[House Report 113-208]
[From the U.S. Government Publishing Office]


113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    113-208
_______________________________________________________________________

                                     

                                                  House Calendar No. 52

 
                IN THE MATTER OF ALLEGATIONS RELATING TO
                      REPRESENTATIVE JOHN TIERNEY

                               ----------                              

                              R E P O R T

                                 of the

                          COMMITTEE ON ETHICS




 September 11, 2013.--Referred to the House Calendar and ordered to be 
                                printed
                 IN THE MATTER OF ALLEGATIONS RELATING



113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    113-208
_______________________________________________________________________

                                     

                                                  House Calendar No. 52


                IN THE MATTER OF ALLEGATIONS RELATING TO

                      REPRESENTATIVE JOHN TIERNEY

                               __________

                              R E P O R T

                                 of the

                          COMMITTEE ON ETHICS




 September 11, 2013.--Referred to the House Calendar and ordered to be 
                                printed


                          COMMITTEE ON ETHICS

K. MICHAEL CONAWAY, Texas            LINDA T. SANCHEZ, California
  Chairman                             Ranking Member
CHARLES W. DENT, Pennsylvania        PEDRO R. PIERLUISI, Puerto Rico
PATRICK MEEHAN, Pennsylvania         MICHAEL E. CAPUANO, Massachusetts
TREY GOWDY, South Carolina           YVETTE D. CLARKE, New York
SUSAN W. BROOKS, Indiana             TED DEUTSCH, Florida

                              REPORT STAFF

            Daniel A. Schwager, Chief Counsel/Staff Director
           Thomas A. Rust, Acting Director of Investigations
                 Jackie M. Barber, Counsel to Chairman
            Daniel J. Taylor, Counsel to the Ranking Member
                     Miguel Toruno, Senior Counsel
                Brittany M. Bohren, Investigative Clerk
                          LETTER OF SUBMITTAL

                              ----------                              

                          House of Representatives,
                                       Committee on Ethics,
                                Washington, DC, September 11, 2013.
Hon. Karen L. Haas,
Clerk, House of Representatives,
Washington, DC.
    Dear Ms. Haas: Pursuant to clauses 3(a)(2) and 3(b) of rule 
XI of the Rules of the House of Representatives, we herewith 
transmit the attached report, ``In the Matter of Allegations 
Relating to Representative John Tierney.''
            Sincerely,
                                   K. Michael Conaway,
                                           Chairman.
                                   Linda T. Sanchez,
                                           Ranking Member.


                            C O N T E N T S

                              ----------                              --
--------
                                                                   Page
 I. INTRODUCTION......................................................1
II. HOUSE RULES, LAWS, REGULATIONS, OR OTHER STANDARDS OF CONDUCT.....2
III.BACKGROUND........................................................2

IV. ANALYSIS..........................................................6
 V. CONCLUSION........................................................9
VI. STATEMENT UNDER RULE XIII, CLAUSE 3(c) OF THE RULES OF THE HOUSE OF 
    REPRESENTATIVES..................................................10
APPENDIX A: REPORT AND FINDINGS OF THE OFFICE OF CONGRESSIONAL 
  ETHICS (Review No. 13-1064)....................................    11
APPENDIX B: REPRESENTATIVE TIERNEY'S RESPONSE TO THE REPORT AND 
  FINDINGS OF THE OFFICE OF CONGRESSIONAL ETHICS (Review No. 13-
  1064)..........................................................   417


                                                  House Calendar No. 52
113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    113-208

======================================================================




  IN THE MATTER OF ALLEGATIONS RELATING TO REPRESENTATIVE JOHN TIERNEY

                                _______
                                

 September 11, 2013.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

               Mr. Conaway, from the Committee on Ethics,
                        submitted the following

