be.

A spokeswoman for Sen. Charles E. Grassley <http://projects.washingtonpost.com/congress/members/g000386> (Iowa), the ranking Republican on the finance panel, issued a statement promising a thorough examination.

"All relevant information about a nominee must be made public in order for the confirmation process to go forward," said spokeswoman Jill Gerber. "Committee members must weigh all the facts of a nominee's record." Meanwhile, some of Daschle's former Senate colleagues rallied behind him, predicting he will be confirmed.

"He has a long and distinguished career and record in public service and is the best person to help reform health care in this country," Jim Manley, spokesman for Senate Majority Leader Harry M. Reid <http://projects.washingtonpost.com/congress/members/r000146> (D-Nev.), said in a statement. "Sen. Reid looks forward to a swift hearing and is confident Daschle will be confirmed."

The central issue for Daschle hinges on what has been an obscure -- but financially rewarding -- aspect of his post-Senate life: his role as chairman of the advisory board of Hindery's InterMedia Advisors.

Daschle and two other former senators -- Bob Kerrey (D-Neb.) and Slade Gorton (R-Wash.) -- headed the board and were rewarded handsomely for the investments InterMedia made in small niche media corporations.

Founded as InterMedia Partners, the New York-based firm was recast in March 2005 when Daschle was brought in as an investor and head of the advisory board. That group consists of other major Democratic figures, including Cappy R. McGarr, who runs a Dallas investment firm and served as Daschle's political treasurer, and Bernard L. Schwartz, a former chief executive of Loral Corp. and a major Democratic donor.

Research editor Alice Crites contributed to this report.

* * * * * * * "The best we can hope for concerning the people at large is that they be properly armed." -- Alexander Hamilton, The Federalist Papers at 184-188