A commercial bank headed by Democratic House candidate John Delaney is being audited by the Internal Revenue Service and told investors it could not guarantee it had operated within federal tax requirements, according to filings publicized Thursday by another Democrat in Maryland's 6th Congressional District race.
CapitalSource, which Delaney co-founded in 2000 and led as chief executive officer through 2009, is being audited to determine whether it was operating properly as a real estate investment trust, a move that reduced its federal tax liability by as much as $70 million in 2006, according to an estimate Delaney provided to Forbes magazine that year.
Forbes also described the REIT arrangement, which is generally reserved for companies that own only real estate, as "a bit of a stretch."
"We are under audit for our 2006 through 2008 taxable years and, if the Internal Revenue Service determined that we violated REIT requirements and failed to qualify as a REIT or otherwise under reported tax liabilities during those years that we operated as a REIT, it could adversely impact our results of operations," CapitalSource noted in its most recent annual report with the U.S. Securities and Exchange Commission.
Delaney's campaign said the company has made similar disclosures in the past and noted that an audit doesn't imply the company did anything wrong. About 17 percent of large firms are audited annually, according to the tax advisory firm KPMG.
A leading Democratic opponent of Delaney's, state Sen. Rob Garagiola, publicized the report Thursday, arguing it underscores the need for Delaney to release his personal income tax records. Garagiola disclosed a decade's worth of tax forms earlier this year and challenged other candidates in the race to do the same. Delaney has released a summary of his taxes to The Washington Post.
"Like the Wall Street bankers who caused the financial crisis, John Delaney has been playing fast and loose with the management of his company," Garagiola's campaign manger, Sean Rankin, said in a statement. "John Delaney takes credit for CapitalSource, so he also has to take responsibility for CapitalSource's mismanagement."
In response, Delaney campaign manager Justin Schall took issue with Garagiola's characterization that CapitalSource was "under investigation," which Schall said is not true. He also referred to an earlier imbroglio in which Garagiola failed to disclose hundreds of thousands of dollars of income as a lobbyist on state disclosure forms.
"This is another example of Annapolis politician Rob Garagiola looking at forms he clearly doesn't understand and making desperate and inaccurate accusations," Schall said in a statement. "It's a shame, because when Garagiola hides the truth and misrepresents facts, it's the voters in Maryland who lose."
Delaney, Garagiola and three other candidates are running for the Democratic nomination in the 6th District, which is currently held by Republican Rep.Roscoe G. Bartlett, who is seeking an 11th term in a race that is expected to be among the most competitive in the country. The primary is April 3.