                              R E P O R T

                            I. INTRODUCTION

    On June 13, 2013, the Office of Congressional Ethics (OCE) 
sent a referral to the Committee in which it recommended 
further review of the allegations that certain payments 
Representative John Tierney's wife received from her brother 
and their mother were income that should have been reported as 
such to the Internal Revenue Service (IRS) and disclosed on 
Representative Tierney's annual Financial Disclosure 
Statements. Representative Tierney and his wife treated the 
payments as gifts among family members and therefore did not 
report the payments to the IRS or disclose them on 
Representative Tierney's Financial Disclosure Statements. The 
legal determination of whether a transfer is treated as income 
or a gift is a highly fact-specific inquiry. In particular, 
courts put heavy emphasis on the donor's intent. This inquiry 
is further complicated in matters involving transfers between 
family members.
    The Committee reviewed the allegations, conducted 
additional investigation as necessary, and unanimously 
concluded that the presently-available evidence was 
inconclusive as to whether the payments to Mrs. Tierney were 
income or gifts and does not warrant a finding that 
Representative Tierney intentionally mischaracterized the 
nature of the payments for financial disclosure or tax 
purposes. Therefore, after careful consideration, the Committee 
has unanimously voted to close the matter referred by the OCE, 
determined that no further action is required at this time, and 
agreed to end its review of this matter with the publication of 
this Report, which includes the materials referred to the 
Committee by the OCE.

   II. HOUSE RULES, LAWS, REGULATIONS, OR OTHER STANDARDS OF CONDUCT

    The Code of Ethics for Government Service, clause 2, 
provides that any person in government service should 
``[u]phold the Constitution, laws, and legal regulations of the 
United States and all governments therein and never be a party 
to their evasion.'' One such law is the Internal Revenue Code 
(IRC), which imposes a tax on individual income.\1\ Gifts are 
not included in gross income for tax purposes,\2\ but are 
separately taxable to the donor.\3\ The IRS defines a gift as 
``[a]ny transfer to an individual, either directly or 
indirectly, where full consideration (measured in money or 
money's worth) is not received in return.''\4\
---------------------------------------------------------------------------
    \1\26 U.S.C. Sec. 1.
    \2\26 U.S.C. Sec. 102(a).
    \3\26 U.S.C. Sec. 2501.
    \4\Frequently Asked Questions on Gift Taxes, Internal Revenue 
Service, http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Frequently-Asked-Questions-on-Gift-Taxes (last visited Sept. 
6, 2013).
---------------------------------------------------------------------------
    House Rule XXVI, clause 2, provides that Title I of the 
Ethics in Government Act (EIGA) of 1978 ``shall be considered 
Rules of the House as they pertain to Members, Delegates, the 
Resident Commissioner, officers, and employees of the House.'' 
The EIGA, codified at 5 U.S.C. app. 4 Sec. Sec. 101 et seq., 
provides that Members, officers, and certain staff of the House 
are required to file an annual Financial Disclosure Statement. 
The EIGA also requires candidates for federal office to file a 
Financial Disclosure Statement while they are a candidate. The 
EIGA, at Section 102(a), describes the information that must be 
included in a Financial Disclosure Statement. Section 
102(e)(1)(A) requires a filer to include ``[t]he source of 
items of earned income earned by a spouse from any person which 
exceed $1,000. . . .'' Under Section 102(a)(2)(A), a filer must 
disclose ``the value of all gifts aggregating more'' than a set 
amount ``received from any source other than a relative of the 
reporting individual . . . .'' However, under Section 
102(e)(1), a filer does not need to include gifts to a spouse 
that are wholly independent of the filer. Section 104 of the 
EIGA makes the failure to file such information a misdemeanor 
punishable by a fine under Title 18 of the United States Code.

