According to today's New York Times, Caroline Kennedy withdrew her name from consideration for Hillary Clinton's Senate seat because of an issue involving taxes and her undocumented housekeeper.

NYT:

Problems involving taxes and a household employee surfaced during the vetting of Caroline Kennedy and derailed her candidacy for the Senate, a person close to Gov. David A. Paterson said on Thursday, in an account at odds with Ms. Kennedy’s own description of her reasons for withdrawing.

The account emerged 14 hours after Ms. Kennedy announced that she was taking her name out of contention for the Senate seat vacated by Hillary Rodham Clinton, and as Mr. Paterson, according to two Democrats told of his thinking, was leaning toward selecting Representative Kirsten E. Gillibrand, an upstate lawmaker in her second term in Congress.

Patterson's staff is now dumping on Kennedy, Check out this tidbit:

Hard feelings toward Ms. Kennedy were clearly building among the governor’s staff on Thursday, after a dramatic evening in which she was reported to be dropping out, then wavering, then ultimately, shortly after midnight on Thursday, issuing a statement ending her candidacy.

The person close to the governor said Mr. Paterson “never had any intention of picking Kennedy” because he had come to consider her unready for the job. The person did not describe the exact nature or seriousness of the tax and household employee issues.

Ouch. Being a New Yorker myself, I've been following this potential appointment closely. Looks now like Kirsten Gillibrand is gonna get it. Wish I knew more about her. Looks like Uncle Ted is rather ticked about how the whole thing unfolded.