The terms of the private loan were as generous as they were clear: With no money down, Justice Clarence Thomas could borrow more than a quarter of a million dollars from a wealthy friend to buy a 40-foot luxury motor coach, making annual interest-only payments for five years. Only then would the principal come due.

But despite the favorable nature of the 1999 loan and a lengthy extension to make good on his obligations, Thomas failed to repay a “significant portion” — or perhaps any — of the $267,230 principal, according to a new report by Democratic members of the Senate Finance Committee. Nearly nine years later, after Thomas had made an unclear number of the interest payments, the outstanding debt was forgiven, an outcome with ethical and potential tax consequences for the justice.

“This was, in short, a sweetheart deal” that made no logical sense from a business perspective, Michael Hamersley, a tax lawyer who has served as a congressional expert witness, told the New York Times.

Loan ‘satisfied’ in 2008

The Senate inquiry was prompted by a Times investigation published in August that revealed that Thomas bought his Prevost Marathon Le Mirage XL, a brand favored by touring rock bands and the superwealthy, with financing from Anthony Welters, a longtime friend who made his fortune in the health care industry.

In a statement to the Times this summer, Welters said the loan had been “satisfied” in 2008. He declined to answer whether that meant Thomas had paid off the loan in full nor did he respond to other basic questions about the terms. But while a number of questions remain, he gave a much fuller account to the committee, which has the authority to issue subpoenas and compel testimony.

The documents he volunteered indicate that, at the very least, Thomas appears to have flouted an ethics rule requiring that he include any “discharge of indebtedness” as income on required annual financial disclosure reports. In addition, the IRS treats debt forgiveness as income to the borrower.

Sen. Ron Wyden, D-Ore., who leads the Senate Finance Committee, called on Thomas to “inform the committee exactly how much loan was forgiven and whether he properly reported the loan forgiveness on his tax return and paid all taxes owed.”

Thomas did not respond to questions sent to him through the Supreme Court’s spokesperson.

‘Just folks’ persona

For years, the vehicle has served as a central trope of the justice’s “just-folks” persona: In speeches, interviews with “60 Minutes” and other television programs, and a hagiographic documentary financed by conservative supporters, Thomas has extolled the joys of driving the motor coach through the American heartland in summertime and chitchatting with the people he meets in Walmart parking lots along the way.

Always left out of that telling, however, was just how much the motor coach cost — and how justice managed to acquire it. According to title and other records unearthed by the Times, he bought it used in December 1999 for $267,230. (In today’s dollars, adjusted for inflation, that would be $493,700.) The title listed Welters as the lien holder.

Loan terms

Welters, in response to questions from the Finance Committee, shared loan documents dated Dec. 6, 1999, showing that he lent Thomas and his wife the entire purchase amount at an annual interest rate of 7.5%. While that rate was in line with what might have been found in the marketplace at the time, what made the arrangement unusually favorable was that over the course of the five-year loan, Thomas did not have to pay down any of the principal.

Instead, he simply had to make annual interest payments of $20,042. The principal amount borrowed would come due in a balloon payment on the loan’s maturity date, in December 2004.

In a handwritten note to Welters on his Supreme Court letterhead, dated the same day the loan documents were signed, Thomas said the loan agreement should accurately reflect their understanding and promised to abide by it to the letter, according to the Senate report.

But in 2004, when the principal came due, Thomas did not make good on his debt, according to records obtained by the committee and cited in their report. Instead, Welters granted him a 10-year extension, with the same interest-only terms. This, even though the previous year Thomas had collected $500,000 of a $1.5 million advance for his autobiography, according to his financial disclosures.

Then, in late 2008, Welters simply forgave the balance of the loan, according to the committee’s report.

In a note to Thomas, summarized by the investigators, Welters said he was doing so because the justice’s many years of “interest only” payments now exceeded the purchase price of the bus. For that reason, Welters told Thomas, he did not feel it was appropriate to continue to accept payments, even though he had the right to them.

But Welters’ math doesn’t add up: Even if Thomas had made all the scheduled annual interest-only payments, that would only amount to a little over $180,000 — nearly $87,000 short of the purchase price. What’s more, the only proof of payment that Welters was able to provide to investigators was a copy of a single canceled check, dated December 2000, for $20,042 — the amount of a single interest payment.

Welters, in a statement to the Times on Wednesday, said that because the loan was made so many years ago, “bank records — which I have sought — no longer exist. While not a tangible record, I continue to put stock in my contemporaneous belief.”