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

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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