White House Says Daschle's Tax Failure Was a 'Serious Mistake'

After a closed-door session before the Senate Finance Committee this evening, embattled Health and Human Services nominee Tom Daschle apologized and said his failure to pay taxes was unintentional.

"I deeply apologize to President Obama, to my colleagues and the American people," Daschle said. "I would hope that my mistake could be viewed in the context of 30 years of public service."

The failure by the former Senate majority leader to pay taxes on the free use of a car and driver for several years, first reported Friday by ABC News, complicates Daschle's nomination and erodes the chances that it will sail through the Senate.

Daschle said tonight he did not realize his car service was income and not a gift from a good friend.

After the closed-door session, the Democratic senators on the Finance Committee expressed support en masse for their former colleague.

"There is a completely understandable, rational, reasonable and acceptable explanation" for his mistakes," Sen. John Kerry, D-Mass., said.

Sen. John Rockefeller, D-W.Va., said that everything discovered so far was discovered by Daschle himself. "None of it was intentional, none of it willful," Rockefeller said.

The White House today called Daschle's failure to pay more than $100,000 in back taxes a "serious mistake," but the president still "absolutely" supports his nomination to be secretary of Health and Human Services.

In a letter to Senate Finance Committee chairman Max Baucus, D-Mont., and ranking Republican Sen. Charles Grassley of Iowa, Daschle said he was "deeply embarrassed" and offered up a timeline to explain how he had overlooked taxes on more than $300,000 worth of income he gained through consulting work, including the use of a car and driver.

"I apologize for the errors and profoundly regret that you have had to devote time to them," Daschle wrote.

Baucus issued a statement voicing his support for his former colleague, with whom he has tangled in the past, and said he is eager to move forward with the nomination.

"I have applauded Sen. Daschle's nomination to the post of HHS secretary and my faith in his dedication and qualifications has only been bolstered in recent weeks by our numerous conversations about the pressing need for comprehensive health care reform," the statement from Baucus read.

At the White House, Obama expressed his unequivocal support for his choice to head HHS.

"Absolutely," Obama said today in the Oval Office when asked whether he still supports Daschle.

White House spokesman Robert Gibbs later said that Daschle's failure to pay the taxes was a "serious mistake, one that he caught and remedied. We still think that he is the best person to do health care reform."

A Cadillac and a Driver Lead to Tax Problems

The tax issue centers around a car and driver lent to Daschle by a wealthy Democratic friend, a chauffeur service the former senator used for years without declaring its use on his taxes.

After being defeated in his 2004 re-election campaign to the Senate, Daschle in 2005 became a consultant and chairman of the executive advisory board at InterMedia Advisors.

Based in New York City, InterMedia Advisors is a private equity firm founded in part by longtime Daschle friend and Democratic fundraiser Leo Hindery, the former president of the YES cable TV network that carries Yankees baseball and Devils hockey games. The same year he began his professional relationship with InterMedia 2005, Daschle began using the services of Hindery's car and driver.

The Cadillac and driver were never part of Daschle's official compensation package at InterMedia, but Daschle -- who as Senate majority leader enjoyed the use of a car and driver at taxpayer expense -- didn't declare their services on his income taxes, as tax laws require.

During the vetting process to become HHS Secretary, Daschle corrected the tax violation, voluntarily paying $101,943 in back taxes plus interest, working with his accountant to amend his tax returns for 2005 through 2007. Daschle reimbursed the IRS $31,462 in taxes and interest for tax year 2005; $35,546 for 2006; and $34,935, Daschle spokesperson Jenny Backus said.

Daschle explained in his apology letter that the issue of the unpaid taxes for the car and driver came up after the presidential transition team flagged charitable contributions they said were deducted in error.

"When my accountant realized I would need to file amended returns, he suggested addressing another matter I had raised with him earlier in the year: whether the use of a car service offered to me by a close friend might be a tax issue," Daschle wrote. "In December, my accountant advised me that it should be reported as imputed income in the amended returns."

Backus explained that the car was not provided as part of his compensation. "So it never occurred to him that it should be considered income. The senator simply and probably naively considered its use a generous offer by a longtime friend."

Daschle Faces Tax Questions

According to a source close to Daschle, the former senator asked his accountant in June 2008 to look into whether there were tax implications for the car and driver he'd been using.

Daschle said in his letter that he has been transparent since these issues were discovered.

"We provided all this information to the committee in addition to the completed committee questionnaire and my responses to your staff's questions. I disclosed this information to the committee voluntarily, and paid the taxes and any interest owed promptly. My mistakes were unintentional," he wrote.

This is the second Obama Cabinet nominee to face questions of tax malfeasance. Treasury Secretary Tim Geithner paid more than $34,000 in taxes during his vetting process for income earned at the International Monetary Fund. Earlier, Commerce Secretary nominee Bill Richardson withdrew his name from consideration after reports of a federal investigation involving whether his office had engaged in pay to play, an allegation the New Mexico governor denied.

Daschle has long been one of Obama's closest advisers and was one of the early supporters for his presidential bid. The former Democratic leader was officially nominated for HHS secretary Dec. 11, 2008.

ABC News' Sunlen Miller contributed to this report.

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