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Rangel Requests Ethics Inquiry on Villa Investment

SEP. 9, 2008

Rangel Requests Ethics Inquiry on Villa Investment

DATED SEP. 9, 2008
DOCUMENT ATTRIBUTES

 

Congress of the United States

 

House of Representatives

 

 

September 9, 2008

 

 

Hon. Gene Green

 

Acting Chairman

 

Committee on Standards of Official Conduct

 

U.S. House of Representatives

 

Room HT2

 

Washington, D.C. 20515

 

 

Dear Congressman Green:

This letter follows up on recent requests I have made to this Committee to initiate two separate inquiries concerning: (1) my apartments in New York; and (2) my efforts to assist City College of New York in establishing a Center for Public Service in my congressional district in Harlem. Today, I am writing to ask this Committee to review issues relating to my investment in a guest unit at the Punta Cana Hotel in the Dominican Republic and errors that I may have inadvertently made in tax and House financial disclosure form filings. I have attached a fact sheet about this matter issued by my attorney, Lanny J. Davis.

The errors in federal and state tax filings and House financial disclosure statements regarding my Punta Cana investment were entirely inadvertent and with no conceivable motive for non-compliance or non-disclosure.

That said, I wish to stress that I sincerely regret and take personal responsibility for these errors. As a Member of the House and the Chairman of the Committee on Ways and Means, I owe it to the House and the public to set the highest possible standard for others in meticulous treatment of my tax filings and financial disclosures. In this spirit, I am taking immediate steps to make matters right regarding past filings and to ensure more careful treatment of tax and financial disclosure issues in the future.

First, I have engaged a lawyer who will be singularly responsible from now on for reviewing all my tax and House financial disclosure filings to ensure that no such errors will occur again.

Second, I will shortly pay any taxes and penalties that may have resulted from these errors in tax filings as determined by my accountant. These amended returns will reflect modest taxes owed. (See attachment.)

Third, I will update and amend my House financial disclosure forms through all the years of my service in the House.

Finally, if I have violated any House Ethics Rules, I will accept whatever sanctions are appropriately decided by this Committee and will sincerely apologize to my colleagues.

Thank you for your time and attention. I would appreciate your full review and swift reply to this request.

Sincerely,

 

 

Charles B. Rangel

 

Member of Congress

 

Attachments

 

FACT SHEET ON PUNTA CANA VILLA

 

 

  • Until this week, Mr. Rangel was unaware that he was receiving non-cash income on his investment in Punta Cana that should have been reported on his tax returns, and he volunteered all information about it to the media. The primary reason for not knowing this was that the Punta Cana Hotel only intermittently sent statements over the last 20 years to investors showing credits to their mortgages.

  • Mr. Rangel's federal tax liability will be modest because the property was considered an investment rather than a vacation home, entitling him to deduct depreciation and receive a dollar-for-dollar tax credit in the United States for income taxes withheld and paid in the Dominican Republic (around 25-30%).

  • It is our understanding that Mr. Rangel might owe a small amount of money to the State and City of New York based on several thousand dollars viewed as income because D.R. income taxes paid are not credited in state and city taxes as they are in federal taxes.

  • Over the last 20 years, the Rangels invested a total of about $100,000 in the property and never received cash payments except for (1) $2,094 that was accidentally wired to Mr. Rangel in 2001 and should have been used as a debt reduction credit against his mortgage; and (2) $775 in June after the mortgage had been paid.

    • Here's the breakdown for the $100,000: The original purchase price was about $82,750. The Rangels gave a downpayment of about $28,900, making the original mortgage about $53,850. They subsequently invested about $23,000 for renovations. As a result, the total mortgage was about $75,000. Over time, rental income was automatically e-invested toward the mortgage. As a result, the down payment combined with the mortgage paid off to date result in a total investment of about $100,000. (See Sept. 3, 2008 letter from the Punta Cana Hotel).

    • Over 20 years and after an investment of about $100,000, the Rangels have received nearly $2,900 in cash (the $775 payment and the accidental 2001 wire of about $2,094) on their investment.

  • Alma and Charles Rangel were original investors in the development of the Punta Cana Hotel in 1988.

  • The purpose of the investment was not to create cash payments to the Rangels but instead to have a place for occasional vacations for himself and his family similar to a time share. All rental income received was credited against the mortgage.

