The staff has asked the President's accountant to submit any additional information with respect to gasoline purchases that he believes is relevant, but since nothing more has been provided, it is assumed that the amounts recorded in the President's books represent the total amount paid for gasoline by the President.

It appears that there are significant inconsistencies between the number of miles of driving that would be needed to sustain the gas tax deduction claimed (which was based on the tax tables) and the amounts paid for gasoline in 1969-1972. (In addition, in one year it appears from the information available that the deduction claimed is larger than the amount paid for gas.) On this basis, and on the basis of the investigation at San Clemente, the staff does not believe that the amounts taken as gas deductions can be supported.

Based upon these purchases the staff computed the amount of gasoline tax deductions using certain assumptions as to mileage per gallon and the price per gallon of gasoline. The California gasoline tax was 7 cents a gallon except for three months in 1969 when the gasoline tax was 8 cents a gallon. The staff assumes that the average rate of consumption over these 4 years was 12 miles per gallon (which appears to be reasonable in view of the condition of the truck and the use which was made of it) and an average cost per gallon for those years of 35 cents including sales tax. Based on these data, the computations made by the staff are as follows:

1 Amounts paid for gasoline divided by 35 cents (estimated price per gallon).

2 Estimated gallons purchased multiplied by 12 miles per gallon.

3 The effective gasoline tax per gallon for California in 1969 was 7.25 cents and for 1970-1972 it was 7.0 cents.

For purposes of the gas tax deductions, the staff recommends the allowance of the higher of the amount determined from the gasoline tax table or the computed tax payments. On this basis the disallowance for each year would be as follows:

1969

1970_

1971.

$53. 06

63. 00

31. 78

An additional amount of $10.08 would be allowed on this basis for

PART TEN

MISCELLANEOUS ITEMS

In addition to the items referred to above the staff has made a thorough examination of all other items on President Nixon's tax returns for the years 1969 through 1972. Items which the staff determined were incorrectly reported and those items which the staff believes should have been included as income on the tax returns are discussed in detail in the preceding parts of this report. This part of the report deals with other items about which questions have been raised and on which the staff believes it should specifically comment, although the staff believes they were correctly treated on the tax return. 1. 1969 law firm payments

The President received payments of $128,701.78 during 1969 from the law firm of Mudge, Rose, Guthrie & Alexander, of which he had formerly been a partner. A payment of $25,000 was made on February 7, 1969; $72,600 on March 11, 1969; $30,153.34 on April 11, 1969; and $857.44 on December 31, 1969. The President's 1969 tax return did not include any of these payments as taxable income for 1969, nor were any of them reported as income in subsequent years under examination. The staff examined these payments to determine if any of the amounts should have been included in President Nixon's 1969 tax return. The staff interviewed various partners of the firm, examined the firm's partnership agreement and other documents relating to the President's withdrawal from the firm, and reviewed portions of the law firm's books of account to determine that the amounts paid were properly distributed. From this examination the staff believes that the payments were proper and did not produce taxable income. to President Nixon in 1969.

The $128,701.78 amount was derived from two sources. First, $47,600 represented President Nixon's share of capital contributed to the partnership. Under the firm's partnership agreement each partner must make a capital contribution to the firm in an amount determined by a specific formula. The agreement also states that this amount is to be returned to the partner upon his withdrawal from the firm. The $47,600 received by Mr. Nixon in 1969 represents the amount Mr. Nixon was required to contribute under the partnership agreement. Thus, $47,600 of the payment made in 1969 was a return of his earlier capital contribution to the firm; it does not constitute taxable income to him. The remaining $81,010.78 in payments received by President Nixon in 1969 represents undistributed profits from his law practice at the end of 1968. Under the partnership agreement the firm credits the amount collected to the partnership account of each partner according to his work and share of the partnership income. The partner can withdraw money from his partnership account as he desires. Amounts

placed in the partnership account for any partner are income to him in the year in which the account is credited, without regard to whether the amounts are distributed to the partner in that year or some later year. In President Nixon's case $81,010.78 was left in his account at the end of 1968. That amount represents fees collected by the firm through 1968 for legal work by President Nixon. The entire $81,010.78 was included in President Nixon's taxable income in 1968 or in earlier years. Thus, it should not be taxable income to him in 1969 or any later

year.

The payments discussed above were made to President Nixon under the terms of an agreement signed December 30, 1968, by Mr. Nixon and senior partners of the firm. This same agreement contained a provision providing for additional payments for fees relating to work of President Nixon before 1969 but not collected until 1969 or later years. This second provision departed from the terms of the firm's partnership agreement, which provided that a partner withdrawing from the firm should receive no payments for fees relating to past work of the partner which are not collected by the firm at the time of the partner's withdrawal. However, lawyers with the Mudge, Rose firm interviewed by the staff stated that the firm had adopted a practice of permitting such payments to withdrawing partners in at least one earlier case and had decided that such payments were appropriate in President Nixon's case.