                            III. BACKGROUND


             A. TRANSFERS TO REPRESENTATIVE TIERNEY'S WIFE

    Representative Tierney is married to Mrs. Patrice Tierney. 
Mrs. Tierney's brothers, Robert and Daniel Eremian, allegedly 
ran an illegal betting website that they moved to Antigua and 
Barbuda around 1996.\5\ Robert Eremian moved from Massachusetts 
to Antigua around this same time.\6\ Beginning around 2002 and 
continuing through 2009, Mrs. Tierney assisted Robert Eremian 
in many ways, including paying his personal bills, filing his 
tax returns, managing his baseball season tickets, and helping 
with his minor children who continued to reside in 
Massachusetts.\7\ During a portion of this time, Mrs. Tierney 
also cared for their mother, Mary Eremian, who had cancer.\8\
---------------------------------------------------------------------------
    \5\Information at 2, United States v. Tierney, Crim. No. 1:10-CR-
10315-WGY (D. Mass. Oct. 4, 2010).
    \6\Id.
    \7\Testimony of Mrs. Tierney at 44-53, United States v. Lyons and 
Eremian, Crim. No. 1:10-CR-10159-WGY (D. Mass. Nov. 21, 2011).
    \8\Id. at 52.
---------------------------------------------------------------------------
    As part of these activities, Mrs. Tierney had access to and 
control over Robert Eremian's checking account. Mrs. Tierney 
used money from Robert Eremian's checking account to pay for 
expenses related to the care of Robert Eremian's children and 
their mother. After a few years, Mrs. Tierney began writing 
checks from Robert Eremian's checking account to herself, in 
the amount of approximately $1,000 per month. From 2004 to 
2010, the total amount of checks from Robert Eremian to Mrs. 
Tierney, including both the monthly payments and funds to 
assist with Robert Eremian's children, was $173,047.75. 
Beginning in 2006, Mrs. Tierney also wrote checks from her 
brother to their mother, which their mother, in turn, endorsed 
to Mrs. Tierney.\9\ From 2006 to 2010, the total amount of 
checks from Mrs. Tierney's mother to Mrs. Tierney was $50,000.
---------------------------------------------------------------------------
    \9\Ms. Tierney's mother, Mary Eremian, passed away on May 27, 2011.
---------------------------------------------------------------------------
    Representative Tierney and his wife filed joint tax returns 
from 2008 to 2010 on which they did not report any payments 
from Robert Eremian or Mrs. Tierney's mother as income. 
Representative Tierney also never disclosed Robert Eremian or 
Mrs. Tierney's mother as a source of earned income for Mrs. 
Tierney on his annual Financial Disclosure Statements.
    On September 20, 2010, Mrs. Tierney entered into a plea 
agreement with the United States Attorney for the District of 
Massachusetts. Through that agreement, Mrs. Tierney agreed to 
waive indictment and plead guilty to four counts of Aiding and 
Abetting the Filing of False Tax Returns for her brother Robert 
Eremian. A little more than a year later, Mrs. Tierney 
testified in the related trial of her other brother, Daniel 
Eremian who was indicted along with their brother Robert 
Eremian on August 5, 2010, for charges related to an illegal 
gambling operation. Robert Eremian currently resides in Antigua 
and has refused to return to the United States.
    During Daniel Eremian's trial, the prosecution asked Mrs. 
Tierney about the payments she received from Robert Eremian and 
their mother. The questions probed whether the payments were 
income or gifts. Mrs. Tierney characterized the payments from 
her brother as ``gifts from [Robert] for helping him.''\10\ 
Mrs. Tierney testified that she issued checks to herself from 
Robert Eremian's account for $1,000 a month. She also testified 
that she issued checks to their mother (also for $1,000 a 
month) from Robert Eremian's account which their mother, in 
turn, endorsed to her. Mrs. Tierney denied that checks were 
endorsed to her from their mother in order to assure that 
payments from Robert Eremian's account remained within the 
threshold of tax-free gifts received from family members. 
Instead, Mrs. Tierney described the payments from her brother 
to their mother that were signed over to Mrs. Tierney as ``a 
way for [their mother] to compensate me for all I did for 
her.''\11\ Mrs. Tierney denied that these payments were salary 
paid to her for services performed. Instead, she said that she 
``was being appreciated.''\12\
---------------------------------------------------------------------------
    \10\Supra. note 7, p. 51.
    \11\Id. at 47.
    \12\Id. at 52.
---------------------------------------------------------------------------
    During a sidebar, Mrs. Tierney's lawyer asked the court for 
a curative instruction to the jury related to tax terms. The 
lawyer stated, ``You might want to say there is no tax 
consequences to a recipient, a donee of a gift that exceeds the 
limits.''\13\ The judge replied, ``If you believe it's a gift. 
I mean, I'm not getting into that one.''\14\
---------------------------------------------------------------------------
    \13\Id. at 58.
    \14\Id.
---------------------------------------------------------------------------
    Representative Tierney's opponent in the 2012 election made 
a campaign issue of whether the payments from Robert Eremian 
and Mrs. Tierney's mother were income or gifts.\15\ 
Representative Tierney's campaign hired a tax lawyer to submit 
an opinion letter to a news outlet that was reporting on this 
issue.\16\ The tax lawyer reviewed the transcripts from Mrs. 
Tierney's sentencing, Daniel Eremian's trial, and a related 
trial. The tax lawyer's opinion was that the payments to Mrs. 
Tierney were gifts, not income. The tax lawyer cited a legal 
treatise, Federal Taxation of Income, Estates & Gifts, stating 
that the traditional gift versus income ``analysis is not 
applied literally to family transfer situations.''\17\ The tax 
lawyer further cited a line of U.S. Tax Court cases holding 
that transfers between family members are presumed to be 
gifts.\18\
---------------------------------------------------------------------------
    \15\Mooney and Rezendes, On eve of debate, Tierney releases tax 
returns, The Boston Globe (Sept. 27, 2012), http://www.bostonglobe.com/
metro/2012/09/26/eve-debate-rep-john-tierney-releases-tax-returns/
yGWIRw32TLmvqYUTMPZuMN/story.html.
    \16\The campaign's tax lawyer is a former Senior Attorney with the 
IRS Office of Chief Counsel. The tax lawyer has no obvious partisan 
background.
    \17\Letter from D. Sean McMahon to Michael Rezendes (Sept. 24, 
2012), p. 2 (citing Boris Bittker & Lawrence Lokken, Federal Taxation 
of Income, Estates & Gifts, par. 10.2.6 (2012)).
    \18\Id. (citing Dallas v. Commissioner, 92 T.C.M. (CCH) 313 (2006); 
Estate of Stone v. Commissioner, 86 T.C.M. (CCH) 551 (2003); Harwood v. 
Commissioner, 82 T.C. No. 239, 258 (1984)).
---------------------------------------------------------------------------

