It is the stuff of Washington melodrama. The careers of two influential United States senators are trapped in the toils of unseemly rerelations stemming, in part, from the new era of fiscal candor in American politics, and, in part, from bitterly contested divorces.
Democrat Herman E. Talmadge of Georgia is the scion of a southern family dynasty, shrewd and drawling, a major figure in the Senate Democratic establishment. Republican Edward W. Brooke is the first black since Reconstruction to win election to the Senate, or urbane politician who has successfully joined the interests of his predominantly white electorate with the legislative causes of blacks and the disadvantaged.
On both of these men, each a highly respected member of what used to be called the nation's most exclusive club, the Senate Ethics Committee is now sitting in judgment to decide whether they engaged in financial practices not only unworthy of the Senate but, for that matter, in violation of the law they help fashion.
Sen. Herman E. Talmadge (D-Ga.) did not pay gift taxes on at least $9,000 in securities he said he gave his wife, Betty, during 1969 and 1970, according to documents filed in Talmadge's Georgia divorce case.
The documents also show that Talmadge made conflicting claims about the ownership of a real estate investment called Terminal Facilities on which he made a profit of $637,000.
In Senate documents filed from 1969 to 1971, he listed his former wife as owner of the property under a trust and said he had no interest in any trusts. But later, during his divorce proceeding, he claimed that the assets in the trust belonged to him. Last week the Georgia Supreme Court upheld this claim.
By listing the property in his wife's name. Talmadege was able to gain substantial tax advantages. On Friday, attorneys for Betty Talmadge requested a rehearing of the Terminal Facilities case. Their request accused Talmadge of giving "false testimony" during his divorce proceedings about two of his gifts of stock to his wife.
Talmadge is the second-ranking Democrat on the Senate Finance Committee which is responsible for writing tax legislation. The Senate Select Committee on Ethics is investigating both Talmadge and Sen. Edward W. Brooke (R-Mass.) for alleged irregularities in their financial affairs. In both cases, the claimed irregularities came in light during the divorce proceedings.
A spokesman for the Georgia senator said yesterday that Talmadge was sticking with his earlier public denial of any finanical wrongdoing and would not comment at this time. The spokesman said all questions about Talmadge's finances would be dealt with only before the Senate Ethics Committee and not in the press.
Documents on file in the Henry County Courthouse in Georgia show that Talmadge testified under oath during his divorce trial in January that he made gifts of "marketable securities" to his wife between 1965 and 1972, while they were still married.
Talmadge also testified during the divorce proceeding that he had paid federal gift taxes on all securities he gave to his wife.
Federal gift tax returns filed with the Internal Revenue Service by Talmadge from 1965 through 1972 list a number of gifts of stock he gave to his two sons, his daughters-in-law and grandchildren.
But the tax returns show only one gift of stock from Talmadge to his wife at that period: 1,000 shares of Cagles Inc. stock valued at $6,000 and transferred to Betty Talmadge on Dec. 25, 1972.
However, in a sworn deposition given by Talmadge last July as part of the divorce case he said he gave his wife a number of additional stocks and named each stock gift for her attorneys.
Talmadge did not say in which years these various gifts were made.
But Talmadge's Senate financial disclosure statements for the period between 1965 and 1972 show that at least two of the stocks he named in the deposition - Interfinancial Inc. and Genuine Parts were transferred to his wife during that time.
Talmadge's Senate financial disclosures show that in 1969. Betty Talmadge obtained 578 shares of Interfinancial Inc. at a value at the time of $8.25 a share.
The Senate disclosures also show that in 1970 Betty Talmadge's holdings of Genuine parts stock jumped from 600 shares to 900 shares. A share of Genuine Parts stock was worth $36.25 at the time.
In addition, the disclosure shows that a third stock. American Home Products appeared to have been transferred into Betty Talmadge's holdings. However, it could not be determind whether the increase in her American Home Products holdings from 160 shares to 280 shares in 1970 was due to changes in the market status of the stock at the time or a gift from Talmadge.
In any case, the Interfinancial Inc. and Genuine Parts transfers were of each stock gift above the federal $3,000 limit beyond which a gift is taxed.
