MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT McCain. He does not recall discussing the possibility of contacting either Senator McCain directly or one of his staff members. In early February, 1989, Mr. Stevens phoned Mr. Smith but did not reach him. Since Mr. Smith did not respond immediately to his phone call, Mr. Stevens wrote a letter dated February 17, 1989 (Exhibit 9). The letter informed Mr. Smith of the IRS audit and about the issue related to Senator McCain and his family's use of ACC corporate aircraft. Mr. Stevens stated that this letter was in no way seeking reimbursement from Senator McCain. He said that he was just trying to resolve the audit issue as quickly as possible. Attached to the letter is the same schedule that was attached to Mr. Stevens's memo to Mr. Kielty. The writing on the schedule changes the total amount charged to $7,884.32 and was written on the schedule by Mr. Stevens after sending it to Mr. Smith. He was aware of the additional April 4, 1985 flight when he prepared the schedule for Mr. Kielty, but the IRS viewed this trip as business related. He added this flight to subsequent schedules delivered to Senator McCain's staff for purposes of reimbursement. The far right hand column which was written by Mr. Smith indicates the income that the IRS proposed to charge Mr. Keating. Mr. Stevens said that he had some success in eliminating some of the charges which reduced the amount to $4,672.72. I asked Mr. Stevens why he had not communicated the 1984 flight information to Mr. Smith. Mr. Stevens indicated that he was aware that Senator McCain took a flight in 1984, but because of the statute of limitations on individual tax returns, the IRS would have been MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT prohibited from charging Senator McCain for this flight. However, the IRS could have charged Senator McCain for the 1985 flights which Also, once it was established why Mr. Stevens scheduled only the " with 9985 flights, the spine and for "Years. On 1985 information. Mr. Stevens copied his letter to Mr. Smith to Jim Grogan; however, he does not know what actions, if any, Mr. Grogan undertook. Mr. Stevens received a phone call from Mr. Smith responding to Mr. Stevens' February 17, 1989 letter in late February. 1989. Mr. Stevens recalled that Mr. Smith stated that it was the Senator's intention to reimburse ACC for his use of corporate aircraft but he either did not know how to handle Senator McCain's family's flights or he was unconcerned about the family's flights. Mr. Stevens stated that Mr. Smith did not refuse to reimburse ACC for Senator McCain's (Stevens was not seeking reimbursement at this point and did not ask the specific question for family's flights and did not indicate that it was Senator McCain's policy not to reimburse (although Mr Stovers received the distinct impression. for family members' flights. Mr. Stevens was frustrated by the response in that he was attempting to settle the matter prior to the IRS closing the audit and charging income to this conversation Mr. Keating. He realized, based on Mr. Smith's March 7, 1989 letter, that the issue would in time for a settlement in Late February not be resolved, I indicated that Mr. Smith suggested that Mr. Stevens should contact Chris Koch, Senator McCain's administrative assistant. Mr. Stevens indicated that he did not attempt to contact Mr. Koch in that it was evident that his efforts to resolve the the IRS had already agrood to a settlement by the time the mind offer quickly were unsuccessful) and there were many other things, including Mr. Stevens' received involvement in the attempted sale of Lincoln, that precluded further pursuit of the matter. It was no longer important that the matter be pursued with Senator McCain since the IRS charged Mr. Keating with income; and, as long as someone was charged with the income, the IRS closed the issue. MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT CONFIDENTIAL February Mr. Stevens stated that the Internal Revenue Service held a closing conference in 1989 that was attended by two IRS agents, Mr. Stevens, Mr. Keating, and Mr. Stevens' staff member, Henri Bernstein. Mr. Stevens recalls that during the meeting the issue of charging Mr. Keating with income relating to Senator McCain's flights was discussed. An IRS agent help stated to Mr. Keating that at least the Senators attempted to "do things for Mr. Keating. Mr. Keating responded that the Senators did not do anything for him. Since the income issue had been settled and the IRS audits for 1984-1985 were closed, Mr. Stevens said he did not attempt to follow up on the letter attached to Mr. Smith's letter to him dated March 7, 1989 (Exhibit 10). The attached letter was from Mr. Smith