the employee's work." The deduction would be disallowed on this ground.

The staff believes that the deduction in this case should be disallowed, but believes that unless substantial evidence is presented showing that the Cabinet table serves no significant business purpose, the Government should reimburse the President for his full cost.

PART FIVE

SALE OF FLORIDA LAND

1. Scope of Examination

White House Statement on President and Mrs. Nixon's finances released on December 8, 1973

In a statement released by the White House on December 8, 1973, it was stated that in April 1967 President Nixon bought two undeveloped lots in Florida as an investment from Cape Florida Development Co., Inc., for a total consideration of $38,080. The statement indicated that in May 1967, President Nixon entered into an oral agreement with his daughter, Patricia, who had recently turned 21, and had received the proceeds of a trust fund which had been set up for her by a family friend, Mr. Elmer Bobst. According to the statement, under the oral agreement Patricia was to loan $20,000 to her father in return for a demand note for $20,000 and a 40-percent participation in any profit from the real estate venture. She was to have no management or control over the property and would receive the $20,000 back from her father regardless of whether the venture proved successful.

On December 28, 1972, the properties were sold to a Mr. William Griffin for $150,000. The sale expenses were $650 leaving a balance of $149,350. Given the cost of $38,080, this meant the total profit was $111,270. At that time, Mr. Griffin paid $38,500 to the President and executed two purchase money notes payable to President Nixon, one for $95,850, due and payable on January 10, 1973, and one for $15,000, due and payable on December 13, 1973. (The President reported on his tax return that Mr. Griffin made an initial down payment of $39,150 rather than $38,500; the difference between these two amounts represents the sale expenses of $650.) The first note was paid when due and the second note has recently been paid. The installment payments of $95,850 and $15,000 plus the $39,150 down payment account for the gross sales price of $150,000.

According to the December 8, 1973, statement, President Nixon paid his daughter under their oral agreement 40 percent of the profit, amounting to $44,508 plus her original $20,000. The total amount she received was rounded up from $64,508 to $65,000 with the difference of $492 being treated as a gift from the President to Patricia.

President Nixon's tax return for 1972 showed a realized gain from this transaction of $17,424. According to the December 8 statement, the balance of the payments made on the final installment were received in 1973; thus, on this basis presumably the President and Mrs. Nixon's tax return for 1973 will reflect a further gain on this transaction of $49,338.

The demand note

The demand note signed by President Nixon to his daughter, Patricia, was for $20,000 with interest at the rate of 6 percent per annum from July 1, 1967 (Exhibit V-1 in the Appendix). The note was dated June 28, 1967. Although the statement released on December 8, 1973, indicated that this note was made public "evidencing her investment in Cape Florida lots transaction," there is no indication on the note or any other document accompanying the note that the

note was in any way related to her purported investment in the Cape Florida lots.

In its examination of the President's tax returns, the staff noted that there was no deduction for any interest paid on the note to Patricia by President Nixon. Newspaper accounts indicate that White House officials stated that President Nixon never made any interest payments on this note.

The purchase of the Florida lots

As indicated in the White House statement of December 8, 1973, President Nixon purchased the two undeveloped lots in Florida from Cape Florida Development Co., Inc., for a total price of $38,080; the lots were bought in April 1967. President Nixon paid for the purchase by giving Cape Florida Development Co., Inc., a purchase money note for $22,100, leaving a balance of $15,980 which presumably was paid in cash as a down payment on the lots. The note to Cape Florida Development Co., Inc., bore interest, and this interest was paid on a regular basis by President Nixon. No principal was paid on the note until June 25, 1971, when the entire amount of the note was paid by President Nixon.

2. Staff Examination of the Cape Florida Lots

In his interview with the Joint Committee staff, Frank DeMarco related that he met with John Ehrlichman and Herbert Kalmbach at San Clemente in January 1970, where he was informed by Mr. Ehrlichman that Patricia Nixon Cox had $20,000 invested in the Cape Florida lots and that she and the President had "some kind of arrangement on splitting up the profits."

Mr. DeMarco said that in 1972 he received a phone call from C. G. Rebozo, who told him that he had located a buyer for the President's Cape Florida lots and wanted to know whether the sale should be on a cash or an installment basis. Mr. DeMarco said he called Arthur Blech to ask his advice and that Mr. Blech recommended an installment sale. According to Mr. DeMarco, Mr. Rebozo told him that President Nixon and his daughter Patricia had an arrangement whereby she was to receive 40 percent of the profits from the sale. Mr. DeMarco noted that he never engaged in any discussion of whether splitting up the capital gain between the President and Mrs. Cox would minimize their tax burden but that he was apprehensive because Mrs. Cox was not named on the title deed to the property. Peter Kinsey, who worked on John Dean's staff in the White House in late 1972, told the staff in an interview that sometime late in that year he was asked by either Mr. Dean or Mr. Ehrlichman to calculate the tax consequences of various ways of dividing the capital gain on the Cape Florida lots between the President and Mrs. Cox. It was this order, he said, that occasioned a phone conversation with Mr. DeMarco in which Mr. DeMarco expressed concern that since there was no written agreement between the President and his daughter it might be necessary to include the whole gain as income to President Nixon.

