The loan of $267,230 was not repaid in full or even by the justice. The benefactor was able to wipe the slate clean with potential ethical and tax implications.
The terms were generous and clear. Clarence Thomas, a judge, could borrow more than $250,000 from a wealthy friend, paying only interest for five years. The principal would only be due after five years.
According to a recent report by Democratic senators on the Senate Finance Committee, despite the fact that the loan was favorable in 1999 and the long extension given to him to meet his obligations, Justice Thomas did not repay “a significant portion” or possibly any of the $267 230 principal. Justice Thomas was forgiven the debt nearly nine years after he made an unknown number of interest payments. This result could have ethical and tax implications for him.
The New York Times quoted Michael Hamersley as saying, “This was a sweetheart agreement” that did not make sense from a business standpoint. Hamersley is a tax attorney who has been a congressional witness.
A Times investigation, published in August, revealed that Justice Thomas purchased his Prevost Marathon Le Mirage XL – a brand favored among touring rock bands and super-wealthy – with funding from Anthony Welters, a friend of many years who had made his fortune in health care.
In a summer statement to The Times, Mr. Welters stated that the loan was “satisfied”. He refused to say whether this meant Justice Thomas paid off the loan, nor did he answer other basic questions. He did not answer all the questions, but he provided a more detailed account to the committee. The committee has the power to issue subpoenas or compel witnesses.
The documents that Justice Thomas has provided indicate, at least, that he appears to have violated an ethical rule that required him to include “discharges of debt” as income in the annual financial disclosure report. The Internal Revenue Service also treats debt forgiveness by the borrower as income.
Senator Ron Wyden of Oregon, who chairs the Senate Finance Committee called on Justice Thomas “to inform the committee exactly how many loans were forgiven, and whether he correctly reported the loan forgiveness in his tax return, and paid all taxes owed.”
Elliot S. Berke argued against the findings of the committee, saying that “the loan was never forgiven.”
He did not respond to The Times when they asked him to reconcile this statement with the documents that were obtained by the committee, and which are cited in the report. This includes a 2008 letter that Mr. Welters wrote to Justice Thomas saying that he was not going to seek any further repayments on the loan even though he was entitled to do so. Berke also refused to say whether “satisfied’ meant that Justice Thomas had repaid his $267,230 loan plus interest.
In recent months, following a number of reports about ethical lapses on the Supreme Court, there has been intense public pressure for it to adopt stricter rules of ethics. Several justices have publicly endorsed such a step. The controversy has been largely centered around how wealthy benefactors gave gifts to Justice Thomas and Virginia Thomas, including renovating and buying the house where his mother resides, paying for his great-nephew’s tuition, and taking the couple on luxurious vacations, which included traveling aboard private jets or superyachts.
Few things can compare to the motor coach in terms of both its monetary value and image-building potential. It has been a staple of Justice Thomas’ “just-folks persona” for years. In speeches, interviews on “60 Minutes,” and other TV programs, as well as in a hagiographic document financed by conservatives, Justice Thomas extolled driving his motor coach across the American heartland during the summer and talking to people in Walmart parking lot along the way.
The cost of the motor coach and the financial hardship that the justice department faced in acquiring it was never revealed. The Times found that he purchased it in December 1999, used, for $267.230. In today’s dollars adjusted for inflation that would equal $493,700. Mr. Welters was listed as the lien owner in the title.
Both men had similar childhoods, and they shared a common professional experience. They worked as aides for Republican senators at Capitol Hill before becoming political appointees during the Reagan administration.
Even so, it would have proved extremely difficult for Justice Thomas if he had tried to get a bank loan on the coach – let alone with the terms offered by Mr. Welters. Industry experts say that even financial institutions who specialize in recreational vehicles will not lend money on used luxury motor coach models like the Prevost Marathon because of their difficult valuation. Financial disclosures and records reveal that the Thomases were heavily in debt and relied on their judicial salary as their primary source of income. Experts said that most buyers, on the other hand, are wealthy individuals who have good credit and can pay in cash or a significant amount of money down.
In response to the Finance Committee’s questions, Mr. Welters shared documents from December 6, 1999 that showed he had lent Justice Thomas and Mrs. Thomas their entire purchase price at an interest rate of 7.5% per year. The rate of interest was comparable to what was available in the market at the time. However, the arrangement was unusually advantageous because Justice Thomas didn’t have to pay any principal over the five year loan.
He had to pay $20,042 in annual interest instead. On the maturity date of the loan, December 2004, a balloon payment would be due for principal. Experts said that vehicle loans such as this one are rare because they pose a risk to the lender. The collateral, in this case a motorcoach, depreciates quickly, but the outstanding principal does not.
According to the Senate Report, Justice Thomas wrote a note on the letterhead of the Supreme Court to Mr. Welters, the day after the loan documents had been signed. He said that the loan agreement must accurately reflect the parties’ understanding and he promised to adhere to it to the letter.
According to the records obtained by the Committee and cited in its report, Justice Thomas failed to pay his principal in 2004. Instead, Mr. Welters gr