                            B. OCE REFERRAL

    On June 13, 2013, the OCE referred to the Committee for 
further review allegations that Representative Tierney should 
have disclosed Robert Eremian as a source of earned income for 
Mrs. Tierney on Representative Tierney's annual Financial 
Disclosure Statements and that the payments from Robert Eremian 
to Mrs. Tierney were income and should have been reported as 
such to the IRS.\19\ On July 26, 2013, the Committee announced 
that it was extending its review of the matter for an 
additional 45 days.
---------------------------------------------------------------------------
    \19\OCE Review No. 13-1064.
---------------------------------------------------------------------------
    According to the OCE, during its review, Representative 
Tierney produced documents to the OCE but declined to be 
interviewed. Mrs. Tierney did not cooperate with the OCE 
review, saying, through her attorney, that on ``October 23, 
2012, [she] was involved in a serious automobile accident and 
suffered head and neck injuries, with resulting memory loss.'' 
Robert Eremian, who remains a fugitive, refused to provide 
information subject to the provisions of 18 U.S.C. 1001. And 
Daniel Eremian's counsel did not respond to the OCE's request 
for information.
    The OCE reviewed the opinion letter issued by the tax 
attorney hired by Representative Tierney's campaign. The OCE 
noted ``that the legal opinion of the counsel for the campaign 
committee conflicts with U.S. Supreme Court precedent.''\20\ 
The OCE further stated that ``although the opinion from the 
counsel for the campaign committee explains that determining 
whether such payments are gifts or income is a fact specific 
question, the opinion is not based on any facts from interviews 
with the relevant parties.''\21\
---------------------------------------------------------------------------
    \20\Id., p. 16 n. 92.
    \21\Id.
---------------------------------------------------------------------------

