Campaign Releases Edwards's Earnings

By MICHAEL MOSS and KATE ZERNIKE

Published: July 10, 2004


In the four years before he joined the Senate in 1999, John Edwards made a total of nearly $27 million as a personal injury lawyer who won a string of multimillion-dollar jury verdicts and settlements.

The Kerry-Edwards Democratic presidential campaign released Mr. Edwards's income figures in a statement yesterday in response to questions about the taxes he paid after he created a tax shelter in 1995.

Mr. Edwards paid $9,353,448 in federal taxes on his income of $26,869,496, but the shelter allowed him to avoid paying $591,112 in Medicare tax, the figures provided by the campaign show.

Until now, Mr. Edwards's earnings as a trial lawyer have been a matter of speculation. He has declined to release his full tax filings on an annual basis, and his Senate disclosure forms only broadly suggest that he is worth $12 million to $60 million. The campaign said it was still considering whether to release the senator's actual tax filings, and whether it would do so only for his time in the Senate or for his legal career as well, which began in 1978. The campaign said Mr. Edwards had obtained an extension on his returns for 2003, and planned to file them this summer or fall.

The campaign also released a Jan. 14 letter from a Washington law firm, Caplin & Drysdale, that Mr. Edwards and his wife, Elizabeth, engaged to review 10 years of their tax filings. "The structure initiated by the Edwardses' tax professionals was entirely lawful, ethical and proper," the letter said.

In campaigning for the presidential nomination, Mr. Edwards attacked President Bush as favoring the wealthy with his tax policies and blamed tax shelters as undermining the Medicare program.

Asked how Mr. Edwards's use of the tax shelter squared with his campaign positions, David Ginsberg, a Kerry campaign spokesman, said: "Senator Edwards believes that no individual should pay more than they owe in taxes, but he also believes that we should make sure our tax code reflects our values. The law should make sure everybody is paying their share - not one penny more and not one penny less."

The campaign said Mr. Edwards created the tax shelter, a so-called S Corporation, on the advice of his accountant, who cited its legal liability protections as well as its tax advantages, about two years after he left a larger firm to start his own practice with a partner.

His use of the tax shelter surfaced in his 1998 run for the Senate against Lauch Faircloth, the incumbent Republican, whose campaign manager called it a "deceitful ploy."

But accountants and tax-law specialists say that S Corporations have grown increasingly popular with lawyers, contractors and entrepreneurs. The IRS received 3,191,108 such filings last year. If anything, these experts said, Mr. Edwards used it rather conservatively.

While most of his income, which included some investments, was labeled dividends on the S Corporation, for which he paid no Medicare tax, Mr. Edwards did designate $360,000 a year as wages on which he was taxed for Medicare.

But even those whose business it is to collect taxes said they could find no fault with what Mr. Edwards did. "Let's face it," said Veranda Smith, a government affairs associate with the Federation of Tax Administrators. "I work for the state tax agencies, and I'm perfectly happy to say that anyone who puts in a structure that pays more taxes than necessary is nuts."

Friends and neighbors say Mr. Edwards does not flaunt his wealth and generally avoids its trappings. The biggest extravagances seem to be homes. The Edwardses own three houses: one in Raleigh, N.C.; a beach house on Figure Eight Island, near Wrightsville Beach, N.C.; and a town house in the Georgetown neighborhood of Washington, bought last year for $3.8 million.

They do not eat out often, and friends say that when they do they choose restaurants where they can order chicken fingers for their children. The Edwardses recently vacationed at Walt Disney World, but for the most part, vacations are to Raleigh or to the beach house.

"You're not talking people who are in love with money for its own sake," said Glenn Bergenfield, a friend of the couple's since law school, and godparent to their two sons.

They have a live-in nanny. Mr. Edwards drives a Buick and Mrs. Edwards a Chrysler minivan. Aides say Mr. Edwards could no more say the brand of shoes or suit he is wearing than he could the exact distance to the moon. "He just doesn't care," one said.

Wade Hargrove, a former law partner, said Mr. Edwards once asked for advice on buying a boat. "He wound up with a little small boat, a little runaround boat with an outboard motor on it," Mr. Hargrove recalled. "Hell, he could have bought a yacht."

The house in Raleigh is in a shaded, affluent area of winding streets and well-kept lawns. When the Edwardses moved to Washington, they bought an elegant house with a large marble staircase on Embassy Row. Friends said Mrs. Edwards worried that the staircase was dangerous for their two youngest children, who were toddlers.

The Edwardses sold that house to the government of Hungary and bought a large butter-yellow painted brick house on a cobbled street in Georgetown. Virginia Chew, the listing agent for the house, said $3.8 million was the standard price for a house of its size in Georgetown, and that others nearby were selling for $5 million to $6 million.

Chris Downey, a neighbor and friend in Washington, called the Edwardses "an average family that does not have to worry about their future."

"They don't live an extravagant lifestyle at all, we're not talking jewelry and clothes," Ms. Downey said. "They do what people do when they have kids. With a little bit of money you can give them ballet lessons and braces when they need them, as opposed to saying either braces or ballet. They don't have the hard choices that many people have, but that's good."

The Edwardses set up an endowment at the University of North Carolina, where they received their law degrees, and a program in Raleigh in the name of their son Wade, who died in 1996. Mr. Edwards bought a house for his brother, and a friend said the couple had paid at least a year's college tuition for the son of friends who could not afford it.