Jack Bog had it first: The Palins owe thousands in back taxes
Kari Chisholm
Nearly a month ago, Jack Bogdanski -- Oregon blogger and L&C tax law professor -- suggested that there might be a problem with Sarah Palin's taxes. To the best of my googling ability, Jack was the first one to raise the question. From September 10:
Governor Palin, your tax return, please...The trips back and forth between the two locales certainly appear to be the Palins' personal choice. They could live entirely in Juneau, but apparently they prefer the life they have in Wasilla, and so they engage in long-distance commuting. All well and good. It's a free country. ...
I do know something about the federal income tax consequences of fringe benefits, and it certainly appears to me based on the published reports that some, if not most, of these "per diems" should have been included as income on the Palins' federal income tax return. If they weren't, something's wrong. ...
Unless Palin's spouse and kids are also her employees and she can show that they were away on their own businesses, their expenses would not be deductible by the governor. And therefore she cannot exclude from income any per diems attributable to any of them.
On Friday, the McCain campaign released Sarah Palin's tax returns for 2006 and 2007 [PDFs].
And after spending the weekend reviewing them, Bogdanski says it's crystal clear:
There's no debate: Palins owe thousands in back taxes...[O]ne commentator has reported that there is now a "wonky debate" as to the correctness of their omitting the travel money from their tax returns. We disagree. There is no serious debate (at least, none that has been brought to our attention) about the fact that at least the amounts paid for the children's travel -- $24,728.83 in 2007, according to the Washington Post -- are taxable. The campaign's tax lawyer has got at least that much of the law, and perhaps more, wrong.
Bogdanski takes apart the memo by the Palin's tax lawyer, line by line. He cites specific sections of the U.S. Tax Code and the applicable case law in reviewing every possible explanation and every possible loophole.
The Palins, living as they do in Alaska, are governed by Ninth Circuit law. The key case on deductibility of family travel expenses in this circuit is Stratton v. Commissioner, decided in 1971. In Stratton, a State Department foreign service officer's own travel expenses were ruled deductible, but his wife and children's travel expenses were held to be nondeductible. ...The Palin children cannot be performing more than incidental services for the state -- if they provide any at all. Under Stratton, then, there is no "business purpose" for their travelling between Juneau and Wasilla, and thus their travel payments are taxable.
While the crux of the situation is the unpaid taxes on the travel benefits provided to the Palin children, Bogdanski seems to think that there's more fire where there's smoke:
There is more to brood about on the Palins' returns, to be sure. Last year Todd Palin claimed losses from his snowmobile racing "business" as a tax shelter against his fishing income. He also claimed deductions for use of a portion of the Palins' residence in his fishing business -- deductions that are difficult to claim legitimately, and which may be further complicated if, as reported, the state reimbursed the Palins for use of that home as a travel allowance. ... And if somebody at the IRS took a good, hard look at the payments for Sarah and Todd, we would bet that there would be some additional tax due there as well.
Now that the tax returns have been released, Bogdanski's not alone anymore. The Washington Post, ABC News, and Wall Street Journal are on the story. So is the TaxProf Blog.
Discuss all this over at Jack Bog's Blog.
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12:37 p.m.
Oct 5, '08
Nice work, Kari. I was just reading Jack's fascinating, if wonk-heavy, post which I'd been anticipating ever since I read that the Palin's would be releasing their tax returns.
Oct 5, '08
McCain's omit all of his gambling, too. Apparently, you have to declare your winnings, then claim your losses, so "I didn't make money" isn't an excuse. As you may know, McCain's quite fond of craps and casino lobbyists.
God, can you imagine the attack ads if Obama were the one who liked to roll the dice? Would the ghetto backdrop include or not include the "slumlords" and "crack dealers" who somehow managed to enter our political discussion during the primaries?
Oct 5, '08
Not sure if you should vote for Senator Barack Obama?
Then take the test: www.BarackObamaTest.com
Oct 5, '08
Ha Ha! She just thinks those taxes are too dang high, and so she gave herself a pre-emptive tax cut!
How wonderfully mavericky of her! Darn tootin'!