                          C. COMMITTEE REVIEW

    Pursuant to Committee Rule 17A(a), the Committee reviews 
the reports and findings transmitted by the OCE without 
prejudice or presumptions as to the merit of the allegations. 
The Committee has reviewed the materials provided by the OCE, 
including the sworn testimony of Mrs. Tierney.\22\ The 
Committee also asked numerous questions of Representative 
Tierney who cooperated with the Committee's requests. 
Representative Tierney maintained that he was never aware of 
any intent for the payments in question to be treated as earned 
income. Representative Tierney affirmed to the Committee that 
there was no instance of Robert Eremian or Mrs. Tierney's 
mother ever expressing any intent that the payment to Mrs. 
Tierney should be treated as compensation for services 
rendered. Representative Tierney further affirmed that there 
was never any agreement, written or otherwise, between Mrs. 
Tierney and Robert Eremian or Mrs. Tierney's mother regarding 
the transfer of funds to Mrs. Tierney, and that when Mrs. 
Tierney helped her brother and his family, and when she cared 
for their mother, she did so voluntarily. Finally, 
Representative Tierney affirmed that he is not aware of any 
instance in which Robert Eremian or Mrs. Tierney's mother 
withheld or otherwise paid taxes, or filed any forms with the 
IRS, with respect to the transfer of funds to Mrs. Tierney.
---------------------------------------------------------------------------
    \22\The Committee also reviewed the OCE's Memorandum of Interview 
of Robert Eremian's Tax Attorney. See Report and Findings of the Office 
of Congressional Ethics in the Matter of Representative John Tierney 
(Review No. 13-1064), Exhibit 7. That interview indicates that Robert 
Eremian's Tax Attorney gave advice on how to structure the transfers to 
Mrs. Tierney to avoid gift tax liability. However, he did not have 
additional information relevant to the question of whether the 
transfers were income or gifts.
---------------------------------------------------------------------------
    In addition, the Committee conducted a telephone interview 
of Robert Eremian, who, as noted above, is currently under 
indictment by U.S. authorities and is living in Antigua. Mr. 
Eremian corroborated the statements of Representative Tierney 
and Mrs. Tierney that the payments to his sister were never 
intended to be treated as salary in exchange for services 
rendered. Mr. Eremian stated that during a trying time in his 
life Mrs. Tierney took over for Mr. Eremian's wife in 
overseeing certain basic household responsibilities for Mr. 
Eremian such as taking care of his children and paying his 
personal bills. In addition, Ms. Tierney cared for her and Mr. 
Eremian's ailing mother. Mr. Eremian said that he wanted to 
``compensate'' his sister for her assistance. However, he 
emphasized that he was unsure that the term ``compensate'' was 
properly applied in this scenario, and that the most important 
thing to him was to assure that Mrs. Tierney did not suffer any 
losses as a result of her assistance to him. Furthermore, Mr. 
Eremian stated that he did not have any documentary evidence 
regarding these questions.

