The Republican Congress sure knows how to take care of its friends. This is tax weekend in the United States and in celebration of the annual ritual, the White House released President Bush's and Vice-President Cheney's tax returns. The VP may be a lousy shot, but he sure can hit the target buried deep in the tax code. The VP was one of the prime beneficiaries...of the special provision in the Katrina legislation that suspended the 50% of adjusted gross income limitation on charitable contributions of cash for the 2005 tax year. And guess what, most, if not all, of the VP's charitable contributions went to causes unrelated Hurricane Katrina relief (unless of course, some of Tulane's students temporarily transferred to the University of Wyoming). The arrangement is ably described in a memorandum from the VP's lawyers, Williams and Connolly LLP. The relevant portion provides as follows:
The Cheneys' adjusted gross income in 2005 was $8,819,006 which was largely the result of the exercise by an independent gift administrator of stock options that had been irrevocably set aside in 2001 for charity. The Cheneys donated $6,869,655 to charity in 2005 from the exercise of these stock options under the terms of the Gift Administration Agreement and from Mrs. Cheney's book royalties from Simon & Schuster on her books America: A Patriotic Primer, A is for Abigail: An Almanac of Amazing American Woman, and When Washington Crossed the Delaware: A Wintertime Story for Young Patriots. As provided in the Gift Administration Agreement, gifts were made to three designated charities named in that Agreement. The Cheneys' return was filed on March 20, 2006.
During the course of 2005 the Cheneys paid $2,468,566 in taxes through withholding and estimated tax payments. Taxes were withheld from their salaries and from the net proceeds of stock options that were exercised under the Gift Administration Agreement. Given that the option proceeds were dedicated to charity, there was a substantial over withholding in 2005 from the income attributable to the exercise of the stock options, which reduced the amount available for charity in 2005
To enable the gift administrator to maximize the charitable gifts in 2005, the year in which the options were exercised, the Cheneys wrote a personal check in December 2005 to the gift administrator in the amount of $2,331,400. That amount, combined with the net proceeds from the stock options, was given to the three designated charities by the gift administrator. As a consequence, the Cheneys are entitled to a refund of $1,938,930. This refund returns the Cheneys to a neutral position of no personal financial benefit or financial detriment resulting from the transactions under the Gift Administration Agreement. Thus, the Cheneys received no financial benefit from the stock options. The transactions were tax neutral to the Cheneys. The amount of taxes paid by the Cheneys from their income, other than the income from the exercise of the stock options, was the equivalent of what they would have paid if the options had not been exercised.
In a press release of March 5, 2001, the Cheneys reported that they had established the Gift Administration Agreement on January 18, 2001 to donate all net after tax proceeds from various stock options that the Vice President had earned at Halliburton and for their service on the boards of directors of other companies to three designated charities--George Washington University Medical Faculty Associates, Inc. for the benefit of the Cardiothoracic Institute, the University of Wyoming for the benefit of the University of Wyoming Foundation, and Capital Partners for Education for the benefit of low-income high school students in the Washington, D.C. area. By entering into the Gift Administration Agreement the Cheneys divested themselves of the economic benefit of the options and granted the gift administrator full discretion, power and control over the options. The Agreement directed the gift administrator to maximize the gifts to the three charities while avoiding financial or after tax benefit or detriment to the Cheneys.