If the stock transfers had been listed on Talmadge's tax forms they could have been subject to a $30,000 lifetime exemption which all taxpayers at that time were allowed to claim in addition to the $3,000 annual time.
However, the Internal Revenue code for the period when Talmadge made the transactions says the exemption was only valid on gifts claimed by a taxpayer and allowed by the IRS. Since Talmadge claimed none of the gifts on his taxes he was not eligible for the exemption.
If Talmadge's stock gifts had been reported he also would have been eligible for a 50 per cent marital exemption allowed by the IRS. However, the exemption is not allowable until a gift has been reported.
Without either federal exemption Talmadge failed to pay gift taxes on at least $9,643 for the two stock gifts to his wife. In addition, if the American Home Products stock was a gift, he would have had to pay gift tax on an additional $5,499.
In all, Talmadge gave his wife about $250,000 in stock gifts during their marriage, according to her attorneys.However, documents on file in the divorce case do not show, except in the case of the three stocks, when the gifts were made. Therefore it could not be determined whether taxes were due and paid on the additional stock gifts.
The divorce documents also raise questions about the Terminal Facilities stock transactions between Talmadge and his former wife.
Beginning in 1967, Talmadge invested about $119,000 in the real estate project. He owned an 8cent interest in the project's 1.175 acres of undeveloped land near Atlanta. When the property was sold five years later his share of the proceeds was more than $756,000.
The investment was made in his former wife name, and she paid the capital gains tax on the investment after it was sold.
In his deposition last July Talmadge said he gave his former wife gifts of securities and cash "and the largest single gift was a gift of plaintiff's [Talmadge's] interest in Terminus [sic] Facilities for which [she] received $750,000 in cash.%
Talmadge later contended, however, that the interest in Terminal Facilities was nt a gift, but a trust for himself. The Georgia Supreme Court agree in its decision last week.
If the interest in Terminal Facilities was a gift to Betty Talmadge, then it was never listed in Talmadge's federal gift tax returns for 1967 through 1972, the period in which the investment was held.
If the interest in Terminal Facilities was in Betty Talmadge's name but really a trust for Talmadge, then it was not listed as such on financial statements he filed with the Senate.
On statements of financial interest Talmadge gave to the Senate, he reported no interest in trusts for either 1971 or 1972. (Records prior to 1971 were not available.) Furthermore, Talmadge indicated in statements on personal worth for 1969, 1970 and 1971 that the Terminal Facilities investment belonged to "E.S.T.," or Elizabeth S. Talmadge, his former wife.
Gordon Roberts, press spokesman for Talmadge, said Thursday that Talmadge believed the Terminal Facilities investment was a trust but had not listed it as his on the Senate disclosures because "it was only a claim of right, and was not certain until the court ruled on it. It was in dispute at the time.
During 1971 and 1972, however, Talmadge was living with Betty Talmadge in aplparent harmony, and despite any possible dispute over the status of the Terminal Facilities investment. Talmadge gave his wife 1,000 shares of Cagles Inc. stock worth $6,000 on Dec. 25, 1972.
In ruling for Talmadge on the Terminal Facilities investment, the Georgia Supreme Court said Talmadge "testified he had paid gift taxes on gifts made to his former wife and his children but that no gift tax was paid on the stock in question because no gift of the stock was made."
Under Georgia law, the court must presume that assets in a wife's name belong to her, and Talmadge had to overcome that presumption to claim the Terminal Facilities interest as a trust.
The court apparently believed that the lack of a gift tax for the stock was significant in indicating it was not a gift. But the records indicate Talmadge transferred other investments to his wife without listing them as gifts or paying gift tax, and never claimed they were held in trust.
The attorneys for Betty Talmadge used this argument in their request Friday for reopening the Terminal Facilities case. It is rare in Georgia for such a rehearing request to be granted.
Betty Talmadge paid the capital gains tax on the Terminal Facilites investment when it was sold in 1972 - a year in which the couple filed separate returns - indicating that Talmadge believed at that time the investment did not belong to him.