                              IV. ANALYSIS

    The IRC imposes a tax on individual income.\23\ If the 
payments to Mrs. Tierney were income, Representative Tierney 
and his wife would have owed taxes on the payments. Conversely, 
the IRC excludes gifts from gross income for tax purposes.\24\ 
Gifts are, instead, separately taxable to the donor.\25\ Thus, 
if the payments were gifts, Representative Tierney and his wife 
would not owe taxes on the payments. The determination of what 
constitutes a gift versus income is highly fact-specific and 
can be difficult to make in instances where both indicia of 
consideration and donative intent are present. This analysis is 
further complicated in instances involving transfers between 
family members.
---------------------------------------------------------------------------
    \23\26 U.S.C. Sec. 1.
    \24\26 U.S.C. Sec. 102(a).
    \25\26 U.S.C. Sec. 2501.
---------------------------------------------------------------------------
    The seminal case on determining whether transfers of money 
are income or gifts is Commissioner v. Duberstein.\26\ In 
Duberstein, the Supreme Court set forth a number of principles 
to take into account in making this determination. The Court 
stated that a payment will be recognized as a gift when it 
``proceeds from a `detached and disinterested generosity''\27\ 
or `out of affection, respect, admiration, charity or like 
impulses.'''\28\ However, ``the mere absence of a legal or 
moral obligation to make . . . a payment does not establish 
that it is a gift.''\29\ ``[I]f the payment proceeds primarily 
from `the constraining force of any moral or legal duty,' or 
from `the incentive of anticipated benefit' of an economic 
nature, it is not a gift.''\30\ ``And, conversely, `(w)here the 
payment is in return for services rendered, it is irrelevant 
that the donor derives no economic benefit from it.'''\31\ In 
making these assessments, the Court stated that the most 
critical consideration is the transferor's intent.\32\ Each of 
these factors should be decided on a case-by-case basis.\33\
---------------------------------------------------------------------------
    \26\363 U.S. 278 (1960).
    \27\Id. at 285 (quoting Commissioner of Internal Revenue v. LoBue, 
351 U.S. 243, 246 (1956)).
    \28\Id. (quoting Robertson v. United States, 343 U.S. 711, 714 
(1952)).
    \29\Id. (citing Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 
730 (1929)).
    \30\Id. (quoting Bogardus v. Commissioner, 302 U.S. 34, 41 (1937)).
    \31\Id. (quoting Robertson v. United States, supra note 28).
    \32\Id. at 285-286 (quoting Bogardus v. United States, supra note 
30, at 45).
    \33\Id. at 290.
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    In its analysis, the OCE relied almost entirely on 
Duberstein. In applying the Duberstein line of cases there are 
several factors that would suggest the regular monthly payments 
directly to Mrs. Tierney and those endorsed over from her 
mother drawn on Robert Eremian's account were taken in exchange 
for services rendered, and that it would be reasonable to 
characterize them as earned income. However, the OCE did not 
address the additional legal analysis applied to intrafamily 
transfers.
    Indeed, there is very little legal authority applying 
Duberstein to intrafamily transfers.\34\ Instead, as noted in 
the legal opinion for Representative Tierney's campaign, 
intrafamily transfers are subject to a presumption that they 
are gifts.
---------------------------------------------------------------------------
    \34\The limited precedent applying Duberstein to intrafamily 
transfers is easily distinguishable from this matter. For example, in 
Altman v. C.I.R., 475 F.2d 876 (2d Cir. 1973), the court held that a 
transfer of cash and stock from a mother to a son was income, not a 
gift. However, the court found evidence that the transfer ``was 
prompted by something less than maternal affection'' because the son 
had ``threatened to throw the family business into bankruptcy and 
report [the mother] to the Internal Revenue Service for alleged 
violations'' if she did not complete the transfer.
---------------------------------------------------------------------------
    The treatise cited by the tax opinion includes a chapter 
entitled ``Intrafamily Transfers.''\35\ Amongst other things, 
the treatise notes that some transfers of assets between family 
members are regularly treated as tax-free ``even though their 
excludability under the Duberstein criteria is arguable.''\36\ 
This analysis hinges, in large part, on the presumption that 
certain services performed by family members to the benefit of 
other family members are done for free, thereby rendering moot 
even explicit agreements for money in exchange for those 
services.\37\ To illustrate this point, the treatise cites a 
Maryland state court case holding that a promise of 
compensation for services may be rebutted by a close 
relationship of parties, and a U.S. Tax Court case holding that 
even when a husband agreed to pay his wife for health care 
services the money she received from him could be treated as a 
gift.\38\ The treatise does caution, however, that some 
agreements that are ``stimulated by affection'' can 
nevertheless be legally enforceable, and ``to the extent that 
such obligations are paid pursuant to legal compulsion, these 
amounts would not qualify as gifts if the Duberstein criteria 
were pushed to their logical extreme.''\39\
---------------------------------------------------------------------------
    \35\Boris Bittker & Lawrence Lokken, Federal Taxation of Income, 
Estates & Gifts, par. 10.2.6 (2012).
    \36\Id. (citing Restatement of Restitution Sec. 107 cmt. (1937)).
    \37\Id. (citing Loveland's Est. v. CIR, 13 TC 5 (1949)).
    \38\38 Id.
    \39\Id.
---------------------------------------------------------------------------
    While courts have rarely addressed the question of whether 
an intrafamily transfer is a gift or income, they have 
addressed the question of whether an intrafamily transfer is a 
gift or an arm's-length transaction in the context of sales of 
assets between family members.\40\ Those cases generally hold 
that there is a presumption that intrafamily transfers are 
gifts and not bona fide sales in the ordinary course of 
business.\41\
---------------------------------------------------------------------------
    \40\Transfers from an estate are subject to yet another taxation 
scheme. 26 U.S.C. Sec. Sec. 2001 et seq.
    \41\Harwood v. Commissioner, 82 T.C. No. 239, 258 (1984) (citing 
Estate of Reynolds, 55 T.C. 172, 201 (1970)).
---------------------------------------------------------------------------