Mr. Kinsey said that in December 1972 he prepared a memo for Mr. Dean's signature to Mr. Ehrlichman that laid out the basic options on the tax treatment of the sale. He said he received a memo

from Mr. Ehrlichman to Mr. Dean saying that the President wanted a more detailed discussion of the tax consequences in terms of "dollars and cents" figures. According to Mr. Kinsey, he then prepared a second memo on the subject which included pro forma tax calculations for the President involving two options: the President's receiving the whole gain, or his receiving 17/37 of the gain.

The Joint Committee staff has asked for all of these memoranda but has been unable to obtain them.

Mr. Ehrlichman, in his staff interview, denied that there was any attempt to apportion the gain on the sale of the lots in order to minimize tax liability. He said that the memos from Mr. Dean to him on the apportionment of the proceeds from the sale were written before Mr. Ehrlichman talked to the President about the Cape Florida lots. Mr. Rebozo, in his interview with the staff, said that he understood from the beginning that President Nixon and Patricia had an agreement under which she was to have an interest in any profits on the real estate venture. He said he was the one who came up with the "60/40 split." He said that he based it on his impression as to their respective investments in the lots. He said that he had thought President Nixon had invested $30,000 in the purchase of the lots and that Patricia invested $20,000. Mr. Rebozo said that until recently he thought that President Nixon had not invested less than $30,000. He also said that his determination of the "60/40 split" was not made at the time of the loan (although the December 8, 1973, statement on President and Mrs. Nixon's finances reported that the determination was made at the time of the loan), but rather at a subsequent time, which he could not recall more specifically. He said, however, that he made this determination well before the discussions of the sale of the lots. Mr. Rebozo stated that from the beginning there had been an oral agreement for Patricia to share in the profits and that he merely developed the formula based on what he had thought were their respective investments in the venture.

Representations made by the President's attorneys to the accountant on the transaction

When Arthur Blech met with the staff, he indicated that he raised questions about the treatment of the sale of the Cape Florida lots. He indicated that he needed some evidence of the agreement between the President and Patricia in order for him to prepare the tax return. In response to this, on April 2, 1973, Frank DeMarco, on behalf of the law firm (Kalmbach, DeMarco, Knapp & Chillingworth) representing the President, wrote to Mr. Blech to advise him that he was entitled to rely on the representations made in the letter (Exhibit V-2) that "on or about April 1, 1967, Mr. Nixon borrowed the sum of $20,000 from his daughter, Patricia (Tricia) Nixon, for the express purpose of investing same in the acquisition of two parcels of real property." "The letter then set forth the basic agreement of Patricia's interest in the property, essentially as indicated above. The letter indicated that Mr. Nixon and his daughter characterized her interest in the property as a "profit participation interest."

The letter also indicated that a memorandum of the transaction between Mr. Nixon and his daughter was prepared and signed by them some time after the initiation of the transaction and prior to the sale of the property. The letter said that the law firm would supply copies of that memorandum to Mr. Blech.

Mr. Blech indicated that the memorandum was never furnished to him but that based on this letter (from the attorney's office representing President Nixon) he treated the sale of the property according to the oral agreement for purposes of the 1972 tax return.

Letter by President Nixon to the Commissioner of Internal Revenue

In the course of the staff investigation, President Nixon's attorneys were asked to supply the memorandum that Mr. DeMarco's letter to Mr. Blech said had been signed by the President and his daughter to sustain the President's tax position on this issue. The staff has not received this memorandum and now understands it does not exist. President Nixon sent a letter dated March 12, 1974, to Donald C. Alexander, Commissioner of Internal Revenue, which states, "The letter of Mr. Frank DeMarco, Jr., of April 2, 1970 (sic) contains an accurate description of that loan." (Exhibit V-3) President Nixon's letter states additionally that Mr. DeMarco's letter is "incorrect, however, in stating that Patricia and I signed a memorandum reflecting the terms of the loan."

Transfers of proceeds from sale of lots

The staff also reviewed the transfers of the proceeds from the sale of the two lots. As indicated earlier, the sale was made on the installment basis. The first installment of $39,150 was paid to President Nixon on December 28, 1972; none of the money received from this installment payment was paid to Patricia. The second installment of $95,850 was paid to President Nixon on January 8, 1973; none of this installment payment was paid to Patricia at that time. The third installment was paid in December 1973.

On March 12, 1973, however, the full $65,000 was transferred from the President's account in the Key Biscayne Bank to the account of C. G. Rebozo; none of the proceeds from the sale went directly to Patricia or was deposited in her account. (Although the final installment payment had not been made at this time, the full amount President Nixon was to pay Patricia was accounted for in this transfer on March 12 from the President's account to Mr. Rebozo's account.) The staff understands that Mr. Rebozo borrowed the $65,000 from Patricia and signed a 3-year note dated March 5, 1973, which the staff has been furnished, and which bears interest at 8 percent payable semi-annually with the principal amount due on March 5, 1976. The staff understands that an interest payment on this note was paid on June 30, 1973, by Mr. Rebozo and was put in the savings account in the Key Biscayne Bank which is in the names of Miss Patricia Nixon and Mrs. Patricia Nixon.

3. Staff Analysis

The staff examined this transaction to determine whether the gain on the sale in 1972 of the Cape Florida lots should be divided between President Nixon and his daughter Patricia. The staff discussed this matter with President Nixon's attorneys, requested that they supply the staff with all relevant information bearing on the transaction, discussed the transaction in the course of interviews with members of President Nixon's staff and other persons, and reviewed the information available.