President's cost basis should be reduced by the depreciation and amortization allowable on the New York apartment resulting from its use in a trade or business by Mr. Nixon. The staff determined that the amount of depreciation and amortization allowable is $8,936. The staff measures the total capital gain at $151,848, which in its view should be reported as income in 1969.

(4) The staff believes that depreciation on the San Clemente house and on certain furniture purchased by the President, business expense deductions taken on the San Clemente property, as well as certain expenditures from the White House "guest fund" are not proper business expenses and are not allowable deductions. These deductions totalled $85,399 during the years under examination. In the case of the purchase of part of the furniture, however, the staff believes the Government should reimburse President Nixon for his expenditure.

(5) In the case of capital gain on the sale of the Cape Florida Development lots in 1972, 60 percent was reported by President Nixon and 40 percent was reported by his daughter Patricia. The staff believes the entire amount should be reported as income to the President. Thus, in the view of the staff, he should report $11,617 (this is the amount allocated to his daughter from the installment payment in 1972) as a capital gain in 1972 and the remainder of the gain in 1973. On this basis, Mrs. Cox should also file an amended return and not include any of this gain for 1972 (or in 1973). Also, on this basis President Nixon could deduct as interest part of the payment he made in 1973 to Patricia on the money she loaned him. She, of course, should report the interest as income in 1973.

(6) The staff believes President Nixon should declare as income the value of flights in Government planes taken by his family and friends when there was no business purpose for the furnishing of the transportation. The staff was given no information about family and friends on flights where the President was a passenger. However, for other flights the first-class fare costs of his family and friends are estimated to be $27,015 for the years 1969 through 1972. From April 1971 through March 1972 and again after November 7, 1972, President Nixon paid for most of such travel expense himself.

(7) The staff believes that President Nixon should declare as income $92,298 in improvements made to his Key Biscayne and San Clemente estates. The only improvements taken into account for this purpose, the staff believes, were those undertaken primarily for the President's personal benefit.

(8) The staff believes the President should be allowed an additional $1,007 in sales tax deductions.

(9) The staff believes that $148 of gasoline tax deductions should not be allowed for 1969 through 1971. However, the staff has determined that an additional $10 in gasoline tax deductions is allowable for 1972.

(10) Several other income items should be reported on President Nixon's tax returns, although these are entirely offset by deductions and hence do not increase taxable income.

Each adjustment in tax by year is shown in Table 1.

PART ONE

GIFTS OF PAPERS

1. Scope of Examination

On his tax return filed for 1969, President Nixon claimed a deduction for a charitable contribution to the United States. The tax return indicated that the gift consisted of personal papers, manuscripts, and other materials; that the date of the gift was March 27, 1969; and that the value of the gift was $576,000. The tax return also indicated that there were no restrictions on the gift and that the gift was free and clear, with no rights remaining in the taxpayer.

The amount of this gift allowed as a deduction in 1969 was $95,298. The deductions for this gift carried over and taken in subsequent years are as follows: in 1970, $123,959; in 1971, $128,668; and in 1972, $134,093. Accordingly, the President has taken deductions totaling $482,018. Since the gift is valued at $576,000, presumably deductions of $93,982 remain for subsequent years.

A deed for this gift of papers, dated March 27, 1969, was delivered to the General Services Administration shortly after April 10, 1970. This deed was not signed by President Nixon but rather by Edward L. Morgan, a deputy counsel to the President who was on John Ehrlichman's staff. Questions have been raised whether Mr. Morgan had the authority to sign the deed, whether the deed was backdated, and also whether a deed was necessary for this gift.

The President also made a gift of papers to the United States in 1968. Since in 1968 the amount of the gift was in excess of the maximum charitable contribution deduction available in that year, a carryover was available to be used in future years, but it has not been used because the amount of the charitable contribution by the President in 1969 was large enough to account for the maximum allowable charitable contributions through 1972.

In 1969, the Congress passed, and the President signed, the Tax Reform Act of 1969 which contained amendments which, in effect, repealed provisions of the Internal Revenue Code allowing charitable contribution deductions for gifts of papers.' The 1969 Act repealed these provisions retroactively as of July 25, 1969. This had the effect of allowing a charitable contribution deduction for gifts of papers if they were made on or before July 25, 1969, but not if they were made after that date. The question has arisen whether the gift of papers for which President Nixon claimed a deduction was completed prior to July 25, 1969.

The staff has examined the gift of papers to the United States made by President Nixon (through the General Services Administration) and claimed in part as a deduction on his 1969 tax return to determine whether the gift was actually made prior to July 25, 1969.

1 As a result of the Tax Reform Act of 1969, a charitable contribution of ordinary income property is reduced by the amount of unrealized appreciation. This act also provided that letters, memoranda, and similar property (or collections thereof) are to be treated as ordinary income assets if they are held by a taxpayer whose personal efforts created the property or for whom the property was prepared or produced (or by a person who received the property as a gift from the person who created or prepared it). For this purpose, letters and memoranda addressed to an individual are considered as prepared for him. This explanation is taken from the Senate Report on the Tax Reform Act of 1969 (No. 91-552), pp. 88 and 199. See also IRC sections 170(e), 1221(3), and 1231 (b) (1) (C).