    For example, Harwood v. Commissioner\42\ involved the 
transfer of a company's partnership interest from a mother to 
her sons in exchange for a note. The U.S. Tax Court held that, 
to the extent that the fair market value of the partnership 
interest was less than the value of the note, the transfer was 
a gift. The court explained the transfer was not an ``arm's-
length'' transaction, to wit, the transfer was structured 
solely by the family accountant with no bargaining.\43\ In its 
decision, the court noted the Gift Tax Regulations' provision 
that transfers ``made in the ordinary course of business'' will 
be considered to be exchanges made for full consideration\44\ 
and that ``[t]ransactions between a family group are subject to 
special scrutiny.''\45\
---------------------------------------------------------------------------
    \42\Id.
    \43\Id. at 259. See also Dallas v. Commissioner, 92 T.C.M. (CCH) 
313 (2006) (finding a gift, in part, because the transaction was 
designed by donor's counsel to serve donor's estate planning goals and 
recipients were not represented by their own counsel).
    \44\Id. at 257 (quoting 26 CFR Sec. 25.2512-8).
    \45\Id. at 259.
---------------------------------------------------------------------------
    It is possible, however, to rebut the presumption that 
intrafamily transfers are gifts. For example, in Estate of 
Stone v. Commissioner,\46\ the U.S. Tax Court held that a 
transfer of various assets from parents to their children was 
not a gift because the transfer was an arm's-length 
transaction. The court explained that each party negotiated the 
terms of the agreement (instead of one party recommending a 
deal structure and the other simply acquiescing to that 
structure), that the parties used independent counsels in those 
negotiations, and that the transfers were motivated primarily 
by investment and business concerns and the avoidance of 
litigation by the children after the parents' death.\47\
---------------------------------------------------------------------------
    \46\86 T.C.M. (CCH) 551 (2003).
    \47\Id. at 43-44.
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    There is even less guidance in the EIGA as to the 
distinction between income and gifts from family members, and 
the Committee has never directly addressed the distinction. 
However, the Committee would consider similar factors as in the 
tax context for their informative value.
    The Committee has recommended to the House that Members be 
sanctioned for failure to report and pay taxes.\48\ Most 
recently, in the matter of Representative Charles Rangel, the 
Committee recommended to the House that it censure 
Representative Rangel for, among other things, his failure to 
report and pay taxes on a property he owned in the Dominican 
Republic.\49\ The House further ordered Representative Rangel 
to make payments to the U.S. Treasury for the amount of back 
taxes owed, even though the taxes were outside the statute of 
limitations. However, there was no dispute that Representative 
Rangel owed the taxes in question. Indeed, the amount he needed 
to repay was determined by a tax opinion that Representative 
Rangel himself commissioned.\50\ Unlike in the matter of 
Representative Rangel, the record before the Committee in this 
matter is unclear as to whether Representative Tierney and his 
wife owe taxes on the payments in question.
---------------------------------------------------------------------------
    \48\See e.g., House Comm. on Standards of Official Conduct, In the 
Matter of Representative James A. Traficant, Jr., H. Rpt. 107-594, 
107th Cong., 2d Sess. at 1 (2002).
    \49\House Comm. on Standards of Official Conduct, In the Matter of 
Representative Charles B. Rangel, H. Rpt. 111-661, 111th Cong., 2d 
Sess. at 2 (2010).
    \50\Id. at 922-931. Indeed, Representative Rangel attempted to pay 
all the taxes before the Committee concluded its investigation, but the 
IRS would not accept payments outside the statute of limitations.
---------------------------------------------------------------------------
    As noted earlier, there are factors present that would 
advise treatment of the payments as income in circumstances not 
involving family members, subject to the Duberstein case and 
its progeny alone. For instance, the payments were regular 
monthly payments in the same amount which were recognized to be 
``compensation'' (even if Mrs. Tierney and Robert Eremian 
believe that ``compensation'' is consistent with describing 
something as a gift, and not a salary). Furthermore, for Mrs. 
Tierney to regularly write monthly checks to her mother with 
the knowledge and intent that they would be immediately and 
entirely endorsed back to Mrs. Tierney may, though Mrs. Tierney 
appears to have denied this suggestion at the trial of Daniel 
Eremian, evidence an intent that the ``gifting'' nature of the 
two step transfer is a mere pretext (though it is possible that 
the pretext is merely to disguise the full amount of the gift 
from Robert Eremian, in which case the Tierney's tax and 
financial disclosure obligations would not change).
    Based on these factors, if the Committee were asked for 
informal guidance or a formal opinion regarding how to report 
similar payments outside of an intrafamily transfer on a 
filer's Financial Disclosure Statements, the Committee might 
advise that the most cautious approach would be to report the 
regular monthly payments (not the clear reimbursements for 
expenses) as income. However, where there is a significant 
question of tax law, the Committee regularly advises filers to 
consult with outside tax attorneys and treat the uncertain 
amounts in good faith upon such advice for both tax reporting 
and financial disclosure purposes.
    However, even these factors are not conclusive and their 
persuasive character is diminished further in the context of 
intrafamily transfers. Furthermore, just as the courts have 
almost never addressed circumstances clearly analogous to 
these, the Committee has issued no guidance in the past which 
would clearly instruct a filer how to interpret these facts for 
purposes of financial disclosure. Finally, based on the 
unavailability of Mrs. Tierney's mother and Robert Eremian's 
statement that he had no documentary evidence regarding this 
issue, it appears that any additional fact-gathering would be 
incomplete, at best, and insufficient to overcome the clear 
testimony of Mrs. Tierney regarding her understanding and 
intent, and Representative's Tierney's affirmation that he was 
and is not aware of any intent or indicia of intent for the 
payments to be the equivalent of salary or earned income.