Oct 5, '08
And since we will surely stay the course and not get out of bed the entire time, here is a little review of who we will remain yoked to for quite some further years hence in our Righteous Crusade on Terror.
http://www.nytimes.com/2008/10/05/world/asia/05afghan.html?_r=1&ref=todayspaper&oref=slogin
Oct 5, '08
JackBog, you are King of the Week.
3:35 p.m.
Oct 5, '08
Those first-term Republican governor VP candidates and their darned wacky taxes!
Oct 5, '08
The Palin's seem to have ties to the oil companies. Do you think that the Republican's in conjunction with the oil companies are using this election to get control of the White House?
4:59 p.m.
Oct 5, '08
I'm glad to see somebody punching back at her VERY dodgy record that includes a passel of financial and personal issues. I think the focus on whether or not she's qualified has obscured more basic questions about her judgment, and frankly, her ethical fitness for office. What we've seen so far is a woman willing to abuse the privileges of office for private and personal gain for her and her cronies. Enough!
(Funny how John McCain is suddenly irrelevant in the media. But recall his judgment is no better than Palin's--he picked her.)
Oct 5, '08
Actually, if she has an excess of expense reimbursements over expenses, those should be taxable, too. It shouldn't matter that they're for "services to the state." Her expenses should be offset against the travel reimbursements received from the State of Alaska, and any net benefit should be included in adjusted gross income (if the reimbursements were not included on her W-2). The calculations should be shown on a Form 2106. Either way, it shouldn't matter for which family member they are received. The amounts still represent a form of economic benefit to her.
6:27 p.m.
Oct 5, '08
Governor Palin is clearly unqualified to be a heartbeat away from the Presidency, but this sure looks to me like an honest mistake - not something to make political hay out of. The taxable status of per diems are pretty complex stuff, all said. It seems petty to ask anything more than requesting her to just pay it.
To me, the real scandal of this wasn't the tax due on excess per diems over actual costs, but that she was receiving them at all. That is something that, once again, punctures any pretense she has at fiscal responsibility. (Though seriously, with the sendups being done on Saueday Night Live, how much more puncturing is really necessary?)
Oct 5, '08
For those interested in all things Palin, here's a Wasilla, Alaska based blog that has been campaigning vociferously in opposition to Gov. Palin since her name was placed in nomination:
Progressive Alaska blog by Philip Munger
<hr/>And for those who, like me, think that far too many of us are missing the "big picture" about what is happening to our nation, I'm also recommending a new interview with Naomi Wolf, the author of "The End of America" who has just released a sequel, "Give Me Liberty: A Handbook for American Revolutionaries"
A 27 minute author interview on KEXP-Seattle is available here.
Short attention span types might prefer this 5 minute author interview on the Stepanie Miller Show.
Oct 5, '08
Correcting missing hyperlink from comment above:
Short attention span types might prefer this 5 minute author interview on the Stepanie Miller Show. LINK
Oct 5, '08
Amazing that there are so many tax experts at BlueOregon. Why don't you all do your own taxes next year? Remember though political contrubutions are not deductible. Larry C
Oct 5, '08
Hi Larry C.,
FYI: I'm no expert, but I do know with perfect certainty that Oregon residents can deduct up to $50 per year on their Oregon State income tax returns for political contributions.
Oct 5, '08
Larry Crane,
What's your point, if you have one? By the way, I'm 55 and have always prepared my own tax returns. It doesn't take an accountant to understand the difference between taxable and non-taxable income in such a straightforward situation.
9:19 p.m.
Oct 5, '08
Actually, if she has an excess of expense reimbursements over expenses, those should be taxable, too. It shouldn't matter that they're for "services to the state."
RR, I don't think that is right. The IRS allows a particular amount as a per diem, adjusted by city and state. If your employer does not require you to keep receipts, you can simply claim the per diem.
Oct 5, '08
er, Larry, yer comment failed. Probably should leave this one alone.
Oct 5, '08
Steve Maurer ...
paul g. ....
The IRS allows a particular amount as a per diem, adjusted by city and state. If your employer does not require you to keep receipts, you can simply claim the per diem.