to Greg Anderson who was Senator McCain's campaign treasurer. The letter discussed a campaign check that Mr. Anderson sent to Mr. Smith in the amount of $959 made payable to ACC. Mr. Stevens did not pursue whether ACC had record of the check being received because the issue was closed by the IRS. However, in May, 1989, Mr. Stevens received a call from Chris Koch indicating that Senator McCain was concerned about the reimbursement issue and that the Senator had just seen Mr. Smith's March 7, 1989 letter. Mr. Koch indicated that the Senator wanted to take care of the issue and make full reimbursement. Mr. Stevens stated that Mr. Koch made no mention of Senator McCain's policy regarding reimbursement for himself and family members on corporate aircraft. He merely stated that he "wanted to take care of everything." Mr. Koch requested that Mr. Stevens send him information relative to all flights taken by Senator McCain and his family. Based upon this request, Mr. Stevens sent Mr. Koch a letter dated May 12, 1989 (Exhibit MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT 11). Mr. Stevens attached a schedule of Senator McCain's 1984 and 1985 flights. He also included a comment that he reviewed the 1986 flight logs which indicated one flight that was taken by Senator McCain, his wife, baby sitter, and daughter in August, 1986. Mr. Stevens stated that, "We were fully reimbursed for that flight by a check we received in August of 1986 for $900." The 1986 flights were listed in a schedule prepared by Mr. Stevens' staff (Exhibit 7) which was derived from the flight log information. This schedule shows that in August, 1986. Senator McCain, Cindy McCain, Megan McCain, and Senator McCain's baby sitter flew from Phoenix to Miami. This schedule would seem to compute the personal value of these flights as $1,328.04 ($208.33 x 2 x 3 (members flying not including Megan) + $78.02). On the comment section of this schedule is a note that Senator McCain reimbursed for his portion of personal usage. Additionally, it notes the first class rate of $350 for this flight. May of 1984 Upon review of this information, Mr. Stevens originally believed that Senator McCain had fully reimbursed ACC for all those who traveled. On the second page of Exhibit 7, which includes the reimbursement check dated August 18, 1986 for $900, Mr. Stevens wrote the numbers $1,050, $900, and $150. Mr. Stevens stated that in order to assess whether Senator McCain had made reimbursement for himself, his wife, and baby sitter, he took the first class rate of $350 x 3 for a total due of $1,050. In comparison to the reimbursement check received of $900, he believed Senator McCain had substantially reimbursed ACC for all who traveled. At that point he did not challenge the seemingly low first class rate of $350 for a ticket from Phoenix to Miami. Additionally, he did not consider that the check MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT included the notation "corporate airfare, John McCain." Based on his initial review of this item, Mr. Stevens believed that Senator McCain fully reimbursed ACC for this trip and indicated that in his letter to Chris Koch on May 12, 1989. Mr. Stevens again considered the adequacy of this payment in late 1989 upon reviewing two other reimbursement checks located by ACC personnel which indicated reimbursement for only Senator McCain's travel. He again reviewed the reimbursement for the August, 1986 flight. In seeing that this check was also noted as payment for only Senator McCain's travel, he began to believe that the reimbursement was intended only for Senator McCain's flight. In formulating his theory in 1990, he realized that $900 would be a more reasonable figure for first class travel from Phoenix to Miami, which provided additional support that the August 18, 1986 check was meant to be only a reimbursement for Senator McCain's travel and not for his wife and baby sitter. A review of Chris Koch's testimony transcript by Mr. Stevens several weeks ago provided additional support for his conclusion. As to the August 23, 1986 flight, I asked Mr. Stevens how he calculated the IRS value on his schedule entitled "Senator John McCain and Family -- Schedule of Airplane Flights" (Exhibit 6). This schedule indicates a value of $859.35 for each passenger whereas the 1986 schedule (Exhibit 7) seems to indicate a value of approximately $500 per passenger. Mr. Stevens stated that the 1986 schedule includes a 200% multiple whereas Exhibit 6 uses a certain individuals (including 400% multiple. In 1986, the lower multiple was used under a theory that Senator McCain 1888 had to use ACC aircraft for security reasons. The IRS did not agree with this theory, thus" Mr. Stevens used the higher multiple in Exhibit 6. |