                             V. CONCLUSION

    As explained above, a determination of whether earned 
income accrued to Representative Tierney's wife relies on a 
variety of factors and has very little precedent in analogous 
factual circumstances. To date, Representative Tierney and Mrs. 
Tierney have both sworn or affirmed that they believe the 
intent of the regular monthly payments were as gifts, and not 
as arm's-length salary for services. The only other surviving 
witness who could verify or contradict that understanding, 
Robert Eremian, has further corroborated their statements. 
Beyond such direct testimony or documentary evidence related to 
the intent of the parties to the transfer, the few factors 
discussed above concerning the nature of the payments which 
might be persuasive in the non-family context, are far less 
persuasive in the intrafamily transfer context. In either 
context, whether or not the factors are persuasive of how the 
payments should best be treated, these factors certainly are 
not sufficient to warrant a finding that Representative Tierney 
intentionally mischaracterized the nature of the payments for 
financial disclosure and tax purposes.
    In addition, Representative Tierney's constituents are well 
aware of the facts surrounding the relevant payments and their 
reporting at this time. Therefore, the interests of reporting 
on Financial Disclosure Statements have been served, and would 
not be furthered even if additional evidence led the Committee 
to require an amendment of Representative Tierney's previously 
filed Financial Disclosure Statements. Finally, there is no 
reason for the Committee to consider referral to the IRS or the 
Department of Justice as these payments and questions about 
them were explored in the Government's prosecution of Daniel 
Eremian and were apparently known to both agencies at the time 
the Department of Justice negotiated a guilty plea from Mrs. 
Tierney for aiding and abetting the false tax filings of Robert 
Eremian.
    For all these reasons, and after careful consideration, the 
Committee has unanimously voted to close the matter referred by 
the OCE, determined that no further action is required, and 
agreed to end its review of this matter with the publication of 
this Report.
    Pursuant to House Rule XI, clause 3(b)(8)(A), and Committee 
Rules 17A(c)(2), the Committee hereby publishes the OCE's 
Report and Findings related to the allegations that 
Representative Tierney failed to report income to the IRS and 
disclose said income on his Financial Disclosure Statements.
    The Chair is directed, upon providing the notices required 
pursuant to House Rule XI, clause 3(b)(8)(A), and Committee 
Rule 17A(b)(2), to file this Report with the House, together 
with copies of the OCE's Report and Findings in this 
matter.\51\ The filing of this Report, along with its 
publication on the Committee's Web site, shall serve as 
publication of the OCE's Report and Findings in this matter, 
pursuant to House Rule XI, clause 3(b)(8)(A), and Committee 
Rules 17A(b)(3) and 17A(c)(2).
---------------------------------------------------------------------------
    \51\House Rule XI, clauses 3(a)(2) and 3(b).
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VI. STATEMENT UNDER RULE XIII, CLAUSE 3(c) OF THE RULES OF THE HOUSE OF 
                            REPRESENTATIVES

    The Committee made no special oversight findings in this 
Report. No budget statement is submitted. No funding is 
authorized by any measure in this Report.



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