President Nixon signed the agreement containing this provision for future payments on December 30, 1968. However, President Nixon decided not to accept any payments for fees which had not been collected after the end of 1968 (ie., any amounts beyond the $128,701.78 which were in fact paid in 1969). The staff understands that he communicated this orally to the partners of the firm in early 1969. In addition, on May 28, 1969, he sent a brief letter, a copy of which the staff has seen, amending the original agreement accordingly and enclosing a copy of the original agreement as amended. The firm agreed to the amendment, and the President received no payments in 1969 or later years, except the $128.701.78 discussed above.

Because the December 30, 1968, agreement gave the President a contractual right to income which he subsequently rejected, the staff examined the question of whether his amendment of the agreement constituted an assignment of income by the President to the law firm.

Under section 61 of the Internal Revenue Code when an individual has a legal right to receive taxable income but assigns that right to another person, the income is nonetheless taxed to the assigning individual. See Lucas v. Earl, 281 U.S. 111 (1930). However, assignment of income court cases generally involve transfers of a right to receive income to third parties. See Helvering v. Eubank, 311 U.S. 122 (1940). In President Nixon's case "assignment" of income is to the party which owes the money and is analogous to an employee's refusing an employer's salary. The only instances where the IRS or the courts have determined that an assignment of income to an employer gave rise to taxable income to the employee are cases in which the employee earned the income from a source other than the employer. See Rev. Rul. 70-161, 1970-1 Cum. Bull. 15 (staff physicians voluntarily donate outside medical fees to hospital). In other cases where employees have

refused to accept income due them from an employer, the courts have held that no taxable income should be attributed to the employee, Commissioner v. Giannini, 129 F.2d 638 (9th Cir. 1942). On these grounds the staff believes that the President's agreement did not give rise to taxable income to him.

2. Dependency exemption for Patricia Nixon

In 1969 and 1970, President Nixon claimed his daughter Patricia as a dependent. Under sections 151(e) and 152 of the Internal Revenue Code, he was entitled to do this if he supplied more than half of Patricia's support and if she either had gross income of less than $600 in 1969 ($625 in 1970) or if she was a student or was less than 19 years

of age.

Arthur Blech informed the staff that Patricia's income was less than $600 in 1969 and less than $625 in 1970. The staff has examined Patricia's tax returns and confirmed this information. Therefore, the President was entitled to a dependency exemption for her in those

years.

3. Sale of stock in Fisher's Island, Inc.

The December 8, 1973, White House statement on President Nixon's personal finances states the following about the sale of his stock in Fisher's Island, Inc.:

"The only stock that President Nixon owned upon taking office was in Fisher's Island, Inc. Fisher's Island, Inc. is a corporation in Florida formed in 1957 for the purpose of acquiring and developing Fisher's Island in Biscayne Bay. Mr. Nixon bought 199,891 shares in the company in 1967 and prior years for $199,891. After he became President, Mr. Nixon decided to limit his investments to real estate, Government bonds, and cash or its equivalent. President Nixon transferred 14,000 shares for $13,000 net to fulfill options given by him to others in 1967. He sold 185,891 shares of Fisher's Island stock back to the company on May 22, 1969 for $371,782. His 1969 Federal income tax return shows à capital gain from that sale of $184,891 and tax paid on that amount." The staff has examined this transaction and verified the amounts stated. It finds nothing improper with the way President Nixon reported the transaction on his 1969 tax return.

4. Deductions on Whittier property

a

President Nixon claimed losses totalling $24,050 between 1969 and 1972 in connection with a house in Whitter, California, which he owns and rents out at a nominal rent. The staff believes this property was treated correctly on the President's tax returns. Under section 212 of the Code, expenses of maintaining property held for investment purposes can be deducted even though the amount of income received from the property is less than total expenses. Since the staff believes that President Nixon holds the property for investment purposes, it views these deductions as properly taken.

5. Treatment of expense allowances

President Nixon included his $50,000 expense allowance as income and deducted his employee business expenses as itemized deductions. Under section 62 (2) (A) of the Internal Revenue Code, trade and busi

ness deductions of employees under a reimbursement or other expense allowance arrangement with their employers should be taken as deductions in computing adjusted gross income, not as itemized deductions.

The fact that the President's adjusted gross income for each year was not decreased by these deductions would affect his tax liability were the President to be allowed a deduction for his gift of papers. This results because deductions for charitable contributions can be taken to the extent of 50 percent of a taxpayer's adjusted gross income. However, if the staff's recommendation is followed, no deduction would be allowed for the President's gift of papers. In that event the change in his adjusted gross income does not affect his ultimate tax liability.

6. Assignment of income to Foundation

Between 1969 and 1972, President Nixon at various times assigned rovalty income to charities. Under section 61 of the Code, the President should have reported this income on his tax returns for the relevant years. This would have had an effect in these years, since the charitable contribution carryover as a result of the deduction for the gift of papers covered the maximum deduction available in each of those years. However, if the staff recommendations are followed as to the gift of papers, the President has not reached the charitable contributions deduction limit in any year, and the President could take charitable deductions equal to the amount of royalty income for all of the assignments made. Thus, reporting this royalty income would produce offsetting charitable deductions and would result in no net increase in taxable income.