Q: As a member of a Senator’s staff, one of my jobs is to help prepare his financial disclosure report. As we scramble to finish this year’s report, I was interested to read that a watchdog group has filed an ethics complaint against Sen. Chris Dodd (D-Conn.) alleging that he failed to report what I’ve seen described as a sweetheart deal on property that he purchased. This got me concerned about my own Senator’s financial disclosure reports and whether we need to report any deals that he received on purchases and sales in 2008. In particular, our Senator sold his home last year, and it has subsequently plummeted in value to the point that it is now worth 25 percent less than the selling price. Must we report the sale?

[IMGCAP(1)]A: It’s springtime, which, in the world of Congressional ethics, means it’s financial disclosure season. Now is as good a time as ever to brush up on financial disclosure basics.

The Senate has required at least some sort of financial disclosure since 1968. According to the Senate Ethics Manual, public disclosure of personal financial interests is “often considered the key component to an effective code of conduct for legislative ethics.— Disclosure “provides the mechanism for monitoring and deterring conflicts.— Its purpose is to allow constituencies to judge official conduct in light of possible conflicts of interest arising from Members’ and staffers’ personal finances.

The system is governed by the Ethics Reform Act of 1989, which delegates the authority to administer the disclosure reports to the Ethics Committee. Members must file their reports by May 15 each year, disclosing information regarding their previous year’s compensation, assets, liabilities, major transactions and positions held. Members must also disclose any gifts that they received, unless an exception applies. False statements can lead to harsh penalties, up to and including jail time.

There are two different sections of the reports where disclosure of real estate sales might sometimes be required. The first is the “Transactions— section, for all purchases or sales of more than $1,000. Transactions involving personal residences, however, are explicitly exempted. You refer to the property here as “his home.— If by this you mean his personal residence, there is no need to include the sale in the Transactions section.

The other section is a little trickier: the “Gifts— section, where Members must disclose all gifts received, unless an exception applies. For purposes of the financial disclosure report, a gift means a payment, forbearance, advance, rendering or deposit, or anything of value, unless consideration of equal or greater value is received by the donor. (Note that this definition is similar to the Senate gift rule.) Therefore, when a Member sells or buys a property, he could be required to disclose the exchange as a gift if he receives substantially greater value than he gives up.

In Dodd’s case, Judicial Watch filed an ethics complaint alleging that he committed multiple violations, including his alleged failure to disclose a gift on his disclosure report. Dodd allegedly used his influence to help his friend Edward Downe obtain a presidential pardon from Bill Clinton without undergoing the normal vetting process. Subsequently, the complaint alleges, Dodd bought an interest in an Irish cottage from an associate of Downe’s at a price well below market value. In fact, the complaint says, just six years after the purchase, it is now worth as much as four times what he paid for it. The complaint alleges that Dodd should have reported his purported sweetheart deal as a “gift.—

Dodd’s office has responded that the charges are baseless. In fact, his office says, the price that Dodd paid for the property interest was not below market value at the time of the purchase, but actually well above. If this is right, Dodd surely was not required to disclose the purchase as a gift. This is true regardless of how the property’s value might have changed since the purchase.

Similarly, the change in the property’s value after your Senator sold his home is irrelevant to the question of whether it qualifies as a gift. To determine whether it was a gift, the focus is not on what happens to the property’s value after the sale. Rather, the focus is on the market value at the time of the sale and its relationship to the price that he sold it for. In a market as unstable as this one, it is hardly surprising that the property has changed in value since he sold it. Assuming the sale price was about market price at the time, there should be no need to disclose it as a gift. Making a smart sale is not the same thing as receiving a gift.

One more point merits mentioning. If your Senator did receive any gifts last year, he may have bigger problems than assessing whether they must be included on his disclosure report. Disclosure obligations aside, the gift rule prohibits Senators from accepting any gift unless an exception applies. As the report states: Disclosure of gifts does not authorize their acceptance. It’s important to get your financial disclosure report right each spring. But, don’t forget, the gift rule applies year-round.

C. Simon Davidson is a partner with the law firm McGuireWoods LLP. Click here to submit questions. Readers should not treat his column as legal advice. Questions do not create an attorney-client relationship.