David Scott has begun his re-election campaign to the U.S. House by putting his financial house in order.

The Atlanta Democrat, whom critics excoriated last year for falling far behind on his taxes and for using campaign contributions to pay family members, has paid off all his personal local and state tax liens, according to court records. Scott also says he and his wife, Alfredia, are “on track” to pay off a $153,918 federal tax lien against the advertising company they founded.

The Scotts said they cleared their debts, in part, by selling stocks and repaying loans the congressman made to his campaign. David Scott’s personal financial disclosure, released last week, shows he collected between $22,008 and $155,000 from stock sales in 2007.

According to campaign finance records, Scott hasn’t used political donations to pay his wife’s company or family members for campaign work since May 2007, when Politico.com, a Washington blog, posted an article raising questions about Scott’s finances.

It is not illegal for congressional candidates to hire family members for their campaigns as long the relatives are providing a service at a marketable price.

Scott’s money troubles have emerged as a campaign issue for the three-term U.S. House member, who faces the same two candidates who challenged him in 2006: former state Sen. Donzella James (D-College Park) and Republican Deborah Honeycutt.

In 2006, Scott trounced Honeycutt by carrying nearly seven of every 10 votes cast in the general election. Scott beat James by more than a 2-to-1 ratio in the Democratic primary.

In recent weeks, fliers attacking Scott for his tax problems and his use of campaign contributions have appeared on mailboxes across the congressman’s suburban metro Atlanta district.

“Representative Scott’s records indicate he cares more about his wealth and comfort than about education, employment and health needs of the citizens of Clayton, Cobb, DeKalb, Douglas, Henry and south Fulton counties,” the flier states.

The 13th District comprises portions of those six counties.

Scott says he’s a victim of a “personal smear” campaign by GOP operatives using recycled and exaggerated allegations about his family finances to discredit him. He insists he’s done nothing wrong.

The flier was produced by a group called Democrats for Good Government. David Knox, a Web developer who worked for Honeycutt’s 2006 GOP campaign, heads the group. Both Knox and Honeycutt say Knox is not working for the Republican candidate’s 2008 campaign.

Knox said his anti-Scott campaign is an independent effort, though he added that he has supplied fliers for James campaign volunteers to distribute. James said that’s news to her.

“I did not put them out,” James said. “However, I don’t have a problem with them being put out because people should be informed before they vote.”

In September, a Washington-based ethics watchdog group called Citizens for Responsibility and Ethics in Washington included Scott on its list of “25 most corrupt” members of Congress. The group based its ranking on news accounts of Scott’s financial troubles.

The group also called on the U.S. Justice Department to investigate the Atlanta congressman.

Scott said neither the Justice Department nor any other investigative agency has contacted him or any of his staff members since CREW called for the probe.

“A lot of these allegations are political, and they have exaggerated some very difficult financial situations,” Scott said. “We feel victimized to a certain degree. … They’ve taken these financial situations and blown them up in a way to suggest that I’m a bad person.”

Fulton County records show 16 local, state and federal tax liens, totaling $167,718, were filed against Scott and his wife’s company, the Dayn-Mark Co., between 1998 and 2007. Court records show Scott paid off all $10,012 the couple owed in overdue personal property taxes May 29, 2007, six days after publication of the Politico.com story.

Dayn-Mark, however, has not paid off a $153,918 tax lien filed by the Internal Revenue Service against the company in December 2006, records show.

The Scotts founded Dayn-Mark in the late 1970s, said Michael Andel, Scott’s chief of staff. They named the business after their two daughters, Dayna Vidal and Marcye Scott, who are both employees of the company. David Scott stepped down as the company’s president and chief executive officer before his 2002 election to Congress. Alfredia Scott is the company’s current CEO, Vidal is chief financial officer and Marcye Scott is Dayn-Mark’s secretary, according to records filed with the Georgia Secretary of State.

Federal election law treats assets owned by incumbent congressmen and their spouses, from which both derive income, as shared assets that must be disclosed. Scott’s latest disclosure lists the company’s net worth at between $1 million and $5 million.

Alfredia Scott said the company’s actual IRS tax debt was never as large as the $153,918 sum recorded on the lien.

In November 2007, she said she obtained a letter from the IRS, a copy of which she gave to The Atlanta Journal-Constitution, that set the company’s tax debt at $57,015.

She also gave the newspaper copies of credit card receipts and bank statements showing that, since December, Dayn-Mark has made seven payments totaling $45,000 to the IRS.

IRS officials declined to comment on the Scotts’ finances.

While she acknowledged that Dayn-Mark had fallen behind in paying the IRS, Alfredia Scott said the lien was much larger than the company actually owed because she had used the wrong taxpayer identification number when paying Dayn-Mark’s taxes. The lien shows the company failed to pay federal taxes between 2003 and 2005.

Likewise, she said her husband’s campaign disclosures also give an inflated impression of how much Dayn-Mark profited from her husband’s political campaigns.

Records show that between 2002, when Scott was first elected to Congress, and 2007, he disbursed roughly $500,000 in reimbursements and compensation for Dayn-Mark and family members for campaign-related work.

Alfredia Scott said only a fraction of the campaign dollars given to Dayn-Mark actually went to the company. The lion’s share was spent on advertising for the congressman’s campaign, she said.

David Scott said that, while it is neither illegal nor uncommon for candidates to hire family members to work on their campaigns, he stopped the practice.

“We don’t even want to have the appearance of having done anything wrong,” Scott said.