Charles Rangel - Ownership of Dominican Villa

Summary

Congressman Rangel owns a villa at a resort in the Dominican Republic.  In 2008, it was discovered that he had not reported income from that villa, had not paid taxes on that income, and that the loan he used to purchase the villa had been altered to an interest only loan.  Congressman Rangel claimed he was unaware of the income.  Congressman Rangel is currently the head of the Ways and Means Committee which oversees tax laws and has been on the committee for decades.

Failure to report income

In 1988, Congressman Rangel purchased a three bedroom beachfront house at the Punta Cana resort and club. The resort, with tennis courts, a 1,500-acre nature preserve, golf and a marina, has emerged as one of the most desirable in the Caribbean, attracting celebrity investors like Oscar de la Renta and Julio Iglesias and high-profile guests like former President Bill Clinton.  Congressman Rangel paid $88,900 for the villa, putting $28,900 down and taking out a mortgage for the balance from the resort owner.  

The unit that Congressman Rangel purchased rents from $500 to $1000 a night. Since purchasing the villa, Congressman Rangel has earned roughly $75,000 in income, which he has not reported and on which he has not paid Federal, State, or City taxes.

Interest free loan

Initially, the loan taken out by Congressman Rangel to cover the remaining portion of the cost of the villa was done so at an interest rate of 10.5%.  In 1990, the resort changed the status of the loan to interest free.  The director of the Punta Cana Yacht Club, Jose Oliva, claimed that the loans were changed to no interest for a small group of "pioneers" who were not seeing the return they were promised on the investments.  Mr Oliva wrote in a statement:

 After the first two years of operation of the rental pool, PCYC decided in its business judgment to forego the interest charges because the financial results from the rental pool of the units was significantly below what those original investors had been told to expect.  This was intended to bring the installment payments of the deferred purchase price more in line with expected rental pool payments. The company was financing the units at 10.5 percent that was to have been payable quarterly over seven years.

Congressman Rangel's Response

Congressman Rangel responded to questions about the failure to report the income and to question about the change in interest rates at a press conference on September 9, 2008, and in statements released by his lawyer.  At a Capitol Hill news conference, Congressman Rangel said that he had not been aware of the income and unpaid taxes in part because he had trouble getting detailed financial statements from the resort’s managers in the Dominican Republic.

Every time I thought I was getting somewhere, they’d start speaking Spanish

When pressed for further response and as to whether he thought this would lead to his stepping down from the head of the Ways and Means Committee, or to his possible resignation, Congressman Rangel responded:

I really don’t believe making mistakes means you have to give up your career.

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I personally feel I have done nothing morally wrong.

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I never had any idea that I got any income.

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I wouldn’t judge whether it’s time for you to leave

The interest free loan may be considered a gift.  Congressman Rangel's lawyer, Lanny Davis, said that other non-Dominican investors were given the same deal at the same time.  Mr. Davis also claimed that Congressman Rangel was unaware of the interest rate change as statements were not sent to him or his wife.

It was a business judgment made by the hotel developer (which wanted to keep its original investors happy)

Repayment of taxes

On Thursday, September 18, 2008, Congressman Rangel sent six checks to the IRS and New York state.  The total amount was $10,800 to cover unpaid taxes from the previously unreported income on the Dominican Villa. The checks cover three years owed by Rangel, who vows to fight what he calls "partisan" attack over his personal income woes.

References

[1] Website: The New York Times Article: Rangel Tries to Explain Back Taxes on Villa Author: DAVID KOCIENIEWSKI Accessed on: 05/03/2010

[2] Website: Bloomberg Article: Rangel Got Interest-Free Loan on Dominican Villa (Update2) Author: Ryan J. Donmoyer Accessed on: 05/03/2010

[3] Website: The New York Daily News Article: Rep Charles Rangel pays IRS and New York $10K for back taxes Author: JAMES GORDON MEEK AND KENNETH R. BAZINET Accessed on: 05/03/2010

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