  • Rental income was pooled among all investors, so it is of no relevance how often or for how much his unit was rented. After revenues were pooled, the hotel subtracted expenses and then the net amount was distributed equally to all villa owners based on the number of rooms a villa had. This net income pool to be distributed to investors was 47% of the original revenues and not 80% as reported. It is also false that the Rangel as as individual investors had an 80% split of the pool.

  • For original investors from outside the D.R., such as the Rangels, the Punta Cana development made a business decision after two years to waive charging 10.5% interest on the mortgages because, in the beginning, rental pool incomes were significantly below expectations. (See Sept. 5, 2008 letter from the Punta Cana Hotel).

  • This waiver of interest had no income tax consequences because the waiver was of a payment (interest) that would have been deductible if paid. (See Internal Revenue Code 108(e)(2)).

  • Mr. Rangel will make any necessary adjustments to his House financial disclosure forms after a full review.

Fact Statement: Lenox Terrace Apartments

 

 

A. 16th Floor Residential Units (16 - N-P, 16 - M)
  • Congressman Rangel and his wife moved into Lenox Terrace in November 1988 -- almost 20 years ago. The 16th floor apartment they moved into was an already existing three-bedroom apartment. While the unit had been two apartments at one time, the tenant who had lived there before the Rangels moved in had torn down the wall between two adjacent units and combined them into a single apartment.

  • The landlord leased the apartment to Mr. and Mrs. Rangel and his wife as a single apartment under one lease (designated on the lease as "Apartment 16 - N-P"). Rent is charged for this three bedroom apartment as a single unit, with one check written to pay for the monthly rent, and that has been the case for the entire 20 years they have lived there.

  • In January 1997 Mr. and Mrs. Rangel leased a second apartment on the 16th floor. Apartment 16 -- M -- immediately adjacent to the unit they had occupied since 1988. It is a small studio. That apartment became available when the prior tenant vacated it. The Rangels use the studio apartment for their residential and family purposes (for example, when children and grandchildren visit, as a separate personal study and library for Mr. Rangel, etc).

  • The two 16th floor apartments each are subject to the New York State rent stabilization law. Throughout the lease term, the landlord has charged them the maximum rent allowed by laws for both units.

  • Since Mr. and Mrs. Rangel moved into the first apartment 20 years ago, and the second adjacent studio apartment over 10 years ago, the landlord never once expressed a desire to them to "de-stabilize" these units by attempting to evict them or trying to seek higher rent. And, during this time period, they always paid the maximum lawful rent under the law.

  • Under New York Rent Stabilization Law, there is nothing illegal or unusual about someone renting more than one apartment that is rent-stabilized. As the New York Times reported on July 20, "the concept [of allowing tenants to rent more than one rent stabilized apartment in the same building] is even enshrined in state rent regulations." Quoted in that article is a New York lawyer who represented building owners stating that "a series of court cases in the late 1980s established the right of tenants to keep multiple apartments, even on different floors, if they were used as part of a combined primary residence." (As stated above, it is undisputed that their two apartments on the 16th floor -- the studio being adjacent to their main apartment of 20 years -- are used as their primary residence.)

  • It is not true, as some innuendo has suggested, that Mr. and Mrs. Rangel's residence in these two rent stabilized apartments for 20 and 10 years, respectively, had the effect of reducing the supply of moderate-income or affordable housing. As the New York Times reported on July 20, ". . . James Fishman, a consumer rights lawyer, said that their situation pointed out a fact surrounding many tenant cases. If they were forced out of their apartment, the landlord would most likely be able to renovate and 'flip it'" he said, "as a market-rate apartment, rather than renting it to another rent-stabilized tenant."

  • Over the years that Mr. and Mrs. Rangel have lived at Lenox Terrace, they have taken up the cause of tenants in the building. Mrs. Rangel was a "floor captain" for the tenants association. Congressman Rangel was an advocate for tenants in the building as well and at times wrote letters to the landlord protesting overly aggressive legal tactics used against fellow tenants.

  • The innuendo that Congressman Rangel was ever "lobbied" by the landlord, the Olnick Organization, or was asked to do or ever did anything personally or officially to benefit the landlord is false.

 

On one occasion several years ago, someone who identified himself as representing the landlord visited with Congressman Rangel and his chief of staff, who was also a tenant in the Lenox Terrace building, in Mr. Rangel's congressional office at the New York State Office Building at 163 West 125th Street in Harlem. The purpose of the visit, as was explained by this representative, was to get feedback from tenants on a proposed expansion plan of Lenox Terrace.

