MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT with Mr. Stevens in connection with the 1984 and 1985 IRS audit. Mr. Stevens does not recall to what Ms. Bailey was referring in her memo. It was after Senator McCain's press release on November 1, 1989, that Mr. Stevens began to differentiate Senator McCain's intent between accepting responsibility for reimbursement of his personal travel on ACC's aircraft as opposed to his family's. In review of the two $550 reimbursement checks he found in 1989, Mr. Stevens noted that both checks included a notation that the reimbursement was only for Senator McCain's flights. A review of his flight schedules as well as the schedule provided by Senator McCain indicated that these checks related to April 4, 1985 and August 29, 1985 flights. Senator McCain was accompanied by his wife and baby sitter on the April 4, 1985 flight and he was accompanied by his wife, baby sitter, and daughter on the August 29, 1985 flight, yet no reimbursement was made for them on a timely basis. Upon realizing this, Mr. Stevens again reviewed the $900 reimbursement check dated August 18, 1986 which applied to Senator McCain's August 23, 1986 flight, previously discussed. After reviewing all three checks in November, 1989, Mr. Stevens began to suspect that Senator McCain had not intended to reimburse ACC for his family's flight. As additional support to Mr. Stevens' theory, in 1990 he reviewed the values of the August, 1986 flights which again supported that the August 18, 1986 check applied only to Senator McCain's flight. This fact, coupled with Mr. Smith's statements in February, 1989 and Senator McCain's late reimbursement of all flights in 1989, led Mr. Stevens to his view that Senator McCain had only intended to reimburse ACC for his personal use of ACC aircraft and not of his family's. MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT I then questioned Mr. Stevens about the general policies or practices concerning the personal usage of ACC corporate aircraft. He stated that personal usage of ACC corporate aircraft was generally limited to ACC employees' families. He stated that Senator McCain was one of only a few non-ACC affiliated individuals who used ACC corporate aircraft for personal reasons. For ACC employees, the value of personal flights taken by them and family members were included as compensation on the employees W-2. After Mr. Stevens arrived, he made it a practice to contact non-ACC individuals taking personal flights in order to determine the individual's tax identification number for the issuance of a 1099. Mr. Stevens indicated that this was not a practice in 1984 and 1985 and thus Senator McCain was neither billed for the unpaid flights nor was a 1099 issued. Additionally, a 1099 would not have been necessary for Senator McCain's 1986 flights in that Mr. Stevens believed at that time that the Senator had fully reimbursed ACC for his and his family's flights. At no time did Mr. Stevens know of Senator McCain and Mr. Keating's "parting of the ways" which occurred after the April, 1987 meetings with the regulators. He said that although he kept Mr. Keating informed through memos of the income tax issue relating to personal usage of ACC aircraft, there was no direction given by Mr. Keating, or any other executive, relative to how to handle the issue of Senator McCain's flights. He also does not have copies of the aforementioned memos. As to Mr. Stevens' February, 1989 phone discussion with Mr. Smith, he said that he did MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT not consider that Mr. Smith was Senator McCain's campaign manager and that he may have been only concerned about Senator McCain's flights during his campaign. He also had no understanding that Senator McCain would, from time to time, book personal travel on commercial flights through the American Continental Travel Agency and make reimbursement directly to that company. Prior to joining ACC, Mr. Stevens worked in the Tax Department of Arthur Anderson, and during this period, he signed off on ACC's tax returns as a paid preparer. While the subject of the deductibility of personal use of ACC's corporate aircraft came up through his reviews, Arthur Anderson was never requested to review this issue specifically. I asked Mr. Stevens if any of the other Senators involved in the current hearing used ACC aircraft for personal use. He shared with me a letter that he sent to me on June 7, 1990 (Exhibit 16). A schedule of flights taken by Senator and Mrs. DeConcini in 1984 was attached. His memo states that Mr. Keating was charged with income for this 1984 flight, but since the tax impact was not significant, he did not further investigate these flights with Senator DeConcini's office and has never contacted the Senator to locate reimbursement. I have no record of having received this letter. Mr. Stevens indicated that, other than the Fountain Square project, he was not aware of any other joint ventures or business transactions involving ACC, its subsidiaries, and any of the Senators. He stated that there is nothing that he is aware of that would lead him MEMORANDUM OF DAVID E. STEVENS ATTORNEY WORK PRODUCT to believe that the investment by Senator McCain's wife and her father in Fountain Square was improper. Mr. Stevens did note that one of his staff members, Trey Maxwell, reviewed the deductibility of the $850,000 in contributions by ACC to Senator Cranston's voter registration groups. Mr. Stevens recalled that Mr. Maxwell's conclusion was that these payments did qualify as deductions and were claimed as such. He has no documentation regarding this review. Mr. Stevens again stated that he was very active in the proposed sale of Lincoln in the spring of 1989 and knew that phone calls were being made to various Senators in hopes of garnering their support. However, he again stated that he has no details about any specific phone calls or other discussions that ACC officials had with any Senators. Bruce Penczek, I am pleased to enclose a memorandum making public for the first time American Continental Corpration's position on some of the issues so often misrepresented by so many who seem to know nothing and to care less about the facts. I sincerely hope this material will be of value to you. For further information, please feel free to call me at (602) 957-7170. |