Source: Timothy Geithner failed to pay taxes

President-elect Barack Obama's choice to run the Treasury Department and lead the economic rescue effort disclosed to senators Tuesday that he failed to pay $34,000 in taxes from 2001 to 2004, a last-minute complication in an otherwise smooth path to confirmation.

Timothy Geithner paid most of the past-due taxes days before Obama announced his nomination in November, an Obama transition official said. The unpaid taxes were discovered by Obama's transition team while investigating Geithner's background, the official said.

The transition official requested anonymity because the source was not authorized to discuss Geithner's situation.

Obama reiterated his support Tuesday for Geithner as senators who are considering the appointment quizzed Geithner behind closed doors.

"He's dedicated his career to our country and served with honor, intelligence and distinction," incoming White House spokesman Robert Gibbs said. "That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."

Geithner failed to pay self-employment taxes for money he earned while working for the International Monetary Fund from 2001 to 2003, the transition official said. In 2006, the IRS notified him that he owed $14,847 in self-employment taxes and $2,383 in penalties from 2003 and 2004.

Transition officials discovered last fall that Geithner also had not paid the taxes in 2001 or 2002. He paid $25,970 in taxes and interest for those years several days before Obama announced his nomination, the transition official said.

Geithner also didn't realize a housekeeper he paid in 2004 and 2005 did not have current employment documentation as an immigrant for the final three months she worked for him, the transition official said.

Geithner is the second Obama nominee to face controversy. New Mexico Gov. Bill Richardson withdrew his name on Jan. 4 as Obama's Commerce secretary after questions surfaced about an ongoing federal investigation.

Richardson withdraws bid to be commerce secretary

New Mexico Gov. Bill Richardson on Sunday announced that he was withdrawing his nomination to be President-elect Barack Obama's commerce secretary amid a grand jury investigation into how some of his political donors won a lucrative state contract.

Richardson's withdrawal was the first disruption of Obama's Cabinet process and the second "pay-to-play" investigation that has touched Obama's transition to the presidency. The president-elect has remained above the fray in both the case of arrested Illinois Gov. Rod Blagojevich and with the New Mexico case.

A federal grand jury is investigating how a California company that contributed to Richardson's political activities won a New Mexico state contract worth more than $1 billion. Richardson said in a statement issued by the Obama transition office that the investigation could take weeks or months but expressed confidence it will show he and his administration acted properly.

"But I have concluded that the ongoing investigation also would have forced an untenable delay in the confirmation process," Richardson said. "Given the gravity of the economic situation the nation is facing, I could not in good conscience ask the president-elect and his administration to delay for one day the important work that needs to be done."

Richardson said he will remain as governor and told Obama, "I am eager to serve in the future in any way he deems useful."

The announcement came ahead of Obama's Monday meetings with congressional leaders on a massive economic recovery bill he wants lawmakers to pass quickly.

Obama said he has accepted Richardson's withdrawal, first reported by NBC News, "with deep regret."

"Governor Richardson is an outstanding public servant and would have brought to the job of Commerce Secretary and our economic team great insights accumulated through an extraordinary career in federal and state office," Obama said. "It is a measure of his willingness to put the nation first that he has removed himself as a candidate for the Cabinet to avoid any delay in filling this important economic post at this critical time. Although we must move quickly to fill the void left by Governor Richardson's decision, I look forward to his future service to our country and in my administration."

A person familiar with the proceedings has told The Associated Press that the grand jury is looking into possible "pay-to-play" dealings between CDR Financial Products and someone in a position to push the contract through with the state of New Mexico.

State documents show CDR was paid a total of $1.48 million in 2004 and 2005 for its work on a transportation program.

Richardson ran against Obama in the Democratic presidential primary, but withdrew after a poor showing in the Iowa caucuses and New Hampshire primary.

He is one of the most prominent Hispanics in the Democratic Party, having served in Congress and as President Clinton's ambassador to the United Nations and energy secretary. As governor, he has kept up an international profile with a specialty in dealing with rouge nations. Obama also considered him to be secretary of state.

CDR and its CEO, David Rubin, have contributed at least $110,000 to three political committees formed by Richardson, according to an AP review of campaign finance records.

The largest donation, $75,000, was made by CDR in June 2004 — a couple of months after the transportation financing arrangement won state approval — to a political committee that Richardson established before the Democratic National Convention that year.

Obama to name Richardson to head Commerce Dept

President-elect Barack Obama is expected to nominate New Mexico Gov. Bill Richardson to head the Commerce Department, a senior Democratic source said on Tuesday.

Obama is expected to announce the appointment during a news conference scheduled for 1140 EST/1640 GMT on Wednesday in Chicago, his fifth since he began naming nominees for his Cabinet.

The appointment of Richardson, a former U.N. ambassador and energy secretary who became an Obama supporter earlier this year after dropping his own presidential bid, would make him the first Hispanic named to Obama's rapidly filling Cabinet.

Last week Obama announced members of his economic team including his nominee for Treasury secretary, New York Federal Reserve President Timothy Geithner, and this week he unveiled his national security team including his designate for Secretary of State, New York Sen. Hillary Clinton.

Richardson, 61, had been a contender for the secretary of state post that went to his former Democratic presidential rival Clinton, but at Commerce he will play a key role in efforts to revive the faltering U.S. economy.