The per diems provide taxpayers with an option to keeping accurate records and claiming a verifiable (and, usually, larger) amount for the expenses. It doesn't usually make such amounts nontaxable. Regardless of which method you use to calculate the travel expenses against which you compare the reimbursements, any excess reimbursement is taxable.
There may be some special dispensation for politicians (why wouldn't it surprise us?). However, I'm not aware of one that applies here.
Oct 6, '08
What expenses are you incurring to live in your own home? Aside from the utter fraudulent nature of being paid per diem by the state to live in your own home, how is that an added expense? It's a double cost to the state because the state of Alaska has to maintain a governor's mansion in Juneau with full 24 hour staff, including security, maintenance, food service, plus pay the Palins to live in their own home, and Anchorage based security to cover their home there. This is a first order scam of the state of Alaska and the IRS.
Oct 6, '08
An honest mistake? I don't think so. It's the kind of question that is basic and fundamental for any accountant to answer. Anyone doing their taxes had to know that they were trying to game the system and was just hoping that nobody would notice.
That and God told them to do it!
Oct 6, '08
I agree. Looks like Gov Palin owes some back taxes and she should find a new tax attorney.
Likewise for Sen Obama.
Whoever told him that the less than arms-length transaction regarding the parcel of land sold to him at below market prices from a soon to be convicted felon doesn't look to good either.
Glass houses.
Oct 6, '08
Over at TaxProf Blog they say she used H&R Block. Seems they were cheapskates too. If this VP doesn't work out maybe she could do some ads for them. Wink, wink ya betcha.
"If you're a Mr. and Mrs Joe-Six-Pack like me and my husband, Todd, and you might want to cut a few corners on your taxes just like the rich fat cats do. The fine folks at H&R Block will help you do just that by ignoring those pesky little tax laws that get in the way of us salt-of-the-earth-folks saving America. That's why God has anointed H&R Block as His tax preparer of choice for the End Times. And God Bless America and H&R Block."
4:39 p.m.
Oct 6, '08
Steve Maurer wrote that "this sure looks to me like an honest mistake - not something to make political hay out of." But this tax cheating by the Palins has to be viewed in the context of lie after lie after lie from Palin herself. She scores Obama for "palling around with terrorists" -- a patent lie.
Well, ok, what's good for the goose is good for the gander so to speak. If she is a tax cheat, she must be palling around with other anti-tax, anti-government, special interest types. It's only fair to make political hay out of her tax attitudes.
As it turns out, Palin is the Bill Sizemore of the national GOP right about now. Not that Sizemore is a liar of course but because he's as anti-government as she is.
Oct 7, '08
Lee,
I'm afraid you've it incorrect.
Palin is not the Republicans Sizemore. Rather, she is Hurrican Katrina and the Democratic Party is New Orleans.
You can see it coming, you'd like to say it will turn or veer away, but it is coming right at you. No fear. Nothing to lose. Bare knuckle politics.
She is drawing Obama like crowds WITHOUT staging a rock concernt before hand to bring in the crowds.
She is attacking Obama at his weakest link: His association with unseemly characters.
You can fire your tax attorney, but you can't hide your associates:
Bill Ayers, Tony Rezko, Rev. Wright, the brother you've abandonded in Africa.
This will be a month long assualt on Obama's choir boy image.
By going after Palin personally on very dubious claims, you've unleashed the dragon.
Oct 7, '08
Hi Lee,
Yup, Obama "abandoned" his brother in Africa. When he was six.
McCain's buddy, Charles Keating, stole millions from us, I believe choked to death on a ham sandwich in prison, while Professor Ayers has yet to be convicted of even... a traffic ticket.
Facts sure suck, when your President has a 19 percent approval rating. And your candidate is seenby normal Americans as seriously unbalanced, sadly due to all those suicide attempts at the Hanoi Hilton.
Oct 7, '08
That last shout out was to Scott J, not Lee.
Oct 7, '08
By going after Palin personally on very dubious claims, you've unleashed the dragon.
<h2>GOPMP - grand old party masturbatory fantasy</h2>