As reported by the New York Times, the Landlord representative did not ask for any action or assistance from the Congressman or his staff. The Times quoted a representative of the landlord as saying: "Mr. Rangel was not asked to do. nor did he do, anything for the company.

B. Apartment 10-U

  • On October 16, 1999, Mr. Rangel rented another apartment, Apartment 10-U (on the 10th floor), which was also a rent stabilized unit. Mr. Rangel paid the maximum lawful rent for that apartment under the law.

  • The landlord never asked Mr. Rangel to leave or to pay a higher rent.

  • In about May 2008, before any press reports about Mr. Rangel's apartments, his staff had asked the landlord about changing the location of the 10th floor campaign office to a refurbished unit across the hall. 10-U had no air conditioning in the main room (just a small window unit in the bedroom). The rent in the unit across the hall was to be twice as much or more than the rent the campaign and the political action committee (PAC) were then paying, but they still wished to make the move to improve the facilities and working environment. The staff asked the landlord about possibly moving into that more expensive unit across the hall, but never received a definitive response.

  • In July 2008, Mr. Rangel decided to move out of Apartment 10-U. A new office site has been located, and the move is anticipated to occur in the near future. Mr. Rangel has notified the landlord in writing that his office is not intending to renew the lease and has waived any rights the campaign and PAC might have under the rent stabilization law.

* * *

 

 

On July 24, Mr. Rangel wrote the House Ethics Committee and asked for an inquiry concerning the two units on the 16th floor and the one on the 10th floor. See Attachment D. On July 21, Mr. Rangel wrote Federal Election Commission Chairman Donald R. McGahn also seeking advice concerning these apartments under federal election laws.

Fact Statement: Letters Re. City College of New York Center for Public Service

  • In 2004, Congressman Rangel joined in discussions with officials at the City College of New York (CCNY) about creating a Center for Public Service at the college, which is located in his congressional district in Harlem, New York. The decision to name the center the "Charles B. Rangel Center for Public Service at the City College of New York" was made by the Board of Trustees of the City University of New York at the request of CCNY President Gregory H. Williams.

  • The Center's purpose is to attract young people from diverse racial and economic backgrounds to learn about public service and, perhaps, to pursue a career in public service. Mr. Rangel agreed with this worthy public purpose that had both local constituent as well as national value in encouraging young people to enter public service, and was honored to agree to have his name associated with it.

  • Mr. Rangel was also honored to agree to deposit all his congressional and state legislative papers over the last 40-plus years, housed in a library that would serve as a trove for research and understanding the events, issues, and people involved during his years in public service. The Center volunteered that Mr. Rangel would also have a small office in the facility.

  • Mr. Rangel agreed initially to assist CCNY by supporting congressional appropriations for the planning phase of the project and was successful in doing so, securing fully transparent earmarks of $1.9 million in the 2007 Labor, Health and Human Services, and Education appropriations bill and approximately $700,000 in the 2007 Housing and Urban Development bill. These appropriations were consistent with the legislative purposes of the programs for which they were funded.

  • Mr. Rangel also agreed to facilitate bringing together with CCNY executives, including President Williams, leaders of charitable foundations, companies and business leaders in the New York City area as well as several business leaders whom Mr. Rangel knew personally. Mr. Rangel did so by mailing a total of approximately 100 letters on his congressional stationery dated June 2005. These letters were addressed to private family and corporate foundations. In July 2006, approximately 47 follow-up letters were sent to a portion of the original mailing. In March 2007, Mr. Rangel sent three letters to longstanding personal friends who are committed to philanthropy.

  • None of these letters made any reference to or in any way solicited financial contributions to the Center. They all sought meetings to encourage "dialogue" and discussions concerning this project with leaders of CCNY, including President Williams, and to provide additional information about the Center. It was certainly understood by Mr. Rangel that the meetings could result in recipients making donations and assisting CCNY in planning for the Center for Public Service.

  • There has never been, is not, and never would be any personal financial gain to Mr. Rangel or his family from the successful completion of the Center.

  • None of those who received the letter had any pending requests into Mr. Rangel's office or had asked him for assistance or support on any congressional-related matter.

  • On July 22, 2208, MR. Rangel wrote the House Ethics Committee and asked for an inquiry concerning these letters and the use of congressional letterhead.

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