The friends of John Edwards: Tax notes

In its case against John Edwards the government has apparently chosen to overlook the possible criminal violations of the tax laws. Even the conspiracy count of the indictment focuses only on federal campaign finance law. It’s worth pausing over the indictment to make some notes on the tax angle. I make these notes based on a review of the indictment with the proviso that I am not a tax lawyer.
Bunny Mellon made payments totaling $725,000 for the personal benefit of John Edwards beween June 2007 and January 2008. She knew what she was doing was wrong. She therefore attempted to conceal the true purpose of her payments. She made her checks payable to “a friend,” left unnamed in the indictment, and falsely listed items of furniture on the memo lines of the checks (the indictment lists “chairs,” antique Charleston table, and “book case” as examples).
The late Fred Baron made payments totaling approximately $200,000 between December 2007 and January 2008. Baron’s payments went for the travel and living expenses, among others, of Edwards aide Andrew Young and Edwards’s mistress. Baron knew what he was doing was wrong. He provided cash to Young in an envelope that contained a note that read: “Old Chinese saying: use cash, not credit cards!” Baron’s experience as a plaintiff’s personal injury attorney had apparently served him well.
Gifts are not taxable income to the donee. They are taxable to the donor if over the annual exempt amount ($12,000 for the period 2006-2008). Mrs. Mellon has apparently filed the applicable gift tax returns. But based on the indictment, you have to wonder if Mrs. Mellon accurately listed the donee’s name and address on the gift tax returns. That would be interesting to know.
Based on the indictment, you have to wonder if Fred Baron covered the tax angle in any respect. I highly doubt it. He seems to have been operating in the mode made famous by Watergate.
Considered from the tax angle, the government’s choice to make this a campaign finance case is somewhat difficult to understand. The indictment certainly does not provide sufficient information to understand it. But one must also take into account that Baron is deceased, and Mrs. Mellon is a distinguished public-spirited centenarian,. Whatever they did was for the greater glory of John Edwards (a point the indictment certainly gets right).


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