Will tax scandal ruin N.Y. governor's top aide?

updated 6:17 p.m. ET Oct. 22, 2008

ALBANY, N.Y. - Charles O'Byrne is a powerful and enigmatic figure in New York politics. He's an openly gay ex-priest who assailed the Catholic Church in Playboy, a confidant to the Kennedy clan, the muscle behind Gov. David Paterson.

Now, O'Byrne's failure to pay $200,000 in taxes has become a liability to a governor who wants to run for a full term in 2010 and is struggling to keep the state from slipping into economic bedlam.

It matters little at this point that O'Byrne, 49, repaid his debt plus penalties — with help from the Kennedy family — for failing to pay state and federal taxes from 2001 to 2005, a lapse he blames on clinical depression.

Sympathy for a tax delinquent pulling down $178,500 a year is scarce when the governor is warning of fallout from the Wall Street meltdown and while his tax department threatens felonies for tax scofflaws.

"I think any situation he finds himself in he tries to rise to the occasion," said Stephen Smith Jr., whose mother Jean Kennedy Smith is the sister of John F. Kennedy and Sen. Edward Kennedy. "I feel badly for him right now because he, like all of us, are vulnerable in certain ways. And New York is a tough town."

Ties to the Kennedys
Smith has been friends with O'Byrne, 49, since their Columbia Law School days, a friendship that drew O'Byrne into the family. O'Byrne officiated at John F. Kennedy Jr.'s 1996 wedding to Carolyn Bessette and counseled the family three years later after the Kennedy scion, his wife and her sister died in a plane crash.

"I think Charles played a really important role in helping everybody to heal," Smith told The Associated Press.

O'Byrne also counseled the Kennedy family during the 1991 rape trial of his law school friend's brother, William Kennedy Smith, who was acquitted. He has served as a trustee of three Smith/Kennedy family trusts, receiving at least $1,000 annually in income.

O'Byrne said he paid off his tax debt through lines of credit, liquidating assets and help from relatives and friends. Jean Kennedy Smith has loaned O'Byrne at least $5,000 and she and her daughter, Kym Smith, gave him gifts worth at least $1,000 last year, according to state financial disclosure forms.

Stephen Smith Jr. described O'Byrne as a committed friend.

Smith once persuaded O'Byrne to take a leisurely walk in the woods on an unseasonably warm November day. Three hours later, they were on top of a New Hampshire mountain Smith just had to climb, shivering in shorts in driving snow and sharing half a peanut butter sandwich.

"That's what he'll do for a friend," Smith said.

Talk of the tabloids
For four days, since the New York Post portrayed O'Byrne as an ex-deadbeat whose excuse was, according to the front-page headline, "HE'S CRAZY," Paterson has defended O'Byrne.

"There are a lot of situations where people as individuals have had things in their lives and they've gone back and they've addressed them," said Paterson. "And the question then becomes, should a person who has had the problems be allowed to serve in government? In this case, I think the person should be."

But in New York politics, after a harrowing 14 months of the promise and plummet of Eliot Spitzer, the hell-bent reformer taken down in a prostitution investigation and replaced by Paterson, a good scandal isn't wasted.

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